Exterior Building Care Goleman Limited v Laing [2014] NZHC 1322 (12 June 2014)

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BETWEEN	EXTERIOR BUILDING CARE GOLEMAN LIMITED Plaintiff
AND	AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) Defendant
AND	TREVOR EDWIN LAING AS LIQUIDATOR OF DEFENDANT COMPANY _{Associated Respondent}

Hearing:	26 and 27 May 2014
Appearances:	D A Webb and R G McCrea for Plaintiff No Appearance for Defendant No Appearance for Liquidator of Defendant
_Judgment:	_{12 June 2014}

[1] This case concerns the supply of goods and services by AFO Industrial Limited (In Liquidation) (AFO) for a construction project undertaken by the plaintiff Exterior Building Products Goleman Limited (Goleman) involving technical rock stabilisation work after the Canterbury earthquakes.

[2] The rock stabilisation work to be undertaken by Goleman involved the securing of a cliff face at McCormacks Bay, Christchurch, against the risk of rock fall.

_{Part of the work involved the drilling of anchors into the rock face to
which netting}

EXTERIOR BUILDING CARE GOLEMAN LIMITED v AFO INDUSTRIAL LIMITED (IN LIQUIDATION) (FORMERLY CALLED AIR FLUID OTAGO LIMITED) [2014] NZHC 1322 [12 June 2014]

systems could then be attached. The anchors were to be placed in deep holes in the rock face and secured by grout.

[3] Goleman’s role was to carry out the stabilisation work under a subcontract with Fulton Hogan Limited (Fulton Hogan) implementing an arrangement with the Stronger Christchurch Infrastructure Rebuild Team (SCIRT).

[4] The goods and services supplied by AFO to Goleman to enable it to carry out the subcontract, were the components for a specialist simultaneously drilling and grouting system (the SDA system). The rock face drilling required a suspended drilling mechanism (a wagon drill unit) with grout injected into the drilled hole using a grout pump. In this case the contract was unusual because it seems on the advice of AFO, Goleman decided to use the SDA system method by which over 700 anchors of 50 mm diameter were themselves to be drilled into what was a mixture of pyroclastic material and competent basalt rock and simultaneously secured by grout, in each case to significant depths varying between four and eight metres. This method was to use what are known as self drilling anchors (SDAs), and as I understand the position, it, was the largest contract of its type to be completed in New Zealand in 2012.

(b) The hire of one other wagon drill and a grout pump at the rate of $445 per day. No payments have been made under that contract.

(c) The sale of a substantial quantity of SDAs and ancillary components at a price of $179,141.40 plus GST. This sum has been paid in full by Goleman.

(d) Goleman claims that it was also agreed AFO would provide ongoing support and advice in respect of the project and equipment which has not occurred.

[6] Fundamentally, it is Goleman’s case that the products supplied by AFO for this purpose were inadequate and in some cases delivered late, when timing in this contract was critical, and that the advice and recommendations of AFO holding itself out as a specialist in this area, were wrong.

(a) The wagon drills and grout pumps supplied were never fit for purpose and damages are sought for the price of these goods and resulting losses together with an extinguishment of any hire price and resulting losses in relation to the hired wagon drill and grout pump.

(b) A portion of the goods, namely the major consignment of SDAs, were not supplied within the stipulated time for delivery, such time being an essential term of the contract, and thus Goleman rejected those goods and claims a refund of the purchase price it has paid.

(c) AFO did not provide the training advice and support which was agreed and a necessary part and essential term of the contractual arrangement.

(d) Goleman claims damages on standard contractual terms in order to put it back in the position it would have been in had the services been provided as contracted for.

(e) In this regard, loss of profits due to the increased costs of completing the subcontract are claimed, together with a specific amount for Goleman’s loss of reputation and goodwill in the marketplace.

(f) In addition, interest on the sums paid for the goods are sought at the prescribed rate of 5% from the date of the respective payments.

[8] AFO in turn has filed a counter claim against Goleman for the remainder of the purchase price of the rejected wagon drill ($33,617 plus GST) for the amount allegedly owing for hire charges for the second wagon drill ($96,150 plus GST), plus interest, and for damages with respect to alleged repairs required to the rented wagon drill which was returned. The causes of action in AFO’s counter claim are based on precisely the same facts as prevail for Goleman’s claims, such that if Goleman’s claims are successful then the counter claims must necessarily fail.

[9] Goleman commenced this proceeding against AFO (then known as Air Fluid Otago Limited) on 14 June 2013. An initial statement of defence was filed and then an amended statement of claim issued by Goleman.

[10] On 19 April 2013, AFO filed a statement of defence to the amended statement of claim together with an amended counter claim. The counter claim was responded to by Goleman on 20 May 2013.

[11] In the meantime, on 11 March 2014, AFO was placed into voluntary liquidation and Trevor Edward Laing (Mr Laing) was appointed liquidator.

[12] Subsequently an application under s 248(1)(c) Companies Act 1993 was brought by Goleman seeking an order granting leave to it to continue this proceeding against AFO, a company now in liquidation.

[13] On 28 April 2014 an order was made by this Court granting leave to Goleman to continue the proceeding against AFO. This decision and the reasons for the decision given on 1 May 2014, are the subject of an appeal to the Court of Appeal which is yet to be heard.

[14] On 16 May 2014 Mr Guest, counsel for the liquidator Mr Laing, filed in this Court an application for a stay of the judgment which had granted leave to Goleman to proceed against AFO, on the basis the appeal to the Court of Appeal noted at [13] above was still to be heard. That application was dismissed on 26 May 2014 and the hearing of this substantive proceeding against AFO took place. At that substantive

hearing, Mr Webb and Mr McCrea appeared for Goleman. There was no appearance at the substantive hearing for AFO nor for the liquidator Mr Laing. This is despite the fact that on several occasions prior to 26 May 2014, I had indicated to all parties, including counsel for Mr Laing and AFO, that if the attempts being made to stay or adjourn the hearing of this proceeding were unsuccessful, without question the substantive hearing would proceed on 26 May 2014. This 26 May 2014 five day hearing date had been originally scheduled for some considerable time.

[15] Given my decision refusing the stay and adjournment application noted in paragraph [14] above, the hearing of the substantive proceeding against AFO did take place, this occurring on 26 and 27 May 2014. Evidence and submissions were provided for Goleman. There was no evidence before me on behalf of AFO or Mr Laing, nor as I have noted was there any appearance on behalf of the company or the liquidator.

Goleman’s briefs of evidence for the substantive hearing since 4 and 5 November

2003 but as noted, no evidence of any kind had been provided by AFO. Many opportunities to provide this evidence were given, and even following liquidation of the company on 11 March 2014, a number of discussions took place both with the liquidator Mr Laing, his counsel and counsel for AFO about the forthcoming hearing on 26 May 2014 and the opportunity for AFO to provide its evidence and defence. I repeat nothing was put before the Court for or on behalf of AFO, other than its earlier statements of defence and counter claim filed over one year ago on 20

[17] The issues here essentially involve matters which are factual in nature and require the following decisions:

(a) In terms of the contract between the parties what specifications or requirements were provided to AFO and what level of performance was promised by it when it was to provide delivery of the SDAs and related equipment?

(b) Did the SDA system and the equipment perform appropriately and in terms of the contract?

(c) If the performance of the SDA system and the equipment was below specification was this due to the way in which Goleman and its staff operated and maintained the wagon drills, grout pumps and SDA system generally or the fundamental capacity or suitability of the SDA system or the alleged failure of AFO to properly train the Goleman operators?

(d) In addition, is Goleman correct when it alleges that the bulk of the self drilling anchors provided by Goleman arrived significantly late and this was a clear breach of the contract between the parties?

(f) So far as AFO’s counter claim is concerned, if it may still be alive, has AFO established the condition of the returned wagon drill, that damage to it was caused by Goleman’s improper use and the costs of bringing the wagon drill into good repair?

[19] The uncontested evidence before this Court establishes a number of things. First, the contract between the parties in this matter was represented by exchanges of emails including as part of the contractual framework a detailed PowerPoint email from AFO. Secondly, so far as the subcontract between Goleman and Fulton Hogan was concerned, the plans and specifications in this subcontract were provided to AFO at an early stage of discussions. And thirdly, this was done for review by AFO and for its advice as an expert as to what it deemed to be an appropriate drilling methodology and the products that would be required to properly carry out the subcontract. On this last aspect, in its 9 May 2013 statement of defence to

Goleman’s amended statement of claim AFO at [7] admits “it has substantial expertise in respect of drilling and related works” and goes on to state that “it amongst other things, promotes the use of self-drilling anchors”.

[20] So far as the contract between AFO and Goleman was concerned, the following terms express or implied were of particular importance and went to the heart of this contract:

(a) The goods supplied, the methodology of the SDA system and the advice that it was suitable, together with the supply and support services provided by AFO, would be fit to carry out the subcontract.

(b) AFO would supply a range of services to ensure certainty as to time and quality would be achieved in relation to the subcontract, these services being:

(i) Supplying any materials, plant or components that might be required for the subcontract either from stock or through prompt supply arrangements made;

(iii) Supplying training, technical advice and support in relation to any issues that might arise.

[21] On this, AFO, who had seen the plans and specifications for the subcontract with Fulton Hogan, was fully aware that timing and compliance with the scheduled construction programme and the quality of the end product delivered were essential terms.

[22] The evidence also illustrates that AFO strongly recommended its SDA system throughout, and contended first, that it was entirely suitable for this difficult job and secondly, that all the necessary materials could be supplied in a timely fashion. It seems also that AFO even went further and its representatives including its director

and controlling officer Mr Alan Andrews (Mr Andrews) met personally with Fulton Hogan and SCIRT around this time to make a “presentation” on the use of its SDAs. No doubt this was at least in part an attempt to effectively “sell” this system for this and future rock stabilisation work in Canterbury.

[23] As to timing, there is no doubt here that pressure was on from the outset for Goleman to complete the rock stabilisation work under its subcontract without delay and all parties including AFO were well aware of this. With this in mind, agreement was finally reached between Goleman and AFO in about late April 2012 for the supply of the SDA system (the contract). It was agreed that AFO would supply the “appropriate” products which I have outlined at paragraph [5] above to carry out the subcontract, that this would be done in a timely manner and that AFO would also provide ongoing specialist support and advice in respect of the project and the equipment.

[24] Initially, the purchased wagon drill and grout pump together with the second hired wagon drill and grout pump and a small number of SDAs were supplied. The uncontested evidence before me suggests that problems with the SDA system began immediately and it became apparent Goleman was quite unable to simultaneously drill and grout on this particular job. This was because a grouting coupler, on the purchased wagon drill, which was an essential component of the SDA system, broke immediately upon use and subsequently no replacement or repaired grouting coupler was provided at all for this wagon drill. In addition, no workable grouting coupler was ever provided for the second leased wagon drill. Many requests were made of AFO to supply suitable replacement components but none were made available. Without the grouting coupler, the evidence before me is clear that it was quite impossible to simultaneously grout and drill which was an integral part of the SDA system. This of course had a major impact and caused significant problems for Goleman under its subcontract with Fulton Hogan.

[25] Goleman’s position is that, from the outset, useful training, technical advice and support from AFO was virtually non-existent and otherwise AFO was in breach

of the terms of the contract. Despite Goleman’s efforts to soldier on and finally to make attempts itself to repair and operate the defective equipment supplied, in or around late May 2012, it had no option but to reject the products supplied, by AFO and to cancel the contract.

[26] Goleman now seeks return of monies paid by it under the contract together with damages.

[27] On this aspect, there is unchallenged independent evidence before the Court from Mr Matthew Maurice Bishop (Mr Bishop) a consulting mechanical engineer. This evidence is to the clear effect that here, the design and structural integrity of AFO’s wagon drill rigs was not fit for the purpose required under the contract. Mr Bishop is critical of AFO’s choice of components for the wagon drill rigs, their design and the implementation of the component functions. There were also structural strength issues and in particular Mr Bishop identified five specific design issue problems. The practical implications of all this, according to Mr Bishop, is that premature failure of the components in the wagon drills was likely or alternatively, the components in question would be unable to perform their expected function.

[28] One specific issue where components were not fit for purpose relates to a primary drilling component of the wagon drill, the drill head and rock drill component. Mr Bishop is of the view that these were not adequate to drill 50 mm through basalt rock to the depth of between four and eight metres required under the contract. This has the practical implications that the rig simply failed to perform its intended function and this became apparent within a short timeframe.

[29] Mr Bishop also gave evidence that the issues he had identified were indicative of the fact that AFO, despite its representations to the contrary, was taking a prototyping approach to the wagon drill rig’s operation here. And, he found that AFO’s wagon drills were not appropriate to be used as the primary drilling equipment for the large scale and heavy commercial use required in this major rock drilling exercise. Mr Bishop testified too that he had approached other rock drill suppliers during his investigation and they had all suggested the rock drills in

question here were unsuitable for drilling the four – eight metre holes at 50 mm diameters required under this contract. Issues had also arisen, according to Mr Bishop, concerning the size of the drill motors which he suggested were quite inadequate for the work required here.

[30] Finally, Mr Bishop confirms that he found no evidence of damage to the wagon drill rigs he had inspected that could be attributed to improper or negligent use or inadequate maintenance of the drills on the part of Goleman.

[31] Leaving aside the other evidence before the Court from Goleman employees as to the faulty and inadequate performance of the SDA system in this case, the independent uncontradicted evidence of Mr Bishop alone in my judgment clearly leads to the inevitable conclusion that the reasons AFO’s SDA system and the equipment it had supplied under the contract did not perform appropriately, was due entirely to failures on the part of AFO in a significant number of respects. It had nothing to do with the way in which Goleman and its staff operated and maintained the system and its equipment.

[32] The evidence before me, which again was not contradicted by AFO, was to the effect that the bulk of the SDA anchors were not delivered within the stipulated timeframe under the contract and Goleman rejected these by email of 29 June 2012.

[33] Goleman’s evidence was that timing here was an essential term of the contract. This required the SDAs to be delivered between 20 May and 25 May 2012 or in the alternative no later than 5 June 2012 or close thereafter, but this did not occur.

29 June 2012. This was quite unacceptable given the essentiality of timing under the contract which from the outset was apparent to all concerned including AFO.

[35] On this aspect, I am satisfied that the express terms of the contract here unequivocally provided that time for delivery of the SDA anchors in particular was

essential, in order that Goleman could comply with its construction programme under the subcontract. From all the evidence before the Court, AFO had also made representations as to timing and its ability to comply with the tight timeframes, upon which Goleman had relied.

[36] I find that the SDAs were not delivered within the stipulated timeframes or in fact under the circumstances prevailing here, even within a reasonable period thereafter. And even had they been delivered in time, the SDAs could not have been used in the way intended in AFO’s SDA system, as this had failed. I am satisfied Goleman was entitled to reject the SDAs, which it did by email of 29 June 2012.

[37] And, although attempts were made to deliver the SDAs late, it seems from the evidence that Goleman has never accepted these and at all times has held them at AFO’s disposal.

[38] The claims in Goleman’s statement of claim fall into a number of basic categories:

(a) Sale of Goods Act 1908 warranty claims relating to merchantable quality (s 16(b)) and fitness for purpose (s 16(a)) with respect to the wagon drills and the SDAs.

(b) Breach of condition claim for late delivery and consequent rejection of the SDAs.

(c) Breach of contract in essence for the entire contract between the parties but also with respect to the failure by AFO to deliver the agreed support and advice services.

(d) Misrepresentation or misleading conduct claim contending that AFO represented the products and services supplied as effective and fit for the purposes required under the subcontract. In addition a further misrepresentation by AFO that it had experience in the products and

systems concerned. This also included a claim that AFO engaged in misleading and deceptive conduct here pursuant to s 9 Fair Trading Act 1986.

[39] In my view Goleman here has done sufficient to establish without question that in terms of its first cause of action AFO has breached an implied condition under s 16(a) Sale of Goods Act 1908 that the wagon drill and grout pump units and the SDA anchors would be fit for their stated purpose under the contract and this proved to be not the case. In addition the evidence establishes without question that AFO knew that Goleman relied on its skill or judgment as an expert in drilling products and services in entering into this contract and that in breach of the implied condition the items in question were not fit here to carry out Goleman’s subcontract with Fulton Hogan. Fitness for purpose is a condition under the contract here and therefore, failure by AFO to comply entitled Goleman to reject these goods which ultimately it did in correspondence dated 30 May 2012 and 12 June 2012.

[40] Also, the Sale of Goods Act 1908 provides a reasonable opportunity for Goleman to inspect the goods and subsequently to reject them for failing to comply with that condition – s 36. In the circumstances prevailing in this case I am satisfied Goleman acted reasonably in seeking to resolve the issues with AFO in a collaborative way without success and therefore it was entitled to reject the wagon drills and later the SDAs which were not provided in a timely way under the contract.

[41] Next, for the reasons outlined above there is also no question in my judgment that Goleman’s second alternative cause of action based upon breach of an implied condition as to merchantable quality under the contract in terms of s 16(b) Sale of Goods Act 1908 is made out here as well. There can be no doubt that the evidence before me establishes clearly that the wagon drill units and the SDAs were not of an acceptable and merchantable quality.

Goleman was therefore entitled to a refund of that part of the purchase price it had paid.

[43] Mention needs to be made now of Goleman’s fifth cause of action which relates specifically to breach of contract as to the time of supply of the SDAs. As noted above Goleman’s position is that it was an essential term of the contract that the SDAs be delivered between 20 May and 25 May 2012 or in the alternative no later than 5 June 2012 (or close thereafter). AFO failed to comply with this term of the contract and Goleman rejected the SDAs accordingly.

[44] The general position in contracts for the sale of goods is that time will not be treated as an essential term of the contract unless such intention can be found from the terms of the contact itself – s 12(2) Sale of Goods Act 1908.

[45] Recently, in assessing the existence of such an intention, the Supreme Court in Mana Property Trustee Limited v James Developments Limited¹has said that the enquiry is to be:

(a) First, the question is one of interpretation taking into account the language of the contract itself and the surrounding circumstances when the contract was made; and

(b) Secondly, a term will be deemed to be essential if the cancelling party “would more probably than not have declined to enter into the contract unless the term in question was agreed at the time of contracting to be essential.”

[46] With respect to the SDAs the evidence before me in particular of Mr Roche and Mr Goleman demonstrates plainly that time was essential and that Goleman would not have contracted with AFO otherwise given the need for urgency under the subcontract. I accept that this was the position here. Indeed the prospect of timesaving said to be achievable by using AFO’s SDA system was the major reason

¹Mana Property Trustee Limited v James Developments Limited [2010] 3 NZLR 805 at [24], [25].

[47] In addition, I am of the view, that even if the express terms of the contract may not have made out time as an essential condition (and I have found otherwise) in any event the subcontract between Goleman and Fulton Hogan was of a class of contract for which time in the AFO contract would be implied as a matter of precedent. The subcontract was part of a chain of contracts being implemented by SCIRT under which there was a significant degree of urgency given the possible danger in the area to the adjacent water supply tanks and the need for the rock fixing work to be undertaken without delay.

[48] The unchallenged evidence here was to the effect that the SDAs were not delivered within the stipulated timeframes and I am satisfied Goleman properly rejected them by email dated 29 June 2012. The SDAs themselves continue to be held at AFO’s disposal.

[49] Given the conclusions I have outlined above, strictly speaking it is not necessary for me to go on to consider in any detail Goleman’s other pleaded causes of action in its April 2013 amended statement of claim. These relate essentially to breaches of express conditions in the contract as to suitability and fitness of the products supplied, as to provision of training and services by AFO, and as to both misrepresentation and also misleading and deceptive conduct under s 9 Fair Trading Act 1986. Suffice to say at this point however, that I tend to the view that on the uncontradicted evidence before me, these causes of action are also made out here.

[50] Goleman part paid for the purchased wagon drill an amount of $38,660.70 (including GST) prior to its delivery. As noted above, after making valiant efforts to use this wagon drill which had proved to be entirely defective, Goleman determined that it had no choice but to finally reject it. It is not contested that it was plagued with problems throughout. All this had given rise to a right to Goleman to properly repudiate the purchase contract for breach of an essential condition and to receive a refund of the part of the price that had been paid. On rejection I am satisfied that Goleman was entitled to a refund of that part of the purchase price it had paid.

[51] Accordingly I am satisfied that there is sufficient evidence before the Court to show that Goleman is entitled to a refund of the $38,660.70 (including GST) part purchase price it has paid for this wagon drill.

[52] As I understand the position, Goleman made no rental payments under the hire agreement for the second wagon drill. Goleman had simply returned it to AFO soon after it also proved to be defective and entirely unsuited to the subcontract job.

[53] No damages are sought by Goleman here relating to this hired wagon drill. Nor as will be seen later in this judgment, are any payments of claimed rental to be ordered in favour of AFO as sought in its counter claim. There will however be a declaration made that no further sums are owed by Goleman to AFO in respect of the hire of this second wagon drill.

[54] Around 30 April 2012 Goleman paid to AFO the full price of all the SDAs it had contracted to purchase, amounting to $206,012.61 (including GST). Goleman now claims a refund of this purchase price for these SDAs which are presently held in storage and able to be returned to AFO.

[55] As noted above, Goleman’s claim here is based upon the condition in the sale contract that the SDAs were required to be delivered in time to be used in the contract, this being an essential and critical term under the circumstances known to all parties here. Further, it is not disputed that the utility of the SDAs was dependent on the entire system supplied by AFO working as a whole, so that simultaneous drilling and grouting could occur. Again that was an essential condition of the contract which clearly was not met.

[56] Goleman’s position is the SDAs were properly rejected for breach of these conditions. As such, the consideration under the contract has failed and the purchase price paid is refundable. This right arises in terms of s 55 of the Sale of Goods Act

Nothing in this Act shall affect the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed.

[57] I am satisfied here that even if it might be suggested that Goleman did not have a right to reject the SDAs due to late delivery alone, the undisputed fact is that because the SDA system itself provided by AFO was entirely defective, the highly priced SDAs were useless. Goleman was forced here to fall back on other contractors to use a conventionally drilled anchor system using much cheaper conventional anchors. Thus, as a result of this breach, Goleman was obliged to source those other conventional anchors elsewhere. Damages here would therefore remain the price of the SDAs paid to AFO under the contract, given that those SDAs are still unused and available for return to AFO.

[58] I find therefore that Goleman is entitled to a full refund from AFO of the part purchase price it paid for the SDAs amounting to $206,012.61 (GST inclusive). The SDAs as noted have been stored by Goleman as a matter of convenience and they are to be made available to be uplifted by AFO and placed at their disposal, once the payments noted at [91] following are made to Goleman.

[59] One additional matter needs mention here. Although there was no direct evidence before me as to this aspect, some suggestion was made that a small number of the total SDAs supplied by AFO may have been used by Goleman out of desperation under its subcontract. This occurred as a matter of necessity, given the urgency in completing the subcontract at the time, until alternative conventional SDA anchors were available.

[60] If it may be properly established that a small number of the SDAs under the supply contract were in fact used by Goleman in its subcontract, leave is reserved for any party to approach the Court to seek a slightly amended order as to the total refund of the SDA purchase price which will follow.

[61] On this aspect, Goleman has placed some evidence before the Court, which although not independently verified, appears to show that the actual profit it finally made on the McCormacks Bay job was $12,275.32. Goleman maintains that the projected profit it was likely to have received if the AFO methodology, its SDA system and equipment had worked was $105,955.96. The difference between these figures which Goleman suggests is its lost profit claim here is $93,680.64.

[62] It maintains that this lost profit claim is calculated on the usual Hadley v Baxendale²principle of the foreseeable loss naturally flowing from the breach of contract by AFO. It is said that it was inevitable that if AFO breached its obligations to provide goods and services in accordance with the contract and its general obligations that Goleman would suffer loss. The losses suffered are said to be the costs of both securing alternative SDAs, and also in obtaining subcontractors to

undertake drilling work thereby losing profit on contracting by Goleman’s own drillers. Goleman maintains that while some losses were absorbed due to the nature of the subcontract with Fulton Hogan (which was a cost plus rather than a fixed price contract) Goleman’s net position was worse than that it was entitled to expect, had the contract terms with AFO been adhered to.

[63] On all these aspects the only evidence before the Court is provided by Goleman employees who set out schedules of the company’s budgeting and actual performance under the subcontract. None of this is verified by any independent accounting evidence. Nor in my view is it clear that the amount of $93,680.64 claimed for what is said to be lost profit would have arisen had the AFO system worked properly on what proved to be a difficult rock fixing job.

[64] It is incumbent upon Goleman as claimant to establish on the balance of probabilities that it has suffered damage here and the quantum. I am simply unable to conclude here that there is clear verified evidence before me that in the final wash- up there was a loss of projected profit on the subcontract of the magnitude claimed

purely as a result of AFO’s breach, or that there is proper evidence before me as to

[66] Here Goleman claims for losses caused due to the damage to its standing in the industry caused by AFO’s actions here. Mr Webb for Goleman contends that prior to completion of this particular project Goleman had been retained on numerous similar projects amounting to values exceeding $1 million.

[67] As a result of the difficulties caused by AFO here and Goleman’s resulting poor performance under its subcontract, it obtained no further work from Fulton Hogan or SCIRT for similar rock stabilisation work notwithstanding that there remained many contracts of this nature in the Canterbury region.

[68] As a result, Goleman claims here the sum of $50,000 as damages for its loss of future profit and tarnished reputation.

[69] On this aspect, Mr Webb for Goleman did acknowledge that there were difficulties in quantifying what rock stabilisation projects Goleman might have been successful in obtaining otherwise and what the respective profit margins under these projects would have been. An average profit margin is put forward at 28%.

There will, no doubt, be difficulties in assessing the damages but such difficulties do not make assessment impossible — Chaplin v Hicks [1911]

2 KB 786. The question must be whether the plaintiff has lost some right of value, something which has reality and substance. Although it may be that

this value is not easy to determine it is the duty of the Court to do so as best it can — Kitchen v Royal Air Forces Association [1958] 2 All ER 241.

[71] Here, Goleman suggests that its claim for lost future profit due to AFO’s breach of contract is entirely appropriate and that a robust approach is required – Newbrook v Marshall.⁴

[72] Finally, Mr Webb suggested that the $50,000 lost profits claim in this case was a very modest one. He contended that the fact that the breaches of contract by AFO here led to a loss of reputation and consequent loss of profit by Goleman was established by the evidence before the Court and the quantum of these lost profits would be well within the vicinity of the amount claimed given general profit margins achieved by Goleman in other contracts. On this aspect, with some reluctance I disagree. Again the evidence which has been provided to the Court to justify this loss of future profit and reputation claim is advanced solely by employees and officers of Goleman. There is no independent verification of any of these aspects nor any evidence before me that, even if Goleman had missed out on other lucrative rock stabilisation contracts with Fulton Hogan or SCIRT, its staff and resources were not otherwise engaged in other similarly profitable contracts at the time. Nor is there any independent evidence from third parties (including Fulton Hogan and SCIRT) as to any damaged reputation suggested by Goleman.

[73] For these reasons I also reject this claim to damages for loss of future profits or reputation.

[74] Finally, Goleman seeks interest in terms of s 87 of the Judicature Act 1908 on the payments it made to AFO which are now to be refunded.

[75] The underlying rationale for the award of interest of this type is to strip a wrongdoer of any illegitimate benefit that they had from the use of money while a plaintiff was put out of funds – the philosophy behind s 87 is that “a party who has the wrongful use of another’s money should pay interest on it” – Westpac New

[76] I am satisfied that the situation described at [75] above is precisely what has occurred here and that the interest rate sought of 5% is appropriate as the prescribed rate.

[77] To properly compensate for the damage actually suffered by Goleman in this case I am satisfied that interest should be paid from the time when the monies claimed here by Goleman should have been repaid by AFO. This is the time the goods were rejected.

(a)	$3506.32 being interest on the $38,660.70 (GST inclusive) portion of the purchased wagon drill paid by Goleman from 30 April 2012 to 30 May 2014 (25 months).	$3,506.32
(b)	$20,601.26 being interest on the $206,012.61 (GST inclusive) price paid for the SDAs from 30 May 2012 to 30 _{May 2014 (24 months)}	$21,459.65

[79] As I have already noted, AFO has filed a counter claim in this proceeding for the following:

(c) Payment of compensation with respect to damage alleged to have been caused to the hired wagon drill which was returned.

[80] It is appropriate now to briefly address this counter claim. At the outset it is clear that, as Goleman has succeeded in respect of its action with regard to the two wagon drills, the counter claims for these must necessarily fail. It was fundamental to that claim by Goleman that these wagon drills were not fit for purpose, they were defective and fundamentally so, and they were properly rejected by Goleman. As it

was fundamental to AFO’s counter claims that the wagon drills were of good quality and fit for purpose, those counter claims must necessarily fail.

[81] Therefore, with regard to the first wagon drill purchased by the plaintiff, as I have found it was neither fit for purpose nor of merchantable quality and was therefore entirely defective to fulfil AFO’s obligations under the contract here, it was properly rejected by Goleman in which case no part of the purchase price was payable.

[82] The counter claim with respect to half the unpaid purchase price must therefore fail.

[83] With regard to the second wagon drill, this included a grout pump which was defective and rejected almost immediately after initial delivery. Shortly thereafter the hired wagon drill itself was rejected. Again I accept it was also not fit for the stated purpose and not of merchantable quality. It suffered the same critical failures as the first wagon drill. It was never capable of simultaneously drilling and grouting on this large scale rock drilling operation which was to be its sole purpose.

[84] Here as I have found above, the fact this wagon drill was fundamentally defective amounted to a total failure of consideration and gave Goleman a right to rescind the hire contract, in which case no part of the hire amounts were payable. The hired wagon drill had been used only for a short period from delivery on 5 May

2012 until at the latest 31 May 2012 and its performance throughout proved entirely unsatisfactory. After that time the drill was placed at the disposal of AFO.

[85] AFO’s counter claim for unpaid hire fees for this second wagon drill must therefore fail.

[86] Finally, as to the third cause of action pleaded by AFO in its counter claim, this appears to relate to damage alleged to have been caused by Goleman to the hired wagon drill.

[87] As to that aspect, all the evidence which is before the Court has indicated that both the hired wagon drill and indeed the purchased wagon drill were entirely unfit for purpose and not of an acceptable quality, such that when they were used, they suffered significant wear and tear.

[88] The independent evidence before me of Mr Bishop, the consulting mechanical engineer, was that upon inspecting the drills, he did not find evidence of any damage that he would attribute to improper or negligent use or lack of maintenance on the part of Goleman. Rather, his evidence was that the drills wore excessively because of design failure, they were improperly engineered and in fact under-engineered for carrying out the subcontract works here.

[89] This evidence from Mr Bishop was entirely uncontested. And there certainly has been no other evidence placed before the Court on behalf of AFO which might in any way substantiate this counterclaim or its other counter claims noted.

[91] For all the reasons outlined above, Goleman’s claim against AFO succeeds in part. In terms of the relief sought in Goleman’s amended statement of claim, damages are now awarded to Goleman against AFO totalling $244,673.31 (including

(a)	For refund of part of the purchase price (including GST) of the purchased wagon drill paid by Goleman	$38,660.70
(b)	For refund of the purchase price (including GST) paid by Goleman for the SDAs which are to be returned to AFO	$206,012.61
		_$244,673.31

[92] No award is made with respect to damages sought by Goleman for its allegations as to lost profit on the contract or for future losses or its lost reputation.

[93] A declaration is made that no further sums are owed by Goleman to AFO in respect of the purchase and hire of the wagon drills and grout pumps.

[94] Interest is awarded to Goleman against AFO with respect to the damages award noted at [91] above as follows:

(a)	Interest on that $38,660.70 part of the purchase price of the wagon drill from 30 April 2012 to 30 May 2014 (25 months)	$3,506.32
(b)	Interest on the $206,012.61 price of the SDAs paid by _{Goleman from 30 April 2012 to 30 May 2014 (25 months)}	$21,459.65

[95] Goleman has been largely successful in its claim against AFO and I see no reason why costs should not follow the event in the usual way.

[96] An order is now made that AFO is to pay to Goleman costs on this proceeding on a category 2B basis (I certify for two counsel) together with disbursements as fixed by the Registrar.

[97] My judgment in this proceeding dated 12 June 2014 is recalled and in its place the amended judgment herein is issued. This is to include at paragraph [58] the words “and they are to be made available to be uplifted by AFO and placed at their disposal, once the payments noted at [91] and [94] following are made to Goleman.” to be added at the end of the second sentence. This amendment has been made for the avoidance of any doubt as to the outcome in this decision.

High Court of New Zealand Decisions

Exterior Building Care Goleman Limited v Laing [2014] NZHC 1322 (12 June 2014)