Power Farming New Zealand Limited v McCaw Contracting Limited
[2017] NZHC 441
•15 March 2017
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2016-476-000051 [2017] NZHC 441
UNDER PART 5 OF THE DISTRICT
COURTS ACT 1947
IN THE MATTER
of an appeal from a judgment of the
District CourtBETWEEN
POWER FARMING NEW ZEALAND LIMITED
Appellant
AND
MCCAW CONTRACTING LIMITED Respondent
Hearing: 13 March 2017 Appearances:
S M Jass for the Appellant
W I Dean and E L Middlemass for the RespondentJudgment:
15 March 2017
JUDGMENT OF MANDER J
[1] This appeal arises out of a dispute as to who should bear responsibility for the loss of an uninsured tractor. The appellant, Power Farming New Zealand Limited (Power Farming) challenges the District Court’s finding that because it breached its obligation under a bailment to which the tractor was subject it must account for the loss. The owner of the tractor, the respondent McCaw Contracting Limited (McCaw
Contracting), maintains the District Court correctly held Power Farming liable.
POWER FARMING NZ LTD v MCCAW CONTRACTING LTD [2017] NZHC 441 [15 March 2017]
[2] In August 2014 Power Farming agreed to sell McCaw Contracting’s tractor on its behalf. This arrangement was made between the owner of McCaw Contracting, Gavin McCaw, and the sales manager employed at the Mosgiel branch of Power Farming, Russell Burgess. The two men are cousins, and Mr McCaw had dealt with Power Farming’s Mosgiel branch on a number of earlier occasions. It was agreed an asking price of $45,000 plus GST would be set for the tractor. No other terms of sale were discussed and the tractor was delivered to the Mosgiel branch and put on sale.
[3] On 1 November, Power Farming was contacted by Knapdale Farms Limited (Knapdale). It enquired whether it could hire the tractor. Mr Burgess contacted Mr McCaw and asked if he would be interested in leasing the tractor to a farming customer. The name of the possible lessee was not mentioned and indeed was unknown to Mr Burgess because another staff member had dealt with the enquiry.
[4] Mr McCaw informed Mr Burgess that he would be prepared to hire the tractor out at an hourly rate of $45 plus GST, and that McCaw Contracting would bill the lessee direct. Mr McCaw instructed Mr Burgess to “make it happen”. Mr Burgess was to sort out the paperwork and send through the customer’s details. Insurance of the tractor which had lapsed in February of that year was not discussed during the telephone conversation.
[5] On 7 November Power Farming released the tractor into the possession of Knapdale. When Knapdale’s representative came to pick the tractor up he asked the Power Farming yardman whether he knew who insured the tractor. The yardman replied that he did not know. At the time the tractor was collected no paperwork had been completed in respect of the lease.
[6] On 12 November, Knapdale reported to Power Farming that there were issues with the tractor’s fan-belt and air-conditioning system Power Farming sent out a technician to investigate the problem. Some time after this work was completed the tractor caught fire and was destroyed. It appears the fire resulted from an electrical
fault. It was not until Mr Burgess contacted Mr McCaw asking about insurance following the fire that McCaw Contracting became aware that Power Farming had released the tractor to the third party lessee, Knapdale.
District Court Decision
[7] Judge Maze commenced her analysis by defining the relationships between McCaw Contracting and Power Farming. She considered there was an agency between the parties for the purpose of the sale of the tractor, and that this relationship still existed at the time of the fire. Secondly, that in relation to the possession of the tractor there was a bailor/bailee relationship to enhance the agency for the sale of the tractor.
[8] The District Court accepted the bailment was capable of being terminated upon the completion of a lease to a third party. However, Judge Maze considered that in the circumstances the bailment had not come to an end. The Judge held that a lease agreement had not been concluded between McCaw Contracting and Knapdale at the time the tractor was released into the latter’s possession and that as a result the transfer of possession was a breach of the bailment. The Judge was reinforced in this analysis by the fact that Power Farming dealt with the complaint about the operation of the tractor from Knapdale as though it was still obliged to do so. By not notifying McCaw Contracting about the complaint or obtaining their consent to carry out work on the tractor, Power Farming demonstrated that it considered it still owed obligations under the bailment. At no time did it suggest to Knapdale that it deal directly with McCaw Contracting regarding difficulties with the tractor.
[9] While the bailment endured the Judge concluded that Power Farming carried a foreseeable duty of care to McCaw Contracting in relation to its control of the tractor and that it acted in breach of that duty. As for causation, the Judge noted that if the tractor had remained in Power Farming’s control in accordance with the bailment it would not have been operated and would not therefore have caught fire. Accordingly the loss was held to be a consequence of Power Farming’s breach.
[10] As a general civil appeal, the approach to be taken is that set out by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.1 The appeal court has a responsibility to arrive at its own assessment of the merits of the case. Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion involves an assessment of fact and degree and entails a value judgment.2
The competing submissions
Power Farming
[11] Power Farming submitted the Judge erred in finding there was no lease to Knapdale and that the bailment had not come to an end. Specifically, it was submitted the lease agreement was not conditional on McCaw Contracting being provided with the “paperwork” or knowing the name of the lessee, but rather had been completed either when Knapdale communicated its acceptance of the lease offer to Power Farming, or when it collected the tractor.
[12] Power Farming disputed that its undertaking of the repair work demonstrated that it considered the tractor to still be subject to the bailment. It argued that ordinarily it would have “on-billed” McCaw Contracting for services, but that it did not do so in this case as a gesture of goodwill. In any event, Power Farming argued that what it thought at any particular time regarding whether the bailment had ended or a lease agreement been completed was immaterial to the objective legal test of whether a lease had been entered into between McCaw Contracting and Knapdale.
[13] Power Farming further submitted that even if it was in breach of its bailment obligations, there was no causation linking this breach with the loss. In particular it argued there was no causative link between its failure to provide the “paperwork” for the lease and the loss, that there was no evidence the fire was caused by the
particular use of the tractor by Knapdale, and that there was no evidence that McCaw
1 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
2 Kacem v Bashir [2010] NZSC 112, [2011] NZLR 1 at [32].
Contracting would not have gone ahead with the lease if Power Farming had provided the “paperwork” prior to the tractor’s release. It submitted that any connection between the lease of the tractor before the “paperwork” had been completed and the destruction of the tractor was at best a tenuous “but for” link and this was insufficient to establish a legal case.3 Power Farming submitted the real cause of the loss was an electrical fault in the tractor coupled with McCaw Contracting’s failure to insure the tractor.
McCaw Contracting
[14] McCaw Contracting submitted the District Court Judge was correct on all counts. No lease agreement had been completed, and McCaw Contracting reasonably expected the “paperwork” to be completed before any agreement to lease would be made final and the tractor released. Mr McCaw’s words “go and make it happen” and Power Farming’s statement that they would “sort out the paperwork” followed by the unilateral release of the tractor by Power Farming was insufficient to establish that a contract to lease the tractor had been entered into. Furthermore, McCaw Contracting submitted that no lease could have been agreed without fundamental terms such as the details of the parties, the term of the lease, insurance, the amount payable and cancellation requirements being approved by it.
[15] In oral submissions McCaw Contracting reiterated its argument that because a lease had not been concluded the bailment continued. Transfer of possession of the tractor to Knapdale constituted a breach of that bailment. Alternatively, it further submitted that if the uplifting of the tractor ended the bailment, the failure by Power Farming to provide the bailor, McCaw Contracting, any notice or information about it having yielded possession to Knapdale, constituted a separate breach of the duties it owed as the bailee to take reasonable care.
[16] McCaw Contracting submitted sufficient causation was established from the tractor having been made available to Knapdale for its commercial use in breach of
the bailment and the reasonable inference that the fire had been caused as a result of
3 Harvey McGregor McGregor on Damages (19th ed, Thomson Reuters, London, 2014) at [8-
008].
that use. This was contrasted with the tractor being otherwise displayed for sale by
Power Farming at its premises in accordance with the terms of the bailment.
Analysis
[17] The appeal distils to two issues:
(a) Had the bailment come to an end prior to the destruction of the tractor?
(b) If not, was the loss of the tractor caused by a breach of the bailment?
(a) Had the bailment come to an end prior to the destruction of the tractor?
[18] There is no dispute that a bailor/bailee relationship came into existence when Power Farming received delivery of the tractor from McCaw Contracting for the purpose of achieving a sale on its behalf. It is also common ground that a contract to lease the tractor to Knapdale would bring this legal relationship to an end. The question therefore is whether or not a contract to lease had been entered into prior to the destruction of the tractor.
[19] Any lease agreement would have been between McCaw Contracting and Knapdale. It is not suggested that Power Farming was to be a party to the lease. Rather it was acting as an agent or authorised representative of McCaw Contracting in respect of the communications with Knapdale.
[20] Whether a contractual relationship in the form of a lease came into being between McCaw Contracting and Knapdale involves a mixed question of fact and law derived from an analysis of the circumstances. The learned author, Professor Burrows, has described the assessment of whether a party, in this case McCaw Contracting, has entered into a contract in the following way:4
Behind all forms of contract, no doubt, lies the basic idea of assent. A
contracting party, unlike a tortfeasor, is bound because the party has agreed
4 Burrows, Finn and Todd Law of Contract in New Zealand, (5th ed, LexisNexis, Wellington,
2016) at 35.
to be bound. Agreement, however, is not a mental state but an act, and, as an act, is a matter of inference from conduct.
[21] The inquiry therefore is whether it is reasonable to infer from the conduct of McCaw Contracting that it had entered into a binding agreement with Knapdale to lease the tractor to it. The District Court focused to a large degree on the conduct of Power Farming as to whether or not it thought it was still bound by the bailment. I accept the submission made on its behalf that its understanding of the position is of limited use and largely immaterial to the question of whether a completed contract had been formed between McCaw Contracting and Knapdale to lease the tractor.
[22] There are aspects in the undisputed narrative which support both parties’ contentions.5 In favour of a finding that a final agreement was reached are the following considerations:
(a) After assenting in principle to the idea of a lease and discussion of the price, Mr McCaw told Mr Burgess to “make it happen”. This could be construed as an act authorising Power Farming to make an offer to the potential lessee on its behalf.
(b)Acceptance of that offer can be inferred from Knapdale taking possession of the tractor after being advised of the price with Knapdale’s acceptance being communicated to Power Farming either in its capacity as the agent of McCaw Contracting or its representative.
(c) There was consideration: the right to possess and use the tractor in return for the right to invoice for its use at $45 per hour.
5 During the course of the oral hearing it became apparent that the deponents of the affidavits filed by the parties in the District Court had been cross-examined before that Court. That cross- examination had not been transcribed. I inquired from counsel whether they wished to have the cross-examination transcribed and made available for the purposes of the appeal. Both parties advised they were content for the appeal to be determined without the record of the cross- examination which they did not consider advanced the matters I had to decide.
(d)Certainty existed in relation to the only term that was absolutely necessary to sustain a contract, namely the cost of the lease to be invoiced directly by McCaw Contracting.
[23] Against a finding that a contract was completed are the following considerations:
(a) Mr McCaw told Mr Burgess to “make it happen” during a phone call when Mr Burgess acknowledged that he would arrange the paperwork. Presumably, given the commercial nature of the agreement and the valuable asset it concerned, this would have required the inclusion of comprehensive terms governing the lease. The direction by Mr McCaw to “make it happen” could be construed not as an instruction to enter into a lease on the price discussed but as an instruction to advance the process on that basis pending the arrangement and agreement of the terms of the contract.
(b)It is not disputed that leases of this type are ordinarily the subject of detailed written terms. Mr McCaw has deposed to his familiarity with the type of detailed contracts used by Power Farming when leasing equipment. He could reasonably be assumed to have anticipated that any formal contractual offer would include a similarly detailed written agreement.
(c) With the exception of the price the remaining terms of the lease remained uncertain. Certainty of the terms would only be reached when the written contract had been put in writing and delivered to the parties for their acceptance.
[24] The issue is not without difficulty. The looseness of the arrangements entered into by Messrs McCaw and Burgess were no doubt a product of their familiarity with each other and Mr McCaw having previously dealt with Power Farming apparently without issue in respect of comparable arrangements. It is
apparent the parties at the time had little difficulty doing business in this informal way. It is that informality however that has given rise to the present uncertainty.
[25] Mr McCaw deposed he had no idea the tractor had left Power Farming’s premises and that he did not hear from Mr Burgess after the one and only telephone call he received on 1 November until the text message from Mr Burgess on
12 November asking if the tractor was insured. Mr McCaw was unaware the tractor had left Power Farming’s premises on 7 November and in the absence of hearing anything further had assumed any lease had fallen through.
[26] Mr McCaw’s instruction to Mr Burgess to “make it happen” has to be assessed both in the context of the conversation and the circumstances as a whole as to how arrangements were to be progressed. Mr McCaw did not engage in a discussion of terms relating to the lease because he reasonably understood that this would be dealt with by Power Farming through the drawing up of a written contract, the so called “paperwork” which on Mr Burgess’ own evidence would be sent through to McCaw Contracting. Mr McCaw at that time did not even know who the lessee was, nor somewhat unusally on Mr Burgess’ evidence, did he.
[27] I accept these features by themselves do not substantially detract from Power Farming’s argument that it was authorised to confirm a lease agreement on behalf of McCaw Contracting with one of its farming customers. However I do not consider that it could reasonably be concluded from Mr Burgess’ telephone conversation with Mr McCaw that Power Farming had authority to release its possession of the tractor to Knapdale without having taken the necessary steps to complete the contract. On balance I consider that must have been an essential step to securing Mr McCaw’s agreement to allow the tractor to be leased.
[28] Put another way, I do not consider the conversation between Mr McCaw and Mr Burgess in which Mr McCaw communicated a willingness to lease the tractor at a set rate and to “make it happen” was capable of constituting an agreeement by McCaw Contracting to allow Knapdale to take possession of the tractor, without the terms of the lease being presented to and agreed by McCaw Contracting. That was a prerequisite to the finalisation and completion of the contract which would make the
central elements of the proposed lease, namely Knapdale’s possession of the tractor
for its own use in return for a rental, binding.
[29] I do not consider that Mr McCaw agreed to be bound by a lease in the absence of those necessary preliminary arrangements having been agreed between himself and the lessee. Absent such agreement, Power Farming had no authority as the bailee to allow possession of the tractor to pass to a third party for its operational purposes.
[30] It follows therefore that in the absence of a binding contract having been concluded between McCaw Contracting and Knapdale the bailor/bailee relationship continued to endure and governed the obligations and duties owed by Power Farming to McCaw Contracting. I agree with Judge Maze’s conclusion that as a result, Power Farming was in breach of its obligations under the bailment when it released the tractor from its premises and granted possession to Knapdale. That breach remained ongoing at the time the tractor was destroyed by fire.
[31] As a result of that finding, it is not strictly necessary to make any final determination in respect of McCaw Contracting’s alternative argument that even if the bailment ceased at the time the tractor was uplifted, Power Farming had breached its duty of care as the bailee by not informing McCaw Contracting that it was intending to cede possession of the tractor. Power Farming made no contact with McCaw Contracting and provided no information after the 1 November phone conversation about the situation or its intentions.
[32] In my view the actions of Power Farming in releasing the tractor to Knapdale without taking any further steps to verify whether the respective responsibilities and obligations of the parties had been agreed, or to even contact McCaw Contracting regarding the outstanding uncompleted “paperwork” before surrendering possession to Power Farming, strongly supports a finding that Power Farming breached its duty of care as a bailee. This is particularly so when it is undisputed that Power Farming took responsibility for “sorting out the paperwork” which, at least implicitly, was an obligation it was required to discharge before allowing possession of the chattel to pass to another party.
(b) Was the loss of the tractor caused by the breach?
[33] It is not disputed that if the bailment remained in place the release of the tractor to Knapdale would constitute a breach. A bailee’s liability for loss consequent to a breach of a duty owed in that capacity has been summarised as follows:6
If a bailee deals with the chattels entrusted to him in a way not authorised by the bailor he takes upon himself the risk of so doing. If therefore, the bailee without necessity and without the bailor’s permission, fails to keep the chattel entrusted to him in the place where he has undertaken to keep it … he becomes by reason of his breach of duty an insurer of the chattel and is liable to the bailor for any loss or damage caused. This is so, unless he can show that the loss or damage did not arise out of his breach of duty, but must have taken place as inevitably at the one place as at the other.
[34] A bailee’s liability for loss in such circumstances is not reliant on any degree of foreseeability of the damage incurred. However a claimant needs to show that the damage occurred as a result of a failure by the bailee to keep the chattel where it was agreed it would be kept and that had that obligation been discharged no loss would have occurred.
[35] The available evidence as to how the tractor came to catch fire is limited. There is no suggestion the repair work contributed to its destruction. The tractor appears to have been in operation when the fire started. Again it is not suggested the operator was responsible for the fire nor that it could have been foreseen by that person. The event is referred to in neutral terms as an “electrical issue” which the parties accept was unrelated to either the repair work done earlier in the day or to any actions by the operator. Accordingly all that can be said is that the tractor caught fire due to an electrical fault while it was being operated.
[36] Clearly, the tractor had previously been in Power Farming’s possession to facilitate its sale. It was on display at the retail premises for that purpose. That is to
be contrasted with Knapdale’s possession of the tractor which was for the purpose of
6 Laws of New Zealand Bailment (online ed) at [21] citing Lilley v Doubleday (1881) 7 QBD 510 at 511.
its commercial operations. It was during its continued operation by Knapdale that the electrical fault occurred.
[37] If the tractor had remained on the premises at Power Farming displayed for the purpose of sale as it had for the previous three months without incident prior to its transfer to Knapdale, it is reasonable to conclude the fire would not have occurred. On balance I am satisfied that without possession of the tractor having been transferred in breach of the bailment, and its operation by Knapdale as part of its commercial activities, it would not have been destroyed. It was by no means “inevitable” that such loss would have occurred if the tractor had remained in Power Farming’s possession.
[38] Those circumstances provide a sufficient causal nexus between the breach of the bailment and the fire to render the bailee liable for the loss of the tractor.
Result
[39] The appeal is dismissed.
Costs
[40] McCaw Contracting is entitled to costs under the agreed 1A costs category. In the absence of the parties being able to agree costs they are to exchange and file memoranda (no more than three pages).
Solicitors:
Tompkins Wake, Auckland
Dean & Associates, Oamaru
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