Marley New Zealand Limited v Skellerup Rubber Services Limited
[2013] NZHC 2035
•12 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-001857 [2013] NZHC 2035
BETWEEN MARLEY NEW ZEALAND LIMITED Plaintiff
ANDSKELLERUP RUBBER SERVICES LIMITED
Defendant
PRECISE IRRIGATION LIMITED First Third Party
PGG WRIGHTSON LIMITED Second Third Party
WATERFORCE LIMITED Third Third Party
SAM CONTRACTING 2000 LIMITED Fourth Third Party
Hearing: 31 July 2013
Appearances: R M Gapes and J W S Baigent for Plaintiff
J E Hodder QC and J W J Graham for Defendant
C A McVeigh QC for First Third Party
D Webb and S Goodwin for Second Third Party
Judgment: 12 August 2013
JUDGMENT OF ELLIS J
This judgment was delivered by Justice Ellis on 12 August 2013 at 4.45 pm
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date………………………
MARLEY NZ LTD v SKELLERUP RUBBER SERVICES LTD [2013] NZHC 2035 [12 August 2013]
[1] Marley New Zealand Ltd (Marley) is suing Skellerup Rubber Services Limited (Skellerup) for breach of contract and in negligence. Skellerup issued third party notices to (inter alia) Precise Irrigation Ltd (Precise) and PGG Wrightson Ltd (PGG Wrightson). Skellerup claims contribution from those third parties as joint tortfeasors, pursuant to s 17(1) of the Law Reform Act 1936 (the LRA).
[2] On 17 June 2013 Associate Judge Sargisson set aside the third party notices
issued to Precise and PGG Wrightson and dismissed Skellerup’s claims against them.
[3] On 18 June Skellerup filed an application for review of that decision. Determination of the application assumes some urgency because there is a four week trial scheduled to commence in less than three months time.
Background
[4] The factual background was recorded by the learned Associate Judge in her judgment as follows:
[4] Marley is a manufacturer of PVC pipes. Skellerup is a manufacturer and distributor of rubber rings that serve as seals in pipes. Between 2006 and 2009 Marley purchased quantities of these rings from Skellerup which it fitted into its own PVC pipes. Marley then sold the pipes, fitted with the rings, as components for irrigation or sewerage systems to companies whose business is to assemble, supply and install irrigation and sewerage systems. Such companies include PGG Wrightson and Waterforce Ltd.
[5] PGG Wrightson and Waterforce, pursuant to contracts with various landowners, either installed the systems themselves for landowners or arranged for sub-contractors to carry out this work. Precise was one of such sub-contractors, contracted by Waterforce.
[6] From December 2008 onwards, Marley received complaints that various irrigation and other water and sewerage systems utilising the pipes were leaking. It contends that subsequent investigation revealed that the fitted rings were defective in that they did not comply with the compression set requirements of the relevant Australian and New Zealand standards, and on release from compression the rings failed to recover their pre- compression shape. The result was that the rings did not perform as watertight seals for the pipe joints as intended and water leaked out.
[5] It seems that as a result of the complaints received, Marley has paid some $7 million for replacement parts and to repair the faulty systems that had been installed by the third parties. For that reason, the landowners have not needed to commence
legal proceedings against Marley. Rather, by these proceedings, Marley seeks to recover the $7 million it has paid out from Skellerup, on the basis that the rubber rings sold by Skellerup to Marley were the cause of the leaks, which in turn caused Marley to pay the $7 million. As I have said, the claim is made in the alternative – in contract and in negligence.
[6] Skellerup, in turn, alleges that it was the faulty installation of the irrigation systems by the third parties that (either wholly or in part) caused the leaks and, therefore, the loss to Marley. Its pleading in that respect is simply that:
... if Skellerup is held liable for any loss and damage suffered by Marley (which is denied), Skellerup says that such loss and damage was caused by, or materially contributed to by [the third parties].
[7] As noted above, the foundation for Skellerup’s third party claim is s 17(1) of the LRA, which relevantly provides:
(1) Where damage is suffered by any person as a result of a tort...
...
(c) Any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued in time have been, liable in respect of the same damage, whether as joint tortfeasor or otherwise ...
[8] Assuming for present purposes that Skellerup is found to be a tortfeasor (i.e. that a breach of a duty of care owed by Skellerup to Marley caused damage to Marley)1 the success of its contribution claim is dependent upon Skellerup establishing that:
(a) the third parties (the installers) have also breached a duty of care owed to Marley (the pipe/irrigation system supplier) and caused
Marley damage; and
1 In my view the learned Associate Judge was correct to proceed on the basis of this assumption.
In that respect I accept Ms Baigent’s submission (supported by Mr Hodder) that it would be inappropriate for the Court to express a view in the present context on the merits of Marley’s principal negligence claim against Skellerup, which Skellerup has not (for sound reasons) sought to have struck out.
(b)the damage caused to Marley by the third parties’ breach is “the same damage” for which Skellerup itself is tortiously liable to Marley.
[9] The third parties applied to have the third party notices set aside on the basis that the contention that the claim for contribution had no tenable prospect of success. Associate Judge Sargisson granted that application.
Associate Judge Sargisson’s decision and Skellerup’s application for review
[10] The central part of the Associate Judge’s reasoning is to be found between
[34] to [39] of her judgment. I therefore simply replicate those paragraphs in full:
[34] The foundation of the proximity test is the classic neighbour principle and is sometimes articulated as “who is my reasonably foreseeable neighbour” or who are “persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which I have called into question.”
[35] Plainly PGG Wrightson and Precise would have in contemplation, as persons who would be so closely and directly affected by poor or deficient installation, the landowners whose systems they installed. They would or ought reasonably to anticipate the possibility they could have liability to the landowners who suffer the results of such installation.
[36] However, I agree with counsel for PGG Wrightson that a reasonable person standing in the shoes of the installers could not be expected to have in contemplation Marley as a person similarly placed so as to be materially affected. Such person could not be expected to foresee that Marley would be affected by:
(a) Installation work that was not being done for Marley. (It was not in the position of a landowner having a system installed that would suffer from a leaking system if the installation was poor).
(b) Installation work that Marley had no part in. (Materially, nothing Marley did as manufacturer or supplier of component parts has been characterised as causative of the defective installation). It could not therefore be affected in the sense of attracting any liability for it.
[37 Marley (as manufacturer and seller of some of the components used in the irrigation and other systems) may well be a “person” likely to be affected or caused damage by someone who contributes to the manufacture of its product, either because of the damage caused to its product and the cost of remaking it or because of the resultant damage its defective product causes to others. However, it is an entirely different matter to suggest Marley can be viewed in any material sense as affected by or potentially liable for another person’s negligent use of pipes supplied by Marley when undertaking installation of irrigation and other systems.
[38] Even bearing in mind that Marley and Skellerup might re-plead there is not the slightest suggestion in any of the material before the court including the pleadings and the evidence that Marley had any part in the installation work that could result in its being liable for the alleged negligence of the installers and no convincing basis for the contrary was suggested at the hearing. It is not possible therefore, on the pleadings (even assuming re-pleading) to see how the actions of these third parties could be said to affect Marley or reasonably be thought to be causative of any material harm to Marley. The absence of causation cannot be overcome. It is a fatal impediment.
[39] The only suggestion of harm to Marley resulting from installation was related to its reputation. It was suggested that Marley might reasonably volunteer assistance for defective installation in order to protect its reputation. Materially the suggestion was not made by counsel for Marley. Indeed Marley makes no suggestion that it anticipates being sued as liable for the defective installation work of others that it had no part in, and nor could it. If on the other hand it volunteers to repair defective installation work for reasons of reputation its voluntary assumption of responsibility for the cost would be entirely a matter for it.
[footnotes omitted]
[11] At [40], the learned Judge went on to conclude that she therefore agreed with counsel for the third parties that Marley could not be the “reasonably foreseeable neighbour” of PGG Wrightson or Precise and that the third parties could not therefore owe Marley the duty necessary to found Skellerup’s contribution claim.
[12] Skellerup’s detailed grounds of review were helpfully synthesised by
Mr Hodder QC in the following way.
[13] First, he submitted, contrary to what the learned Judge said at [36(b)] of her judgment, Skellerup asserts (and has pleaded) that Marley did have a role in the
installation work and its pleading in that respect must be assumed to be true.2
2 In general terms the pleading relied on by Mr Hodder is that Marley was contributorily negligent in that it “failed to take reasonable steps to safeguard its own interests” in relation to the irrigation systems by failing (inter alia) to (a) provide or sufficiently specify the need for a quality control system to apply to correct installation of the components sold by Marley and installed in the irrigation systems; (b) ensure pre-commissioning pressure testing was conducted during the installation process; (c) ensure that Marley’s pipes were not overinserted into the relevant sockets; and (d) oversee the assembly the systems or appropriately to instruct the installers.
[14] Then Mr Hodder submitted that because of the Associate Judge’s misapprehension in that respect, the foundation for her subsequent reasoning (at [38] and [39]) falls away. He was further critical of the reasoning in:
(a) paragraph [38], because (he said) causation is a question of fact going to loss, and not part of the duty of care analysis;
(b)paragraph [39], because (he said) if Marley was a “volunteer” then Skellerup would itself have no liability. And he submitted that for present purposes it must be assumed that such liability existed.3
[15] And lastly, Mr Hodder said that because the pleaded facts (including the fact of Marley’s involvement in the installation process and the fact of Marley’s loss) must be assumed to be true, the conclusion that there was no relevant “neighbourhood” between the third parties and Marley cannot be sustained.
Discussion
[16] There is no dispute as to the principles that governed the applications to set aside the third party notices or that they were correctly recorded by the learned Associate Judge (although Skellerup necessarily submits that she did not apply them correctly). Equally there is no dispute as to the approach of the High Court on review. Accordingly I do not intend to set the relevant principles out here. I also record that the parties (and the intended third parties) were agreed that in the event I differed from the Associate Judge’s analysis I should also determine whether the same conclusion could nonetheless be justified on any of the other grounds advanced by the third parties.
[17] In my view, Associate Judge Sargisson was correct in her conclusion that the third party notices should be set aside and Skellerup’s claim against the third parties be struck out. I set out my reasoning below.
[18] It seems to me that the most useful starting point is to focus on the damage that Marley is alleged (and must be assumed) to have suffered as a result of
3 As indicated in footnote 1, I accept this submission.
Skellerup’s (alleged and assumed) negligence. That is because the third party notices can only be maintained (or reinstated) if there are tenable arguments:
(a) that the third parties should reasonably have foreseen that Marley would suffer such damage if they were negligent when they were installing the irrigation systems; and
(b)that (in terms of the specific prerequisites for a claim for contribution under s 17 of the LRA) the damage assumed to have been caused by Skellerup to Marley was the “same damage” as that (alleged and assumed) to have been caused to Marley by the third parties.
[19] As I understood it, Mr Hodder accepted that the damage that must be assumed to have been caused by Skellerup to Marley was Marley’s liability to make good the defective pipes or systems it had sold.4 Although he submitted that the legal basis for such liability remains unclear on Marley’s latest pleadings, I agree with Mr McVeigh QC that it would logically and legally arise as a consequence of Marley’s status and obligations as the supplier or seller of the pipes/irrigation
system. As Mr McVeigh said, those obligations would most likely arise by virtue of some form of implied warranty under the Sale of Goods Act. In other words, the damage caused to Marley must be viewed as its liability to make good on its defective products.
[20] When the matter is put in that way it becomes clear that the third parties could not have foreseen that careless installation of the Marley pipes/irrigation systems would cause what (Mr Hodder accepts) is the relevant damage. That is because there is no way in which negligent installation of a product by third parties could give rise to a liability on the part of the supplier of that product to make good on defective products.5 This is not merely a matter of remoteness and nor is it a question of fact and degree. The absence of the critical link is a matter of logic; it
could not be remedied by evidence at trial.
4 As Mr Hodder submitted, if Marley had merely “voluntarily” paid for the repairs, then its claim against Skellerup, and Skellerup’s claim against the third parties, would fall away.
5 Unless, perhaps, the supplier had itself taken on some sort of supervisory role as regards the installation process. But I deal with that point later, below.
[21] Notwithstanding that the alleged involvement by the supplier (Marley) in the installation process might superficially suggest some relevant “proximity” between Marley and the installers, it does not ultimately affect the conclusion I have reached.
[22] First (and perhaps least persuasively), it may be noted that the allegations about Marley’s involvement in the installation process are made in Skellerup’s positive (contributory negligence) defence to Marley’s claim rather than in its claim against the third parties. There must be some question about whether the Court is required to assume them to be true for the purposes of the issue at hand.
[23] Putting the first point to one side, however, the pleadings recite not acts, but omissions, by Marley. The whole thrust of the allegations is that Marley was not actually involved in installation (but should have been).6 It is difficult to see how the third parties might reasonably have been expected to have borne Marley’s interests in mind when they were engaged in a process from which Marley was (rightly or wrongly) completely absent. There can be no relevant “neighbourhood” here.
[24] Thirdly, and assuming the allegations about Marley’s (non) involvement in the installation process to be true, then the relevant damage to Marley – Marley’s liability to the landowners – would arise (in part) as a consequence of (installation related) failings by Marley itself. In other words, Marley’s liability to pay for the remedial work arose because it knew that it was liable for its own negligence in failing adequately to ensure that installation was undertaken correctly. But once that point is reached, the paradox becomes obvious. Marley could have suffered no damage because it was (in fact and in law) liable to pay the $7 million. So even under this scenario, Marley’s liability has nothing to do with the third party installers.
[25] In terms of s 17(1) of the LRA, the relevant requirement is that the “damage” caused by the tortfeasor from whom a contribution is sought (here, the third parties) must be the “same” as that caused by the original tortfeasor (here, Skellerup). There is no magic in those words; they mean what they say.
[26] I acknowledge that Skellerup’s pleading effectively is that any loss and damage suffered by Marley as a result of Skellerup’s negligence was also caused or contributed to by the third parties, i.e. that the loss and damage from Skellerup’s and the third parties’ negligence is the “same”.7 Ordinarily the Court determining an application to strike out/set aside would proceed on the basis that that allegation is true. But it is not required to do so when the relevant pleaded fact is demonstrably
without foundation or incorrect. For the reasons I have already given, I consider that to be the case here.
[27] Rather, and as I have said, the relevant “damage” that must be assumed to have been caused by Skellerup is Marley’s liability as seller of the pipes/irrigation system to the purchasers of the pipes/system. Although negligent installation by the third parties might well have caused or contributed to damage suffered by landowners, it simply could not cause the damage to Marley upon which its claim against Skellerup is based, for the reasons I have already given.
[28] That leads on to one final point which, in my view, further supports the conclusions I have reached. That is that the unusual features and conceptual difficulties of this case arise because of certain choices that have been made by Marley. Those features are that:
(a) Marley has paid out $7 million to “settle” claims which had not in fact been brought against it; and
(b) Marley has chosen to sue Skellerup in tort as well as contract.
[29] It seems to me that in the absence of the first feature, the claim would no doubt have taken a more orthodox shape, namely:
(a) A claim in contract against Marley and (possibly) the installers by the landowners for the defective irrigation systems; and
(b) Subsequent joinder by Marley of:
(i)Skellerup, if there was an indemnity clause in the contract between them;8 and/or
(ii) (if necessary) the installers, on the basis of their common
(contractual) liability to the plaintiff landowners.
[30] In the absence of the second feature noted at [29(b)] above, there would, of course, be no possibility of a contribution claim by Skellerup against the installers as joint tortfeasors under s 17(1)(a).
[31] The reason these alternative scenarios are instructive is that they demonstrate it is Marley, not Skellerup, who is in jeopardy if the installers are not parties to the present proceedings. As I think Mr Hodder accepted, Marley will not be able to recover damages from Skellerup for any loss that is found at trial to have been
caused by the installers, in the event that Skellerup wishes to pursue such a defence.9
While such a result might see the unjust enrichment of the installers, it would not be at Skellerup’s expense, but at Marley’s. In my view there is no prejudice to Skellerup if the installers are not joined.
[32] In summary, I consider that Skellerup’s claim for contribution by the third parties is not tenable because, any carelessness by the third parties in installing the irrigation systems could not have caused the relevant damage to Marley (namely its liability to pay $7 million) and, accordingly:
(a) the third parties could not reasonably have foreseen that such carelessness would cause that damage and could not owe Marley a
relevant duty of care; and
8 In the absence of such an indemnity clause, Marley would have a separate damages claim against Skellerup. Alternatively, if the landowners had also claimed against Marley in tort then Marley could presumably have brought contribution claim against Skellerup and the installers under s 17(1)(a).
9 The extent to which, in that event, the third parties would wish to be heard at trial would be a matter for them.
(b)any damage caused by the third parties’ negligence could not be the “same damage” as the damage which must be assumed to have been caused by Skellerup (namely its liability to pay $7 million).
[33] It follows that, in my view, the learned Associate Judge was right to set aside
the third party notices and to dismiss Skellerup’s claims against the third parties.
[34] I trust that the issue of costs (which are payable by Skellerup on a 2B basis)
will be resolved between counsel without the need for the assistance of the Court. But if agreement cannot be reached, memoranda may be filed.
Rebecca Ellis J
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