GEOFFREY WAYNE CLARKSON AND ANOR V WHANGAMATA METAL SUPPLIES LIMITED AND ANOR CA CA139/06

GEOFFREY WAYNE CLARKSON AND ANOR V WHANGAMATA METAL SUPPLIES LIMITED AND ANOR CA CA139/06 20 December 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA139/06 [2007] NZCA 590BETWEEN GEOFFREY WAYNE CLARKSON First Appellant AND PENINSULA METAL SUPPLIES LIMITED Second Appellant AND WHANGAMATA METAL SUPPLIES LIMITED First Respondent AND DESMOND HOWARD REA AND LYNETTE MARY REA Second Respondents Hearing: 27 September 2007 Court: O'Regan, Arnold and Ellen France JJ Counsel: S A Grant and B E Slocum for Appellants P F Dalkie and D A Watson for Respondents Judgment: 20 December 2007 at 11.30 amJUDGMENT OF THE COURT A Both the appeal and the cross appeal are dismissed. B The appellants must pay costs of $5,000 to the respondents and eighty percent of the respondents' usual disbursements.REASONS OF THE COURT(Given by O'Regan J)Table of Contents Para No Introduction [1]Issues [5]Lost profits from delayed price increases [8]Peninsula's claim for compound interest [19]Can compound interest be awarded as damages? [22]Is it necessary to plead and prove interest as damages for breach of contract? [37]Did the pleadings and proof in this case meet that requirement? [38]Conclusion: compound interest [49]Calculation of the interest cost to Peninsula from delayed settlement [50]Should the schedule have been considered? [57]Result [59]Costs [60]Introduction[1] The first appellant, Mr Clarkson, entered into an agreement for sale and purchase of the business of the first respondent, Whangamata Metal Supplies Limited (WMS). The business involved the operation of a number of quarries. The purchase price was $7,500,000. The second respondents, Mr and Mrs Rea, were shareholders and directors of WMS and guaranteed its performance of the agreement. The second appellant, Peninsula Metal Supplies Limited (Peninsula) was nominated by Mr Clarkson as purchaser, as permitted under the terms of the agreement.[2] WMS did not settle on the settlement date provided for in the agreement. Mr Clarkson and Peninsula sought specific performance. Salmon J made an order in favour of Peninsula requiring WMS to specifically perform the agreement: Clarkson v Whangamata Metal Supplies Ltd HC AK CIV 2003-404-006869 1 April 2004. [3] In accordance with the order made by Salmon J, the agreement was settled on 30 May 2004. That involved a delay of about seven months from the settlement date provided for in the agreement. Peninsula sought damages for breach of contract by WMS, including the damages that arose from the delay in settlement. That claim was heard by Venning J. He awarded damages of just under $500,000, subject to certain adjustments, and interest on the judgment sum at 12% per annum from 31 May 2004 to the date of payment. He also made a declaration and other orders which are not relevant to the present appeal: Clarkson v Whangamata Metal Supplies Ltd HC AK CIV 2003-404-006869 8 June 2006. [4] We have before us an appeal against two aspects of the judgment of Venning J, and a cross-appeal against two further aspects of the judgment.Issues[5] The issues raised by the appeal are: (a) Whether Peninsula's claim for damages representing lost profits arising from the fact that Peninsula was not able to increase the prices of supplies made by the business during the period up to the delayed settlement date, as it would have done if settlement had occurred on time, ought to have been allowed; (b) Whether Peninsula's claim for compound interest (rather than simple interest at 12% as awarded by the Judge) ought to have been allowed. [6] The issues raised by the cross-appeal are:(a) Whether the Judge erred in his calculation of the interest cost to Peninsula from the delayed settlement; (b) Whether a schedule included in the bundle of documents before the High Court Judge ought not to have been considered because it had not been admitted in evidence. [7] We will deal with these issues in the above order. The issue which requires extensive consideration is that relating to compound interest, which raises important issues about the recoverability of interest as damages, whether such interest can include compound interest and whether, in order to be recoverable, a specific pleading is required.Lost profits from delayed price increases[8] In the High Court, a director of Peninsula, Mr Smith, gave evidence that Peninsula would have implemented price increases on customers of the business during the seven month period for which settlement was delayed if it had been in possession of the business. He claimed that the loss to Peninsula from being denied the opportunity to increase prices was $300,000. Peninsula did implement price increases immediately after settlement occurred. [9] Venning J considered that the quantum calculated by Mr Smith could not be challenged: the real issue was whether there was any proper basis for the claim itself. He rejected the claim. [10] The Judge said WMS was in a position of constructive trustee of the business for Peninsula during the seven month period, and was subject to the direction of Peninsula during that period. However, no direction was given to WMS to increase prices. The evidence was that WMS had continued to operate the business as it had always been operated, and that no price increases had been made by WMS since 1999. The Judge therefore found that there was no breach of the obligation of WMS, as trustee, to maintain the operation of the business during the seven month period.He noted that the position could have been different if WMS had been asked to increase prices but declined to do so. [11] The Judge also considered an alternative claim that WMS should have foreseen that Peninsula would have increased prices on taking over the business, and that the loss arising from prices not being increased during that period was foreseeable. The Judge asked himself whether the fact that Peninsula intended to increase prices would reasonably have been in WMS's contemplation. He noted that reasonable foreseeability depended on "the knowledge of the party in breach, both actual and imputed". He found that there was no actual knowledge, and no basis for imputing knowledge to WMS or the Reas. He therefore found that the fact that the Peninsula intended to put up prices after taking possession was not foreseeable. [12] In this Court, counsel for the appellants, Ms Grant, did not challenge the finding that there had not been any breach of WMS's obligations as constructive trustee, but rather focused on the Judge's finding that lost profits from the unimplemented price increases was not a reasonably foreseeable head of damages for breach of contract. She took issue with the Judge's statement that reasonable foreseeability depended on the "actual and imputed" knowledge of the party in breach. She said the Judge was wrong in this regard because the inquiry was not into the actual contemplation of the parties, but rather the reasonable objective contemplation that the parties could be expected to have made: it was not necessary to show that WMS foresaw the extent of the loss, but rather that it ought reasonably to have foreseen the kind of loss which was eventually suffered. [13] In support of this argument, Ms Grant pointed out that Peninsula had, in fact, increased prices as soon as settlement occurred, and that Peninsula had demonstrated that the market could withstand increased prices with no adverse impact on demand. [14] We see no error in the High Court Judge's approach to this aspect of the case. He identified the issue as one of foreseeability. Although he used the term "imputed" knowledge, we think it is clear from the context that he meant knowledge that WMS, acting reasonably, ought to have had. His conclusion (at [40]) was:The fact that [Peninsula] intended to put the price up after taking possession was not foreseeable to [WMS and the Reas].[15] That leaves no room for doubt about the test that the Judge applied. It was clearly the correct test. [16] Nor do we accept that there is any error in the factual conclusion that loss of this kind was not foreseeable. In that regard the context is important. WMS had an obligation to maintain the business during the period up to settlement, and was, as the Judge correctly found, in the position of constructive trustee. The contractual provision which applied required WMS to "conserve" the business, "maintain" its turnover and "preserve" its goodwill. Necessarily that obligation required it to act cautiously, and in a manner which maintained the status quo rather than led to any significant change (unless instructed by Peninsula to make that change). One can speculate that if WMS had increased prices and, as a result, the business had lost major customers, Peninsula would have alleged a breach of the obligation to conserve the business. [17] In those circumstances, it cannot be fairly concluded that WMS ought to have foreseen that Peninsula would increase prices. If Peninsula had wished price increases to be implemented before settlement, it should have given an instruction to that effect. [18] We reject this ground of appeal.Peninsula's claim for compound interest[19] Peninsula claimed damages for the loss it suffered as a result of the delay in settlement, and also made a number of other claims which it said resulted from WMS's breaches of the contract. In addition, Peninsula argued in the High Court that it was entitled to compound interest on the amount representing its loss. [20] Ms Grant submitted in the High Court that compound interest was available as damages in contract if the claim came within the test for remoteness of damages in accordance with the second limb of Hadley v Baxendale (1854) 9 Ex 341; 156 ER145. Venning J accepted that compound interest could be claimed as damages, but said that had not been pleaded or proved. He awarded simple interest at 12%, which was the interest rate for late payment under the contract. Peninsula argues that the Judge was wrong to reject its claim for compound interest. [21] The consideration of this ground of appeal requires us to address the following three issues: (a) whether compound interest is able to be awarded as damages for breach of contract; (b) if so, whether such loss needs to be pleaded and proved; (c) if so, whether the pleadings and proof in this case met that requirement.Can compound interest be awarded as damages?[22] Venning J accepted that compound interest could be claimed as damages under the second limb of Hadley v Baxendale. That finding was not challenged in this Court. Recoverability of interest under the rule in Hadley v Baxendalehighlights the crucial distinction between interest on damages and interest as damages. Interest on damages entails an order that interest be paid upon an award of damages. However interest as damages is, as Brennan and Deane JJ explained inHungerfords v Walker (1989) 171 CLR 125 at 152:[A]n actual award of damages which represents 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 or which was in fact paid upon borrowings which otherwise would have been unnecessary or retired.[23] Therefore the phrase "interest as damages", although commonplace, is somewhat misleading. What is being claimed is compensation for the deprivation of the use of money. That value of that deprivation is quantified by the interest that could have been earned by investing the money, or avoided by retiring debt. Theloss is interest-related, but this is only a factual matter rather than a legal classification of the claim. As Oliver J stated in Bushwall Properties Ltd v Vortex Properties Ltd [1975] 1 WLR 1649 at 1660 (HC):[T]he sum so claimed is not in any relevant sense interest itself; it is the sum payable by way of damages for breach of contract.[24] If the claim is for compound interest, that will be because the payment of compound interest has been incurred, or the earning of compound interest has been prevented, as a result of the defendant's breach of contract. Whether the interest loss awarded as damages compounds comes down to the way in which the loss is pleaded, as we discuss below. Interest included in the judgment sum under the Judicature Act 1908 does not compound: s 87(1)(a). However that provision is not related to claims for interest as damages in contract. Section 87 provides some protection against late payment of damages, but does not regulate the measure of compensation to be awarded for a specific head of loss (Hungerfords at 147 – 148 per Mason CJ and Wilson J). [25] Accordingly, the ordinary rules as to remoteness of damages in breach of contract cases from Hadley v Baxendale apply to claims for interest as damages. The two "limbs" of Hadley v Baxendale can be traced to the following statement by Alderson B in that case (at 354; 151):Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., 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.[26] Thus Alderson B articulated two possible grounds (or "limbs") upon which plaintiffs could stake their claim: (1) loss reasonably considered to arise naturally from the breach of contract and; (2) loss that could reasonably be supposed to have been in the specific contemplation of the parties when they contracted. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 at 539 (CA), Asquith LJ distinguished the two limbs as follows. The first limb is dependent on foreseeability of loss arising from knowledge that is imputed to the parties (becausethey are assumed to have knowledge of the ordinary course of things). The second limb is dependent upon knowledge that, it can reasonably be supposed, the partiesactually possessed of matters outside the ordinary course of things. [27] Since the High Court judgment was delivered, the decision of the House of Lords in Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2007] 3 WLR 354 has become available. In that case, their Lordships found that compound interest could be awarded where a claimant was seeking restitution of money paid under mistake. Importantly in the present context, their Lordships also considered the question of interest losses by way of damages for breach of a contract to pay a debt. On the restitution issue, the House divided on the question as to the extent to which the House could assume, and therefore disgorge, the benefit accruing to the mistaken payee. However on the contractual damages issue, which did not strictly fall to be decided, the House unanimously concluded that interest should be able to be claimed as damages under either limb of Hadley v Baxendale, thus sweeping away nearly two centuries of jurisprudence to the contrary. [28] Lord Nicholls of Birkenhead set out a detailed summary of the development of this area of the law in England at [74] – [100]. We respectfully adopt that summary. He began his judgment at [51] by observing "legal rules which are not soundly based resemble proverbial bad pennies: they turn up again and again". His starting point was the decision of the House of Lords in London, Chatham and Dover Railway Co v South Eastern Railway [1893] AC 429. In that case, Their Lordships held that, in the absence of any agreement for the payment of interest, a court had no power to award interest, simple or compound, by way of damages for the late payment of a debt. Having traced the gradual development of English law to the point that interest could be recoverable as damages under the second limb ofHadley v Baxendale but not the first (see President of India v La Pintada Compania Navigacion SA [1985] AC 104 (HL)), he commented at [92]:The common law should sanction injustice no longer. The House should recognise the remnant of the restrictive common law exception for what it is: the unprincipled remnant of an unprincipled rule. The House should erase the remains of this blot on English common law jurisprudence.[29] His Lordship continued at [94] – [97]:[94] To this end, if your Lordships agree, the House should now hold that, in principle, it is always open to a claimant to plead and prove his actual interest losses caused by late payment of a debt. These losses will be recoverable, subject to the principles governing all claims for damages for breach of contract, such as remoteness, failure to mitigate and so forth. [95] In the nature of things the proof required to establish a claimed interest loss will depend upon the nature of the loss and the circumstances of the case. The loss may be the cost of borrowing money. That cost may include an element of compound interest. Or the loss may be loss of an opportunity to invest the promised money. Here again, where the circumstances require, the investment loss may need to include a compound element if it is to be a fair measure of what the plaintiff lost by the late payment. Or the loss flowing from the late payment may take some other form. Whatever form the loss takes the court will, here as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial judge. There are no special rules for the proof of facts in this area of the law. [96] But an unparticularised and unproved claim simply for "damages" will not suffice. General damages are not recoverable. The common law does not assume that delay in payment of a debt will of itself cause damage. Loss must be proved. To that extent the decision in the London, Chatham and Dover Railway case [1893] AC 429 remains extant. The decision in that case survives but is confined narrowly to claims of a similar nature to the simple claim for interest advanced in that case. Thus, that decision is to be understood as applying only to claims at common law for unparticularised and unproven interest losses as damages for breach of a contract to pay a debt and, which today comes to the same, claims for payment of a debt with interest. In the absence of agreement the restrictive exception to the general common law rules prevails in those cases. [97] The common law's unwillingness to presume interest losses where payment is delayed is, I readily accept, unrealistic. This is especially so at times when inflation abounds and prevailing rates of interest are high. To require proof of loss in each case may seem unduly formalistic. The common law can bear this reproach. If a party chooses not to prove his interest losses the remedy provided by the law is to be found in the statutory provisions.[30] Lord Hope of Craighead (at [16] – [17]), Lord Scott of Foscote (at [132]) and Lord Walker of Gestingthorpe (at [165]) agreed. Lord Mance agreed that it was not appropriate to draw a line between the two limbs of Hadley v Baxendale. His Lordship agreed with Lord Nicholls that it would be anomalous to draw such a line, because that would render interest as damages recoverable where it resulted from peculiar circumstances known only to the parties, but irrecoverable where the loss was obvious to all. Lord Mance said at [215] that the two limbs in Hadley vBaxendale were the practical expression of a single principle that parties should be liable only for damages that were within their contemplation at the time they contracted (see also Hart and Honoré Causation in the Law (2ed 1985) at 320). He said at [216] that it was not appropriate to draw a line between the two limbs ofHadley v Baxendale. However, he also expressed the following note of caution in the same paragraph:It is, nevertheless, still fair to assume that loss of interest is not within the parties' contemplation under many everyday contracts. The present case should not therefore be seen as a charter for claims, still less for claims on a compound basis, in respect of interest losses following a breach of contract, where there is no contractual stipulation for its recovery, simply because it can be said that the situation was one where loss of interest might foreseeably, and did in fact, follow on breach . Before loss by way of interest is recoverable as damages, the higher threshold of reasonable contemplation must be crossed.[31] As a result of the decision in Sempra Metals, the law of England has been brought into line with that of Canada (Bank of America Canada v Mutual Trust Co[2002] 2 SCR 601 at [44] – [46]) and Australia (Hungerfords v Walker at 142 – 144 per Mason CJ and Wilson J). [32] In our view, it is time for the same clarity and certainty to be brought to New Zealand law. The case for this was made in forthright terms by McGechan J as long ago as 1989 in Roberts' Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 at 35 – 36 (HC) as follows:At the risk of heresy, I think the distinction between recoverability under the first and second branches of the rule in Hadley v Baxendale in this field is becoming unreal. Whatever the position may have been in bygone years, when perhaps people actually ran credit bank accounts and inflation was minimal, it now verges on the unreal to say the law does not presume losses where payments are delayed, at least in a business context. The look of astonishment, if not pity, of a modern businessman when told the law will not assume he may lose money if a payment due to him is not made on time is a sufficient answer. Under modern business practice, many survive on cash flow. Non-payment routinely leads to additional borrowing demands, or inability to turn money to account, in either case at rates of interest which are generally known in a reasonably close range.[33] In that case, the Judge found that interest was recoverable under the second limb of Hadley v Baxendale, so it was not necessary to go further and determine whether interest could be recovered under the first limb as damages. Similarly, thisCourt in Lion Nathan Ltd v CC Bottlers (1995) 5 NZBLC 103,681 awarded interest as damages under the second limb of Hadley v Baxendale where an over-inflated purchase price for a business meant the purchaser incurred extra financing costs to fund the over-inflated purchase. [34] This Court arguably awarded interest as damages under the first limb ofHadley v Baxendale in Broadbank Corp Ltd v Mosgiel Ltd [1985] 1 NZLR 257 in a case involving a default in paying the face value of bills of exchange on their maturity date. Richardson J characterised the award at 273 as "a direct application of the first limb of Hadley v Baxendale". However, the Court relied in that case on the rule in Cook v Fowler (1874) LR 7 HL 27, an exception to the common law rule against interest as damages where there has been a default in payment of money owed under a contract providing for interest to be payable prior to the due date. In such cases, interest could be claimed as damages for the period after the due date. The Court extended this to a bill facility agreement involving the issuing of bills at a discount to their face value. The Court did not find it necessary to decide whether New Zealand should take the step which the House of Lords has now taken inSempra Metals, though McMullin J commented at 277 that if it were necessary to do so to decide the case,I would be minded to hold that this Court should now free itself from the shackles of a rule which owes its origins to the commercial thinking of the mid-eighteenth century.[35] In a later case, New Zealand Insurance Co Ltd v Harris [1990] 1 NZLR 10 at 17 (CA), Richardson J described Broadbank as: a straight-forward application of the first limb of Hadley v Baxendale and, too, of the Cook v Fowler line of cases which are themselves explicable in terms of the standard rules concerning remoteness of damages in contract.[36] The state of the law in New Zealand is that Broadbank appears to have allowed recovery of interest as damages under the first limb of Hadley v Baxendale, but only where the unpaid obligation incurred what can broadly be described as a financing charge in the period before its due date. Otherwise recovery of interest as damages has been permitted only under the second limb of Hadley v Baxendale. In our view, the case made in Sempra Metals for the rejection of the "unprincipledremnant of an unprincipled rule" is compelling. There is no authority of this Court or the Privy Council preventing that course. In principle, therefore, we would be prepared to allow the recovery of interest as damages under either limb of Hadley v Baxendale.Is it necessary to plead and prove interest as damages for breach of contract?[37] The clear statement made by Lord Nicholls in Sempra Metals at [96] (quoted at [29] above) answers this question: an unparticularised and unproven claim for interest as damages will not be successful. We respectfully agree with His Lordship's observation.Did the pleadings and proof in this case meet that requirement?[38] In its amended statement of claim, Peninsula's principal claim was for an order requiring WMS to pay to Peninsula the net revenues earned by the business in the seven month period for which settlement was delayed. It also had a number of subsidiary claims. The Judge awarded damages reflecting the loss suffered by Peninsula as a result of WMS's failure to perform the agreement. Peninsula also claimed an entitlement to interest as follows:The plaintiffs are entitled to interest on all of the above sums from the date that the sums would have been received down to the date that they are paid compounded monthly, either in contract, pursuant to the Judicature Act 1908, or in equity.[39] The relief sought by Peninsula included a claim for interest in slightly different terms, namely:Interest on the above sums from the date that they accrued down to the date that they are paid to the plaintiffs pursuant to the contract the Judicature Act 1908 or in equity.[40] The claim for interest did not relate only to the amount reflecting the profits of the business over the seven month period for which settlement was delayed. The "above sums" on which interest was claimed included the $300,000 relating to the failure to increase prices, with which we have already dealt, $925,000 (claimed asthe cost of filling in a pit at one of the quarries) and $80,000 (claimed as losses the business would incur in the two years after settlement because of wage increases implemented during the seven month period). [41] The Judge described the claim as pleaded as a claim for interest on the base award of damages, rather than an independent claim for interest as damages. He said the evidence of Mr Smith, which supported the claim, was to similar effect. As there was no proper plea for compound interest as damages, the Judge awarded interest at the rate provided for in the agreement itself, namely 12% simple interest. [42] Ms Grant argued that the Judge was wrong to find that there was no sufficiently pleaded claim for compound interest. She put the appellants' case in these terms:In the pleadings, the appellants sought the net profit that the appellants would have earned had they been in possession of the business during the 7- month period. PMSL also claimed interest on the sum at 13%, which was the rate of interest charged on PMSL's most expensive debt. The compound interest paid on sums borrowed were actual losses suffered by PMSL in not having the benefit of the profits of the business for the 7-month period. The basis for this claim was that had PMSL been in possession of the company's profits, those profits would have been applied to PMSL's most expensive debt first and the loans redrawn to take advantage of other opportunities . Those losses contributed to the loss of profit suffered and were not required to be particularly pleaded. In any event, the Court had power to order compound interest under its jurisdiction in HR115.[43] One only needs to contrast that submission with the actual pleadings (as outlined at [38] – [40] above) to see that the submission does not reflect what was actually pleaded. We agree with the Judge that the pleading was for interest on damages, (including damages unrelated to the delayed receipt of the profits of the business) not interest as damages. As the Judge correctly noted, the evidence in this regard was similarly focused. [44] We do not accept Ms Grant's submission that interest as damages was part of the loss of profits and did not require separate pleading. Peninsula claimed a sum equating to the net revenues of the business which clearly refers to profits earned by the business, not losses incurred by Peninsula. Nor do we accept that interest as damages should have been awarded under r 115 of the High Court Rules. Thatprovides a discretion to award relief to which a plaintiff may be entitled. That requires us to find that Peninsula is "entitled" to relief. But that entitlement arises only when the claim is pleaded and proved, and that requirement was not met. Since pleading and proof were lacking in this case, resort to r 115 would have been inappropriate. [45] The facts of the present case provide a very good illustration of why particularised pleading and proof are necessary. [46] All of the cases to which we have so far referred in this section of the judgment are cases involving the breach of a contractual stipulation to pay money on a particular date. In such cases, it may well be within the contemplation of the parties or reasonably foreseeable that the unpaid party will suffer loss for which interest as damages should be recoverable. In the present case, for example, if Peninsula had failed to settle on the due date, it may have been foreseeable that WMS would be unable to repay borrowings which it had intended to repay out of the purchase price, or would be deprived of the opportunity of investing the intended purchase price at commercial rates of return, including, potentially, compound interest. [47] However, the present case is not a case of a failure to pay a sum due on its due date. The possibility of loss of the character for which interest, let alone compound interest, ought to be awarded as damages is subject to numerous variables. For example: (a) It will not always be the case that a party which is not obliged to settle because of the failure of the other party to perform its contractual obligations will nevertheless have to draw down the borrowings required to fund the purchase. Similarly the purchase will not always be totally debt-funded. In the present case, Peninsula was required to draw down much of the funding to which it had committed itself, but whether that was foreseeable would depend on the circumstances of the case;(b) Peninsula claimed compound interest on the entire damages award, yet its provable loss would only be the interest which it would not have had to pay for its most expensive debt obligation (a revolving credit facility with Nationwide Finance) if it had received the profits of the business in the seven month period between the stipulated settlement date and the actual settlement date. It could be expected that the profits would be received periodically during those seven months, in which case the damage suffered would reflect only the interest payable on an amount equal to each instalment of anticipated profit, from its anticipated receipt date. This may well have been considerably less than an amount equal to interest on a sum representing the whole profit for the full seven month period; (c) It would be expected that Peninsula would set off against any such claim the amount of interest it saved by not having to borrow the purchase price or, if it was forced to draw down some of those borrowings, the amount of interest it could earn by placing the amount borrowed on interest-bearing deposit; (d) All of this required evidence of the terms of the Nationwide facility, when profits from the business would have been received, whether those profits could have been immediately applied in reduction of the Nationwide debt as and when they would have been received and what impact that would have had on the amounts Peninsula had to pay to Nationwide. [48] The pleadings and evidence in this case do not cover many of these issues, which is a fundamental impediment to the success of this aspect of Peninsula's claim. But even if there had been an appropriate pleading, it is not self-evident that Peninsula would have been able to establish that loss of this character met the normal remoteness test for an award of damages for breach of contract under the test set out in Hadley v Baxendale. That is why proof of loss is so important.Conclusion: compound interest[49] We conclude that, in an appropriate case, interest, including compound interest, could be awarded in a breach of contract case, if the plaintiff can satisfy the normal remoteness test in Hadley v Baxendale. However, such loss needs to be pleaded and proved. There was no relevant pleading in this case, and the evidence did not establish loss. It is unclear to us whether, in fact, it would have been possible to establish that the remoteness test was met on the facts of this case. This ground of appeal fails.Calculation of the interest cost to Peninsula from delayed settlement[50] This point of the cross appeal was largely resolved by agreement at the hearing before us. It concerns the method of calculation by the Judge of the adjustments required to be made to the net profit figure earned by WMS during the seven months for which settlement was delayed in order to calculate the profit which Peninsula would have made if it had been in possession of the business during that period. [51] The starting point for the analysis was that the Judge considered that the interest expense which Peninsula would have incurred in the seventh month period if settlement had occurred on time was probably deductible from the profit figure for the business during the same period. This was complicated in the present case by the fact that Peninsula had to draw down its funding facilities for the purchase of the business on the original settlement date, even though settlement did not take place. It immediately placed the funds on term deposit, but the interest which it earned on those deposits was considerably less than the interest it had to pay to its lenders. [52] The Judge adopted a calculation by the expert witness for Peninsula, Mr Hagen. In [87] of the judgment, the Judge said:The total interest cost to the plaintiffs on that basis for the seven month period was $375,420. The interest earned was $130,415. The net interest cost to [Peninsula] for the seven month period then was, as Mr Hagen calculated, $245,005.[53] At the hearing it was accepted that the Judge's description of the figure of $130,415 as "interest earned" was incorrect. In fact, that figure represented the net interest cost to Peninsula during the seven month period. The total interest payment made by Peninsula on the funding facilities which it had drawn down during that period was $244,480.46, and the interest which it earned by depositing the funds it had drawn down was $114,064.58. Thus, the net interest cost to Peninsula during the seven month period was $130,415.88. [54] The Judge calculated that, if Peninsula had been required to settle on the agreed settlement date, it would have had to pay a total amount of interest of $375,420.47 during the seven month period. When the figure of $130,415.88 (being the net interest cost actually incurred by Peninsula during that period) is deducted, the net amount of interest cost that Peninsula would have incurred is approximately $245,005. [55] The Judge erred in his description of the $130,415 as "interest earned": it was, in fact, the net interest cost actually incurred by Peninsula during the seven month period for which settlement was delayed. Once that slip is corrected, the result reached by the Judge is correct, and no adjustment to the calculation of damages is required. It would perhaps have been preferable for the Judge to have deducted the full $375,000 (as interest which would have been paid by Peninsula if settlement had happened on time) when assessing the loss to Peninsula from delayed settlement. However he would then have had to add on another $130,000 as damages representing the loss suffered by Peninsula in having to meet financing costs in circumstances where it could not use the finance, assuming that head of loss met the remoteness requirement of Hadley v Baxendale. There was no suggestion that it did not. That methodology would have led to the same result as that reached by the Judge. [56] We therefore formally dismiss this ground of the cross appeal.Should the schedule have been considered?[57] The second point raised in the cross appeal concerns a schedule which appeared in the agreed bundle of documents in the High Court. It related to the calculation of the flow-on effect of certain wage increases which have been made by WMS during the seven month period for which settlement was delayed. The calculation was to determine how much additional cost would be incurred by the business after settlement occurred as a result of wage increases, in breach of WMS's obligations to maintain the status quo pending settlement. [58] The point of cross appeal was that the schedule had not been produced as an exhibit by any of the witnesses, and was not therefore admissible evidence. However, during the hearing before us, Mr Dalkie, counsel for WMS, accepted that all of the components of the schedule were in evidence. That means the schedule was not evidence at all, but rather the presentation of the underlying evidence in a manner which assisted the Judge to process that evidence. The schedule itself did not need to be formally adduced as evidence. This ground of cross appeal therefore fails.Result[59] We dismiss both the appeal and the cross appeal.Costs[60] The respondents are entitled to costs, having succeeded on the two substantive matters before the Court, being the two grounds of appeal. The normal rate would be $6,000 but we reduce this slightly to reflect the fact that the respondents were unsuccessful on the cross appeal, though that occupied much less of the Court's time than the appeal. We therefore award costs of $5,000, and also order the appellants to pay 80% of the respondents' usual disbursements.Solicitors:Foley & Hughes, Auckland for Appellants Evans Bailey, Hamilton for Respondents