STEEL CO LIMITED v PIPES NZ LIMITED [2016] NZCA 175

STEEL CO LIMITED v PIPES NZ LIMITED [2016] NZCA 175 [5 May 2016]IN THE COURT OF APPEAL OF NEW ZEALANDCA343/2014[2016] NZCA 175BETWEEN STEEL CO LIMITEDAppellantAND PIPES NZ LIMITEDRespondentHearing: 21 October 2015 (further submissions received 2, 11 March2016)Court: Wild, French and Venning JJCounsel: N R Campbell QC and M R T Colthart for AppellantG J Kohler QC, A G Hazelton and G M Bennett for RespondentJudgment: 5 May 2016 at 10 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay costs for a standard appeal on a band A basis andusual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Venning J)Introduction[1] Steel Co Ltd sourced pipes from China and supplied them to Pipes NZ Ltdunder two separate contracts. Pipes NZ in turn onsold the pipes to Trustpower Ltd andWestpower 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 projectat Harihari on the West Coast.[2] The pipes Steel Co supplied were deficient. Pipes NZ had to recoat some andrepair others. Steel Co resupplied a number of them. Some of the resupplied pipesalso required repair. As a result, the pipes were delivered late to the hydroelectricprojects. Pipes NZ faced claims from both Trustpower and Westpower. Pipes NZsued Steel Co alleging breach of contract. It claimed the costs it had incurred recoatingand repairing the pipes. It also sought the liquidated damages it had paid to Trustpowerand Westpower.[3] Steel Co denied liability. It also raised an affirmative defence relying onvarious exclusions and limitations of liability set out in its standard terms andconditions of sale (Ts and Cs).1[4] Thomas J found for Pipes NZ.2 She found that Steel Co was in breach of theimplied contractual conditions as to fitness for purpose and merchantable qualityunder s 16 of the Sale of Goods Act 1908. The Judge dismissed Steel Co's affirmativedefence. She held that Steel Co's Ts and Cs were not incorporated into the contractswith 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 liquidateddamages paid to Trustpower and Westpower.31 Leave to plead the affirmative defence was granted during the course of the hearing: HC AucklandCIV-2013-404-2266, 30 April 2014 (minute of Thomas J).2 Pipes NZ Ltd v Steel Co Ltd [2014] NZHC 1216.3 The liquidated damages initially claimed by Pipes NZ were $32,156 paid to Trustpower and$69,390 paid to Westpower. The agreed sum must include an interest component.The appeal[5] Steel Co initially raised a number of points on appeal. During the course ofthe appeal process the points were refined. Consequently the issues in dispute havebeen significantly reduced.[6] Steel Co initially challenged Thomas J's dismissal of Steel Co's argument thatthe pipes complied with the contracts because they had been inspected and approvedby 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 breachof the warranties under s 16 of the Sale of Goods Act 1908 in that the pipes were unfitfor purpose or not of merchantable quality. Steel Co no longer pursues an appealagainst that substantive finding.[8] Thomas J had also held Pipes NZ had acted reasonably in the circumstancesand that all costs of recoating the pipes were recoverable. Steel Co no longerchallenges 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 minordefects in the resupplied pipes was recoverable. Again, Steel Co does not challengethat 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 toTrustpower and Westpower. She held it was within the reasonable contemplation ofthe parties that if Steel Co did not deliver conforming pipes within time Pipes NZwould have to compensate Trustpower and Westpower for the delay. Steel Co says itdid 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 supplyof the penstock pipes to Pipes NZ?(b) If Steel Co's Ts and Cs were incorporated into the contracts, what effectdo they have on any liability for damages that Steel Co would otherwisehave to Pipes NZ?(c) Were the liquidated damages that Pipes NZ paid to Trustpower andWestpower recoverable as damages from Steel Co?[12] There is a preliminary point. In the course of her decision the Judge also foundthat the pipes did not correspond with the contract specification. Although Pipes NZ'spleading 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 causeof action pleaded was a breach of s 16 of the Sale of Goods Act. Nothing turns on thispleadings issue given the acceptance of the finding of breach of s 16 of the Sale ofGoods 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 LimitedTerms and Conditions of Sale". The document is one that a recipient would expect tocontain contractual conditions, which might include exclusion clauses, particularlygiven the nature of the industry. Indeed Pipes NZ itself used standard terms andconditions for the pipes it supplied. The issue is whether the document containing theTs and Cs was brought to the notice of Pipes NZ. For Pipes NZ to be bound the Tsand Cs must have been brought to its notice before or at the time the relevant contractswere concluded.44 Olley v Marlborough Court Ltd [1949] 1 KB 532 (CA); Grogan v Robin Meredith Plant Hire[1996] CLC 1127 (CA); Catharine MacMillan "When standard terms are the terms of a contract"(1996) 55 CLJ 427; John Burrows, Jeremy Finn and Stephen Todd Law of Contract in NewZealand (4th ed, LexisNexis, Wellington, 2012) at [7.2.2(a)]; and HG Beale (ed) Chitty onContracts (31st ed, Sweet & Maxwell, London, 2012) vol 1 at [12-009].[14] The general trading relationship between Steel Co and Pipes NZ Ltd isrelevant, as are the particular terms negotiated relating to the Esk Valley and Amethystcontracts.[15] Steel Co accepts that its Ts and Cs were not expressly referred to in its contractswith Pipes NZ for the supply of pipes for the Esk Valley and Amethyst projects, butargues the Ts and Cs were incorporated into both contracts because Steel Co hadpreviously brought the Ts and Cs to Pipes NZ's notice and the Ts and Cs stated theyapplied to each sale by Steel Co (unless expressly agreed in writing otherwise). SteelCo says that notice of its Ts and Cs was given to Pipes NZ in 2007, or alternatively, in2011.[16] It is important to note at this point that Pipes NZ is a different entity to theentity with which Steel Co had initially traded since 2006. Pipes NZ purchased thebusiness of the former Pipes NZ Ltd (Pipes 1) in 2009. On purchase the appellantchanged 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 in2007 and that notice was maintained by Pipes NZ after its purchase of the business in2009.The events of 2007[17] As Mr Campbell submitted, Thomas J did not make a factual finding onwhether Steel Co had sent its Ts and Cs to Pipes 1 in May 2007, rather concluding thatwhether 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 theargument Mr Campbell advanced, that the knowledge gained in 2007 effectivelycontinued after the purchase of the business by Pipes NZ, it is necessary to determineif the Ts and Cs were sent to Pipes 1 in 2007.[18] Mr Roberts, Steel Co's trading manager, stated generally in his witness briefthat in "May 2007, Steel Co's Terms and Conditions of Sale were sent to [Pipes 1]."5 Pipes NZ Ltd v Steel Co Ltd, above n 2, at [52].He elaborated on that in his evidence-in-chief. He said that he knew the documentwas sent to Pipes 1 in May 2007 as Steel Co had in its database a list of all thecustomers it was sent to. Mr Kohler QC raised an objection regarding discovery issuesand cross-examined Mr Roberts on the issue. It became apparent Mr Roberts reliedon 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 customersare aware of our Terms and Conditions of Sale, upon which business isconducted between us.Therefore, to ensure completeness of our records, we are reissuing ourperpetual Terms and Conditions of Sale (attached) which, from receipt of thisletter, 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 byMichael Carajannis, Steel Co's managing director. The standard letter produced to theCourt 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 sentSteel Co Ltd Terms and Conditions of Sale". It has the subheading "Sent: 28 May2007". The schedule lists a number of clients, including Pipes 1, with what appearsto be a tick beside each of their names. In the case of Pipes 1 the letters M C are alsorecorded beside Pipes 1's name. Mr Roberts did not accept that M C was a referenceto Mr Michael Carajannis. He suggested it was a reference to R C Macdonald Ltd, thecompany from which Steel Co had copied the Ts and Cs, although he accepted he hadno real recollection.[20] Mr Roberts ultimately accepted that Steel Co had no record, other than thestandard letter and schedule, that the Ts and Cs had been sent to Pipes 1. In the courseof his evidence he did suggest that the Ts and Cs had been received by "the first generalmanager" of Pipes NZ, Mr Gallichan because he remembered discussing them withhim. When further questioned, Mr Roberts accepted he had not referred to that in hisbrief and nor did he have any record of it. Mr Gallichan did not give evidence.[21] So Mr Roberts and Steel Co relied on the tick on the schedule beside the nameof Pipes 1, which Mr Roberts says recorded that a copy of the letter (and the Ts andCs) was sent to it, as the basis for saying the Ts and Cs had been brought to Pipes 1'snotice. But Steel Co has no record or copy of the original letter it says was sent toPipes 1. Pipes NZ has no record (from the documents it received when it bought Pipes1's business), that such a letter was ever received. Nor is there any copy of the Ts andCs held on Pipes NZ's file.[22] There are a number of difficulties with Steel Co's evidence on this issue. Thereis an unexplained inconsistency between the client list, which purports to record theTs and Cs were sent on 28 May 2007, and the draft of the standard form letter, whichis dated 30 May. Next, despite Mr Roberts' evidence, it does seem more likely thatthe initialled "M C" alongside the reference to Pipes 1 is a reference to MikeCarajannis as the person who would have sent the letter out rather than a reference toR C Macdonald Ltd as Mr Roberts suggested.[23] Further, the draft letter of 30 May has the handwritten notations on it thatsuggest further decisions were required from Mr Carajannis before the letter (andaccompanying Ts and Cs) was to be sent. Steel Co did not lead evidence from any ofits other customers on the list to confirm receipt of the letter and the Ts and Cs.[24] Finally, it is relevant that although Mr Carajannis gave evidence, his evidencedid not address this specific issue. His evidence was more directed at the events in2009.[25] The onus was on Steel Co to establish it had brought its Ts and Cs to the noticeof Pipes 1. The evidence falls short of establishing that it did so in 2007.The events of 2009[26] Given that finding, the second part of Mr Campbell's argument on this point,that Mr Gallichan's knowledge of the Ts and Cs received on behalf of Pipes 1 in 2007also constituted notice by Pipes NZ when it took over the business of Pipes 1 (becauseMr Gallichan remained as manager of Pipes NZ) does not directly arise. In any event,it is also answered by what passed between the parties in 2009.[27] Pipes NZ purchased the business of Pipes 1 in 2009. Importantly, it was not apurchase of Pipes 1's shares. Pipes NZ is a separate entity to Pipes 1. Following thepurchase Mr Gallichan, who had been the former owner and manager of Pipes 1,became the manager of Pipes NZ and remained with Pipes NZ until August 2010.Steel Co continued to deal with Pipes NZ through Mr Gallichan. Mr Campbellsubmitted that Mr Gallichan's knowledge and notice that he had received of Steel Co'sTs and Cs in 2007 was held by Pipes NZ. He noted the principle that a notice oncecommunicated was not normally permitted to be forgotten,6 submitting that were itotherwise a seller would have to give a further notice of Ts and Cs each time there wasa change in the management or personnel of the buyer.[28] Mr Campbell is correct that a change within the management of a companydoes not require a supplier to provide a fresh copy of its Ts and Cs. However, that isnot the point in issue here. In such a case the company is the same entity. Theknowledge the company has imputed to it from its manager is not lost if the managerleaves. The important distinguishing feature of the present case is that Pipes NZ is acompletely different and separate legal entity to Pipes 1. Any knowledge that Pipes 1may have gained through Mr Gallichan is not necessarily held by Pipes NZ justbecause Mr Gallichan was employed by it after the sale. Whether his knowledge(whatever that may have been), is to be imputed to Pipes NZ will depend on theparticular facts.[29] Importantly, in this case, at the time Pipes NZ purchased the business of Pipes1, it made inquiries through the course of the due diligence process as to the tradingrelationship that existed between Steel Co and Pipes 1. When Steel Co responded tothose inquiries it made no reference to the Ts and Cs it now seeks to rely on.[30] Steel Co had supplied steel to Pipes 1 both as indent stock pursuant to specificcustomer orders and also as consignment stock with a profit sharing arrangement onsales. On Mr Roberts' evidence most of Pipe 1's business with Steel Co between 2006and 2009 was on consignment.6 Peter Watts (ed) Bowstead & Reynolds on Agency (20th ed, Sweet & Maxwell, London, 2014) at[8–205], citing MCP Pension Trustees Ltd v Aon Pension Trustees Ltd [2010] EWCA Civ 377,[2012] Ch 1.[31] On the sale of its business to Pipes NZ, Pipes 1 wrote to Steel Co on 8 June2009 seeking to confirm the contractual terms and conditions between the companiesas part of the due diligence required by Pipes NZ. The request was in the followingterms:2. One of the conditions of the agreement is that you will supply stockto [Pipes NZ] on the same basis as supplied to us (assuming thosesupply arrangements are acceptable to [Pipes NZ].3. Please could you confirm a) the current supply arrangements (including the paymentarrangement) you have with us;b) that you will supply stock in relation to the Business to [PipesNZ] on the current supply arrangements you have with us, bysigning (on your letterhead) and returning to [Pipes NZ] (byfax or email), the letter enclosed, by 12th June 2009.[32] Steel Co replied by letter of 12 June 2009 confirming to Pipes NZ:We refer to the letter from [Pipes 1] dated 3rd June 2009 addressed to JonathanRoberts advising us of the conditional sale to [Pipes NZ] (a copy of which isattached).I am pleased to advise that Steel Co Ltd will be pleased to continue ourarrangement of supplying consignment stock to the new company [Pipes NZ].Payment to Steel Co Ltd will be made on the 20th of the following month ofsale by [Pipes NZ] as they are currently.Thank you and we wish you well in your new venture and offer our supportas best we can and will look to expanding our mutual co-operation for mutualbenefit going forward.[33] The letter was, perhaps understandably, directed towards the consignmentstock arrangement between Steel Co and Pipes 1 as that was the most important aspectof the trading relationship. However, the letter made no reference to Steel Co's Ts andCs. Steel Co has maintained that the Ts and Cs applied to the consignment stock aswell.[34] Mr Carajannis then sent a further email of 16 July 2009 to Mr Gallichan:Subject: consignment Stock.Hi Steve,For your reference and your potential new board I just wish to highlight andconfirm the terms of trade for the consignment stock of pipe, supplied by SteelCo Ltd to [Pipes 1] and with which [Pipes 1] currently sell and marketthroughout NZ, for the mutual benefit of both companies.Steel Co Ltd supplies the pipe to [Pipes 1] against an inventory requestsubmitted by [Pipes 1].This pipes in question are supplied with a pre-approved into store cost. [Pipes1] will market and sell the pipes throughout NZ.[Pipes 1] will notify Steel Co Ltd of any sales made by the end of each month.[Pipes 1] will pay Steel Co Ltd by the end of the following month for the salesmade in the previous month.Steel Co Ltd receives from [Pipes 1] the cost of the pipe sold and shares 40%of the margin while [Pipes 1] receive 60% of the margin.All the responsibilities and accountability for the management and inventorycontrol required to manage and protect the consignment stock supplied bySteel Co Ltd to [Pipes 1] lies with [Pipes 1].Ownership of any pipes supplied by Steel Co does not transfer to [Pipes 1]until Steel Co Ltd has been paid in full for the said pipes. Terms andconditions can be altered by mutual agreement only.Either party can terminate this agreement with 30 days notice.This is the way it has been operating for a couple of years now, if I have leftanything out just let me know.[35] Notably, although the letter expressly provided that the "Terms and conditionscan be altered by mutual agreement only" no reference was made to any Ts and Csother than those in the letter. Although Mr Roberts initially said that the letter of 16June 2009 was accompanied by Steel Co's Ts and Cs he accepted during his evidencethat, as the fax header sheet only recorded two pages were sent, the Ts and Cs couldnot have been sent with that letter.[36] At this time, in June 2009, Steel Co had the opportunity to advise Pipes NZ ofthe Ts and Cs that applied to all business transactions, including consignment stock.It failed to do so. In response to a direct inquiry as to its terms of business Steel Cofailed to advise Pipes NZ of the Ts and Cs it now seeks to rely on. In the circumstances,Mr Gallichan's continued employment by Pipes NZ does not assist Steel Co on thispoint.The events of 2011[37] That leads to consideration of the next discussion between the parties abouttrading terms, which took place in 2011.[38] Mr Gallichan left Pipes NZ in August 2010. Sometime later, on 6 July 2011Pipes NZ sought a copy of the "agreement" between Steel Co and Pipes NZ for theirnew general manager, Mr Parker. Mr Roberts advised by email response:Beppy is away until tomorrow so will send it through then.Just a reminder we are still waiting for June con stock sales and thereconciliation.Mr Roberts says in his brief that the following day a copy of Steel Co's Ts and Cs wasprinted and posted to Pipes NZ. Mr Parker said he did not receive any Ts and Cs atthat time. Pipes NZ has neither a letter referring to the Ts and Cs nor any copy of themin its records. Mr Parker said the first time he saw the Ts and Cs was during thisproceeding.[39] The Judge did not make any factual finding on this point either, insteadreasoning that the Ts and Cs were in any event only relevant to consignment stock,which was the usual course of business between the parties. The Esk Valley andAmethyst contracts were one-off transactions to which the Ts and Cs did not apply.[40] Mr Campbell submitted the Judge should have found Mr Roberts had sent acopy of the Ts and Cs to Pipes NZ in July 2011. He argued that Mr Parker's evidencehe had not found a copy of the letter or Ts and Cs in Pipes NZ's database was not ofany moment given that there were other contractual documents Pipes NZ accepted ithad received that Mr Parker could not be sure were held on its database.[41] However, consideration of the evidence as a whole, including thecross-examination of Mr Parker on the point, supports Pipes NZ's position. Pipes NZhad a correspondence file for Steel Co. While Mr Parker accepted that correspondencefrom Steel Co should have been kept on the file in terms of good practice, he wascertain that he had not seen a copy of the Ts and Cs until the dispute arose. He wassure he had not seen the Ts and Cs because they had terms in them that he would havequestioned and would have sought to change. He also said he would have had toobtain Richard Anyon's permission to agree to the Ts and Cs. He would not haveagreed to them on his own account.[42] The relationship between Mr Roberts and Mr Anyon is important as is therelationship between Pipes NZ and United Industries Ltd. Pipes NZ is wholly ownedby United Industries Ltd. Mr Anyon is the planning and strategy director for UnitedIndustries Ltd. He is responsible for business administration, strategy and planningover a number of the United Industry companies, including Pipes NZ. Mr Anyonconfirmed that Mr Roberts reported to him about terms and conditions of trade. MrRoberts would have had to discuss any terms and conditions with Mr Anyon beforeagreeing to them.[43] Mr Roberts' evidence on this point is not particularly clear. Mr Roberts saidthere would be no email on Beppy's computer sending out the Ts and Cs but acceptedhe had not checked her computer for such a communication. Beppy did not giveevidence. Mr Roberts then said the Ts and Cs would not have been sent by email asthey were in a word document. When asked why the documents were not scanned andemailed Mr Roberts initially denied Steel Co had the facility to scan at the time butthen accepted it would have had a scanner at the time.[44] The following exchange during Mr Roberts' cross-examination on the point isrelevant:Q. Okay, well let's assume for a moment that there's nothing on thecomputer that responds. Where's the letter sending it out?A. I don't have a copy of it. I can't verify that.Q. Why would there not be a copy?A. Because I omitted to take a copy of it for the file. I didn't really thinkit was a big deal at the time.Q. You've been presumably through your filing records for July 2011 tolook for it?A. Yes I have.Q. And do we end up in this position, there is no record of the letter atyour end?A. Yes.Q. There's no record of any sort that the letter was sent at your end?A. Correct.[45] As noted, Mr Parker's evidence was that there was no record of the Ts and Cshaving been received by Pipes NZ. There is no relevant correspondence before theCourt that refers to the Ts and Cs or identifies them as having been sent.[46] Next, the inquiry made of Steel Co was more likely to have been in respect ofthe trading "agreement" regarding consignment stock (as was sent in 2009) rather thana request for Ts and Cs given that consignment stock was the main business betweenthe parties.[47] Again, on our consideration of the evidence, Steel Co fails to satisfy the Courtthat the Ts and Cs were provided to Pipes NZ in 2011. We conclude that Steel Co's Tsand Cs were not directly brought to the notice of Pipes NZ, either by notice in 2007 toPipes 1, or by notice to Pipes NZ in 2009 or 2011.The terms of the Esk Valley and Amethyst contracts[48] There is a further point. As noted, the Judge considered that as the Esk Valleyand Amethyst contracts were one-off contracts as opposed to consignment sales, SteelCo's Ts and Cs would only be incorporated into those contracts if they were expresslyreferred to.[49] Given our finding that Steel Co had failed to give Pipes NZ notice of its Ts andCs and Steel Co's proper acknowledgement the Ts and Cs were not expressly referredto in the Esk Valley or Amethyst contracts, that is sufficient to deal with this issue. Forcompleteness, we note that the terms of the Esk Valley and Amethyst contracts are inpart at least, inconsistent with the incorporation of the Ts and Cs.[50] As the Judge noted, the parties agreed the relevant documents for theEsk Valley project were Steel Co's "final offer" of 13 December 2011, Pipes NZ's"purchase order" of 23 December and Steel Co's "Order acknowledgement" of17 January 2012 signed by Pipes NZ on 26 January 2012. Steel Co's final offer dated13 December 2011 enabled Pipes NZ to complete its contract with Trustpower. Theoffer contained the following conditions:Base offer. NZD Free on Wharf in Container Ports below. Standard Delivery10–12 weeks from date of order to arrive at port of destination.Additional Extras:3. SGSInspection NZ$3,289.4. SpecificationX52 NZ$9,987.5 International Paint Interline 925 OR Interzone 954 954 400 μminternal and external coating NZ$8,064.Payment: 30% Deposit Against Order.Balance 14 days from date of vessel arrival.Tolerance: Piece Guarantee.Inspection: Mills inspection final. Third party welcome.Exchange Variation: Firm in NZ Dollars. Base Exchange Rate NZD 1.00= USD 0.7600. Exchange rate will be locked at timeof order placement.Offer Validity: This offer is valid until 20th December 2011, and isbased on prevailing rates for Tariff and shipping andsubject to mill's final confirmation.[51] Pipes NZ then submitted its purchase order on 23 December 2011. Steel Cothen issued its order acknowledgement on 17 January 2012 confirming the purchaseorder and various other conditions of the contract:Delivery Condition Free On Truck Ocean Freight Sellers CareInsurance Sellers CareCartage Buyers CareExchange Condition Firm in NZDPayment Terms 30% Deposit, + Balance due 14 Days from Date ofArrival of Vessel Carrying GoodsThe goods covered by this contract are subject to a delivery tolerance of:Piece GuaranteeInspection Prior to Shipment: Mills Standard plus SGS InspectionOther Conditions:-Mill to Complete-100% X-Ray-100% Ultrasonic-100% Hydrostatic-SGS Inspection-Visual Inspection of all lengths-25 Lengths to be selected at Random.-Inspection of dimensions to API standard.-Inspection of Bell Ends to meet required tolerance.-Inspection of lining and coating. Visual Paint Finish and Thickness.-Shipment to be held awaiting SGS approval.[52] The order acknowledgement concluded:This order is accepted under the above conditions and every reasonable effortwill be made to fulfil our obligations as above. However Force Majeureapplies, and is defined as any forces beyond the control of Steel Co Ltd thatimpact on the successful completion of this contract. Should this occur, SteelCo Ltd would expect payment for any materials already supplied against thiscontract.PLEASE SIGN AND RETURN THIS ACKNOWLEDGEMENT AS YOURCONFIRMATION THAT THE ORDER HAS BEEN PLACED WITH THECORRECT DETAILS The order acknowledgement was duly signed as accepted by Mr Parker on 26 January2012 and emailed to Mr Roberts.[53] Despite the detailed provisions of the order acknowledgement, including thereference to a force majeure clause, there was no reference to Ts and Cs. The referenceto force majeure in the purchase order is itself inconsistent with any suggestion thatother Ts and Cs were to apply.[54] The parties are also agreed on the contractual documents for the Amethystcontract. Although the parties referred to Steel Co's quote of 19 December 2011 fromMr Roberts to Mr Parker, this was superseded by Steel Co's offer of 24 January 2012(which only differed as to prices and the confirmed exchange rate). The offer wasaccepted by Pipes NZ's "purchase order" of 24 January 2012.[55] While there was no order acknowledgement for the Amethyst contract, thecommercial invoice issued by Steel Co did not contain the Ts and Cs as an attachment.[56] In neither the Esk Valley nor Amethyst contracts were the Ts and Cs referredto. Nor were they referred to in any of the email exchanges between the parties inrelation to either contract.[57] Mr Campbell submitted that notice of the Ts and Cs could be inferred from aprevious course of dealing. Such an inference may be drawn where the Ts and Cs arecontained on documents used by the parties such as invoices or job sheets or the like.77 Nalder & Biddle (Nelson) Ltd v C & F Fishing Ltd [2007] 1 NZLR 721 (CA).Generally a course of consistent dealing is required. As Lord Pearce said inMcCutcheon v David MacBrayne Ltd:8The defenders rely on the course of dealing. But they are seeking to establishan oral contract by a course of dealing which always insisted on a writtencontract. It is the consistency of a course of conduct which gives rise to theimplication that in similar circumstances a similar contractual result willfollow. When the conduct is not consistent, there is no reason why it shouldstill produce an invariable contractual result. The defenders having previouslyoffered a written contract, on this occasion offered an oral one. The pursuer'sagent duly paid the freight for which he was asked and accepted the oralcontract thus offered. This raises no implication that the conditions of the oralcontract must be the same as the conditions of the written contract would havebeen had the defenders proffered one.[58] In Engineering Dynamics Ltd v Norgren Matonair (NZ) Ltd this Court refusedto import terms into a contract where, although there was a course of dealing betweenthe parties, the particular transaction did not follow the previous pattern, being in thenature of a one-off arrangement.9 The invoice attaching the general conditions of salewas not received until well after the goods had been supplied. Nor could it be saidthat the warranties were "standard" conditions of sale within the industry such that thecommon assumption of the parties was, or would be perceived to be, that the standardconditions should apply.10[59] Although in his initial evidence Mr Carajannis said that the Ts and Cs were onSteel Co's website and were printed on the reverse of all its invoices and statements,it was clarified in examination-in-chief by his own counsel, Mr Colthart, that both ofthose steps had only been implemented after the present case was brought.[60] Importantly Mr Roberts acknowledged that the Esk and Amethyst contractswere one-off transactions. There is just no basis for the Ts and Cs to have beenincorporated into the Esk Valley and Amethyst contracts as part of a course of dealing.[61] We are satisfied that the Ts and Cs were not included as part of these one-offand specific contracts for the Esk Valley and Amethyst projects.8 McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 (HL) at 138.9 Engineering Dynamics Ltd v Norgren Matonair (NZ) Ltd (IMI Norgren Ltd) (1996) 7 TCLR 369(CA) at 373–374.10 At 373.What effect did the Ts and Cs have on Pipes NZ's claim for damages?[62] As the Ts and Cs were not included as part of the contractual arrangements forthe Esk Valley and Amethyst contracts they are irrelevant to Pipes NZ's claim forgeneral damages associated with the recoating and remediation.Liquidated damages[63] The last issue is whether Pipes NZ can recover the liquidated damages it paidto Trustpower and Westpower from Steel Co. In its notice of appeal Steel Co argues:The High Court Judge ought to have dismissed [Pipes NZ's] claim forrecovery of Liquidated Damages on the basis that there was no agreementbetween the parties rendering the appellant liable to pay Liquidated Damages,and on the basis that the loss or damage claimed was too remote.[64] Thomas J found Steel Co was liable for liquidated damages. She referred to apassage from McGregor on Damages citing Contigroup Companies Inc v GlencoreAG.11 She concluded that Steel Co knew the pipes were for hydroelectric schemes andthat Pipes NZ's contracts with Westpower and Trustpower contained strict timerequirements. She doubted Mr Carajannis' evidence he was surprised when told at themeeting in July 2012 that Pipes NZ was liable for liquidated damages.[65] In any event, Thomas J considered it was not necessary for Steel Co to knowPipes NZ was liable for liquidated damages. The Judge reasoned Steel Co must haveknown that if it was in breach of its contract, it was likely to put Pipes NZ in breachalso and that Pipes NZ would have to compensate Trustpower and Westpower for lossas a result of delay. The Judge then noted Steel Co had not claimed the quantum ofthe liquidated damages was not a genuine pre-estimate and there was no dispute thedamages had been paid.12 She considered there was no reason in principle why SteelCo should not be required to compensate Pipes NZ for having to pay liquidateddamages and ordered Steel Co to pay liquidated damages accordingly.11 Harvey McGregor McGregor on Damages (18th ed, Sweet & Maxwell, London, 2009) at [2-031],citing Contigroup Companies Inc v Glencore AG [2004] EWHC 2750 (Comm), [2005] 1 Lloyd'sRep 241.12 Pipes NZ Ltd v Steel Co Ltd, above n 2, at [115]–[116].[66] Mr Campbell first submitted that, in a contract for the sale of goods, the onlynatural result of a breach was the difference in market value. Any other consequentialloss was too remote unless the seller had knowledge of special circumstances. In thecase of liquidated damages communication of the amount agreed as liquidateddamages was required.[67] The principle that the natural result of the breach of a contract for the sale ofgoods is the difference in market value only applies where there is a ready market forthe non-delivered goods. Where there is no such market and the true damage is causedby delay the rule is not applicable.13[68] The general principle in relation to damages for late or delayed delivery undera contract for the sale of goods is stated in Benjamin's Sale of Goods:14Where the seller contemplated a resale (or ought to have done so) but delaysdelivery till after the due date, he will be liable to the buyer in respect of thelatter's liability in damages to his sub-buyer caused by the seller's delay.(footnotes omitted)[69] The case cited in support of the principle is Elbinger Actien-Gesellschafft vArmstrong.15 The seller (of wheels and axles) knew that the buyer was under a contractto deliver wagons to a Russian railroad company and that the buyers were intendingto incorporate the wheels and axles into the wagons that were to be onsold. The sellersdelivered the wheels and axles late, and the buyers were liable to the third party forspecified sums (liquidated damages) under the sub-contract for damages for delay. Thebuyer and third party settled the third party's claim for liquidated damages. The Courtdid not accept the buyer was entitled to recover the exact sum of liquidated damagesas the seller was unaware of the clause providing for the liquidated damages but, onthe facts of the case, the award by the jury of the settlement sum was upheld as thebuyer was entitled to damages equivalent to the reasonable compensation it wasobliged to pay the third party for the loss of the use of the wagons. The settled figure13 Elbinger Actien-Gesellschafft v Armstrong (1874) LR 9 QB 473 (QB) at 476. See also ContigroupCompanies Inc v Glencore AG, above n 11.14 Michael Bridge (ed) Benjamin's Sale of Goods (9th ed, Sweet & Maxwell, 2014) at [17–045]. Seealso McGregor on Damages, above n 11, at [2-031].15 Elbinger Actien-Gesellschafft v Armstrong, above n 13.(which was effectively half of the liquidated damages otherwise payable) was withinthat range.[70] The case of Contigroup Companies Inc v Glencore AG referred to by Thomas Jis a more recent example of the application of principle discussed in Elbinger.16Glencore had bought butane from Contichem and then onsold it through a series ofsub-contracts to Petrochina. One of the deliveries was three days late and Petrochinaclaimed damages for delay against Glencore. Glencore settled the claim. The Judgeapproached Glencore's claim to recover the damages it had paid as follows:[81] The position is in my judgment is as follows:(a) Contichem knew that Glencore was a trader and that it wouldprobably resell Lot 2. Such a resale might be to anothertrader, to a retailer, or indeed to an end user.(d) Given that Glencore was likely to resell Lot 2, the parties musthave contemplated that if Contichem delivered late, that waslikely to put Glencore in breach on any sub-sale (e) There was no available market on which Glencore couldacquire a substitute cargo. If it is necessary to do so, I findthat it must have been within the contemplation of the partiesto the sale contract that, if the nominated vessel was late,Glencore would be unable to acquire substitute goods. Theparties certainly must have realised when they made the salecontract that, if Glencore found itself looking for 21,000metric tons of butane at the port of discharge because thenominated vessel had failed to arrive in time it would haveprecious little chance of finding them. But even on the basisthat Glencore would be given, as it was, 12 or 13 days'warning of the breach, the parties must have appreciatedGlencore would probably be unable to find substitute butane.Indeed, it is noticeable that Contichem does not seem to havemade any attempt itself to find a substitute cargo to enable itto comply with the sale contract. Doubtless it knew then, andearlier at the time of the sale contract, that such an attemptwould be fruitless.(f) It follows that it must also have been in the contemplation ofthe parties that, if delivery was delayed, Glencore would haveto compensate a sub-buyer for any loss (including of courseloss of profit) it suffered as a result of that delay.(g) Glencore (albeit through Glencore International) did have tocompensate such a sub-buyer.16 Contigroup Companies Inc v Glencore, above n 11, at [62] and [80]–[81].(h) The compensation in question was that provided for in thesettlement. That compensation was wholly referable to thedelay, and the settlement itself was reasonable.[71] As in Elbinger, it is apparent from the reasoning in Glencore the Courtaccepted that, as the damages were foreseeable and were objectively reasonable, theywere recoverable.[72] Steel Co argued that Pipes NZ took the risk of agreeing to liquidated damagesin its contracts with Trustpower and Westpower. It said it had no notice or knowledgethat the terms of those contracts included liquidated damages clauses. Further it hadno notice of the amount of the liquidated damages.17[73] Mr Campbell relied on the following passage from Keating on ConstructionContracts in its discussion of Elbinger to support the proposition that not only noticeof the liquidated damages clause, but also notice of the amount was required for aseller to be liable for them:18The second limb of the rule in Hadley v Baxendale has particular applicationas the sub-contractor frequently knows of the losses the contractor is likely tosuffer as a result of its default. Thus it will be liable for the amount ofliquidated damages payable as a result of its delay if it has notice of suchliability in the main contract. It will not be liable if it does not have notice, asthe liability to pay liquidated damages is not a natural consequence of delay,but it will be liable for such damages as it should, as a businessman in thetrade, have contemplated as a serious possibility (or not unlikely) to resultfrom its breach, and such damages may in many cases be no less than theliquidated damages payable under the main contract.(footnotes omitted)[74] In Elbinger neither the amount of the penalties nor the precise day by whichthe plaintiffs were to deliver the wagons were known to the defendant when thecontract was made.19 However, the defendant was expressly told it would be expectedto deliver the sets of wheels and axles on the days on which it agreed to deliver them.Blackburn J noted that it was obvious both parties contemplated the wheels and axles17 See Burrows, Finn and Todd, above n 4, at [21.2.3(d)(ii)].18 Stephen Furst and Vivian Ramsey Keating on Construction Contracts (9th ed, Sweet & Maxwell,2012) at [13-060].19 Elbinger Actien-Gesellschafft v Armstrong, above n 13, at 475.were to be put into immediate use to satisfy the plaintiff's contract with the Russiancompany:20Under such circumstances, the natural and almost inevitable consequence ofa delay in delivering a set of wheels would be that the plaintiffs, if they meantthe waggon for their own use, or their customers, if the waggon was bespoke,would be deprived of the use of a waggon for a period equal to that for whichthe set of wheels was delayed. the plaintiffs were entitled to recover at a rate per day equal to whateverthe jury should find to be reasonable compensation for the loss of the use ofthe waggons [75] The Court expressly left the issue open whether the buyer, by merelyacquainting the seller with further consequences that the law would not have implied,could enlarge the defendant's responsibility to the full extent of all thoseconsequences, without any contract to that effect.21[76] In the present case, as the Judge held, Steel Co was aware the pipes were to beonsold by Pipes NZ to Trustpower and Westpower for use as penstock pipes inhydroelectric projects that were under construction. It was also aware at the time thecontracts were made that Pipes NZ was subject to time requirements. When issuesarose with the pipes that were initially supplied, Steel Co was further made aware ofthe consequences of delay. At a meeting on 24 July 2012 to discuss the issue, Pipes NZprovided Steel Co with the resupply schedule it had agreed with Trustpower andWestpower for the resupply of the pipes.[77] In the circumstances of this case Steel Co should reasonably havecontemplated that, given the end contracts involved hydroelectric constructionprojects there would be consequential costs to Trustpower and Westpower if thedelivery of the pipes to be used as penstocks was delayed and that Pipes NZ would beliable to Trustpower and Westpower for such consequential costs. Therefore,consequential loss was within the reasonable contemplation of the parties andPipes NZ's losses are recoverable in accordance with ordinary remoteness principles.The liquidated damages claimed were not too remote.20 At 477.21 At 478–479.Reasonableness[78] After the hearing had concluded the Court sought further submissions fromcounsel on the issue of whether Pipes NZ had to prove the liquidated damages it paidto Trustpower and Westpower were reasonable.22 Three questions were posed:(a) Was the issue open on the grounds of appeal?(b) If so did Pipes NZ have the burden of proving that the liquidateddamages it paid were reasonable?(c) If the issue was open what evidence was there on that point?[79] Mr Campbell submitted the issue was open as [1.12] of the notice of appealargued the liquidated damages were too remote. He submitted that as the plaintiff,Pipes NZ had the onus of proving loss and in particular, that the liquidated damages ithad paid were reasonable.23 There was a distinction to be made between two issues— whether the liquidated damages were or were not penalties in the context of therelationship between Pipes NZ and its customers, Trustpower and Westpower, andwhether Pipes NZ was able to recover sums it had paid in liquidated damages fromSteel Co.[80] Mr Campbell submitted that Pipes NZ had failed to lead evidence to satisfy theonus on it to prove the liquidated damages it had paid to Trustpower and Westpowerwere reasonable. He noted that Mr Parker agreed that as a general rule he would notagree to a liquidated damages clause other than with Mr Anyon's permission. MrParker accepted Pipes NZ made a commercial decision and took a risk in acceptingthe liquidated damages clause and that it had not sought to include a similar provisionin its contract with Steel Co. Mr Anyon also accepted Pipes NZ had taken acommercial risk in accepting the liquidated damages clause without including thesame provision in its contract with Steel Co and conceded that he probably did noteven think about asking Steel Co.22 Steel Co Ltd v Pipes NZ Ltd CA343/2014, 17 February 2016 (minute of the Court).23 Biggin & Co Ltd v Permanite Ltd [1951] 2 KB 314 (CA) at 322 and 324–325.[81] While we consider there is force in Mr Campbell's submission that if party A(in this case Pipes NZ) seeks to recover damages from party B (Steel Co) equating tothe liquidated damages party A has paid to a third party C then party A has to provethe reasonableness of the damages it paid, it is unnecessary for us to determine thatpoint. We are satisfied this appeal must be determined on the preliminary point ofwhether the argument is open to Steel Co at this stage.[82] Having considered counsel's further submissions we are of the view that it isnot open to Steel Co to rely on the point (raised by the Court after the hearing) at thisstage of the proceeding. While Steel Co had pleaded a bare denial in response to PipesNZ's claim for damages (including the liquidated damages), which put Pipes NZ toproof of the damages, it seems clear enough that the issue of the quantum of thedamages or the reasonableness of the damages was not in issue in the High Court. Atthe relevant passages of her decision the Judge said:24[116] The liquidated damages claimed by the plaintiff total $156,000.Liquidated damages are imposed in a contract to remove the need to proveactual loss. They are payable provided they are not a penalty. They must bea genuine pre-estimate of a loss most likely to flow from the breach. Thedefendant has not claimed that the losses were not a genuine pre-estimate.There is also no dispute that the plaintiff paid those damages to the powercompanies.[117] No authorities were cited to the effect that a party is not entitled toclaim liquidated damages to which it is subject in a case such as this. Thereseems to be no reason in principle why the defendant should not be requiredto compensate the plaintiff for having to pay these liquidated damages. Itherefore find that the liquidated damages are not too remote and can berecovered from the defendant by the plaintiff.[83] While the first four sentences of [116] do not address the particular point, thebalance of the paragraph and [117] confirm that Steel Co did not seek to argue in theHigh Court that the Court could not award liquidated damages on the basis Pipes NZhad failed to prove its loss was reasonable.[84] The broad appeal point on which Mr Campbell now seeks to rely, that theliquidated damages were too remote, does not identify the issue. Mr Campbellconceded that the grounds of appeal did not specifically raise whether the liquidated24 Pipes NZ Ltd v Steel Co Ltd, above n 2.damages were reasonable. Nor did counsel address the issue during the course of theappeal hearing.[85] The Court is left in the position that Steel Co now seeks to rely on a point thatwas not raised in the High Court in argument, not expressly addressed in the points ofappeal, not raised during the course of the appeal hearing and that was raised for thefirst time by the Court.[86] Having reviewed the matter we consider that it is too late for Steel Co to seekto rely on the point at this time. It is fundamental to the litigation process thatsubstantial issues between parties are settled at trial. It is contrary to principle to allowa party, after a case has been decided against them, to raise a new argument that,whether deliberately or by inadvertence, they have failed to put during the hearing atfirst instance.25[87] In Robinson v Bank of New Zealand this Court would not allow the appellantto raise a point orally during the course of argument where it was not taken in the HighCourt and not notified as a point on appeal.26 Similarly in Haddon v GE Custodiansthis Court again rejected an attempt by the appellant to take a point not taken duringthe High Court proceedings.27[88] We decline to permit Steel Co at this very late stage to seek to rely on theargument that Pipes NZ failed to prove that the liquidated damages it paid toTrustpower and Westpower were reasonable. As we have previously found that theliquidated damages were otherwise not too remote, the appeal must be dismissed.Result[89] The appeal is dismissed.[90] The appellant is to pay costs for a standard appeal on a band A basis and usualdisbursements.25 McLennan v McCallum [2010] WASCA 45 at [81]; and Coulton v Holcombe (1986) 162 CLR 1at 7–8.26 Robinson v Bank of New Zealand CA114/91, 15 June 1992 at 5.27 Haddon v GE Custodians [2011] NZCA 335 at [57]–[59].Solicitors:Madison Hardy, Auckland for AppellantHazelton Law, Wellington for Respondent