Carlin Auction Services (Qld) Pty Ltd v Gonchee & Anor [2004] QDC 86

DISTRICT COURT OF QUEENSLAND CITATION: Carlin Auction Services (Qld) Pty Ltd v Gonchee & Anor [2004] QDC 086 PARTIES: CARLIN AUCTION SERVICES (QLD) PTY LTD Appellant/Second Defendant v IVAN GONCHEE First Respondent/First Defendant and GREGORY JOHN CONDON Second Respondent/Plaintiff FILE NO/S: D3341/03; M486/02 DIVISION: PROCEEDING: Appeal ORIGINATING COURT: Magistrates Court, Brisbane DELIVERED ON: 4 May 2004 DELIVERED AT: Brisbane HEARING DATE: 13 April 2004 JUDGE: McGill DCJ ORDER: Appeal dismissed, with costs. Time for filing the first respondent’s notice of contention extended to 17 December 2003. CATCHWORDS: NEGLIGENCE – Liability for other’s negligence – motor vehicle on test drive – whether owner liable. MOTOR VEHICLES – Insurance – test drive – high excess on comprehensive insurance – whether implied term that excess be no more than reasonable. CONTRACT – Consideration – test drive of vehicle for sale – whether consideration passing from drivers to owners. CONTRACT – Implied Terms – test drive of vehicle for sale – whether implied obligation on owner that vehicle insured without unreasonable excess – damages. Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706 – followed. Perre v Apand Pty Ltd (1999) 198 CLR 180 – considered. Reichardt v Shard (1914) 31 TLR 24 – followed. Sampson v Aitchison [1912] AC 844 – followed. -- 1 of 17 -- 2 Scott v Davis (2000) 204 CLR 333 – considered. Valleyfield Pty Ltd v Primac Ltd [2003] QCA 339 – followed. COUNSEL: A K H Cooper for the appellant R G Fryberg for the first respondent SOLICITORS: Creswicks Lawyers for the appellant Morgan Conley Solicitors for the first respondent Hewlett & Co for the second respondent [1] This is an appeal from a decision of a magistrate following a trial of various claims arising out of a motor vehicle accident in which some property damage, but apparently no injuries, was suffered. The accident was a commonplace enough collision, but it has given rise to an interesting set of legal problems. [2] On 2 February 2001 a motor vehicle owned and driven by the plaintiff1 came into collision at an intersection with a motor vehicle owned by the second defendant and driven by the first defendant. The magistrate who heard the evidence concluded that both drivers were negligent, and apportioned responsibility for the collision 80 percent to the first defendant and 20 percent to the plaintiff. This was unsurprising, since the plaintiff’s vehicle was on the right of the defendants’ vehicle, which had entered the intersection through a “give way” sign, but there was reason to think that the plaintiff had not been keeping as careful a lookout as he might have been. So much is entirely conventional, and indeed none of the magistrate’s conclusions about those matters was challenged on appeal. [3] Also not challenged on appeal were the assessments for damages, $11,422.66 in the case of the plaintiff and $4,064.88 in the case of the second defendant. Indeed it appears from the magistrate’s reasons that these amounts had ceased to be in dispute before the end of the trial. It followed that the plaintiff as owner was entitled to recover from the first defendant, 80 percent of his damages, $9,138.13. The second defendant was entitled to recover from the plaintiff $812.98. Again, none of this is controversial. [4] There were four other claims made in the action: the plaintiff claimed his loss also from the second defendant, on the basis that the second defendant was vicariously liable for the negligence to the first defendant. The first defendant also claimed against the second defendant an indemnity in respect of any liability of his to either the plaintiff or the second defendant, as damages for breach of an implied term of a contract between the first and second defendants, or in the alternative under the Trade Practices Act. The second defendant counter-claimed against the first defendant in negligence in respect of the damage to the second defendant’s vehicle. In addition, the second defendant issued a third party notice. The third party claim failed, and nothing more need be said about it. 1 The appellant was the second defendant at the trial, the first respondent the first defendant, and the second respondent the plaintiff. For convenience and (hopefully) clarity I shall use the terminology from the trial. -- 2 of 17 -- 3 The magistrate’s decision [5] The magistrate held that the second defendant was vicariously liable for the negligence of the first defendant, so that the judgment in favour of the plaintiff went against both the first and second defendants. The magistrate also held that there was a contract between the first and second defendants, and that it was an implied term of that contract that the second defendant would ensure that the vehicle would be insured with a reasonable excess. The vehicle was insured, and on the face of it the first defendant was within the scope of the insurance cover, being an authorised driver of the vehicle, but there was an excess of $15,000 in respect of each claim, so that for practical purposes that policy was of no benefit to the first defendant. The magistrate was not persuaded however that the excess was unreasonable, which meant that the claim in contract failed. However, the magistrate went on to find that the first defendant was entitled to an indemnity from the second defendant, apparently simply on the basis that the second defendant induced and authorised the first defendant to drive the vehicle and that the second defendant stood to gain a commercial benefit through this. The matter however is complicated because it is not clear how this decision is reflected in the formal judgment. The only order made in favour of the first defendant against the second defendant was an order that the second defendant pay the first defendant certain costs. [6] The magistrate prepared lengthy and detailed reasons which were delivered on 9 September 2003. They foreshadowed a certain judgment, but did not actually pronounce judgment at that stage. There was then an application to vary the judgment, and on 13 November 2003 the magistrate made some final orders including, separately, a judgment in response to the orders foreshadowed in his reasons published earlier, and an order on the application to vary the judgment. I shall come back to the details of the final judgment later, but overall it does appear that there were some difficulties in translating all of the conclusions of the magistrate into the appropriate final judgment. To some extent there is I think a conflict between the conclusions stated in the course of the magistrate’s reasons and the formal judgment. The appeal of course is against the judgment not against the reasons, but it is open to challenge the judgment on the basis that the formal judgment did not properly reflect the findings and conclusions of the magistrate as expressed in the reasons. The difference may however just reflect what was put to the magistrate on 13 November. Vicarious liability - introduction [7] The first issue challenged on behalf of the second defendant, the appellant before me, was the finding of vicarious liability. Initially it appeared that this challenge was accepted on behalf of the plaintiff, which would have simplified things, but ultimately the true position appeared to be that the plaintiff’s solicitor who was appearing did not wish to make any submissions in relation to that aspect of the appeal. It is therefore necessary for me to consider that aspect on its merits.2 That involves some consideration of just how it came about that the first defendant was driving the second defendant’s motor vehicle. 2 In any case, the issue is closely associated with the first defendant’s claim against the second defendant. -- 3 of 17 -- 4 Background [8] The first defendant wanted to buy a four wheel drive vehicle.3 He had in the course of his employment from time to time come into contact with a used car dealership operated by the third party, and telephoned a Mr Whittaker on behalf of the third party to enquire about a particular vehicle. That vehicle was no longer available, but Mr Whittaker suggested that the first defendant consider a vehicle available for sale from the second defendant. The second defendant is also a car dealer, although ordinarily it sells wholesale rather than retail.4 Mr Whittaker took the first defendant to the second defendant’s premises where the first defendant was introduced to a Mr Morris, an employee of the second defendant. He was shown the vehicle. There was some conversation between Whittaker and Morris to which the first defendant was not a party. Then Morris suggested to the first defendant that he take the vehicle for a test drive. Nothing was said about insurance on the vehicle, and no documentation was generated in relation to the test drive. Morris did not accompany the first defendant on the test drive, but Whittaker did. [9] Neither Morris nor Whittaker was called to give evidence. There was evidence that there had been some conversations between them before the test drive, but no evidence as to its terms.5 The magistrate found that if the first defendant had purchased the vehicle he would have purchased it from the second defendant rather than the third party, although that seems to have been a matter of inference. He was not prepared to draw any inference about the existence of any commercial relationship between Morris and Whittaker prior to the test drive, for the payment of some form of commission. The magistrate found that Whittaker was present in the vehicle and was giving directions to the first defendant as to where to go, but did not accept that this was sufficient to constitute control and did not accept that the third party controlled the first defendant during the test drive. He was not satisfied that the evidence showed why Whittaker went for the test drive and not Morris but ultimately concluded his analysis with the statement (p.16): “I am not satisfied on the state of the evidence before me, and an analysis of the relevant authorities, on the balance of probabilities, that the matters raised by [counsel for the second defendant] support a finding that no vicarious liability can be found against [the second defendant].” [10] As counsel for the second defendant pointed out, this appears to be placing the onus on the second defendant of proving an absence of vicarious liability, which was not discharged. If that does reflect the magistrate’s approach, it was in error; the onus was on the plaintiff. It was for the plaintiff to prove the existence of vicarious liability on the part of the second defendant, otherwise the plaintiff’s claim against the second defendant in respect of the negligence of the first defendant would fail. [11] There is nothing in the reasons leading up to that conclusion which explains how or why the magistrate reached it. Indeed, the reasons would appear to be leading logically to the opposite conclusion, and I wondered whether the explanation is that the word “not” at the beginning of that passage had been included in error. That would be consistent with the conclusion on p.19 that there should be judgment in 3 The facts here are generally taken from p.7 of the magistrate’s decision. 4 Transcript p.141. 5 Gonshee p.107; this evidence was accepted by the magistrate: p.12. -- 4 of 17 -- 5 favour of the plaintiff against the first defendant, but no reference to a judgment against the second defendant in favour of the plaintiff. On the other hand, the judgment ultimately given, after further consideration on 13 November 2003 by the magistrate of what the formal judgment should say, was a judgment against the first and second defendants, which suggests that at that stage the magistrate regarded the second defendant as vicariously liable. In these circumstances, I think I should consider the matter afresh. Authorities [12] The leading modern authority on vicarious liability is the decision of the High Court in Scott v Davis (2000) 204 CLR 333. That decision establishes that it is not sufficient, in order to show vicarious liability, that the person actually driving the vehicle was doing so at the owner’s request and for the owner’s purpose. If that were enough, there would be no difficulty about the present case. Morris on behalf of the second defendant invited, ie requested, the second defendant to test drive the vehicle, and it was done for the purpose of achieving a sale of that vehicle to the first defendant in the course of the second defendant’s business. [13] In Scott v Davis (2000) 204 CLR 333 the High Court was asked to extend the concept of vicarious liability so that the owner of the vehicle (in that case an aeroplane) would be liable if the person immediately in control of it was using it at the owner’s request and for the owner’s purposes. That was wider than the proposition previously established in the High Court, in Soblusky v Egan (1960) 103 CLR 215, that an owner in possession of the vehicle and with full legal authority to direct what is done, and in a position to assert his control, was vicariously liable for the negligence of another who was doing the actual manual work of managing the vehicle. The Chief Justice was not prepared to extend the principle of vicarious liability in this way, but did not suggest that the decision in Soblusky should be overturned. Gummow J embarked on a thorough analysis of the history of the decisions dealing with vicarious liability in this area, which led him to conclude in [244] that: “The criterion of liability which postulated an agency and required retained control, coupled with possession and authority, which was fashioned in Soblusky, was not supported by the 19th century authorities. However, it may well have been supported by the Privy Council decision in the New Zealand litigation.” This was a reference to the decision in Sampson v Aitchison [1912] AC 844, which was a case involving the test drive of a motor vehicle which the owner had for sale. [14] In Sampson the defendant owned a vehicle which was for sale, and in connection with a proposed purchase a test drive was taking place. The owner was present in the vehicle and sitting next to the actual driver, and giving some directions as to where and how to drive. A collision occurred due to the negligence of the driver, and it was held that the owner was vicariously liable for that negligence. Gummow J analysed the decision at trial6 and on appeal in New Zealand7 and (more briefly) the decision in the Privy Council where the liability of the defendant was upheld on the basis that in the circumstances he had not abandoned the control which he was entitled to exercise as owner, which was regarded as making him responsible for the negligence of the driver which caused the injury. 6 Aitchison v Sampson (1910) 30 NZLR 160. 7 (1911) 30 NZLR 838. -- 5 of 17 -- 6 [15] Although critical of the reasoning which led to the decision in Soblusky, Gummow J was content to allow it to stand for authority for what it actually decided, and its significance in the field of motor vehicle property claims was not denied: [256]. However, his Honour would not extend it beyond its application for vicarious liability of the owner of a motor vehicle. On this basis there was no justification for applying the doctrine in Scott. Hayne J also did not depart from the effect of Soblusky, at [310], but would not extend the principle in a way which would assist that appellant. [16] Callinan J formulated the requirement for vicarious liability (outside the context of employment) in the following terms (at [357]): “First, there must be an appointment, engagement or request. That appointment, engagement or request needs to be a real appointment, engagement or request. The request must be made in something other than a merely domestic or social context. It must be made in circumstances in which the owner will derive a real benefit. The benefit need not be a financial benefit … Secondly, there must be the reality of an actual power of control. The existence of a power of control can be of no relevance unless its exercise is, or is likely to be effective. That is why so many of the early cases to which I have referred stressed the presence of the owner and his relationship with the person, usually a coachman or driver, who was actually managing the chattel, as relevant factors, even though any ability to exercise any effective control was probably a fiction …” On that basis, his Honour joined in dismissing the appeal. [17] McHugh J dissented. He gave a reformulation of the principle in Soblusky at [110] which it seems to me would have broadened it somewhat, and held that that test had been satisfied by the facts of that case. [18] Although the judgments of the majority did not formulate a single test, none of them involved any withdrawal from the decision in Soblusky. Two of their Honours expressly confirmed the authority of that decision, and the reformulation by Callinan J does not significantly depart from it. What was in issue there was whether the decision should be broadened, and that was rejected by the majority. Although there are suggestions in the judgment that in appropriate circumstances even the decision in Soblusky might be overturned, that point has not at the moment been reached in Australia. [19] In my opinion Scott v Davis (supra) leaves in place not only the authority of Soblusky v Egan (supra), but also the authority of Sampson v Aitchison (supra). Because that is a case of a test drive of a motor vehicle, it is particularly significant in the present context. The decision of the Privy Council was on the basis that the owner, because of the nature of what was occurring and because he remained in the vehicle at the time, had not surrendered control of the vehicle to the person who was actually driving it, so far as the law was concerned. Although, as Callinan J pointed out, there is something unreal about the notion that anyone other than the person behind the wheel of a motor vehicle is in control of it under any circumstances, plainly the law in this area recognises that in some circumstances another person who is in the vehicle may have control of it, essentially on the basis that that person has a legal right at any moment to require the driver to stop and hand over the -- 6 of 17 -- 7 vehicle.8 That is regarded as sufficient to constitute control. Although in Sampson there was some exercise of control over the manner of driving, as has been made clear in other cases, most significantly Soblusky, it is the right to exercise control rather than the actual exercise of control which is important in this context. It follows that in a case such as Sampson there has been no bailment, because at law there has been no parting with possession of the vehicle, as was stated expressly by the Privy Council at p.849. Analysis [20] Had the second defendant been in the car during the test drive, the position would, it seems to me, be clear. Sampson would apply, and there would be vicarious liability of the second defendant for negligence on the part of the first defendant. The second defendant however submitted that because neither Mr Morris nor anyone else on behalf of the second defendant was in the vehicle at the relevant time, the matter went outside the limits established by the authorities, and therefore there was a passing of control and hence possession, and there was no vicarious liability on the strict test established by Scott v Davis. There are certainly plenty of other earlier cases where a wider test of vicarious liability was applied, which would have been satisfied, but they are no longer good law in Australia in view of that decision. I am prepared to accept the latter proposition, and the crucial question therefore is whether the second defendant had given up to the first defendant control, and hence possession in law, of the vehicle. [21] In my opinion this turns on the significance of Whittaker’s presence in the vehicle. If he was there simply to accompany the first defendant, as a friend or adviser in relation to the purchase, then his presence does not detract from the proposition that possession of the vehicle has been passed over to the first defendant. On the other hand, the second defendant might have entrusted Whittaker with the obligation of protecting the first defendant’s interest in the vehicle, that is, being the person who supervised the test drive on behalf of the second defendant. Whittaker was associated with another car dealer, and had brought the first defendant to the second defendant with a view to the purchase of the vehicle from the second defendant. Whether or not Whittaker was getting something out of any sale to the first defendant, Morris would readily have identified him as a colleague, and therefore a suitable person to fulfil the role of protecting the second defendant’s interests in relation to a test drive of the vehicle. [22] It is commonplace that test drives of vehicles, both new and used, occur in connection with their sale9, and it is equally commonplace that the vendor or a representative of the vendor accompanies the prospective purchaser on the test drive. No doubt it is not essential, and there may well be cases where there is an unsupervised test drive, but having the owner or someone on behalf of the owner along, to supervise and to protect the interests of the owner, is a natural and reasonable precaution and one which would ordinarily be taken. 8 In the judgment of the Privy Council in Sampson at p.850 the point was made that the owner was able to give instructions as to the driving, and to retake possession at any time if not satisfied. 9 See transcript p.145. -- 7 of 17 -- 8 [23] Neither Morris nor Whittaker was called to give evidence by the second defendant. Mr Dowell, a director of the second defendant, gave evidence, including some evidence about test drives, and it appears that his evidence was accepted. His evidence was that the second defendant was essentially a wholesaler, although it did on occasions sell a vehicle retail: p.141. He said that it was unusual for someone to take out a vehicle on a test drive (p.145) but the explanation for this appears to have been that he usually sold to dealers and dealers do not test drive vehicles before they decide whether they want them: p.145. He accepted that an ordinary person, not another dealer, would be far more likely to buy a vehicle that that person had test driven, so that there was a commercial benefit to be obtained by allowing a prospective purchaser to test drive the vehicle. He described that proposition as obvious, and I would so regard it myself. [24] Mr Dowell however gave no evidence about how any test drives that did occur prior to sales by his company would be conducted, and in particular whether they were ordinarily conducted by allowing the prospective purchaser possession of the vehicle, that is to say, an unsupervised test drive. Mr Dowell gave evidence that Morris was no longer working for him, but did not account for any inability to call him as a witness. There was also no explanation for the failure of either the third party or the second defendant to call Whittaker as a witness. There was therefore no evidence before the court as to what had passed between Morris and Whittaker during their conversation prior to the test drive. Given that it preceded the offer by Morris of the test drive, and that Whittaker, but no one more directly associated with the second defendant, took part in the test drive, obviously something that could have occurred during that conversation was that Morris could have arranged with Whittaker for him to act as a representative of the second defendant for the purposes of supervising the test drive. [25] If this occurred, then in my opinion the position is the same as if Morris or some other representative of the second defendant was present in the vehicle supervising the test drive. Qui facit per alium facit per se. There is authority that if someone on behalf of the owner is exercising supervision over the driver, that is with a right to exercise immediate control over the vehicle in the sense described earlier, the owner has not given up control of the vehicle so that the position is the same as in Sampson (supra): Reichardt v Shard (1914) 31 TLR 24, a decision of the English Court of Appeal where the owner’s chauffeur was travelling with the driver and it was held that the owner had not given up control of the car and so was vicariously liable for the negligence of the driver, who was his son and driving with his consent. If Whittaker was appointed by Morris to supervise the test drive on behalf of the second defendant, he had the second defendant’s right to direct the driving, and at any time to require the first defendant to hand over control of the vehicle to him. Consistent with the authorities therefore in those circumstances he would have been in control of the vehicle on behalf of the second defendant10, and therefore the second defendant would not have been regarded in law as having given up possession of the vehicle to the first defendant. On the authorities, the second defendant would have been vicariously liable for the negligence of the first defendant. 10 This is contrary to the finding of the magistrate at p.16 that Whittaker was not controlling the first defendant during the test drive. But that was on the basis of an unwillingness to draw inferences, which I am willing to draw. -- 8 of 17 -- 9 [26] There is no evidence from either Morris or Whittaker of course as to whether or not there was any such arrangement between them. But in my opinion, given that ordinarily I would expect that a prospective purchaser would not be allowed a test drive unless there was someone going along to supervise the test drive on behalf of the owner, such evidence as there was about the circumstances leading up to the test drive gave rise to an evidentiary onus on the second defendant to negative the inference that there was some such arrangement with Whittaker, in the circumstances of this case. In those circumstances, the second defendant cannot be assisted by its failure to call either Morris or Whittaker, or to account for their absence as witnesses.11 [27] It appears that this point was made to the magistrate (p.16), but he was not prepared to draw such an inference from the evidence before him. This is an appeal by way of rehearing12 and it is open for me to draw inferences of fact from facts found by the magistrate.13 In my opinion the facts do call for an explanation on the part of the second defendant, and in the absence of evidence that Morris was content to allow an unsupervised test drive by the first defendant, in my opinion it is appropriate to draw on the balance of probabilities an inference against the second defendant that there was some such arrangement with Whittaker as I have postulated. In those circumstances, the position is materially indistinguishable from Sampson (supra), and the second defendant was vicariously liable for the negligence of the first defendant. This aspect of the appeal therefore fails. Second defendant’s entitlement to indemnity [28] The second defendant also challenged the finding that there was a contract between the first and second defendants, and that it contained an implied term about insurance cover, even though on the face of it the first defendant’s claim under that contract failed. The first defendant, by a notice of contention,14 sought to support the judgment on the basis that the claim in contract ought to have succeeded, so it is necessary to consider these issues. Consideration [29] One matter in dispute at the trial was whether there was consideration from the first defendant to the second defendant. The magistrate found that the second defendant stood to gain a commercial benefit by inducing and authorising the first defendant to drive the vehicle, and that without a test drive the first defendant would not have purchased the vehicle. He accepted that this was sufficiently certain to constitute consideration. It is easy enough to identify commercial advantage to the second 11 Jones v Dunkel (1959) 101 CLR 298; and see “Cross on Evidence” (Aust Edition) para 1215. The magistrate said (p.17) that their evidence would have been helpful in determining some of the issues. 12 UCPR r 765(1), made applicable by r 785(1). 13 UCPR r 766, and see Magistrates Courts Act 1921 s 47(1). 14 Filed 17 December 2003, not within the time limited by r 757(3)(a), which is only 14 days after service of the notice of appeal. It was filed with an application for an extension of time for filing, which was adjourned to the hearing of the appeal. It was not opposed, and I extend time to the date the notice was filed. -- 9 of 17 -- 10 defendant15, but it may be more difficult to characterise that advantage as consideration. [30] Counsel for the first defendant identified the consideration as refraining from dismissing the second defendant’s vehicle from consideration for purchase, and drew an analogy with a person who had the benefit of a cause of action refraining from enforcing the cause of action, which is recognised as an example of consideration.16 The difficulty I have with this is that it is difficult to give any objective content to a promise to consider the purchase of a particular vehicle, and therefore there could be no more objective content to a promise not to stop considering purchasing a particular vehicle. So long as there is some objective content in the promise it will provide some obligation on the promisor.17 But if the promisor retains a choice about whether or not to do the particular act (here, to purchase the vehicle) then in my opinion there is no consideration provided. So long as the first defendant remained at liberty to choose not to go ahead with the purchase of the vehicle, there was no consideration provided merely by a promise to consider purchasing the vehicle (or not to stop considering it). This is different from a situation where the existence of the obligation to do something is dependent upon some objectively ascertainable fact.18 [31] Accordingly I do not think that there is consideration in the form of any promise on the part of the first defendant in connection with the test drive. But the doing of an act can in itself be consideration, even if there is no enforceable promise to do the act.19 Here the act that was done by the first defendant was test driving the second defendant’s motor vehicle. That ought to be characterised as an act done by the first defendant for the benefit of the second defendant; a test drive is something of assistance in selling the vehicle, which is what the second defendant was trying to do, and there was therefore a commercial benefit to be gained by the second defendant from having the first defendant test drive the vehicle. There was doubtless no enforceable promise to do so; the first defendant could have changed his mind at the last moment and declined to take the vehicle on a test drive. But once he actually took it on a test drive he had done something which was for the benefit of the second defendant at the request of the second defendant.20 That in my opinion satisfies the definition of consideration, and relevantly provides consideration for any implied promise or obligation on the part of the second defendant as to any implied term as to insurance. It seems to me that this was essentially the consideration identified by the magistrate. [32] On the view of what occurred that I take there was no bailment here, but that does not affect the question of whether or not there was a contract. If what had occurred 15 The magistrate found (p.17) that without the test drive the first defendant would not have purchased the vehicle. 16 Newton v SGIO [1986] 1 Qd R 431 at 444. 17 Meehan v Jones (1982) 149 CLR 571. 18 Such as a promise to repay a loan when the debtor was able to do so: Head v Kelk (1963) 63 SR (NSW) 340. 19 “An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” Pollock “Principles of Contract” (12th Ed 1946) p.133, cited in Cheshire & Fifoot “Law of Contract” (7th Aust Ed 1997) p.141. 20 If the second defendant had offered to pay him $10 if he test drove the vehicle, after doing so he would have had an enforceable right to payment: Carlill v Carbolic Smoke Ball Co [1893] 1QB 256. -- 10 of 17 -- 11 here was properly characterised as a gratuitous bailment by the second defendant to the first defendant, the better view appears to be that there would in those circumstances not necessarily be a contract, since there can be a bailment without a contract.21 Similarly, there may well be a contract even if there is not a bailment.22 Implied term [33] The magistrate also found that a term should be implied that the second defendant would ensure that the vehicle would be insured with a reasonable excess: p.18. The magistrate said that a term could be implied by trade usage, statute, fact or custom. I would agree that this is not the sort of situation where it would be appropriate to be considering trade usage or custom: Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226. The magistrate accepted that there was no evidence to support the implication of the term on this basis, and it seems to me that that must be conclusive. [34] It does not however necessarily mean that there is to be no term implied on any basis. Palmer said that even in the case of a gratuitous bailment there is an implied warranty of reasonable fitness of the thing bailed, and the same would apply if the transaction involves the use of a chattel rather than a bailment: p.105. Indeed, Palmer suggested that, in the case of a gratuitous bailment, there is a particularly high duty on the bailor to warn of any defect in the goods: p.628. If there was a contract, there would be no difficulty I think in implying into the contract a term that the car was reasonably fit for the purpose for which it was intended (a test drive). The practical issue is whether an implied promise that there was reasonable comprehensive insurance on the vehicle was a part of this general obligation, or could be implied in an analogous way. [35] This is an example of a term being implied to give effect to the presumed intention of the parties. The classic test for the implication of terms on this basis is that in the majority judgment of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283.23 There are five requirements: “(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that it goes without saying; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.” There is obviously no difficulty in the satisfaction of 1, 4 and 5. It also seems to me that there is no great difficulty about 3, although there may be some room for argument. 21 This is the view of text writers such as Palmer “Bailment” (2nd Ed) p.19, and is supported by the decision of the New South Wales Court of Appeal in Thomas v High (1960) 60 SR (NSW) 401 at 404 per Owen J and 407 per Ferguson J, Street CJ agreeing. See also Walker v Watson [1974] 2 NZLR 175. The authority is not all one way; there is a spirited defence to the proposition that a contract is integral to bailment by Bray CJ in Roufos v Brewster (1971) 2 SASR 218 at 223-4; but see p.235 per Zelling J who seems to have accepted that there could be an non-contractual gratuitous bailment in a non-commercial setting. 22 See Palmer (supra) at p.105, citing Southland Harbour Board v Vella [1974] 1 NZLR 526. 23 This test has frequently been adopted in the High Court, for example in Byrne v Australian Airlines Ltd (1995) 185 CLR 410. -- 11 of 17 -- 12 [36] There is I think a general expectation in the community today that comprehensive insurance on a motor vehicle covers whoever happens to be driving the vehicle at any given time, and a general expectation that commercial operations at least ordinarily have their vehicles insured.24 If the traditional “officious bystander” had raised the question of insurance, by suggesting that the first defendant will be covered by the second defendant’s insurance on the vehicle during the test drive, I would have expected the parties to have regarded that as obvious: conversely if he had said, “You realise that you will not have insurance cover during the test drive?” I would expect that the first defendant would have immediately refused to undertake it. I think therefore that the term does go without saying. [37] The more difficult question is whether it is necessary to give business efficacy to the contract. It is not the test that the term must be necessary in the sense that the contract cannot be carried out at all without its incorporation.25 In my opinion the issue of business efficacy must be assessed in view of the nature of the arrangement, the essential informality of it, and the underlying commercial purpose of it. As to the third, this was an exercise of attempting to sell the vehicle to the first defendant, and the implication of a term is I think more consistent with business efficacy if it is something likely to support that objective, rather than leaving the contract in a state where prospective purchasers are likely to be deterred. I also think that terms will be implied more readily when the parties have not expressly formulated a particular contract.26 Although it is not very difficult to fit what occurred here within the conceptual framework of a contract, that was not something which the parties consciously did at the time, and in circumstances where the parties have not themselves given any conscious consideration to the terms of a contract between them, courts will more readily take a pragmatic approach to the consideration of what is required in order to achieve business efficacy. Duty apart from contract? [38] It may be useful to consider what the position would be between the parties apart from any contract. There was clearly sufficient proximity between the second defendant and the first defendant to give rise to an ordinary duty of care for the safety of the first defendant on neighbour principle, at least so far as a risk of physical harm to the first defendant from the state of the vehicle was concerned. Undoubtedly the law would impose a duty of reasonable care in relation to the safety of the vehicle, and the physical safety of the first defendant while using it.27 That does not necessarily mean however that the law would impose a duty to take reasonable care to avoid economic loss to the first defendant from the use of the vehicle. [39] There have been a number of decisions recently where courts have considered the circumstances under which there will be a duty to take reasonable care to avoid foreseeable economic loss to another. A number of these cases up to and including 24 The term might not necessarily be implied in the case of a private vendor. 25 Cheshire & Fifoot (supra) at p.357. 26 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, adopting the test formulated by Deane J in Hawkins v Clayton (1988) 164 CLR 539 at 573, which emphasises the reasonable operation of the contract in the circumstances. 27 Boaler v Hogan (1984) 1 MVR 478; Pivovaroff v Chernabaeff (1978) 21 SASR 1, at 27, 32-3. -- 12 of 17 -- 13 the decision of the High Court in Perre v Apand Pty Ltd (1999) 198 CLR 180 were considered by the Court of Appeal in Valleyfield Pty Ltd v Primac Ltd [2003] QCA 339. In that case the question arose whether there was a duty of care imposed on the second defendant which had, as a subcontractor of the first defendant, designed a subsurface irrigation system for the plaintiff’s farm. There was no contract between the second defendant and the plaintiff, but there was held to be a duty of care owed by the second defendant to the plaintiff, in relation to the design of the system. Williams JA at [2] approved the trial judge’s conclusion that there was a duty of care because of the following considerations: “(i) the proximity of the parties; (ii) the respondent to the knowledge of the appellant relied on the skill and experience of the appellant; (iii) it was clear to the appellant that a failure to take care on its part in the preparing of the design could cause harm to the respondent; (iv) the imposition of the duty would not give rise to indeterminate liability; (v) the respondent was vulnerable to loss if the appellant was negligent; (vi) there were no public policy reasons for denying recovery.” [40] The question of negligently causing economic loss was subsequently discussed again in the High Court in Dovuro Pty Ltd v Wilkins (2003) 77 ALJR 1706, a case involving the question of whether some warning should have been given in relation to a particular produce provided by the appellant to the respondent. Ultimately the issue turned in the High Court on the question of whether the duty had been breached, there having been a concession at an earlier stage that a duty was owed. Nevertheless, there was some consideration given to the question of whether that concession of the existence of a duty had been properly made in the joint judgment of Hayne and Callinan JJ28 at [159] where their Honours said: “Those who claimed to have suffered loss, in this case, were farmers who had used the seed which Dovuro had imported. They were, in effect, the users or consumers of the seed which Dovuro had distributed. If Dovuro had failed to act with reasonable care, it was reasonably foreseeable that there could be circumstances in which those farmers may suffer economic loss as a result of their using the seed. The class likely to be affected, being those who use the seed, would not be an indeterminate class and they would be persons vulnerable to loss if care were not taken, although it may be that assumptions about the respective vulnerabilities of experienced large scale farmers and a seed supply should not be made too readily. All this being so, a duty to exercise reasonable care not to expose the farmers (as users or consumers of the seed) to a risk of injury of which they knew or ought to have known could, in some circumstances, extend to the risk of purely economic loss. But as the Wilkins’ case was presented at trial, the critical question in this matter was to identify whether Dovuro knew or ought to have known that there was a risk of the sort of injury which it was alleged had been suffered – financial loss occasioned by pursuing a course of action recommended by government authorities to guard against the possible emergence of plants which had been declared to be harmful only after Dovuro had distributed the seed and the farmers had acquired it. Only if that sort of loss was reasonably foreseeable by Dovuro would the duty asserted by the Wilkins have been engaged.” [41] In the present case there is no difficulty about proximity, or about the imposition of a duty giving rise to indeterminate liability. The first defendant was in a position of 28 With whom Heydon J agreed at [177]. McHugh J and Gummow J were the other members of the majority; Gleeson CJ and Kirby J dissented. -- 13 of 17 -- 14 vulnerability, as the question of whether or not the vehicle was covered by comprehensive insurance was something necessarily exclusively within the knowledge of the second defendant, which the first defendant could not ascertain in any way other than from the second defendant. In circumstances where the second defendant offered a test drive of a vehicle which it knew the first defendant knew nothing about except what he had seen in the course of that brief inspection that morning, it must have been apparent to the second defendant (at least had it thought about the matter) that the first defendant was relying on it, not just in relation to the question of whether the vehicle was reasonably safe to drive, but on the question of whether the vehicle was covered by such insurance as an ordinary person in the position of the first defendant would reasonably expect in such circumstances. The risk of economic loss from use of a vehicle that is not properly covered by comprehensive insurance is obvious enough, and would plainly have been foreseeable. There are in my opinion no public policy reasons for denying recovery. [42] The case is analogous to one of negligent misrepresentation, although it is more precisely described as a negligent failure to disclose. The relevant duty was not so much one to provide a particular level of insurance, but rather to warn a proposed customer to whom a test drive was offered that there was effectively no comprehensive insurance on the vehicle, so that if he test drove it he did so at his own risk.29 It seems to me that in principle there can be no objection to the existence of such a duty in such circumstances. [43] In Perre (supra) Gaudron J dealt with various established categories of liability for economic loss, including the category of negligent misstatement, about which her Honour said at [29]: “So far as concerns the category of negligent misstatement – more accurately, the failure to provide information or advice or, usually, the failure to provide accurate information or advice – the prediction of Stephen J in Caltex Oil has largely been borne out. That category was impliedly recognised as a discreet category in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355, and expressly recognised by Brennan CJ and, also, by Dawson J in Hill v Van Erp (1997) 188 CLR 159 at 170-1, 175. So far as concerns negligent misstatement, the circumstances which attract a duty of care are ‘known reliance (or dependence) or the assumption of responsibility or a combination of the two’, the word ‘known’ including circumstances in which reliance or dependence ought to be known.” It is clear from this passage that her Honour identified a failure to provide relevant information, that is negligent non-disclosure, as an aspect of negligent misstatement, and subject to the same obligations. [44] The existence of an obligation to make disclosure in the context of arms-length commercial relations are generally frowned on by courts. See for example Commonwealth Bank of Australia v Finding [2001] 1 Qd R 168 where the court was critical at p.173 of a proposition of Finn J articulated in an essay, “Good Faith and Non-Disclosure” in his book, “Essays on Torts” (1989), discussed in Cockburn and Wiseman “Disclosure Obligations in Business Relationships” (Federation Press, Sydney, 1996) at p.10: “Disclosure obligations are determined by the reasonable expectations of the parties in a particular relationship, so that liability for non- disclosure progresses from a strict liability role in relations of close dependence, 29 Or, which comes to the same thing, that there was an excess as high as $15,000 in respect of any single claim on such comprehensive insurance. -- 14 of 17 -- 15 through a neighbourhood responsibility in reliance and assumed responsibility relationships, to a markedly circumscribed accountability where the relationship is essentially one of independent parties.” But I am not suggesting in this case that there is a general obligation on a dealer in used motor vehicles to disclose to a proposed purchaser anything which might be relevant to the question of whether the proposed purchaser would suffer economic loss in purchasing the vehicle at the price sought by the dealer. This is a much more limited and specific duty arising in circumstances where there is an invitation to test drive the vehicle, because of the specific and foreseeable risk of economic loss to the person accepting that invitation because of circumstances known to the dealer but not known or ascertainable by the prospective purchaser, in circumstances where it is obvious to the dealer that the prospective purchaser is relying on the dealer to disclose anything which ought reasonably to be considered when deciding whether to accept that particular offer. [45] If the dealer had a chair in his office which, for a reason not obvious but known to the dealer, was likely to collapse if sat upon, and the dealer invited the customer to sit upon the chair without warning of this risk of collapse, I doubt there would be any dispute about the existence of a duty of care, so that if the chair did collapse when the customer sat on it in response to that invitation the dealer would be liable for any injury. The difference is that in the present case the duty in question is one to take reasonable care to prevent economic loss rather than physical injury, but in the light of the authorities I do not think that that feature makes such a difference that a duty not to cause economic loss in this specific situation does not apply. [46] Accordingly in my opinion if the first defendant had sued in tort the second defendant may well have been liable. The first defendant did not sue in tort, and it may be that other evidence would have been led had he done so, although it is not immediately obvious why the second defendant would have been more concerned to resist a claim in tort than a claim in contract. No doubt the argument would have been different. I do not of course decide the appeal on the basis that the second defendant is liable in tort. I could not do that without listing the matter for further hearing, amending the pleadings as between the first and second defendants, and giving the second defendant the opportunity to call further evidence, and make further submissions, and it may be that after doing all that I would conclude that such findings were not appropriate. But the fact that on the current evidence it appears that there may well have been an obligation imposed by the general law anyway consistent with the alleged implied terms in the contract is a reason supporting a conclusion that such a term should be implied.30 [47] This is by no means conclusive, but it is not uncommon for terms of this nature to be readily implied. Examples include contracts of employment, and contracts for services. Relevantly, in my opinion, if a car dealer invites a potential customer to test drive a vehicle, there is an obligation on the dealer either to have comprehensive insurance on the vehicle to protect the potential customer while driving the vehicle, with no more than a reasonable excess payable by the customer, or to warn the potential customer prior to the test drive that that is the situation. [48] In these circumstances, I am not persuaded that the conclusion arrived at by the magistrate was incorrect. It is not at all clear to me from his reasons that he was 30 Cheshire & Fifoot (supra) at p.353. -- 15 of 17 -- 16 basing his conclusion on trade usage or custom. The case as pleaded was certainly much wider than that, and implication of the term as a matter of fact, that is in the way which was consistent that the presumed intention of the parties, is a natural enough path for the magistrate to have taken. I am not persuaded that there was any error in his conclusion that such a term would be implied in the contract. Breach of implied term [49] The first defendant then disputed, in a notice of contention, the conclusion that there had been no breach of the implied term, on the basis that the excess on the policy was not shown to be more than was reasonable. That conclusion appears to have been directed to the explanation of the excess from the point of view if the second defendant. It may well be that, in view of the particular circumstances prevailing with the second defendant’s business, an excess of that size was reasonable for it, but that I think is not the relevant issue. In circumstances where the contract is about the use of the vehicle by the first defendant, and the implied term is concerned with the availability of insurance cover for the benefit of the first defendant, the question of what is a reasonable excess has to be determined from the point of view of the first defendant. [50] The significance of the excess is simply that an excess in motor vehicle comprehensive insurance is commonplace, and therefore it would not have been reasonable for the first defendant to expect that there would be insurance in place with no excess at all. But it is unusual in the context of insuring an ordinary motor vehicle, and certainly inappropriate in the context of insuring the use of it by someone like the first defendant, for an excess to be as high as $15,000. There is no evidence of what is a reasonable excess, or indeed what is a common level of excess on such policies, and in those circumstances I think that it is simply a matter of determining what is the highest figure which could amount to a reasonable excess. Another way of looking at this is really to identify how big an excess there would have to be before it would be essential for the second defendant to warn a prospective user of the vehicle that the excess was as large as it was. I consider that there has been an error on the part of the magistrate in this conclusion, in that he appears to have been looking at what was reasonable from the point of view of the second defendant, whereas the real test is what is reasonable from the point of view of the first defendant. Adopting that approach, I consider that an excess in excess of $1,000 cannot be said to be reasonable, and therefore there was a breach of the implied term by the second defendant. [51] The measure of damages in such circumstances is such amount as is necessary to place the first defendant in the same position as if the obligation had not been breached. That involves considering how the present position of the first defendant differs from the position he would have been in had the obligation not been breached. In the present case the magistrate cast the obligation in terms of one to provide the insurance cover. If that is breached, the damages are the amount needed to put the first defendant in the same position as if there had been cover providing for no more than a reasonable excess. If the obligation had been to warn of the situation, damages for breach of that obligation may well have been different. If a warning had been given, the first defendant may well not have undertaken the test drive at all, and if it is more likely than not that that would have been the case, the -- 16 of 17 -- 17 damages would be the whole amount of any liability payable by the first defendant, since without the test drive there would have been no collision and hence no liability. But that is not the way in which the magistrate proceeded. [52] If one looks at the breach as one of a failure to provide insurance with no more than a reasonable excess, the loss suffered because of that breach is the amount payable over and above the amount of a reasonable excess. For that reason the magistrate erred in concluding that the first defendant was entitled to be indemnified in respect of the full amount of his loss to the second defendant; the indemnity is less the highest amount which could be a reasonable excess. Conclusion [53] This however does not affect the formal orders made. Since neither the first defendant nor the second defendant has satisfied the judgment to the plaintiff or any part of it, it is not known now how the burden of that judgment will ultimately fall. But for the claim for damages for breach of contract, it may well be that, as between the first and second defendants the loss should have fallen entirely on the first defendant, because the loss arose because of his failure to take reasonable care when driving the vehicle. But the breach of contract in relation to insurance supersedes that outcome, because that was the very sort of loss against which the insurance (had it been available) would have protected him. Accordingly the position is that, as between the first defendant and the second defendant, the liability is to be borne $1,000 by the first defendant and the balance by the second defendant. But unless and until that liability had been satisfied by one or other or both of the defendants (but not so as to provide double satisfaction) the actual incidence of that liability cannot be ascertained, and therefore no order could be made by the magistrate to bring the actual incidence of liability into line with that division. The magistrate does not even have the jurisdiction, which would have been available in the District Court or the Supreme Court, of making a declaration as to how, as between the first and second defendants, the liability of the plaintiff was to be borne. [54] As far as the liability of the first to the second defendant however the position is clearer; this liability supersedes the second defendant’s prima facie entitlement to recover damages from the first defendant, because he has an entitlement to recover as damages any amount so payable. No judgment therefore was appropriate in favour of the second defendant against the first defendant on the claim. That is the current state of the judgment given by the magistrate. [55] The only aspects of the magistrate’s conclusions which I would interfere with therefore are the conclusion that there was no breach of the implied term, and the conclusion that the first defendant was entitled to an indemnity from the second defendant; I would modify the latter by saying that the entitlement was to an indemnity to the extent that the liability of the first defendant exceeded the sum of $1,000. This however does not affect the formal orders made by the magistrate in this proceeding. It follows that the formal order that I make now is that the appeal is dismissed, with costs. -- 17 of 17 --