WAITAKERE ORGANIC CENTRE LTD V VCU TECHNOLOGY LIMITED HC AK CIV 2006-404-7258

WAITAKERE ORGANIC CENTRE LTD V VCU TECHNOLOGY LIMITED HC AK CIV 2006-404-7258 23 July 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-7258BETWEEN WAITAKERE ORGANIC CENTRE LTD Plaintiff AND VCU TECHNOLOGY LIMITED Defendant Hearing: 12 June 2008 Appearances: K I Bond for plaintiff No appearance for defendant Judgment: 23 July 2008JUDGMENT OF ALLAN JSolicitors: Harkness Henry & Co, Private Bag 3077, Hamilton[1] This proceeding came before the Court on 12 June 2008 for formal proof. There was no appearance for the defendant, the defendant's statement of defence having earlier been struck out for non-compliance with interlocutory orders. [2] The plaintiff relied upon an affidavit of Mr M B Lord, General Manager of the plaintiff, who set out in an affidavit the basis of the claim and the detail of losses claimed to have been suffered by the plaintiff. [3] During the course of the oral hearing it emerged that further evidence was needed in respect of the manner in which the plaintiff had treated depreciation in its accounts, and also to provide a calculation of net present value in respect of future losses. A further affidavit was subsequently filed by Mr Lord, in consequence of which I am now able to deliver this brief judgment.Background[4] The plaintiff carries on business as a waste processor. It was formally known as Perry Waste Services Ltd. [5] On 16 February 2001 it entered into an agreement with the defendant for the installation and operation of a composting facility at premises made available by the Waitakere City Council. The agreement required the defendant to supply and install machinery and equipment that would convert green waste into compost. In various important respects the units supplied by the defendant failed to function as expected. It was unable to process the daily volume of green waste contracted for. It produced pasteurised mulch, rather than compost, and it was subject to premature equipment failure. [6] As a result, rather than making substantial profits from the operation of the equipment and machinery pursuant to a contract with the Waitakere City Council, the plaintiff made substantial losses. In this proceeding the plaintiff claims damages in respect of those losses.The statement of claim[7] The plaintiff pleads six causes of action. Three allege breaches of the Sales of Goods Act 1908. It is alleged that the contract for the machinery and equipment was a contract for sale by description, and that the goods failed to comply with the description. Next it is said that the machinery and equipment was not fit for the purpose, and third it is alleged that there has been a breach of the implied term as to merchantable quality. [8] The remaining causes of action comprise breach of contract, pre-contractual misrepresentation, and negligence. For the purposes of the formal proof hearing, the plaintiff relied on the express and implied terms in the contract between the parties. [9] I am satisfied on the basis of Mr Lord's evidence that the pleaded breaches have been established.Quantum[10] The plaintiff has separated its damages claim into three sections. First, it seeks damages of $982,456 for the six year period ending in March 2007. This claim is for losses actually incurred and is to be distinguished from budgeted profits not earned by reason of the alleged breaches. [11] I am satisfied on the basis of Mr Lord's evidence that losses of $982,456 have been so incurred. [12] The second category relates to losses expected to be incurred between April 2007 and March 2016. This period has been chosen because the plaintiff is obliged to continue to operate the machinery and equipment by virtue of the contract entered into by it with the Waitakere City Council. It has therefore no opportunity to mitigate its losses. The defendant well knew that the plaintiff would be bound to continue to operate the machinery and equipment by virtue of that contract.[13] Mr Lord says that the plaintiff expects to incur losses (again, as distinct from lost budgeted profits) of $130,994 per year each year until the end of the Waitakere City Council contract in 2016. That figure is calculated by taking the average annual loss of $163,743 over the six year period to March 2007, and applying a 20% discount for uncertainty. [14] Mr Lord also applies a further discount in order to calculate the net present value of this aspect of the claim. He has provided three different discount rates. In my view the appropriate rate is 8.4% which is the statutory interest rate applicable to judgments with effect from 1 July 2008. The application of that rate produces a figure for future losses of $872,475.58. [15] The third item of damage comprises a claim for lost profits – that is, budgeted profits which the plaintiff expected to earn over the 15 year period of the contract, but which will never be earned by reason of the defendant's breaches of contract. These lost profits are quite separate from, and additional to, the plaintiff's claim for actual losses sustained. [16] The plaintiff's budgeted profit was $161,300 for each of the 15 years in the term of the contract. No calculation is available in respect of the net present value of the total of the plaintiff's claim under this head, which totals $2,419,500. [17] After reflection I have decided to allow the whole of the amount sought in respect of this aspect of the claim, despite the absence of a net present value calculation. That is because there is no claim for interest. The plaintiff's contract with Waitakere City Council has almost reached the half way point. In broad terms the plaintiff's failure to conduct a net present value calculation for lost profits in respect of the remaining years of the contract, is to be balanced against past years where no claim for interest has been made in respect of profits already lost. [18] Accordingly, I award the plaintiff the sum of $2,419,500 under this head.Judgment[19] The plaintiff is entitled to judgment in the sum of $4,274,431.58. It is also entitled to costs calculated under category 2B and disbursements as approved by the Registrar.C J Allan J