Carr v Gallaway Cook Allan [2016] NZHC 2065, 1 September 2016
- Court
- High Court
- Judgment
- 1 September 2016
- Neutral
- [2016] NZHC 2065
Areas of law
Judgment analysis
AI-generated summary
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Facts
The litigation arose from a failed property transaction in 2007 for a large dairy farm known as Big Sky Farm (BSF) and other associated assets. The plaintiffs, Mr. Carr and his trust, had entered into an Amended Settlement Agreement (ASA) on 16 May 2007 to purchase the assets from Mr. Carr's former joint venture partners, the Humphries' interests. The ASA was intended to resolve ongoing disputes between the parties. The defendant law firm, GCA, acted for the plaintiffs. Settlement was scheduled for 4 pm on 31 May 2007, with time being of the essence. GCA failed to complete settlement by the stipulated time, and the ASA was validly cancelled by the vendors at 6:05 pm that day. GCA conceded liability for negligence and breach of contract shortly before the trial commenced. The hearing was therefore concerned only with the quantum of damages payable to the plaintiffs.
Held
- The market value of a large, unique rural property like BSF is most appropriately determined by reference to the actual sale price achieved in a subsequent transaction (here, the Harvard sale), where evidence shows market conditions were comparable to the valuation date, as this provides a more reliable measure than expert valuations based on incorrect or contentious assumptions.
- Where a plaintiff possesses unique skills, knowledge, and personal arrangements (such as Mr. Carr's expertise with the Sowburn water race and the CWA) that would allow them to generate value from an asset above the 'average efficient' market level, and these advantages were known to the negligent defendant, an uplift on the standard market value measure of damages is appropriate to properly compensate the plaintiff for their actual loss. This special value can be quantified by an expert valuation that specifically incorporates the plaintiff's unique circumstances.
- A claim for damages based on a theoretical 'investment value' calculated by capitalising a single year's budgeted net operating surplus (EBITDA) is not an appropriate measure where the budget's inputs are speculative and the calculation fails to account for critical costs, such as the interest on 100% debt financing required for the acquisition.
- The costs incurred in a prior arbitration between the same parties on the same issue, which was rendered a nullity by a defective agreement, are recoverable as damages in a subsequent court proceeding because the defendant's original negligence was the root cause of the need for the dispute resolution, and the nullity of the arbitration meant there was no other forum in which to seek a costs award.
- Interest on damages should run from the date of breach, even during a prolonged period of delay caused by a failed arbitration, because the defendant's failure to admit liability was the primary cause of the delay and the defendant had the use of the funds throughout that period.
Orders
Judgment for the plaintiffs for $9,532,842 plus interest. The plaintiffs are awarded damages for the lost value of BSF (uplifted to reflect its value to Mr. Carr), other lost assets, and certain consequential costs. This total is reduced by liabilities the plaintiffs did not have to incur, the defendant's successful counterclaim for misapplied funds, and the plaintiffs' share of the arbitrator's costs. Costs are reserved.
Key passages4
In contract and in tort, the successful plaintiff is entitled to be placed in the position in which he or she would have been had the contract been performed, or the duty of care not breached.
“In contract and in tort, the successful plaintiff is entitled to be placed in the position in which he or she would have been had the contract been performed, or the duty of care not breached.”
The rule that damages are assessed at the date of breach is not universal and yields to the Court's power to fix another date in the interests of justice.
“It is not a universal rule. It yields to the Court’s power in the interests of justice to fix such other date as may be appropriate in all the circumstances.”
A plaintiff must act reasonably to mitigate their loss, with the test of reasonableness being judged based on the circumstances at the time, not with hindsight.
“Plaintiffs who are victims of a tort or breach of contract must respond reasonably to the defendant’s wrong. They must act to keep the damages down as far as is reasonable in all the circumstances. … The plaintiff’s response to the defendant’s wrong is judged, not in hindsight, but according to the circumstances as they appeared at the time.”
When interpreting a contract, the court must ascertain what a reasonable and properly informed third party would consider the parties intended the words to mean, looking at the text in its commercial and factual context.
“The necessary inquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. To be properly informed the court must be aware of the commercial or other context in which the contract was made and of all the facts and circumstances known to and likely to be operating on the parties' minds.”
Cases mentioned in judgment
Legislation mentioned
- High Court Rules, Rule 11.5
- Resource Management Act 1991, s 124, s 104(3)
- Arbitration Act
- Judicature Act 1908, s 87(1)
- Evidence Act 2006, s 4, s 25