Rarotongan Resort Hotel Ltd v T & W Development Ltd [2006] CKCA 4; CA No 1-2 of 2005 (9 February 2006)

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IN THE COURT OF APPEAL OF THE COOK ISLANDS
HELD IN RAROTONGA
(CIVIL DIVISION)

1. The appeal and cross appeal in this matter are in relation to the judgment of Grieg CJ (CJ) dated 14.03.05. The appellant (Hotel) owns and operates the Rarotongan Resort Hotel which is the largest on the main island of Rarotonga. As at the time of trial in 2004, Hotel was a four-star resort with 124 standard rooms and 32 suites. But when first acquired by its present owners in September 1997, it was in a run-down state.

2. The respondent (Snowbird) owns and operates the largest commercial laundry business in Rarotonga. Its business is almost exclusively with the hotel and accommodation facilities on the island. In September 1997, Hotel became one of Snowbird's customers.

3. The CJ described the services provided by Snowbird in paragraph 6 of his judgment as follows:

"6. The service provided by [Snowbird] is the provision of linen, sheets and pillow slips and if called for towels, out of the general stock held by it at its laundry premises. [Snowbird] operates a six day delivery service by which, several times a day, a vehicle is driven round the island calling at each hotel or motel to pick up the bags of soiled linen and return bags of clean linen. There is no stock identified to any one hotel. It is all the common stock so that what is returned is not the linen previously picked up but out of the stock of clean linen. [Snowbird] makes no charge for the first supply or any continuing replacement of the general stock. There was evidence that on some few occasions it claimed for losses. The only regular charge is for laundering. No charge is made for damaged, worn or stained linen."

4. Between 1997 and October 2000, the Hotel steadily improved its standards and occupancy rate to reach the four-star status. Its trade with Snowbird expanded accordingly. The original stock provided in 1997 was added to in 1998, 1999 and 2000. Initially only bed linen was supplied, but in February 1999, bath towels and bath mats were included. All arrangements were oral.

5. During 1999, the Hotel began to launder some of Snowbird's stock in-house. Hotel had always laundered its own tablecloths and associated linen. Snowbird more or less acquiesced in this initially, but from June to October 2000, Hotel, (it says of necessity because of poor and unreliable service by Snowbird), was laundering more and more of Snowbird's stock. This resulted in complaints and meetings in September/October of 2000. When the issue was not resolved, Snowbird terminated the contract on seven days' notice and demanded the return of all its stock.

6. Hotel as a consequence had to acquire its own stock and significantly expand its in-house laundry facilities to cope. But Snowbird claimed not all its stock was returned and that Hotel's breaches entitled it to repudiate the contract. Hotel on the other hand, claimed it was entitled to reasonable notice and had incurred costs in having to purchase stock at short notice and had suffered losses as a result of the peremptory withdrawal by Snowbird of its services.

7. It was common ground, (or at least not open to dispute), that Snowbird was the only commercial laundry in Rarotonga capable of meeting Hotel's requirements. Further, that procurement of replacement stock and additional equipment to establish an in-house laundry large enough to meet Hotel's requirements all had to be sourced offshore and urgently imported.

• An award of $16,000 for shortfall in stock returned to Snowbird should be reduced or eliminated.

• A finding that three months' notice was sufficient is erroneous in fact and in law. That the premium paid for replacement stock was higher than the $15,000 allowed and VAT and levies should also have been awarded.

• That finance charges of 15% on the funding of the stock replacement and extended in-house laundry facilities disallowed should have been awarded.

• Compensatory damages awarded for unreasonable notice were inadequate and assessed on a basis which was erroneous in fact and in law.

9. Snowbird cross-appeals against CJ's holding that it had to give reasonable notice. Snowbird's contention being that Hotel breached the contract by laundering stock in-house, thereby repudiating the contract and entitling Snowbird to terminate summarily, which it did.

11. This issue was dealt with in paragraph 19 of the judgment under appeal, which reads as follows:

"19. Looked at objectively, the contract necessarily implied that [Snowbird] would have the sole right to the laundering of its linen. The remuneration for that was the only consideration receivable by [Snowbird]. [Hotel] had possession and use of the linen paying only the laundry charge. [Hotel] was not liable for wear and tear or damage. To deny [Snowbird] its sole ground for payment was contrary to a necessary term of the contract. Although there had been a failure by [Hotel] to abide with the letter of that part of the contract, the question had been brought to attention only at the end of September. It was then the subject of discussion and a proposal which in ten days after its statement had not been responded to. The circumstances in my submission [sic] did not give rise to a right of peremptory cancellation by [Snowbird] or repudiation by Hotel. It still required some further reasonable notice to bring the contract to an end."

12. The evidence shows that Snowbird had acquiesced in the breaches which it relied upon as repudiation for some months prior to determination. Also, up until ten days before termination, reasonably amicable discussions were taking place aimed at finding a solution acceptable to both parties. In those circumstances, despite Mr Manarangi's careful argument, we consider that CJ reached the right conclusion. Snowbird's cross-appeal therefore fails.

13. Although the evidence showed that on a daily basis what Hotel returned to Snowbird to be laundered and vice versa was checked at either end and any discrepancy resolved, no stocktake of what was held by Hotel was ever carried out. But Snowbird, from its records, sought to show the total net number of individual items delivered to Hotel over the full term of the contract. That amounted to a "2 par stock"; ie one set in the Hotel store, one set on the made up beds. The required "3 par stock" was met by the fact that the third set was always at Snowbird being laundered.

14. The quantity of bed linen returned by Hotel after termination fell short of Snowbird's figures. Of this shortfall, CJ said (paragraph 13 of his judgment):

"13. I accept that [Snowbird's] evidence as to the quantity and detail of the stock delivered and its evidence as to the stock returned at the end of the contract. There was a substantial shortfall overall and large numbers in most of the headings. What seems to have happened is that the stock had fallen to a two par level with the second set of stock held between the storeroom and the laundry. I do not know how this occurred, but it seems that it could not be because of any action or inaction by [Snowbird]. It had carried out its service receiving and delivering the linen and accounting for any daily shortfall as it occurred. It had no way of knowing what the stock was at the Hotel and had to rely on staff there for any claim or request for additional stock. The shortfall must be the responsibility of [Hotel]. I will deal with the quantum of the claim on this head later. The fact of the shortfall must have been gradual and points to a lack of knowledge on the part of [Hotel] and its staff. Any regular stocktake would have at once shown that the stock had fallen below the original supply and below the requirements of a 2 par stock in the hotel."

15. The cost to Snowbird of replacing the shortfall, with some adjustment for a shift from "double" to "king size" sheets was $20,018.75. The CJ reduced that figure by 20% to $16,000 saying at paragraph 28 of his judgment:

"28. ...The replacement was of course of new stock at new prices. The stock replaced was no doubt of varying ages and wear. Moreover, the system of charging by [Snowbird] took into account, I must assume, that wear and tear and indeed the eventual replacement of the linen and towels. By charging in its claim the new price, [Snowbird] is receiving the cost of new articles in replacement of old ones albeit at various ages and wear. In addition, it is claiming in advance the cost which it recovers in the sum of the laundry charge for wear and tear and replacement. [Snowbird] must give credit for that or those factors otherwise it is making extra recovery. No evidence was put forward on this topic and it may not be susceptible to precise calculation in any event. I observe that reference was made in the hearing to the write-off of value which [Snowbird] took for income tax purposes. That is in my view irrelevant to the issue between the parties in the case."

16. Hotel challenged the conclusion that the shortfall was its responsibility. The core of Hotel's argument on the issue is contained in paragraphs 36 and 37 of Hotel's written submissions, which read as follows:

"36. [Snowbird] asserted that it supplied a certain quantity of linen at the commencement of the contract (and on a few occasions during the contract). It said that each day it returned to the hotel the same quantity of stock as the hotel sent out. Therefore, it contended, the loss of stock must have occurred at the hotel. His Honour accepted that argument. However, it is demonstrably flawed.

(a) There is no evidence of reconciliation and replacement of all damaged linen. The invoices rendered concern the price paid for laundered items (see eg documents in [Hotel's] bundle numbered 167 and following). The pick up on termination at the end of October 2000 indicates that there had been an erosion of stock over the contract. This is confirmed by the content of the important contemporaneous letter of 10 October 2000 (4/60) from Snowbird to the hotel relating to termination and falling standards in the supply of line.

(b) Damaged or worn stock would only be accounted for in [Snowbird's] system and replaced when clean linen was returned. Ms Makirere, however, says that the hotel returned the useless stock. Her evidence was not that this damaged linen was included in a bag of items returned for washing. Ms Porima's evidence, while general in nature and not helpful as to specific quantities and frequency of return, is consistent with this. She said that the ripped or stained linen was returned by the hotel in a plastic bag separate from the main items returned. There is no evidence that damaged or worn linen was counted or any records kept of destruction or replacement. [Snowbird] counted the linen which was washed. It destroyed the useless linen and did not keep a note of it (Manarangi's letter 11 November 2003 'exhibit A' in response to a request for documents). The evidence shows that there was no accurate record of linen destroyed or damaged and returned. The figures on termination indicate the process of attrition of stock took place. In that situation the claim for a shortfall which does not take into account fair wear and tear during the contract is untenable.

37. Any shortfall was, on the evidence, more likely to have been the result of wear and tear. [Snowbird] did not establish loss by the hotel."

17. The evidence and exhibits referred to in the above submissions support the contentions made. Snowbird's response on the issue is at paragraph 3.3 of its response filed on 03.11.05 which reads as follows:

"3.3 In response to the non-replacement of damaged and worn linen, the respondent repeats its submissions in the Court below. In particular, the Court is referred to the reconciliation process undertaken by the appellant and respondent on each occasion when linen was uplifted for laundering and replaced with clean linen. The only purpose was to avoid depletion of linen stock that had been provided to the appellant's hotel. Although there was evidence that damaged or worn items of linen were returned separately, there was no evidence that they were not part of the reconciliation process and replaced in the same way as items that were uplifted for laundering. It is not credible to suggest that the damaged or worn items were not part of the reconciliation process because that is tantamount to saying that neither the appellant nor the respondent recognised that failure to include them in the process would lead to a depletion of stock and defeat the only purpose that the process had."

18. Although the evidence on the topic is not as complete as perhaps it could have been, that there was attrition by wear and tear is beyond question. Furthermore, that the CJ did not take wear and tear into account when considering "what caused" the shortfall. Also, we consider that although the depreciation rate used by Snowbird of 100% in its tax returns is not conclusive, it is effectively in this area a clear indication that wear and tear was a significant factor.

19. The CJ's reduction of 20% for betterment and other factors was, as he recorded, one of impression in the absence of evidence.

20. On the wear and tear issue, there is evidence and, with respect, it should have been taken into account. The erosion of the original stock in our judgment justifies a further reduction of 30% and we reduce the award of $16,000 in Snowbird's favour to $10,000.

21. Hotel also argued that because Snowbird had an over supply of pillow slips and ordinary sized double sheets and therefore did not replace them, no compensation should be payable in respect of them. The evidence was not that the items were valueless, only that at that stage Snowbird preferred not to replace them. A reduction of damages on that score is not tenable.

22. Hotel's challenge here is that the CJ fell into error, both in fact and in law.

23. The holding that three months was reasonable is contained almost entirely in paragraph 22 of the judgment under appeal. It reads as follows:

"22. Here was an oral contract which had endured for some years without as I find any substantial complaint or cause for complaint until the last few months when the stock had fallen below the efficiency level or practical level for adequate daily service of the rooms in the resort. [Hotel] turned to laundering in-house the great bulk of the linen and towels. The laundry in-house was well known to [Snowbird] and was a feature of the resort service from the beginning of the contractual arrangement. In recent practice [Hotel] had been capable of laundering the bulk of the linen and towels. The obligation of [Snowbird] was to provide the laundry service. On termination, [Hotel] had to replace that service but it was in fact able to do so in the following month until its new laundry was ready for operation. There was an extra cost but it filled the gap made by [Snowbird's] termination without a new laundry. Its past practice over the months since June was evidence of that and was known to the parties. There is the factor in working out a period of notice in a service contract that there is likely to be some additional tension between the parties who have by then fallen out and are no longer in a reasonable contractual association. That must bear on the length of notice which is reasonable. I conclude that in all the circumstances three months' notice would have been reasonable notice."

(1) That during the last few months, to the knowledge of Snowbird, Hotel laundered the bulk of the linen and towels.

(2) On termination, Hotel (albeit with difficulty) in fact managed to replace Snowbird's obligations until its new laundry was ready - held elsewhere (paragraph 30 of the judgment) to have become operational 12 months later.

(3) During the working out of a period of notice between parties who have fallen out there is likely to be some additional tension "that must bear on the length of notice that is reasonable".

25. The first point is relevant in that Snowbird would have known that Hotel would not have to close immediately provided it could get an alternative supply of stock at short notice and provided it worked its in-house laundry for excessive hours.

27. Where there is a long-term commercial contract with an implied term that the agreement is terminable on reasonable notice (as the CJ found to be the case) the appropriate period of notice is determined on the facts known at the time the notice was given. This was clearly stated by Lord Devlin in Australian Blue Metal Limited v Hughes [1963] AC 74 at 99.

"The question whether a requirement of reasonable notice is to be implied in the contract is to be answered in the light of the circumstances existing when the contract is made. The length of the notice, if any, is the time that is deemed to be reasonable in the light of the circumstances in which the notice is given."

28. Similarly in Crawford Fittings Co v Sydney Valve & Fittings Pty Limited (1988) NSWLR 348, the New South Wales Court of Appeal held that the reasonableness of the period of notice depends upon the circumstances existing when the notice is given (per McHugh J at page 444, per Clarke J at page 454). Clearly then the question of reasonableness of notice and the question of whether a term should be implied in the contract to the effect that a contract may be terminated upon reasonable notice are determined by having regard to different circumstances. The former is to be answered in the light of the circumstances existing at the time the contract was made, the latter by reference to the circumstances existing at the time and the notice given.

29. It follows that what Hotel managed to do post-termination is not a consideration and the CJ fell into error by taking it into account. In that regard, see also paragraph 30 of the judgment where His Honour referred also to the fact that Hotel based its claim on 18 months to provide the new laundry whereas it in fact was operating within 12.

30. As to the matters the Court should have regard to in determining what is a reasonable period of notice, Lord Devlin stated (at page 99):

"The implication of reasonable notice is intended to serve only the common purpose of the parties. Whether there need be any notice at all, and if so the common purpose for which it is required, are matters to be determined as at the date of the notice. The common purpose is frequently derived from the desire that both parties maybe expected to have to cushion themselves against sudden change, giving themselves time to make alternative arrangements of a sort similar to those which are being terminated"

31. In Crawford (supra) McHugh and Priestly JJ adopted Lord Devlin's view in Australian Blue Metal that where a contract is terminable upon reasonable notice, the period of notice must be such as to serve the common purpose of the parties. McHugh J stated at page 448:

"The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which ex hypothesi has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtain the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general, it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure."

32. Guided by those authorities, we are unable to see that the CJ's third ground was relevant. Tension or not, Hotel in particular had to be given time to make alternative arrangements. Furthermore, the CJ did not take into account other relevant considerations. In particular, that the evidence was that it would normally take six months to source an alternative pool of linen and towels to replace the 3 par stock that clearly was required. See the unchallenged evidence by affidavit admitted by consent of TW Fleming (2/64, 65) who was well qualified to express that opinion. The fact that by the time notice was given, the hotel was of four-star standard was also relevant. Some at least of the dispute between the parties stemmed from Hotel's complaint that the quality and quantity being supplied by Snowbird was inadequate for Hotel's purposes.

33. In its letter of 10.10.2000 (4/60) delivered ten days before termination, Snowbird offered a solution which involved it taking over the running of Hotel's laundry for in-house washing, But washing all the linen at its factory. The letter reads:

We would like to propose the alternative whereby Snowbird takes over your laundry operation and will be fully responsible for all day - to - day laundry requirements seven days a week.

It is very important to us that we fully stock your resort with pillow slips, sheets and all towelling at the required level and it would be our responsibility to make sure your resort's laundry requirement is fully attended to. All pillow slips and sheets would be processed in our factory and will remain as it is on a hire basis whereby revenue will be charged only on volumes washed. At present, we are installing a new flat work ironer which will give all sheeting a quality that is required in the industry.

So far as the operation of your laundry is concerned, a weekly flat rate, perhaps payment based on occupancy level, which would cover laundering of all towelling, restaurant requirements, blankets, curtain and general sundries, we will supply all washing and laundering products and you will meet the cost of maintenance of machines, gas and water. Restaurant linen, for example tablecloths and napkins, to be supplied by you.

The advantages to your company is [sic] the freeing up of staff that could be used in other areas, the ongoing problems of staff and staffing, the capital outlay for linen and outgoing replacements and having on your premises a proven company with a proven record of quality and reliability with expertise in the industry.

It is not only our opinion but common knowledge that in-house laundries do not maintain a high standard and are very inefficient creating hidden expenses which inflate the real on premises laundry costs.

I fully agree with your concerns that if I or Snowbird fall over your resort would have a laundry crisis. I can assure you that at all times there would be enough linen on your premises for your laundry to take over. This would work both ways, if your laundry ever broke down.

May I take the opportunity to thank you for the chance to put this proposal to you. Looking forward to your comments in reply.

34. It is inescapable in the circumstances that Snowbird knew that if summary termination occurred, Hotel would face a "laundry crisis" and have to expand its laundry facilities extensively. New equipment would have to be purchased, installed and commissioned. The existing laundry area would have to be much enlarged. Also of crucial importance is that Snowbird had a monopoly of the commercial laundry business in Rarotonga with the consequence that on termination Hotel would have to find and import replacements.

35. Given those factors, in our judgment, notice of three months was inadequate and unreasonable. We repeat that the length of the notice had to be assessed at the time it was given and what actually happened post-termination is irrelevant. With respect, the reasons given for accepting the three months' notice as reasonable are limited and in the main erroneous in law. Our assessment is that nine months' notice was required. That period will replace the period arrived at by the CJ.

36. Hotel gave unchallenged evidence that it paid a premium of $40,341.00 for the purchase of linen and towels on an urgent basis. This was necessary to provide stock to keep the resort going. It had the stock air-freighted in and at an agreed air over sea freight cost of $1,554.30.

37. In paragraph 33 of his judgment, the CJ accepted that because of the inadequate notice, a premium had to be paid. Hotel was fortunate to find a supplier with stock on its hands ordered for another establishment of comparable size but not uplifted. Hotel's evidence was that given time, it could have purchased for 15% to 20% below the purchase price of $96,050. Twenty percent of that is $19,210, but there were additional charges of VAT and levies. Also in subsequent evidence, the general manager of Hotel sought to demonstrate that in fact a premium of 42% had been paid. We would not be prepared to interfere with the finding that 20% was appropriate.

38. Before us, Hotel complained that VAT and levies should not have been deducted from the total cost of replacement. In our judgment, that complaint lacks substance. Practically, the VAT would be recoverable - Mr David argued that it was a new point not raised below - maybe, but it would not be just for Hotel to recover twice, first from Snowbird and again from the national revenue. More fundamentally, however, once the contract was terminated, a step Snowbird was always entitled to take at any time it chose - and irrespective of whether the notice given was reasonable - Hotel would have to pay VAT and levies on the replacement stock it would have to purchase. There is no basis upon which those charges can be laid at the door of Snowbird.

39. But the CJ further reduced the $19,210 resulting from the 20% premium paid because the available purchase contained some additional items, principally king size sheets, whereas double sheets were returned. There was also a reduction, unspecified in amount, because Hotel was replacing used stock in varying stages of wear with new stock.

40. We do not consider either of these further reductions was justified. As to the first, Hotel mitigated its damages by taking the comparable supply which, on Mr Fleming's evidence, it was lucky to find. Had it taken longer to find replacement stock, Hotel may have been obliged to close until its essential linen and towelling had been replaced. That inevitably would have lead to greater losses and higher damages. Likewise, there was no prospect of finding second-hand stock. Hotel had no choice but to accept and pay for new stock.

41. The CJ's reduction from the two items just discussed was only $4,210 which reduced the $19,210 to $15,000. On balance, we do not consider that further reduction was justified. Hotel mitigated its damages by making the purchase and air-freighting it in. It should not be out of pocket for electing to solve its predicament in that way.

42. We substitute $19,210 for the $15,000 awarded at first instance which with the agreed difference of $1,554.30 due to air freight over sea freight results in a recovery for Hotel under this head of $20,770.30.

43. The short answer here is that these financing charges would have been incurred on termination in any event irrespective of whether the notice given was reasonable or not. There were no foreseeable losses at all, so far as Snowbird was concerned, at the time the contract was made provided it gave reasonable notice. If reasonable notice had been given (9 months in our judgment, not 18 as claimed by Hotel) the inevitable cost of purchasing replacement stock and extending the in-house laundry would have been incurred solely at Hotel's expense. On the increase of notice from 3 to 9 months, the incidence of liability for finance charges does not change. The CJ rejected this claim on the basis that it was not foreseeable. Although we have approached the matter in a rather different manner, we see no basis for interfering with that conclusion.

44. A feature of this case is that the evidence called by Hotel as to the damage suffered was barely cross-examined. No evidence was called in rebuttal. Snowbird's stance was that Hotel had repudiated and if that contention was not upheld, then damages were not foreseeable and/or too remote.

45. Although he did not specifically say so, it is implicit in the CJ's judgment that it was foreseeable that if inadequate notice was given on termination, Hotel would suffer damage - Snowbird's virtual monopoly of laundering services made that inevitable. That remoteness was not lost sight of is shown by the rejection of the finance charges dealt with in the preceding section of this judgment.

46. The damages claimed at first instance were $1,417,283.31 for all additional costs incurred over a period of 18 months. There is a detailed consideration of this claim in paragraphs 38 to 41 of the judgment under appeal. It needs to be borne in mind (as shown by the authorities cited earlier) that while post-termination events are irrelevant when assessing reasonable notice, they are of course directly relevant when assessing the damage suffered because of the inadequate notice. The examination by the CJ in the paragraphs referred to demonstrates a balanced and painstaking assessment of the evidence adduced. The figure claimed was based upon spreadsheets produced by the managing director of Hotel, which were reviewed by a principal of PriceWaterhouse Coopers. Of the review, the CJ said in paragraph 38 of his judgment:

"That review was not an audit but rather an arithmetical check of the calculations based on the books of [Hotel]. There was no review of the reasonableness of the assumptions made such as the correctness of the allegations to the laundry of a number of headings, such as overheads and utilities."

47. That finding was challenged on appeal but having considered the disclaimers and qualifications upon which the review was predicated, we are satisfied the CJ was entitled to take the view he did of it. In subsequent paragraphs, various discrepancies and inaccuracies were demonstrated. Thus, at the end of paragraphs 39 and 40 respectively, the judgment reads:

"39. I find it impossible to accept these figures and calculations as given in evidence.

40. I again find it difficult to accept the accuracy of the result from these figures."

48. There is no basis upon which we can properly interfere with the factual findings that the CJ made on the evidence adduced.

49. In the first half of paragraph 41 of the judgment, however, an assessment is made of loss on the basis of the evidence the Hotel had produced and which the CJ, following his critical assessment, was apparently prepared to place some reliance on. It reads as follows:

"41. On the basis of the figure I have calculated for six months for [Snowbird's] charges $78,199 and the figures on the spreadsheet for six months November 1999 to April 2000 for laundry labour $72,000 and utilities allocation $27,916 the total of the Snowbird period would be $178,115. Using the spreadsheet figures for the post - Snowbird period for six months, I calculate the laundry expenses at the first half of the year at $118,965. The second year I note had a total for those expenses of $119,830. Half of that is $59,915. I add to that labour at $188,496 and utilities allocation at $110,667 with the reservations I have already expressed. I ignore the overhead allocations in both cases. The total for the post - Snowbird period is then $498,128. The difference is $240,013 for a period of six months. I chose that period to obtain a figure which might have a general application as being a kind of average. Of course the period in issue is three months, so the difference is halved to meet the reasonable notice. That is $120,000 in rounded figures."

50. Applying that figure to the nine months' reasonable notice that we have substituted, the damages awarded under this head would be $360,000.

51. But having reached his figure of $120,000 for three months, the CJ then went on to say in the balance of paragraph 41 as follows:

"I am bound to say that [$120,000] is a very substantial figure when compared with [Snowbird's] charging on which I must assume he was at least breaking even. In fact, there was evidence that [Snowbird] was in a good financial position which must repel a suggestion that he was operating at a loss. What this suggests to me is that [Hotel's] calculations while no doubt made in good faith are not in truth the reality of the period after the termination of the contract. This can well be the result when such calculations depend on arbitrary allocation. That [Hotel] was put to extra cost is unarguable, but what these were and what is the appropriate award is difficult. This is not a situation where the Court is entitled to say the party has to prove the case and on failure loses altogether. The onus of proof is on [Hotel] in this part of the case. It has proved that the notice given was inadequate and that it suffered or must have suffered loss which is in such cases to be remedied by an award of damages. I am left to make a calculation or estimation as best I can." (emphasis added).

52. In paragraphs 42 to 46 inclusive the alternative estimate or calculation is made. As a consequence the damages for a three-month period are reduced from $120,000 to $30,000.

53. Counsel for Hotel submitted that not only was this final award not based on the evidence adduced but the appellant had no opportunity to comment upon it, challenge it or call evidence in rebuttal.

54. The fact that the calculation on the evidence produced a "very substantial figure" compared with Snowbird's charges appears to be the reason for rejecting it. On the other hand as Snowbird's letter of 10/10/2000 - set out in full earlier - third paragraph - recognises, in-house laundries inevitably are more costly.

55. We have given this aspect of the case anxious consideration. We would not lightly overturn the Learned Chief Justice in such a matter. In the end, however, we are driven to the conclusion that the circumstances did not justify a departure from the figure produced on an analysis of virtually unchallenged evidence, in favour of a "best calculation or estimate" resulting in a 75% reduction.

56. Our conclusion is that under this head Hotel should recover $360,000 an increase of $330,000.

57. The award of $36,690.61 to Snowbird is reduced by $6,000 as recorded in paragraph 30 to $30,690.61. The award of $46,554.30 to Hotel is increased by $4,210 as set out in paragraph 42 above and by $330,000 as set out at the end of the preceding paragraph.

As awarded in the High Court	$46,554.30
As increased in paragraph 42	$4,210.00
As increased in paragraph 56	$330,000.00
Total	$380,765.30
Less reduced award to respondent (Snowbird)	$30,690.00
Final judgment for appellant (Hotel)	$350,075.00

59. Although neither Counsel addressed us on the question of interest it is claimed in Hotel's amended pleadings on which it went to trial. We see no reason why the recovery Hotel makes of $350,075 should not carry interest from the date the action was commenced. (The record does not tell us precisely why that was so.) We fix an average rate for the three years or so involved of 6% on a non-compounding basis.

60. The appellant has succeeded in part and secured a substantial increase under its main head of damages. The costs to be paid by the respondent (Snowbird) are fixed at $5,000, plus filing fees and disbursements to be fixed by the Registrar which shall include actual airfares and accommodation (if applicable) for two Counsel.

42. If there are any issues arising from the resolution of costs in the High Court Counsel may file brief memoranda on the issue to be filed simultaneously not later than March 3, 2006.

Court of Appeal of the Cook Islands

Rarotongan Resort Hotel Ltd v T & W Development Ltd [2006] CKCA 4; CA No 1-2 of 2005 (9 February 2006)