Whitford Properties Limited v Bruce
[2017] NZHC 1674
•19 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1977 [2017] NZHC 1674
BETWEEN WHITFORD PROPERTIES LIMITED
Plaintiff
AND
ROBERT IAN BRUCE Defendant
AND
COUMAT LIMITED Second Defendant
AND
GREGORY BRUCE HAYHOW Third Defendant
On thepapers: 18 May 2017 Counsel:
M C Black for Plaintiff
First Defendant in absentia
S H Barter and L M Herbke for Second and Third DefendantsJudgment:
19 July 2017
JUDGMENT OF DUFFY J
This judgment was delivered by me on 19 July 2017 at 4.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Alexander Dorrington Lawyers, Auckland. Barter Law, Auckland.
MC Black, Auckland.
WHITFORD PROPERTIES LTD v BRUCE [2017] NZHC 1674 [19 July 2017]
[1] On 4 April 2017 I delivered a judgment in which I found that the plaintiff (WPL) had succeeded in its claims against the defendants.1 WPL now seeks interest and costs against the defendants.
Interest
[2] The relevant paragraphs of the judgment for present purposes are:
[151] Accordingly I make declarations as follows:
(a) Mr Bruce has breached the mortgagee’s duty to account for the surplus proceeds of the mortgagee sale of the land, insofar as he accepted payment less than the contract price.
(b) Mr Bruce has breached the mortgagee’s duty to obtain the best price reasonably possible insofar as he sold the land on terms whereby he did not receive good consideration for the full sale price of the land.
(c) Mr Hayhow and Coumat dishonestly assisted Mr Bruce in his breach of trust to account for the surplus proceeds of the sale of the land.
(d) Coumat knowingly received and enjoyed the surplus proceeds of the sale that were held on trust for WPL.
[152] I order as follows:
(a) Mr Bruce is to account to WPL in the sum of $1,310,054 and to pay equitable compensation to WPL in the sum of $1.25 million.
(b) Coumat is to account to WPL in the sum of $2,560,054;
(c) In the alternative, Mr Bruce, Mr Hayhow and Coumat are jointly or severally to pay WPL equitable compensation in the sum of $2,560,054;
(d) WPL’s total recovery from all defendants is limited to the sum of
$2,569,054 together with such interest as the Court may order.
[153] Regarding interest, part of the case against the defendants was based upon breach of trust and accessory liability for such breach. Compound interest is therefore available.
[3] WPL now seeks interest on the money sums I awarded. WPL first seeks interest at the contractual rate of 17 per cent, and in the alternative at the rate provided in the Judicature Act 1908. Further, in reliance on paragraph [153] of the
judgment WPL seeks compound interest.
1 Whitford Properties Ltd (in liq) v Bruce [2017] NZHC 625.
[4] The contractual rate of interest is derived from the agreement for sale and purchase of WPL’s land (the agreement). The land was sold by a private treaty mortgagee sale. The agreement was between the first defendant, Mr Bruce, as vendor/mortgagee and the second defendant (Coumat). It provided for interest of 17 per cent per annum.
[5] WPL’s claims against the first defendant, Mr Bruce, were for breach of fiduciary duties and statutory duties that he owed to WPL as mortgagee conducting the mortgagee sale of WPL’s land. WPL’s claims against Coumat and the third defendant (Mr Hayhow) were for accessory liability (dishonest assistance) in equity. The claims were successful; they resulted in a finding that Coumat had not paid the agreed sale price in full. Accordingly, WPL was awarded monetary relief in the form of account of profits and/or equitable compensation to a total sum that was the equivalent of the shortfall between the funds Coumat actually advanced to Mr Bruce and the agreed sale price. This total sum came to $2,569,054.00.
[6] Had Mr Bruce, Coumat and Mr Hayhow not committed the equitable wrongs established against them, Coumat would have paid the additional sum of $2,569,054 to Mr Bruce on settlement of the sale of WPL’s land. Mr Bruce would then have been required to account to WPL for the sum of $2,569,054 as it represented the surplus funds once the mortgagee’s interests were satisfied.2 Accordingly, WPL has been denied those funds from the date of settlement.
[7] WPL seeks interest of 17 per cent which is the rate nominated in the agreement. WPL has succeeded in its equitable claims against Mr Bruce and Coumat. Courts of equity have jurisdiction to award interest that is outside of and additional to interest awards under the Judicature Act 1908.3 In Eden Refuge Trust v Hohepa this Court awarded interest to a successful claimant in equity using as a
guideline the interest rate provided in s 87 of the Judicature Act.4 However, an
2 See Whitford Properties Ltd, above n 1, at [135]–[136].
3 See Rama v Millar [1996] 1 NZLR 257 (PC) at 262. As the claim was brought before the enactment of the Senior Courts Act 2016, the transitional provisions of that Act (sch 5, cl 10) provide that the Judicature Act 1908 is still applicable to the proceeding.
4 Eden Refuge Trust v Hohepa [Remedies] [2011] 3 NZLR 273 (HC) at [19].
award of interest in equity need not be limited to the rate available under the
Judicature Act.
[8] In the present case Mr Bruce and Coumat agreed on a contractual rate of interest that would have applied had the purchaser not settled on time. An earlier agreement for the sale of WPL’s land did not include an interest rate, whereas the substitute agreement did.5 Accordingly, the parties clearly wanted there to be an interest rate of 17 per cent. The terms of the parties’ written agreement incorporated the Auckland District Law Society’s Agreement for the sale and purchase of land.6
Accordingly, annual interest at the agreed rate for late settlement would have been available.
[9] Coumat’s failure on settlement to provide good consideration to the full extent of the sale price has the same effect as a late settlement. In either event the full sale price would not pass from the purchaser to the vendor on the settlement date. Moreover, with either event Coumat would enjoy a benefit through the retention of funds it was obliged to pay to Mr Bruce. As a signatory to the agreement Coumat agreed to pay interest at 17 per cent for late settlement. As the sole director of Coumat, Mr Hayhow was the individual responsible for Coumat
acting in the manner that it did.7 Mr Bruce’s breach of fiduciary duty as mortgagee,
with the dishonest assistance of Coumat and Mr Hayhow, led to WPL not receiving the surplus funds from the mortgagee sale of its land. Had Coumat, Mr Hayhow and Mr Bruce acted correctly WPL would have received the surplus funds on the date of settlement. In such circumstances I consider it is appropriate in equity for the Court to adopt an interest rate that is analogous to the contractual rate for late settlement on which those parties were agreed.
[10] Accordingly, I find WPL is entitled to interest at the rate of 17 per cent per annum. The interest should be calculated from the date of settlement (23 July 2014)
5 The first agreement was for a larger sale price, and it made no provision for intent. The agreement which affected the sale of the land provided for a sale price of $10 million and 17 per cent interest.
6 The terms of the Auckland District Law Society’s agreement were made subject to the specific terms of the parties’ written agreement.
7 Whitford Properties Ltd, above n 1, at [104] where I found Mr Hayhow “played an instrumental
part” in the sale of the land to Coumat.
as that is consistent with the equitable principle that interest runs from the date of the accrual of equitable causes of action.8 There is nothing about the conduct of the plaintiff or the defendants which would suggest something less should apply. By this I mean there is nothing to suggest that the defendants’ conduct was inadvertent or due to an innocent mistake on their part, or that WPL in any way contributed to the actions that led to it not receiving the full sale price. It has acted in a timely fashion
to hold the defendants to account for their wrongdoing in equity.
[11] WPL seeks the liability for interest to run until the date of payment. However, the usual approach is for the liability for interest to run until the date of judgment.9 After that the statutory interest provisions following entry of judgment
will take effect.10 There is nothing about the present case to warrant a departure
from the usual approach to the award of interest in equity.11 Nor is there anything about each defendant’s conduct that warrants distinguishing any of them from the others when it comes to payment of the interest award. Each played an essential role in the equitable wrongs I found proved. Accordingly, I am satisfied the defendants are jointly and severally liable to pay interest at the rate of 17 per cent per annum on the sum of $2,569,054 from 23 July 2014 until the date of this judgment.
[12] Initially WPL sought compound interest. This was strongly resisted by Coumat and Mr Hayhow. In its reply submissions WPL has resiled from seeking compound interest. I am satisfied that compound interest is not warranted. An award of compound interest is not imposed to punish.12 Courts of equity will order compound interest when justice so demands; it does not do so here. The interest rate of 17 per cent represents the parties’ recognition of the appropriate rate for late
settlement. That is sufficient.
8 See Equiticorp Industries Group Ltd (in stat man) v R (no 3) (Judgment No 51) [1996] 3 NZLR
690 (HC) at 692–693.
9 See Eden Refuge Trust, above n 4, at [41]; Equiticorp Industries Group Ltd, above n 8, at 692.
10 See High Court Rules 2016, r 11.27; Judicature Act 1908, s 87. The present prescribed rate of interest is five per cent per annum; see Judicature (Prescribed Rate of Interest) Order 2011.
11 Recognised exceptions to the usual approach are when the position of the defendant or the conduct of the plaintiff demand otherwise, or it would be unjust in all the circumstances to follow the usual approach. See Equiticorp Industries Group Ltd, above n 8, at 693.
12 See Eden Refuge Trust, above n 4, at [28].
[13] Coumat and Mr Hayhow submitted that an interest rate of 17 per cent was not a foreseeable outcome or within the expectation of the parties. Further they argue that the statement of claim does not expressly plead WPL’s request for the “penalty” rate of 17 per cent.
[14] Coumat and Mr Hayhow also seek to diminish the seriousness of their conduct by arguing that they were only liable as accessories. Here they draw comparison with the conduct in Clarkson v Whangamata Metal Supplies Ltd,13 which they argue is more serious as it involved a breach of contract. They further submit that here there is no link between the “damage” which the interest is sought to cover and the breach of the particular duty. They contend that to award an interest rate of 17 per cent against Coumat would be disproportionate to the finding of accessory liability and it could be viewed as punishing Coumat for its role in the
subject transaction. I note this submission is made in a context where Coumat and Mr Hayhow seemingly assume the 17 per cent interest rate could be compounded annually.
[15] Clarkson v Whangamata Metal Supplies Ltd was a breach of contract claim where the plaintiff sought compound interest as part of the damages for breach of contract. The judgment discusses when recovery of interest as damages can be made in principle under the rule in Hadley v Baxendale.14 The judgment is notable for bringing New Zealand law on the recoverability of loss of interest by way of damages in the law of contract into line with other common law jurisdictions, in particular Australia, Canada, and England and Wales.15 The review of relevant case law in Clarkson reveals how long it has taken the common law to accept interest can be recovered as part of the losses flowing from a breach of contract. However, that is something different from what is sought here. Equity has long recognised that those who commit equitable wrongs which are remedied by monetary relief16can also be entitled to awards of interest on such relief, including compound interest where appropriate. Accordingly, I do not find the discussion in Clarkson to be
helpful here.
13 Clarkson v Whangamata Metal Supplies Ltd [2008] 3 NZLR 31 (CA).
14 See Clarkson v Whangamata Metal Supplies Ltd, above n 13, at [36].
15 See Clarkson v Whangamata Metal Supplies Ltd, above n 13, at [31]–[32].
16 For example, an account of profits or equitable compensation.
[16] Further, there is nothing said in Clarkson that could provide a basis for reading down well-established equitable principles as to when equity will award interest.17 The same can be said for the authorities on the merger of common law and equitable remedies on which Coumat and Mr Hayhow rely: Aquaculture Corp v NZ Green Mussel Co Ltd;18 Stevens v Premium Real Estate Ltd;19 and McElroy Milne v Commercial Electronics Ltd.20 In those cases merger of common law and equitable remedies expanded the range of remedies available for the Court to grant relief. There is nothing in those authorities to suggest the courts intended that a way of
doing things that was always available in equity should subsequently be susceptible to confinement by narrower common law principles.
[17] Regarding Coumat and Mr Hayhow’s complaint about the absence of a specific pleading that interest was recoverable as damages, I acknowledge that the common law position is that in an action for breach of contract an unparticularised and unproven claim for interest as part of a damages award will not be successful.21
However, this is not the basis on which WPL seeks interest. Moreover, the rules of pleading relating to damages claims in contract have no application to equitable causes of action like breach of fiduciary duty and dishonest assistance.
[18] WPL included a claim for interest in its prayer for relief for its equitable causes of action. A request for interest in the prayer for relief is sufficient to support an award of interest under the Judicature Act on any monetary sum awarded by way of relief. There is no reason why an award of interest in equity should be treated differently. Given the long established rule that courts of equity can award interest on equitable monetary relief, I consider all that WPL needed to do in this proceeding was to seek interest in its prayer for relief. It is well established that awards of interest in equitable causes of action are for a court of equity to determine, and they are not subject to the Judicature Act. Accordingly, I consider WPL’s pleading gave
Mr Bruce, Coumat and Mr Hayhow sufficient notice they were at risk of an award of
17 See Rama v Millar, above n 3, and the cases discussed therein; Equiticorp Industries Group, above n 8; and Eden Refuge Trust, above n 4.
18 Aquaculture Corp v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299 (CA).
19 Stevens v Premium Real Estate Ltd [2009] NZSC 15, [2009] 2 NZLR 384.
20 McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR 39 (CA).
21 See Clarkson v Whangamata Metal Supplies Ltd, above n 13, at [37].
interest which might be higher than the rate applied under the Judicature Amendment
Act.
[19] I also do not accept the submission from Coumat and Mr Hayhow that dishonest assistance in equity is somehow of less gravity than a breach of contract. Indeed, dishonest assistance entails a finding of dishonesty, albeit on an objective basis. Contracts can be breached without any element of dishonesty. Had it not been for the dishonest assistance rendered by Coumat and Mr Hayhow, Mr Bruce would not have been able to breach the fiduciary duties he owed to WPL as a mortgagee carrying out a mortgagee sale by private treaty. Accordingly I am not persuaded by the submissions of Coumat and Mr Hayhow that the rate of interest should be confined to that of the Judicature Act.
Costs
[20] WPL also seeks scale costs at category 2B in the sum of $62,653.50. Coumat and Mr Hayhow have not disputed costs sought by WPL. The basis on which costs are sought is consistent with general costs principles. Accordingly WPL is awarded those costs.
Mr Bruce’s position
[21] Mr Bruce was served with copies of WPL’s memoranda on interest and costs. He represented himself at the trial of this proceeding. He has taken no part in the exchange of memoranda on interest and costs. I have considered his position; in doing so I have taken into account the opposition raised by Coumat and Mr Hayhow. There is nothing to distinguish Mr Bruce’s position from that of Coumat and Mr Hayhow.
Costs for the costs memoranda
[22] Each opposing party seeks costs from the other. Both have enjoyed a measure of success. WPL has obtained its preferred rate of interest. Coumat and Mr Hayhow have avoided an award of compound interest. I consider that in relation to time spent on the costs memoranda, costs should lie where they fall.
Result
[23] WPL is awarded interest of 17 per cent per annum from 23 July 2014 until the date of this judgment, recoverable jointly or severally from the defendants.
[24] WPL is awarded costs in the sum of $62,653.50 recoverable jointly or severally from the defendants.
[25] Costs for preparation of the costs memoranda lie where they fall.
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