Kaori Ltd v Shrinkforce Shrink Wrap Services Ltd (in Receivership)
[2012] NZHC 3204
•30 November 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-004603 [2012] NZHC 3204
UNDER the Consumer Guarantees Act 1993
BETWEEN KAORI LIMITED Plaintiff
ANDSHRINKFORCE SHRINK WRAP SERVICES LIMITED (IN RECEIVERSHIP)
Defendant
Hearing: 23-25 October 2012
Counsel: N F Flanagan for the Plaintiff
C T Walker and A T B Joseph for the Defendant
Judgment: 30 November 2012
JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 30 November 2012 at 3.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Meredith Connell P O Box 2213 Shortland Street Auckland 1140 (DX CP24063) for the Plaintiff
Gilbert Walker P O Box 1595 Shortland Street Auckland 1140 (DX CP20524)
for the Defendant
KAORI LTD v SHRINKFORCE SHRINK WRAP SERVICES LTD (IN RECEIVERSHIP) HC AK CIV-2011-
404-004603 [30 November 2012]
[1] The S/Y Kaori (Kaori) is a 38 metre sailing yacht. She is what is commonly known as a super yacht. In June 2010, she was found to have cosmetic damage to her topsides (the hull structure above the waterline). The plaintiff contends that the defendant, with whom it contracted for goods and services, is responsible for this damage. The plaintiff brings claims against the defendant for breach of the guarantees provided in ss 28 and 29 of the Consumer Guarantees Act 1993 (the Act) and for contractual negligence. The defendant has responded by denying all aspects of the plaintiff’s claim.
[2] The proceeding raises a number of issues:
(a) Whether the plaintiff is Kaori’s owner;
(b)Whether the plaintiff has authorised the commencement of the proceeding;
(c) Whether the plaintiff, as a registered limited liability company, can establish that it is not a business in terms of the Act, which, in turn, will determine whether or not the Act’s protection can be contractually avoided;
(d) Whether the defendant was negligent in performing the contract; (e) The nature and extent of the plaintiff’s loss; and
(f) If the plaintiff has suffered loss, whether it is entitled to damages based on cost of repair, and, if so, how this should be assessed, given that no repairs have been carried out to date and, in the meantime, the general condition of the hull paintwork will have deteriorated over the time since the alleged damage, through general use and exposure to ultra violet light.
Background
[3] In late 2009, Kaori was in Auckland for work to be done on her. Part of the work involved extending and repainting her super structure (the structure above the deck). In order to protect her hull while this work was carried out, Michael Napoli, who manages the maintenance of Kaori, directly contracted with the defendant to apply shrink wrap to the hull to protect the hull from any adverse consequences from this work.
[4] The shrink wrap was applied in December 2009 while Kaori was in the water. Only part of the hull was covered; this area extended from her cap rail to her rubbing strake (being a strip approximately one metre wide along the length of the vessel from her top rail downwards). It is worth noting that some of the witnesses referred to the rubbing strake as “belting”. Later in 2010, when repairs under the waterline had to be undertaken, Kaori was taken out of the water and placed on the hard at Titan Marine. At this time, the shrink wrap covering was extended in order to form a tent around her hull to enable repair work to below her waterline to be carried out in a protected environment.
[5] In June 2010, the shrink wrap attached to Kaori’s hull was removed. Marks were found on her hull, which coincided with where the tape used to fix the shrink wrapping to her hull had been applied. In addition, there were streak marks, which were consistent with water having penetrated the shrink wrapping.
[6] The contract between the plaintiff and the defendant stipulates that New Zealand law applies. Further, the work was carried out in New Zealand and so it falls within the jurisdiction of the Act.
[7] The day to day management of Kaori is carried out by Captain Napoli. He was a yacht captain for 32 years and he is now an employee of International Yacht Collection (IYC), which is a company based in Fort Lauderdale, Florida, that specialises in yacht sales, charters, management and construction. In the role of a manager of a yacht, Captain Napoli does all the things that the owner of a yacht might do, such as approving and paying invoices on the owner’s behalf, hiring and
paying the salaries of crew, and supervising repairs. He says that he has power of attorney to deal with the yachts he manages, as is necessary, and the discretion to act as the owner would. He became the manager of Kaori in 2005. His duties involve the day to day management of Kaori, including approving invoices for her maintenance.
Technical defences
[8] Before dealing with the questions of liability and measure of damages, it is necessary to resolve the technical defences regarding proof of Kaori’s ownership and authority to bring the proceeding.
[9] Kaori is used as an ocean-going pleasure craft. Vessels like Kaori that sail on the high seas must be flagged, which means that they are registered with a sovereign state, and this registration permits them to “fly” the flag of that state: see Aleka Mandaraka-Sheppard Modern Maritime Law (2nd ed, Routledge, Oxford,
2007) at 277 and see the United Nations Law of the Sea Convention. Captain Napoli
also says that she is registered in the Cayman Islands. Captain Napoli says that the plaintiff is a company registered in the Cayman Islands, and that it is the registered owner of Kaori. The defendant has challenged this evidence. It contends that there is insufficient evidence to prove these facts.
[10] I accept that the evidence that Captain Napoli has given is second-hand. There was a time when such evidence may have been rejected on the ground it was hearsay and that it offended the best evidence rule. However, since the Evidence Act
2006, a more light-handed approach is taken towards evidence such as this. The best evidence rule no longer applies. I can take note of hearsay evidence in a civil proceeding where certain conditions are met.
[11] The certificate of Kaori’s registration, which could be expected to show proof of her owner and the owner’s connection to the Cayman Islands, would qualify as a business record for the purposes of s 19 of the Evidence Act. The same would apply to the certificate or proof of the plaintiff’s incorporation as a limited liability company. Captain Napoli’s evidence informs me that any first-hand evidence of
Kaori’s registration and ownership is in the Cayman Islands and, therefore, is unavailable for proof in New Zealand. Thus, in terms of s 19 of the Evidence Act, the first-hand evidence of these records is unavailable, and cannot be obtained by compulsion. The plaintiff could have obtained copies of the relevant certificates from the Cayman Islands registries and those could have been admitted under s 19. This would be the best form of hearsay evidence of Kaori’s registration, and ownership, as well as the incorporation of the plaintiff. But the plaintiff has not done this and has instead simply relied on Captain Napoli’s oral evidence.
[12] Captain Napoli’s account of Kaori’s registration and ownership can be admitted under s 18 of the Evidence Act, if I am reasonably assured in the circumstances that the statements are reliable and the maker of the statement (here the official in the Cayman Islands registries who prepared the certificates) would be unavailable as a witness. Clearly, the plaintiff cannot compel anyone from the Cayman Islands to provide the evidence that Captain Napoli has given, and it would cause undue expense or delay if the witness were to come to New Zealand voluntarily, even if that were achievable. The situation is less satisfactory than if the best hearsay evidence had been adduced through providing the Court with copies of the relevant certificates. However, the general impression I gained of Captain Napoli was that he was a reliable witness in this regard. As Kaori’s manager, he is someone who would know where she was registered, who her owner is and the legal residence of her owner. Given the more flexible approach the Evidence Act allows to the admission of hearsay evidence in civil proceedings, and especially given Parliament’s decision not to include the best evidence rule in the Evidence Act, I can see no reasonable ground for not admitting the evidence under s 18. Accordingly, I do so.
Damage to Kaori
[13] I now turn to deal with the issue of the damage Kaori is alleged to have sustained and its cause.
[14] Shrink wrapping is a process that is carried out to protect structures from the weather without the need for them to be housed in a building or tent-like structure
while repair, maintenance or other work is undertaken. It is used to encase vessels and what have come to be known in this country as leaky buildings. In this case, the shrink wrap was applied directly to Kaori’s hull. Adhesive tape was required to keep the shrink wrapping in place. Heat was applied to shrink the wrapping material so that it formed a tight surface over the area to be protected.
[15] There are three types of adhesive tape, each of which comes in three colours. There is a dispute between the parties regarding which type of tape was used. Captain Napoli contends that he was told by the operator who applied the shrink wrap for the defendant (Gary Whaley) that VIP Heat Shrink Tape was used. It is common ground that the adhesives used on heat shrink tape are much the same, irrespective of the brand of tape. The evidence from the written instructions of Dr Shrink, a shrink wrap distributor, is that heat shrink tape will leave an adhesive residue on the substance to which it was attached. No one disputed that this type of tape would have this effect.
[16] The plaintiff’s expert witness, Kerry Dalzell, says that the scientific tests that he had carried out reveal evidence of adhesive having migrated into the paintwork on Kaori’s topsides. Whilst Mr Dalzell worked on the assumption that VIP Heat Shrink Tape was used, the tests that he did establish that, whatever tape might have been used, it has had this effect.
[17] The defendant’s witnesses contend that heat shrink tape was not used and that, instead, Mr Whaley used a tape called Dr Shrink Preservation Tape, which is not known to leave an adhesive residue on the surface to which it has been affixed. However, the defendant has no expert evidence to contradict the findings of Mr Dalzell’s tests.
[18] The question of which tape was used is not relevant to the claim under s 29 of the Act, which requires the services supplied and any product resulting from those services to be reasonably fit for any particular purpose. So for the purpose of establishing liability under s 29, it would be enough if it could be shown that the marks on the hull were caused by whatever tape was used in the shrink wrap process. However, identification of the tape that was used may be relevant to proof of the
claims under s 28 and contractual negligence claim. So I will return to the question of which tape was used when I come to deal with those claims.
[19] I am satisfied that the evidence shows that whatever tape was used, it has left marks on Kaori’s hull. Mr Dalzell is a well-qualified and competent expert witness. He has worked as an expert in the field of corrosion control through selecting, inspecting and specifying coating systems for approximately 40 years. He has academic qualifications and practical experience which leaves him well placed to offer expert opinion on the appearance and character of the paintwork on Kaori’s topsides.
[20] Mr Dalzell inspected Kaori on 29 June 2010. By then, there had been unsuccessful attempts to rectify the damage to Kaori’s paintwork. No one has suggested that those attempts have exacerbated the damage to her paintwork. When Mr Dalzell viewed the port side of Kaori’s topsides, he saw vertical lines disrupting the reflected image clarity of the paintwork where the tape had been applied. He described the damage as visually noticeable and said that it detracted from the overall appearance of the hull finish. He also found the same discolouration to be clearly visible along the starboard side of her hull as well.
[21] Mr Dalzell concluded that the paintwork of Kaori’s topsides was extensively affected by the discolouration. His view was that plasticiser migration was the most likely cause of the discolouration and that regardless of what tape was used, it had caused this damage. He referred to a previous occasion that he knew of where a vessel had been shrink wrapped for transport purposes and damage was caused where the tape came into contact with the hull paintwork.
[22] Mr Dalzell also described another area of damage being a “water drip line from the tape”. He said that he saw these marks above and below the rubbing strake. However, he said nothing about how many such marks were visible or whether they were permanent, or likely to improve over time, particularly if the hull was polished. Other witnesses for the plaintiff did not refer to this damage. The impression I gained from the plaintiff’s evidence was that for the most part the damage to the paintwork came from the adhesive discolouration.
[23] Mr Dalzell’s opinion was that the damage from the shrink wrap process was such that it meant the finish of the paintwork was no longer of an acceptable quality for an ordinary pleasure craft, let alone a super yacht. His view was that the only way to rectify the effect of the damage was to repaint the hull topsides. He acknowledged that there were some superficial signs of weathering with a slight uniform loss of gloss and that there were some visual defects in the paintwork that could not be attributed to the effects of the discolouration. Nonetheless, he considered that these did not detract from the overall finish of the paintwork and that but for the damage caused by the shrink wrap process, the paintwork would have been in an acceptable condition for a super yacht.
[24] The defendant did not call an expert in the same field as Mr Dalzell. Instead, the defendant called evidence from an insurance loss adjuster, Jeffrey Stagg, who saw Kaori on 3 June 2010. Mr Stagg saw evidence of the discolouration that Mr Dalzell described. However, Mr Stagg’s opinion was that there were other reasons for repainting Kaori’s hull. The discolouration was more apparent in the area between Kaori’s cap rail and rubbing strake. This was confirmed by Phillip Tomlinson, whose company, 37South, was engaged to provide project management for maintenance work on Kaori. Mr Tomlinson gave evidence for the plaintiff and his evidence was that the area of Kaori’s hull that was damaged by the adhesive discolouration was “above the rub strake in the top metre of the topsides”. This is consistent with the fact that the shrink wrap was directly applied to an area of the hull of approximately one metre in depth from the cap rail downwards. However, Mr Stagg saw evidence of other repair work being done to the area between the cap rail and rubbing strake, which he considered would lead to this area at least needing to be repainted, aside from any damage caused by adhesive discolouration. The other repair work included the removal of corrosion on the hull where stainless steel fittings such as scuppers and port-hole surrounds had come into contact with the aluminium hull. Much the same had occurred around the bow plate area. Mr Stagg concluded that the current paintwork of Kaori was halfway through its life expectancy and that the hull would have required a repaint within the next two or three years in any event. Thus, his view was that the damage caused by the adhesive discolouration did not of itself warrant the repainting of Kaori’s hull.
[25] Under cross-examination, Mr Stagg accepted that he did not have the professional expertise of Mr Dalzell. The extent to which he can contradict Mr Dalzell’s opinion that a full repaint was necessary is, therefore, debatable. However, following the damage done by the adhesive discolouration, there were further events which influence the question of whether a full repaint is required.
Subsequent events
[26] The plaintiff had engaged Global Yacht Painters to repaint certain parts of Kaori’s hull, including the area between the cap rail and rubbing strake and the transom. This repainting was inadequately done. The problems with the repainting were said to arise from dust contamination, leading to an “orange peel” effect where paintwork that should have had a glassy finish had a dimpled texture. Dale Pennington, who is a director of another boat painting company, Touch of Gloss Ltd, gave evidence for the defendant. Mr Pennington said that he was approached by the plaintiff in October 2010 and asked to inspect the quality of the painting of the transom and the topsides above the rubbing strake and, if necessary, to repair any defects. Mr Pennington could see nothing that resembled adhesive discolouration in these areas, which he accounted for by the fact that any such damage would have been covered by the repainting done by Global Yacht Painters Ltd. The area of the topsides below the rubbing strake was masked and protected, presumably for the purpose of protecting this area while the area above the rubbing strake was repainted by Global Yacht Painters Ltd. Thus, Mr Pennington never sighted the area below the rubbing strake. He said that he understood that in one area in the aft section of the hull, there was a vertical mark that extended below the rubbing strake down the hull topside but, because of the masking protection, he never saw this mark. The plaintiff wanted Touch of Gloss Ltd to rectify the defective paintwork done by Global Yacht Painters Ltd but given an existing heavy workload and the tight timeframe in which the plaintiff required the work to be done, Touch Of Gloss Ltd declined to do this work.
[27] Mr Pennington also outlined how the plaintiff had approached Touch of Gloss Ltd in December 2009 and asked for a price for painting Kaori’s transom and superstructure. The company’s tender was not accepted. However, in the course of
preparing a price, Mr Pennington had inspected Kaori’s hull. His evidence was that as at December 2009, the paintwork on the hull appeared to be in good condition with an expected further life-span of three to four years. He also said that in his experience, “a normal super yacht” would require repainting every five to six years and that some less prestigious super yachts would be repainted less frequently but no less than every 10 years.
[28] Mr Pennington has had 29 years in the marine repainting, refitting and repair industry. His company, Touch of Gloss Ltd, has operated in Auckland for 25 years. It has repainted hundreds of vessels, including numerous super yachts. Mr Pennington has given expert evidence in court in relation to paint damage to super yachts and estimated costs of repair. The evidence he gave regarding Kaori was both of fact and expert opinion.
[29] The plaintiff called no evidence to contradict Mr Pennington’s evidence regarding the appearance of the transom and areas between the cap rail and rubbing strake as at October 2010. Captain Napoli gave some evidence that touched on this topic. He acknowledged that by then, the entire transom had been repainted by Global Yacht Painters Ltd. In answer to a question from me about how much of the area between the cap rail and rubbing strake was repainted, Captain Napoli said that his belief was that only parts were, but he qualified that by saying, “I am not sure but I have no reason to believe more than a small area was done”. Thus, his evidence was based on no more than belief, plus an inference based on his knowledge of no contrary indication. On the other hand, under cross-examination, Mr Dalzell acknowledged that by October 2010, you could no longer see the condition on the “tape markings” on the repainted areas because “they were completely obliterated”.
[30] Mr Pennington gave expert evidence in accordance with the code of conduct for expert witnesses. He was someone from whom the plaintiff sought assistance in October 2010 to repair defective paintwork that was done by Global Yacht Painters Ltd. There is nothing to suggest that Mr Pennington is anything other than a credible and reliable witness. He has described what he saw. I find his direct evidence to be more helpful and reliable than Captain Napoli’s evidence. I accept Mr Pennington’s description of Kaori’s hull. I am satisfied that as at October 2010, the transom and
the hull topsides from the cap rail to the rubbing strake had been repainted and so any adhesive discolouration in those areas was then covered by this new paintwork.
[31] It follows that by October 2010, the areas of visible adhesive discolouration damage on Kaori’s topsides would have been limited to the port and starboard sides below the rubbing strake. Insofar as there was also damage of this kind to her transom and topsides above the rubbing strake, this damage would have been painted over by the work done by Global Yacht Painters Ltd. Any damage that these areas would then have shown would have been of a different kind; namely, defective paintwork as described by Mr Pennington, which was not attributable to the actions of the defendant.
[32] No one has given a clear description of the extent of the remaining adhesive discolouration. Furthermore, Mr Dalzell accepted that over time, the adhesive that had migrated into the paintwork could later “depart from the paint”. Mr Dalzell could not say if the paintwork would then return to its original appearance or be visually modified by this migratory process. He said he suspected there could be “residual effects” on the paint film. This was as far as Mr Dalzell could go in offering an opinion.
Date for assessing damage
[33] The plaintiff takes the view that the assessment of any damage by the defendant should be ascertained as at the date of trial, rather than the time when the adhesive discolouration occurred. The defendant does not dispute this. But the plaintiff’s evidence of damage was almost entirely focused on how it appeared when it first occurred.
[34] Captain Napoli gave evidence that the present captain of Kaori has looked at the hull recently and advised that the adhesive discolouration was still visible. This is the only evidence that the plaintiff has offered on the present condition of the vessel’s paintwork. The defendant objected to the admission of this evidence on the ground that it was hearsay evidence that was unreliable. I uphold this objection. The evidence is too unreliable to satisfy the requirements of the Evidence Act for
admission of hearsay evidence in civil proceedings. First, the evidence is too general. Nothing is said of the extent, significance or whereabouts of the discolouration. Thus, I do not find the evidence to be helpful for reaching a conclusion on the present state of Kaori’s hull. Secondly, the second-hand nature of the evidence means that the defendant has had no opportunity to cross-examine the primary source of the evidence. In view of the first-hand evidence of other witnesses whose evidence points to subsequent events in 2010 having reduced the scope of the adhesive discolouration and the estimated life-span of the paintwork, there was plenty of scope for the defendant to challenge the source of the account given by Captain Napoli. Finally, the present impact, if any, of visible adhesive discolouration is a critical issue in this trial. Given the availability of alternative modes of giving evidence on this topic, it would have been possible for the plaintiff to provide first- hand evidence. And, since any description of the present condition of the hull topsides involves elements of subjective opinion, this evidence is better coming from an independent expert. As someone who is employed by a company servicing Kaori, Captain Napoli lacks the necessary appearance of independence. It follows that I am not prepared to accept his evidence on the present condition of the vessel’s paintwork.
[35] Thus, I am left in the position where I have no evidence to inform me of the extent of the remaining visible adhesive discolouration, or how any discolouration that might remain relates to the general appearance of the paintwork of the hull topsides, let alone what might be the impact of the adhesive discolouration when viewed against the subsequent damage caused by the defective repainting that was done by Global Yacht Painters Ltd. Another unknown is whether by now, the paintwork of her topsides has reached, or is near to the end of its life expectancy. According to Mr Pennington, super yachts are usually repainted every six years, and Kaori was last repainted in 2006. So by now, the paintwork would be at, or close to the stage where “normal super yachts” would be having a repaint done. Moreover, Mr Pennington’s evidence was that when he first saw Kaori in December 2009, he considered that her topsides had an expected further life-span of three to four years; so again, by October 2012, she would be getting close to the time when Mr Pennington considered her topsides might need a repaint.
[36] Mr Dalzell’s evidence satisfies me that Kaori sustained some damage to her topsides as a result of the tape adhesive used in the shrink wrapping process migrating into the paintwork. But I am not satisfied as to the present significance of this damage, given the repainting of the worst damaged areas of Kaori’s topsides (between cap rail and rubbing strake) by Global Yacht Painters Ltd and also given the natural weathering that would have occurred to the paintwork since the original damage was sustained. Whilst as at June 2010 when the damage was first discovered there may have been room for arguing that the original adhesive discolouration was so extensive, and the general state of Kaori’s paintwork was otherwise so good that a full repaint was the appropriate measure of damage, I consider that as matters stand now, there is no evidence to satisfy me that this would still be the case. But since the plaintiff has based its case on the assessment of damage being at the time of trial, evidence of the topsides’ present condition and the extent to which it is still affected by adhesive discolouration is what is required.
Basis for assessing damages
[37] The plaintiff contends that it is entitled to a measure of damage based on cost of repair and has provided estimates of the cost of repainting Kaori’s topsides. In addition to disputing liability, the defendant contends that too little is known about the present extent of the adhesive discolouration and so argues that this is not an appropriate case for damages to be assessed according to the cost of entirely repainting the topsides.
[38] The plaintiff has provided estimates of the cost of fully repainting Kaori’s topsides. One is based on the work being done in New Zealand at a cost of NZD466,920, and the other is based on the work being done in Australia at a cost of NZD440,935. These estimates are in line with the 2006 cost of repainting the hull, which came to NZD471,193. I was also referred to quotes for repainting the hull that were given in 2010. One was for the work to be done in New Zealand, the other in Australia. In both cases, the quotes were in the vicinity of NZD200,000. A reason I was given for this was because at the time the quotes were given, the vessel would already have been in dry dock with her mast and other parts removed. The estimates, on the other hand, include the cost of lifting the vessel from the water and
preparing her for painting, including dismasting her, and then once the work is completed, readying her for her return to the water.
[39] Further, since Kaori is presently in the Far East and travels around the world, there is no certainty that the work would be carried out in either of those places, or that the cost of having the work done elsewhere would be comparable to either of the two estimates.
[40] The plaintiff has acknowledged that when it comes to quantifying its alleged damage, the position is far from satisfactory. Shortly before the trial, on 10 October
2012, the plaintiff applied unsuccessfully to have separate hearings for quantum and liability. At the trial, it argued that, given the time available, it had provided the Court with the best evidence available on quantifying its loss, but that the better approach would be for the Court to deliver an interim judgment on liability, which, if it was in the plaintiff ’s favour, could be followed by giving the plaintiff further opportunity to prove the quantification of its loss.
[41] The defendant opposes this approach and essentially argues that the plaintiff has not properly proved any loss it might have suffered. Here, the defendant argues that with all that has occurred, and given that the date of assessing the quantum of loss is the trial date, the appropriate approach would be to take the difference in value between Kaori as she presently is and how she would have been if the adhesive discolouration had not occurred. However, as the plaintiff has not produced any evidence to this effect, the defendant argues that the plaintiff’s claim should fail.
[42] Both parties agree that as matters stand, given that Kaori’s topsides will ultimately require repainting in any event, this is a case where the impact of any damage that she might have sustained from the adhesive discolouration will naturally diminish over time.
[43] Before dealing any further with the question of how to approach proof of loss, including the possibility of splitting the trial, I propose to consider the question of liability: first, in terms of the Act, and then in contractual negligence.
Liability under the Act
[44] Section 29 guarantees that where services are supplied to a consumer, the services and any product resulting therefrom will be reasonably fit for any particular purpose and of such nature and quality that it can reasonably be expected. Save for business transactions, this protection cannot be avoided by contract (see s 43). In this case, the contract between the plaintiff and the defendant did contain a provision excluding the Act for business transactions. The plaintiff contends that the engagement of the defendant to perform work on Kaori was not a business transaction. The defendant argues to the contrary.
[45] Section 2 of the Act defines “business” to mean:
Business means—
(a) Any undertaking whether carried on for gain or reward or not; or
(b) Any undertaking in the course of which—
(i) Goods or services are acquired or supplied; or (ii) Any interest in land is acquired or disposed of— whether free of charge or not:
[46] “Consumer” is defined to mean:
Consumer means a person who—
(a) Acquires from a supplier goods or services of a kind ordinarily acquired for personal, domestic, or household use or consumption; and
(b) Does not acquire the goods or services, or hold himself or herself out as acquiring the goods or services, for the purpose of—
(i) Resupplying them in trade; or
(ii) Consuming them in the course of a process of production or manufacture; or
(iii) In the case of goods, repairing or treating in trade other goods or fixtures on land:
[47] And “supplier” is defined to mean:
Supplier—
(a) means a person who, in trade,—
(i) supplies goods to a consumer by—
(A) transferring the ownership or the possession of the goods under a contract of sale, exchange, lease, hire, or hire purchase to which that person is a party; or
(B) transferring the ownership of the goods as the result of a gift from that person; or
(C) transferring the ownership or possession of the goods as directed by an insurer; or
(ii) supplies services to an individual consumer or a group of consumers (whether or not the consumer is a party, or the consumers are parties, to a contract with the person); and
(b) includes,—
(i) where the rights of the supplier have been transferred by assignment or by operation of law, the person for the time being entitled to those rights:
(ii) a creditor within the meaning of the Credit Contracts and Consumer Finance Act 2003 who has lent money on the security of goods supplied to a consumer, if the whole or part of the price of the goods is to be paid out of the proceeds of the loan and if the loan was arranged by a person who, in trade, supplied the goods:
(iii) a person who, in trade, assigns or procures the assignment of goods to a creditor within the meaning of the Credit Contracts and Consumer Finance Act 2003 to enable the creditor to supply those goods, or goods of that kind, to the consumer:
(iv) a person who, in trade, is acting as an agent for another, whether or not that other is supplying in trade; and
[48] For the plaintiff to be a “consumer” under the Act, the goods or services must have been ordinarily acquired for personal, domestic or household use or consumption. Nesbit v Porter [2000] 2 NZLR 465 (CA) at [29] makes it clear that “ordinarily” is used in the Act in the sense of “as a matter of regular practice or occurrence” or in the “ordinary or usual course of events or state of things”. The defendant’s evidence is that for the most part, it supplies its shrink wrapping services to construction or renovation professionals. I accept the defendant’s evidence. I am satisfied that the shrink wrapping service that it provides is not something that is ordinarily acquired for personal, domestic or household use. It follows that I find the Act does not apply. But in case I am wrong on this issue, I turn next to consider whether, if the Act does apply, it has been excluded by the contract between the parties.
[49] The plaintiff relies on the evidence of Captain Napoli to establish that the transaction between it and the defendant was not a business transaction. Captain Napoli’s evidence was that the plaintiff is an entity that has “no operations or activities of any kind”. He said the plaintiff employed no staff and that all expenses relating to Kaori were paid by Captain Napoli from an account that the “owner” provides for this purpose. The reference here to “owner” was a reference to Michael Panter, who is a citizen of the United Kingdom. He and his wife live on board Kaori for approximately nine months of the year. Captain Napoli says that Kaori is never chartered or otherwise hired. He says that “the owner”, meaning Mr Panter, does not do anything with Kaori other than to use her as a pleasure craft in the way that other natural persons may own pleasure craft.
[50] There are a number of difficulties with this aspect of Captain Napoli’s evidence. Whilst he uses the term “owner” to refer to Mr Panter, he does not outline the way in which Mr Panter might be viewed as an owner of Kaori. Certainly, Mr Panter is not the registered legal owner of Kaori, as Captain Napoli has already said, and I have accepted that the plaintiff has this title. Captain Napoli has said nothing about Mr Panter’s connection, if any, with the plaintiff. Nor has Captain Napoli outlined any basis for me to conclude that Mr Panter has a beneficial interest in Kaori. In these circumstances, I am not prepared to view Mr Panter as having any recognisable ownership in Kaori.
[51] In any event, it was the plaintiff and not Mr Panter who contracted with the defendant. Whilst Mr Panter may use Kaori as a pleasure craft, his use of the vessel is not relevant to the assessment I am to make to determine if the Act applies here.
[52] The contract between the plaintiff and the defendant is subject to New Zealand law. Hence, the legal principles of this jurisdiction are to be applied. The plaintiff is a foreign registered company. Registered companies are generally viewed as business entities. The definition of “company” in Osborn’s Concise Law Dictionary is “an association of persons formed for the purpose of some business or undertaking carried on in the name of the association …”. Butterworths’ New Zealand Law Dictionary defines “company” as a body of persons associated together for the purposes of trade or business.
[53] The definition of “business” in the Act does not require a profit-making undertaking. In this case, it would be consistent with New Zealand legal principle to view the plaintiff as carrying on the undertaking or business of a company that has as its purpose the ownership of a super yacht.
[54] There can be many reasons for why a natural person might want to have the ownership of an asset held by a separate legal personality. In such circumstances, a registered company is often the chosen vehicle. In New Zealand and in other common law jurisdictions such as Australia, England and Wales, a registered company is viewed as having separate legal personality. It is only in exceptional circumstances that New Zealand courts will disregard the separate status of a registered company and take into consideration the persons who are actually controlling the company: see Laws of New Zealand Companies at [17].
[55] I recognise that here, the plaintiff is a foreign registered company and that the jurisdiction of its registration might treat registered companies differently from New Zealand and the other commonwealth jurisdictions to which I have referred. However, if that is so, it was incumbent on the plaintiff to provide evidence of this. It has not done so. Without such evidence, I am not prepared to depart from the general principles that are applied in this country when it comes to the question of distinguishing the separate legal personality of a registered company from the natural
persons who hold an interest in it. In any event, there is no evidence that Mr Panter has any interest in the plaintiff. I have no evidence to show that he is a shareholder or a director of the plaintiff, or that he has an interest in some other entity that might hold an interest in the plaintiff. The type and degree of connection that Mr Panter has with the plaintiff, if any, has not been made known to me.
[56] It follows that the plaintiff should be, and therefore will be, viewed as a separate legal entity that has the legal responsibility of owning Kaori. Mr Panter will be viewed as having no recognisable legal connection with the plaintiff. I will not go beyond recognising that he is someone who sails on the vessel for approximately nine months of the year. This connection with Kaori is insufficient for me to take his feelings and concerns into account when it comes to assessing damages for the discolouration to Kaori’s paintwork.
[57] It is hard to see how an artificial legal personality can be said to take pleasure in owning any asset, let alone a pleasure yacht. The better view is that if such a personality owns an asset, it does so by undertaking all the legal benefits and burdens of legal ownership and that this undertaking is its business. Put another way, it can be said that the plaintiff carries on the business of being the legal owner of Kaori.
[58] Part of the responsibilities of being the legal owner of Kaori would involve contracting with other persons for services that the vessel requires. Thus, the plaintiff’s contract with the defendant was for the purpose of and arose in the course of the plaintiff’s business: namely, attending to its responsibilities as Kaori’s legal owner. I am satisfied, therefore, that the contract between the plaintiff and the defendant was a business transaction for which s 43 permits contracting out. This means that the Act does not apply.
[59] The plaintiff has asserted that it earns no profit from Kaori and that this is enough for it not to be a “business” or “undertaking” in terms of the Act. The plaintiff relies on Calkin v Commissioner of Inland Revenue [1984] 1 NZLR 440 (CA) at 443 where the definition of business was said to mean something involving real transactions for pecuniary profit. But this finding was made in the context of tax
legislation and whether a taxpayer had the ability to make tax deductions in the circumstances which the Court of Appeal had to consider. Given the definition of “business” in s 2 of the Act, which expressly excludes the need for there to be a profit, I do not consider the meaning attributed to “business” or to “undertaking” in Calkin to be relevant. The Act’s statutory definition of “business” is enough to distinguish the reasoning in Calkin from the present circumstances.
Contractual negligence
[60] The contract between the plaintiff and the defendant imposes a limit on any liability that may attach to the defendant regarding its performance of the contract. This liability is not to exceed the contract price. Here, the contract price was
$118,594.45. The contract expressly provided that subject to this limitation, the defendant was liable for negligent performance of the services. The question, therefore, is whether the defendant was careless in the way in which it applied the shrink wrap to Kaori.
[61] There is no first-hand evidence of the tape that Mr Whaley used to attach the shrink wrap to Kaori’s hull. As mentioned earlier, Captain Napoli says that Mr Whaley gave him a roll of the tape that was used and the core of this roll was branded VIP Heat Shrink Tape.
[62] Mr Dalzell was given a roll of VIP Heat Shrink Tape. He tested the adhesive on this tape to see if it could be matched with the adhesive found in the paintwork. The tests were inconclusive.
[63] The manufacturers of Dr Shrink Heat Shrink Tape advise that this tape may leave an adhesive residue after long-term usage. Here, the tape was left in place from December 2009 until June 2010.
[64] There is no direct evidence that VIP Heat Shrink Tape would behave in the same way as Dr Shrink Heat Shrink Tape. Seemingly, neither party could find direct evidence about the qualities of VIP Heat Shrink Tape.
[65] Abbey Jones is a director of the defendant; she is the former wife of Mr Whaley. She worked with him for the defendant. She was responsible for the defendant’s accounts and ordering supplies. Under cross-examination, she said that VIP Heat Shrink Tape and Dr Shrink Heat Shrink Tape are exactly the same tape. She described how VIP is the manufacturer of heat shrink tape and that the company brands the core of the rolls of this product according to whichever distributor it happens to be supplying. Ms Jones’ evidence was that Dr Shrink is one of the distributors of VIP Heat Shrink Tape and because the defendant purchases the heat shrink tape that it uses from Dr Shrink, any rolls of heat shrink tape that the defendant had would be branded Dr Shrink Heat Shrink Tape. Ms Jones discounted the possibility that by accident, a roll of heat shrink tape with VIP’s brand marked on the core of the roll might have reached the defendant.
[66] However, Ms Jones accepted that she was not present when Mr Whaley gave Captain Napoli the roll of tape, and she did not see the tape that was used when the defendant’s workers applied the shrink wrap to Kaori’s hull.
[67] Ms Jones could only give evidence of the usual practice of the defendant’s workers. Her evidence was that the usual practice would have been to use Dr Shrink Preservation Tape to attach the shrink wrap to Kaori’s hull. She asserts that Mr Whaley knew not to apply a heat shrink tape to a painted surface like Kaori’s hull.
[68] I am left in the following position. Ms Jones’ evidence informs me that VIP Heat Shrink Tape and Dr Shrink Heat Shrink tape are, in substance, the same. Dr Shrink’s instructions advise that heat shrink tape might leave a residue on paintwork, particularly if the tape is affixed to paintwork for approximately six months, as was the case here, which, in my view, fits with the description “long term”. I consider that I can infer from this evidence that VIP Heat Shrink Tape is likely to behave in the same way as Dr Shrink Heat Shrink Tape and that the former tape is just as likely to leave a residue on paintwork as the latter. Captain Napoli has given evidence that essentially amounts to Mr Whaley making an admission against the defendant’s interest: namely, that heat shrink tape was used. Mr Dalzell’s evidence about how the damage occurred is consistent with a tape that has this effect
being the culprit. This evidence supports the inference that it was a heat shrink tape that was used.
[69] The only evidence that contradicts this inference is Ms Jones’ evidence that given the supply practices of VIP, the distribution practices of Dr Shrink and the ordering practices of the defendant, it is highly improbable that a roll of heat shrink tape branded VIP Heat Shrink Tape could have come into the defendant’s possession. Thus, it could not have been available for the defendant to use and for Mr Whaley to provide to Captain Napoli.
[70] In cross-examination, it was put to Captain Napoli that Ms Jones would be saying that Preservation tape was used. Captain Napoli was adamant that Mr Whaley had given him a roll of the tape that was used on Kaori. The captain had photographed that roll and it had the VIP Heat Shrink Tape logo on the core of its roll. There were no further questions to suggest that either Captain Napoli was not telling the truth or that he was, but that he was mistaken.
[71] Captain Napoli presented as a reliable and credible witness. I have earlier rejected certain hearsay evidence that he gave, but that was on the ground the evidence was too general and so, especially given the inability of the defendant to cross-examine on the evidence, I considered that evidence to be inherently unhelpful. When it comes to the question of the tape he contends Mr Whaley gave to him, Captain Napoli is specific. He has some connection with the plaintiff in that the company that employs him is employed by the plaintiff to provide services for Kaori. On the other hand, his employment does not appear to be dependent on the plaintiff’s goodwill. There is no obvious reason apparent to me as to why Captain Napoli would lie. Nor is there anything to suggest that Captain Napoli might have been mistaken about the roll of tape he was given by Mr Whaley.
[72] Ms Jones is familiar with the work and standards of work required for super yachts, as she commenced worked as a deckhand on super yachts at the age of 16 years. She has 10 years of experience in the shrink wrap business. She struck me as an honest and reliable witness. However, when it comes to the question of which tape was used in the shrink wrapping of Kaori, Ms Jones has no direct knowledge.
All that she can say about this question is based on her knowledge of the defendant’s usual practices, as well as the practices of VIP and Dr Shrink. What she may say about what usually happens does not necessarily exclude an unusual departure having occurred.
[73] If I accept Captain Napoli’s evidence, it does mean accepting that, by chance, a roll of VIP marked heat shrink tape had come into the defendant’s possession. Whilst this might seem an odd occurrence, I am not prepared to discount the possibility of it occurring. Since the defendant accepts that there is no substantive difference between VIP Heat Shrink Tape and Dr Shrink Heat Shrink Tape, it is not as if a different marking on the roll would have deterred the defendant from using this product. So if the wrongly labelled heat shrink tape had been delivered to the defendant, there is every likelihood the defendant would still have used it whenever it wanted to use a heat shrink type of tape.
[74] Captain Napoli’s evidence is prima facie proof that VIP Heat Shrink Tape was used. Given the views I have formed of Captain Napoli as a witness, Ms Jones’ evidence of the usual supply, distribution and ordering processes regarding VIP, Dr Shrink and the defendant respectively is not enough to contradict Captain Napoli’s evidence. I am satisfied, therefore, that the defendant did use VIP Heat Shrink Tape as the means to affix the shrink wrapping to Kaori’s hull.
[75] From the evidence of Dr Shrink’s instructions, there is no doubt that it would be contrary to good practice to apply heat shrink tape to the paintwork of Kaori’s hull, particularly for the period of time that the tape was attached. No one has suggested that this would be acceptable practice. I am satisfied, therefore, that the shrink wrap process was negligently carried out when it came to attaching the shrink wrap to Kaori.
[76] I am also satisfied that at the time the shrink wrap was removed, this
negligence had damaged the paintwork of Kaori’s hull.
Has the plaintiff proved the damages it seeks to recover?
[77] I have already commented on the unsatisfactory state of the evidence regarding proof of the current state of the damage that Kaori sustained. Put simply, I have no idea what that damage might be like in relation to the rest of Kaori’s hull topsides. I can, however, assume that over the time between now and June 2010, the general condition of the vessel’s paintwork will have aged and, therefore, deteriorated to some extent. I know that the hull was painted in 1999 and then in
2006 and that a gap of six years between repaints is reasonable for super yachts. And I know that it is now six years since the hull was repainted. I also have Mr Pennington’s evidence that as at the end of 2009, he thought the paintwork had a further three to four years’ life, which would take it to somewhere between 2012 to
2013 before it needed to be repainted.
[78] Without being informed of the current general condition of the paintwork or the extent to which the adhesive discolouration presently disfigures the paintwork, it is difficult for me to determine if it is reasonable to order a full repaint of the topsides. By now, the stage may have been reached where the paintwork is almost due for a full repaint in any event. Furthermore, the repainting of the area between the cap rail and rubbing strake in 2010, coupled with the fading of the paintwork that would have occurred between then and now, may mean that the remainder of the adhesive discolouration is minimally apparent.
[79] The plaintiff sought to persuade me to revisit splitting the trial, so that I gave it another opportunity to prove its loss. When the matter was before Keane J in Kaori Ltd v Shrink Wrap Services Ltd [2012] NZHC 2663, he concluded:
[19] Standing in favour of Kaori’s application is that, if liability is found in its favour, quantum ought to be resolved as accurately as it can be and preferably after any remedial work called for is complete and its cost known. Quantum, moreover, could be split off cleanly for a confined separate trial without any great duplication of witnesses or increase in cost.
[20] Standing against Kaori's application is that it is made very late and carries the potential for indefinite delay. Kaori seeks a separate trial of quantum only because it has foregone two chances to have the remedial work carried out. Presently, moreover, it is unable to say when such work will be carried out. That is unacceptable. This Court is under a duty to
resolve cases promptly as well as justly. Shrinkforce, if found liable, is entitled to know what that liability is.
[21] I decline Kaori's application. Quantum, as well as liability, must be resolved at the forthcoming fixture. But I add this. I have resolved this application on a broad appraisal of the case before the trial. The trial Judge, after hearing the evidence, may conclude that justice does require quantum to be severed for separate trial.
[22] The trial Judge would, I imagine however, only countenance a separate trial of quantum if Kaori had committed itself by contract to have the remedial work carried out on a definite date in the very near future. I would imagine also that severance would only be granted on terms that protected Shrinkforce and ensured that any quantum trial took place sooner rather than later.
[80] I agree with Keane J that the undetermined nature of the plaintiff’s claim for loss is due to the plaintiff having elected not to have the remedial work done when the damage was first discovered. Further, the plaintiff has chosen instead to sail the vessel to the Far East, where it remains. She is out of sight of the defendant, which means that it cannot view the present extent of the damage. If the damage is considerably diminished by now, it would have been advantageous for the defendant to be able to inform itself of this.
[81] Paragraph 22 of Keane J’s judgment put the plaintiff on notice that it needed to firm up on its intentions to have the damage remediated. However, as matters stand, I am not aware of any firm steps that the plaintiff has undertaken to arrange for the damage to be assessed and remedied. Indeed I am left with the impression that faced with the cosmetic damage caused by the shrink wrap process and the subsequent separate cosmetic damage caused by the poor quality repainting of the transom cap rail to rubbing strake areas of the hull, the plaintiff determined that it would rather have the vessel at sea than have this damage rectified.
[82] The proceedings have been on foot since 1 August 2011. The impact of delaying the remedial work on the plaintiff’s ability to recover the costs of this work must have been apparent to the plaintiff. It left it very late to ask for a split trial. It could have done so much earlier on. It did not seek to appeal Keane J’s judgment. Nor did it seek to adjourn the trial in order to obtain evidence of the present state of Kaori’s topsides.
[83] Moreover, I was not informed of any unsuccessful attempts to obtain evidence on the present condition of the paintwork in time for the trial. The plaintiff is responsible for the state of its evidence and it has provided no explanation that might persuade me that it should be given an opportunity now to improve on its case. Absence of this type of evidence is the responsibility of the plaintiff.
[84] Another possible approach, if the refusal to split the trial made it too difficult for the plaintiff to obtain evidence of the present condition of the hull’s paintwork in time for this trial, would have been for the plaintiff to discontinue the proceeding. Rule 15.19 of the High Court Rules recognises that a plaintiff should not be compelled to proceed to trial. If the proceeding had been discontinued, there would have been no limitation problems as the cause of action arose in June 2010. There would have been the requirement in r 15.24 for the plaintiff to pay the costs awarded to the plaintiff following the discontinuance before the plaintiff could bring a fresh proceeding. But this would have enabled the plaintiff to avoid the circumstance it now faces of having gone to trial and not having available to it evidence to prove the quantum of its claim for damages.
[85] Nothing about the insufficiency of its evidence on damage was brought to the Court’s attention until the topic came up for consideration in the natural course of the trial. I consider that the plaintiff has had every opportunity to get its house in order when it comes to proof of evidence relevant to the measure and quantum of its damages. Like Keane J, I consider that the defendant is entitled to a prompt resolution of the claim against it and to know the cost of its liability. As I see it, there is no basis for me to revisit the question of splitting the trial. There is nothing that has emerged in the trial that would cause me to depart from the views adopted by Keane J, even though he only had a broad appraisal of the case. I am not, therefore, prepared to split the trial at this late stage and to issue an interim judgment on liability only.
[86] The general principle is that a plaintiff is entitled to be placed in the position it would have been in had the defendant performed the contract. However, considerations of reasonableness come into that assessment. This is a case where subsequent to the defendant’s failure to perform its contract with the plaintiff, the
vessel’s paintwork has been further damaged by a third party’s negligent performance of its contract work, and, in any event, the extent of the original damage will have diminished as the paintwork ages. These features make the case distinguishable from Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 when it comes to considering how to assess the recoverable damages. Instead, I consider that here, as in Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344 (HC), the available evidence suggests to me that the remedy of cost of repair based on a full hull repaint would be out of all proportion to the benefit to be presently obtained from this exercise.
[87] In the present circumstances, it was for the plaintiff to establish that the cost of repainting the vessel’s hull topsides is still reasonable, despite the other factors to which I have referred. The plaintiff has not done so.
[88] In addition, there is the question of how to allow for betterment. If the vessel is now due to be repainted within the next year or two in any event, a full repaint now would ordinarily attract some deduction for betterment. But without knowing what the present condition of the paintwork is like, it is difficult to make allowance for any such deduction. This is another factor that makes it unreasonable to order damages based on the cost of a full repaint.
[89] For a number of reasons, therefore, I cannot see how, on the present evidence available to me, I can make a fair and reasonable assessment of the damages to be awarded to the plaintiff. Furthermore, it is the plaintiff that is responsible for this circumstance. In such circumstances, I consider that the plaintiff should receive no more than nominal damages.
[90] From the evidence that I have heard regarding costs of painting a vessel and taking a broad-brush approach, I consider that the sum of $10,000 is a fair and reasonable contribution towards painting out whatever remains of the cosmetic damage caused by the shrink wrap process. This sum will contribute to the payment of the costs of repainting the vessel that will arise in any event in the near to medium future.
Result
[91] The plaintiff has established the claim for breach of contract. It is entitled to nominal damages of $10,000.
[92] If the parties cannot reach agreement on the question of costs, the parties have leave to file memoranda on costs.
Duffy J
2
0