ERNST AND YOUNG v REMBRANDT SUITS LIMITED [2000] NZCA 205 (18 September 2000)

IN THE court of appeal of new zealand

ca7/00

	between	ernst and young
		Appellant

	and	rembrandt suits LIMITED
		Respondent

Hearing:	28 and 29 August 2000
Coram:	Richardson P Gault J Tipping J
Appearances:	W M Wilson QC and G J Toebes for Appellant M R Camp QC and R J B Fowler for Respondent
Judgment:	18 September 2000

judgment of the court delivered by GAULT J

[1] There is an unusual aspect in this appeal.It is against the judgment of the High Court (McGechan J) delivered on 3 December 1999.That judgment expressly records at the outset that there are no significant questions of law involved.There is no case cited.The written submissions filed in support of the appeal cite no case;nor were we burdened with authorities in the course of the oral hearing.

[2] McGechan J concluded that advice given by the appellant firm Ernst & Young to the respondent clothing manufacturer (Rembrandt) on the requirements for eligibility for tariff preference on exports to Australia under the CER Agreement was erroneous, negligently given and causative of losses quantified at $1,139,388 plus interest.

[3] The grounds of appeal contended that the Judge was wrong to find that Rembrandt relied on the advice which was admittedly wrong in certain respects. Further, there was challenge to the assessment of damages in two respects. First, it was said, the Judge was wrong to hold Ernst & Young liable for 50% of the costs incurred by Rembrandt in responding to a Preference Inquiry initiated by the Australian Customs Service (ACS).Secondly, the Judge's assessment of loss of profits flowing from the advice was said to be wrong.A further ground of appeal directed to a conclusion reached by the Judge as a matter essentially of credibility was not pursued.

[4] Mr Wilson QC acknowledged the task he faced in challenging factual findings made by a Judge with the advantage of hearing and seeing the witnesses.But he submitted that the appeal was directed not to findings of primary fact but to inferences drawn from the evidence.In that situation, he said, this Court on appeal is in as good a position as a trial judge and can make its own assessments.That is not a view shared by the House of Lords.In Jolley v Sutton London Borough Council [2000] 3 All ER 409, 415, Lord Steyn said:

The difficulty facing counsel for the borough was that the Court of Appeal never squarely addressed the question whether the judge's critical finding was open to him on the evidence.For my part the judge's reasons for that finding are convincing in the context of teenage boys attracted by an obviously abandoned boat.And I do not regard what they did as so very different from normal play.The judge's observation that play can take the form of mimicking adult behaviour is a perceptive one.It is true, of course, that one is not dealing with a challenge to an issue of primary fact.The issue whether an accident of the particular type was reasonably foreseeable is technically a secondary fact but perhaps it is more illuminating to call it an informed opinion by the judge in the light of all the circumstances of the case.In my view it was an opinion which is justified by the particular circumstances of the case.Counsel has not persuaded me that the judge's view was wrong.And I would hold that the Court of Appeal was not entitled to disturb the judge's findings of fact.

[5] This is not a court of first instance.The approach to appeals on issues of fact must recognise the advantages of trial judges as primary fact finders. An appellant cannot merely seek to re-run the trial on appeal.Rather, the Court must be persuaded that the findings of fact were not open to the Judge on the evidence or were demonstrably wrong:Hamilton v Papakura District Council [2000] 1 NZLR 265, 268.

[6] To qualify for preference (zero tariff) goods exported from New Zealand to Australia must have local content (sourced in New Zealand or Australia) of value equal to or exceeding the value of the imported content.Rembrandt makes suits, jackets and trousers which contain imported cloth and some trimmings. Local content includes labour, factory overheads, some trimmings and packaging.

[7] After some initial marketing in Australia, Rembrandt sought advice from Ernst & Young concerning the requirements for preference with a view to entering the Australian market in a substantial way.The advice given was in the form of "breakpoints".These were values per metre of imported cloth which could be incorporated respectively into suits ($35), jackets ($40) and trousers ($23) which, on Rembrandt's costs, would qualify for preference.The letter formally confirming the advice and dated 8 October 1990 states:

We refer to our recent investigation into your company's manufacturing costs in order to ascertain whether exports of your suits, jackets and trousers qualify for New Zealand tariff preference under the provisions of the Australian Customs Tariff.

Factory Costs

Jackets		Labour	$23.04		Overheads		$47.38	=	$70.42
Trousers		Labour	$8.40		Overheads		$17.99	=	$26.39
Two piece suits		Labour	$30.79		Overheads		$63.42	=	$94.21
Trimmings/ Findings
Jackets		Local			$6.42		Imported		$16.84
Trousers		Local			$3.00		Imported		$3.45
Suits		Local			$9.42		Imported		$20.29

Packaging

Jackets $1.00Trousers $0.50Suits $1.00

The majority of cloth used in the manufacture of these goods for export is imported from Germany or Italy.For ease of reference we established a breakeven point at which you should be aware that you are near to having garments that do not qualify under the Australian Customs Tariff.These figures are:

Material content of garment must not exceed

SuitNZ$35 per metre

JacketNZ$40 per metre

TrousersNZ$23 per metre

If there was a significant movement in the exchange rate the calculations should be checked.

We are satisfied that past shipments to Australia have qualified for the claimed preference.

[8] Thereafter Rembrandt sold and exported summer and winter ranges to Australian retailers, claiming preference, until the possibility of changes in the CER rules on local content led the company, towards the end of 1992, to ask Ernst & Young to review their eligibility.It then emerged that the breakpoint figures given earlier were much too high and that garments that had been exported did not qualify for preference.

[9] This news was followed almost immediately first by an ACS "intermediate goods inquiry" which was quickly superseded by a preferential treatment inquiry under which Rembrandt was called upon to justify its preference claims.

[10] Knowing of the revised Ernst & Young assessments, Rembrandt sought to establish to ACS eligibility for preference as best it could.In doing this, some figures provided to ACS were inaccurate, though it is not suggested that this was deliberate.Rembrandt also contended that it was entitled to treat as local content the value of New Zealand or Australian wool re-imported in the cloth used in their garments.This was rejected by ACS and matters took a considerable time to resolve.

[11] In the course of the inquiry a "profile" was imposed requiring full duty to be paid on all goods imported into Australia from Rembrandt until their eligibility for preference could be established.For a period duty was paid on all such goods but progressively entitlement to preference was established. Eventually matters were resolved.Some goods were "re-engineered" with use of local trimmings and were shown to have qualified with a consequent credit for duty paid.But the end result was a settlement, seemingly quite favourable to Rembrandt, by which duty was paid for the relevant 12 month period (there was, perhaps fortunately for Rembrandt, a 12 month limitation period for the recovery of back duty).Duty paid amounted to NZ$404,969.

[12] McGechan J found that the losses suffered by Rembrandt and caused by the negligent advice of Ernst and Young were the duty paid of $404,969 less 15% leaving $344,224, half the costs incurred by Rembrandt in the ACS inquiry amounting to $134,299 and loss of profits from market disruption of $851,097 but with deductions for costs and duties ($190,232) that would have been incurred in the 1990-91 period if correct advice had been given initially.The total damages figure was $1,139,388 and parts of that were ordered to attract interest at 10% per annum from specified dates.

[13] The Judge dealt with the issue of reliance by Rembrandt on the erroneous advice from his starting point "... if the manufacturer obtained the advice, and then in fact operated within levels advised, an inference of reliance might well be drawn".For Ernst & Young it had been submitted that evidence of the costs of cloth used by Rembrandt showed that Rembrandt exceeded the breakpoints on a significant number of occasions thus negating the inference of reliance.It was also submitted that decisions as to cloth purchases and whether garments exported qualified for preference were made by merchandisers, none of whom gave evidence, so that there was no direct evidence of actual reliance.However, the Judge rejected this submission.One of the witnesses, Mr David Lyford, gave evidence and at the material time had been the Merchandising Manager - Trousers.His evidence was that the merchandisers were aware of the breakpoints and acted accordingly when compiling cloth lists for customers to be used in placing orders.

[14] The Judge analysed a schedule showing per metre cloth costs of suits shipped to Australia in the period 18 June 1992 to 18 June 1993.These he took as a fair sample of the cost of cloth used by Rembrandt in its suits.On these figures 40% of the cloth exceeded the specified $35 breakpoint.This was taken without any reference to changes in local content since the breakpoints were set through labour costs, currency movements or otherwise.The figures in the schedule were inclusive of shipping costs which ranged between 51 cents and $3.85 per metre of cloth.Once adjusted for these freight costs the relevant breakpoint became something between $35.51 and $38.85.On those figures, non-complying suits dropped to between 27% and 34%.There was then evidence of "abnormalities" which would reduce the percentage of non-complying suits still further.These abnormalities arose from the requirements of specific retailers involving special tailoring which increased the local labour cost and thus effectively increased the relevant breakpoint.These abnormalities accounted for some 14% to 15% of the non-complying items in the schedule.The Judge accepted this evidence concluding that the non-complying cloth amounted to between 12% and 18% of suits supplied.He took the midpoint, 15%, as his base. While there was evidence that this figure was even lower for jackets, he chose to treat the 15% approximation as applicable across jackets and trousers.This reflects a conservative approach.

[15] The Judge then considered whether this 15% demonstrated non-reliance on the Ernst & Young advice.He agreed with the submission on behalf of Rembrandt that 100% conformity with the advice was not necessary.He concluded that there may have been mistakes, or from time to time the advice may have been intentionally disregarded.He said:

It is possible to rely on advice, but with exceptions.A Court must operate with some knowledge of the world, not least the business world.It is not unknown for businesses, and exporters will be no exception, to bend or break the rules from time to time if it is thought this may escape unnoticed or if noticed will not be severely penalised.That is not less so in customs matters than in others.Such practices usually occur on a relatively small scale, at a level low enough to be disowned as error if necessary, preserving a reasonable prospect of avoiding significant penalty.The fact of business life does not in itself mean that the business concerned does not place reliance upon the advice within the limits of which it generally operates.

[16] The Judge concluded that the 15% non-compliance did not show lack of reliance upon the advice, finding on the balance of probabilities that there had been reliance in respect of 85% of the business.He found support for this in the fact that when CER changes seemed imminent in 1992, Rembrandt required the advice to be updated.

[17] The Judge then considered whether the costs incurred in connection with the ACS Preference Inquiry were shown to have been caused by the erroneous advice.His conclusion after considering the evidence was:

In the ultimate result, I accept the erroneous EY advice meant the Preference Inquiry (likely in any event) could not be dealt with nearly as well and inexpensively as otherwise would be the case.That being so, I find the EY advice caused the inquiry expenses, except that it was not causative of prolongation and complications due to the misguided "origin of wool" argument and the "glaring errors" in initial submissions to ACS.An exact accounting division of the expenses claimed is not open on the materials before me, but the matter can be dealt with on the basis of more general contributory negligence approaches.

[18] The Judge then dealt with the loss of profits claim quite briefly.The evidence was that the "profile" was inserted (in the ACS computer) in May 1993. That did not affect sales for the winter 1993 season and no claim for loss of profits was made for that period.The losses were assessed by reference to sales lost in the period encompassing the summer season 1993/94, the 1994 winter season and the years 1995 and 1996.The lost sales resulted from cancellation of orders, delays while goods were re-engineered and diversion of executive resources with consequent damage to Rembrandt's market development. Damages were assessed as gross profit on lost sales but with a reduction of 15% to take account of the finding of only 85% reliance and causation.The evidence the Judge accepted was summarised by him as follows:

It will be seen Rembrandt's claim rests on estimates of lost sales, assessed gross profit rate, and estimated loss of profits derived accordingly. Rembrandt's evidence explaining loss of sales points to loss of goodwill through cancellations and delays particularly over 1994, and diversion of necessary executive sales efforts into replanning and dealing with ACS inquiry matters.For the summer of 1993/1994 Rembrandt has indent orders demonstrating sales available.For winter 1994 there are some such orders, but Rembrandt otherwise is thrown on to budgets.For 1995 and 1996 Rembrandt relies on budget/actuals comparisons and financial statements.The adverse effect is taken as having terminated from 31 July 1996.

[19] Arguments for reduction through failure by Rembrandt to mitigate the damages were rejected.

[20] For Ernst & Young it was argued that the finding of reliance was wrong, but if there was reliance, it was not in respect of 85% of garments exported by Rembrandt.It was not suggested there was evidence the Judge failed to take into account.The argument was to the effect that the Judge simply reached the wrong conclusion in his weighing of the evidence.Taken overall, it was said, the extent of non-compliance with the advised breakpoints was so great that the only proper inference was that they were not relied upon.

[21] Mr Wilson did not take issue with the Judge's starting point that if a person sought advice and thereafter acted consistently with it there can be a proper inference that the advice was relied upon.He submitted the converse, however, that if the person acted inconsistently with the advice the inference would be that it was not relied on.He accepted that it would be a matter of degree in any case and that direct evidence could change the position.

[22] There was direct evidence.Mr David Lyford gave evidence.He held the position of Marketing Director at the time of the trial but said that when the Ernst & Young advice was given his position was Merchandising Manager - Trousers.His father Mr Patrick Lyford had given evidence and, when asked, said that his son was the person to ask about this issue.Mr David Lyford gave this evidence as appears in his brief.

On each occasion cloth was purchased, the cost of it was calculated in New Zealand Dollars (therefore taking out the fluctuating exchange rate factor) and then checked against the breakpoints set by Ernst & Young.This was a very cautious approach to take.By checking the cloth cost against Ernst & Young's breakpoints, despite the rising labour costs, we were taking an extra precaution to ensure the preferential criteria were met.

[23] The Judge's notes of evidence record the following cross-examination.

In terms of the sample book for the cloths, who makes up that inside the Rembrandt organisation?The merchandisers make those sample collections up but it involves quite a few people over a period of time.And are they the persons that carried out the function referred to in paragraph 21 of your brief of checking those Ernst & Young breakpoints 25, 35 and 40 against the cloth to be purchased?Yes.And how did they get to know what the breakpoints were? Oh, it was very clear after Mr Bertie's visit to the merchandisers as to what those maximum or breakpoints were, we would have advised those people.

...

Do you recall getting a copy of this advice at this time, a copy of this particular advice?Yes, yes.On what basis then do you believe the breakpoints were fixed for suits $35 per metre, $24 for trousers, $45 [sic] for jackets is that what you were told?Yes, on the basis of the report we used that as the basis for determining what cloth prices we could buy up to.For suits that was up to $35 per metre?Based on a value of free on board which is the home currency.

[24] For Ernst & Young it was submitted that the plain inference from the evidence of both Mr Patrick Lyford and Mr David Lyford, referring to the manner in which the merchandisers made up the cloth sample collections to be offered to Australian buyers, was that they were referring to persons other than Mr David Lyford;that none of the merchandisers gave evidence and so there was no direct evidence of actual reliance on the advice.It must be said, however, that at no time was it put to Mr David Lyford that he was not one of the merchandisers whose role he had described.We do not find in the evidence referred to a basis for the inference suggested.It would not have been sensible for Mr Patrick Lyford to defer to Mr David Lyford if his son did not have direct knowledge.Nor are the answers given by Mr David Lyford incompatible with his own involvement, given his position at the time.

[25] In any event the Judge reviewed the evidence of the extent of apparent non-compliance with the breakpoints.He was not convinced that it excluded a conclusion that the advice was generally relied upon.We were taken through the evidence with particular reference to the schedule of exported suits.We were invited to view the extent to which the imported cloth content values exceeded the $35 per metre breakpoint in light of evidence given by Mr David Lyford when asked about suits outside the normal in local cost content, that "99%, 95% would be normal".That evidence was dismissed by the Judge as unhelpful being " ... attempted justifications thought up under cross-examination".He preferred the analysis of the figures in the schedule offered by counsel for Rembrandt.Mr Wilson offered an alternative analysis of those figures pointing to nearer one third of suit exports as having exceeded the breakpoints.We found this rather theoretical and, in absence of its acceptance by any witness, it did not carry us to the view that the Judge's analysis was not open to him.

[26] There were other pointers relied on as indicating non-reliance on the advice.The first of these was that prior to seeking advice from Ernst & Young, Rembrandt exported to Australia for a period "blind" - without knowing whether or not the goods were eligible for preference - indicating a cavalier attitude to the requirements.In the absence of some other reason for seeking advice we are unable to see that there is any assistance for the appellant in this factor as demonstrating non-reliance on the advice after it was sought and obtained.

[27] The next matter from which support was claimed was the fact that when originally given the advice from Ernst & Young was that the breakpoints were said to have been set "approximately" and along with the recommendation to maximise local content.It was accepted that Rembrandt took no steps to do that.In the course of cross-examination counsel for Ernst & Young secured acceptance that "approximately" $35 would encompass a range $34 - $36.But that must be considered against the evidence that the figures were taken by Rembrandt as those up to which preference was available and the formal letter from the responsible partner of Ernst & Young expressed the breakpoint in terms:

Material content of garment must not exceed [the breakpoints].

[28] We do not accept that in analysing the extent to which there was non-compliance with the advice in fact a reasonable course is to measure against a $34 breakpoint.On this approach an equally available measure would be $36.Even then, without careful analysis of relevant prevailing labour and overhead costs at the time, the comparison is a less than wholly reliable indication of compliance.Similarly, the recommendation to maximise local content must be considered along with the contemporaneous advice that the exports prior to the advice had been eligible for preference.Plainly there was no imperative to change the proportion of local content above that then applicable.

[29] For the appellant it was also said to indicate less than full reliance on the advice that Rembrandt was, even at the time the advice was given, attracted to the "origin of wool" argument, even though they had been told by Mr Bertie of Ernst & Young that the argument "would not fly".However, in the absence of evidence that Rembrandt was relying on the value of local wool in imported cloth in determining its preference claims, this seems no more than post facto speculation which understandably was given no weight by the Judge.

[30] On this part of the argument the final point put forward for the appellant was that the Judge had no basis in the evidence for his attributing some non-compliance with breakpoints to a "business" approach to rules not inconsistent with intention generally to rely on the advice.While there is no direct evidence that this was a deliberate approach by Rembrandt there is ample basis for the Judge's view in the manner in which Rembrandt operated.The inclusion of imported cloth in the range offered to Australian buyers with reference to the advised breakpoints was made at a stage before it could be known whether there would be "abnormal" tailoring requirements.In that sense, the risk of some non-compliance with the breakpoints was inherent in the business method.Accordingly, we have no concern for the view expressed by the Judge.

[31] Necessarily in cases such as this, in which trial judges are presented with attempts to establish or discredit intention or motivation after the event, and with the intrusion of hindsight, it is necessary to take a broad approach.We have not been convinced that in this case either the approach or the conclusion reached by McGechan J was not open to him.We uphold his findings of reliance and its extent.Causation of losses flowing from the negligent advice therefore is proved.

[32] We turn to the challenge to the Judge's assessment that 50% of the costs incurred by Rembrandt in dealing with the ACS inquiry, the consequent "profile" and proceedings taken on appeal against the ACS decision are attributable to Ernst & Young.There was no dispute on the total costs of $268,598.Nor was there dispute that an inquiry could have been expected by Rembrandt at some time.The real issue was whether the inquiry was complicated and prolonged so as to give rise to greater expense because of the erroneous Ernst & Young advice.

[33] There was no real challenge to the evidence of Mr Kershaw an Australian customs expert that if the Ernst & Young advice had been correct and had been followed by Rembrandt so that its export clearly qualified for the preference, the inquiry would have been concluded quickly.Mr Kershaw also accepted that once inaccurate information was provided to ACS and once the "origin of wool" claim was made, the inquiry inevitably would have continued until those matters were resolved.On the other side it must be recognised that Rembrandt would not have been forced to place reliance on the origin of wool argument, nor to produce overhead costs figures under pressure had they been in a position to demonstrate clear eligibility in accordance with correct advice.In the end the Judge adopted a broad approach appropriate to contributory negligence consideration - though perhaps they might equally have been formulated as considerations of what constituted reasonableness in the exigencies that prevailed - and held Ernst & Young responsible.

[34] In the course of his reasoning the Judge referred to the method by which Rembrandt calculated its factory and labour costs on a production minute basis. This was not a method recognised by ACS officers who preferred a different cost of labour approach.However, the record shows that it was not just the methodology but also the calculations that led to difficulty in the inquiry. The methodology was not finally rejected at the time the duty liability was settled.But seemingly referring to the methodology the Judge said:

However, I consider the incorrect EY advice did play some role through its apparent endorsement of the particular production minute approach to Rembrandt overheads.On the evidence, the production minute approach was not an EY suggestion, but was a standing approach already utilised by Rembrandt in its accounts.Mr Bertie, however, did not advise that it would not meet ACS requirements.He adopted the principle.Both sides acknowledge it was one of the two matters which agitated the ACS in the course of the Preference Inquiry and made the EY breakpoints unacceptable.EY must accept its erroneous advice played some corresponding part in the prolongation and complications which followed.

[35] Issue was taken with this view which underpinned the Judge's attribution of liability for half the inquiry costs to Ernst & Young.The submission was that it was wrong to impose upon Ernst & Young in giving the advice an obligation to satisfy themselves that the method of assessing Rembrandt's costs met the requirements of ACS.No doubt, the matter was approached through the trial as inter-related with the dispute between Mr Bertie and Mr David Lyford as to which of them provided the costs figures used in calculating the breakpoints.That was decided in favour of Mr Lyford and there is now no challenge to that finding.The matter was not determined by the comment in the Ernst & Young formal advice letter that "an audit of your factory costs and overheads established costs as follows ..."That was accepted as not having been done formally, although Mr Bertie was part of the Ernst & Young audit section.

[36] Mr Wilson complained that there had been no pleading or evidential assertion of default by Ernst & Young with respect to production minute methodology.In response Mr Camp QC for Rembrandt referred to allegations in the statement of claim referring to "factory costs".Mr Wilson countered that these related to a different issue but that is inconsistent with evidence given by Mr Patrick Lyford equating factory overheads and production minute costs in paragraph 31 of his brief of evidence exchanged before trial.We reject the pleading point and turn to the factual assessment.

[37] We have difficulty in accepting that Ernst & Young could determine the breakpoints as they did and advise that compliance with them would meet preference requirements without satisfying themselves that the manner of determining eligible local content costs was appropriate and the quantum correct.We are therefore not persuaded that it was not open to the Judge to conclude that there was omission to review and advise on this aspect of the costs calculations and that the costs of the inquiry were increased as a result.

[38] We have reviewed the evidence relied on as showing that even if Ernst & Young advice had been correct the sample garments selected for consideration in the inquiry would not all have qualified for preference so that the inquiry would still have been prolonged.The difficulty we have is that it does not follow that if the advice had been correct initially, the same range of suits would have been produced and selected for the inquiry. Certainly, had the advice been correct, Rembrandt would not have been confronted by the inquiry in the position described as precarious with the need to cast about for arguments for eligibility known to be doubtful.The Judge gave this point little weight and we see no error in that.

[39] This same argument was directed to the Judge's quantification of the duty paid by Rembrandt for which Ernst & Young were held liable.It was said that in addition to the 15% reduction, there should have been further reduction to take account of the garments that still would not have qualified for preference even if the advice had been correct.However, even if they were not within the 15% allowance made, there was evidence that if only one of the suits had been found not to comply, ACS likely would have merely warned Rembrandt without imposing back duty.In view of that there is no justification for reducing the amount for which Rembrandt is to be compensated for duty paid.

[40] We now come to the assessment of loss of profits.

[41] First, having upheld the judgment on the proportion of the costs of the inquiry for which Ernst & Young should be held responsible, we do not need to address the argument that the distraction the inquiry caused to Rembrandt which reflected in losses of sales cannot have been caused by Ernst & Young.But there is the point made by Mr Wilson that although the Judge held Ernst & Young liable for only 50% of the costs of the inquiry, he did not adjust the loss of profits damages to allow for the fact that Rembrandt was 50% responsible for the lost sales due to the diversion of management resources to the inquiry.The Judge did deal with this matter and said:

There appears to have been some degree of self inflicted damage in relation to diversion of effort through the "origin of wool" arguments as previously discussed, but in relation to disruption, as opposed to recoupment of dispute expenses, I do not see this as adding significantly.Other elements running concurrently posed like problems.

We cannot say that was wrong.

[42] A number of other points were argued and must be dealt with but as a general comment it is first to be noted that Ernst & Young did not lead evidence presenting any different scenario by which loss should be determined. Instead it was sought on their behalf to undermine the evidence given by the witnesses called for Rembrandt by cross-examination.Except to the extent that was considered by the Judge to have been successful, it left the plaintiff's evidence as all that was available on which to make findings.

[43] In fact the Judge accepted in substance the evidence presented by Rembrandt on its loss of profits, though he reduced the figures by 15% to take account of his finding that the negligent advice was causative of loss through reliance only to the extent of 85% of the goods sold.This gave rise to a strongly pressed argument for Ernst & Young.In essence it was that the Judge fixed the 15% non-reliance by quantifying goods exported that exceeded the breakpoints advised.It was submitted that it would have been the 15% of goods that exceeded the breakpoints and so were not produced in reliance on Ernst & Young advice that were the subject of cancelled orders, re-engineering with delays in delivery and dispute in the ACS inquiry, all of which gave rise to the losses of the sales.Therefore all, or at least a great proportion of, the lost sales, would not have been caused by the negligent advice.Certainly the 15% non-reliance cannot logically be carried over and applied in the quantification of damages for lost sales.

[44] While this argument has logical attraction, it lacks factual support.It is based on assumption of facts that could have been investigated but were not. It also seeks to draw conclusions from evidence given with reference to particular times and market situations without allowing for the dynamic nature of business and markets.

[45] It does not follow from non-reliance on incorrect advice with 15% of garments in the period up to December 1992 that there would have been the same incidence of non-reliance if correct advice had been given.It does not follow from the fact that 37% of customers were supplied in one period with suits with imported cloth content above $35 per metre either that all those suits were ineligible for preference or that orders from those customers which were cancelled were for suits which were offered without reliance on the incorrect breakpoints.In this respect Mr Camp made the point that if it had been the case that the cancelled orders were part of the 15% of the garments in which reliance was not shown, then 100% (not 37%) would have been in the over $35 per metre category.He argued that 37% is about the same proportion as the Judge found exceeded the designated breakpoints before the adjustments he accepted resulted in his 15% figure.

[46] It also does not follow necessarily that because re-engineering of some garments proved possible for the 1990-91 season that re-engineering on the same basis was feasible in the circumstances prevailing for the 1993 summer season. It is not to be assumed that when Rembrandt cancelled orders or failed to obtain them they knew when and on what terms the profile would be lifted.Nor could they have known before then to just what extent re-engineering would secure eligibility even if local materials could have been obtained immediately for that purpose.

[47] The evidence simply does not establish that those goods that could not be re-engineered were within the 15% in respect of which there was non-reliance.

[48] It may be that of the lost sales which the Judge held had been established by the evidence (and there was ample basis for that) an argument could be mounted for some different proportion than 15% as not attributable to the erroneous advice.But we do not accept there was established by the cross-examination of Rembrandt's witnesses that the advice was not causative of any lost sales.As already mentioned, no alternative analysis was put forward. We prefer the approach taken by the Judge who would have had the flavour of the evidence as a whole to that of counsel for the appellant who attempted to undermine the assessment by projecting broad conclusions from isolated points picked from the evidence.

[49] While it does not necessarily follow that the proportion of non-reliance, fixed at 15%, carried over to the loss of sales, the Judge considered that, on the evidence, it could be taken as having done so in the circumstances of this case.We were not convinced that it is more likely that the cancelled orders and other market damage flowed from goods wholly or in greater proportion within the 15% for which reliance was not established.We cannot say that the Judge was wrong.

[50] There remain to be dealt with points said to show failure by Rembrandt to mitigate its losses and the general point that the Judge failed to allow for advantages derived by Rembrandt from reliance on the erroneous advice.

[51] In brief, it was argued that if Rembrandt had simply paid the duty on all the goods instead of cancelling and delaying orders and re-engineering, there would have been no loss of sales and the damages would equate with the duty paid which would have been very much less than the damages awarded for loss of profits.

[52] This of course is an argument made with the benefit of hindsight.The difference in outcome does not establish that what Rembrandt did at the time was not reasonable.The Judge thought it was and we see no reason to interfere with his view.

[53] It was submitted that Ernst & Young is entitled to some allowance for benefits Rembrandt derived through enjoying the preference without having to pay duty on ineligible goods for the time and in respect of which the limitation period made duty unrecoverable.This argument rests on the unproved assumption that if the advice given by Ernst & Young had been correct the returns for Rembrandt for the relevant period would have been less.Bearing in mind that the requirements for preference are in the proportions of local and imported content not in overall price on sales or profit margins, we do not find that established on the evidence.As the Judge said:

If EY advice had been correct, the duty concerned would not have been payable in any event.Its fortuitous avoidance is neutral.

[54] We acknowledge that assessing loss of profit damages is an inexact exercise.Necessarily the matter must be approached on the basis of the evidence put forward.Trial judges must do the best they can when making broad apportionments.But unless they err in principle attempts to re-assess on appeal present real difficulties and risk the substitution of one no more soundly based view for another.Just as one factor might point to reduction others might point to increase.Looking at the matter overall we have not been persuaded that the assessment made by the Judge in this case should be interfered with or that we should embark on an attempt to quantify the loss of profits ourselves.Accordingly, the appeal is dismissed.

[55] The respondent is entitled to costs which we fix at $10,000 together with reasonable disbursements approved, if necessary, by the Registrar.

Solicitors

Buddle Findlay, Wellington, for Appellant

Phillips Fox, Wellington, for Respondent