King v PFL Finance Limited [2012] NZHC 882 (3 May 2012)

Last Updated: 8 May 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-001734 [2012] NZHC 882

BETWEEN THOMAS FREDERICK MAZLIN KING AND JUDITH RING KING AS PARTNERS OF THE TFM AND JRK KING PARTNERSHIP AND IN THEIR PERSONAL CAPACITIES

First Plaintiff

AND HAVELOCK FARMS LIMITED AS TRUSTEE OF THE FOREBANK FARM TRUST

Second Plaintiff

AND PFL FINANCE LIMITED First Defendant

AND CRAIG BEECROFT Second Defendant

Hearing: 17 April 2012

Counsel: B O'Callahan & A J Woodhouse for Plaintiffs

A E Hansen for Defendants

Judgment: 3 May 2012

_{JUDGMENT OF KEANE J}

This judgment was delivered by on 3 May 2012 at 12.45pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Carter & Partners, Auckland for Plaintiffs

Heimsath Alexander, Auckland for Defendants

THOMAS FREDERICK MAZLIN KING AND JUDITH RING KING AS PARTNERS OF THE TFM AND JRK KING PARTNERSHIP AND IN THEIR PERSONAL CAPACITIES V PFL FINANCE LIMITED HC AK CIV

2012-404-001734 [3 May 2012]

[1] On 30 March 2012 Havelock Farm Limited, the nominal owner of Forebank Farm, a 641 hectare holding in two blocks near Havelock, Marlborough, and Thomas and Judith King, whose farm it was, was obtained on a Pickwick basis, an interim injunction restraining PFL, the first mortgagee, and Craig Beecroft, PFL's receiver, from selling the farm, the livestock, the capital equipment and other assets.

[2] As at the date on which they obtained this initial relief, Mr Beecroft as receiver had been in possession of Forebank Farm since 24 January 2012, the farm had been on the market since 17 February 2012 and offers were to close at 4 pm that very day.

[3] The Kings now seek to have those restraining orders extended until the hearing of their substantive proceeding and, anticipating the remedies they then seek, they seek also interim orders with immediate mandatory effect. They seek to have Mr Beecroft's appointment as receiver terminated and their leasehold interest revested in them. They seek the return of their livestock, plant, equipment and machinery.

[4] In their substantive proceeding the Kings ask this Court to reopen, under the Credit Contracts and Consumer Finance Act 2003, the general facility agreement between PFL and Havelock, to which they and their sons are guarantors, under which PFL advanced to Havelock on 29 July 2011 $3.85M for a 12 month term; and to reopen also the related securities then given, including the first mortgage under which the power of sale has thus far been exercised.

[5] The Kings do not contend that the terms of this transaction are oppressive. Rather, they contend that PFL and the receiver acted oppressively in taking possession of the farm on 24 January 2012 and in setting about denuding it of livestock and selling the capital equipment and the farm itself. Mr Beecroft, they contend, did not then act in good faith or for a proper purpose. He did not have reasonable regard to their interests. He was reckless.

[6] The Kings go further. On 24 January 2012, they contend, when Mr Beecroft was appointed receiver and took possession, Havelock was not in default. On 31

October 2011, they contend, PFL agreed that the November interest payment,

$33,708, then due on 15 November 2011, might be deferred until the end of January

2012 to enable them to devote their funds to improving pasture quality and increasing dairy production. It waived its right to that payment on the due date, or then became estopped from relying on due payment.

[7] Consequently, the Kings say, on this basis alone PFL's Property Law notice, dated 29 November 2011, was invalid, as is PFL's appointment of Mr Beecroft as receiver on 24 January 2012. For that reason, they say, and because PFL and the receiver have acted oppressively, negligently or recklessly, the receivership should be brought to a summary halt. They should be restored to possession. There should be an inquiry into damages and an account.

PFL's response

[8] PFL contends in response that it has throughout acted as it was entitled to do and because it has had no choice.

[9] Havelock, PFL contends, failed to make the very first payment due under the general facility on 15 November 2011, $33,708.96, and made no proposal; and the Property Law notice, issued on 29 November 2011, elicited on 23 December 2011, only a part payment of $20,000. The Kings remained in default when the period for remedy under the notice expired on 4 January 2012. The full amount of the loan became immediately due.

[10] Even then, PFL contends, the Kings refused to speak with them except through an intermediary, who made contact on 10 January 2012 but without making any substantive offer. And, though on a date close to 24 January 2012, Havelock did make a further $10,000 payment, the December and January interest payments were then owing as well. In excess of $100,000 was due.

[11] PFL appointed Mr Beecroft receiver on 24 January 2012, it contends, precisely because it had not been able to reach any accord with the Kings and because it considered it was at risk of losing any recourse to the assets secured unless

it did so. Mr Beecroft ceased the farming operation on advice, fearing that the losses, if he continued, would only compound and that he and PFL would become exposed to needless liability.

[12] The Kings, PFL says, then delayed seeking interim relief until late March, almost two months after the receiver took possession; and, by the time they did so, the marketing of the farm was about to yield offers. They frustrated that happening and have not made any proposal since. Presently there is no prospect that they will meet the loan by the end of the 12 month term, 2 August 2012; a term rendered redundant by the 4 January 2012 default.

[13] To turn the clock back now, as the Kings wish, PFL contends, would only have one result. The Kings' state of default would compound and its recourse to the assets securing its $3.85M advance would be unacceptably eroded. The receivership, they contend, should continue without delay.

Context

[14] Forebank Farm, a 399 hectare home block, and a 242 hectare run off block, has been held by the King family since 1873. Thomas and Judith King have farmed it together for 35 years and two of their sons have continued to work with them on it. In May 2011, when the Kings approached PFL, it was a shared family venture but a venture on the point of failure.

[15] In May 2008 the King family purchased a 525 hectare block near Hinds in mid Canterbury, through a company called Kingloch Farms Limited, intending to convert it into an intensive large scale dairy farm. The purchase price was $21M. They contributed $6M themselves, they say, and borrowed the balance from ASB Bank. ASB also agreed to advance them, they say, a further $2.3M for the conversion but did not do so.

[16] The result was, the Kings say, that they were not able to bring the Hinds property into full intensive production. The number of cows they became able to milk fell well short of the number they intended and needed. They were unable to

generate the income called for to meet their loan repayments. Kingloch fell into default.

[17] On 21 October 2010 ASB appointed receivers and, according to their first report, Kingloch then owed ASB $4.28M. When the Kings approached PFL in May

2011 ASB's claim stood at $10M but, even if all they then owed was the receiver's figure ASB then had no prospect of recovering that in the receivership. (In October

2011, when that receivership ended, ASB obtained only $458,347.) And so it was that in May 2011 ASB, as first mortgagee of Forebank Farm, had invoked its power of sale.

[18] Complicating the Kings' ability to respond to that threat by refinancing with PFL or any other financier was this. On 20 April 2011 PGG Wrightson Limited had obtained summary judgment against Mr and Mrs King as Kingloch's guarantors for

$437,859 and had registered a charging order over the Forebank Farm titles. To stave off the ASB threat, therefore, the Kings, on whose behalf a broker, Mr Brough, and Ellis Law, Auckland, acted, set about, as it seems, a threefold strategy.

[19] First, the Kings, in a negotiation with ASB that took, it seems, until July

2011, settled ASB's claim for $3M. Secondly, ASB transferred its interest as mortgagee to a company the Kings nominated, Rai Valley Properties Limited, which then exercised its power of sale in favour of Havelock Farm, the effect of which was to clear off PGG Wrightson's charging order from the titles to Forebank Farm; a stratagem Wrightsons belatedly sought to counter on 24 February 2012 by lodging a caveat against those titles contending that the power of sale had been misused. Thirdly, the Kings obtained the finance in issue from PFL.

[20] When the Kings approached PFL in May 2011 they were looking for $3.4M

for two years. On 19 May 2011 PFL offered them instead, and within a week,

$3.36M for a 12 month term. In the event, PFL advanced them $3.85M on 29 July

2011, after the first two elements of the strategy were in place, less a lender's fee,

$169,250, the broker's fee, $37,500, legal costs, and three months capitalised interest, $101,126. Havelock also became liable for a $20,000 holding fee payable at the end of the term.

[21] On 21 July 2011, furthermore, before that advance was made, the commencement date of the advance was agreed between solicitors in an exchange of emails to be 15 July 2011 and the repayment date was agreed to be 2 June 2012 'plus a 2 month extension (being roughly the expiry date had this matter settled when initially anticipated)', 2 August 2012.

[22] Ironically, it seems, despite refinancing, the Kings were left in the same predicament in which they say they had found themselves in the Kingloch venture. They were without, and they needed, working capital. The Kingloch venture had been their priority since 2008. A large part of their herd had been in mid Canterbury. Only Mrs King and one son had remained at Forebank Farm. It had fallen back. They needed, they said, $150,000 for fertiliser and early season supplements.

[23] On 25 October 2011 PFL offered to lend them a further $150,000, on the same essential terms as the principal loan, less a 5% loan application fee and brokerage and legal expenses; an offer expressed to remain open until 27 October

2011. On 31 October 2011, however, the offer was still alive and the two PFL directors, Mr Kirk and Miles Purchase, also the father of Mr Kirk, met the Kings at the farm to discuss this proposal.

[24] One outcome of that meeting, of which there is a record, is that on 1

November 2011 PFL offered instead to advance Havelock $65,000 on the same terms as the $150,000 advance first offered but with this difference. PFL proposed not to make the advance to Havelock itself, but rather to pay the Kings' fertiliser suppliers up to $65,000. The Kings never accepted that proposal.

[25] The other outcome of which there is a record is that on 10 November 2011

PFL's solicitors confirmed that PFL was willing to vary the due date within the month for the payment of interest from the 15th to the 23rd day in order to enable the Kings to rely on receipts from Fonterra on the 20th day.

[26] For that variation to take effect, PFL stipulated, Havelock as borrower and the Kings as guarantors, had to subscribe to an enclosed letter setting out the variation and that letter contained this statement:

The next interest payment shall be due on 23rd November 2011 and will be for an amount of $42,698.01 in order to account for the period 15 - 23

November 2011. The interest payment due on 23 December 2011 and monthly thereafter shall resume at $33,708.96.

[27] The Kings did not respond and, indeed, Mr King contends, on 31 October

2011 he and Mr Kirk reached the quite different agreement on which the Kings' claim for relief most immediately rests; an agreement that the Kings might defer the November 2011 interest payment, at least, until the end of January 2012, freeing them to use their Fonterra income to restore the farm to a more productive state.

[28] Yet, and this too founds the Kings' present claim, on 29 November 2011 PFL issued a Property Law notice to Havelock, contending that it was in default; that it had failed on 15 November 2011 to make the first monthly payment called for,

$33,708.96. It looked to Havelock to pay that instalment and $1,100 expenses, within 20 working days. Otherwise, it said, the full sum owing would become payable and it would become entitled to assume possession of and to sell Forebank Farm.

[29] There is no issue that this notice was served on Havelock's registered office, Ellis Law, on 29 November, or that under the facility agreement1 that constituted service on the Kings as guarantors as well. It is also not in issue that the Kings as guarantors were not themselves served until 18 January 2012 at the earliest and, even then, they say, they were not served sufficiently. They should have been served personally soon after the notice was issued.2 More fundamentally, they contend, they remained unaware of the notice until some point in mid January 2012.

[30] On 23 December 2011, notwithstanding, they say, they did pay PFL $20,000 and on 10 January 2012 had a new intermediary, Vinay Deobhakta, approach Mr Kirk to attempt to reach a fresh accord. Despite this PFL engaged Mr Beecroft in mid January to act as receiver, an approach that had made to him in principle in December 2011, and on 24 January 2012, the date on which he entered into

_{possession, they formally confirmed his appointment.}

1 _{Facility Agreement, para 11.5(a).}

2 Property Law Act 2007, ss 121, 123, 352, 353, 354, 359, 360.

[31] On 24 January 2012, accompanied by the two PFL directors, Mr Kirk and Mr Purchase, two insolvency practitioners, a farmer, Ewan Carr, on whom he relied principally for advice as well as another farmer, and security guards, Mr Beecroft took possession of Forebank Farm. He required the Kings to leave the property that very day; a decision, quite understandably, that they found very difficult to comply with in a practical sense and very distressing.

[32] Then on 25 January 2012, Mr Beecroft says, having consulted with Mr Kirk and Mr Purchase, the insolvency practitioners, and most especially Mr Carr, who had been assessing the property since 18 January 2012, Mr Beecroft decided that farming should cease.

[33] In the ensuing three or so days Mr Beecroft had the stock trucked off the property. He sold some stock off and he had the dairy herd, some part of which had recently arrived from mid Canterbury, returned to that area, to be grazed securely there. The Kings complain especially that the dairy herd should not have been moved so precipitately. Some cows went unmilked and were put at risk. That is another basis on which they contend that the receiver was oppressive, negligent or even reckless.

[34] Mr Beecroft also began to trace and dispose of capital equipment, as he says, with only part success. He found, he says, that a number of items over which PFL enjoyed security were missing. On 17 March 2012, acting through PGG Wrightsons, the Kings' other creditor, the receiver put the farm on the market. Offers were to close at 4pm on the very day that the Kings obtained their initial interim order.

Principles of relief

[35] To succeed on this application for interim relief the Kings must establish that they have some serious question to be tried, and that the balance of convenience lies in favour of granting them relief. Ultimately, the overall justice of the case must be

_considered.3

3 Klissers Farmhouse Bakeries Limited v Harvest Bakeries Limited [1985] 2 NZLR 140 (CA) 142.

[36] As to whether there is a serious question to be tried, the issue is whether there is ‘a tenable combination of resolutions of the issues of law and fact on which the plaintiffs could succeed’.4

[37] In Eng Mee Yong v Letchumanan, one of the foundational cases, Lord Diplock equated a serious question to be tried with one which is, 'neither frivolous nor vexatious'5; a question that rests on relevant statements in the affidavit evidence that 'have sufficient prima facie plausibility to merit further investigation as to their truth.'6 And he went on to say this:7

Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be.

[38] Assuming a serious question to be tried, surviving such an analysis, the issue then becomes where the balance of convenience lies and that involves identifying what has been described as the ‘balance of the risk of doing an injustice’.8

[39] If an award of damages would compensate the Kings for any loss they might suffer before trial, assuming they succeed at trial, and assuming also that PFL is solvent and capable of paying damages, that could well prove fatal to their application. As Lord Diplock said in the other foundational case, American

Cyanamid,9 that may well be so, 'however strong ... (their) claim appeared to be'.

[40] If an award of damages would not compensate the Kings they must still make out their claim; and whether damages would compensate PFL, if interim relief were granted but it were to succeed at trial, must also be assessed. As Wild J said in

_{Ashmont Holdings Ltd v Bayer New Zealand Ltd,}10 _{where damages would}

4 _{Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VicRp 26; [1976] VR 309, 311.}

5 _{Eng Mee Yong v Letchumanan [1980] AC 333 (PC) at 337.}

6 _{At 341.}

7 _{At 341.}

8 _{Cayne v Global Resources plc [1984] 1 All ER 225 (CA), 237.}

9 _{American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL) at 510.}

10 Ashmont Holdings Ltd v Bayer New Zealand Ltd (HC AK, CIV 2007-404-3518, 10 September

2007).

compensate neither adequately, the status quo and the overall justice of the case assume decisive importance.

[41] As to that final feature in the analysis to be made, the overall justice of the case, it remains to add that it does not call for a separate inquiry. It is a notion coextensive with the balance of convenience. What it calls for is rather a 'global consideration of where the interests of justice lie in the light of any irreparable harm likely to be suffered by the parties in the interim'.11

[42] In the analysis called for there are three attributes to this case that must also be recognised; and the first, which arises most acutely as to the waiver and estoppel issue, is that the Kings contend that PFL is precluded from relying on a power it undoubtedly has in case of default. According to Halsbury12 that may impose a heightened burden on the Kings:

where the application is to restrain the exercise of an alleged right, the claimant should show that there are substantial grounds for doubting the existence of the right. It requires a very strong case indeed to induce the Court to interfere with an admitted right upon an alleged equity.

[43] Secondly, the Kings seek not merely to restrain PFL. They seek mandatory relief; orders compelling PFL and Mr Beecroft, as the Kings allege, to 'undo a wrongful act in a situation in which, earlier, a prohibitory injunction may have been obtainable to prevent its commission'. They must plausibly show that 'restoration ...

is the only way in which serious and material injury can be justly remedied'.13

[44] Thirdly, and this cuts the other way, if the Kings do not obtain the interim relief they seek, while they will retain a right to damages PFL will be free to sell their property of 140 years. In that sense, refusal will have the practical effect of bringing their claim to an end in a manner for which damages cannot compensate. That too must be taken into account in assessing what the balance of convenience

_{and overall justice calls for.}14

11 _{The Property People Ltd v Housing New Zealand Ltd CA260/99, 16 November 1999 at [21].}

12 _{Halsbury's Laws England Civil Procedure (vol 11) (2009) 5th ed, Injunctions at [385].}

13 _{Laws of New Zealand Injunctions: Mandatory Injunctions (on line ed) at [7].}

14 New Zealand Olympic and Commonwealth Games Association Inc v Telecom New Zealand Ltd

[1996] 7 TCLR 167; NWL Ltd v Woods [1979] 3 All ER 614 HL.

Waiver and estoppel

[45] The Kings' most immediate and fundamental asserted basis for relief, that set out in their second cause of action, lies in waiver and estoppel. The Kings contend that they were not in default on 29 November 2011, when PFL issued its default notice. Nor were they in default on 24 January 2012, when Mr Beecroft was appointed receiver and entered into possession.

[46] At the meeting on 31 October 2011, they contend, as a result of the assurance

Mr Kirk gave Mr King, PFL waived its right to any interest payment on 15

November 2011, or became estopped from relying on any duty on their part to pay that sum on that date. Relying on that assurance, they deferred making the payment then due until the end of January 2012. They put themselves at risk.

[47] If the Kings can sheet home to Mr Kirk with sufficient plausibility the assurance they contend he gave Mr King, an assurance he denies and contends that he would never have agreed to without documenting it as he did everything else, that would constitute a serious question to be tried.

[48] It would follow that the Kings had put themselves at unnecessary risk to their considerable detriment. It would throw into question the validity of the default notice, and the appointment of the receiver, and every exercise of power on his part since.

Coextensive principles

[49] The Kings express this cause of action in both waiver and estoppel but in recent years waiver has become, if not subsumed, then largely rendered redundant by estoppel by representation and in particular promissory estoppel.15 The Kings' claim is most securely able to be advanced on those latter bases.

[50] Whether expressed as a shield or a sword, the Court will intervene on the

_{'broad principle that the Court will prevent a party from going back on that party's}

15 Law of Contract in New Zealand 4th ed Burroughs Finn & Todd, Lexis Nexis at 19.3.2, 778.

word (whether express or implied) when it would be unconscionable to do so ...'.16

But, the Kings must first plausibly show that Mr Kirk did make the representation attributed to him.17

King evidence

[51] At the 31 October 2011 meeting, according to Mr King, the two topics as to which there is no controversy were discussed, the Kings' need for a further advance and thus the offer PFL had made on 25 October 2011, and the date within the month on which interest on the principal loan was to be paid.

[52] As to the latter, Mr King contends, he understood that, because the advance been made on 29 July 2011, the first monthly payment would become due on 29

November 2011. He does not deny that the PFL directors both said, rather, that it was to be on 15 November 2011 because the deemed commencement date of the advance had been agreed to be 15 July 2011. They did agree in principle, he accepts, that interest should become payable after the 20th day of the month; the date of their monthly Fonterra receipt.

[53] Mr King contends, however, that he rejected the $150,000 advance offered as made too late in the season to be useful, as more than was called for and as too expensive. Rather, he says, he proposed instead to Mr Kirk, and to Mr Kirk's father, that the November 2011 interest payment ought to be deferred to enable that month's Fonterra receipt to be used as working capital; an idea, he contends, that Mr Kirk's father thought had merit.

[54] The representation on which Mr King relies was not, he says, made in the presence of Mr Kirk's father. It was made after lunch when he and Mr Kirk were outside alone together. As to that exchange, Mr King says this:

I brought up with him again the idea I said earlier with him and his father that I could put some fertiliser on each month starting in November. This would ensure our production would be brought up quickly and we would get well ahead of our interest payments later on, and then our monthly interest

16 _{Laws of New Zealand Estoppel: Part 1 Introduction, (i) General at [1].}

17 Laws of New Zealand Estoppel: Estopped by Representation (online ed) at [47] - [48].

wouldn't be a problem. I said that if we did that our production would soon be much better off and I would soon be able to catch up with production and catch up on any payments after Christmas. Blair Kirk said that he thought that this was fair enough. I took it from this, having been around the farm and seen everything and got his agreement that this was his word.

[55] Mr King also says that, so far as he is 'humanly aware', when the 29

November 2011 Property Law notice was issued, no demand was made on him. Nor was any contact made with him. To his knowledge, he says, he had no contact with Mr Ellis, the principal of Ellis Law, on whose office, Havelock's registered office, the Property Law notice was served.

[56] Mr King maintains that he only become aware of the Property Law Notice, and only in a general sense, on about 19 January 2012. He appears to say that he learned that from Mr Deobhakta, who was then attempting to find fresh finance for him.

Contemporary documents

[57] Mr King does not, and cannot, contest that as a result of the 31 October 2011 meeting, PFL did agree to vary the due date for payment of interest within a month; a variation consistent with PFL's stated expectation that the principal loan would otherwise remain as it was and that, until the variation was agreed, interest would continue to be payable on the 15th day of each month.

[58] Mr King does not, and cannot, contest that PFL also immediately offered to assist his family by meeting the costs of fertiliser itself, up to $65,000, on standard advance terms, including interest at the same rate as the principal loan.

[59] Yet Mr King asserts an undocumented agreement, inconsistent with those two documented proposals, under which he and his family would have obtained a very significant advantage; deferral for two months of their November interest liability and, conceivably also, deferral until the end of January 2012 of interest for those ensuing two months, in all $101,127.

[60] That assertion, I regret to say, does not begin to withstand scrutiny, more especially given that Mr King contends that PFL made that concession completely gratuitously. In the absence of any record, Mr King's evidence is inherently improbable.

Property Law notice

[61] The issue of the Property Law notice on 29 November 2011 alleging that Havelock was in default of the interest payment due on 15 November 2011 is yet another reason to question Mr King's credibility; and I say that despite the fact that PFL should have served him as guarantor personally with the notice and not relied on service on the registered office of the company under the facility agreement.

[62] The evidence of Mr Brough, the broker, is that in late November Mr Purchase contacted him, because Havelock was in default and Mr King was not taking or returning his calls. On 24 November, he says, Mr Purchase told him that PFL was on the point of issuing a Property Law notice; and so on 28 November 2011, Mr Brough says, he called Mr King three times on his landline to discuss the default and the impending notice.

[63] Mr King told him, Mr Brough says, that he could not pay the interest due because he was threatened with bankruptcy as a result of an unpaid legal bill, which he had to meet. Mr Brough told him, he says, that unless the default was immediately rectified a Property Law Notice would issue the following day and he explained its effect.

[64] Mr King cannot recall any of those calls and, he says, they make no sense to him. Once the loan was drawn down, he says, he heard very little from Mr Brough and that is why he turned to Mr Deobhakta. On 24 January 2012, he says, he telephoned Mr Brough and said to him 'Murray why didn't you tell him that a PPLA notice had been served?' Mr Brough's response was 'I was in India'.

[65] The fact remains that on 28 November 2011 Mr Brough, according to his telephone records, did telephone Mr King's home telephone number twice, first at

11.54am for two minutes, and then at 1.42pm for 4.43 minutes. On 30 November

2011, at 9.15am, he telephoned again for one minute. That record is consistent with

Mr Brough's account.

[66] On 29 November 2011 itself, moreover, Mr Ellis sent an email to Mr King, a copy of which Mr Purchase obtained from Mr Brough, attaching the Property Law notice and saying this:

How did you get on with UDC today?

Notwithstanding a request to PFL regarding the interest payment, it all fell on deaf ears. Please see enclosed a Property Law Act Notice just received.

As you will see you are required to pay the interest at $33,708.96 and costs of $1,100 within 20 working days. Otherwise PFL will have the right to take matters further including calling for a mortgagee sale. Even though you have

20 working days to make the payment you would be well advised to pay it as soon as possible.

I will shortly send to you a stroppy email from the solicitors for PGG Wrightsons. They want payment in full within the next few days otherwise

.... !

[67] The authenticity of this email was challenged in an affidavit in reply. But when I said that, if there were any issue as to its authenticity it would be simple enough to call Mr Ellis, that challenge was withdrawn. The only issue is whether Mr King ever received it. He denies doing so.

[68] What the email does say, however, is telling. It confirms that Mr Ellis and Mr King had been in contact about the November interest payment, and that PFL had refused to defer it; that Mr King was pursuing further sources of finance, at that time UDC; and that the Wrightsons' debt had once again become a compounding difficulty.

[69] In short, the email speaks plainly for itself and the Kings' failure to call Mr Ellis to give evidence leaves open, to my mind, only one inference. It is that Mr King had been, and continued to be, in contact with Mr Ellis on these issues and that Mr King was well aware of the Property Law notice and its effect but was then unable to remedy the default that had led to its being issued.

Conclusion

[70] In the result, I conclude that the Kings' waiver and estoppel cause of action does not raise a serious question to be tried. It rests on an assertion of fact that is at odds with such reliable evidence as there is and is inherently incredible.

Oppressive and reckless exercise of power

[71] Turning then to the Kings' first of cause of action, that in oppression, there is no issue that the Court is able under s 120 to reopen a credit contract under s 120(b) of the Credit Contracts and Consumer Finance Act 2003 if 'it considers that ... a party has exercised, or intends to exercise, a right or power conferred by the contract ... in an oppressive manner'.

[72] Section 118 defines 'oppressive' to mean 'oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice'; and in GE Custodians v Bartle18 the Supreme Court confirmed that

'contravention of reasonable standards of commercial practice' is the 'underlying idea' informing the definition, that it is wider than the equitable doctrine of unconscionability and that it rests on an objective standard. The Court said this:19

The various words which together form the definition of the term

'oppressive' all contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of

reasonable standards of commercial practice. That sets an objective standard.

[73] The Court continued to say that a transaction, or the exercise of a power, may be oppressive even though the conduct may be subjectively blameless and simply an instance of usual industry practice. For, as it then said:

Where that practice is in breach of reasonable standards, compliance with it will not immunise a lender. It is for the Courts rather than the industry to set the standard. But that assumes a situation in which the lender knows of the matter found to give rise to oppression or knows something which should have put it on inquiry.

18 _{GE Custodians v Bartle [2010] NZSC 146; [2011] 2 NZLR 31 at 146.}

19 At [46].

[74] Section 124 states that whether a right or power has been exercised oppressively is to be assessed against all the circumstances, some specific but not relevant to this case and any that the Court sees fit. If it is exercised as the consequence of a default, s 124(b)(ii) requires the Court to assess whether the time given the debtor to remedy the default is oppressive, 'having regard to the likelihood of loss to the creditor, lessor or transferee'.

[75] Whether conduct is oppressive, s 123 makes plain, is to be assessed 'at the time, and in the circumstances, that it was ... performed'. If it was not oppressive then it cannot be judged oppressive in retrospect. As the commentary in Gault20 says:

An exercise of a power may seem like a good idea at the time but be a disaster in hindsight. Alternatively, matters may turn out better for the debtor than might have been expected: s 123 prevents the use of hindsight to decide if oppression was present.

[76] Whether PFL was oppressive, or rather Mr Beecroft as receiver was and also whether he was negligent or reckless, or even acted in bad faith, the subject matter of the causes of action against him personally, must also be set against his duties and the manner in which he discharged them. Those duties are set out in s 18 of the Receiverships Act 1993. They are as follows:

General duties of receivers

(1) A receiver must exercise his or her powers in good faith and for a proper purpose.

(2) A receiver must exercise his or her powers in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interests he or she was appointed.

(3) To the extent consistent with subsections (1) and (2) of this section, a receiver must exercise his or her powers with reasonable regard to the interests of—

(a) The grantor; and

(b) Persons claiming, through the grantor, interests in the property in receivership; and

_{(c) Unsecured creditors of the grantor; and}

20 Gault on Commercial Law: Introduction to Consumer Law - Credit Contracts and Consumer

Finance Act 4C.7.02.

(d) Sureties who may be called upon to fulfil obligations of the grantor.

Under s 19 a receiver who exercises a power of sale of property has a duty to obtain the best price reasonably obtainable.

[77] In Downsview Nominees Ltd v First City Corp Ltd21 Lord Templeman said of the duties owed by a receiver:

The decisions of the receiver and manager whether to continue the business or close down the business and sell assets chosen by him cannot be impeached if those decisions are taken in good faith while protecting the interests of the debenture holder in recovering the moneys due under the debenture, even though the decisions of the receiver and manager may be disadvantageous for the company.

[78] In Moritzson Properties Ltd v McLaughan22 Elias CJ said this:

As Downsview Nominees makes clear, the requirement to act in good faith in a sale is not coextensive with a duty of care to obtain the most advantageous outcome for someone in the position of the subsequent encumbrancer or the mortgagor. A receiver must act in the best interests of the mortgagee and does not owe a duty of care to secure the best outcome for anyone else affected, as long as he acts reasonably to secure a proper price in realising the security.

[79] Elias CJ continued to say, by contrast:23

If he acts recklessly, sacrificing the interests of the mortgagor in a manner not explicable by reference to the interests of the secured creditor in whose interests he must act, it may be inferred that the power of sale has not been exercised in good faith.

And later she said this:24

In deciding whether a receiver or mortgagee has fallen short of the duty to take reasonable precautions in a sale, the facts must be looked at broadly and it is proper to allow some margin for business and risk assessment by the receiver or mortgagee in the realisation of the security.

_{And finally this:}25

21 _{Downsview Nominees Ltd v First City Corp Ltd [1993] 1 NZLR 513, 522.}

22 _{Moritzson Properties Ltd v McLaughan (2001) 9 NZCLC 262,448 at [56] (HC).}

23 _{At [56].}

24 _{At [58].}

25 At [61].

Mere inadequacy of price in relation to expected value would not normally suggest a breach of the duty of good faith. Receivers or mortgagees cannot be compelled to defer a sale once the power to sell has accrued because a higher price might be obtained by delay.

[80] I gratefully adopt those expressions of principle; and what they entail when, as here, interim relief is in issue, was made clear in Taylor & Firth v Westpac Banking Corporation,26 where the Court of Appeal declined to allow a mortgagor an interim injunction restraining a mortgagee sale after such interim relief had been declined in this Court.

[81] The Court there said that the exercise by a mortgagee of a right of sale is not inherently oppressive. It is the exercise of a contractual right. It is the mortgagee's remedy for the mortgagor's default. Oppression calls for more than unfairness: 'The conduct complained of must be oppressive in that it contravenes reasonable

standards of commercial practice'.27

[82] That decision is also noteworthy for this. The Court twice declined to

'arbitrate' on a difference of expert opinion, first as to whether the mortgagee was marketing the property to best value, and then as to whether the mortgagor had been allowed reasonable time within which to remedy the default. As to both, the Court held the mortgagee was acting on 'apparently sound professional advice' and it also said this:28

This Court should not be called upon to second-guess the appropriateness of the course adopted by the bank in the guise of determining whether or not it is oppressive.

Havelock - King contentions

[83] The Kings say that if, contrary to their own understanding, they were in default of the November interest payment due, as stated in the Property Law notice, they were denied any opportunity to remedy that default. They were not served with

_{the notice. Nor was it brought to their attention. On 23 December 2011, before the}

26 _{Taylor & Firth v Westpac Banking Corporation CA87/96, 1 May 1996.}

27 _{At 12.}

28 _{At 9.}

notice period expired on 4 January 2012, they paid $20,000 and could have obtained the balance.

[84] Equally, they contend, even after the notice period expired on 4 January

2012, and interest continued to accrue, they could still, given the chance, have met all interest then outstanding. They paid a further $10,000 towards 24 January 2012 and they could have paid more. They understand PFL then to have been looking for a further $69,000 and they had $55,000, mostly from a Fonterra receipt. They could have come up with the remainder.

[85] Secondly, the Kings contend, PFL had no need to appoint Mr Beecroft receiver. Nor did Mr Beecroft, once appointed, have any need to assume possession of the farm and assets. PFL could, by negotiation, or through the receiver, have taken control of the farm's income, leaving control with them, as is common in rural defaults and as occurred in the Kingloch receivership.

[86] Thirdly, the Kings contend, Mr Beecroft, once he assumed possession, was oppressive and negligent, or even reckless, in closing the farm down, in denuding it of stock, and in disposing of assets, culminating in his conduct of the marketing process for the farm itself.

[87] Mr Beecroft, they contend, made his decision to cease farming within 24 hours of assuming possession, relying on Mr Carr's advice. He may even have made his decision, they say, before he was appointed receiver. And Mr Carr's concerns, they contend, are exaggerated, indeed completely ill founded, as their extensive reply evidence makes clear.

[88] At the very least, they contend, Mr Beecroft should have sought their advice before accepting that of Mr Carr, a course that they understand was recommended to him by Mr Grant, one of the two insolvency practitioners he engaged. Mr Grant has proved unwilling to give affidavit evidence but they would wish to call him if that were pivotal.

[89] Fourthly, they contend, the effect of the receiver's decision was catastrophic. He brought to an end a farming operation, producing an income of $40,000 or more a month, well capable of satisfying their monthly interest liability. He set about selling the assets at a significant discount and he has incurred $400,000 costs.

[90] These exercises of power, they contend, were out of all proportion. They were commercially unnecessary. They were highly destructive. They were oppressive. They involved the receiver acting negligently or recklessly. They justify the reopening of the transaction and the receiver being made independently liable for his breaches of duty.

Decision to appoint receiver

[91] PFL does not accept that the Kings remained unaware of the Property Law notice served on Ellis Law on 29 November 2011, even if it was not served on them individually as it ought to have been. Here too PFL points to the Ellis - King email and the Kings' choice not to call Mr Ellis or waive privilege.

[92] Secondly, PFL contends, it was obliged to appoint a receiver, and the receiver was obliged to assume possession of the secured assets in order to preserve its security. Otherwise those assets would have been dissipated.

[93] At the 31 October 2011 meeting, Mr Purchase says, Mr King proved vague about stock levels, the numbers of cows he was milking and the like. He said he was sick of finance companies. If there were any problems, he said, he was a friend of the Crafars and all stock and equipment would disappear.

[94] Mr Purchase considered Mr King's comment an 'odd thing', more especially because the first interest payment was not due until 15 November 2011. That has to be an understatement. Ordinarily, one would have thought, such a statement highly improbable. Yet Mr King did not deny the statement in his affidavit in reply and, for whatever it actually connotes, he does seem to have enjoyed the friendship of the Crafar family.

[95] The Kings' first approach to PFL, on 10 January 2012, came from Mr Deobhakta, whom Mr Kirk found had been publicly associated with the attempt by the Crafar family to recover their farms. Then, on 2 February 2012, Elizabeth Lambert, another person publicly associated with the Crafars, intervened.

[96] In an email to the receiver Ms Lambert she said that she had acquired the farms and that she had lodged, or intended to lodge, caveats against the titles. She then or later lodged those caveats which have since lapsed or are about to. But, the receiver says, it is no coincidence that in 2011 she also attempted to prevent the Crafar farms being sold.

Receiver's decision to take possession

[97] Mr Beecroft also considered it essential to take possession of the farm on 24

December 2007 in order to secure not just the land but the livestock and capital plant. In this he relied, he says, on the concerns that PFL had, that I have just outlined. Quite independently, Mr Ewan Carr also said that he had learned from acquaintances in mid Canterbury that Mr King could be confrontational.

[98] Once he took possession, Mr Beecroft says, those concerns have substance for, as he soon discovered, some part of the stock on the farm came from the Kingloch development and, he believes, must still have been subject to ASB's security.

[99] Secondly, he says, PFL's advance was secured against Mr and Mrs Kings'

51,175 Fonterra shares worth at 1 April 2011 $231,311; a minimum 42,646 shares, and 8,529 additional shares. Yet on 13 July 2011, before the Kings drew down the PFL loan, they surrendered 9,257 of those shares for $41,841.54, without disclosing this to PFL; to that extent eroding its security.

[100] Thirdly, he says, on 24 January 2012, just before Mr and Mrs Kings' joint account was frozen, they withdrew $19,000, leaving it in overdraft. They also retained that day a $40,000 cheque from Fonterra and, he has since discovered, a number of items of capital equipment against which the loan was secured, are

missing: a Nissan truck, a Mikhail bail wrapper, a John Deere tractor and a 12 tonne excavator estimated to be worth $70,000.

[101] Conversely, Mr Beecroft says, he discovered in the wool shed a viticulture tractor and other items, belonging to Mr King's sister, a partner in the Sentinel Vineyard Partnership then in receivership. These have been returned to that receiver.

[102] The Kings say that the stock returned from Canterbury had ceased to be the subject of the ASB security and was theirs. They say that they were obliged to surrender the Fonterra shares because their production level had reduced. They put in issue the receiver's concern about the excavator.

[103] Mr Beecroft rests his concern ultimately, as I understand his position, on the fact that there are secured items that are still missing and on the fact that the Kings received the funds for the Fonterra shares without disclosing it, withheld the Fonterra cheque in January 2012, and drew down their joint account.

Decision to cease farming

[104] Mr Beecroft, he and PFL contend, was equally justified in deciding on 24 -

25 January 2011 not to attempt to farm the property independently of the King family, as a result of advice he received from Mr Carr, who had been assessing the two blocks since 18 January 2011.

[105] Mr Carr, they contend, was well qualified to give that advice. He has extensive farming experience, principally in central Otago, and most pertinently as a result of acquiring with other investors six farms between 1992 - 2002, all of which have been converted to dairying, and three on a very extensive scale.

[106] Mr Carr's advice, they contend as well, was very carefully considered and Mr Beecroft was entitled to rely on it. His reasons for bringing the farming operation to an end were these:

[a] The farms had very poor pastures and very little feed available and

... all the pastures had run out or had never really been properly

established. They were largely made up of weeds and very poor grass species that were not suitable for milking cows or fattening stock. This observation was reinforced by studying the milk dockets that are printed by the tanker driver on each pick up. The dockets showed that only approximately 30,000 kgs of milk solids had been produced to 25 January for the season, which is a very poor performance by any measure for the number of cows that were meant to be in milk . ...

[b] There was no milking quality conservation feed, such as silage, on the property and only very poor quality round bails of meadow hay that were again largely made up of weeds and poor species of grasses harvested and stored on the lease block adjacent to the Long Valley Road block. These bails were of little nutritional value and inappropriate for feeding milking cows or fattening replacement stock.

[c] There was no feed available for the weaned calves such as calf muesli or good quality Lucerne silage or hay which is essential for growing and maintaining healthy calves post weaning from milk. The calves that had been weaned were weaned too early and had not been fed adequately and as a consequence were in very poor condition at time of takeover. Many of the calves were struggling to support their own weight and were emaciated. An obvious sign of calves that have been starved is a large head on a small body.

[d] The fencing and gates on both properties were, and remain, in such a poor state of repair that it was simply not feasible to control stock either within the farm paddock areas or to ensure all the animals actually could be maintained within the boundaries of the farms. The electric fences were totally inoperative and the animals just walked through or over the fences at will.

[e] The stock water system was only operating on the south eastern end of the dairy unit with nearly 2/3rds of the property having no effective stock water for the cows or any of the dry stock. On the western side of the river there was no operative stock water reticulation at all with cows having to access any drinking water from the river while wading through the river to and from the paddocks on the western side. This is not only contrary to the Regional Plan Rules but also contrary to the Fonterra 'Clean Streams Accord' and meant that the receiver could have been liable for substantial fines and refusal to pick up the milk.

[f] The cows had to cross the river for approximately 1/2 of the grazing.

There was no bridge and we considered this to be a non complying activity. I now know the Kings had been served with an abatement

notice in 2009 to cease this activity . ...

[g] The effluent system was compromised and it appeared to not have been operative in any lawful and effective way for some time and there was clear evidence of raw effluent being discharged directly into the river. The section of the river that ran through the King property had been fenced off by reasonable fences but there were cattle grazing within this corridor at the time of takeover, this is

again a breach of the Regional Rules and also Fonterra Clean

Streams Accord.

[h] The dairy farm has a water right from the river and there is some evidence that the water may have been pumped by a mobile or tractor mounted pump at some time but in general it was clear that there was no effective irrigation system on the property. Without this there was no insurance of further grass growth available from being able to apply water over the 120 hectares of asserted dairy platform to combat what may have deteriorated into a drier summer and autumn than the earlier season. The property was already stressed so any further soil moisture deficits would have meant that without irrigation capacity the properties would have had to be destocked or alternatively the cows dried off in any event.

[i] There was no mechanism for the proper identification of stock as there was no herd identification tags on the cows and there was no herd profile available. From ... observations there were no more than

60% of the cows with a tag and these were simply random tags of no value in herd identification or individual cow differentiation. It is an Animal Health Board requirement that all stock have a bar coded tag that provides for traceability of all stock and it is compulsory for all livestock to now have two bar coded tags with the larger herd tag in one ear and a button tag in the other.

[j] The very large majority of stock, including the sheep and cattle recovered over the various musters on the run off block, had no complying identification. There was also a dispute over ownership of about 25% of the sheep that we mustered with ... the neighbour that boundaries the King run off block to the east. ...

[107] Mr Carr made a series of other observations on which PFL and the receiver also rely, the most immediately pertinent of which is that to bring the property to the value spoken of by the Kings when they made this application, a valuation made by Burnett & Associates as at 8 April 2011, ascribing to the main block a value of

$5.7M, and the run off a value of $1.36M, the receiver would have had to incur significant redevelopment and holding costs.

[108] Mr Carr also seriously questioned the Kings' prediction that the return from Fonterra would soon be between $45,000 - $65,000 per month. That, he says, was misleading because it took no account of the running costs incurred. The gross returns then possible, he contends, were more likely to be of the order $36,000 -

$38,000 a month exclusive of GST and before farm running costs.

[109] Finally, Mr Carr could not see how the farm could have survived even a mild winter without significant stock losses given the state of the stock, the properties, the

feed reserves and the almost total lack of control over the stock assets. These factors, Mr Carr concluded, would have placed the receiver, and thus his indemnifier, PFL, in a position of significant risk.

Contrasting valuation evidence

[110] As against the April 2011 valuation on which the Kings first relied when obtaining interim relief, that made by Burnett & Associates, PFL relies on a valuation by Lindsey Newdick as at 4 April 2012. In May 2008 he had valued the main block, including the Fonterra shares, at $4.85M. He now values it, excluding the Fonterra shares, at $3.57M. He concludes that the pastures have deteriorated since his inspection four years ago.

[111] The Kings rely on a valuation made by Lindsay Fraser on 14 April 2012 in which he valued the main block, including the Fonterra shares, at $3.9M. His opinion is that the property is in better heart than Mr Carr and Mr Newdick consider it to be. He agrees that it would benefit from an injection of fertiliser, some regrassing, reseeding and refencing. It is, he considers, in a quite recoverable state at a moderate cost.

Contrasting receivership evidence

[112] According to an experienced insolvency practitioner, whom the Kings engaged, John Whittfield, relying initially on the Kings' account of the receivership, Mr Beecroft should have ensured that the farm continued fully stocked as it was. By bringing it to a halt and denuding it, he contends, Mr Beecroft devalued all of the assets and incurred uncalled for costs. His further criticisms are wide ranging.

[113] PFL and the receiver rely on Anthony McCullagh, a chartered accountant, also very experienced in receiverships. His opinion is that Mr Beecroft's preplanning was 'exemplary' and that on the wider evidence, the Kings' evidence and that of PFL, Mr Beecroft was fully justified in taking possession of the farm and halting the farming operation.

Conclusions

[114] For the reasons I have given I do not accept that the Kings raise a serious question to be tried when they assert that they were deprived of the ability to remedy by 4 January 2012 the default identified in the Property Law notice, the failure to pay interest in November 2011; or that they were deprived before 24 January 2012 of the ability to pay all interest then owing. Nor do I consider that the Kings raise any serious question to be tried as to PFL's decision to appoint the receiver or his decision as receiver to take possession and secure the assets on 24 January 2012.

[115] The receiver's decision to cease farming, I accept, is contestable and does depend crucially on the advice he received from Mr Carr; and it may well be that, if Mr Grant were to give evidence he would say that he recommended to Mr Beecroft that he take advice from the Kings first. I accept also that Mr Carr's opinion has been assailed in every detail in the many affidavits the Kings have filed in reply.

[116] But the critical issue now is not whether, in retrospect, the advice on which Mr Beecroft acted was fully correct. The issue is whether he sought advice from an apparently qualified source and whether it was apparently sound and whether he acted on it intelligibly and in good faith. It is not for me on this application to

'arbitrate', in retrospect, whether the advice was correct. Nor is it for me to 'second guess' the receiver, in the absence of some good reason to suppose that he acted recklessly or in bad faith.

[117] The only issue that I think could give rise to a serious question to be tried is whether Mr Beecroft set about realising the assets at a fairly achievable value. But that is not a question engaging the possibility of oppression, or one justifying the reopening of the transaction. At most it might sound in damages.

Outcome

[118] The Kings have owned Forebank Farm for 140 years and I am all too conscious that if I deny them the interim relief they seek, that loss will be beyond any compensation in damages.

[119] Despite that, I have concluded that whether the matter is judged from the perspective of the balance of convenience, or from perhaps the wider perspective of the overall justice of the case, their claim to resume Forebank Farm and the assets must give way to PFL's right to recover the amount it advanced to them in July 2011,

$3.85M.

[120] The Kings have not established any credible basis for asserting that at the date on which the receiver was appointed and assumed possession of the farm they were not in default or that they had been deprived of the ability to remedy their default. They have not raised any serious question to be tried as to the receiver's conduct of the receivership that could begin to justify the interim relief they seek.

[121] The evidence that I have found reliable points rather to the opposite conclusion. It is that PFL was faced, three months into the term of this 12 month advance, with a default in November 2011, when the first monthly payment of interest became due, and though PFL became entitled on 4 January 2012 to call up the entire loan immediately it remained open to compromise at least until 24 January

2012, when it appointed the receiver and the receiver entered into possession.

[122] The Kings did not seek relief in this Court until late March 2012, two months after the receivership began, and though they were optimistic then that they had a source of fresh finance, that has not materialised. If the Kings were to be granted the interim relief they seek, to the extent of resuming possession of the farm and the assets, the receiver's concern is that they would soon be in an even greater state of default and that PFL's security would be further eroded. On the evidence that concern is, I consider, fully warranted.

[123] As well, while PFL might, if it succeeds at trial, have a notional claim to damages against the Kings, that is all it would be. The evidence is clear that the Kings lack any resources independent of those secured. Whereas if the Kings do have a claim against PFL sustainable at trial, such damages as they may be entitled to on the face of the evidence ought to be within PFL's means. There is no admissible evidence to suggest otherwise. For these reasons I decline the Kings' application for interim relief.

[124] To enable the Kings, if they wish to, to appeal my decision I will continue the interim orders for a further three working days. If they do not pursue an appeal within that time the interim orders will cease. If they do appeal within that time, the orders will continue, or a stay might be given, it seems to me, as long as they pursue their appeal promptly. But that may be an issue finally for the Court of Appeal.

[125] It remains to add that PFL is entitled to costs on this present application. If costs cannot be agreed, PFL is to file and serve its memorandum within 10 working days of the date of this decision and the Kings are to file and serve their reply within

_{the succeeding 10 working days.}

P.J. Keane J