This case concerned the calculation of damages for breach of an implied warranty of merchantable quality. The relevant chattel was a catamaran, which was used for pleasure. Notably, in the absence of evidence about the difference between the value of the goods as warranted, and as supplied, Holmes CJ accepted that the court could award damages on the basis of what it cost to bring the ship up to merchantable quality at the time of sale. Her Honour also found that, even though there was no evidence of what use would otherwise have been made of the vessel during the repair period, the plaintiff was nonetheless entitled to damages for loss of use of the vessel while it was being repaired.
8 March 2019
The plaintiff was the owner of a catamaran, the Jalun, which he purchased from the second respondent shipbuilders in 2007. In an earlier judgment, Holmes CJ held that the second respondents had breached an implied condition as to merchantable quality of the catamaran, because of defects that resulted in the paintwork blistering and cracking. .
This judgment concerned the quantum of damages that should be award by reason of the breach. As to the measure of damages, s 54 of the Sale of Goods Act 1896 relevantly provides:
“(2)The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty.
(3)In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value which they would have had if they had answered to the warranty.”
The two key issues for resolution were: (1) how the court should determine the measure of damages for breach of warranty, in the absence of evidence establishing the value of the catamaran at the relevant times required by s 54(3); and (2) whether damages should be awarded for loss of use of the vessel, while it was undergoing repairs.
Issue 1 – how to determine the measure of damages for breach of warranty
Section 54(3) Sale of Goods Act 1896 (extracted above) involves consideration of two values in order to assess damages: the value of the goods as actually supplied, and the value of the goods if they had met the warranty. In this case there was no expert valuation evidence provided for either value. .
The plaintiff contended that the Court could rely on the contract price as establishing the value of the vessel had it answered the warranty, and in the absence of evidence about the market value at the time of delivery, should “award damages on the basis of what it would cost to bring the vessel up to merchantable quality at the time of its sale”. .
Holmes CJ accepted this approach. Her Honour noted that there was no suggestion by the second defendants that “the contract price was not a proper reflection of its value” if it had met the warranty. . As for assessing damages on the basis of what it would cost to bring the vessel up to merchantable quality at the time of its sale, her Honour noted that (at ):
“In this case, the best way of estimating the value of the boat at delivery is to consider what a buyer would have been prepared to pay for it with knowledge not only of its defective state but how its incipient problems would become manifest. The obvious answer is that what the notional buyer would be prepared to pay would depend on what it would cost to fix it.”
Her Honour’s assessment of that figure required a consideration of which repairs were related to the breach of warranty, and an adjustment of the cost of those repairs so that they reflected what it would have cost to do them at the time of delivery of the vessel (in 2007), rather than later (in 2013, as actually occurred). , . The figure arrived at was $418,000. .
Issue 2 – whether damages were available for loss of use
The plaintiff claimed damages for the loss of use of the catamaran while it was under repair (a period of 230 days, attributable to the breach). , . The second defendants sought to distinguish the cases relied on by the plaintiff on the basis that they involved the loss of use of valuable chattels, causing particular consequences. . In this case the catamaran was used for pleasure, and there was “no evidence as to the extent to which the plaintiff would have used the vessel” (had it not been undergoing repairs). .
Holmes CJ accepted that damages for loss of use were available. As Holmes CJ summarised the law (at ):
“The principle which emerges from the cases is that the owner of a vessel deprived of its use for a period by the wrongful act of another is entitled to general damages … It does not matter that the vessel was not being used in profit-making or that its owner had not been put to any expenditure to replace it. It is not necessary for a plaintiff to establish what particular use he or she would have made of a chattel in order to recover damages for the loss of its use.”
As to the measure of damages for loss of use, at least two Australian cases considered that this could be calculated as interest on the capital value of the vessel. . As her Honour described it (at ):
“Calculating interest on the capital invested in the chattel (after depreciation) is a suitable method of assessing damages; the point is that an investment has been made in the item which is capable of yielding nothing by way of return in terms of profit or, in this case, enjoyment, during the period it is incapable of being used.”
After allowing for some depreciation of the value of the vessel by the time of its repair, her Honour calculated interest on the capital value of the vessel, at the practice direction rate (10%) for the period in which the vessel was being repaired. That amounted to $126,000. .
In the result, after allowing for interest on the amounts arrived at (which were calculations of value at earlier periods), her Honour gave judgment for the plaintiff in the amount of $988,458.