Steel Company Ltd v Pipes Nz Ltd

• Jurisdiction: New Zealand
• Judge: Venning J
• Judgment Date: 05 May 2016
• Neutral Citation: [2015] NZCA 175
• Docket Number: CA343/2014
• Court: Court of Appeal
• Date: 05 May 2016

BETWEEN

Steel Co Limited

Appellant

and

Pipes Nz Limited

Respondent

[2015] NZCA 175

Court:

Wild, French and Venning JJ

CA343/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision that the appellant had breached s16 Sale of Goods Act 1908 (implied conditions as to quality or fitness) — the HC had dismissed the appellant's affirmative defence based on exclusions and limitations of liability set out in its standard terms and conditions (Ts and Cs) of sale, holding that the appellant's terms had not been incorporated into the contracts — the appellant said that while the Ts and Cs were not specifically incorporated into the sale agreements, they had been notified to the respondent's predecessor company in 2007 and were incorporated under a course of conduct — in 2009 the respondent had purchased the entity with which the appellant had initially traded — whether the Ts and Cs had been incorporated into the contracts by the prior course of dealings between the parties — whether the liquidated damages were too remote — whether it was open to the appellant to argue on appeal that the liquidated damages claimed had not been proved to be reasonable.

Counsel:

N R Campbell QC and M R T Colthart for Appellant

G J Kohler QC A G Hazelton and G M Bennett for Respondent

• A The appeal is dismissed.

• B The appellant is to pay costs for a standard appeal on a band A basis and usual disbursements..

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Venning J)

Introduction

1 Steel Co Ltd sourced pipes from China and supplied them to Pipes NZ Ltd under two separate contracts. Pipes NZ in turn onsold the pipes to Trustpower Ltd and Westpower Ltd. The pipes were for use as penstocks in two hydroelectric schemes — Trustpower's Esk Valley project in Hawke's Bay and Westpower's Amethyst project at Harihari on the West Coast.

2 The pipes Steel Co supplied were deficient. Pipes NZ had to recoat some and repair others. Steel Co resupplied a number of them. Some of the resupplied pipes also required repair. As a result, the pipes were delivered late to the hydroelectric projects. Pipes NZ faced claims from both Trustpower and Westpower. Pipes NZ sued Steel Co alleging breach of contract. It claimed the costs it had incurred recoating and repairing the pipes. It also sought the liquidated damages it had paid to Trustpower and Westpower.

3 Steel Co denied liability. It also raised an affirmative defence relying on various exclusions and limitations of liability set out in its standard terms and conditions of sale (Ts and Cs). 1

4 Thomas J found for Pipes NZ. 2 She found that Steel Co was in breach of the implied contractual conditions as to fitness for purpose and merchantable quality under s 16 of the Sale of Goods Act 1908. The Judge dismissed Steel Co's affirmative defence. She held that Steel Co's Ts and Cs were not incorporated into the contracts with Pipes NZ for the supply of the penstock pipes. Pipes NZ sealed judgment for $416,580.18, which counsel agree included $117,480.02 relating to the liquidated damages paid to Trustpower and Westpower. 3

The appeal

5 Steel Co initially raised a number of points on appeal. During the course of the appeal process the points were refined. Consequently the issues in dispute have been significantly reduced.

6 Steel Co initially challenged Thomas J's dismissal of Steel Co's argument that the pipes complied with the contracts because they had been inspected and

approved by a third party prior to shipment from China. That is not pursued anymore

7 Next, Steel Co had challenged Thomas J's finding that Steel Co was in breach of the warranties under s 16 of the Sale of Goods Act 1908 in that the pipes were unfit for purpose or not of merchantable quality. Steel Co no longer pursues an appeal against that substantive finding.

8 Thomas J had also held Pipes NZ had acted reasonably in the circumstances and that all costs of recoating the pipes were recoverable. Steel Co no longer challenges that finding (but says the costs are excluded by its Ts and Cs).

9 Next, the Judge held that the cost Pipes NZ had incurred in repairing the minor defects in the resupplied pipes was recoverable. Again, Steel Co does not challenge that finding but says the costs are excluded by its Ts and Cs.

10 Finally, the Judge held Pipes NZ could recover the liquidated damages paid to Trustpower and Westpower. She held it was within the reasonable contemplation of the parties that if Steel Co did not deliver conforming pipes within time Pipes NZ would have to compensate Trustpower and Westpower for the delay. Steel Co says it did not have notice of the liquidated damages, they were too remote and, in any event, were excluded by the Ts and Cs.

The issues on appeal

11 The issues on appeal are now:

(a) Were Steel Co's Ts and Cs incorporated into the contracts for the supply of the penstock pipes to Pipes NZ?

(b) If Steel Co's Ts and Cs were incorporated into the contracts, what effect do they have on any liability for damages that Steel Co would otherwise have to Pipes NZ?

(c) Were the liquidated damages that Pipes NZ paid to Trustpower and Westpower recoverable as damages from Steel Co?

12 There is a preliminary point. In the course of her decision the Judge also found that the pipes did not correspond with the contract specification. Although Pipes NZ's pleading referred generally to a sale by description, as Mr Campbell QC pointed out, Pipes NZ had not pleaded a breach of s 15 of the Sale of Goods Act. The only cause of action pleaded was a breach of s 16 of the Sale of Goods Act. Nothing turns on this pleadings issue given the acceptance of the finding of breach of s 16 of the Sale of Goods Act and the refinement of the issues on appeal.

Were the Ts and Cs incorporated into the contracts?

13 The Ts and Cs relied on are contained in a document headed “Steel Co Limited Terms and Conditions of Sale”. The document is one that a recipient would expect to contain contractual conditions, which might include exclusion clauses, particularly given the nature of the industry. Indeed Pipes NZ itself used standard terms and conditions for the pipes it supplied. The issue is whether the document containing the Ts and Cs was brought to the notice of Pipes NZ. For Pipes NZ to be bound the Ts and Cs must have been brought to its notice before or at the time the relevant contracts were concluded. 4

14 The general trading relationship between Steel Co and Pipes NZ Ltd is relevant, as are the particular terms negotiated relating to the Esk Valley and Amethyst contracts.

15 Steel Co accepts that its Ts and Cs were not expressly referred to in its contracts with Pipes NZ for the supply of pipes for the Esk Valley and Amethyst projects, but argues the Ts and Cs were incorporated into both contracts because Steel Co had previously brought the Ts and Cs to Pipes NZ's notice and the Ts and Cs stated they applied to each sale by Steel Co (unless expressly agreed in writing

otherwise). Steel Co says that notice of its Ts and Cs was given to Pipes NZ in 2007, or alternatively, in 2011

16 It is important to note at this point that Pipes NZ is a different entity to the entity with which Steel Co had initially traded since 2006. Pipes NZ purchased the business of the former Pipes NZ Ltd (Pipes 1) in 2009. On purchase the appellant changed its name to Pipes 1's former name but it was a quite separate entity to Pipes 1. Despite that, Mr Campbell argued that notice of the Ts and Cs was given to Pipes 1 in 2007 and that notice was maintained by Pipes NZ after its purchase of the business in 2009.

The events of 2007

17 As Mr Campbell submitted, Thomas J did not make a factual finding on whether Steel Co had sent its Ts and Cs to Pipes 1 in May 2007, rather concluding that whether or not the Ts and Cs were sent at that time the issue was whether Pipes NZ, being a different legal entity to Pipes 1, was aware of the Ts and Cs. 5 Given the argument Mr Campbell advanced, that the knowledge gained in 2007 effectively continued after the purchase of the business by Pipes NZ, it is necessary to determine if the Ts and Cs were sent to Pipes 1 in 2007.

18 Mr Roberts, Steel Co's trading manager, stated generally in his witness brief that in “May 2007, Steel Co's Terms and Conditions of Sale were sent to [Pipes 1].”

He elaborated on that in his evidence-in-chief. He said that he knew the document was sent to Pipes 1 in May 2007 as Steel Co had in its database a list of all the customers it was sent to. Mr Kohler QC raised an objection regarding discovery issues and cross-examined Mr Roberts on the issue. It became apparent Mr Roberts relied on a standard letter dated 30 May 2007 he said was sent to a number of clients (including Pipes 1). It provided:

In updating our records we find we are less than certain that all our customers are aware of our Terms and Conditions of Sale, upon which business is conducted between us.

Therefore, to ensure completeness of our records, we are reissuing our perpetual Terms and Conditions of Sale (attached) which, from receipt of this letter, all credit accounts will be operated under.

Should you have any queries, please contact us within 14 days.

19 The standard letter was drafted on the basis it would be sent by Michael Carajannis, Steel Co's managing director. The standard letter produced to the Court has the following handwritten note on it:

Mike — document now in our system. Do you want to send to our customers?

Who?

When?

There is an accompanying schedule that is headed: “Clients to whom we have sent Steel Co Ltd Terms and Conditions of Sale”. It has the subheading “Sent: 28 May 2007”. The schedule lists a number of clients, including Pipes 1, with what appears to be a tick beside each of their names. In the case of Pipes 1 the letters M C are also recorded beside Pipes 1's name. Mr Roberts did not...