The Dunes Cafe abd Bar Limited v 623 Rocks Road Limited (in liq) HC Nelson CIV 2006 442 481

[2010] NZHC 586

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

CIV 2006 442 000481

BETWEEN  THE DUNES CAFE AND BAR LIMITED Plaintiff

AND623 ROCKS ROAD LIMITED (IN LIQUIDATION)

Defendant

Hearing:         15 February 2010

Appearances: Mrs Danielle Hampson (with Mr Hampson sole director) for plaintiff

No appearance for defendant

Judgment:      31 March 2010 at 4:15pm

RESERVED JUDGMENT OF HUGH WILLIAMS J [as to quantum]

This judgment was delivered by The Hon. Justice Hugh Williams on

31 March 2010 at  4:15pm

pursuant to Rule 11.5 of the High Court Rules

……………………………………………..

Registrar/Deputy Registrar

The plaintiff is entitled to judgment against the defendant by way of quantum for $600,339.58 plus costs, disbursements, witnesses’ expenses and interest as ordered in the judgment.

THE DUNES CAFE AND BAR LIMITED V 623 ROCKS ROAD LIMITED (IN LIQUIDATION) HC NEL CIV 2006 442 000481  31 March 2010

TABLE OF CONTENTS

Paragraph

(1)	Fixed HoA Appendix I – Stand-Down Costs of $14,950 pm Other Stand-down Costs in HoA Appendix I Gaming machines:  $114,075 Unpaid Costs on Deed of Lease: $562.00	[10] [11] [17] [27] [34]
(2)	Variable	[36]
General	[37]
Affirmation	[52]
Goodwill	[63]
Diminution in value of retained plant and equipment $165,063.72	[71]
DB Trade Tie Advance:  $79,138.69 and $40,000	[86]
Unpaid portion of Rocks’ contribution to building costs ($33,392.83) and for heat pumps, floor coverings and painting ($22,532.16)	[93]
Costs	[103]
Interest	[111]
Result	[115]

 

Introduction  [1] Evidential matters  [4] Quantum claims  [10]

Introduction

[1]      After hearings in April and October 2008 (“the substantive hearings”) the introductory paragraphs in this Court’s judgment delivered on 25 February 2009 (the “liability” judgment) in this proceeding read:

[1] For a number of years prior to mid-2004 the plaintiff, The Dunes Café and Bar Limited (“Dunes”), ran a café, bar and casino in leased premises at

643  Rocks  Road, Tahunanui,  Nelson.   With rights of renewal, its lease

potentially ran until 2010.

[2] Mr Stephen Hampson was, over the period relevant to this claim, Dunes’ sole director and shareholder but his wife, Ms Danielle Hampson, worked in the bar and was actively involved in management of the company over a number of years.

[3] In about May 2004 Dr Robert Donald, an experienced property developer who lives in Auckland and is sole director and shareholder of the defendant,

623 Rocks Road Ltd (“Rocks”), became interested in buying 643 Rocks Road  and  the  accompanying  building  623  Rocks  Road  (known  as  the “Setka” building) with a view to demolishing both and re-developing the

entire site by erecting a building to be called the “Sands” comprising a number of shops on the ground floor with apartments and parking.

[4] Initially, Mr and Mrs Hampson were uninterested in Dr Donald’s approach.  Dunes had a well-established business and a lease with a number of years to run.   However, Dr Donald persisted and ultimately the parties agreed to meet to discuss his proposition.

[5]  Eventually,  Dunes  and  Rocks  entered  into  a  Heads  of  Agreement (“HoA”) dated 17 June 2004 ...  The principal effect was that Dunes agreed to surrender its lease and Rocks would lease Dunes a café and bar in the new premises.  Arrangements were put in place as to how that would occur and, in particular, as to compensation Rocks would pay Dunes between closure of the bar and opening of the new premises.   Unfortunately, as will be seen, the parties did not deal comprehensively with their respective rights and obligations concerning what was to be included in the new premises or at whose cost.  ...

[6] As the new building was approaching completion differences arose between the parties as to their rights and obligations under the HoA and performance of its terms.

[2]      The liability judgment held Rocks’ purported cancellation of the HoA on

28 August 2006 was unlawful but Dunes’ cancellation of the HoA on 5 December

2006 was lawful as Rocks’ conduct amounted to repudiation.  It entered judgment for Dunes against Rocks on liability and dismissed Rocks’ counterclaims but, despite

making some observations on issues of quantum, found there was so much evidential detail lacking that concluded views could not be reached.   The Court accordingly directed the parties to confer in an endeavour to agree on issues of quantum but reserved leave for the matter to be determined by the Court if agreement proved impossible.

[3]      A month after delivery of the liability judgment, namely on 25 March 2009, Dr Donald,  by  a  shareholders’  resolution,  placed  Rocks  in  liquidation.    Section

248(1)(c) of the Companies Act 1993 requires liquidators’ agreement or the Court’s leave for continuance of proceedings against a company in liquidation.   The liquidators refused to agree to the proceeding continuing but this Court, in a reserved judgment delivered on 22 February 2010, granted that leave and now proceeds to deal with issues of quantum.

Evidential matters

[4]      Evidential  objections  were  lodged  on  a  number  of  occasions  during  the course of this claim before, during and since the substantive hearings, including well after Rocks’ liquidation.

[5]      In  the  main,  the  defendant’s  objections  were  based  on  alleged  lack  of relevance, that documents were hearsay, that documents had not been included in the agreed bundle and similar technical points.

[6]      Where  objections  were  taken  by  the  defendant  during  the  substantive hearings, the documents were admitted de bene esse and, to the extent they bore on liability, were generally accorded less weight in the decision.

[7]      Mrs Hampson – who has run this claim for Dunes since before the October

2008 hearing without objection from Rocks - filed a comprehensive memorandum on  20 March  2009  dealing  with  detailed  issues  of  quantum  and  attaching  a significant  number  of  documents.     No  supporting  affidavit  or  interlocutory application was filed.   Mr England, for Rocks, filed a memorandum on 31 March

2009 objecting to production of those documents.  Some, he said, were not even in

the plaintiff’s list.  That produced a further memorandum from Mrs Hampson dated

1 April 2009 in response.   A number of the documents attached to the 20 March memorandum had, she said, in fact been included in the agreed bundle.  Mr England then emailed Mr and Mrs Hampson (and the Court) on 2 April 2009 challenging whether the documents Mrs Hampson identified were part of the agreed bundle and exhibiting those which were produced in evidence at the April 2008 hearing.  That produced a further memorandum from Mrs Hampson dated 3 April 2009, acknowledging that some of the documents listed by Mr England had, the plaintiff thought, been produced at the hearing but had in fact been omitted by counsel. However,  she  made  the  point  that  had  Rocks,  its  representatives  and  counsel, attended the directed meeting after delivery of the liability judgment, the contested documents would have been produced.

[8]      Plainly,  it  would  have  been  preferable  had  the  documents  attached  to Mrs Hampson’s  memorandum  of  20  March  2009  been  exhibited  to  an  affidavit which, to the extent the documents were hearsay, also cleared off the pre-conditions to admissibility in s 18 of the Evidence Act 2006.   But, notably, Mr England’s objections to the documents were not to the truth of their contents but to the manner in which they were put before the Court.   Given that by the time of the quantum hearing the documents had been served on Mr England for nearly a year and the defendant’s  affidavits  filed  subsequent  to  their  service  did  not  challenge  their content, the Court’s view is that it is appropriate - where the plaintiff has been represented by Mrs Hampson for about 18 months - to permit the documents to be put in evidence in the manner they were, but accord them such weight as appears appropriate in the light of Mr England’s objections.  It is notable that, had they been put in evidence on oath, a number of the documents later produced would have overcome many of Mr England’s objections to conclusions, then unsubstantiated by the underpinning documents, put forward by the plaintiff’s witnesses at the substantive hearings.

[9]      For reasons which will appear, it would also have been preferable had Dunes made a formal application to amend the claim once the factual position between the parties had been clarified by the liability judgment.

Quantum claims

(1) Fixed

[10]     It is convenient to consider Dunes’ claims largely in the order pleaded, taking account of the later discussion on damages, pleadings and affirmation.

HoA Appendix 1 - Stand Down Costs of $14,950 pm

[11]     The liability judgment dealt with this claim as follows:

[148] Under the HoA, Rocks was to pay Dunes the fixed sum in Appendix 1 totalling $96,700.00 for six months.   It was meant to be paid to Dunes’ solicitors for monthly release but was paid direct on furnishing of GST invoices at $14,950.00 monthly.

[149] Mrs Hampson said that [when] the stand-down payments were suspended  by  Rocks  on  28  July  the  defendant  was  27  days  in  arrears. Dunes’  claims  $59,800.00  for  July  (balance),  August,  September  and October only.

[150] Given that Dunes has now been held entitled to have cancelled the HoA on 5 December, were it not for the time limitation pleaded in the amount claimed, Dunes would have been entitled to payment of the monthly costs to that date.

[12]     As a result of that comment, Mrs Hampson’s 20 March 2009 memorandum sought to extend the claim for the monthly payments to 5 December 2006.   She pointed out the claim was formulated in the amended statement of claim filed on

2 October 2007 (on which Dunes went to trial) on the basis that had Dunes been given access to the new premises after it signed the lease its assumption was that it would have completed fitout and commenced business on 1 November 2006. However,  there  was  no  formal  application  for  leave  to  amend  the  claim  and Mr England’s memorandum of 31 March 2009 commented only on the claim as pleaded.  He did not advert to this topic in his memorandum of 2 April 2009.

[13]     In assessing whether Dunes is entitled to the extra payment for stand down costs in its 20 March 2009 memorandum, the following issues are of moment:

a)       As discussed in the liability judgment, the underlying premise of the HoA was to obligate Rocks to compensate Dunes and its proprietors for all the sums Dunes would have had to pay or they would have received in the whole of the period when Dunes was unable to operate its bar/restaurant and casino businesses.

b)The basis on which the plaintiff calculated its claim for unpaid “stand down” expenses was based on an assumption which has since been found to be incorrect.

c)       In addition to its specific claims, Dunes sought damages pursuant to s 9 of the Contractual Remedies Act 1979.  Section 9(2)(b) gives the Court power to direct payment of “such sums the court thinks just” by one party to another, and s 9(4) reads:

9.        Power of Court to grant relief

...

4)  In  considering  whether  to  make  an  order  under  this section, and in considering the terms of any order it proposes to make, the Court shall have regard to—

(a) The terms of the contract; and

(b)The extent to which any party to the contract was or would have been able to perform it in whole or in part; and

(c)Any expenditure incurred by a party in or for the purpose of the performance of the contract; and

(d) The value, in its opinion, of any work or services performed by a party in or for the purpose of the performance of the contract; and

(e) Anybenefit or advantage obtained by a party by reason of anything done by another party in or for the purpose of the performance of the contract; and

(f)  Such other matters as it thinks proper.

d)Dunes  also  sought  –  needlessly  (r  5.31(2))  –  “such  further  or alternative relief as ... seems just.”

e)       The modern approach to the assessment of damages for breach of contract is flexible and not to be circumscribed by rigid rules (New Zealand Land Development Co Ltd v Porter,[1]   Newmans Tours Ltd v Ranier Investments Ltd[2] and Thomson v Rankin[3]).

[1] New Zealand Land Development Co Ltd v Porter [1992] 2 NZLR 462, 466.

[2] Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68, 89.

[3] Thomson v Rankin [1993] 1 NZLR 408 at 410 per Cooke P.

[14]     Having regard to all those factors plus Dunes’ lay representation for a lengthy period, it is appropriate to treat its 20 March 2009 memorandum as an informal application to amend the statement of claim to extend the claim for “stand down” costs to 5 December 2006.   In light of the underlying premise of the HoA, any formal application it might have made to amend the claim to that effect would very likely have been granted.

[15]     Clause 2.2 of the HoA obligated Rocks to pay Dunes in “equal monthly instalments on the first day of each month”.   It follows that, in addition to the monthly payment initially claimed, Dunes was entitled to be reimbursed for those payments which should have been received on 1 November and 1 December 2006, but with the latter apportioned on a daily basis so Dunes does not make an over- recovery on this item.

[16]     On that basis the plaintiff is entitled to judgment against the defendant for unpaid  “stand  down”  costs  as  initially  claimed  plus  the  $14,950.00  due  on

1 November 2006 and $2,411.29 for the five days 1-5 December 2006.  The total is

$77,161.29 for unpaid “stand down” costs.

Other stand-down costs in HoA Appendix 1

[17]     Appendix 1 of the HoA obliged Rocks to pay Dunes for storage and cartage, electricians and plumbers’ charges, DTR Sky television and music rental costs, rates, bank fees and interest, insurance and ACC payments, vehicle lease payments, staff redundancy and retainers and a living allowance for Mr and Mrs Hampson.

[18]     Apart from storage, none of these claims were included in the statement of claim on which Dunes went to trial.

[19]     Despite that, these items were covered in evidence and were the subject of comment in the liability judgment as follows:

[152] The first item listed in Appendix 1 – storage costs being a separate claim –was cartage costs.   There appears to be no evidence on those.   If correct, the parties are to confirm that.

[153] The second item in Appendix 1 is electrician and plumber costs for disconnection and reconnection.  If this remains a claim, it is not quantified and the parties are directed to endeavour to agree on this item.

[154] The same applies to item 3, the DTR and Sky television and music rental   costs.      These   appear   to   have   been   deferred,   according   to Mrs Hampson, but she also mentioned that website and cellphone contracts could not be suspended. There is no claim for the latter.

[155] Item 4 is for Council rates.   Again, the parties are to endeavour to agree if there is any claim in that regard.

[156] Item 5.1 is $900 for bank fees.  The parties are to endeavour to agree if there is a remaining claim in that respect.

[157]   Item   5.2   claims   $13,700   for   Bank   interest   on   mortgages. Mrs Hampson said Dunes paid $34,249.99 for bank loans, but that total may not tally with the interest entries appearing in the plaintiff’s accounts (2006

$13,995,  2007 $14,736, but in a financial year in which Rocks is only liable for part).  How “bank loans” became “bank interest” in the HoA has been

noted.   If it is not accepted by Rocks that the sums paid or payable but unpaid under this item were only interest and not principal, the parties are to

endeavour to agree on the amount which is interest and is therefore properly payable by Rocks under this heading.

[158] Item 5.3 claims $5,800 for personal and business insurances.   That sum, too, needs to be the subject of discussion.

[159] Item 5.4 claims $2,200 for ACC levy but there was some evidence that ACC was deferred during the relevant period and the payment that may have totalled $2945.44.  The accounts produced showed ACC levies for 2006 and

2007 of $1,686 and $83.00. Again, the parties are to endeavour to agree.

[160] Item 5.5 claimed $7,100 for vehicle lease payments.  This, too, needs to be the subject of discussion.

[161] Items 5.6 and 5.7 claimed $7,000 and $20,000 respectively for staff redundancy and retainers.

[162] As to these, Mrs Hampson said she paid what she understood from inquiries  of  the  Hospitality Association  amounted  to  “redundancy”  even though it may not, strictly, have fallen within that rubric as recognised in

employment law.  The payments were holiday pay and pay in lieu.  She said “redundancy” equated to “final” payments.  She actually miscalculated the redundancy including PAYE at $7660.   The only retainer payments paid during the stand-down were paid to one staff member in March-October

2006.  Again the parties are to endeavour to agree on the correct sum for the total payments to staff – irrespective of whether the payments were, strictly, redundancies.     The  Court  accepts  that  term  should  be  interpreted  as payments required to be made by Dunes on closure even if not within the formal definition of the employment law use of the term.

[163] Finally, item 5.8 claimed $40,000 for Mr and Mrs Hampson’s living allowance.   That may not have been fully supported by the sums paid in salaries and drawings over all the years the pair had been involved in the Dunes’.  The defendant’s documents showed drawings by Mr Hampson of

$28,000  in  2005  and  $26,000  in  2006  and  shareholders’  salaries  were

$79,000 in 2005 and $72,000 the following year.  The $40,000 sum in the HoA was the maximum Mr and Mrs Hampson ever received on a semi- annual basis.  But the fact remains it was a sum which was contracted for and accordingly such amount as the parties agree was unpaid at the date of the ... cancellation is to be included in the amount for which judgment will ultimately be given.

...

[172] Mrs Hampson calculated this claim for the monthly storage costs from

10 June 2006 - 2 October 2007 and produced invoices covering the sum due. She justified claiming beyond 5 December because of the need to continue

to store items to dispose of what Dunes could.  Not all items from the former premises were sold but there was no claim for ongoing storage costs after

2 October 2007.

[173] Rocks did not appear to challenge the quantum of the claim.

[174] Dunes would appear to be entitled to judgment against Rocks for the sum claimed, $7533.18 but that matter is also to be covered in discussions and in the directed memorandum.

[20]     Over and above the specific claim for storage, the plaintiff’s memorandum of

20 March 2009 said it had no claim for the DTR, Sky television and music items but sought the following:

a)       Cartage costs (three items) $754.15.

b)       Electrician and plumbers costs $333.84.

c)       Cellphone  and  website  (paid  by  Dunes  at  $315.00  plus  GST  per month to 30 April 2006) 15/2/2006-30/11/2006:   seven months including GST $2480.63.

[21]     Mrs Hampson’s 20 March memorandum made the point the amount claimed for storage was only up to 2 October 2007 but the goods were in fact stored until

6 December that year, and increased the claim to $8,485.18 for this item.

[22]     As  to  the  balance  of  the  items  listed  in  Dunes’  “stand-down”  costs, Mrs Hampson said the $14,950 pm was an agreed figure to cover all items in the HoA Appendix  1, including redundancy, retainers and the living allowance  and accordingly all those items were included in the $14,950 claim.  No separate claim was made.

[23]     Mr  England’s  memorandum  of  31  March  said  Rocks  agreed  with  the calculation for storage of $7,533.18 but did not agree to the extension of the claim as there was no evidence at the hearing and no pleading in that regard.

[24]     Mr England objected to any order for payment of the “stand down” costs other than storage and the $14,950 pm because of the omission of those items from the amended statement of claim and the (partial) lack of evidence at the substantive hearings.

[25]     The short answer, both to the express storage claim and to the new claims for cartage, electrician and plumber’s costs, cellphone and website, is that, as the plaintiff’s 20 March memorandum made clear, all these costs formed part of the

$14,950 pm payable by Rocks to Dunes under Appendix I of the HoA.  It therefore follows that, as judgment has been entered for Dunes against Rocks for the whole of the unpaid amounts due under that item, it would be “double counting” to give Dunes further judgment for the amounts in issue.

[26]     The express claim for storage is accordingly dismissed, as are the new claims for cartage, electrician and plumber’s costs, and cellphone and website.

Gaming Machines: $114,075

[27]     The liability judgment outlined the calculation of this claim in the following way:

[164] Clause 3.2 of the HoA provided that should completion of the shops take  longer  than  six  months  Rocks  would  continue  to  make  monthly payments “together with compensation for loss of income from the gaming machines over this period”.

[165] Mrs Hampson said gaming machines can only operate in association with licensed premises and although when the HoA was negotiated they had a licence for 18 gaming machines they were only operating 14.   They expected only to be operating nine machines after the closure (and potential re-opening) because in February 2007 Nelson City capped the maximum number of gaming machines in one location at that figure.

[166] Mrs Hampson produced figures from the Lion Foundation (which owned the machines) for Dunes’ last 12 months trading to April 2005.  The average monthly return was $8775.00.  However, when payment was sought on   29   September   2005   and   on   28   March,   Dr   Donald   endorsed Mrs Hampson’s second letter saying the sum “will be paid on handover of shops as agreed” because, she said, he told her Rocks could not meet the payment.   She agreed to the variation.   Allowing for a realistic date to complete the fitout of 1 November at $8775.00 per month, Rocks has a liability, according to her calculations, for 13 months of casino income to that date of $114,875.00.

[28]     After discussing and rejecting Dr Donald’s interpretation of the plaintiff’s claim for the gaming machines, the liability judgment observed:

[171]  There  appears  to  have  been  no  challenge  to  Mrs  Hampson’s calculations – though it needs to be confirmed that it was assessed on a nine machine basis - so Dunes would appear to be entitled to judgment against Rocks for the $114,075 claimed but this, too, needs to be the subject of discussion and coverage in the directed memorandum.

[29]     The  liability  judgment  may  have  mis-stated  Dunes’  position  as,  in  her

20 March 2009 memorandum, Mrs Hampson said the figure claimed needed no adjustment for machine numbers as the Nelson City cap did not come into force until February 2007 and, had Dunes occupied the new premises in late 2006, it would have been unaffected by the cap.  It would have been permitted to retain its licence for 18 machines, even though it only had had 14 on site.

[30]     Mr England’s 31 March 2009 memorandum submitted that because of the underlying premise of the HoA as outlined in para [170] of the liability judgment (which included Mr and Mrs Hampson’s living allowance), allowing Dunes any additional amount for gaming machine income “would amount to a super profit payment placing the plaintiff in a far better position than it would have been” had it

merely carried on in its old premises.  He also suggested GST should be separated out.

[31]     Mrs Hampson’s reply memorandum of 1 April 2009 stressed the payments claimed were no more than Dunes’ contractual entitlement pursuant to the HoA.

[32]     (Although premises such as the Dunes have no ownership interest in gaming machines, the site agreements they sign with the owners entitles them to share in the machines’ turnover.   Both accountants at the substantive hearings appear to have treated Dunes’ share of the gaming machines’ turnover as part of the business’ turnover).

[33]     As  noted  in  the  liability  judgment,  there  was  no  challenge  to  Dunes’ calculation of this aspect of the claim.   It  was found to be a  clear  contractual entitlement under the HoA.   Rocks’ objections therefore contradict the HoA.   In particular, the HoA entitled Dunes to lost gaming machine income quite separately from Rocks’ other obligations and there is no basis to draw a comparison with the position that might have obtained in the old premises when the whole purpose of the HoA was to provide for a new bar.   There is no basis to separate out GST. Accordingly  the  plaintiff  is  entitled  to  judgment  against  the  defendant  for  lost income from the gaming machines of $114,075.00.

Unpaid costs on Deed of Lease:  $562.50

[34]     The liability judgment noted the HoA entitled Dunes to payment of its legal costs in connection with its proposed lease from Rocks (Appendix 4(9)) and there was no dispute on this item.  Mr England’s memorandum of 31 March confirmed that.

[35]     Dunes is accordingly entitled to judgment against Rocks for $562.50 for unpaid costs incurred in relation to the proposed Deed of Lease.

(2)   Variable

[36]     Dunes’ remaining claims are for lost goodwill, diminution in its value of retained plant and equipment, a DB trade tie advance and the unpaid portion of Rocks’ contribution to the building costs and towards certain specific items.  In order to calculate the amounts properly payable by Rocks to Dunes under those remaining heads of claim, it is pertinent first to consider Dunes’ entitlement from a more general standpoint than has obtained thus far.   (The sub-headings “Fixed” and “Variable” are not entirely apt, but broadly indicate the two differing types of claim).

General

[37]     Rather than repeat the approach to the assessment to damages for breach of contract appearing in many cases, it is convenient to repeat the list of criteria appearing in New Zealand Land Development  Co (at  466)  where the following appears:

1.   The objective of damages for breach of contract is to put the injured party as nearly as possible, and so far as money can do it, into the position he would have been in if the contract had been performed. There are many authorities for this elementary proposition including Stirling v Poulgrain [1980] 2 NZLR

402, Johnson & Agnew [1980] AC 367, Williams v Kirk [1988] 1 NZLR 452,

463, and 42 Halsbury's Laws of England (4th ed) para 271. The result is that an appropriately calculated sum of money must take the place of the promised

benefit which the contract breaker has failed to provide.

2.  As a general rule damages will be assessed at the date of breach. This is the well-known breach/date rule which will often achieve the objective of contractual damages but not always. As well as the cases mentioned above, the  following  authorities  can  be  noted  in  support  of  this  general  rule: Miliangos v George Frank (Textiles) Ltd [1976] AC 443, Johnson v Perez (1988) 63 ALJR 51 and Asamera Oil Corp Ltd v Sea Oil & General Corp (1978) 89 DLR (3d) 1.

3.   While recognising the general rule, it is nevertheless important to bear in mind that in the end the assessment of damages is a question of fact and should not be trammelled by rigid rules. Justice to both sides in the individual case is what is to be aimed for: see the speech of Lord du Parcq in Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196, 232-233 adopted by Cooke J in Stirling v Poulgrain at p 419. As His Honour said, rules capable of meeting all cases are unlikely to be devised; he cited from Wilde B (see Gee v The Lancashire and Yorkshire Railway Company (1860)

6 H & N 211) "it will probably turn out that there is no such thing as a rule, as to the legal measure of damages, applicable in all cases".

4.  There will be cases in which the application of the general rule, ie the breach/date rule, will not do justice because assessment at the date of breach will not achieve the objective of contractual damages, ie to compensate the innocent party for the loss of the value of the promised performance: Johnson v Agnew, Stirling v Poulgrain, Johnson v Perez and Williams v Kirk.

5.   If the subject-matter of the contract and the circumstances of the case are such that it is reasonable for the innocent party to seek specific performance then, if specific performance cannot be had, an alternative claim for damages may properly be assessed at the date when the contract is lost to the innocent party, usually at the date of trial when the decree is refused: see Souster v Epsom Plumbing Contractors Ltd [1974] 2 NZLR 515 per McMullin J and the cases there cited, Johnson v Agnew, Williams v Kirk and the recent unreported judgment of Holland J in Monk v Brandt Corporation Ltd (Christchurch, CP 482/87, 6 September 1990).

[38]     That such an approach is appropriate and, in particular, that the assessment of damages for breach of contract should be flexibly approached and not hampered by rigid rules appears from a number of cases in this country.  For example, in McElroy Milne v Commercial Electronics Limited[4] Cooke P said:

[4] McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39, 41

... in the end assessment of damages is a question of fact:  ... there is no such thing as a rule, as to the legal measure of damages, applicable to all case; and that the ultimate question as to compensatory damages is whether the particular damage claimed is sufficiently linked to the breach of a particular duty to merit recovery in all the circumstances.

(See also Thomson at 410).

[39]     For the purposes of this part of this judgment, that approach requires further refinement  and  in  that  regard  it  is  helpful  to  refer  to  the “famous” article (the encomium is that of Burrows Finn & Todd Law of Contract in New Zealand[5]),

[5] Burrow Finn & Todd Law of Contract in New Zealand (3rd ed, 2007) at 670 para 21.2.2.

namely Fuller and Perdue: The Reliance Interest In Contract Damages.[6]It was

[6] Fuller and Perdue The Reliance Interest in Contract Damages (1936) Yale LJ 52, 53-55.

summarised  in  Newmans  Tours  (at 86) but for the purposes of this case it is preferable to cite from the original:

It  is  convenient  to  distinguish  three  principal  purposes  which  may  be pursued in awarding contract damages.  These purposes, and the situations in which they become appropriate, may be stated briefly as follows:

First, the plaintiff has in reliance on the promise of the defendant conferred some value on the defendant.  The defendant fails to perform his promise. The court may force the defendant to disgorge the value he received from the

plaintiff.   The object here may be termed the prevention of gain by the defaulting promisor at the expense of the promisee;   more briefly, the prevention of unjust enrichment.  The interest protected may be called the restitution interest. ...

Secondly,  the  plaintiff  has  in  reliance  on  the  promise  of  the  defendant changed his position.  For example, the buyer under a contract for the sale of land has incurred expense in the investigation of the seller’s title, or has neglected the opportunity to enter other contracts.  We may award damages to the plaintiff for the purpose of undoing the harm which his reliance on the defendant’s promise has caused him.  Our object is to put him in as good a position as he was in before the promise was made.  The interest protected in his case may be called the reliance interest.

Thirdly, without insisting on reliance by the promisee or enrichment of the promisor, we may seek to give the promise the value of the expectancy which the promise created.   We may in a suit for specific performance actually compel the defendant to render the promised performance to the plaintiff, or, in a suit for damages, we may make the defendant pay the money value of this performance.  Here our object is to put the plaintiff in as good a position as he would have occupied had the defendant performed his promise.   The interest protected in this case we may call the expectation interest.

It will be observed that what we have called the restitution interest unites two elements:   (1) reliance by the promisee, (2) a resultant gain to the promisor.  It may for some purposes be necessary to separate these elements. In some cases a defaulting promisor may after his breach be left with an unjust gain which was not taken from the promise (a third party furnished the consideration), or which was not the result of reliance by the promisee (the promisor violated a promise not to appropriate the promisee’s goods). Even in those cases where the promisor’s gain results from the promisee’s reliance it may happen that damages will be assessed somewhat differently, depending on whether we take the promisor’s gain or the promisee’s loss as the standard of measurement.  Generally, however, in the cases we shall be discussing, gain by the promisor will be accompanied by a corresponding and, so far as its legal measurement is concerned, identical loss to the promisee, so that for our purposes the most workable classification is one which presupposes in the restitution interest a correlation of promisor’s gain and promisee’s loss.   If, as we shall assume, the gain involved in the restitution interest results from and is identical with the plaintiff’s loss through reliance, then the restitution interest is merely a special case of the reliance interest;  all of the cases coming under the restitution interest will be covered by the reliance interest, and the reliance interest will be broader than the restitution interest only to the extent that it includes cases where the plaintiff has relied on the defendant’s promise without enriching the defendant.

[40]     Before leaving the article, it is noteworthy in the circumstances of this case that the learned authors, in concluding their discussion on whether the expectation interest should set the limit of recovery, conclude (at 79):

We will not in a suit for reimbursement for losses incurred in reliance on a contract knowingly put the plaintiff in a better position than he would have occupied had the contract been fully performed.

[41]     In  Newmans  Tours  (adopted  in  Thomson  at 410) Fisher J discussed the impact of the Contractual Remedies Act 1970, particularly ss 9 and 10, on traditional avenues of assessment of damages for breach of contract.

[42]     After summarising Fuller and Perdue’s restitution, reliance and expectation interest definitions, the Judge subdivided reliance interest into (at 86):

“... reliance performance losses being expenditure and other losses incurred in  or  for  the  purpose  of  performing  the  contract  itself  and  extraneous reliance losses being those losses which had nothing to do with the innocent party’s performance of the terms of the contract, but which were incurred by the innocent party in the ultimately vain expectation that the defaulting party would perform his or her side of the bargain.

[43]     After noting (at 87) the words of the Long Title to the Act as including a declaration that it was to “reform the law relating to ... breach of contract”, the percipient judgment proceeded to analyse statutory factors affecting the assessment of damages.  The salient points are:

a)       The rights of both parties must be taken into account under s 9 (at 88).

b)The  right  to  conventional  damages  is  expressly  preserved  under s 8(4), 9(3) and 10(1) (at 89).

c)       “... once extraneous reliance expenditure, expectation losses and other foundations for compensation are seen to be subject to the discretions conferred by s 9, the court is freed from the rigidity of established common law rules relating to damages” (at 89) so courts can award more  under  s  9  than  would  have  been  recoverable  by  way  of traditional damages (ibid).

d)Having regard to the Fuller and Perdue classification, “it is scarcely surprising ... that the restitution interest figures prominently in the Act

(ss 9, 4(d) and (e)) and that traditional limitations upon the remedy of restitution have not been repeated” (at 91).

e)       The statutory power to award “such sum as it thinks just” entitles the court to compensate for extraneous reliance and expectation losses (at 91) and “... all three forms of interest – restitution, reliance (in both senses) and expectation – are capable of supporting relief under s 9” (at 92).

f)        “... in determining the cancelling party’s net entitlement, if any, the benefits it receives pursuant to the contract must be set off against the restitution, reliance or expectation claims advanced on its behalf.” (at 95).

g)       Though the “traditionally hierarchical approach to remedy (monetary remedy preferred,  then  specific  performance  and  injunctions,  then declaratory relief)” may have been disappearing (at 96):

“once the value or quantum of relief due to a party under s 9 has been determined, the Court has a further discretion under s 9(2) and (3) as to the form in which that relief is to be provided to the successful claimant.  The cancellation does not  of  itself  divest  any  party  of  property  transferred  or money paid pursuant to the contract (s 8(3)(b)) but the Court may  require  the  transfer  of  specific  property  (s  9(2)(a)), order the payment of a sum of money (s 9(2)(b)) or direct any party to do or refrain from doing something (s 9(2)(c)), with  or  without  such  terms  and  conditions  as  the  Court thinks  fit  (s  9(3)).    Although  not  expressly  so  stated,  a further option would seem to be a mere declaration as to the incidence and value of relief due under s 9 followed by an adjournment to allow the parties the opportunity to create their own remedial solution”.

h)        The judgment then includes a useful summary of applicable principles

(at 97-98).

[44]     Placing Dunes in the position it would have occupied had Rocks fulfilled its obligations and performed the HoA causes no difficulty in relation to Dunes’ heads of claim for expenditure incurred but unable to be utilised, or income foregone and

not met by Rocks.  Thus claims retrospective from late 2006 for monthly payments and lost gaming machine income are clearly reliance, and, possibly, expectation interest claims in Fuller and Perdue’s nomenclature and are fully recoverable.

[45]     However, assessing the balance of Dunes’ claims – loss of goodwill, lost value of retained plant and equipment, the DB Breweries trade tie advance and the claims for Rocks’ unpaid contribution to fitout of the premises – are not without difficulty.  The proper conceptual approach to those claims requires them to be set within the factual context.

[46]     Rocks  purported  to  cancel  the  HoA  on  28  August  2006.    The  liability judgment held its purported cancellation ineffectual, principally because Rocks at that date had not fully complied with its obligations under the HoA.  It was thereby in breach of contract.

[47]     On 5 October 2006 Dunes commenced these proceedings.  Its then statement of claim sought a declaration that the HoA remained in full force and orders that Rocks complete its proportion of fitout and pay the amounts due by it for storage, monthly payments and casino income as set out in the HoA (para [19]).  It applied for an injunction on 11 October 2006.  By that date Rocks and its substitute lessee, Nelson Gourmet Ltd, had expended significant sums in fitting out the premises pursuant to a lease signed on 6 October 2006.   As Gendall J recorded in his oral judgment of 6 November 2006 dismissing Dunes’ injunction application, both Rocks and Nelson Gourmet had continued to expend money on the premises in order, it was hoped, for Nelson Gourmet’s new bar to open as soon as it was complete (para [20]).

[48]     For reasons which will appear in the affirmation section of this judgment, it is pertinent  to  record  a  number  of  passages  from  Gendall  J’s  judgment.     He summarised the form of injunctive relief sought at the hearing on in the following way:

[22]      The application for the interim injunction as now amended (and the amendment  really is designed  it seems  to encompass  or include Nelson Gourmet), seeks orders to restrain 623 Rocks Road from entering into any further lease, sale or disposition of such premises;  secondly, to restrain 623

Rocks Road from taking any further steps to give effect to its purported

cancellation of the Heads of Agreement;   and thirdly, seeking to restrain Nelson Gourmet “from taking any steps in fulfilment of it pursuant to the Deed of Lease dated 6 October 2006”.  Those are all restraining applications. As I signalled to counsel, if the first two were granted against 623 Rocks Road they would be moot and futile, given that it has already entered into a lease with Nelson Gourmet.   What is really sought is a mandatory interlocutory injunction seeking specific performance (for want of better words) requiring 623 Rocks Road to enter into a lease with Dunes Café on terms contained in the Heads of Agreement.  The application and amended application  falls  far  short  of  seeking  that.    But  for  the  purpose  of  this judgment I am prepared to treat the application in substance as seeking that remedy because the remedies as presently sought against 623 Rocks Road as I have said, even if granted, it would be moot.

[49]     After considering conventional authority, Gendall J held there was a serious question to be tried between the parties (at [28]) but that the balance of convenience told against granting the relief sought for the following reasons:

[45] Weighing all those considerations up I am satisfied by a wide margin that the balance of convenience must fall in favour of 623 Rocks Road and the allied party Nelson Gourmet.  If at trial Dunes Café succeeds against 623

Rocks Road then it would be entitled to damages, both special and general. They can be assessed in the usual way.   If it was so entitled the loss that

arises to it to the use of the reconstituted premises may not easily be assessed in the form of damages, but that is not unusual in many cases where claims

involve damages for loss of a chance.  The Court frequently has to deal with them and despite difficulties damages can be assessed as general damages.

[46] To grant an interim injunction at this stage, given the rights that Nelson Gourmet have obtained, and without there being any cause of action pleaded against Nelson Gourmet, would involve creating a greater risk of injustice to that third party.  I am not at all sure that the Court could make orders in any event which affect the rights of a third party obtained under an Agreement to Lease which party could enforce it as against another, although I imagine in the Court’s equitable jurisdiction the granting of one order for specific performance in respect of one agreement effectively disposes of the other. But  this  is  not  a  case  where  I think  that  the  Court  should  exercise  its discretion to grant the relief especially because of the question of delay. That is pivotal in my discretion to refuse the interim remedy.

[50]     The  result  of  the  judgment  as  far  as  Dunes  is  concerned  was  that  on

5 December 2006 its solicitors wrote to Rocks’ solicitors saying:

Our client, The Dunes Café & Bar Limited, hereby gives notice that it intends to treat your client’s action in –

a)        Failing to sign and return the Deed of lease signed by our client on

24 August 2006;

b)        Denying our client re-entry to the new premises at Rocks Road;

c)        Giving Notice of purported cancellation on 28 August 2006;

d)Entering an agreement to lease with Nelson Gourmet Limited on or about 6 October 2006

as repudiation of Heads of Agreement dated 17 June 2004 in respect of which our client hereby gives Notice of Cancellation pursuant to Section 7

Contractual Remedies Act 1979.

As a consequence our client will be seeking damages including those available under Section 9 Contractual Remedies Act 1979 and not re-entry of the premises as a remedy in these proceedings.

[51]     As noted in the liability judgment, the 5 December letter requires to be seen, first, as Dunes’ accepting – if it was legally able so to do - Rocks’ failures as repudiation and cancelling the HoA in consequence.   Secondly, it recorded Dunes opting for the monetary remedy of damages and abandoning specific performance and an injunction in the hierarchical approach noted in Newmans Tours (at 96).

Affirmation

[52]     Rocks pleaded repudiation on Dunes’ part prior to 5 December 2006 but not that any actions of the plaintiff amounted to affirmation of the contract extinguishing any breaches by Rocks.  As it was put by Hardie Boys J in Jolly v Palmer[7], the law is that:

Confronted with a repudiation, the innocent party may elect to accept it, in which case, provided he communicates his decision, the contract is at an end;   or to affirm the contract, in which case it remains in force for the benefit  of  both  parties,  and  a  further  breach,  actual  or  anticipatory,  is required  before the innocent  party may bring it  to an  end  (Monigatti v Minchen).

[7] Jolly v Palmer [1985] 1 NZLR 658, 664 relying on Monigatti v Minchen [1937] NZLR 49, 52.

[53]     However, as Burrows Finn and Todd (op cit para 18.3.2 p 589) observes:

“... to find that a contracting party has debarred himself or herself from cancelling is a final step, and the courts are unwilling to take it unless the evidence is clear.”

[54]     In this case, the consequences of Dunes seeking injunctive relief in the form it did and effectively seeking to have Rocks perform its obligations under the HoA were:

a)        To affirm Dunes contract with Rocks; and

b)To extinguish the election to cancel the contract which it had prior to the hearing before Gendall J arising from Rocks’ repudiatory conduct to that date;  and

c)        Dunes therefore extinguished its right to rely on grounds (a), (c) and

(d) in its letter of 5 December 2006 as repudiation.

[55]     Was it then entitled to give notice of cancellation of the HoA on 5 December

2006, relying on ground (b)?

[56]     Section 7(2) of the Contractual Remedies Act 1969 reads:

7.(2)Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does not intend to perform his obligations under it or, as the case may be, to complete such performance.

[57]     It is clear that, following delivery of Gendall J’s judgment on 6 November

2006, Rocks and Nelson Gourmet continued to complete fitout of the new bar to the point where Nelson Gourmet was able to open for business on 21 December 2006. At the time, they doubtless considered themselves justified in taking those actions as Gendall J had dismissed Dunes’ application for an injunction, but, as the Judge said on a number of occasions, although the issues surrounding injunctive relief were insufficient for him to grant an injunction in Dunes’ favour, following a substantive hearing it might turn out to be the case that Dunes was held to be legally justified in the actions it took and Rocks legally unjustified.  In taking the actions it did after 6

November 2006, Rocks must be held to have been taking the risk that ultimately its actions might result in judgment being given for Dunes against it.

[58]     In those circumstances, the correct view must be that in taking the actions it did in relation to the new bar premises after 6 November 2006 and in allowing Nelson Gourmet to do what it did in readying the new premises for business, Rocks was making clear it did not intend to perform or complete performance of the HoA with Dunes.  It was therefore engaging in continuing repudiatory conduct after that

date and Dunes was entitled to rely  – as it did on 5 December 2006 – on Rocks’ continuing denial of entry to the new bar premises after 6 November 2006 as giving it  the  right  of  election  to  accept  that  repudiatory  conduct  and  justifying  its cancellation of the HoA on that date.

[59]     In terms of New Zealand Land Development, Rocks’ breach of the HoA and its subsequent repudiatory conduct gave Dunes the option of electing what form of relief  it  would  choose  amongst  those  available.    It  made  that  election  in  its

5 December notice and brought the HoA to an end that day.  Dunes’ entitlement to damages is to be assessed as at 5 December 2006.

[60]     That exercise is not, however, without its complications since the position in which Dunes would have been at 5 December 2006 had both parties fully complied with the HoA was that it would have been in occupation of a fully functioning (and larger) bar, restaurant and casino on the site of its former premises.  In addition, it would have had a long-term guaranteed right of occupancy – five years with two rights of renewal of five years each (and with  concessionary rentals in varying amounts for the first two years of the initial term) – of premises to the fitout of which both Dunes and Rocks would have contributed reasonably significant sums.  And in operating its bar, restaurant and casino it would have utilised both chattels retained from its former premises (some refurbished) and new chattels bought for the new business, plus the gaming machines.

[61]     Had Dunes chosen to offer to sell its business at that point, what it would have had to sell was an existing business which would have had residual goodwill arising from its former business on the site, plus additional goodwill arising from (probably) increased turnover, plus the chattels used in the new premises, plus the advantage of those premises being recently refurbished at not inconsiderable expense to both parties, plus its assured long-term occupancy, plus the gaming machine licences with their attendant income.  The residual goodwill, the goodwill from the new business plus the value of the fitout and its occupancy would all have been incorporated in the amount it might have received for intangibles.   That would include the expectation of forgiveness of the DB Breweries trade tie advance.  To

that it could have expected an amount to be added for tangibles and the chattels in the premises.

[62]     Keeping those observations in mind, the Court turns to Dunes remaining claims.

Goodwill

[63]     The liability judgment outlined this claim in the following way:

[175] Dunes claimed $450,000.00 for the loss of what it said was the value of the goodwill its bar/restaurant/casino would have had on re-opening had Rocks not acted as it did.

[64]     This aspect of the claim was the subject of considerable evidence at the substantive hearings – including detailed evidence from expert accountants called by each party.   The Court summarised the view of Mr Underwood, Dunes’ expert accountant, as to the value of the Dunes business as follows:

[186]  Mr  Underwood’s  calculation  of  goodwill  gave  him  gross  values varying between $600,000-$900,000.00 which, after deducting $400,000.00 for the assets, gave a goodwill value of between $200,000-$500,000.00. Mr Underwood settled on a figure of $450,000.00 for goodwill which, when the $400,000.00 was added for plant, equipment and fitout value, gave a total value of the business of the order of $850,000 plus GST.

and that of Mr Carran, Dunes’ expert accountant, in the following way:

[192] Mr Carran’s analysis of the market data was that the best possible market price for Dunes’ business would not have exceeded $450,000.00. This he thought was high.  Adopting the historical seller’s discretionary cash flow, and applying his industry multiple of 2.7-3.0 against the historic range of $110,000-$120,000.00 gave a total value for the business of between

$300,000-$360,000.00.   He thought Nelson Gourmet’s $350,000.00 offer very attractive.

[65]     At the Court’s conclusion of its discussion of the evidence on this topic, the view was taken that:

[197] Accepting that what might have occurred cannot be exactly calculated and the result may be thought a best estimate, the Court’s view is that the whole of Dunes’ business in late 2006, assuming fitout had been completed and it was a going concern, would have been worth towards the top of Mr Carran’s range, say in the region of $450,000.00, with between half to a

maximum of two-thirds of that, $225,000-$300,000.00, likely to be apportioned to goodwill.  That assessment is not too far away from the mid- point of Mr Underwood’s range of goodwill values and, as mentioned, seems to accord roughly with the mid to higher end of Mr Carran’s assessment based on historical values.

[198] There is imprecision in the figures but that necessarily arises from the fact it is a hypothetical assessment of a future event which never occurred and, despite there having been a bar on the premises for nearly a decade up to March 2005, there had been a gap of about 21 months since during which local competition had increased.  In those circumstances a cautious approach to this aspect of the claim is mandated.   The Court takes the view that it would  be  appropriate  to  allow  the  mid-point  of  the  range  discussed,

$262,500, as damages for lost goodwill.

[66]     Mrs Hampson’s 20 March memorandum said Dunes accepted the figure for the purposes of this claim, though felt it made insufficient allowance for the gaming machines.

[67]     Mr  England’s  31  March  memorandum  suggested  the  figure  for  goodwill should be reduced to $225,000.00 because any new premises which Dunes would have occupied “would have included substantially superior plant and equipment”.

[68]     In the Court’s view there is nothing in the submissions advanced on Rocks’ behalf to vary the goodwill figure arrived at in the liability judgment.  Rocks simply seeks a reworking (and reduction) in the amount assessed, not based on expert views and not based on any further evidence.

[69]     The value of the goodwill which Dunes would have enjoyed had Rocks performed its obligations under the HoA is clearly the value of an expectancy which Rocks’ execution of the HoA created.  In Fuller and Perdue terms, Rocks must be held liable to pay the money value of the promised performance.  It is therefore an “expectation interest” and recoverable.

[70]     There will accordingly be judgment for the plaintiff against the defendant for goodwill in the sum of $262,500.00.

Diminution in value of retained plant and equipment: $165,063.72

[71]     The liability judgment described this claim in the following passages:

[200] Mr and Mrs Hampson took as much as possible from their former premises with the intention of storing it and re-using it in their new premises. They claim that when they were denied the right to enter the premises the plant and equipment lost any value it had.  Since that time, Mrs Hampson has made substantial attempts to sell the equipment through advertising, locally and in hospitality trade magazines, listing items on “Trade Me” and emailing breweries and others in the business, all without much success.  At the date of the hearing, Dunes had realised $11,505.87 from sales, as against

$43,591.76 being the estimated cost of buying new items as established from trade  suppliers’  price  lists.     The  net  loss  claimed  was  accordingly

$32,891.30.

[201] Mrs Hampson estimated the replacement costs of other necessary plant and equipment items at $132,172.42 (before deducting $915.00 for a Halloween coffin) in accordance with a detailed list.  The two calculations produced the $165,063.72 claimed for items Dunes still retained but which now have no value and the cost of replacing the remainder of the furniture and fittings required.

[72]     Then, after discussing difficulties in calculation arising from different book values, replacement costs, commission and fees, the tentative view was expressed that:

[206] As regards the chattels from the former bar, the amount realised from sales  significantly  exceeded  the  book  value  and  the  difference  should perhaps be deducted from the amount which Rocks would otherwise have to pay Dunes for the loss in value of the retained chattels.  However, apart from that, if Rocks accepts the remaining chattels have no value, it could be liable to Dunes for the value lost through its wrongful purported cancellation of the HoA.   There is the additional complication that on payment by Rocks to Dunes of the correct amount, Rocks would then presumably be entitled to take over the balance of the chattels.   Mr Carran’s criticisms of this claim also had weight and there would be a need to ensure there was no double counting with the trade tie advance next discussed.  This, plainly, is an area requiring negotiation in an attempt to reach a sensible accommodation.   It will need to be covered in the directed memoranda.

[207] As far as the claim for chattels that were required to be bought to outfit the new premises is concerned, given Dunes’ abandonment of any attempt to gain entry to the new bar and the fact it has thereby been freed from meeting any part of the cost - which was no more than an estimate at the end of 2006

– the appropriate view would appear to be that this aspect of Dunes’ claim should be disallowed.  This, too, will however need to be addressed in the

directed memorandum.

[73]     A deal of additional information on these topics has been placed before the Court since the liability judgment, and as a result a somewhat different approach to the claim now appears to be more appropriate.

[74]     Mrs Hampson’s 20 March memorandum drew attention to the loss in book value of fixed assets - put in evidence by Rocks – of $45,386.00 for the 2006 year. To put Dunes back in the position it would have occupied had the HoA not been cancelled, she submitted Dunes incurred a loss under the contract which was a reliance interest as described in Newmans Tours.   She further drew attention to documents put in evidence by Rocks as to losses in disposal of assets of $13,309.00 in the 2005 year arising on the sale of assets intended to be replaced with new equipment in the new bar with $6,052.80 being the net return at auction.   After cancellation of the HoA Dunes attempted to sell further assets but incurred a loss of

$11,094.00 for items no longer of any use to the plaintiff.   She then listed some

19 items costing $43,580.34 for items purchased by Dunes prior to cancellation of the HoA.  They, too, were no longer of use to the plaintiff.  The invoices included such things as booth seating, door sandblasting, a till system, Yellow Pages advertising,  bar  cabinetry,  computers  and  associated  software.     The  sum  of

$10,700.46 nett has since been recouped from sales.

[75]     Mrs Hampson therefore asserted Dunes’ loss under this head of claim was:

BREAKDOWN OF MONIES LOST BY THE DUNES

Leasehold improvements  $45,386.00

Loss on Assets 2005  $10,670.00 (corrected figure)

Loss on Assets 2006  $11,094.00

Monies spent on Unusable Assets  $43,580.34

Subtotal  $110,730.34

Reclaimed at Auction 2006                $6,052.80

Reclaimed from Sales  $10,700.46

Subtotal  $16,753.26

Total loss by Dunes on Fixture and Assets  $93,977.08

[76]     After repeating the defendant’s objection to the production by Mrs Hampson of a number of invoices not produced during the substantive hearings, and the fact

that Mrs Hampson’s method of calculation set out above did not accord either with the 2 October 2007 claim or the evidence, Mr England said Rocks accepted that the new calculation by Dunes was more appropriate.  His calculation was:

49.      The defendant is however bound to accept liability for loss of value of plant and equipment and furniture (but not loss in value of leasehold improvements  as  a  claim for  that  amount  was  not  advanced  during  the hearing) in the amount of the book value of such assets only (such value being the only matter proved at hearing in my submission).

50.      Such  amounts  would  equate  to  $10,670.00  (2005  year)  plus

$41,418.00  (book  value  as  at  31  March  2007  including  all  additions) totalling  $52,088.00  less  however  amounts  recuperated  [sic]  in  sales  of assets admitted by the defendant as $16,753.26 giving an overall total for damages under this head of $35,334.74.

but he asserted that calculation should be reduced because it included the cost of refurbishing existing assets or buying new ones with money Dunes borrowed from DB Breweries.  He therefore suggested it would be “double counting” to allow both this claim and allow the claim for monies repaid to DB Breweries.

[77]     Reconsideration of this item shows the heading of this claim – “Diminution in value of retained plant and equipment” – to be not entirely accurate.  It conflates what should be separate claims, first, for the value, at the date to which damages are to be assessed, 5 December 2006, for the then value of items utilised in Dunes’ former premises and retained for use in the new premises, augmented by sums spent on refurbishing those chattels but diminished by net sale proceeds.

[78]     A second claim should be for the value at the damage assessment date of reimbursement for expenditure by Dunes specifically referable to the new premises, again adjusted as with the former claim (and acknowledging at least one item – one of the two computers bought for the new premises – was retained by Mr and Mrs Hampson).

[79]     Only consolidated figures for Dunes’ various claims concerning its chattels were produced, but it is important in light of the authorities to separate out the various claims as follows:

a)       The first step is to assess the value of the chattels used in Dunes’ former business which it intended to re-use in the new premises, but could not be so used because of Rocks’ breach of contract.  Accepting those chattels consequently had no value to Dunes, the plaintiff should be entitled  to  judgment  for  the value of  those  chattels  plus  sums expended by Dunes on refurbishment prior to Rocks’ breach of contract, netted against sums realised by Dunes on sale.

b)As a gloss on (a) above, the sums Dunes realised on the sale of such of its chattels as had been refurbished were presumably enhanced by the refurbishment with that enhancement reflected in the sales figures, but no separate calculation was made for that item.   Similarly, the sales value of retained chattels which had not been refurbished may have  appreciated  or  diminished  through  changes  in  the  market between Rocks’ breach of contract and sale of the chattels but, again, no separate value was shown for those items in evidence.

c)       Chattels specifically purchased by Dunes during the “stand-down” period towards satisfaction of its obligation under the HoA to set up its new business should be allowed at their purchase price in the market, less any sums realised on sale.

d)Since it is not possible to calculate the extent to which refurbishment of retained chattels enhanced their book value at closure, 31 March

2005, after that date the most accurate assessment of Dunes’ losses on those chattels is to calculate their value at that date, add the total amount spent on refurbishing them, deduct the amounts realised on sale, and enter judgment for Dunes against Rocks under this head of claim for the balance.

e)       For items purchased by Dunes toward satisfaction of its obligations under the HoA to set up its new business, as there was no evidence as to  how  the  market  values  at  purchase  might  have  shifted  by

5 December  2006,  the  purchase  price  requires  to  be  treated  as  a

surrogate for the value of those chattels at that date with the sale price of such as have been sold being debited against that amount as an aspect of Dunes’ satisfying its obligation to mitigate its loss.

[80]     Dunes’ former premises closed in accordance with the HoA on 30 March

2005.  The book values of its plant and machinery and of its furniture and fittings as at the end of that financial year were $2,073.00 and $58,466.00 respectively, a total of $60,539.00.  The lists of those items appearing in Dunes’ schedule of fixed assets and depreciation and the list of chattels retained appearing in Mrs Hampson’s brief do not correlate precisely but excluding items which would obviously not have been able to be re-used, such as the fireplace, shelving, linoleum and the like, a reasonable estimate of the combined book value of Dunes’ chattels at 31 March 2005 would be approximately $58,000.00.   No accurate figure appeared in the evidence for any addition or depreciation while the items were stored either up until sale or thereafter so that figure should be treated as the value of Dunes’ retained chattels for the purposes of this claim.

[81]     Mrs Hampson’s evidence at the substantive hearings (paras 122-127 and 133) said the total cost of refurbishing retained chattels was $24,695.61.  The total cost was paid from the DB Breweries advance.  Some had been re-sold.  She produced a list (which did not exactly tally with the list of chattels retained) showing sale prices totalling $11,505.87.

[82]     It therefore appears to be the case that Dunes’ loss on its retained chattels is:

Book value at closure	$58,000.00
Plus amounts expended on refurbishment	$24,695.61
Subtotal:	$82,695.61
Less amounts realised onsale	$11,505.87
Net loss:	$71,189.74

Dunes is entitled to judgment against Rocks under this head of claim for that amount as a reliance interest claim.

[83]     It remains to comment under this item that Dunes claimed the replacement cost of its chattels.  That cannot be the proper measure of damages for a number of reasons, including, first, that its retained chattels were not worth replacement cost in late 2006 and, secondly, that Dunes did not replace its chattels – it intended to use them.  Accordingly to allow replacement cost would result in over-recovery.

[84]     Mrs  Hampson’s  list  of  new  items  purchased  by  Dunes  with  a  view  to occupancy of the new premises included both tangible items – e.g. wall brackets – and intangible items – e.g. computer software, website and Yellow Pages advertisements.  Strictly, a few of the intangibles might perhaps be regarded as being subsumed within the goodwill figure in that it was expenditure specifically incurred with a view to operating the new premises and Dunes was unable to use any part of the expenditure as a result of Rocks’ breach, but that calculation cannot be made. Apart from that, those payments must be similarly regarded as regarded as recoverable in Fuller and Perdue terms as either reliance or expectation interest damages.

[85]     According  to  Mrs  Hampson’s  evidence  at  the  substantive  hearing  (paras

128-131, 134-137) these total $16,794.70.  A few, such as the computer retained by the couple, were able to be re-used.   The rest was accordingly wholly wasted expenditure by Dunes.  A reasonable estimate of that expenditure would be $14,000 and Dunes is entitled to judgment against Rocks under that head of claim for that sum.

DB Trade Tie Advance:  $79,138.69 and $40,000

[86]     The liability judgment dealt with this head of claim in the following way:

[209] Dunes entered into a trade-tie arrangement with Dominion Breweries providing for advances in three tranches of up to $120,000.00 from 1 April

2006.

[210] When Dunes could not enter the new premises, on 15 November 2006

Dominion Breweries sought repayment.   Dunes had used $43,090.30 from

the initial drawdown of $80,000.00 towards fitout expenses.  Making up the difference themselves, Mr and Mrs Hampson paid $40,000.00 and then negotiated a settlement of $35,000.00 against the balance of $40,000.00.

[87]     After  noting  Mr  Carran’s  suggestion  the  claims  were  double-counting because the outstanding loan to DB would have required repayment on any sale of Dunes’ business and accordingly Dunes could not claim both diminution of goodwill and repayment of the DB advance, the Court observed:

[213] The Court’s view is that, provided there is no double counting, Dunes is  entitled  to  recover  the  sums  paid  to  Dominion Breweries  by  way  of repayment of the funds advanced and later repaid at the date of cancellation. As it had always achieved the quantity prerequisite to forgiveness of part of the Breweries’ debt previously, there is no basis to assume such would not occur again, particularly with increased patronage.  The sum advanced may be a surrogate for wasted expenditure, at least to the extent to which it was not used to purchase assets nor used for other recoverable items such as Mr and Mrs Hampson’s living expenses for which allowance is elsewhere made. The maximum sum is $75,000.00 but again this aspect of the claim will need to be the subject of negotiation between the parties on the same terms as elsewhere directed.

[214] However, there does not seem to be any basis on which Rocks can be liable for Dunes’ legal costs in defending the claim.  It was Dunes’ choice to retain counsel in relation to that claim.   The sums paid by it under its contract of retainer with its lawyers, absent some provision in the HoA which might have made Rocks liable under its contract with Dunes, does not make the fees paid under the contract of retainer recoverable from the defendant for its breach of contract.

[215] Similarly, recovery of sums that probably would have been advanced by the Breweries but were not, and might have been forgiven in the future cannot be claimed.   A potential debt and forgiveness programme which never eventuated is irrecoverable.

[216]  It  would  appear  that  the  plaintiff  is  entitled  under  this  head  to judgment against the defendant for $75,000 but this matter needs also to be the subject of negotiation and be dealt with in the directed memoranda.

[88]     Those tentative views now require the following modifications:

a)       The 20 March memorandum said Dunes drew down two $40,000.00 payments, repayment of which was demanded on Rocks’ purported cancellation of the HoA.   $40,000.00 was paid immediately but the remainder of the advance incurred interest of $3,508.22.  Against DB Breweries total claim for $83,508.22, Dunes paid $78,098.25, partly

in cash and partly following a compromise for the balance.  It sought judgment against Rocks for the total amount paid to DB Breweries.

b)Further  investigation  since  the  liability  judgment  shows  the  DB Breweries loan was to be secured over all Dunes “present and future assets” and the loan was for the “construction, redevelopment and/or renovation work to be undertaken by the customer in respect of the customer’s premises”.

c)       Mrs Hampson said work done on the retained chattels and the other work earlier discussed such as websites, Yellow Pages advertisements and brand marks, totalled $43,090.30, were all  paid from the DB Breweries loan.   The expenditure, designated as “fitout expenses”, must therefore be taken as having been wholly used on tangibles or consumables, not the premises.  Orders for a number of other items were able to be cancelled.

[89]     Mr England’s memorandum submitted this claim should be wholly rejected as either “double counting” or representing monies not expended by Dunes.  He said the $40,000.00 cash repayment represented no more than returning that part of its loan to DB Breweries and the balance, of somewhere between $35,000.00 as given in Mrs Hampson’s evidence or $43,000.00 as listed in Dunes’ latest memorandum, was the same amount claimed as part of the diminution in value of retained plant and equipment.  He accepted, however, that if the claim for the diminution in value was disallowed then that part of the claim for the trade-tie advance representing monies actually expended by Dunes would be properly payable if quantified.

[90]     This head of claim is probably inappropriately described as “Variable” and once it is analysed in Fuller and Perdue terms, the amount for which Dunes is entitled to judgment against Rocks is relatively straightforward.

[91]     The amount Dunes drew down from DB Breweries was an ordinary business debt incurred in reliance on Rocks’ performing its obligations under the HoA.  The vendor demanded repayment of the sum advanced when the nominated purpose of

the advance could not be achieved.  A compromise settlement was achieved and the funds paid.

[92]     The  fact  that  $43,090.30  had  been  spent  on  the  items  earlier  listed  is immaterial but to allow the whole of the total would be to give the plaintiff credit twice for the $16,794.70 allowed as part of the claim for diminution in value for the retained plant and equipment.   The plaintiff is accordingly entitled to judgment against the defendant under this head of claim as follows:

Amount paid by Dunes as compromise

settlement of DB Breweries claim:                   $78,098.25

LESS amount previously allowed as part

of chattel diminution claim:  $16,794.70

Amount for which judgment to be entered for plaintiff against defendant under this

head of claim:  $61,303.55

Unpaid portion of Rocks’ contribution to building costs ($33,392.83) and for heat pumps, floor coverings and painting ($22,532.16)

[93]     This aspect of quantum is not straightforward.  The liability judgment said:

[219] This is another area where Mr Carran disagreed with the claim because the benefit of the expenditure was included in the earnings and the goodwill valuation. Thus, to him, there was double counting of the same items.

[220] There is force in Mr Carran’s approach to this item but, again, this aspect of quantum is not straightforward because, as with the claim for the cost of chattels which might have been required to be purchased for the new bar, these are claims for expenditure by Dunes and Rocks which would have been required of them to create a fully functioning bar, café and casino. Once installed with the premises operating, their value would have been subsumed into the plaintiff’s fixed assets, chattels and, to a lesser extent, goodwill and recoverable as such, in the event of a sale, in the overall sale price.  A further problem faced by Dunes is that, it having abandoned any claim for entry to the premises, it is difficult, conceptually, to give judgment against Rocks for expenditure which both Dunes and Rocks, in the event, were  not  called  upon  to make.    There is  also the difficulty of  division between the parties though the claim for the unpaid portion of Rocks’ contribution to Dunes’ building costs on fitout ($33,392.83) is derived from McCullys’  estimate  of  28  August  including  building  the  raised  floor, painting and fire protection but excluding electrical, plumbing and extraction system.  The sums were only partially payable by Rocks to Dunes under the HoA (Appendix 2 cl 1.1 and Appendix 4).

[221] For all those reasons, the Court is currently unpersuaded of Dunes’ right to recover these sums but, as with all the other items, that matter should be addressed by the parties in negotiations and the directed memoranda.

[94]     In relation to the heat pumps, Mrs Hampson noted Dunes gave up its existing items on demolition in response to which Rocks agreed to meet the cost of new replacements amounting to $22,532.16.

[95]     Mr England did not comment on that aspect of the claim.

[96]     Mrs  Hampson  said  Rocks’  unpaid  portion  of  the  fitout  amounted  to

$33,392.83.  Had Dunes continued with the fitout then Rocks would have been liable for at least that sum.  That would have added value to Dunes’ business, but Rocks prevented entry and disposed of the space.   She therefore contended that Rocks would have been required to pay at least that sum by contributing to the fitout had it not wrongly cancelled the HoA and to put Dunes in the position in which it would have been had the HoA not been cancelled, Rocks should not benefit further “but be held accountable for monies that would have been paid had the contract remained in force”.

[97]     Mr England submitted no allowance should be made under this head of the claim, partly because the benefit of such expenditure was included in the goodwill, partly because only a portion of the proposed expenditure was to Rocks’ account and partly because Dunes abandoned any attempt to obtain possession of the premises so the expenditure never occurred.

[98]     The overall intention of an award of damages is to place the wronged party in the same position - so far as money can do it - as it would have been had the opposing party not acted wrongfully.  In this case that means compensating Dunes for  the  fact  that,  prior  to  its  abandonment  of  any  claim  for  possession  of  the premises, to achieve a fully functioning bar/restaurant and casino on this site would have required the parties to expend significant sums in paying McCully Builders to complete the fitout.  Therefore, had, by way of example, Rocks wrongfully evicted Dunes from the new premises at any time between opening and 5 December, the amount payable to Dunes by Rocks to put it in the same position it would have

occupied had there been no wrongful eviction would have been the value of Dunes’ business in the new premises immediately prior to the wrongful eviction.   That would have included both the goodwill of the business and the value of the chattels and premises which it was Dunes to sell.  The value of the chattels and fitout which Dunes was able to sell would represent, at least in part, the chattels contributed by Dunes and the expenditure contributed by both parties in achieving complete fitout of the premises.  Just what that valuation might have been by comparison with the parties’ expenditure was not proved and, indeed, may have been unprovable.

[99]     That conceptual view is, however, affected by a number of factors:

a)       After  28  August  2006,  apart  from  the  injunction  application,  the parties factually did nothing in relation to the premises to complete fitout.  Accordingly Dunes should not be able to recover the amount of money either or both would have been required to contribute to the fitout had it proceeded.

b)On 5 December 2006 Dunes abandoned efforts to obtain possession of the site and thereafter confined its claim to damages.   Whilst the underlying principle on which damages in a claim such as this are allowed is as previously mentioned, the  fact that the principle on which damages is allowed could only have been achieved in this case by notional expenditure on the parties’ part does not justify an award of money damages on the basis of notional expenditure not in fact incurred, especially not notional expenditure by the other.

c)      Put another way, damages should not include an allowance for expenditure which would have been required had the parties honoured the HoA and proceeded to complete the fitout when the parties did not complete it and incurred no such expenditure.  Again, still less should Dunes get judgment for Rocks’  notional expenditure.

[100]   Put simply, these are claims which could only have been justified in Fuller and  Perdue  terms  if  they  could  be  said  to  be  giving  Dunes  the  “value  of  the

expectancy which the promise created” in full compliance with the HoA.  But, as the authors say, the assessment of damages may alter according to whether they “... take the promisor’s gain or the promisee’s loss as the standard of measurement” (at 54). What determines these heads of claims against Dunes is the authors’ comment that reliance losses cannot put the plaintiff in a better position than would have been the case had the contract been fully performed.   To treat Dunes’ position as if both parties  had  fully  performed  the  HoA  and  a  fully  functioning  bar/casino  and restaurant resulted with the other attributes earlier mentioned does not equate to entering  judgment  against  Rocks  to  pay  Dunes  money  that  would  have  been expended by it had that desideratum been achieved.  A notional state of affairs, the achievement of which would have required actual expenditure by both parties, does not entitle the innocent party to the contract to recover that expenditure by way of damages when the moneys were not paid out.  That would be a windfall for Dunes, particularly when it abandoned any claim to possession of the premises and thus abandoned any necessity for both parties to spend the required money on the fitout.

[101]   Put another way, the damages so far awarded treat Dunes as having a fully functioning bar/casino and restaurant with the other attributes earlier described.   To have a fully functioning facility of that worth would have required expenditure by both parties to achieve it.  The costs of achieving it – contracted for but unpaid at cancellation of the HoA – must therefore be regarded as subsumed in the valuation of goodwill, tangibles and intangibles already allowed.

[102]   These two heads of claims by Dunes are therefore dismissed.

Costs

[103]   The 20 March memorandum sought an order for costs of $58,240 calculated on a 2B basis.

[104] Mr England accepted the costs claimed were an accurate calculation in accordance with the High Court Rules – even noting Dunes had failed to claim for amendments to the statement of claim – but submitted the seven days preparation

sought was excessive given Mrs Hampson conducted the October 2008 hearing and has represented Dunes since.

[105]   The answer to that is that in a telephone conference with counsel on 20

October  2007  in  which  Messrs  Pratt  and  England  and  Mr  and  Mrs Hampson participated, Mr Pratt advised that arrangements between the plaintiff and his firm were at an end.  Thus Mrs Hampson would continue with the rest of the hearing.  But Mrs Hampson said Mr Pratt had prepared virtually all the cross-examination on which she subsequently based her representation.  Mr Pratt advised all participants he would make his cross-examination notes available.

[106]   For the reasons set out in the leave judgment, it is not open to allow Dunes anything for Mrs Hampson’s representation but, in the circumstances described, it is appropriate to enter judgment for Dunes on its claim against Rocks by way of costs up to October 2006 for $59,200.00 (the sum sought plus an additional $960.00 for the further amendment of the claim) together with the disbursements, witnesses’ expenses, expert witness fees, disbursements and court fees claimed by Dunes.  The total appears to be $86,136.33.

[107]   The  defendant  counterclaimed  for  $242,122.25  plus  various  other  sums totalling $19,353.50.

[108]   All  the  counterclaims  having  been  dismissed,  Dunes  is  also  entitled  to judgment on the same basis for costs against Rocks on the counterclaims up to just before the October 2006 hearing, together with any disbursements and witnesses expenses specifically referable to the counterclaims.

[109]   For completeness, it should be recorded that Mr England’s submission that the length of the hearing was attenuated by virtue of being conducted by a lay representative  instead  of  counsel  is  not  accepted.    Though  the  law  on  which Mrs Hampson   relied   was,   understandably,   not   entirely  up   to   date   and   her submissions failed to grapple with the more recondite aspects of the claim discussed in  this  judgment,  much  the  same  could  be  said  of  counsel’s  submissions.

Mrs Hampson’s conduct of the witness aspect of the substantive hearings was at least as well focused, direct, incisive and non time-wasting as that of many counsel.

[110]   Leave is reserved to the parties to apply in the event the costs orders just made do not result in agreement as to the precise quantification of the costs and similar orders made in Dunes favour against Rocks.

Interest

[111]   Dunes claimed interest on the amounts payable to it.

[112]   It is appropriate that Rocks be ordered to pay interest to Dunes at seven and a half per cent per annum under s 87 of the Judicature Act 1908 on all amounts other than costs, disbursements and expenses from 5 December 2006 down to the date of judgment and from the date of judgment to the date of payment.

[113]   In  the  circumstances  of  this  case  –  particularly having regard  to  Rocks’ efforts to avoid judgment against it – it is appropriate that Dunes also be awarded interest against Rocks at seven and a half per cent per annum from the date of delivery of this judgment to the date of payment on the total amount payable for costs, disbursements and expenses.

[114]   Allowing interest on costs, disbursements and expenses has been open for a lengthy period (Landowners’ West of England and South Wales Land Drainage and Inclosure Co v Ashford,[8]  Re London  Wharfage and  Warehousing Co.)[9]and the practice has been confirmed relatively recently at the highest levels (Erven Warnink BV v J Towning & Sons (Hull) Ltd (No 2),[10]   Hunt v R N Douglas (Roofing) Ltd.)[11]

[8] Landowners’ West of England and South Wales Drainage and Inclosure Co v Ashford (1884) 33 WR 41. 

[9] Re London Wharfage and Warehousing Co (18850 33 WR 836 at 837.

[10] Ervan Warnink BV v J Towning & Sons (Hull) Ltd (No 2) [1982] 3 All ER 312.

[11] Hunt v R N Douglas (Roofing) Ltd [1990] 1 AC 398.

The principle has been applied in New Zealand (AFFCO New Zealand Ltd v ANZCO Foods Waitara Ltd)[12] with costs awards being regarded as part of the “sum for which

[12] AFFCO New Zealand Ltd v ANZCO Foods Waitara Ltd (2005) 17 PRNZ 676 at 678.

judgment is given” and “the judgment debt” and thus attracting interest under s 87, and r 11.27(1) (McGechan on Procedure para HR 11.27.06 p 1-1329).[13]

Result

[13] McGechan on Procedure para HR 11.27.06 p 1-1329.

[115]   In the result the plaintiff is entitled to judgment against the defendant by way of quantum for :

Monthly payment	$77,161.29
Gaming machines income	$114,075.00
Goodwill	$262,500.00
Net retained chattels	$71,189.74
New chattels	$14,000.00
DB Trade tie advance	$61,303.55

SUBTOTAL:  $600,229.58

PLUS Costs, disbursements, and witnesses expenses

as ordered:

PLUS interest as ordered on all of the above:

.................................................................

HUGH WILLIAMS J.

Solicitors:          Knapps Lawyers, Nelson

Hunter Ralfe Lawyers, Nelson

Copy for:           Mr and Mrs Hampson, 26 Monaco View, Stoke, Nelson

Meltzer Mason Heath, P O Box 6302 Wellesley Street, Auckland

(Liquidators)

Case Officer:      Russell[email protected]