CATCHWORDS
EVIDENCE - Rule in Browne v Dunn
CONTRACTS - Breach of contract to service and repair vehicle - loss of profits - whether loss was reasonably contemplated by parties - failure to mitigate loss.
Trade Practices Act 1974 (Cth) ss 52, 82
Browne v Dunn (1894) 6 R 67
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Burns v M.A.N. Automotive (Aust) Pty Ltd (1986) 161 CLR 653
Hadley v Baxendale (1854) 9 Ex.341; 156 ER 145
C. Czarnikow Ltd v Koufos [1969] 1 AC 350
Victoria Laundrey (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
R.G. and T.J. Anderson Pty Ltd v Chamberlain John Deere Pty Ltd(1988) 15 NSWLR 363
WARATAH QUEST PTY LTD v SCANIA AUSTRALIA PTY LTD
NG 818 OF 1993
Sackville J.
Sydney
30 June, 1995
IN THE FEDERAL COURT OF AUSTRALIA)
GENERAL DIVISION ) No. NG 818 of 1993
NEW SOUTH WALES REGISTRY )
BETWEEN:
WARATAH QUEST PTY LTD
(ACN 006 965 215)
Applicant
AND:
SCANIA AUSTRALIA PTY LTD
(ACN 000 537 333)
Respondent
Sackville J.
Sydney
30 June, 1995
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. Judgment be entered for the applicant in the sum of two hundred and seventy three thousand, two hundred and seventy seven dollars ($273,277.00), inclusive of interest, against the respondent.
2. The respondent is to pay the costs of the applicant.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
GENERAL DIVISION ) No. NG 818 of 1993
NEW SOUTH WALES REGISTRY )
BETWEEN:
WARATAH QUEST PTY LTD
(ACN 006 965 215)
Applicant
AND:
SCANIA AUSTRALIA PTY LTD
(ACN 000 537 333)
Respondent
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 30 JUNE, 1995
REASONS FOR JUDGMENT
Introduction:
These proceedings arise out of an accident on 12 May 1993, involving a Scania R 143 prime mover, registered number VXO-OBK, operated by the applicant. The accident occurred when the prime mover, driven by Mr Francis Cassar, ran off the Hume Highway near Euroa in Victoria, as Mr Cassar was attempting to overtake another vehicle. Mr Cassar gave evidence, which was not disputed on this point, that the steering wheel "locked up" and the truck started veering to the right as he attempted to pass the other vehicle.
Mr Cassar was injured in the accident.
Of greater relevance to
the present proceedings, the Scania prime mover was damaged beyond repair. The trailer being towed by the prime mover
was also damaged. In these proceedings,
the applicant seeks damages from the respondent for the destruction of the
prime mover and other losses flowing from the accident. The respondent was the supplier of the prime
mover and caused repairs to be carried out to the vehicle on 7 May 1993, five
days before the accident.
The directors and principals of the applicant are Mr Filippo Cipillone and Mrs Sharyn Cipillone. Mr Cipillone was mainly involved in the operations side of the applicant's activities. Mrs Cipillone was largely responsible, with the advice of an accountant, Mr Gay, for the applicant's financial operations.
The applicant at all relevant times conducted two related businesses. The first was an express freight business known as Perfect Express. In May 1993 the company operated two identical Scania prime movers to haul refrigerated pantechnicons, for the transport of perishable goods such as fruit and vegetables. This part of the business, according to the evidence, was profitable if viewed as a separate enterprise. The second business conducted by the applicant was a produce loading agency, which used the name South Coast Forwarders. It provided a service by amalgamating the produce of market gardens into loads and arranging the transportation of the produce interstate. This part of the applicant's business, if viewed as a separate entity, was less profitable. However, it provided a stream of work for Perfect Express, as well as for outside sub-contractors.
The respondent sold and serviced Scania prime movers. On about 12 May 1992, exactly one year before the accident, it supplied to the applicant two identical Scania prime movers, each of which had been specifically modified for the purposes of the Perfect Express business. Each was acquired pursuant to a hire purchase agreement with Esanda Finance Corporation Ltd. From about September 1992 the respondent performed all the servicing required by the two vehicles. The prime mover damaged in the accident of 12 May 1992 was one of the two operated by the applicant for the purposes of the Perfect Express business.
Following the accident on 12 May 1993, the damaged prime mover was towed to the premises of "Pinky's TTT Smash Repairs" at Craigieburn. Shortly after the accident, Mr Cassar asked Mr Thorpe, a principal of Pinky's, to check the prime mover to ascertain why the steering had jammed. Mr Thorpe checked the steering box, but found nothing untoward. On 2 June 1993, at Mr Cassar's insistence, both Mr Thorpe and Mr Cassar examined the universal joint in the steering column, located within the cabin of the prime mover. After removing the moulded steering column cowling or shroud, a yellow and black handled screwdriver, about 200 mm in total length, was found jammed into the universal joint.
The applicant's case for damages is that the screwdriver had been left inadvertently in the steering column shroud when electrical work was carried out on the vehicle at the respondent's premises on 7 May 1993. It was common ground that the electrical work had been carried out by Mr Christopher Dubois, an auto electrician who was employed by a company known as Cabramatta District Electrical Pty Ltd, of which he was a principal. That company had been engaged by the respondent to perform electrical work on prime movers. During the five days between the servicing of the prime mover and the accident, Mr Cassar, who was a regular driver for the applicant, travelled about 2,400 kilometres in the vehicle.
The Issues
The applicant pleaded that the respondent was liable for breach of its contract to repair and service the prime mover; for negligence in the service and repair of the vehicle; and for damages under s.82 of the Trade Practices Act 1974 (Cth) by reason of representations made on 7 May 1993, that the prime mover was fit for the transport of goods on long haul drives. Mr Cutler, who appeared for the respondent, did not dispute that, if the accident was caused in the manner alleged by the applicant, the respondent was liable for the losses sustained in contract or tort or both. Mr Maconachie QC, who appeared with Ms Foord for the applicant, did not suggest that the claim for damages under the Trade Practices Act could add anything to the claim based on contract or tort. The issue of liability therefore resolved itself into a factual question of whether the applicant had established, on the balance of probabilities, that the accident was caused by Mr Dubois inadvertently leaving the screwdriver in the steering column shroud of the prime mover on 7 May 1995.
The applicant claimed damages as follows:
(a) Replacement value of the prime mover $193,539.00
(b) Repairs to trailer, towing costs and
other items specified in the
applicant's amended schedule of
damages $ 24,997.20
(c) Loss of profits from the use of
the prime mover, at $7,151.70 per
month for nineteen months (12 May
1993 to 8 December 1994) $135,882.30
TOTAL: $354,418.50
Only two components of the damage claim were disputed by the respondent. First, the respondent disputed that the applicant was entitled to claim loss of profit for a period of nineteen months. Mr Cutler submitted that a maximum of five months loss of profit should be allowed, this being sufficient for the applicant to have obtained a replacement prime mover. Secondly, although the respondent did not challenge the replacement value of $193,539 for the prime mover, it contended that this sum should be reduced by $25,000, being the salvage value of the damaged prime mover.
Liability
Mr Maconachie QC, who appeared on behalf of the applicant with Ms Foord, submitted that I should find, on the balance of probabilities, that the screwdriver located in the universal joint on 2 June 1993, had been inadvertently left in the shroud in the course of the servicing of the prime mover which took place on 7 May 1993. As I have noted, the servicing of the vehicle was carried out on that date by Mr Dubois, under an arrangement between the respondent and Cabramatta District Electrical Business Pty Ltd.
Mr Dubois' Evidence
Mr Dubois gave evidence that he had been called by Mr James of the respondent to the respondent's premises at Chipping Norton to attend to an electrical problem with the applicant's prime mover. Mr Dubois proceeded to the respondent's premises, some ten minutes from his own workshop. He was not accompanied by any other person, but he was met by Mr Cassar on arrival. Mr Dubois was told by Mr Cassar that the driving lights and headlights on the truck would come on without warning at any time of the day or night.
According to Mr Dubois, he checked the wiring connections behind the
dash panel in the cabin, and also checked the wiring from the cabin to the headlight
area. After making other inspections, he sought
further details from Mr Cassar about the nature of the problem. However, Mr Cassar could give only vague information as to which
warning lights would come on spontaneously. Mr
Dubois then spoke to the respondent's Assistant Service Manager who instructed
Mr Dubois, since the truck was under warranty, to replace the dipper switch and
a wire loom, in the hope that this would cure the problem.
Mr Dubois said that he completely removed the steering column shroud, unscrewing a total of 13 screws in the process. He removed the two screws holding the dipper switch, removed the switch and disconnected the plug connecting the switch to the electrical system. He then inserted and reconnected the new switch and reattached the shroud. In order to complete the procedure, Mr Dubois said he used four tools: a T20 torque head screwdriver, a T30 torque head screwdriver, a No.2 Phillips head screwdriver (200mm shaft length) and wire cutters. These tools did not include the screwdriver found in the universal joint on 2 June 1993, since that screwdriver had a total length of about 200 millimetres. Indeed, Mr Dubois said that he had never owned a screwdriver of the kind found in the universal joint and that that screwdriver was not appropriate for any of the tasks performed by him on 7 May 1993. Mr Dubois said that he had removed dipper switches at least 100 times from Scania trucks, and that his universal practice was to remove the steering column shroud as he had described in his evidence.
Mr Cutler relied principally on Mr Dubois' evidence for his submission that the applicants had not made out their case on the balance of probabilities. If Mr Dubois' evidence that he had completely removed the steering column cover were correct, Mr Cutler submitted that it followed that the screwdriver could not have been left in the shroud inadvertently on 7 May 1993. The reason was that Mr Enkelman, the expert called on behalf of the applicant, acknowledged that, if the shroud were completely removed, it would have been very difficult for a screwdriver to have become trapped in the shroud, since there would have been nothing to hold a screwdriver in place. In any event, as I have said, Mr Dubois had denied using a screwdriver of the kind found on 2 June 1993.
Mr Cassar's Evidence
Mr Cutler, in his opening, stated that it was the respondent's case that the screwdriver found on 2 June 1993 had been deliberately (and, presumably, with fraudulent intent) inserted into the universal joint by Mr Cassar, the driver of the truck wrecked on 12 May 1993. When Mr Maconachie pointed out that the respondent's pleadings had not specifically alleged any such misconduct on Mr Cassar's part, Mr Cutler formulated particulars of the respondent's case as follows:
"That Francis Cassar, between the dates 12 May 1993 and 2 June 1993, did insert into the universal joint inside the steering column cowling or behind the steering column cowling below the steering wheel of a certain prime mover registered no. VXO OBK a certain screw driver."
Mr Cassar, in one of his affidavits, denied having placed the
screwdriver in the steering system. (A
similar denial was made by Mr and Mrs Cipillone.) Mr Cutler cross-examined Mr Cassar with a
view to showing that he had the opportunity and, at least by inference, that he
had the motivation to carry out such an
act. Mr Cassar acknowledged that he had
returned to "Pinky's TTT Smash Repairs", where the wreck of the prime
mover had been taken on 12 May 1993, on "a couple of" occasions. On the first he was accompanied by his son
and retrieved some gear from the cabin.
On the second, he went to have a look at what was being done to the
truck. Mr Cassar had been injured in the
accident of 12 May 1993 and it was common ground that he had proceedings on
foot arising out of the incident.
Despite these matters, Mr Cutler did not specifically put to Mr Cassar that he had deliberately inserted the screwdriver into the universal joint, either on the occasions he returned to Pinky's or on 2 June 1993, when the screwdriver was located by Mr Cassar and Mr Thorpe. Accordingly, Mr Cassar never had the opportunity (other than through the denial in his affidavit) of addressing the allegation foreshadowed by Mr Cutler. Mr Cutler accepted that the principle in Browne v Dunn (1894) 6 R 67 (HL) applied. He also accepted that, in the face of Mr Cassar's denial, I could not find that Mr Cassar had carried out the deliberate and dishonest act alleged against him in the particulars.
In Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 (NSW CA), at 586-588, Samuels J.A. rejected the contention, said to be supported by Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362, at 370-371 per Gibbs J. and Levinge v Director of Custodial Services (1987) 9 NSWLR 546 (NSW CA), at 560 per McHugh J.A., that there is a rule of law binding a judge to accept evidence not challenged in cross-examination. Nonetheless, where evidence is not inherently incredible, the absence of cross-examination is, at the very least, an extremely powerful reason for accepting the evidence. In any event, Mr Cutler's concession makes it inevitable that I should not find that Mr Cassar deliberately planted the screwdriver in the universal joint.
The Evidence as a Whole
Mr Cutler, notwithstanding the difficulty relating to Mr Cassar's evidence, maintained, I think correctly, that it did not necessarily follow that the applicant had established on the balance of probabilities that the cause of the accident on 12 May 1993 was the careless act of Mr Dubois in leaving the screwdriver in the steering column shroud. It is necessary to consider the whole of the evidence on this issue.
In my opinion, the evidence, taken as a whole, does establish on the balance of probabilities that Mr Dubois inadvertently left a screwdriver within the steering column shroud and this screwdriver caused the steering of the truck to jam on 12 May 1993. I have reached this conclusion on the basis of six main considerations.
First, the work done on the vehicle on 7 May 1993 provided on occasion when the screwdriver could have been inadvertently left in the steering column shroud. I shall return later to the circumstances in which the work was performed that day.
Secondly, the circumstances of the accident, in particular the locking of the steering during the overtaking manoeuvre, were consistent with a screwdriver having been left in the shroud.
Thirdly, Mr Cassar gave evidence, which I accept, that the truck was in his possession from the time he left Scania's yard on 7 May 1993 until the accident occurred on 12 May 1993. After leaving Scania's yard he travelled to Melbourne, arriving on the morning of 8 May 1993. After detaching the trailer at Footscray, he drove the prime mover to his home at Melton. The truck was appropriately secured at Mr Cassar's home. Mr Cassar observed nothing unusual until he left his home on Monday morning, and there were no signs that anyone had tampered with the truck. On Monday, 10 May 1993, Mr Cassar made the return journey to Sydney, arriving at Flemington Markets at about 3 am on Tuesday 11 May 1993. Mr Cassar then travelled to the respondent's premises at Chipping Norton to have the engine checked, arriving at about 9.30 a.m. During the day he slept in the driver's room at the respondent's premises. At about 5.30 p.m. on 11 May 1993 Mr Cassar left the respondent's premises and picked up a load at Leppington for delivery to Melbourne. The accident occurred early in the morning of 12 May 1993 in Victoria. As I have noted, Mr Cassar had travelled about 2,400 kilometres in the truck between 7 May 1993 and 12 May 1993.
Mr Cutler did not suggest that the screwdriver found in the universal joint had been inserted in the truck at any time between 7 and 12 May 1993. In any event there is no basis in the evidence for any such suggestion. Accordingly, I find that the screwdriver was not inserted into the universal joint between leaving Scania's premises on 7 May 1993 and the accident on 12 May 1993.
Fourthly, each person with a possible motive to have interfered with the steering column denied doing so. Although at one stage prior to the hearing it seems to have been suggested on behalf of Scania that Mr Cipillone was or may have been responsible for inserting the screwdriver, that suggestion was not pursued at the trial. It was not put to Mrs Cipillone that she had anything to do with the screwdriver being placed in the universal joint. I accept the evidence of Mr and Mrs Cipillone that they had no knowledge that a screwdriver had been lodged in the universal joint of the steering column until after it was located on 2 June 1993.
I have referred already to Mr Cassar's evidence and to the fact that it was never put to him by Mr Cutler that he inserted the screwdriver into the universal joint. Mr Cassar denied in his affidavit that he had acted in this way.
There is no doubt that Mr Cassar had the opportunity, if he wished, to
insert the screwdriver into the universal joint. He visited Pinky's yard on at least two
occasions prior to the discovery of the screwdriver. He also had a motive because he was injured
in the accident and it was undoubtedly in his interests that someone else be held responsible
for the accident.
Moreover, as Mr Cutler pointed out, Mr Cassar was incorrect when
he said in his affidavit that he had "heard" that a screwdriver had
been found in the truck. In fact Mr
Cassar had been present with Mr Thorpe when the screwdriver was found on 2 June
1993. Mr Thorpe and Mr Cassar both
participated in the task of removing the steering column shroud on that
day. In his oral evidence, Mr Cassar
acknowledged that his affidavit was incorrect in this respect.
Despite these matters, Mr Cassar's denial that he inserted the screwdriver into the universal joint is supported by other evidence. From the outset, Mr Cassar maintained that the accident was caused by the steering wheel "jamming up". He said this to the police officer who attended the accident and repeated the claim to Mr Cipillone and Mr Thorpe when they were driving to Melbourne from Kilmore Hospital, where Mr Cassar had been taken for observation. As I have noted, this claim was consistent with the effect the screwdriver would have had, if jammed into the universal joint. Mr Cassar's denial is also supported by the evidence of an expert, Mr Enkelman, that cracks and indentations in the shroud were consistent with the cover having been screwed tight with a screwdriver lodged in the left hand side of the cover. Mr Enkelman's hypothesis was that the screwdriver had been left in the shroud at the time the work was undertaken on 7 May 1993, and had worked its way down the column, the shaft ultimately becoming embedded in the universal joint at or shortly before the accident. Mr Enkelman suggested that the screwdriver could have become jammed in the universal joint after the vehicle had travelled a considerable distance. Mr Enkelman also deposed that the cracks and indentations were unlikely to have been caused by the crash on 12 May 1993, and would not have been caused if someone had simply inserted a screwdriver into the universal joint after the wreck was returned to Pinky's. Mr Enkelman's evidence, which was not challenged by any other witness, provides support for Mr Cassar's denial and for the contention that a screwdriver was left in the cowling on 7 May 1993.
I also had the opportunity of observing Mr Cassar in the witness box. He was a blunt and down-to-earth witness. I did not form the impression that he was attempting to mislead the Court. While he made some mistakes in his evidence, I think that he was attempting to tell the truth. I accept his denial that he deliberately planted the screwdriver in the universal joint.
Fifthly, Mr Enkelman's evidence not only adds credence to Mr Cassar's
account, but supports the applicant's case more generally. Mr Enkelman was a consulting engineer who had
had considerable experience in the design and modification of trucks and truck
equipment, including Scania trucks. His
work had included dealing with power steering systems of the kind involved in
the present case. Although Mr Enkelman
was cross-examined, the respondent chose not to adduce any expert evidence to contradict the evidence
put forward by Mr Enkelman. Indeed, it was an agreed fact that
the respondent had engaged an engineer to examine the damaged Scania prime
mover and prepare a report. Notwithstanding that the engineer had prepared a
report, it was
not adduced in evidence. Nor did the
respondent challenge Mr Enkelman's qualifications or experience. This does not mean, of itself, that I am
bound to accept Mr Enkelman's evidence.
But it does mean that, unless Mr Enkelman's assumptions were shown to be
wrong (as was the case on one issue, discussed shortly) or his conclusions were
shown to be ill-founded, I would not lightly reject his opinions, insofar as
they are based on his expertise and experience.
Mr Enkelman was, in my view, clearly in error on one point. In his evidence he cast doubt on Mr Dubois' account because the latter did not mention that he had used a T25 torque head screwdriver when undertaking the work on the Scania vehicle on 7 May 1993. That screwdriver was needed to remove the kick panel at the base of the steering column and Mr Enkelman stated that the shroud could not be removed without the kickpanel also being removed. This led him to conclude that Mr Dubois did not wholly remove the shroud in the course of performing the work on the prime mover on 7 May 1993.
Subsequent evidence from Mr Dubois, and photographs of the cabin of a truck identical to the cabin of the damaged prime mover, demonstrated that the removal of the kick panel was not essential to the removal of the shroud. Mr Enkelman was therefore in error on this point and in error in his hypothesis that the absence of reference to a T25 torque screwdriver in Mr Dubois' statements demonstrated that the shroud had not been completely removed.
But the fact that Mr Enkelman was wrong on that point, material as it was to some of his reasoning, does not mean that I should reject the rest of his evidence. Mr Enkelman not only has considerable experience and expertise in the relevant field, but his evidence on other issues seemed to me to be plausible and was not contradicted by other witnesses. This evidence was particularly important in two respects.
As I have said, Mr Enkelman gave evidence that the cracks and indentations in the shroud were consistent with a screwdriver having been left in the shroud on 7 May 1992 and that the cracks and indentations were unlikely to have been caused by the crash on 12 May 1992 and would not have been caused by the insertion of a screwdriver into the universal joint at some time after the crash. I accept this evidence, which suggests that the screwdriver found on 2 June 1993 was not inserted into the universal joint after the damaged prime mover was returned to Pinky's yard.
The second matter of some importance is that Mr Enkelman demonstrated on videotape how a screwdriver could be lodged in the steering column shroud in the course of repair work being undertaken. Mr Enkelman placed the screwdriver within the shroud and held it in place with tape. He showed that the shroud could be replaced with the screwdriver in place. The shroud had sufficient space to allow the screwdriver to travel downwards towards the universal joint, since there were no internal obstructions to prevent the screwdriver's passage. Once the shaft of the screwdriver entered the universal joint, which might not occur for some time, the movement of the joint as the driver turned the wheel to the right bent the screwdriver. As the wheel was returned to the left the scissor action of the universal joint bent the shaft even more. The screwdriver was braced against the lug attached to the steering column, or against the column itself.
The videotape also demonstrated how the shroud could be loosened, without being removed completely, to allow access to the switch. There was room for a screwdriver to be used and to be left in the gap. If a screwdriver was used to lever the shroud outwards in order to assist the electrician to gain access to the switch, the screwdriver could lodge inside the shroud. It would be trapped if the shroud were re-affixed completely in its original position.
Sixthly, Mr Dubois, although maintaining that he had removed the shroud completely when working on the Scania truck, accepted that the task of replacing the dipper switch and wire loom could be done without entirely removing the shroud around the steering column. He also accepted that one way of keeping the shroud ajar to enable the work to be done was to use a screwdriver as a lever. This evidence shows that, despite criticisms made by Cutler of Mr Enkelman's approach, Mr Enkelman's hypothesis is plausible.
Mr Dubois also acknowledged a number of other matters in cross-examination. He was first asked to recall the events of 7 May 1993 in late 1993. He had performed similar tasks to those performed on 7 May 1993 on about 100 Scania trucks. Indeed he performed some 50 such jobs between 7 May 1993 and the time he gave evidence. There were no records dealing with the means by which the job was carried out, or specifying the tools that had been used. On 7 May 1993 he used a vehicle from Cabramatta District Electrical that was not the one he usually drove. That vehicle, which Mr Dubois parked very close to the Scania prime mover on which he was working, contained loose tools. The replacement of the dipper switch and the wire loom was undertaken on instructions from the respondent after a good deal of investigative work, which had failed to isolate the problem. That task, as Mr Dubois accepted, could have been carried out without the shroud being completely removed. Had Mr Dubois departed from his general practice of removing the shroud completely, the opportunity arose for the screwdriver to be left inadvertently within the shroud.
Mr Maconachie did not suggest, and I do not doubt, that Mr Dubois was doing anything
other than recounting events as he recalled them. I
also accept that Mr Dubois' general practice, relating to the replacement of
the dipper switch and wire loom, was as he described in evidence. However, my impression was that Mr Dubois' account of
the precise sequence of events was based on reconstruction from his general
practice, rather than on specific recollection of each step in the process
undertaken on 7 May 1993. I appreciate
that there were reasons why Mr Dubois might
recall some aspects of the work performed on that day as unusual; I do not
think that leads to the conclusion that he was able to recall accurately each
and every step that he took in carrying out the work on the prime mover on 7
May 1993. It is not likely that he could
do so, having first been asked to consider the matter some six to seven months
after the relevant events occurred.
Having regard to the circumstances to which I have referred, including the opportunity for Mr Dubois to depart from his usual practice, in my opinion, the probabilities are that the screwdriver found on 2 June 1993 was inadvertently left within the shroud in the cabin of the Scania prime mover by Mr Dubois on 7 May 1993.
I should add that, in reaching this conclusion, I have not overlooked other matters put by Mr Cutler. He pointed out, for example, that Mr Enkelman agreed that the reaffixing of the shroud with a screwdriver in place would be likely to require additional pressure to be applied by the auto electrician. He also observed that the video tape prepared by Mr Enkelman showed the screwdriver already taped to the steering column, rather than a screwdriver left in the shroud, but unattached to the column. In my opinion, these matters do not alter the conclusions I have reached. It must be remembered that the applicant need only make its case on the balance of probabilities. I think it has done so. I turn to the question of damages.
Background to the Damages Claim
In May 1993 the applicant company operated the two Scania prime movers that had been acquired almost exactly one year earlier. Each vehicle was the subject to a hire purchase agreement with Esanda Finance Corporation Ltd. The hire purchase agreement relating to prime mover VXO OBK was in evidence. This showed that the cash price of the prime mover was $185,000 and terms charges were $49,747. The hirer was required to pay 36 monthly instalments, in arrears, of $4,576.33, with a "balloon payment" of $70,000 at the end of the three year period. The agreement does not record any deposit as having been paid. However, Mrs Cipillone gave evidence that she and her husband had contributed about $15,000 from their own cash resources to the acquisition of the two vehicles, presumably by way of advance to the applicant. Mr and Mrs Cipillone guaranteed the obligations of the applicant under the hire purchase agreements.
In September 1992 the insurance premiums for the two prime movers were paid. The premium for prime mover VXO OBK was $6,920. Because the other prime mover had been involved in an accident in June 1992, the premium payable for it was higher at about $10,765. On 1 June 1993 the respondent made a written offer, addressed to the loss assessor investigating the applicant's claim, offering $25,000 as salvage for the damaged prime mover. This was not accepted by or on behalf of the applicant or its insurer.
On 5 July 1993, the applicant obtained a quotation for a vehicle to replace the damaged prime mover. This quotation was for $193,539, the amount claimed by the applicant as a component of its damages.
At about the same time, the applicant's insurer paid the applicant $4,310. It also paid out the applicant's liability to Esanda Finance Corporation Ltd under the hire purchase agreement. Of course, benefits received by the applicant pursuant to its insurance policy are not to be taken into account in reduction of damages: R.G. and T.J. Anderson Pty Ltd v Chamberlain John Deere Pty Ltd (1988) 15 NSWLR 363 (NSWCA), at 373 per Hope JA. I infer from Mrs Cipillone's evidence that the insurer paid for the repairs to the trailer, save for an excess of $1,500 which the applicant had to pay.
No steps were taken for some time by or on behalf of the applicant to order a replacement vehicle for the damaged prime mover. In December 1993 a finance company provided a quotation for the acquisition by the applicant of two new prime movers. In each case, the selling price was $230,000. A deposit of $20,000 was required and the terms provided for sixty monthly instalments of $4,334.30, payable in arrears. The application to the finance company included a statement of personal assets of Mr and Mrs Cipillone. This showed cash of $9,000; their home, valued by them at $230,000; furniture worth $40,000; an investment property at Point Cook, valued by them at $350,000; and a ski boat worth $13,000. Liabilities showed a mortgage over the real property of $230,000 and other debts of $2,000, providing net assets of $360,000.
Mrs Cipillone gave evidence that she had approached the applicant's bank in January 1994, to increase the applicant's overdraft from $10,000 to $20,000. The bank approved the request, but on the basis that real estate security was provided in support of the increase. Mr and Mrs Cipillone were not prepared to accede to that requirement and the matter was not taken further. It was not until April 1994 that Mr and Mrs Cipillone, with the advice of the company's accountant, Mr Gay, decided that the applicant should place an order for the acquisition of a new prime mover. The order itself was not placed until 29 June 1994. On that date an order was placed with International Trucks Australia Ltd for the purchase of two units, with a delivery date of late January 1995. One of the units was to replace the surviving prime mover, which had continued to operate. The other was to replace the damaged prime mover VXO OBK. Both were to be built in accordance with the applicant's particular requirements. The price of each unit was $207,000 and finance was arranged by the applicant through Esanda Finance Corporation Ltd, by way of hire purchase agreements. It appears that the delivery of the vehicles did not take place in January 1995, as contemplated, but was re-scheduled for reasons not explained in evidence until late June 1995. The deposit of $30,000 was to be provided by the applicant from its equity in the surviving prime mover.
The Applicant's Case for Loss of Profits
Mr Maconachie submitted that the applicant should be compensated for the loss of profits to the applicant occasioned by the irreparable damage to the prime mover. The loss of profits should be assessed on the basis that each of the prime movers operated by the applicant was a "profit centre". The applicant should receive the net profit that would have been earned by the damaged prime mover. Mr Maconachie submitted that the applicant should be allowed net profit for a period of 19 months - that is, from the date of the accident (12 May 1993) until December 1994. This period was apparently chosen because December 1994 was the time at which the applicant, having regard to its financial circumstances, could reasonably have been expected to replace the damaged prime mover with a new vehicle. As has been seen, the replacement vehicle, although ordered in June 1994, had not been delivered by the date of the hearing. However, Mr Maconachie did not suggest that the period for which loss of profits could be claimed should be greater than 19 months.
Evidence in support of the "profit centre" approach to damages was given by Mr Gay, the company's accountant. He prepared a table, derived from the applicant's records, showing the earnings and expenses attributable to each of the prime movers and of trailers used by them. The table covered the 13 month period from 1 May 1992 to 31 May 1993:
According to Mr Gay, this produced a monthly loss attributable to the damage to the prime mover of $11,473 (that is, $137,672 divided by 12). In fact, however, the correct calculation (using a period of 13 months) is $10,590.
This figure ignores the expenses attributed to the trailers, the hire purchase costs in respect of the vehicle and depreciation. Mr Maconachie acknowledged that a figure of $4,576.33 per month should be deducted in respect of hire purchase costs and Mr Cutler did not dispute that this was an appropriate figure to deduct. (Mr Maconachie's figures do not produce the claimed monthly net profit of $7,151, but nothing turns on this.) Mr Maconachie also conceded that a small allowance should be made for depreciation, but contended that this should be modest because the evidence, although scanty, suggested that prime movers held their value reasonably well, especially when relatively new. Neither Mr Maconachie nor Mr Cutler addressed the expenses attributable to the trailers. However, in my view they should be deducted from the "profit" attributable to the prime mover, since they were used to generate that profit. Using the figures supplied by Mr Gay, a deduction of $822 per month ($10,686 divided by 13) should be made for the trailers. The net profit attributable to the damaged prime mover (not allowing for depreciation) is therefore on the applicant's figures, $5,192 per month ($10,590 - $4,576 - $822).
Mr Maconachie's argument that loss of profits should be allowed for a period of 19 months rested on the contention that the applicant could not reasonably have been expected to outlay the amounts required to purchase a replacement prime mover until the decision was in fact made in April 1994 to do so. The cash outlay required to acquire a new vehicle was about $47,600, comprising
l a deposit of $20,000 payable to the supplier at the date of the order;
l insurance on the new vehicle, which Mrs Cipillone and Mr Gay said would be about $23,100 because of the loading attributable to the accident of May 1993; and
l the first month's hire purchase instalments of $4,500.
Mrs Cipillone gave evidence that she had decided, with Mr Gay's advice, that the applicant was not in a position prudently to order a new vehicle before about April 1994.
Mr Gay supported Mrs Cipillone's evidence by producing a chart showing the monthly cash book balance for the applicant after May 1993. This chart, which is reproduced below, according to Mr Gay, showed that the company's position was finely balanced until early 1994, when it showed steady improvement.
During the relevant period the applicant's overdraft limit was $10,000. Mrs Cipillone conceded that the limit had been substantially exceeded on occasions, but that this had occurred only for a few days at a time. She gave evidence that she had delayed writing cheques from time to time to stay within the limit, but stressed the importance to the survival of the business of prompt payment of sub-contractors.
Mr Cutler, as I understood him, did not dispute the profit centre theory of damages. Nor did he seriously dispute the outlays put forward by the applicant as necessary for the acquisition of a new prime mover, although he did suggest that the figure for insurance may have been somewhat overstated. But Mr Cutler contended that the damages for loss of profits should be limited to expected profits for a period of only five months. For his part Mr Maconachie accepted that, if the applicant had placed an order for a replacement prime mover in, say, early July 1993, the replacement could have been expected to arrive about November 1993. This followed from uncontested evidence that the time between order of a prime mover and delivery in 1993 was about 16 to 20 weeks.
Allowance for Loss of Profits
Mr Maconachie did not seek to draw a distinction between the measure of damages in tort and in contract. It is trite law that where a loss is caused by a breach of contract, the innocent party is entitled to be placed in the same situation, so far as money can do it, as if the contract had been performed: Robinson v Harman (1848) 1 Ex 850, at 855; 154 ER 363, at 365. But as the majority observed in Burns v M.A.N. Automotive (Aust.) Pty Ltd (1986) 161 CLR 653, at 667, the general principle is limited by the rule in Hadley v Baxendale (1854) 9 Ex. 341, at 354; 156 ER 145, at 151:
"Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it."
The majority also adopted the statement of Lord Reid in C. Czarnikow Ltd v Koufos [1969] 1 AC 350, at 385:
"The crucial question is whether, on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation."
In Burns v MAN Automotive itself, the High Court considered the measure of damages where a supplier had breached a contractual obligation to supply to a haulier a fully reconditioned prime mover. The prime mover, which was financed under a hire purchase agreement, was supplied in July 1977. The prime mover was faulty from the outset, but by July 1978 the buyer learned from bitter experience that the prime mover had not been reconditioned. He nonetheless continued to use the vehicle, although not for the purpose originally contemplated. The majority held that damages for loss of earnings could not be obtained for the period after July 1978, despite the fact that the seller knew the vehicle was to be used for the purposes of a haulage business and that the buyer was not affluent. The majority took the view (at 668) that the case simply called for a determination of that point of time beyond which any damage suffered by the innocent party could not be said to have been within the reasonable contemplation of the parties as flowing from the breach.
In the present case there was no evidence that the respondent had any specific knowledge of the applicant's financial position or of any other circumstances that made it likely that the applicant would not be able to replace the damaged prime mover: Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA), at 539-540. Even assuming the applicant was not in a position to acquire a replacement prime mover until late 1994 (a conclusion which, for reasons I shall give, I do not accept), it seems to me that the losses within the reasonable contemplation of the parties did not include loss of profits for the whole of the period until the company had the financial strength to acquire a replacement vehicle.
In my view, in the absence of specific knowledge on the repairer's part of other
circumstances, the parties would reasonably have contemplated at the time of
the repairs work that
destruction of the vehicle, flowing from the respondent's breach, would have
caused the applicant to lose the net profits from the prime mover for the time
it would ordinarily take to obtain a suitable replacement vehicle. No doubt it would be within the contemplation
of the parties that a reasonable time would be allowed for the applicant to
settle its insurance claim or make other financial arrangements. (In this case, the applicant's claim was
settled by early July 1993, although a dispute remained as to whether the
insurer was obliged to provide additional compensation sufficient to allow the
applicant to acquire a replacement.) It
would also be within their contemplation that a replacement vehicle would not
be delivered until 16 to 20 weeks after order.
But there was nothing to indicate to the respondent that the applicant's
business was other than a well-managed enterprise that could be expected, in
the case of loss of vehicle, to replace it as soon as reasonably
practicable. No information was conveyed
to the respondent to suggest that, by reason of the company's financial
arrangements with its bankers or its cash book balances, it could not
reasonably be expected to acquire a replacement vehicle.
In the circumstances, I think it is appropriate to allow the applicant six months loss of net profits in respect of the damaged prime mover. On the figures referred to earlier, this produces a total of $31,152. From this, a modest deduction, which I assess at $5,000 for the six month period, should be made for depreciation. Thus the damages under this head are $26,152.
Failure to Mitigate Loss
The respondent claimed that, if the applicant was otherwise entitled to claim loss of profits for 19 months, it had failed to take reasonable steps to mitigate its loss. Mr Cutler recognised that the onus was on the respondent in this respect, but contended that the applicant, acting reasonably, should have acquired a replacement vehicle as soon as reasonably practicable, that is, by about November 1994. The issue of failure to mitigate loss was pleaded by the respondent in its amended defence.
It is not necessary for me to resolve this issue in view of the conclusion I have already reached. However, I record that, had it been necessary to do so, I would have found that the applicant had failed to mitigate its loss.
It may be accepted that a respondent cannot be expected to take steps to mitigate loss which it cannot afford: Burns v M.A.N. Automotive, at 658-659, per Gibbs C.J. It may also be accepted, for the purposes of argument, that the principals of the company cannot be expected to support a corporate applicant in its activities, by way of unsecured advances, even though they have the means to do so. But the applicant's case was that the destruction of the prime mover deprived it of net operating profits of over $5,000 per month. In order to achieve this return the applicant had to find a deposit of $20,000 for a period of perhaps eight to nine months (until the income from the replacement vehicle's operations commenced to flow to the company). It also had to find some $23,000 for insurance, but not before the truck was delivered. (Of course, the company would have been relieved of finding the renewal premium on the damaged prime mover, which would have fallen due in September 1993). I do not think the first instalment payable under the hire purchase agreement is material to the analysis, since that would have been payable in arrears. It is material to note that a new vehicle would have enjoyed a fresh warranty period, providing a significant advantage to the company compared with the retention of a vehicle over one year old.
The evidence shows that the applicant made no attempt to obtain the funds needed to provide the deposit for a replacement vehicle until an order was placed in June 1994. Faced with the loss of the prime mover as a profit earning centre, the applicant could reasonably have been expected to consider what steps were open to it to obtain the funds required in the short term to acquire a replacement vehicle. I do not regard the request made in January 1994 for an increase in the applicant's overdraft limit as constituting an attempt to address the issue. The circumstances of the approach were not explained in evidence. It was not suggested that the bank had been told that short term accommodation was required to replace an important (and, on the applicant's case) assured source of profit to the company.
The evidence of the cash book balances in 1993 show that the applicant did not have substantial cash reserves, although the position fluctuated over time. But the appellant could not fairly be regarded as in a precarious position, once depreciation allowed for tax purposes is added back to profit. It must be remembered that the evidence on behalf of the applicant suggested that the depreciation allowable for tax purposes substantially exceeded the market depreciation of the prime movers. The figures provided by Mr Gay for the financial years ended 30 June 1993 and 30 June 1994 were as follows:
This table indicates that the impact of the loss of the "profit centre" was perhaps not as marked as was suggested on behalf of the applicant. However, Mr Cutler did challenge the profit centre theory and I carry the issue no further. The table does suggest, however, that the applicant had at least some equity in its surviving vehicle in mid 1993 and thereafter. There was no evidence that the applicant had sought to utilise that equity to finance the deposit required for the replacement vehicle.
This was not the only measure that might have been taken by the company. The applicant had lent $22,500 to one of its sub-contractors shortly before the accident. That loan, which was supported by formal documentation, was repayable over a twelve month period. No reasons were given why the loan instalments could not have been applied towards a deposit or used as security for a short term borrowing for the deposit. Similarly, the applicant made no inquiries about whether the required insurance premium could have been paid by instalments. There was no evidence establishing that the premium could have been paid by instalments, but the applicant made no attempt whatsoever to ascertain whether that course was open to it. Mr Gay's figures also show that the remuneration paid to Mr and Mrs Cipillone by the applicant increased during the financial year ended 30 June 1994 by almost exactly the amount required to pay the deposit on a replacement vehicle.
In these circumstances, I think that the respondent discharged the burden of showing that the applicant had failed to take reasonable steps to mitigate the loss attributable to the damage to the prime mover, by acquiring a replacement vehicle as soon as reasonably practicable. I therefore would have held in any event that the applicant's damages for loss of profits could not have exceeded the period of six months to which I have already referred.
Salvage Value of the Prime Mover
No doubt was cast by the applicant on the bona fides of the offer of purchase of the wrecked prime mover made by the respondent on 1 June 1993. That offer was made before the screwdriver was found on 2 June 1993 by Mr Thorpe and Mr Cassar.
Mr Maconachie argued, however, that it was reasonable for the applicant not to accept this offer since the preservation of the prime mover in its damaged state was needed for the purposes of evidence in the proceedings. However, Mr Enkelman, the expert retained by the applicant, examined the prime mover at Pinky's no later than 4 June 1993. On 13 July 1993 the applicant granted permission to the respondent to inspect the wrecked prime mover at Pinky's yard. The applicant delivered the steering column shroud and the screwdriver to the respondent on 17 July 1993. There was no suggestion put forward at the time by the respondent (which had made the salvage offer) that the damaged prime mover should remain intact indefinitely, or indeed for any period at all. It was, of course, open to the applicant to accept the respondent's offer and to alert the respondent (if it needed any reminding) that, if the prime mover were disposed of, no further inspection could be made by either party.
In these circumstances I do not think that the applicant's submission has been made out. The salvage value of the prime mover should be deducted from the damages award.
Conclusion
The applicant is entitled to damages totalling $224,688.20, made up as follows:
(a) Replacement of the prime mover ($193,539.00
less $25,000) $168,539.00
(b) Repairs to trailer and other items specified 24,997.20
(c) Loss of profits for six months 31,152.00
To this should be added interest. I think interest should run from 1 July 1993, to allow for the fact that not all losses were incurred on 12 May 1993. Adopting the interest rates provided for in the Supreme Court of New South Wales, the amount of interest rate to be added to the award of damages is $48,588.82. Accordingly, judgment should be entered for the applicant in the sum of $273,277, inclusive of interest. Unless there is any contrary submission, the respondent should pay the costs of the applicant.
I certify that this and the preceding 35 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated: 30 June, 1995
Heard: 6-8 December 1994, 19-20 June 1995
Place: Sydney
Decision: 30 June, 1995
Appearances: Mr J. Maconachie QC and Ms A. Foord, instructed by Shaw McDonald, Solicitors, appeared for the applicant.
Mr D. Cutler, instructed by Stephen Crofton Uniacke, Solicitor, appeared for the respondent.
