IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-2838
[2020] NZHC 328	

BETWEEN	PVG SECURITIES TRUSTEE LIMITED
Plaintiff	
AND	100 INVESTMENTS LIMITED
Defendant	

Hearing:	14 February 2020	
Appearances:	W N Fotherby for Plaintiff P Michalik for Defendant	
Judgment:	28 February 2020	

JUDGMENT OF HINTON J
[Application to Enforce Undertaking as to Damages]

This judgment was delivered by me on 28 February 2020 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Solicitors/Counsel:
Meredith Connell, Auckland
Paul Michalik, Barrister, Wellington

PVG SECURITIES TRUSTEE LIMITED v 100 INVESTMENTS LIMITED [2020] NZHC 328 [28 February
2020]

Introduction

[1]	100 Investments is seeking to enforce an undertaking as to damages provided by PVG on an interim injunction dated 21 December 2018, which restrained
$1,620,000 of an insurance pay-out otherwise payable to 100 Investments. 1 PVG was claiming it was entitled to that part of the insurance pay-out, but I dismissed their claim by judgment of 31 July 2019.2

[2]	100 Investments says that at the date of the injunction, and PVG’s undertaking, it owed some $825,000 to Property Funding Securities Limited (PFSL), which it would have repaid using the restrained funds had they not been restrained. It says it therefore had to pay interest to PFSL for 218 days, totalling nearly $47,000. 100 Investments says it was also required to extend its loan facility with PFSL when the loan term came to an end on 23 April 2018, causing additional costs of about $28,000. This produces a total claim for costs associated with servicing the PFSL loan facility of about $75,000.

[3]	Secondly, 100 Investments says that the balance of the restrained sum, being
$795,000 ($1,620,000 less $825,000), would have been placed on interest-bearing deposit. It therefore also claims “a reasonable sum of interest” in respect of the investment opportunity lost, identifying this as the “expectation loss” 100 Investments has suffered from being held out of money.

[4]	On the second claim, 100 Investments invites me to calculate “reasonable interest” as if awarding interest on a money claim determined on 26 December 2018, on which damages were paid on 31 July 2019, in terms of the Interest on Money Claims Act 2016 (the Interest Act). 100 Investments says this approach fairly reflects the amount a prudent investor could have obtained by placing their money in the market during the period in question.

1	PVG Securities Trustee Ltd v 100 Investments Ltd (Minute of Downs J) HC Auckland CIV-2018- 404-2838, 21 December 2018, referring to the Judge’s direction, communicated by email, at 3:05 pm that afternoon.
2	PVG Securities Trustee Ltd v 100 Investments Ltd [2019] NZHC 1847, (2019) 20 NZCPR 280.

[5]	Applying the formula applicable under the Interest Act for the 218-day period from 26 January 2018 to 31 July 2019 inclusive, 100 Investments says it would have received interest of $15,943.81 net of tax on the $795,000 balance of the restrained sum.3

[6]	From this has to be deducted interest received of about $6,260 because during the same period the restrained funds were on interest-bearing trust account daily deposit in terms of the Court order.

[7]	PVG opposes the application, saying any losses sustained by 100 investments are not a consequence of the injunction having been granted and, even if they are, they were not reasonably foreseeable when the undertaking was given.

Background

[8]	The background to the proceeding and the history of the wider dispute is set out in my July 2019 judgment.4

[9]	At  the  time  PVG  secured  the  restraint   of   funds,   Mr   Michalik   for 100 Investments, opposing the injunction application, stated in a memorandum dated 21 December 2018:

[25]  [The property] is a valuable central Christchurch section … Certainly, it is mortgaged, like most property … A scan of the relevant loan facility agreement is also attached … Counsel notes that the amount advanced is in the order of about $800,000.

[…]

[30]	While [counsel for PVG] submits there is a lack of any prejudice to 100 Investments [in granting the injunction], that is simply not the case. It is significantly and unjustifiably prejudicial to any party to have $1.6 million of their own funds restrained …

[31]	The loan facility agreement is to be repaid six months from the advance in October 2018, and will fall due in April 2019. It would be clear prejudice to 100 not to have its own funds available and unfrozen to repay that loan when due …

3	It has used the Internet site calculator established and maintained for purposes of the Interest Act under s 13.
4	Above n 1, at [1]-[24].

[10]	As a result of the ruling of Downs J, on 26 December 2018 $1,330,000 of the insurance pay-out was paid to 100 Investments, while the balance (the restrained sum of $1,620,000) was deposited by 100 Investments’ solicitors in an interest-bearing trust account daily deposit, pursuant to the interim injunction.

[11]	In a post-injunction affidavit dated 23 January 2019 Mr Hide referred for the first time to an additional loan made by his family trust:

[15]	[The property] is a valuable central Christchurch section …

[16]	The land is subject to a mortgage. The mortgage secures a term loan facility, for a six month term advance of $825,000. The term of the loan expires on 23 April 2019. …

[17]	100 wishes to be free to be able to use the [insurance pay-out] to discharge the term loan when it falls due. It is significant prejudice to 100 to have $1.62 million of these proceeds restrained in its solicitors’ trust account, and unavailable for this use.

[18]	Discharge of the term loan will leave the land unencumbered, at which point 100 will have approximately $1.5 million to $2 million equity.

[19]	The present restraining order … also [puts 100 Investments in breach of undertakings it had given its litigation funder.]

[20]	In December 2015 my family trust … advanced approximately
$700,000.00 to 100 to facilitate the purchase of the [property]. These funds were sourced from a private investor … and are now overdue for payment and accruing interest of the rate of 20% per annum.

[12]	In a subsequent affidavit of 8 November 2019, Mr Hide said that funding for the purchase of the property to which the insurance proceeds related came from both the loan from PFSL and an advance from a family trust, of which Mr Hide and his wife are co-trustees. Mr Hide said the trust had borrowed a sum of $700,000 from Mrs Hide’s elderly parents at an interest rate of 20 per cent per annum and the “advance to 100 was treated as if it were on the same  terms  as  the  loan”  from  Mrs Hide’s parents. He said the loans were “repeatedly rolled over” at the same interest rate such that by the time the insurance pay-out became available the trust owed Mrs Hide’s parents, and 100 Investments owed the trust, $1,309,600. This included outstanding principal and compounded interest, with interest continuing to accrue.

[13]	Documentation to support the existence and terms of the loan from Mrs Hide’s parents to the trust is available, but there are no documents supporting any advance by the trust to 100 Investments.

[14]	Mr Hide’s evidence is that it was not realistically possible to pay all of 100 Investment’s debts with the unrestrained amount available. Given also the costs associated with funding 100 Investments’ defence of the claim brought by PVG, and the associated litigation risk, Mr Hide says he took the decision not to repay the PFSL debt. He infers that the unrestrained funds were applied towards the trust debt.

Applicable Principles

[15]	The parties are agreed that damages are to be assessed on the contractual measure, as if:5

… the undertaking had been a contract between the plaintiff and the defendant, that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction.

[16]	The obtaining of the interim injunction amounting, effectively, to a breach of the sole term of this ‘nominal’ contract, damages fall to be assessed on ordinary contract principles, the Court’s objective being to ensure that:6
… the defendant is compensated for any loss he may have suffered by being temporarily prevented from doing what he was entitled to do.

[17]	This, the parties are generally agreed, is to be achieved by the application of ordinary principles of contractual damages. Counsel have provided an extensive summary of these principles in submissions; traversing the basic measure (which   Mr Michalik referred to using the Latinism restitutio in integrum)7 as well as the

5	Hoffmann-La Roche v Secretary of State for Trade and Industry [1974] 2 All ER 1128 at 1150 at 1150(f)-(h) per Lord Diplock.
6	At 1151 per Lord Diplock.
7	Counsel referred to Burrows, Finn, and Todd Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at [21.2.1].

concepts of expectation losses,8 remoteness,9 and the wronged party’s duty to mitigate.10

[18]	Because, ultimately, I have made factual findings that render the detailed consideration of these principles unnecessary, I do not need to consider the case law cited by the parties further. It is enough to emphasise, as Gault J did in Quadling v Bambury,11 that it is for the party making the claim for damages to prove its losses.

Submissions

[19]	For 100 Investments, Mr Michalik submits that, in entering into the nominal ‘contract’ – that is, in obtaining the injunction – PVG would have contemplated that it was preventing 100 Investments from using the restrained funds to undertake ordinary commercial activities. A reasonable person in PVG’s position would have understood these activities as including, inter alia, making interest-bearing investments and paying off outstanding debts to avoid further interest and facilities charges. The damages claimed by 100 Investments arise from being unable to engage in these same activities. Accordingly, 100 Investments submits, these losses plainly sound in damages, being a natural, ordinary, and foreseeable consequence of the restraint.

[20]	More particularly, counsel submits that “it is a commonplace of commercial life that a company is funded by debt”, and therefore it is a natural consequence of withholding a large sum from a company that it will be deprived of an opportunity to employ those funds to repay debt, giving rise to damages in the form of additional interest costs.12 Similarly, counsel submits, investment is “a perfectly normal use of” a large sum of money received at once.

8	At [21.2.1]-[21.2.2]
9	Counsel referred to Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145; Bonz Group (Pty) Ltd v Cooke HC Christchurch CP302/93, 10 December 1998; Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249.
10 Counsel referred to Andrew Burrows Remedies for Torts, Breach of Contract, and Equitable  Wrongs (Oxford University Press, Oxford, 2019) at 84-85; British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689.
11 Quadling v Bambury (1991) 3 PRNZ 440 (HC) at 443; cited Bonz Group (Pty) Ltd v Cooke HC Christchurch CP302/93, above n 10, affirmed (2000) 9 TCLR 374 (CA). In the Court of Appeal, Blanchard J referred to Air Express, above n 10, and Hoffman-La Roche, above n 6, with approval.
12 Counsel referred to NZI v Harris [1990] 1 NZLR 10 (CA) at 16-17.

[21]	Counsel for PVG emphasises that it is for 100 Investments, as the party making a claim, to prove their loss. Accordingly, it is for 100 Investments to show that it was in fact unable as a consequence of the injunction to repay the mortgage.13 He says also there is no presumption that 100 Investments would, if the restrained sum had been available, have obtained a return equal to that produced by the Interest Act formula. In any case he notes the statutory basis for recovery of interest on damages has been held to be separate from common law claims for interest as damages.14

[22]	PVG further says it is for 100 Investments to establish the loss claimed on a but-for basis, and also establish that the loss is not too remote. On the evidence provided, counsel submits, the injunction did not cause the damages claimed. PVG says the effect of Mr Hide’s evidence is that 100 Investments received considerably more funds than were necessary to pay off the loan from PFSL but chose not to do so. It instead elected to pay that money to Mr Hide’s family trust, which was the proximate cause of the continuing indebtedness to PFSL. Both this intervening cause, and, alternatively, 100 Investments’ failure to mitigate any losses, mean that 100 Investments should receive no damages for any loss.15

[23]	Additionally, in terms of remoteness, PVG submits it was not aware of any debt owed by 100 Investments aside from the PFSL loan at the time it sought the injunction. PVG could not have known of other liabilities until they were deposed to by Mr Hide on 23 January 2019.

[24]	Finally, PVG says it is not necessarily a ‘commercial commonplace’, contrary to what 100 Investments says, that companies are wholly funded by debt: companies having a wide variety of available strategies for operating.16 Any given ‘contracting’ party’s exact debt structures are, in terms of the contractual remoteness principle established following Hadley v Baxendale,17 a special circumstance that must be

13 Counsel referred to Air Express Ltd, above n 9, at 286.
14 Counsel referred to Clarkson v Whangamata Metal Supplies Ltd [2007] NZCA 590, [2008] 3  NZLR 31 at [22]-[24].
15 Counsel referred to Andrew Burrows Remedies for Torts, Breach of Contract, and Equitable  Wrongs (Oxford University Press, Oxford, 2019) at 84-85; British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689.
16 Counsel referred to Clarkson v Whangamata Metal Supplies Ltd, above n 15.
17 Above n 10.

known and communicated before losses attributable to that circumstance will give rise to damages.18

[25]	In reply, Mr Michalik accepts that 100 Investments was subject to a duty to mitigate, but submits that this did not oblige 100 Investments to structure its affairs to best benefit PVG. Rather, 100 Investments was obliged merely not to act unreasonably to increase the damages burden.19 As it is, counsel submits, Mr Hide has accounted for why 100 Investments did not use the unrestrained funds to pay its debt to PFSL but rather prioritised repayment of its costliest debt. This, in terms of mitigation, was conservative and reasonable.

Analysis

Claim re PFSL debt

[26]	I tend to agree with Mr Michalik that as a general rule it would be within commercial contracting parties’ reasonable contemplation that, if one of them were held out of money, debt funding costs might be incurred, such that actual knowledge would not have to be proven in establishing foreseeability.

[27]	However, I doubt it was within the reasonable contemplation of parties in these circumstances that the PFSL debt would not be able to be paid and that interest/additional charges paid to PFSL would therefore be claimable. 100 Investments had an opportunity to be heard prior to the injunction and undertaking taking effect, was commercially informed and represented, and referred to debt significantly less than the unrestrained sum.20 That situation is somewhat different to a standard breach of contract.

[28]	In any event there is a simpler answer here. I agree with Mr Fotherby that 100 Investments has failed to prove that the loss allegedly sustained was a consequence of the injunction having been granted. That is, I am not satisfied that non-repayment of

18	Referring also to Kpohraror v Woolwich Building Society [1996] 4 All ER 119 (EWCA).
19	Referring to Frucor Beverages v Blumberg [2019] NZCA 547 at [71], approving Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 (HL) at 506.
20	Even in his post-injunction affidavit of January 2019 Mr Hide refers only to additional debt of
$700,000 “now accruing interest”. Ten months later he said that debt was $1,309,600.

the PFSL mortgage flowed from the injunction. 100 Investments said it did not pay PFSL off on receipt of the $1,330,000 because it reasonably gave priority to Mr Hide’s family trust loan. But there is no documentary evidence of the latter loan whatsoever, nor a clear statement that funds were to be applied to it, nor even any evidence from Mr Hide that such a loan was repaid on receipt of the $1,330,000. When I asked Mr Michalik whether he could confirm the Hide family trust had been repaid, he could not. Nor according to him did he have any instructions as to what did happen to the unrestrained $1.33 million.

[29]	It is of course entirely a matter for 100 Investments how it spends its own money, but it has not proven to me that non-repayment of PFSL flowed from the injunction. Rather, I draw the inference that 100 Investments chose to use its money elsewhere rather than pay off either “debt”. Had it provided evidence of the return received elsewhere, that would have been relevant to damages, but as is clear, it did not.

[30]	Given these factual findings I do not need to consider the case law cited by the parties further.

[31]	I decline to make any order for damages in respect of costs arising from non- payment of the PFSL loan.

Claim under the Interest Act

[32]	100 Investments also claims the difference between the amount of interest the restrained funds in fact produced during the currency of the injunction and the amount it claims those funds could have realised if invested in the commercial market. Rather than provide evidence of the difference, 100 Investments simply asserts it would have applied $795,000 of the unrestrained sum to an interest-bearing investment and then relies on the Interest Act for the measure of loss.

[33]	Given I have declined the claim regarding the PFSL debt funding costs, the claim under the Interest Act would in fact apply to the full retained sum of $1,620,000, not just the $795,000 balance above the PFSL principal.

[34]	There is an immediate attraction to this submission if only for the simplicity it offers. The availability of the statutory regime for allowing interest on money claims reflects a legislative view that, generally speaking, some minimal compensation should be available to a party that is wrongfully kept out of the use of money.21 Reference to the statutory measure offers an attractive proxy for the quantification of actual losses.

[35]	However I have decided that there is no good authority for the approach contended for by 100 Investments.

[36]	As the Court of Appeal in Whangamata Metal observed, what is being claimed where a party seeks “interest as damages” (as opposed to interest on damages which is the actual subject of the Act) is:22
… compensation for a wrongfully created loss of the use of money and which is assessed wholly or partly by reference to the interest which would have been earned by safe investment of the money …

[37]	Materially, the Court further observed that the statutory provisions concerned with wrongful use of money ordered to be paid as a judgment debt provide, practically, “some protection against late payment of damages”, but do not, and do not purport to “regulate the measure of compensation to be awarded for a specific head of loss.”23

[38]	While it is tempting to take a different approach to Whangamata Metal on the basis that the Interest Act provides a realistic current interest assessment rather than the fixed percentage rate applicable under the Judicature Act 1908, I consider that is too far-reaching and is a matter for the Court of Appeal, not for this Court.

21     Worldwide NZ LLC v NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR 1. I note that, of course, the policy of the Interest Act is to make it uneconomic for a party adjudged liable to pay a sum to treat their judgment creditor as an involuntary lender, thereby incentivising prompt payment. In that situation, the judgment creditor is kept out of money that the judgment debtor wrongfully maintains use of. In the case of damages on an undertaking, while the party subject to the injunction is kept out of money that they ought to have had use of, the party who obtains the injunction has not had use of those funds. This distinction arguably speaks against the application of the Interest Act principles in the manner for which 100 Investments contends. Nonetheless, it does not lessen the potential practical advantages of the proposed approach.
22 Above n 15 at [22], citing Hungerfords v Walker (1989) 171 CLR 125 at 152.
23 At [22]-[23].

[39]	I also note that the Interest Act formula under s 10 reflects in summary an average of 6-month term deposit rates during the six-month period before the date at which the interest on the money claim debt is to be calculated, together with an additional premium. Practically, this means the Interest Act formula result does not reflect, and cannot be taken as proving, how any one potential term deposit investment during the given period would have performed.

[40]	It follows that a claim for interest as damages for breach of contract should be assessed on ordinary contractual principles. As the Court observed in Whangamata Metal, “the loss is interest-related, but this is only a factual matter rather than a legal classification of the claim.”24

[41]	100 Investments has not proven that it would have invested the sum on interest- bearing deposit and the likely amount of interest that investment would have generated. In fact it is unlikely, based on the evidence I do have, that 100 Investments would have placed any funds on deposit.

[42]	For the above reasons, I decline to make any order for damages in respect of the claim for lost interest.

Result

[43]	It follows from all of the above that I am not satisfied that 100 Investments has proved any loss as a result of PVG obtaining the interim injunction.

[44]	The application to enforce the undertaking as to damages is therefore dismissed.

Costs

[45]	The plaintiff is entitled to costs on this application which I tentatively consider should be on a 2B basis. If costs cannot be agreed on that footing, I reserve leave to file submissions within three weeks from the date of this judgment, with 100 Investments having two weeks to respond.

24	At [23].

[46]	Each party’s submissions as to costs are not to exceed four pages in length, excluding any supporting material such as invoices.

Hinton J