The Roofing Specialists Limited v B L M Engineering Company Limited [2012] NZHC 3391 (17 December 2012)

Last Updated: 29 January 2013

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2012-419-359 [2012] NZHC 3391

IN THE MATTER OF an appeal against the decision of the

District Court at Hamilton

BETWEEN THE ROOFING SPECIALISTS LIMITED Appellant

AND B.L.M. ENGINEERING COMPANY LIMITED

Respondent

Hearing: 16 October 2012

Counsel: J Niemand for Appellant

T M Braun for Respondent

Judgment: 17 December 2012

_{JUDGMENT OF KATZ J}

In accordance with r 11.5 High Court Rules

I direct the Registrar to endorse this judgment

with a delivery time of 4.30 p.m. on 17 December 2012.

Solicitors: Niemand Peebles Hoult, Hamilton – [e-mail]

Harkness Henry, Hamilton – [e-mail]

THE ROOFING SPECIALISTS LIMITED V B.L.M. ENGINEERING COMPANY LIMITED HC HAM CIV-

2012-419-359 [17 December 2012]

Introduction

[1] The appellant, The Roofing Specialists Limited (“Roofing Specialists”) issued proceedings against the respondent, B.L.M. Engineering Company Limited (“BLM”) in the District Court at Hamilton.

[2] Roofing Specialists sought judgment against BLM for $42,184.09 in respect of work which it carried out at a property in Morrinsville.

[3] Roofing Specialists’ claim failed in the District Court. In a reserved judgment dated 1 March 2012, Judge R G Marshall found against Roofing Specialists, essentially on the basis that it had no contract with BLM at any material time. Rather, its contract throughout had been with the head contractor for the project, Gee K Civil Engineering Limited (“GKC”), a company which is now insolvent.

[4] Roofing Specialists now appeals from that decision.

Factual background

[5] On 28 July 2009, Roofing Specialists submitted a quotation to GKC to undertake the roofing, cladding and spouting work for workshop premises in Morrinsville which were to be leased by BLM. The relevant property was owned by an associated company of BLM.

[6] Roofing Specialist’s quotation of $159,515.00 was accepted by GKC, and

accordingly a binding contract was formed between Roofing Specialists and GKC on

28 July 2009 (“GKC contract”).

[7] Roofing Specialists’ main supplier was Steel & Tube Distribution Limited (“Steel & Tube”). Evidence on behalf of Roofing Specialists was that it specifically elected to work with Steel & Tube on the GKC contract job due to their longstanding relationship. It considered it owed a debt of gratitude to Steel & Tube for support

provided to Roofing Specialists during a difficult time in its business and there was an agreement (or at the very least an understanding) that Roofing Specialists would utilise Steel & Tube on most contracts.

[8] Mr Cairns of Steel & Tube had concerns regarding GKC’s lack of trading history, as GKC was a newly formed company. Indeed it appears it was incorporated largely for the purposes of carrying out the Morrinsville project. Mr Thomas of Roofing Specialists also undertook some inquiries, which gave rise to concerns on his part about the financial status of GKC and its ability to meet its commitments under the GKC contract.

[9] Against that background, Mr Cairns (Steel & Tube) and Mr Thomas (Roofing Specialists) travelled to the premises of GKC on the morning of 4 August 2009. That site visit increased their concerns regarding the financial viability of GKC. Mr Cairns advised Mr Thomas that Steel & Tube would not be willing to supply Roofing Specialists with materials for the job if they had to rely on GKC for payment.

[10] Mr Thomas then met with GKC’s project manager, Mr Butterfield, apparently later that same day (4 August 2009). Mr Butterfield provided Mr Thomas with a purchase order in the name of BLM (“BLM Purchase Order”) that confirmed the quotation of $159,515.00 and directed that all correspondence regarding the contract be sent to GKC.

[11] It was uncontested that Mr Butterfield was in lawful possession of the BLM Purchase Order Book. Mr Elliott, who was a director of BLM, gave evidence that he gave the Purchase Order Book to Mr Butterfield with very clear instructions that it was to be only used locally (in Morrinsville) and for amounts less than $1,000. He said that the Purchase Order Book was provided to GKC so that they could begin the contract and obtain incidentals to start it, for such things as hiring equipment from the hire centre, purchasing bags of cement etc. He described it as being for “rats and mice purchases.”

[12] Mr Thomas of Roofing Specialists’ evidence was that:

I was unaware of what arrangements (if any) were in place between Mr Butterfield and the defendant [BLM] save that I understood that there was a Purchase Order book to facilitate various components of the project until [GKC] had accounts opened and established a presence in Morrinsville.

[13] The Judge accepted Mr Elliot’s evidence and found that there was no “actual authority” from BLM for Mr Butterfield to issue a purchase order to Roofing Specialists on behalf of BLM for approximately $150,000. The Judge also held that Mr Butterfield did not have “apparent” authority to act on behalf of GKC.

[14] Roofing Specialists duly undertook the roofing, cladding and spouting work and rendered monthly invoices to GKC on 26 August 2009, 25 September 2009, 23

October 2009 and 26 November 2009. Each of those invoices (totalling over

$140,000) were paid. Further invoices were submitted on 23 December 2009 ($38,526.19), 31 January 2010 ($8,657.99) and 9 July 2010 ($8,979.71). Apart from a part payment of $5,000 in respect of the 23 December 2009 invoice, those invoices were not paid.

[15] In April 2010, Mr Thomas and Mr Cairns met with Mr Elliot. The Judge accepted that the meeting was held for the purpose of obtaining an assurance from Mr Elliott that payments owing to Roofing Specialists would be met. Mr Thomas’s evidence was that during the meeting he showed Mr Elliot the BLM Purchase Order he had been given by Mr Butterfield. The evidence of Mr Cairns and Mr Thomas was that, on sighting the BLM Purchase Order, Mr Elliot looked at Mr Thomas and said “Frank, you’ll get paid.” Mr Elliot’s evidence was that he said he would have to talk to the lawyers and sort it out. The Judge accepted the evidence of Mr Cairns and Mr Thomas on this issue.

[16] Mr Cairns also confirmed in evidence that he was the one who had asked if Roofing Specialists would be paid and, further, that when Mr Elliot confirmed Roofing Specialists would be paid, he did not state that it would be by BLM.

[17] Roofing Specialists argued that Mr Elliot’s conduct amounted to ratification of Mr Butterfield’s provision of the BLM Purchase Order and accordingly a binding contract was formed, with retrospective effect from the date of the provision of the BLM Purchase Order. The Judge found, however, that Mr Elliott’s comment “Frank,

you will get paid” was an ambiguous statement which could equally refer to Mr

Elliott’s expectation that GKC would resolve its issues with its sub-contractors.

[18] Due to the ongoing non-payment by GKC, Roofing Specialists reissued the unpaid invoices and sent them to BLM in May and July 2010. The December and January invoices were amalgamated and reduced to $33,204.38, which together with the July invoice for “additional work” made up Roofing Specialists’ claim in the District Court of $42,184.09.

[19] Roofing Specialists proved in the liquidation of GKC for the sum outstanding. There were no funds available, however, to satisfy the debt. It now seeks to recover the sums outstanding from BLM, which has already paid GKC for the relevant contract works, pursuant to its head contract with GKC.

Issues and approach on appeal

[20] In Austin Nichols & Co Inc v Stichting Lodestar,[1] the Supreme Court confirmed that, on a general appeal, the appellate court has the responsibility of arriving at its own assessment of the merits of the case. Nevertheless, in cases involving an assessment of credibility of witnesses (as in the present case), the advantage of the first instance court in hearing directly from the witnesses remains a matter properly to be taken into account by the appellate court.[2]

[21] Roofing Specialists submitted that the District Court Judge erred in fact and in law in his findings that:

(a) The original contract between Roofing Specialists and GKC was not frustrated (because of Steel & Tube’s unwillingness to supply to GKC) or discharged by agreement (at the time that the BLM Purchase

_{Order was provided);}

(b) Mr Butterfield of GKC did not have authority (whether actual, implied or apparent) to bind BLM to a contract with Roofing Specialists.

(c) BLM did not ratify the use of its Purchase Order by Mr Butterfield (if it is accepted that actual or implied authority is not established).

[22] I will address each issue in turn.

Was the original contract between Roofing Specialists and GKC frustrated?

[23] Roofing Specialists argued that its contract with GKC was either discharged or frustrated and a replacement contract was entered into between BLM and Roofing Specialists in relation to the same work on or about 4 August 2009.

[24] In the alternative, Roofing Specialists argued that even if its contract with GKC was not discharged or frustrated, a second contract in relation to the same work was subsequently entered into with BLM on or about 4 August 2009 (when the BLM Purchase Order was provided). On that analysis, both contracts were binding and enforceable.

Alleged frustrating event - unwillingness of Steel & Tube to supply materials

[25] Roofing Specialists argued that its contract with GKC was frustrated because it was unable to source materials from Steel & Tube which it had intended to use when it entered into the GKC contract.

[26] In my view the Judge did not err in squarely rejecting such an argument. Although Steel & Tube may have been Roofing Specialists’ “preferred” supplier, there was no evidence that it was not possible to complete the contract without Steel

& Tube. For example, there was no evidence that Steel & Tube was the only materials supplier available for the project or that Roofing Specialists had attempted unsuccessfully to obtain supplies from elsewhere.

[27] Roofing Specialists’ relationships and arrangements with its own suppliers was very much a matter for Roofing Specialists to be confident of at the time that it submitted a tender. It cannot subsequently claim that its contract was frustrated simply because a preferred supplier was unwilling to supply without some financial assurance being provided.

[28] Roofing Specialists entered into a binding contractual commitment to undertake the roofing work for the project. It did not make that contract subject to being able to source materials from Steel & Tube. If Steel & Tube was unwilling to provide the required materials without some financial comfort, that did not excuse Roofing Specialists from performing its own contractual obligations. It was required to take whatever steps were reasonably necessary to perform the contract.

[29] The Judge correctly assessed the threshold for frustration as being much higher than that asserted by Roofing Specialists. His Honour referred to Discount Liquor Blenhim Road Limited v Malstrom Holdings Limited:[3]

[Frustration] is based on the absolute nature of promise: promises must be performed, and only in the most exceptional circumstances will parties be excused.

[30] A contract will not be frustrated by a change of circumstances which simply renders the performance of the obligations under the contract more difficult.

Roofing Specialists’ conduct is inconsistent with the contract with GKC having been

frustrated

[31] The evidence is consistent with the existence of an ongoing contractual relationship between Roofing Specialists and GKC following the alleged “frustration” of the contract on or about 4 August 2009:

(a) Between 26 August 2009 and 31 January 2010 Roofing Specialists directed all its payment claims and invoices to GKC;

(b) GKC fully paid Roofing Specialists for the first four of its payment claims and part paid it for the fifth; and

(c) Roofing Specialists proved in the liquidation of GKC.

[32] The contemporaneous evidence is not consistent with Roofing Specialists having believed that its contract with GKC had been terminated by frustration on or about 4 August 2009.

Discharge of contract

[33] In the alternative, Roofing Specialists submitted that the contract between it and GKC was discharged by agreement on or about 4 August 2009. The essence of this argument was that GKC participated in a course of conduct whereby Mr Butterfield of GKC provided Roofing Specialists with a BLM Purchase Order (allegedly with BLM’s actual or apparent authority) for the work that Roofing Specialists had previously contracted to do with GKC. Such conduct was said to have demonstrated a mutual intention on the part of GKC and Roofing Specialists to discharge the GKC contract and replace it with a contract between BLM and Roofing Specialists, based on the BLM Purchase Order.

[34] Roofing Specialists accepted that this argument is dependent on a finding in favour of it with respect to the agency argument. However, as discussed further in [38]-[51] below, in my view the Judge was correct to find that GKC did not have actual or apparent authority to enter into a $150,000 contract on BLM’s behalf. Accordingly this argument must fail.

[35] I also note that this argument is inconsistent with the subsequent behaviour of the parties, as set out in paragraph [31] above.

Was a contract between Roofing Specialists and BLM entered into on or about

4 August 2009?

[36] Roofing Specialists submitted that a second contract was entered into, between Roofing Specialists and BLM, on or about 4 August 2009. The factual basis for this claim is outlined in [10] to [13] above. This contract either replaced the original GKC Contract or existed in parallel to it.

[37] Whether or not a contract was formed on that date depends on whether Mr Butterfield (GKC’s project manager) had actual or apparent authority to enter into a contract on behalf of BLM.

Actual authority

[38] Actual authority is a legal relationship between principal and agent created by consensual agreement to which they alone are parties.[4]

[39] Roofing Specialists argued that BLM must have given Mr Butterfield actual authority to enter into a contract on its behalf, because it had provided him with a BLM Purchase Order Book.

[40] However, Mr Elliott’s evidence was fatal to any actual authority argument (as the Judge correctly found). His evidence was that he gave the Purchase Order Book to Mr Butterfield with very clear instructions that it was to be only used locally (in Morrinsville) and for amounts less than $1,000. He said that the Purchase Order Book was provided to GKC so they could begin the contract and obtain incidentals to start it, for such things as hiring equipment from the hire centre, purchasing bags of cement etc. He described it as being for “rats and mice purchases.”

[41] The burden of proving actual authority, on the balance of probabilities, fell on

Roofing Specialists. Given the clear evidence from Mr Elliot, that burden was not discharged.

[42] In the alternative, Roofing Specialists argued that Mr Butterfield had apparent authority to enter into a contract on behalf of BLM, by virtue of having been provided with a BLM Purchase Order Book.

[43] Where a principal acts so as to lead another person to believe that he or she has authorised a third person to act on the principal’s behalf, and that other person enters into a transaction with the third person in the belief that such an authority exists, the principal who has induced the appearance of authority is bound by the transaction.[5]

[44] In terms of Mr Butterfield’s “apparent” authority to act on behalf of GKC, Mr Thomas gave evidence that he had made inquiries of people in Morrinsville and found out that Mr Butterfield (of GKC) was a school friend of Mr Elliott (of BLM). Roofing Specialists also relied on Mr Butterfield’s own assurances that he was permitted to use the Purchase Order Book. Such evidence is insufficient to establish apparent authority however, which must be based on an action of the principal (BLM) which has led Roofing Specialists to believe that BLM had authorised Mr Butterfield to enter into a direct contract with Roofing Specialists in relation to the roofing, spouting and cladding work on BLM’s behalf.

[45] The primary evidence which is relevant to the apparent authority argument is that BLM provided a Purchase Order Book to Mr Butterfield.

[46] Mr Thomas’s evidence was that he never checked with Mr Elliott or Mr Keiser (both of whom he knew were BLM’s agents) to confirm whether Mr Butterfield had authority to contract on behalf of BLM. He further stated that

I was unaware of what arrangements (if any) were in place between Mr Butterfield and the defendant [BLM] save that I understood that there was a Purchase Order book to facilitate various components of the project until [GKC] had accounts opened and established a presence in Morrinsville.

[47] The District Court Judge found that Mr Thomas’s own knowledge about the limits imposed on GKC’s use of the Purchase Order Book was fatal to any apparent authority argument. At [46] of his judgment he stated that:

There is no possibility that Mr Thomas considered that [GKC] had been given carte blanch by [BLM] to enter into large contracts. Certainly a reasonable person dealing with Mr Butterfield, not knowing whether he had any relationship with [BLM] and considering that he was only in possession of the Purchase Order book until [GKC] had opened accounts and established their presence in Morrinsville, would not view Mr Butterfield as having any authority to enter into a binding contract on behalf of [BLM].

[48] Roofing Specialists were experienced roofing contractors and presumably generally familiar with the formation and operation of construction contracts. BLM was not itself a party to the construction contract for the workshop in Morrinsville. The head contract was between a company associated with BLM and GKC. In turn, GKC contracted with sub-contractors, including Roofing Specialists. The Roofing Specialists’ subcontract with GKC was already in place when Mr Thomas met with Mr Butterfield on 4 August 2009.

[49] A reasonable person in the shoes of Roofing Specialists would not (or should not) have believed that BLM would authorise GKC to use one of its Purchase Order forms to enter into a very substantial contract (for over $150,000) that was intended to supersede (or exist in parallel) to the contract which Roofing Specialists had already entered into directly with GKC. In the circumstances the prudent course would have been to check with BLM as to the scope of Mr Butterfield’s authority.

[50] I further note that Roofing Specialists never proceeded as if it had a contract with BLM until after GKC had started suffering liquidity problems. It directed all its payment claims and invoices to GKC. Further, contractual variation orders were issued by GKC (not BLM) to Roofing Specialists.

[51] In my view the District Court Judge did not err in finding that Roofing

Specialists’ claim based on “apparent authority” fails on the facts of this case.

[52] If Mr Butterfield did not have actual or apparent authority from BLM then Roofing Specialists submitted, in the alternative, that BLM ratified Mr Butterfields’ actions at the April 2010 meeting referred to in [15] above, through Mr Elliott’s statement “Frank, you will get paid”.

[53] It was submitted that Mr Elliott’s failure to specify who would make the payment (GKC or BLM) does not prevent a conclusion that the necessary implication was that payment would be made by BLM. Accordingly, Roofing Specialists submitted, Mr Elliott had accepted and ratified the unauthorised BLM Purchase Order that Mr Butterfield had provided to Roofing Specialists.

[54] The law is clear that, in certain circumstances, it is possible for a person to ratify an unauthorised act which another person has purported to do on the first person’s behalf. In such a case the ratification constitutes the relation of principal and agent retrospectively; the principal is bound by the act whether it is to his or her advantage or detriment to the same extent and with all the same consequences as if it had been done by his or her previous authority.[6] Roofing Specialists must prove, on the balance of probabilities, that such ratification occurred at the April 2010 meeting.

[55] The Judge found that Mr Elliot’s comment “Frank, you will get paid” did not amount to ratification, resulting in the formation of a direct contract between Roofing Specialists and BLM, based on the earlier provision of the BLM Purchase Order. He noted that Mr Elliott did not make specific reference to BLM, and concluded that Mr Elliott’s comments could only amount to “an expectation on Mr Elliott’s behalf that Roofing Specialists would be paid”. Furthermore the Judge held that the situation was “too ambiguous and it could well be Mr Elliott’s expectation was that once matters were sorted out legally with GKC, payment could then be made out of available funds to Roofing Specialists”.

[56] The necessary prerequisite for the ratification argument is that Mr Butterfield had, without authority from BLM, provided Roofing Specialists with a Purchase

Order for over $150,000. The question therefore is whether, at the April 2010 meeting, Mr Elliot (on BLM’s behalf) assumed responsibility for a $150,000 contract which BLM would not otherwise be liable for, by saying “Frank, you will get paid.”

[57] Ratification must be evidenced either by clear adoptive acts or by an equivalent acquiescence.[7] It may be express or may be implied from conduct. At the time of ratification the party ratifying the contract must have full knowledge of all the essential facts.

[58] Mr Thomas, when cross-examined, appeared to characterise having the Purchase Order as being more in the nature of a type of security for payment. He referred to the Purchase Order from BLM as being similar to a “bank bond” or “guarantee,” although the case was not argued on that basis.

[59] In my view it was open for the Judge to find that Mr Elliott’s comment “Frank, you will get paid” was an ambiguous statement which could have been a reference to Mr Elliott’s expectation that GKC would resolve its issues with the sub- contractors. The comment is insufficiently clear and unequivocal to demonstrate an intention on the part of BLM to assume liability for a significant sub-contract in respect of which, prior to Mr Elliot’s statement, it had no legal liability. There is no sufficiently clear adoptive act by BLM and accordingly no ratification.

Conclusion

[60] I have found that the District Court Judge did not err in finding that the original contract between Roofing Specialists and GKC was not frustrated or discharged and remained valid and operative at all material times.

[61] I have also found that the Judge did not err in concluding that Mr Butterfield of GKC did not have actual or apparent authority to enter into a significant contract with Roofing Specialists on BLM’s behalf and that BLM did not subsequently ratify

_{Mr Butterfield’s conduct.}

[62] The appeal is dismissed.

[63] The appellant is to pay the respondent’s costs on a 2B basis, such costs to include both the costs of the substantive appeal and the interlocutory application regarding further evidence heard by Brewer J. In the event that the parties are unable

_{to agree on quantum, leave is reserved to file memoranda.}

Katz J

---

[1] Austin Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141; (2008) 8 NZBLC 102,172; [2007] NZSC 103; (2007) 18 PRNZ 768 (NZSC).

[2] Dr G v Director of Proceedings HC Auckland CIV-2009-404-851, 13 October 2009 at [9].

[3] Discount Liquor Blenhim Road Limited v Malstrom Holdings Limited HC Christchurch

CP66/01, 10 October 2001 at [39].

[4] The Laws of New Zealand (online ed) Agency at [28], citing Freeman & Lockyer v Buckhurst

Park Properties (Mangal) Ltd [1964] 2 QB 480; [1964] 1 All ER 630 (CA).

[5] Ibid, at [37] and the cases cited therein.

[6] Ibid at [42].

[7] McEwan v Johnstone [1918] NZLR 49.