Hughes v Fea [2017] NZHC 3037 (7 December 2017)

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UNDER	The District Courts Act 1947
IN THE MATTER OF	an appeal under section 72 of that Act
BETWEEN	JOHN STANLEY HUGHES AND IRMA AINSLIE HUGHES Appellants
AND	DUNCAN VARNAM FEA AND PETER HEENAN _Respondents

Hearing:	17 August 2017
Counsel:	C S Withnall QC and C J G Lucas for Appellants D M Lester and J N P Young for Respondents
_Judgment:	_{7 December 2017}

[1] The appellants Mr and Mrs Hughes, obtained judgment in the District Court to the effect that the respondent receivers of Global Bulbs Limited (“Global”), converted flower bulb stock which belonged to the Hughes.¹They brought an appeal in this

_{court claiming that they had suffered a loss which was far greater than
reflected in the}

District Court judgment, but in an interim judgment of this court, that claim was rejected. However, they were given the opportunity to further address damages on a resumed hearing of this appeal.²They have done so, and this judgment responds. The reasons for the resumed hearing will be understood from the litigation history.

[2] Mr and Mrs Hughes grew flower bulbs at Tapanui over many years. When they wanted to exit the business they made an arrangement with Global Bulbs Ltd (“Global”), and leased bulb stock to Global. They retained ownership of the bulbs and their replacements, so the common intention of the agreement was that the stock equivalent of the bulbs leased would be returned to them at the end of the five year term. Global was not successful. It did not pay what it owed under the lease, and went into liquidation. The respondents were appointed receivers, and wrongly denied the appellants’ ownership of bulb stock. The extent of that ownership has been at large in this litigation, as has the loss which the appellants claim in damages.

[3] Global was entitled to sell bulbs in the ordinary course of business provided that it replaced them. The nature of the appellants’ interest first came before Lang J who did not have to address the appellants’ ownership in the bulbs first leased, because they owned them anyway, independent of the lease. The replacement bulbs gave Mr and Mrs Hughes an interest in property which they would not otherwise have held. This arrangement created commercial risk that Global might not perform its obligations, including payment of the leasehold rent and not replacing bulbs. Lang J held that the original and replacement bulbs belonged to Mr and Mrs Hughes, but the lease created a security interest in respect of proceeds of sale if Global did not honour its obligation to replace bulbs sold.³

[4] The interim judgment addressed an appeal from the judgment of His Honour Judge MacAskill,⁴where he held that conversion or unlawful interference with goods was established against the respondent receivers, but Mr and Mrs Hughes did not prove the loss which they claimed. Their evidence included that of Mr Michael Harrison, a bulb growing veteran, who valued the bulbs based on those first leased to Global and their replacements, at $278,642, which reflected the price he would have paid for some stock.

[5] The Judge referred to the bigger bulbs known as “saleables”, purchased by customers mainly for spring flowers. The smallest bulbs were discarded. The rest were kept in store for the following year’s planting. Sometimes stock was left in the ground. The bulbs that were leased were not “counted” as such, but Mr Hughes estimated the quantity of bulbs planted and Global accepted that. That fixed the quantities to be maintained and returned to Mr and Mrs Hughes at the end of the lease.

[6] Global went into liquidation on 23 September 2009 and the respondent receivers were appointed on 2 November 2009. A Mr Smak worked in the business until April 2010. He said the receivers sold some saleables and bulb stock at a discount, harvested other bulbs and discarded them, did not harvest some bulbs, or harvested them only to remove planting nets from the ground. He disagreed with some of their decisions and said there was no systematic audit of the stock on hand. This was contested by Mr Heenan, one of the receivers.

[7] Based on Mr Smak’s evidence, Mr Harrison said that the value of the bulbs over which the receivers wrongly asserted ownership was likely to be $272,000 in April 2010, although the bulbs he identified for this purpose did not seem to accord with Mr Smak’s evidence. Mr Harrison’s evidence of value was based on what he understood were stocks of bulbs of the same types and quantities which had belonged to the Hughes and been leased to Global, if they were not sold in distressed circumstances, or under any pressure. He assumed the bulbs would be sold as planting

_{stock, not saleables. He said that the market for particular varieties
impacts on supply}

and demand, and this factor reduced the value of some “minor” bulbs. He said that Mr and Mrs Hughes could not replace the stocks they owned in the 2009/2010 season with identical bulbs. He acknowledged that if there was an urgent sale of the entire trading stock at harvest time, when the seller was known to be in a distressed situation, that would negate most of the value of the stock. The market works in a limited, but orderly way, through established sales channels. Judge MacAskill put it neatly that the receivers’ sale was “an urgent sale, late in the season, between a receiver who was desperate to sell immediately, and a buyer who did not really need the bulbs:⁵

[8] Lapse of time would diminish the value of stock, according to Mr Harrison, “but [the value] might have been resurrected”. Judge MacAskill worked on the basis that the bulb stock was planting stock, of interest to growers, (of whom there are few), and there was limited demand. He said any sales would not have been made in the ordinary course of business because Global’s business had failed, and there were no proved orders for the bulbs, nor any established market for them. Nor were there likely buyers, nor proof of the timing of sales. Thus, the Judge found that sales would have been forced sales, following Global’s collapse, and that Mr Harrison’s evidence assumed potential buyers and a market, but without identifying such. He put it this way:⁶

Mr Harrison gave the overall impression that he was attempting to arrive at a “fair value” of the plaintiffs’ interest in the planting stock but that his assessment assumed a willing buyer in a non-existent market. The question is not what value would have been “fair” but what the market would have yielded.

[9] The Judge found that the lease to Global had followed an unsuccessful attempt by Mr and Mrs Hughes to sell their stock, and this unpromising backdrop would have been made worse in the circumstances of receivership. Mr and Mrs Hughes were thought by the Judge to be in a weaker bargaining position by 2010 because they had been out of the market for some time. The bulb stock was not on their land but on land leased by Global. Their solicitors wrote to Global’s solicitors to assert ownership but they did not ask for the bulbs to be delivered up to them, although they reserved the right to do so in the future. The Judge considered there was an obvious reason for

that, because to sell the stocks they would have had to pay the cost of harvesting and storage, with the risk that insufficient economic sales might be achieved.

The Court does not discount Mr Harrison’s evidence by reason of any perception that the plaintiffs are seeking a windfall. However, the plaintiffs are not entitled to recover more than they would have recovered if the defendants had immediately yielded to them possession of the residual planting stock (harvested or unharvested) and they had sold it. The issue is what prices the stock would have produced, what was its true market value.

[70] I conclude that Mr Harrison’s valuation is not a true market valuation at all, but simply an assessment of what a hypothetical willing buyer would be prepared to pay a hypothetical willing seller for planting stocks in, erroneously, a purely hypothetical market. Any valuation must relate to an actual market. No such market has been proved.

[11] At receivership, Global owned about nine hectares of bulbs, on five leased sites, and the advice to the receivers was that given the value of the bulb varieties, and the costs of harvesting, only the tulip bulbs and some of the daffodil bulbs were worth harvesting. The receivers for Tulip International Ltd (“TIL”), a company associated with Global and from whom Global had leased some of its land, said there was difficulty in selling TIL’s bulbs. The respondent receivers understood there was only a small window of opportunity for them to make sales. They took advice from Dutch growers who said some of the varieties that Mr and Mrs Hughes grew were obsolete. Only Mr and Mrs Harrison showed interest, and even they were reluctant.

[12] The main sales by the receivers were of planting stock for $25,000 and saleables for $37,000. There was another small sale of approximately $2,000.00.

Mr Heenan’s estimate was that 14,542.99 kilograms of tulip bulbs were sold in respect of which Mr and Mrs Hughes had a proprietary interest, and there were two more sales, but not of bulbs identified in the lease. About six of the nine hectares of bulbs were of lesser varieties, only marketable in New Zealand, not Holland. The receivers thus sold bulbs for a total of $74,000, together with plant and equipment for $320,000.

[13] The Judge worked on the basis that Global had more than enough planting stock to meet its obligations to Mr and Mrs Hughes under the lease, and the issue was whether that stock had any value. The receivers were liable in conversion, being unlawful interference with the property of Mr and Mrs Hughes because they undoubtedly had an interest in some bulbs. The forced sale was relevant to determine damages but reflected only in the $25,000 sale achieved. There were costs of sale to bring to account.

[14] The interim judgment held that damages for conversion are flexible in nature, depending on the circumstances of the case. As with other torts, they provide just compensation for the loss which has been suffered.⁷It addressed whether the appellants could prove to the required standard a realisable market in the way

_{Mr Harrison’s valuation evidence assumed.}⁸_{Without a market of some sort, any loss}

is very difficult to measure, and that very issue is again before the Court for this final judgment.

[15] Mr Withnall’s submission was that based on the “unchallenged” evidence of Mr Harrison, the loss was proved to be $270,624.20, reduced to $200,000 to take into account the jurisdictional limit under s 29 of the District Courts Act 1947. This was a challenge to the District Court’s conclusion that Mr and Mrs Hughes were wrongly denied ownership of the bulbs, and on the assumption that Global had met its obligations to them, the forced or distressed sale price achieved by the receivers represented the market value of these bulbs, which the receivers ascribed to the Hughes. That was the recovery potentially available to them, less the unproved cost of harvesting and sale. In the interim judgment I recorded that I was uncertain whether all of the bulbs sold belonged to the appellants.

[16] I did not accept the notion of a “forced sale” as the correct measure of loss because that would mean the wrongful act of the receivers by the tort of conversion

would be assessed against a sale they were not entitled to make. That had to be factored along with the receivers’ abandonment or discarding of bulbs in or above ground. I addressed whether there was a market for the bulbs if there had not been a forced sale. The evidence was of an illiquid and seasonal market with its own idiosyncrasies. I held that Mr and Mrs Hughes should have been able to test the market in their own way, take possession of the bulbs, decide what to sell, what to discard, what to replant, and what to leave in the ground. The receivers wrongly asserted that the Hughes had no proprietary interest, but that position was relaxed a little when the receivers did not see value in some of the bulbs, but Mr Hughes did, to which I will return.

[17] I concluded that Mr Harrison’s valuation did not provide sufficient evidence of the loss claimed, but I had reservations to be addressed at a resumed hearing. While the receivers were “desperate” to sell this was not to impact on Mr and Mrs Hughes. The receivers said they had made considerable efforts to market and sell the planting stock but that the market was very limited. I referred to these passages of Mr Heenan’s evidence as follows:⁹

22. [Global] directors, Alan MacDonald and Roy Smak advised the receivers that in their view the tulip bulbs and some of the daffodil bulbs would be the only ones that would be worth harvesting in that they could attract a price higher than the cost of harvesting. These directors were experienced in the bulb industry and had every interest in the receivers obtaining as much as possible from the sale of assets given that they had given personal guarantees for some of [Global’s] debts.

23. The receivers had no funds to pay for the services of [Mr van der Gulik] and [Mr Schouten]to have their bulbs harvested. [Mr van der Gulik] and [Mr Schouten] were aware of this but were reluctantly continuing to tend the bulbs primarily because they were planted adjacent to their own bulbs and would have transmitted disease if left unattended.

[18] I concluded that some bulbs were abandoned by the receivers, some discarded, and some sold, and that the sale proceeds should not be accepted for damages assessment purposes if discounted simply to meet the receivers’ immediate needs.

_{There was no evidence whether Mr and Mrs Hughes could or should have
retrieved}

⁹Hughes v Fea, above n 2, at [125], also referred to by Judge MacAskill in Hughes v Fea, above n

those bulbs left in the ground, whether for sale, storage or otherwise, and what they might have yielded. Replacement bulbs under the lease were valued by Mr Harrison. The fate of bulbs which were abandoned or discarded was not known, but Mr Hughes took delivery of some tulip stock which was otherwise to be dumped. Some of that stock was sold by Mr Hughes to Mr Harrison for $10,991.82 plus GST. From any assumed sale price there would have to be deducted lease payments to land owners, together with any costs of harvesting, to get to a figure which represented actual loss.

[19] Judge MacAskill concluded that the only relevant sale of stock which belonged to the appellants was that to Mr Van der Gulik and Mr Schouten, for $25,000 worth of planting stock. He considered that the appellants should have that sum less the unproved costs of harvesting and sales, but reserved leave to address that further.

[20] I considered Mr Harrison’s evidence of market value, with discounting to achieve sales. Considerations included deterioration over time in the desirability and value of the bulbs first leased, the “closed market” for major and minor bulb varieties, the costs of marketing, and/or of replanting and re-harvesting in a more favourable market and leasing land to do so, and the chances of sales over time. Bulbs not sold by the receivers, but retrievable by the Hughes, would not be part of the valuation. I concluded that Mr Harrison’s evidence did not prove a realisable market value.

[21] If the bulbs sold belonged to Mr and Mrs Hughes, that on the face of it is the minimum to which they were entitled less costs they would have to have borne. The sales were quite possibly at a discount in a forced sale setting, but there was no evidence on which the Court could reach a calculable discount. It had to be recognised that Global’s collapse would impact on the market, receivership or not.

[22] The vagaries of a “notional value” were discussed in the interim judgment.¹⁰

I concluded that the Judge was right to contemplate the loss of a chance because that is what Mr and Mrs Hughes in truth lost.

[23] I was not satisfied that the sales made were not of replacement bulbs. Judge MacAskill accepted on the evidence that the tulip bulbs and some of the daffodil

bulbs were the only bulbs worth harvesting. Mr Heenan took advice that the cost of harvesting most of the other varieties would have exceeded their sale value. These were all evidential issues.

[24] None of the minor type stocks were sold or saleable. The daffodil planting stock sold for $2,192. Mr Heenan said in evidence that the receivers had 71,000 kilograms of tulip planting stock on hand, and that 20,000 kilograms had been dumped by the Dutch growers or given to Mr Hughes. Mr Van der Gulik did not wish to purchase some 36,458 kilograms so they were sold to another party. Mr Withnall referred to Mr Heenan saying that the bulbs were still in the ground and 20 tonnes had not already been disposed of and submitted that had to be taken with his admission that he could not say categorically what quantities were taken or dumped. Mr Heenan also said that Mr Hughes had taken all of the 20,000 kilograms of tulip stock until, under cross-examination, he acknowledged that he was not sure of that.

[25] While Mr Heenan said that he agreed with Mr Van der Gulik that he would take three hectares of stock so he received $25,000 for that and $37,000 for three hectares of saleables. Mr Withnall says that this was a loose arrangement, with

Mr Heenan giving Mr Van der Gulik a high degree of discretion with regards to the harvest, discarding stock, taking what he wanted and making the rest available at the end of the season. Mr Heenan agreed that at the time of harvest there were either

83,000 or 90,000 kilograms of tulip planting stock and 3,300,000 saleable bulbs, more than sufficient to meet the replacement requirements of those varieties under the lease.

[26] In February 2010 Mr Hughes heard some daffodil stock was to be dumped. He went to the premises and was invited to take it away. When Mr Heenan learned that Mr Hughes intended to take the stock for sale, he claimed it for Global. When Mr Hughes was later given the opportunity to take discarded tulip stock, he did so immediately. Mr Withnall says that Mr Hughes was prepared to account for the quantity of tulip stock he did receive, although it was “throw away” stock, and may have lacked condition and quality, but all the stock he recovered, a small quantity only, was sold to Mr Harrison.

[27] I concluded that other than evidence of the stock that was sold, which provided evidence of value, quite possibly discounted, there was no further loss proven to the necessary standard.¹¹

[28] Global, as a contracting party, had failed and in that sense let Mr and Mrs Hughes down. They only had recovery of the bulbs leased, or their replacements, available to them, and they would have to have taken a number of steps to try to recover their investment. If Global had not held stock by way of replacement, that was “an unfortunate truth”.¹²Much had evolved during the period of the lease; some bulb stocks had decreased in number, some had increased and the market had changed over time in its preferences and prices. Global and TIL had failed in that setting. There were complex decisions for the Hughes to take had they not been the subject of tortious action by the receivers. They would have had to decide whether to harvest, defer harvest, maintain leases, attempt sales, or discard bulbs for which there was no market. This would have been a testing position for them, as the market is specialised – a sort of “club” of growers. There is no “ready market” particularly in circumstances of an urgent sale, or the need for a sale when stock was foisted on them with the collapse of Global.

[29] I considered the receivers should pay damages to Mr and Mrs Hughes for all the stock that belonged to them, as I was not satisfied that the sales made were not of “replacement” bulbs under the lease. I could not determine that on the evidence. Global leased nine hectares of land on which there were tulip bulbs and other bulbs, over five different sites, and operations were conducted by Mr Van der Gulik and

Mr Schouten. The bulbs which belonged to the Hughes and were replaced, or supposed to be, were planted on leased land. Mr Van der Gulik and Mr Schouten reluctantly tended the bulbs, only because their own bulbs were throughout the plantings and disease would have developed had they not done so. Mr MacDonald and Mr Smak said that the tulip bulbs and some daffodil bulbs were the only bulbs worth harvesting, and the District Court Judge accepted that evidence as he was entitled to do. The evidence was that the receivers did approach other growers, but

[30] The interim judgment concluded that the appeal should be finally determined based on the payment of a sum which represented the proceeds of sale of all bulbs by the receivers which belonged to the appellants, applying the civil standard of proof. I invited argument regarding the provenance of the bulbs sold by the receivers, and in particular on the following issues:

(i) Whether the Hughes’ bulbs sold by the receivers lay within the $25,000 as the receivers allege, and the Judge accepted.

(ii) Whether discounting of the price of the bulbs by the receivers can be assessed on the evidence.

(iii) Whether, and if so how, the costs of harvesting and sale should be brought to account against any damages awarded.

[31] I was left in doubt whether the sales made by the receivers were the appellants’ bulbs constituted by replacement, or the bulbs originally leased.¹³Judge MacAskill concluded that the bulbs sold in the second and third sales did not relate to bulbs identifiable in the lease, but being identifiable in the lease was not necessarily the key determinant in the tortious setting, as if they were contract replacement bulbs, they belonged to Mr and Mrs Hughes. The fact that perhaps none of the original bulbs leased still existed by the time of receivership is not the answer, as they had to be replaced. No assumption was made of a breach of obligation by Global in that regard, and that is a matter of law to which I will return.

[32] The appellants, through Mr Withnall, adverted to a reference in the interim judgment that there was a market “of some sort” for the bulbs, and that they had been sold at a discount. Mr Withnall submitted that on analysis of the interim judgment, there remained an issue not addressed by the Court, which he described as “the

_{appropriate indicium of value”. The appellants had submitted that
a “fair value” ought}

to be adopted and he said that had not been addressed. Rather than apply for recall of the interim judgment, Mr Withnall submitted this issue should be addressed at a further hearing.

[33] The further submissions for the appellants were thus not limited to the issues set out when above, but resuscitated the argument that Mr Harrisons’ evidence established a “market value indicium”, but if an actual market could not be proved then the court should apply another “indicium of value”, which, while that would be assessed in a notional setting, should found this final judgment.

[34] That was not expressly contemplated by the interim judgment, because I had found that there was no evidential basis proven for a valuation to reflect an available market. Whether actual or notional there had to be a market. The Hughes’ interest lay in the bulbs which were in the ground. Those bulbs were on the evidence largely replacement bulbs, if they were Mr and Mrs Hughes’ property. The value of those bulbs was tested by the receivers in a setting which should not impact adversely on the Hughes, if a distressed or urgent sale meant the value obtained was less than should have been available to them. But factors applied – the market, the cost of harvesting, the cost of sale – which led me to conclude that there was no available market established on the evidence to establish an indicium of value. While I did not say so expressly, I did not consider there was a loss proven by Mr Harrison’s evidence, whether in an actual or notional setting, but in defence to Mr Withnall’s submissions, with Mr Lucas, I revisit the issue as he seeks.

[35] Mr Withnall said the appellants had argued for an alternative “indicium of value” to determine loss, using Mr Harrison’s valuation and his transactional evidence. That involved an enquiry into the price that the bulbs may have fetched had the opportunity to sell them arisen in a notional setting. By the route which is discussed below, Mr Withnall submitted that the minimum value of the sold stock was at least

$219,463 and the minimum market value under the replacement obligation in the lease was $206,974.

[36] The platform for those submissions is that if a market value is not available another indicium of value must be found and that here involves a notional and fair sale.

The appellants say that if there is no market value based on the price for which converted goods can be replaced then a notional sale should found judgment, not a forced sale but over time, based on the “opportunity” available to Mr and Mrs Hughes.

[37] None of the “minor types” stock were sold. The daffodil planting stock was sold for $2,192.

[38] In the District Court the Judge found the stock on hand was more than sufficient to meet the replacement requirements under the lease and Mr Withnall says there is no explanation as to what the receivers did with the rest, which is curious because all of the tulip stock must have been harvested.

[39] Mr Hughes said that he has never dumped stock in his life. When he had the chance later in the season to pick up some discarded tulip stock, he took it and he must “account for” the tulip stock he did receive. Although it was “throw away stock” he sold it to Mr Harrison. All this leads to the submission by Mr Withnall that there were no tulip bulbs left in the ground, as they were either sold, dumped, or released to Mr Hughes. Mr Heenan, or someone on his authority, is submitted to have got rid of or dumped some tulip bulbs not accounted for. There is no evidence to allow such a conclusion but in any event, Mr Withnall does not make anything of stock left in the ground, and he says that it makes no material difference to the appellants’ loss calculations, and they cannot be credited to Global’s obligation under the lease. That submission is made because Mr Heenan asserted control over all the bulbs, including those in the ground, and the presumption is that they were destroyed when the lessors reclaimed the land, apart from some daffodils saved through Mr Hughes’ intervention.

[40] Mr Withnall submits that the receivers made sales at a discount and the Court should bring to account that Mr and Mrs Hughes as long established growers had alternative means of sale. He says the returns obtained by Mr Hughes are relevant, along with Mr Harrison’s evidence. The evidence is that some stock was sold by

Mr Hughes, although the receivers thought the stock had no value, but Mr Withnall was right to recognise that the stock was sold by to Mr Harrison who did not especially want it, on the basis that he would plant the stock and pay 5 cents per saleable for a

one year crop and 4 cents per saleable for a two year crop, and he would bear all the costs. This led to a total payment of about $11,000 over the two year period. The return was estimated to be $2.54 per kilogram, for what was otherwise “discarded” stock, and that included inputs to grow the bulbs and take them to market. Mr Hughes said that the tulip planting stock was worth about $4 per kilogram, rejected by the Court as a market value, but said to be credible as a fair value based on the utility value to a grower, and a reasonable cross-check against Mr Harrison’s evidence of the average expected sale price.

[41] Mr Withnall says that if Mr Harrison’s evidence of the value of planting stock is not accepted, there is no realistic figure for the court to rely on, but the “fair value” is said to be 4.5 cents proven by the sale to a family member of a large quantity of daffodil bulbs at 5 cents per bulb. The range of possible damages outcomes was based on compensation for the value of the bulbs that ought to have been returned to the Hughes, whether they could be realised immediately or not, plus interest.

[42] Mr Withnall submits that no deduction should be made for the cost of holding over stock as all the stock was sold after it had been harvested with one exception, being the first sale of tulip stock for $25,000. He said there was no discount, even for that sale. To sell the bulbs in 2010, Mr and Mrs Hughes simply had to utilise their contacts within the trade, so there would be no brokerage or other fees. When the receivers sold bulbs for $25,000 Mr Withnall says that was at a “deep discount” as market price for tulip stock was not less than $2.54 per kilogram based on the evidence of the sales that were made, and the market price for daffodil stock exceeded 2 cents per bulb but there was no empirical evidence to say by how much. By adjusting the value of the tulip stock to $2.54 per kilogram, the value for assessing was submitted to be:

Tulip stock	70,973 kgs	@	2.54/kg	$180,271
Tulip Saleables	1,050,000 bulbs	@	3.5 cents	$37,000
Daffodil stock	109,600 bulbs	@	2 cents	$2,192
_Total	_$219,463

5,000,000 daffodil bulbs and 46,116 kilograms of tulips less the 4,000 kilograms recovered by Mr Hughes. Had the bulbs not been sold, they would have been available to meet replacement obligations. There were 109,600 daffodil bulbs, 70,973 kilograms of tulip planting stock, and 3 hectares, (1,050,000) of tulip saleables. There was thus sufficient stock to meet all Global’s obligations.

[44] Mr Withnall submitted tulip stocks had to be applied to meet Global’s obligations with respect to daffodils, because under the lease all bulbs acquired or retained for the purpose of replacing the bulbs were the property of the appellants. As the District Court Judge found, and I held on appeal, even if the replacements were not similar, the appellants would still acquire ownership. That meant tulip planting stock should have been applied to the tulip obligation under the lease. The 109,600 daffodils sold should have been applied to the daffodil obligation first, as they most readily meet the requirement of similarity. There was a very large shortfall of daffodil bulbs being the 5,000,000 required for replacement less the 109,600 sold. There were

1,050,000 unallocated tulip saleables as replacements for the daffodils and 28,857 kilograms of unallocated tulip planting stock.¹⁴

[45] The submission is that if tulip stock of equivalent value to the daffodil obligation was returned, the Hughes would be in much the same position, and the parties to the lease would not have intended that a difference in per bulb values would disadvantage the lessor.

[46] The submissions then followed a path whereby the Court was invited to allocate bulbs for minor stocks obligations by volume, again leading to the loss of value of some $204,413. The replacement obligation for the bulbs under the lease is submitted to total $206,974. The heart of Mr Withnall’s submission is thus that stock belonging to Mr and Mrs Hughes with a value of at least $206,974 was sold by the

[47] Mr Lester for the respondents submitted that there is no scope to open up the “indicium of value” sought by the appellants, and at the resumed hearing the relevant inquiry was into the proceeds of sale of all bulbs by the receivers which belonged to

(a)	29 January 2010:	$25,000.00	3 ha of planting stock;
		$37,000.00	Sale of “saleables”;
(b)	26 April 2010:	$10,704.37 including GST	Sale to Kiwi Tulips Limited – tulip planting stock;
(c)	30 April 2010:	$3,375.00 including GST	Sale to J&B Production Limited – tulip planting stock.

[48] The second and third sales did not relate to bulbs identified in the lease. Counsel referred to the District Court judgment at [77]. Mr Lester said that the test is whether the appellants were the owners of the bulbs. Mr Heenan had in his evidence identified tulips were sold that were “identifiable as bulbs from the ... bailment”.

[49] Mr Lester picked up the interim judgment’s reference to the need to prove that bulbs sold, in whatever form, were replacement bulbs under the lease. Unless Mr and Mrs Hughes had that ownership interest, then no sale by the receivers could be a

	Daffodils	Tulips
Quantities to be Returned under Lease	500,000	46,110kg less 4000 kg returned 42,116 kg
Bulbs on hand had they not been sold	109,600	70,973kg along with 3ha or 1,050,000 Tulip saleables

[50] His submission is that there were vastly more tulip bulbs held by the company in receivership than it was obliged to return to the appellants, and that the appellants could not claim title to tulips sold by the receivers, because until a single tulip bulb was dug up it could not be determined that it belonged to them. His submission is that unless tulips had been allocated to the appellants, or identified or demarcated in some way as their bulbs, title cannot have passed so as to support a claim in conversion. There is nothing to show what particular bulbs were “allocated” to the appellants.

Where there were greater stocks of tulips held by the company than those leased, Mr Lester submitted the Hughes had no interest in any particular tulip bulbs without such allocation.

Mr Schouten before receivership and they were carrying on operations on behalf of Global. Mr Lester submitted it was unlikely any stock would have been allocated as required by clause 6.2 of the lease and without that it cannot be said that the bulbs were replacement bulbs which belonged to the appellants. Correspondingly, if there was less stock on hand at receivership than needed to replace the Hughes’ stock, it does not follow that bulbs were acquired for the purpose of clause 6.2 of the lease. If there were fewer bulbs on hand at receivership than necessary to replace the bulbs originally supplied, no allocation would be necessary because all bulbs on hand would be allocated to Mr and Mrs Hughes, but they still must be replacement stock, and this argument is predicated on identification of bulbs.

[52] I do not agree with the submission that the bulbs abandoned by the receivers were not converted, as the tort does not require a demand for delivery up of bulbs. The receivers denied the appellants’ ownership of bulbs and that constitutes conversion, but of what bulbs and to what effect remains for determination.

[53] Mr Lester submits that I should not recall my interim judgment because I had not dealt with the “fair market indicium” valuation, given what I said in the interim judgment:¹⁵

There may well have been some further value in the bulb stocks, above that realised by the receivers, but to what degree is unknown, and unproven. The Hughes have not proved to the requisite standard what price they could have obtained for the bulbs. Nor can I find evidence sufficient to calculate market value by some other principled valuation method.

[54] This is apposite to market value and any fair value in trying to determine loss. Fair value under a notional sale cannot elevate a loss beyond that which a plaintiff

_{suffers. The authorities do not suggest the market should reach beyond
the available}

market. If that cannot be determined then the law will fill the gap, but it must not produce an unrealistic gap.

[55] Ultimately, Mr Lester submits that the appellants have not established conversion in respect of tulip stock as it cannot demonstrate that it had title to the tulips sold, but if that is not accepted, there is no evidence of the market value available to the court. Otherwise, he submits that it is not possible to argue that the price achieved under the arrangement with Mr Harrison, in respect of 3 to 4 tonnes, can be treated as a notional sale price of 71 tonnes.

[56] In reply, Mr Withnall submitted that the indicium of value still had to be addressed, but otherwise the respondents held misconceptions about the Court’s interim judgment. I think Mr Withnall is right in saying that the District Court judge held that even if the required or retained replacements did not comply with the requirements of similarity, the plaintiffs would still acquire ownership. In the interim judgment I held that Judge MacAskill was entitled to conclude that stocks held by the receivers must reasonably be taken to be replacements under the lease, and the court should be ready to conclude that at all times Global intended to comply with its obligations under the lease, even though it did not keep explicit records.¹⁶

[57] I agree with Mr Withnall’s submission that if Global had failed to maintain bulb stocks to the level required, then the bulbs in its possession would be appropriated under the company’s replacement obligations, so if there were surplus bulbs, and there were deficits in other respects, those bulbs they would belong to the company. Either way, no express allocation would be required. I agree also that the appellants owned the bulbs when the receivers were appointed, and the duties of the receivers did not, or could not, affect the position.

[58] Mr Withnall acknowledges the sale to Mr Harrison was not a sale outright but a deferral arrangement, but that he had discounted the amounts received and the arrangement remained a point of comparison. The Harrison transaction related to discarded stocks that the receivers considered to be worthless. Mr Withnall also

_{submits that the actual value received by the appellants in the Harrison
transaction of}

$2.54 per kilogram is likely to be fair and indeed conservative, as the low market value was the best that could be achieved. As to daffodils, Mr Withnall says that the fair value should reflect the discounted sale figure of 2 cents per bulb and Mr Harrison’s higher “fair valuation” of 4.5 cents for bulb reinforces that 2 cents per unit price is a discounted figure and conservative.

[59] The interim judgment contemplated a further hearing regarding the sales made by the receivers and as to whether those bulbs sold should be taken to have belonged to the appellants. If discounting in a forced sale setting could be calculated then that might be reflected in final judgment, if it would not have applied to Mr and Mrs Hughes.

[60] The appellants have responded on a broad front, submitting that one approach advanced on appeal was for a notional or fair value but had not been addressed, and raising the possibility of recall of judgment. For the sake of the parties, and to bring this litigation to an end, subject to any further appeal, I have addressed the argument that the interim judgment did not address a “fair” or “notional” value indicium, developed at the resumed hearing.

[61] The indicium of value for which Mr Withnall contends is, for the reasons given in the authorities on which he relies, the point of the Court’s conclusion that where there is no available market in circumstances of the tort of conversion or unlawful interference with goods (in this case) there should be some way in which a value should be attributable. In other words, the difficulty in establishing value to the injured party does not preclude judgment in their favour. In this case, by the interim judgment, I agreed with the District Court Judge that the evidence of value asserted for Mr and Mrs Hughes did not represent the value that would be available to them, and thus did not constitute their loss.

[62] I have considered the submissions made, which were thorough, indeed exhaustive. I do not find the evidence of the very limited sales made to support what is close to a repetition of the valuation produced by Mr Harrison. I am not at all satisfied that there is any sufficient evidence of such “fair value” and the extrapolation

contended for is, in my view, a constructed approach which fails both because of the extent of the extrapolation, and because it is otherwise in part a repetition of a valuation which was rejected in the District Court, and which I rejected on appeal in the interim judgment.

[63] On the facts, as to the extrapolation of an assumed per kilogram rate of sale across all tulip stock, I conclude that to be fundamentally flawed. Mr Harrison did not buy stock outright, but he made an arrangement to pay over two years, and that does not on the evidence extend over 71 tonnes of tulips. Neither were all varieties of tulips worth the same. The measure of loss must be a realistically recoverable value, and the figure extrapolated by the appellants is not in my judgment proven as an appropriate value. As to daffodils, the plaintiffs are asking the court to accept the value ascribed by Mr Harrison, which has been rejected. As to the unsold bulbs, the appellants say that there should be compensation for the value of the bulbs that ought to have been returned to them, whether the value could be realised immediately or not, plus interest.

[64] I conclude that the sales made by the receivers should be taken to have been of bulbs which belonged to Mr and Mrs Hughes, as I do not consider that in the conversion setting, Mr and Mrs Hughes should have to prove an “allocation” of bulbs before they are judged to be their property. The conversion put them in a disadvantaged position. They should not have had to rely on an express allocation by the wrongdoer. The District Court Judge proceeded on the basis that there should be no assumption that Global did not meet its obligations to replace the bulbs. That replacement must, I conclude, have extended to bulbs of different varieties as the market evolved. The bulbs were to be replaced under the lease but not “bulb for bulb”, as to have assumed that is what the parties intended in a commercial lease which required replacement bulbs makes no sense.

[65] The setting was not just one of receivership but of the collapse of Global. Their position was then reflected in the bulbs held by Global which were owned by Mr and Mrs Hughes, but which were not differentiated as the lease contemplated. Further, the lease had run on and the market had changed. They were in a vulnerable position, but they should not have been denied the ownership of bulbs which belonged to them, and they would then have had to deal with them.

[66] I conclude that the sales that were made totalling $72,000 should be taken to be the property of Mr and Mrs Hughes. There is no evidence on which I am satisfied that I can calculate a discount for a forced sale based on receivership. There is no reliable way in which I can consider and conclude the costs and risks which Mr and Mrs Hughes would have incurred had they held the stock, and how they would physically have taken the stock and dealt with it. I make no deduction for those costs.

[67] I allow the appeal, to reach final judgment that Mr and Mrs Hughes are entitled to damages in the sum of $72,000 with interest at Judicature Act rates from receipt of the proceeds of sale by the receivers. Costs are to be agreed between the parties, or the Court will fix those after memoranda are received from the appellants within 14 calendar days from the date of this judgment, and from the respondents 14 calendar days thereafter, allowing for the Christmas vacation.

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Nicholas Davidson J

High Court of New Zealand Decisions

Hughes v Fea [2017] NZHC 3037 (7 December 2017)