Smith v Brian Ross McRae T/As Er and Im McRae Engineering - [2002] WADC 15

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: SMITH -v- BRIAN ROSS McRAE T/AS ER & IM McRAE ENGINEERING [2002] WADC 15

CORAM: LA JACKSON DCJ

HEARD: 21-23, 25 JANUARY 2002

DELIVERED : 1 FEBRUARY 2002

FILE NO/S: CIV 3274 of 1996

BETWEEN: TERENCE PETER SMITH
Plaintiff
AND
BRIAN ROSS McRAE T/AS ER & IM McRAE ENGINEERING
Defendant

Catchwords:

Breach of contract - Survey of a launch - Failure to detect faults

Legislation:

Fair Trading Act, s 10

Result:

Judgment for plaintiff for $105,000

Representation:

Counsel:

Plaintiff: Mr M J Hawkins
Defendant: In person

Solicitors:

Plaintiff: Bostock & Ryan
Defendant: Not applicable

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Nil

LA JACKSON DCJ: The plaintiff's claim is for damages being the difference between the price paid for a pleasure launch and its real value. The "Grantala" is a 50 foot wooden launch built in 1939. On 13 April 1995 the plaintiff offered to purchase from Barry James White the "Grantala" together with some other equipment and a spare diesel motor for $131,000. The offer was subject to a number of special conditions one of which was:
"Subject to in water inspection including satisfactory mechanical report."
The "Grantala" was moored in the Bunbury inner harbour.
At about midday on 13 April 1995 the plaintiff and the vendor's agent Anthony George Lynton‑James went to the defendant's premises in Bunbury.
The defendant carries on business of marine engineering in Bunbury. The plaintiff says, and I accept, he asked the defendant to do a survey of the "Grantala". The defendant does not dispute he was asked to do a survey. The plaintiff says he advised the defendant that he made an offer on the "Grantala" subject to a survey report. The defendant says he was asked to check the engines and for an insurance report.
Although at the end of the day it may not matter why the survey was being done, I accept the evidence of the plaintiff. His evidence is consistent with the objective fact as contained in the Offer to Purchase that it was subject to survey and if an unsatisfactory survey report had been obtained he would not have been required to proceed with the purchase. In the circumstances it was logical that he should be seeking a survey for the purpose of deciding whether or not to proceed with the purchase. The plaintiff denied there was any conversation about a survey for the purpose of insurance and said he had been the owner of a number of boats and did not need to take out a fresh policy but rather to simply change the details of the boat insured from time to time. In particular the plaintiff's evidence was that his purchase of the "Grantala" was not subject to finance and therefore insurance was not a necessity. This tends to support the plaintiff's position.
The defendant said the plaintiff asked him to check the engines, but only to ensure they were adequate for a journey from Fremantle to Rottnest Island. The plaintiff denied that limitation. He said he asked the defendant to check the engines but agreed to a fairly limited test by running them for a time. The plaintiff agreed there was some conversation about going to Rottnest. I do not accept the defendant's evidence with regard to the engine tests. Such a limited test is not logical. More objectively, White was to motor the "Grantala" from Bunbury to Fremantle; a journey many times that from Fremantle to Rottnest. If that journey had been undertaken satisfactorily it would have demonstrated the capacity of the engines.
The plaintiff says, and I accept, that after having asked the defendant to prepare the survey he asked for it to be faxed. He telephoned his wife to obtain her work fax number in Perth so that the defendant could fax the survey to him. The plaintiff's wife gave evidence confirming that conversation and the fact that she received the survey report.
The defendant denies having faxed the report to the plaintiff's wife and says he faxed it to the vendor's agent for insurance purposes. He referred to a fax of 19 March 1995 in cross‑examination of the plaintiff but that was later found to be a mistake and nothing turns on it. The vendor's agent was Anthony George Lyndon‑James. Although he was asked some questions about insurance, he was not asked whether the survey report was faxed to him. The evidence is that it was faxed to the plaintiff's wife. Although by itself it would not be determinative, it tends to support the plaintiff's case that the survey was to ascertain the condition of the "Grantala" so as to decide whether to purchase her.
The defendant denies he had held himself out to be a marine surveyor. In support of his argument he produced a copy of the invoice sent to the plaintiff for the cost of doing the survey, namely, $150. That invoice refers to the plaintiff's business of that of marine engineering and further includes the following:
"For specialised welding of – aluminium – magnesium – stainless steel dye cast – bronze and all other alloys – repairs to small boat refrigeration – agents for JRC radar sounders, GPS instruments, Hempel marine paints and antifoulings."
The date of the invoice is simply 4/95 but clearly it would have been raised after the work had been done. On the other hand the survey report, after the heading of the name of the plaintiff's business and its business of marine engineering, has a heading "Marine craft survey report". It gives the details of the plaintiff as owner his address in South Fremantle, the name of the vessel and where it is to be inspected and the fact that it is to be inspected afloat. It then has a number of sections and two columns headed "Accept" and "Non accept". Clearly those columns are to indicate whether or not each particular item is in acceptable condition or is not in acceptable condition. There is also a column for comments/details/description. Nowhere in the report is there any provision for valuation of the vessel or any of its equipment. There is a final paragraph headed General Remarks and Recommendations. At the end of the document under the heading "Authorised Marine Surveyor" the defendant had printed his name and signed the report dating it 13/4/95.
The defendant argues this is the type of form used for an insurance survey so as to provide simply an inventory of what it is the insurance company would insure.
Mark Roy Payne, an experienced shipwrite, disagreed. He said an insurance form is one that sets out the value of the vessel and its component parts. No such information is contained in the survey report. The only reference to the question of insurance is on the foot of the form where there is a line to fill in the name of the insured and for the insured to sign it. That part has been left blank and there is no signature. The defendant disagreed with Payne. His evidence was that sometimes an insurer would require a valuation, sometimes not. It may well be that sometimes an insurer does not require a valuation but as a matter of common sense, the value would be of interest to an insurer. The absence of any valuation in the survey report, whilst not being determinative, tends to indicate the report was not for insurance.
By using the form and by signing as an authorised marine surveyor, in my opinion, the defendant was holding himself out to be a qualified surveyor and, on the face of the document, was providing a survey which is not limited to insurance purposes. A survey of a vessel is, as David Arthur Kenny an experienced marine surveyor said, a survey is a report for the seaworthiness and the condition of a boat.
In the absence of any objective evidence to the contrary, I accept the plaintiff required the survey of the defendant, making it clear to the defendant the purpose for which it was required, namely, to decide whether or not to purchase the "Grantala" and that the defendant agreed to do so and that in providing the report on the form he did he held himself out to be a marine surveyor. I accept the plaintiff relied on the survey in completing the purchase.
The main issue in this case is whether the defendant carried out the survey of the "Grantala" in a proper manner. In his report he noted the deck to be in good condition, the cockpit well maintained, the coach house well maintained. He ticked all the "accept" boxes except one relating to engine seacocks. These ticks could only be taken to mean the defendant was certifying each item to be in acceptable condition. The defendant concluded with the following general remarks:
"Although an old boat, it is in well maintained condition. The vessel was slipped in January where I had occasion to casually inspect the hull whilst antifouling and all appeared in sound condition. I have run both engines and both started immediately, ran smoothly and had no unusual noises. That and a visual inspection would indicate that the engines are in reliable and satisfactory condition."
Both Payne and Kenny gave evidence as to the proper method of inspection and in particular with respect to wood rot. Wood rot is a condition of timber which removes its integrity. The wood rot results in timber ceasing to have any body or strength. It can be seen by blemishes on the paint work but more importantly by a drummy sound when tapping the surface with a small hammer and if necessary by using a bradawl or a pen knife or some other sharp instrument to see if the timber can be easily pierced. These inspections were done by Payne and Kenny and extensive dry rot was found in the super structure of the "Grantala". The evidence of Payne and Kenny was that dry rot is a very slow process and there would have been no material difference between the state of the dry rot in the "Grantala" when it was discovered in December and its condition when it was inspected by the defendant in April.
Accordingly I consider no adequate inspection was carried out by the defendant and accordingly the survey was not done in a proper and competent manner.
In the survey report the defendant used the expression "well maintained" on a number of occasions. In his evidence he said that he merely meant that it was clean and tidy. I do not accept that "clean and tidy" could reasonably be meant to mean the same as "well maintained". Whilst I do not think this indicates a deliberate attempt by the defendant to mislead the Court, I do consider there to be an inconsistency between the words used in the form and his explanation which does not reflect well upon the reliability of his evidence.
The defendant put to Kenny that a surveyor cannot simply poke holes in a boat without the owner's permission. I would accept that to be the case. In this case he did not seek the permission either of the plaintiff or of the vendor. The defendant's duty in carrying out a proper survey was to seek and obtain the requisite permission to properly inspect the "Grantala". If such permission was not forthcoming then his responsibility was to advise the plaintiff that he could not carry out such an inspection. That would have put the plaintiff on notice that the condition of the "Grantala" had not been properly surveyed. No such advice was given. The defendant having agreed to carry out the survey is, in my opinion, obliged to do so properly. If he cannot do so because he is refused the appropriate consent, then his duty is to warn the plaintiff of that fact. The defendant says he was carrying out the survey for insurance purposes. For reasons I have already stated, I do not accept his evidence in that regard. But even if it were so, he still has a duty to carry out a survey in a proper and competent manner. The plaintiff was to receive the survey even if it was done for insurance purposes. It does not excuse the defendant in his failure to carry out a proper survey by saying its purpose was not that stated by the plaintiff.
I note that while the owner was on the boat whilst the inspection was taking place. There was no suggestion by either the defendant or White that the defendant asked White if he could perform an inspection involving the making of holes to check for wood rot.
The defendant complained he had limited time to perform the survey because the "Grantala" was to leave Bunbury on 12 April 1995. In his evidence White initially agreed he was to leave Bunbury on the Wednesday, but later it appears he did not leave until either Thursday or Friday. Lyndon‑James said his understanding was that the "Grantala" was to be delivered in Fremantle on the Saturday. I do not accept the defendant only had a couple of hours to perform the survey. If he did, and that was inadequate, his responsibility was to advise the plaintiff that he had been unable to complete a proper survey. He did not do so.
The defendant said he told the plaintiff the survey would cost $150. It was payable by the plaintiff, not an insurer. The plaintiff was invoiced and presumably paid for the survey.
White, the vendor, described the "Grantala" as being in good condition and in particular he described the condition of the decks as having been re‑surfaced by him. In particular he said he had raked out all the old corking and re‑done it. That is clearly contrary to the evidence of Kenny whose evidence I prefer. White agreed there was a condition in the contract that the Offer to Purchase was subject to a survey and a mechanical inspection. He said there had been talk of insurance afterwards.
Lyndon‑James was the marine broker who negotiated the sale of the "Grantala" to the plaintiff. He was clearly the agent of the vendor. He described the "Grantala" as having been in very good condition. Clearly that is a superficial view of the vessel and to the extent that it is contrary to the evidence of Kenny I prefer Kenny's evidence as to its true condition. Kenny himself agreed that at first glance the deck Appeared to be in reasonable condition. Lyndon‑James produced photographs purporting to show the deck of the "Grantala" in good condition. It certainly appears so, but they are not clear enough to offset Kenny's evidence to the contrary. The photographs were not shown to Kenny for his comment. Lyndon‑James gave evidence in relation to insurance but it seems all fairly indefinite as to when the boat was insured. His evidence did not contradict the plaintiff's evidence on the issue.
The plaintiff claims the defendant is liable for misleading and deceptive conduct contrary to s 10 of the Fair Trading Act. I do not accept that Act creates a liability on the defendant. Had the vendor acted in a way to conceal the defects of the "Grantala" that might well have been the case. I do not consider that legislation has application to a surveyor preparing a report.
The "Grantala" was delivered to the plaintiff in Fremantle a few days later. On a trip to Rottnest shortly afterwards the plaintiff noticed there was more water in the bilge than he expected would have occurred. Later, he noticed some cracks appearing. The plaintiff decided to enquire of Payne the cost of rectifying the work. Payne quoted $16,000 for repairs. Payne also indicated to the plaintiff that the boat appeared to be in poor condition so the plaintiff decided to have Kenny of whom he was an acquaintance of many years standing to do a proper survey. This was done in December 1995 and extensive wood rot and other faults were discovered.
It is sufficient to quote two paragraphs from Kenny's report to indicate the extent of damage found by him:
"On examination, it was apparent that extensive rot existed in the coach house in particular, the bridge area, cabin sides and almost the complete upper screen structure. There was almost no area of the coach house that could not be faulted, either through dry rot or poorly inserted pieces to patch up rot which had been cut out. Photographs have been taken to emphasise the extent and seriousness of the problems."
I interpolate to note that the photographs tendered together with the explanation of them certainly support that paragraph.
"The plywood underlay in the peak or forward cabin area when probed from below proved to be quite extensively rotten. It was also noted while in the forward cabin that the rot in the port bulkhead above the lower bunk has been caused by the fact that the metal sink and drainer supports have collapsed and the water runs over onto the bulkhead."
In his report Kenny noted in the aft compartment:
"The fire extinguisher bell horn was connected to a piece of rusty pipe which was not connected to anything."
The defendant was highly incensed by this aspect of Kenny's report. It seems the fire extinguisher bell horn was totally redundant having been relevant to original petrol engines fitted to the "Grantala" when she was built in 1939. The diesel engines apparently had been in the boat for many years and accordingly the fire extinguisher bell horn had nothing to do with it. The defendant had on his survey found three fully operational fire extinguishers which were adequate as fire protection.
Kenny in his evidence agreed with the defendant's proposition but said his criticism was more that there was a piece of rusty pipe in the aft compartment and that rust when falling into the bilges could cause damage to any vessel. Unfortunately Kenny's report does not make it clear that this is the basis of his criticism and I can understand and sympathise with the defendant's concern particularly as the paragraph found its way firstly into a letter of demand by the plaintiff's original solicitors and then into the statement of claim. The defendant seemed to think that its use indicated some bad faith on Kenny's behalf or on the plaintiff's behalf but I do not think that a fair inference. It has perhaps been given more prominence than justified but at the end of the day that is really all that can be said.
The plaintiff and Kenny had been acquaintances for about 20 years. The defendant suggested Kenny's evidence was coloured by that acquaintance. I do not accept that suggestion. Kenny was an obviously competent expert on wooden boats. His evidence of the condition of the "Grantala" was supported by Payne. His evidence of valuation was supported by the fact of the price paid to the plaintiff.
Richard Arthur Rodney Maiden said he had had a discussion with the plaintiff who had come to see him after he had been to the defendant's premises. He said he was asked by Smith about the previous slipping of the boat and any knowledge he had of her. He said he would have advised the plaintiff about the possibility of dry rot. He said he did have a discussion with the plaintiff about replacing the sides of the cabin with polished teak. At the end of the day whilst I am satisfied Maiden is an honest witness, I do not think I can rely on the accuracies of his evidence where specific details are concerned. I think he was simply doing his best as to the nature of the conversation. The plaintiff denied having spoken to Maiden about replacing the sides of the cabin with teak. Again, I think this is the plaintiff doing his best rather than it necessarily being accurate. At the end of the day any question of the possibility of replacing the cabin sides with teak or indeed of sanding them down and polishing them to look like teak is a question of detail and it is not essential to the particulars of the case. I am uncertain whether or not there was a conversation between Maiden and the plaintiff about the replacing of the sides of the cabin with teak. That does not result in my having any uncertainty about the nature of the conversation between the plaintiff and the defendant when the survey was requested. That request was a specific response to the first condition on the offer to purchase the "Grantala".
In his closing address counsel for the plaintiff suggested I should find the defendant in a number of respects attempted to mislead the Court. He said I should draw that implication from the fact that he now claims the report was an insurance survey and points out that was not pleaded as part of the defence. Whilst it is possible there could have been some misunderstanding between the defendant and his solicitor, the nature of the survey, on the defendant's evidence, is of primary significance to his defence. I think it unlikely it would not have been pleaded if it was so important. This leads me to have some doubts as to the reliability of the defendant's evidence on this point. I do not consider the evidence in relation to the fax confirmation slip should be used in any way adverse to the defendant. It seemed to me that was a genuine error. I do not consider the defendant's arguments based on Exhibit 9, the form of invoice, to be misleading.

The plaintiff obtained a quote from Payne to repair the faults found by Kenny in the sum of $101,300 excluding materials. In Kenny's opinion (which I accept) the condition of the vessel did not justify such expenditure. The plaintiff was advised and decided to sell the "Grantala". It was put on the market in March 1996. An offer of $25,000 was received. It was eventually sold in July 1996 for the sum of about $52,000. Exhibit 8 refers to a price of $48,000. The plaintiff said he actually received close to $52,000 including the spare motor. White's evidence was that the sale price was $130,000, which was increased by $1,000 for the spare motor. In his opening counsel for the plaintiff referred to brokerage, but no evidence was given.
Kenny's opinion was that the "Grantala" was worth about $50,000 as of April 1995. I accept that evidence. It is reasonably consistent with the evidence of sale.
The actual purchase price of the "Grantala" was $130,000. It was sold for $52,000 including the spare motor so the "Grantala" was sold for $51,000. The plaintiff's loss is $130,000 less $51,000, namely $79,000.
The defendant pleaded the plaintiff failed to mitigate his loss. It was suggested he should have taken the "Grantala" out of the water. I do not accept that would have been likely to have preserved her. The under water seams would probably have opened. The cost of dry storing the boat at $30 per day was much more than the cost of a pen.
Interest is claimed. It should be allowed. I think 5 per cent is a reasonable rate over the last six years or so. 5 per cent per annum on $79,000 for 6‑3/4 years is $26,662.50. That can be rounded to $26,000. $79,000 + $26,000 = $105,000.
There should be judgment for the plaintiff for $105,000.