Autohaus Hamilton Pty Ltd v Crows Nest Kindergarten Pty Ltd

1. [1]

   By a further amended summons filed 21 July 2025, Autohaus Hamilton Pty Ltd (Autohaus) seeks to appeal the orders of the Local Court made by Herridge LCM on both 15 August 2024 and 28 March 2025. In the earlier orders, Herridge LCM upheld in part Autohaus’ no case to answer application regarding the first plaintiff below, but rejected that application regarding the second plaintiff below. The primary judge subsequently gave leave to the parties to adduce further evidence on causation of loss. Expert evidence was adduced by Mr Harry Azoulay (who is the second defendant in this appeal) but Autohaus adduced no further evidence. There was then a further hearing on 7 March 2025. After reserving his judgment for several weeks, the primary judge published reasons for judgment on 28 March 2025 and ordered Autohaus to pay Mr Azoulay the sum of $10,000, plus costs and interest.

Background facts summarised

1. [2]

   The proceedings below were commenced in the General Division of the Local Court by Crows Nest Kindergarten Pty Ltd (CNK) and Mr Azoulay (together, the defendants on the appeal). They sought damages in the sum of $25,414.39 (plus interest) relating to the cost of repair work carried out by Autohaus on a Porsche 996 motor vehicle in 2022 (Porsche). It was alleged that, following the discovery of metal swarf in the oil arising from the failure of the immediate shaft bearing (referred to hereafter as the “IMS bearing”) in 2016, Autohaus replaced the failed IMS bearing with an IMS retrofit product that subsequently shattered, causing damage to the Porsche.

2. [3]

   In a statement of claim filed 19 June 2023, the plaintiffs claimed that Autohaus had been negligent, including by failure to exercise due care and skill in replacing the IMS bearing, failing to abide by the manufacturer’s recommendations (including a warning which expressly cautioned against removing a failed IMS bearing and replacing it with an IMS retrofit product) and failing to advise the plaintiffs of the manufacturer’s recommendations and warning.

3. [4]

   CNK was the owner of the Porsche between 2013 and 2018. The Porsche was then subsequently transferred to Mr Azoulay in 2018 for nil consideration. Mr Azoulay is the director of CNK and has 50% ownership of that company. There is a reasonable inference that the vehicle was beneficially owned by Mr Azoulay at all relevant times.

4. [5]

   On 15 August 2024, being the first day of the hearing below, the Court was asked to rule on Autohaus’ application for judgment for want of evidence under r 29.10 of the Uniform Civil Procedure Rules (UCPR). The primary judge delivered reasons ex tempore and upheld the application in respect of CNK on the basis that there was no evidence that it sustained any loss but rejected the application insofar as it related to Mr Azoulay. Autohaus challenges order 1, which is as follows (without alteration):

5. [6]

   The primary judge adjourned the hearing of Mr Azoulay’s claim against Autohaus. Subsequently, on 25 October 2024, both parties were given leave to adduce further evidence on causation of loss.

6. [7]

   The resumed hearing took place on 7 March 2025 during the course of which Mr Azoulay adduced evidence on causation from an expert witness (Mr Brent Scott). Autohaus adduced no further evidence. At the end of the hearing, the primary judge reserved his judgment and indicated that he would publish his reasons on 27 June 2025. Counsel for Autohaus asked the primary judge whether he expected the parties “to delve into costs at that time”, to which his Honour said that he would normally just order that costs be agreed or assessed.

7. [8]

   In the events that occurred, the primary judge’s reasons were published on 28 March 2025.

8. [9]

   On that day, after reviewing the expert evidence on causation adduced by Mr Azoulay and noting that Autohaus had adduced no evidence on that issue, the primary judge made the following orders in relation to Mr Azoulay’s claim (noting that some of the orders are unnumbered):

Grounds of appeal

1. [10]

   The appeal purports to involve several questions of law. The grounds of appeal are as follows:

2. [11]

   Grounds 1 and 2 relate to the orders dated 15 August 2024. Grounds 3 to 6 relate to the orders dated 28 March 2025. In the hearing before me, counsel for the plaintiff, Mr Fernon SC, indicated that Grounds 4 and 5 were not pressed.

Mr Azoulay’s cross-summons

1. [12]

   On 18 August 2025, Mr Azoulay filed a cross-summons, with the following grounds:

2. [13]

   Only Ground 3 is pressed. Mr Azoulay sought judgment in his favour in the amount of $16,651.01 (incl GST) or, alternatively, judgment in his favour in the amount of $15,137.28, with interest in either case.

(a) Scope of appeal

1. [14]

   Division 4 of Pt 3 of the Local Court Act 2007 (NSW) provides for appeals from the Local Court. A party may appeal to the Supreme Court as of right on a question of law (s 39(1)). Leave is required where an appeal involves a question of mixed law and fact (s 40(1)). There is no provision for an appeal on a question of fact alone, either with or without leave.

2. [15]

   Section 39 provides for appeals as of right:

3. [16]

   Section 40 provides for circumstances in which leave to appeal is required:

4. [17]

   If error on a question of law or a question of mixed fact and law is found, s 41 of the Local Court Act provides that the Supreme Court may determine an appeal made under ss 39(1) or 40 in the following ways:

5. [18]

   The Court’s jurisdiction is governed by the terms of s 75A of the Supreme Court Act 1970 (NSW), which provide that an appeal from the Local Court to it, not being an appeal under the Crimes (Appeal and Review) Act 2001 (NSW), is an appeal by way of rehearing. As observed by Rothman J in El-Hadi v Australian Timbers (NSW) Pty Ltd [2021] NSWSC 501 at [46] (footnotes omitted) (emphasis added):

(b) Question of law

1. [19]

   Justice Basten emphasised some relevant features of ss 39 and 40 of the Local Court Act in Souaid v Nahas [2019] NSWSC 1132 at [3] (emphasis added):

2. [20]

   In Rose v Tunstall [2018] NSWCA 241 at [31] per Payne JA (Basten and Simpson JJA agreeing), it was stated that in an appeal under s 39 of the Local Court Act, when an error of law has been established, the Supreme Court does not have the power to make findings of primary fact. The applicant there appealed to the Supreme Court on a question of law pursuant to s 39(1) of the Local Court Act. The primary judge found that the Magistrate had erred in failing to consider the operation of a provision in the Associations Incorporation Act 1984 (NSW) but dismissed the appeal on the basis that the applicant had not established matters subject to that provision. The primary judge also overturned the Magistrate’s finding that the respondent established a defence. In refusing leave to appeal and to the cross-appeal, Payne JA stated at [32]-[34] (emphasis added):

(c) Principles guiding the grant of leave

1. [21]

   I attempted to summarise some of the principles relating to the grant of leave to appeal pursuant to s 40 in Alan K Davies Pty Ltd v Agaiby [2025] NSWSC 1271 at [47] (noting what is said in respect to the need for proportionality between the amount in dispute and costs where there is a small claim):

2. [22]

   Section 101(2)(r)(ii) of the Supreme Court Act provides that an appeal to the Court of Appeal shall not lie, except by leave of the Court of Appeal, unless the matter involves (directly or indirectly) any claim respecting any property having a value of $100,000 or more.

3. [23]

   The value of the claim before this Court is significantly below the statutory threshold. It may be inferred that the total legal costs involved in the case before the Local Court and the appeal to this Court already involve a sum considerably in excess of the amount in dispute.

4. [24]

   Section 60 of the Civil Procedure Act 2005 (NSW) provides:

5. [25]

   As Basten JA emphasised in Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [39]:

(d) Grounds 1 and 2 of the further amended summons

1. [26]

   As noted above, Grounds 1 and 2 concern the orders dated 15 August 2024, which relate to r 29.10 of the UCPR and are interlocutory in nature. It is common ground that leave to appeal is required.

2. [27]

   Rule 29.10 of the UCPR is as follows:

3. [28]

   Autohaus submits that the evidence required successfully to oppose a no case to answer application was described in ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 814, as adopted in Re Hair Industrie Penrith Pty Ltd [2015] NSWSC 1278. As noted by Hamilton J in ASIC at [14], the assessment of a no case to answer application is based on “the evidence given”.

4. [29]

   In considering Grounds 1 and 2, it is necessary to summarise the way in which Autohaus presented its no case to answer application below. The then counsel for Autohaus (Ms Nolan) contended that there was no case to answer against either plaintiff for two reasons. First, because special vulnerability had not been pleaded, the Court could not find on the basis of existing evidence that Autohaus breached its duty of care in not advising the plaintiffs to replace the engine as opposed to installing the IMS retrofit. Secondly, the evidence did not establish a causal link between the advice given in 2016 and the damage to the car sustained some 6 years later in 2022. As counsel put it, “it does not follow that the failure to advise caused that loss, because that loss would have, been on the plaintiffs’ case, incurred in 2016…”. In other words, the contention was that the plaintiffs had failed to establish any additional costs incurred in 2022 which would not have been incurred in 2016.

5. [30]

   Focussing for the moment on the alleged absence of causation of loss as a basis for the no case to answer application, the primary judge indicated to counsel for the plaintiffs that he did not need to be addressed further on that issue, but was more interested in hearing about damages. Counsel responded as follows:

6. [31]

   In support of those submissions, counsel pointed to an invoice dated 27 October 2022 (the Invoice). The Invoice related to all the repairs carried out on the vehicle in 2022, which totalled approximately $25,000. The Invoice included numerous individual items. In response to a question from the primary judge, counsel for the plaintiffs confirmed that the claim for damages related to only three of the items in the Invoice as representing expenditure in 2022 which could have been avoided had the engine rebuild been carried out in 2016. Those three items were identified as the cost of sending the engine block to New Zealand ($4804.55), the cylinder head “reco sublet” ($1654.55) and the new crankshaft ($9282.73). These were said to be the additional costs incurred by the plaintiffs resulting from Autohaus’ failure to do an engine rebuild in 2016.

7. [32]

   After a short adjournment, the primary judge delivered ex tempore reasons in relation to the no case to answer application. His Honour readily accepted that application in relation to the first plaintiff on the basis that there was no evidence of any loss by it in circumstances where ownership of the vehicle was transferred to Mr Azoulay in October 2018.

8. [33]

   His Honour then turned to consider and determine the application as it related to Mr Azoulay. His Honour found that there was evidence to support the claim that it was negligent of Autohaus to install the IMS retrofit in 2016 instead of replacing the entire engine. He referred to a newsletter dated 27 August 2015 called “AUTOHAUS NEWS” which stated unequivocally that where there is an IMS bearing failure a “complete engine disassembly is required to replace the intermediate shaft and in most cases, complete rebuild or engine replacement is your ONLY option” (emphasis in original).

9. [34]

   The primary judge also referred to the manufacturer’s instruction manual in which was described the “pre-qualification procedure” for an IMS retrofit and solution. It stated that “The biggest mistake that can be made is assuming that every vehicle is healthy enough to have the IMS retrofit / IMS solution installed” and that the pre-qualification procedure had to be taken seriously.

10. [35]

    His Honour’s explanation for rejecting the r 29.10 application vis-à-vis Mr Azoulay is captured in the following paragraphs of his Honour’s ex tempore reasons dated 15 August 2024:

11. [36]

    The primary judge’s reference to the “additional items” plainly refers to the cost of the three items in the Invoice which the plaintiffs contended they would not have incurred if Autohaus had rebuilt the engine in 2016. The primary judge was well aware of the Invoice and that these additional items were included in it. The Invoice provided some evidence of loss, but his Honour was concerned that there was no evidence which established that the items were truly additional to the cost of a complete engine rebuild in 2016.

12. [37]

    That this is a fair reading of the primary judge’s reasons is confirmed by an extract from the transcript below dated 15 August 2024. The transcript records an exchange between the primary judge and counsel immediately after reasons had been published. The exchange related to how Mr Azoulay’s case would now progress following the rejection of the no case to answer application. In particular, there was a discussion as to whether the parties should have an opportunity to adduce further evidence. Ms Nolan submitted that Mr Azoulay was not entitled to adduce any further material. It is important to note the primary judge’s response and, in particular, his Honour’s reference to his finding that, although certain aspects of Mr Azoulay’s claims were “spurious”, they were supported by some evidence, but further evidence was needed in relation to causation (emphasis added):

13. [38]

    Autohaus contends that although the primary judge identified the correct test in applying r 29.10 of the UCPR, his Honour seriously misapplied that principle. This was said to relate to the primary judge’s finding that there was no evidence which established a causal link between the “additional items” the subject of Mr Azoulay’s claim for damages in respect of the 2022 repairs and the IMS bearing retrofit in 2016. Autohaus contends that the primary judge should have found that Autohaus had no case to answer in respect of both plaintiffs’ claims.

14. [39]

    On a fair reading of the primary judge’s ex tempore reasons, as confirmed by the primary judge’s subsequent observations in the transcript, his Honour rejected the no case to answer application in respect of Mr Azoulay because, although the Invoice contained items relating to the work carried out in 2022 which Mr Azoulay said was additional to work which ought to have been carried out in 2016, further evidence was needed to establish that Autohaus’ failure to do an engine rebuild in 2016 had caused Mr Azoulay to incur additional expenditure in 2022.

15. [40]

    As noted above, this then led to Mr Azoulay retaining Mr Brent Scott as an expert. In his expert report dated 13 December 2024, Mr Scott gave evidence regarding the repairs which he said needed to be carried out on the engine in 2022 that were additional to a standard rebuild. The various items were all included in the Invoice. Mr Scott said that the additional repairs “were required due to the severe damage to the engine, however, for a minor rebuild/reconditioning, these major repairs would not be necessary, with only minor repairs required”. Mr Scott concluded that based on the evidence provided to him and his industry experience “the engine rebuild would have been significantly less expensive if undertaken at the time the IMS bearing failure was detected”.

16. [41]

    When the hearing resumed on 7 March 2025 (which included Autohaus cross-examining Mr Scott), Mr Azoulay’s counsel explained that the only three items on the Invoice for which damages were then claimed as additional work which would not have been required had the engine rebuild occurred in 2016 were the items relating to the shipping of the engine block to New Zealand ($4,804.55), the extra labour ($1,050.00) and a new crankshaft ($9,282.73), giving a total figure of $15,137.28. One of these items was different from those previously claimed (see at [31] above).

17. [42]

    For the following reasons, I consider that leave to appeal should not be granted in respect of Grounds 1 and 2. The primary judge properly referred to N Adams J’s judgment in Moneytech Finance Pty Ltd v Diamond Made Pty Ltd (in liq) [2019] NSWSC 259 at [161]-[162] in identifying the relevant principle in a no case to answer application as whether, based on the available evidence, a judgment “could not be supported”. Emphasis should be placed on the words “could not” as opposed to “would not”. It is not a question of whether the existing evidence should be accepted, but rather whether the evidence is capable of establishing the matters required for the plaintiff to succeed.

18. [43]

    As the following extracts from the transcript indicate, there can be no doubt that the primary judge correctly understood the importance, in applying r 29.10, of the distinction between a judgment which “could be supported” and one which “would be supported”:

19. [44]

    The primary judge viewed the Invoice as providing only limited evidence that Mr Azoulay had incurred additional expenditure in 2022 compared with the cost of an engine rebuild in 2016. Further evidence was required to establish the requisite link. Drawing on the distinction between a judgment that “could be supported” as opposed to one which “would be” supported, the primary judge considered that it was appropriate for the parties to have leave to adduce further evidence on causation.

20. [45]

    I do not consider this is one of those “rare” cases envisaged by Basten JA in Souaid where it is appropriate to grant leave where the primary judge has correctly stated the legal principle but arguably misapplied it to the facts as found. Grounds 1 and 2 of the further amended summons do not identify any issue of principle, public importance or reasonably clear injustice that is more than merely arguable so as to warrant a grant of leave. Rather, those grounds are essentially directed to the primary judge’s fact finding. Merely because there may be some force in Autohaus’ claim that the primary judge erred in his fact finding is insufficient to grant leave to appeal. Autohaus acknowledged that the primary judge appreciated the correct test in applying r 29.10 so no issue arises of there being a question of mixed law and fact.

21. [46]

    Another important consideration in refusing a grant of leave relates to the disproportionality of the amount in dispute and the costs of the proceeding which, as noted above, must already be considerable and far outweigh the relatively modest sum in dispute which is well below the statutory threshold.

22. [47]

    Finally, the following observations of Basten JA (with whom Tobias AJA agreed) concerning the policy underlying a requirement to obtain leave in Be Financial at [37] are apposite:

23. [48]

    Turning now to Grounds 3 and 6 of the further amended summons, I shall explain why both those grounds are rejected.

24. [49]

    Ground 3 claims that the primary judge erred in law in failing to determine whether Mr Azoulay had a special vulnerability such that Autohaus owed him a duty of care and breached that duty. The difficulty with this ground, even if it relates to a question of law, is that while the need for special vulnerability was raised by Autohaus’ then counsel, Ms Nolan, in the hearing on 15 August 2024 (see at [29] above), the point was not pursued when the matter resumed on 7 March 2025. In closing address on that day, Autohaus’ replacement counsel stated unequivocally that the only two issues requiring determination by the primary judge were “damages and causation”. It is unsurprising, therefore, that the focus of the primary judge’s second reasons for judgment was only on those two issues and no mention is made of “special vulnerability”. The point was effectively abandoned by Autohaus and it should not be permitted to run the point now (see Coulton v Holcombe (1986) 162 CLR 1 at 11; [1986] HCA 33 and Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 284; [1990] HCA 11).

25. [50]

    Finally, Ground 6 claims that the primary judge erred in law in failing to consider and apply cll 38 and 39 of the Local Court Practice Note Civ 1 (Practice Note) and r 2.9 of the Local Court Rules. Autohaus contends that, under r 2.9(3)(b), the allowable costs in a Small Claims Division following a trial are the amount of costs allowable on entry on a default judgment for an unliquidated claim in the proceeding. Autohaus adds that under cll 39.1-39.3 of the Practice Note, where judgment is obtained in the General Division of the Local Court for less than $20,000 (as is the case here) an order for costs will not be made in an amount that is greater than that which otherwise would have been awarded if proceedings had been determined in the Small Claims Division. Or, if the case has appropriately been brought in the General Division, the amount payable for costs is that payable in the Small Claims Division or 25% in the amount awarded by the Court, whichever is the larger.

26. [51]

    Autohaus emphasises that the primary judge made no determination as to whether the proceedings had been properly brought in the General Division. In any event, in circumstances where the amount of damages awarded (including costs) amounted to $11,882.14, Autohaus contends that the maximum amount payable for costs should have been 25% of that figure, i.e., $2,970.54.

27. [52]

    Autohaus contends that the costs order made by the primary judge on 28 March 2025 reveals a clear failure to apply relevant principles because the defendants’ claims should have been brought in the Small Claims Division. Autohaus contends that, since leave to appeal is required in respect of Ground 6, such leave should be granted because of the primary judge’s failure to consider a fundamental principle in respect of costs.

28. [53]

    It is common ground that Autohaus requires leave to appeal in respect of Ground 6. Although I accept that Ground 6 raises an issue of principle relating to the primary judge’s failure to refer to the Practice Note or the Local Court Rules as described above, that is not determinative of the issue of leave. The Court retains a discretion in the matter. That discretion should not be exercised in Autohaus’ favour in the following circumstances:

(a) Extension of time

1. [54]

   Mr Azoulay seeks an extension of time to file the cross-summons.

2. [55]

   Rule 50.10(2)(a) of the UCPR provides that a cross-summons must be filed within 28 days after service of the summons commencing the appeal upon the defendant. An application seeking an extension of time must form part of the cross-summons should the defendant file the cross-summons pursuant to sub-r (2)(c), which provides for the defendant to file “within such a further time as the higher court may allow” (r 50.10(3)).

3. [56]

   Mr Azoulay submits that there is no prejudice to Autohaus because the cross-summons was filed in accordance with consent orders dated 21 July 2025, which provided for Mr Azoulay to file a cross-summons by 18 August 2025, as well as for Autohaus to file its further amended summons.

4. [57]

   I accept these submissions. I consider that time should be extended.

(b) Ground 3

1. [58]

   Mr Azoulay submits that the primary judge erred in applying a discount to the damages payable by Autohaus to him. He claims that the primary judge erred in law in three ways: (1) by not affording him procedural fairness; (2) by failing to give reasons as to the legal basis for making the discount; and (3) by applying the wrong legal test.

2. [59]

   Mr Azoulay seeks the relief in prayers 3(c) or (d) of his cross-summons, being judgment in the sum of $16,551.01 (incl. GST) or, alternatively, $15,137.28 (excl. GST), respectively. It may be noted that these sums are still relatively modest.

3. [60]

   I am satisfied that each of the three matters described immediately above raise one or more questions of law and Mr Azoulay’s cross-summons properly arises for determination. For the following reasons, however, it should be dismissed.

4. [61]

   There is no basis for Mr Azoulay’s complaint of procedural unfairness. The possibility of making a discount on damages was squarely raised by the primary judge at the hearing on 7 March 2025 when his Honour asked whether he should take into account that the vehicle had been used for six years. He asked Mr Azoulay’s counsel what the mileage of the Porsche was in 2022 as opposed to 2016. Counsel appreciated that a discount was a possibility because he explicitly submitted that if the primary judge was “inclined to discount it, it would only be for a very minor discount”. The possibility of a discount was squarely on the table, as counsel for Mr Azoulay ultimately accepted before me.

5. [62]

   In Fisher v Nonconformist Pty Ltd (2024) 114 NSWLR 1; [2024] NSWCA 32, Kirk JA said at [54]:

6. [63]

   Here, the relevant issue is whether the primary judge adequately explained why some discount should be made to Mr Azoulay’s damages.

7. [64]

   It is true that the primary judge did not give detailed reasons in support of the discount, but I consider that the reasons provided were adequate. In particular, under the heading of “Quantum”, his Honour noted that the total cost of the relevant items in the Invoice for which damages were sought was $15,137.28. His Honour then added:

8. [65]

   The primary judge then described the history of the vehicle and its mileage before concluding as follows:

9. [66]

   In these circumstances, I am not satisfied that Mr Azoulay has established that his Honour’s reasons on this issue were inadequate.

10. [67]

    Mr Azoulay contends that the primary judge applied the wrong legal test by (a) arbitrarily applying the discount and (b) failing to have regard to the applicable measure of damages in tort. I do not accept either of those contentions.

11. [68]

    As to the first, the discount was not applied arbitrarily. Rather, the primary judge determined the amount of damages on the basis of the available evidence before him, whatever its shortcomings (see Fink v Fink (1946) 74 CLR 127 at 142 per Dixon and McTiernan JJ; [1946] HCA 54; Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332 at 349; [1994] HCA 4).

12. [69]

    As to the second matter, I am not persuaded that the primary judge failed to have regard to the applicable measure of damages in tort. Indeed, two of the paragraphs under the heading “Quantum” in the reasons dated 28 March 2025 (see at [64] and [65] above) indicate that the primary judge correctly understood the relevant test and did his best to apply that test in the particular circumstances, having regard to the limited evidence.

13. [70]

    For these reasons, I would dismiss the cross-summons.

Conclusion

1. [71]

   For all these reasons, the further amended summons filed 21 July 2025 will be dismissed. Although time will be extended for the filing of the cross-summons, the cross-summons will also be dismissed. There is no reason why the ordinary rule should not apply and costs follow the event. Accordingly, Autohaus will pay Mr Azoulay’s costs of the further amended summons and Mr Azoulay will pay Autohaus’ costs of the cross-summons.