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OHL Limited v Johns [2021] NZHC 77 (4 February 2021)

Last Updated: 28 May 2021

JUDGMENT OF MUIR J

This judgment was delivered by me on Thursday 4 February 2021 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:..............................

Counsel:

N S Gedye QC, Barrister, Auckland Nathan.gedye@xtra.co.nz

Solicitors:

Buddle Findlay, Auckland liam.edginton@buddlefindlay.com

R C Mark, Kerikeri rcmark@xtra.co.nz

OHL LIMITED v JOHNS [2021] NZHC 77 [4 February 2021]

TABLE OF CONTENTS

Introduction [1]

Background [5]

The issues [31]

The appropriate date for assessment of damages [32]

Introduction [32]
The law [33]
Discussion [36]
Conclusion - date of assessment [52]

Are loss of chance principles applicable? [53]

Quantification of OHL’s loss [56]
Introduction [56]
Application of onus of proof [59]
Omnia praesumuntur contra spoliatorem [64]
Noncompliance with the basis rule [75]

Assessment of the expert evidence [85]

Introduction [85]
High level indicators that the Clarke valuation is the more reliable [101]
The Pango inventory – the respective positions [106]

1. The Peria yields in comparison to Northland averages [111]
2. Poor soils [114]
3. Peria forest untended and lacking silviculture [117]
4. Peria was a poor growing forest [119]
5. High stocking variability [123]
6. High PLE in Pango inventory [127]
7. Inconsistency with PF Olsen mapping in 2003 – the missing five hectares of

trees [136]

8. Partial harvest of two stands by Pango (1/04 and 3/01) indicates that they

were uneconomic and should not have been included in the valuation. [140]

9. Raw data over-represents average diameter trees [145]

Summary valuation issues [148]

Roading and engineering costs [154]

Required distance of roads [156]
Metal costs and quantity [164]

Result [169]

Costs [171]

Introduction

• [1] This is a case about the quantum of loss resulting from breach by the trustees of the Peria Charitable Trust (the Trust) of an agreement granting forestry rights.¹ No issue as to liability arises.² The plaintiff (OHL) seeks judgment in the amount of

$755,602. It does so on the basis:

(a) that its loss is appropriately assessed, not at the date of breach (February 2017), but at the date it says the forest would otherwise have been sold (December 2018);

(b) it has an agreed 62 per cent interest in the forest; and

(c) of its December 2018 valuation of $1,218,714.00.

• [2] The defendant says that damages are appropriately assessed as at the date of breach (when timber prices were significantly lower than in December 2018) but, that if the latter date is adopted the value of the forest was $715,394.00 only. On that basis it says at most the damages award should be $443,544.00.

• [3] Despite the comparatively small sums involved and the multiplicity of valuation issues which the case raises, the parties were unable to reach an agreed outcome. The Court is therefore required to make a “reasonable assessment”³ of loss in turn involving the best available assessment of things which would or might have happened but for the defendant’s wrongful conduct.⁴

• [4] Agreement has however been possible in respect of one initially contentious issue – the size of the forest. OHL initially contended for 68 hectares and the defendant for 58.9 hectares. Subsequent to the trial but before final submissions, the parties

¹ I will hereafter refer to the Trust as the defendant.

2. Liability issues were largely disposed of on the plaintiff’s summary judgment application and were not further pursued by the defendant at trial. See OHL Ltd v Johns [2019] NZHC 594. Likewise, the defendant’s counterclaims were abandoned at trial.
3. Parabola Investments Ltd v Browallia Cal Ltd (formerly Union Cal Ltd) [2010] EWCA Civ 486, [2011] QB 477 at [24].

⁴ At [22].

agreed to a compromise figure of 63.5 hectares. This is reflected in their respective updated valuations referred to above.

Background

• [5] This section contains largely uncontentious facts. But where appropriate I also make relevant findings.

• [6] In 1996 the defendant granted a forestry right over land it owned in Northland to an entity identified as FNAJ/V No 2 Ltd (FNA). The forestry right provided for FNA to plant and manage a pinus radiata forest on the land, and for the proceeds of sale to be ultimately divided 68.8 per cent and 31.2 per cent, in favour of FNA.⁵

• [7] The forest (hereafter referred to as the Peria forest) was duly planted in six identified stands (1/01, 1/02, 1/03, 1/04, 2/01 and 3/01).

• [8] In 2002 FNA agreed to transfer its interests under the forestry right to Northland Forestry Investments Ltd (NFI). The relevant deed of transfer was not, however, signed until 23 November 2004. In the interim, Far North Forests Ltd (FNF) had purchased NFI’s assets. To give effect to that transaction, NFI transferred its rights under the agreement to FNF by deed dated 28 February 2005.

• [9] Contrary to the terms of the forestry right, the defendant’s consent was not originally sought for the transfer from NFI to FNF, but such consent was later given on the basis that the defendant’s interest in the forest increased from 31.2 to 38 per cent. FNF was simultaneously released from any ongoing silviculture requirements in respect of the forest. Otherwise, the covenants terms and conditions of the forestry right continued in full force.

• [10] On 31 March 2010 FNF amalgamated with five other companies to become OHL Ltd. The defendant was not advised of the amalgamation nor the fact that, as a result, OHL now held the forestry right. There was nothing that especially alerted it

⁵ OHL describes the agreement as a “joint venture”. I consider that appropriate.

to the fact, because OHL and FNF’s point of contact, Mr Kerry Finnigan, remained the same.

• [11] Over the succeeding years communication between the defendant and what it thought was FNF, but was in reality OHL, remained sparse.

• [12] In 2016 Mr Lloyd Johns, Trustee and Chairman of the Trust, approached Mr Finnigan with the suggestion that an inventory be obtained which could be used as the basis for any subsequent valuation. The defendant had in mind a possible sale of the forest. PF Olsen Ltd (PF Olsen) (well-known and respected consultants in the forestry industry) were initially engaged by the defendant to conduct the inventory, but were ultimately replaced by Pango Limited (Pango), whose managing director Mr Paul Alexander was on friendly terms with Mr Johns.⁶ Underscoring the low level of communication between the defendant and OHL, this change in provider was not communicated to Mr Finnigan. When subsequently asked to meet the cost of the Pango inventory as required by the forestry right, he responded “we expected it to be with PF Olsen and not an entity we are unsure has the capability or credentials”. Ultimately the defendant and OHL met the cost of the Pango inventory in equal shares.

• [13] By August 2016 the defendant’s interest in a sale of the forest had gained considerable momentum. That is because the Trustees had been offered an adjoining property (the “Ross” property) comprising approximately 250 hectares of which 230 were planted with pine. It saw acquisition of this property as in its long term strategic interests. In particular, following harvest of both the Peria and Ross forests, it saw a lucrative opportunity in establishing a manuka plantation across both properties (something Mr Johns described to Mr Finnigan on 5 January 2017 as providing returns from honey, oil and bee venom “too compelling to delay”). In order to fund the acquisition of the Ross property and realise this ambition, the defendant was required to extract value from the Peria forest. At a Special General Meeting of the defendant on 14 August 2016, a resolution was passed authorising Mr Johns to prepare a conditional contract to purchase the Ross property “using sale of Peria Trust pines and the [Ross] pines to a 3^rd party in exchange”.

6. Emails from Mr Alexander describe Mr Johns as “my good old mate” and “one of my best mates really”.

• [14] By September 2016 a conditional contract to purchase the Ross property had been signed and, unknown to OHL, Mr Johns had commenced negotiations with Summit Forests New Zealand Ltd (Summit)⁷ for it to purchase the trees on both the Peria and Ross properties. A confidentiality agreement was signed with Summit on 14 September 2016. Summit subsequently made a non-binding indicative offer of

$756,761.00 plus GST for the Ross trees and $175,526.00 plus GST for the Peria trees.

• [15] The process adopted by Mr Johns was far from orthodox. He did not obtain expert advice about the sale and in particular current and forecast log prices, nor advice about whether sale of the trees, at what was still a comparatively immature stage of development, was appropriate. He did not obtain a valuation. I conclude the principal objective was to achieve a relatively quick sale in order that the purchase of the Ross property could be made unconditional and the defendant’s ultimate vision of clearing both sites and establishing a manuka plantation could be realised.

• [16] Ultimately the transaction with Summit did not proceed. In an email dated 20 December 2016 Mr Johns was critical of what he described as “your existing and added conditions” and described Summit’s terms as “not commercially sensible”.

• [17] Two days later the defendant entered into a lump sum cutting rights agreement with Pango. Again, there was no open market or competitive process, nor communication with OHL about what was taking place. The price, $1.1 million plus GST, was not even apportioned between the Peria and Ross properties.⁸

• [18] Clause 3 of the Peria/Pango agreement provided that Pango had until Friday 3 February 2017 for its Board to ratify the agreement and to declare it unconditional. Clauses 3.5 and 3.6 in turn provided:

• 3.5 [The defendant] is to confirm an unconditional contract is in place to Purchase the freehold land of the property known as the Ross block as per attached plan and [the defendant] shall arrange for acquisition of the Ross land to be declared unconditional contemporaneously with this Pango Ltd agreement becoming unconditional on the 3^rd February 2017.

⁷ A company described by OHL as a “well-known lowballer”.

8. In his affidavit dated 5 December 2018, Mr Johns stated that $350,000 of the purchase price was attributable to the Peria forest, of which OHL’s 62 per cent share would have been $217,000.00. There is, however, nothing in the Peria/Pango contract supporting this attribution.
   • 3.6 [The defendant] is to confirm that they have secured the exclusive forestry rights on the existing Peria Trust lands on or before the 3^rd of February 2017.

• [19] Armed with the Pango conditional agreement, Mr Johns then set about acquisition of OHL’s interests under the forestry right. He phoned Mr Finnigan just before Christmas 2017 making an offer to buy OHL’s share for $100,000.00. He made no mention of the fact that he had already signed a conditional contract with Pango to sell both forests for $1.1 million. Indeed, he made no mention of an imminent intention to sell the Peria forest at all, let alone by means of what OHL described as a “closed and hurried sale lacking any proper process”.

• [20] Mr Johns then followed up this call with an email dated 5 January 2017 saying, “we need a decision from the guys⁹ about the trees”. He noted (accurately) that “We have entered into a commitment to buy the neighbouring farm which we declare unconditional on February 3^rd”. He continued:

There are 165 hectares of well-maintained trees on the block we are buying which we will harvest in a controlled programme. We would prefer to manage the harvesting of the Peria Trust holdings in concert.

However Kerry we have planned for extensive planting of the Manuka orchards which we will get underway in the 2017 planting season. Our preference will be to remove as many pines as possible in the interim (this season Q1) because once we plant the Manuka we will lose access to the pines.

Despite the fact that we would want to unlock any value there may be in the pines the benefit for us to begin our Manuka problem far outweighs any benefit from the pines. The returns and the cash flow model of our Manuka honey, oil and bee venom business are too compelling to delay.

We need a reply to our cash offer of $100,000.00 by the end of January or I am afraid we will be obliged to withdraw that offer. We are committed to our Manuka programme so we will then simply let the pines grow on and focus on our Manuka business. To avoid any doubt we will certainly not be felling any Manuka trees to provide access in the future.

• [21] I accept OHL’s submission that in terms of timing and content this letter was designed to apply maximum pressure on OHL to accept the $100,000.00 offer.

• [22] I accept also that the letter was misleading in a number of material respects. It failed to disclose that Peria had already signed a conditional contract for cutting rights

⁹ Messrs Hotchin and Watson, the individuals behind OHL.

over the property. It failed to disclose that, on Mr Johns’ own calculations,
$350,000.00 of the purchase price was attributable to the Peria trees with the result that the $100,000.00 offer was under half of that properly payable to OHL by reference to the conditional sale. Likewise it failed to disclose that Mr Johns had in fact been pursuing sales initiatives since September 2016 without marketing or expert advice.¹⁰ In response to the email, the following text exchange occurred between Mr Finnigan and Mr Johns later on 5 January.

Mr Finnigan: Have read your email and understand the position– we should know where we stand by end of Jan. Is $100k the best offer???

Mr Johns: That’s good Kerry. As a humble and growing trust we do have limited resources and our fiduciary responsibility to meet. A reasonable response would be considered but I’ll struggle at more than $10 – $20k. Cheers

Mr Finnigan: Ok thanks – leave with me

• [23] The next development occurred on 19 January 2017. Mr Johns met with the defendant’s solicitor, Mr Mark Patterson, about the Ross and Pango conditional contracts and the intended purchase of OHL’s rights under the 1996 agreement. During the course of the meeting Mr Patterson conducted a company search of FNF, being the company which Mr Johns believed still held the forestry right. Mr Patterson identified FNF as having been deregistered. He omitted to scroll forward to a subsequent Companies Office entry which showed its amalgamation with other companies to become OHL. He omitted therefore to advise Mr Johns that pursuant to ss 219 and 225 of the Companies Act 1993, OHL now held the forestry right.

• [24] Based on this fundamental misconception of the legal position, a plan was hatched to proceed with the Pango sale on a basis which deprived OHL of its interest. The tenor of the plan is disclosed in a letter of the same date from Mr Johns to Mr Patterson. Relevantly it provides:

¹⁰ In evidence Mr Johns said that he considered Mr Finnigan must have known he was selling the trees but I do not accept that. In an email from Mr Johns to Mr Finnigan dated 29 April 2016 (sent in the context of the defendant’s desire to obtain an inventory of the forest), Mr Johns did make a brief reference to Mr Alexander wanting to “discuss a deal/s they may have regarding the trees” and that “I have others who want to talk to me”. But, in the absence of intervening communication, I agree with counsel for OHL that this could not possibly have led to Mr Finnigan knowing, eight months later, that Mr Johns had already conditionally sold the trees.

Our meeting today may be providential in ways I would not have thought possible regarding the forestry right on the Peria Trust land. When you completed the company search and discovered [FNF] to be deregistered we were both excited at the potential. However, I don’t want to get ahead of myself but the document I attach was the last document that I can remember us all signing. We had signed an earlier deed of transfer from [FNA] to [NFI] Ltd on 22^nd August 2002.

... I will ask Kerry Finnigan to supply a copy to me of the last deed of transfer he has and hopefully it will be the one attached.

Should this turn out to be correct we should just charge ahead with our plans and if at any time in the future we are challenged it will be easy enough to say that we had wrongly presumed that [FNF] was a company representing the interests of Messrs Watson and Hotchin but it appears we were wrong in our assumption. What do you think?

• [25] The following day Mr Johns again wrote to Mr Patterson. He noted that the forestry agreement did not appear to contain any right to assign without notification but sought Mr Patterson’s confirmation. He asked “Do we inform Kerry Finnigan... acting for Hotchin and Watson as to the true status. What is our legal obligation here?” He then continued:

4. I have made an offer in December to them of $100,000.00 but they have neither accepted nor countered our offer (not withstanding a text where [Mr Finnigan] asked if there was some room for movement). I could simply send an email saying that we withdraw the offer without explanation which is our right.

5. My preference is to say or do nothing more and proceed with our planned arrangement with Pango (assuming the legal advice permits and we can give Pango comfort on the situation). I think if we communicate there is always the possibility that they may enter into proceedings against us under some pretext which we could do without but I may just be paranoid.

• [26] Mr Patterson replied that he would get back to Mr Johns about the assignment point but counselled him to withdraw his offer to Mr Finnigan in the interim. Mr Johns did so eight minutes later. He did not cc that email to Mr Patterson “in case we raised any red flags”.

• [27] Mr Patterson’s formal advice was given on 23 January 2017. He said that “Being deregistered, [FNF] no longer exists and cannot logically contract with a third party – an analogy with a deceased person entering into a contract – it cannot happen”.

Mr Johns then asked him to “prepare a statement confirming our status as unfettered owners of the trees...”.¹¹

• [28] Without any further communication with Mr Finnigan the defendant then made the Ross property contract unconditional and finalised the Pango sale.

• [29] Approximately six months later Pango commenced felling operations for both the Ross and Peria forests, ultimately removing all trees on the Peria property except some of those in stands 1/04 and 3/01. All of this occurred without Mr Finnigan’s knowledge. Indeed it was not until October of the following year when OHL was negotiating with Colliers International (Colliers) to market another Northland forestry block in which OHL had an interest, and suggested to Colliers that it may be appropriate to contemplate a parallel sale of the Peria forest, that OHL received the understandably alarming advice that the Peria forest had been felled. Proceedings were soon issued.

• [30] No separate inventory of the timber recovered from the Ross and Peria forests was kept by Pango. Had it been, most of the matters in dispute between the parties would have been capable of decisive proof. In particular the defendant’s claim that the Pango inventory materially overstated the total recoverable volume (TRV) of wood in the Peria forest, could have been tested against reality. As it is, however, OHL must endeavour to establish the quantum of its loss based on the Pango inventory, which although commissioned by the defendant, is now attacked by it.

The issues

• [31] The issues appear to be:

(a) What is the appropriate date for the assessment of damages?¹²

(b) Are loss of chance principles applicable?

11. Despite request, OHL was not provided with a copy of such statement in discovery, if it ever existed.
12. This issue is highly relevant because of increasing wood prices between the date of breach (February 2017) and the date on which OHL says its loss should be assessed (December 2018).

(c) To what extent should the damages calculation be based on the Pango inventory, if it should not, what discount should be applied?

(d) Does the defendant’s valuer correctly capture in his valuation all of the infrastructure development costs necessarily reflected in a willing seller/willing buyer transaction?

The appropriate date for assessment of damages

Introduction

• [32] The defendant argues that loss should be assessed as at the date of breach – February 2017. OHL says the assessment should be made as at December 2018 at which point the forest would otherwise have been sold. Because of rising log prices over the intervening period, choice of relevant date carries significant financial implications. On the evidence of OHL’s valuer, Mr Andrew Clarke, the difference is between 42 and 77 per cent.¹³ Mr Neil Manners, who gave evidence for the defendant, postulates a 237 per cent difference.¹⁴

The law

• [33] Generally the approach is for assessment of damages to be made at the time of breach. However, this rule is not fixed. As Richardson J noted in Stirling v Poulgrain:¹⁵

It yields to the Court's power in the interests of justice to fix such other date as may be appropriate in all the circumstances.

• [34] Relaxation of the general rule typically occurs when fixing another date is required to achieve the objective of contractual damages – that is to place the injured party in the position it would have been in if the contract had been performed.¹⁶

13. Mr Clark assesses the value as at December 2018 at $1,218,713.00. As at February 2017 he assesses the value as between $685,000.00 and $855,000.00.

¹⁴ His February 2017 valuation is $211,852.00 and his December 2018 valuation $715,394.00.

¹⁵ Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 424.

¹⁶ See New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC) at 466.

• [35] The Court can and will take into account subsequent events if those events show what loss the plaintiff has actually suffered and if that allows the Court to make a more accurate assessment of damages.¹⁷ In particular:

(a) A later date can be chosen if an asset subsequently increases (or decreases) in value.¹⁸

(b) If the passage of time better elucidates events that were likely to happen, these events can be taken into account. As Lord Sumption noted in Bunge SA v Nidera BV:¹⁹

There is no principled reason why, in order to determine the value of the contractual performance which has been lost by the repudiation, one should not consider what would have happened if the repudiation had not occurred. On the contrary, this seems to be fundamental to any assessment of damages designed to compensate the injured party for the consequences of the breach.

(c) If the innocent party, acting reasonably, only discovers the breach sometime after it had been committed, damages can be assessed from the date of discovery, cancellation, or some later date.²⁰

Discussion

• [36] I am satisfied that a departure from the usual rule is necessary to give full effect to the compensatory principle. A number of considerations inform that conclusion:

(a) OHL held a majority interest under the forestry rights agreement and by a considerable margin. The circumstances in which it came to be deprived of that interest were, I conclude, far from transparent, indeed

¹⁷ Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] UKLawRpAC 46; [1903] AC 426 (HL) at 431.

¹⁸ Cohen v Thomson HC Christchurch CP45/95, 26 September 1996, as per Master Venning as he then was; New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC).

¹⁹ Bunge SA v Nidera BV [2015] UKSC 43, [2015] 3 All ER 1082 at [23].

²⁰ New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462 (HC). In the present case, and as a result of the defendant’s concealment of the forest’s sale, the breach was only discovered by OHL on 10 October 2018. On 12 October 2018 its solicitors wrote to the Trustees advising that the defendant’s “purported disposition was carried out in flagrant breach of OHL’s rights and that OHL is now preparing proceedings against the trustees which will claim damages and costs”. Proceedings were issued on 23 October 2018.

deceptive at multiple levels. Mr Johns entered into conditional agreements to purchase the Ross property and to sell the Peria forest without advising OHL. In turn he did so without obtaining marketing or sales advice, without an independent valuation and without exposing the property to a competitive sales process. The reason for doing so – to accelerate the transition from a pine forest to an alternative land use considered more profitable – was exclusively for the benefit of the minority party. Without disclosing the sale, he then made an offer to purchase OHL’s interest. The offer was less than half of OHL’s proportionate entitlement under the undisclosed contract. That offer was then withdrawn on the basis of incomplete and unsatisfactory legal advice. The sales contract was then finalised, the purchase price paid and then applied to acquisition of the Ross property, all without any advice to the party holding the majority interest in the forest. OHL was unaware of what had occurred until approximately 18 months later and discovered the breach almost by accident. OHL describes the conduct as “clandestine, deceptive and harmful”. I consider that an accurate description. Assessing the date of loss as at February 2017 would effectively give the defendant the benefit of its inappropriate conduct.

(b) The asset was growing trees which the expert evidence predictably confirmed would increase in volume and improve in terms of grade mix with the passage of time. The result being that the forest increased in value year by year subject to the market price of logs. There was no rush to sell the asset. The OHL forestry right did not expire until 31 March 2035. The unique nature of the asset meant that there was, as Mr Clarke noted, only one opportunity to sell it and to maximise the return. By disposing of the forest in February 2017 the defendant deprived OHL of its right to sell at the optimum time.

(c) February 2017 was demonstrably not a good time to sell the forest. The evidence of OHL’s expert, Mr Bullen, was to the effect that his company, PF Olsen, was advising Northland clients to withhold potential sales on account of depressed log prices.

(d) Due to the defendant’s concealment of the breach, it was only discovered in October 2018.

• [37] Significantly, and as the United Kingdom Supreme Court confirmed in Bunge SA v Nidera BV,²¹ the Court is entitled to consider what would have happened if the defendant’s repudiation of the forestry right had not occurred. In this respect there was powerful empirical evidence that OHL, as majority partner, would have sought to sell the Peria forest at or about the end of 2018. Mr Finnigan’s evidence was that he had been actively watching market conditions which had steadily improved through the latter part of 2017 and 2018. I accept that evidence. It is the reason why, in the latter part of 2018, he sought to liquidate OHL’s other Northland forestry interest (a forest known as Broadpine). Colliers’ submission in that respect confirmed his assessment of the market. It stated:

NOW IS AN EXCELLENT TIME TO SELL

The macroeconomic conditions for New Zealand forestry assets are very favourable, with significant offshore capital chasing few openly marketed forests leading to favourable price ranges.

• [38] It was logical, given that advice, that Mr Finnigan would want to capitalise on the same conditions for realisation of the Peria forest. Predictably therefore, he raised with Colliers the prospect of a broadly parallel sales process – only to be told on 10 October 2018 that the Peria forest had in fact been felled. Had it not been, then I accept a sales process would have likewise been initiated for the Peria forest at or about that time. Indeed OHL is in my view correct in saying that it is difficult to envisage what better evidence there could have been of this occurring.

• [39] In endeavouring to persuade me that the time of assessment of damages should nevertheless remain February 2017, Mr Mark makes a number of points. I address each of these in turn.

• [40] First, he says that the December 2018 date is one selected with hindsight to coincide with the optimal log prices. I do not accept the criticism. To the contrary, I accept OHL’s expert evidence that selection of a sale date for forestry assets is one that

²¹ Bunge SA v Nidera BV [2015] UKSC 43, [2015] 3 All ER 1082.

typically receives the careful attention of owners with specific regard to log prices, bearing in mind that they have one opportunity only to maximise a return on an asset that has grown for 20 plus years. I agree with OHL that it is unsurprising in that context that it would have thought to sell the Peria Forest when log prices were at their best – a logical result flowing from the nature of the asset being sold.

• [41] Secondly, he says that there is no evidence of steps being taken to initiate a sales process before October 2018. That is correct but Mr Finnigan also confirmed in evidence that the discussions about Broadpine brought into play Peria, which is why he raised the issue with Colliers at that time. I accept his evidence that, based on his own inquiries about log prices and having had confirmation from Colliers about the state of the market in the latter part of 2018, he would have likewise sought to have initiated a sales process for the Peria forest at that time.

• [42] I accept that the Colliers proposal for Broadpine contemplated a five month sales process commencing in October 2018 and concluding with a mid-March 2019 fixed sale date and that the sale of the Peria forest would have tracked behind this timetable. That is consistent with Mr Finnigan’s evidence that he was not seeking to sell the two forests together but that he saw Peria as possibly a good default purchase for buyers who missed out on Broadpine.

• [43] Mr Gedye QC also accepted that before the Peria forest was sold, at least a valuation, and possibly also an inventory, would have to be obtained. Mr Finnigan and Mr Bullen both acknowledged that a period of six to eight weeks would be necessary to achieve this.

• [44] In the result, whereas the Colliers’ proposal for Broadpine contemplated preliminary work in October 2018 and a campaign launch on 19 November 2018, a campaign launch for the Peria forest was probably not possible until the latter part of December and, given the intervention of the holiday break, was in fact likely to have been delayed to around 20 January 2019. Again, using Colliers’ indicative sale timeline for Broadpine, that would tend to indicate a deadline sale date for Peria of around mid-May 2019 rather than the December 2018 date advanced by OHL for damages assessment purposes. However:

(a) Broadpine sold in December 2018, three months prior to the deadline sale date identified in the timeline, which confirms just how buoyant the market was at the time with significant offshore interest. Despite Mr Mark’s submissions that the Peria forest would be unlikely to appeal to purchasers who originally showed interest in Broadpine because of the difference in size, maturity and silviculture, a “soft” marketing approach, to parties who missed out on the purchase, could, in my view, well have elicited a sale of the Peria forest in the first quarter of 2019.

(b) In any event, log prices were stable through to the beginning of July 2019, when a significant drop occurred.²²

(c) On the balance of probabilities, I consider it established that the Peria forest would have been disposed of before this price decline.

• [45] In any event, OHL was not compelled, by commercial circumstances or otherwise, to dispose of the forest on a depressed market. It is in my view inevitable that, if the sale had not been concluded by July 2019, it would have simply elected to retain the asset until conditions recovered. Mr Clarke (again predictably) deposed that that is the usual course of forest owners. As a 62 per cent stake holder in the venture, OHL’s wishes in this respect would, in my view, inevitably have prevailed.

• [46] Next Mr Mark argues that under cl 8.3 of the forestry right, OHL was obliged to give the defendant six months’ notice of any intended sale and that this would inevitably have driven the process substantially beyond December 2018.

• [47] I am unpersuaded by this submission. Clause 8.3 occurs in a section of the forestry right relating to OHL’s obligations. It provides:

8. HARVESTING

• 8.1 Carry out the harvesting of any trees on the Woodlot in accordance with the good forestry practice and in accordance with the provisions of the Resource Management Act 1991.

²² Neither expert gave evidence of any material change through to that point.

• 8.2 In harvesting the trees on the Woodlot the Grantee will, or will cause any purchaser of the trees if the trees are sold as standing timber, to clear all standing timber, remove all forest produce, and leave all/and other debris clear of all landings and water tables within the boundaries of the Woodlots so that as and when each part of the Woodlot is clear felled that part is left in a clean and tidy condition suitable for replanting in trees with all debris left within the outside row of stumps.

• 8.3 To manage the harvesting and sale of trees from the Woodlot by:

(i) Giving six months notice to the Grantor of any harvesting and sale proposal.

(ii) Arranging for an independent valuation of the trees by a registered forestry consultant before harvesting any trees in the forest area. Such valuation to be used as a guide in determining a mutually agreed sale of the trees.

(iii) Apportioning the value in dollars per cubic metre of the trees to be harvested over the ensuing months between the Grantor and the Grantee in the ratio set out in Clause 9 hereof.

(iv) To measure the volume of timber harvested in cubic metres and to make these records available for audit on a monthly basis.

(v) To arrange for the proceeds received from the harvesting of the tree crop to be paid into an independent solicitors trust account and to be disbursed from that account in the ratio set out in Clause 9 hereof on the 10^th and 20^th days of each month.

• [48] OHL argues that the requirements of six months’ notice relates only to a proposal for harvesting and sale of the trees not for a sale as standing timber. It relies particularly on the conjunctive “and” in the cl 8.3 reference to “any harvesting and sale proposal”. Reading the clause as a whole I consider that an unrealistic interpretation. Clause 8.2 in particular indicates that the term “harvesting” was intended to cover situations not only where the partnership itself chose to fell the trees and to sell the resulting timber but a sale of standing timber also.

• [49] However, I consider OHL correct in submitting that the defendant would have very probably, indeed in my view almost inevitably, waived any six month requirement in respect of any proposed sale in October 2018. It had an overriding objective to clear the property as quickly as possible to commence its manuka and honey operation, the rewards for which it considered were substantial. On the assumption that the forest had not been felled at that time and in light of Colliers’

advice that the latter part of 2018 was an excellent time to sell with high market demand for standing forests from offshore interests, the defendant would, in my view, have been as keen to move as quickly as OHL. There is no credible reason why it would have insisted on a six month pause. None was suggested by the defendant in evidence.

• [50] Next the defendant says that cl 8.3(2) required that OHL arrange an independent valuation of the trees which would have inevitably delayed the process. I agree that such a valuation would have been required. As indicated, Mr Gedye does not demur. However, in my view that could all have been comfortably achieved in sufficient time to see a sale concluded before any material decline in log prices.

• [51] Finally the defendant argues that there is no evidence that a buyer would have been found. OHL was not required to identify a specific purchaser. The purpose of expert valuation evidence is to establish a market price. It assumes the existence of a willing purchaser at that price and at the relevant time. In any event, the circumstances surrounding the sale of the Broadpine forest demonstrate that the market was very active. Again, the defendant adduced no evidence to the contrary.

Conclusion - date of assessment

• [52] In my view adherence to the usual rule that damages be assessed at the date of breach would not, in this case, give full effect to the compensatory principle. It would in my view be unjust effectively to impose on OHL a notional sale at a sub-optimal value which it would not have agreed to at the time. It would lock OHL into a date when prices were low and thus when a rational and reasonable investor wanting a proper return on long-term assets would never have agreed to sell. The overall unfairness of the tactics adopted by the defendant and OHL’s ignorance of the defendant’s repudiation until October 2018 confirm me in that belief. I accept that a sale in the first half of 2019 was more likely than a sale as at December 2018 but there is no evidence of any material decline in December values over the intervening period. Nevertheless, for interest purposes I intend to adopt a notional sale date of 15 May 2019 and not 31 December 2018 as contended for by OHL.

Are loss of chance principles applicable?

• [53] Mr Mark submits that damages should be approached on the basis that OHL lost no more than a chance of effecting a sale at or about December 2018. He says that that chance was small because of the various contingencies I have already touched on – the requirement to obtain a valuation, the likely need for an inventory, and the delays associated with initiation of the sales process, identification of potential purchasers and completion of negotiations. He says that a December 2018 sale required positive interest from an unknown buyer and a successful outcome from a sales process that had not been commenced, and that these factors reduce the probability of the sale having occurred.

• [54] I do not consider this to be a loss of chance case as that concept is properly understood. Loss of chance principles only apply where the occurrence of the loss is uncertain, not where uncertainties arise in the context of quantification. The position is succinctly stated in McGregor on Damages:²³

Contingencies and chances have to be taken into account as much in quantification cases as in pure loss of a chance cases but cases where the consideration of lost chances and lost opportunities comes in only at the quantification level and which therefore have nothing to do with causation are not cases of loss of a chance proper.

• [55] Here there is no uncertainty about whether a loss would have occurred at all. The defendant and OHL were definitely going to sell (or harvest and sell) the forest at some stage. I agree with OHL that this was the whole point of the investment and no uncertainty attaches to the outcome. Upon breach OHL was inevitably going to suffer loss. This does not mean to say that when it comes to quantification of loss chances are irrelevant. As McGregor on Damages states²⁴ they are in fact “all-important; an assessment of damages is entitled, indeed is required, to take into account all manner of risks and possibilities”. This was essentially Mr Mark’s fallback position. I accept it. But, as indicated in the previous section of this judgment, there is, in my view, nothing in the various contingencies identified by him which would preclude an

23. James Edelman, Simon Colton and Jason NZ Varuhas McGregor on Damages (20th ed, Sweet & Maxwell, United Kingdom 2018) at [10-049].

²⁴ At [10-046].

assessment of damages based on the elevated log prices which applied during the latter part of 2018 and through to July 2019.

Quantification of OHL’s loss

Introduction

• [56] The defendant argues that the TRV of wood predicated in the Pango 2016 Inventory should be reduced by 20 per cent.²⁵ It says that the size and density of the Peria trees justifies such a reduction and in addition identifies various alleged uncertainties in Pango’s statistical plotting process. Although it accepts that some such uncertainties are inevitable in any randomised process, it says that, measured against various benchmarks, the TRV has been overstated.

• [57] OHL says that the Court does not need to address and resolve every valuation matter raised by the defendant to a high level of detail. It says that there are three reasons for this which I intend to discuss before undertaking my assessment of the evidence. These are the:

(a) requirement that onus of proof should be satisfied in a broad and pragmatic way;

(b) application of the principle omnia praesumuntur contra spoliatorem; and

(c) noncompliance by the defendant’s expert Mr Manners with the basis rule.

• [58] Broadly I am in agreement with the submission OHL makes in respect of these three matters.

25. Originally the defendant’s valuation expert Mr Manners contended for a 21 per cent reduction, but a further small adjustment was made subsequent to the hearing and before final submissions.

Application of onus of proof

• [59] In any civil case the Court has substantial scope to assess damages in a fair and realistic way. When claiming damages the plaintiff must prove the difference between the position he/she is in (the breach position) and the position he/she would have been in but for the breach (the non-breach position). The breach position is a question of actual fact, which the claimant has the burden of proving on the balance of probabilities. However, the non-breach position is by its nature hypothetical. As indicated by the English Court of Appeal in Parabola Investments Ltd v Browallia Cal Ltd (formerly Union Cal Ltd):²⁶

... the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account.

• [60] To this end OHL says, and I agree, that proof of the non-breach position involves a counter-factual which is necessarily more uncertain than the breach position. In this case it involves the best available assessment of things which would or might have happened but for the defendant’s wrongful conduct.²⁷

• [61] The character of the acts which produced the damage and the circumstances under which these acts are done will often regulate the degree of certainty and particularity with which the damage ought to be proved. As the English Court of Appeal indicated in Ratcliffe v Evans:²⁸

As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry.

• [62] In Carr v Gallaway Cook Allan²⁹ Thomas J summarised the position as follows citing McGregor on Damages:

²⁶ Parabola Investments Ltd v Browallia Cal Ltd [2010] EWCA Civ 486, [2011] QB 477 (CA) at 23.

²⁷ At 22.

²⁸ Ratcliffe v Evans [1892] UKLawRpKQB 131; [1892] 2 QB 524 (CA) at 532-533.

²⁹ Carr v Gallaway Cook Allan [2016] NZHC 2065 at [713].

[713] It is for the plaintiffs to prove the claim on the balance of probabilities. McGregor on Damages states that where it is clear that a substantial loss has occurred, the fact that assessment is difficult because of the nature of the loss is no reason for awarding no damages or nominal damages. The standard of proof of loss is “seldom” certainty, and even adopting a reasonable certainty standard “the word reasonable is really the controlling one, and the standard of proof only demands evidence from which the existence of damage can be reasonably inferred and which provides adequate data for calculating its amount”.

(citations omitted)

• [63] I respectfully adopt that approach.

Omnia praesumuntur contra spoliatorem

• [64] In terms of this maxim all things are assumed against the interests of a spoliator.

• [65] OHL says the maxim applies because, as a result of the defendant’s breach of contract, it caused the trees to be harvested long before OHL had knowledge of the breach. This prevented OHL from ascertaining and securing necessary information, especially in relation to the TRV actually produced by the Peria forest. It says that the position was made worse by the fact that Pango felled both the Peria and Ross forests together without keeping separate records in respect of the timber recovered from each. It says that while application of the maxim does not displace the burden of proof, it operates to actively tip the scales in favour of OHL resulting in a more “benign” attitude to the evidence if required.

• [66] The maxim is of long-standing. It can be traced back to and even beyond the classic case of Armory v Delamirie in 1722,³⁰ in which a chimney sweep’s boy found a ring with a jewel and took it to be valued. The jewel was subsequently removed from the ring. Proof of the value of the jewel was therefore impossible. The Court directed the jury to award the highest possible value of the jewel that the ring was capable of holding. The case is authority for the proposition that, if evidence is destroyed in the course of conversion of a good or breach of contract or withheld in the proceeding, the defendant can be subject to an evidential presumption that the asset

³⁰ Armory v Delamirie [1722] EWHC J94, (1722) 1 Strange 505.

in question was of the highest possible quality, assuming insoluble doubt about two possible assessments of its value.³¹

• [67] In the more recent decision of Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama), Straughton J described the principle underlying the maxim as follows:³²

... if the wrongdoer has destroyed or impaired the evidence by which the innocent party could show how much he has lost, the wrongdoer must suffer from the resulting uncertainty.

• [68] OHL submits that the present case has strong analogies with Indian Oil. In that case the owners of a vessel which was chartered to transport a quantity of Russian crude oil (which was the property of the Receivers), mixed that oil with crude oil which was their own property and already on board the vessel. The mixture of oils could not be separated for practical purposes and the vessel’s owners claimed delivery of all of the oil when the vessel discharged her cargo at an Indian port. The Receivers in turn claimed entitlement to delivery of the whole of the complement of oil on board the vessel. They were successful in doing so.

• [69] OHL says that, by analogy, logs harvested from the Ross and Peria forests were mixed together with the result that it is now impossible to say, by reference to contemporaneous records, precisely what quantity of timber was actually extracted from the Peria site. OHL says that Mr Johns was well aware before the Pango contract became unconditional that the defendant may face a future challenge by FNF/OHL, as indicated in his email to Mr Patterson of 19 January 2017. It submits that such a challenge was inherent in the clandestine course that Mr Johns chose to pursue and that, in this context, the very least the defendant should have done was to ensure proper records were kept of the harvest generally and the TRV in particular. It says Mr Johns could have either specified for this in the Pango contract or could have prevailed on his “good mate” Mr Alexander to provide the information informally at the time of the harvest. OHL submits that the maxim is particularly important in a case such as this, where the defendant contends for a substantial discount on the Pango inventory figures

³¹ See commentary in Seager v Copydex Ltd (No 2) [1969] 1 WLR 809 (CA) at 815.

³² Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1998] QB 345 at 369.

based on the uncertainties which necessarily arise from the absence of evidence about the characteristics and volume of the trees actually harvested.

• [70] The defendant submits that the principle is not applicable because it is limited to cases of deliberate destruction or concealment of evidence which it says (and I agree) has not been established here. I do not accept that submission. As confirmed in Gulati v MGN Ltd (No 2)³³ the spoliatorem principle is applicable to a wide range of circumstances. It was not designed to be punitive. It is simply a principle relating to how the Court should assess evidence and find facts. There is no suggestion for example, that in Indian Oil³⁴ the factors which led to application of the principle turned on any intentional act by the vessel owners to appropriate the Receivers’ oil, and the case cites other authorities of a similar nature.

• [71] Next Mr Mark submits that because there is some evidence supporting OHL’s assessment of loss – in the form of the Pango inventory – there is not the evidential vacuum or “insoluble doubt” to animate the principle.

• [72] I do not consider the principle so limited. As Longmore LJ put it in Keefe v Isle of Man Steam Packet Company Ltd,³⁵ it derives ultimately from the fact that:

... a defendant who has, in breach of duty, made it difficult or impossible for a claimant to adduce relevant evidence must run the risk of adverse factual findings.

• [73] There is no doubt that in this case, and as a result of the trees having been harvested without any contemporaneous records as to volume, OHL’s claim has been made more difficult and the opportunity for attacks on its calculations expanded. That is the very context in which, in my opinion, the principle is designed to apply. Having “impaired” the evidence by its actions the defendant “must suffer from the resulting uncertainty”.³⁶

33. Gulati v MGN Ltd (No 2) [2015] EWHC 1482 (Ch) at [87], upheld on appeal in Gulati v MGN Ltd (No 2) [2015] EWCA Civ 1291 at [107].
34. Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345, [1987] 3 WLR 869.

³⁵ Keefe v Isle of Man Steam Packet Company Ltd [2010] EWCA Civ 683 at [19].

36. Indian Oil Corporation Ltd v Greenstone Shipping SA (Panama) [1988] QB 345, [1987] 3 WLR 869 at 369.

• [74] As indicated, Mr Gedye does not contend for displacement of burden of proof as a function of the principle’s application. Rather he says that OHL should not suffer the consequences of any uncertainty with which the Court might ultimately be left after undertaking its assessment of the respective experts. In that sense he contends for the “benign” approach to the plaintiff’s evidence previously referred to. I accept this is an appropriate application of the principle to the present case. It follows from the simple premise that a party who has made it more difficult to adduce relevant evidence must run the associated risk.³⁷ As Legatt J held in Yam Seng Pte Ltd v International Trade Corporation Ltd:³⁸

... it is fair to resolve uncertainties about what would have happened but for the defendant’s wrongdoing by making reasonable assumptions which err if anything on the side of generosity to the claimant where it is the defendant’s wrongdoing which has created those uncertainties.

Noncompliance with the basis rule

• [75] OHL submits that Mr Manners’ evidence fails in a number of significant respects to comply with the so called “basis rule”. It says that, “at the least his evidence lacks weight, and the Court may in fact find in some respects inadmissible, as it is not substantially helpful”.

• [76] The basis rule provides that primary and underlying facts relied upon by an expert and which form the basis of his or her opinion must be disclosed and separately proven as well as the reasoning leading to the conclusion.³⁹ Compliance with the rule is fundamental to any ability on the part of the opposing party to test and check an expert’s claims. The expert’s duty is to furnish the Judge with all necessary facts and scientific criteria required for testing the accuracy of the expert’s conclusion so the Judge can form his or her own independent judgment.⁴⁰ The bare “ipse dixit” or

37. The Armory principle also allows generous assumptions when necessitating the hypothetical non- breach position.
38. Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 QB, [2013] 1 Lloyd’s Rep 526 at [188].
39. Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750 at [93]- [102].

⁴⁰ Mathew Downs (ed) Cross on Evidence (looseleaf ed, LexisNexis) at [EVA25.9]

unproven statement of an expert will normally carry little weight for the reason it cannot be tested by cross-examination or independently appraised.⁴¹

• [77] The rule has three separate limbs:

(a) The assumption identification rule; the expert must disclose the facts and assumptions on which the expert’s opinion is founded.

(b) The proof of assumption rule; the facts and assumptions on which the expert’s opinion is founded must be proved.

(c) The statement or reasoning rule; the expert must explain his or her reasoning to show how the facts and assumptions relate to the opinion.

• [78] Having clearly identified the factual assumptions on which the opinion is based the expert must, in chief, explain the basis and reasoning by which his or her opinion is arrived at, flowing from the facts proved or assumed. The importance of this lies in the entitlement of opposing counsel to test the factual assumptions and reasoning on cross-examination. It enables the cross-examiner to go “straight to the heart of any difference between the parties without the delay of preliminary reconnoitring”.⁴² The expert must also establish the reliability of his or her methodology by demonstrating that it is “orthodox or otherwise accepted within a relevant community of experts”.⁴³

• [79] All of these rules are reflected in the Code of Conduct for expert witnesses and are implicit in the Evidence Act 2006.

• [80] The evidence given by OHL’s valuer, Mr Clarke, undoubtedly complies with the basis rule. The basis of his valuation is clearly identified as the Pango inventory. This in turn was based on industry standard software, known as YT Gen. This software derives TRV and log grade per hectare using measurement data derived from

⁴¹ Dasreef Pty Ltd v Hawchar [2011] HCA 21, (2011) 243 CLR 588 at [93], citing Davie v Magistrates of Edinburgh 1953 SC 34 (Ct of Sess). See also Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750 at [101].

⁴² Dasreef Pty Ltd v Hawchar [2011] HCA 21, (2011) 243 CLR 588 at [93].

⁴³ Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750 at [102].

statistically random plots located throughout a forest. The random plots are chosen using ‘GIS’ software which provides a map of the forest and distributes plots randomly across it using a digital grid, identifying GPS locations for where samples are to be taken. In the present case the random plots were established by Forest Inventories 2000 Ltd (FIL 2000) who Mr Clarke confirmed to be one of the best forestry inventory companies in New Zealand. I accept FIL 2000 used conventional and correct methodology to identify 20 random plots within the forest with each containing an average of 22 trees (exceeding by seven the recommended minimum).

• [81] By contrast OHL submits that Mr Manners’ evidence demonstrably fails to comply with the basis rule. It notes that fundamental to his calculations was a reduction in TRV of 20 per cent (originally 21 per cent) from that indicated by application of the YT Gen software.⁴⁴

• [82] OHL says, and I accept, that any adjustment to the YT Gen standard settings required explanation in terms of which specific inputs had been adjusted, by what specific amount and why a change was justified based on Mr Manners’ underlying assumptions. Mr Gedye says that if Mr Manners had done so, his 20 per cent TRV deduction could have been properly tested by Mr Clarke and the Court. He complains that Mr Manners failed, despite multiple requests, to provide any workings or justifications for the discount adopted, despite being given time to produce them. He refers in particular to a letter from Buddle Findlay, solicitors for OHL, sent in the hiatus between hearing and submissions, identifying it as:

...important to understand the underlying calculation to know what percentage reductions and grade changes would apply per stand, and the reasons why in each case... You have stated Mr Manners’ workings involve judgment calls but that does not mean he cannot explain the reasons for his workings; even if the workings are refused he still can simply state what judgment calls he made and why.

⁴⁴ In evidence Mr Manners explained to the Court that he considered the raw TRV data unrealistic and so used his “judgment and experience” to alter the YT Gen “default settings” to obtain a more accurate result. However, his only specific criticism of the raw data was that it might incorrectly predict height – a proposition on which Mr Mark did not seek to cross-examine Mr Clarke on and which Mr Clarke rejected in an affidavit filed between conclusion of the hearing and final submissions.

• [83] OHL submits that the only conclusion that is therefore available is that the discount was arbitrary, fails to comply with the basis rule and cannot be relied on by the Court.

• [84] I agree that there has been noncompliance in this respect. By not providing calculations capable of mathematical cross check Mr Manners effectively insulated himself from cross-examination. Essentially his evidence involved “black box” deductions to derive a lower TRV. He justified this by saying that valuation reports such as that provided to the defendant and appended to his two page evidence-in-chief typically do not contain this level of detail. However, whatever may be regarded as industry norms in respect of valuation reports, the rules of evidence require that the basis of the expert’s opinion and his or her reasoning must be explained in chief so that the opposing party can test its accuracy and the Court form its own view. As Hayden J observed in the High Court of Australia decision in Dasreef Pty Ltd v Hawchar:⁴⁵

Another [issue] is that experts render their evidence less than useful by giving it in a form conventional in their discipline but not conforming to the rules of evidence.

Assessment of the expert evidence

Introduction

• [85] I start with some general comments about the three expert witnesses in the trial.

• [86] OHL called Messrs Clarke and Bullen. Mr Clarke graduated in 1999 with a Bachelor’s Degree in Forestry Science (Honours) and a Business Degree with distinction. For over 20 years he has been engaged in a wide variety of forestry roles resulting ultimately in his registration as a forestry consultant in 2010. He is a registered member of the New Zealand Institute of Forestry (NZIF). As such he is subject to its standards and disciplines. Since 2017 he has been the consulting team manager for PF Olsen. In that role he has been engaged in a variety of forestry consulting projects including forestry valuations, due diligence, feasibility studies,

⁴⁵ Dasreef Pty Ltd v Hawchar [2011] HCA 21, (2011) 243 CLR 588 at [58].

forestry management consulting and forestry insurance schemes. He has been involved in the valuation of over 150 forests in New Zealand.

• [87] I regard him as an impressive witness. His evidence was measured and, premised on what I regard as moderate to conservative positions. I consider he made a number of appropriate concessions, for example in respect of the unreliability of the Pango assumption about total forest size and when he came to revisit his roading calculations, as I will subsequently explain. He answered all questions in cross- examination and from the Bench directly, concisely and authoritatively.

• [88] Mr Bullen is likewise employed by PF Olsen, which he joined in 1995 as branch manager for the mid-north area. In 2006 he was appointed regional manager for Northland and in 2017 national business development manager. His experience in the forestry industry dates from 1970. I accept that experience as substantial and as applying to all operational aspects of commercial pinus radiata forestry in New Zealand and the Northland area in particular. I accept him also as having high level expertise in managing the harvesting of Northland forests and that, in this context, he has acquired detailed knowledge of relevant cost structures.

• [89] Although OHL’s valuation evidence was provided by Mr Clarke, Mr Bullen provided significant inputs to the valuation, particularly in respect of estimates of the costs of harvest. He was assisted in those inputs by considerable background knowledge in relation to the particular forest in issue, with which he had many years of association, commencing with an initial inspection and report in 2003. In August 2019 he inspected the remnants of the forest and he was able to assist Mr Clarke with assessing the forest’s topography and land characteristics as part of estimating the physical costs associated with a hypothetical harvest.

• [90] I consider Mr Bullen to be an impressive witness. In closing submissions counsel for OHL, correctly in my view, described him as “a veteran Northland harvest manager with strong practical credentials”. He addressed questions in cross- examination and from the Bench in an undefensive and concise way. His opinions were anchored in his long-term personal knowledge of the forest. He presented in a totally non-partisan way.
• [91] The defendant’s expert witness, Mr Manners, is a director and shareholder of Woodlands Pacific Consulting Ltd and has been a forestry consultant since 1995. He holds a Bachelor of Forestry Science from the University of Canterbury and, prior to becoming a consultant, was employed as a logging planner, logging manager and ultimately general manager of logistics for Fletcher Forests. He has experience in international forest economics and evaluation and has been involved in the valuation of plantations in a number of countries, particularly South America.

• [92] At the outset I record a number of general concerns about his evidence. First, it is clear that he generally had a very adverse view about Pango as demonstrated by the following exchange:

THE COURT:

Q You clearly do have quite a bias against Pango?

A Yes, yes, we have refused to work for clients that have engaged Pango and I nearly didn’t take this assignment when I heard that they were involved.

CROSS-EXAMINATION CONTINUES: MR GEDYE

Q Are Pango in your view cowboys, or dodgy operators, or what? Speak frankly.

A Yes, they are on the fringe, yes.

• [93] Although Mr Manners was entitled to closely interrogate the Pango results based on his institutional view that the company was not among the best operators, I consider his antagonism to the organisation sufficient to have resulted in him effectively starting from an assumption that its results must be wrong. And this despite the fact that the Pango inventory was commissioned by the party instructing him and had not been the subject of adverse criticism by that party until the present proceedings were issued.⁴⁶

• [94] Secondly, I note that in the valuation provided to the defendant and ultimately appended to his evidence, Mr Manners recorded a disclaimer in terms that “This report was commissioned by Richard Marks and is issued by Woodlands Pacific Consulting

46. OHL says that the first such criticism in fact appeared in the defendant’s opening, filed shortly before trial.

Limited to The Peria Charitable Trust (the “Recipient”) for their own use in justifying their sale of the tree crop located on Peria Charitable Trust’s land in February 2017”. The implication from the statement is that the purpose of the report was to justify the sale price obtained rather than the objective arm’s length assessment of value this Court requires.

• [95] Similarly, I have already noted the extent to which I regard as unsatisfactory Mr Manners’ inability to explain the 20 per cent reduction to TRV beyond application of his “judgment”. This could not be properly interrogated and has the appearance of being arbitrary and subjective. Mr Clarke deposes that he was left in the position of being “unable to understand... how he achieved the reduction for each stand producing an average reduction of 21%” (now 20 per cent). He could not replicate the calculation.

• [96] There are other aspects also, which I take into account in my comparative assessment of the valuation evidence. First, Mr Manners is not a member of NZIF. I accept that he did previously hold a membership and the fact that he resigned because of criticisms he had of the organisation. Nevertheless I am obliged to take into account the fact that as a non-member he is not subject to the Institute’s standards and disciplines.

• [97] More significantly I found his performance under cross-examination sometimes unsatisfactory. On occasions he simply evaded the question.⁴⁷ He would not or could not explain how he precisely manipulated the YT Gen software to achieve the specific reductions he contended for in respect of each stand. When asked “Can you list for me what settings you addressed?” His response was, “Probably not off the top of my head”. Even when given the opportunity subsequent to the initial hearing to provide underlying calculations for percentage reductions and grade changes per stand, and the reasons for such, he was unable to oblige.

⁴⁷ For example, when asked about what properties he used for his benchmarking he embarked on a long discourse about implied discount rates and a range of other matters without ever answering the question.

• [98] Likewise, when asked why he had reduced the TRV for stand 3.01 by 30 per cent when Pango already acknowledged it as a weak stand on the basis of the raw data, his response was opaque:

Well I suspect some of that stand is actually zero. Having seen some of the trees there I would think that some of that stand is actually zero.

• [99] Elsewhere in his evidence he acknowledged that he had “struggled”, that his brain was “turning to porridge”, and he endeavoured to explain away obviously erroneous statements on the basis of misconceptions caused by him being hard of hearing when there was otherwise no evidence of that in the trial.

• [100] I accept also that in all cases where Mr Clarke adopted conservative positions favourable to Peria (for example using one year averages rather than spot prices in arriving at the 2018 valuation and adopting harvesting costs at the upper limit of the range), Mr Manners accepted the approach. In comparison, in those areas where Mr Clarke contended for a mid-range figure, for example by adopting the Pango TRV (which was subject to probable limits of error (PLE) either way) or in respect of discount rate, Mr Manners contended for results strongly favouring Peria. Only in respect of an identified change in the grade mix of wood (which Mr Manners said had only a marginal effect on value anyway) and in respect of haulage costs, did he adopt assumptions which were not strongly favourable to Peria. OHL submits that the result was to “drive down the value of the forest as much as possible, which is indicative of his lack of objectivity and/or balance”. I consider there to be merit in that submission. My conclusion is fortified by the purpose statement in Mr Manners’ initial report which I have already referred to.

High level indicators that the Clarke valuation is the more reliable

• [101] OHL relies on two high level cross-checks to establish Mr Clarke’s evidence as the more reliable. The first involves reference to the sale prices achieved in respect of other forestry blocks. As Mr Clarke explained in his evidence, the direct sales comparative method used in respect of other types of valuations (for example real estate) is not appropriate as the primary method for forest valuation because of the variable nature of stands. For that reason crop expectation value (CEV) is the standard method by which a forest of Peria’s age would be valued. Nevertheless as he deposed,

and as I accept, direct sales comparisons are useful as a cross-check to ensure that the valuation reached on CEV (or NPV⁴⁸) methodologies is broadly realistic.

• [102] Mr Clarke gave evidence of all saw log forestry sales in respect of which PF Olsen were involved in 2018. The sales have a value range of $18,500 - $41,000 per hectare. Mr Clarke’s valuation of the Peria forest sits at the bottom end of that range ($19,192 per hectare, as at December 2018). At a general level I accept that this is a further indicator of Mr Clarke’s independence and objectivity.

• [103] By comparison, Mr Manners’ 2018 valuation equates to $11,266 per hectare. That is 40 per cent less than the lowest sale price recorded by PF Olsen in 2018. This raises “flags” in respect of Mr Manners’ valuation, particularly because, with the exception of stands 3/01 and 1/02, which Mr Bullen acknowledged were poor stands with TRV per hectare values below Northland averages, the other stands (1/01, 1/03, 1/04, and 2/01) were in his view typical for Northland and would have been expected to yield average volumes. His evidence given with the benefit of long-term personal association with the forest.

• [104] So too, the Pango TRV on which Mr Clarke’s report is based, compares favourably with the theoretical results obtained by computer programmes designed to predict volumes in the absence of actual data. The relevant software is known as ‘Forecaster’. Mr Clarke deposed that PF Olsen uses the software when assessing the viability of establishing a forestry crop on bare land or when no measurement data is otherwise available. Site specific information and the expected silviculture regime are inputted into the software which then estimates the theoretical TRV. Such a theoretical TRV can assist forestry owners in their decision-making processes. He further deposed that when using Forecaster for new or unmeasured forests in Northland, PF Olsen typically reduces the output by 15 per cent as experience has identified the results as optimistic to that extent. Adjusting by that percentage and applying the programme to the Peria property, Mr Clarke’s evidence was that anticipated TRV on the Peria site was between 658 cubic metres per hectare and 755 cubic metres per

⁴⁸ Net present value.

hectare. This compares with the average TRV per hectare identified in the Pango report of 623 cubic metres per hectare.

• [105] Significantly, Mr Clarke was not cross-examined on this evidence.

The Pango inventory – the respective positions

• [106] Mr Manners’ position was that, based on the evidence of what he saw on the ground when inspecting the remnants of the Peria forest in 2019, the Pango inventory was unrealistic and that its application, without adjustment, would result in over- valuation of the forest. Although not identified coherently in his original valuation (annexed to his two page brief of evidence), OHL distils from his oral evidence the following criticisms of the inventory:

(a) Properly assessed, the yields for Peria should have been below Northland averages (with some areas bottom decile, maybe even bottom five per cent of Northland) and the yields for stands 1/03 and 1/04 were higher than average.

(b) The Peria forest was of poor quality.

(c) It was established on poor soils.

(d) It was an untended forest in respect of which silviculture was incomplete.

(e) Stocking levels of the trees were variable having regard to:

(i) the variability of the stems per hectare recorded in the Pango report; and

(ii) a site visit which Mr Manners undertook in which he looked at harvested parts of the forest and saw, in his opinion, high variability of stumps.

(f) The Pango inventory had a high PLE (plus or minus 17 per cent according to Mr Manners) and should be viewed with caution accordingly.

(g) The Pango mapping of stand 1/03 is larger by five hectares than the PF Olsen mapping in 2003. If the PF Olsen mapping missed five hectares of trees this is indicative of the fact that in 2003 the trees were “unthrifty”. That in turn is inconsistent with the TRV identified by Pango for that stand.

(h) Two stands have only been partially harvested which indicates they had no commercial value to Pango.

(i) The sample of trees in the raw data collected by FIL 2000 under- represents average diameter and height of trees.

• [107] Mr Clarke candidly acknowledged some issues with the Pango report. He said that he “wasn’t entirely happy with the data” but he did not see any “concrete evidence” that would in his opinion warrant any changes being made to it. As a result, he saw no reason to amend or change the default settings in YT Gen. The following exchange with the Bench is instructive:

Q. However, almost certainly had the forest been standing, you as an expert would have wanted to have made further enquiries to resolve those anomalies?

A. Yes, absolutely, 100%.

Q. So, Mr Clarke, in my position where I’ve got to neutrally do the best by both these parties and try and divine as best I can the TRV of [the forest], is it appropriate for me to just have some caution about the Pango report and to reflect that in a possible adjustment of their numbers?

A. Yes, and I’d caveat that with saying you definitely want to hear what Mr Manners said I guess to balance that opinion...

• [108] Having subsequently considered Mr Clarke’s oral evidence (which as I have indicated, was the first opportunity for him to realistically appraise Mr Manners’ arguments) he made further conclusions in his supplementary affidavit dated

27 August 2020. He said that, apart from stands 1/02 and 3/01, he would “deem” all other stands to be “typical for Northland yield averages for forests where there is a higher than usual stocking which corresponds to higher volumes per hectare”. He further noted his inability to understand from Mr Manners’ oral evidence “how he achieved the reduction for each stand producing an average reduction of 21%”.⁴⁹ He concluded that:⁵⁰

I do not accept that Mr Manners has provided any legitimate valuation basis for applying any discount or reduction to the TRV output of the data measured by Forest Industries 2000 Ltd. A 21% reduction in TRV has a significantly higher than 21% impact on value which in my opinion is totally unjustified.

• [109] In defence of this position I note one high level observation at this point. As previously indicated,⁵¹ Pango had expressed an interest in acquisition of the Peria forest shortly before it was engaged to provide its inventory. Demonstrably it would have been in its commercial interests to have under-represented the TRV and thus the forest’s value. The fundamental premise underlying Mr Manners’ evidence – that the inventory provided for an unrealistically optimistic TRV – sits unhappily with those commercial realities.

• [110] Necessarily, however, I must address each of the criticisms which OHL distils from Mr Manners’ oral evidence.

1. The Peria yields in comparison to Northland averages

• [111] This proposition appears to have been based on Mr Manners’ assumptions about poor soils and so it is informed by the next section of this judgment. However,

⁴⁹ Now 20 per cent.

⁵⁰ Mr Mark complains that although the defendant accepted that Mr Manners’ evidence in cross- examination went well beyond that predicted in his original brief (and attached report), and that supplementary evidence from Mr Clarke was therefore justified, nevertheless, Mr Clarke went too far by further commenting on issues which were already in evidence – as for example the poor quality of the site, the inadequacy of the silviculture regime and the variability of stock levels (in respect of which Mr Bullen had himself given evidence). I do not accept this criticism. Although Mr Manners did refer to issues relating to soils and silviculture in his initial report they were not linked (at that time) to his proposed 21 per cent discount. Only in the course of his oral evidence was such linkage emphasised. I regard the supplementary affidavit as fairly addressing what was, viewed in totality, a significantly altered evidential landscape. In any event the affidavit simply confirmed Mr Clarke’s previous oral evidence that, despite a requirement for caution in respect of the Pango inventory, he could not identify any concrete evidence sufficient to warrant changes to it.

⁵¹ See footnote 10.

Mr Bullen, with his longstanding familiarity with the forest, was clear that only in respect of stands 1/02 and 3/01 were yields likely to be below Northland averages.⁵² In his supplementary affidavit he confirmed this evidence and stated:

... I ... disagree with any suggestion that the yields for all of the Peria forests should be below Northland averages. Certainly 3/01 and 1/02 were poor stands and the TRV/HA would have been below Northland averages. But the other stands (1/01, 1/04, 1/03 and 2/01) were typical of Northland and I expect would have yielded typical and average TRV.

• [112] That is the position predicated in the Pango report. The TRV per hectare for stands 1/02 and 3/01 (243.2 and 187.7 cubic metres per hectare respectively) are significantly lower than the other stands referred to in the inventory. Mr Clarke confirmed that in respect of the other stands (including 1/03 and 1/04) the reported yields were typical in terms of Northland averages.

• [113] A useful cross-check in this context is a high-level short form value estimate completed by Mr Bullen in February 2017 for OHL’s interests. This assessment was not based on the Pango inventory but on a valuation completed by PF Olsen in 2008. Significantly Mr Clarke’s valuation as at February 2017 based on the Pango inventory was for a lesser amount than Mr Bullen’s contemporaneous assessment based on the earlier PF Olsen report. Broadly this tends to suggest consistent TRV’s across both the Pango and previous PF Olsen analyses.

2. Poor soils

• [114] Mr Manners’ evidence was that the forest had been established on Omu, Huia and Te Kie soils which he described as “leached podzols” which were poorly drained, prone to pugging when wet and generally poor soils for forestry purposes. Mr Bullen’s evidence was, however, that only stand 3/01 was based on poor soil – described as of the Wharekohe variety – with the balance of the forest being established on acceptable soils (Aponga, Okaka, Monganui clay and Hukerenui silt loam).

⁵² The following exchange occurred in cross-examination:

Q. You would expect the yields from this forest to be below the Northland average, would you?

A. Certainly for stands 1/02 and 3/01. Not for the remainder.

Q. So in places the forest was overstocked, is that right?

A. No, it was normally stocked.

• [115] I consider Mr Bullen’s evidence in this respect preferable. He explains that reference to soils as being leached podzols does not assist in determining whether the soils are good or bad for pine because most of Northland soils are weakly to strongly leached and many of these are nevertheless acceptable for growing pine. He said that only one podzolized soil type was definitely unsuitable for pine, being the Wharekohe soil on which stand 3.01 was located.

• [116] Mr Bullen’s reference to relevant soil types was based on the New Zealand soils series map. By contrast, Mr Manners provided no supporting literature for his proposition that the relevant soil types were Omu, Huia and Te Kie. In any event Mr Bullen describes Omu, Huia and Te Kie as good and acceptable soils for pine. Moreover fertiliser was applied to every stand except for the poorer stands (1/02 and 3/01). In the report appended to his evidence-in-chief Mr Manners acknowledged the importance of fertiliser for “optimal growth”.

3. Peria forest untended and lacking silviculture

• [117] This claim was undoubtedly premised on the defendant making out its counter claim for inadequate silviculture. That counterclaim was, however, ultimately abandoned.

• [118] Mr Johns acknowledged that his written brief of evidence, exchanged in advance of trial and critical of OHL’s silviculture regime, contained material which was not “completely fair to be honest” and that it was “apparent that Hanover did conduct some work and I think my rhetoric here was guided by Faenza Waiaua who was getting quite excitable”. Mr Manners admitted in evidence that if he had been provided with the thinning certificates relating to work conducted by FNF/OHL this would have changed his assessment.

4. Peria was a poor growing forest

• [119] Mr Johns gave evidence that the Peria forest trees were “mostly rubbish” and Mr Manners, having inspected the unfelled portion of stands 3/01 and 1/04, said “What’s left is not that good”.
• [120] By contrast Mr Bullen, who inspected the entire forest in 2003 said that only two stands (1/02 and 3/01) were growing poorly and that the balance were growing well and indicated typical growth and quality for Northland forests. He likewise saw the unfelled portions of the forest during the course of a 2019 inspection.

• [121] I consider Mr Bullen’s evidence preferable. Significantly, it better accords with the documentary record and in particular the inventory prepared by him in 2003, the 2008 PF Olsen valuation and the 2016 Pango inventory. In respect of stands 1/01, 1/03, 1/04 and 2/01, the following consistent expressions appear – “suitable for a clearwood regime”, “characterised by trees that have grown reasonably well”, “tree health and vigour are satisfactory”, “excellent growing site (fertility)”, “High quality of pruning”, “Growth rates with high TRVs”.

• [122] OHL also asks the Court to draw adverse inferences on this issue on account of the defendant’s failure to call Mr Alexander (despite indicating in opening that it would do so). It was Pango that described stands 1/03 and 1/04 as having “good growth rates with high [TRVs]” and I consider it likely that if he had been called Mr Alexander would have confirmed that position in respect of stands 1/01 and 2/01 and identified stands 1/02 and 3/01 only as of poor quality. Inevitably that would not have assisted Peria’s narrative. It is a basic trial principle that if a party fails to call a witness who could have given evidence relevant to an issue in the case and fails to do so, the party runs the risk of relevant adverse inference which may strengthen the evidence adduced on that issue by the other party or weaken the evidence adduced by the party who might reasonably be expected to call the witness.⁵³

5. High stocking variability

• [123] Mr Manners said that he identified high variability of stumps from harvested trees in the course of his 2019 site visit. However, he provided no detail of the areas in which stumps were inspected, nor photos, nor measurements of the stumps. Again the point was not referred to in the report annexed to his evidence-in-chief, limiting the ability to prepare adequately for cross-examination.

⁵³ See Innes v Ewing [1989] 1 NZLR 598 (HC) at 607; Dairy Containers Ltd v NZI Bank Ltd (1994) 7 PRNZ 465 (HC) at 468; Wisniewski v Central Manchester Health Authority [1998] EWCA Civ 596; [1998] PIQR P324 (CA) at 340.

• [124] By contrast, Mr Bullen inspected the forest when standing. His evidence was unequivocal. The forest was “normally stocked”.

• [125] Moreover, the Pango inventory was premised on a 68 hectare forest, whereas the case ultimately proceeded on the basis that the forest comprised 63.5 hectares only. This agreed position reflected the fact that parts of the overall site were not, on account of topography, suitable for silviculture. Mr Manner’s original position was that he thought all of the sample plots identified by FIL 2000 were in the fully stocked areas of the forest but he later admitted in cross-examination that he did not know whether this was the case and it was entirely possible that some plots may have fallen within low stocked gaps. The following exchange is relevant:

Q. ... That could be because and likewise plot 2, that could be because the plot that is established on this randomised basis being 600 square metres included a perfectly well-cultivated bit of stand and then it dropped off the edge of a ravine, could be.

A. Yes, could be.

Q. Could be.

A. Yeah, it could be.

Q Could be just be half a plot, really, in real terms.

A. Or a third of a plot.

• [126] To the extent stocking variability was observed in the Pango results I consider it adequately explained by low stocked gaps and appropriately compensated for in the parties’ agreement to reduce forest area from the 68 hectares identified in the Pango inventory.

6. High PLE in Pango inventory

• [127] Mr Manners is critical of the Pango inventory because he says it is subject to a PLE of plus or minus 17 per cent when, as Pango’s report itself acknowledges “In general, the aim is to obtain a [PLE] of 10% or less (at the 95% confidence level)”. He does not provide his workings to justify the 17 per cent figure. Mr Clarke deposes that correctly calculated, the PLE is 13 per cent. Again he does not provide any

workings. At plus or minus 13 per cent, Mr Clarke deposes that the PLE is close enough to “the aim” for it to be “unremarkable” and not require any discount.

• [128] Without access to the calculations I am unable to resolve these differences except by reference to my general preference for Mr Clarke’s evidence over that of Mr Manners. However, whether the figure is 13 per cent or 17 per cent the issue nevertheless needs to be placed in perspective.

• [129] First, as the Pango inventory itself confirms “It is usually difficult to obtain high precision (low PLE) when measuring small blocks because the number of plots (and hence “degrees of freedom”) will be low...”. Pango describes this as a “fact of life” in the small blocks. Mr Clarke concurred.

• [130] Secondly, as Pango again acknowledged, low precision does not mean inaccuracy:

For example, in a small block, the mean of say, 5 plots will likely represent the block very well even though the precision (PLE) may well be greater than 10%.

• [131] Mr Clarke said this comment gave him assurance about the competence of those designing the inventory because it indicated that they understood “the statistical significances of collecting the data and designing the inventory”.

• [132] Thirdly, the PLE is a plus or minus limit. To take a suggested error of plus or minus 17 per cent and to translate that to an equivalent (or greater) reduction in the TRV is not, in my view, logical. The cross-reference to the Forecaster software indicates that, in fact, Pango’s indicated average TRV was less than that achieved on a theoretical basis. Mr Manners essentially speculates that the PLE was negative. I consider the neutrality of Mr Clarke’s approach to be preferable.

• [133] Fourthly, the PLE was likely sensitive to what total area was being used for inventory purposes. As indicated, there was initially debate as to whether the forest area was 59 or 68 hectares. The Pango report was designed on a 69 hectare inventory with the randomly selected plots likely including areas with low stocking on account of terrain.
• [134] The following exchange between the Court and Mr Clarke is instructive:

Q. Could you answer me whether against a desirable level of 10% at the 95% confidence level 17% is totally unreliable, somewhat unreliable, essentially reliable?

A. I, I'm not sure on that scale. I think it comes back to what you said earlier about being, having some caution around the... data, yeah, and therefore further investigation –

Q. The 17% would be a further cause for caution?

A. Correct, yes.

Q. But of course that issue also folds back into the 59/68 conundrum.

A. Exactly, yes.

Q. Because the more you take out the bad stuff [and] get down to 59 so inevitably you get a far more accurate result out the other side.

A. Correct, yes. That's right, that PLE could also be, that's right, a function of some of those plots landing in lower stocked or sparsely stocked areas, correct, yep.

• [135] Finally, there is again the issue of Mr Alexander not ultimately being called to give evidence. Had the defendant done so he would have no doubt confirmed that the inventory was competently and professionally completed and would have expanded on the extent to which higher PLE’s are a “fact of life” with smaller blocks. I am entitled to, and do, take that into account.

7. Inconsistency with PF Olsen mapping in 2003 – the missing five hectares of trees

• [136] Mr Manners points out that the Pango mapping of stand 1/03 (indicating a total area of 11.3 hectares) was larger by five hectares than the PF Olsen mapping in 2003 (6.4 hectares). He refers to a 2003 aerial photograph of stand 1/03 in which trees were only identifiable over approximately half of the area of the stand. He says that by 2003 the trees would have been approximately seven to eight years old and approximately 11 metres tall if developing normally. He says that because they were not identifiable in the photograph their development must have been impaired. He spoke of the trees therefore necessarily being “unthrifty”. He said that this was inconsistent with the average TRV of 702.3 reported by Pango for the stand.
• [137] There is an element of speculation to this evidence. It must be compared with Mr Bullen’s direct evidence based on his own observations of the forest in 2003. It is also inconsistent with the documentary record to the extent that the 2003 PF Olsen inventory describes growth rates in stand 1/03 as “similar” to stand 1/01 and thus “characterised by trees that have grown reasonably well” (albeit noting extensive stock damage meaning that “on average the bottom 1.5 metres of the butt log will be cut to waste”. Likewise the 2008 PF Olsen valuation describes the health and vigour of the forest as satisfactory with the exception only of stand 3/01. And in the 2016 Pango inventory the 728 cubic metre per hectare volume calculated for stand 1/03 was said to be “Reflective of excellent growing site (fertility)” with “good growth rates and high [TRVs] and reasonable piece size”.

• [138] I accept Mr Clarke’s evidence that the difference in the area between PF Olsen’s mapping and Pango’s mapping appears to have been the result of Pango incorporating into their mapping areas with low stocking or unstocked gaps within the stands. His concession in this respect was undoubtedly significant in the parties agreeing (subsequent to the oral evidence) to the 4.5 hectare reduction in the size of the forest. Much of the debate about area focused on stand 1/03. The ultimate concessions made in this respect are, in my view, likely to have adequately compensated for the “unstocked gaps” reflected in the 2003 aerial photography. I note also that mapping conducted by PF Olsen in 2016 increased stand 1/03 area from 6.4 hectares to 8.3 hectares (possibly as a result of boundary adjustments with stand 1/02).

• [139] I am satisfied that Mr Clarke’s ultimate valuation (based on a total forest area of 63.5 hectares) is not premised on a “missing” five hectares as alleged by Mr Manners, or that any conclusion can be drawn from the 2003 photograph about significant parts of the stand being “unthrifty”.

8. Partial harvest of two stands by Pango (1/04 and 3/01) indicates that they were uneconomic and should not have been included in the valuation.

• [140] The evidence establishes that most of stand 1/04 was left unfelled by Pango and that portions of the poorly performing stand 3/01 were in the same category. Mr Manners argues that the only realistic conclusion is that these stands were uneconomic and should not be included in the valuation.
• [141] Again I consider that conclusion speculative. Pango’s cutting rights subsisted until 3 April 2030. In its 2016 inventory it noted that stand 3/01 was “best to be left another 10 – 15 years to harvest what develops” and in correspondence between Pango and Peria, after the cutting rights agreement was signed, there are indications that Pango intended the harvest to be conducted in stages. For example it stated that “The Main operation will commence in September 2017” which implies that there was to be a secondary operation at some later date. In respect of the 50 hectare⁵⁴ so-called “young block”, which I infer to have been on the Ross property, Pango also confirmed that it “would not be harvesting this particular block for eight to 10 years”. It is clear therefore Pango intended generally to conduct further harvest operations in the area at a later date. All this must be assessed in the context of the acknowledgement in Pango’s inventory that forests significantly increase in value year by year through to ultimate maturity date (as an example the report postulates a $95,000.00 return for stand 1/01 in 2017 and a $184,000.00 return in 2022).

• [142] Again I also take into account the fact that Peria chose ultimately not to call Mr Alexander to confirm why parts of respective stands had not been felled, or to confirm Pango’s future intentions with stands 1/04 and 3/01. I also take into account the difficulties experienced by OHL, in obtaining complete discovery in respect of Pango’s exercise of cutting rights. For example, the letter which referred to the main operation commencing in September 2017 also attached a “harvest plan” which has never been discovered.

• [143] I accept, that because of its topography and location, stand 1/04 attracted higher extraction costs than the balance of the forest. However, this was adequately accounted for by both Mr Clarke and Mr Manners, who recognised that specialist haulage equipment would be necessary at a cost of $64.00 per cubic metre for 7.5 hectares of the total 18 hectares comprised in stand 1/04.

• [144] Overall therefore I consider these issues adequately addressed by Mr Clarke’s valuation.

⁵⁴ In other correspondence Mr Alexander refers to the area as 60 hectares.

9. Raw data over-represents average diameter trees

• [145] At trial Mr Manners suggested that the raw data collected by FIL 2000 under- represented small diameter and height trees of which he said “there are quite a few trees in the block” as well as “some of the bigger trees as well”. Again I consider the criticism speculative. The uncontradicted evidence was that FIL 2000 is a competent operator. Mr Manners was not present during the data collection and cannot therefore comment on whether it took accurate representative samples or not. In addition he did not calculate the diameter to height relationship curve,⁵⁵ the effect the allegedly skewed data may have had,⁵⁶ or the particular stands that this issue may apply to.

• [146] Because the issue was first raised under cross-examination, Mr Clarke subsequently undertook his own analysis by creating a diameter to height curve for the forest. He concluded that in his view “the sample selection of the trees in respect of height and diameter was ordinary and the raw data does not overestimate height”. He made various adjustments to what he described as the “best fit curve” but concluded that this would at most cause between a 1.1 and 1.3 per cent reduction in TRV with an ultimate effect of less than one per cent on the valuation. He stated, however, that it would not be best practice to apply an adjusted best fit curve and to reduce the TRV results derived from that indicated in the inventory unless there were fundamental issues with the inventory data. He did not consider there to be any such fundamental issues with the FIL 2000 data.

• [147] I am satisfied that Mr Manners’ alleged raw data skew in the height to diameter relationship was not established and would in any event, have had a negligible effect on the valuation.

Summary valuation issues

• [148] Mr Clarke stated that he “wasn’t entirely happy with the data that was in the Pango report” but did not identify any adequate or compelling reason to adopt a different approach. He undertook a number of subsequent checks – validating the raw

⁵⁵ His evidence was “So I figure this curve here over-estimates at the, I haven’t created the curve...”.

⁵⁶ He stated that it would only “slightly overpredict [height] at the lower end of the spectrum...”.

data against the TRV results derived by Pango,⁵⁷ checking his results against the hypothetical results indicated by the Forecaster software,⁵⁸ discussing his conclusions with Mr Bullen, an acknowledged expert in respect of Northland forests and who had long-term association with the site, and he sense checked the valuation with direct sales comparisons.

• [149] Ultimately he did not consider Mr Manners to have provided any legitimate valuation basis for applying “any discount or reduction to the TRV output of the data measured by [FIL 2000]”. He considered Mr Manners’ proposed 20 per cent TRV reduction “totally unjustified”.

• [150] By contrast Mr Manners’ approach was to apply substantial TRV reductions (averaging 20 per cent) on the basis of what he described as “judgment and experience” but in a manner which was ultimately unable to be properly interrogated. His generic references to “cutting strategies”, “growth models” and “drift factors” were all ultimately unexplained. Even after specific requests to provide the workings underlying his 20 per cent reduction he was unable or unwilling to do so. I accept the plaintiff’s entitlement to know in detail what percentage reductions and grade changes were applied to each stand and the specific reasons in each case. It was not sufficient that Mr Manners simply relied on a “judgment call”. As Buddle Findlay indicated in correspondence on behalf of the plaintiff in the lacuna between hearing and final submissions “that does not mean he cannot explain the reasons for his workings; even if the workings are refused he still can simply state what judgment calls he made and why”.

• [151] Significantly, the defendant at no stage voiced any criticism of the Pango inventory and TRV calculations until challenged to provide compensation based on the report. Indeed on 25 May 2016 when Mr Johns provided the inventory to Mr Finnigan, he said that “I think it is a good summary of the forest blocks”. Moreover, the prospect that Pango would significantly overstate the TRV, when it had an active interest in the purchase of cutting rights to the forest (already communicated to Mr Johns), has, as I have indicated, an air of commercial unreality about it.

⁵⁷ They were essentially the same.

⁵⁸ Finding the Pango results to be conservative.

• [152] I have given some consideration to whether a small and necessarily arbitrary reduction should be made to Mr Clarke’s valuation to reflect the “caution” he initially expressed in respect of the Pango report but I have ultimately come to the view that to do so would be inappropriate. As Mr Clarke emphasised in response to an inquiry from the Court, before such caution was translated into any possible valuation adjustment, I would need to “hear what Mr Manners said”. Having considered Mr Manners’ evidence I am unpersuaded that any of the nine factors identified by him and discussed above justify such an adjustment. I take into account also the fact that the principal area of insecurity Mr Clarke had with the Pango report was in terms of the total forested area referred to in it. His brief of evidence dated 18 December 2019 candidly admitted that, based on the quality of the mapping that had been produced, PF Olsen’s area calculations were likely to be more accurate than those of Pango. That area of uncertainty and associated cause for caution was ultimately eliminated by the parties’ agreement on a compromised total forest area. Mr Clarke’s valuation was reduced accordingly.

• [153] In coming to these conclusions I have not ultimately had to have reference to the spoliatorem maxim but, to the extent a more benign attitude to the plaintiff’s evidence could be considered necessary for it to have met its burden of proof, the maxim provides the appropriate basis to do so.

Roading and engineering costs

• [154] Although an integral part of the respective valuations, I deal with this issue discretely as the parties did in submissions. The following table sets out the differences between the experts:

• [155] The key issues are what expert is more likely to be correct in terms of the required linear distance of roading and the estimated cost and quantity of metal. The differences between the landing costs and crossing costs are tied to the cost of metal.

Required distance of roads

• [156] The actual distance of the roads constructed by Pango to undertake the harvest was 1.34 kilometres. Initially Mr Clarke’s valuation proceeded on this basis. However, as recorded in his reply brief:

My assumption was that, if the roads which had been built had served their purpose, that was an appropriate measurement to use. However, following my discussions with Mr Manners and Mr Bullen, Mr Bullen and I agree that construction of approximately 1.5km of roading by Pango was not best practice. Best practice would have been to construct approximately 2 kilometres of roading. This additional 500m of roading would have been constructed across a paddock that accesses Peria Forest. This road is on flat country and would not have required any substantial construction works (just scraping of topsoil and metalling).

• [157] As a result of this adjustment (which in my view typifies the responsible approach Mr Clarke took to the evidence), he increased roading costs by $32,000 and reduced his valuation equivalently.

• [158] Mr Bullen produced maps showing the location of the actual roads constructed. By contrast Mr Manners did not prepare any plans identifying where his proposed three kilometres of roading would run. He said that an additional 500 metres was required to access stand 3/01 (the inferior stand where some timber was left), but as Mr Bullen noted, the existing quarry road could have been used to access the remaining trees on that stand and would be likely used if and when Pango completes harvesting in that area. He described the quarry road as well-established and capable of bearing the heavy trucks typically used for the extraction of metal. As such he said the road could well cater for logging trucks as well.

• [159] Mr Manners also suggested that additional roading was required in respect of stand 1/04. I prefer the evidence of Mr Bullen, based on his extensive local experience, that a two stage hauler system would be used to access that part of the

stand. The higher harvesting costs associated with such system are accounted for in Mr Clarke’s valuation.

• [160] Mr Manners’ further explanation that an additional half a kilometre was required “at the back of 1/0 – these ones at the top here. 1/01, 1/03 and then a little bit at the back here near the hauler area”, was not sufficiently explained for me to accept it.

• [161] Mr Mark relies on the reference in PF Olsen’s 2008 valuation to the fact that:

It is expected that the Peria forest will require approximately:

• 2.5 km of new road formation

• [162] He effectively invites me to adopt this median figure between the respective experts. I do not consider that to be appropriate. It was an early estimate, expressed in approximate terms and must be reconsidered in light of what actually occurred at the time of harvest.

• [163] On the balance of probabilities I consider Mr Bullen’s two kilometres more likely to be correct than the three kilometres contended for by Mr Manners. I agree with OHL’s description of Mr Bullen having “substantial practical experience in managing harvests (including the construction of roads)”, and that these sort of assessments were his “bread and butter”. I accept also OHL’s description of Mr Manners as “based in Rotorua [where he] is a consultant (i.e. a generalist), not a harvest manager, and so he has less practical Northland experience”.

Metal costs and quantity

• [164] Mr Manners postulates a per kilometre cost of $95,000 premised on obtaining metal from off-site suppliers. Mr Bullen’s evidence was that even if it was necessary to go off site, the costs would not have exceeded $80,000 per kilometre. However, he said it was logical for the metal to be sourced from the quarry on the Ross property in which case the cost would be approximately $75,000.00 per kilometre. In coming to that conclusion, he assessed a cubic metre rate of $22.00, not utilising the Ross quarry,

which accords with that pleaded in the defendant’s ultimately abandoned counterclaim.

• [165] Assessing the hypothetical non-breach position requires making reasonable assumptions. In addition, and as Leggatt J observed in Yam Seng Pte Ltd v International Trade Corp Ltd,⁵⁹ the spoliation principle allows the Court to make generous assumptions about what third parties would have done.

• [166] In my view there is no good commercial reason why the owners of the Ross property (whether at that stage Ross or the defendant) would not have agreed to sale of metal to the hypothetical purchaser assumed in Mr Clarke’s valuation. It would have been to the benefit of both the quarry owner in terms of reducing harvesting costs and to the hypothetical purchaser. Significantly that is exactly what occurred in the context of the Pango transaction, with the defendant supplying metal to Pango from the Ross quarry. I agree with OHL that it would be “offensive to justice” to allow the defendant to premise a damages calculation on any other assumption. Here, the reality of what occurred on the ground guides the appropriate approach to be used by the experts.

• [167] As to volume of metal per linear metre of road, Mr Bullen deposed that “normally when we’re budgeting for harvest roads in Northland we allow 1.5 cubic metres of metal per lineal metre”. He described that as a “pretty generous allowance for road metalling”.⁶⁰ Again, based on Mr Bullen’s substantial local experience, particularly with harvest management issues, I accept this evidence.

⁵⁹ Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 QB, [2013] 1 Lloyd’s Rep 526 at 188.

⁶⁰ In response to the suggestion that Peria had used 2,775 cubic metres for the 1.34 kilometres of roads established, he stated that “my estimation of the land that they crossed did not seem to suggest that they had to use such a quantity of metal”. The suggested additional 500 metres of roading, accepted by Messrs Bullen and Clarke, was over flat land, suggesting average volumes.

• [168] In summary, therefore, I can identify no good reason to depart from the roading and engineering costs summary adopted by Mr Clarke in his evidence. Taken in conjunction with my earlier conclusions this means that I adopt his valuation of

$1,218,713.00.⁶¹

Result

• [169] I give judgment in favour of the OHL in the amount of $755,602.⁶²

• [170] I award interest on that sum from 15 May 2019 (which I assess is the appropriate date for the calculation of damages) to date of judgment.⁶³

Costs

• [171] I have not been addressed on costs. Provisionally, I regard a 2B assessment as appropriate. In the unlikely event that counsel are unable to resolve quantum, including disbursements, memoranda (maximum five pages plus any attached schedule) may be filed.

• [172] My provisional view is that a second counsel certification would be appropriate.

Muir J

⁶¹ There were some other miscellaneous areas of conflict between Mr Clarke and Mr Manners, for example, discount rates. These did not receive significant attention in submissions. To the extent I have not specifically addressed any item I prefer the evidence of Mr Clarke for the reasons indicated.

⁶² Being 62 per cent of $1,218,713.00.

⁶³ Interest thereafter to be assessed on the usual principles.