Woolley v Fonterra Co-operative Group Ltd
[2021] NZHC 2690
•8 October 2021
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE
CIV 2018-406-14
[2021] NZHC 2690
BETWEEN PHILIP JOHN WOOLLEY
Plaintiff
AND
FONTERRA CO-OPERATIVE GROUP LIMITED
Defendant
Hearing: 15–26 February 2021 Appearances:
P A Morten and M A Robertson for Plaintiff
J Anderson QC, M D Branch and K F Shaw and for Defendant
Judgment:
8 October 2021
JUDGMENT OF ISAC J
TABLE OF CONTENTS
INTRODUCTION [1]
Preliminaries [7]
FACTUAL FINDINGS [13]
Dairy industry context [13]
The dairy farming season [14]
Farm dairy effluent (FDE) management [16]
Effluent irrigation [23]
The Woolley dairy farms [27]
The milk supply contract between Mr Woolley and Fonterra [32]
The resource consents for Glenmae and construction of the effluent ponds – the
certification saga begins [41]
Environmental issues begin to emerge on the Woolley dairy farms: 2011-2013 [65]
Problems with effluent on Tuamarina [67]
Effluent problems arise on Glenmae: 2012-2014 [90]
MDC applies for enforcement orders and Fonterra issues an EIP [96]
WOOLLEY v FONTERRA CO-OPERATIVE GROUP LIMITED [2021] NZHC 2690 [8 October 2021]
The 4 April 2014 Environment Court decision [104]
The enforcement order [113]
4 April 2014 – 9 June 2014 - drop testing on pond 1 and the 9 June 2014 procedural
order [116]
Fonterra decides to suspend milk collection [131] Mr Talbot completes his drop test and reports — Mr Woolley engages Opus [134] Mr and Mrs Woolley move dairy cows onto Glenmae and begin milking them [142]
Marlborough District Council threatens Fonterra with prosecution if it collects milk from Glenmae [151]
Opus’ 1 August 2014 reports [159]
Opus’ 5 September 2014 certification of the effluent system [197] Mr Woolley’s and Fonterra’s response to the 5 September engineer’s certificate [216] Mr Woolley abandons certification and commissions a new weeping wall system [237] Mr Woolley appoints receivers – a new effluent system is designed and installed [249] The Environment Court’s 10 July 2015 ruling [267]
Mr and Mrs Woolley’s subsequent conviction and sentencing [276]
ANALYSIS [282]
Mr Woolley’s claim and the issues for determination [282]
FIRST ISSUE: VALIDITY OF FONTERRA’S SUSPENSION NOTICE [291]
Discussion [300]
SECOND ISSUE: DID THE ENGINEER’S CERTIFICATE MEET THE TERMS OF THE ORDER? [316]
Introduction [316]
The status of the Environment Court decisions in this case [320] Was the Opus certificate sufficient to discharge the enforcement order? [325] Mr Woolley’s case [325]
Fonterra’s case [330]
Analysis – overview [337]
Comparison of the certificate against the terms of the enforcement order [339]
Order A(1): the effluent system has generally been installed and is functioning according to the design in the resource consent [344]
Order A(2): the dimensions of the ponds given on the plans are correct and layout on the ground corresponds with the application for resource consent [353]
Order A(3): the two ponds are functioning as holding ponds, ie they are impermeable and are not discharging to the ground and/or groundwater around or beneath the ponds [360]
Order A(4): there are no holes in the ponds and walls [364]
Order A(5): past weed infestation has not affected the ponds’ impermeability [367]
Contemporaneous documentary evidence indicates Opus believed the certificate might not be accepted by the Environment Court [370]
Doubts revealed by the documentary evidence are confirmed in the evidence of Mr Woolley’s engineers [372]
Mr Woolley’s conduct gives rise to an adverse inference [373]
Mr Woolley’s evidence supports this conclusion [375]
Conclusion [380]
THIRD ISSUE: EXERCISE OF THE DISCRETION [382]
Overview [382]
The parties’ cases [383]
Mr Woolley’s argument [383]
Fonterra’s argument [393]
The contract [398]
Discussion [405]
Legal principles [411]
Overview of the law governing the exercise of contractual discretions [411]
Braganza as a limited authority? [427]
The debate [443]
Drawing the strands together [451]
Conclusion [460]
Discussion [462]
Regulatory context of the discretion – compliance with the law [462]
The original suspension decision was objectively correct [467] Continuation of the suspension after 5 September 2014 was objectively correct [469] Illegal performance of the contract [480]
FOURTH ISSUE: CAUSATION [482]
Alternative ground [492]
PERIPHERAL ISSUES [494]
Mr Radich as Milk Commissioner [495]
Hills Laboratories’ test [502]
Result [512]
INTRODUCTION
[1] This case concerns the exercise of a contractual discretion. In issue is whether one party was justified in suspending performance of a contract in response to an allegation that the other party was acting unlawfully.
[2] At the centre of it all is a dairy farm called Glenmae, which is owned by the plaintiff, Mr Woolley. Over a period of years Mr Woolley found it difficult to comply with his obligations under the Resource Management Act 1991 when operating Glenmae and two other dairy farms. The local authority, the Marlborough District Council (MDC or Council in this judgment), successfully obtained enforcement orders from the Environment Court in relation to two of them. It also successfully prosecuted Mr Woolley for several offences against the RMA. In 2015 this resulted in an order of the Environment Court prohibiting Mr Woolley from involvement in the day-to-day management of a dairy farm for a period of ten years.
[3] Mr Woolley had a supply contract with Fonterra, the defendant. By mid-2014 Glenmae was the subject of an enforcement order prohibiting the use of its dairy shed and effluent system until Mr Woolley obtained an engineer’s certificate confirming the effluent system was functioning properly. As a result of the enforcement order, Fonterra suspended milk collection from Glenmae and served a notice to that effect on Mr Woolley.
[4] In this proceeding Mr Woolley alleges Fonterra was in breach of the supply contract by refusing to collect milk from Glenmae in the 2014/15 season. Mr Woolley says that he complied with the terms of the enforcement order on 5 September 2014 when he obtained an engineer’s certificate. He says that after that date Fonterra was not entitled to maintain its suspension of milk collection and that it exercised its contractual discretion to do so unreasonably. Mr Woolley further says that Fonterra’s notice of suspension was invalid.
[5]I have found that Mr Woolley’s claim must fail for four reasons.
(a)First, contrary to a finding of the Environment Court in July 2015, I have concluded that the engineer’s certificate obtained by Mr Woolley
did not meet the requirements of the Environment Court’s enforcement orders and, accordingly, he remained in breach of its terms, and those of the resource consent itself, after 5 September 2014.
(b)Second, Fonterra’s exercise of its contractual discretion was not unreasonable in the circumstances.
(c)Third, its notice suspending milk collection was properly issued and effective.
(d)Finally, I have concluded that Mr Woolley’s own unlawful conduct — milking in breach of the enforcement orders — is a necessary pre- condition of his claimed loss. Accordingly, any losses Mr Woolley claims to have suffered are the result of his own unlawful conduct and are not recoverable.
[6] As will become evident, this case has been determined primarily on factual grounds; that is, Mr Woolley remained in breach of the enforcement order. Despite this, the case raises interesting issues about the way the law does, and should, control contractual discretions.
Preliminaries
[7] Given the way the case was presented it is appropriate to make four brief remarks about the hearing and the approach I have taken to factual findings.
[8] First, the Court received evidence from fifteen witnesses over nine days. Approximately 800 documents were contained in the common bundle in addition to the witness evidence. While the focus of the trial was on events occurring in 2014, it was necessary to canvas developments on Mr Woolley’s farms from 2008. Most of the factual issues in this case had already been the subject of consideration in various proceedings and hearings before the Environment Court between 2013 and 2015, so a significant focus at the hearing was the proper interpretation and effect of decisions of that Court in the context of this proceeding.
[9] Second, while some witnesses differed in their recall of specific events, the issues for determination have not turned on credibility findings based solely on oral testimony. That is because, unsurprisingly, the contemporaneous documentary record is comprehensive, and both parties relied on it to support their cases, each seeking to emphasise particular documents or provide particular interpretations of them. Accordingly, unless stated otherwise, factual findings in this judgment are based on the position revealed by the documents, supplemented, to the extent it may have been helpful, by the oral evidence.
[10] Third, there was a significant disconnection between Mr Woolley’s case against Fonterra, and his focus in evidence. Mr Woolley’s case was largely focussed on the MDC’s conduct and its impact on his ability to operate his farms as commercial enterprises during the 2014/15 season. By comparison, Fonterra’s decision to suspend milk collection, and events directly concerning the defendant, occupied comparatively little time. The difficulty with this is that not everything known to MDC or Mr Woolley at the material times was also known to Fonterra. A theme that emerged from the evidence was Mr Woolley’s apparent reluctance at key times to provide Fonterra with a complete picture of the position of his farms or the Environment Court proceedings affecting them. There is some irony in this, given that a key plank of Mr Woolley’s claim is that Fonterra failed to undertake reasonable steps to equip itself with relevant information before making, and then continuing, its decision to suspend milk collection.
[11] Finally, a central plank of Fonterra’s case is a challenge to the correctness of a decision of the Environment Court in July 2015 which found that Mr Woolley had met the requirements of an enforcement order from 5 September 2014. As it was not a party to the proceedings before that Court, Fonterra is not prevented from doing so. In undertaking my own assessment of the issue, I have been greatly assisted by documents discovered in this proceeding which were not available to the Environment Court. Had they been, it is likely the result in that decision would have been different.
[12] Prior to trial, the parties agreed that the only issues for determination were liability and causation, with damages to be determined at a subsequent hearing if liability is established.
FACTUAL FINDINGS
Dairy industry context
[13] To appreciate the issues that unfolded for Mr Woolley and Fonterra in 2014 and 2015 an understanding of some of the practical aspects of dairy farming is required.
The dairy farming season
[14] The traditional dairy season runs each year from 1 June to 31 May of the following year. Cows normally begin calving from August of each season and come in to milk production shortly thereafter. They produce substantial volumes of milk in the first few months following the birth of the calf, and as the milking season continues milk production begins to drop, often from January onwards. On many farms it is common to begin “drying off” cows by early autumn, and to winter the animals on a grazing block between June and July.
[15] Due to the length of the period between insemination and birth, there is a long decision-making lead time, with farmers often having cows inseminated from late October in one season, intending calving and milking to start by August of the following season. In this case Mr Woolley says that as a result of decisions he made in relation to herd management in October 2013, he was committed to milking cows on Glenmae from August 2014.
Farm dairy effluent (FDE) management
[16] Farm Dairy Effluent, or FDE, is the collective term used to describe dairy cow urine, faeces and wash-down water. FDE varies in volume and composition, which reflects factors such as the number of cows milked, feed type, shed practices, wash- down methods, weather and the time of year.
[17] During the milking process it is estimated that around 10 per cent of a cow’s daily urine and faeces is excreted in the dairy shed or yard.
[18] FDE ponds (which in this judgment will be referred to as “effluent ponds”), provide temporary storage and treatment for effluent generated from dairy milking sheds during periods when soil conditions are not suitable for effluent irrigation.
[19] Used appropriately, dairy effluent can be beneficial to the farming operation without harming the natural environment. It provides a mechanism for returning nitrogen to pasture, promoting grass growth. But unregulated discharge can and has led to significant degradation and harm to the environment. For that reason, since at least 1995 the dairy industry and local authorities have sought to provide a framework for the design, construction and operation of effluent systems on dairy farms intended to ensure compliance with the RMA.
[20] There are a variety of dairy farm effluent ponds in use in New Zealand. Common amongst them is a two-pond system comprised of an anaerobic primary pond used for settling solids, connected to a secondary aerobic pond which is used to treat the effluent before it is discharged to land. The effluent system at the centre of this case was a two-pond system.
[21] The accumulation over time of effluent solids is common with a two-pond system. The term commonly used to refer to such solids is “sludge”. As sludge builds up, it reduces the operating volume of an anaerobic pond. It is therefore a normal operating requirement to “de-sludge” a pond. This can be done either by a “sucker- truck” which effectively vacuums the sludge from the bottom of the pond, or by a digger which scoops it out from the pond. Once removed, sludge is often either take from the farm for disposal elsewhere, or it can be dried on a pad and then applied directly to land.
[22] Modern effluent ponds sometimes use a “weeping wall” to separate solid effluent from liquid. A weeping wall will usually involve a permeable barrier which permits liquid and fine solids to migrate from one part of a pond while retaining solid material or sludge in the other.
Effluent irrigation
[23] Two forms of effluent irrigator are directly relevant to this case: the centre pivot irrigator and the travelling irrigator.
[24] Centre-pivot irrigators are generally used over a large area and require prior treatment of solids. Effluent used in centre-pivot irrigators is commonly diluted with water and irrigated simultaneously. This method of irrigation is best suited to large operations operating on flat land.
[25] Travelling irrigators are self-propelled wheeled sprinklers with one main drag line. Effluent used in travelling irrigators requires little treatment, as travelling irrigators can generally disperse solids as well. Travelling irrigators typically apply high depth rates and, as a result, can cause ponding if used excessively or when the ground is water-logged.
[26] As will be seen later, one of the points in issue is whether Glenmae had both a functioning travelling and centre-pivot irrigator in late 2014.
The Woolley dairy farms
[27] Mr Woolley comes from a dairy farming family. By 2014 he and his wife, Mrs Suzanne Woolley, had interests in three substantial dairy farms, each of which was owned by different entities and were operated independently of the other.1 Each farm was leased to Mr Woolley and subject to separate supply contracts with Fonterra.2
[28] The first of those farms is Glenmae, the focus of this proceeding. Glenmae is a 500-hectare farm purchased in 2001 as a bull and beef unit. In 2008-2009, Mr Woolley converted it to a dairy farm. He then entered into a series of contract
1 It appears that various ownership vehicles were used by Mr and Mrs Woolley to own and operate the farms. For example, a company called Awarua Farm Marlborough Limited owned and operated the dairy farm at Tuamarina, while the Rarangi Holdings Trust owned Glenmae.
2 The evidence concerning the entire Woolley farming interests is not entirely clear but in addition to interests in the three dairy farms, Mr and Mrs Woolley also appear to have had interests in farms at Hillersden and Robinhood Bay which were run as dry stock operations. The combined value of the Woolley related farming assets by the time receivers were appointed in late 2014 was in the order of $70m, with total equity after a restructuring and sale of the dry stock farms of between
$30-$35m.
milking agreements with a Mr Clive Perrott. Under the contract milking agreement, the day-to-day work of running the farm was to be carried out by Mr Perrott, using a herd owned largely by the Woolley interests.3 By the start of the 2013 season, it was anticipated that 940 cows would be milked on the property.
[29] The second Woolley farm, known as Tuamarina, was a long-established dairy farm of older design and operation. Tuamarina is situated 50 kilometres north-east of Glenmae, within the area administered by the Marlborough District Council. By December 2013 Mr and Mrs Woolley had decided to convert the property into a vineyard so it could be leased to a wine producer from the start of the 2015/16 season. Despite this, it was their intention to keep the farm operating as a dairying unit right up to the end of the 2014/2015 season.
[30] The third farm was Matakitaki, situated 120km south-west of Glenmae. This property, unlike the other two, lay within the area administered by the Tasman District Council. As at 28 November 2014, there were 1652 stock at Matakitaki. A Mr Robert Peat was the farm manager employed by Mr Woolley to run the operation at the time relevant to this proceeding.
[31] All of the Woolley farming operations were supported by significant secured lending from the ASB bank. Mr and Mrs Woolley had executed a general security agreement in favour of the bank to secure the borrowing of their land-owning interests and the farming business. The total secured borrowing by November 2014 was in the order of $30m.4
The milk supply contract between Mr Woolley and Fonterra
[32] On 30 May 2013, Fonterra and Mr Woolley entered into a milk supply contract in relation to Glenmae.
[33]The terms of the agreement were set out in three documents:
3 In contrast to a sharemilking relationship, where the sharemilkers commonly own the herd.
4 According to the evidence of Mr Ruscoe, one of the receivers appointed to Mr and Mrs Woolley’s assets in November 2014.
(a)the “Supply Contract Schedule 13/14” (the schedule);
(b)the “Supply Contract Terms 13/14” (the contract terms); and
(c)the “Suppliers’ Handbook”.
[34] Somewhat confusingly the Suppliers’ Handbook appears to have also been referred to as the “terms and conditions of supply”. This document is updated annually by Fonterra and issued to its shareholding members and milk suppliers before the start of each milking season.
[35] The schedule and contract terms form a composite agreement and provide the broad framework for a six-year supply contract, under which Mr Woolley committed to supply Fonterra exclusively with milk from Glenmae commencing on 1 June 2013.
[36] The annual Suppliers’ Handbook contains the detail of the supply relationship, and it was accepted by the parties to have been incorporated into the supply contract by reference.5
[37] Clause 3.3 of the 2014/15 Suppliers’ Handbook set out the requirements of milk supply. Under that provision Fonterra retained a power to suspend milk collection in specified circumstances. The relevant part of the provision is as follows:
Fonterra can give you notice that it will not collect your milk or has suspended collection of your milk, and as a result you will be considered to have not supplied that milk if:
…
• you have not complied with the Terms of Supply
…
5 Clause 7.1 of the supply contract terms 13/14 stated: “You acknowledge and agree that this agreement may be varied or terminated by Fonterra pursuant to the Standard Terms…”. Clause
7.2 provided that the terms and conditions of supply of contract (sic) milk in other (including subsequent) Seasons are not set out in this agreement and may be different from this agreement.” Finally, the term “Standard Terms” is defined as “the standard terms and conditions of supply applicable from time to time to the supply of milk to Fonterra by Shareholders…”. The front page of the relevant 2013/14 and 2014/15 Suppliers’ Handbooks records “The Suppliers’ Handbook contains the terms and conditions of supply…”. And finally at clause 2 of the Handbook: “This Handbook sets out Fonterra’s standard terms of supply. These are the terms and conditions that all suppliers must meet…”.
• you breach the Environmental Sustainability requirements set out in Section 8 of this Handbook;
If Fonterra does not collect your milk or suspends collection of your milk, you must dispose of the milk at your own cost and it must not be re-presented for collection (see Clauses 4.16 and 4.17).
[38] Section 8 of the Suppliers’ Handbook dealt with environmental sustainability. Clause 8.1 also prescribed the grounds on which Fonterra could suspend milk collection:
8.1 Environmental Sustainability You must:
·meet the following minimum requirements:
·comply with all relevant environmental regulations that apply on your farm;
· comply with the requirements of this Section of the Handbook;
· take all reasonable and practical steps to minimise harm to the environment; and
· ensure that Fonterra’s reputation is not compromised as a result of environmentally undesirable farming practices.
Fonterra will:
·ensure that you are:
· aware of the minimum requirements that you must achieve in order to supply milk to the Co-operative; and
· well supported to continuously improve the environmental outcomes on your farm;
·undertake assessments to ensure that the Co-operative’s minimum requirements are being achieved.
If the minimum requirements are not being achieved:
·where it is identified that the minimum requirements are not being achieved, the issue will be rated as a minor, major or critical hazard;
· “minor” hazards pose a small risk of environmental damage, non- compliance with environmental regulations and/or damage to Fonterra’s reputation. Your Farm Dairy Assessor will work with you to address these issues, but if you require further support you should call the Supplier Services Team in the first instance;
· “major” hazards pose a significant risk of environmental damage, non-compliance with environmental regulations and/or damage to Fonterra’s reputation. Major hazards must be remedied as soon as is practicably possible but no later than the start of the following season;
· “critical” hazards cause environmental damage, and are likely to be non-compliant with environmental regulations and/or cause damage to Fonterra’s reputation. The immediate issue must be remedied within 24 hours. Any further actions that are required to avoid a repeat occurrence must be completed as soon as is practicably possible but no later than the start of the following season;
·where a minor, major or critical hazard is identified, Fonterra may require an Environmental Improvement Plan to be developed that specifies the actions required and the agreed dates by which those actions will be completed;
·if you refuse to participate in the development of an Environmental Improvement Plan, or to implement that Plan, Fonterra will specify the timeframe within which the minimum standard must be met.
If you:
·do not meet the requirements of this Section of the Handbook; or
·do not undertake the actions required in an Environmental Improvement Plan or that your Farm Dairy Assessor requires you to undertake to meet the minimum standards within the specified timeframes; or
·have more than one major or critical hazard in the past three years on your farm; or
·provide incorrect information in relation to this section of the Handbook.
Fonterra may:
·charge a fee of $200 plus GST for a farm visit by a Fonterra representative;
·charge a fee of $250 plus GST for a farm visit by a Fonterra representative where the development of an Environmental Improvement Plan is required;
·require, at your cost, an independent consultant to develop an Environmental Improvement Plan that will achieve the minimum standard;
·suspend the collection of your milk and as a result you will be considered to have not supplied that milk.
If Fonterra suspends collection of your milk, you must dispose of the milk at your own cost and it must not be re-presented for collection (see Clauses 4.16 and 4.17).
[39] Clauses 8.1 to 8.5 then set out mutual obligations between Fonterra and milk supplying shareholders on specific environmental issues including, amongst other things, effluent management, waterway management, and water-use management. Clause 8.2 is of particular relevance:
8.2Effluent Management
Effective effluent management ensures that this valuable resource is utilised to its fullest extent and that our ground and surface water bodies are protected from contamination. Adherence to the Co-operative’s requirements will allow us to demonstrate a strong record of meeting regulatory requirements.
In accordance with the Sustainable Dairying Water Accord, we will work with suppliers to reduce their reliance on effluent systems that discharge to water.
You must:
·meet the following minimum requirements:
· all sources of effluent collected on the farm are managed in a manner that complies with the relevant Regional Council resource consent or permitted activity rules, 365 days a year;
·in the event that the minimum requirement is not met:
· work with a Sustainable Dairying Advisor or Farm Dairy Assessor to create an Environmental Improvement Plan that sets out the actions required to achieve the minimum standard and the timeframe within which this is to be achieved; and
· implement the actions in that Environmental Improvement Plan within the timeframes specified.
Fonterra will:
·assess your effluent system during the annual Farm Dairy and Environmental Assessment;
·provide you with support, or refer you to an appropriate service provider, to develop an Environmental Improvement Plan in the event that a major or critical hazard is identified on your farm; and
·undertake follow up assessments to ensure that the actions specified in the Environmental Improvement Plan are completed and the minimum requirement is being achieved.
[40] In evidence there was some disagreement as to whether Mr Woolley had received the 2014/15 Suppliers’ Handbook before the start of the season. Nothing turns on this because Mr Woolley accepts that he would otherwise have been bound by the terms of the 2013/14 Suppliers’ Handbook, and there is no material difference in the relevant provisions between the two versions. In any case, I am unable to accept Mr Woolley’s evidence on this point. In addition to mailing the Suppliers’ Handbook before the start of each season, the document was published and available on Fonterra’s website. And, both parties presented their cases in reliance on cls 3.3, 8.1 and 8.2 noted above.
The resource consents for Glenmae and construction of the effluent ponds – the certification saga begins
[41] As part of his conversion of Glenmae into a dairy farm, in 2008 Mr Woolley applied for a resource consent for the construction and operation of an effluent pond. The pond design and the assessment of effects accompanying the application was prepared by a chartered engineer, Mr Jan Dimmendaal.
[42] An important feature of the resource consent application was that cl 2.1 of the ‘Assessment of Effects on Environment’ specified that the ponds would be constructed in accordance with an industry guideline in use at the time called “Dairying and the Environment – Pond Systems”, published by Dairy NZ. This document was commonly referred to as the “DEC guideline”, to which I will return later.
[43] Mr Dimmendaal’s design contemplated five ponds: one anaerobic pond, two aerobic ponds and two holding ponds. Effluent would primarily be discharged to land by combining it with irrigation water and discharging it through a centre pivot irrigator.6
[44] The resource consent also provided that the effluent ponds would be constructed in accordance with Mr Woolley’s application, and therefore the requirements of the DEC guideline and the assessment of effects prepared by Mr Dimmendaal, which accompanied the consent application.
6 The resource consent provided that in the event the centre pivot irrigator malfunctioned a travelling irrigator would be used as a standby system.
[45] The pond design in the application originally contemplated that a 1.5 mm thick high-density polyethylene liner would be used to line the ponds. However, it appears that this method of sealing the ponds was abandoned before the consent was granted.
[46] The first resource consent was nevertheless granted by MDC in December 2008. It expressly provided that the ponds would be lined with compacted clay, which at the time was an acceptable design solution under the DEC guideline. The application, consistent with the guideline, also provided for batter slopes on the ponds of 2:1,7 and a free-board of 500mm.8 These requirements were important; if the banks of the pond are too steep, or there is insufficient free board, they are prone to collapse or may be undermined by the liquid in the pond, giving rise to a risk of unauthorised effluent discharge to land or water.
[47] Notably, the resource consent required that the installation of the effluent system be certified by a designing engineer. Upon completion, the compliance manager of MDC was to be provided with “as built” plans together with certification confirming that “the system has been installed and is functioning according to the approved design”. The condition went on to provide:
The discharge shall not commence until such time as that certification has been received by the Manager, compliance, Marlborough District Council.
(emphasis added)
[48] Construction of the original proposal started in accordance with Mr Dimmendaal’s design. Mr Woolley undertook the work himself by commencing construction of an anaerobic pond (hereinafter “pond 1”). It also appears that, at the time, it was not uncommon for farmers to construct their own effluent ponds, rather than hire contractors to do so.
7 A “batter slope” is a wall with a receding slope. A 2:1 slope is twice as long as it is high, with an angle of 26.6 degrees from the horizontal.
8 The term “free-board” refers to the height of pond bank sitting above the pond level when operational.
[49] Importantly, the pond construction work that appears to have taken place between 2008 and early August 20109 was not supervised by Mr Dimmendaal or any other qualified engineer.
[50] Mr Woolley’s evidence was that this occurred because after the project commenced Mr Dimmendaal left private practice and began employment with a local authority. It does not appear that another engineer was engaged to take over Mr Dimmendaal’s role or to supervise the work so that the required certification could be provided to MDC.
[51] Mr Dimmendaal’s five pond design did not ultimately find favour with Mr Woolley. Mr Woolley’s evidence was that the effluent system proposed and authorised by the 2008 resource consent relied on a centre pivot discharge method as its primary means of spreading effluent. According to Mr Woolley, questions had by this time been raised about the efficiency and environmental impact of centre pivot delivery systems. He said that he and Mrs Woolley “chose to use the alternative method applied for (the effligator)”. Mr Woolley also chose to construct just one aerobic “holding” pond, which I will refer to in this judgment as pond 2.
[52] This deviation from the approved design caused a discussion to take place between Mr Woolley and Council officers sometime in April 2010. His evidence was that Council officers suggested he should apply for a variation of the resource consent.
[53] I pause here to note that construction of a two-pond system, and principal use of an effligator, was an obvious breach of the 2008 resource consent. Indeed, as will become evident, Mr Woolley’s decision not to follow Mr Dimmendaal’s plan or engage a new engineer to supervise construction of the two ponds is in many ways the real cause of his difficulties in the years that followed.
9 The evidence is not clear as to when exactly the ponds were constructed. Mr Woolley’s evidence suggested, by implication, construction began in 2008 shortly after the first resource consent was granted. It is clear, based on Mr Woolley’s own evidence, that pond 1 was constructed and “in use” by 4 August 2010, because on that date he received a letter from MDC raising concerns that pond 1 had not been sealed correctly and could be discharging effluent into ground water. That letter also indicates that the aerobic pond (pond 2), had also been constructed. This broad timing is also consistent with the Environment Court’s finding that “Cows were first milked, and the effluent system first operated, in the 2009/10 milking season.” See Marlborough District Council v PJ and SM Woolley [2014] NZEnvC 79 at [18] [enforcement order decision].
[54] On 2 August 2010, Mr Woolley applied for a new resource consent. The new application reflected the two-pond system and would rely principally on an effligator as the means of spreading effluent on the property. Like the first consent application, the second also specified that the pond design and construction would be carried out in accordance with the DEC guideline. Mr Woolley prepared the application and the assessment of effects himself but appears to have used information contained in Mr Dimmendaal’s earlier work when doing so.
[55] The effluent management plan which accompanied the consent application specified that as part of the annual maintenance of the effluent system Mr Woolley would clean out all sumps and storage “so that the system is free of effluent solids and ready to go for the new milking season”.
[56] Both ponds were described as having a free-board of 500mm, and batter slopes of 2:1. And, importantly, one of the voluntary conditions proposed by Mr Woolley required both ponds to be “lined with compacted clay”.
[57] Mr Woolley’s application for a replacement resource consent prompted an exchange of correspondence with MDC. On 4 August 2010, a resource management officer wrote to Mr Woolley acknowledging receipt of his application for a replacement consent. Portending the controversy to follow, the letter went on to record:
Before I continue processing the application I would like you to provide some further information. Council has been informed that the anaerobic pond is not sealed correctly and could be discharging effluent directly into the groundwater system. Therefore can you provide evidence that the anaerobic pond and the aerobic holding pond are adequately sealed, either by an engineer’s certification or by independent testing.
This application will be placed on hold under Section 92 of the Resource Management Act 1991.
[58] Mr Woolley responded to this letter on 10 August 2010, saying that he wished to know the name of the informant who had alleged the anaerobic pond was not sealed correctly. Mr Woolley also advised that the pond was not leaking.
[59] Some weeks later, on 1 September 2010, MDC issued Mr Woolley with a replacement consent.
[60] Once again, the terms of the consent are important in order to understand the events that unfolded several years later.
[61] First, the consent recorded as its first condition, as is commonly the case, that the “activity shall be in accordance with the resource consent application…received by Council on 2 August 2010.” In so doing, Mr Woolley’s design specifications, including the batter slopes, free-board and compliance with the DEC guideline, were incorporated into and became part of the conditions of the consent.
[62] Second, the consent specified that both ponds were to be lined with compacted clay.
[63]Third, crucially, condition 4 of the consent stated:
The installation of the effluent system shall be certified by the designing engineer upon completion of the installation, which is then to be provided to the Manager, Compliance, Marlborough Council. The certification shall confirm the system has been installed and is functioning according to the approved design. The discharge shall not commence until such time as that certification has been received by the Manager, Compliance, Marlborough District Council
(emphasis added).
[64] This condition reflected the concern raised in MDC’s letter of 4 August 2010. And it will again be readily evident from the foregoing outline that while Mr Woolley had constructed the ponds, he had not engaged a consulting engineer to provide the necessary certification, and therefore that his continued use of the effluent system would be a breach of the second resource consent.
Environmental issues begin to emerge on the Woolley dairy farms: 2011-2013
[65] Mr Woolley was not able to keep on top of regulatory and compliance issues on each of his three farms. The farming infrastructure on Matakitaki and Tuamarina required upgrades to remain compliant. And Glenmae was a relatively new
conversion. It is also clear that Mr Woolley’s attitude towards Council officers and his obligations under the RMA was increasingly becoming a problem.
[66] The events that unfolded on Glenmae in mid-2014 cannot, therefore, be seen in isolation. They followed issues which had arisen from enforcement proceedings taken by MDC relating to Tuamarina’s effluent system. It is therefore to Tuamarina that we first turn.
Problems with effluent on Tuamarina
[67] By 2011, Fonterra was coming under pressure to do something about Mr Woolley’s lack of environmental compliance following a media report.10 On 30 July 2011, Fonterra sent Mr Woolley a letter relating to sustainable farming practices on his properties. It went on to explain that there may have been times when Mr Woolley’s effluent systems did not comply with Council regulations or Fonterra’s sustainability requirements, and:
Clause 8.1 of your 2011/12 Suppliers’ Handbook states that suppliers must comply with all resource consent and permitted activity requirements of your local Regional Council and suppliers must comply with the Dairying and Clean Streams Accord targets. If suppliers are found to be in breach of these Fonterra may suspend collection of your milk until the issue is resolved.
[68] During 2012, MDC continued to monitor Mr Woolley’s dairying operations. It also regularly communicated with Fonterra staff to inform them of impending farm inspections, and their results.
[69] In September 2012, MDC sent a letter to Mr Woolley indicating that it would carry out full compliance inspections on his farms the following month. It also sent a copy of that letter to Fonterra. At the same time — it would seem in response to MDC’s concerns — Fonterra was considering sending a senior business manager, Mr Steve Murphy, to Mr Woolley’s farms in order to make clear Fonterra’s expectations as to environmental compliance. One internal Fonterra email referred to Fonterra looking for “dirt” on Mr Woolley from previous farm inspections. While the choice of expression is unfortunate, and received some attention from Mr Woolley in
10 Mr Woolley’s evidence was that a visit by a Fonterra Sustainable Dairy Adviser in September 2011 “followed a media report asking when Fonterra might stop picking up my milk.”
his evidence and submissions, it is clear from the context of the communications that Fonterra staff were looking to obtain information on the previous level of compliance on Mr Woolley’s farms so that, when Mr Murphy met with Mr Woolley, he would have a clear understanding of the situation on the properties. As it happened, Fonterra concluded that at that point in time “neither MDC nor us have anything substantial to pin Mr Woolley down with…”. As a result, the planned meeting between Mr Murphy and Mr Woolley did not proceed.
[70] In October Ms Shelley Lines, a compliance administrator at MDC, and Mr Congden, the enforcement manager, sought to carry out an inspection of Tuamarina and Glenmae farms. Their original plan had been to do so in early October 2012, but Mr Woolley wrote a letter to the Council refusing entry to Council staff onto his properties. MDC then sought a search warrant, which appears to have delayed the inspection. When the inspection occurred on 10 October 2012, Ms Lines and Mr Congden were accompanied by a Police officer.
[71] Mr Woolley was clearly unhappy to see the Council staff. He ripped up the search warrant and began to act aggressively toward Ms Lines. The Police officer stood between them and asked Mr Woolley to calm down. Mr Woolley continued pacing backwards and forwards and tried to get around the Police officer to get closer to Ms Lines. He also directed abusive language at her. All of this was reported to the Fonterra staff dealing with compliance issues on Mr Woolley’s farms in an email of 17 October. They were Ms Mirka Langford, Ms Libby Sutherland and Mr Victor Gahamadze.
[72] During his evidence before me Mr Woolley did not accept his behaviour towards Council staff was aggressive or intimidating, but he nevertheless largely agreed with the accuracy of Ms Lines’ email to Fonterra staff. To the extent there is any conflict between Mr Woolley’s evidence and Ms Line’s record of their interaction, I have no hesitation in preferring Ms Line’s account.
[73] Matters did not improve. In mid-2013 Mr Woolley’s dairying operations on Tuamarina again began to attract adverse media attention.
[74] That publicity followed enforcement proceedings brought by MDC against Mr Woolley and an associated company in relation to the dairy operation at Tuamarina. A hearing was scheduled to take place in relation to those proceedings between 24–26 July 2013. The Environment Court was sufficiently concerned about the situation presented to it by the Council that of its own initiative it summonsed Mr Murphy, the Director of Milk Supply, to attend the hearing and give evidence.
[75] The Court summons appears to have galvanised Fonterra into action. On 19 July 2013 Mr Murphy and Mirka Langford, a Sustainable Dairying Advisor, met with Mr Woolley to discuss the conditions of the Tuamarina and Matakitaki farms. Fonterra subsequently prepared environmental improvement plans (or EIPs) consistent with cl 8 of the Suppliers’ Handbook. Those plans required Mr Woolley to attend to certain matters on the farms within specified time-limits. After a follow-up inspection in August, Fonterra considered that Mr Woolley had not completed the works required for Tuamarina under the EIP relating to lane effluent. On 28 August 2013, Fonterra wrote to Mr Woolley advising him that if the work required by the EIP had not been carried out by 30 August, Fonterra would suspend milk collection in accordance with clause 7.4 of the Suppliers’ Handbook.
[76] Mr Woolley completed the necessary work and milk collections were not suspended.
[77] However, on 30 August 2013, the Environment Court determined that Mr Woolley was in breach of the resource consent conditions relating to effluent storage and discharge on Tuamarina.11
[78] A primary issue was inadequate storage for wash-down water and effluent from the milking shed. A small effluent sump (a reservoir serving as a drain or receptacle for liquids) was located under a disused piggery floor, which, unless emptied, had insufficient capacity to deal with the requirements of the milking shed, leading to effluent overflowing to the floor and, eventually, to the ground.12 The Court also found
11 Marlborough District Council v Awararua Farms Marlborough Ltd & Woolley [2013] NZEnvC 206.
12 At [9]–[15].
that Mr Woolley was failing to comply with the requirements of the regional plan in relation to the disposal of dead animal carcases,13 and raceways were in such poor condition that they allowed “significant ponding of effluent and water”.14
[79] The Environment Court found that Mr Woolley and his company were not conducting the dairying operation in accordance with the requirements of the resource consent governing effluent treatment and application.15 In fact, the Court went some way further. It described the situation on Tuamarina as “one of the most serious cases that has been brought to the attention of the Court.”16 The Court stated that MDC had been far too lenient on Mr Woolley, and:17
We are surprised that the Council has allowed such a significant period to elapse since the prosecutions in 2010 before applying for these enforcement orders. We are concerned about the impacts upon the environment that have occurred in the meantime.
[80] And, as noted, the Court’s concern about regulatory complacency did not end with the Council. It had summonsed Mr Murphy to give evidence addressing the steps taken by Fonterra under its supply agreement in relation to Mr Woolley’s company in light of the Freshwater Accord.18
[81] The Court went on to comment on Fonterra’s responsibility to ensure environmental compliance by its shareholding members in these terms:19
[Fonterra’s] more central role in enforcement has yet to work its way through to how the system will be enforced. With failures of milk quality, penalties apply to milk, and a similar regime could be adopted in respect of environmental matters. However to date, no formal steps have been taken. Mr Murphy gave the clear impression that Fonterra was now coming to consider these issues. If it is to avoid the type of case that this Court is faced with now, which are typically described by the public as dirty-dairying, it will need to consider how its regime can be enforced without the Court needing to become involved in prosecution or enforcement actions.
(original emphasis)
13 At [36]–[41]. At [40] the Court noted that during its inspection of the farm “the leg of one cow was still protruding from the ground at the time of our visit.”
14 At [43].
15 At [26].
16 At [69].
17 At [69].
18 At [70].
19 At [74].
[82] The Court nevertheless acknowledged Mr Woolley’s basic contention that the consent was granted on the assumption that if its conditions were met, the effects on the environment would be permissible.20 The most appropriate response was to therefore require Mr Woolley to satisfy the Court that with appropriate modification, the existing effluent system could be used.21 The Court considered that, as a minimum, this would require certification by an appropriately qualified expert that the system (with any necessary modification) could accommodate effluent from three days of washdown in the milking shed, and that the system would not, amongst other things, overflow.22
[83] The Court therefore issued a set of draft enforcement orders and sought further comment from the parties. In essence, the orders prohibited any use of the effluent system (and therefore milking) until appropriate certification had been provided to the Court. That certification would extend to prescribing a maximum number of milking cows and stock on the property.
[84] The Court concluded by ordering MDC officers to carry out inspections at least once per week, pending finalisation of the terms of the enforcement orders.23
[85] The Council inspections and further reports from the Council’s consultants revealed more fundamental concerns with the Tuamarina operation. In a further interim decision of 1 October 2013, the Environment Court noted that the effluent system on Tuamarina may not have had the capacity which Mr Woolley and his company had stated in the application for resource consent.24 The weekly inspections “have demonstrated…there is a serious and on-going compliance situation on this farm that needs to be addressed urgently.”25 By now, it appears Mr Woolley and his company were milking 700 cows. As the prospect of certification of the existing effluent system waned, the Court also called for a report addressing whether dairy farming could continue on the property. The interim decision made repeated references
20 At [27].
21 At [28].
22 At [28].
23 At [78].
24 Marlborough District Council v Awarua Farm Marlborough Ltd & Woolley [2013] NZEnvC 235, at [4].
25 At [6].
to the very real risk that the Court might direct de-stocking of the farm if the environmental position did not improve.26
[86] Interim enforcement orders were then made. A significant change from the draft orders was that they no longer prevented use of the effluent system until certification had been obtained. This probably reflected the reality of the situation; 700 cows in-milk at the height of the dairy season.
[87] The unfolding public story of dirty dairying, and the summonsing of a senior executive by the Environment Court to provide an explanation of the organisation’s efforts to ensure environmental compliance on Mr Woolley’s farms, unsurprisingly sparked internal communications within Fonterra. While Mr Woolley referred to them in his evidence to suggest Fonterra was not acting appropriately,27 I did not find anything in their content which assist in the determination of the issues. The communications reflected Fonterra’s understandable concern over:
(a)the potential risk posed to its reputation and business by the Environment Court proceedings and media reporting on those proceedings, and
(b)the efforts being made to assist Mr Woolley in relation to environmental compliance in an increasingly complex and difficult context which involved robust enforcement action by the Council in relation to two of Mr Woolley’s three farms.
[88] The enforcement proceedings returned to the Environment Court five months later, in March 2014. In response to what appeared to be a position agreed between the parties, the Court concluded that no changes of importance had been made to the dairy effluent system in response to the interim enforcement orders.28 With the 2013-2014 dairy season coming to an end, the Court’s overriding concern was to ensure that dairy farming and re-stocking did not occur for the 2014-2015 season until the position on
26 At [9],[15], and [23]–[24].
27 As well as other emails both pre-and post-dating the Tuamarina Environment Court proceedings.
28 Marlborough District Council v Awarua Farm Marlborough Ltd & Woolley [2014] NZEnvC 89 at [3].
the farm had been “regularised”.29 Although there was no application for a permanent enforcement order, it was essential for the Court to make an order preventing Mr Woolley from re-stocking Tuamarina for the upcoming 2014-2015 season until an entirely new effluent system had been approved and installed. And to ensure compliance with this requirement, the Environment Court made an order requiring de- stocking of Tuamarina at the end of the then current season.30
[89] So, the situation at the start of the 2014-2015 season, which is the focus of Mr Woolley’s claim, saw Tuamarina subject to an order preventing re-stocking of the farm and prohibiting the return of dairy cows for the foreseeable future. Those orders created two difficulties for Mr Woolley: he would have hundreds of in-calf cows in need of a place to calve and be milked, and it would leave one of his three farms incapable of generating income needed to address a significant debt to the bank.
Effluent problems arise on Glenmae: 2012-2014
[90] As noted, in September 2012 MDC wrote to Mr Woolley advising him that it intended to carry out full compliance inspections on his farms the following month.31 The subsequent inspection of Glenmae took place on 10 October. Ms Lines prepared a report of the Council’s findings. The report recorded that Council officers considered that the effluent system failed to comply with eight conditions of the resource consent. Importantly, the report noted that both effluent ponds were operational, but the effluent system had not been certified by the designing engineer, contrary to condition 4 of the consent. The report went on to note that as a result of this “the components [of the effluent system] cannot be verified.” The report also noted that the Council had been advised that “Jan Dimendl (sic) is the engineer who will sign this off.”
[91]Overall, the report concluded that:
The effluent was not being managed in a satisfactory manner. It was most concerning to observe that the cow shed wash down had not been fully completed due to an insufficient water supply. This resulted in the stone trap not being able to function correctly as there was muck, stones and effluent ponding over the entry point and in the surrounding area which is not
29 At [7].
30 At [20].
31 See [69] above.
acceptable. Concrete pad now installed by sump to store solid waste. The area surrounding the sump was boggy with effluent liquid and solids. There is still non-compliance with some of the resource consent U100478 conditions. The second effluent pond is now operation (sic) but the ponds have still not been certified by the designing engineer…
[92]A separate file note kept by Ms Lines recorded:
Both effluent ponds were operational. The effluent system and ponds have not been certified by the designing engineer. No discharges should take place until Council has received certification to confirm that the system has been installed and is functioning according to the approved design.
[93] I pause once again to note Mr Woolley’s breach of the resource consent. Given condition 4 of the consent recorded that “the discharge shall not commence until such time as [the designing engineer’s] certification has been received by [MDC]”, there can be little doubt that Mr Woolley was at this time still operating the effluent system on Glenmae unlawfully.
[94] MDC wrote to Mr Woolley on 11 February 2013 pointing this as well as other areas of non-compliance out to Mr Woolley. The letter noted that on 23 April 2012 Mr Woolley had advised that Jan Dimmendaal was the responsible engineer, and made a request:
Please contact Jan to have the effluent system certified and a copy of this forwarded to Council as soon as possible.
[95] The letter also drew Mr Woolley’s attention to the minimum standards of compliance required by cl 8.3 of the Supplier’s Handbook. It then concluded with a warning to Mr Woolley: “due to the ongoing multiple areas of non-compliance and poor management practices Council may consider taking further enforcement action.”
MDC applies for enforcement orders and Fonterra issues an EIP
[96] The ongoing lack of an acceptable certification for the effluent system led MDC on 26 June 2013 to file an application for an enforcement order in the Environment Court.32 Mr Woolley filed an opposition in which he argued that the
32 It should be remembered that at this point in the dairying calendar milking was not underway and would not be likely to start in earnest for at least two months.
requirement for certification was a mistake because there had not been a certifying engineer involved in the design of the as-built ponds.
[97] By December 2013 the differences between Mr Woolley and MDC in relation to certification of Glenmae’s effluent system had not been resolved. MDC filed an amended application for enforcement orders on 23 December 2013, which expanded the terms of the orders sought. One difference which by then had arisen between Mr Woolley and MDC was the suitability of an engineer to certify a system they had not designed or overseen its construction. Another was whether, as the Council maintained, the certification would need to confirm that the effluent system met the Farm Dairy Effluent Design Standards of 2 April 2013, or, as Mr Woolley contended, the less rigorous standards of the DEC guideline applicable at the date of construction in 2010. And, importantly, the amended application sought an unless order, requiring Mr Woolley to cease using the milking shed and effluent system until a suitable certificate had been supplied to the Council.
[98] In parallel with its enforcement proceedings, MDC continued to liaise with Fonterra about the situation on Glenmae. Mr Woolley in turn sought Fonterra’s intervention on his behalf with the Council. Indeed, an internal Fonterra email in October 2013 indicated that its staff did not necessarily accept of MDC’s view of the compliance failures on Mr Woolley’s farms.33
[99] By November 2013, Mr Woolley began to explore the possibility of an artificial liner as a means to resolve MDC’s concerns. Ms Langford corresponded with both Mr Woolley and MDC about that possibility. As the Council noted, use of an artificial liner was not part of the resource consent and would require a separate variation to its terms. In addition, Mr Woolley was only prepared to re-line pond 2. So, the proposal did not address the Council’s concern that both ponds were leaking.
33 It said MDC’s reports were “quite unprofessional showing many everyday aspects of farming that should not be highlighted in an inspection report” and that MDC were “nitpicking and will not stop until they have driven Philip out.” A later internal email exchange between Ms Langford and Libby Sutherland of Fonterra also indicated a healthy level of independence by Fonterra decision makers about MDC’s approach to Mr Woolley.
[100] On 2 December 2013, Ms Langford issued an “Environmental Improvement Plan”, or EIP, for Glenmae under clause 8.1 of the Suppliers’ Handbook. That EIP closely reflected the findings of MDC’s October inspection report and its requirement for certification. The EIP identified four deficiencies in relation to effluent management:
(a)the lack of certification by the designing engineer;
(b)the lack of notification of the mechanism for effluent application (centre-pivot or travelling irrigator);
(c)the lack of information confirming the total nitrogen loading for the nominated effluent area as less than 200kg/ha; and
(d)the failure to display the effluent management plan and resource consent conditions in an obvious place in the cowshed.
[101] The EIP rated each of these issues as “major” in terms of cl 8.1 of the Suppliers’ Handbook.34 Mr Woolley was required to present certification of the system by the designing engineer to the Council by 31 March 2014. If he was unable to do so he was directed to apply to vary the resource consent condition. The EIP noted Mr Woolley’s intention to reline one pond, and the deadline of 31 March 2014 was set in order to accommodate that intention. It also warned Mr Woolley that a failure to meet the environmental standards required of milk suppliers could result in suspension of his milk collection.
[102] Mr Woolley responded to the EIP by email on 7 January 2014. He confirmed that he was “looking at lining the second pond to alleviate the need for it to be certified by a designing engineer.” He then asked if this would meet Fonterra’s requirements. Ms Langford’s response included a verbatim record of an exchange she had with Ms Lines from MDC on that question; in short, as there was no designing engineer, a
[491] More fundamentally, though, the situation Mr Woolley found himself in was a product of his own making. As we have seen, he brought the cows on to Glenmae and essentially engineered the appearance of an animal welfare crisis to exert pressure on the Council, Fonterra and the Environment Court. I therefore do not accept Mr Morten’s submission that Mr Woolley found himself innocently facing two
188 In Patel v Mirza the majority accepted Professor Burrows’ list of relevant factors for assessing proportionality was helpful; one of those factors was whether the conduct was intentional.
inevitable forms of unlawful conduct. In that context, the balancing approach to illegality Mr Moreton spoke of would fall decidedly against Mr Woolley.
Alternative ground
[492] Given the finding on causation it is not necessary to determine Fonterra’s alternative contention that it is up to Mr Woolley to produce evidence of the counterfactual, that is, had he not undertaken any unlawful milking at Glenmae until the 25 September 2014 — the date the Environment Court issued its decision to amend the enforcement order — he would then have had milk available for Fonterra to pick up the next day or some other unidentified date.
[493] It does seem, however, that Fonterra’s argument may not be a complete defence given that it may have been open to Mr Woolley to bring cows on to Glenmae after the 25 September date to begin calving. The quantum of damages might not be the full measure sought, but it is at least difficult to exclude the possibility.
PERIPHERAL ISSUES
[494] There were several recurring — often background — issues raised by Mr Woolley that I will deal with briefly, as they were not central to the parties’ cases, or do not affect the outcome in this case.
Mr Radich as Milk Commissioner
[495] One of Mr Woolley’s arguments was that in order to exercise its discretion reasonably, Fonterra had to have regard to his inability to turn to the Milk Commissioner as part of the dispute resolution process set out in Fonterra’s constitution.
[496] Clause 17.1 of the constitution provides that Fonterra’s Shareholders’ Council shall, in consultation with the Minister,189 appoint a Milk Commissioner for such period (not exceeding 2 years) and on such terms as the Shareholders’ Council thinks
189 “Minister” means any Minister of the Crown who, under the authority of any warrant or with the authority of the Prime Minister, is for the time being responsible for any function or matter contemplated by this Constitution.
fit. One of the core functions of the Commissioner is to consider shareholders' complaints or disputes which cannot be resolved in accordance with the Company's internal complaints procedure, arising out of either the supply of milk to Fonterra pursuant to the constitution and the terms and conditions, or the board’s determination of the average quantity applicable to that shareholder. 190
[497] The Commissioner is also required to facilitate the settlement, resolution or withdrawal of complaints by agreement, by making non-binding recommendations or by such other means as seem expedient. The Commissioner is then to report to Fonterra’s board and Shareholders’ Council on the status and outcome of all concerns or complaints referred to the Commissioner.
[498] From 2004 the Milk Commissioner was a Mr Peter Radich, who was also a legal advisor to MDC, and a member of its prosecutions committee. In addition, Mr Woolley says Mr Radich was the lawyer for his competitors in land acquisition and water rights matters and was accordingly “wholly conflicted”. Mr Woolley says that in consequence he was unreasonably deprived of part of the intended protections for him in his dealings with Fonterra.
[499] Fonterra’s position is that, as Mrs Brewer described, the Milk Commissioner process always had only a non-binding outcome which involved moving first through the requisite internal dispute resolution process. There is no realistic opportunity Mr Woolley has missed through the position of conflict of the Milk Commissioner.
[500] Bylaw 3.1 of the ‘Milk Commissioner’s By-Laws’ states that the Milk Commissioner shall only consider (or continue to consider) a complaint made or referred to if certain criteria are met. And criteria (c) is that: the complaint has been finally considered and determined in accordance with the internal complaint procedures of the Company. The relevant internal complaint procedures in this context are found in the Suppliers’ Handbook at cl 12.6, which sets out a three-stage process to achieve an effective resolution. In short, the three steps are:
190 Clause 17.2
(a)First contact the local area manager, ring the 0800 number or use the website to lodge the complaint and an appropriate person will follow through with the complaint and contact the shareholder with progress and a satisfactory resolution where possible;
(b)If all efforts to reach a solution in the first step have been exhausted, review by the Fonterra Relations Committee can be requested, who will consider the complaint and advise the shareholder of their decision;
(c)If still dissatisfied, the shareholder can take the complaint to the Milk Commissioner.
[501] Mr Woolley questions the appropriateness of Mr Radich as Milk Commissioner being involved in the dispute given he and his firm were also the Council’s advisers. The problem, however, is that the dispute never got to Mr Radich. The internal complaint procedures were never engaged. Mrs Brewer acknowledged in cross-examination that Mr Radich clearly could not have heard the dispute involving Mr Woolley, and she confirmed Mr Morten’s suggestion that there was not an alternate Commissioner “waiting in the wings”. But there were also invitations by Mrs Brewer to Mr Clark to approach the Shareholders’ Council to get an alternate Commissioner to hear the dispute. Mr Woolley, for whatever reason, did not pursue that option. So, there is nothing in this point.
Hills Laboratories’ test
[502]This issue relates to the clay content of the lining of pond 1.
[503] On 13 August 2014 Ms Lines and Mr Congdon undertook a site visit at Glenmae. In attendance were Mr Thomas and Mr Paul from IP Consultants. A soil sample was collected at 9.30am. Ms Lines’ evidence was that the soil was taken from excavation materials on the north side of pond 2. In her notes of the site visit, a photo of Mr Thomas performing a worm test is captioned “Soil taken from pond 2 was examined.” In cross examination Ms Lines accepted that Mr Thomas dug the sample up, but her own evidence is that she bagged the sample and took it back to the office.
It remained in a fridge for a number of days before it was sent to Hills Laboratories for testing.
[504] Hills Laboratories registered the soil sample on 21 August 2014. A company called Eurofin NZ Laboratory Services Ltd was instructed to carry out an analysis of the sample. Hills emailed the results to Ms Lines on 4 September 2014 in a table form:
[505] These results were not passed on to Mr Thomas. Ms Lines’ explanation for that was:
I can explain that by the time that soil result was provided to MDC on 4 September 2014, there were no further applications before the Environment Court and Mr Thomas was not required to give evidence. Mr Thomas was a consultant from IP Consultants who had been involved in assisting MDC in its opposition to Mr Woolley’s application for interim milking and he provided an affidavit in respect of that application dated 22 August 2014. That application did not proceed. In any event, the soil sample did not have any relevance on the Report because Glenn Thomas’ Report was on Pond 1.
[506] In cross-examination Ms Lines accepted that Mr Thomas would have written his report without the Hills’ results. In any event, the main issue here is where the sample was taken from.
[507]In his brief of evidence, Mr Clark asserted:
Council officers had gone to Glenmae on 12 and 13 August and taken a sample of the lining of pond 1 during the deconstruction process of pond 2… (emphasis added)
[508] It is unclear how Mr Clark was able to make this claim as it does not appear to be based on personal knowledge. Nevertheless, Mr Clark went on to say the soil analysis results clearly showed that there was a sufficient clay content of the lining to meet the consent and the DEC guideline. However, as noted, Ms Lines’ evidence was
that the sample was taken from pond 2. Indeed, in the 2015 prosecution proceedings Ms Lines was asked where the sample was taken from:
QDid you understand from Mr Thomas what the purpose of the sample was?
A No the sample was taken from the excavation site beside, beside pond
2 and I was asked to take the sample and drop it off at Hills Laboratories.
Q This was in the area between pond 2 and pond 1 was it?
AIt was to the north side of pond 2 where the excavation materials were stored from pond 2.
[509] The Judge asked Ms Lines further questions about the location by reference to some photographs. After that exchange the Judge asked Ms Lines “So is that the northern side of pond 2, is it”? To which Ms Lines replied, “Yes that is”.
[510] Perhaps the fatal blow for this point is that in cross examination in this proceeding Mr Woolley accepted that the sample was not taken from pond 2:
A. They [referring to Opus] may have said that but then they didn't do any testing did they? The only one that's done any testing of anyone of a reputable nature is MDC 5 itself which then come back with 17% clay which then added the other fines into it which according to the debt manual, are all sealing properties and that adds up to 54%.
Q. Well Mr Woolley pause there please because as you know Mr Woolley that the test that was taken wasn’t even from pond 1, you know that. Your evidence
– you know that don’t you?
A. Well, yeah, correct, but for pond 1 to act like it did and seal, it had to have an element to clay in there and it had to have the sealing properties of clay.
[511] Ms Lines was not cross-examined by Mr Morten in any great depth on the location of the sample. She did not resile from her position that the sample was taken from pond 2. And Mr Woolley himself conceded the sample was not from pond 1. In that context, the Hills Laboratories’ results is of no relevance to the clay content of pond 1.
Result
[512]Mr Woolley’s claim is dismissed for four reasons:
(a)The engineer’s certificate he obtained did not meet the requirements of the Environment Court’s enforcement orders, and so he remained in breach of its terms and the resource consent after 5 September 2014;
(b)Fonterra’s exercise of its contractual discretion was not unreasonable in the circumstances;
(c)Fonterra’s notice suspending milk collection was properly issued and effective; and
(d)Mr Woolley’s own unlawful conduct is a necessary pre-condition of his claimed loss, and is not recoverable.
[513] Although this result will no doubt be disappointing for Mr Woolley, he could not have been better served at the trial by Mr Morten. He presented a difficult case with skill and determination.
[514] Given the result, I would be inclined to award costs to Fonterra on a 2B basis and certify for second counsel. I invite the parties to resolve costs between themselves. If they are unable to do so, Fonterra should file a memorandum not exceeding 10 pages (excluding any schedules) within 15 working days. Mr Woolley may reply 15 working days thereafter. I will then determine costs on the papers.
Isac J
Wisheart Macnab & Partners, Blenheim for Plaintiff Harkness Henry, Hamilton for Defendant
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