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Keller v Daisley [2021] NZCA 351 (29 July 2021)

Last Updated: 3 August 2021

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA271/2020
[2021] NZCA 351

	BETWEEN	PAUL GERRARD KELLER AND KAREN ELIZABETH KELLER First Appellants ARK CONTRACTORS LIMITED Second Appellant
	AND	MALCOLM JAMES DAISLEY Respondent

CA30/2021
	BETWEEN	MALCOLM JAMES DAISLEY First Appellant HPL DISTRIBUTION LIMITED Second Appellant ACTION FENCING LIMITED Third Appellant
	AND	ARK CONTRACTORS LIMITED First Respondent PAUL GERRARD KELLER Second Respondent
CA31/2021
	BETWEEN	MALCOLM JAMES DAISLEY First Appellant HPL DISTRIBUTION LIMITED Second Appellant
	AND	ARK CONTRACTORS LIMITED Respondent

Hearing:	29–30 June 2021
Court:	Cooper, Collins and Goddard JJ
Counsel:	J A Browne for Appellants in CA271/2020 and Respondents in CA30/2021 and CA31/2021 E L Smith for Respondents in CA271/2020 and Appellants in CA30/2021 and CA31/2021
Judgment:	29 July 2021 at 3.00 pm

JUDGMENT OF THE COURT

CA271/2020

The appeal in CA271/2020 is allowed.
The award of damages/equitable compensation to Mr Daisley is set aside.

The cross-appeal in CA271/2020 is dismissed.

The respondent must pay the appellants costs in respect of the appeal and cross-appeal, in each case for a standard appeal on a band A basis, with usual disbursements.

CA30/2021

The appeal in CA30/2021 is allowed in part. The damages awarded are increased by $577.50. The appeal is otherwise dismissed.
The appellants must pay the respondents 90 per cent of the costs for a standard appeal on a band A basis, with usual disbursements.

CA31/2021

The appeal in CA31/2021 is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis, with usual disbursements.

____________________________________________________________________

Table of contents

Para no

REASONS OF THE COURT

(Given by Goddard J)

Introduction

[1] A business transaction between the Daisley interests and the Keller interests in 2009/2010 quickly turned sour. It spawned three sets of proceedings, which were heard before Walker J in the High Court over some three weeks in 2019 and 2020. From each of those decisions, the unsuccessful parties appeal to this Court.
[2] The main dispute concerns the performance of agreements entered into on the eve of the first of four mortgagee sales of four properties owned by the Daisley interests. As contemplated by that arrangement, the Kellers established Ark Contractors Ltd (Ark). Ark purchased the four properties, using equity provided by the Kellers and bank funding. Ark was to be owned by the Kellers and the Daisleys, with shareholdings set by reference to initial equity contributions (the funds introduced by the Kellers, and the Daisleys’ remaining equity in the properties).
[3] The parties signed an agreement setting out the essential elements of this arrangement on 2 December 2009 (the Ark agreement). Shortly afterwards, Mr Daisley claimed that this agreement had been entered into under duress. There was a re-negotiation in the period leading up to the date by which Ark needed to complete a purchase of the properties, to avoid a mortgagee sale. An agreement was reached to enable the transaction to proceed (the January 2010 agreement). That agreement included the terms of a shareholders agreement for Ark. Ark purchased the properties.
[4] The Kellers then claimed that the January 2010 agreement was entered into under duress, and purported to set it aside, restoring the original terms.
[5] The duress allegations — running both ways — occupied a significant part of the hearing time in the High Court. The Judge rejected these allegations.^[1] Those findings are not challenged on appeal. Thus the parties’ mutual rights and obligations are governed by the Ark agreement, as modified by the January 2010 agreement.
[6] Further differences arose. The Daisley interests were to rent one of the properties, known as “the Depot”. They continued to occupy it. But they did not pay the agreed rent, and in August 2010 they moved out. They removed two office buildings from that property, and were in the process of removing more buildings when they were prevented from doing so by the Kellers. The Kellers say that the Daisleys converted those two buildings. The Kellers then locked the Daisleys out of the Depot. The Daisleys say that the Kellers converted various chattels which the Daisleys had not yet removed from the property before they were locked out. They say they were denied the opportunity to recover those chattels.
[7] As a result of the various disputes that arose between the parties, Mr Daisley never received the shareholding in Ark that he had been promised. The Kellers have consistently taken the position that they are willing to issue those shares to Mr Daisley, once certain pre-conditions are met.

The main proceedings (CA271/2020)

[8] The primary claim brought by the Daisley interests against the Keller interests alleged (as well as duress) breaches of contract, breaches of fiduciary duty and a constructive trust. The Judge did not accept any of those claims as pleaded. But the Judge found that the Kellers and Ark had breached a contractual obligation to issue shares to Mr Daisley.^[2] The Judge found that this was also a breach of fiduciary duty.^[3] She made an award of equitable compensation/damages of $541,721 against Ark and the Kellers. This was the amount that Mr Daisley was treated as contributing to Ark by way of equity in the properties, under the Ark agreement as amended.^[4] Effectively, the Judge ordered that he be repaid his initial investment.
[9] No claim for breach of an obligation to issue shares in Ark had been pleaded, and no formal application to amend the pleadings was made at trial — indeed the Daisleys’ claim was only framed in this way in closing.
[10] The Judge declined to award interest to Mr Daisley on the compensation/damages awarded, on the basis that no claim for interest had been pleaded.^[5]
[11] On appeal, the Kellers challenge the award of equitable compensation/damages. The Daisleys challenge the Judge’s refusal to award interest.

The Depot proceedings (CA31/2021)

[12] Ark brought proceedings against Mr Daisley for conversion of the two office buildings. Ark also claimed against two companies owned by the Daisleys — Action Fencing Ltd (Action Fencing) and HPL Distribution Ltd (HPL Distribution) — for unpaid rent in respect of the Depot. There was also a claim for reimbursement for certain expenses which Ark had met on behalf of the Daisleys. Those claims were largely successful.^[6]
[13] Mr Daisley appeals in relation to the conversion finding, and HPL Distribution appeals in relation to liability for rent.

The chattel conversion proceedings (CA30/2021)

[14] Action Fencing, HPL Distribution and Mr Daisley claimed for conversion of property left behind at the Depot, which they say they were not permitted to remove, and some of which was delivered to third parties rather than to them. That claim was partly successful in the High Court.^[7] They appeal from the Judge’s decision dismissing their conversion claim in respect of a number of other items of property.

Background

The Daisleys face significant financial pressure

[15] Mr Malcolm Daisley (known as Jimmy Daisley) is a contractor, company director and businessman in the Whangārei district. At the relevant time, he was living at the Depot: a property in Maungakaramea, about 10 kilometres south of Whangārei. Mr Daisley also ran his businesses from the Depot.
[16] Mr Daisley’s son, Scott Daisley, works with him in his contracting business. Scott Daisley was closely involved in the events giving rise to the parties’ litigation with the Kellers. He was also a director of SDD Ltd (SDD), one of the parties in the High Court (but not before this Court).
[17] In late 2009 Mr Daisley and his companies were under significant financial stress. He was facing a mortgagee sale of four properties:

(a) the Depot at 1 Maungakaramea Road (NA61B/263) — a one-hectare property owned by Mr Daisley;

(b) Tangowahine Valley Road (NZ30A/927) — a 45-hectare rural property located between Whangārei and Dargaville, owned by SDD;

(d) Valley View Road (Lot 4 NA 130B/848; Lot 5 identifier 39602; Lot 6 identifier 39602) — three properties owned by Mr Daisley totalling about 19 hectares.

[18] Mr Daisley and SDD owed Westpac New Zealand Ltd (Westpac) approximately $1.5 million. Mr Daisley also owed around $110,000 to a solicitor’s trust company which held second mortgages over a number of the properties.

The Kellers come onto the scene

[19] The Kellers lived across the road from Mr Daisley. In the course of a visit to Mr Daisley to follow up work done by one of his companies, Mr Keller learned of Mr Daisley’s financial predicament. Mr Keller suggested that he and his wife had savings, and might be able to help to refinance the bank debt and securities.
[20] Discussions took place between the Kellers and the Daisleys. Scott Daisley provided the Kellers with a “Finance Proposal” dated November 2009, which had been prepared for Kiwibank as part of the Daisleys’ refinancing efforts. That Finance Proposal included valuations of each of the four properties. The valuation of the Depot is relevant to one of the disputes before this Court, and is discussed in more detail below.
[21] On 27 November 2009 the Kellers and their accountant, Mr Lay, met with Mr Daisley, Scott Daisley and Mr Daisley’s then-lawyer, Mr Jackson. A proposal was discussed which would enable the mortgagee sales to be avoided. A new company (Ark) would be formed. Ark would buy the four properties, with funding from the Kellers’ savings of approximately $800,000 and bank borrowing. The shareholding in Ark would be in proportion to the respective contributions of the Kellers and the Daisley interests. The property values to be used for the purchase of those properties, and to value the Daisleys’ contribution, would be the registered valuations included in the Finance Proposal, less a 25 per cent discount to reflect the mortgagee sale context and the passage of time since the valuations were done.
[22] There were further discussions, and some email correspondence. Additional issues emerged, including Mr Keller learning for the first time about the second mortgage over the properties. In light of the further information received, the Kellers became concerned about the proposed arrangements. At a further meeting on 30 November 2009, the Kellers told Mr Daisley that they were backing out. The Kellers say that Mr Daisley’s response was a persuasive pitch to keep them in. They were persuaded to continue with the proposal.
[23] On 1 December 2009 the Kellers incorporated Ark, with themselves as sole directors and shareholders.
[24] The Kellers’ solicitor, Mr Badham, was engaged to put the arrangement together. He communicated with Westpac, with the solicitors holding the second mortgages, and with the Daisleys’ lawyer, Mr Jackson. On 2 December 2009 Westpac, through its solicitors, confirmed that it would agree to a sale of the properties to Ark subject to a number of conditions, including payment of a $200,000 non-refundable deposit on execution of the sale and purchase agreements.

The Ark agreement

[25] On 2 December 2009 a further meeting took place at Mr Badham’s office, attended by the Kellers, Mr Daisley and Scott Daisley, and Mr Badham. The purpose of the meeting was to execute various documents, including an overarching agreement in relation to the arrangement (the Ark agreement). Mr Badham had drafted the Ark agreement with input from Mr Lay. The draft Ark agreement was sent to Mr Jackson at 12.31 pm on the day of the meeting. The meeting itself took place at 2.00 pm. The context of that meeting is important. There was significant time pressure if a deal was to be done: the first mortgagee auction was due to take place the next day. The Kellers remained wary about the proposal, and had not made a final decision about whether or not they would proceed. The new information obtained about the Daisleys’ indebtedness under the second mortgages had implications for Ark’s funding needs, and for the parties’ interests in Ark.
[26] Against that backdrop, Mr Badham presented three agreements to the parties at the 2 December 2009 meeting. The first was the Ark agreement, to be entered into by Ark, Mr and Mrs Keller, SDD, Mr Daisley and Scott Daisley. It was accompanied by two agreements for sale and purchase in relation to the properties. One agreement for sale and purchase named Mr Daisley as vendor and Ark as purchaser. The other named SDD as vendor and Ark as purchaser.
[27] At the meeting, Mr Badham explained that the proposal set out in the three agreements was the Kellers’ only offer. Due to time constraints imposed by the imminent mortgagee sale, it was effectively a “take it or leave it” proposal. If the offer was not acceptable, it was likely the mortgagee sale would proceed. Mr Badham went through the three contracts clause by clause, explaining them to all present.
[28] Mr Daisley and Scott Daisley signed the agreements. They say they did so under immense pressure, without the benefit of independent advice.
[29] The operative provisions of the Ark agreement read as follows:

OPERATIVE PART:

Once settlement of the Sale and Purchase Agreements has taken place, the debts owed by Ark to SDD under clause 20.0(b) of the SDD Agreement, and to [Mr Daisley] under clause 20.0(b) of the Daisley Agreement shall be repaid by the issue to SDD and [Mr Daisley], of shares in Ark, such that the resulting shareholdings of [Mr and Mrs Keller] (or their nominees), and SDD and [Mr Daisley] (or their nominees) shall be determined in accordance with Schedule B.
In the event that settlement of the Sale and Purchase Agreements does not occur as a result of any default by SDD or [Mr Daisley] in their obligations as vendors under those agreements, then [Mr Daisley] and SDD acknowledge liability to [Mr and Mrs Keller] for all costs and losses incurred by [Mr and Mrs Keller] in relation to the Sale and Purchase Agreements (including the negotiation and preparation of the agreements and all related documentation), including accountancy and legal fees, lost deposit moneys, and interest thereon at the interest rate for late settlement in the Sale and Purchase Agreements.
Prior to the issue of shares in Ark to [Mr Daisley] and SDD in accordance with clause 1, Ark will adopt a constitution in usual form, subject to the following specific provisions, some of which may, in the absolute discretion of [Mr and Mrs Keller], be provided for in a Shareholders Agreement that will be signed by all of the shareholders of Ark at the time of the issue of the shares to SDD and [Mr Daisley].
There shall be two classes of shares. [Mr and Mrs Keller]’s shares shall be A shares. [Mr Daisley] and SDD’s shares shall be B shares.
The A shares shall have all the usual rights and powers, including voting powers, provided that the A shares shall not entitle the holders to make any changes to the company’s constitution without the prior written consent of the holders of all of the B shares. The A shares shall entitle the holders to appoint two directors.
The B shares shall have no voting rights or powers but shall have all other usual rights and powers. The B shares shall entitle the holders to appoint one director.
A quorum for a directors’ meeting shall be two directors.
Interest shall be payable by Ark on shareholders’ advances at the ASB Bank Ltd residential first mortgage variable interest base rate plus a margin of 6%. The interest rate as at 1 December 2009 will apply initially, subject to a six monthly review.
The Shareholders Agreement shall otherwise be in usual form.

[30] The Kellers paid a deposit of $200,000 to Westpac. They also paid $50,000 to the solicitors’ trustee company to enable the second mortgages to be removed.
[31] The parties continued to discuss other aspects of the arrangement, including a proposal that Mr Daisley have a right to re-purchase the Depot.

Claim that the Ark agreement was entered into under duress

[32] Around this time, Mr Daisley engaged a new lawyer, Mr Skeates. On 9 December 2009 Mr Skeates wrote to Mr Badham asserting that the Daisleys had signed the agreements under duress, without adequate opportunity for independent advice. He proposed a renegotiation of the arrangements. Mr Badham denied the allegations of duress, but proposed a meeting to resolve all outstanding issues.
[33] The first renegotiation took place by telephone conference on 22 December 2009. Mr Keller, Mr Badham, Mr Daisley and Mr Skeates participated. Various agreements reached at that telephone conference were recorded in a letter from Mr Badham to Mr Skeates dated 23 December 2009. Mr Skeates confirmed by email later that day that the letter accurately recorded the discussion and “appear[ed] to [him] to meet [the Daisleys’] bottom line requirements”. The parties proceeded on the basis that these were agreed variations to the Ark agreement.
[34] Further meetings took place in December 2009 and early January 2010, mostly focussed on practical matters in relation to the proposal.

The January 2010 agreement

[35] On 15 January 2010, Mr Badham sent a draft shareholders agreement to Mr Skeates for review.
[36] By 19 January 2010, the day before the intended settlement of the property transactions, Mr Daisley had not signed certain documents needed to enable Ark to drawdown funds from its lender, Kiwibank. That delayed settlement. Various explanations for delay were proffered by the Daisley interests. However it appears that the explanation was that the Daisleys were playing for time, while exploring alternative options. For example, Mr Daisley was in discussion with a potential third party buyer of one of the properties.
[37] On 22 January 2010, a week before Westpac’s deadline for settlement of the property purchases, Mr Skeates wrote to Mr Badham seeking to renegotiate aspects of the Ark agreement. He also commented on specific clauses of the draft shareholders agreement.
[38] On 25 January 2010 Mr Badham responded to Mr Skeates’ letter. He accepted many of the points made by Mr Skeates in relation to the draft shareholders agreement, and asked for specific proposed wording in relation to some points.
[39] On 28 January 2010, the day before the Westpac deadline, Mr Skeates responded to Mr Badham’s letter of 25 January 2010. His response proposed further variations to the Ark agreement. Some were commercially significant. He also proposed some more mechanical amendments to the agreement.
[40] This put the Kellers under considerable pressure. In their briefs of evidence the Kellers said they considered they were faced with a stark choice: agreeing to these further demands in order to achieve settlement of the property transfers, or pulling out and losing the approximately $285,000 they had already put into the venture. However in the course of giving evidence at trial Mr Keller struck a somewhat different tone, conceding that the variations sought to the Ark agreement were not objectionable.
[41] In any event, early on the morning of 29 January 2010 Mr Badham faxed Mr Skeates confirming acceptance of all the amendments sought “including the substantive matters specified on page 2 of [the 28 January 2010] letter”.
[42] Settlement of the property transactions took place on 29 January 2010.

Claim that the January 2010 agreement was entered into under duress

[43] A few weeks later, however, the apparent consensus unravelled. Mr Badham wrote to Mr Skeates on 11 February 2010, advising that the Kellers considered that they had been subject to duress in entering into the agreement reflected in the correspondence in late January 2010 (that is, the January 2010 agreement). They advised that they “hereby exercise their option to void that contract”. Thus, Mr Badham said, matters should continue by reference to the original Ark agreement of 2 December 2009.
[44] Mr Skeates responded on 15 February 2010, rejecting any right to avoid that contract.

The lease of the Depot

[45] Around the same time, the Kellers and the Daisleys discussed arrangements for the proposed lease of the Depot. As contemplated by the parties, Mr Daisley and his companies had continued to occupy the Depot. The parties agreed informally to the property being rented on the basis that it was divided into three separate lettable areas: one area containing the house (from which Mr Daisley also ran his various businesses), a second area containing a half-round barn, large office and small office, and a third area containing a large shed. The area containing the house was to be rented by “HPL”. (A number of companies controlled by Mr Daisley had names incorporating the acronym “HPL”. Some confusion arose about which company was intended to be the tenant, as discussed in more detail below.)
[46] Mr Badham, on behalf of the Kellers, prepared a draft one-year lease of the Depot and sent it to Mr Skeates for execution. The tenants named in the draft lease were two of Mr Daisley’s companies: Action Fencing and HPL Northland & North Harbour Ltd (HPL Northland & North Harbour).
[47] That draft lease was never signed. The version discovered by the Daisley interests had “HPL Northland & North Harbour Ltd” crossed out, and “HPL Distribution Ltd” substituted. The Judge considered that it was likely that this change was made by Mr Skeates.^[8] As explained in more detail below, HPL Northland & North Harbour was no longer trading at this time. HPL Distribution was. It seems likely that the parties intended that HPL Distribution would be the tenant.
[48] By May 2010, Mr Daisley’s companies were seriously behind with their rent. This in turn put Ark in a difficult financial position, as it needed to service its bank borrowings.

The Daisleys leave the Depot

[49] In March and April 2010, three of Mr Daisley’s companies were placed in voluntary liquidation. The liquidation reports record that they were hopelessly insolvent. Further correspondence between the solicitors and the parties continued between May and August 2010, but no resolution was reached.
[50] Mr Daisley then proposed an exit from the overall arrangement, on terms which the Kellers rejected. The Daisleys then moved out from the Depot in late August 2010. However they still had various items of property on the site. On 26 August 2010, following a meeting, Mr Daisley emailed Mr Keller confirming that the house would be cleaned out by the weekend. He asked for three to four weeks with no charge to remove “all our gear from the yard”.

The removal of the office buildings

[51] On 1 September 2010 an event occurred which led to an irretrievable breakdown in the relationship between the Daisleys and the Kellers. The Daisleys arranged to remove two office buildings from the Depot. The Daisleys say they believed they had the right to remove those buildings. The Kellers say the buildings formed part of the land, and had been purchased by Ark.
[52] Scott Daisley, on behalf of his father, had sought legal advice from Mr Skeates about whether the Daisleys could take these buildings from the Depot. Privilege was waived in respect of that correspondence. The answer given by Mr Skeates on the afternoon of 1 September 2010 was:

If the sheds are on skids and not attached to the land and have no building permits then I believe they are chattels that belong to your businesses or to [Mr Daisley] personally and do not belong to Ark.

[53] That same evening, Scott Daisley, with some assistance, removed the two buildings from the Depot by loading them onto transporters. Mr Keller was not present. He had not been warned in advance that this would happen. He learned of it overnight. He returned to the Depot the following day. He went to the Whangārei police station. On returning to the Depot, he found Scott Daisley in the process of lifting another shed onto a truck. Mr Keller phoned the police and Mr Badham, who came to the site. The police advised Scott Daisley that he could remove items from the yard, but the sheds and container had to stay until the matter was sorted. Mr Keller’s evidence, which the Judge accepted, was that he told Scott Daisley that he had until Sunday, 5 September 2010 to remove his things from the site.
[54] Mr Keller soon located the offices removed from the Depot. The larger “front office” was located in Ngāruawāhia, where Mr Daisley was setting up new business premises. It appears that Mr Daisley was at the Ngāruawāhia site, awaiting the arrival of the building, at the time when it was removed from the Depot.
[55] The smaller “back office” was located in the yard of Tracta Tranz Ltd, an equipment hire business.
[56] The Kellers’ lawyers wrote to the Daisleys’ lawyers about the taking of the offices. An exchange of correspondence followed. Mr Badham pointed out that the valuation of the Depot had included an amount in respect of the two office buildings that had been removed — so the price Ark had paid Mr Daisley included an amount in respect of those buildings. In a letter dated 21 September 2010, Mr Skeates wrote:

Our client was actually totally surprised to find that [the two offices] were included in the valuation. On a completely without prejudice basis our client is prepared to recognise that because the valuer had included them in his calculation of the price of that property, then our client recognises that your client believed that Ark had purchased them. Rather than trying to rely on various aspects of mistake under the Contractual Mistakes Act our client is prepared to acknowledge that 3/4 of the value of the items may be deducted from the value for the purposes of calculating our client’s shareholding interest.

[57] The Daisleys’ actions in removing the offices marked a point of no return for the parties’ relationship. The locks on the gates were changed, to prevent the Daisleys continuing to access the Depot. On 7 September 2010, with the encouragement and assistance of the liquidators of Daisley Contracting Ltd, Ark issued a trespass notice to the Daisleys.

The Daisleys’ chattels left at the Depot

[58] A number of items of property remained at the Depot at this time. The Daisleys say that Ark and the Kellers converted these chattels. This topic is discussed in more detail below.

Subsequent events

[59] An attempt to resolve all of these issues was made in September and October 2010. But no resolution was reached.
[60] Shares in Ark were never issued to Mr Daisley. Mr Daisley has had no involvement in running Ark. The Kellers have continued to operate Ark. Three of the four properties have been sold. Ark retains one of the properties.

Proceedings are issued

[61] In November 2015 the Daisley interests issued proceedings (the main proceedings) against Ark, the Kellers and Thompson Wilson Law (the Kellers’ lawyers). The timing seems likely to have been influenced by the imminent expiry of the six-year limitation period for certain types of claim.
[62] That in turn led to the issue of two further sets of proceedings. Ark brought proceedings against Mr Daisley, Action Fencing and HPL Distribution in relation to the removal of the two offices, unpaid rent for the Depot, and various debts which Ark had paid on behalf of the Daisley interests (the Depot proceedings). And Mr Daisley, HPL Distribution and Action Fencing brought proceedings against Ark and the Kellers claiming that they had converted the various items of property left at the Depot in September 2010 (the chattel conversion proceedings).

The main proceedings

[63] The Kellers argue on appeal that the Judge erred by awarding equitable compensation/damages for claims that were not pleaded. It is therefore necessary to review in some detail the pleadings in the main proceedings.

The pleaded claims

[64] The plaintiffs in the main proceedings were Mr Daisley and SDD, the vendors of the land purchased by Ark. They pleaded five causes of action.
[65] The first cause of action alleged that the Ark agreement was entered into under duress or undue influence. Mr Daisley sought an order that the Ark agreement be avoided, and that he receive compensation including return of his initial equity in the land and a “refund” of the 25 per cent discount from the property valuations in the Finance Proposal. He also sought compensation for increases in the value of the land, and an accounting of profits, since entry into the transaction.
[66] The second cause of action was a claim by Mr Daisley for breach of the Ark agreement as amended by the January 2010 agreement. He alleged that the Ark agreement (as amended) had been breached by the Kellers when they purported to avoid the January 2010 agreement on the grounds of duress. He claimed that the Kellers’ breach of the Ark agreement had caused him loss, but did not give any particulars of that loss. He sought the same relief as in the first cause of action.
[67] The third cause of action was based on an alleged constructive trust. Both plaintiffs pleaded that the Kellers had repudiated the terms of the Ark agreement, and the “joint venture” had failed. The Kellers had asserted “unconditional rights to the land”, including selling some of the land and transferring other land to a family trust associated with the Keller family (the Keller Family Trust). The plaintiffs sought imposition of a constructive trust requiring Ark and the Kellers to disgorge any benefit they derived from their dealings with the land, account for the current market value of the properties, and reconvey to Mr Daisley the land which had been conveyed to the Kellers’ family trust.
[68] The fourth cause of action, alleging breach of fiduciary duty, was pursued by Mr Daisley against the Kellers alone. The allegation was that the parties’ relationship under “the JV Agreement” — a defined term used in the pleadings to refer to the arrangements entered into orally in November and early December 2009 — was characterised by trust, reliance and confidence, which gave rise to fiduciary duties of loyalty and good faith. They alleged that the Kellers breached their fiduciary duties to Mr Daisley by placing themselves “in conflict of interest”. The particulars given of those breaches of duty were as follows:

44.1. misleading [Mr Daisley] by indicating that they were prepared to re‑negotiate the JV Contract as to contentious issues;

44.2. misleading [Mr Daisley] that they agreed to proposals to settle issues of contention arising out of the draft shareholder agreement;

44.3. agreeing to [Thomson Wilson Law] presenting to [Mr Daisley] the take it or leave it JV Contract which was materially different to the JV Agreement, whereby the differences materially improved the [Kellers’] position at the expense of [Mr Daisley’s] interest in the JV;

44.4. being party to duress and or undue influence to coerce [Mr Daisley] to sign the JV Contract

[69] Mr Daisley pleaded that the Kellers’ breach of fiduciary duties had caused him loss. The relief sought was essentially the same as the relief sought in the first and second causes of action.
[70] The fifth cause of action was brought against Thompson Wilson Law, Mr Badham’s firm, alleging breach of a fiduciary duty owed to Mr Daisley.

The pleaded defences and counterclaims

[71] Ark and the Kellers denied that they owed any fiduciary obligations to the Daisley interests. They pleaded that the Daisleys were, and remain, entitled to be issued shares in Ark once the contractual pre-conditions to issuing those shares have been satisfied. They pleaded that those conditions had never been satisfied as a result of the Daisleys’ various defaults. They denied the Daisleys were induced to enter into the Ark agreement by duress or undue influence. They say that in any event the Ark agreement was affirmed by the Daisleys.
[72] The Kellers in turn claimed that they were induced to enter into the January 2010 agreement by duress, and had lawfully avoided those variations to the Ark agreement. They pleaded that the Daisleys’ entitlement to a shareholding in Ark should be determined by reference to the Ark agreement as it stood before the January 2010 agreement.
[73] The Kellers also pleaded a limitation defence in relation to aspects of the claim.
[74] Thompson Wilson Law denied that there was ever any solicitor/client relationship between them and the Daisley interests. They only ever acted for the Kellers, and subsequently Ark. They did not owe any fiduciary duties to the Daisley interests.

High Court judgment in main proceedings

[75] The main proceedings were heard by Walker J over two weeks in September 2019.^[9]
[76] The claim brought by the Daisley interests underwent a number of shifts in direction at trial. The Kellers say this resulted in the proceeding going off track, and relief being awarded against them that had not been properly pleaded, which they did not have a fair opportunity to address at trial. Because of the importance of the issue, we set out the Judge’s description of this “change in course”:

[21] Ms Smith, who inherited the case after the filing of the second amended statement of claim, opened the case for the plaintiffs on a different basis. There was no application to amend the pleadings. She submitted that the asserted cancellation of the “joint venture agreement” by the Kellers in February 2010 amounted to:

(a) a breach of the “joint venture agreement” resulting in an entitlement to compensation for the loss of the initial investment and loss of rights that would have been enjoyed as a result; or

(b) a complete rescission of the transaction, resulting in a right of the parties to be restored to their pre-contractual position; or

(c) a unilateral waiver by the defendants of the requirement for a collateral agreement to issue shares in settlement of the debt, resulting in an obligation to settle the debt recorded in the sale and purchase agreements on commercially reasonable terms.

[22] Ms Smith also recast the constructive trust claim. The property transferred to the Kellers’ family trust was no longer the focus of the constructive trust claim. Rather, she submitted that all the rights, title and benefits which ought to have flowed to the plaintiffs under the Ark Agreement are held on constructive trust by Ark. This includes all dividends, income, interest or distributions and the loss of the contractual option to acquire the Depot from Ark. In this context, Ms Smith expressly disavowed any constructive trust in respect of the shareholding entitlement, on the basis that there could not be a constructive trust in respect of non-existent property.

[23] By closing, there was a further evolution in the plaintiffs’ case. The plaintiffs elected compensatory relief rather than an accounting. More materially, the plaintiffs now allege that Ark breached its obligations under the Ark Agreement by failing to issue the shares, failing to adopt a company constitution and by using the plaintiff’s contribution to Ark “to balance the equity position of Ark without issuing shares”. This was to reshape the breach of contract cause of action which faced vigorous opposition.

[24] In summary, the relief claimed by the end of the case is:

(a) An order that the commercial arrangements be set aside;

(b) Damages of $541,721 (representing the equity in the properties transferred or ‘vendors’ advance’) plus a contractual rate of interest;

(d) Damages for loss of opportunity.

[25] The shifts in approach are unsurprising. Ark’s asset position today is markedly different. Only one of the properties transferred by the plaintiffs is still owned by Ark. Mr Daisley’s preferred remedy does not necessarily lend itself easily to established causes of action. He has no interest in a shareholding in Ark. Instead he is looking for financial compensation, effectively in lieu of his shareholding entitlement.

[26] Mr [Browne] objected to the plaintiffs straying from the pleaded case. He submitted that the defendants’ case should not be prejudiced by allowing the plaintiffs to take advantage of deficiencies or generalities in their own pleadings to justify arguing points not specifically pleaded.

[27] Mr [Browne’s] point is valid. Where the basis for the relief sought, or the precise manner in which it is alleged that contractual breaches have occurred, is recast, careful assessment and comparison against the pleaded case is necessary to ensure the interests of justice are met. I return to this point later in my judgment.

(Footnotes omitted.)

[77] The Judge identified six issues which the Court needed to determine.
[78] Issue one was whether Ark and the Kellers had legitimately avoided the January 2010 agreement on the basis of duress. The Judge found that there had been no duress.^[10] A binding shareholders agreement was entered into by the parties as at 29 January 2010, recorded in the following documents:^[11]

(a) the draft shareholders agreement sent by Mr Badham to Mr Skeates on 15 January 2010;

(b) the letter of 22 January 2010 from Mr Skeates to Mr Badham;

(d) the letter of 28 January 2010 from Mr Skeates to Mr Badham; and

(e) the letter of 29 January 2010 from Mr Badham to Mr Skeates.

[79] Issue two was whether the Ark agreement itself was liable to be avoided by the Daisleys for duress or undue influence. The Daisleys’ position at trial was that if issue one was determined in their favour, it was not necessary to deal with issue two. They did not seek to set aside the Ark agreement, provided it had been modified by the January 2010 agreement. So the Judge did not need to decide this issue. However she observed that if she had been required to do so, she would have found that the Daisleys were not induced to enter into the Ark agreement by duress or undue influence. And in any event, they had affirmed the Ark agreement so could no longer seek to avoid it.^[12]
[80] Issue three was whether a constructive trust should be imposed. The Judge found that there was no basis for imposition of any form of constructive trust in relation to the properties transferred to Ark.^[13]
[81] Issue four was whether Thompson Wilson Law had breached any fiduciary obligations owed to the Daisley interests. The Judge found that Thompson Wilson Law never acted for the Daisleys, and did not owe them any relevant obligations. The claim against Thompson Wilson Law was dismissed.^[14]
[82] Issue five was whether the Kellers breached any fiduciary obligations to the plaintiffs. The Judge did not accept that the Kellers had the particularised fiduciary duties in the period up to and including 2 December 2009.^[15] That was sufficient to dispose of the allegations that fiduciary duties had been breached by the Kellers in connection with the take it or leave it offer made on 2 December 2009, entry into the Ark agreement in December 2009, and the renegotiations in January 2010.
[83] However the Judge considered that on execution of the Ark agreement the relationship between the parties changed fundamentally. It was arguable that once the Daisleys were contractually bound to transfer properties as their contribution to the joint venture, and once the property settlements had taken place, the Kellers had equitable or fiduciary obligations until issue of the contractually promised shareholding.^[16] The Judge considered that four factors supported this conclusion:^[17]

(a) Mr Daisley and SDD were particularly vulnerable before any issue of shares because of the imbalance of power through their lack of participation in Ark.

(b) The nature of the Ark agreement required the Daisley interests to repose trust in the Kellers. The Kellers had an absolute discretion to determine which of the specific provisions stipulated in the Ark agreement would be provided for in the shareholder agreement, which “compounded the imbalance”.

(c) Once the properties were transferred, the relationship had advanced to the implementation stage of the venture. There was a common purpose and goal to develop the properties for joint profit.

(d) The venture was one in which both were intended to participate, despite the evidence that the Daisleys’ participation was in fact fleeting. “While characterising the venture as a ‘joint venture’ is not determinative of the question of whether fiduciary obligations are owed, it informs the analysis”.

[84] The Judge summarised her view on the fiduciary nature of the obligation as follows:

[222] Once matters were agreed as at 29 January 2010, the obligation on the Kellers was to issue shares to the Daisley interests reflecting their proportionate contribution to assets in Ark. Once issued, the obligations of each shareholder to the other would have been of a different character. Until that point, in my judgment, the relationship was a fiduciary one. The Kellers were in an analogous position to Mr Fay in Chirnside notwithstanding they considered they had a legitimate reason to withhold the issue of shares. The result of not issuing shares was a de facto appropriation of the venture.

[223] The fiduciary obligations each owed to the other party once the venture had commenced after 29 January 2010 included duties of loyalty and a duty of good faith. ...

[224] I also consider that each party had obligations to the other to act equitably to bring the affairs of the joint venture to a conclusion in a way fair to all parties once the point of no return was reached.

[225] I am not in a position to apportion responsibility for the failure of the parties to settle their claims in September/October 2010. I suspect that both were worn down by the vicissitudes of the ongoing dispute. However, in my assessment, the Kellers’ failure to issue shares to the Daisley interests by 29 January 2010 was a breach of fiduciary duty. While there were ongoing disputes and it might be said that neither party negotiated in good faith, the Kellers were not entitled to avoid their obligation to issue shares. The allegation of duress and the conjoining of the dispute over rent with the shareholder issues operated as a form of “in terrorem” strategy and a breach of the duty of good faith.

(Footnote omitted.)

[85] Thus the Judge found for Mr Daisley in respect of this cause of action. She considered that her analysis of the nature of the fiduciary obligation “amounts to a development of the second particular pleaded in this cause of action and thus has a pleaded basis”.^[18] We return to this below.
[86] The Judge recorded that Mr Daisley had “elected compensation rather than an account of profit for practical reasons”.^[19] She awarded damages of $541,721 as equitable compensation against the Kellers and Ark. The Judge considered that this was the value of Mr Daisley’s contribution of equity to the venture, which had been retained by Ark and thereby enriched the Kellers without benefit to Mr Daisley. The measure of Mr Daisley’s loss “equates to disgorgement of the benefit to [Ark and the Kellers]”.^[20]
[87] Issue six was whether Ark and/or the Kellers were in breach of contract. The only pleaded breach of contract was the Kellers’ purported voiding of the January 2010 agreement. The Judge held that this was not a breach. It may have been a repudiation. But the Daisleys did not accept that repudiation. So the only pleaded breach of contract was not made out.^[21]
[88] However Ms Smith, counsel for the Daisleys, submitted on closing that the failure to issue shares on the basis of the position as at 29 January 2010 amounted to an ongoing breach of the Ark agreement. The Judge agreed. She said:

[234] I agree. I note that there was no application to amend the pleading to incorporate this breach. [Ark and the Kellers] with some justification, resist this recasting of the breach of contract cause of action. In the alternative, they maintain that [Mr Daisley] has failed to prove any loss. They remain entitled to the shareholding for which they contracted, being a minority shareholding in Ark. There have been no dividends paid by Ark to shareholders and there is no evidence of any diminution in value of the company by virtue of the management decisions that the Kellers have made.

[235] In the ordinary course, I would be reluctant to permit such a shift in the case to the extent implicitly sought. However, in the unusual circumstances of this case, I do not accept that there is any material prejudice to the defendants by permitting this approach to the breach of contract cause of action. It is obvious that, once the claim to duress does not succeed, the failure to issue shares to the Daisley interests amounts to unjustified non‑performance of contractual obligations. This view does not depend on new and different facts but rather, a different legal characterisation as to the effect of my finding that the Kellers were not induced to enter into the January 2010 Variations by duress.

(Footnote omitted.)

[89] The Judge found that the failure to perform the promise to issue shares had caused loss to Mr Daisley. She did not consider that an ongoing entitlement to a shareholding in Ark still represented the bargain he entered into. Mr Daisley sought return of the “failed consideration” for entry into the joint venture on the basis he had never received the benefit contracted for, and that benefit is no longer available to him. The Judge saw this as equivalent to his equity contribution on settlement of the property transactions of $541,721.^[22]
[90] The Judge considered that another way to look at this was to examine what Mr Daisley would have been entitled to as at 29 January 2010 had the contract been performed:^[23]

The answer is the shares representing the proportionate value of his contribution so that the award of damages is thus the value of those shares at that point in time.

[91] The Judge considered that given her findings of breach of fiduciary obligation, it was unnecessary to determine the question of appropriate remedy for breach of contract.^[24]
[92] At trial Mr Daisley also sought interest on his equity contribution, effectively treating it as a shareholder advance. The Judge rejected this aspect of his claim for three reasons. First, the Ark agreement did not contemplate payment of contractual interest for initial shareholder contributions. Second, a contractual rate of interest was not pleaded. Nor was a claim to statutory interest. The High Court Rules 2016 require a statement of claim to state specifically the basis of any claim for interest, and the rate at which interest was claimed. That had not been done. Third, the way in which the contributions were treated in the Ark financial statements (as shareholder advances) was presentational only, and did not provide a basis for a substantive claim to interest.^[25] The Judge concluded that “there is no entitlement to an award [of] interest on damages, there being no claim to interest in the prayer for relief”.^[26]
[93] The Judge summarised the result of the various claims advanced in the main proceedings as follows:

[242] In summary, I:

(a) dismiss the claim of duress against all defendants (first cause of action).

(b) award damages to [Mr Daisley] against [Ark and the Kellers] jointly and severally for breach of contract (second cause of action).

(d) award equitable compensation to [Mr Daisley] against the [Kellers] for breach of fiduciary duty (fourth cause of action).

(e) dismiss the claim against [Thomson Wilson Law] (fifth cause of action).

[243] I award damages/equitable compensation to [Mr Daisley] of $541,721 in total. I make no award of interest as interest has not been pleaded.

Appeal in relation to main proceedings

[94] We begin by considering the appeal and cross-appeal from the judgment in the main proceedings, before describing in more detail the judgments in the two other proceedings and addressing the appeals from those judgments.
[95] The key issues raised by the appeal and cross-appeal are:

(a) Was it open to the Judge to award compensation for failure to issue shares in Ark?

(b) Did the Judge err in awarding relief for breach of contract and breach of fiduciary duty, if those claims were properly pleaded?

Issue 1: Was it open to the Judge to award compensation for failure to issue shares in Ark?

The issue

[96] In the main proceedings, Mr Daisley succeeded in a claim against the Kellers and Ark for failure to issue shares in Ark. The Judge held that this amounted to a breach of fiduciary duty, and a breach of contract. The Kellers say that these claims were not properly before the Court. They were not pleaded. They were not raised until Ms Smith’s closing submissions. They had no opportunity to respond to them by calling relevant fact and expert evidence, and advancing submissions on the issues raised by those claims.
[97] Mr Browne, counsel for the Kellers, emphasises that the Judge accepted that these claims were not squarely raised on the pleadings, and recorded that they were only advanced in closing. No application to amend the pleadings to add these claims was made at any stage.
[98] Mr Browne submits that in these circumstances, claims for failure to issue the shares in Ark were not properly before the Court. And as a result, the hearing was procedurally unfair. Because he closed first, with Ms Smith closing after him, the only opportunity he might have had to respond to these claims would have been in a reply. But the hearing had already run over time, and the Judge made it clear that a reply would not be welcome. In any event, he says, the more fundamental problem is that key issues relevant to these claims were not addressed in evidence, or in argument by either party.
[99] In particular, Mr Browne says that if these claims had been properly pleaded, the Kellers would have defended them on the basis that the Ark agreement and the shareholders agreement only required shares to be issued to Mr Daisley once certain pre-conditions had been met. Those pre-conditions, in particular the completion of a signed shareholders’ agreement, had never been satisfied. So the obligation to issue shares had not yet fallen due. The Kellers have always acknowledged that when the pre-conditions were met, shares in Ark would need to be issued.
[100] Mr Browne also points to the absence of any pleading in relation to the loss claimed to have been caused by the non-issue of the shares. If there had been an obligation to issue the shares on a particular date, and if there had been a wrongful failure to do so, then the appropriate measure of loss would presumably be the value of the shares as at that date. But as a claim of this kind was not pleaded, the Keller interests had not had the opportunity to call evidence and make submissions in relation to the value of Ark, and thus of the promised shareholding in Ark.
[101] Mr Browne also submits that the relief awarded — return of an amount representing the Daisley interests’ initial equity contribution to Ark — could only be awarded for breach of contract if the contract had been cancelled. But it was not pleaded that the contract had been cancelled. The question of cancellation was not addressed by the Judge, which was unsurprising in circumstances where it was not squarely before the Court. Nor did the Judge engage with the availability of this measure of damages in the absence of cancellation. Again, that was unsurprising in circumstances where Mr Browne had not had an opportunity to make submissions on this issue. The result of the significant change in the way the claim was presented in closing was that critical issues were not the subject of submissions, and were not addressed in the judgment.
[102] Mr Browne also says that if an application had been made to amend the pleadings at trial to allege a failure to issue shares in Ark in April 2010, that application could have been successfully opposed on limitation grounds. A pleading cannot be amended to add a time-barred claim. But because no formal application was made to amend the pleadings, there had been no opportunity to raise that issue.
[103] Ms Smith says that the failure to issue shares was adequately pleaded. Paragraph 26 of the second amended statement of claim, which was located in the background section relevant to all causes of action, read as follows:

Following [Ark and the Kellers] voiding the JV Contract, [Ark and the Kellers] have retained for themselves all of the benefits of the JV, in particular [Mr Daisley’s] equity in the land conveyed to [Ark], and they have not issued or caused to be issued to [Mr Daisley] any shares in Ark; nor have they accounted to [Mr Daisley] any dividend from Ark, howsoever earned.

[104] Ms Smith also pointed out that the fact that shares had not been issued to Mr Daisley was not disputed. Although the statement of defence denied para 26 of the claim, it went on to say:

They accept that the plaintiffs are entitled to a shareholding in [Ark] based on the formula set out in the 2 December 2009 agreement but the plaintiffs have not attempted to reach agreement with the [Kellers] as to quantifying that nor met the pre-conditions to the issue of shares.

[105] Ms Smith submitted that the claims for failure to issue the shares were implicit in the breach of contract and breach of fiduciary duty causes of action, in light of para 26 of the second amended statement of claim.

Discussion

[106] We accept Mr Browne’s submission that no claim for failure to issue shares in Ark was pleaded, whether as a breach of contract or as a breach of fiduciary duty.
[107] The contract cause of action pleaded only one breach: the purported “voiding” of the agreement entered into by correspondence in January 2010:
1. On 11 February [2010], the defendants purported to void the “agreement” made on 28 January 2010, on the grounds of duress.
2. The defendants voiding of their agreement given on 28 January 2010 was:

34.1. A breach of the terms of the JV Contract as varied by the agreements of 23 December 2009 and 28 January 2010; and/or

34.2. The completion of an unconscionable ruse to trick the plaintiffs into believing that the defendant was willing to agree variations to the contract, when the defendants had no intention of creating new legal obligations over and above those contained in the JV Agreement.

[108] Ms Smith is right to say that it was alleged — and was common ground — that shares in Ark had not been issued. But nowhere was it alleged that this was a breach of contract. There is no reference to the failure to issue shares in the second cause of action alleging breach of contract. The pleaded breach cannot be read as extending to the non-issue of shares in Ark. The date on which the shares should have been issued is not pleaded. There is no pleading of the loss caused by any such breach.
[109] Nor is it pleaded that any relevant contract was cancelled. At the hearing we asked Ms Smith whether the Daisleys claimed that the Ark agreement had been cancelled. She confirmed that the Daisleys considered that the contract was still on foot — hence her response to the Kellers’ limitation argument that this was a continuing obligation. As we explain below, this suggests that Mr Daisley is still entitled to the Ark shares, and any claim would be confined to loss caused by delay in issuing the shares. But the pleading is silent on all of this.
[110] Similarly, nothing in the fourth cause of action for breach of fiduciary duty identifies the non-issue of shares in Ark as a breach of a fiduciary duty owed to Mr Daisley. The sole allegation of breach read as follows:
1. The [Kellers] breached their fiduciary duties to [Mr Daisley] when they placed themselves in conflict of interest:

Particulars

44.1. misleading [Mr Daisley] by indicating that they were prepared to re-negotiate the JV Contract as to contentious issues;

44.2. misleading [Mr Daisley] that they agreed to proposals to settle issues of contention arising out of the draft sharehol[d]er agreement;

44.3. agreeing to [Thomson Wilson Law] presenting to [Mr Daisley] the take it or leave it JV Contract which was materially different to the JV Agreement, whereby the differences materially improved the [Kellars’] position at the expense of [Mr Daisley’s] interest in the JV;

44.4. being party to duress and or undue influence to coerce [Mr Daisley] to sign the JV Contract

[111] Ms Smith submits that an allegation of breach by failing to issue shares was implicit in para 44.2. The Judge described the allegation as an “extension” of this particular.^[27] However this particular must be read in context. It is clear that the complaint of “conflict of interest” in para 44 relates to the “take it or leave it” contract presented on 2 December 2009, and a complaint that Mr Daisley was misled by the suggestion that the Kellers were willing to renegotiate that contract in January 2010. The purpose of a pleading is to show the general nature of the plaintiff’s claim to the relief sought, and to give sufficient particulars to “inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action”.^[28] A defendant reading para 44 of the second amended statement of claim could not be expected to discern from it that the complaint was that shares had not been issued in Ark, and that relief was sought for loss caused by the failure to issue those shares. We do not consider that this paragraph can reasonably be read as pleading a claim that Mr Keller and Ark had breached fiduciary duties owed to Mr Daisley by failing to issue shares in Ark.
[112] Pleadings are essential for the fair trial of a claim. A defendant is entitled to know what claims are being made against them, and a plaintiff is entitled to know what defences they have to meet. “If the parties do not know, unnecessary evidence may be got together and led or, even worse, necessary evidence may not be led.”^[29] That is what happened in the present case. Issues relevant to a claim for breach of contract or breach of fiduciary duty in failing to issue shares in Ark were not addressed in evidence, or submissions. Those issues include, as Mr Browne rightly submits, whether any relevant pre-conditions to the issue of shares had been satisfied, the date on which the obligation to issue the shares arose, whether the Ark agreement had been cancelled, and the value of the promised interest in Ark as at the date of any breach.
[113] If Ms Smith wished to advance such an argument despite it not being pleaded, it was insufficient simply to refer to it in closing submissions. A formal application to amend the pleadings was required. The importance of a formal application to amend, where a materially different claim is pursued, was emphasised recently by this Court in Yan v Mainzeal Property and Construction Ltd (in liq).^[30] Pleadings play a fundamental role in defining the parameters of a trial. The parties are entitled to prepare for a trial on the basis that the pleadings identify the facts in issue and the nature and scope of the case that the plaintiff will present and the defendant must meet. As this Court said:^[31]

For good reason, after the close of pleadings any amendment requires the leave of the court. It is not open to a plaintiff to present a case beyond the scope of pleadings at trial without seeking leave to amend. The process of seeking leave to amend serves two purposes:

(a) It identifies the additional facts and issues raised by the new argument that the plaintiff wishes to present, and that must be established by the plaintiff if they are to succeed. If there is a change of course part way through a trial, the defendant is entitled to have that new course mapped with the same clarity that is required in advance of trial.

(b) The application for leave requires the parties, and the court, to engage squarely with the question whether the new departure can fairly be accommodated. In some cases, where the change in approach is essentially a matter of law that raises no new questions of fact, the trial will be able to continue with little or no interruption. In some cases, fairness will require that the defendant have an opportunity to consider the new argument and prepare evidence — fact and/or expert — to respond to the modified case they now need to meet. They may also need to carry out further research and analysis in relation to legal aspects of the modified claim. An adjournment may be needed to give the defendant a fair opportunity to understand, and respond to, the modified claim. In some cases, the only way to provide that fair opportunity will be by re-starting the trial after such an adjournment. And in some cases, especially where a trial is well advanced, the burden on the defendants of having to re-frame their defence and prepare for a resumed trial (or fresh trial) many months down the track will be so great that amendment should not be permitted. It is important that these issues be squarely confronted where a plaintiff wishes to change tack in a material way.

[114] In this case, it is difficult to see how a formal application to amend the pleadings to add this claim, made in the course of the plaintiffs’ closing, could have been allowed. If an amended pleading which set out the facts relevant to such a claim had been prepared by the plaintiffs, and provided to the Court, it would have been immediately apparent that the defendants needed to have an opportunity to plead in response to it. Additional issues of fact would have been identified which had not been addressed in the course of the trial. The parties would have needed time to prepare, and exchange, expert evidence on valuation of Ark at one or more relevant dates. And the percentage shareholding to which Mr Daisley was entitled, in accordance with Schedule A to the shareholders’ agreement, needed to be addressed in evidence. It would not be possible to calculate the value of the shares to which Mr Daisley was entitled without knowing the result of this calculation.
[115] At the very least, an adjournment and a further hearing would have been needed. And there would have been a strong argument that it would be unfair to the defendants to be expected to engage with the new arguments, and prepare for a resumed trial some time down the track, rather than having the claims against them determined.
[116] Depending on the shape the pleaded claim took, there might also have been limitation issues that would need to be determined before leave could be given to make the proposed amendment.
[117] We consider that the claims that the Judge upheld were not properly before the Court on the pleadings as they stood. Permitting the claims to be expanded informally, in the course of the plaintiffs’ closing, resulted in significant procedural unfairness to the defendants. They were deprived of any opportunity to argue that the necessary amendments to the pleadings should not be made, and of any opportunity to respond to the reframed claims with relevant fact evidence, expert opinion evidence, and submissions.
[118] Ms Smith submits that there was no real prejudice to the Kellers and Ark as a result of the approach adopted by the Judge. As she points out, that was the view taken by the Judge:^[32]

[119] We take a different view. For the reasons explained above, we consider that the claims in contract and for breach of fiduciary duty in relation to non-issue of shares do depend on new and different facts. This is not merely a different legal characterisation of the finding that the Kellers were not induced to enter into the January 2010 agreement by duress. The question of pre-conditions to the issue of shares needed to be pleaded and considered. And, critically, the question of loss raised a number of factual issues that the Court did not have sufficient evidence to determine. The limitation issues also — depending on the way in which the revised claim was framed — may have required evidence about additional facts.
[120] In these circumstances, the appeal by the Kellers and Ark must be allowed.

Issue 2: Merits of claims for breach of contract/fiduciary duty

The issues

[121] Mr Browne submits that even if the claims for breach of contract and breach of fiduciary duty in respect of the non-issue of shares in Ark were properly pleaded, they should have failed. There was no fiduciary duty to issue shares. There was no breach of the contractual obligation to issue shares. And it was not open to the Judge to award equitable compensation/damages for such breaches by reference to the original contribution of Mr Daisley to Ark.

Discussion

[122] The Judge did not refer to the provisions of the Ark agreement and shareholders agreement governing the issue of shares in Ark. Clause 3 of the Ark agreement (set out at [29] above) provided for various steps to be taken before shares in Ark were issued to Mr Daisley and SDD. In particular, it provided for a shareholders’ agreement to be signed by all of the shareholders of Ark at the time of the issue of shares to SDD and Mr Daisley.
[123] The January 2010 agreement established the terms of the shareholders agreement between the parties. But no agreement recording those terms was prepared in final form, and signed by the parties.
[124] Clause 5.1 of the shareholders agreement recorded that the initial capital and funding of the company would be as set out in Schedule A. Schedule A provided for determination of the respective financial contributions of the Kellers and Mr Daisley to the acquisition of the properties by Ark.^[33] The way in which that would be calculated was set out in some detail. The agreement provided for amendment of Ark’s constitution to create A shares to be held by the Kellers, and B shares to be held by Mr Daisley. Clause 9 of the Schedule then provided that the Kellers and Mr Daisley would give written notice to Ark’s solicitors nominating their nominee(s) to hold their respective share entitlements. “Before the nominees receive their respective share entitlements, such nominees shall sign a Deed of Accession to this Shareholders Agreement in accordance with Schedule B.”
[125] Plainly there are steps that should have been taken by the Kellers under the agreement, such as calculation of the financial contributions and, thus, shareholding percentages in Ark. As Mr Browne accepted in argument, the Kellers could not rely on their failure to take these steps to defend a claim for breach of an obligation to issue the shares. But there is more force in the argument that a signed shareholders agreement was necessary, before the shares would be issued. It would be inappropriate for us to determine whether this pre-condition was met, and whether responsibility for that state of affairs was borne, at least in part, by Mr Daisley. Because the issue was not pleaded, there was no evidence directed to precisely that question. But the argument cannot be dismissed out of hand.
[126] We also accept Mr Browne’s submission that the relief awarded — in effect, return of the nominal amount of Mr Daisley’s equity contribution to Ark — could not properly have been awarded for breach of contract in this case.
[127] We note that it is not clear whether the Judge did award relief for breach of contract. She said it was unnecessary to determine the question of appropriate remedy for breach of contract, given her findings of breach of fiduciary obligation.^[34] But she then went on to award damages for breach of contract equal to the amount awarded for breach of fiduciary duty.^[35] We proceed on the basis that she did make an award of damages for breach of contract, and examine whether that award could be justified.
[128] If a claim had been brought for breach of an obligation to issue the shares, and breach was made out, damages for that breach of contract would fall to be assessed on an expectation measure. That is, the damages would be the amount of money required to put Mr Daisley in the same position that he would have been in if the promise had been performed.
[129] Ms Smith submitted that the breach occurred in April 2010: that was an essential step in her argument that interest from April 2010 onwards should have been allowed on the compensation/damages awarded on this claim. If that were right, then the starting point for assessing damages would be the value of Ark as at the date of the relevant breach. Mr Daisley would be entitled to a percentage of that value, determined in accordance with the Ark agreement. But this approach provides no support for the Judge’s award, for two reasons.
[130] First, a claim advanced on this basis would have faced significant limitation issues. A claim for damages in respect of a breach in April 2010 could not be added by amendment in 2019. It would be time-barred.
[131] Second, the amount awarded by the Judge was not based on an assessment of the value of the Ark shares to which Mr Daisley was (and remains) entitled. There was no evidence before the Court about the value of Ark in 2010.^[36] Nor was there any evidence about the percentage of the company’s shares to which Mr Daisley was entitled under the Ark agreement. Ms Smith argued before us that the amount awarded by the Judge did represent the value of the promised shareholding in Ark. The Judge appears to have taken this view:

[237] Another way to look at this is to examine what Mr Daisley was entitled to as at 29 January 2010 had the contract been performed. The answer is the shares representing the proportionate value of his contribution so that the award of damages is thus the value of those shares at that point in time.

[132] However there is no necessary relationship between the nominal value of Mr Daisley’s contribution to Ark in January 2010, assessed in accordance with the shareholders’ agreement, and his percentage entitlement to the value of Ark as at that date. Where a claim is brought for failure to transfer shares, the damages awarded will depend on the value of those shares on the date on which the transfer should have taken place. That value is often — indeed almost invariably — different from the contract price for the shares. It may be more, or less. But critically, this is an issue that needs to be pleaded, and proved by relevant evidence. In this case, the statement of claim did not contain any allegation in relation to the date of breach or the value of the shares on that date. There was no evidence on the issue before the Court. The Court was not in a position to decide it.
[133] Ms Smith submitted that the loss to Mr Daisley would not be fairly represented by a percentage entitlement to the value of Ark today. He had also lost the opportunity to be involved in the operation of the company as a director, and the potential gains in value from development of the properties. She submitted that Ark would have been more valuable if Mr Daisley — who had relevant expertise — had not been excluded from its management.
[134] A claim for loss of opportunity to participate in the management of Ark, and to derive profits that could have been made as a result of that participation, would in principle be available. But it would need to be pleaded, and established by relevant evidence. That did not occur.
[135] A claim might have been made for recovery of Mr Daisley’s initial equity contribution following cancellation of the Ark agreement, in the exercise of the Court’s remedial discretion under s 43 of the Contract and Commercial Law Act 2017. But as noted above, Ms Smith disclaimed any submission that the Ark agreement had been cancelled. So this approach also was not open.
[136] In summary, we cannot identify any proper basis on which an award could have been made for breach of contract on the basis that appears to have been adopted in the High Court judgment.
[137] We also accept Mr Browne’s submission that the Court erred in finding that Mr Keller and Ark owed a fiduciary duty to Mr Daisley to issue shares in Ark, and had breached that duty. We very much doubt that the relationship between the Kellers and Mr Daisley was a fiduciary relationship, in which the Kellers were required to prefer the interests of Mr Daisley to their own interests. The term “joint venture” was used by the parties on occasion, in correspondence and records of meetings. But this does not of itself establish that there was a fiduciary relationship between the parties. The term “joint venture” can cover many forms of arrangement, not all of which give rise to fiduciary obligations.^[37] This point was made by Blanchard J, delivering the judgment of the Supreme Court in Paper Reclaim Ltd v Aotearoa International Ltd:^[38]

To style a contractual relationship as a joint venture may be apt to distract. It is a term to be applied with caution. When parties have formed a contract the correct approach is first to decide exactly what they have agreed upon. Only then should the court consider whether any particular aspect of their agreement gives rise to a relationship which can properly be characterised as fiduciary, imposing an obligation of loyalty on one or both parties, which supplements the express or implied contractual terms. It is not enough to attract an obligation of loyalty that one party may have given up more than the other in entering into the contract or that the contract may be more advantageous for one party than for the other. Nor is a relationship fiduciary in nature merely because the parties may be depending upon one another to perform the contract in its terms. That would be true of many commercial contracts which require cooperation. A fiduciary relationship will be found when one party is entitled to repose and does repose trust and confidence in the other. The existence of an agreement, express or implied, to act on behalf of another and thus to put the interests of the other before one’s own is a frequent manifestation of a situation in which fiduciary obligations are owed.

[138] In this case, the parties set out their mutual obligations in contracts which provided for the issue of shares in Ark, and for their continuing relationship as shareholders in Ark. The “joint venture” that was contemplated was a joint venture to be conducted through a company. The shareholders agreement entered into by the parties expressly provided that nothing in that agreement constituted the shareholders “as partners, trustees or as agents for each other”.
[139] In Amaltal Corp Ltd v Maruha Corp the Supreme Court said:^[39]

These were commercial companies who had elected not to continue as partners and, instead, to frame their relationship by internal and external rules applicable to a company, supplemented by a contract between them in their capacity as shareholders. There is no warrant then for imposing upon them generally obligations not found in the company’s own constitution, in companies legislation or in the terms of the contract. As partners they would have owed fiduciary duties to one another, but their relationship no longer took that unincorporated form. They had deliberately substituted the Companies Act regime for that of the Partnership Act.

[140] And even if some aspects of the relationship between the Kellers and Mr Daisley had been fiduciary, that would not mean that the obligation to procure the issue of shares in Ark was a fiduciary obligation. At the risk of stating the obvious, not every obligation owed by a fiduciary is itself a fiduciary obligation.^[40] The obligation of the Kellers to procure the issue to Mr Daisley of an ascertainable number of shares in Ark was prescribed in detail in the shareholders agreement. No discretion or power to affect Mr Daisley’s interests was involved.^[41] Mr Daisley was dependent on the Kellers only in the sense that he depended on them to perform their contractual obligation. Plainly that is not enough to give rise to a fiduciary duty.
[141] In these circumstances, the Kellers’ contractual obligation to Mr Daisley to procure the issue of shares in Ark was not (also) a fiduciary obligation.
[142] Thus the claim for breach of fiduciary duty in failing to issue shares in Ark would necessarily have failed, even if it had been properly pleaded.

Issue 3: Mr Daisley’s claim for interest

[143] Mr Daisley’s cross-appeal seeks an award of interest from 30 April 2010 on the amount of equitable compensation/damages awarded by the High Court against Ark and the Kellers, for failure to issue shares in Ark to Mr Daisley.
[144] Because we have allowed the appeal from that finding of the High Court, the question of interest on the equitable compensation/damages awarded does not arise. The cross-appeal must fail. However we make a few observations on this claim.
[145] First, there was an irresolvable tension between Ms Smith’s argument that interest should have been awarded from the date of breach, which she identified in argument as 24 April 2010, and her argument that the claim was not time-barred because the obligation to issue the shares was an ongoing one. If the obligation to issue shares was ongoing, and continued in existence as at the date of trial, the appropriate relief would presumably be an order that the shares now be issued. As already mentioned, there could also be a claim for any loss suffered as a result of delay in issuing the shares from April 2010 through to the date of trial. But we struggle to see how it could be argued that any loss suffered as a result of delay in issuing the shares from April 2010 through to the date six years before the pleadings were amended to include such a claim would not be time-barred. So at trial, any claim would have been restricted to loss suffered between 2013 and 2019. And as this analysis makes clear, the award would not be an award of interest on compensation that became payable in 2010: it would have been a different type of claim altogether.
[146] Second, we have some difficulty with Ms Smith’s argument that an obligation to transfer shares that fell due on 24 April 2010 could be characterised as a continuing obligation. If an orthodox claim had been brought for failure to issue or transfer shares on that date, by reference to the value of the shares on that date, that claim would have become time-barred six years after that date. The fact that the breach had not been remedied after the due date would not mean that the obligation could be described as a continuing obligation, and would not prevent time running from the due date. Such a claim could not have been added by amendment in 2019.
[147] Similarly, if the argument had been that the Ark agreement was cancelled as a result of a serious breach by the Kellers, and relief was sought under s 43 of the Contract and Commercial Law Act, that claim would have accrued on the date of cancellation and could not have been added more than six years after that date. But as already mentioned, Ms Smith disclaimed any argument that the Ark agreement had been cancelled.
[148] In short, we cannot identify any principled basis on which interest could have been claimed, which would not have resulted in insuperable limitation issues in relation to the underlying substantive claim.

The Depot proceedings — office conversion claim

[149] The Depot proceedings arose out of the Daisleys’ removal of the two offices from the Depot. There were also claims for unpaid rent in relation to the Depot, and a claim in debt against Mr Daisley to recover miscellaneous amounts paid by Ark on his behalf. That last claim (which was mostly successful) was not the subject of any appeal, and we need not address it here.
[150] Ark’s claim for conversion against Mr Daisley in respect of the two offices turned on whether the two offices had passed to Ark along with the Depot land, or whether ownership of those two buildings had remained with Mr Daisley. That in turn depended on:

(a) whether the offices were fixtures that formed part of the land, so passed with it in the absence of express agreement to the contrary; and

(b) whether (even if the offices were not fixtures) Mr Daisley had agreed to sell them to Ark as part of the transfer of the Depot, by agreeing (as between the parties) that they would be treated as forming part of the land.

[151] The Finance Proposal provided by the Daisleys to the Kellers in the period leading up to the Ark agreement provides important context in relation to this question. As noted above, the Finance Proposal included valuations for each of the four properties sold, including a valuation for the Depot dated 9 February 2009.
[152] That valuation described the Depot as a residential lifestyle property and agricultural depot. It comprised a modest dwelling, in which Mr Daisley was living at the time, and a contractor’s yard which included a three bay barn, sheds and offices.
[153] Under the heading “improvements”, and a sub-heading “other buildings” the valuation described the two offices as follows:

Front Office ± 27m², plywood cladding, iron roof and aluminium joinery. Lined and ceiled with a Carrier air conditioning unit. Power connected but not on permanent foundations. (Average/good condition)

Back Office ± 18m², plywood cladding, iron roof and aluminium joinery. Lined and ceiled with a Fujitsu air conditioning unit. Power connected but not on permanent foundations. (Average/good condition)

[154] Further down, under the heading “determination of value” the valuation read as follows:

Conclusion:

Following due comparative alignment and adjustment of the above sales and the unique value forming characteristics of the subject property, we assess the value of this property as follows:

7.1 Market Value:

Land value	$200 000	(Two Hundred Thousand)
Value of Improvements	$375 000	(Three Hundred & Seventy Five Thousand)
*Sub Total*	$575 000	(Five Hundred & Seventy Five Thousand)
Added Value of Chattels	$5 000	(Five Thousand)
Current Market Value	$580 000	(Five Hundred & Eighty Thousand)
(Inclusive of chattels & GST, if any)

7.2 Nature and Separate Value of Improvements: (Cost less depreciation basis)

Dwelling and garage	$230 000
Nissen workshop	$29 000
Front office	$20 000
Back office	$16 000
New workshop	$45 000
Sundry storage sheds	$6 000
Site development & fencing	$29 000
Total	$375 000

[155] The overall value assessed for the land thus included an allowance of $36,000 for the two offices, assessed on a cost less depreciation basis.
[156] The valuation also contained the following italicised note:

Caution: the two office buildings and the sundry storage sheds, while connected to services, are not on Council approved permanent foundations and therefore could be deemed to be temporary structures.

[157] As already mentioned, the purchase price of the four properties sold by the Daisley interests to Ark was set by reference to the valuations contained in the Finance Proposal. Ark paid the Daisley interests the total of those valuations, less 25 per cent. So the purchase price for the four properties included an amount of $27,000 reflecting the contribution of those two office buildings to the assessed value of the Depot.
[158] The Judge described the two offices as follows:^[42]

[17] Photographs taken in February 2010 of the two offices were produced in evidence. They had the appearance of simple plywood structures with an iron or tin roof connected to phone and power cables entering from an underground channel, lined and sitting on skids. The front office was attached to a deck with what appeared to be a veranda. It is not clear whether the deck was concreted in or on piles. Mr Keller recollects that they were on piles. The Daisleys say the deck was merely sitting on the ground. Each had aluminium windows and a door or sliding door.

High Court judgment — office conversion claim

[159] The Judge began her analysis of the claim that Mr Daisley had converted the offices by noting that the answer depended on whether Ark or Mr Daisley owned the offices. If Ark owned the offices, then by removing them from the property Mr Daisley converted them.^[43]
[160] The Judge also noted that “[it] could not seriously be argued that removal was not an act by Mr Daisley. Although he was not present at the time of removal, he and his son directed that operation.”^[44]
[161] The Judge recorded that the parties were in general agreement in relation to the legal principles of accession of chattels to land. It was the application of those principles which was contested. The test focuses on two factors:^[45]

(a) the degree or mode of annexation; and

(b) the object or purpose of annexation, assessed objectively.

[162] However as the Judge noted, each case depends on its particular facts and a common sense approach is required.^[46]
[163] In this case, the offices were annexed to the land, because of the underground connection to the electricity supply. The Judge considered indications that the offices were temporary structures: no water was connected and there was no sewerage connection. But the Judge considered that viewed in the round, the degree of connection was slight but sufficient to amount to annexation.^[47]
[164] That finding engaged a rebuttable presumption that an article which is affixed to the land, even slightly, is considered part of the land unless the circumstances show that it was intended to continue to be a chattel.^[48]
[165] The Judge considered that the object and purpose of the annexation indicated that the office buildings were attached to the land. Objectively assessed, the purpose of the structures at the time of their placement, and immediately prior to the transfer to Ark, was to benefit or improve the Depot land and its utility as commercial business premises.^[49]
[166] Thus the Judge considered that the office buildings formed part of the land, and passed with it in the absence of an agreement to the contrary.
[167] The Judge went on to say that there was a second reason why she concluded that Ark owned the office buildings.^[50] It was apparent from the parties’ agreement that the office buildings were “part and parcel of the sale transaction on any objective measure, having expressly been part of the negotiated consideration”.^[51] As between the parties, Mr Daisley could not now argue that the offices remained chattels when the Ark agreement was based on the offices having acceded to the land, for all intents and purposes.^[52]
[168] Ark claimed the replacement cost of the buildings: $67,519.72 plus GST. That estimate of replacement cost was not disputed at trial. But Ms Smith argued that this was not the correct measure of compensation. Rather, their value was $27,000, representing the discounted amount paid by Ark based on the value attributed to the offices by the valuer who prepared the valuation included in the Finance Proposal.
[169] The Judge did not consider that either of these approaches fairly reflected the value of the offices at the time of conversion. A replacement cost approach to value would respond more appropriately to the overall aim of providing just compensation for the true loss suffered by Ark. However such an approach also involved a degree of betterment. The Judge therefore discounted the pleaded replacement cost to $50,000, which she considered was a fair assessment of Ark’s loss. Damages of $50,000 were awarded to Ark.^[53] The Judge awarded interest under s 87 of the Judicature Act 1908 on this amount.^[54]

Issue 4: Conversion of office buildings

The issue

[170] Ms Smith submits that the Judge was wrong to find that ownership of the two offices passed to Ark when the Depot was sold in January 2010. They were temporary buildings, sitting on skids, that were not affixed to the land. The connection to electricity was so minor as to be negligible. There was no other affixation.
[171] She submits that the Judge also erred in relation to the purpose for which the offices were placed on the land and (minimally) affixed to it. That was to enable them to be used as chattels, not to enhance the enjoyment of the land.
[172] Ms Smith drew our attention to various photographs of the buildings. She submits that the suggestion of the Judge that there was “landscaping” around the offices was an overstatement. In particular, so far as the back office was concerned, all that the so-called landscaping amounted to was a couple of pot plants sitting outside. That did not amount to landscaping in any relevant sense.
[173] Ms Smith also submitted that Mr Daisley personally should not have been found liable for the conversion. He had not been physically present when the offices were removed from the Depot. Any involvement that he had in relation to their removal was in his capacity as a director of Action Fencing. Just as the Judge had found that Mr Keller personally was not liable for conversion of chattels left at the Depot,^[55] so Mr Daisley should not have been found personally liable for any conversion of the office buildings.

Discussion

[174] As Ms Smith accepted, Mr Daisley was involved in the removal of the offices from the Depot. The basis on which the Daisleys claimed to be entitled to remove the offices was that Mr Daisley owned them. It could not sensibly be suggested that their removal by Scott Daisley was not authorised by his father. That same day, Scott Daisley had told their lawyer that “[Mr Daisley] and I intend to remove the two offices at the yard on the basis that they belong to us”. Mr Daisley was involved in planning the removal: he was at the new yard that Action Fencing was establishing in Ngāruawāhia at the time of the removal, awaiting the delivery of the front office to that yard, where it would be used for his business activities.
[175] A person is liable not only for torts that they physically commit themselves, but also for torts they have authorised by instigating or procuring another person to commit that tort.^[56] The evidence clearly establishes that if there was a conversion, Mr Daisley authorised that conversion, and was liable in respect of it.
[176] Ms Smith’s argument really boiled down to the proposition that Mr Daisley’s involvement in the removal of the offices was exclusively in his capacity as a director of Action Fencing. But the capacity in which a person commits the tort of conversion is irrelevant.^[57] There are some torts which depend on concepts of reliance, or assumption of responsibility, where an individual director or employee may escape liability on the basis that the plaintiff was relying on (or responsibility was assumed by) the company of which they were a director or employee. The plaintiff could not reasonably look to them as an individual. Trevor Ivory Ltd v Anderson was such a case.^[58] But conversion is not a tort in that category, any more than (say) assault. A defendant cannot say “I assaulted you in my capacity as a director of company X, so I am not liable”. Ditto conversion.
[177] We accept Ms Smith’s submission that the Judge’s approach to personal liability for conversion was inconsistent as between Ark’s claim for conversion of the office buildings, and the Daisley interests’ claim for conversion of chattels. The correct approach is the one adopted by the Judge in relation to the office building claim: an individual who converts chattels, or authorises the conversion of chattels, is liable regardless of the capacity in which that act was done.
[178] So the critical issue is whether it was Ark or Mr Daisley who owned the offices.
[179] As the Judge held, the offices were affixed to the land, albeit minimally, by the underground electricity supply running to each office. The purpose for which they were affixed, assessed objectively, appears to have been to enhance the enjoyment of the land. That is clearer in relation to the front office than the back office. So far as the back office is concerned, we accept Ms Smith’s submission that the placement of the office appears less deliberate, and the landscaping was so rudimentary as to be irrelevant. But we are not persuaded that the Judge was wrong in her overall assessment that the offices formed part of the land.
[180] And in any event, we agree with the Judge that it is quite clear that as between Mr Daisley and Ark, the sale and purchase of the Depot proceeded on the basis that the offices formed part of, and would be sold with, the land. The purchase price for the Depot was assessed by reference to the valuation of that property included in the Finance Proposal. The inclusion of the offices in that valuation resulted in Mr Daisley receiving an increase in consideration for the Depot of some $27,000. In light of the mechanism for setting the sale price, the inference that the office buildings were treated by the parties as included in the sale is irresistible.
[181] Ms Smith referred us to the letter from Mr Skeates recording Mr Daisley’s surprise at finding that the offices were included in the valuation.^[59] She submitted that this showed that it was not Mr Daisley’s intention to include the offices in the sale of the Depot. But this letter evidences Mr Daisley’s own (subjective) understanding of the scope of the transaction. The interpretation of the agreement for sale and purchase turns on how a reasonable person with access to all the relevant information reasonably available to the parties at the time would have understood it. On that approach, it is clear that the offices were included.
[182] Ms Smith also put some emphasis on the note of caution attached to the valuation, flagging the possibility that the offices were not fixtures. This, she said, showed that an experienced professional considered that it was arguable that the offices were temporary buildings that were not part of the land. However this submission does not assist the Daisleys, for two reasons.
[183] First, it is clear from the way in which the valuation was presented that the valuer considered that the better view was that the offices did form part of the land. That was the basis on which the value of the land was assessed. However recognising that the valuation might be used by a lender for the purpose of assessing security when lending to Mr Daisley, the valuer prudently added a note of caution about the status of the offices. That would enable any lender to make specific provision in relation to the offices, if their value was relevant to the adequacy of the land as security. Notwithstanding this note of caution, the valuation read as a whole supports the conclusion reached by the Judge, not the contrary result contended for by Mr Daisley.
[184] Second, the parties clearly proceeded on the basis that the office buildings were to be treated as included when setting the purchase price for the Depot. That is, they proceeded on the basis of the approach reflected in the valuation analysis, not on the basis of the caution appended to it.
[185] The appeal in relation to the claim for conversion of the office buildings must be dismissed.

The Depot proceedings — HPL Distribution’s liability for rent

[186] The parties anticipated that, at least initially, the Daisley interests would continue to occupy the Depot. Mr Daisley aspired to buy it back, if his finances improved. The summary of the parties’ meeting on 27 November 2009 recorded an understanding that Mr Daisley should be able to purchase back the Depot at an agreed value, and that Mr Daisley was to pay rent for the house and yard.
[187] The agreement for sale and purchase entered into by Mr Daisley and Ark in respect of the Depot in December 2009 included a “subject to tenancy” clause in respect of the Depot. The named tenant was HPL Northland & North Harbour. The rent was described as market rent as at the date of the agreement. The term was one year.
[188] As the Judge noted, Mr Daisley and/or Scott Daisley, ran multiple businesses through multiple companies. It appeared that Mr Daisley did not draw any distinction for practical purposes between the various entities. Many of those companies had names that included the acronym “HPL”, including HPL Distribution, HPL Northland & North Harbour and also HPL Parts & Services Ltd and HPL Hawkes Bay (2008) Ltd.
[189] The Finance Proposal prepared on behalf of the Daisleys, which as already mentioned had been provided to the Kellers, recorded that HPL Northland & North Harbour had ceased trading and was being wound down. In evidence, Mr Scott Daisley accepted that by early 2010, HPL Distribution was the only “HPL” company that was still operational. The other HPL entities may have been completing existing jobs, but were otherwise winding down.
[190] Mr Keller decided that the Depot should be divided into three rentable lots to maximise the potential rental income from the property.
[191] The subject of rent for the Depot was mentioned in the minutes of the parties’ meeting on 23 December 2009:

1 Maungakaramea Road

A/ Rent for top house / office.

B/ Rent for office half round bar / workshop and yard.

C/ Rent for back yard and uncompleted 3 bay shed.

A B C above Action Fencing to look at what they wish to lease. This will depend on what other tenants we may find and how the sheds, office space & fencing are put in place.

...

Action Fencing to pick up the cost of leasing this property until such time we find other people to lease the bits Action Fencing don’t want.

[192] A note in the minutes of the parties’ 5 January 2010 meeting recorded that “[Mr Daisley] wants to rent House & 3 bay shed”.
[193] Mr Keller’s evidence at trial was that some time later in January 2010 he discussed rental for the three areas with Mr Daisley, who suggested the figure of $350 plus GST and outgoings per week for each area. Mr Daisley denied this. However Mr Daisley acknowledged the discussions, and that the figure of $1,050 was mentioned and that “we went along with it”. Mr Keller gave instructions to his accountant along these lines on 8 February 2010, recording what had been agreed from his perspective, and noting that Mr Daisley had asked that invoices be made out to Action Fencing.
[194] An email dated 22 March 2010 sent to Mr Keller by Steve Jennings, the General Manager of Action Fencing, confirmed that Mr Keller should send invoices to “HPL” for the house area, and to Action Fencing for all of the yard.
[195] Ark proceeded to issue invoices for rent to “HPL” and Action Fencing. The invoices specified the areas rented by each of the entities, and specifically referred to the offices. For example, an invoice to Action Fencing referred to area 3 as consisting of the “front office, barn and yard” and invoices issued to “HPL” referred to “area 1 consisting of house, garage/spare parts, office, yard”. Invoices for area 2 were also issued to Action Fencing.
[196] Meanwhile, on 3 March 2010, the Kellers had proposed formal lease terms for a one-year lease of the Depot through their lawyers. The tenants identified in the draft lease were Action Fencing and HPL Northland & North Harbour. The Kellers’ lawyers sent the proposal to Mr Skeates, Mr Daisley’s then lawyer.
[197] The version of this letter produced in evidence from the Daisley interests’ discovery was annotated by hand. Above the printed name of the party “HPL Northland & North Harbour Ltd” someone had crossed out “Northland & North Harbour Ltd”, and written “Distribution Ltd”. The Judge considered that common sense suggested that someone from Mr Daisley’s camp annotated the letter to change the name of the proposed lessee. That was likely to have been Mr Skeates.^[60]
[198] The parties never entered into a formal lease, because of other unresolved issues. The Daisley business interests continued to operate from the Depot, and Mr Daisley continued to live in the dwelling.
[199] Some rent was paid. But as noted above, by May 2010 there were substantial rental arrears. Mr Keller chased payment of rent on multiple occasions. The Daisley interests did not deny the existence of an obligation to pay rent at that time, or raise any issues about which entity was liable for the rent. Rather, they proffered a range of excuses for non-payment.
[200] As already mentioned, in late August 2010 the Daisley interests advised the Kellers they were going to vacate the Depot, and proceeded to do so.

High Court judgment — HPL Distribution’s liability for rent

[201] The Judge carefully reviewed the parties’ correspondence and dealings in relation to rent for the three areas of the Depot. The Judge considered that the ambiguity in relation to which HPL company was to rent the house area was resolved by the surrounding circumstances. She was satisfied that HPL Distribution was in occupation of the Depot at the relevant time: HPL Distribution pleaded this in the chattel conversion proceedings, and the statement of defence in the Depot proceedings admitted that entities including HPL Distribution occupied the Depot. Informal leases at will had been entered into between Ark, Action Fencing and HPL Distribution.^[61]
[202] The contemporaneous correspondence from the Daisley interests did not contain any denial of an informal agreement to lease, or of an obligation to pay rent. The Judge considered that the argument that it was Mr Daisley in person who had the rental obligation, under the draft shareholders’ agreement, was a red herring. That agreement contemplated a formal lease with Mr Daisley and/or his nominees. No such lease was entered into. That agreement sheds no light on whether informal leases were entered into with particular companies, or on the rental terms.^[62]
[203] The Judge accepted Mr Keller’s evidence about the informal agreements, including the rent payable. Ark succeeded in its claim for outstanding rent as follows:^[63]

(a) against Action Fencing for $11,468.71; and

(b) against HPL Distribution for $11,248.21.

[204] The Judge awarded interest under s 87 of the Judicature Act on these amounts.^[64]

Issue 5: HPL Distribution’s liability for rent

The issue

[205] Ms Smith submits that the Judge was wrong to find that there was an informal lease of part of the Depot site to HPL Distribution. She submits that the house was in fact occupied by Mr Daisley personally, not by HPL Distribution. She also submits that the HPL company that was referred to in the parties’ discussions, and in the draft lease prepared by the Kellers, was HPL Northland & North Harbour, not HPL Distribution.

Discussion

[206] We agree with the Judge that there was clear evidence of an agreement between the parties that HPL Distribution would lease the part of the Depot containing the house. The clearest indication of that agreement is the express confirmation by Mr Jennings in his email of 22 March 2010 that invoices be sent to “HPL” for the house. At this time, HPL Northland & North Harbour was in liquidation. It had not been trading for some time. Read in context, the reference to “HPL” could only be a reference to the one HPL company that was still trading at the relevant time: HPL Distribution.
[207] That arrangement is confirmed by the absence of any objection to the invoices sent to “HPL” from the end of March 2010 through to 10 September 2010. Again, as a matter of context, the relevant company must have been HPL Distribution, which was still trading, not HPL Northland & North Harbour.
[208] And as the Judge noted, in the chattel conversion proceedings HPL Distribution and Action Fencing pleaded that they occupied the Depot from 29 January 2010 onwards. It would be odd if the HPL company in occupation of the land was HPL Distribution, but the HPL company that was liable for rent under the informal lease entered into by the parties was the (non-trading) entity HPL Northland & North Harbour.
[209] It was not suggested by Mr Daisley in 2010 that he was the tenant of part of the Depot, or that he was personally liable for the rent in respect of the Depot. If he had objected to invoices being sent to “HPL”, and required that they be sent to him personally, it is difficult to envisage any reason why that would not have been done. A claim could then have been brought against him personally for the unpaid rent. In the absence of such a request, and in the presence of an express request that “HPL” be billed for the rent, the Judge was in our view plainly right to find that HPL Distribution was liable to pay rent for this part of the Depot.

The chattel conversion proceedings

[210] In the chattel conversion proceedings Action Fencing, HPL Distribution and Mr Daisley claimed that 38 items of property that they left at the Depot were converted by Ark, Mr and Mrs Keller, and the trustees of the Keller Family Trust. The claim against the trustees of the Keller Family Trust was unsuccessful in the High Court, and there was no appeal from that finding. We say no more about it. Similarly, the claim against Mrs Keller failed, and that decision was not challenged on appeal. We need not discuss that issue. We therefore focus on the claim that Ark and Mr Keller converted the 38 items, which the plaintiffs said had a replacement cost of $225,553.
[211] Mr Keller acknowledged that some (but not all) of the items listed in the claim had been left on the land after the Daisley interests moved out, and were then locked out. However the defendants put the plaintiffs to proof of ownership or the right to possess the items.
[212] Mr Keller also argued at trial that he was justified at the time in requiring proof of entitlement before releasing items, due to the confused situation which developed and competing claims by third parties. He acknowledges that he used some of the items left behind, but only after he considered they had been abandoned. If those items were not abandoned, he concedes they were converted by Ark. But he challenges the values asserted by the plaintiffs for those items, and indeed for all of the items that were the subject of the claim.

High Court judgment — chattel conversion proceedings

[213] The Judge held that Mr Keller was acting in his capacity as director of Ark, rather than in his personal capacity. She described this as “not an issue of vicarious liability but rather the orthodox principle that Mr Keller’s actions as director are treated as actions of Ark itself”.^[65] The Judge therefore treated the claim as brought against Ark, and not Mr Keller.
[214] The Judge noted that the relevant events took place some 10 years before the trial. Much of the oral evidence given in the proceeding was inherently unreliable due to faded memories. The contemporaneous correspondence, and records made by Mr Keller of certain events, were the best evidence available. It was for the plaintiffs to persuade the Judge on the balance of probabilities that their claims were made out, based on the evidence presented. Where the gaps were too great to discharge that burden, the claim had to be dismissed.^[66]
[215] The Judge set out in considerable detail the events relevant to this conversion claim. On 26 August 2010 Mr Daisley emailed Mr Keller, following a meeting. He confirmed that the house at the Depot would be cleaned out by the weekend. He wrote:

We would like to have three to four weeks with no charge to remove all our gear from the yard.

...

... Scotty can drive the digger to finish off before you take it away. In return I ask if we can use it to load some of our belongings with it, eg power [poles], the steel beams, posts etc.

[216] There was no written response to the email.
[217] It appears that Mr Daisley vacated the house by 29 August 2010, but there was still property left on the yard.
[218] The removal of the two offices by the Daisleys on 1 September 2010, and the attempt to remove other sheds the following day, have already been described. As mentioned, Mr Keller phoned the police and his lawyer, Mr Badham, who arrived on site. Mr Keller’s evidence was that the police advised Scott Daisley that he could remove other things from the yard, but the sheds and container had to stay in place until the dispute was sorted. Mr Keller says it was stipulated then that Scott Daisley had until Sunday, 5 September 2010 to remove the items from the site. Scott Daisley’s evidence was that he had no recollection of any agreement about a time period.
[219] Mr Keller subsequently emailed Mr Badham and Mr Whimp, the liquidators of Daisley Contracting Ltd, informing them of the 5 September 2010 date for the Daisleys to remove items.
[220] By letter dated 6 September 2010, delivered the following day, the lawyers for the liquidators wrote to “the occupier” of the Depot. They advised that they acted for the liquidators of Daisley Contracting Ltd. They said they also had the authority of Ark as land owner. They asserted that the Daisleys had been removing buildings and assets owned by Daisley Contracting Ltd. The letter also stated:

We also confirm that all fixtures and personal property including equipment and other chattels on the subject land, and those removed from it without the authority of the liquidator, are the property of Ark or the company in liquidation, as the case may be.

[221] The letter attached trespass notices signed by Ark. Mr Keller’s evidence was that this was done at the instigation of the liquidators. He signed the trespass notices on behalf of Ark, and delivered the trespass notices together with a representative of the liquidators.
[222] Between 7 and 9 September 2010, the liquidators had discussions with Mr Daisley and Scott Daisley about which assets belonged to Daisley Contracting Ltd and to other Daisley companies that were in liquidation. The liquidation reports refer to difficulties the liquidators encountered in identifying assets and interests. They describe the issues as legal issues arising from shareholder activities and related party transactions; investigation of numerous voidable transactions; debtor disputes; investigation and recovery of missing or stolen plant and machinery; and investigation of assets intermingled with related companies.
[223] On 9 September 2010, the liquidators emailed Mr Daisley agreeing that they had no interest in certain specified assets. Mr Whimp also emailed this confirmation to Mr Keller on the same day. The liquidators wrote:

I refer to our meeting of today. It is agreed that the liquidators have no claim over certain assets (listed below 1–3) that are held on the site managed by Paul Keller. Gary Whimp will contact Paul Keller to discuss. We have no objection to the secured creditor or the registered owner arranging to uplift the following assets. Paul Keller (and his interests) however will need to also confirm that he/they have no interest in these assets:

Gough Finance to collect the Mazda bounty Ute TM 7063. (The registered owner is Daisley Fencing Ltd and the vehicle is subject to a security interest held by Gough.)
The container on site belongs to [Mr Daisley] as director of Action Fencing Limited (AFL). (AFL bought it off us on 2 June and paid our repo agent Abraham Black Limited on 2 June.)
The fencing, panels, old tractors, posts, etc. belong to Action Fencing or 3^rd parties as follows (as advised by [Mr Daisley]):
- Power poles owned by Bruce Paterson
- Steel Beams owned by John Templeton
- Trailer in the yard is owned by Cooper Wilson
- Small Tractor is owned by John Morrow
- Forklift is owned by Tractor Trans.
- Old Cortina car (do up) is owned by [Mr Daisley] personally

The trailer held by Turners Actions is owned by the company. The VIN number confirms this. We disagree that the trailer is owned by you personally.

[224] On 13 September 2010 Mr Whimp emailed Mr Daisley as follows:

We have no problems with the release of gear from the yard( as detailed in the e mail to you by Peri) The persons picking up gear will have to show ownership of the items to [Mr Keller].

He has been instructed by us to then release it.

[225] Mr Keller gave evidence about various individuals arriving at the Depot and asserting ownership to items, along with trade creditors seeking money. Mr Keller described the situation as confused. He was concerned about what might happen if he released items to the wrong person. He says that was the reason he adopted a policy of not releasing anything unless a person had some proof of ownership. He said that he was not after receipts or perfect proof — just some indication that the items were owned by the person wanting to remove them.
[226] Although Mr Keller referred to proof of ownership, Ark’s lawyers understood that the critical issue was the right to possession of the chattels left onsite. They wrote to Mr Skeates on 14 October 2010 as follows:

There are a number of chattels situated on the property, and the right to possession of those different items is unclear. The liquidator of some of your client’s companies claims the right to possession of much of the equipment. Other agents, servants and contractors of your client have turned up on different occasions attempting to remove chattels and have attempted to assert the right to possession on behalf of your client, in some cases using false documentation. Without creating any duty to your client, our client will release possession of the chattels to the persons who establish their legal right to possession.

[227] The Daisleys did not provide any proof of their ownership or right to possess any of the items, but continued to assert their entitlement in a general sense, and without specifying what the relevant items were.
[228] Sometime after mid-October 2010, Mr Keller says he moved some items from the Depot out to the Ark property at Knight Road because no one had turned up to collect them. This included the steel beams said to be owned by a Mr John Templeton. He also moved a tractor and trailer to his home across the road to free up the Depot for potential tenants.
[229] On 17 October 2010 Scott Daisley emailed Mr Keller to make arrangements to pick up the trailer. He said:

There are a lot of items of Action Fencing that you have, you know you don’t own them and I would like them back, however the trailer is a good start.

If you want to discuss this in person, I am happy for you and [Mrs Keller] to do this ...

If you do not want to give back the company gear that does not belong to you, I will have to explore other avenues.

[230] Mr Keller replied, denying that he had any Action Fencing equipment. He made no reference to the trailer.
[231] A day later, Mr Keller saw Scott Daisley driving his ute up the Keller driveway. Scott Daisley turned into a neighbour’s house. Within a few days the trailer and tractor stored at the Kellers’ property disappeared. Scott Daisley denied taking the items, or being aware of the items in the Kellers’ paddock.
[232] In October 2010, Tracta Tranz, an equipment hire business, twice attended the Depot with security guards. Mr Keller’s evidence is that on one of these occasions he was physically restrained by the security guards while the owner of Tracta Tranz, wrote down information from the nameplate of the forklift.
[233] Sometime after this, Mr Keller used some second-hand guard rail left at the Depot to build a retaining wall. In January 2011, he concreted 33 temporary fencing panels left at the Depot into the ground to create a fence. He did not discuss these steps with Mr Daisley or advise him of his intention. At around this time, a concrete toilet block was affixed to the land at the Depot and at Knight Road.
[234] On 2 February 2011, Mr Whimp arranged for a container containing digger parts to be uplifted from the Depot and sent to Scottish Pacific Business Finance Ltd (Scotpac). In the same month, Tracta Tranz again attended at the property. This time they removed the forklift.
[235] Some time later, in 2013, Mr Daisley and Scott Daisley arrived at the Depot and removed the remaining temporary fence panels. Mr Keller was not present at the Depot at the time. It is not clear on the evidence how many fence panels remained or were taken. It may have been around 10.
[236] On 24 April 2014, Ark sold the Depot to the trustees of the Keller Family Trust. The sale settled on 30 April 2014. After this, there were no further demands for the return of items.
[237] Then in 2015, Mr Daisley issued the first set of proceedings against Ark. Ark responded with its claim. And on 31 August 2016, the Daisley interests issued the chattel conversion proceeding, shortly before the expiry of six years from the lock out date.
[238] The 38 items that were the subject of the claim are listed in a schedule to the High Court conversion judgment. The Judge noted that by closing, claims to six items appeared to have been abandoned. No satisfactory identification evidence was presented in respect of another claim, which she treated as implicitly abandoned. A further eight items were trivial in value, even on the plaintiffs’ own case. And the evidence relating to them was so slim that the Judge declined to make findings in respect of those items. That left 23 items.^[67]
[239] The Judge set out the legal principles relating to the tort of conversion, which were not in dispute. The essential feature of conversion is an unlawful denial of the possessory interest or title of the plaintiff in goods. Conversion requires conduct inconsistent with the rights of the owner of the goods or any other person entitled to possession. The conduct must be deliberate rather than accidental.^[68]
[240] Liability is strict. Conversion may be committed with no moral fault or blameworthy conduct which goes beyond the act which is inconsistent with the plaintiff’s right of possession. Thus, a person who innocently hands over goods to the wrong person, in the mistaken belief that he or she is delivering the goods to the true owner, may be liable in conversion.^[69]
[241] Where a person innocently comes into possession of the goods of another, they are a mere custodian rather than a converter of the goods until they do some act that amounts to an assertion of dominion inconsistent with the plaintiff’s rights. There is an assertion of dominion if there is an unqualified and unjustified refusal to return the goods in the face of an unequivocal demand for them. However simply retaining goods which are left on land does not amount to conversion.^[70]
[242] It is not always unlawful to refuse to deliver up goods immediately demand is made. A person detaining the goods is entitled to take adequate time to inquire into the rights of the person claiming the goods. This is because detention is for a lawful purpose if it is to ascertain that the claimant is justified in demanding the goods. As the Judge noted, it is implicit in this proposition that the reason for the qualified refusal must be genuine uncertainty that the claimant is entitled to the goods.^[71]
[243] The Judge held that as at 7 September 2010, Ark was in possession of the remaining items at the Depot as an involuntary bailee.^[72]
[244] The Judge accepted that the liquidation, combined with the actions of the Daisleys, contributed to a confusing picture for Mr Keller. But the plaintiffs had standing to pursue a claim for conversion in respect of the items left at the Depot at the date of the trespass notice, as they were in possession of those items at the time. The plaintiffs had a better possessory right at that time than the defendants, unless they had abandoned the chattels. The Judge rejected the submission that the plaintiffs needed to prove which plaintiff was entitled to possession. Given the relationship between the plaintiffs, the Judge proceeded on the basis that the possessory interest of one was impliedly an interest of all.^[73]
[245] The Judge found that Mr Keller’s policy of only releasing items on proof of ownership was not motivated solely by caution. The removal of the offices by the Daisleys had contributed to his adoption of a hard-line attitude. But that did not make his policy unreasonable. The Judge was persuaded that there was sufficient doubt about title to or interest in the items to justify Mr Keller’s requirement of some proof. His refusal to allow the Daisleys access to the Depot to uplift items without this did not amount to an unqualified or unjustified interference with the items. The demands for return of the items had also been general, without specific identification for the most part. And there was no explanation for the Daisleys’ failure to provide anything resembling an explanation of ownership or right to possession.^[74]
[246] In light of those principles, and the findings set out above, the Judge proceeded to analyse the claims in respect of each of the 23 items.
[247] The Judge found that the claims for conversion were made out in respect of a container (but not its contents), fence panels, gates and guard rail, and two concrete toilets. In each case she awarded damages and interest under s 87 of the Judicature Act. She dismissed the remaining conversion claims. We set out in more detail below the Judge’s reasons for rejecting the claims that are pursued on appeal.

Issue six: Chattel conversion issues

[248] The Daisley interests appealed in respect of a subset of the items in respect of which their claims were unsuccessful in the High Court. They very sensibly did not pursue claims in respect of a number of lower value items.
[249] Ms Smith submitted that the Judge had been right to approach the question of conversion of chattels left at the Depot on the basis that the Daisley interests had a better possessory right to the chattels, unless they had been abandoned. However the Judge had then incorrectly, when reviewing the position concerning particular items, focussed on ownership of those items.
[250] Ms Smith also submitted that the Judge erred in finding that Ark was in possession of the items left at the Depot as an involuntary bailee, because Ark had not given notice to terminate the tenancy at will that complied with the requirements of the Property Law Act 2007. We consider that this is a red herring. The Daisleys had moved out of the Depot. They had asked for a period of “three to four weeks with no charge” to remove their items: they were not suggesting that the tenancy was still on foot. The termination of the tenancy at will was in our view proposed by the Daisleys to limit their obligation to pay rent, and agreed to by Ark. The question of notice by Ark did not arise. And in any event, the mere taking of possession of the Depot while permitting items to be removed by the person(s) entitled to possession of those items would not constitute a conversion. So it is necessary to examine the claims item by item, to ascertain whether particular items were converted by Mr Keller and/or Ark.
[251] In her oral argument before us, Ms Smith focussed on the claims in respect of a forklift and excavator parts in the container. (As already mentioned, the Judge found Ark had converted the container, but not its contents.) We will begin by addressing those claims. We will then consider, briefly, the remaining items that were the subject of the appeal, which were addressed in the parties’ written submissions but not in oral argument before us.

The forklift

[252] Ms Smith says that the starting point is that the forklift was in the lawful possession of the Daisley interests on hire/rental terms from Tracta Tranz. Mr Keller’s refusal to permit Tracta Tranz, or the plaintiffs, to uplift the forklift was an interference with their rights of possession which amounted to a conversion.
[253] We were not taken to any evidence that the Daisleys, who on the face of it were entitled to possession of the forklift, made a demand for the forklift or were prevented from removing it themselves.
[254] We agree with the Judge that Mr Keller was justified in requiring proof of some form of entitlement to the forklift before releasing it to Tracta Tranz.^[75] There was no evidence before the Court that Tracta Tranz owned the forklift, or that it was entitled to possession of the forklift at the times it sought to uplift it. Nor was there any evidence that Tracta Tranz advised Mr Keller that it was acting on behalf of the Daisley interests in attempting to take possession of the forklift, or demanding possession of the forklift. Tracta Tranz did not provide any evidence to Mr Keller of authority to uplift the forklift on behalf of the Daisleys.
[255] Nor was Tracta Tranz a plaintiff in the High Court proceedings. So the unsuccessful attempts by Tracta Tranz to uplift the forklift do not appear to be relevant to the proceedings, except to the extent that they cast doubt on the Daisley interests’ right to possession of the forklift.
[256] In any event, the forklift was ultimately removed by Tracta Tranz in February 2011. In those circumstances it was common ground that any damages for conversion would be limited to damages for loss of use of the forklift between the time of any conversion by Mr Keller — at the earliest, September 2010 — and February 2011. The Daisleys’ claim for such loss was based on an invoice from Tracta Tranz dated 15 February 2011 for a total of $74,903.52, described as the cost of hire between 6 September 2010 and 11 February 2011. The invoice referred to a daily rate of $390 plus GST per day.
[257] No evidence was produced of any hire purchase agreement between Tracta Tranz and the Daisleys. No earlier invoices were produced for rent for periods when the Daisleys had possession of the forklift. No evidence was given of any previous payments of rent for the forklift. No-one from Tracta Tranz gave evidence in relation to the arrangements for hire of the forklift. The invoice was produced late in the day, with no explanation. The Kellers’ expert valued the forklift at around $5,000, and expressed concern about its safety, and suitability for hiring. That in turn casts doubt on the amount claimed by way of rent. As the Judge said, in these circumstances the invoice “has to be viewed with scepticism”.^[76]
[258] Still more problematically for this claim, the Daisleys confirmed in evidence that no payment had been made by them in respect of this invoice. There was no evidence that any steps had been taken by Tracta Tranz to seek payment of the invoiced amount. Ms Smith confirmed from the bar that no enforcement proceedings had been taken by Tracta Tranz in respect of that amount. In those circumstances, any claim to recover it would now be time-barred. Ms Smith suggested her clients felt a moral obligation to make the payment. But we give that little weight, in the absence of any evidence that they had made payments of rent on a similar basis in respect of earlier periods.
[259] We share the Judge’s doubts about the genuineness of the debt that the invoice purports to record. But in any event, the debt has not been paid by the plaintiffs and is not now recoverable. So the plaintiffs have not suffered any loss.
[260] In these circumstances, the claim for conversion of the forklift fails.

Excavator parts

[261] The Daisleys left a container at the Depot when they moved out. The container contained a range of items including Kato and Kobelco excavator parts. On 9 September 2010, the liquidators advised Mr Keller that the container belonged to Action Fencing. There appears to have been some confusion about ownership of the contents of the container. The Judge found that at some stage (but it was murky when and how) Mr Keller came to understand that the contents of the container belonged to Scotpac. A security firm made attempts to uplift the container and its contents on 21 September 2010, but they had no documentation to provide as proof of ownership or any other interest, so were not permitted to do so.
[262] In October 2010 Mr Keller asked the liquidators what was happening in relation to the parts and the container. One of the liquidators replied by email shortly afterwards saying “Leave it to me”. The Judge found that there were telephone discussions between the liquidators, Mr Keller and a Mr Clayton of Scotpac in relation to uplifting of the contents of the container. The Judge found that Mr Keller actively pressed Scotpac to arrange removal. He was led to believe that Scotpac had a legitimate interest in those parts.
[263] The Judge was satisfied that it was the liquidators in conjunction with Scotpac who ultimately uplifted the container with the digger parts. The Judge held that Mr Keller’s acquiescence in this removal amounted to a conversion of the container, but did not amount to conversion of the contents of the container.
[264] We accept Ms Smith’s submission that Mr Keller, by playing an active role in the removal of the container and its contents by Scotpac, acted inconsistently with the Daisleys’ right to possession of both the container and its contents. We accept that Mr Keller acted in good faith: but that is irrelevant, as conversion is a strict liability tort.
[265] We therefore find that Mr Keller converted the contents of the container, as well as the container itself.
[266] However there was no reliable evidence before the Court in relation to the value of the contents of the container. The only evidence the plaintiffs provided in relation to the value of the container contents was a table listing all the items that they said were converted. This table included a single line item for “Kato and Kobelco excavator parts in container”, with a round figure of $25,000 described as the “cost” of those parts. The parts were not separately listed, or otherwise identified. Neither Mr Daisley nor Scott Daisley described the items in their evidence, or expressed a reasoned view on their value. No evidence was provided in relation to their purchase: from whom they were purchased, when, or for what price. The Daisleys did not provide any relevant invoices, receipts, or even bank statements with relevant entries identified. They called no expert evidence. And the expert called by the defendants in relation to the value of items left on the property did not consider that he was able to value these parts, based on the limited information available. So there was no evidence before the High Court that would enable us to identify, or ascribe a value to, these excavator parts. In those circumstances, the claim in respect of those parts cannot succeed.

Fence panels

[267] The Judge found that Ark had converted 33 temporary fence panels and four fence gates. It was common ground before us that the Judge erred in applying a value of $132.50 per panel for those fence panels, in circumstances where the Kellers had called expert evidence valuing fence panels at $150–$200 per panel for New Zealand made panels. These were New Zealand made panels.
[268] It follows that the damages awarded were understated by $17.50 per panel for 33 panels: a total of $577.50.

Steel beams

[269] There were a number of used steel beams left at the Depot when the Daisley interests moved out. They had been left out in the open and were weathered. The email from the liquidators set out at [223] above recorded that Mr Daisley had identified a Mr John Templeton as the owner of these beams. Mr Keller gave evidence that he had never heard from Mr Templeton or anyone else concerning the beams since 2010. At some stage, Mr Keller moved the beams to Ark’s property at Knight Road, with a view to making the Depot more attractive to potential tenants.
[270] The claim in respect of the steel beams was dismissed in the High Court for a number of reasons, including concern about an apparently fabricated invoice relied on by Action Fencing as proof of ownership of the steel beams.^[77] There was a lack of evidence about whether the Daisleys or Mr Templeton owned the beams. And Mr Keller’s evidence was that the beams remained available for collection. There had never been an unqualified refusal to return the beams.
[271] We accept Ms Smith’s submission that the question of ownership of the beams is not relevant. Rather, in the context of a claim for conversion the focus is on the right to possession of the beams. The beams were in the Daisleys’ possession before they moved out of the Depot. If the Daisleys had sought to collect the steel beams, Mr Keller and Ark could not properly have refused to permit them to do so without committing the tort of conversion.
[272] However there was no evidence of a demand for possession of the steel beams that was refused by Mr Keller, or of any attempt by the Daisleys to collect them. Mr Keller’s evidence that the beams remained available for collection from his other property was not seriously challenged. The mere fact that he moved the beams to another location did not itself amount to a conversion, as in doing so Mr Keller had no intention to take possession of the beams or deprive the Daisley interests of their right to possession of them.^[78]
[273] We therefore dismiss the appeal in respect of the steel beams.

Hydraulic press and toolbox

[274] The items left on site included a hydraulic press and toolbox. The Judge found that ownership of the press and toolbox was unclear. It was likely that HPL Distribution had at least a possessory right, in the absence of any information to the contrary.^[79]
[275] It appears that HPL Distribution never made any demand for the hydraulic press or toolbox. Mr Keller’s evidence was that Scotpac asserted ownership of the hydraulic press, but chose not to uplift it because of the inconvenience. Mr Keller’s company, Electrical Marine Services Ltd, then purchased the hydraulic press and toolbox from the liquidators for a total of $500.
[276] The Judge considered that in these circumstances, none of the defendants converted the hydraulic press and toolbox. If there was a conversion, it could only have been by another entity.^[80]
[277] We accept Ms Smith’s submission that if HPL Distribution had a possessory right to these items, it is irrelevant that Scotpac or the liquidators wrongly asserted ownership of the items: if Ark or Mr Keller was involved in dealings with these items that were inconsistent with the possessory right of HPL Distribution, they would be liable in conversion.^[81] Nor, as explained above, can Mr Keller escape liability for acts amounting to a conversion on the basis that he was acting on behalf of a company.
[278] Mr Keller’s evidence was that he had agreed with Mr Whimp that he would purchase these items from Daisley Contracting Ltd, through his company. He said he has the toolbox. If HPL Distribution had a right to possession of these items at the time the Daisleys left the Depot, those dealings would amount to a conversion.
[279] However as the Judge said, ownership of these items was unclear. The hydraulic press appeared in the depreciation schedule of HPL Northland & North Harbour. There was also some suggestion it was owned by another Daisley company, Parts 2009 Ltd. It could equally well have been on site at the Depot in the possession of some other Daisley entity, through the Daisleys, given the confusion surrounding dealings with the assets of those entities. The evidence is insufficient to persuade us that HPL Distribution had a sufficient possessory interest to support a claim for conversion in respect of the hydraulic press.
[280] The position in relation to the toolbox is, if anything, less clear. The Judge considered that it was likely that HPL Distribution had a possessory right in respect of the toolbox. But the claim alleged that it was owned by, and in the possession of, Action Fencing. There was also some evidence that the toolbox had been in the possession of Daisley Contracting. Again, the evidence is insufficient to persuade us that HPL Distribution or Action Fencing had a sufficient possessory interest to support a claim for conversion in respect of the toolbox. This claim also fails.

Tractor and trailer

[281] The items left at the Depot also included a tractor and trailer. As noted above, on 17 October 2010 Scott Daisley emailed Mr Keller to make arrangements to pick up the trailer and other items. Mr Keller replied denying that he had any Action Fencing equipment. He made no mention of the trailer.
[282] Mr Keller’s evidence was that the tractor was moved to his home along with the trailer, to enable the Depot to be let out. It was removed from there by unknown persons. Shortly before that, Mr Keller said he had seen Scott Daisley driving his ute up the Keller driveway. Scott Daisley denied taking the items, or being aware of the items in the Kellers’ paddock.
[283] The Judge found that it was more likely than not that Scott Daisley had removed the tractor and trailer from the Kellers’ property. There had been no unqualified refusal to hand over either of them. Removal of those items from the Kellers’ property, whether by Scott Daisley or some other person, did not amount to conversion by the Kellers. She therefore dismissed that claim.
[284] We accept Ms Smith’s submission that there was little evidence that Scott Daisley had taken the tractor and trailer. Mr Keller did not suggest that in his evidence. That finding was not supported by the evidence.
[285] However there was no unqualified refusal to permit the Daisleys to remove these items. Mr Keller did not convert the tractor and trailer merely by moving them to his property.^[82] The taking of those items by unknown persons does not amount to a conversion by any of the Keller interests. The Judge was therefore right to dismiss the claim in respect of this item.

Summary

[286] In summary, we have found that the appeal by Action Fencing and HPL Distribution in relation to the chattel conversion claims succeeds in just one respect: the damages in respect of the fence panels should be increased by $577.50.

Costs

[287] The parties agreed that each of the appeals should be treated for costs purposes as a standard appeal falling within band A.
[288] The Keller interests have succeeded in relation to the appeal and cross‑appeal in CA271/2020. They are entitled to costs in respect of the appeal and cross-appeal.
[289] The Keller interests have succeeded in the Depot proceedings appeal (CA31/2021). They are entitled to costs in respect of that appeal.
[290] The Daisley interests had a minor degree of success in relation to the chattel conversion appeal (CA30/2021). The damages awarded were increased in respect of one item by a very small amount, which was not contested by the Kellers in their submissions. The appeal failed in relation to all other items, including all the items in respect of which significant sums were claimed. In those circumstances, we consider that — adopting an approach that is generous to the Daisley interests — the costs of this appeal should be awarded to the Keller interests subject to a 10 per cent deduction.

Result

CA271/2020

[291] The appeal in CA271/2020 is allowed.
[292] The award of damages/equitable compensation to Mr Daisley is set aside.
[293] The cross-appeal in CA271/2020 is dismissed.
[294] The respondent must pay the appellants costs in respect of the appeal and cross‑appeal, in each case for a standard appeal on a band A basis, with usual disbursements.

CA30/2021

[295] The appeal in CA30/2021 is allowed in part. The damages awarded are increased by $577.50. The appeal is otherwise dismissed.
[296] The appellants must pay the respondents 90 per cent of the costs for a standard appeal on a band A basis, with usual disbursements.

CA31/2021

[297] The appeal in CA31/2021 is dismissed.
[298] The appellants must pay the respondent costs for a standard appeal on a band A basis, with usual disbursements.

Solicitors:
Henderson Reeves Lawyers, Whangarei for Appellants in CA271/2020 and Respondents in CA30/2021 and CA31/2021
Tailored Legal Solutions Ltd, Dargaville for Respondents in CA271/2020 and Appellants in CA30/2021 and CA31/2021

^[1] Daisley v Ark Contractors Ltd [2020] NZHC 793 [Main proceedings judgment] at [148] and [159].

^[2] At [233]–[234].

^[3] At [222]–[228].

^[4] At [229].

^[5] At [238]–[240].

^[6] Ark Contractors Ltd v Daisley [2020] NZHC 3508 [Depot proceedings judgment] at [88]–[89], [106], [115] and [118]–[121].

^[7] Action Fencing Ltd v Ark Contractors Ltd [2020] NZHC 3509 [Chattel conversion proceedings judgment].

^[8] Depot proceedings judgment, above n 6, at [35].

^[9] Main proceedings judgment, above n 1.

^[10] At [148].

^[11] At [149].

^[12] At [159].

^[13] At [184].

^[14] At [189]–[201].

^[15] At [217].

^[16] At [218].

^[17] At [219]–[221].

^[18] At [228].

^[19] At [229].

^[20] At [229].

^[21] At [232].

^[22] At [236].

^[23] At [237].

^[24] At [241].

^[25] At [239].

^[26] At [240].

^[27] Main proceedings judgment, above n 1, at [228].

^[28] High Court Rules 2016, r 5.26(a) and (b).

^[29] Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246 (CA) at 309.

^[30] Yan v Mainzeal Property and Construction Ltd (in liq) [2021] NZCA 99.

^[31] At [493].

^[32] Main proceedings judgment, above n 1 (footnote omitted).

^[33] By January 2010 it had become clear that SDD had no equity in its property, so Mr Daisley alone would receive shares in Ark.

^[34] Main proceedings judgment, above n 1, at [241].

^[35] At [242(b)] and [243].

^[36] The Kellers’ evidence was that the value of Ark today was in the region of $500,000.

^[37] Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [52].

^[38] Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [31] (footnote omitted).

^[39] Amaltal Corp Ltd v Maruha Corp [2007] NZSC 40, [2007] 3 NZLR 192 at [19].

^[40] See for example, Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 477 and 553; AUAG Resources Ltd v Waihi Mines Ltd [1994] 3 NZLR 571 (HC) at 577; and McLachlan v Mercury Geotherm Ltd (in rec) CA142/02, 28 August 2003 at [49], approved in McLachlan v Mercury Geotherm Ltd (in rec) [2006] UKPC 27, (2006) 7 NZCPR 135 at [25].

^[41] See Dold v Murphy [2020] NZCA 313 at [58].

^[42] Depot proceedings judgment, above n 6.

^[43] At [49].

^[44] At [50].

^[45] At [58], citing Holland v Hodgson [1872] UKLawRpCP 24; (1872) LR 7 CP 328 at 334–335 per Blackburn J, applied in New Zealand in Lakes Edge Developments Ltd v Kawarau Village Holdings Ltd [2017] NZCA 205, [2017] 3 NZLR 336 at [57].

^[46] At [59].

^[47] At [66].

^[48] At [60].

^[49] At [67] and [72].

^[50] See [74]–[79] where the Judge relies on Lockwood Buildings Ltd v Trust Bank Canterbury Ltd [1995] 1 NZLR 22 (CA) for the proposition that parties are able to regulate the doctrine of accession as between themselves: at [76].

^[51] At [80].

^[52] At [82].

^[53] At [93]–[95].

^[54] At [122(f)].

^[55] Chattel conversion proceedings judgment, above n 7, at [111].

^[56] Michael Jones (ed) Clerk & Lindsell on Torts (23rd ed, Sweet & Maxwell, London, 2020) at [6‑01]. In relation to the tort of conversion, see Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at 632.

^[57] Johnson Matthey (Aust) Ltd v Dascorp Pty Ltd [2003] VSC 291, (2003) 9 VR 171 at [85]–[90].

^[58] Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA).

^[59] See [56] above.

^[60] Depot proceedings judgment, above n 6, at [35].

^[61] At [98]–[99].

^[62] At [104].

^[63] At [106].

^[64] At [122(f)].

^[65] Chattel conversion proceedings judgment, above n 7, at [10] (footnote omitted).

^[66] At [14]–[15].

^[67] At [66].

^[68] At [74], citing Todd, above n 56, at [12.3.01]; Cuff v Broadlands Finance Ltd [1987] NZCA 93; [1987] 2 NZLR 343 (CA) at 346; and Wilson v New Brighton Panelbeaters Ltd [1988] NZHC 457; [1989] 1 NZLR 74 (HC) at 80.

^[69] At [75], citing Todd, above n 56, at [12.3.01]; and Wilson v New Brighton Panelbeaters Ltd, above n 68, at 80.

^[70] At [75]–[76], citing Todd, above n 56, at [12.3.02(2)].

^[71] At [78]. See also Todd, above n 56, at [12.3.02(2)].

^[72] At [81].

^[73] At [83]–[85], citing Glenmorgan Farm Ltd (in rec and in liq) v New Zealand Bloodstock Leasing Ltd [2011] NZCA 672, [2012] 1 NZLR 555 at [28].

^[74] At [87]–[88].

^[75] At [96].

^[76] At [97].

^[77] At [102]–[103].

^[78] See Todd, above n 56, at 634.

^[79] Chattel conversion proceedings, above n 7, at [109].

^[80] At [111].

^[81] See Helson v McKenzies (Cuba Street) Ltd [1950] NZGazLawRp 70; [1950] NZLR 878 (CA).

^[82] See above at [272].

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