Daimler Chrysler Services AustraliaTollan Real Estate Peter Gregory Londish

Local Court of New South Wales

CITATION: Daimler Chrysler Services AustraliaTollan Real Estate Peter Gregory Londish [2006] NSWLC 3

JURISDICTION: Civil

PARTIES: Daimler Chrysler Services Australia Pty Ltd
Tollan Real Estate 1st Defendant
Peter Gregory Londish 2nd Defendant
Daimler Chrysler Asia/Pacific Pty Ltd Third Party

FILE NUMBER: 2098 of 2004

PLACE OF HEARING: Downing Centre

DATE OF DECISION:
02/10/2006

MAGISTRATE: Magistrate H Dillon

CATCHWORDS: Downing Centre - 10 February 2006 - H.C.B. Dillon - Contract -- Whether first defendant entitled to rescind contract – Whether plaintiff “supplied” a motor vehicle – Whether vehicle of merchantable quality – Indicia of merchantability for motor vehicles – Whether a potential defect requiring recall of vehicle sufficient to make vehicle unmerchantable -- Whether consumer entitled to have higher expectations in respect of new luxury vehicles -- Relief. - Trade Practices – Whether distributor of vehicle is a “manufacturer” – Whether plaintiff a “linked credit provider” – Whether third party a “supplier” linked to a credit provider. - Practice and procedure – Problems caused by overly complex pleadings – Problems caused by overly voluminous tenders of documents – Problems caused by delays in making submissions – Problems caused by over-reliance on lengthy written submissions – Emphasis in Civil Procedure Act 2005

LEGISLATION CITED: Civil Procedure Act 2005 s.56
Trade Practices Act 1974 ss. 4, 4C, 66, 68, 71, 73, 74A, 74B, 74D, 75A.

CASES CITED: Australian Guarantee Corporation Ltd v Jennings [1981] 1 NSWLR 50.
Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220.
Cavalier Marketing v Rasell (1990) 96 ALR 375.
Clark v Esanda Ltd [1984] 3 NSWLR 1.
Courtney v Medtel [2003] FCA 36.
King v Sexton & Green (Sales and Service) [2000] NSWCA 340.
Medtel Pty Ltd v Courtney (2003) 198 ALR 630.
Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323.
Rogers v Parish (Scarborough) Ltd [1987] 1 QB 933.
Thomas v Foreshore Marine Exhaust Systems Pty Ltd [2005] NSWCA 451.

REPRESENTATION: Ms Humphreys Counsel
Humphreys & Feather Solicitors for plaintiff
Mr P Bruckner Counsel
Morgan Lewis Attorneys for defendant
Mr S Bliim of Counself for Third Party
Riley, Grey - Spencer Lawyers for Third Party

ORDERS: 1. In the action between the plaintiff and the first and second defendants, there will be verdicts for the defendants and judgment accordingly.; 2. In the action brought pursuant to s.75A by the first defendant/cross-claimant against the plaintiff/first cross-defendant, there will be a verdict for the cross-claimant in the sum of $10,276.69.; 3. In the action brought pursuant to s.73 by the first defendant/cross-claimant against the plaintiff/first cross-defendant and third party/second cross-defendant, there will be a verdict for the cross-defendants. Judgment accordingly.; 4. In the action brought by the cross-claimant against the third party pursuant to ss.74B-74G there will be a verdict for the third party/cross-defendant. Judgment accordingly.; 5. I reserve the question of costs. Parties to have liberty to apply on seven days’ notice.

JUDGMENT

1. On 31 October 2002, the plaintiff and first defendant entered into an agreement pursuant to which the plaintiff leased a 2002 Mercedes-Benz ML55 motor vehicle. The term of the lease was 60 months, and the first defendant, among other things, agreed to make rental payments on specified dates, together with a “balloon” payment at the expiration of the term of the agreement. If that payment was made, the first defendant would become the owner of the vehicle. The agreement was made in writing.

2. At about the same time, the second defendant gave a written guarantee of payment of all moneys paid by the first defendant to the plaintiff under the agreement.

3. On about 27 July 2003, the first defendant surrendered the vehicle, effectively rescinding or repudiating the lease. The plaintiff’s case, is that the surrender of the vehicle terminated the contract and at that date the sum of $156,265.64, became immediately due and payable under the agreement. The car was sold on 17 December 2003. After deduction of recovery and other expenses, net proceeds of $100,491.20 were realised by the plaintiff. The amount of $55,774.44 was therefore outstanding on the plaintiff’s case. The plaintiff brings this action against the first and second defendants for recovery of that sum.

4. The defendants allege that the motor vehicle was defective and deny liability on the basis that the car was not of merchantable quality, did not comply with its description and was not fit for its purpose. Accordingly, their case is that the first defendant was entitled, pursuant to s.75A of the Trade Practices Act 1974, to rescind the contract. They also allege that the plaintiff failed properly to mitigate its damages.

5. The defendants also bring a cross claim, alleging that, as between the plaintiff and third-party, there was a relevant arrangement within the meaning of section 73 and that the vehicle was supplied to the cross-claimant as a “consumer” within the meaning of that term for the purposes of section 71 of the Trade Practices Act. The cross-claim alleges that the defendant was induced to enter the agreement as a result of misleading and deceptive representations by, or with the authority of, the third party, the overseas manufacturer or the third party’s agent in respect of the performance characteristics, quality, standard and grade of the Mercedes-Benz.

6. Essentially, the cross-claim alleges that the vehicle did not comply with its description; was not of merchantable quality; and was not fit to the purpose for which it was provided in breach of conditions implied by common law and the Trade Practices Act. The cross-claim also asserts that the agreement was rescinded pursuant to section 75A of the Trade Practices Act. It claims the amount of consideration given for the vehicle as a debt, damages and interest.

7. The defendants have also joined the third party on the basis that it was, for the purposes of section 74A of the Trade Practices Act, the manufacturer of the vehicle. Again, the allegation is that the vehicle did not comply with its description; was not a merchantable quality; was not fit to the purpose; and did not comply with the representations made about it.

Background

8. Most of the essential facts in this matter are not in contest. I have already outlined some of them above.

9. Mr Londish, the sole director of the first defendant, has a real estate business in Mosman. The Mercedes-Benz M series four-wheel-drive motor vehicle, the subject of these proceedings, was obtained (I use a neutral term) by the first defendant from a dealer, G Brothers at Mona Vale, who arranged the finance for the vehicle. That finance was provided by the plaintiff.

10. The first defendant entered a contract with the plaintiff which was expressed in the written agreement in the following way:

DaimlerChrysler Services Australia Pty Ltd… at the request of [the first defendant] and the Guarantor (if any) agrees to hire to the Customer (with an option to purchase) the vehicle [the subject of these proceedings] on the Terms and Conditions attached to this document for the whole of the Agreement Term.

11. The contract in question contained a considerable number of conditions. Aside from the usual conditions as to registration, insurance and so on, it contained conditions concerning the warranty of the vehicle; the ending of the agreement and payment obligations.

12. Clause 2.1 of the contract stated, “ If the vehicle is new, it is covered by a standard new vehicle warranty from the manufacturer. If the vehicle is used, it is covered by any statutory warranties.” Clause 2.2 stated, “ I am purchasing the vehicle from you ‘as is’’ and understand that you do not make any promises as to the vehicle's condition, merchantability, suitability, or fitness for a particular purpose”. Clause 2.3 reads, “If the vehicle is lost or damaged, I will advise you it immediately in writing.”

13. Clause 5.1 of the contract provides that the lessee would be in default of if it failed to pay the monthly amount or to do anything required of it under the agreement. Clause 5.2 provided that where the lessee was in default, and the default was capable of remedy, and the lessee failed to rectify the default within 14 days of notice from the lessor, the lessor was entitled to terminate the agreement by notice in writing and repossessing the vehicle. Clause 5.3 acknowledged that the lessor could recover its reasonable costs incurred in enforcing its rights under the agreement.

14. Clause 6 of the contract deals with what it calls “prior termination by return of the vehicle”. Under clause 6.1, the contract provided that if, at any time before the end of the agreement term, the lessee returned to the vehicle to the lessor, the agreement would terminate and that the lessee must pay the lessor the “amount due on termination”. In this case, that amount was, according to the plaintiff, $156,265.64. That figure is, as I understand it, not contested.

15. The total amount the plaintiff agreed to finance was a sum of $166,687.21 with a monthly payment of $2382.89, leaving a “balloon” payment of $75,000 if the customer chose to purchase the vehicle at the conclusion of the agreement period. Under this agreement, the plaintiff relieved the first defendant of an obligation to pay $26,552.21 under an earlier finance agreement in respect of another vehicle that was traded-in.

16. At the time the contract was terminated, the first defendant had paid 10 monthly instalments and an initial cash deposit of $13,000, a total of $36,828.90.

17. On 3 July 2003, during the afternoon peak hour, while Mr Londish was driving north on the Sydney Harbour Bridge, the vehicle suddenly lost power to the wheels and stopped moving forward, despite the engine revving. At that time, the vehicle was only seven months old and had travelled less than 12,000 km. Mr Londish stopped and restarted the car and managed to travel, very slowly, home to Mosman. On 4 July 2003, G Brothers transported the vehicle on a flatbed truck to their workshop. It appeared that the vehicle had suffered a transmission failure on the Harbour Bridge.

18. On 10 July 2003, DaimlerChrysler Australia Pacific wrote to Mr Londish, confirming that the vehicle had suffered a transmission problem and that repairs would be carried out at no cost to him, in accordance with the warranty on the vehicle. It also offered to lend him a replacement vehicle while his vehicle was being repaired. Mr Londish declined that offer.

19. On 16 July 2003, G. Brothers wrote to Mr Londish, informing him that repairs had been carried out in accordance with the manufacturer's specifications, and that they “felt” that the vehicle was now performing according to correct standards.

20. The following day, Mr Londish wrote back to G Brothers. He expressed dissatisfaction with G. Brothers’ failure to guarantee the repairs, stating, “with reference to your letter [of 16 July 2003], as stated before to the management of G. Brothers and the managing director of Mercedes-Benz Australia in Victoria, due to the nature of fault, which occurred in the above referred motor vehicle and your comment “ we feel” not we guarantee, the company's relationship, after many Mercedes-Benz purchases, is now terminated.”

21. He went on to say, “ Tollan Real Estate Pty Limited will never accept the Mercedes-Benz ML 55 AMG ANC 51 as a satisfactory or reliable motor vehicle for the purpose built: a high-performance, long-distance off-road vehicle.”

22. A lengthy correspondence then followed between Mr Londish, the plaintiff and the third party in which Mr Londish complained about the motor vehicle and asserted a right to terminate the contract and in which the other parties asserted their rights under the contract.

The issues

23. From the plaintiff’s point of view, the principal issue is whether the first defendant terminated its lease agreement with the plaintiff prior to the end of the agreed lease period by voluntarily surrendering the vehicle on 4 July 2003 and thereby became liable for the payout figure less the proceeds of the sale of the vehicle.

24. In their pleadings, the defendants raise a number of issues which largely overlap in their defences and the first defendant’s cross-claim. The first group relate to its claimed right to rescind the contract without penalty pursuant to the common law and the Trade Practices Act because the car was not fit for its purpose; not of merchantable quality; and failed to comply with its description. The defendants also claim that the plaintiff made misleading representations that the vehicle was “of the highest quality” in terms of build, workmanship and reliability and that the first defendant was thereby induced to enter the contract to its detriment. The plaintiff and third party contest these complaints. At the time of the hearing, however, it became apparent that the defence and claim actually pressed by the defendants is the question of the merchantability of the vehicle. The issue of merchantability effectively encompasses the question of fitness for purpose. The primary issue in the case, however, in my view, is whether or not the car was of merchantable quality when it was supplied to the first defendant. Upon that determination, everything else depends.

25. The defendants have also joined the importer of the vehicle on the basis of manufacturer’s liability pursuant to the provisions of the Trade Practices Act in respect of the alleged breaches of warranties and in relation to alleged misrepresentations made in connection with the supply or promotion of the vehicle. These allegations are also contested by the plaintiff and third party. The third party also denies that the dealer, G Brothers, was its agent or that the dealer had ostensible authority to act for it. The third party denies that it was the manufacturer or supplier of the vehicle for the purposes of the Trade Practices Act.

26. The defendants also raise the question whether the plaintiff and third party are jointly and severally liable under s.73 of the Trade Practices Act on the basis that the plaintiff was linked as a credit provider with the third party as supplier. The third party denies that it was a linked credit provider and that the plaintiff was a linked credit provider in relation to it. The third party asserts that the plaintiff was a linked credit provider in relation to the dealer but not it. The plaintiff makes the same assertion.

27. The defendants also challenge the plaintiff in respect of damages on the basis that the vehicle was sold at less than its real value and a number of other bases. This is strongly contested by the plaintiff and third party.

28. The cross-claimant alleges that, as a result of the breaches of the statutory warranties and misrepresentations, it is entitled to damages in the sum of $36,828.90.

29. The third party also alleges that if the defendants suffered any losses (which is denied), they were caused by the first defendant’s conduct in surrendering the vehicle and refusing to allow it to be repaired in accordance with the lease agreement and in refusing payment owed to the plaintiff, thus triggering the repossession and sale of the car.

Further evidence

30. Apart from the history of the contract, the vehicle’s breakdown and the dispute, which is related above, contested evidence was given by a number of witnesses and an agreed bundle of evidence (of approximately 400 pages in length, largely generated by the defendants) was tendered. Mr Timothy Desmyth gave evidence for the plaintiff and produced a number of business records. Mr Peter Londish, the second defendant, gave evidence on his own and the first defendant’s behalf. He also produced a bundle of documents. Evidence also came from Messrs Malcolm Mullis and Laurence Preston together with expert reports concerning the vehicle from Mr Neil Gillies (for the defendants) and Dr R.T. Casey (for the third party). A valuation of the car was also provided by Mr Terry Kabeck.

31. The plaintiff’s evidence consisted, in the main, in proving the contractual records. The terms of the contracts are uncontroversial and have been dealt with above.

32. The defendants’ evidence was of much greater complexity. I do not intend to describe it at great length but a tender of over 100 pages of promotional material formed a significant part of the defendant’s evidence. The material purported to show that the Mercedes-AMG marque is top of the Mercedes-Benz range and that the ML 55 AMG vehicle is top of the four-wheel drive M-class Mercedes-Benz range of vehicles. According to the promotional material produced by Mercedes-Benz, the ML 55 AMG is about 50 per cent more expensive than the next most expensive M-class vehicle and more than 100 per cent more expensive than the bottom-of-the-range vehicle in the class. That this was a luxury vehicle and the “flagship” of its class is not in contest. I think that it is a matter of common knowledge that Mercedes-Benz has a reputation for producing vehicles of high quality and excellence of performance.

33. Mr Londish gave evidence that he relied upon material of this type when he decided to order the vehicle in question on behalf of the 1st defendant.

Further evidence concerning the breakdown

34. Mr Laurence Preston, the service manager with G Brothers, gave evidence concerning complaints made by Mr Londish concerning the vehicle. He stated, among other things, that the car had performed satisfactorily during its pre-delivery inspection. He said that repair of the fuel centre unit in December 2002 had been a minor problem. He stated that Mr Londish had complained about the body flare seals but that nothing had been found wrong with them.

35. In relation to the transmission problem, he said that, apart from describing a “thumping” in the gearbox, Mr Londish had complained that the vehicle was “giving him too many problems” and that it was “not what he had bought” and asked for his money back under the hire-purchase agreement. Mr Preston said that he had told Mr Londish that G Brothers’ only obligation was to repair the vehicle under the manufacturer’s warranty.

36. He said that G Brothers had offered Mr Londish a replacement vehicle to borrow while his car was under repair but that he had refused it.

37. He said that after the repairs were completed he had spoken to Mr Londish on the telephone. Mr Londish had told him, he said, “You are not listening to me, I do not want the car back.” He said that he had then written to Mr Londish. (This was the letter dated 16 July 2003 referred to above.)

38. Mr Preston said that he had next seen Mr Londish on 27 July when Mr Londish had driven to the G Brothers premises in a brand-new Lexus vehicle and spoken to the sales manager, Mr Richard Muir. Mr Preston said that Mr Muir had asked Mr Londish whether he was abandoning the vehicle to which Mr Londish had replied, “Well, I’m not taking it, I’m leaving it here so I guess, yes, I am abandoning it.”

39. Mr Preston said that no further work was done on the vehicle and that it was taken away about four weeks later.

The technical evidence concerning the breakdown of the vehicle

40. The technical evidence concerning the breakdown of the car is largely agreed. G Brothers found, after the gearbox had been dismantled, that a seal, known as the “K2 seal” had perished in the automatic transmission. It appears from the G Brothers records that they worked on the vehicle between 4 and 16 July 2003 before the fault was apparently rectified as it took some time to locate the source of the problem.

41. Mr Neil Gillies, an automotive engineer, gave evidence about the gearbox for the defendant. In his report dated 23 May 2005 he stated:

The automatic transmission (gearbox) in this vehicle is of the usual hydraulically operated type, and there is an oil cooler to limit the temperature buildup of the automatic transmission fluid when under adverse operating conditions.

Even knowing the particular seal which failed, and its condition, may be insufficient to assess how the transmission and vehicle may react, because other factors such as the actual speed and gear setting and gear engaged at the time would affect it, and also how the driver reacted could alter the behaviour.

A failure of an internal hydraulic seal could cause a quite sudden onset of various types of behaviour from minimal to a complete loss of drive, or just a slow onset of some types of behaviour, but still perhaps with the possibility of later leading to a quite a debilitating fault including complete loss of drive. It might also cause the transmission to lock up and thereby lock some road wheels and cause the vehicle to go out of control. A lack of full drive to the wheels could lead to the vehicle being stranded or only able to proceed slowly and unable to accelerate.

The failure of the seal in this transmission seemingly suddenly resulted in a large change in behaviour but at least a residual ability to drive the vehicle but only at slow speed.
The change in the transmission characteristics because of a fault could ultimately lead to other failures in the transmission or in the vehicle because of the resulting abnormal behaviour, such as over-revving of the engine, or excessively abrupt gearchanges, or with more than one set of gear ratios engaged simultaneously which would result in temperature rise and excessive wear in other areas of the transmission.

42. In Mr Gillies’s opinion, the risks from transmission failure ranged from a loss of power and an inability of the vehicle to accelerate, to the vehicle being stranded and, in a worst case, included a total loss of control of the vehicle if the transmission locked up completely. He thought that this was a very significant fault in the vehicle as it abnormally exposed the safety of the occupants, depending how the fault manifested itself and the situation in which it did so.

43. Dr R.T. Casey, also a mechanical engineer, gave evidence for the third party in the matter. In relation to defects generally, he offered the opinion, in his report of 10 January 2005, that “it is not possible to produce a vehicle that is free from all defects” and that any expectation that a car will be free from all defects at the time of sale is “unreasonable”. He also suggested that the more complex and advanced the systems of a vehicle, the greater the likelihood of things going wrong. He was of the view that “it would be reasonable to expect that if a problem arose in a vehicle relating to a defect, then it would be repaired in a timely fashion, and would not result in undue danger to the occupants of the vehicle.” Luxury cars are not immune from defect in his view.

44. In his opinion, the transmission problem had not caused any more significant risk to the occupants of the vehicle than would normal driving.

45. In relation to the K2 seal tear specifically, his evidence was that “generally such an issue arises due to rough handling at the time of installation.” For this reason, he thought that it was likely that the seal was torn at the time the car was imported into Australia (and, therefore, at the time it was supplied to the first defendant.)

46. His evidence was that “the only reasonable way to detect this fault would be through anomalous behaviour during driving.” He thought that the pre-delivery inspection ought to have picked the problem up but that, if it was not, it constituted a latent defect.

47. Dr Casey thought that the problem with the K2 seal was an uncommon one. He conceded that it was sufficiently serious enough to stop the vehicle but said that “many problems with automatic transmissions will result in the same outcome”.

48. In his report of 21 July 2005, Dr Casey noted that there had, in fact, been no accident as a result of the failure of the transmission and he was of the opinion that it was significant that there had been no complete loss of power; that the transmission had not locked up; that the transmission did not select more than one gear simultaneously or change gear abruptly. As far as he could ascertain from the G Brothers records concerning the repairs, they had been carried out successfully and the car was safe and roadworthy thereafter.

Other defects in the car

49. The defendants also tendered evidence of other defects in the vehicle. From the dealer’s records it appears that in December 2002 the fuel gauge was repaired by replacement of a part and that a couple of other complaints were investigated but no fault was found with the coolant system or dust seals on the tailgate. Apart from the transmission fault, the other major issue raised by the defendants, however, is a claim that the car was defective because an oversized clamp had been fitted to the lower power steering hose.

50. Mercedes-Benz issued a recall notice in respect of the clamp. There is no evidence of any actual failure in this vehicle.

51. Mr Gillies was of the view, nevertheless, that a fault in the hose clamp might result in leakage of power steering fluid. The consequences of this, in his view, could range from environmental damage (presumably of a relatively minor nature) to severely increased difficulties in steering the vehicle, depending on the circumstances. He went so far as to say that if sufficient fluid was lost there could be a mechanical failure of the steering pump itself. In the worst case, he considered that a driver may be unable to control the vehicle. He regarded this as a serious fault.

52. Dr Casey noted that the recall notice had been issued only as a precautionary measure and that the repair required was a minor one. He thought that the problem was not serious. He also thought that any defect would readily manifest itself to a visual inspection.

53. Mr Malcolm Mullis, an executive with DaimlerChrysler Australia/Pacific gave evidence that the recall in relation to the clamp was an entirely routine event.

Parties’ submissions

The plaintiff

54. In relation to the first defendant’s alleged breach of contract, the plaintiff submits that it is entitled to a verdict against both defendants for the first defendant’s breach. It relies on clauses 6 and 8 of the agreement and the second defendant’s guarantee. It says that once the plaintiff terminated the contract it was entitled to the payout figure that it now claims.

55. As to the question of failure to mitigate, the plaintiff simply contends that the vehicle was handed over to a reputable auctioneer and was sold. It had therefore taken reasonable steps to mitigate its loss.

56. The plaintiff also contends that any complaint by the defendant concerning misrepresentations and statutory warranties does not and cannot apply to it as its contract was in respect of financing the hire-purchase of the vehicle, not its supply. It says that it did not advertise the vehicle and made no representations in respect of it.

57. In relation to the defendants’ assertion that the first defendant was entitled to rescind the contract under the provisions of the Trade Practices Act, the plaintiff submits that it did not “supply” the vehicle to the lessor, the actual supplier being G Brothers. The plaintiff denies that it was linked as a credit provider for the purposes of s.73 of the Trade Practices Act with the third party. It also asserts that it made no representations, let alone misrepresentations, about the quality and capability of the car.

58. On the question of merchantability, which in my view is the key issue in the case, and which was the basis of the principal attack on the cases of both the plaintiff and third party, the plaintiff contends that the evidence falls short of proving that the vehicle was unmerchantable. It says that a defect does not, of itself, render goods unfit for their purpose. The plaintiff says that the car was fit and remains, having had the defect in the transmission repaired quickly and at no cost to the defendants.

59. It denies the relevance of the recall notices.

60. The plaintiff also contests the assertion that Mr Londish claims to have relied on advertising representations concerning the quality of the vehicle he leased on behalf of the first defendant. It says that the documentation to which he may have had access has not been produced and that anything else is irrelevant.

61. On the question of whether the plaintiff and third party were linked, the plaintiff supports the third party’s contention that the third party was not a supplier for the purposes of s.73 of the Trade Practices Act. It says that the “supplier” was G Brothers. It disputes the defendants’ argument that G Brothers was an agent of the third party, arguing that G Brothers were a dealer in Mercedes-Benz vehicles, but not an agent of the third party.

62. The plaintiff argues that, as a consequence, it is not a linked credit provider pursuant to s.73.

63. In the alternative it argues that it may advance the defences found in s.73(2) and (3). Section 73(2) provides:

Where:
(a) a corporation (in this section also referred to as the supplier) supplies goods, or causes goods to be supplied, to a credit provider who is not a linked credit provider of the supplier;

(b) a consumer enters into a contract with the credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire-purchase of the goods to the consumer;
(c) antecedent negotiations in relation to the contract were conducted with the consumer by or on behalf of the supplier; and
(d) the credit provider did not take physical possession of the goods before they were delivered to the consumer;
or where a consumer enters into a contract with a credit provider for the provision of credit in respect of the supply of services to the consumer by a corporation (in this section also referred to as the supplier) of which the credit provider is not a linked credit provider, and the consumer suffers loss or damage as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 2001, the credit provider is not under any liability to the consumer for the amount of the loss or damage, but the consumer may recover that amount by action in a court of competent jurisdiction against the supplier.

64. The plaintiff contends that it was not a linked credit provider and did not take physical possession of the vehicle. It says that, consequently, it has no liability to the defendants for any loss or damage suffered by them as a result of any breach of contract by the supplier.

65. In relation to s.73(3), the plaintiff says that, even if it were to be found to have been a linked credit provider, the credit provided by the plaintiff to the first defendant was not induced by an approach by the supplier to Mr Londish but was provided to the consumer because Mr Londish had made his own uninduced approach for credit.

66. The plaintiff further relies on s.73(6)(b) and (7) to assert that it is not liable to the defendants. Section 73(6)(b) provides:

Subsection (5) and paragraphs (8)(a) and (9)(a) do not apply in relation to proceedings where…
(b) in the opinion of the court in which the proceedings are taken, it is not reasonably likely that a judgment obtained against the supplier would be satisfied and the court has, on the application of the consumer, declared that subsection (5) and paragraphs (8)(a) and (9)(a) do not apply in relation to the proceedings.

67. Section 73 (5) provides:

Subject to subsection (6), a consumer may not, in respect of a liability for which, by reason of this section, a supplier and a linked credit provider are jointly and severally liable:
(a) bring proceedings to recover an amount of loss or damage from the credit provider; or

(b) where proceedings are brought against the consumer by the credit provider, make a counter-claim or exercise the right conferred by subsection (4) against the credit provider;
unless the consumer brings the action against the supplier and the credit provider jointly or, in the case of a counter-claim or right conferred by subsection (4), claims in the proceedings against the supplier in respect of the liability by third-party proceedings or otherwise.

68. Section 73(8)(a) provides:

Where in proceedings arising under subsection (1), judgment is given against a supplier and a linked credit provider, the judgment:

(a) shall not be enforced against the linked credit provider unless a written demand made on the supplier for satisfaction of the judgment has remained unsatisfied for not less than 30 days.

69. Section 73(9)(a) provides:

Where in proceedings arising under subsection (1), a right conferred by subsection (4) is established against a linked credit provider, the consumer:
(a) shall not receive the benefit of the right unless judgment has been given against the supplier and linked credit provider, a written demand has been made on the supplier for satisfaction of the judgment and the demand has remained unsatisfied for not less than 30 days.

70. On the question of damages, the plaintiff argues that there was no mitigation by the defendants.

The defendants

71. The defendants made very lengthy submissions on the various matters they rely upon in relation to their defences and the first defendant’s cross-claim brought under the Trade Practices Act. Those submissions ran to some 40 closely-typed pages. As comprehensive as those submissions were, they were served almost two months later than the timetable set by the Court. I will have some further comments to make about the prolixity and tardiness of these submissions at the conclusion of these reasons for decision.

72. Notwithstanding the length of the defence submissions, the essence of the defendants’ argument, however, is simply stated: it is that, when the car was supplied, it was not of merchantable quality and that, as a consequence, the first defendant was entitled to rescind the contract with the plaintiff pursuant to s.75A of the Trade Practices Act.

73. A large number of other submissions were also made by the defendants but, for reasons that will become apparent as these reasons for decision are developed, it is unnecessary for me to deal with other than the principal arguments.

74. At the possible risk of oversimplifying the multitude of complexities raised by the defendants, and dispensing here with any consideration of those that are irrelevant to the decision I have ultimately made, the defendants’ submissions advance a number of propositions. In relation to the facts, the defendants’ submissions are simply summarised.

75. First, the vehicle is a luxury vehicle and heavily promoted as being of the highest quality. Mr Londish relied on that material and had high expectations of the vehicle. He was induced to enter the contract on behalf of the first defendant by those representations.

76. Second, the car was seriously defective in relation its transmission and steering.

77. Third, the repairs carried out took a considerable period of time and were expensive.

78. Fourth, there may be a knock-on effect of the defect in that excessive wear may have been caused to the engine as a result of “over-revving” of the engine or abrupt gear changes.

79. Fifth, that the mere fact of the recall demonstrates that the steering clamp was defective.

80. In relation to the relevant law, the defendants submit that a number of principles can be distilled from the authorities:

81. First, that s.66 of the Trade Practices Act applies in this case. I will outline the section more fully when analysing the legal principles but for the moment it is sufficient to note that s.66 provides a statutory definition of “merchantable quality” laying emphasis on the consumer’s reasonable expectation as to the fitness for their purpose of the goods in question.

82. Second, that the assessment of the quality of the goods is to be measured against the reasonable expectations of the consumer at the time of supply.

83. Third, that the legislation must be interpreted in the light of its purpose of providing rights and protection for consumers.

84. Fourth, that mere risk is sufficient for unmerchantability.

85. Fifth, an unroadworthy vehicle is unmerchantable.

86. Sixth, reasonable expectations of fitness for purpose are higher in relation to luxury cars than in relation to less expensive vehicles.

87. Seventh, reasonable expectations are also higher in respect of new vehicles than in relation to second-hand cars and higher still for new luxury cars.

88. Eighth, a non-exhaustive list of considerations to be taken into account when assessing the merchantability of a new car include the ease with the which the fault can be rectified; the intractability of the problem; the time and expense taken to rectify the problem; whether the fault is, in fact, capable of being rectified so as to produce a result “as good as new”; whether the overall problem is a mass or series of defects; and whether there is a knock-on effect from the defect(s).

89. Ninth, a manufacturer’s warranty is irrelevant to the consideration of merchantability.

90. Tenth, the relevant time is at the time of supply but the question whether the defect is latent is immaterial.

91. Eleventh, the warranty that goods are fit for the purpose is a continuing warranty that the goods will remain fit for their purpose for a reasonable period after delivery.

92. The defendants argue an application of those principles to the facts of the case must result in a finding the car was unmerchantable at the time of delivery and that the first defendant was therefore entitled to rescind the contract. Second, they are argue that it was implicit in the arrangements made by the plaintiff with the defendants that upon lawful rescission by the first defendant, the contract between the second defendant and the plaintiff was also terminated.

93. In relation to the plaintiff’s submission that the defendants failed to mitigate, they argue that this was never pleaded and that it would be unfair to deal with this issue in submissions.

The cross-claim

94. In relation to the cross-claim, the first defendant claims an entitlement to damages pursuant to s.71 of the Trade Practices Act against the plaintiff. (A cause of action under the common law was also pleaded but not pressed.)

95. In summary, the cross-claim is brought on the basis of a breach of an implied warranty of merchantability and lack of fitness for purpose.

96. An action under s.73 of the Trade Practices Act is also brought by the cross-claimant against both the plaintiff, which it characterises as “the financier”, and the third party, which it calls “the distributor” as linked credit provider and supplier. Again, leaving aside at present the complications of s.73, the action is based on the same fundamental allegations, namely, that the car was not of merchantable quality and was not fit for its purpose.

97. For the purposes of s.73, the cross-claimant submits that there is evidence of the linkage between the two entities in the facts that both companies are wholly-owned subsidiaries of DaimlerChrysler Australia/Pacific Holding Pty Ltd; the financier receives credit applications from the distributor’s dealerships; the various application forms are kept on the premises of the dealers; and the financier and supplier had an arrangement under which the financier’s offers of credit could be signed at premises of the distributor or at the premises of dealers of the distributor; and G Brothers also made available to its customers the financier’s application forms and regularly referred customers to the financier to obtain credit for vehicles.

98. The cross-claimant also brings an action under s.74B-74G against the third party as a “manufacturer” for the purposes of the Trade Practices Act on the basis that the third party imported the goods and is deemed by s.74A to be the “manufacturer”. Again, the action is based on lack of merchantability. It is unnecessary to repeat the submissions made on that issue here.

99. Finally, there is an action brought by the cross-claimant against the plaintiff pursuant to s.75A. In addition to arguments previously made, the submission in this regard is that the cross-claimant was entitled to rescind the contract on the basis of unmerchantability of the vehicle provided that the goods were returned within a reasonable time after the consumer had a reasonable time to inspect the goods and, when returning the goods, the consumer provided particulars of the defect. The submission here is that the goods were returned and particulars of the alleged defect were provided as soon as they manifested themselves to the consumer.

100. In respect of the damages it claims, the first defendant’s primary submission is that, where a consumer refused to accept back a vehicle of unmerchantable quality, and where there was a refusal to provide an alternative vehicle of merchantable quality, the loss or damage which arises is the amount necessary to indemnify the consumer for his or her obligations under the hire-purchase contract.

101. In the alternative, the first defendant submits that, although the car had some repairs carried out under warranty, it suffered loss or damage by virtue of an unhappy experience with the vehicle, the knock-on effect of the defects which were not repaired, the loss of character of the vehicle as having been made by hand and on the AMG assembly line, and it being without the vehicle for several weeks. It says that it should be compensated for these matters.

The third party’s submissions

71. The third party correctly specifies that the question of merchantable quality is the the key issue and fairly concedes that if the vehicle was not of merchantable quality that the defendants are entitled to relief.

72. The third party contends that the proper test under s.74D of the Trade Practices Act of merchantability is that goods are not of merchantable quality unless they were as fit for the purpose for which they are commonly bought as it is “objectively reasonable to expect”.1

73. From that starting point, the third party advances its submission that the vehicle, although defective, was not so seriously defective as to be unfit for its purpose. Rather, the submission is the defective K2 seal was relatively easily repaired, once the fault had been correctly diagnosed, and that it could be regarded as some sort of “teething problem”, which are common in most new vehicles and which are ordinarily rectified under a manufacturer’s warranty.

74. The third party argues that there is no evidence that the repairs were very expensive or that there was any long-term damage done to the engine or other vehicle parts due to “knock-on” effects from the defective transmission. It is to be noted that this was a car which had been driven for less than a year and not for a long distance. The submission is, therefore, that, once repaired, the car was in virtually pristine condition, taking into account only the small amount of wear and tear which had occurred due to normal usage. Other defects complained of by the defendants were, according to the third party, relatively trivial.

75. As to the question of the recall notices, the third party submits simply that there was no evidence in relation to the vehicle in question that it suffered from any defect specified as a possibility in the recall notices. Further, the third party argues that the recall notices had no bearing on the conduct of the second defendant in deciding to return the vehicle.

76. On the issue of whether the plaintiff and third party were linked for the purposes of s.73 of the Trade Practices Act, the third party submits that it played no part in the arrangement of the financing of the vehicle and is therefore entitled to rely on the defence available to linked credit providers. It submits that G Brothers was not a dealership owned or operated by the third party and that the evidence shows that the credit was provided after an approach by the consumer to G Brothers who merely assisted Mr Londish in making the relevant application. The third party says that there is no evidence of agency on the part of G Brothers in relation to that transaction.

The cross-claimant’s responses to the plaintiff and third party

77. It is unnecessary to recite the response of the cross-claimant on the question of the defects in the vehicle. That issue has been more than adequately canvassed by all parties. I will here relate only the submissions concerning the causes of action under ss.73, 74 and 75A of the Trade Practices Act.

78. In relation to the contentions of the plaintiff and third party that there was no relevant linkage between for the purposes of s.73, different arguments were raised by the plaintiff and third party. The third party argued that the cross-claimant must demonstrate linkage in respect of the particular transaction, rather than a general link. The cross-claimant submits that this is incorrect and not supported by a proper reading of the legislation.

79. The plaintiff contests any submission to the effect that there was an arrangement or understanding between itself and the third party for the purposes of s.73. The cross-claimant relies in the main on its previous submissions concerning the linkage to answer that point. The plaintiff also makes a point that the linkage would only arise if the consumer selected its financial forms from the variety offered at Mercedes-Benz dealerships. This seems to be making much the same point at that made by the third party, that the link is made only in respect of particular transactions. The cross-claimant’s answer is the same as that given above.

80. In relation to the defences in s.73(3) called in aid by the plaintiff, the cross-claimant asserts that they were not pleaded or particularised by the plaintiff in its defence to the cross-claim and therefore cannot be relied upon. It says that, in any event, the defences are not made out.

81. First, the cross-claimant says that the onus of proving that there was no relevant inducement lies upon the plaintiff and that it has produced no evidence to support its claim. In relation to other defences of being satisfied that the third party was of good financial reputation and that it had had no reason to suspect that the consumer may have an action in respect of breach of contract or misrepresentation, the cross-claimant says that there is simply no evidence with which the plaintiff could discharge its burden of proof.

82. The key question in relation to the s.73 cause of action is whether the third party was “the supplier”. The plaintiff asserts that G Brothers was the supplier. The cross-claimant says that the third party does not contest that it was the “supplier” for the purposes of s.73. I do not think that that argument is correct. It is implicit in everything the third party submitted that it asserts it was not “the supplier” for the specific purpose of making a link between the plaintiff and third party in respect of the particular transaction.

83. In relation to s.73, the final point made in reply by the cross-claimant is that the plaintiff has not explained how it says that the exclusions in s.73(6) and (7) operate in this context and that it would be unfair to require a response of it, especially as these matters were not pleaded.

84. In relation to the arguments made under ss. 74B-74G and 75A the cross-claimant simply asserts that there is no argument made against the application of these sections: everything turns on the question of merchantability.

Consideration and findings

86. The contract stated the plaintiff agreed to hire to the first defendant the motor vehicle in question. The contract was entered between the plaintiff and the first defendant in this way because of the way the finance was arranged. Mr Londish, on behalf of the first defendant, approached G Brothers, the motor dealer. G Brothers are not financiers and do not provide credit for motor vehicle purchase or hire-purchase. Arrangements were made at G Brothers’ premises, however, for Mr Londish to sign the application form and the guarantee proposal that went with it. Once approval for the hire-purchase had been given by the plaintiff, G Brothers invoiced the plaintiff for the vehicle and were reimbursed by it. The vehicle was then delivered by G Brothers to Mr Londish but the payments made by the first defendant were made to the plaintiff. The vehicle had, in effect, been sold by G Brothers to the plaintiff who then hired it to the first defendant on condition that Mr Londish guaranteed its payments.

87. It follows, therefore, that this was not merely a contract “to provide finance”. That phrase suggests some sort of secured loan. For the purposes of the Trade Practices Act, the concept of “supply” is a broad one. It includes supply by way of hire or hire-purchase.2 In fact, by hiring the vehicle to the first defendant through G Brothers, the plaintiff supplied the first defendant with the motor vehicle. It was thus bound by the provisions of Pt V, Division 2 of the Trade Practices Act, one of which, s.68, voids any term of a contract that purports “to exclude, restrict or modify or has the effect of excluding, restricting or modifying” the operation of the division or any rights or liabilities conferred or imposed by the division, or the application of s.75A.

88. Although there is no specific mention of the statutory implied warranties in the contract, the contract recognised them in section 10 by referring to various exclusions “to the extent permitted by law”.

89. It is quite clear and uncontested that the first defendant returned the vehicle prior to the end of the agreed term and that, but for any rights of rescission it may have at law, it would then be liable (as would Mr Londish as its guarantor) for the payout amount. (There was an argument raised by the defendants concerning that figure but that is an argument for another place.)

90. Section 75A(1) of the Trade Practices Act provides that where goods are supplied by a corporation in the course of business and the supplier breaches a condition implied into the contract by virtue of Division 2 of the Trade Practices Act, the consumer may rescind the contract by serving a written notice particularising the breach or by returning the goods and giving oral or written particulars of the breach.

91. This is effectively what Mr Londish, on behalf of the first defendant, purported to do. (It does not seem to be in contest that this was a consumer contract for the purposes of s.4B of the TPA.)3 He had the car towed to G Brothers’ workshop and described a “thumping” in the transmission and the breakdown on the Harbour Bridge. He also told Mr Preston that the car was “not what he had bought”, which implies that Mr Londish was of the view that car was unfit for its purpose. Thus, it was made very clear to G Brothers (and that was conveyed to the plaintiff by them) that as far as Mr Londish was concerned the car was not of merchantable quality, although that term was never employed by him.

92. That, of course, raises the critical question of merchantability of this vehicle. If the car was of merchantable quality and was fit for its purpose, it follows that the plaintiff must be successful. On the other hand, if it was not, the defendants must be successful in relation to the plaintiff’s action against them and the first defendant successful in its cross-claim against the plaintiff. (I will come to the question of the cause of action in relation to the “linked credit provider” under s.73 in due course.)

The tests and indicia of “merchantable quality” and “fitness for purpose”

93. Although I have criticisms to make of the way the defendants have conducted their cases in some respects, in fairness I must acknowledge the depth of research and assistance provided by counsel for the defendant in relation to this central issue in the case.

94. Section 66(2) of the Trade Practices Act provides a statutory definition of “merchantable quality” in the following terms:

Goods of any kind are of merchantable quality within the meaning of this Division if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances.

95. It will be seen that the section lays emphasis on the consumer’s reasonable expectation as to the fitness for their purpose of the goods in question rather than on the saleability of the goods4. In Medtel Pty Ltd v Courtney5, it was held by the Full Court of the Federal Court, which was dealing with an action under s.74D, that the assessment of the goods should be measured against what it was reasonable for the consumer to expect at the time of supply in the light of information concerning the goods at the time of trial.

96. Depending on circumstances, a mere risk may be sufficient for unmerchantability. In Medtel, the Federal Court held that the fact that the goods had not failed at the time of trial did not necessarily obviate a finding that the goods not of merchantable quality. In that case, pacemakers manufactured with a certain type of solder had a generally higher rate of premature failure than the normal type of pacemaker manufactured by the appellant. This led to a “superadded risk” in relation to all pacemakers manufactured with that type of solder.

97. In this case, the defendants argue that there was a risk of failure in respect of the power steering clamp and a risk not only of failure (which was realised when the car broke down on the Harbour Bridge) in the transmission at the time of supply, due to the torn K2 seal, but also a risk of a catastrophic road accident as a result of each of those two defects.

98. In Bernstein v Pamson Motors (Golders Green) Ltd6, Rougier J considered the question of merchantable quality in respect of new motor vehicles and developed a non-exhaustive list of considerations that may be taken into account in determining the question in a given case. In that case, the plaintiff had driven a new Nissan motor car for a relatively short time before it broke down.

99. The first matter for consideration, according to Rougier J, was to examine the nature of the defect itself and its likely effect on the car. He said (at 226), “A car that will not move is useless; a car that will move as intended but is a death trap to its occupants is worse than useless.” Obviousness or latency of the defect he considered to be immaterial to the question. He thought that there would ordinarily be some degree of latency in a defect that rendered a car unmerchantable because it was unlikely to be delivered or, if delivered, accepted, with a glaringly obvious defect that would render it useless, such as a missing wheel or a detached battery cable.

100. He was of the view that, insofar as new cars were concerned, the consumer was entitled to expect more than that the car would be driveable and safe. Those additional considerations were the following:

101. First, the ease with which the defect may be remedied or the intractability of the defect. If the consumer “acquired not so much a car but a running fight with a defective machine”7 this can lead to the conclusion that the car is unmerchantable. Even minor problems, if intractable, render a car unmerchantable. The time taken and expense incurred in fixing the problem will, he thought, be a good indicator of the seriousness of the defect. He said (at 227):

The work of a moment such as would be comprised in attaching a battery lead… would hardly, if ever, justify rescission. Many days spent off the road in the repair shop might have a different effect.

102. I note in passing that he was also of the view that it was irrelevant that the car was repaired under a manufacturer’s warranty.8

103. The next factor to be taken into account was “whether the defect is of such a kind that it is in fact capable of being satisfactorily repaired so as to produce a result as good as new.” He said (at 227):

[If] the defect is so serious, or of such fundamental a kind that no amount of repair, however well performed, will ever bring the car properly to its pristine state, then it will be almost impossible to see how a car so handicapped could pass the test of merchantability. This consideration applies not only to the part or parts which may be the site of the actual defect, but also to what has been described as the “knock-on” effect.

104. Concerning minor defects he said (at 227):

[ There] is also the cumulative effect of a series of relatively minor defects to consider, ‘a congeries of defects’ as was stated in one case. Here again it is a question of degree, but clearly there could come a stage when an army of minor, unconnected defects would be evidence of such bad workmanship in the manufacture, or on the assembly line generally, as to amount in toto to a breach of the condition of merchantability.

105. Finally, he considered (at 228) that:

[C]osmetic factors will also apply depending on the description and price applied to any individual car. No buyer of a brand new Rolls-Royce Cornich would tolerate the slightest blemish on its exterior paintwork; the purchaser of a motor car very much at the humbler end of the range might be less fastidious .

106. In Rogers v Parish (Scarborough) Ltd9, a case in which a new Range Rover vehicle was apparently roadworthy but which had a misfiring engine and noise coming from its gearbox as well as substantial defects in its bodywork was held to be of unmerchantable quality, Mustill LJ said (at 944):

Furthermore, the judge applied the test of whether the defects had destroyed the workable character of the car. No doubt this echoed an argument similar to the one developed before us that if a vehicle is capable of starting and being driven in safety from one point to the next on public roads and on whatever other surfaces the car is supposed to be able to negotiate, it must necessarily be merchantable. I can only say that this proposition appears to have no relation to the broad test propounded by s 14(6) even if, in certain particular circumstances, the correct inference would be that no more could be expected of the goods sold.
This being so, I think it legitimate to look at the whole issue afresh with direct reference to the words of s 14(6). Starting with the purpose for which ‘goods of that kind’ are commonly bought, one would include in respect of any passenger vehicle not merely the buyer’s purpose of driving the car from one place to another but of doing so with the appropriate degree of comfort, ease of handling and reliability and, one might add, of pride in the vehicle’s outward and interior appearance. What is the appropriate degree and what relative weight is to be attached to one characteristic of the car rather than another will depend on the market at which the car is aimed.

To identify the relevant expectation one must look at the factors listed in the sub-section. The first is the description applied to the goods. In the present case the vehicle was sold as new. Deficiencies which might be acceptable in a second hand vehicle were not to be expected in one purchased as new. Next, the description ‘Range Rover’ would conjure up a particular set of expectations, not the same as those relating to an ordinary saloon car, as to the balance between performance, handling, comfort and resilience. The factor of price was also significant. At more than ?14,000 this vehicle was, if not at the top end of the scale, well above the level of the ordinary family saloon. The buyer was entitled to value for his money.

With these factors in mind, can it be said that the Range Rover as delivered was as fit for the purpose as the buyer could reasonably expect? The point does not admit of elaborate discussion. I can only say that to my mind the defects in engine, gearbox and bodywork, the existence of which is no longer in dispute, clearly demand a negative answer.

107. That passage was cited with approval in the Australian case of Cavalier Marketing v Rasell10 by the Full Court of the Queensland Supreme Court.

108. In Clark v Esanda Ltd11, a decision of the NSW Court of Appeal, it was held that, in determining the question of fitness for purpose in the analogous provision of the Hire-Purchase Act 1960, the warranty of fitness requires that goods continue to be fit for the specified purpose for a reasonable time after delivery so long as they remain in the same apparent condition in which they were delivered, apart from normal wear and tear.

109. In King v Sexton & Green (Sales and Service)12, the Court of Appeal held that a new car in which the steering linkage broke within 10 months of purchase was not of merchantable quality absent another explanation of the defect. The Court did not elaborate on that bald pronouncement but it is implicit from the decision that it concluded that the defect must have been present at the time of delivery of the vehicle unless evidence was provided to contradict that explanation, which was not done.

Was the first defendant’s car of merchantable quality?

110. On one view, the conduct of Mr Londish in refusing to accept the vehicle back after it had been repaired might be regarded as “precious”. That is, effectively, the plaintiff’s invitation to me. Indeed, there is something to be said for it. The failure in the car was by no means catastrophic and was, once diagnosed, relatively quickly repaired. It seemed to me that Mr Londish may have been somewhat disingenuous when making his claims to G Brothers. He not only refused the offer of a replacement vehicle on loan while his car was being repaired but he turned up a few days later in a new Lexus motor vehicle apparently with a view to offering a snub to G Brothers, for what reasons I do not really understand.

111. Nevertheless, the question for determination is not whether Mr Londish was reasonable or unreasonable or ingenuous or disingenuous but whether, on an objective test, the car was of merchantable quality. While I think that the facts show that this was something of a borderline case, in my opinion, the evidence demonstrates on the balance of probabilities that this car was not of merchantable quality at the time it was supplied by the plaintiff for the following reasons.

112. First, there was a proven defect in the K2 seal which, having been fitted in a torn state, must inevitably have caused the transmission to malfunction. Given the nature of the defect, it was a question of time as to when the defect would manifest itself. It was also an open question, once the defective seal was fitted, as to how the defect would manifest itself. The onset of the manifestation of the defect was sudden, giving the driver little or no opportunity to find a safe haven before he found himself in serious difficulties.

113. Second, there would be few more dangerous places for the problem to have manifested itself in Sydney than on Sydney Harbour Bridge in the afternoon peak hour. Traffic would have been very heavy, moving in narrow lanes and with drivers possibly having only a limited view ahead, due to the large numbers of vehicles including high vehicles such as buses, trucks, vans and four-wheel drive vehicle limiting the forward views of anyone not in a high vehicle. A car breaking down on the Harbour Bridge at any time faces a real and significant risk of a rear-end collision as a result of motorists not expecting to see a stationary or very slow vehicle ahead of them and leaving insufficient space and time to brake safely. It is a matter of common knowledge that the speed limit on the Harbour Bridge is 60 kilometres per hour but is frequently exceeded by motorists. As it happened, there was no catastrophe, but there most certainly was the potential for one, in my opinion, due to the seal defect so adversely affecting the performance of the vehicle’s transmission.

114. Third, the first defendant had the right to place high expectations upon the plaintiff that the vehicle supplied would be of excellent quality and would have no major defects in it at the time of supply. It was paying a heavy monthly sum for a new, luxury vehicle promoted by its manufacturer and distributor as being at the top of a range of vehicles of general excellence. It is clear that Mr Londish is a fastidious in regard to vehicle, not unlike the purchaser of a Rolls-Royce hypothesised by Rougier J in Berstein v Pamson Motors.

115. Fourth, he had the reasonable expectation that this car would do more than go from A to B with reasonable safety. He was entitled, his company paying a large sum of money for the privilege, to do so, as Mustill LJ said, “with the appropriate degree of comfort, ease of handling and reliability and, one might add, of pride in the vehicle’s outward and interior appearance.” One of the major reasons buyers like new vehicles is because they have reasonable expectations of reliability, there having been no wear or tear to speak of in such vehicles. A purchaser or lessor of a luxury vehicle has a reasonable expectation that such a car will be highly reliable, although perhaps not entirely free of minor “teething problems” or defects.

116. Fifth, the defect manifested itself within a relatively short time and after the car had been driven less than 12,000 kilometres, a relatively insignificant distance for a new car.

117. Sixth, the defect took some time to be diagnosed and required the transmission to be disassembled and rebuilt. When this is taken in combination with the finding that the transmission was rendered almost useless due to the fault which manifested itself on the Harbour Bridge, it must be said that, by any measure, the defect was at the major end of the scale.

118. That the car was repaired under the manufacturer’s warranty is irrelevant to the question whether it was unmerchantable at the time of supply.

119. I am not persuaded that there was any significant “knock-on” effect. The car only travelled in its “thumping” state to Mosman from the Harbour Bridge, a few kilometres at most. As noted, it had only travelled about 12,000 kilometres at this time. There was no evidence of any other significant defects related to this one.

120. I am also unpersuaded that the over-sized steering hose clamp constituted a defect at all. It is possible that it did but the evidence, in my view, is entirely equivocal on that score. Nor am I persuaded that any of the other defects, which seem very minor indeed, were of a magnitude, either singly or in combination, that could be characterised as a “congeries of defects” resulting in the car as a whole being assessed as unmerchantable. In any event, those considerations are, I think, otiose given the finding I have made concerning the K2 seal defect.

The action under s.73

121. Section 73 provides for a cause of action in which both the supplier of goods and the financier of the consumer’s transaction in respect of those goods may be held liable where the consumer suffers loss or damage in relation to goods acquired by the consumer from the supplier on the basis of finance provided by the financier (or “linked credit provider”).

122. In its action brought under s.73, the cross-claimant must prove a number of elements. First, it must prove that a corporation supplied or caused the supply of goods to a linked credit provider. Section 73(14) defines a “linked credit provider” in the following way:

linked credit provider , in relation to a supplier, means a credit provider:
with whom the supplier has a contract, arrangement or understanding relating to:

(i) the supply to the supplier of goods in which the supplier deals;
(ii) the business carried on by the supplier of supplying goods or services; or
(iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services;
(b) to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit;
(c) whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or
(d) with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier.

123. Second, it must prove that a consumer entered a contract with the linked credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire-purchase of the goods supplied by the linked supplier to the consumer.

124. Alternatively, it must prove that the consumer entered a contract with a linked credit provider for the provision of credit in respect of the supply by the supplier of goods to the consumer.

125. Third, it must prove that it suffered loss or damage as a result of, in this case, a breach of an implied condition of the contract, namely, the condition that the goods be of merchantable quality.

126. The cross-claimant submits that the evidence demonstrates that the plaintiff was a “linked credit provider” in relation to the third party. In my view, however, it is necessary for the cross-claimant not only to prove the linkage in a general sense but make the connection with the particular transaction involving the consumer.

127. The difficulty for the cross-claimant is, however, that it has not proven that G Brothers was a dealer of the third party or otherwise an agent of the third party. Like many motor dealers, G Brothers had the finance application forms from a certain finance company (in this case, the plaintiff’s forms) available for customers at its showrooms; Mr Desmyth agreed that the plaintiff received credit applications from the third party’s dealerships on a regular basis. It is clear that the forms could be filled out at the dealership’s showrooms. But Mr Desmyth also gave evidence that dealers will often have connections or links with a number of credit providers. This is the reason why, in my opinion, the cross-claimant must show that there was a linkage between the plaintiff and third party in respect of the transaction concerning this particular vehicle.

128. As I comprehend the evidence, the third party, which imports Mercedes-Benz vehicles, supplied the vehicle to G Brothers who then, once the hire-purchase agreement was made, invoiced the plaintiff for it. Unless, however, the cross-claimant can demonstrate on the evidence that G Brothers was an agent of the third party, it seems to me that the necessary linkage between the plaintiff credit provider and the supplier is not made out for the purposes of s.73.

129. That the car was unmerchantable has been proven but the cross-claim fails in this respect.

The action under s.74B against the third party as “manufacturer”

130. Section 74B confers on consumers a right of direct action against manufacturers in respect of goods not fit for their purpose.

131. Section 74B(1) provides:

Where:
a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;
(b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;
(c) the goods are acquired by the consumer for a particular purpose that was, expressly or by implication, made known to the corporation, either directly, or through the person from whom the consumer acquired the goods or a person by whom any antecedent negotiations in connexion with the acquisition of the goods were conducted;
(d) the goods are not reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied; and
(e) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not reasonably fit for that purpose;
the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

132. The concept of “manufacture” has been given a wide definition in Part V, Division 2A of the Trade Practices Act. Section 74A(3) provides:

If:
a corporation holds itself out to the public as the manufacturer of goods;
(b) a corporation causes or permits the name of the corporation, a name by which the corporation carries on business or a brand or mark of the corporation to be applied to goods supplied by the corporation; or
(c) a corporation causes or permits another person, in connexion with the supply or possible supply of goods by that other person, or in connexion with the promotion by that other person by any means of the supply or use of goods, to hold out the corporation to the public as the manufacturer of the goods;
the corporation shall be deemed , for the purposes of this Division, to have manufactured the goods.

133. Section 74A(5) provides that, for purposes of (3)(b):

134. Although the name “Mercedes Benz” and the three-pointed star logo are registered trademarks of Daimler Chrysler AG, Stuttgart Germany, the distributor as importer of the vehicles writes correspondence on letterhead under the name “Mercedes Benz” with the Mercedes-Benz logo. Further, Laurence Preston of G Brothers - a Mercedes Benz dealer - refers to Mercedes Benz and the distributor interchangeably when stating that the warranty repairs were to be conducted in accordance with Mercedes- Benz policy, then stating that he relied on the representative from the distributor regarding the repair to be undertaken pursuant to that warranty.

135. There is no direct evidence that the Mercedes-Benz trademark or name was applied to the vehicle in question, but it is, I think, a matter of common knowledge that all cars bear the name of their manufacturers. M-class Mercedes-Benz vehicles are common in Sydney and those that I have seen all have a distinctive grille with the three-pointed star inserted and a Mercedes-Benz emblem on the tailgate. It is reasonable to infer that the first defendant’s vehicle was marked as a Mercedes-Benz vehicle.

136. That the first defendant has an action against Mercedes-Benz (or whatever its corporate title may be) would appear to be undeniable. That company, however, is not joined to these proceedings.

137. Section 74A(4) provides that if a corporation that is not the actual manufacturer of the goods imports goods into Australia and if, at the time of the importation, the actual manufacturer has no place of business in Australia, the importing corporation is deemed for the purposes of the Trade Practices Act to be the manufacturer of the goods.

138. The third party’s own evidence is to the effect that it imports Mercedes-Benz vehicles, including vehicles in the class concerned in this case. The promotional material which was tendered stated, among many other things, that the M-class vehicles are built in Tuscaloosa, Alabama, USA and Graz, Austria. It is therefore not in contest that the vehicle concerned in this case was imported.

139. It came to my attention, when considering the evidence, that there appeared to be no evidence put before the court that Mercedes-Benz does not have a place of business in Australia. There was also no direct evidence of who imported the vehicle. These facts were not pleaded by the cross-claimant or admitted by the third party. The cross-claimant bears the onus of proving these things on the balance of probabilities. I had not received submissions from either the cross-claimant or the third party on this question. I notified the solicitors for the parties and sought any submissions they wished to make.

140. The cross-claimant sought leave to re-open its case to deal with the point. I refuse that leave. In my view, the application comes far to late in proceedings that have already been extended to non-compliance of parties, notably the cross-claimant. There is obvious prejudice to the third party in allowing the cross-claimant to re-open. The cross-claimant has been represented by counsel and solicitors at all stages in the proceedings. Ultimately, because its action against the plaintiff has succeeded there is no material prejudice to the cross-claimant, except in respect of costs, if the application is rejected.

141. The cross-claimant has failed to prove certain matters which are required to be proved in this action, notably that the Mercedes-Benz has no place of business in Australia. Its action under Part V, Division 2A against the third party as “manufacturer” therefore, fails.

The question of relief or damages for the cross-claimant

142. The cross-claimant’s primary submission is that the relief that ought be afforded to the cross-claimant is under s.75A(3). It provides:

Where a contract for the supply of goods by a corporation to a consumer has been rescinded in accordance with this section:
if the property in the goods had passed to the consumer before the notice of rescission was served on, or the goods were returned to, the corporation—the property in the goods re-vests in the corporation upon the service of the notice or the return of the goods; and

(b) the consumer may recover from the corporation, as a debt, the amount or value of any consideration paid or provided by him or her for the goods.

143. At first blush, that sub-section may appear only to apply to cases where the property has passed to the consumer. On closer analysis, however, the centre of gravity appears to be found in s.75A(3)(b), with sub-section (3)(a) simply making clear the fact that, if the property in the goods had passed to the consumer, upon rescission they revert to the corporation. It was held in Australian Guarantee Corporation Ltd v Jennings13 by Rogers J that the remedy of rescission (and with it the right to recover the value of any consideration paid by the consumer in respect of the goods) applied just as much to contracts for hire or lease as to contracts for sale of goods.

144. The sum paid in respect of the car by the first defendant was $36,828.90. The first defendant conceded that it had been forgiven an amount of $26,552.21 owing on its previous lease as an inducement to enter the new lease. In my view, an adjustment ought to be made to take that into account. The first defendant ought be replaced in its original position. Somewhat surprisingly, s.75A does not provide for some sort of discount to account for the benefit obtained by the consumer in using the goods and no adjustment is made to the amount recoverable for that reason.

145. In my view, pursuant to s.75A, the cross-claimant is entitled to recover a sum of $10,276.69 (plus interest to be calculated).

146. Although I have found against the cross-claimant in respect of its action under s.73, I should note that, if I am later found to be incorrect, that the remedy available to the first defendant in relation to its action pursuant to s.73 is one of damages. What loss or damage did the first defendant suffer? It was mainly the use of the vehicle but Mr Londish refused the offer of a replacement vehicle on loan while the first defendant’s vehicle was being repaired. The first defendant therefore failed to mitigate in that respect. The cross-claimant suggests other heads of damage such as “the unhappy experience with the vehicle” but the first defendant is a corporation and can have no feelings of sadness or happiness. It is also suggested that damages may be payable for “the loss of character of the vehicle has having been hand-made on the AMG assembly line”. This is an imaginative suggestion but completely without substance. In my view, those damages would be nominal only and certainly could not exceed the sum recoverable under s.75A(3) by the cross-claimant against the plaintiff.

Conclusions

147. It follows from that finding that the first defendant was entitled, by virtue of the operation of s.75A, to rescind the contract with the plaintiff. It did so.

148. In my view, it therefore the lawful rescission of the contract by the first defendant thereby concluded any further obligations that the second defendant may have had in respect of the debt owed by the first defendant to the plaintiff. The cross-claimant is entitled to recover from the plaintiff/ first cross-defendant the sum it paid in consideration for the vehicle.

149. The first defendant’s cross-claim against the third party fails for the reasons given above.

The manner in which this case was conducted

150. Before concluding these reasons for decision, I am compelled to comment on the conduct of the proceedings. With some justification, criticisms are commonly made of the judiciary being slow in delivering judgments. In my view, these proceedings are something of a case study in why judgments may be slow in being delivered. I have never before, in 10 years on the Local Court bench, made such comments but I think that the bench has a responsibility at times to urge practitioners to consider the way they conduct their litigation and to make clear to lawyers how certain practices and methods are perceived from the bench’s point of view. I do not make these comments in a personal fashion and I am not to be taken as implying any lack of professionalism or any misconduct on the part of anyone involved in the case.

151. In my view, this case was essentially a simple one. It concerned the rights, if any, of the plaintiff to recover a “payout” figure under its very straightforward contract. Whether the plaintiff had such a right depended on whether or not the first defendant had a right to rescind the contract on the basis that the vehicle was not of merchantable quality. If the car was not of merchantable quality, a question of damages was enlivened by the cross-claim.

152. Instead of dealing with this relatively uncomplicated consumer contract in a manner consistent with the essential simplicity of the issues, the defendants chose to adopt a “belt-and-braces” approach to the pleadings, raising multiple causes of action, all of which turned, essentially, on the question of merchantability. The merchantability issue raised nice points of fact and law but that it where this case ought to have stayed.

153. Not satisfied, however, with raising the essential issue, the defendants raised every variation on the same theme available to them in the Trade Practices Act. This, in my opinion, was not only unnecessary but must have added considerably to the costs incurred by each of the parties and certainly added a great deal to the workload of this Court. The time of magistrates and other judicial officers is a valuable and expensive community resource and ought be conserved and managed in the most efficient and equitable ways. Due to the complications of this case, the writing of this judgment has taken about 50 hours. This seems extraordinarily disproportionate for a case of this nature.

154. In a recent article in The Judicial Review14, Justice Heydon made the following observations about two matters which arose in this case (at 437-438) which I can only endorse:

The coming years may see the emergence of principles to control judicial intervention against evils – waste of time and money – that result from not very useful or excessive tenders.

Excessive documentary tenders also create problems. One often gets the impression that no skilled legal mind of any degree of seniority in the relevant legal team has given consideration to whether each document in a large bundle or bundles is necessary, useful or even helpful. It is vital to encourage a greater sense of discrimination and judgment on the part of those who decide what documents should be tendered. One way of doing so is to indicate that the parties should not assume that any account will taken of any document not specifically referred to in oral evidence or address…
The next aspect of the trial which can cause difficulty is the final addresses. They are often delivered, in non-jury cases, where the time allotted for the hearing is about to expire. Hence written submissions are often employed in substitution for, or substantial supplementation of, oral argument. Of course written submissions can in themselves be useful… But it is a truth which ought be universally acknowledged that barristers will say things in written submissions which are sillier, longer and more repetitive than they have the courage to say orally. The burden of dealing with written submissions, particularly days or weeks after the hearing has ceased, is often much greater than that of dealing with crisp and focussed oral submissions at a time when bench and bar have the evidence freshly in mind. One aspect of the burden flows from excessively detailed reference to only marginally significant evidence. Another flows from voluminous citation of authority… At least for trial judges, the making of careful and clear findings of fact in relation to the issues posed is a much more important activity than scholarly display, unless the case is one of the relatively rare cases where intense scholarly activity is necessary.

155. I am conscious that lawyers are anxious to do the best they can in their clients’ interests. Professionals of all sorts, including lawyers, are highly aware of and sensitive to their duties of care and mindful of the consequences of negligence on their parts. This can lead to the “belt-and-braces” approach being adopted; that is to be preferred to a cavalier approach, no doubt, but the burdens it places on the parties and the courts are not to be underestimated.

156. Judicial officers are frequently reluctant to intervene vigorously lest they, of all those involved, being, at the commencement of a hearing, the persons with least knowledge and “feel” for the case at hand, unwittingly cause unfair prejudice to a party. While Justice Heydon is probably correct in forecasting that courts will become significantly more rigorous in excluding voluminous tenders of evidence not proven to be significantly probative and may place stricter guidelines upon written submissions, the answer is principally in the hands of litigants and their advisors to take a more rigorous approach.

157. It seems to me that advocates who tender large bundles of documents frequently do so because they do not wish to be criticised by their opponents for omitting something of significance and thus all sorts of bits and pieces are tendered “for completeness” when they ought not to be. It may not occur to these advocates that tendering vast amounts of material or very lengthy submissions is rarely of proportionate assistance to the court, and rarely makes that advocate’s case significantly more attractive or persuasive but will always result in the judicial officer who has to sort through the material feeling burdened and sometimes oppressed by the weight of it.

158. Lawyers on the other hand who focus on the primary issues and fasten themselves to those issues are, on the other hand, highly regarded in all courts. The best advocates have often advised that counsel should argue only their best points, not every single contention available to them. It is old advice but remains as good as it ever was.

159. Apart from the inherently burdensome nature of voluminous tenders and very lengthy written submissions, they have also the twin drawbacks of being expensive to produce and may cause, as has been the case in this matter, lengthy delays in bringing the proceedings to a final determination. I note that in these proceedings the original timetable for submissions in this matter was that the plaintiff would serve and file its submissions by 15 August; the defendants’ by 29 August; the third party’s by 12 September; and all parties were to have until 19 September 2005 to file any submissions in reply. The final submissions in this matter were not finally received until late January 2006 despite a number of promptings from the Downing Centre registry.

160. Section 56 of the Civil Procedure Act 2005 and theUniform Civil Procedure Rules lay emphasis on the facilitation of “the just, quick and cheap resolution of the real issues in the proceedings”. The resolution of the real issues in this case has, I hope, been just but it has been neither quick nor cheap.

Orders

161. In the action between the plaintiff and the first and second defendants, there will be verdicts for the defendants and judgment accordingly.

162. In the action brought pursuant to s.75A by the first defendant/cross-claimant against the plaintiff/first cross-defendant, there will be a verdict for the cross-claimant in the sum of $10,276.69.

163. In the action brought pursuant to s.73 by the first defendant/cross-claimant against the plaintiff/first cross-defendant and third party/second cross-defendant, there will be a verdict for the cross-defendants. Judgment accordingly.

164. In the action brought by the cross-claimant against the third party pursuant to ss.74B-74G there will be a verdict for the third party/cross-defendant. Judgment accordingly.

165. I reserve the question of costs. Parties to have liberty to apply on seven days’ notice.

1 See Thomas v Foreshore Marine Exhaust Systems Pty Ltd [2005] NSWCA 451 (14 December 2005) and Courtney v Medtel Pty Ltd [2003] FCA 36 (per Sackville J).

2 Sections 4 and 4C Trade Practices Act 1974 (“TPA”).

3 Section 4B(1) provides, among other things, that a person (including a corporation) will be a consumer if he, she or it acquires goods worth in excess of $40,000 which are of a kind ordinarily acquired for personal, domestic or household use or consumption or which are commercial vehicles.

4 See Rassell v Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323.

5 (2003) 198 ALR 630.

6 [1987] 2 All ER 220.

7 Ibid at 227.

8 Ibid at 227.

9 [1987] 1 QB 933.

10 (1990) 96 ALR 375.

11 [1984] 3 NSWLR 1.

12 [2000] NSWCA 340.

13 [1981] 1 NSWLR 50

4 (2004) 6 TJR 429 “Practical Impediments to the Fulfilment of Judicial Duties” (429-443).

CITATION:	Daimler Chrysler Services AustraliaTollan Real Estate Peter Gregory Londish [2006] NSWLC 3
JURISDICTION:	Civil
PARTIES:	Daimler Chrysler Services Australia Pty Ltd Tollan Real Estate 1st Defendant Peter Gregory Londish 2nd Defendant Daimler Chrysler Asia/Pacific Pty Ltd Third Party
FILE NUMBER:	2098 of 2004
PLACE OF HEARING:	Downing Centre
DATE OF DECISION:	02/10/2006
MAGISTRATE:	Magistrate H Dillon
CATCHWORDS:	Downing Centre - 10 February 2006 - H.C.B. Dillon - Contract -- Whether first defendant entitled to rescind contract – Whether plaintiff “supplied” a motor vehicle – Whether vehicle of merchantable quality – Indicia of merchantability for motor vehicles – Whether a potential defect requiring recall of vehicle sufficient to make vehicle unmerchantable -- Whether consumer entitled to have higher expectations in respect of new luxury vehicles -- Relief. - Trade Practices – Whether distributor of vehicle is a “manufacturer” – Whether plaintiff a “linked credit provider” – Whether third party a “supplier” linked to a credit provider. - Practice and procedure – Problems caused by overly complex pleadings – Problems caused by overly voluminous tenders of documents – Problems caused by delays in making submissions – Problems caused by over-reliance on lengthy written submissions – Emphasis in Civil Procedure Act 2005
LEGISLATION CITED:	Civil Procedure Act 2005 s.56 Trade Practices Act 1974 ss. 4, 4C, 66, 68, 71, 73, 74A, 74B, 74D, 75A.
CASES CITED:	Australian Guarantee Corporation Ltd v Jennings [1981] 1 NSWLR 50. Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220. Cavalier Marketing v Rasell (1990) 96 ALR 375. Clark v Esanda Ltd [1984] 3 NSWLR 1. Courtney v Medtel [2003] FCA 36. King v Sexton & Green (Sales and Service) [2000] NSWCA 340. Medtel Pty Ltd v Courtney (2003) 198 ALR 630. Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323. Rogers v Parish (Scarborough) Ltd [1987] 1 QB 933. Thomas v Foreshore Marine Exhaust Systems Pty Ltd [2005] NSWCA 451.
REPRESENTATION:	Ms Humphreys Counsel Humphreys & Feather Solicitors for plaintiff Mr P Bruckner Counsel Morgan Lewis Attorneys for defendant Mr S Bliim of Counself for Third Party Riley, Grey - Spencer Lawyers for Third Party
ORDERS:	1. In the action between the plaintiff and the first and second defendants, there will be verdicts for the defendants and judgment accordingly.; 2. In the action brought pursuant to s.75A by the first defendant/cross-claimant against the plaintiff/first cross-defendant, there will be a verdict for the cross-claimant in the sum of $10,276.69.; 3. In the action brought pursuant to s.73 by the first defendant/cross-claimant against the plaintiff/first cross-defendant and third party/second cross-defendant, there will be a verdict for the cross-defendants. Judgment accordingly.; 4. In the action brought by the cross-claimant against the third party pursuant to ss.74B-74G there will be a verdict for the third party/cross-defendant. Judgment accordingly.; 5. I reserve the question of costs. Parties to have liberty to apply on seven days’ notice.

[2006] NSWLC 3

10/02/2006