ROLLS-ROYCE NZ LTD V CARTER HOLT HARVEY LTD And Anor CA CA259/02

ROLLS-ROYCE NZ LTD V CARTER HOLT HARVEY LTD And Anor CA CA259/02 7 October 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA259/02BETWEEN ROLLS-ROYCE NEW ZEALAND LIMITED Appellant AND CARTER HOLT HARVEY LIMITED Respondent And Strike Out Respondent AND GENESIS POWER LIMITED Strike Out Applicant Hearing: 20 September 2004 Coram: Anderson P McGrath J Glazebrook J Appearances: B W F Brown QC and D A Welsh for Appellant J R F Fardell QC and J P Cundy for Respondent and Strike Out Respondent Judgment: 7 October 2004JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J Introduction[1] Carter Holt seeks conditional leave to appeal against the judgment of this Court of 23 April 2004 which allowed Rolls-Royce's appeal from the judgment of Randerson J now reported at [2003] 1 NZLR 272. [2] The case concerns alleged defects in a Cogeneration Plant that the predecessor to Genesis Power had contracted to procure the construction of atCarter Holt's Kinleith Mill. Carter Holt claims the Plant is defective and issued proceedings against Genesis primarily in contract and the subcontractor, Rolls-Royce, in negligence. This Court (CA 259/02, 23 June 2004) held that there was no duty of care owed by Rolls-Royce to Carter Holt in the terms pleaded by Carter Holt and struck out the claim against Rolls-Royce, except insofar as it could be repleaded to relate to allegations of actual physical damage and to allegations of there being a special relationship between Rolls-Royce and Carter Holt. A claim based on pre-contractual statements made by Rolls-Royce was not subject to the strike out application.Carter Holt's submissions[3] Mr Fardell QC, for Carter Holt, accepted that, as the judgment was a strike out decision, there was no appeal as of right and that he had to satisfy us, in terms of r2(b) of the Privy Council (Judicial Committee) Rules 1973 that:the question involved in the Appeal is one which by reason of its great general or public importance, or otherwise, ought to be submitted to His Majesty in Council for decision.[4] Mr Fardell identified the following key issues that he submitted were of general importance:1. Whether there is a rule of law that, in commercial cases, the existence of a contractual regime will presumptively exclude the imposition of a tortuous duty of care; 2. If so: (a) Does the rule conflict with other decisions of this and other Courts in which, in commercial cases like the present, the contractual matrix has been held to be only one factor relevant to the imposition of a duty of care (refer, for instance, Price Waterhouse v Kwan [2000] 3 NZLR 39; Turton v Kerslake[2000] 3 NZLR 406; Attorney-General v Carter [2003] 2 NZLR 169; Henderson v Merrett Syndicates [1995] 2 AC 145)? (b) If so, can the determination of whether the rule applies be made at the strike out stage, irrespective of the surrounding circumstances and where the possibility remains that evidence at trial will overcome the rule (for example, by establishing a "special relationship" or "exceptional circumstances" in theJunior Books sense or an assumption of responsibility by thedefendant to the plaintiff [as referred to in the Judgment at paragraphs 83, 90, 96 and 124]? (c) What is the distinction between commercial cases such as this and so-called "residential dwelling cases" where duties of care in contractual matrix cases are routinely imposed (and in particular, where the domestic cases arise in contractual/commercial contexts closely analogous to this case)? 3. Whether, in cases where there is a contractual regime in place, reference may be made to the terms of the defendant's undertaking (as contained in the defendant's contract) in determining the scope of a duty of care owed by the defendant to the plaintiff? 4. Is there a proper basis for the distinction drawn by the Court in this case between a duty in tort to take care to perform a contract (which was held to be impermissible) and a duty in tort to take care in or while performing a contract (which was held to be permissible) [Judgment paragraph 66]?[5] Elaborating in his oral submissions, Mr Fardell said that the question of whether a contractual matrix should exclude a duty of care being owed by the principal wrongdoer, in this case Rolls-Royce, was of general importance. In his submission, once the contractual matrix satisfies the foreseeability/proximity test (as had been held to be the case here) then that in itself is enough to raise the possibility that there was a special relationship between the parties which should lead to a duty in tort. Mr Fardell criticised the reasoning in the case of Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 (CA), which he submitted showed a level of circularity. Despite that case being widely approved, both here and in the United Kingdom, he confirmed that he is seeking to argue before the Privy Council that the case was wrongly decided and that the law should revert to that set down in the decision of Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 (HL). [6] Even if the above questions are not accepted as being of general or public importance, Mr Fardell submitted that leave should be granted under the "or otherwise" limb of the rule. The factors supporting this, in his submission, are that it is a significant claim for Carter Holt, that it has been struck out before full evidence has been heard and the fact that the claim is the best method of ensuring recovery of the full measure of loss against the party principally responsible for that loss. The contractual structure could otherwise make full recovery more problematic.Rolls-Royce's submissions[7] Mr Brown QC, for Rolls-Royce, opposed the application for conditional leave. On the questions articulated by Mr Fardell, Mr Brown's primary submission was that, with the exception of question 4, none of the issues, interesting as they are, arise on the appeal. [8] Even if there is a finding in terms of Mr Fardell's question 1 that there is no rule of law that, in commercial cases, the existence of a contractual regime will presumptively exclude the imposition of a tortuous duty of care, this will not help Carter Holt. The question in this case is whether, taking into account all the relevant factors, this particular contractual structure did so. In Mr Brown's submission, this is the approach taken by this Court in its judgment, as is clear, for example, from paragraphs [103], [106], [107], [108] and [122] of the judgment. [9] The matters set out in Mr Fardell's second paragraph are dependent on the proposition in the first and therefore, in Mr Brown's submission, fail with it. In addition, the suggestion that this case, with its very detailed contractual structure including modified FIDIC terms, could be seen as analogous to a residential construction contract does not, in his view, bear scrutiny. [10] With regard to Mr Fardell's question 3 there is, in Mr Brown's submission, a failure to note paragraphs [68] and [69] of the judgment, which clearly recognise that a contractual regime may be relevant to the scope of the duty owed. Further, the finding in the judgment was only that there was no duty as pleaded. With regard to question 4, Mr Brown conceded that this question does arise in the case but submitted that the answer provided by this Court is uncontroversial, based as it is on similar considerations to the case of Simaan, which has been so widely approved, and on significant policy issues. Such policy issues are best judged by domestic courts, as recognised by the Privy Council in Invercargill City Council v Hamlin[1996] 1 NZLR 513. [11] Mr Brown also submitted that it was instructive to look at similar decisions where leave for a further appeal had been denied. In this regard, he referred toSimaan, Pacific Associates Inc v Baxter [1990] 1 QB 993 (CA) and Norwich City Council v Harvey [1989] 1 WLR 828 (CA). He submitted too that this Court should follow the approach in South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Limited CA 14/90, 13 April 1992 where conditional leave was refused, even though the case itself had been decided at strike out stage – see South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Limited [1992] 2 NZLR 282. He submitted that it was appropriate in this case to take the same approach, leaving the Privy Council free to consider whether an appeal should be entertained in an area that could also have implications for the position in the United Kingdom. As Mr Brown noted, a duty of care is not recognised in the United Kingdom, even in domestic construction cases. [12] With regards to the "or otherwise" limb, Mr Brown pointed to the fact that Carter Holt is not left without remedies. It has remedies against Genesis, both under the main contract and the amendment agreement, as well as the ability to direct Genesis to take action against Rolls-Royce.Discussion[13] We point out first that the decision Carter Holt seeks leave to appeal against was an unsurprising one. With regard to the claim itself, there is no physical damage alleged, apart from to the Plant itself and that is a minor element of the claim. The main complaint is that the Plant is not of the expected quality and that it does not work as intended. There are no allegations of latent defects or that any of the defects are dangerous. The parties are sophisticated commercial parties, there is no direct contractual relationship between Carter Holt and Rolls-Royce and the contractual structure is a very detailed one and of a turnkey nature. [14] In these circumstances, liability would not be recognised in Australia, the United Kingdom, Canada and most of the States in the United States. Carter Holt does not point to unique features in New Zealand that would justify a different approach being taken in this jurisdiction. Also, the case is very similar to that ofSimaan which has been widely approved, including by the House of Lords and thisCourt. It is difficult to see how it can be of public or general importance to challenge a decision that is of such an orthodox nature. [15] In addition, this is not, as pointed out by Mr Brown, a case where Carter Holt is without a remedy. It has the remedies it negotiated and paid for in the contractual setting. Carter Holt has also entered into an amendment agreement with Genesis to deal with the defects identified. It is difficult to escape the conclusion that Carter Holt is attempting by direct suit to improve on its bargain – see the comments of Richardson J in South Pacific at 308. [16] We also observe that the questions identified by Mr Fardell either do not arise in the case, are uncontroversial or can be argued in relation to the causes of action that were not struck out. With regard to Mr Fardell's question 1, the decision was clearly not framed in terms of there being the rule of law articulated by Mr Fardell. We refer, for example, to the discussion on latent defects at [94] and dangerous defects at [79]. The decision was also based, as Mr Brown, pointed out, on the particular contractual structure at issue (which was very detailed and with unusual features). With regard to question 2(a), the contractual matrix was seen as both a factor for and against a finding of proximity. Other factors were clearly considered, including the high degree of direct contact between the parties and the statutory background. The decisions referred to by Mr Fardell were discussed in some detail in the judgment and the approach taken was in accordance with that taken in those cases. [17] With regard to question 2(b), Carter Holt was specifically allowed to replead its case to argue that Junior Books, as it has been explained in later cases, is part of New Zealand law – see at [124] and [128] of the judgment. To the extent that Carter Holt seeks to argue that Junior Books in its wider manifestation should be followed in New Zealand and that Simaan was wrongly decided, we do not, as indicated above, consider this justifies leave to appeal being granted, especially given the longstanding criticism in the United Kingdom and elsewhere of the decision in Junior Books and longstanding acceptance, both here and in the United Kingdom, of the reasoning and result in Simaan.[18] With regard to question 2(c), there will undoubtedly be issues of demarcation between domestic and commercial cases – see discussion at [74] of the judgment, but they do not arise in this case where the construction at issue was clearly commercial. With regard to question 3, it is recognised in the judgment that reference can be made to contractual terms to define the scope of a duty – see at [68] to [69]. If there is no duty of care, however, the question of the scope of the duty will not arise. It would be strange to grant leave to argue issues relating to the scope of a duty in circumstances where it is not thought appropriate to grant leave to argue the existence of a duty. [19] With regard to question 4, the claim as originally pleaded was an alleged duty for Rolls-Royce to perform its contract with Genesis, a contract to which Carter Holt was not a party. Master Kennedy-Grant held that this went beyond the nature and scope of any duty recognised by the law – see the discussion of his judgment at [20] of this Court's judgment. This proposition appears to us to be uncontroversial and was apparently accepted by Carter Holt in that it filed an amended pleading. The amended pleading, however, essentially amounted to an assertion of a duty to Carter Holt, by Rolls-Royce, to perform the contract with Genesis, a duty already held not to exist. In any event, if no duty arises, the question of the scope of any duty logically cannot arise either. [20] Finally, we accept Mr Brown's submission that it is relevant that leave to appeal has been refused in the United Kingdom in cases similar to this, includingSimaan. We also accept Mr Brown's submission that the approach this Court took inSouth Pacific is appropriate in this case, given the possible wider implications for the law in the United Kingdom of the argument Mr Fardell wishes to run.Result and costs[21] The application for conditional leave is refused.[22] Costs of $3,500 (plus reasonable disbursements, including travel and accommodation costs of two counsel, to be set by the Registrar if necessary) are awarded to Rolls-Royce against Carter Holt.Solicitors: Simpson Grierson, Auckland for Appellant Lee Salmon Long, Auckland for Respondent and Strike Out Respondent