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 for the cost of purchasing replacement items. No separate basis, apart from the claim for wrongful arrest, was pleaded to support that claim, and it was not addressed separately in submissions. Accordingly, I hold that the claims for replacement costs in respect of those items must fail. In respect of the winch, there is also a claim that that the lack of the winch led to a loss of catch. No evidence sufficient to establish the claim for loss of catch was adduced, and it was not addressed in closing submissions. I therefore hold that no loss has been established in respect of that item.

Representations

[75] C & F claims that certain representations were made before or at the time the refit began. These claims form the basis of the Contractual Remedies Act and Fair Trading Act causes of action against N & B, and of all three causes of action (negligent misstatement, Fair Trading Act and deceit) against the third counterclaim defendant, Mr Price, who is the Chief Executive Officer of N & B. In the second amended statement of defence and counterclaim, which is dated 14 April 2005 and was filed shortly before trial, the allegations as to the representations were set out in these terms:

The plaintiff, via its Chief Executive Officer Alan Price, represented to the defendant, via its Director Joe Finete, on or about 14 and 20 December 2002 and the 6th to 8th January 2003 that the plaintiff, and the first counterclaim defendants, had “heaps of labour and were ready to start straight away” (“the representations”).

[76] During the course of the trial, Mr Carter applied for leave to amend that statement as follows:

The Chief Executive Officer of the plaintiff, Alan Price, represented to the first defendant, via its Director Joe Finete, on or about 14 and 20 December 2002 and on or about the 6th to 10th January 2003 that he had “heaps of labour and was ready to start straight away”, or alternatively that he and/or the plaintiff and/or the first counterclaim defendant had “heaps of labour” and was/were “ready to start straight away” (“the representations”).

He also sought leave to refer to s 13(b) of the Fair Trading Act, as well as to s 9.

[77] I can deal with the factual issues quite shortly. Mr Finete said that on 14 December 2002, while Mr Price was in Samoa, he advised that he had “heaps of labour and was ready to start straight away”, and that he was prepared to negotiate prices. Mr Finete said that when he arrived in New Zealand on 20 December 2002 Mr Price once again advised that “he had heaps of labour and was ready to start straight away”. He said that he flew back to New Zealand on 6 January 2003. He said to Mr Price there was no labour there, and he said that once again Mr Price said “there was heaps of labour and he was ready to start straight away”. Mr Price in his evidence did not deny making the statements attributed to him in December 2002. He says that he does not recall making the statements in January 2003. I find on the evidence that Mr Price did make statements to the effect claimed by Mr Finete in December 2002. I find that, in making them, he was referring to N & B, and not to himself.

[78] The first representation is that N & B “had heaps of labour”. Mr Carter sought to extend that representation from a representation as to the quantity of labour, to a representation as to the quality of labour. He submits that it is to be understood as a representation that N & B had heaps of labour which was suitably qualified to carry out the work competently. I do not consider that it is appropriate to attribute that meaning to the representation. The amount of labour may be seen as important in the context of the time to be taken. As I have held, there was no fixed time for completion, so the question of what was a reasonable time arose. The amount of labour available would clearly be relevant to that. As to the ability of the labour to perform the work in a competent and tradesmanlike manner, N & B was under a contractual duty to that effect. That contractual duty provides a sufficient remedy for C & F if the work is not so completed. So no specific representation as to the ability of the labour was required. In those circumstances, I do not consider that the words pleaded should be interpreted as including an element which, on their plain meaning, is not covered. As to the quantity of labour, I am satisfied that complainant has failed to demonstrate that the representation was false. Evidence was given of the number of people engaged on the refit project on each day. In the light of that information, C & F has not established that insufficient personnel were available at any stage, in such a way that the representation that there was sufficient quantity of labour available was false. As to whether that labour was capable of carrying out the work effectively, that involves value judgments. I have held that the painting work was not properly carried out in accordance with the contract. It does not follow from that that the reason for that was a deficiency of painters who were properly qualified to carry out the work. Issues as to supervision and the like may affect the quality of the work outcome. I hold that C & F’s claims based on the first representation must fail.

[79] As to the representation that N & B was “ready to start straight away”, I am satisfied that that representation was not false. Work commenced on or about 6 January. Mr Finete was in Nelson in December, but returned home for the Christmas break. He did not expect that work would start over the Christmas break. When an amended price for work on the coils was sent to him over the Christmas break, he specifically instructed that work not commence until his return. I am satisfied that work was commenced promptly in a way that is entirely consistent with the representation that work would commence straight away.

[80] Mr Carter placed considerable reliance, on this aspect of the claim, on evidence relating to whether or not the slipway was damaged, and likely to be available when it was needed. I do not propose to consider that evidence in detail. I am satisfied that it is not relevant to the question of whether Mr Price’s representation was false or not. The representation was that N & B was ready to start straight away. Mr Carter argues that that amounted to a representation that N & B was ready to start straight away, and that work would be able to proceed without interruption. I am satisfied that it would not be proper to interpret the representation actually made, which on its plain meaning relates only to the ability to start work, to include the continuation of the work once started. A representation must be a representation as to an existing or past fact. A representation as to the continued ability of the company to carry on with the work is not such a representation. Further, for this representation, too, the implied obligations on N & B under the contract are relevant. The ability to start straight away would have been important, in determining the start date for the contract, from which the obligation to complete the work in a reasonable time would run. Once time had begun to run, it is the implied obligation to complete in a reasonable time which determines N & B’s contractual responsibility. C & F’s claims based on the second representation must also fail.

[81] Those findings are sufficient to deal with all of the causes of action based on the representations. The counterclaims against N & B based on the Contractual Remedies Act and the Fair Trading Act must fail. That is so whether or not the pleadings are amended as requested during the course of trial. I allow the amendments sought, but decline the claim.

[82] Those findings are also sufficient to deal with the causes of action pleaded against Mr Price. However, in deference to the submissions, I deal briefly with the legal issues which would arise if the negligent misstatement and deceit causes of action required to be considered.

[83] On the cause of action in negligent misstatement against Mr Price, the first question is whether, in the light of all the circumstances, and having regard to the type of enquiry required by such cases as South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282, and more recently Attorney-General v Carter [2003] 2 NZLR 160, the circumstances are such that a duty of care should be imposed. I find that, in making the statements which he did, Mr Price was at all times acting on behalf of N & B. Mr Finete accepted in cross-examination that that was so. In Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517, the Court of Appeal discussed the issue of the circumstances in which a duty of care might be owed personally by the principal of a one-man company when giving advice on the company’s behalf pursuant to a contract between the recipient of the advice and the company. Cooke P said at p 520:

There can be no doubt, though, that an officer or servant of a company, whether as senior as a governing director or lower in the hierarchy like the master and boatswain in Adler v Dickson [1955] 1 QB 158, may in the course of activities on behalf of the company come under a personal duty to a third party, breach of which may entail personal liability.

However, after a consideration of the cases which support that view, he went on to say, in relation to the case in hand, at p 524:

It is not to be doubted that, in relation to an obligation to give careful and skilful advice, the owner of a one-man company may assume personal responsibility. Fairline is an analogy. But it seems to me that something special is required to justify putting a case in that class. To attempt to define in advance what might be sufficiently special would be a contradiction in terms.

Hardie Boys J said at pp 526-527:

An agent is in general personally liable for his own tortious acts: Bowstead on Agency (15th ed, 1985) at p 490. But one cannot from that conclude that whenever a company's liability in tort arises through the act or omission of a director, he, because he must be either an agent or an employee, will be primarily liable, and the company liable only vicariously. In the area of negligence, what must always first be determined is the existence of a duty of care. As is always so in such an inquiry, it is a matter of fact and degree, and a balancing of policy considerations. In the policy area, I find no difficulty in the imposition of personal liability on a director in appropriate circumstances. To make a director liable for his personal negligence does not in my opinion run counter to the purposes and effect of incorporation. Those purposes relevantly include protection of shareholders from the company’s liabilities, but that affords no reason to protect directors from the consequences of their own acts and omissions. What does run counter to the purposes and effect of incorporation is a failure to recognise the two capacities in which directors may act; that in appropriate circumstances they are to be identified with the company itself, so that their acts are in truth the company’s acts. Indeed I consider that the nature of corporate personality requires that this identification normally be the basic premise and that clear evidence be needed to displace it with a finding that a director is acting not as the company but as the company’s agent or servant in a way that renders him personally liable. The distinction is succinctly addressed in the judgment of Seaton JA in the British Columbia Court of Appeal in Sealand of the Pacific v Robert C McHaffie Ltd (1974) 51 DLR (3d) 702 in the passage quoted in the judgment of Cooke P.

Essentially, I think the test is, or at least includes, whether there has been an assumption of responsibility, actual or imputed.

[84] That case involved a one-man company, and a director of the company. The present case does not involve a one-man company, and Mr Price is not a director of N & B. Those differences, so far as they are material on the question in issue, serve to increase, rather than to lower, the threshold for determining that personal liability has been assumed. In the case of a person who is purely an employee of the company, and who therefore does not stand to derive any particular personal advantage from his actions on the company’s behalf, more cogent evidence of circumstances which will give rise to an assumption of responsibility will be required.

[85] On the facts of the present case, I am satisfied that there are no circumstances which would justify the imposition of a personal duty of care to C & F. Mr Price was clearly speaking on behalf of the company, as Mr Finete was aware. The representations which he made were clearly intended as representations as to the capacity of the company, and not his personal capacity. I consider that, on the facts, the existence of a duty of care so as to give rise to a potential for liability for negligent misstatement has not been made out.

[86] The essential element of a cause of action in deceit is the making of a representation of fact, in the knowledge that it is false. There is an element of dishonesty involved, which places a high standard of proof on the party making the allegation. The onus is on C & F to show that Mr Price lacked an actual and honest belief in the truth of the representations. There is simply no evidence to justify any such finding. The case in deceit depends upon each of the representations being understood in the wider sense that I have earlier discussed. The need to demonstrate a lack of actual and honest belief in the truth of the representation is an additional reason for declining to give the representations the extended meanings contended for by Mr Carter. The truth or falsity of the representations, if given that extended meaning, would not be capable of clear and objective demonstration. The cause of action in deceit fails.

Quantum

[87] I must determine the final contract price payable in the light of the findings that I have made, and the amount, by way of deduction of price or by way of counterclaim or set-off, to which C & F is entitled. It is convenient to approach the matter by determining the amount payable under the contract, assuming the works had been properly completed, and then to consider the amount of C & F’s claims in respect of defective work, and for delay.

[88] I deal first with the balance of the contract price. In a memorandum dated 11 May 2005, submitted with closing submissions, Mr Allan set out the figures, and Mr Carter in a subsequent memorandum accepted those figures. N & B claims that the total value of services, goods and materials supplied is $1,172,817. Of that, the sum of $474,739 is in dispute. A large part of the amount in dispute relates to items for painting. I propose to adopt the approach, in settling the overall figures involved, of allowing in full the contract price for all painting work, and allowing an off-set against that amount by way of damages. On that basis, no deduction is required, in fixing the contract price, in respect of the amounts claimed under the various job cards for painting.

[89] The painting extras, however, I have disallowed. Those total $17,106. That amount must be deducted from the amount claimed by the plaintiff.

[90] There must also be deducted the claim for extras in respect of the “0” well to the extent that I have disallowed that claim. As I noted earlier, job cards totalling $22,535, and a further job card for $92,823.00, were issued. However, on analysis of the material available, it appears that the job cards totalling $22,535 have not been included in the sum of $1,172,817. The sum of $92,823 has been included. I have held that the total amount by way of extras in respect of the “0” well should be $27,412. Accordingly, the extra of $92,823 is disallowed, and $27,412 is substituted for that figure.

[91] Some of the other items shown in the memorandum as to quantum dated 11 May 2005 as disputed have not been included in that calculation. This is because those were resolved by the parties during the course of the hearing. That will require some further deduction, which should be simply a matter of arithmetic. If further direction is required, that can be the subject of further submissions at the further hearing which I direct.

[92] It is also necessary to calculate the credits or amount of damages which C & F is entitled to by reason of the faulty workmanship. The first item is the underwater hull painting. C & F had the vessel slipped in Pago Pago in November 2004, and the anti-fouling was re-done. I have held that this action was reasonable, in the circumstances. C & F claims the amount of those costs, which total $US72,088. A credit must be allowed for the value which was received from the anti-fouling. In my view, the appropriate way to do this is on a time-related basis. The evidence satisfies me that a reasonable expectation was that the anti-fouling would have lasted three years. The vessel was returned to the water after antifouling in April 2003. C & F did not have effective use of the vessel until May 2003. The recoating was done in November 2004. That is approximately 18 months, out of an expected life of 36 months. The timing of the next anti-fouling has been advanced by about 18 months, with the consequence that 50% of that cost is attributable to the period when then N & B anti-fouling should have been in service (for which N & B must be responsible) and 50% to the period after the next anti-fouling could have been expected (about April 2006), for which N & B should not be responsible. Accordingly, I consider that the appropriate way to reflect the loss suffered by C & F is to adopt the costs incurred in Pago Pago, and discount those by 50% to reflect the time which the N & B anti-fouling was in service. I hold that the amount due by way of damages from N & B to C & F is 50% of $US72,088, that is, $US36,044. In addition, C & F. claims Mr Dalzell’s costs of $5,535. I consider that those costs are recoverable also.

[93] The next item of damage is the loss attributable to the defective paintwork, other than the underwater hull painting. That work has not yet been re-done. Mr Finete’s evidence was that he has obtained two quotations for carrying out remedial work in respect of the paint. The first is from South-West Marine Inc in Pago Pago, for $US161,828. The second is from C W Rudolph & Sons Ltd in Whangarei, for $225,450. C & F seeks to recover the amount of the Rudolphs quote, plus Mr Dalzell’s costs of $25,539 and the cost of a report from Rudolphs of $2,000.

[94] Mr Dalzell undertook a comparison of the work quoted by Rudolphs with the work done by N & B. He also analysed the areas where remedial work was required into areas of high priority, priority and lower priority surfaces. Comparing his categories against the quotation provided by Rudolphs indicates that the bulk of the cost is in the high priority and medium priority areas. I therefore conclude that the work in the quotation is necessary to remedy the defective workmanship in the painting.

[95] I am satisfied that the appropriate measure of damages is the cost of remedying the defects in the paintwork. That measure is generally preferable to the alternative measure, namely the diminution in value attributable to the defects. The general principle is stated in these terms in Hudson’s Building and Engineering Contracts:

8-123 Accordingly in those cases where, in breach of contract, the work has been left incomplete or containing defects, whether by abandonment or determination or otherwise, the measure of damage will prima facie be the difference between the reasonable cost to the owner of repairing the defects or completing the work, together with any sums paid by or due from him under the contract, and the sums which would have been payable by him under the contract if it had been properly carried out. Where the sums due under the contract have been paid in full, as where a contractor has completed and defects or omissions are discovered at some time after final payment, the correct measure is, of course, the reasonable cost of repair simpliciter. Such damages are recoverable within the first branch of the rule in Hadley v. Baxendale, as likely to arise in the usual course of things from the breach.

The same point is put, rather more succinctly, in Keating on Building Contracts (7th edn) at para 8-47:

Where there has been substantial completion the measure of damages is the amount that the work is worth less by reason of the defects and omissions, and is normally calculated by the cost of making them good, i.e. the cost of reinstatement, unless this is disproportionate to the end to be attained.

[96] Because the work has not yet been done, the date at which the cost is to be assessed must be fixed. In Bevan Investments Ltd v Blackhall & Struthers (No. 2) [1978] 2 NZLR 97, quantum in that situation was assessed by reference to the cost of carrying out remedial work at the time of trial. That date was preferred to the earlier date when the work could reasonably have been done. Here, the quotation was obtained in May 2003. There was no evidence of any change at the date of trial. Accordingly, I consider that the quotation forms the starting point for fixing damages for the defective work.

[97] It is necessary to make allowance for the service which the N & B paintwork has provided. On the basis of Mr Dalzell’s evidence, I assess that the life of the N & B paintwork, had it been properly carried out, would have been approximately five years. Taking, as the appropriate date for assessment of damages, the date of trial, as in Bevan Investments Ltd v Blackhall & Struthers (No. 2), the paintwork has had a life of just over two years, that is, from about April 2003 to May 2005, or twofifths of its expected span. Accordingly, I consider that the repair costs are to be reduced by 40% to reflect that use to C & F. That gives a figure of 60% of $225,450, namely $135,270. The defective paintwork will have had some impact in the meantime, particularly in relation to appearance, where the degree of rust staining has detracted from the appearance of the vessel. That is not, however, a matter which is capable of quantification. In addition, I consider that the costs of the reports from Mr Dalzell and Rudolphs are recoverable.

[98] N & B submits, in respect of the defective paintwork, that it is prepared to send a team of men to American Samoa to carry out repairs, which it estimates will take of the order of 10 days. I do not consider that C & F is required to allow N & B that opportunity. The relationship between N & B and C & F, and the quality of the work done, is such that I do not consider that C & F could reasonably be expected to mitigate its loss by allowing that opportunity. Further, I am not persuaded that the matter is capable of rectification within that time-frame. The Rudolphs quotation is for some 25 to 28 days’ work.

[99] For both the underwater hull painting claim, and the other painting defects claim, allowance will also have to be made for the loss of the use of the vessel while undergoing these repairs. In the underwater hull painting, the vessel was dry docked for six days. That must be reduced by 50%, to three days. Rudolphs estimate that the other painting work will take 25 to 28 days. I take the mid point, 26½ days. That must be reduced by the 40%, or 10.6 days. That leaves 15.9 days, which I round to 16 days.

[100] By Minute dated 17 February 2005, I directed that the question of any loss arising from delay should be deferred for consideration at a subsequent hearing, the length of the delay being settled at this hearing. Accordingly, it is necessary for the matter to be set down for a further hearing to determine the quantum of losses arising from the delays. There are three separate periods of delay involved:

(a) the delay in completion, 28 March to 7 May 2003;

(b) the time taken for the underwater repainting, an allowance of three days in November 2004; and

(c) an allowance of 16 days for delays in the further painting work, yet to be undertaken, which is to be assessed as at the time of trial, namely May 2005.

[101] At the further hearing on quantum, as well as addressing the losses arising from delay, the parties may, if they are unable to agree on the arithmetic which is necessary to give effect to the findings in this judgment, address further submissions on these aspects. Counsel should also address questions of interest and costs at that hearing. I will issue a final judgment after that hearing.

Conclusions

[102] I summarise the position which has been reached in this judgment:

(a) The balance of the contract price payable to the plaintiff (but subject to set-off of the amount payable as damages) is to be calculated by:

(i) excluding the claims of $17,106 for painting extras;

(ii) allowing $27,412 for “0” well extras;

(iii) making such other adjustments as are required to reflect the matters resolved by the parties included in the list of disputed items in the memorandum as to quantum dated 11 May 2005. Further submissions may be made on such adjustments if necessary.

(b) The defendant is entitled to judgment against the plaintiff for damages as follows:

(i) $US10,156 for damage to the splitter gearbox;

(ii) $US36,044, plus $5,535, plus three days’ delay by way of damages for the defective underwater hull painting;

(iii) $135,270 plus $27,539 plus 16 days’ delay by way of damages for other defective painting;

(iv) 41 days’ delay for late completion.

(c) Judgment is given for the first and third counterclaim defendants against the defendant.

(d) A further hearing is to be held to determine the amount of damages for the periods of delay referred to in (b) above.

(e) Questions of interest and costs are reserved for further submissions at that further hearing.

Solicitors: Pitt & Moore, Nelson, for plaintiff
Carter & Partners, Auckland, for first and second defendants
Izard Weston, Wellington, for third counterclaim defendant