Fallon v Johnston
[2018] VSC 273
•30 May 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S CI 2017 02482
| VINCENT FALLON | Appellant |
| v | |
| JESSICA JOHNSTON | Respondent |
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JUDGE: | Bell J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 April 2018 |
DATE OF JUDGMENT: | 30 May 2018 |
CASE MAY BE CITED AS: | Fallon v Johnston |
MEDIUM NEUTRAL CITATION: | [2018] VSC 273 |
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DAMAGES – mitigation of damage – motor vehicle accident – order of magistrate that plaintiff entitled to hire-car expenses for 52 days – appeal on grounds of error of law – unexplained delay by insurer in making write-off payment – whether plaintiff had taken reasonable steps to mitigate her damage – whether magistrate erred in law by applying subjective rather than objective standard of reasonableness – whether reasonable for plaintiff to wait until after write-off payment made by defendant’s insurer to buy replacement vehicle – damages for loss of use of vehicle as represented by hire-car expenses when vehicle of innocent motorist damaged or written off – impecuniosity or lack of means of plaintiff – whether and how taken into account when assessing whether plaintiff had taken reasonable steps to mitigate loss – plaintiff had modest amount in quasi-partnership business account – whether entitled to exercise commercial prudence by not using those funds to purchase replacement vehicle before insurer had made write-off payment – Magistrates’ Court Act 1989 (Vic) s 109(1).
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APPEARANCES: | Counsel | Solicitors |
| For the appellant | Mr M Black | Mills Oakley Lawyers |
| For the respondent | Mr T J McLean | John Curtain and Associates |
HIS HONOUR:
Jessica Johnston owned a 15 year old motor vehicle of low value. On or about 13 January 2017, it had a collision with a motor vehicle being driven by Vincent Fallon, rendering it undriveable and probably a write-off. Alleging Mr Fallon was negligent, Ms Johnston issued a proceeding in the Magistrates’ Court of Victoria claiming as damages (among other things) the write-off value of the vehicle and hire-car costs.
Some weeks after the collision, Mr Fallon’s insurer (‘AAMI’) paid to Ms Johnston the amount of $5,460.00 for that write-off value, which she accepted. Soon afterwards, she obtained finance for and bought a replacement vehicle. The costs of the hire-car claimed by Ms Johnston was a total of $8,808.00 for 52 days.
Just prior to the hearing before the magistrate, Mr Fallon admitted liability and the proceeding continued by way of a damages assessment. As the write-off value of the vehicle had been paid, the main issue was whether Ms Johnston was entitled to hire-car costs for 52 days or less. Mr Fallon contended that, even though Ms Johnston bought a replacement vehicle soon after the write-off payment was made, she should have obtained a replacement vehicle much earlier. On this basis, she would have been entitled to hire-car costs for 14 days (or so), being $2,371.60.
The magistrate heard the evidence and held that Ms Johnston was entitled to damages that included hire-car costs for 52 days. His Honour ordered that Mr Fallon pay her $9,759.24 and costs of $6,143.22. In this appeal under s 109(1) of the Magistrates’ Court Act 1989 (Vic) upon grounds of error of law, Mr Fallon contends that, in doing so, the magistrate misapplied the principles relating to mitigation of damage. He contends that, properly applying these principles, Ms Johnston should only have received 14 days (or so) hire-car costs and an award of damages of $3,322.20 plus costs of $4,010.90. The difference is $8,569.36, which Mr Fallon seeks from Ms Johnston in the appeal.
Hearing in Magistrates’ Court of Victoria
Evidence given by Ms Johnston
Counsel for the parties announced at the start of the hearing that the main remaining issue was mitigation of damage. Counsel for Mr Fallon submitted that it would be his contention that Ms Johnston ‘could have replaced her vehicle within a very short period [after the collision] and that a [hire-car] period of 52 days is entirely excessive’. The only witness was Ms Johnston.
Ms Johnston told the magistrate that she was aged 28 years and was a Chinese medicine practitioner with her sister, a chiropractor, who was her business partner. They had a company together but were like partners. She needed a hire-car because she lived in Elwood and worked in Hawthorn. Her vehicle was not driveable and probably a write-off as a result of the collision. The hire-car contract and payment documentation was identified without challenge. She admitted to having about $27,000 in the business bank account at the relevant times. She said she could not just go out and buy a replacement vehicle because:
well because I um, own my own business. I have tax bills and I have um, expenses with my business and also being self-employed my income is up and down so I like to have a bit of money in the bank in case anything was to happen.
In cross-examination, Ms Johnston said that to have bought another vehicle soon after the collision ‘would have been putting myself under financial stress’. The period of hire was 16 January to 6 March 2017. She agreed that the balance in her bank account for the three months or so before and after the collision was $31,680.73 and $26,115.83 respectively and the balance in the account over that period never fell below about $22,000. She agreed a replacement vehicle was always going to cost about $6,000. When asked why she did not use the money in the business account to buy a replacement vehicle, she said that ‘owning your own business … things happen when you do need to be accessible to money’. She gave examples. She agreed her taxable income in 2015/2016 was $68,333 and the turnover of her business was about $130,000 annually before tax.
Ms Johnston was cross-examined about her business and private use of the vehicle. She said that she needed it for both.
Ms Johnston gave evidence that, at a stage not ‘too far into the hire’, she rang AAMI to talk about whether she should change hire-car companies. She was told she ‘didn’t have to’. The magistrate rightly placed some emphasis upon this communication.
In re-examination, Ms Johnston said that she and her sister owned a unit together, in which their mother lived. They made no money from it.
Counsel for Mr Fallon attempted to lead some hearsay and like evidence, which was ruled inadmissible by the magistrate. The relevant rulings have not been challenged. No evidence was led on behalf of Mr Fallon. No explanation was offered as to why it took 52 days for AAMI to conclude that a vehicle worth less than $6,000.00 was a write-off and make the pay-out.
Decision of magistrate
Having regard to the submissions of counsel for the parties, Ms Johnston’s need for the hire-car vehicle was not in serious contention and the real issue in the case was mitigation of damage. Counsel for Mr Fallon submitted, and counsel for Ms Johnston disputed, that Ms Johnston had not acted reasonably in hiring the vehicle for 52 days, that is, until after the write-off payment was made. Counsel for Mr Fallon said that 14 days, or 21 days at the outside, was reasonable in the circumstances, especially because Ms Johnston had the money in the business account to buy a replacement vehicle.
On this issue, it was common ground that Ms Johnston was obliged to act reasonably. As his Honour said in argument to counsel for Mr Fallon:
I think it is very settled law that there is a general obligation upon a person to mitigate; that is not being disputed by [counsel for Ms Johnston]. It is an assessment of what is reasonable in all the circumstances.
On the question of reasonableness of Ms Johnston’s actions, the magistrate rejected the submission made for Mr Fallon and upheld the submissions made for Ms Johnston. His Honour found:
The last issue, which I will now deal with, is a question of reasonableness and I have heard evidence from the plaintiff that shortly into the hire period she had a telephone discussion with someone from AAMI who is the defendant’s insurer. She specifically asked in that conversation about whether she should go with another hire company or not and the advice that she received and she relied upon from AAMI was no. Her evidence on that point is unchallengeable insofar as credit is concerned. She, in my view, gave evidence in a truthful and honest way. In circumstances based on that reliance, I really cannot entertain the arguments about reasonableness or not because she has been advised by the defendant insurer that her conduct shouldn’t be changed.
The real issue that Mr Purvis takes me to is about a general duty or obligation for a plaintiff to mitigate their loss and whether or not she acted reasonably in all the circumstances.
The evidence as it stands before me is that she and her sister are in business. The business has a bank account which has little or nothing in it and I think her evidence was approximately $3,000. She also gave evidence that the reason why it was not reasonable for her to go out and simply purchase a replacement vehicle like for like was because the bank account which had various balances by a couple of thousand dollars, of approximately $26,000 or thereabouts over the relevant hire period was there for the purposes of a buffer in relation to the business that she was operating with her sister.
I have looked closely at the Bendigo Bank statements and while there are some personal expenditure items that would appear out of it, there are also clearly items that have been purchased in respect of the business that she and her sister run. It is not clear to me on the evidence about whether that balance is jointly available between her and her sister or that balance is purely hers; I am unclear about that. Nonetheless, her evidence is that in addition to what I have just said, they have recently purchased some other outlets and while the business had been going for a period of some five years, that was a matter that she had to take into account in deciding about whether it would be appropriate for her to reduce the bank account.
It is pretty clear to me that the law does not require the plaintiff to go out of her way to mitigate her loss. She has to act reasonably in all the circumstances. As I said to Mr Purvis before, if she was a PAYE employee and had had that balance in her bank account then I think he may well have had a very valid point that she could have easily just gone out and bought a replacement vehicle like for like. But in the evidence that I have heard, the bank account in question is referrable to a business in which she is in partnership and as Mr McDermott pointed out, it is not hindsight that you undertake the assessment on, it is at the time. And if she considered that it was unreasonable to use the money in that bank account to purchase a replacement vehicle when matters were still in dispute, then I do believe that she has acted reasonably in all the circumstances.
That brings me to the grounds of appeal.
Grounds of appeal
As specified in the notice of appeal, Mr Fallon’s grounds of appeal were three:
1. Question of Law
Did the Magistrate err in law by misapplying the test in relation to the reasonableness of the Respondent's actions relevant to mitigation of her loss.
Grounds of Appeal
(a)The Magistrate awarded the Respondent $8,808.80 for hire car costs for hiring a motor vehicle for a total of 52 days to replace her written-off vehicle with a value of $5,700.00, when at all relevant times the Respondent had sufficient funds in her name to purchase a replacement motor vehicle.
(b)In so holding, the Magistrate applied a purely subjective test in relation to the question of mitigation of loss by deciding that if the Respondent felt it was unreasonable to use her money to purchase a replacement vehicle then she was justified in delaying the purchase of a replacement motor vehicle and continuing to hire a replacement motor vehicle.
(c)The Magistrate should have applied an objective test on the question of mitigation of loss and determined whether or not a reasonable person in the Respondent’s position would have delayed the purchase of a replacement motor vehicle for as long as the Respondent did.
2. Question of Law
In holding that it was reasonable for the Respondent to delay the purchase of a replacement motor vehicle, and instead continue to hire a replacement motor vehicle, the Magistrate erred in law by:
(a) failing to take into account all relevant factors;
(b) taking into account irrelevant factors; and
(c)making a finding that no reasonable Magistrate could find on the evidence.
Grounds of Appeal
(a) The Magistrate applied a subjective test as set out above;
(b)The Magistrate considered only whether or not it was reasonable for the Respondent to delay the purchase of a replacement vehicle and failed to consider whether a reasonable person in the Respondent's would have ceased hiring a motor vehicle at an earlier date and purchased a replacement motor vehicle instead;
(c)The Magistrate effectively decided that the Respondent was justified in hiring a replacement vehicle indefinitely;
(d)The Magistrate failed to take into account the value of the written-off motor vehicle compared to the cost of hiring a replacement vehicle in determining whether the Respondent's actions were reasonable.
3. Question of Law
Did the learned Magistrate err in law by failing to give any, or any adequate, reasons for holding that the Respondent was justified in delaying the purchase of a replacement motor vehicle?
Grounds of Appeal
The Magistrate's reasons for ordering the Appellant to pay all of the hire car costs incurred by the Respondent fail to disclose a path of reasoning or the principles relied upon in reaching that decision.
As pressed at the hearing of the appeal, the main ground of appeal was that the magistrate applied a subjective test of reasonableness, which certainly raises a question of law. This ground of appeal is specified in ground 1 and is the gravamen of ground 2. It is implicit in ground 3.
In my view, grounds 2 and 3 are not otherwise made out and are not descriptive of the real issue in the case. This is not a case in which the magistrate has ignored relevant or considered irrelevant considerations, made a decision that is legally unreasonable or made findings that were not reasonably open on the evidence or for which there was no evidence, or failed to provide intelligible reasons for decision. The only potentially viable issue in this appeal is whether the magistrate erred in law by applying a subjective rather than an objective test. Before considering this question, I will state the relevant legal principles, which were not in dispute.
Principles relating to mitigation of damage
As was held by Mason CJ, Dawson, Toohey and Gaudron JJ in Haines v Bendall, damages in both contract and tort are compensatory:
The settled principle governing the assessment of compensatory damages, whether in actions of tort or contact, is that the injured party should receive compensation in a sum which, so far as money can do, will put that party in the same position as he or she would have been in if the contract had been performed or the tort had not been committed.[1] Compensation is the cardinal concept. It is the ‘one principle that is absolutely firm, and which must control all else’.[2] Cognate with this concept is the rule, described by Lord Reid[3] as universal, that a plaintiff cannot recover more than he or she has lost.[4]
[1]Butler v Egg and Egg Pulp Marketing Board (1966) 114 CLR 185, 191; Todorovic v Waller (1981) 150 CLR 402, 412; Redding v Lee (1983) 151 CLR 117, 133; Johnson v Perez (1988) 166 CLR 351, 355, 386; MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657; Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39; British Transport Commission v Gourley [1956] AC 185, 197, 212.
[2]Skelton v Collins (1966) 115 CLR 94, 128 (Windeyer J).
[3]Parry v Cleaver [1970] AC 1, 13.
[4]Haines v Bendall (1991) 172 CLR 60, 63.
Because damages are compensatory, a plaintiff cannot recover more damages than would be payable if the plaintiff had acted reasonably to minimise their loss. As was explained by Handley, Stein and Giles JJA in Karacominakis v Big Country Developments Pty Ltd, this principle is often described in short-hand as the plaintiff’s duty to mitigate their loss:[5]
A plaintiff who acts unreasonably in failing to minimise his loss from the defendant’s breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not.[6] Since the defendant is a wrongdoer, in determining whether the plaintiff has acted unreasonably a high standard of conduct will not be required, and the plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct if it was reasonable for the plaintiff to do what he did.[7]
[5][2000] NSWCA 313 (17 November 2000) [187] (‘Karacominakis’).
[6]TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130.
[7]Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452 (‘Banco de Portugal’); Pilkington v Wood (1953) Ch 770; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5.
Drawing upon this explanation, in Portbury Development Company Pty Ltd v Ottedin Investments Pty Ltd, Garde J provided the following summary of the principles relating to mitigation of damage, which I gratefully adopt:
This statement of the law highlights a number of important principles that guide the assessment of loss in cases where mitigation is in issue:
(a)there is in fact no duty to mitigate loss – rather, damages are reduced to the extent that the plaintiff has not acted reasonably;
(b)the onus of proof is on the defendant to show that the plaintiff has not acted reasonably in minimising loss arising from the defendant’s breach of contract;
(c)the defendant must prove the extent of the plaintiff’s failure to minimise loss, ie, the amount of the plaintiff’s loss that was occasioned by the plaintiff’s failure to act reasonably;
(d)a high standard of conduct is not required of the plaintiff, because the defendant is a wrongdoer; and
(e)a plaintiff will not be held to have acted unreasonably simply because the defendant can suggest other and more beneficial conduct, so long as it was reasonable for the plaintiff to act in the way that he did.[8]
[8][2014] VSC 57 (28 February 2014) [158] (‘Portbury’).
Where a plaintiff suffers loss when their motor vehicle is written off in a collision due to negligence of the defendant, the ordinary principle that damages are compensatory applies, as does the ordinary principle that the plaintiff must mitigate their damage. This was explained in Clark v Tull by Aldous, Tuckey and Parker LJJ:
The law enables a claimant to recover his loss. Prima facie that loss is equivalent to the cost of a replacement vehicle, but that is subject to the duty to mitigate. Mitigation requires reasonable steps to be taken. Whether that has been done is a question of fact which depends on the circumstances.[9]
[9][2002] EWCA Civ 510 (1 May 2002) [132].
Their Honours went on to explain that, in this situation, the cost of hiring a replacement vehicle, when needed, can represent the loss of use element of compensatory damages:
The fundamental principle is that a person whose car has been damaged is entitled to compensation for the loss caused. In a case where such loss includes loss of use and he establishes a need for a replacement, he is entitled to the cost of hiring a replacement car. He can go round to the nearest car hire company and is prima facie entitled to recover the amount charged whether or not the charge is at the top of the range of car hire rates. However the basic principle is qualified by the duty to take reasonable steps to mitigate the loss. What is reasonable will depend on the particular circumstances.[10]
In Lagden v O’Connor, Lord Nicholls gave a similar explanation of the law in cases where the damaged vehicle can be repaired:
When one person’s car is damaged by negligent driving on the part of another motorist and the damaged car is economically repairable, the owner of the damaged car loses the use of his vehicle while it is being repaired. In the ordinary course the damages payable by the negligent driver include, in addition to the cost of repairs, damages for loss of use of the damaged car. In the ordinary course the reasonable cost of providing the innocent motorist with a suitable replacement vehicle while his own car is off the road crystallises the amount of loss suffered by him under this head of loss. In practice it is a convenient yardstick by which to measure the damages payable to the innocent driver for temporary loss of use of his own car.[11]
[10]Ibid [147].
[11][2004] 1 AC 1067, 1071 [2] (‘Lagden’).
These authorities emphasise that the plaintiff must take reasonable steps to mitigate their loss. Therefore the test is an objective one. But, as explained in Hardie Finance Corporation Pty Ltd v Ahern [No 3] by Pritchard J, it applies in a way that takes the circumstances of the case into account:[12]
The ordinary test of what is reasonable in the circumstances is objective and most of the cases dealing with mitigation of damage consider the issue objectively, on the basis of the evidence before the court.[13]
…
The fact that reasonableness is judged objectively does not, however, mean that the factual context in which the plaintiff finds him or herself is to be ignored. Clearly reasonableness must be judged by reference to the facts of the particular case … Accordingly, in determining whether a plaintiff has acted reasonably in mitigation of his or her loss or damage, it will be appropriate, for example, to take into account, in the objective determination of that question the fact that the plaintiff is impecunious and therefore unable to pursue a course of action which might otherwise have mitigated his or her damage.[14]
[12][2010] WASC 403 (22 December 2010) [767], [770].
[13]See Marinko v Masri [1999] NSWCA 364, [23] (Handley JA, Sheppard AJA agreeing).
[14]Burns v MAN Automotive (Aust) (1986) 161 CLR 653, 658–9 (Gibbs CJ), 675 (Brennan J) (‘Burns’).
The purpose of the principle that a party injured by the wrong of another must mitigate their damage is to ensure that damages do not over-compensate for the wrong, not to empower the wrong-doer to frustrate a claim for reasonable compensation. Therefore, the onus of establishing that the injured party has not mitigated their loss is upon the wrong-doer. While the law of damages requires the injured party to take reasonable steps to minimise their loss, the courts do not apply a high standard of reasonableness. I have already referred to the judgment of Handley, Stein and Giles JJA in Karacominakis in this connection.[15] In Lodge Holes Colliery Company v Corporation of Wednesbury, Lord Chancellor Loreburn (Lords Macnaghten and Atkinson concurring) said:
[15][2000] NSWCA 313 (17 November 2000) [187].
Now I think a Court of justice ought to be very slow in countenancing any attempt by a wrong-doer to make captious objections to the methods by which those whom he has injured have sought to repair the injury. … Errors of judgment may be committed in this as in other affairs of life. It would be intolerable if persons so situated could be called to account by the wrong-doer in a minute scrutiny of the expense, as though they were his agents, for any mistake or miscalculation, provided that they act honestly and reasonably. In judging whether they have acted reasonably, I think that a Court should be very indulgent and always bear in mind who was to blame.[16]
[16][1908] AC 323, 325.
On the same subject, Lord MacMillan made this eloquent statement in Banco de Portugal v Waterlow & Sons Ltd:
Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.[17]
These authorities establish the correctness of what Garde J recently stated in this court in Portbury, which I gratefully adopt:
It is a long-accepted principle of the law relating to mitigation of loss that a plaintiff is not required to sacrifice or risk its property or rights in order to mitigate loss. If a party placed in a difficult position by reason of the breach of a duty owed to that party acts reasonably in the adoption of remedial measures, the party is not disentitled to recover the cost of the remedial measures merely because the party in breach can suggest that other measures less burdensome to the party in breach might have been taken.[18]
[17][1932] AC 452, 506.
[18][2014] VSC 57 (28 February 2014) [423].
That being the law, I turn to whether the magistrate applied an objective test of reasonableness, as required, or applied a subjective test of reasonableness, so erring in law.
Test applied by magistrate
It was submitted for Mr Fallon that the magistrate applied a subjective test of reasonableness in relation to Ms Johnston’s decision to wait until after the write-off payment was made before buying a replacement vehicle. He particularly relied upon the following passage in the magistrate’s reasons for decision:
But in the evidence that I have heard, the bank account in question is referrable to a business in which she is in partnership and as Mr McDermott pointed out, it is not hindsight that you undertake the assessment on, it is at the time. And if she considered that it was unreasonable to use the money in that bank account to purchase a replacement vehicle when matters were still in dispute, then I do believe that she has acted reasonably in all the circumstances (emphasis added).
In counsel’s written submissions, which were developed in oral argument, it was submitted that the subjective nature of the magistrate’s assessment can be inferred from his Honour’s treatment of the (undisputed) evidence that Ms Johnston:
(a) ran her own business in partnership with her sister;
(b)had a balance between $22,000.00 and $32,000.00 in her personal bank account over the six month period from October 2016 to April 2017;
(c)liked to keep a buffer in her personal bank account for unexpected business expenses;
(d)delayed the purchase of a replacement motor vehicle because she would have been putting herself under financial stress if she had done so sooner;
(e)shared business expenses equally with her sister;
(f)purchased a replacement motor vehicle on finance.[19]
In counsel’s submission, this evidence established that Ms Johnston was in a position to purchase a replacement vehicle much sooner than she did. He also relied upon the magistrate’s finding that the position may well have been different if she had been a PAYE employee.
[19]Footnotes omitted.
It was further submitted that, on the evidence, two weeks was a sufficient period within which to buy a replacement vehicle. This was so taking into account that the vehicle was over 15 years old and therefore likely to be assessed as a write-off, that Ms Johnston needed a vehicle for work, that waiting for the payout from AAMI was not a sufficient reason for deferring the purchase and that the vehicle was bought on finance without using any of the financial buffer in her business bank account.
I reject these submissions. Mr Fallon has failed to establish that the magistrate applied a subjective test of reasonableness in relation to mitigation of damage. While the last sentence of his Honour’s reasons for decision contain a subjective element (‘if [Ms Johnston] considered’), the reasons for decision of a magistrate must be read fairly, in context and as a whole.[20] His Honour stated the test earlier in the reasons in explicitly objective terms, as he did when counsel opened their cases and in argument when they made their closing submissions. In the passage with the subjective element, I think the magistrate was attempting to convey that, as a person engaged with her sister in a small business and with modest liquid funds, Ms Johnston had to make a prudent commercial decision about whether to buy a replacement vehicle without AAMI having agreed that the vehicle damaged in the collision was a write-off and without it having made the write-off payment. The question was not whether Ms Johnston could have bought a replacement vehicle earlier but whether, in all of the circumstances, including her business need for a reasonable contingency buffer, it was reasonable for her not to buy a replacement vehicle until after the write-off payment was made. His Honour considered her choice to be reasonable. On the facts as found, this conclusion was not only open but (with respect) correct.
[20]Shock Records Pty Ltd v Jones [2006] VSCA 180 (7 September 2006) [85] (Bell AJA, Callaway and Ashley JJA agreeing), citing Hesse Blind Roller Co Pty Ltd v Hamitoski [2006] VSCA 121 (8 June 2006) [3] (Ashley JA), [19]–[22] (Redlich JA).
The submissions made for Mr Fallon paid only lip-service to the principle that the court does not apply a high standard of reasonableness in relation to mitigation of damage. As has been repeatedly held, unreasonableness is not established because less costly or burdensome measures by way of mitigation can be suggested with the wisdom of hindsight when the time finally comes for assessing the damages due to the injured party by the wrong-doer. The court does not approach the application of the reasonableness standard as a notional accounting exercise. It is removed in time and context from the situation facing the injured party, of whom prudence but not perfection is expected. The pros and cons of an alternative course of mitigatory action are not nicely weighed on the scales as if the court were making a decision on the merits. These principles were accepted but not applied in the submissions made for Mr Fallon.
It is very clear from the magistrate’s reasons for decision and the course of the argument that his Honour was cognisant of the relevant matters and took them into account. While the application of a subjective test would have been an error of law, it is not the case that, when applying an objective test to the facts as found, which the magistrate did, the submissions made for Mr Fallon on the reasonableness issue had to be upheld. The magistrate committed no error of law in rejecting those submissions.
I reject the submission that, in deciding when to buy a replacement vehicle, Ms Johnston was not entitled to take into account that AAMI had not agreed that the damaged vehicle was a write-off and had not made a settlement payment. Strangely, the delay in making this payment in respect of this vehicle of very modest value was not explained in the evidence. She was entitled to be puzzled by the delay. She made contact with AAMI and was reassured. This was her initiative and it is easy to understand why it impressed the magistrate. Making this contact displayed both fairness to AAMI and prudence on her part. Taking into account Ms Johnston’s very modest personal and business liquid funds and other considerations, the magistrate did not err in finding that waiting until after the write-off and pay-out issues were resolved to buy a replacement vehicle was not unreasonable.
Of course, this does not mean that a person in Ms Johnston’s position is entitled to wait indefinitely in these circumstances, running up unreasonable hire-car expenses in the meantime. The standard applied by the magistrate was whether, as the injured party, Ms Johnston had taken reasonable steps to mitigate her loss. Her entitlement to damages was circumscribed by that requirement because the purpose of damages is compensatory. An injured party is not entitled to recover from the wrong-doer more damages than the wrong actually caused, after the reasonable conduct of the injured party (as to which the onus is upon the wrong-doer) has been taken into account. What is reasonable depends upon the circumstances. All this is applicable in cases concerning hire-car costs, as the magistrate decided. The magistrate applied these principles.
The magistrate found that the position may have been different if Ms Johnston had been a PAYE employee. It does not follow that his Honour applied a subjective test. Indeed quite the contrary. His Honour was contrasting the position of someone in Ms Johnston’s objective category — that of a person in small business — with someone in another objective category — that of a PAYE employee. This comparison is objective and category-based, which supports my conclusion that his Honour’s assessment of the reasonableness of Ms Johnston’s decision was objective.
Nor do I think, as the submissions made for Mr Fallon implied, that a PAYE employee must always use up available personal funds to buy a replacement vehicle as soon as conceivably possible. What is expected of a PAYE employee by way of mitigation of damage depends upon what is reasonable in all of the circumstances, as in the case of any injured party. There may be reasons why it would be reasonable for an injured party in this category not to use available personal funds to buy a replacement vehicle until a write-off payment has been made. In relation to the management of one’s funds, personal prudence is just as important a principle as commercial prudence. To give one example, the PAYE employee, or a member of their family, may be unwell. Legitimate feelings of insecurity associated with medical costs can arise in those circumstances. The person may feel that a contingency buffer needs to be maintained in their bank account. Looking at all the circumstances, this may be objectively reasonable. Or it may not be: a PAYE employee cannot take advantage of a situation by claiming more compensation from the wrong-doer than is reasonably due. Where the wrong-doer has grounds for so contending, they may seek to establish that reasonable steps have not been taken to mitigate loss. Where it is in issue, this is a matter for the court to assess, applying the principles herein discussed, which apply to all such cases.
Mr Fallon submitted that Ms Johnston could only succeed if she came within an exception to the reasonableness standard that covered her continuing hire-car expense loss, such as impecuniosity. This submission misstates the proper application of the standard in the present context. On the evidence, an impecunious injured party may not be able to afford certain mitigatory measures that may be open to other persons. This forms part of the factual matrix in which the reasonableness standard is objectively applied.[21] Reasonable here means reasonable in the objective factual circumstances, including the impecuniosity of the injured party. Thus impecuniosity is one factual circumstance that is taken into account in the application of, not by way of exception to, that standard. As Gibbs CJ said in Burns v MAN Automotive (Aust) Pty Ltd:
a plaintiff’s duty to mitigate his damage does not require him to do what is unreasonable and it would seem unjust to prevent a plaintiff from recovering full damages caused by a [wrong] simply because he lacked the means to avert the consequences…[22]
[21]See Burns (1986) 161 CLR 653, 659 (Gibbs CJ), 675–6 (Brennan J); Lagden [2004] 1 AC 1067, 1073 [7] (Lord Nicholls).
[22](1986) 161 CLR 653, 659.
Moreover, when courts apply the reasonableness standard in this context, it is recognised that impecuniosity is a relative concept. So, in Mattocks v Mann, the Court of Appeal of England and Wales held that the innocent motorist was entitled to car-hire costs until the insurer paid for the repairs because, having regard to the large sum involved, it was reasonable for her to wait.[23] It is also recognised that, in the words of Lord Nicholls in Lagden, ‘[l]ack of financial means is, almost always, a question of priorities’.[24] Reasonable judgments made by an injured party in relation to such questions are respected by the courts. In my view, that is what the magistrate did in the present case and his Honour properly applied the law in doing so.
[23][1993] RTR 13, 20 (Beldam LJ, Nourse, Stocker LJJ agreeing).
[24]Lagden [2004] 1 AC 1067, 1073 [9].
It is lastly necessary to address the submission made for Mr Fallon that 14 days or 21 days at most was a reasonable period upon which to base an order in respect of compensation for hire-car expenses. If there was in this submission an implication that 14 or 21 days should be treated as a kind of general rule, as I suspect there was, I must reject it. Where the innocent motorist is entitled to be compensated for their loss, hire-car expenses may represent a loss of use component. That party must take reasonable steps to mitigate their damage, and what is reasonable depends upon all of the circumstances. In advance of consideration of those circumstances, it is not possible for a court to say what is reasonable in a particular case. In respect of that question, the court is not a legislator. Circumstances are bound to vary from one case to the next. All that can be said in the present case is that the magistrate was not wrong in law to order compensation in respect of hire-car expenses for 52 days, for the objective circumstances as found justified the conclusion that this was reasonable.
Conclusion
As the innocent motorist, Ms Johnston was entitled to an order for hire-car expenses as part of the damages payable by Mr Fallon, the negligent driver. She needed a vehicle to get to her place of business. Her vehicle, which was low in value, was not driveable and probably a write-off as a result of the collision.
Without explanation, Mr Fallon’s insurer, AAMI, delayed in making a write-off payment. Ms Johnston bought a replacement vehicle soon afterwards, but by then had incurred hire-car expenses for 52 days. The issue in this appeal was whether a magistrate erred in law in finding that these expenses were caused by the collision and therefore payable by Mr Fallon as damages.
It is a principle of the law of damages that an injured party must take reasonable steps to mitigate their loss. As the purpose of damages is compensatory, the injured party cannot recover more in damages from the wrong-doer than is due after this principle has been taken into account. In determining whether the injured party has taken reasonable steps to mitigate their loss, all of the objective circumstances must be considered, including what can be expected of the injured party having regard to their impecuniosity or financial means.
Mr Fallon has not established that the magistrate erred in law when applying these principles. When assessing Ms Johnston’s conduct, his Honour correctly applied the reasonableness standard objectively. Having regard to the limited funds available to Ms Johnston and her small business, his Honour did not err in law in concluding that it was reasonable for her not to draw on her business account to buy a replacement vehicle before AAMI had made the write-off payment. The appeal will therefore be dismissed.
I am bound to observe that a great deal of expense has been incurred in this case over a small amount of money. Following the unexplained failure of AAMI to make a write-off payment in respect of a low-value vehicle for some weeks, I find it surprising that Mr Fallon should challenge on grounds of error of law the magistrate’s decision that Ms Johnston was entitled to wait until after that payment was made to buy a replacement vehicle. This appeal was brought to recover $8,569.36, being the difference between the amount of $9,759.24 and costs of $6,143.22 that the magistrate ordered and the amount of $3,322.20 and costs of $4,010.90 that, in the appeal, Mr Fallon contended his Honour should have ordered. I have not found it difficult to conclude that the magistrate applied well-understood existing principles to decide the case without legal error, indeed correctly. In my view, the utility of bringing this appeal should have been given more serious consideration.
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