FEDERAL COURT OF AUSTRALIA

 

Dowdell v Knispel Fruit Juices Pty Ltd [2003] FCA 851

NEGLIGENCE – breach of statutory duty – responsibility of orange grower and packer to manufacturer of orange juice contaminated by salmonella – foreseeability of type of injury – contract – intention to create legal relations – related companies – sale of goods – implied conditions – fitness for purpose – merchantability – expert evidence – forensic accountants – damages – loss of profits – financial modelling

Federal Court of Australia Act 1976 (Cth) s 19, 32, 51A

Trade Practices Act 1974 (Cth) ss 74B, 74D, 75AD, 82, 86, 87

Judiciary Act 1903 (Cth) s 39B, s 79 

Service and Execution of Process Act 1992 (Cth)

Insurance Contracts Act 1984 (Cth)

Citrus Industry Act 1991 (SA) ss 5, 13, 25, 29, 30, 37 

Food Act 1985 (SA) s 25

Acts Interpretation Act 1915 (SA) s 4 

Sale of Goods Act 1895 (SA) s 14

Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA)

Federal Court Rules O 10

Citrus Industry Regulations 1992 r 10, r 14

Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210

Re Wakim; Ex Parte McNally (1999) 198 CLR 511

Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564

Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 76 ALR 173

R v Bevan; Ex parte Elias (1942) 66 CLR 452

Flaherty v Girgis (1987) 162 CLR 574

Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 198 ALR 100

Minister for the Environment v San Sebastian Pty Ltd (1983) 2 NSWLR 268

Tame v New South Wales; Annetts v Australian Stations Pty Ltd (2002) 191 ALR 449

Greenland v Chaplin (1850) 155 ER 104

Wyong Shire Council v Shirt (1980) 146 CLR 40

Regal Pearl Pty Ltd v Stewart [2002] NSWCA 291

Mount Isa Mines Ltd v Pusey (1971) 125 CLR 383

Schneider v Hoechst Schering Agrevo Pty Ltd [2001] FCA 102

Tremain v Pike [1969] 3 All ER 1303

Doughty v Turner Manufacturing Co Ltd [1964] 1 QB 518

Schneider v Hoechst Schering Agrevo Pty Ltd [2000] FCA 154

Slivak v Lurgi (Australia) Pty Ltd (2001) 205 CLR 304

Byrnes v Australian Airlines Ltd (1995) 185 CLR 410

Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397

Grant v Australian Knitting Mills Ltd [1936] AC 85

Grimsdale & Sons Ltd v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31

Medtel Pty Ltd  v Courtney (2003) 198 ALR 630

Australian Competition and Consumer Commission  v Australian Safeway Stores Pty Ltd (2003) 198 ALR 657

Pirt Biotechnologies Pty Ltd v Pirtferm Ltd [2001] WASCA 96

Ermogenous v Greek Orthodox Community of SA Inc (2001) 187 ALR 92

Fleming v Beevers [1994] 1 NZLR 385

Lee v Lee’s Air Farming Ltd [1961] AC 12

Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1

South Coast Basalt Pty Ltd v RW Miller and Co Pty Ltd [1981] 1 NSWLR 356

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530

Dennis Wilcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267

Dependable Motors Pty Ltd v Ashford Shire Council (1959) 101 CLR 265

Astley v Austrust Ltd (1999) 197 CLR 1

Dominion Chain Co Ltd v Eastern Construction Co Ltd [1976] 68 DLR (3d) 385

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

Marks v GIO Australia Holdings (1998) 196 CLR 494

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64

Fox v Percy (2003) 197 ALR 201

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705

Johnson v State of South Australia (1980) 26 SASR 1; 26 SASR 41; 42 ALR 161

N Seddon, Government Contracts – Federal, State and Local,2^nd edn, 1999

Allsop J, ‘Federal jurisdiction and the jurisdiction of the Federal Court of Australia in 2002’, Australian Bar Review, vol 23, no 1, 2002

 

 

 

 

 

 

 

 

 

 

DOWDELL v KNISPEL FRUIT JUICES PTY LTD

 

S 20 OF 1999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SELWAY J

13 AUGUST 2003

ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY		S 20 OF 1999
BETWEEN:	JOANNE DOWDELL APPLICANT
AND:	KNISPEL FRUIT JUICES PTY LTD (trading as Nippys) ACN 007 841 492 RESPONDENT / CROSS-CLAIMAINT   NIPPY’S WAIKERIE PRODUCERS PTY LTD ACN 008 038 195 FIRST CROSS-RESPONDENT   PETER CONSTAS SECOND CROSS-RESPONDENT   THEO CONSTAS THIRD CROSS-RESPONDENT
JUDGE:	SELWAY J
DATE OF ORDER:	13 AUGUST 2003
WHERE MADE:	ADELAIDE

 

THE COURT DECLARES THAT:

 

1.                  The First Cross-Claimant is entitled to recover from the First Cross-Respondent damages, as assessed by the Court, in respect of the breaches by the First Cross-Respondent of contracts for the supply of oranges by the First Cross-Respondent to the First Cross-Claimant in the period December 1998 to March 1999 inclusive as follows:

1.1              All moneys paid by the First Cross-Claimant as at the date of judgment in order to resolve personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a in the total amount of $1,274,677.86.

1.2              All further moneys paid by the First Cross-Claimant on or after the date of judgment in order to resolve (whether by way of reasonable compromise or in accordance with the terms of the judgment of any Court) all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

1.3              Costs incurred by the First Cross-Claimant in managing the salmonella outbreak the subject of these proceedings in the amount of $489,801.38.

1.4              Reasonable costs and disbursements incurred by the First Cross-Claimant in defending and settling all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

1.5              Loss of profits suffered by the First Cross-Claimant as a result of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a in the amount of $990,906.

1.6              Interest on the foregoing at the rate of 6 per cent per annum to date of judgment in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth).

2.                  The First Cross-Respondent is entitled to recover from the Second and Third Cross-Respondents damages, as assessed by the Court, so as to provide the First Cross-Respondent with a complete indemnity in respect of the liability of the First Cross-Respondent to the First Cross-Claimant referred to in par 1 of these Declarations.

 

 

AND THE COURT ORDERS THAT:

 

3.                  There be judgment for the First Cross-Claimant against the First Cross-Respondent for damages to be assessed so as to give effect to the declarations contained in pars 1 and 2 of this judgment.

4.                  The First Cross-Respondent pay to the First Cross-Claimant the amount of $3,182,009.24 (which sum includes interest of $426,624to date of judgment) on account of damages to be assessed.

5.                  The final assessment of the damages to which the First Cross-Claimant is entitled from the First Cross-Respondent do stand adjourned.

6.                  There be judgment for the First Cross-Respondent against the Second and Third Cross-Respondents for damages to be assessed so as to give effect to the declarations contained in pars 1 and 2 of this judgment.

7.                  The Second and Third Cross-Respondents pay to the First Cross-Respondent the amount of $3,182,009.24 on account of damages to be assessed.

8.                  The final assessment of the amount which the First Cross-Respondent is entitled to recover from the Second and Third Cross-Respondents do stand adjourned.

9.                  In the event that the parties are unable to agree the quantum of the costs and disbursements referred to in par 1.4 hereof, the Registrar to inquire into and report, first on an interim basis, and in due course on a final basis, on the amount of reasonable costs and disbursements incurred by the First Cross-Claimant in defending and settling all personal injury claims brought against the First Cross-Claimant arising out of the outbreak in 1999 of Salmonella Typhimurium Phage Type 135a.

10.              The First Cross-Claimant’s claim against the Second and Third Cross-Respondents is dismissed.

11.              The question of costs be adjourned to a date to be advised for further submissions

12.              Pursuant to O 52 R 15(1)(a)(iii) of the Federal Court Rules,the time within which a notice of appeal must be filed in relation to this judgment or any part of it be extended to 21 days from the date that judgment is delivered on the question of costs.

13.              Each of the parties have liberty to apply on short but reasonable notice.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note:    Settlement and entry of orders is dealt with in O 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 20 OF 1999

 

BETWEEN:	JOANNE DOWDELL APPLICANT
AND:	KNISPEL FRUIT JUICES PTY LTD (trading as Nippys) ACN 007 841 492 RESPONDENT/ CROSS-CLAIMAINT   NIPPY’S WAIKERIE PRODUCERS PTY LTD ACN 008 038 195 FIRST CROSS-RESPONDENT   PETER CONSTAS SECOND CROSS-RESPONDENT   THEO CONSTAS THIRD CROSS-RESPONDENT

 

JUDGE:	SELWAY J
DATE:	13 AUGUST 2003
PLACE:	ADELAIDE

REASONS FOR JUDGMENT

1                     The question in issue before me is whether each of Mr Peter and Mr Theo Constas are ultimately liable to Knispel Fruit Juices Pty Ltd (‘Nippy’s Fruit Juices’) for the loss and damage suffered by that company (including its liability to third parties) as a result of a salmonella outbreak.  In the result I find that they are not liable in negligence or for breach of statutory duty.  However, I find that they did breach their contract with Nippy’s Waikerie Producers Pty Ltd (‘Packing’) which in turn breached its contract with Nippy’s Fruit Juices.  As a result of this chain of contracts Mr Peter and Mr Theo Constas are ultimately liable for the loss and damage suffered by Nippy’s Fruit Juices.

2                     In the period between 1 January 1999 and 31 May 1999, some 507 cases of infection with Salmonella Typhimurium phage type 135a (‘ST 135a’) were notified to the Department of Human Services of the South Australian Government.  One common feature in many of these cases was the claimed consumption of unpasteurised fruit juice sold by Nippy’s Fruit Juices.  A sample of such fruit juice was purchased by the Department on 5 March 1999 which tested positive for ST 135a.  On 8 March 1999, the South Australian Health Commission, acting under s 25(2) of the Food Act 1985 (SA), prohibited the sale of certain fruit juices produced by Nippy’s Fruit Juices.  Various further notices were issued from time to time, the practical effect of which was that Nippy’s Fruit Juices did not recommence trading until 14 April 1999, after it had installed a pasteuriser to pasteurise all of its fruit juice.

3                     Subsequently, ST 135a was found in the packing shed at Moorook, South Australia operated by Mr Peter and Mr Theo Constas.  It was also found on oranges that had been sold by each of them to Packing.  Packing had previously provided fruit purchased from each of the Constas brothers to Nippy’s Fruit Juices.

4                     Some of the persons who suffered injury consequent upon drinking fruit juices produced by Nippy’s Fruit Juices commenced this action as representative proceedings against Nippy’s Fruit Juices.  The claims made by the applicants included claims under ss 74B, 74D, 75AD, 82 and 87 of the Trade Practices Act 1975 (Cth) in addition to claims in negligence and for breach of duty.  A settlement scheme was agreed to provide a structured regime for settling the various claims.  That scheme was approved by the Court on 22 March 2001.  The scheme involves an admission on the part of Nippy’s Fruit Juices that in the period 1 January 1999 to 11 March 1999 (without negligence or fault on its part) it released into the market place fruit juice which was contaminated with ST 135a and that it was strictly liable (by virtue of the consumer protection provisions of the Trade Practices Act 1975 (Cth)) to pay those who had suffered illness as a result of consuming contaminated orange juice.  Over 425 claims have been finalised in accordance with the settlement scheme.  However, a number of the larger claims remain to be finalised in accordance with the settlement scheme.  In addition some claimants opted out of the representative proceedings and are pursuing claims independently.  In these claims also, Nippy’s Fruit Juices has admitted liability, without any admission of negligence or fault.  Damages remain to be determined.

5                     In respect of both the amount for which it is liable to the claimants and its own damages and losses arising from the ST 135a outbreak, Nippy’s Fruit Juices made a cross-claim against Mr Peter Constas and Mr Theo Constas.  That cross-claim alleges that Mr Peter Constas and Mr Theo Constas are each liable to Nippy’s Fruit Juices for their respective negligence and for breach of statutory duty.  Each of the Constas brothers deny that they were negligent or breached any statutory duty.  They also say that any loss or damage suffered by Nippy’s Fruit Juices is a consequence of the negligence or contributory negligence of Nippy’s Fruit Juices.

6                     Nippy’s Fruit Juices also made a cross-claim against Packing alleging that Packing had breached its contract with Nippy’s Fruit Juices for the supply of oranges and claiming loss and damage, including that which Nippy’s Fruit Juices was liable to pay to the claimants.  Packing has admitted the contract, but has not admitted its breach.  Packing, in turn, has made a cross-claim against Mr Peter Constas and Mr Theo Constas alleging that each of them were in breach of their contracts with Packing, or alternatively were negligent or breached a statutory duty, with the consequence that each of them were liable to Packing for the full amount of any damages for which Packing might be liable to Nippy’s Fruit Juices.  Each of the Constas brothers denies the existence of any contract between Nippy’s Fruit Juices and Packing; denies that that contract was breached; denies that either of them breached any contract with Packing; and denies that either of them were negligent or breached any statutory duty.  They also say that any loss or damage suffered by Nippy’s Fruit Juices is a consequence of the negligence or contributory negligence of either or both Nippy’s Fruit Juices or Packing.

7                     Other cross-claims were also made, but they have been resolved by agreement between the respective parties.  Nippy’s Fruit Juices and Packing had each made cross-claims against the Citrus Board of South Australia.  Those cross-claims were finalised soon after the trial commenced.  The Constas brothers each made cross-claims against their insurer.  That cross-claim was settled immediately before the Constas brothers presented their case.  Packing had a cross-claim against its insurers.  That cross-claim settled after the evidence was closed, but before submissions were made.

8                     The issue of the liability of Nippy’s Fruit Juices to the claimants having already been resolved, at least in principle, the issues that remained to be determined in these proceedings involved the respective liability under the various cross-claims and ultimately the determination of the respective liability of Nippy’s Fruit Juices, of Packing and of Mr Peter and Mr Theo Constas.  The trial in relation to those issues took 35 days over a period of more than six months.  Most of the evidence given in chief was given by affidavit.  That evidence, together with the documents recording agreed facts and the exhibits, fills over 40 lever-arch folders.  Notwithstanding the large volume of material produced, by the end of the trial and the submissions, there was little evidence that was relevantly in dispute between the parties, at least in relation to liability issues.  The primary issues remaining in dispute, at least as to liability, involved the correct legal characterisation of the relevant facts.

9                     Ultimately the case has become a contest between the Knispel family and the Constas family.  Both are families that have created successful businesses based upon citrus products from the Riverland.  It is obvious from having observed members of both families giving evidence that their success is based upon hard work and honest dealing.

Jurisdiction

10                  At the commencement of the trial the then eighth cross-respondent, QBE Holdings (Australia) Pty Ltd objected to the jurisdiction of this Court to hear the current proceedings that are before it.  At that time I ruled that I did have jurisdiction.

11                  None of the remaining cross-claims that I am considering involves a ‘federal’ claim.  The cross-claims are variously in contract or tort.

12                  In particular, Nippy’s Fruit Juices has sought damages in relation to its liability to the applicants in the representative action.  It has not sought any contribution from the cross-respondents, assuming, for this purpose, that it was entitled to do so.  Nor did the applicants seek any such contribution.  The cross-claims seek damages in relation to any payments that Nippy’s Fruit Juices has or may make to the applicants in addition to the damages that Nippy’s Fruit Juices itself says that it suffered (including the amount of any damages it is liable to pay to the applicants). 

13                  There is no doubt that this Court had jurisdiction to deal with the claim by the applicants against Nippy’s Fruit Juices.  The relevant jurisdiction was conferred by s 19(1) of the Federal Court of Australia Act 1976 (Cth) read with s 86 of the Trade Practices Act 1974 (Cth) and also by 39B of the Judiciary Act 1903 (Cth).  Under s 32 of the Federal Court of Australia Act 1976 (Cth) the Court also had jurisdiction to deal with the ‘associated claims’ in negligence and breach of duty brought by the applicants against Nippy’s Fruit Juices. 

14                  At least whilst the applicants’ proceedings remain unfinalised, the various cross-claims and counter-claims between Nippy’s Fruit Juices and the other cross-respondents were also “associated claims” within the jurisdiction conferred by s 32 of the Federal Court of Australia Act 1976 (Cth).  The decision of Wilcox J in Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210, particularly at 217, appears to be to the contrary.  However, that decision seems to me to have been overtaken by later decisions.  I refer in particular to the statement of relevant principles by Gummow and Hayne JJ in Re Wakim; Ex Parte McNally (1999) 198 CLR 511 at [135]-[150] (‘Re Wakim’).  The question is whether there was a ‘single controversy’.  The answer seems to me to be clearly yes.  The single controversy was related to the liability for the presence of salmonella in the fruit juice at the relevant time. 

15                  Even if the federal claims brought by the applicants had all been resolved by the entry of final judgments in each of them then it would still appear that this Court would have jurisdiction to determine the cross-claims.  The binding authority in this Court is that once federal jurisdiction has been attracted it cannot subsequently be lost even by the resolution of the federal aspects of it.  I refer in particular to the decision of the Full Court of this Court in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at [86]-[87] and Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 76 ALR 173 at 181.  There is also some dicta in the High Court to the same effect: see e.g. R v Bevan; Ex parte Elias (1942) 66 CLR 452 at 465-466 per Starke J.   The relevant cases are usefully collected and analysed by Allsop J in his paper ‘Federal jurisdiction and the jurisdiction of the Federal Court of Australia in 2002’, Australian Bar Review, vol 23, no 1, 2002, pp 41‑46.  The issue may still be arguable.  For example, the assumption behind the reasoning and the orders in Re Wakim was that the proceedings were not in federal jurisdiction once the constitutional issue raised in that case had been resolved.  Similarly, in Flaherty v Girgis (1987) 162 CLR 574 at 597-598 it is clearly accepted that applications under the Service and Execution of Process Act 1992 (Cth) are in federal jurisdiction, but that, once those applications have been resolved, the proceedings are not thereafter in federal jurisdiction.  Interesting as these issues may be, they do not arise in this case – the federal claims have not been finally resolved and the cross-claims are clearly ‘associated’ with the federal claims.

16                  In the circumstances it is unnecessary for me to deal with the argument that jurisdiction was also attracted because at least one of the insurers who were initially cross-claimants had relied upon the Insurance Contracts Act 1984 (Cth) to dispute its liability. 

17                  I find that I do have jurisdiction to deal with the cross-claims.  In exercising that jurisdiction I note that the common law to be applied is the Australian common law.  I also note that, subject to any other applicable laws of the Commonwealth, the statute laws of South Australia are applicable in these proceedings by virtue of s 79 of the Judiciary Act 1903 (Cth).

Salmonella

18                  Salmonella is a general term for a group of some 2,000 different types of bacteria.  It is a cause of food poisoning in humans.  They grow in the intestines of animals.  They are usually spread to humans through the human coming into contact with the faeces of vermin or birds, or through the human eating food that has come into such contact.  The bacteria must be ingested in sufficient numbers so that some will survive the acidity of the stomach.  Those that do survive will breed in the intestine, producing toxins.  Symptoms include vomiting, diarrhoea, nausea, dizziness, fever and chills.  Usually the symptoms last for two to three days, but there are relatively rare cases where the symptoms are more serious and may be life threatening.

19                  Salmonella bacteria are colourless and odourless.  They can only be detected by microbiological testing.  They need oxygen for growth.  They grow best at around body temperature, but will do quite well at room temperature.  In optimal conditions salmonella can reach enormous populations in only a few hours.

20                  Salmonella infections are notifiable diseases in all States and Territories.  The numbers of notifications have been increasing steadily in recent years.  There are generally 300 to 400 cases notified in Australia each month.

21                  ST 135a is a specific type of bacteria within the salmonella group.  It is relatively rare.    

22                  The growth of salmonella is retarded by cold.  Growth almost stops at refrigeration temperatures (0-4°C).  However, the cold does not kill the salmonella.

23                  Chlorine added to water would prevent the build up of salmonella in the water, at least in the doses that one would usually find (for example) in a properly maintained swimming pool.  Even at those concentrations spraying a chlorine solution on an orange may not kill salmonella already on that orange.  As Mr Tugwell pointed out in his evidence, the purpose of chlorine is to keep the water clean, rather than to kill bacteria on fruit sprayed or immersed in the chlorine solution.  In any event, salmonella would not be destroyed by the amount of chlorine normally added to drinking water.

24                  Most importantly for the purposes of this case salmonella bacteria are also destroyed by high acidity.  The pH levels typically found in orange juice would not be conducive to the survival, let alone growth of salmonella.  Indeed, before the outbreak involving Nippy’s Fruit Juices there had been very few occasions anywhere in the world where people were infected with any bacteria from orange juice.  What cases there were involved the person who actually squeezed the juice (usually in a shop) being a carrier of the disease, or instances where contaminated water or ice had been added to the juice.  The only exception to this would appear to be a case in 1995 in the United States where unpasteurised orange juice had been infected with salmonella.  That case involved ‘environmental contamination from factory surrounds’ which apparently involved rat infestation of the factory producing the juice.  Details of these outbreaks were given in the report of Professor Parish of the University of Florida which was tendered before me. 

25                  The issue was clearly dealt with by Dr Bentham in his evidence:

‘In your report you mention that an acidic environment is not conducive to the growth of the salmonella bug? --- Around the pH 4 or below it becomes very hostile to growth.

And indeed it goes further than that: the bug will actually die in acidic conditions? --- That’s right.

And as you observe, if the bug is in orange juice it will die because of the

acidity of the juice? --- That’s right.

Prior to being instructed in this matter, had you ever heard of salmonella in conjunction with oranges or orange juice? --- I heard it through being a microbiologist and living in South Australia. The Nippys outbreak that we’re talking about got a fair bit of press in biological terms.

Prior to the Nippys outbreak, had you ever been conscious of the fact that salmonella might be an issue to consider in the context of making orange juice or packing oranges? --- No, I hadn’t prior knowledge of that.’

26                  Professor Parish is apparently of the opinion that a prudent producer of unpasteurized orange juice would have been aware of the risks from that product from the various outbreaks that had occurred previously.  To an extent this may be so and Mr John Knispel, who managed Nippy’s Fruit Juices, gave evidence that he was aware of the risks and that he took appropriate safeguards in terms of the cleanliness of his factory and of requiring proper hygiene by his workers and so on.  As he described it in his evidence:

‘You were also asked questions by my learned friend Mr Anderson about your knowledge of risk prior to the salmonella outbreak in 1999, and you have told his Honour you were aware of some risks? --- Yes.

Other things you said you underestimated. You also said you weighed the risks of which you were aware against the advantages that you perceived in selling your fresh product? --- Yes.

I just want to ask you to tell us what were the things that you took into account in that weighing exercise - that balancing exercise - between the risks of which you were aware on the one hand, the advantages to you on the other hand?

--- Your Honour, we had a long track record at the time of no significant problems - nothing of this scale anyway. We had a purpose-built factory that we were operating in, which you’ve seen. We were soaking the oranges before scrubbing and washing them with un-recirculated water - in other words, one pass only, and then water down the drain. We were using hot caustic cleaning for our plant, which was not only a cleaning operation, but also a sanitising operation. We have pest control. We have insect control. We have acid-resistant, well-drained, impermeable, well-maintained floors, specially selected for the purpose for which they were being used. Our plant is predominantly stainless steel, at least in areas of product contact and, if not stainless steel, other materials which are approved for food manufacturing. We have a stable workforce of people who know what they’re doing - at least we always have at least 50 per cent old hands, some of them - I can think of three that had been with us at the time for more than 18 years. Although we did not have documented or formal training in food handling, I made use of my experiences at Moorook, when I was operating the UHT juice plant at Moorook, and also the course I did in Germany, and also general knowledge of personal health habits to have informal discussions with the staff while they were having their lunch, talking about such subjects as how easily it is to contaminate one’s hands. I pointed out that most people contaminate their hands almost immediately after they have washed them by turning off the tap; just doing that recontaminates your hands. Leaving the bathroom you can re-contaminate your hands as you open the door. I emphasised for their own welfare, if not for the welfare of the product, to avoid holding food directly in their hands, unless they were able to wash them in a hands-free sink. We have two such sinks - and we had two such sinks in the factory at the time. We have rapid-roll doors, which you observed on your visit - automatic rapid-roll doors - to minimise the amount of time that the interior of the factory is exposed to outside contamination. These are some of the things that come to mind that inspired me to have confidence in what we were doing, your Honour.

HIS HONOUR: I think you have already given evidence that you were shocked? --- Most definitely, your Honour.’

27                  Professor Parish has shown that salmonella may become ‘acclimatised’ to high acidity in which case it would not be destroyed by orange juice.  Of course, I accept that this is possible.  On the other hand, as Dr Bentham pointed out, there is no evidence whatever that that is what occurred in this case.  In this case it would seem clear that it was the chilling of the juice, rather than acclimatisation, which explained why the salmonella survived in the orange juice.  Further, it does not seem to me that the possibility identified by Professor Parish in his writings had the effect that persons in the position of the Constas brothers should have been aware of the potential problem.

28                  The reports of the incidents overseas (such as they were) also do not seem to me to be such that a person in Australia should have assumed that orange juice was a high risk product.  Indeed, they were entitled to assume, and did assume, the very opposite – that the low pH level of oranges and of orange juice meant that food poisoning was very unlikely from oranges or from orange juice.  This assumption was shared by those involved in Nippy’s Fruit Juices, by those involved in Packing and by the Constas brothers.  And indeed, read in context almost all literature dealing with the effect of microorganisms in fruit juice seems to have been directed to the shelf life and saleability of the product, rather than any health risks to the ultimate consumers.  For example, Mr Tugwell gave evidence of the changes in cleanliness of packing sheds over the last 15 years or so, but it is perfectly clear that those changes were directed to prevent the spoiling of fruit through ‘blue and green mould’ and other microorganisms, rather than any health fears for ultimate consumers.  His evidence as to the reasons why hygiene was improved in packing sheds was: 

‘And have you observed an improvement in the hygiene in sheds, well, in your experience, or has it been consistently at a relatively high standard right through? --- Over my career there were a lot of changes that occurred in relation to improved fungicides and practices that meant contamination of sheds was reduced and the sheds did become much cleaner and tidier, both as a result of having improved chemicals for sanitation - so you didn’t get spores on the fruit, you know, sort of mouldy fruit around the shed; but also during that time the emphasis on sanitation was very strong because there was a problem that emerged, called fungicidal resistance. Resistance to fungicides nearly - well, it resulted in quite high losses in the industry at one stage because through lack of other hygiene and other practices, the fungicides became ineffective. During that time, the emphasis was on hygiene - in other words, clean up your act, otherwise you’re history, until we got new fungicides that could cope with it. From that point onwards, the emphasis was on hygiene, because we didn’t want to rely on just one fungicide and we didn’t want to rely on chemicals alone. So the whole emphasis became one of hygiene plus chemicals and fungicides. That’s sort of what applies in the food industry, too. You’ve just got to make sure that you have a low level of inoculin in the shed before you use the materials that will give you protection. If you don’t do that, you’re in trouble. So the emphasis on hygiene was extreme.’

29                  Mr John Knispel gave evidence that he was aware that the acidity of orange juice (and indeed other fruit juices) meant that its risk of spoiling was much less than for other products, such as milk.  Similarly, Mr Jeff Knispel gave evidence that the understanding in the industry was that microorganisms were unlikely to be present in orange juice in significant numbers to cause any problem and, even if they were, the effect was to make the juice unpleasant to drink, not to make it harmful to health.  More specifically, he gave the following evidence:

‘HIS HONOUR: Did you understand any of those to go to the health of the fruit or fruit juice when drunk by a person? --- Sorry, just say that again.

Did you understand those problems - yeast, et cetera - to be problems with the fruit itself rather than the health of the person who drank it or drank the juice from it? --- Yes, it’s more - our concern at that time was that that kind of fruit can have an off flavour, and also it has very poor keeping qualities. So the system within our organisation is to rotate fruit through a cold room, therefore we need to know that fruit might keep - or needs to be able to have a shelf life in a coldroom prior to juice production of perhaps up to three or four weeks. It becomes a problem if there’s fruit within a container that’s only got a seven-day shelf life, because that starts a chain reaction within the good fruit basically. So, apart from the off flavour, it does create stock rotation problems.

MR ANDERSON: Would it be fair to say that prior to March of 1999, the object in all of the things that you’ve just been telling us about was to ensure that the juice tasted okay? --- Yes.

And you really hadn’t given any serious concern, I suggest, to the possibility of there being serious contamination in the oranges which could cause the sort of problems that it did cause? --- No, there would be no reason for us to have those sorts of suspicions or concerns.’

The evidence of Mr Theo Constas was more general, but to the same effect:

‘Before the alleged contamination of oranges in 1999, I had never heard of oranges or orange juice being infected with salmonella.  I had heard of the word salmonella from publicity about Garibaldi Small Goods but I did not think that it applied to fruit.’

So too Mr Peter Constas:

‘I had not ever heard of a sickness caused by oranges before this alleged contamination.  I have been involved in orange growing for 45 years.’

30                  At the time the relevant parties were entitled to assume that oranges were safe.  Indeed, even with the undoubted benefit of hindsight, that assumption still forms the basis for current government policy throughout Australasia which was adopted after the outbreak, but which still does not require pasteurisation of orange juice or even a warning that the orange juice is unpasteurised. 

31                  Nevertheless, infection with ST 135a from orange juice clearly occurred.  As a first step, it is necessary to identify how.

Salmonella at the Constas Packing Shed

32                  Mr Peter and Mr Theo Constas each have fruit blocks in or near Moorook.  There is a packing shed on Mr Peter Constas’s property.  It is used by each of them for packing his fruit.  Samples taken from that packing shed on 7 April 1999, showed positive results for ST 135a.

33                  I am satisfied that the source of the ST 135a found in the fruit juice produced by Nippy’s Fruit Juices was the oranges supplied to Nippy’s Fruit Juices.  There were various sources of such supply, including Packing.  I am satisfied that the source was oranges supplied to Nippy’s Fruit Juices from Packing.  Packing obtained the oranges it supplied to Nippy’s Fruit Juices from various sources, including Mr Peter and Mr Theo Constas.  All of those sources were checked.  The only source where ST 135a was found was in the packing shed used by Mr Peter and Mr Theo Constas and on oranges packed by Mr Theo Constas in that shed. 

34                  There is no direct evidence that ST 135a existed in that shed before it was identified there on 7 April 1999.  Nevertheless, given:

·               The relative rarity of ST 135a; and

·               The fact that ST 135a was not identified from any source supplying to Nippy’s Fruit Juices, other than the Constas brothers; and

·               The fact that oranges derived from the Constas brothers’ packing shed were delivered to Nippy’s Fruit Juices throughout the period of the outbreak; and

·               The fact that contamination of that shed throughout the period is explainable (as discussed below);

I find, on the balance of probabilities, that the source of ST 135a in the fruit juice was oranges sourced from the Constas brothers’ packing shed.

35                  The Constas brothers’ packing shed was a large corrugated iron shed with a cement floor.  Inside the packing shed was a Waxrite packing plant.  The plant was designed to sort and prepare oranges for sale as ‘table’ fruit.  The packing plant had been purchased by both brothers in 1976 from the manufacturer.  Apart from its age, it was in the same basic form as it had been purchased.  In particular, the plant necessarily involved the use of recirculated water in the fungicide tank.  It made provision for the recirculation of wax.  The plant consisted of a number of parts:

·               A size grading table which automatically separated oranges that were too small to be sold for table oranges.  These oranges were sold for juicing.

·               The oranges were then moved by a conveyor belt to a washer where the oranges were washed using two rows of spray nozzles positioned immediately over the conveyor.  The purpose of washing was to remove dirt, dust and so on from the fruit.  The water was mains water.  It was recirculated.

·               The oranges were then conveyed over brush rollers which removed the water and further cleaned the fruit.

·               A fungicide solution was then applied from spray nozzles above the conveyor.  The fungicide solution was contained in the fungicide tank situated immediately below the conveyor.  The fungicide tank contained a solution of water and fungicide called Benlate.  The purpose of applying the fungicide solution was to kill any fungi contained on the skin of the fruit.  The purpose of killing the fungi was so that the fruit will not be affected by it and become mouldy and unsaleable.  It was not suggested that the addition of the fungicide was intended to kill any bacteria that may be associated with the fruit or was otherwise directed to safeguarding the health of those that might ultimately consume the oranges.  Although there was some evidence to the contrary, I accept that the water in the fungicide tank was mains water.  It was from the River Murray, but had been treated by the addition of chlorine.  There is no evidence before me that the water was other than safe for human consumption. 

·               Wax was then applied to the oranges from nozzles immediately above the conveyor.    The purpose of the wax was to increase the marketability of the fruit, firstly by making it appear shiny and glossy and secondly by limiting moisture loss and consequently extending its shelf life.  The wax was applied thinly - it gave a sheen to the orange.  The wax was held in a tank under the packing line from which it was pumped to a line of spray nozzles immediately above the packing line where it was sprayed onto the oranges.  Surplus wax was recirculated back to the holding tank.  Although there was some suggestion to the contrary, I find that the recirculation of wax was an integral aspect of the packing line and had been present since the line had been initially purchased in 1976.

·               The oranges were then graded at a sorting table situated at the end of the plant.  The fruit was graded into three classifications and then ‘boxed’ manually.  The best fruit was boxed for sale as table fruit.  The next best quality was packed in large cardboard bins for sale as bulk table fruit - usually to supermarkets.  The two grades used for table fruit were sold by the respective brothers to the Melbourne market.  The lowest quality fruit was packed in large wooden bins as juicing fruit.  These bins were sold to Packing.

36                  ST 135a was found in the solution in the fungicide tank and in the wax in the wax tank.  It was also found on some waxed oranges derived from Mr Theo Constas.

37                  The likely explanation of this is that, by some means or another, ST 135a had been introduced into the fungicide tank.  The bacteria had reproduced in that tank to such an extent that there was a significant concentration of salmonella in the tank.  Oranges passing through the fungicide spray were effectively bathed in this salmonella solution.  The salmonella was then covered in wax which sealed the bacteria between the skin of the orange and the wax.  Over time some of the salmonella was washed off with the surplus wax so that the wax itself became infected with ST 135a.

38                  There is no evidence of how ST 135a first came into the fungicide tank.  There is evidence that the packing shed was generally in an unkempt state when seen at least on 7 April 1999 and maybe on other occasions.  Mr Theo Constas has given some explanation for this.  If it matters I find that the general housekeeping in the packing shed was not as good as it may have been.  On the other hand, I note the evidence of Mr Dunstone that the shed was in a similar condition to other small packing sheds that he subsequently saw throughout the Riverland.  Whatever may be said of this I do not think it much matters except perhaps as a general context.  There was no evidence to suggest that the dirty condition of the packing shed was causative of the consequent outbreak.  Nor was there any evidence to suggest that there were any vermin or birds in the shed.  It is at least as likely that ST 135a was first introduced to the packing line on an orange upon which a bird, rat or mouse, had defecated.  Once ST 135a was introduced into the fungicide tank the only issue then related to the maintenance of that tank - the condition of the rest of the shed was then largely irrelevant.  Indeed, if the operations of that tank had remained the same then the same consequences would have occurred no matter how hygienic the rest of the operation may have been.

39                  In the circumstances the critical issue in relation to the fungicide tank was how often the water in that tank was changed.  Evidence was given by Mr Tugwell that, by at least 1999, most operators of packing lines would completely change the water and fungicide at least once per week.  The reason for this was not related to killing bacteria, but rather to ensuring the effectiveness of the fungicide.  There was some evidence that Mr Peter Constas had said that the solution in the tank on 7 April 1999 had not been changed for three months.  However, Mr Peter Constas has a reasonably thick accent and he was probably misunderstood.  I accept his and Mr Theo Constas’s evidence that the solution was ‘topped up’ as required and completely changed about every three weeks.  I also accept that when the shed was inspected on 7 April 1999, the fungicide tank appeared dirty, contained mosquito larvae and was malodorous.  I find that it was more probable than not that it had been about three weeks since the water had last been completely changed.

40                  It seems to be accepted that it was not the practice in the small packing sheds to apply a sanitiser such as chlorine to the fungicide tank at any time.  There were suggestions in some Citrus Board newsletters and by Mr Tugwell that a sanitiser should have been used probably in the wash tank, but this would seem to be related to the ‘shelf life’ of the product, rather than to any hygienic concerns.  In any event, Mr Tugwell’s evidence in this regard seemed to be largely related to the perceived risk from using untreated river water in the wash tank.  This did not occur - the water used was chlorinated.  The water added to the fungicide tank was also chlorinated, but the chlorine was not at sufficient levels to kill the salmonella in the fungicide tank.  What chlorine was in the water would, over time and probably a short time, attach itself to organic material associated with the oranges and become ineffective.

41                  I find that the ST 135a, once introduced into the fungicide tank, soon began to reproduce.  At some time between its first introduction and the time that the water was changed, the salmonella concentration was sufficiently large that the ST 135a was deposited on the skin of at least some of the oranges washed in the fungicide in sufficient quantities to be a health risk.  It is not possible to say how long that period was.  There is no reason to think that it required three weeks.  Given the evidence as to the speed at which ST 135a replicates it is likely that it could have occurred in less than a week.  Conceivably, sufficient ST 135a to be dangerous could have developed in a day or so.  Nevertheless, the longer that the water was left unchanged the more likely it was that ST 135a numbers would increase, if only because the longer that the water was used the greater the organic load contained within it.  The longer that the water was unchanged the more likely it was that oranges would be affected by salmonella in sufficient quantities to be a health risk.

42                  Changing the water would not necessarily kill whatever ST 135a was in the tank and not ‘flushed away’ with the water.  In particular the chlorine contained in the mains water used by the Constas brothers was insufficient to do so.  Any ST 135a left in the tank could be expected to increase after the water was changed.  The longer that the water was left unchanged the greater the likelihood that ST 135a would survive the change of water when it occurred.  And, after it was changed, the longer that the water was left unchanged thereafter the greater the amount of ST 135a that could be expected to be contained within it derived from whatever had survived the initial changing.

43                  Put another way, there was a risk that ST 135a would attach to the oranges in dangerous quantities even if the water was changed weekly.  The risk was increased because the water was changed every three weeks.

44                  No-one has suggested to me that the Constas brothers would have breached any duty of care if they had changed the water in the fungicide tank weekly.  As pointed out above, that seems to have been the common practice in the industry.  And, as also pointed out above, the reason for changing the water in the fungicide tank was not the health risk to ultimate consumers, but the effectiveness of the fungicide - and that was related to the shelf life of the product, not the possibility of bacterial infection.  If the water had been changed weekly it would not have meant that no infection would or could have occurred.  The most that can be said is that it may have reduced the risk of infection, or the extent of any outbreak.  In order to ensure that there was no infection it would have been necessary to treat the oranges prior to the application of wax with some agent (sanitiser) which would have killed the bacteria.  It has not been suggested to me that this was viewed by anyone at the time as necessary.

45                  As I have already mentioned, everyone seems to have proceeded on the assumption that oranges were essentially a safe food with little health risk from bacteria or otherwise.

46                  I also note that the ST 135a deposited on the skin of the orange may have been destroyed by natural desiccation (drying out), but for the effect of the wax in sealing ST 135a and protecting it from the environment.

47                  On the evidence before me there are three things that could have been done to prevent oranges on the packing line from becoming infected by salmonella:

·               Assuming that the salmonella was initially introduced on an orange or oranges, having and maintaining a sanitiser in the wash tank would have killed the salmonella and prevented the infection of the fungicide tank. 

·               Having and maintaining a sanitiser in the fungicide tank would have killed the salmonella and prevented the infection of that tank.

·               Applying the fungicide without recirculating the fungicide solution would have avoided the infection of the fungicide tank.  Even without a sanitiser this would have prevented the infection of all but the original affected orange.

48                  If the water in the fungicide tank had been changed weekly this would have reduced the risk of the infection of that tank.  Even if the tank had become infected it may have reduced the extent of the outbreak.  If a sanitiser had been used when the tank was changed this would have limited the extent of any outbreak to those oranges that had passed along the line before the water was changed.  Those oranges may, or may not, have been infected.

Arrangements Between Constas Brothers and Packing

49                  The arrangements between each of the Constas brothers and Packing were essentially informal.  They had been supplying oranges to Packing since 1995.  At the start of each season there might be some informal contact between one of the Constas brothers or some member of their family and the staff at Packing to ascertain if the Constas brothers could supply Packing during the course of the year.  However, even if no contact was made, the expectation of the parties was that previous arrangements would continue. 

50                  The expectation by all parties was that the oranges that would be supplied to Packing would be used primarily for juicing, rather than being re-packed by Packing.  However, neither of the Constas brothers had any specific knowledge of ‘Nippy’s’ operations.  For example, neither of them knew that the oranges would or could be transported to Adelaide to be used by Nippy’s Fruit Juices.  Neither of them knew whether or not any juice produced would be pasteurised.

51                  When Packing required fruit from one or other of the Constas brothers it would contact someone at Mr Peter Constas’s property and advise them of that.  When either Mr Peter or Mr Theo Constas had bins of oranges available they would contact Packing and advise them of that.  If agreement were reached to take or supply the oranges then the oranges would be placed in large wooden bins in the packing shed.  The bins would be identified as ‘P Con’ or ‘T Con’ depending upon whose oranges were in the bin.  Packing arranged for a contractor, Mr Les Albrecht, to pick up the bins.  Mr Albrecht picked up the bins using the forklift in the shed and left a docket with someone in the shed or on the forklift.

52                  Mr Albrecht then transported the fruit to Packing’s yard at Moorook.  Packing separately accounted for the fruit in relation to Mr Theo and Mr Peter Constas.  Each was separately paid in relation to the invoice, either by cheque or (by the relevant date) in the case of Mr Theo Constas, by bank debit.

53                  The price payable for the oranges was determined by Packing.  This would seem to have been the ‘normal’ price payable by Packing at the time. 

54                  The informality of these arrangements was based upon the trust of the parties towards each other.  This was not based upon any personal friendship.  Indeed, it is apparent that the Constas brothers had never met Mr Jeff Knispel and knew little about Packing’s operations.  Mr Jeff Knispel had never visited the properties owned by either of the Constas brothers.  However, they each expected the other to deal with them honestly and fairly.  As it was put by Mr Theo Constas in his evidence:

‘I trust him [Jeff Knispel], you know, because the truth.  His company – he was, you know, very honest.’

Arrangements Between Packing and Nippy’s Fruit Juices

55                  Packing and Nippy’s Fruit Juices are each members of a group of companies that together might be described as the ‘Nippy’s Group’ (‘the Group’).  The Group had been established by Mr Alec Knispel and his wife.  They both had a continuing role in the management of the companies, but the day to day management was in the hands of their sons - Mr John Knispel and his immediate family in relation to the Adelaide operations (including Nippy’s Fruit Juices) and Mr Jeff Knispel and his immediate family in relation to the Moorook operations (including Packing).

56                  Packing supplied oranges to Nippy’s Fruit Juices and to at least one other company in the Group, for the purpose of fruit juice.

57                  The arrangement between Packing and Nippy’s Fruit Juices in relation to the supply of oranges seems to have been as follows:

·               The arrangement was a verbal arrangement.  There is almost no detail of that arrangement.  It seems to have existed for many years.  It preceded the time when Mr John Knispel commenced managing Nippy’s Fruit Juices.

·               Under the arrangement Nippy’s Fruit Juices would advise Packing of its expected orange requirements from Packing.  Alternatively, if Packing had oranges on hand that needed to be used, it would forward the oranges to Nippy’s Fruit Juices.  Usually about 40 per cent of the oranges used by Nippy’s Fruit Juices were obtained from Packing. 

·               Oranges on hand at its premises in Moorook would be transported by Packing to Adelaide.  Fruit might be held for up to a week at Moorook before it was sent to Adelaide.  Similarly fruit could be stored at Adelaide if more fruit was on hand than was immediately required for juicing.

·               The price of the fruit seems to have been the cost price to Packing plus an amount for profit.  This differed from the market price.  Indeed it would appear that Nippy’s Fruit Juices regularly paid more for fruit obtained from Packing than it did from those suppliers from whom it directly obtained fruit.

·               The informality of the arrangement could be the source of some frustration.  For example, Mr John Knispel accepted that he may have complained on occasion that ‘Moorook sends whatever it likes whenever it likes and name the price.’

·               The fruit supplied was separately accounted for in the accounts of both Packing and Nippy’s Fruit Juices.  At least for this purpose each of the companies intended to operate ‘commercially’. 

·               However, some of the arrangements between the companies within the Group clearly reflected the close relationship between them.  This is not only reflected in the arrangements for the purchase of fruit, but also other arrangements within the Group, such as ownership and possession of land and other assets.  Such arrangements were often not documented and may not have been on market terms.  The directors of Nippy’s Fruit Juices and Packing were all family members.  The companies did not have all the same directors (although Messrs Alec, John and Jeff Knispel were each directors and shareholders of each of the relevant companies).  Nevertheless the annual meetings of both companies and, indeed, of all companies in the Group, took place at the same time.  No minutes were kept of the meetings.  It was clear that the decisions as to the division of profits and as to payments to shareholders were made on the basis of doing ‘equity’ between the two brothers.  The views of the accountant for the Group, Mr Westaway, who attended and advised at Group meetings, were important in this context.

58                  It is clear enough that Nippy’s Fruit Juices and Packing were not at ‘arm’s length’.  They had related shareholdings, directorships and objectives.  They had mutual dealings, including, for example, joint insurance.  They shared the same accountants and the same lawyers.  It is not surprising, for example, that when Nippy’s Fruit Juices suffered the losses it has claimed as a result of the outbreak the two companies should initially have had the same advisers in relation to the claim made by Nippy’s Fruit Juices against their joint insurer.  It is also not surprising that as matters progressed it became clear that the two companies needed separate advice.  What may be surprising is that both companies apparently were involved in discussions as to how these claims should proceed even after Nippy’s Fruit Juices and its insurers had apparently made the decision that Nippy’s Fruit Juices would claim against Packing for breach of contract.  It may also be surprising that the solicitors for both Nippy’s Fruit Juices and Packing should ultimately continue as to act as solicitor for Packing.  This may have resulted in some interesting questions in relation to legal professional privilege, although ultimately no claims for privilege in this context were pursued.  The Constas brothers drew attention to these issues as evidence that the companies were not at ‘arm’s length’.

59                  And, in the course of the hearing, Packing, although nominally a cross-respondent, was for most practical purposes in the ‘Nippy’s’ camp, although, of course, any admissions it made (such as in relation to the existence of a contract between Nippy’s Fruit Juices and Packing) could not prejudice the interests of the Constas brothers.  This lead to the interesting possibility that Packing might be held liable by reason of its admissions, but the Constas brothers found not liable on the same facts.  This possibility was put to Mr Jeff Knispel.  Obviously it had never occurred to him as a possibility.  He frankly acknowledged that should this occur he would need to consider carefully whether Nippy’s Fruit Juices (of which he was a director and shareholder) should seek to enforce any judgment it obtained against Packing (of which he was also a director and shareholder).

60                  It is clear that oranges supplied to Packing by each of Mr Theo Constas and Mr Peter Constas were supplied by Packing to Nippy’s Fruit Juices throughout the period January – March, 1999.  It is clear that most of those oranges had been processed through the packing line of Mr Peter Constas’s property.  At least some of those oranges were contaminated with ST 135a. 

Salmonella at Nippy’s Fruit Juices

61                  Oranges delivered to Nippy’s Fruit Juices might be stored in cold storage for a period.  Mr John Knispel would generally check the oranges visually to ensure that the quality was satisfactory.  If oranges were not satisfactory they might be returned or individual oranges might be removed.  This was primarily for the protection of the taste of the finished product.  An orange affected by mould, for example, might taint the taste of the fruit juice.

62                  At the relevant time the oranges were processed as follows:

·               The oranges were initially placed in a large hopper filled with mains water which had been recirculated from the cooling room.  The water was topped up as required, but replaced every three weeks or so.  By the end of the three week period the water appeared very dirty and contained significant organic matter.  Chlorine was added to the water on a regular basis.  Given the evidence given by Mr Tugwell as to the role of chlorine it is unclear to me whether the immersion of oranges in the hopper would be sufficient to destroy ST 135a on oranges.  Mr Bates’s evidence, on the other hand, certainly seemed to assume that the chlorine should have been sufficient to kill any salmonella on the skin of the oranges.  In any event the chlorine did not and could not destroy the salmonella on the oranges sourced from the Constas brothers.  The reason why it could not do so was because of the wax covering on the oranges which prevented the chlorine solution from coming into contact with the ST 135a.  In any event the purpose of the chlorine was not to kill salmonella.  The purpose of applying chlorine to the water in the hopper was to kill microorganisms within the water.  There is no evidence before me to suggest that its purpose was to kill bacteria on the oranges.  As mentioned above, the assumption was that oranges were a safe product. 

·               The oranges were removed from the hopper by a mechanical bucket.  The oranges were then placed on a belt which transported them through brush rollers.  The purpose of the brush rollers was to remove twigs, sticks and such like.  The oranges then proceeded through another set of brush rollers where they were again brushed and washed with mains water.

·               The oranges were then mechanically sorted, with oranges that were too small or too large for the juicing machines being removed.

·               The oranges were then lifted by another bucket to what is described as a sizing belt.  This was a conveyor belt at an angle by which different sized oranges were allocated to the appropriate sized reaming machine.

·               Each orange then entered the appropriate sized reaming machine.  There were seven such machines.  In each reaming machine the orange was cut into half.  Mechanical pressure was then applied to each half to force out the juice.  The peel and the juice then entered a chute at the bottom of which the peel was removed to waste.  The juice passed into a juice trough.

·               The juice then proceeded into a finishing tank from which most of the large solids (pith, pips and pulp) were removed.  The juice was then pumped up to the next floor where it was mixed (as required) and then immediately chilled.  The juice was then pumped from the chilling machine for bottling.  The bottles were subsequently stored, distributed and sold whilst still chilled.

63                  Evidence was given as to the general cleanliness and hygiene of the plant.  Cleanliness and hygiene were improved following the outbreak.  However, in my view they were probably adequate before then.  In any event, in my view any inadequacies in the cleanliness or hygiene of the plant were not the cause of the outbreak.

64                  It was urged in argument that there were steps that Nippy’s Fruit Juices could have taken to protect itself from the outbreak.  The most obvious of these was that it could have pasteurised its juice.  It is clear that pasteurisation would have destroyed any salmonella in the juice and prevented the outbreak.  Indeed, this is what the South Australian Health Commission ultimately required that Nippy’s Fruit Juices do.  And it continues to pasteurise its orange juice.  I note that another family company in the Group was already pasteurising fruit juice at Moorook, although I accept that this was to preserve the shelf life of those products (described as ‘long life’ products) rather than for health reasons.   As already noted, Mr John Knispel was aware that pasteurisation would increase the shelf life of the fruit juice and would decrease any risk from pathogens.  Nevertheless, he thought that the risks of infection were low and that the actions that had been taken by Nippy’s Fruit Juices adequately protected against those risks. 

65                  As already mentioned above, the issue of whether pasteurisation of orange juice should be a regulatory requirement was considered by the Australian Health Ministers subsequently to this outbreak.  The Ministers were fully advised on the risks and the issues.  The Ministers decided not only that pasteurisation was not required, but also that warnings were not required.  Of course, the Ministers could be wrong.  But it is difficult to see that Mr John Knispel could have failed in his duty of care when he came to the same conclusion that the Ministers did, fully advised and informed as they were.  The effect of the advice given to the Ministers, and of the conclusion that they reached, is that orange juice is essentially a safe product by reason of its high acidity.

66                  Another action that has been suggested is the microbial testing of orange juice.  Certainly other, larger, producers carry out their own microbial testing.  If sufficient testing had occurred it may have been of some assistance in limiting the extent of the outbreak.   However, the question is what microbial testing would have been necessary?  As Dr Bentham said in his evidence:

‘In producing orange juice, would you recommend microbial end-product testing as a method of testing your production system? --- End-product microbial testing, your Honour, is a little bit of a can of worms in that if I were to test for salmonella, then perhaps I should test for Shigella, and perhaps I should also test for Salmonella typhi and also for Norwalk virus, and we could come across a large list of things that we might do. I would recommend, in the quality assurance program, setting control measures in the processing - that is, temperature control measures, particularly in this instance - and things which would give me a high level of confidence that microbial testing wasn’t necessary, and then occasional testing of indicated organisms, like faecal coliforms, would be sufficient to give verification for that process.’

67                  Indeed, a regime for testing which, at one stage, was proposed by Nippy’s Fruit Juices and which was accepted by the Health Commission as appropriate would have only involved the testing of five samples every three months.  It is clear in this case that most of the orange juice produced by Nippy’s Fruit Juices in the period January - April, 1999 was unaffected by salmonella.  Only the juice derived from Constas oranges would seem to have been affected (probably less than 5 per cent of the juice produced) and most of that was probably unaffected or the salmonella had been destroyed.    If the testing regime, which was accepted by the Health Commission, had applied before the outbreak it may well not have identified the problem.  Given the time that testing takes and the need to sell unpasteurised juice quickly, it is likely that some affected juice would have been sold and consumed even if the problem was picked up by testing.  It does not seem to me that testing would have been a solution.

68                  Another suggestion was that Nippy’s Fruit Juices should have a Hazard Analysis Critical Control Plan (‘HACCP’).  A number of experts gave evidence about HACCP.  HACCP is a risk management system.  The use of such systems has become increasingly popular with regulators.  With government budget cut backs to most regulatory and inspectorial functions those responsible for such functions have, of necessity, imposed self-regulatory audit mechanisms such as HACCP.  Mr Tugwell gave some evidence of these changes.  Effectively these self-regulatory mechanisms require a person or body involved in an activity which formerly would have been subject to routine inspection to develop its own formalised risk identification and management systems, to document those systems, to audit those systems and to document their compliance with them.  All the better if some private organisation can provide some certification of compliance even if there is an associated cost.  HACCP is such a system.  This was made clear in the evidence of Mr Bates:

‘HIS HONOUR: Mr Bates, there must have been some time before anyone had ever heard of HACCPs and one assumes that at that time people still managed these risks - - -? --- That’s right.

- - - presumably through having proper management systems, commonsense and those other things. Is HACCP really a management tool for managing the risks? --- Absolutely. Management systems, your Honour, just like HACCP, are systems - you are formalising what you probably already do, hopefully. They are formalising it into a system, a documented system, which then some auditor can come in, see that you have documented systems in place, and then tell the world about that, saying, “Yes, these people have documented systems in place,” so the world, being the customers, has confidence in those products or services. But you’re exactly right, we’re not reinventing the wheel. Most people have them in place in one form or another - typically up here - but we are documenting it, formalising it, if you like.’

69                  If a HACCP or some other formal, documented risk management system had been in operation at Nippy’s Fruit Juices in March 1999, it may have provided evidence of what action the company had taken or not taken in relation to risk management.  But it could not have been negligent not to have a HACCP.  The existence or otherwise of a HACCP could not have been causative of any loss.  It would still be necessary to look to the actual act or omission that caused the injury in question to determine whether there had been any breach.  Such an act or omission might well be identified by an appropriate HACCP, but would not be caused by the lack of one.

70                  In any event, I am not satisfied that there was a general understanding in the industry (be it food processing, production of orange juice, orange packing or otherwise) in 1999 that a HAACP was a necessary requirement for the safe operation of such a business.

71                  There were various other suggestions made in the evidence as to various other things that Nippy’s Fruit Juices could or should have done.  Most of these are mentioned in the report of Dr Parish which was tendered in evidence.  It is unnecessary to deal with them individually.  It is sufficient to say that in my view none of them had anything to do with the salmonella outbreak, apart from reinforcing what was abundantly clear in any event - everyone involved assumed that oranges and orange juice were essentially safe products with limited if any risk of bacterial infection.

Critical Events in the Salmonella Outbreak

72                  It can be seen that there were a number of events that were unexpected, but which ultimately resulted in the salmonella outbreak.  They can be summarised as follows:

·               The salmonella replicated in the fungicide tank at the Constas brothers’ packing shed.

·               The salmonella was ‘fixed’ by the wax, which, over time, also came to contain salmonella.  This fixing had two effects:

o       First, it prevented the destruction of the salmonella by ‘drying out’;

o       Second, the chlorine wash at Nippy’s Fruit Juices did not kill the salmonella.

·               It is not clear how the salmonella ultimately came to be in the orange juice.  It may be that the brushes on the production line at Nippy’s Fruit Juices removed the wax layer.  Alternatively, the method of extracting juice from the orange could have destroyed part of the wax layer so that the skin of the orange came into direct contact with the orange juice, although Dr Taverner in his evidence seemed to doubt that this could be a total explanation.  However it occurred, by the time that the orange (or what was left of it) had left the reamer, the juice came into contact with the orange skin and became contaminated with ST 135a. 

·               The juice was immediately chilled and remained chilled until it was consumed.  If it had not been chilled so quickly the salmonella would have been destroyed.  Indeed if the ultimate consumer let the orange juice warm to room temperature before consuming it, it might well have been safe by then because at room temperature the acidity of the orange juice would destroy the bacteria.

Are the Constas Brothers Liable in Negligence?

73                  In essence the common law of negligence imposes liability in situations where it is reasonable to require a person, in the position of the alleged wrongdoer and in the circumstances of the alleged wrongdoing, to be liable for the particular kind of injury suffered as a result of the alleged wrongdoing: see Gifford v Strang Patrick Stevedoring Pty Ltd (2003) 198 ALR 100 (‘Gifford’) at 102 [8].  The more precise formulation of the elements of the tort involve the identification of the circumstances where it is reasonable that the alleged wrongdoer be held liable.  But resting as it does upon the broad conceptual basis of ‘reasonableness’ there are often difficulties in formulating precise tests for liability, particularly in marginal cases. 

74                  It is accepted that the common law of negligence has four elements: a duty of care owed to the person suffering injury or damage; a breach of that duty; a causal connection between the damage sustained and the breach of the duty; and a requirement that the damage must not be too remote.

75                  Foreseeability has a role in relation to each of these tests.  It may be that the test of foreseeability differs, at least to an extent, in relation to each of the four elements: see Minister for the Environment v San Sebastian Pty Ltd (1983) 2 NSWLR 268 at 295-296 per Glass JA.  On the other hand, an attempt to identify and apply these supposed differences in a particular case may merely result in unnecessary confusion. At the heart of the test of foreseeability is the notion of ‘reasonableness’; ‘a person “is not…expected to anticipate and guard against that which no reasonable man would expect to occur’’’: see Tame v New South Wales; Annetts v Australian Stations Pty Ltd (2002) 191 ALR 449 (‘Tame’) per Gleeson CJ citing Greenland v Chaplin (1850) 155 ER 104 at 106 per Pollock CB.  However, as McHugh J pointed out in Tame at 471-474, recent formulations of the test for foreseeability, particularly that of Mason J in Wyong Shire Council v Shirt (1980) 146 CLR 40 at 48 have not imposed a very high hurdle.

76                  In this case it is argued for Nippy’s Fruit Juices that the injury to the ultimate consumers and the financial losses to Nippy’s Fruit Juices were both foreseeable consequences of the Constas brothers not changing the water in the fungicide tank more frequently.  There is an obvious risk to Nippy’s Fruit Juices in such an argument.  If these losses were foreseeable by the Constas brothers, why were they also not foreseeable by Nippy’s Fruit Juices?  Nippy’s Fruit Juices attempts to avoid this conclusion by looking at the relative knowledge that each party possessed.  Nippy’s Fruit Juices, it was said, knew that there was chlorine in the hopper and knew that the oranges were being used for juice. The Constas brothers did not.  Nippy’s Fruit Juices argued that it was reasonably foreseeable that bacteria would breed in the fungicide tank; that if it did then it was reasonably foreseeable that bacteria would be sprayed on the skin of the oranges and then, at the very least it was reasonably foreseeable that persons eating an orange might become sick from the salmonella e.g. when squeezing or sucking on an orange cut into quarters as once occurred (and may still occur) at half time in local football and netball matches.

77                  It seems to me that there are several answers to that analysis.

78                  First, the expectation by everyone was that oranges were a safe product – that people would not get sick from eating oranges or from drinking orange juice.  The purpose of spraying the oranges with fungicide was to kill fungi. The purpose of replacing the water in the fungicide tank was to make the fungicide solution more effective. It may have been foreseeable as a consequence of the failure to replace the water more often that the fruit would be damaged by mould or that the orange juice might be tainted by the taste of mould.  It was not foreseeable that there were risks to health from bacterial infection.  It did not seem to have occurred to anyone that it was necessary to take any steps to prevent bacteria on the skin of the orange so as to safeguard the health of those that consumed the orange.  Nor is there any evidence before me that such bacteria on the skin of a table orange is dangerous or that it causes risk to anyone.  The necessary consequence of the chain of foreseeability proposed by Nippy’s Fruit Juices was not that the water in the fungicide tank should have been changed more frequently, but that a sanitiser should have been used.  Indeed, if the purpose was to kill salmonella already on the skin of oranges then, accepting the evidence of Mr Tugwell, something other than chlorine may have been necessary for this purpose.  It has not been suggested to me by anyone that this was a common or desirable practice either then or now.

79                  Even after salmonella was traced to Nippy’s Fruit Juices it would seem to have taken a couple of weeks before anyone thought to check whether the cause might be the oranges delivered to Nippy’s Fruit Juices.  Even then, the oranges that were checked initially were ‘organic’ oranges which had been fertilized using manure.  Everyone, including the experts from the Health Commission and the experts engaged by Nippy’s Fruit Juices, initially seemed to have assumed that the cause must be something other than oranges - such as Brazilian concentrate, or problems with juice delivered from Moorook, or infection in the bottling line at Nippy’s Fruit Juices.  This merely reflects the common understanding and expectation at the time that oranges were safe.

80                  Second, the fruit that caused the injury and damage in this case was fruit which was sold by Mr Peter and Mr Theo Constas to Packing as juicing fruit.  True it was that at the time the oranges were sprayed with the fungicide solution and subsequently with wax the juicing fruit had not been separated from the table fruit.  But this was done before delivery.  Clearly enough there would have been no breach of duty to anyone if the oranges had been not been sold to Packing, but had been dumped.  An essential aspect of any claim for negligence against the Constas brothers must be the sale and delivery of the fruit to someone who would then use it.  The foreseeable purpose of that use must be an aspect of any analysis of the claim in negligence.  The purpose in this case was fruit juice.  As to that I do not think that Mr Peter or Mr Theo Constas could have had any expectation that the juice would be pasteurised.  After all they did not know who would use the fruit for juice or what operations they conducted.  On the other hand, a reasonable person in their position could have a reasonable expectation that whoever manufactured the orange juice would do so in accordance with usual and proper practice in the making of orange juice: see Regal Pearl Pty Ltd v Stewart [2002] NSWCA 291 (‘Pearl’) at [85].  They did not need to be aware of what those standards were.  In fact those standards did not necessarily include pasteurisation, but probably would have included bathing the oranges in a chlorine bath or similar.  And, of course, the expectation in Australia at the time was that any bacteria would be destroyed by the acidity in the fruit juice.  Indeed, that remains the expectation today as evidenced by the decision of the Ministerial Council not to require pasteurisation.  The Constas brothers did know that oranges and orange juice were safe to consume.

81                  Thirdly, the effect of changing the water in the fungicide tank more often without applying a sanitiser was not to remove all risk of a salmonella outbreak, but only to reduce the risk and (perhaps) to decrease the extent of any outbreak.  The only evidence before me in relation to the extent of the damage or injury related to salmonella is evidence in relation to orange juice. There is no evidence at all before me as to what the extent of the risk might have been for table oranges, whether consumed at local sporting events or anywhere else, other than the general evidence of the Constas brothers that oranges were generally safe for human consumption.

82                  But the basic reason why the submission put on behalf of Nippy’s Fruit Juices in relation to foreseeability cannot be accepted is because it rests upon a false assumption.  The assumption behind the submission is that if some injury or damage was foreseeable as a result of a particular act then all injury or damage caused by that act was foreseeable.  True it is that it was foreseeable that a failure to properly maintain the freshness of the fungicide tank was likely to cause some loss or damage, if only as a result of mould.  True it is that what must be reasonably foreseeable is the class of injury as distinct from the particular injury suffered as a consequence of the respondent’s conduct: see Mount Isa Mines Ltd v Pusey (1971) 125 CLR 383 at 390 and see generally Tame.  But this does not mean that liability extends to any injury or damage.  The harm suffered must be of a kind, type or class foreseeable as a result of the respondent’s negligence: Gifford at 112 [46], Schneider v Hoechst Schering Agrevo Pty Ltd [2001] FCA 102 (‘Schneider’) at [33]. 

83                  For example, in Tremain v Pike [1969] 3 All ER 1303, a herdsman employed by the defendants contracted a rare disease through contact with rat’s urine.  The plaintiff claimed that the defendant was negligent in failing to keep the farm free of rats or failing to take adequate steps to reduce their number.  The court held that, although it was foreseeable that the plaintiff may have been injured as a result of the high population of rats on the property (for example he may have contracted a disease from a rat bite or food poisoning by the consumption of food contaminated by rats), the way in which the injury actually occurred was different and unforeseeable.  There was no evidence that the farming community knew or ought reasonably to have known that a person might get any disease merely handling matter contaminated by rats. Consequently, the defendant was not liable.

84                  Similarly, in Doughty v Turner Manufacturing Co Ltd [1964] 1 QB 518, an asbestos cement cover was inadvertently knocked into a cauldron of molten liquid.  A chemical reaction took place causing the liquid to erupt injuring the plaintiff.  The state of knowledge at the time of the incident gave no reason to expect such a reaction.  It was argued that injury by splashing when the material was dropped was foreseeable and what occurred was merely a variant on splashing. However, the Court of Appeal held that injury by eruption was a different and unforeseeable type of injury and thus the defendant was not liable.

85                  These cases support the proposition that foreseeability will not be established sufficient to found negligence unless it can be shown that the defendant should have been alerted, before the event, to the possibility of damage of that type occurring: see Schneider v Hoechst Schering Agrevo Pty Ltd [2000] FCA 154 at [218] as endorsed by the Full Court on appeal in Schneider.

86                  The claim in this case, and the evidence supporting it, was entirely directed to loss and damage related to salmonella poisoning from orange juice.  It has not been shown that any other type of damage was foreseeable.  In any event other types of damage are not relevant for this purpose.  What must be shown is that salmonella poisoning from orange juice was a reasonably foreseeable consequence of the failure by the Constas brothers to change the water in the fungicide tank more frequently.  In my view this was not reasonably foreseeable at the time.  The general expectation was that orange juice (and, for that matter, table oranges) was safe from bacterial infection because of its high acidity.  It was probably also to be expected that the manufacturer would take whatever steps were necessary to ensure that the orange juice was safe, whether by pasteurisation or chlorine wash of the oranges or whatever.  That expectation was not met in this case because of the effect of the wax in sealing the salmonella and because of the effect of immediately chilling the orange juice after production.  These effects were also not foreseeable.

87                  As the kind of damage and injury suffered was not reasonably foreseeable then in my view neither of the Constas brothers was liable in negligence for that damage or injury.

88                  Reverting to the broad conceptual view of negligence set out above, in my view a reasonable person in the position of Mr Peter and Mr Theo Constas would not have expected that the failure to change the water in the fungicide tank at least weekly would have resulted in a serious outbreak of food poisoning.  Unless they had specifically agreed to such a liability, a reasonable person in their positions would not expect to be liable for the losses related to that food poisoning.

89                  Given this conclusion it is unnecessary for me to express any view on whether a reasonable person in the position of the Constas brothers would have changed the water in the fungicide tank more often than they did.  However, relying primarily on the evidence of Mr Tugwell it is my view that by 1999 a reasonable person in the position of the Constas brothers would have replaced the water more frequently (probably at least weekly) or would have added a sanitiser such as chlorine to keep the water in a useable condition.  I note that this is what Nippy’s Fruit Juices did.  It only fully changed the water in the hopper every two or three weeks, but did use chlorine to ‘stabilise’ the water in the interim.  I doubt that a reasonable person would probably have realised that this was necessary in (say) 1990, but the requirement to maintain the water in a more useable condition seems to have been more generally realised during the early 1990s.  However, as I have commented above, the reason for this was to prevent damage to the orange from mould and to extend the shelf life of the oranges.  It was not because of any concern about food poisoning.

90                  It is also unnecessary for me to express any view on whether a reasonable person in the position of the Constas brothers would have kept the packing shed in a cleaner condition than they did.  Nevertheless, again relying primarily on the evidence of Mr Tugwell it is also my view that a reasonable person in their position would have done a better and more thorough job of keeping the packing shed and the packing line clean and tidy.  For this purpose I note that the shed may have been in a particularly unclean state when seen by Messrs Dunstone and Stephenson on 8 April 1999, because Mr Theo Constas had been using the shed on that day and had finished without cleaning it because it was not going to be used for several days by reason of the Easter break for those of the Greek Orthodox faith.  Nevertheless, the evidence does reveal a lack of good housekeeping practice.  Again a reasonable person may not have realised that such good housekeeping was as necessary in (say) 1990, but the requirement to maintain the packing shed and the packing line in a clean and hygienic condition seems to have been more generally realised during the early 1990s.  The requirement is reflected in the regulatory requirements discussed below.  However, as I have already commented, the requirement for general cleanliness of the shed and the packing line was not directed to the health of the consumer, but to extending the shelf life and the marketability of the oranges.  In any event the issue of general cleanliness was not itself causative of any damage, except perhaps to the extent that the failure to change the water in the fungicide tank can be seen as an aspect of the same attitude.

Were the Constas Brothers Liable for Breach of Statutory Duty?

91                  It is alleged by Nippy’s Fruit Juices that each of the Constas brothers are liable for breach of statutory duty.

92                  The relevant duties identified are those imposed by the Citrus Industry Regulations (‘the Regulations’) made under the Citrus Industry Act 1991 (SA) (‘Citrus Act’).  Each of the Constas brothers was a registered packer under s 29 of the Citrus Act. 

93                  It was alleged that each of the Constas brothers breached regulations 10 and 14 of the Regulations.  Regulation 10 provides:

‘10.     (1)   For the purposes of section 30 of the Act, citrus fruit must be prepared and packed in accordance with this regulation.

            (2)   Prior to packing, citrus fruit must be-

                   (a)   washed clean, treated with a fungicide suitable for the treatment of citrus fruit and waxed (in that order);

                   (b)   classified in accordance with clause 4 of schedule 13 of the Commonwealth Export Control Orders as modified by schedule 1 of these regulations;

                          and

                   (c)   graded by size in accordance with clause 6.1 of schedule 13 of the Commonwealth Export Control Orders.

            (3)   Citrus fruit must be packed in accordance with-

                   (a)   clauses 6, 7, 8, 9, 10, 11 and 12 of schedule 13 of the Commonwealth Export Control Orders;

                          and

                   (b)   clauses 8 and 9 of schedule 1 of the Commonwealth Export Control Orders,

                          as modified by schedule 1 of these regulations.

            (4)   Packages in which citrus fruit is packed and bulk consignments of citrus fruit must be marked or labelled with a trade description of their contents in accordance with-

                   (a)   clauses 13, 14 and 15 of schedule 13 of the Commonwealth Export Control Orders;

                          and

                   (b)   clauses 10 and 11 of schedule 1 of the Commonwealth Export Control Orders

                          as modified by schedule 1 of these regulations.

            (5)   Subregulations (2), (3) and (4) do not apply to the preparation and packing of citrus fruit for sale to a processor, as to which there are no requirements for the purposes of section 30 of the Act.’

94                  It is plain from its terms that this regulation only applies to the packing of citrus fruit by a packer: s 30(4) and (5) of the Citrus Act.  It may be that the Constas brothers were in breach of some of the provisions of this regulation in respect of the table fruit that was packed whilst the shed generally was in a dirty condition.  I do not need to make any determination about that.  Even if there were such a breach it is unrelated to the claims made in this case.

95                  This case concerns the juicing fruit sold by the Constas brothers to Packing.  It can be assumed that some of that fruit was the small fruit separated off at the start of the packing line.  That small fruit had not been through the line.  On the other hand, most of the fruit sold to Packing, and all of the affected fruit had in fact been through the packing line.  On this basis Nippy’s Fruit Juices says that each of the Constas brothers was required to comply with regulation 10.  This cannot be correct.  The obligation under regulation 10 relates to ‘packing’, not the use of a packing line.  Regulation 10(2) makes this clear.  If the sale of fruit in the bins provided by Packing relevantly constitutes ‘packing’ for the purpose of the regulation then the Constas brothers would have to comply with regulation 10 whether or not the fruit had been through the line.  And there was no suggestion by anyone that the bins supplied by Packing for the provision of juicing fruit were marked and labelled as required by regulation 10(4).  Nor is there any reason why they should have been.  Notwithstanding that the fruit had been through the packing line, the fruit was sold to Packing by the Constas brothers in their capacity as growers, not packers.  For relevant purposes the fruit had not been ‘packed’.  In my view neither of the Constas brothers breached regulation 10 of the Regulations in relation to the juicing oranges.

96                  Regulation 14 of the Regulations provides:

‘14.     A packer must not prepare, pack or store citrus fruit unless-

            (a)   the premises in which the fruit is prepared, packed or stored;

                   and

            (b)   the equipment used for that purpose,

            are cleaned, maintained and operated in accordance with orders 11, 12, 14, 15, 16, 17, 20 and 22 of the Commonwealth Export Control Orders as modified by schedule 1 of these regulations.

            Penalty: Division 8 fine.’

97                  Again it may be that the Constas brothers breached this regulation in relation to packing table fruit.  Again it is unnecessary for me to determine this question because the claim is not related to the packed table fruit.  The claim is in respect of the sale of juice fruit.  In my view the brothers sold that fruit in their capacity as growers, not packers.  In my view regulation 14 has no application.

98                  Reference was made in the evidence and in the pleadings to the Code of Practice for Citrus Fruit Packers (‘the Code’).  The Code is purportedly applied by the Citrus Board as a condition of registration: see s 25(4) of the Citrus Act.  It imposes various obligations upon packers.  Again it may be that the Constas brothers breached the Code in relation to table fruit.  But for the same reasons it is my view that this is not relevant in this case.  They were not subject to the Code in relation to the sale of the juicing fruit.

99                  There is another reason why I think the Code needs to be treated with some caution.  Section 25(4) of the Citrus Act provides:

‘Where a person applies in accordance with subsection (2) for registration as a packer or processor and the Board is satisfied-

            (a)     …

            and

            (b)     that the applicant meets such requirements (as to the provision or standard of premises, facilities or equipment or as to any other matters) for registration as may be prescribed,

the Board must register the applicant in the relevant capacity.’

 

It is clear from the terms of cl 3 of the Code that the Board has purported to apply the Code as a ‘pre-requisite for registration’ under s 25(4).  However, it is not apparent that the Code has been relevantly ‘prescribed’: see s 4(1) Acts Interpretation Act 1915 (SA).  In particular, it is not referred to in either the Citrus Act or the Regulations.  In any event, the Code purports to regulate future behaviour, not specify the requirements that must be met before registration.  Moreover, it may be that one of the purposes of the Code is to achieve a ‘rationalisation of citrus industry resources leading to fewer, more efficient packers’ (cl 2 of the Code).  Mr Tugwell gave evidence of this object.  In these days when competitive markets are expected to achieve relevant efficiency outcomes without the intervention of bodies that represent sectional interests (in this instance growers: see s 5 of the Citrus Act) it may be doubted that this is an appropriate and proper object of the Board: see s 13 of the Citrus Act.  Given my concerns about the Code, the Court informed the Board’s solicitors  that these issues may need to be considered and invited it to put any submissions if it wished.  The Board declined.  For the above reasons, I doubt the validity of the Code.  In the circumstances, however, it is unnecessary for me to express any final view on the matter.

100               Even if I am in wrong in my conclusion that the above Regulations and the Code are not applicable to the sale of juicing fruit, it is nevertheless my opinion that the relevant regulations and provisions do not give a private right of action.  In the absence of any express conferral of a statutory right of action, the question whether breach of a statutory provision confers a private right of action is a matter of statutory construction: see Gleeson CJ with Gummow and Hayne JJ in Slivak v Lurgi (Australia) Pty Ltd (2001) 205 CLR 304 at 316 [28].  In this case there is no express conferral of a private cause of action.  The task then is to infer what the statute requires.  This involves a balance of considerations, including the purpose and object of the legislation: see McHugh and Gummow JJ in Byrnes v Australian Airlines Ltd (1995) 185 CLR 410 (‘Byrnes’) at 460-461 citing Sovar v Henry Lane Pty Ltd (1967) 116 CLR 397 at 405.

101               In this case there seem to be two critical factors.  The first is that the Citrus Act is not legislation to protect individual members of the public.  Rather, it is marketing legislation.  Its prime purpose and object is to provide for ‘the organisation and development of the citrus industry’.  To the extent that the Citrus Act is concerned with the health of those that consume citrus products that concern is primarily related to the effect such health issues might have on the orderly marketing of citrus products.  Consequently, the over-riding concern of the Citrus Act, the Regulations and the Code is marketing and marketability – not health.  This suggests that the Citrus Act is not intended to give a private right of action. The second reason is that the relevant provisions alleged to have been breached were Regulations and a Code.  As McHugh and Gummow JJ noted in Byrnes at 461-462 where the relevant provisions are not made by the Parliament, but by the Executive or the Board under power conferred by statute: ‘there is an added difficulty in discerning the existence of a civil sanction for breach’.  Whatever may be said of the other provisions of the Citrus Act, the terms of s 37 (the regulation making power) and s 25(4) (prescribed pre-conditions to registration) of the Act do not, in my view, confer a power to create private rights of action.

102               Consequently even if, contrary to my view, the Constas brothers were in breach of the relevant Regulations or the Code, nevertheless they are not for that reason liable in damages to Nippy’s Fruit Juices.

Was Nippy’s Fruit Juices Negligent?

103               Each of the Constas brothers claims against Nippy’s Fruit Juices that it was negligent and that its negligence was the cause of the loss suffered by it.  Although the analysis of the alleged liability of Nippy’s Fruit Juices may be somewhat different from that in relation to each of the Constas brothers, nevertheless for the same reasons that I have found that the damage and injury claimed in these proceedings was not a reasonably foreseeable consequence of the acts or omissions of the Constas brothers, I also find that it was not a reasonably foreseeable consequence of the actions of Nippy’s Fruit Juices.

104               In my view Nippy’s Fruit Juices were not negligent.

Did the Constas Brothers Breach their Contracts with Packing?

105               Packing claims that each of the Constas brothers had individual contracts with Packing.  Each of the Constas brothers concede that they each had such individual contracts.

106               Although there seems to have been some minimal discussion at the start of each season as to the arrangements for supply during the season, I do not think that it could be said that any party was committed by those discussions to either supply or to purchase oranges.  In my view the correct analysis of the arrangement was that there was a separate contract entered into on each occasion that juicing oranges were collected from each of them at the packing shed on Mr Peter Constas’s property.

107               In the period 2 December 1998 to 26 March 1999, the following separate contracts were made:

Date	Grower	No. of Bins
02/12/1998	T Constas	18
04/12/1998	T Constas	1
04/12/1998	P Constas	3
07/12/1998	P Constas	4
16/12/1998	P Constas	3
22/12/1998	P Constas	8
31/12/1998	P Constas	4
12/01/1999	P Constas	9
15/01/1999	T Constas	6
19/01/1999	P Constas	9
23/01/1999	T Constas	4
23/01/1999	P Constas	2
28/01/1999	T Constas	3
28/01/1999	P Constas	4
02/02/1999	P Constas	9
02/02/1999	T Constas	2
05/02/1999	T Constas	3
09/02/1999	P Constas	11
11/02/1999	P Constas	18
11/02/1999	T Constas	4
18/02/1999	P Constas	6
18/02/1999	T Constas	3
22/02/1999	P Constas	6
22/02/1999	T Constas	5
22/02/1999	T Constas	11
01/03/1999	T Constas	6
01/03/1999	P Constas	10
05/03/1999	T Constas	6
08/03/1999	P Constas	10¾
12/03/1999	T Constas	6
17/03/1999	T Constas	5
23/03/1999	T Constas	9
26/03/1999	T Constas	7

 

108               Packing is a registered packer under the Citrus Act.  The Citrus Board has purported to require, as a condition of registration of packers, that the packer ‘agree to terms of trade with growers and to evidence them in writing prior to taking delivery of any fruit.’ The ‘Application for Renewal of Registration’ form sent to packers by the Board for completion and execution by the packers purported to require the packer to attach to the completed Application the written terms of trade between the packer and the grower.  The Board’s ‘Standard Conditions of Purchase’ were already attached to the form sent to the packers.  The Board had developed these ‘Standard Conditions of Purchase’ ‘as a guide to the preparation of individual Fruit Purchase Orders’.  The ‘Standard Conditions of Purchase’ were ‘regarded by the Board as minimum requirements’. 

109               In my view the ‘Standard Conditions of Purchase’ are not applicable to these contracts:

·        Packing was not acting in the capacity of a packer in relation to juice fruit.  Put simply, it did not pack that fruit.  For example, it did not comply with regulation 10 of the Regulations.  Nor would it be expected to.  It operated as a distributor, purchasing that fruit from growers and then distributing it to related companies, such as Nippy’s Fruit Juices where it was used to make fruit juice. 

·        I am far from satisfied that the Citrus Board had the power to regulate the terms of trade between growers and packers by using its power to impose conditions upon registration under s 25(6) and (7) of the Citrus Act.  I am also far from satisfied that the Board had the authority to vary the ‘Application for Renewal of Registration’ form set out in form 4 of the Regulations so as to require a packer to send the terms of sale used by the packer to the Board. 

·        In any event, it is plain that neither Packing nor the Constas brothers intended that the standard terms should form part of their contract.  As Mr Jeff Knispel put it, Packing found it more ‘efficient and convenient’ not to have a written contract. 

110               The contracts between each of the Constas brothers and Packing were oral contracts.  The terms of the contracts are, at best, unclear.  The arrangements were based largely on previous practice, business efficacy and trust.

111               In my view the contractual terms in relation to each contract included:

·        Title to the oranges would pass to Packing when the oranges were collected from the Constas brothers’ shed by the agent for Packing, usually Mr Les Albrecht or his son;

·        The oranges were to intended to be used for the manufacture of orange juice for human consumption;

·        The price payable for the oranges would be the usual price paid by Packing for juicing oranges as at the date of collection;

·        Payment would be made after 30 days from the end of the month during which the relevant delivery of oranges occurred.

112               Section 14 of the Sale of Goods Act 1895 (SA) (‘Goods Act’) provides:

‘Subject to the provisions of this Act, and of any Statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:-

I.          Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he be the manufacturer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose;

II.        Where goods are brought by description from a seller who deals in goods of that description (whether he be the manufacturer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed:

III.       An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade:

IV.       An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.’

113               Pursuant to s 14 of the Goods Act there was an implied condition in each contract that the oranges would be reasonably fit for the purpose of the manufacture of orange juice for human consumption.  The purpose for which the oranges were to be used was made known to each of the Constas brothers.  They were responsible for picking the fruit and placing it in bins.  There is a necessary inference that Packing was relying on the skill and judgment of the respective brother in not supplying fruit which was unsuitable, such as fruit which was mouldy, fruit which had fallen to the ground, etc: see Grant v Australian Knitting Mills Ltd [1936] AC 85 at 99.

114               At least some of the fruit was not fit for the purpose in that it could not be used for making unpasteurised juice at least if that juice was immediately chilled.  It may be true that the fruit would have been fit for the purpose of pasteurised orange juice.  It would also have been fit for the purpose of unchilled orange juice, at least if not immediately consumed.  However, it was not a condition of the contract that the juice only be used for pasteurised juice or that the juice not be chilled.  If the Constas brothers had ‘given thought to the matter they would, I think, have considered’ that if they supplied oranges for juicing it was ‘reasonably likely’ that the oranges would be used for unpasteurised juice and that the juice would have been chilled: see Grimsdale & Sons Ltd v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 (the ‘Hardwick Game Farm’ case) at 91.

115               The defect in the fruit was ‘latent’, but this does not affect the question whether there has been a breach of the implied condition of fitness for purpose: Hardwick Game Farm at 84.

116               I find that there was a breach of the implied term of fitness for purpose in relation to the each of the contracts entered into by each of the Constas brothers with Packing during the period December 1999 to March 1999 where any of the oranges the subject of the relevant contract was affected by salmonella in sufficient quantity as to constitute a health risk if used in unpasteurised orange juice.

117               Also pursuant to s 14 of the Goods Act there was an implied condition that the oranges would be of merchantable quality.  The goods were purchased by description.  At the time of collection some of the oranges were affected by salmonella. Even if there had been an inspection of the oranges it would not have revealed that the oranges were affected.  In any event, there was no such inspection.

118               The question of whether there was a breach of the implied condition is to be determined by asking whether a purchaser would purchase the oranges for fruit juice knowing that some of them were affected by salmonella: Hardwick Game Farm at 97, see also the discussion by Branson J in Medtel Pty Ltd  v Courtney (2003) 198 ALR 630 at 651-653 [62]-[69].  The Constas brothers argue that the goods were ‘merchantable’ in that a juice manufacturer who pasteurised the juice would still purchase the oranges.  And, as I have commented above, even if the juice was not pasteurised it would probably not have caused illness if the juice had not been immediately chilled.  And a sanitiser could have been used together with brushing or some other means to remove the wax layer to make the oranges safe.  However, as Dr Bentham said in his evidence, even a person who pasteurised the juice would probably not be prepared to take the risk of having salmonella on his or her equipment.  This seems to me to be common sense.  Certainly if affected oranges were purchased for the purpose of juice production it could be expected that the purchaser, having knowledge that the oranges were affected by salmonella, would expect a very significant reduction in price: Hardwick Game Farm at 118.

119               On this point the case is analogous to that in Pearl.  In that case prawns had been sold which were affected with the hepatitis A virus.  With prawns, unlike oranges, there is apparently a well-known risk of infection.  For this reason it is expected that the prawns will be cooked properly before consumption.  Apparently they were not adequately cooked.  For this reason the New South Wales Court of Appeal held that the importer had not been negligent.  Nevertheless, the Court of Appeal found that the sale of the prawns to the restaurant breached the implied terms of fitness for purpose and merchantability.  As Stein JA said at [95]:

‘I have already found that at the time of supply by the wholesaler to the appellant, the prawns were contaminated with HAV.  In that circumstance the prawns were plainly not of merchantable quality and not fit for the purpose for which they were required at the time of supply, that is the supply by the appellant to patrons of the restaurant to eat. It is plain that the wholesaler would have been aware of this particular purpose of the sale.  The frozen prawns had no other purpose.  The wholesaler must have known that the prawns were for human consumption by restaurant patrons. The implication is obvious.’

120               Consequently, I also find that there was a breach of the implied term of merchantability in relation to the each of the contracts entered into by each of the Constas brothers with Packing during the period December 1999 to March 1999 where any of the oranges the subject of the relevant contract was affected by salmonella in sufficient quantity so as to constitute a health risk if used in unpasteurised orange juice. 

121               It is not possible to say on the evidence that all of the contracts between each of the Constas brothers and Packing were breached.  This is simply because it is not possible to say that there were affected oranges in every bin collected by Packing.  For example, immediately after the fungicide water had been replaced (which must have occurred five or more times in the relevant period) or the wax was replenished, the salmonella levels may have fallen to safe limits.  For the same reason it not possible to identify which of the contracts identified above were breached.  On the other hand, given that the cause of the salmonella outbreak was the salmonella on the packing line; given that that salmonella was present throughout the period of the outbreak; given that each brother used the packing line throughout the period; and given that each brother entered into many contracts with Packing throughout the period; I am satisfied on balance of probabilities that at least one contract involving each brother was breached.  I am also satisfied that all of the cases of salmonella during the relevant period suffered by those that drank orange juice sold by Nippy’s Fruit Juices were the consequence of the breach by the respective Constas brothers of their respective contracts.  Although I cannot say which specific contracts were breached, it is clear simply from the period over which the outbreak occurred that many, and perhaps all, of the individual contracts between Mr Peter Constas or Mr Theo Constas on the one hand, and Packing on the other, during the relevant period were breached.

122               If the respective liability of each of the Constas brothers were an issue in these proceedings then the lack of evidence relating a breach of a particular contract to particular damages might be a problem, at least where the damages are several, such as the payments made to claimants under the settlement scheme.  However, that is not an issue in this case.  Although Mr Peter Constas and Mr Theo Constas have argued that they each had separate contracts with Packing, neither of them have argued that it was the other brother who was responsible, or primarily responsible, for the damage suffered by Packing or Nippy’s Fruit Juices.  The brothers have been jointly represented throughout.  And it is plain that they are jointly insured.  It has not been pleaded or argued by anyone that if breach of contract in relation to each brother is proved then the claim by Packing against one or other of them should fail unless it is proved that the brothers are jointly liable for all of the damage.  The case has been fought entirely on the assumption that any damages can be treated as if they are joint damages.  Given the relationship between the brothers and the joint insurance it is clear that the issue is, at best, a technical one.  It is not surprising that it has not been pursued.

Did Packing Have a Contract or Contracts with Nippy’s Fruit Juices?

123               In the period 3 December 1998 to 7 April 1999, there were some 75 deliveries of oranges from Packing to Nippy’s Fruit Juices.  Mr John Knispel, as the manager of Nippy’s Fruit Juices and Mr Jeff Knispel, as the manager of Packing, each gave evidence that these deliveries were made pursuant to a contract between the two companies.  For example, they referred to the arrangements as involving a ‘sale’ and the oranges delivered to Nippy’s Fruit Juices as being ‘sold’ by Packing to Nippy’s Fruit Juices.  So too did the Group accountant, Mr Westaway.  The existence of the contract is admitted by Packing in its pleading.  However, it is not admitted by the Constas brothers.

124               The Constas brothers argue that the relationship between Nippy’s Fruit Juices and Packing was such that they did not have an intention to enter into contractual relations.  Clearly, if there was no such intention there was no contract.  The question whether there was an intention to enter into contractual relations is to be determined objectively from what was said and done: see Australian Competition and Consumer Commission  v Australian Safeway Stores Pty Ltd (2003) 198 ALR 657 at 740-741 [408].

125               The Constas brothers argue that the companies were not at ‘arm’s length’ and for this reason I should find that there was no intention by either company to enter into contractual relations.  As I have already pointed out above, it is clear that the companies were not at arm’s length, but whether this means that there was no intention to enter into legal relations is another matter.  The Constas brothers also say, in the alternative, that Nippy’s Fruit Juices and Packing have failed to prove that such an intention exists. 

126               Given the factual findings I have made and the limited extent to which there is any relevant factual dispute concerning this issue, it is unnecessary to treat it as one to be resolved by considering the onus of proof: contrast Pirt Biotechnologies Pty Ltd v Pirtferm Ltd [2001] WASCA 96 at [21].  And the issue is not to be resolved simply by applying presumptions: see Ermogenous v Greek Orthodox Community of SA Inc (2001) 187 ALR 92 at 100 [26]-[27]; Fleming v Beevers [1994] 1 NZLR 385 (‘Fleming’)at 389. 

127               In the absence of some clear expression of the intent of the parties, the issue is to be determined by considering the relevant context and the relationship between the parties and determining what inferences should be drawn from that.  Although it is not a matter of presumptions, it can be expected that similar circumstances, including similarities in the relationship of the parties, may lead to similar results.

128               Clearly enough the relationship between the parties is a relevant matter in determining whether they had an intention to enter into contractual relations.  One might well be reticent in assuming that an agreement between family members as to who was to host the Christmas lunch and how it was to be paid for was intended to be legally enforceable: see Fleming.  But even then, this might depend upon evidence of the internal relations of members of the family and matters such as the likely cost of putting on the Christmas lunch.  Obviously, different considerations might apply to an agreement by an employer with its employees that the employer would provide Christmas lunch to all employees who were on duty on Christmas day.

129               Nor is it enough simply to characterise the arrangements as ‘commercial’ in order to say that they are contractual.  One example of commercial arrangements which do not necessarily create legal relations are arrangements between or involving governments.  In such cases the political context of the arrangements and the relationship between the parties may be such that it will be difficult to infer that the parties had any intention to create legal relations, even though the arrangement may be of considerable commercial importance to them: see N Seddon, Government Contracts – Federal, State and Local,2^nd edn, 1999, pp 73‑83.

130               Similarly, if a family wished to transfer oranges from its business operations in Moorook to its business operations in Adelaide, all of which businesses were jointly owned and operated by the same family members, then there might be no intention to create legal relations.  Indeed, it may be that they would be incapable of entering into a contract, simply because you cannot contract with yourself.  However, where the same family chooses to vest the relevant assets and business operations in separate corporate structures for the apparent purpose of entering into legal relations, whether for convenience or to arrange their taxation affairs or whatever, then the obvious inference is that the commercial interactions between the corporate structures were intended to create legal relations, at least in circumstances where equivalent commercial relations between unrelated entities would do so.

131               Such cases as there are dealing with transactions between related corporations would seem to have proceeded on the basis that the use of separate corporate structures, and particularly structures established under the Corporations Law or its equivalent, evinces an intention that such structures are intended to enter into legal relations even with associated bodies.  Reference might be made, for example, to Lee v Lee’s Air Farming Ltd [1961] AC 12 at 24-25; Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1 at 9‑10 (‘Helicopter Sales’); South Coast Basalt Pty Ltd v RW Miller & Co Pty Ltd [1981] 1 NSWLR 356 at 357-358 and Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 536-537, 542‑543.  True it is that the reasoning in some of these cases refers to the separate legal personality of the companies as if that were the end of the matter.  It clearly is not.  The members of the family making arrangements as to Christmas lunch each have a separate legal personality.  The question is whether the relationship and circumstances mean that there is, or is not, an intention to create contractual relations.  Separate legal personality is a pre-requisite to that question arising, but is not an absolute answer to it.  Nevertheless, the cases can be relied upon as instances where courts have been prepared to accept that arrangements between closely associated companies are contractual in nature apparently on the assumption that the use of commercial company structures evinces an intention that transactions are to be treated as legally efficacious.

132               I note that the arrangements between Nippy’s Fruit Juices and its other suppliers, and the arrangements between Packing and its suppliers (including the Constas brothers) are similarly informal and based upon the trust of the parties in the honesty and reliability of the other parties, as are the arrangements between Nippy’s Fruit Juices and Packing.  It could not sensibly be argued that those other arrangements are not contractual.

133               I am satisfied that the arrangements for ordering, delivering and paying for oranges as they existed between Packing and Nippy’s Fruit Juices at relevant times were contractual.  I am satisfied that the relationship between the parties is such that an intention to enter into contractual relations can be readily inferred.  That relationship includes the fact that the two bodies are companies; that the arrangements between them relating to the delivery of oranges are recorded on the accounts of each as legal obligations and that it was intended by the corporators and by those currently responsible for the management of the two companies that the bodies would operate commercially in relation to all each other.

134               If I am wrong in this, then it would seem to me that the only basis for holding that there was no intention to create legal relations is because the activities of the respective companies were not truly the activities of the companies, but were, in reality, the internal transactions of the family Group.  This seemed to be the position put by the Constas brothers in arguing that the companies were, in reality, merely the mechanisms by which the members of the Knispel family pursued their joint venture: contrast Dennis Wilcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267 at 271-272.  For the reasons already given, in my view this is not the correct way to analyse the transaction.  But if it were, the consequence would necessarily be that the Constas brothers did not contract with Packing, but with whatever entity or persons are then identified as the body or persons carrying on the relevant business, albeit that that body or person may have been undisclosed to the Constas brothers.  It would seem to me that the only effect of the argument put by the Constas brothers, if it were accepted, would be that the suggested two-stage contractual link between the losses and damage suffered by Nippy’s Fruit Juices and the Constas brothers would be replaced by a single contractual link directly between Nippy’s Fruit Juices (representing the Knispel family) and the Constas brothers.

135               The contract or contracts between Nippy’s Fruit Juices and Packing were oral.  The first contract may initially have been entered into as early as 1984, although it is likely to have changed over the years.  There was no evidence as to what discussions had taken place in 1984.  The terms of the contract(s) in its current form are to be discerned from the practice of the parties and from the need for business efficacy.

136               The preferable view of the arrangement is that there was a standing offer by Packing that it would supply oranges to Nippy’s Fruit Juices subject to Packing being able to obtain the oranges required.  There may also have been a standing offer by Nippy’s Fruit Juices that it would accept oranges from Packing, subject to Nippy’s Fruit Juices having the capacity to handle them.  The relevant contractual obligation crystallised when each ascertained quantity of oranges was delivered to Nippy’s Fruit Juices with the effect that there was a separate contract in relation to each delivery.  I note, however, that it would make no difference if there were one single contract with each delivery being made pursuant to that contract.  The terms of each contract included:

·        Title to the oranges would pass to Nippy’s Fruit Juices when the oranges were delivered by Packing;

·        The oranges were intended to be used for the manufacture of orange juice for human consumption;

·        The price payable for the oranges would be the average price paid by Packing for the fruit that it had purchased plus a ‘handling fee’ (which included a profit margin).  The price was calculated by Packing;

·        Payment would be made on a monthly basis.

137               The question then arising is whether there is to be implied into the relevant contract(s) implied conditions of fitness for purpose and merchantability under s 14 of the Goods Act.

138               In relation to fitness of purpose it will be recalled that it is necessary that Nippy’s Fruit Juices show that the buyer relies on the seller’s skill or judgment: see Dependable Motors Pty Ltd v Ashford Shire Council (1959) 101 CLR 265 at 296.  Although there was evidence that on one occasion Mr Jeff Knispel had complained to the Constas brothers about a smell from the oranges they had supplied to Packing (although even then it is not suggested that the oranges were refused or returned), it is obvious that Packing exercised little or no skill and judgment in the supply of the oranges.  And one effect of the close relationship between Nippy’s Fruit Juices and Packing is that it is clear that Nippy’s Fruit Juices were perfectly well aware of how Packing obtained and supplied fruit: see Helicopter Sales at 11.  In this case Nippy’s Fruit Juices knew that Packing received the bins of oranges from the growers and then delivered those same bins to Nippy’s Fruit Juices.  In these circumstances it is not possible to imply a warranty of fitness for purpose into the contract between Nippy’s Fruit Juices and Packing. 

139               In relation to a warranty of merchantable quality, Nippy’s Fruit Juices only needs to show that it brought by description from a seller who deals in goods of that description.  This was clearly made out.  Nippy’s Fruit Juices was purchasing from Packing oranges for the purpose of juicing.  Packing dealt in goods of that description.

140               I am satisfied that it was a condition of the contract(s) between Nippy’s Fruit Juices and Packing that the oranges supplied would be of merchantable quality.

Did Packing Breach its Contract with Nippy’s Fruit Juices?

141               I am also satisfied that the condition of merchantable quality was breached by Packing.  My reasons are exactly the same as in relation to my finding that the Constas brothers breached the same condition in their contracts with Packing.

142               I find that there was a breach of the implied term of merchantability in relation to each of the contracts entered into by Packing and Nippy’s Fruit Juices during the period December 1999 to March 1999 where any of the oranges the subject of the relevant contract was affected by salmonella in sufficient quantity as to constitute a health risk if used in unpasteurised orange juice.

143               As mentioned above there were some 75 deliveries from Packing to Nippy’s Fruit Juices during the relevant period.  There were consequently 75 contracts, albeit in the same terms.  It is clear that some of the contracts were not breached simply because it is clear that some of the deliveries did not contain any fruit from the Constas brothers.  Even where the deliveries included fruit from the Constas brothers it is not possible to say that any oranges were affected in relation to that delivery.  Although I cannot say which specific contracts were breached, it is clear simply from the period over which the outbreak occurred that many of the contracts were breached.  I am satisfied that all of the cases of salmonella during the relevant period suffered by those that drank orange juice sold by Nippy’s Fruit Juices were the consequence of the breach by Packing of the implied term of merchantability in its contract with Nippy’s Fruit Juices.

Damages

144               Nippy’s Fruit Juices claims the following heads of damages:

(a)        The amounts payable by Nippy’s Fruit Juices to the applicants in accordance with the settlement agreement or otherwise in relation to the claims made by them;

(b)        The costs incurred by Nippy’s Fruit Juices in managing the crisis faced by it as a result of the salmonella outbreak;

(c)        The loss of profits suffered by Nippy’s Fruit Juices as a result of the salmonella outbreak.

145               These damages are sought from each of the Constas brothers in relation to the claims in negligence and for breach of statutory duty.  The same damages are sought from Packing in relation to the claim for breach of contract.  Packing, in turn, counterclaims against the Constas brothers for breach of contract in relation to whatever damages are payable by Packing to Nippy’s Fruit Juices.

146               For the reasons given above, in my view, the claims against the Constas brothers in negligence and for breach of statutory duty must fail.  However, it is also my view that Packing is liable to Nippy’s Fruit Juices for breach of the implied condition of merchantability in the contracts between them. And in my view the Constas brothers are jointly liable to Packing under the contracts each of them had with Packing for breach of the implied conditions of fitness for purpose and merchantability.

147               One effect of this analysis is that it is unnecessary for me to consider any issue of whether any of the loss was caused or contributed to by Nippy’s Fruit Juices: see Astley v Austrust Ltd (1999) 197 CLR 1 (‘Astley’).  The Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) which altered some of the effects of the decision in Astley in relation to events occurring in this State is not retrospective and has no application to this case. 

148               I note that the Constas brothers invited me to follow the approach of the Canadian courts, such as Dominion Chain Co Ltd v Eastern Construction Co Ltd [1976] 68 DLR (3d) 385, rather than to follow Astley.  If this argument is to be pursued it will have to be done elsewhere.  Astley is clearly binding upon me.

149               Further, for the reasons given above, it is my view that Nippy’s Fruit Juices was not negligent.  Even if a claim for contributory negligence might be considered in relation to some aspect of the claims made or the damages suffered it would not have application to this case.

150               It is trite that the principles for the assessment of damages in tort and in contract are different.  In general terms damages are restitutionary in tort, but in contract are based upon the expectation of the parties: see Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 12; Marks v GIO Australia Holdings (1998) 196 CLR 494 at 502-503.  This follows from the different natures of the different areas of the law: see Astley at 36-37.  On occasions these different principles may result in different assessments of damages.  In this case the Constas brothers did not argue that the different principles would result in some different outcome – nor is the issue raised on the pleadings.  However, they did reserve their position on the question.  In my view, and leaving aside any question of contributory negligence, there is no difference in the damages that might be assessed whether the claim is successful in tort or contract.  In particular, it is my view that in this case the damages available in contract would include the net profits that Nippy’s Fruit Juices would have made if the contract had been performed: see Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80-82.  So too the damages available in tort would include the net profits lost by Nippy’s Fruit Juices as a result of the tortious act.  In this case the measure of damages, whether in tort or contract, is the same.

Claims by the Applicants

151               Nippy’s Fruit Juices has incurred a liability to those of its customers who became sick and unwell after consuming salmonella affected orange juice.  As mentioned above, it is not disputed by the Constas brothers that if both of them are liable to Packing or Nippy’s Fruit Juices, then the amount of that liability includes the liability to the customers.  The amount of that liability as at the date of judgment is agreed to be $1,274,677.86.  However, there are other claims that have not yet been resolved.  The parties are agreed that in relation to those claims I should make a declaration of liability and then adjourn the question of assessment of those further damages.

152               Nippy’s Fruit Juices has incurred and will continue to incur legal costs in defending and settling the personal injury claims.  It is not disputed by the Constas brothers that if both of them are liable to Packing or Nippy’s Fruit Juices, then the amount of that liability includes the amount of these legal costs.  The parties are agreed that I should refer the amount of these costs to the Registrar for inquiry and report.

Costs of Managing the Crisis

153               Nippy’s Fruit Juices was put to considerable cost and expense in managing the outbreak.  Some of those costs were clearly unavoidable.  For example, Nippy’s Fruit Juices had to recall a considerable amount of product and incurred significant expense in doing so. 

154               In addition, Nippy’s Fruit Juices was quite pro-active in managing the crisis.  In order to understand how successful it was in doing so it needs to be borne in mind that the previous major outbreak of food poisoning in this State involved Garibaldi smallgoods.  In that case the injuries suffered were more serious.  One child died.  The end result was that the manufacturer went out of business.  Some of those involved in the production of the smallgoods operation were initially charged with manslaughter, although those charges were later discontinued.  Against this background it is not surprising that Mr John Knispel decided on a completely different strategy.  I do not use the word ‘strategy’ in any cynical sense.  I am satisfied that Mr John Knispel, and indeed the entire Knispel family, was not only actuated by a concern for their business but also for their customers.  He quickly put together a team containing legal, accounting, public relations and scientific advisers and closely managed all aspects of the crisis.  The strategy adopted was to be open with the media and the public; to try to identify the causes of the problem; to solve it and to get back into business as quickly as possible.  The strategy was very successful.  It was successful with the public in that Nippy’s Fruit Juices was able to continue to trade.  The reputation of the brand name ‘Nippy’s’ seems to have survived, to a greater or lesser extent.  Indeed, as discussed below, one of the major issues between the parties in relation to loss of profits is that the Constas brothers argue, in effect, that the strategy was more successful in protecting that reputation than does Nippy’s Fruit Juices.  The strategy was also successful scientifically.  It was Nippy’s Fruit Juices, and not the regulatory authorities, that was able to identify the likely source of the outbreak as contaminated oranges.  (Notwithstanding that it appears to have taken a couple of weeks for it to even to occur to anyone that the source might be the oranges supplied to Nippy’s).  And it was Nippy’s Fruit Juices that was able to identify Packing as the likely source of those oranges.

155               Save for the issues of the pasteuriser and marketing expenses which are considered separately, the Constas brothers do not dispute that if both of them are liable to Packing or Nippy’s Fruit Juices, then the amount of that liability includes these costs.  It is agreed by the parties that the costs of managing the crisis were $449,801.38.

156               In addition Nippy’s Fruit Juices claims $143,625.03 being the cost of purchasing and installing a pasteuriser.  I am satisfied that Nippy’s Fruit Juices did purchase and install a pasteuriser and that the costs of doing so were the amount claimed.

157               It is a more difficult matter whether this cost properly forms part of the damages claim.  It is clear that Mr John Knispel, in particular, did not wish to pasteurise the juice.  In his view unpasteurised, fresh juice tasted better and the product had a competitive marketing advantage in not being pasteurised.  I note that he now accepts that the taste effects have not proven to be as great as he expected.  However, I am satisfied that he would not have installed a pasteuriser unless he could not otherwise have recommenced production.  At the end of March, when the cause had still not been identified, he commenced inquiries about obtaining a pasteuriser.  Subsequently, Nippy’s Fruit Juices agreed with the Health Commission that Nippy’s Fruit Juices would pasteurise its juice.  On 8 April 1999, the Commission issued its last order directed to Nippy’s Fruit Juices.  That order prohibited the sale of orange juice produced by Nippy’s Fruit Juices unless the juice had been pasteurised.  The pasteuriser was installed on 13 April 1999 and production recommenced later that day.  Even so, Mr John Knispel continued to argue with the Health Commission that pasteurisation should not be required and that Nippy’s Fruit Juices should not be singled out in this regard.  I am satisfied that it remains his view that pasteurisation is not necessary, at least so long as other safeguards are in place.  The Health Commission order was revoked on 6 August 1999, but only after Nippy’s Fruit Juices gave an undertaking that it would continue to pasteurise its juice until further notice.  It was not disputed that whilst that undertaking remains, Nippy’s Fruit Juices is obliged to pasteurise the juice that it produces.

158               At one level, of course, the purchase and installation of the pasteuriser was ‘caused’ by the salmonella outbreak.  But for the outbreak there is no reason to think that Nippy’s Fruit Juices would have come to the attention of the Health Commission.  However, the power to make those orders was not directly related to an outbreak of food poisoning:  The relevant power of the Commission is contained in s 25(2) and (4) of the Food Act 1985 (SA) which provide:

‘(2)      Where the Commission is of the opinion that food derived from a particular source may not be fit for human consumption, the Commission may exercise any one or more of the following powers:

            (a)   it may, by order, prohibit the sale of food derived from that source;

            (b)   it may, by order, prohibit or restrict the movement or disposal of food derived from that source;

            (c)   it may, by order, require the destruction of food derived from that source.

…

(4)       An order under this section may be absolute or conditional.’

159               I have already found that prior to the outbreak those involved assumed that oranges and orange juice were safe products.  The taste might be tainted, but it was safe for consumption.  I have also found that that belief was reasonable at the time.  However, that assumption could not have survived this outbreak.  It may be that pasteurisation was not required, but the previous practices were no longer acceptable.  Indeed, since it has occurred the Constas brothers have changed their practices and installed new equipment.  So too, I imagine, have other small packers.  Certainly the practices at Nippy’s Fruit Juices have changed: the water in the hopper is changed daily; more chlorine is added; the juice is pasteurised; it has a HAACP. 

160               It may be that with the other changes that were introduced by Nippy’s Fruit Juices it was strictly unnecessary that it also introduce pasteurisation.  As mentioned above, the subsequent decision of the Australasian Ministers of Health was that pasteurisation was not required (although the South Australian Health Commission urged a somewhat stronger position than was adopted by the Ministers).

161               Nevertheless, it seems to me that the order made by the Health Commission was valid at the time it was made.  No one has argued that it was not.  Given the validity of that order then the real reason for the installation of the pasteuriser was because Nippy’s Fruit Juices was required as a matter of law to pasteurise its juice if it wished to continue to trade.  The legal requirement was not conditional upon there having been an outbreak.  It was conditional upon the Commission having formed the view that the orange juice may not be fit for human consumption unless it was pasteurised.  In my view Nippy’s Fruit Juices cannot obtain damages in relation to such compliance.

162               Nippy’s Fruit Juices also claim the amount of $330,000 for extra advertising expenses that it says it would not have incurred but for the outbreak.  These expenses are in addition to the public relations costs it incurred in managing the crisis and which are reflected in the agreed amount of $449,801.38.

163               As will be discussed in more detail below, the distribution and sale of Nippy’s Fruit Juices products was effected through contractors described as vendors.  The vendors purchased the juice from Nippy’s Fruit Juices and then delivered it to their customers within their designated territories.  Prior to the outbreak, advertising and advertising expenses (including the salary of Mr Morena, who managed the advertising) was paid from a fund contributed to 50 per cent by Nippy’s Fruit Juices and 50 per cent by the vendors.  Following the outbreak, the fund was discontinued and Nippy’s Fruit Juices took over all responsibility for advertising.  There was some criticism in the evidence of what advertising it undertook, but I am satisfied that the expenses were properly and reasonably incurred.

164               The problem with this head of damage is that, although the cost to Nippy’s Fruit Juices has increased by $330,000 over the period from the date of the outbreak to 30 June 2002, the total amount actually spent on advertising from that previously spent by the joint fund has not increased by much.  If the amounts paid to Mr Morena are set aside (because the amounts now paid to Ms Tania Knispel are not included in the claimed advertising expenses) then the amount paid for advertising in 1999/2000 of $131,060 and in 2000/2001 of $227,393 and in 2001/2002 of $272,879 are to be compared with advertising costs of around $200,000 per annum in the couple of years immediately prior to the outbreak.  If Mr Morena’s salary is included on the basis that his role shows that advertising was receiving a higher focus, then the comparison is with around $250,000 rather than $200,000.

165               It is obvious that the reason for the major proportion of the increase in the advertising budget of Nippy’s Fruit Juices was not the requirement for increased advertising as a result of the outbreak, but rather was the change in the arrangement with the vendors so that they were no longer paying 50 per cent of the costs of that advertising.  In order to recover that amount it is necessary for Nippy’s Fruit Juices to show that that change was caused by the outbreak.  There is no evidence at all as to why the vendors are no longer contributing to the advertising budget.  I am not prepared to assume that this is related to the salmonella outbreak.

166               It is clear that there has been some increase in advertising as a result of the salmonella outbreak, particularly if some allowance is made for the change from Mr Morena’s salary being payable out of the budget.  Some increase in the budget may well be due to market conditions.  Taking everything into account I think that an allowance of $40,000 for extra advertising expenses is fair and probably generous.  Given the limited extent to which I think that the outbreak is still impacting upon the business, I am not prepared to make any allowance for future advertising expenses.

Loss of Profits

167               Nippy’s Fruit Juices claims for its loss of profits arising from the salmonella outbreak.  During the relevant period (8 March - 13 April, 1999) Nippy’s Fruit Juices were prevented from trading and suffered a loss of profits during that period.  For this purpose I propose simply to assume that but for the outbreak Nippy’s Fruit Juices would have achieved the same income from sales in March and April, 1999 that it did in March and April, 1998.  It may be that some allowance should be made for an increase in the price movements over the period; on the other hand, sales performance in the early months of 1999 was not so good as in 1998.  Overall, assuming the same revenues as the year before seems fair. Using the figures in Appendix 7 of Mr McPharlin’s report dated 13 March 2003, rounded to the nearest one hundred dollars, then the loss of sales in that period was $658,517. Applying the proportion of such sales that represent profits (which is discussed below) the loss of profits for the period March-April, 1999 was $219,506.

168               However, the outbreak had two further effects.  The first was that the adverse publicity during the period of the outbreak had a continuing effect upon the acceptability of Nippy’s Fruit Juices products in the market place resulting in a further loss of profits.  I have called this the reputation effect.  The second was that the absence of Nippy’s Fruit Juices from the market place for a period of some six weeks meant that it was replaced by its competitors as the pre-eminent supplier of orange juice to at least some retailers and this has resulted in continuing loss of profits.  I have called this the structural effect.

169               It is not disputed by the Constas brothers that if both of them are liable to Packing or Nippy’s Fruit Juices, then the damages include an amount for loss of profits.  The Constas brothers do not dispute that Nippy’s Fruit Juices has suffered a loss of profits for each of the three reasons identified by Nippy’s Fruit Juices.  However, the extent of the alleged loss of profits is disputed.

170               In order to understand the claim for loss of profits it is probably sensible to set out the evidence of sales by Nippy’s Fruit Juices during the relevant period.  Mr John Knispel gave evidence of the total value of all sales in particular years:

1986                                                        $5,253,246

1987                                                        $5,356,241

1988                                                        $7,339,530

1989                                                        $8,365,268

1990                                                        $8,698,849

1991                                                        $8,215,600

1992                                                        $8,133,222

1993                                                        $8,372,375

1994                                                        $8,709,206

1995                                                        $8,589,060

1996                                                        $9,218,709

1997                                                        $9,039,248

1998                                                        $9,553,016

1999                                                        $8,883,408

2000                                                        $8,965,251

2001                                                        $9,914,845

As is clear from these figures there have been periods where Nippy’s Fruit Juices has achieved reasonably spectacular growth.  The period 1987-1990 is an obvious example.  There are other periods where the company has been trading relatively consistently.  On some occasions the value of sales has fallen for reasons clearly unrelated to any salmonella outbreak.  The period from 1990-1993 is an example.  So is 1997.  It is also clear that 2001 was the best year that Nippy’s Fruit Juices had had to that date in terms of sales revenue.  Compared to 1997 the result in 2001 seems very good.  Compared to 1996 or 1998 it is less good.

(a) The Experts

171               The evidence of the losses suffered, and the circumstances giving rise to such losses, was basically given by Mr John Knispel and his daughter, Ms Tania Knispel.  There was some criticism of Ms Knispel’s evidence, but in my view she was an impressive witness.  In any event, the evidence she gave is the best evidence available to the Court of the financial operations of Nippy’s Fruit Juices.  I am satisfied that that evidence is reliable within the normal limitations that might be expected from a relatively small (although expanding) family owned business. 

172               Each party called two witnesses as experts to explain to me what the evidence given by Mr John Knispel and Ms Tania Knispel meant.

173               Each of these witnesses used the increasingly popular ‘modelling’ technique to assess the amount of the loss of profits.  This consists, in large part, of modelling what the profits of the business would have been on various assumptions.  In my view considerable care has to be taken with these modelling exercises.  There is always the risk that the assumptions will not reflect any meaningful reality.  In particular, there is a risk that the duty to mitigate will be ignored in the calculations.  For example, if person A is liable to person B for the loss of a ram and a ewe, the measure of damages could be expected to be the market value of the two sheep.  However, using a model the losses suddenly become the unbelievable wealth that might have been realised if the two sheep had bred and their progeny had bred and so on.

174               Mr McPharlin was an accountant called by Nippy’s Fruit Juices.  He made several attempts to identify the extent of the losses suffered by Nippy’s Fruit Juices.  There were a number of problems with Mr McPharlin’s analysis.  In particular, he entirely excluded income from Woolworths from his calculations.  For the reasons given below, I do not think that this approach can be sustained.  He also calculated the loss in the route trade relying on the trend lines developed by Dr Beaton.  For the reasons below, I do not find that those trend lines are helpful.  Mr McPharlin’s evidence was useful in conveniently summarising some aspects of the evidence of Ms Tania Knispel.  Otherwise, I did not find his evidence particularly helpful.

175               Dr Beaton determined various trend lines in an attempt to determine what profits Nippy’s Fruit Juices would have made but for the salmonella outbreak.  With the greatest respect to those that think otherwise, it is readily apparent that this process makes various assumptions which are simply not true.  It assumes that there is some validity in starting an analysis of past performance from an arbitrary date.  The comparison between the evidence of Dr Beaton and Dr Dawes shows clearly that the result of such an analysis depends almost entirely on what starting date is chosen and that this, at least in this case, is almost entirely arbitrary.  Dr Beaton used a methodology called OLS (Ordinary Least Squares) to create his trend lines.  The evidence was clear that this methodology did not adequately deal with seasonal trends and that the trade in orange juice is seasonal.  Dr Beaton excluded income from Woolworths from his calculations.  Most importantly he was purporting to calculate losses more than eight years from the outbreak, but assumed that a 40 per cent contingency was enough to account for the effect of other factors.  He accepted that this figure was entirely arbitrary.  He could give no reason why he had chosen it.  Apart from his evidence in relation to marketing, in my view Dr Beaton’s evidence had little evidentiary value, if any.

176               Some idea of how unrealistic this evidence was can be seen by comparing the actual result with what these experts said would have happened if there had been no outbreak.  The total sales figures are given above.  Looked at in a broad sense those figures suggest that there were lost sales in 1999 and 2000 which might be ascribed to the salmonella outbreak, but by 2001 the effects had largely ameliorated.  Even making some allowance for growth the amount of lost sales would seem to be in the order of $2 million or something like it.  Obviously the figures need closer analysis than this.  But when they are more closely analysed (as I have done below) the amount of actual sales is reasonably close to this estimate.  And the differences can be explained.  This is to be compared with the evidence given by Dr Beaton.  Using the rather peculiar methodology that he adopted he gave evidence that the value of lost sales was, in his opinion, $18.8 million.  He suggested that his opinion was conservative.  In my view it was unrealistic and unhelpful. 

177               Ms Orr was an accountant who was effectively called by the Constas brothers.  Her evidence was based on the trend lines produced by Dr Dawes. Ms Orr entirely included Woolworth’s sales in her calculations.  For the reasons given below, it seems to me that that is also unrealistic.  I did not find her evidence particularly helpful.

178               Dr Dawes also calculated trend lines.  He used a different methodology called ARIMA.  Apparently this methodology is preferable for dealing with seasonal factors.  However, Dr Dawes then made two further adjustments, one to the starting date and the other an ‘averaging’ process which, he said, were also intended to deal with seasonal factors.  He did not claim any expertise in statistics.  In the absence of that expertise he was unable to explain that these other adjustments had any validity.  They did, however, significantly affect the result.  He excluded Woolworths from his calculations.  Apart from some useful evidence about marketing, I did not think that Dr Dawes’s evidence was helpful.

179                The basic problem with this modelling evidence is that it does not seem to me to be evidence at all.  This is not to deny that the witnesses are well qualified.  I suspect that they have attempted to be fair, within the context of their instructions and their role.  But the reports produced by them are not evidence.  They are submissions dressed up as expert evidence.  It may be true, as Dr Dawes said, that the use of ARIMA methodology is a matter for expert evidence, although I am not sure that Dr Dawes was the one to give it.  But generally the question of what damages are to be assessed is a matter of law based upon the facts.  The facts here are those contained in the evidence given by Mr John Knispel and Ms Tania Knispel.  The determination of what that evidence means in terms of damages is a matter for the court with the assistance of counsel.  Calling ‘experts’ on these matters only serves to mislead.  Experts may well be called to give evidence as to the assumptions that should be made in a model.  But in this case the experts did not give evidence in relation to those assumptions.  By and large they had no expertise to do so.  Their evidence was largely limited to the modelling itself.  Those models assume that the process of assessing damages is capable of a degree of precision that it simply cannot have.  Dr Beaton giving evidence of his 40 per cent contingency shows how absurd treating his analysis as expert evidence actually is.  The number was clearly an arbitrary number chosen by him for reasons unexplained.  What then was he giving evidence about?

180               Both sides criticised the experts of the other for being ‘partisan’.  That was unfair.  Their evidence formed part of the legal case for the respective sides.  It was partisan in the same manner that submissions are partisan.  The “experts” were acting as advocates: see Heydon JA in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705, 737-739.  In my view it would have made no difference to either party’s position if the reports of these experts had formed part of their submissions.  (Although if they had then I doubt that counsel would have been prepared to make some of the claims and assumptions that were made by the experts).  But even if they did, this procedure would have saved a very large amount of time and, I suspect, considerable costs.  The ultimate result would have been the same.

181               Neither party has objected to the evidence given by the experts of the other.  Consequently I have heard the purported evidence and have considered it as evidence.  I have identified the problems with it as evidence.  As evidence it is not helpful. 

182               But in any event, in my view the case was considerably prolonged because all of the parties were prepared to accept that the reports by the experts of the results of their modelling was evidence.  I note the comments by Callinan J in Fox v Percy (2003) 197 ALR 201, 239[150] suggesting, in a similar context, that the trial Judge should not receive the supposed expert evidence even if not objected to.  In this case I did receive it.  Given that no party objected to treating the material as evidence I have also not considered whether the various reports might otherwise have been received as submissions – see O 10 r 2(j) of the Federal Court Rules.  I note for the future that the very flexible procedure available under the Federal Court Rulesmay enable the reports to be ‘tested’ by calling and examining the expert even though the report is treated as a submission rather than as evidence.  Of course, use of that flexible procedure would take a considerably shorter time than was taken by this evidence in this case.

183               In the result I am left in the same position that Zelling J found himself in Johnson v State of South Australia (1980) 26 SASR 1.  Evidence of modelling was given in that case which Zelling J was unable to rely upon.  His Honour commented, at 37, that he had not set out the calculations that he made because ‘[t]o do so would pretend to a mathematical exactitude that these figures are not capable of giving’.  On appeal (26 SASR 41) Mohr J commented generally on the use of modelling at 60:

‘…his Honour had before him much evidence in the form of modelling exercises which as I understand them are projections from a fixed starting point making various assumptions as to lambing percentage, wool clips weights and expenses, &c. They are at best, and can only be, guides…’

Even that seems to me to be a generous view, perhaps based on the assumption that the use of spreadsheets was a task for an expert.  If it was then, it is no longer.

184               As the High Court remarked on the appeal in that case State of South Australia v Johnson (1982) 42 ALR 161at 175:

‘… to rely on a sophisticated model in these circumstances is to foster an appearance of precision which to our mind is spurious.’

The same comment can readily be made in this case.

185               This means that it has been necessary for me to make my own calculations.  The calculations I have done have been based upon the sales made by Nippy’s Fruit Juices.  The experts did more detailed calculations in relation to the loss of litres of fresh juice.  In general terms it seemed to me that those calculations assume a degree of precision that simply does not exist.  Further, there was no evidence to justify the assumption made in those calculations that the effects upon reputation, or upon Nippy’s Fruit Juices preferred position with some retailers, was limited to fresh juice.  In doing my own calculations I have relied upon the figures contained in the exhibit TMK 23 to the affidavit of Ms Tania Knispel sworn on 2 March 2003 and the figures contained in Appendix 1 to the Supplementary Report of Mr McPharlin dated 8 March 2003, which are based upon the evidence given by Ms Knispel. 

186               Having used sales figures to determine the amount of loss it is then necessary to determine what proportion of those sales figures represents loss of profits.  This depends upon what proportion of the costs of Nippy’s Fruit Juices are fixed and what proportion are variable.  There were quite detailed calculations made by Mr McPharlin and by Ms Orr in relation to this.  At the end of the day the relevant proportion is nevertheless a matter of estimation.  For convenience the Constas brothers in their submissions assumed that the relevant proportion of increased sales income that represented profits was one third.  This approach was adopted by Nippy’s Fruit Juices in its submissions.  It seems to me to be a fair and sensible approach.  I propose to do the same.

(b)  Loss of Reputation

187               Nippy’s Fruit Juices had two different types of sales.  The first were sales to the larger supermarket chains - Woolworths, Coles, Bi-Lo etc.  These sales were made directly from Nippy’s Fruit Juices to the relevant supermarket chains.  The second was what is called the ‘route trade’.  This consists of sales made by Nippy’s Fruit Juices to its vendors.  They deliver and sell to a variety of smaller retailers.  However, the group to which they sell is not homogenous.  At one end it consists of smaller supermarkets and larger petrol station retail outlets, some of which order and purchase as chains.  No reason was suggested to me why these outlets should not operate in a similar manner to the larger supermarkets, save that their size might limit the range of products that they carry.  At the other end are small independent delicatessens, bakeries and such like, that sell orange juice. 

188               Much of the evidence relating to the losses suffered by Nippy’s Fruit Juices proceeded on the basis that these two different types of sales reflected very different types of trading with the result that the effects of the salmonella outbreak were quite different for each type of trade.  Of course I can understand why these two types of trade are distinguished in the accounts of Nippy’s Fruit Juices.  But it is not obvious to me that the factors that gave rise to the losses in profits suffered by Nippy’s Fruit Juices can be treated in two separate classes defined by the two different types of sales.  In particular, doing so ignores some of the obvious changes in the market over recent times.  These include, for example, the increasing power of the major supermarkets; the growth, at least in metropolitan areas of retail outlets at petrol stations; the increasing number of smaller supermarkets operating as chains etc.  These are the expected market reactions to changes in the applicable legal regime, particularly in relation to shop trading hours and to the ever-increasing mobility of consumers. 

189               I would have thought that it was only common sense that sales to small retailers are likely to be in smaller containers so that the juice can be consumed immediately.  Sales to larger retailers and supermarkets are more likely to be in larger containers for consumption at home.  The number of small retailers is diminishing.  It is likely that the amount of sales to those that remain is also diminishing.  This is probably more obvious in metropolitan areas than in country areas, although many country main streets now have many empty shops.  More people purchase more of their goods in larger stores than they did even five years ago.  From this it could be expected that the supermarket trade should be increasing if Nippy’s Fruit Juices was trading profitably.  It could also be expected that some elements of the route trade might also be increasing, such as the smaller supermarkets and the petrol stations - at least in areas where there is no direct competition from a major supermarket chain.  On the other hand, it might be expected that the route trade from smaller retailers would be diminishing.  And, of course, whatever the situation may be today it may change tomorrow.  Further changes to the shop trading hours legislation may affect the nature of the market.  Changes in the structure and resources of competitors may also affect the market. 

190               It is not necessary to be an expert to identify these changes and trends.  They are there for all to see.  Of course, this does not mean that it is easy to predict future trends.  Mr John Knispel and Mr Jeff Knispel, both of whom clearly have considerable experience in the relevant market, had and have different expectations of growth in the route trade.  Mr Jeff Knispel believes it is contracting and will continue to do so.  Mr John Knispel believes that at least some aspects of it are expanding and, probably, that it is expanding overall.

191               The relevant market itself is continuously changing.  It was not so long ago that someone who wanted to drink orange juice would have to buy an orange and squeeze it themselves.  Today there is flavoured milk, fruit juices, energy juices, carbonated soft drinks and even bottled water all available for purchase from large and small retailers.  Mr John Knispel gave evidence of some of these changes and how Nippy’s Fruit Juices had reacted to them.  This has included introducing new products in their product lines.  In general terms, orange juice sales have been affected by new products such as ‘energy’ drinks.  Mr John Knispel would expect the popularity of orange juice to return.  He may be right.  But he may not be.

192               Put against all this it is urged that I should assume continuous growth over the period.  It was put to me, for example, that the Productivity Commission identified 23 per cent growth in the fruit juice industry in the period 1999-2002, i.e. about 8 per cent per annum.  The Productivity Commission may have said it, but is it right?  Even if it is right, what relevance does it have to Nippy’s Fruit Juices?  There is no evidence that individual manufacturers were experiencing this level of growth over this period.  It was put to me that I should apply a growth rate of 6 per cent that being the growth rate over the two years before the outbreak.   But why should I ignore the negative growth in sales revenue from 1994 to 1995 and from 1996 to 1997?  Did that negative result in 1997 mean that the starting position to calculate a growth rate of 6 per cent was too low?  And why should I not take account of the various market contingencies that have been effective since April 1999, which are not related to the salmonella outbreak, such as the introduction of sports or energy drinks?

193               I do not think that it is possible to reduce all of this to some mathematical formula, be it based on a model, a trend line or some assumed growth percentage.  In order to determine the loss of  profits for the period after the outbreak was resolved it is necessary to identify the mechanisms by which the loss occurred and then to identify the effects of those mechanisms on sales revenues. 

194               The first of the mechanisms for the loss is the loss of Nippy’s Fruit Juices reputation in the market place.  It can readily be accepted that a manufacturer of fruit juice is likely to suffer some adverse effects in the market place if it is widely publicised that the fruit juice has caused an outbreak of food poisoning.  That problem will be the greater if, as Dr Dawes gave evidence, and I accept, many and maybe most consumers of products like fruit juice are reasonably fickle.  Subject to price and availability they may continue to purchase a product out of habit, but once they have changed to some other competitive product, such as necessarily occurred during the outbreak, they may not readily change back when the product returns.  These issues may be all the greater where the producer is in the position of Nippy’s Fruit Juices - a major presence in the South Australian market, but a relatively small presence in the national market.  The opportunity for larger competitors to move in is obvious.

195               Mr John Knispel gave evidence of the arrangements made by the large supermarkets with their suppliers.  It suffices to say that it would appear that the supermarkets appear to be in a position to dictate terms.  Price is likely to be a very important determinant.  On the other hand, if the goods do not sell, or do not sell appropriately, then the goods will either not be repurchased or, if they are, they will lose their shelf space.

196               Before the outbreak Nippy’s Fruit Juices had entered into discussions with Woolworths.  The negotiations were completed after production recommenced after the outbreak.  Sales to Woolworths commenced in April 1999.  Woolworths quickly became Nippy’s Fruit Juices largest customer.  This is the reason why the question of whether Woolworths should, or should not, be included in the calculations became such an important issue in the trial.  Nippy’s Fruit Juices argued that the sales to Woolworths should be excluded because this was a new customer that Nippy’s Fruit Juices would have obtained in any event.  The Constas brothers argue that you cannot analyse the loss by looking at individual customers - if you do then there are other individual large customers that were lost to Nippy’s Fruit Juices immediately before the outbreak that should also be excluded.

197               Both of these arguments seem to me to miss the point.  The issue to be determined is the effect of the salmonella outbreak on the reputation of Nippy’s Fruit Juices.  The fact that Woolworths was prepared to enter into an agreement, and the fact that its customers were prepared to buy the product, shows that the effect was not great.  But it doesn’t prove that there was no effect at all.  The real question is not whether Woolworths should be counted in or out of the calculations, but whether the sales to Woolworths would have been higher but for the outbreak.

198               As to that, one can only look to the sales to other supermarkets, such as Coles.  Making a reasonably generous allowance for growth those sales would seem to have been about 10 per cent less when the market stabilised after the outbreak than they might have been expected to be if the outbreak had not occurred.  I note that this is equivalent to the percentage of those surveyed during the crisis who said they would not purchase Nippy’s Fruit Juice products as a result of the crisis.  Some discount to this percentage needs to be made for the possibility that some sales had been lost to Woolworths (although I doubt that many customers would change supermarkets just to purchase their favourite orange juice).  Some discount may also need to be made for those customers who no longer enjoyed the juice because it was pasteurised (which, for the reasons I have given above in relation to the pasteuriser, I do not think can be treated as caused by the salmonella outbreak).  And, of course the effect would reduce over time.  Taking all of these matters into account I think that for the period May 1999 to December 1999, a fair estimate of the sales to major supermarkets which could have been expected to have been made, but which were not made as a result of the effect of the salmonella outbreak, was 8 per cent of the value of all supermarket sales (including Woolworths) that did occur.  On this basis the amount of sales lost was $165,604.  The loss of profits was $55,201.

199               Whatever effects there may have been on reputation, they would only have been transitory.  They were not very large in the first place.  If they were then the duty to mitigate would have had to be considered.  But not only was the brand name ‘Nippy’s’ retained, but a new family business was re-badged with the Nippy’s name.  The view of the Knispel brothers clearly was that the name continued to have value in marketing their products.  I am satisfied that they were right.  In any event, the further one gets from the outbreak the more difficult it is to be satisfied that losses are due to loss of reputation as a result of the outbreak and not to some intervening cause, such as changing tastes or changing market conditions.  For the calendar year 2000, I think that a fair, and maybe a generous estimate of the sales not realised through loss of goodwill is about 5 per cent.  This gives a loss of sales to supermarkets in 2000 of $181,050 and a loss of profits of $60,350.

200               I am not satisfied that there were any losses after December 30 2000 that can be ascribed to loss of goodwill as a result of the outbreak.  Indeed, it is clear from the evidence of Ms Tania Knispel, particularly the exhibits to her affidavit, that the year 2001 was by far the best year that Nippy’s Fruit Juices had enjoyed until then with each of the major supermarket customers.

201               I can see no reason why similar effects should not have occurred in relation to the route trade. Some attempt was made in the evidence to suggest that people who shop in supermarkets might have a different reaction to people who shop in delicatessens.  Of course they are usually the same people, though maybe shopping for different purposes (the weekly shopping as against buying lunch).  Although I am not satisfied that there was any growth in the route trade (in contrast with the position with large supermarkets) it is unnecessary to apply a different approach to the route trade in terms of loss of reputation, particularly given the approach I take in calculating structural losses (considered below).  Instead the sensible approach is to adopt the same approach in relation to all aspects of the route trade that I have applied above to major supermarkets.  That is that 8 per cent of sales in the period April 1999 to December 1999, and 5 per cent of sales in the calendar year 2000, were lost due to the effect on the reputation of Nippy’s Fruit Juices products of the salmonella outbreak.  This gives a total loss of sales from April 1999 to the end of calendar year 2000 in the route trade through loss of reputation of $562,598.  The loss of profits was $187,533. 

(c)  ‘Structural’ Losses

202               In addition to the losses through lack of customer support there were also losses occasioned by the loss to Nippy’s Fruit Juices of its preferred position with retailers.  This involved situations where retailers declined altogether to stock Nippy’s Fruit Juice products, or reduced the prominence or priority of the product in the store, or reduced the amount of shelf space available to Nippy’s Fruit Juice products.  Such losses occurred either because of the reaction of the retailer to the outbreak, or because of the opportunistic behaviour of competitors.

203               Once that preferred position had been lost there would obviously be some difficulty in getting it back.  In some cases it has never been regained.  Nippy’s Fruit Juices has not adopted a policy of seeking to buy back market share by making more lucrative offers to the retailers.  As the competitors which supplanted Nippy’s Fruit Juices were, on occasions, larger companies with more resources, this may well have been a sensible policy.

204               The evidence is not altogether clear as to the extent of these structural effects.  Some of the witnesses called by Nippy’s Fruit Juices in relation to this aspect of the case were not impressive, but I do not know that their evidence would have been of much assistance in determining the extent of any effect in any event.  It is not obvious to me that the effect would be the same throughout the route trade.  It was not suggested, for example, that these effects would apply to the large supermarkets simply because they have effective control over their suppliers.  Presumably it is less likely that it would apply to smaller supermarkets than to a delicatessen, but it is probably only a matter of degree.  And, of course, the strength of the relationship between the vendor and the retailer will be important.

205               Over time the same effects may well have occurred just from the operation of the market.  If, for example, a national firm with more extensive resources intended to use its greater resources and market presence to increase its market share then presumably it would do so in any event.  To this extent the salmonella outbreak may only have been an early opportunity to achieve what might otherwise have occurred in any event, although somewhat later.  Some of the evidence as to the operation of joint purchasing arrangements by smaller supermarkets showed how a supplier like Nippy’s Fruit Juices might be replaced in any event.

206               Much of the evidence in relation to this topic was taken up with attempting to ascertain whether the route trade was increasing or decreasing.  There was also argument as to whether the South Australian route trade should be considered separately from the interstate route trade.  This debate was an essential aspect of the use of modelling to identify the loss.  But it should not be confused with the real issues.  The real issues are whether there were any losses associated with these structural changes and whether they can they be quantified?

207               I am satisfied that there were such losses.  I think that they were probably significant immediately following the salmonella outbreak.  The sensible approach is to assume that the route trade, in the period from May 1999 – December 1999, would have performed at about the same level as it did in the previous year.  I am not satisfied on the evidence that it would have improved.  But I am also not satisfied that it would diminish, at least during 1999.  I accept that there is a large degree of artificiality in seeking to separately identify lost sales as a result of structural issues from the losses as a result of the effect on reputation.  However, given that the two causes are distinct and have different effects upon different aspects of the market it is necessary to attempt to do so.  It is also necessary in relation to sales in 1999 to make an adjustment for the allowance already made for lost sales by reason of loss of reputation.  Taking all this into account, the loss of sales for that period by reason of structural losses was $491,862.  This is about 11 per cent of the sales actually made to the route trade during that period.  

208               As time has progressed it is less obvious that any effect on the route trade can be ascribed to this cause, rather than other causes such as the general operation of the market.  In my view it is likely that any reduction in the route trade after December 30 2002, was the result of other causes, not the salmonella outbreak.  In any event, I am not satisfied that it is possible to identify or quantify any effect upon the route trade by reason of structural losses after that date.  In my view an adjustment of 8 per cent for 2000, 5 per cent for 2001 and 3 per cent for 2002 would fairly reflect the effects of the structural losses to the route trade over the period.  This equates to a loss of sales in the route trade of  $454,280 for 2000, of $287,115 for 2001 and of $171,750 for 2002.

209               In my view the profits that would otherwise have been received, but for these structural effects are:

May-December 1999               $163,954

2000                                        $151,427

2001                                        $95,705

2002                                       $57,250

(d)  Summary

210               As a rough check of these calculations they can be compared with the figures for total sales in particular years that are set out above.  It will be recalled that even allowing for growth those figures suggested that the amount of lost sales that could be attributed to the salmonella outbreak might be around $2 million. 

Period	Supermarkets	Route Trade - Reputation	Route Trade –Structural	Total
March-April 1999				$658,517
May-December 1999	$165,604	$278,613	$491,862	$936,079
2000	$181,050	$283,925	$454,280	$919,255
2001			$287,115	$287,115
2002			$171,750	$171,750
Total				$2,972,716

The extent to which this calculation differs from that which might be derived simply from the total sales figures is that my calculation includes Woolworth’s sales but then seeks to determine what sales from Woolworths were lost, whereas a simple comparison with sales prior to the outbreak makes no allowance for the Woolworth’s contract.  And I have made some allowance for some losses in the route trade in 2002. 

211               I am satisfied that the amount I have suggested for lost sales revenue is fair and reasonable.  It may be generous.

212               In my view the profits that Nippy’s Fruit Juices could have expected to receive, but did not as a result of the salmonella outbreak are as follows:

Period	Supermarkets	Route Trade-Reputation	Route Trade-Structural	Total
March-April 1999				$219,506
May-December 1999	$55,201	$92,871	$163,954	$312,026
2000	$60,350	$94,642	$151,427	$306,419
2001			$95,705	$95,705
2002			$57,250	$57,250
Total				$990,906

 Conclusion

213               For the above reasons, I am satisfied that Packing is liable to Nippy’s Fruit Juices in contract for the above damages and interest.  I am also satisfied that each of the Constas brothers is jointly and severally liable to Packing in relation to the same damages and interest.  In addition, it is appropriate to make declarations as to the respective liability of these parties in relation to those claims by applicants that have not yet been resolved. 

214               The total of damages is as follows:

·                    Payment to the applicants                      $1,274,677.86

·                    Costs Incurred in managing crisis              $489,801.38

·                    Loss of profits                                         $909,887.00

·                    Nippy’s Fruit Juices is also entitled to interest on certain of these damages: s 51A Federal Court of Australia Act 1976 (Cth).  The amount specified in the South Australian Supreme Court Rules over the relevant period has varied from 7 per cent to 6 per cent.  The interest represents compensation so as to put the party entitled to such interest in the same position as if the principal damages had been received when they might be expected to be received.  On this basis even the amount of 6 per cent may be thought somewhat high over the relevant period.  However, it has not been suggested that I should apply any lower figure.  Consequently the rate of interest I apply is 6 per cent.  The interest payable on the damages assessed above is $426,624to the date of judgment.

215               Various issues remain to be resolved in due course.  Some will need to await the determination of other claims.  The judgment reflects this reality.

216               The question of costs will need to be adjourned for further submissions.  It is likely that the ultimate orders made in relation to costs could affect the view that the parties take as to whether or not it is in their commercial interest to pursue an appeal from this judgment, assuming that they are advised to do so.  The applicant has sought an order that the time for the institution of any appeal from this judgment be extended to 21 days from the determination of what orders should be made for costs.  In the circumstances I think that that order is appropriate.

I certify that the preceding two hundred and sixteen (216) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.

 

Associate:

Dated:              13 August 2003

 

Counsel for the Respondent / Cross-Claimant:	RC White QC with KG Nicholson
Solicitor for the Respondent / Cross-Claimant:	Thomson Playford
Counsel for the First Cross-Respondent:	ST Lane
Solicitor for the First Cross-Respondent:	O’Loughlins Lawyers
Counsel for the Second, Third and Eighth Cross-Respondent:	TR Anderson QC with R Soulio
Solicitor for the Second, Third and Eighth Cross-Respondent:	Minter Ellison
Dates of Hearing:	5, 6, 9, 10, 11, 12, 13, 16, 17, 18, 19, 20 December 2002 3, 4, 5, 17, 18, 19, 21, 25, 31 March 2003 1, 28, 29, 30 April 2003 1 May 2003 2, 3, 10, 11, 16, 17, 25, 26, 27 June 2003
Date of Judgment:	13 August 2003