Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd

Judgment

1. THE COURT: This is an application for leave to appeal from a decision of the primary judge (McCallum J) delivered on 14 December 2016 (Capitol Carpets Pty Ltd v Schwartz Family Co Pty Ltd [2016] NSWSC 1753). Her Honour allowed the present respondent's appeal from a judgment of the Local Court. The applicant seeks to restore the judgment for $53,000 given in its favour in the Local Court.

Brief facts

1. The applicant is the owner of the Mercure Hotel. In June 2008, the respondent was engaged to lay carpet at that hotel. The carpet laying took place over a year between July 2008 and July 2009. The carpet was supplied by the applicant. The underlay and all other necessary materials to lay the carpet were supplied by the respondent. The carpet was stuck to the underlay by the respondent with adhesive.
2. In late 2012, the Mercure Hotel's chief engineer noticed that the carpet demonstrated "bubbling, rippling and coming away from the ground" in certain heavily trafficked areas in the hotel.
3. In July 2014, the applicant commenced proceedings in the Local Court seeking damages. Ultimately, the only claim that was pressed was one seeking damages for the cost of relaying the carpet. As evidence of quantum, the applicant relied on the amount it was charged by the respondent originally to lay the carpet.

Decision of the Local Court

1. On 6 November 2015, in the Local Court, the applicant obtained a judgment against the respondent for the sum of $53,000. It is not clear whether the damages were awarded for breach of contract or in negligence.
2. In the Local Court, the applicant successfully alleged that the original carpet laying suffered from an adhesive failure. The magistrate identified the critical issue as being whether that adhesive failure was, on the one hand, caused by the respondent not using sufficient adhesive and not applying it properly, or, on the other, caused by the applicant allowing trolleys and foot traffic on the carpet within 24 hours and before it was cured, which was contrary to the express instructions of the respondent.
3. The magistrate identified both causes as "significant" in the failure of the carpet. The magistrate's conclusion as to which of those two causes was "more responsible" for the failure of the carpet should be set out in full. Her Honour found at [26]: "…I am satisfied that both these causes are significant in the resulting failure. There is no evidence that I can look to to determine which factor is more responsible. I am satisfied that defendant's failure [sic] makes them liable for 50% of the loss to the plaintiff."
4. We will return to this causation finding when addressing the arguments of the parties on the application for leave to appeal.

The decision of the primary judge

1. In the appeal the primary judge was called upon to address issues under ss 39-41 of the Local Court Act 2007 (NSW).
2. Under s 39 of the Local Court Act the respondent was entitled as of right to appeal to the Supreme Court on a question of law: "(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law. (2) A party to proceedings before the Court sitting in its Small Claims Division who is dissatisfied with a judgment or order of the Court may appeal to the District Court, but only on the ground of lack of jurisdiction or denial of procedural fairness."
3. Under s 40 the respondent was entitled, by leave, to appeal to the Supreme Court on a question of mixed law and fact: "(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court. (2) A party to proceedings before the Court sitting in its General Division who is dissatisfied with any of the following judgments or orders of the Court may appeal to the Supreme Court, but only by leave of the Supreme Court: (a) an interlocutory judgment or order, (b) a judgment or order made with the consent of the parties, (c) an order as to costs."
4. Upon error being found, the powers of the primary judge were set out in s 41 of the Local Court Act: "(1) The Supreme Court may determine an appeal made under section 39 (1) or 40: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal. (2) …."
5. Although an appeal to the Supreme Court only lay as of right on a question of law, the respondent did not identify the questions of law that were the subject matter of the appeal, but rather asserted the magistrate erred in law in various ways. This was wrong (TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178; [1988] FCA 119; B & L Linings Pty Ltd v Chief Commissioner of State Revenue (2008) 74 NSWLR 481; [2008] NSWCA 187; Colby Corporation Pty Ltd v Federal Commissioner of Taxation (2008) 165 FCR 133; [2008] FCAFC 10 at [13]; Osland v Secretary, Department of Justice (No 2) (2010) 241 CLR 320; [2010] HCA 24 at [21]; Hoe v Manningham City Council [2011] VSC 37 at [3]-[4]; Smalley v Secretary, Department of Health and Ageing [2011] FCA 302 at [10] ff); Ferella v Chief Commissioner of State Revenue [2014] NSWCA 378 at [6], [22]) ("Feralla"). As Leeming JA said in Ferella at [6]: "Obviously, it is not possible, merely by the device of asking whether the Tribunal erred in law in doing something or failing to do something, to circumvent the statutory limitation on the scope of the appeal."
6. Nonetheless no point seems to have been taken about this by the applicant before the primary judge. Nor was it referred to in the application for leave to appeal from the orders of the primary judge.
7. After reciting the relevant facts and outlining the decision of the magistrate, the primary judge addressed each of seven grounds of appeal. Only grounds 2, 4 and 7 of that appeal remain relevant.
8. Ground 2 related to the life expectancy of the carpet. The magistrate had found that "the carpet and the installation should have been expected to last another 5-8 years". Ground 2 alleged that the magistrate erred in law in admitting the evidence of the applicant's expert, Mr Cooper, that the carpet should last another 5-8 years, by reason of a failure to comply with the "proof of assumption" rule as explained by Heydon J in Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21.
9. The primary judge rejected ground 2, although she granted leave under s 40 of the Local Court Act to the respondent to address the finding of fact based on Mr Cooper's evidence.
10. Her Honour noted that although the assumptions made by Mr Cooper were not proved, the plurality in Dasreef did not accept Heydon J's analysis of the proof of assumption rule. In the result, her Honour found that, although Mr Cooper's opinion evidence was not shown to have been inadmissible, it was of very little weight.
11. Ground 4 related to the findings of the magistrate that there was "no evidence that the problem lay with the carpet itself" in circumstances where the respondent's experts gave evidence that the carpet was not fit for purpose and this was the main contributing factor to the breakdown of the installation.
12. The primary judge upheld ground 4. Her Honour found in the face of that evidence that it was "difficult to understand" the magistrate's finding that there was "no evidence that the problem lay with the carpet itself". Her Honour found there clearly was such evidence. Her Honour rejected the applicant's submissions on this topic which were to the effect that it would be an error to give weight to these opinions, for essentially the reasons counsel for the applicant put to the respondent's experts in cross-examination.
13. Ground 7 was that the magistrate erred in law in: 1. finding that 50 per cent of the cost of relaying the carpet was the proper measure of damages in circumstances where the life of the carpet was unknown due to the failure of the applicant to comply with a Court order to provide particulars including samples of the carpet for testing by the respondent's experts; and further or in the alternative 2. her calculation of damages.
14. The primary judge treated ground 7 as raising for consideration the magistrate's findings about causation. The primary judge found that it was implicit in the claim for the cost of re-laying the carpet that there was utility in doing do and, thus, that the "life expectancy" of the carpet was an issue which went to causation and on which the applicant bore the onus of proof.
15. The magistrate gave four reasons for her conclusion that the carpet should have lasted another 5-8 years. The primary judge rejected all of those reasons as follows: 1. the applicant conceded that the finding that the same carpet was used in other hotels without problems was not open on the evidence; 2. Mr Cooper's evidence was of very little weight (as her Honour explained in addressing ground 2); 3. evidence given by the respondent's expert, Mr Tree, that carpet can last 20-30 years was incapable of sustaining any conclusion about the likely future life expectancy of the carpet the subject of this case; and 4. evidence given by a director of the applicant, Dr Schwartz, in cross-examination to the same effect as that rejected by the magistrate from his statement about the purchases of carpet he had made in the past from China was of no weight.
16. The primary judge found that it followed from the conclusion that ground 7 was made out and that no new finding of fact was required that the appropriate order was one made under s 41(b) of the Local Court Act setting aside the judgment entered in the Local Court.

Principles regarding leave to appeal

1. Section 101(2)(r)(ii) of the Supreme Court Act 1970 (NSW) 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.
2. Ordinarily, leave to appeal to the Court of Appeal in matters is limited to matters which involve issues of principle, questions of general public importance or an injustice which is reasonably clear: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; The Age Company Ltd & Ors v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]. That is especially so where the application involves small claims. The rationale for requiring leave where the matter in issue is less than $100,000 includes: "(3) The discouragement of unnecessary litigation in small amounts where public costs are necessarily involved including the time of the Judges, court officers, use of court buildings and functions, court reporters and the other expensive features of public litigation; (4) A recognition of the fact that, particularly in small claims, the amount of costs that can be recovered on a party and party costs order, are typically below those which are actually incurred by a party and which, in respect of a small claim, may be completely disproportionate to the amount actually at stake; (5) The need ordinarily to conserve the time of the Court of Appeal in small claims to matters which involve issues of principle, questions of general public importance or an injustice which is reasonably clear, that is to say goes beyond merely being arguable.": Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69 per Kirby P.
3. It was common ground before this Court that the value of the case was $53,000. It may comfortably be assumed that the total legal costs involved in a four day case before the Local Court and an appeal before the primary judge now involve a sum in excess of that in dispute.
4. Section 60 of the Civil Procedure Act 2005 (NSW) provides: "60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute."
5. As Basten JA pointed out in Be Financial Pty Ltd at [39]: "This direction has an important operation in respect of leave applications involving amounts below the statutory threshold. Where, as in the present case, the costs of the trial are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will be a factor weighing heavily against a grant of leave."

Proposed grounds of appeal

1. Before addressing the question of leave to appeal, we will summarise our views, expressed at a high level, in relation to the proposed grounds of appeal in the context of our determining whether the decision of the primary judge involves any issues of principle, questions of general public importance or an injustice which is reasonably clear.

Ground 2 of the appeal from the Local Court - proposed grounds 1-2

1. The applicant contends, in relation to ground 2 of the appeal in the Court below, that the primary judge erred in finding that Mr Cooper's evidence in regards to the future life expectancy of the carpet ought to be given little weight and that such a finding was not open to her as it involved a question of fact only. There appear to us to be two problems with the applicant's argument.
2. First, as noted above at [16] the primary judge dismissed ground 2.
3. Secondly, at [84] of her judgment, the primary judge granted leave under s 40 of the Local Court Act to challenge this finding of fact.
4. The conclusion that Mr Cooper's evidence was of little weight was taken into account by the primary judge in relation to ground 7. No issue of principle, question of general public importance or an injustice which is reasonably clear arises from her Honour so doing.

Ground 4 of the appeal from the Local Court - proposed grounds 3-5

1. The applicant contends, in relation to ground 4 of the appeal in the Court below, that the primary judge erred in upholding that ground of appeal or, alternatively, that it was not an error which justified setting aside the judgment of the Local Court.
2. The magistrate's conclusion which was challenged in the Court below in ground 4 was that there was "no evidence that the problem lay with the carpet itself". The primary judge found that there was evidence that the problem lay with the carpet from: 1. Mr Sean Doherty, who gave uncontested evidence about the unusual "stretchiness" of the carpet; 2. the respondent's experts Mr Tree and Mr Considine, who gave evidence that "stretchiness" of the carpet meant that the carpet was not dimensionally stable; 3. Mr Considine, who in cross-examination maintained the view that the dimensional instability of the carpet was the principal cause of the ultimate failure of the installation.
3. We reject the applicant's construction of the magistrate's finding that the "problem" being addressed was limited to a failure of adhesion. It is tolerably clear that the "problem" being addressed in that finding was the "bubbling" or "rippling" of the carpet. In cross-examination, the respondent's expert Mr Considine rejected the suggestion repeatedly made by the cross-examiner that the "rippling" of the carpet was only possible after the adhesion of the carpet had failed. He maintained his evidence that the dimensional instability of the carpet was the principal cause of the ultimate failure of the installation.
4. In our view the primary judge was correct to conclude that the magistrate erred in law in finding that there was "no evidence that the problem lay with the carpet itself". It follows that no issue of principle, question of general public importance or an injustice which is reasonably clear arises from these proposed grounds of appeal.

Ground 7 of the appeal from the Local Court - proposed grounds 6-8

1. The applicant contends, in relation to ground 7 of the appeal in the Court below, that the primary judge erred for effectively four reasons: 1. that the primary judge reversed the onus of proof; 2. that the primary judge incorrectly took into account her finding that Mr Cooper's evidence of the likely life of the carpet was of little weight; 3. that the primary judge ignored uncontested expert evidence; and 4. that the primary judge ignored the evidence of the applicant's engineer Mr Wong, which was said to demonstrate an admission made by the respondent.
2. The applicant's principal complaint, the reversal of the onus of proof, is premised on the assumption that causation had been proved by the applicant and the issue being addressed by the primary judge in ground 7 was the appropriate measure of damage. That premise should be rejected. It is tolerably clear that the question being considered by the primary judge in ground 7 was whether the applicant had proved causation. At [99], the primary judge found that, on the evidence, the applicant had failed to prove any basis for the award of damages clamed in the amended pleading. The burden of proof of causation lay on the applicant. The primary judge concluded that the applicant had failed to discharge that burden. Fatally to the applicant's case, the learned magistrate did not determine whether, but for the breach alleged, the respondent not using sufficient adhesive or not applying it properly, the applicant would have suffered loss or damage, being the "bubbling" or "rippling" of the carpet. And the applicant did not seek such a finding from the primary judge by cross-appeal or notice of contention.
3. In the absence of such a finding, any evidentiary or other question arising in relation to the assessment and proof of damages ultimately is of no significance to the outcome of the applicant's claim.
4. The applicant's remaining complaints about ground 7, even if correct, address the use made or not made by the primary judge of particular pieces of evidence. Again, assuming, in the applicant's favour, that these complaints have substance, the position remains that there was no finding by the magistrate that, but for any breach of contract or negligence, the applicant would not have had a carpet which demonstrated the bubbling and rippling observed in late 2012.

Consideration of leave to appeal

1. The applicant submitted that this was a case in which it is appropriate to grant leave because the primary judge: 1. incorrectly imposed a burden of proof on the applicant; 2. found that the applicant failed to discharge the burden by uncontradicted, and in some respects unchallenged, expert evidence; 3. concluded that the magistrate had overlooked evidence when a correct analysis of the evidence supports the determination of the magistrate that there was "no evidence" as to any characteristic of the carpet itself causing adhesion failure; 4. failed to give any reasons why the conduct of the respondent in conducting a carpet-relaying trial and providing a quote to relay the carpet was not an admission that there was utility in so doing.
2. We have already addressed these matters in considering the proposed grounds of appeal. Her Honour did not incorrectly impose a burden of proof on the applicant as alleged in complaint (1). The burden of proof was on the applicant to prove that it has suffered some loss by reason of the respondent's breach. The primary judge found that the applicant had not discharged that burden. Whether the case was decided in tort or in contract is of no present significance.
3. On the causation findings of the magistrate (see [7] above), which were not challenged by the applicant in the appeal to the primary judge, the making of an order under s 41(b) of the Local Court Act setting aside the judgement was inevitable.
4. We have earlier rejected the applicant's complaint (3) above and, even assuming in the applicant's favour in relation to complaints (2) and (4) that her Honour erred in the way she took into account or failed to take into account all of the evidence referred to, those complaints do not raise any issue of principle, question of general public importance or an injustice which is reasonably clear.
5. Finally, the interests of justice beyond those that arise between the parties do not warrant the granting of leave to appeal. The costs expended by the parties at first instance no doubt exceed the amount in issue and to allow a second appeal to proceed would be to permit the parties to continue to incur costs that are disproportionate to the importance and complexity of the subject matter in issue: s 60 of the Civil Procedure Act. In all the circumstances, leave should be refused.
6. The Court makes the following orders: 1. Leave to appeal refused. 2. The applicant pay the respondent's costs as agreed or assessed.

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