Seeking Leave to Appeal? Supreme Court provides insights and Court of Appeal affirms its approach in Schwartz Family Co Pty Ltd v Capitol Carpets Pty Ltd

The Court of Appeal has confirmed its position in relation to the requirements for seeking leave to appeal from its previous decisions in Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das¹ and The Age Company Ltd & Ors v Liu.²

The elements are whether there is any issue of principle, question of general public importance or an injustice which is reasonably clear in the matters raised.

Relevantly, the Court of Appeal has noted that these elements are particularly important for matters where the principal claim is below the statutory threshold of $100,000.00, having regard to section 60 of the Civil Procedure Act 2005 (NSW).

Further, for appeals first originating from the Local Court, proper consideration should be had of whether the appeal is as of right or whether leave is required. The primary judge in the appeal to the Supreme Court in this case provided insight and guidance for consideration.

When seeking leave to appeal, it is important to frame the grounds of appeal with due care and consideration. This includes, where applicable, framing questions of law that were the subject matter of the appeal, rather than asserting that the magistrate erred in law.

A summary of the proceedings from the Local Court to the Court of Appeal follows.

From Local Court to the Supreme Court

This is a matter that arose between Schwartz Family Co Pty Ltd (Schwartz), the owner of the Mercure Hotel in George Street, Sydney, and Capitol Carpets Pty Ltd (Capitol).

Capitol was engaged by Schwartz to install carpet in the common areas of a number of floors of the hotel owned by Schwartz. Schwartz supplied the carpet. After several years, the carpet began to “bubble, ripple and come away from the ground”, causing a trip hazard and detracting from the appearance of the hotel.

Schwartz commenced proceedings in the Local Court of New South Wales claiming damages for the cost of relaying carpet in the sum of $106,000.00.³

The magistrate hearing the Local Court proceedings narrowed the issues as to whether the adhesive failure was due to poor workmanship by Capitol carpets (including using insufficient adhesive or not applying it properly) or premature traffic on the carpet prior to the carpet being cured, which was allowed by Schwartz contrary to instructions. Based on a review of the evidence, the magistrate found each to be a contributing factor, in equal parts. This did not include framing the question to include whether the carpet was a contributing factor (which was significant – see further below).

The magistrate gave judgment in favour of Schwartz, but with Capitol being 50 per cent liable for the alleged loss, and entered judgment for the amount of $53,000.00.⁴

In the course of so doing, the magistrate also made the following findings which were disputed by Capitol:

1. Schwartz used the same carpet in other hotels without similar problems, and such carpet with the same level of use lasted well beyond 7 years. Referring to various evidence in the proceedings, the magistrate accepted that the carpet and installation should have been expected to last another 5-8 years;

2. There was no evidence that the problem lay with the carpet itself, although there was no manufacturer’s information.

Capitol appealed to the Supreme Court of New South Wales in relation to the magistrate’s judgment.

Capitol raised seven grounds of appeal, each characterised as an error of law, and each opposed by Schwartz as not raising a question of law alone.

Noting that an appeal from the Local Court to the Supreme Court is granted as of right on a question of law, but with leave being required on a question of mixed fact and law,⁵ it was necessary for the primary judge (that is, the judge presiding over the appeal to the Supreme Court) to consider the often vexed question of whether each ground of appeal was a question of law, fact or mixed law and fact.

Relevantly, in the course of her Honour’s judgment in the Supreme Court of NSW, the primary judge provided the following guidance and comments on the principles applicable to the question:

1. Given an appeal lies to the Supreme Court from the Local Court in its General Division as of right on a question of law, and with leave on a question of mixed law and fact, there is, accordingly, no right of appeal from the Local Court sitting in its General Division on a ground that involves only a question of fact;

2. Citing previous authority,⁶ the primary judge noted that a “question” or “point” of law is wider than an “error of law”, and noted that sections 39 and 40 of the Local Court Act 2009 (NSW) use the wider term;

3. An erroneous ruling as to evidence does not necessarily involve a question of law;⁷

4. The question of whether there is any evidence of a particular fact is a question of law, citing Australian Broadcasting Tribunal v Bond;⁸

5. The question whether a particular inference can be drawn from facts found or agreed is a matter of law⁹;

6. The making of findings and the drawing of inferences in the absence of evidence is an error of law;¹⁰

7. Whether there was no evidence to support a factual finding is a question of law, not a question of fact. If a tribunal decides a question of fact where there is no evidence to support the finding, it makes an error of law.¹¹

8. It is always necessary to analyse the impugned finding to determine whether the ground of appeal specified (and under review) does in fact invoke a question of law as regards whether there is any evidence of a particular fact or whether a particular inference can be drawn from the facts (found or agreed).

Applying the above, the primary judge considered that grounds 1, 2, 5 and 6 were not made out for the following reasons:

1. Ground 1 of the appeal grounds was not made out, as it involved the exercise of a discretionary power of the magistrate which could hardly be characterised as an error;¹²

2. Ground 2 of the appeal grounds was not made out, as it invoked a principle of evidence, however compelling, which was not previously accepted by the plurality of the High Court;¹³

3. Ground 5 of the appeal grounds was not made out, as it misconstrued the magistrates’ finding in relation to the trowel used, when no such finding was made;¹⁴

4. Ground 6 of the appeal grounds challenged a finding of fact, which was not available on appeal.¹⁵

The other grounds are set out below:

5. Ground 4 of the appeal grounds, that the magistrate erred in law in finding that there was no evidence that the problem lay with the carpet itself, was made out.

The primary judge observed that the magistrate’s judgment expressly:

1. referred to Capitol’s experts noting that the carpet was not fit for purpose; and

2. was also based on unchallenged evidence of the director of Capitol’s son as to the stretchiness of the carpet delivered by Schwartz.

The primary judge concluded that the evidence appeared to have been overlooked and that there was legal error. Accordingly, ground 4 was made out.

6. Ground 3 of the appeal grounds was that the magistrate erred in law in finding that Schwartz had used the same carpet in its other hotels without similar problems as not being available on the evidence.

The primary judge found that this was a question of law. This ground was considered with Ground 7 (see paragraph 7(a) below).

7. Ground 7 of the appeal grounds was that the magistrate erred in law in making findings not available on the evidence that 50 per cent of the cost of relaying the carpet was the proper measure of damages or that the magistrate otherwise erred in calculating damages.

The primary judge held that it was implicit that in the claim for the cost of relaying the carpet, that there was some utility in doing so, and to which Schwartz bore the onus of proof. That is, if there was no further life expectancy of the carpet, there would be no utility in pursuing the claim, so Schwartz had to prove that the carpet would still have a remaining useful life. This was prior to calculating what damages should be awarded.

In this regard, the primary judge’s conclusions in relation to the magistrate’s findings were as follows:

1. Schwartz conceded that the finding in relation to the same carpet being used in other hotels without similar problems was not available on the evidence;

2. The expert’s evidence in relation to the carpet lasting another 5-8 years without adhesive failure was of little weight;

3. The expert’s evidence in cross-examination that carpet can last 20-30 years was incapable of sustaining any conclusion with respect to the current carpet the subject of the proceedings;

4. Further evidence from another expert that repeated earlier evidence already objected to and not pressed could be afforded no proper weight;

5. There was no properly admitted evidence as to what carpet could last another 5-8 years;

6. The unchallenged evidence was that there was a problem with the carpet.

With a failure by Schwartz to prove any basis for an award of damages as claimed, the appeal was allowed.

The primary judge found that no new finding of fact was required to determine the matter. The appropriate order was to set aside the judgment (by virtue of section 41 of the Local Court Act 2009 (NSW)).

Schwartz then sought leave to appeal to the Court of Appeal.

Seeking Leave to Appeal to the Court of Appeal

The Court of Appeal noted the following:

1. Capitol should have identified the questions of law that were the subject matter of the appeal, rather than asserting that the magistrate erred in law.¹⁶

2. Only grounds 2, 4 and 7 of the Supreme Court appeal grounds remained relevant to the Court of Appeal proceedings.

The Court of Appeal stated the following in relation to the principles regarding leave to appeal:

1. Section 101(2)(r)(ii) of the Supreme Court Act 1970 (NSW) provides that an appeal to the Court of Appeal does not lie, directly or indirectly, other than in relation to a claim for damage of $100,000.00 or more, except by leave of the Court of Appeal;

2. Ordinarily, leave to appeal to the Court of Appeal is limited to:

   1. matters that involve issues of principle;

   2. questions of general public importance; or

   3. an injustice which is reasonably clear;¹⁷

3. The above apply especially so where the application involves low quantum;

4. For matters under $100,000.00, this is so:

   1. to discourage unnecessary litigation where public costs are necessarily involved (essentially, the use of the Court’s time and resources);

   2. as a recognition of the fact that the amount of costs recoverable in small claims on a party to party basis is typically below what has been incurred by that party and may be disproportionate to the amount at stake;

   3. the need to ordinarily conserve the time of the Court in small claims to matters involving the three aspects noted at point 2 above.¹⁸

5. For amounts lower than the statutory threshold noted above, and where the costs are disproportionate to the amount in dispute, the incurring of additional costs, for a potentially uncertain return, will weigh heavily against granting leave to appeal.¹⁹

In the context of the above principles, the Court of Appeal reviewed the grounds of appeal and the reasons for seeking appeal by Schwartz.

In relation to the grounds of appeal, the Court of Appeal found as follows:

1. In relation to proposed grounds of appeal 1-2 in the Court of Appeal (relating to ground 2 in the appeal to the Supreme Court), that the primary judge could not make a finding on this issue as it involved a question of fact, the Court of Appeal found that  the primary judge made orders addressing this and took these issues into consideration in making the finding.²⁰

2. In relation to proposed grounds of appeal 3-5 in the Court of Appeal (relating to ground 4 in the appeal to the Supreme Court), the Court of Appeal rejected Schwartz’s construction of this issue that Capitol’s experts provided evidence in cross-examination that the installation’s failure was due to a failure of adhesion, rather than being due to the carpet itself.²¹

3. In relation to proposed grounds of appeal 6-8 in the Court of Appeal (relating to ground 7 in the appeal to the Supreme Court), the Court of Appeal rejected the premise that the primary judge reversed the onus of proof, as the primary judge found that causation had not been made out and, accordingly, any issue with respect to the quantum of damage and evidentiary issues raised were of no significance.²²

Having regard to the above, the Court of Appeal, therefore, addressed the reasons provided by Schwartz for seeking leave to appeal as follows:

1. In relation to the contention that the primary judge incorrectly imposed a burden of proof on Schwartz, the Court of Appeal found that the primary judge did not do so (see point 3 above regarding causation);

2. In relation to the contention that the primary judge found that Schwartz failed to discharge the burden of proof by uncontradicted and in some respects unchallenged evidence, the Court of Appeal considered that, even assuming this was correct, this would not raise any issue of principle, question of general public importance or an injustice which was reasonably clear.

3. In relation to the contention that the primary judge concluded that the magistrate overlooked evidence when a correct analysis supported that there was no evidence as to any characteristic of the carpet showing adhesion failure, the Court of Appeal already rejected this submission in considering the grounds of appeal (see above).

4. In relation to the contention that the primary judge failed to give reasons as to why Capitol’s actions in conducting a carpet relaying trial and providing a quote to relay the carpet was not an admission that there was utility in doing so, the Court of Appeal considered that, even assuming this was correct, this would not raise any issue of principle, question of general public importance or an injustice which is reasonably clear

The Court of Appeal noted that the interests of justice beyond those of the parties did not warrant granting leave. If leave were granted, it would also permit the parties to continue to incur costs of a second appeal disproportionate to the importance and subject matter in issue, referencing section 60 of the Civil Procedure Act 2005 (NSW).

As a result, leave to appeal was refused. Schwartz was ordered to pay Capitol’s costs as agreed or assessed.