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Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd

Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd

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Case Copied 26 February 2008 73 min read

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SUPREME COURT OF VICTORIA

COURT OF APPEAL

No 8153 of 2001

ENVIRONMENTAL SYSTEMS PTY LTD (ACN 001 386 456)

Appellant/Cross-Respondent

PEERLESS HOLDINGS PTY LTD

(ACN 004 280 979)

Respondent/Cross-Appellant

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JUDGES:	NETTLE, ASHLEY and DODDS-STREETON JJA
WHERE HELD:	MELBOURNE
DATES OF HEARING:	27 and 28 November 2007
DATE OF JUDGMENT:	26 February 2008
MEDIUM NEUTRAL CITATION:	[2008] VSCA 26

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CONTRACT – Construction – Express term – Whether exhaustive statement of contaminants with which odour incineration equipment required to deal – Implied term – Whether warranty of fitness for purpose implied as necessary to give business efficacy or by s 19(a) of the Goods Act 1958 – Damages – ‘Liquidated damages’ – Whether such as to include costs of purchasing and installing equipment – ‘Consequential loss’ – Whether restricted to losses falling within second rule in Hadley v Baxendale (1854) 9 Ex 341 – Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 applied; Alexander v Ajax Insurance Co Ltd [1956] VLR 436, considered – Millar’s Machinery Co v David Way & Son (1935) 40 Com Cas 204, Croudace Construction v Cawoods Concrete Products [1978] 2 Lloyds Rep 55, doubted – Goods Act 1958, s 19(a).

TRADE PRACTICES – Misleading and deceptive conduct – Failure to warn of risk to functionality of equipment posed by fats and oils in air stream – Damages – Whether reduced by amount respondent would otherwise have outlaid on alternative equipment – Time for bringing action – Whether cause of action accrued before equipment installed ready for use – Sellars v Adelaide Petroleum NL & Ors (1994) 179 CLR 332, distinguished; HTW Valuers v Astonland Pty Ltd (2004) 217 CLR 640, considered; Karedis Enterprises Pty Ltd & Anor v Antoniou & Anor (1995) 59 FCR 35, referred to – Trade Practices Act 1974 (C’th), ss 52 and 82.

WORDS AND PHRASES – ‘Liquidated damages’; ‘Consequential loss’.

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APPEARANCES:	Counsel	Solicitors
For the Appellant/Cross-Respondent	Mr A G Uren QC with Mr B F Quinn	Monahan & Rowell
For the Respondent/Cross-Appellant	Mr P D Santamaria SC with Mr S R Horgan	Clayton Utz

NETTLE JA:

This is an appeal from a judgment given in the Commercial and Equity Division in favour of the respondent (‘Peerless’). The judge awarded damages of $1,536,480 for misleading and deceptive conduct on the part of the appellant (‘Environmental Systems’) in relation to the supply of a REECO Regenerative Thermal Oxidiser (‘RTO’). There is also a cross-appeal as to damages for breach of contract to which the respondent contends it was entitled.

The facts

Peerless is a privately owned company involved in organic recycling, production of technical fats and the processing and marketing of edible oils and margarines. At relevant times it conducted an animal rendering plant at Merino Street, Laverton, North, close to a residential neighbourhood. The business was conducted under a licence granted by the Environment Protection Authority (‘EPA’) and one of the terms of the licence was that…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] VSCA 26
Decision Date: 26 February 2008

CaseChat Overview and Summary

Environmental Systems Pty Ltd (the appellant) brought proceedings against Peerless Holdings Pty Ltd (the respondent) in the Supreme Court of Victoria. The appellant claimed damages for breach of contract and misleading and deceptive conduct under the Trade Practices Act 1974 (Cth). The central issue was whether the respondent had breached an express term in the contract regarding the contaminants the odour incineration equipment was to handle. Additionally, the court had to determine if an implied warranty of fitness for purpose existed, either to give business efficacy or under s 19(a) of the Goods Act 1958. The appellant also sought damages for the purchase and installation of alternative equipment, arguing these costs were covered by the term "liquidated damages" and that the respondent should be liable for consequential losses beyond the scope of Hadley v Baxendale.

The court found that the express term regarding contaminants was not exhaustive. It also concluded that an implied warranty of fitness for purpose was necessary to give business efficacy, but not under s 19(a) of the Goods Act 1958. The court further ruled that the term "liquidated damages" did not cover the costs of purchasing and installing the replacement equipment, as such costs did not fall under the category of consequential loss as defined by Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79. The court applied the principles from Alexander v Ajax Insurance Co Ltd [1956] VLR 436, considering the respondent's liability for consequential losses limited by the second rule in Hadley v Baxendale. The court doubted the applicability of Millar’s Machinery Co v David Way & Son (1935) 40 Com Cas 204 and Croudace Construction v Cawoods Concrete Products [1978] 2 Lloyds Rep 55 in this context.

The court held that the respondent was liable for breach of contract and misleading and deceptive conduct. However, the damages were reduced by the amount the respondent would have spent on alternative equipment. The court also determined that the cause of action for misleading and deceptive conduct accrued when the equipment was installed and ready for use, not when the contract was signed. Therefore, the action was within the statutory time limit.

The final orders included a declaration of the breach of contract and misleading and deceptive conduct, an award of damages reduced by the cost of alternative equipment, and an order for the respondent to pay the appellant's costs.

Orders