George Grant Engineering Limited v Fabrication & Pipe Services Limited
[2021] NZHC 1281
•2 June 2021
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2020-419-000123
[2021] NZHC 1281
IN THE MATTER OF An application for summary judgment BETWEEN
GEORGE GRANT ENGINEERING LIMITED
Plaintiff
AND
FABRICATION & PIPE SERVICES LIMITED
Defendant
Hearing: 11 May 2021 Appearances:
T J P Bowler for Plaintiff
V Whitfield and M J Meier for Defendant
Judgment:
2 June 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 2 June 2021 at 3.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date……………………….
GEORGE GRANT ENGINEERING LTD v FABRICATION & PIPE SERVICES LTD [2021] NZHC 1281 [2
June 2021]
Introduction
[1] There are two applications before the Court for summary judgment: one from the plaintiff, George Grant Engineering Ltd (GGE) and the second from the defendant, Fabrication & Pipe Services Limited (FPS).
[2] GGE sues FPS in both contract and tort, alleging that welding works FPS contracted to undertake for it at a new building in Te Rapa, Hamilton, were substandard and in breach of duties to exercise reasonable care and skill. GGE contends FPS is liable for losses GGE incurred remediating the defective welds.
[3] At issue is an exclusion clause that FPS contends was incorporated into a contract the parties entered into and means, so FPS says, that GGE’s claims cannot succeed.
[4] In response, GGE contends that the terms of the exclusion clause were not brought to its attention, not incorporated into the contract and cannot be upheld because the parties could not reasonably have intended such clause to apply to total non-performance of the services at issue.
Factual background
[5] FPS is an engineering company. It generally provides production, fabrication and manufacturing of specialist pipework. GGE is a larger business that specialises in a similar field.
[6] In January 2019, GGE was undertaking the steel supply and erection work for a retirement village under construction for Bupa Health & Care in Te Rapa, Hamilton (Bupa). GGE was a sub-contractor to Livingstone Building NZ Ltd.
[7] On 16 January 2019, Mr Joshua Filmer, who was at the time employed by GGE as a site manager, approached Nicholas Dent at FPS because GGE’s original welding contractor had pulled out of the Bupa project. Mr Filmer knew Mr Dent from his previous employment at FPS, where he had worked as a tradesman fabricator.
[8] Mr Filmer sent a follow-up email later that day, confirming their conversation, noting that ultrasonic (UT)1 testing would be done on all welds and suggesting the start date would be “Monday next week” (i.e. in five days’ time). Mr Dent responded that day, indicating that FPS’ welder could start as soon as possible “but we would prefer that our welder qualifies to the relevant GGE WPS2 for [manual metal arc welding] as he is not currently qualified. If this does not suit, we can qualify him to our WPS”.
[9] On 17 January 2019, Mr Filmer and GGE corresponded again, and, relevantly, agreed GGE would pay a rate of $65 per hour for FPS’ welder.
On 18 January 2019, there was further correspondence:
(a)Mr Filmer emailed Mr Dent and others, stating:
…
Other than that I happy to announce that we will accept this price, on the basis of 2 welds per day, 9 days total for the 18 welds – obviously if prep or other factors become an issue we can talk.
Could you please send us a credit application to get you set up (I have CC’d our financial controller)
…
Are you still able to start Monday?
…
(b)In a further email, Mr Filmer advised he wanted the welds to be completed to the testing standards of 25 per cent UT and 75 per cent MPI.3
(c)Mr Dent responded attaching the “credit application”. Included with it were FPS’ terms of trade, although the email with the attachments did not expressly refer to the terms of trade.
1 Ultrasonic testing uses high frequency ultrasonic energy and can detect any voids in the welds.
2 This is GGE’s welding procedure specification. That is a written document that describes the welding procedures and set out what is required for the weld.
3 MPI means magnetic particle inspection.
[11]Relevantly, cl 12 of FPS’ terms of trade read:
EXCLUSION OF LIABILITY
12.1To the maximum extent permitted by law, FPS will not be liable to the Customer for any proceedings, claims, losses or costs suffered or incurred by the Customer whether arising in contract, tort (including negligence), breach of statutory duty, or otherwise, in respect of any goods sold or services supplied to the Customer.
12.2If, for any reason, FPS is found to be liable to the Customer then that liability will be limited to direct loss or damage suffered or incurred by the Customer to a maximum of the amount actually paid by the Customer to FPS for the goods and/or services, the subject matter of FPS’ liability to the Customer.
[12] The welder FPS provided to GGE was Mr Nildo Siqueira. He has a trade certificate as a mechanical fitter and a trade certificate for welding. They were both completed in Brazil.
[13] Mr Siqueira commenced work on the Bupa site on Monday, 21 January 2019, as agreed.
[14] On 25 January 2019, FPS sent an email to GGE noting that “a few days ago” it had forwarded a credit application for completion by GGE and asking that it complete and return the document.
[15] By email dated 29 January 2019, Mr Dent sent an email to GGE attaching FPS’ terms of trade and credit application form “as requested”.
[16] On 31 January 2019, GGE sent by email to FPS a signed copy of the credit account application form with the terms of trade attached. The terms of trade were not signed, but the credit account application form stated:
I/We have read and agreed to be bound by the terms of trade as printed overleaf. I/We warrant to Fabrication & Pipe Services Ltd (“FPS”) that the above information is true and correct and that I/we are duly authorised to enter this application and future contracts on behalf of the customer.
GGE’s claim
[17] In its statement of claim GGE pleads that FPS, in breach of an implied contractual term and in breach of tortious duty of care (negligence), failed to complete
the welding work on the Bupa site to the requisite standard of care resulting in the welds being defective and requiring remediation. No further particulars as to breach are given.
[18] It is not in dispute that the contract anticipated a full penetration weld. That is said to be usual for heavy construction. A full penetration weld means that the weld material extends for the entire depth of the weld.
[19]It is also not in dispute that full penetration welds were not completed.
[20] In advance of the proceedings being filed, FPS sent an affidavit of Mr Siqueira, sworn 2 September 2019, to GGE (and with a view to persuading GGE not to institute proceedings).4 Mr Siqueira states in his affidavit:5
In summary, I am aware that full penetration welds were not completed. I advised both Josh and Edward [of GGE] about the inability to complete full penetration welds without gouging out the steel and having proper access to both sides of the joint. Josh told me that I should just do what I could and said there was no need for anymore UT so a less than full penetration weld would pass inspection.
Relevant legal principles
[21]Rule 12.2 of the High Court Rules 2016 reads:
Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[22] Under r 12.2 the onus is on the plaintiff to satisfy the Court that the defendant has no defence to the claim.6 Generally, in summary judgment applications the Court
4 Mr Siqueira swore a second affidavit for the purpose of these proceedings, on 19 May 2020, affirming the contents of his 2 September 2019 affidavit.
5 At [35].
6 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 183.
will refrain from attempting to resolve genuine conflicts of evidence or to assess the credibility of the parties’ statements in their affidavits.7
[23] Where a defendant makes an application for summary judgment, it has to show that none of the plaintiff’s causes of action can succeed. Typically, a defendant will meet this threshold where they can offer a complete defence to the plaintiff’s claim.8
GGE’s application for summary judgment
[24] GGE accepts that there is a significant amount of conflicting evidence but says that it is agreed between the parties that all of the welding failed UT testing.
[25] Mr Bowler, on behalf of GGE, submitted that one of the main issues “therefore” is who was responsible to ensure that the welds were carried out to a sufficient standard that they did pass the UT testing.
[26] Mr Bowler further contended that there was an important range of agreed or uncontested facts supporting GGE’s application for summary judgment, including that:
(a)GGE never simply requested a “labour hire”;
(b)The joints were poorly prepared;
(c)There should have been visual inspections carried out and retained;
(d)Mr Siqueira was aware that full penetration weld was required. He was also aware that full penetration welds were not completed; and
(e)There was no record of instruction from GGE to Mr Siqueira to undertake welding out of sequence.
7 Pemberton v Chappell, above n 6.
8 AC Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.07].
[27] GGE contends that the parties are in agreement that the work at issue was defective in that the welds were poorly prepared, full penetration was not achieved, the welds did not pass UT testing and, in some instances, Mr Siqueira undertook the welding out of sequence.
[28] The fundamental problem with those submissions is that despite agreement or a non-contest of the facts relied upon, what is clearly at issue are the terms of the contract, including the particular work that Mr Siqueira was directed to perform and the issue of causation; .i.e. whether there was any failure by him which resulted in damage or loss. On the basis of Mr Siqueira’s affidavit evidence alone, there is a clear issue as to whether or not he was in breach of any duty to provide skill and care and whether any act or omission on his behalf was causative of any loss.
[29] Mr Siqueira alleges, as is apparent from [25] above, that he had a discussion with Mr Filmer about the inability to complete full penetration welds and was instructed to do just what he could do. Mr Siqueira expressly claims that he was told there was no need for further UT testing and that “a less than full penetration weld” would pass inspection.
[30] GGE may dispute these critical factual contentions, but they make it clear that there is no basis for summary judgment. GGE has simply failed to demonstrate that FPS has no defence to the claim.
[31] There are critical trial issues, clearly unsuitable for summary disposition, as follows:
(a)What were the particular terms of the contract and the work that FPS’ welder, Mr Nildo Siqueira, was required to perform?
(b)Did FPS owe any duty to GGE, and breach that duty? And if so, did its breach cause GGE any loss?
(c)Who was responsible for quality control, and was there any failure of quality control that was causative of the loss and/or constituted contributory negligence?
[32] For all these reasons, I find that GGE’s application for summary judgment should be dismissed. The evidence falls well short of the standard of demonstrating that FPS has no defence to GGE’s claims.
[33] I turn now to address the defendant’s summary judgment application and what is the critical issue in these proceedings, namely the application of the exclusion clause.
FPS’ application for summary judgment
[34] To determine whether FPS has established that none of GGE’s causes of action can succeed, I must address the following questions:
(a)Were FPS’s terms and conditions incorporated into the contract entered into with the GGE (the actual signed document only being returned on 31 January 2019)?
(b)Was the exclusion clause brought to GGE’s attention within time?
(c)Is the exclusion clause unenforceable because it excludes liability for total non-performance of the contract (the Clark v Rural Livestock Ltd9 defence)?
Exclusion and limitation of liability clauses
[35] The law recognises the validity of exclusion clauses (and limitation of liability clauses) unless there is some form of statutory limitation or exception;10 for example, consumer protection legislation.11 Here, the parties contracted on a commercial basis
9 Clark v Rural Livestock Ltd [2019] NZHC 671.
10 Stephen Todd and Matthew Barber The Laws of New Zealand: Contract at 132.
11 Such statutory provisions can be found in the Consumer Guarantees Act 1993, the Contract and Commercial Law Act 2017 and the Fair Trading Act 1986.
and no consumer protection legislation applies. Mr Bowler did not contend otherwise. Accordingly, a court will enforce an exclusion clause if it is determined that, on an objective view of the interpretation of the relevant clause, it can be said to reflect the parties’ intentions.
[36] In Dorchester Finance Ltd v Deloitte,12 the Court of Appeal stated the proper approach to interpreting exclusion clauses:
[32] … The approach to interpreting a limitation clause is like any other contractual interpretation exercise. The interpretation of the contract involves an inquiry as to what a reasonable and properly informed third party would consider the parties to mean. The overall commercial context may be relevant.
[33] Given the premise that an exclusion clause would enable a party to escape liability for a breach of a contractual promise, it will be assumed that a party will not have intended to limit liability unless clear and unambiguous language is used. A Court will ordinarily look for clear language or necessary implication before concluding that the right to claim for damages is extinguished. Such an intention will not be lightly attributed. The ultimate objective is to ascertain what the parties intended their words to mean in the particular factual context in which the contract was made.
(citations omitted; emphasis added)
[37] It is clear from a plain reading of FPS’ terms of trade containing the exclusion and limitation of liability clauses that if those clauses are legally effective, none of GGE’s claims can succeed. Clause 12.1 expressly refers to claims arising in contract and tort (negligence).
Issue (a) and (b) – Were FPS’ terms and conditions of trade incorporated into the contract entered into with GGE and were they brought to GGE’s attention within time?
[38] These two issues are closely interrelated, and it is appropriate to address them together.
[39] Mr Bowler contended that for GGE to be bound by the exclusion clause, such clause must have been brought to its notice before or at the time the relevant contract was concluded. A belated notice is of no effect.13
12 Dorchester Finance Ltd v Deloitte [2012] NZCA 226 at [32] and [33]. Leave to appeal to the Supreme Court was declined in Dorchester Finance Ltd v Deloitte [2012] NZSC 78.
13 Mr Bowler relied on the Court of Appeal decision in Steel Co Ltd v Pipes NZ Ltd [2015] NZCA 175 at [13].
[40] Mr Bowler submitted that FPS’ terms and conditions were not expressly referred to in the email sent to GGE on 18 January 2019, and that it was essential for the parties to have agreed to all of the terms of the contract before the work commenced. It is common ground that the work commenced on 21 January 2019, which was some time before the signed credit application was returned to FPS on 31 January 2019. Mr Bowler therefore contended that the terms and conditions containing the exclusion and liability clauses could not have formed part of the contract because the contract works had already commenced.
[41] It is not in dispute that in the course of negotiations between the parties, on 18 January 2019, FPS sent, at the request of Mr Filmer for GGE, a credit application and terms of trade to several personnel of GGE. GGE signed the credit application and returned the signed credit application to FPS. The credit application expressly states that GGE “have read and agreed to be bound by the terms of the trade”.
[42] Interpreted objectively, I find the parties intended that FPS’ terms of trade were to be included in the contract. In the circumstances here, it is not material that the credit application was not signed and returned until after the contract works had commenced. In signing the credit application form, GGE expressly accepted the terms of trade and at no material stage did it object to them or suggest that they should not form part of the contract. It was of course Mr Filmer, a previous employee of FPS, who had expressly asked for the credit application form to be sent to GGE.
[43] As Ms Whitfield submitted, the return of the signed credit application form, with express acceptance and acknowledgement of the terms of trade, can properly be regarded as written confirmation by GGE that those terms formed part of the contract, albeit that the work had already commenced.
[44] The sequence and exchange of emails expressly addressing the credit application form supports my finding that the exclusion clauses were expressly incorporated into the contract. On 25 January 2019, FPS sent GGE an email referring to the credit application it sent to GGE “a few days ago”. FPS asked GGE to complete and forward the form to it. On 29 January 2019, Mr Dent sent Ms Cynthia Popham, of GGE, the “terms of trade and credit application form as requested”. That email was
sent in response to an earlier one from Ms Popham on Friday, 25 January 2019, querying who the credit application form was sent to. Ms Popham asked GGE to send her a copy. The signed credit application form was then sent to FPS on 31 January 2019. The conduct of the parties throughout the entire course of the negotiations is consistent with the fact that there was clear agreement that the terms of trade were to form part of the contract.
[45] This case is quite different from Steel Co Ltd v Pipes NZ Ltd, where there was no record of Steel Co Ltd’s terms and conditions ever being received or sent to Pipes NZ Ltd.14 It is also quite different from the other case relied upon by Mr Bowler, Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd.15 In that case, the Court held the parties’ oral agreement, concluded some 12 months after a tender proposal containing an exclusion clause was tendered (but not accepted), did not incorporate the exclusion clause. It was held that the operative contract did not incorporate the terms of the proposal, including the exclusion clause. Here, the exclusion and limitation of liability clauses were expressly referred to and incorporated into the credit application signed by GGE. In signing, it expressly acknowledged that the terms of trade were accepted and included in the contractual arrangement.
[46] Mr Bowler also contended that none of the emails FPS sent to GGE in January 2019 expressly referred to the terms and conditions of trade, containing the exclusion and limitation clauses. The respective emails simply refer to the “credit application” form, which itself is separate from the terms of trade, albeit attached to the credit application form. Mr Bowler placed particular reliance on the fact that the original email of 18 January 2019 did not refer expressly to the terms and conditions of trade.
[47] I find, however, that there is no merit to these submissions. As I have already noted, crucially, the signed credit application GGE returned expressly stated GGE “have read and agreed to be bound by the terms of trade”. The terms of trade were brought to GGE’s attention on 18 January 2019 in a direct response to a request from Mr Filmer, a previous employee of FPS, that GGE be sent the credit application form
14 Steel Co Ltd v Pipes NZ Ltd, above n 13 at [45].
15 Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd CA146/05, 31 July 2006.
which included those terms. I find that there was adequate notice of the exclusion clause that was given within time.
[48] In my view, the circumstances here are similar to those in Harvey v Ascot Drycleaning Co Ltd,16 a case referred to by Venning J in the later decision of Nightingale v Barfoot & Thompson:17
In Harvey v Ascot Drycleaning Co Ltd [1953] NZLR 549 for example the plaintiff left a suit with the defendant for cleaning. He was handed a printed document folded in two which he placed in his pocket unread. The docket had printed on it “Conditions of contract, please read carefully”. It was held that the plaintiff was bound by the clause. The contract was not concluded before it was handed to him. Whether he read it or not was immaterial. The defendants had done what was reasonably sufficient to give notice of that condition.
[49] Venning J held that in the absence of fraud or misrepresentation, people are bound by writing to which they have put their signature whether they have read its contents or have chosen to leave them unread. Here, there is no suggestion of fraud or misrepresentation and I find that GGE is bound by the exclusion clause. It is not necessary for me to make a finding, but I doubt that GGE was unaware of what it expressly agreed to.
Issue (c) – Is the exclusion clause nevertheless unenforceable because it excludes liability for total non-performance of the contract?
[50] Mr Bowler contended that the exclusion clause is inconsistent with the object and intent of the parties’ contract and does not extend to exclude FPS from any liability for non-performance.
[51] Mr Bowler relied upon the Privy Council decision in Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd,18 where it was held that a shipowner who delivers goods without production of the bill of lading to a person who, to its knowledge, was other than the one entitled under the bill of lading to receive them, the carrier was liable for breach of contract for conversion and was not protected by an exemption clause. It was further held that the extreme width of such a clause must be cut down by an
16 Harvey v Ascot Drycleaning Co Ltd [1953] NZLR 549.
17 Nightingale v Barfoot & Thompson HC Auckland CIV-2009-404-4073, 22 October 2009 at [29].
18 Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576, [1959] 3 WLR 214 (PC).
implied limitation; it must be limited and modified to the extent necessary to enable effect to be given to the main object and intent of the contract, and at least so as to not permit the carrier deliberately to disregard its obligation as to delivery – to deliver against the production of the bill of lading.
[52] Mr Bowler also relies upon the High Court decision in Clark v Rural Livestock Ltd.19 In that case the plaintiff purchased 176 heifers from the defendant. However, the heifers were never delivered and the plaintiffs were never able to locate them (they had been grazed on other properties on free leases). Nation J referred to The Laws of New Zealand for the proposition that “the more serious the breach of contract, or the more important the term, the less likely it is for the parties to the contract to have intended an exclusion clause to apply.”20 He held that the defendant could not rely on the exclusion clause to avoid its liability to the plaintiffs arising out of their purchase of the 176 heifers which they never received. The parties could not reasonably have intended the exclusion clause to apply to total non-performance.21
[53] I find, however, that these cases are to be distinguished. This is not a case of total non-performance but, rather, one which on an objective interpretation, the exclusion and limitation clauses were directly intended to cover.
[54] What is at issue here is an alleged breach of contract and negligent breach of duty of care. The services were performed by FPS, but the issue is whether the requisite standard of care was met. Even if the alleged breach (and I assume that such is arguable) could properly be construed as a fundamental breach of the contract, that does not preclude the application of the exclusion and limitation clauses.
[55]As the Court of Appeal made clear in Dorchester Finance Ltd v Deloitte:22
The House of Lords decision in Photo Production Ltd, brought to an end the doctrine of fundamental breach. Lord Wilberforce, who delivered the leading judgment, made it clear that the application of any exclusion clause was in the
19 Clark v Rural Livestock Ltd, above n 9.
20 Citing, as the text was then, Rodney Gallen, Jeremy Finn and Christine French The Laws of New Zealand: Contract (online ed, LexisNexis) at 140, citing Wallis Son & Wells v Pratt & Haynes [1911] AC 394.
21 Citing Suisse Atalint QE Société d’ Armement Maritime SA v NV Rotterdamsche Kolen Centrale
[1967] 1 AC 361 at 433.
22 Dorchester Finance Ltd v Deloitte, above n 12 at [27].
end a matter of construction of the contract.23 That proposition is today uncontroversial. …
[56] In my view, there is no basis for limiting the application of the exclusion clause in this case so as to prevent FPS from relying upon it as a complete answer to GGE’s claims. As Lord Wilberforce noted in Photo Production Ltd v Securicor Transport Ltd:24 “in commercial matters generally, when the parties are not of an unequal bargaining power and when risks are normally borne by insurance, the parties should be left free to apportion the risks as they think fit …”. In my view, that is exactly what happened here; GGE expressly agreed that it would carry the risk. That it did so makes particular sense in the context here where, as Ms Whitfield submitted, FPS agreed to provide a single welder at $65 per hour and most unlikely contemplated that a modest contract of that kind, of limited duration and essentially a last-minute replacement welder, would expose FPS to a substantial liability of approximately $320,000, as now claimed by GGE.
[57] I acknowledge that the exclusion clause at issue is expressed in very wide terms (“to the maximum extent permitted by law”). It is not necessary for me to determine whether it excludes liability for all and every type of claim. What is clear is that in this case, and as a matter of objective interpretation, it was intended to apply to the very matter at issue and there is no basis for limiting the application of the exclusion clause in the manner contended for by GGE.
[58] For all these reasons, I reject GGE’s contentions that the exclusion limitation clauses have no effect. I find they have clear application and exclude FPS’ liability for all of the claims GGE brings against it.
[59] It thus follows FPS has established none of the causes of action in the statement of claim can succeed. The exclusion clauses apply. FPS is therefore entitled to summary judgment.
23 Photo Production Ltd v Securicor Transport Ltd, [1980] AC 827 (HL) at 846.
24 Photo Production Ltd v Securicor Transport Ltd, above n 23.
Result
[60] I grant FPS’, application for summary judgment. GGE cannot succeed in any of the causes of action pleaded in its statement of claim. I enter judgment for the defendant.
[61] I dismiss the GGE’s application for summary judgment. It has not established that the defendant has no defence to the claims. On the contrary, the plaintiff’s claims cannot succeed.
[62] Costs are reserved. FPS is to file and serve written submissions on costs within 14 days. GGE is to respond within 10 working days. The Court will then make a decision on the papers.
Associate Judge P J Andrew
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