Bonz Group (Pty) Ltd v Cooke [2000] NZCA 44; (2000) 9 TCLR 374 (9 March 2000)

Last Updated: 9 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA89/99

	BETWEEN	BONZ GROUP (PTY) LIMITED
		First Appellant

	AND	BONZ GROUP (NZ) LIMITED
		Second Appellant

	AND	DIANE LEONIE COOKE
		Respondent

Hearing:	24 February 2000
Coram:	Richardson P Thomas J Blanchard J
Appearances:	S P Rennie for Appellant A C Hughes-Johnson QC and S Templeton for Respondent
Judgment:	9 March 2000

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

[1] The plaintiffs (now appellants) Bonz Group (Pty) Limited and Bonz Group (NZ) Limited (together “Bonz”) brought a proceeding in the High Court at Christchurch against the respondent, Mrs Cooke, a former employee, alleging that she was infringing copyright in manufacturing and marketing certain hand knitted woollen garments, and that in so doing she was also in breach of the Fair Trading Act 1986. On 23 November 1993 they obtained ex parte an interim injunction and an Anton Piller order which was executed at Mrs Cooke’s home. She then applied to the Court to vary or discharge the injunction. That was opposed by Bonz. After hearing argument on 9 March 1993 Tipping J in an oral judgment declined to rescind the interim injunction but indicated formally that if Mrs Cooke produced a garment without handmade Fimo clay buttons (a particular feature of Bonz garments) and having buttons “both as to material and design completely different from Bonz’s buttons”, she would not be in breach of the injunction. The Judge said, however, that Mrs Cooke must also comply with certain additional requirements: the instructions which she produced for the manufacture of her goods (by contracted knitters) must be “genuinely new and independent of Bonz’ instructions”; all her goods must be clearly labelled to demonstrate that they originated from her and not from Bonz; and she must keep full records of all garments which were produced and sold by her or on her behalf with a photographic record of each individual base graph and written instructions. The Judge also directed that garments already in existence might be sold subject only to the change of the buttons but each such garment had to be photographed by or on behalf of Mrs Cooke prior to sale.
[2] The interim injunction, as so varied, remained in force until the trial, which took place over two separate weeks in May and June 1994. Tipping J’s reserved decision, which is reported as Bonz Group (Pty) Limited v Cooke [1994] 3 NZLR 216, was delivered on 8 July 1994. The claims failed entirely. Judgment was entered for Mrs Cooke. An appeal by Bonz to this Court also failed ((1996) 7 TCLR 206).
[3] When Bonz sought the Anton Piller order and interim relief it was required in the usual way to give an undertaking as to damages. The terms of that undertaking required Bonz:

To abide by any order this Honourable Court may make as to damages in case this Court shall hereafter be of the opinion that the Defendant shall have sustained damage by reason of this order, and that the Plaintiffs should pay such damage.

[4] Mrs Cooke now seeks to enforce that undertaking. In the High Court she alleged that she had suffered financial losses in an amount of $112,167.79 together with damages for emotional distress of $75,000. Her claims were contested by Bonz. Hansen J delivered a reserved judgment on the question of damages on 10 December 1998.
[5] It was not in dispute between counsel that an assessment of damages pursuant to an undertaking is to be made on the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which she was restrained from doing by the terms of the injunction (F. Hoffman - La Roche & Co. A.G. v Secretary of State for Trade & Industry [1975] AC 295, 361 per Lord Diplock). Hansen J referred also to the decision of the High Court of Australia in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249 and particularly to the statement of Aickin J at p266-7:

In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However, the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases...

[I]t will in my opinion be seldom that it will be just and equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time.

[6] The central issue concerning Mrs Cooke’s claim for financial loss was whether it was reasonably in contemplation at the time when the injunction was varied that, even in varied form, the order might have the effect of causing the collapse of Mrs Cooke’s business.
[7] The Judge heard evidence from Mrs Cooke, from the manageress of one of her retailers and from two chartered accountants called on behalf of Mrs Cooke. Bonz elected not to call evidence.
[8] Hansen J referred to a letter written by the solicitors for Bonz to the solicitors for Mrs Cooke on 10 December 1993, immediately following Tipping J’s judgment varying the terms of the interim injunction. The solicitors for Bonz referred to the requirement that buttons be removed from existing stock and sought written confirmation from Mrs Cooke’s retailers that this had been done. They also asked for photographs of the garments which Mrs Cooke intended to sell pending trial. The Judge said that Bonz must have foreseen that these requirements would place a substantial burden on Mrs Cooke:

It would involve communicating with retailers, and putting them on notice that there were problems over the defendant’s garments. As well, the plaintiffs were dealing with the same retailers as the defendant, and would have been aware that the long shopping hours of tourist shops made it extremely difficult, indeed, almost impossible, to photograph the garments outside business hours. The obvious disruption and concern to a retailer would, again, be reasonably foreseeable, in my view.

[9] The Judge referred to evidence from the shop manageress. She mentioned the concern raised from her point of view by the litigation and the inconvenience involved in the photographing process. Also, when certain cardigans were taken back by Mrs Cooke and the buttons replaced, she was “very disappointed as they [the cardigans] were definitely nothing to what the originals had been.” The manageress also said that the disruption which was caused over the period of the Court case from November 1993 effectively precluded her business from dealing with Mrs Cooke. She was so instructed by the owner of the business as the shop was far too busy to be involved with the legal problems of a supplier:

At the time the proceedings were issued against her Diane was a new supplier and as there are hundreds of suppliers to choose stock from we were just not interested in or able to help Diane.

[10] When Mrs Cooke had come back to them after the conclusion of her case, they were unable to buy from her as they had by that stage established relationships with other suppliers and had no budget left to purchase her stock.
[11] Hansen J noted a submission on behalf of Bonz that Mrs Cooke had closed her business down to prepare for trial. He accepted that that was “part of the motivation”, but was satisfied, on the balance of probabilities, that it was the effect of the interim injunction that caused the business to close. “Although the variation of the order was intended to assist Mrs Cooke to continue running her business, that proved to be impossible.” The Judge was satisfied that the impact on the business was reasonably foreseeable by Bonz “whether one views the matter objectively, or, alternatively, taking into account the plaintiffs’ actual knowledge.” The damages, “in part”, were caused by the making of the order.
[12] The Judge then carefully reviewed the various heads of loss claimed. The evidence from the accountants had indicated some difficulty in the financial assessment exercise. It had been Mrs Cooke’s intention to have garments knitted for her. (At the time of the injunction in November 1993 she had 40 knitters contracted.) She intended to act as a wholesaler to sell the garments so produced to retail outlets. But she had traded as such only for the months of October and November before the Bonz proceedings were commenced towards the end of that period. October sales were ahead of budget, those for November a little behind. From December until the trial there were no sales. Mrs Cooke had also intended establishing her own retail shop but that decision had not been implemented. Instead, some sales had taken place from the foyer of a hotel.
[13] The Judge noted that, on the evidence, a business of this kind is seasonal. He accepted that higher sales can be expected over the months of October to February.
[14] In relation to the wholesale operation, Mrs Cooke’s accountant, Mr Rhodes, had in his calculations reduced expected sales by 20% in order to take into account the late start in commencing the operation and other variables. The other accountant, Mr Irvine, confirmed that the budgeted level of sales was realistic and achievable. There was little difference between the two accountants concerning losses to 30 June 1994, the first period which the Judge considered. He was not however prepared to accept the calculation relating to retail trading, not being satisfied that Mrs Cooke would have actually set up a retail operation. For the period from 1 July 1994 to 31 March 1995, for which loss of profits was also claimed, the Judge recorded that there was again little difference between the two accountants and accepted the lower calculation for the wholesale business.
[15] The Judge then turned to the question of goodwill. Mr Rhodes was not an expert on that subject. He had based his calculations on the expected net profit less an allowance for salary. That figure was then multiplied by 2½ years of super profits to arrive at a figure of $40,633. It was that amount which Mrs Cooke claimed.
[16] Mr Irvine, on the other hand, was accepted by the Judge as being clearly an expert on the calculation of goodwill. He had excluded owner’s remuneration to arrive at a figure, using a multiplier of three years, of $26,088 but he also considered that there should be an addition under this head for loss of salary. Mrs Cooke had gone to work for a bank after the collapse of her business but her earnings in that employment did not match an owner’s remuneration. Mr Irvine capitalised the shortfall over a period of ten years and, adding this to the figure he had earlier arrived at, came to a total loss of goodwill and salary of $71,278.
[17] However, as Mrs Cooke was claiming only the sum calculated by Mr Rhodes, the Judge adopted his lower figure.
[18] To these amounts was added a figure for accountant’s costs which was unchallenged. That meant that the Judge’s figures were at that point as follows:

	Losses to 30 June 1994, excluding retail	$ 22,288.00
	Loss of profits from 1 July 1994 to 31 March 1995	$ 31,099.00
	Goodwill at 31 March 1995	$ 40,633.00
	Accountant’s costs	$ 9,349.79
		__________ $103,369.79

[19] Hansen J considered, however, that it was appropriate to reduce these figures to allow for some elements of uncertainty. He observed that Mr Rhodes and Mr Irvine had already reduced the sales figures upon the basis of which they made their calculations by 20% to allow for the uncertainty of business. But the Judge said that the reality in this case was that the business had operated for two months only and there was a high degree of speculation in extrapolating therefrom, despite the fact that the budgeted figures were accepted as reasonable and realistic. Other matters affected sales within the tourist market: the level of competition, design and branding. Shop location was also important. If a garment was amateurish and pallid, a description used about Mrs Cooke’s products by Tipping J in his substantive decision, that would have significant impact on the ability to retail it.
[20] In this connection the Judge referred again to the argument that Mrs Cooke had elected to close down the business to concentrate on the trial. He mentioned again that this factor overlapped with other difficulties she had encountered but plainly he took it into consideration.
[21] There had also been a question raised about Mrs Cooke’s evidence concerning the significance to the business of the particular garments affected by the injunction. She had said that they made up a tenth of the garment range but were of the most popular style. Later she had said that sales of the relevant garments were 80% of total sales. The Judge thought that there was an unresolved conflict in that evidence which he had to take into account. He had not been satisfied that the garments in question made up as much of the sales during the brief life of the business as Mrs Cooke claimed.
[22] After the variation order was made on 9 December 1993, and Mrs Cooke experienced difficulties with retailers, she had not returned to the Court in an endeavour to obtain a further variation. The Judge thought it appropriate to take that matter into account.
[23] Hansen J was satisfied that there had to be a reduction to allow for all these factors and, accordingly, he reduced the loss of profits claimed to 30 June 1994 by 30%, that to 3 March 1995 by 40% and the goodwill claim by 40%. No reduction was made in respect of accountant’s fees.
[24] A modest, and now unchallenged, award of $5,000 was made for emotional distress. In total there was an order that Bonz pay by way of damages $72,990.59 plus interest. Bonz appeals that award to this Court.
[25] Mr Rennie submitted that Hansen J had erred in finding that the cessation of Mrs Cooke’s business had flowed naturally from the injunction and was within reasonable contemplation when Tipping J made the variation order. That order, he said, was designed to enable continuance of trade. Mrs Cooke had given no warning that she was going to cease business. Bonz was not on notice, after the variation order, that Mrs Cooke was in difficulties. The Judge had been wrong to assume that she and Bonz were dealing with the same retailers – Bonz had its own retail outlets. Mrs Cooke had “voluntarily” ceased business to prepare for the trial, not because of any effect of the injunction.
[26] The appellant also raised questions about the way in which the damages had been assessed. If, as was the case, the Judge had found it necessary to reduce the damages because of the uncertainty of the prospects of Mrs Cooke’s business, it was said that there was no proper basis for the assessment which had been made on the footing of the experts’ opinions. Any damages claim would in these circumstances be speculative and unreasonable. Mr Rennie referred also to the alleged discrepancy in the evidence of Mrs Cooke about the significance to her business of the garments affected by the injunction. Counsel referred to the very small number of retailers – three – with whom Mrs Cooke had placed stock. It was further submitted that there was evidence of sales continuing until June 1994. And it was suggested to us that the Judge had overlooked certain matters in deciding upon the appropriate discounts.
[27] Members of the Court indicated to Mr Rennie during oral argument their surprise that Bonz has thought it appropriate to come to this Court a second time, now challenging an apparently moderate assessment of financial losses arising from its own action in obtaining an interim injunction, in respect of which it had given the usual undertaking to pay damages. In pursuing this appeal Bonz is seeking to overturn Hansen J’s conclusions of fact, including his findings concerning the credibility of Mrs Cooke on some matters, she having given evidence and been cross-examined before him. This Court has frequently pointed out the difficulty of such a course, most notably in Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190. And here there was an absence of any contradicting evidence called for Bonz.
[28] We consider that there is a complete lack of realism in the appellant’s contention that at the time of the variation of the injunction it was not in reasonable contemplation that Mrs Cooke might be forced by the continuance of the injunction to close down her business. Tipping J was obviously trying to vary the order in a way which might avoid that possibility. In a sense, that was the purpose of his order. It may also be said that perhaps Bonz was so intent upon its own purposes that it under-estimated the possible effect of the order on a small fledgling business when it insisted upon the conditions which were imposed, to which Mrs Cooke at no time consented. In that respect we give the appellant the benefit of the doubt. But the making of the order could not guarantee the survival of the business and a dispassionate and fully informed observer would, we think, have seen the continuing risk to it. This became starkly apparent from the evidence before Hansen J. Mrs Cooke had only recently obtained a very few retail outlets. Bonz must have known that her business was new, small and therefore potentially vulnerable to the effects of the trading restrictions it was insisting upon. (The Judge was wrong to assume that they were the same outlets as sold the Bonz products but this is not a point of any significance.) There was much competition amongst suppliers of garments for the orders of retailers. Those retailers who were already stocking Mrs Cooke’s products, along with anyone else whom she approached, would be likely to be concerned about becoming involved in some way in a legal battle between her and Bonz. Her three existing retailers would also be concerned about the process of changing the buttons, which were a feature of the garments they had purchased, and about the need to have all garments photographed. There were 100 garments with retailers. The retail season was in full swing. Their shops were open for long hours and they were not likely to take kindly to a new supplier approaching them and asking for all her garments to be laid out and photographed. There was therefore a very real risk that Mrs Cooke would be unable to find retailers willing to take her products and that those three with whom she was already dealing would discontinue her lines.
[29] In part, the decision to close the business may have been motivated by the need to devote time and money to the litigation, which was complex and expensive. But we are of the view that Hansen J was right to conclude that a significant determinant of that decision was the injunction. We do not consider that Mrs Cooke was in the circumstances obliged to make a further approach to Bonz or the Court to try to gain some relaxation of the terms of the injunction. Bonz elected to oppose her application to have it rescinded. It knew also that in making only the limited variation order the Judge had referred to, and must have drawn comfort from, the existence of the undertaking. To return to the analogy of a contractual relationship, a party who wishes to enforce the contract and seek damages rather than accept a repudiatory breach is not obliged to try to negotiate some relief from a burdensome term of the contract or be denied damages to the extent that they result from the effects of that term and cannot otherwise be mitigated. Just as that contracting party can rest on the terms of the contract, so can a defendant who complies with the terms of an injunction imposed upon her rest upon the plaintiff’s undertaking to pay damages which flow from that restraint.
[30] In oral argument Mr Rennie appeared to accept that this must be so. He submitted only that there was on the part of Mrs Cooke a duty to warn Bonz if she was encountering problems with the injunction which might give rise to unusual and uncontemplated damage. But any such obligation would be an irrelevance since, if the loss of the business had been caused by something beyond reasonable contemplation, which in our view it was not, Bonz would not have been liable in respect of it.
[31] Nor do we regard the quantum of the award as so incapable of assessment as to be speculative or unreasonable. It did not follow from the fact that there was uncertainty that an award of damages was unable to be made. There were certainly elements of difficulty for the experts and for the Judge because the business was so new. He rightly adopted a cautious attitude towards figures extrapolated from only two months trading. But the evidence was that the budgeting appeared soundly based. The Court had in the circumstances to assess how likely it was that budgets would have been attained or that other factors would have interfered with Mrs Cooke’s ability to meet her targets. It had to assess the chance of success or failure of the business. Hansen J made allowance for the impact of the litigation generally – apart from the injunction – on Mrs Cooke’s finances but it was on the evidence open to him to conclude that the existence of the injunction was an operating cause of the closure of the business.
[32] The experts had discounted their figures by 20% to allow for some uncertainties. The Judge conservatively went even further, applying discounts of 30% and 40% to the net figures. Mr Rennie was unable to refer the Court to any factor which the Judge had failed properly to take into account in arriving at his discounted award. Hansen J did not, in our view, misunderstand Mrs Cooke’s evidence about the significance to her turnover of the garment lines affected by the injunction. He had some concern that she might have exaggerated in this respect. That was accordingly a matter which influenced the discount he applied to the gross figures. It is said that he failed to take into account evidence that Mrs Cooke’s products continued to sell until June 1994, but reference to the evidence shows that this was confined to goods sold pursuant to orders placed before the injunction was obtained.
[33] In short, we are not disposed to accept any of the appellant’s criticisms of the basis upon which the award of damages was made. It was, if anything, quite modest. The appeal is dismissed.
[34] That leaves the question of costs. An indication was given to counsel during argument that the appeal appeared to be meritless and that the appellant might be expected to meet costs in this Court on a solicitor and client basis. We heard argument on this point but remain of that view. Not only was the appeal always unlikely to succeed, for the reasons given, but it was also an appeal against an order resulting from the giving of an undertaking to the Court. The respondent has already incurred substantial expense in repelling the claims made by Bonz. It would be wrong to expect her to have to bear any further costs, which would erode the sum awarded by way of reimbursement of her losses, where the giver of the undertaking has now chosen to pursue an appeal which had no prospect of succeeding.
[35] We therefore order that Bonz must indemnify Mrs Cooke for all legal fees which she has reasonably and properly incurred to her counsel and solicitors in connection with this appeal, together with her reasonable disbursements, including travel and accommodation costs of both counsel. Such costs and disbursements are to be settled by the Registrar of this Court if agreement cannot be reached by the parties.

Solicitors
Rhodes & Co, Christchurch for appellant
Templetons, Christchurch for respondent