FEDERAL COURT OF AUSTRALIA
NEGLIGENCE - action by potato growers supplied with seed potatoes infected by bacterial wilt - duty of care - whether breach of duty by supplier.
NEGLIGENCE - duty of care - proximity - claims for purely economic loss - export market for potatoes grown and processed by growers whose property closed by outbreak of bacterial wilt on the property of a neighbour who had been supplied with infected seed potatoes - whether duty of care owed to first mentioned growers by supplier.
CONTRACT - whether contract of sale and purchase of seed potatoes - whether implied conditions as to reasonable fitness and merchantable quality - whether implied conditions broken by supplying seed potatoes infected with bacterial wilt.
Trade Practices Act 1976 (Cth)
Plant Diseases Regulations 1989 (WA)
Plant Diseases Act 1914 (WA)
Sale of Goods Act 1895 (SA)
Hughes v Lord Advocate [1963] AC 837 followed
Hill v Van Erp (1996) 142 ALR 687 followed
Esanda Finance Corporation Ltd v Peat Marwick Hungerford (Reg.) (1996)
142 ALR 750 followed
Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 followed
Bryan v Maloney (1995) 182 CLR 609 followed
Seas Sapfor v Electricity Trust of South Australia (unreported Full Court of the Supreme Court of South Australia, 9 August 1996) applied
FRANK PERRE & OTHERS v APAND PTY LTD (ACN 003 566 870)
SG 6 of 1997
APAND PTY LTD (ACN 003 566 870) v DAVID CHARLES SPARNON & OTHERS
SG 7 OF 1997
O’LOUGHLIN, BRANSON AND MANSFIELD JJ
ADELAIDE
21 NOVEMBER 1997
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IN THE FEDERAL COURT OF AUSTRALIA |
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ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
sg 6 OF 1997
between: frank Perre first appellant
caterina perre second appellant
pasquale perre third appellant
mary perre fourth appellant
guiseppe domenico perre fifth appellant
maria perre sixth appellant
jim perre seventh appellant
frances perre eighth appellant
warruga farms pty ltd ninth appellant
perre’s VINEYARDS pty ltd tenth appellant
rangara pty ltd eleventh appellant
pasquale perre twelfth appellant
grace perre thirteenth appellant
francesco perre fourteenth appellant
maria perre fifteenth appellant
and: apand pty ltd respondent
(acn 003 566 870)
SG 7 of 1997
BETWEEN: APAND PTY LTD appellant
(ACN 003 566 870)
and: david charles sparnon first respondent
sandra kay sparnon second respondent
michael david sparnon third respondent
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DATE OF ORDER: |
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WHERE MADE: |
FRANK PERRE & OTHERS v APAND PTY LTD (ACN 003 566 870)
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellants pay the respondent’s costs.
APAND PTY LTD (ACN 003 566 870) v DAVID CHARLES SPARNON & OTHERS
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay the respondents’ costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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ON APPEAL FROM A SINGLE JUDGE
OF THE FEDERAL COURT OF AUSTRALIA
sg 6 OF 1997
between: frank Perre first appellant
caterina perre second appellant
pasquale perre third appellant
mary perre fourth appellant
guiseppe domenico perre fifth appellant
maria perre sixth appellant
jim perre seventh appellant
frances perre eighth appellant
warruga farms pty ltd ninth appellant
perre’s VINEYARDS pty ltd tenth appellant
rangara pty ltd eleventh appellant
pasquale perre twelfth appellant
grace perre thirteenth appellant
francesco perre fourteenth appellant
maria perre fifteenth appellant
and: apand pty ltd respondent
(acn 003 566 870)
SG 7 of 1997
BETWEEN: APAND PTY LTD appellant
(ACN 003 566 870)
and: david charles sparnon first respondent
sandra kay sparnon second respondent
michael david sparnon third respondent
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JUDGES: |
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DATE: |
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PLACE: |
REASONS FOR JUDGMENT
Two groups, who for convenience can be referred to at this stage as "the Sparnons" and "the Perres", sued for damages. In the Court below, the first named respondent was Apand Pty Ltd ("Apand"). The second and third respondents were the Minister of Primary Industries and the State of South Australia; they can be referred to collectively as "the State". In a trial that lasted many weeks, von Doussa J ultimately found in favour of the Sparnons against Apand but dismissed their claims against the State. His Honour dismissed the Perre's claims against both Apand and the State.
The Perres have appealed against the dismissal of their claims against Apand but not against the State. Apand has appealed against the finding of liability in favour of the Sparnons. Apand has also filed a notice of contention in the Perre's appeal challenging the findings of the learned trial judge in negligence in favour of the Sparnons.
As the State is therefore not a party in either appeal, its alleged involvement in the dispute may be put to one side. Although served with Apand's notice of appeal, the Sparnons did not appear when the matter was called on for hearing and the appeals proceeded in their absence.
The litigation arose as a consequence of events that occurred during 1991 and 1992. At that time both the Sparnons and the Perres carried on business as potato growers on properties situated between Berri and Loxton in the South Australian Riverland. They sued for damages for losses suffered by them as a consequence of an outbreak of bacterial wilt (Pseudomonas Solanacearum) on the Sparnon's property. Symptoms of the outbreak were detected in the Sparnon's experimental crop of Saturna potatoes in late April 1992 and the disease was scientifically confirmed through the South Australian Department of Primary Industries in the following month. The applicants in the Court below had unsuccessfully attempted to bring in the State on grounds that included an allegation that the State, as the responsible statutory authority, was negligent in not investigating the history of the original Saturna seed and not diagnosing the presence of bacterial wilt in the seed.
The Sparnons, comprising David, Sandra and Michael Sparnon, sued Apand as the supplier of the infected seed potatoes. The causes of action alleged by the Sparnons against Apand, and upon which they succeeded, were in negligence and for breach of contract arising from an implied warranty as to the fitness of the seed potatoes. A further claim under s 82 of the Trade Practices Act 1976 (Cth) ("the TPA") was based on alleged misrepresentations that were said to have been made by an officer of Apand with respect to the history of the seed. That claim was dismissed.
The causes of action alleged by the Perres against Apand were in negligence and for a breach of s 82 of the TPA based on the same alleged misrepresentations. Neither the Sparnons nor the Perres have challenged the dismissals of their respective claims under the TPA. There remains then for the consideration of this Court Apand's challenge to the findings of negligence and breach of contract in favour of the Sparnons and the Perre's appeal against the dismissal of their claim in negligence against Apand.
Apand was incorporated as APD Snack Foods Pty Ltd, but in 1990 it changed its name to CCA Snack Foods Pty Ltd and in January 1993 it again changed its name to Apand Pty Ltd. At the time of the bacterial wilt outbreak in 1992, it commanded 60 per cent of the potato crisping industry in Australia but it has since sold that business. It had contracted with numerous potato growers in the Eastern States and South Australia for them to supply it with potatoes for processing as potato crisps. As part of its processing, Apand had a large potato storage facility at Tynong in Victoria and a modern processing plant at Regency Park in South Australia. Part of Apand's operations included research and development into new varieties of potato, including potatoes that could be grown as a winter crop. The Saturna variety was said to be one such variety. The Saturna was also thought to be desirable for processing because of its regular spherical shape.
BACTERIAL WILT
During the course of his judgment, the learned trial judge gave an extensive summary of the nature and effect of bacterial wilt. His Honour's findings in this area have not been disputed and what follows is a precis of the relevant section of his Honour's reasons.
For many years before 1992, bacterial wilt was known to knowledgable people in the potato industry. In South Australia, there had been earlier outbreaks in 1985, 1988 and 1991. It is a potentially serious and pernicious disease which can cause disastrous losses to growers. Infected paddocks cannot be used for potato growing for approximately five years and infected farms in potato growing regions are likely to be difficult to sell. Good husbandry requires that strict hygiene precautions should be rigorously pursued to prevent the spread of the disease from infected paddocks into other potato crops. The disease, which can exist in a number of host plants besides potatoes, is readily spread by seed, soil and debris from infected crops and continues to survive in damp environments for months, if not longer. Paddocks affected by an outbreak must be treated by eliminating regrowth potatoes and other host plants, and by preventing the movement of stock or vehicles from the land, unless, in the case of vehicles and agricultural equipment, they are thoroughly washed down with disinfectant.
The strain of bacterial wilt that has been identified in outbreaks in South Australia is the biotype II, or "upland wilt". This strain may remain latent in a plant, particularly in cold weather, and not show any symptoms in the plant for a generation or more. Seed taken from a plant with a latent infection will pass on the infection to the next generation. The expression of symptoms can be expected in temperatures over 21°C. Initial symptoms will be wilting in the hottest part of the day, the plant recovering at night. The wilting will gradually become more pronounced and finally the plant may die. On being cut, affected tubers, depending on the degree of infection, may show a dark ring of discolouration, and in severe cases show white bacterial ooze. Even so, the disease will not always prevent the sale of affected crops for processing as potato chips, at least in the early stages before the tubers commence to break down. Although bacterial wilt has been gazetted as a notifiable disease in South Australia, it is not and never has been a disease that causes an infected property to be quarantined. His Honour concluded this section of his judgment by saying:-
"These matters were generally known to growers and processors in the potato industry, and were of importance to the Perre interests whose potatoes were mainly exported to Western Australia in order to achieve a better price than was available to them in South Australian or Eastern States markets."
In Western Australia, which so far has been free of potato wilt, a strict policy is in place prohibiting the import of potatoes that have been grown or packed in an area where an outbreak of bacterial wilt has occurred. At all material times the Plant Diseases Regulations 1989 (WA) made under the Plant Diseases Act 1914 (WA) prohibited the import into that State of potatoes grown within twenty kilometres of a known bacterial wilt outbreak in the previous five years. The regulations also prevented the import of potatoes that have been:
"... harvested, cleaned, washed, graded or packed with equipment or in premises with or in which potatoes grown within 20 kms of a known outbreak of the disease Bacterial Wilt detected within the last 5 years have been handled."
South Australia's export market in potatoes to Western Australia is very valuable. As a result, and to assist South Australian growers to meet the import requirements of the Western Australian authorities, the South Australian Department of Primary Industries involves itself in the examination and certification of potatoes intended for the Western Australian market.
THE PERRES
The litigants who have thus far been referred to as "the Perres" fall into three distinct groups. The first group is the first nine named appellants, comprising four brothers and their wives and their company Warruga Farms Pty Ltd ("Warruga Farms"). The second group is limited to Perre Vineyards Pty Ltd ("Perre Vineyards"). The last group consists of Pasquale and Grace Perre, Francesco and Maria Perre and their company Rangara Pty Ltd ("Rangara"). It may be assumed, because of the common surnames, that the members of the last group are related to the members of the first group but the Court was not taken to any evidence that established the exact relationship. The first group of Perres grew potatoes on their farm which was approximately three kilometres, at its closest point, north of the Sparnon’s property. A substantial part of their produce was exported to Western Australia. Perre Vineyards formerly carried on a winery business out of buildings on land directly across the road from the abovementioned farm. Only the first two appellants, Frank and Caterina Perre, were the shareholders in that company. In 1992 it still owned the buildings but they had been converted for use as a potato washing and packing shed. Perre Vineyards leased its premises to Warruga Farms.
Pasquale and Grace Perre, and Francesco and Maria Perre, had purchased separate properties adjoining each other and adjoining the southern boundary of the farm operated by Warruga Farms. The southern-most property is about two kilometres north of the Sparnon’s property. The four last mentioned parties entered into the Rangara Joint Venture, using the appellant Rangara, in a form of "corporate partnership". Rangara grew potatoes on the two properties and sold them to Warruga Farms, delivering them for washing and packing at the facilities of Perre Vineyards. When washed and packed, those potatoes, or a substantial part of them, were exported to Western Australia.
THE VICTORIAN SEED POTATO CERTIFICATION SCHEME
The Department of Agriculture of the State of Victoria has implemented a scheme under which it supervises all stages of the multiplication of pathogen-tested nuclear seed stocks. The department certifies that seed potatoes, the product of the scheme, meet the requirements of the standards that have been set under the scheme. South Australia does not have any like scheme and when certified seed potatoes are required for planting in South Australia they are imported from Victoria.
The multiplication of seed potatoes occurs over a period of several generations. A small number of specially chosen growers in recognised seed potato growing areas are chosen for the implementation of the program. The areas or regions in which the crops are grown are typically high altitude areas where the risk of the spread of viral diseases by aphids is minimal. The standards employed by the Victorian Department of Agriculture also require that such growing farms are to be free of diseases, including bacterial wilt, for the preceding five years.
Crops undergo rigorous inspections during growth and after harvest and must meet disease free tolerances. The procedures employed by the growers and the supervision offered by the department mean that there is a high expectation that certified seed will be disease free. However, the nature of potato diseases is such that no absolute assurance against disease is possible and that fact is well known to knowledgable people in the potato industry.
The generations in the scheme leading to certified seed potatoes are as follows:-
Generation Class of Seed
G1 cuttings or mini tubers
G2 Elite I
G3 Elite II
G4 Foundation Seed
G5 Mother Seed
G6 Certified Seed
Potato growers are encouraged to use certified seed to assist in the prevention of disease. However, not all growers can always comply with this recommendation. Certified seed is expensive and it is often in short supply. As a result it is common for commercial growers to use "one off" seed, that is, potato seed that has been taken from a potato crop which has been grown from certified seed. Alternatively, growers may rely on their own hygiene precautions and the disease free history of their own properties in order to multiply seed for their own use.
The risk of the introduction of disease where multiplication occurs outside the certified scheme area can be minimised by growing the potato crop from seed which has been collected from "new" ground. New ground is land that has not been planted to potatoes for several years. In addition, the risk of disease can be further reduced by subjecting the plant and farm equipment to careful hygiene procedures and by inspection of the crop as it grows to ensure that it is disease free.
THE HISTORY OF THE SATURNA POTATO SEED
Apand, in its search for better crisping varieties of potato, and as part of its research and development, arranged the importation into Australia of Saturna tissue culture from Holland in 1987. In 1988 a number of Saturna plantlets were released to Apand from the Plant Research Institute at Burnley, Victoria, where the culture had been grown in quarantine. From these plantlets, mini tubers were grown at the Victorian Department of Agriculture Potato Research facility at Toolangi. The Toolangi facility has a well known reputation in the potato industry for producing disease free early generation seed. In about April 1989 Toolangi produced about 0.5 tonne of Elite I class seeds. These were then multiplied by a recognised grower in the certified seed scheme to produce in March 1990 six tonnes of Elite II seeds. About five tonnes of the Elite II seeds were delivered into cool storage for Apand at Narre Warren, Victoria.
In mid 1990 at a meeting of Apand personnel held at the company’s Regency Park factory it was decided not to proceed with the development of several experimental varieties of potato, including Saturna. The decision to abandon Saturna was unrelated to any disease consideration. The tubers that had been grown had not been an appropriate size and shape. Following this meeting, Mr Kan Moorthy, a field officer with Apand, arranged for the five tonne of Elite II seed to be grown as a commercial crop with the intention that the whole crop would be processed out of existence.
The commercial grower chosen to plant the Elite II Seed was Mr G P J Tymensen (trading as GMT Trading Pty Ltd) at Garfield, in the Koo Wee Rup swamp area east of Melbourne, Victoria: he had been a grower for Apand for about twenty years. The Koo Wee Rup swamp has been an area of intensive potato growing since the end of the last century. However, it is low lying and susceptible to aphids and to roll leaf virus which they transmit. There have also been outbreaks in the area of Potato Cyst Nematode ("PCN"), a very serious and a quarantinable potato pest, as well as soil borne fungal diseases such as powdery scab and black dot. His Honour found that Mr Tymensen was held in high regard by Apand and by others in the Victorian potato industry who were familiar with his operations. He was regarded as an efficient and careful potato farmer who followed proper hygiene standards. However, it is relevant for the purposes of these reasons to note that the Koo Wee Rup swamp region was not a certified seed growing area and that Mr Tymensen had never been a grower in the Seed Potato Certification Scheme.
The Elite II seed was sold as commercial seed by Apand to GMT Trading Pty Ltd and was planted by Mr Tymensen in December 1990. As part of a routine crop inspection program that was carried out by Apand on crops grown by its contract growers, Mr Tymensen's Saturna crop had been inspected by Apand's Supply Manager, Mr Ray Cullen on at least two occasions. His Honour accepted the evidence of Mr Cullen and of Mr Moorthy that on each occasion it appeared to be a healthy crop.
THE PAKENHAM MEETING
A quarterly meeting of Apand personnel was held at Pakenham, Victoria on 20 and 21 February 1991. At that meeting a Queensland representative raised the future of the Saturna variety claiming that it had certain handling properties that suggested that it had a future in Queensland, at least. According to his Honour's findings, Mr Moorthy told the meeting that the seed had been planted out as a commercial crop following the earlier decision to abandon the variety. Notwithstanding this information, the meeting proceeded to consider the possibility of using the harvest from Mr Tymensen's property. His Honour found that Mr Moorthy pointed out that the crop had not been treated or grown as a seed crop and that it had not been inspected at the time of flowering; he was against using the harvest for seeding.
But after expressing his reservations Mr Moorthy said that if the meeting wanted to use the crop as seed he would "look at it" and inspect the seed at grading. His Honour found that the possibility that the crop could have become infected with bacterial wilt was not a consideration in Mr Moorthy's expressions of concern. He had not turned his mind to this risk as Mr Tymensen's property had no history of bacterial wilt and the seed was clean seed out of the Seed Potato Certification Scheme. Ultimately, the meeting came to the conclusion that Mr Tymensen's crop could be used as seed to enable the further multiplication of the Saturna variety.
Following the Pakenham meeting Mr Moorthy inspected the crop at Mr Tymensen's property. He also inspected some of the tubers during grading. No sign of disease was observed during the inspection of the crop in the ground nor during the grading.
The Saturna crop produced approximately eighty six tonnes for Mr Tymensen. He retained ten tonnes as seed for a further crop. The balance was disposed of by Apand. It used about twenty five tonnes representing the largest tubers for crisping. The rest was distributed by Apand between thirteen growers in Queensland, South Australia, Victoria and New South Wales for further trial and multiplication.
Two tonnes of the Saturna seed were allocated to South Australia; it was sold and delivered by Apand to Virgara Bros of Virginia on about 20 June 1991. Of that seed one tonne was planted by Virgara Bros in July 1991 in "new" ground and the remainder was put into cold storage for later use. The planting was harvested, producing about seventeen tonnes in December 1991.
In December 1991 Mr Hughes, on behalf of Apand, invited five of his company's contract potato growers in different localities in South Australia (one of whom was the Sparnon’s partnership) to grow experimental winter crops of Saturna potatoes. They each agreed and planted their experimental crops in February and March 1992. In addition to those five chosen potato growers, Virgara Bros also planted five tonnes of Saturna seed on their property at Virginia.
In April 1992 symptoms suggestive of bacterial wilt were discovered in all six crops of Saturna. Subsequent laboratory testing confirmed the presence of bacterial wilt in five of those six crops. Mieglich Enterprises of Langhorne Creek alone escaped the disease.
After learning of the outbreaks in South Australia, Messrs Tymensen, Cullen and Moorthy closely inspected the paddock where Mr Tymensen had grown his first Saturna crop. His Honour found that they discovered, in one corner of the paddock, regrowth potatoes showing clear evidence of bacterial wilt in an area of about four to five square metres. His Honour further found that notwithstanding the confined nature of the infection the harvesting and grading processes could have caused the disease to be distributed widely through other tubers.
THE SOURCE OF THE OUTBREAK ON THE SPARNON PROPERTY
Apand at trial conceded that the South Australian growers other than Mieglich had suffered outbreaks of bacterial wilt. However, it put in issue the source of the infection in those crops, denying that it had come from the seed potatoes that had been planted by Mr Tymensen in December 1990. His Honour found against Apand on this subject and that finding was initially challenged in Apand's grounds of appeal. Upon the hearing of the appeal however, the Court was informed that it was no longer in issue and Apand now accepted that Mr Tymensen's property was the source of the bacterial wilt in the Saturna potatoes.
His Honour's finding was obviously correct. The evidence was overwhelming. Not only were five out of the six crops in South Australia infected with bacterial wilt, so also were all crops that were planted in Queensland and two crops in each of Victoria and New South Wales. In each case the wilt appeared in Saturna varieties which had been sourced from Mr Tymensen's property.
THE "FLOOD THEORY" - THE SOURCE OF INFECTION ON MR TYMENSEN'S PROPERTY
Counsel for Apand contended, here and in the Court below, that for the Court to be satisfied that Apand had been negligent in relation to the supply of infected seed to Virgara Bros and then, in turn, to the Sparnons, it was necessary in the context of this case, to show more than the mere presence of bacterial wilt. It was submitted that the claimants must establish a probable cause of that infection which indicated a lack of care on Apand's part in not foreseeing the risk of the disease and in failing to eliminate the risk by withdrawing the seed from circulation. His Honour was quick to point out that Apand did not carry the duty of an insurer and that is obviously correct. But he came to the conclusion that Apand, with its intimate knowledge of the potato industry and the Koo Wee Rup swamp area, should have foreseen the risk (which his Honour described as a "significant one") that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny. In other words, this conclusion meant that Apand's negligence resulted from it supplying seed from an area that was well known as an area that was prone to disease.
He made a finding (which is discussed in detail later in these reasons) that the flood that had inundated a small section of Mr Tymensen’s property was, as a matter of probability, the cause of the presence of bacterial wilt on that property.
ALLEGATIONS OF NEGLIGENCE
Before the Court, counsel for Apand did not challenge the finding of the trial judge that:
“Apand owed a duty of care to the Sparnon partnership arising from their relationship created when Mr Hughes [of Apand] invited the partnership to participate in growing an experimental crop with Saturna seed to be supplied by Apand.”
Apand did, however, challenge his Honour’s formulation of the duty of care. His Honour, after rejecting a contention that Apand had a duty to ensure that the seed was disease free, formulated the duty in the following passage:
“In my opinion the duty imposed by the relationship was to take all reasonable steps to ensure that seeds which Apand provided to its growers had not come from a source where there was a real risk which Apand knew about or should have foreseen that the seeds might be infected by pests and disease. A real risk is one that people well versed in the nature of potato pests and diseases, such as the Apand officers, would not brush aside as far fetched: Wyong Shire Council v Shirt (1980) 146 CLR 40 at 46-47.”
Later, in considering the claim of the Sparnon partnership in contract, his Honour said:
“Although it was Apand that approached the Sparnon partnership and introduced the variety of potato to them, it was clearly known to Apand that if the seed were purchased by the partnership, the seed was required to grow a viable crop. Seed that was infected with bacterial wilt was not reasonably fit for that purpose.”
Apand challenges this finding which it was suggested permeated his Honour’s reasoning in respect of the negligence claim. Apand pointed out that the seed was to be planted by the Sparnon partnership not for the purpose of producing a commercial crop of potatoes but for the purpose of conducting a trial to see whether the Saturna variety was well adapted for growing first, as a winter crop and secondly, to produce potatoes of a shape suitable for crisping. It was contended that implicit in the very notion of a trial was the possibility that the seed might not produce a viable crop.
It seems to us that this challenge involves a misunderstanding of his Honour’s words. His Honour had already rejected the contention that Apand was under a duty to ensure that the seed was disease free. In speaking of the requirement that the seed grow “a viable crop” his Honour is to be understood, in our view, as meaning a crop unaffected by factors relating to the seed which could ruin or distort the proposed trial by affecting the growth of the crop in a way which would not otherwise be experienced.
Counsel suggested that Apand’s duty to the Sparnon interests was -
“a duty to ensure that the potato seed used for the experimental Saturna trial was seed in respect of which there was a reasonable expectation of the production of a healthy disease-free crop.”
In our view, a duty expressed in terms of a reasonable expectation of a disease free crop, rather than in terms of the taking of reasonable steps to avoid disease, is plainly too generous to Apand and not in accordance with authority. Where the common law of negligence recognises the existence of a general duty of care, it is a duty to take reasonable care to avoid a reasonably foreseeable risk of injury to another (Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 543). We see no error in his Honour’s formulation of the duty of care in this case.
His Honour made the following findings as to breach of the duty of care:
“In my opinion the Sparnons would succeed merely on proof, which I find is established, that Apand, with its intimate knowledge of the potato industry and the Koo Wee Rup swamp area, should have foreseen the risk, which was a significant one, that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny. In my opinion it would not defeat the claim to show that if attention had been directed to the particular disease that eventuated, that particular disease and the manner in which infection occurred may not have been foreseen. ...
However, I consider the evidence warrants a more precise finding. On 12 October 1990 there was a major break in the main drain that runs through the area of the Koo Wee Rup swamp. Several properties were flooded. Photos show that a very large volume of water left the drain to the east of Mr Tymensen’s property and flowed downhill to the west across his property. For one or two days some, but not all, of his property was submerged. As a matter of probability I find that the corner of the paddock where the first Saturna crop was planted and in which bacterial wilt infected regrowth tubers were later found was reached by the flood. ...
In my opinion as a matter of probability the likely explanation for bacterial wilt in Mr Tymensen’s first Saturna crop is that the flood in some manner carried it there from Mr Summers’ property. If it were not carried there by water alone as Dr Hayward hypothesised, it could have been carried there in infected plant debris. No other likely source of infection has been suggested.”
Apand challenges both arms of his Honour’s finding of a breach of duty by Apand.
Before reaching Mr Tymensen's property the flood water had flowed across the property of Mr Summers and then across the property of Mr O'Sullivan, which property separated the properties of Mr Summers and Mr Tymensen. Mr Summers' property had been the subject of previous outbreaks of bacterial wilt. The disease had been detected in a potato crop in June 1986 and again in 1990. As his Honour pointed out:-
"The flood was a few months later, the intervening period being winter months when it may be assumed the soil was damp and that the level of bacteria from the wilt remained high."
Much evidence was devoted to the question of bacterial wilt being carried by water and although it seemed that this was a possibility, his Honour was alive to the proposition that the diluting effect of the water might be so great that the transfer of infection would be extremely unlikely. However, his Honour was more concerned with the carriage of potato plant debris. Even though the intervening property of Mr O'Sullivan escaped the disease, his Honour came to the conclusion that as a matter of probability, the likely explanation for bacterial wilt in Mr Tymensen's first Saturna crop was that the flood, in some manner, carried it there from Mr Summers’ property. He added that if it were not carried there by water alone, it could have been carried there in infected plant debris.
It is convenient to deal with “the flood theory” first.
It was contended that his Honour fell into error in finding that the flood was the mechanism of the infestation of Mr Tymensen’s property; that, in fact, the flood theory “never got its head and shoulders above the other competing theories that were advanced before his Honour”. The other theories included transfer via soil adhering to boots, by sharing farm machinery or by animals. In arguing that his Honour erred in accepting the flood theory, counsel for Apand pointed to the steps taken by Mr Summers, on the advice of the Victorian Department of Agriculture, to control bacterial wilt on his property, the absence of an outbreak of bacterial wilt on Mr O’Sullivan’s property, which lay between the respective properties of Messrs Summers and Tymensen, and the absence of evidence of either plant material referable to Mr Summers’ infected crop being on his property immediately before the flood or of plant material being seen on Mr Tymensen’s property after the flood.
It was not disputed that Mr Summers’ property, which was quite close to Mr Tymensen’s property, had been infected with bacterial wilt in 1989 and 1990. It was also not disputed that Mr Tymensen had no history of bacterial wilt before 1990. In October 1990 flood waters flowed over Mr Summers’ property and came to rest on Mr Tymensen’s property in an area approximating that in which the Saturna seed was planted about two months later, and where re-growth potato plants infected with bacterial wilt were later found.
Dr Wimalajeewa, a plant pathologist called by Apand to give expert evidence, said in response to questions from the trial judge that the bacterial wilt disease would be present in the vascular tissue of the top of an infected potato plant and could remain there for approximately two to three years until the lignified tissue of the plant decomposed. Dr Wimalajeewa also said that, on the assumption that diseased plant material on Mr Summers’ property had been ploughed into the ground and then brought to the surface by the actions of the flood and disturbance of the soil, it was a possibility that plant material from a crop in May 1990 and deposited elsewhere in October 1990 could be a source of infection to a plant crop in that area in December 1990. The trial judge considered that the Court was entitled to take notice that in a flood debris tends to be left around the high water mark. This aspect of his Honour’s reasoning was not challenged.
In our view, having regard to the above matters, the conclusion which his Honour reached as to the flood theory of transmission of bacterial wilt from Mr Summers’ property to that of Mr Tymensen was reasonably open to him.
The next issue for consideration is his Honour’s finding that with the collective knowledge of the relevant officers of Apand:
“... [Apand] should have foreseen the risk that the flood may have spread bacterial wilt to the area of Mr Tymensen’s property where the crop was growing and should have foreseen the risk that the crop could be infected with low levels of bacterial wilt that may not be seen in the crop on the inspections which had occurred and were planned to occur.”
Counsel for Apand pointed out that Dr Hayward, the expert called by the Sparnon interests in support of the flood theory, proffered the theory for the first time only shortly before trial. The theory which he proffered was of the inoculum being carried in the flood waters in suspension. Such theory, as Dr Hayward acknowledged, does not accommodate the fact that Mr O’Sullivan’s property did not become infected with bacterial wilt. Counsel further pointed out that while Dr Wimalajeewa accepted that the theory preferred by his Honour was a possibility, he gave evidence that he had never experienced bacterial wilt being spread in that way and was not aware of any such case being discussed in the literature, or of scientific literature citing a flood as a possible mechanism for the spread of bacterial wilt.
Counsel for Apand argued that since the flood theory adopted by his Honour was not one envisaged by any of the expert witnesses unaided by prompting from his Honour, it was to set the duty of care too high to find Apand in breach of its duty of care for failing to recognise the risk that Mr Tymensen’s property might have become infected with bacterial wilt as a consequence of infected potato plant material from Mr Summers’ property being deposited on Mr Tymensen’s property at the high water mark of the flood. In our view, had his Honour set the duty of care in the above terms, the criticism made by counsel would be a valid one. However, his Honour did not so set the standard of care. His Honour found that officers of Sparnon “should have foreseen the risk that the flood may have spread bacterial wilt”.
To understand his Honour’s finding as to the breach of the duty of care, it is necessary to consider evidence given by certain officers of Apand.
Mr Cullen was the Potato Supply Manager, Victoria for Smith’s Snack Foods. The trial judge described Mr Cullen as a “careful and impressive witness”. Mr Cullen was cross-examined as to the decision to use potatoes from Mr Tymensen’s crop as seed and as to whether the same decision would be made again. Mr Cullen did not agree that the possibility of the spread of bacterial wilt from Mr Summers’ property by the flood “would have been a perfectly natural topic to have occurred to [him]”. He did agree, unsurprisingly, that with hindsight the possibility of the spread of the disease by the flood was one that he would consider. Mr Cullen said that, leaving aside legislative change, he would make the same decision again. The transcript records the trial judge then asking Mr Cullen:
“Well, we will just take you back to the 1991 ... Pakenham meeting. Just assume that someone had drawn the attention of the meeting to the flood and to Summers’ outbreak. Are you saying that had that been thought about you now think that a decision would not have been made?”
Mr Cullen answered:
“Absolutely would not have been made.”
In our view the above exchange cannot be understood as a clear statement made by Mr Cullen that, without the benefit of hindsight, he was of the opinion that a different decision would have been made at the Pakenham meeting if the topic of the flood had been raised for consideration at that meeting. To so understand Mr Cullen’s answer leaves unexplained his earlier answer that, were it not for legislative change, he would make the same decision again. It seems that the explanation for the apparent contradiction between the two answers may lie in his Honour’s query as to what Mr Cullen might “now think”.
However, Mr Cullen was also cross-examined as to a telephone conversation that he had with Mr Tymensen some weeks after April 1992. In that conversation Mr Tymensen expressed the view that the flood may have caused his bacterial wilt problem. Mr Cullen’s evidence was that he agreed that “[i]t was not unreasonable to assume that it could have been transferred with water, perhaps”. He indicated that at the time of his conversation with Mr Tymensen he knew that bacterial wilt could be transferred in water. Mr Cullen gave evidence that he knew in December 1990 that a part of Mr Tymensen’s property had been under water in the flood, although he had no specific knowledge about whether the particular paddock where the first Saturna crop was grown was under water or not. The following passage in Mr Cullen’s cross-examination is, in our view, important. Mr Cullen was asked:
“... if you had applied your mind to the question of bacterial wilt at the end of December 1990 I suggest you would have come up with the same attitude as you had in May ‘92, that is it was a reasonable theory that the flood could transfer bacterial wilt from Jack Summers’ property to Tymensen’s property in the flood [of] October ‘90?”
His answer was:
“Reasonable theory if it crossed one’s mind.”
The evidence discloses that it was known in December 1990 that there was a risk of bacterial wilt being transferred by the flow of irrigation water. The evidence supports the conclusion, however, that there was at that time no scientific literature which suggested that a flood could transfer bacterial wilt. The evidence of Dr Wimalajeewa, whose evidence his Honour accepted, was that the fact that Mr O’Sullivan’s property was not infected when Mr Tymensen’s was, indicated that insufficient inoculum was carried in the flood waters to infect crops in its path. Dr Wimalajeewa appeared, however, to accept the possibility of a flood carrying sufficient inoculum to spread an infection of bacterial wilt.
The appropriateness of the trial judge’s conclusion that Apand was in breach of its duty of care to the Sparnon interests depends, in our view, upon the applicability to the circumstances of this case of the principle reflected in Hughes v Lord Advocate [1963] AC 837.
In Hughes v Lord Advocate certain Post Office employees were working on telephone cables situated under a quiet road in Edinburgh. They obtained access to the cables by removing the cover of a manhole in the carriageway. They erected a tent over the manhole and placed four paraffin lamps in position around the area. While the workmen were temporarily absent from the site two boys aged eight and ten entered the tent taking with them a ladder from the site and one of the paraffin lamps. The boys apparently explored the manhole. After they emerged from the manhole the lamp was either knocked or dropped into it and a violent explosion took place. The plaintiff, the eight year old boy, suffered extensive burning injuries. It was not seriously disputed that the Post Office owed a duty of care to the plaintiff. In dispute was whether the occurrence of an explosion such as did in fact take place in the manhole was a happening that could reasonably have been foreseen by the Post Office employees. The majority of the Court of Sessions held that an explosion of the type that occurred could not have been reasonably foreseen. The House of Lords, however, took a different approach. Lord Jenkinson at 850 put it this way:
“It is true that the duty of care expected in cases of this sort is confined to reasonably foreseeable dangers, but it does not necessarily follow that liability is escaped because the danger actually materialising is not identical with the danger reasonably foreseen and guarded against. Each case [must] depend on its own facts. For example, ... in the present case the paraffin did the mischief by exploding, not burning, and it is said that while a paraffin fire (caused, for example, by the upsetting of the lighted lamp or otherwise allowing its contents to leak out) was a reasonably foreseeable risk so soon as the pursuer got access to the lamp, an explosion was not.
To my mind, the distinction drawn between burning and explosion is too fine to warrant acceptance. ... If there is a risk of a fire such as that [i.e. one setting alight his clothes and causing bodily injury], I do not think the duty of care prescribed in Donoghue v Stevenson [1932] A.C. 562 is prevented from coming into operation by the presence of the remote possibility of the more serious event of the explosion.”
Lord Guest, with whom Lord Pearce agreed, said at 856:
“An explosion is only one way in which burning may be caused. Burning can also be caused by the contact between liquid paraffin and a naked flame. In the one case paraffin vapour and in the other case liquid paraffin is ignited by fire. I cannot see that there are two different types of accident. They are both burning accidents and in both cases the injuries would be burning injuries. Upon this view the explosion was an immaterial event in the chain of causation. It was simply one way in which burning might be caused by the potentially dangerous paraffin lamp.”
Lord Morris of Borth-y-Gest expressed a similar view.
The parallels between Hughes v Lord Advocate and the present case are, in our view, striking. Even accepting that it was not reasonably foreseeable that the flood could transfer bacterial wilt by the mechanism of depositing a piece of infected plant material at its outer limit, it was nonetheless foreseeable that flood waters could transfer bacterial wilt from one property to another. In that circumstance the transfer by the depositing of infected plant material was simply one way in which the risk of transfer of bacterial wilt might be realised. The trial judge rightly, in our view, found Apand in breach of its duty of care to the Sparnon interests.
In view of the above finding, there is no occasion for us to give detailed consideration to his Honour’s more general finding of a breach by Apand of its duty of care by not foreseeing the risk that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected by pests or disease that could be transmitted to subsequent growers using the seed or its progeny.
Apand’s appeal so far as it seeks to disturb the trial judge’s findings on the issue of negligence must be dismissed.
ALLEGATIONS OF BREACH OF CONTRACT
His Honour found that the arrangement made through Mr Hughes of Apand and the Sparnons in about December 1991 for the Sparnons to grow an experimental winter crop with two tonnes of Saturna potatoes was a contractual one. That finding is not challenged. Apand entered into its usual potato supply agreement which required Sparnon to purchase the potato seed, and Apand to purchase the harvest.
His Honour then found that there was then implied into that contract pursuant to ss 14 I and 14 II of the Sale of Goods Act 1895 (SA) respectively conditions that the seed to be supplied by Apand was reasonably fit for the purpose of growing a potato crop because that purpose was made known to Apand and the Sparnons relied on Apand's skill and judgment, and further that the seed so supplied was of merchantable quality. His Honour further found that in each instance those implied conditions had been breached. In particular his Honour found that the presence of the bacterial wilt infection meant that the Saturna seed supplied was not of merchantable quality, and that the Sparnons relied on Apand to supply seed that was reasonably fit for the purpose of growing a viable crop when it was not fit for that purpose.
Only one passage in his Honour's reasons was the subject of criticism. It is referred to earlier in these reasons but for the sake of convenience is repeated here. It is in the following terms:
"Although it was Apand that approached the Sparnon partnership and introduced the variety of potato to them, it was clearly known to Apand that if the seed were purchased by the partnership, the seed was required to grow a viable crop. Seed that was infected with bacterial wilt was not reasonably fit for that purpose."
The submission put was simply that, as the contract was for the growing of an experimental crop of Saturna seed, the risk of disease in the seed was implicit and that one outcome of an experimental crop is that it might fail for any number of reasons, including disease. Thus, it was said, there was error in the finding that the seed was "required to grow a viable crop".
In our view that submission must fail. We have referred above to the proper construction of those words. The expressions "experimental" and "viable" are not mutually exclusive. It is clear from the detailed findings made that his Honour was alert to the fact that the seed was for an experimental crop. There was in fact a significant dispute on the evidence as to the discussions between Mr Hughes and the Sparnons which caused his Honour to embark upon a detailed review of that evidence and to make express findings about it. He accepted Mr Hughes evidence. Thus his detailed findings record that Mr Hughes told the Sparnons that the seed to be trialled had been grown by Virgara Bros on new ground, that it had been received by Virgara Bros from Apand "off mother seed", and that the first Saturna crop grown at Virgara Bros looked to be a good variety and was shaping up well for processing. Those findings led to the conclusions that the Sparnons understood that the seed was not certified seed, and was one generation off seed out of the seed potato certification scheme. His Honour further found that the Sparnons had their own commercial reasons for taking the Saturna seed, including the desire to be co-operative with Apand and to see whether a winter crop could be successfully trialled, and that as a consequence it was highly improbable that the Sparnons gave any thought to the possibility that the experimental seed supplied to them by Apand could be diseased or could pose any threat to their property. His Honour specifically found that they did not turn their minds to the risk of disease in the Saturna seed for the very reason that a reputable participant in the potato industry could be, and was, relied upon. None of those findings was challenged on appeal.
Those findings make it plain that his Honour's conclusions did not involve an oversight or a misrepresentation of the purpose of the contract between Apand and the Sparnons, or that the crop was to be an experimental one. On the evidence, the purpose of the experimental crop was simply to assess the effectiveness of the Saturna seed as a winter crop. The outcome of that crop could not be guaranteed, but to say that is far from saying that it was experimental in the sense that the Sparnons were prepared to accept the risk of any form of bacterial wilt or other adverse disease which came with the seed itself. Once that point is made, it is plainly correct to conclude, that under the contract and in the particular circumstances, the seed was not of merchantable quality. His Honour referred to the oft quoted test of merchantable quality expressed by Dixon J in Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 at 418 in the following terms:
"The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms."
So stated, it is evident that the Sparnons would not have done so. They were of course, as his Honour's findings record, prepared for commercial reasons to run the risk that the crop would not produce commercial quantities or commercial sizes of potatoes. But beyond that, it was open to his Honour to find that they were not themselves prepared to assume the risk of the potatoes themselves being diseased.
Similarly, once the purpose of the crop is properly identified, there is a clear breach of the implied condition as to fitness for the particular purpose by reason of the diseased condition of the Saturna seed: cf Ashington Piggeries Ltd v Christopher Hill Ltd (1972) AC 441; Vacwell Engineering Co Ltd v B.D.H. Chemicals (1971) 1 QB 88.
This ground of appeal must also fail. Apand’s appeal should be dismissed with costs.
THE PERRE APPEAL
The trial judge made the following observation concerning the claims of the Perre interests:
“Each of the heads of loss alleged by the three groups in the Perre interests is for purely economic loss. None of the groups or individual members suffered direct injury to their property. None of their properties became infected with bacterial wilt. None of their properties were quarantined or subject to any statutory or other restriction against growing or selling potatoes or any other crop in South Australia or elsewhere, save for the export of potatoes to Western Australia. All the losses claimed are based on the inability of Warruga Farms to continue exporting potatoes to the Western Australian market.”
His Honour ultimately concluded that Apand did not owe a duty of care to any of the Perre interests as there did not exist a relationship of proximity between them with respect to the kind of damage suffered by the Perre interests.
In the Court below, the matters upon which the Perres relied in their attempt to establish the necessary relationship of proximity may be summarised as follows:
· the knowledge of Apand that bacterial wilt was a potentially disastrous disease for growers;
· the knowledge of Apand of the Western Australian export market and that State’s restriction against entry of potatoes either grown or packed within twenty kilometres of an outbreak;
· the fact that the Warruga Farms property abutted the Sparnon property;
· the knowledge of Apand of that proximity; and
· the knowledge of Apand through Mr Hughes that Warruga Farms exported potatoes to Western Australia.
Apart from the issue of Apand’s knowledge concerning Warruga Farms, the other factors so identified as giving rise to the relevant relationship of proximity were each accepted by his Honour.
The question of Mr Hughes’ knowledge on behalf of Apand was separately addressed. His Honour found that Mr Frank Perre had telephoned Mr Hughes on 17 April 1991 (after the Pakenham meeting of February 1991) to inquire whether Apand would consider Warruga Farms as a contract grower. If Mr Perre then told Mr Hughes that Warruga Farms was at that time exporting potatoes to Western Australia, about which his Honour made no express finding, that information was described by his Honour as “casually given” and not as information conveyed to Apand for the purposes of its business. It was not therefore knowledge acquired by Apand. See Halsbury’s Laws of England, 4 ed reissue, Vol 1(2) par 149; in Re Montagu’s Settlement Trusts [1987] 1 Ch. 264 at 284; Re Chisum Services Proprietary Limited (1982) 7 ACLR 641 at 649-651; ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495 at 507. His Honour then found that, although Mr Hughes was generally aware of the Perre family being potato growers in the Loxton district, there was no other occasion when either Mr Hughes, or Apand through any other source, learned of Warruga Farms’ specific location in relation to the Sparnon property or that it exported potatoes to Western Australia. Our review of the evidence referred to by counsel on those matters confirms that the findings so made were available to the learned trial judge and accordingly, that they should not be disturbed.
The case put on behalf of the Perre interests on appeal was summarised by Mr Sackar QC as follows:
“His Honour took too narrow a view of the notion of proximity, that he did not pay sufficient regard to factors uncontroverted on the evidence but which had the effect of significantly limiting ... the class of persons likely to be affected. He did not pay ... sufficient regard to the question of constructive notice.”
Mr Sackar, in addition to the knowledge of Apand that has been discussed above, particularly emphasised the following:
(a) prior to May 1992 Warruga Farms was selling a substantial part of its potato crop to purchasers in Western Australia - during 1992 the percentage of the crop sold to Western Australia was 79.2 per cent;
(b) Warruga Farms had obtained certification from the South Australian Department of Primary Industries that “the Warruga Farm’s area”, its potatoes and the sheds on Perre’s Vineyards property were free of bacterial wilt and potato cyst nematode - this certification was required by the Western Australian authorities before the Warruga Farm potatoes could be exported to Western Australia;
(c) the Perre interests owned properties within a twenty kilometre radius of the Sparnon farm - i.e. they were within the class of individuals who, if they were exporters to Western Australia, would be unable to export to Western Australia if bacterial wilt were found on the Sparnon farm;
(d) the Perre interests were the only potato farmers with a twenty kilometre radius of the Sparnon farm that exported to Western Australia (this assertion was not admitted by Apand);
(e) internal Apand memoranda which disclosed an awareness of the existence of, the seriousness of, the risk of the spread of bacterial wilt, an appreciation of the fact that “all commercial potato cultivars are susceptible to some extent” and that “[t]he major cause of spread is through growers buying non-certified seed”, and a knowledge that “[t]he Western Australian Dept. of Ag. will not allow potatoes sourced within 20 km of a known outbreak of bacterial wilt into their state”; and
(f) evidence which suggested, contrary to the trial judge’s assumption, that there was a sharing of farm equipment between Warruga Farms and the Sparnon farm and that potatoes grown on the Sparnon farm were washed at the Perre Vineyards property.
On that latter point, there was some evidence that the Sparnons used Warruga Farms’ washing and packing shed from time to time, and that they also, on occasions, borrowed plant and machinery from Warruga Farms. It was not suggested that Apand knew, or had any reason to know, of any such matters, nor was it suggested that such matters had any actual impact upon the Perre interests’ potato farming activities. Such evidence, which was largely given by Mr D Sparnon, was not specific as to time. His Honour did not expressly reject it, although generally he did not place much weight on Mr Sparnon’s evidence. Independently of Mr Sparnon’s evidence, certain invoices issued by Warruga Farms to the Sparnons, apparently for washing potatoes in September and October 1990 and in January and August 1991, provide support for the suggestion that potatoes grown on the Sparnon farm were washed at the Perre vineyard property. It was neither pleaded, nor asserted, that those matters gave rise to any form of common enterprise between the Sparnons and the Perre interests. Such matters, depending upon all relevant circumstances, including their commercial significance, might, in some cases, be relevant to and, perhaps, even tilt the scales in favour of the existence of a duty of care. This would more readily occur where that sort of arrangement was known to the party being sued. But the evidence in this case amounts to nothing more than relatively slight commercial and neighbourly exchanges. In light of the reasons set out below, it does not significantly add to the determination of whether a duty of care is owed to the Perre interests or to any of them in respect of the economic loss of which they complain. Moreover, we note that counsel for the Perre interests at trial sought to play down any such relationship; the Perre interests on appeal should not now be able to formulate their case differently from the way they put it to the trial judge.
It is necessary in relation to those submissions to give consideration to recent authorities concerning the recovery of damages for pure economic loss consequent upon negligent conduct.
Some judges of the High Court have recently expressed reservations as to the utility of the concept of proximity in defining or identifying the circumstances in which a duty of care in tort will exist, referring to the long standing reservations expressed by Brennan J (as he then was), in, inter alia, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 481 and Hawkins v Clayton (1988) 164 CLR 539 at 555: see, for example, McHugh J in dissent in Hill v Van Erp (1996) 142 ALR 687 at 725-726 and Gummow J in that case at 747-748, who whilst agreeing with the majority in the result, said:
“To my mind, there is real difficulty in treating the requirement of a relationship of proximity as an overriding requirement which provides the conceptual determinant (or a determinant) for the recognition of an existence of a duty to take reasonable care to avoid reasonably foreseeable risk of injury. It may well be that the notion of proximity provides a unifying theme for various categories of case, the genus of which they are species. ... But, by itself, the notion of proximity, used as a legal norm, has the uncertainties and perils of a category of indeterminate reference, used with shifting meaning to mark no more than policy preferences.”
However, the judgments of the High Court in a series of cases have prescribed a relationship of proximity as an essential element for the existence of a duty of care, and as representing a limitation upon the existence of a duty of care beyond the test of reasonable foreseeability: Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529; Jaensch v Coffey (1984) 155 CLR 549; Sutherland Shire Council (above); Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16; San Sebastian v Minister Administering Environmental Planning and Assessment Act (1986) 162 CLR 340; Gala v Preston (1991) 172 CLR 243; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520. That approach has, more recently, been affirmed by the majority in Bryan v Maloney (1995) 182 CLR 609 and in Hill v Van Erp (above). As Dawson J explained in Hill v Van Erp (above, at 699-700) it is not, however, a concept which provides the unifying theory of the law of tort identifying why or when a duty to take reasonable care to avoid a reasonably foreseeable risk of injury will arise in all circumstances. Rather it is an expression which conveniently describes the categories of cases in which such a duty has been found to arise. It also suggests that the means of reaching a conclusion on that question in new categories of case isto be by the normal legal reasoning processes of analogy, and inductive and deductive reasoning. It may not be inconsistent with the “incremental approach” earlier referred to by Brennan J in the cases mentioned.
This case, in which the Perre interests claim that a duty of care was owed to them by Apand with respect to economic loss only, is within a new category of case in which it is necessary to give consideration to whether such a duty arises. The Caltex Oil case (above) is accepted as the proper starting point for the purpose of considering whether the necessary relationship of proximity with respect to economic loss existed between Apand and the Perre interests or any of them.
In the Caltex Oil case Gibbs CJ said at 555:
“In my opinion it is still right to say that as a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff’s person or property. The fact that the loss was foreseeable is not enough to make it recoverable. However, there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act. ... It will be material, but not in my opinion sufficient, that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure.”
In that case a dredge fractured an oil pipeline which connected an oil refinery with an oil terminal. Gibbs CJ held that persons interested in the dredge knew that the pipeline led directly from the refinery to Caltex’s terminal and knew or should have known that it was the physical means by which the products flowed from the refinery to the terminal. The Chief Justice noted that the pipeline appeared designed to serve the terminal particularly and was not like a water main or electric cable serving the public generally. His Honour concluded at 556:
“In these circumstances the persons interested in the dredge ... should have had Caltex in contemplation as a person who would probably suffer economic loss if the pipes were broken.”
Stephen J in the Caltex case identified at 574 a need “for some control mechanism based upon notions of proximity between tortious act and resultant detriment” to confine recoverable economic loss consequent upon negligent conduct. His Honour noted that policy considerations including recognition of when “the community will recognize the tortfeasor as being in justice obliged to make good his moral wrongdoing by compensating the victims of his negligence” (at 575) would provide some guidance in the determination of the requisite degree of proximity. In that case, in concluding that there did exist sufficient proximity to allow the plaintiff to recover, his Honour placed weight on the following factors:
(a) the defendant’s knowledge that the property damaged was of a kind inherently likely, when damaged, to be productive of consequential economic loss to those who rely directly upon its use;
(b) the defendant’s knowledge or means of knowledge of the pipelines and the use made
of them by the plaintiff;
(c) the infliction of damage by the defendant to the pipelines, the property of a third party, in breach of a duty of care owed to that party;
(d) the nature of the detriment suffered by the plaintiff, namely the loss of the use of the pipelines; and
(e) the nature of the damages claimed, namely the expenses directly incurred in employing alternative modes of transport, as distinct from any claim for loss of profits flowing from damage to the pipeline.
In short, his Honour’s conclusion was encapsulated in his observation at 577 that Caltex, as was known by the defendant, was “not less proximately concerned than was [the owner of the pipeline] in the continued integrity of the pipeline”.
Mason J in the Caltex Oil case expressed his conclusions on the issue of liability for negligently caused economic loss at 593 as follows:
“A defendant will then be liable for economic damage due to his negligent conduct when he can reasonably foresee that a specific individual, as distinct from a general class of persons, will suffer financial loss as a consequence of his conduct.”
The two most recent decisions of the High Court involving claims for pure economic loss are Bryan v Maloney and Hill v Van Erp, although Gaudron J in the latter case (above, at 717) was at pains to categorise the loss in that case as loss other than pure economic loss.
Bryan v Maloney (above) involved a claim by the purchaser of a building against its builder, who had built it some years earlier for the then landowner; it was only after the transfer of the land and building that cracks appeared due to the want of care of the builder in the course of construction. That had the effect of diminishing the value of the building, i.e. it caused pure economic loss. The purchaser claimed damages reflecting that diminished value. In their joint judgment Mason CJ, Deane and Gaudron JJ observed at 617-618:
“The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant class of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognized as involving a relationship of proximity between the parties with respect to such an act and such damage and as ‘attracting a duty of care, the scope of which is settled’. In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the ‘notion of proximity ... is of vital importance’ [San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, at p 355 per Gibbs CJ, Mason, Wilson and Dawson JJ].”
Their Honours went on to point out that:
“One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the law’s concern to avoid the imposition of liability ‘in an indeterminate amount for an indeterminate time to an indeterminate class’ [Ultramares Corporation v Touche (1931) 174 NE 441 at p 444 per Chief Judge Cardozo]. Another consideration is the perception that, in a competitive world where one person’s economic gain is commonly another’s loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another’s person or property may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage. The combined effect of those two distinct policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two.” (some footnote references have been excluded)
Toohey J adopted a similar approach. The “very direct” relationship between the plaintiff and the defendant in that case was of particular moment to his Honour (at 663); it was really only a matter of timing that the plaintiff, and not the original purchaser, was the person who suffered the loss.
The authorities to that point concerning recovery for pure economic loss were most helpfully reviewed by Doyle CJ in Seas Sapfor v Electricity Trust of South Australia (unreported Full Court of the Supreme Court of South Australia, 9 August 1996). The Chief Justice noted that the authorities require the taking of an impressionistic and incremental approach rather one of applying an overarching principal to the particular circumstances. He identified a number of factors which have been seen as relevant. These are:
(a) the defendant’s knowledge or means of knowledge of the plaintiff as a specific individual as opposed to a member of an unascertained class;
(b) where there are two plaintiffs, only one of whose loss is purely economic, the existence of an identity of interests between them and the vulnerability of one to financial damage consequent upon physical, or presumably personal, damage suffered by the other;
(c) the type of economic loss suffered: ie its proximity to the tortious act;
(d) the danger of accepting liability to an indeterminate class of claimants;
(e) policy factors generally; and
(f) where relevant, the interposition of a contract of sale between the party to whom the defendant owed a duty of care and the plaintiff; particularly where the relevant damage is not latent.
Hill v Van Erp which was decided after the Seas Sapfor case, concerned the loss suffered by a named beneficiary under a will when a solicitor allowed the husband of such named beneficiary to sign the will as an attesting witness. The consequence was that the testamentary disposition was ineffective. The frustrated beneficiary sued the solicitor for loss of the testamentary gift. Dawson J, with whom Toohey J generally agreed, said at 699-700:
“I retain the view which I expressed in Gala v Preston [(1991) 172 CLR 247 at 276] that the requirement of proximity is at least a useful means of expressing the proposition that in the law of negligence reasonable foreseeability of harm may not be enough to establish a duty of care. Something more is required and it is described as proximity. Proximity in that sense expresses the result of a process of reasoning rather than the process itself, but it remains a useful term because it signifies that the process of reasoning must be undertaken. But to hope that proximity can describe a common element underlying all those categories of case in which a duty of care is recognised is to expect more of the term than it can provide.”
His Honour noted that in that case, whilst the loss suffered by the named beneficiary was purely economic, the considerations which ordinarily prompt concern about imposing liability for such loss were absent. No prospect of indeterminate liability arose. The amount of damages was fixed. No question of competitive advantage arose. The recognition of a duty of care did not supplant or supplement remedies otherwise available or disturb any general body of rules constituting a coherent body of law.
Although expressing his general agreement with the reasons given by Dawson J, Toohey J made comments of his own on the place of proximity in the jurisprudence of the High Court. His Honour expressed the view at 709 that there was no difficulty in treating proximity as “the general conceptual determinant and the unifying theme”. But he went on:
“That does not mean that proximity of itself identifies with any precision a common element underlying all those cases in which liability in negligence has been held to exist. But the general conception does operate as a limitation on any notion that liability in negligence arises simply from a duty to avoid harm that is reasonably capable of being foreseen, at any rate in cases not involving direct physical injury or damage.”
What is common to the reasoning of the majority in determining that there was a duty of care owed by the solicitor to the frustrated beneficiary is the following:
(a) liability was neither to an indeterminate number but only to one identified person, nor for an indeterminate amount but for a fixed sum,
(b) the duty found to exist corresponded with the contractual duty of the solicitor to the testator, and
(c) the type of damage suffered was the direct loss of the benefit which was specifically intended by the conduct of the solicitor had it been performed without carelessness.
See per Brennan CJ at 694, Dawson J at 700-701 with whom Toohey J agreed, Gaudron J at 712, and Gummow J at 744-745.
In addition, reflecting the description of the relevant circumstances identified by Gibbs CJ in the Caltex Oil case, both Gaudron J at 711 and Gummow J at 741 described the relevant relationship as a “special” one. Dawson J at 705-706 focussed upon the particular skill of a solicitor and the inevitable reliance placed upon such skill directly by the testator. Despite the absence of any anterior relationship between the solicitor and the frustrated beneficiary, some form of responsibility is assumed, if not specifically towards such beneficiary, then at least in respect of her. Furthermore, in the nature of the circumstances, it would not be apparent that the responsibility had not been properly satisfied until the death of the testator. Gaudron J at 716-717 also extracted significance from that feature, more aptly in the particular circumstances in her Honour’s view described as “control over” the outcome, i.e. the fulfilment of the testamentary wishes of the testator. Gummow J at 741 described the features of known reliance or assumption of responsibility as “beguiling but deceptively simple terms” and would not encourage their use except where specifically applicable on the facts. In the circumstances before him, Gummow J at 745 focussed on the fact that the solicitor’s conduct was designed to benefit the frustrated beneficiary; her control over whether that conduct fulfilled that objective, together with the directness of the consequence of improperly performing her retainer with the failure of the testamentary gift, was, in his Honour’s view, sufficient to found a duty of care.
It is, in our view, appropriate to elicit from the above decisions, the additional observation that despite the absence of any anterior dealing between Apand and the Perre interests, it would be relevant to the existence or otherwise of a relationship of proximity to found the necessary duty if Apand’s conduct in relation to the Sparnons carried with it some circumstance involving direct reliance by, or an assumption of responsibility towards, or control of events directed to producing an outcome for, the Perre interests. Whether such considerations, if they exist, amount to a refinement of the “identity of interests” or “common adventure” descriptions that have been used in some cases, or are simply another way of expressing the same, but more general, concept as discussed by Gaudron J and Gummow J in Hill v Van Erp, is not critical to resolution of the present appeal.
The subsequent decision of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerford (Reg.) (1996) 142 ALR 750, which dismissed a claim for damages for negligent misstatement against a firm of auditors is also consistent with our above observation. The plaintiff in that casewas a financier who had advanced funds to a company partly in reliance upon the auditors’ report in its accounts. Dawson J at 759 explained why a “special relationship” was necessary in cases involving economic loss only, as did Toohey and Gaudron JJ at 764 and 766-767.
CONCLUSION AS TO THE EXISTENCE OF A DUTY OF CARE
The trial judge accurately analysed the respective Perre interests as follows:
“The claims by the Perre interests fall into three groups:
(1) claims by the Warruga Farms partnership who were potato growers, packers and exporters to Western Australia,
(2) a claim by Perre Vineyards Pty Ltd which owned the land leased to Warruga Farms for their packing facility, and
(3) claims by the Rangara Joint Venture which grew potatoes, a substantial proportion of which were sold to Warruga Farms.
Different considerations may apply in determining legal liability to each group, particularly on the question whether any respondent owed a duty of care.”
Accepting that Apand is not to be found to be liable to any of the Perre interests in negligence simply because the suffering of harm by them was reasonably foreseeable in the event that the Sparnon property became infected with bacterial wilt, the challenge is to identify the appropriate process of reasoning upon which to found a conclusion as to the existence, or otherwise, of a relationship of proximity between Apand and the Perre interests or any of them.
Whether one takes the general findings of the learned trial judge, or the more specific contentions of counsel for the Perre interests referred to above, it is, in our view, difficult to elevate the relationship between the Perre interests on the one hand and Apand on the other to the category of “special” as that expression has been applied in the High Court.
There was no relevant anterior relationship between them. When the decision in February 1991 was made to use the Saturna seed from the Tymensen property, it was subsequently supplied to some twenty one growers throughout four States of Australia, including Virgara Bros in South Australia. Some fifty nine tonnes of potato seed were then planted in that generation of planting. When harvested, some, but by no means all, of those various crops were again utilised for further potato seed. In particular, seven of the twenty one first generation growers produced potatoes which were further used for seed in second generation plantings, again in four States of Australia, and involving, as the evidence now shows some twenty six growers planting some one hundred and thirty one tonnes of potato seed. The particular crop produced by Virgara Bros of seventeen tonnes was used for further planting by six growers in South Australia in February 1992. At the same time, a second generation of the source seed was planted by nine growers (seventy three tonnes) in Queensland, six growers (thirty three tonnes) in Victoria and four growers (eight tonnes) in New South Wales. Some other of that second generation produce was processed for consumption. On the evidence, of the twenty six growers who planted the second generation seed throughout Australia, eighteen produced crops infected by bacterial wilt, three sprayed out their crops, and five apparently reported no problems. The Sparnon’s property was but one of those twenty six properties which planted second generation seed from the Tymensen property.
No evidence was identified to this Court which indicated how many potato growers were within a twenty kilometre radius of each of those twenty six growers, or even more widely, how many potato growers there were who had washed or packed their potatoes in premises in which other potatoes, grown within twenty kilometres of a known outbreak of bacterial wilt within the previous five years, had been handled. Nor was any evidence identified which would enable a finding to be made that some particular number or numbers of growers within that category did or might export potatoes to Western Australia. If there were any such growers, were their export programs interfered with by bacterial wilt developing on any one of those twenty six properties? Had they used a washing or packing shed at which potatoes from a farm infected with bacterial wilt had been packed and washed?
The fact that, as events apparently revealed, within that distance from the Sparnon’s property, it was only the Perre interests which fell within that group does not in our view indicate, in a relevant sense, that they were either an ascertained or ascertainable members of an ascertained group at a material time. There is no apparent reason why economic loss, due to an inability to export potatoes to Western Australia, is of any special significance compared with other causes of economic loss; for example, a grower’s extra expense in having potatoes washed or packed elsewhere, when previously they had used a packing shed on a property now infected with bacterial wilt, or a grower incurring extra expense by reason of no longer sharing equipment or machinery with another grower whose property became infected with bacterial wilt, or a grower incurring extra expense to avoid possible contamination when a nearby property has become infected with bacterial wilt.
In our view, it is also appropriate to observe that, effectively, none of the considerations which led to the finding of the existence of a duty of care owed to the plaintiffs in each of Caltex Oil, Bryan v Maloney, and Hill v Van Erp, can be shown to exist in the present circumstances. At the material time, Apand had neither knowledge nor means of knowledge that the Perre interests individually, rather than as a member of an unascertained class, would be likely to suffer economic loss as a consequence of its negligence in supplying infected or potentially infected seed to the Sparnons. Even if one were to expand the permissible scope of knowledge or means of knowledge to a defined and small class of persons capable of ascertainment, we do not think the authorities presently indicate that that would be, of itself, sufficient, unless there were some other particular circumstances which drew to Apand’s attention that it should, in taking the steps which it was found negligently to have taken qua the Sparnons, have also had regard to the interests of the members of that particular defined and small class of persons. There is no particular consideration of that nature in the present circumstances. Nor, in our view, does the evidence disclose anything in the nature of a common adventure, at least relevant to the claims of the Perre interests. Nor was it the fact, and consequently not a matter of Apand’s knowledge, that there was, relevantly, any direct relationship between the damage to the Sparnon’s property and the consequential economic loss to the Perre interests in the sense that there were any direct dealings between the Perre interests and the Sparnon’s property which caused or contributed to the consequence complained of. There is no element of shared machinery or equipment which relevantly contributed in any way to the Perre interests’ claimed loss; they could have had no dealings whatsoever with the Sparnons and have been equally disadvantaged. There is no evidence that Apand had either knowledge, or means of knowledge, of the particular vulnerability of the Perres, as distinct from any other person or group of persons, as persons who might suffer economic loss. Furthermore, the nature of the detriment suffered by the Perre interests is not of the same nature as that which attracted favourable consideration, for instance in the Caltex Oil case. Here, as appears from the statement of claim on behalf of each of the Perre interests, the claims as alleged were as follows:
· Warruga Farms, being unable to export to Western Australia potatoes grown by it (or acquired by it from the Rangara Joint Venture) suffered a loss of income, an alleged diminution in the value of its property, and ultimately was unable to refinance or procure further finance to develop a different farming program with a different crop. The expense incurred in its endeavours to mitigate its loss of income is also claimed. There is not the same relationship between that sort of claim for economic loss and the immediate damage to the Sparnon’s property as existed in the Caltex Oil case (above), and indeed that very point of distinction was drawn in particular by Stephen J in the passage referred to. Warruga Farms was still entitled to sell its potatoes; it was still entitled to grow potatoes. Its loss flows only from its market for the sale of its potatoes being confined and its exclusion from an apparently remunerative market. But the character of that claimed loss, as noted above, has no special feature which in logic distinguishes it from other forms of indirect economic disadvantage which were, or may have been, suffered by many other potato growers whose farms were near to a grower whose farm, through Apand’s negligence, became infected with bacterial wilt.
· Perre Vineyards lost its captive tenant at will and Warruga Farms was unable to procure a suitable alternate tenant thereby suffering loss of income. Similar observations can be made, but even more forcefully. As the learned trial judge pointed out, their position is really not much different from the cartage contractors who would have otherwise conveyed Warruga Farm’s potatoes to Western Australia, or from the buyers of those potatoes in Western Australia. Those buyers may have suffered a loss of income by having to import potatoes from a greater distance or at a greater price or they may have incurred additional expenses in procuring other supplies.
· The Rangara Joint Venture was no longer able to supply its potatoes to Warruga Farms at the price at which Warruga Farms had previously been paying. It, and Warruga Farms, were able to continue to sell potatoes but did not have as ready a market. It thereby suffered a loss of income. Ultimately, that loss of income is alleged to have resulted in such a reduced cash flow that other resources were used to reduce indebtedness generally. In addition, the principals of the Rangara Joint Venture suffered loss on the sale of equipment. The very detail of that claim illustrates the potential, if the claim is to succeed, for the liability of Apand to be to a wide number of persons and for unlimited amounts. It was, in our view, particularly to guard against such claims that the nature of the damages claimable, as recognised in the Caltex Oil case (above), was confined to the expenses directly incurred by Caltex in employing alternative modes of transport.
Finally, in our view, whether or not the appropriate expression is one of “control” in the sense in which that term was explained by Gaudron and Gummow JJ in Hill v Van Erp, there is no element or fact which gives rise to any potential finding of a proximity between Apand and the Perre interests in the nature of that which was recognised as a significant and a distinguishing relevant characteristic in Bryan v Maloney and in Hill v Van Erp. There is certainly no circumstance in which it can be said that the arrangement between Apand and the Sparnons had in mind, in any sense, the benefiting of any of the Perre interests, and so there was no relationship “equivalent to contract”. The Perres were, in no sense, the object of the arrangement between Apand and the Sparnons. They did not stand to gain in any way from that arrangement if it was successful, or to lose from it if it was unsuccessful. They were distant from it.
It is our view that the learned trial judge correctly found that, in the circumstances, no relevant duty of care was owed by Apand to the Perre interests; he properly dismissed their claims. In our view the appeal on behalf of the Perre interests should be dismissed with costs.
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I certify that this and the preceding thirty-eight (38) pages are a true copy of the Reasons for Judgment herein of the Court |
Associate:
Dated:
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Counsel for the Appellants: |
Mr J Sackar QC Mr N Rochow |
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Solicitor for the Appellants: |
Townsends |
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Counsel for the Respondent and the Cross-Appellant: |
Mr P Garling SC Mr A Harris Mr M Frayne |
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Solicitor for the Respondent: |
Phillips Fox |
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No Appearance by the Cross-Respondents |
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Date of Hearing: |
5, 6, 7 May 1997 |
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Date of Judgment: |
21 November 1997 |
