Carter Holt Harvey Limited v Rolls-Royce New Zealand Limited

[2007] NZCA 495

IN THE COURT OF APPEAL OF NEW ZEALAND

CA256/06
[2007] NZCA 495

BETWEENCARTER HOLT HARVEY LIMITED

Appellant

ANDROLLS-ROYCE NEW ZEALAND LIMITED

Respondent

Hearing:22 August and 7 September 2007

Court:Glazebrook, Hammond and Wilson JJ

Counsel:B R Latimour, I M Gault and S E Russell for Appellant

B W F Brown QC and (on 22 August) G J Christie for Respondent

Judgment:13 November 2007 at 3pm

JUDGMENT OF THE COURT

A        APPEAL DISMISSED.

BAppellant ordered to pay respondent costs of $12,000 and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Wilson J)

Introduction

[1] In a Judgment delivered on 23 June 2004, reported at [2005] 1 NZLR 324, this Court (Gault P, Anderson and Glazebrook JJ) struck out a claim by the appellant (“Carter Holt”) against the respondent (“Rolls-Royce”), but gave leave to Carter Holt to re-plead in part.

[2]       Carter Holt re-pleaded.  Rolls-Royce then applied to strike out that pleading.  On 24 October 2006, Randerson J struck out the amended claim, except for allegations of negligent advice and negligence giving rise to dangerous defects.  Carter Holt Harvey Ltd v Genesis Power Ltd HC AK CIV209-404-1974.

[3]       Carter Holt now appeals against that decision.

[4]       The background is set out in the previous Judgment of this Court.  It is therefore not necessary to repeat it, beyond the following summary.

[5]       The Electricity Corporation of New Zealand (“ECNZ”) contracted with Carter Holt for the building of a cogeneration plant at Carter Holt’s Kinleith Pulp and Paper Mill.  ECNZ then contracted with Rolls-Royce to build the plant.  Carter Holt claims the plant is defective.  In May 2001 it issued proceedings against Rolls‑Royce and Genesis Power Ltd as the successor of ECNZ.

[6]       Carter Holt claims damages in tort against Rolls-Royce.  There was no direct contractual relationship between Carter Holt and Rolls-Royce, but they were linked by two principal contracts.

[7]       The first contract was the Cogeneration Contract, which Carter Holt entered into with ECNZ and another company on 31 May 1995.  The purpose of the contract was to procure the design, manufacture, construction, purchase and installation of a cogeneration plant at the Kinleith Mill.  Wood waste from the mill would be the primary fuel for the plant, which would produce power for the mill and also produce electricity for sale to ECNZ for national distribution.

[8]       The second contract was the Turnkey Contract, entered into on 4 July 1995, by which ECNZ contracted with Rolls-Royce to design, construct and commission the plant.  Rolls-Royce was obliged to carry out the contract in accordance with its terms, with due care and diligence and within the time frame for completion.  Where the manner of manufacture was not specified under the contract, the work was to be executed in a proper and workmanlike manner, in accordance with recognised good practice.

[9]       The two contracts were inter-linked by a clause in the Cogeneration Contract that enabled Carter Holt to require ECNZ to take proceedings against Rolls-Royce to enforce obligations under the Turnkey Contract.  Both contracts contained limitation of liability clauses.

[10]     In March 1999 the parties to the Cogeneration Contract signed a formal amending document which recognised that aspects of the performance and reliability of the plant had not met the required standards.  ECNZ was required to use its best endeavours to procure Rolls-Royce to perform its obligations under the Turnkey Contract.

The previous Judgment

[11]     The Court reached the following conclusions:

[99] Assumption of responsibility for a statement or a task does not usually entail a voluntary assumption of legal responsibility to a plaintiff, except in cases where the defendant is found to have undertaken to exercise reasonable care in circumstances which are analogous to, but short of, contract, and it is foreseeable that the plaintiff will rely on that undertaking.  If that is the case then, subject to any countervailing policy factors, a duty of care will arise.  In other cases, the law will deem the defendant to have assumed responsibility where it is fair, just and reasonable to do so: [Attorney-General v Carter [2003] 2 NZLR 160, at 168-169 (paras [23] - 27])]. Whether it is fair, just and reasonable to deem an assumption of responsibility and then a duty of care will depend on a combination of factors, including the assumption of responsibility for the task, any vulnerability of the plaintiff, any special skill of the defendant, the need for deterrence and promotion of professional standards, lack of alternative means of protection and so on – that is, essentially the matters discussed above at paras [58] – [65]. Wider policy factors will also need to be taken into account.

[100] Finally, we note that assumption of responsibility for the task cannot be sufficient in itself, at least insofar as the negligent construction cases are concerned.  If it were, then the result in [Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758] (which has been so widely approved) could not be justified, as the subcontractor in that case had clearly assumed responsibility for the task of supplying glass that accorded with the contractual specifications. The question in Simaan was whether the subcontractor had assumed responsibility to the plaintiffs and the answer given in the case, although not expressed in that manner, was that it had not.  Any assumption of responsibility was only to the direct contracting party.

…

[127] For the reasons given earlier, we consider that the claim must be struck out to the extent that it is pleaded as a duty to take reasonable care to perform the contract.  Even where it is not pleaded in this manner, the claim must be struck out, except to the extent that the duty pleaded rests on the alleged negligent statements made by Rolls-Royce to Carter Holt, both before and after the entry into the contracts.  In case we have not already made this clear, [Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520] in its wider manifestation is not, for cases of this nature, part of New Zealand law.

…

[130] This means that the only claims remaining against Rolls-Royce will be the Hedley Byrne claim [Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465] and the claim related to physical damage. We recognise that the claim will need to be repleaded as those claims are entwined with the claims that are struck out.

…

[155] The appeal by Rolls-Royce is allowed.  The third cause of action against Rolls-Royce is accordingly struck out, with the exception of the Hedley Byrne cause of action and allegations of actual physical damage.  Any pleading issues arising from this can be dealt with by the High Court if necessary.

[12]     Properly understood, these statements are capable of only one interpretation, the claim against Rolls-Royce, as re-pleaded, was to be confined to alleged negligent statements and allegations of physical damage, including dangerous defects.

[13]     Mr Latimour sought to widen the terms of the grant of leave by referring to the statement of this Court (Anderson P, McGrath and Glazebrook JJ) when, in a Judgment reported at (2004) 17 PRNZ 197 refusing Carter Holt leave to appeal to the Privy Council, the Court said that:

[17]… Carter Holt was specifically allowed to replead its case to argue that Junior Books, as it has been explained in later cases, is part of New Zealand law – see at para 124 and at para 128 of the judgment.  To the extent that Carter Holt seeks to argue that Junior Books in its wider manifestation should be followed in New Zealand and that Simaan was wrongly decided, we do not, as indicated above, consider this justifies leave to appeal being granted, especially given the longstanding criticism in the UK and elsewhere of the decision in Junior Books and longstanding acceptance, both here and in the UK, of the reasoning and result in Simaan.

[14]     But these observations must be read in the light of, and cannot change, the terms of the Judgment in respect of which leave to appeal was being sought.  In that Judgment, this Court had made clear that the wider interpretation of Junior Books, which recognised a “special relationship” by virtue of the relationship between a sub-contractor and a head contractor, is not part of the law of New Zealand.

Pleadings

[15]     Apart from claims of negligent statements and dangerous defects, where no pleading issue arises, Carter Holt alleges in its proposed pleading that –

(37) In the circumstances pleaded above, and in the context of the special relationship particularised above, and Rolls-Royce’s undertaking of responsibility to [Carter Holt] particularised above, Rolls-Royce owed a duty to [Carter Holt]:

…

(b)to take reasonable care in the design, manufacture, construction, installation, erection and commissioning of the Cogeneration Plant.

…

(42) In breach of its [duty] pleaded at para 37(b), … Rolls-Royce failed to take reasonable care.

[16]     Numerous instances of the alleged breach by Rolls-Royce of its duty are subsequently pleaded.  These appear however to allege a failure on the part of Rolls‑Royce to achieve the contractual standards which it had contracted to achieve.

[17]     As relief, Carter Holt materially seeks “a declaration that Rolls-Royce designed, installed and constructed the Cogeneration Plant in breach of its duty of care to [Carter Holt]”, together with an inquiry into damages and judgment for the sum found to be due, together with interest and costs.

[18]     In summary, therefore, Carter Holt alleges that Rolls-Royce was, because of its special relationship with Carter Holt, under a duty to take reasonable care in performing the contract.  In other words, as Mr Latimour accepted during argument, this is a “Hedley Byrne services claim”.

Discussion

[19]     Such a claim cannot possibly come within the terms of the leave to re-plead which this Court reserved to Carter Holt in its previous Judgment.

[20]     To the contrary, the very purpose of the indulgence afforded to Carter Holt was to separate out the claims alleging negligent statements and dangerous defects, which were unobjectionable, from the alleged duty of care in the performance of the contract, which was held not to exist in law.  But that is the very claim which Carter Holt now seeks to advance.

[21]     As an alternative argument, Mr Latimour sought leave now to amend the claim in terms of the proposed pleading.

[22]     In response, Mr Brown QC pointed out that, quite apart from any other difficulties, limitation issues might well arise.

[23]     Even putting aside the terms of the previous leave to re-plead and any possible question of limitation, Carter Holt should not in our view be given leave to plead as it seeks.

[24]     We agree that, on the authorities to which Mr Latimour referred us such as Henderson v Merrett Syndicates [1995] 2 AC 145 (HL), Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) and Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181 (HL), a Hedley Byrne claim may be available in relation to the provision of services.

[25]     That would however be the position with large commercial parties only in exceptional circumstances, as for example those in Riyad Bank v Ahli United Bank plc [2006] 2 Lloyds Rep 292. Simaan illustrates that, in the construction context, parties are not in a “special relationship” by reason of there being links in the same contractual chain.

[26]     Application of the factors articulated by this Court at [99] of its previous Judgment (set out at para [11] above) leads to the conclusion that there is no basis for a Hedley Byrne services claim.  The assumption by Rolls-Royce of responsibility to perform the contract cannot of itself establish a “special relationship”, and a company with the resources of Carter Holt could not realistically claim that it was vulnerable to exploitation.

[27]     We therefore agree with Randerson J at [81] that:

On any objective analysis of the conduct of the parties, no court could realistically find there was an assumption by [Rolls-Royce] of responsibility to Carter Holt for the construction, installation, erection and commissioner of the plant.

[28]     There are three further reasons why, on any view of Carter Holt’s proposed pleading, it should not be permitted to pursue a Hedley Byrne claim based on services.

[29]     First, it would be wrong to permit Carter Holt to complicate, and in all probability to delay, an already complex and long-running claim by alleging both a failure to achieve numerous contractual standards and a failure to exercise reasonable care to achieve these standards.

[30]     Secondly, it is conceptually difficult to see how Carter Holt could establish that it relied to its detriment on an obligation of Rolls-Royce to take care in the performance of its contract with ECNZ, in contrast to relying on Rolls-Royce to have done by the end of that contract what it had contracted to do.

[31]     Thirdly, it is impossible to avoid the inference that Carter Holt is seeking to use the tortious claim to enhance its contractual bargain.

Result

[32]     The appeal is dismissed.

[33]     Carter Holt is ordered to pay Rolls-Royce costs of $12,000 and usual disbursements.

[34]     We certify for second counsel on the first day of hearing.

Solicitors:
Bell Gully, Auckland for Appellant
Simpson Grierson, Auckland for Respondent