The Queensland Court of Appeal recently allowed an appeal by a Plaintiff who had purchased defective speedboat engines from the Defendant.
The decision provides useful guidance regarding the assessment of losses arising from breaches of s54 of the ACL (implied guarantee that goods will be of acceptable quality) in particular:
- whether expert evidence of reduction in value must be provided to substantiate the loss;
- whether provision of replacement items at no cost remedies a failure to comply with the guarantee; and
- whether compensation for breach of the implied guarantee of acceptable quality extends to the replacement cost of defective equipment.
Facts
In 2006 the Plaintiff purchased a recreational speedboat fitted with Volvo engines and Volvo sterndrives. In 2012 the Plaintiff replaced the engines and sterndrives with Yanmar engines and sterndrives purchased from the Defendant at a total cost of $124,850 ($62,425 per engine and sterndrive package). The Defendant imported the engines and sterndrives into Australia and was deemed to be the manufacturer of those items under the ACL.
The equipment suffered from various performance issues including:
- complete failure of one of the engines (with the engine being replaced under warranty by the Defendant);
- complete failure of both sterndrives after 180 hours of operation (with both sterndrives being replaced under warranty by the Defendant); and
- complete failure of the replacement sterndrives after 220 hours of operation.
The equipment suffered 10 failures between November 2012 and February 2018. At the time of the trial the vessel was on a hard stand and the replacement sterndrives had been removed but new sterndrives had not been installed.
The engines remained fitted to the vessel.
The Plaintiff commenced proceedings against the Defendant alleging breach of contract and failure by a supplier or manufacture of goods to comply with a consumer guarantee under the ACL.
The Plaintiff sought the following damages:
- $145,068 being the cost of replacement equipment with new Yanmar engines and sterndrives; and
- $4,000 for the cost of removing the equipment and fitting the replacement equipment.
The primary decision
The Plaintiff was partially successful at first instance in the District Court. The primary judge found that the Yanmar equipment did not comply with the consumer guarantee of acceptable quality in s54 of the ACL.
The primary judge had identified the following difficulties with the Plaintiff’s case:
- the Plaintiff had not led any evidence to allow a calculation in the reduction in the value of the Yanmar equipment because of the breach of the guarantee;
- the Plaintiff had not led any evidence proving that the cost of replacing the Yanmar equipment was the amount claimed; and
- the calculation of the reduction in value of the Yanmar equipment had to take into account the fact that the engines (which were still fitted to the vessel) remained in sound mechanical order.
The primary judge assessed damages of $8,069 (the cost of lifting the boat out of the engines and repairing the engines) on the basis that this was a loss or damage which was reasonably foreseeable as a consequence of a failure to comply with the guarantee of acceptable quality under the ACL.
The primary judge did not include any allowance for the cost of replacement equipment or removal of the old equipment and installation of replacement equipment. The judge found that the Plaintiff had not proved an entitlement to damages for reduction in value of the Yanmar equipment because of the breach of the consumer guarantee.
Unsurprisingly, the Plaintiff appealed the decision.
The appeal
The Court of Appeal noted that there was no general principle that a court could not assess the reduction in value for the purposes of assessing damages under the ACL without expert evidence. The Court further noted that the need for such evidence would depend upon the individual circumstances of each case.
The Court rejected the Plaintiff’s contention that the reduction in value was the entire purchase price paid for the equipment. The Court noted that this required it to accept that the Yanmar equipment had a value of nil at the date of supply because a fully informed customer would regard the equipment as being completely useless.
The Court found that because the Plaintiff had been able to use the vessel after the installation of the Yanmar equipment, albeit punctuated by failures, the equipment could not be characterised as “completely useless”.
With regard to the assessment of damages, the Court observed that it was necessary to make an objective assessment of the significance of the failures and the extent to which the utility of the equipment had been reduced. The Court assessed this reduction in value at 50%.
The Court rejected the Defendant’s argument that because the Plaintiff did not pay for the replacement sterndrives, there could be no reduction in the value of the equipment. The Court noted that because the replacement sterndrives were supplied in an attempt to rectify the equipment failure there was no reason that this would preclude an entitlement to damages for reduction in value of the equipment.
The Court rejected the Plaintiff’s claim for the replacement cost of the equipment, noting that s272 of the ACL did not create an entitlement to recover the replacement cost of defective goods.
Accordingly, the Plaintiff’s appeal was allowed and the Plaintiff’s award of damages increased by $62,425 (to reflect the reduction in value of the equipment) to give a total award of damages of $70,494 plus interest.
Commentary
Defective pleasure craft engines can cause significant expense and inconvenience for both the owner of the vessel and the supplier of the engines or the mechanic tasked with trying to rectify them. If proceedings are commenced, it is usually after costly and time consuming investigations and attempted repairs. By this point, relations between the parties have likely become hostile, with emotion clouding each party’s assessment of whether damages are payable and if so, the amount of any damages.
In light of these factors, the decision provides useful guidance to the assessment of damages where a breach of s54 of the ACL is alleged. In particular, the decision highlights that:
- there is no general rule that damages for reduction in value cannot be assessed without expert evidence, it will depend upon the circumstances of each case. (However, it would be prudent to obtain such evidence if pursuing such claims.);
- providing replacement items at no cost will not immunise a supplier from potential liability under the ACL, especially if the replacement items have not remedied the defect; and
- s272 of the ACL does not create an entitlement to recover the replacement cost of defective goods (rather than the reduction in value of the items).
This article was written by Anthony Highfield, Partner and James McIntyre, Special Counsel.
