Capitol Carpets Pty Ltd v Schwartz Family Co Pty Ltd [2016] NSWSC 1753

Supreme Court New South Wales

Medium Neutral Citation: Capitol Carpets Pty Ltd v Schwartz Family Co Pty Ltd [2016] NSWSC 1753 Hearing dates: 17 March 2016 Decision date: 14 December 2016 Jurisdiction: Common Law Before: McCallum J Decision: Appeal allowed; judgment of the Local Court set aside Catchwords: LOCAL COURT – appeals – whether failure to comply with a procedural direction can properly be taken into account in the court's evaluation of evidence that has been admitted at trial – proper construction of s 61 of the Civil Procedure Act 2005 (NSW) – whether Local Court erred in accepting evidence of expert witness where assumptions not proved – whether findings of fact available on the evidence – where plaintiff in proceedings below sought damages for cost of relaying carpet installed over five years earlier – whether open to find carpet had any future useful life Legislation Cited: Civil Procedure Act 2005 (NSW), s 61 Local Court Act 2007 (NSW), ss 39, 40 Local Courts Act 1982 (NSW), s 73 Uniform Civil Procedure Rules 2005 (NSW), sch 7 Cases Cited: Attorney-General for the State of New South Wales v X (2000) NSWLR 653; [2000] NSWCA 199 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 Hamod v Suncorp Metway Insurance Ltd [2006] NSWCA 243 Kostas v HIA Insurance Services Pty Limited (2010) 241 CLR 390; [2010] HCA 32 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705 Category: Principal judgment Parties: Capitol Carpets Pty Ltd (plaintiff) Schwartz Family Co Pty Ltd (defendant) Representation: Counsel: M Southwick (plaintiff) J Sleight (defendant)

Solicitors: Chamos Legal (plaintiff) Neville & Hourn Legal (defendant) File Number(s): 2015/351848

Judgment 1. HER HONOUR: This is an appeal against a decision of the Local Court concerning a claim for damages arising out of the installation of carpet in commercial premises. The plaintiff in the proceedings below, Schwartz Family Co Pty Ltd ("Schwartz") is the owner of the Mercure Hotel in George Street, Sydney. Schwartz engaged Capitol Carpets Pty Ltd to install carpet in the common areas of a number of floors of the hotel. The carpet was supplied by Schwartz. After several years, the carpet began to ripple, causing a trip hazard and detracting from the appearance of the hotel. Schwartz alleged that the fault lay with the installation by Capitol Carpets; Capitol Carpets maintained that the problem was due to the poor quality of the carpet supplied by Schwartz and the fact that the hotel had allowed people and trolleys into the areas in question too soon after the carpet had been installed. 2. Schwartz commenced proceedings in the Local Court for damages for breach of contract and negligence in the installation of the carpet. The initial claim was for damages for "premature replacement of carpet" and "damage to carpet and reduction of useful life". In an amended statement of claim, those claims were abandoned and a claim was instead made for the cost of "relaying the carpet", quantified at $106,000 (the amount initially invoiced by Capitol Carpets). Schwartz asserts that the abandonment of the initial claim for replacement of the carpet simply reflected a tactical decision not to pursue a claim that exceeded the jurisdictional limit of the Local Court. Whatever the reason for that decision, it remained necessary for Schwartz, as an element of its claim, to prove something about the carpet; there can hardly have been a basis for awarding the cost of relaying the carpet if, by the time the problem arose, it had in any event come close to the end of its useful life. 3. The learned magistrate allowed the claim in part, finding that Capitol Carpets was liable for 50% of the alleged loss. Her Honour gave a verdict for Schwartz in the sum of $53,000. Capitol Carpets appeals against that decision. 4. An appeal to this Court lies as of right from proceedings in the Local Court in its General Division, but only on a question of law: s 39 of the Local Court Act 2007 (NSW). An appeal may be brought on a ground that involves a question of mixed law and fact but only by leave of the Court: s 40 of the Act. 5. In its amended summons filed 16 December 2015, Capitol Carpets identifies seven grounds of appeal, each characterised as an error in law. Schwartz disputes that characterisation, contending as to most if not all grounds that leave to appeal is required and should be refused. It is convenient to address that question within the discussion of each ground.

Circumstances in which the proceedings in the Court below were brought 1. Capitol Carpets was initially retained by Schwartz by the acceptance of a written quote dated 6 June 2008 for $17,750 to install carpet on two floors of the hotel. Capitol Carpets was to supply the underlay and other necessary materials. As already noted, the carpet itself was supplied by Schwartz. Capitol Carpets was subsequently retained by oral agreement to install carpet on other floors as required by Schwartz at the rate of $8,570 per floor. The works were carried out periodically between July 2008 and July 2009. 2. No issue was raised concerning the quality of the installation for several years. At some point, the hotel's chief engineer started to notice that the carpet was "bubbling, rippling and coming away from the ground" (his affidavit states that was in late 2013 but it must have been late 2012). 3. In the face of a dispute between Schwartz and Capitol Carpets as to the cause of the problem, Schwartz retained an expert carpet consultant, Mr Jim Cooper, to inspect the carpet and provide a report. 4. Mr Cooper found "the rippling is caused essentially by detachment of the carpet from the underlay. In these places, the adhesion has failed. The unsupported carpet has then stretched in these places due to the physical action of feet, trollies etc". 5. Mr Cooper found that the adhesion in many places was weak and that the carpet could be pulled off the underlay with ease. He also found the adhesion to be strong and normal in many places. He found most of the instances of low or zero adhesion were in the main traffic routes. He identified four "possible problems with the installation": Inadequate quantity of adhesive eg through incorrect notching on the adhesive trowels. Incorrect tack-off time (giving adequate or incorrect transfer of adhesive onto carpet). Inadequate or incorrect rolling of the carpet after adhesion. Inadequate protection of the finished work during the curing of the adhesive (eg allowing foot traffic etc on the carpet too early, causing damage to the adhesive bond). 1. Mr Cooper said "any of these could have caused the observed rippling and detachment of the carpet". 2. On 21 March 2013, Schwartz sent Mr Cooper's report to Capitol Carpets seeking a response as to "how you will rectify the issues raised in this report". The parties continued to engage in correspondence for a period concerning the cause of the problem. In short, Schwartz maintained that the problem was due to poor workmanship on the part of Capitol Carpets, while Capitol Carpets blamed the quality of the carpet provided by Schwartz and the impact of foot traffic and trolley movements soon after the installation of the carpet.

Proceedings in the Local Court 1. The proceedings were commenced in the Local Court on 9 July 2014, almost six years after the completion of the first two floors and five years after the completion of all floors. 2. There is one aspect of the procedural history that needs to be explained. After the proceedings were commenced, Capitol Carpets retained its own expert, Mr Considine. By letter dated 9 September 2014, the solicitor acting for Capitol Carpets sought specified information from Schwartz to enable Mr Considine to prepare his report, including a copy of the specifications for the carpet, the original purchase order, the picking slip, the manufacturer's warranty, the manufacturer's installation instructions and confirmation as to who the manufacturer was and in what country the carpet was manufactured. Schwartz responded by letter dated 26 September 2014 in broadly unhelpful terms, indicating (as to each item sought) either that the information was not available to Schwartz or that it would be provided "if it remains in our client's control". 3. On 29 September 2014, the solicitor for Capitol Carpets wrote again, reiterating the need for the information sought and pointing out that, in order to make good its claim for damages (then particularised as being damages for "premature replacement of the carpet" and "damage to carpet and reduction of useful life"), Schwartz would have to prove "the nature and quality of the carpet". The following day, 30 September 2014, Capitol Carpets obtained an order that Schwartz provide the information sought in the 9 September letter within 21 days. 4. Schwartz was unable to provide the information sought. All that was provided was a "packing list" from Rizhao Griffith Textile Co in Shandong, China. However, that document was dated 13 January 2012 and so could not have related to the carpet in question (which was installed in 2008 and 2009). The fact that the document provided did not appear to relate to the relevant carpet was pointed out by Capitol Carpets' experts in their report but does not appear to have been brought to Mr Cooper's attention until he was cross-examined at the hearing in the Local Court. 5. On 23 January 2015, five days before the commencement of the hearing, Schwartz filed a notice of motion seeking leave to amend its pleading so as to claim damages in respect of ten additional floors. The proposed amendment was opposed on the grounds, among other things, that Schwartz had been unable to provide the particulars ordered as to the nature and quality of the carpet. In correspondence relating to the proposed amendment, Capitol Carpets again pointed out that the packing list that had been provided did not appear, on its face, to relate to the relevant carpet. 6. The amendment application was determined at the outset of the hearing. The magistrate decided to allow the amendment but said "if that disadvantages the defendants in that their expert didn't have the opportunity of examining the other levels, then I will allow an adjournment for that purpose and of course the plaintiff will have to pay the costs of the defendant and the adjournment and of today" (exhibit A, page 3/615). After taking instructions, counsel for Capitol Carpets stated that he was instructed first to seek confirmation from Schwartz as to whether they were able to provide "any other documentation as to the provenance of the carpet other than what's already been provided". Counsel for Schwartz stated that Schwartz had provided all the particulars it was able to in respect of all of the carpet, including the carpet installed on the additional floors the subject of the amended claim. 7. On that basis, Capitol Carpets did not take up the opportunity to have an adjournment at Schwartz's cost. Schwartz then filed the amended pleading in court claiming damages in respect of the additional floors. The document filed in court was a "slightly amended" version of the proposed amended pleading previously served. In the pleading as filed, Schwartz (so far as I can glean, for the first time) abandoned its claim for damages for "premature replacement of carpet" and "damage to carpet and reduction of useful life", instead claiming "cost of relaying carpet $106,000".

Evidence as to the quality of the carpet 1. Capitol Carpets served evidence that, for the two floors the subject of the original claim, the carpet provided by Schwartz had been damp but that Capitol Carpets had been directed to install it anyway. In response to that evidence, Schwartz relied on an affidavit sworn by Dr Jerry Schwartz, a director of Schwartz, which included the following statement: The carpet arrived in a 40 HQ container, which holds about 69 rolls of carpet. The containers are waterproof, and if they would have arrived damaged, we would have had them replaced. I cannot recall the original carpet, however, the newly supplied carpet were all top quality Axminster. 1. The last sentence was objected to and not pressed (exhibit A, page 3/619). 2. During cross-examination, however, Dr Schwartz repeated the effect of that statement, saying: WITNESS: In any case, the carpet which I purchased from China is highest quality Axminster and it has been of that substance, that type, ever since I've started with them. I've always started with the highest quality Axminster and that's what I've continued to purchase from them. So even if it is the wrong packing list, the standards, the criteria of the manufacturer would be the same anyway. 1. No evidence was otherwise sought to be adduced by Schwartz as to the provenance or specifications of the carpet used in the present case. The term "Axminster" identifies the kind of carpet but says nothing as to the provenance or quality of any particular roll of carpet. 2. There was, however, evidence of observations made both at the time the carpet was installed and by the experts who attended to inspect the site after the problem arose. Mr Patrick Doherty, the principal of Capitol Carpets, was present when his son, Timothy, unloaded the carpet in Capitol Carpets' warehouse after it was delivered by Schwartz. That was the carpet to be installed for the first two floors, levels 13 and 14. Mr Doherty observed that the carpet was "damp and mouldy". There was considerable evidence about that issue at the hearing in the Local Court but the magistrate was ultimately not persuaded that dampness contributed to the failure of adhesion and there is no challenge to that finding. 3. Separately, Mr Doherty stated that he did not observe any labelling or other information about the manufacturer or the carpet (exhibit A, page 1/186). 4. Timothy Doherty also gave evidence. He also observed that the carpet for levels 13 and 14 was damp and mouldy. He spoke to Schwartz about having the carpet cleaned prior to installation but Schwartz did not approve the cost of having that done. Timothy Doherty said that he had a conversation with an employee of Schwartz, Mr David French, as follows: Doherty: "David, the carpet is damp and mouldy and I have a bloke here who has given a quote of $15 plus tax a square metre." French: "Don't worry about it, I will get it cleaned after we get it installed." Doherty: "This carpet is not the best, I can't guarantee the installation of the carpet." French: "I have no option; the boys have already ripped up the carpet on one of the levels, you have to lay it because people have already booked rooms. We have to use the carpet because we can't send it back." Doherty: "The best I can do for you is to roll it out in the sun and see if that helps." French: "OK, I understand." 1. In the process of rolling out the carpet in the sun, Timothy Doherty checked the carpet to see if there was any information on it concerning roll numbers or dye lots. He said he was unable to find any manufacturing details or information of the kind he would usually expect to find on a roll of carpet. He said there were no manufacturing labels or tags of any kind. Mr Doherty rang Jenny Farrell at Schwartz and said "There was no packing slip or manufacturing details on this carpet. Do you have any details on this carpet – I need the dye lots or roll numbers". Ms Farrell said she had no information. 2. Timothy Doherty said that throughout the process of laying carpet at the Mercure Hotel, none of the carpet had any manufacturing information on it. He acknowledged that none of the carpet subsequently delivered (after the first two levels were done) was damp or mouldy. 3. Sean Doherty gave similar evidence of conversations with employees of Schwartz concerning the appearance of the carpet delivered for levels 13 and 14. He also was told that the carpet had to be laid as the hotel had full bookings and the removal of the old carpet had commenced. 4. Sean Doherty also gave evidence as to his observations concerning the carpet during the process of installation. He said "I observed that this carpet was unusual for an Axminster carpet because it was possible to easily stretch the carpet on the length or width. In my experience a good quality Axminster carpet would not have very little stretch on the width (sic)". That paragraph of the affidavit plainly contains a typographical error. It must have been intended to read "a good quality Axminster carpet would have very little stretch on the width". 5. The expert witnesses who gave evidence in the proceedings on behalf of Capitol Carpets gave an opinion as to the quality of the carpet based on Mr Doherty's observation. Their opinion was that stretchiness of the kind described by Mr Doherty (exhibit A, pages 2/255-256): … is caused through the Polypropylene (PP) weft not being properly heat set which creates the relaxation thus bagginess and elongation in the width. This also means that the AC [Axminster carpet] is not as dimensionally stable which can create the problems we saw onsite during our inspection. The constant use of trolleys over the AC would have accelerated the breakdown of the AC's dimensional stability. Based on this fact it is our opinion that the AC supplied was dimensionally unstable and not fit for purpose for installation in a commercial environment in a hotel corridor. 1. Sean Doherty was not cross-examined as to his observation regarding the stretchiness of the carpet. Indeed, when counsel for Capitol Carpets attempted to revisit that evidence in re-examination, the question was objected to on the grounds that there had been no cross-examination and was disallowed (exhibit A, page 3/789). 2. The expert witness retained by Schwartz, Mr Cooper, ultimately provided four reports, two based on inspections of the site. In his second report he made recommendations as to how to address the rippling problem. In that context he said "the current carpet is almost five years old. As such it is probably about half way through its useful life span". That report was dated 12 June 2013. In re-examination, Mr Cooper was asked (over objection) how many more years, as at the time he inspected the carpet, he would have expected it to have lasted had the adhesion not failed. He said "the major condition of course is that there's no adhesion failure. If there's no adhesion failure it could last another five to eight years, even longer". The magistrate's acceptance of that evidence is the subject of ground 2 in the appeal.

Issues for the magistrate's determination 1. The amended statement of claim specified particulars of breach of contract which broadly reflected the terms of Mr Cooper's first report. The particulars of breach alleged: 1. failure to apply an adequate quantity of adhesive to the carpet or underlay causing inadequate adhesion of the carpet to the underlay; 2. failure to allow correct "tack" time of adhesive causing failure of bonding; 3. failure to roll carpet adequately or at all after adhesion; 4. failure to allow to properly protect the carpet (sic) to permit proper curing of adhesive before use; 5. failure to effect proper joins of the carpet. 1. By its amended defence, Capitol Carpets raised the following issues in response to those contentions: 1. the fact that the carpet was supplied by Schwartz. Capitol Carpets alleged in that circumstance that it was a matter for Schwartz to ensure that the carpet was fit for the purpose (paragraph 8 of the amended defence); 2. a contention that Schwartz did not properly care for and maintain the carpet following its installation at the premises in that it allowed employees to use the carpet prior to adequate drying and allowed use of the carpet by third parties including hotel guests (paragraph 8 of the amended defence); 3. a contention that the carpet to be installed on levels 13 and 14 was damp when provided to Capitol Carpets (paragraph 14(a) of the amended defence); 4. an allegation of contributory negligence on the part of Schwartz in allowing the carpet to be used within 24 hours of the installation works contrary to the advice of Capitol Carpets (paragraphs 16-18 of the amended defence).

The magistrate's decision 1. The magistrate recorded her findings at [16] of the judgment. Capitol Carpets accepts the first three findings, which her Honour expressed in the following terms: (a) There is evidence that when the first two floors were laid, level 13 and 14, the carpet was damp and the defendant brought that to the attention of the plaintiff's employee and was told to lay it anyway. On the other floors the carpet was dry and there had been no difference with regard to the failure of the carpet to adhere. (b) The plaintiff obtained the carpet from a manufacturer in China, it was an Axminster carpet but otherwise the quality of the carpet or manufacturer's recommendations as to installation are unknown. (c) The defendant has performed a number of installations of carpet for the plaintiff at other hotels without any issues. Mr Sean Doherty and Mr Timothy Doherty have been involved in those installations. 1. However, Capitol Carpets seeks to challenge the following two further findings made by her Honour: (d) The plaintiff has used the same carpet in their other hotels without similar problems, and the carpet with the same level of use has lasted well beyond the 7 years that this carpet has been installed. Mr Cooper gave evidence that without adhesive failure it should last another 5-8 years (Page 41 transcript 28.1.2015). Mr Tree in cross examination was asked about the quality of the carpet and how long it might ordinarily be expected to last. He did not concede that this was good quality carpet but did concede that carpet can last 20-30 years (Page 76 transcript). Mr Schwartz was asked about the carpet and said that he purchases the carpet in bulk from China and that it is a high quality Axminster carpet and he hasn't had any similar problem with the carpet (Page 129 transcript). From this evidence I accept that the carpet and installation should have been expected to last another 5-8 years. (e) There was no evidence that the problem lay with the carpet itself, although there was no manufacturers' information. 1. In its written submissions as to why leave should not be granted to Capitol Carpets to appeal on any ground involving a question of mixed law and fact, Schwartz acknowledged that the "comment" of the magistrate that "the plaintiff has used the same carpet in their other hotels without similar problems" was not available on the evidence. However, Schwartz submitted that it was a comment made only in the context of considering the claim for damages. 2. I disagree. On my reading of the judgment, what is set out at [16] records findings of fact which went to both liability and damages. So much is clear from the following paragraph, where her Honour recorded that the cause of the problem was "adhesive failure" and identified the issue for determination as being "whether this is the fault of [Capitol Carpets] not using sufficient adhesive and not applying it properly or [Schwartz] in allowing trolleys and foot traffic on the carpet before it was cured contrary to the instructions of [Capitol Carpets]". In identifying the issue for her determination in those terms, the magistrate had plainly either eliminated or overlooked the contention made by Capitol Carpets that the quality of the carpet was a contributing factor. 3. It is true that the finding at the conclusion of [16(d)] that "the carpet and installation should have been expected to last another 5-8 years" is a premise of the award of damages but the findings at [16(d)] were not confined to that issue. 4. Having narrowed the issue to whether the adhesive failure was due to poor workmanship by Capitol Carpets (including the use of insufficient adhesive) or to premature traffic on the carpet allowed by Schwartz contrary to the instructions of Capitol Carpets, her Honour considered the evidence on those issues and concluded that each was a contributing factor, in equal parts. Her Honour said (at [26]): On the basis of the evidence I am satisfied that the lack of adhesion was caused by two factors. Firstly the carpet being used within 24 hours of its being laid and I am satisfied that the defendant told the plaintiff it should not be used within 24 hours (Mr T Doherty's evidence). There was no evidence to dispute that the carpet needed at least 24 hours to cure and that failure to provide this could result in lack of adhesion. I am satisfied that the plaintiffs did use the carpet within 24 hours, possibly within 12 hours. I am satisfied that the second factor was the lack of proper time being allowed for tack off. This was acknowledged by the defendant's expert as something that could affect adhesion and by Mr S Doherty in his affidavit evidence that allowing sufficient tack off time was important. Mr S Doherty admitted in cross examination that he did not allow tack off time. I am satisfied that the plaintiff and the defendant's actions are responsible for the failure of adhesion. I am satisfied that both these causes are significant in the resulting failure. There is no evidence that I can look to determine which factor is more responsible. I am satisfied that defendant's failure make them liable for 50% of the loss of the plaintiff. 1. The magistrate found that the cost of relaying the carpet was $106,000 "as per the plaintiff's Amended Statement of Claim and quotations in Annexure "I" of Exhibit 2". The quotations referred to do not in fact appear to be relevant to the claim as amended but, as already noted, the amount awarded reflects the original cost of installation by Capitol Carpets and so may be accepted as a reasonable quantification of the cost of relaying the carpet. Her Honour considered that Capitol Carpets should pay 50% of that amount and accordingly entered a verdict for the plaintiff (Schwartz) in the sum of $53,000.

Nature of an appeal under the Local Court Act 1. As already noted, an appeal to this Court lies as of right from the Local Court sitting in its General Division only on a question of law; an appeal on a ground that involves a question of mixed law and fact requires leave: ss 39 and 40 of the Local Court Act. It follows from the terms of those provisions that there is no right of appeal on a ground that involves only a question of fact. 2. The task of discerning whether a ground of appeal raises a question of law, or a question of mixed law and fact, or neither, is often vexed. 3. In its written submissions, Schwartz relied upon the principles summarised by Kirby J in R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082 at [13] as those to be applied "in respect of appeals on matters of law". However, that was a case in which (so Kirby J held at [11]) the appeal was confined to "errors of law". 4. The decision in Bisby was considered by Hall J in US Manufacturing Co Pty Ltd v ABB Service Pty Ltd [2008] NSWSC 705. That was a case in which the relevant statute conferred a right of appeal in respect of a decision that was "erroneous in point of law". In considering the scope of a right of appeal expressed in those terms, Hall J noted (at [46]) that the terms "question" or "point" of law are wider than "error of law", citing Attorney-General for the State of New South Wales v X (2000) NSWLR 653; [2000] NSWCA 199 at [124] per Spigelman CJ (Priestley JA agreeing at [226]). The wider term "question of law" is the term used in ss 39 and 40 of the Local Court Act. 5. Conversely, it is important to bear in mind that an erroneous ruling as to evidence does not necessarily involve a question of law: Hamod v Suncorp Metway Insurance Ltd [2006] NSWCA 243 per Basten JA at [10]; Beazley and Santow JJA agreeing at [1] and [2] respectively. An allegedly erroneous evaluation of material that has been admitted into evidence is, prima facie, even less likely to involve a question of law. 6. It is at least clear that the question whether there is any evidence of a particular fact is a question of law: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 355 per Mason CJ; [1990] HCA 33. The relevant passage continues: Likewise, the question whether a particular inference can be drawn from facts found or agreed is a question of law. This is because, before the inference is drawn, there is the preliminary question whether the evidence reasonably admits of different conclusions. So, in the context of judicial review, it has been accepted that the making of findings and the drawing of inferences in the absence of evidence is an error of law. 1. To like effect, in Kostas v HIA Insurance Services Pty Limited (2010) 241 CLR 390; [2010] HCA 32 the High Court said at [91] (per Hayne, Heydon, Crennan and Kiefel JJ): Whether there was no evidence to support a factual finding is a question of law, not a question of fact. The Tribunal's factual finding in this case, that the builder had served the two relevant claims for extension of time, necessarily depended upon its first accepting that there was evidence to support the finding. As Dixon CJ said in Gurnett v The Macquarie Stevedoring Co Pty Ltd [No 2][126]: "in the legal dichotomy between questions of fact and questions of law we place under the latter head a question whether there is sufficient evidence to submit to a jury in support of a cause of action. That is because it is a question for the court to decide and not for a tribunal of fact." A tribunal that decides a question of fact when there is "no evidence" in support of the finding makes an error of law[127]. What amounts to material that could support a factual finding is ultimately a question for judicial decision. It is a question of law. And in this case, for the reasons given by the primary judge, there was no evidence before the Tribunal, when it decided the separate question identified by the parties, upon which the Tribunal could find that the disputed notices had been served. 1. Capitol Carpets' amended summons identifies seven grounds of appeal. The position adopted by Schwartz appeared to be that none raises a question of law alone and that leave should not be granted to appeal on any of the grounds specified. 2. A number of the grounds assert that the magistrate "erred in law in accepting [particular evidence] in circumstances where …". In an appeal of the present kind, a ground of appeal expressed in those terms is, on its face, an unlikely candidate for leave. As framed, those grounds openly challenge the magistrate's assessment of the weight to be given to particular admissible evidence while tending to obscure rather than elucidate any question of law raised. 3. The remaining grounds specified by Capitol Carpets allege error in law in making findings that were not available on the evidence. As already noted, the question whether there is any evidence of a particular fact is a question of law, as is the question whether a particular inference can be drawn from facts found or agreed. It is always necessary, however, to analyse the impugned finding to determine whether the ground of appeal specified does in fact invoke that principle. 4. I turn to consider the individual grounds relied upon by Capitol Carpets against those principles.

Ground 1: Schwartz's alleged breach of an order of the court 1. The first ground of appeal is: The magistrate erred in law in accepting [Schwartz's] and its expert's evidence as to the nature and quality of the carpet in circumstances where: [Schwartz], in breach of the Orders of the Court dated 30 September 2014, failed to provide Capitol Carpet's expert with any relevant information including warranties and purchase records as to the nature and quality of the carpet and no samples for testing. b) Mr Schwartz gave evidence that the relevant information including warranties and purchase records for the carpet are kept. c) a sample of the carpet was brought to Court. 1. The nature of the alleged error is obscure. The proposition appears to be that the court's evaluation of evidence admitted at trial is logically (and perhaps necessarily) informed by the fairness of a party's conduct in the procedural steps in the proceedings. 2. Before considering that issue, a preliminary point should be made. It is by no means clear to me that Schwartz did fail to comply with the order of the Local Court made on 30 September 2014. The factual premise of that contention is that there were records that in fact existed but which were not produced and that the sample of carpet that was in court was in fact the carpet the subject of the proceedings. 3. A party is only ever obliged to provide the best particulars it can. Certainly, it was the understanding of counsel appearing for Schwartz at the hearing that his client had done just that. Of course, the absence of any information of the kind sought by Capitol Carpets may resonate in a different context but the position stated by counsel was that the information could not be produced. 4. Capitol Carpets contends that the evidence given by Dr Schwartz in cross-examination revealed that, contrary to the position stated by counsel, the information existed and could have been produced. I have read that evidence. It is clear enough that Dr Schwartz was not consulted as to the need to comply with the order made by the Local Court. In response to questions on that issue, he ventured the view that the information sought was of the kind that should be held by Schwartz. However, I do not think he went so far as to say that the information did in fact exist. His evidence was speculative, at best. Nor was he able to confirm that the specimen of carpet that was in court was the same as the carpet the subject of the claim; that also remained a matter of speculation. 5. In any event, even if it were established that the company withheld available information it had been ordered to provide (due to oversight or otherwise), it would not follow that it was not open to the magistrate to accept such evidence as was admitted on the issue. 6. In its written submissions, Capitol Carpets made reference to s 61 of the Civil Procedure Act 2005 (NSW), which creates sanctions for failure to comply with an order of the court. However, it was accepted at the hearing before me that Capitol Carpets did not apply for any such sanction in the court below. 7. Had the point been taken at the hearing, it may have been open to the magistrate to refuse to admit evidence under s 61(3)(e) of the Civil Procedure Act (depending on the view her Honour took as to the import of Dr Schwartz's evidence). However, I do not think that section is directed to the tribunal of fact's evaluation, after the hearing, of material that has been admitted into evidence. Section 61(3)(e) provides that one of the sanctions for failure to comply with a direction given by the court is to "strike out, disallow or reject any evidence that the party has adduced or seeks to adduce". It may be accepted that the section confers power to "reject" (that is, to refuse to admit) otherwise admissible evidence on the grounds of a failure to comply with a direction of the court. In my view, however, the occasion for the exercise of that power is at the point when the evidence is sought to be adduced (or, at the latest, when the breach of direction becomes apparent), not at the point of determining the proceedings after the conclusion of the hearing. At the very least, it would be necessary, before determining to "reject" evidence on the grounds of failure to comply with a direction, to hear the party affected. 8. Even if that understanding of the section is wrong, and it does confer power to "reject" evidence that has been admitted at trial (in the sense of determining not to place any reliance on that evidence as opposed to refusing to admit it into evidence), the fact that the magistrate did not exercise that discretionary power in the present case can hardly be characterised as an error. 9. Assuming ground 1 raises a question of mixed law and fact (the question of law being whether a failure to comply with a direction can be taken into account in the court's evaluation of evidence that has been admitted at trial), I would grant leave under s 40 but reject that ground.

Grounds 2 and 3: findings supporting the conclusion as to the life expectancy of the carpet 1. Grounds 2 and 3 each relate to the magistrate's findings at [16(d)] of the judgment and can conveniently be considered together. 2. The relevant portion of her Honour's judgment is set out at [37] above. On my reading of her Honour's judgment, the operative finding in that paragraph is the conclusion "that the carpet and installation should have been expected to last another 5-8 years". That was a necessary premise of the ultimate determination that Schwartz was entitled to an award of damages for the cost of relaying the carpet. There could be no basis for awarding damages on that basis if the carpet had come near to the end of its useful life in any event. 3. The magistrate identified four reasons for the conclusion that the carpet should have been expected to last another 5 to 8 years. 4. First, her Honour found that Schwartz "has used the same carpet in their other hotels without similar problems, and the carpet with the same level of use has lasted well beyond the 7 years that this carpet has been installed." The finding that Schwartz had used the same carpet in other hotels without similar problems is the subject of ground 3, which contends that the finding was not available on the evidence. According to the principles summarised above, that is a ground which raises a question of law. 5. Schwartz accepts that the finding that it used the same carpet in other hotels was not available on the evidence but disputes the significance of that finding in the conclusions reached by the magistrate. It follows that ground 3 is made out but it remains to consider whether the error was material to the outcome: cf Hamod at [11]. That issue is considered in the discussion of ground 7 below. 6. Secondly, her Honour cited the evidence of Mr Cooper at page 41 of the transcript. That finding is the subject of ground 2, to which I will return shortly. 7. Thirdly, her Honour cited the evidence of Mr Tree in cross examination at page 76 of the transcript. Mr Tree was one of the experts called by Capitol Carpets. The magistrate said "he did not concede that this was good quality carpet but did concede that carpet can last 20-30 years". Mr Tree's evidence on that issue (which I have read in its entirety) is plainly incapable of sustaining any conclusion as to the likely future life of the carpet the subject of this case. Mr Tree was being cross-examined as to whether the fact that the carpet appeared to be in reasonable condition indicated that it was fit for purpose. He did not accept that proposition, saying, "No. As I've said, I've seen carpet 20/30 years that look good." He was not referring to any particular kind of carpet, still less the carpet the subject of these proceedings. 8. Finally, the magistrate cited the evidence of Dr Schwartz at page 129 of the transcript. That evidence is considered in the discussion of ground 7 below. 9. Ground 2 is: The magistrate erred in law in accepting the evidence of Schwartz's expert, Mr Cooper that the carpet should last another 5-8 years in circumstances where: Mr Cooper made assumptions as to the nature and quality of the carpet based upon a packing slip dated 2012, 4 years after the installation of the carpet in 2008. Schwartz's counsel at the commencement of the hearing stated Schwartz "is not able to provide any other documentation as to the provenance of the carpet". Schwartz did not prove the assumptions underlying Mr Cooper's report. 1. This ground raises a difficult question as to the status of Mr Cooper's evidence in circumstances where Schwartz was unable to prove at least some of the assumptions on which his opinion was expressly based. 2. As already noted, Mr Cooper produced four reports. Only the fourth, dated 11 December 2014, was presented as a formal expert report for use in legal proceedings. That was the only report which referred to the expert code of conduct contained in schedule 7 of the Uniform Civil Procedure Rules 2005 (NSW) and the only report which specified the assumptions on which the opinion was based. Paragraph 3 of the report stated "I have assumed the facts given in the retainer of 20 November 2014", identified as annexure E to the report. However, the copy of Mr Cooper's affidavit in the appeal book does not include annexure E as an attachment to the fourth report. 3. Mr Cooper's first report, dated 12 March 2013, identified the carpet in question as being: A broadloom Axminster woven carpet. 40oz pile weight. 80% wool, 20% nylon pile. Purchased direct from the manufacturer by the hotel owner. 1. Mr Cooper accepted in cross-examination that that information was taken from the "packing list" and that, in preparing his report, he had assumed all of that information was correct (exhibit A, page 3/626). Having regard to the date of the packing list (January 2012), the correctness of that information was plainly not proved. In cross-examination, however, Mr Cooper said that the detail of those measurements had "no great significance" (exhibit A page 3/635). It was accordingly unclear from Mr Cooper's evidence what assumption he made as to the provenance, quality and specifications of the carpet. 2. The evidence the subject of ground 2 came in re-examination. It is appropriate to set out the relevant passage in full: Q. You were asked lots of questions about assumptions that you made in your report. Did you inspect the carpet? A. I'm sorry, did? Q. You were asked questions about various assumptions about the type of carpet. Did you inspect the carpet? A. Inspect the carpet, yes. Q. Did your inspection reveal any defect? A. You mean in terms of just the carpet itself? Q. Yes? A. No, it… Q. In the areas where there was no rippling, when you inspected the carpet what was the additional life – how long do you think the carpet would last in the areas where there was no rippling? OBJECTION. QUESTION ALLOWED Q. Mr Cooper, in the areas where there was no rippling, and assuming that the adhesion does not fail, how many more years would you have expected this carpet to have lasted? A. Yeah, I mean it's – the major condition of course is that there's no adhesion failure. If there's no adhesion failure it could last another five to eight years, even longer. 1. Capitol Carpets submitted that, without proof of the facts on which the opinion was based, it was an error to accept that evidence. Capitol Carpets relied on the principle stated in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 at [64] per Heydon JA (citations omitted): The basal principle is that what an expert gives is an opinion based on facts. Because of that, the expert must either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based. If other admissible evidence establishes that the matters assumed are "sufficiently like" the matters established "to render the opinion of the expert of any value", even though they may not correspond "with complete precision", the opinion will be admissible and material... One of the reasons why the facts proved must correlate to some degree with those assumed is that the expert's conclusion must have some rational relationship with the facts proved. 1. In going so far as to assert that the magistrate erred in law in accepting the evidence, ground 2 apparently invokes what Heydon J subsequently termed the "proof of assumption" rule. In Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21, his Honour comprehensively rejected the notion that the rule was not taken up in s 79 of the Evidence Act 1995 (NSW), holding (at [102]) that an opinion tendered under s 79 is inadmissible unless there was evidence, admitted or to be admitted before the end of the tendering party's case, capable of proving matters sufficiently similar to the assumptions to render the opinion of value. 2. Heydon J explained the function of the rule as follows (at [90]): The function of the proof of assumption rule is to highlight the irrelevance of expert opinion evidence resting on assumptions not backed by primary evidence. It is irrelevant because it stands in a void, unconnected with the issues thrown up by the evidence and the reasoning processes which the trier of fact may employ to resolve them. If the expert's conclusion does not have some rational relationship with the facts proved, it is irrelevant. That is because in not tending to establish the conclusion asserted, it lacks probative capacity. Opinion evidence is a bridge between data in the form of primary evidence and a conclusion which cannot be reached without the application of expertise. The bridge cannot stand if the primary evidence end of it does not exist. The expert opinion is then only a misleading jumble, uselessly cluttering up the evidentiary scene. 1. Heydon J was in dissent in that case. The majority did not embrace his Honour's compelling analysis, determining the appeal on a different basis (see [41] of the joint judgment of French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). In any event, whatever view is taken as to the proper construction of s 79, it is clear that the failure to prove the factual assumptions underlying an expert's opinion must at the very least be taken into account in assessing the weight that can properly be accorded to the opinion. 2. The determination of that issue in the present case is complicated by the apparent absence of the statement which ought to have been annexed to Mr Cooper's affidavit specifying his assumptions and the absence of any cross-examination on that document in the proceedings below. 3. On the issue as to which he was cross-examined, Mr Cooper stood firm, asserting that the details recorded in the irrelevant packing slip were of "no great significance". It may well be that those details were of no great significance to Mr Cooper's opinion as to the cause of the failure of the installation. But his opinion as to the future life of the carpet was left, in that circumstance, to rest on his observations made at the time he inspected it. Schwartz placed much emphasis on the fact that Mr Cooper had inspected the carpet. But there was simply nothing in his evidence to explain what elements of his training, study or experience enabled him to reach a conclusion, based on inspection alone, as to the remaining useful life of an otherwise unidentified carpet. 4. As the foregoing discussion reveals, ground 2 raises a question of mixed law and fact. The legal question raised is one of general application to expert evidence. For that reason, I would grant leave to appeal on ground 2. 5. In light of the complexities to which I have referred, I do not think it can be concluded that the magistrate erred in law in accepting the evidence. However, in my respectful opinion, the evidence was of very little weight. The significance of that conclusion is considered below in the discussion of ground 7.

Ground 4: finding as to whether the problem lay with the carpet 1. Ground 4 relates to the magistrate's finding at [16(e)] of the judgment. That ground asserts: The magistrate erred in law in making findings that were not available on the evidence: "there was no evidence that the problem lay with the carpet itself" in circumstances where [Capitol Carpets'] experts gave evidence "It is our opinion that the AC (Axminster Carpet) supplied was not fit for purpose and that this was the main contributing factor to the breakdown of the installation". Capitol Carpet's experts based their opinion on their examination of the carpet and not on the 2012 packing slip. 1. As noted on behalf of Schwartz, the magistrate expressly referred to the evidence of Capitol Carpets' experts that the carpet was not fit for the purpose and that this was the main factor in the breakdown of the installation. As already noted, that opinion was based on the unchallenged observation of Sean Doherty as to the stretchiness of the carpet delivered by Schwartz. In that circumstance, it is difficult to understand the basis for the magistrate's finding that there was "no evidence" that the problem lay with the carpet itself. There clearly was. It may have been open to her Honour to reject that evidence but the judgment records no such analysis; the evidence appears simply to have been overlooked. 2. Schwartz submitted that, in any event, it would be "an error to give weight to such an opinion", effectively rehearsing the matters put to Capitol Carpets' experts in cross-examination. I do not accept that submission. Having read the evidence myself, I do not accept the criticisms made of the experts but that is beside the point. The simple fact is that a proper basis for the opinion (the effect of which was that the problem lay with the carpet) was articulated and apparently overlooked in the judgment. I am satisfied that the magistrate's conclusion that there was "no evidence that the problem lay with the carpet itself" entailed legal error. Ground 4 is made out.

Ground 5: alleged finding as to the use of the wrong sized trowel 1. Ground 5 is: The magistrate erred in law in making findings that were not available on the evidence: "the wrong size trowel had been used" in circumstances where Mr Cooper in his second report conceded the use of a 3.2V notched trowel, as recommended by the adhesive manufacturer" and this was confirmed by Schwartz's expert and witnesses. 1. As submitted on behalf of Schwartz, this ground is based on a misconception of her Honour's reasons. Her Honour made no finding that the wrong trowel had been used. The judgment records that Mr Cooper had expressed an opinion to that effect and records Mr Tree's response (at [18] and [19] of the judgment). The magistrate ultimately made no finding adverse to Capitol Carpets on that issue. Of the five particulars of breach specified by Schwartz (set out above), the only one found adversely to Capitol Carpets was "failure to allow correct 'tack' time causing failure of bonding". 2. Ground 5 is not made out.

Ground 6: finding as to "tack off time" 1. Ground 6 is: The magistrate erred in law in making findings that were not available on the evidence: finding lack of tack-off time was a cause of adhesion failure (paragraph 26) in circumstances where the expert evidence was that such a failure would cause the carpet to shrink. 1. Although framed as a "no evidence" ground, upon analysis this ground does no more than to challenge a finding of fact. The "circumstances" recited ("in circumstances where the expert evidence was that such a failure would cause the carpet to shrink") do not reflect the complete scope of the evidence on the issue of "tack-off time". While there is some force in Capitol Carpets' submissions as to the way in which that evidence might have been analysed, the simple fact is that there is no right of appeal on a question of fact, which is what this ground raises (whether lack of tack-off time was a cause of adhesion failure). 2. As this ground raises only a question of fact, it cannot be maintained.

Ground 7: damages for the cost of relaying the carpet 1. Ground 7 is: The magistrate erred in law in making findings that were not available on the evidence: that 50% 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 Schwartz's failure to comply with the Court's order to provide particulars of the carpet including samples for testing by Capitol Carpet's experts. further or in the alternative the magistrate erred in her calculation of damages. 1. As acknowledged in Schwartz's written submissions at para 56, it was implicit in the claim for the cost of relaying the carpet that there was some utility in doing so and, accordingly, that the "life expectancy" of the carpet was an issue in the proceedings below. It was plainly an issue on which Schwartz bore the onus of proof. 2. As already noted, the magistrate gave four reasons for her conclusion that the carpet "should have been expected to last another 5-8 years". Those reasons are considered at length in the discussion of grounds 2, 3 and 4 above. To summarise my conclusions: 1. Schwartz concedes that the finding that it used the same carpet in its other hotels without similar problems was not open on the evidence; 2. Mr Cooper's evidence that without adhesive failure the carpet should last another 5-8 years was of very little weight; 3. Mr Tree's evidence in cross examination that carpet can last 20-30 years was incapable of sustaining any conclusion as to the likely future life of the carpet the subject of this case. 1. The only additional reason cited by the magistrate to support her Honour's conclusion was the evidence of Dr Schwartz "that he purchases the carpet in bulk from China and that it is a high quality Axminster carpet and he hasn't had any similar problem with the carpet". In circumstances where evidence to the same effect in Dr Schwartz's affidavit had been objected to and not pressed, no weight could properly be attached to the repetition of the rejected evidence when it was volunteered in cross-examination. 2. In my respectful opinion, the material that properly informed the question could not support a finding that the carpet should have been expected to last another 5-8 years. There was simply no properly-admitted evidence as to what the carpet was. Further, there was unchallenged evidence, which was not addressed, to suggest that there was a problem with the carpet. For those reasons, I have concluded that Schwartz failed to prove any basis for an award of damages as claimed in the amended pleading and, accordingly, that the appeal must be allowed. 3. Section 41 of the Local Courts Act provides: 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. 1. No new finding of fact is required to be made in order to determine the matter. In my assessment, it follows from my conclusion as to ground 7 that the appropriate order is to set aside the judgment entered in the proceedings below. 2. At the request of both parties, I will hear the parties as to any consequential orders.

********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 December 2016