Far North Holdings Limited v Perry
[2021] NZHC 1247
•31 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-488-000111
[2021] NZHC 1247
UNDER THE DISTRICT COURTS ACT 2016 IN THE MATTER OF
An appeal against the decision of the District Court
BETWEEN
FAR NORTH HOLDINGS LIMITED
Appellant
AND
GORDON MALCOLM PERRY
Respondent
Hearing: 12 April 2021 Appearances:
R Mark for the Appellant
S Cartwright and G Holm-Hansen for the Respondent
Judgment:
31 May 2021
JUDGMENT OF WALKER J
This judgment was delivered by me on 31 May 2021 at 3 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
FAR NORTH HOLDINGS LIMITED v GORDON MALCOLM PERRY [2021] NZHC 1247 [31 May 2021]
Introduction
[1] This appeal is about the cause of extensive blistering on the respondent’s yacht, Watershed. Blistering on the hull of a yacht threatens the hull’s integrity and longevity. There are two competing hypotheses. Mr Perry, the yacht owner, contends it was the poor workmanship of the appellant, Far North Holdings Ltd (FNHL), in 2013. FNHL on the other hand contends there were deep-seated issues in the Watershed before the work FNHL carried out. It is not therefore responsible for the blistering which was discovered in 2018. Mr Perry succeeded in the District Court and FNHL was ordered to pay the cost of repairs.1 FNHL appeals that decision and dismissal of its counterclaim for the cost of keeping the Watershed on hardstand in the meantime.2 It is common ground that if the appeal succeeds then the counterclaim must also succeed.
[2] Essentially then, this is a contest between experts. A preliminary issue arises. Was the District Court Judge wrong to admit a further expert report prepared for Mr Perry, the Wainui Marine report, when the report writer was not a witness at trial? FNHL challenged its admissibility. The District Court Judge ruled it admissible under s 18 of the Evidence Act 2006. FNHL appeals that ruling.
Background
[3] Mr Perry has owned Watershed since 2005. She is a glass reinforced plastic (GRP) hulled yacht, constructed in 1980 by Camper Nicholson. The parties agree that there is a sound basis for believing it to be solidly constructed given the reputation of Camper Nicholson. This does not however preclude osmosis occurring at some stage in the boat’s life.
1 Perry v Far North Holdings [2020] NZDC 24049.
2 Hardstand is a facility utilised for boat and mast storage out of the water.
[4] FNHL is the commercial trading and asset management arm of the Far North District Council. It operates the Port Opua marina and boatyard where Mr Perry berthed Watershed.3
[5] Osmosis leading to blistering is a known risk in GRP boats. Blistering is an osmotic process resulting from water entering the laminate. The moisture can travel within the fibres of the laminate by a process known as “wicking”. The water breaks down the resin in the laminate. As the pressure increases, blisters develop within the laminate or between the gel coat and laminate which undermines the integrity of the hull. The boat becomes susceptible to water ingress and possible laminate degradation.
[6] Mr Perry hauled Watershed out of the water every year to re-apply anti-fouling paint to protect the hull. On 7 September 2011 Watershed was inspected for insurance purposes by Ian Butchart, a marine surveyor and commercial master with Gulfstream Consultants Ltd. Mr Butchart did not observe any evidence of osmosis at this inspection. He recorded a few areas of paint detachment but described the vessel overall as being in good condition.
[7] In August 2013, Mr Perry engaged FNHL to apply a product known as Coppercoat to protect Watershed’s hull. The objective was to remove the need for annual maintenance. On 23 August 2013, FNHL provided an estimate for removal of the anti-fouling paint on the hull and application of Coppercoat.
[8] Coppercoat is manufactured by Aquarius Marine Coatings Ltd (AMCL). It is said to be a long-life anti-fouling treatment. AMCL offered a five-year guarantee for Coppercoat. The expectation is that it only requires re-coating after 10–15 years. AMCL provided detailed specifications for proper application which include instructions for surface preparation. Those specifications state:
GRP: … All surfaces must be cleaned of all contaminates, including dirt, dust, grease, rust or loose paint … The best way to achieve this is to low-pressure slurry blast the hull … The hull can be washed with fresh water, but ensure this is allowed to dry before proceeding
3 FNHL formerly traded as Opua Marina and Ashby’s Boatyard. This is of no consequence.
[9] The FHNL estimate contains the contract terms accepted by Mr Perry. It sets out the scope of work. The material parts are:
Full removal of existing antifouling by wet glass blasting down to gel coat, preparation of hull, application of Coppercoat as per manufacture[r’s] recommendations. No warranties other than our standard workmanship.
…
Antifoul removal by wet glass blasting 6.5 hours at $375.00. This could be a lot less as the hull is in good condition and not much antifouling build up.
At this point an inspection of the hull will be carried out with the boat builders to see if any unknowns have been discovered and need to be rectified. [Watershed] appears to be in very sound condition.
[10] Mr Perry observed some of the work being undertaken and kept a form of work log. After Watershed came out of the blasting bay, Mr Perry learned that garnet grit had been used to remove the anti-fouling paint, instead of glass blasting as stipulated in the contract. Mr Perry was concerned about the potential for damage as garnet grit is harder than the GRP hull. Mr Perry expressed his concerns to FNHL. He asked Mr Butchart to inspect the boat again. After this inspection,4 Mr Butchart recorded that the underwater hull had been stripped of paint. Further, that there was a 30 cm band around the hull, below the waterline, for which the epoxy coating had been removed. The hull otherwise appeared sound to him. Lastly, he noted his understanding that FNHL was to restore the epoxy coating on the eroded band, then apply epoxy undercoating and new antifouling of Mr Perry’s choice.
[11] The epoxy coating referred to is known as the “gel coat”. Mr Perry explained in his evidence that this acts as a water barrier which keeps the hull as watertight as possible.
[12] The then manager of FNHL, Nick Voorhoeven, acknowledged that it should have informed Mr Perry before using garnet grit. Nick Voorhoeven wrote on 18 September 2013:
Removal of antifouling: … We use glass beads, or fine clean washed garnet. The decision is made on the day. [I]n order to get through the white Interprotect coat on your boat it was decided to use the garnet. Without the use of garnet it would have increased the blast time by at least a third which
4 Conducted on 17 September 2013.
would have added cost to you… Yes in retrospect we should [have] informed you we have changed to garnet, this has never been an issue in the past but from now on it will be written in all our estimates that we reserve the right to use the best possible product to complete the work in the correct and time[l]y fashion.
[13] In response, Mr Perry referred to his own 40 years’ experience in the construction industry. He pointed out that glass was quoted and might be okay as it dissipates on impact. Garnet does not. When FNHL issued invoices for their work, Mr Perry’s accountant repeated these concerns and reiterated that Mr Perry would not have agreed to the works had he been aware of the change.
[14] The parties agreed that some limited additional work would be carried out to prepare the hull before application of the Coppercoat. This comprised “extra sand to below the water line agreed plus two coats of epoxy extra cost”.
[15] In May 2017, Watershed was hauled out to scrub off the hull and change anodes. At that time, Mr Perry noticed some blisters on the hull. He expressed concern to FNHL again. He sought FNHL’s agreement to repair at its own cost. No agreement was reached.
[16] Just over a year later, Mr Perry hauled Watershed out for repair after it suffered minor damage. The blistering had worsened. Since that time the yacht has remained on the hardstand at the marina awaiting resolution of who was to assume responsibility for repair.
[17] The parties attempted to resolve the impasse. These attempts came to nought. Mr Perry commenced a claim alleging breach of contract, breach of the Consumer Guarantees Act 1993 and negligence. At trial, he elected to seek the estimated cost of repairs. The cost of repairs was subsequently quantified to be $62,083.01. Judgment was entered for that sum.
The District Court judgment
[18] Judge GM Harrison recorded that FNHL admitted that using garnet grit instead of wet glass blasting was a breach of contract. He determined that Mr Perry was entitled to have the antifouling work carried out in accordance with the terms of the
contract, without substituted performance, unless there was waiver or subsequent variation by agreement.5
[19] He also recorded that the failure of FNHL to apply the Coppercoat procedure meant that the Coppercoat guarantee offered by the manufacturer was unavailable to Mr Perry. It is not immediately clear whether this means that the Judge found that FNHL failed to follow the manufacturer’s specifications in addition to the use of garnet grit.
[20] The Judge focused on the competing expert evidence. He noted the evidence of FNHL’s expert, Mike Menzies. Mr Menzies opined that the yacht had a deep-seated laminate problem for a very long time, based on the size of the blisters and that his
2.5 mm sample grinds did not reach a good base.
[21] Judge Harrison noted that Mr Menzies’ conclusion was based on the expert’s own inspection without any review of literature, and had no regard to any contemporaneous records, other expert reports or terms of the contract.
[22] The Judge referred to reports from Wainui Marine and SGS Industrial Ltd on a coating sample from the underwater hull. He said:6
These reports and in particular, the report of Mr Butchart of September 20177 that the hull was “generally fair and sound overall” were at odds with the opinion of Mr Menzies that osmosis had been present in the hull of Watershed for “a very long time”.
[23] He then referred to the evidence of Mr Perry’s expert, Bernard Kerr. Mr Kerr’s opinion was that the blistering to the hull had been caused by insufficient and improper preparation during the work in 2013 which had caused accelerated hull blistering over a five-year period. Judge Harrison set out the oral evidence of Mr Kerr in response to a question from the Bench:8
5 Relying on HG Beale (ed) Chitty on Contracts (32nd ed, Sweet & Maxwell, London, 2015) vol 1 at [21-004], citing Arcos Ltd v Ronaasen [1993] AC 470 (HL).
6 At [28].
7 This date appears to be a typo, as the Gulfstream report from which this quote comes was dated September 2013.
8 At [32].
In answer to a question from me, whether the performance requirements of the contract had been followed the blistering of the hull would have occurred Mr Kerr said:
A:I don’t believe so, providing they had followed the full recommendations which would have also included a moisture testing.
Q:Understood. There’s a significant part of your reason here the fact that the gel coating was removed and not replaced.
A: That’s right sir.
[24] Mr Mark is critical of this line of questioning. He submits the question from the Bench did not accurately represent the evidence because the gel coat was in fact replaced by a modern epoxy layer. I return to this point later.
[25] The Judge recorded that he preferred Mr Kerr’s evidence as to causation. He rejected the argument that by paying the invoices, Mr Perry had agreed to the use of garnet grit, varied the contract or waived his rights with respect to the admitted breach.9
Approach to appeal
[26] The parties agree on the proper appellate approach. This is a general appeal as of right under s 124 of the District Court Act 2016. It proceeds by way of rehearing. This Court must reach its own conclusion and need not defer to the Court below. This does not mean restarting the process as if there had been no initial decision. Rather, the weight an appeal court gives to the decision under appeal is a matter of judgment. FNHL has the burden of satisfying this Court that it should differ from the decision below. It is only if I consider that the Judge was wrong that I am justified in interfering with that decision. The trial judge may have had an advantage, such as in the assessment of witnesses. In such a case, an appeal court may rightly hesitate to conclude that findings of fact or fact and degree are wrong.10
9 At [35].
10 Barron v Louw [2018] NZHC 2275, [2018] NZAR 1668 at [21]; Green v Green [2016] NZCA 486, [2017] 2 NZLR 321; Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
The issue
[27] The appeal has a relatively narrow compass. Is it more likely than not that the blistering was caused by any breach by FNHL of the performance requirements of the contract? The appellant acknowledges that the use of garnet grit rather than wet glass to remove the antifouling on the boat was a breach of contract. The admission falls short of admitting any other breach and FNHL argues that any failure to perform the original contract terms did not cause the blistering found in 2018.
A preliminary issue – admissibility of the Wainui Marine report
[28] The first question is whether the Wainui Marine report ought to have been admitted by the Judge. The parties had agreed that this issue would be left to the trial judge rather than determined pre-trial. Mr Mark submits it was inadmissible hearsay because the report writer was not called to give evidence, yet his report was offered to prove the truth of its contents. In those circumstances, the report writer should have been a witness and subject to cross-examination. As he was not, the Wainui Marine Report ought not to have been taken into consideration by the Judge.
[29] Mr Holm-Hansen submitted that the Wainui report was not hearsay. It was not tendered as proof of its contents but as evidence of the fact of contemporaneous testing in 2019. In his oral submissions, Mr Holm-Hansen responsibly acknowledged there were two purposes for the report; responding to the challenge to Mr Perry’s conduct being the secondary purpose. It addressed assertions that Mr Perry had been intransigent by not having the matter investigated earlier. He submits it would have created undue expense to require Mr Stock to prepare affidavit evidence and attend Court given the quantum at issue. Leave would also have been required because r 10.6(2) of the District Courts Rules 2014 limits each party to one expert witness per specialist discipline unless the Court allows more witnesses by leave.
[30] I am satisfied that the author of the report qualified himself as an expert. But, he was not called as a witness.11 If proffered for any reason other than evidencing Mr Perry’s willingness to cooperate to find the cause of the problem, it falls into the
11 The authors of the SGS Industrial report and two Gulfstream reports were also not called as witnesses but the reports were produced by consent.
category of hearsay.12 A hearsay statement is only admissible in the circumstances set out in s 18 of the Evidence Act 2006. Section 18 provides:
18 General admissibility of hearsay
(1)A hearsay statement is admissible in any proceeding if—
(a)the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and
(b)either—
(i)the maker of the statement is unavailable as a witness; or
(ii)the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness.
(2)This section is subject to sections 20 and 22.
[31] The Judge admitted the report on the basis it was reliable, prepared by an expert and confined to the expert’s inspection of the Watershed. This explicitly addressed s 18(1)(a). He did not however explicitly engage with the grounds set out at s 18(1)(b). Nor did he engage with r 10.6(2).
[32] It could be understood that the Judge’s consideration of s 18(1)(b) was implicit. It is self-evident that expense or delay would be caused if Mr Stock had to be called to give evidence. Whether that would be undue has to be assessed against the principle of proportionality which underpins the District Courts Rules 2014. In short, “undue” in this context means disproportionate.
[33] In the end, the duplicative character of the report (in that Mr Kerr had come to the same conclusions) combined with the lack of an explicit foundation under s 18 tells against its admissibility on the question of causation.13 I therefore conclude that the Wainui Marine report is not admissible on the primary issue. I put it to one side and assess causation without reliance on it. I observe that although the Judge referred to the Wainui Marine report, it did not appear on my reading of the judgment to play a significant role in the determination.
12 Evidence Act 2006, s 4(1).
13 It may well be admissible for other purposes such as on questions of costs.
Discussion
Principles of causation
[34] To recover damages for breach of contract, the breach must be an effective cause of the loss. If there are two equal causes of loss the Court need not choose which cause was the more effective.14 The burden of proving causation (and breach) on the balance of probabilities lies with Mr Perry.15
[35] It does not necessarily follow that a plaintiff automatically succeeds even if the Court is not persuaded by a defendant’s theory of causation. The question here is whether Mr Perry’s theory – that the blistering was caused by inadequate preparation of the hull after aggressive grit blasting – is proved on the balance of probabilities.
[36] Mr Holm-Hansen describes as striking that there are no records from FNHL to verify the steps it took to prepare the hull in accordance with the manufacturer’s recommendations, no evidence as to FHNL’s quality control measures and no evidence from FNHL to verify the presence of defects or steps it took to advise Mr Perry of any deep-seated osmosis or blistering issues. Mr Mark counters that these submissions attempt to reverse the burden and onus of proof.
[37] I accept that there is merit in Mr Holm-Hansen’s submission that the absence of contemporaneous information from FNHL is relevant to the assessment. This does not however mean that the burden of proof shifts. Rather, it is the evidential burden (sometimes termed the tactical burden) which shifts. The Court of Appeal explained what is meant by tactical burden in Accident Compensation Corporation v Ambros:16
…the term burden of proof has been used in two quite distinct senses … The first is a reference to the legal burden. The legal burden is what must ultimately be proven by a person in order to win the case. Equally, it can refer to the evidential burden. The term evidential burden is, in turn, used to refer to two quite distinct notions. In the first sense, it means the burden of adducing evidence on an issue on pain of having the trial Judge determine the issue in favour of the opponent. The second sense in which the phrase is used refers to the burden resting upon a party who appears to be at risk of losing on a given issue at a particular point in trial. This merely involves a tactical
14 Byrne v Rose [2019] NZHC 273 at [232], citing Symrise AG v Baker & McKenzie [2015] EWHC 912 at [58].
15 Attorney-General v Gilbert [2002] 2 NZLR 342 (CA) at [67].
16 Accident Compensation Corporation v Ambros [2007] NZCA 304, [2008] 1 NZLR 340.
evaluation of who is winning at a particular point which can shift depending upon the trial dynamics. This is often referred to as the tactical burden.
[38] The Court of Appeal noted, with approval, the Supreme Court of Canada’s view in Snell v Farrell.17 That case was in a medical injury context. The Court held that once some evidence of causation had been adduced by the plaintiff, the tactical burden passed to the defendant. Sopinka J’s reasoning relied on the asymmetry between the parties’ abilities to access information:18
Sopinka J, for the Court, pointed out that in many malpractice cases the facts lie particularly within the knowledge of the defendant. In these cases very little affirmative evidence on the part of the plaintiff will justify the drawing of an inference of causation in the absence of evidence to the contrary and even though positive or scientific proof of causation has not been adduced… Even if some evidence to the contrary is adduced by the defendant, the trial judge is entitled to take account of Lord Mansfield’s famous precept in Blatch v Archer (1774) 1 COWP 63 at 65; 98 ER 969 at 970:
It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
…Sopinka J also referred to…Buckley LJ’s affirmation of the principles in Dunlop Holdings Limited’s Application [1979] RPC 523 at 544 (CA), which in turn referred to Stephens A Digest of the Law of Evidence (12ed 1946) art 104…, which states that, in considering the amount of evidence necessary to shift the burden of proof, the court has regard to the opportunities of knowledge with respect to the facts to be proved which may be possessed by the parties respectively. However, the peculiar means of knowledge of one of the parties does not relieve the other of the burden of adducing some evidence with regard to the facts in question, although very slight evidence will often suffice.
[39] Although the context here is very different, I accept there is an asymmetry in the parties’ abilities to access information. By this I mean that the condition of the Watershed and awareness of the steps taken in the preparation of the hull were facts which FNHL could have accessed easily. This is not only because FNHL, rather than Mr Perry, was undertaking the work, but also because it had a contractual obligation to inspect the hull. FNHL had both “opportunities of knowledge with respect to the facts to be proved”19 as well as a contractual duty to obtain that knowledge.
17 Snell v Farrell (1990) 72 DLR (4th) 289 (SCC).
18 Ambros, above n 16, at [59]–[60].
19 Ambros, above n 16, at [60].
[40] This is relevant both to breach and causation. It means that evidence adduced by Mr Perry may properly result in an inference being drawn adverse to the defendant. Without evidence to the contrary from the defendant, an inference of failure to prepare the hull and an inference as to causation may be drawn provided there is material pointing to proof of causation.20
[41] The decision of Fogarty J in Lorjona Pty Ltd v Lyttelton Engineering Ltd is an example of this principle.21 The defendant had reinstalled a pin in the rudder of the plaintiff’s fishing trawler. The rudder jammed while fishing on the high seas. The issue was whether the rudder had jammed because of defective workmanship or because of the trawler’s manoeuvring at sea immediately before the jam. Fogarty J discussed the onus of proof issue in the following terms:
[111] The obligation to prove a failure to undertake works in a proper and workmanlike manner remained at all times on the plaintiff.
[112] However, once I found that the damaged pin had contributed to the seizing… I regard the evidential burden to have shifted. So it became material that the first defendant did not offer a complete description to as to how the pin had been inserted… Given the critical functioning of the pin to the seaworthiness of the vessel, in the circumstances I regard the first defendant as not having discharged the evidential burden and the finding of contribution carrying with it a finding that the defendant had not completed the reinstallation of the rudder in a proper and workmanlike manner.
The expert evidence compared
[42] The appellant’s primary submission is that the expert evidence of Mr Menzies should not have been discounted by the Judge. Mr Mark submits that there is no obligation on an expert to review literature. His evidence was not inconsistent with the 2013 Gulfstream report which depended on a purely visual inspection. In contrast, Mr Menzies’ inspection involved grinding the blisters to determine their depth within the laminate. Mr Mark contends that the evidence as to the depth and size of the blisters meant it was conceivable that they had taken a long time to reach the surface.
[43] To address these contentions, it is necessary to assess all the admissible expert evidence.
20 Ambros, above n 16, at [60]–[63].
21 Lorjana Pty Ltd v Lyttelton Engineering Ltd [2006] BCL 57 (HC).
[44] There is only one report predating any work carried out by FHNL. This is the Gulfstream report prepared by Ian Butchart on 7 September 2011 for insurance purposes. The report writer observed no evidence of osmosis at that time and only a few small patches of paint detachment. But, I agree with Mr Mark that the report has limitations. It was commissioned for the purpose of insurers. Only a visual inspection was carried out.
[45] The limitations were specifically recorded in a note at the beginning of the report in the following terms:
This is a static, visual and aural, non-electronic, non-destructive inspection. Clients particularly concerned with the possibility of osmosis in GRP boats may be advised to engage the services of an independent laboratory for electronic moisture checking in addition to this inspection. Matters of engine condition, boat performance, and equipment function are active issues, and are part of the sea trial.
[46] Under the heading Exclusions from Inspection, the report states “All except hull structural integrity”.
[47]The report concluded:
By sight and sound, no evidence of damage, voids, or delamination was noted at this inspection. There are perhaps half a dozen small patches where layers of paint have detached from the hull surface. No evidence of osmosis was noted at this inspection. The paint detachment appears to be a result of minor lapses in the prep at primer stage.
The vessel presents as well built and well maintained. Nothing was noted at this inspection to suggest any lack of hull structural integrity. There appears to be no threat to its immediate existence, and given proper ongoing maintenance, the vessel should provide many years of service.
[48] Mr Butchart was however called in to inspect the Watershed again in September 2013. This was after Mr Perry learned of the use of garnet grit. This time, the purpose of the report was confirmation of the surface condition of the underwater hull. Two things had changed. First, it is reasonable to assume that Mr Butchart was on notice of issues given Mr Perry’s concerns. Secondly, much more of the hull was exposed at this inspection since the existing anti-fouling had been removed, along with a band of gel coat. Mr Butchart’s report of 17 September 2013 stated:
The underwater hull has been stripped of paint and for perhaps the top 300 mm from the waterline down, the epoxy coating that is normally applied to these hulls has largely been removed. On the skeg and on the port side aft, there are a few small areas of the polyester structure which require grinding out and epoxy filling. The hull otherwise presents as generally fair and sound overall.
…
It is understood that Ashby’s Boatyard are to make good the above minor flaws and restore the epoxy coating near the waterline. They are then to apply epoxy undercoating and a new antifouling system of the owner’s choice.
(emphasis added).
[49] Mr Perry recorded in his own log that Mr Butchart had inspected the hull and all was “ok” but “small blisters to be cut out & filled & light sand”. There was no indication of any deep-seated problem at this stage if such existed and no suggestion of alarm bells on the part of Mr Butchart.
[50] The next investigation was analysis of a sample of the hull coating by SGS Industrial. This report was arranged by Mr Perry and produced by consent to the Court. The report writer concluded that the topcoat – the Coppercoat – was properly bonded with the primer coat and the primer coat was properly bonded with the hull substrate. No blistering was identified on the sample. The report also identified that the required micron thickness for the application of the top coat had not been followed. The parties disagree about the significance of the adherence or bonding of the layers. FNHL suggests this shows adequate preparation of the hull without which the epoxy would not have bonded. Mr Perry argues, based on his expert evidence that this is only due to the tenacity of epoxy and says nothing about, for instance, the moisture content of the hull when the primer was applied.
[51] Each party then engaged an expert for these proceedings. Mr Kerr, on behalf of Mr Perry, and Mr Menzies, on behalf of FNHL, inspected the Watershed together on 23 October 2019.
[52] Mr Kerr is a marine surveyor specialising in pre-purchase, insurance risk surveys and loss adjusting. He has boat builder experience repairing timber, fibre reinforced polymer and alloy boats. He holds a diploma in yacht and small craft
surveying and has been a commercial launch master since 1992. There was no challenge to his expertise.
[53] Mr Kerr prepared two reports for the proceedings.22 The first is dated 28 October 2019 to “try and determine the cause of numerous blisters to the coatings and underwater hull”. In preparing his report Mr Kerr reviewed: the reports of SGS Industrial, Wainui Marine and Gulfstream; the coating application log; invoices rendered by FNHL; and the estimate setting out the terms of the agreement. He therefore had some idea both of FNHL’s contractual obligations and the work undertaken.
[54] Mr Kerr described the survey method adopted by him and Mr Menzies: visual observation of the hull; percussion testing with a light weight steel hammer; invasive testing in two areas by coating and shallow laminate grinding and moisture readings with two moisture meters.
[55]Mr Kerr recorded the following:
(a)Percussion testing showed blisters in the laminate.
(b)On the forward port side of the hull a 40 mm across blister was found and ground into the second or possibly third layer of laminate.
(c)Numerous small blisters on the hull appeared confined to the outer laminate and showed broken fibres of the outer laminate acting as conduits for moisture into the hull laminate.
(d)In general terms the moisture readings on the underwater hull were high to very high. On the ground laminate area on the port side the readings did drop but were still considered high for a laminate.
22 In his evidence in chief, Mr Kerr acknowledged his obligations under the Code of Conduct for Expert Witnesses in sch 4 of the High Court Rules 2016.
(e)The hull blisters were typically types 3C and 4 as described by the British Plastics Federation;
(i)Type 3C blisters are confined to the outer laminate but have the potential to create deeper blisters to the hull if not repaired.
(ii)Type 4 blisters are typically below the first layer of laminate or deeper still. These blisters are indicative of a void within the hull laminate where water can accumulate.
(f)From observation of cut out samples, the gel-coat had been removed exposing the underlying laminate. This had exposed fibres later covered with an epoxy barrier coat to replace the original gel-coat. Epoxy barrier coats are relatively strong water-resistant coatings but must be used on a dry laminate to prevent moisture entrapment in the hull.
(g)No record of blistering presence with the gel-coat removed was available other than by reference to the polyester structure in the Gulfstream report dated 17 September 2013. There is an indication that there may have been blistering on the skeg and an area aft on the port side at this time (a few small areas).
(h)With the gel-coat removed, any blisters to the hull would have been obvious.
(i)Deeper laminate blisters, if present with attendant resin exudate, would have left obvious stain and residue marks on the exposed laminate. None of which has been reported.
[56]His report concluded:
The outer laminate also has loose fibres present indicating lack of resin which is likely to have been caused by heavy grit blasting.
The coatings which are epoxy barrier coat and Coppercoat antifouling, appear to be well bonded. However, where blistering has occurred, the barrier coat
has broken away taking the resin and/or the fibres of the laminate with the bottom layer of coating. This is not a fault in the coatings material as such, but an indication that the coatings may have been applied to a damaged laminate with high moisture content.
…
The absence of any detailed history of extensive repairs to blistering (osmosis), strongly suggests that the blistering that is now present is more of a recent event that occurred since the grit blasting and application of the epoxy barrier coat.
There appears to have been a rapid deterioration of the laminate over a five- year period in the way of hull blistering.
The reasons for this deterioration are that the hull was grit blasted damaging the outer laminate by removing part of the resin bonding the glass fibres.
Coatings were probably applied over a laminate that had high moisture readings with no due attention to the condition of the laminate. Even drying the laminate before coating a damaged surface without properly addressing the state of the laminate, would only slow down the process of blistering.
Application of epoxy coatings on GRP laminates that have not been fully dried essentially traps the moisture within the laminate.
Moisture trapped in the laminate will cause blistering and this can happen relatively quickly and well within the five-year time frame that is present in this case.
[57] Mr Kerr acknowledges the possibility of undetected voids present in the hull from construction but notes there was no history of deep blistering recorded in the 39 years since construction and that it would be expected that moisture readings could have been high in the laminate over that period.
[58] Mr Kerr’s opinion is that the hull had been damaged by excessive grit blasting with a garnet medium and over-coated with epoxy barrier coat before the laminate was sufficiently dry. In short, that there was poor surface preparation. He concluded that all the epoxy coating had done was trap moisture in the laminate causing rapid onset blistering.
[59] Mr Menzies described himself as a marine surveyor specialising in GRP craft, consulting and specialist repairs.23 He set out his 30 years’ experience dealing with
23 In his evidence in chief, Mr Menzies acknowledged his obligations under the Code of Conduct for Expert Witnesses in sch 4 of the High Court Rules 2016.
problems of osmosis in GRP craft and swimming pools. He referred in his evidence to development of a system for analysing osmosis-affected craft.
[60] Mr Menzies described the scope of his brief as identifying: whether Watershed had osmosis; if it did, how long it had likely been affected; whether it was likely to have been present before the work by FNHL; and whether the work undertaken in 2013 led to this existing condition.
[61] Mr Menzie’s report referred to detection of moisture and acidic fluid present in the blisters opened, indicating obvious corrosion of the resin with the blisters. He described the larger blisters as quite deep in the laminate. He described osmosis as invariably slow to develop – the larger and deeper in the laminate they are reflects development over many years. He noted the high moisture readings in the laminate and opined that this moisture will have been there for many years.
[62] He recorded that the two sample grinds revealed moisture bleeding from the laminate and in both cases, despite grinding down approximately 2–2.5 mm, did not reach a sound base. However, the sample grinds revealed that the copper coat and primer coatings were in very good shape in terms of the bonding with no evidence of coatings coming away from the laminate below.
[63] Mr Menzies referred to his understanding that “the majority” of the original gel coat had been removed by sand blasting and replaced by a modern epoxy waterproof barrier. In his opinion, modern epoxy coatings provide a waterproof barrier which is as good if not better than the original gel coat. Further that the use of garnet to sand blast rather than a softer medium would not have caused the blisters in the hull.
[64] In short, Mr Menzies concluded that the depth of the sample grinds without finding a good base meant that the yacht had deep-seated laminate problems for a very long time and the issues developed “way before 2013” when epoxy coatings were applied. But he also acknowledged that Camper Nicholson yachts are well constructed vessels as evidenced by the Lloyd’s certification.
[65] Materially, in his oral evidence, Mr Menzies acknowledged that once the gel coat had been at least partially removed, there was a window of opportunity to inspect the condition of the hull. Further, that a competent boatyard specialist would have identified any issues in the process of inspecting the hull by sight and sound examination or carrying out moisture readings:
Q: -so if you take the gel coat off, wicking should be readily apparent? A: Some people would see it.
Q: Somebody with a trained eye? A: Yes.
Q: And you’d expect a boat yard specialist to see it? A: Most, yeah.
A: A competent boat yard specialist. A: Yes, yes.
[66] He acknowledged that moisture reading is an essential too. He stated that if some blistering had been seen in 2013 before the work was undertaken, then sample grinds ought to have been done to find a good base since replacing the coatings when there is a problem in the laminate is not addressing the issue.
[67] Mr Kerr reviewed the Menzies report in a second report, dated 1 April 2020, to identify areas of disagreement. He identified two such areas:
(a)Whether the size and depth of the osmosis blisters and moisture in them reflect a problem developed over many years before the work carried out in 2013.
(b)Whether the bonding between the Coppercoat and primer coatings applied in 2013 show that the epoxy was not failing in any way.
[68] The Judge below had the significant advantage of seeing and hearing the expert witnesses. He preferred the explanation as to cause put forward by Mr Kerr. Even without that advantage, I too have reached the view that Mr Kerr’s evidence is to be preferred. There are five reasons.
[69] First, by not reviewing the scope of work set out in the contract and not making enquiries about the preparation of the hull, Mr Menzies’ analysis was incomplete. The agreed scope of work and the steps taken by FHNL is key information to understand possible causes of the blistering and to cogently discount alternative hypotheses. Mr Menzies accepted in cross-examination that moisture testing is an essential tool for repair. He also accepted that to apply epoxy to a hull that is not dry is “to ask for a problem”. The following cross-examination exchanges are telling:
Q:Have you seen any records of the process that Far North undertook to dry the hull?
A: Not to, not to dry, no.
Q:So you’ve got no basis of offering any opinion as to whether or not Far North Holdings carried out works with effective preparation of the hull?
A:No, all due respect that was done five, six years before I actually saw the boat.
…
Q: If we were to accept your view of events, that there was osmosis and blistering or problems there at the time, would failing to fix them at that time exacerbate the issues by replace, taking the gel coat off, putting the copper coat and epoxy on top, would that then, knowing that you’re not going to maintain the boat every, as the copper coat is designed to do, would that exacerbate the issues sitting in the water about three or four years?
A: If the problem is within the laminate and you’re just replacing the coatings, you’re not actually addressing the issue.
Q: So if you had seen some blistering in 2013, if you had inspected the boats, what action would you have taken?
A: I wish I had inspected it in 2013. We mightn’t all be here today.
Q: So would you have taken a vastly different course of action than what history has?
A: I would have done sample grinds just like I, I did last year, and I would have tried to find a good base and I would have advised accordingly.
Q: Are you surprised that those actions were not taken?
A:Yes. It would have been, it would have been, that would have solved a lot of issues
[70] Secondly, the appellant’s focus was on the equivalence (if not better performance) of the epoxy primer compared to gel coating. This is a red herring in my assessment. The performance of a modern epoxy primer depended on adequate surface preparation. Here there was no reliable evidence of adequate surface preparation in the absence of work records. There was no effective counter to Mr Kerr’s evidence that it was the lack of attention FNHL paid to the condition of the laminate and poor surface preparation that likely caused the problem.
[71] Thirdly, I reject the submission that the line of questioning by the Judge to Mr Kerr, and the answer, proceeded on a misapprehension of the evidence – namely that the gel coat had been removed and not replaced. This is to take the question and Mr Kerr’s evidence out of context. It is clear both from Mr Kerr’s written reports and answers earlier on during cross examination that Mr Kerr well understood it was contended FHNL had replaced the gel coat with epoxy. One exchange in the oral evidence illustrates the point.
[72] Asked what caused the loose fibres in the laminate, Mr Kerr answered that one cause is osmotic process and the other would be excessive grit blasting. The cross- examination proceeded:
Q: And we don’t have any evidence of that [(excessive grit blasting)]?
A:Well we have because they took the gel coat off and why did they do that?
Q: Well they replaced it, didn’t they? A: No they didn’t.
Q: Yes, they did.
A:They did not replace the gel coat, they have not put sufficient coatings on there to replace the gel coat
[73] Thus, when Mr Kerr agreed that the gel coat had not been replaced, it was not because he was not aware of the application of epoxy. Rather, either because the coatings were not applied thickly enough, applied on an inadequately prepared hull or an inadequately dry hull, the application was inadequate as a substitute for the gel coating. This is consistent with multiple references in his reports to the application of epoxy primer/Interprotect. The SGS Industrial report corroborated the fact that the
coating was not to full specification. This was also conceded by FNHL although it did not concede that this was material.
[74] Mr Kerr referred to the Interprotect guidelines themselves which instructed that where gel coat has been removed the hull should be resined. Mr Kerr’s suggestion is that the aggressive garnet blasting likely damaged the laminate where the gel coating had been removed. I therefore disagree with Mr Mark’s contention that the question and answer showed a misapprehension about the evidence.
[75] Fourthly, Mr Kerr stated that coating with epoxy primer is not an accepted method of repair where there is evidence of blistering, although he accepted that, if applied correctly, a modern epoxy barrier is more effective at waterproofing than a gel coat.
[76] Fifthly, Mr Menzies accepted that sight and sound inspection by a skilled and qualified person would ordinarily expose issues of osmosis. There was no effective challenge to Mr Kerr’s evidence that removal of the anti-fouling and gel coat provided a window for visual inspection. Mr Menzies acknowledged that in those circumstances, any instances of wicking or deep-seated osmosis would have been apparent to him or any appropriately qualified person inspecting the yacht or engaged to carry out repairs. This tends to point away from a deep-seated problem emerging before the 2013 work was carried out.
[77] For the sake of completeness, I also accept Mr Holm-Hansen’s submission that the assertion of a variation to the contract is incorrect but of no moment in any event. There was no derogation from FNHL’s obligation to properly prepare the hull for application, dry the hull or inspect in order to notify an “unknowns”. Mr Mark also made it clear in his oral submissions that he did not contend that Mr Perry is not entitled to pursue an allegation of breach if he can show that the work, the garnet blasting and/or the inadequate preparation alleged, caused the loss.
[78] Finally, Mr Menzies gave evidence that applying epoxy coatings to a wet laminate surface would mean that the coatings would not cure properly. As the SGS Industrial analysis reported no sign of an issue with the coatings, the inference he drew
was that there is nothing to suggest the laminate surface was wet. Mr Kerr challenged this analysis, pointing out that bonding is still possible even with an insufficiently dry hull as epoxy is “quite tenacious and will stick even on an improperly prepared surface”. He specifically referred to Mr Perry’s work log and opined that the recorded drying time once the anti-foul was removed was not enough to dry the hull. He also opined that the SGS Industrial report indicated contaminates of alloy particles present in the Coppercoat and says this too indicates poor surface preparation.
[79] Mr Perry has established on the balance of probabilities that it was FNHL’s performance (or lack of) which caused the extensive blistering discovered in 2018. This in my assessment is not merely due to removal of the gel coat in breach of contract by use of aggressive garnet blasting. It was likely the failure to properly inspect the hull to assess potential problems caused by this blasting combined with inadequate drying of the hull after removal of the anti-fouling which if not the cause, exacerbated or accelerated the blistering. Moreover, if there were any existing issues in 2013 then they ought to have been picked up by FNHL because it had an obligation to inspect the hull for “unknowns” once the existing anti-fouling had been removed. FNHL was not entitled to shift the responsibility for assessing the condition of the hull to Mr Perry. FNHL’s own expert holds the view that any existing osmosis can be picked up by sight and sound inspection by a specialist boatyard once anti-fouling has been removed.
[80]In conclusion:
(a)I grant the appeal in so far as it concerns admissibility of the Wainui Marine report and determine that the Wainui Marine report is not admissible;
(b)I dismiss the substantive appeal.
[81] The respondent is entitled to costs. If costs cannot be agreed, the respondent may file a memorandum within 21 days, with a responsive memorandum to be filed within a further 14 days. Costs memoranda are to be no longer than five pages.
............................................................
Walker J
0
4
1