Lobster and Co Trading Pty Ltd v TLC Industries Pty Ltd

1. [1]

   The plaintiff commenced proceedings in the Small Claims Division of the Local Court on 9 February 2022 seeking judgment for $6,039.77 together with interest and costs. The basis of the claim was said to be the supply by the defendant of 55 wood folding utility tables that were defective. The amount claimed was the cost of the tables.

2. [2]

   On 24 May 2022, the plaintiff filed an amended statement of claim in the General Division of the Local Court claiming damages. The amended claim also concerned the supply of the allegedly defective tables but claimed for the cost of replacing the tables elsewhere and the cost of hiring tables for the plaintiff’s business until the new tables became available. The ultimate claim for damages made was in the vicinity of $11,500 which constituted the difference between what had been paid to the defendant of $6,039.77 and the amount paid for the replacement tables, together with an amount of $2,937 for the cost of renting tables in the meantime.

3. [3]

   The proceedings were heard on 6 March 2023 by Magistrate Manea, and her Honour delivered her reasons on 2 June 2023 dismissing the claim. Submissions were made about costs, and on 16 August 2023 the Magistrate made an order that the plaintiff pay the defendant’s costs of $15,000 together with disbursements of $6,130.88.

4. [4]

   By a summons filed on 13 September 2023 the plaintiff appealed from the dismissal pursuant to s 39 of the Local Court Act 2007 (NSW).

5. [5]

   On 16 October 2023, the defendant filed a notice of motion pursuant to r 50.16A of the Uniform Civil Procedure Rules 2005 (NSW) seeking that the appeal be dismissed as incompetent. The basis of that motion appeared to be that the appeal grounds in the summons all involved mixed questions of law and fact, and leave had not been sought.

6. [6]

   On 6 December 2023, the plaintiff filed a notice of motion seeking leave to file and rely upon an amended summons which sought leave, as far as it was necessary, to appeal from the whole of the decision below. The summons and the two notices of motion were then fixed by the Registrar for hearing together.

7. [7]

   At the outset of the hearing, I granted leave to the plaintiff to amend its summons as it had sought in its notice of motion. No prejudice was occasioned to the defendant by the amendments which were made. In the circumstances, it was not necessary to deal with the defendant’s notice of motion. However, depending on what is determined in relation to the grounds of appeal, that is, whether they involve a question of law alone or whether they involve a mixed question of law and fact, that determination will have implications for costs orders in relation to each of the notices of motion.

Factual background

1. [8]

   The plaintiff operates a food and beverage business in various locations around Australia. In early December 2021 the plaintiff enquired into the purchase of tables for its business. The plaintiff made enquiries at the defendant’s website being www.dshop.com.au. The plaintiff found a particular table described as a Grace Steel and Wood Folding Utility Table Square 80cm (oak). The evidence from the plaintiff’s director was that the website said of this table:

2. [9]

   On the basis of that description, the director of the plaintiff believed that the table could be used as a sitting table for the plaintiff’s business. On 13 December 2021, by an online chat arrangement, an employee of the plaintiff asked the defendant for a quote for 55 of the tables. Later that day the defendant sent a quote to the plaintiff containing a 10% discount. Accordingly, on 14 December 2021 the plaintiff placed an order with the defendant through its website to purchase 55 of those tables at a cost of $6,039.77.

3. [10]

   The tables were delivered on 22 December 2021 but were not used immediately. They were stored. On 12 January 2022, the tables were taken out of storage and used in the plaintiff’s business on the terrace at the Arts Centre in Melbourne. The plaintiff’s director said that he was present for the set up and first day of trading of the business, and that it was a fine and sunny day.

4. [11]

   He said:

5. [12]

   The director annexed photos of the “types of defects” he described, but the Magistrate ruled that limited weight should be given to those photographs because there was no evidence of when they were taken.

6. [13]

   The director also said in his affidavit:

7. [14]

   The Magistrate ruled that limited weight should be given to that paragraph. There is no appeal in relation to the evidence rulings.

8. [15]

   The director said that he subsequently made enquiry on the defendant’s website to locate a telephone number with which to make contact with someone from the defendant. He said he could not locate a telephone number. Internal documents of the defendant disclosed that a person called Lachlan from the plaintiff accessed an online chat with the defendant on 2 February 2022 where he asked if there was a phone number he could have to call regarding a previous order. A person called Renelyn from the defendant said that she would be happy to assist him but they did not have phone support. She said they could help via chat or email. Nothing more was heard until the statement of claim was served on 11 February 2022.

9. [16]

   The director said that as a result of the defects in the tables the plaintiff was not able to use them for the business. He said that whilst the plaintiff searched out and located new tables, it required rental tables from time to time (to make up the shortage of useable tables). He said the plaintiff incurred $2,937.73 in rental costs. He said the plaintiff subsequently located replacement tables at a cost of $14,171.00.

10. [17]

    The defendant’s evidence, by Christopher Vella, the director of the defendant, confirmed the order by the plaintiff of the tables, provided various screenshots of pages from the defendant’s website relevant to the tables purchased, dealt with correspondence and contact between the plaintiff and the defendant, and also set out in some detail the quality control procedures adopted by the defendant for its goods generally and for the particular goods purchased by the plaintiff. The evidence was that the defendant engaged a related company, Apex QC Pty Ltd to provide quality control services. Examples of reports were annexed to the affidavit.

11. [18]

    Mr Vella’s affidavit said:

12. [19]

    Mr Vella’s affidavit said that the tables left the Brisbane warehouse of the defendant on 17 December 2021, and they were to be shipped, at the plaintiff’s request, to 96 David Road, Castle Hill. Mr Vella said that at the time of leaving the warehouse, all the boxes were in good condition. He annexed photographs of the boxes leaving the warehouse.

13. [20]

    Mr Vella also said in his affidavit that the tables could be found on the defendant’s website through the following links:

14. [21]

    He said the description was as follows:

15. [22]

    That description also accords with what appears on the quality control report dated 6 December 2021. Mr Vella also said that the defendant’s website had not changed since 13 December 2021.

16. [23]

    In its amended defence to the amended statement of claim, the defendant agreed that the plaintiff purchased the tables from the defendant’s website at a cost of $6,039.77. The defendant said that the section of the website from where the tables were purchased was under the heading “Kitchen and Dining Furniture” and “Dining Table and Chairs”, implying that the tables were intended for residential purposes, and said that the tables were not located within the “Outdoor” section of the website.

17. [24]

    The defendant agreed that there was an implied term that the tables were of merchantable quality, free from defects, safe and durable, but denied that there was an implied term that they were fit for purpose and use by the plaintiff for seating customers and were suitable for outdoor use. The defendant said further that the plaintiff had used the tables outdoors for apparent commercial use, and had left the tables outdoors where they had been subjected to harsh weather conditions.

18. [25]

    The defendant said further that pursuant to cl 6.7b of the Return Policy, cl 6.5 of that policy did not apply to goods damaged as a direct or incidental result of misusing the goods.

The Magistrate’s reasons

1. [26]

   The learned Magistrate’s reasons were brief and may be set out in full:

Grounds of appeal

1. [27]

   The grounds of appeal in the amended summons were these:

2. [28]

   Ground 2(a) was not pursued by the plaintiff.

3. [29]

   Grounds 2(b) and (c) involved questions in relation to costs. Leave is required for consideration of such grounds pursuant to s 40(2)(c) of the Local Court Act 2007 (NSW).

The hearing before the Magistrate

1. [30]

   Although the statement of claim was initially filed in the Small Claims Division, the amended statement of claim was filed in the General Division as was necessary because what was sought were damages at large. However, when the matter came before the Magistrate for hearing, counsel for the plaintiff sought that the proceedings should be transferred back to the Small Claims Division because of the actual amount claimed. The Magistrate ruled, however, that the matter was to remain in the General Division.

2. [31]

   A reading of the transcript tends to suggest that those acting for the defendant had assumed that the director of the plaintiff would be present and could, therefore, be cross-examined. However, no notice had been given for him to be there, and he was not there. After an exchange involving the Magistrate and both counsel, counsel for the defendant said that, to avoid wasting time, he would not press his application for cross-examination. The plaintiff had not required the defendant’s director, Mr Vella, for cross-examination.

3. [32]

   In that regard, the Magistrate was in error in saying in her judgment,

Consideration

1. [33]

   The website terms of use of the defendant relevantly provided:

2. [34]

   Section 54 of the Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law (“ACL”) relevantly provides:

3. [35]

   “Consumer” is defined in s 3(1) of the ACL as follows:

4. [36]

   Section 2C of the Acts Interpretation Act 1901 (Cth) defines “person” as including a body corporate.

5. [37]

   In addition, s 19 of the Sale of Goods Act 1923 (NSW) provides:

6. [38]

   An analysis of the Magistrate’s reasons demonstrates errors relevant to ground 1 of the appeal.

7. [39]

   First, the Magistrate noted that the purchase was subject to any terms implied by law, but her Honour said nothing further about such terms or why they might have been relevant to a determination of the plaintiff’s claim. On the face of the plaintiff’s evidence, the tables had defects from the outset, and would not have satisfied the statutory requirements. The defendant submitted that the delay between delivery and opening the packaging was significant because the plaintiff did not show that the tables were defective when they were delivered. It is clear, however, from para 17 of the plaintiff’s director’s affidavit that the tables had been stored in their packaging since delivery, and only for a 3 week period. In the absence of evidence of neglect or misuse, the principle of continuity applies.

8. [40]

   There was at least an evidentiary onus on the defendant to demonstrate that the cause of the damage was neglect, misuse or excessive use. That was because those matters amounted to an exception to the express warranty that was otherwise provided in the terms and conditions. Moreover, the defendant pleaded misuse in para 10 of its defence but no such evidence was led. As has been noted, the plaintiff’s director was not cross-examined about the storage of the tables between 22 December 2021 and 12 January 2022, but what evidence there was on the topic was found in para 21 of the plaintiff’s director’s affidavit (at [13] above), and that evidence was to the contrary of misuse.

9. [41]

   The Magistrate did not make any determination about whether or not the tables breached the statutory warranties. The defendant’s criticism that the plaintiff had not clearly pleaded the statutory warranties should be rejected. What was contained in par 7 of the amended statement of claim largely mirrored the wording of s 54 of the ACL and otherwise referred to fitness for purpose and merchantable quality, terms which appear in s 19 of the Sale of Goods Act. Counsel for the plaintiff (and counsel or the defendant, for that matter) at the trial made express reference to the guarantees in the ACL. The plaintiff’s counsel also made a submission to the Magistrate about the Sale of Goods Act. In failing to determine how the statutory warranties applied to the claim, the Magistrate was in error.

10. [42]

    Secondly, her Honour also said that she saw no suggestion of any warranty about outdoor or commercial use. The defendant says in its written submissions on appeal that it cannot identify anywhere in the Magistrate’s decision that the three month warranty for commercial use was ignored or misconstrued. Such a submission flies in the face of the Magistrate’s statement that “I see no suggestion of any warranty about outdoor or commercial use”. In the same way, the defendant’s further submission that “there was never a warranty made about the tables being suitable for commercial use” appears to overlook the fact that the lack of fitness and merchantable quality of many of the tables was alleged to have been in place prior to any use of the tables. The plaintiff’s director’s affidavit refers to the tables having problems when they were first removed from the packaging. Whether they were used for domestic or commercial use is therefore irrelevant because it was not the use that brought about their alleged poor condition.

11. [43]

    Some of the tables were said to have deteriorated in the weeks after they were first used. The defendant seeks to rely on the following statement on its website:

12. [44]

    The defendant must have known that the tables were purchased for commercial use by reason of the number ordered. Further, the order did not occur without some actual knowledge on the part of the defendant. The enquiry about a quote, followed by a discount, presumably for bulk, meant that the defendant was on actual notice that commercial use was intended.

13. [45]

    The defendant does not point to anywhere on the website where it is said that the tables were unsuitable for outdoor use. The suggestion appears to come only from the fact that there was a separate part of the website headed “Travel and Outdoors”, whereas these tables were to be found under the heading “Furniture”. Absent a clear warning about outdoor use, the implied statutory warranties must apply even to the tables which were not defective on opening of the packaging.

14. [46]

    Subject to the implied statutory warranties, the fact that the tables were intended for commercial use is probably only relevant to the limited 3 month express warranty given by the defendant rather than the usual 12 month warranty. But the claim was made within the 3 month period in any event. In concluding that there was no warranty about commercial use, the Magistrate was in error.

Question of law or mixed law and fact?

1. [47]

   It next needs to be determined whether these errors constituted questions of law or involved questions of mixed law and fact.

2. [48]

   In Orr v Hunter Quarries Pty Ltd [2022] NSWCCA 39 Beech-Jones CJ at CL (as his Honour then was), with Walton and Price JJ agreeing, said at [14]:

3. [49]

   The errors alleged in the grounds of appeal in appeal ground 1 were said to have arisen from a failure of the Magistrate to construe relevant contractual terms, and then to find that the express and implied terms rendered the defendant liable to the plaintiff. It is difficult to see how those errors could be other than questions of mixed law and fact. In the first place, the question was whether there was to be found in the defendant’s conditions and warranties any form of warranty for goods when purchased or used for commercial use. That involved a question of fact.

4. [50]

   Secondly, the enquiry was whether the condition of the tables meant that they did not comply with s 54 of the ACL and s 19 of the Sale of Goods Act. That involved a factual determination at a number of levels, bearing in mind subs (2) and (3) of s 54. The exercise also involved an application of legal principle, whether the statutory provisions applied, having regard also to the definition of “consumer” in s 3 of the ACL. The questions involved could not be stated and considered separately from the facts.

5. [51]

   Accordingly, leave was needed under s 40. That means that the original summons filed was liable to be struck out as incompetent. The defendant’s motion was appropriately brought, and it was necessary for the plaintiff to seek to amend the summons. When costs are considered, the defendant will be entitled to the costs of its motion, and the plaintiff must pay costs thrown away by the grant of its motion.

Should leave be granted?

1. [52]

   That leaves for determination three further matters. First, since leave is required to appeal, consideration needs to be given to principles concerning the grant of leave. In Lee v New South Wales Crime Commission [2012] NSWCA 262; (2012) 224 A Crim R 94, Bathurst CJ (Macfarlan and Barrett JJA agreeing) said at [12]:

2. [53]

   In Ackerman v Morgan [2019] NSWSC 1250 Walton J, having set out various extracts of judgments from the High Court and the Court of Appeal concerning what needed to be shown for a grant of leave to appeal, summarised the principles in a case involving an appeal from the Local Court at [53]:

3. [54]

   In addition to entering a verdict for the defendant erroneously, the Magistrate also ordered the plaintiff to pay costs of $15,000 plus disbursements of $6,130.88. The prima facie position under cl 38.2(c) of the Local Court Practice Note No 1 is, where the proceedings are transferred from the Small Claims Division to the General Division, the maximum costs that can be awarded is $2,500. The Court may otherwise order.

4. [55]

   The result was that on a claim for $11,461.86, the plaintiff was unsuccessful and was ordered to pay an amount in costs which was almost double the amount of the claim. Where error has been found in the substantive judgment, those errors taken with the costs order amount to a sufficient injustice to grant leave to appeal.

The costs order

1. [56]

   The second matter concerns the costs order made by the Magistrate. If the proceedings are remitted to the Magistrate, the costs order will be set aside by reason of the errors found when dealing with the substantive matters. If this Court varies the terms of the judgment by finding for the plaintiff, it will be necessary to set aside the costs order to take account of that result.

2. [57]

   Since error has been found, and leave to appeal will be granted, it is not strictly necessary to determine whether there was error in the costs assessment. However, two things should be said. First, the Magistrate provided no reasons for her determination of the costs. The costs were argued on 2 June 2023 following delivery of reasons on the substantive claim. At the conclusion of the argument the Magistrate directed written submissions be forwarded to the Court, and following consideration of those her Honour said she would make a decision. I note that, during oral argument, the Magistrate said,

3. [58]

   In any event, reasons should have been provided; the more so, when the Practice Note provided a prima facie requirement which could only be departed from if the court otherwise ordered, and that appears to have been at least the preliminary view of the Magistrate.

4. [59]

   Secondly, cl 35.1 of the Practice Note provides:

Should the matter be remitted?

1. [60]

   The third matter concerns what course this Court should take as a result of the errors which have been found.

2. [61]

   Two things suggest that the proceedings should not be remitted to the Local Court. First, the amount in question means that a further hearing in the local Court would scarcely be consistent with the requirements of s 56 of the Civil Procedure Act 2005 (NSW). Other errors made by the Magistrate would require a complete rehearing. The principal other error was the Magistrate’s determination that the plaintiff had not made out its case on the balance of probabilities. That was said to be because the evidence was sparse and contrary to the quality control evidence which the Magistrate accepted was reliable. The Magistrate also said that the plaintiff’s evidence was uncorroborated.

3. [62]

   It was not suggested by the defendant at the trial that there was any other witness that could have been called by the plaintiff, so that a Jones v Dunkel inference could be drawn by some lack of corroboration. The unchallenged evidence of the plaintiff’s director was that the tables were in the condition as set out at [11] above. The Magistrate also had evidence that the photographs showed the condition of the tables when they were first taken out of the packaging. Although the photographs were challenged, they were admitted by the Magistrate, albeit with limited weight, whatever that might have meant in the circumstances. There was no evidence to suggest that the director was not telling the truth in saying that the photos showed the condition of the tables when they were unpacked.

4. [63]

   It is difficult to see how the quality control evidence could derogate from the plaintiff’s evidence when the quality control procedures involved only a sampling of the goods. Further, the evidence that the packaging was unimpaired when it left the defendant’s premises says nothing about the condition of the tables inside the packaging. In the absence of any cross-examination of the plaintiff’s director, and where the only opposing evidence was of undamaged packaging and quality control evidence, the Magistrate was in error in rejecting the evidence of the plaintiff’s director.

5. [64]

   Secondly, since there was no cross-examination of the deponents of the affidavits before the Magistrate, this Court is in as good a position to determine the matter as a magistrate in the Local Court on a remitter.

6. [65]

   There is no reason to reject the unchallenged evidence of the plaintiff’s director. For that reason, there is also no reason to give limited weight to the photos taken of the tables where the evidence was that the photos were of the types of defects the director had set out in para 18 of his affidavit. As noted earlier, there was at least an evidentiary onus on the defendant to demonstrate that the cause of the damage was neglect, misuse or excessive use, and the defendant must have known that the tables were purchased for commercial use by reason of the number ordered.

7. [66]

   On all of that evidence, the Magistrate should have found that the tables were covered by the defendant’s express warranty for 3 months and by the implied statutory warranties. Under the express warranty offered, the plaintiff was entitled to replacement “and compensation for any other reasonably foreseeable loss or damage”. When the defendant knew the tables were purchased for commercial use, reasonable compensation would include the cost of hiring tables until replacements were obtained.

8. [67]

   The plaintiff’s director annexed to his affidavit invoices which were said to be in respect of the purchase of replacement tables and for the hire of tables in the meantime. These consisted of an invoice from Apex Co Pty Ltd dated 21 September 2022 for $4,608.03 in respect of 16 tables and an invoice from Brayco Commercial Pty Ltd dated 6 October 2022 for $4,525 in respect of 20 tables. There was a third invoice from Adage Furniture in respect of 20 tables at a cost of $5,038, but this invoice was not put forward before the Magistrate and at the hearing of the appeal it was expressly abandoned.

9. [68]

   There were invoices for hiring tables (a) dated 17 February 2022 from Hampton Event Hire for an amount of $1,561.20 (an amount which did not include umbrella hire referred to in the invoice); (b) dated 14 February 2022 from Harry the Hirer for $580.63, and (c) dated 24 January 2022 from Innovative Hiring for $85 for a table together with half of the delivery and damage waiver charges plus GST which total $187.

10. [69]

    These amounts for replacement and hire total $11,461.86.

11. [70]

    No submissions were made to the Magistrate on behalf of the defendant concerning the quantum of the claim. The matter was argued only on the issue of the liability of the defendant by reason of the use of the goods, the warranties and whether there was an evidentiary onus on the defendant to prove neglect, misuse or excessive use, in terms of the exception to the express warranty.

Conclusion

1. [71]

   For the reasons I have given, the plaintiff needed leave to appeal. That justified the defendant in filing its motion to dismiss the appeal as incompetent. However, on the plaintiff’s motion I granted leave to the plaintiff to amend its summons to seek leave to appeal. The costs of those motions, and any costs thrown away by reason of the amendment, should be borne by the plaintiff.

2. [72]

   The plaintiff has, however, been successful in demonstrating error on the part of the Magistrate and in obtaining leave to appeal to set aside the Magistrate’s orders. The plaintiff is entitled to its costs in that regard and to have its costs at first instance. Further, the defendant is entitled to a certificate under the Suitors’ Fund Act 1951 (NSW) provided it is not an excluded corporation under s 6(7) of the Act.

3. [73]

   Rather than making separate costs orders in relation to each of the notices of motion and the appeal, I propose to offset the costs orders so that the defendant will be ordered to pay 90% of the plaintiff’s costs of the appeal.

4. [74]

   I make the following orders:

   1. (1)

      Grant leave to the plaintiff to appeal.

   2. (2)

      Uphold the appeal.

   3. (3)

      Set aside:

   4. (4)

      Judgment for the plaintiff in the sum of $11,461.86.

   5. (5)

      The defendant is to pay the plaintiff’s costs of the hearing in the Local Court in the sum of $2,500.

   6. (6)

      The defendant is to pay 90% of the plaintiff’s costs of these proceedings.

   7. (7)

      The defendant is to have a certificate under the Suitors’ Fund Act 1951 (NSW) if otherwise entitled.