Citation : GEIGER -v- ZUVELA & ANOR [2005] WADC 207

Sale of goods - Second-hand backhoe machine - Consumer sale - Implied conditions of merchantable quality and/or fitness for purpose - Misleading or deceptive conduct - Silence - Alleged duty to disclose defects - Damages - Cost of effecting repairs - Value of machine sold - Measure of damages for breach of contract and for misleading or deceptive conduct

Fair Trading Act 1987 (WA)

Sale of Goods Act 1895 (WA)

Trade Practices Act 1974 (Cth)

1 WHEELER JA: I have had the advantage of reading in draft the reasons for decision of EM Heenan AJA. I agree with those reasons and have nothing to add.

2 BUSS JA: I agree with Heenan AJA, for the reasons he gives, that the appeal should be dismissed. I have some additional observations in relation to the appellants' conduct of the appeal in relation to damages.

3 Section 14 of the Sale of Goods Act 1895 (WA) implies into a contract for the sale of goods, in certain circumstances, a condition that the goods are reasonably fit for the purpose which the buyer made known to the seller, and also, in certain circumstances, a condition that the goods are of merchantable quality. Section 52(1) provides, relevantly, that where there is a breach of warranty by the seller, the buyer is not by reason only of such breach entitled to reject the goods; but he may maintain an action against the seller for damages for the breach of warranty. By s 53(2), the measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. This is the general rule. Section 53(3) provides that, in the case of breach of warranty of quality, the loss referred to in s 53(2) is, prima facie, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. The burden is upon the buyer to prove the difference in values. See Bernstein v Pamson Motors (Golders Green) Ltd [1987] 2 All ER 220 at 231; Atkinson v Hastings Deering (Qld) Pty Ltd (1985) 8 FCR 481 at 495 - 496. The measure specified in s 53(3) is, however, a presumption only, and in an appropriate case, the general rule in s 53(2) may be applied instead of s 53(3). See McWilliam's Wines Pty Ltd v Liaweena (NSW) Pty Ltd (1988) ASC 55-695; Sutton KCT_, Sales and Consumer Law,_ (4th ed, 1995), at [22.28]. As Walsh J said in Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454 at 466, in the context of a claim for damages for breach of a contract for the sale of an interest in land:

"In my opinion the error that is contained in the argument for the appellants consists in treating rules which constitute useful guidance in the ascertainment of damages as rigid rules of universal application, instead of treating them as prima facie rules which may be displaced or modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation for a breach of contract without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been

willing to accept. The achievement of such a result is the purpose of the principles laid down in Hadley v Baxendale [(1854) [1854] EngR 296; 9 Exch 341 [156 ER 145]] as explained in subsequent cases, including those to which Gibbs J has referred in his judgment in the present case."

4 Section 71 of the Trade Practices Act 1974 (Cth) provides, relevantly:

"(1) Where a corporation supplies ... goods to a consumer in the course of a business, there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality, except that there is no such condition by virtue only of this section:

(a) as regards defects specifically drawn to the consumer's attention before the contract is made; or

(b) if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

(2) Where a corporation supplies ... goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the corporation or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him or her to rely, on the skill or judgment of the corporation or of that person."

Also see the comparable provisions in s 38(1) and s 38(2) of the Fair Trading Act 1987 (WA). Where the obligation imposed by s 71 of the Trade Practices Act or s 38 of the Fair Trading Act is breached, the breach is of an obligation imposed by the contract itself, and not of an obligation imposed by the Act. Accordingly, proceedings for damages arising from a breach of a condition implied under s 71 or s 38 are not proceedings within s 82 of the Trade Practices Act (in the case of s 71) or

s 79 of the Fair Trading Act (in the case of s 38). See Arturi v Zupps Motors Pty Ltd [1980] FCA 164; (1980) 49 FLR 283 at 285 - 286.

5 In the present case, the appellants pleaded in par 6(a) of their amended defence:

"If the [respondent] has suffered any loss and damage (which is denied) it is limited to the difference between the value of the Tractor and the price paid or the difference between the value of the Tractor at the time of delivery to the [respondent] and the value it would have had if it had answered to the warranty of quality pursuant to s 52(3) of the Sale of Goods Act 1895;"

6 This Court raised with counsel for the appellants, in the course of argument, whether the learned trial Judge had applied the correct measure of damages. For example:

(a) whether the respondent's damages should have been confined as alleged in par 6(a) of the amended defence;

(b) whether the damages awarded to the respondent should not have exceeded the purchase price paid under the contract (namely, $7,700); and

(c) whether a reduction in the award of damages should have been made for betterment.

During argument this Court observed that none of these points was raised in the appellants' substituted grounds of appeal. Their counsel did not apply for leave to amend.

7 As Heenan AJA has noted, this Court should not be taken as accepting that the learned trial Judge applied the correct measure of damages.

8 EM HEENAN AJA: By an agreement made 5 June 2001, the respondent agreed to purchase and the appellants agreed to sell a JD 410 backhoe loader ("the backhoe"), for $7,700. The respondent purchaser has since maintained that implied into the contract were conditions that the backhoe would be of merchantable quality and would also be fit for the purpose disclosed to the appellants at the time of sale, by reason of s 14 of the Sale of Goods Act 1895 (WA) and s 38 of the Fair Trading Act 1987 (WA).

9 The respondent paid the purchase price and took delivery of the backhoe but, by 6 August 2001, found that the machine had a number of serious defects which rendered it unable to function. Extensive repairs and the replacement of parts were required before the machine could be

put in a workable condition. Consequently, between 6 August 2001 and 26 October 2001 the respondent spent $33,935.53 in repairs and other work on the backhoe to put it into working order. Despite the magnitude of repairs required, the respondent retained possession and ownership of the backhoe and never attempted to rescind the contract of purchase or to return the machine. Instead, the respondent later brought an action in the District Court of Western Australia for the recovery of the repair costs of $33,935.53 and the purchase price of $7,700 for the machine, together with interest. By a judgment entered in the District Court on 4 November 2005, the respondent succeeded in his action and recovered $35,166.39, which was the aggregate of:

(a) part of the repair cost of 6 August 2001 $14,240.73

(b) part of the repair cost of 26 October 2001 $15,817.66

As he had retained the machine which was purchased, Deane DCJ held that the respondent was unable to recover any part of the purchase price of $7,700. The reduction in the aggregate repair costs allowed, from the total of $33,955.53 which had been claimed, was because her Honour found that certain items of the repair and replacement work were either unnecessary to put the machine in working order or had been performed for other reasons. Nothing turns on the details of why, or the extent to which, the total repair claims were so reduced.

10 Consequently, it can be readily seen by the way that the action was resolved and judgment given that it was a conventional claim for damages by a purchaser for breaches of the terms of the contract of purchase; namely, implied conditions of fitness for purpose and merchantability of the chattel which had been sold. This characterisation of the litigation is also reinforced by the nature and measure of damages awarded; namely, the expense occasioned to the purchaser to put the machine purchased into proper working order. This is not to suggest that there were not some potential complexities concerning the measure of damages to be awarded but, as will be described, no point about the assessment of damages was raised on this appeal.

11 Despite the prosaic nature of the cause of action upon which the respondent ultimately succeeded, there were some added and, in my view, unnecessary complications which were raised by the pleadings and at trial. Possibly apprehensive about the sufficiency of the long-recognised cause of action for damages for breach of implied conditions in a contract for the sale of goods, the respondent, by his statement of claim, mixed that cause of action with the related but separate cause of action for damages for misleading or deceptive conduct, pursuant to s 10 and s 17 of the Fair Trading Act, arising from alleged representations made by the vendors' staff at the time of the contract. These two similar, but distinct, causes of action were conflated by the respondent's pleadings as appears from the following passages of his statement of claim:

"4. In reliance upon the representations and conduct of Wattleup's staff that the Tractor was of merchantable quality and fit for the purpose it was acquired, the plaintiff purchased the Tractor.

1. Despite the representations of Wattelup's staff and in breach of the Contract and sections 10, 17 and 38 of the Fair Trading Act 1987, and section 14 of the Sale of Goods Act 1895 the Tractor was not of merchantable quality or reasonably fit for the purpose it was acquired." (emphasis added)

One difference between these two causes of action is, of course, that an action for damages for breach of a statutorily implied condition in the contract of sale is an action for breach of the terms of the contract and not an action for breach of any statutory duty: Arturi v Zupps Motors Pty Ltd [1980] FCA 164; (1980) 49 FLR 283. In contrast, an action for damages for misleading or deceptive conduct is entirely a statutory cause of action which exists independently of, and occasionally inconsistently with, the terms of the contract which was made between the parties as a result of the misleading or deceptive conduct: Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31. Another important difference is that the measure of damages for the two causes of action will frequently, indeed usually, be different. The action for breach of contract will result in the contractual measure of damages being applied, whereas the action for the breach of the statutory duty will result in a distinct measure of damages applying, usually, but not always, equivalent to the tortious measure of damages: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14. However, Murphy v Overton Investments Pty Ltd [2004] HCA 3 at [44] - [45]; [2004] HCA 3; (2004) 216 CLR 388 at 407, provides the strongest of warnings that the measure of damages for the statutory cause of action for misleading and deceptive conduct (in that case pursuant to s 52 and s 82 of the Trade Practices Act 1974 (Cth) but of equal application to the similar cause of action under the Fair Trading Act) cannot be assumed to be unvarying or to follow the common law analogies for breach of contract or deceit. In that case all seven Justices said, at 417 [44] - [45]:

"This Court has now said more than once (Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109) that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the Act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law. No doubt analogies may be helpful, but it would be wrong to argue from the content of the general law that has developed in connection, for example, with the tort of deceit, to a conclusion about the construction or application of provisions of Pt VI of the Act. To do so distracts attention from the primary task of construing the relevant provisions of the Act. In the present case, analogies with the tort of deceit appear to have led to an assumption, at least at trial, that a person can suffer only one form of loss or damage as a result of a contravention of Pt V of the Act.

The Act's references to 'loss or damage' can be given no narrow meaning. Section 4K of the Act provides that loss or damage includes a reference to injury. It follows that the loss or damage spoken of in ss 82 and 87 is not confined to economic loss (Marks [1998] HCA 69; (1998) 196 CLR 494). What kinds of detriment constitute loss or damage, when a detriment is to be identified as occurring or likely to occur, and what remedies are to be awarded, may all raise further difficult questions. Especially is that so when it is recalled that remedies may be awarded to compensate, prevent or reduce loss or damage that has been or is likely to be suffered by conduct in contravention of the Act."

What this does demonstrate is that the contractual measure of damages cannot be assumed to be the appropriate measure for the statutory cause of action.

12 It is clear that this conflation of the two distinct causes of action caused difficulties which were only partially recognised during the course of the trial. The difficulties related to the evidence which was relied upon by the parties as supporting the respondent's claim and in determining the measure of damages. It also led to some opacity in the reasons for decision in relation to the findings giving rise to the conclusion that there were, in this contract of sale for the backhoe, implied conditions of merchantability and fitness for purpose, and in other findings resulting in the conclusion that there had been misleading or deceptive conduct by the appellants from a failure to disclose defects in the machine when it was apparent that the purchaser was relying, to an extent, on the skill and judgment of the vendor when it came to the suitability and condition of the machine.

13 Nevertheless, it is clear that the learned trial Judge, in the reasons for decision, made the following findings:

(a) The respondent informed the appellants' staff that he wished to purchase a backhoe which would be suitable for carrying out specific tasks on his rural property and therefore of his reasons for his acquisition of the machine: at [112] - [113].

(b) It was, as a consequence of the above finding, an implied condition of the contract that "the goods were reasonably fit for the purpose for which the plaintiff acquired them": at [114].

(c) The contract also contained an implied condition as to merchantable quality of the backhoe taking into account any description applied to the machine, the sale price and other relevant circumstances, including the purpose for which the machine was to be used: at [107].

(d) Both implied conditions were breached because the backhoe was not "reasonably fit for the purpose or purposes for which it was acquired": at [136].

(e) Those facts which defined the content of the implied conditions of merchantability and fitness for purpose, including the appellants' knowledge of the purpose for which the backhoe was acquired, their conduct in drawing the respondent's attention only to two relatively minor defects in the machine (an electrical battery in need of replacement and a leaking fuel tank), their allowing the respondent the opportunity to test the suitability of the machine in circumstances which did not permit a full and proper testing process, and their silence as to the capacity of the machine to carry out the work for which it was obviously intended, also resulted in the respondent establishing a cause of action for damages for misleading or deceptive conduct: at [137] - [139].

(f) As a consequence of the appellants' breach of contract and misleading and deceptive conduct, the respondent had suffered loss and damage and the measure of this loss was the cost of the repairs (excluding the extraneous items already indicated): at [142], [150].

(g) That there had been no failure by the respondent to mitigate his damages, either because of the absence of any attempt to rescind the contract by the return of the goods (for example, pursuant to s 41 of the Fair Trading Act), or because he did not avail himself of the (undisclosed) policy of the appellants of carrying out necessary repairs to machinery sold at their own cost: at [126] - [127].

14 From the judgment for damages and interest in favour of the respondent, the appellants now appeal to this Court on lengthy grounds of appeal as follows:

"1. The learned trial judge erred in law and in fact in finding that:

(a) the Appellants made representations to the Respondent regarding the machine;

(b) the Appellants' agent had a duty to warn the Respondent that he knew nothing about the machine;

(c) the Respondent had no opportunity to test the machine.

when the above matters were not pleaded by the Respondent and the Appellants were not afforded an opportunity to be heard resulting in a substantial miscarriage of justice.

1. The learned trial judge erred in law and in fact in finding that the Appellants had a duty to advise as to the merchantable quality or fitness for purpose of the machine as such a duty did not arise as there was no reasonable expectation of disclosure when:

(a) the Appellants were entitled to rely on the doctrine of caveat emptor in a commercial transaction;

(b) the Appellants made no pleaded statements regarding the merchantability or fitness of the machine;

(c) the Respondent purchased the machine 'as traded';

(d) the Appellants had no knowledge of the lack of merchantability or fitness of the machine.

1. The learned trial judge erred in law and in fact in prejudging the issue of merchantable quality pursuant to Section 38(1) of the Fair Trading Act 1987 ('the Act') by finding that irrespective of the criteria specified in Section 33(2) of the Act to determine whether a machine was of merchantable quality, that the machine must still function as a backhoe, ie be fit for its common purpose, when the learned trial judge was first required to consider the specified objective criteria in Section 33(2) of the Act in order to determine the standard of quality and the existence of an implied condition of merchantable quality.
2. The learned trial judge erred in law and in fact in finding that the goods were not of merchantable quality, such finding being against the evidence or the weight of the evidence having regard to:

(a) their description in the advertisement as being for sale in 'as traded' condition;

(b) the fact that the price of the machine was unusually low and that the Respondent obtained value for the price paid; and

(c) the fact that the Respondent did not enter into the contract to purchase the machine in reliance upon the pleaded statements or conduct of the Appellants but as a result of its description and price and his own testing of the machine with the intention of spending $10,000 - $12,000 to make it operational.

1. In determining the existence of an implied condition as to fitness for purpose pursuant to Section 38(2) of the Act, the learned trial judge erred in law and in fact in finding at paragraph 116 of the reasons that it was not unreasonable for the Respondent to rely on the skill or judgement of the Appellants based on the silence of their agent, Mr Zuvela, such finding being against the evidence or the weight of the evidence; when

(a) the Appellants advertised the machine for sale in 'as traded' condition and Mr Zuvela was unaware of the pleaded defects;

(b) the Respondent wanted a cheap second hand machine which he intended to repair for more than its cost;

(c) the Respondent decided to purchase the machine after testing it and prior to the communication of any purpose for which he required the machine;

(d) the Respondent did not establish reasonable reliance upon the Appellants as a result of either the pleaded statements or the pleaded failure to disclose the specified defects; and

(e) Mr Zuvela told the Respondent he could test the machine to determine whether it was suitable and he did not exercise any skill or judgment as to the fitness of the machine for the Respondent's stated purpose and was unaware that the Respondent was relying on his skill or judgment.

1. The learned judge erred in law and in fact in finding at paragraph 128 of the reasons that the Respondent had not failed to prove payment of the alleged cost of repairs in that:

(a) the Respondent pleaded that it had suffered loss and damage by reason of the cost to the Respondent of the claimed repairs;

(b) the Appellants denied that the Respondent had suffered such loss and damage;

(c) the Respondent did not lead any evidence to prove he had paid for the costs of the claimed repairs;

(d) the onus was on the Respondent to prove its case and not upon the Appellants to disprove the same.

1. The learned trial judge erred in law and in fact in finding at paragraph 126 of the reasons that the Respondent failed to act reasonably to mitigate his loss by failing to terminate the contract and seeking a refund of the purchase price as he was not made aware of the Appellants' refund policy, when the Respondent's knowledge was not in issue as the Respondent decided, after a full and proper test revealed defects in the machine, to retain and repair the machine without reference to the Appellant and the Respondent had a statutory right to rescind the contract under s 41 of the Fair Trading Act 1987 so that the Appellants were denied an opportunity to be heard, resulting in a substantial miscarriage of justice."

15 The appellants did not proceed with grounds 1(b) and 1(c) at the hearing of the appeal.

16 The remaining grounds of appeal can conveniently be summarised and grouped into four succinct contentions which, indeed, the appellants' counsel formulated at the hearing of the appeal; namely, that the learned trial Judge had erred by:

1. Finding that in the particular circumstances there was an implied condition of merchantability in the contract of sale because the machine was advertised in an "as traded" condition; was known to require some degree of expenditure; and, was chosen by the respondent without any representations being made by or on behalf of the appellants about its quality.
2. Finding that the contract of sale included an implied condition of fitness for purpose when the learned trial Judge should have found that there was no intimation to the appellants or to their agents, by the respondent, of any particular purpose for which the backhoe was acquired and, further, because in all the circumstances it was unreasonable for the respondent to rely upon any skill or judgment of the appellants in selecting this particular machine for the sale, in light of it being advertised "as traded" and because the contract price was much less than the anticipated market price for a comparable second-hand machine.
3. Finding that there was a misrepresentation by the appellants, by silence or otherwise, arising from a failure of the appellants to disclose other defects in the machine, rendering it non-functional, of which the appellants had knowledge or would have otherwise detected by testing the machine.
4. Taking the repair costs incurred by the respondent as the measure of the damages in the absence of proof that the actual repair costs had been actually paid, and by failing to hold that the respondent should have mitigated his loss by terminating the contract and seeking a refund of the purchase price.

17 It is important to keep the two causes of action which were determined by the judgment separate. It is convenient, first, to deal with the finding that the appellant had engaged in misleading or deceptive conduct and the consequences of that finding for this appeal.

18 Pursuant to s 10 of the Fair Trading Act, which corresponds to s 52 of the Trade Practices Act, "[a] person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". Further, in accordance with s 17 of the Fair Trading Act (see s 55 of the Trade Practices Act), "[a] person shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quality of any goods". At trial, the respondent relied on both of these provisions.

19 In this regard, as noted, the learned trial Judge concluded that misleading or deceptive conduct had been established because, having regard to the knowledge of Mr Zuvela, that the respondent desired the machine for backhoe operations at his rural property, the only defects which he disclosed were the defective battery and the leaking fuel tank which, in effect, gave rise to an implication that the machine was otherwise entirely fit for the purpose required. Such a representation was misleading without the adequacy of the machine being properly evaluated, which the appellants had not done, and in the light of defects which would readily have become apparent had that been attempted. There are certainly occasions in which silence, or silence following partial disclosure of defects in a chattel or commodity being sold, will amount to misleading or deceptive conduct: see, for example, Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477; Demagogue Pty Ltd v Ramensky (supra); and Fleetman Pty Ltd v Cairns Pty Ltd [2005] FCAFC 80.

20 Having regard to the findings made by the learned trial Judge, I am satisfied that, in these circumstances, a finding of misleading or deceptive conduct was open in the light of what her Honour plainly regarded was inadequate partial disclosure, giving rise to an obligation to make fuller disclosure. Nevertheless, I do not consider that this finding, even if it were incorrect as counsel for the appellants submits (which submission I do not accept), made any significant contribution to the damages actually awarded. As explained, the measure of damages for misleading or deceptive conduct in such a context is generally, but not always, calculated by analogy with the tortious measure of damages, which concentrates on the loss suffered by the claimant as a result of the misleading or deceptive conduct. In contrast, the contractual measure of damages reflects, by pecuniary assessment, the benefits which the claimant would have obtained had the original obligation been honoured. Consequently, by concentrating on the loss suffered, in a case such as the present, it is conventional for the damages to be calculated by determining the difference between the price paid by the claimant for the property acquired and the true value of the property acquired at the date of the sale. This measures what the plaintiff has lost by the transaction, rather than compensating the plaintiff for what he would have gained had the contract been performed in accordance with its terms: Gates v City Mutual Life Assurance Society Ltd (supra) at 13. This analysis does not include the recoverability of consequential losses pursuant to this cause of action; however, consequential damages were not sought or granted in this case.

21 Plainly, the damages ordered by the learned trial Judge were not assessed on this basis. Nor was there any evidence before her Honour about the true value of the backhoe, in its defective condition, at the date of the sale. This also demonstrates that the tortious measure of damages was not applied by analogy. The damages which were awarded were one of several varieties of the contractual measures of damages for breach of contract and, therefore, depend entirely upon the findings of breaches of the two implied conditions of the contract of sale.

22 At this point I should acknowledge that counsel for the respondent submitted that the learned trial Judge's finding that there had been misleading or deceptive conduct, of the nature described, was integral to the award of damages which her Honour made; however, for the reasons which I have given, I do not accept that submission.

23 Although I have already concluded that her Honour's findings with respect to misleading or deceptive conduct were not shown to be erroneous, there is one other aspect of this cause of action which requires attention. The representations alleged by the respondent to be misleading included statements said to have been made by a mechanic employed by the appellants, known only to the respondent as "Steve" at the appellants' premises on or about 5 June 2001 (re-amended statement of claim, par 4, filed 25 March 2004), the day of the purchase (Exhibit 4). These representations included statements to the respondent that the backhoe was "a good machine" and to the effect that it was "in working condition". Her Honour found that representations to this effect were indeed made during negotiations leading to the sale of the backhoe, but that they were not made by any person named "Steve". Her Honour made the following findings at [97] of her reasons for decision:

"It would certainly seem that the person to whom the plaintiff spoke at the time and who the plaintiff believed was the mechanic Steve was in fact Mr Sean McGee who was present at the time according to Mr Zuvela, although Mr McGee did not give evidence. It was he who said to the plaintiff that the backhoe was 'a good machine' which evidence is not contradicted."

It is important to note that this finding was made in a context where:

"[t]he evidence does not suggest, and I do not find, that Mr Zuvela himself told the plaintiff that the backhoe was 'a good machine' nor did he positively assert that the machine was in working condition": at [109]

24 The appellants submit that the finding that it was Mr Sean McGee, rather than "Steve", who made these representations was contrary to the case advanced on the pleadings, and that the appellants were given no opportunity to be heard concerning this finding. In particular, in the absence of such a contention before the trial, they submit that they were unable to arrange for Mr Sean McGee to be called to give evidence about whether or not he ever made such representations. Had this problem been recognised during the course of the trial, it may well have been appropriate to allow the appellants an opportunity to consider whether or not they desired to call Mr McGee, if he were available, and to address, directly, the consequences of facing such a variation of the case presented at short notice.

25 At this point, it is really not possible to tell how significant, in practical terms in the conduct of the trial, this change was. This is because the learned trial Judge seems to have accepted that the respondent remained mistaken about the identity of the person who had made the representations which her Honour accepted were made. In different circumstances, the finding that particular representations had been made by one person other than the person alleged by the respondent, without the appellant having an opportunity to consider and attempt to refute this different allegation, might amount to an error which would require suitable relief, tailored to the individual circumstances, to be granted on appeal. However, in the present case I do not consider that, even if the appellants were deprived of an opportunity to address a significant change in the nature of this allegation against them, it has produced any injustice or affected the outcome of the trial. This is because, for reasons already given, I am satisfied that the finding that there was misleading or deceptive conduct by the appellants has not led to the grant of any relief by way of damages or otherwise. At the risk of extended repetition, the judgment which was entered in this case was for damages for breach of implied conditions of the contract alone.

26 Subsection 38(2) of the Fair Trading Act provides:

"Where a person supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business and the consumer, expressly or by implication, makes known to the supplier or to the person by whom any antecedent negotiations are conducted any particular purpose for which the goods are being acquired, there is an implied condition that the goods supplied under the contract for the supply of the goods are reasonably fit for that purpose, whether or not that is a purpose for which the goods are commonly supplied, except where the circumstances show that the consumer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the supplier or the person."

Similarly, under s 14(i) of the Sale of Goods Act, there is an implied condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale:

"Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose."

27 Consequently, the condition of fitness for purpose will be implied when the purchaser, expressly or by implication, indicates the purpose for which the machine was being acquired. There was nothing esoteric or unique about the backhoe in question. No doubt, properly functioning, it could perform a variety of tasks, which all could be generically described as digging or excavation of one kind or another. That is the plain and obvious function of such a machine. However, that is not to say that a non-functioning backhoe, as the subject backhoe was soon discovered to be, could not be sold without the breach of an implied condition of fitness for purpose. What is required then is that the circumstances of the sale demonstrate that a non-functioning machine is being sold. That did not happen in this case.

28 Her Honour found that Mr Geiger did inform Mr Zuvela of the specific purposes for which he required the backhoe and, therefore, of his reasons for acquiring the machine. These were to maintain roads on the plaintiff's farm at Jarrahdale; to maintain drainage ditches; to dig a swimming pool; and, to dig a trench for underground power lines at the same rural property. The respondent required a properly functioning backhoe and as much was conveyed to the appellants. In this regard, her Honour accepted the evidence of Mr Geiger against the denials of Mr Zuvela and there was no reason suggested, let alone any grounds to conclude, that that finding was wrong or should be varied: see Fox v Percy [2003] HCA 22 at [20] - [31]; [2003] HCA 22; (2003) 214 CLR 118 at 124 - 129.

29 Counsel for the appellants submitted that in the circumstances it was unreasonable for Mr Geiger to rely on the skill or judgment of Mr Zuvela when it came to considering the suitability of this machine. With respect, I cannot accept this submission, notwithstanding that the appellants refer to the fact that the backhoe was sold in an "as traded" condition, at a price which was said to be cheap in comparison with other machines of a comparable age and capacity, and that it was known to have defects in the fuel tank and the battery which required attention.

30 In my respectful view, the learned trial Judge was entirely correct to conclude that the appellants were supplying goods to a consumer in the course of business; that the serious defects which made this machine unfit for the purpose for which it was acquired had not been specifically drawn to the respondent's attention before the contract was made; and, that the limited examination of the machine in the appellants' yard by the respondent at the date of the sale could not have been expected to reveal the defects in the gearbox, in the radiator, in the engine, in the hydraulic systems and elsewhere.

31 Submissions were made to the effect that it would be unreasonable to imply a condition of fitness for purpose when the respondent realised that the machine would probably require a degree of work and expenditure and that this, therefore, meant that it was not sold in a condition in which it was fully operational. That, however, is not the way in which the action was pleaded, the trial conducted, or the case decided in the District Court. There was never an issue about whether the machine was sold in a non-operating condition which required further work and expenditure to make it function adequately. Indeed, as counsel for the respondent pointed out, the appellants referred in their pleadings to the condition of the backhoe at the time of sale, alleging that:

"5(a) the Tractor was operable and was reasonably fit for the purpose required and of merchantable quality".

Furthermore, the learned trial Judge found, at [112], that:

"The plaintiff had had limited experience using machines of this type and whilst he was not a complete novice with respect of operation of such machines he was not very experienced in this regard."

32 In light of the above circumstances and findings, and given that the purpose for which the machine was required was known to the vendor, it was by no means unreasonable for the respondent to rely on the skill or judgment of the vendor in purchasing what the respondent thought was a functioning backhoe. As matters transpired, the backhoe was not properly functional. Consequently the appellants were correctly found liable for breach of the implied condition of fitness for purpose.

33 Section 38(1) of the Fair Trading Act provides:

"Where a person supplies (otherwise than by way of sale by auction) goods to a consumer in the course of a business, there is an implied condition that the goods supplied under the contract for the supply of the goods are of merchantable quality, except that there is no such condition by virtue of this section -

(a) as regards defects specifically drawn to the attention of the consumer before the contract is made; or

(b) if the consumer examines the goods before the contract is made, as regards defects which that examination ought to reveal."

The term "merchantable quality" is defined by s 33(2) of the Fair Trading Act as follows:

"Goods of any kind are of merchantable quality within the meaning of this Part if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances."

34 This definition of merchantable quality imports an objective test that is absent from the implied condition of fitness for purpose. Consequently, where a particular purpose for acquiring a good is specified by a purchaser, the implied condition of merchantable quality may be an unnecessary avenue for recourse.

35 In any event, in the circumstances of this case, there was an implied condition that the backhoe be of merchantable quality. Merchantability, in this context, required that the backhoe be properly functional, since, despite the price, and without any notice to the contrary, this is what a reasonable purchaser would expect in these circumstances.

36 Since the backhoe had serious defects, and because the appellants neither alerted the respondent to these problems, nor gave the respondent sufficient opportunity or ability to examine the machine, as found by her Honour, the appellants were also in breach of this implied condition.

37 Consequently, breach of the implied condition of merchantable quality is also sufficient to support a judgment for damages in this action.

38 The appellants' grounds of appeal 6 and 7, which deal with issues of damages, are restricted to, first, whether or not the respondent proved loss and damage by proving payment of the repair costs, and, secondly, whether the respondent failed to mitigate his loss by terminating the contract and seeking a recovery of the purchase price, whether pursuant to s 41 of the Fair Trading Act or because of the consequences of the breaches of condition: Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322.

39 From the written submissions, the respondent has established that the question of whether or not the repair costs were actually paid was not in issue at the trial because the case was conducted on the footing that they had been paid. Indeed, in this respect, Mr Geiger was cross-examined at trial in express terms which referred to the fact of payment. That being the case, there is no basis to revisit that issue. It is, nevertheless, pertinent to observe that damages for necessary rectification work can be recovered, even if the work has not been performed, let alone paid for, in which case the probable cost of the repairs will be the measure of damages. This will be so even if the claimant decides not to carry out the repairs and to use the damages for other purposes: Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 620 and Hyder Consulting (Australia) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd [2001] NSWCA 313; (2002) 18 BCL 122.

40 On the question of mitigation, although the respondent could have elected to terminate the contract, in the circumstances of this case it was quite reasonable for the respondent instead to adopt the course that he did - that is, to have the backhoe repaired. The total cost of repair may seem excessive in comparison to the purchase price. However, it is clear that the respondent was not aware of the total cost of repair until a significant, though not necessarily disproportionate, amount had already been expended.

41 Before leaving the subject of damages, it is necessary to record that no ground of appeal has been raised which would allow, or require, this Court to consider the suitability of the measure of damages which was assessed and awarded in this case. Therefore, the Court should not be taken as accepting that the correct measure of damages was applied. Reasonable repair costs for putting a defective chattel into the condition in which its vendor agreed to supply it, will often be selected as the measure of damages for breach of a contract for the sale of goods involving the supply of goods in a defective condition. However, the measure of damages more commonly applied, in respect of goods for which replacements are readily available, is the difference between the price paid for the goods and the cost of acquiring a replacement which conforms to the condition and quality of the items agreed to be purchased in the condition represented. Accordingly, where there is a market for goods of the same type, a buyer of defective goods is entitled, by way of damages, to the difference, if any, between the market price for goods answering the description of those sold and the contract price paid: Sale of Goods Act, s 52(3).

42 The basis of this measure is that the purchaser is presumed to have obtained some value through the acquisition of the property, even in its defective condition, which can be realised by selling the property into the market in that defective condition. These measures of damage are generally applied in cases involving the sale of property for which there is a ready market, or where there is a ready market for replacement property in substitution for the property which was sold. In this case we were informed by counsel for the appellant that there was, at the time, an available market for other used backhoe machines, but that no evidence about the existence of this market, or the value of a comparable backhoe in merchantable condition fit for the intended purpose, was adduced at trial.

43 It is necessary also to mention that in those cases where damages are awarded for breach of a contract for the sale of goods, and where it is appropriate, for any reason, to assess the damages by recourse to the cost of repairing or rectifying defects in the property sold, particularly if extensive work or expenditure is involved, it is often necessary to discount the award of damages by a factor which reflects the enhanced value of the property, beyond the original purchase price, which has been achieved through the remedial work. Allowance or discount for such a degree of "betterment" is sometimes necessary to avoid double compensation, because the remedial work may well produce a situation in which the enhanced value of the property can be realised by the purchaser, either on sale, or through extended use. A need to make adjustments of this kind for betterment when awarding damages based on repair or rectification costs is well recognised and has been considered in cases such as Harbutt's Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447, overruled on another point in Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827. It is discussed more fully in Hoad v Scone Motors Pty Ltd [1977] 1 NSWLR 88 and the authorities are extensively reviewed in Hyder Consulting (Aust) Pty Ltd v Wilh Wilhelmsen Agency Pty Ltd (supra). However, no such point was raised by any ground of appeal, and it is therefore unnecessary to consider it further.

44 For these reasons I consider that this appeal should be dismissed.