Ipsofactoj.com: International Cases [2002] Part 3 Case 13 [NZCA]



T&R Newbrook Ltd

- vs -





29 OCTOBER 2001


Richardson P

  1. In a reserved judgment delivered in the High Court at Rotorua on 1 December 2000 following a seven day trial Chambers J held that Mr E F Marshall and his company, Marshalls Colour Centre Ltd, were liable to T & R Newbrook Ltd for damages in respect of the purchase by the latter company of a specialist paint and wallpaper business in Tokoroa and that the Newbrook company and Mr and Mrs Newbrook, as guarantors, were liable to Mr and Mrs Marshall under the counterclaim for unpaid rent and damages under the lease by the Marshalls of the shop premises.


  2. The purchasers' claim was in essence that when purchasing the business they had relied on an assurance given by Mr Marshall that he did not know that any other paint or wallpaper store was likely to open in Tokoroa. In fact, The Paint Factory, a discount operator, opened only 130 metres away from the Marshall premises very shortly after the Newbrooks took possession. The Judge held that the claim in deceit succeeded, as did parallel causes of action under the Contractual Remedies Act 1979 (against the Marshall company) and the Fair Trading Act 1976. It was common ground that damages under the latter causes of action could not exceed those in deceit and consequently argument focussed on damages in deceit and the counter-claim.

  3. In his written submissions on the appeal Mr Lakshman, who was not trial counsel, sought to argue the appeal on damages on a basis contrary to the approach agreed by both counsel and their accounting experts, advised to the trial Judge, recorded in the judgment, and adopted at trial.

  4. In that regard the judgment records:


    I now record in some detail the parties' agreed position on damages. I have some doubt as to whether the parties approached damages correctly. I had several discussions with counsel about the correct approach but counsel were adamant about the correctness of the approach. So were the experts. Accordingly, I am approaching damages in terms of the parties' agreement. This judgment should not be used, however, for its precedent value on the methodology of calculating damages in deceit. It may be that the Newbrooks should have recovered more.

    And the particularisation of damages to reflect that agreement was as follows:



    The total claimed is $410,243.00 comprising the following:


    The difference between the price paid and the fair market value as at 16/9/91 $123,000


    Loss of profits 16/9/91 - 16/3/92 $ 42,500


    Loss arising from entry into nine year lease:


    Liability for rent of $143,047 plus interest at 20% per annum plus GST (if applicable)


    Damages for $101,696 plus interest at Judicature Act rate.


    Interest at the Judicature Act rate on the sums in (a) and (b) above from the appropriate times.

  5. The Judge noted:


    The parties agreed the following matters, should I find Mr Marshall liable in deceit.


    First, the parties agreed that Newbrook Ltd could recover its capital loss, being the difference between the price paid and the fair market value as at 16 September 1991. That loss was agreed at $123,000.


    Secondly, the parties agreed that in principle loss of profits would be an appropriate additional head of loss, but only with respect to the period 16 September 1991 to 16 March 1992. The plaintiffs claimed with respect to that loss $42,500. The defendants said that there was no primary evidence to justify any award of loss of profits with respect to that period. That dispute is the subject of issue [g].


    Thirdly, the parties agreed that loss arising from entry into the 9 year lease was claimable. There was a dispute, however, as to the calculation of that loss. That is the subject of issue [h].


    Finally, there was agreement that interest should be allowed, but there was an issue as to what interest rate was applicable. The suggestions were 7% or 11%.

  6. Then, as to the loss of profits claim, and also as bearing on the lease loss claimed, the judgment continued:


    As I have said, both parties accepted in principle that loss of profits for the period 16 September 1991 to 16 March 1992 was claimable. I should explain the significance of the two dates. 16 September 1991 is the date on which the Newbrooks took possession. 16 March 1992 is the date on which the Newbrooks conceded they failed to mitigate their loss. Their case, as presented by their counsel and their expert witness, was that as from 16 March 1992 they should have realised that the business could never make money. They should have closed it down and assigned the lease.

  7. After discussing evidence as to the loss of profits for the period 16 September 1991 to 16 March 1992 the Judge concluded:

    The Newbrooks have failed to prove a loss of profits arising from the opening of The Paint Factory. I have no doubt that they did lose some sales, but how many is, on the evidence, just too speculative.

  8. The next question was whether the Newbrook company could recover as part of its damages its liability under the counter-claim. In his evidence a valuer for the Marshalls had concluded that the premises could have been assigned or sublet within three to six months. On that basis Mr Lucas, the Marshalls' accounting expert, was prepared to allow six months' rental by way of damages, a figure of $23,546.

  9. The Judge fixed 7% as the appropriate interest rate. On the counterclaim he assessed the rent, damages and interest payable by the Newbrooks.


  10. On its face the agreement recorded in the judgment and implemented by the parties was a compromise by the parties of that aspect of the litigation and one where trial counsel had ostensible authority to act for the Newbrooks.

  11. In his written submissions counsel for the appellants sought to argue the appeal on damages on a basis contrary to that approach agreed by both counsel and their accounting experts. Counsel sought to argue in his written submissions that those "concessions" were made without the Newbrooks' actual authority and on a mistaken basis of the law. No evidence was adduced to support that assertion that trial counsel breached his authority. No waiver of privilege was tendered to allow the appellants' trial counsel to comment on the assertion.

  12. An affidavit from a solicitor for the respondent who was present largely throughout the seven day trial stated that:

    At no stage did [Mr and Mrs Newbrook] object to any submissions or statement concerning damages made to the Judge by their counsel, Mr O'Neill or seek to interrupt him while he was making any such statements or submissions. At no stage during the evidence of their expert accounting witness, Mr Steele, did they raise any objection or seek to interrupt Mr Steele or their counsel.

  13. At the beginning of the hearing Mr Lakshman asked leave to tender an affidavit from Mr Newbrook which was admitted de bene esse and which reads as follows:


    At a very early stage of the hearing (I believe the first or second day) the Judge voiced some reservations about the question of damages. The Judge repeated those reservations during later parts of the hearing. Naturally my wife and I were concerned about whether the plaintiffs were on the right track. We raised the matter with Mr David O'Neill, but he assured us that we were on the right track. I specifically remember saying to him that I did not agree that we should have closed the business after 6 months, ie in March 1992 - which is what Mr O'Neill and the plaintiff's expert witness Mr Steele were suggesting.


    With the benefit of hindsight it is easy to see that my wife and I should have been more assertive during the hearing. But at the time my thoughts were that Mr O'Neill and Mr Steele must know what they were doing. This was only the second occasion on which I was in a courtroom (the first was when I was called for jury service, but not selected). The courtroom during the hearing was a formal and intimidating environment for me and I did not think that I could do anything other than tell Mr O'Neill that I was concerned about the question of damages. It certainly did not occur to me that I should address the Judge directly.


    When the hearing finished, the Judge said that he would try and give his decision quickly because the case had started some years ago. We did not know what findings the Judge would make, so we decided to wait for his decision, in case it was favourable to us. When some months had passed and no decision was forthcoming, we contacted our solicitor Mr Olphert, and then within a few weeks the judgment was delivered. Thereafter we consulted Mr Olphert again, who initiated steps which resulted in this appeal being made.


  14. While the Judge was right to express reservations as to the damages calculations in view of Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, we are satisfied that the appellants cannot now resile on this appeal from the compromise reached and implemented at the trial as to the manner of assessment of damages.

  15. First, as we have noted (paras [3] and [10] above), on the face of the record there was a compromise by the parties relating to the assessment of the damages issues which was agreed by both counsel acting under ostensible authority and their accounting experts, advised to the trial Judge, recorded in the judgment and implemented at trial. In the result the trial was conducted on the basis of the agreement and the Judge applied that agreement in reaching his findings as to damages. Unlike Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, on which Mr Lakshman relied, it was not a case of a concession made in error by counsel in final submissions where all the evidence had been taken on the footing that the damages were at large. Again, the present case is a far cry from Marsden v Marsden [1972] 2 All ER 1162 on which Mr Lakshman also relied, where the trial Judge was still seized with the case, the judgment not having been perfected, and where the client had given counsel clear and unequivocal instructions limiting his authority to give the undertaking in question.

  16. Second, it is not a case where it is established that grave injustice would be done by allowing the compromise to stand (Marsden at 1167; see also 3(1) Halsbury's Laws of England, paras 520 and 521; and Re Archer [1990] 3 NZLR 737). It is impossible to conclude that counsel and the accounting experts were simply mistaken. On the contrary, they clearly considered they had good reason, acting in the interests of the parties, for reaching the compromise as to the damages issues remaining for consideration and the manner in which the assessments should be made. It is clear from the record that they reached that compromise and implemented it, shaping the evidence that was then adduced in terms of the agreement which had been reached. That feature of the case is highlighted by the absence of evidence directed to the basis on which Mr Lakshman sought to argue the appeal. Because of that evidential deficiency Mr Lakshman's written submissions sought to construct a case drawn from his analysis of financial statements and pieces of evidence inviting the court to make assumptions to cover the gaps. Mr Lakshman's calculations brought the amount sought on the appeal to some three times that actually sought at trial. We could not possibly have embarked on our own assessment of damages on the basis contended for by Mr Lakshman and to remit the case to the High Court as he suggested in the course of oral argument would be unfairly prejudicial to the respondents, both financially and more generally, particularly after this lapse of eight years since proceedings were issued.

  17. Third, on the issues determined by the Judge there were major factual aspects for his consideration where the experts had agreed on their assessment of material they had studied and then narrowed and shaped the evidence adduced at trial accordingly. As 12(1) Halsbury, para 1161 notes, ".... Damages are, in essence, a question of fact rather than of law". The whole argument on damages before the Judge was substantially in areas of fact and the Judge was asked to make, and did make, his factual findings on that premise.

  18. Finally, in deciding to wait for the Judge's decision in case it was favourable to them, as Mr Newbrook stated in his affidavit (para [13] above), the appellants must be taken to have acquiesced in the course of events. They elected to wait and see. It is too late to assert that they should be relieved from the compromise.


  19. At the hearing on 18 October we ruled accordingly and invited Mr Lakshman to consider whether, within the confines of the binding compromise, the judgment contained errors which he wished to challenge. Mr Lakshman identified three. Two can be dealt with very shortly, the third calls for more extended consideration.

  20. First, he submitted that the compromise was confined to damages and did not extend to other relief sought in deceit or in the other two causes of action, including, he said, a declaration that the lease was void and consequently the Newbrooks had no liability under it. However, Chambers J recorded in para [77] of his judgment that the parties agreed that the claim in deceit yielded a greater sum by way of damages than the claims under the Contractual Remedies Act and the Fair Trading Act and, accordingly, he did not need to assess damages or compensation under those Acts. Further, "Particulars of Damages" were framed to reflect the compromise. The only relief sought in those particulars was monetary and, inconsistently with any new claim that the lease was void, the particulars expressly sought "loss arising from entry into nine year lease" in the form of liability for rent and damages (see para [4] above).

  21. Second, Mr Lakshman submitted that the Judge erred in not allowing a refund of rent for a longer period than six months from 16 March 1992. The only evidence specifically directed to the period within which the premises could have been assigned or sub-let at the rent under the lease was that of Mr Reid who concluded it could have been done within three to six months of that date. His evidence was not challenged in cross-examination and there was no other evidence specifically directed to that point. Mr Lucas, the Marshalls' accounting expert, allowed six months rental (para [8] above). There is no basis for an argument that Chambers J erred in upholding that amount.


  22. Chambers J refused to make any award for loss of profits for the first six months the Newbrooks were in possession, holding that they had failed to prove any loss. He said:


    ... The defendants' stance on this topic was that it had not been proved that The Paint Factory caused so much as a dollar's worth of lost sales.


    On this aspect, I agree with the defendants' submissions. The plaintiffs failed to prove any loss. It is not uncommon for plaintiffs' counsel to be so concerned with proving liability that they forget adequately to prove the loss flowing from the wrong. I fear that this case is another example of that common phenomenon. The only evidence we have about The Paint Factory is that it was a paint discounter and that it opened in Tokoroa in September 1991. There is no evidence as to how well it did or what its prices were. Nothing. The defendants' financial expert, Eric Lucas, said there may have been a number of reasons why the ex-Marshall business declined in profitability. The Warehouse arrived in town in July 1991. There was a general economic downturn in the early 1990s. Tokoroa at that time was losing population. The Newbrooks may not have managed the business as well as the Marshalls; the Newbrooks were newcomers to retailing, whereas the Marshalls had almost 20 years' experience. Mr Lucas added that before he could make a reasonable estimate of the impact on profit caused by The Paint Factory, he would need to know:


    What products were sold by The Paint Factory in competition to the Newbrooks' business.


    What The Paint Factory's actual sales were.


    What sales and margins the business made on competing products before and after the arrival of The Paint Factory.


    The equivalent information in respect of The Warehouse.


    To what extent the business's other competitors, such as Mitre 10 and Benchmark, were affected by the new competition.


    In my view, Mr Lucas was right in his views on that topic.


    Even the plaintiffs' expert, Anthony Steele, acknowledged that he had "been unable to obtain any meaningful information which would provide specific evidence of what the impact on the total sales [had been] as a result of The Paint Factory opening". He made a guess that the reduction in sales resulting from the opening of The Paint Factory might be 22%. He derived that figure from the increase in sales between April to October 1997, on the one hand, and April to October 1998, on the other. The Paint Factory closed in April 1998. The increased sales figure in the latter period had been given by Mr Newbrook in his evidence. Those figures were, with respect, of no use at all in determining what caused the drop of sales in 1991/92, as Mr Steele himself acknowledged.


    The answer to issue [g] therefore is that the Newbrooks have failed to prove a loss of profits arising from the opening of The Paint Factory. I have no doubt that they did lose some sales, but how many is, on the evidence, just too speculative.

  23. To complete the picture we need to refer further to the evidence. In his brief of evidence Mr Newbrook said that immediately after The Paint Factory opened they noticed a difference in turnover. From 16 September 1991 to 16 June 1992 (nine months) the total receipts banked inclusive of GST amounted to $438,810.57. Amounts owing for credit sales were $5,136, making total sales for this 39 week period of $443,946.57, or $11,383.24 per week. Annualised, this was the equivalent of $591,928.48, which compared with the turnover warranty in the Agreement for Sale and Purchase of $734,857. He continued:

    As well, The Paint Factory operated on a permanent discount basis which had the inevitable effect of forcing us to reduce our profit margins. Even though we could use product differentiation to justify a higher price, that would not mean much to a would-be purchaser who would compare our prices with The Paint Factory's prices. Furthermore, paint accessories would be from the same or similar suppliers which would mean thus that we would have to drop our prices to compete with The Paint Factory.

  24. Mr Newbrook went on to say (in para 64) that the closure of The Paint Factory in April 1998 had an immediate effect on their profitability, as evidenced by sales figures from their day book since April 1998 ($157,197 for April-October 1997 and $201,354 for April-October 1998).

  25. Mr E P Casey, a retired accountant who had prepared the Newbrook accounts from the outset expressed the opinion that the decline in their turnover was due to the advent of The Paint Factory in Tokoroa. Mr A V Steele, an accounting expert called for the Newbrooks, assessed the loss of profits claim for the six month period at $42,500. That was based on projected net sales for 12 months of $587,885 derived from the warranted turnover in the Agreement for Sale and Purchase, reduced to a GST exclusive value and, importantly, allowing for a further 10% drop in the sales, continuing to reflect the downturn over the previous seven months.

  26. Mr Steele then posited a reduction in sales of 22% resulting from the opening of The Paint Factory. He said he had been unable to obtain any meaningful information providing specific evidence of what the impact on sales was as a result of The Paint Factory opening with the only information lending some credibility to his 22% being Mr Newbrook's comments as to the reduction in sales and then the lift in sales following The Paint Factory's closure, admittedly in 1998, not 1991. On that reduced estimate of sales figures for the year of $485,550 Mr Steele applied a gross profit margin of 35% but allowed for overheads and ultimately arrived at his estimated loss of profits for the six months to 16 March 1992 of $42,500.

  27. In cross-examination Mr Steele accepted that there was a raft of variables affecting profitability but said "I don't think there is any doubt that they'd [The Paint Factory] have had some impact on the Newbrooks business. How much that is one can only make a guestimate and assess". In addition to the Judge's reference in his paras [86] and [87] to the evidence of Mr Lucas, the accounting expert called for the Marshalls, the final passage in Mr Lucas's evidence when answering questions from the Judge is also relevant:

    Can one at least infer this much, that probably there was a trading loss caused by Paint Factory competition in that six month period even if one cannot quantify how much of the loss was attributable to that? I'd expect The Paint Factory to have caused some decline in gross profit, yes.

    Do you consider it possible on the evidence that we have to give any probable amount of that loss attributable to The Paint Factory in that period? I can't give you a reasoned assessment.

    In your view, we'd just be guessing would we as to how much it was? Yes I wouldn't particularly want to have to defend the number I came up with.

  28. It is clear from this analysis that the economic downturn of which Mr Lucas spoke and which the Judge referred to in para [86] was allowed for by Mr Steele in his calculation. It is clear, too, and also as qualifying to some extent what the Judge concluded in para [86], that Mr Newbrook, who could be expected to know better than anyone else what happened to his sales - and why and how he responded when The Paint Factory opened, gave evidence that they immediately noticed a difference in turnover and that they reduced their profit margins to compete.

  29. As well as those specific matters there was discussion in the evidence of the impact on turnover and profitability following the transfer of the business from the Marshalls to the Newbrooks, of the departure of Mr Marshall who had been a driving force, and of the diminution likely when the purchasers were newcomers to retail, not known to the clientele, and were settling in.

  30. Where there are variables involved, as usually occurs in assessments of business profits or losses, if precise figures had to be proved few plaintiffs could succeed. Where, as here, it is established that a particular factor was causative but its precise contribution to the loss could not be correctly calculated in precise dollar terms, a more robust approach is required of the courts. It is not a matter of whether an expert could give a reasoned assessment and could defend the number he or she came up with. As Lord Mustill said in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd at p269, "the assessment of damages often involves so many unquantifiable contingencies and unverifiable assumptions that in many cases realism demands a rough and ready approach to the facts". Speaking more formally in Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory [1979] AC 91, the Privy Council concluded, at p106, that "the ends of justice would be best served if they [Their Lordships] were to fix a new figure of damages, as best they can upon the available evidence, such as it is".

  31. To the same effect, in Walsh v Kerr [1989] 1 NZLR 490, 494, this court noted that "There are cases where, although the assessment can only be largely speculative and the evidence is exiguous, the Court will do the best it can to arrive at a figure if satisfied that there has been some real damage". See, also, Ellmers v Brown (1990) 1 NZ Conv C 190,568 at 190,579.

  32. In Walsh v Kerr the plaintiffs were held entitled to the value of the promised benefit which they had not received in respect of the promised continuation of a guarantee of a lease where on the balance of probabilities the evidence would be that after a hypothetical assignment of the lease the guarantee must have had considerable value but its actual value had not been established. The court said that because of the narrowness of the issue and the contingencies the amount to be awarded had to be modest. It held that the value in issue could not have been less than $5,000 and awarded that sum.

  33. On the facts the present case does not call for such a constrained approach. Clearly, the opening of The Paint Factory was causative of some loss of profits. Leaving aside for the moment the 22% allowance Mr Steele made for the impact of the opening of The Paint Factory on turnover and profitability, the approach he took to the assessment of turnover and in arriving at profits for the six months involved, is entirely reasonable. In broad terms there were three other variables squarely identified but not readily quantifiable, and certainly not with mathematical precision: the lost contribution to the business of Mr Marshall and potentially the lesser contribution that the Newbrooks as new-comers could initially make, and the opening of The Paint Factory only 130 metres away from the premises. Standing back, and as a matter of judgment, it is difficult to say that the personal factors were as important as the competitive impact of a discounter down the street. And in deliberately withholding information as to its advent Mr Marshall must be taken to have believed its impact on the turnover and profitability of the business would be significant.

  34. After adding back into the sales calculation the 22% impact attributed to competition from The Paint Factory and adopting a necessarily robust approach and one that is just to the Marshalls and to the Newbrooks, we consider that on the balance of probabilities the reduction of the profits in issue could not have been less than $30,000.


  35. The appeal is allowed and the Newbrook company is awarded that additional sum together with interest calculated on a basis similar to the other interest calculations in respect of the deceit claim. Costs on the appeal will lie where they fall except that the Newbrook company is entitled to reasonable disbursements including the costs of printing the case as fixed, if necessary, by the Registrar.


Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254

Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158

Marsden v Marsden [1972] 2 All ER 1162

Tai Hing Cotton Mill Ltd v Kamsing Knitting Factory [1979] AC 91, PC

Walsh v Kerr [1989] 1 NZLR 490

Ellmers v Brown (1990) 1 NZ Conv C 190

Authors and other references

Halsbury's Laws of England, vol 12(1)


K Lakshman for Appellants (instructed by Olphert Sandford, Rotorua)
V T Bruton for Respondents (instructed by
Brookfields, Auckland)

all rights reserved