Wilson v Parua Bay Farms Limited
[2019] NZHC 275
•27 February 2019
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2015-488-000106
[2019] NZHC 275
BETWEEN ALLAN ANDREW WILSON and JOAN CECELIA WILSON
PlaintiffsAND
PARUA BAY FARMS LIMITED
Defendant
Hearing: 25-29 June, 3-4 December 2018 Appearances:
R A Rosser and D M Fraundorfer for Plaintiffs S R Carey for Defendant
Judgment:
27 February 2019
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 27 February 2019 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date……………………..
WILSON v PARUA BAY FARMS LTD [2019] NZHC 275 [27 February 2019]
Introduction [1] The claims under the Land Lease [5] The terms of the Land Lease [5] Outgoings [18] Repairs and maintenance to tracks and fences: claim and counterclaim 19] Gorse [30] Damaged carpet [31] Hot water capacity in milking shed [32] Pond [35] Dosatron pump [36] Shed doors [38] Fertiliser [40] Rent: counterclaim by PBF [41] Summary of claim and counterclaim under the Land Lease [44] The Gates Agreement [46] The Stock Agreement and Cow Bailment Agreement [49] The issues [49] The terms of the Stock Agreement [54] Were the purchase cows required to be pure-bred Friesian? [67] What did “vetted-in-calf” mean? [74] Did PBF agree to pay lease fees on the purchase cows pending a formal agreement? [78] The herd as delivered to PBF [80] How many cows? [80] The state of the records [81] The health of the cows [89] PBF’s counterclaim [108] Age of stock [108] Grazing cows off-site [110] Veterinary fees [111] Loss of expected profit [112] The Wilsons’ claim arising from the return of the cows [119] Events in 2015 [119] Return of cows [125] Summary and result [134]
Introduction
[1] Parua Bay Farms Ltd (PBF) owns a 126-hectare farm near Whangarei which it leased to Allan and Joan Wilson in 2011 (the Land Lease). Mr and Mrs Wilson, who were experienced dairy farmers, ran their herd of dairy cows on the farm until June 2014. At the end of the lease PBF agreed to buy 40 of their cows and lease 160 others for three years (the Stock Agreement). The Wilsons allege a further separate agreement (which PBF denies) relating to the care of the cows and terms on which the herd would be returned at the end of the Stock Agreement (the Cow Bailment Agreement). Disputes arose within a short time of PBF taking over the herd and continued until June 2017, when the term of the Stock Agreement expired.
[2]The Wilsons sue PBF for:
(a)damages, or alternative relief, for the cost of repair work on the farm and outgoings they say PBF was obliged to meet under the Land Lease;
(b)the value of five gates that they say PBF agreed to buy and failed to pay for;
(c)the purchase price and lease fees due under the Stock Agreement;
(d)losses arising from PBF’s failure to provide access to the cows for inspection and proper animal records at the end of the Stock Agreement.
[3] The Wilsons’ pleadings for breach of contract were bolstered by numerous other allegations, including estoppel and unjust enrichment. In order to keep this judgment to a reasonable size, I have not discussed every issue raised on the pleadings. This is a contractual case and the answers lie there.
[4]PBF counterclaims for:
(a)damages arising from the Wilsons’ alleged failure to comply with the terms of the Land Lease requiring them to repair and maintain the farm;
(b)damages for breaches of the Stock Agreement in relation to the breed of the cows being purchased and the health and age of the herd.
The claims under the Land Lease
The terms of the Land Lease
[5] Both parties assert the existence of the Land Lease and rely on it as the basis of their claim and counterclaim respectively. But there is no executed lease agreement and the parties disagree on the terms.
[6] Under ss 24 and 25 of the Property Law Act 2007 (PLA) an enforceable lease of the farm was required to be in writing and signed on behalf of PBF. However, the doctrine of part-performance is retained by the PLA.1 The criteria for part- performance was most recently set out in the Court of Appeal’s decision in Nguyen v SM & T Homes Ltd:2
(a)Is there a sufficient oral agreement such as would have been enforceable but for the PLA?
(b)Has there been part-performance of that oral agreement by the doing of something that:
(i)clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and
(ii)when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land, consistent with that alleged, was in existence?
(c)Do the circumstances in which that part-performance took place make it unconscionable (fraudulent in equity) for the defendant to rely upon the PLA)?
[7] PBF relinquishing possession of the farm, Mr and Mrs Wilson moving their herd onto the farm and occupying it for three years clearly satisfies the criteria. The real issue between the parties is the terms of the Land Lease. The main areas of dispute are (1) the term of the lease (2) whether PBF agreed to repair the tracks/races and
1 Property Law Act 2007, s 26.
2 Nguyen v SM & T Homes Ltd [2017] 3 NZLR 281 at [32].
fences before the start of the lease and (3) whether the outgoings on the farm were to be met by the lessor.
[8] Three versions of a lease document were produced (as well as an “information only” version and the lease between PBF and its previous tenant, neither of which need to be considered). One of the three versions under consideration is signed by Mr and Mrs Wilson only but it is common ground that this version was signed in error and does not represent the agreement between the parties. Neither of the remaining two versions are signed. The Wilsons rely on one version as representing the terms agreed on (the Wilson version). PBF relies on the other (the PBF version).
[9] The Wilsons say that the PBF version is inadmissible and should be disregarded because it was never formally discovered. PBF first produced this version in February 2017, prior to the adjournment of a previous trial date. It had not been included in PBF’s affidavit of document. A decision on its admissibility was left for trial. Mr Fraundorfer relied on r 8.31 of the High Court Rules 2016 to argue that the document ought not be produced. I cannot see any prejudice to the Wilsons in PBF producing this document because it was made plain well before the trial that this was the version being relied on. I decline to exclude the document from its use in evidence.
[10] I find, however, that neither the PBF version nor the Wilson version represents a reliable foundation for determining the parties’ agreement because I am not satisfied as to the provenance of either document.
[11] Initially, the Wilsons were provided with what Mr Blackley (PBF’s sole director) referred to as an “information lease” which was loosely based on the lease to the previous tenants, Mr and Mrs Blagrove. That document was provided to Mr and Mrs Wilson when they first viewed the farm as an indication of the type of lease being offered. It required the lessor to pay the outgoings (which the Blagrove lease did not).
[12]On 26 March 2011, Mr Blackley emailed the Wilsons saying:
The current lessee has agreed to a June the 1st takeover (31 May 2011).
Check through the attached lease and come back to me with the problems. It should be pretty straightforward.
[13] There is dispute over which version was attached to that email. The Wilsons say it was a draft which provided for a three-year term and for the lessor to pay the outgoings.3 PBF says that it was the PBF version, which provided for a term of three years one month and for the lessee to pay the outgoings. 4
[14] Whichever version was attached to that email, however, was superseded by Mr Blackley’s email dated 1 April 2011:
I’m sorry about the delay. I have added a purchase clause and modified the termination clause to what I hope is suitable to you.
I could delete it however I always feel that it is good for both parties to have an out if unforeseen situations occur and by having such a clause if the parties are unable to agree on another solution then at least there is a fall-back position that is agreed.
[15] I am satisfied that the PBF version was not attached to this email because that version does not contain any clause consistent with the “termination clause” referred to in the email. Also, Mr Blackley acknowledged that he had no way of knowing which version was attached to the 1 April 2011 email because he had lost material held on his computer system, so his records were incomplete.
[16] The Wilsons say that the version attached to this email provided for a term of three years and for the lessor to pay the outgoings and is the one they rely on.5 But that version and the previous draft of it, which they say came with the email of 26 March 2011, have a quite different appearance in terms of font and background to both the Blagrove lease and the PBF version. PBF sought to impugn the Wilson version, suggesting that it had been produced by altering a draft sent by Mr Blackley to the Wilsons during negotiations. The Wilsons say that they do not have the skills to have altered a version of the lease sent by Mr Blackley. They certainly appeared not to be sophisticated computer users but there is no satisfactory explanation for why the version they rely on has such a different appearance. I am simply not satisfied that either version represents terms agreed by PBF.
3 At p14 of the common bundle.
4 At p8 of the common bundle.
5 At p21 of the common bundle.
[17] In these circumstances, I proceed on the basis that the terms of the Land Lease are those that both parties acknowledge as such and, to the extent that they do not agree, the terms implied by the Property Law Act 2007.
Outgoings
[18] The Wilsons say that it was a term of the lease that PBF would incur the costs of outgoings and claims a total of $27,337.37 for utility costs, consent charges and other outgoings. This aspect of the claim was based on the provisions of the Wilson version of the lease, which I have already rejected. PBF does not accept that it was a term of the lease and says that, to the contrary, the Wilsons paid for their own outgoings through the term of the lease. There is no basis on which to find that PBF assumed the obligation to pay outgoings. This aspect of the claim fails.
Repairs and maintenance to tracks and fences: claim and counterclaim
[19] From the first time he viewed the farm Mr Wilson expressed concern over the races/tracks and fences. The Wilsons assert that Mr Blackley made representations between March and April 2011 that PBF would repair the tracks and fences and attempt to recoup the cost of the repairs from the previous tenant and that they would be completed before the Wilsons took possession of the farm. They claim that PBF failed to do that and seek damages of $5,713.75, being the costs spent in doing that work.
[20] Mr Blackley says that he made it clear from the outset that PBF did not intend to undertake any work on the property but agreed to grant a $10,000 rent reduction to enable work on the property to be done. It was common ground that this had been allowed. The only work that had been discussed was to the tracks/races and fences and I find that the rent reduction was allowed to assist with that work. The Wilsons’ claim for further money for this work fails.
[21] The tracks/races and fences are also the subject of a counterclaim by PBF. It asserts that the Wilsons were required to maintain the farmed area to a “good industry standard except in respect of any damage caused by the defendant”. The Wilsons accepted that they had agreed to maintain the tracks/races and fences and say that they
undertook ordinary maintenance but that the poor state of the farm meant that capital work was required, which was beyond the obligation of a tenant to maintain. There was expert evidence from a farm consultant, Brian Carter, which I accept, that an obligation to maintain a farm would not include capital work.
[22] PBF claimed that the tracks had not been maintained and had, effectively, to be rebuilt when PBF re-took possession of the farm. Mr Blackley gave evidence that when the Wilsons vacated the farm the races were almost impassable, and the culverts destroyed or washed away because the races had not been maintained. Several major culverts had collapsed because of uncontrolled water shed. He had no option but to completely re-contour the races and lay both limestone and, in places, new base metal. He inferred from the state of the races that the Wilsons had done little or no maintenance.
[23] I accept that the races/tracks were in need of work at the end of the Wilsons’ lease. I am satisfied that Mr Wilson did do some work at the start of the lease and that for most of the lease the tracks and races were probably not in a significantly different state to when he took over the property. But during the last year of the lease, Mr Wilson did not have a farm manager and was suffering from ill-health. It seems likely that maintenance work fell away. However, I do not accept that the state of the races at the end of the lease was as bad as Mr Blackley portrayed, nor entirely as a result of lack of maintenance.
[24] The previous tenant, Michael Blagrove, gave evidence. The overall tenor of his evidence was that the farm was in very poor condition generally when he took it over in 2008, including the tracks/races and fences. Indeed, the reason he terminated the lease early was that the farm simply cost too much to maintain. He considered the races “were not in a good state at all when we were on that farm”, that he just maintained them sufficiently to be able to use the races; “our attitude was to keep it like it was when we got there or slightly better”. As to the fences, they were “in a terrible state when we arrived” but were in “a reasonable state when we left”.
[25] In cross-examination, Mr Blagrove seemed to retreat on certain matters. He said in cross-examination that when he came onto the farm the races were “workable”
and “pretty average but they were usable when we were there, and we actually improved some of them so we could use the whole lot of the races because some of them weren’t usable at all down one side of it”. However, he also said that, while it was possible to put “a bit of metal around here and there and tidy them up a bit … they did need a significant amount of money spending on it at some stage because nobody had done for years”. He metalled the road in places from time to time. His evidence on this issue culminated in the following exchange with Mr Carey, for PBF:
Q:… If there was no maintenance on the races for three years, they’d be in a worse state at the end than they would have been at the start wouldn’t they?
A:They’d have to be yeah, and depending on the winter, like I think it was a pretty severe winter, the next winter was pretty severe.
Q: So there has to be some maintenance done?
A: Yeah you’ve got a little bit yeah. But prior to Dave Blackley taking it over as well, well the people that owned it before him they spent nothing on it you know, they just, they just spent nothing.
Q:Probably the reason that when you left it was in a better state than when you got there?
A: I think it was mint when we left, it looked a picture. Q: It was mint when you left?
A:Yeah I think so, everything worked you know, like all the guy had to come it was push the button and everything would have worked.
[26] I specifically mention this part of the cross-examination because it was inconsistent with the way Mr Blagrove had previously described the state of the races and work that he had done. His demeanour at that point in the cross-examination was quite striking and my impression was that his description of the property as “mint” when he left was ironic rather than literal.
[27] Further, only a relatively small proportion of the claimed $110,310.30 related to work done immediately after the Wilsons vacated and PBF took over the property again, with Mr Blackley’s daughter, Rachael Blackley, managing it. There is, for example, $402.50 for work on replacing two culverts and $7,360 for crushed limestone in the period June – July 2014. However, the bulk of the expense claimed in relation to the races/tracks post-dated the Wilsons’ departure by a year. This includes $29,440
for crushed limestone supplied in July 2015. The invoice for this item was rendered by PBF itself on the basis that it either had to purchase the crushed limestone or quarry it from its own quarry itself. Whilst I generally did not accept that there was any significance in the fact that many of the invoices were rendered by related companies, that particular invoice is of some concern because it gives no indication as to the basis on which the cost was calculated.
[28] Finally, no photographs were produced of the tracks/races as they were in mid- 2014. This is to be compared with the fences, which Mr Blackley had been sufficiently concerned about to take photographs at the time. Taking all this evidence into account, I am not satisfied that the state of the races/tracks was as bad as claimed. I allow
$402.50 incurred for replacing the two culverts in July 2014 and $7,360 for crushed limestone. The balance of the counterclaim in respect of races/tracks fails.
[29] Both Mr Blackley and Rachael Blackley gave evidence as to the dire state of the fencing when they took back the farm. Fences were down, posts broken, wire strewn everywhere and few of the electrics were working. Photographs were produced that were said to have been taken at the time. I accept that evidence. PBF’s claim for this item is $4,168.75, which I allow.
Gorse
[30] PBF says that the Wilsons failed to maintain gorse during the lease so that when the farm was taken back there was young gorse everywhere and it was obliged to undertake gorse spraying. Mr Blackley produced photographs that he said were taken after the Wilsons had left. I accept that evidence. I accept that, on Mr Blagrove’s evidence, the gorse was under control at the start of the Wilson lease. It is notable that this was not an issue that appeared to concern Mr Wilson, who only expressed concern about the state of the races/tracks. I therefore accept that costs were incurred to bring the gorse back under control and claims $4,404, which I allow.
Damaged carpet
[31] The Wilsons conceded that the carpet in the farmhouse had been soiled and stained to the extent that it could not be cleaned and had to be replaced. PBF claims
$1,837.22, which the Wilsons accept, and I allow.
Hot water capacity in milking shed
[32] PBF claims that modifications made by the Wilsons to the milking shed resulted in an increase in load on the shed that required a commensurate increase in hot water capacity which the Wilsons did not attend to. I accept that this was the position; QCONZ had notified the Wilsons on three occasions that hot water capacity needed to be increased.
[33] I accept that the modification of the milking shed would have amounted to an alteration of the milking shed. The alteration of a building without the lessor’s consent is a breach of the condition implied by cl 5(1) of Schedule 3 of the PLA. Mr Wilson claimed that he had sought approval from Mr Blackley to make the modifications. Mr Blackley said that he was not asked for his consent. But even if consent had been given I consider that the modifications could not have been properly undertaken without the corresponding increase in the hot water capacity.
[34] PBF claims $1,998.60 for the cost of installing a new hot water cylinder with increased capacity. There was a dispute between the parties as to whether the modifications had actually benefited PBF to any extent and I accept that because PBF would otherwise not have been required to replace the hot water cylinder, any benefit from the modifications was minor. I allow the amount claimed of $1,998.60.
Pond
[35] PBF claims that the Wilsons did not maintain or clean the pond annually with the result that PBF had to undertake additional work to the pond when it took the farm over. I accept that evidence. Although the Wilsons did produce invoices showing that they had undertaken pond cleaning, there was no evidence of work having been done after mid-2013. PBF claims $1,098, which I allow.
Dosatron pump
[36] PBF alleges that the Wilsons did not maintain the liquid dosing system, Dosatron.
[37] The Wilsons say that when they started the lease the Dosatron system was not working and they had to spend money to make it operational. Mr Blagrove did not use the Dosatron system so there is no evidence as to what state it was in at the end of the Blagrove lease. Without that piece of information, I am not in a position to reach a conclusion about whether Mr Wilson left the Dosatron system in a state that was any different to the state it was in when he took over the farm at the beginning of the lease. This aspect of PBF’s claim fails.
Shed doors
[38] PBF claims that the shed doors were broken and claims for the cost of replacing them. Mr Wilson says that the doors were already broken at the beginning of the lease. Although Mr Wilson produced photographs taken in 2011 of the shed, it is difficult to reach a view as to the state of the doors. I do note that Mr Blagrove’s evidence was that the shed doors were “really flimsy”.
[39] In these circumstances, I am simply unable to conclude that the damage to the shed doors was other than reasonable wear and tear, an exception to the lessee’s obligation to keep the premises in the same condition as they were in at the start of the lease implied by cl 13 of the Schedule 3 of the PLA. This aspect of the PBF claim fails.
Fertiliser
[40] PBF alleges and the Wilsons accept that they agreed to apply approximately 31 tonnes of fertiliser per year and that they did not do so. The Wilsons’ documents indicate that they applied 33.21 tonnes i.e. approximately 40 per cent of what was required over the period of the lease. It appears that no fertiliser was applied after October 2011. PBF claims $18,000 being the amount it has expended on fertiliser. This is slightly less than the cost of the fertiliser that ought to have been applied under
the terms of the lease. There was no real challenge to this quantum and I allow the figure of $18,000.
Rent: counterclaim by PBF
[41] PBF asserts that the term of the lease was three years one month and claims a month’s rent of $15,745. The Wilsons say the lease was for only three years and no rent is outstanding.
[42] The plaintiffs moved onto the farm on 1 June 2011, known as “gypsy day”, the usual day for farmers and share-milkers to move. In May 2014, the Wilsons and Mr Blackley had discussions about PBF leasing cows from the Wilsons from the end of the lease. There were emails between the parties about the terms of that agreement in late May 2014. Rachael Blackley began to move her things onto the farm in late May 2014. The Wilsons left the farm on 31 May 2014. On 29 May 2014, Mr Blackley emailed the Wilsons asking “can you confirm when you last lease payment is going through … I think it’s the 1st but not sure”. Mrs Wilson replied that “the rent was always paid on the 1st of the month in advance. We are leaving for two wks in Oz today …”.
[43] I am satisfied that both parties proceeded on the basis that the lease terminated on 1 June 2014, the usual day for moving farms. There would be no reason to have finalised an agreement over PBF leasing the stock, for Rachael Blackley to have moved onto the farm property, and the Wilsons vacate the property and go to Australia at the beginning of June 2014 if the lease did not expire until the end of June 2014. PBF’s claim for an additional month’s rental fails.
Summary of claim and counterclaim under the Land Lease
[44] The Wilsons’ claim for the costs of repairing the tracks and fences and for the outgoings and utility charges fails.
[45] PBF’s claim for losses arising from breaches of the Land Lease obligations is allowed in part:
(a)$7,762.50 for races/tracks;
(b)$4,168.75 for fences;
(c)$4,404.00 for gorse control;
(d)$1,837.22 for damage to carpet;
(e)$1,998.60 for installation of a new hot water cylinder;
(f)$1,098.00 for pond cleaning;
(g)$18,000 for fertiliser.
This comes to a total of $39,269.07.
The Gates Agreement
[46] During the term of the lease the Wilsons installed five gates on the leased land. At the end of the term they offered to sell the gates to PBF for a total of $650 ($130 per gate). This offer was said to have been made during a discussion between the Wilsons and Mr Blackley on 26 May 2014. As a result, the Wilsons left the gates when they departed and say that PBF has failed to pay for them. PBF denies that there was any agreement that it would buy the gates.
[47] I am satisfied that the Wilsons offered to sell the gates. But in an email on 4 June 2014, Mr Blackley said “thanks Joan all understood however gates I can buy brand new for less than $130 so need to chat about those”. In these circumstances, no agreement was reached. Nor do I accept that the circumstances in which the Wilsons vacated the property without taking the gates gives rise to an estoppel precluding PBF from denying the existence of an agreement or that there was any representation made that PBF would buy the gates. It was the Wilsons’ decision to vacate the premises without either finalising an agreement with PBF or taking the gates with them.
[48] Mr Blackley gave evidence that the Wilsons could have collected them at any time by giving him notice of their intention to do so. Presumably that remains the position. This aspect of the plaintiffs’ claim fails.
The Stock Agreement and Cow Bailment Agreement
The issues
[49] Towards the end of the Land Lease, Mr Wilson and Mr Blackley agreed that PBF would purchase some of the Wilsons’ cows (the purchase cows) and lease others (the lease cows) for 3 years. Only the barest terms were expressly agreed and there is dispute over the interpretation of them.
[50] There were important questions not covered by the Stock Agreement as agreed. For example, there was no record of when PBF would pay for the purchase cows, no provision for the culling and replacement of cows during the term of the lease or for the return of the herd at the end of the lease. The parties envisaged that the Stock Agreement would be recorded in and supplemented by a formal written agreement, but negotiations did not lead to a formal agreement being executed. Nevertheless, the Wilsons say that the Stock Agreement was supplemented by a separate agreement, the terms of which were recorded in a draft Cow Bailment Agreement and emails between the parties. PBF denies this.
[51] I see the terms of the alleged Cow Bailment Agreement as is effectively part of the Stock Agreement because it deals with matters that were an inevitable consequence of that agreement. I therefore deal with them together and in doing so, refer only to the Stock Agreement.
[52] The Wilsons complain that PBF failed to pay for the purchase cows, failed to fully pay the lease fees, failed to return 16 of the cows at the end of the lease and returned the remaining cows without the identification records needed for on-selling or leasing.
[53] PBF accepts that it did not pay the purchase price. It says that it is not required to do so because the Wilsons failed to provide purchase cows that were pure Friesian.
It accepts that it underpaid the lease fees (it was agreed at trial that it had paid $23,300) but says that the Wilsons failed to provide cows that were healthy. It accepts that it only returned 184 cows but says that they were in better condition than the cows they received in 2014. PBF counterclaims for costs associated with the poor state of the cows being the cost of grazing the isolated cows off-site ($14,210), veterinary costs ($14,422.91) and Fonterra penalties ($1,417.62) and for loss of profits ($271,200) or, alternatively, a refund of the lease fees paid.
The terms of the Stock Agreement
[54]In an email dated 31 May 2014 Mr Blackley confirmed that:
(1)… I will purchase 40 Friesian vic [vetted-in-calf] cows @ $1500.
(2)… I will lease the balance of the cows for 3 years (3 seasons) at $150 per cow, less those that I purchase on the way. What we need to know is the tag numbers of the cows you have left so that Ian can ascertain their ages (from the sheets you gave him) as that will have a direct bearing on the lease agreement.
(3)… I have taken the option to purchase more of the cows as and when I am able …
[55] This email was what the parties referred to as the Stock Agreement. It is common ground that the Stock Agreement included a term (based on a representation by Mr Wilson) that the cows being purchased and leased were sound, of good quality and good milk producers.
[56] There was initially an issue over whether the price was inclusive or exclusive of GST. It appears from PBF’s submissions, however, that PBF accepts that the agreement was GST-exclusive, which I consider to be a proper acknowledgement, in light of the subsequent conduct of the parties in that regard.
[57] The Wilsons also say that there was an implied term that the Stock Agreement would be performed in accordance with industry standards. They adduced expert evidence on the point from Brian Carter, who has been active in the dairy industry for 49 years, holds a Diploma in Dairying from Massey University (1971) and has served on the Livestock Improvement Corporation Board. His qualifications as an expert were not challenged. Mr Carter said:
“Handshake” deals are common in the farming industry. I would say that most farmers would allow themselves to be held to account for the terms of a handshake deal. Even if issues arise down the track the lack of a written agreement is not usually a critical issue as the process and expectations of parties are well known to those in the industry.
[58] He gave evidence about specific aspects of the leasing and purchasing of stock recognised throughout the industry.
[59] The circumstances of the case and the effect of Mr Carter’s evidence suggests that the terms of the Stock Agreement other than those expressly agreed should be determined by usage rather than implication.6 I accept Mr Carter’s evidence and find that usage recognised in the industry was incorporated into the Stock Agreement. I deal with specifics as I come to the relevant aspects of the respective claims.
[60] The Wilsons also say that following the email of 31 May 2014, additional terms were agreed. In July 2014, the Wilsons’ solicitor prepared a draft “Dairy Cow Bailment”, intended to be the formal document capturing the agreement recorded in PBF’s email of 31 May 2014. The further terms are said to include that the number of leased cows would remain constant at 160, any leased cows that were culled had to be replaced and that on the expiration of the lease PBF was to deliver the leased cows to the Wilsons together with all animal records and any outstanding monies owing and that PBF had, at all reasonable times, to allow the Wilsons or a stock agent or interested purchasers to view the stock.
[61] PBF responded with detailed comments; Mr Blackley regarded most of the document as unnecessary. He offered to make the changes to the agreement himself in order to avoid further legal costs and invited the Wilsons to respond to his comments, which included concerns about the incompleteness of herd records and the proposal that replacement stock would be no older than eight years, on the basis that there were some 18 cows over the age of eight years already in the herd with another 28 at eight years and a further nine with unrecorded ages.
[62] The Wilsons sent a further draft by email on 4 November 2014. This new draft included terms that Mr Blackley had already rejected. Mr Blackley responded to the
6 Woods v N J Ellingham & Co Ltd [1977] 1 NZLR 218.
second draft by email on 19 November 2014. Before dealing with the draft he complained that:
We have not seen any of the vetted in-calf records Allan and doubt that “slips” could have occurred in the three months prior to calving … what we appear to have is at least six dry cows, at least six three-titters and a handful of historically very high SSC cows all of which we need to make some decisions on because they quite simply are not worth having or in some cases carrying.
I note some changes have been made to the lease but immediate (sic) note that the use of a Friesian bull is still there and also that replacements are to be same age and production. Both being an impossibility …
The lease agreement as you originally provided was totally unworkable and would have been a disaster.
I am more than happy to get the agreement signed off in accordance with what we agreed and get some funds to you however that must take into account your obligations under our lease.
Surely that goes without saying.
You wish for me to honour this agreement as do I expect you to have honoured our lease agreement.
I will get Lisa to tidy up the lease doco and get that back to you, in the meantime Allan, please forward to me your fertiliser documents. If you are unable to provide these then I am happy to enter into an agreement for a scheduled offset.
(emphasis added)
[63] The Wilsons say that the words at the end of the email “I am more than happy to get the agreement signed off in accordance with what we agreed” represented an acceptance of the second draft. I do not accept that. It is clear from the extent of Mr Blackley’s disagreement with the drafts that the second draft did not represent “what we agreed”. All that had been agreed at that point were the bare bones of the agreement recorded in the 29 and 31 May 2014 emails and, arguably, any matters covered in the second draft to which Mr Blackley had not previously objected. Moreover, it was perfectly clear from Mr Wilson’s own evidence that he did not regard PBF as having agreed to the terms of the Cow Bailment Agreement.
[64] However, that does not mean that PBF had no obligations in relation to the lease cows. Mr Carter gave the following unchallenged evidence about industry standards and expectations:
When you lease the cows and/or lease to buy, you have taken on a contract which means that you have to return exactly the same herd as you accepted on 1 June. This does not mean the same exact cows, but cows of the same SCC and production. For example, if a leased herd consisted of 20 vetted in-calf cows with an SCC of 350,000 it would be expected that 20 vetted in-calf with an SCC of 350,000 be returned at the end of the lease.
I would also say that if a leasing agreement was made based on an agreed value and if at the conclusion of the lease the herd is sold for a lower price than the agreed valuation it is common accepted practice that the lessee is responsible to the lessor for the difference in price.
[65] Alternatively, PBF may be regarded as a bailee of the cows, with obligations in respect of them, including upon the conclusion of the lease. Normally, a bailee must use reasonable care to keep the bailed goods safe and re-deliver them or make them available for collection at the conclusion of the bailment. The learned authors of Palmer on Bailment observe that:
The fact that certain terms in the bailment are unenforceable because the parties did not intend to conclude a binding contract does not detract from the fundamental character or status of those parties as bailor and bailee. The bailee will still be answerable for the safety of the goods, because this is an obligation which does not depend exclusively upon contract.7
[66] Whether viewed as a term incorporated by usage or an obligation arising from its status as bailee, PBF was required to return or make available for collection the same number cows as it received in materially the same condition and in circumstances that made the value of the cows materially the same as at the start of the lease.
Were the purchase cows required to be pure-bred Friesian?
[67] Mr Blackley was firm that he was not interested in buying Friesian-cross cows. Mr Carey argued that the plain language in the emails that constituted the Stock Agreement was a reference to pure-bred Friesians and that meaning is supported by the reference in subsequent correspondence, emails and pleadings.
[68] The Wilsons say that “Friesian” is a loose term used in the farming industry to refer to black and white cows that have some Friesian heritage but are not necessarily pedigree. In these circumstances, the interpretative exercise is to be undertaken
7 Norman Palmer, Palmer on Bailment (3rd ed, Sweet & Maxwell, London 2009) at 1-030 and 14- 052.
against the relevant factual matrix.8 Mr Carter said that “[t]o any reasonable farmer, the use of the term “Friesian” simply refers to a black and white dairy cow. If it is black and white, it’s a Friesian …”; “Any reference to a “pure” Friesian would be reference to a pedigree Friesian or a “straight Friesian” for export …”; “If I intended to lease/buy pedigree Friesians, I would have used the term “pedigree” clearly, and it would be reflected in any lease or sale agreement”.
[69] Mr Carter also said that, in his experience pedigree Friesians would sell for much more than $1,500, so the price that PBF had agreed to pay would, in itself, have indicated that the purchase cows were not pure-bred Friesians. There was no challenge to this evidence.
[70] I am satisfied that “Friesian” was commonly used among farmers as including Friesian-cross and that if one wished to specify a pure-bred Friesian, that would be made clear through the use of a term such as “pure” or “pedigree”, which Mr Blackley did not do. I therefore find that the Stock Agreement was for the purchase of 40 Friesian or Friesian-cross cows, not just pure Friesians.
[71] I also find that Mr Blackley must be taken to have known the make-up of the herd. PGG Wrightson livestock agent, Michael Laing, inspected and valued the herd in May 2014 on Mr Wilson’s instruction. However, another PGG Wrightson agent, Ian Munro, says that he was also present, but at Mr Blackley’s request. He was not asked to inspect or value pure Friesians, just to inspect and value Mr Wilson’s herd. He determined the value of the cows in conjunction with Mr Laing but did not provide a separate written valuation and did not charge, treating his attendance as a goodwill/relationship building gesture. Mr Blackley said he had no recollection of engaging Mr Munro, or even of speaking to him. However, given the passage of time and the consistency of Mr Laing’s and Mr Munro’s evidence on this issue I accept Mr Munro’s recollection and find that he did attend at Mr Blackley’s request.
[72] Mr Munro also said that Ian King, an experienced farmer who worked for PBF, also attended the inspection as a representative for PBF. Mr King did not give evidence and I accept Mr Munro’s evidence.
8 Firm PI1 v Zurich Australian Insurance Ltd [2014] NZSC 147.
[73] Mr Laing said that the cows he inspected were in two groups, one of which was obviously a mix of Friesian and Friesian-cross and the other a mix of Jersey and Jersey-cross cows. He said that Mr Wilson provided both him and Mr Munro with copies of herd profiles, which showed, among other things, each cow’s identification number, breed and date of birth. Mr Munro recalled Mr Laing giving a copy of the herd profile to Mr King.
What did “vetted-in-calf” mean?
[74] PBF alleges that it was a term of the stock agreement that the lease cows would be vetted in-calf and pleads that the Wilsons failed to provide vetted-in-calf records. Ultimately, no submissions were made on this allegation. Moreover, PBF’s own counsel asserted in 2017, when declining to provide “vic” records to the Wilsons, that the status of the cows as vetted in-calf is ascertained by a vet checking the cows to confirm whether a particular cow is pregnant or empty, with the owner then marking the empty cow with paint and removing it from the herd without any formal record being produced. In these circumstances, there is no basis for the assertion of a breach by the Wilsons for failing to provide such records.
[75] But in any event, no breach or loss could have been proven in relation to this issue. The Wilsons say that there was an implied term that the industry standard ‘in- calf guarantee’ under which a seller or lessor guarantees that an in-calf cow will remain in calf for five weeks, applied.
[76] In relation to the status of a “vetted-in-calf” cow, Mr Carter said that a five- week guarantee normally goes with the sale of a cow so the seller guarantees the cow in-calf for five weeks and any claims or disputes are finalised by, at or around the five- week mark either with a replacement cow or compensation. That evidence was not challenged.
[77] Mr Blackley emailed Mr and Mrs Wilson on 31 August 2014, saying that the cows “are all doing well and we have had a fairly clean calving run so far”. It was not until October 2014, a week or so after the Wilsons rendered an invoice for the lease fees that PBF asked that the invoice be reduced by six cows that were empty (i.e. not pregnant). I accept that the parties had contracted on the basis of a five-week “in-calf
guarantee” and that by October PBF was well outside the terms of that guarantee. I therefore do not accept that there is any basis on which to reduce the obligation on PBF in respect of the number of cows it had agreed to purchase and lease.
Did PBF agree to pay lease fees on the purchase cows pending a formal agreement?
[78] The Wilsons say that PBF agreed to pay lease fees of $150 plus GST per head per annum on the purchase cows until the parties had executed a further agreement relating to the care of the lease cows.9 Mr Blackley did make that offer in his email of 31 August 2014 (in which he also commented on the draft cow bailment agreement and on the condition of the Wilsons’ herd). But there is no evidence of the offer being accepted. Indeed, there was no response from the Wilsons. On 28 October 2014, Mr Blackley emailed the Wilsons asking what was happening with the formal cow lease agreement and raising Mr Wilson’s failure to apply fertiliser in accordance with the Land Lease. On 4 November 2014, Mr Wilson replied, enclosing a second draft of the cow bailment lease, refuting the complaints about the condition of the stock and concluding that:
You also agreed at the time to purchase 40 Friesian cows for $1500 each. This whole agreement was entered into in good faith, yet so far no money has changed hands. Please pay all outstanding money.
[79] In my view, this email amounted to a rejection by the Wilsons of Mr Blackley’s offer to pay lease fees on the purchase cows pending finalisation of the formal agreement. By this response they made it clear that they did not want lease fees in respect of the purchase cows; they wanted full payment of the purchase price.
The herd as delivered to PBF
How many cows?
[80] PBF took over the Wilson herd on 1 June 2014. As discussed, Mr Wilson arranged for the herd to be valued in May 2014. The agent valued 200 cows at $1500
9 This term is as expressed in closing submissions for the Wilsons. In the pleadings, the term was expressed slightly differently, namely that lease fees would be paid pending payment of the purchase sum. That position appears to have been abandoned.
per head. Although PBF maintained that only 195 cows were actually handed over, I am satisfied that 200 cows were left on the farm.
The state of the records
[81] One of the significant disputes in the case was whether the Wilsons provided adequate records to enable PBF to properly identify and manage the herd. PBF does not assert that there was any specific loss associated with this failure, but this issue is relevant to the Wilson’s claim regarding the circumstances in which the cows were returned to them and, allegedly, sold at a loss.
[82] Mr Carter explained that there are three systems of recording dairy animals in New Zealand; the Livestock Improvement Corporation (LIC) and the National Animal Identification and Tracing System (NAIT) are relevant for present purposes. At birth, a cow is given a lifetime identification tag which shows the year of its birth and a herd location. When calves reach the age of two (i.e. become heifers) they are introduced into the milking herd and given a herd number. The herd number may be the same as that held by a previous cow that has been culled. In each case, LIC is informed of the calf’s herd number and NAIT of any cull. Data relating to each cow such as its birth, breed and identification numbers are recorded by the owner or lessee on an online system; each farmer has an account, MINDA, for this purpose. When a cow is sold or leased, the transfer must be recorded with LIC through this system. The transfer of LIC records is done by way of a “participant code” which attributes an animal to a particular farm and location.
[83] According to Mr Carter, the transfer of this information is so important that, in his experience, stock firms will only release payment to the vendor once the vendor has made available the necessary transfer of LIC documents. Conversely, farmers leasing or buying cows would only do so with those records available. The transfer of LIC records is done by way of a “participant code” which attributes an animal to a particular farm and location.
[84] Rachael Blackley was on the farm from 1 June 2014. She gave evidence about the state of the animal records when she took over management of the herd and of the condition of the cows themselves. Ms Blackley described a state of confusion
regarding tags and records used to identify which cows remained on the farm. She said that some cows had no tags, some cows had the same tags and some cows had tags that did not match the age of the cow. There was similar evidence from Mr Blackley and from Mr Blaucomb, who provided relief milking for PBF from 2014, that from the time PBF took over the herd there were problems with stock identification.
[85] PBF asked the Wilsons for cow numbers but was only provided with a list of the cows that Mr Wilson said he had taken which, in itself, was inaccurate because some of those cows appeared, according to tag numbers, to still be in the herd left with PBF. On 1 July 2014, Ms Blackley obtained access to Mr Wilson’s records. They appeared incomplete. Further, not all cow numbers matched the MINDA records. The physical breeds of some did not match the recorded breed. The records showed that the herd contained cows up to ten years old with a number about to turn nine. This was unexpected because, according to Mr Carter, it is generally expected that a sound dairy herd will contain cows up to the age of eight. In addition, the age of some cows was wrong. In other cases, the age was unknown.
[86] Mr Wilson’s evidence was that prior to handing over the herd he had removed cows that were either empty or born earlier than 2005 and on 10 June 2014 instructed LIC to transfer the herd records to Mr Blackley or his representative. He maintained that there were no issues with tags on the cows and that he had provided complete LIC herd profile records to PBF at the time of the valuation. Mr Wilson pointed out that it was not possible to herd test without tags and his last herd test had been in March 2014. In relation to his failure to provide a list of the cows that he had left on the farm when requested, Mr Wilson’s position was that because PBF already had the LIC herd profile it had the means of ascertaining the cows in its possession.
[87] I have already found that the Wilsons did given a copy of the LIC herd profile to PBF’s representative, Mr King, at the time of the valuation. Since this occurred only a few weeks before the handover, I accept Mr Wilson’s assertion that he had provided the records. On the other hand, I also accept Ms Blackley’s evidence that many of the cows were not properly tagged and the LIC records were, in some respects, not completely accurate.
[88] Efforts to rectify the problem of missing or inaccurate tags were impeded by the difficulty in physical tagging the cows. Mr Blaucomb said that the state of the yards on the farm, including the “head crush” used to hold the cow’s head during tagging, was very old and required at least two, sometimes three, people to get the tags in. However, Mr Blackley gave evidence that the records could have been managed. I find that over the course of three years it should have been possible to get the records into a state where the cows could have been identified accurately by the time they were returned to the Wilsons.
The health of the cows
[89] It was common ground that there was a level of mastitis in the herd. PBF alleges that a significant number of cows were infected, and the level of infection constituted a breach of the term that the cows were in sound condition.10 The Wilsons say the level was not significant.
[90] Geoffrey Wakelin, who gave expert veterinary evidence for the Wilsons, described mastitis as a complex disease involving the interaction of environmental, animal, people and milking machine factors which requires careful and constant management. Mastitis is commonly caused by the bacterium staphylococcus aureus. It is contagious from cow to cow and difficult to cure. A cow suffering from mastitis is likely to produce a high somatic cell count (SCC), which is the white blood cell response to infection. Both parties treated the somatic cell count of the cows as a relevant indicator of infection. A veterinarian familiar with the herd, Benjamin Irwin, who gave veterinary evidence for PBF, explained that the presence of increased somatic cells in milk usually indicates that a proportion of the herd has mammary gland/udder infections, which affects the quality of the milk produced. On Mr Irwin’s evidence the New Zealand dairy industry recognises that individual cows with a somatic cell count about 150,000 cells/ml can be regarded as being infected.
[91] Every collection of milk by Fonterra (to which both the Wilsons and PBF were contracted) is tested for somatic cell counts. A reading above 400,000 cells/ml is
10 There were other complaints such as the fact that cows had not been vaccinated against leptospirosis but the focus of the complaint was the level of mastitis in the herd.
considered a “grade” and results in a financial penalty, although the milk itself will still be accepted. The level of SCC accepted as reasonable varies over the course of the season. Reasonable targets, for example, are a maximum of under 250,000 bulk tanks somatic cell count (BTSCC) during early lactation and under 250,000 before drying off.
[92] A farmer who accumulates a number of grades throughout a season may be the subject of a TP3 investigation, which is regarded as a serious matter by Fonterra and farmers alike. TP3 investigations are conducted by accredited veterinarians, of which Mr Irwin was one. He was engaged to conduct a TP3 investigation on the Wilsons’ herd in the 2013/2014 season. During that season, the herd had “graded” 67 times in the course of 126 collections.
[93] Mr Irwin visited Mr Wilson in March 2014. Prior to his visit, Mr Wilson had initiated a herd test and removed the cows with the highest somatic cell count, thereby bringing the BTSCC down to the “grading” level of 400,000 cells/ml. He then provided Mr Irwin with 12 high SCC cows for milk culture in order to determine which bacteria was involved in causing mastitis. Six of the samples Mr Wilson provided from the 12 cows produced staph aureus. Mr Irwin concluded that the cows had sub- clinical mastitis. Mr Irwin advised management of the herd SCC by testing and isolating any reactive cows. He did not recommend culling. Mr Wilson says that, nevertheless, he dried the herd off early, undertook some selective mastitis treatment and culled 12 high SCC cows. Prior to handing the cows over to PBF, Mr Wilson culled a further 54 from the herd. On the basis of this evidence Mr Wilson maintained that by June 2014 the herd was in an acceptable condition.
[94] Ms Blackley gave evidence that when she took charge of the herd she noticed the poor state of the cows’ udders and perceived that those teats would likely be infected and result in a high bulk SCC. Within the first month the herd was graded for high SCC. She began testing the cows and found mastitis. The level of mastitis in the herd meant that she had to remove a number of cows from milking, dumping their milk. However, they became re-infected upon returning to the milking shed. In the end, she removed some 50 cows from the herd permanently.
[95] Thirty-six heifers leased from elsewhere and a further 12 cows purchased by PBF were added to the Wilsons’ herd for the remainder of the season. Several of them became infected with staph aureus as well. At the end of the first season, Ms Blackley administered dry cow therapy, a long-lasting antibiotic used to remove existing infections contracted during the milking season and prevent new infections over the dry period.
[96] Ms Blackley described a second season similar to the first. She had removed the worst of the infected cows and used extensive “Dry Cow Therapy” and improved the SCC. However, infections continued. In November 2015, Mr Blackley arranged for some of the cows that had been withdrawn from the herd to be inspected and received advice from RD 1 Livestock that most of the 44 cows that had been removed from the herd showed unsound udders and, taking into account the SCC report provided, the best course was to send them to the works.
[97] PBF relied heavily on the evidence of Mr Irwin as both an expert witness and one of fact, but Mr Wilson resisted the conclusions drawn from his evidence. Mr Fraundorfer submitted that Mr Irwin ought not be regarded as impartial and that his evidence was not sufficiently helpful to be admissible as expert evidence.11 Instead, he should be regarded only as a witness of fact. This submission was mainly based on an email sent by Dr Irwin to Mr Blackley in August 2016, when proceedings were underway, stating that “I am working on your behalf … I am not trying to disprove that these cows had a Staph infection problem, as after all that is what I initially diagnosed.” I do not consider it necessary to exclude Dr Irwin’s evidence as an expert. He has relevant experience that made his evidence helpful to me. The concerns that Mr Fraundorfer had, while legitimate, can be accommodated by the weight I give to the evidence.
[98] However, on the topic of expert evidence I record my reservations about the joint expert report prepared by Dr Irwin (for PBF) and Dr Wakelin (for the Wilsons). It concluded, among other things, that the level of “grades” in the 2013/14 season (53.2 per cent) represented an “extreme milk quality problem” and the “level of grading
11 Evidence Act 2006, s 26.
shown by the lease herd in the 2013/14 season would place this herd in at least the bottom 10 per cent of herds in New Zealand with respect to milk quality (specifically bulk milk somatic cell count) and most likely lower than that”. The two experts also agreed that “the last herd test conducted on the lease herd before leasing to Parua Bay Farms was carried out in March 2014. At that herd test, 108 out of 117 cows (92 per cent) were infected. We are agreed that this is an extremely high level of subclinical infection”.
[99] Unfortunately, it emerged from Dr Irwin’s cross-examination that the joint report was substantially based on documents created by Dr Irwin and provided to Dr Wakelin without the source material that Dr Irwin had used. In these circumstances, I am not inclined to place significant weight on the conclusions in the report as being genuinely joint conclusions. In any event the conclusions as to position in 2013/14 season have to be viewed against the fact that Mr Wilson was taking steps to rectify the problem. I have determined this aspect of the case primarily by reference to the separate evidence of the witnesses and the contemporaneous documents.
[100] Mr Fraundorfer relied on the following as showing that in the period immediately following the handover it could not be said that the herd was showing a significant level of infection: no herd test results were produced for the period June – September 2014 and the subsequent test results for the herd showed average SCC levels of 395,000 for September 2014, 228,000 for November 2914 and 399,000 for January 2015, all of which were below the Fonterra cut-off for grading; no clinical notes, reports or advice were produced regarding treatment for mastitis prior to April 2015; the modest amount of mastitis treatment in dispensary records was said by Dr Wakelin to be within the normal range for a dairy farm; in early 2015 another vet, Grant McPherson, advised PBF regarding milk culture results, noting that the tests had produced “no growths” and commenting in March 2015 that “it is not a total staph aureus problem” and in April 2015:
There is certainly a degree of Staph aureus involved in this herd but there is no evidence that it is the overwhelming infection … in summary, this herd is similar to many that we investigate in Northland with a similar level of the mixed bacteria that were cultured. With continuing good milking management, as has been the case this lactation, there is no reason for this herd not to improve in a reduction in overall intramammary infection rates over the next few seasons.
[101] Notwithstanding these points, I am satisfied that, overall, the evidence does show a significant level of infection in the herd as at June 2014. First, it is evident from the Wilsons’ herd test results, which led to a TP3 investigation, that mastitis was a significant problem for the herd as at March 2014 and had been for some time. The testing that Mr Irwin did clearly showed that. The question is whether steps taken by Mr Wilson between March and June 2014 were sufficient to significantly change that situation.
[102] Secondly, I accept Ms Blackley’s evidence that her early testing showed a level of mastitis in the cows such that she sought professional advice and obtained antibiotic treatment for that. I accept her evidence that these consultations were by telephone and so did not result in any written report. However, the record of drugs dispensed by Kamo Veterinary Ltd between June and August 2014 included two different types of treatments used for mastitis. I also accept her evidence that she periodically removed infected cows from the milking herd and isolated them. Although Ms Blackley was inexperienced (this was her first farm management position post-qualification) she seemed to me to be careful and competent. Moreover, she was taking professional advice and also had Mr King as a source of advice, whom she described as an experienced farmer. Finally, Mr Blaucomb supported her evidence with his comments about the poor state of the cows.
[103] Thirdly, the test results relied on by Mr Fraundorfer in the June – September 2014 period, although below the level at which financial penalties would be imposed by Fonterra, were nevertheless above the target of a BMSCC of 200,000 for the season (lower if possible) suggested by Mr Irwin and his colleague, Mr McPherson, in early June 2014 during a general discussion about management of the herd.
[104] Fourthly, I am not persuaded that Mr McPherson’s statements in early 2015 are contrary to this picture, when viewed against the evidence overall. According to Mr Irwin, Mr McPherson’s March 2015 statement that “it is not a total staph aureus problem” was referring to the milk culture records taken by Mr Irwin in March 2014, not the position after June 2014. On a close reading of Mr McPherson’s report, I accept that is so.
[105] Nor do I think that Mr McPherson’s report dated 7 April 2015, in which he says “[t]here is certainly a degree of staph aureus involved in this herd but there is no evidence that it is the overwhelming infection” was correct. Mr McPherson did not give evidence. Mr Irwin considered that it was not possible to draw conclusions when nothing grows from the milk. He noted that the only thing that had been repeatedly cultured over the relevant period was staph aureus. I note, too, that Mr Irwin had said earlier in his evidence in relation to the March 2014 testing that there was not a strong correlation between the severity of herd test results and the bacteria, that a lot of (sub- clinically) infected cows can produce just a moderate result from milk culture. This comment is consistent with a statement by Mr McPherson in his later report in October 2015 that “a staph aureus infection is difficult to detect clinically as it is not uncommon to have a very high SCC but no clinical mastitis.”
[106] Finally, in October 2015, Grant McPherson attended the farm in response to PBF’s concern about high bulk somatic cell count and possible chronic infection in the herd. I find that this was a response to an ongoing problem and it is unlikely that PBF would go to the trouble and expense of further investigation had the genuine problem not been significant. The report concluded that staph aureus seemed to be the significant agent causing infection problems in the herd and that it was being carried over from the previous lactations. Its highly contagious nature and propensity to spread during milking made it difficult to control and eliminate. Mr McPherson advised that the essential means of reducing the incidence of staph aureus were to identify and remove infected cows from the milking herd and regularly test the remaining cows so that newly infected and high SCC cows could be identified and a decision made whether to treat or remove them. The report ended with the following comments:
It is clear from the recent milk cultures of 15.10.15 that with 44 per cent of the sampled cows having a positive staph aureus infection it is highly likely that this bacteria is involved in many of the other chronically high SCC cows. The infection continues to spread to other “clean” cows if the infected cows are not removed.
Many of these high SCC cows will have been treated with DCT at the end of the last lactation, therefore the only option remaining is to cull these ongoing high SCC/repeat mastitis cows and remove them from the herd so as to enable further progress to be made in reducing the level of infection and thus the BMSCC.
[107] I am therefore satisfied that there was a degree of infection in the herd in June 2014 that is properly described as significant to the point that it amounted to a breach of the term of the stock agreement.
PBF’s counterclaim
Age of stock
[108] PBF alleges that the Stock Agreement contained a term that the lease cows were no older than eight years. In closing submissions, however, there was no reference to that term. Although the Wilsons acknowledge making a representation to that effect, they say that it was not part of the agreement. It may not have been an express term, but I accept Mr Carter’s evidence as to the general acceptance that diary cows are generally expected to be about eight years or younger. However, the evidence from the PGG Wrightson agent who valued the cows in May 2014 was to the effect that the lease cows were within the age group stated. He had LIC records provided by Mr Wilson and was satisfied as to the age of the cows.
[109] Mr Fraundorfer pointed out that, although LIC herd test results between August 2014 and January 2015 do show 14-18 cows aged nine years or over, the issue was not raised until August 2014 after PBF had already introduced other cows into the herd. I cannot, therefore, be satisfied that all the older cows were the Wilsons’ cows. Accordingly, this allegation fails.
Grazing cows off-site
[110] In terms of grazing, PBF says that it was forced to isolate and graze chronically infected cows off the farm and I accept that it did so and incurred costs in doing so. However, Mr Carey also acknowledged that some of the cows grazed off-site were those that had not yet calved but were not necessarily unhealthy. He suggested that invoices for grazing in June and July may not relate to infected milking cows but invoices from August onward were likely to be. In the absence of better information, I accept this analysis. The invoices produced that show the cost of grazing from August onwards total $9,310 and I allow that figure.
Veterinary fees
[111] As to the claim for veterinary fees, Mr Irwin gave evidence that to 30 June 2016, PBF spent $8,563.51 on medicines for treating mastitis and $5,859.40 for vet testing and culturing. However, it was clear from the evidence of both vets that some level of veterinary care, including testing and treatment for mastitis, is a cost ordinarily incurred in dairy farming. Dr Wakelin considered that, of the costs incurred and summarised by Dr Irwin, only $5,859.40 should be considered additional. I accept this evidence and therefore allow $5,859.40 for this part of the claim. Finally, PBF claims $1,147.62, being the penalties imposed by Fonterra. I accept this part of the claim and allow that figure.
Loss of expected profit
[112] The second aspect of PBF’s damages claim is for either the loss of expected profit ($271,200) or, alternatively, the amount paid in lease fees under the stock agreement ($17,300). PBF alleges that because the Wilsons’ herd was in such poor condition it made less profit than it could reasonably have expected to make from the lease cows. This required me to be satisfied of two things. First, the profit that could reasonably have been expected from an average herd of the kind PBF had agreed to lease under the Stock Agreement. Secondly, I needed to know PBF’s actual profit over the period of the lease in order to calculate the extent to which its profit fell below expectations.
[113] PBF’s claim for expectation damages rested on the evidence of a farm consultant, Karla Frost. Her approach to the quantification of PBF’s loss can be broadly described as follows. From milk production figures, she identified the average production for the Wilsons’ herd in the 2013/14 season as 157kg/MS per cow.12 She asserted that this represented a milk solids production of 50% less than the average Northland dairy cow for that season.13 From DairyNZ statistics reports she identified the average milk production for a Northland herd of 160 cows in the 2014/15 season as 317kg/MS per cow. From Fonterra Annual Reviews she identified the average pay-
12 Ms Frost also expressed an opinion on the production of the Wilson herd in the preceding two seasons, but I have not taken those figures into account because they were based on unsubstantiated hearsay evidence as to the size of the herd in those years.
13 Ms Frost did not identify the basis for this assertion.
out over the three seasons 2014/15, 2015/16 and 2016/17 as $5.16 per kg/MS. Deducting the average production of the Wilsons’ herd from the average Northland production, Ms Frost concluded that the lease of the Wilsons’ herd had resulted in a difference of 160 kg/MS per cow. Applying the average Fonterra pay-out produced an income loss of $825.60 per cow per annum. Ms Frost concluded that, assuming a herd of 160 cows (the number leased under the Stock Agreement) there was a “potential production loss” of $396,288 over the three years of the lease.
[114] Ms Frost agreed in cross-examination, some 10 per cent of income from cows does not come from milk but from livestock such as the sale of bobby calves so that profit did not depend solely on milk production. The Northland Regional Financial KPIs published in the DairyNZ Economic Survey for the 2014/15 season showed the average gross revenue per cow for an average herd size of 305 cows producing an average of 342kg/MS per cow as $2,253. From that figure has to come the operating expenses. The Northland figures were $1,782 per come, resulting in a profit margin of $471 per cow. New Zealand-wide figures were slightly different; an average revenue of $2,255 with operating expenses of $1,668, producing in a profit margin of
$587 per cow. Ms Frost took the lower expenses figure for PBF on the basis that PBF ran the farm with minimal feed supplement inputs.
[115] On the basis of these figures Mr Carey submitted that PBF’s loss of profit resulting from the breaches of the Stock Agreement was $565 per cow per annum. Multiplied by 160 cows over three years was $271,200.
[116] I have serious concerns about the quantification of this aspect of PBF’s claim. First, Ms Frost used the Wilsons’ milk production figures to demonstrate an assumed level of production but, in doing so, did not take account of climate or differences in farm management, factors that Mr Carter and Mr Wakelin thought were relevant. Mr Fraundorfer also pointed out that the production figures for the Blagroves, the Wilsons and PBF were all lower than the recorded Northland averages, suggesting that the farm itself did not allow for optimum production.14 As a result, although the condition of the herd may have contributed to lower production, I find it difficult to treat the
14 The Blagroves came close to the average in their last year but Mr Blagrove said in evidence that it was difficult to make money out of the farm, given its condition.
average Northland figures alone as a sound basis on which to assess what PBF could reasonably have expected by way of milk production without some consideration of these other factors.
[117] Secondly, and more significantly, there was no attempt to identify PBF’s actual financial position. PBF did not produce financial statements for the relevant years and it seemed from Ms Frost’s evidence that even she had not seen those records. It is clear from Ms Blackley’s evidence that PBF did make money from the herd over the three years. It may be that PBF’s profit over the three years of the lease was less than it could reasonably have expected. But it is also possible that through the supplementing of the herd with healthier cows together with Ms Blackley’s attention to the treatment of mastitis in the herd, the profit was at or close to the level it could have expected. If the latter, then the appropriate compensation would be limited to the additional costs incurred in getting to that position i.e. the costs of mitigation. The onus was on PBF to quantify its claim and, in respect of this aspect of the claim I find that it has failed to do so.
[118] Nor do I consider that PBF is entitled to claim the lease fees that it paid back. I have already held that it was liable to pay the lease fees. There is no basis on which it should be relieved of that obligation.
The Wilsons’ claim arising from the return of the cows
Events in 2015
[119] In late 2014, the Wilsons’ solicitor, Mr Clews, made demand on PBF for the purchase price of the 40 cows ($60,000), six months’ rental on the 160 lease cows ($12,000) plus GST ($10,800), totalling $82,800. Lease rental was noted to be accruing at $2,300 per month. PBF’s response was to reiterate a number of the concerns that had been raised over the preceding few months including specifically that the animals were not of the quality contracted for and various claims about breaches of the Land Lease agreement. The response ended with the general indication that PBF saw its likely claim against the Wilsons as being greater than the Wilsons’ claim against PBF and that the best solution might be for the two amounts to
be offset against one another. The Wilsons’ suggestion of mediation did not elicit any interest.
[120] The effect of the correspondence that followed was, in my view, a cancellation by PBF of the Stock Agreement, which the Wilsons accepted, and then a settlement agreement that saw the Stock Agreement resume, with rights reserved on both sides. In April 2015, PBF wrote regarding the recurring mastitis in the cows and the high SCC levels. It asserted “considerable and intentional misrepresentation” regarding the cows. It identified what it described as “two sensible and reasonable options”. The first was “return the entire herd to you immediately and you do with them as you please. This will have to take place within the next three weeks …”. Secondly, “return the 50 odd cows to you as immediately as practicable for you to cull … the remaining cows we would agree to lease on an annual base however only on terms that are reflective of the cows’ history”.
[121] The Wilsons responded with a vigorous resistance of any suggestion that there was a large number of cows infected with staph aureus, which I find completely disingenuous. They proposed mediation again.
[122] PBF invited the Wilsons to provide copies of invoices evidencing their treatment of the herd with dry cow therapy and evidence of their compliance with lease obligations (such as the application of fertiliser) and concluded that:
Time is now running out.
As it stands, unless we receive the above information within the timeframe, we have no intention of carrying your cows through yet another season and will expect them to be removed from our property by prior arrangement before the 16th May 2015.
If this does not occur we shall charge grazing at $15/cow per week and/or have them removed ourselves.
[123] The Wilsons responded through their solicitor, confirming that they would remove the cows. But PBF then resiled, suggesting that only the “works only” cows be removed. The Wilsons maintained their acceptance of PBF’s cancellation.
[124] Eventually, however, the parties reached a settlement which involved PBF making immediate payment of $9,330 in respect of the lease fees without prejudice to it’s position, PBF retaining all 200 cows until all disputes had been resolved and paying $2,000 per month GST inclusive on a without prejudice basis. Subsequently, PBF ceased the monthly payments but no discrete claim arises; the overall claim subsumes the settlement agreement.
Return of cows
[125] The outstanding issues had not been resolved by the end of the lease in 2017. In March 2017, Holland Beckett wrote to PBF’s counsel advising that the Wilsons had arranged for a livestock agent to attend the property to inspect the stock on 29 March 2017 and asked for current LIC records. The proposed date for the valuation was not suitable for PBF. The Wilsons made new arrangements for a livestock agent to inspect and value the cows and proposed 5, 6 or 7 April 2017. But PBF refused to separate the milking herd so as to ensure easy access to the Wilson cows for valuing. By mid- April 2017 no progress had been made. On 11 April 2017, Holland Beckett wrote reiterating the need for the Wilsons to access the cows for valuation, for the cows to be separated and for an up-to-date LIC herd profile to be provided.
[126] PBF refused to provide any documents on the basis that herd profile was essentially the same as the herd profile provided to PBF in 2014. Self-evidently, this could not be the case because even on PBF’s own evidence, some of the Wilsons’ cows had been culled and replaced with new ones. PBF also indicated that it would only separate the herd after drying off in late April. But from the Wilsons’ point of view, as Holland Beckett pointed out in their letter 19 April 2017, the closer to the end of the season the more difficult it would be for the Wilsons to sell or lease the herd. They offered to pay for a farm worker to assist with the separation task. There was no response from PBF.
[127] Finally, on 8 May 2017, PBF’s counsel advised that the cows had now been separated and could be inspected. A further request for a herd profile and vetted in- calf report was made, with no response. On 16 May 2017, now only two weeks before the hand-over date, Holland Beckett wrote to PBF’s counsel regarding the inspection
that had taken place on 10 May 2017 advising that there were only 112 cows rather than 200, 33 cows were older than the required age limit, the majority of cows had splayed udders and there was no vetted in-calf report provided. The livestock agent had recommended that all 112 cows be sent to the works. A request was made for a further inspection on 22 May 2017, to which there was no response. Moreover, there was an urgent request for confirmation as to whether the cows had been given antibiotics in the preceding 42 days, which would seriously impact their value even in terms of being sent to the works.
[128] Finally, on 30 May 2017, PBF’s counsel advised that antibiotics had been applied, that the Wilsons could inspect on the afternoon of 31 May 2017, though since the cows would have to be removed by the end of 1 June 2017 and could not be slaughtered until after 10 June 2017, there was no immediate rush for inspection. The issue of the splayed udders was not resisted; the response was simply that that had been an issue in the Wilson herd from the outset. Likewise, PBF’s attitude to the provision of documents was
The Wilsons did not provide PBF with vic records or calving dates or production records so it is surprising that they feel entitled to demand the same from PBF … as to production records, your clients are already in possession of a number of these, though as advised they set out production figures for a mixed herd. Beyond that, PBF is not willing or obliged to provide production or LIC records, as confirmed by the court.
[129] There was then a lengthy response in relation to size and make-up of the herd being returned. PBF’s position was that it received only 195 cows from the Wilsons, not 200, the agreement to lease was only in respect of 160 cows, not 200 and the 40 purchase cows should have been pure Friesians. PBF advised that it would be returning 180 cows as follows, of which 112 would be the remainder of the Wilsons’ original herd and 72 would be replacements. The figure of 184 was settled on because 15 of the Wilsons’ cows had died or had to be shot in the first year due to chronic illness or age and PBF did not consider it was required to replace those cows. PBF said:
184 will be returned … which is in effect 194 cows because 12 better quality replacements will be provided in place of 22 cull cows. Of those 112 will be the remainder of the Wilsons’ original herd and 72 will be replacements from PBF’s herd.
[130] Even after 1 June 2017 no consent was forthcoming to transfer the LIC records. Holland Beckett wrote on 19 June 2017, pointing out that the refusal to transfer the records meant that the Wilsons could not prove ownership of the cows and they would have to be culled rather than sold. An auction was scheduled for 20 June 2017. PBF’s response was to ask the Wilsons for a list of all tag numbers of the cows the Wilsons had taken from the farm, including numbers painted onto the cows. It complained that it was not able to prepare a full list because it did not have advance notice of the Wilsons’ stock trucks arriving on 1 June 2017. It was not prepared to provide access to LIC records until that time.
[131] At the end of the lease period the Wilsons collected their herd. PBF provided 184 cows. No, or no complete, records were provided. The Wilsons say that, as a result of being unable to prove ownership of the returned stock the only course available was to auction them, which produced a much lower price than would have been the case had they been able to sell or lease the herd on with ownership records. They recovered $168,224 At auction; 12 empty cows and heifers sold at an average of
$819 per head, 102 vic cows at an average of $1,075 a head, 70 rising three-year-old and two-year-old vic heifers at an average of $702 per head, making the overall average of the herd $914 per head. PGG Wrightson, the livestock agent selling on behalf of the Wilsons, expressed the view that the lack of records could have had a negative impact on sale price.
[132] I found the quantification of the Wilsons’ claim as advanced difficult to follow. In my view, the claim is properly quantified as follows: at the conclusion of the three- year Stock Agreement the Wilsons were entitled to have received $60,000 (the purchase price for 40 cows), lease fees of $49,000 (being the lease fees of $72,000 less the $23,000 already paid) and the return of 160 cows worth $1,500 each i.e. cows to the value of $240,000. The last figure must be reduced by the $168,224 obtained at auction, leaving $71,776. This makes a total of $180,776 as the loss to the Wilsons resulting from PBF’s breaches of contract.
[133] I do not allow the additional amounts for short-term grazing or cartage and yard fees because these would have been costs the Wilsons had to meet upon collection of the cows in any event.
Summary and result
[134]In relation to the Land Lease:
(a)there is no written record of the Land Lease. The existence of the lease is proved by the performance of the lease. The terms are those on which the parties expressly agree, together with the terms implied by the Property Law Act 2007;
(b)The Wilsons’ claim fails because there was no agreement that PBF would meet the cost of repairs to races and fences beyond the rent reduction that was given and PBF was not required to pay the outgoings;
(c)PBF’s counterclaim under the Land Lease succeeds in part. The amount of $39,269.07 is allowed for races/tracks, fences, gorse control, damage to carpet, new hot water cylinder, pond cleaning and fertiliser. PBF’s claim for an additional month’s rent fails.
[135] The Wilsons’ claim under the Gates Agreement fails because PBF did not agree to buy the gates.
[136]In relation to the Stock Agreement:
(a)It was not a term of the Agreement that the 40 purchase cows had to be pure Friesian;
(b)The Wilsons supplied 200 cows for purchase/lease in accordance with the Stock Agreement;
(c)There was an express term that the cows would be healthy and good milk producers. There was a significant degree of mastitis infection in the herd that amounted to a breach of this term;
(d)The Stock Agreement was subject to implied terms based on industry usage under which the cows were leased with a five week “in-calf” guarantee and PBF was required to return the same number of cows in a comparable state, with records, at the end of the lease period;
(e)The Wilsons’ claim for breach of the Stock Agreement succeeds. They are entitled to judgment in the sum of $180,776;
(f)PBF’s counterclaim for breach of the Stock Agreement succeeds only in part. It is entitled to judgment for $16,317.02.
[137] The parties are entitled to interest on their respective judgment sums at 5 per cent per year from the date of filing of the statement of claim and statement of counterclaim, respectively.15
[138] Counsel may address the question of costs by of memorandum filed on behalf of the Wilsons within 14 days, PBF within a further seven days with a right of reply within a further seven days after that.
P Courtney J
15 These proceedings commenced before the Interest on Money Claims Act 2016 came into force, so interest is calculated with respect to the Judicature (Prescribed Rate of Interest) Order 2011, cl 4.
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