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What standard of work can you expect from contractors and professional services providers?

31 May 2019

Farming businesses, like all businesses, employ contractors and professional services firms to do work for them, often in conjunction with the supply of goods. When things go wrong unexpectedly and there is a significant loss to the business, often one of the first questions to be asked is whether the services have been carried out to the expected standard and whether the contractor or provider of the services should be held accountable for the loss. The question then becomes: what is the required standard that must be met by the provider of the services? Clearly work can be done to different levels of quality.

 Temporary pump arrangement fails causing substantial loss

In one recent case a farming company was successful in the High Court in the first instance when it sued a contractor for loss incurred when a temporary riser pipe and pump within a new water bore being constructed by the contractor fell down the bore resulting in substantial damage. The farm services company successfully appealed that decision to the Court of Appeal and was found not liable to the farmer for the damage.

The temporary arrangement had been put in place by the contractor because the pump to be installed in the new bore had not arrived and the farmer needed water urgently.  Shortly after installation of the temporary arrangement a joint in the galvanised steel riser pipe failed and a large section of the pipe and the pump fell down the bore. The costs to rebuild the bore and install the pipes were more than $140,000.

In the Court case it was not disputed that the farm services company should have exercised a reasonable degree of care and skill which could be expected of an experienced contractor. The farmer claimed the contractor had breached the standards required by (1) failing to secure the temporary pump with wire safety ropes; and (2) failing to brace the pipes with lugs (to centre the pipes and pump within the bore).

The Court held the level of care and skill required for professional services is to be judged on industry practice, but the Court is able to reject that industry practice if it considers the practice does not “withstand logical scrutiny”. The Court considered the evidence and found there was an extremely remote risk that the galvanised steel pipes would break. Because of this the Court found industry standards would not require the use of safety ropes or lugs to brace the pipes. This industry practice was justified because of the extremely low risk these types of pipes would break.

The value of insurance and a robust contract document

Where the standard of work has met the industry standard but the loss is the result of bad luck or an accident then insurance cover may provide relief. This case may well have been between the farmer’s and the contractor’s insurance companies because an insurer may step into the shoes of the insured and sue on the insured’s behalf (in legal terms called “subrogation”). You can also go some way to ensuring work is done to the standard you would like by describing the work clearly and fully in the contract.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott