Michaels and Druker as Trustees of the Druker-Michaels Family Trust v New Kadampa Tradition-International Kadampa Buddhist Union HC Wellington CIV-2011-485-386 [2011] NZHC 1370 (15 August 2011)

Last Updated: 6 November 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2011-485-386}

BETWEEN ANDREW GORDON MICHAELS AND AVRIL SYSAN DRUKER AS TRUSTEES OF THE DRUKER-MICHAELS FAMILY TRUST

Plaintiff

AND NEW KADAMPA TRADITION- INTERNATIONAL KADAMPA BUDDHIST UNION

Defendant

Hearing: 25 July 2011

(Heard at Wellington)

Counsel: H. Rennie QC and R. Cahn - Counsel for Plaintiff

No appearance for the Defendant

Judgment: 15 August 2011 at 4:00 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment was delivered by Associate Judge D.I. Gendall on 15 August 2011 at

4.00 pm under r 11.5 of the High Court Rules.

_{Solicitors: Izard Weston, Solicitors, PO Box 5348, Wellington}

AG MICHAELS AND AS DRUKER AS TRUSTEES OF THE DRUKER-MICHAELS FAMILY TRUST V NEW KADAMPA TRADITION-INTERNATIONAL KADAMPA BUDDHIST UNION HC WN CIV-2011-485-

386 15 August 2011

Introduction

[1] The plaintiffs, the trustees of the Druker-Michaels Family Trust on 9 May

2011 successfully obtained summary judgment as to liability against the defendants, the New Kadampa Tradition – International Kadampa Buddhist Union, for repudiation of a sale and purchase agreement between the parties. In granting summary judgment on 9 May 2011, I adjourned the hearing of the issue of quantum until 25 July 2011. This judgment deals with that issue of quantum.

[2] The plaintiffs seek damages for losses caused by the actions of the defendant as purchaser in repudiating the Agreement for Sale and Purchase, interest and costs. No opposition from the defendant was filed or served with respect to the summary judgment application, and no application has been made since for leave to defend the claim for quantum. There was no appearance on behalf of the defendant on the hearing of this quantum claim.

Background

[3] The plaintiffs own a property known as Highden, located in Fielding (Highden). Highden comprises 14.06ha and includes what was a large stately home in a rural setting. Most of that area, it appears, is taken up by native bush which has a QEII Covenant over it. It has, relatively large developed grounds which are used for events. Highden has a long history in the region. It has been used previously as a novitiate by the Society of Mary, an alternative medicine centre as well as a school for international students with learning or personality difficulties. As I understand it, the property is currently operated as a wedding and entertainment venue.

[4] The defendant is a Buddhist organisation incorporated in the United Kingdom and registered in New Zealand. The parties were introduced by Stephen Kenneth Williams (Mr Williams), a Palmerston North real estate agent. The defendant’s agent in New Zealand Kelsang Richog, (Ms Richog), had approached Mr Williams earlier and advised him that the defendant was looking to buy a suitable property in New Zealand. Mr Williams considered that Highden would be ideal. At that time, however, Highden was not on the market. Mr Williams approached the plaintiffs through their solicitor. Following that approach, the plaintiffs notified Mr Williams that they would consider selling. On 29 October 2009 the plaintiffs offered

Highden for sale to the defendant at a price of $3,600,000 plus GST. The defendant sought advice, acquired a building report and a LIM, and engaged solicitors in New Zealand. The defendant counter-offered $2,900,000.00 on 25 February 2010. Following further negotiations, the parties agreed on a price for Highden of

$3,000,000.00 plus GST.

[5] On 22 March 2010 the parties entered into the Agreement for Sale and Purchase for Highden (the Agreement). As the defendant is incorporated overseas, the Agreement was subject to the consent of the Overseas Investment Office (OIO). After earlier extending the time period for this consent, on 2 August 2010 the defendant advised the plaintiffs that it had withdrawn its application to the OIO for consent and that it did not intend to proceed with the purchase Agreement. On 21

December 2010 the plaintiffs elected to accept the repudiation and sought to cancel the Agreement.

[6] The plaintiffs still own Highden.

Summary Judgment Principles

[7] This decision as to quantum is brought by way of summary judgment. By r

12.2(1) this Court may give judgment against the defendant if the plaintiff satisfies me that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The principles of summary judgment are succinctly summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26]:

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

The Plaintiffs’ Submissions and My Decision

[8] Turning now to the substantive quantum claim, Mr Rennie QC for the plaintiffs, submitted that damages are sought for the following losses:

(a) The difference between the purchase price in the Agreement and the market price at the date of repudiation;

(b) Marketing costs incurred in the plaintiffs’ attempt to sell Highden subsequent to the defendant’s repudiation ($7,100);

(c) Interest paid by the plaintiffs on their mortgage for Highden between the settlement date and the date of repudiation ($6,923);

(d) Interest on the unpaid purchase price at the rate under the Agreement between the date of settlement and repudiation ($69,041.00);

(e) Interest from the date of cancellation under a relevant Order under s 87 of the Judicature Act 1908 (Until 1 July 2011, interest at 8.4 per cent being $132,923.00 and, from 1 July 2011, interest at 5 per cent, that amount still to be particularised following the hearing);

(f) Costs of $34,815.00 incurred through failed performance (the plaintiffs state they had to sell a house at a loss in Auckland);

(g) Costs to amend the plaintiffs’ mortgage ($5,500.00);

(h) Legal fees presumably on the Auckland house sale ($6,885.00).

[9] Mr Rennie’s starting point was that authority for damages lies in s 16A of the

Judicature Act 1908. Section 16A provides:

Where the Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance.

[10] In the present case the Agreement was cancelled by the plaintiffs due to the

defendant’s acts of repudiation. Specific performance is therefore not in issue.

Damages on normal common law principles must therefore follow – (on this see also clause 9.4(3) of the Agreement).

[11] The principles with regard to damages for breach of contract are well settled. Cooke J in Stirling v Poulgrain [1980] 2 NZLR 402 (CA) summarised them thus at

419:

The starting point and basic principle indicated by high authority is that the injured party is to be put as nearly as possible into the situation that he would have occupied if the contract had been performed: British Westinghouse Electric Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, 688-

689, per Viscount Haldane LC; C Czarnikow Ltd v Koufos [1969] 1 AC 350, 400; [1967] 3 All ER 686, 701, per Lord Morris, 414; 710, per Lord Pearce, 420; 714, per Lord Upjohn. In other words, the initial aim is restitutio in integrum as nearly as possible: The Despina R, The Folias [1979] 1 All ER 421, 429; [1978] 3 WLR

804, 812, per Lord Wilberforce. Various circumstances are recognised as justifying a departure in favour of the defendant from the full rigour of that principle. In particular a plaintiff must normally show that the damages are of a kind within the reasonable contemplation of the parties; and there is no reason why that requirement should not apply to this case. Also, of course, a plaintiff must act reasonably to mitigate his damages. But in any novel case, as this is, I respectfully regard it as most important to keep the basic principle firmly in mind. It is a principle that lies at the heart of the decisions of the House of Lords establishing in the present decade new rules for the calculation of damages in cases where there may be a choice of currency.

[12] The date for assessment of damages, as a general rule, is the date of breach: Jackson v Royal Bank of Scotland plc [2005] UKHL 3, [2005] 1 WLR 377. In the present case that date might be said to be 2 August 2010 when the defendant withdrew its OIO application. The plaintiffs contend however that here, the date of repudiation is the appropriate date for the assessment of damages and this is 21

December 2010. Mr Rennie’s authority supporting that contention is Souster v Epson Plumbing Contractors Ltd [1974] 2 NZLR 515 at 521. That case, however, was concerned with a contract which was still on foot as the contract there had not been cancelled. In such a case, damages will be appropriate until such time as specific performance is refused. However, when a contract is cancelled by a party, that is a different matter. Nevertheless, some authority for the plaintiffs’ position can be found in Johnson v Agnew [1980] AC 367 (HL) (see also Williams v Kirk [1988] 1 NZLR 452 (CA) at 463), where Lord Wilberforce comments at 401:

In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost.

[13] Accordingly, I accept here that damages should be assessed as at the date when the Agreement was cancelled by the plaintiffs being 21 December 2010.

[14] I turn now to consider the heads of loss claimed here by the plaintiffs as outlined at [8] above.

_{(A) Difference Between Purchase Price and Market Value}

[15] As to this first loss claimed, the purchase price provided for in the Agreement as I have noted, was $3,000,000.00.

[16] Mr Paul Henricus van Velthooven (Mr van Velthooven), the plaintiffs’ expert

registered valuer, has provided an affidavit valuing Highden at $1,920,000.00 as at

21 December 2010. Mr van Velthooven stated in his affidavit and in his oral evidence before me that the market at December 2010 was at a low ebb and that there was, and remains, “very little appetite for properties of this type”. He gave a range of $1,000,000.00 to $3,000,000.00 as being the “tight” range in which properties of this type sell.

[17] Mr Williams’ evidence, both in his affidavit and his oral evidence before the Court, is also to the effect that selling Highden is a particularly difficult exercise and that conditions have worsened since the defendant first expressed its interest in 2009. There is nothing in the evidence adduced by the plaintiff which leads me to question either witness’s evidence. It is persuasive and, accordingly, loss for the difference between the contract price and the market price of the property being $1,080,000.00 in my view is properly claimable here.

_{(B) Marketing Costs}

[18] With regard to the second loss claimed, the marketing costs incurred by the plaintiffs in their subsequent attempts to sell the property, I am satisfied that these costs should be awarded here. Halsbury’s Laws of England (4th ed, reissue, 1998) vol 12(1) Damages at [1059] notes: (references omitted)

If the vendor has resold the land at a lower price within a reasonable time of the breach the difference in price as well as the expenses occasioned by the resale may be recovered as damages naturally resulting from the breach.

[19] There is no reason in principle in my view why, despite valid attempts to re- sell, if the property is not resold, those expenses should not otherwise be recovered. They would have been recoverable under clause 9.4(3)(b) of the Agreement had a sale eventuated. I am satisfied that those marketing costs, properly incurred but which are now effectively lost, are also recoverable. The marketing costs total

$7,100.00 and this amount, as I see the position, is reasonable here.

_{(C) Mortgage Interest}

[20] With regard to the third claim, however, the interest paid by the plaintiffs on their mortgage, in my view, this is not properly claimable here. Generally, a claimant may recover either loss of profits or wasted expenditure, but not both: Herbison v Papakura Video Ltd (No 2) [1987] 2 NZLR 720 (HC); Cycle Manufacturing Co v Williamson [1993] 1 NZLR 454 (HC). Accordingly, in the present case, the plaintiffs have elected to recover the loss of bargain associated with the diminution in the value of the property. Given also that the present application is one for summary judgment, it would be inappropriate to then award the plaintiffs damages associated with their attempts to keep the contract on foot, that is, their ongoing mortgage payments. This claim is disallowed.

_{(D) Interest on Unpaid Purchase Price}

[21] With regard to the fourth loss claimed, interest on the purchase funds not made available under the Agreement, in my view this is also not properly claimable. As noted by Somers J in Williams v Kirk at 462:

The vendor had cancelled the contract. He did not and could not claim the purchase price from the purchaser for it was no longer due. There was no promised sum payable on which interest could accrue.

[22] No interest may therefore be claimed on the purchase price under the default interest provision in the Agreement. Accordingly, the only sum on which interest could accrue is the quantum assessed for damages as I note below.

_{(E) Interest on Property Value Reduction}

[23] With regard to the fifth head of loss claimed, I am satisfied that interest should be so ordered on the diminution in value of the property from the date of

cancellation, at the appropriate rates under the Judicature Act 1908. The plaintiffs were out of pocket for that amount and are entitled to interest on it. A calculation of these amounts is to be provided to the Court by memorandum from the plaintiffs filed within 15 working days of this judgment.

_{(F) Costs on Auckland Property Default by Plaintiff Vendor}

[24] With regard to the sixth claim, costs incurred though the plaintiffs’ inability to continue to finance their Auckland house, I consider that loss is also not properly claimable here. The evidence of Mr Michaels, the first named plaintiff, was that once they committed to the sale to the defendant, the plaintiffs had to cancel all forward bookings for functions at the property and refund all deposit monies. Highden sat unused pending settlement. Mr Michael says that due to:

i. The defendant’s New Zealand agent requesting photos for the defendant’s upcoming newsletter;

ii. The defendant’s New Zealand agent communicating with the Historic Places Trust regarding the conservation plan, which was required for the Overseas Investment Office consent; and

iii. The fact that Highden had been purchased by overseas purchasers in the past without issue,

the plaintiffs had no reason to believe that the defendant would withdraw its OIO application. Once the defendant withdrew this application, and attempts to resolve the situation were unsuccessful, the plaintiffs say they endeavoured to resurrect their conference and events business while still attempting to sell Highden. Mr Michaels deposes as to the difficulty in obtaining bookings as all momentum with the business was lost and he claims its reputation was damaged. Mr Michaels contends that Highden suffered an operating loss from June 2010 to June 2011 of $107,053.00. The alleged drain on the plaintiffs funds, Mr Michaels alleges, caused the plaintiffs to sell the property which they owned in Auckland at a small loss. He said that they had to put the house up for auction and take the best offer. He continued: (at paragraph 22.6 of his brief)

We have accepted an unconditional offer to sell the property for $980,000. We paid

$957,000 and spent approx. $15,000 on improvements. After marketing and commission costs of approx. $35,000, we will have lost approximately [$34,815, as amended by Mr Michaels’s oral evidence].

Although some sympathy must be expressed for the position in which the plaintiffs found themselves and their business following the defendant’s default under the Agreement, it is clear the plaintiffs still had the property and the business and these alleged losses could not be said for summary judgment purposes to be consequential loss within the reasonable contemplation of the parties and thus recoverable here. They are disallowed.

_{(G) Costs to Amend Mortgage Terms}

[25] Mr Michaels also records that as a result of the defendant’s default here, the plaintiffs incurred costs of $5,500.00 in having to amend the terms of their mortgage for the Auckland property on two occasions as well as extra legal fees of $6,885.00 associated with the sale of that property.

[26] There is a reasonable argument, in my view, that, on the evidence of Mr Michaels, the defendant’s failure to perform was a material factor in that loss suffered by the plaintiffs and that they did not, on the evidence before me, act unreasonably following the defendant’s failed performance: see Attorney-General v Gilbert [2002] 2 NZLR 342 at [64]. However, that is not the end of the matter. The damage claimed must be sufficiently linked to the breach to merit recovery “in all the circumstances”: McElroy Milne v Commercial Electronics Ltd [1993] 1 NZLR

39 at 41; Attorney-General v Gilbert [2002] 2 NZLR 342 at [96]. The Court of Appeal in Gilbert, considering the issue of remoteness with regard to an employment contract, said that (at [96]):

Loss of the type suffered will usually be sufficiently linked to the breach if within the contemplation of the parties as a not unlikely consequence of breach.

[27] Where a loss is not within the reasonable contemplation of the parties, barring special knowledge on the part of the defendant, a defendant will not be liable for that loss. In the present case there is no evidence of any special knowledge. On the present summary judgment application, it could not be said that the various losses claimed in the form of costs associated with amending the mortgage terms, selling the Auckland property, and lost profits on that further property said to be

suffered as a result of inability to be able to resurrect the plaintiffs’ business, were sufficiently linked to the breach. Accordingly, those losses are not recoverable.

Conclusion

[28] For the reasons outlined above the plaintiffs’ present summary judgment

application as to quantum succeeds in its major part.

[29] Orders are now made by way of summary judgment against the defendant in favour of the plaintiffs as follows:

(a) An order is made for payment of $1,080,000.00 by the defendant representing the difference between the purchase price under the Agreement and the market value of the property at the date of cancellation; and

(b) An order is made for payment by the defendant of $7,100.00 representing the marketing costs incurred in the plaintiffs’ subsequent unsuccessful attempt to sell Highden; and

(c) An order is made for payment by the defendant of amounts by way of interest to be determined following memoranda to be filed by the plaintiff (within 15 working days of the date of this judgment) such interest to be calculated on the $1,080,000.00 diminution in value of the property from 21 December 2010 the date of cancellation of the Agreement.

[30] In other respects the orders sought by the plaintiffs in their current summary judgment application are declined. If the plaintiffs wish to pursue these claims by way of ordinary action they may advise the Court accordingly by memorandum and seek appropriate directions for hearing of these matters.

[31] The plaintiffs also seek costs. I see no reason why costs should not follow the event in the usual way. The plaintiff is entitled to costs here on a 2B basis

_{together with disbursements as fixed by the Registrar.}

Associate Judge D.I. Gendall