IN THE COURT OF APPEAL OF NEW ZEALAND CA112/06 [2007] NZCA 479 BETWEEN AND ROCHIS LIMITED Appellant ZACHERY ANDREW CHAMBERS, JULIAN DAVID CHAMBERS, JOCELYN ZELPHA CHAMBERS AND KIMBERLY FAITH CHAMBERS Respondents Hearing: 9 August 2007 Court: Counsel: Hammond, Chambers and Arnold JJ D K Wilson for Appellant J A MacGillivray for Respondents Judgment: 1 November 2007 at 11.30 am JUDGMENT OF THE COURT A B C The appeal is allowed in part. It is confirmed that the respondents are entitled to retain the sum claimed from the appellant on settlement as compensation for exchange rate losses, save that they must now repay to the appellant (if they have not already done so) the sum of $23,849.95, together with interest at 7.5% from the date of settlement until the date of payment. There is no order for costs in this Court. ROCHIS LTD V ZACHERY ANDREW CHAMBERS, JULIAN DAVID CHAMBERS, JOCELYN ZELPHA CHAMBERS AND KIMBERLY FAITH CHAMBERS CA CA112/06 1 November 2007
REASONS OF THE COURT (Given by Arnold J) [1] The appellant purchased a subdivision on the shore of Lake Taupo for $6,750,000. The vendors were the respondents, who held four lots in the subdivision, and a company called Adele Holdings Limited (Adele), which held 22 lots. [2] The parties entered into an agreement for sale and purchase (REINZ/ADLS 7ed (2) July 1999) dated 9 July 2003 (the agreement). Clause 1.3(1) of the agreement provided: If there is more than one purchaser or vendor, the liability of the purchasers or of the vendors, as the case may be, is joint and several. Clause 16 provided: The purchase price of the property is determined by the vendors and agreed with the purchaser on the basis that NZ$1.00 = US$0.63c, with the intent that on settlement date or such earlier date as the purchaser may elect, after giving 5 clear working days notice to the vendors of its intention to do so, the vendors will receive no less than US$4,252,500 or the equivalent sum in NZD from the purchaser of the property. The purchaser will pay the vendors no less than US$4,252,500 or the equivalent sum in NZD for the above property on or before settlement date, on the basis set out above. [3] The appellant paid a deposit of $400,000 in accordance with the terms of the agreement. This left a balance of $6,350,000 to be paid on settlement. Settlement was due to occur a year after the agreement was entered into, on 9 July 2004. However the appellant did not settle the transaction until 23 July 2004, that is, 14 days late. The appellant paid interest at the contractual rate of 18 per cent on $6,350,000 for that 14 day period (ie, $43,841.10) on account of the late settlement. There is no dispute about that.
[4] However, the vendors also required that the appellant pay a further $236,701.79. This sum reflected a drop in the US/NZ exchange rate over the 14 day period, from US$0.6595/NZ$1.00 on 9 July 2004 to US$0.6358/NZ$1.00 on 23 July 2004. The appellant paid the $236,701.79 under protest in order to effect settlement, reserving the right to bring action to recover this sum. [5] A few days later the vendors transferred NZ$6,550,000 into US dollars at an exchange rate of US$0.6358/NZ$1.00. [6] Shortly after that, Adele was wound up and removed from the Companies Register at the request of its shareholders. [7] The appellant then issued proceedings against the respondents to recover the $236,701.79. A week before trial the respondents advised the appellant that there had been an error in the calculations, so that the exchange rate loss figure had been overstated by $29,962.25. The respondents accepted that they were liable to refund their pro rata share of this amount, which they calculated at $6,112.30. They repaid this amount to the appellant. However, the appellant s position was that, if the exchange rate loss was a proper head of compensation, the respondents should repay the full amount of the over-payment, on the basis of cl 1.3(1) of the agreement. [8] Keane J dismissed the appellant s claim for the recovery of the $236,701.79 (less the $6,112.30 previously refunded): HC HAM CIV 2005-419-1028 17 May 2006. The Judge identified three issues for decision (at [7]): (a) Were the vendors entitled to compensation for the drop in the value of the US dollar relative to the NZ dollar over the 14 day period of the delayed settlement? (b) If the vendors were entitled to claim compensation for the exchange rate drop, was their claim extinguished or reduced by virtue of the interest paid for late settlement? (Before us, Mr Wilson for the appellant said that he did not argue that the payment of interest
extinguished the vendors claim for exchange losses; it merely reduced it.) (c) If the appellant had overpaid any amount to the vendors, were the respondents liable for the full amount of the overpayment, or simply for a pro rata portion of it? In other words, was the vendors liability joint and several? [9] The Judge held: (a) The vendors were entitled to be compensated for the exchange rate drop over the 14 day period. (b) That entitlement was not affected by the fact that the vendors were entitled to, and received, interest calculated at 18% on the balance of the purchase price for 14 days. (c) In view of his findings on the first two issues, he did not need to resolve the joint and several liability issue. However, he indicated that his view was that liability was several, so that the respondents were liable only for their pro rata share of any overpayment. [10] On appeal, the appellant challenged the first two findings and, in relation to the third issue, maintained its position at trial that the vendors were jointly and severally liable under the agreement, so that the respondents were liable for the full amount of any overpayment. [11] In relation to that third issue, the respondents counsel, Mr MacGillivray, filed a memorandum shortly before the hearing of the appeal advising that the respondents conceded that their liability under the agreement was joint and several. Accordingly the respondents were obliged to repay in full any overpayment made by the appellant.
[12] This concession has an immediate effect in relation to the accepted overpayment of $29,962.25. It is that the respondents must pay the outstanding sum of $23,849.95 (ie, $29,962.25 less the $6,112.30 already paid), plus interest. To that extent at least, the appeal must succeed. [13] We turn now to the remaining issues. Were the vendors entitled to recover compensation for the exchange rate drop? [14] Mr Wilson s principal contention for the appellant can be stated briefly. It is that, in terms of the principles set out in the leading authority Isaac Naylor & Sons Ltd v New Zealand Co-operative Wool Marketing Association Ltd [1981] 1 NZLR 361 (CA), exchange rate losses are not a recoverable head of damage in the present case. [15] Isaac Naylor & Sons Ltd concerned international wool transactions. The defendant was late in taking delivery of wool which it had contracted to buy from the plaintiff. As a result the payment for the wool was also delayed. In terms of the contractual arrangements, payment for the wool was to be in pounds sterling, but the defendant was aware that the plaintiff s practice was to convert such payments to New Zealand currency and remit the funds to New Zealand. Over the period of the delay, the value of the pound sterling declined against the New Zealand dollar, with the result that the plaintiff received less in New Zealand dollars for the pounds it was paid than it would have had delivery been taken on the due date. The plaintiff sued for, and recovered, the exchange loss. The defendant appealed to this Court, without success. [16] This Court accepted that exchange rate losses are, in principle, recoverable in a breach of contract claim. To be recoverable, such losses had to fall within one or other branch of the well-known rule in Hadley v Baxendale (1854) 9 Exch 341 at 354 5; 156 ER 145 at 151 per Alderson B. That is, the loss had to be such as may fairly and reasonably be considered either arising naturally, ie, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it. Special circumstances applying to a particular contract, if known to both parties to it, may affect what is held to have been in their contemplation as flowing from a breach of contract. [17] This Court held that the exchange losses in Isaac Naylor & Sons Ltd fell within the first branch of this rule as such losses were fairly and reasonably within the contemplation of the parties as international wool traders, that is, they arose in the ordinary course of the trade (per Cooke J at 366-7, per Richardson J at 372 and per McMullin J at 382). Richardson J also held that the losses fell within the second branch of the rule as the defendant knew that the plaintiff would be remitting the funds to New Zealand and would be detrimentally affected by adverse fluctuations in the exchange rate as a result of late payment (at 372-3). [18] This decision was applied by Henry J in Volk v Hirstlens (NZ) Ltd [1987] 1 NZLR 385 (HC). There the plaintiff, a United States resident, claimed for a shortfall in royalties which he said were owed to him by the defendant under two contracts. Part of his claim was for exchange losses. Henry J held that these losses were recoverable. The contracts provided that the royalties were to be paid in New Zealand currency, but then said that the parties would, at the plaintiff s request, co-operate to procure the consent of the Reserve Bank to the transfer of the funds from New Zealand. In these circumstances, the Judge said, it was within the contemplation of the parties as reasonable people that the plaintiff might transfer the NZ funds he received into US dollars and also that there might be exchange rate fluctuations over time. [19] Mr Wilson argued that the exchange losses were not recoverable in the present case for three essential reasons: (a) Unlike the international wool transactions in Isaac Naylor & Sons Ltd, the transaction in the present case did not have an international dimension, either in terms of subject matter or parties. (b) The foreign exchange losses were not in contemplation of the parties at the time the contract was entered into. In this context, Mr Wilson
argued that cl 16 simply set a floor for the purchase price (which was in NZ dollars) by reference to the value of the US dollar against the NZ dollar. (c) The principle of nominalism applied. [20] As we see it, the third point is simply the result of accepting the previous two points. That is, it does not raise some consideration that is not already raised by the first two points. [21] Recovery of exchange rate losses will not, in the ordinary course of things, be a recoverable head of loss where a purchaser is late in settling a land transaction. But in the present case there were two features which the respondents said brought them within the scope of the rule in Hadley v Baxendale. First, the agreement contained cl 16. Second, evidence was given by one of the respondents at trial that he had advised one of the appellant s principals before the agreement was made of the likelihood that the proceeds of the sale would be transferred offshore. This was put to the principal in cross-examination and he denied it. The Judge made no finding on the point. [22] For our part, we consider that the matter can be resolved simply on the basis of cl 16. Consequently, we need not address the factual uncertainty. [23] As we have said, Mr Wilson submitted that cl 16 simply set a floor for the NZ dollar price by reference to a US dollar figure. If the NZ dollar figure exceeded that floor, cl 16 had no impact or relevance. [24] We do not accept that submission. While cl 16 did set a floor we consider that the fact that the floor was set in US dollars indicated that the vendors were interested in the relationship between the US dollar and the NZ dollar and that they contemplated that they would or might exchange the NZ dollars they received on settlement for US dollars. We can see no other reason for the stipulation in cl 16. We see this case as analogous to Volk v Hirstlens (NZ) Ltd.
[25] We consider that the presence of cl 16 in the agreement means that it was within the reasonable contemplation of the parties that, if the appellant delayed in settling, the vendors might suffer loss as a result of a change in the exchange rate, as in fact they did when they transferred the funds shortly after receipt. The exchange rate loss is accordingly recoverable. Impact of interest payment on ability to claim exchange losses [26] In his written submissions, Mr Wilson summarised the argument for the appellant on this aspect of the case as follows: (a) Clause 3.9 of the agreement provided for interest for late settlement. (b) As a result of the delay in settlement the vendors were entitled to interest at 18% on the balance of the purchase price for the period of the delay (14 days). (c) If the vendors were entitled to claim exchange losses, they were obliged to give a credit for the amount that they received as interest for late payment. This was said to flow from cl 3.9(1) of the agreement. He made it clear that he did not argue that the effect of cl 3.9(1) was that the respondents claim for interest for late payment deprived them of any claim for exchange rate losses (if it otherwise existed) (see Hoskins v Rule [1952] NZLR 827 (SC)). [27] Clause 3.9(1) of the agreement provided: If the vendor is not in default and if any portion of the purchase price is not paid upon the due date for payment: (1) The purchaser shall pay to the vendor interest at the interest rate for late settlement on the portion of the purchase price so unpaid for the period from the due date for payment until payment ( the default period ); but nevertheless this stipulation is without prejudice to any of the vendor s rights or remedies including any right to claim for additional expenses and damages.
[28] As we understood it, Mr Wilson s argument was that this clause was a liquidated damages clause. Under it a vendor, on late settlement by a purchaser, was entitled to claim interest as liquidated damages and any additional expenses and damages. This meant that the vendor was only entitled to recover what further amount of loss there was in excess of the sum already payable by virtue of the liquidated damages element of the clause, ie, the interest paid had to be deducted from the amount payable on account of other losses. Mr Wilson derived support for this argument from McMorland Sale of Land (2ed 2000) at [11.19](c). There Dr McMorland discusses the effect of cl 3.9(1). He says: Similarly, the vendor cannot recover specific items of loss or expense incurred as a result of the delay as well as the interest as provided by the clause as liquidated damages. It is a matter of election. The vendor can claim only the liquidated damages as provided for by way of interest in the agreement, or may sue for general damages, but not both. (Footnote omitted.) As authority for the proposition in the first two sentences of this extract Dr McMorland cited the ADLS Rulings Manual (1992) at [4.16] and [12.28]. [29] We make the preliminary observation that the current version of the ADLS Rulings Manual no longer contains the particular ruling relied on by Dr McMorland. [30] More importantly, if the extract from Dr McMorland s book has the meaning which Mr Wilson ascribes to it, we do not agree with it. The agreement identifies the interest rate for late settlement as being 18%. Interest at that rate is payable by the vendor as well as the purchaser in some circumstances (eg, cl 9.4(3) of the agreement). We accept that cl 3.9 can be characterised as a liquidated damages clause as far as interest for loss of use of money is concerned. That is the type of loss that vendors will most commonly suffer where a purchaser settles late. But on its face, the clause makes it clear that recovery for that type of loss under the agreed formula does not preclude the vendor from recovering other loss or damage in addition. Put another way, the liquidated damages part of the clause is not comprehensive as it does not purport to cover all forms of loss. We consider that the case falls within the principle discussed in McGregor on Damages (17ed 2002) at [13-017]:
The claimant will be entitled to sue for unliquidated damages in the ordinary way, in addition to suing for the liquidated damages, if other breaches have occurred outside those which fall within the ambit of the liquidated damages provision or, it seems, if only part of the loss arising from a single breach is regarded as falling within the provision s ambit. (Emphasis added.) [31] Mr Wilson says that the amount to which the vendors were entitled as compensation for the exchange rate variation must be reduced by the amount that they recovered by way of interest for late payment. But the two amounts compensate for different losses. Interest compensates for the loss of use of the funds whereas the amount attributable to the exchange rate fluctuation compensates for the loss flowing from the inability to effect a funds transfer on one day as opposed to another. Mr Wilson s approach would, as Mr MacGillivray submits, lead to the vendors receiving less than full compensation for their losses. [32] Mr Wilson sought to counter this point by suggesting that the 18% interest rate was a high one. That may be so, but it does not alter the principle. [33] It follows that we consider that the vendors were entitled to recover under cl 3.9 both an amount by way of interest for loss of use of the balance of the purchase price and an amount to compensate them for the exchange rate loss suffered as a consequence of the appellant s breach. Decision [34] As we have said, in light to the respondent s concession, the appeal must succeed in part. The respondents must pay the appellant the sum of $23,849.95, which is the outstanding balance of the $29,962.25 overpayment. Interest at the rate of 7.5% is to be paid on this sum from the date of settlement until the date of payment. [35] As to costs, the respondents have succeeded on the principal issues but did made the significant concession just referred to shortly before the appeal was argued, leading to a further payment to the appellant. In those circumstances, we consider
that costs in this Court should lie where they fall and costs in the High Court should remain as fixed by Keane J. Solicitors: McKay Hill Gale, Taupo for Appellant Tompkins Wake, Hamilton for Respondents