PVG Securities Trustee Ltd v 100 Investments Ltd
| Jurisdiction | New Zealand |
| Judge | Hinton J |
| Judgment Date | 28 February 2020 |
| Neutral Citation | [2020] NZHC 328 |
| Court | High Court |
| Docket Number | CIV-2018-404-2838 |
| Date | 28 February 2020 |
CIV-2018-404-2838
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Commercial, Damages — application to enforce an undertaking as to damages in respect of interest costs arising from non-payment of a loan — insurance pay-out had been restrained by the Court due to the appellant because the respondent had successfully claimed it was entitled to a share — appellant claimed it was unable to pay a loan because funds were restrained — damages for interest accrued for non-payment of loan — damages for failed opportunity to place restrained funds in interest-bearing account — Interest on Money Claims Act 2016
W N Fotherby for Plaintiff
P Michalik for Defendant
JUDGMENT OF Hinton J
[Application to Enforce Undertaking as to Damages]
100 Investments is seeking to enforce an undertaking as to damages provided by PVG on an interim injunction dated 21 December 2018, which restrained $1,620,000 of an insurance pay-out otherwise payable to 100 Investments. 1 PVG was claiming it was entitled to that part of the insurance pay-out, but I dismissed their claim by judgment of 31 July 2019. 2
100 Investments says that at the date of the injunction, and PVG's undertaking, it owed some $825,000 to Property Funding Securities Limited (PFSL), which it would have repaid using the restrained funds had they not been restrained. It says it therefore had to pay interest to PFSL for 218 days, totalling nearly $47,000. 100 Investments says it was also required to extend its loan facility with PFSL when the loan term came to an end on 23 April 2018, causing additional costs of about $28,000. This produces a total claim for costs associated with servicing the PFSL loan facility of about $75,000.
Secondly, 100 Investments says that the balance of the restrained sum, being $795,000 ($1,620,000 less $825,000), would have been placed on interest-bearing deposit. It therefore also claims “a reasonable sum of interest” in respect of the investment opportunity lost, identifying this as the “expectation loss” 100 Investments has suffered from being held out of money.
On the second claim, 100 Investments invites me to calculate “reasonable interest” as if awarding interest on a money claim determined on 26 December 2018, on which damages were paid on 31 July 2019, in terms of the Interest on Money Claims Act 2016 (the Interest Act). 100 Investments says this approach fairly reflects the amount a prudent investor could have obtained by placing their money in the market during the period in question.
Applying the formula applicable under the Interest Act for the 218-day period from 26 January 2018 to 31 July 2019 inclusive, 100 Investments says it would have received interest of $15,943.81 net of tax on the $795,000 balance of the restrained sum. 3
From this has to be deducted interest received of about $6,260 because during the same period the restrained funds were on interest-bearing trust account daily deposit in terms of the Court order.
PVG opposes the application, saying any losses sustained by 100 investments are not a consequence of the injunction having been granted and, even if they are, they were not reasonably foreseeable when the undertaking was given.
The background to the proceeding and the history of the wider dispute is set out in my July 2019 judgment. 4
At the time PVG secured the restraint of funds, Mr Michalik for 100 Investments, opposing the injunction application, stated in a memorandum dated 21 December 2018:
[25] [The property] is a valuable central Christchurch section … Certainly, it is mortgaged, like most property … A scan of the relevant loan facility agreement is also attached … Counsel notes that the amount advanced is in the order of about $800,000.
[…]
[30] While [counsel for PVG] submits there is a lack of any prejudice to 100 Investments [in granting the injunction], that is simply not the case. It is significantly and unjustifiably prejudicial to any party to have $1.6 million of their own funds restrained …
[31] The loan facility agreement is to be repaid six months from the advance in October 2018, and will fall due in April 2019. It would be clear prejudice to 100 not to have its own funds available and unfrozen to repay that loan when due …
As a result of the ruling of Downs J, on 26 December 2018 $1,330,000 of the insurance pay-out was paid to 100 Investments, while the balance (the restrained sum of $1,620,000) was deposited by 100 Investments' solicitors in an interest-bearing trust account daily deposit, pursuant to the interim injunction.
In a post-injunction affidavit dated 23 January 2019 Mr Hide referred for the first time to an additional loan made by his family trust:
[15] [The property] is a valuable central Christchurch section …
[16] The land is subject to a mortgage. The mortgage secures a term loan facility, for a six month term advance of $825,000. The term of the loan expires on 23 April 2019. …
[17] 100 wishes to be free to be able to use the [insurance pay-out] to discharge the term loan when it falls due. It is significant prejudice to 100 to have $1.62 million of these proceeds restrained in its solicitors' trust account, and unavailable for this use.
[18] Discharge of the term loan will leave the land unencumbered, at which point 100 will have approximately $1.5 million to $2 million equity.
[19] The present restraining order … also [puts 100 Investments in breach of undertakings it had given its litigation funder.]
[20] In December 2015 my family trust … advanced approximately $700,000.00 to 100 to facilitate the purchase of the [property]. These funds were sourced from a private investor … and are now overdue for payment and accruing interest of the rate of 20% per annum.
In a subsequent affidavit of 8 November 2019, Mr Hide said that funding for the purchase of the property to which the insurance proceeds related came from both the loan from PFSL and an advance from a family trust, of which Mr Hide and his wife are co-trustees. Mr Hide said the trust had borrowed a sum of $700,000 from Mrs Hide's elderly parents at an interest rate of 20 per cent per annum and the “advance to 100 was treated as if it were on the same terms as the loan” from Mrs Hide's parents. He said the loans were “repeatedly rolled over” at the same interest rate such that by the time the insurance pay-out became available the trust owed Mrs Hide's parents, and 100 Investments owed the trust, $1,309,600. This included outstanding principal and compounded interest, with interest continuing to accrue.
Documentation to support the existence and terms of the loan from Mrs Hide's parents to the trust is available, but there are no documents supporting any advance by the trust to 100 Investments.
Mr Hide's evidence is that it was not realistically possible to pay all of 100 Investment's debts with the unrestrained amount available. Given also the costs associated with funding 100 Investments' defence of the claim brought by PVG, and the associated litigation risk, Mr Hide says he took the decision not to repay the PFSL debt. He infers that the unrestrained funds were applied towards the trust debt.
The parties are agreed that damages are to be assessed on the contractual measure, as if: 5
… the undertaking had been a contract between the plaintiff and the defendant, that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction.
The obtaining of the interim injunction amounting, effectively, to a breach of the sole term of this ‘nominal’ contract, damages fall to be assessed on ordinary contract principles, the Court's objective being to ensure that: 6
… the defendant is compensated for any loss he may have suffered by being temporarily prevented from doing what he was entitled to do.
This, the parties are generally agreed, is to be achieved by the application of ordinary principles of contractual damages. Counsel have provided an extensive summary of these principles in submissions; traversing the basic measure (which Mr Michalik referred to using the Latinism restitutio in integrum) 7 as well as the
Because, ultimately, I have made factual findings that render the detailed consideration of these principles unnecessary, I do not need to consider the case law cited by the parties further. It is enough to emphasise, as Gault J did in Quadling v Bambury, 11 that it is for the party making the claim for damages to prove its losses.
For 100 Investments, Mr Michalik submits that, in entering into the nominal ‘contract’ – that is, in obtaining the injunction – PVG would have contemplated that it was preventing 100 Investments from using the restrained funds to undertake ordinary commercial activities. A reasonable person in PVG's position would have understood these activities as including, inter alia, making interest-bearing investments and paying off outstanding debts to avoid further interest and facilities charges. The damages claimed by 100 Investments arise from being unable to engage in these same activities. Accordingly, 100 Investments submits, these losses plainly sound in damages, being a natural, ordinary, and foreseeable consequence of the restraint.
More particularly, counsel submits that “it is a commonplace of commercial life that a company is funded by debt”, and therefore it is a natural consequence of...
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