Ocean Marine-Tech Pty Ltd v BMW Australia Limited No. SCGRG 95/904, SCGRG 95/962 Judgment No. 5883 Number of Pages 10 Sale of Goods

[1996] SASC 5883

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA COX, PRIOR AND DEBELLE JJ

CWDS
Sale of goods - conditions and warranties - first plaintiff purchased boat fitted with engines - purchase made in Western Australia - boat transported to South Australia - first plaintiff intended to sell shares in fully fitted boat to other plaintiffs - sale of shares in South Australia - engines prove to be defective - whether plaintiffs entitled to warranties under Manufacturers Warranties Act - retail sale - manufactured goods - delivery in South Austraia - claims dismissed. Manufacturers Warranties Act, 1974 ss4, 5; Sale of Goods Act, 1895 (WA) s29; Sale of Goods Act, 1895 (SA) s29, referred to. Collector of Customs v Chemark Services Pty Ltd (1993) 114 ALR 531; Harris v Hosking [1917] SASR 81; Phillips v Parnaby [1934] 2 KB 299; Electricity Trust of SA v Krone (Australia) Technique Pty Ltd (1994) 123 ALR 202, applied.

HRNG ADELAIDE, 4, 9 April 1996 #DATE 18:11:1996

Counsel for plaintiffs :     Mr D Clayton QC with Mr O Downs

Solicitors for plaintiffs :    Lawson Downs

Counsel for defendant :        Mr J Lunn with Mr D Simpson

Solicitors for defendant:     Minter Ellison Baker O'Loughlin

ORDER
Judgment for defendant.

JUDGE1 COX J
1. In my opinion the defendantÕs appeal in this action should be allowed and the orders of the District Court set aside. Instead, it should be ordered that the action be dismissed with costs. The plaintiffÕs cross appeal should be dismissed. I agree with the reasons of Debelle J.

JUDGE2 PRIOR J
2. I agree with the reasons published by Debelle J.

JUDGE3 Debelle J
3. This is an appeal from the decision of a judge of the District Court allowing the respondentsÕ claim for damages made under the Manufacturers Warranties Act 1974. I will refer to the appellant as the defendant and to the respondents as the plaintiffs.

4. The action concerned two BMW marine engines and stern drives fitted to a motor cruiser called the Delta. The engines and stern drives were manufactured by BMW Marine GmbH in Germany and were imported into Australia by the defendant. As the importer into Australia of the engines and stern drives, the defendant is deemed by s3 of the Manufacturers Warranties Act to be the manufacturer of the engines and stern drives. I will refer to both the engines and stern drives as "the BMW engines" or "the engines".

5. The first named plaintiff Ocean Marine-Tech Pty Ltd ("OMT") is a company which, among other things, bought boats and then sold interests in those boats. Its business also included the management of the boats in which it had sold interests. In 1985 OMT was called "Part Time Owners Pty Ltd". On 9 October 1987, it changed its name to Ocean Marine-Tech Pty Ltd. I will refer to both Ocean Marine Tech Pty Ltd and Part Time Owners Pty Ltd as "OMT". The other plaintiffs are persons who from time to time have purchased interests in the Delta.

6. In 1985 OMT acquired the Delta in Western Australia. At about the time when OMT acquired the Delta, the BMW engines were fitted to it. I will later examine more closely the circumstances in which the Delta and the BMW engines were acquired. OMT then arranged for the Delta to be transported to South Australia. OMT arranged for the sale of six shares in the Delta. Each purchaser acquired a one-sixth undivided share. The shares were acquired between August 1985 and 30 September 1986. Once it had sold the last share, OMT did not have an interest or share in the vessel other than to manage it for the owners of the six shares. Some of the original owners of shares have sold their interest to other persons so not all of the plaintiffs are the original holders of shares. All of the transactions concerning the sale of shares in the Delta occurred in South Australia.

7. After OMT had arranged for the Delta to be transported to South Australia, OMT arranged for it to be commissioned. Not long after, difficulties were experienced with the BMW engines. It is unnecessary to go into details. It is sufficient to note that there were many difficulties and between August 1985 and April 1988 the Delta was out of the water for about twelve occasions because of problems with the engines. Each of those occasions was a period of about two weeks. Some of the difficulties were of a major kind involving complete failure. In September 1988, BMW Marine provided two replacement engines in what was described as a gesture of goodwill. Twelve months later one of the replacement engines failed. In January 1990 the plaintiffs replaced the BMW engines and stern drives with Volvo engines and stern drives.

8. On 24 December 1991 the plaintiffs commenced this action. The action was commenced more than six years after the contract to purchase the BMW engines. The trial judge made an order extending the time within which to bring the proceedings to 24 December 1991, the date when the summons was issued. Time was not extended to the date when the plaintiffs filed and delivered their reply which raised for the first time a claim under the Manufacturers Warranties Act. Although that deficiency was debated on this appeal, it is not necessary to deal with it.

9. The trial judge held that the defendant was liable to the plaintiffs pursuant to the Manufacturers Warranties Act. He held that the plaintiffs were consumers within the meaning of that Act, that OMT had acquired the BMW engines in a retail sale transaction, that the engines were delivered to OMT in South Australia, that the other plaintiffs had derived title to the engines through OMT and were thus entitled to rely on the Act. He found that the BMW engines were not of merchantable quality and were not fit for the purpose for which they had been purchased. He held that the plaintiffs were entitled to recover damages from the defendant for breach of the statutory warranties in the Manufacturers Warranties Act as to the merchantable quality of the BMW engines. He dismissed the claims in negligence, misrepresentation and under the Misrepresentation Act and Fair TradingAct. The defendant appeals from the decision on a number of grounds. The plaintiffs have filed a cross appeal. The cross appeal raises an issue only as to damages. There is no cross appeal concerning the findings on liability.

The Manufacturers Warranties Act 10. A number of issues were raised on this appeal. It is convenient to deal first with the question whether the plaintiffs have a cause of action under the Manufacturers Warranties Act.

11. The Manufacturers Warranties Act establishes statutory warranties and renders manufacturers liable for breaches of those warranties. Broadly speaking, the operation of the Act is limited to goods which are sold by retail. The Act provides remedies to persons other than the immediate purchaser of the goods the subject of the retail sale. It does so by provisions which limit the operation of the principles relating to privity of contract. The Act also contains provisions enabling a person other than the immediate purchaser to sue on any express warranty. The statutory warranties are provided in s4 of the Act and the right to sue in respect of either an express warranty or a statutory warranty is provided by s5. For present purposes, it is necessary to refer only to subss(1) and (2) of s4 and to s5 which are in these terms:
    "4.(1) Where any manufactured goods -
    (a) are sold by retail in this State;
    or
    (b) are delivered, upon being sold by retail, to a purchaser in
    this State, the manufacturer warrants -
    (c) that the goods are of merchantable quality;
    and
    (d) where the goods are of a kind that are likely to require repair
    or maintenance, that spare parts will be available for reasonable
    period after the date of manufacture.

(2) Subject to subsection (3) of this section, goods are of
    merchantable quality if they are as fit for the purpose, or
    purposes, for which goods of the kind are ordinarily purchased as
    it is reasonable to expect having regard to -
    (a) any description applied to the goods by the manufacturer;
    (b) the price received by the manufacturer for the goods;
    and
    (c) any other relevant factors."

"5.(1) Where -
    (a) an express warranty;
    or
    (b) a statutory warranty,
    is not complied with in relation to manufactured goods, a consumer
    who has lawful possession of the goods may, by action, recover
    against the manufacturer damages for breach of warranty in all
    respects as if the action were for breach of warranty under a
    contract between the manufacturer and the consumer.

(2) This section does not derogate from any other right of action
    that may be available to the consumer."

12. A consumer is defined in s3 in these terms:
    "ÔconsumerÕ, in relation to manufactured goods, means any person
    (including a body corporate) who purchases the goods when offered
    for sale by retail and includes any person who derives title to the
    goods through or under any such person".

13. The expression "manufactured goods" is also defined in s3. The definition provides:
    "Ômanufactured goodsÕ or ÔgoodsÕ means goods manufactured for sale
    or disposal by retail but does not include goods that are normally
    offered for sale by retail at a genuine retail price in excess of
    ten thousand dollars".

14. It was common ground that as the importer of the BMW engines into Australia, the defendant was a manufacturer as defined.

15. In order to establish a cause of action under the Manufacturers Warranties Act, the plaintiff OMT had to prove
    - that it had acquired the BMW engines when offered for sale by
    retail;
    - that the sale by retail had occurred in South Australia or, if
    not in South Australia, that the BMW engines had been purchased
    when offered by sale by retail and that delivery to OMT had
    occurred in South Australia; and
    - that the BMW engines were manufactured goods as defined by the
    Act.

16. The plaintiffs other than OMT had two avenues by which they could prove a claim under the Act. First, if OMT proved its claim under the Act, they could seek to prove that they were consumers as defined by the Act. Secondly, they could seek to prove:
    - that they had acquired the BMW engines when offered for sale by
    retail;
    - that the sale by retail had occurred in South Australia; and
    - that the BMW engines were manufactured goods as defined by the
    Act.

17. On this appeal the defendant says that none of the plaintiffs acquired the BMW engines as a result of the sale by retail, that the plaintiffs other than OMT are not consumers as defined by the Act, and that the engines are not manufactured goods as defined by the Act. The defendant, therefore, submits that none of the plaintiffs are able to rely on the statutory warranties provided by the Act.

18. The trial judge did not examine the issues which had to be proved by each of the plaintiffs under the Act. In particular, he failed to examine what it was that each plaintiff acquired at each stage in the overall transaction. The findings on these issues were expressed in these terms:
    "In 1985, the plaintiff Ocean Marine-Tech Pty Ltd purchased a boat
    from an organisation called Off-Shore Boat Charter in Western
    Australia. It was a 28 foot fibre glass, deep water cruiser called
    ÔDeltaÕ.The plaintiff Ocean Marine-Tech Pty Ltd also purchased two
    BMW B220 Z marine engines and stern drives to power the boat. In
    deciding to purchase these units, the plaintiff acted on a
    description of them contained in a brochure provided by the
    manufacturer wherein, amongst other things, the units were
    described as being Ô(p)articularly suitable for fast planing
    cruisers up to approximately 2.2 tonnesÕ, the reputation of BMW
    engines, the recommendation of the builder of the boat and the
    price. The weight of the Delta was in the vicinity of 2.2.
    tonnes.The engines and stern drives were manufactured by BMW Marine
    GmbH (ÔBMW GermanyÕ) in Germany and imported into Australia by the
    defendant. The plaintiff purchased the units from a dealer in
    Western Australia called Attwood Marine. The price of each unit
    was less than $10,000. After the hull of the boat was constructed,
    the engines were fitted to it. The vessel was then transported to
    South Australia where, after initially being put on display in a
    boat show, it was moored at the North Haven Marina.The plaintiff
    Ocean Marine-Tech Pty Ltd, over a period of time, sold six equal
    parts in the Delta to various people including the other
    plaintiffs. Thereafter, pursuant to a service agreement, the
    plaintiff Ocean Marine-Tech Pty Ltd serviced and maintained the
    vessel for the new owners. As between themselves, the new owners,
    amongst other things, agreed as to the basis on which they were
    each to have the use of the vessel. It was used for recreational
    purposes."

19. The Judge returned to these issues a little later in his reasons and made the following findings:
    "The engine and stern drives were manufactured goods within the
    meaning of the Manufactures Warranties Act and the defendant is
    caught by the provisions of that Act because it imported them into
    Australia; the manufacturer of the goods not having a place of
    business in Australia.The plaintiffs are ÔconsumersÕ within the
    meaning of the Manufacturers Warranties Act. The engines and stern
    drives were purchased by the plaintiff Ocean marine-Tech Pty Ltd
    when they were offered for sale by retail and the other plaintiffs
    derived title to them through the plaintiff Ocean Marine-Tech Pty
    Ltd when they became owners of the boat, including ;the engines and
    stern drives. It is true that the plaintiffs other than the
    plaintiff Ocean Marine-Tech Pty Ltd had an agreement between
    themselves as to when they would each have the use of the vessel,
    but they had more than that; they were the owners of it and, as
    such, had title to it.The engines and stern drives, upon being sold
    by retail in Western Australia were delivered to the plaintiff
    Ocean Marine-Tech Pty Ltd, the purchaser, in South Australia. The
    evidence is not clear as to who arranged and paid for the
    transportation of the vessel, including the engines and stern
    drives, from Western Australia to South Australia, but I think that
    does not matter: they were delivered to Ocean Marine-Tech Pty Ltd
    in South Australia."

20. The defendant submits that findings were contrary to the evidence and overlook a number of important facts necessary to establish a claim under the Act. For the reasons which follow, those submissions are correct and the evidence does not entitle the plaintiffs to claim.

The Sale to OMT
21. I turn to examine the evidence concerning the acquisition of the BMW engines. I deal first with the acquisition by OMT. There was very little evidence concerning this topic. What evidence exists is not in dispute. Oral evidence was given by two brothers, Mr J G P Blackmore and Mr G D Blackmore. In 1985 they were directors of OMT. Mr J G P Blackmore had little recollection of the transaction. He said that it had been arranged by his brother. His evidence was that OMT had purchased the Delta, already fitted with the BMW engines from Attwood Marine Pty Ltd in Western Australia. Mr G D Blackmore confirmed his brotherÕs evidence that OMT purchased the Delta already fitted with BMW engines and that the transaction occurred in Western Australia. However, his evidence was that the Delta had been purchased from an organisation called Off Shore Boat Charter which, he said, had recommended BMW engines to power the vessel. The Delta was constructed by Off Shore Boat Charter which had fitted the BMW engines. There was other evidence which indicated that Mr J G P BlackmoreÕs recollection was wrong as to the vendor of the Delta, that the vendor was Off Shore Boat Charter, and that Attwood Marine Pty Ltd had only acted as to the defendantÕs agent in selling the BMW engines. The identity of the person which had constructed and sold the Delta is of no consequence. The important issue was how the BMW engines had been acquired. The clear effect of the oral evidence was that OMT had, when purchasing the Delta, acquired a unit comprising the vessel already fitted with the BMW engines. The price of each BMW engine was less than $10,000. The evidence as to price was that the vessel and engines cost about $90,000.

22. There was no documentary evidence proving the agreement to purchase the Delta. There was no evidence proving whether OMT had purchased the BMW engines from Attwood Marine Pty Ltd or as part of the Delta after it had been constructed by Off Shore Boat Charter. There is no evidence whether OMT or Off Shore Boat Charter paid Attwood Marine for the engines. It is not, therefore, clear whether the BMW engines were delivered by Attwood Marine Pty Ltd to OMT or to Off Shore Boat Charter. After purchase, the Delta, fitted with the engines, was transported to Adelaide. There was no documentary or other evidence as to who arranged the transport to South Australia, whether the Delta was insured, and, if so, in whose name the insurance cover was obtained. There was no direct evidence as to when property in the BMW engines passed to OMT.

23. The only documentary evidence relating to the purchase of the BMW engines was two warranties, one for each engine. A form in each warranty had been completed. Each form stated that OMT, then called "Part Time Owners Pty Ltd", was the owner of the engines and that the selling dealer was Attwood Marine Pty Ltd. The form includes a section stating the details of the hull to which the engines had been fitted. It is expressed in terms which signify that the engines had been fitted to the Delta. The warranty form was signed on behalf of OMT and stated that OMT had taken delivery of the engines. The form is dated 3 September 1985. The oral evidence was that the BMW engines were not tested or commissioned until after the vessel had been brought to Adelaide. The commissioning took place on at least two days, 22 and 23 August 1995. It was conducted by Pitman Marine, the defendantÕs agent in South Australia. Thereafter, Pitman Marine handed the warranties to OMT.

24. Thus, the only evidence concerning the acquisition of the BMW engines by OMT is that OMT purchased the Delta in Western Australia, that the vessel was already fitted with BMW engines, that it had decided upon the BMW engines upon the recommendation of Off Shore Boat Charter, that the vessel and engines were transported to Adelaide from Western Australia, that the engines were commissioned in Adelaide, and that OMT had received the warranties on 3 September 1985. That evidence is not sufficient to prove that OMT acquired the BMW engines directly from Attwood Marine. There was no evidence proving who had paid Attwood Marine. There was no evidence of probative value that OMT had dealt directly with Attwood Marine. The fact that the two warranty forms state that OMT is the owner of the engines direct does not necessarily prove on the balance of probabilities that OMT itself bought the BMW engines from Attwood Marine Pty Ltd. Indeed, the oral evidence belies such a finding. The clear effect of the oral evidence was that Off Shore Boat Charter had recommended BMW engines and that Off Shore Boat Charter had fitted them. Thus, Off Shore Boat Charter could have purchased the engines from Attwood Marine and the warranty was made out in the name of OMT as purchaser because it was going to be the owner of the Delta. The fact that the engines were commissioned in South Australia establishes no more than that OMT was the owner of the engines. It does not prove the manner in which OMT had acquired the engines. In order to establish a claim under the Manufacturers Warranties Act, OMT had to prove that it had purchased the engines in a retail sale and not as part of the vessel it had purchased from Off Shore Boat Charter. The only evidence as to the manner in which the engines were purchased was the oral evidence of Messrs J G P and G D Blackmore and both stated that the Delta had been acquired already fitted with the BMW engines at a price of about $90,000. Given that evidence, the only conclusion is that the BMW engines were not purchased in a retail sale.

25. Even if OMT itself purchased the BMW engines from Attwood Marine, the sale by Attwood Marine to OMT was not a retail sale. An essential element of a retail sale is a sale to an ultimate consumer: Collector of Customs v Chemark Services Pty Ltd (1993) 114 ALR 531. A sale by retail also connotes a sale to a person who does not intend to re-sell: Harris v Hosking [1917] SASR 81, 92; Phillips v Parnaby [1934] 2 KB 299, 304. The Manufacturers Warranties Act has defined a consumer in terms which include "any person who derives title to goods through or under" the original purchaser. The Act, therefore, extends its protection to the donee of a gift or where the goods are purchased by someone on behalf of another. The requirement that a retail sale to a person who does not intend to sell is satisfied if the title is passed to another otherwise than by way of resale: Electricity Trust of SA v Krone (Australia) Technique Pty Ltd (1994) 123 ALR 202 at 211-212. OMT acquired the BMW engines intending to resell them when it sold the shares in the Delta. If it acquired the engines direct from Attwood Marine, it did not do so in a transaction which constituted a retail sale.

26. There is a further difficulty for OMT. The evidence shows that Attwood Marine Pty Ltd sold the BMW engines either direct to OMT or to Off Shore Boat Charter who fitted them to the Delta before selling the boat and engines to OMT. OMT did not, therefore, purchase the BMW engines in South Australia. OMT can rely on the Manufacturers Warranties Act only if it can establish that the engines were delivered to it in South Australia. As already mentioned, there is no evidence of any contract for the sale of the BMW engines. There is little direct evidence as to the place of delivery but the evidence of Mr G D Blackmore points to the fact that OMT placed the order for the Delta in Western Australia; that the BMW engines were fitted in Western Australia, and that the Delta already fitted with the engines was delivered to OMT in Western Australia. OMT then arranged for the Delta to be transported to Adelaide. The delivery to OMT was, therefore, made in Western Australia. This conclusion is confirmed by the provisions of the Sale of Goods Act. It matters not whether the proper law of the contract was the law of Western Australia or the law of South Australia since the legislation in each State is in identical terms. In the absence of the evidence of the terms of any contract relating to delivery, the delivery was made at the place of business of Attwood Marine Pty Ltd in Western Australia: see s29 of the Sale of Goods Act1895 (WA) and s29 of the Sale of Goods Act 1895 (SA). In this respect it matters not whether Attwood Marine Pty Ltd sold the engines direct to OMT or to Off Shore Boat Charter to be fitted in the Delta. The fact that the engines were not tested or commissioned until after the Delta had been transported to Adelaide suggests that OMT would not be deemed to have accepted the engines until it had had a reasonable opportunity of inspecting them and deciding that they were in conformity with the contract of sale: see s34 of the Sale of Goods Act. The evidence shows that OMT did not reject the goods and must be deemed to have accepted them. Thus, on any view of the facts, the engines were delivered in Western Australia and OMT cannot therefore bring itself within the terms of the Manufacturers Warranties Act.

27. For these reasons, OMT is not able to rely on the statutory warranties in the Manufacturers Warranties Act.

The Sale to the Other Plaintiffs 28. I turn to question whether the plaintiffs other than OMT have a cause of action under the Act. Given that OMT is not able to bring itself within the Manufacturers Warranties Act, the other plaintiffs must prove that they acquired the BMW engines when offered for sale by retail, that the engines were manufactured goods, and that the sale took place in South Australia.

29. As already mentioned, OMT sold six shares in the Delta to persons who were called "the co-owners". There were two documents proving the agreement concerning the sale by OMT to each of the initial co-owners. The first was an order form and agreement by which the co-owners each agreed to purchase a one-sixth share. The second was a document called "The Co-owners Agreement" which provided the terms and conditions upon which the co-owners shared the use of the Delta and for the sale or other disposition of their individual shares. Each co-owner was at liberty to sell his share provided that he first offered the share for sale to the other co-owners. Similarly, on the death of a co-owner, his share may be sold provided that it is first offered for sale to the other co-owners. Each co-owner acquired a one-sixth undivided share. The shares were sold at different times and the last sale of the initial six shares occurred on 30 September 1986. The co- owners did not all pay the same price. Some of the original co-owners had sold their shares so that some of the plaintiffs are not persons who first acquired shares in the Delta.

30. The sale to each co-owner of an undivided one-sixth share was not a sale of the BMW engines standing alone. It was a sale of an interest in a completely fitted vessel powered by the BMW engines. The owner of each share acquired an interest in the whole of the vessel as fitted out, that is to say, each of the co- owners acquired an interest in the Delta complete with the BMW engines. The Delta as fitted with the engines was not manufactured goods as defined because the value of the Delta and engines was substantially in excess of $10,000. The sale by OMT to each co-owner was not, therefore, a transaction which came within the Manufacturers Warranties Act. None of the co-owners, therefore, has a cause of action under the Act.

Other Issues 31. Given the conclusion that none of the plaintiffs was entitled to rely on the liability statutory warranties under the Manufacturers Warranties Act it is unnecessary to examine the other issues as to liability argued on the appeal.

32. At the commencement of the hearing of the appeal, counsel for the plaintiffs submitted that one of the grounds of appeal was incompetent. It is unnecessary also to deal with that issue.

33. The defendant appealed against the order as to costs. Given the result of this appeal, the defendant is entitled to its costs of the action.