Detection Services Ltd v Pickering

• Jurisdiction: New Zealand
• Judge: Woolford J
• Judgment Date: 15 October 2020
• Neutral Citation: [2020] NZHC 2705
• Court: High Court
• Docket Number: CIV-2015-404-003135
• Date: 15 October 2020

Between

Detection Services Limited

First Plaintiff

Detection Solutions Limited

Second Plaintiff

Detection Services Pty Limited

Third Plaintiff

Detection Solutions Pty Limited

Fourth Plaintiff

Stephen Carl John Simmons

Fifth Plaintiff

and

Christopher Lorraine Pickering

First Defendant

Aqatar Limited

Second Defendant

Jake Van Der Peyl

Third Defendant

[2020] NZHC 2705

Woolford J

CIV-2015-404-003135

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Damages — quantum of damages payable by the defendants for losses caused by breaches of the defendants obligations under a joint venture with the plaintiffs — the Court of Appeal confirmed that the defendants were at fault by failing to supply a leak detection system, which the parties had jointly developed, to the plaintiffs — appropriate approach to equitable compensation — damages for loss of a chance

Appearances:

M Corlett QC and R Butler for the Plaintiffs

A Barker QC and J Grimmer for the Defendants

JUDGMENT OF Woolford J

[As to damages]

is judgment was delivered by me on Thursday, 15 October 2020 at 11:30 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

1 By judgment dated 21 November 2019, the Court of Appeal remitted this proceeding back to this Court to determine the quantum of damages payable by the first and second defendants (together “the defendants”) to the third and fourth plaintiffs (together “the plaintiffs”) for losses caused by breaches of the defendants' obligations under a joint venture with the plaintiffs. 1 Liability is not an issue. The Court of Appeal confirmed that the defendants were at fault by failing to supply a leak detection system, which the parties had jointly developed, to the plaintiffs. As a result of the defendants' failure, the plaintiffs had to develop their own system at some cost.

2 The factual background is summarised in the Court of Appeal judgment as follows:

[2] Stephen Simmons, who lives in Sydney, is the founder of the Detection Services group of companies which specialises in detecting leaks in water pipes. The group comprises the two appellant companies, both based in Australia, and two related New Zealand companies, Detection Services Ltd and Detection Solutions Ltd. For convenience, we will refer to these companies collectively as “Detection Services”. Detection Services' customers include various Australian water authorities responsible for public water supply.

[3] Christopher Pickering, who lives in Auckland, is the founder of the second respondent, Aqatar Ltd, a company incorporated in New Zealand in January 2010. Mr Pickering has expertise in computer software development.

[4] Mr Simmons and Mr Pickering were long-standing friends until they fell into dispute over ownership of a new computer-controlled leak detection system, which the High Court found was designed and built for Detection Services in a joint venture between the parties. The system was intended to be used by Detection Services to detect leaks in high-pressure water mains. In very general terms, the system was a refinement of existing technology involving the deployment of a hydrophone attached to the head of a cable into the main. As the hydrophone travels down the main with the water flow it transmits acoustic changes to the operator indicating the location of a leak. Mr Pickering proposed that the new system be controlled using a computer that would display and record the data collected. The system is obviously far more complex and sophisticated than indicated by this brief description, but it will suffice for present purposes.

[5] The High Court found that the joint venture was formed some time prior to December 2008. A year later, in late 2009, Mr Pickering was employed as the general manager of Detection Services. He took up this position from January 2010, reporting to Mr Simmons as managing director. Mr Pickering developed and built in New Zealand, mostly in his own time, a prototype of the new system with technical assistance from the appellants in Australia. Mr Pickering met the cost of the development from his own

resources, but the High Court found that Detection Services was to reimburse him for these costs and pay reasonable recompense for his time. Mr Pickering was to retain the intellectual property rights in the computer software and interface.

[6] Upon completion of the prototype in mid-2011, Mr Simmons sought urgent delivery of it to Australia for testing, refinement and immediate commercial use, as had always been the parties' intention. However, at that stage, Mr Pickering claimed sole ownership of the entire system and refused to deliver it to Detection Services until agreement was reached on price and other terms governing its future use. The parties were unable to reach agreement. Lawyers became involved. The relationship between Mr Simmons and Mr Pickering broke down irretrievably leading Mr Simmons to terminate Mr Pickering's employment as general manager of Detection Services. Mr Pickering placed the system in storage and there it remains. Mr Simmons and Mr Pickering have not only lost their friendship, their efforts have come to nought. The mutual benefit they aspired to has been replaced by a legal battle over who should bear the losses.

[7] Detection Services subsequently developed a new system. They then issued proceedings against the respondents in the High Court claiming the costs of developing the new system and lost profits suffered in the interim. The respondents counterclaimed in contract for the costs they incurred in developing the original system. Detection Services' claims and the respondents' counterclaims all failed following trial in the High Court. The appellants appeal and the respondents cross-appeal.

3 The plaintiffs now claim the following damages:

• (a) Componentry costs of $187,577.27;

• (b) Labour costs, in an amount to be determined by the Court, but not less than $160,000; and

• (c) Loss of profits of $1,106,909 discounted by an unspecified percentage.

4 The defendants say that the plaintiffs have not only not proved the claimed losses, but they demonstrably have not suffered any losses over and above the amount they failed to pay to the defendants.

The law

5 The plaintiffs seek equitable compensation from the defendants. Counsel for the plaintiffs summarised what he says is the proper approach as follows:

Equitable compensation ought to restore the plaintiff to the position he would have been in but for the defendants' wrongdoing. Compensation is assessed with the full benefit of hindsight. Causation is necessary, but it is not assessed strictly or rigorously; it should be assessed with common sense. The defendant who can show the plaintiff would have suffered some or all of the loss in any event has a narrow escape.

6 Counsel for the defendants submit that the above summary is not an accurate statement of the approach to equitable compensation in general, nor the approach that is appropriate in this case. He says it elides a number of different principles to create a general principle for equitable compensation that is not correct. Counsel for the defendants submits it is important to bear in mind the two stages in any damage/causation inquiry: (a) proof of loss/damage and (b) remoteness. There is no argument that a plaintiff must always prove that they suffered loss or damage in order to recover damages. It is a central issue in this case.

7 Counsel further submits the issue that has troubled the courts in respect of breaches of fiduciary duty has mostly concerned the inquiry into remoteness. That is not an issue in this case. However, it is the rules relating to remoteness in claims by fiduciaries that is the basis for the broad approach to the assessment of loss that is recommended by the plaintiffs.

8 In this case, however, the Court of Appeal held that the breach by Mr Pickering, while arising within a fiduciary relationship, did not itself have a fiduciary character. It is essentially a standard breach of contract claim. I therefore agree with counsel for the defendants that there is, accordingly, no reason to apply any different rule to the assessment of damages than would otherwise apply in equity or at law.

Componentry costs

9 The parties agree that the plaintiffs were obliged, in terms of the joint venture, to reimburse the defendants for componentry costs of $160,415.45. The question then to be answered is — did the plaintiffs spend more than $160,415.45 on componentry costs in replicating the original system built by the defendants, and, if so, how much more did they spend? The measure of damages on componentry costs will be the sum spent, if any, in excess of $160,415.45.

10 The plaintiffs initially claimed that they paid AUD 380,805.68 for componentry costs. At the conclusion of the trial, the plaintiffs acknowledged that costs totalling AUD 61,634.15 in respect of the van fitout, rebuilding the drive and replacing the initial faulty cable should be deducted, which resulted in a revised claim of AUD 319,171.53.

11 The componentry costs were itemised in a schedule produced by Mr Simmons, the managing director of the plaintiffs. The schedule set out the date of payment, the payee, the item/service bought and the Australian dollar cost. Although only some of the relevant invoices were included in the common bundle of documents, all but about two of the relevant invoices were produced during the course of the trial at first instance.

12 I have used the same schedule to calculate the costs of the componentry. Because I have found that the leak detection system built by the plaintiffs was largely completed by mid to late-2012, I have deducted all invoices dated after the final invoice from Fast Automation on 11 January 2013, which was the last instalment of an account in the sum of AUD 25,000 plus GST for a control...