Clover Flats Dairy Farm Limited v Wilson HC Timaru CIV-2010-476-000542 [2011] NZHC 994 (19 August 2011)

Last Updated: 28 September 2011

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

_{CIV-2010-476-000542}

BETWEEN CLOVER FLATS DAIRY FARM LIMITED

Plaintiff

AND MAX STUART WILSON AND CHERYL ANNE WILSON

Defendants

Hearing: 4 August 2011

Counsel: I D Matheson for Plaintiff

B R Judd for Defendants

Judgment: 19 August 2011

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] This proceeding was filed on 3 November 2010 and served on the defendants on 23 November 2010. It was allocated a first Judicial telephone conference on

26 January 2011. By that time the defendants had not filed a statement of defence. The Court determined that the plaintiff’s claim was for a liquidated sum. Judgment was entered for the principal sum claimed in the proceeding, with the issue of interest to be further considered. Issues relating to interest were deferred for further consideration. On 28 March 2011 the defendants filed this application to set aside that judgment, together with supporting affidavits.

Legal principles

[2] Rule 15.13 of the High Court Rules provides that any judgment obtained by default may be set aside or varied by the Court on such terms as it thinks just, if it

_{appears to the Court that there has been or may have been a miscarriage of justice.}

CLOVER FLATS DAIRY FARM LIMITED V MAX STUART WILSON AND CHERYL ANNE WILSON HC TIM CIV-2010-476-000542 19 August 2011

[3] In Russell v Co[1], the Court of Appeal stated:

In approaching an application to set aside a judgment which complies with the rule, the Court is not limited in the considerations to which it may have regard, but three have long been considered of dominant importance. This was accepted by the Chief Justice in the Court below and by all Counsel in this Court. They are, 1. That the Defendant has a substantial ground of defence; 2. That the delay [non-appearance at the hearing] is reasonably explained; 3. That the Plaintiff will not suffer irreparable injury if the judgment is set aside.

[4] The Court’s discretion under r.15.13 is unrestricted. In this case, both counsel approached the case by reference to the three considerations identified in Russell v Cox and on the facts of this case, in my view that is the correct approach.

Affidavit evidence

[5] With the application affidavits by Max Wilson, the first-named defendant, and by J A Firth and I J Holloway were also filed and served. In response the plaintiff filed and served affidavits from G Holdt (2), D L Taylor, W M Hill, W T Turnham and H T Newton.

[6] In reply the defendant filed further affidavits from M S Wilson and I J Holloway, and a brief affidavit from C A Wilson, the second-named defendant.

[7] The plaintiff formed the view that these raised new issues so filed affidavits from J W Cheeseman and R J McLean. The defendant objected but filed a further affidavit from M S Wilson responding to the two further affidavits from the plaintiff. Not surprisingly there was then argument about whether the affidavits of Messrs Cheeseman and McLean, and the further affidavit of Mr Wilson, should be accepted. After considering the respective positions of counsel I ruled that all affidavits would be admitted and read. There are therefore seven affidavits before the Court in

_{support of the application, and eight in opposition to it.}

[8] In his first affidavit Mr Wilson deposed that when the proceedings were served he and his wife were going through some difficult times with the owner of their dairy herd, Stockco Limited. That company owns the herd as part of a financing arrangement and at that time had repossessed it. Negotiations were underway to have the herd released back to the Wilsons. Mr Wilson said that because, at the time of service of these documents, the herd had been uplifted from their property against their wishes, neither he nor his wife read the proceedings and they put them aside. Before doing so, however, he noticed that there was to be a judicial telephone conference on 24 January 2011.

[9] Two days after service Mr J A Firth visited their property to assist them with the problem they had with Stockco. Mr Firth had earlier practised as a solicitor and was also a trained mediator. With his assistance the Wilsons managed to resolve the issue with Stockco.

[10] At a meeting with Mr Firth on 25 November Mr Wilson passed the papers in this proceeding to him and asked for advice on what he should do. The issue and service of the proceedings followed a period of some two years of dispute between the plaintiff and the defendants and during most of that time the defendants had been represented by the solicitors now representing them once more. However, at the time of service those solicitors had ceased to act.

[11] Mr Wilson stated that he could not recall Mr Firth’s advice, nor seeing the papers after that. He said that he and his wife were fully occupied both mentally and time wise trying to resolve the Stockco matter, and it was very traumatic for them. He said that he forgot about the documents because of what was taking place and he accepted that this was a considerable oversight, notwithstanding the significant stress that they were under at the time. However, in January 2011 he recalled that there was a judicial telephone conference to take place. He could not find the letter from the court giving the date and time, so contacted the court by telephone. He deposed that he was advised that the conference was scheduled to review progress on the matter and that it was routine and would be the first in a series of telephone

conferences on the proceeding. He arranged to attend, and did attend, the telephone conference with his farm advisor, Mr J T Findlay. He still had not instructed a solicitor to act. He was surprised that judgment was entered by default at the conference. He stated that he tried to object to it and requested time to file a defence but was informed that he was out of time. This is broadly consistent with the events as recorded by the Judge in the judgment, though the Judge did record that at the conference Mr Wilson stated that he had no recollection of any event when he and his wife were served with the documents in the proceeding. Counsel for the plaintiff emphasised this discrepancy. I do not think that it is material. Mr Wilson must have recalled something about the service of the proceedings, otherwise he would not have made inquiries of the court, and certainly would not have been on the telephone conference. He was representing himself at the conference. He may have misstated the position, but nothing turns on it.

[12] In an affidavit filed in support Mr Firth stated that on 19 November he had been contacted by Mr Wilson who was in a distressed state, and advised that agents from Stockco had arrived to seize the stock which they leased from that company. For the rest of the month he assisted the Wilsons with the Stockco matter. On the morning of 25 November he went to the farm to obtain details of various items of plant Mr Wilson could proffer as security for lending, which would be required in order to deal with the Stockco problem. When he arrived at the house he took inside a file on an unrelated matter because inside that file was a writing pad. He found Mr Wilson to be in a serious state of distress and anxiety. The reason for his visit was to discuss security for lending but Mr Wilson’s sole focus was on return of the cows from Stockco. Stockco had evidently agreed to this six days earlier. However, it was now changing the terms on which the return might take place and this was causing Mr Wilson stress. Mr Firth said he was so distressed that “he was not even making sense, he just kept repeating the same questions and would not settle”.

[13] Mr Firth said that at one point Mr Wilson took some documents from the kitchen table and asked him what he should do with them. Mr Firth quickly scanned them and noted that they related to these proceedings. He asked Mr Wilson when he had received them and believes that his response was that it was recently, though Mr Firth said it was extremely hard to follow Mr Wilson because of his distress and

his sole focus on Stockco’s actions. He said Mr Wilson was totally confused and barely able to focus on anything other than Stockco and why they had not returned the cows as promised. Mr Firth told Mr Wilson he would jot down a note regarding the documents which he should follow up on as soon as possible. As he wrote the note Mr Wilson was still speaking about Stockco’s promise that the cows would be returned immediately.

[14] When Mr Firth decided to leave, he hurriedly picked up his file and the writing pad which had been removed from the file for use. He did not realise at that time that he had also picked up the service documents in this proceeding and the note that he had attached to them, at the time that he picked up the file.

[15] In February 2011 Mr Wilson rang him and asked if he could recall whether he had been served with proceedings from Clover Dairies. Initially Mr Firth did not recall the proceedings or the note because he had not, since 25 November, had reason to go to the file which he had also taken inside the Wilsons’ house. He did so then, and found the proceedings and the note he had written.

[16] Mr Firth was extremely unwell at the time. He had developed a serious heart issue and was scheduled for urgent valve replacement surgery which had not at the time occurred. The impact of the faulty valve in his heart was reasonably significant and left him quite exhausted for periods of several days at a time. As a result the matter of this proceeding was not on his mind until he was contacted by Mr Wilson in February. In his affidavit Mr Firth acknowledged that his inadvertently removing the documents from the farm had resulted in Mr Wilson overlooking the matter and the requirement to file a defence. Mr Firth has subsequently passed away.

[17] In the course of presentation of the plaintiff ’s submissions Mr Matheson drew my attention to a District Court judgment in a case brought by G W and L A Gemmell against the defendants, which recorded that the Wilsons represented themselves at a hearing on 29 November 2010. Although not referred in their affidavits as a reason for not dealing with this matter immediately after they were served with the documents, this is nonetheless a record of a further event in their lives at around the same time.

[18] Mr Matheson submitted that the defendants giving reasons for not filing a statement of defence in time were implausible. He drew my attention to the Judge’s note that Mr Wilson had stated at the conference that he had no recollection of service, whereas two months later in his affidavit of 25 March he put his failure to file a defence down to other events occurring at the time, not to his being unaware of the proceedings, or not having been served. Mr Matheson noted that the defendants had been represented by their present solicitors, on the dispute, until just prior to service and noted Mr Holdt’s first affidavit in support of a view that the defendants had been uncooperative over a period of two years in relation to two attempts to organise a mediation or arbitration. He pointed out that as early as May 2010 the defendants had been told the proceedings would be issued and that they are familiar with the litigation process. In this respect he drew my attention to the fact that in the Gemmell case the defendants had also failed to file a defence and applied to set judgment aside.

[19] I have considered all the points made by Mr Matheson. However, given the evidence by Mr Firth as to Mr Wilson’s state of mind, in particular, just two days after service of the proceedings, I am not prepared on affidavit evidence to draw a conclusion that the defendants’ given reasons are implausible, nor am I prepared to ascribe any significant weight to their having, in a separate case in a different court, also put themselves in a position where they evidently had to apply to set aside a judgment entered by default. I am prepared to go as far as to say that their attitude to dealing with this proceeding was careless, at least, but the evidence shows that shortly before service their solicitors had ceased to act, with the result that they were self-represented, and they were under very considerable strain for apparently sound and justifiable reasons. I do not find it implausible that in January Mr Wilson should have remembered that he had seen that there was to be a telephone conference resulting in his taking steps to ascertain which court the conference was to be held in, and then to ascertain when it was. I must also give weight to the advice said to have been given to him by the registry. I make no criticism of the staff involved, but from the perspective of the person receiving the information imparted, it certainly would not have conveyed an urgent need to file a statement of defence.

[20] There were three circumstances which contributed to the events that occurred. The first was the Wilsons’ inaction because of the stress they were under due to the Stockco matter. The second was Mr Firth inadvertently removing the proceedings from the house. The third was the advice given by the registry. Taking all matters into account I find the delay in filing a statement of defence to be reasonably explained.

Do the defendants have a substantial ground of defence to the claim?

[21] On 16 August 2008 the plaintiff sold to the defendants 142 cows at $1,900 per head plus GST. The cows were to be delivered between 18 and 20 August and payment was to be made within 14 days of delivery. The defendants inspected a herd of 197 cows at the plaintiff’s property and selected the 142 cows which they bought. The defendants arranged transport and the cows were delivered to the defendants’ property. No part of the purchase price has been paid. For reasons which follow the defendants refused to pay for the cows and insisted that they be returned to the plaintiff, which, ultimately, they were. The plaintiff disposed of the cows at a loss and sued for the difference between the contract price and the net sale proceeds. It is that sum for which judgment has been entered; issues relating to interest remain extant.

[22] In a draft statement of defence and counterclaim produced to the Court by counsel for the defendants, they plead that although they inspected the cows at the time of selecting them from the larger herd, they were presented as fit for the purpose of dairy milking, and that there was an implied term in the contract that the cows purchased would be fit for their purpose. This document will require substantial amendment if it is to properly reflect the position put forward by the defendants’ counsel in argument, namely that the implied term in s 15 of the Sale of Goods Act 1908 provides a defence as well as a basis for a counterclaim. This term is not pleaded as a positive defence. Nor is any reference made to other possible defences, for example under s 6 of the Contractual Remedies Act, or the Fair Trading Act. Whilst it would have been helpful and appropriate for the defendants to have put before the Court a comprehensive statement of defence, the lack of such a document is not fatal to this application.

[23] The plaintiff maintains that the selling of cows is not part of its business as a dairy farmer. It maintains that it purchased these cows, and further animals, when it purchased its farm as a going concern and was selling these cows because they were surplus to its requirements. On that basis it argues that the implied term in s 15 is of no application. After the close of argument, and whilst the judgment in this case was under preparation, counsel for the plaintiff filed a memorandum drawing my attention to the decision in Colmar & Brunton Research Ltd v Tomes Statistical

Research Ltd & Ors.[2] In that case the learned Judge reviewed case law and at page

15 said:

Without reference to authority I would have had no doubt that the phrase “in the course of a seller’s business to supply” carried the connotation of a regular course of dealing, not necessarily in identical goods, but at least in goods of the general class. That I think has been the accepted view in New Zealand ...

[24] I have been unable to locate any subsequent case in New Zealand where a different view has been expressed.

[25] Counsel for the defendants argued that the plaintiff is a dairy farmer and it is part of the ordinary course of a dairy farming business to buy and sell cows of varying ages – in other words, of the same class as the animal sold in this case. Thus counsel submitted that the implied term is applicable.

[26] I do not have sufficient evidence before me to determine the extent to which the buying and selling of cows is part of the conduct of a dairy farming business. I am prepared to accept without more that a dairy farmer must purchase stock for the purpose of conducting the dairy farming operation, and that unless all progeny of the stock are retained on the property some at least of the progeny will be sold, particularly (for example) male progeny.

[27] On that basis I am not prepared to reject the prospect of there being an arguable defence, based on this implied term being applicable. The issue would need

to be specifically addressed by considerably more comprehensive evidence on this point, and more detailed legal submissions by both sides.

[28] The defendants rejected the cows and refused to pay the purchase price as they contend that the cows were infected with mastitis at the time of purchase. On their evidence, they had not experienced any significant problems with mastitis in their dairy herd prior to the plaintiff’s cows arriving on the property. Almost immediately after their arrival it was found that the cows purchased had mastitis. The cows were delivered on 18 and 20 August and on 22 August testing undertaken at Mr Wilson’s request by the defendants’ veterinarian, to establish whether the cows had any mastitis, revealed what Mr Wilson described as an alarming rate of mastitis requiring a large number of the cows to be treated. The matter of concern was that not only was there an incidence of mastitis which Mr Wilson regarded as extremely high, but also that the proportion of mastitis caused by staph aureus, which is the strain of mastitis which is very much more difficult to treat and more frequently results in the death of the cow concerned, was abnormally high. Evidence from Mr I J Holloway, the defendants’ veterinarian, was that of 15 cows which received rapid testing for mastitis, 13 showed mastitis with grades of 1 through to clinical, which led to milk samples being taken for culture. Of the 13 cows thus tested, three grew cultures of strep ubers and four of staph aureus. Mr Holloway said that prior to this testing he had only ever noted one isolated case, four years earlier, of staph aureus mastitis infection in the Wilsons’ own herd.

[29] The plaintiff vehemently denies that the cows were infected with mastitis at the time of sale and introduced evidence from Mr Holdt, a director of the plaintiff, Mr Taylor, the livestock agent who negotiated the sale, Mr Hill who was the former owner of the cows, Mr Turnham, a livestock manager, at the time, with some 30 years experience and Mr Newton, a vet, in support of the plaintiff’s position. It is unnecessary to canvass this evidence in detail. Suffice it to say that the plaintiff does not accept that the cows were infected as the defendants allege and cast blame on the defendants for the outbreak, based on a number of matters including the way the cows were transported, and allegedly unsatisfactory and unsanitary conditions on the defendants’ property. Witnesses for the defendant took issue with substantial and

material portions of this evidence. This in turn led to further evidence for the plaintiff and, yet another affidavit for the defendant.

[30] This is an interlocutory application with the evidence given by affidavit. Much of the affidavit evidence conflicts. If this matter proceeds to trial, the evidence will be presented orally and tested by cross-examination, which is the appropriate way for a just outcome to be reached. The issue before me is not whether the defendants’ position will ultimately succeed, but whether there is a substantial ground of defence, as one element in a consideration, overall, on whether it is just to set aside the judgment.

[31] Nonetheless, Mr Matheson for the plaintiff presented a careful analysis of the evidence to found the proposition that the defendants’ case does not amount to an arguable defence. Mr Matheson relied to a degree on the District Court judgment in the Gemmell case to which I have referred, in which findings of fact were made which, if correct, might be seen as tending to support the evidence of his client’s witnesses, rather than the defendants’ witnesses, in relation to levels of hygiene on the defendants’ property. Appropriate levels of hygiene are essential if outbreaks of mastitis are to be avoided or at least minimised in number and extent. The defendants’ evidence is to the effect that their standards of hygiene are adequate, this evidence being given by Mr Wilson and by Mr Holloway, his veterinary advisor. The plaintiff’s position is to the contrary. I am prepared to give only little weight to the findings in the District Court. It is trite to note that those findings were made in a different case and necessarily, therefore, on different evidence. Ultimately the evidence might be found in this case to support conclusions advocated by the plaintiff and found by the District Court Judge but I am not prepared to use that judgment as a foundation to diminish the probative weight of the evidence presented by affidavit in this case for the defendants. I cannot assess the evidence given in that case, any more than I can foresee findings that might be made at trial on the evidence of those who have sworn affidavits in this case.

[32] When canvassing the conflicting evidence on hygiene issues presented in the affidavits, Mr Matheson pointed to the defendants’ failure to produce certain records said to be relevant to their position, and to records his clients had produced which

supported their position. Again, however, whilst those records are undoubtedly of considerable weight, I am not required on this application to determine whether the defendants’ position is correct, only that it is seriously arguable, and although the veracity of evidence given by affidavit may be discounted or dismissed if it conflicts with contemporaneous documents, there is in this case the potential for a far broader inquiry into the cause of the mastitis than can possibly be determined by reference to one set of records accompanied by a criticism of another set of records not having been produced.

[33] At a trial the Court would be required to determine the defence put forward in this case on a careful examination of all the evidence presented by both sides on the condition of the cows from the point they were inspected, through the time they spent in loading yards prior to transport, and then on the defendants’ farm. Even though Mr Matheson was able to point me to a number of areas where the sworn testimony of Mr Wilson and Mr Holloway will need to be reflected against documentary records, I cannot speculate on how they would respond to those records in evidence. Mr Matheson urged on me that he could identify eight places in Mr Holloway’s evidence alone where he gave what Mr Matheson described as carefully worded half truths. I have no hesitation in accepting that in the end Mr Holloway’s evidence might not be accepted, after the plaintiff exercises its right to put to him opposing viewpoints. As an example, at paragraph 10 of his affidavit dated 25 March, Mr Holloway has deposed that prior to 2008 he had never had any reason to be concerned with the levels of mastitis on the Wilsons’ farm. That is a statement of fact. Perhaps, at a trial, the plaintiff could establish that in fact Mr Holloway did have those concerns. Perhaps, at trial, the plaintiff could establish that he should have held such concerns. That may have as its foundation the evidence of the plaintiff’s witnesses that there were good reasons for such concerns to be held. That, however, is well outside the realms of an inquiry as to whether or not the defendants can show that they have an arguable defence.

[34] Mr Matheson submitted that there are documents before the Court showing that there were problems involving hygiene that the defendants have denied but which the plaintiffs now know to be true. A lack of hygienic operating conditions on a farm is a known factor in the spread of mastitis, so plainly this is an issue of some

relevance. However, even if the plaintiff’s position on this issue is ultimately found to be the correct one, it cannot be assumed on the material before me that any established lack of hygiene was in fact the cause of the mastitis, and that the cows did not bring the infection with them. Put another way, if the cows were infected when they arrived, lack of hygiene at the receiving end cannot have been the cause; it might exacerbate more rapid speed of the outbreak. What will be required will be an overall analysis of precisely what occurred in the time span that I have indicated. The potentially contributing causes of the mastitis outbreak are too complex to be determined without a full hearing of all the evidence by an oral testimony trial process.

[35] I am satisfied that the defendants have an arguable defence. Whether, ultimately, that defence prevails is for determination by a process manifestly different from the one before me on this application.

Will this plaintiff suffer irreparable injury if the judgment is set aside?

[36] If the judgment is set aside there will be a delay before the ultimate outcome of this case is known, as it proceeds through the pre-trial and trial process. At the present time there is a sum sufficient, or perhaps nearly sufficient, to meet the plaintiff’s judgment held in the trust account of the defendants’ solicitors. It has taken some time, for reasons which need not be canvassed here, for the Court to settle the amount of interest to which the plaintiff is entitled under the judgment as it presently stands. The solicitors for the plaintiff asked the defendants to place a further sum into the defendants’ solicitor’s trust account to cover interest, and were met with a response from the solicitors that their instructions were that neither of the defendants has current employment and both are living with friends. From this they drew an adverse inference about the defendants’ ability to meet a judgment at a later date, if this judgment is set aside.

[37] Mr Matheson also noted that both Mr Firth, and the manager of the transport company which transported the cows from the plaintiff’s property to the defendants’ property, are dead and therefore unavailable to give evidence. I am not persuaded by this point. Mr Firth’s evidence is relatively full and detailed, though the written note

to which he has referred has not been produced. It may yet be discovered. Whether the manager of the transport company could have thrown any material light on the issues is unclear. Possibly the drivers on the two relevant days could, but these points were not argued.

[38] Mr Matheson submitted that his main concern was the history of the Wilsons’ indebtedness and what he described as their history of denying their debts together with the economics of litigating at this level, which will require a trial estimated to take five days.

[39] Mr Wilson has produced a statement of assets showing a total of

$794,750.00, which excludes the sum held in his solicitor’s trust account. He did not produce a statement of debts but stated that the only security against the assets is limited to $200,000. That does not mean, of course, that the net asset position should only be reduced by that sum.

[40] Plainly, on the evidence before me, the present judgment can be met in full now. The question is whether that position will deteriorate to the point where the plaintiff has suffered irreparable harm if the judgment is set aside and there is, necessarily, a further period before judgment is obtained again, should that be the ultimate outcome. The evidence does not satisfy me that would be the case. Taking into account the sum held at present for the judgment, the defendants have identified assets of around $950,000.00, and debts of $200,000.00, though possibly there are more. To that extent their disclosure of their financial position is less than candid. If the indebtedness declared of $200,000 is in fact their entire indebtedness they have assets of $750,000 or thereabouts, some five times the present judgment, apart from interest. Interest and adverse costs could increase this to, by my estimate, around

$250,000. That would still be covered three times by the assets and debts disclosed. I accept that the plaintiff does not accept the asset position disclosed by the defendants but it is the best information before the Court on this application. The only evidence in relation to income is to the effect that both the defendants are presently without employment and that is a factor which suggests that assets may diminish over a period. Presumably, too, the net assets are earning or capable of earning income. However, allowing for a judgment in favour of the plaintiff

amounting to some $250,000.00, there is still some $500,000 as a buffer before the plaintiff’s ability to recover a judgment, should they attain one, would be in jeopardy. Whilst I accept there is some basis for concern by the plaintiffs given that the farm property itself (though not the livestock and plant) has been sold and the defendants are unemployed at present, those concerns fall far short of being sufficient to show that the plaintiff will suffer irreparable injury if the judgment is set aside.

Further issue raised

[41] Mr Matheson levelled criticism at the defendants for not filing their application to set aside the judgment earlier than two months after judgment was entered. Whilst longer than may have been ideal, the papers were not located in Mr Firth’s file until February, he was very unwell at the time, and it was necessary for the defendants’ solicitors to be once again instructed and for documents to be prepared. Nothing of significance turns on this point.

Outcome

[42] The application to set aside the judgment dated 26 January 2011 is granted. The judgment is set aside. The defendants have been successful and are entitled to costs. Costs will be on a 2B basis with disbursements to be fixed by the Registrar.

[43] The case is adjourned to a case management conference on a date to be fixed by the Registrar. In the meantime a statement of defence and, if so desired, a counterclaim is to be filed and served within 10 working days. A statement of defence to the counterclaim, if filed, is to be filed and served within 20 working days of service. Discovery is to be completed by the plaintiff and the defendants within

15 working days of the defence being filed. The case management conference will

_{be on the first available date after the expiration of 35 working days.}

J G Matthews

Associate Judge

Solicitors:

Reeves Middleton Young, Private Bag 2031, New Plymouth

Webb Farry, PO Box 5541, Dunedin

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[1] Russell v Cox [1983] NZLR 654 (CA)

[2] Colmar & Brunton Research Ltd v Tomes Statistical Research Ltd & Ors HC Auckland A721/82

22 May 1990 – Wylie J.