Ron and Katrina Osman t/as Hawkesbury Fishing Charters v Liverpool City Marine Centre Pty Ltd

[2016] NSWCATCD 76

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Ron & Katrina Osman t/as Hawkesbury Fishing Charters v Liverpool City Marine Centre Pty Ltd [2016] NSWCATCD 76
Hearing dates:	23 June 2016
Decision date:	15 September 2016
Jurisdiction:	Consumer and Commercial Division
Before:	D A C Robertson, Senior Member
Decision:	1. The respondent pay the applicants $9,500 as damages for breach of warranty.
Catchwords:	CONSUMER CLAIMS – outboard motor – representation concerning hours motor had been run - misleading and deceptive conduct – express warranty – failure to honour express warranty – measure of damages
Legislation Cited:	Australian Consumer Law Fair Trading Act 1987 (NSW)
Cases Cited:	Commonwealth v Amann Aviation (1991) 174 CLR 64 Fink v Fink (1946) 74 CLR 127 JLW (Vic) Pty Ltd v Tsiloglau (1994) 1 VR 237 Potts v Miller (1940) 64 CLR 282
Category:	Principal judgment
Parties:	Applicants: Ron & Katrina Osman Respondent: Liverpool City Marina Centre Pty Ltd
Representation:	Applicants: In person Respondent: Matthew Buxton, director
File Number(s):	GEN 16/12201
Publication restriction:	Nil

REASONS FOR DECISION

1. The applicants carry on business conducting fishing charters on the Central Coast. In June 2015 they purchased a second-hand Suzuki outboard motor from the respondent for use in their business. The agreement to purchase the motor was entered into in the course of a telephone conversation between Mr Ron Osman and Mr Matthew Buxton, a director of the respondent, on 23 June 2015. The agreed price was $12,000 plus $800 to deliver the engine to Woy Woy.

2. The motor was delivered to Dons Mobile Marine, a mechanic in Woy Woy on 26 June 2015. Mr Terrill, the proprietor of Dons Mobile Marine, installed the engine on the applicants’ boat.

3. The applicants complain that the respondent had represented that the motor had been run for 800 to 1,000 hours prior to purchase, whilst in fact, as they discovered when the engine had been fitted and first run by Mr Terrill, the engine had been run for over 1,800 hours.

4. The applicants also complain that, although the engine was supplied with a 12 month warranty, the respondent has refused to honour the warranty, notwithstanding that the engine suffered a major failure on 28 December 2015. The applicants claim compensation of $9,500 which they say is fair compensation in respect of the engine which they used for 650 hours over six months.

5. The applicants also complain that the engine was supplied without necessary parts including a prop, trim sender, shift position switch and gearbox water strainers and screws. However, the applicants do not claim any compensation in that respect.

6. Although the applicants were unable to use the boat in their business for three weeks, they do not seek compensation for loss of earnings.

7. The respondent denies that any representation was made concerning the hours which the engine had run. The respondent says that the motor was not sold with a prop. It submits that second-hand engines are not usually sold with a prop attached. The respondent asserts that the major breakdown of the engine was either due to the engine not being serviced adequately or due to the engine being run with a propeller with too high a pitch which causes the engine to run at too low rpm.

8. The applicants appeared in person. Each gave oral evidence on oath. The respondent was represented by Mr Matthew Buxton, a director. He gave oral evidence on oath as did Mr Colin Buxton, the manager of the respondent. Each witness answered questions from the Tribunal and from the other party.

9. The applicants had filed a bundle of documents which became Exhibit A. The respondent had filed a bundle of documents which became Exhibit 1.

10. Exhibit A contained: a chronology of significant events, a copy of a piece of scrap paper bearing hand-written annotations, which Mr Osman stated represented a note he had taken during a conversation with Mr Matthew Buxton; bank statements; emails between the applicants and Dons Mobile Marine, between the applicants and the respondent and between Don Terrill of Dons Mobile Marine and the respondent; a computer print-out dated 26 June 2015 recording the total operating time of the engine as 1804 hours and 36 minutes; tax invoices from Dons Mobile Marine recording the fitting of the engine on 26 June 2015 and subsequent servicing of the engine; telephone records; a tax invoice from the Liverpool City Marine Centre dated 20 August 2015; a print out of Facebook messages from January 2016; a letter from Dons Mobile Marine dated 12 January 2016 recording part numbers used for servicing the engine; a letter from the respondent to the applicants dated 13 January 2016; and a number of other documents which are of limited relevance.

11. Exhibit 1 included: an “overview” which set out the respondent’s position; a copy of the tax invoice dated 20 August 2015; a document headed “Conditions of Sale”; some material extracted from the internet explaining the operation of four stroke internal combustion engines; and a document headed “Actual 175 Hp Suzuki Outboard Failure Report” concluding “Yours sincerely Matthew Buxton”.

12. The respondent sought at the hearing to tender a further report from an independent mechanic. This report had not been provided to the applicants. As the applicants had not had an opportunity to respond to this evidence I declined to receive it.

13. Mr Ron Osman’s evidence was to the following effect.

14. In June 2015 the motor he had been using in his business, which he had purchased in January 2012 from Mr Buxton, had broken down and been deemed irreparable. Mr Osman produced an invoice to establish that he had paid $14,000 for that motor which had been used for under 400 hours at the time it was purchased. It was provided with cables and propeller and a prop which had been installed by Mr Buxton. Mr Osman stated that he generally ran the engine on the boat for about 1,200 hours per year.

15. Mr Osman gave evidence of the conversation he had with Mr Buxton in June 2015. Mr Osman stated that he had called Mr Buxton and said words to the effect “I am looking for the same motor as I bought from you, have you got one in stock?” Mr Buxton replied “Yes I should have one with about 800 to 1,000 hours on it.” Mr Buxton quoted a price of $12,800 including delivery to the Central Coast. Mr Osman stated that he had agreed to the price. He did not inspect the engine prior to having it delivered to his mechanic, Mr Terrill of Dons Mobile Marine.

16. Mr Osman said that it was pretty simple job to change over the engine and it was simpler to have the engine delivered to Mr Terrill rather than deliver the boat to Sydney.

17. Mr Osman stated that the engine has an internal computer. He produced a print out from the computer which had been obtained by Mr Terrill on 26 June 2015. Mr Osman stated that Mr Terrill had rung him once he had obtained the computer print out and told him the engine had been used for 1800 hours. Mr Osman stated that he rang Mr Buxton straight away and said “What’s going on?” Mr Osman stated that Mr Buxton responded “Oh, I must have sent the wrong motor.” Mr Osman also stated that Mr Buxton said “I will fix you up for the extra hours”.

18. Mr Osman produced evidence of the payment for the motor being made in three instalments on two different credit card accounts on 23 and 26 June 2015.

19. Mr Osman also, as noted above, produced what he said was a hand-written note he had made during the initial conversation with Mr Buxton. That document includes reference to the address of Dons Mobile Marine at Woy Woy, Ms Osman’s credit card details (the last eight digits of which had been obscured in the copy tendered to the Tribunal), the words “Matthew” and “Colin”, the following words in a box “$1,500, 800 to 1,000 hours 175 Suzuki $12,000”, the words “without ex” outside the box, and, in another box, the words “12 months warrantee” [sic].

20. Mr Osman explained that the additional $800 which he had paid for the engine was for shipping to the Central Coast. Mr Osman explained the words “without ex” as meaning “without extras”, which he stated referred to control cables. In the chronology of significant events included in Exhibit A the applicants explained the figure of $1,500 as being the cost quoted by Mr Buxton for the respondent to fit the motor to the applicant’s boat.

21. Mr Osman gave evidence that he had specifically stated to Mr Buxton that he required a propeller and wanted the same propeller as had been installed on the previous motor (which was the same model) as he thought it would be good to have a spare.

22. Mr Osman produced telephone records which showed he had made two telephone calls to a number associated with the respondent of 7 minutes and 6 minutes on 23 June 2015, some short calls to that number on 25 and 26 June 2015 and a short call followed by a longer call at 8.59 am and 9.31 am respectively on 27 June 2015. Mr Osman stated that it was in the longer call on 27 June that he had raised the issue of the hours and missing parts.

23. I note that the letter from Dons Mobile Marine to Mr Osman of 12 January 2016 tendered by the applicants suggests that Mr Terrill also spoke to Mr Buxton about the missing parts in June 2015.

24. Mr Osman gave evidence that thereafter he found it very hard to contact Mr Buxton as he only had a business number. Mr Osman said that his wife had made calls on 13 and 18 August 2015 seeking a receipt. The tax invoice was only provided, as shown on the invoice, on 20 August 2015. Mr Osman stated that Ms Osman had had to supply an engine number to the respondent so that the respondent could supply the invoice.

25. Mr Osman gave evidence that the motor broke down in December 2015 and that he had been unable to operate his business for three weeks. He said that ultimately he had been obliged to buy a new motor. Mr Osman said that he lost revenue of $700 per charter against which his variable expenses per charter (which he identified as petrol and a bit of bait) were $100 per charter. Mr Osman stated that he was conducting charters seven days a week in summer and sometimes booked two charters per day in the summer period.

26. Mr Osman said that after the engine broke down he had had difficulty contacting Mr Buxton and had resorted to sending messages through Facebook. Those messages were included in Exhibit A. Through Facebook Mr Osman received a response from the respondent “We are back at 8 am on the 11th [January]”. Mr Osman stated that Mr Buxton had called him on 4 January 2016. On that occasion Mr Osman had told Mr Buxton that the engine had broken down. Mr Buxton had said “I’ll see what I can sort out for you, I’ll try and get you back on the water”.

27. Mr Osman stated that Mr Buxton did not call back. On 11 January Mr Osman towed the boat to the respondent’s premises where Mr Buxton said to him “Leave it with us, if we can’t fix it, we’ll give you another second hand motor”.

28. The following day Mr Buxton told Mr Osman that the engine had failed due to a lubrication failure which was not the respondent’s fault. Mr Osman gave evidence that he had then paid $25,000 for a brand new motor with new cables. The new cables were necessary because it was a different model.

29. Mr Osman gave evidence that he had used the motor, the subject of the proceedings, for about 700 hours before it failed whereas he had used the previous motor for about 3,800 hours before it failed. Mr Osman gave evidence that the motor was serviced around every 100 hours. Mr Osman produced invoices for those services and stated that he would run the engine for about five hours per charter.

30. Under cross examination by Mr Buxton Mr Osman acknowledged that the $100 he had identified as the expenses incurred for a charter did not include anything for labour or depreciation.

31. When Mr Buxton put to Mr Osman that he had not stated that the engine had 800 to 1,000 hours, Mr Osman referred to an email of 20 August 2015 from the applicants to the respondent which included the proposition that the motor had been said to have 800 to 1,000 hours. Mr Osman noted that there had been no response received from the respondent disputing that.

32. Mr Osman reiterated that in June 2015 Mr Buxton had said “keep the motor, I’ll fix you up” and that Mr Osman had not returned the motor for a refund because he was keen to get back to work.

33. Mr Osman referred to a letter which the respondent had sent to him on 13 January 2016 asserting that the engine had suffered a lubrication failure and rejecting liability under the warranty, but as a gesture of goodwill offering to repair the engine “to the condition as consistent before the engine’s failure occurred” with a repair time estimated at 4 to 6 weeks. The letter made it clear that the applicants would be responsible for freight and also required that if the offer were accepted the applicants waive any right to take further action. The applicants declined to accept that offer.

34. Mr Colin Buxton gave evidence that he had inspected the engine when it was brought to the respondent’s premises by Mr Osman in January 2016. He gave evidence that he had pulled the motor off the boat and that Mr Osman had then taken the boat away. Mr Colin Buxton stated he had dismantled the engine and that when he did so he identified that the problem with the engine was a faulty thermostat which had seized and was not operating properly. Mr Colin Buxton noted that the con rod bearings had markings whereas the main bearings were in perfect condition. Mr Buxton stated that this meant that there was a lack of lubrication or insufficient cooling of the engine. Mr Buxton identified three possible causes – breakdown of lubrication, overcooling or the use of an incorrect propeller. Mr Colin Buxton asserted that the thermostat had not been serviced and was permanently open. Mr Colin Buxton explained that this sends the wrong message to the computer which will then compensate, and over-fuel the engine which will affect the temperature within the engine.

35. Mr Colin Buxton explained that this caused detonation which then caused the con rod bearing failure. Mr Matthew Buxton explained that detonation occurs when the engine is overcooled because in that circumstance the pistons do not expand properly and the fuel leaks into the crank case and burns there. Mr Matthew Buxton pointed to a rainbow effect apparent in photographs of the under sides of the pistons as evidence of detonation.

36. Mr Matthew Buxton gave evidence asserting that the warranty provided was a six month warranty. However he could not point to any document that set out the conditions of the warranty that was provided. The document headed “Conditions of Sale” included in Exhibit 1 could not have been part of the contract of sale as there is no way it could have been supplied to Mr Osman at the time of sale. The only documentation of the sale was the tax invoice which was not supplied until 20 August 2015.

37. Mr Matthew Buxton accepted that he had a conversation with Mr Osman on 23 June 2015. He stated that nothing was said about the hours for the engine had been run. He said that the price for the engine was agreed. Mr Matthew Buxton could not explain why there had been no response to the email from the applicants of 20 August 2015 asserting that they had been told that the engine had 800 to 1,000 hours and complaining of the discrepancy.

38. Mr Matthew Buxton said that the operating life of a motor could be as high as 10,000 hours. He accepted that the hours an engine had been run was a factor relevant to its price but stated that there were other factors which also governed the price of an engine.

39. Mr Matthew Buxton gave evidence that he had been out of the office from August 2014 to March 2015 and after his return had not been on the front line (ie in a sales role) but working as a mechanic. Mr Matthew Buxton stated that he had only spoken to Mr Osman in June 2015 because he had dealt with him previously. Mr Matthew Buxton asserted that that a second hand motor would not include a propeller unless that was requested. Mr Matthew Buxton did not explain why the respondent had not responded to emails from Mr Terrill complaining of the absence of a propeller by stating that they were not obliged to provide one.

40. Mr Matthew Buxton gave evidence of the medical condition by reason of which he had been away on extended leave in 2014 and 2015 and accepted that that medical condition had led to a diminution in his memory.

41. In reply evidence, Mr Osman asserted that he had asked Mr Matthew Buxton in the conversation on 23 June 2015 “Will you give the same warranty as the previous motor, that is 12 months?” Mr Matthew Buxton had said “Yes”. Mr Osman had stated “Even if we have my mechanic fit the motor?” Mr Buxton had stated “Yes”.

Consideration

42. Before considering the applicants’ claim I must determine that the Tribunal has jurisdiction to determine the claim.

43. The respondent is a supplier within the meaning of s79D of the Fair Trading Act 1987 (NSW). That is a person who in the course of carrying on a business supplies goods. The applicants are consumers within the meaning of s79D of the Fair Trading Act. That is natural persons to whom the respondent has supplied or agreed to supply goods.

44. The claim by the applicants is a consumer claim within the meaning of s79E of the Fair Trading Act in that it is a claim for the payment of a specified sum of money which arises from a supply of goods by the respondent to the applicants.

45. The Tribunal therefore has jurisdiction to determine the applicants’ claim pursuant to s79I or s79J of the Fair Trading Act.

46. The critical issues I need to determine are:

1. Whether the respondent represented in a telephone conversation in June 2015 that the motor had only 800 to 1,000 hours;

2. Whether the warranty provided to the applicants by the respondent was a 6 month or 12 month warranty, and

3. Whether the damage to the motor was covered by the warranty.

47. In respect of the first two issues the critical evidence is that of the conversation between Mr Osman and Mr Matthew Buxton on 23 June 2015. There are conflicts in critical respects in Mr Osman’s and Mr Buxton’s versions of that discussion.

48. In general I prefer the evidence of Mr Osman over that of Mr Matthew Buxton where it differs. In critical respects Mr Osman’s evidence is corroborated by his contemporaneous note, whereas Mr Matthew Buxton gave evidence that his memory had been affected by the medical issues he had experienced.

49. In particular I find that Mr Matthew Buxton did represent to Mr Osman that the engine had 800 to 1,000 hours. In reaching this conclusion I not only rely upon Mr Osman’s hand written contemporaneous note but also upon the facts that the applicants had sent the email of 20 August 2015 referring to the representation concerning the hours before any issues had arisen with the engine and that the respondent did not in any reply to that email or in any other way at that time contradict the assertion in the email concerning the represented hours.

50. I further find that the warranty supplied was a 12 month warranty. Again I rely upon Mr Osman’s hand written contemporaneous note. Although Mr Matthew Buxton asserted that the “Conditions of Sale” document in Exhibit 1 set out the terms of the warranty, he did not suggest that that document was provided to Mr Osman in June 2015. The fact that the applicants had to provide the engine number to the respondent before the respondent was able to supply a tax invoice confirms my view that no paper work, and in particular no documents relating to any warranty were provided at the time the motor was supplied. It also corroborates Mr Osman’s evidence that Mr Matthew Buxton suggested he must have sent the wrong motor, as that would explain the discrepancy between the representation made by Mr Matthew Buxton and the motor actually delivered. Of course it does not excuse the discrepancy.

47. To the extent it is necessary, I determine that the engine was provided without the parts which should have been supplied including a propeller. However this may have little significance as the applicants do not seek compensation in this regard.

48. The respondent submitted that I should look to the tax invoice to determine what was to be supplied but, as that invoice was only provided on 20 August 2015, well after the event, I do not consider that that provides any persuasive evidence in that regard.

49. I also find that the cause of the damage was over-cooling owing to a faulty thermostat. I accept the evidence of Mr Colin Buxton concerning the damage to the engine. I find that the engine was damaged through detonation which was a consequence of the over-cooling. Although Mr Colin Buxton was clearly not a disinterested witness he appears to be appropriately qualified to give evidence of the cause of the damage to the engine and there was no evidence filed in response from the applicants.

50. However the question then arises whether the damage is covered by the warranty.

51. I find that the faulty thermostat and the consequential damage was a major defect in the motor which arose within the warranty period and which was not rectified within a reasonable time by the respondent.

52. I find that the consequential damage to the motor was covered by the warranty. I find that the applicants were not at fault. I find they had the motor serviced at appropriate intervals. I do not find that the applicants ran the motor when any fault was apparent to them.

53. I find that the representation concerning the hours the motor had operated was misleading and deceptive conduct in trade and commerce contrary to s18 of the Australian Consumer Law (ACL).

54. I also find that the respondent has failed to honour an express warranty contrary to s59(2) of the ACL. For this purpose the applicants were consumers within the meaning of the ACL as the price of the goods was less than $40,000 (s3 of the ACL).

55. Moreover, I find that, in the conversations between Mr Osman and Mr Matthew Buxton on 27 June 2015, Mr Osman complained of the discrepancy in the hours on the motor and Mr Buxton promised to “fix you up” in that regard. I find that by those conversations a contract was formed between the applicants and the respondent by which the respondent agreed to compensate the applicants for the discrepancy.

56. I turn to the question of what compensation the applicants are entitled to.

57. As noted above the applicants do not seek compensation for the parts not supplied or for their loss of income following the breakdown of the motor. The applicants seek compensation for the diminished value of the engine.

58. The appropriate measure of damages for a breach of s18 of the ACL which results in a person acquiring something which was not as represented is generally the difference between the price paid and the actual value of the goods (Potts v Miller (1940) 64 CLR 282 at 297-299).

59. This would also be the amount which the respondent would be liable to pay to the applicants pursuant to the agreement to “fix you up” in respect of the discrepancy in hours.

60. However, there is no direct evidence before me of the difference in value between an engine which has been run for 1800 hours and an engine which has been run for 1000 hours. Although difficulty in estimating damages will not prevent the Tribunal making an award of damages for misleading and deceptive conduct of for breach of contract (Fink v Fink (1946) 74 CLR 127 at 143; and see also Commonwealth v Amann Aviation (1991) 174 CLR 64 at 83, 118 and 138):

“[A claimant] cannot recover substantial as opposed to nominal damages unless he proves both the fact and the amount of damage. … If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages … he must put the Tribunal in the position of being able to quantify the damage he has suffered” (JLW (Vic) Pty Ltd v Tsiloglau (1994) 1 VR 237 at [9] [citations omitted].)

65. The applicants have failed to tender any evidence upon which I could assess the loss flowing from the misrepresentation concerning hours or from the respondent’s breach of the agreement to “fix you up” in respect of the misrepresentation. This is not a case of difficulty of estimation, it is not the case that evidence of the difference in value could not have been led. It is simply a case of absence of evidence. I am therefore unable to award separately any substantial damages for breach of s18 of the ACL or for breach of the contract to “fix you up”.

66. The measure of damages for the respondent’s failure to honour the express warranty would ordinarily be the cost of repairing the motor. However, in the particular circumstances of this case I do not consider that that would adequately compensate the applicants. The applicants were placed in a difficult position in January 2016. That was the busiest and, I infer, the most profitable time of year for the applicants’ business. They were unable to conduct their business without a motor for their boat.

67. The respondent had denied liability to repair the motor under warranty and had only offered to repair it if the applicants waived any further rights against the respondent. Moreover the respondent was suggesting the repair would take 4 to 6 weeks. During that time, Mr Osman’s evidence suggests that the business would have lost revenue of $20-30,000 and profits of $17-25,000.

68. In those circumstances the applicants, reasonably, mitigated their losses by acquiring a new motor and effectively surrendering the old one to the respondent. The damage sustained by the applicants was the value to them of the remaining life of the motor.

69. In my view a reasonable way to determine that value is to calculate the proportion of the expected usage of the motor that the applicants had received at the time it broke down.

70. Mr Osman’s evidence was that he had used the motor for about 700 hours before it broke down and that he had got about 3800 hours use out of his previous motor. Allowing for the higher usage which the motor had had at the time of purchase (1,800 hours rather than 400), the applicants had used the motor for about 30% of the life they were entitled to expect. On that basis they lost 70% of the value of the motor. Seventy percent of the purchase price would be about $9,000.

71. If the value lost is calculated by reference to the hours Mr Osman expected the motor to have, the applicants’ usage was just over 20% of that expected, so that the applicants lost about 80% of the value of the motor. Eighty percent of the purchase price of $12,800 would be about $10,000.

72. There is some justification for calculating the loss on the basis of the represented hours rather than the actual hours. Any discrepancy in the value so calculated would reflect the difference in value between the motor as delivered and the motor as represented. If damages had been awarded for that difference, it would clearly be appropriate to calculate the lost value of the motor by reference to the actual hours. However, I have not awarded damages for the difference and therefore I consider it would not be inappropriate to calculate the lost value by reference to the represented hours.

73. The amount claimed by the applicants in the application was $9,500. Although the applicants calculated that figure on a different basis to that which I have utilised above, I consider, doing the best I can on the evidence, that the amount claimed by the applicants represents a fair assessment of the applicants’ loss and I assess the damages to which the applicants are entitled in respect of the respondent’s failure to honour the express warranty at $9,500.

D A C Robertson

Senior Member

Civil and Administrative Tribunal of New South Wales

15 September 2016

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 18 November 2016