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

IN THE COURT OF APPEAL OF NEW ZEALAND
CA145/05

BETWEEN NALDER & BIDDLE (NELSON) LTD
Appellant

AND C & F FISHING LTD
Respondent

CA146/05

AND BETWEEN C & F FISHING LTD
Appellant

AND ALLAN MALCOLM PRICE
Respondent

Hearing: 14 and 15 June 2006

Court: Ellen France, Williams and Harrison JJ

Counsel: G W Allan for Appellant in CA145/05
N J Carter for Respondent in CA 145/05 and Appellant in CA 146/05
C F Finlayson and J K Hodgson for Respondent in CA 146/05

Judgment: 31 July 2006

JUDGMENT OF THE COURT

A The appeal in CA145/05 is dismissed.
B The cross-appeal in CA145/05 is dismissed.
C The appeal in CA146/05 is dismissed.
D The respondent in CA146/05 is entitled to costs of $9000 and usual disbursements.

REASONS OF THE COURT
(Given by Harrison J)

Table of Contents Para No.

Introduction [1]

Appeal : Contract

Factual Matrix [7]
High Court [8]
NBL’s Case [13]
Decision
(i) Proposal [18]
(ii) Job Cards [37]

Cross-Appeal [49]

Damages: Miscellaneous Painting Works [50]
Damages: Hull Painting [56]
Skiff [63]
Anchor, Chain and Winch [74]
Wrongful Arrest [76]
Damages [95]

CFL’s Appeal : Allan Price [96]

Conclusion [101]

Introduction

[1] C & F Fishing Ltd (CFL), an American company, owns a 77 metre purse seiner tuna fishing vessel (the Jeanette) which it operates from American Samoa. Nalder & Biddle (Nelson) Ltd (NBL), which is in business as a marine and general engineer in Nelson, carried out repairs on the Jeanette in Port Nelson pursuant to a contract entered into between the companies in January 2003. However, CFL later alleged defective workmanship and delay, and disputed liability to pay for NBL’s work. At one stage NBL arrested the vessel, but it was released pursuant to an order upon CFL’s payment into Court of $632,055.

[2] NBL issued a proceeding in the High Court claiming payment of $547,000, being the unpaid balance of its account for repair works, and CFL counterclaimed for various items of loss allegedly caused by defective workmanship and for consequential losses suffered from delay. CFL also joined as counterclaim defendants one of NBL’s subsidiaries, Nalder & Biddle Marine and Industrial Coatings Ltd (NBM), and NBL’s managing director, Mr Allan Price.

[3] The proceeding was tried by MacKenzie J who found for NBL on its claim for $547,000 less deductions to be calculated for three items; for CFL on its counterclaim for fixed sums for material damage and defective workmanship and for consequential losses caused by NBL’s wrongful delay in completion; and for NBM and Mr Price on CFL’s claim. He also directed a further trial to determine the amount of CFL’s counterclaim for consequential losses and reserved rights to interest and costs.

[4] MacKenzie J made three particularly relevant findings: first, that the contract for refitting work did not include a provision limiting NBL’s liability on CFL’s counterclaim; second, that NBL’s arrest of the Jeanette was not wrongful; and, third, that Mr Price did not misrepresent NBL’s operational capacity and ability to CFL prior to entry into the refitting contract.

[5] NBL has appealed against the Judge’s finding that its liability on CFL’s counterclaim was not contractually limited. However, in argument on appeal NBL’s counsel, Mr Graham Allan, did not pursue secondary grounds raised in its notice of appeal that the Judge erred in findings about defective workmanship and part of the delay period. CFL has cross-appealed against a number of findings made by the Judge in NBL’s favour, including that its arrest of Jeanette was not wrongful. CFL has also appealed against the Judge’s dismissal of its counterclaim against Mr Price.

[6] The appeals and cross-appeal raise numerous issues. It will be appropriate to deal with them separately and in chronological sequence, as did MacKenzie J. The first or threshold question is to determine whether the material terms of the refitting contract included a provision excluding or limiting NBL’s liability on CFL’s counterclaim for damages.

Appeal : Contract

Factual Matrix

[7] In order to give context to MacKenzie J’s challenged findings on the refitting contract, it is necessary to outline the relevant factual matrix. In summary:

(a) As at 2001 NBL had undertaken about 10 refits of purse seiner tuna fishing vessels similar to the Jeanette working out of American Samoa (but none belonging to CFL). Seiners operate by circling schools of tuna with a net laid out by a skiff. The net releases the fish on to the vessel’s deck for conveyance by a chute to fish wells containing chilled brine to freeze the fish. Once the wells are filled, normally after some weeks at sea, the seiner returns to the tuna cannery factory;

(b) In October 2001 two of NBL’s senior employees travelled to Pago Pago in American Samoa for the purpose of attracting CFL’s business. The company was interested in securing the commission to refit the Jeanette. NBL’s employees met Mr Joseph Finete of CFL and inspected the vessel for about four days;

(c) In December 2001 NBL prepared and submitted a two volume proposal to CFL for refitting the Jeanette and building a skiff according to CFL’s approved design. The proposal contained a comprehensive tender section, relating to each component of proposed work, and a separate section entitled “Terms and Conditions of Trade for Business Customers” including provisions purporting to exclude and limit NBL’s liability for breach to $75,000. It was submitted in anticipation of carrying out the refitting work in early 2002 and was for a quoted price of $2,327,500 including the skiff;

(d) At the time of submission Messrs Michael McDowell of NBL and Finete read the proposals together. Mr Finete wrote notes over the pages relating to costings in the tender section. He did not, however, do anything to convey acceptance of NBL’s proposal. It is plain that he wanted to renegotiate the scope and price of work if CFL ever decided to engage NBL to refit the Jeanette;

(e) In May 2002 the parties entered into a contract whereby NBL agreed to construct a skiff for CFL at a price of $362,119. The proposal had quoted a price of $357,000. The skiff contract was constituted by an exchange of correspondence culminating in NBL’s fax dated 22 May 2002, agreeing to build ‘as per general arrangement supplied’ with the price payable by progress instalments. The correspondence did not refer to NBL’s proposal or its terms of trade or include a provision excluding or limiting NBL’s liability;

(f) Mr Price of NBL visited Mr Finete in Pago Pago on 13 December 2002. The parties then agreed in principle that NBL would carry out the refit of the Jeanette. Within two days, on 15 December, Mr Finete left Pago Pago on the vessel and sailed to Nelson. NBL sent CFL an invoice for $200,000 on 17 December 2002 to cover disbursements. Mr Finete arrived in New Zealand on 20 December and engaged a Whangarei engineer, Mr Hollows, to act as CFL’s shore superintendent for the refit;

(g) The parties conducted negotiations in Nelson between 20 and 22 December 2002. The relevant witnesses – Messrs Price, Finete and Hollows – all refer to the tender section of NBL’s 2001 proposal as the basis of discussions. NBL agreed with Mr Finete to re-price some of the tender’s existing components and to cancel or place on hold other components. And Mr Finete requested the company to price for new work which was not provided for in the tender;

(h) NBL submitted new prices in late December 2002. However, following NBL’s advice about a substantial increase in the quoted price of coils, Mr Finete faxed a direction to the company on or about 29 December to take no further steps until he returned to New Zealand. That event placed the future of the contract in jeopardy. On his return in early January 2003 Mr Finete resumed negotiations with NBL for the purpose of reducing specifications and the size of the tender, and obtaining price reductions. He also cancelled some of the proposed work. The refitting work commenced on or about 6 January 2003.

High Court

[8] In his judgment delivered on 10 June 2005 (now partially reported at [2005] 3 NZLR 698) MacKenzie J observed (at [6]) that:

… 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. … 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.

[9] The Judge held (at [8]) that:

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 [the parties] met together in December 2002 and January 2003 to discuss the work and the price. [NBL] 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 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”.

[Our emphasis]

[10] He found (at [9]):

… 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”… 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.

[11] MacKenzie J formulated the question for determination as whether NBL’s terms of trade, which included a limitation of liability provision, formed part of the refitting contract (at [10]). He held that the signed job cards did not have the contractual effect of incorporating NBL’s terms of trade set out in the proposal, and that they would be incorporated only if notice of them had been properly conveyed and the parties had shown an intention that they be incorporated (at [12]). He accepted Mr Finete’s evidence that he was unaware of the limitation clause and held (at [13]) that:

… Because the December 2001 proposal never became a contractual document … mere inclusion of the terms in [it] is [not] 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 [NBL] 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.

[12] Accordingly, the Judge found that NBL’s liability on CFL’s counterclaim for damages for delayed completion was not limited to $75,000.

NBL’s Case

[13] Mr Allan’s written synopsis advanced three alternative grounds of appeal against MacKenzie J’s contractual finding. First, he submitted that MacKenzie J erred because, in the circumstances of this case, NBL’s proposal and job cards when viewed objectively were so much part of the contractual arrangements that a reasonable person in NBL’s position would believe CFL had accepted the terms of trade as part of the contract however it is construed: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342 at 351. Mr Allan submitted that a reasonable person, applying an objective test, would conclude that Mr Finete’s signature on the job cards incorporated within the contract NBL’s terms of trade including a limitation of liability as set out in its December 2001 proposal. His proposition was that:

The job cards may not themselves be the legal contract between the parties; but as part of the surrounding circumstances and the way in which the work arrangements were to be documented, a reasonable person would understand them to have legal consequences.

[14] Second, Mr Allan submitted that, if the Judge was right in finding that the contract did not directly incorporate NBL’s terms of trade, they were significantly ‘flagged’ to be incorporated, by which he was referring to the doctrine of constructive notice. Third, Mr Allan submitted that if an objective approach is unnecessary and NBL’s terms of trade were not sufficiently drawn to CFL’s attention, nevertheless those terms including the limitation of liability are not so unusual or onerous that it is necessary to bring them to CFL’s attention because they would generally be known to it.

[15] Mr Allan’s written synopsis did not appear to challenge the Judge’s findings that CFL never accepted NBL’s proposal and that there was one contract, entered into verbally on or about 6 January 2003, to carry out the refit – the work to consist of such work as was described in a job card signed by Mr Finete giving the customer’s approval to start. However, in oral argument Mr Allan submitted that the proposal set the scope of the work to which NBL was committed throughout and was intended to have contractual effect in the nature of a standing offer: Percival v London County Council Asylums and Mental Deficiency Council [1918] KBLJ 677. He described the proposal as one offer from which CFL progressively accepted components when Mr Finete signed individual job cards.

[16] Mr Allan submitted that the Judge erred in declining to treat the proposal as the relevant contractual document to which each item of work was linked by completion of the job cards. Its terms of trade were incorporated into the contract, he argued, by, first, the notation on the job card of a tender reference and, second, Mr Finete’s knowledge of the presence of the words “we understand and accept your terms of trade and limitation of liability”. He submitted that Mr Finete would only have acknowledged his understanding and acceptance of NBL’s terms of trade and limitation if he was already aware of them.

[17] On this basis Mr Allan challenged MacKenzie J’s findings that NBL’s proposal was never accepted so as to constitute a contract and that the job cards did not have the effect of incorporating the proposal’s terms of trade. He did not, however, challenge the Judge’s finding that the contract was entered into on or about 6 January 2003.

Decision

(i) Proposal

[18] The first issue is whether or not MacKenzie J erred in concluding that the proposal was not accepted so as to constitute the refitting contract. In determining this question it is necessary to analyse the documents or dealings between the parties said to give rise to the contractual relationship.

[19] The pleadings are unhelpful. NBL’s various statements of claim simply allege that the parties:

… entered into a contract, partly evidenced in writing, also evidenced in various oral agreements for [NBL] to supply services, goods and materials for the benefit of [CFL].

[20] CFL did not request particulars of the contract by reference to relevant documents or statements, participants, dates, places or circumstances. Instead it admitted NBL’s unspecific pleading. It is unclear what CFL was accepting because its statement of defence and counterclaim expressly plead the existence of implied terms of 16 “painting contracts”, by reference to “the Tender”. We infer that this statement refers to the tender section of the proposal. Consistent with this pleading, Mr Carter submitted in the High Court that the parties entered into a series of contracts for the refitting of the Jeanette constituted by each signed job card. On appeal he adopted MacKenzie J’s contrary conclusion.

[21] NBL’s proposal totals nearly 250 pages which are divided into nine sections. The first is an NBL Group profile in the nature of promotional material. The second, called a vessel specification for the Jeanette, comprises only one page of characteristics such as length, weight and fish capacity based upon an inspection in American Samoa on 1 November 2001. The third is a schedule of standard charges or disbursements for accommodation, car hire, utilities and the like. The fourth is one page of definitions.

[22] The fifth is the most significant. It is described as a Tender and contains an index of 30 items running to nearly 200 pages. Each item provides in three separate columns for quoted, estimated or budget prices. All are subject to quotes and there are very few estimate or budget costs. Each item is given a number. For example, and of relevance here, painting work constitutes section 13, with sub-categories such as “Hull – Below Waterline” at para 13.1.

[23] The sixth, the Tender Summary, is a one-page aggregation of prices for the 30 items including the skiff of $2,327,500. The seventh is described as Variations and Additional Works. It provides:

Additional work or [sic] variations to the bid will be documented on a priced work specification (sample attached) and will not be actioned until signed by the owner or appointed representative which ensures the owner is in full control of actioning work to be carried out. Upon signing, a copy of the work specification is given to the owner or work representative enabling them to keep an up-to-date refit cost.

[24] The attached sample of a priced work specification is a copy of NBL’s standard job card, which materially refers to the company’s tender reference and concludes with the words “we understand and accept your terms of trade and limitation of liability”.

[25] The eighth nominates NBL’s bank account for the purposes of payment. The ninth, the Terms of Trade, materially provides:

1.1 These terms apply whenever Nalder & Biddle (Nelson) Limited (referred to as ‘N&B Group’) provide goods and services of any kind to business customers (‘Customers’). These terms form part of every contract and dealing Customers have with N&B Group.

…

2. A deposit of 20% of the quoted value is payable prior to contract commencement. Payment in full is due prior to the vessel sailing. Progress payments are required on all contracts over one month duration with work to be invoiced on the 30th of the month for payment within 10 calendar days.

…

5.1 N&B Group warrants that subject to the limitation of liability in Clause 6.2 it will repair any defects in its workmanship occurring within 6 months of the completion of the work involved.

5.2 No claim will be available under this warranty unless written notice of the claim is received by N&B Group as soon as reasonably possible after the defect is discovered nor will any claim be available if the defective work has been modified or incorrectly maintained, installed or operated and that is the cause of the defect, but within the above prescribed time limitation.

…

5.5 In any event N&B Group’s liability under its warranty is limited to the provisions of clause 6.2.

6.1 N&B Group shall not be liable for:

(a) any loss of profits, or

(b) any consequential, indirect or special loss, or

(c) damage, injury, cost or loss of any kind (except that covered by N&B Group’s warranty), arising directly or indirectly from any breach of N&B Group’s obligations to the Customer however occurring including any negligence on the part of N&B Group.

6.2 Where N&B Group is liable to the Customer then notwithstanding anything else contained in this contract unless otherwise agreed in writing between the Customer and N&B Group, the maximum cost of any liability of N&B Group to the Customer howsoever arising shall not exceed the lesser of:

(a) the contract price, or

(b) the value of the work or goods which are the subject of the claim, or

(c) the sum of NZ$75,000.

This section concludes with provision for the customer’s signature below the date and these words:

The customer accepts and acknowledges these terms agreeing that the customer is bound by them.

[26] It is necessary at this stage to record a significant difference between clauses 6.1 and 6.2. The former is, on its face, an exclusion clause, exempting NBL from liability for consequential losses such as lost profits; the latter is, on its face, a limitation of NBL’s liability to $75,000 on a claim for material damage for breach of warranty pursuant to clause 5.1.

[27] Despite MacKenzie J’s findings of NBL’s breach, the result of his judgment is that the company has no liability to CFL for material damage. Allowing for set-offs for defective workmanship in CFL’s favour, NBL remains in credit for the balance of its claim for goods and materials. However, the Judge’s findings of NBL’s liability for delay leave CFL with a right of cross-claim for loss of profits. In that event clause 6.1, the exclusion of liability provision, would arguably apply provided of course it was a term of the contract.

[28] The question of whether the contract was constituted by NBL’s proposal or any part of it must be determined by applying settled principles of offer and acceptance. The requirements are strict: see Reporoa Stores Ltd v Treloar [1958] NZLR 177 (CA) per Gresson J at 187:

… to bring about a binding contract the offer and the reply accepting must be of and in respect of precisely the same terms. The offeree must unreservedly assent to the exact terms proposed by the offeror.

[29] NBL’s proposal was a composite document which envisaged acceptance by CFL signing on the last page, immediately following recital of the terms of trade. There is evidence, to which we have referred, that the tender section was the subject of extensive discussion between Messrs Price and Finete in December 2002 and early January 2003. Otherwise, though, the parties’ representatives did not then refer to or consider any other part of the proposal except the job cards, which were to constitute instructions to perform particular work at an agreed price.

[30] It is common ground that the refitting contract was oral. Such a contract can of course refer to and incorporate written documents. But there must be unequivocal evidence of what was offered and what was accepted.

[31] In this respect Mr Allan’s reliance on what he called NBL’s standing offer is misconceived. Percival’s case does not assist. The Court was there concerned solely with the construction of an existing contract in the form of a signed tender, sometimes called a unilateral contract, for a contractor to supply all or any of the named goods if and to the extent ordered by the other party. Atkin J held that the terms did not oblige the purchaser to order any of the goods, although the contractor was bound to deliver them as and when required. The decision is of no relevance to the issue in this case of whether a particular document was incorporated in the contract.

[32] Even if NBL intended that its proposal should constitute a standing offer in the sense that it was to remain open indefinitely, something more was required to prove CFL’s acceptance of that composite offer when the parties met a year later and embarked upon intensive negotiations for the purpose of agreeing on contractual terms for refitting the Jeanette. NBL’s witnesses did not suggest that the parties ever discussed the terms of trade section of the proposal at that time. In our view MacKenzie J’s finding, which Mr Allan did not attempt to challenge, that Mr Finete was unaware of the proposal’s limitation provision during these negotiations is decisive.

[33] The evidence of other dealings between the parties is also relevant. First, as we have noted, they had earlier concluded the skiff contract by an exchange of correspondence. Their letters did not incorporate or refer to the proposal or its terms of trade or more specifically to an exclusion or limitation clause. Second, there is Mr Finete’s unchallenged evidence that, when entering into a later contract with NBL on 5 March 2003 relating to the slipway, he refused to agree to inclusion of a clause exempting the company from liability for its negligence. Instead, the parties agreed to include a term limiting NBL’s liability to $5 million.

[34] These events confirm the “inherent improbability” of one party to a contract agreeing to release the other from its liability otherwise arising at law, although that same degree of improbability does not apply to a limitation clause: Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101 per Lord Fraser at 105; SGS (NZ) Ltd v Quirke Export Ltd [1988] 1 NZLR 52 per Cooke P at 55-56.

[35] In our view CFL did not do or say anything on or about 6 January 2003 from which to infer an intention to accept NBL’s proposal, in particular the terms of trade including its exclusion clause. The parties negotiated afresh, albeit that they used the tender section as a foundation. However, even then, CFL did not accept NBL’s quoted price. While, as MacKenzie J observed (at [7]), the proposal was the genesis of the refitting contract, all the evidence shows that by December 2002 the proposal as a whole was by then of historical importance.

[36] Accordingly, for these reasons, we agree with MacKenzie J that the refitting contract did not incorporate NBL’s proposal.

(ii) Job Cards

[37] In view of the way NBL’s appeal developed in oral argument, this conclusion leads to the second issue of whether or not job cards progressively signed by Mr Finete subsequent to conclusion of the refitting contract incorporated the terms of trade section of NBL’s proposal by inclusion of the words “we understand and accept your terms of trade and limitation of liability”.

[38] We agree with MacKenzie J that it would be artificial to treat the job cards as later and separate contracts between the parties. It would mean, as he said, that the first job card had a dual significance or purpose, both amounting as approval to start the work and as an assent to contractual terms, whereas signature on the later job cards had only the effect of approving the work. It would be unrealistic, as he said, to attribute an intention to the parties to treat CFL’s signature on the cards as assent to a new and distinct agreement.

[39] Thus the relevance of the job cards is limited to the question identified by MacKenzie J (at [12] and [13]) of whether on signature, as Mr Allan submitted, they had the effect of incorporating an exclusion or limitation of liability into the existing contract for the reasons that some cards contained a tender reference and the terms themselves were included within the proposal.

[40] The seventh section of the proposal confirms that the purpose of its standard form job card was to act as an instruction for additional work done in accordance with that proposal once accepted. The card was designed also to provide a running record of costs for additional work or variations. The proposal anticipated that job cards would be supplementary to its terms and conditions and incorporated into the contract once signed and accepted.

[41] In our view, NBL’s purpose in including on a standard form card the words “we understand and accept your terms of trade and limitation of liability” is plain. Consistently with the contractual framework envisaged by acceptance of NBL’s proposal, additional work as specified in the card was to be subject to the same terms and conditions. Both the proposal and card were to be signed, in part no doubt because they would include onerous provisions purporting to exclude or limit NBL’s liability. Thus, incorporation of the words of acknowledgement on the foot of a standard form card fell conformably within the contractual structure contemplated by written acceptance of NBL’s proposal.

[42] However, within the contractual structure actually agreed between the parties a year later, the cards served a different purpose. They defined the scope and price of each particular item of work to be carried out by NBL on a progressively agreed basis. In some cases they specified the work by reference to the relevant part of the tender but frequently at a different price. In other cases they expressly varied or amended the tender specification. In a minority of cases, they provided for new work.

[43] Mr Allan advised that, of the 165 cards prepared by NBL, 95 referred to a tender number and 70 were for new work or extras. Also, 52 omitted the words “we understand and accept your terms of trade and limitation of liability”, and nine were unsigned. At best for NBL, the tender provisions referred to in the 95 cards were the only sections of the proposal which might potentially be incorporated into the contract. The omission of the relevant words from about 30% of the cards seems random. Counsel did not direct argument towards whether NBL’s liability for consequential losses might be attributable to its breach of contract relating to those items.

[44] The cards were linked to the tender only to the extent that they incorporated or varied an item which was originally specified in that part of the proposal. The cards were not linked to any other part of the proposal. There was nothing to link the 42% of the cards for new work or extras, some of which may have omitted the relevant words, to the tender, let alone the proposal. Plainly, and decisively, the cards did not refer to, and could not possibly incorporate, NBL’s exclusion of liability. In the absence of an express recognition or identification by the parties, there was nothing to link the cards to any other document.

[45] With respect to Mr Allan, the decision in Toll’s case does not assist. The High Court of Australia was, at 351, restating the well settled principle that the meaning of a contract is to be construed objectively, not according to the parties’ subjective views. There can be no suggestion that MacKenzie J erred in that way. The reasonable person test has no place in the separate inquiry of what were, in fact, the agreed terms.

[46] There was no evidence of what were, in early January 2003, NBL’s current terms of trade or when or where they had been drawn to CFL’s attention and accepted by it. Mr Allan submitted that the express reference to a limitation of liability was designed to bring home to CFL the existence of this onerous or unusual term. However, we repeat that he does not challenge MacKenzie J’s finding that Mr Finete was unaware of the proposal’s terms of trade when entering into the refitting contract.

[47] Moreover, the cards refer to limitation of, not exclusion from, liability. An exemption provision is more onerous and unusual than a limitation provision. Its absence implies that it was not then one of NBL’s terms of trade. While Courts strive to give meaning to the words used by parties, here the phrase “we understand and accept your terms of trade and limitation of liability” where included on job cards was meaningless.

[48] Accordingly, for these reasons, we dismiss NBL’s appeal.

Cross-Appeal

[49] CFL has cross-appealed against seven findings made by MacKenzie J sequentially as follows.

Damages: Miscellaneous Painting Works

[50] MacKenzie J found that NBL was in breach of its contractual obligation to carry out painting work on the Jeanette (at [19]-[32]). The painting work fell into two categories. The second category involved miscellaneous paint work (at [27]-[32]). The Judge was satisfied that NBL was in breach. The miscellaneous areas should have had an operational life of five years but instead it was necessary for CFL to repaint after two years.

[51] NBL does not appeal against this factual finding; and CFL does not challenge the finding that the paint work has had a life of just over two years, or 40%, of its expected life span of five years. However, CFL appeals against the Judge’s reduction in its counterclaim for repainting from $225,450 to $135,270 to reflect its actual benefit from NBL’s work, albeit for a period shorter than that contracted for (at [93]-[97]).

[52] Mr Carter submitted that the Judge erred in reducing CFL’s counterclaim by 40% because NBL did not plead or lead evidence in support of a claim for betterment. Mr Carter said that the paint work was not completed properly in the first place and thus no allowance for betterment should have been made. He said that CFL was entitled to be put into the position it would have enjoyed if the contract had been properly performed; that is, with paint work providing protection from the harsh marine environment for a period of five years.

[53] However, this is not a case about betterment. That is the name given to a defence sometimes raised, but seldom successfully, to a claim for damages for breach of contract where the plaintiff obtains on reinstatement an asset appreciably more valuable than it had before. An example is Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447 (CA) where the English Court of Appeal dismissed the defendant’s argument that the plaintiff was required to give a credit for betterment where it had replaced an old building, destroyed in a fire, by a new one of modern design.

[54] Here CFL successfully counterclaimed for the estimated cost of repairing NBL’s defective paint work. The Judge reduced the amount of its counterclaim to take account of the fact that the work, although defective, had lasted for two of its estimated five years of service. NBL was entitled to a credit of 40% for that fact. It was not an issue which required pleading or evidence or which raised any question of betterment. It was no more than the Judge’s factual assessment of CFL’s loss flowing from NBL’s breach.

[55] We dismiss this ground of counterclaim.

Damages: Hull Painting

[56] The first category of CFL’s claim for defective paint work related to the underwater hull (at [21]-[26]). The Judge found that the anti-fouling paint should have lasted for three years but that CFL had effective use of it for only 18 months (that is, from May 2003 until the hull was repainted in November 2004). Accordingly, he discounted CFL’s counterclaim of US$72,088 by 50%. He held (at [92]):

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 [NBL] anti-fouling should have been in service (for which [NBL] must be responsible) and 50% to the period after the next anti-fouling could have been expected (about April 2006), for which [NBL] should not be responsible.

[57] On this basis MacKenzie J awarded CFL damages of US$36,044. Again Mr Carter relied on betterment to challenge the Judge’s reduction in CFL’s claim. However, for the reasons just given, this finding cannot be challenged. The question is not one of pleading or betterment but of an assessment of CFL’s recoverable losses.

[58] Mr Carter mounted two alternative challenges to the Judge’s finding. First, he submitted that the anti-fouling paint had started to fall off within six months of application. Thus, he said, the Jeanette had received little betterment because large amounts of the paint were lost at an early stage. Again, we do not accept that betterment is the issue. Furthermore, in the absence of a factual finding that the vessel suffered damage in the period between losing the anti-fouling and repainting, this argument is unsustainable.

[59] Secondly, Mr Carter submitted that the Judge’s discount was excessive. He relies upon a concession by NBL’s expert witness that a reasonable expectation of the life of anti-fouling paint should have been four and a half years or 55 months. Accordingly, he said the Judge under-estimated the length of time that the anti-fouling should have remained on the hull.

[60] MacKenzie J was satisfied that the anti-fouling should have lasted for three years (at [92]). While he did not specify the evidence, he had earlier found that antifouling operates by ablation of the coating over time, and that the ablation rates for this product should have given a life of about 36 months (at [21]). CFL’s principal witness on this issue was Mr Dalzell; Mr Ryan occupied the same position for NBL. The Judge preferred Mr Dalzell who referred to, and apparently endorsed, a technical specification of three years as controlling “… common types of fouling … depending on sailing pattern and applied system”. MacKenzie J had a proper evidential foundation for this finding, and Mr Carter has not identified any reason to disturb it.

[61] Also CFL’s second amended statement of defence and counterclaim pleaded that the anti-fouling should have prevented the growth of organisms and remained on the Jeanette’s hull for three to five years. The company relied on its expert in support, not Mr Ryan for NBL, and cannot complain about the Judge’s acceptance of its lower figure.

[62] We dismiss CFL’s appeal against this finding.

Skiff

[63] The skiff was the subject of a discrete counterclaim by CFL. It pleaded that NBL was in breach of its contractual obligations by inadequately preparing the paint work or applying it defectively. It claimed a total of US$42,277 for all of NBL’s alleged breaches; of this amount, US$32,750 was for repairing and repainting stiffeners.

[64] Mr Carter submitted that the Judge failed to determine CFL’s counterclaim for NBL’s defective paint work on the skiff under a separate contract of engagement. He relied on Mr Finete’s evidence to the effect that the paint work was ‘completed so poorly’ that the skiff required repainting. Mr Finete produced a quote from a Samoan company to repaint for US$8280.

[65] We accept that the Judge did not make a finding on CFL’s counterclaim for paint work. CFL’s counterclaim did not quantify which part of its claim of US$32,750 for repairing and repainting stiffeners was attributable to the latter. We can only infer that it was for the repainting work for which Mr Finete produced the quotation of $8280.

[66] In our view CFL failed to discharge its burden of proving that NBL’s paint work was defective. Mr Finete’s subjective and unqualified opinion is insufficient. The company should have led evidence from an independent expert, both on the quality of the workmanship and the reasonableness of the quotation if in fact repainting was required as a result of NBL’s breach.

[67] Additionally, Mr Carter submitted that the Judge erred in dismissing CFL’s claim that NBL breached its implied obligation to provide a skiff which would be reasonably fit for the purpose intended. MacKenzie J found (at [40]):

… Mr Finete said the reason why 100% continuous welding is necessary is that the skiff is subject to considerable stresses, notable when it approaches the mother vessel for re-boarding, and is loaded onto the mother vessel. There was no evidence from a suitably qualified person to establish that the skiff would not be reasonably fit to withstand these stresses. The evidence fails to discharge the onus on [CFL] 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 safe 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 or purpose, was adduced.

[68] Mr Carter submitted that the Judge overlooked a brief of evidence from Mr John Briggs which was admitted by consent. Mr Briggs is a certified marine engineer whose qualifications to give evidence on this point were not challenged. He referred to six photographs of the skiff taken by Mr Finete. The first was of the forward rope locker; Mr Briggs said it should have been ‘fully welded to provide strength to the chain (and pelican hook)’. The second referred to buckling in the vertical engine room bulkhead; Mr Briggs said it was ‘probably caused by insufficient strength from inadequate welding’. The next three were of the main portside void bank; in Mr Briggs’ view they showed stitch welding which ‘does not appear to be uniformly welded’, corrosion which is ‘a good example of why continuous welding is required’, and flexing of plates ‘due to insufficient welding’. The sixth showed the same problem as the previous photograph.

[69] Mr Briggs identified welding inadequacies in three areas – the forward rope locker, a plate in the vertical engine room bulkhead, and the main portside void tank. Mr Carter is correct that MacKenzie J did not refer to this evidence. However, his omission is unsurprising given that it appears only limited reference was made in argument to Mr Briggs’ evidence.

[70] MacKenzie J made a finding of fact that the parties did not expressly agree that NBL should continuously weld the skiff and a finding of law that no term to this effect was to be implied. The only term to be implied was that the skiff would be reasonably fit for the purpose intended (at [40]). The question therefore is whether the Judge was right to find that there was no evidence from a suitably qualified witness to establish that the skiff would not be reasonably fit to withstand the stresses to which it would be subject in operation, particularly when approaching and being loaded onto the mother vessel.

[71] While Mr Briggs’ evidence identified three areas of defective welding, its apparent purpose was to support CFL’s allegation that NBL was in breach of an obligation to continuously weld the skiff. Mr Carter did not challenge the Judge’s finding that NBL did not assume that obligation. Mr Briggs’ opinion was of no value in that context.

[72] Thus the only relevance of Mr Briggs’ opinion was on the question of whether the skiff would be reasonably fit to withstand its expected stresses. He did not express a view in that respect. Further, CFL did not attempt to quantify a claim for the defective welding which Mr Briggs observed. CFL has failed to prove a loss attributable to a breach by NBL, if indeed one occurred.

[73] We dismiss this ground of counterclaim.

Anchor, Chain and Winch

[74] Mr Carter submitted that the Judge erred in finding (at [74]):

No separate basis, apart from the claim for wrongful arrest, was pleaded to support that claim, and it was not addressed separately in submissions.

[75] CFL sought judgment for the replacement costs of the winch, and for the anchor and chain of US$11,626 and US$7,790. It was effectively a claim in conversion although not so pleaded. Mr Allan accepted that the Judge should not have dismissed CFL’s counterclaim for replacement costs for these items. Counsel advised us that the parties had resolved this question and did not require judgment upon it.

Wrongful Arrest

[76] CFL alleged that NBL wrongfully arrested the Jeanette on or about 8 April 2003 when claiming $769,812 from CFL, and also wrongfully filed a caveat against release on or about 11 April, preventing the Jeanette’s release upon payment of the claimed monies into Court.

[77] The basis for CFL’s claim was that NBL had no reason to believe that the sum of $769,812 was due and owing at the time of arrest. Accordingly, Mr Carter submitted, it was guilty of mala fides or gross negligence. MacKenzie J held that whether or not the arresting party was guilty of such misconduct must be considered in relation to the fact of the arrest, and not the quantum of the claim. He held (at [69]):

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. … 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.

[78] MacKenzie J then found, as a matter of fact, that the evidence did not show a lack of reasonable belief on NBL’s part 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 (at [70]).

[79] Mr Carter submitted that the Judge erred, first, in applying an incorrect legal test by failing to follow Gulf Azov Shipping Co Ltd; United Kingdom Mutual Steamship Assurance Association (Bermuda) Ltd v Chief Idisi; Lonestar Drilling Nigeria Ltd & Lonestar Overseas Ltd [2001] EWCA Civ 505 and Banque Worms v The Owners of the Ship or Vessel “Maule” [1995] HKCA 305, and being overly influenced by the Det Norske Vertas AS v The Ship “Clarabelle” [2002] 3 NZLR 52 (at [68]-[69]) and, second, in concluding there was no evidence of mala fides or gross negligence.

[80] In determining whether or not NBL’s arrest of the Jeanette was wrongful, MacKenzie J applied the test stated by Colman J 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 at 30 as follows:

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.

[81] In our respectful view, Colman J’s statement of the law in The Kommunar is correct. In summary, an arresting party will be guilty of mala fides where, on a subjective assessment, it has no honest belief of its entitlement to arrest. That party will be guilty of gross negligence when, on an objective assessment, the basis for arrest is so inadequate that the Court can infer that the party did not have the requisite belief (in this sense malice is implied).

[82] The two authorities cited by Mr Carter applied the same or a similar test. They do not purport to apply different legal principles from those stated in The Kommunar. Both illustrate that, once the law is settled, the inquiry into whether an arrest was wrongful is of a predominantly factual nature.

[83] In the Gulf Azov case the trial Judge had found that one of the defendants procured the arrest of a ship by a deliberately false assertion that his claim was for the sum of $17 million. He knew at the time that this amount was unsupportable and that his genuine claim was a maximum of $3 million. Longmore LJ, delivering the leading judgment for the English Court of Appeal, expressly approved and applied Colman J’s test in The Kommunar in dismissing an appeal.

[84] The Hong Kong Court of Appeal’s decision in The Maule case falls into the same category. Mr Carter relied upon the Court’s application of an analogy with the tort of malicious prosecution, and the statement by Bokhary JA at 5-9 that:

… 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.

[85] With respect, this statement does not add materially to the correct legal approach. More significantly, in The Maule case the Court of Appeal, as MacKenzie J noted (at [67]), took into account the factor of a party’s reliance on legal advice.

[86] Applying The Kommunar test, MacKenzie J was satisfied (at [70]) that NBL reasonably believed that its claim for $769,812 represented its reasonably arguable best case. He was also influenced by NBL’s reliance on legal advice throughout.

[87] Nevertheless, Mr Carter maintained sustained arguments that the Judge should have found bad faith. His submission was plainly based upon the hindsight benefit of MacKenzie J’s finding that NBL breached its contractual obligations by carrying out defective paint work which justified a reduction in its original claim of $769,812 by over $200,000. He submitted that NBL knew or ought to have known when arresting the Jeanette that the paint work was at least unsatisfactory and did not justify arresting the vessel for the full amount claimed. He subjected the evidence of Mr Hollows, the engineer who acted as CFL’s shore superintendent for the refit, to careful and favourable analysis. His apparent purpose was to establish that Mr Hollows drew NBL’s attention to the painting defects before arrest. He relied on NBL’s failure to discount in response.

[88] This Court will not interfere with a finding by a trial Judge unless an appellant can show that he or she has reached a conclusion which was not open on the evidence or was plainly wrong: Hutton v Palmer [1990] 2 NZLR 260 (CA) per Somers J at 268; Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 197. Appeals proceed by way of rehearing and are not factual retrials. The reasons for this practice are well known: Rae at 199-200 per Thomas J. It is all the more apposite where the trial Judge has made a finding “… as to the state of mind of the witness”: Nocton v Lord Ashburton [1914] AC 932 (HL) per Viscount Haldane LC at 957, applied in Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC) per Lord Jauncey at 647.

[89] Mr Carter’s careful submission does not approach the threshold necessary to justify interfering with MacKenzie J’s finding on good faith. A party alleging bad faith must discharge a heavy evidential burden commensurate with the gravity of the allegation. Even without the trial Judge’s benefit of seeing and hearing the witnesses, we are satisfied that there was no foundation for CFL’s argument that NBL’s claim at the time of arrest of $769,812 did not represent its reasonably arguable best case. The fact that, after trial, the Court gives judgment for a lesser amount than that claimed is irrelevant. A claim by the other party at the time of arrest, which is vindicated by the judgment, does not of itself constitute bad faith unless there is satisfactory evidence, such as in the Gulf Azov case, that the claimant knew his claim was unsustainable. That evidence did not exist here, as the Judge found, and Mr Carter has shown us no cause to take a different view. The authorities illustrate that the circumstances must be extreme before a claim for wrongful arrest can succeed.

[90] Mr Carter also alleged that NBL was guilty of fraudulently altering painting job cards. He accepted that MacKenzie J declined to examine this allegation because he found in CFL’s favour on the painting issue, although the Judge accepted there were some instances where NBL or its agents subsequently altered job cards for certain painting items after signing by Mr Finete (at [29]). However, significantly, MacKenzie J made this finding:

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.

[91] Mr Carter’s submissions amounted to another attempt to engage in a general factual retrial. All his analysis showed is that the job cards were altered. MacKenzie J accepted this fact. He was not, however, prepared to draw an inference of fraud or impropriety, instead attributing NBL’s actions to incompetence. The Judge’s refusal to take that step was plainly open to him given his primary findings and has not been shown to be wrong in any way.

[92] Finally, Mr Carter submitted that:

NBL knew that the only way it was going to be paid in full for its defective painting works was to arrest the Jeanette and its skiff and illegally withhold the anchors and chains. Otherwise it would not receive full payment.

[Emphasis added]

Mr Carter said that Mr Price evaded answering this question in cross-examination by relying on a board’s decision. In fact, Mr Carter’s question did not suggest any illegal or unlawful activity by NBL.

[93] Mr Carter relied on the same evidential basis for an argument that NBL could not sustain a caveat against the Jeanette’s release for the full amount it was claiming. He did not advance a reasoned argument to support a challenge to the Judge’s finding that CFL did not suffer any additional delay resulting from the issue of the caveat, as opposed to the arrest (at [72]-[73]).

[94] For these reasons, we dismiss CFL’s counterclaim against the Judge’s finding that NBL did not wrongfully arrest the Jeanette.

Damages

[95] CFL claimed indemnity costs on the wrongful arrest argument together with general, aggravated and punitive damages of $40,000. Mr Carter relied on the arguments already discussed, namely: NBL’s conversion of the anchor, chain and winch; its alleged knowledge of its defective painting; and its fraudulent alteration of job cards, to support an allegation of outrageous conduct justifying punitive damages. However, this counterclaim must fail following our dismissal of CFL’s argument for wrongful arrest.

CFL’s Appeal : Allan Price

[96] CFL appeals against MacKenzie J’s dismissal of its claim against Mr Price, NBL’s managing director. It relied on causes of action for negligent misstatement, breach of the Fair Trading Act and deceit. All three arose from representations allegedly made by Mr Price to Mr Finete on two separate occasions, in December 2002 and January 2003. They were to the effect that he said he had ‘heaps of labour and was ready to start straight away’. Mr Price accepted that he made a statement to this effect in December 2002 but did not recall repeating it in January 2003 (at [75]-[77]). MacKenzie J was satisfied that Mr Price was referring to NBL, not to himself.

[97] The Judge considered each representation separately as follows:

(a) He rejected Mr Carter’s submission that the statement that NBL ‘had heaps of labour’ amounted to a representation that ‘NBL had heaps of labour which was suitably qualified to carry out the work competently’. He held that CFL had failed to demonstrate that the representation was false as to the quantity of labour. He held also that no specific representation as to the quality of the labour was required given that NBL was under a contractual duty to perform the work in a competent and tradesmanlike manner (at [78]);

(b) He was not satisfied that Mr Price’s statement that NBL was ‘ready to start straight away’ was false. He pointed out that work actually commenced on or about 6 January 2003. He was not satisfied that evidence about whether or not the slip-way was damaged was relevant to the truth of Mr Price’s representation or that the representation actually made, which related only to the ability to start work, should extend to continuation of that work once started. He also noted that NBL was under an implied obligation to complete the work in a reasonable time in any event (at [79]-[80]).

[98] MacKenzie J found that as a consequence all three of CFL’s causes of action must fail (at [81]). However, in deference to Mr Carter, he considered his legal arguments on the negligent misstatement and deceit causes of action. In summary, the Judge was satisfied that, when making the statements, Mr Price was acting at all times on NBL’s behalf and that there were no circumstances which would justify imposition of a personal duty of care (at [82]-[85]). He also held that CFL had failed to discharge its evidential onus of showing that Mr Price lacked an actual and honest belief in the truth of his statements (at [86]).

[99] In this Court Mr Carter subjected MacKenzie J’s finding to sustained challenge. We do not intend to repeat or discuss his arguments. It is sufficient to note that they amounted to another invitation to embark upon a general factual retrial. He recited selected extracts from the evidence of a number of witnesses. He asked us to draw inferences that Mr Price’s evidence was unsatisfactory and lacking in credibility in a number of respects. For the reasons as set out earlier, we are not prepared to accede to Mr Carter’s invitation to question the Judge’s findings about Mr Price’s evidence or to embark upon a factual retrial.

[100] This challenge loses sight of the fact that this was a claim about the accuracy or otherwise of two of Mr Price’s statements that “he had heaps of labour and was ready to start straight away”. There is only so much that can be said about these words, especially where they do not appear to be in material dispute and where they were followed by or subsumed in a contract between Mr Finete’s company and NBL’s employer, which carried out the work, not Mr Price. There was no basis whatsoever for an argument that Mr Price was somehow assuming a personal liability for what he said, nor for Mr Carter’s submission that on appeal we should make adverse findings about Mr Price’s credibility.

Conclusion

[101] Accordingly, we dismiss NBL’s appeal and CFL’s cross-appeal. Each party must bear its own costs.

[102] We also dismiss CFL’s appeal against MacKenzie J’s dismissal of CFL’s counter-claim against Mr Price. Mr Christopher Finlayson for Mr Price sought an order for increased or indemnity costs on the ground that CFL made unfounded allegations of deceit against Mr Price. There were shortcomings in Mr Carter’s submissions but, on balance, we are not prepared to make an order for increased or indemnity costs.

[103] Mr Price is entitled to an order for costs in this Court of $9000 together with the usual disbursements.

Solicitors: Pitt & Moore, Nelson, for Appellant in CA 145/06
Carter & Partners, Auckland, for Respondent in CA145/05 and Appellant in CA146/05