New South Wales Court of Appeal CITATION: STOCOVAZ v FUNG [2007] NSWCA 199 HEARING DATE(S): 07/08/2007 JUDGMENT DATE: 15 August 2007 JUDGMENT OF: Basten JA at 1; Handley AJA at 28; Hoeben J at 42 DECISION: 1. Leave to appeal refused; 2. Summons and notice of appeal without appointment dismissed with costs. CATCHWORDS: DAMAGES – DAMAGED CHATTEL – MEASURE OF DAMAGES – COST OF REPAIRS – MUST NOT BE EXTRAVAGANT OR UNREASONABLE LEGISLATION CITED: Civil Procedure Act 2005 (NSW) Supreme Court Act 1970 (NSW) Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 Fung v Stocovaz [2006] NSWSC 1345 CASES CITED: Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478 Kenn v Pickard (unrep, 16 September 2005) Murphy v Brown (1985) 1 NSWLR 131 PARTIES: Janice Rosemary Stocovaz - Claimant On Tai Fung - Opponent FILE NUMBER(S): CA 40117/2007 COUNSEL: Claimant: J. Glissan QC & K.J. Manion Opponent: T. Alexis SC & J. Gruzman SOLICITORS: Claimant: C.K.B. Partners Opponent: Gells Lawyers LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): CL 15618/2005 & 20046/2006 LOWER COURT JUDICIAL OFFICER: Patten AJ LOWER COURT DATE OF DECISION: 08/12/2006 LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWSC 1345 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40117/07 BASTEN JA HANDLEY AJA HOEBEN J Wednesday 15 August 2007 JANICE ROSEMARY STOCOVAZ v ON TAI FUNG DAMAGES – DAMAGED CHATTEL – MEASURE OF DAMAGES – COST OF REPAIRS – MUST NOT BE EXTRAVAGANT OR UNREASONABLE This action sought to recover the costs of repairs to a motor vehicle caused by a collision for which the defendant admitted liability. The defendant argued that the cost of repairs claimed by the plaintiff was unreasonable. A Registrar of the Supreme Court removed the action from the Local Court to the Common Law Division as a test case. The primary judge held that that plaintiff was entitled to be indemnified by the defendant for the actual cost of the repairs, provided that cost was not extravagant. The defendant applied for leave to appeal. HELD: 1. There are two limitations on claims such as this. The claim cannot be for more than the actual cost of repairs, and that cost must not be extravagant or unreasonable. 2. Extravagant and unreasonable in this context are interchangeable terms. The Pactolus (1856) Swab 173 applied. ORDERS 1. Leave to appeal refused. 2. Summons and notice of appeal without appointment dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40117/2007 BASTEN JA HANDLEY AJA HOEBEN J WEDNESDAY 15 AUGUST 2007 JANICE ROSEMARY STOCOVAZ v ON TAI FUNG Judgment 1 BASTEN JA: This application for leave to appeal is said to involve an important point of principle in relation to the quantum of damages recoverable for damage caused to a motor vehicle by the negligence of another driver. The issue was said to be one of importance because its resolution would, at least on one view, diminish or stem entirely a flow of litigation in the lower courts. Although the matter commenced in the Local Court, it was removed to the Common Law Division, where Patten AJ was invited to answer certain questions. The claimant seeks leave to appeal from answers given by Patten AJ on 8 December 2006. 2 The general problem was said to arise in circumstances where there is agreement as to liability, but the defendant's insurer seeks to put in issue the amount of damages recoverable, ultimately, from it. The point is raised, so it is said, by the defendant putting on evidence from a loss assessor stating that whatever repairs were necessary could have been effected for a price some 20% (say) below the actual cost of repairs to the plaintiff. The Court was taken to a judgment of Magistrate Lulham in a matter of Kenn v Pickard (unrep, 16 September 2005) in which his Honour noted that the amount in issue was frequently between $3,000 and $4,000. The dispute may take three or four days to be heard. His Honour commented at [26]: "It is hard to escape the conclusion that in many ways the court has become a pawn in the commercial war presently being waged between various insurance companies and between various insurance companies and repairers. Certainly the amount of time such matters are consuming of the courts' valuable time is a matter of great concern. Further, it is difficult to see how the very considerable costs being incurred can be in the financial interests of the parties." 3 The opponent asserted that, once it was established that particular repairs were reasonably necessary to return the vehicle to the state it was in prior to the accident, and so long as the cost of the repairs was not "extravagant", there was no issue to be determined by the Court as to whether the cost was "fair and reasonable". Rather, the plaintiff was in those circumstances entitled to recover the actual cost of the repairs. 4 The position of the claimant was that there were two constraints on the recovery of loss: the first was that recovery could not exceed the actual cost to the plaintiff, the second that recovery could not exceed the reasonable cost of undertaking the repairs. 5 It is convenient to note the basic facts which gave rise to the present proceedings, although as will be considered further below, no findings have been made in the present case. The dispute arose from an accident which occurred on 7 November 2004 in which the opponent's motor vehicle, a virtually new Mercedes Benz, suffered damage. The vehicle had been purchased on 17 September 2004 for $95,563. The damage, which appears to have been largely superficial, was repaired by Perfect Auto Body Pty Ltd ("Perfect") at a cost of $14,197.67. The claimant's insurer accepted liability in full, but sought to rely upon an expert assessment by its own assessor, Mr Nic Sadgic, who assessed the reasonable costs of repairs at $5,811. The dispute in essence concerned the relevance of Mr Sadgic's assessment. If it were irrelevant, it could simply be disregarded and significant time and expense, both for the parties and the Court, would be avoided. Accordingly, the opponent sought to have the question of principle determined by the trial judge as a separate question, after the documentary evidence was tendered and before any witness was called for cross-examination. 6 Before identifying the separate questions, it is convenient to note the procedural steps which were taken to achieve that end. First, the insurer for the defendant having refused to pay the amount of the claim, on 27 May 2005 proceedings were commenced in the name of the opponent in the Local Court. The amount claimed was $14,197.67, together with interest. By agreement between the parties, application was made to remove the proceedings from the Local Court to the Supreme Court, presumably pursuant to s 140 of the Civil Procedure Act 2005 (NSW). That was apparently done by order of the Registrar in the Common Law Division, although the order was not before this Court. 7 In addition, the opponent thought it appropriate to commence proceedings by way of summons in the Common Law Division seeking a judgment for the same amount and seeking a declaration in the following terms: "A declaration that the plaintiff is entitled to damages from the defendant which indemnify him for the actual cost of repairs to his Mercedes Benz … upon the plaintiff establishing, on the balance of probabilities, that the damage was caused by the negligence of the defendant and that repair of that damage was necessary to restore the motor vehicle to its pre-accident condition." 8 Although no findings of fact were formally made by the primary judge, the circumstances in which Perfect was contracted to repair the vehicle were briefly noted by his Honour in the judgment below, Fung v Stocovaz [2006] NSWSC 1345 at [2] in the following terms: "On the following day [after the accident], Mrs Fung telephoned Perfect Auto Body Pty Ltd (Perfect), a motor vehicle repairer at Alexandria, with a view to having the Mercedes repaired. Perfect was known to Mr and Mrs Fung as it had repaired other Mercedes cars owned by them and they had been satisfied with the quality of its workmanship and service. Moreover, Perfect was not only located close to where they lived, but was listed in Mercedes Benz Workshop Directory as its authorised paint and panel repairer in the Sydney Metropolitan area." 9 On the second day of the hearing (Tcpt, 21/11/06, p 20 (50)) the primary judge made an order that certain questions be decided separately and before all remaining questions in the proceedings. The questions were identified in the judgment at [7]: "Upon the assumption that: (a) the repairs to the Plaintiff's motor vehicle referred to in Estimate No. 34870 dated November, 2004 (the Estimate) and in Tax Invoice No. 38984 dated 28 January, 2005 from Perfect Auto Body Pty Ltd (Perfect), were necessary to restore the motor vehicle to its pre-accident condition; and (b) the Plaintiff had the damaged motor vehicle repaired by Perfect in accordance with the Estimate; and (c) the Defendant contends that the actual cost of repairs referred to in the Estimate were not [sic] 'fair and reasonable'; 1. Is the Plaintiff entitled to damages from the Defendant, which indemnify him for the actual cost of repairs to the motor vehicle referred to in the Estimate? 2. If so, can the Defendant's liability for damages to indemnify the Plaintiff for the actual cost of repairs to the motor vehicle, be reduced to the extent that the actual costs of repair: (i) were not 'fair and reasonable'; and/or (ii) were extravagant?" 10 His Honour answered the questions as follows: "Q1 – Yes. Q2 (i) – No. (ii) – Yes." 11 The formulation of these questions left something to be desired: first, there was an apparent inconsistency between questions 1 and 2. Thus, if the plaintiff was entitled to certain damages, it was difficult to understand on what basis that entitlement could be "reduced". The explanation, which appears to have been shared by the parties was that questions might better have been formulated: 1. Are the plaintiff's damages limited so as not to exceed: (a) the actual cost of repairs; (b) such costs as were: (i) fair and reasonable, or (ii) not extravagant? The answers given should, it was accepted, be so understood. 12 The second point of significance is that although there was no reference either in the assumptions or in the questions to any issue of mitigation of loss, it was said that both questions and answers should be understood as not applying to mitigation. The purpose underlying this restriction is clear: it was accepted by both parties that questions of reasonableness would arise in relation to the conduct of the plaintiff, if mitigation were raised, as indeed it was on the pleadings. However, it was also common ground that the defendant would bear the burden of proving a failure to mitigate. Accordingly, the questions were formulated so as to ask whether the plaintiff bore a burden of showing that the costs actually incurred were fair and reasonable. 13 With this explanation, there must at least be some doubt as to the ability of this case to resolve the kind of issues which are being litigated in the Local Court. According to the complaint raised in Kenn v Pickard, it is the defendant which puts on evidence from an assessor indicating that the repairs could have been undertaken at a lower cost. Whether it is the plaintiff or the defendant who ultimately bears the burden of proof, if, as appears, there is a concerted effort by insurers to challenge the recoverable cost of repair, it seems unlikely that these evidential disputes will be swept to one side by these proceedings. On any view evidence such as that of Mr Sadgic will be relevant to mitigation. 14 There are other difficulties with the questions as formulated. The first is that question 2(i) asked whether the actual cost must be reduced to the extent that it was "not fair and reasonable". However, the form of the question tends to distract attention from the fact that there is likely to be a range of reasonable costs. Indeed, the range appears to be quite significant if some of the evidence tendered in this case were to be accepted. Further, the material placed before this Court, from decided cases in the Local Court, does not clearly indicate that evidence called by defendants in the Local Court (or the District Court) is directed to establishing that particular costs were outside a reasonable range. Rather it appears that the evidence was directed to the proposition that, had the plaintiff shopped around, he or she might have obtained a lower quotation than that which was accepted. 15 Finally, there was the difficulty in being sure at what point a distinction was drawn between an amount which was not fair and reasonable and an amount which was extravagant. In his judgment, the trial judge appears to have accepted that the word "extravagant" was used in the sense of "going beyond prudence or necessity in expenditure; wasteful … excessively high; exorbitant": at [38]. However, he also stated in that paragraph: "In my view, the limitation, which authorities and principles impose, is a limitation designed only to counter extravagance or unreasonableness." It may be that the common meaning of "extravagant" has connotations which take it beyond the common understanding of a sum which is unreasonably high, where reasonableness may properly be understood as involving a range. On another view the term extravagant may be used to mean something which is clearly outside the range rather than something which, whilst it might be thought to be at the top end of the range, is within the scope of commercially available prices and is not the kind of price which no reasonable person would pay, if required to bear responsibility for the whole of the costs incurred. 16 These difficulties may appear to be largely semantic. However, they are given greater significance because they must be resolved in the abstract, without any substratum of facts to give colour and context to their usage. 17 Once it is understood that reasonable costs may lie within a range, which may not be narrow, it seems likely that the liability of a defendant to pay something less than the actual costs of repair will turn on evidence that the repairs could have been done at a lower cost and that the plaintiff acted unreasonably in not obtaining an alternative quotation or further quotations, or in not accepting a lower quotation. This may mean that such cases will be resolved by reference to principles of mitigation of loss, but it also suggests that the kind of issue sought to be isolated for separate determination in the present case is one which can be isolated only on a somewhat artificial basis. 18 One way of isolating particular issues is to proceed by way of demurrer. As noted by the joint judgment in the High Court in Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at [50], a demurrer assumes the truth of a particular set of facts. "If the 'facts' which are the basis of an answer to a legal question are identified, that answer will have utility for the parties provided that no other evidence could add to or qualify those 'facts'. In such a case, the parties' rights will be determined when the evidence finally determines the existence or non-existence of those 'facts'. Because that is so, demurrers have been much used in determining the rights of parties to litigation. … Unlike the present case, however, a demurrer assumes that the pleadings exhaust the universe of relevant factual material. The utility of demurrers is, however, heavily dependent on the pleadings containing all the relevant facts." 19 Having considered the role of a demurrer, their Honours continued at [51]: "It cannot be doubted that in many cases the formulation of specific questions to be tried separately from and in advance of other issues will assist in the more efficient resolution of the matters in issue. However, that will be so only if the questions are capable of final answer and are capable of being answered in accordance with the judicial process." 20 In the present case, it may be doubted whether the questions and the assumptions upon which they were based, conform to those principles. Not only were questions of mitigation tacitly put to one side, but an assumption as to the necessity for the repairs was made, although this Court was told that the assumption was not one which was made for the whole of the litigation. 21 The inappropriateness of the procedure in the present case is highlighted by the insistence in the course of argument, that the context of particular statements in the case-law be understood in order that they be properly applied. For example, there was debate about the term "restitutio in integrum", and the propriety of its use in relation to a claim in negligence. However, that debate appears to be misconceived: the Latin phrase may best be understood as requiring the defendant to place the plaintiff in the position in which he or she would have been absent the negligently caused damage. The vehicle should be treated as if it had not been damaged or, as viewed after the event, was to be reinstated to its earlier form by carrying out all necessary repairs. That principle says nothing as to the costs of the repairs and whether there is any limitation on what may be recovered with respect to cost, once the necessary repairs have been identified. 22 Similarly, the loss or damage suffered by the plaintiff is, as a matter of principle, the extent to which the value of the property has been diminished by the damage caused to it through the negligence of the defendant. In many cases, though not all, the change in value will be reflected by the cost which would be incurred in restoring the vehicle to its former condition. In some cases that assumption may be false. Thus superficial damage to an old car which has already suffered some changes to its appearance, may only be capable of repair at a cost, which significantly exceeds the diminution in its value. 23 In other cases, it would be unreasonable to repair the vehicle because the extent of the damage indicates that the cost of replacement will be below the cost of repair. After noting this view and comments upon it, Priestley JA, in Murphy v Brown (1985) 1 NSWLR 131 at 135 continued: "A further complication is that it is undoubtedly the practice in many claims for damage to motor cars for the court to accept proof of the reasonable cost of repair to the car without any direct reference to the value of the car immediately before it was damaged. This practice seems to me be as easily explained by tacit recognition by the parties and the court in such cases that the appropriate figure will be arrived at by that method as it is by taking the practice as reflecting the correct view of the law in all circumstances and even against the opposition of the defendant." 24 Once the purpose of reliance on the cost of repair is understood, as a measure of diminution in value, questions of the reasonableness of the cost or the possible extravagance of the cost may bear a particular connotation depending on context. The present context, involving an expensive "prestige" new car may well differ from many other cases brought in the lower courts. It is possible that the resolution of the present dispute will turn quite specifically on the facts of the case. Despite the confidence of the parties, at least before Patten AJ, that the statement of separate questions would be an appropriate way of resolving issues of principle, in my view that confidence was misplaced. Indeed, the claimant went so far as to accept that the questions might better have been answered "inappropriate to answer". 25 It would have been preferable not to have proceeded by way of separate questions. Alternatively, once the difficulties were exposed by argument, it would have been appropriate for the trial judge not to give answers. If answers had yet been thought useful, it would have been desirable for the questions to be reformulated to avoid some of the uncertainties and infelicities noted above. Nevertheless, no doubt because the procedure was adopted by consent in the Court below, the claimant did not seek to challenge the order for determination of the specified questions separately from and before any other issues in the proceedings. It was a process which she had not initiated, but with which her counsel agreed when it was proposed. 26 However, if the answers to the questions are understood as suggested by Handley AJA and in the light of the foregoing comments, there is no reason why the defendant cannot agitate any issue of fact which it wishes to agitate at trial and, if the final judgment gives rise to some dissatisfaction, it will be entitled to raise the same questions again on appeal. 27 In those circumstances leave to appeal should be refused. I would not make any order as to the costs incurred by the parties in this Court. 28 HANDLEY AJA: This is an application for leave to appeal from a decision of Patten AJ who answered questions ordered to be separately determined pursuant to UCP Rule 28.2. The proceedings involved a claim by the opponent to recover $14,197.67 for the cost of repairs to a motor vehicle which the claimant asserted should not have cost more than $5,811.09. 29 The case was removed from the Local Court to the Common Law Division by order of a Registrar because it was said to be a test case. It appears that the Local Court has been flooded with small claims of this kind and the former practice of motor vehicle insurers avoiding such litigation by entering into knock for knock agreements has been abandoned. 30 Leave to appeal is required under s.103 of the Supreme Court Act because the questions had been separately determined, under s.101(2)(e) because the decision was interlocutory and under s.101(2)(r) because the case did not involve more than $100,000. 31 The answers to the questions, which in effect were declarations, were interlocutory, in the sense that the proceedings continue on the remaining issues, but they were final for res judicata purposes and binding on the Court and the parties in later stages of the litigation: Bass v Permanent Trustee Co. Ltd (1999) 198 CLR 334, 360. By granting leave the Court could review the answers to the questions at this stage. If leave were refused the claimant could challenge the answers in an appeal from a final decision affected by those answers: Gerlach v Clifton Bricks Pty Ltd (2002) 209 CLR 478, 482-3. 32 The opponent's claim was for the cost of repairs to a new Mercedes. 33 The parties agreed that the questions isolated for separate determination should be answered on certain assumptions. These were that the repairs were necessary to restore the vehicle to its pre-accident condition, that the opponent had obtained an estimate of the cost of restoration before the work was done and that the work was done for the amount of that estimate. The Court was also asked to assume that the claimant contended that the estimate of the cost of repairs was not fair and reasonable. 34 On these assumptions the questions propounded were: 1. Is the plaintiff entitled to damages from the defendant which indemnify him for the actual cost of repairs to the motor-vehicle referred to in the estimate? 2. If so, can the defendant's liability for damages to indemnify the plaintiff for the actual cost of repairs to the motor vehicle be reduced to the extent of the actual cost of repair: (i) were not fair and reasonable; and/or (ii) were extravagant? 35 Patten AJ answered these questions as follows: 1. Yes 2. (i) No (ii) Yes. 36 The claimant submitted that the answers to questions 2(i) and 2(ii) were inconsistent. Considered in isolation this may appear to be the case. However the questions and answers must be read with his Honour's reasons for judgment. His Honour treated extravagant and unreasonable as synonymous in this context: see para [34] (second dot point) and para [38]. This was also the understanding of Dr Lushington in The Pactolus (1856) Swab 173, at 174 and 175 (twice), which his Honour referred to: paras [14]-[17]. Ever since courts and commentators have treated extravagant and unreasonable in this context as interchangeable. The authorities and texts which establish this are summarised in his Honour's judgment. 37 In my judgment the answers to question 2 can be reconciled when one bears in mind that there may not be a single fair and reasonable cost for repairing a damaged motor vehicle, especially a Mercedes costing $95,563 new. There is likely to be a range of costs all of which are fair and reasonable. In such a case acceptable evidence that a lower cost would be fair and reasonable cannot of itself establish that a higher cost was outside the range and not fair and reasonable. 38 The true question would be whether the cost incurred was outside the range. In my judgment this is only another way of asking whether the cost incurred was extravagant or unreasonable. 39 His Honour's answer to question (1), read in isolation, might appear to establish an entitlement in the plaintiff to be indemnified by the wrongdoer for the actual cost of repairs without any restriction based on the reasonableness of that cost. However that answer should not be read independently of the answers to question (2). There are in fact two caps on the plaintiff's recovery in a case such as this. He is not entitled to recover more than his actual cost, and he is not entitled to recover that cost to the extent that it was extravagant or unreasonable. 40 His Honour's judgment was in substance correct, and it and the answers to the separate questions so understood will not embarrass the resolution of the factual dispute between these parties. In my judgment there would be no utility in further consideration of the legal principles isolated from the actual facts. 41 I would therefore propose that leave to appeal be refused and that the Summons and the Notice of Appeal without appointment be dismissed with costs. 42 HOEBEN J: I agree with Handley AJA and the orders which he proposes. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.