The respondent in this case had purchased a catamaran for his own enjoyment. Defects were subsequently discovered in the boat and at first instance the respondent was awarded damages on the basis that there had been a breach of the implied condition of “merchantable quality” in s 17(c) the Sale of Goods Act 1896. On appeal the appellants contended that they could not be liable for any breach of the implied condition of merchantable quality because they, as opposed to their company, were not a “seller who deals in goods of that description”. The appellants also argued that the primary judge had erred in using the “interest on the capital value of the chattel method” to assess the damages for loss of use of the catamaran. The Court of Appeal unanimously rejected the appeal.
Sofronoff P and Morrison JA and Flanagan J
10 September 2019
The appellants were the directors and shareholders of Suncoast Marine Pty Ltd, which was in the business of constructing and selling boats. . In 2007 the appellants, through another company, advertised a catamaran for sale, which was advertised as having been constructed by Suncoast Marine. . Mr Pix purchased that catamaran and shortly after found that large blisters began to form on the paintwork. .
At first instance Holmes CJ found that certain aspects of the boat’s construction had been done negligently, and that the appellants personally had been the sellers under the contract of sale. , . Her Honour found that the appellants had breached a condition as to merchantable quality implied in the contract by reason of s 17(c) of the Sale of Goods Act 1896 (the Act). . Her Honour awarded damages to Mr Pix for the decrease in value attributable to the breach, and an additional amount for the period in which the boat was being repaired (the “loss of use” damages). –.
On appeal the appellants argued that her Honour erred in concluding that warranty under the Act applied, and erred in relation to the calculation of damages for loss of use. . The appellants were unsuccessful in establishing error on either issue (with reasons given by Flanagan J, with whom Sofronoff P and Morrison JA agreed). –, .
The application of the Sale of Goods Act 1896 argument
The appellants argued that they were not a “seller who deals in goods of that description” (i.e. boats) for the purposes of s 17(c) of the Act, such that the implied warranty would apply. . They contended that although Suncoast Marine may have been such a seller, the same could not be said of themselves personally. , .
In relation to these arguments, Flanagan J noted that the objective circumstances and documentary evidence revealed that the catamaran, prior to sale, had been the property of a partnership between the appellants. . His Honour noted that “[b]y definition, the members of the partnership, being the [appellants], must have carried out a business with a view to profit – otherwise it would not have been a partnership at all”. . The natural inference in the circumstances was that the business was for constructing vessels with a view to profit by way of sale. –.
As to the argument that the appellants were not a “seller who deals in goods” of the relevant kind at the time of the sale, because they had decided to end the business, his Honour observed that (at ):
“An analogy can be drawn between the present facts and a closing down sale. It cannot be suggested that a dealer liquidating its existing stock can eschew its label as dealer simply because it does not intend to source more stock once its existing stock is sold.”
Accordingly, his Honour concluded that there had been no error in the conclusion by the primary judge that the Sale of Goods Act 1896 implied warranty arose in this case. .
The calculation of damages of for loss of use argument
At first instance Holmes CJ had awarded damages for loss of use by applying the practice direction rate of interest (10 per cent per annum) on the capital value of the catamaran at the time it was being repaired (for a period of 230 days attributable to the breach). –. The appellants argued that this was the wrong method of calculation, primarily because the catamaran was used only for pleasure (rather than for a commercial purpose). . Instead, the appellants argued that the correct approach would be to “confine damages for the loss of use in the case of chattels owned for enjoyment to the amount by which the chattel depreciates in value while it cannot be used”. .
Flanagan J rejected this argument. Firstly, as the primary judge had observed, it was “settled principle” that the owner of a chattel is entitled to damages for the deprivation of use of a chattel per se, without requiring any evidence of a financial loss (citing The Mediana  AC 113). . Evidence of specific financial loss may result in a greater award of damages. . Although there was no “special sanctity about any particular method” of arriving at an award of damages in this context (quoting Lord Citrine (Owners) v Hebridean Coast (Owners)  AC 545), the interest on capital value method – as applied by the primary judge – had become the “orthodox approach”. , . It had been applied, for example, in relation to the loss of use of a game fishing vessel used for recreational purposes (in Yates v Mobile Marine Repairs Pty Ltd & Anor  NSWSC 1463, per Palmer J). . Although the alternative approach contended for – the depreciation method – had been applied elsewhere, it was “difficult to discern any intrinsic reason why … [it] fairly reflects the loss sustained” (cases in which this approach had been applied included two first instance decisions of Derrington J in the Federal Court – e.g.  FCA 1517). .
On the basis that the primary judge’s approach was consistent with the settled principles described above, Flanagan J was not satisfied that any error had been made in the assessment of damages for loss of use. .