Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd

IN THE HIGH COURT OF NEW ZEALAND
NELSON REGISTRY
CIV-2003-404-4995

BETWEEN NALDER & BIDDLE (NELSON) LIMITED
Plaintiff

AND C & F FISHING LIMITED
First Defendant

AND FV “JEANETTE” AT NELSON
Second Defendant

AND NALDER & BIDDLE MARINE & INDUSTRIAL COATINGS LIMITED
First Counterclaim Defendant

AND CALWELL SLIPWAY NELSON LIMITED
Second Counterclaim Defendant

AND ALLAN MALCOLM PRICE
Third Counterclaim Defendant

Hearing: (at Wellington) 26-29 April, 2-4 May, 9-10 May 2005

Counsel: G W Allan for plaintiff and first counterclaim defendant
N Carter with A E FitzHerbert for first and second defendants
C F Finlayson for third counterclaim defendant

Judgment: 16 June 2005

In accordance with r 540(4) I direct the Registrar to endorse this judgment with the delivery time of 9.45 a.m. on 16 June 2005.

JUDGMENT OF MACKENZIE J

Background

[1] The FV “Jeanette” is a 77 metre purse seiner owned by C & F Fishing Ltd (“C & F”), a company based in San Diego. The vessel was brought to Nelson in December 2002, for the purpose of undergoing a substantial refit by the plaintiff (“N & B”). That refit did not go smoothly. Relationships between the parties deteriorated to a point where the vessel was arrested by the plaintiff in April 2003, and these proceedings were commenced. In them, the plaintiff seeks to recover what it claims are further monies due for carrying out the refit. The defendant counterclaims for damages for defective workmanship, delay, and wrongful arrest. In that counterclaim, it joins a subsidiary company of the plaintiff which actually carried out the painting work involved in the refit, and the chief executive of the plaintiff, against whom it mounts claims in negligent misstatement, deceit, and under the Fair Trading Act 1986. A claim against the second counterclaim defendant, the slipping company, has been discontinued.

[2] The story starts in October 2001. The plaintiff, having undertaken the refitting of several vessels of a similar nature, was keen to obtain the work of refitting the “Jeanette”, if possible. It sent Mr McDowell and Mr Nicholson to Pago Pago in American Samoa to get instructions from Mr Finete of C & F as to the work which he wanted carried out, so that N & B could prepare a tender. Mr McDowell and Mr Nicholson both looked over the vessel, over about four days. A tender document was produced and sent to Mr Finete in December 2001. At that stage, N & B anticipated that the work would be done in early 2002.

[3] Mr Finete did not accept that tender at that time. Mr Price and Mr McDowell went up to Pago Pago again early in 2002 to discuss the tender with Mr Finete. It seems that Mr Finete was not then ready to proceed with the work. He did, however, in May 2002 place an order for N & B to build a skiff for the vessel. That is an auxiliary vessel, carried on the main vessel and used when setting the net in the course of fishing.

[4] In December 2002, Mr Price contacted Mr Finete in Pago Pago, and travelled to visit him on or about 13 December. Following that meeting, Mr Finete sailed on the “Jeanette” to Nelson, where he arrived on or about 20 December. He arranged for Mr Hollows, an engineer from Whangarei, to meet him in Nelson, and to act as shore superintendent for the refit. There were further discussions with the plaintiff. Mr Finete returned to San Diego, and Mr Hollows to Whangarei, for the Christmas break, and both returned to Nelson on or about 6 January 2003. There were further negotiations as to the work to be undertaken and as to price, over the next few days, and work started at about that time. Initial work was carried out while the vessel was in the water. Some of the work required that the vessel be slipped, and this was done between 7 and 17 March 2003. Work continued after the vessel was returned to the water.

[5] Relations between the parties became acrimonious. Lawyers were engaged on both sides. Issues were raised by the defendant as to the quality of the work, and as to the time taken. The plaintiff for its part was pressing for payment of the amount which it claimed was owing. The plaintiff issued proceedings and the vessel was arrested on 8 April. Work ceased on 18 April. Correspondence between the parties failed to reach a satisfactory arrangement for the provision of security. The plaintiff filed a caveat against release, which the defendant applied to set aside. On 1 May 2003, an order for release was made. The vessel sailed on 8 May.

The contract

[6] As a preliminary to considering the various issues which are raised, it is necessary to examine the contract between N & B and C & F. A striking feature of this case is the lack of attention paid to the formation of a clear and comprehensive contract for the carrying out of substantial work between experienced commercial parties. I have no doubt that many of the problems which arose, and the degree of acrimony which was engendered, could have been lessened had attention been given at the outset to formulating a contract which set out clearly the work to be done, defined the responsibilities and roles of the parties and the personnel involved, and provided clear procedures and documentation for the carrying out of the work and for dealing with circumstances which might arise. Unfortunately, there was none of that. The Court is not in a position where it can, in resolving the issues, turn to a clearly documented contract. The first task is to examine the dealings between the parties, and to piece together the terms of the contract or contracts to which those dealings gave rise.

[7] The genesis of the contractual documentation is the proposal prepared in December 2001. That contained a description of the work to be undertaken, with quoted, estimated or budget prices for each item. It contained a brief description of the work, under some 30 headings. Mr Dalzell, a paint expert called by the defendant, said, in relation to painting aspects, that he would never in a technical sense accord it the status of a specification. I accept Mr Dalzell’s view of the document. I consider his comment applies with equal force to the way other work covered by the proposal was described. Nor did the proposal contain provisions adequate to constitute the general conditions of contract which might be expected for a job of this size. All that was included in the proposal, by way of the matters which are normally dealt with in general conditions of contract, were very brief provisions dealing with variations and additional work, terms of payment, and a three page document described as N & B’s “Terms and Conditions of Trade for Business Customers (International)”. They covered very few of the matters which are customarily addressed in general conditions of contract for engineering or construction work.

[8] The proposal was at no point accepted, so as to constitute the contract. The parties at no stage expressly affirmed that document as constituting the contract between them. Nor did they prepare and sign or otherwise acknowledge any other document as constituting the contract for the refit. The course of events was that the representatives of N & B and C & F met together in December 2002 and January 2003 to discuss the work and the price. N & B then produced a large number of job cards, each of which set out the detail of a particular item of the work, giving the work to be undertaken, and the price for that item. Those job cards were signed by Mr Finete with the notation “Customer approval to start”. There was a further provision for signature for “Customer acceptance of work”. As to the terms of the contract, some (but not all) of the job cards contained the notation “We understand and accept your terms of trade and limitation of liability”.

[9] The sparseness of the formal contractual arrangements is such that the parties are at issue over whether there was one contract, or whether each job card constituted a separate contract. Doing the best I can with the meagre material available, I find that there was one contract, entered into in or about 6-8 January 2003, for the carrying out of the refit, the work to consist of such work as was described in any job card which was signed by Mr Finete with “customer approval to start”. (That finding applies to the work excluding the manufacture of the skiff. That was clearly the subject of a separate contract, entered into in or about May 2002.) The express terms of the contract comprised only the description of work and prices in the job cards. The contract was also subject to implied terms, being such terms as may be implied by custom or usage, or as necessary to give business efficacy to the contract, or as so obvious that they must have been intended to form part of the contract.

[10] N & B claims that its liability for breach of contract is limited or excluded by its terms of trade. Accordingly, it is necessary to consider whether those terms of trade have been incorporated into the contract. As I have noted, N & B’s terms of trade were contained within the original proposal prepared in December 2001. The question is whether those terms of trade (in which the limitation of liability clause is contained) form part of the contract. Before any works proceeded on the refit, Mr Finete approved the start of each item of work on a job card. He signed over 100 of those cards, on a series of dates in January 2003. Most, but not all, of the job cards contained the notation “We understand and accept your terms of trade and limitation of liability”.

[11] Mr Allan refers to the well-established principle set out in Burrows Finn & Todd Law of Contract (2nd edn) at p 207 that

if a document is signed the orthodox view is that it will normally be impossible to deny its contractual character, and evidence of notice, actual or constructive, is irrelevant.

[12] Without in any way questioning that orthodox view, I do not consider that it applies in this case. This is not a case which involves a signed contract. The signature on each job card had the specific and stated purpose of giving approval to start the work contained in the job card, not of indicating assent to the terms and conditions of a written contract. The situation is different from that in, for example, the classic case of L’Estrange v Graucob Ltd [1934] 2 KB 394, where the document signed was described as a “sales agreement”, and said “this agreement contains all the terms and conditions” of the contract. The signature in that case clearly had the purpose of signifying assent to the terms and conditions in that sales agreement. I have already commented on the absence of a formal contract in this case, in circumstances where a formal contract might have been expected. The parties have chosen to proceed without such a contract. In those circumstances, I think that it would be unrealistic to attribute to the parties an intention to treat the signature of the job cards as assent to a formal contract setting out or incorporating the written terms of the contract between them, when the signature is expressed to indicate only approval to start work. Further, I have already held that there is one contract in respect of the refit, not a separate contract created by each job card. That being so, it would be necessary to hold that the signature to the first job card had a dual significance, that is both as approval to start the work, and as assent to the contractual terms, whereas the signature of the subsequent job cards had only the effect of approving the work. There is an air of unreality about that. For these reasons, I hold that the signed job cards do not have the contractual effect of incorporating N & B’s terms of trade. Accordingly, the terms of trade will be incorporated only if notice of them has been properly conveyed, and the parties have shown an intention that they be incorporated. The fact that there is a reference to the terms of trade on the signed job cards is relevant to whether notice has been given. It is not, however, conclusive.

[13] The case for incorporation by notice must rest essentially on two facts:

(a) That the terms of trade were contained in the December 2001 proposal; and

(b) That the terms of trade were referred to in most of the job cards.

The question is whether those steps were sufficient to give C & F notice of the fact that the terms of trade would have contractual force. Mr Finete said that he did not sign the tender document, and was never asked to. He said that he was not aware of the limitation of liability clause. He said that he now knows it was in the proposal under the heading “Terms of Trade and Environmental Safety Management in New Zealand” and as a result of that heading thought it was to do with environmental issues only. He said that he would not enter into a $2.2 million contract and agree to a limitation of liability of $75,000 or even less. In support of that assertion, he referred to his dealings over the slipway. He was asked to sign a form of contract containing conditions for slipway use, before the vessel was slipped during the refit. One of the conditions was a limitation of liability. Mr Finete raised the issue and specifically insisted that the clause be altered. He signed the contract for slipway use only after an amendment to that clause was made. In cross-examination, Mr Finete’s attention was drawn to the words on the bottom of the job card, and he responded that he was not advised of them and didn’t think it applied to him. That was not further challenged, nor was there any evidence to contradict it. I find, in the light of his evidence, that he was not aware, at the time the contract was entered into, of the exclusion and limitation of liability clauses in the terms of trade. Because the December 2001 proposal never became a contractual document, I do not consider that the mere inclusion of the terms in that document is sufficient to constitute notice, or to give Mr Finete constructive notice that those were the terms of trade referred to in the job cards. The nature of the clause is relevant to the degree of notice required. J Spurling Ltd v Bradshaw [1956] 2 All ER 121 and Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 are examples. The clauses, on the meaning which the plaintiff seeks to attribute to them, would virtually remove any responsibility from N & B for its performance under the contract. I find that the inclusion of a clause limiting and excluding liability under the description of it in the proposal, without drawing specific attention to it, is not sufficient notice to incorporate that clause. Nor was the reference to terms of trade on the job cards, without specific advice as to the contents of those terms, sufficient to do so.

[14] In support of the contention that Mr Finete had notice of the terms of trade, Mr Allan advanced the proposition that C & F has had a number of refits of its vessels undertaken and that it is likely that those were subject to terms of trade, and that C & F has had business dealings with other firms involving terms of trade. I attach little significance to previous dealings. There was no evidence of what contractual arrangements were made for previous refits, or other previous business dealings. There was no evidence that there are usual terms of trade in the industry. In the light of Mr Finete’s evidence, to which I have referred, I do not attribute to C & F, or Mr Finete, any expectation that a limitation and exclusion of liability would be incorporated in the manner which is contended for by N & B in this case. Again, I refer to the lack of attention to contractual formalities which might have been expected. The situation is not one where C & F might reasonably have expected that important contractual terms would be incorporated in an informal way. This case is far removed from the normal “ticket” case.

[15] I therefore find that the terms of trade were not incorporated by notice into the contract.

The pleadings

[16] The pleaded claims and counterclaims can be shortly summarised. They are:

(a) A claim by the plaintiff for the balance of the contract price alleged to be owing;

(b) A statement of defence and counterclaim raising, by way of alternative defence, set-off or counterclaim against the plaintiff:

(i) defective workmanship and damage in the course of the works;

(ii) delay;

(iii) misrepresentation under the Contractual Remedies Act 1979;

(iv) Misleading and deceptive conduct under the Fair Trading Act 1986;

(v) wrongful arrest;

(vi) cancellation of the contract;

(vii) wrongful withholding of equipment leading to a loss of fish catch;

(c) A counterclaim against the first counterclaim defendant, in negligence;

(d) A counterclaim against the third counterclaim defendant, alleging:

(i) negligent misstatement;

(ii) misleading and deceptive conduct under the Fair Trading Act 1986;

(iii) deceit;

(e) An affirmative defence of limitation of liability based on its terms of trade is pleaded by the plaintiff to that counterclaim.

Issues

[17] It is convenient to deal with the pleaded issues under the following broad headings, dealing with the pleaded claims and counterclaims involving all parties under those headings:

(a) Quality of work

(b) Extras

(c) Delay

(d) Wrongful arrest, and withholding of equipment

(e) Representations.

Quality of work

[18] The quality of work issues can be dealt with under three broad headings. These are:

(i) Painting

(ii) Skiff welding

(iii) Gearbox damage

(i) Painting

[19] A significant portion of the work in the refit was the repainting of various areas of the vessel, with associated cleaning and preparation. In addition, antifouling of the underwater hull was required. For the painting work, Altex Coatings Ltd (“Altex”) was chosen as the paint supplier. For each job card which related to painting work, a specification was prepared by Altex. That was attached to the job card, and formed part of it. That set out the surface preparation to be undertaken, and the coating system to be applied. There is some measure of disagreement on the evidence as to whether Altex was chosen by Mr Finete, or by N & B. It is unnecessary to examine that, because, whatever the position may be, the contractual position is clear. In the rudimentary contractual framework which existed, there was no provision for nominated suppliers, or dealing with the responsibility which the contractor has for the work or product of a nominated supplier. Contractual responsibility rests with N & B.

[20] The painting work was in fact carried out by Nalder & Biddle Marine & Industrial Coatings Ltd (“Coatings”), although there was no evidence of any formal subcontracting of the work to that company. At the time when the original proposal was made in late 2001, that company (then called Nicholson Marine Coatings Ltd) was owned as to 50.1% by Mr and Mrs Nicholson and as to 49.9% by members of the N & B group. In December 2002, N & B acquired the Nicholson interests in that company. Mr Nicholson and another key person, Mr Bush, resigned on 20 December 2002. Responsibility within N & B for the painting work was given to Mr Sheehan. Mr Smith (who was called as a witness by C & F) had overall responsibility as project manager for the refit.

[21] The painting quality issues can be broadly divided into two. First, there is the underwater hull. There, the work consisted of cleaning, priming, and applying two coats of anti-fouling. Soon after the vessel was back in service, it was noted that excessive wear of the anti-fouling was occurring. The “Jeanette” was slipped in Pago Pago in November 2004 and inspected. The anti-fouling of the vessel was redone at that time. It is not in dispute that the anti-fouling did not last as long as it should. Anti-fouling operates by ablation of the coating over time. The rates of ablation specified for the product used should have given a life of approximately 36 months. The rate of wear was such that the anti-fouling had to be re-done after about 20 months in the water. The reason for the shortened life, however, is in dispute. C & F claims that it is as a result of defective materials or workmanship. N & B claims that the excessive wear has been caused by the rubbing of nets or ropes against the anti-fouling.

[22] The principal witness for C & F, on painting issues, was Mr K W Dalzell. He has been a consultant in corrosion control and protective coatings for approximately 34 years. He has academic qualifications and practical experience in most facets of the industry. He inspected the “Jeanette” on 9–11 and 22 April 2003, when the vessel was in Nelson. He inspected it again in American Samoa on 9 and 10 November 2004. In the inspection when the vessel was slipped in November 2004, he noted that the outer anti-fouling coat displayed a conspicuous lack of resistance to burnishing with a cloth when wetted with sea water. There was other evidence before the Court that the outer anti-fouling coat rubbed off when rubbed by hand. Mr Dalzell expressed the opinion that it should not be possible to rub off selfpolishing anti-fouling coating in that manner. He said that the reason for the accelerated loss of that anti-fouling must remain a matter of speculation, but that there was no doubt in his mind that composition characteristics of the outer antifouling coat in particular and, to a lesser extent, the under anti-fouling coat, was the principal cause of the accelerated loss. He expressed the opinion that functional service and resilience offered by the anti-fouling system applied by N & B was less than satisfactory after only 18 months.

[23] Mr Ryan, who was the representative for Altex involved with the job, was called by N & B. He said that he found it unusual, perhaps extraordinary, to have seen wear like this, and he had never seen similar wear patterns. He expressed the opinion that, if the wear was due to paint quality, one would expect the wear to be even except where there has been physical abrasion by nets, ropes or fenders. He expressed the view that abrasion was the cause of the excessive wear. He did not accept that there was any problem with the product. He drew support for that opinion from the fact that there had been areas of the hull where wear was not excessive. He did not accept that it should not be possible to rub off self-polishing, anti-fouling coating.

[24] I prefer the evidence of Mr Dalzell. He is eminently well qualified in his field of expertise. He also has the advantage of being independent of any of the parties, or of the paint manufacturer. Mr Ryan’s view that abrasion had occurred was pure speculation, as there was no evidence that any abrasion outside that which could be expected in the ordinary course had occurred. Nor, on my assessment of it, did the photographic and video evidence support his theory that abrasion was the likely cause. The wear was uneven, but there were no obvious indications of abrasion. The nature of the wear seems, on my assessment of it, consistent with Mr Dalzell’s opinion. The photographic and video evidence of the ease with which the anti-fouling could be rubbed off makes Mr Dalzell’s opinion on this aspect inherently more credible than that of Mr Ryan.

[25] Mr Carter submits for C & F that the conditions implied by s 16 of the Sale of Goods Act 1908 apply to the supply of the anti-fouling coatings. Mr Allan submits that this is not a sale of goods to which that Act applies. I find that s 16 does not apply. This was not a sale of goods. It was a contract for work and materials. But the distinction is not material. An undertaking to use materials of good quality, and that both the workmanship and materials will be reasonably fit for the purpose for which they are required, will be implied in a contract for work and materials (Hudson’s Building and Engineering Contracts, 11th edn, para 4.066). I find that N & B is in breach of those obligations in respect of the implied warranty as to fitness for purpose in the respects which I have identified.

[26] The evidence as to the condition of the underwater hull on slipping in Pago Pago in November 2004, both from Mr Dalzell’s description of it, and the photographic evidence, established that the step of replacing the anti-fouling was reasonably necessary. Indeed, N & B did not contend that it was not.

[27] The second painting quality issue involves many areas of other paintwork. The primary complaint relates to the standard of preparation that was achieved. Mr Dalzell was critical of the standard of workmanship. He expressed the opinion that there was a lack of planning in carrying out the painting work. He said that in his inspections in April 2003 there did not appear to be any active and organised supervision of work staff, and the staff did not instil confidence that the necessary skill and experience existed to execute the work in a satisfactory and safe manner. His inspection of the paint work in April 2003 disclosed areas where the paint application was not complete, and paint was not firmly adherent. He expressed the opinion that in many areas the work to date should have been rejected, remaining existing paint removed by blasting and the surface restored by further spot priming prior to top coating. When he re-inspected in November 2004, he found many areas of rust and rust staining. He came to the conclusion that in the interval between his inspection on 10-11 April 2003 and 22 April 2003, while an effort may have been made to cosmetically complete the work, the means to that end in many instances were technically unsound. In areas demanding of excellent preparation, application of even and unbroken paint films, and attention to cleanliness at all times, this had not been evident. In areas subject to an atmospheric marine environment, where one could expect persistent salt accumulation, the standard of workmanship to achieve sustained performance from coating refurbishment was not evident. He expressed the conclusion that the project outcome had been poor.

[28] Mr Dalzell’s views as to the standard of workmanship on painting are confirmed by other evidence. First hand evidence of practices adopted by the painters was given by Mr Hollows. As shore superintendent for C & F, he was on site throughout the work. He said that during the contract he repeatedly spoke about the standard of the paintwork with N & B management but the standard of work did not improve. He said that the painters did not prepare surfaces properly and painted over rust, grease and other contaminants. He described the paint job as “horrific” and “totally inadequate”. Mr Smith, the project controller for N & B, also said that “in my view, large areas of the painting works were below standard”. Numerous photographs and a video were produced in support of the claim that the paintwork was unsatisfactory. Many of these tend to confirm the views expressed by Mr Dalzell, Mr Hollows and Mr Smith.

[29] Mr Ryan had, during the refit, signed off the paintwork as acceptable. I attach little weight to that. In the first place, that sign-off had no contractual significance. It was not a term of the contract that the paintwork be completed to the satisfaction of Altex, or that Altex’s acceptance of the paintwork would be determinative as between N & B and C & F. Also, in a report made after inspecting the vessel in March 2004, he described the paint condition as “generally worse than normal given the time the vessel had been in service”. An earlier report during the work, in March 2003, also noted defective work. There is some conflict, in some cases, between what was specified and what was signed for. There were some instances where the original job cards for certain painting items, as signed by Mr Finete, were apparently later altered, without Mr Finete’s signature being obtained. Mr Ryan’s approval was of the altered version in some cases. Mr Carter placed considerable emphasis on these alterations. On the view which I have reached, and the relief which I propose to grant in respect of the painting, it is unnecessary for me to determine the exact specification which applied. I therefore do not propose to examine the issue in detail. I prefer the view that the sequence of events with these job cards is symptomatic of the lack of proper organisation and documentation which was prevalent in this project, rather than anything more sinister.

[30] A further relevant factor on the standard of the paintwork is the change in ownership and management of Coatings, when Mr Nicholson departed in December 2002. The evidence satisfies me that the departure of Mr Nicholson and Mr Bush left Coatings and N & B short of the experience necessary to plan and supervise the painters. Mr Sheehan was appointed manager of Coatings on 5 January 2003. He was not called, so I am not aware of his experience. It is not necessary for me to consider in detail the views which were expressed by Mr Nicholson in particular as to the abilities of the staff in Coatings after his departure. His views could not be described as objective. The abilities of those involved to carry out the work are to be judged, so far as relevant, by the outcomes achieved. Those outcomes were unsatisfactory.

[31] Mr Dalzell expressed the opinion that for the areas other than the underwater hull a paint life of five years might be expected. He expressed the opinion that the paint work is in need of remedial preparation and painting, the only real issue being the priority attaching to specific surfaces. He instanced various high priority surfaces: the fishwells, coamings and upper/lower pipe alley: priority surfaces: the foredeck and foredeck surfaces, booms, davits and associated infrastructural items, aft working deck, bulwarks and skiff; and lower priority surfaces: the vessel’s outer hull surfaces, including fashion sides, speedboat deck and kingpost surfaces.

[32] I find that N & B was in breach of its contractual obligation to carry out the painting works in a proper and workmanlike manner.

[33] C & F claims against Coatings that it owed a duty of care to complete the painting works in a reasonable and tradesmanlike manner and in a reasonable time, and that it was in breach of that duty. On the pleadings, Coatings admits that it completed the painting work on behalf of N & B and that it knew that the painting works were being completed for C & F. It denies the duty contended for.

[34] Mr Carter submits that a duty should be imposed in this situation, as there is no contract between the parties and in particular no contract between Coatings and N & B. He submits on that basis that the case is distinguishable from the construction cases concerning liability of a subcontractor to the building owner, such as R M Turton & Co Ltd (In Liquidation) v Kerslake & Partners [2000] 3 NZLR 406.

[35] The question whether and when a duty of care exists, where the actions in respect of which the duty is alleged to exist arise in the course of the carrying out of a contract or contracts in which the parties are involved, can be a difficult question. As the majority of the Court of Appeal held in Turton v Kerslake, whether there is a duty of care depends upon consideration of all the circumstances, including the contractual matrix. In the typical case of a building or construction contract, a duty of care from the subcontractor to the building owner will not normally arise. As Lord Goff of Chieveley said in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 195-196:

… Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the 16 building owner for the construction of the relevant building, and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the subcontracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility. This was the conclusion of the Court of Appeal in Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 All ER 791 at 803, [1988] QB 758 at 781. As Bingham LJ put it:

‘I do not, however, see any basis on which [the nominated suppliers] could be said to have assumed a direct responsibility for the quality of the goods to [the building owners]; such a responsibility is, I think, inconsistent with the structure of the contract the parties have chosen to make.’

[36] Essentially, the issue here is whether this case is an application of that general principle, or an exception to it.

[37] There is no evidence that there was any formal subcontract between N & B and Coatings in respect of the painting work. Given the lack of attention to contractual detail between N & B and C & F, and having regard to the fact that Coatings was at material times a wholly owned subsidiary of N & B, this seems unsurprising. However, despite the lack of a formal contract, to the extent that Coatings undertook responsibility for the painting work, it is clear that as between Coatings and N & B the only possible legal basis for that responsibility is a contractual one. I do not consider that this is a case which justifies the imposition of a separate duty of care direct from Coatings to C & F, as an exception to the normal principle which applies in the case of work which is subcontracted. I hold that no duty of care, independent of the subcontract, is owed by Coatings to C & F.

(ii) Skiff welding

[38] The next quality of work issue relates to the welding of the skiff. As I have earlier noted, the original proposal contained an item for the construction of a skiff. The price was to be $357,000. The description of the work in the proposal amounted to one and a half pages. A series of photographs of a similar skiff, and a plan, were also sent to C & F. The plan was a one page general arrangement plan for an 11.3 metre skiff boat. No more detailed plans were submitted. The contract to build the skiff was made in an exchange of letters in April and May 2002.

[39] Mr Finete contends that the skiff should have been 100% continuously welded along all joints. In some places, stitch welding was used. Again, the inadequacy of the contract is apparent. No detailed plans or specifications were prepared. There is no express term as to the extent of welding required. Mr Finete said that he required 100% continuous welding. He said that he asked for the skiff to be 100% fully welded when he met with Mr McDowell and Mr Price in late 2001/early 2002. Both of them denied agreeing to that. He said that he wanted a skiff which was the same as other skiffs of which he was aware, one of which he saw with Mr Price and Mr McDowell. He claims that the skiff should be identical with the skiff for the other vessels (particularly the “Diana”) and that that skiff was 100% continuously welded.

[40] I find that it was not a term of the contract that the skiff be identical with that for the “Diana”. The contract was for the skiff to be built to the general arrangement plan which was sent. In any event, there was not sufficient evidence to establish that the “Diana” was fully welded. A photograph which was produced to show that did not satisfy me, on the balance of probabilities, that that skiff was 100% continuously welded. The general arrangement plan was not sufficiently detailed to show the extent of welding. I am not satisfied, on the balance of probabilities, that it was agreed that the skiff be 100% continuously welded. I therefore find that there was no express term that the skiff be 100% continuously welded. I also find that no term to that effect is to be implied. I find that there is implied a term that the skiff be reasonably fit for the purpose intended. Mr Finete said that the reason why 100% continuous welding is necessary is that the skiff is subject to considerable stresses, notably when it approaches the mother vessel for re-boarding, and is loaded on to the mother vessel. There was no evidence from a suitably qualified person to establish that the skiff would not be reasonably fit to withstand those stresses. The evidence fails to discharge the onus on the defendant to establish, on the balance of probabilities, that continuous welding of all joints, rather than the continuous welding of the joints which are subject to the greatest stress, and stitch welding of others, was required to make the skiff reasonably fit for its intended purpose. No evidence of structural damage to the skiff from the period that it has been in service, sufficient to demonstrate a breach of the implied term as to reasonable fitness for purpose, was adduced. It is also relevant to note that, as a response to Mr Finete’s complaints about the skiff, N & B issued a guarantee of the skiff as fit for the purpose intended, effective for six months. No evidence of any claim under that guarantee, either within the six month period or afterwards, was adduced.

[41] C & F has accordingly failed to establish any breach of contract by N & B in relation to the method of welding of the skiff.

[42] Some other issues concerning the skiff were also raised. There was an issue about the extent of items to be supplied by C & F with the motor. Those items do not appear as disputed items in the memorandum as to quantum dated 11 May 2005 which was produced at the conclusion of the hearing. Some items were resolved by the parties at a late stage. In case there are other unresolved issues, I reserve any outstanding matters about the skiff for further submissions, as I later indicate. C & F also claims that no sea trials were carried out. The skiff was accepted, and a six month guarantee issued. I consider that no loss has been shown to arise from the failure to conduct sea trials.

(iii) Gearbox damage

[43] C & F alleges that in the course of the works N & B damaged the gearbox and seals. Mr Pope, the manager of the hydraulics division of N & B at the time, described this. He said that a shaft on one of the auxiliary engines driving the hydraulic system, in what is known as a splitting gearbox, was damaged in the course of work on the gearbox. A lip on the shaft was damaged, to an extent where it will continue to operate, but in accordance with good engineering practice should be replaced. It has not yet been replaced. C & F claims $US10,156.00, being the amount of a quotation from Mr Steckel, a US engineer, to travel to Samoa and carry out the repairs. N & B disputes the cost. Mr Pope expressed the opinion that a shipyard in New Zealand could carry out the work for probably no more than $3,000, plus travel to Samoa if the work was carried out there. It proposes a total credit of $5,000.

[44] I hold that N & B is liable for the damage. I adopt as the measure of damages the amount of the quotation obtained by C & F, that is, $US10,156. That quotation is to be preferred to what is no more than a statement of opinion.

Extras

(i) Painting extras

[45] N & B claims a total of approximately $17,000 for extras, above the quoted prices, for the painting, because it is claimed that, for some painting items, the job cards specified a percentage bare metal allowance, and those allowances were exceeded. A bare metal allowance was included where preparation required blasting of existing paintwork which would expose some bare metal, but leave other areas where the existing paintwork was still in place. The areas which were taken back to bare metal needed to be primed before upper coats could be applied to the entire surface. In the job cards, an assessment was made of the likely extent of bare metal which would be exposed, and the price for that job card allowed for the priming of that area of bare metal. N & B’s claim is that in some areas preparation led to greater than the specified percentages of bare metal being exposed. It claimed an additional allowance for priming that additional area, in three job cards dated 10 April 2003. None of those job cards was signed by Mr Finete, either for approval to start, or for customer acceptance of the work.

[46] One can readily appreciate the rationale for providing in the contract a price based on an estimate of the likely exposure of bare metal, to be adjusted when the exact extent of bare metal was known. The difficulty for N & B in this case is that, because of the rudimentary nature of the contract, to which I have earlier referred, no procedure to effect that was included. This is not a situation where the Court can imply a term to give business efficacy to the contract. The terms of such an implied term cannot be said to be so obvious as to go without saying, or to be able to be stated with certainty. There are important questions, such as:

(a) Who is to determine whether the allowance has been exceeded;

(b) How the adjustment to price is to be calculated;

(c) Whether the clause is to work both ways – that is, to allow for a reduction where the allowance is greater than the actual, as well as for an increase when the allowance is less than the actual.

The contract is entirely silent upon all of those issues. In this case, to imply a term would not be to give expression to the clear and obvious intention of the parties. It would be to draft that part of the contract for them, and to determine the allocation of risk which the parties have failed to address.

[47] If a term were to be implied, that would need to include a procedure for obtaining the agreement of the owner to the exact extent of the bare metal allowance. Mr Hollows said that what normally happens is that after blasting is finished the owner and contractor view the amount of metal exposed and agree an allowance before painting commences, and that this is accepted industry practice. On the evidence, no such assessment occurred. If an assessment needed to be made, then it is to be expected that either Mr Finete or Mr Hollows, both of whom were on site for the period of the repairs, would have been asked to participate when the work was at an appropriate stage. Mr Hollows said that at no time was he approached to verify the bare metal allowance. That evidence was not challenged. Mr Price said that Mr Hollows and Mr Finete must have been aware of the extent of bare metal. But that is not sufficient: what should have been done was an assessment, and agreement of the extent. Mr Finete said that he did not ask for these works to be completed. He said that he advised N & B’s staff to stop water blasting at a very high pressure with a rotating head, as it was removing too much paint. The extent of the bare metal allowance is entirely based on N & B’s own estimate. I find that N & B has not established a contractual entitlement to the extras based on exceeding the bare metal allowances.

(ii) “0” well extras

[48] The vessel has a number of wells for storing fish, down the port and starboard sides of the vessel. Towards the bow, forward of the fishwells, there is an additional well which, prior to the refit, was a tank for storing fresh water. The refit involved converting the freshwater tank into a fishwell. The extent of and the price for the work were negotiated on or about 6 or 7 January 2003. Conversion to a fishwell would have required the installation of refrigerant coils. Mr Finete was not happy with the price being quoted for work on the coils, and so it was agreed that the conversion would proceed only as far as the fixing points for the coils. The work involved some structural repairs, and plate work. After those negotiations, N & B issued job card 181 detailing the work, and showing the price of the work as $26,316.00. That job card was approved by Mr Finete for commencement. On or about 20 March 2003, N & B issued job cards 183 and 184-8 in respect of extras for the “0” well. This was done without discussion with Mr Finete or Mr Hollows, and the job cards were never signed. Those job cards totalled $22,535.00. Mr Hollows in his evidence accepted that extra work in the “0” well, over that allowed for in job card 181, was involved. He said that it had been agreed that the price for the extra works would be based on a labour rate of $1,120 per m² of the steel plate used for internal plate, or $1,400 for hull plate, plus $170.33 per m² for materials. He calculated the amount of the extras at $27,412.26. He stated that that figure was close to that calculated by Mr Wynne of N & B. I am satisfied that the basis of costing for the “0” well extras was agreed as stated by Mr Hollows.

[49] N & B also issued job card 180, dated 22 January 2003, for $92,823.00, in respect of what is described as “ ‘0’ fishwells – extras”. The job card is unsigned. It is said to be in the painting discipline, although the job details, which are a series of headings only, include items which are clearly not painting, and there is only one item for painting. Mr Hollows described himself as being at a loss to understand how these extras were calculated. It appears from the evidence that the amount has been calculated by taking the figures in N & B’s costing records as representing the total time spent on the job, deducting from those the amount originally quoted, and issuing a job card for the balance. In effect, N & B seeks to convert the basis for payment for the “0” well work from a quoted price to a charge out basis based on the amount of labour actually expended.

[50] I find that N & B has not established an entitlement to extras in the amount of that job card. To calculate extras on that basis would be to allow N & B to claim on a “charge-out” basis: that is, to calculate the price on the basis of the time actually taken. Nowhere else in the refit was that approach adopted. That approach would yield a fair result only if one could be satisfied that the work had been done as efficiently as possible. For reasons which I amplify later, in relation to the delay claim, I am not so satisfied.

[51] I find that the amount to which N & B is entitled for extras on the “0” well is $27,412.26, as calculated by Mr Hollows.

Delay

[52] The next issue is that of delay. The first task is to determine the contractual position as to when the work should have been completed. Again, the contract does not make clear provision. No time for completion is fixed; nor is there any provision setting out the circumstances in which the contract time may be extended. Because no time for completion is fixed, a term is to be implied that the work must be completed within a reasonable time. It is necessary to determine what is a reasonable time.

[53] There are a number of indicators in the documentation which assist in this task. In the December 2001 proposal, items were included for the supply of wet berthage for 70 days at Port Nelson and 10 lay days dry docking. A daily rate for additional lay days was given. Thus, it is clear that N & B considered that a realistic estimate of the time required for completion of all of the work shown in that proposal was a total of 80 days. The work actually involved in the refit (including the extras, in particular the work on the “0” well) was, on price at least, less than the work proposed in that proposal. Another indication is contained in a letter dated 8 January 2003 from N & B to C & F. That letter contained a guarantee in respect of the skiff. It stated that the guarantee was “effective from date of ‘FV Jeanette’ sailing from Port Nelson (approximately in early March 2003)”. Those documents are the only indications of N & B’s expectation as to the time to be taken to complete the works when work started. Another striking omission in this case is the lack of any documentation from N & B as to a work programme. It appears that no work programme, or critical path analysis, was prepared by N & B. The only document produced which set out to consider a work programme, and a likely contract duration, was a document prepared, after the event and for the purposes of the litigation, by Mr Hollows. That analysis showed that the work could, in Mr Hollows’ assessment, have been completed within 50 days. Mr Hollows was not substantially challenged on whether his programme was realistic. Fifty working days from 6 January would end about 17 March 2003.

[54] N & B’s approach to the question of what is a reasonable time for the works has essentially been to work backwards, taking as a starting point the time actually taken, and considering whether that seems reasonable. Mr Hayter, who is a marine surveyor and assessor, gave evidence that he was instructed “to provide an expert opinion as to whether in my judgment the refit did or did not take an unreasonable length of time”. To undertake that task, he reviewed the documentation, interviewed two key employees, reviewed job cards and examined records of time and materials, reviewed the evidence to be provided by witnesses for C & F as to the estimated time for painting remedial work, and viewed photographs of the work done. He expressed his views in these terms:

My conclusion is it could not be said the total refit took an unreasonable length of time.

[55] I am satisfied that that method of calculating what is a reasonable time is not appropriate. The contract is, because of the absence of a fixed contract period, one to complete the works within a reasonable time. In implying a term that the works are to be completed within a reasonable time, the Court is necessarily considering to the parties’ intention at the time the contract was entered into. Accordingly, the starting point in determining a reasonable time must be the time that the parties considered appropriate before the works commenced. It may well be that events during the course of the works would alter the expectation as to a reasonable time for completion, just as a fixed contract period may have to be extended by reason of events occurring during the course of the works. So, subsequent events may affect the calculation of a reasonable time, but the starting point is the expectation at the outset.

[56] Adopting that approach here, it appears from the indications referred to above that the expectation of the parties at the outset was that the work would be completed by mid to late March. Work started on or about 6 January, and a period of 80 days would have expired on 27 March. That is broadly consistent with N & B’s estimate in the skiff guarantee of a sailing date of approximately in early March, when account is taken of the fact that the work which was envisaged as at 8 January was considerably less than the work in the 2001 proposal, especially in that the work in the “0” and No. 1 wells, and on the coils, was substantially less than in the proposal. The extra work in the “0” well, which was encountered during the course of the works, would require some increase. Looking at the matter broadly, I consider that it is reasonable to advance the date from “approximately early March” to 27 March, being the 80 days in the proposal.

[57] There are no other factors which would require an extension of that time. The extra work has already been taken into account in fixing that time. Considerable attention was paid, in the course of the evidence, to delays in the slipping of the vessel, because of damage which had occurred to the slip. I can deal very briefly with that. The evidence indicates that the slip was unavailable between 20 February and 7 March. N & B submits that that time (15 days) must be added to the time for completion. I do not accept that submission. There was no evidence that the time of slipping was on the critical path, in that there was any work, apart from that which had to be done while the vessel was on the slip, which could only be done after slipping. There is therefore no evidence that the intended order of work could not have been rearranged to have some work done before, rather than after, slipping. N & B has failed to establish that the delay in slipping involved an equivalent, or any, delay in completion.

[58] Mr Allan submits that C & F had no fixed plan, and work was dripfed. As I have held, N & B had no work programme. The responsibility for planning the work was N & B’s. There is no evidence that any difficulty in obtaining C & F’s approval was causative of any delay.

[59] Accordingly, I find that a reasonable time for completion is 27 March 2003. The work was not completed by that date, and so there is a claim for delay. Fixing the end point of the delay is complicated by two aspects:

(a) C & F’s purported cancellation of the contract; and

(b) The arrest of the vessel.

[60] By letter dated 7 April 2003, C & F by its solicitors gave notice that if the works were not completed by 12 April 2003, time being of the essence, the contract would be cancelled. Because, as I have held, the time for completion had then passed, I find that C & F was entitled to give notice making time of the essence. N & B gave notice through its solicitors, by letter dated 14 April, that no further work would be done. Work in fact ceased on 18 April. By reason of the findings which I have made, the works had not been completed in accordance with the contract by that date. By letter dated 6 May, C & F’s solicitors gave notice of cancellation of the contract.

[61] I deal below with the question of whether the arrest was wrongful or not. For present purposes, it is sufficient to note that, whether or not the arrest was wrongful, the mere fact of arrest could not have the effect of bringing the period of delay to an end. That is to say, if, at the time of the arrest, the work had not been completed, so that the delay was continuing, the fact that delivery of the vessel to C & F was prevented by the arrest would not relieve N & B from the consequences of that continuing delay. Mr Allan submits that the work was completed by 18 April. I do not accept that submission. The evidence establishes that no further work was carried out after 18 April. But I find that the contract was not completed at that date. There was defective workmanship, in the painting, which was of such a nature that the contract cannot be held to have been completed on 18 April. Accordingly, time does not cease to run from that date.

[62] The release of the vessel was ordered by this Court by order made on 1 May 2003. After that order was made, C & F experienced further difficulties in obtaining the release and enabling the vessel to sail. The vessel sailed on 8 May 2003. Having regard to the fact that the contract was cancelled on 6 May 2003, and that the vessel sailed from Nelson on 8 May 2003, I hold that the period of delay in completion is the period between 28 March and 7 May 2003, both days inclusive. That is a period of 41 days. I hold that N & B is contractually responsible for that delay.

Wrongful arrest

[63] C & F claims against N & B that the arrest of the vessel was wrongful. It also claims that the issuing of a caveat against release was wrongful.

[64] The principles as to when damages may be awarded for wrongful arrest are long-established, and were set out in Xenos v Aldersley (The “Evangelismos”) (1858) 12 Moo PC 352. That was a collision case. The “Evangelismos”, thought to have been the vessel involved in the collision, was arrested. The action against the vessel failed, because it was not established that it was the vessel involved in the collision. The Privy Council, on appeal from the High Court of Admiralty refusing damages for wrongful arrest, stated the principles applicable in these terms at p 359:

The real question in this case, following the principles laid down with regard to actions of this description, comes to this: is there or is there not, reason to say, that the action was so unwarrantably brought, or brought with so little colour, or so little foundation, that it rather implies malice on the part of the Plaintiff, or that gross negligence which is equivalent to it?

[65] That principle was applied in Centro Latino Americano de Commercio Exterior S.A. v Owners of the Ship “Kommunar” (The “Kommunar”) (No. 3) [1997] 1 Lloyds Law Reports 22. Colman J, in the Admiralty Court, explained the principle in The Evangelismos in these terms at p 30:

Two types of cases are thus envisaged. Firstly, there are cases of mala fides, which must be taken to mean those cases where on the primary evidence the arresting party has no honest belief in his entitlement to arrest the vessel. Secondly, there are those cases in which objectively there is so little basis for the arrest that it may be inferred that the arresting party did not believe in his entitlement to arrest the vessel or acted without any serious regard to whether there were adequate grounds for the arrest of the vessel. It is, as I understand the judgment, in the latter sense that such phrases as “crassa negligentia” and “gross negligence” are used and are described as implying malice or being equivalent to it.

[66] In Banque Worms v The Owners of the Ship or Vessel “Maule” [1995] HKCA 305, the Court of Appeal of Hong Kong noted an analogy with the tort of malicious prosecution as being well established. Bokhary JA said:

There is therefore justification for the view expressed by Prof. D.C. Jackson in his book “Enforcement of Maritime Claims” (1985) at p. 178 that it “seems that for damages to be awarded there must be some element in the arrester’s conduct apart from enforcement of his claim”. Bearing in mind the analogy to which I have referred, I examine with interest the discussion in “Winfield and Jolowicz on Tort”, 14th ed. (1994) on the element of malice in the tort of malicious prosecution. At the bottom of p. 579, the learned editor offers the suggestion “that malice exists unless the predominant wish of the accuser is to vindicate the law”.

Adapting that to the wrongful arrest of a ship, it could be said that malice exists unless the predominant wish of the plaintiff is the enforcement of his claim by a sincere use of the process of arrest. And that, I think, is what Prof. D.C. Jackson was driving at.

[67] A relevant consideration in that case was held to be whether the plaintiff had acted on legal advice. Bokhary JA said:

In answering that question, we cannot assume that the plaintiff had not sought – and proceeded under – legal advice from a competent source.

While I would not be prepared to go so far as to say that such advice is invariably a good answer to a claim for damages for the wrongful arrest of a ship, it seems to me that such advice must be at least a relevant factor to be taken into account in favour of anyone facing such a claim.

Nazareth VP said:

I say that the test presents no great difficulty in this appeal because the submissions came to focus upon the question whether the appellant had sought and proceeded in accordance with competent legal advice in arresting the vessel. An answer in the affirmative, while not necessarily a defence to mala fides, would make difficult a finding that the appellant was guilty of malicious negligence…

[68] Mr Carter relies also on Gulf Azov Shipping Company Ltd; United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd v Chief Humphrey Irikefe Idisi; Lonestar Drilling Nigeria Ltd & Lonestar Overseas Ltd [2001] EWCA Civ 505. There the vessel had been arrested on a claim for about $US70 million. The essential issue, on the wrongful arrest claim, was the quantum of the claim, it not being in dispute that some amount was owing. Longmore LJ said:

43. …. If a claimant has an arguable claim he may, of course, arrest a vessel to secure his claim. But if he declines to release a vessel against a proffered security and keeps it detained for nearly 2 years and is then sued for wrongful arrest, it is his attitude of mind during the arrest that is relevant. The fact that the amount for which the vessel was arrested might be capable of justification at some later date is nothing to the point if, at the time of arrest, the claimant has no belief that he is entitled to the amount claimed. In the present case, it is clear that there was no objective justification for the amount claimed and the question is whether Lonestar/Chief Idisi believed that there was. In the absence of any attempt to prosecute any appeal from the decision that $1 million was the claimant’s best arguable case and in the light of Chief Idisi’s deliberate decision to keep the vessel under prolonged arrest, it seems to me that the absence of any “serious regard to whether there were adequate grounds for the arrest of the vessel” for security in the sum of $17 million is overwhelmingly established.

[69] Mr Carter submits that N & B had no reason to believe that the full amount claimed of over $700,000 was due on the date of the arrest. I do not consider that it is appropriate to focus on the amount claimed, in determining the question of whether there has been mala fides or gross negligence. The question of mala fides or gross negligence must be considered in relation to the fact of the arrest, rather than the quantum of the claim. It is the existence of an appropriate claim that gives rise to the right of arrest. The quantum of that claim is relevant to questions of release, and the amount of security that is to be provided. As is common ground here, based on the decision in the Det Norske Vertas AS v The Ship “Clarabelle” [2002] 3 NZLR 52, the amount of security to which an arresting plaintiff is entitled is to be calculated on the basis of its reasonably arguable best case. It would be inconsistent with that test to hold, in considering whether an arrest was wrongful, whether the plaintiff had a bona fide belief that the full amount of the claim was payable. The question must be whether the plaintiff had a bona fide belief that the amount claimed represented its reasonably arguable best case. That is quite a different question.

[70] Applying that test, I do not consider that the evidence shows a lack of reasonable belief that an amount sufficient to give rise to the arrest of the vessel was then payable, such as to constitute mala fides or gross negligence. The terms of the contract as to payment were not clearly spelt out. The terms of trade referred to payment, and said that progress payments were required. I have held that these terms of trade did not form part of the contract. However, the issue here is whether N & B reasonably believed that it was entitled to progress payments. N & B clearly believed that the terms of trade did apply, and that progress payments were payable. Progress payments had earlier been made. Mrs Finete in evidence said that she had analysed the various job cards, and she concluded that, on the basis of the work actually completed at the time of arrest, no further amount was payable. I do not consider that that is the appropriate test in considering whether N & B acted in bad faith or with gross negligence. If progress payments were required, then it would not, without more, demonstrate bad faith or gross negligence on the part of N & B that the amount of the progress payment included work which had not been completed at that time. At the date of arrest, there was an invoice outstanding dated 20 March 2003, for the sum of over $500,000. Mr Carter submits that various items included in that invoice were not completed, and that the bill was reduced subsequently by approximately $10,000. None of that suggests that the plaintiff was acting in bad faith or with gross negligence when it issued that invoice. That was done at a point before any question of arrest of the vessel arose. Accordingly, when the plaintiff arrested, it did so on the basis that an invoice issued by it for over $500,000 was outstanding. In my view, those circumstances do not demonstrate bad faith or gross negligence on the part of N & B.

[71] There is the further consideration that N & B acted on legal advice throughout. There is no suggestion that the circumstances were misrepresented in any way by N & B to its legal advisers. Like the Court of Appeal of Hong Kong in The Maule, I consider that that makes difficult a finding of bad faith or gross negligence. When the arrest was challenged, the essential issue addressed by Gendall J in ordering release was the amount of security. The validity of the basis for arrest was not questioned. I hold that N & B is not liable for damages for wrongful arrest.

[72] It is necessary also to deal with the caveat against release. The effect of the issue of that caveat, in this case, was to prevent the Registrar from granting a release upon the provision of satisfactory security, leaving that question to be determined by a Judge, as subsequently occurred. Rule 779 of the High Court Rules provides for the issue of a caveat against release. Rule 779(2) provides:

A party who delays the release of property by entry of a caveat is liable in damages to any person having an interest in the property, unless that party shows to the satisfaction of the Court good and sufficient reason for having the caveat entered.

[73] Rule 779(2) reverses the onus from that which applies to the claim for wrongful arrest. If the entry of the caveat delays the release of the vessel, then it is for the caveator to show that it had good and sufficient reason for having the caveat entered. I do not consider that any additional delay resulting from the issue of the caveat, as opposed to the arrest, has been shown. The effect of the caveat was to require security to be fixed by a Judge. In the circumstances, that seems likely to have been required even without the caveat. It is unnecessary for me to consider the point in detail. I have already held that N & B is liable for delay, during the period of the arrest. No additional damage, beyond that delay, has been established by C & F as having resulted from the arrest or the caveat.

[74] C & F also claimed that some equipment, in particular the anchors and chains, and a choker winch, were improperly retained. There is a claim fo