Woolley v Fonterra Co-Operative Group Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeIsac J
Judgment Date08 October 2021
Neutral Citation[2021] NZHC 2690
Docket NumberCIV 2018-406-14

[2021] NZHC 2690

IN THE HIGH COURT OF NEW ZEALAND

BLENHEIM REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WAIHARAKEKE ROHE

Isac J

CIV 2018-406-14

Between
Philip John Woolley
Plaintiff
and
Fonterra Co-Operative Group Limited
Defendant
Appearances:

P A Morten and M A Robertson for Plaintiff

J Anderson QC, M D Branch and K F Shaw and for Defendant

Contract — claim for breach of a supply contract — the defendant suspended collection of milk from the plaintiff's farm after he had been served with an enforcement order from the Environment Court — overview of the law governing the exercise of contractual discretions — whether one party was justified in suspending performance of a contract in response to an allegation that the other party was acting unlawfully — internal limits of a contractual power — implied terms — incorporation of public law principles — use of Wednesbury unreasonableness as a control on contractual discretions

The issue was whether Fonterra was justified in suspending performance while W was in breach of the enforcement order.

The Court held that the default rule for controlling the exercise of contractual discretions provided that where a contract conferred a discretionary power on one party, that party must not exercise the discretion arbitrarily, capriciously or in bad faith, or unreasonably, in the sense that no reasonable contracting party could have so acted. The importation of Wednesbury unreasonableness, as well as concepts such as arbitrariness and capriciousness, set a high threshold for judicial intervention.

Braganza concerned an employment contract and so its applicability in other non-employment contexts was questionable. Braganza had charted a new approach to the review of contractual discretions, but as yet there had been no explicit endorsement in New Zealand of the approach, and it remained questionable whether Braganza could be applied in more commercial contexts.

The existence of a conflict of interest as the rationale for an extended Wednesbury process review of contractual decision making, or an imbalance of power, was not convincing. Contractual discretions commonly involved a conflict of interest on the part of the discretion holder. There were difficulties in importing a public law approach to an area that had limited connection to public law norms. Fonterra's power of suspension was already subject to contractual limitations controlling its exercise. The traditional elements of the default rule were sufficient to balance the risk of abuse of power with freedom of contract. Where the parties had agreed that one party should hold a discretionary power, implying the default rule could amount to simply re-writing the parties bargain. An approach focussed on the contract itself, a broad view of the purpose of the venture, and the uncertainty the contractual discretion was designed to manage ensures the Court was focussed on giving effect to the bargain the parties made. None of the alleged deficiencies or failings were sufficient to support a finding against Fonterra under either the narrow or the extended default rule The suspension decision was objectively correct. W remained in breach of the enforcement order. Fonterra had not exercised its discretion unreasonably. Its notice of suspension was properly issued and effective, and W's own conduct was a necessary pre condition of his claimed loss.

W's claim was dismissed.

JUDGMENT OF Isac J
TABLE OF CONTENTS

INTRODUCTION

[1]

Preliminaries

[7]

FACTUAL FINDINGS

[13]

Dairy industry context

[13]

The dairy farming season

[14]

Farm dairy effluent (FDE) management

[16]

Effluent irrigation

[23]

The Woolley dairy farms

[27]

The milk supply contract between Mr Woolley and Fonterra

[32]

The resource consents for Glenmae and construction of the effluent ponds — the certification saga begins

[41]

Environmental issues begin to emerge on the Woolley dairy farms: 2011–2013

[65]

Problems with effluent on Tuamarina

[67]

Effluent problems arise on Glenmae: 2012–2014

[90]

MDC applies for enforcement orders and Fonterra issues an EIP

[96]

The 4 April 2014 Environment Court decision

[104]

The enforcement order

[113]

4 April 2014 — 9 June 2014 — drop testing on pond 1 and the 9 June 2014 procedural order

[116]

Fonterra decides to suspend milk collection

[131]

Mr Talbot completes his drop test and reports — Mr Woolley engages Opus

[134]

Mr and Mrs Woolley move dairy cows onto Glenmae and begin milking them

[142]

Marlborough District Council threatens Fonterra with prosecution if it collects milk from Glenmae

[151]

Opus' 1 August 2014 reports

[159]

Opus' 5 September 2014 certification of the effluent system

[197]

Mr Woolley's and Fonterra's response to the 5 September engineer's certificate

[216]

Mr Woolley abandons certification and commissions a new weeping wall system

[237]

Mr Woolley appoints receivers — a new effluent system is designed and installed

[249]

The Environment Court's 10 July 2015 ruling

[267]

Mr and Mrs Woolley's subsequent conviction and sentencing

[276]

ANALYSIS

[282]

Mr Woolley's claim and the issues for determination

[282]

FIRST ISSUE: VALIDITY OF FONTERRA'S SUSPENSION NOTICE

[291]

Discussion

[300]

SECOND ISSUE: DID THE ENGINEER'S CERTIFICATE MEET THE TERMS OF THE ORDER?

[316]

Introduction

[316]

The status of the Environment Court decisions in this case

[320]

Was the Opus certificate sufficient to discharge the enforcement order?

[325]

Mr Woolley's case

[325]

Fonterra's case

[330]

Analysis — overview

[337]

Comparison of the certificate against the terms of the enforcement order

[339]

Order A(1): the effluent system has generally been installed and is functioning according to the design in the resource consent

[344]

Order A(2): the dimensions of the ponds given on the plans are correct and layout on the ground corresponds with the application for resource consent

[353]

Order A(3): the two ponds are functioning as holding ponds, ie they are impermeable and are not discharging to the ground and/or groundwater around or beneath the ponds

[360]

Order A(4): there are no holes in the ponds and walls

[364]

Order A(5): past weed infestation has not affected the ponds' impermeability

[367]

Contemporaneous documentary evidence indicates Opus believed the certificate might not be accepted by the Environment Court

[370]

Doubts revealed by the documentary evidence are confirmed in the evidence of Mr Woolley's engineers

[372]

Mr Woolley's conduct gives rise to an adverse inference

[373]

Mr Woolley's evidence supports this conclusion

[375]

Conclusion

[380]

THIRD ISSUE: EXERCISE OF THE DISCRETION

[382]

Overview

[382]

The parties' cases

[383]

Mr Woolley's argument

[383]

Fonterra's argument

[393]

The contract

[398]

Discussion

[405]

Legal principles

[411]

Overview of the law governing the exercise of contractual discretions

[411]

Braganza as a limited authority?

[427]

The debate

[443]

Drawing the strands together

[451]

Conclusion

[460]

Discussion

[462]

Regulatory context of the discretion — compliance with the law

[462]

The original suspension decision was objectively correct

[467]

Continuation of the suspension after 5 September 2014 was objectively correct

[469]

Illegal performance of the contract

[480]

FOURTH ISSUE: CAUSATION

[482]

Alternative ground

[492]

PERIPHERAL ISSUES

[494]

Mr Radich as Milk Commissioner

[495]

Hills Laboratories' test

[502]

Result

[512]

INTRODUCTION
1

This case concerns the exercise of a contractual discretion. In issue is whether one party was justified in suspending performance of a contract in response to an allegation that the other party was acting unlawfully.

2

At the centre of it all is a dairy farm called Glenmae, which is owned by the plaintiff, Mr Woolley. Over a period of years Mr Woolley found it difficult to comply with his obligations under the Resource Management Act 1991 when operating Glenmae and two other dairy farms. The local authority, the Marlborough District Council (MDC or Council in this judgment), successfully obtained enforcement orders from the Environment Court in relation to two of them. It also successfully prosecuted Mr Woolley for several offences against the RMA. In 2015 this resulted in an order of the Environment Court prohibiting Mr Woolley from involvement in the day-to-day management of a dairy farm for a period of ten years.

3

Mr Woolley had a supply contract with Fonterra, the defendant. By mid-2014 Glenmae was the subject of an enforcement order prohibiting the use of its dairy shed and effluent system until Mr Woolley obtained an engineer's certificate confirming the effluent system was functioning properly. As a result of the enforcement order, Fonterra suspended milk collection from Glenmae and served a notice to that effect on Mr Woolley.

4

In this proceeding Mr Woolley alleges Fonterra was in breach of the supply contract by refusing to collect milk from Glenmae in the 2014/15 season. Mr Woolley says that he complied with the terms of the enforcement order on 5 September 2014 when he obtained an engineer's certificate. He says that after that date Fonterra was not entitled to maintain its suspension of milk collection and that it exercised its contractual discretion to do so unreasonably. Mr Woolley further says that Fonterra's notice of suspension was invalid.

5

I have found that Mr Woolley's claim must fail for four reasons.

  • (a)...

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