Cox v Coughlan

[2015] NZHC 1720

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003083 [2015] NZHC 1720

BETWEEN

GARY DAVID COX, STEVE COWIE

AND GARY DAVID SUTCLIFFE First Plaintiffs

GARY DAVID COX Second Plaintiff

AND

MICHAEL JOHN COUGHLAN AND ANNEMARIE ELIZABETH WILSON Defendants

Hearing:	(On the papers)
Counsel:	R O Parmenter for Plaintiffs D G Collecutt for Defendants
Judgment:	24 July 2015

DAMAGES AND COSTS JUDGMENT OF VENNING J

This judgment was delivered by me on 24 July 2015 at 4.45 pm, pursuant to Rule 11.5 of the High

Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Daniel Overton & Goulding, Auckland

Simpson Dowsett Mackie, Auckland

Copy to:            R O Parmenter, Auckland

D G Collecutt, Auckland

COX v COUGHLAN [2015] NZHC 1720 [24 July 2015]

[1]      In a decision delivered on 16 December 2014 the Court of Appeal dismissed the defendants’ appeal against an order for specific performance.1    It remitted the issue of damages to this Court for determination.  Rodney Hansen J, the trial Judge, has retired.

[2]      In  a  joint  memorandum  filed  on  20  April  2015  counsel  recorded  that damages had been resolved.  They proposed that the outstanding issues of penalty interest and costs be dealt with by way of an exchange of memoranda.  By a minute of 30 April 2015 the Court confirmed the matter was to be dealt with that way.

[3]      Regrettably the Registry did not refer counsels’ subsequent memoranda on the issue of interest and costs either to me or to the Duty Judge before 23 July 2015. I apologise to counsel and the parties on behalf of the Court for that delay (although it may be in part explained as one at least of counsels’ memoranda was filed by email directed to the fixtures registrar, rather than the case officer).

[4]      There are three outstanding issues:

(a)       damages – which as noted are agreed; (b)       the plaintiff’s claim for interest and

(c)       costs.

Damages

[5]      In  the  joint  memorandum  counsel  confirmed  that  damages  had  been calculated and assessed at $21,821.50.   In their recent memoranda counsel advise that the sealed judgment consequent on the judgment of Rodney Hansen J included a sum for part of the rental damages, namely $12,502.42.   The balance of rental

damages for which judgment is to be entered is $9,319.08.  Order accordingly.

1      Coughlan v Cox [2014] NZCA 617.

Interest

[6]      To deal with the penalty interest issue it is necessary to briefly refer to the background to these proceedings, even though it will be very familiar to the parties. The background is sufficiently recorded for present purposes in the opening paragraphs of the Court of Appeal decision:

[1]       This appeal concerns a property swap that was badly negotiated and documented, and went wrong in consequence.

[2]      Michael Coughlan and Annemarie Wilson own one of the two properties, a tenanted home at Army Bay, Whangaparaoa. The first respondents, who are the trustees of Gary Cox's family trust, own the other, at Pauanui. In December 2012 the parties agreed to exchange properties on the basis that no money would change hands and vacant possession would be given at Pauanui but Army Bay would remain tenanted.

[3]       Agreements for sale and purchase were signed, but they did not accurately record the parties' agreement. The parties addressed most of these deficiencies informally, by email or in dealings with one another, but they overlooked a mistake about price: through a solicitor's error the agreements provided  for  a  small  price  differential  in  Mr  Cox's  favour. This  caused trouble when it came to light at settlement. Mr Cox conceded, but not before Mr Coughlan and Ms Wilson had announced their intention to withdraw. …

[7]      The principal issue between the parties is the plaintiffs’ claim for penalty interest based on the defendants’ failure to settle the purchase of Pauanui property. The  plaintiffs  claim  penalty  interest  in  accordance  with  the  provisions  of  the standard form agreement for sale and purchase calculated at 14 per cent on the purchase price of $419,000 of that property from the date that settlement should have taken place, 8 February 2013.

[8]      Mr Parmenter submits that that plaintiffs are entitled to the penalty interest based on the terms of the agreement for sale and purchase, in particular cl 3.12:

3.12If any portion of the purchase price is not paid upon the due date for payment,   then,   provided  that   the   vendor  provides   reasonable evidence of the vendor’s ability to perform any obligation the vendor is obliged to perform on that date in consideration for such payment:

(1)       The purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date for payment until payment (the default period) but nevertheless the stipulation is without prejudice to any of the vendor’s rights or remedies

including  any  right  to  claim  for  additional  expenses  and

damages.  …

[9]      There is no issue the plaintiffs were ready and willing to settle as vendors of the Pauanui property.

[10]     Mr  Parmenter  referred  to  the  Court  of  Appeal  decision  in  Varney  v Anderson.2     In that case a decree for specific performance had been made which made no mention of penalty interest.  Tompkins J (determining the issue of penalty interest following the retirement of the trial Judge) decided the purchaser had not claimed for penalty interest and so rejected the claim.  The purchaser appealed.

[11]     The Court of Appeal noted the relevant clause of the contract conferred on the innocent party, (the purchaser in that case) a contractual entitlement to liquidated damages on the basis of interest at the specified rate for the period of default.  The purchaser was entitled to rely on his contractual rights under the relevant clause.

[12]     Subsequent decisions in this Court have followed that approach:   Zhang v

Zhai and Zhang and Jansen v Whangamata Homes Ltd.3

[13]     Mr Collecutt does not take issue with the fact that cl 3.12 of the agreement for sale and purchase can apply after an order for specific performance but submits the point is that in the present case penalty interest can only run on the monetary amount actually due to be paid or to change hands on settlement rather than the value of the property to be conveyed.

[14]     Mr Collecutt argues that while the defendants were obliged to specifically perform the agreements the agreements involved a property swap.  As the Court of Appeal confirmed, it was never intended that any money would change hands.  To the extent the plaintiffs have suffered damages as a result of the breach the damages flow from the lost rental and have been separately dealt with.   He submits the

plaintiffs are not entitled to damages by way of interest.

2      Varney v Anderson (1992) 2 NZ ConvC 191,347.

3      Zhang v Zhai and Zhang [2014] NZHC 2156; and Jansen v Whangamata Homes Ltd HC Hamilton CIV-2003-419-1511, 22 May 2006.

[15]     Mr Collecutt also makes the related submission that for the plaintiffs  to recover damages for penalty interest would be to provide them with a windfall and effectively provide double compensation for the defendants’ failure to settle.

[16]     I agree with Mr Collecutt’s submissions.   The authorities relied on by Mr Parmenter were dealing with the situation where the subject of the transaction was the sale and purchase of one property.   In such a case under the current standard form contract, if the purchaser is in default, the vendor is entitled to rely on his or her rights under cl 3.12 to sue for damages in addition to specific performance.  In the case of the vendor’s default, cl 3.13 applies.  In the present case the plaintiffs have obtained damages under cl 3.13.

[17]     Importantly cl 3.12 of the agreement which the plaintiffs rely on to pursue the penalty interest reads:

If  any  portion  of the  purchase  price is  not  paid  upon  the  due  date  for

payment, …

(1)      The purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid …

(emphasis added).

[18]     The clause is clearly directed at compensating the vendor for having been held out of the money due on settlement of the transaction.   Interest is payable to reflect the loss to the vendor consequent upon the purchaser’s failure to pay the purchase price.  It is not apt to apply the clause in the circumstances of a property swap where, as has ultimately been conceded by the plaintiffs, no money was ever to change hands.

[19]     This was not a one-off transaction involving the sale and purchase of one property.    No  money  was  to  pass  hands.    The  value  or  purchase  price  of  the properties was not material because the properties were to be swapped.   In the circumstances there is no principled basis for the plaintiffs’ claim to interest for late settlement.   To the extent the plaintiffs have suffered a loss by reason of the defendants’ failure to settle they have received an award for the damages that followed.

[20]     I decline the plaintiffs’ claim for penalty interest.

Costs

[21]     In addition to previous costs orders on the file Mr Parmenter seeks costs on a

2B basis for the penalty interest and rental damages claims.

[22]     Mr Collecutt has submitted that the defendants should have costs on a 2B basis for the steps taken in relation to penalty interest and damages and also the contempt of Court proceedings.

[23]     The contempt of Court proceedings have been dealt with separately.  I note that in his minute issued on 18 March 2015 Lang J dismissed the plaintiffs’ application for arrest and fixed costs in the defendants’ favour on a 2B basis together with disbursements as fixed by the Registrar.

[24]     The issue of damages was sensibly resolved by the parties with the assistance of counsel.  That was resolved in the plaintiffs’ favour.  Against that, the issue of interest has been resolved against the plaintiffs and in the defendants’ favour.  While more was at stake on the interest issue, it was dealt with on the basis of written submissions.  In those circumstances I consider costs should lie where they fall on the penalty interest and damages issues that followed the judgment of the Court of

Appeal.  Order accordingly.

Venning J