Greymouth Petroleum Holdings Limited v Todd Taranaki Limited HC WN CIV 2004-485-001651

[2008] NZHC 2425

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2004-485-001651

BETWEEN  GREYMOUTH PETROLEUM HOLDINGS LIMITED

First Plaintiff

ANDGREYMOUTH GAS KAIMIRO LIMITED

Second Plaintiff

ANDGREYMOUTH GAS COMPANY LIMITED

Third Plaintiff

ANDTODD TARANAKI LIMITED Defendant

Hearing:         1 October 2007

Counsel:         M D O'Brien and P C S Sutherland for the Plaintiffs

H McIntosh and N Leslie for the Defendant

Judgment:      29 July 2008

JUDGMENT (NO. 4) OF WILD J:  INQUIRY INTO DAMAGES SUSTAINED BY PLAINTIFFS

Introduction

[1]      By  application  dated  24  July  2007  Greymouth  applies  for  directions  in respect of the inquiry into damages I ordered in my (first) judgment, delivered on 25

July 2006.

GREYMOUTH PETROLEUM HOLDINGS LIMITED AND ORS V TODD TARANAKI LIMITED HC WN CIV 2004-485-001651  29 July 2008

Factual background

[2]      This is detailed in [6]-[45] of the judgment just referred to, with subsequent developments chronicled in [14] of my judgment (No. 3) of 29 June 2007.

[3]      The salient points relevant to this judgment are:

a)       Todd should have yielded occupation of the Ohanga-A well site to Greymouth, at the latest, when Todd’s lease of the well site expired on 31 August 2004.

b)The evidence established that the landowners of the well site (the Blakelocks) would have been prepared to give Greymouth a lease of the well site from 1 September 2004, had Todd not claimed an entitlement to a lease.

c)       In April 2005 the Blakelocks changed the locks on the gates to the well site and on 22 April 2005 granted Greymouth a lease of the well site, subject to Todd not establishing a prior right to a lease.

d)Greymouth’s  pleading  in  paragraph  50  of  its   fourth   amended statement of claim of 12 December 2005 alleged that Todd’s occupation of the well site and exclusion of Greymouth from the site:

(d)      has impeded (Greymouth’s) right to explore and/or mine the Ohanga land area and may thereby have caused damage to Greymouth, to an extent and in an amount which cannot  be  quantified  without  actual  exploration  and/or mining and enquiry.

Greymouth claimed an inquiry into the damages it had suffered.

e)        The relevant parts of my 25 July 2006 judgment are:

[144]    …  (Greymouth) is entitled also to the inquiry into damages it seeks, and pursuant to r384 I order an inquiry accordingly.

…

[150]   Greymouth is to submit for my approval a draft judgment which reflects these results, and includes the directions (pursuant to r385) it seeks as to the inquiry into damages I have ordered.

f)        These orders were sealed in the following form:

(Greymouth) is entitled to and is hereby granted:

…

(c)An inquiry into damages suffered by the first and second plaintiffs as a consequence of (Todd’s) unlawful occupation of the Ohanga wellsite land, to proceed in accordance with directions to be made on the application by (Greymouth), such application to be filed and served within twelve months of the date of this judgment.

g)       Todd did not vacate the well site until 27 July 2006:  two days after my judgment of 25 July 2006.   Greymouth then took physical possession of the well site.

h)Thereafter a Todd organised P&A of O-2 at the permit boundary was required, and was not completed until 28 February 2008, when Todd’s contractor, AWT, formally handed O-2 over to Greymouth.

i)In  [30]  of  my  judgment  (No.  3)  of  29  June  2007  I  declined Greymouth’s application to extend the time for Greymouth to apply for directions as to the inquiry into damages, because Greymouth could still apply by the 25 July 2007 deadline.

j)Greymouth did not embark upon exploring O-1 or sidetracking O-2 until after Todd (its contractor AWT) completed the P&A of O-2 and handed the well site over to Greymouth on 28 February 2008.

Damages principles

[4]      The measure of damages here is the tort measure:  I effectively adjudged that

Todd was a trespasser on the well site after 31 August 2004.

[5]      The tort measure aims to restore Greymouth, as the wronged party, to the position it would have been in but for Todd’s trespass:  Gardiner v Metcalf [1994] 2

NZLR 8 (CA).  There, Cooke P at 12 cited from the judgment of the High Court of

Australia in Haines v Bendall (1991) 172 CLR 60 at 63:

The settled principle governing the assessment of compensatory damages, whether in actions of tort or contract, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed …

[6]      There were earlier statements by the Court of Appeal to similar effect in Stirling v Poulgrain [1980] 2 NZLR 402 at 419 and in McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 at 49, and there have been subsequent reaffirmations by the Court of Appeal, for example in Hodge v Apple Fields Ltd (1999) 4 NZ ConvC 193,084 and Bloxham v Robinson (1996) 5 NZBLC 104,225.

[7]      In  Stirling  v  Poulgrain  at 418 Cooke J observed, of the assessment of damages for breach of contract, that it was:

… a field which is governed more by broad principles than by hard-and-fast rules  and  in  which  there  is  considerable  room  for  the  exercise  of discretionary judgment by the trial Court.  …

[8]      The same is equally true of the assessment of damages in tort, indeed in

Chase v de Groot [1994] 1 NZLR 613 at 627, Tipping J stated:

…  The object of damages in tort is to put the plaintiff into the same position as would have prevailed if there had been no tort.  Assessment of damages is essentially a question of fact.   Any rules or principles constitute guidance only.  The object is to be fair to both sides.

[9]      Generally, damages are to be assessed at the date of the breach or wrong, but the Court of Appeal has made it clear that that general rule yields to the Court’s power to fix damages at such other date as will best achieve justice in the particular case:   Stirling v Poulgrain per Cooke J at 420 and Richardson J at 424. This approach was confirmed in McElroy Milne per Cooke P at 44.

[10]     Any required balancing should be struck in favour of Greymouth as the wronged party.   As Megaw  LJ  said in Dodd Properties Ltd v Canterbury City Council [1980] 1 WLR 433 (CA) at 452:

If  a  balance  had  to  be  struck  (between  the  interests  of  plaintiff  and defendant), surely it would be right, even in a climate of indulgence to contract-breakers or tortfeasors, that the scales should be more heavily in the favour of the innocent party as against the wrongdoer, in any comparison of respective disadvantages or unfairness?

[11]     Mr McIntosh submitted that difficulties in determining damages have never been a bar to the Court awarding them, referring to Chaplin v Hicks [1911] 2 KB 786 (CA). That is correct, but a Court must also do “the best it can” to assess damages in a way that is fair to both parties. For example, in Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory [1979] AC 91, Lord Keith, delivering the judgment of the Privy Council, said at 106:

…  In the result, their Lordships have come to the conclusion that the ends of justice would best be served if they were to fix a new figure of damages as best they can upon the available evidence, such as it is.  …

That requirement to assess as accurately as the available evidence permits, argues for postponement of the inquiry, to a time when Greymouth will be best placed to provide evidence of the results of its exploration/mining from the well site.

Greymouth’s position

[12]     Mr O’Brien submitted damages should be assessed after a period, equal to the

23 month trespass period, running from completion by Todd of the P&A of O-2, that allows Greymouth to explore and, if warranted, mine, as it could have done but for Todd’s trespass.

[13]     That will enable accurate quantification of the revenues Greymouth would have earned but for Todd’s trespass.  The alternative of relying on seismic survey and other available data is unattractive.  Such data is notoriously uncertain, and any assessment of damages based on it would be nothing more than a speculative guess.

[14]     Greymouth’s damages will comprise:

•         Its loss resulting from the delayed receipt of mining revenues; and

•Any  permanent  loss  of  mining  production  and  thus  of  revenues consequent upon the earlier exploitation of ‘across boundary’ reservoirs by adjoining miners, that would not have been lost but for the delay resulting from Todd’s trespass.

[15]     Greymouth submitted that the order the Court made based on Greymouth’s pleading ([3]d) and e) above) precluded Todd from arguing now that the inquiry can proceed without actual exploration and (if warranted) mining.

[16]     By consent (Greymouth having conceded Todd’s counterclaim), the Court ordered that Todd was obliged and entitled to P&A O-2 at the permit boundary. That was reflected in the sealed judgment as:

…

8.        In respect of the defendant’s fifth counterclaim, by consent, the defendant is entitled and obliged, at the defendant’s cost and risk, to engage an IO to plug and abandon Ohanga-2 at the boundary between PMP 38150 and PEP 38762 (now PMP 38161) on terms to be agreed with the plaintiffs and submitted to the Court for approval.

[17]     That obligation/entitlement arose when Todd’s right to  explore/mine O-2 ended with the expiry of PPL 38705 on 31 January 2003.   This was well before either:

•         The expiry of Todd’s well site lease on 30 August 2004; and

•My judgment of 25 July 2006, which declared existing rights and obligations and did not create new ones.

[18]     Todd’s proper course was to P&A O-2 at the permit boundary, promptly after

31 January 2003 when PPL 38705 expired.  This course would have recognised that

Todd no longer had the right to mine using the top-hole section of O-2. [19] Had Todd done that:

a)        Greymouth would have had the unimpeded access to the well site it was entitled to from 27 July 2006; and

b)An inquiry 23 months after 27 July 2006 could not reasonably have been opposed by Todd.

[20]     The time the P&A has taken is attributable to Todd and not to Greymouth, save for the four month period from late February to late June 2007, during which Greymouth declined to agree to AWT being appointed as independent contractor.

[21]     The point is that the P&A of O-2 was not completed until 23 February 2008, and Greymouth did not have unimpeded access to the well site until then.   Thus, Greymouth asks that the inquiry be postponed for 23 months from 23 February 2008. Greymouth is not seeking damages for that delay in impeding its operations on the well site; its claim is for the delayed receipt of production revenues from mining wells drilled from the well site.

[22]     Todd’s contention that Greymouth could have utilised the top-hold section of O-2 by drilling a new well from outside the well site should be rejected.   The considerable extra time and expense involved should not be visited on Greymouth, since  the  cause  would  be  Todd’s  default  in  discharging  its  P&A  obligations promptly.

[23]     Similarly, Todd’s contention that Greymouth could have begun operations on O-1 after 27 July 2006 should be rejected.   Greymouth was entitled to wait until Todd had completed its P&A of O-2 and had unimpeded access to the well site.

[24]     No prejudice to Todd would result from an inquiry deferred as Greymouth requests.

Todd’s position

[25]     The  Court  did  not  intend  that  Greymouth  should  have  time  actually  to explore and/or mine before its loss was quantified.

[26]     Granting the extra time sought by Greymouth is inconsistent with established damages principles:

a)        Greymouth’s   loss   can   be   assessed   now   without   prejudice   to

Greymouth.

b)Greymouth   can,   and   should,   be   compensated   for   the   actual opportunity that was lost to it, assessed in the context that existed at the time, not for an equivalent but later period of time.  Damages for deprivation of a commercial opportunity can be assessed on a “loss of a chance” basis.  That involves the Court assessing the prospects of success  of  that  opportunity  had  it  been  pursued.     Difficulty  in assessing damages has never been a bar to awarding them.   Where there exists a clear method such as this for assessing damages, justice does not require or permit the parties to wait for actual loss to be suffered at some point in the future.   Loss of chance damages can always be determined at the date of breach;

c)       There is no legal basis for the Court to permit Greymouth to attempt to replicate the lost opportunity so as to be able to quantify it; and

d)Todd would be prejudiced if denied its right to have its liability determined now.

[27]     The Court did not intend “to give Greymouth any additional opportunity to create an actual loss scenario”:

a)       What is now sought was not claimed or argued at trial, or granted in the 25 July 2006 judgment.

b)In  its  29  June  2007  judgment,  the  Court  refused  Greymouth  an extension  of  time  to  apply  for  directions  as  to  the  inquiry  into damages.

[28]     The directions sought are not necessary properly to compensate Greymouth. In particular, an inquiry such as this is not to be an opportunity to replicate a lost opportunity so as to create a substitute loss figure.

[29]     The damages can be assessed at the time of breach on a standard loss of chance basis.  They could be assessed today.  Todd seeks a direction that Greymouth be directed to file its statement of losses within one month (of 1 October 2007).

[30]     The evidence indicates that Greymouth had no intention of drilling from the well site during the term of PEP 38762.   That term was two years from 8 March

2004.  Greymouth’s work programme did not focus on the Ohanga wells.  Todd was aware of that, and assessed its risk accordingly.

[31]     Greymouth’s suggested 23 month trespass period is “an entirely arbitrary period  of  time”.    Logically,  Greymouth’s  argument  would  justify  deferring  the inquiry indefinitely.

[32]     Deferring the inquiry would be pointless because any evidence adduced by Greymouth of subsequent exploration/mining would be inadmissible in the inquiry. It would be about damage from a different time period, with Greymouth having different  –  and  superior  –  knowledge  e.g.  knowledge  acquired  from  drilling its Turangi well in the interim.

[33]     Greymouth has had ample time to quantify its loss having had uninterrupted access to the well site since 27 July 2006.   Factually, the P&A of O-2 has not prevented Greymouth assessing its loss.

[34]     Even   if   the   Court   were   minded   to   grant   Greymouth   an   equivalent “replacement” period of time to assess its damages, that period should only be the 15 months running from 23 April 2005 (when the Blakelocks gave Greymouth a conditional lease of the well site) to 27 July 2006 (when Todd vacated the well site).

Decision

[35]     I hold that Todd should have attended to the P&A of O-2 at the permit boundary after PPL 38705 expired on 31 March 2003.  Beyond that date, Todd had no right to explore or mine O-2 from the well site.

[36]     Had  Todd  done  that,  the  P&A  would  have been  completed  by  the  time Todd’s lease of the well site expired 17 months later on 30 August 2004.  I base that finding on the 18 months the now completed P&A actually took, less the four month delay which Greymouth accepts resulted  from its refusal to accept AWT  as  an appropriate independent contractor for the P&A operation (i.e. the periods referred to in [3]h) and [20] above, respectively).

[37]     I  accept  Greymouth’s  submission  that,  had  Todd  done  that,  Greymouth would have had unimpeded access to the well site when it took possession on 27 July

2006.

[38]     I  also  accept  Greymouth’s  point  that  Todd  could  not  reasonably  have objected to an inquiry proceeding 23 months later i.e. after the equivalent of the period during which Todd wrongfully claimed to have a right to a lease of the well site, shutting Greymouth out.

[39]     That would have given Greymouth the 23 month opportunity or chance to explore and mine from the well site that was lost to it as a result of Todd’s trespass.

[40]     An inquiry into the damages suffered by Greymouth, conducted as at 27 June

2008 (23 months after 27 July 2006), would be broadly in accordance with the judgment of the High Court of Australia in Johnson & Ors v Perez (1988) HCA 64; (1988) 82 ALR 587, relied upon by Todd. I say ‘broadly’, because the approach of Mason CJ in awarding damages at the notional trial date(s) differed slightly from that of the majority, who awarded damages as at the date the plaintiff’s personal injury claims against his employer were struck out.

[41]     What has delayed Greymouth from starting exploration and mining is the

P&A of O-2 spanning the 18 months from September 2006 to February 2008.

[42]     I hold that it was reasonable for Greymouth to postpone exploration and mining from the well site until the P&A of O-2 was completed and Greymouth had the unimpeded use of the well site.

[43]     I also hold that it was reasonable for Greymouth to restrict its exploration and mining to the well site, using the existing well bores.  I reject Todd’s submission that Greymouth could and should have mined O-2 reservoirs by drilling a new well from outside the well site.  I treat that as a plea that Greymouth has failed to mitigate its losses.  But the material available to me does not support that submission.

[44]     I have already held that Todd should have completed the P&A of O-2 by 27

July  2006.    Greymouth  is  not  to  be  disadvantaged  by  Todd’s  default  in  not completing that P&A in a timely way.  Or, to put the matter round the other way, Todd  is  not  to  be  permitted  to  take  advantage  of  its  own  default:    Moreton  v Montrose [1986] 2 NZLR 496, in which Cooke J said at 503:

“The rule that a party cannot take advantage of his own wrong is fundamental:  New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1; Panamena Europea Navigacion (Compania Limitada) v Frederick Leyland & Co Ltd [1947] AC 428,

436.”

[45]     Todd’s  opposition  to  Greymouth’s  application  to  defer  the  inquiry  into damages is based on Greymouth’s claim being one for damages resulting from loss of opportunity.  Todd argues that such losses can be assessed equally accurately at any time.  For two reasons, I reject that.

[46]     First, the primary component of Greymouth’s claim is not one for damages for loss of opportunity.   The components of Greymouth’s claim are as I have set them out in [14] above.   Those are claims for losses resulting from the delays consequent upon Todd’s trespass:  loss resulting from delayed receipt of production revenues; permanent loss of such revenues resulting from the earlier exploitation of

‘across boundary’ reservoirs by other miners.

[47]     The first of those two heads of claim is not one for damages for loss of opportunity,  in  the  sense  that  that  term  is  generally  understood  in  the  law  of damages.  With rare exceptions (Chirnside v Fay (No. 2) [2005] 3 NZLR 689 may be one) the loss of opportunity cases involve permanent loss of the opportunity. Greymouth still has the opportunity to earn revenues from mining petroleum from O-1 and/or O-2, or a third well drilled from the well site. It is simply that those revenues will be received considerably later than would have been the case, but for Todd’s trespass. So the first claim is essentially for the time cost of money. The second head of claim (for revenues lost permanently) is a claim for damages for lost opportunity.

[48]     Second, deferring the inquiry to give Greymouth 23 months of unimpeded exploration and mining from the well site cannot prejudice Todd in that it will give Greymouth a “further substantive advantage over its original position”.   The knowledge position will be exactly as it would have been had the inquiry proceeded as at 27 June 2008 i.e. it will be with the benefit of 23 months of unimpeded mining and exploration by Greymouth.

[49]     Certainly the damages may be higher because the delay period is longer, but the responsibility for that delay rests with Todd.

[50]     Similarly, Todd has only itself to blame for any prejudice resulting from an inability to have its liability determined now.

[51]     Accordingly, I grant Greymouth’s application and direct:

a)       By 23 September 2009 Greymouth is to file and serve a statement detailing the losses it alleges it has  suffered  as  a  consequence of Todd’s unlawful occupation of the Ohanga well site from 31 August

2004 to 27 July 2006.

b)Todd is to  file  and  serve  any statement  in  response/opposition  to Greymouth’s statement of losses within 30 days of service upon it of Greymouth’s statement.

[52]     I reserve to both parties leave to apply at any time for further direction. [53]  Todd is to pay Greymouth’s costs of this application on a 3B basis.

Solicitors:

Bell Gully, Wellington for the Plaintiffs

Russell McVeagh, Wellington for the Defendant