John McGrath Motors (Canberra) Pty Ltd v Applebee

The defendant, now the appellant, was a dealer in new and second-hand motor cars and, in October 1961, it had for sale in its showroom at Canberra a 1960 model Ford Prefect sedan car. It was a new car in the sense that it was not second-hand. It had not earlier been sold by retail and had not been used except to drive it to the defendant's showroom from Sydney, a normal method of delivering new cars to country distributors for sale by them. It was a current model which had been manufactured in May 1960 and delivered by the manufacturer to a retail distributor in Sydney in December 1960. It had remained in stock in that distributor's depot in Sydney until the beginning of October 1961 when it was driven to the defendant's premises in Canberra, there to be offered for sale to the public. Due, no doubt, to the time that had elapsed since it had left the factory, it had deteriorated in certain respects. The seat covers had perished, as had the headlight rubbers. The duco on some parts of the bodywork had faded and there were some stains on the upholstery.

The deceased wished to buy a car and, as part of the price, to trade-in an old car of which he was the owner. He and his son inspected the Ford Prefect in the defendant's showroom in company with one of its salesman named Aurousseau who told them that it was a new car. Some of the stains on the upholstery, the perishing of the rubbers on the headlights and some of the deterioration of the duco were noticed by the deceased and his son but they decided to take the car. A trade-in price was agreed upon and the deceased signed a hire-purchase agreement for the Ford Prefect and took delivery of it. In the schedule to the hire-purchase agreement, under the heading "Description of goods", the printed words "new" and "second-hand" appeared. "Second-hand" was struck out and initialled by the deceased.

It was admitted on behalf of the defendant that its salesman had told the deceased that the car was a new one. What was submitted on its behalf was, first, that in the context in which the word "new" was used, the deceased and Aurousseau understood it to mean that the car was not second-hand. It was further submitted that if the word "new" was construed in an objective way as meaning "not old" or "of recent origin", there was no evidence from which it could properly be inferred that this was the meaning which Aurousseau had attached to the word "new" and no evidence that in telling the deceased that the car was "new" he had made a false and fraudulent statement.

The learned trial judge took the view that "new" meant "not old" or "of recent origin" but does not appear to have considered whether that was the sense in which it was understood by either or both of the parties. He proceeded then to consider whether Aurousseau's statement that the car was new was false to his knowledge and fraudulent. He found that it was and reached his conclusion in this way. Aurousseau had sworn that he had known nothing of the earlier history of the car and this his Honour disbelieved. There was, however, no evidence that the earlier history was known to Aurousseau though it appears that at some stage its history came to the knowledge of the defendant's manager, a Mr. Kemmis. The evidence suggests that this was not until some time after the transaction had been completed, but his Honour took it to mean that he knew of it at the time of the sale and said: "Any person occupying the position of manager of a car sales establishment should have known that, with such a history, any motor car, however unused in the sense of mileage, would have defects due to the natural results of time, exposure and inaction. If he did not know he should have known and this observation applied to Aurousseau as well. The action of fraud is not based solely on the defendant's knowledge. If a defendant makes a statement "knowingly or recklessly not caring whether it be true or false", he gives a cause of action to an injured plaintiff". He went on to say that after some of the defects in the car had been pointed out by the deceased to Aurousseau, the latter had continued to say that it was a new car, that a price appropriate to a new car had been agreed upon and that the hire-purchase agreement had described it as a "new car". These facts, it may be interposed, suggest that both parties understood the statement that the car was new as meaning that it was not second-hand. They certainly did not support the view that Aurousseau had acted fraudulently. His Honour ended by saying: "The car was represented as a new car, it was sold as a new car, it was accepted by the purchaser as a new car but in fact it was not, to the knowledge of the vendor, a new car and I think that ends the matter". Unfortunately, his Honour failed to direct his mind to the real issue. It is unnecessary to express a concluded opinion on the meaning to be given to the words "new car" in the context in which they were used, but there is much to be said for the view that the parties understood it to mean "not second-hand". That, however, is not the point. What had to be determined on this aspect of the case was the meaning with which Aurousseau used the words and, in the light of that meaning, whether his statement was, to his knowledge, false or made with reckless indifference as to its truth or falsity. He may well have used them to mean "not second-hand". The evidence suggests that he did and there is no evidence that he did not. In these circumstances a finding that he was fraudulent cannot be supported. "The question is not whether the defendant in any given case honestly believed the representation to be true in the sense assigned to it by the court on an objective consideration of its truth or falsity, but whether he honestly believed the representation to be true in the sense in which he understood it albeit erroneously when it was made.": Akerhielm v. De Mare [1] .

The appeal must therefore be allowed and it is unnecessary to deal with a further submission that, in considering the question of damages, his Honour followed the principles applicable to the assessment of damages for breach of warranty and not those to be applied in cases of fraud.

The judgment should be set aside and in its place judgment entered for the defendant. Counsel for the appellant told us that if the appeal was successful he did not ask for any order for costs of the original hearing or of the appeal. Accordingly we make no order as to the costs of the appeal and the judgment for the defendant is not to carry costs.