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21 April 2010

Damages for breach of contract: the “heavy cost” of a vehicle that weighed too much

A recent decision of the Full Court of South Australia has highlighted the extensive damages awards that can follow the supply of equipment that is not fit for the purpose contemplated by the buyer.

Gwam Investments Pty Ltd v Outback Health Screenings Pty Ltd [2010] SASC 37

A recent decision of the Full Court of South Australia has highlighted the extensive damages awards that can follow the supply of equipment that is not fit for the purpose contemplated by the buyer.

Outback Health Screenings Pty Ltd (OHS) operated a health service business for remote mining communities. In July 2006 the directors of OHS approached Gwam Special Vehicles (Gwam) and asked if Gwam could construct a mobile drug testing unit able to be fitted to the rear of a four wheel drive vehicle. Gwam professed expertise in designing and constructing similar custom made units for customers.

The parties entered into a contract pursuant to which Gwam was to construct a mobile unit for approximately $82,000. There was no formal contract – Gwam simply prepared concept drawings and a quotation, which was accepted by OHS. After some discussions with Gwam, OHS purchased an Isuzu four wheel drive for approximately $67,000 with the intention of fixing the mobile unit to the chassis.

When the unit was fitted to the Isuzu, the combined weight of the vehicle and the unit exceeded the maximum loaded mass for the Isuzu of 6 tonnes. As such, the vehicle could not travel on public roads.

After it became apparent that the mobile unit could not legally be operated on the back of the Isuzu, OHS traded the Isuzu for $40,000 and purchased a Hino truck for $96,000.

The Full Court upheld the trial judge’s findings that OHS was entitled to recover damages for breach of:

  • an implied term of the contract that the vehicle and its custom made unit would be fit for the purpose contemplated – namely to drive on public roads; and
  • Gwam’s duty of care.

Given that OHS had little or no control over the weight of the testing unit and no means of assessing the likely total mass of the unit, it was in a vulnerable position. Thus Gwam owed a duty of care to take steps to ensure that OHS purchased an appropriate vehicle to transport the unit or to ensure that the unit would be suitable for transport on the vehicle selected by OHS.

The Full Court increased the damages awarded by the trial judge by approximately $29,000 and gave judgment for approximately $84,000 made up of:

  • the loss of $27,500 suffered when the Isuzu was traded in for much less than its original purchase price;
  • $9,500 being the cost of transferring the unit from the Isuzu to the Hino truck;
  • $18,000 being interest paid by OHS pursuant to its financing arrangements for the Isuzu; and
  • a further $29,000 (over an above the original damages awarded by the trial judge) being the difference between the cost of the Isuzu and the cost of the alternative Hino truck.

Gwam argued that OHS should not be entitled to recover the difference between the price of the Isuzu and the Hino truck as clearly, given the weight of the unit, OHS was always going to need a heavier and more expensive vehicle. In essence OHS eventually bought what it should have purchased initially and thus there was no loss.

Alternatively, Gwam argued that OHS ended up owning a much more valuable vehicle and that any award of damages for the difference in price between the Hino vehicle and the Isuzu vehicle would amount to unjustified betterment.

The Full Court rejected both contentions and indicated that any claim ”ought not be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty”.

The case demonstrates a generous attitude by the Full Court to the awarding of damages for breach of contract. It also illustrates the importance of written contractual terms clearly setting out the obligations of buyer and seller in such situations.


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