Hughes v Lord Advocate

"Apand owed a duty of care to the Sparnon partnership arising from their relationship created when Mr Hughes [of Apand] invited the partnership to participate in growing an experimental crop with Saturna seed to be supplied by Apand." Apand did, however, challenge his Honour's formulation of the duty of care. His Honour, after rejecting a contention that Apand had a duty to ensure that the seed was disease free, formulated the duty in the following passage: "In my opinion the duty imposed by the relationship was to take all reasonable steps to ensure that seeds which Apand provided to its growers had not come from a source where there was a real risk which Apand knew about or should have foreseen that the seeds might be infected by pests and disease. A real risk is one that people well versed in the nature of potato pests and diseases, such as the Apand officers, would not brush aside as far fetched: Wyong Shire Council v Shirt (1980) 146 CLR 40 at 46-47." Later, in considering the claim of the Sparnon partnership in contract, his Honour said: "Although it was Apand that approached the Sparnon partnership and introduced the variety of potato to them, it was clearly known to Apand that if the seed were purchased by the partnership, the seed was required to grow a viable crop. Seed that was infected with bacterial wilt was not reasonably fit for that purpose." Apand challenges this finding which it was suggested permeated his Honour's reasoning in respect of the negligence claim. Apand pointed out that the seed was to be planted by the Sparnon partnership not for the purpose of producing a commercial crop of potatoes but for the purpose of conducting a trial to see whether the Saturna variety was well adapted for growing first, as a winter crop and secondly, to produce potatoes of a shape suitable for crisping. It was contended that implicit in the very notion of a trial was the possibility that the seed might not produce a viable crop. It seems to us that this challenge involves a misunderstanding of his Honour's words. His Honour had already rejected the contention that Apand was under a duty to ensure that the seed was disease free. In speaking of the requirement that the seed grow "a viable crop" his Honour is to be understood, in our view, as meaning a crop unaffected by factors relating to the seed which could ruin or distort the proposed trial by affecting the growth of the crop in a way which would not otherwise be experienced. Counsel suggested that Apand's duty to the Sparnon interests was - "a duty to ensure that the potato seed used for the experimental Saturna trial was seed in respect of which there was a reasonable expectation of the production of a healthy disease-free crop." In our view, a duty expressed in terms of a reasonable expectation of a disease free crop, rather than in terms of the taking of reasonable steps to avoid disease, is plainly too generous to Apand and not in accordance with authority. Where the common law of negligence recognises the existence of a general duty of care, it is a duty to take reasonable care to avoid a reasonably foreseeable risk of injury to another (Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 at 543). We see no error in his Honour's formulation of the duty of care in this case. His Honour made the following findings as to breach of the duty of care: "In my opinion the Sparnons would succeed merely on proof, which I find is established, that Apand, with its intimate knowledge of the potato industry and the Koo Wee Rup swamp area, should have foreseen the risk, which was a significant one, that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny. In my opinion it would not defeat the claim to show that if attention had been directed to the particular disease that eventuated, that particular disease and the manner in which infection occurred may not have been foreseen. ... However, I consider the evidence warrants a more precise finding. On 12 October 1990 there was a major break in the main drain that runs through the area of the Koo Wee Rup swamp. Several properties were flooded. Photos show that a very large volume of water left the drain to the east of Mr Tymensen's property and flowed downhill to the west across his property. For one or two days some, but not all, of his property was submerged. As a matter of probability I find that the corner of the paddock where the first Saturna crop was planted and in which bacterial wilt infected regrowth tubers were later found was reached by the flood. ... In my opinion as a matter of probability the likely explanation for bacterial wilt in Mr Tymensen's first Saturna crop is that the flood in some manner carried it there from Mr Summers' property. If it were not carried there by water alone as Dr Hayward hypothesised, it could have been carried there in infected plant debris. No other likely source of infection has been suggested." Apand challenges both arms of his Honour's finding of a breach of duty by Apand. Before reaching Mr Tymensen's property the flood water had flowed across the property of Mr Summers and then across the property of Mr O'Sullivan, which property separated the properties of Mr Summers and Mr Tymensen. Mr Summers' property had been the subject of previous outbreaks of bacterial wilt. The disease had been detected in a potato crop in June 1986 and again in 1990. As his Honour pointed out:- "The flood was a few months later, the intervening period being winter months when it may be assumed the soil was damp and that the level of bacteria from the wilt remained high." Much evidence was devoted to the question of bacterial wilt being carried by water and although it seemed that this was a possibility, his Honour was alive to the proposition that the diluting effect of the water might be so great that the transfer of infection would be extremely unlikely. However, his Honour was more concerned with the carriage of potato plant debris. Even though the intervening property of Mr O'Sullivan escaped the disease, his Honour came to the conclusion that as a matter of probability, the likely explanation for bacterial wilt in Mr Tymensen's first Saturna crop was that the flood, in some manner, carried it there from Mr Summers' property. He added that if it were not carried there by water alone, it could have been carried there in infected plant debris. It is convenient to deal with "the flood theory" first. It was contended that his Honour fell into error in finding that the flood was the mechanism of the infestation of Mr Tymensen's property; that, in fact, the flood theory "never got its head and shoulders above the other competing theories that were advanced before his Honour". The other theories included transfer via soil adhering to boots, by sharing farm machinery or by animals. In arguing that his Honour erred in accepting the flood theory, counsel for Apand pointed to the steps taken by Mr Summers, on the advice of the Victorian Department of Agriculture, to control bacterial wilt on his property, the absence of an outbreak of bacterial wilt on Mr O'Sullivan's property, which lay between the respective properties of Messrs Summers and Tymensen, and the absence of evidence of either plant material referable to Mr Summers' infected crop being on his property immediately before the flood or of plant material being seen on Mr Tymensen's property after the flood. It was not disputed that Mr Summers' property, which was quite close to Mr Tymensen's property, had been infected with bacterial wilt in 1989 and 1990. It was also not disputed that Mr Tymensen had no history of bacterial wilt before 1990. In October 1990 flood waters flowed over Mr Summers' property and came to rest on Mr Tymensen's property in an area approximating that in which the Saturna seed was planted about two months later, and where re-growth potato plants infected with bacterial wilt were later found. Dr Wimalajeewa, a plant pathologist called by Apand to give expert evidence, said in response to questions from the trial judge that the bacterial wilt disease would be present in the vascular tissue of the top of an infected potato plant and could remain there for approximately two to three years until the lignified tissue of the plant decomposed. Dr Wimalajeewa also said that, on the assumption that diseased plant material on Mr Summers' property had been ploughed into the ground and then brought to the surface by the actions of the flood and disturbance of the soil, it was a possibility that plant material from a crop in May 1990 and deposited elsewhere in October 1990 could be a source of infection to a plant crop in that area in December 1990. The trial judge considered that the Court was entitled to take notice that in a flood debris tends to be left around the high water mark. This aspect of his Honour's reasoning was not challenged. In our view, having regard to the above matters, the conclusion which his Honour reached as to the flood theory of transmission of bacterial wilt from Mr Summers' property to that of Mr Tymensen was reasonably open to him. The next issue for consideration is his Honour's finding that with the collective knowledge of the relevant officers of Apand: "... [Apand] should have foreseen the risk that the flood may have spread bacterial wilt to the area of Mr Tymensen's property where the crop was growing and should have foreseen the risk that the crop could be infected with low levels of bacterial wilt that may not be seen in the crop on the inspections which had occurred and were planned to occur." Counsel for Apand pointed out that Dr Hayward, the expert called by the Sparnon interests in support of the flood theory, proffered the theory for the first time only shortly before trial. The theory which he proffered was of the inoculum being carried in the flood waters in suspension. Such theory, as Dr Hayward acknowledged, does not accommodate the fact that Mr O'Sullivan's property did not become infected with bacterial wilt. Counsel further pointed out that while Dr Wimalajeewa accepted that the theory preferred by his Honour was a possibility, he gave evidence that he had never experienced bacterial wilt being spread in that way and was not aware of any such case being discussed in the literature, or of scientific literature citing a flood as a possible mechanism for the spread of bacterial wilt. Counsel for Apand argued that since the flood theory adopted by his Honour was not one envisaged by any of the expert witnesses unaided by prompting from his Honour, it was to set the duty of care too high to find Apand in breach of its duty of care for failing to recognise the risk that Mr Tymensen's property might have become infected with bacterial wilt as a consequence of infected potato plant material from Mr Summers' property being deposited on Mr Tymensen's property at the high water mark of the flood. In our view, had his Honour set the duty of care in the above terms, the criticism made by counsel would be a valid one. However, his Honour did not so set the standard of care. His Honour found that officers of Sparnon "should have foreseen the risk that the flood may have spread bacterial wilt". To understand his Honour's finding as to the breach of the duty of care, it is necessary to consider evidence given by certain officers of Apand. Mr Cullen was the Potato Supply Manager, Victoria for Smith's Snack Foods. The trial judge described Mr Cullen as a "careful and impressive witness". Mr Cullen was cross-examined as to the decision to use potatoes from Mr Tymensen's crop as seed and as to whether the same decision would be made again. Mr Cullen did not agree that the possibility of the spread of bacterial wilt from Mr Summers' property by the flood "would have been a perfectly natural topic to have occurred to [him]". He did agree, unsurprisingly, that with hindsight the possibility of the spread of the disease by the flood was one that he would consider. Mr Cullen said that, leaving aside legislative change, he would make the same decision again. The transcript records the trial judge then asking Mr Cullen: "Well, we will just take you back to the 1991 ... Pakenham meeting. Just assume that someone had drawn the attention of the meeting to the flood and to Summers' outbreak. Are you saying that had that been thought about you now think that a decision would not have been made?" Mr Cullen answered: "Absolutely would not have been made." In our view the above exchange cannot be understood as a clear statement made by Mr Cullen that, without the benefit of hindsight, he was of the opinion that a different decision would have been made at the Pakenham meeting if the topic of the flood had been raised for consideration at that meeting. To so understand Mr Cullen's answer leaves unexplained his earlier answer that, were it not for legislative change, he would make the same decision again. It seems that the explanation for the apparent contradiction between the two answers may lie in his Honour's query as to what Mr Cullen might "now think". However, Mr Cullen was also cross-examined as to a telephone conversation that he had with Mr Tymensen some weeks after April 1992. In that conversation Mr Tymensen expressed the view that the flood may have caused his bacterial wilt problem. Mr Cullen's evidence was that he agreed that "[i]t was not unreasonable to assume that it could have been transferred with water, perhaps". He indicated that at the time of his conversation with Mr Tymensen he knew that bacterial wilt could be transferred in water. Mr Cullen gave evidence that he knew in December 1990 that a part of Mr Tymensen's property had been under water in the flood, although he had no specific knowledge about whether the particular paddock where the first Saturna crop was grown was under water or not. The following passage in Mr Cullen's cross-examination is, in our view, important. Mr Cullen was asked: "... if you had applied your mind to the question of bacterial wilt at the end of December 1990 I suggest you would have come up with the same attitude as you had in May '92, that is it was a reasonable theory that the flood could transfer bacterial wilt from Jack Summers' property to Tymensen's property in the flood [of] October '90?" His answer was: "Reasonable theory if it crossed one's mind." The evidence discloses that it was known in December 1990 that there was a risk of bacterial wilt being transferred by the flow of irrigation water. The evidence supports the conclusion, however, that there was at that time no scientific literature which suggested that a flood could transfer bacterial wilt. The evidence of Dr Wimalajeewa, whose evidence his Honour accepted, was that the fact that Mr O'Sullivan's property was not infected when Mr Tymensen's was, indicated that insufficient inoculum was carried in the flood waters to infect crops in its path. Dr Wimalajeewa appeared, however, to accept the possibility of a flood carrying sufficient inoculum to spread an infection of bacterial wilt. The appropriateness of the trial judge's conclusion that Apand was in breach of its duty of care to the Sparnon interests depends, in our view, upon the applicability to the circumstances of this case of the principle reflected in Hughes v Lord Advocate [1963] AC 837. In Hughes v Lord Advocate certain Post Office employees were working on telephone cables situated under a quiet road in Edinburgh. They obtained access to the cables by removing the cover of a manhole in the carriageway. They erected a tent over the manhole and placed four paraffin lamps in position around the area. While the workmen were temporarily absent from the site two boys aged eight and ten entered the tent taking with them a ladder from the site and one of the paraffin lamps. The boys apparently explored the manhole. After they emerged from the manhole the lamp was either knocked or dropped into it and a violent explosion took place. The plaintiff, the eight year old boy, suffered extensive burning injuries. It was not seriously disputed that the Post Office owed a duty of care to the plaintiff. In dispute was whether the occurrence of an explosion such as did in fact take place in the manhole was a happening that could reasonably have been foreseen by the Post Office employees. The majority of the Court of Sessions held that an explosion of the type that occurred could not have been reasonably foreseen. The House of Lords, however, took a different approach. Lord Jenkinson at 850 put it this way: "It is true that the duty of care expected in cases of this sort is confined to reasonably foreseeable dangers, but it does not necessarily follow that liability is escaped because the danger actually materialising is not identical with the danger reasonably foreseen and guarded against. Each case [must] depend on its own facts. For example, ... in the present case the paraffin did the mischief by exploding, not burning, and it is said that while a paraffin fire (caused, for example, by the upsetting of the lighted lamp or otherwise allowing its contents to leak out) was a reasonably foreseeable risk so soon as the pursuer got access to the lamp, an explosion was not. To my mind, the distinction drawn between burning and explosion is too fine to warrant acceptance. ... If there is a risk of a fire such as that [i.e. one setting alight his clothes and causing bodily injury], I do not think the duty of care prescribed in Donoghue v Stevenson [1932] A.C. 562 is prevented from coming into operation by the presence of the remote possibility of the more serious event of the explosion." Lord Guest, with whom Lord Pearce agreed, said at 856: "An explosion is only one way in which burning may be caused. Burning can also be caused by the contact between liquid paraffin and a naked flame. In the one case paraffin vapour and in the other case liquid paraffin is ignited by fire. I cannot see that there are two different types of accident. They are both burning accidents and in both cases the injuries would be burning injuries. Upon this view the explosion was an immaterial event in the chain of causation. It was simply one way in which burning might be caused by the potentially dangerous paraffin lamp." Lord Morris of Borth-y-Gest expressed a similar view. The parallels between Hughes v Lord Advocate and the present case are, in our view, striking. Even accepting that it was not reasonably foreseeable that the flood could transfer bacterial wilt by the mechanism of depositing a piece of infected plant material at its outer limit, it was nonetheless foreseeable that flood waters could transfer bacterial wilt from one property to another. In that circumstance the transfer by the depositing of infected plant material was simply one way in which the risk of transfer of bacterial wilt might be realised. The trial judge rightly, in our view, found Apand in breach of its duty of care to the Sparnon interests. In view of the above finding, there is no occasion for us to give detailed consideration to his Honour's more general finding of a breach by Apand of its duty of care by not foreseeing the risk that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected by pests or disease that could be transmitted to subsequent growers using the seed or its progeny. Apand's appeal so far as it seeks to disturb the trial judge's findings on the issue of negligence must be dismissed. ALLEGATIONS OF BREACH OF CONTRACT His Honour found that the arrangement made through Mr Hughes of Apand and the Sparnons in about December 1991 for the Sparnons to grow an experimental winter crop with two tonnes of Saturna potatoes was a contractual one. That finding is not challenged. Apand entered into its usual potato supply agreement which required Sparnon to purchase the potato seed, and Apand to purchase the harvest. His Honour then found that there was then implied into that contract pursuant to ss 14 I and 14 II of the Sale of Goods Act 1895 (SA) respectively conditions that the seed to be supplied by Apand was reasonably fit for the purpose of growing a potato crop because that purpose was made known to Apand and the Sparnons relied on Apand's skill and judgment, and further that the seed so supplied was of merchantable quality. His Honour further found that in each instance those implied conditions had been breached. In particular his Honour found that the presence of the bacterial wilt infection meant that the Saturna seed supplied was not of merchantable quality, and that the Sparnons relied on Apand to supply seed that was reasonably fit for the purpose of growing a viable crop when it was not fit for that purpose. Only one passage in his Honour's reasons was the subject of criticism. It is referred to earlier in these reasons but for the sake of convenience is repeated here. It is in the following terms: "Although it was Apand that approached the Sparnon partnership and introduced the variety of potato to them, it was clearly known to Apand that if the seed were purchased by the partnership, the seed was required to grow a viable crop. Seed that was infected with bacterial wilt was not reasonably fit for that purpose." The submission put was simply that, as the contract was for the growing of an experimental crop of Saturna seed, the risk of disease in the seed was implicit and that one outcome of an experimental crop is that it might fail for any number of reasons, including disease. Thus, it was said, there was error in the finding that the seed was "required to grow a viable crop". In our view that submission must fail. We have referred above to the proper construction of those words. The expressions "experimental" and "viable" are not mutually exclusive. It is clear from the detailed findings made that his Honour was alert to the fact that the seed was for an experimental crop. There was in fact a significant dispute on the evidence as to the discussions between Mr Hughes and the Sparnons which caused his Honour to embark upon a detailed review of that evidence and to make express findings about it. He accepted Mr Hughes evidence. Thus his detailed findings record that Mr Hughes told the Sparnons that the seed to be trialled had been grown by Virgara Bros on new ground, that it had been received by Virgara Bros from Apand "off mother seed", and that the first Saturna crop grown at Virgara Bros looked to be a good variety and was shaping up well for processing. Those findings led to the conclusions that the Sparnons understood that the seed was not certified seed, and was one generation off seed out of the seed potato certification scheme. His Honour further found that the Sparnons had their own commercial reasons for taking the Saturna seed, including the desire to be co-operative with Apand and to see whether a winter crop could be successfully trialled, and that as a consequence it was highly improbable that the Sparnons gave any thought to the possibility that the experimental seed supplied to them by Apand could be diseased or could pose any threat to their property. His Honour specifically found that they did not turn their minds to the risk of disease in the Saturna seed for the very reason that a reputable participant in the potato industry could be, and was, relied upon. None of those findings was challenged on appeal. Those findings make it plain that his Honour's conclusions did not involve an oversight or a misrepresentation of the purpose of the contract between Apand and the Sparnons, or that the crop was to be an experimental one. On the evidence, the purpose of the experimental crop was simply to assess the effectiveness of the Saturna seed as a winter crop. The outcome of that crop could not be guaranteed, but to say that is far from saying that it was experimental in the sense that the Sparnons were prepared to accept the risk of any form of bacterial wilt or other adverse disease which came with the seed itself. Once that point is made, it is plainly correct to conclude, that under the contract and in the particular circumstances, the seed was not of merchantable quality. His Honour referred to the oft quoted test of merchantable quality expressed by Dixon J in Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 at 418 in the following terms: "The condition that goods are of merchantable quality requires that they should be in such an actual state that a buyer fully acquainted with the facts and, therefore, knowing what hidden defects exist and not being limited to their apparent condition would buy them without abatement of the price obtainable for such goods if in reasonably sound order and condition and without special terms." So stated, it is evident that the Sparnons would not have done so. They were of course, as his Honour's findings record, prepared for commercial reasons to run the risk that the crop would not produce commercial quantities or commercial sizes of potatoes. But beyond that, it was open to his Honour to find that they were not themselves prepared to assume the risk of the potatoes themselves being diseased. Similarly, once the purpose of the crop is properly identified, there is a clear breach of the implied condition as to fitness for the particular purpose by reason of the diseased condition of the Saturna seed: cf Ashington Piggeries Ltd v Christopher Hill Ltd (1972) AC 441; Vacwell Engineering Co Ltd v B.D.H. Chemicals (1971) 1 QB 88. This ground of appeal must also fail. Apand's appeal should be dismissed with costs. THE PERRE APPEAL The trial judge made the following observation concerning the claims of the Perre interests: "Each of the heads of loss alleged by the three groups in the Perre interests is for purely economic loss. None of the groups or individual members suffered direct injury to their property. None of their properties became infected with bacterial wilt. None of their properties were quarantined or subject to any statutory or other restriction against growing or selling potatoes or any other crop in South Australia or elsewhere, save for the export of potatoes to Western Australia. All the losses claimed are based on the inability of Warruga Farms to continue exporting potatoes to the Western Australian market." His Honour ultimately concluded that Apand did not owe a duty of care to any of the Perre interests as there did not exist a relationship of proximity between them with respect to the kind of damage suffered by the Perre interests. In the Court below, the matters upon which the Perres relied in their attempt to establish the necessary relationship of proximity may be summarised as follows: · the knowledge of Apand that bacterial wilt was a potentially disastrous disease for growers; · the knowledge of Apand of the Western Australian export market and that State's restriction against entry of potatoes either grown or packed within twenty kilometres of an outbreak; · the fact that the Warruga Farms property abutted the Sparnon property; · the knowledge of Apand of that proximity; and · the knowledge of Apand through Mr Hughes that Warruga Farms exported potatoes to Western Australia. Apart from the issue of Apand's knowledge concerning Warruga Farms, the other factors so identified as giving rise to the relevant relationship of proximity were each accepted by his Honour. The question of Mr Hughes' knowledge on behalf of Apand was separately addressed. His Honour found that Mr Frank Perre had telephoned Mr Hughes on 17 April 1991 (after the Pakenham meeting of February 1991) to inquire whether Apand would consider Warruga Farms as a contract grower. If Mr Perre then told Mr Hughes that Warruga Farms was at that time exporting potatoes to Western Australia, about which his Honour made no express finding, that information was described by his Honour as "casually given" and not as information conveyed to Apand for the purposes of its business. It was not therefore knowledge acquired by Apand. See Halsbury's Laws of England, 4 ed reissue, Vol 1(2) par 149; in Re Montagu's Settlement Trusts [1987] 1 Ch. 264 at 284; Re Chisum Services Proprietary Limited (1982) 7 ACLR 641 at 649-651; ZBB (Australia) Ltd v Allen (1991) 4 ACSR 495 at 507. His Honour then found that, although Mr Hughes was generally aware of the Perre family being potato growers in the Loxton district, there was no other occasion when either Mr Hughes, or Apand through any other source, learned of Warruga Farms' specific location in relation to the Sparnon property or that it exported potatoes to Western Australia. Our review of the evidence referred to by counsel on those matters confirms that the findings so made were available to the learned trial judge and accordingly, that they should not be disturbed. The case put on behalf of the Perre interests on appeal was summarised by Mr Sackar QC as follows: "His Honour took too narrow a view of the notion of proximity, that he did not pay sufficient regard to factors uncontroverted on the evidence but which had the effect of significantly limiting ... the class of persons likely to be affected. He did not pay ... sufficient regard to the question of constructive notice." Mr Sackar, in addition to the knowledge of Apand that has been discussed above, particularly emphasised the following: (a) prior to May 1992 Warruga Farms was selling a substantial part of its potato crop to purchasers in Western Australia - during 1992 the percentage of the crop sold to Western Australia was 79.2 per cent; (b) Warruga Farms had obtained certification from the South Australian Department of Primary Industries that "the Warruga Farm's area", its potatoes and the sheds on Perre's Vineyards property were free of bacterial wilt and potato cyst nematode - this certification was required by the Western Australian authorities before the Warruga Farm potatoes could be exported to Western Australia; (c) the Perre interests owned properties within a twenty kilometre radius of the Sparnon farm - i.e. they were within the class of individuals who, if they were exporters to Western Australia, would be unable to export to Western Australia if bacterial wilt were found on the Sparnon farm; (d) the Perre interests were the only potato farmers with a twenty kilometre radius of the Sparnon farm that exported to Western Australia (this assertion was not admitted by Apand); (e) internal Apand memoranda which disclosed an awareness of the existence of, the seriousness of, the risk of the spread of bacterial wilt, an appreciation of the fact that "all commercial potato cultivars are susceptible to some extent" and that "[t]he major cause of spread is through growers buying non-certified seed", and a knowledge that "[t]he Western Australian Dept. of Ag. will not allow potatoes sourced within 20 km of a known outbreak of bacterial wilt into their state"; and (f) evidence which suggested, contrary to the trial judge's assumption, that there was a sharing of farm equipment between Warruga Farms and the Sparnon farm and that potatoes grown on the Sparnon farm were washed at the Perre Vineyards property. On that latter point, there was some evidence that the Sparnons used Warruga Farms' washing and packing shed from time to time, and that they also, on occasions, borrowed plant and machinery from Warruga Farms. It was not suggested that Apand knew, or had any reason to know, of any such matters, nor was it suggested that such matters had any actual impact upon the Perre interests' potato farming activities. Such evidence, which was largely given by Mr D Sparnon, was not specific as to time. His Honour did not expressly reject it, although generally he did not place much weight on Mr Sparnon's evidence. Independently of Mr Sparnon's evidence, certain invoices issued by Warruga Farms to the Sparnons, apparently for washing potatoes in September and October 1990 and in January and August 1991, provide support for the suggestion that potatoes grown on the Sparnon farm were washed at the Perre vineyard property. It was neither pleaded, nor asserted, that those matters gave rise to any form of common enterprise between the Sparnons and the Perre interests. Such matters, depending upon all relevant circumstances, including their commercial significance, might, in some cases, be relevant to and, perhaps, even tilt the scales in favour of the existence of a duty of care. This would more readily occur where that sort of arrangement was known to the party being sued. But the evidence in this case amounts to nothing more than relatively slight commercial and neighbourly exchanges. In light of the reasons set out below, it does not significantly add to the determination of whether a duty of care is owed to the Perre interests or to any of them in respect of the economic loss of which they complain. Moreover, we note that counsel for the Perre interests at trial sought to play down any such relationship; the Perre interests on appeal should not now be able to formulate their case differently from the way they put it to the trial judge. It is necessary in relation to those submissions to give consideration to recent authorities concerning the recovery of damages for pure economic loss consequent upon negligent conduct. Some judges of the High Court have recently expressed reservations as to the utility of the concept of proximity in defining or identifying the circumstances in which a duty of care in tort will exist, referring to the long standing reservations expressed by Brennan J (as he then was), in, inter alia, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 481 and Hawkins v Clayton (1988) 164 CLR 539 at 555: see, for example, McHugh J in dissent in Hill v Van Erp (1996) 142 ALR 687 at 725-726 and Gummow J in that case at 747-748, who whilst agreeing with the majority in the result, said: "To my mind, there is real difficulty in treating the requirement of a relationship of proximity as an overriding requirement which provides the conceptual determinant (or a determinant) for the recognition of an existence of a duty to take reasonable care to avoid reasonably foreseeable risk of injury. It may well be that the notion of proximity provides a unifying theme for various categories of case, the genus of which they are species. ... But, by itself, the notion of proximity, used as a legal norm, has the uncertainties and perils of a category of indeterminate reference, used with shifting meaning to mark no more than policy preferences." However, the judgments of the High Court in a series of cases have prescribed a relationship of proximity as an essential element for the existence of a duty of care, and as representing a limitation upon the existence of a duty of care beyond the test of reasonable foreseeability: Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529; Jaensch v Coffey (1984) 155 CLR 549; Sutherland Shire Council (above); Stevens v Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16; San Sebastian v Minister Administering Environmental Planning and Assessment Act (1986) 162 CLR 340; Gala v Preston (1991) 172 CLR 243; Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520. That approach has, more recently, been affirmed by the majority in Bryan v Maloney (1995) 182 CLR 609 and in Hill v Van Erp (above). As Dawson J explained in Hill v Van Erp (above, at 699-700) it is not, however, a concept which provides the unifying theory of the law of tort identifying why or when a duty to take reasonable care to avoid a reasonably foreseeable risk of injury will arise in all circumstances. Rather it is an expression which conveniently describes the categories of cases in which such a duty has been found to arise. It also suggests that the means of reaching a conclusion on that question in new categories of case isto be by the normal legal reasoning processes of analogy, and inductive and deductive reasoning. It may not be inconsistent with the "incremental approach" earlier referred to by Brennan J in the cases mentioned. This case, in which the Perre interests claim that a duty of care was owed to them by Apand with respect to economic loss only, is within a new category of case in which it is necessary to give consideration to whether such a duty arises. The Caltex Oil case (above) is accepted as the proper starting point for the purpose of considering whether the necessary relationship of proximity with respect to economic loss existed between Apand and the Perre interests or any of them. In the Caltex Oil case Gibbs CJ said at 555: "In my opinion it is still right to say that as a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property. The fact that the loss was foreseeable is not enough to make it recoverable. However, there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act. ... It will be material, but not in my opinion sufficient, that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure." In that case a dredge fractured an oil pipeline which connected an oil refinery with an oil terminal. Gibbs CJ held that persons interested in the dredge knew that the pipeline led directly from the refinery to Caltex's terminal and knew or should have known that it was the physical means by which the products flowed from the refinery to the terminal. The Chief Justice noted that the pipeline appeared designed to serve the terminal particularly and was not like a water main or electric cable serving the public generally. His Honour concluded at 556: "In these circumstances the persons interested in the dredge ... should have had Caltex in contemplation as a person who would probably suffer economic loss if the pipes were broken." Stephen J in the Caltex case identified at 574 a need "for some control mechanism based upon notions of proximity between tortious act and resultant detriment" to confine recoverable economic loss consequent upon negligent conduct. His Honour noted that policy considerations including recognition of when "the community will recognize the tortfeasor as being in justice obliged to make good his moral wrongdoing by compensating the victims of his negligence" (at 575) would provide some guidance in the determination of the requisite degree of proximity. In that case, in concluding that there did exist sufficient proximity to allow the plaintiff to recover, his Honour placed weight on the following factors: (a) the defendant's knowledge that the property damaged was of a kind inherently likely, when damaged, to be productive of consequential economic loss to those who rely directly upon its use; (b) the defendant's knowledge or means of knowledge of the pipelines and the use made of them by the plaintiff; (c) the infliction of damage by the defendant to the pipelines, the property of a third party, in breach of a duty of care owed to that party; (d) the nature of the detriment suffered by the plaintiff, namely the loss of the use of the pipelines; and (e) the nature of the damages claimed, namely the expenses directly incurred in employing alternative modes of transport, as distinct from any claim for loss of profits flowing from damage to the pipeline. In short, his Honour's conclusion was encapsulated in his observation at 577 that Caltex, as was known by the defendant, was "not less proximately concerned than was [the owner of the pipeline] in the continued integrity of the pipeline". Mason J in the Caltex Oil case expressed his conclusions on the issue of liability for negligently caused economic loss at 593 as follows: "A defendant will then be liable for economic damage due to his negligent conduct when he can reasonably foresee that a specific individual, as distinct from a general class of persons, will suffer financial loss as a consequence of his conduct." The two most recent decisions of the High Court involving claims for pure economic loss are Bryan v Maloney and Hill v Van Erp, although Gaudron J in the latter case (above, at 717) was at pains to categorise the loss in that case as loss other than pure economic loss. Bryan v Maloney (above) involved a claim by the purchaser of a building against its builder, who had built it some years earlier for the then landowner; it was only after the transfer of the land and building that cracks appeared due to the want of care of the builder in the course of construction. That had the effect of diminishing the value of the building, i.e. it caused pure economic loss. The purchaser claimed damages reflecting that diminished value. In their joint judgment Mason CJ, Deane and Gaudron JJ observed at 617-618: "The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant class of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognized as involving a relationship of proximity between the parties with respect to such an act and such damage and as 'attracting a duty of care, the scope of which is settled'. In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the 'notion of proximity ... is of vital importance' [San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, at p 355 per Gibbs CJ, Mason, Wilson and Dawson JJ]." Their Honours went on to point out that: "One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the law's concern to avoid the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class' [Ultramares Corporation v Touche (1931) 174 NE 441 at p 444 per Chief Judge Cardozo]. Another consideration is the perception that, in a competitive world where one person's economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another's person or property may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage. The combined effect of those two distinct policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two." (some footnote references have been excluded) Toohey J adopted a similar approach. The "very direct" relationship between the plaintiff and the defendant in that case was of particular moment to his Honour (at 663); it was really only a matter of timing that the plaintiff, and not the original purchaser, was the person who suffered the loss. The authorities to that point concerning recovery for pure economic loss were most helpfully reviewed by Doyle CJ in Seas Sapfor v Electricity Trust of South Australia (unreported Full Court of the Supreme Court of South Australia, 9 August 1996). The Chief Justice noted that the authorities require the taking of an impressionistic and incremental approach rather one of applying an overarching principal to the particular circumstances. He identified a number of factors which have been seen as relevant. These are: (a) the defendant's knowledge or means of knowledge of the plaintiff as a specific individual as opposed to a member of an unascertained class; (b) where there are two plaintiffs, only one of whose loss is purely economic, the existence of an identity of interests between them and the vulnerability of one to financial damage consequent upon physical, or presumably personal, damage suffered by the other; (c) the type of economic loss suffered: ie its proximity to the tortious act; (d) the danger of accepting liability to an indeterminate class of claimants; (e) policy factors generally; and (f) where relevant, the interposition of a contract of sale between the party to whom the defendant owed a duty of care and the plaintiff; particularly where the relevant damage is not latent. Hill v Van Erp which was decided after the Seas Sapfor case, concerned the loss suffered by a named beneficiary under a will when a solicitor allowed the husband of such named beneficiary to sign the will as an attesting witness. The consequence was that the testamentary disposition was ineffective. The frustrated beneficiary sued the solicitor for loss of the testamentary gift. Dawson J, with whom Toohey J generally agreed, said at 699-700: "I retain the view which I expressed in Gala v Preston [(1991) 172 CLR 247 at 276] that the requirement of proximity is at least a useful means of expressing the proposition that in the law of negligence reasonable foreseeability of harm may not be enough to establish a duty of care. Something more is required and it is described as proximity. Proximity in that sense expresses the result of a process of reasoning rather than the process itself, but it remains a useful term because it signifies that the process of reasoning must be undertaken. But to hope that proximity can describe a common element underlying all those categories of case in which a duty of care is recognised is to expect more of the term than it can provide." His Honour noted that in that case, whilst the loss suffered by the named beneficiary was purely economic, the considerations which ordinarily prompt concern about imposing liability for such loss were absent. No prospect of indeterminate liability arose. The amount of damages was fixed. No question of competitive advantage arose. The recognition of a duty of care did not supplant or supplement remedies otherwise available or disturb any general body of rules constituting a coherent body of law. Although expressing his general agreement with the reasons given by Dawson J, Toohey J made comments of his own on the place of proximity in the jurisprudence of the High Court. His Honour expressed the view at 709 that there was no difficulty in treating proximity as "the general conceptual determinant and the unifying theme". But he went on: "That does not mean that proximity of itself identifies with any precision a common element underlying all those cases in which liability in negligence has been held to exist. But the general conception does operate as a limitation on any notion that liability in negligence arises simply from a duty to avoid harm that is reasonably capable of being foreseen, at any rate in cases not involving direct physical injury or damage." What is common to the reasoning of the majority in determining that there was a duty of care owed by the solicitor to the frustrated beneficiary is the following: (a) liability was neither to an indeterminate number but only to one identified person, nor for an indeterminate amount but for a fixed sum, (b) the duty found to exist corresponded with the contractual duty of the solicitor to the testator, and (c) the type of damage suffered was the direct loss of the benefit which was specifically intended by the conduct of the solicitor had it been performed without carelessness. See per Brennan CJ at 694, Dawson J at 700-701 with whom Toohey J agreed, Gaudron J at 712, and Gummow J at 744-745. In addition, reflecting the description of the relevant circumstances identified by Gibbs CJ in the Caltex Oil case, both Gaudron J at 711 and Gummow J at 741 described the relevant relationship as a "special" one. Dawson J at 705-706 focussed upon the particular skill of a solicitor and the inevitable reliance placed upon such skill directly by the testator. Despite the absence of any anterior relationship between the solicitor and the frustrated beneficiary, some form of responsibility is assumed, if not specifically towards such beneficiary, then at least in respect of her. Furthermore, in the nature of the circumstances, it would not be apparent that the responsibility had not been properly satisfied until the death of the testator. Gaudron J at 716-717 also extracted significance from that feature, more aptly in the particular circumstances in her Honour's view described as "control over" the outcome, i.e. the fulfilment of the testamentary wishes of the testator. Gummow J at 741 described the features of known reliance or assumption of responsibility as "beguiling but deceptively simple terms" and would not encourage their use except where specifically applicable on the facts. In the circumstances before him, Gummow J at 745 focussed on the fact that the solicitor's conduct was designed to benefit the frustrated beneficiary; her control over whether that conduct fulfilled that objective, together with the directness of the consequence of improperly performing her retainer with the failure of the testamentary gift, was, in his Honour's view, sufficient to found a duty of care. It is, in our view, appropriate to elicit from the above decisions, the additional observation that despite the absence of any anterior dealing between Apand and the Perre interests, it would be relevant to the existence or otherwise of a relationship of proximity to found the necessary duty if Apand's conduct in relation to the Sparnons carried with it some circumstance involving direct reliance by, or an assumption of responsibility towards, or control of events directed to producing an outcome for, the Perre interests. Whether such considerations, if they exist, amount to a refinement of the "identity of interests" or "common adventure" descriptions that have been used in some cases, or are simply another way of expressing the same, but more general, concept as discussed by Gaudron J and Gummow J in Hill v Van Erp, is not critical to resolution of the present appeal. The subsequent decision of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerford (Reg.) (1996) 142 ALR 750, which dismissed a claim for damages for negligent misstatement against a firm of auditors is also consistent with our above observation. The plaintiff in that casewas a financier who had advanced funds to a company partly in reliance upon the auditors' report in its accounts. Dawson J at 759 explained why a "special relationship" was necessary in cases involving economic loss only, as did Toohey and Gaudron JJ at 764 and 766-767. CONCLUSION AS TO THE EXISTENCE OF A DUTY OF CARE The trial judge accurately analysed the respective Perre interests as follows: "The claims by the Perre interests fall into three groups: (1) claims by the Warruga Farms partnership who were potato growers, packers and exporters to Western Australia, (2) a claim by Perre Vineyards Pty Ltd which owned the land leased to Warruga Farms for their packing facility, and (3) claims by the Rangara Joint Venture which grew potatoes, a substantial proportion of which were sold to Warruga Farms. Different considerations may apply in determining legal liability to each group, particularly on the question whether any respondent owed a duty of care." Accepting that Apand is not to be found to be liable to any of the Perre interests in negligence simply because the suffering of harm by them was reasonably foreseeable in the event that the Sparnon property became infected with bacterial wilt, the challenge is to identify the appropriate process of reasoning upon which to found a conclusion as to the existence, or otherwise, of a relationship of proximity between Apand and the Perre interests or any of them. Whether one takes the general findings of the learned trial judge, or the more specific contentions of counsel for the Perre interests referred to above, it is, in our view, difficult to elevate the relationship between the Perre interests on the one hand and Apand on the other to the category of "special" as that expression has been applied in the High Court. There was no relevant anterior relationship between them. When the decision in February 1991 was made to use the Saturna seed from the Tymensen property, it was subsequently supplied to some twenty one growers throughout four States of Australia, including Virgara Bros in South Australia. Some fifty nine tonnes of potato seed were then planted in that generation of planting. When harvested, some, but by no means all, of those various crops were again utilised for further potato seed. In particular, seven of the twenty one first generation growers produced potatoes which were further used for seed in second generation plantings, again in four States of Australia, and involving, as the evidence now shows some twenty six growers planting some one hundred and thirty one tonnes of potato seed. The particular crop produced by Virgara Bros of seventeen tonnes was used for further planting by six growers in South Australia in February 1992. At the same time, a second generation of the source seed was planted by nine growers (seventy three tonnes) in Queensland, six growers (thirty three tonnes) in Victoria and four growers (eight tonnes) in New South Wales. Some other of that second generation produce was processed for consumption. On the evidence, of the twenty six growers who planted the second generation seed throughout Australia, eighteen produced crops infected by bacterial wilt, three sprayed out their crops, and five apparently reported no problems. The Sparnon's property was but one of those twenty six properties which planted second generation seed from the Tymensen property. No evidence was identified to this Court which indicated how many potato growers were within a twenty kilometre radius of each of those twenty six growers, or even more widely, how many potato growers there were who had washed or packed their potatoes in premises in which other potatoes, grown within twenty kilometres of a known outbreak of bacterial wilt within the previous five years, had been handled. Nor was any evidence identified which would enable a finding to be made that some particular number or numbers of growers within that category did or might export potatoes to Western Australia. If there were any such growers, were their export programs interfered with by bacterial wilt developing on any one of those twenty six properties? Had they used a washing or packing shed at which potatoes from a farm infected with bacterial wilt had been packed and washed? The fact that, as events apparently revealed, within that distance from the Sparnon's property, it was only the Perre interests which fell within that group does not in our view indicate, in a relevant sense, that they were either an ascertained or ascertainable members of an ascertained group at a material time. There is no apparent reason why economic loss, due to an inability to export potatoes to Western Australia, is of any special significance compared with other causes of economic loss; for example, a grower's extra expense in having potatoes washed or packed elsewhere, when previously they had used a packing shed on a property now infected with bacterial wilt, or a grower incurring extra expense by reason of no longer sharing equipment or machinery with another grower whose property became infected with bacterial wilt, or a grower incurring extra expense to avoid possible contamination when a nearby property has become infected with bacterial wilt. In our view, it is also appropriate to observe that, effectively, none of the considerations which led to the finding of the existence of a duty of care owed to the plaintiffs in each of Caltex Oil, Bryan v Maloney, and Hill v Van Erp, can be shown to exist in the present circumstances. At the material time, Apand had neither knowledge nor means of knowledge that the Perre interests individually, rather than as a member of an unascertained class, would be likely to suffer economic loss as a consequence of its negligence in supplying infected or potentially infected seed to the Sparnons. Even if one were to expand the permissible scope of knowledge or means of knowledge to a defined and small class of persons capable of ascertainment, we do not think the authorities presently indicate that that would be, of itself, sufficient, unless there were some other particular circumstances which drew to Apand's attention that it should, in taking the steps which it was found negligently to have taken qua the Sparnons, have also had regard to the interests of the members of that particular defined and small class of persons. There is no particular consideration of that nature in the present circumstances. Nor, in our view, does the evidence disclose anything in the nature of a common adventure, at least relevant to the claims of the Perre interests. Nor was it the fact, and consequently not a matter of Apand's knowledge, that there was, relevantly, any direct relationship between the damage to the Sparnon's property and the consequential economic loss to the Perre interests in the sense that there were any direct dealings between the Perre interests and the Sparnon's property which caused or contributed to the consequence complained of. There is no element of shared machinery or equipment which relevantly contributed in any way to the Perre interests' claimed loss; they could have had no dealings whatsoever with the Sparnons and have been equally disadvantaged. There is no evidence that Apand had either knowledge, or means of knowledge, of the particular vulnerability of the Perres, as distinct from any other person or group of persons, as persons who might suffer economic loss. Furthermore, the nature of the detriment suffered by the Perre interests is not of the same nature as that which attracted favourable consideration, for instance in the Caltex Oil case. Here, as appears from the statement of claim on behalf of each of the Perre interests, the claims as alleged were as follows: · Warruga Farms, being unable to export to Western Australia potatoes grown by it (or acquired by it from the Rangara Joint Venture) suffered a loss of income, an alleged diminution in the value of its property, and ultimately was unable to refinance or procure further finance to develop a different farming program with a different crop. The expense incurred in its endeavours to mitigate its loss of income is also claimed. There is not the same relationship between that sort of claim for economic loss and the immediate damage to the Sparnon's property as existed in the Caltex Oil case (above), and indeed that very point of distinction was drawn in particular by Stephen J in the passage referred to. Warruga Farms was still entitled to sell its potatoes; it was still entitled to grow potatoes. Its loss flows only from its market for the sale of its potatoes being confined and its exclusion from an apparently remunerative market. But the character of that claimed loss, as noted above, has no special feature which in logic distinguishes it from other forms of indirect economic disadvantage which were, or may have been, suffered by many other potato growers whose farms were near to a grower whose farm, through Apand's negligence, became infected with bacterial wilt. · Perre Vineyards lost its captive tenant at will and Warruga Farms was unable to procure a suitable alternate tenant thereby suffering loss of income. Similar observations can be made, but even more forcefully. As the learned trial judge pointed out, their position is really not much different from the cartage contractors who would have otherwise conveyed Warruga Farm's potatoes to Western Australia, or from the buyers of those potatoes in Western Australia. Those buyers may have suffered a loss of income by having to import potatoes from a greater distance or at a greater price or they may have incurred additional expenses in procuring other supplies. · The Rangara Joint Venture was no longer able to supply its potatoes to Warruga Farms at the price at which Warruga Farms had previously been paying. It, and Warruga Farms, were able to continue to sell potatoes but did not have as ready a market. It thereby suffered a loss of income. Ultimately, that loss of income is alleged to have resulted in such a reduced cash flow that other resources were used to reduce indebtedness generally. In addition, the principals of the Rangara Joint Venture suffered loss on the sale of equipment. The very detail of that claim illustrates the potential, if the claim is to succeed, for the liability of Apand to be to a wide number of persons and for unlimited amounts. It was, in our view, particularly to guard against such claims that the nature of the damages claimable, as recognised in the Caltex Oil case (above), was confined to the expenses directly incurred by Caltex in employing alternative modes of transport. Finally, in our view, whether or not the appropriate expression is one of "control" in the sense in which that term was explained by Gaudron and Gummow JJ in Hill v Van Erp, there is no element or fact which gives rise to any potential finding of a proximity between Apand and the Perre interests in the nature of that which was recognised as a significant and a distinguishing relevant characteristic in Bryan v Maloney and in Hill v Van Erp. There is certainly no circumstance in which it can be said that the arrangement between Apand and the Sparnons had in mind, in any sense, the benefiting of any of the Perre interests, and so there was no relationship "equivalent to contract". The Perres were, in no sense, the object of the arrangement between Apand and the Sparnons. They did not stand to gain in any way from that arrangement if it was successful, or to lose from it if it was unsuccessful. They were distant from it. It is our view that the learned trial judge correctly found that, in the circumstances, no relevant duty of care was owed by Apand to the Perre interests; he properly dismissed their claims. In our view the appeal on behalf of the Perre interests should be dismissed with costs. I certify that this and the preceding thirty-eight (38) pages are a true copy of the Reasons for Judgment herein of the Court

Counsel for the Appellants: Mr J Sackar QC Mr N Rochow

Solicitor for the Appellants: Townsends

Counsel for the Respondent and the Cross-Appellant: Mr P Garling SC Mr A Harris Mr M Frayne

Solicitor for the Respondent: Phillips Fox

Date of Hearing: 5, 6, 7 May 1997

Date of Judgment: 21 November 1997