TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd

High Court of Australia|1958-07-08|Before: Owen JJ, Stable J

High Court of Australia Kitto, Windeyer and Owen JJ. TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57

ORDER Appeals allowed. Judgment of the Supreme Court set aside except in so far as the counterclairn of the defendant Esanda Ltd. is thereby dismissed with costs. Action remitted to the Supreme Court to re-assess the damages and to enter judgment for the plaintiff against the defendants accordingly. Respondent to pay one-half of the appellants' costs of the appeals.

The Court delivered the following written judgment: -

These appeals are brought by the defendants, T.C. Industrial Plant Pty Ltd (hereinafter called the T.C. Company) and Esanda Ltd. (hereinafter called Esanda), in an action heard by Stable J. in which he gave judgment for the plaintiff, Robert's Queensland Pty Ltd, against the defendants for £27,889 15s. 6d. and for the plaintiff on a counterclaim pleaded by Esanda.

At all relevant times the business of the T.C. Company included that of selling and supplying "Hazemag" Impeller Breakers which are machines designed to crush stone and gravel for use in concreting work and Esanda, which was a wholly owned subsidiary of the E.S. & A. Bank, carried on a hire-purchase business. Early in 1958 the Commonwealth required a large quantity of screened crushed aggregates in three sizes for use at an aerodrome near Brisbane and called for tenders for the supply and delivery to the aerodrome of about 24,000 cubic yards of this material. A man named Robert, who later became the managing director of the plaintiff company, lodged a tender and on 8 July 1958, it was accepted. The specifications and conditions upon which the tenders were called and which later became part of the contract with the Commonwealth required the material to be delivered at the rate of not less than 250 cubic yards per week for each size of aggregate. In the events that happened this would have meant that, as to one size of aggregate, delivery would be required to be completed not later than 2 December 1958; as to another size not later than 17 March 1959, and, as to the third, not later than 24 March 1959. The specifications and conditions further provided that in default of delivery within the times allowed or any extension thereof granted by the Commonwealth the contractor would pay liquidated damages at the rate of £30 for each week beyond the time allowed by the contract and for each type of aggregate and, in addition, would forfeit all moneys deposited with the Commonwealth by way of security for the due performance of the contract. Provision was also made by which the Commonwealth could cancel the contract in the event of the contractor's failure to perform any of its terms and it contained a clause forbidding the assignment of the contract.

It was Robert's intention to form a proprietary company to carry out the contract if his tender was accepted and this was made known by him to the Commonwealth officials who were concerned with its execution and performance. The plaintiff company was accordingly incorporated towards the end of May 1958. The contract, which was dated 11 August 1958, was made with and signed by Robert but in fact, to the knowledge and with the assent of the Commonwealth officers concerned, the plaintiff carried out all the work that was done and the deliveries that were made and the plaintiff paid to the Commonwealth the sum of £467 which was required to be paid by way of security for the due performance of the work.

Before the contract was signed and in anticipation of its execution Robert and those associated with him took steps to find a crushing machine suitable for the work and their search led them to the T.C. Company. They, themselves, had had no experience in gravel and stone crushing work but they explained in detail to the responsible officers of the T.C. Company the nature of the work to be done and the terms of the contract which was about to be made with the Commonwealth. In the course of these discussions the representatives of the T.C. Company assured them that a crushing machine known as the Hazemag A.P. 4 Impeller Breaker which the T.C. Company could supply was suitable for the purpose of carrying out the work for which the contract called. An order for the crusher was there upon given by the plaintiff and an initial payment of £1,500 was made by it, the T.C. Company being told that Esanda would complete the purchase from the T.C. Company and let the machine on hire to the plaintiff under a hire-purchase agreement. In consideration of the plaintiff making the initial payment and arranging for Esanda to provide the balance of the price the T.C. Company gave a number of warranties relating to the crusher which need not be detailed. The learned trial judge found also that the plaintiff had made known to the T.C. Company the particular purpose for which the crusher was required so as to show that it had relied on the skill and judgment of the T.C. Company and that it was an implied condition of the agreement between that company and the plaintiff that the crusher was fit for the purpose of crushing the stone and gravel required for the fulfilment of the contract with the Commonwealth. Arrangements were then made by the plaintiff with Esanda by which the latter agreed to buy the crusher from the T.C. Company and pay the balance of the price and let it to the plaintiff on hire purchase. Before Esanda agreed to do this discussions took place between Robert and other representatives of the plaintiff and one Carlisle, who was the manager of the branch of the E.S. & A. Bank at which Robert and the plaintiff banked and was also an officer of Esanda. All that Carlisle knew about the crusher and its fitness for the purpose of carrying out the contract with the Commonwealth came to him from the plaintiff's representatives and they, as his Honour found, were to Carlisle's knowledge merely repeating the assurances given to them by the T.C. Company. Following these discussions and early in September 1958 the crusher was purchased by Esanda from the T.C. Company for £9,668 less the deposit of £1,500 which the plaintiff had already paid and Esanda, in turn, hired it to the plaintiff under a hire-purchase agreement under which an initial payment of £3,223 was made by the plaintiff and it agreed to pay monthly instalments of £306 38s. About 12 September 1958, the crusher was delivered to the plaintiff at the site where the crushing operations were to be carried out. It was correctly assembled there and work began. The machine, however, proved to be unfitted for the purpose for which it had been supplied with the result that, despite the plaintiff's best endeavours, deliveries of aggregates to the Commonwealth were far below those for which the contract provided. In a letter dated 28 October 1958, from the Commonwealth Director of Works to the plaintiff attention was drawn to this fact and the plaintiff was required to take action to improve the rates of delivery so that the contract might be performed within the times specified. The plaintiff made every endeavour to rectify the faults in the crusher but the troubles persisted and on 17 December 1958, the Director of Public Works wrote a further letter to the plaintiff stating that default in making deliveries could not be tolerated any further and required the plaintiff to state within seven days its "intentions for fulfilling all the terms of the contract". The plaintiff replied on 29 December that an officer of the T.C. Company had promised to inspect the crusher and had guaranteed to make it operate efficiently. On 31 December the solicitors for the plaintiff wrote to the T.C. Company making further complaints of the deficiencies of the crusher and pointing out that, as a result, the plaintiff was in danger of having its contract with the Commonwealth cancelled. The letter called upon the T.C. Company to "replace" the equipment in full working order but no reply was received. On 8 January 1959, the plaintiff wrote to the Director of Public Works conceding that it was in default in making deliveries and giving a lengthy account of its unsatisfactory dealings with the T.C. Company. It went on to say that inquiry had shown that other equipment for stone and gravel crushing was "available for purchase only" but that the plaintiff had not the finance to purchase such equipment and that in these circumstances it had no alternative but to advise that it was unable to perform the terms of the contract. The letter accordingly asked that it be released from the contract in order to avoid as far as possible incurring further losses. There followed a request that the Commonwealth would not seek "penalties" from the company in addition to the losses which it had already suffered and asked that the moneys deposited by way of security be repaid. On 30 January 1959, the plaintiff's solicitors wrote to the T.C. Company that it had been forced to "retire" from the performance of its contract with the Commonwealth because of the defects in the crusher and asked that the T.C. Company "repurchase this plant from our client at the full cost which was paid for it" and accept full responsibility for the damages which the plaintiff had sustained. No reply to this letter was received. On 27 February the Director-General of Works gave written notice of the cancellation of the contract addressed to Robert c/o the plaintiff. The notice recited that "Whereas by written communication dated 8th January, 1959, you have requested to be relieved from having to carry out the remainder of the work" and went on to give notice of cancellation and to declare forfeited "all sums of money remaining in the hands of the Commonwealth in respect of the said contract together with all sums deposited by Robert's (Qld.) Pty Ltd and retained as security for the due and proper performance and completion of the said contract". Further correspondence passed between the Director of Works and the plaintiff and ultimately the amount of the deposit was retained by the Commonwealth but no claim was made by it for the payment of liquidated damages and all material in fact delivered by the plaintiff at the aerodrome was paid for at the contract rates. On 4 March 1959, the plaintiff gave written notice to Esanda that it elected to treat the hire-purchase agreement of 5 September 1958, as repudiated by the latter on the ground that Esanda had committed breaches of "conditions required to be fulfilled by you pursuant to the said agreement and the said Acts". The Acts in question were The Hire-purchase Agreement Acts 1933-1946 Q. The crusher was not in fact used by the plaintiff after its contract with the Commonwealth was cancelled and the machine was, as his Honour found, put by it in a place of safe keeping where it was available to Esanda.

What has been said is no more than a brief outline of the events which led to the institution of the action in April 1959. In it the plaintiff claimed damages for breaches of contract against both defendants. The claim against the T.C. Company was based (inter alia) upon a breach of the implied condition that the crusher was reasonably fit for the purpose of carrying out the work of crushing required for the performance of the plaintiff's contract with the Commonwealth. The learned trial judge found that there had been a breach of this condition and this finding has not been attacked on appeal. He proceeded then to assess the plaintiff's damages at £27,889 15s. 6d. of which £15,889 15s. 6d. represented, in the main, expenditure and liabilities incurred by the plaintiff in the course of and for the purposes of carrying out its contract with the Commonwealth less the amounts paid to it by the Commonwealth under that contract. The balance of £12,000 represented his Honour's estimate of the profits which the plaintiff would have made had it been able to carry out its contract with the Commonwealth and a further contract for the delivery of additional quantities of aggregate which would, his Honour considered, have probably been made with it by the Commonwealth if it had been able to fulfil the contract in fact made.

It is convenient at this point to state the ground on which the plaintiff's claim against Esanda was upheld by the learned trial judge. By its statement of claim the plaintiff alleged (inter alia) that, by reason of the provisions of s. 7A of The Hire-purchase Agreement Acts 1933-1946 Q, it was an implied condition of the contract between the plaintiff and Esanda that the crusher was reasonably fit for the particular purpose for which it was required and that there had been a breach of that condition. His Honour was of opinion that in the circumstances of the case no warranties or conditions as to the fitness of the crusher for the purpose for which it was let to the plaintiff on hire purchase were to be implied by the common law because "all that Esanda did was to sign a hire-purchase agreement for a machine of which all its knowledge was what it had gleaned from the plaintiff". He was of opinion, however, that s. 7A(1) of The Hire-purchase Agreement Acts 1933-1946, which was in force at the relevant time, applied. By that subsection it was provided that

If any chattel has been let or sold under a hire-purchase agreement to a hirer who, at any time within a period of six months prior to the making of such hire-purchase agreement, made known - (a) To the owner; or (b) To any other person who within the said period shall have offered or agreed to let or sell to the hirer or obtained or received from the hirer an application or order for the letting or sale to the hirer of such chattel the particular purpose for which the chattel is required, so as to show that the hirer relied on the skill or judgment of the owner or of such other person, as the case may be, and the chattel is of a description which it is in the course of the business of the owner or of such other person, as the case may be, to supply there is an implied condition that the chattel shall be reasonably fit for such purpose and such implied condition shall be binding in law as well upon such other person as upon the owner. His Honour was of opinion that the T.C. Company was "any other person" within the meaning of par. (b) of the sub-section and that all the other requirements of the sub-section had been fulfilled. The plaintiff had, within a period of six months before the making of the hire-purchase agreement with Esanda, made known to the T.C. Company the particular purpose for which the crusher was required so as to show that it relied upon the skill and judgment of the T.C. Company. That company had obtained or received from the plaintiff an application or order for the letting or sale to the plaintiff of the crusher and the machine was of a description which it was the business of the T.C. Company to supply. The result was therefore that there was to be implied in the hire-purchase agreement between Esanda and the plaintiff a condition that the crusher was fit for the purpose for which it was hired. There had been a breach of that implied condition and accordingly the learned trial judge found in favour of the plaintiff as against Esanda for the same amount of damages as he awarded against the T.C. Company.

It was contended before his Honour and on the appeal that, as against Esanda, the plaintiff was estopped from asserting that the crusher was unfit for the purpose for which it was supplied because, so it was said, the plaintiff had represented to Esanda that it was fit for that purpose and, acting on that representation, Esanda had agreed to let it on hire purchase to the plaintiff. The submission was rejected by the learned trial judge for the reason, amongst others, that in the discussions between the plaintiff's representatives and Carlisle which led up to the making of the hire-purchase agreement the former had, to the latter's knowledge, merely repeated the assurances which the T.C. Company had given as to the capabilities of the crusher. In other words, the representation made to Esanda by the plaintiff was not that the machine was fit for the purpose for which it was required but that the T.C. Company had stated that it was fit for that purpose. On the evidence this was a finding which was clearly open and no good reason has been shown why it should not stand. This submission therefore fails and it is necessary then to consider the matters which were argued on the issue of damages.

The same submissions were made on behalf of each of the defendants. Some of them related to matters of detail but three of them were on broader lines. It was said that the contract for the supply of aggregates was made between the Commonwealth and Robert and not between the Commonwealth and the plaintiff and that accordingly the latter could not maintain a claim for loss of profits resulting from a failure to perform that contract. The learned trial judge was of opinion that, although Robert had signed the original contract, the evidence showed that it had either been assigned by him to the plaintiff with the knowledge and assent of the Commonwealth or that a novation of it had occurred thus creating a contractual relationship on the same terms between the plaintiff and the Commonwealth. An examination of the evidence, both oral and documentary, seems to us to establish that the contract had been novated and this point therefore fails. Next it was said that the plaintiff had failed to mitigate its damage in that it should, so it was said, have sought from the Commonwealth an extension of time for performance of the contract and made arrangements to obtain another crushing machine capable of carrying out the necessary work. But it was for the defence to show that the plaintiff had failed to mitigate damages and it is a sufficient answer to this submission to say that when regard is had to the evidence and in particular to the letters of 28 October and 17 December 1958, from the Director of Works to the plaintiff, to which reference has earlier been made, it is most improbable that, had the plaintiff applied for an extension of time, it would have been granted and that the plaintiff's action in asking, in its letter of 8 January 1959, to the Director of Works, to be released from the further performance of the contract was reasonable. Had it not taken this course, it is probable that it would have incurred further loss and become liable to pay substantial sums by way of liquidated damages and, in such circumstances, might well have been charged with an unreasonable failure to mitigate its damages.

It was also submitted that the plaintiff could not recover under both the heads of damage upon which the learned trial judge based his award but was bound to elect whether it would pursue its claim for expenditure uselessly incurred as a result of the defendants' breaches of contract or, in the alternative, its claim to recover for the loss of the profits it would have earned had the crusher been fit for the purpose for which both defendants knew it was required, namely to carry out the plaintiff's contract with the Commonwealth, the terms of which were at all material times known to each of them. This submission was based upon the decision in Cullinane v British Rema Manufacturing Co. Ltd. [1] . That was a case in which the plaintiff had purchased a clay pulverizing machine from the defendant, to be made according to certain specifications, the defendant warranting that it would pulverize clay at the rate of six tons per hour. The machine was built according to the specifications but would only pulverize clay at less than the warranted rate. The plaintiff had incurred expense in erecting a building to house the machine and buying ancillary plant. He continued to work the machine but by reason of the fact that its capacity was less than had been warranted his operations were less profitable than they would have been had it complied with the warranty. He claimed to recover by way of damages the cost of erecting the building, purchasing the ancillary plant and purchasing the machine itself less the estimated residual value of those assets as at the time of the institution of the action. In addition he claimed for loss of the profits he would have made up to the date of trial had the machine been as warranted and, in arriving at the amount of profits lost, he allowed for depreciation and maintenance on the building, the machine and the ancillary plant.

Judgment in the action was delivered three years after the date of delivery of the machine. The claim for loss of profits was limited to that period, notwithstanding that the machine had a life of ten years. This introduced into the case a complication which led to an ultimate disagreement amongst the members of the Court of Appeal. Evershed M.R. and Jenkins L.J. thought that as a result of the limitation the case had to be decided on the footing that if the machine had been as warranted it would have earned profits during the three years but none thereafter. Morris L.J. on the other hand thought that the limitation meant only that although loss of profits after the three years would have been incurred it was not claimed for. This difference of opinion as to the effect of the limitation led to disagreement as to the fate of the appeal. It is important to see how that came about. The plaintiff's claim had been submitted to an official referee under five heads. Heads A., B. and C. were capital expenditure, A. being the cost (less break-up value) of buildings etc. erected specially to house the machine, B. the cost of the machine less its residual value, and C. other capital expenditure preliminary to the working of the machine, less residual values. Then a claim D. was made for interest on A., B. and C. for the three years. Finally a claim E. was made for loss of profit for the three years, arrived at by taking the estimated receipts for the warranted output and subtracting not only running costs, office expenses and interest but also depreciation at ten per cent per annum. The official referee allowed A., B. and C. as representing capital thrown away; he allowed D.; and in addition he allowed E., but without the subtraction of depreciation. On the assumption by which the majority of the Court of Appeal considered the plaintiff was bound, namely that if the machine had been as warranted profits would have been earned for three years but no longer, what the official referee had done amounted to saying that the plaintiff was entitled to recover not only the whole of the profit (without deduction for depreciation) which he would have got by laying out A., B. and C., but also A., B. and C. themselves. Plainly that could not be right. It would mean that in the end the plaintiff would have the equivalent of his full profit without having borne the expense of earning it. The plaintiff's claim as pleaded had not suggested that. What it had suggested was that the plaintiff should recover, in addition to A., B., C. and D. only so much of the three years' profits as should remain after writing off out of them the three years' proportion (i.e. three-tenths) of A., B., C. and D. If Morris L.J.'s opinion had prevailed as to what the limitation to the three years' period really implied, this would, we think, have been considered by the majority of the Court to be unexceptionable in principle, provided that it meant accepting as the proper measure of damages the aggregate of A., B., C. and D. plus, not the profits earned by the laying out of A., B. and C., but only the excess of those profits that would have remained after recouping A., B. and C. This would only have been another way of giving the plaintiff the full amount of the lost profits without any deduction for depreciation, and it would have accorded with the basic principle of Hadley v Baxendale [2] , and Victoria Laundry (Windsor) Ltd. v Newman Industries Ltd. [3] , which the Court was keeping steadily before it. But the majority of the Court, if we understand their judgments aright, would not have agreed with Morris L.J. that a deduction of only three years' depreciation would produce the correct result.

(1854) 9 Exch. 341 [156 E.R. 145]. 2. [1949] 2 K.B. 528, at p. 539.

There is a sentence in the judgment of Evershed M.R. upon which a comment may be permissible. After having said that a person who has obtained a machine unable to perform what it was warranted to perform may adopt the course of claiming to recover the capital cost he has incurred, deducting anything he can obtain by disposing of the material that he got, his Lordship proceeded [4] "But, alternatively, where the warranty in question relates to performance, he may, in my judgment, make his claim on the basis of the profit which he has lost If he chooses to base his claim on that footing, it seems to me that depreciation has nothing whatever to do with it." Jenkins L.J. spoke similarly [5] . We understand their Lordships to mean that in such a case the plaintiff, having paid for the machine at the beginning, should not have to pay for it a second time (in effect) by having its value, spread over the period of its life, subtracted from what otherwise would be his damages. The reason obviously is that where the plaintiff adopts, as the amount the machine would have been worth to him if it had been as warranted, the amount of the profits he would have made by using it to the point of exhausting its useful life, he is entitled to recover the whole amount of those profits, without making provision for replacement of the cost of the machine; for those profits are what he was really buying when he bought the machine in reliance upon the warranty. But the same result may be produced by claiming for recoupment of his capital outlay and in addition for the excess of the estimated profits over the amount of the capital outlay; and that is all that is done by a plaintiff who claims his capital outlay and in addition profits estimated after deduction of depreciation [6] . The justification for the refusal of the majority of the Court in Cullinane's Case to follow such a course lies, we venture to think, in the fact that since nothing was proved about the probable amount of the profits that would have been made in the final seven years of the machine's life, and therefore nothing about any probable excess of profits during the whole ten years of the machine's life over amounts of depreciation equalling the total capital cost, the plaintiff failed to show that damages assessed on the loss-of-profits basis would be greater than damages assessed by reference to capital expenditure plus interest. What was perfectly clear was that the plaintiff could not have damages assessed on the one basis plus damages assessed on the other basis. To sum the matter up, the seller (in effect) promised the buyer that the machine was such that upon the buyer laying out £X in acquiring and installing the machine he would be able to get £X + Y by working it. For breach of the promise the buyer, having laid out his £X, may recover, if he chooses, what the machine would have been worth to him if it had been as promised (presumptively £X) minus the actual value of the machine. Alternatively he may recover £X + Y; he is not to be restricted to (£X + Y) - (£X in the form of depreciation), for he has already parted with £X once, namely at the beginning. And it is only stating the second alternative in another way to say that he can recover (£X + Y) - (£X in the form of depreciation) and in addition his capital outlay £X.

[1954] 1 Q.B., at p. 303. 2. ibid., at p. 306. 3. See [1954] 1 Q.B., at p. 308, per Jenkins L.J.

We have been invited to say that what was held in Cullinane's Case is opposed to the decision of an earlier Court of Appeal in the case of Hydraulic Engineering Co. Ltd. v McHaffie Goslett & Co. [7] . That was not a case of a warranty relating to performance; it was a case of a contract to supply an article within an agreed time, the article being required by the plaintiff (as the defendant knew) for incorporation in a machine, the rest of which the plaintiff was manufacturing himself, to be sold for a price exceeding the total cost to the plaintiff. The Court held that the plaintiff was entitled to recover the cost he incurred in manufacturing the rest of the machine plus the profit he would have made by selling the completed machine. But the word "profit" was there being used in a sense different from that in which it was to be used in Cullinane's Case. In the latter case the word meant a profit from operating the article purchased; in other words the excels of the receipts that would have been obtained by the contemplated use of the article to perform profitable work (if it had been as warranted) over the expenditure which that use would have involved. But in the former case "profit" meant the excess of the price that would have been obtained on a contemplated sale of a machine (which included the article in question and other integers) over the cost to the plaintiff of that machine, sale of the machine having been made impossible by the nonfulfilment of the stipulation sued upon. As an authority that the damages recoverable included both cost and profit the case means only that the plaintiff, having expended £X which he would have got back together with £Y profit if the defendant had performed his obligation, can recover for breach of that obligation the whole sale price he should have been enabled to obtain, viz. £X + Y; and it makes no difference if you prefer to say that he can recover £X under the name of cost plus £Y under the name of profit. It is hardly surprising that Hydraulic Engineering Co.'s Case was not cited in Cullinane's Case. The difference between them may be expressed by saying that in the former case the plaintiff by incurring the items of cost (less residual values) would have obtained, but for the defendant's breach, the whole of the price for which he could have sold the machine, and therefore must have the amount of that price (cost plus profit) as damages; whereas in the latter case the plaintiff, but for the defendant's breach, by incurring the items of cost (less residual values) would have obtained the operating profit and is entitled to damages for the loss thereof, but would not have got back the amount of the cost and is therefore not entitled to damages as if he had lost that through the defendant's breach.

The case before us is one of a breach of condition followed by the election by the plaintiff to terminate its contract with Esanda. The only difference that that makes as regards damages is that the defective machine reverted to the defendant Esanda and consequently there is no item of residual value to be allowed for. The learned trial judge awarded damages in two parts. First his Honour awarded £15,889 15s. 6d. to cover all items of cost incurred by the plaintiff (including interest) less the amount of the payments received by the plaintiff from the Commonwealth. This would restore the plaintiff to the position it was in at the start. Secondly his Honour awarded £12,000 for loss of the profits which he thought the plaintiff would probably have gained if the machine had been as warranted. The judgment does not reveal how his Honour arrived at that figure, but from a reference which he made to figures submitted to him by counsel for the plaintiff, and a statement that he was allowing for contingencies normally to be expected whereby the optimum is not always attained, it seems probable that his Honour accepted the items in a Sch. "C" which counsel had placed before him, showing a loss of profit of £15,440 1s. 5d., and then reduced that figure to a round £12,000. If his Honour had made an estimate of the plaintiff's probable working profit after deducting from the future receipts that would have been obtained from the Commonwealth the expense (not including any items already covered by the £15,889 15s. 6d.) of earning those receipts, it would have been right to allow in the damages the excess of that profit over the £15,889 15s. 6d. But it is not clear that such an estimate could be made on the material in Sch. "C"". The only satisfactory way of dealing with the case, it seems to us, is to remit the question of damages to the Supreme Court for further consideration. It may of course be that the learned judge will find it preferable to work out a single calculation, taking the whole of the actual and probable expenditure which the plaintiff would have incurred in performing its contract with the Commonwealth and the probable extension thereof had the crusher been of the warranted fitness, and subtracting the resulting figure from the total receipts the plaintiff would have obtained under the contract and the extension.

It remains to deal with one further matter. In its counterclaim Esanda denied that the plaintiff had any right to treat the hire-purchase agreement as repudiated and sought to recover from it £7,613 19s. representing twenty-one instalments of hire under the hire-purchase agreement, together with interest thereon. At the trial the counterclaim was supported upon the ground that the plaintiff had not returned the machine to Esanda's place of business when the notice of 4 March 1959, was given and that for this reason the plaintiff remained liable for instalments of hire thereafter falling due, together with interest. On the appeal this contention was abandoned. Instead it was submitted that the plaintiff, when it discovered that the condition as to the fitness of the machine to perform the work had not been complied with, kept and worked it for a considerable time. It had, so it was said, thereby elected to treat the breach of the condition as a breach of warranty and, while it was entitled to recover damages for that breach, the hire-purchase agreement remained on foot and the plaintiff was liable to pay instalments of hire and interest thereon. If this be correct, it would seem to follow that the damages recoverable by the plaintiff from the T.C. Company would be correspondingly increased but it is unnecessary to consider this further because the point now raised should not, in our opinion, be entertained. Had the matter been put forward at the trial, issues of fact would have arisen as to which relevant evidence might have been led to show that, in all the circumstances, the plaintiff had not made any such election as was suggested. The evidence suggests that during the period when the plaintiff was endeavouring to have the machine put into proper working order, by the renewal of parts and the like, Esanda was informed of the difficulties being encountered but no attempt was made to elicit evidence as to what passed between it and the plaintiff on these occasions. In these circumstances we think we should apply what was said by Lord Watson in Connecticut Fire Insurance Co. v Kavanagh [8] , and adopted by this Court in Suttor v Gundowda Pty Ltd [9] :

When a question of law is raised for the first time in a court of last report, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interests of justice, to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below. But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed unless the court is satisfied that the evidence upon which they are asked to decide establishes beyond doubt that the facts, if fully investigated, would have supported the new plea. 1. [1892] A.C. 473, at p. 480. 2. (1950) 81 C.L.R. 418, at p. 438.

In the result we find ourselves, except on one point, in agreement with Stable J., by whose exhaustive and careful judgment we have been greatly assisted. We are of opinion that the judgment below should be set aside and that the action should be remitted to the Supreme Court for further hearing as to the quantum of damages. The respondent should pay one-half of the appellants' costs of the appeals.

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Judgment (22 paragraphs)

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