Cockburn and Others v Cs Development No 2 Ltd

• Jurisdiction: New Zealand
• Judge: Ellen France J
• Judgment Date: 26 March 2013
• Neutral Citation: [2013] NZCA 78
• Docket Number: CA297/2011
• Court: Court of Appeal
• Date: 26 March 2013

BETWEEN

Aldwyn John Cockburn Janet Elizabeth Cockburn and Keith Ian Jefferies

Appellants

and

Cs Development No 2 Limited

Respondent

[2013] NZCA 78

Court:

Ellen France, Randerson and French JJ

CA297/2011

CA419 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision that the appellant pay as damages, the interest costs on GST that the respondent would have avoided had the appellants supplied the respondent with a GST invoice on settlement of sale of a property with a cafe operating on it – dispute as to whether the sale was of a going concern and therefore zero-rated for GST purposes pursuant to the Goods and Services Tax Act 1985 — contract did not provide for payment of interest – whether there was a basis for an award of damages calculated as interest — whether the High Court correctly determined the sum payable — whether relief could be granted under s164A Judicature Act 1908 (power to award damages as well as, or in substitution for specific performance).

Counsel:

C R Carruthers QC and R P Harley for Appellants

H B Rennie QC for Respondent

• A The appeal is allowed in part. The amount of interest payable by the appellants is reduced from $110,031.35 to $104,987.34.

• B The appellants must pay the respondent costs calculated at 90 per cent of costs for a standard appeal on a band A basis plus 90 per cent of usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Ellen France J)

Table of Contents

	Para No
Introduction	[1]
Background	[2]
The liability judgment	[11]
The interest judgment	[18]
The issues on the appeal	[21]
Should interest as damages have been awarded?	[22]
Applicability of s 16A of the Judicature Act?	[24]
A pleadings point	[27]
Foreseeability?	[30]
The ability to establish loss	[36]
Conclusion on basis for an award	[48]
Assessment of damages	[50]
Rate	[51]
The period over which interest is calculated	[54]
The evidential basis for the award	[58]
Result	[62]

Introduction

1 The appellants (the Cockburn trustees) did not provide the respondent (CS Development) with a GST invoice as they were required to do on settlement of an agreement for sale and purchase between the parties. The issue on appeal is whether Associate Judge Gendall was correct to order that the Cockburn trustees pay CS Development $110,031.35 as damages reflecting the interest costs that would have been avoided by CS Development had the correct GST invoice been made available on settlement. 1 The parties' contract made no provision for the payment of interest in that event.

Background

2 The matter has a protracted history. The background is set out in detail in this Court's earlier judgment in the proceeding 2 and in Associate Judge Gendall's judgment determining that damages as interest were payable (the liability judgment). The relevant events for present purposes can be summarised as set out below.

3 The Cockburn trustees owned a property at 148 Oriental Parade, Wellington. A business known as the Parade Cafe had operated there for some time. The trustees agreed to sell the property to a company or its nominee. CS Development was nominated as the purchaser. The sale price ($5 million, reduced following a variation from $5.5 million) was GST inclusive. 3 The agreement for sale and purchase was on the Real Estate Institute of New Zealand and Auckland District Law Society standard form Agreement for Sale and Purchase of Real Estate. 4

4 There was a dispute between the parties as to whether the sale was of a going concern and therefore zero-rated for GST purposes pursuant to the Goods and Services Tax Act 1985 (the GST Act), as the Cockburn trustees contended, or not, as CS Development argued. Settlement took place on 2 April 2008, without prejudice to the GST issue. The Cockburn trustees issued a zero-rated GST invoice. That invoice was accepted by the Commissioner of Inland Revenue.

5 Subsequently, each party sought summary judgment against the other. Associate Judge Gendall found in favour of CS Development. 5 The Associate Judge ordered the Cockburn trustees to deliver a GST invoice reflecting GST payable of

$555,555.56 by 7 August 2009. He also determined that the Cockburn trustees would be liable for interest on the GST amount for a period and rate yet to be determined. Associate Judge Gendall dismissed the Cockburn trustees' summary judgment application and awarded costs to CS Development.

6 The Cockburn trustees appealed to this Court. The Court upheld the decision of Associate Judge Gendall that the Cockburn trustees ought to have supplied a tax invoice to CS Development reflecting a supply on which GST was payable at 12.5 per cent. The Court accordingly rejected the Cockburn trustees' argument that the sale was of a going concern and therefore zero-rated for GST purposes. 6

7 However, the appeal was successful in respect of interest. The Court said this:

[99] We are unable to discern the basis on which interest was awarded in this case. The interest provision in the agreement for sale and purchase appears not to apply to the present situation. The matter has to be remitted to the High Court for quantification of interest anyway. In those circumstances, we consider [the] appropriate appellate response is to allow the appeal on this ground and remit the matter to the High Court for determination as to whether interest is payable, and, if so, from what date and at what rate.

8 The Cockburn trustees issued a GST invoice on 26 November 2010 and that was accepted by CS Development as correct. CS Development received its tax credit on 20 December 2010. The Cockburn trustees filed the trust's GST return in respect of the 26 November 2010 tax invoice on 15 January 2011.

9 The matter then went back to Associate Judge Gendall. CS Development filed further particulars of the claim for interest and costs on 14 February 2011. In the liability judgment, the Associate Judge concluded that interest was payable but directed further submissions on the date of commencement and on the rate.

10 An affidavit by an accountant (Christopher Morrison) was filed on behalf of CS Development on 13 May 2011. In the second judgment delivered on 24 June 2011 (the interest judgment), the Associate Judge fixed the interest payable.

The liability judgment

11 The Associate Judge noted the general principle that interest is not due on any money secured by contract unless it is provided for under that contract. However, exceptions arise from the two limbs of Hadley v Baxendale, 7 encompassing loss arising naturally from the breach of contract, and loss that could reasonably be supposed to have been in the specific contemplation of the parties at the time the contract was made.

12 Associate Judge Gendall considered that the present case fell under the second limb. That is, at the time of concluding the agreement: 8

[25] … it would have been within the reasonable contemplation of the parties … that if the defendant was required to and failed promptly to provide an accurate tax invoice, this would mean necessarily that the plaintiff could not receive a tax credit and this would place it out of pocket.

13 A claim for interest under either limb is a claim for special damages, so the loss must be specifically quantified and proved. Associate Judge Gendall noted there was still some authority that appeared to limit the scope of the second limb of Hadley v Baxendale. 9 However, he said: 10

… I cannot see any reason in principle why a lost opportunity to obtain and “invest” money should be treated any differently to a lost opportunity not to lose money. Each ought to be treated the same: see the discussion in Clarkson v Whangamata Metal Supplies Limited [2008] 3 NZLR 31 at[23]–[24].

Therefore if CS Development could prove it missed the opportunity to invest the sum it was supposed to receive as a tax credit, it ought to receive interest in the form of damages.

14 Although concluding that Hadley v Baxendale provided a basis for the claim, the Associate Judge noted that CS Development had argued primarily for equitable relief, claiming specific performance of the terms of the agreement or other relief. Associate Judge Gendall also accordingly dealt with the two other bases for claiming interest relied on by CS Development.

15 The first of the two other bases for claiming interest advanced was as equitable damages under s 16A of the Judicature Act 1908. That section deals with the power to award damages in addition to, or in substitution for, an injunction or specific performance. The Associate Judge said that the failure to provide the correct GST invoice meant CS Development could not, as it was entitled to do, claim the tax back as a tax credit. This result was a detriment to CS Development. As such,

damages were justified by way of equitable relief under s 16A and, by way of damages, an award of interest on the GST tax credit amount was appropriate

16 The second of the other bases for an award was s 87 of the Judicature Act dealing with the power of the court to award interest on debts and damages. The conclusion was that s 87 did not apply as CS Development's application was not for the recovery of any debt or damages.

17 Despite the conclusion that an award was appropriate either on a contractual or on an equitable basis, the Associate Judge did not consider there was sufficient evidence about the appropriate period for which interest was to be paid. Nor was he satisfied there was sufficient evidence about the rate. The parties were given the opportunity of filing further evidence. CS Development filed the affidavit from Mr Morrison. No evidence was forthcoming from the Cockburn trustees. Both parties filed memoranda and the question of the quantification of the damages award was dealt with on the...