Kingsbeer Transport Limited v Martin-Brower New Zealand
[2024] NZHC 728
•8 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2499
[2024] NZHC 728
BETWEEN KINGSBEER TRANSPORT LIMITED
Plaintiff
AND
MARTIN-BROWER NEW ZEALAND
Defendant
Hearing: 7 March 2024 Appearances:
D M Fraundorfer for plaintiff
S S Cook and S Lee for defendant
Date of judgment:
8 April 2024
Reissued:
23 April 2024
JUDGMENT OF JAGOSE J
This judgment was delivered by me on 8 April 2024 at 3.30pm.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
D M Fraundorfer, Barrister, Tauranga Buddle Findlay, Auckland
J K Hamilton, Tauranga
KINGSBEER TRANSPORT LTD v MARTIN-BROWER NEW ZEALAND [2024] NZHC 728 [8 April 2024]
[1] After Kingsbeer Transport Limited’s (KTL) successful appeal against my 16 December 2021 judgment (which found no sufficient agreement to have been reached between the parties to establish a contract between them),1 the Court of Appeal remitted KTL’s claim for damages on Martin-Brower New Zealand’s (MBNZ) then-found breach of contract to me for determination.2 This is that determination.
Background
[2] The wider factual background is set out in the prior judgments. Principally it is of the circumstances by which KTL’s trucking service to McDonald’s outlets for MBNZ was expanded to include runs to Rotorua and the Bay of Plenty (the Additional BOP Runs).
[3]The Court of Appeal found:3
[T]here was a binding contract between KTL and MBNZ, the terms of which were that:
(a) KTL would undertake the Additional BOP Runs from 29 January 2018 for a term of five years;
(b) MBNZ would provide a written contract to that effect within a reasonable time of the start date (where a reasonable term was no more than four months from the start date); and
(c) pending the written contract being provided, MBNZ would meet KTL’s short-term costs up to a maximum of $50,000.
The Court of Appeal held each of those terms was essential and breached by MBNZ, substantially reducing the contract’s benefit to KTL and entitling it to cancel the contract (as it did after five months).4 Outstanding then was KTL’s claim for damages for loss of profits ($679,475) and short-term costs ($91,261.44), “the question of
1 Kingsbeer Transport Ltd v Martin-Brower New Zealand [2021] NZHC 3494 [HC judgment] at [78]. My supplementary judgment, determining KTL’s alternative claim in quantum meruit, was not appealed: Kingsbeer Transport Ltd v Martin-Brower New Zealand [2022] NZHC 2931 [HC supplementary judgment] (reissued 8 December 2022).
2 Kingsbeer Transport Ltd v Martin-Brower New Zealand [2023] NZCA 385 [CA judgment] at [165]. No cross-appeal was mounted against my dismissal of MBNZ’s counterclaims (HC judgment at [113]): CA judgment at [27].
3 At [147].
4 At [151] and [154].
quantum” of which the Court of Appeal remitted to me,5 I apprehend in remedy of KTL’s then-successful first cause of action.6
[4] At trial, KTL adduced evidence from an accountant expert, Paul Manning, to establish its lost profits ultimately in the amount of $474,124.92, generally extrapolated from KTL’s five months’ operation under the MBNZ contract from 29 January 2018 to 30 June 2018 on KTL’s cancellation of the contract. MBNZ’s accountant expert, Michael Lowe, would apply further deductions on account of specified expenses — wage and maintenance costs, and asset depreciation — and in mitigation to arrive at the sum of $162,542.69. Only one of those deductions, for
$2,980.79 in depreciation of the value of KTL’s truck, was accepted by Mr Manning, meaning his ultimate assessment of KTL’s lost profits was $471,144.13.
[5] So far as KTL’s short-term costs were concerned, Mr Manning identified its invoices 134–136 amounting to $42,122.05 for payment; Mr Lowe agreed $11,430.00 of those invoices fell within MBNZ’s obligation to pay. Mr Manning proposed further recoverable expenses in the amount of $33,686.47, which Mr Lowe would have reduced to $4,311.00.7
Relevant law
[6] On a finding of contractual liability, damages are awarded in the amount of money (so far as money can do it) necessary to put the plaintiff in the position it would have been had the contract been performed.8 The usual measure of loss then is “the difference between the value contracted for and the value obtained”,9 to put the plaintiff in “as good a financial position as if the contract had not been broken”,10 by reference to “the value to the party injured of the loss of the promised performance”.11
5 At [161].
6 At [163].
7 HC judgment, above n 1, at [94]–[95].
8 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [23], citing Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 419 and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA) at 539.
9 At [27].
10 At [157], citing Robinson v Harman (1848) 1 Exch 850 at 855, 154 ER 363 at 365 and Radford v De Froberville [1977] 1 WLR 1262 (Ch) at 1273.
11 Marlborough District Council v Altimarloch Joint Venture Ltd, above n 8, at [187], citing Stirling v Poulgrain, above n 8, at 422; and [191], citing John Burrows, Jeremy Finn and Stephen Todd
But they only are damages within the parties’ contemplation at the time they contracted,12 or perhaps within their then-presumed contemplation.13
[7] In damages, the principle of mitigation qualifies the principle of compensation.14 Mitigation issues arise after a defendant is established liable for the normal measure of damage.15 It is open to a defendant then to prove there were reasonable steps open to the plaintiff to reduce the loss incurred, for any excess in which the defendant is not liable.16 Whether the steps were reasonable is to be considered in light of all the circumstances (including the plaintiff’s own interests).17 But the defendant then is liable for the expense of such reasonable steps taken (whether or not effective in reducing or eliminating the loss).18
Discussion
—general damages
[8] Notwithstanding the experts’ effective agreement KTL’s lost profits were no more than $471,144.13, for KTL, David Fraundorfer argued some larger sum in general damages should be awarded, while retaining the $138,703.29 wage costs Mr Lowe additionally would deduct to account for wages payable to KTL’s shareholders, Nicola and Tony Kingsbeer. Mr Fraundorfer’s point was the Kingsbeers’ allocated wages should be seen as part of their expected larger net return from KTL’s
Law of Contract in New Zealand (3rd ed, LexisNexis NZ, Wellington, 2007 [presently, 7th ed, Lexis Nexis, Wellington, 2022]) at [11.2.6].
12 Clarkson v Whangamata Metal Supplies Ltd [2007] NZCA 590, [2008] 3 NZLR 31 at [32], citing at [30] Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007] UKHL 34, [2008] 1 AC 561 at [215] in restating the rule in Hadley v Baxendale (1854) 9 Exch 341, (1854) 156 ER 145 (previously restated in Victoria Laundry (Windsor) Ltd v Newman Industries Ltd, above n 8).
13 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48, [2009] 1 AC 61 at [24], further restating the rule in Hadley v Baxendale, above n 12.
14 Marlborough District Council v Altimarloch Joint Venture Ltd, above n 8, at [55] per Elias CJ citing British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 (HL) at 689; and approved in Wu v Body Corporate 366611 [2014] NZSC 137, [2015] 1 NZLR 215 at [134].
15 Williams v K F Meates and Co Ltd (1971) 1 NZCPR 594 (CA) at 599.
16 Lander v Sorensen [1955] NZLR 219 (CA) at 228.
17 Wu v Body Corporate 366611, above n 14, at [141]; Hooker v Stewart [1989] 3 NZLR 543 (CA) at 547.
18 New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 at 598 followed in Dempsey v Howe
[2015] NZCA 9, (2015) 16 NZCPR 203 (CA) at [35].
operation, suboptimally addressed by artificial accounting deduction from KTL’s gross revenues.
[9] I do not accept that proposition. The plaintiff is KTL, which necessarily had to incur the expense of labour to perform the MBNZ contract. I have no evidence the quantum of wages paid to the Kingsbeers was in any way divergent from that notionally payable to employees to perform the MBNZ contract. KTL’s lost profits must account for that anticipated expenditure, as with other notional expenditure extrapolated by the accountants from KTL’s actual operation over the five months of the contract.
[10] While I recognise the Kingsbeers only obtained wages until the contract was cancelled, that does not justify taking their personal loss of wages over the balance of the contract’s life into account on assessment of KTL’s lost profits. Had I to take that into account, I should also have needed to assess the Kingsbeers’ actual or notional alternative sources of income until the contract’s intended expiry. Given KTL’s cessation of business after the contract’s breach, there is no comparator offset for it.
[11] The starting position for calculation of KTL’s lost profits thus is the experts’ effective agreement of no more than $471,144.13. Although that figure is reached largely by extrapolation from KTL’s actual experience, except as I address below, the expert accountants did not identify any factors rendering the extrapolation itself materially exaggerated.
—wage costs
[12]As to the actual wage costs, Mr Lowe also would increase his identified
$138,703.29 by $16,360.10 to account for direct extrapolation of wages paid for Gisborne–Whakatāne and Taupō–Rotorua runs driven by Mr Kingsbeer in January– June 2018 at their monthly average $7,315. Mr Manning’s monthly figure reduced to
$6,000 for the balance of the contract, in his view better reflecting the anticipated cost of driver wages.
[13] But there was no factual foundation for the reduction, and Mr Manning was unable to support it on cross-examination. In my assessment, without evidence of what market wage costs might be, Mr Manning’s reduction is not justified.
[14]I will allow for Mr Lowe’s additional deductions in the amount of $155,063.39.
—maintenance costs
[15] Similarly, Mr Lowe would deduct an additional $8,113.05 in truck maintenance as extrapolated from actual expenditure during the 2018 year, in preference to Mr Manning’s reduced sum to account for KTL’s one-off expenses then to ready the truck for the new runs. Evidence at trial established KTL incurred additional expenditure,19 seemingly including some accounted for as maintenance costs. On my enquiry of him during the experts’ giving of concurrent evidence, Mr Lowe accepted he had not seen anything behind Mr Manning’s calculation and was unable to say if the actual expenditures were extraordinary or usual.
[16] I have reservations if Mr Manning’s reduction on Mr McGregor’s affirmation of KTL’s anticipated maintenance expenditure is reliable (given Mr McGregor’s partial role for KTL), or if (or why) the additional expenditure was not recovered from MBNZ as short-term costs. But Mr Manning’s reduction accords with my apprehension at trial KTL’s maintenance costs included additional one-off expenditure during the 2018 year. My effort now better to quantify it is not justified in the overall scheme of this damages calculation.
[17]I will not allow for Mr Lowe’s deduction of additional maintenance costs.
—short-term costs
[18] As I have said, KTL’s short-term costs were sought of MBNZ by invoices 131, 134, 135 and 136, plus an additional sum.20 I have addressed the parties’ effective agreement on those invoices in my first judgment,21 and their disagreement in my
19 See HC judgment, above n 1, at [18], [25] and [28]. Similarly, see CA judgment, above n 2, at [60]–[61].
20 See HC judgment, above n 1, at [92]–[95].
21 At [99]–[100].
supplementary judgment (albeit as a claim in quantum meruit).22 Together, I found MBNZ was to pay KTL $34,541.40 plus $7,876.00, or $42,417.40 on account of KTL’s short-term costs.
[19] In my assessment now, those rationales continue to hold for determination of KTL’s short-term costs contractually payable by MBNZ “up to a maximum of
$50,000”. Specifically, I remain unwilling to go behind the parties’ agreement on those invoices, to endorse KTL’s belated claim for further expenses or to revisit the reasonableness of my assessment of the balance claimed by MBNZ in its invoice 136.
My supplementary judgment’s order at [9] stands.23
[20]I will make no further allowance for KTL’s short-term costs.
—sale of assets
[21] The Court of Appeal upheld my indicative conclusion “KTL’s disposal of the means of conducting its business was … a reasonable step to be taken in mitigation”.24 The Court of Appeal acknowledged any additional argument about the residual value of KTL’s business could go to quantum.25
[22] For MBNZ, Sherridan Cook argues the residual value of KTL’s business — essentially, as realised in post-cancellation sale of KTL’s assets — should be taken into account on damages. He argues such is necessary to avoid KTL’s “unjust windfall”. But the calculation of lost profits only takes the value of KTL’s assets into account by way of their operating costs (including depreciation), not their capital cost in itself. In other words, KTL’s lost profit is its earning on its investment. There is no double-counting in allowing KTL to retain the embedded value of that investment, even if it contradicted sums allowed in depreciation.
[23]I will not allow any deduction in damages on account of KTL’s assets sale.
22 See HC supplementary judgment, above n 1, at [8].
23 See CA judgment, above n 2, at [162].
24 At [22] and [158].
25 At [159].
—contingencies
[24] Mr Cook also argues KTL’s damages claim should significantly be reduced, to recognise the contract may not have continued for its five-year term to 28 January 2023. The primary foundation for that proposition is MBNZ’s argued entitlement to terminate the contract on three months’ notice, and the likelihood it would have been exercised.
[25] The Court of Appeal did not expressly address the issue of notice of termination. Its found terms did not include any period of notice.26 But it found a term was provision of a written contract within a specified period. As a matter of fact, the provided draft written contract (although not provided within that specified period) stipulated “Martin Brower may terminate this Agreement at any time and for any reason by giving the Contractor three months’ prior written notice”. It is conjecture if that term ultimately would have been accepted, but it was more advantageous to KTL than the eight and 12 weeks’ notice on which its preceding contracts with MBNZ may have been terminated by MBNZ “at any time”.
[26] The first question therefore is what, if any, notice period is to be implied. My first judgment addressed the issue in principle.27 I expect KTL would have accepted the written contract in its terms as ultimately provided, if including a five-year term. So MBNZ may have terminated the contract prior to its expiry.
[27] I am not prepared to infer MBNZ may have done so by reason of the souring relationship between the parties as Mr Cook argues. Had MBNZ not breached the contract, all other things being equal, I expect the relationship would have been maintained. If, in the factual, MBNZ took advantage of KTL’s cancellation more economically to substitute its service,28 it lacked any incentive in the counterfactual to explore the option except after termination. From MBNZ’s previous perspective, as the Court of Appeal identified, any alternative “would come at a cost”.29
26 See [3] above.
27 HC judgment, above n 1, at [104].
28 At [108].
29 CA judgment, above n 2, at [76].
[28] Nonetheless, there remained at least the prospect MBNZ would exercise its right of termination in particular circumstances. With the benefit of hindsight, those circumstances might include the impact of measures taken to manage COVID-19 in the community, including lockdowns and retail closures as may be thought to have affected McDonald’s outlets. On the other hand, particularly given MBNZ’s ‘previous perspective’ (and perhaps the availability of Government subsidy), termination still may not have been preferred. From that perspective I assess the termination contingency only to justify a minor deduction. Otherwise the accountants’ evidence effectively accommodates any prospect KTL’s profit over the remainder of the contract term might be other than as extrapolated.
[29] I will apply an approximate five per cent discount on account of contingent earlier termination, to round KTL’s recoverable sum of damages at $300,000.
Interest
[30] On my money judgment in that amount, KTL presumptively is entitled to an award of interest, “as compensation for a delay in the payment of … damages”.30
[31] KTL claims interest on the sum of damages “from the date of breach”, presumably meaning “on the day on which the cause of action arose”.31 The cause of action arose on the day of KTL’s cancellation of the contract. The difficulty with KTL’s claim for interest from then is its claim is for progressive losses accruing over the subsequent four years and seven months of the contract. If delay in payment of money was a component of that loss (for example, as payment due on an invoice), it required to be quantified, which I do not understand to have formed any part of the experts’ calculation. But KTL had no entitlement otherwise to payment of money as may attract interest, except as damages. KTL’s claim accordingly is declined.
[32] Alternatively, then, interest is to be awarded for the period beginning “on a later day that the court specifies in the judgment as the day at which [the amount on
30 Interest on Money Claims Act 2016, ss 3(1) and 10.
31 Section 9(1)(a)(i).
which interest is to be awarded] was quantified”, ending “on the day on which the judgment debt (including all interest payable under this Act) is paid in full”.
[33] There is a number of points at which it may be said the sum of damages on which interest is to be awarded is quantified, depending on the adequacy of such specification. Given the award’s purpose to compensate for delay in payment, it may be damages’ pleaded specification is such quantification. Here that was a claim for
$679,475 as lost profits and $91,261.44 (including GST) as short-term costs and/or “general damages in a sum that the Court deems just”. As I have said,32 neither lost profits in that amount nor short-term costs were payable, and general damages only are quantified in this judgment. Similarly, it also cannot be said general damages were quantified in evidence; the evidence predominantly was of contended lost profits. The Court of Appeal was clear the question of quantum remained for my determination.33
[34] I therefore specify 8 April 2024, being the date of judgment quantifying the amount on which interest is to be awarded, as the day at which that amount was quantified.
Result
[35] On KTL’s first cause of action, I order MBNZ pay KTL $300,000.00, plus interest under s 10(1) of the Interest on Money Claims Act 2016 for the period beginning on 8 April 2024.
Costs
[36] My first judgment reserved costs pending determination of my supplementary judgment.34 My supplementary judgment proposed costs be reserved for determination in accordance with the Court of Appeal’s determination.35 The Court of Appeal did not address costs in this Court.
32 At [11], [14], [20] and [29] above.
33 CA judgment, above n 2, at [161].
34 HC judgment, above n 1, at [114].
35 HC supplementary judgment, above n 1, at [10].
[37] In my preliminary view, from what I presently know, MBNZ should pay KTL 2B costs as counsel categorised this proceeding at the outset. If that is not accepted by the parties and they cannot otherwise agree, costs are reserved for determination on short memoranda each of no more than five pages — annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by KTL within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.
—Jagose J
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