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High Court of New Zealand Decisions |
IN THE HIGH COURT OF NEW ZEALAND
WHANGAREI REGISTRY
CIV-2005-488-80
BETWEEN RICHARD HERRICK
Appellant
AND FRANCIS BOURGEOIS-BAKER
Respondent
Hearing:
18 May and (by telephone) 4 October 2005
Counsel: R C Mark for Appellant
C F Eckard for Respondent
Judgment: 21 December 2005 at 3 pm
JUDGMENT OF BARAGWANATH J
Solicitors:
Richard Mark, Kerikeri
for Appellant
Cor Eckard Law Office, Whangarei for Respondent
HERRICK V BOURGEOIS-BAKER HC WHA CIV-2005-488-80 21 December 2005
Table of Contents
Para
No.
Background to appeal [1]
Section 7
[9]
The issues [11]
The judgment of
the District Court [13]
Background to the dispute
[13]
The case at trial [16]
The defendant's case
[17]
The Judge's conclusion [18]
Relief [19]
The terms of the contract
[20]
Was there breach? [23]
The evidence
[28]
For the plaintiff
[29]
M Bourgeois-Baker [29]
Mr Collins
[30]
Mr Mitchell [31]
Mr
Smith [40]
For the defendant
[44]
Mr Herrick [44]
Mr Brown
[45]
Mr Tombs [57]
Mr Carter [59]
Discussion of s 7(4)(b)(i) issue
[60]
Decision on s 7(4)(b)(i) [63]
Section 7(4)(a)
[64]
Submissions for Mr Herrick
[66]
Decision as to s 7(4)(a) [86]
Cross-appeal
[113]
Decision [121]
Background
to appeal
[1] The appellant boatbuilder, Mr Herrick of Kerikeri, contracted by telephone
with the respondent, M Bourgeois-Baker
of Lemor-Plage, France, to build him an
eight tonne canoe stern wooden yacht to a Denis Brown design.
[2] Mr Brown is a retired
New Zealand engineer. While disclaiming the status
of naval architect he is a gifted amateur designer who had designed some
eight
yachts up to 11 tonnes displacement and built and sailed his own vessels across
the Pacific and Indian Oceans. An article about a
Brown design in a yachting
magazine attracted the interest of M Bourgeois-Baker who is a former lieutenant
commander in the French
Fleet Air Arm, l'Aéronautique Navale Française and
Captain in the French Navy. He had worked as a marine surveyor of small craft and
fishing vessels until 2001 and is an amateur wooden boatbuilder. His ambition was
to sail his own wooden yacht single handed in the oceans of the world and to round
Cape Horn.
[3] Sharing his enthusiasm Mr
Brown made available to M Bourgeois-Baker a
set of plans and specifications of a suitable 11 metre vessel. Since Mr Brown
understood
that M Bourgeois-Baker was an amateur builder living far from
New Zealand, he was careful to maintain what he described as some "overkill"
in the
specifications in relation to strength as he was unaware of the standard
of workmanship or quality of materials available
to M Bourgeois-Baker.
M Bourgeois-Baker then decided not to build the vessel in France and asked for
Mr Brown's help to find a New
Zealand builder with the requisite skills and
experience who would be prepared to construct it within his budget of $NZ160,000.
Mr
Brown did not know Mr Herrick but was aware of his good reputation as a
builder of wooden boats. Mr Herrick was supplied with a copy
of the plans and
specifications.
[4] The contract between Messrs Bourgeois-Baker and Herrick was made orally
on 26 September
2001 in the course of a lengthy telephone conversation. It is
common ground that the parties agreed that Mr Herrick would construct
the vessel
using the plans and specifications prepared by Mr Brown which were the basis of his
acceptance of the $160,000 figure.
When the boat was less than 20% complete
M Bourgois-Baker sought to cancel the contract.
[5] The appeal is against the decision
of the District Court at Whangarei
delivered by Judge Hubble on 21 December 2004 that M Bourgeois-Baker's
cancellation was valid.
Mr Herrick was ordered to repay M Bourgeois-Baker
$48,000 of the $60,000 consideration he had paid with interest at 7.5% from 1
June
2002 (when an arbitration could have been concluded) to the date of judgment.
[6] Mr Herrick challenges that decision.
M Bourgeois-Baker cross-appeals to
recover the whole of his $60,000 payment together with interest.
[7] In oral argument in
this Court the parties agreed that a primary factual issue
is whether Mr Herrick can establish that the Judge erred in concluding
that
M Bourgeois-Baker's use of Lawson's Cedar laminates to construct the mainframes
and the aft stem of the yacht breached the contract
so substantially as to justify
cancellation (Contractual Remedies Act 1979 s 7(4)(b)(i)). Counsel agreed that the
submissions to
and the judgment of the District Court had not dealt adequately with
an important argument as to the strength of the vessel, namely
an understanding of
the application of Lloyds Rules produced by Mr Brown at the hearing but not
analysed in detail. Moreover, since
the Judge found it unnecessary to consider
M Bourgeois-Baker's alternative argument for entitlement to cancel under s 7(4)(a)
(express
or implied agreement as to essentiality of term) and s 7(4)(b)(iii) (in relation
to M Bourgeois-Baker as cancelling party to make
the benefit or burden of the
contract substantially different from that represented or contracted for), those too
have required consideration.
[8] The result has been a lengthy stern chase. Written submissions were filed by
Mr Mark on 1 June, by Mr Eckard on 14 July,
by Mr Mark on 18 July and by
Mr Eckard on 14 September 2005. They were discussed at a resumed hearing
conducted by telephone
on 4 October 2005. Mr Mark made further written
submissions on 21 November and 13 December; Mr Eckard on 14 November
and
13 December 2005.
Section 7
[9] Section 7 of the Contractual Remedies Act is at the heart of the case and the
material
parts are reproduced:
7. Cancellation of contract
(1) Except as otherwise expressly provided in this Act, this
section shall
have effect in place of the rules of the common law and of equity
governing the circumstances
in which a party to a contract may
rescind it, or treat it as discharged, for misrepresentation or
repudiation or breach.
(2)
Subject to this Act, a party to a contract may cancel it if, by words or
conduct, another party repudiates the
contract by making it clear that
he does not intend to perform his obligations under it or, as the case
may be, to complete such performance.
(3) Subject to this Act, but without prejudice to subsection (2) of
his
section, a party to a contract may cancel it if and only if,-
...
(b)
A stipulation in the contract is broken by another party to
that contract; or
(c)
It is clear that a stipulation in the contract will be broken by
another party to that contract.
(4) Where... subsection (3) (b) or subsection (3) (c) of this section
applies, a party may exercise the
right to cancel if, and only if,---
(a) The parties have expressly or impliedly agreed that... the
performance of the stipulation is essential to him; or
(b) The effect of the ... breach is,
or, in the case of an
anticipated breach, will be,---
(i) Substantially to
reduce the benefit of the contract to
the cancelling party; or
(ii)
Substantially to increase the burden of the cancelling
party under the contract; or
(iii) In relation to the cancelling party, to make the
benefit or burden of the
contract substantially
different from that represented or contracted for.
...
(Emphasis
added)
[10] Two aspects of s 7 are of particular relevance:
· whether there was such breach by Mr Herrick in deviating
from the
contractual specifications as to substantially reduce the benefit of the
contract to M Bourgeois-Baker
(s 7(4)(b)(i)) as was found by the Judge
or, in relation to M Bourgeois-Baker, to make the benefit or burden of the
contract substantially different from that represented or contracted for
(s 7(4)(b)(iii)); and
· whether there was breach by Mr Herrick of a stipulation, performance of
which the parties had expressly or impliedly
agreed was essential to
M Bourgeois-Baker (s 7(4)(a)), the point with which the Judge did not
expressly
deal.
The issues
[11] They resolve into issues:
a) whether there was breach and if so by whom and of what dimensions;
b) whether any breach by Mr Herrick entitled M Bourgeois-Baker to
cancel;
c) if not
what are the consequences; and
d) relief.
[12] Those issues raise questions as to how far this Court may rely
on the Judge's
findings and to what extent it must make findings of its own.
The judgment of the District Court
Background to
the dispute
[13] The Judge found that M Bourgeois-Baker's passion:
is blue water sailing, preferably solo, and he is
a wooden boat aficionado.
It has been his long time ambition to have a wooden boat built, and to
challenge the most
difficult seas solo. He expresses his commitment to this
endeavour as "my life's moral symbol".
[9] In early 1995
Mr Baker read an article by Mr Brown in an American
magazine "Wooden Boat". It concerned the building and sailing of classic
wooden boats. They entered correspondence, and Mr Baker asked Mr Brown
to produce plans for the 11 metre ocean cruiser
"Resurgence".
[10] The instruction included the following:
"Boat must be capable of standing any weather and the structure,
essentially the backbone,
but also the coach roof should be of the
highest possible strength. ... Best possible material and technique
available
in my country will be used for the hull, deck and sailing
gear. The rest will depend on budget as usual. My boat might have
no engine at all (I never use it anyway)."
[11] He paid $1,600 for the plans, possibly because they were very
similar,
if not identical, to those produced by Mr Brown for his own boat.
Boat design for Mr Brown is a hobby. He is an engineer by occupation,
not a
professional boat designer.
...
[22] On 26 September, Mr Baker ha[d] his first telephone contact with
Mr Herrick, where
Mr Baker said:
"I think I explained well the `philosophy' of the boat - simplicity,
solidity, adherence to the design
- and for the first expenses
Mr Herrick asked me to pay $15,000."
[23] Mr Herrick's own note of the conversation was
to the following
effect, strong hull! strong rig! no motor! simple int! work boat-style finish!
[24] Mr Herrick's evidence on
the conversation was to the following
effect:
"The agreement with Francis was verbal. The agreement was
reached
after quite lengthy telephone discussions with Francis.
I understood that I was to provide a strong hull, strong rig, no
motor,
minimum electrics, simple interior and work style finish. I recorded
this in writing on a piece of paper which
was attached to the
workshop wall."
[25] I have little doubt that in this long telephone conversation,
Mr Baker's philosophy
and requirements as outlined above, formed part of
the discussion.
[26] The "contract" was confirmed by Mr Herrick's employee,
Mr Tombs, (who was an experienced boatbuilder) as follows:
"Our deal is $160,000 NZ, finished in two years.
Strong
beautiful well built hull to sail away.
Standard interior fitout to be simple, sparten & functional?
Good used
gear OK.
Engine to be decided, oui ou non?
Maybe provision made for engine?"
He also said:
"I will keep
account of costs and wages to each stage in case you fall
off your bike?"
[14] The Judge found as to the contract:
[57] One thing is clear: that it was known to all parties that Mr Baker
wanted to fulfil a dream of sailing solo
in some of the roughest seas the
oceans could offer, without a motor, if necessary. In Mr Herrick's eyes this
was a
fanciful dream of an eccentric.
[58] The law is clear however, that if a person wishes to spend money in
a contract
to produce a fancy which may appear to be eccentric to others, the
party contracting must produce that fancy, or decline to
enter into the
contract. Mr Herrick was aware that several quotes had been obtained by
Mr Baker and, of course, these
had to be based on the plans and
specifications as produced. There could be no other basis for quoting. Other
builders
could not produce the result within the budget.
[59] Mr Herrick considered that he could produce the result within a
budget of $160,000. I do not, however, see anywhere any indication in
correspondence or otherwise, that there was a
right to quote on anything
other than the plans and specifications presented. In the circumstances of this
case, in
my judgment, the legal requirements for the implication of a term
that the boat should be built according to the plans and
the specifications was
inevitably a part of this contract.
[60] This must particularly be so in relation to a
boat because all the
experts were agreed that the use of an unsuitable timber in some part of the
construction of a
boat could have serious implications in safety. Each choice
of particular timber raises problems of compaction, absorption of moisture,
elasticity, rupture, rot and weight.
If a change is made it must be discussed
with the owner as the other contracting party.
...
[62] A further
reason for discussing any such changes is that the cost of
different timbers can vary very considerably (Lawson's Cedar is
relatively
inexpensive compared with kauri, Tanekaha). Considerable cost adjustment
could result.
...
[15]
As to the operation of the contract the Judge found:
[27] Mr Baker paid $15,000 on account on 28 September.
[28] On 19 November, Mr Herrick made demand for a further $15,000
payment stating:
"All the timber is ready
- fittings etc. coming together - engine here:
YSE 12HP Yanmar. Could you please transfer some more dollars to
my account $15,000.
We are all finishing our various projects and will be clear for the
`Resurgence' in the new year."
[29] Mr Baker sent the further $15,000. Despite sending Christmas cards
and a subscription
to the English magazine "Resurgence" to both Mr Brown
and Mr Herrick, Mr Baker did not hear from either of them.
[30] On 15 January,
Mr Baker emailed saying that he was coming to
New Zealand in March and by a letter of the same date Mr Herrick replied.
It was clear
that building had not yet begun on the boat.
[31] Then out of the blue on 21 January, Mr Baker received an email
from Mr Herrick
to the following effect:
"Bonjour Francis, all is full ahead here, going well.
More money, please.
Could
you transfer $30,000 to our NEW Account number:"
[32] This gave Mr Baker considerable misgivings, because he had
already paid
$30,000. To his knowledge the boat had not been begun, and
here he was being asked for a further $30,000. His misgivings were such
that
he emailed Mr Brown expressing his dissatisfaction and indicating that
perhaps he should pull out of the whole thing immediately.
[33] Mr Brown smoothed the matter over, and the additional payment of
$30,000 was made on 28 January, albeit with some misgivings:
"I have to
trust him, as there is no contract between us, and I want to preserve this trust
which makes relations delightful and
not an ordeal at all cost."
[34] Throughout February there is an exchange of correspondence,
including a breakdown of costs to
date and future costs as follows:
"Costs
Glue $4,000.00
Strongback $500.00
Keel, Stem $700.00
Lawson Cyprus Planking $6,000.00
Lofting Board $500.00
Transport $500.00
Floors $500.00
Engine $2,500.00
Hatches $800.00
Labour to date $7,500.00Fastenings $200.00
Sub Total $23,700.00
Expected costs for 3 months
Plywood $2,500.00
Lead $5,000.00
Labour $27,000.00
Sub Total
$34,500.00
Total $58,200.00"
[35] Mr Baker came to New Zealand on 16 March.
...
[40] ...Later in the week ...
it came to Mr Baker's attention, as he
acquired more detailed knowledge of New Zealand woods etc., that contrary
to the plans and
specifications, a soft wood, Lawson Cedar, had been used in
the main frames of the boat (with the exception of one of them where
Tanekaha was used) and also that the stern stem was a laminate of Lawson's
Cedar rather than a timber with density in excess of 600kg/m3
as it appeared
the specification required. (Lawson Cedar had a density of between 450 and
490kg/m3.) He noted too that the laminates
for the main frames were not of
"6.5mm or thinner veneers of tough, stringy, pliable timer about 550kg/m3.
Lawson's Pine had again
been used, and the laminates considerably
exceeded its 6.5mm.
...
[41] In Mr Baker's eyes this was a gross departure from the
specification.
It departed completely from his express directions to Mr Brown that there
should be no compromise with the materials, and strict compliance with the
plan and specification.
[42] It may have been possible at that stage to change the stern stem to a
different wood, but it was no longer possible to change
the frames. He was
greatly concerned that important changes could be made to the plans without
reference to him. He was not confident
that the remainder of the building
would be done satisfactorily. He had already gained an unfavourable
impression of the yard and
of Mr Herrick, and he did not feel confident that
the boat was capable of withstanding the sort of oceans he intended to sail
into.
He pointed out his misgivings to Mr Tombs, and when Mr Herrick and
his son arrived at the premises, matters became heated. Mr Baker
advised
that he was cancelling the contract, and at that point he was asked to leave
the property, and was effectively trespassed
from it.
...
[44] Mr Baker immediately sought legal advice, and by letter dated
26 March Mr Eckard formally cancelled the agreement
on the basis that
there had been a substantial departure from the plans and specifications.
He proposed that $30,000 be refunded
immediately to Mr Baker, and that
$30,000 be retained by Mr Herrick pending an arbitration about the value of
work done to date.
[45] Mr Herrick rejected the offer made, and said he intended not only to
retain $60,000 but he intended also
to sue for an additional $22,582.94 for
loss of profit, and other expenses. He said he would vigorously defend any
proceedings, and would file a counterclaim. This, of course, did not accord
with Mr Tombs' view of the matter as expressed
above, and also expressed
in a letter of 28 March. The position did not improve by 19 April, when
Mr Herrick wrote:
"In settlement of all claims between us I propose that I retain
$60,000 already paid and will accept
the hull and all materials
currently held in settlement of all my outstanding claims including
rental
charges against your client on the basis that he acknowledges
that he has no claim or further claim whatsoever against
me in
respect to the building of Resurgence."
[46] Further pleas to go to arbitration were rejected. Not
surprisingly the
matter has come to litigation with no progress made towards settlement.
The case at trial
[16] As to
the plaintiff's case at trial the Judge stated:
[47] Mr Herrick denies that he was required to adhere strictly to the
plans
and specifications. He argued that it is within the prerogative of any
boatbuilder to make what he regards as
improvements in design and to
substitute alternative materials, provided there is no compromise to the
overall quality
of the boat. He says that the only injunction of the contract
was to construct "a strong boat". He acknowledges that he did
not strictly
comply with the specification for main frames, which are directed to be at a
6.5 millimetres or thinner
veneers with tough, stringy, pliable timber about
550kg/m3. His choice of Lawson's Cedar (maximum density 490kg/m3) was
in his opinion satisfactory provided the laminates were made thicker and
hence the overall frame would be thicker than
specified. Neither Mr Brown
nor Mr Baker were consulted about this departure from the specification.
[48] He also
denies that he was required to construct the stern stem which
specifies "laminate as forward stem" and the forward stem specifies
"laminate from veneers of 10 millimetres maximum thickness. Thinner
veneers can be used instead. Timber density over
600kg/m3".
[49] He says first, that in his opinion Lawson's Cedar was a justifiable
substitute, that in any event
he was merely required to "laminate as per the
bow stem but need not necessarily comply with the timber strength of
600kg/m3". I do not agree with this interpretation
but, in any event,
Mr Herrick says further, that ultimately Mr Brown approved this change, and
although the alterations
mentioned above to the laminated frames was
presented as a "fait accompli", Mr Brown was prepared to approve them,
provided an additional skin of spotted gum was added to the main frames,
and also additional bolts.
[50] Evidence
has been called from some of New Zealand's leading
experts in the area of wooden construction of boats and sailing capabilities.
Mr Michael Smith, who is a seagoing engineer with extensive experience in
design, drafting and surveying of boats,
in his opinion there is a very
considerable strength difference between Lawson's hardwood at 490kg/m3
and a timber
such as Iroko with a density of 660kg/m3, and although
compensations can be made by way of three skin kauri planking and resin
coating, he personally would not be happy to sail this boat around Cape
Horn with the stern stem constructed with Lawson's
Cedar, having a density
of only 490kg/m3. The main thrust of his evidence is that there is a
considerable difference
in strength between these two types of timber. He is
not however himself a sailor of extensive experience.
[51]
Mr Mitchell is a sailor of considerable experience, and a very
experienced wooden boat builder. He was in agreement with
five other
boatyards canvassed that there should be no departure from plans and
specifications without consultation
with the owner. It is clear that most
larger commercial boatyards have systems in place for a written signing off
of
any such authorised variations. On his inspection of the work carried out,
he said:
"The main thing that struck
me was that there was a deviation in the
materials from those specified."
[52] He estimated that approximately
15% to 18% of the vessel had been
constructed, but was surprised to find that there were no proper records kept
of
progress, hours, wages, materials etc. He was in agreement with Mr Smith
that there was a considerable difference in strength,
not just in the substituted
materials, but also in the fact that the laminations were considerably wider
than specified.
Generally the more and the thinner the laminations, the
harder and stronger the construction. He expressed the view that the
boat as
constructed would definitely not have been as strong as it would had the
specifications been followed. He said:
"In short, I say that without a shadow of doubt, Mr Herrick did not
follow the plans and specifications
that he was given. It is definitely
not normal boatyard practice to amend specifications without the
approval of the owner."
[53] Mr Michael Collins is a scientist with impressive experience in
timber engineering
and research. He agreed with Mr Baker that there can be
a wide variety of stresses resulting from "spring back" and strength
of
curved laminated members in relation to the number of laminates, and also
agreed with Mr Baker's views on the compression
of less dense woods,
particularly in the area of the keel bolts and chain plates. In short, to change
timber and thickness
of laminates is to step into the unknown and untested
and this could reflect on strength and safety.
The defendant's case
[17] As to the defence case the Judge stated:
[54] For the defendants, Mr Malcolm Carter was called. He is also a
boatbuilder with vast experience, both in building and sailing. His view was
that the overall product produced, and
intended to be produced by
Mr Herrick, would be a very strong and sound boat capable of enduring trips
around, for example, Cape Horn.
He did not differ from the other experts
that frequently changes or substitutions are made to specification for a boat,
but he did not go as far as to say that this could be done without reference to
the client, or to the designer.
[55] Mr Herrick also argued that he was merely required to build a
"strong boat within a budget of $160,000" and this
would give him a licence
to substitute cheaper materials than those specified.
[56] It is noteworthy that in one
of the main frames, Mr Herrick
employed Tanekaha, which is a very suitable and very strong timber
complying with the
specification. However, he said that this was very
difficult indeed to work, expensive, and difficult to obtain. He does not
claim
that it was impossible to obtain. There was therefore an endeavour to comply
with specifications in respect of
that frame, and this was abandoned for
reasons of expense and difficulty of construction.
The Judge's conclusion
[18]
The Judge concluded:
[63] Although in all probability this boat would have been very
satisfactory and very strong,
it is clear from the expert evidence one could
not go further than say "in all probability". Use of timbers of different
density can have severe safety implications, the use of different thicknesses
of laminates can produce unknown stresses,
as can the lamination of
different types of timber one to the other e.g. spotted gum to Lawson's
Cedar. The compression
of a soft timber can have severe safety implications
when keel bolts and chain plate bolts are constantly under stress in
heavy
conditions.
[64] These are therefore all uncertainties which could not do other than
play on the mind
of a lone sailor in heavy conditions. Such a sailor could
only have confidence if design and specification he has seen and
approved
were strictly adhered to.
[65] I accept the evidence of Mr Mitchell and Mr Smith that the
deviations
from plans and specifications were substantial. I do not accept
that Mr Baker affirmed the changes on the morning of Monday
the 18th.
He was not aware that different timbers had been substituted until later that
week.
Conclusion
[66] I conclude therefore, that in terms of s.7(4)(b) of the Contractual
Remedies Act 1979 there was breach of the
contract which was substantial
enough to justify cancellation, and that cancellation was [duly] effected....
Relief
[19]
As to relief the Judge found:
[73] Despite attempts made by experts to obtain a breakdown and
invoices
from Mr Herrick, he has chosen to resist providing any useful
information, preferring it seems to take the stance that the
termination in the
first place was wrongful.
[74] Mr Herrick says that the work done to date is of no value
to him
because if the boat was completed for $160,000, it is worth approximately
half that to sell on the open
market. Although Mr Baker is in law the owner
of the partially completed work, it is of no value to him because he is
residing in France, and the work done does not comply with his requirements
of compliance with plans and specifications
produced by Mr Brown.
[75] In my judgment, Mr Herrick is in the best position to retrieve some
value from what
has been done so far, and he should retain the work done.
[76] With reference to Mr Tombs' assessment of costs [...]
the following
deductions should be made:
Hatches $800.00
Engine $2,500.00
Lawson's Cypress, planking $3,000.00
Glue $2,000.00
[77] The total, therefore, for labour and materials is approximately
$15,000.
The Judge decided
that Mr Herrick should have credit for $12,000 (being the
$15,000 less a credit of $3000 for the value of the hull which he directed
Mr Herrick
should retain) and gave judgment against him for $48,000, being the balance of the
$60,000 paid by M Bourgeois-Baker.
The terms of the contract
[20] It is common ground that the terms of the contract included Mr Brown's
plans and specifications.
But Mr Mark submitted that strict adherence was not
required.
[21] Mr Mark challenged a reference in the judgment to an email
of 5 September
2005 from M Bourgeois-Baker to Mr Brown stating:
Now about the contract no legal contract does not bother
me at all, on the
contrary. But don't be hurt, and don't hurt Richard [Herrick's] feelings
too if I insist that the
construction adheres very tightly to your design.
One problem with boat builders over here, especially experienced boat
builders, is that on their own they "cut corners" or reduce scantlings, for
commodity or saving reasons scantlings ought
never be reduced, but only
amplified, by boat builders.
I accept Mr Mark's submission that it does not form part of the contract
between the
parties, there being no evidence that Mr Herrick accepted it and it being common
ground that Mr Brown was not his agent.
[22] I am however satisfied, for the reasons given by the Judge at [59], that he was
right to hold that the plans and specifications
comprised terms of the contract.
Was there breach?
[23] The argument in this Court focused particularly on a comparison of
the terms
of the plans and specifications relating to the frames (the series of parallel curved
frames running from deck to keel
to deck on which is fixed the planking of the hull)
with the as-built frames. It also addressed the requirement as to the density
of the
timber for the after inner stem (the canoe stern).
[24] The specifications stipulated:
LAMINATED FRAMES [just
described]: spaced as shown on sheet 3
Main frames carrying keelbolts sided 70 mm x 50, taper to 50 x 50 laminated
in single lengths of 6.5 mm or thinner veneers of tough, stringy, pliable
timber about 550 kg/m3.
Aft inner stem...laminate...from
veneers of 10mm maximum thickness.
Thinner veneers can be used instead. Timber density over 600 kg/m3...
(emphasis
added)
[25] The respondent's case as to the frames, accepted by the Judge, was that:
a) The veneers (glued together
with epoxy resin) were thicker than
stipulated being 7-8 mm; and
The density of the timber was not
"about 550 kg/m3" but only
b)
492 kg/m3.
[26] The Judge also found that the appellant had built the aft
inner stem of timber
of lesser density than specified.
[27] Mr Mark submitted that the Judge's reasoning overlooks important
factors:
The Lawson's Cyprus in fact used with its density of 492 kg/m3 is
a)
only 3 kg/m3
short of the 495 kg/m3 which is within the 10% of the
550 figure and, it was common ground, would satisfy that stipulation;
b) As was acknowledged by Mr Eckard, the learned Judge did not deal
with a fundamental argument of the
appellant which bears on the
dispute under s 7(b)(i). The point is that the laminated frames are one
element only of the strength of the vessel. Other vital components are
the planking of the hull skin outside the
laminated frames and its
covering with coats of fibreglass set in epoxy resin. The appellant
argues
that insofar as there was some diminution in strength by use of
the Cedar in the laminated frames it was more than
compensated by
Mr Herrick's intended substitution in the hull skin of heart kauri with
a density of 550 kg/m3 for the stipulated timber density
of 450-500
kg/m3. Furthermore, the forward and aft bulkheads were also
strengthened. The total result
was, he argued, to be seen as a
"monocoque construction" or unity which must be considered as a
whole.
It follows, he submits, that this Court will have to consider de
novo that aspect of the case and also the respondent's
further
argument under s 7(4)(a) which the Judge did not discuss.
c) Revisiting the issue de novo, this
Court should find that there was if
anything an over-performance in terms of hull strength relative to
specifications and the respondent was unable to establish material
breach of contract let alone repudiatory breach
entitling the
respondent to cancel. Mr Mark submitted that M Bourgeois-Baker
had not made out his case
under s 7(4)(b)(i) that breach had
substantially reduced the benefit of the contract to him so as to entitle
him to cancel.
The evidence
[28] Since I must form my own opinion on the question whether
over-performance by Mr
Herrick meant that, despite some departure from the plans
and specifications there was no breach of s 7(4)(b) (I suspect the Judge
had in mind
subclause (i) rather than (iii)), it is necessary to examine the evidence. A major
issue concerns the strength
of the vessel. Of crucial importance to the Judge's
decision was the topic of the fastening of the lead keel to the hull by keel
bolts and
the fastening of the shrouds to the hull by chain plates. That is because of the
immense pressure to which each is likely
to be subjected in the extreme Southern
Ocean conditions which were the focus of the contract.
For the plaintiff
M Bourgeois-Baker
[29] The plaintiff is himself qualified to give expert evidence. He said:
Because of ... the moisture content... the
combination of softwood and
hardwood at floor level, notwithstanding the loss of strength, is absolutely
wrong due
to a phenomenon called compressive set; if the timber acquires
compressive set due to an increase in moisture content under
restraint, and if
it isn't restrained from shrinking when the moisture drops again, it will be
narrower than it was
originally. This will lead to the loosening of the keel
bolts.
He was not challenged as to that. Mr Herrick's response was
rather that sealing of
the wood would avoid such result.
Mr Collins
[30] Mr Collins, a highly skilled scientist and timber
expert, said:
I have read the evidence of Francis Bourgeois-Baker and agree with the
technical arguments he advances.
In particular... his comments on the
effects of wood swelling and compression set.
He too was not challenged as to that evidence,
to which Mr Herrick's response was
the same.
Mr Mitchell
[31] Mr Mitchell is a charter yacht skipper for a 26 m ketch. He is
a respected
boat builder with impressive experience including apprenticeship in the 1960s to
Chas Bailey & Son of Auckland for the
requisite 10,000 hours and with jobs referred
to him by internationally respected designers. He is also an expert blue water sailor.
He considered that it was reasonable for M Bourgeois-Baker to expect that the
original approved plans and specifications would be
followed. Since Mr Herrick's
quotation would have been prepared on the basis of those documents Mr Mitchell
inspected the partly
built vessel. He said that in general the workmanship appeared
to be of a good standard but he said that he was struck by deviation
in the materials
from those specified. He endorsed the evidence of another of the plaintiff's
witnesses, the engineer Mr Smith,
who said that the use of Cyprus which he
described as:
A soft wood with medium hardness, placed in locations where toughness or
impact strength, and bending strength
is mostly needed
was contrary to M Bourgeois-Baker's requirements.
[32] Mr Mitchell asked Mr Herrick about his deviation from
the specification.
Mr Herrick said that he was changing the planking thickness to make up for the
lighter frames and he was going
to glass the outside which was originally only going
to be epoxy coated. Mr Mitchell expressed the view that Mr Herrick had no right
to
change anything without prior approval by the owner. He said that it is definitely
not normal practice to change the design or
construction without obtaining the
approval of the owner. He expressed the opinion that the changes in construction
from the plans
and specifications and the way in which the vessel was built meant
that the boat would not have been as strong as it would have been
if the
specifications were followed. He said that if the boat builder changes anything he
takes on the role of an engineer and of
designer which is not his function. His
function is to work to the plans and specifications. He described the appellant's
activity
as being "a backyard operation that did not really do the industry any credit."
[33] In oral evidence in chief Mr Mitchell said
in the context of density that:
Lawson Cyprus is around 470 odd you know it is certainly we're talking
roughly 20
percent less again in the frames. It was less laminations, less
strength
In fact the figure for the particular wood tested
at 492.
[34] Mr Eckard submitted that the passage records an expert opinion that the
"roughly 20% less" is to be taken as a reference
to weakening, picking up both the
element of density which precedes the figure and that of fewer laminations which
follows. Mr Mark
submitted that the witness was inaccurately using the 470 figure
which is some 15% less than the stipulated "about the 550" and was
rounding that
out to 20% and then adding the fewer laminations as a further strength factor.
Counsel were inclined to agree that
the passage is unclear and I find it of no greater
assistance than as a reference in general terms to the lesser density and the
fewer
laminations than specified.
[35] On the latter point Mr Mitchell was asked in chief to comment on the topic of
thickness
and number of laminations. He said:
Because they use Lawson Cyprus, which bent easier, they chose to use less
laminations.
Asked "Does that affect the strength of a boat?" he replied "Yes the more
laminations the stronger the beam." Mr Eckard
asked "Do I understand you
correctly the thinner the strips the more laminations the stronger the frames?"
Mr Mitchell answered "Yes."
[36] On the topic of monocoque construction Mr Herrick said:
...in a monocoque construction, there is no need for toughness
or impact
strength in the frames. In fact the superior flexibility of Lawson Cyprus is
probably a positive factor,
rather than a negative.
Mr Smith did not agree, saying "a boat this size and where it is going... it has to be
of impact strength".
Mr Mitchell also commented on that, saying:
The frames are put there for a reason. They transmit, at first they break up
the panels of the hull. So you certainly require the stiffness to carry the load
from the sea or if a boat falls down
off a big wave, hits the wharf.
The whole part of the structure works as well as the skin to keep the thing
together.
The Lawson Cyprus frames were certainly not as strong as if it
were kauri, suppelle quilla, anything else, and I believe he
is saying here that
they are more flexible. They are more flexible. They are not as strong.
[37] Mr Mark put to Mr Mitchell
in cross-examination the evidence of Mr Brown
that you cannot have too many or too few laminations. Mr Mitchell disagreed,
stating
that the fewer the laminations the less strength.
[38] Mr Eckard submitted that Mr Mitchell commented adversely on the effect of
strains on the keel bolts and chain
plates and was not challenged in
cross-examination. Mr Mitchell did so only by allusion, saying "the chain plates
were going to be...
attached to the frames aft... though this aft stem you've used a
lighter material." It is common ground that while at the time of
cancellation the aft
stem could still have been replaced the frames could not.
[39] The rule in Browne v Dunn (1893) 6 R 67 requires
an opposing party either to
challenge evidence in cross-examination or be put at risk of being taken to accept it.
But the duty depends
in its application on the degree of specificity of the evidence.
There was no dispute that denser timber would have been stronger.
That is a
different point from whether Lawson's Cyprus could not be strong enough for the
chain plate fastenings,
one which Mr Mitchell did not specifically make.
Mr Smith
[40] Mr Smith stated that the "...keel and bolts run... from an upper
floor below
the sole board into the ballast keel and in tightening those bolts we put compression
loads on that softer frame which
is a Lawson's Cyprus and there would be a
tendency for that to ease during any sea way." Likewise, the chain plates would put
stress
on the frames. There were 10 frames which carried the weight of the keel.
[41] When Mr Smith was specifically asked about the
items which he would say
made a "marked difference to the opinion that (he) has about the call it weakness
of the aft stem and
the frames", he answered:
Well, the bulkhead certainly have increased the strength. The floors have
increased the
strength but it doesn't make any difference to what the strength
of the frames or the aft stem. The aft stem frames the
design is the design.
(own emphasis)
[42] It seems that Mr Smith was referring to the different types of strength with
regard to the frames in the hull. Whilst the bulkheads and the floor may have
increased the overall strength of the hull, it made
no difference to the tensile
strength, compression strength, sheer strength or hardness of the frames. That is
why he says that "the
design is the design". I accept Mr Eckard's submission that he
meant that the design and specifications should have been strictly
followed.
[43] He reinforced this view by saying on page 68 of the notes of evidence, where
he was re-examined and on page 69
of his notes of evidence:
the stays are taking load and they transmit that load to either a frame, which
they through
bolt it to a frame or they through bolt into a tingle on the inside
and eventually that loading will go down to the hull,
to the floor, a typical
floor and then to the aft stems so it's a sort of a, the loading coming down
like this to the
aft stem.
For the defendant
Mr Herrick
[44] I have referred to Mr Herrick's statement:
...in a monocoque construction
there is no need for toughness or impact
strength in the frames. In fact, the superior flexibility of Lawsons Cypress is
probably a positive rather than a negative factor.
Mr Brown
[45] Mr Brown as the designer of the yacht with close familiarity
with Lloyds
standards was uniquely positioned to appraise the strength of the hull. His evidence
was not analysed by the Judge. Mr
Brown:
...used the Lloyds specifications to demonstrate that the hull of the vessel
was of sufficient strength despite
the fact that timber of a lesser density than
specified was used. The lesser density of the wood was compensated for
(so the appellant argues) because the frames as built were larger with regard
to the sidings and the mouldings.
He said:
Now my scantlings fill the Lloyds rules requirements, but they have extra
siding so they're bigger than Lloyds requires.
[46] Mr Brown said that he had not expected to find that Mr Herrick had used the
lighter Lawson's Cyprus for the frames. He had originally suggested Tanekaha and
considered
Mr Herrick's preference for spotted gum to be even better. But having
learned that the Cyprus had been chosen because the others
were not available either
at all or in sufficiently long lengths, Mr Brown calculated and concluded that since
the frames were:
...way over size anyway that timber was perfectly adequate. And the other
point is that when I looked at that timber
it was superbly clean straight plane
and the laminations were I thought suitable for the strength of those planes.
[47]
On the topic of laminations he based his opinion on the assumption, endorsed
by Lloyds, that if the timber in the frames did not
become stressed so there is
cracking or lack of even bending when they are bent into shape and glued then it is
adequate.
He rejected the extreme arguments that if there were only
two laminations there would be much more stress, which would not be
sensible, and
if there were too many laminations you would have all resin there and no timber.
He described it as being a question
of using common sense and said that on
inspecting the work it seemed perfectly sound, as one would expect from work by
Mr Herrick,
whom he described as experienced, and his boat builder Mr Tombs,
whom he regarded as "a particularly meticulous trained boat builder".
It did not
occur to him that there would be any question about a timber which was later
calculated as some 10.9% lighter than the
approximate specification.
[48] It was common ground that compliance with Lloyds Rules and Regulations
for the Construction
and Classification of Yachts would meet the express term as to
the strength of the yacht. The calculations performed by Mr Brown
in relation to the
Lloyds Rules conclude that for laminated frames of timber of 450 kg/m3 (rather than
the denser 492 kg/m3 of the
part of one frame which was tested) dimensions of
45 mm of siding (width) and 50 mm of moulding (depth) are required. The evidence
was that the dimensions of the as-built frames were 70 mm of siding and 50 mm of
moulding and therefore well in excess of the size
required to comply with the
contractual requirement of strength.
[49] Mr Eckard sought to challenge the calculations by reference
to two
photographs of the frames which included a scale and which, he argued, showed that
the basis of Mr Brown's calculations was
wrong: the frames were of narrower
dimensions than he had assumed. The difficulty with that argument is that there was
no evidence
or cross-examination upon it, especially of Mr Tombs who had made the
frames.
[50] The critical passage in the judgment is
para [63] which it is convenient to
repeat:
[63] Although in all probability this boat would have been very
satisfactory and very strong, it is clear from the expert evidence one could
not go further than say "in all probability".
Use of timbers of different
density can have severe safety implications, the use of different thicknesses
of
laminates can produce unknown stresses, as can the lamination of
different types of timber one to the other e.g. spotted
gum to Lawson's
Cedar. The compression of a soft timber can have severe safety implications
when keel bolts and
chain plate bolts are constantly under stress in heavy
conditions.
[51] Aside from the question of compression and the
effect on keel bolts and chain
plates my impression of the evidence as a whole conforms with the Judge's
assessment ([63]) that "...in
all probability this boat would have been very
satisfactory and very strong".
[52] Mr Eckard submitted that in referring to
"strength of the hull" Mr Brown had
in mind only the impact strength. That, he argued, did not present the full picture.
It was essential
to examine as well the issue of board swelling and compression set
as they affected the keel bolts and chain plates.
[53] As to those Mr Brown stated:
15. Since the workmanship
was good and the visible material clean and
straight grained, only the lower compression strength of the frames
in way of the chain plate fastenings could have been a problem.
Richard [Herrick] and I discussed
this and agreed as follows:
a. The area for bolting could be overlaid with a veneer of
spotted gums; and
b. The number of bolts carrying compression tubes could be
increased
(see appended notes and calculation).
[54] His reference was to the Lloyds data and his own written calculation of
strength requirements
in Lawson's Cyprus for chain plate bolts. As to compressive
set he stated:
Since all interior structure is sealed with two
coats of epoxy resin to preclude
changes in moisture content... no appreciable compressive set has been
experienced
through the years. A minute amount of initiative take-up or
compressive set in the first few months is common to many ballast-keel
yachts, especially fin-keelers where wringing strains are high. In my boat
plans, it can be seen that all keel bolt
heads are accessible at cabin sole level
and may be checked for corrosion or tightness without even taking the boat
out of the water.
[55] Questioned about the risk of compressive set Mr Brown said:
Yeah, well that's an easy one,
fortunately. In the first place the load is
spread. Those frames go side to side and you've got a 50mm piece that it's
argued is going to compress. The hardwood above it spreads the load above
the heads of the bolts generally over an
area of 2, 3, 400mm. Secondly, the
fact... I mean somebody picked on the fact that the moisture content will
change
in soft timber more than a harder timber and that it will expand and
shrink as the moisture content changes. Now that would
be true if the timber
were exposed, as it was in older traditional boat building of boats. However
in this boat, modern
times, I have specified that the whole interior be coated
with two coats of epoxy resin, and outside a minimum of three. Now
what
epoxy resin does is preclude the exchange of moisture one way or the other,
it basically makes it waterproof.
So the timber is not going to come and go
with moisture change, there won't be any moisture change when it's finished
and otherwise every boat, every boat that has keel bolts, one must check the
keel bolts invariably, every now and again
they take up a little bit, get slowly
compressed. As a matter of fact, the bolting in this boat overdone, the load
is spread tremendously, you don't find many boats that have 20 keel bolts,
18 or 20, and the ballast keel is very shallow
so there's no torsion or stress
on the bolts. Also because the heel is wide and the bolts are in pairs, all the
bolts
are doing is holding the weight, is what I'm saying, they don't have
any torsion or stresses on them as they do on a deep
thin keel. So, you
know, all these questions are things that, in my designing and from my many
years of experience
of ocean cruising, I've thought about and have come up
with the solutions, specifically for this kind of boat.
[56] Importantly,
Mr Brown was not challenged on his evidence with respect to
the chain plate fastenings.
Mr Tombs
[57] The carpenter, Mr Tombs,
deposed:
9. I was aware that the Lawson Cypress was a lighter density than
specified but we had made
the frames thicker to account for that.
I can't see that moisture could be a problem because we were going
to coat the entire structure with two coats of epoxy...
11. Francis has raised a concern about the use of high and low density
timbers in
the floors with the frames being "ring frames" running
continuously from gunwale in the mid sections. The concern
was
that the glue might let go between the hardwood floors and the
frames that are sandwiched between
them. Examination now, after
over one-and-a-half years without epoxy sealing, reveals no
movement.
Added to that, the keel bolts running from within the
keel to the top of the floors provide immense lateral stability
to the
floors themselves. It becomes a "belt and braces" situation.
Therefore, this concern is without
foundation.
12. The suggestion that the keel bolts might loosen can't be serious.
One must always check
and tighten the keel bolts in a wooden boat
after launching. Every wooden boat sailor knows that.
He was not challenged
as to these matters.
[58] In oral evidence he said:
We had a little bit of Tanekaha, clear Tanekaha, which has got,
it's a
stronger timber, it's harder to laminate, um but we thought it would be good
to put that in the way of one
of the chain plates which basically hold the rig
up and we decide to use Tanekaha because we had enough to do one of
them, clear dry Tanekaha for one of them and so we did it. It was an
incredibly hard thing to do, the timber is really
fickle, it doesn't bend easily
and we made one of them and it was such a mission that we decided not to
do the other
one and we were going to shim up the there were three chain
plates as I recall one was going to have the Tanekaha, the
next one aft, was
the major bulkhead which is the compression area for the mast and that
handled itself because it
was a plywood bulkhead so it was enormous
strength there. The one after that is, we were thinking of sistering up with
some spotted gum to increase the strength in that area. (own emphasis)
Tombs Notes of Evidence page 154 line 27 to
page 155 top.
Mr Carter
[59] The evidence of Mr Carter, described by the Judge as a boatbuilder with vast
experience, was
supportive of Mr Herrick's evidence and case as to the strength of
the hull.
Discussion of s 7(4)(b)(i) issue
[60] Mr Mark
submitted that whereas the Judge at para [63] referred to "soft
timber" Mr Collins warned that care is needed in employing such terms
as "soft
timber". I accept his argument that, given the precautions stipulated by Mr Brown,
no expert said that compression of soft
timber of the kind used in this could have
significant adverse safety implications.
[61] The evidence of the plaintiff and of
Mr Collins about compressive set was
expressed at a general level. That of Mr Brown was highly specific and supported
by calculations
adopting the Lloyds criteria. While the learned Judge is himself a
very experienced yachtsman, his reasoning at [63] as to such problems
as
compression of soft timber and stresses due to use of timbers of different density and
thickness is not endorsed by the experts
and, importantly, Mr Brown. The issues
turn on expert evidence; since the Judge did not address this material it is my task to
do so. I am satisfied that there is no tenable argument available to refute
Mr Brown's precisely reasoned evidence.
[62]
There is indeed no particular reason to believe that had M Bourgeois-Baker
not resorted to the peremptory course of cancellation
and instead consulted
Mr Brown, in whom he had displayed such confidence, M Bourgeois-Baker would
not have been dissatisfied as to
the strength of the hull in relation to the keel bolts
and chain plates and indeed the hull as a whole.
Decision on s 7(4)(b)(i)
[63] Given Mr Brown's evidence, coupled with the evidence of Mr Herrick's
intention to use Kauri for planking and to glass the result so as to achieve the
additional strength of the monocoque
effect, I consider, contrary to the Judge's
conclusion, that in terms of the objective test of s 7(4)(b)(i) M Bourgeois-Baker did
not establish as an objective probability that the breach of contract entailed in use of
the particular Lawson's Cyprus substantially
reduced the benefit of the contact to
him, so as to justify cancellation. At bottom his concern was for strength. The
departure from
the literal terms of the contract was only marginally above the 10%
tolerance which it was common ground constituted exact performance.
While
breach was established, given the proven strength of the hull and its components I
am not persuaded that
the quantity and quality of that breach was sufficient to satisfy
the test of substantiality.
Section 7(4)(a)
[64] The next
question concerns s 7(4)(a) which, on the Judge's approach, it was
logically unnecessary to consider and which he did not separately
discuss, even
though the term of the contract that the builder conform with specifications was of
significance to the reasoning at
[64]:
These are therefore all uncertainties which could not do other than play on
the mind of a lone sailor in
heavy conditions. Such a sailor could only have
confidence if design and specification he has seen and approved were strictly
adhered to.
The issue is whether there was breach of a stipulation which the parties expressly or
impliedly agreed was
essential to M Bourgeois-Baker.
[65] He is entitled to have the contract construed in the light of what in
Prenn v Simmonds [1971]
3 All ER 837 (HL) Lord Wilberforce memorably termed
the factual matrix the setting known to both parties. This entailed two dominant
and related features. One was the specific agreement already discussed, that it
should be strong. The other was the subject of the
Judge's finding of an implied
term, that the vessel should be built in conformity with Mr Brown's plans and
specifications.
Submissions
for Mr Herrick
[66] For Mr Herrick it was argued that, even if there was such breach, it
was purely technical since the basic
requirement of vessel strength was satisfied.
Mr Mark submitted that he did not expressly contract that such breach should be
construed
as plainly fundamental to M Bourgeois-Baker and justifying an inference
that non-compliance would entitle M Bourgeois-Baker to cancel
the contract.
Had M Bourgeois-Baker not acted precipitately but given Mr Herrick the
opportunity to establish the vessel's compliance
with Lloyds Rules, perhaps by
obtaining a report from Mr Brown, it would have become plain that there was no
cause for concern in
the vital sphere of safety. The breach was not fundamental but
technical and only nominal damages, not cancellation, could be claimed.
[67] Mr Mark submitted that the parties did not expressly agree that strict
adherence to the plans was essential. He referred
to M Bourgeois-Baker's evidence:
So when you said that you insist that the construction adheres very
tightly to your design?... Yes.
You were speaking to Denis Brown, not to Richard Herrick?...
I agree, yes. We agree, yes.
Mr Herrick says that his agreement with you to construct the boat
was reached after a quite lengthy telephone conversation?... Yes.
At page 5:
And he says, Mr
Herrick says that the essential terms of that
agreement reached by the phone were that it be a strong hull?... Yes.
He submitted that the essential terms, expressly agreed, were each put to
Mr Bourgeois-Baker who agreed with each.
The cross-examination continued:
Mr Herrick says... Mr Herrick says that those were the essential
points that he agreed with you over the phone?... Yes. But let me
remember that Mr Herrick went to all of the timber without to
having a change at least while we were on the phone. He went to go
away to buy his first lot of timber without
any conversation between
us.
[68] Mr Mark submitted that:
9. Strict adherence to the plans and specifications
was not expressly
agreed to be essential. Accordingly, for strict adherence to the plans to be an
essential term it
must have been impliedly agreed.
10. In determining whether or not it was an implied term that there be
strict
adherence to the specifications, "the Court must take into account the
express terms of the contract and the circumstances
of its making to
determine whether there was an implied agreement..." (Burrows, Finn
& Todd, Law of Contract in New
Zealand, second edition, reprint 2002,
page 637.)
11. The lengthy telephone discussion, and the email... confirming
the
essential terms are relevant in the factual matrix. Mr Herrick's evidence was
that there were lengthy telephone
discussions...and the evidence discloses
regular email and written correspondence, but strict adherence to the plans
and specifications was not mentioned to the appellant by the respondent as
being essential. On the contrary, the essential
terms were for a strong well
built hull. The respondent did not, upon receipt of that email, reply
informing the appellant
that it was essential to the respondent that there be
strict adherence to the plans and specifications.
12. If
strict adherence to the plans and specifications was essential to the
respondent, it would have been simple to have expressed
that condition.
13. Clearly it was not, because subsequently there were other changes
made to the plans and specifications
that drew no objection. Mr Michael
Smith gave evidence...of ten changes to the design, three of which were
specified
as being at Mr Bourgeois-Baker's request.
It is however the case that those changes were calculated to strengthen rather than
weaken
the design.
[69] Mr Mark then submitted:
14. There cannot be an implied agreement that strict adherence to the
plans and specifications is an essential term and then there be not only no
objection to changes to the plans and specifications
but requests for changes
by the respondent. It is simply inconsistent.
15. It is not reasonable and equitable
to insist, after cancellation, that
strict adherence to the plans and specifications was an essential term, when
despite
having every opportunity, such a term was not expressed or even
intimated to the appellant at the time the contract was formed.
[70] He further submitted that:
The specification referred to a timber density of "about 550kg/m3".
16.
It is not possible to adhere strictly to a specification that is not itself
expressed in strict terms. It is not clear
from the implication of a strict
adherence term how close to 550kg/m3 the timber needs to be to comply
with a strict
compliance term. Arguably timber of exactly 550kg/m3 is
required.
[71] Mr Mark submitted as to the law that:
24.
It will be difficult to regard any promise as essential if it is not one
upon which entry into the contract was dependant.
The striking feature of
contracts where a term has been held to be essential is that the product
supplied has been
so defective that the buyer has not received what was
contracted for (Holmes v Burgess [1975] 2 NZLR 844) or that entry into the
contract itself was based on the truth of the representation which turned out
to be false. Progeni
Systems Ltd v Hampton Studios Ltd (HC, Christchurch,
CP 105/86, 11 August 1987 Tipping J). See also Wilson v Hines (1994)
6 TCLR 163.
25. By comparison, in Young v Hunt [1984] 2 NZLR 80, a turnover
warranty on the sale of a business was not essential. The purchaser, in the
absence of cancellation, would
properly have retained the right to damages.
A representation that a safety cabinet complied with overseas
safety standards
was not essential in Insapipe Industries Ltd v MAF
(HC, Auckland, CP 202/88, 6 March 1990).
26. Where a term has
been held to be essential, it is often said that the
cancelling party could equally well have based the cancellation on the
substantial consequences of the breach under s.7(4)(b). Although the tests in
s.7(4)(a) and 7(4)(b) are independent,
it would in my respectful submission,
be rare for there to be a finding that the consequences of breach of the term
did not justify cancellation pursuant to s.7(4)(b), but nevertheless the term
was essential.
[72] Mr Eckard challenged
Mr Mark's submission that the envisaged planking
(the hull skin) was a factor that was going to strengthen the hull. He submitted
that
the result of departure from the specifications would be the provision of a boat much
different from the one designed and
specified.
[73] Mr Eckard referred to the following evidence:
1. Bourgeois-Baker says that the appellant has decided
to reduce the
outer veneers from 3 to 2.
2. Mr Grant Mitchell gave evidence in his brief that he was told by
Mr Herrick: "That because of the lighter frame materials that he was using,
he was going to glass the outside of the
hull.".
3. Mr Mitchell expands on this evidence and says ... that he doesn't
quite understand plan 5/7 where
it says that the exterior of the hull is "to be
covered with three coats of fibreglass set in epoxy resin"
4.
In cross-examination, when asked about the coats of fibreglass
Mr Mitchell seems to accept that triaxial glass on the hull
would have made
it stronger.
5. It is illuminating that the appellant's counsel put it to Mr Mitchell
that there was a discussion as to whether there was going to be a 3-skinned
Kauri hull or whether it would be 2-skinned Kauri
hull plus a further coat of
triaxial glass on it.
6. In cross-examination it was put to Mr Mitchell that there
was to be a
three skin part Kauri planking.
7. Mr Grant Mitchell's evidence was that when he spoke to Mr Herrick
about the deviations from the specifications, the latter said "That he was
changing the planking thickness to make
up for the lighter frames and that
he was going to glass the outside. He said that originally it was only going
to
be expoxy coated".
8. In his evidence, Mr Mike Smith provides the following details about
the hull skin:
"Details of the construction of the boat yet to be completed were
discussed with Mr Herrick, in particular,
the hull planking. It was
found that 20mm thick, edged glued strip Kauri planks, followed by
two layers
of 5mm thick double diagonal planks, with a further
two layers of triaxial fibre glass cloth with appropriate resins
was to
be applied. The final fore and aft planking was not to be included.
The design drawing specification,
however, referred that the hull
skin be of a density 450 500 kg/m3 and the thickness of
30 millimetres.
From the drawing it is noticed that the following
had been referenced:
16mm thick strip planks
2-4.5mm thick veneers, maximum width 150 metres
1-4.5mm thick veneer laid fore and
aft design waterline or
laid transversely or diagonally below design water line
3
coats of 195gm per metre2 fibreglass
[74] Mr Eckard submitted that Mr Herrick proposed to add overall strength to the
vessel by the use of strip Kauri planks with greater
density than the 450/500 kg/m3
specified for the strip planking. That view was confirmed by Mr Malcolm Carter.
Mr Brown said:
During this discussion, Richard also mentioned the possibility of changing
the whole skin construction to suit the thicker
kauri planking (own
emphasis). I said it was preferable to stick to the plan construction, to which
he seemed quite
agreeable and suggested that the strips of thicker kauri
planking could be trimmed to size by running through his thickness
planer.
[75] Mr Eckard referred to an invoice indicating the Kauri was charged to
M Bourgeois-Baker. Mr Mark put to Mr Mitchell:
The kauri was on site at the time and it was thicker than required and going
to have to go through a planer.
Mr Mitchell
responded "Why would you want to change it?"
[76] Mr Herrick argued that the Kauri skins would have added up to 25%
overstrength.
Mr Mitchell responded that that 25% would be reduced by reducing
the skins from three to two. Mr Mitchell said that notwithstanding
the Kauri skins
the hull was not going to be as sound as if it complied with the planned
specifications. When it was put to Mr Smith
that the vessel was going to be finished
with three layers of Kauri planking he said:
Well, I think, are we building a boat
to a design or are we building a boat as
its felt fit by the builder?
[77] Mr Eckard therefore submitted that while the
deviations as regard to the skin
might objectively make them both stronger they constitute further deviations from
plans and specifications
which M Bourgeois-Baker never contracted for.
[78] Mr Eckard submitted that strict adherence to the plans and specifications
was
essential to M Bourgeois-Baker. He made the following submissions:
1. He dreamed, planned, negotiated and worked
with the designer and
later on with other builders over a period of years to get a design which
satisfied his dream
to sail this wooden vessel in the toughest seas in the
world.
2. He himself is an expert yachtsman and has a
deep and thorough
understanding about yacht building.
3. The design and specifications of "Resurgence" was the
end result of
meticulous planning over a long period.
4. He had no indication that the builder (of his own volition
and
without consultation) was going to deviate from the specifications.
5. Strict adherence to the specifications
was fundamental to him
hence his immediate and clearly expressed dismay when he discovered the
deviations.
6. This boat was no ordinary pleasure craft. It was to be a highly
specialised boat, one of its kind.
7.
It is highly improbable that in these circumstances, any owner would
have been satisfied with a unilateral deviation from
the design and
specifications.
8. If the respondent didn't voice his objections to the deviations from
the specifications at that particular moment, the frames would have been
planked over and it would have been too late to
do anything about the
deviation.
9. The deviations were not de minimis; they were even outside the 10%
which Mr Mitchell indicated as the maximum variation allowable.
[79] Mr Eckard submitted that:
...s 7(4)(a) and (b) of
the Contractual Remedies Act 1979 constitutes a code.
Betham v Margetts [1996] 2 NZLR 708 at 712 line 32:
For breaches, the essential term and substantiality preconditions for
cancellation
are spelt out in subs (4)(a) and (b). They largely
codified the common law.
[80] He submitted because these provisions
constitute a code the Court should
interpret s 7(4)(a) strictly. He submitted that:
17. Adherence to the plans and specifications
was either essential to
Mr Bourgeois-Baker or it was not. If the adherence was essential, there is no
leeway to allow
deviations from the plans and specifications.
[81] He drew attention to the language of s 7(4)(a):
The parties may exercise
the right to cancel if, and only if
(a) The parties have expressly or impliedly agreed that... the
performance
of the stipulation is essential to him;...
[82] He submitted that:
18. A deviation could perhaps have been allowed
if the section were to
read "for... a party may exercise the right to cancel if, and only if,
(a) The parties
have expressly or impliedly agreed that... the
performance of the stipulation is essential to him provided that the
non-performance of the stipulation was substantial." (or other words to that
effect).
But the Act does not say that.
[83]
He argued:
19. The Act therefore does not allow the Court to write a contract for the
parties. A Court is given
no leeway to decide whether the breach of the
essential stipulations was substantial or de minimis. See also Yu v T & P
Developments Limited [2003] 1 NZLR 363 (CA) at 377 line 17 [58]:
[58] The appellants argue that the standard was a "luxury manor"
and
that the range of deficiencies later identified demonstrate that
T & P was not able to complete to that standard.
This argument was
more fully developed in relation to the substantiality of breach.
We agree with the
Judge's conclusion that the term added very little
to the contractual obligations. The contract was to deliver a house
in
accordance with the plans and specifications... The house could be
no more a "manor" than its agreed
design could allow, nor more
"luxurious" than the specifications contemplated. There is
considerable
force in the submission for the respondents that the
term "luxury manor" was used to indicate that the house was to
be
imposing and contain a number of impressive features. It did not add
to the agreed plans and specifications
by which the house was
defined.
[84] He submitted:
20. It is submitted that the same can be said with
regard to the vessel
where the term "strong hull" was used. The term "strong" here cannot take
the matter any further
than the plans and specifications for the vessel. That
was essential to Mr Bourgeois-Baker.
[85] He submitted in conclusion
that the District Court had found that
performance of the stipulation (adherence to the plans and specifications) was
essential to
M Bourgeois-Baker. Accordingly the appeal should be dismissed.
Decision as to s 7(4)(a)
[86] There can be no greater test of
a hull than to encounter the conditions of the
Southern Ocean including the rounding of Cape Horn. A solo yachtsman, conscious
at
every stage of the consequences of unremitting pressure of wind and waves on the
hull of his vessel, has every reason for apprehension
whether it will be strong
enough. That requires satisfaction of the objective requirement of strength, which
I have held on the evidence
has not been shown to have been breached. There
remains for consideration the implied term that the vessel should conform with the
specification that the wood of the frames should be of "tough, stringy, pliable timber
about 550 kg/m3" and that of the aft inner
stem of "density over 600 kg/m3".
Relevant to cancellation is that in the case of the aft stem it would have been possible
to replace
the Lawson's Cedar; not so in relation to the frames.
[87] While the Judge's conclusion turned on s 7(4)(b) his reasoning at
[63]-[65] is
also of relevance to s 7(4)(a) and warrants further repetition in this context:
[63] Although in all probability
this boat would have been very
satisfactory and very strong, it is clear from the expert evidence one could
not go
further than say "in all probability". Use of timbers of different
density can have severe safety implications, the use of
different thicknesses
of laminates can produce unknown stresses, as can the lamination of
different types of timber
one to the other e.g. spotted gum to Lawson's
Cedar. The compression of a soft timber can have severe safety implications
when keel bolts and chain plate bolts are constantly under stress in heavy
conditions.
[64] These are therefore
all uncertainties which could not do other than
play on the mind of a lone sailor in heavy conditions. Such a sailor could
only have confidence if design and specification he has seen and approved
were strictly adhered to.
[65]
I accept the evidence of Mr Mitchell and Mr Smith that the
deviations from plans and specifications were substantial.
[88]
It is true that in point of construction it was common ground that, already
noted:
[t]he Lawson Cyprus in fact used
with its density of 492 kg/m3 is only
3 kg/m3 short of the 495 kg/m3 which is within the ten percent of the 550
figure which it was common ground
would satisfy that stipulation
[89] But given the context, graphically expressed by the Judge at [64] of his
judgment, it would
exceed the scope of an appellate court's authority to interfere
with factual findings to reverse the learned Judge on the basis that
3 kg/m3 outside
the 10% figure is to be treated as de minimis and disregarded in relation to such
fundamental matters as the frames.
It follows that there was breach of contract in
this regard.
[90] The next and critical question is whether such breach was
of a stipulation
performance of which the parties had agreed was essential to M Bourgeois-Baker.
[91] The law is stated by
Burrows, Finn & Todd "Law of Contract in
New Zealand" (2nd ed 2004) p 636:
[Section 7(4)(a)] in essence preserves the common
law concept of
"condition": a term which is so important that any breach of it justifies the
innocent party in
cancelling...the subsection emphasises two things. First, it
is essentiality to the cancelling party which is relevant:
it is not necessary
that the term should be essential to both parties. This point...is a sensible
one: sometimes
the two parties to a contract have different objectives and
regard different terms as being essential to themselves. Secondly,
the
subsection stresses that both parties must have "expressly or impliedly
agreed" on the essentiality of the
stipulation to the cancelling party. The
issue is to be determined by examining the intention of the parties at the time
of the contract, not taking into account the consequences of the breach.
...if the court has to determine whether
there has been implied agreement
that a term was essential to one party...[t]he matter...turns on the
construction
of the contract...[T]he court must take into account the express
terms of the contract and the circumstances of its making
to determine
whether a tem was a condition.
The test propounded by Jordan CJ in Tramways Advertising Pty Ltd v
Luna
Park (NSW) Ltd (1938) 38 SRNSW 632, 634 ...still has currency...
The test of essentiality is whether
it appears from the general nature
of the contract considered as a whole...that the promise is of such
importance to the promisee that he would not have entered into the
contract unless he had been assured of
a strict or substantial
performance of the promise...and that this ought to have been
apparent to
the promisor.
[92] The fact of the planned solo sailing in high latitudes was plainly of vital
importance to M Bourgeois-Baker;
the Judge's observation warrants repetition:
[57] One thing is clear: that it was known to all parties that Mr Baker
wanted to fulfil a dream of sailing solo in some of the roughest seas the
oceans could offer, without a motor, if necessary.
In Mr Herrick's eyes this
was a fanciful dream of an eccentric.
[58] The law is clear however, that if a person
wishes to spend money in
a contract to produce a fancy which may appear to be eccentric to others, the
party contracting
must produce that fancy, or decline to enter into the
contract.
[93] The question is whether, on the objective test that
is fundamental to
contractual construction, the parties agreed not only to conform to the plans and
specifications but also that
strict conformity was essential to M Bourgeois-Baker.
[94] In support of his position it may be argued that for a single-handed
Cape Horner nothing is more fundamental than the density and therefore the strength
of the wood which comprises an essential component
of the structure of the vessel.
While compliance with Lloyds Rules is necessary, where a denser wood is specified
such compliance is not sufficient. In this sphere peace of mind
resides in the vessel's
being over-strong and no breach of contract is tolerable. Mr Mitchell's evidence
(judgment [52]) provided
expert support for a conclusion under s 7(4)(a) in favour of
M Bourgeois-Baker. Although he did not have the advantage of the objective
appraisal of the Lloyds Rules, it tends to sustain the Judge's conclusion at [57]-[58].
So indeed did Mr Brown's immediate reaction.
[95] I have already found that the vital objective element of strength is not shown
to have been breached. But to repeat the
Judge's statement:
[59] Mr Herrick considered that he could produce the result within a
budget of $160,000. I
do not, however, see anywhere any indication in
correspondence or otherwise, that there was a right to quote on anything
other than the plans and specifications presented. In the circumstances of this
case, in my judgment, the legal requirements
for the implication of a term
that the boat should be built according to the plans and the specifications was
inevitably
a part of this contract.
[60] This must particularly be so in relation to a boat because all the
experts were
agreed that the use of an unsuitable timber in some part of the
construction of a boat could have serious implications in
safety. Each choice
of particular timber raises problems of compaction, absorption of moisture,
elasticity, rupture,
rot and weight. If a change is made it must be discussed
with the owner as the other contracting party.
...
[62] A further reason for discussing any such changes is that the cost of
different timbers can vary very considerably
(Lawson's Cedar is relatively
inexpensive compared with kauri, Tanekaha). Considerable cost adjustment
could result.
[96] While the error in relation to the factual conclusion under s 7(4)(b)(i) and the
absence of specific finding on s 7(4)(a)
require this Court to reach its own decision
on the latter, it must take account of the Judge's advantage of seeing and hearing the
witnesses, to the extent that they are not impaired by the error.
[97] Although the Judge's conclusion focussed on s 7(4)(b)(i)
his reasons go some
way to supporting a decision in favour of M Bourgeois-Baker under s 7(4)(a), if not
as to the objective strength
of the vessel then as to his subjective peace of mind.
[98] It is essential to focus on why, as the Judge found and Mr Herrick
on appeal
did not challenge, there was an implied term that the plans and specifications formed
terms of the contract. The Judge's
reasons appear at [57]-[62] ([14] above).
[99] The commonly applied test for the implication of terms is that stated by the
Privy
Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977)
16 ALR 363, 376:
In [their Lordships'] view, for a term to be implied, the following conditions
(which may overlap) must be satisfied:
(1) it must be reasonable and
equitable; (2) it must be necessary to give business efficacy to the contract,
so that
no term will be implied if the contract is effective without it; (3) it
must be so obvious that "it goes without saying";
(4) it must be capable of
clear expression; (5) it must not contradict any express term of the contract.
[100] The question
under s 7(4)(a) is whether the parties are to be taken, at the time
they contracted, that performance of the specifications as to
wood density, of which
strength is a function, was essential to M Bourgeois-Baker.
[101] In terms of the Privy Council's second
and third criteria it was the common
expectation of the parties that M Bourgeois-Baker would be entrusting his life to the
strength
of the vessel as expressed in the specifications which Mr Herrick had agreed
to build for the contract price.
[102] Mr Herrick's
best argument is that M Bourgeois-Baker has not established
that, beyond ensuring that the vessel was strong and suitable for Cape
Horn
conditions, precise performance of the details of the contract was essential to him.
The contract was very simple, in its essence
"strong hull! strong rig!..." While
adherence to specifications was a term, the Judge found ([59]) that was implied
rather than express
as M Bourgeois-Baker believed had been agreed.
[103] Mr Herrick did not himself repudiate the contract by exhibiting
unwillingness
to continue to perform the contract: cf Oxborough v North Harbour
Builders Ltd [2002] 1 NZLR 145 (CA). There is no reason to doubt that, if
permitted to complete the vessel he would have done so to an objectively sound
standard.
[104] On proper analysis of the evidence that is so in relation to the keel bolts and
chain plate fastenings as well
as the general impact strength of the hull.
[105] Mr Herrick argues that the parts of the specification relied on, as to density
of
the wood for frames and stems, described the requirement as "approximately".
While it is now common ground that the specifications
did constitute implied terms
of the contract, that adjective is impossible to reconcile with a stipulation of exact
"truth" or "essential[ity]"
of precise "performance". Certainly objective strength
was essential; "truth" and precise "performance" were essential to that, and
as to
chain plate fittings and keel bolt fittings suitable to meet Cape Horn conditions.
But on close analysis of the evidence of
Mr Brown those requirements were
satisfied. The evidence of the respondent's witnesses was expressed either on a false
factual premise
as to the strength of this timber or at such a high level of generality
that it could not meet Mr Brown's calculations.
[106] It
follows, he submits, that M Bourgeois-Baker did not establish that
Mr Herrick would breach a stipulation of the contract so as to
entitle
M Bourgeois-Baker the course permitted by s 7(3)(c) of the Act of cancelling for
anticipatory breach. Nor can it be said,
as required by s 7(4)(a), both that
performance was essential to M Bourgeois-Baker and that Mr Herrick had actually
or impliedly
agreed at the time they entered the contract that that was so. It follows
that the issue under s 7(2)(a) must be answered in favour
of Mr Herrick. A similar
result must follow in terms of s 7(4)(b)(iii).
[107] These are powerful arguments. But I have concluded
in the end that they
cannot succeed. Implicit in those arguments is that objective strength, ultimately
determined in the courtroom
after hearing expert evidence, is the single test. In fact
the test was, I am satisfied, rather different. Certainly objective
strength was
essential. But the test included strength through conformity with the specifications
insofar as they bore upon strength
of both hull and fastenings.
[108] As Burrows, Finn and Todd point out at p 190 para 6.3.3 of Law of Contract
in New Zealand (2nd
ed), the BP test imports that of MacKinnon LJ in Shirlaw v
Southern Foundries Ltd [1939] 2 KB 206, 227: that the parties would both respond
"of course" to the enquiry of an officious bystander on the disputed point.
[109] The
test here is of the parties' response if such a bystander had asked "may
Mr Herrick use wood of lesser density than that prescribed
without consent of
M Bourgeois-Baker?" As the wooden boat lover, who was to entrust his life to the
strength of the vessel and who
had agreed to make payment in terms of the
specifications, the response of the latter is obvious. Given the practice of
boat-builders
not to depart from specifications without approval there is no reason to
think that Mr Herrick would have answered differently. These
are practical men.
There is no reason to think that they would have added a gloss "but the position will
be different if, despite
departure from specification in relation to the density of the
frames, yet after an expensive trial a Judge accepts conflicting evidence
that the
vessel was sound after all".
[110] The remaining and critical question is whether Mr Herrick knew and agreed
that the
term was essential to M Bourgeois-Baker. Here I respectfully agree with the
Judge's conclusion. M Bourgeois-Baker was a lover of
wooden boats who planned
to entrust his life to this one. He trusted Mr Brown's plans implicitly. He relied on
Mr Herrick to build
a vessel conforming with them. That is why the terms of the
contract were so sparse. Nothing could be more basic to the strength
of any wooden
vessel than that of the wood of its frames and stems. The more so in relation to one
that was to navigate the Southern
Ocean.
[111] To depart from specification in relation to the vital components of the frames
and the stems, entailed in my view
breach of a term which Mr Herrick knew and
must be taken to have agreed was essential to M Bourgeois-Baker. It is worth
repeating
that the test included strength through conformity with the specifications
insofar as they bore upon strength.
[112] With the advantage
of further analysis of the issues than was enjoyed by the
Judge I have reached the same conclusion as he did. On this approach s
7(4)(b)(iii)
does not require separate consideration.
Cross-appeal
[113] The Judge said as to remedy:
[67] The Court
has a wide discretion under s 9(1) to (4) of the
Contractual Remedies Act to make orders to ensure that cancellation does
not have an ultimate inequitable effect (Brown v Langwoods Photo Stores
Ltd [1991] 1 NZLR 173 at 177).
[68] Section 9 was also extensively considered by Fisher J in Newman's
Tours Ltd v Ranier Investments
Ltd [1992] 2 NZLR 68 at 92:
Relief on cancellation of any given contract must ultimately be determined
in a global exercise which takes
into account all the performances breaches
gains and losses of all the parties to that contract.
[114] He held that title
to the incomplete vessel had vested in M Bourgeois-Baker
but it was of no value to him because he lives in France and the work done
did not
conform with the specifications.
[115] The Judge deducted from the $60,000 payment made by M Bourgeois-Baker
the cost of
materials and the value of labour which he fixed at $15,000 less the value
of the hull, which he vested in Mr Herrick, $3000, making
a total award of $48,000.
[116] M Bourgeois-Baker's cross-appeal is to be considered against ss 8-10:
Rules applying to
cancellation
...
(3) Subject to this Act, when a contract is cancelled the following
provisions shall
apply:
(a) So far as the contract remains unperformed at the time of the
cancellation, no party
shall be obliged or entitled to perform it
further:
(b) So far as the contract has been performed
at the time of the
cancellation, no party shall, by reason only of the cancellation, be
divested of
any property transferred or money paid pursuant to the
contract.
(4) Nothing in subsection (3) of this
section shall affect the right of a
party to recover damages in respect of a misrepresentation or the repudiation
or
breach of the contract by another party.
9 Power of Court to grant relief
(1) When a contract is cancelled
by any party, the Court, in any
proceedings or on application made for the purpose, may from time to time
if it is
just and practicable to do so, make an order or orders granting relief
under this section.
(2) An order under
this section may--
(a) Vest in any party to the proceedings, or direct any such party
to transfer
or assign to any other such party or to deliver to him the
possession of, the whole or any part of any ... personal
property that
was the subject of the contract or was the whole or part of the
consideration for it:
(b) ... direct any party to the proceedings to pay to any other
such party such sum as the Court
thinks just:
(c) Direct any party to the proceedings to do or refrain from
doing in relation to any other party
any act or thing as the Court
thinks just.
(3) Any such order, or any provision of it, may be made upon and
subject
to such terms and conditions as the Court thinks fit, not being in any
case a term or condition that would have the effect of preventing
a claim for
damages by any party.
(4) In considering whether to make an order under this section, and in
considering the terms
of any order it proposes to make, the Court shall have
regard to--
(a) The terms of the contract; and
(b)
The extent to which any party to the contract was or would
have been able to perform it in whole or in part; and
(c) Any expenditure incurred by a party in or for the purpose of
the performance of the contract; and
(d)
The value, in its opinion, of any work or services performed
by a party in or for the purpose of the performance of the
contract;
and
(e) Any benefit or advantage obtained by a party by reason of
anything done by another
party in or for the purpose of the
performance of the contract; and
(f) Such other matters as it thinks proper.
(5) No order shall be made under subsection (2)(a) of this section that
would have the effect of depriving a person, not being
a party to the contract,
of the possession of or any estate or interest in any property acquired by him
in good faith and for valuable consideration.
(6) No order shall be made under
this section in respect of any property,
if any party to the contract has so altered his position in relation to the
property, whether
before or after the cancellation of the contract, that, having
regard to all relevant circumstances, it would in the opinion of the
Court be
inequitable to any party to make such an order.
(7) An application for an order under this section may be made by--
(a) Any party to the contract;
...
10 Recovery of damages
(1) ...a party to a contract shall not
be precluded by the cancellation of
the contract, or by the granting of relief under section 9 of this Act, from
recovering damages
in respect of ... the repudiation or breach of the contract
by another party; but the value of any relief granted under section 9
of this
Act shall be taken into account in assessing any such damages.
(2) Any sum ordered to be paid by any party to
the contract to any other
such party under section 9(2) of this Act may be set off against any damages
payable by him
to that other party.
[117] Mr Eckard submitted that Mr Herrick should not be permitted both to retain
the vessel and to have credit
for the contributions he made to its building. Rather
M Bourgeois-Baker should receive the full $60,000.
[118] As Professor Coote
observed in "Remedy and Relief under the Contractual
Remedies Act 1979 (NZ)" (1993) 6 JCL 141, 147:
...the reformers had
particularly in mind...the plight of the sort of defaulting
party who, not having substantially completed performance of an
entire
contract before it was cancelled, could be left at common law without any
claim for work done or...materials
supplied...or expenditure incurred in
performance of the contract. It was the concern to assist such parties which
dictated the criteria set out in s 9(4)... s 9 was intended to... enabl[e]... the
granting of relief...primarily from the
effect of s 8(3)...
[119] The exercise of jurisdiction under s 9(2)(b) is an evaluative judgment in
which the trial judge enjoys
the advantage of assessing the feel of the case.
Moreover I have made factual findings more favourable to Mr Herrick than those of
the Judge. He built a strong vessel that would have been seaworthy, albeit its wood
was not of the density for which he had contracted.
That conclusion may render the
uncompleted hull more valuable; but it increases the assessment to be made of the
worth of
Mr Herrick's contribution.
[120] I have however concluded that Mr Eckard's logic is unassailable.
The injustice referred to by
Professor Coote is met in this case by the Judge's order
vesting the hull in Mr Herrick. While the Court has sympathy for that fact
that
Mr Herrick expects that the value of the hull when completed will be only half the
amount of the contract price, the consequences
of departure from specification must
rest with Mr Herrick.
Decision
[121] The appeal is dismissed.
[122] The cross-appeal is
allowed by increasing the judgment in favour of
M Bourgeois-Baker to $60,000 which will carry interest at 7.5% from 1 June 2002 to
the date of judgment in the District Court.
[123] I will receive memoranda as to costs. It will be relevant to that topic that
Mr Herrick succeeded on the issues relating to s 7(4)(b).
___________________________
W D Baragwanath J
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