Kempton Holdings Limited v StraitNZ Freight Forwarding Limited

[2023] NZHC 688

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-000539

[2023] NZHC 688

BETWEEN

KEMPTON HOLDINGS LIMITED

Plaintiff

AND

STRAITNZ FREIGHT FORWARDING LIMITED

First Defendant

AND

STRAITNZ HOLDINGS LIMITED

Second Defendant

Hearing:	17 – 21 October 2022
Appearances:	G P Blanchard KC, E D Nilsson and S G T Ma Ching for Plaintiff J F Anderson KC, M Eastwick-Field and C F Butters for Defendants
Judgment:	3 April 2023

JUDGMENT OF GRICE J

KEMPTON HOLDINGS LIMITED v STRAITNZ FREIGHT FORWARDING LIMITED [2023] NZHC 688

[3 April 2023]

Contents

Introduction[1]

Background[5]

Issues[17]
First issue: Did StraitNZ unlawfully repudiate the contract?[17]

Second issue: What damages or compensation is Kempton entitled to?[22] First issue: Did StraitNZ unlawfully repudiate the contract?[27] Events leading up to the cancellation of the contract by StraitNZ[27] The positions of the parties[40]

Principles of contractual interpretation[56]

The condition — clause 2[59]

Was there an estoppel or waiver which operates to prevent StraitNZ from enforcing the condition?  [84]

Estoppel[87]

Waiver[97]

Variation[103]

Affirmation[104]

Second issue: What damages or compensation is Kempton entitled to?        [111]

Loss and damages principles[111]

Mitigation — the sale of the property[128]
Who takes the benefit of the gain on the sale of the land?[132]

Valuation evidence[150]

Value of property as bare land[159]

Value of land with resource consent[161]

Value of resource consent and agreement in place (the “bundle of rights”) [169] Kempton’s market valuation based on “as if complete” development[187] Alternative damages claim — loss of profits[194]

StraitNZ approach to damages[197]
Conclusion on “as if complete” valuation approach[203]
Alternative claim for damages — loss of income[214]

Conclusion on damages[228]

Wasted costs/reliance damages claim[233]

Conclusion[243]

Summary of damages[249]

Costs[253]

Introduction

[1]    In June 2018 the plaintiff (Kempton) and the defendants (collectively referred to as StraitNZ) entered into an agreement (the Agreement) in which Kempton agreed to design, build for and lease to StraitNZ a bespoke commercial/industrial development on land owned by Kempton in Wiri, Auckland. In September 2018, before the construction contract had been awarded, but after the resource consent had been issued, StraitNZ cancelled the deal. Kempton says StraitNZ wrongfully repudiated the Agreement, and it claims from StraitNZ damages in excess of

$7 million.

[2]    Kempton says it was taken by surprise when StraitNZ cancelled the Agreement. The ground given for cancellation was that Kempton had breached a condition of the Agreement by failing to obtain resource consent by 1 July 2018. Kempton says it had until 1 September 2018 to gain the consent and it did so by then.

[3]    Kempton says the real reason that StraitNZ cancelled the Agreement was because it had plans to sell off part of its operations and did not want to be left with the lease of the premises.

[4]    This case deals with two main issues. The first issue is whether or not the cancellation by StraitNZ was unlawful. The second issue is, if the cancellation was unlawful or otherwise unenforceable, what amount of damages should be awarded to Kempton in the circumstances.

Background

[5]    Kempton put in a tender in response to a request for proposal (RFP) by StraitNZ, for the design, build and lease of an industrial development as a base for its operations to bring its freight forwarding businesses together on one site. The land was an industrial subdivision in Wiri which had been owned by Kempton for a number of years. The development was to be to StraitNZ’s specifications.1 StraitNZ was at

1      The request for proposal (RFP) document released by the real estate agents (Colliers International New Zealand Ltd) on behalf of StraitNZ said that it wanted the development finished by September 2018 or if not possible, by January/February 2019 with possession four weeks earlier for access to carry out the fit-out.

that time leasing two properties for its freight operations, and the leases on those properties were due to terminate. Kempton has built, developed and leased a number of similar developments.

[6]    A Heads of Agreement was signed on 22 December 2017. The Heads of Agreement stipulated a target completion date of 1 October 2018 for the warehouse and parking area and January 2019 for the office part of the development.

[7]    Negotiations led to the execution of the final agreement to design, build and lease the development on 5 June 2018. The site would include office premises, garaging, and a sizeable truck parking area with appropriate facilities. Kempton, as lessor, was to lease the completed property to StraitNZ, as lessee, for a period of 13 years with a right of renewal. The target completion date recorded in the Agreement is 30 April 2019. The “access date”, when StraitNZ would have non-exclusive access to the premises, was six days prior to the target completion date.2 Kempton was contracted to arrange all aspects of the project, including the consenting, the design and build, and the fit-out, but excluding the IT and communications.

[8]    The Agreement was executed and signed by directors on behalf of both entities. Kempton and StraitNZ were liaising regularly to progress the project before and after the Agreement was signed. Kempton had been working with consultants preparing to commence the development even before the signing of the Agreement. In addition, each party had contracted project management consultants who were involved in the discussions.

[9]    The key clause in this dispute is cl 2 of the Agreement, which required the resource consent to be obtained by Kempton by 1 July 2018. However, cl 2.2 referred to a further “maximum period of 2 months” from the 1 July 2018 date.

[10]   A number of other clauses in the Agreement are also relevant to this matter, including:

2      Non-exclusive access was provided to allow the lessee access to the communications room for the purposes of fitting out the communications room: cl 12.1 of the Agreement.

(a)Clause 5.2, requiring the lessor to keep the lessee informed of any delays or changes to the target completion date.

(b)Clause 5.3, requiring the lessor to give as much notice as possible of the estimated “practical completion date”.

(c)Clause 18, permitting a sale by the lessor of the “whole or part of the Land or any interest in the whole or part of the Land”. Under this provision, the lessor and the lessee were required to enter into a deed with the new owner in which the new owner agreed to be bound by the terms of the Agreement from the date of disposal.

(d)Clause 20, requiring any notice required to be given under the Agreement to be in writing and delivered to the relevant party at an address supplied.

(e)Clause 23.9, providing that a party’s failure to insist on any one or more instances of strict performance of any of the Agreement’s terms, or any party’s waiver of any term or right under the Agreement or of any default by any other party would not be taken as that party’s waiver of that term, right or default in the future.

[11]   A Gantt chart of Kempton’s program for the undertaking of works was attached to the Agreement as the sixth schedule.3 This graphed the preparation and lodging of the resource consent as occurring from 29 March 2018 to 20 April 2018 and the grant of the consent due from 29 March 2018 to 5 June 2018.

[12]   Kempton lodged the resource consent application with the Auckland Council on 24 April 2018. 1 July 2018 came and went without the consent being granted, and without comment by either party. Correspondence and meetings between the project managers and the consultants concerning the development continued.

3      A Gantt chart is a chart commonly used in project management as a way of showing activities (tasks or events) displayed against time. On the left of the chart is a list of the activities and along the top is a suitable time scale. Each activity is represented by a bar, the position and length of which reflect the start date, duration and end date of the activity.

[13]   Mr Ralph Beaven, who was managing the project for Kempton, received the resource consent from Auckland Council on 28 August 2018. He sent it on to StraitNZ, through one of its directors, Ms Louise Struthers, on 29 August 2018. He says on a number of occasions in early- to mid-September he and another representative of Kempton then sought confirmation from StraitNZ that the contract was unconditional.

[14]   However, on 20 September 2018, StraitNZ, through its lawyers, cancelled the Agreement. According to Mr Beaven, as far as Kempton was concerned, this cancellation was “completely unexpected”.

[15]   Kempton subsequently received an unsolicited offer to purchase the land on which the development was to be built. On 4 December 2018, Kempton cancelled the Agreement on the grounds that StraitNZ had repudiated. It then accepted the offer it had received on 11 December 2018 at a price of $13.75 million. Settlement of the sale of the project land took place on 20 February 2019. It is common ground that the land and resource consent was included in the sale but no value was specifically attributed to the resource consent in the sale documents.

[16]   Kempton now seeks to recover a maximum of $7,512,354 (excluding GST)4 or $5,803,133 (excluding GST),5 being loss of estimated market value of the development “as if complete” with the lease in place. In the alternative it seeks damages for loss of expected profits totalling $4,734,076 (excluding GST) and/or a loss of $447,901 (excluding GST) for wasted costs. It seeks to retain the proceeds of the sale of the land in addition to those damages.

Issues

First issue: Did StraitNZ unlawfully repudiate the contract?

[17]The first issue is whether StraitNZ unlawfully repudiated the contract.

4      Based on valuation as at August 2019.

5      Based on valuation as at September 2018.

[18]   The meaning of the clause in the Agreement relating to the obtaining of resource consent by Kempton is the primary issue of contention here. Below is cl 2 in full (where Kempton is referred to as the Lessor and StraitNZ as the Lessee):

2AGREEMENT CONDITIONAL

2.1Conditions - This Agreement is conditional upon the Lessor obtaining by 1 July 2018 on terms and conditions acceptable to the Lessor and the Lessee (both acting reasonably), those Approvals under the Resource Management Act 1991 which the parties reasonably determine are required to enable the Lessor to commence and complete the Lessor’s Works.

2.2Obtaining Approvals - The Lessor shall use all commercially reasonable endeavours to obtain the relevant approvals prior to the date stated in clause 2.1. The Lessee shall provide all reasonable assistance to the Lessor to obtain the required approvals the subject of clause 2.1. If the Approvals have not been issued by the date in clause 2.1, subject to the Lessor having used all reasonable endeavours to obtain the Approvals by that date and the Lessor being able to demonstrate to the Lessee’s satisfaction (acting reasonably) that the Approvals are close to being issued, the Lessor may extend the date for obtaining the Approvals by a maximum period of two months.

2.3Termination of Agreement - If the condition in clause 2.1 is not satisfied or waived within the specified period, then the Lessor or the Lessee may terminate this Agreement by giving written notice to the other party to that effect and this Agreement shall be immediately at an end. Termination is without prejudice to any claim under this Agreement arising before the date of termination.

2.4Waiver - The condition in clause 2 is for the sole benefit of the Lessor and may be waived by the Lessor.

2.5Deposit - If the Lessor requires, the Lessee shall pay a deposit which is equivalent to two months’ rent plus GST to the Lessor within 7 days of the date of this Agreement. The deposit shall be treated by the Lessor as payment of the first two months’ rent payable under the Lease, subject to adjustment once the final measurements and final rent amount is known.

[19]   Kempton says the 2018 Agreement became unconditional when it obtained the resource consent on conditions which were reasonably acceptable to the parties before 1 September 2018, as required. It says StraitNZ did not respond when it was asked at this point to confirm the contract.

[20]   On the other hand, StraitNZ says the Agreement was conditional upon Kempton obtaining the resource consent on terms acceptable to both parties by 1 July

2018. StraitNZ says Kempton failed to do so and took no steps to extend the date for obtaining the consent to a specific date not later than a further two months, and it was therefore entitled to cancel the contract on 1 July 2018 or thereafter. StraitNZ says it was neither estopped from lawfully cancelling the contract, nor did it waive its right to cancel the contract. StraitNZ says the contract was therefore validly cancelled by its written notice of cancellation given on 20 September 2018 from that point.

[21]   If Kempton is correct and the contract was unlawfully cancelled, or estoppel or waiver operates to prevent StraitNZ from treating the contract as lawfully cancelled, Kempton is entitled to damages from StraitNZ. The second issue arises only in those circumstances.

Second issue: What damages or compensation is Kempton entitled to?

[22]   The second main issue is the measure of damages to which Kempton is entitled if the contract was unlawfully repudiated and neither estoppel nor waiver operates.

[23]   Kempton says it is entitled to an amount of damages or compensation which would put it in the position it would have been in had it completed the development with StraitNZ as the counterparty and lessee in terms of the Agreement. It says that amount is the difference between the estimated cost to complete the project and the “as if complete” valuation of the project. It relied on two “as if complete” market valuations. The first was the value assessed as at September 2018 and the second as at August 2019. The claim based on the latter valuation was the basis for the higher damages claim under that head of damages.

[24]   Alternatively, Kempton says it is entitled to damages equivalent to the amount the profit would have been on the lease for a period of three years. It says the period of three years is how long it would have taken to find a quality counterparty and develop and lease the property to that tenant.

[25]   In either case, Kempton says it is also entitled to the amount of $447,901, which it describes as wasted costs that it had sunk into the development and cannot now recover. Some of these costs were incurred before the Agreement was signed.

[26]   Kempton also says it is entitled to retain the full purchase price paid for the bare land (with resource consent attached) of $13.75 million. It argues that the sale of the property is unrelated to the defendants’ breach of the Agreement. It says no part of the sale proceeds can be applied in mitigation of the amount of damages otherwise awarded.

First issue: Did StraitNZ unlawfully repudiate the contract?

Events leading up to the cancellation of the contract by StraitNZ

[27]   Kempton lodged the resource consent application with the Auckland Council on 24 April 2018. Kempton received the draft resource consent with conditions on 7 August 2018. It considered the draft consent conditions with the assistance of its consultants. Kempton forwarded the draft resource consent conditions to Mr Brady at StraitNZ on 28 August 2018. Mr Beaven said in the forwarding email that Kempton was awaiting the “confirmed issue” of the consent from the Council, but it was unlikely the conditions would vary. He also referred to the preferred contractor being Aspec Construction (Aspec), and that Kempton would forward a copy of the contractor’s programme. Mr Beaven ended his email with the following: “Prior to accepting Aspec Construction we will be seeking your confirmation to declare to ATL unconditional (sic).”6

[28]   The Council issued the final consent and conditions on 28 August 2018. On the  same  day,  Mr  Michael  Hutchings,  on  behalf  of  Kempton,  also  emailed  Ms Struthers of StraitNZ. He asked to meet with her in order to review the final resource consent conditions, present the contractor’s programme for the works, approve the fit-out costs and to “obtain StraitNZ confirmation that the ATL is unconditional”. He suggested some options for times to meet. Ms Struthers replied the same day asking to “lock in Wednesday 5th at 2.00 p.m.”

[29]   Shortly after Mr Hutchings’ email, on 28 August 2018, Mr Beaven emailed the approved resource consent conditions to Ms Struthers saying Kempton had reviewed and found them acceptable. He said:

6      ATL means “Agreement to Lease”.

As a Condition of the Agreement to Lease please also review the RC conditions and confirm they are acceptable.

We look forward to meeting with you next Wednesday.

[30]   Mr Duggan and Ms Struthers for StraitNZ were present at the meeting  on     5 September 2018, as was Mr Beaven. Mr Duggan and Mr Beavan each took notes and they gave materially consistent evidence as to what happened at the meeting.  Mr Beaven said he repeated that Kempton needed the Agreement to be executed given the resource consent had been issued. There were no issues raised as to the acceptability or otherwise of the resource consent condition terms.

[31]   On 6 September 2018 Mr Beaven again emailed Ms Struthers with an updated construction programme and asked that she confirm the Agreement was unconditional. He said:

For the purpose of satisfying the condition in cl 2.1 of the ATL, we need your confirmation by return that the resource consent conditions are acceptable to StraitNZ.

[32]   In an email on 7 September to StraitNZ, Mr Beaven suggested a completion date of 31 May 2019. Mr Duggan responded that evening saying:

Please help me to understand this. It seems unreasonable after yesterday’s meeting and the questions raised as to how it would be expected that we would sign this off.

[33]   Mr Beaven said there would have been further opportunities to reduce construction time with Aspec but as StraitNZ had sought meetings to revisit the design he wanted to advance that first. An issue had been raised by Ms Struthers at the 5 September 2018 meeting concerning design, which was satisfactorily dealt with following a meeting held between her and the architects on 10 September 2018.

[34]   On 13 September the building consents for stage 1 and 2 of the development were issued.

[35]   On 17 September 2018 Mr  Hutchings,  on  behalf  of  Kempton,  emailed  Ms Struthers asking whether StraitNZ needed anything further to confirm the

Agreement was unconditional. Ms Struthers replied the same day confirming StraitNZ was “just working through all the documentation”.

[36]   In the meantime, Kempton had been negotiating with Aspec, which was the successful tenderer for the construction, design and build contract. No contract had been signed with Aspec.

[37]   Kempton then received a notice of cancellation from StraitNZ through its lawyers on 20 September 2018. Mr Beaven said StraitNZ’s termination was “completely unexpected”. He said there had been no suggestion in the correspondence and discussions since 1 July 2018 that StraitNZ would terminate the contract or that it was “preserving its position” on termination.

[38]   Kempton attempted to negotiate further with StraitNZ to keep the project on foot but without success.

[39]   On 4 December 2018, Kempton’s lawyers gave notice to StraitNZ that Kempton cancelled the contract based on repudiation by StraitNZ.

The positions of the parties

[40]   It is common ground that Kempton had not obtained the resource consent by 1 July 2018. StraitNZ says given that failure, absent a waiver, either Kempton or StraitNZ could terminate the Agreement by giving written notice to the other to that effect, bringing the contract to an end under cl 2.3.

[41]   StraitNZ submits that the extension of time contemplated by cl 2.2 could only operate if it were extended by Kempton before 1 July 2018, as the right to terminate had come into existence on that date. Once that date had passed, Kempton could not extend the conditional date. StraitNZ said that after 1 July 2018, the right to terminate remained open to it and it could have cancelled the contract at any time by written notice, which it did on 20 September 2018. StraitNZ says the only issues now capable of argument are therefore whether there was a waiver or an affirmation of the contract by StraitNZ or whether an estoppel arose preventing StraitNZ from terminating the contract.

[42]   In relation to a waiver, StraitNZ says that Kempton cannot rely on a waiver of the condition as waiver requires the intention to waive be made manifest. That was not done here. In any event, any waiver would have had to have occurred before the conditional date of 1 July 2018.

[43]   StraitNZ says that cl 2.4, which states that the condition in cl 2 “is for the sole benefit of [Kempton] and may be waived by [Kempton]”, can be rationalised with the termination right in cl 2.3. That is, under cl 2.1 Kempton had the “sole benefit” of extending or waving the condition, right up to the conditional date (1 July 2018). After that, if the condition had not been met, StraitNZ contends both parties had a right to terminate the Agreement under cl 2.3.

[44]StraitNZ also contends that it did not affirm the contract.

[45]   StraitNZ says that in view of the importance of the resource consent and the need to ensure that the construction of the warehouse would be lawful, from 1 July 2018 StraitNZ should not have been required to decide to proceed with the Agreement without any certainty as to whether the consent would be obtained on acceptable terms.

[46]   Ms Anderson says that in the circumstances, which on StraitNZ’s part included a change in management and seeking legal advice on the resource consent conditions, StraitNZ exercised its right to cancel the contract sufficiently promptly. It did not authorise Kempton to let any construction contract to progress.

[47]   Ms Anderson says it is apparent that neither of the parties conducted themselves as if StraitNZ had forgone its right to insist on satisfaction of the condition. Ms Anderson pointed to Mr Beaven having accepted in cross-examination that from his layman’s perspective on 28 August 2018 he was “pressing” StraitNZ to confirm the contract was unconditional. StraitNZ said little weight should be placed on Kempton’s evidence that it was seeking confirmation from StraitNZ on that date on a “collaborative basis”.

[48]   Kempton contends a different interpretation of cl 2. Mr Blanchard KC, for Kempton, says the ordinary meaning of cl 2 when read in context, is that Kempton,

for whose benefit the clause was inserted, was entitled to satisfy the condition by obtaining the resource consent on acceptable conditions at any time up to 1 September 2018. It did so and sent the conditions for approval to StraitNZ on 29 August 2018 but received no confirmation or indication that the conditions were not acceptable.7

[49]   Mr Blanchard submitted that Kempton’s actions were not in breach of cl 2. Mr Blanchard says Kempton did all that it should have done. It obtained the resource consent before the latest date it was entitled to under the contract, that is 1 September 2018, and it was able to demonstrate that it had used all reasonable endeavours to obtain the approvals by the first date of 1 July 2018.

[50]   At the request of Mr Brady for StraitNZ, Kempton had forwarded a critical timeline which showed the consent had been applied for before 1 July 2018, and therefore from that point was merely waiting for Auckland Council to process the consent. The consent was imminent. In fact, the planning evidence suggested that the four months that Auckland Council took to process the consent application was a reasonable timeframe for that Council.

[51]   Until Mr Duggan and Ms Struthers took over the “hands on” management of the project from Mr Brady in August 2018, there was no suggestion to Kempton that the fact the resource consent had not been obtained on 1 July 2018 would jeopardise the contract.

[52]   In particular, there were a number of exchanges which took place between Kempton and StraitNZ while Mr Brady was managing the project for StraitNZ. These included communications in relation to design and a request by Mr Brady that StraitNZ provide information about the timeline and the project personnel, which was promptly supplied. On 19 July 2018 Mr Beaven wrote to Mr Brady in an email attaching an invoice, saying:

7      There was some dispute as to whether StraitNZ received or had copies of all the planning documents supporting the resource consent on 29 August. Some of the conditions had been supplied to Mr Brady earlier and others were supplied at the request of Mr Duggan. Mr Duggan indicated that StraitNZ had some concerns about various issues including the fit-out, design and the completion date, which had been raised at the meeting on 5 September 2018. However, there was no evidence at the hearing that any issue was taken with the acceptability of the conditions of the consent.

We are anticipating the resource consent and the Stage I foundation and drainage consent will be issued shortly.

[53]   On 19 July 2018, at Mr Brady’s request, Kempton supplied a summary of the program on one page, and on 7 August 2018, in response to Mr Brady’s request of the same day, Kempton provided a one-page summary showing all stakeholders on the project, their names their areas of responsibility and companies and details. On 13 August 2018, Mr Brady sent an email saying that he had had some time off and was seeking an update as to any developments, saying “Assume we are still on track, with tenders etc being received?”.

[54]   After 1 July 2018 Kempton also issued progress claim invoices to cover some consultants’ fees for work that StraitNZ had agreed it would cover. These were paid in due course.

[55]   The interpretation of the contract condition is at the heart of the dispute between the parties. I now consider that issue.

Principles of contractual interpretation

[56]   Contractual interpretation is the process by which the meaning of the express terms of a contract is determined.8 The Court’s task is to determine the objective meaning of the language which the parties have used.9

[57]   Arnold J, giving the reasons for the majority in the Supreme Court in Firm PI 1 Ltd v Zurich Australian insurance Ltd, summarised the approach to contractual interpretation as follows:10

[T]he proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. The subjective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly,

8      Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [6.3.1].

9      Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 at [10].

10     Firm PI 1 Ltd v Zurich Australian insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].

the context provided by the contract as a whole and any relevant background informs meaning.

[58]   The Supreme Court recently clarified the general approach to contract interpretation in Bathurst Resources Ltd v L&M Coal Holdings Ltd.11 The authors of Burrows, Finn and Todd on the Law of Contract in New Zealand identify three key aspects of this general approach, which are relevant here:12

(a)Objectivity: the meaning is to be ascertained by a reasonable person having all the background knowledge which would reasonably have been available to the parties. The uncommunicated subjective intention of one party is not relevant.13 The objective approach achieves certain desirable policy objectives, which include providing the certainty needed to facilitate the efficient conduct of commerce, holding people to the bargains they make, and supporting access to justice through “the efficient and just conduct of proceedings.”14

(b)Context: evidence of context must be relevant to the assessment of the meaning which the document would convey to a reasonable person. The meaning of a contractual provision, read in its context, can be quite different from its plain meaning. As Lord Hoffmann noted in the ICS case, the process of interpretation can correct for mistakes in the language used in a contractual document.15 The approach to contractual interpretation is fundamentally contextual, and “contractual language, like all language, must be interpreted within its overall context, broadly viewed”.16

(c)The primacy of the text: as Arnold J stated in Firm PI 1 Ltd, while context is “a necessary element of the interpretive process”, and “the focus is on interpreting the document rather than particular words”, the text

11     Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.

12     Todd and Barber, above n 8, at [6.3.2].

13     Bathurst Resources, above n 11, at [68].

14 At [46].

15     Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912–913. In this case Lord Hoffmann set out the principles of contractual interpretation, which have been largely adopted by New Zealand courts, apart from the rule excluding evidence of prior negotiations between the parties.

16 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 10, at [61].

nevertheless remains “centrally important”, and the “natural” or “ordinary” meaning is a “powerful, albeit not conclusive, indicator of what the parties meant.”17 In Bathurst Resources, Winkelmann CJ and Ellen France J noted that giving primacy to the written words of the agreement “accords with the policy of providing commercial certainty” and recognises the importance of the words chosen by the parties to record their agreement.18 That said, commercial certainty should not be allowed to defeat the parties’ actual intention.19

The condition — clause 2

[59]   Applying those principles to the present contract, cl 2.1 must be read in the context of both the whole of that clause and the contract. In isolation it reads as a condition requiring Kempton to obtain by 1 July 2018 a resource consent on terms acceptable to both parties (both acting reasonably).

[60]   Clause 2.3 then provides that “if the condition in cl 2.1” is not satisfied or waived within “the specified period” then either party may terminate the Agreement by written notice. The Agreement is then immediately at an end.

[61]   The phrase “the specified period” is used in cl 2.3. However elsewhere in the clause there is reference to “the date in cl 2.1”. For instance:20

(a)Clause 2.2 requires Kempton to “use all commercially reasonable endeavours to obtain  the relevant Approvals  prior to  the date stated  in  cl 2.1.”

(b)Clause 2.2 goes on to state that “If the Approvals have not been issued by the date in cl 2.1, subject to the Lessor having used all reasonable endeavours to obtain the Approvals by that date and the Lessor being able to demonstrate to the Lessee’s satisfaction (acting reasonably) that the

17 At [60].

18     Bathurst Resources, above n 11, at [46].

19 At [46].

20     Emphasis added.

Approvals are close to being issued, the Lessor may extend the date for obtaining the Approvals by a maximum period of 2 months.”

[62]   It appears that the phrase “the specified period” must have a different meaning to the phrase “the date stated in cl 2.1”. A “period” is a reference to the time between one date and another date, whereas the “date stated” refers to a specific day.

[63]   In my view, the “specified period” refers back to cl 2.2, namely the period of two months within which Kempton must either waive or satisfy the condition in cl 2.1, that is, to obtain the resource consent.

[64]   Under cl 2.2, Kempton was entitled to extend the date for obtaining the Approvals as long as it had used “all reasonable endeavours to obtain the Approvals” by 1 July 2018 and it “was able to demonstrate to the Lessee’s satisfaction that the Approvals [were] close to being issued”. If it satisfied or waived the condition within those two months (that is, up to 1 September 2018), neither party was entitled to terminate the Agreement under cl 2.3 for the failure to obtain the resource consent. If it did not satisfy or waive the condition by then, either party could terminate.

[65]   The failure by Kempton to obtain the resource consent by 1 July 2018 did not give rise to a breach unless Kempton had not used all reasonable endeavours to obtain the Approvals by that date and it was not able to demonstrate to StraitNZ’s satisfaction (acting reasonably) that the Approvals were close to being issued.

[66]   The evidence in this case prima facie suggests that Kempton had used all reasonable endeavours to obtain the Approvals and it was able to demonstrate that the Approvals were close to being issued throughout the two-month specified period. There was no argument to the contrary.

[67]   As Ms Anderson submitted, generally where a contract fixes a time for fulfilment of a condition, that time limit must be strictly adhered to. The leading authority for that proposition is the decision of the Privy Council in Valentines Properties Ltd v Huntco Group Ltd.21 A condition requiring Valentines to approve the

21     Valentines Properties Ltd v Huntco Corp Ltd [2001] 3 NZLR 305 (PC).

conditions of a resource management approval within five working days of the receipt of the conditions imposed by the local authority was not fulfilled. On 28 August 1997, Valentines notified Huntco that the contract was terminated pursuant to an express provision to that effect in cl 16.2. That clause stated that “if any of the foregoing conditions shall not be fulfilled and satisfied then the Agreement shall be at an end.” On 29 August 1997 Huntco obtained a variation of the resource consent conditions, which would have satisfied Valentines.  The Privy Council, disagreeing with the  New Zealand High Court and Court of Appeal, said the purpose of the clause was clear. If Valentines had approved the conditions within the five working days after being notified of them, then the Agreement was to proceed.22 If Valentines did not give their approval, then at the end of the five working days the Agreement would automatically end unless it had acted unreasonably in withholding approval.23 The purpose was to ensure that both parties knew where they stood. As their Lordships said, “[t]he specific time limit was intended to achieve certainty, and speedily so.”24 The context did not suggest a different meaning.

[68]   Huntco had argued that it was entitled to pursue an objection to the local authority in order to vary the condition, so time did not run on the condition until the objection process was at an end. The duration of that objection process was uncertain.25 However, their Lordships noted that even though satisfactory conditions were obtained from the local authority within a day or two of the five-day time period, this was irrelevant as “a miss is as good as a mile”.26 They said:27

… The rigour of this principle is softened when the parties are taken to have intended otherwise. Then, in the legal jargon, time is not regarded as “of the essence”. Failing a contrary indication, the law assumes that stipulations as to time are not of the essence in certain common form situations, such as the date for completion of a contract for the sale of land … In the present case a contrary intention is not to be found in the language of the agreement, nor can it be inferred from the context …

[69]   Here, cl 2 read as a whole indicates that there was a contrary intention to time being of the essence for the date set out in cl 2.1. The provisions of cl 2.3 allowing

22 At [16].

23 At [16].

24 At [16].

25 At [18].

26 At [20].

27 At [20].

termination on notice could not operate unless the resource consent had not been fulfilled by the expiration of the “specified period”. Of course, at any time after 1 July 2018 StraitNZ could have required Kempton to show it had used all reasonable endeavours to obtain the resource consent and that the resource consents were close to being issued. If Kempton could not do so, then StraitNZ could terminate. StraitNZ did not expressly request evidence of those matters. It appears Kempton would have satisfied those requirements, as was apparent in the Gantt chart which was emailed to Mr Brady.

[70]   While not directly relevant, cl 2.4 provides that the condition in cl 2 is “for the sole benefit of the Lessor and may be waived by the Lessor”. There is a reference to “waiver” in cl 2.3. That allows waiver “within the specified period”. There is some consistency in Kempton being able to satisfy the condition within the specified period and its ability to waive that condition until the expiry of the “specified period”. This gives the sole benefit provision more meaning than the interpretation suggested by StraitNZ that Kempton could only waive up to 1 July 2018.

[71]It is also noteworthy that the Agreement attached a “Draft Project Programme

– Rev 6” based on information “as at 19 April 2018” which stated that the resource consent was to be obtained on the same day that the contract was signed, that is 5 June 2018. This contradicts the date in cl 2.1 of 1 July 2018. This is consistent with the parties intention to allow some flexibility in terms of the date for obtaining the resource consent.

[72]   The interpretation of the contract in the manner I have suggested gives the parties the certainty that is required in a commercial contract. This certainty is apparent because:

(a)If the resource consent had not been obtained by 1 July 2018, and Kempton was not: able to demonstrate to StraitNZ that it had: used “all commercially reasonable endeavours to obtain the relevant approvals”; could not show it had used “all reasonable endeavours to obtain the Approvals by that date”; and was not “able to demonstrate to the Lessee’s satisfaction (acting reasonably) that the Approvals [were] close to being issued”, Kempton

would be in breach and StraitNZ could seek damages or give notice, thus making time of the essence.

(b)If the condition was not satisfied or waived by 1 September 2018, either party had the right to terminate on notice.

[73]   The first date of 1 July 2018 acted as a safeguard for StraitNZ so that if it suspected that Kempton was not using reasonable endeavours to keep the resource consent process moving or that there appeared an impediment that might delay completion of the project, it could require Kempton to demonstrate otherwise. If Kempton failed to do so, then StraitNZ was able to take steps under the contract.

[74]   In this case the resource consent was issued before 1 September 2018. It was sent to StraitNZ on 29 August 2018. StraitNZ did not raise any objection in relation to the conditions. It was not argued before me that the conditions were unacceptable to StraitNZ.

[75]   The clause did not stipulate any specific form of communication was to be used by StraitNZ in order to communicate that the conditions were acceptable to it. However even if that were required, where a person is under an obligation not to withhold approval unreasonably, and does withhold approval unreasonably, that person is treated as having given that which they could not properly withhold.28 In this case, StraitNZ, when requested, did not confirm the conditions and nor did it raise any objection. It is apparent that the conditions were in fact acceptable to StraitNZ and it had an obligation to approve in the circumstances. The conditions must be taken as acceptable to StraitNZ and the agreement became unconditional at that point.

[76]   The issue arises as to whether Kempton was required to take any steps to “extend the date for obtaining the Approvals for a maximum period of 2 months.”

[77]   There was no requirement that an extension be sought in any particular manner, whether in writing or otherwise. This contrasts with the requirement in cl 2.3 that termination was to be by written notice, if the condition was not “satisfied or waived”.

28 At [22].

[78]   In my view, the wording of cls 2.2 and 2.3 in a number of respects indicates that as long as an action which is required to be done is done, notification of that action to the other party is not required. The fact that Kempton may have been required, on request, to “demonstrate” that it was using all reasonable endeavours to obtain the approvals, was sufficient to meet the requirements of that provision. This can be contrasted with the provision concerning the payment of the deposit in cl 2.5, which was only payable if Kempton “require[d]” payment.

[79]   The drafting of the clause suggests that the occurrence of the relevant events did not need to be conveyed by any particular words or action to the other party in order for the requirements to be fulfilled. As long as Kempton had used all reasonable endeavours to obtain the approvals as required, and it was able to demonstrate to StraitNZ’s satisfaction that the approvals were close to being issued, it was entitled to extend the date or treat the date as extended, without taking steps to notify StraitNZ that those requirements were met unless requested to do so. Similarly, under cl 2.3, if the condition was satisfied “within the specified period” the right to terminate was not available.

[80]   In short, StraitNZ was aware that the resource consent was not  obtained  by 1 July 2018. Mr Brady was advised of progress being made via the provision of the Gantt charts on two occasions when he asked for updates. Mr Brady raised no objection to the fact that Kempton had not obtained the consent by that date. StraitNZ was advised that the consent had been obtained on 29 August 2018. The condition had been satisfied within the specified period.

[81]   I therefore conclude that Kempton was entitled to satisfy the contractual requirement to obtain the necessary approvals up to 1 September 2018 and, as long as it had used reasonable endeavours to obtain the approvals and was able to demonstrate that the approvals were close to being issued, was not required to take any particular steps to effect the extension. I am of the view the provisions of cl 2.2 did not require an extension date to be specified as long as the condition was satisfied within the specified period (that is, 1 September 2018), failing which the right to terminate arose.

[82]   The notification by Kempton to StraitNZ that the consent had been obtained and provision of the conditions was sufficient evidence that the condition had been satisfied within the “specified period”.

[83]   As the condition was satisfied by 1 September 2018, the Agreement was therefore  unconditional.  StraitNZ,  by  purporting  to  cancel  the  Agreement  on  20 September 2018, unlawfully repudiated the contract. Kempton was therefore entitled to cancel the contract after that date under s 36 of the Contract and Commercial Act 2017. As such, Kempton is entitled to damages for breach of contract by StraitNZ and to apply for relief under s 43 of that Act.

Was there an estoppel or waiver which operates to prevent StraitNZ from enforcing the condition?

[84]   I have found as a matter of contractual interpretation that, in the circumstances, Kempton satisfied the condition in the contract requiring resource consent be obtained. However, the plaintiff pleaded in the alternative that both waiver and estoppel operated to prevent StraitNZ from enforcing the condition.

[85]   In addition to the arguments on waiver and estoppel, although it was not pleaded, Mr Blanchard in his closing submissions also argued that by continuing to work with Kempton beyond the initial condition date (that is, 1 July 2018) StraitNZ agreed to vary the contract beyond that date for satisfaction of the condition until the earlier of the condition being satisfied, the plaintiff waiving the condition or either party terminating the agreement.

[86]   I address these matters briefly, in case I am wrong and the contract gave rise to a right by either party to terminate the contract which could be exercised at any time after 1 July 2018.

Estoppel

[87]   It is common ground that Kempton took no express action to extend the contract under cl 2.2 or seek to waive the condition.

[88]   In support of its estoppel argument, Kempton submitted that StraitNZ had caused and encouraged Kempton to believe and expect that StraitNZ would not terminate the Agreement under cl 2.3 for the failure by Kempton to obtain a resource consent by 1 July 2018 and intended that Kempton act on that belief.

[89]   Kempton points to the conduct and correspondence which I have outlined above. It says in particular the work that it was doing in liaising with Mr Brady of StraitNZ following 1 July 2018 encouraged Kempton to continue to expend time and money on performing the contract. It was working on obtaining the various consents, finalising the design and tendering and negotiating the construction and fit-out contracts with Aspec. Kempton said this encouraged it to expect that StraitNZ would not terminate the agreement under cl 2.3 for failure to obtain the resource consent by 1 July 2018 and that it intended Kempton to act on that belief.

[90]There was no dispute that in order to establish estoppel, Kempton must show:29

(a)a belief or expectation by Kempton has been created or encouraged by words or conduct by StraitNZ;

(b)to the extent express representations are relied upon, they are clearly and unequivocally expressed;

(c)Kempton reasonably relied to its detriment on the representations; and

(d)it would be unconscionable for StraitNZ to depart from the belief or expectation.

[91]   A representation is to be judged objectively. In some cases silent acquiescence may give rise to an estoppel either by amounting to a general representation or because the silent party had a duty to speak up. However, silence and acquiescence rarely amount to a genuine representation because they are of their nature equivocal and will generally not create a belief or expectation. Silence may be relied upon in the case of

29     Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].

a mistake where the mistaken party would have acted differently if the other party had spoken up.30

[92]   The silent party must be under a legal duty to speak, as opposed to a mere moral or social duty.31 The reasonable expectations of the silent party are the expectations that a reasonable third party would have of the silent party.32

[93]   In Infinity Enterprises NZ Ltd v Kinara Trustee Ltd the Court of Appeal recently noted:33

[103] Various factors are relevant in determining whether a reasonable person would expect the silent party to speak out. Duties to warn mistaken parties are not owed to the world at large and will be rare between commercial parties dealing at arm’s length. Speaking of the various relationship-based factors which may support the existence of a duty to speak out, Equity and Trusts in New Zealand refers to situations where:

(a)the silent party has invited the other to repose trust and confidence in them;

(b)prior communications between the parties give rise to the duty; and

(c)past  dealing  between  the  parties  which   support   reasonable   (but erroneous) assumptions.

[94]   Evidence produced in support of the damages claim (which I refer to in more detail below) showed expenditure of funds by Kempton on the project after 1 July 2018. I accept the evidence that Kempton was working on the project and incurring costs as if the contract was on foot with the active involvement of StraitNZ through an extended period from 1 July 2018 to 20 September 2018.

[95]   However, in this case, as Ms Anderson has pointed out, the ongoing correspondence and discussions did not involve any express affirmation of the agreement nor assertion that the condition would not be exercised. Both parties were commercial parties who entered a commercial contract with the benefit of legal advice. There were no past dealings or other circumstances which would give rise to any such

30     Infinity Enterprises NZ Ltd v Kinara [2020] NZCA 309, [2020] 3 NZLR 626 at [99].

31     At [100], citing Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 632.

32 At [102].

33     Infinity Enterprises NZ Ltd v Kinara, above n 30 (footnotes omitted).

duty to speak up. The circumstances did not give rise to any expectation that StraitNZ should speak out or warn Kempton following 1 July 2018 that the contract could be terminated for failure to obtain the resource consent.

[96]   This is not the rare case where there was a duty to speak out. Each party was entitled to rely on its legal position as set out under the contract. If I am wrong about the interpretation of the contract that would have allowed StraitNZ to terminate the contract immediately upon notice under cl 2.3 if the resource consent was not obtained by 1 July 2018, there was no representation or objection to speak out that would give rise to an estoppel.

Waiver

[97]   I turn now to the argument based on waiver. Waiver involves one party acceding to the request of the other and promising that they will not insist on the performance of a contractual condition according to the strict letter of the contract. The requirements to establish estoppel and waiver are similar. However, in Bell v BDO Spicers Manawatu Ltd Williams J acknowledged that in some cases the two doctrines have been argued as alternatives, but suggested that there does exist a difference between them:34

The difference is that waiver focuses on the scope of the intention of the party (or parties) granting the forbearance, whereas estoppel focuses on the conduct of that party and its effect on the other party.

[98]   Mr Blanchard said that compliance with cl  2.1  was satisfied or waived  on 28 August 2018 when Kempton emailed the resource consent conditions to StraitNZ and advised StraitNZ that it had reviewed them and found them to be acceptable.

[99]   Generally, for a waiver to be effective it must have occurred before the date for compliance with the condition needed to have occurred. In this case (assuming I am wrong in the correct interpretation of the contract) that would have been prior to 1 July 2018. Beyond that date there was no condition to waive as the relevant condition was unfulfilled, in which case, unless there was agreement between the parties, the right to terminate arose. The right to terminate was available from this point to either party.

34     Bell v BDO Spicers Manawatu Limited [2012] NZHC 1598 at [47].

[100]   In addition, a representation that the condition is waived must be clear and unequivocal. For the same reasons that I found there had not been a representation or estoppel by silence and acquiescence, the argument based on waiver must fail. There was no clear or unequivocal representation by Kempton indicating a waiver of the condition.

[101]   Mr Blanchard submitted that cl 2.4 provided that the condition was for the benefit of Kempton and therefore it could waive the condition it at any time. He argued that cl 2.4 mirrored the general law where conditions for a party’s benefit that are independent from other conditions may be unilaterally waived. He said a party can establish waiver by words, written or oral, or by conduct that leads the other party to believe the condition will no longer be relied upon. Mr Blanchard said the waiver could be inferred from one or both of the parties’ conduct and what was essential was that there had been words or conduct indicating that the party who is entitled to insist on fulfilment of the condition is no longer insisting on such fulfilment before the time for fulfilment. He says that by confirming it was no longer relying upon the condition and seeking to proceed on an unconditional basis by its emails from 29 August 2018 onwards, Kempton waived the condition.

[102]   Since cl 2.4 provided that cl 2 was for the sole benefit of Kempton, it may be that Kempton, as the party in whose favour the condition was included, may have been able to waive the condition to obtain the necessary resource consent unilaterally. I note of course, to complete the development, which Kempton was required to do in terms of the contract, it would have needed to have a resource consent as a practical necessity. However, even if it were the case that Kempton was entitled to waive the condition unilaterally, there were no words or conduct which gave rise to an indication that Kempton had done so. In fact, all of the communications had proceeded on the basis that it had not done so, but was hoping and expecting to receive the necessary resource consent before 1 September 2018, which was its interpretation (whether or not such an interpretation was correct) of the condition under the contract. Moreover, in any case, on the assumed alternative contractual interpretation, as I have indicated, any waiver must have occurred before the conditional date. This was 1 July 2018. Once that date passed, the condition could no longer be waived and Kempton or StraitNZ was entitled to terminate the contract for failure to fulfil that condition. There

was no such waiver before 1 July 2018. Therefore, the argument that Kempton waived the condition must fail.

Variation

[103]   Mr Blanchard also argued that a variation of the contract was agreed to by virtue of the continuation of the liaison between the parties after 1 July 2018. However, there was no consideration in this instance for any such variation. But even if consideration were not required, there was no evidence of any agreement or meeting of minds to vary the contract. That argument must also fail.

Affirmation

[104]   Kempton did not plead affirmation. However, Ms Anderson for StraitNZ addressed the issue as to whether StraitNZ made an election to “affirm” the Agreement by its continued communication with Kempton after 1 July 2018.

[105]   StraitNZ says that, faced with the election of either avoiding or affirming the contract, it was entitled to take a reasonable period to consider its position and the merits of each alternative course of action.

[106]   While there need not necessarily be communication of an election to affirm, there must be overt evidence of it. A party may postpone their election to keep the options open but cannot do so for “an unreasonably long period”.35 That party must take care to ensure that their conduct during the period does not cumulatively amount to affirmation. Ms Anderson submitted that whether or not a party has reached the stage of choice and whether the words or conduct are unequivocal is determined by an objective assessment of the party’s actions.

[107]   StraitNZ accepts that there were operational exchanges between StraitNZ and Kempton during that period. Ms Anderson says StraitNZ was conscious of its obligations to comply with the Agreement while it was on foot as between 1 July 2018 and the termination of the Agreement by StraitNZ on 20 September 2018.

35     Birdwood Rodney Trustee Ltd v Blue Moon Ltd [2022] NZHC 23 at [88]; and see AAM Ltd v Exotica Enterprise Ltd [2019] NZHC 1482 at [101]–[107].

[108]   However, StraitNZ says it did not elect to affirm the Agreement. While accepting that the period between 1 July 2018 and the date of actual termination in this case might be, in Ms Anderson’s submission, towards the outer limits of such a “reasonable period”, she says StraitNZ exercised its right to cancel sufficiently promptly in the circumstances.

[109]   StraitNZ also says that even if the Court finds that Kempton was entitled to extend the date for obtaining the approvals, there is no evidence as to a date to which the condition was extended, nor were there any steps taken by Kempton to extend the date or to seek StraitNZ’s agreement to the extension. StraitNZ says none of the correspondence between it and Kempton after 1 July 2018 supports any “unequivocal choice” by StraitNZ not to terminate the contract.

[110]   Consistent with my findings on waiver and estoppel I consider affirmation is not made out. The evidence does not support the assertion that there was an overt expression such as to amount to affirmation.

Second issue: What damages or compensation is Kempton entitled to?

Loss and damages principles

[111]   The general principle in relation to damages for breach of contract is that the plaintiff who has suffered damage that is not too remote must be, so far as money can do it, be restored to the position they would have been in had the breach of contract not occurred.36 The damage must have flowed from the breach.37

[112]   In Newmans Tours Ltd v Ranier Investments Ltd, Fisher J summarised the headings of loss as follows:38

36 Robinson v Harman (1848) 1 Exch 850, 154 ER 363; and see Todd and Barber, above n 8, at [21.2.1].

37 Todd and Barber, above n 8, at [21.2.1].

38  At [21.2.2], citing Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at 86; and see LL Fuller and WR Perdue “The Reliance Interest in Contract Damages” (1936) 46 Yale LJ 52.

(a)a restitution interest: the right to restoration of a valuable benefit conferred on the other party, the object being to prevent unjust enrichment;

(b)a reliance interest: the right to compensation for loss due to steps taken by the innocent party in reliance upon the existence of the contract, the object being to restore the innocent party to the position they would have occupied had the contract not been made; and/or

(c)an expectation interest: the right to compensation for loss of the bargain, the object being to financially restore the innocent party to the position which they would have occupied had the contract been performed.

[113]   There is no need to adhere to a single approach in assessing damages.39 This is of course subject to the overriding rule that the plaintiff cannot recover more than once for the same loss.40 Therefore where it is necessary to expend money in reliance on the contract in order to earn the profits, expectation and reliance losses cannot both be claimed. Recovery may extend to the purchase price or the profits lost, but not both.41 At the same time expectation losses and reliance losses do not reflect discrete and independent rights. Both are simply emanations of the fundamental rule that contract damages exist in order to replicate the position the claimant would be in had the contract been kept.42

[114]   The most obvious expectation loss is the profit the plaintiff would have made on the contract. If the contract is so speculative that it is unclear what, if any, profit it would have made, another method of calculating the damages may be more appropriate, for example wasted expenditure.43

39     At [21.2.2], citing Ti Leaf Productions Ltd v Baikie [2001] 7 NZBLC 103,464.

40     At [21.2.2], citing Herbison v Papakura Video Ltd (No 2) [1987] 2 NZLR 720.

41     At [21.2.2].

42     At [21.2.2], citing The Mamola Challenger [2011] 1 Lloyd’s Rep 47.

43     At [21.2.2], citing McRae v Commonwealth Disposals Commission (1951) 84 CLR 377.

[115]   The usual date for the assessment of the loss is taken at the time that the contract was broken.44 However, the Court may in the interests of justice fix such other date as may be appropriate in all the circumstances.45 If, at the date of breach, there had been a real possibility that an event would happen terminating the contract or reducing the contractual benefits, the quantum of damages might need to be reduced proportionately to reflect the estimated likelihood of the possibility materialising.46

[116]   The loss must have been in the reasonable contemplation of the parties, or “reasonably foreseeable” as liable to result from the breach.47

[117]   Usually, the burden of proof falls on the claimant as to the amount of loss and its causation. It is a question of fact in general terms.48 Once the claimant has brought forward the necessary evidence reasonably available to it, the court is entitled to do the best it can. Although the court cannot “conjure facts out of the air” and there “must be some evidence to support its finding”,49 the Judge is entitled to make a “reasonable assessment”.50 The fact that difficult questions arise and that the loss of profits may depend upon many speculative factors is not a sufficient reason for denying an assessment.51 The Court may award a larger or smaller amount than pleaded. The Court is entitled to make an award that does not reflect either of the positions adopted by the parties, and may be somewhere in between, especially where the question is one of valuation of property or a business, as long as the defendant is not unfairly taken by surprise and there is evidence before the Court.52 The defendant must have had a proper opportunity to meet the claim.53

44     At [21.2.2], citing Jackson v Royal Bank of Scotland plc [2005] UKHL 3, [2005] 1 WLR 377.

45     At [21.2.2], citing Stirling v Poulgrain [1980] 2 NZLR 402 at 420 and 424; and OHL Ltd v Johns

[2021] NZHC 77 at [34].

46     At [21.2.2].

47     At [21.2.3], citing Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, [1949] 1 All ER 997 at 539.

48     Adam Kramer The Law of Contract Damages (3rd ed, Hart Publishing, Oxford, 2022) at [18-15].

49     At [18-16], citing Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas (a firm)

[2012] EWCA Civ 1417 at [80] per Moore-Bick LJ.

50     At [18-18], citing Parabola Investments Ltd v Browallia Cal Ltd [2011] 1 QB 477 (CA) at [22]–

[23] per Toulson LJ.

51     At [18-19], citing Simpson v London and North Western Railway Co (1876) 1 QBD 274 at 277 per Cockburn CJ.

52     At [18-32], citing Great Future International Ltd v Sealand Housing Corp [2002] EWHC 2454 (Ch) at [39] and [42]; and Capita Alternative Fund Services (Guernsey) Ltd, above n 49.

53     At [18-28], citing Whalley v PF Developments Ltd (CA), 14 February 2013; and Fluor v Shanghai Zhenhua Heavy Industry Co Ltd [2018] EWHC 1 at [48].

[118]   In Ti Leaf Productions Ltd v Baikie the Court of Appeal noted that once the plaintiff has brought the necessary evidence which was reasonably available to it if the defendant seeks to show the losses were less or different, the standard of proof to be met by the defendant is no higher than the usual standard on the balance of probabilities.54 The burden may shift, whether as a matter of law or simply as an evidentiary burden.55

[119]   In theory, if alternative approaches are adopted, such as “market value” and “lost revenue discounted to present day values”, they should produce roughly the same figure.

[120]   The Court may find it necessary to apply a discount for contingencies, as for instance in McElroy Milne v Commercial Electronics Ltd, where the trial judge applied a discount of 25 per cent for contingencies.56 In that case, the lack of a guarantee in the lease caused by the negligence of the solicitor made the property hard to resell, leading to losses by the plaintiff. By the time of the trial the market for commercial property had collapsed and the property still had not been sold. The trial judge took the difference between the market value of the development fully let at the due date for completion and as at trial as the primary loss. He added holding costs and discounted the total by 25 per cent for contingencies. In particular in this respect, the judge noted there might have been enforcement difficulties even with the guarantee in place.

[121]   The evidence used to prove losses varies depending on the type of business in issue, the type of contract and the breach. As Cardozo J explained, “[t]he rule of damages must give true expression to the realities of life.”57

[122]   In this case Kempton puts forward its primary claim for loss based on an “as if complete” market valuation as at 1 August 2019. As an alternative it has also carried

54     Ti Leaf Productions Ltd v Baikie, above n 39.

55     Kramer, above n 48, at [13-77], citing Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (HL) [the SAAMCo case] at 221–222.

56     Todd and Barber, above n 8, at [21.2.3(d)(v)], citing McElroy Milne v Commercial Electronics Ltd

[1993] 1 NZLR 39.

57     Kramer, above n 48, at [18-33], citing Broadway Photoplay Co v World Film Corp 225 NY 104 (1919) (NYCA) per Cardozo J.

out a damages calculation based on an “as if complete” valuation as at the date of breach, 20 September 2018.

[123]   The August 2019 valuation results in a claim of $7,512,354 for damages. The alternative claim based on the September 2018 valuation is for $5,803,133. The calculations are based on market valuation reports carried out by Kempton’s valuer, Mr Ryan of CBRE. To calculate the final damages claim, Mr Naidu, the financial officer of Southpark Group (which includes Kempton), deducted from Mr Ryan’s valuations the projected costs of construction and related costs as well as the value assessed by Mr Ryan for the bare land. The costs were largely taken from a feasibility analysis that Mr Beaven of Kempton had carried out before the project began. Mr Naidu deducted the projected cost of construction and related costs ($14,942,946) and land value ($11,550,000) and applied a discount for time value of money of 6.5 per cent. The plaintiff summarised its net claims as follows:

Item	Amount (CBRE 1 August 2019 valuation) (“As if complete” Value: $35,450,000 Less bare land value: $11,550,000)	Amount (CBRE 20 September 2018 valuation) (“As if complete” value: $31,600,000 Less bare land value: $11,550,000)
Net loss calculated by Mr Naidu	$7,114,453	$5,405,233
Costs already spent towards development or “wasted costs”.	$447,901	$447,901
Subtotal (rounded)	$7,562,354	$5,853,133
Minus nominal value allowed for resource consent sold with bare land	($50,000)	($50,000)
Total	$7,512,354	$5,803,133

[124]   Included in the above calculation is a figure for the “wasted costs” claimed by Kempton, some of which were incurred before the Agreement was signed. In addition to the damages calculated above, Kempton says it is entitled to separately retain the funds it received for the sale of the land in December 2018 of $13.75 million.

[125]   StraitNZ says that the damages sought by Kempton would give it a super profit. Kempton receives the use of the land or the money that it obtained for the land and can use or invest that for the best return. In addition, it receives a return on the development which would necessarily use the land, without proper recognition of the that use. StraitNZ suggests a “bundle of rights” approach to calculating damages, which I elaborate upon below.

[126]   StraitNZ also says it is entitled to a credit toward damages equivalent to the excess Kempton actually received on the sale above the bare land value.

[127]   I first consider whether the excess amount that Kempton received on sale of the land above the assessed market value should be taken into account in any damages amount otherwise payable to Kempton.

Mitigation — the sale of the property

[128]   Following the receipt of the notice from StraitNZ cancelling the contract, Kempton sold the undeveloped property, which it had held for 20 years, to Lewis Holdings for $13,750,000. This was approximately $2,000,000 to $2,500,000 above the valuations of the bare land carried out by Mr Ryan for Kempton and Mr Colcord for StraitNZ as at the date of the contract breach.

[129]   Kempton says it is entitled to keep the increase in value as the sale was not related to the breach of contract. Kempton had not been looking to sell the land. It was a developer and only sold the land, without marketing it, because of the size of the unsolicited offer it received.

[130]   StraitNZ says the profit that Kempton made above the assessed value of the land should be taken into account in the calculation of any damages to be awarded. Kempton’s valuer, Mr Ryan, valued the bare land at $11,550,000. StraitNZ’s valuer,

Mr Colcord, valued it at $10,985,000. The value of the resource consent sold with the land is discussed below.

[131]   The date of the breach (20 September 2018) was two-and-a-half months prior to the sale to Lewis Holdings. It appears the market was on the rise at the time of sale. The valuation carried out by Mr Ryan in August 2019 did not value the bare land, but indicated a significant increase in the value of the “as if complete” development. On the other hand Mr Ryan’s earlier May 2018 valuation put the value of the land at that time at approximately $11 million.58

Who takes the benefit of the gain on the sale of the land?

[132]   The general principle is that any consequential gain achieved as a result of mitigation for breach of contract has to be brought into account. This applies where an act designed to mitigate a loss brings with it additional benefits. However, where the benefit arises out of an independent or disconnected transaction, the benefits accrue solely to the defendant.59

[133]   Counsel for both parties referred to the case of Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain (The New Flamenco).60 In that decision the United Kingdom Supreme Court held that the gain by a ship’s owner on sale following the breach of contract by the charterer above what the ship could have been sold for had the charter run its full course was not caused by the repudiation of the charter party. Therefore, the losses to the ship owner, based on income lost over two years, could not be offset by the gain on sale. The owners did not have to give a credit for the gain in realising the capital value of the vessel. If the owner had decided to sell the vessel, whether before or after termination of the charter party, it was making a commercial decision at its own risk about the disposal of an interest in the vessel which was no part of the subject matter of the charter party and had nothing to do with the charterer. Sale of the ship was not an act of successful mitigation. A relevant mitigation might have been the acquisition of an income stream

58     CBRE Valuation & Advisory Services Valuation Report: Industrial Property, 26 Ha Crescent, Wiri, Auckland (17 May 2018) [17 May 2018 CBRE Valuation Report] at 3.

59     Todd and Barber, above n 8, at [21.2.4].

60     Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain [2017] UKSC 43, [2017] 1 WLR 2581 [The New Flamenco].

alternative to the income stream in the original charter party. However, the sale of the vessel was not in itself an act of mitigation because it was incapable of mitigating the loss of the income stream.61

[134]   The United Kingdom Supreme Court in that case noted that the essential question, when considering whether the benefit gained on the early sale should reduce the loss recoverable by the plaintiffs, is “whether there is a sufficiently close link between the two and not whether they are similar in nature.”62 The relevant link was causation. As the Court stated, “[t]he benefit to be brought into account must have been caused either by the breach of the charterparty or by a successful act of mitigation.”63

[135]   The Supreme Court said there was nothing about the premature termination of the charter party which made it necessary to sell the vessel, either at all or at any particular time. It could have been sold during the term of the charter party if the owners decided to sell it. The owners were making a commercial decision to sell at their own risk and dispose of an interest in the vessel, which was no part of the subject matter of the charter party and had nothing to do with the charterer. The Supreme Court held the absence of the relevant causal link was the reason why the charterer could not have claimed the difference in market value if the market had risen between the time of sale and the time when the charter party would have terminated two years later.64 That analysis remains the same even if the owners’ commercial decision for selling was that there was no work for the vessel. The Court said that at most, that meant that the premature termination was the occasion for selling the vessel, not the reason for it. A sale would not follow from the lawful redelivery of the ship at the end of the charter party term, any more than it followed from a premature termination earlier.

[136]   The Court said the causal link failed at both ends of the transaction.65 The sale of the ship was not on the face of it an act of successful mitigation. If there had been

61     Todd and Barber, above n 8, at [21.2.2(b)].

62     The New Flamenco, above n 60, at [30].

63     At [30] (emphasis added).

64 At [33].

65 At [33].

an available charter market, the loss would have been the difference between the actual charter party rate and the assumed substitute contract rate. The sale of the vessel would have been irrelevant.

[137]   In the absence of an available market, the measure of the loss was the difference between the contract rate and what was, or ought reasonably to have been, earned from employment of the vessel under shorter charterparties, as for example on the spot market.66

[138]   In The New Flamenco the Supreme Court noted the following principles which emerged from the authorities:67

(a)In order for a benefit to be taken into account in reducing the loss recoverable by the innocent party for breach of contract, it is generally speaking a necessary condition that the benefit is caused by the breach.

(b)The causation test involves taking into account all the circumstances, including the nature and effects of the breach and the nature of the benefit and loss, the manner in which they occurred and any pre-existing, intervening or collateral factors which played a part in their occurrence.

(c)The test is whether the breach has caused the benefit; it is not sufficient if the breach has merely provided the occasion or context for the innocent party to obtain the benefit, or merely triggered their doing so. It is not sufficient that the benefit would not have been obtained but for the breach.

(d)It should make no difference whether the question is approached as one of mitigation of loss, or measure of damage; although they are logically distinct approaches, the factual and legal inquiry and conclusion should be the same.

66 At [34].

67 At [16], endorsing the applicable legal principles as summarised by the Judge at first instance in Fulton Shipping Inc of Panama v Globalia Business Travel SAU (formerly Travelplan SAU) of Spain (The New Flamenco) [2014] EWHC 1547 (Comm), [2015] 1 All ER (Comm) 1205 at [63]– [64].

(e)The fact that a mitigating step, by way of action or inaction, may be a reasonable and sensible business decision with a view to reducing the impact of the breach, does not of itself render it one which is sufficiently caused by the breach.

(f)While a mitigation analysis requires a sufficient causal connection between the breach and mitigating step, it is not sufficient merely to show in two stages that there is (a) a causative nexus between the breach and mitigating step and (b) a nexus between mitigating step and benefit. The inquiry seeks a direct causative connection between breach and benefit. Accordingly, benefits flowing from a step taken in reasonable mitigation of loss are to be taken into account only if and to the extent that they are caused by the breach.

(g)If the benefit arises from a transaction of a kind which the innocent party would have been able to undertake on their own account irrespective of the breach, it suggests that the breach is not sufficiently causative of the benefit.

(h)There is no requirement that the benefit must be of the same kind as the loss being claimed or mitigated, but a difference in kind may be indicative that the benefit is not legally caused by the breach.

(i)Whether a benefit is caused by a breach is a question of fact and degree which must be answered by considering all the relevant circumstances in order to form a common sense overall judgement on the sufficiency of the causal nexus between the breach and benefit.

(j)Although causation between breach and benefit is generally a necessary requirement, it is not always sufficient. Considerations of justice, fairness and public policy have a role to play and may preclude a defendant from reducing their liability by reference to some types of benefits even where the causation test is satisfied.

(k)In particular, benefits do not fall to be taken into account, even where caused by the breach, where it would be contrary to fairness and justice for the defendant wrongdoer to be allowed to appropriate them for their benefit because they are the fruits of something the innocent party has done or acquired for their own benefit.

[139]   In this case the factors which support a nexus requiring the gain to be taken into account for the benefit of StraitNZ are that:

(a)a development was to be built on the site and resource consent had been obtained;

(b)the sale followed the cancellation of the contract and would not have occurred but for the cancellation; and

(c)the property was known to be available and that there was an existing consent in place with a tenant lined up before that deal fell over. It was an appealing site for that general type of development.

[140]   A further factor might be that if the development had gone ahead the land could not be sold free of the development. It was only available as an undeveloped site because the breach occurred.

[141]The factors which count against the required nexus are:

(a)the bare land was not on the market and the property had been owned for 20 years;

(b)Kempton was a developer and holder of commercial/industrial property with a track record of holding such properties;

(c)the sale of the underlying land could have been effected at any time during the proposed lease term, albeit tied to the development; and

(d)the decision to sell was a commercial business decision, which might have been a reasonable and sensible business decision which reduced the impact of the breach, but was not caused by the breach.

[142]   Mr Blanchard said the decision by Kempton to sell the land was a commercial decision without any relevant nexus to the contract breach. Mr Blanchard argued that Kempton was not looking to sell the land. It was a developer which had held that land for 20 years. Therefore, he said selling the land was nothing to do with the contractual breach and had no sufficient nexus as mitigation, in the sense outlined in The New Flamenco.

[213]   The alternative approach to the calculation of damages put forward by Kempton is that of loss of income and I now turn to that approach.

Alternative claim for damages — loss of income

[214]   The alternative loss of profits claim is based on the value of Kempton’s lost rental income for a period equivalent to the length of time after 20 September 2018 that it would have taken Kempton to find another design build lessee for whom to construct the proposed development on the land.

[215]   Mr Blanchard submitted that had Kempton not sold the land to Lewis Holdings this approach may well have reflected the most appropriate measure of Kempton’s loss. He submitted that the “loss of profits” measure provides a useful crosscheck on the credibility of the primary loss claim.

[216]   Mr Sax, a Kempton director and manager, said it would take between one to two years for Kempton to find a replacement tenant, then a minimum of one year to get back to the stage the development had reached when StraitNZ repudiated. He said as Kempton was a developer looking to lease and sell, it would look for higher quality tenants with whom to have a long-term relationship. Therefore, he took three years as the period for the calculation of the loss of income.

[217]   Mr Sax took the estimated lost rental and outgoings over the three-year period, less financing costs savings to Kempton. To that he added the costs involved in getting an alternative lessee to the same stage as StraitNZ, using Mr Beaven’s costs expended to date of $447,901 as a proxy for the cost that might be incurred again in undertaking a development.

[218]   Mr Sax’s estimate of the length of time that it would take was inconsistent with the evidence of the valuers. Mr Colcord considered it would take four to six months to find a suitable “design build lessee”. Mr Ryan indicated that in his view it would take six months to find such a “design build lessee”. I prefer the valuers’ evidence to that of Mr Sax. They were familiar with the market and each had undertaken valuations of the property. Mr Sax is unlikely to have had the market knowledge that the experienced valuers who had valued the property, and who knew the rental market and the locality did have.

[219]   Mr Colcord said there was no shortage of prospective “developer lessors” available at the time of breach given the activity in the market. He also said the development was generic and therefore was attractive to these lessors. He disagreed with Mr Ryan that the development’s office space ratio and a large parking area were disadvantages in that market at the time. I prefer Mr Colcord’s evidence on this. He maintained his view and explained why, comparing the office space to those of other developments at the time, which predated the move to more people working from home. Mr Ryan had changed his position on those points in his brief of evidence from his views expressed in earlier reports. The earlier reports issued closer in time to the breach said both those attributes were positive for the development and added to its attractiveness.

[220]   I am satisfied that an appropriate design build lessee would have been found and signed up in four to six months. Then a further 12 months would allow a realistic time for design, detailed negotiations and construction. The latter timeframe is confirmed by Mr Sax. I consider the appropriate time period over which to assess loss of income would therefore be 18 months.

[221]   Mr Sax acknowledged in cross-examination that while Kempton was searching for a replacement tenant it would have been possible to temporarily lease the undeveloped property as a hardstand. That rental would reduce the loss. Mr Sax gave evidence of three offers for a hardstand lease prior to the sale of the property. He said they were not on acceptable terms to Kempton and would not have been accepted.

[222]   I am satisfied that there should be a deduction for potential income generated from a hardstand lease. It is apparent the site was sought-after for the purposes of hardstand leasing. I am satisfied that Kempton would have been able to find a suitable hardstand tenant on terms that would include vacating the land in adequate time to enable the construction of the development when a design build client was signed up. Kempton had an obligation to mitigate its losses appropriately. In view of the number of unsolicited offers to rent the hardstand site, I am satisfied that suitable terms could have been negotiated and an allowance for rental should be credited against damages under this head.

[223]   Mr Blanchard submitted that the rental would not last the full three-year period. There needed to be a period allowed for finding and signing up the tenant. Notice would also have to be given to vacate the property to progress development. There would be costs of procuring and maintaining such a lease. Mr Blanchard calculated that the average rental of the three offers was $287,214 per annum plus GST. However, the plaintiff’s estimates of the length of time it would have taken to find an alternative design build lessee were too high. I prefer the evidence of the expert valuers in this regard. Accordingly, I have reduced the damages under this head based on an 18-month timeframe.

[224]   The loss of profits claim should be based on a period of 18 months, not for the three years claimed. A rough estimate of the total loss on that basis can be calculated by taking one-half of the plaintiff’s claim as it was set out in closing submissions and allowing 12 months for construction.

[225]   Therefore, a comparison of the recalculated damages and the plaintiff’s calculations is as follows:

Item	Plaintiff’s calculation: Amount as claimed for three-year period	Adjustment: Amount for 18- month period
Loss of rental income for three years	$5,209,371	$2,604,685
Estimate of rates payable on the Property (which would have been recovered from the defendants under the Agreement)	$150,000	$75,000
Wasted and/or additional development costs (as a replacement lessee will have different design requirements) (dealt with below)	$447,901	$447,901

Less estimated saving in financing costs achieved in this period as the plaintiff would not have borrowed for development purposes	($642,375)	($321,187)
Subtotal	$5,164,897	$2,806,399
Less estimated mitigation – at an average annual rental of three hardstand lease offers, $287,214 plus GST per year for six months (allowing a 12-month construction period)	($143,607)
Total	$5,164,897	$2,662,792
Less rates ($75,000)	$2,587,792

[226]   The annual CPI increases were factored into the calculation of the rental but it appears from the amended calculation worksheet produced during the hearing that no time value of money adjustment was separately made in the calculations. No evidence was produced that the rates were actually paid by Kempton for the period over which the income is claimed. In a loss of income claim, rates, if not actually incurred by the plaintiff, would not be recoverable as damages as there is no loss. In the absence of evidence on that point I do not allow that part of the claim. As the calculations included $75,000 for rates, deducting that amount brings down the final figure to

$2,587,792. The $447,901 figure for wasted costs also requires some adjustment as is apparent from my analysis of that claim below. However, I use it for present purposes as it does contain costs such as those expended to gain the resource consent.

[227]   StraitNZ had submitted that there should be deductions made which I have taken into account as follows:

(a)The total financing costs savings across three years of $642,375 should be credited. An appropriate proportion of this amount has been taken into account in the calculations.

(b)A credit by way of mitigation based on the hardstand rental proposals should be applied. This has been done.

Conclusion on damages

[228]   In this case the calculation based on the “as if complete” valuation does not provide a reliable basis for expectation damages.

[229]   The basic  input figures  used by Mr Ryan  in his valuation model and  by   Mr Naidu in his calculations of what should be deducted for costs are largely taken from the feasibility analysis model prepared by Mr Beaven for the purposes of the development. Mr Ryan has not taken into account the cost of the use of the land for the purposes of the calculation of damages. Mr Naidu relied on Mr Beaven’s calculations, which did not take into account the cost of use of the land because the feasibility analysis was prepared for a developer’s purposes. Taxation deductions and other factors would mitigate and likely neutralise any land finance costs for a developer. This has resulted in a significant omission. No deduction has been made to represent the cost attributable to the ongoing use of the land. Interest alone over a 13-year estimated initial term of the lease would total in excess of $930,000 based on a 6.5 per cent interest rate on the land even at the value attributed to it in the feasibility analysis of $11,027,434. Those figures are taken from the feasibility analysis assumptions. I am aware that the interest rates would fluctuate over the period of the development and lease and other adjustments would need to be made.

[230]   Kempton has had the use of the sale proceeds of the land to invest and obtain a return which it will retain. Kempton cannot also expect a return from the use of the land on which the development is sited. A use of land cost must be taken into account for the period of the development and the lease. Removing from the calculations the value of the land does not allow for the use of the land for the 13 years over which the site will be used to generate returns which inform the “as if complete” valuation.

[231]   I also note that only six months’ finance cost of 50 per cent of the development cost (minus land finance cost) was included in the feasibility analysis. The development would not have been completed in the six-month period. Mr Naidu recognised that the development would take longer but did not adjust the finance costs to reflect the likely delay on completion.

[232]   On the information before the court it is not appropriate for the court to attempt to make the adjustments necessary to the damages calculation based on Mr Ryan’s valuation, as it is difficult to do so with any precision given the complexity of the model and calculations. The deductions suggested by Mr Blanchard did not address this issue.

Wasted costs/reliance damages claim

[233]   I now turn to the plaintiff’s claim for wasted or reliance damages of $447,901. This is based on the evidence of Mr Beaven, who produced a ledger containing a list of the costs incurred in the project.85 Mr Beaven said this took into account the sum of $102,132 which had been charged back and paid by StraitNZ.86 Mr Beaven also produced a spreadsheet listing costs totalling $138,313 which had been incurred post-July 2018 and were included in the claim of $447,901.

[234]StraitNZ criticised this claim for a number of reasons. First, an amount of

$15,040 was paid to Aspec ex gratia on 31 October 2018. Mr Beaven in cross-examination accepted this payment was made ex gratia to cover Aspec’s management costs when the Agreement was cancelled by StraitNZ. The payment was made in the context of an obligation to Aspec incurred by Kempton to keep the Aspec tender on foot. The obligation was as a result of an agreement between Kempton and Aspec under which Aspec agreed to leave its offer to construct the development open for acceptance while the discussions with StraitNZ continued. Mr Beaven estimated the amount that it agreed to pay was $50,000. Ultimately those discussions resulted in the contract being wrongfully cancelled by StraitNZ. Therefore, I am satisfied there was an obligation owed to Aspec by Kempton to require it to make a payment to Aspec

85     It appears that Kempton was using another company, Zirma Developments Ltd, to manage the costs. Nothing turns on that.

86 Brief of evidence of Mr Ralph Beaven in reply, 5 October 2022, at [15].

to settle an obligation incurred to keep Aspec’s offer on foot. That such a payment might be required was foreseeable. This amount actually paid ex gratia was reasonable in the circumstances.

[235]   Secondly, StraitNZ says to the extent that such reliance losses are claimed on an estoppel basis (rather than a contractual basis), Kempton should be only entitled to the claimed costs incurred in reliance on the conduct giving rise to the estoppel. Such conduct could not have occurred prior to 1 July 2018. Therefore, only amounts after that date could be recovered.

[236]   Kempton has been reimbursed for at least some of the claims made under this head of damages, in addition to the amount of $102,132. Mr Beaven in cross-examination readily conceded that some amounts included in the $138,333 claimed for costs after 1 July 2018 included costs already recovered from StraitNZ as part of the charges for the fit-out to be paid for by StraitNZ.

[237]   In cross-examination Mr Beaven had at first been adamant that no costs in the spreadsheet had been charged out and paid for by StraitNZ. However, after he was shown a number of entries which were also able to be isolated in the charges back to StraitNZ he accepted there had been some double-ups. If the amounts already charged and paid are allowed in the damages claim Kempton will be paid twice for the same costs. The difficulty here is that there has been no calculation of the exact amount of costs that have already been recovered. It is not possible to isolate those with any precision from the information in the spreadsheet in which Mr Beaven set out the costs for after 1 July 2018.87

[238]   In relation to costs incurred prior to the execution of the agreement on 5 June 2018, StraitNZ says that with the exception of the $7,500 allowed for under the Heads of Agreement, they were incurred at Kempton’s own risk.

[239]   However, the costs of the consultants’ reports incurred in obtaining the resource consent are not in that category. Kempton had gained a small increase in the price it sold the land for because of the “leg up” those reports gave the purchaser.

87 Brief of evidence of Mr Ralph Beaven, 5 August 2022, at [79].

However, I have found that is not a significant amount. I consider that Kempton is entitled to an additional contribution to damages as $100,000. This, as I have said, is based on an assessment of the evidence and review of Kempton’s claims for wasted costs, which were not accurate and included costs already paid for by StraitNZ.

[240]   If I had adopted the plaintiff’s “as if completed” valuation calculation of damages as the appropriate measure of damages here it would not have been appropriate to allow any further damages in the form of costs “wasted” in reliance on the contract being performed. To do so would be to overcompensate the plaintiff for the breach. The costs incurred would have been factored into the overall value of the development as represented by those “as if complete” valuations.

[241]   I have concluded damages calculated using the “as if complete” valuation are not appropriate. I have considered a mix of approaches to damages based on the evidence available. I have concluded that the appropriate amount for loss of income is $2,587,792. The loss of income approach alone, however, in my view does not adequately take into account the profit that Kempton was entitled to expect. It is also less than the bundle of rights valuations, which supports my view that the figure does not adequately reflect what Kempton was entitled to expect should the development have gone ahead, even with a discount for risk. I adopted a bundle of rights valuation of $3,000,000.

[242]   Finally, I also note that Kempton itself had calculated a profit of $3,099,135 in its summary results in its feasibility analysis, although Mr Naidu said this was a conservative figure. I have criticised the use of the calculations in the feasibility analysis for the purposes of a damages calculation as they did not take into account cost of use of land. Nevertheless, the expected profit assessment does provide a reasonably reliable indication of the profit that Kempton expected to achieve at the time it entered into the development arrangements with StraitNZ. The failure to take into account the cost of the use of the land was not material for the developer as the land use was not a cost which it incurred. However, neither did it contemplate getting a further return on the proceeds of the sale of the land which it is now able to do.

Conclusion

[243]   I have found as a matter of contractual interpretation that Kempton was entitled under the contract to fulfil the condition under cl 2.1 to obtain resource consent until 1 September 2018. Having done so, the contract became unconditional, and by purporting to cancel the contract for non-compliance with that condition on 20 September 2018, StraitNZ unlawfully repudiated the contract.

[244]   In view of this conclusion, Kempton is entitled to damages. In this case, where the development did not come to fruition and the plaintiff sold the underlying land (and resource consent), damages cannot be calculated with mathematical precision. I have used a number of approaches to determine the appropriate amount of damages.

[245]   Using all the evidence available I am satisfied that Kempton is entitled to damages in the total sum of $3,100,000. This is not based on a precise calculation but rather a judgement based on all the evidence. It is not based on only one approach to damages but uses the loss of profits and bundle of rights values to reach an amount representing expectation damages to put Kempton in the position it would have been in had the contract been lawfully performed. In reaching this conclusion I have had regard to the various approaches, quantifications and calculations put forward by both parties and am satisfied this is the best assessment of damages payable on the evidence that has been put before me.

[246]   In light of the expectation damages award of $3,100,000, the wasted damages claim cannot succeed as a separate claim. First, it seems that some of these sums were incurred before the agreement was signed, when there was a Heads of Agreement in place limiting claims by Kempton to $7,500. They cannot then be resurrected as claims under the subsequent agreement. Some costs, such as those incurred for the resource consent reports, may have been recoverable as reliance costs had the damages been calculated using that approach, but they have not. However, I am of the view that the plaintiff could have expected to recover some amounts it had expended in the construction and development margins allowed on the project in addition to the value of the bundle of rights. I have assessed this amount as $100,000. One way of looking at viewing the damages calculation of $3,100,000 is to start with the calculation for

damages for loss of income with adjustments ($2,587,792). The amount of damages must exceed that amount. I have assessed the loss of the bundle of rights as being in the sum of $3,000,000. To that must be added an amount to recognise lost profit on the development. I consider an additional $100,000 over the value of the bundle of rights should be allowed for that factor. This recognises that if it had completed the development it is likely that Kempton would have made a profit on the build and could have recovered at least some of the wasted costs. However, the recovery was dependent on the margin made on the development, but this would not be high. One reason for that is that the construction contract was not let and already there were pressures which indicated that the completion date would not be achieved.

[247]   Kempton does not double dip by retaining the proceeds of sale of the land. Any increase in price paid for the land because it had a resource consent was not significant. The price it gained was largely by virtue of a rising market and good fortune that there was a buyer who needed a similar site. In any event Kempton paid the costs of obtaining that consent.

[248]   My assessment of expectation damages is in the range of Kempton’s own assessment of the profit it was likely to generate from the development of $3,099,000.

Summary of damages

[249]   Kempton is entitled to expectation damages of $3,100,000 calculated on the basis of loss of income and an allowance for profit on the development, which I have determined by considering all the evidence.

[250]   Kempton sold the undeveloped site in December 2018. It is entitled to the full proceeds from that sale, as I have found the sale was unconnected to the breach.

[251]   Kempton is also entitled to interest on that total amount, calculated from the date of estimated completion of the contract, namely 30 April 2019. No time value of money adjustment has been made in my calculations and that date is the earliest date on which Kempton could have expected to realise any return from the project. That interest is to be calculated in accordance with the Interest on Money Claims Act 2016.

[252]   I leave the parties to carry out the calculations based on my findings and reserve leave to either party to apply on seven days’ notice, within 30 days of the date of this judgment, in relation to any issues that arise.

Costs

[253]   If the parties are unable to reach agreement as to costs, any application for costs should be made together with a supporting memorandum on or before 10 days from the date of this judgment. Any response is to be made by way of memorandum filed and served within a further 10 days and any reply to be within a further five days.

Grice J