Advance Apiaries Limited v Waipunga Station Limited
[2017] NZHC 2009
•22 August 2017
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV 2016-454-120 [2017] NZHC 2009
BETWEEN ADVANCE APIARIES LIMITED
Plaintiff
AND
WAIPUNGA STATION LIMITED Defendant
Hearing: 3 August 2017 Counsel:
N T Gray for Plaintiff
M V Smith for DefendantJudgment:
22 August 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Advance) applies for orders directing that liability be determined at a separate, preliminary trial, with quantum to be deferred for later consideration at a second trial. The application is opposed by the defendant (Waipunga).
Background
[2] In a minute of a case management conference convened on 25 May 2017 I
summarised the background of the dispute between the parties as follows:1
The plaintiff is an apiarist. It had a five year contract with the defendant, entered into on 2 September 2015, under which it was allowed access to the defendant’s land for the purpose of harvesting manuka honey on the land. There was a right to renew for a further 2 years.
The plaintiff was to have exclusive rights to the land and unlimited access, and in return it was to pay the defendant an annual rate of $3,000 plus GST, together with $500 plus GST towards tracking costs for the purpose of
1 Advance Apiaries Ltd v Waipunga Station Ltd HC Palmerston North CIV-2016-454-120,
25 May 2017 at [2]–[9].
ADVANCE APIARIES LIMITED v WAIPUNGA STATION LIMITED [2017] NZHC 2009 [22 August 2017]
allowing site access. The parties agreed that the agreement could only be terminated before the end of the five year term, by mutual agreement.
The defendant sent an email terminating the contract on 10 November 2016. With the termination letter, it forwarded a cheque for $10,000 to the plaintiff, which is said to have been in “full compensation”.
The plaintiff did not accept the termination, and it applied for a mandatory interlocutory injunction requiring the defendant to allow it access to the property, so that it could place hives on the land in accordance with the agreement.
The interlocutory injunction application was declined by Clark J in a judgment given on 20 December 2016. In giving the judgment, her Honour noted that the defendant accepted that it was in breach of the agreement.
The defendant filed a statement of defence on 27 January 2017. In the statement of defence it alleges that there were additional, oral, terms to the agreement between the parties. The oral terms were said to require the plaintiff to disclose to the defendant the quantity and quality of honey produced, and the cost of production, for each season, and to pay a fee to the defendant each season based on a review by the parties of the plaintiff’s disclosure relating to the previous season’s performance. The defendant also alleges that the parties agreed orally that the tracking carried out on the land by the plaintiff would be completed “to farm standard” where hive sites were sought in the defendant’s hill country.
The defendant pleads that, in breach of contract, the plaintiff misrepresented the quantity and quality of honey produced and the prices received during the first season, inducing the defendant to believe that the undertaking was scarcely profitable for either party. It also says that the plaintiff denied that it had agreed to any review of the fees payable by it for the second season.
The defendant pleads essentially the same facts in the alternative, as alleged misrepresentations and/or breaches of the Fair Trading Act.
The law on separate trials of liability and quantum issues
[3] The jurisdiction to order separate trials on liability and quantum is to be found in r 10.15 of the High Court Rules. That rule provides:
10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a) the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
(b) the formulation of the question for decision and, if thought necessary, the statement of a case.
[4] Rule 1.2 of the High Court Rules provides that the objective of the Rules is to secure the just, speedy and inexpensive determination of proceedings.
[5] There was no disagreement between counsel on the principles the Court should apply in exercising its discretion whether to order a trial on liability issues, with quantum to be deferred for a subsequent hearing if necessary. In Turners & Growers Ltd v Zespri Group Ltd, White J summarised the relevant considerations as follows (citations omitted):2
[10] The starting point therefore is the assumption that all matters in issue are to be determined in one trial because that would normally be the most expeditious and efficient manner for dealing with a proceeding. Consequently the burden of displacing the presumption rests on the party contending for split trials. The burden has been described as “heavy” or “not insignificant”.
[11] Criteria that have been taken into account in other cases to decide whether to order a split trial include:
(a) The likelihood of delay in finally resolving the proceeding. (b) The probable length of the hearings if there is a split trial.
(c) Whether a decision one way or the other on the separate questions would end the litigation.
(d) The impact on the length of any subsequent hearing.
(e) A balancing of the advantages to the parties and the public interest in shortening litigation as against any disadvantages asserted by the parties opposing a split trial.
(f) Demarcation difficulties in defining issues to be addressed at the first trial.
(g) Resulting difficulties of issue estoppel.
(h) Inadvertent disqualification of a Judge who has expressed views at the first trial on matters for decision at the second trial.
(i) Inadvertent findings at the first trial upon matters that are for full evidence and argument at the second hearing.
(j) The need to recall some witnesses at the second hearing.
(k) The duplication of time involved in the Court and counsel
“coming up to speed” again for the second hearing.
2 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010.
(l) The prospect of multiple appeals.
(m) A second round of discovery or other interlocutories and amended pleadings following the first trial.
(n) Rostering difficulties in ensuring that the same Judge is available for the second hearing.
[12] The number and nature of these criteria reinforce the judicial warnings emphasising the risks involved in ordering split trials.
[13] At the same time the Court has a discretion to exercise in the context of the issues in a particular case. As Fisher J said:
In the end, however, every case must be considered individually and the possibility of a split trial should never be dismissed out of hand. The most important single question is usually the interaction between the issues intended to be traversed at the first hearing and those for the second.
Aspects of the pleadings relevant to the application
[6] Advance alleges, and Waipunga accepts, that the contract between the parties
(the Agreement) included the following terms:
(a) the term is 5 years with a right to renew for a further 2 years
(clause 1).
(b) Advance has exclusive rights to the land and unlimited access
(clauses 11, 14 and 15).
(c) Advance pays Waipunga an annual rate of $3,000 plus GST (clause 17).
(d)Advance pays to Waipunga $500 plus GST towards tracking costs for the specific purpose of site access (clause 18).
(e) there is no limit to the number of hives/sites that Advance can place/have on the land (clause 19).
(f) the payments shall be made each year in arrears before 30 April
(clause 20).
(g)the Agreement can only be terminated before the end of the 5 year term by mutual agreement (clause 21).
[7] Waipunga pleads that the Agreement also contained the following oral terms:
(a) disclosure of the quantity and quality of honey produced and the cost of production for each season would be made by Advance to Waipunga.
(b)the fee payable by Advance each season would be reviewed by the parties based on the above disclosure of the previous season’s performance.
(c) tracking to farm standard would be undertaken by Advance where hive sites were sought in Waipunga’s hill country.
[8] Waipunga pleads that each of the alleged oral terms was implicitly agreed by the parties as essential to it.
[9] Advance denies that any additional oral terms were agreed, and (therefore)
denies that the alleged oral terms were implicitly agreed to be essential to Waipunga.
[10] Advance alleges that Waipunga unlawfully purported to cancel the Agreement between 10 November 2016 and 15 November 2016. The alleged wrongful cancellation is alleged to have been communicated and repeated in emails sent by Mr Leipst of Waipunga to Mr Janson of Advance, and Waipunga is alleged to have admitted in these emails that its purported early termination of the Agreement constituted a breach of the Agreement. Waipunga offered Advance $10,000 in compensation for, and in settlement of, the breach of the Agreement.
[11] Waipunga admits that it terminated the Agreement on 10 November 2016, and that it forwarded a cheque for $10,000 to Advance “as full compensation for doing so”. It says that its cancellation of the Agreement was lawful, and it pleads the following breaches of contract by Advance as justification for the cancellation:
(a) in breach of contract Advance misrepresented to Waipunga the quantity and quality of honey produced and the prices received during the first season inducing Waipunga to believe the undertaking was scarcely profitable for either party.
(b)in breach of contract Advance denied that it had agreed to review the fee payable to Waipunga for the second season based on the previous season’s production and it refused to engage in such review.
(c) in anticipatory breach of contract Advance advised that tracking would not be undertaken to hill country hive sites and that a helicopter would be used to deliver hives to sites.
(d)the effect of the breaches, individually and cumulatively, substantially reduced the benefit of the contract to Waipunga, justifying cancellation of the contract.
[12] Advance rejected Waipunga’s cancellation of the Agreement, and it rejected the $10,000 offered in compensation. It says that, as a result of the purported cancellation, it has and will continue to suffer loss of profit on the lost production of Manuka honey on Waipunga’s land over the remaining four years of the five-year term of the Agreement. That loss is presently estimated by Advance at up to
$400,000 (gross of production costs). Advance says that particulars of its losses, including the amount claimed, will be provided prior to trial.
[13] In addition to its breach of contract allegations, Waipunga has pleaded the defence of misrepresentation. The specific misrepresentation allegations are:
Misrepresentation
2.7[Waipunga] was induced to enter the Agreement by misrepresentations made by [Advance] the performance of which was implicitly agreed to be essential to [Waipunga].
Particulars (misrepresentations)
· Disclosure of the quantity and quality of honey produced and the cost of production for each season would be made by [Advance] to [Waipunga].
· The fee payable by [Advance] each season would be reviewed by the parties based on the above disclosure of the previous season’s performance.
· Tracking to farm standard would be undertaken by [Advance]
where hive sites were sought in [Waipunga’s] hill country.
2.8The truth of each of the representations was implicitly agreed by the parties as essential to [Waipunga].
2.9[Advance] misrepresented the quantity and quality of honey produced and the prices received in the first season inducing [Waipunga] to believe the undertaking was scarcely profitable for either party.
2.10 [Advance] refused to review the fee payable to [Waipunga] for the
second season based on the previous season’s production.
2.11 [Advance] advised that tracking would not be undertaken to hill country hive sites and that a helicopter would be used to deliver hives to sites.
2.12The effect of the misrepresentations, individually and cumulatively, substantially reduced the benefit of the contract to [Waipunga] justifying cancellation of the [Agreement].
[14] Waipunga pleads the same facts in support of an allegation that Advance engaged in misleading or deceptive conduct in trade under the Fair Trading Act
1986, of such a nature and degree to justify the making of an order under s 43 of that
Act voiding the contract.
[15] Waipunga then pleads a fourth defence, described in its first amended statement of defence as “Efficient breach/estoppel”. The pleading of this defence includes the following:
2.14 In or around September 2016 [Advance] disclosed to [Waipunga]:
(a) the quantity, quality, prices received and costs of production for the first season’s honey harvested from [Waipunga’s] property; and
(b) that it could not store and age honey to increase its value as it had no access to storage and was obliged to sell honey straight from the hive; and
(c) that the strains of manuka growing on [Waipunga’s] property prevented improvement of UMF values and therefore quality of honey harvested.
2.15The information disclosed that [Advance’s] profit on the harvest was negligible and that the value of the [Agreement] to [Advance] over its term would be no more than $10,000.00.
2.16 By email to [Advance] of 2 November 2016 [Waipunga] offered
$10,000.00 in consideration for mutual termination of the [Agreement] stating that the [Agreement] was “barely profitable to either party with no prospect of improving” and that [Advance] “would earn no better than $10,000 over the life of the [Agreement]”.
2.17By email to [Waipunga] of 8 November 2016 [Advance] responded declining the offer and insisting on performance. The email did not respond to and was silent on [Waipunga’s] assertions about the [Agreement’s] profitability.
2.18By email to [Advance] of 10 November 2016 [Waipunga] terminated the [Agreement] …
2.19[Advance’s] disclosures and its failure to contest [Waipunga’s] assertions about the [Agreement’s] profitability led [Waipunga] to believe that the contract was of negligible profitability and worth no more than $10,000.00 to [Advance] and in reliance on that belief it terminated the [Agreement].
[16] In its reply, Advance denies the allegations of breach of contract, misrepresentation, and breach of the Fair Trading Act. It acknowledges in its reply that it, in response to a request from Waipunga made on 6 September 2016, it did provide Waipunga with an estimate of the quantity of honey produced in the first year of its operations on the land under the Agreement, but says that it had no obligation under the Agreement to provide that information to Waipunga. No prices were disclosed to Waipunga. Mr Leipst of Waipunga is alleged to have made certain comments on what he thought the honey was worth, based on a recent farmers’ meeting he had attended, but Advance says that Mr Janson did not agree or disagree with Mr Leipst’s comments as price was not relevant to the terms of the Agreement. In respect of the quality of the honey produced in the first year, Advance accepts that it did disclose the UMF rating of the honey to Mr Leipst. It says that disclosure was made for the sake of interest only, and not pursuant to any obligation under the Agreement.
[17] Advance referred in its reply to an email dated 2 November 2016 from
Waipunga, in which Mr Leipst referred to the relationship being “barely profitable
for either party”, and that the lack of trust between the parties was such that termination of the Agreement should be considered. The email went on to say:
We accept by doing so we would be in breach of [the Agreement] and would compensate you accordingly. Based on the facts and figures you provided you would earn no better than $10,000.00 over the life of [the Agreement] and in the interest of settling the termination amicably we offer that amount as compensation. I believe this proposal would let you move on without financial harm and allow us to explore better returns from our land …
[18] Advance pleads that Waipunga’s offer to terminate the Agreement was declined by email on 8 November 2016. On 10 November 2016 Waipunga sent its termination letter, with advice that it would forward a cheque as stated in Mr Leipst’s previous email. The 10 November 2016 communication repeated Waipunga’s view that the arrangement was hardly profitable for either party, but advised that Waipunga wished to act honourably seeing that it had terminated the Agreement.
[19] In answer to Waipunga’s allegations that Advance had remained silent on Waipunga’s assertions about the Agreement’s profitability, Advance says that it did not respond to those allegations because Waipunga did not have any interest under the Agreement in the profitability of the Agreement for Advance.
[20] Advance says that at no time did it accept Waipunga’s purported termination of the Agreement.
The judgment of Clark J on Advance’s application for an interim mandatory injunction
[21] On 15 December 2016 Advance sought an interim mandatory injunction requiring Waipunga to allow it to have access to Waipunga’s property in order to place its hives there in accordance with the Agreement. Clark J delivered a judgment on the application on 20 December 2016.
[22] Having briefly recited the background to the dispute, her Honour recorded that Waipunga “accepts that it is in breach of the agreement”.3 But her Honour concluded that Advance had not met the high threshold for the grant of an interim mandatory injunction, concluding that damages would be an adequate remedy for
breach of contract, “which breach is not disputed by [Waipunga]”. Her Honour went
on to observe that:4
It is difficult to see why the factors cited by [Advance] make quantification so difficult as to render damages an inadequate remedy for breach of contract.
[23] Her Honour noted that the beehive sites on Waipunga’s land were in any event then occupied by a third party apiarist. The proposed injunction would require its departure from the land, and her Honour considered that in light of Mr Janson’s evidence as to the difficulty of finding suitable alternative sites in the Hawke’s Bay for production of manuka honey, any order requiring the third party apiarist to depart would likely cause significant prejudice to it.
[24] A further reason for declining the interim mandatory relief was that Advance had delayed in seeking the relief. It had been clear since early November 2016 that Waipunga had no interest in re-establishing the Agreement and was possibly considering granting a different apiarist access to the land. Her Honour noted that the manuka flowering season is a brief eight week period beginning mid-December, and that placement of the hives was urgent. Advance’s delay of over one month in seeking interim relief was in those circumstances a significant factor telling against the grant of the relief sought.
Why Advance now seeks a preliminary trial on liability, with quantum issues deferred for a later hearing
[25] Advance accepts that its remedy is now in damages. However, it contends that (especially given the concession of breach of contract made in the course of the interlocutory injunction application) Waipunga has no reasonably arguable defence on liability. The hearing on liability will therefore be a relatively simple matter, involving no more than two witnesses on each side, which can be dealt with relatively promptly.
[26] In the event of its application for split trials being successful Advance proposes that the quantum hearing would not take place until some time in 2020 or
2021,5 after the Agreement would have expired if it had run to its full term. The reason advanced for a deferral of a hearing on quantum issues for that length of time was that it will be extremely difficult for Advance to quantify its damages claim without reference to the actual results produced by the third party apiarist, who is presently working on the land in a manner very similar to the operations of Advance on the land in the first year of the Agreement. Mr Gray refers in his submissions to the unique qualities of manuka honey, and to the exclusive right Advance enjoyed to work on Waipunga’s land, with no limit to the number of hives or sites. He submits that the selection of the site was crucial, as the site affects the level of honey production. Different sites are said to offer different features, and Advance chose Waipunga’s site because it showed the potential to produce manuka honey.
[27] Mr Gray submits that it is impossible to find in Hawke’s Bay another site suitable to produce manuka honey. Referring to Mr Janson’s evidence, he submits that available sites only offer lesser flowers like clover and kanuka. The market pays two to ten times more for manuka honey than it does for the lesser quality honeys.
[28] Mr Gray submits that the foregoing factors render the subject matter not readily substitutable for the purpose of assessing damages on an expectation loss basis. It is the manuka plant which dictates the important UMF rating, so production results from sites other than Waipunga’s land cannot provide the best evidence of lost production for the purpose of assessing Advance’s expectation loss. The best evidence will be the volume and quality (UMF rating) of the honey from Waipunga’s land produced by the third party apiarist, and any replacement apiarist, over the original term of the Agreement.
[29] Mr Gray acknowledges that allowances would need to be made for any vagaries associated with the operations of the third party apiarist, but the results produced by that apiarist will nevertheless provide the best evidence to assess Advance’s actual loss.
[30] With those factors in mind, Mr Gray submits that the proposed delay will best serve the “fundamental rule” that contract damages exist to replicate the plaintiff’s would-be position had the Agreement been kept to by the defendant.
[31] Mr Gray submits that a delay of the quantum hearing for four years should not in itself be determinative against the split trial application. The focus must be on whether the delay is unnecessary and prejudicial, and there is no evidence that that is likely to be the case here. Mr Gray refers to the fact that Waipunga knew and understood that when it terminated the Agreement the Agreement still had four years left to run. It was Waipunga’s choice to cancel in reliance on an argument of efficient breach.
[32] Next, Mr Gray submits that the need for separate hearings arises only because of Waipunga’s change in position on liability, contrasting with its earlier stance when Advance was seeking the interim injunction. After successfully opposing the injunction application, Waipunga now denies liability.
[33] Having regard to all of those circumstances, Mr Gray submits that the justice of the case requires that any quantum hearing should be deferred for the four-year period mentioned, so that Advance will be able to produce the best available evidence on quantum, namely evidence of actual production results from the same land it would have been working if the Agreement had not been cancelled. Mr Gray
refers to Turner v Superannuation and Mutual Savings Ltd,6 in support of the
proposition that damages may be assessed as at a date which best compensates an innocent party for its actual and reasonable loss, but may not be so assessed to the benefit of the defaulting party. He submits that an assessment of the lost production before the end of the four-year term would be highly speculative, and would necessarily be assessed on a conservative basis which would be to Advance’s disadvantage and to Waipunga’s advantage. The fact that Advance does have a record of one year working on the land would not, in Mr Gray’s submission, provide a sufficient basis for the Court to assess Advance’s loss. Five-year terms for hive- placement agreements are standard in the industry, and it is generally understood that
within that five-year period the apiarist will have two good years, two bad years, and
6 Turner v Superannuation & Mutual Savings Ltd [1987] 1 NZLR 218 (HC) at 230.
one average year. In this case, Advance’s actual production (volume and quality) in its first (and only) year on the land would be within the “average year” category, and it would be disadvantaged by any extrapolation taken from that evidence.
Discussion and conclusions
The legal principles
[34] Under the High Court Rules the Court may, whether or not a decision will dispose of a proceeding, make orders for the decision of any question separately from any other question.7
[35] The starting point is the assumption that all matters in issue are to be determined in one trial, because that will normally be the most expeditious and efficient manner for dealing with the proceeding.8 The burden is not insignificant: the party seeking to split the trial must demonstrate there is good reason for a proceeding to be split.9
[36] However every case must be considered individually and the possibility of a split trial should never be dismissed out of hand. The Court must balance the obvious advantages to the parties and to the public interest in shortening litigation, as against the disadvantages asserted by the party opposing the split trial application.10
Demarcation of issues
[37] Split trials are like to have very limited appeal in cases where there is any significant overlap between questions of liability and quantum. Mr Gray submits that the liability issues and the quantum issues in this case are discrete and non- interacting, or at least that any overlap will not be such as to justify refusal of the
application. Waipunga does not agree.
7 High Court Rules 2016, r 10.15.
8 Turners & Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at
[10].
9 At [10], citing KPMG New Zealand v Gemmell HC Auckland CIV-2008-404-4288, 27 March
2009 at [20].
10 Yves St Laurent Parfums v Louden Cosmetics Ltd (No 2) (1994) 8 PRNZ 238 at 239.
[38] I do not think it can be said with any confidence that the liability issues in this case are clearly distinct from the quantum issues which would arise if Advance were successful on liability. First, there is the issue of the quantity and quality of honey, and the prices achieved by Advance, in the first year. Waipunga pleads that, in breach of the Agreement, these matters were misrepresented to it. The actual figures for production, quality and prices will accordingly be relevant at the liability hearing. The same evidence will also be relevant at the quantum hearing, as “starting point” evidence on Advance’s loss of profits over the five years the Agreement would have run if it had not been terminated (whether Advance seeks to characterise the first year as one of the two “bad years”, one of the two “good years”, or as the “average” year).
[39] Other issues which have the potential to arise on both the liability and quantum assessments are (i) the amount of any increased fees which might have been payable to Waipunga (if it succeeded with its contentions that Advance breached its contractual obligations by misrepresenting the year one quantity, quality or prices, and by refusing to negotiate a higher fee for the second and subsequent seasons), and (ii) the costs and benefits associated with Advance’s alleged breach in refusing to create tracks into hill country hive sites on the land. As for the fees, I think Waipunga could be expected to argue at a liability trial that the likely extent of future fees which would have been payable to it but for the alleged breaches by Advance is relevant to an assessment of whether the effect of Advance’s alleged breach was “substantially to reduce the benefit of the contract to the cancelling party”, justifying Waipunga’s cancellation under s 7(4)(b)(i) of the Contractual Remedies Act 1979. And if the Court found at the liability phase that Advance was obliged to review the fees payable to Waipunga on an annual basis, in accordance with the result of the previous year’s production, but that Waipunga was nevertheless not justified in cancelling the Agreement, the likely future fees payable to Waipunga over the course of a five year term would be an element in the calculation of Advance’s lost profits.
[40] Similar considerations apply in respect of the allegation that Advance was required to fund the creation of access tracks to hillside hive sites on the land — the cost to Waipunga of doing this itself (or of being left with a site less attractive to
other apiarists at the end of the term of the Agreement if it did not) would arguably be relevant at the liability phase, to the “substantially reduce the benefit” analysis required under s 7(4)(b)(i) of the Contractual Remedies Act. An assessment of the same costs could be required if the case went forward to a determination of quantum, as a cost element in Advance’s loss of profits claim.
[41] There was considerable discussion at the hearing over Waipunga’s “efficient breach” argument, and whether it would be an argument for the liability phase or the quantum phase if an order for split trials were made.
[42] While the argument proceeds on the basis that Waipunga “breached the contract by termination”, Waipunga submits “that doing so was lawful”, as Advance was fully compensated for its loss. As Advance had represented to Waipunga that the value of the contract was no more than $10,000, and Waipunga paid compensation in reliance on that representation, Waipunga says that Advance is estopped from claiming loss in excess of $10,000.
[43] Advance submits that the doctrine of efficient breach relates to a wilful breach by one party to a contract, leaving only the issue of damages to be determined. The doctrine does not excuse the breach. Rather, it treats the breach as excusing the party from performing the contract and requires compensatory damages to be paid in lieu of performance.
[44] As with the other “demarcation” issues, the key issue for the purposes of a split trial application is whether a proposed “defence” of efficient breach will or may import questions as to quantum into the liability assessment. In this case, I do not think it will.
[45] Mr Smith cited the Court of Appeal in Paper Reclaim Ltd v Aotearoa International Ltd in support of the proposition that the doctrine of efficient breach is part of New Zealand law. The relevant part of the judgment in that case was concerned with the availability of exemplary damages for breach of contract. In answering the question in the negative, Chambers J, delivering the judgment of the
Court of Appeal, cited a report of the England and Wales Law Commission11 stating that:12
…the doctrine of efficient breach dictates that contracting parties should have available the option of breaking the contract and paying compensatory damages, if they are able to find a more remunerative use for the subject matter of the promise. To award exemplary damages would tend to discourage efficient breach.
[46] Chambers J stated that the Court was “particularly influenced” by the report
of the United Kingdom Law Commission.13
[47] In another New Zealand case, Todd Petroleum Mining Company Ltd v Shell (Petroleum Mining) Company Ltd, Wild J discussed the concept of “efficient breach”. His Honour said:14
[117] … It is open to a party to breach a contract. Legal consequences may, of course, follow. They include, if the innocent party accepts the breach (repudiation/renunciation), a secondary obligation to pay damages. Or, if the innocent party does not accept the breach, but holds the defaulting party to the contract and seeks from the Court an order for specific performance, potentially (i.e. in the Court's discretion) enforcement by the Court of the obligation to perform.
[118] It is occasionally more economic for a party to a contract to “cut its losses” by breaching the contract and paying damages, than to perform the contract. This is known as the doctrine of efficient breach. In the English Court of Appeal in Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1996] Ch 269 at 304
Millett LJ put it in the following way:
Modern economic theory supports Sir Edward Coke; an award of damages reflects normal commercial expectations and ensures a more efficient allocation of scarce economic resources. The defendant will break his contract only if it pays for him to do so after taking the payment of damages into account; the plaintiff will be fully compensated in damages; and both parties will be free to allocate their resources elsewhere.
[48] Wild J accepted that repudiation of the contract by one party, and the acceptance of the repudiation by the other, discharges the parties from further
11 Aggravated, Exemplary and Restitutionary Damages (Law Com No. 247 1997).
12 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [172].
13 At [180].
14 Todd Petroleum Mining Company Ltd v Shell (Petroleum Mining) Company Ltd HC Wellington
CIV-2005-485-819, 19 June 2006 at [117]–[118].
performance of their primary obligations and substitutes a secondary obligation to pay damages.15
[49] In my view the question of whether damages paid by a defendant in purported discharge of that secondary obligation is a quantum question, not a liability question. That is consistent with Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd,16 cited above by Wild J, where the doctrine of efficient breach was considered in the context of deciding between specific performance and damages for breach. It is a matter going to remedy, not liability.
[50] For the purposes of a split trial application then, I accept Mr Gray’s submission that the “defence” of efficient breach will not import into the liability enquiry evidence or argument directed to quantum issues. The adequacy of any amount paid in compensation for any breach will be a matter going to the assessment of the appropriate remedy.
[51] Overall on the “overlap of issues” question, I think it is enough to find, as I do, that it is likely that there would be some overlap of issues if separate trials were ordered on liability and quantum.
Extra time and cost
[52] To split the trials and defer a quantum hearing until some time in 2020 or
2021 would considerably delay the final resolution of the proceeding. Against that, it appears that a trial of, say, five days covering both quantum and liability could probably be accommodated in the third quarter of 2018. And of course split trials would only promote the speedy resolution of the entire proceeding if Waipunga were found not liable for any breach. I note too that Waipunga’s counsel has indicated that any adverse funding at a liability trial would probably be the subject of an appeal.
[53] In my view separate trials on liability and quantum are unlikely to shorten the overall time required for the hearing. Mr Gray considers that only four witnesses
would be required for the liability trial (two for Advance and two for Waipunga). The
15 At [125].
16 Cooperative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1996] 3 All ER 934.
quantum trial would require additional witnesses, including experts, and presumably a fair amount of additional documentary evidence. But there is nothing to suggest that either trial would be shorter if it were conducted as a separate trial, and it seems likely that some witnesses would be required to attend both trials.
[54] Split trial applications are often made where quantum evidence appears likely to be disproportionately burdensome or lengthy when compared with a trial on liability alone. If a defendant has a good defence on liability in such a case, arguably it should not be put to the trouble of addressing long and difficult quantum issues.
[55] I do not think this is such a case. While it may not be a straightforward matter for Advance to prove its damages if the case gets to a quantum determination, neither counsel suggested that, say, several weeks of hearing time would be required if liability and quantum were dealt with at the one trial.
Other considerations
[56] A substantial reason for the application appears to be that if split trials were ordered it would facilitate a three or four year deferral of the determination of quantum (if Advance succeeded on liability). But if Advance has no wish to push the litigation through to a conclusion on all issues for some years, and if the Court were to accede to that wish, there would seem to be little to gain by holding a separate trial to deal only with liability.
[57] That said, I do not believe the Court would be likely to countenance any such delay, especially as the parties have completed their pleadings and discovery on liability issues, and it appears that a trial on liability and quantum together could probably be accommodated in the third quarter of 2018.
[58] I accept that delay in any quantum hearing may serve Advance’s position in assessing damages. Contract damages exist to put the plaintiff in the position it would have been in had the contract been performed. Here, the subject matter is manuka honey, and I accept that the selection of the site may be crucial. I also accept that there are likely to be marked vagaries year to year in honey production.
Production results from sites other than the land may not provide the best evidence of lost production for the purposes of assessing damages.
[59] However the advantage of delay to Advance would have to be weighed against the public interest in shortening litigation, and any prejudice to Waipunga.
[60] I do not consider that split trials on liability and quantum can be justified in this case solely on the basis of the desirability of having the best evidence before the Court on damages. It will usually be the case that a “loss of future profits” damages assessment will be less speculative with the benefit of evidence of what has actually occurred in the years following the commencement of the proceeding, but that will rarely if ever justify the Court deferring a determination of quantum issues for three or four years. The parties are both entitled to have all parts of their dispute resolved with reasonable expedition, and the Courts are well used to damage assessments, which may be quite difficult, based on forecasts of what profits a plaintiff might have made were it not for the defendant’s breach of contract.
[61] Neither counsel could refer me to any decision of the Court where a delay of the length Advance wants in this case has been countenanced, and I am not surprised. Rule 1.2 requires that the proceeding is to be dealt with in a manner which is “just, speedy and inexpensive”, and I think that once a proceeding has been commenced the Court has a responsibility to give effect to that rule.
[62] A further point which I think mitigates Mr Gray’s concerns over the difficulty of proving damages in this case is that if a combined liability/quantum trial is scheduled for, say, the third quarter of 2018, Advance should be able to produce evidence relating to the actual production of manuka honey on Waipunga’s land for the first two years of the original five year term. It has its own figures for the first year, and if it can obtain evidence of the production achieved by the third party apiarist now operating on Waipunga’s land (as it wishes to do) for one more year, it will at least have a basis of two years’ actual production results on the land to assist in the formulation of the damages claim.
[63] I acknowledge that there will be some cases where the difficulty of calculating damages may be such that a plaintiff needs to call evidence which is not presently available but is likely to become available over the next three to four years. In such cases the plaintiff usually has the option of refraining from issuing a proceeding until it has the evidence it will need to formulate its damages claim (presumably that would have been an option for Advance if it had not sought the interim mandatory injunction). But once a proceeding has been issued I think different considerations apply. The public interest in the prompt resolution of disputes which have been referred to the Courts comes into play, as do the rights of the defendant to have (all of the) claims against it resolved in a manner which is “just, speedy and inexpensive”.
[64] In the end, I have not been persuaded that the issues to be determined at separate liability and quantum trials would be discrete, with no or minimal overlap. Nor is this a case where the defendant is arguing for split trials, because it considers it has a strong defence on liability and wishes to avoid, if it can, a long and burdensome trial of quantum issues which would be unnecessary if it succeeded on liability. On Advance’s own case there will be trials on both liability and quantum, and I have not been persuaded that the combined trial time would be shorter if an order for separate trials were made. And it seems likely that at least some witnesses would be required to give evidence twice.
[65] Nor do I consider it likely that, if the Court were to enter judgment for Advance on liability, it would be prepared to effectively stay the proceeding for two or more years to allow Advance to gather the best evidence it can on quantum. That is particularly the case where it seems likely that a combined liability/quantum trial date can be allocated in the second half of 2018, and Advance will have the ability to call evidence showing actual honey production on the land for two of the five years the Agreement would have run if it had not been cancelled by Waipunga.
Result
[66] For the foregoing reasons, the application is refused. Waipunga is entitled to costs, which I fix on a 2B basis, with disbursements to be fixed by the Registrar.
[67] The Registrar is directed to allocate a telephone conference for the first practicable date after 8 September 2017, for the purpose of giving such further directions as may be appropriate for completing interlocutory matters (including discovery on quantum issues), the setting of a close of pleadings date, the giving of directions for the exchange of briefs of evidence and chronologies, the preparation of an agreed bundle of documents for trial, and the allocation of a trial date.
Associate Judge Smith
Solicitors:
Sainsbury Logan & Williams, Napier for plaintiff
Michael Smith, Wellington for defendant
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