As against the guarantors the plaintiffs seek indemnification for the liability of the principal debtor.
87 In his statement, Exhibit D, Mr Pearce said that shortly after 22 December 1999, negotiations were recommenced with Mr Andrews, who had been interested in purchasing the various assets and had previously carried out due diligence of the business when it was put on the market in about September 1999. He said that in early January 2000 an agreement was reached with Mr Andrews and simultaneous exchange and settlement occurred on 7 January 2000. He referred to the Agreements, which are Exhibits to the statement of Ms Goulden. He continued that the majority of what was included in the proposed sale to the defendants was sold to Mr Andrews, save for certain packaging and raw materials and the kernel, the subject of the Kernel Agreement, and that in relation to it the plaintiffs took the view that it could be re-sold to third parties through other businesses within the Consolidated Foods Group at a price equivalent to $12 per kilogram. He recalled that Mr Andrews was not concerned whether or not the kernel was part of the sale.
88 Mr Andrews was not interested in purchasing the packaging and raw materials, which carried the brand name "Pacific Gold".
89 In paragraph 21, Mr Pearce said that the plaintiffs had no alternative but to attempt to sell these items to third parties, which had, in the absence of the sale of the "Pacific Gold" brand name and the associated Inventory as a going concern, a substantially reduced value. He said that in the event the Inventory items were sold to Mr Andrews for $7,654 and to Sun Coast Gold Macadamias (Aust) Limited for $12,301.80, leaving a shortfall of $57,055.20. These figures were not challenged. The balance of the raw materials was sold to third parties at a loss, but no claim has been included for this as it was sold to related entities of Consolidated Foods.
90 He annexed a summary of the amounts which would have been received from the defendants and which were received under the agreements with Mr Andrews. In this statement he said the net shortfall was $1,487,055.20 and, in his opinion, the major factors contributing to it were market deterioration between September and December 1999 and, in particular, the lack of competing offers in December 1999, as opposed to September 1999 when there were three interested buyers being Mr Hayes, Mr Andrews and one other. He said that as the business was no longer an operating concern, because it had ceased production in November 1999 in preparation for completion of the sale to the defendants, it had also lost value.
91 In paragraph 24, Mr Pearce said that the plaintiffs incurred legal costs of $105,727.26 in relation to the Sale Agreements with the defendants and paid valuation fees to Richard Ellis.
92 In relation to the legal fees, the short submission for the defendants was that these would have been to the account of the plaintiffs in any event and if legal fees were to be recovered, the proper amount was the amount paid in respect of the preparation of the agreements to sell to Mr Andrews, as to which there was no evidence.
93 I do not see why Mr Wales' submission in this regard should be accepted. The plaintiffs paid out the money to have contracts prepared in the expectation that the defendants would complete them. They did not and, in consequence, the plaintiffs derived no benefit from the payment. Rather it was a wasted payment, which situation was caused by the defendants' breaches of contract. In these circumstances I do not see why the defendants should not be liable to pay the costs by way of damages. Whilst they were payments, which had to be made in any event, the wrongful refusal of the defendants to complete the Agreements meant that the benefit of them was lost to the plaintiffs. I was not referred to any evidence as to when the accounts were paid such as to enable a calculation of interest to be made.
94 In his further statement, Exhibit E, Mr Pearce re-visited paragraph 21 of his statement, Exhibit D, and said that the shortfall of $57,055.20 was obtained by using the figure of $77,011, which Mars Trading was to pay to Group Services for packaging under the Business Sale Agreement as a starting point and deducting $7,600 received from Mr Andrews and $12,301.80 received from Sun Coast Gold Macadamias (Aust) Limited. He continued that $77,011 was the net realisable value of the packaging, as recorded in the management accounts of Group Services, that it was entitled to receive from Mars Trading pursuant to clause 5.4(c) of that Agreement. That provided that the value of stock must, relevantly for present purposes, be determined by the bought in items of stock being valued at the lower of cost and net realisable value. This, as I understand it, explains how the figure of $57,055.20 was obtained.
95 The defendants submitted, firstly, that there was no sufficient evidence to establish the loss for which the plaintiffs contended. They asserted that it was insufficient to look at the price the defendants were prepared to pay and the price Mr Andrews in fact paid and to calculate the loss by deducting the latter from the former.
96 The evidence, however, went a deal further than this. Before going to that I should also note that the defendants raised an argument, upon which I am satisfied they carried the onus, that the plaintiffs failed to mitigate their damages because the prices obtained were not at a proper and a market place value, nor obtained as a result of a properly conducted marketing campaign with reasonable care being taken to ensure that a proper and reasonable price was obtained for the property.
97 However, before going to the question of mitigation, Mr Wales submitted that the evidence of damage was insufficient and that there was a lacuna in it, which precluded the plaintiffs from recovering any damages.
98 The starting point, in my opinion, for a consideration of the amount of damages, is to compare the prices the defendants were to pay and the prices paid by Mr Andrews. Each of these transactions was carried out between vendors and purchasers acting at arm's length.
99 There is, of course, a fairly gross discrepancy in those figures. I have set out Mr Pearce's evidence-in-chief. I should also refer to the evidence of Mr Ennew, (Exhibit J), who is a qualified valuer in the area. He expressed the opinion in his statement of 29 December 2000, having inspected extracts from the Contracts of Sale entered into between the plaintiffs and Mr Andrews, which disclosed a sale price for Dunoon of $250,000, for Converys Lane of $500,000, for part of 89 Missingham Road, Dunoon and part of 1306 Dunoon Road, Dunoon of $3,685,920, and for part of 89 Missingham Road, Dunoon and part of 1306 Dunoon Road, Dunoon for $634,080, that based on his knowledge of the Lismore area, and in particular, macadamia property and associated sales during the period between August and December 1999 "I can say that the fall in the projected price of nut in shell, which is a dominant factor in the industry, caused the market to stall". He then made reference to two recent sales, which he said in cross-examination could be ignored and, in paragraph 5, concluded:-
"In my opinion the purchase price contained in each of the Findlay Andrews sale agreements was a fair and reasonable price for the subject properties having regard to the quiet state of the market."
100 Those purchase prices showed a loss on Dunoon of $100,000; a loss on Converys Lane of $700,000 and a loss on the plantations of $680,000, a total of $1,480,000. As figures I did not understand them to be attacked.
101 In cross-examination Mr Pearce agreed that he was directly involved in the events leading to Mr Andrews' purchase of the properties, he having received a telephone call from him on about 23 November 1999 stating that he was still interested in doing so. He advised Mr Teng of that and he recalled preparing a confidential memorandum to him concerning that continuing interest. He agreed he analysed the offer and that that analysis, based on the initial telephone call, showed that the plaintiffs were some $400,000 worse off.
102 Mr Pearce said it was general knowledge in the district that the defendants had not settled, but he denied that to his knowledge Mr Andrews knew the contract prices.
103 Mr Pearce agreed that as at 23 November 1999 it seemed to him a distinct possibility that the defendants would not settle at all in which event the plaintiffs would be saddled with the various assets they wished to sell. He said that the other interested party, namely Mr Tim Bennett, was spoken to and that he said that he would not be able to have the funds to put an offer until March 2000. Mr Bennett, however, had only shown an interest in the plantations.
104 Mr Pearce agreed that the availability of the properties was not advertised nor circularised to the industry internationally, although he said that the major international interest would be in Hawaii where Consolidated Foods was aware that the main company involved in this activity was looking to sell out at the time.
105 Mr Pearce explained, Tp.12, the reasons why it would be extremely risky to advertise the properties for sale, and he said that the industry knew that the defendants had defaulted and that Consolidated Foods was seeking to re-sell. This evidence was inherently probable and I accept it as truthful. No evidence was called to contradict it.
106 Commencing at Tp.14, Mr Pearce pointed out a number of commercial reasons why purchasers should not be sought in a public way. They were the plaintiffs' having made staff redundant so that if a sale was not achieved the plaintiffs would be left to reactivate the business; obtaining export contracts without sales staff; inability to buy in the nut in shell from local growers given that the plaintiffs would not have been viewed as "a long term prospect"; and nervousness on the part of Consolidated Foods' Bank, which had been advised in July 1999 that capital was being raised and borrowed moneys would be repaid. Further, there had been several bad production years and Mr Andrews had indicated that if there was a general tender process he would not participate in it. In all these circumstances, the plaintiffs wished to on-sell as soon as possible to an available purchaser for all the assets. Mr Pearce also explained that another processor in the district, the Peninsula Group, had gone into liquidation as a result of which local growers had not been paid, which made them sceptical of supplying product to processers, which could not offer long term stability. In this regard he said that normally the processing plants used 2,000 to 2,300 tonnes per annum of which the plaintiffs' own plantations grew about 600 or 700 tonnes.
107 Mr Pearce also explained that Mr Andrews' refusal to be involved in the general tender was as a result of his having had previous discussions with Consolidated Foods, which had progressed a substantial way, after which Consolidated Foods accepted a higher bid from the defendants. In those circumstances he said Mr Andrews was reluctant to be involved with protracted discussions with Consolidated Foods again and as he understood it wanted to deal with the company in a relatively straightforward manner.
108 Mr Pearce was asked about the market deterioration of which he spoke. He referred to the fact that the liquidator of Peninsula Group had a number of plantations of about the same size as those of the plaintiffs on the market; that there had been a continued reduction of the sale price of macadamia kernels and a continued reduction in demand, particularly from Japanese customers.
109 Mr Ennew had prepared various valuations for Consolidated Foods in August 1999. He agreed that was done before Contracts for Sale of the properties were exchanged, but he said he was not aware, when he prepared his valuations, that that was being done in anticipation of a sale of the properties. There was no reason I could see not to accept this evidence. When asked what he understood the purpose for the valuations was, he said that he assumed that as the valuations were based on market value, asset value and fire sale value, it was for the purpose of Consolidated Foods "assets for example their books, the market value to know what the properties were worth and the fire sale value, to give them an idea what the position would be if they were keen to sell them".
110 He agreed that the going concern value meant the value as part of a continuing enterprise, rather than as a stand alone sale of land and buildings, and that the market value represented the stand alone price of each property on its own on the market. The market value would not have regard to a premium for a person purchasing the particular property as part of a larger going concern.
111 There were, in my opinion, two problems with the logic of the cross-examination. Firstly, there was evidence that the defendants were not purchasing the properties with a view to running them on a going concern basis. A complaint made in the letters from Gadens was the failure to grant access to the properties in circumstances where it was the defendants' intention to on-sell the plantation land to a third party. No evidence was forthcoming from the defendants as to the use they proposed to make of the land. The reasonable inference is that their instructions to Gadens were that the plantation lands were to be on-sold and, from that, there flows the consequence that they were not looking at the totality of the assets as an ongoing business. However, there is a far greater difficulty, which Mr Ennew explained. That is that in valuing a property on a going concern basis one has to have regard to the party which will be conducting it. In valuing it on that basis for Consolidated Foods, he had regard to the fact that that company, through its subsidiaries, was conducting the business. However, if he was asked to value the property on the same basis for another party, he would have to know how that party proposed to utilise the assets and run the business; and whether it would be able to do so as a viable financial concern.
112 In August 1999, Mr Ennew valued Converys Lane on a going concern basis at $1.3m. He valued it at market value at $660,000, and on a fire sale basis at $300,000. He was asked, Tp.34, whether he was "really suggesting" that the market was so substantially worse in January 2000 than it was in August 1999 to which he replied "yes". He said the valuation of $1.3m was as part of a going concern, which included two factories and the plantations. He said he was not aware that Mr Hayes and his companies agreed to pay $1.2m for the Convery factory, but he agreed that if that was so it would be close to his valuation as a going concern. He was asked to assume that Mr Andrews paid $1m for the factory as part of the going concern and agreed that that was "close to the mark to his valuation of $1.3m in August 1999". It was then put to him, Tp.29, that there was no way between August/September 1999 and January 2000 that the going concern value of the factory dropped to $500,000. He replied that nobody was suggesting it had and was asked whether it would surprise him to be told that the plaintiffs had done so. I am not sure that the plaintiffs had. His reply was:-
"Well when I did my research, prior to being asked to make comments on this particular situation, I was under the impression that the market value of that factory was $500,000, my market value was $660,000 and the range was five hundred to seven hundred, and therefore while five hundred was towards the bottom of the range it seemed to be a fair price.
Q. But you agreed, I think before, that market value was the sale of the property on a stand-alone basis and not part of the going concern?
A. That's correct."
113 He was then asked whether he accepted that if in January 2000 Mr Andrews paid $500,000 for the factory "as part of this going concern" the figure was less than he would regard as fair for the going concern value in January 2000, to which he replied:-
"Yes, as a going concern I would say that is less than I would have thought it would have sold for."