Macdonald v Tod

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2005-404-4451

IN THE MATTER OF an Appeal from the Judgment of DM Wilson QC of 18 July 2005 under section 72 of the District Courts Act 1947

BETWEEN JOHN MACDONALD AND JOANNE MACDONALD
Appellants

AND MARK TOD AND LEIGH TOD
Respondents

Hearing: 10 February 2006

Appearances: KF Quinn for Appellants
J Long and CI Willson for Respondents

Judgment: 10 February 2006

JUDGMENT OF ASHER J

Solicitors:
Hucker & Associates, P0 Box 3843 Shortland Street, Auckland (KF Quinn)
Lee Salmon Long, P0 Box 2026 Shortland Street, Auckland (J Long)

[1] This is an appeal from a reserved judgment of Judge Wilson QC delivered in the District Court at Warkworth on 18 July 2005.

[2] The appellants are John and Joanne Macdonald who traded as J&J Macdonald Marine Services. They were sued in the District Court by Mr and Mrs Tod, the respondents in these proceedings, for $56,500.00. This was the amount the Tods claimed they had lost on the sale of a launch "Talua", that loss arising from the discovery of dry rot in the boat following its purchase a year before.

Background facts

[3] "Talua" is a 45-foot displacement launch built in 1942 by Cohn Wild. In July 2001 it was owned by a Mr and Mrs Broome and moored at Tutukaka. The Broomes had owned "Talua" for 8 years.

[4] The Tods, who were interested in purchasing the launch, travelled to Tutukaka to view "Talua". They spoke to the Broomes who suggested that the Tods get a marine survey. The Tods contacted the appellant, John Macdonald, who was an experienced marine surveyor, and engaged his services.

[5] Mr Macdonald required the Tods to execute a "survey worksheet" before he carried out any survey. That worksheet was signed by the Tods on 5 July 2001. It contained a paragraph headed "Limits of Inspection" and a disclaimer. I will refer to these later.

[6] On 13 July 2001 Mr Macdonald travelled to Tutukaka and commenced the marine survey. During the day Mr Macdonald required the Tods to come to Tutukaka to be present so he could explain his findings to them and take them over the boat. The Tods arrived in Tutukaka between 5:00 - 6:00 pm and Mr Macdonald discussed his findings with them. It is common ground in this appeal, as it was at the hearing, that while Mr Macdonald identified a number of defects, his overall view of the condition of "Talua" was favourable. In his view "Talua" was in good condition and was seaworthy for a vessel of her age. In this regard it was also common ground that what was stated by Mr Macdonald in his oral discussion on 13 July 2001 reflected the written conclusions in his written survey report which he later issued.

[7] That report also contained a limits of inspection paragraph and a disclaimer. It concluded with a statement that "Talua" appeared to be in safe and seaworthy condition as inspected. It stated that most of the items that were noted in the report were of a routine maintenance nature and that using the report as a guide should enable "Talua" to provide "... many more years of comfortable cruising." It was also noted that:

Vessels of this age do require some consideration of speed relative to the sea conditions, to prevent excessive loadings on seams and fastenings.

There were some other qualifications.

[8] At the time of the oral discussion between Mr Macdonald and the Tods, he advised them that using a travel lifter to lift the boat out of the water could damage the hull of an old boat. He also explained that older wooden boats needed to have regular maintenance carried out, and that the Tods would need to spend approximately 10% of the purchase price of the "Talua" per annum on routine maintenance. He explained that the vessel needed to be handled carefully as an old boat.

[9] The Tods agreed to buy the boat from the Broomes before receiving Mr Macdonald’s written report. It does not, however, appear to be in dispute that they did so relying upon the oral statements that were reflected in that written report. The purchase price was $92,000.00.

[10] The Tods then proceeded to have approximately 12 months of satisfactory use of the "Talua". Its use was confined to the Hauraki Gulf. Work that was done was primarily of an enhancing nature and included the installation of a bow thruster. The "Talua" was put on a travel lift twice during this 12-month period.

[11] Some 12 months after the Tods had purchased the "Talua" they decided to sell her for reasons not connected with the condition of the boat. In about July 2002 a prospective purchaser arranged to have the boat surveyed by a Mr Beale of Beale Boats Limited. Mr Beale, like Mr Macdonald, does marine surveys.

[12] "Talua" was pulled out of the water for this purpose. Mr Beale noticed immediately that there were some problems with "Talua" based on his external inspection. He then inspected the launch more thoroughly and found extensive rot. He concluded that the hull of the vessel was not sound or fully seaworthy and recommended extensive structural work before the boat was used further.

[13] The Tods were concerned and retained Mr Maddick of Maddick Marine Surveys Limited to survey the boat. Mr Maddick was not advised of the results of the two previous marine surveys, although presumably he was aware that there were concerns. He carried out a marine survey and presented his report on 12 September 2002. He found that the ribs of the vessel were generally in poor condition. He concluded that the hull was not very strong and that the conditions of the ribs, planking and fastenings were a cause for concern. He found the planking to be generally soft and wet. He also found that the keel was in poor condition, this being a matter that had not been referred to by Mr Beale. He concluded that to restore the vessel to a seaworthy condition was a major undertaking.

The District Court Judgment

[14] In the District Court it was found that the Tods had established causes of action of breach of contract (an implied term that the defendant would carry out the survey with all reasonable care and skill) and negligence. The judgment carefully and succinctly reviewed the facts. It then dealt with the allegations of the appellants that the problems with the launch were caused not so much by longstanding rot, but, rather, by various failures and actions on the part of the Tods. The judge did not find fault on the part of the Tods in relation to those matters.

[15] He then dealt with what appears to have been a fundamental issue during the trial, which was the existence of rot at the date of Mr Macdonald’s inspection. The defendants had asserted that there was no rot on the "Talua" at the date of the inspection. This claim was firmly rejected and the evidence of Messrs Beale and Maddick as to the existence of rot, and indeed its existence for many years, was accepted. The judge accepted that the Tods acted reasonably in selling the launch at a substantial discount. He traversed Mr Macdonald’s method of survey and compared his evidence to that of other experts, including a Mr Robin Williams called by the appellants. He preferred the evidence of Messrs Beale and Maddick to that of Mr Williams, and noted that both Mr Beale and Mr Maddick were critical of the methodology adopted by Mr Macdonald. He was impressed by the professional approach of Messrs Beale and Maddick.

[16] He considered the disclaimer and found that it did not exclude liability. He then proceeded to deal with what appears to have been the core issue by the time the case had run its course in Court. This was the issue of whether Mr Macdonald should, as a professional surveyor, have discovered the dry rot when he carried out his inspection. He concluded that he should have. He stated at paragraphs 37 and 38 of the judgment:

[37] I have no doubt from what I have heard that Mr Macdonald has a reputation as a reliable and experienced marine surveyor. On this occasion, however, his decision not to go further in the ways I have described meant that he placed undue reliance on the tapping technique and Mr Broome ‘5 reports of meticulous maintenance. He needed to be wholly independent. His decision not to go further was instrumental in the positive but misleading picture he gave the Tods in his verbal and written reports.

[38] The Defendants’ report, given verbally by Mr Macdonald, encouraged the Plaintiffs to purchase because they understood accurately that it was a favourable report of a sound vessel which would give many years of service, provided only that regular maintenance was kept up and it was not pushed too hard. They operated the vessel within those parameters. The verbal report was instrumental in the decision to purchase the Talua and led to the loss claimed in a causative sense.

Issues to be determined on the appeal

[17] Counsel for the appellant has helpfully refined the issues raised. These are summarised in her submissions as follows:

41. It is submitted that the issues in this appeal can be reduced to two elements:

(a) Would the reasonable and competent marine surveyor lift a carpet that was secured at the edges by hooks and strips of wood, and does such work come within the terms "additional opening up" which Mr Macdonald specifically advised Mr Tod he would not do; and

(b) Was His Honour correct to infer that the deterioration in the condition of the Talua between the time of the Macdonald survey and the Beale survey was not caused by some intervening event that took place during the time that the Tods owned and operated the Talua.

This is a summary of the matters set out more fully in the grounds for the appeal.

Approach to the appeal

[18] Appeals to the High Court are by way of a rehearing based usually on the notes of evidence taken in the District Court. They may extend to issues of fact as well as law, although weight will be given to the advantages that the District Court judge will have had in seeing and hearing the witnesses: Wright v Powell [1982] 1 NZLR 473. The onus is on the appellant to show that the decision is wrong and particular weight will be placed on the judge’s findings of fact. This is particularly so in relation to matters of credibility. Weight will also be given to a District Court judge’s decision on an issue of what is good professional practice when that judge has heard the conflicting and various views of a number of experts.

[19] The process of reasoning of the District Court judge is, of course, always open to criticism and in this case the appellants submit that the learned judge erred in the conclusions he reached on the two issues.

The duties of a reasonable and competent marine surveyor

[20] It was noted by the District Court judge that there are difficulties in assessing the accepted and perceived obligations of a competent marine surveyor. He noted that there was no professional body of marine surveyors and, except where second opinions were sought, no system of peer evaluation. There was no accepted career path or recognised qualification.

[21] Ms Quinn for the appellants has referred me to a number of New Zealand and English decisions. She placed weight on Simon v Minister of Transport (Dunedin Registry, White J, 19 October 1982, A 14/8 1), White J upheld by the Court of Appeal in Simon v Attorney-General (5 July 1984, CA 18-83, CA). I do not find that case or other cases referred to of great assistance in that they are unreported decisions which deal with detailed factual allegations of negligence. She relies on the statement at p 32 of Simon:

The presence of rot is one thing. The discovery of it by recognised methods of testing is another.

[22] It is, of course, clear that the fact that rot exists and may have existed at the time of the marine survey, does not of itself mean that the marine survey was negligent. However, I do not discern this to have been the approach of the District Court judge.

[23] It is clear that the standard of reasonable care and skill allows for a margin of differing opinion and even a degree of error: Leigh v Unsworth (1972) 230 E.G. 501.

Discussion

[24] The first issue to consider is whether the District Court judge erred in concluding that Mr Macdonald should have opened up carpet and flooring in the rear cabin and thus discovered dry rot. Ms Quinn’s criticism of the judgment involved a detailed analysis of the evidence. It was her fundamental submission that excepting the presence of dry rot, Mr Macdonald could only have been expected to have inspected those parts of the launch that could be viewed without "additional opening up", to use the words in the disclaimer. She accepted that an external inspection, even if it did not disclose any problems, was not sufficient and that there was a duty to inspect the inside of the launch insofar as that was reasonably possible without having to remove screws or damage the boat. It was Ms Quinn’s submission that the hull beneath the rear cabin could not have been reasonably inspected because it was covered with floor timber and, above that, fixed carpet.

[25] There was some variance in the evidence as to the state of the flooring in the rear cabin. It was Mr Tod’s evidence that it was easy to lift the carpet and floorboards. He said that the carpet was edged with wool like an overlocker and sat like a mat on the flooring. Mr Tod’s evidence is that the carpet rested on strips of plywood with little tacks in it and it could be grabbed and lifted up. He also said that the floorboards were not nailed or screwed and could be uplifted.

[26] Mr Macdonald indicated that he did not wish to lift it because he did not wish to "muck up a perfectly good piece of carpet". Mr Broome said that the carpet was held down by a smooth edge, which was a strip of timber with little hooks in it. He initially said in his evidence that to lift the carpet could have ruined it but did not dispute Mr Tod’s evidence when it was put to him that the carpet could be pulled up and pushed back down again. He said in response to a cross-examination question that he would have no serious objection if Mr Macdonald had asked to lift the carpet.

[27] Messrs Beale and Maddick in their evidence did not refer to the presence of carpet, which may have been removed by the time they inspected the boat. Mr Beale gave evidence that he had to unscrew several quite large brass screws to access the bilge.

[28] There is thus some difference between the witnesses as to the exact fixings of the carpet and the floorboards. The judge made a finding of fact in this issue. He said:

From the evidence that I have heard, however, I conclude that the proper practice of a marine surveyor would include removing bunks, swabs and drawers, light floor coverings and cabin floors where, as here, they were simply held in place by their own weight, as the defendant knew.

He went on to say that even if the floor was held in place by screws, that the flooring should still have been removed and the hull inspected.

[29] This was a conclusion that was perfectly open to the judge to reach. I see no basis for interfering with it.

[30] All experts seem to have agreed at the hearing that everything inside the boat that could be inspected should be inspected on a marine survey. To use Mr Macdonald’s words "We look at the inside of a boat whether it looks perfect or not, if we can get to it."

[31] Given the judge’s finding of fact about the accessibility of the hull below the aft cabin, it follows that it would have been good practice for Mr Macdonald to have checked this area and that he fell below the required standard in not doing so. He could get to it. It does not appear to be in dispute that if he had inspected that area properly he would have discovered the dry rot. Therefore, I see no basis for criticising the conclusion of the District Court judge on this point and, indeed, given his finding that the area with dry rot was accessible, a finding of negligence was inevitable.

[32] Ms Quinn criticised the judge’s reference to Mr Macdonald’s reliance on tapping alone. She pointed out that the technique of tapping the external hull is well accepted and good practice and relied on Simon v Minister of Transport for this proposition. However, I do not consider that the judgment of the District Court judge in this case constitutes a criticism of the tapping technique. Rather, the judge says that tapping alone was not sufficient and that more should have been done.

[33] It is appropriate at this point to consider the disclaimer. The words read as follows:

Limits of Inspection

This inspection is based upon the observed condition of the vessel and is not a warranty expressed or implied thereof. This inspection will not include engine, associated machinery, spars, riggings and sails, a sea trial will only be included if instructed.

Disclaimer

Latent defects. We disclaim all liability where these cannot be determined without additional opening up or removal of coatings, panelling, joinery and the disassembly of all machinery, including plumbing, engine, wiring, spars and sails etc.

This is a surface inspection only and does not provide a guarantee of the structural soundness and integrity of the vessel. Recommendation may be made as regards further inspection.

All care is taken during this survey, but the surveyor is not responsible for any and all damage to the pre-existing condition of the vessel which occurs during the undertaking of this survey.

[34] These paragraphs do not purport to exclude all liability. Rather, they state that the survey does not constitute a warranty or guarantee. The disclaimer relates to latent defects that cannot be determined without "additional opening". The question arises as to the meaning of "additional". In its context the word appears to refer to opening up of areas which would be additional to that which could be normally sighted on an inspection. Thus, it might well exclude rot discoverable only by the ripping up of floorboards or other invasive techniques. It does, however, appear to expressly contemplate that there will be liability for defects that could have been discovered on ordinary or usual opening up. Given the finding of fact about the accessibility of the hull below the rear cabin, the dry rot must be considered discoverable without additional opening up and therefore not falling within the ambit of the disclaimer. This is the conclusion of the District Court judge and he was correct in concluding that the disclaimer did not exclude liability.

[35] I turn now to the second issue, which is causation. Ms Quinn refers to the possibility of there being an intervening event which may have caused the deterioration. I note, first, that the District Court judge had a proper basis to find that the core problem was dry rot, and this was the essential cause of the need for extensive repairs and the diminished value. In this regard Mr Beale’s evidence is relevant, which was that the defects would have existed for many years prior to his survey. Although there may have been trauma, the degeneration was not the result of any particular impact but of progressive ageing over a period of about 20 years. There had been no proper maintenance of the hull for decades. He stated that the defects would have been present to a roughly similar level at least five years before his survey, or probably longer. There was, thus, a proper basis for the judge to conclude that the problems which led to the loss had at their core the degenerative rotting over a long period, which should have been discovered by Mr Macdonald.

[36] Ms Quinn has carefully pointed to particular actions or inaction by the Tods, which may have constituted a cause. She referred to the following matters:

a) Difficulties in berthing the "Talua"

She suggested that it could be inferred from the evidence that there had been impacts when Mr Tod was turning or reversing "Talua" which could have caused damage. The District Court judge found no evidence of this and, indeed, Mr Tod specifically denied any impacts at speed. This assertion by him does not appear to have been challenged and I cannot see any basis for the general assertion that impacts by Mr Tod’s sailing the launch contributed to the degeneration.

b) Installation of the bower thruster

It was suggested that this could have contributed to the damage. The judge, however, observed that this could not explain the nature and the extent of the deformation of the hull and the rot inside it, and that must be so.

c) Use of the travel lifter

While it appears that the travel lifter was used contrary to Mr Macdonald’s advice, again, this cannot explain the deformation of the hull or the rot inside it that the judge observed.

d) Mr Tod’s seamanship and maintenance

While Mr Tod does not appear to have carried out a great deal of maintenance in the 12 months he used "Talua". and while not all the recommended maintenance work referred to in Mr Macdonald’s report was carried out, I note the judge’s finding that Mr Tod carried out his maintenance obligations "appropriately". That appears to me to have been a conclusion open to him on the evidence.

[37] The fundamental problem with Ms Quinn’s criticisms in this area is that none of the matters referred to can explain the existence of the rot, which was the core problem. Mr Beale’s evidence that degeneration would have begun 20 years earlier and would have existed to a roughly similar level at least five years earlier, is fatal to these arguments. At worst, any of these specified failings might have caused one or two specific items of damage, but would not have led to the general deterioration which was the fundamental problem.

[38] It was submitted that the judge should have placed the onus of proving that none of these items could have caused the problems on the respondents. However, a general reading of the judgment indicates that the judge was not satisfied that any of these specific alleged causes could be sustained irrespective of issues of onus.

[39] There is force in Mr Long’s submission for the respondents that the claims relating to these specific action or inactions of the Tods would have logically been treated as a matter of contributory negligence. They were not because the focus of the appellants in the District Court was to deny the existence of rot at all. If they had been pleaded as contributory negligence items the onus would have been on the appellants in any event. Similarly, if this is really a plea of novus actus interveniens the onus would usually rest on the party raising that plea, the appellants.

[40] However, I do regard the issue of onus as something of a distraction. The fundamental problem with these claims of contributing causes by the Tods is that they are obviously unsustainable and, indeed, illogical given the finding that the launch was infested with long-term rot. None of them can have contributed to that long-term rot and specific problems such as cracked ribs and areas of softness are no more than symptoms of that basic long-term problem. It is that basic long-term problem that should have been discovered by Mr Macdonald and was not.

[41] There has been no criticism of the quantum of the respondents’ claim. It was certainly open to the judge to infer that the "Talua" would not have been purchased if Mr Macdonald had pointed out the dry rot problems.

Conclusion

[42] The learned District Court judge has reached conclusions that were open to him on the evidence. There are no errors in his reasoning. The appeal is dismissed.

Costs

[43] Mr Long has indicated that there are various matters that he wishes to bring to my attention including some Calderbank correspondence. Accordingly, I reserve the question of costs.

[44] The respondents are to file submissions on costs by Wednesday, 15 February 2006. The appellants are to file submissions on or before Wednesday, 22 February 2006. Any reply by the respondents to be filed by Thursday, 23 February 2006.