Roberts v Repatriation Commission
[1992] FCA 642
•21 AUGUST 1992
Re: JAD INTERNATIONAL PTY. LTD.
And: INTERNATIONAL TRUCKS AUSTRALIA LIMITED
No. S G33 of 1991
FED No. 642
Trade Practices - Contract
COURT
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIAN DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)
CATCHWORDS
Trade Practices - misleading or deceptive conduct - statements relating to age, history and quality of an engine in a heavy duty commercial vehicle - whether statements amounted to a representation or a term of a contract - whether a right of rescission arose - whether applicant accepted the vehicle - time within which rescission is available.
Contract - representation or a term of the contract - whether applicant accepted the goods - whether a right of rescission arose - time within which rescission is available.
HEARING
ADELAIDE
#DATE 21:8:1992
Counsel for the Applicant: Mr R.J. Whitington
Solicitors for the Applicant: Sykes Bidstrup
Counsel for the Respondent: Mr N.J.T. Swan
Solicitors for the Respondent: Finlaysons
ORDER
THE COURT ORDERS THAT:
1. Judgment be entered for the applicant on its claim in the sum of $19,000 inclusive of costs.
2. The purported rescission by the cross-respondent of the agreement to buy the Kenworth Truck was void and of no legal force or effect and doth declare accordingly.
3. The question of costs be adjourned for argument to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
In October 1989, the applicant, JAD International Pty. Ltd., purchased, for the purpose of resale, a 1983 Kenworth Aerodyne K120 truck ("the Kenworth") for $86,000 from the respondent, International Trucks Australia Limited. Both the respondent and the applicant have been at all material times engaged in the business of buying and selling such trucks.
This litigation has arisen as a consequence of statements attributed to an employee of the respondent, the witness Mr Davis. It was said that, prior to the purchase, he misrepresented the age, history and quality of the engine that was installed in the Kenworth at the time of the applicant's purchase. The applicant has, as a consequence, claimed that the respondent engaged in conduct that was misleading or deceptive or likely to mislead or deceive, contrary to the provisions of s.52 of the Trade Practices Act 1974 (Cth) ("the Act"); it has further claimed that the respondent falsely represented that the Kenworth was of a particular quality, contrary to the provisions of s.53 of the Act. As a result, the applicant has claimed damages which it says are recoverable pursuant to s.82 of the Act together with interest and costs.
The applicant has also claimed that the challenged conduct of the respondent was a misrepresentation that amounted to the breach of an implied condition of the agreement for the sale and purchase of the Kenworth. Claiming that this breach lawfully entitled it to rescind, the applicant alternatively sought an order confirming that in October 1990, twelve months after the purchase of the Kenworth, it lawfully rescinded the contract. I have assumed that the use of the word condition is to be regarded as bearing its "common meaning" - namely a term of a contract: Wickman Machine Tool Sales Ltd v L. Schuler A.G. (1972) 1 WLR 840 at 850 per Lord Denning M.R. Thus it would seem that the pleadings are to be taken as alleging first, the existence of a representation that became a term of the contract and secondly, that the breach of that term justified rescission. I will however, to the extent to which it is necessary, also consider the question of rescission arising out of a misrepresentation. The question of rescission was met by the respondent seeking a declaration in its cross-claim that the purported rescission "was void and of no legal force or effect". The applicant did not raise an alternative claim under s.87 of the Act for relief from any of its contractual obligations in the event of it being found that rescission was not available to it.
In paragraphs 16 and 17 of its statement of claim the applicant pleaded as follows:
"16. The Kenworth Aerodyne K120 was described and/or represented by International Trucks as having an engine being a Detroit 8V92TTA.
17. The Kenworth Aerodyne K120 did not have an engine being a Detroit 8V92TTA but rather had an engine of unidentified origin but of inferior quality."
In its defence, the respondent admitted that the representation in paragraph 16 of the statement of claim had been made and further admitted that it was incorrect; however it denied that the installed engine was of unidentified origin and of inferior quality. These and other representations allegedly made by Mr Davis will be better understood by first setting out certain historical facts, many of which were agreed by the parties.
In about May 1988, the then owner of the Kenworth, Transport Management and Technical Services ("TMTS"), arranged for Recar Consolidated Industries of Sunshine, Victoria ("Recar - Sunshine") to install in it a silver Detroit 8V92TTA engine. The figure "8" meant that the engine had eight cylinders and the letter "V" showed that it had a "V" shape configuration; the figures 92 referred to the capacity of the engine in cubic inches. The engine that was installed was a late model; its number was 8VF101432 and its earliest possible date of manufacture was 1986. The Kenworth, with that particular TTA engine installed, was thereafter offered by TMTS to the respondent for sale and left with the respondent for appraisal. However, no sale eventuated and the Kenworth was returned to TMTS. The evidence as to the date when the Kenworth was first left with the respondent is sketchy but the probabilities suggest that it was sometime in April 1989. In any event, it seems clear that on this occasion an inspection was made of the truck as a proposed "trade-in" by Mr Legge an employee of the respondent. His appraisal, Ex.A7, carried this entry:
"Detroit 8V92TTA Full rebuild by Detco April 1989."
The abbreviation "Detco" referred to Detroit Engine and Turbine Company, the manufacturer of Detroit engines. Although it was clear from the evidence that the engine had not been rebuilt by Detco in April 1989 or, indeed, at any other time, it has not been possible to say how this error occurred. Perhaps Mr Legge was misinformed: perhaps he made some mistake. In any event, Mr Davis learned, at an early stage, that Detco had not worked on the engine in April 1989; he therefore removed the reference to "Detco" but inserted the endorsement:
"Detroit 8V92TTA Rebuilt April 89"
in the Appraisal Record (Ex.A8) which he prepared and ultimately forwarded to the applicant. Unfortunately, it has not been possible to make a finding as to the date of the delivery of that document; Mr Asikas, the managing director of the applicant, could not remember when he received it and Mr Davis was not sure when he sent it. Be that as it may, it is now necessary to turn to the part played by a second engine in this potted history of the Kenworth.
In November 1988, Recar Sales Pty. Ltd. of Mulgrave, Victoria ("Recar - Mulgrave") (a different company not to be confused with "Recar - Sunshine") purchased the wreck of a white Roadboss truck; its engine, the number of which was 8VF033689, was removed and in about April 1989 that engine was installed by "Recar - Mulgrave" in the Kenworth. I find that this installation occurred after Mr Legge had made his appraisal earlier in the same month. It also seems apparent that TMTS was the party responsible for having the first mentioned engine (i.e. the silver Detroit 8V92TTA) removed and for having the engine from the Roadboss installed in its place.
Uncertainty surrounds the correct description of the Roadboss engine that was installed by "Recar-Mulgrave". When the applicant sought particulars of its identifying features, the respondent's reply was:
"The engine is a Detroit 8V92TA with a 1977 block..." (Note that the reply referred to a "TA" - not a "TTA" engine).
However, in their statement of agreed facts the parties were unable to agree a description of this engine save to acknowledge its number - 8VFO33689 - and to agree that it had been rebuilt by a Queensland firm in mid 1988. The respondent's witness, Mr Smith, a used truck distributor and salesman examined the engine and classified it as a Detroit 8V92TA. I have some reservations about Mr Smith and his evidence; he had examined the Kenworth on 14 April 1992 expressly for the purpose of giving evidence in this trial; when asked to state the colour of the engine that was then installed in it, he said it was "green" (p 106). That was not correct. All other witnesses who looked at the engine said that it was painted silver. However, as the applicant's mechanic Mr Hall admitted that he could not tell the difference between a TA and TTA engine, I am left with Mr Smith's opinion and the respondent's admission . My finding is that the rebuilt engine that was installed in the Kenworth when it was delivered to the applicant was a Detroit 8V92TA (not a Detroit 8V92TTA).
Thus far, the only apparent difference was that the first mentioned engine was a "TTA" whilst the second was a "TA". I reject the proposition advanced by the applicant in its further and better particulars that the "TA" engine "was not traceable as a factory made engine but has been made up from parts". It is true that there had been some difficulties in tracing this engine but that was due to its identifying number being incorrectly recorded.
However the evidence made it clear that there was another difference in Detroit engines that was most important; it related to their colour and their age. Originally Detroit engines were painted green. In the early 1980's an attempt was made by their manufacturer to market an improved engine. To distinguish it from the old green coloured engine, the new model was painted silver. Although the respondent was unaware at the time, it now admits, as I have already said, that the engine that was taken from the Roadboss and installed in the Kenworth in April 1989 was a Detroit 8V92TA with a 1977 block; (elsewhere there was evidence that suggested that it was a 1978 block but I do not feel that it matters whether the year of manufacture was 1977 or 1978). Irrespective of the year, this meant that the engine block came from the old (green) series of motors - not the new (silver) series - even though the balance of the engine may have belonged to the new (silver) series. Not knowing of the switch that had been made to the engines, the respondent subsequently bought the Kenworth from TMTS as a "trade-in" and thereafter sold it to the applicant. In selling it to the applicant, the respondent erroneously assumed that the Kenworth still had installed in it the engine that was present at the time of Mr Legge's appraisal and represented the vehicle and its engine to the applicant accordingly.
Although the exact nature of the representations that were made by Mr Davis in the name of the respondent to Mr Asikas and the source of Mr Davis' knowledge was severely tested in several areas, I do not find it necessary to delve deeply into this area of the evidence. The applicant has not alleged fraud and the respondent has admitted innocent misrepresentation; the primary dispute between the parties was whether, in the circumstances of the case, it was open to the applicant to rescind the contract some twelve months after the purchase of the Kenworth. There was also a strongly contested dispute on the subject of damages: the applicant sought the return of the purchase price, $86,000, plus consequential damages and interest whilst the respondent claimed that, notwithstanding the making of the innocent misrepresentation, the applicant had not suffered any loss or damage at all.
I have no difficulty in finding that the nature and degree of the representations were sufficiently serious to establish a prima facie case for rescission. Mr Davis, the respondent's principal witness, acknowledged that the silver series engine was represented, when it was released, as being much more fuel efficient than the equivalent earlier model Detroit engine. (p 348-349). I also accept the evidence of the applicant's witness Mr Carter (pp 77-78, 85 and 89) that a silver engine would have been far more acceptable than a green engine and that he had informed Mr Asikas of this opinion; Mr Asikas, who had negotiated by telephone for the purchase of the Kenworth without seeing the vehicle, had sought Mr Carter's advice prior to agreeing to purchase it from the respondent. However, even though the installation of the correct engine in a heavy duty commercial vehicle is a matter of the utmost importance, I cannot see, in the circumstances of this case that it should be regarded as a "fundamental or essential term of the contract": (See Shevill v The Builders Licensing Board (1981-1982) 149 CLR 620 at 626 per Gibbs C.J.; see also Suisse Atlantique Societe d'Armement Maritime S.A. v N.V. Rotterdamsche Kolen Centrale (1967) 1 AC 361 and Associated Newspapers Ltd. v Bancks (1951) 83 CLR 322).
The difference in the consequences arising from rescission for misrepresentation and for breach of a fundamental term has been conveniently explained in The Law of Contract 8th Ed. by G.H. Treital at p 330 in these terms:
"Where a misrepresentation is not a term of the contract, the process which may be referred to as 'rescission for misrepresentation' amounts to setting the contract aside for all purposes, so as to restore, as far as possible, the state of things which existed before the contract. Where, on the other hand, a misrepresentation has become a term of the contract the victim of the misrepresentation may seek 'rescission for breach,' and this may also result in a restoration of the state of things which existed before the contract. But there is a vital difference between the two processes. Rescission for misrepresentation involves an allegation that there was a defect in the formation of the contract; and if this allegation is substantiated it follows that the contract is avoided ab initio. Rescission for breach, on the other hand, involves an allegation that there was a defect in the performance of the contract; and the existence of such a defect does not lead to the conclusion that the contract should be treated as if it had never existed."
There are occasions when an incorrect statement that was orally made in the course of negotiations will find its way into the contract as a written term of the contract: Alati v Kruger (1955) 94 CLR 216 was one such example. In that case the vendor of a business falsely stated the weekly takings and that false statement was repeated as a clause of the contract. The High Court held that the statement was not merely a representation but, rather, one of the terms of the contract. However, Mr Davis' statements cannot be elevated to that level; much was discussed between the two men about the Kenworth, its history, its engine and its engine's history. In one sense, everything that Mr Davis had to say on those subjects was of importance to Mr Asikas; that is why there has been little difficulty in classifying his statements as representations that were sufficiently serious to establish a prime facie case for rescission. It is often a matter of difficulty to determine when a representation has become a term of a contract. For example, a statement that a 1939 Model car was a 1948 Model, was held to be only a representation: Oscar Chess Ltd v Williams (1957) 1 WLR 370; whilst a statement that a vehicle had done 20,000 miles, when in fact it had done 100,000 miles was held to be a contractual term: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965) 1 WLR 623.
In this case a substantial period of time - about six months - passed from when Mr Davis first introduced the subject of the Kenworth and its engine to Mr Asikas and the ultimate purchase by the applicant. The evidence also showed that within the trade, there was a tendency and a readiness among owners to change over engines in heavy duty vehicles; this suggests that retention of the same engine in the same vehicle does not occur as a matter of course. The evidence did not suggest an inequality in bargaining positions between the parties; indeed, on the contrary, Mr Davis' first contact with Mr Asikas with respect to the Kenworth was not for the purpose of offering it for sale but to obtain Mr Asikas' advice on the vehicle. Finally, as I have earlier remarked, the evidence did not permit a finding that the information in the appraisal record, Ex.A8 was received by the applicant prior to or contemporaneously with the making of the contract. Although I do overlook the importance of the subject matter, I have come to the conclusion that Mr Davis' statements concerning the engine are properly classified as a representation. I turn then to the question of rescission as a consequence of a misrepresentation.
The difficulty that must be resolved is whether Mr Asikas could have and should have exercised his company's right of rescission at an earlier date. The right to rescind a contract as a consequence of a misrepresentation is lost when the purchaser accepts or affirms the purchase; that acceptance will be irrevocable when the purchaser, with full knowledge of the misrepresentation, elects to retain the goods. This he may do by express words or impliedly by his conduct. The parties agreed that this contract was governed by the South Australian Sale of Goods Act, 1895, s.35 of which provides:-
"The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or (subject to section 34 of this Act) when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."
Delay in exercising a right of rescission can be fatal but not necessarily so; s.34 of the Sale of Goods Act gives a buyer such as the applicant, who has not previously examined the goods, a "reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract". Much will depend upon the particular facts of the case, but as was said in Clough v The London and North Western Railway Co (1871) LR 7 Ex.26 at 35 when the lapse in time is great "it probably would in practice be treated as conclusive evidence" of an election to recognise the contract: see Cheshire and Fifoot Law of Contract 4th Aust Ed. p 294 where the authors added:
"Thus, contracts for the sale of goods cannot be kept open indefinitely, and it has been held that a lapse of five years is sufficient to bar the purchaser's right of rescission, even though he had not previously discovered the untruth of the representation: Leaf v International Galleries (1950) 2 KB 86."
In this case, I have come to the conclusion that I must reject sections of Mr Asikas' evidence. This, in turn, has then led, for the reasons that I will hereafter set out, to the conclusion that the applicant did not lawfully rescind the contract. On one occasion he told a deliberate lie, elsewhere he gave me the impression that he was easily confused and that he had, in some areas of his evidence, engaged in exercises of reconstruction. For example, he had somehow convinced himself that he took delivery of the Kenworth on a Sunday. He went so far as to associate its arrival with his barbecue lunch commenting "we do not have barbecue lunches on Saturdays because I work..." (pp 147-148). But the evidence that the Kenworth arrived at his business premises on a Saturday was overwhelming; the driver, Mr Rayner, was able to produce his log book and bus ticket corroborating his oral testimony that he handed over the truck on Saturday 14 October 1989. In addition, the applicant's witness, Mr Hall, also said that he was present at the applicant's premises on a Saturday when the Kenworth arrived. The date of the arrival of the Kenworth at the applicant's workshop was not a matter of importance: it made no difference to the outcome of the case whether it arrived on a Saturday or Sunday. However, the willingness of Mr Asikas to assert, so positively, an erroneous fact, together with the other matters that I will mention, shakes one's confidence in the accuracy of his evidence.
At p 161 of his cross-examination, Mr Asikas was questioned about his knowledge of Detroit TTA and TA engines:
"Right. Now, at the time when you discussed this truck with Mr Davis, did you have any understanding as to whether there was any difference between a double TA Detroit engine and a TA Detroit engine?... No.
So you had no real concern about whether it was a TA or a TTA?... I had a big concern that it was a double TA. That was the truck - that was the engine that I would have bought. If it was a TA I wouldn't have bought it. Why not?... Because the fuel - first the engine - it has a bad reputation.
Did you understand the TA was an older-style engine, did you?... What - no, there was a TA and there was a double TA that I found out later, but the double TA was a fuel pincher engine which it was more economical and more acceptable in the market. If it was a TA, no, I wouldn't have bought it."
I reject these assertions. Mr Hall, a very experienced mechanic, did not know the difference between the TA and the TTA engines (p 268). Mr Carter said the only difference was a governor setting which in his opinion was "no significant difference" (p 78). Mr Smith's opinion was that "the TTA is a little bit more fuel efficient" (p 106). I accept the evidence of these three witnesses, the effect of which was that there is minimal difference between TA and TTA engines of the same vintage and condition.
Mr Carter's evidence was that he had advised Mr Asikas on the difference between green and silver Detroit engines:
"I remember telling him at that time that I believed that the silver series, whilst not the most desirable engine, they were certainly far more acceptable, in my experience, than a green engine." (p 89)
This was put to Mr Asikas in cross-examination at pp 168-169:
"I suggest to you that Mr Carter said to you that the silver series, whilst not the most desirable engine, they were certainly far more acceptable in his experience than a green engine but that you did not discuss differences between a TA and a TTA. Do you agree that may be the case?... I don't remember any green engine in the discussion at all. I asked his opinion on a silver 892TTA silver. That was the opinion I was looking for. All right. And did he in effect say: well, they were not the most desirable engine in the market-place but they were more acceptable than older engines?... Of course, yes. Yes, and did you understand a TA was an older engine?... I understood the TA wasn't a very acceptable engine because it was a very fuel - it was a great fuel burner, or the exact words I should say was a fuel guzzler, as known in the trade."
I reject Mr Asikas' evidence; in my opinion he has confused the colours of the old and new engines with the references to TA and TTA models.
However, the most disturbing feature about Mr Asikas' conduct in this matter was the letter that he wrote the respondent in February 1991. At that stage, four months had elapsed since the applicant had allegedly rescinded the contract and arranged for the return of the Kenworth; Mr Asikas had been pressing the respondent for an answer to his company's demands but the respondent had not yet declared itself. In those circumstances, and no doubt hoping to apply pressure on the respondent, Mr Asikas wrote his letter of 15 February 1991 (Ex.A26).
"AS YOU ARE AWARE WE HAVE 4 SIGNED CONTRACTS FOR SALE OF THIS TRUCK.
(1) ONE ON 25th OCTOBER 89. (1) 12th NOVEMBER 89.
(1) 1st JUNE 1990. (1) 10th AUGUST 1990. ALL WERE REJECTED AFTER CHECKING WITH DETROIT AND TOLD OF MOTOR WAS AN OLD 78 BLOCK AND HAD NO RECORDS OF IT. AND WERE TOLD MOTOR WAS SUSPECT."
The contents of that letter were patently false to the knowledge of Mr Asikas. It was true that the applicant had negotiated with four potential purchasers for the sale of the Kenworth; they were Mr Collins who signed a contract to purchase on 25 October 1989 (Ex.A9), Mr Schwarz whose contract was dated 12 November 1989 (Ex.A10), Mr Leonard - his contract was dated 1 June 1990 (Ex.A12) and finally Mr Duncan who signed a contract of purchase on 10 August 1990 (Ex.A15). None of these men was called to give evidence and so far as Collins, Schwarz and Duncan were concerned there was not a scrap of evidence to suggest that any one of them had approached Detroit about the Kenworth. It was true that Mr Leonard arranged to have it examined by Detroit and it was true that Detroit gave the Kenworth such a poor report (Ex.A13) that Mr Leonard declined to proceed with his purchase but the report made no mention of the engine block. It was a Chassis Dyno Test Report dealing with the engine's horsepower. In writing the respondent saying that "all were rejected after checking with Detroit and told of motor was an old 78 block", Mr Asikas showed his willingness to tell lies if he thought it would assist his objectives; he cannot now complain if his evidence in the trial is viewed with scepticism.
Despite the plethora of evidence on the subject, I am of the opinion that it is sufficient to find that Mr Davis innocently represented to Mr Asikas that the Kenworth had installed in it a silver TTA Detroit engine of recent vintage when in fact the actual silver TA engine had been rebuilt on an old (green) block. I am satisfied that the upper section of the TA engine was silver. Mr Hall's evidence on this subject was:
"Did you notice anything about the colour of the engine?... It was silver.
Was it painted silver?... Yes.
What part of the engine were you able to see?... Basically most of the top part of the engine is visible above the chassis, the top half of the engine clearly visible. So it was that part that you saw that was painted silver?... Yes.
Could you tell whether it was freshly painted, or not?... You wouldn't say it was, no.
I don't quite understand that. Are you saying you could tell it was not or you cannot tell?... Well, you wouldn't really be able to tell. I mean, the thing was fairly clean and it could have had a paint job but it would be hard to know. Did you notice anything about the condition of the parts on the top of the engine?... They all seemed fairly normal. Did you notice anything about their apparent age?... Well, the engine appeared to be the current production 92 series engine. On what basis do you say that?... Just its visual appearance. The earlier type engines had round rocker covers. The later type engines got square pointed type rocker covers. It's fairly easy to tell the difference. It's just one of those visual things.
Were you in any position to observe the colour of the block?... Not really. I mean, I didn't go looking for that sort of thing." (p 259)
He was tested about the colour of the engine in cross-examination (p 268) but he remained firm; it definitely had a silver top.
When the applicant made its decision to buy the Kenworth, Mr Asikas thought that he had a purchaser, Mr Collins, already set to buy it. Mr Collins inspected the vehicle and was obviously interested - so much so that he was prepared to nominate some extra work that he required the applicant to perform on the Kenworth before he would purchase it. One such item of work attracted much attention during the trial; at Mr Collins' request, the applicant had Mr Hall change the gearbox in the Kenworth from direct drive to overdrive. I do not consider it necessary to resolve whether this change would constitute an increase or a decrease in value; I do however observe that such conduct on the part of the purchaser of goods is strong evidence of his acceptance of those goods and his affirmation of the contract: Long v Lloyd (1958) 1 WLR 753.
In that case the Court of Appeal had to consider a claim for rescission of an executed contract for the sale of a lorry on the ground of innocent misrepresentation. The Court recognised the difficulties caused by Denning L.J. in Leaf v International Galleries (supra) at 90; he had said that the proposition in Seddon v The North Eastern Salt Co. Ltd. (1905) 1 Ch 326 that a court would not grant rescission of an executed contract for the sale of a chattel on the ground of innocent misrepresentation was wrong. The Court of Appeal avoided this problem in Long v Lloyd by assuming that rescission was open but by holding that, having regard to the facts of the case, the purchaser had accepted the lorry and thereby his right of rescission (if any) had been barred by his acceptance. Pearce L.J. who read the judgment of the court said at p 760:
"Apart from special circumstances, the place of delivery is the proper place for examination and for acceptance. It was open to the plaintiff to have the lorry examined by an expert before driving it away, but he chose not to do so. It is true, however, that the truth of certain of the representations, for example, that the lorry would do 11 miles to the gallon - could not be ascertained except by user and, therefore - the plaintiff should have a reasonable time to test it. Until he had had such an opportunity it might well be said that he had not accepted the lorry, always assuming of course, that he did nothing inconsistent with the ownership of the seller. An examination of the facts, however, shows that on any view he must have accepted the lorry before he purported to reject it."
It is not now necessary to examine whether the right of rescission remains open to a representee following the performance of a contract for the sale and purchase of goods. Sub-section 6(1) of the Misrepresentation Act 1972 (S.A) provides:-
"6. (1) Where a misrepresentation has been made by reason of which any party to a contract would, but for any one or more of the following considerations -
(a) that the misrepresentation has become a term of the contract;
(b) that the contract has been performed; or
(c) that conveyances, transfers or other documents have been registered at any public registry office in pursuance of the contract,
be entitled to rescind the contract, that contracting party shall be entitled to rescind the contract notwithstanding that consideration or those considerations."
However, the effect of this statutory provision is limited to the preservation of a right to rescind where previously it would have been lost by the happening of one or more of the events listed in sub-paragraphs (a), (b) and (c). I do not consider that the statute has eroded away the principle that a right of rescission may be lost by acceptance of the goods or the principle that rescission must occur within a reasonable time.
It was central to the applicant's claim that Mr Asikas only found out about the old engine block in October 1990 and that he thereupon had his company give notice of rescission by letter dated 23 October 1990 (Ex.A18). I am satisfied that Mr Asikas only found out about the old block in October 1990 but I am not satisfied that this information was the reason for the purported rescission. I find that the true reason was his realisation that, after 12 months, the Kenworth had not been sold, that it was getting a "name" in the trade and that the recently acquired information about the old block was a good excuse upon which to base a claim for rescission. The conclusion that I have reached - to the effect that the discovery of the old block was not a genuinely held reason for rescission but rather a convenient excuse to rid the applicant of a piece of difficult merchandise - has been based upon a general assessment of the whole of the evidence. However, to explain this finding it will be necessary to canvas the more important events in the 12 months during which the applicant retained the Kenworth.
First, there was Mr Hall's assessment of the vehicle on the day of its arrival; it had a crack in its chassis, the rear suspension was badly worn and the air conditioning was not connected. Knowing that the applicant could have rejected the vehicle (as it had been bought sight unseen) Mr Hall was asked what advice he gave Mr Asikas; his answer was - "Tell the driver to keep going" (p 256) meaning, tell the driver to take it back. However, the applicant chose to keep it in the belief that it had a purchaser, Mr Collins, and a consequential profit. Thereafter, there were ongoing difficulties with a faulty fuel line and the conversion of the gears from direct drive to overdrive. The work that was necessary to correct the fault in the fuel line and the work on the gear box both point strongly to an acceptance of the truck. Furthermore, it must be emphasised that Mr Hall's evidence made it abundantly clear that the applicant, through its mechanic, had every reasonable opportunity to examine the Kenworth.
Difficulties with the vehicle did not abate. It was Mr Asikas' evidence that he did not find out until April 1990 that the engine had been "rebuilt". It was also his evidence that he obtained a copy of Detroit's report on the horsepower capacity of the engine in the following June. His evidence on these subjects appears at p 54:
"... when I got this report, which is a couple of days later, I got mad and I rang Davis again and he told me to get on to Phil of Recar because none of this gelled with what we were expecting to get out of the motor. You say you got mad and you rang Davis again?... Yes. I told him, 'What the hell is going on with this motor?' Now you say you rang him again. Had you spoken to him in that vein earlier?... Yes.
And when was that?... That was just before I advertised the truck as a rebuilt engine.
And on that earlier occasion had you also spoken to Phil at Recar?... Yes.
So you spoke to Phil at Recar about it twice?... Yes."
This passage of his evidence shows cogently that he was expressing his dissatisfaction with the "motor" and the "engine" in the April-June 1990 period. Nevertheless, the applicant retained the vehicle because it is my assessment of Mr Asikas that he continued to believe his company could make a sale and make a profit. The company's advertisements in the trade journal and the four contracts of sale were also strong pointers to the acceptance of the vehicle by the applicant.
However, the picture started to change; by October twelve months had elapsed and no sale had been made. The market in South Australia for heavy trucks was small; the Kenworth was becoming "known" in the trade; the chances of selling it profitably were beginning to diminish. Then came the final straw; in October the police contacted Mr Asikas telling him that they believed that the engine in the Kenworth had been stolen (ultimately it transpired that their belief was wrong). Furthermore, it was at this time that the police told Mr Asikas that their examination of the engine had disclosed the presence of the old engine block.
Mr Asikas agreed to the police taking the vehicle on 29 October 1990 so that they could continue their investigation but he had earlier written the letter of rescission on 23 October (Ex.A18) to the respondent. The applicant has not had possession of the Kenworth since then. When the police had finished with it and advised Mr Asikas that it was ready for collection, Mr Asikas arranged for the respondent to take delivery of it on behalf of the applicant. It has remained at the respondent's premises ever since.
It is for these reasons that I have concluded, that rescission was not available to the applicant; even though I accept Mr Hall's evidence that he was not instructed to, and did not in fact make an examination of the Kenworth, the applicant had a reasonable opportunity to examine the vehicle; its state of wear and its faults were sufficient to put the applicant on notice that the vehicle may not have been of a quality that was expected of it. However, the applicant persevered in the hope that a profitable sale would eventuate. When this did not occur, the applicant was quick to take advantage of the claim that the engine was stolen and the block was a 1977 or 1978 model; this was apparent from the contents of the letter of 23 October 1990: Ex.A18. The material sections were as follows:
"It is now apparent that the vehicle was fitted with a stolen motor which had been modified from a 1978 block stamped with an Engine No. 8087-7800, Serial No. 8VF033688. In all circumstances and having taken advice in the matter my Company is left with no alternative but to rescind the contract and to require the repayment of the original purchase price plus all upgrading costs namely one hundred and five thousand dollars ($105,000.00)."
There must be judgment for the respondent on its counter-claim in which it sought a declaration that the purported rescission of the agreement to buy the Kenworth was void and of no legal force or effect.
However, there can be no doubt that Mr Davis' representations amounted to misleading or deceptive conduct on which the applicant relied; indeed, I did not understand the respondent to argue otherwise; I therefore turn to the question of damages. The respondent claimed that no damages should be awarded to the applicant; it proved that it had made several offers to the applicant to install a different (and perhaps better) engine, to repaint the chassis of the truck and so on. In fairness to the respondent, it should be said that these offers seemed reasonable. However, there is a short answer to them; none amounted to an offer to give the applicant the engine that it had expected to receive. As there is no question of punitive damage, these open offers of settlement must therefore be ignored.
During the course of his final submissions, counsel for the applicant submitted that if the Court concluded that rescission was properly open to the applicant, there should be an award of damages in its favour in the sum of $86,000, the price paid for the Kenworth. Both counsel were then able to agree that if such an award was made and it was determined to be interest-bearing, an appropriate amount of interest calculated from the date of payment of the purchase price to 27 July 1992 (the date of submissions) was $50,000; it was made clear that this was not the product of finite calculations but was recognised as a fair assessment of the interest that the applicant would have paid to its banker for overdraft accommodation in that interval of time; the parties also agreed ultimately that if the amount of damages was a different sum, it would be reasonable to make use of the agreed figure of $50,000 and apply it rateably as to amount and time (should that latter need arise). As to interest from 27 July 1992 to the date of judgment, the parties agreed that the applicant's present overdraft rate of interest was 12.25% and that it would be appropriate to use that rate of interest.
Counsel for the respondent, argued that the difference in the two engines was of no consequence; he pointed out, correctly, that there was no evidence to suggest that the old block had been the cause or even a contributing cause to the applicant's inability to resell the Kenworth. It was Mr Smith's evidence (p 109) that the presence of the old block would not have been a matter of great concern; he said:
"It's not the sort of thing you would even find out generally."
However, if that argument is correct, a purchaser of a forged painting could be met with the argument that he has no recourse because no-one else was or would be aware that it was a forgery.
In my opinion the truth of the matter is fairly reflected in the letter that the respondent's solicitors wrote to TMTS on 21 February 1991, Ex.A1:-
"We act for International Trucks whom we are instructed purchased a Kenworth prime mover from your company registration no. VV74AS by way of trade-in on a new Transtar F4670.
At the time that the Kenworth was presented for appraisal, it was fitted with an 8V92TTA Detroit engine of 1986 vintage and represented to have been fully rebuilt in April, 1989. We are instructed, however, that when the vehicle was later delivered as a trade-in it was fitted with an engine of unknown origin comprising a 1977/8 engine block and rebuilt using many components from different engines. The replaced engine was clearly of far less value than the 1986 vintage engine in the vehicle at the time of appraisal. In October, 1989, the Kenworth was sold by International Trucks to a South Australian dealer who claims to have suffered loss and damage by reason of the vehicle containing the 1977 engine rather than the 1986 engine as originally appraised. Accordingly, we advise that our client will be seeking full indemnity from your company in respect of any claim by the South Australian dealer in addition to any damages suffered by International Trucks by reason of the misrepresentation.
We expect to contact you further with respect to the claim as soon as the extent of the South Australian dealer's loss and damage is known."
The evidence on the subject of damages was sparse; it was limited to that of Mr Carter and Mr Smith and neither was wholly satisfactory. Mr Carter had never examined the vehicle; therefore his views on values were expressed in general terms. The strength of his evidence was also impaired because of his global comment that Mr Asikas was prone to pay too much for his vehicles. He thus brought into question the reasonability of the figure of $86,000 for a 1983 Kenworth Aerodyne K120 truck with a silver Detroit 8V92TTA engine of recent vintage. He thought that such a vehicle would only be worth $60,000. There is another difficulty with Mr Carter's evidence on this subject. At p 83 he was asked to place a value on a 1983 Kenworth Aerodyne that had a green Detroit engine with a 1978 block. His answer was $30,000. However this is of no great value because of my finding that it was a silver Detroit 8V92TA engine, (even though it had been rebuilt on 1977 or 1978 green block). The whole of the evidence warrants a finding that such a silver engine on a green block would be worth more than a green engine on a green block.
I was not able to obtain much assistance from Mr Smith either. He did not attempt a valuation of the vehicle; he merely assessed the difference in value between a TA and TTA engine, offering the opinion that the TTA would be worth about $5,000 more (p 108).
The applicant's right to damages stems from sub-s.82(1) of the Trade Practices Act:
"82. (1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
..."
Section 52 and 53 are found in Part IV of the Act and actions based on them "are analogous to actions in tort and the remedy in damages provided by s.82(1) appears to adopt the measure of damages applicable in an action in tort": Gates v The City Mutual Life Assurance Society Ltd. (1985-1986) 160 CLR 1 at 6 per Gibbs C.J.
Thus the applicant in the present case is entitled to recover the difference between the price that it paid for the Kenworth and the true value of the Kenworth at the time of sale. I do not feel that it would be proper to rely on the evidence of Mr Carter that a motor vehicle that he had not seen would have been worth so much less than Mr Asikas (who has had some years experience in the trade) was prepared to pay for it. I gain more comfort from his comparative values of $60,000 and $30,000 although even these must be qualified because the latter value did not refer to the actual engine that was installed in the Kenworth at the time of purchase. This therefore has become a case where lack of concrete evidence necessitates the approach of a jury. If because of the paucity of evidence, the award is on the low side, the applicant has only himself to blame; in my opinion a fair assessment of the applicant's damages would be $12,000 plus interest from the date of purchase to date of judgment.
Although the applicant did not lawfully rescind the contract for the purchase of the Kenworth and although the applicant has deprived himself of the opportunity to sell the Kenworth from the date when the police said that they had completed their investigations, it seems to me to be fair to award the applicant interest to date notwithstanding its self-imposed inability to sell. The figure of $12,000 reflects my assessment of the difference, at the time of purchase, between the true value of the vehicle and its cost to the applicant; that difference is a constant; it remains irrespective of whether the applicant sells or does not sell the Kenworth. Using the agreed figure of $50,000 and making due allowance for the time that has past since the submissions of counsel to date I allow $7,000 for interest.
The applicant sought further consequential losses; they were, in the main, the costs of repairs and improvements to the Kenworth (such as new tyres and the conversion of the gearbox to overdrive). I am of the opinion that this expenditure does not constitute, in the circumstances of this case, damage or loss. On the contrary, and bearing in mind that the subject matter of the contract was a second-hand truck, the moneys expended by the applicant would have been intended to improve the quality, appearance and saleability of the vehicle. Depending upon the astuteness of those involved, the value of the vehicle would be expected to improve by an amount that was at least equal to, and preferably greater than, the costs of the repairs and improvements. Those benefits have been retained by the applicant as the owner of the vehicle. Furthermore, it must be acknowledged that many of the claimed items of expenditure (the conversion of the gear-box to overdrive was the best example) were wholly unrelated to the engine and any defect in the engine.
There will be judgment for the applicant in the sum of $19,000 (inclusive of interest) and judgment for the respondent on the cross-claim.
I will hear the parties on the question of costs.
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