|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 24 December 2018
|
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE
|
|
CIV-2018-406-000014
[2018] NZHC 3352 |
|
BETWEEN
|
PHILIP JOHN WOOLLEY
Plaintiff
|
|
AND
|
FONTERRA CO-OPERATIVE GROUP LIMITED
Defendant
|
|
Hearing:
|
28 November 2018
|
|
Appearances:
|
H Rennie QC and M A Robertson for Plaintiff M D Branch and K F Shaw for
Defendant
|
|
Judgment:
|
17 December 2018
|
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Mr Woolley and his wife own a property called Glenmae in Wairau Valley, Marlborough. On 30 May 2013 Mr Woolley, who then operated a dairy farm on Glenmae, entered a supply contract with the defendant, Fonterra Co-Operative Group Ltd (Fonterra) (the supply contract). On 4 April 2014, on a proceeding brought by the Marlborough District Council, the Environment Court issued an enforcement order against Mr and Mrs Woolley, the effect of Part B of which was that they must cease operating the milking shed on Glenmae from 7 June 2014, and may not recommence milking at Glenmae until a specific direction in Part A had been complied with. That direction required Mr and Mrs Woolley to obtain, lodge and serve by 6 June 2014 a certificate from a registered engineer approved by the Marlborough District Council making specified statements in relation to the effluent pond in the disposal system on Glenmae.
WOOLLEY v FONTERRA CO-OPERATIVE GROUP LTD [2018] NZHC 3352 [17 December 2018]
[2] On 9 June 2014 the Environment Court declined an application to extend time for compliance with the enforcement order. On 18 June 2014 Fonterra sent a letter to Mr and Mrs Woolley noting the terms of the enforcement order in relation to Glenmae and advising:
Fonterra is therefore unable to start milk collection in the 2014/15 season from supply number ...39094 until the requirements of the ... Enforcement Orders are met.
Please keep us advised of progress towards meeting the requirements of the Orders. We will in due course need confirmation from Marlborough District Council of compliance before ... suspension can be lifted.
[3] The letter concluded with the name Mirka Langford, and a description beneath her name “Sustainable Dairying Advisor – Fonterra Milk Supply”, but was not signed.
[4] Fonterra relies on this letter as being a valid suspension of the supply contract.
[5] Mr Woolley sues Fonterra for breach of the supply contract and related supply contract terms. He pleads that on 5 September 2014 he lodged in the Environment Court an engineer’s certificate provided by an engineer approved by the Marlborough District Council which satisfied the requirements of Part A of the enforcement order. He says that nonetheless Fonterra refused to uplift milk from his herd on Glenmae for the balance of the 2014/15 season. As a result he was forced to dump milk from the herd on Glenmae into the property’s effluent systems, and his contract milker terminated his agreement. As a result of not receiving payment for milk from Glenmae he suffered serious financial consequences which resulted in appointment of receivers.
[6] Mr Woolley says that on 10 July 2015 the District Court confirmed that the engineer’s certificate he had lodged on 5 September 2014 satisfied the requirements of Part A of the enforcement order and there was therefore no breach of Part B of the order subsequent to that date.
[7] Mr Woolley sues to recover $1,864,082 in respect of the loss of the value of milk solids which were unable to be supplied to Fonterra, a further sum of $629,486 plus GST in relation to monies that he had to pay to his contract milker for breach of his contract milking agreement, and an enquiry into damages to ascertain the sum
payable by Fonterra in relation to receivership costs and other expenses totalling
$3,398,050 plus GST.
[8] Fonterra applies for summary judgment against Mr Woolley on the basis that the cause of action in his claim cannot succeed.
Summary judgment
[9] Rule 12.2(2) of the High Court Rules provides that the Court may give judgment against a plaintiff if a defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. The principles to be applied by the Court are summarised by Potter J in Waterhouse v Contractors Bonding Ltd:1
- The defendant must show on the balance of probabilities that none of the Plaintiffs’ causes of action can succeed: [Attorney-General v Jones].2
“... summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiff’s claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless.”
Westpac Corp v M M Kembla NZ Ltd.7
1 Waterhouse v Contractors Bonding Ltd [2012] NZHC 566 at [9].
2 Attorney-General v Jones [2003] UKPC; [2004] 1 NZLR 433.
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187; (2008) 19 PRNZ 162.
4 Attorney-General v Jones, above n 2, at [10].
5 Westpac Banking Corp v M M Kembla NZ Ltd [2000] NZCA 319; [2001] 2 NZLR 298 (CA).
6 Bernard v Space (2000) Ltd [2001] NZCA 214; (2001) 15 PRNZ 338 (CA).
7 Westpac Corp v M M Kembla NZ Ltd, above n 5.
8 Krukziener v Hanover Finance Ltd, above n 3.
The case for Fonterra
[10] The argument presented for Fonterra by Mr Branch is founded on a series of propositions. He says that no issue was taken with the suspension of supply, there is no obligation under the supply contract to lift the suspension, on the facts as they were known to Fonterra at the time that it was asked to lift the suspension it made a correct decision not to do so, and therefore it is not in breach of contract. He says that none of the facts on which these propositions are based are in dispute.
[11] Mr Branch accepts that the making of a decision on whether to lift a suspension is a discretionary one, carrying with it an obligation to act reasonably in the sense that term is known in Associated Provincial Picture Houses Ltd v Wednesbury Corporation.10 But he says Fonterra did act reasonably, given the facts as they stood at the time a lifting of the suspension was requested, and throughout the period thereafter until the Environment Court declared in July 2015 that the enforcement order had been complied with on 5 September 2014. Mr Branch says that Fonterra was under pressure from the Marlborough District Council not to collect milk from Glenmae, that the Council did not at any point advise that it accepted that the requirements in Part A of the enforcement order had been complied with, and Fonterra was caught in the middle of a dispute between Mr Woolley and the Council. Given that it knew that the order remained in force, and the Council position, its decision not to lift the suspension cannot be regarded as unreasonable. He therefore says the Court should enter summary judgment as Mr Woolley’s cause of action cannot succeed.
The facts in more detail
[12] By 7 June 2014, the deadline in the order by which Mr and Mrs Woolley were to cease operating the milking shed on Glenmae, the beginning of calving and thus the milking season were imminent. When the Environment Court declined on 9 June to extend time for compliance with the enforcement order, the Court found the order had,
9 Bilbie Dymock Corp Ltd v Patel Bajaj (1987) 1 PRNZ 84 (CA).
10 Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] EWCA Civ 1.
by then, been breached. In declining to vary the order, the Court indicated that Mr and Mrs Woolley should start looking at alternative arrangements for their herd, and suggested that they engage their nominated engineer, Mr Talbot, to immediately carry out testing with a view to providing certification in terms of Part A of the enforcement order. Shortly after that decision was released, Fonterra sent the letter of 18 June to Mr and Mrs Woolley on which it now relies as a valid suspension of its obligations to collect milk.
[13] The supply agreement incorporates the terms of the Suppliers’ Handbook, which contains provisions which relate to suspension. In paragraph 3.3 which sets out requirements of supply, it is provided:
Fonterra can give you notice that it will not collect your milk or has suspended collection of your milk, and as a result you will be considered to have not supplied that milk if:
● ...
● ...
● you have not complied with the Terms of Supply...
[14] The Suppliers’ Handbook includes, in section 8 under the heading “Environmental Sustainability”, a requirement that a supplier must meet certain minimum requirements. These are to comply with all relevant environmental regulations that apply to the farm, comply with the requirements of that section of the Handbook, take all reasonable and practical steps to minimise harm to the environment, and ensure that Fonterra’s reputation is not compromised as a result of environmentally undesirable farming practices. The agreement then provides that if a farmer does not meet the requirements, Fonterra may take certain steps including suspending the collection of milk.
[15] Fonterra says that it validly suspended the supply agreement because Mr Woolley was in breach of these requirements. Mr Branch says there is no doubt that Fonterra had a valid basis for doing so, given the terms of the enforcement order of 4 April and the procedural order of 9 June.
[16] The agreement also imposes obligations on Fonterra in section 8. It provides that Fonterra will ensure that a farmer is aware of the minimum requirements that must be achieved in order to supply milk to Fonterra, and is well supported to continuously improve the environmental outcomes on the farm. It provides that Fonterra will undertake assessments to ensure that the minimum requirements are being achieved. Where these are not being achieved Fonterra must rate the issue according to a risk hazard score of minor, major or critical. Major hazards are those that pose a significant risk of environmental damage, non-compliance with environmental regulations and/or damage to Fonterra’s reputation. Major hazards must be remedied as soon as practically possible, but no later than the start of the following season.
[17] Whilst the Environment Court found there was a significant risk of non- compliance with environmental regulations, because the pond in question had not been certified by an engineer, in August 2014 it was established by Mr Woolley’s engineer that the pond was not leaking and this was certified that month by Opus International. The evidence presently before the Court does not disclose that any assessment of the degree of hazard was undertaken by Fonterra.
[18] The document relied on by Fonterra as having suspended its obligation to uplift milk from Glenmae is a letter dated 18 June as I have said. The letter is addressed to Mr and Mrs Woolley and is on Fonterra letterhead. Although unsigned it appears, from the name Mirka Langford and her description adjacent to where it might have been signed, to have been sent by a Sustainable Dairying Advisor. It appears from the supply agreement that this person is a member of the Sustainable Dairying team which in clause 1.2 of the Handbook is stated to be “here to provide you with one-to-one support to work your way through these issues”. In clause 8.2 under the heading “Effluent Management”, it is stated that in the event that a minimum requirement for effluent management is not met, a farmer will “work with a Sustainable Dairying Advisor or Farm Dairy Assessor to create an Environmental Improvement Plan that sets out the actions required to achieve the minimum standard and the timeframe within which this is to be achieved”.
Discussion
[19] The propositions relied on by Mr Branch are summarised above.11 First, on the information before the Court, it is not apparent that any issue was taken with the suspension of supply, at the time the suspension was purportedly put in place. There is now, however, an issue in relation to whether or not a valid suspension was in fact issued. Mr Woolley, in his affidavit, denies that Fonterra suspended milk collection in a way that it was entitled to under the contract. Apart from the letter not being signed, there is nothing in the supply agreement to suggest that a Sustainable Dairying Advisor has the authority to issue a suspension notice, and the provisions which apply to a Sustainable Dairying Advisor suggests that the role of that person is quite different: an advisor is required to work with the farmer towards overcoming environmental difficulties. The giving of a suspension notice might arguably be a matter requiring the decision and the action of a person holding a quite different role within Fonterra, for example a regulatory compliance manager or legal officer. This issue is not specifically raised in the pleadings, so for present purposes I proceed on the basis that a suspension notice was issued.
[20] The second proposition by Mr Branch, which he says is based on undisputed facts, is that there was no obligation under the supply contract to lift the suspension. In my opinion that issue is not established as Mr Branch submits. First, the supply agreement makes reference to suspension, as well as to termination, clearly implying that the two are separate, from which it is an obvious inference that the first may come to an end. As Mr Rennie says, the infinitive “to suspend” clearly means something that is a temporary condition or state of affairs rather than a permanent cessation of the obligations of the parties. The circumstances in which collection may be suspended are set out in the supply agreement and it is clearly arguable, at the very least, that suspension must cease when the basis of it having been put in place no longer exists.
11 At [10].
[21] Further, Fonterra itself made it clear that it was temporary. In the letter of 18 June it stated:
Fonterra is therefore unable to start milk collection in the 2014/15 season from supply [from Glenmae] until the requirements of the ... Enforcement Orders are met.
[22] It is implicit in the notice itself that once those requirements are met milk collection would start. I therefore reject Mr Branch’s argument that there was no obligation under the supply contract to lift the suspension.
[23] His third proposition is that on the facts as they were known to Fonterra at the time it was asked to lift the suspension, it made a correct decision not to do so. Mr Branch accepts that a decision of that kind is a decision which requires exercise of a discretion under a contract, and that being the case there is a requirement on Fonterra to act reasonably. Whilst he argues that this obligation is not currently pleaded, and an amended pleading would be required if that argument were to be presented at trial, this would not in any event affect Fonterra’s position because the test for unreasonableness is an extremely high threshold, and the Court will not interfere with the exercise of a discretion unless that threshold is met.
[24] Before turning to the factors which in my opinion Fonterra might reasonably be expected to take into account when exercising that discretion, it is necessary to briefly record the legal principles applying to the making of a discretionary decision. Such a discretion must not be exercised arbitrarily, capriciously or unreasonably. In Todd Pohokura Ltd v Shell Exploration NZ Ltd,12 Dobson J quoted from a decision of the United Kingdom Court of Appeal:13
It is plain from these authorities that a decisionmaker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care ...
[25] In C & S Kelly Properties Ltd v Earthquake Commission Mander J said:14
[73] To summarise, Commonwealth Courts are willing to intervene in the exercise of a prima facie unfettered discretion. Such intervention will ordinarily be premised on an implied term to constrain the exercise of the discretion so as to give effect to the reasonable expectations of the parties. The exercise of contractual discretion will be open to challenge where it can be established that it was not exercised honestly in good faith; or not exercised for the purpose(s) for which it was conferred; or when exercised in a capricious or arbitrary manner; or otherwise falls into the category of what would be considered Wednesbury unreasonableness.
[26] The ultimate task for the Court which is squarely raised in this case is to decide whether the actions of Fonterra, in refusing to lift the suspension when presented with an engineer’s certificate which Mr Woolley says complied with Part A of the enforcement order, were a proper exercise of its discretion in terms of these criteria. On this application, Fonterra must establish to the point where the Court is not left with any real doubt or uncertainty that it did properly exercise that discretion.
[27] Although in correspondence between Ms Brewer Shearer and Mr Woolley’s solicitor, Fonterra raised a doubt over whether the certificate Mr Woolley provided did satisfy the terms of Part A of the enforcement order, that is an issue of fact later resolved by the Environment Court in favour of Mr Woolley, and to the extent it was in dispute is not a matter that can be resolved on this application. Mr Branch did not argue that the certificate was outside the terms of the order, so it need not be further considered at this juncture.
[28] Mr Branch says, first, that Mr Woolley does not plead an implied term of reasonableness. Whilst that is accurate so far as the statement of claim is concerned, the notice of opposition to the application for summary judgment squarely puts Fonterra on notice: in paragraph 3(d)(viii) it is stated:
the Defendant did not act reasonably or in accordance with its statutory or contractual obligations in refusing to collect milk from the Glenmae farm from 5 September 2014 and throughout the 2014/2015 milking season.
[29] Mr Branch next says that Fonterra was placed in an impossible position because there was an unresolved dispute between Mr Woolley and the Marlborough
14 C & S Kelly Properties Ltd v Earthquake Commission [2015] NZHC 1690.
District Council and in that circumstance Fonterra acted reasonably in refusing to lift the suspension order.
[30] After the engineer’s certificate was provided to Fonterra, there were exchanges of correspondence between Mr Woolley’s solicitor, Fonterra, and the solicitor for the Marlborough District Council, Ms Miriam Radich of Radich Law, in relation to Fonterra’s refusal to lift the suspension notice, and the Marlborough District Council’s refusal to accept that Part A of the enforcement order had been satisfied. It is not necessary to set out this correspondence in full. In the present context, where the task of the Court is to determine whether it is established on the balance of probabilities that none of Mr Woolley’s claims can succeed, it is necessary only to refer to the following evidence. First, on 5 September Mr Woolley emailed to Ms Brewer Shearer the signed certificate discussed above which he said dealt with all the matters required by Part A of the enforcement order. On the same day the solicitor for Mr Woolley wrote to Ms Brewer Shearer informing her that the enforcement order was now complied with and stating that a failure to uplift milk from Glenmae would be a breach of the supply agreement. Ms Brewer Shearer says in her affidavit:
My immediate response to Mr Clark’s correspondence was to contact Radich Law. On 5 September 2014, I forwarded Mr Clark’s email and letter to Miriam Radich and sought her comment on it ... At the same time I sent an email back to Mr Clark raising some questions I had about the certificate that was provided.
[31] Ms Radich replied to Ms Brewer Shearer on 5 September advising that the Council did not accept that the Woolleys had met their obligations in respect of the enforcement orders. A more detailed set of reasons for this opinion was evidently sent on 8 September.
[32] On 8 September Mr Clark, for Mr Woolley, wrote to Ms Brewer Shearer again. He said:
We suggest Fonterra urgently review its position. If it does not then we will have to work out some way that this matter can urgently be dealt with by the High Court. While there is a disputes resolution provision in the Supply Handbook, that would appear to have to go to the Milk Commissioner, who is Peter Radich. Obviously that cannot happen as he is not independent as far as this matter is concerned.
Peter Radich is a partner in Radich Law.
[33] Ms Brewer Shearer then replied:
I have carefully considered the content of your letter earlier today and discussed it with colleagues.
I note that, amongst other things, clause 8.1 of the Suppliers’ Handbook requires Mr and Mrs Woolley to comply with:
● all relevant environmental regulations that apply on their farm
● the effluent management minimum requirement set out in clause 8.2
Fonterra remains of the view that Mr and Mrs Woolley are not meeting those minimum requirements. For so long as Council disputes Mr & Mrs Woolley’s entitlement to recommence milking, and absent a Court order directing otherwise, this position is unlikely to alter. On this basis Fonterra suspends, and is entitled to suspend, milk collection.
[34] Mr Clark wrote back to Fonterra with his view that Fonterra was treating Mr Woolley’s livelihood with apparent disdain and in a flippant manner. Ms Brewer Shearer replied:
Fonterra is not treating the [Woolleys] disdainfully or flippantly. We are giving very careful consideration to the issues and have provided, and will continue to provide, as much assistance as we can. But the fact remains there is a wide gulf between you and your client on one hand, and Council and its advisers on the other, as to whether the requirements of the Court Order have been met.
[35] In her affidavit Ms Brewer Shearer then says:
This summarised Fonterra’s perspective. There was an interpretation dispute between the Woolleys and the Council. I did not see that Fonterra could – or should – resolve that dispute and only the Court could (if Council and the Woolleys could not themselves). Fonterra was also mindful of the fact that [the Council] had referred to any milk collection as being “aiding in a breach of orders of the Environment Court”.
[36] This was reference to a letter which had been sent by the Chief Executive of the Marlborough District Council to the Chief Executive of Fonterra on 16 July 2014 in which he informed Fonterra:
If P J Woolley and Awarua Farm do commence milking at either or both farms, they will be in breach of the enforcement orders.
Council seeks Fonterra’s assurance that no milk will be collected from either farm. Collecting the milk could be considered to be aiding in a breach of orders of the Environment Court.
...
Council considers this matter to be very serious and, as the milking season is fast approaching very urgent. We rely on your help to make sure that the orders can be complied with without creating other problems (such as the potential animal welfare issues in drying dairy cows off).
[37] On the evidence before the Court it is plain that Fonterra was under pressure from the Marlborough District Council on one hand, and under pressure from Mr Woolley and his solicitor on the other. However, it also had in its possession a certificate which at least arguably complied with the requirements of Part A of the enforcement order.
[38] There is no sound basis upon which this Court can, on a summary basis, determine that Mr Woolley cannot succeed on an argument that Fonterra exercised a discretion not to uplift the suspension in an unreasonable way. It is Fonterra’s own case that it aligned its decision with that of the Marlborough District Council. It is certainly arguable that whether Fonterra was under any form of pressure from the Council to do so, or not, it was contractually bound to make a decision itself in light of all the facts, on the basis that to do otherwise would be unreasonable, capricious or arbitrary.
[39] Mr Branch argues that as the Marlborough District Council did not at any point give confirmation either to Fonterra or to the Environment Court that it accepted there was compliance with the enforcement order, Fonterra’s actions cannot be unreasonable. The enforcement order itself, however, only requires the obtaining of a certificate from a registered engineer complying with certain express requirements, together with the lodgement and service of that document by 6 June. It makes no mention of it having to be acceptable to the Marlborough District Council. If the matter had been taken back to the Environment Court when the certificate was obtained, the Council would have been entitled to be heard given that it was the initial applicant for the order. But arguably, the certificate complies, and providing of the certificate was all Mr Woolley was required to do. The order does not require any broader compliance with environmental objectives or indeed any other action on the
part of Mr Woolley. The deadline of 6 June stated in the order was self-evidently to impose a deadline to provide the certificate, failure to do so being the trigger for the consequences set out in Part B. It is presently immaterial.
[40] It follows that the challenge to Fonterra’s decision not to lift the suspension on the basis that decision was unreasonable is certainly arguable.
[41] Quite apart from that, determination of whether Fonterra’s decision was or was not reasonable in terms of the cases cited will require an examination of the context in which the decision was made. It appears that at least the following further facts will be relevant. First, Fonterra was contractually bound to uplift milk produced on Glenmae, in terms of the supply agreement. That agreement had been suspended, not terminated, and also bound Mr Woolley to provide his milk only to Fonterra. On this point, Mr Woolley had no choice anyway because Fonterra was the only outlet operating in the region of Glenmae. Therefore, Fonterra would have known, and therefore should arguably have taken into account the fact that all the milk produced on Glenmae would go to waste if it did not uplift it. It is also arguable that Fonterra would have known that there would be significant adverse environmental consequences of the huge quantity of milk produced on Glenmae being disposed of on that property if not taken away for processing. Further, Fonterra would have known that there would be a huge financial cost to Mr Woolley from not receiving the value of his milk. It also knew by 10 September that Mr Woolley’s share milker had handed in his notice. The evidence presented for Fonterra does not establish that all or any of these facts were taken into account by Fonterra when deciding not to uplift the suspension notice on presentation of the engineer’s certificate or at any subsequent time during the entire season.
[42] At the same time, of course, Fonterra was dealing with Mr Woolley against a poor background of compliance with environmental requirements, was aware that Mr Woolley had placed stock on Glenmae despite the Environment Court specifically indicating that he should make other arrangements for stock, and was not at any point presented with any form of clearance from the Environment Court, until well after the end of the season. These, and no doubt other facts which would emerge at trial must be assessed in the context of a trial to establish whether Fonterra’s decision not to lift
the suspension when the certificate was produced, and to maintain that suspension throughout the season, complied with its contractual obligations.
[43] Mr Woolley is entitled to take his case to trial. On the facts before the Court on this application Fonterra falls well short of showing that his cause of action cannot succeed. The Court has no hesitation in dismissing Fonterra’s application for summary judgment.
Outcome
[44] The application for summary judgment is dismissed.
[45] Costs are reserved for submissions. Counsel are asked to file memoranda by
31 January 2019.
J G Matthews Associate Judge
Solicitors:
Wiseheart Macnab & Partners, Blenheim Harkness Henry, Hamilton
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2018/3352.html