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Court of Appeal of New Zealand |
Last Updated: 11 May 2016
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellant |
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AND
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Respondent |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Venning J)
Introduction
[1] Steel Co Ltd sourced pipes from China and supplied them to Pipes NZ Ltd under two separate contracts. Pipes NZ in turn onsold the pipes to Trustpower Ltd and Westpower Ltd. The pipes were for use as penstocks in two hydroelectric schemes — Trustpower’s Esk Valley project in Hawke’s Bay and Westpower’s Amethyst project at Harihari on the West Coast.
[2] The pipes Steel Co supplied were deficient. Pipes NZ had to recoat some and repair others. Steel Co resupplied a number of them. Some of the resupplied pipes also required repair. As a result, the pipes were delivered late to the hydroelectric projects. Pipes NZ faced claims from both Trustpower and Westpower. Pipes NZ sued Steel Co alleging breach of contract. It claimed the costs it had incurred recoating and repairing the pipes. It also sought the liquidated damages it had paid to Trustpower and Westpower.
[3] Steel Co denied liability. It also raised an affirmative defence relying on various exclusions and limitations of liability set out in its standard terms and conditions of sale (Ts and Cs).[1]
[4] Thomas J found for Pipes NZ.[2] She found that Steel Co was in breach of the implied contractual conditions as to fitness for purpose and merchantable quality under s 16 of the Sale of Goods Act 1908. The Judge dismissed Steel Co’s affirmative defence. She held that Steel Co’s Ts and Cs were not incorporated into the contracts with Pipes NZ for the supply of the penstock pipes. Pipes NZ sealed judgment for $416,580.18, which counsel agree included $117,480.02 relating to the liquidated damages paid to Trustpower and Westpower.[3]
The appeal
[5] Steel Co initially raised a number of points on appeal. During the course of the appeal process the points were refined. Consequently the issues in dispute have been significantly reduced.
[6] Steel Co initially challenged Thomas J’s dismissal of Steel Co’s argument that the pipes complied with the contracts because they had been inspected and approved by a third party prior to shipment from China. That is not pursued anymore.
[7] Next, Steel Co had challenged Thomas J’s finding that Steel Co was in breach of the warranties under s 16 of the Sale of Goods Act 1908 in that the pipes were unfit for purpose or not of merchantable quality. Steel Co no longer pursues an appeal against that substantive finding.
[8] Thomas J had also held Pipes NZ had acted reasonably in the circumstances and that all costs of recoating the pipes were recoverable. Steel Co no longer challenges that finding (but says the costs are excluded by its Ts and Cs).
[9] Next, the Judge held that the cost Pipes NZ had incurred in repairing the minor defects in the resupplied pipes was recoverable. Again, Steel Co does not challenge that finding but says the costs are excluded by its Ts and Cs.
[10] Finally, the Judge held Pipes NZ could recover the liquidated damages paid to Trustpower and Westpower. She held it was within the reasonable contemplation of the parties that if Steel Co did not deliver conforming pipes within time Pipes NZ would have to compensate Trustpower and Westpower for the delay. Steel Co says it did not have notice of the liquidated damages, they were too remote and, in any event, were excluded by the Ts and Cs.
The issues on appeal
[11] The issues on appeal are now:
- (a) Were Steel Co’s Ts and Cs incorporated into the contracts for the supply of the penstock pipes to Pipes NZ?
- (b) If Steel Co’s Ts and Cs were incorporated into the contracts, what effect do they have on any liability for damages that Steel Co would otherwise have to Pipes NZ?
- (c) Were the liquidated damages that Pipes NZ paid to Trustpower and Westpower recoverable as damages from Steel Co?
[12] There is a preliminary point. In the course of her decision the Judge also found that the pipes did not correspond with the contract specification. Although Pipes NZ’s pleading referred generally to a sale by description, as Mr Campbell QC pointed out, Pipes NZ had not pleaded a breach of s 15 of the Sale of Goods Act. The only cause of action pleaded was a breach of s 16 of the Sale of Goods Act. Nothing turns on this pleadings issue given the acceptance of the finding of breach of s 16 of the Sale of Goods Act and the refinement of the issues on appeal.
Were the Ts and Cs incorporated into the contracts?
[13] The Ts and Cs relied on are contained in a document headed “Steel Co Limited Terms and Conditions of Sale”. The document is one that a recipient would expect to contain contractual conditions, which might include exclusion clauses, particularly given the nature of the industry. Indeed Pipes NZ itself used standard terms and conditions for the pipes it supplied. The issue is whether the document containing the Ts and Cs was brought to the notice of Pipes NZ. For Pipes NZ to be bound the Ts and Cs must have been brought to its notice before or at the time the relevant contracts were concluded.[4]
[14] The general trading relationship between Steel Co and Pipes NZ Ltd is relevant, as are the particular terms negotiated relating to the Esk Valley and Amethyst contracts.
[15] Steel Co accepts that its Ts and Cs were not expressly referred to in its contracts with Pipes NZ for the supply of pipes for the Esk Valley and Amethyst projects, but argues the Ts and Cs were incorporated into both contracts because Steel Co had previously brought the Ts and Cs to Pipes NZ’s notice and the Ts and Cs stated they applied to each sale by Steel Co (unless expressly agreed in writing otherwise). Steel Co says that notice of its Ts and Cs was given to Pipes NZ in 2007, or alternatively, in 2011.
[16] It is important to note at this point that Pipes NZ is a different entity to the entity with which Steel Co had initially traded since 2006. Pipes NZ purchased the business of the former Pipes NZ Ltd (Pipes 1) in 2009. On purchase the appellant changed its name to Pipes 1’s former name but it was a quite separate entity to Pipes 1. Despite that, Mr Campbell argued that notice of the Ts and Cs was given to Pipes 1 in 2007 and that notice was maintained by Pipes NZ after its purchase of the business in 2009.
The events of 2007
[17] As Mr Campbell submitted, Thomas J did not make a factual finding on whether Steel Co had sent its Ts and Cs to Pipes 1 in May 2007, rather concluding that whether or not the Ts and Cs were sent at that time the issue was whether Pipes NZ, being a different legal entity to Pipes 1, was aware of the Ts and Cs.[5] Given the argument Mr Campbell advanced, that the knowledge gained in 2007 effectively continued after the purchase of the business by Pipes NZ, it is necessary to determine if the Ts and Cs were sent to Pipes 1 in 2007.
[18] Mr Roberts, Steel Co’s trading manager, stated generally in his witness brief that in “May 2007, Steel Co’s Terms and Conditions of Sale were sent to [Pipes 1].”
He elaborated on that in his evidence-in-chief. He said that he knew the document was sent to Pipes 1 in May 2007 as Steel Co had in its database a list of all the customers it was sent to. Mr Kohler QC raised an objection regarding discovery issues and cross-examined Mr Roberts on the issue. It became apparent Mr Roberts relied on a standard letter dated 30 May 2007 he said was sent to a number of clients (including Pipes 1). It provided:
In updating our records we find we are less than certain that all our customers are aware of our Terms and Conditions of Sale, upon which business is conducted between us.
Therefore, to ensure completeness of our records, we are reissuing our perpetual Terms and Conditions of Sale (attached) which, from receipt of this letter, all credit accounts will be operated under.
Should you have any queries, please contact us within 14 days.
[19] The standard letter was drafted on the basis it would be sent by Michael Carajannis, Steel Co’s managing director. The standard letter produced to the Court has the following handwritten note on it:
Mike — document now in our system. Do you want to send to our customers?
Who?
When?
There is an accompanying schedule that is headed: “Clients to whom we have sent Steel Co Ltd Terms and Conditions of Sale”. It has the subheading “Sent: 28 May 2007”. The schedule lists a number of clients, including Pipes 1, with what appears to be a tick beside each of their names. In the case of Pipes 1 the letters M C are also recorded beside Pipes 1’s name. Mr Roberts did not accept that M C was a reference to Mr Michael Carajannis. He suggested it was a reference to R C Macdonald Ltd, the company from which Steel Co had copied the Ts and Cs, although he accepted he had no real recollection.
[20] Mr Roberts ultimately accepted that Steel Co had no record, other than the standard letter and schedule, that the Ts and Cs had been sent to Pipes 1. In the course of his evidence he did suggest that the Ts and Cs had been received by “the first general manager” of Pipes NZ, Mr Gallichan because he remembered discussing them with him. When further questioned, Mr Roberts accepted he had not referred to that in his brief and nor did he have any record of it. Mr Gallichan did not give evidence.
[21] So Mr Roberts and Steel Co relied on the tick on the schedule beside the name of Pipes 1, which Mr Roberts says recorded that a copy of the letter (and the Ts and Cs) was sent to it, as the basis for saying the Ts and Cs had been brought to Pipes 1’s notice. But Steel Co has no record or copy of the original letter it says was sent to Pipes 1. Pipes NZ has no record (from the documents it received when it bought Pipes 1’s business), that such a letter was ever received. Nor is there any copy of the Ts and Cs held on Pipes NZ’s file.
[22] There are a number of difficulties with Steel Co’s evidence on this issue. There is an unexplained inconsistency between the client list, which purports to record the Ts and Cs were sent on 28 May 2007, and the draft of the standard form letter, which is dated 30 May. Next, despite Mr Roberts’ evidence, it does seem more likely that the initialled “M C” alongside the reference to Pipes 1 is a reference to Mike Carajannis as the person who would have sent the letter out rather than a reference to R C Macdonald Ltd as Mr Roberts suggested.
[23] Further, the draft letter of 30 May has the handwritten notations on it that suggest further decisions were required from Mr Carajannis before the letter (and accompanying Ts and Cs) was to be sent. Steel Co did not lead evidence from any of its other customers on the list to confirm receipt of the letter and the Ts and Cs.
[24] Finally, it is relevant that although Mr Carajannis gave evidence, his evidence did not address this specific issue. His evidence was more directed at the events in 2009.
[25] The onus was on Steel Co to establish it had brought its Ts and Cs to the notice of Pipes 1. The evidence falls short of establishing that it did so in 2007.
The events of 2009
[26] Given that finding, the second part of Mr Campbell’s argument on this point, that Mr Gallichan’s knowledge of the Ts and Cs received on behalf of Pipes 1 in 2007 also constituted notice by Pipes NZ when it took over the business of Pipes 1 (because Mr Gallichan remained as manager of Pipes NZ) does not directly arise. In any event, it is also answered by what passed between the parties in 2009.
[27] Pipes NZ purchased the business of Pipes 1 in 2009. Importantly, it was not a purchase of Pipes 1’s shares. Pipes NZ is a separate entity to Pipes 1. Following the purchase Mr Gallichan, who had been the former owner and manager of Pipes 1, became the manager of Pipes NZ and remained with Pipes NZ until August 2010. Steel Co continued to deal with Pipes NZ through Mr Gallichan. Mr Campbell submitted that Mr Gallichan’s knowledge and notice that he had received of Steel Co’s Ts and Cs in 2007 was held by Pipes NZ. He noted the principle that a notice once communicated was not normally permitted to be forgotten,[6] submitting that were it otherwise a seller would have to give a further notice of Ts and Cs each time there was a change in the management or personnel of the buyer.
[28] Mr Campbell is correct that a change within the management of a company does not require a supplier to provide a fresh copy of its Ts and Cs. However, that is not the point in issue here. In such a case the company is the same entity. The knowledge the company has imputed to it from its manager is not lost if the manager leaves. The important distinguishing feature of the present case is that Pipes NZ is a completely different and separate legal entity to Pipes 1. Any knowledge that Pipes 1 may have gained through Mr Gallichan is not necessarily held by Pipes NZ just because Mr Gallichan was employed by it after the sale. Whether his knowledge (whatever that may have been), is to be imputed to Pipes NZ will depend on the particular facts.
[29] Importantly, in this case, at the time Pipes NZ purchased the business of Pipes 1, it made inquiries through the course of the due diligence process as to the trading relationship that existed between Steel Co and Pipes 1. When Steel Co responded to those inquiries it made no reference to the Ts and Cs it now seeks to rely on.
[30] Steel Co had supplied steel to Pipes 1 both as indent stock pursuant to specific customer orders and also as consignment stock with a profit sharing arrangement on sales. On Mr Roberts’ evidence most of Pipe 1’s business with Steel Co between 2006 and 2009 was on consignment.
[31] On the sale of its business to Pipes NZ, Pipes 1 wrote to Steel Co on 8 June 2009 seeking to confirm the contractual terms and conditions between the companies as part of the due diligence required by Pipes NZ. The request was in the following terms:
- One of the conditions of the agreement is that you will supply stock to [Pipes NZ] on the same basis as supplied to us (assuming those supply arrangements are acceptable to [Pipes NZ].
- Please could you confirm ...
a) the current supply arrangements (including the payment arrangement) you have with us;
b) that you will supply stock in relation to the Business to [Pipes NZ] on the current supply arrangements you have with us, by signing (on your letterhead) and returning to [Pipes NZ] (by fax or email), the letter enclosed, by 12th June 2009.
[32] Steel Co replied by letter of 12 June 2009 confirming to Pipes NZ:
We refer to the letter from [Pipes 1] dated 3rd June 2009 addressed to Jonathan Roberts advising us of the conditional sale to [Pipes NZ] (a copy of which is attached).
I am pleased to advise that Steel Co Ltd will be pleased to continue our arrangement of supplying consignment stock to the new company [Pipes NZ].
Payment to Steel Co Ltd will be made on the 20th of the following month of sale by [Pipes NZ] as they are currently.
Thank you and we wish you well in your new venture and offer our support as best we can and will look to expanding our mutual co-operation for mutual benefit going forward.
[33] The letter was, perhaps understandably, directed towards the consignment stock arrangement between Steel Co and Pipes 1 as that was the most important aspect of the trading relationship. However, the letter made no reference to Steel Co’s Ts and Cs. Steel Co has maintained that the Ts and Cs applied to the consignment stock as well.
[34] Mr Carajannis then sent a further email of 16 July 2009 to Mr Gallichan:
Subject: consignment Stock.
Hi Steve,
For your reference and your potential new board I just wish to highlight and confirm the terms of trade for the consignment stock of pipe, supplied by Steel Co Ltd to [Pipes 1] and with which [Pipes 1] currently sell and market throughout NZ, for the mutual benefit of both companies.
Steel Co Ltd supplies the pipe to [Pipes 1] against an inventory request submitted by [Pipes 1].
This pipes in question are supplied with a pre-approved into store cost. [Pipes 1] will market and sell the pipes throughout NZ.
[Pipes 1] will notify Steel Co Ltd of any sales made by the end of each month.
[Pipes 1] will pay Steel Co Ltd by the end of the following month for the sales made in the previous month.
Steel Co Ltd receives from [Pipes 1] the cost of the pipe sold and shares 40% of the margin while [Pipes 1] receive 60% of the margin.
All the responsibilities and accountability for the management and inventory control required to manage and protect the consignment stock supplied by Steel Co Ltd to [Pipes 1] lies with [Pipes 1].
Ownership of any pipes supplied by Steel Co does not transfer to [Pipes 1] until Steel Co Ltd has been paid in full for the said pipes. Terms and conditions can be altered by mutual agreement only.
Either party can terminate this agreement with 30 days notice.
This is the way it has been operating for a couple of years now, if I have left anything out just let me know.
[35] Notably, although the letter expressly provided that the “Terms and conditions can be altered by mutual agreement only” no reference was made to any Ts and Cs other than those in the letter. Although Mr Roberts initially said that the letter of 16 June 2009 was accompanied by Steel Co’s Ts and Cs he accepted during his evidence that, as the fax header sheet only recorded two pages were sent, the Ts and Cs could not have been sent with that letter.
[36] At this time, in June 2009, Steel Co had the opportunity to advise Pipes NZ of the Ts and Cs that applied to all business transactions, including consignment stock. It failed to do so. In response to a direct inquiry as to its terms of business Steel Co failed to advise Pipes NZ of the Ts and Cs it now seeks to rely on. In the circumstances, Mr Gallichan’s continued employment by Pipes NZ does not assist Steel Co on this point.
The events of 2011
[37] That leads to consideration of the next discussion between the parties about trading terms, which took place in 2011.
[38] Mr Gallichan left Pipes NZ in August 2010. Sometime later, on 6 July 2011 Pipes NZ sought a copy of the “agreement” between Steel Co and Pipes NZ for their new general manager, Mr Parker. Mr Roberts advised by email response:
Beppy is away until tomorrow so will send it through then.
Just a reminder we are still waiting for June con stock sales and the reconciliation.
Mr Roberts says in his brief that the following day a copy of Steel Co’s Ts and Cs was printed and posted to Pipes NZ. Mr Parker said he did not receive any Ts and Cs at that time. Pipes NZ has neither a letter referring to the Ts and Cs nor any copy of them in its records. Mr Parker said the first time he saw the Ts and Cs was during this proceeding.
[39] The Judge did not make any factual finding on this point either, instead reasoning that the Ts and Cs were in any event only relevant to consignment stock, which was the usual course of business between the parties. The Esk Valley and Amethyst contracts were one-off transactions to which the Ts and Cs did not apply.
[40] Mr Campbell submitted the Judge should have found Mr Roberts had sent a copy of the Ts and Cs to Pipes NZ in July 2011. He argued that Mr Parker’s evidence he had not found a copy of the letter or Ts and Cs in Pipes NZ’s database was not of any moment given that there were other contractual documents Pipes NZ accepted it had received that Mr Parker could not be sure were held on its database.
[41] However, consideration of the evidence as a whole, including the crossexamination of Mr Parker on the point, supports Pipes NZ’s position. Pipes NZ had a correspondence file for Steel Co. While Mr Parker accepted that correspondence from Steel Co should have been kept on the file in terms of good practice, he was certain that he had not seen a copy of the Ts and Cs until the dispute arose. He was sure he had not seen the Ts and Cs because they had terms in them that he would have questioned and would have sought to change. He also said he would have had to obtain Richard Anyon’s permission to agree to the Ts and Cs. He would not have agreed to them on his own account.
[42] The relationship between Mr Roberts and Mr Anyon is important as is the relationship between Pipes NZ and United Industries Ltd. Pipes NZ is wholly owned by United Industries Ltd. Mr Anyon is the planning and strategy director for United Industries Ltd. He is responsible for business administration, strategy and planning over a number of the United Industry companies, including Pipes NZ. Mr Anyon confirmed that Mr Roberts reported to him about terms and conditions of trade. Mr Roberts would have had to discuss any terms and conditions with Mr Anyon before agreeing to them.
[43] Mr Roberts’ evidence on this point is not particularly clear. Mr Roberts said there would be no email on Beppy’s computer sending out the Ts and Cs but accepted he had not checked her computer for such a communication. Beppy did not give evidence. Mr Roberts then said the Ts and Cs would not have been sent by email as they were in a word document. When asked why the documents were not scanned and emailed Mr Roberts initially denied Steel Co had the facility to scan at the time but then accepted it would have had a scanner at the time.
[44] The following exchange during Mr Roberts’ cross-examination on the point is relevant:
- Okay, well let’s assume for a moment that there’s nothing on the computer that responds. Where’s the letter sending it out?
- I don’t have a copy of it. I can’t verify that.
- Why would there not be a copy?
- Because I omitted to take a copy of it for the file. I didn’t really think it was a big deal at the time.
- You’ve been presumably through your filing records for July 2011 to look for it?
- Yes I have.
- And do we end up in this position, there is no record of the letter at your end?
- Yes.
- There’s no record of any sort that the letter was sent at your end?
- Correct.
[45] As noted, Mr Parker’s evidence was that there was no record of the Ts and Cs having been received by Pipes NZ. There is no relevant correspondence before the Court that refers to the Ts and Cs or identifies them as having been sent.
[46] Next, the inquiry made of Steel Co was more likely to have been in respect of the trading “agreement” regarding consignment stock (as was sent in 2009) rather than a request for Ts and Cs given that consignment stock was the main business between the parties.
[47] Again, on our consideration of the evidence, Steel Co fails to satisfy the Court that the Ts and Cs were provided to Pipes NZ in 2011. We conclude that Steel Co’s Ts and Cs were not directly brought to the notice of Pipes NZ, either by notice in 2007 to Pipes 1, or by notice to Pipes NZ in 2009 or 2011.
The terms of the Esk Valley and Amethyst contracts
[48] There is a further point. As noted, the Judge considered that as the Esk Valley and Amethyst contracts were one-off contracts as opposed to consignment sales, Steel Co’s Ts and Cs would only be incorporated into those contracts if they were expressly referred to.
[49] Given our finding that Steel Co had failed to give Pipes NZ notice of its Ts and Cs and Steel Co’s proper acknowledgement the Ts and Cs were not expressly referred to in the Esk Valley or Amethyst contracts, that is sufficient to deal with this issue. For completeness, we note that the terms of the Esk Valley and Amethyst contracts are in part at least, inconsistent with the incorporation of the Ts and Cs.
[50] As the Judge noted, the parties agreed the relevant documents for the Esk Valley project were Steel Co’s “final offer” of 13 December 2011, Pipes NZ’s “purchase order” of 23 December and Steel Co’s “Order acknowledgement” of 17 January 2012 signed by Pipes NZ on 26 January 2012. Steel Co’s final offer dated 13 December 2011 enabled Pipes NZ to complete its contract with Trustpower. The offer contained the following conditions:
Base offer. NZD Free on Wharf in Container Ports below. Standard Delivery 10–12 weeks from date of order to arrive at port of destination.
...
Additional Extras:
3. SGS
Inspection NZ$3,289.
4. Specification
X52 NZ$9,987.
5 International Paint Interline 925 OR Interzone 954 954 400 µm internal and external coating NZ$8,064.
Payment: 30% Deposit Against Order.
Balance 14 days from date of vessel arrival.
Tolerance: Piece Guarantee.
Inspection: Mills inspection final. Third party welcome.
Exchange Variation: Firm in NZ Dollars. Base Exchange Rate NZD 1.00 = USD 0.7600. Exchange rate will be locked at time of order placement.
Offer Validity: This offer is valid until 20th December 2011, and is based on prevailing rates for Tariff and shipping and subject to mill’s final confirmation.
[51] Pipes NZ then submitted its purchase order on 23 December 2011. Steel Co then issued its order acknowledgement on 17 January 2012 confirming the purchase order and various other conditions of the contract:
Delivery Condition Free On Truck Ocean Freight Sellers Care
Insurance Sellers Care
Cartage Buyers Care
Exchange Condition Firm in NZD
Payment Terms 30% Deposit, + Balance due 14 Days from Date of Arrival of Vessel Carrying Goods
The goods covered by this contract are subject to a delivery tolerance of: Piece Guarantee
Inspection Prior to Shipment: Mills Standard plus SGS Inspection
Other Conditions:
-Mill to Complete
-100% X-Ray
-100% Ultrasonic
-100% Hydrostatic
-SGS Inspection
-Visual Inspection of all lengths
-25 Lengths to be selected at Random.
-Inspection of dimensions to API standard.
-Inspection of Bell Ends to meet required tolerance.
-Inspection of lining and coating. Visual Paint Finish and Thickness.
-Shipment to be held awaiting SGS approval.
[52] The order acknowledgement concluded:
This order is accepted under the above conditions and every reasonable effort will be made to fulfil our obligations as above. However Force Majeure applies, and is defined as any forces beyond the control of Steel Co Ltd that impact on the successful completion of this contract. Should this occur, Steel Co Ltd would expect payment for any materials already supplied against this contract.
PLEASE SIGN AND RETURN THIS ACKNOWLEDGEMENT AS YOUR CONFIRMATION THAT THE ORDER HAS BEEN PLACED WITH THE CORRECT DETAILS ...
The order acknowledgement was duly signed as accepted by Mr Parker on 26 January 2012 and emailed to Mr Roberts.
[53] Despite the detailed provisions of the order acknowledgement, including the reference to a force majeure clause, there was no reference to Ts and Cs. The reference to force majeure in the purchase order is itself inconsistent with any suggestion that other Ts and Cs were to apply.
[54] The parties are also agreed on the contractual documents for the Amethyst contract. Although the parties referred to Steel Co’s quote of 19 December 2011 from Mr Roberts to Mr Parker, this was superseded by Steel Co’s offer of 24 January 2012 (which only differed as to prices and the confirmed exchange rate). The offer was accepted by Pipes NZ’s “purchase order” of 24 January 2012.
[55] While there was no order acknowledgement for the Amethyst contract, the commercial invoice issued by Steel Co did not contain the Ts and Cs as an attachment.
[56] In neither the Esk Valley nor Amethyst contracts were the Ts and Cs referred to. Nor were they referred to in any of the email exchanges between the parties in relation to either contract.
[57] Mr Campbell submitted that notice of the Ts and Cs could be inferred from a previous course of dealing. Such an inference may be drawn where the Ts and Cs are contained on documents used by the parties such as invoices or job sheets or the like.[7] Generally a course of consistent dealing is required. As Lord Pearce said in McCutcheon v David MacBrayne Ltd:[8]
The defenders rely on the course of dealing. But they are seeking to establish an oral contract by a course of dealing which always insisted on a written contract. It is the consistency of a course of conduct which gives rise to the implication that in similar circumstances a similar contractual result will follow. When the conduct is not consistent, there is no reason why it should still produce an invariable contractual result. The defenders having previously offered a written contract, on this occasion offered an oral one. The pursuer’s agent duly paid the freight for which he was asked and accepted the oral contract thus offered. This raises no implication that the conditions of the oral contract must be the same as the conditions of the written contract would have been had the defenders proffered one.
[58] In Engineering Dynamics Ltd v Norgren Matonair (NZ) Ltd this Court refused to import terms into a contract where, although there was a course of dealing between the parties, the particular transaction did not follow the previous pattern, being in the nature of a one-off arrangement.[9] The invoice attaching the general conditions of sale was not received until well after the goods had been supplied. Nor could it be said that the warranties were “standard” conditions of sale within the industry such that the common assumption of the parties was, or would be perceived to be, that the standard conditions should apply.[10]
[59] Although in his initial evidence Mr Carajannis said that the Ts and Cs were on Steel Co’s website and were printed on the reverse of all its invoices and statements, it was clarified in examination-in-chief by his own counsel, Mr Colthart, that both of those steps had only been implemented after the present case was brought.
[60] Importantly Mr Roberts acknowledged that the Esk and Amethyst contracts were one-off transactions. There is just no basis for the Ts and Cs to have been incorporated into the Esk Valley and Amethyst contracts as part of a course of dealing.
[61] We are satisfied that the Ts and Cs were not included as part of these oneoff and specific contracts for the Esk Valley and Amethyst projects.
What effect did the Ts and Cs have on Pipes NZ’s claim for damages?
[62] As the Ts and Cs were not included as part of the contractual arrangements for the Esk Valley and Amethyst contracts they are irrelevant to Pipes NZ’s claim for general damages associated with the recoating and remediation.
Liquidated damages
[63] The last issue is whether Pipes NZ can recover the liquidated damages it paid to Trustpower and Westpower from Steel Co. In its notice of appeal Steel Co argues:
The High Court Judge ought to have dismissed [Pipes NZ’s] claim for recovery of Liquidated Damages on the basis that there was no agreement between the parties rendering the appellant liable to pay Liquidated Damages, and on the basis that the loss or damage claimed was too remote.
[64] Thomas J found Steel Co was liable for liquidated damages. She referred to a passage from McGregor on Damages citing Contigroup Companies Inc v Glencore AG.[11] She concluded that Steel Co knew the pipes were for hydroelectric schemes and that Pipes NZ’s contracts with Westpower and Trustpower contained strict time requirements. She doubted Mr Carajannis’ evidence he was surprised when told at the meeting in July 2012 that Pipes NZ was liable for liquidated damages.
[65] In any event, Thomas J considered it was not necessary for Steel Co to know Pipes NZ was liable for liquidated damages. The Judge reasoned Steel Co must have known that if it was in breach of its contract, it was likely to put Pipes NZ in breach also and that Pipes NZ would have to compensate Trustpower and Westpower for loss as a result of delay. The Judge then noted Steel Co had not claimed the quantum of the liquidated damages was not a genuine pre-estimate and there was no dispute the damages had been paid.[12] She considered there was no reason in principle why Steel Co should not be required to compensate Pipes NZ for having to pay liquidated damages and ordered Steel Co to pay liquidated damages accordingly.
[66] Mr Campbell first submitted that, in a contract for the sale of goods, the only natural result of a breach was the difference in market value. Any other consequential loss was too remote unless the seller had knowledge of special circumstances. In the case of liquidated damages communication of the amount agreed as liquidated damages was required.
[67] The principle that the natural result of the breach of a contract for the sale of goods is the difference in market value only applies where there is a ready market for the non-delivered goods. Where there is no such market and the true damage is caused by delay the rule is not applicable.[13]
[68] The general principle in relation to damages for late or delayed delivery under a contract for the sale of goods is stated in Benjamin’s Sale of Goods:[14]
Where the seller contemplated a resale (or ought to have done so) but delays delivery till after the due date, he will be liable to the buyer in respect of the latter’s liability in damages to his sub-buyer caused by the seller’s delay.
(footnotes omitted)
[69] The case cited in support of the principle is Elbinger Actien-Gesellschafft v Armstrong.[15] The seller (of wheels and axles) knew that the buyer was under a contract to deliver wagons to a Russian railroad company and that the buyers were intending to incorporate the wheels and axles into the wagons that were to be onsold. The sellers delivered the wheels and axles late, and the buyers were liable to the third party for specified sums (liquidated damages) under the sub-contract for damages for delay. The buyer and third party settled the third party’s claim for liquidated damages. The Court did not accept the buyer was entitled to recover the exact sum of liquidated damages as the seller was unaware of the clause providing for the liquidated damages but, on the facts of the case, the award by the jury of the settlement sum was upheld as the buyer was entitled to damages equivalent to the reasonable compensation it was obliged to pay the third party for the loss of the use of the wagons. The settled figure (which was effectively half of the liquidated damages otherwise payable) was within that range.
[70] The case of Contigroup Companies Inc v Glencore AG referred to by Thomas J is a more recent example of the application of principle discussed in Elbinger.[16] Glencore had bought butane from Contichem and then onsold it through a series of sub-contracts to Petrochina. One of the deliveries was three days late and Petrochina claimed damages for delay against Glencore. Glencore settled the claim. The Judge approached Glencore’s claim to recover the damages it had paid as follows:
[81] The position is in my judgment is as follows:
(a) Contichem knew that Glencore was a trader and that it would probably resell Lot 2. Such a resale might be to another trader, to a retailer, or indeed to an end user.
...
(d) Given that Glencore was likely to resell Lot 2, the parties must have contemplated that if Contichem delivered late, that was likely to put Glencore in breach on any sub-sale ...
(e) There was no available market on which Glencore could acquire a substitute cargo. If it is necessary to do so, I find that it must have been within the contemplation of the parties to the sale contract that, if the nominated vessel was late, Glencore would be unable to acquire substitute goods. The parties certainly must have realised when they made the sale contract that, if Glencore found itself looking for 21,000 metric tons of butane at the port of discharge because the nominated vessel had failed to arrive in time it would have precious little chance of finding them. But even on the basis that Glencore would be given, as it was, 12 or 13 days’ warning of the breach, the parties must have appreciated Glencore would probably be unable to find substitute butane. Indeed, it is noticeable that Contichem does not seem to have made any attempt itself to find a substitute cargo to enable it to comply with the sale contract. Doubtless it knew then, and earlier at the time of the sale contract, that such an attempt would be fruitless.
(f) It follows that it must also have been in the contemplation of the parties that, if delivery was delayed, Glencore would have to compensate a sub-buyer for any loss (including of course loss of profit) it suffered as a result of that delay.
(g) Glencore (albeit through Glencore International) did have to compensate such a sub-buyer.
(h) The compensation in question was that provided for in the settlement. That compensation was wholly referable to the delay, and the settlement itself was reasonable.
[71] As in Elbinger, it is apparent from the reasoning in Glencore the Court accepted that, as the damages were foreseeable and were objectively reasonable, they were recoverable.
[72] Steel Co argued that Pipes NZ took the risk of agreeing to liquidated damages in its contracts with Trustpower and Westpower. It said it had no notice or knowledge that the terms of those contracts included liquidated damages clauses. Further it had no notice of the amount of the liquidated damages.[17]
[73] Mr Campbell relied on the following passage from Keating on Construction Contracts in its discussion of Elbinger to support the proposition that not only notice of the liquidated damages clause, but also notice of the amount was required for a seller to be liable for them:[18]
The second limb of the rule in Hadley v Baxendale has particular application as the sub-contractor frequently knows of the losses the contractor is likely to suffer as a result of its default. Thus it will be liable for the amount of liquidated damages payable as a result of its delay if it has notice of such liability in the main contract. It will not be liable if it does not have notice, as the liability to pay liquidated damages is not a natural consequence of delay, but it will be liable for such damages as it should, as a businessman in the trade, have contemplated as a serious possibility (or not unlikely) to result from its breach, and such damages may in many cases be no less than the liquidated damages payable under the main contract.
(footnotes omitted)
[74] In Elbinger neither the amount of the penalties nor the precise day by which the plaintiffs were to deliver the wagons were known to the defendant when the contract was made.[19] However, the defendant was expressly told it would be expected to deliver the sets of wheels and axles on the days on which it agreed to deliver them. Blackburn J noted that it was obvious both parties contemplated the wheels and axles were to be put into immediate use to satisfy the plaintiff’s contract with the Russian company:[20]
Under such circumstances, the natural and almost inevitable consequence of a delay in delivering a set of wheels would be that the plaintiffs, if they meant the waggon for their own use, or their customers, if the waggon was bespoke, would be deprived of the use of a waggon for a period equal to that for which the set of wheels was delayed.
... the plaintiffs were entitled to recover at a rate per day equal to whatever the jury should find to be reasonable compensation for the loss of the use of the waggons ...
[75] The Court expressly left the issue open whether the buyer, by merely acquainting the seller with further consequences that the law would not have implied, could enlarge the defendant’s responsibility to the full extent of all those consequences, without any contract to that effect.[21]
[76] In the present case, as the Judge held, Steel Co was aware the pipes were to be onsold by Pipes NZ to Trustpower and Westpower for use as penstock pipes in hydroelectric projects that were under construction. It was also aware at the time the contracts were made that Pipes NZ was subject to time requirements. When issues arose with the pipes that were initially supplied, Steel Co was further made aware of the consequences of delay. At a meeting on 24 July 2012 to discuss the issue, Pipes NZ provided Steel Co with the resupply schedule it had agreed with Trustpower and Westpower for the resupply of the pipes.
[77] In the circumstances of this case Steel Co should reasonably have contemplated that, given the end contracts involved hydroelectric construction projects there would be consequential costs to Trustpower and Westpower if the delivery of the pipes to be used as penstocks was delayed and that Pipes NZ would be liable to Trustpower and Westpower for such consequential costs. Therefore, consequential loss was within the reasonable contemplation of the parties and Pipes NZ’s losses are recoverable in accordance with ordinary remoteness principles. The liquidated damages claimed were not too remote.
Reasonableness
[78] After the hearing had concluded the Court sought further submissions from counsel on the issue of whether Pipes NZ had to prove the liquidated damages it paid to Trustpower and Westpower were reasonable.[22] Three questions were posed:
- (a) Was the issue open on the grounds of appeal?
- (b) If so did Pipes NZ have the burden of proving that the liquidated damages it paid were reasonable?
- (c) If the issue was open what evidence was there on that point?
[79] Mr Campbell submitted the issue was open as [1.12] of the notice of appeal argued the liquidated damages were too remote. He submitted that as the plaintiff, Pipes NZ had the onus of proving loss and in particular, that the liquidated damages it had paid were reasonable.[23] There was a distinction to be made between two issues — whether the liquidated damages were or were not penalties in the context of the relationship between Pipes NZ and its customers, Trustpower and Westpower, and whether Pipes NZ was able to recover sums it had paid in liquidated damages from Steel Co.
[80] Mr Campbell submitted that Pipes NZ had failed to lead evidence to satisfy the onus on it to prove the liquidated damages it had paid to Trustpower and Westpower were reasonable. He noted that Mr Parker agreed that as a general rule he would not agree to a liquidated damages clause other than with Mr Anyon’s permission. Mr Parker accepted Pipes NZ made a commercial decision and took a risk in accepting the liquidated damages clause and that it had not sought to include a similar provision in its contract with Steel Co. Mr Anyon also accepted Pipes NZ had taken a commercial risk in accepting the liquidated damages clause without including the same provision in its contract with Steel Co and conceded that he probably did not even think about asking Steel Co.
[81] While we consider there is force in Mr Campbell’s submission that if party A (in this case Pipes NZ) seeks to recover damages from party B (Steel Co) equating to the liquidated damages party A has paid to a third party C then party A has to prove the reasonableness of the damages it paid, it is unnecessary for us to determine that point. We are satisfied this appeal must be determined on the preliminary point of whether the argument is open to Steel Co at this stage.
[82] Having considered counsel’s further submissions we are of the view that it is not open to Steel Co to rely on the point (raised by the Court after the hearing) at this stage of the proceeding. While Steel Co had pleaded a bare denial in response to Pipes NZ’s claim for damages (including the liquidated damages), which put Pipes NZ to proof of the damages, it seems clear enough that the issue of the quantum of the damages or the reasonableness of the damages was not in issue in the High Court. At the relevant passages of her decision the Judge said:[24]
[116] The liquidated damages claimed by the plaintiff total $156,000. Liquidated damages are imposed in a contract to remove the need to prove actual loss. They are payable provided they are not a penalty. They must be a genuine pre-estimate of a loss most likely to flow from the breach. The defendant has not claimed that the losses were not a genuine pre-estimate. There is also no dispute that the plaintiff paid those damages to the power companies.
[117] No authorities were cited to the effect that a party is not entitled to claim liquidated damages to which it is subject in a case such as this. There seems to be no reason in principle why the defendant should not be required to compensate the plaintiff for having to pay these liquidated damages. I therefore find that the liquidated damages are not too remote and can be recovered from the defendant by the plaintiff.
[83] While the first four sentences of [116] do not address the particular point, the balance of the paragraph and [117] confirm that Steel Co did not seek to argue in the High Court that the Court could not award liquidated damages on the basis Pipes NZ had failed to prove its loss was reasonable.
[84] The broad appeal point on which Mr Campbell now seeks to rely, that the liquidated damages were too remote, does not identify the issue. Mr Campbell conceded that the grounds of appeal did not specifically raise whether the liquidated damages were reasonable. Nor did counsel address the issue during the course of the appeal hearing.
[85] The Court is left in the position that Steel Co now seeks to rely on a point that was not raised in the High Court in argument, not expressly addressed in the points of appeal, not raised during the course of the appeal hearing and that was raised for the first time by the Court.
[86] Having reviewed the matter we consider that it is too late for Steel Co to seek to rely on the point at this time. It is fundamental to the litigation process that substantial issues between parties are settled at trial. It is contrary to principle to allow a party, after a case has been decided against them, to raise a new argument that, whether deliberately or by inadvertence, they have failed to put during the hearing at first instance.[25]
[87] In Robinson v Bank of New Zealand this Court would not allow the appellant to raise a point orally during the course of argument where it was not taken in the High Court and not notified as a point on appeal.[26] Similarly in Haddon v GE Custodians this Court again rejected an attempt by the appellant to take a point not taken during the High Court proceedings.[27]
[88] We decline to permit Steel Co at this very late stage to seek to rely on the argument that Pipes NZ failed to prove that the liquidated damages it paid to Trustpower and Westpower were reasonable. As we have previously found that the liquidated damages were otherwise not too remote, the appeal must be dismissed.
Result
[89] The appeal is dismissed.
[90] The appellant is to pay costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Madison Hardy,
Auckland for Appellant
Hazelton Law, Wellington for Respondent
[1] Leave to plead the affirmative defence was granted during the course of the hearing: HC Auckland CIV-2013-404-2266, 30 April 2014 (minute of Thomas J).
[2] Pipes NZ Ltd v Steel Co Ltd [2014] NZHC 1216.
[3] The liquidated damages initially claimed by Pipes NZ were $32,156 paid to Trustpower and $69,390 paid to Westpower. The agreed sum must include an interest component.
[4] Olley v Marlborough Court Ltd [1949] 1 KB 532 (CA); Grogan v Robin Meredith Plant Hire [1996] CLC 1127 (CA); Catharine MacMillan "When standard terms are the terms of a contract" (1996) 55 CLJ 427; John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [7.2.2(a)]; and HG Beale (ed) Chitty on Contracts (31st ed, Sweet & Maxwell, London, 2012) vol 1 at [12-009].
[5] Pipes NZ Ltd v Steel Co Ltd, above n 2, at [52].
[6] Peter Watts (ed) Bowstead & Reynolds on Agency (20th ed, Sweet & Maxwell, London, 2014) at [8–205], citing MCP Pension Trustees Ltd v Aon Pension Trustees Ltd [2010] EWCA Civ 377, [2012] Ch 1.
[7] Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd [2006] NZSC 98; [2007] 1 NZLR 721 (CA).
[8] McCutcheon v David MacBrayne Ltd [1964] UKHL 7; [1964] 1 WLR 125 (HL) at 138.
[9] Engineering Dynamics Ltd v Norgren Matonair (NZ) Ltd (IMI Norgren Ltd) (1996) 7 TCLR 369 (CA) at 373–374.
[10] At 373.
[11] Harvey McGregor McGregor on Damages (18th ed, Sweet & Maxwell, London, 2009) at [2031], citing Contigroup Companies Inc v Glencore AG [2004] EWHC 2750 (Comm), [2005] 1 Lloyd’s Rep 241.
[12] Pipes NZ Ltd v Steel Co Ltd, above n 2, at [115]–[116].
[13] Elbinger Actien-Gesellschafft v Armstrong (1874) LR 9 QB 473 (QB) at 476. See also Contigroup Companies Inc v Glencore AG, above n 11.
[14] Michael Bridge (ed) Benjamin’s Sale of Goods (9th ed, Sweet & Maxwell, 2014) at [17–045]. See also McGregor on Damages, above n 11, at [2-031].
[15] Elbinger Actien-Gesellschafft v Armstrong, above n 13.
[16] Contigroup Companies Inc v Glencore, above n 11, at [62] and [80]–[81].
[17] See Burrows, Finn and Todd, above n 4, at [21.2.3(d)(ii)].
[18] Stephen Furst and Vivian Ramsey Keating on Construction Contracts (9th ed, Sweet & Maxwell, 2012) at [13-060].
[19] Elbinger Actien-Gesellschafft v Armstrong, above n 13, at 475.
[20] At 477.
[21] At 478–479.
[22] Steel Co Ltd v Pipes NZ Ltd CA343/2014, 17 February 2016 (minute of the Court).
[23] Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 (CA) at 322 and 324–325.
[24] Pipes NZ Ltd v Steel Co Ltd, above n 2.
[25] McLennan v McCallum [2010] WASCA 45 at [81]; and Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7–8.
[26] Robinson v Bank of New Zealand CA114/91, 15 June 1992 at 5.
[27] Haddon v GE Custodians [2011] NZCA 335 at [57]–[59].
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