BASF NEW ZEALAND LIMITED V GPE HOLDINGS LIMITED HC WN CIV-2010-485-183

BASF NEW ZEALAND LIMITED V GPE HOLDINGS LIMITED HC WN CIV-2010-485-183 23 September 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2010-485-183BETWEEN BASF NEW ZEALAND LIMITED Applicant AND GPE HOLDINGS LIMITED Respondent Hearing: 1 September 2010 Appearances: J McLennan for the applicant A Davie for the respondent Judgment: 23 September 2010JUDGMENT OF CLIFFORD JIntroduction[1] In the District Court, the Chief District Court Judge awarded the respondent GPE Holdings Limited ("GPE") damages of $26,639 against the applicant, BASF New Zealand Limited ("BASF"), for a breach of the Fair Trading Act 1986. On appeal to this Court by GPE, Gendall J increased that award to $106,558.51. BASF seeks leave to appeal that decision to the Court of Appeal.Background[2] GPE developed apartments at Greta Point in Wellington. Each apartment had a deck attached. Those decks needed to be waterproofed. GPE's engineer for the project recommended the use of butynol. BASF recommended to GPE that a product called HLM5000 be used in place of butynol. BASF also recommended toGPE that it use a company called Tile 'N' Style Limited ("TNS") to apply the HLM5000 to those decks. [3] GPE engaged TNS to do that work. TNS supplied the HLM5000 product and applied it to the decks of some 90 apartments. Sometime later the decks of ten apartments began to leak. GPE repaired those decks, at a total cost to it of $266,396.29. GPE then brought proceedings against TNS in tort (negligence), contract and for misleading and deceptive conduct under the Fair Trading Act. It also brought proceedings against BASF solely under the Fair Trading Act. In those proceedings, GPE acknowledged a degree of contribution to its losses. [4] GPE alleged that TNS, as the first defendant, had (in breach of contract or as a tort) negligently applied the HLM5000, that TNS had breached an implied term of its contract with GPE, namely that the HLM5000 product supplied was suitable for its intended use by GPE, and that TNS had breached s 9 of the Fair Trading Act by representing to GPE that the HLM5000 was fit for its intended use by GPE. [5] GPE alleged that BASF, as the second defendant, had engaged in misleading and deceptive conduct in representing to GPE that BASF had provided TNS with full training as to the application of HLM5000, that TNS was an applicator of reasonable skill and that TNS' method of application was in accordance with relevant specifications. On the basis that that misleading conduct had induced GPE to contract with TNS, BASF was therefore liable for the loss arising from TNS's substandard work. GPE did not claim against BASF in tort or for breach of contract. [6] Each of TNS and BASF sought indemnity/contribution from the other. The Chief Judge resolved those claims in the way he allocated liability to each of TNS and BASF individually as regards GPE's damages claim. On that basis, he did not order indemnity or contribution as between TNS and BASF. Those aspects of the Chief Judge's decision were not appealed to the High Court, and are therefore of no direct relevance to this application. I will, however, comment on the way the Chief Judge resolved those claims, as I think that is not unrelated to the issues raised by this application.[7] TNS also commenced separate proceedings against BASF for work done on other, non-GPE, sites. BASF counterclaimed in those proceedings. Those proceedings were heard at the same time as GPE's claim, but again their disposition was not challenged in the High Court, and they are not relevant to this application.District Court decision[8] In the District Court, the Chief Judge first reviewed the evidence he had heard, from experts and others, as to the cause of the damage to the decks. He then went on, at [70] and following, to identify on "a common sense basis" what the Court saw "as the major contributing causes of the damage, free from the case as pleaded". 1 He concluded: a) GPE's conduct was causative of the damage. Therefore GPE was itself at fault for inadequacies of design and workmanship, and had to take some responsibility for choosing the HLM5000 product. b) TNS was at fault for the way the product was applied. c) BASF was also "responsible" for recommending to GPE that an unsuitable (at least for these purposes (at [86])) product be applied, and for advising TNS as to how that product was to be applied. [9] The Chief Judge then observed: 2So a question for the Court is that having concluded that there is responsibility on all parties, but having been given no adequate measure in the course of the evidence on division of that responsibility, what determination the Court can make on the basis of its own sense of proportionality and best efforts. To consider this we must first return to the case as pleaded, and ascertain the liability of each party on conventional legal principles.The case as pleadedThe way the case has been pleaded by GPE does not sit comfortably with how the Court views the case as set out above, and constrains the way the matter must be approached.1 GPE Holdings Ltd v Tile 'N' Style Ltd and Anor DC Wellington CIV-2006-085-126 and CIV- 2005-085-1456, 18 December 2009.2 At [87]-[88].[10] Following his analysis of the case as pleaded, the Chief Judge upheld GPE's claim against TNS in negligence, but not in breach of contract or under the Fair Trading Act. The Chief Judge held that TNS had been negligent in three respects, namely failing to apply the HLM5000 to a sufficient thickness on certain decks (albeit partially in reliance on BASF's advice (at [168])), failing to flood test the decks and failing to consult with GPE before applying HLM5000 directly over wooden joists. TNS was, however, not responsible (whether in tort, contract (implied term) or under the Fair Trading Act) for recommending the use of, or using, HLM5000. That was a choice made by GPE on BASF's recommendation. [11] The Chief Judge also found that, as pleaded, BASF had engaged in misleading and deceptive conduct to GPE by representing that it had provided TNS with training in applying the products, that TNS's workmanship was to an acceptable standard as to be expected from an "approved applicator" and that TNS would apply the membrane strictly in accordance with the specifications. [12] Importantly, for the issues raised before Gendall J and by this application, the Chief Judge noted that GPE had not claimed against BASF based on BASF's representation that HLM5000 was suitable for its intended use at Greta Point, which the Chief Judge had earlier (at [78]) found not to be the case. [13] The Chief Judge had little difficulty in then finding that TNS's negligence, save that involved in the failure to flood test the decks, and BASF's misleading and deceptive representations, were causative of loss. He then went on to consider liability for damages. [14] The Chief Judge first commented, as regards the cross-claims for indemnity and contribution between TNS and BASF: 3These cross claims can be sensibly taken into account in the assessment of overall contribution following [sic]. The Court sees it as more straightforward to simply fix what it sees as the fair and proper contribution of each party to the damage, looking at the matter in the round and on the basis of the preceding discussion and taking account of the cross claims. If the Court sees fit there can be a direction for complete indemnity under s 17 of the Law Reform Act 1936.3 At [171].[15] The Chief Judge then went on to consider what he described as the "proper contribution" of each of BASF and TNS to the total cost of the remedial works. He noted that GPE appeared to seek recovery of the total amount from either TNS or BASF, and had not "given consideration to a division of responsibility which is clearly what must be done". 4[16] To do so the Chief Judge proposed to rely on s 17 of the Law Reform Act 1936, having noted some uncertainty as to the basis upon which he might do so. [17] The Chief Judge first fixed GPE's contributory liability at 45 per cent of the total cost of repairs of $266,386.29, close to the approximately 40 per cent that GPE's expert had acknowledged was GPE's responsibility. [18] The Chief Judge then fixed TNS's responsibility, for failing to apply the membrane sufficiently thickly and, in tandem with BASF, for applying the membrane over the joists on two decks, at 15 per cent. [19] The Chief Judge then fixed BASF's contribution to the damages at 40 per cent. Having done so he commented:5The responsibility of this party to the whole is major, in the ways discussed at paragraphs 79 to 88. But not all of the 40% is recoverable because the way the case was pleaded does not allow it. What GPE cannot recover from BASF is damages for BASF's actual major contribution in its part in persuading GPE that HLM5000 was suitable for the task, and the consequences of directing TNS to apply the membrane in the way it did (other than by the high build system, and with a Sonoguard layer on top of HLM, both of which the Court is satisfied in a real sense contributed to the damage). The unrecoverable amount is 30% of the total damage. BASF is responsible to GPE only for the breaches of the Fair Trading Act established, and I fix that figure at 10%.[20] As a result, GPE was left with no remedy for 30 per cent of the losses it had suffered, notwithstanding the District Court's finding that TNS's negligence and BASF's breach of the Fair Trading Act had caused those losses. It was that aspect of the Chief Judge's finding that led to the appeal to the High Court.4 At [173].5 At [184].[21] The Chief Judge went on to conclude that neither TNS nor BASF was entitled to indemnity or contribution from the other. Rather, the Chief Judge observed that the Court had fixed what it saw as the relative contribution of both to the damage as a whole, bearing in mind the allegations in each indemnity claim. Significantly, that aspect of the Chief Judge's decision has not been appealed. TNS was not a party to the appeal in the High Court, and is not a party to this application for leave.The appeal to the High Court[22] In its notice of appeal, GPE contended: a) given that the District Court found that BASF induced GPE to contract with TNS, the Court should have held BASF liable (under the Fair Trading Act) for the subsequent damage caused by it; and b) that the District Court had failed to give effect to r 121 of the District Court Rules. [23] Having summarised the Chief Judge's discussion of causation generally, Justice Gendall referred to the Chief Judge's comment set out at [19], and concluded: 6 I think the only proper interpretation of his Honour's decision was that liability on the part of BASF for the damage that arose was 40 per cent but was reduced to 10 per cent because the factors contributing to the damage were unpleaded features of the suitability of the product and negligent advice given to TNS (but not to GPE) on matters of application.[24] Gendall J then concluded, despite the emphasis placed by both counsel on the question of whether the District Court had, or had not, properly applied r 121, that the appeal could properly be dealt with on a substantive basis. Resort to r 121 was unnecessary. The real issue was "whether the proper measure of damages awarded to GPE under s 43 of the Fair Trading Act should have been fixed and based by the Chief Judge on his assessed responsibility of BASF for the damage, said to be6 At [21]."major", at a level of 40 per cent and whether he erred by reducing it to 10 per cent for the reasons he gave". 7 From Justice Gendall's perspective, what was required was a consideration of s 43 of the Fair Trading Act, relevant New Zealand and other authorities, and whether, in the District Court, "questions of "causation" and "contribution" were properly applied in fixing the remedy of damages to be granted for the breach by BASF of the Fair Trading Act". 8 Put very simply in terms of s 43 of the Fair Trading Act, what award of damages was required to do justice between GPE and BASF? 9[25] To answer that question, Gendall J referred first to Red Eagle Corporation Limited v Ellis, and in particular the following passage: 10The language of s 43 has been said to require a "common law practical or common-sense concept of causation". The court must first ask itself whether the particular claimant was actually misled or deceived by the defendant's conduct. ... If the court takes the view, usually by drawing an inference from the evidence as a whole, that the claimant was indeed misled or deceived, it needs then to ask whether the defendant's conduct in breach of s 9 was an operating cause of the claimant's loss or damage. Put another way, was the defendant's breach the effective cause or an effective cause? Richardson J in Goldsboro spoke of the need for, or, as he put it, the sufficiency of, a "clear nexus" between the conduct and the loss or damage. The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage. The claimant may, for instance, have been materially influenced exclusively by some other matter, such as advice from a third party. (emphasis added) (footnotes omitted)[26] Having considered the significance of that authority, other case law in New Zealand and Australia, and the issue of causation generally, but more particularly under the Fair Trading Act and under the comparable s 82 of the Trade Practices Act 1974 (Commonwealth of Australia), Justice Gendall adopted with approval comments of McHugh J in Henville v Walker which, reflecting a "but for" approach to causation under that Act concluded: 11Where a person contravenes the Act and induces a person to enter upon a course of conduct that results in loss or damage, an award of damages that7 At [184].8 At [28].9 At [33].10 Red Eagle Corporation Limited v Ellis [2010] NZSC 20 at [29].11 Henville v Walker [2001] HCA 52 at 135.compensates for the actual losses incurred in embarking on that course of conduct best serves the purposes of the Act and should ordinarily be awarded.[27] Applying that authority, the Judge went on to note that as a matter of causation and commonsense, but for the wrongful representations by BASF as to the ability and qualifications of TNS to perform the task of applying the membrane GPE would not have contracted with TNS for that purpose:12 If those misleading representations had not been made, and acted upon by GPE, BASF would not have secured the benefit of its product being used and been paid for it. TNS would not have had the application contract, and so would not have purchased the product from BASF. The continuing relationship and activities involving BASF and TNS arose only because GPE was induced to use the latter. The joint action of BASF and TNS led to the damage – not entirely – but in significant proportion (55 per cent). There remained a clear nexus between the original misconduct of BASF and the loss of damage that GPE suffered. The consumer protection policy underpinning the Fair Trading Act requires that where the misleading conduct occurs to benefit the wrongdoer (as it usually does), and another is induced to change his position to his detriment, damages to reflect losses flowing from such a change in position should normally be awarded. That is except in cases where some exceptional intervening act by another person or force halts the causative link or nexus and thus requires reduction for contributory negligence.[28] Justice Gendall then went on to express his conclusion in the following terms: 13I have come to the conclusion that the Chief Judge was wrong to reduce the 40 per cent damage for which BASF had been identified as being responsible to reflect the fact that damage arose through other operative acts, only one of which was pleaded by the plaintiffs. It was established that BASF breached the Fair Trading Act. The misrepresentation as to TNS' competency was not required to be the sole cause of their loss. The fact that it was a cause, and an effective cause, established liability for the total amount of the loss. The Court's discretion was properly exercised to adjust the award of damages against BASF to reflect the contributory negligence of GPE, and the responsibility of TNS. That exercise of discretion was in [sic] order to reflect the policy of the act so as to be "a matter of doing justice to the parties". But it was not "justice" to the parties as between GPE and BASF, to have GPE's entitlement to damages for its loss (after taking into account contributory negligence) to be further reduced simply by reference to other alleged misconduct by BASF – whether towards TNS or GPE –12 At [49] and [51].13 At [55].simply because Chief Judge Johnson said [sic] had not been pleaded by GPE. I do not have to decide on whether r 121 should, or could have been invoked. The appeal is allowed on the basis I have discussed.Discussion[29] Pursuant to s 67 of the Judicature Act 1908, a decision of the High Court on appeal from an inferior court is final, unless leave to appeal to the Court of Appeal is granted, in the first instance, by the High Court. The principles to be applied by the High Court in considering an application under s 67 are well established. [30] In Snee v Snee the Court of Appeal stated: 14To summarise, for leave to be granted pursuant to s 67, the appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost, both to the Court system and to the parties, and the delay involved in the further appeal. Upon a second appeal this Court is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below. It is not every alleged error of law that is of such importance, either generally or to the parties, as to justify further pursuit of litigation which has already been twice considered and ruled upon by a Court.[31] Where the issue is solely one of fact the Court of Appeal in Waller v Hidersaid: 15When the disputed matter is entirely or largely a question of fact the task of the appellant under s 67 is harder. An issue of fact in a matter falling within the jurisdiction of an inferior Court will seldom be of public importance. It is better that we make no attempt to define the circumstances in which a factual context can be taken to have private importance but obviously it may do so if the amount at stake is very substantial or the decision reflects seriously on the character or conduct of the would-be appellant or, as in Cuff, the judgment below has special consequences (for example, bankruptcy) for the losing party. Even then, however, leave cannot be anticipated if the applicant is seeking to disturb concurrent findings of fact in the lower Courts.[32] In terms of those principles BASF submits that it is bona fide arguable that Justice Gendall's decision was wrong in fact and law. The Chief Judge had correctly14 Snee v Snee [1999] PRNZ 609 at [22].15 Waller v Hider [1998] 1 NZLR 412 at 413.found that GPE had not claimed that BASF had represented to it that the product would be suitable for the particular use at Greta Point. Further, BASF's negligence and misrepresentation as regards the actual application of the product had been made to TNS, and not BASF. The Chief Judge's finding that the conduct in breach of the Fair Trading Act was causative of only 10 per cent of GPE's losses was correct, and Justice Gendall's approach, in reliance on Red Eagle and other cases, was wrong in fact and law. [33] That was an issue of sufficient privative importance between the parties that leave for a second appeal should be granted. Further proceedings have been brought by GPE against BASF relating to other units in the Greta Point development. It was BASF's submission that any decision by the Court of Appeal would be of relevance in those proceedings. Further, and although Mr McLennan for BASF frankly acknowledged that without those further proceedings it would be difficult for BASF to identify a privative importance sufficient to grant leave, the quantum of damages (and resulting costs) involved directly in this appeal (estimated by BASF at some $147,300.00) further supported there being a sufficient matter of privative importance to provide for the grant of leave. [34] There was also an issue of some public importance involved, namely that of the importance of pleadings in terms of the exercise of the Court's discretion to awards of damages under the Fair Trading Act, and perhaps – more generally – the relationship between Fair Trading Act damages and damages in contract and tort in the context of apportioning liability between joint tortfeasors.Discussion[35] In submitting that there was a bona fide arguable case to be made that Justice Gendall's decision was wrong, Mr McLennan for BASF relied particularly on the Chief Judge's apportionment of BASF's overall 40 per cent liability (based on the facts as the Judge found them to be as distinct from the case as pleaded) as to 10 per cent to a breach of the Fair Trading Act as pleaded, and as to 30 per cent to the non- pleaded acts of representing wrongly that the HLM5000 product was suitable for its intended use by GPE and that TNS was a fully trained applicator. Given thosefindings Justice Gendall had been wrong to apportion 40 per cent of those damages to BASF in respect of the established breach of the Fair Trading Act. Is that a bona fide arguable point? [36] In my view, that raises essentially the legal point whether it is bona fide arguable that it is wrong for a Judge (on appeal from the exercise of a discretion) to overturn an apportionment of liability, for an established breach of the Fair Trading Act, based on the proportionate causative effect of the impugned conduct compared to all other contributing cause, and instead apportion liability on a "but for" approach to causation. [37] When put in those terms – which I think are the correct ones – and the authority of the Supreme Court in Red Eagle is considered, in my view the answer to that question whether there is a bona fide arguable point is no. Red Eagle, as referred to by Justice Gendall himself in the passage cited above at [25], is clear. If the impugned conduct is an effective cause, then under s 43 liability may be apportioned in the Court's discretion to achieve justice between the parties. In my judgment, I do not consider there to be a bona fide argument to be made that the approach taken by Gendall J is wrong. That, in my view, is the orthodox and unarguably correct approach established by Red Eagle.[38] Before Justice Gendall on appeal, and again in arguing this application, Mr McLennan for BASF placed considerable reliance on Chief Judge Johnston's findings that it was unpleaded aspects of BASF's behaviour that had resulted in the reduction of its overall liability from 40 per cent to 10 per cent. Mr McLennan relied on that finding in terms both of its identification of the relative causative role of the pleaded and unpleaded aspects of BASF's conduct, and also, in terms of the justice of the situation, to argue that it would not be just for liability to be attributed to BASF by reference to conduct that it had not had a formal opportunity to answer. [39] In my view correctly, Justice Gendall relied on what he saw as the "but for" causative significance of BASF's pleaded conduct. He held, in effect, that this was of greater significance than the conduct of TNS and that, overall, an attribution of 40 per cent liability to BASF under the Fair Trading Act produced a just result.[40] In the circumstances of this case, I do not think it is bona fide arguable that Justice Gendall was wrong in that approach. [41] Even if I am wrong on that point, I am not persuaded that this issue is of sufficient privative importance as between GPE and BASF as to occasion a grant of leave to appeal to the Court of Appeal. I consider that, when pressed by me, Mr McLennan was not able to identify with any great particularity how a decision on this appeal by the Court of Appeal would be of particular assistance in the proceedings that have now been issued. In particular, I note that the pleading omissions, which principally gave rise to these difficulties in the District Court, have not been repeated. It is accepted that GPE now clearly pleads in those further proceedings each of the breaches that the District Court Judge found against BASF. Therefore, the issues that are at the heart of this appeal will not arise in those further proceedings. [42] Furthermore, I do not think a decision by the Court of Appeal will, in any relevant way, confirm or otherwise the Judge's assessment of relative contribution so as to mean, as it were, that that issue would not require further litigation by the parties. The point at issue on appeal to the High Court was, and on any further appeal to the Court of Appeal would be, whether, accepting those proportionate findings, the correct legal approach was that taken by the Chief Judge or by Justice Gendall. The consideration of that issue would add nothing to what the District Court has already found in its determination of proportionate contributions to the overall damage. [43] Mr McLennan also pointed to the dollar amount possibly at issue between the parties arising out of Justice Gendall's judgment as supporting the conclusion that there was an issue of sufficient privative importance involved as to merit further consideration by the Court of Appeal. In my view he correctly accepted however, that, on its own, that consideration would have been unlikely to merit leave being granted. For my part, I think that is the correct assessment. Although the High Court decision did overturn the District Court decision, I do not think here that, by itself, a simple reconsideration of the issue determined by Justice Gendall in theseproceedings is of sufficient privative importance to merit further consideration by the Court of Appeal. [44] Nor am I persuaded that this case gives rise to wider issues of sufficient public importance to justify further appeal. [45] In this context, but with some diffidence as the issue was not before me on appeal, I make some observations as to the approach taken by the Chief Judge. [46] In the District Court, the Chief Judge – perhaps somewhat unusually – embarked on an analysis of causation and liability quite distinct from the claims made by the parties. If, however, he had focussed directly on the claims made by the parties, he would have found that TNS was liable in tort to GPE, and that BASF was liable for misleading and deceptive conduct. In accordance with normal principles, that would have made TNS liable to GPE for all the loss suffered. The Judge would have been required to determine BASF's liability for its s 9 breach. He would also have been required to determine, under s 17 of the Law Reform Act 1936, the contribution payable by BASF to TNS on the basis that a party liable in tort and a party liable under the Fair Trading Act are to be treated as joint tortfeasors – which I consider the correct approach. That increase would have allowed him, in that overall apportionment, to take account of BASF's responsibility to TNS, as well as its direct liability to GPE. [47] What the Chief Judge did, however, by reference to the provisions of s 17 of the Law Reform Act 1936, was to fix the proportionate liability of each of BASF and TNS to GPE. Yet, New Zealand law does not provide for the proportionate liability of joint tortfeasors. Rather, a successful plaintiff in tort against a number of defendants is entitled to look to each defendant for all of its loss. Those defendants are then, in turn, entitled to seek contribution and/or indemnity as between themselves. The point is, at the end of the day, that the plaintiff is not exposed to the insolvency or inability of any particular defendant to pay. Rather, it is the defendants as between themselves who carry the risk of their individual insolvency. The Chief Judge further rules that there was to be no indemnity or contribution between the defendants.[48] Although not appealed, I am not persuaded that the Chief Judge adopted the correct approach, especially with respect to the liability of TNS. On the basis that each of TNS and BASF are solvent, the matter may not be of great practical moment. Nevertheless it does seem to me that the correct approach – as I have indicated – is to first find liability, whether it be in negligence or under the Fair Trading Act, then to fix the quantum of liability under the Fair Trading Act and finally to allow – to the extent necessary – for contribution or indemnity under s 17 of the Law Reform Act 1936. This would have left TNS – irrespective of any separate liability of BASF – itself liable for the whole loss to GPE (minus GPE's contribution), and it would have been up to TNS to seek a contribution or indemnity from BASF. To the extent, therefore, that a further appeal here might have raised issues of wider public importance regarding the inter-relationship of those various provisions, I do not think this is a helpful case for that matter to be considered by the Court of Appeal, given that all the issues considered by the Chief Judge were not appealed, and therefore would not be before the Court of Appeal. [49] On that basis, leave to appeal is declined. BASF may, of course, apply for special leave from the Court of Appeal itself."Clifford J"Solicitors: Holmden Horrocks, P O Box 1108, Auckland for the applicant. Treadwells, P O Box 859, Wellington for the respondent.