New South Wales Supreme Court CITATION : John Gallagher Panel Beating & Anor v Palmer [2007] NSWSC 627 HEARING DATE(S) : 1 May 2007 JUDGMENT DATE : 22 June 2007 JURISDICTION : Common Law Division JUDGMENT OF : Associate Justice Harrison DECISION : (1) The appeal is upheld; (2) The decision of Magistrate Dare LCM dated 7 July 2006 is quashedinsofar as it relates to damages awarded in [47(h)] and Order 5.; (3) The matter is remitted to the Local Court to be determined according to law; (4) The defendant is to pay the plaintiffs' costs as agreed or assessed.; (5) The defendant is to have a Certificate under the Suitor's Fund Act, if appropriate. CATCHWORDS : Appeal decision of Local Court Magistrate - detinue - consequential loss LEGISLATION CITED : Local Courts Act 1982 (NSW) ss 73 & 75 Suitor's Fund Act Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 Australian Gas Light Co v Valuer General (1940) 40 SR (NSW) 126 Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Bodley v Reynolds (1846) 115 ER 1066 Carr v Neill [1999] NSWSC 1263 CASES CITED : Devries v Australian National Railways Commission (1993) 177 CLR 472 Egan v State Transport Authority [1982] 31 SASR 481 Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 Macrocom Pty Ltd v City West Centre Pty Ltd [2003] NSWSC 898 National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252 RL & D Investments Pty Ltd v Bisby (2002) 37 MVR 479 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588 PARTIES : John Daniel Gallagher t/as The John Gallagher Panel Beating Company Pty Ltd - Plaintiff Timothy Palmer - Defendant FILE NUMBER(S) : SC 13801/2006 COUNSEL : Mr A C Scotting - Plaintiffs Mr L Tyndall - Defendant SOLICITORS : Robert H Storey - Plaintiffs LOWER COURT JURISDICTION : Local Court LOWER COURT FILE NUMBER(S) : 9900/2005 LOWER COURT JUDICIAL OFFICER : Dare LCM LOWER COURT DATE OF DECISION : 7 July 2006 IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ASSOCIATE JUSTICE HARRISON FRIDAY, 22 JUNE 2007 13801/2006 - THE JOHN GALLAGHER PANEL BEATING COMPANY PTY LTD & ANOR v TIMOTHY PALMER JUDGMENT (Appeal decision of Local Court Magistrate - detinue – consequential loss) 1 HER HONOUR: By summons filed 4 August 2006 the plaintiffs seek firstly, an order that Order 5 of the judgment of His Honour Dare LCM, dated 7 July 2006 in proceedings 9900/05 be set aside; and secondly that an order for the costs of the appeal be made in favour of the plaintiffs. 2 In these proceedings the first plaintiff is John Daniel Gallagher. The second plaintiff is The John Gallagher Panel Beating Company Pty Ltd. The defendant is Timothy Palmer. For convenience, in this judgment, I shall refer to the parties by name. John Daniel Gallagher and The John Gallagher Panel Beating Company Pty Ltd (Gallagher) were the first and second defendants in the Local Court proceedings. Timothy Palmer was the plaintiff in the Local Court. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and RL & D Investments Pty Ltd v Bisby (2002) 37 MVR 479. It cannot be said that the judicial officer acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. 4 Section 75 of the Act provides that the Court may determine an appeal by either (a) varying the terms of the judgment or order or (b) setting the judgment or order aside or (c) setting the judgment or order aside and remitting the matter for determination in accordance with the Court's directions or (d) dismissing the appeal. Grounds of Appeal 5 Mr Gallagher appeals Order 5 of the decision of the Magistrate. It reads: "Damages in the amount of $17,000 in respect of the wrongful detention of the vehicle, inclusive of the cost of stripping and re-painting the vehicle, to be paid to the Plaintiff within 28 days of the date of judgement;" 6 There are now two grounds of appeal which are of narrow compass. They are firstly, that the Magistrate erred in finding that the damages claimed by Mr Palmer the subject of Order 5 was caused by the wrongful detention of the plaintiff's motor vehicle; and secondly, His Honour erred in holding that the issue of defective workmanship was to be an issue for determination in the proceedings. Local Court proceedings 7 The vehicle at the heart of these proceedings is a 1969 Jaguar 420G. Mr Palmer wanted to change its colour from white to black and wanted a superior finish (see Ex A). He engaged Gallagher to carry out this work. 8 Mr Palmer, in his further amended statement of claim, relevantly sought [at 17] delivery up of the vehicle and excess parts supplied, delivery for conversion and/or refund, further or alternatively, damages for detinue and refund of $2,000 for overpayment. There was no pleading that Gallagher breached the contract for not carrying out the work in a reasonable manner nor was it pleaded that the work was carried out in a negligent manner. 9 Mr Palmer claimed that the cost of the work was determined prior to its commencement by oral agreement evidenced in writing, by way of drawing sketches of the car (Ex 9 in the Local Court). He claimed that once the amount decided upon had been received and the work all but completed, Mr Gallagher then made a demand for a further $22,500. Mr Palmer refused to pay this further amount and as a consequence his Jaguar has not been returned to him against his express wishes. 10 Mr Gallagher claimed to the contrary, that no contract was ever in existence and that both parties agreed that more money was to be paid. Mr Gallagher demanded further payment. Mr Gallagher cross claimed suing for the balance outstanding and storage fees for the vehicle. The Magistrate accepted Mr Palmer's version of the agreement which was that a fixed price contract was formed between Mr Palmer and the defendants on 14 November 2003. That contract was initially for the amount of $27,500 but was increased to $29,500 by mutual agreement. Mr Palmer had overpaid the defendants in the amount of $2,000. 11 It is common ground that notice was given on 11 March 2004 which required the Jaguar to be returned by 8 April 2004 at the latest. 12 The Magistrate at [46] dealt with the defendant's case in detinue and made an order for the return of the motor vehicle. 13 At [46]-[47] the Magistrate stated: "46. The Plaintiff pleads an action in detinue. That, of course, is the wrongful detention of goods. It involves the unlawful failure on the part of the alleged tortfeasor to deliver the goods up when so demanded: Bellinger v Autoland Pty Ltd. [192] VR 514, per Herring CJ at 520. To establish an action in detinue, the Plaintiff must prove that the following three elements exist: · First, the Plaintiff must specifically make a demand for the return of the goods on the person who has legal possession of them. The Plaintiff's immediate right to possession must simultaneously subsist at the time the demand is made: Timewell v Virgoe (1868) 5 WW&A'BL 147 per Stawell CJ at 151; · Secondly, the Plaintiff's demand must have been refused by the alleged tortfeasor: Nelson and Another v Nelson [1923] St R Qd 37, per McCawley CJ at 40; · Thirdly, where the goods are in the actual possession of the alleged tortfeasor, the refusal to return the goods to the Plaintiff must be unreasonable: E.E. McCurdy Ltd (in Liq) v Postmaster-General [1959] NZLR 553, per McGregor J at 556-557. 47. I make the following findings of fact: … d) The Defendants failed to return, and continued to retain, the Plaintiff's vehicle after a demand had been made for its return; e) Alternatively to (d) above, the Defendants manifested intentional exercise of control over the vehicle which was inconsistent with the rights of the true owner who had the immediate right to possession; f) The refusal of the Defendants to return the Plaintiff's vehicle was unreasonable; g) On the balance of probabilities the vehicle will need to be stripped down and re-painted; h) The Plaintiff has suffered damages due to the wrongful detention of the vehicle by the Defendants." 14 The Magistrate then made the order (Order 5) referred to earlier in this judgment and assessed damages in the amount of $17,000 in respect of the wrongful detention of the vehicle, inclusive of the cost of stripping and re-painting the vehicle, to be paid to Palmer. Gallagher has not challenged the finding that it had committed the tort of detinue but it says that the damages awarded by the Magistrate are not consequential losses. The motor vehicle has been returned since the judgment was handed down. 15 Both parties called expert evidence at the trial. The Magistrate preferred the evidence of Mr Blease over that of Mr Akbarian, (the expert called on behalf of Mr Palmer). Mr Blease wrote two reports dated 15 August 2005 and 16 December 2005. Mr Blease stated that: "Close inspection of the paintwork revealed what is commonly called shrink back a condition caused by poor preparation of first coats which could be as far down as original primer or subsequent topcoat in many areas. This could require these areas to need extensive rectification work costing several thousand dollars." (Report 15/08/2005, p 5). 16 Later Mr Blease stated (Report 16/12/2005, p 1) that: "It is our advice that the vehicle would require major rectification work to return it to at least original condition and that all the paint as it is now would require stripping back to bare metal again and refinishing as per manufacturers specifications. This would also affect the existing repairs undertaken to date and in all probability the final cost would exceed that already charged to date." 17 Mr Blease during cross examination said: "There's no longevity to the paint that could be ever guaranteed so therefore within the timeframe is not accurate but six to 12 months you could possibly see crows feet in it, you would have to re-strip the vehicle and re-paint it." (t 36.15-20, 21/12/05) 18 After further cross examination, Mr Blease was adamant that within a period of six to twelve months crows feet would appear in the paint of the vehicle (t 36.55). 19 In essence, Gallagher submitted that the finding at [47(h)] is not a finding of fact but a conclusion of law for which there is no causative link, factually or at all. Gallagher further submitted that it was an error of law to apply the finding relating to the evidence of Mr Blease in so far as it went to damage that was too remote from the tort of detinue and when neither a breach of contract or breach of duty relating to the "defective workmanship" was pleaded or in issue between the parties. 20 Mr Palmer submitted that from the date of the wrongful detention to a period six to twelve month's time from the date of the assessment (which would have been in or about December 2006), but for the detention of the vehicle, the car would have been returned in or about January 2004/early February 2004 (see paragraph 34 to 37 of Ex 1). This would have provided Mr Palmer with at least three years longevity of paint without failure by cracking and encroaching crow's feet. According to Mr Palmer, had the car not been detained then he would have had nearly two and a half years from February 2004 until December 2006 to rectify the damage but, as a result of the detention, the paint had deteriorated as at the 16 December 2005, (the date of Mr Blease's report). By then the car had been wrongfully detained for nearly two years and it had deteriorated in that time. The evidence was that the car's paint would essentially fail and need to be resprayed at the cost of $17,000.00. Mr Palmer also submitted that in all the circumstances, the Magistrate had enough evidence capable of supporting the findings and inferences on which the finding in [47(h)] and therefore the consequential Order in Order 5 was based. 21 For this Court to intervene in the Magistrate's decision there must be an unreasonable application of the law to the facts found – see The Australian Gas Light Co v Valuer General (1940) 40 SR (NSW) 126. Consequential loss 22 Detinue remains a separate tort from that of conversion. The action for detinue focuses on the continued wrongful detention of goods whereas in the action for conversion the injurious act is the original taking of the goods - see Banks v Ferrari [2000] NSWSC 874 at [62]. 23 In detinue the usual remedy is the return of the chattel or the market value of the chattel at the time of the trial, see Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 at 178B. Further, consequential losses are recoverable in detinue, where the loss flows from the unlawful detention of the goods and the loss is not too remote, see Macrocom Pty Ltd v City West Centre Pty Ltd [2003] NSWSC 898 at [45] applying the decision of the Victorian Court of Appeal in National Australia Bank Ltd v Nemur Varity Pty Ltd (2002) 4 VR 252. The classic example of consequential loss flowing from the unlawful detention of goods is that in Bodley v Reynolds (1846) 115 ER 1066 where a carpenter was entitled to damages for loss of trade occasioned by the conversion of his tools of trade. 24 Mr Gallagher submitted that in the present case the damages awarded by Order 5 are not akin to the usual consequential losses awarded that flow from the unlawful detention of the chattel, such as the loss of opportunity to earn profits from a profit-earning chattel, the loss of use of non profit-earning chattels, or the cost of hiring a substitute during the period of wrongful detention. 25 Mr Gallagher further submitted that the essence of Order 5 is compensatory damages for "defective workmanship" arising from a breach of contract or a breach of duty by the plaintiffs, neither of which have been pleaded against them. The unlawful detention of the vehicle can only be said to have commenced from 28 days after the 11 March 2004 demand for the return of the motor vehicle, by which time all of the work done to the motor vehicle had been completed by Gallagher. 26 It cannot then be said that the alleged consequential loss even occurred during the period of the unlawful detention, because any and all work done to the motor vehicle occurred when the motor vehicle was in the lawful possession of the plaintiffs. According to Gallagher nothing in the law of detinue would render this period prior to the refusal to return the goods a period of unlawful possession and further the alleged consequential damage does not flow from the commission of the tort and is too remote from the plaintiffs' unlawful conduct. 27 Consequential damages in detinue can be measured in terms of a reasonable hire for the detained chattels or for the likely profits that the plaintiff would have earned but for the wrongful detention. In cases where the goods are of a non-profit earning character, consequential damages can be awarded for the loss of their use occasioned by the wrongful detention - see Egan v State Transport Authority [1982] 31 SASR 481. In this case, the damages must be measured according to restitutionary principles. Mr Gallagher must not be allowed to profit from his misdeed and Mr Palmer must not be denied an opportunity to profit by reason of the misdeed. 28 In Egan White J, with regard to the measure of damages as likely profits, said at 531: "I will assess Egan's loss as the loss of a chance to put the materials to profitable use. The Master is to estimate the likely profit which Egan would have made in a trouble free incorporation of that quantity of materials into these or similar works." 29 In Gaba Formwork, Giles J said at 188 with regard to the measure of damages as a hiring charge: "On this basis it would seem that Gaba is entitled to the hiring fee for the period to 17 May 1991, since although there is no express finding by the referee it may be inferred that the formwork materials were used by Turner or its sub-contractor the second defendant for its benefit during that period." 30 In neither case, nor any of the authorities cited therein, is there any suggestion that damages for consequential loss in detinue are damages at large. 31 It was open to the Magistrate, as a matter of fact, to find that damage arose as a consequence of the wrongful detention of the vehicle. The measure for such damages should have been based on the loss of use of the vehicle occasioned by the tort. The Magistrate awarded damages in the sum of $17,000 which included the cost of stripping and repainting the vehicle. The reasoning process for how this sum was arrived at is not clear. Such damage cannot be said to arise out of the wrongful detention of the vehicle. That is, the damages in truth are not compensatory damages for the tort of detinue. I have come to the conclusion that there has been an unreasonable application of the law to the facts. The Magistrate has misdirected himself as to the type of damages which he is entitled to award. There is an error of law. 32 Even if damages are recoverable for injury to the chattel, such injury must have been sustained during the period of the wrongful detention. As a matter of fact, the damage to the vehicle by way of the faulty paintwork was sustained during the period in which the vehicle was in the lawful possession of The John Gallagher Panel Beating Company Pty Ltd. 33 The appeal is upheld. The decision of Magistrate Dare LCM dated 7 July 2006 is quashed insofar as it relates to damages awarded in [47(h)] and Order 5. The matter is remitted to Local Court for redetermination according to law. 34 Costs are discretionary. Normally costs follow the event. The defendant is to pay the plaintiffs' costs as agreed or assessed. The defendant is to have a Certificate under the Suitor's Fund Act, if appropriate. The Court orders: (1) The appeal is upheld. (2) The decision of Magistrate Dare LCM dated 7 July 2006 is quashed insofar as it relates to damages awarded in [47(h)] and Order 5. (3) The matter is remitted to the Local Court to be determined according to law. (4) The defendant is to pay the plaintiffs' costs as agreed or assessed. (5) The defendant is to have a Certificate under the Suitor's Fund Act , if appropriate. ********** 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.