Engine Imports v Diesel and Industrial Engine Spares [2014] QCAT 445

CITATION: Engine Imports v Diesel and Industrial Engine Spares [2014] QCAT 445 PARTIES: Engine Imports Pty Ltd (Applicant) v Diesel and Industrial Engine Spares Pty Ltd (Respondent) APPLICATION NUMBER: MCDO1411/14 MATTER TYPE: Other minor civil dispute matters HEARING DATE: 20 August 2014 HEARD AT: Brisbane DECISION OF: Dr Collier, Justice of the Peace (Presiding) Ms Fenwick, Justice of the Peace DELIVERED ON: 27 August 2014 DELIVERED AT: Brisbane ORDERS MADE: The Application is dismissed. CATCHWORDS: Minor civil dispute – Trader claim – consumer transaction – Australian Consumer Law – Limitation of liability – Contractual guarantees – Statutory guarantees Consumer transaction – Australian Consumer Law ss 54, 64 and 64A – supply of defective goods – extent of liability – whether inconsistency between contractual and statutory guarantees APPEARANCES and REPRESENTATION (if any): APPLICANT: Philip Sturgess, Managing Director of Applicant RESPONDENT: Kent Honour, Branch Manager of Respondent -- 1 of 8 -- 2 REASONS FOR DECISION Substance of the Dispute [1] The facts in this matter are not in dispute. On 25 June 2014 the Respondent sold the Applicant 24 valve springs, part number 6D155, at a total cost of $174.24 (including GST), meaning each valve spring cost $6.60 plus GST. [2] The Applicant used these valve springs in the maintenance of heavy machinery employed in the mining sector. In this particular case the machinery being maintained was located approximately 250km from Emerald in central Queensland. [3] The Respondent imported the valve springs prior to sale in Australia. [4] Because the sale involved less than $40,000, the Applicant was a consumer within the meaning of Section 3 of the Australian Consumer Law. [5] It was common ground that one of the 24 valve springs supplied by the Respondent to the Applicant was defective, thus causing damage to some mining machinery maintained by the Applicant. As a result, the Applicant was obliged to arrange a mechanic to go to site to effect repairs to the mining machinery caused by the defective valve spring. [6] As a result of completing these repairs the Applicant incurred costs of $5,990.05, comprising two principal components: for the repair of the mining machinery damaged by the defective valve spring; and for the travel and accommodation costs associated with effecting the repair. [7] The Applicant sent the Respondent a bill for $5,990.05 dated 10 March 2014 demanding immediate payment. [8] The Respondent paid the Applicant $3,979.25 of the $5,990.05 claimed by the Applicant on the basis that this represented that portion of the amount claimed by the Applicant that related to repair of the mining machinery damaged by the defective valve spring. The Respondent refused to pay the balance of $2,010.80 of the Applicant’s claim, being that portion attributed to the travel and accommodation costs incurred by the Applicant in effecting the repair (hereafter, the “travel costs”). [9] The Respondent refused to pay the travel costs demanded by the Applicant in reliance on the Respondent’s standard terms and conditions of sale (which the Respondent calls its “Warranty and Terms”) which contains the following terms which state, insofar as relevant: 1. WARRANTY This warranty is provided by DIESEL AND INDUSTRIAL ENGINE SPARES PTY LTD ABN 29 104 597 695… -- 2 of 8 -- 3 (a) All new parts supplied … are warranted to be free from defects in materials and workmanship until: (i) the expiry of the manufacturer’s warranty; or (ii) if there is no manufacturer’s warranty, the expiry of twelve (12) months from the date of the invoice… … (c) The warranty in this clause does not apply to:… … (ii) Towing, Travel, Accommodation and any other allied expenses… The Applicant’s Claim [10] The Applicant argued that it was entitled to rely upon the statutory guarantees contained in the Australian Consumer Law (ACL) to require the Respondent to compensate the Applicant for all the costs incurred by the Applicant in repairing the damaged machinery resulting from the defective valve spring supplied by the Respondent, including the travel costs. [11] Section 54 of the ACL states, insofar as relevant: (1) If a person supplies, in trade or commerce, goods to a consumer there is a guarantee that the goods are of acceptable quality. (2) Goods are of acceptable quality if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from defects; and (d) safe; and (e) durable; as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3). [12] The supply by the Respondent of one valve spring that failed, out of the 24 supplied, constituted the supply of goods that were not of acceptable quality as defined in section 54 of the ACL because the goods were not fit for all the purposes for which goods of that kind are commonly supplied, nor were they free from defects. Therefore the Respondent has breached the statutory guarantee provided in section 54 of the ACL and, in the absence of other factors, the Applicant is entitled to a remedy. There are, however, additional terms in the Respondent’s Warranty and Terms that need to be considered, and these are analysed below. [13] On the evidence before the Tribunal the failure of one valve spring out of the 24 supplied is not a major failure within the meaning of that term -- 3 of 8 -- 4 contained in section 260 of the ACL because none of the conditions in that section is satisfied. [14] Sub-section 259(4) of the ACL provides the relevant remedy to the Applicant if it is entitled to one arising from a breach of the statutory guarantee. The extent of the remedy is: The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure. [15] The course of business dealings involving the parties over a period of time meant that each understood that any failure of certain items, even one as small as a valve spring costing $6.60, could lead to considerable losses amounting to many times the value of the item. This conclusion flows from the nature of the work the item has to do and the remoteness of the locality where it is used by the consumer. All these factors were known to the Respondent at all relevant times. As a result, the losses suffered by the Applicant in this case were reasonably foreseeable by the Respondent. [16] Taking these factors into account the Applicant claimed that it is entitled to the costs it incurred in both the repair of the mining machinery damaged by the defective valve spring, and the travel and accommodation costs associated with effecting the repair, both being reasonably foreseeable. [17] The Applicant argued that the limitation contained in paragraph 1(c)(ii) of the Respondent’s Warranty and Terms, set out earlier, is void and of no effect because it is inconsistent with sections 64 and 64A of the Australian Consumer Law. As a result of this the Applicant claims that it is entitled to be recompensed by the Respondent for the travel claim which has not been paid. [18] First, section 64 provides that ‘A term of a contract … is void to the extent that that the term purports to exclude, restrict or modify …’ the rights of a consumer to the benefits of the statutory guarantees, or has that effect. The Applicant asserted that, because par.1(c)(ii) is inconsistent with sections 54 and 259(4) of the ACL, par.1(c)(ii) is void and of no effect. [19] Second, section 64A of the ACL provides certain allowable limitations that may be placed on the liability of a seller to a consumer of goods other than goods of a kind ordinarily acquired for personal, domestic or household use or consumption. The only provisions relevant to this matter in section 64A are contained in sub-section 64A(1), and are: A term of a contract … is not void under section 64 merely because the term limits the person’s liability for failure to comply with a [consumer] guarantee … to one or more of the following: (a) the replacement of the goods or the supply of equivalent goods; (b) the repair of the goods; -- 4 of 8 -- 5 (c) the payment of the cost of replacing the goods or of acquiring equivalent goods; (d) the payment of the cost of having the goods repaired. [20] The valve springs supplied by the Respondent were not goods of a kind ordinarily acquired for personal, domestic or household use or consumption. The provisions of section 64A therefore apply to the supply of the valve springs by the Respondent. [21] The Applicant agitated that, because the terms of the limitation of liability specified in paragraph 1(c)(ii) of the Respondent’s Warranty and Terms are inconsistent, or otherwise at variance, with the limitations of liability allowed in section 64A, the Respondent’s attempt to limit its liability by excluding liability for the travel costs is not effective and must fail. The Seller’s Warranty and Terms [22] In order to understand the extent of the Respondent’s (seller’s) liability, it is necessary to look at the terms and conditions of sale in their entirety. Sorting through the repetition and illogical structure of the Respondent’s Warranty and Terms, the Respondent offered two guarantees to a buyer such as the Applicant: a contractual guarantee arising from certain terms within the Respondent’s Warranty and Terms; and a statutory warranty under the Australian Consumer Law that cannot be excluded. Contractual Guarantee [23] The first guarantee offered by the Respondent is a contractual guarantee. The extent of this guarantee is contained in clause 1(a) of the Warranty and Terms, set out earlier in this decision in clause [9]. [24] If a buyer invokes this guarantee, the seller may, at its election, repair the defect or replace the item (Warranty and Terms clause 1(f)). In addition, where the seller accepts responsibility for the defect, the seller ‘… will pay for the labour costs associated with the claim at a maximum rate of $80 plus GST per hour paid at standard industry repair times’. (Warranty and Terms clause 1(e)). It is this term which appears to have been invoked by both the Applicant and Respondent giving rise to the payment to the Applicant by the Respondent for the repair of the mining machinery damaged by the defective valve spring. Indeed, each labour unit in the Applicant’s invoice to the Respondent is charged at $80 per hour plus GST. [25] The limitation of liability term in clause 1(c)(ii) of the Warranty and Terms (also set out in clause [9] above) appears to be intended to limit only the extent of this contractual guarantee without intending, or attempting, to modify the statutory guarantees. Whether or not the limitation of liability term in clause 1(c)(ii) could be effective in modifying the statutory guarantee is not an issue this Tribunal has to decide for the reasons set out below in that part of this decision dealing with the statutory guarantees. -- 5 of 8 -- 6 [26] The Australian Consumer Law requires a seller to honour a contractual guarantee. Section 59(2) of the ACL states, insofar as relevant: If a person supplies, in trade or commerce, goods to a consumer… there is a guarantee that the supplier will comply with any express warranty given or made by the supplier in relation to the goods. [27] The express warranty – here the contractual guarantee – offered by the seller (Respondent) to the buyer (Applicant), including the associated limitation of liability concerning the travel costs, has been honoured by the Respondent. The Respondent paid $3,979.25 representing the costs of repair of the mining machinery damaged by the defective valve spring, while omitting payment of the travel costs. Statutory Guarantee [28] The extent of the statutory guarantee available to a consumer under the ACL has been examined at some length in the analysis above dealing with the Applicant’s claim. [29] In order to understand how the Respondent has attempted to modify its liability under the statutory guarantees contained in the Australian Consumer Law, the following terms contained in the Respondent’s Warranty and Terms need to be considered: a) An un-numbered paragraph at the end of the Warranty and Terms states: ‘Our goods come with guarantees that cannot be excluded under the Australian Consumer Law’. b) Clause 1(k) says: ‘To the greatest extent permitted by law, except as otherwise provided herein, all express and implied warranties, guarantees and conditions under statute or general law as to merchantability, quality, suitability or fitness of goods for any purpose or as to design, assembly installation, materials or workmanship or otherwise are expressly excluded…’. c) Clause 1(l)(i) says: ‘[the Respondent’s] liability for a breach of a consumer guarantee under sections 53 to 68 of Schedule 2 of the … [ACL] is limited to, in the case of goods: (i) the replacement of the goods or the supply of equivalent goods; (ii) the repair of the goods; and (iii) the payment of the cost of replacing the goods or of acquiring equivalent goods’. d) Clause 1(m) says: ‘[the Respondent’s] liability under section 274 of the Australian Consumer Law is expressly limited to a liability to pay to the Customer an amount equal to the lowest of: (i) the cost of replacing the goods; (ii) the cost of obtaining equivalent goods; or (iii) the cost of having the goods repaired’. -- 6 of 8 -- 7 e) Finally the Respondent has a catch-all “limitation of liability” in clause 4, which says: ‘Unless otherwise provided herein, to the greatest extent permitted by law [the Respondent] will in no way be liable in respect of …’ a list of six circumstances which are not germane to this decision. [30] The Respondent appears to acknowledge that it cannot exclude the statutory guarantees while, at the same time, being abundantly cautious in attempting to limit the extent of its statutory liability. [31] Clause 1(k) of the Warranty and Terms is not inconsistent with the statutory guarantees because it purports to limit liability only to the extent that the law permits. Whether it is effective is questionable, but this question does not need to be answered here. [32] Clause 1(l)(i) replicates three of the four limitations on liability permitted by section 64A of the ACL. There appears no reason why these terms should not be effective in limiting the extent of the Respondent’s statutory liability in this matter. [33] Clause 1(m) deals with circumstances where the Respondent is the manufacturer of goods and is not relevant to this matter. [34] Clause 4 is not relevant to the decision in this matter. [35] In summary, the Respondent is liable to the Applicant to the extent of loss and damage suffered by the Applicant as a result of its breach of the statutory guarantee provided in the ACL, but its liability is effectively limited by clause 1(l)(i) of the Warranty and Terms to one of the three remedies provided in that term and, therefore, necessarily excludes liability for any other losses, including the repair of the mining machinery damaged by the defective valve spring; and for the travel and accommodation costs associated with effecting the repair. Conclusions [36] The Respondent has paid the Applicant for loss and damage the Applicant has suffered as a result of the Respondent supplying defective goods within the terms of the contractual guarantee contained in the Respondent’s Warranty and Terms. The liability of the Respondent to compensate the Applicant for travel costs is excluded by the terms of the contractual guarantee. [37] The Respondent has limited its liability under the statutory guarantees provided in the Australian Consumer Law to the extent that the Respondent is not liable here for the consequences arising from its supply to the Applicant of defective goods, apart from the replacement or repair of the goods, or payment to replace the goods. [38] The Respondent has compensated the Applicant to the extent it is lawfully required to do so under the terms of sale between the parties and the statutory guarantees arising under the Australian Consumer Law. -- 7 of 8 -- 8 Decision [39] The Application is dismissed. -- 8 of 8 --