CS Development No 2 Ltd v Cockburn HC Auckland CIV-2009-485-587
[2011] NZHC 1040
•24 June 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2009-485-587
BETWEEN CS DEVELOPMENT NO. 2 LIMITED Plaintiff
ANDALDWYN JOHN COCKBURN AND JANET ELIZABETH COCKBURN AND KEITH IAN JEFFERIES SUED AS TRUSTEES OF THE ALDWYN AND JANET COCKBURN FAMILY TRUST Defendant
Counsel: H. Rennie QC - Counsel for Plaintiff
R.P. Harley - Counsel for Defendant
Judgment: 24 June 2011 at 2:00 PM
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 24 June 2011 at 2.00 pm under r 11.5 of the High Court Rules.
Solicitors: Treadwells, Solicitors, PO Box 859, Wellington
Foot Law, Solicitors, PO Box 19182, Wellington
CS DEVELOPMENT NO. 2 LIMITED V AJ COCKBURN AND JE COCKBURN AND KI JEFFERIES SUED AS TRUSTEES OF THE ALDWYN AND JANET COCKBURN FAMILY TRUST HC WN CIV-2009-485-587
24 June 2011
Introduction
[1] Matters in the present proceedings have been somewhat protracted. My original judgment in these proceedings was delivered on 24 July 2009 (reported at (2010) 24 NZTC 24,420). In that decision I made an order for summary judgment in favour of the plaintiff. I also ordered that the defendant was liable for interest. The defendant appealed both the substantive determination and that regarding interest to the Court of Appeal. By judgment delivered on 16 August 2010 ([2010] NZCA 373, reported at (2010) 24 NZTC 24,431), the Court of Appeal in a majority decision upheld my substantive decision but allowed the defendant’s appeal with regard to its liability for interest. The Court remitted the matter back to this Court for determination as to whether interest was payable, and, if so, from what date and at what rate (see [99]). The defendant then applied for leave to appeal to the Supreme Court but leave was declined ([2010] NZSC 139, reported at (2011) 25 NZTC 20-
007).
[2] In considering the question of interest remitted back to this Court, I heard submissions from counsel at a hearing on 18 April 2011 and delivered my decision on 10 May 2011. In that 10 May 2011 judgment I found that interest ought to be ordered, but I was not satisfied on the evidence before me at that time, that the issues as to the date from which interest ought to be fixed or the rate at which interest was to be ordered could be determined (at [40]). Accordingly, I made the following directions: (at [41])
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(a) Counsel for the plaintiff is to have 10 working days from [10 May 2011] the date of this judgment to file and serve his memorandum addressing the matters noted at para [40] above; and
(b) Counsel for the defendants is to have a further 10 working days from that date to file and serve his memorandum addressing the matters noted at para [40] above; and
(c) Those memoranda are then to be referred to me and in the absence of either party indicating they wish to be heard on the matter I will decide the question of the quantum of interest to be ordered here on the basis of the material then before the Court.
[3] Counsel have since filed memoranda. This decision deals with those interest issues. In doing so, I do not propose to traverse the background to this proceeding. That background is outlined extensively in the previous decisions cited above.
[4] Before considering the parties’ respective submissions, however, I remind
myself that the application before me is still one for summary judgment to which r
12.2(1) of the High Court Rules applies. That rule provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[5] And I recall also that those principles of summary judgment have been usefully summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]:
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ
183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking
in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3
WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Counsels’ submissions and my decision
[6] I turn now to address counsel’s submissions and to outline my decision under two heads – the first dealing with issues as to the date from which interest ought to be fixed and the second dealing with submissions as to the rate at which interest ought to be ordered.
[7] But, before doing so, I will deal with a preliminary matter raised by Ms Harley, counsel for the defendants. This preliminary point involves a complaint by Ms Harley that the plaintiff was not provided with the opportunity to provide further information by [40] of my 10 May 2011 judgment, and accordingly she argues
therefore that the plaintiff should not be permitted here to adduce any further evidence which it has done in the affidavit of the plaintiff’s accountant Christopher Iain Morrison (Mr Morrison) filed 13 May 2011. In his reply submissions, Mr Rennie QC, for the plaintiff argues that in reality in my decision of 10 May 2011 I did provide the plaintiff and the defendant with an invitation to suggest relevant interest rates and calculation dates, and that is simply what the plaintiff has done here. And, on the issue of calculation dates, he contends there is no material difference between either counsel addressing that issue by way of memorandum or affidavit and that the plaintiff cannot be disadvantaged by electing now to provide proof. I agree. I have already ruled that interest ought to be awarded. In order to bring these proceedings to a satisfactory close I invited counsel to address the issue of dates and rates. The plaintiff chose to do so. The defendants did not, nor did they endeavour to provide any affidavit in reply to the affidavit provided by the plaintiff notwithstanding that this was filed on 13 May 2011, over two weeks before the 30
May 2011 memorandum on the issue from counsel for the defendants. That affidavit of Mr Morrison, the plaintiff’s accountant, is both cogent and helpful to that end: see the discussion of John Hansen J in Nelson Lifecare Centre Ltd v Sampson (1995) 8
PRNZ 376 at 381-382. Therefore, I dismiss the defendant’s objection first to my dealing with the issue here and secondly, in doing so, my consideration of the affidavit of Mr Morrison.
Date
[8] The general power a Court has to award interest in an appropriate proceeding is set out in s 87 Judicature Act 1908. Generally the appropriate date from which a liable party will be liable for interest will be the date on which the cause of action accrued. However, there is no fixed rule: Wilson & Horton Ltd v A-G [1997] 2
NZLR 513 (CA) at 530. Any discretion under s 87 Judicature Act 1908 or otherwise is to be exercised as the justice of the case requires: Day v Mead [1987] 2 NZLR 443 (CA) at 463.
[9] McGechan on Procedure at J.87.01 notes that the Court’s power to award interest is discretionary and the general purpose of this power is to enable a Court properly to compensate a successful plaintiff for its loss. In saying this, McGechan on Procedure at J87.02 goes on to state:
J87.02 Principles on which the discretion is exercised
(1) Plaintiff to be compensated for being out of its money
The court’s basic approach is that a defendant which has had the use of money which should have been available to the plaintiff should compensate the plaintiff: Day v Mead [1987] 2 NZLR 443 (CA) per Cooke P at 452-453 and Somers J at
463-464. An award is not dependent on proof of either the plaintiff’s loss or the defendant’s gain, but assumes both: Westpac New Zealand Ltd v Map & Associates Ltd [2010] NZCA 404 at [69].
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(4) Rate of interest
The jurisdiction is to award interest “not exceeding the prescribed rate”. The basis for calculating interest is generally the prevailing commercial rate(s) during the relevant period(s). In Equiticorp Industries Group (above) Smellie J allowed interest in each of the years from January 1994 to July 1996 at the average of the
90-day bill rate and 2-year bond rate. In Mercurius Ventures Ltd v Waitakere CC
[1996] 2 NZLR 495 the Court awarded interest at 10 percent per annum from 7
February 1993 to date of judgment (7 March 1996) on a small award of damages, and in Wilson & Horton Ltd v A-G (above) the Court of Appeal awarded 7.5 percent from November 1987 to December 1994, commenting that that rate was a commercial one given the considerable fluctuation in market rates of interest over
the relevant period.
[10] In my 10 May 2010 judgment I stated at [33]-[34]:
[33] In the present case, the date on which the cause of action accrued, the settlement date, was not the date on which the plaintiff would have received the tax credit. Instead, the plaintiff argues that the date that should be looked to is the date on which the defendants received their actual GST advantage being 19 June 2008. This is the date on which the defendants apparently received their GST refund for the corresponding period.
[34] I am not satisfied, however, that that is an appropriate point on which to fix liability. I consider that the appropriate date ought to be the date on which the plaintiff would, in the normal course, have received its tax credit had a proper tax invoice been promptly supplied. That date may or may not be the same. I did not hear argument from counsel for either party on this aspect. There are many variables on which the receipt of a tax credit may depend. For example, the date of expiry of the GST tax period of the claimant, when the GST return in question was lodged, or when it was processed by the Inland Revenue Department.
[11] Mr Rennie QC submits that the date on which the plaintiff would have received credit for the GST, if that invoice had been compliant, would have been no later than 30 April 2008. That date is provided on the basis that, as deposed by the plaintiff’s accountant Mr Morrison, the plaintiff has always been registered for GST on a monthly basis and has invoiced accordingly. Therefore, had the defendants supplied the invoice on 31 March 2008, the date of settlement, it would have been included in the GST return for March 2008 and accordingly the credit would have
been made at some point in April 2008. The date on which the plaintiff actually received the GST credit was 20 December 2010.
[12] Ms Harley for the defendants notes that a refund of GST arises following calculation by the taxpayer of cost of sales less cost of purchases in the GST period for which GST is returned to the Commissioner of Inland Revenue. The Commissioner then determines whether that amount is refundable. If the plaintiff had made sales of a significant vale in, say, the March 2008 tax period, then no refund could be made by the Commissioner. I take Ms Harley to imply that discovery is required to determine whether the plaintiff did make sales of a significant value in the particular tax period in question. However, that cannot affect the plaintiff’s disadvantaged position. First, no evidence of such sales exists. Secondly, if sales of a significant value did occur, then the plaintiff would have had to pay extra tax during that period. That payment would have been required regardless of the plaintiff’s entitlement to a tax credit. The economic impact of the defendant’s action on the plaintiff would have been the same. Therefore that argument advanced by Ms Harley is erroneous and must fail.
[13] Secondly, Ms Harley submits that because the plaintiff is on an invoice basis for GST purposes, there is no period during which it is without a refund of GST, if any, and so there can be no date from which interest ought to be fixed. Although, I don’t entirely understand this submission, I take Ms Harley to argue here that, in effect, no actual start date for loss can be determined, as the plaintiff is engaged in the month to month ebb and flow of tax invoicing. I disagree. If the plaintiff had been able to invoice for the GST tax credit in its March 2008 period it would have received a substantial benefit in the month of April 2008, either by way of a significant credit or, at worst, by a reduced debit amount to pay if it had by chance, made major sales in the period in question. As I see it, that is when loss occurred.
[14] Ms Harley’s third submission relates to my order on 24 July 2009 which she notes was to the effect that the defendants were required to issue a GST invoice by 7
August 2009. The effect of this is that the GST claim in question in this tax invoice would have been returned at the earliest in the plaintiff’s 28 September 2009 return (Ms Harley relies on s 16(2) of the Goods and Services Tax Act 1985). Therefore, the plaintiff would not have received its credit until 28 October 2009. Ms Harley
submits that is the earliest date from which interest here could be claimed. Further, she argues that it is not even certain that the Commissioner would determine that an amount is refundable to the plaintiff and that the Act does not provide any period of time in which the Commissioner must make his determination. Again, in my view, there is little in these arguments Ms Harley endeavours to advance here.
[15] First, I am satisfied that the appropriate point of assessment here is when the plaintiff ought to have received its tax credit had the defendants delivered a proper GST invoice at the time they were required to do so which was the date of settlement. Secondly, in the present case it is evident that the Commissioner did make such a refund determination promptly, as evidenced by the fact that the plaintiff received a tax credit on 20 December 2010, after an invoice was issued by the defendants on 26 November 2010. The fact that first, the claim was made in the November 2010 return (so, on Ms Harley’s analysis, the return would have been the August 2009 return) and the credit received in December 2010 (on Ms Harley’s analysis credit would have been received in September not October) suggests that Ms Harley’s analysis of s 16 is, with respect, misguided. Further, the fact that the Commissioner did not find any issue with the plaintiff’s tax credit in 2010 means that there is no evidence to suggest, and indeed no reasonable inference could be sustained, that the Commissioner would not have made his determination promptly in 2008.
[16] The defendant ought to have supplied the plaintiff with a GST tax invoice reflecting a supply on which GST was payable on settlement of the sale on 31 March
2008. On this basis, I am satisfied in this case that the appropriate dates between which interest ought to accrue are 30 April 2008 and 20 December 2010. If a compliant GST invoice had been issued by the plaintiffs when it should have been on 31 March 2008, the evidence before me shows that the plaintiff would have included the claim in its March 2008 return to the Commissioner resulting in the credit being given by 30 April 2008 at the latest. The plaintiff’s cause of action arose on that date. It is also likely that the defendants at the latest at that point would have lodged their own GST return as vendors of the property and had the benefit themselves of a GST credit (to which they were not entitled) and thus the use of the monies in question which should have been available to the plaintiff.
Rate
[17] The sum on which interest is sought is $555,555.56. The authors of McGechan on Procedure address the issue of the rate of interest to be awarded and provide the following guidance as to an appropriate rate at J87.02(4):
In fixing an appropriate interest rate, the Court often considers one or both of the following:
the interest rates the judgment sum could have attracted had it been available for commercial investment (eg term deposit and bond rates and the 90-day bank bill rate), [or] the interest costs that would have been avoided had the plaintiff had the judgment sum available to reduce indebtedness at generally prevailing commercial rates.
[18] Mr Rennie QC submits that while the contractual rate of 12 per cent per annum is not the proper rate against which interest should be calculated here, that 12 per cent contractual rate remains relevant as evidence that this was a commercial contract and any rate adopted should reflect that reality.
[19] Mr Rennie QC further says, and Mr Morrison in his affidavit confirms, that here the plaintiff was borrowing in order to fund the development project. The range of rates that its borrowing was incurring at the relevant times is confirmed by Mr Morrison in his affidavit at between 10.69 per cent p.a. and 5.43 per cent p.a. (a full outline is contained at [10] of the affidavit). Accordingly, the total interest cost sustained by the plaintiff through the defendants’ late delivery of the GST invoice is carefully calculated by Mr Morrison and confirmed at [10] of his affidavit at
$110,031.35. Alternatively, Mr Rennie QC notes, and the evidence of Mr Morrison (at [11]) confirms that, as at 1 May 2008, the plaintiff’s bank provided annual term deposit interest returns of 8.6 per cent on a six month deposit, 9 per cent on a 12 month deposit and 9.09 per cent on a 24 month deposit.
[20] In those circumstances, Mr Rennie QC argues that one of two bases should be employed by this Court to determine the amount of interest payable. First, the rate prescribed under the Judicature (Prescribed Rate of Interest) Order 2008 (8.4 per cent per annum) may be seen as the appropriate rate as all Term Deposit savings rates are well above 8.4 per cent. This would amount to $123,251.14 on the basis of simple interest at 8.4 per cent per annum between 30 April 2008 and 20 December
2010. Secondly, the total identified “interest saving” basis noted above amounting to $110,031.35.
[21] On these aspects, in her submissions Ms Harley provides no real response beyond that recorded in [7] above.
[22] As I have already noted, the general purpose of the power to award interest is to enable the Court properly to compensate a successful plaintiff for its loss: Day v Mead [1987] 2 NZLR 443 (CA) at 463. Between 30 April 2008 and 20 December
2010, as deposed by Mr Morrison, the sum due by the plaintiff to its bank under its loan facility was at all times greater than the amount of the GST credit ultimately received. As to this Mr Morrison deposes at paragraph 8:
On whatever date the GST credit was received it would have been credited in reduction of that loan facility as was done when the credit was finally received on 20
December 2010.
[23] In light of that, I consider the appropriate amount of interest payable ought to be that which would have been avoided had the plaintiff had the judgment sum available and on the uncontradicted evidence before me, that is $110,031.35.
Conclusion
[24] The defendants’ position here has been that the Court cannot be satisfied that there is no defence to the present summary judgment application in the sense that the present interest issues cannot be determined on the facts as they are before me. Also, they say there are disputed issues on these interest questions that require determination by trial and therefore summary judgment is inappropriate here. I disagree. For all the reasons outlined above, I am satisfied that the defendants have no realistic prospect of succeeding at trial as to either a reduced amount of interest or, indeed, as to liability for interest itself.
[25] I therefore assess the defendants’ liability for interest here at $110,031.35, that being the interest costs that would have been avoided by the plaintiff had a proper GST invoice been made available on settlement, and the tax credit been received by 30 April 2008. An order is now made for payment of this interest amount by the defendants to the plaintiff.
[26] As to costs, the plaintiff has effectively succeeded here and is entitled to an award of costs on this application which are assessed at Category 2B together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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