McCowan v Glover [2012] NZHC 1079 (18 May 2012)

Last Updated: 14 June 2012

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-001373 [2012] NZHC 1079

BETWEEN STEPHEN HAL WRIGHT MCCOWAN First Plaintiff

AND DRUMLEA FARMS LP Second Plaintiff

AND GREGORY HUGH GLOVER, GERARDINE ANNE GLOVER AND COLIN ALEXANDER VAZEY Defendants

Hearing: 3 May 2012

Counsel: WGC Templeton for Plaintiffs

RD Clark for Defendants

Judgment: 18 May 2012

_{JUDGMENT OF ASHER J}

This judgment was delivered by me on Friday, 18 May 2012 at 2pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Stafford Klaassen, PO Box 29185, Greenwoods Corner, Auckland 1347.

WGC Templeton, PO Box 5444, Wellesley Street, Auckland. Email: [e-mail]

Andrew Gurnell Law, PO Box 9097, Hamilton.

RD Clark, PO Box 931, Hamilton 3240. Email: [e-mail]

MCCOWAN V GLOVER HC HAM CIV-2011-419-001373 [18 May 2012]

Introduction

[1] On 18 May 2010 the defendants sold Drumlea farm to the first plaintiff for

$11,700,000. The dairy herd on the farm was included. The sale was settled and the plaintiffs now say that the defendants were in breach of warranty as to the approximately 650 cows in the herd, and also in relation to the state of the effluent systems on the farm. They say that their claim in these causes of action is sufficiently clear and strong to be suitable for the entry of summary judgment. There are other causes of action for which they do not seek summary judgment. The defendants deny the claims and oppose the entry of summary judgment.

Background

[2] Drumlea farm consists of 226 hectares of good quality Waikato farmland west of Hamilton. It had been farmed by Gregory and Gerardine Glover, two of the three plaintiffs who are trustees for the trust that owns the farm. The purchaser was Stephen McCowan, a farm adviser and consultant working in the Waikato area. While he was the purchaser, he ultimately nominated a limited partnership formed to purchase and run the dairy farm, the second plaintiff Drumlea Farms LP, to carry out the purchase.

[3] The promotional material referred to the dairy herd as being a quality, high performing and high producing dairy herd. The contract for the sale of the farm and herd of 18 May 2010 (“the agreement”) contained specific provisions in relation to livestock which will be referred to later in this judgment.

[4] Prior to settlement Mr McCowan identified cows in the herd that he considered should be excluded from the sale because they were unsound and in breach of warranties in the agreement. He provided a spreadsheet setting out the cows in this category. The Glovers did not accept that there was any breach of warranty and stated that if Mr McCowan attempted to settle in part only or withhold any funds upon settlement they would cancel the agreement for the whole of the purchase of the farm.

[5] On 17 June 2010 Mr McCowan carried out a final inspection of the herd. Mr McCowan identified 235 unsound cows, which, together with 19 cows with poor records, came to 254 cows that were considered to be unacceptable. The Glovers did not accept that there was any basis for rejecting any of the cows.

[6] Prior to settlement Mr McCowan purchased on behalf of Drumlea Farms LP replacement cattle. Settlement took place on 1 July 2010 and the purchase price was paid in full, given the position being taken by the Glovers. The settlement was, however, without prejudice. The cows that were considered to be unsound or otherwise in breach of warranty, and which had been replaced, were sold.

[7] After discussion at the hearing memoranda have been filed that record that it is accepted that the loss for the unsound cows being claimed totals $205,315.92, should the claim succeed. In addition there were transport costs relating to the replacement cows, although the exact sum is in contention. The plaintiffs says those costs excluding GST are $8,178 and the defendant says they are $5,823.

[8] The claim in relation to the effluent is $38,621, being the amount required in order to construct new effluent storage ponds.

[9] The plaintiffs accept that the other causes of action in the claim are not suited to summary judgment, and must be left for the defended hearing.

Approach to summary judgment

[10] There was no contention between the parties as to the correct approach. The principles are summarised in Krukziener v Hanover Finance Ltd:[1]

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of

deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1

PRNZ 84 (CA).

[11] It is of particular relevance that the summary judgment procedure is not suited to resolving disputed areas of evidence where the factual differences are nuanced, and the Court’s judgment will rest on its conclusion on a number of contested propositions. It is also unsuited to resolving differences in expert opinion, in the absence of any plain illegitimacy or error.

The claim in relation to the cows

Relevant contractual provisions

[12] Clause 28.1 and 28.2 of the agreement for sale and purchase provide:

_{28.1 Purchase of Livestock}

The Purchaser will purchase from the Vendor on possession date such of the Vendor’s livestock as is listed below and is depasturing on the property at the date of possession / settlement and at the prices contained in Clause 28.2, such prices and total value being in addition to the purchase price for the property.

The purchase price (plus GST if any) of the said livestock shall be paid in cash on the possession / settlement date.

_{28.2 Livestock}

The approximate numbers and classes of livestock that will be depasturing on the property at the date of settlement subject to variation through normal farming conditions will be:-

(i) approx 650 mixed-aged dairy cows @ $1,800.00 per head (ii) approx 220 rising 2-year dairy heifers @ $1,400.00 per head (iii) approx 180 rising 1-year dairy heifers @ $ 900.00 per head

In respect of the said mixed aged dairy cows and dairy heifers, the vendor warranties shall be as contained in the attached Allied Farmers Limited Contract for Sale and Purchase of Dairy Cattle (“Allied Contract”), provided that the Vendor will provide full details and documentation for the dairy herd to the Purchaser so as to make the warranties in the Allied Contract complete.

(emphasis added)

[13] It can be seen that the vendor warranties as to the cows are those contained in the attached Allied Farmers Ltd contract for sale and purchase of dairy cattle, with the proviso that the vendor is to provide full details and documentation for the dairy herd so as to make the warranties in that contract complete.

[14] I was provided with a copy of the Allied Farmers Ltd contract (“the Allied contract”). It is a standard form document apparently in wide use in the dairy industry. The first two pages are pages that would usually be filled in if there was a sale of a herd. It is common ground that they were not filled in. The next two pages are the “general conditions of sale”. The detailed conditions and warranties are between paragraphs 15 to 43.2.

[15] Broadly it was Mr McCowan’s position that the dairy herd and other aspects of the farm were well below the standard that could have been expected, given the promotional material, and in breach of specific warranties. He appeared to consider that the Glovers were high-handed in their rejection of the various points that he made.

[16] The Glovers on the other hand took the position that Mr McCowan had unreasonably targeted certain aspects of the sale to try and unfairly force a reduction of the price. They maintained that they had sold a well maintained dairy farm with a herd that they had already culled to ensure it was up to standard. They maintained that there will always be variety in the condition of the cows in a herd. They said they had given the purchasers every opportunity to withdraw from the transaction if they wished to do so, but they had chosen to go ahead.

[17] At the heart of Mr Templeton’s submission as to the quality of the cows was his contention that it was a term of the contract that all stock presented for sale must be “sound”. Clause 1(a) of the Allied Farmers Ltd form is a clause that is designed to be filled in, but was not. It refers to “Maximum final tally & description of sound INCALF COWS”. Clause 2 refers to the rejection rate of “sound in body and limb” livestock. Clause 27.1 refers to the rejection rate of the livestock referred to in cl 2 of the unfilled clauses. Clause 27.2 refers to stock not being delivered by reason of

“unsoundness”. Amongst other things, the purchasers have the right to inspect for “soundness” under cl 18. Clause 34(a) provided that cows with clinical facial eczema were “deemed to be unsound for Delivery and Settlement of the contract”. Mr Templeton makes out a strong case that it is a term of the contract that the livestock to be transferred are all to be “sound”.

[18] This was not the focus of Mr Clark’s opposition to the summary judgment application. Rather, it was the contention of the Glovers that the cows were indeed all sound. It is necessary to consider whether the defects in the cows which the plaintiffs contend existed means that some of them were unsound.

Cows with high Somatic Cell Counts (SCCs)

[19] There is a standard test for cows known as the Somatic Cell Count (“SCC”) test. Evidence was given about SCC results by a veterinarian called on behalf of the plaintiffs, Mr Andrew Gore. It was his general view that the Drumlea herd lay outside the parameters of a high quality and high performing herd, and specifically in the areas of reproductive performance, milk quality and udder health. He stated that very high SCCs or multiple test results above 250,000 SCC indicated the existence of mastitis, an inflammatory disease that can infect the udders of cows and have significant effects on their milk output. In the acute phase of severe mastitis the SCC levels will go into the millions. The chance of a cure decreases if there are multiple occasions of SCC. He stated that “[c]ows with multiple cases of clinical mastitis are unsound and should be culled from the herd”.

[20] Mr McCowan deposed that there were 133 cows that had suffered two or more incidents of high SCC levels indicating mastitis, and were properly regarded as unsound. In his later affidavit he deposed that the number was 135 cows. He provided details of the SCCs taken from records provided by the Glovers. They showed that a number of the cows the plaintiffs sought to reject had suffered from counts of well over one million. Undoubtedly a number of cows had been afflicted with multiple seasons of SCCs over 250,000 during the period 2008 to 2010. The plaintiffs asserted they could be rejected for these reasons, and that given that they

were obliged to obtain replacements, they could claim damages. Mr McCowan gave his own opinion on this issue, as did Mr Gore, an experienced veterinarian.

[21] The Glovers in response provided affidavits from a number of persons from the local industry. They included a Mr David Malcolm, a dairy consultant with a degree in microbiology. He appeared to be experienced in the area of mastitis, being a member of the National Mastitis Advisory Committee. He stated:

Herd testing identified that the bulk of the herd was sound and healthy and that there was a small percentage of high Somatic Cell Counts (SCC) cows that needed attention. Some of these were persistent offenders that should have been considered for culling.

[22] He deposed that all dairy herds have a proportion of high SCCs in cows. He asserted that this does not mean that the cows are not fit for their purpose. SCC issues were capable of being managed and with proper management, such cows could be productive.

[23] Another witness called by the Glovers was Mr Scott McDougall, a veterinarian of Morrinsville. He also asserted that all herds have a proportion of cows with SCC levels over 250,000. He gave technical evidence about the SCC counts and deposed that while the herd was a “poorer performing herd” this did not mean that the herd or cows within it were “unsound per se”. The cows could have been managed. He noted that the Glovers had already culled cows with infectious mastitis.

[24] The clause relied on specifically in relation to the SCC levels is cl 28 of the Allied contract which states that “[a]ll known incurable cows are excluded from this agreement”. Clause 28.1 provides:

SAMM PLAN (Seasonal Approach To Managing Mastitis): The Vendor warrants that all lactating cattle described in 1(a), (and 1(d) if applicable), have received mastitis treatment protection according to the SAMM Plan that was current at time of selling. The effect of which is that:

(a) Any beast with one or more clinical mastitis episode and/or which has had a Somatic Cell Count exceeding the SAMM critical threshold since the previous drying off will have had Dry Crow antibiotic administered at most recent drying off.

(b) Records of the use of antibiotics at drying off are available to the

Purchaser and are accurate.

(c) All antibiotics used at drying off have been administered as a result of consultation with a qualified Veterinarian and that the antibiotics and Teatseal used have been administered strictly according to label OR,

[25] It is clear from cl 28.1 that a beast with one or more clinical mastitis episodes and/or a SCC exceeding the SAMM critical threshold since the previous drying off is nevertheless a cow that can be sold under the Allied contract. It follows that such a cow is not necessarily unsound. The evidence of the veterinarians leaves me in doubt as to what level of SCC would make a cow “unsound”, entitling the plaintiffs to make a claim for damages under the contract.

[26] While Mr McCowan deposed strongly as to the unacceptability of such cows, the Glovers claimed that they were all within acceptable levels and, if properly managed, could be productive and satisfactory beasts. They deposed that there was always a variance in the quality of cows in a herd. They were effectively saying that Mr McCowan had set his standards unreasonably high, higher than the terms of the Allied contract contemplated. The plaintiffs submit that the defendants’ argument that the cows could have been managed is beside the point, because the issue is whether or not the cows were sound.

[27] I am not left satisfied on the evidence that I have before me at present that it is unarguably the case that all or indeed any of these cows with high SCC levels were unsound in terms of the Allied contract. Whether the SCC counts in fact were sufficient to establish that the cows were unsound is a matter of fact and degree. The Glovers, who appear to be competent dairy farmers, had been happy to retain them in the herd over the years, despite the high levels. Until the parties and experts give their evidence and are probed on the point it is not possible to reach a firm conclusion. I am left with the clear view that this is a classic example of the type of issue not suited to determination at summary judgment. There is a stark factual dispute. There is a question of expertise and custom at stake and the right answer cannot be stated with confidence. The plaintiffs clearly have a point, but have not made out a case for summary judgment in relation to these 133 cows.

Aged cows

[28] Mr McCowan asserted that 29 cows were nine years or older in breach of the soundness clause at paragraph 1(a) of the blank terms of the Allied contract. There is a variance in the plaintiffs’ material as to whether it is 29 or 30 cows in this category and whether the cut off is eight or nine years.

[29] The Glovers accepted that it was a term that they provided cows that were in calf. They indeed had culled those cows that were not in calf. But they did not accept that any of the cows were too old to be transferred. They pointed out that there was no specification in the agreement as to the age of the cows and that the cows still had productive years ahead of them. Mr Glover asserted that all herds have cows of varying ages.

[30] I am not at all clear that the plaintiffs have proven that any of the cows were unsound because of age. There is no evidence that a cow of over eight or nine years of age in such a herd is unacceptable. It is undoubtedly the case that there will always be a range of ages in a herd of cows. There is no evidence as to a clear cut off. So there may be a defence to this claim.

Late calvers

[31] It was also asserted that 22 of the calves, being cows that were expected to calve after 21 September 2010, were unsound. Mr Gore gave evidence that the calving spread was 14 weeks, whereas a high quality herd from a reproductive viewpoint would have a spread of eight to nine weeks. This meant that it would be difficult to fit them into the appropriate calving spread for the following season and meant a loss of days in milk. He asserted that this indicated a poor herd.

[32] The Glovers did not accept this to be the position. They indicated that the calving times were within the normal range. They asserted that Mr McCowan had agreed that late calving cows could be easily managed with inductions.

[33] There was no clause in the agreement or Allied contract dealing specifically with the time of calving for the cows. I do not consider that summary judgment should be entered into relation to the alleged late calvers. There is a possible defence that the calving times were within the range if the herd is considered as a whole, and the issue should go to trial.

Other defects

[34] Mr McCowan asserted that 13 of the cows had only three working quarters on their udders rather than four. In his later affidavit he put the number at 11. He further claimed that one cow had facial eczema and seven had physical defects. His claim as to the 11 cows is corroborated by his record showing a number of cows in the herd as “3-titters”.

[35] Clause 4, one of the clauses to be filled in, provides “[a]ny cow with three or less milking quarters is deemed not sound for delivery unless stated otherwise [in] Clause 13”. Clause 13 is the special conditions clause and is of course blank.

[36] Mr Glover asserted in his affidavit that any claim about the cows not having sound milking quarters was not correct. Mr McDougall for the Glovers, while acknowledging that cows with three or less milking quarters are deemed not sound for delivery, observed that the cows were dried off by 22 May and that udder involution occurs within weeks of drying off. He stated that it would be difficult to define accurately cows with three or less functional quarters more than 25 days after the dry off date.

[37] There is no evidence as to when Mr Gore made his assessment of the cows with defective milking quarters. Although the prima facie case on this point is strong, given the specific statement in cl 4 of the Allied contract that such cows are not sound, the doubt as to when the assessment was done and its implications for next season, means that the issue is best left for the full hearing.

[38] As to the assertions of other cows having physical defects or eczema, the issue only involves eight cows and I do not have detailed or satisfactory evidence

which establishes that the defects were present. In particular, it is denied that a cow had facial eczema. In the circumstances this issue must be left to the trial.

No or poor records

[39] Mr McCowan argues that in breach of cls 8 and 32 there were no satisfactory records for 16 cows and that this is a proper basis for a claim of damages in relation to those cows. In his later affidavit he put the number at 17.

[40] Clause 8 states that data is to be supplied by the vendor, referring to cl 32. Clause 32.1 provides:

The Vendor will present to the Purchaser on the Drafting and Final Inspection Days all current relevant animal record data in relation to the livestock including where applicable the Herd Profile, individual calving dates, natural mating dates, artificial breeding mating records, herd testing records (refer Clause 8.1), factory production records, shed records, TB and EBL Certificates, Animal Transfer Location Certificates and other such documentation required.

(NB: The responsibility of transferring Animal Transfer Location Certificates are strictly between Vendor and Purchaser).

Clauses 32.2 and 32.3 are of less direct relevance and were not relied on by the plaintiff.

[41] Mr Glover asserted that all information was provided during the due diligence period and deposed that all questions and inquiries were answered accurately and in a timely manner. Copies of all the intellectual property information was provided, as was a good deal of other information that he detailed in his affidavit.

[42] The plaintiff has not proven that there was any failure to provide any relevant records as defined in cl 32.1. There was a good deal of material provided. Mr McCowan was experienced and determined, and it is surprising that there are no records of demands for the information. This is an issue that is best determined at trial with detailed evidence.

The effluent system

[43] In the statement of claim it was alleged that there was a representation that there was an effluent system able to cope with the current dairying operation. In submissions the plaintiff relied on cl 18(c) and 20.1(a) of the agreement for sale and purchase. These provided:

(c) The Vendor warrants that they will on settlement hold all necessary Resource Consents required for operation of the property as a dairy farm on its present scale of operation, and that any requisitions issued by the Regional Council in respect of the effluent system prior to settlement date shall be attended to by the Vendors at their own cost promptly upon receipt of such requisition.

And:

The Vendor:

(a) warrants that they hold all required local and regional government consents necessary for the current farming activities on the property.

...

[44] It was claimed that the effluent system was defective and that when the pastures were too wet the effluent that was pumped into two storage ponds would overflow into a natural watercourse, breaching the permitted activity rules and/or the relevant resource consent. After settlement a letter was received from the Environment Waikato Regional Council warning that care should be taken to ensure that there was no discharge from the effluent storage system. Reference was made to an infringement notice that had been issued to Mr Glover following an inspection prior to the sale on 22 June 2010. It was submitted that there should have been a resource consent for a system that dealt with the inevitable discharges. Mr McCowan stated that the purchasers were required to construct new ponds after settlement at a cost of $38,621.

[45] There is no evidence before the Court that there are resource consents that were required for the operation of the property that were not held in breach of cl 18(c) and 20.1(a). The only evidence there is, is that there was a discharge

problem that gave rise to an infringement notice. However, that may have just been a failure in the management at the time rather than inadequate resource consents.

[46] There was a report on the effluent system obtained by the purchasers just prior to settlement which indicates that there was a lack of storage of water on the property. Mr Glover deposed that Drumlea farm was not required to hold a resource consent for the treatment of effluent and that it was a permitted activity. He admitted that there was extremely high rainfall in June which meant that the pond emptying programme fell behind. He claimed that in the end Environment Waikato Regional Council found the management system to be robust, although there had been a weakness in operation identified and rectified. He claimed that there was no issue on the size of the effluent holding ponds. He asserted that the infringement notice came about as a consequence of an initially anonymous call from Mr McCowan.

[47] At this point I am not satisfied that there is no defence in relation to the alleged breach of cl 18(c) and 20.1(a). In the circumstances it has not been proven that there was any failure to hold sufficient resource consents, or that the effluent ponds did not have sufficient holding capacity. The issues here are best determined at a full trial.

Conclusions

[48] It has not been shown that the defendant has no defence to these various heads of claim pursued in this summary judgment. I accept that the inspections of the general health of the herd and pregnancy testing detailed in the Allied contract ensure that the purchaser only pays for cows that will be productive in the new season and allows the purchaser to reject cows that are “unsound”. However, on the material before me it has not been shown that any of these cows would not be productive in the new season that would follow the purchase. It has not been proven that any of the cows were unsound, or that the other breaches of warranty took place. There are in my view real and contestable issues of fact and opinion to be tried in relation to the claims. In these circumstances I am not prepared to enter summary judgment.

Result

[49] The application for summary judgment is dismissed.

Costs

[50] Costs are reserved, to be dealt with at the later hearing of the full trial.

...................................

Asher J

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[1] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].