ROBERT McDONALD v NEW ZEALAND LAW SOCIETY [1999] NZCA 291 (7 December 1999)

IN THE court of appeal of new zealand

ca33/98

	between	robert mcdonald
		Appellant

	and	new zealand law society
		Respondent

Hearing:	15 November 1999
Coram:	Blanchard J Tipping J Paterson J
Appearances:	D L Mathieson QC for Appellant P N Collins for Respondent
Judgment:	7 December 1999

judgment of the court delivered by blanchard j

Background

[1] The appellant, Mr McDonald, claimed against the Solicitors' Fidelity Guarantee Fund established under Part 1X of the Law Practitioners Act 1982 and administered by the Council of respondent Law Society on behalf of the Society (s163).The Council is empowered to appoint a Management Committee for the Fund (s164).In the High Court at Auckland Giles J ordered the Society to pay the appellant $212,843.67 plus interest calculated at ten per cent from 6 May 1995 until the date of judgment (11 December 1997). The appellant now challenges the manner in which that award of interest was calculated.

[2] These proceedings arose out of the collapse of the Upper Hutt law firm, Renshaw Edwards, in January 1992. The plaintiff had between 29 June 1988 and 5 October 1989 entrusted $185,276.60 to the firm. On 5 May 1992 he obtained summary judgment in the sum of $423,488.26 against the individual partners in the firm, founded on a guarantee given by Mr Renshaw on behalf of the partnership, but all the partners were subsequently declared bankrupt, and Mr McDonald had to look elsewhere to recover his losses. When this matter was heard in the High Court in October 1997 only $36,765.22 had been recovered from Renshaw Edwards.

[3] After obtaining summary judgment Mr McDonald made his claim against the Fidelity Fund.He alleged that his money had been misappropriated by theft, and claimed the same amount for which he had judgment.The Society admitted liability for $34,710.59 on 6 May 1993, but rejected the rest of the claim on the basis that Mr McDonald had not established that further money had been stolen.

[4] The appellant then turned his attention to Renshaw Edwards' professional indemnifier, FAI (NZ) General Insurance Company Ltd, alleging that it was liable to meet the losses suffered by him through the law firm's defalcations under two insurance policies.Proceedings were filed on 15 July 1994 against FAI only, but the Law Society was eventually added as a defendant in June 1996 as a result of a suggestion from Barker J.

[5] Five days before the trial commenced, on 8 October 1997, the Society made a settlement offer of $450,000 which was rejected by Mr McDonald's legal advisers, apparently without reference to him (see Harley v McDonald [1999] 3 NZLR 545).

The legislation

[6] Sections 169 and 171(3) of the Law Practitioners Act 1982 provide as follows:

169. Application of fund - (1) Subject to this Part of this Act, the fund shall be held and applied for the purpose of reimbursing persons who may suffer pecuniary loss by reason of the theft by a solicitor to whom this Part applies, or by his employee or agent, of any money or other valuable property entrusted to him, or to his employee or agent, in the course of his practice as a solicitor, including any money or other valuable property entrusted to him as a solicitor-trustee.

(2) No person may bring a claim against the fund unless notice of the claim is given in writing to the Council or the Management Committee within 12 months after the claimant has become aware of the theft, or within such further time as the Council or Committee may in its discretion allow.

171 Claims against Fund

(3) No amount shall be paid or payable out of the fund as interest on the amount of any judgment obtained or of any claim admitted against the fund.

The proceeding in the High Court

[7] The appellant failed entirely against FAI, and this part of Giles J's decision was not appealed. As against the Society, the appellant alleged that the summary judgment established both liability and quantum in circumstances that required the Society to reimburse him out of the Fidelity Fund for the pecuniary loss he had suffered. The Judge considered this approach to be misconceived. The judgment was not binding on the Society, which was not a party to it; it was based on a contractual guarantee, and did not itself establish pecuniary loss by theft. However, counsel for the Society consented to an amendment allowing counsel then appearing for the appellant to argue that there had been misappropriation by theft.

[8] Mr McDonald sought to recover $388,769.67 plus interest computed from 5 May 1992 on a compounding basis.It is evident, however, that the $388,769.67 itself included earlier accrued and compounded interest.After considering the evidence the Judge concluded that the sum of $249,608.89 had been stolen from Mr McDonald.His counsel had submitted that the amount stolen was to be calculated by taking the agreed amounts of principal and adding the figures recorded by way of journal entry in Mr McDonald's trust account ledger as representing capitalised interest. It seemed, however, that the journal entries for this period did not correctly record the true position. The Judge held that the appellant had not discharged the burden of proving that the capitalised interest journal entries represented real money capable of being stolen. The sum of $249,608.89 did, however, include interest that had been repaid to Mr McDonald with principal and then reinvested, thereby creating a new amount of principal.There was, however, no cogent or acceptable evidence establishing an increment to that sum by way of payment or genuine journal entry credits thereafter.The Judge was referring here to an increment after October/November 1990 by which time the defalcation had occurred.

[9] Counsel for the appellant then argued that, as a result of misappropriation, the appellant had suffered pecuniary loss in that he had been denied a return on money which had been entrusted to his solicitor for that very purpose. Counsel put forward three submissions:

[a] The loss was represented by the contractual interest rate agreed to be paid by Renshaw Edwards, that is, 21 percent net, compounding monthly.

[b] Alternatively, the pecuniary loss was represented by the first mortgage interest which could have been earned on the amount stolen if placed with honest solicitors lending the money on secure mortgages.

[c] Alternatively, the loss was to be measured by Judicature Act rates (11 percent), accepting that a Court has a discretion to apply a lesser rate for whatever term is considered appropriate.

[10] The Judge rejected outright counsel for the plaintiff's first possibility. To achieve a figure of 21 percent net a real interest rate of 34.9 percent was required. The evidence clearly established that no-one in 1990 borrowing on a first mortgage basis calculated at 50 percent of a conservative valuation would have been prepared to pay 34.9 percent interest.The trust account records appeared to show that the moneys had been invested at rates much less than 21% net.It could not be said that a solicitor acting desperately to cover criminal misconduct could expose the Fund "to an usurious rate of interest which has no bearing on commercial reality." The Judge preferred instead a combination of the second and third approaches suggested by counsel for the appellant.

[11] The evidence suggested that although in the period before and after the 1987 share market crash first mortgage rates of 23 percent were not uncommon, by mid-1988 rates were down to around 18 percent. By the end of 1988 they were down to 15 percent. This remained constant until late 1990, but the decline continued and in May 1991 first mortgage rates were down to 12 percent; 11 per cent by November 1991; and by February 1992 to nine per cent. The contractual rate required by the plaintiff was not realistically achievable; he could have expected only a much more modest rate from an honest solicitor.

[12] Section 171(3) of the Law Practitioners Act provides that no amount shall be payable out of the Fund "as interest on the amount of any judgment obtained or of any claim admitted" against the Fund. Accordingly, the appellant was not entitled to interest on the separate sum of $34,710.59 admitted by the Society on 6 May 1993 (which the judgment records as having been paid in March 1995). If interest was recoverable, it was only on the sum of $212,843.67, the balance of the $249,608.89 outstanding after allowing for payments already received by Mr McDonald from Renshaw Edwards.

[13] The Judge said that until the Society received a properly documented claim it had no obligation to make any decision as to whether moneys had been stolen or not. Mr McDonald delayed in lodging his claim, and it was not until May 1993 that the Society was able to address it.The Judge said that was the earliest date at which interest could commence.The claim was not properly formulated to the Society until May 1993, and if Mr McDonald had taken a more active interest he could have taken up the invitation to establish that more had been stolen than was admitted by the Society, or he could have sued the Society. Because of the misguided focus on FAI the Society was not joined as a defendant until June 1996, and then only at the urging of Barker J.This arguably allowed the appellant to gain the advantage of a right to pursue accruing pecuniary loss in relation to the interest issue.The Judge said that it would be unreasonable and unrealistic to allow the appellant to claim interest for the full period from the defalcation to the time of judgment.If the claim had been formulated earlier the Society would have been in a position to rule and gain the advantage conferred by s171(3).Overall justice was said to require the Court to take into account this delay arising from Mr McDonald's inaction in assessing the period for which damages were to be awarded.The Judge held that the fair approach was to allow interest from 6 May 1995, although he admitted that there was no particular science about selecting that date, "other than an innate sense as to what achieves overall justice between the parties."

[14] The Society contended that the Fund did not cover anything other than the actual principal sum stolen, stressing that under s169(1) the purpose was "reimbursing" persons who suffered pecuniary loss by theft.However, on the basis of this Court's decision in Florence v New Zealand Law Society [1989] 1 NZLR 132, the Judge found that "pecuniary loss" in s169 of the Act did give rise to a right to recover lost interest. Mr McDonald had been denied any income on moneys entrusted to his solicitor for the very purpose of deriving an income return by way of interest because his solicitor had misappropriated the funds. But for the solicitor's dishonesty, he would have received the interest.

[15] Giles J accepted that the Society was not liable for the interest component awarded in the summary judgment. The only reason that the appellant had not recovered that interest was the insolvency of the Renshaw Edwards partners; it had not been lost by reason of theft. The Judge awarded interest at a rate of ten percent per annum as from 6 May 1995 until the date of judgment. At that point, any obligation to pay interest ceased pursuant to s171(3).

[16] Accordingly, the appellant's claim against the Law Society succeeded as to the sum of $212,843.67, with interest to be calculated on that sum at 10% p.a. from 6 May 1995 until the date of the judgment (11 December 1997).

Application to adduce further evidence

[17] Mr McDonald has recently inspected the files held by his former counsel, Mrs Harley.At the hearing he made application for leave to call new evidence based upon two documents which had come to his attention, one being a draft letter to the Law Society prepared by its solicitors and the other a copy of a Renshaw Edwards trust account record.These were said to cast doubt on the trial Judge's findings that the journal entries and other records of Renshaw Edwards after about November 1990 were fabrications and did not establish any defalcations relating to capital amounts beyond what had been misappropriated before that time.

[18] After hearing argument we dismissed this application because the material in question was clearly available to Mr McDonald's counsel at trial and is not "new" evidence.Furthermore, the inferences which he would seek to draw from it are speculative and do not appear to take matters any further than they rested at trial.The material is accordingly also lacking in the cogency necessary to support such an application.

[19] It appears that Mr McDonald was hoping that the Court would adjourn the hearing after granting his application and that he would then find in the material from his former counsel or from a further process of discovery against the respondent something which would enable him to mount a challenge to the Judge's findings concerning the principal sum.Mr Mathieson QC responsibly accepted that he was not in a position to make such a challenge as matters presently stand.It need hardly be said that the Court is not willing to indulge a speculative attempt to re-open a matter settled by the High Court judgment and not otherwise able to be questioned.

[20] Upon the application being dismissed, the hearing proceeded on issues relating to the calculation of interest only.

Submissions for the appellant

[21] In his careful submission for the appellant Mr Mathieson said that the date of commencement for assessing interest should have been 1 November 1990. The Judge had made a finding that by October/November 1990 whatever moneys the appellant had placed with Renshaw Edwards had been lost by reason of misappropriation.Counsel argued that the correct starting date for calculating interest was the mid-point, 1 November 1990, and said that the interest which could have been obtained on a proper mortgage investment through an honest solicitor between that date and the date of judgment was within "pecuniary loss". After referring to the judgments of Cooke P and Richardson J in Florence, it was submitted that s169 did not empower the Judge to take a broad view of the circumstances in selecting the date for commencement of interest. The interest lost on the money stolen amounted to "pecuniary loss" as soon as the theft was found to have occurred. Indirect and consequential losses were not disqualified as a matter of law. The inquiry was into causation, not remoteness.

[22] Counsel also suggested that the Judge had made a passing reference to s87 of the Judicature Act 1908, and that this may have affected his reasoning. That section was irrelevant.It relates to the award of interest, at a rate not exceeding 11 percent, on "any debt or damages" for the whole or any part of the period between the date when the cause of action arose and the date of the judgment, but a claim under s169 is not such a claim.It is a claim to enforce a statutory indemnity.In fixing an interest rate for the purposes of a reimbursement under s169(1) the Court is not limited to 11% p.a. and is not entitled to decline to order payment for part of the time between loss and judgment.The Court has no discretion in the matter.Interest should have run from the defalcation through to the judgment date.But, if the Court did have power to make a deduction to reflect a failure to mitigate loss by bringing proceedings promptly, that failure on the part of the appellant's legal advisers should not have been visited upon him.The Judge had also in this context paid insufficient regard to the complexity of the situation and to Mr McDonald's inability to investigate internal transactions of Renshaw Edwards.

[23] Counsel for the appellant then argued that the interest rate selected should have been at a higher rate than 10% for the full period from November 1990 till judgment, and that the interest should have been calculated quarterly, or at least year by year on a capitalised interest basis.Mr McDonald had given Renshaw Edwards a standing instruction to place accrued interest on further capital mortgage advances every 12 months.The Judge should have approached the matter in the light of Mr McDonald's establishment pattern of investment.As a result, it was said, the new principal as at November 1991 and each year thereafter should be taken as augmented by capitalisation of interest which had been earned in the preceding 12 months. Compound interest was not to be ruled out on policy grounds.There was no room for this in terms of the statutory provisions, which required the Court to make an assessment of the actual pecuniary loss, whatever its nature.

Submissions for the respondent

[24] The respondent no longer pursued its cross-appeal against the Judge's finding that "pecuniary loss" includes the loss of interest on invested principal.The cross-appeal is dismissed as abandoned.The Society also now accepts that $249,608.89 had been misappropriated by October/November 1990.

[25] Given that the contractual rates of interest promised by Renshaw Edwards did not apply, it was necessary, Mr Collins submitted, for the Judge to establish the rate of interest. The expert evidence showed a relatively sharp decline in typical nominee company interest rates from as much as 23-25 percent in February 1988 down to nine percent by 1992.He noted that, although the appellant claimed interest until the date of judgment, no evidence as to interest rates on solicitor mortgages was given beyond 1992.

[26] Counsel submitted that the Judge properly used s87 of the Judicature Act. Even if the claim was not correctly classified by Giles J as one in which damages were sought, it was submitted, on the basis of this Court's decision in Westpac Banking Corporation v Nangeela Properties Ltd [1986] 2 NZLR 1, 9 (recovery of a voidable preference), that it was so analogous to a damages claim as to justify being treated as such for the purposes of s87. Counsel argued that the present claim was like a claim for damages for breach of contract against an insurance company where an indemnity under a policy has been wrongly declined.It was also submitted that the appellant was effectively asking this Court to substitute its discretion for that of the High Court Judge.

[27] As to the period for which interest should be awarded, it was submitted that if this Court accepts that there is a discretion it applies not only to the rate of interest, but also to the period.Again there was no basis for this Court to override Giles J's exercise of discretion.Assuming that there is a discretion as to rate and period, counsel argued that it was appropriate for the Judge to consider the overall justice of the case.The appellant's delay was a proper matter to be taken into account.It would have been appropriate to have regard to the indication in s169(2) that claims must be made and pursued promptly.If there was delay on the part of a legal adviser that delay should be attributed to the client and that matter taken up by him with the legal adviser.The chosen commencement date of 6 May 1995 was not entirely arbitrary; it appeared to be two years from the date when the respondent partially admitted the appellant's claim.

[28] Furthermore, it was submitted that, even if there had been no sound basis for the exercise of a discretion, a claimant under s169(1) could not simply be entitled to recover interest over an extended period of time where his own conduct had caused the delay. Counsel for the appellant had submitted that the inquiry was concerned with causation, not remoteness, but Mr Collins argued that there must be some point at which the claimant's own conduct aggravates the pecuniary loss, so that it cannot be said to have been wholly caused by the solicitor's theft.

[29] Counsel opposed the appellant's claim that the interest imposed should be compounded annually, as that would also require the Court to interfere with the discretion exercised by the Judge.It would furthermore require speculation about the future investment activities of the appellant without any adequate factual foundation for doing so.It cannot be inferred that Mr McDonald would have continued with annual investments "in more commercially realistic circumstances" than pertained in his dealings with Renshaw Edwards.

Conclusions

[30] We agree with Mr Mathieson that s169(1) creates a statutory indemnity for clients of a solicitor who suffer pecuniary loss by theft by the solicitor or by his or her employee or agent.Once pecuniary loss of this nature is established the Law Society is given no discretion, but is obliged, as administrator (or trustee) of the Fund, to apply it in reimbursement.The Society now accepts that pecuniary loss includes the loss of interest which would otherwise have been gained by use of the misappropriated moneys.The rate of interest is to be set according to evidence of what has been lost. Section 87 of the Judicature Act is of no direct application and cannot be used as a substitute for evidence of what has actually been lost.In particular, there is no statutory cap on the rate of interest.

[31] But, although the Society is given no discretion in relation to the period for which losses of interest are to be reimbursed, so that prima facie they will run from the date of theft of the principal amount until a claim is admitted or judgment is obtained against the Fund (s171(3)), it is still necessary for the claimant to show that the continuance of the period during which the stolen principal was unavailable, and so not able to be used for a new investment and the earning of interest thereon, has been caused "by reason of the theft", to quote s169(1), and not because of the claimant's inaction in relation to the Fund.If a claimant, knowing of a defalcation, has failed to make a claim, the continuing loss of interest may have been avoidable and, if it was, should not be regarded as caused by the theft, but by the claimant's failure to alert the Society.It can be said that the claimant has failed to mitigate the loss.Such a conclusion is consistent also with s171(3), since in the absence of a claim the Society is denied the opportunity to admit it and avoid liability for interest after that time.

[32] In the present case, Mr McDonald cannot be taken to have had knowledge of any defalcation until it became public knowledge that the practice of Renshaw Edwards had been closed down and was under investigation by the Law Society. That occurred early in 1992.He pursued his rights against Renshaw Edwards and obtained summary judgment on 5 May 1992 for a sum which included compound interest.(It was for that reason that his claim against the Society sought interest from that date.)

[33] It is not apparent why Mr McDonald did not lodge a claim against the Fund until February 1993 but that seems to have been accepted as being within the 12 month period in s169(2).The Law Society rejected the greater part of the claim on 6 May 1993.There followed an interval of just over 3 years until in June 1996 Mr McDonald joined the Law Society as second defendant to the proceeding he already had on foot against FAI.The matter then proceeded swiftly enough to trial in October 1997.The total period from defalcation (1 November 1990) to judgment (11 December 1997) was thus a little more than 7 years, of which about 3 years 9 months could be questionable in terms of the reasons for delay.

[34] It does not follow, however, that all of that period should be regarded as avoidable delay.To begin with, some tolerance should be extended to clients of a legal practitioner who have fallen victim to a misappropriation by a law practitioner when it comes to their dealings with the body representing the profession and charged with administering the Fund which is supposed to be the source of reimbursement.These are not generally people who have contributed to their own misfortune.They will be likely to be confused and uncertain about what to do.Some may be traumatised by the loss of a significant part of their assets.The statute sets a 12 month period for making claims.In large part, of course, that is intended to provide a cut-off point unless the Law Society thinks it appropriate to accept later claims, but as it runs from the date of a claimant's knowledge of the theft and extends for 12 months, it indicates a recognition that some time will be needed for a claimant to consider the position.Usually, also, the client will be entirely or largely dependent on the Society for information on what moneys have actually been misappropriated and thus the amount which can properly be claimed.That must especially have been the position in relation to the complicated tangle of the Renshaw Edwards affairs.

[35] In the present case most of the questionable delay occurred after rejection of all but a relatively small part of the claim (both as made and as eventually established).A significant factor in characterising delay in the pressing of a claim which has been made and rejected is the role of the Society.It has been given in relation to the Fund a statutory function under Part IX of the Law Practitioners Act 1982.It also has certain powers and consequential obligations under other provisions of the Act to investigate the affairs of a solicitor (see Parts V and VII).Obviously, in conjunction, these powers and obligations of the Society are intended to enable and require it to get to the bottom of any irregularities and, so far as possible, to make an accurate assessment of what has occurred.It is not, then, vis-à- vis a claimant on the Fund, merely in the position of a defendant to ordinary litigation who has no obligation to investigate his or her own affairs, to make an assessment of the legal position of the plaintiff and to disclose what the self-investigation has found.An ordinary defendant can leave the progress of the case to the plaintiff and may sometimes be excused payment of interest for a period of delay by the plaintiff (see the Law Commission's Report Aspects of Damages: The Award of Interest on Money Claims (NZLC R.28, 1994)).

[36] The position of the Law Society in relation to the Fund is different.If it rejects a claim in the course of pursuing an investigation and it later comes to appreciate that its assessment of the situation has not been correct, it is, we think, under an obligation, as trustee of the Fund for defrauded clients, to make an admission without waiting for the client to pursue the claim by legal proceeding.It is very much in its own interest to do so because the admission will stop interest running against the Fund.

[37] In this case a proper assessment by the Society should have led it towards a substantially greater admission.That ought to have occurred well before any trial and seemingly before Mr McDonald even joined the Society in his proceeding in 1996.The irony of this is that an early admission would have stopped interest running, but it may also have led to earlier recovery from the Fund of the principal sum.

[38] Also relevant to the delay is s171(1), which requires that before a claimant commences any action in relation to the Fund, except with the leave of the Council of the Society, he or she must first have exhausted all relevant rights of action and other legal remedies available against the defaulting solicitor "or any other person in respect of the loss suffered" by the claimant.Mr McDonald was therefore obliged to consider whether recoupment could be obtained from anyone other than Renshaw Edwards (whose partners were plainly insolvent).It was not unreasonable to take legal advice about the position of FAI, although this Court has already held that it should have been apparent to his legal advisers that it would be hopeless to pursue that avenue. Nevertheless, some modest allowance should be give for the time reasonably taken to get advice on that question.But, as with other aspects of undue delay, the fault of Mr McDonald's legal advisers must be attributed to him despite sympathy for someone let down by those to whom he turned for assistance and advice in relation to problems arising from theft committed by another lawyer.Delay arising from the negligence of Mr McDonald's legal advisers must be a matter between him and them.

[39] Taking account of all these factors, and the general complexity of the Renshaw Edwards problems, we have reached the conclusion that Mr McDonald should not have been penalised in respect of the delay in obtaining judgment against the Society to a greater extent than the disallowance of any claim for interest during the last 18 months of the time which elapsed before judgment; that the High Court should have awarded interest on the judgment sum of $212,843.47 from 1 November 1990 and ceasing on 1 June 1996, as if Mr McDonald had obtained his judgment on the latter date.In disallowing interest for the earlier, rather than the later, period the Judge worked from the wrong end.

[40] There was evidence that solicitors' first mortgage rates were at a level of about 14.75% in November 1990 falling to 12% by May 1991 and to 11% by November of that year.The Court must proceed on the basis that Mr McDonald would have obtained the going rate at the beginning of each November year. Thus for 1990/91 the rate to be paid should be 14.75% and for the year beginning in November 1991 11%.The Court is in some difficulty with the appropriate rate or rates from November 1992 until June 1996.There was evidence that by February 1992 the rate had dropped to 9% per annum but there is nothing in the evidence about rates after that time.Giles J chose 10% per annum running from 6 May 1995 but going through till December 1997.We do not know how much that was influenced by rates at the time the judgment was being prepared by the late Judge or whether it was an average of rates over the period.

[41] Neither party has invited this Court to remit the matter to the High Court for an inquiry but we would be willing to adopt that course.However, unless either party requests such an inquiry within 10 days of delivery of this judgment, the Court will order payment of interest from 1 November 1992 for the balance of the period at 9% per annum.

[42] The last issue is whether interest should be paid on a compounding basis. We agree with Mr Mathieson that there is no basis in principle for excluding such a claim.It is a loss flowing naturally from loss of a principal sum and the loss of interest thereon.Mr McDonald seeks quarterly compounding, or, if the Court is not amenable to that suggestion, at least annual compounding, i.e. that the interest earned from November 1990 to November 1991 be treated as having been re-advanced on mortgage from the latter date for a one year term at the rate applicable to the November 1991 - November 1992 year (but presumably net of withholding tax as if the taxpayer's Inland Revenue Department number had been supplied) and so on from year to year.An advance for the broken period of 7 months would have to be assumed as from 1 November 1995.

[43] Although Mr McDonald can be taken to have established that he had a pattern of annual reinvestment of accrued interest on new first mortgages through Renshaw Edwards, it seems that his practice was very much driven by the high - one might well say ridiculously high - rates which were purportedly being offered.If it had been proven that Mr McDonald had been in the same investment habit where normal solicitors nominee company rates were on offer, it might be difficult for the Society to answer his claim for compound interest on that basis.Certainly at each year's end the amount of interest accrued on the sum he had invested through Renshaw Edwards would have been sufficient to be advanced as part of a solicitors nominee company mortgage.It would then follow that, on balance of probability, he would by reason of the theft of his principal have been denied the opportunity of earning interest on (net) accrued interest.

[44] But whether that pattern of investment would actually have occurred, or even be likely to have occurred, and for how long, is, on the unusual facts of the case, a matter of speculation.Mr McDonald did not give evidence.It would not be right, in our view, to assume that he would have given the same kind of investment instructions to solicitors who offered no more than market terms for mortgage investments.

[45] However, it is clear that Mr McDonald had not had resort to accruing interest for domestic purposes and we are prepared to accept that it is probable that he would not have done so, but would have continued over the entire period in question to invest his interest earnings.We consider that it must be assumed that he would, at a minimum, have placed his money on bank deposit and that the net amount would have compounded.He should be taken to have placed each quarter's net earnings on 12 month deposit at a New Zealand trading bank, rolling the net amount over each year upon maturity (again with a broken period expiring on 1 June 1996).Accordingly he has suffered a pecuniary loss in relation to the deposits which, deprived of his principal, he was unable to make.

[46] There is no evidence of deposit rates before the Court and again we would be minded to remit for inquiry in the High Court.However, the trading banks tend to match one another for deposit rates and the calculation may therefore be fairly mechanical, so that the parties may be able to reach agreement.We defer entry of judgment in this Court for 10 days to see if they can do so.

[47] The appeal is allowed, subject to finalisation of the matters which may have to be the subject of inquiry.The appellant is entitled to costs of $5,000 together with reasonable disbursements to be fixed by the Registrar if the parties do not reach agreement on them.Unless the Court is advised of agreement on the outstanding matters within 10 days, there will be an order remitting those matters to the High Court.

Solicitors

MacKay Gilkison, Wellington for appellant

Glaistor Ennor, Auckland for respondent