Herbert v USAR Napier Limited [2022] NZCA 288 (4 July 2022)

Last Updated: 14 July 2022

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA627/2021 [2022] NZCA 288

	BETWEEN	MALCOLM ANDREW HERBERT First Appellant ANTHONY JAMES HERBERT Second Appellant ANTHONY JAMES HERBERT AND STEPHEN PETER LUNN AS TRUSTEES OF THE THACKERAY TRUST Third Appellants ANTHONY JAMES HERBERT AND STEPHEN PETER LUNN AS TRUSTEES OF THE CHARLES STREET TRUST Fourth Appellants
	AND	USAR NAPIER LIMITED Respondent

Hearing:	8 June 2022
Court:	Gilbert, Mander and Fitzgerald JJ
Counsel:	J K Mahuta-Coyle for Appellants S M Lowery and J C Suyker for Respondent
Judgment:	4 July 2022 at 9.30 am

JUDGMENT OF THE COURT

1. The application to adduce further evidence is declined.
2. The appeal is dismissed.

100. The appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Gilbert J)

Introduction

• [1] This is an appeal against the entry of summary judgment on a claim for monies payable under a written settlement agreement (the settlement agreement).^[1]
• [2] The settlement agreement provided for specified payments to be made, and security to be provided, by the appellants (the Herberts) to the respondent, USAR Napier Ltd (USAR), in exchange for the surrender of its rights under an agreement to lease a commercial property in Napier (the property). USAR is one of a group of companies known as the Sarin Group which operate in the hotel and events centre sectors. Mr Udai Sarin is the chief executive officer of the Sarin Group.
• [3] The property was being developed by the first appellant, Mr Malcolm Herbert, for use by USAR as a hotel trading under the Hilton brand. The second appellant, Mr Anthony Herbert, is Malcolm’s brother. He and Mr Stephen Lunn, a practising solicitor, are the trustees of the Thackeray Trust and the Charles Street Trust, the third and fourth appellants. The Thackeray Trust was the lessor under the agreement to lease. The Charles Street Trust agreed to provide security under the settlement agreement.
• [4] Prior to the completion of the development, the Thackeray Trust purported to cancel the agreement to lease. This was to enable it to pursue a more favourable arrangement with another hotel chain, Swiss-Belhotel International New Zealand Ltd (Swiss-Bel). USAR responded by applying for an interim injunction to preserve its rights under the agreement to lease.

The settlement agreement

• [5] The settlement agreement was negotiated at a meeting in Wellington on the morning of 10 December 2020, immediately prior to the hearing of USAR’s application for an interim injunction. Present at the meeting were Mr Malcolm Herbert, Mr Sarin and the parties’ respective barristers, Mr David O’Connor for the Herberts and Mr Lowery for USAR. The terms of the settlement agreement are set out in a handwritten heads of agreement. After it was signed by Mr Malcolm Herbert and Mr Sarin and witnessed by the barristers, the parties advised the Court that a settlement had been reached. Mr Lunn signed the settlement agreement later that day and Mr Anthony Herbert signed it the following day.
• [6] The settlement agreement reads as follows:

Heads of agreement

1. USAR withdraws injunction application, subject to defendants’^[2] undertaking below
2. In full and final settlement of all claims under [the agreement to lease] & in relation to, or arising from, [the agreement to lease], the parties agree:

(a) Defendants will refund USAR its deposit of $115,000, plus any accrued interest, by 17 December 2020;

(b) Defendants will pay USAR $115,000 by 17 December 2020;

(c) Defendants will pay USAR $145,000 by 24 March 2021;

(d) Defendants will pay USAR $250,000 plus interest at 8.25% from 10 December 2020 in equal monthly payments, commencing 5 April 2021 and ending 5 December 2021.

3. If Defendants fail to make any of the payments under 2, they shall immediately be liable for penalty interest at 18.25% on any unpaid amount, until that unpaid amount is paid.
4. If Defendants pay all amounts under 2 ($625,000 in total) by 5 April 2021, USAR shall forgive all interest on the $250,000 payment under 2(d).
5. There shall be no penalties for early payment by defendants.
6. Trustees of Charles Street Trust will grant a second mortgage over [the property] by 21 January 2021.
7. Malcolm Herbert and Anthony Herbert will grant personal guarantees to USAR for any outstanding amounts in 2, by 17 December 2021.
8. Upon incorporation of the company or companies that will own the business of [the property], once the hotel commences operations, will grant a General Security Agreement in favour of USAR for any outstanding amounts under 2. The General Security Agreement will be granted promptly upon incorporation of the company or companies.
9. Defendants undertake that until the payments under 2(a) and 2(b) are made, and the security under 6, 7 and 8 is provided, [the property] will not open as a hotel, or any other accommodation business.
10. Promptly after defendants make the payment under 2(a), USAR shall file a notice of discontinuance of its proceedings against Thackeray Trust & Malcolm Herbert, with no issue as to costs. The parties agree that USAR shall be entitled to bring the same claim at a later date, should defendants breach this agreement.
11. Defendants shall provide reasonable assistance to USAR to explain to Hilton International why [the property] cannot open as a Hilton Hotel.

• [7] The first payment due under the settlement agreement was made, being the refund of the deposit of $115,000 plus accrued interest. However, no other payments were made. Nor was the agreed security provided.
• [8] USAR gave notice of breach on 18 December 2020 requiring the breaches to be remedied by 23 December 2020, time being of the essence. USAR noted that interest at the rate of 18.25 per cent was now accruing on the first overdue payment of $115,000.
• [9] On 22 December 2020, USAR was advised that Mr Malcolm Herbert did not have the funds to make the overdue payment of $115,000. An offer was made to pay $300,000 by 17 March 2021, with the balance of $210,000 to be paid monthly. USAR declined this offer and advised that if the amount of $115,000 plus penalty interest was not paid the following day, it would regard the settlement agreement as having been repudiated.
• [10] The Herberts’ solicitors responded on 23 December 2020 as follows:

Thanks for your email.

Our client is committed to trying to honour the spirit of the settlement that was reached with your client and it is acknowledged that our client is in breach of the timetable for payment. That however is not a repudiatory breach in [sic] our clients are committed to the settlement arrangement that was reached. The breach has occurred due to circumstances beyond our client’s control.

In furtherance of the desire to keep the settlement agreement on track, our client has arranged for funding to come from his brother who resides in Fiji. I am instructed that it is not a simple process to transfer $115,000 out of Fiji and that the reserve Bank of Fiji’s approval is required. This apparently takes at least 2 weeks. Given that requirement and the fast approaching Christmas closedown, our client will not be in a position to make the payment of $115,000 until the end of January. We therefore propose the overdue payment be made by the end of January together with interest and all other agreed settlement terms remain unchanged.

We trust that this is a satisfactory compromise.

(Emphasis added).

• [11] Following a telephone discussion on 18 January 2021, counsel for USAR sent an email to the Herberts’ solicitors asking for confirmation of the “circumstances beyond [their] client’s control” and for copies of the documentation showing that funding from Fiji had been arranged to enable the outstanding amount of $115,000 plus penalty interest to be paid by the end of January 2021. USAR’s rights under the settlement agreement were reserved.
• [12] No response was received. Counsel for USAR therefore sent a follow-up email on 25 January 2021 asking when a response could be expected. When still no reply was received, counsel for USAR sent a further email on 2 February 2021 as follows:

[USAR] has not received the tranche B payment under the settlement agreement ($115K plus penalty interest). This is despite your client’s assurance that payment would be made by the end of January. Your client has not provided an explanation for the non-performance, despite repeated requests (below).

Unless USAR receives the tranche B payment plus penalty interest by 5pm this Friday, 5 February 2021, USAR will commence proceedings to enforce the settlement agreement.

• [13] There was no reply and no payment.

Application for summary judgment

• [14] USAR commenced proceedings in the High Court at Napier on 12 February 2021 to enforce the settlement agreement and applied for summary judgment on its claim.
• [15] The Herberts filed a notice of opposition to the application for summary judgment. This was dated 21 June 2021. They claimed they had a reasonably arguable defence by way of set-off arising out of an alleged pre-contractual misrepresentation, made by Mr Sarin on behalf of USAR at the time the settlement agreement was being negotiated on 10 December 2020. This was that USAR “would ensure [that] all marketing of the hotel under the Hilton brand would be promptly cancelled and withdrawn from online advertising platforms” such as Booking.com and Expedia.com. This was the first time this was mentioned as an excuse for non-payment under the settlement agreement. It is common ground that at no stage after the settlement agreement was signed did the Herberts approach USAR and request it to secure the removal of any such marketing.
• [16] Mr Malcolm Herbert stated in his affidavit in opposition to summary judgment that he would not have entered into the settlement agreement without Mr Sarin’s assurance that he would arrange for the marketing under the Hilton brand to be removed. He said he was not sure why the settlement agreement does not refer to this commitment, but he regarded it as essential. Mr Herbert did not explain why no reference was made to this alleged commitment until June 2021, seven months after the settlement agreement was signed. Nor does he attempt to reconcile this asserted defence with his earlier acknowledgement of having breached the settlement agreement through circumstances beyond his control.
• [17] Mr Herbert claimed in his affidavit that it proved difficult to secure the removal of the Hilton marketing and this was not finally achieved until May 2021. He claimed that he and Swiss-Bel representatives sought to persuade Hilton to remove its marketing “throughout March and April 2021”. He said that the process “was slow and bureaucratic” and it was “[o]nly after repeated approaches”, “trying to cajole Hilton into debranding”, that Hilton “slowly budge[d]”. However, the relevant email correspondence attached to Mr Herbert’s affidavit shows that these claims were seriously overstated. First, the relevant email correspondence spans the period from 30 March 2021 to 9 April 2021 and cannot justify Mr Herbert’s “throughout March and April” claim. Secondly, it is evident from the emails that Hilton was fully cooperative. Hilton did not need to be cajoled and there is no evidence of it being reluctant to budge. Thirdly, the claim that the removal of the Hilton marketing was not finally achieved until May 2021 is unsubstantiated. The email correspondence suggests that Hilton had authorised the change to Swiss-Bel by 9 April 2021.
• [18] Mr Herbert asserted that Swiss-Bel lost bookings to the value of more than $1 million as a result of the delay in removing the Hilton branding over the period from December 2020 to May 2021. The $1 million plus estimate was hearsay, said to be based on his discussion with “Swiss-Bel”. Mr Herbert stated that the consequence was that the Thackeray Trust “could not demonstrate to its lenders that [the property] would enjoy reliable income and cash flow upon opening because it could not accrue bookings”. He added that this “undermined our lender’s confidence” in the project and “very nearly” left completion of the project unfunded.
• [19] Mr Gavin Faull, a director of Swiss-Bel, provided an affidavit in support of the Herberts’ opposition to summary judgment. He was given a copy of Mr Herbert’s affidavit and asked to comment on the evidence that “a failure to remove” the Hilton marketing from various online booking platforms inhibited Swiss-Bel’s ability to obtain reservations in advance of the opening of the hotel. Mr Faull makes the obvious point that until Hilton marketing was removed from the online platforms, Swiss-Bel could not list the hotel on those sites. However, his affidavit provides no real support for Mr Herbert’s claims.
• [20] Mr Faull does not provide a date by which the Hilton marketing was removed, saying only that “[a]s far as I understand” this did not occur “until May 2021”. Mr Faull then states that during the month of June 2021, “approximately $40,000 worth of gross turnover was advanced-booked through the international online platforms”, noting, however, that payment would not be received until completion of the stay. Mr Faull goes on to suggest “[o]n one view, this would indicate that, for the six-[month] period December 2020 to May 2021, a total of $240,000 in gross turnover had been unavailable to the Hotel from the online platforms (at $40,000 a month)”. While not expressly adopting this scenario as his own view, he suggests that it could be conservative because June falls in the low season and, once “properly operational”, the hotel should achieve an average occupancy rate of 80 per cent and generate monthly gross turnover of around $250,000 (52 rooms at an average price of $200 per room per night x 30 x 80 per cent). He notes that hotel industry data indicates that 40 per cent of gross revenue can be expected through online bookings. Mr Faull says that “[o]n this basis”, around $600,000 of gross turnover was unavailable from online platforms during the six-month period December 2020 to May 2021 ($250,000 x 40 per cent = $100,000 per month x six = $600,000).
• [21] These projections are not tethered to the reality that the hotel was not completed and could not accommodate any guests (leaving aside the challenges being faced at that time by the hotel industry because of the COVID-19 pandemic and the associated travel restrictions). Mr Faull acknowledges this fundamental difficulty by concluding his affidavit with the following important qualification:

At present, the Hotel is not yet open. My comments above assume the Hotel would have been able to open and accommodate the booked stays, and therefore receive payment for the online bookings.

• [22] Mr Herbert filed a short further affidavit sworn on 23 July 2021, but this contains no admissible evidence other than that Swiss-Bel is entitled to a management fee (which he does not specify) and that the Herbert interests are entitled to receive the balance of all the income. We mention the concluding paragraph because, although it is inadmissible conjecture, it shows the claim then being advanced:
  6. Strangling forward bookings, I say, was a deliberate tactic by [USAR] and part of its broader strategy against the [Thackeray] Trust. As explained in my affidavit ... during 2020 USAR was aware that the Trust was refinancing in order [to] complete construction of the hotel. It actively sought to deter replacement financiers and/or undermine their confidence in the project.
• [23] Mr Sarin filed an affidavit in reply denying that he gave any assurance that he would ensure Hilton marketing was removed from online platforms. He said he was not asked to give any such assurance and he pointed out that Hilton marketing was within Hilton’s control, not USAR’s. Mr Sarin stated that the terms of the agreement were those set out in the written settlement agreement and there were no additional terms agreed orally. He said the only discussion about Hilton concerned USAR’s exposure to a liquidated damages claim by Hilton. This is why the settlement agreement required the Herberts to provide reasonable assistance to USAR to explain to Hilton why the property could not open as a Hilton Hotel. Mr Sarin produced his email correspondence with Hilton, commencing on the night of 10 December 2020, explaining why USAR had ultimately decided to agree to relinquish its rights under the agreement to lease. Hilton agreed not to enforce the liquidated damages provision and sent a termination agreement on 11 January 2021. Mr Sarin also denied Mr Herbert’s unsubstantiated assertion that USAR was deliberately “strangling forward bookings” and noted that this would be directly contrary to USAR’s interest in receiving payment under the settlement agreement. Mr Sarin observed that the hotel was still not operating at the date of his affidavit, 26 August 2021, and that Swiss-Bel’s most recent public announcement (on 19 August 2021) attributed the delays to COVID‑19 lockdowns and supply chain problems:

[Swiss-Bel] continues to drive its business in Australia and New Zealand - but the challenges can be overwhelming.

Now with the new lock down in New Zealand we are facing again tough times for our hospitality industry and additionally, we are facing the Sydney and Australian lock down.

This has already hit us and the industry so badly but my team and I will fight on.

...

[Swiss-Bel] Napier – opens soon – but we have had delays through problems with the supply chains.

• [24] Unusually, further affidavits were filed. On 10 September 2021, Mr O’Connor provided an affidavit addressing the issue of whether Mr Sarin had given the alleged verbal assurance about the Hilton marketing. He stated:

I recall that Mr Herbert asked Mr Sarin to remove the Hilton advertising. Mr Herbert wanted this to be done immediately as Hilton and the Sarin Group were still marketing the hotel which meant that [Swiss-Bel] was unable to market the hotel. Mr Herbert talked about this with me before the meeting and said that he needed to raise this with Mr Sarin. I recall that Mr Herbert told Mr Sarin that this was a problem because the hotel cannot be marketed by two different brands. Mr Sarin said that he would arrange for the marketing to be removed.

• [25] Mr Sarin provided a further affidavit dated 21 September 2021, one day after the hearing of the summary judgment application. This was to respond to a new loss thesis advanced on behalf of the Herberts during the course of the hearing. The new loss theory was based on bookings that may have been received by Hilton and which could affect the Herberts after the hotel was opened. Mr Sarin stated in this affidavit that the property was not available for online bookings under the Hilton brand at any time after August 2019 due to construction delays and uncertainty about the hotel’s opening date. Given the view the Associate Judge reached on the claimed set-off, he declined to read this affidavit.^[3] We mention it only because of its relevance to whether the Herberts should now be permitted to adduce more evidence advancing yet another loss theory.

High Court judgment

• [26] The application for summary judgment was heard on 20 September 2021 and the reserved decision was delivered on 5 October 2021. The Associate Judge concluded that the set-off defence was not reasonably arguable.^[4] Although he found it was arguable the claimed representation was made, he considered no arguable loss had been shown.^[5] The primary reason for this conclusion is set out in the following paragraph of the judgment:

[26] Given the Hotel has been unable to operate from December 2020, I consider [the Herberts’] calculation of loss based on income that the Hotel would have generated in the first six months of 2021 is flawed. The issue is not whether bookings could be made on internet booking sites, but whether those bookings could be turned into income (and ultimately into profit). There is no suggestion [USAR] was responsible for the Hotel not opening earlier than it did – indeed [Swiss-Bel] attributes the delay to “supply chains”. Mr Mahuta-Coyle advised the Hotel was at the moment awaiting an independent fire safety review.

• [27] The Associate Judge also noted that the Herberts had chosen not to provide any evidence of their costs with the result that no assessment could be made of any lost profits.^[6]
• [28] The Associate Judge rejected a modified submission advanced on behalf of the Herberts at the hearing concerning loss (referred to at [25] above):

[28] Mr Mahuta-Coyle developed a slightly different submission at the hearing. He submitted that the Court can be certain as to the nature of the misrepresentation relied on and the type of damage/loss asserted. He says [the Herberts] cannot give a final figure as to their loss as they do not know how many bookings Hilton took for the period after the Hotel will open before it was removed from the internet booking sites. In other words, [the Herberts] are unable to tell the Court what percentage of bookings were taken by Hilton for dates after the opening date. There may well have been forward bookings for after the eventual opening date which were lost to the new operator. Theoretically, it may be the case that such advance bookings exist. However, that is not the basis on which [the Herberts] have approached loss. I say that as the tenor of [the Herberts’] evidence is that once Hilton was removed from the internet booking sites, the Hotel received $40,000 worth of bookings for the first month. Further, the [Swiss-Bel] affidavit approaches loss on the basis of an assumed average occupancy rate of 80 per cent, not on actual forward bookings lost. In any event, if the Hotel enjoys full occupancy then no loss will occur. Mr Mahuta-Coyle’s alternative approach to loss is, in my view, too speculative and suffers from a focus on a loss of revenue rather than a loss of profit.

(Emphasis in original).

• [29] The Associate Judge concluded there was no reasonably arguable set-off arising out of the alleged pre-contractual misrepresentation:

[30] I do not accept there is a reasonably arguable set-off in respect of the alleged pre-contractual misrepresentation when the alleged delay in removing the Hilton branding had no consequences to [the Herberts] in terms of loss of profit. Any claim Hilton’s inaction/delay had a continuing effect after the Hotel actually opened is speculative and unquantified.

Application to adduce further evidence

The application

• [30] The Herberts apply to adduce further evidence on appeal to support a new loss thesis. This attempts to respond to the Associate Judge’s finding that “[t]here is no suggestion [USAR] was responsible for the Hotel not opening earlier than it did”. The Herberts now claim that if they had been able to achieve pre-bookings to the value of $600,000, they would have been able to borrow the funds necessary to complete the hotel earlier instead of having to wait for these funds to become available from related entities. They say this delay caused a loss of income from the hotel of approximately $2 million. They claim this further evidence could not, with reasonable diligence, have been provided to the High Court because the hotel was not complete at that stage. They claim there are exceptional and compelling circumstances that justify the admission of this evidence on appeal.
• [31] USAR opposes the application and has provided an affidavit from Mr Sarin in response in case the further evidence is admitted.

The proposed evidence

• [32] The proposed new evidence is an affidavit from each of Mr Malcolm Herbert and Mr Ian Smith, both sworn on 13 April 2022. Mr Smith is the principal of Far Corporate Services Ltd, a wholesale corporate advisory firm based in Wellington. He says he has assisted Mr Herbert and his family trusts to obtain refinance for the hotel although he does not specify over what period or provide any other details about this assistance. He was asked to provide his opinion as to whether the Herberts would have been able to obtain finance from pre-bookings. As to this, Mr Smith states:

If [the Herberts] had pre-bookings for the period from January to May 2021, I am confident I could have used them as an asset basis to obtain finance from a non-bank Lender, such as a high net worth individual. Our firm deals with many such private lenders. I believe it would have been possible for [the Herberts] to have obtained finance of approximately 70 percent of the value of these pre-bookings, as a loan to the hotel operating company with the pre-sales and personal guarantees.

• [33] Mr Smith does not go further than to state his belief that this was a possibility. He does not assess the likelihood of success or express any view about when the funds might have been available. Nor does he say anything about the likely cost of such funding.
• [34] Mr Herbert says in his further affidavit that the hotel opened on 14 December 2021. He says that if they had pre-bookings of $600,000, they could have borrowed $420,000 (70 per cent). He says the total cost to complete the hotel was $1,667,671 and if this additional funding had been available in June 2021, they could have completed the hotel in July, five months earlier than they did. He claims that the lost revenue for this five-month period was approximately $2 million.

Legal principles

• [35] Rule 45 of the Court of Appeal (Civil) Rules 2005 permits the Court to grant leave for the admission of further evidence on appeal. The requirements are that the evidence be fresh, credible and cogent. Evidence will not be regarded as fresh if it could, with reasonable diligence, have been produced at first instance. The strong public interest in ensuring finality in civil litigation and not wasting court resources, is accorded particular weight, including in summary judgment proceedings.^[7]

Assessment

• [36] The new evidence is not fresh in the required sense. The evidence is advanced in support of an entirely new loss thesis, being that if the Herberts had achieved $600,000 of pre-bookings for the period December 2020 to May 2021, they could have borrowed $420,000 additional funding in June 2021. This would have enabled them to complete and open the hotel in July 2021. While the hotel did not open until December 2021, there is no reason why evidence to support this thesis could not have been advanced before the Associate Judge. In particular, the Herberts could have adduced Mr Smith’s evidence to support the asserted prospect of borrowing $420,000 in June 2021. They could also have provided evidence of the likely consequent delay in completion of the hotel. By the time the application for summary judgment was heard in late September, the opening had already been delayed by some three months if this thesis was correct.
• [37] We also do not consider the evidence is credible or cogent. We have already drawn attention to the most obvious deficiencies in the evidence and explained why it is detached from reality. Further, Mr Smith does not say he could have sourced additional borrowing of $420,000 in June 2021 even if the supposed pre-bookings of $600,000 had existed. No “non-bank Lender, such as a high net worth individual” has apparently yet been found who is prepared to state in an affidavit that they would have lent these funds. Moreover, there is nothing other than Mr Herbert’s unsubstantiated assertion that the hotel would then have been completed and able to open one month later, in June 2021, notwithstanding the supply chain issues.
• [38] The new evidence is also not cogent for the further reasons developed below. In short, the asserted defence is not arguable in any event. We therefore decline the application to adduce the further evidence.

Appeal

The proper approach

• [39] It is well established that, when considering whether there is an arguable defence on an application for summary judgment, the Court is not required to accept uncritically evidence that is inherently lacking credibility, for example where it is inconsistent with contemporary documents or is inherently improbable.^[8] A robust and realistic approach may be taken where the circumstances warrant it.^[9] We bear these principles in mind when assessing the Herberts’ claim that they have a defence by way of set-off for loss suffered as a result of USAR’s alleged failure to secure the removal of Hilton’s marketing from online platforms.

Pre-contractual misrepresentation?

• [40] We raised with counsel at the hearing a fundamental issue that appears to have been overlooked. Even if one were to accept Mr Herbert’s evidence about the representation allegedly made by Mr Sarin, it would not qualify as an actionable pre-contractual misrepresentation that could be enforced as if it were a term of the settlement agreement.^[10] An actionable representation in this context is a representation of past or present fact that is false or misleading.^[11] Statements of intention are excluded. Even if Mr Sarin had stated that he would arrange for Hilton to remove its marketing, this is not a statement of present or past fact. At best, it is a statement of future intention (and dishonesty is not alleged). A misrepresentation must be distinguished from a contractual obligation. Unlike a contractual promise to perform an obligation by a specified date, there is no time to “perform” a representation. For these reasons, we consider the legal foundation for the pleaded defence by way of set-off is lacking.

Breach of collateral contract?

• [41] In order to meet this difficulty, Mr Mahuta-Coyle suggested at the hearing that there might have been a collateral contract. There are obvious problems with this, not least of which is that this was not pleaded or argued in the High Court, and it was not raised as a ground of appeal in this Court. In order to find there was arguably a collateral contract, there would need to be some evidence that the statement allegedly made by Mr Sarin was intended to have contractual effect, binding USAR. Secondly, there would need to be some indication that the parties intended it to operate as a collateral contract, and not simply as a term of the settlement agreement.^[12]
• [42] If this was truly an essential commitment from Mr Herbert’s perspective, intended to have contractual effect, one would have expected it to be recorded in the settlement agreement or in some other associated agreement with a date specified for performance. This is especially so given the terms of settlement were negotiated between commercial parties in the presence of their lawyers, and the documentation recording their agreement was prepared by the lawyers.^[13] There was no reference to the obligation contended for, either in the settlement agreement or anywhere else, despite the parties having turned their minds to the necessary engagement with Hilton (and provided for this in cl 11). It is significant that no one raised this allegedly essential contractual obligation with Mr Sarin or USAR’s lawyers at any time after the settlement agreement was entered into.
• [43] There is also no indication in the evidence that the parties intended to enter into any (collateral) agreement outside the settlement agreement. On the contrary, Mr Herbert said he was not sure why it was not recorded in the settlement agreement.
• [44] For these reasons, we do not consider there is any arguable basis for a finding there was a collateral contract even if the Herberts were permitted to raise this prospect for the first time during the hearing of the appeal.

Causation of loss?

• [45] If the removal of Hilton’s marketing from online platforms was so important to the Herberts, one would have expected them not only to include this in the settlement agreement, but to follow it up with USAR soon after the agreement was reached on 10 December 2020. Yet no approach was ever made to USAR. Instead Hilton was approached directly. Even then, this did not happen until late March 2021. Hilton’s cooperation was promptly achieved, with it authorising the removal by 9 April 2021. These facts raise major obstacles in terms of causation and failure to mitigate.
• [46] More fundamentally, the hotel was not finished and could not accommodate guests who might otherwise have made online bookings in the period December 2020 to May 2021. We agree with the Associate Judge that this is fatal to the cross-claim. The Herberts have not shown any arguable lost profit as a result of any failure by USAR to secure the removal of Hilton’s marketing from online platforms prior to April or May 2021. As noted, the hotel did not open until December 2021.

Equitable set-off?

• [47] Counsel were agreed that if the Herberts had shown an arguable basis for its claim and consequent loss, this would provide a defence to USAR’s claim by way of an equitable set-off. We are not confident this is right, in particular whether the Herbert’s cross-claim impeaches USAR’s claim for monies payable under the settlement agreement in return for the surrender of its rights under the agreement to lease.^[14] However, we need not determine the issue given our conclusion on the other issues.

Result

• [48] The application to adduce further evidence is declined.
• [49] The appeal is dismissed.
• [50] The appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Lawson Robinson, Napier for Appellants
Anthony Harper, Christchurch for Respondent

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^[1] USAR Napier Ltd v Herbert [2021] NZHC 2638 [Summary judgment].

^[2] The defendants were the appellants other than the Charles Street Trust. That Trust was not a defendant to the proceedings in which the interim injunction was sought.

^[3] Summary judgment, above n 1, at [29].

^[4] At [30].

^[5] At [26]–[30].

^[6] At [27].

^[7] Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 192 and 193, cited with approval in Paper Reclaim Ltd v Aotearoa International Ltd (Further Evidence) (No 1) [2006] NZSC 59, [2007] 2 NZLR 1 at [6]. See also Erceg v Balenia Ltd [2008] NZCA 535 at [15], citing Lawrence v Bank of New Zealand [2001] NZCA 375; (2001) 16 PRNZ 207 (CA).

^[8] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26], citing Eng Mee Young v Letchumanan [1980] AC 331 (PC) at 341.

^[9] Krukziener v Hanover Finance Ltd, above n 8, at [26], citing Bilbie Dymock Corp Ltd v Patel [1987] NZCA 193; (1987) 1 PRNZ 84 (CA).

^[10] Contract and Commercial Law Act 2017, s 35.

^[11] Ware v Johnson [1983] NZHC 155; [1984] 2 NZLR 518 (HC) at 537; and New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569 (HC) at 593.

^[12] Edwin Peel Treitel The Law of Contract (15th ed, Sweet & Maxwell, London, 2020) at 9-064, citing Heilbut, Symons & Co v Buckleton [1913] AC 30 (HL) at 47. Cited with approval in Industrial Steel & Plant Ltd v Smith [1980] 1 NZLR 545 (CA) at 556–557.

^[13] Krukziener v Hanover Finance Ltd, above n 8, at [35], citing Air New Zealand Ltd v Nippon Credit Bank Ltd [1997] 1 NZLR 218 (CA) at 225.

^[14] Grant v NZNC Ltd [1988] NZCA 135; [1989] 1 NZLR 8 (CA) at 11–13.