Rush-Munro's of New Zealand Limited v Heavenly Foods Limited

[2015] NZHC 2069

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2015-441-41 [2015] NZHC 2069

IN THE MATTER OF

a claim under a Deed of Subscription

BETWEEN

RUSH-MUNRO'S OF NEW ZEALAND LIMITED

Plaintiff

AND

HEAVENLY FOODS LIMITED Defendant

On the Papers
Counsel:	M Macfarlane for the Plaintiff J Bates for the Defendant
Judgment:	28 August 2015

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      The plaintiff claims interest on an amount for which it has already obtained judgment.  There is a dispute over the date from which interest on the amount of the judgment sum should run, and counsel were given leave to file written submissions on that issue.

Background

[2]      By deed of subscription, the defendant agreed to subscribe for shares in the plaintiff.  Payments for the shares were to be spread over a period of approximately five years from March 2012 to March 2017.

[3]      The defendant failed to pay the sum of $198,000 due on 31 March 2014.  It also failed to pay the further payment of $198,000 which was due on 31 March 2015.

[4]      On 28 May 2015 the plaintiff commenced this proceeding.   It applied for summary judgment for the $396,000 owing on the shares, plus interest and costs.

RUSH-MUNRO'S OF NEW ZEALAND LIMITED v HEAVENLY FOODS LIMITED [2015] NZHC 2069 [28

August 2015]

[5]      The defendant did not file a notice of opposition to the summary judgment application.  Instead, it filed an application to stay the proceeding.  On 9 July 2015 I directed that the stay application would be heard at Wellington on 24 July 2015.

[6]      The plaintiff’s claim was substantially resolved by agreement, on the basis that the application for a stay of the proceeding would be dismissed with costs, and there  would  be  no  opposition  to  entry of  judgment  on  the  plaintiff’s  summary judgment application.   Counsel agreed that the judgment in the plaintiff’s favour could include interest, but they could not reach agreement on the periods for which interest would be payable.

[7]      On 24 July 2015, I entered summary judgment for the plaintiff for the sum of

$396,000 plus costs and disbursements.  In accordance with counsel’s agreement, I directed that written submissions were to be filed on the plaintiff’s claim for interest. I have now received and considered the memoranda.

The plaintiff ’s submissions

[8]      The subscription deed contained no provision for interest on late payment. Mr Macfarlane asks for an award of interest at 5 per cent per annum, the prescribed rate under s 87 of the Judicature Act 1908.   He submits that interest should be awarded from the dates the plaintiff’s cause of action accrued (31 March 2014 in respect of the first payment, and 31 March 2015 in respect of the second payment).

[9]      Mr Macfarlane pointed to the plaintiff’s need for capital, and the benefit the defendant has obtained by retaining monies which should have been paid to the plaintiff.  He refers to the interest rate of 5 per cent as cheap money in the context of this commercial litigation.

[10]     Mr Macfarlane cites the Supreme Court decision in Worldwide NZ LLC v NZ Venue and Event Management Ltd in support of the submission that the Court may exercise its discretion to award interest under s 87 as the circumstances of the case

require.1    In tort cases, the discretion is commonly exercised in favour of interest

1      Worldwide NZ LLC v NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR

1.

running from the date on which the proceeding was issued, but in claims for monies owing under contracts the starting point is that the plaintiff should  normally be compensated for the defendant’s use of its money.  Interest should run from accrual of the cause of action.2

[11]     Mr Macfarlane acknowledges that there may be exceptions to the “general rule”, and that a plaintiff who sleeps on his or her rights without justification might not be awarded interest for the period of the (unjustified) inactivity.

[12]     Here, Mr Macfarlane submits that the plaintiff is a closely held company, in which Ms Forde of the defendant is the managing director, and it was not unreasonable for the plaintiff to delay issuing the proceeding for a little over a year while attempts were made to resolve the issue without resorting to litigation.  When the defendant elected to pursue various complaints under a disputes resolution clause contained in a shareholders’ agreement, the plaintiff moved to enforce its rights under the subscription deed.

Submissions for the defendant

[13]     Mr Bates submits that there has been a delay in bringing the proceeding which has been both lengthy and without justification.   He submits that the proceeding was only sparked by the defendant’s good faith steps taken under the disputes clause in the shareholders’ agreement; the plaintiff then sought to steal a march by commencing the litigation, rather than engaging in the dispute resolution process (which in Mr Bates’ submission was designed to wrap up all issues between the 50/50 shareholders).

[14]     Mr Bates acknowledges that the plaintiff was within its strict legal rights in pursuing the proceeding, but says that it had clearly slept on its rights without justification beforehand.

[15]     Mr  Bates  further  submits  that  the  plaintiff  has  repudiated  the  dispute resolution process, saying that it is not bound by it.  His client has, as a last resort, applied for relief under s 174 of the Companies Act 1993.

[16]     Mr Bates also refers to the fact that the plaintiff had a “self-help” option, namely cancelling the defendant’s share subscription.  There was no need for it sue the defendant.

[17]     Mr Bates invites the Court to award interest only from the date of filing the proceeding.

Discussion and conclusion

[18]     I am not satisfied that the plaintiff has slept on its rights in the manner contended for by the defendant.

[19]     The earliest breach by the defendant was on 31 March 2014, and it was only a little over one year later that the plaintiff commenced its proceeding.  There was no ambiguity in the agreement, and in the end no argument that the $198,000 was due on 31 March 2014.   The summary judgment application was not opposed.   The defendant was aware throughout that it had breached its obligations.

[20]     In those circumstances,  I consider that the determining factor is that the defendant has effectively had the benefit of the plaintiff’s money when it should not have.  In a contract case, Judicature Act interest will normally be awarded in those circumstances from the accrual of the cause of action.3

[21]     Somers J noted in Day v Mead:4

The corollary is that the defendant who has had the money, but ex-hypothesi ought not to have had it, enjoys its use; he may have put it out at interest or

3      In Day v Mead, above n 2 at 463, Somers J considered that the general purpose for which the power to award interest was conferred on the Court was to enable proper compensation to be given to the plaintiff.  So long as the plaintiff was out of its debt or damages, it was unable to obtain the advantages which possession of the money (to which it was entitled) would have afforded it.

otherwise have profitably employed it, or, if he needed to borrow in order to

pay he has saved the interest he would have incurred in such borrowing…

[22]     Somers J concluded that generally justice may require interest to run from the date the cause of action arose, for it is from that date that the plaintiff’s entitlement to the debt or damages arises.5

[23]     That starting point is not displaced in this case.  Delay of a little over a year in a closely-held company taking steps to enforce its rights against a shareholder is understandable, and cannot be construed as the company “sleeping on its rights”. Mr Bates refers to the shareholders’ agreement, but I see nothing in that agreement that would have obliged the plaintiff to stay its hand in exercising its undisputed right to the sums for which it has had judgment.   The “Resolution of Disputes” clause applied when one party considered that a “fundamental dispute” had arisen over some matter at issue between the parties, but there is no dispute at all over the defendant’s liability to pay the amounts owing under the subscription deed.  Nor has there been any relevant “dispute or difference…concerning the interpretation of the shareholders’  agreement”,  which  might  have  triggered  the  operation  of  the arbitration provision at cl 30.2 of the agreement.  As Mr Bates says, the debt has never been disputed.  That tends to support the view that interest should run from the date of accrual.

[24]     Mr Bates also refers to the option the plaintiff had to cancel the shares.  But it seems to me that that would only have been an option, and the plaintiff should not be penalised for electing to require payment instead of cancellation.

Result

[25]     For the foregoing reasons, the plaintiff is awarded interest at the prescribed rate  of  5  per  cent  per  annum  on  the  first  instalment  of  $198,000,  from

31 March 2014 to the date of judgment (24 July 2015).  In addition, the plaintiff is awarded  interest  at  the prescribed  rate of 5  per cent  per annum  on  the second instalment of $198,000, from 31 March 2015 to 24 July 2015.

Associate Judge Smith