AP & AW HUGHES LTD v LYALL [2018] NZCA 28

AP & AW HUGHES LTD v LYALL [2018] NZCA 28 [1 March 2018]IN THE COURT OF APPEAL OF NEW ZEALANDCA331/2017[2018] NZCA 28BETWEEN AP & AW HUGHES LIMITEDAppellantAND ALLAN JAMES LYALLFirst RespondentAND MARK BENNETTSecond RespondentHearing: 9 November 2017Court: Gilbert, Lang and Ellis JJCounsel: R M Reeve and D R Tobin for AppellantJ C D Guest for First RespondentJudgment: 1 March 2018 at 11 amJUDGMENT OF THE COURTA. The appeal is dismissed.B. The appellant must pay the first respondent costs for a standard appealon a band A basis together and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Ellis J)[1] In the High Court the appellant1 AP & AW Hughes Ltd (the Hughes) sued thefirst respondent, Mr Lyall, for breach of contract and/or negligence. The claim relatedto the February 2014 harvesting by Mr Lyall of 31.5 hectares of pea and barley cropsown by the Hughes with the intention that it be made into silage to provide theHughes' lactating cows with winter feed.[2] There was no dispute that the silage subsequently produced was substandard.The cows refused to eat it. Testing confirmed its poor quality. The dry matter (DM)content was too high, the metabolisable energy (ME) content was too low, and it wassignificantly contaminated with soil.[3] The Hughes therefore had to make other arrangements to feed their stock overwinter. They said that Mr Lyall should bear the cost of the steps they took.[4] In the High Court Dunningham J disagreed.2 She found that the poor qualityof the silage was largely due to the Hughes leaving it too late to engage Mr Lyall to dothe harvesting. This meant that by the time of harvesting, the crop had become over-mature and lignate and (she said) it was those features that led to the decrease inquality, the protein levels, and the palatability of the resulting silage.3[5] As well, the Judge held that the toughness of the stalks had caused Mr Lyall'sharvesting machine (called a "whole crop front cutting unit") constantly to jam and,eventually, to break. Mr Lyall immediately hired a substitute unit, but quickly becameconcerned that that would break too.[6] There was no dispute that using a whole crop front cutting unit was thepreferred harvesting method (the whole crop method).4 But because of the mechanicaldifficulties Mr Lyall was experiencing, it was necessary to come up with a differentmethod ("mow, rake, lift") to which (the Judge found) the Hughes had agreed.5 She1 AP & AW Hughes Limited is a dairy farming company. Tony and Wayne Hughes are its directorsand shareholders.2 AP & AW Hughes Ltd v Lyall [2017] NZHC 1109 [High Court judgment].3 At [26].4 This method involves harvesting the crop and processing it for silage in one pass. A whole cropfront cutting unit does this by cutting the crop, chopping it into short lengths and then blowing theprocessed crop out into trucks for transporting to the silage pit.5 High Court judgment, above n 2, at [71].held that although the raking caused a large quantity of soil to get into the harvestedcrop, and therefore the silage, that did not mean that it was an unreasonable method toadopt in the circumstances or that the raking had been done carelessly. The mowing,which was done by the Hughes, was also causative of the soil contamination althoughin a far more limited way. Moreover, the Judge accepted expert evidence that thepresence of soil did not render the silage inedible or wholly unfit for purpose.[7] The Hughes now appeal Dunningham J's decision. They challenge the Judge'skey factual findings and the conclusions she drew from them.[8] The second respondent Mr Bennett was joined to the proceedings byMr Lyall. He is alleged to have been Mr Lyall's sub-contractor who, in turn, employedMr Andrews who undertook the raking which (indisputably) contributed to the soilcontamination. Accordingly, in the event that Mr Lyall was found liable, there wouldbe an issue about the extent to which that liability might be shared by Mr Bennett.Although Mr Andrews gave evidence in the High Court, Mr Bennett took no steps andnor did he participate in this appeal. He relies, it seems, on Mr Lyall's defence of theclaim.Approach on appeal[9] In Green v Green this Court summarised the current approach to appeals fromfindings of fact as follows:6[28] As the Supreme Court held in Austin Nichols, those exercising generalrights of appeal are entitled to judgment in accordance with the independentopinion of the appellate court. That is so even where that opinion is anassessment of fact and degree and entails a value judgment. If the appellatecourt's opinion is different from the conclusion of the court below, the appealmust be allowed even if it was a conclusion on which reasonable minds mightdiffer.[29] Austin Nichols reaffirmed the appellate court's obligation to form itsown independent judgment on the merits of an appeal by way of rehearing.But two fundamentals remain constant.[30] First, it is still axiomatic that the appellant bears the onus ofpersuading the appellate court to reach a different conclusion. Of necessity, indischarging that onus the appellant must identify the respects in which thejudgment under appeal is said to be in error.6 Green v Green [2016] NZCA 486, [2017] 2 NZLR 321, at [28]–[31] (footnotes omitted).[31] Second, it is also axiomatic that in determining whether the judgmentwas wrong the appellate court will take into account any particular advantagesenjoyed by the trial court. The advantages possessed by a trial judge indetermining questions of fact are obvious, especially where assessments ofcredibility and reliability are involved. The trial judge gets to see and hear thewitnesses, and is able to evaluate the strength of the evidence as it progressivelyunfolds within the context of the trial as a whole. As this Court pointed out in Raev International Insurance Brokers (Nelson Marlborough) Ltd:As the evidence unfolds the trial Judge gains an impression from theevidence which is not necessarily or usually apparent from the coldtypeface of the transcript of that evidence on appeal. The Judge formsa perception of the facts in issue from which he or she adds orsubtracts further facts as witnesses give their evidence, and so obtainsas complete a picture as is possible of the events in issue. The Judgeperceives first-hand the probabilities inherent in the circumstancestraversed in the evidence and can obtain a superior impression of thoseprobabilities as a result.[10] That is the approach we adopt here.Issues on appeal[11] Shortly before the hearing of the appeal counsel filed a joint memorandumrecording that the parties were agreed as to the issues requiring determination in thisappeal. They can be paraphrased (and reordered) as follows:(a) Was the crop over-mature?(b) Did the Hughes authorise Mr Lyall to undertake the substituted methodof harvest (mow, rake, lift)?(c) Was the substituted method of harvest appropriate in thecircumstances?(d) Was it Mr Lyall's actions (the raking) rather than the allegedover-maturity, which caused the Hughes' loss?(e) Was the Hughes' mowing partly responsible for the soil contamination?(f) If the answers to questions (a)–(d) are "no", are the Hughes entitled tothe damages claimed, which relate to the cost of replacement feed,replacement grazing, and lost opportunity costs?[12] These issues largely form the structure of the latter part of this judgment.Preliminary legal matters[13] Before turning to consider those issues, however, it is useful to say somethingabout the legal relationship(s) between the Hughes and Mr Lyall.The contract between the Hughes and Mr Lyall[14] There was no written contract between the Hughes and Mr Lyall. Mr Lyall hadbeen engaged by them before. The Hughes pleaded that the oral contract entered intoinvolved an implicit agreement by Mr Lyall to:(a) employ and oversee all necessary staff and/or sub-contractors to harvestand process the peas and barley in a timely manner;(b) harvest and process the peas and barley with all due care and skill;(c) transport the harvested peas and barley to a silage pit;(d) ensure that the harvested peas and barley would have sufficientnutritional value to properly service stock feed, specifically:(i) that it would have an acceptable percentage of dry matter, crudeprotein and mineral content;(ii) that it would be free of soil-borne contaminants causingundesirable fermentation.[15] For his part, Mr Lyall accepts that it was agreed that, in harvesting andprocessing the peas and barley, he would use the care and skill expected of areasonably competent silage contractor. However, he denied any more extensivecontractual obligation, saying it was not his task to determine the correct time ofharvest or to ensure that the resulting silage would have a particular nutritional value.Dunningham J accepted that position as correct and so do we.The scope of the duty owed by Mr Lyall[16] Similarly, the Hughes alleged that Mr Lyall owed them a duty of care to:(a) exercise the reasonable skill and care expected of any person holdinghimself out as a professional agricultural contractor specialising inharvesting stock feed by mechanised means;(b) monitor the condition of the harvested stock feed to limit theconsequences of any defects in the defendant's process;(c) avoid, remedy or mitigate contamination of the stock feed by soil in thecourse of the harvesting process;(d) ensure that any sub-contractors maintained the same professionalstandards as those expected of the defendant; and(e) safeguard against economic loss arising from negligent commission ofthe defendant's duties in his capacity as agricultural contractor.7[17] Again, however, the Judge held that the duty did not extend this far. She said:8Where there are concurrent duties claimed both in contract and tort, they will,in most cases, be co-extensive. In the absence of a written contract, or ofevidence as to particular matters being agreed orally, there is nothing in thiscase to suggest that the duty of care owed by the defendant to the plaintiff wasanything other than co-extensive with his implied contractual obligation. Inother words Mr Lyall was required to do no more than use the care and skillexpected of a reasonably competent silage contractor in the circumstancespresented to him.[18] And again, we endorse that approach.7 As the Judge noted, however, the claim in negligence (unlike the claim in contract) did not allegethat Mr Lyall's duty extended to achieving a particular (silage quality) result.8 High Court judgment, above n 2, at [47] (footnote omitted).Discussion[19] We now turn to consider the identified factual issues in turn.Was the crop over-mature at the point of harvest?[20] The alleged over-maturity of the crop is a fundamental causation issue in thiscase. It has two key aspects. The first is essentially that over-maturity both lowersthe energy content of the crop (rendering it unsuitable feed for lactating cattle) andrenders it less digestible. The second is that Mr Lyall's position was that it was theover-maturity and consequent lignification (toughness and brittleness) of the cropwhich made it unable to be harvested by the preferred (whole crop front cutting)method. In turn, it was the need to adopt another means of harvesting that led to theadoption of the "mow, rake, lift" method which resulted in the silage beingcontaminated with soil.9[21] On either analysis, therefore, it is over-maturity that is potentially thefundamental cause of the poor quality silage and the Hughes' losses. The focus of thisaspect of the appeal was that the Judge's conclusion of over-maturity was wrongbecause she disregarded the evidence about the date of sowing and the variousopinions as to the subsequent time it would take for the crop to reach maturity.[22] Dunningham J began her analysis by noting that the precise date of sowing wasnot known and so the number of days between planting and harvest could not becalculated with accuracy.10 She noted that the experts gave a wide range of datesbetween sowing and ideal harvest time, ranging from 70–90 days, to 110–125 days. Itwas for these reasons that she said:[54] In my view, little assistance is to be gained from reference to averagesowing to harvest periods when these were not agreed, and when the date ofsowing was not known with certainty. Instead I placed weight on the evidenceof physical inspections of the crop, both shortly before and at the time ofharvest, and of the silage produced from the crop.9 Subject of course to any contributory negligence in the execution of the "mow rake lift" harvestingmethod.10 High Court judgment, above n 2, at [53].[23] Having identified her preferred approach Dunningham J turned to the evidenceabout the state of the crop at the time of harvest. In particular she noted that Mr Moate,who oversaw the planting and growth of the crop, gave evidence that it was most likelyon 7 February 2014 that he assessed the barley heads as being at 35 per cent DM andrecommended that it be harvested "the following week", namely the week beginningMonday, 10 February.11 But the crop was not harvested in that week. It was notdisputed that Mr Tony Hughes did not telephone Mr Lyall until Thursday, 20 February2014 with a view to him commencing the harvest on Monday 24 February. The datesof actual harvest — between 24 and 27 February — were therefore outside Mr Moate'srecommended time-frame.12[24] Although Mr Tony Hughes gave evidence that Mr Moate did not advise himuntil 20 February that the crop should be harvested within a week or ten days, theJudge preferred the evidence of Mr Moate. There is no basis upon which we could gobehind that credibility finding. It is relevant in that regard that Mr Moate's evidencederived further support from witnesses who observed the crop at the point of harvest.Thus:(a) Mr Charlie Mills, one of the contractors involved in rolling the stack,who said that he observed that the peas and barley were overripe, noting"yellowness and drying".(b) Mr Russell Sounness, one of the truck drivers contracted to transportthe cut crop to the silage stack, who also thought that the crop was over-mature because the peas were bitter to eat and some were white andhard.(c) Mr Lyall's account of the difficulties he experienced when using hiswhole crop front cutter, when the tough stems of the peas (in particular)11 Mr Moate was unsure whether he had inspected the crop on 7 or 9 February but thought that theearlier date more likely. Under cross-examination he said he told the Hughes at that time that thecrop was "about ready" and that it should be harvested within 15 days.12 All witnesses who commented on the issue agreed that there was a narrow window of harvestingopportunity, ranging from between 5–10 days to 7–14 days.wound around the auger, jamming it, and causing the driveshaft tobreak.(d) Mr Lyall's view that the difficulties he experienced were exactly whathe would expect from an over-mature pea crop was confirmed byMr Moate and by the Hughes' expert contracting witness, Mr Millar.Dr Gibbs also said that "mature, lignified and lodged stem material canbe difficult to mow and jams certain mowing machinery".(e) Mr O'Neill, who took the samples of the silage, also said that it was"obviously quite a mature crop" based on his observations of the sizeof the chopped stalks in the samples.[25] As well as the evidence that the crop was seen to be over-mature, the Judgealso referred to the expert evidence that it was likely to be over-mature.13 In particular,the results of tests done on the silage also provided support for the proposition that thecrop was over-mature when harvested. They showed a DM content ranging from 34.9per cent to 54.5 per cent over the six samples, but averaging 46.4 per cent, which allrelevant witnesses acknowledged was too high.14[26] By contrast, there were no witnesses with relevant expertise who said that thecrop was in good condition at the point of harvest.[27] Accordingly, even if we were to accept the Hughes' contention thatDunningham J's view that the likely planting date was "early November" and herreliance on that finding as supporting over-maturity were wrong, such an error wouldnot undermine her overall finding on the point. We consider that there was ampleevidence to support her conclusion that, on the balance of probabilities, the crop wasover-mature.13 High Court judgment, above n 2, at [50]–[63].14 The witnesses nonetheless differed on whether this reflected the fact the crop was over-mature atharvest or whether it could have been caused by the crop drying out between cutting and beingprocessed for silage.[28] There was no real challenge to that factual finding and we do not address itfurther.[29] In our view, therefore, no relevant error has been identified. It was for goodreason that the Judge preferred to place weight on what witnesses observed rather thantheoretical maturity periods running from a date of sowing that was disputed. Weconsider that her approach to the evidence was wholly unexceptional and cannot beimpugned on appeal.Did Mr Lyall discuss the "mow, rake, lift" method of harvest with the Hughes and didthey authorised its use?[30] Although aspects of the narrative relating to this issue were disputed, it is clearthat at some point on Monday 24 February, Mr Lyall's whole crop head broke down.We accept for present purposes Mr Lyall's telephone records, which suggest this wasmid-afternoon and that he was required to travel from Clutha Downs (east ofBalclutha) to Allanton (south of Dunedin) to obtain a replacement.[31] Mr Lyall's evidence was that he experienced the same difficulties with thereplacement machine and, fearing that it too would break, he needed to come up witha "work-around". This work around involved mowing the crop followed by the useof a mechanical rake to rake the mown crop into rows. The combined rows were thenlifted by Mr Lyall with his grass head so that it could be chopped and delivered into atruck.15 It is, of course, this raking that was the principal cause of the soilcontamination.[32] Mr Lyall's evidence was that he telephoned the Hughes who agreed to this"work around" on the Monday. While Tony Hughes acknowledged that Mr Lyall hadcalled him and said that he was having trouble getting the crop to travel through theauger because of the pea stalks, and to say that the borrowed front cutter was not goingto work, he denied the existence of any agreement to the work around. Rather, he saidthat he was simply told to mow the crop, and knew nothing about the rakingarrangements.15 Because Mr Lyall's rake was out of commission, Mark Bennett was engaged to do the raking.[33] Dunningham J found that it was improbable that the Hughes simply compliedwith a request to begin mowing the crop without having some wider discussion aboutthe wider alternative harvesting proposal. She was fortified in her view because:(a) Mr Moate had said that he "one hundred per cent" advised the Hughesthat the crop should be harvested with a front cutter harvester.(b) Although the telephone records were incomplete they showed that onthe Monday there were four calls between 8.30 am and 2.30 pm fromMr Lyall to Tony Hughes about harvest issues, making it unlikely thatthat he would not have discussed the work around with him.(c) Given that the harvest was already late, the Hughes would have knownit would be difficult to find an alternative contractor (who had accessto a front cutter) and had little choice but to agree to proceed with thefall-back option. Tony Hughes had acknowledged that "we needed toget the crop in, and I believed that just mowing it and picking it upwould have got it in".(d) The proposition that the Hughes were not actively involved in thisdecision was inconsistent with the level of decision-making and controlthey exercised over other aspects of the harvest process.[34] Again, we are unable to discern any error in the Judge's reasoning or analysis.But in any event, it seems to us to be largely irrelevant whether or not the Hughesexpressly agreed to the "mow, rake, lift" proposal. That is because on their ownpleadings they contracted with Mr Lyall for his harvesting knowledge and experienceexpertise. They did not plead that they contracted with him specifically to use a frontcutter and thus it is difficult to see why it was necessary to obtain their agreementbefore adopting a different harvesting methodology. They were in no position to arguewith what he recommended, under conditions of some urgency, and nor did they saythat they would have done so. The fact that they called evidence at trial which arguablysuggested that different approaches might have been preferable (discussed furtherbelow) does not alter the fact that they themselves had no expertise. And in any eventtheir subsequent participation in the mowing operation seems to be clear evidence ofacquiescence on their parts.[35] The principal, relevant, issue about the "mow, rake, lift" methodology istherefore the one which follows. The question is whether it was one which areasonable and competent person in Mr Lyall's position could have adopted.Was the "mow, rake, lift" method was appropriate/reasonable in the circumstances?[36] The Judge dealt with this issue quite briefly. She said:16I heard several witnesses give evidence that, while not the preferred method,the mow, rake and chop option is used on occasions to harvest whole crop.These included two of the contractors who appeared as witnesses, Mr Conijnand Mr Mills, but more importantly, this was acknowledged by Mr Millar, theplaintiff's expert contracting [sic] witness. I therefore do not consider theassertion that it was an "unacceptable" method of harvest was sustained on theevidence. While not the preferred method, I am satisfied that a reasonablycompetent silage contractor would propose that method and would use it inthe circumstances faced by the parties in this case, where there was a need toharvest the silage in a timely way and little prospect of getting an alternativecontractor at short notice. [37] The difficulty for the Hughes here is that, despite the fact that the expertslargely agreed that, in theory, the whole crop method would be best practice, there wassimply nothing in the evidence to suggest that option remained available toMr Hughes as a matter of fact. There was (for example) no evidence that there wereother contractors with whole crop head machines (or windrowers, as one witnesssuggested) who were available to help at short notice. And as the Judge noted, theHughes' own cropping expert accepted in cross-examination that while the direct cutmethod "would be the preferred way", he himself had harvested in the "work-around"way adopted by Mr Lyall and he would have done the same as Mr Lyall in thecircumstances.[38] In light of the practical exigencies with which he was faced, Mr Tobin'ssubmission that Mr Lyall had a duty "of care and competence" to advise the Hughesof their options "including engaging an alternative contractor, rather than applying anad hoc, experimental, 'work-around' method of harvest" has an air of unreality about16 High Court judgment, above n 2, at [73].it. No error in the judge's understanding of or approach to the evidence has beenidentified. We agree with her conclusions.Was over-maturity the root cause of the poor silage, rather than Mr Lyall's actions?[39] It follows inexorably from our conclusions above that we agree with the Judgethat crop over-maturity was the principal cause of all that followed. More particularly,it was the over-maturity that caused:(a) Mr Lyall's whole crop heads machine to break;(b) difficulties with the substitute machine;(c) the absence of time to find alternative harvesting methods or machinesor to locate alternative contractors;(d) the need to find a "work-around";(e) the adoption of the "mow, rake, lift" harvesting method; and(f) most (if not all) of the soil contamination in the silage.[40] There were, however, two decisions made by Mr Lyall which were criticisedas being independent or intervening causes of the soil contamination in their own right.The first was the decision to rake, rather than simply mow and lift. The second washis suggested failure to make any efforts to obtain a windrower, as an alternative meansof harvesting.[41] In relation to the decision to rake, the high point of the Hughes' case came inthe evidence given by Mr Watson, the director of a company specialising in makingbaleage and silage. In his evidence in chief, Mr Watson opined that the Hughes' cropwas "not harvested in an approved method". And when he was questioned about theharvesting alternatives that were reasonably open to Mr Lyall in the circumstances inwhich he found himself Mr Watson said:I would have very seriously considered putting the crop on the ground withthe mower and picking up straight out of the mower rows. At no point wouldI ever consider putting the rake into the paddock.[42] But as Mr Watson also made clear in his evidence he had not used the word"approved" in any formal sense. Rather, he meant that he would not, himself, rakesuch a crop. And importantly, it became clear under questioning that the reason forhis antipathy to raking was based on difficulties he himself had experienced whenusing that method in the past; it was not suggested either by or to him that his doingso had been negligent. When that fact is taken together with the evidence given by anumber of other witnesses that the "mow, rake, lift" was a harvesting method quitecommonly used in the industry, the Judge's rejection of the proposition thatMr Lyall's adoption of that method was in breach of a duty he owed the Hughes was,in our view, amply supported.[43] As far as the possibility of using a windrower is concerned there are two points.The first is that, even if it were established that a windrower might have been better,that does not mean that Mr Lyall's decision not to go down that route was not one thata reasonable or competent person might make. The second is that the only specificevidence on the point was to the effect that a Mr Bottings had a windrower that mighthave been available at short notice. That evidence was given short shrift by Mr Lyall.He said that he not know whether or not the Bottings had a windrower but that if theyhad, they (like a number of others) would not have been willing to work for theHughes. Even putting to one side the first and more fundamental point, that wasevidence that it was entirely open to Dunningham J to accept.[44] Lastly, we record that the Hughes also contended that the "work-around"harvesting method was the cause of part of the mown crop being left on the groundovernight on two separate nights (Tuesday and Wednesday). On the first occasioncrops were left on steep slopes, on which the trucks had been having difficulty.17 On thesecond, crops were left overnight because, late in the evening, Mr Lyall's machine hadpicked up a metal object and could not continue. These incidents were alleged to haveled to the crops wilting and a decrease in both moisture levels and plant sugars,rendering them unsuitable for silage.17 These crops were subsequently made into baleage rather than silage.[45] All we intend to say about that is that the Judge did not accept that those twoincidents had any material bearing on the quality of the silage. We do not intend torepeat her reasons here, which appear to us to be entirely sound.18 The point is, in anyevent, effectively moot in light of our agreement with the Judge that no issue can fairlybe taken with Mr Lyall's decision to adopt the "mow, rake, lift" methodology.Was the Hughes' mowing, in addition to the Mr Lyall's raking, partly responsible forthe soil contamination?[46] In light of the conclusions we have already reached this question is essentiallymoot. Accordingly, we merely record that, again, there was an ample evidentiary basisfor Dunningham J to conclude as she did. Put briefly, there was evidence whichpointed to the ground being disturbed by the mowing process. This included evidenceof:(a) a conversation in which Mr Wayne Hughes had said to both Mr Lyalland Mr Cross (the contractor who planted the crop and was presentwhen it was harvested) that he had generated so much dust while hewas mowing that he could not see where he was going; and(b) "scalping" and lack of "stubble" as a result of the mower blades beingset too close to the ground, and through that, collecting up any highpoints and clods;[47] Conversely, there was evidence that pointed against the raking beingresponsible (or largely responsible) for the soil contamination. Thus:(a) Mr Bennett himself gave evidence of being aware of the risk of stirringup soil, taking care to guard against that risk, and not seeing any soilraised as part of the raking process.(b) Mr Miller (one of the Hughes' expert witnesses) said that, in hisexperience, when rakes kick up dirt it is possible to see the arcs wherethey have hit the ground, and he saw no such marks on his inspection18 High Court judgment, above n 2, [97] and [99].here. He also said that the raking operator would be aware of the tineshitting the ground, not only because dust would be going everywherebut because he would hear the sound of this happening.[48] In any event, the Judge held only that mowing was responsible in a relativelysmall way for the soil inclusion. Thus, she substantially agreed with the Hughes thatthe raking was the major cause of soil inclusion.19 There is no reason to disturb thatfinding.Are the Hughes entitled to damages representing the value of the lost silage orreplacement costs?[49] Given our answers to the foregoing questions there is no need to address thisissue.Result[50] The appeal is dismissed.[51] The appellant must pay the first respondent costs for a standard appeal on aband A basis and usual disbursements.19 High Court judgment, above n 2, at [85].