Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Lovick Engineering Pty Limited v Keith Johnson Family Trust trading as Johnson's Towing and Mechanical Pty Limited [2017] NSWCATAP 35 Hearing dates: 13 July 2016 Date of orders: 20 February 2017 Decision date: 20 February 2017 Jurisdiction: Appeal Panel Before: J Harris SC, Senior Member D Fairlie, Senior Member Decision: 1 The appeal is reinstated 2 Leave to appeal is granted 3 The appeal is dismissed 4 The order of the Tribunal made on 6 October 2015 is confirmed 5 The Appellant is to pay the Respondent's reasonable costs of the appeal as assessed if not agreed, except for the costs of the reinstatement application, for which each party should pay its own costs. Catchwords: Adequacy of Reasons – Decision against the weight of evidence Legislation Cited: Civil and Administrative Tribunal Act 2013 Evidence Act 1995 Cases Cited: Collins v Urban [2014] NSWCATAP 17 John Prendergast and Vanessa Prendergast v Western Murray Irrigation Pty Limited [2014] NSWCATAP 69 Keith v Gal [2013] NSWCA 339 Public Service Board of New South Wales v Osmond (1986) 159 CLR 656 Category: Principal judgment Parties: Lovick Engineering Pty Limited (Appellant) Keith Johnson Family Trust trading as Johnson's Towing and Mechanical Pty Limited (Respondent) Representation: Counsel: M Manwaring (Appellant) J Matthews (Respondent) Solicitors: Campbell Paton and Taylor (Appellant) King Cain Solicitors (Respondent) File Number(s): AP 16/20889 Decision under appeal Court or tribunal: NSW Civil & Administrative Tribunal Jurisdiction: Consumer and Commercial Division Date of Decision: 6 October 2015 Before: K Rickards General Member File Number(s): MV 14/59284 REASONS FOR DECISION 1. This is an appeal from a decision made in the Consumer and Commercial Division of the Tribunal on 6 October 2015. 2. The proceedings concerned a claim by Johnson's Towing and Mechanical Pty Limited (Johnson), for the recovery of monies it paid to Lovick Engineering Pty Limited, specialist automotive engineers based in Orange (Lovick), for engine repairs to its MAN truck. The engine subsequently failed and was replaced by Johnson at its own cost. 3. The Tribunal found in favour of Johnson and awarded it $36,330.87, being the amount paid to Lovick for the repairs. Lovick appeals this decision. There was no dispute about the quantum of the claim. Reinstatement application 1. The appeal was initially set down for hearing on 2 May 2016. On that day there was no appearance for Lovick, and after a short adjournment the appeal was dismissed pursuant to s 55(1)(c) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act). Soon thereafter an affidavit was filed by Mr Mason Manwaring, the solicitor for Lovick. Mr Manwaring was to appear as solicitor advocate for Lovick on the appeal, as he had at the hearing below. 2. In his affidavit, Mr Manwaring said that in the early evening on 1 May 2016, he was admitted to hospital with chest pain and a swollen right leg, where he remained overnight. Very early the next morning he asked his office assistant, Ms Callow to inform the Tribunal Registry that he would not be able to attend that day, which she did by email and facsimile at 9 10am. She also copied the email to Mr Matthews, the solicitor for Johnson. 3. Unfortunately these communications with the Registry did not reach the Tribunal members allocated to hear the appeal on that day, and Mr Matthews, who was already on his way to the Tribunal, did not have a facility for receiving emails on his mobile telephone. 4. When the matter came before us, Mr Matthews indicated that Johnson consented to the appeal being reinstated. S 55(2) of the NCAT Act enables us to reinstate proceedings where there is a reasonable explanation for a failure to appear on the previous occasion. We considered that there was a reasonable explanation in this instance and we granted the application. The Tribunal's Findings 1. As we have stated above, the Tribunal found in favour of Johnson. The Member's findings are set out in 11 and 12 of the Reasons for Decision (Reasons) in the following terms: I am persuaded that the cause of the engine failure was a breakdown of the lubrication between the bearing slippers and the crankshaft journal which was in turn caused by insufficient oil clearance of the bearing slippers; this arose from a failure in the standard of workmanship applied by the respondent's (Lovick's) employees in the course of assembly. The applicant is according entitled to an order that it be paid the sum of $36,330.87 by the respondent. This actual amount is not the subject of any real contest, and the evidence establishes that this expense was caused by the ultimate engine failure of the truck. Grounds of Appeal 1. The Notice of appeal contained four grounds. These were that: 1. The Members (sic) failed to give adequate reasons; 2. Further or on the alternative, the Member did not have regard or give sufficient weight to all the evidence; 3. The Member erred in his finding respecting the damage to and failure to the engine; and 4. The decision is against the weight of the evidence or there is insufficient evidence to find in favour of the Applicant. The Adequacy of the Tribunal's Reasons 1. Mr Manwaring accepted that appeal grounds 2 - 4 require us to grant leave to appeal - see Schedule 4 Clause 12 of the NCAT Act. The first ground, he submitted, was an error of law which is appealable as of right pursuant to s 80(2)(b) of the NCAT Act. We agree that the absence of adequate reasons, if established, amounts to an error of law – see John Prendergast & Vanessa Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at paragraph 14. 2. The principles and authorities relevant to the duty to give reasons were considered in Collins v Urban [2014] NSWCATAP 17. They are a normal but not universal incident of the judicial process - per Gibbs CJ in Public Service Board of New South Wales v Osmond (1986) 159 CLR 656. 3. In the Consumer and Commercial Division of this Tribunal, particularly in residential tenancy matters (such as in Collins v Urban), detailed reasons are often not given. This is consistent with the primary object of the NCAT Act to resolve the real issues in proceedings justly, quickly, cheaply and with as little formality as possible - see s 3(d). 4. Nevertheless s 62(2) of the NCAT Act obliges the Tribunal to provide reasons if a party so requests. Further s 62(4) provides that the Tribunal is entitled to give reasons even if it has not been requested to do so by a party. In either circumstance, s 62(3) requires the written statement of reasons to set out: 1. the findings on material questions of fact, referring to the evidence or other material on which those findings were based , 2. the Tribunal's understanding of the applicable law, 3. the reasoning processes that lead the Tribunal to the conclusions it made 1. The Reasons in this matter consists of 19 paragraphs. Paragraphs 11 and 12, which we have set out above, record the Member's decision. Paragraphs 1 – 7 are an outline of the factual background and paragraphs 13- 19 deal with costs. Paragraphs 8 – 10 are the paragraphs which set out the Member's reasoning process. 2. In paragraph 8 the Member states that having considered the respective submissions and expert evidence, (which were very detailed and amounted to over 400 pages), he preferred the conclusions reached by Johnson's expert, Mr Scott. In paragraph 9 he says that unlike Mr Scott, Lovick's expert, Mr Elsom did not inspect the engine but relied on photographs and other materials. The Member does not say how or why this diminished the value of his report. 3. In paragraph 10 he rejects Mr Elsom's findings about the cause of the engine failure, because they had been contradicted by an "accepted finding" that fuel from the leaking injector flowed back into the fuel tank (we will deal with this issue in detail later in our reasons). The Member does not state where or when this matter became an "accepted finding", and according to Mr Manwaring, it remained in dispute. 4. We accept the force of the submission that paragraphs 8 – 10 do not adequately set out the foundation for the Member's decision in paragraphs 11 and 12 of the Reasons. We also note the comments of Gleeson JA in Keith v Gal [2013] NSWCA 339 that the failure to provide sufficient reasons promotes a sense of grievance and denies both the fact and appearance of justice having been done. 5. However whether or not the Reasons are adequate, to ensure that the substantive issues raised by Lovick in its submissions are able to be considered by us, we also need to grant Lovick leave to appeal in relation to grounds 2 – 4 in its Notice of Appeal, which we do. It is therefore not necessary for us to determine appeal ground 1. The Material before the Appeal Panel 1. We were provided with an agreed bundle comprising all the affidavit evidence, including the expert evidence before the Tribunal, and the parties' written submissions for the appeal. We were also provided with the disc containing the submissions made at the hearing. There was no examination or cross examination of any of the witnesses in the Tribunal, so we were in effect in the same position as the Member below when assessing the evidence. We also approached the appeal on basis that we needed to consider all of the evidence for each of the appeal grounds 2, 3 and 4, which meant that we could deal with the appeal grounds together. The Factual Background 1. The relevant facts were as follows: 1. On 3 October 2013 the dash light on Johnson's MAN truck TGA 26 indicated an engine fault; 2. On 4 October 2013, Johnson removed the engine from the truck and the middle section, described as the short engine, was delivered to Lovick together with the crank shaft, the cam shaft and the conrods; 3. In November, Johnson instructed Lovick to carry out an engine rebuild in accordance with the estimate it had provided and the work was carried out. This included a reground of the main and big end bearing journals of the crankshaft, fitting new cam shaft bearings, grinding and machining the cylinder block; 4. On 3 December 2013, the short engine and related components were returned by Lovick to Johnson for reassembly on completion of the works; 5. Shortly thereafter, Johnson's mechanic informed Lovick that the engine was tight to turn using an external crank (this is disputed by Lovick). Johnson also tested the crankshaft using plastic gauge and determined that the tolerances were not in accordance with MAN's specifications (this finding is again disputed by Lovick). Johnson then requested Lovick to carry out the reassembly which it did for an additional fee; 6. On 20 December 2013, Lovick returned the reassembled engine to Johnson; 7. On 7 January 2014, Johnson's employees inspected the engine and formed the view that the oil hole in the top bearing shell did not line up with the oil feed gallery; 8. On 10 January the engine was again returned to Lovick, who enlarged this hole to align it with the bearings. Lovick say that this additional work was not strictly necessary and the same result could have been achieved by turning or off- setting the bearings; 9. In February 2014 the engine was again returned to Johnson who fitted the external engine components and then replaced it in the truck. On 17 February 2014 the MAN CATS computer was connected to the engine and it was taken for a test run. No faults were found during this test run; 10. At around this time, new fuel injectors also were fitted to each cylinder by Johnson; 11. On 3 March 2014, after the truck had travelled approximately 900 kilometres, a rattling noise was heard. Subsequent inspection attended by representatives from Johnson, Lovick and MAN revealed significant damage to the connecting rods and bearing rod slippers for all cylinders. 1. The parties and the experts were in agreement that the engine failure on 3 March 2014 was due to a loss of oil lubrication in the crankshaft. The issue for determination was what caused this lack of lubrication. 2. The Two Theories for the Engine Failure 3. At the risk perhaps of oversimplification, the position of the parties can be summarised as follows: 4. Lovick, on the basis of Mr Elsom's reports, believe the engine failure was caused by the fuel injectors. It believes that the injectors were defective in that they caused excessive fuel to enter at least some of the cylinders diluting the engine oil. In their written submissions for the appeal Lovick appears to have refined this argument to the following: In short the engine failure and damage … can be completely explained by the faulty injector to the number 6 piston. 1. Johnson concede that there was a fault with the spray pattern of one injector which scored the number 6 piston, but that they say that this did not cause the catastrophic failure to the whole engine. If excessive fuel was generated by the injectors, this would be returned to the fuel tank and would not enter the engine cylinders. Johnson says that the cause of the failure was the insufficient clearances in the crankshaft and that this was due to Lovick's faulty workmanship. The parties' theories allowed for no common ground. It was not submitted to the Tribunal or to us that both circumstances,or perhaps that some independent event may have played a part in the failure, and we have therefore proceeded, as did the Member, on the basis that only one of the theories can be correct. Lovick's submissions 1. In support of its position, Lovick relies on: 1. its work sheets recording the repairs carried out by it, which it says confirm that on completion, oil clearance tolerances were within the manufacturer's specifications; and 2. that MAN accepted the fuel injector for the number 6 piston was faulty and replaced it under warranty. MAN also accepted that it was responsible for the consequential scoring to this piston Johnson's submissions 1. Johnson says that: 1. Lovick's work sheets do not prove that the tolerances were adequate; and 2. Mr Elsom's conclusion that the fuel injectors contaminated the oil in the cylinders is not supported by the test conducted on the injectors by Denco Diesel in Wagga on 19 March 2014, or the results of the further test carried out by TEC Check on the oil from the damaged engine. Lovick's Work Sheets 1. We will deal first with the work sheets. They were exhibited to an affidavit of Lovick's director, Mr John Lovick, and referred to by him as the process checklist assembly document. In that affidavit, he says that the following method to establish the main bearing clearances was used: 18.1 Measured the crankshaft journal diameter and the big end bearing journal diameters; 18.2 Fitted all of the main bearing caps and torqued the bolts to the correct torque; 18.3 Measured all of the main bearing tunnel bores with a calibrated internal micrometre; 18.4 Measured the thickness of all fourteen main bearing shells with a special calibrated micrometre; 18.5 Measured one bearing cap. Fitted a new bearing shell and refitted the bearing cap and tightened the retaining bolts to the correct tension; 18.6 Measured the main bearing inside diameter with a calibrated inside micrometre; 18.7 Subtracted the dimensions in step 6 above from the measurements in step 1 above thus identifying precisely the main bearing oil clearance; 18.8 The same procedure was used for measuring the big end bearing oil clearance. 19 The above procedure can be gleaned from the (exhibited) process check list assembly document which was completed during the course of the work done on the engine by Lovick Engineering. 1. In this paragraph, Mr Lovick is describing the process followed for measuring the clearances. This involved both actual measurement of the components and calculations. Unfortunately there was no evidence from the technician or technicians who actually performed this work or filled in the sheets, or evidence as to when this was done. Mr Lovick does not say expressly that he supervised any of the work. The documents exhibited do not on their face reveal this detail either. 2. The critical entries, according to Mr Lovick, are those which state that the main bearing oil clearance was 0.0032", and the big end clearance was 0.0045". This document appears to be undated. On the final page there are signatures beside Technician #1 and Technician #2, but they are illegible. 3. Are the check list assembly documents business records so that their contents might be considered evidence of the facts asserted in documents, rather than hearsay evidence? S 69(2) of the Evidence Act 1995 requires that in order to qualify as a business record, the representations in the document: 1. be made by a person who had or might reasonably be supposed to have personal knowledge of the asserted fact or 2. on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal information. 1. Given the critical importance of these documents to Lovick's case, evidence was required from the persons or persons who carried out this work, describing what they did, and, (if it be the case) that immediately after each step was completed, they or another person made the relevant entry on the check list. Without this evidentiary chain, it is not easy to accept the process check list as a business record and therefore that the notations on it established what the actual clearances were. 2. Secondly Johnson submitted that the notations on the work sheets themselves did not establish that the tolerances were in fact within the manufacturer's specifications. They pointed out that the tolerances were recorded in imperial and not metric measurements as specified by MAN. They gave examples of seemingly anomalous entries and the use of ticks rather than figures or numbers in some instances. 3. Whilst it may not be apparent on the face of the Reasons, we consider that the Member was entitled to conclude on either basis that the notations on the work sheets did not establish that the tolerances were adequate. In our view there was sufficient evidence, and it was not against the weight of the evidence for the Member to reach this conclusion. The Fuel Injectors 1. We now turn to the fuel injectors. On 19 March 2014, the injectors were tested by Denco Diesel. Their report stated that the injectors for pistons number 4 and 6 failed leak test step 3 and for piston number 5 failed step 8 high return. This report was considered by Mr Elsom and Mr Scott. Mr Elsom said that the leak test failure and high return for the other injector resulted in the diesel fuel "washing", that is diluting, the oil film from each piston skirt and cylinder bore (his report dated 21 May 2015 - pages 9 and 10). 2. In Mr Scott's view, fuel leaking from the injectors for pistons 4 and 6 and the excessive fuel generated from the injector for piston 5 is piped directly back to the fuel tank and is not delivered to the combustion chambers and therefore will not leak into engine sump and the lubrication oil (Mr Scott's second report dated 5 August 2015 – paragraph 4.19). We note that this was the evidence that the Member had referred to in his Reasons as "an accepted finding", but it is apparent from his report that Mr Elsom did not accept it. 3. Mr Scott concluded that the scoring of the number 6 piston was not caused by leaking fuel but by an incorrect spray pattern from the injector for this cylinder. A number of injection holes in the injector nozzle were restricted or blocked. This was a separate issue to the leaking fuel in this and the other injectors. Mr Scott says this was confirmed by the affidavit from MAN's representative, Mr Wehrmann who also examined the engine in March 2014. Because the number 6 piston was the only one found to have scoring, this, he says, confirms that the damage was caused by something other than the lack of lubrication, otherwise it would have been observed in each of the cylinders which were found to have leaky injectors. In Mr Scott's opinion the worst damage was to the number 5 piston. 4. In support of his position, Mr Elsom attached to his first report an article from 2004 entitled Diesel Injector Failures and their Consequences caused by Fuel Quality. That did not seem to us to be of assistance as the issue was whether excessive fuel, not contaminated fuel, could have caused the engine failure. Mr Scott also included some hearsay material in his report to the effect that a representative from Denco Diesel agreed with Mr Scott's opinion, and again we discount that evidence. The Tec Check Results 1. If this were the only evidence in relation to the injectors, it would have been difficult for the Tribunal to decide which view to accept. However there were also the results of the test on the engine oil in the damaged engine. This was carried by Tec Check at Johnson's request, soon after the engine failure in March 2014. Both Mr Elsom and Mr Scott agree that if fuel from the leaking injectors had been entering the engine and diluting the oil, this would have been revealed in the oil analysis. 2. The test however concluded: Fuel dilution satisfactory. Viscosity within operating range – that is the oil was found not to be diluted. Faced with this evidence contradictory to his theory, Mr Scott was left to speculate that perhaps the oil tested was not the oil in the engine oil at the time of the failure. In his submissions Mr Matthews pointed out that there was no evidence at all on which this argument could be based and that it was tantamount to an allegation of fraud. There was also uncontested evidence from Mr Willott, Johnson's Workshop Manager,that the engine oil had been delivered to Tec Check for analysis. The Member correctly rejected the submission that the oil had been substituted. 3. The Tec Check results also identified: Aluminium at a severe level. Mr Elsom suggests that the aluminium was from the number 6 piston skirt. This may well be correct but if viscosity levels were normal, this supports the view that the damage to this piston was independent of the alleged dilution of the engine oil. Mr Elsom also fails to explain why these aluminium traces would be found in the oil if the sample had been substituted. 4. The Member was correct in preferring Mr Scott's conclusions on this issue and finding that the leaking fuel injectors were not the cause of the lack of lubrication which resulted in the engine failure. We should add that the fact that Mr Elsom did not view the damaged engine, has no bearing on our conclusion on this issue. Neither expert played any part in, or was present for the Denco Diesel or the Tec Check tests. Lovick's Workmanship 1. We now need to consider the evidence generally relating to Lovick's standard of workmanship. Mr Lovick, in his affidavit set out the work that was carried out on the engine, and the methods adopted to establish the main bearing clearance. We accept that this material indicates that Lovick appeared to adopt a professional approach to the engine repairs and that this was in accordance with industry practice. 2. Johnson, however, referred to three issues which call into question Lovick's standard of workmanship. The first was the results of the plastic gauge test carried out on the engine by its mechanics after the engine was first returned to it by Lovick on 3 December 2013.This revealed, according to Johnson, that the clearances for the main and connecting rod journals were less than that specified by MAN and indeed less than what Lovick claimed them to be. 3. The evidence of the actual results of the plastic gauge test is scanty. We are inclined to put them in the same category as Lovick's process assembly checklist results and not to give much weight to them. We also accept that a calibrated micrometre, which Lovick says it used, is likely to produce more accurate results than plastic gauge. Nevertheless in his affidavit Mr Lovick is wrong in rejecting plastic gauge results on the basis that the relevant tests had been carried out in March 2014, after the engine had failed. In fact Johnson had carried out the testing on or soon after 3 December 2013. 4. Secondly there was the evidence that the engine was tight to turn externally when it was tested by Johnson on 3 December. Indeed this was the reason that Johnson subsequently carried out the plastic gauge tests. Lovick say in response that when the engine was returned to Johnson on the second occasion, there was no complaint that it was tight to turn, so that it may be inferred that it was again tested and turned freely on this occasion. 5. The Member appears to have accepted that Johnson did find the engine tight to turn on 3 December. However the significance of the "tight to turn" evidence and the plastic gauge results is not that they establish conclusively that the clearances were inadequate but that it should have put Lovick on enquiry to carry out further tests. Instead it appears to have disregarded these matters. There is no evidence that Lovick remeasured the clearances or at the least, double checked the results on the process assembly checklist. Lovick seems to have been convinced of the infallibility of its earlier workmanship and testing procedures and did not consider this to be necessary. Enlarging the Oil Hole 1. The third matter is that when the engine was again returned to Johnson on 7 January 2014, its mechanics noticed that the oil hole in the top bearing did not line up with oil feed gallery. In his affidavit Mr Willott sets out his conversation with Mr Lovick about this matter as follows: Me: The oil hole in the top bearing shell does not line up with the oil feed gallery to the little end. John: That's OK just turn the bearing in rod. Me: You should have told me about this. What would have happened if we didn't discover the hole didn't line up. John: Yeah I should have Me: That's not the way I way I was taught John: It is alright to do so. The only thing that matters is the crush on the bearing. Me: I am not willing to turn the bearing to line up the oil holes. Mr Lovick admits the substance of this conversation. 1. The engine was again returned to Lovick to deal with this issue. Mr Lovick says that he dealt with it, not by offsetting the bearings, as he had said Mr Willott should do, but by enlarging the hole at the back of the big end bearing shells which are located in the conrod. Furthermore he did not inform Johnson that he had done it this way, and it was only when the engine was stripped down and examined after the failure the following month, that this became apparent. 2. There is no suggestion that this misalignment issue played any part in the engine failure However it raises two further matters of concern about Lovick's work practices. The first is that Lovick would have returned the engine to Johnson on 3 December and again on 7 January 2014, ostensibly ready for reassembly, without informing Johnson that the oil hole and bearing were out of alignment. The second is that subsequently Lovick would adopt a different method of dealing with the issue than the one they suggested that Johnson should adopt, and then not inform Johnson of this change. Our Findings 1. We find that the Member was entitled to reject the leaky fuel injectors as the cause of the loss of lubrication, and conclude that the evidence supported the view that the cause of the engine failure was the poor standard of Lovick's workmanship in the course of the engine reconditioning work carried out by it, in that it did not provide adequate clearances in the crank shaft and that this caused the loss of lubrication. 2. We therefore conclude that: 1. in relation to appeal ground 2, the Member did have regard to and give sufficient weight to all the evidence (although this may not have been apparent on the face of the Reasons), 2. in relation to appeal ground 3, the Member did not err in his finding respecting the damage to and failure to the engine; and 3. in relation to appeal ground 4, the decision was not against the weight of the evidence and that there was sufficient evidence to find in favour of Johnson. The appeal should therefore be dismissed and the decision of the Member confirmed. Costs 1. Mr Matthews asked for costs to be awarded in favour of Johnson if the appeal were to be dismissed. Before the Tribunal, the Member determined correctly that Johnson was entitled to ask for its costs because the amount in issue exceeded $30,000, and he awarded costs taking into account that the parties had been legally represented and that they had engaged experts. 2. The same considerations apply to the costs of this appeal. We therefore order that Lovick pay Johnson's reasonable costs of the appeal, such costs to be assessed if not agreed. This order excludes the costs of the reinstatement application, for which each party should pay its own costs, Orders 1. The Tribunal makes the following orders: 1. The appeal is reinstated. 2. Leave to appeal is granted. 3. The appeal is dismissed. 4. The order of the Tribunal on 6 October 2015 is confirmed. 5. The Appellant is to pay the Respondent's reasonable costs of the appeal, such costs to be assessed if not agreed, except for the costs of the reinstatement application for which each party should pay its own costs. I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 20 February 2017