Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd

[2010] SASC 37

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

GWAM INVESTMENTS PTY LTD & ORS v OUTBACK HEALTH SCREENINGS PTY LTD

[2010] SASC 37

Judgment of The Full Court

(The Honourable Justice Gray, The Honourable Justice White and The Honourable Justice Kelly)

25 February 2010

TORTS - NEGLIGENCE - ESSENTIALS OF ACTION FOR NEGLIGENCE - DUTY OF CARE - SPECIAL RELATIONSHIPS AND DUTIES - OTHER CASES

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS

SALE OF GOODS - REMEDIES FOR BREACH OF CONTRACT - MEASURE OF DAMAGES - OTHER CASES

DAMAGES - GENERAL PRINCIPLES - OTHER MATTERS

Respondent contracted with appellants to build a mobile health unit on to the tray of a truck provided by respondent - when constructed, combined weight of tray and unit over legal limit permitted for driving on public roads - District Court Judge held that appellants liable to pay damages for breach of duty of care, breach of contract and pursuant to Sale of Goods Act 1895 (SA) - Judge rejected claims for misrepresentation, breach of Trade Practices Act and breach of Fair Trading Act - Judge rejected appellants' claims for contribution or apportionment - damages assessed at $55,297.67 - appellant appealed against all liability claiming respondent guilty of contributory negligence and suffered no loss or damage - respondent cross-appealed contending damages award inadequate and seeking an amount of $29,118.00 for difference between cost of new truck and purchase price of initial truck - whether liability made out - whether respondent guilty of contributory negligence - whether respondent suffered any loss or damage - whether claims under Trade Practices Act and Fair Trading Act made out - whether damages award inadequate - consideration of betterment.

Held: Appellants' appeal dismissed - loss suffered by respondent caused by appellants' breach of duty, breach of contract and breach of statute - no contributory negligence - findings on Trade Practices Act and Fair Trading Act not disturbed - cross-appeal allowed - damages increased by an amount of $29,118.00 - betterment not made out.

Sale of Goods Act 1895 (SA) s 14; Fair Trading Act 1987 (SA) s 84; Trade Practices Act 1974 (Cth) s 52; Road Traffic Act 1961 (SA) s 5, s 113, s 114, s 119(1), and s 125(2)(a); Road Traffic (Mass and Loading Requirements) Regulations 1999 (SA) Sch 1 and reg 5, referred to.
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; Livingstone v Rawyards Coal Co (1880) 5 App Cas 25; Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452; Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333; Paper Australia Pty Ltd v Ansell Ltd [2007] VSC 484; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; Perre v Apand Pty Ltd (1999) 198 CLR 180; Aon Risk Services Australia Ltd v Australian National University (2009) 83 ALJR 951; Eastern Gardens Pty Ltd v Stone (2005) 239 LSJS 344; Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd (1997) 69 SASR 288; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Hadley v Baxendale (1854) 9 Exch 341; Czarnikow Ltd v Koufos [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; Commonwealth v Amann Pty Ltd (1991) 174 CLR 64; Baltic Shipping Co v Dillon (1993) 176 CLR 344, considered.

GWAM INVESTMENTS PTY LTD & ORS v OUTBACK HEALTH SCREENINGS PTY LTD
[2010] SASC 37

Full Court:       Gray, White and Kelly JJ

GRAY J:

1. This is an appeal from the District Court.

   Introduction

2. Luke and Roslyn Netherton, the principals of Outback Health Screenings Pty Ltd, the plaintiff and respondent, operated a health service business for mining companies in remote areas.  They developed a plan to operate a mobile health unit fitted to the rear of a truck or trailer designed in particular to allow for the drug testing of employees.  They arranged with Gwam Investments Pty Ltd, the defendant and appellant, for the design and construction of such a unit.  An agreement was entered into between Outback Health and Gwam, and the unit was constructed. 

3. A major problem developed.  When the unit was fitted to the chassis of the intended vehicle, the combined weight of the vehicle and the unit exceeded the maximum permitted weight for lawful travel on public roads, which was 6,000 kilograms.  As a result, the truck and unit were unusable for the intended, and any or other, practical purpose.  By the time these circumstances were discovered, Outback Health had purchased a truck, had fitted the unit to the truck and had attempted to commence operations.  They then discovered that the truck and unit could not lawfully be driven on public roads.  Faced with this situation, another, more expensive truck was purchased to which the unit was fitted.   This truck was able to lawfully travel on public roads carrying the unit.

4. It was against this background that a dispute arose as to who was to bear the legal responsibility for what had occurred.  Outback Health brought proceedings against Gwam and its two principals.  One of these principals was Saturnio Albertini, whose son Christian Albertini, was an employee of Gwam, and involved in the design of the unit.  For the purposes of these reasons, where it has been appropriate to refer to the defendants collectively, I have done so by referring to them as Gwam.

5. Outback Health claimed damages with respect to misrepresentation, breach of duty of care, breach of the Sale of Goods Act 1895 (SA), breach of contract, breach of the Fair Trading Act 1987 (SA) and breach of the Trade Practices Act 1974 (Cth). Gwam denied all liability and contended that if any liability were to be established, Outback Health was partly responsible for what had occurred and there should be an order for contribution.

6. An issue also arose in regard to apportionment.  Gwam contended that Outback Health’s claim should be reduced on account of responsibility of a third party.  The trial Judge rejected this contention.  This issue was not pursued on appeal.

7. The trial Judge concluded that Outback Health was entitled to recover damages for breach of a duty of care, breach of contract and pursuant to the provisions of the Sale of Goods Act.  The Judge rejected the claims for misrepresentation, breach of the Trade Practices Act and breach of the Fair Trading Act.  The Judge rejected the claims advanced by Gwam for contribution or apportionment.  The Judge assessed Outback Health’s damages in the amount of $55,297.67. 

8. On appeal, Gwam contended that it bore no liability at all to Outback Health.  It was contended that if there was liability, then Outback Health was guilty of contributory negligence.  Finally, it was said that even if there was liability, Outback Health had failed to prove that it had suffered any loss or damage as a consequence. 

9. Outback Health contended that all of the trial Judge’s findings on liability should be sustained. Through a notice of alternative contentions, it was contended that the judgment could be upheld on the alternative basis that Gwam had breached section 52 of the Trade Practices Act and section 84 of the Fair Trading Act.  By cross-appeal, Outback Health contended that the Judge’s assessment of damages was inadequate, and that Outback Health was entitled to recover an additional loss, being the difference between the cost of the new truck and the purchase price of the initial truck, an amount of $29,118.00. 

   The Background Facts

10. In or about July 2006, Mr and Mrs Netherton were attracted to a newspaper article discussing the work of a business described as Gwam Special Vehicles.  The advertisement related to a unit, fitted to the back of a truck, in operation in the Northern Territory.  As earlier observed, the Nethertons had the idea of operating a mobile drug-testing unit in outback South Australia.  As a consequence, Mr Netherton made contact with Gwam and visited their premises.  There followed discussion and negotiation, leading to the agreement that Gwam would construct a unit to be fitted to the rear of a truck that could then be operated as a mobile drug-testing unit.

11. The newspaper article specifically mentioned police operation trucks and mobile health clinics constructed by Gwam in Adelaide.  The article made reference to the police units mounted on an “Isuzu NPR 400 long wheelbase cab-chassis” and the mobile health unit mounted on an “Isuzu NPS 300 4 x 4 cab-chassis”.  The article attributed the following statement to Christian Albertini: “[t]he customer usually makes the choice of truck and we measure it up”.

12. On 10 July 2006, Mr Netherton visited Gwam’s Wingfield operations and spoke with Saturnio Albertini.  Mr Netherton said he wanted a mobile drug-testing unit for use in remote areas and that it would have to be a four-wheel drive vehicle.  Saturnio Albertini responded that he could do that sort of work.  Mr Netherton left two hand-drawn concept designs for Gwam to consider and the matter was left on the basis that Christian Albertini would contact Mr Netherton “to knuckle – bed things down”.  Later that day, Mr Netherton spoke to Christian Albertini requesting the details of the truck discussed, so that Mr Netherton could arrange for quotes for the purchase of that vehicle.  Later that same day, Christian Albertini sent to the Nethertons a copy from a brochure containing details of two four-wheel drive Isuzu trucks, an NPS 250 and an NPS 300.  The facsimile contained an asterisk against the NPS 300, a reference to its maximum body length and the name and telephone number of a sales consultant with North East Isuzu.  The faxed page contained information about the gross vehicle mass.  The larger of the vehicles had a mass of 6,000 kilograms.  The following day, Mr Netherton forwarded an email to Gwam nominating a number of changes to the concept drawings.

13. Outback Health then paid a fee on request for the preparation of formal concept drawings and for the working out of detailed pricing.  On 27 July 2006, a quotation was faxed by Gwam for the construction of the unit fitted to their selected chassis.

14. Mr Netherton at this point initiated inquiries with North East Isuzu with a view to obtaining a quote for the Isuzu NPS 300 four-wheel drive truck with some special features for outback use.  Mr Netherton then went about arranging finance for the total expense of truck and fit-out.  Finance was approved. 

15. On 8 August 2006, Gwam faxed a purchase order to Outback Health for the design and construction of a specialised truck-mounted unit to fit the NPS 300 truck supplied.  The purchase order countersigned by the Nethertons was returned to Gwam.  Some further minor modifications were agreed, bringing the total cost of the unit to an amount in excess of $90,000.00.

16. The chassis of the Isuzu had to be lengthened in order to accommodate the unit, and Mr Netherton arranged this directly with North East Isuzu for an additional cost.  The extended chassis was delivered to Gwam and by December 2006, the unit had been constructed and fitted to the chassis.  The vehicle was then returned to North East Isuzu, the registration to be arranged on behalf of Outback Health.  The application for registration was lodged on 20 December 2006. 

17. In January 2007, Mr Netherton tested the vehicle under operational conditions.  He became concerned at this time about the overall weight.  The vehicle at this time weighed in at 6400 kilograms.  Mr Netherton enquired from the police about a permit to drive an overweight vehicle, but was told that this was not possible and that he should have the vehicle re-weighed on a departmental weighbridge.  He did so, and the truck with fitted unit under fully laden operational conditions, without occupants, weighed in at 6820 kilograms.  In April 2007, Mr Netherton weighed the truck again, having stripped the truck down as much as possible.  On that occasion, the truck weighted in at precisely 6,000 kilograms.

18. In or about early February 2007, Mr Netherton visited Gwam to discuss the problem with the truck.  Mr Netherton wanted to know what Gwam would do about it.  Gwam was not prepared to provide a new vehicle and instead offered to assist with the rectification work, but denied any liability for the cost of that work. 

19. Mr Netherton was concerned that he could not drive the truck and unit lawfully on the road and set about looking to purchase a larger truck.  Having obtained several quotes, a CMI-Hino was selected.  Outback Health arranged to purchase this vehicle and to have the unit fitted.  The cost of the vehicle was $98,830.00.  The Isuzu commanded a trade-in value of $40,000.00.  The transfer of the unit and conversion involved an expense of $9,540.58.

20. Part 4 of the Road Traffic Act 1961 (SA) deals with “Vehicle standards, mass and loading requirements, and safety provisions”. Section 113 enables the Governor to make regulations prescribing the “mass and loading of motor vehicles”. Section 5 defines a “motor vehicle” to mean no more than “a vehicle built to be propelled by a motor that forms part of the vehicle”. Clearly trucks such as the Isuzu NPS 300 fall within the scope of this definition. “Gross vehicle mass” as defined in section 5 means the maximum loaded mass specified by the vehicle's manufacturer. That was 6,000 kilograms in the case of the Isuzu NPS 300.

21. Pursuant to section 114, it was an offence to drive a vehicle on a road if the vehicle or a load on the vehicle does not comply with the mass and loading requirements”.  Section 114 in these operated from 30 July 2006 to 30 April 2007.  The Isuzu purchased by the Nethertons when fitted with the unit, infringed section 114 if driven on a public road when the total mass exceeded 6,000 kilograms.[1]  After 30 April 2007, new sections 119(1) and 125(2)(a)[2] had the same effect.  As the Judge concluded:[3]

    This was always going to be the case whenever the vehicle was driven under anything approaching operational conditions.  On the abovementioned weigh-in returns, it was in the order of 700-800kg over the legal limit.  On this basis it is quite apparent that even without the extras, the total weight under operational conditions was always likely to exceed the maximum permissible [gross vehicle mass].

    [1] By a combination of regulation 5 and Schedule 1 to the Road Traffic (Mass and Loading Requirements) Regulations 1999 (SA).

    [2]    In conjunction with regulation 5, which remained in operation subsequent to 30 April 2007.

    [3]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [29].

22. The Judge made findings in respect to what were said to be four misrepresentations.  The Judge rejected the claim in misrepresentation on the basis that the representations pertained to a prospective state of affairs where mere concepts were being exchanged.  The Judge reasoned:[4]

    At these stages in the negotiations these “representations” could not therefore be false or misleading, because the defendants could in fact build a unit on that kind of truck (first representation) and they could build a unit of this generic type on the Isuzu NPS 300 (the second and third representations).  There could have been no misrepresentation by silence at this stage, because there was simply no unit designed as yet giving rise to any duty to disclose the potential weight, because there was none.  Nor at these times had there been a definite indication by the plaintiffs that they intended to purchase the subject vehicle, so that their discussions were further contingent upon that critical event.  As a matter of fact, Mr Netherton proffered under cross-examination that he could not say he specifically told the defendants of his intention to purchase the Isuzu prior to 31 July.

    None of the statements were therefore capable of being false or misleading in the requisite sense, whether at common law or under State or Commonwealth legislation.  The critical question had as yet not arisen, whether they could build a particular unit, with particular specifications on a particular vehicle.  The position here was like that noted in Pappas v Soulac Pty Ltd:

    …essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations for the purpose of obtaining the interest of a possible purchaser …

    [footnotes omitted]

    [4]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [41]-[42].

23. It is unnecessary to further discuss these reasons, as this aspect of the judgment was not challenged on the appeal.

24. In rejecting the claim for contribution, the Judge reasoned:[5]

    In one sense the plaintiff contributed to the problem by acquiring from North East Isuzu accessories and options of some considerable extra weight as per the estimates detailed above, without telling the defendants, and then by ordering from [Gwam] a number of other additions, together at worst totalling an upwards maximum of a ton, or slightly more perhaps.  Mr Netherton alluded to the topic in his e-mail of 11 July, a question he failed to pursue any further, despite these subsequent additions.

    The circumstances suggest at first sight that he fell under a duty to protect his own interests by keeping check of the developing situation, or by specifically raising the issue with the defendants when they were still in a position to do something about it.  Apart from that, there was nothing further he could conceivably do.  Even if the plaintiff was alive to the potential for an over-load situation to develop, the defendants should have been, sooner.  Thereafter the plaintiff was powerless to influence the subsequent events, whereas the defendants had the exclusive means at their disposal to assess and if necessary, to correct the situation.

    This means that even if the plaintiff had raised the issue with [Gwam], that would have placed the defendants in the position they should have been in anyway.  To apply the criteria in Podrebersek v Australian Iron & Steel Pty Ltd, the acts of the plaintiff were of no importance in comparison to those of the defendants which were of controlling importance. In light of these considerations it is not appropriate to find any degree of contributory negligence was involved on the part of the plaintiff. Furthermore, even if there was, it did not cause or contribute to the resultant harm in any event. The outcome would be the same, for exactly the same reasons, under s 82(1B) of the Trade Practices Act.

    [footnotes omitted]

    The Appeal and Cross Appeal

    [5]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [58]-[60].

    Errors of Fact

25. In the course of submissions, counsel for Gwam challenged findings of fact made by the trial Judge and in particular his acceptance of Mr Netherton’s evidence as to his conversations with Saturnio Albertini in relation to the potential problem concerning the weight of the vehicle.  Mr Netherton denied Saturnio Albertini’s evidence that he recalled specifically warning Mr Netherton of the potential weight problem of the vehicle.  In this respect, the trial Judge reasoned and concluded:[6]

    In this context the plaintiff points to Mr Albertini Snr’s admission of telling Mr Netherton “this is too much…(Y)ou are loading this too much”, “you are going to be very close”.  Mr Netherton denied this when recalled (this was not initially put to him under cross-examination).  He remembered a conversation relating to the length and not the weight of the vehicle.  The probabilities are that whatever words were exchanged on this occasion, they were insufficiently clear to convey to Mr Netherton there was a potential problem concerning the weight of the vehicle.

    It must have been known to the defendants because of their familiarity with this kind of truck, not to mention the facsimile, that they were dealing with a 6 ton truck.  But whatever was said, it is impossible to accept that Mr Netherton would have laughed it off had it been made clear to him there might be such a problem.  He adverted to the issue earlier in his email, so it is evident that he was alive to the question, so that if the defendants had already raised the issue, it was too significant by far for him to ignore.  The inherent probabilities are therefore that Mr Albertini only raised the issue of length.  This would make sense in the context, for it was his evidence that the exchange occurred when he went to the yard at North East Isuzu to measure the extension.  It was eminently sensible that he should do so.  That consideration strongly suggests this was the topic of discussion as opposed to the potential combined tare weight.

    [footnotes omitted]

    [6]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [50]-[51].

1. A review of the evidence demonstrates that the findings of fact made by the trial Judge were open to him on the evidence and are supported by the evidence.  As trial Judge, he was entitled to accept the evidence of Mr Netherton against the evidence of Saturnio Albertini.  I do not consider there to be any substance to the submission challenging the findings of fact made by the trial Judge.

   Duty of Care

2. On the question of negligence and breach of duty of care, the Judge found that there was a relationship of close proximity between the parties and that it was reasonably foreseeable that the unit agreed upon might bring the combined mass over 6,000 kilograms; that Outback Health had little, if any, control over the weight of the unit and no means at all by which it could assess the total mass; and that Gwam alone had the exclusive means, expertise and capacity to ascertain and deal with that problem.  As a consequence it was said that Outback Health was very vulnerable to Gwam.

3. The Judge concluded that Gwam were in breach of a duty of care, and in particular reasoned:[7]

   In that respect they were therefore in breach of a duty of care to specifically raise with the plaintiff the potential for the unit to bring the combined weight over the lawful limit and to initiate reasonable inquiries to ascertain the potential weight of the agreed unit with that risk in mind.  On the basis of the evidence presented to the court, some of which was by way of estimates only, the complete unit weighed in the order of 4 to 4.2 tons on the plaintiff’s calculations and between approximately 3.2 and 3.43 tons on the defendant’s calculations, so the potential to compromise the carrying capacity of the truck should have become obvious at a fairly early stage of the manufacture on either view.

   A first step could so easily have been to take the vehicle as delivered to a weigh-bridge to ascertain precisely what weight margin they had available to them.  A second step could have been to make some attempt to weigh the materials expected to be employed in the build.  Just exactly what was involved was known to them through the detailed design and costing process and it could not have been difficult to weigh or estimate the weight of the major individual components.  [Saturnio Albertini] conceded it would have been prudent to calculate the weight of the unit and that it could be done “approximate”.  Another option was to have ascertained the weight of the other units they had built previously.  This would have been a simple matter of a telephone call to find out what each weighed when registered.  Although they were different, this simple step would certainly have provided a starting point from which to calculate the weight of the subject unit.

   In this context the plaintiff points to [Saturnio] Albertini admission of telling Mr Netherton “this is too much…(Y)ou are loading this too much”, “you are going to be very close”.  Mr Netherton denied this when recalled (this was not initially put to him under cross-examination).  He remembered a conversation relating to the length and not the weight of the vehicle.  The probabilities are that whatever words were exchanged on this occasion, they were insufficiently clear to convey to Mr Netherton there was a potential problem concerning the weight of the vehicle.

   It must have been known to the defendants because of their familiarity with this kind of truck, not to mention the facsimile, that they were dealing with a 6 ton truck.  But whatever was said, it is impossible to accept that Mr Netherton would have laughed it off had it been made clear to him there might be such a problem.  He adverted to the issue earlier in his email, so it is evident that he was alive to the question, so that if the defendants had already raised the issue, it was too significant by far for him to ignore.  The inherent probabilities are therefore that Mr Albertini only raised the issue of length.  This would make sense in the context, for it was his evidence that the exchange occurred when he went to the yard at North East Isuzu to measure the extension.  It was eminently sensible that he should do so.  That consideration strongly suggests this was the topic of discussion as opposed to the potential combined tare weight.

   The discharge of the duty of care depends upon “the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have”: Wyong Shire Council v Shirt.  In this instance the duty of care would have been simply and effectively discharged by the defendants asking the question before building commenced, “what is the likely weight of this unit and is it likely to exceed the GVM?”, or alternatively by advising the plaintiff “this may weigh more than the load capacity, do you wish us to go ahead?”  Had this been done, the kinds of reasonable steps suggested earlier could and should have been taken.  This being the situation, the defendants were in breach of their duty of care to the plaintiff, by not alerting it to the potential for an over-loading situation to occur, once they had taken delivery of the cab chassis from North East Isuzu.

   [footnotes omitted]

   [7]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [48]-[52].

4. Gwam challenged the Judge’s conclusion that a duty of care was owed to Outback Health.  It was said in particular that the finding of the Judge in respect to the defendants alone having the exclusive means, expertise and capacity to ascertain and deal with the issue of weight, was not supported on the evidence, and further that the finding of the Judge that Outback Health had little if any control over the weight of the unit, was flawed.  It was argued that these findings were inconsistent with evidence given by Mr Netherton and evidence given on behalf of Gwam.  It was also said that there was no expert evidence, evidence of industry practice, or evidence as to practicalities adduced in the trial.

5. The above extract from the Judge’s reasons demonstrates that regard was had to five factors in determining that Gwam owed a duty of care.  Those factors were the proximity of the parties, the reasonable foreseeability of damage, the lack of control of Outback Health over the weight of the unit, the consequent vulnerability of Outback Health to suffer damage, and the fact that damage flowed from an occurrence within the control of Gwam.  It was this relationship that, in the Judge’s view, brought about a duty to raise with Outback Health the weight problem and to make reasonable enquiries to ascertain whether there was a likely problem.

6. The Judge’s finding that Outback Health had little or no control over the weight of the unit was supported by the evidence and was a finding open on the evidence. As the Judge observed in the passage referred to above, there were a number of steps available to Gwam to check what weight margin was available once the potential problem became obvious.  As Saturnio Albertini acknowledged in cross-examination:

   Q.Wouldn’t it be prudent to calculate the weight of the unit before it is placed on a chassis.

   A.    It would have been approximate.

   Q.Yes, but you could calculate the numbers of pieces of steel and the numbers of toilets. Wouldn’t that be a reasonable idea to do that.

   A.    Could be done.

7. Gwam held itself out as the designer and manufacturer of units to be fitted to vehicles.  Gwam claimed an expertise and a proficiency in these respects.  As earlier observed Outback Health approached Gwam after reading a public advertisement of Gwams.  The clear implication from this advertisement was that Gwam was experienced in regard to the manufacture of units to be fitted to vehicles.  It is to be accepted that Outback Health submitted some sketch drawings to Gwam and identified its desired layout and fit-out.  The vehicle initially chosen was of a make and model recommended by Gwam.  Gwam was aware that the unit to be constructed was to be fitted to that make and model vehicle.  Gwam had the means to ascertain the maximum weight of the proposed unit and to be aware of the maximum lawful weight of the proposed vehicle, when fitted with the unit.  The Judge was correct to conclude that Gwam was in control of the weight, and that there were a number of steps available to check what weight margin was available once potential problems became obvious. 

8. The Judge was correct to conclude that Gwam was under a duty of care to undertake reasonable enquiries to ascertain whether there was any weight problem and if there was a problem, raise the matters of concern with Outback Health.

   Breach of Contract

9. As earlier observed, the Judge concluded that Gwam was in breach of contract.  The Judge found that there was an implied condition of the contract, “that the overall package of the truck together with the unit should be able to be legally driven”.  The Judge in this respect observed:[8] 

   The proper application of the principles emerging from these cases is that the contract between the partes [sic] in this instance is one requiring in the requisite sense, the implication of a term that the unit built by the defendants on the chassis supplied by the plaintiff would be fit for the mutual purpose contemplated by them, which was to be driven on public roads.  The plain fact of the matter is that it could not be so driven.  It must follow that the defendants were in breach of an implied term of the contract that the unit was to be fit for the intended purpose.

   [8]    Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [86].

10. On appeal, counsel challenged the Judge’s finding that Gwam had breached an implied term of the contract.  It was said that the implied term was not so obvious that it went without saying.  Further it was argued that any implied term did not extend to ensuring lawful registration, as it was said that any contract did not extend to that process.  Finally it was argued that it had not been established that there was any breach of contract and that if a warning had been given in August 2006, no relevant loss would have flowed from the breach. 

11. The circumstances in which terms are to be implied into a contract were set out by the High Court in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[9] and applied by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW):[10]

    The basis on which the courts act in implying a term was expressed by MacKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd, in terms that have been universally accepted: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying ...”

    The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council: “(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

    [footnotes omitted]

    [9]    BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.

    [10]   Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 346-347.

12. The relevant implied term as found by the Judge was “that the unit built by the defendants on the chassis supplied by the plaintiff would be fit for the mutual purpose contemplated by them, which was to be driven on public roads”.[11]

    [11]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [86].

13. In my view, the Judge was correct to imply this term.  The five requirements set out above were satisfied in the present case.  The term was reasonable and equitable as it went to the heart of the parties’ mutual understanding as to what the contract was intended to achieve.  The term was necessary, as without such term, the contract, in effect, became unworkable for Outback Health.  It went without saying, that the overall package of truck and unit should be able to be legally driven on the road.  The implied term that the overall package of the truck together with unit should be capable of being driven lawfully on public roads is both capable of clear expression and does not contradict any express term of the contract.

14. It followed that when this term was not met, Gwam was in breach of contract.  It is not to the point that Gwam was not required to undertake the actual task of registration.  The vehicle and unit were to be fit to be registered and lawfully driven on the road.

    Sale of Goods Act

15. Section 14 of the Sale of Goods Act provides:

    Subject to the provisions of this Act, and of any Statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

    (a)     where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose;

    (b)     where goods are bought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed;

    (c)     an implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade;

    (d)     an express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.

16. With respect to this claim the Judge concluded:[12] 

    The action mounted under the Sale of Goods Act must succeed for precisely the same reasons as the breach of implied term of fitness for purpose succeeds under the general law of contract.  Both sides clearly understood the intended purpose of the unit was that it be mounted on the chassis for the purpose of being driven on public roads.  It was not fit for that purpose, not because the law implies a term that the goods in question could be lawfully used, but fundamentally because the unit was too heavy, and hence not fit for the contemplated purpose.

    [12]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [93].

17. In my view the Judge was correct in the above conclusion.  The purpose of the unit was for use as a mobile drug testing unit.  It necessarily follows that if the truck and unit could not be driven legally on public roads, the drug testing unit would not be a mobile drug testing unit.

    Notice of alternative contentions

18. I have reached the conclusion that the attack by Gwam on the findings and conclusions of the Judge with respect to the claims in contract, tort and breach of the Sale of Goods Act, should be rejected.  In these circumstances it is only necessary to briefly refer to the notice of alternative contentions and to indicate in short form my reasons for my conclusions.

19. The Judge addressed the misleading and deceptive conduct claims under the Fair Trading Act and the Trade Practices Act when dealing with the claim in misrepresentation, and in that respect concluded:[13]

    None of the statements were therefore capable of being false or misleading in the requisite sense, whether at common law or under State or Commonwealth legislation.  The critical question had as yet not arisen, whether they could build a particular unit, with particular specifications on a particular vehicle.  The position here was like that noted in Pappas v Soulac Pty Ltd:

    …essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations for the purpose of obtaining the interest of a possible purchaser …

    [Footnotes omitted]

    [13]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [42].

20. Outback Health by way of alternative contention sought to challenge the trial Judge’s conclusions with respect to the Trade Practices Act and Fair Trading Act claims.  The submission was advanced that misleading and deceptive conduct had taken place and that Gwam and its principals had engaged in unfair trading.  I have set out above the Judge’s conclusions with respect to this aspect of the case.  The Judge’s substantive reason for rejecting these claims was that the alleged conduct related to future matters and was in the nature of puffery.  In my view, these conclusions were open to the Judge and no basis has been shown on which they should be disturbed.

    Damages

21. Two issues concerning damages arose on the hearing of the appeal.  Gwam contended that any breach of duty whether statutory, or in contract or tort, did not cause any loss or damage.  Outback Health sought by way of cross-appeal an increase in the damages award. 

22. On the topic of damages, the Judge noted the claim of Outback Health as follows:[14]

    Damages are claimed under several heads, totalling $99,816.70.  The first is the loss attributable to the diminished value of the Isuzu once traded-in.  The original Isuzu cost $67,490.20 for which CMI Hino allowed $40,000 as a trade-in, the difference between the two being $27,490.20.  Secondly the plaintiff seeks the cost of transferring the unit from the Isuzu to the Hino: this has been proved to have cost $9,540.58.  These changeover costs are denied by the defendants on the basis they offered to assist the plaintiff to do this.  The fact of the matter is that this never crystallised into a concrete unconditional offer.  This issue was resolved earlier in these reasons.

    Next the plaintiff claims the financial costs of $30,446.12.  This is calculated on the footing that they were required to make a series of monthly payments of $3,273.28 between December 2007 and August 2008 under the original finance arrangement and before the new truck could be purchased and refitted.  A final head of damage relates to the “extra cost” of the new truck claimed to be $32,340.  This figure derives from the difference between the $98,830 paid for the Hino and the cost price of the Isuzu of $67,490.

    [footnotes omitted]

    [14]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [94]-[95].

23. As indicated above, it is my view that the trial Judge was correct in concluding that there was liability in contract, in tort and pursuant to the Sale of Goods Act.  As a consequence of these breaches, I consider that Outback Health did establish loss and damage.  Although the assessment of damages could be approached differently, I consider that the damages to be assessed with respect to each of the above causes of action should in the circumstances lead to the same result.  In substance, Outback Health was forced to buy a more expensive truck.  However, the issue of betterment arises as in the circumstances Outback Health has acquired a truck of a greater capacity and a greater value. 

24. The Judge assessed damages under three heads.  With respect to the first head of loss, the Judge reasoned:[15]

    As it was the company had to invest more capital even though its capacity in that respect was quite limited.  The Nethertons also tried and failed to negotiate a solution through the respective solicitors which continued through to April 2007, which once again was perfectly reasonable.  It was then that they made further inquiries and settled on the cheaper Hino option in June 2007.  A subsequent delay of some two months before delivery, was not one not [sic] of their own making.  And of course time was needed to effect the change-over.  Although in theory the alternative Isuzu was available as early as February 2007, it was reasonable to first explore and exhaust these other options.  As they were not in a financial position to transact at that time and since their straightened [sic] financial position directly resulted from their inability to earn money from the unit, it is not appropriate to reduce damages on account of any failure to mitigate, as there was no such failure: Burns v M.A.N. Automotive (Aust) Pty Ltd.

    Turning then to the first head, this was calculated by subtracting from the original purchase price of $67,490 for the NPS 300, the trade-in of $40,000 allowed by CMI-Hino, thus producing the $27,490 sought.  This sum effectively represents the additional cost of upgrading to a larger vehicle.  As there was no other option sensibly available, this sum will be allowed, because it represents an expense incurred, in restoring the plaintiff to the position it should have been in but for the breaches.

    [footnotes omitted]

    [15]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [109]-[110].

1. With respect to the second head of loss, the Judge reasoned: [16]

   The second item is the cost of transferring the unit from one truck to the other.  This was proved to be $9,540.  The defence complains that $1,387 of extras were unnecessarily added and therefore should be disallowed.  As the evidence of Mr Netherton was that these proved necessary because of differences in the configuration of the Hino from that of the Isuzu, that objection cannot be sustained.  Otherwise, that these were reasonably incurred or done at a reasonable cost was not disputed by the defendants, apart from the consideration that they had offered to do it themselves.  As that point of view has been rejected, this item will be allowed, as forming repair or restitution costs reasonably incurred: Zuvela & Another v Geiger, Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd and Bellgrove v Eldridge.

   [footnotes omitted]

   [16]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [111].

2. The third head of loss was addressed by the Judge as follows: [17]

   The third aspect of loss pertains to “wasted finance costs”.  This comprises the initial monthly commitments to the financier, consisting of a first payment of $4,259, followed by eight monthly amounts of $3,273, totalling $30,446.12. Those payments were made over the period between delivery in December 2006 and the supply of the second “capable” vehicle in August 2007.  The foundation for this aspect of damages lies in the fact that the vehicle could not be used over the period in question.  In cases such as this, borrowings and interest thereon unnecessarily incurred or wasted, are an aspect of loss suffered and therefore properly awarded as a component of damages.  In Hungerfords v Walker, the point is made that loss of the use of the use [sic] of the money paid away is so directly related to the wrong that it can be recovered, based on the premise that money is borrowed to avoid the loss.

   This is not such a case on the evidence as it was presented.  These subject sums were expended on a liability incurred for the initial purchase, not as a consequence of breach.  Moreoever, they served to increase the plaintiff’s equity in the Isuzu.  On the other hand the plaintiff was unable to use the vehicle, although they claim no loss of expectation on account of that, probably because it would be impossible to quantify in the quite unique circumstances.  No attempt was made to distinguish between the proportion of principal and interest these payments represent.  And no evidence was adduced as to what ends the company funds would be otherwise employed, had the loan not been made.  Nor is there any claim for the borrowing costs of the additional $30,000.

   There is however a stronger case for the recovery of interest over the subject period, because of the inability to use the truck which had the effect of channelling the interest towards an unproductive end.

   Doing the best one can according to the principles set out in Commonwealth v Amann Aviation Pty Ltd, and bearing in mind the common experience that earlier payments of a loan are more likely to contain a larger interest component, the court allows 60% of the sum claimed, which comes to $18,267.67.  The balance is disallowed on the dual grounds that the capital proportion of the loan increased the plaintiff’s equity in the vehicle and because it has not been demonstrated to have been a borrowing unnecessarily paid away or wasted in order to avoid loss.

   The last aspect of damages relates as articulated, to “extra costs” of the Hino.  This commences with the cost price of $99,830, then by subtracting the purchase price of the Isuzu of $67,490, thus producing a balance of $32,340.  In point of fact the actual cost was $58,830 since $40,000 was deducted from the initial price upon trading-in the Isuzu.  This aspect of the damages claim is not straightforward at all.  It can be readily understood that upgrading to a larger vehicle having a greater and effective carrying capacity, was a reasonable course to take and that the Hino was the least costly option.  In that respect the plaintiff has proven this item was a direct consequence of the proven negligence or breach of implied term, whether statutory or contractual.  On the other hand the Nethertons acquired a more valuable asset to the extent of $32,340 based on this calculation, or $27,490 if based on the additional cost of purchasing the Hino.

   [footnotes omitted]

   [17]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [112]-[116].

3. The Judge concluded:[18]

   Although the sum under this head is marginally higher than that provided in the calculation under the first head, it remains appropriate to allow the lesser sum, if only because the plaintiff cannot demonstrate on balance the latter is more appropriate than the former.  In the result the plaintiff fails to establish an entitlement under this head of damage, but as the other items are allowed, it is proposed to enter judgment in favour of the plaintiff accordingly for $27,490 under the first head, $9,540 costs of conversion, and $18,267.67 interest in effect thrown away, producing an award of $55,297.67.

   [18]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltd & Ors [2009] SADC 30 at [122].

4. Counsel for Gwam on the appeal submitted that no loss had been occasioned by any breach of duty.  It was contended that the required unit was always going to weigh more than 6,000 kilograms and accordingly Outback Health was always going to have needed a larger truck.  In essence it was said that they had ended up with what they required and in those circumstances there was no loss. 

5. In my view, this submission is flawed.  Common sense allows a conclusion that some modification to the Gwam design of the unit would have allowed the total weight of the Isuzu NPS 300 truck and unit to be less than 6,000 kilograms.  Modification would have allowed the necessary weight reduction to be achieved.  The difficulty that arose was that it was only after the unit had been completed and was on the road that Gwam became aware of the problem of total weight.  At this time, Gwam refused to accept any responsibility and although prepared to undertake rectification work, would not do so at its own cost.  It was reasonable in these circumstances for Outback Health to arrange to purchase the larger truck, the CMI-Hino, and to sell or trade-in the smaller truck.  This led to a loss, being the difference between the price paid for the Isuzu NPS 300 truck and its trade-in value.  In addition, there were financing costs thrown away.

6. Gwam submitted that at the end of the process Outback Health was the owner of the CMI-Hino, a more valuable vehicle and to that extent, unjustified betterment had arisen and that Outback Health was not entitled to recover damages with respect to that betterment.  As earlier observed, the trial Judge accepted this submission.  Outback Health by way of cross-appeal challenged this conclusion.

7. The object of an award of damages is to provide a plaintiff with compensation for the damage and loss sustained.  Lord Blackburn in Livingstone v Rawyards Coal Co[19] defined the measure of damages as “that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation”.  This rule has governed the assessment of damages in both tort and contract. 

   [19]   Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 at 39.

8. When considering an assessment of damages, it is also important to bear in mind the words of McMillan LJ in Banco de Portugal v Waterlow & Sons Ltd:[20]

   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.

   [20]   Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506.

9. The onus of proving the quantum of any unjustified betterment is on the defendant.[21]  In the present case, there was no real attempt by Gwam to prove betterment or, for that matter, unjustified betterment.  It is to be accepted that the CMI-Hino truck was a more expensive vehicle, but it does not follow that betterment has been made out.  Outback Health was engaged in an ongoing and apparently long-term business operation.  It was problematic whether at any time of sale, the CMI-Hino would recoup to Outback Health, either by way of direct sale or through a trade-in, any greater value than the Isuzu NPS 300 truck.  There was no evidence led as to the greater value, if it be the case, of the heavier truck or the impact on gross net profitability in the long term. 

   [21]   Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333; see also Paper Australia Pty Ltd v Ansell Ltd [2007] VSC 484.

10. In these circumstances the trial Judge was in error in rejecting the claim for the extra cost of the purchase of the CMI-Hino truck.  Outback Health was entitled to have the damages awarded by the trial Judge, of $55,297.67, increased by $29,118.00, leading to a total damages award of $84,415.67.  There will need to be an appropriate adjustment for interest.  

    Conclusion

11. I would dismiss the appeal by Gwam.  I would allow the cross-appeal by Outback Health, set aside the judgment of the trial Judge and in lieu enter judgment for damages in the amount of $84,415.67.  I would hear the parties as to interest and costs.

12. WHITE J:             In mid 2006, the respondent (the plaintiff in the proceedings below) intended to contract with employers in the heavy mining industry in the Roxby Downs area to provide alcohol and drug testing of their employees.  For this purpose, it needed a unit containing the necessary facilities mounted on either a truck or a trailer for mobility.  The plaintiff contracted with the first appellant (the first defendant in the proceedings below) to design and construct a suitable unit to be mounted on an Isuzu truck. 

13. Unfortunately, the combined weight of the Isuzu truck and the unit manufactured by the first defendant exceeded the maximum weight of 6 tonnes at which the Isuzu truck could be lawfully driven on public roads.  This meant that the plaintiff could not use the truck and unit for its intended purpose.  The plaintiff then bought a new 10 tonne Hino truck and had the unit manufactured by the first defendant mounted on to that truck.  This involved additional expense, and the plaintiff was unable to use the unit until the Isuzu had been replaced by the Hino.

14. The plaintiff sued the first defendant and its two directors to recover its losses.  A District Court Judge found that the defendants had been negligent; that the plaintiff had not been guilty of contributory negligence; and that the defendants had breached the implied contractual term to supply a unit which was reasonably fit for its intended purpose.[22]  In making these findings, the Judge did not distinguish between the first defendant and the individual defendants, nor between the causes of action which could be established against each.  The Judge awarded the plaintiff damages of $60,361.35, inclusive of interest.

    [22]   Outback Health Screenings Pty Ltd v Gwam Investments Pty Ltdand Ors[2009] SADC 30.

15. The defendants appeal against that judgment.  As with the judgment at first instance, the grounds of appeal do not distinguish between the liability found against the first defendant, on the one hand, and the individual defendants on the other.  The defendants accepted that there need not be any differentiation between them.  The defendants complain of the finding that they were in breach of contract; that they owed a duty of care to the plaintiff or, if such a duty was owed, that it had been breached.  They also contend that the Judge should not have been satisfied that the plaintiff had established any causal relationship between its conduct and the losses alleged by it.  The notice of appeal raised other complaints but the defendants did not pursue these, either in their written outline of argument or in their oral submissions.  I have taken those to have been abandoned.

16. The plaintiff has filed a notice of alternative contention in which it contends that it should also have succeeded in its claim of misleading or deceptive conduct.  In addition, the plaintiff has filed a cross-appeal in which it complains of the Judge’s assessment of its damages.

17. It is convenient in these reasons to continue to refer to the plaintiff and the defendants by their designations at trial.

    Factual Background

18. The principals of the plaintiff company are a Mr and Mrs Netherton.  In the first part of 2006, they were investigating options for a mobile alcohol and drug testing unit which could be used in and around Roxby Downs.  They made enquiries of a number of caravan and trailer manufacturers and considered the possibility of a truck mounted unit.  They were aware that a 4-wheel drive vehicle would be necessary in order to comply with the policies of the mining companies with whom they intended to contract. 

19. On Saturday, 8 July 2006, Mr Netherton saw an article featuring the first defendant in the “Car Guide” supplement in the Advertiser.  The article attracted his interest because it referred to the first defendant building “police operations trucks and mobile health clinics” suitable for use in off road conditions in the Northern Territory.  The article indicated that the Northern Territory police used an Isuzu NPR 400 long wheel-based chassis, and the mobile health clinic an Isuzu NPS 300 chassis.

20. Mr and Mrs Netherton went to the first defendant’s premises on Monday, 10 July 2006 and spoke to the second defendant (Mr Albertini Snr).  Mr Netherton said that they wanted a 4-wheel drive mobile unit for drug and alcohol testing in remote areas.  Mr Albertini told them that the first defendant “could build a unit on this sort of truck,” indicating a 2-wheel drive long wheel-based Isuzu with a mounted unit then being constructed for the Northern Territory police.  He also showed them some photographs of the mobile health unit previously constructed by the first defendant on an Isuzu truck.

21. Mr Netherton left Mr Albertini Snr some handwritten concept designs and Mr Albertini said that he would get his son Christian, an employee of the first defendant who did the design work, to telephone him.

22. When Christian telephoned later the same day, Mr Netherton explained the concept he had in mind, saying that he wanted a fully self-contained unit which could travel anywhere.  He also asked Christian to send him some details about the Isuzu which he had seen, together with contact details for a truck supplier.

23. Later that same day, Christian sent to the Netherton’s two concept drawings, together with a brochure containing some details for the Isuzu NPS 250 and NPS 300 4-wheel drive models.  It is the NPS 300 which is relevant in these proceedings.  The brochure indicated that its gross vehicle mass rating (GVM) was 6,000 kgs (6 tonnes).  Christian wrote on the brochure the name “Rick Menechella” and Mr Menechella’s telephone number.  Mr Menechella was a sales consultant at North East Isuzu, a retailer of Isuzu trucks.  In addition, Christian wrote on the brochure that the Isuzu truck had a maximum body length of 4.7 metres.

24. The GVM of a vehicle is an important consideration. Clause 1 of Part 1 of Sch 1 of the Road Traffic (Mass and Loading Requirements) Regulations 1999  (SA) made under the Road Traffic Act 1961 (SA) (RTA) provides that the total mass of a vehicle and any load must not exceed the vehicle’s GVM. The effect of s 114(1) of the RTA (as then in force) was to make it an offence to drive a vehicle on the road if its weight exceeded the applicable GVM.

25. Mr Netherton obtained further technical details regarding the Isuzu NPS 300 from the Isuzu website.  Those details confirmed the GVM of 6,000 kgs.  They also indicated that the tare mass (the unladen weight) of the truck was 2,725 kgs, meaning that it had a load capacity of 3,275 kgs.

26. Mr Netherton sent an email to Christian Albertini on 11 July, making some comments and suggestions regarding Christian’s concept drawings and indicating a preference for a particular truck-mounted design.  Amongst other things, he suggested minimum capacities for each of the fresh and black water tanks in the unit, adding “bigger if not unrealistic for weight considerations”.  Mr Netherton said that he was aware at that time of the significance of the truck having a GVM of 6 tonnes.  He concluded his email by saying “I hope these ideas are not too stupid or unrealistic but I am unsure what is possible”.

27. On 15 July, Mr Netherton accepted Christian Albertini’s quotation of $500 plus GST to “research and design the project”.  The invoice sent by the first defendant to the plaintiff on 17 July 2006 said that the $550 was for “concept design and pricing for two (2) units as discussed”. 

28. On 27 July 2006, Christian Albertini sent by email concept drawings for both a trailer-mounted unit and a truck-mounted unit, together with quotations for the construction of each. 

29. The quotation of $62,220 plus GST for the truck-mounted unit indicated that the unit was 4.8 metres long, 2.3 metres wide and 2.1 metres high.  That is, as designed, the truck-mounted unit was longer than the maximum body length of the Isuzu NPS 300 as indicated in the brochure sent by Christian on 10 July 2006.  Mr Netherton appreciated (as must Christian Albertini) that this meant that some extension of the Isuzu chassis would be required in order to accommodate the unit.  The quotation concluded with the words “fitted on your selected chassis”.

30. Shortly after receiving the quotation, Mr Netherton realised that the mobile testing unit would require a generator.  He asked Christian for a quotation for the supply and installation of a suitable generator.  The first defendant provided that quotation ($13,800 plus GST) on 2 August 2006.

31. In late July 2006, Mr Netherton contacted Mr Menechella at North East Isuzu and sought a quotation for an NPS 300.  Mr Menechella provided quotations on 3 August  and on 4 August 2006.  The second included the cost of the chassis extension and the costs of a bullbar, an extra fuel tank, an extra spare rim and tyre, as well as seat covers and floor mats.  These additions added to the tare weight of the vehicle, thereby reducing its load capacity.

32. Mr Netherton accepted the quotations of both the first defendant and of North East Isuzu.  On 8 August 2006, Christian Albertini sent by facsimile to the Nethertons two forms of purchase order.  On one form, the work was described as “design and construction of specialised truck-mounted unit to fit to Isuzu cab chassis supplied”.  On the appeal counsel for the defendants accepted that the “Isuzu cab chassis” should be understood as a reference to the NPS 300.  On the second order form, the work was described as “design and construction of one specialised truck-mounted unit to specification and drawings dated 27/07/2006”.  Mr Netherton added after these words “with minor layout modifications”.  Mr Netherton signed the second form of purchase order and returned it, with some suggested design alterations, to the first defendant on 10 August 2006.  It was not suggested on the appeal that anything turned upon the different language used in the two order forms. 

1. The plaintiff paid the required deposit on 9 August.  Before signing the purchase order, Mr Netherton had also arranged the necessary finance for the purchase of the Isuzu and the payment of the unit through a finance broker.

2. The evidence did not permit the Judge to make a finding as to when the chassis on the plaintiff’s Isuzu was extended, or when it was delivered to the first defendant.  It was probably in about September or October 2006. 

3. The Nethertons attended from time to time at the first defendant’s premises to inspect the progress of the work.  They took delivery of the completed vehicle on 19 December 2006 from the premises of North East Isuzu.  The first defendant had delivered the completed vehicle to North East Isuzu after completing construction of the unit in order that it (North East Isuzu) could attend to its registration. 

4. The first defendant’s invoice described the work it had performed as “construction of one (1) new specialised truck-mounted unit for drug testing.” 

5. Before registering the vehicle, North East Isuzu arranged for it to be weighed on a registered weighbridge.  It recorded a tare weight of 6,730 kgs, but some unidentified person altered the weighnote to read 5,730 kgs.  There was no evidence that any of the parties were aware of these events at the time.  North East Isuzu entered the weight of 5,730 kgs on the application for registration of the vehicle and when the certificate of registration was issued by the Department of Transport it indicated that the mass of the vehicle was 5,730 kgs.

6. Shortly after taking delivery of the truck and unit, Mr Netherton decided to arrange his own test of its weight.  The first test on 4 January 2007 suggested that the truck and unit in operating condition weighed 6,700 kgs.  A second test a few days later, after Mr Netherton had drained one fuel tank and both water tanks, indicated that the vehicle weighed 6,400 kgs.  A further test two or three days later on a Department of Transport weighbridge indicated that the truck and unit, under fully laden operational conditions but without occupants, weighed 6,820 kgs.  A final test in April 2007, after Mr Netherton had stripped the vehicle as much as possible, showed that it weighed precisely 6 tonnes.

7. In these circumstances, the truck could not be lawfully driven on public roads while in operational condition.  When stripped down to the bare minimum, it could not be used for its intended purpose.  The effect was that the mobile testing unit was unmarketable and unusable.

8. Mr Netherton approached the first defendant and spoke to both Mr Albertini Snr and to Christian Albertini.  There was no agreement on a resolution of the problem.

9. Later in 2007, the plaintiff purchased a 10 tonne Hino truck, and traded in the Isuzu.  The unit constructed by the first defendant was transferred to the Hino.  It became available to be used by the plaintiff on about 15 September 2007.

   The Decision of the Judge

10. The Judge rejected the plaintiff’s claim of misleading or deceptive conduct by the first defendant, holding that the misrepresentations relied upon by the plaintiff (which I will identify later) did not relate to an existing state of affairs, or were not false, or were mere puffery.

11. The Judge found that the defendants were in breach of a duty of care owed to the plaintiff in that they had not raised with the plaintiff the potential for the combined weight of the truck and the unit which they were constructing to exceed six tonnes, and had not themselves initiated reasonable enquires to ascertain the potential weight of the unit.  The Judge also rejected the defendants’ claim of contributory negligence.

12. Next, the Judge found that the contract between the “parties” contained an implied term that the unit built by the defendants on the chassis supplied by the plaintiff would be fit to be driven on public roads and that the “defendants” were in breach of that term. In addition, the Judge found that the “defendants” had breached the term implied by s 14(a) of the Sale of Goods Act 1895 (SA) as the unit, when mounted onto the Isuzu truck, could not be used for its intended purpose because it could not be driven on public roads.

13. The Judge assessed damages as follows:

(a)     the loss made on the Isuzu NPS 300 when it was traded in for the Hino;

(b)    the cost of transferring the drug testing unit from the Isuzu to the Hino;

          $27,490.00

            $9,540.00

(c)     a portion of the amount paid by the plaintiff to its financier in the period from 19 December 2006 to August 2007 when it took delivery of the Hino with the unit mounted on it.  These damages appear to have been awarded on the basis that they were “wasted finance costs” or “interest thrown away”.

          $18,267.67

(d)    interest

            $5,063.68

         TOTAL    

          $60,361.35

The Claim in Contract

1. It is appropriate to consider first the plaintiff’s claim in contract.  That claim was, of course, made by the plaintiff against the first defendant only.  It is appropriate to consider the claim in contract first because the plaintiff’s contractual relationship with the first defendant provides the context in which the plaintiff’s alternative claim in negligence had to be considered.  Further, if the defendants’ appeal against the liability in contract fails, some of the other issues raised on the appeal cease to be significant.

2. Although the trial Judge did not make specific findings as to the documents comprising the contract, they appear to be the first defendant’s quotation for a truck-mounted unit and attached concept plans provided to the plaintiff on 27 July 2006, the two purchase orders sent by the first defendant to the plaintiff on 8 August 2006 (the second of which was signed and returned by Mr Netherton on 10 August), and the document containing the minor design modifications prepared by Mr Netherton which was provided at the same time. 

3. From these documents, it can be concluded that the first defendant agreed to design and construct a specialised truck-mounted unit suited to 4 x 4 driving on corrugated dirt roads and fitted to the Isuzu cab chassis to be supplied by the plaintiff.  The unit was to be constructed in accordance with specifications and drawings prepared by the first defendant dated 27 July 2006.  The plaintiff agreed to pay the first defendant $83,622.

4. The Judge found that the “defendants” were in breach of two terms of the contract.  The first was a term implied into the contract by BP Refinery (Westernport)[23] principles that the unit built by the first defendant on the Isuzu chassis supplied by the plaintiff would be fit for the purpose contemplated by the parties (namely able to be driven lawfully on public roads). The second was a term implied by s 14(a) of the Sale of Goods Act 1895 (SA). Section 14(a) provides:

   (a)            where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose …

   [23]   BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26.

5. In challenging the Judge’s finding of liability for breach of contract, the defendants raised three matters.  First, they submitted that the Judge should have found that they had contracted only to design and construct a unit which could be mounted on a truck, and not to design and construct a unit which, when mounted on whatever truck the plaintiff selected, could be lawfully driven on the road.  Secondly, they submitted that the implication of a term of the kind found by the Judge was unreasonable because, as at the date of formation of the contract (10 August 2006), the defendants did not know all the necessary information about the Isuzu truck selected by the plaintiff.  In particular, the defendants said that they did not know at that date that the plaintiff was having extras fitted to the Isuzu which would add to its tare weight.  Thirdly, the defendants submitted that the cause of the truck with the unit mounted on it being overweight was attributable to the extras fitted to it by the plaintiff for which the defendants were not responsible.  This latter submission was really a point going to causation, but it is convenient to consider it as part of the defendants’ submissions concerning their liability for breach of contract.

   The Purpose of the Contract

6. The submission that the defendants had contracted to design and construct a unit which could be mounted on a truck, as opposed to the Isuzu NPS 300 with an extended chassis supplied by the plaintiff, is untenable.

7. The first purchase order (prepared by the first defendants’ employee Christian Albertini) referred specifically to the unit being fitted to the Isuzu cab chassis to be supplied by the plaintiff.  Counsel for the defendants accepted that the Isuzu cab chassis contemplated by the first defendant when sending the purchase orders was an NPS 300.  The defendants themselves contemplated that the chassis on a standard Isuzu NPS 300 would have to be extended in order to accommodate the unit which they were constructing.

8. The whole of the pre-contractual negotiations had contemplated that the unit would be mounted on an Isuzu NPS 300 chassis.  Indeed, Christian Albertini had highlighted the NPS 300 on the brochure which he had sent to the Nethertons on 7 July 2006.  The defendants were not contracting to build a free-standing unit which could be constructed independently of the vehicle on which it was to be mounted.  The fitting of the unit to the vehicle was an intrinsic part of their work.  The truck had to be provided to the defendants for an extended period in order to enable them to complete their work.  This is evidenced by the statement in the first form of purchase order sent to the plaintiff that the “goods” would be delivered “within 20 (12-14) (sic) weeks of receipt of chassis”.  It is also to be noted that the first defendant described itself as the manufacturer of “special vehicles”.

   The Reasonableness of the Implied Term

9. The defendants’ second submission was that an implied term that the Isuzu truck with the unit mounted on it would be able to be driven lawfully on public roads was neither reasonable or equitable, so that it did not satisfy an essential requirement for the implication of such a term.

10. The implication of the implied warranty as to fitness for purpose under s 14(a) of the Sale of Goods Act does not depend upon an antecedent finding that the term is reasonable. If the conditions specified by the statute for the implication of the term exist, the term is implied. Section 14(a) manifests a legislative conclusion that the implication of such term is reasonable in all cases to which it applies. Hence, the defendants’ second complaint can relate only to a term implied under BP Refinery (Westernport) principles.

11. It is convenient to consider first the term which the Judge found to be implied under s 14(a). Both at first instance, and on appeal, the parties proceeded on the basis that their contract was a contract for the sale of goods to which s 14(a) could apply. In these circumstances, it is unnecessary to consider whether the contract could more appropriately be characterised as a contract for the construction and mounting of the unit, and not for the sale of goods.

12. On the basis that the contract between the plaintiff and the first defendant was a contract for the sale of goods, it is plain that the Judge was correct to conclude that s 14(a) applied to it. The plaintiff had made its purpose known: it wished to have a specialised unit built on to the chassis of the Isuzu NPS 300 so that it could travel on public roads to the locations at which its clients required it to perform drug and alcohol testing. It relied upon the first defendant’s skill and judgment as the first defendant was experienced in specialised motor-body building. The plaintiff had made its reliance on the first defendant explicit, amongst other things, by paying the first defendant’s required fee for the design and construction of the unit and by the terms of his email of 11 July 2006. In addition, the unit, although unique, was of a description which it was in the course of the first defendant’s business to supply.

13. Accordingly, on the basis assumed by the parties, the Judge was correct to hold that the contract between the plaintiff and the first defendant contained the implied contractual warranty that the unit would be reasonably fit for the intended purpose when fitted to the Isuzu NPS 300 acquired by the plaintiff.  This warranty required that the Isuzu should be able to be driven lawfully on public roads, while in laden operational condition.

14. Given the implication of the term under s 14(a), it was not necessary for the Judge to consider whether a term in almost identical terms should be implied on factual grounds. Nothing was to be achieved by doing so. However, given the possible uncertainty concerning the application of s 14(a) and the defendants’ attack on the Judge’s finding, I will address their submissions.

15. It is trite that courts will not regard a term as being implied in a contract unless it is reasonable and equitable.  The reasonableness is to be assessed by reference to the circumstances existing or contemplated by the parties at the date of formation of their contract.

16. The defendants’ submission was that as at 10 August 2006 they did not know of all the extra features which the plaintiff was having fitted to the Isuzu.  Some of those features, in particular the bullbar, the extra spare rim and tyre, and the extra fuel tank would of their very nature add to the tare weight of the truck and, when the spare tank was filled, to its laden weight.  The defendants submitted that it was not reasonable to imply the term sought by the plaintiff when they did not know of these extras and, further, did not know of the extent to which their addition would reduce the available loaded capacity of the truck.

17. In my opinion, this submission should not succeed.  It confuses the reasonableness of the term proposed with the matters which may bear upon its breach.  The implication of the term is to be determined by reference to the subject matter of the parties’ contract, and the matters which were in their mutual contemplation at the time of its formation.  The term which the Judge found was implied in the contract did not mean that the defendants warranted that the plaintiff’s Isuzu truck would be able to be driven lawfully on the road whatever extras the plaintiff may choose to fit to it.  Instead, it was a warranty only that the Isuzu cab chassis in the form purchased by the plaintiff and with such extras as were contemplated by both parties as at 10 August 2006 would be able to be driven lawfully on public roads in the course of the plaintiff’s ordinary operations.

18. Accordingly, I would reject this complaint of the defendants. 

    Did the Plaintiff’s Own Conduct Cause the Truck and Unit to be Overweight?

19. The Judge did not make a finding as to the tare weight of the Isuzu at the time that it was delivered to the plaintiff.  It was not possible for the Judge to make precise findings about the weight of the “extras” added to the Isuzu before and after delivery as he did not have evidence permitting such findings.  The parties’ evidence comprised estimates of weight of the various items added to the truck.  None of the items had been individually weighed.  Nor had the defendants weighed the unit which they had constructed and fitted to the Isuzu.

20. The Judge seemed to accept that when laden for operational use, the Isuzu weighed 700-800 kgs over the 6 tonne legal limit for use on roads.  On that basis, the Judge accepted that even without the extras added to the truck before delivery (the bullbar, extra fuel tank, extra spare rim and tyre, seat covers and floor mats) and the equipment (including fire extinguishers and consumables) added after delivery, the total weight of the truck under operating conditions was “always likely” to exceed the vehicle’s GVM.

21. On the appeal, the defendants challenge that conclusion.

22. The evidence does not support the challenge.  If one starts with the weight of 6,820 kgs of the fully laden truck (but without occupants) as measured by the Department of Transport in early January 2007, and deduct the defendants’ own estimate of the weight of the extras of which it was unaware as at 10 August 2006 (which estimate was higher than that of the plaintiff), the resultant figure is almost exactly 6 tonnes.  The following table illustrates the position.

Fully laden weight (but without any occupants) as measured by the Dept of Transport in Jan 2007.	Kg         50.00         70.00 100.00       200.00       280.00           3.00            1.00           4.00           2.00           0.05         46.00         68.00       824.07	Kg 6,820.00       5,995.93
Deduct: Weight of items not known to defendants as at 10 Aug 2006 using the higher estimates of weight of the defendants:
Bullbar
Spare rim and wheel
Extra fuel tank
Weight of fuel in extra fuel tank
Extra joinery and cupboards
Electronic depth gauge
Three Isolator switches
Four spotlights
Nose cone and fitting
CB cable
Awning blind
Fire extinguisher and speakers
Sub-total Balance

1. Although the weight of 5,995.93 kgs is fractionally less than 6 tonnes, when the weight of just one occupant is added, the combined weight of the truck and unit in operating conditions exceeds the GVM of 6 tonnes.  The cab of the truck accommodates three adult passengers and so the parties should have had in contemplation that the truck would, from time to time, travel with two or more occupants.

2. The extra weight on the vehicle attributable to the chassis extension does not have to be deducted because the defendants knew that the chassis had to be extended to accommodate the unit which they were supplying.  They can be taken to have known that the weight of the chassis extension reduced the potential loaded capacity of the truck if it was to stay within the GVM of six tonnes.

3. In short, taking a view of the evidence which is most favourable to the defendants, the laden weight of the truck in ordinary operating conditions, even without the extras of which the defendants were unaware as at 10 August 2006, still exceeds 6 tonnes.  In those circumstances, it was appropriate for the Judge to conclude that the unit built by the first defendant and mounted on the plaintiff’s truck was not reasonably fit for its intended purpose.

   Conclusion on Contract Claims

4. For the reasons given above, the Judge was correct in finding that the first defendant had breached the contract.  Although, apart from the issues of contributory negligence and apportionment, this conclusion is sufficient to require the appeal to be dismissed, it is appropriate to address the defendants’ submissions concerning the other grounds of appeal which were pressed.

   The Claim in Negligence

5. The Judge found that the “defendants” had been in breach of a duty of care owed to the plaintiff in two respects.  They had not raised with the plaintiff the potential for the unit to exceed the GVM and nor had they made any enquiries to ascertain the potential weight of the unit with that risk in mind.  Secondly, the defendants had not alerted the plaintiff to the potential overloading when North East Isuzu delivered the extended chassis to them in September or October 2006.

1. It is implicit in the Judge’s first finding of negligence that the breach occurred at or before the time when the plaintiff and the first defendant entered into their contract on 10 August 2006.  The second breach occurred later, ie, at or shortly after the time that North East Isuzu delivered the cab chassis to the first defendant in order that the unit could be mounted on it.

2. In determining the plaintiff’s claim in negligence, the Judge referred to Perre v Apand Pty Ltd[24] and said that the salient features to be considered were the foresight of the likelihood of harm, knowledge or means of knowledge of an ascertainable class of vulnerable persons who were unable to protect themselves from harm, avoiding impairing unreasonably the legitimate pursuit by the defendants of its own commercial interests, and the fact that the damage flowed from activities within the defendants’ control.[25]  The Judge said that, knowing of the tare weight of the truck and of the fact that its chassis had been extended, the defendants should have appreciated that less than three tonnes could be added before the vehicle’s GVM was exceeded.  He found that the first defendant should also have realised that as more “extras” were added, its ability to manufacture a unit which, when mounted on the truck, would be within the statutory limitation would be compromised.  The Judge also considered that when the first defendant received the cab chassis from North East Isuzu, it could see for itself the extras (the bullbar, etc) which had been added.  The Judge considered that this too should have alerted the first defendant to the potential for the vehicle’s GVM to be exceeded.

   [24] [1999] HCA 36; (1999) 198 CLR 180.

   [25] [2009] SADC 30 at [43].

3. The Judge considered that the defendants could have taken a number of steps.  They could have had the vehicle weighed before they commenced any work in order to ascertain the remaining weight available to them; they could have made some attempt to ascertain the weight of the materials which they intended using in the construction of the unit; and they could have ascertained the weight of previous truck and units which they had manufactured for the purpose of obtaining a guide.  The Judge noted that Mr Albertini (Snr) had acknowledged that it would have been prudent for the first defendant to calculate the weight of the unit, and that an approximate estimate of the weights of the materials could have been obtained.

4. On the appeal, the defendants advanced two principal challenges to the Judge’s findings of a breach of the duty of care.

5. First, the defendants repeated the submission that the first defendant had contracted only to design and manufacture a testing unit which could be fitted to a truck, and that it was for the plaintiff to ensure that the truck to which it required the unit to be fitted would have a GVM which was sufficient to allow it to be driven on the road.  For the reasons given in relation to the plaintiff’s contract claim, this submission of the defendants is untenable.  It overlooks the very basis of the parties’ underlying agreement.

6. Next, the defendants submitted that the plaintiff was not vulnerable to loss by negligent action on their part because it had been open to the plaintiff to have taken action to protect itself.  Reference was made to Woolcock Street Investments Pty Ltd v CDG Pty Ltd[26] which concerned the liability of an engineer to the subsequent purchaser of a commercial building for losses caused by the settling of foundations designed by that engineer.  The High Court upheld the decision of the Queensland Supreme Court that the subsequent purchaser did not have a cause of action because neither its pleading nor the agreed facts upon which the case stated had proceeded indicated that it was vulnerable to economic loss by reason of any negligence by the engineer.  The plurality judgment noted the importance in Perre v Apand[27] and in the subsequent cases in which a duty of care to avoid economic loss had been found to exist, of the plaintiff’s vulnerability to negligent conduct by the defendant.  Gleeson CJ, Gummow, Hayne and Heydon JJ then continued:

   ‘Vulnerability’, in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken.  Rather, ‘vulnerability’ is to be understood as a reference to the plaintiff’s inability to protect itself from the consequences of a defendant’s want of reasonable care, either entirely or at least in way which would cast the consequences of loss on the defendant. [28] [Citations omitted]

   [26] [2004] HCA 16; (2004) 216 CLR 515.

   [27] [1999] HCA 36; (1999) 198 CLR 180.

   [28] [2004] HCA 16 at [23]; (2004) 216 CLR 515 at 530.

7. Relying on this passage, the defendants submitted that the plaintiff in the present case could have protected itself by seeking an express warranty from the first defendant concerning the combined weight of the vehicle, or of the unit itself, or it could itself have made enquiries of the general kind which it contended should have been made by the first defendant.

8. This submission fails to give full effect to the concept of vulnerability which is relevant in determining the existence of a duty of care to avoid economic loss.  One person may be vulnerable to loss as a result of negligent conduct by another if the nature or their relationship is such that the first has placed reliance on the other, or the second has assumed the responsibility of protecting the first.  When those circumstances exist, a duty of care to prevent economic loss may arise even it can be said that the first person had an ability to protect itself in some way against the negligence of the second.  In this respect, McHugh J in Perre v Apand said:

   Vulnerability will often include, but not be synonymous with, concepts of reliance and assumption of responsibility.  The widely used concepts of “reasonable reliance” and “assumption of responsibility” have come under criticism.  This Court has recognised that neither concept represents a necessary or a sufficient criterion for determination of a duty of care, saying that commonly, but not necessarily, a duty will arise in cases which “involve an identified element of knowing reliance (or dependence) or the assumption of responsibility or a combination of the two”.

   …

   In my view, reliance and assumption of responsibility are merely indicators of the plaintiff’s vulnerability to harm from the defendant’s conduct, and it is the concept of vulnerability rather than these evidentiary indicators which is the relevant criterion for determining whether a duty of care exists. …

   Reliance may therefore be seen – for the purposes of duty of care – as an indicator of vulnerability:  the plaintiff is especially vulnerable to the words and/or conduct of a defendant because he or she reasonably relied on the defendant.  Reliance may also, of course, be relevant to causation.  In terms of a duty of care, however, it is not reliance that is relevant, but its consequence, vulnerability. [29] [Citations omitted]

   [29] [1999] HCA 36 at [124]-[126]; (1999) 198 CLR 180 at 228.

9. In Woolcock, the plurality said (in the paragraph following that upon which the defendants relied):

   In other cases of pure economic loss (Bryan v Maloney is an example) reference has been made to notions of assumption of responsibility and known reliance.  The negligent misstatement cases like Mutual Life & Citizens’ Assurance Co, Evatt and Shaddock & Associates Pty Ltd v Paramatta City Council can be seen as cases in which a central plank in the plaintiff’s allegation that the defendant owed it a duty of care is the contention that the defendant knew that the plaintiff would rely on the accuracy of the information the defendant provided.  And it may be, as Professor Stapleton has suggested, that these cases, too, can be explained by reference to notions of vulnerability.[30]  [Citations omitted]

   [30] [2004] HCA 16 at [24]; (2004) 216 CLR 515 at 531.

10. The defendants’ submissions hinted at a suggestion that if it was found that the first defendant was liable to the plaintiff in contract, it was unnecessary for it also to be held that it (the first defendant) had breached a duty of care.  However, a submission to that effect was not developed and, in the view of the appeal which I take, the matter need not be addressed. 

11. This was a case in which the plaintiff plainly relied upon the first defendant’s skill and judgment.  As already noted, after giving the first defendant a broad indication of its requirements, the plaintiff left it to the first defendant, an experienced specialised motor body builder, to develop the plans and specifications and to carry out the work.  It paid the first defendant’s quoted fee to research and design the project.  The first defendant should have known that its skill and judgment was being relied upon.  It was in this sense that the plaintiff was vulnerable to negligent conduct by the defendants.

12. Accordingly, the Judge was correct in finding that the first defendant was negligent at each of the two stages of progress of the project.  I agree with the defendants that the assessment of the loss caused by each breach, and accordingly, of the damages to which the plaintiff was entitled in the event that the damages were to be assessed in tort, should have been different in relation to each breach, and that the Judge’s reasons and assessment of damages do not reflect that difference.  However, given that the first defendant is liable to the plaintiff in contract, that is a matter which can be put to one side.

    Contributory Negligence

13. The Judge rejected the defendants’ claim that the plaintiff had been contributorily negligent. He did so after considering s 44 of the Civil Liability Act 1936 (SA) and s 7 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (Law Reform Act).

14. The defendants submitted that the Judge had been in error in finding against contributory negligence.  However, the submission was pressed only faintly.  The defendants referred to the fact that the plaintiff was able to exercise some control over the process of construction and mounting of the unit (but just what was not specified).  It was also said that the plaintiff could have insisted upon the first defendant providing a warranty, or have insisted on the unit and the truck being weighed from time to time during the construction process.

15. These submissions overlook the reality of the situation which was that it was the defendants who were controlling the construction and mounting of the unit.  The plaintiff was entitled to rely on the first defendant’s expertise.  It was not unreasonable for the plaintiff, in its own interests, to have left the matter to the defendants who were well familiar with the materials which they were using and with the process of construction.

16. I agree with the Judge’s finding that the plaintiff had not been contributorily negligent.

    An Apportionment of Responsibility

17. The defendants also complained of the Judge’s refusal to allow them, during the course of the final addresses, to amend their defence to raise a plea, under s 8 of the Law Reform Act that there should be some apportionment of their responsibility for the vehicle being overweight with that of North East Isuzu.  The suggestion was that North East Isuzu was also liable to the plaintiff and that the defendants’ liability to the plaintiff should have been reduced accordingly.

18. This submission on appeal also appeared to be advanced only faintly.

19. The Judge was correct to conclude that reliance upon s 8 of the Law Reform Act should be pleaded.  It was very pertinent to the Judge’s consideration of the defendants’ late application to amend their defences that their counsel had, at least twice during the trial, successfully objected to attempts by counsel for the plaintiff to lead evidence of conversations which the plaintiff had with Mr Menechella at North East Isuzu.  That evidence would have been admissible if the potential responsibility of North East Isuzu for the plaintiff’s loss had been an issue in the trial.  In other words, the Court had been prevented by reason of the defendants’ own conduct from hearing all the evidence which was relevant to the apportionment of responsibility which was later claimed by the defendants.

20. The Judge considered that the defendants were bound by their conduct of the action.  He noted, as the defendants themselves had acknowledged, that if the amendment was allowed, some witnesses would need to be recalled and it was possible that some further witnesses would be necessary.  The lateness of the application raised the spectre of disruption and dislocation to the completion of the trial process.  It was appropriate for the Judge to have regard to the prejudice which late applications of the kind made by the defendants may have to other parties and to the administration of justice more generally.[31]

    [31]   Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 83 ALJR 951.

21. Further, I agree with the Judge that the allegation that North East Isuzu should bear some responsibility for the truck and unit being overweight appears to be without substance.  The Judge correctly noted that there was no evidence that North East Isuzu had assumed any responsibility in relation to the vehicle, apart from supplying it and extending its chassis.  In particular, there was no evidence that North East Isuzu assumed any responsibility with respect to the weight of the truck once the unit constructed by the first defendant had been mounted on it.

22. Accordingly, this aspect of the defendants’ submissions on appeal does not succeed.

    Misleading and Deceptive Conduct

23. By its notice of alternative contentions, the plaintiff claimed that the Judge should also have found that the first defendant had engaged in misleading or deceptive conduct, contrary to s 52 of the Trade Practices Act 1974 (Cth) (TPA).

24. The plaintiff alleged four misrepresentations.  The first was the statement by Mr Albertini (Snr) on 7 July 2006 that “we could build the unit on this sort of truck”, pointing to the Isuzu truck upon which the unit for the Northern Territory Police was then being constructed.  The second was a statement which the plaintiff said had been made by Christian Albertini in the telephone conversation on 7 July 2006 to the effect that “we could build it, the NPS 300 would be the vehicle for it”.  The third misrepresentation was said to be implicit in Christian Albertini sending the Isuzu NPS brochure to the Nethertons.  The fourth was an alleged misrepresentation by silence arising from the defendants’ omission to say anything about the potential combined weight of the unit when providing the plans, specifications, quotations and order forms to the Nethertons.

25. It is not necessary to discuss the first three alleged representations in any detail.  In my opinion the Judge was correct to find that these representations were no more than a very general representation that the first defendant could build a unit of the generic type sought by the plaintiff on an Isuzu NPS 300.  They did not relate to the particular unit for which the plaintiff contracted.  At the time that each of the first three representations was made (or alleged to have been made) the proposal was at an embryonic stage only and the representations should have been understood as being generalised statements only.

26. The Judge’s reason do not identify the positive representation said to have been conveyed by the defendants’ omission to say anything about the potential weight of the unit or its failure to point out that the unit which it had designed and would construct on the Isuzu might compromise the ability of the vehicle to travel lawfully on public roads.  It seems, however, to be a positive representation that the truck, with the unit constructed by the first defendant mounted on it, would be able to travel lawfully on public roads.

27. This case does not call for a detailed discussion of the principles and authorities concerning the circumstances in which silence may constitute misleading or deceptive conduct.  It is sufficient to repeat the six principles which, in Eastern Gardens Pty Ltd v Stone[32] I identified from the judgment of the Chief Justice in Software Integrators Pty Ltd v Roadrunner Couriers Pty Ltd:[33]

    1.Conduct which consists of remaining silent can, in some circumstances, constitute misleading or deceptive conduct.

    2.Where the silence relied on, if it is to come within the extended definition of engaging in conduct contained in s 4(2) of the Trade Practices Act, it must fall within the notion of “refusing to do an act”, that refusal must be other than inadvertent.

    3.In considering whether there is a contravention of s 52, silence is to be assessed as a circumstance like any other.

    4.Mere silence without more is unlikely to constitute misleading or deceptive conduct.  Remaining silent will, however, constitute misleading or deceptive conduct if the circumstances are such to give rise to the reasonable expectation that if some relevant fact does exist, it will be disclosed.

    5.A reasonable expectation that a fact, if it exists, will be disclosed will arise where either the law or equity imposes a duty of disclosure but is not limited to those circumstances.  It is probably not possible to categorise all the circumstances in which a reasonable expectation of disclosure may arise but they include circumstances in which a statement conveying a half truth only is made, circumstances in which the representor has undertaken a duty to advise, circumstances in which a representation with continuing effect, which although correct at the time it was made has become incorrect as a result of some subsequent event, and circumstances in which the representor makes an implied representation.

    6.In considering whether a party engaged in commercial dealing may have a reasonable expectation that a fact, if it exists, will be disclosed, one needs to keep in mind that it will often be the case in such dealings that one party has more knowledge about a relevant matter than the other and yet will not, in accordance with ordinary commercial expectations, be guilty of misleading or deceptive conduct in failing to make that knowledge known to the other.  In this regard, in Lam v Ausintel Investments Australia Pty Ltd Gleeson CJ said:

    “Where parties are dealing at arms’ length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance.  This does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice.” [Citations omitted]

    [32] [2005] SASC 157; (2005) 239 LSJS 344.

    [33] (1997) 69 SASR 288.

28. In the present case, it is also pertinent to note that the intention (or absence of intention) of the defendant to engage in misleading or deceptive conduct is not a relevant consideration for the purposes of s 52 of the TPA. As was pointed out by Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd[34] a corporation which has acted honestly and reasonably may nevertheless engage, unintentionally, in misleading or deceptive conduct.  Accordingly in the present case, it is immaterial that the defendants did not themselves have any particular belief about the combined weight of the truck or unit or that they had not themselves turned their minds to that question.

    [34] (1982) 149 CLR 191.

29. In my opinion, the defendants’ conduct in combination had conveyed a representation that an Isuzu NPS 300 truck with the unit designed by Christian Albertini mounted on it would be able to be driven lawfully on the roads.  This was a representation as to a future matter.  It is plain that the defendants did not have reasonable grounds for that representation.[35] Accordingly, in my opinion, the first defendant at least should have been found liable for a contravention of s 52. However, given that the plaintiff is entitled to damages for breach of contract, nothing turns on this conclusion.

    [35]   Cf Trade Practices Act 1974 (Cth) s 51A.

    The Cross-Appeal Against Damages

1. By its cross-appeal, the plaintiff submitted that the Judge should have included in the assessment the sum of $29,118 being the difference between the cost of the new Hino and the purchase price of the Isuzu NPS 300.  The defendants resisted this, submitting that the plaintiff had received value for the purchase of the Hino and that to make the award sought by the plaintiff would ignore the betterment which it had received in obtaining a newer, larger and more expensive vehicle.

2. The Judge did not differentiate in his assessment between the contractual and tortious measures of damages.  His award can be seen on analysis to comprise the amounts which, in the Judge’s assessment, comprised the expenditures made by the plaintiff which were wasted, or which were unnecessary, if the first defendant had not breached the contract or had not been negligent.

3. In resolving the respective submissions, it is necessary to keep in mind the differences between the assessment of damages for breach of contract, on the one hand, and in tort for negligent misstatement, of the other.  When a plaintiff relies upon a breach of a contractual provision such as a warranty, the damages of the plaintiff are to be assessed as though the contractual statement was true, and that the contractual promise had been carried into effect.  However, damages for negligent misstatement (and for that matter damages for misleading or deceptive conduct constituted by a misrepresentation) are to be assessed by considering what the position would have been if the statement had never been made.  In that circumstance, the plaintiff is to be restored, so far as money can do it, to the position in which it would have been if the defendant had not breached the duty of care.

4. In the present case, the different approaches would lead to a different assessment as the Nethertons acknowledged that if they had known on or before 10 August 2006, that they would need a larger (and more expensive) truck upon which to mount the testing unit, they would not have proceeded with the project.  That is because they did not then have the necessary financial resources to support the additional expenditures which would be required.

5. In that circumstance, an assessment in tort which sought to restore them to the position in which they would have been would focus on the wasted and unnecessary expenditures which they did incur.  As noted, this was the basis for the Judge’s assessment.

6. However, the plaintiff was entitled to have its damages assessed on account of the breach of contract in accordance with the principles stated in Hadley v Baxendale[36] namely, such damages:

   …as may fairly and reasonably be considered either [as] arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probably result of the breach of it.”

   This test was restated in Czarnikow Ltd v Koufos:[37]

   … On the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of the contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation.[38]

   [36] (1854) 9 Exch 341 at 354; (1854) 156 ER 145 at 151.

   [37] [1969] 1 AC 350.

   [38] Ibid at 385. See the endorsement of this position in Wenham v Ella (1972) 127 CLR 454 at 471-2; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667; Commonwealth v Amann Pty Ltd (1991) 174 CLR 64 at 92, 99; Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 368.

7. In the present case, a reasonable person in the first defendant’s position should have realised that if the truck with the unit constructed by the first defendant mounted on it could not be driven lawfully on the roads, the plaintiff would either have to abandon the project altogether or to take other steps, most obviously the acquisition of a larger truck, to enable it to carry out its intended purpose.  The first defendant did not have to foresee the precise degree or extent of loss suffered, nor the precise events giving rise to the loss, as it was sufficient that they contemplate the kind or type of loss or damage suffered.

8. If the first defendant had complied with its contractual promise, the plaintiff would not have needed to incur the cost of purchasing the Hino ($96,608 after excluding statutory and on-road costs).  However, this figure should be reduced by the sum of $67,490.20 which the plaintiff would, in any event, have expended on the Isuzu NPS 300, producing a balance of $29,117.80.  The figure of $29,117.80 should be increased by the sum of $27,490.20 because the plaintiff received a trade-in of only $40,000 for the Isuzu on the purchase of the Hino.  In other words, if the first defendant had not breached its contract, the plaintiff would not have wasted $27,490.20 of its expenditure.  In addition, the plaintiff would not have incurred the cost of $9,540 in transferring the drug testing unit from the Isuzu to the Hino.

9. As well as the amounts just mentioned, the plaintiff would have been able to use the mobile drug testing unit in the period between January 2007 and October 2007.  In that circumstance, the plaintiff would not have suffered a loss of profit by reason of the drug testing unit being idle during that period.  However, the plaintiff did not pursue a claim for loss of expected profits.  Instead, it claimed the amount it had incurred in financing costs in the period between January 2007 and September 2007.  The Judge allowed an amount of $18,267.60 for “wasted financial expenditure” in respect of this period. 

10. In my opinion this allowance was wrong in principle.  If the first defendant had discharged it contractual obligations, the plaintiff would have incurred that financial expense in any event.  What the first defendant’s breach caused was either the incurring of additional financing costs, or the loss of use of monies which would otherwise have been available to the plaintiff resulting from the purchase of the Hino.  The evidence about this was non-specific and the amount which should have been allowed for this item of loss cannot be calculated with any precision.  However, in each of the alternative methods of assessment advanced by the parties on appeal, the figure of $18,267.67 was accepted as an appropriate figure for the loss incurred by the plaintiff in relation to financing costs.  In those circumstances, I am prepared to accept that figure as an appropriate estimate of this item of loss.

11. The total of these four items is $84,415.67.  That means, in my opinion, that the Judge has erred in his assessment of damages.  The error arises because the Judge failed to assess damages on the appropriate basis for the breach of a contractual warranty.

12. It would be inappropriate, in my opinion, to make any deduction from the sum of $84,415.67 on account of betterment.  The fact of the matter is that as a result of the first defendant’s breach of contract, the plaintiff was left with a mobile testing unit which was unusable.  It had to expend monies to mitigate its loss.  The fact that in doing so it acquired a bigger and more expensive vehicle can be seen as an incident of a mitigation expense.  In addition, I note that the plaintiff has not sought any additional allowance in respect of those expenses which may be incurred in the operation of the bigger Hino truck and which would not have been incurred in using the smaller Isuzu truck, eg, additional fuel and maintenance costs.

13. By way of cross-check, it is appropriate to consider what the position would have been if the plaintiff had, on learning that its mobile testing unit could not be driven lawfully on the roads, abandoned the project altogether.  In that event, it would presumably have been able to sell the Isuzu for approximately $40,000, making a loss of about $27,000 on the sale.  In addition, it would have had an unusable drug testing unit for which it had paid about $82,000.  Perhaps some materials and fittings could have been salvaged, but unless the salvage amounted to approximately $40,000, its overall loss would have been approximately the same as it was by proceeding with the alternative of acquiring a replacement truck.  This cross-check confirms the reasonableness of the assessment on the basis outlined above.

14. It is unnecessary to address the defendants’ remaining submissions concerning the causation of the plaintiff’s loss and what was necessary to restore the plaintiff to its original position.  Those submissions related to an assessment of the plaintiff’s damages on a tortious basis, rather than the contractual basis outlined above.

    Conclusions on Appeal

15. For the reasons given above, the defendants’ appeal against the finding of liability to the plaintiff fails.  One aspect of the plaintiff’s notice of alternative contention exceeds.

16. The plaintiff’s cross-appeal against damages should be allowed.  The damages awarded to the plaintiff should be increased to $84,415.67.

17. Accordingly, I would make the following orders:

    1.     The appeal is dismissed.

    2.     The cross-appeal is allowed.

    3.I would set aside the order of the Judge entering judgment for the plaintiff in the sum of $60,361.35 inclusive of interest and I would direct that judgment be entered for the plaintiff against the defendants in the sum of $84,415.67 before interest.

    I would hear the parties as to costs and interest.

18. KELLY J              I agree with the reasons of both Gray and White JJ.  I agree with the proposal by Gray J as to the final monetary order to be made.