Johnson Tiles Pty Ltd v Esso Australia Ltd

Introduction 1 The statement of claim of the applicants has had a vexed and troubled history: see Johnson Tiles Pty Ltd v Esso Australia Limited (1999) FCA 167, [1999] FCA 477, [1999] FCA 569 and [1999] FCA 1645. The background to the present application, and my reasoning in respect of the issues that have given rise to it, are set out in those judgments and need not be repeated. 2 In the last of the judgments referred to, [1999] FCA 1645, I ordered that the applicants' pleading of their claim under s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") be struck out but stated that the applicants may apply for leave to re-plead that claim. The applicants have now applied for leave to file an amended Statement of Claim, Application and Particulars in the form of the drafts exhibited to the affidavit of Nicholas John Styant-Browne affirmed 23 December 1999. 3 One of the bases of liability pleaded in the various cross-claims is predicated upon the respondents ("Esso") being liable to the applicants and to group members under the s 52 claim. Accordingly, without objection on the part of the applicants, I permitted Esso and the various cross-respondents to present their arguments as to why the leave to amend sought by the applicants should be refused. Esso and the various cross-respondents (compendiously referred to as "the respondents") put separate submissions on the application for leave to amend. However, in substance, each to some extent repeated, albeit with some refinement, or adopted the submissions put by the others. Accordingly, it is convenient to refer to the submissions of Esso and the cross-respondents generally, rather than to endeavour separately to refer to each of the submissions put by them. 4 I required the applicants to apply by motion for leave to amend their Statement of Claim because it was appropriate to finally determine whether the applicants' s 52 claim should be permitted to proceed. On a summary application for dismissal of part of a claim the Court, even after extensive argument, is to determine whether the clear lack of the relevant cause of action warrants the summary termination of that part of the case: see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130, Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and Wickstead v Browne (1992) 30 NSWLR 1 at 5-6. However, as I observed at [61] of [1999] FCA 1645: "…although there are difficulties in the s 52 claim, a court would hesitate before exercising its discretion to finally dismiss or strike out the claim notwithstanding that the legal basis for it may be doubtful or problematic in circumstances where the court will nevertheless be required to hear and determine substantially the same factual matters in respect of the remaining cause of action: see Wickstead v Browne (1992) 30 NSWLR 1 at 5 and on appeal to the High Court (1993) 10 Leg.Rep page SL 2." 5 In Wickstead v Browne (at 5-6) observations were made by Kirby P, which were subsequently approved by the High Court on appeal, to the effect that a Court should be very reluctant to terminate summarily part of an action based on an alternative cause of action when the trial on the other cause of action, which is based on substantially overlapping facts, will be proceeding. In all the circumstances, including the discretionary aspects involved in the leave sought, I regard it as appropriate to consider whether the s 52 claim is so clearly untenable that it is appropriate to dismiss it summarily. 6 The substantive arguments put by the respondents against the proposed amendments were directed at the alleged untenability of the s 52 claim. In so far as some of the arguments relate to matters that can be cured by particulars, or can be clarified by further interlocutory directions, I propose to deal with such matters in the course of my future case management of the matter. The critical issue with which I propose to deal is whether, as a matter of substance, the s 52 claim should be permitted to proceed. 7 Esso also contended, somewhat belatedly, that the cause of action in negligence is also untenable on the ground that no duty in tort to take care to avoid economic loss can arise in circumstances in which the imposition of that duty would be inconsistent with the contractual chain whereby goods the subject of that duty are provided to the applicants. It was argued that the contracts and the regulatory regime, by which gas is supplied to gas users, fundamentally undermine any duty of care premised upon a tortious obligation to provide uninterrupted supply in the manner pleaded by the applicants. Accordingly, Esso contended that it was also appropriate to terminate the negligence claim. 8 The respondents also sought to re-argue a number of matters which were dealt with in [1999] FCA 1645. In doing so the respondents appeared to be endeavouring to preserve their position for the purposes of appeal, rather than re-argue the matters that I had determined against them in earlier reasons for judgment. I do not propose to deal with those matters again, other than to observe that nothing has arisen that has caused me to alter the views expressed in my earlier reasons for judgment. The section 52 claim 9 The gist of the s 52 claim is that Esso supplied gas for sale to business and domestic users, but failed to correct what it knew to be erroneous assumptions made by those users that the supply of gas was not vulnerable to interruption by events of the kind that occurred on 25 September 1998. The essential elements of the claim, as now proposed, can be summarised as follows: · Esso is a monopoly supplier of natural gas to gas users in Victoria (para 16); · gas is an essential service in Victoria in that commercial and domestic users of gas were dependent upon it as the sole or principal energy source required for their respective commercial and domestic energy needs (para 17); · since about 1969 Esso's supply of gas to gas users in Victoria was uninterrupted except in the event of circumstances which were not reasonably foreseeable and reasonably preventable by Esso ("uninterrupted supply") (para 18); · the infrastructure upon which gas users in Victoria were dependent for their uninterrupted supply included gas reserves available to Esso, facilities for production and processing of gas owned by Esso and the system for the storage and distribution of gas to gas users (para 18); · by reason of the above matters the applicants and group members made assumptions that: (a) the gas production, distribution and storage facilities in Victoria were adequate to ensure uninterrupted supply; (b) persons whose premises were connected to gas would receive uninterrupted supply of gas; and (c) gas users could organise their commercial and domestic affairs on the basis of an uninterrupted supply of gas (para 19). · the applicants and group members acted on the truth of the assumptions in acquiring or retaining equipment which depended upon gas as the sole or principal energy source for their operation (para 21); · as Esso was aware of the assumptions and of the fact that they had been acted upon, it was uniquely placed to be able to correct the assumptions (paras 20, 22, 23 and 24); · Esso continued to operate its plant and to supply gas for sale to gas users but failed to correct the assumptions (para 25); · Esso's conduct of continuing to operate its plant, continuing to supply gas as a monopoly supplier and, in the circumstances set out above, in failing to correct the assumptions constituted conduct that was misleading or deceptive in contravention of s 52 (para 26); · the applicants and group members suffered loss by reason of Esso's conduct (paras 21, 26 and 27). 10 The respondents contended that, in reality, the pleading of the s 52 claim amounts to conduct by silence. Those contentions were the subject of previous consideration by me: see [1999] FCA 477 and [1999] FCA 569. The respondents queried how their "failure to correct" would work in practice. What were they expected to say to correct the assumptions to avoid contravening s 52 of the TPA? Assuming the other elements of the cause of action are established, the answer may lie in Esso either establishing a system of uninterrupted supply or informing the public that it does not have such a system. 11 However, as explained in my earlier reasons for judgment, the contravening conduct is not alleged to be silence alone. Rather, it is continuing to supply gas for sale to consumers, who were acting on an assumption of uninterrupted supply, when Esso knew that the assumption was erroneous. In that regard the conduct now relied upon is that Esso: · being aware of the assumptions; · being aware that the assumptions were being acted upon; · being aware of the facts that made the assumptions erroneous; · continued to supply gas; and · failed to correct the assumptions. 12 In so far as the s 52 claim is founded on Esso's failure to correct the assumptions, the claim is not founded on silence alone. 13 The respondents also contended that the applicants' case in respect of the assumptions was untenable. In substance, it was said that the assumptions, a creation of legal drafting rather than a material fact, are not supported by the matters relied upon nor were they capable of being established by evidence. It was also contended that there was a degree of unreality about the same set of assumptions being alleged to have been held by all applicants and group members. 14 There is considerable force in these, as well as other, criticisms made by the respondents of the assumptions. I have, however, concluded that the case pleaded on the basis of the assumptions is not untenable. Ultimately, whether the assumptions are able to be established will be a matter of evidence. Contrary to the respondents' submissions, it is not fanciful to expect that some assumptions as to the uninterruptability of gas supply were made by members of the public when they elected to make commercial and domestic decisions that were dependent upon that supply: see [1999] FCA 1645 at [21] and [22]. It is also likely that the public will not assume absolute uninterruptability as there remains the possibility of interruption of supply as a result of industrial stoppages, natural disasters or other similar causes. 15 It was also contended that the assumptions are inconsistent with retail gas contracts and the regulatory system. Whether that is so, and the consequences that flow from it, is a matter for evidence, rather than summary dismissal. 16 The respondents sought to bolster their arguments by contending that the alleged public reliance on gas as an "essential" service was so vague and ambiguous as to be meaningless. Services such as water, electricity and gas are, understandably, regarded by the public as "essential" services in the sense that members of the public plan their daily domestic and commercial needs, and make substantial investments in relation to them, on the assumption of continuity of supply of those services. As explained above, the extent to which the assumptions are held and the precise format in which they are held will be a matter for evidence. 17 Many of the pleading problems in respect of the s 52 claim have arisen because of the unique circumstances which have given rise to the claim. Essentially, those circumstances relate to the cessation of supply of a primary energy source by the sole supplier of that source to consumers in the State who, to the knowledge of the supplier, have ordered their affairs on the basis of continuity of supply and were particularly vulnerable to its sudden cessation. Whether, in such, or analogous, circumstances a failure to disclose matters relevant to the reliability of the supply is capable of giving rise to legal liability under s 52 of the TPA has not been the subject of prior consideration by the Court. As the overlapping negligence claim is to proceed in any event I would be very reluctant to terminate summarily the s 52 claim on the basis of general principles which have been developed to deal with quite different circumstances. As was observed by Kirby P in Wickstead v Browne at 5: "Common experience teaches that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle." 18 In the circumstances I am not prepared to conclude the s 52 claim is sufficiently untenable to dismiss it summarily. 19 A number of other criticisms were made of the pleading but, as pointed out above, I regard those matters as matters for clarification by way of interlocutory directions. 20 An alternative submission of the respondents was that the confusing nature of the s 52 pleading, and the difficulties it has encountered to date, are such that I ought not to allow the amendments except on terms that the proposed amendments be verified on affidavit. The affidavit, so it is said, will enable the Court to be satisfied that there really are facts which are capable of being proved and which, if proved, would support the general statements made in the Statement of Claim: see Trade Practices Commission v Australian Iron and Steel Pty Ltd (1989) 22 FCR 305 at 323 per Lockhart J and Morton v Vouris (1996) 21 ACSR 497 at 521 per Sackville J. While there is some merit in the course suggested, in the particular circumstances of the present case I do not regard it as an appropriate course. In particular, I am not satisfied that the s 52 claims have been put forward extravagantly, carelessly or other than in good faith. Further, in addition to any question of further particulars, witness statements will be ordered in due course for the matters proceeding as test cases for the purposes of the representative proceeding. Thus, little purpose is served by pre-empting that process at this stage. 21 For the above reasons I have decided to grant leave to amend the s 52 claim in the form proposed, subject to certain minor matters which I propose to raise with the applicants. Those matters relate to separately pleading past supply (para 18) and to whether there is any basis for alleging Esso failed to disclose that which was not known but "ought to have [been] known" (para 24). The negligence claim 22 The gist of the negligence claim is that Esso: · was under a duty of care when designing, installing, operating and maintaining the Longford gas plant to avoid causing pecuniary loss of the kind suffered by the applicants and the group members; and · is liable to the applicants and the group members for that loss because of their breach of duty. 23 Esso contended that it was not open to the applicants and group members to claim a duty of care was owed to them for economic loss for which Esso was expressly not liable under the terms of the Gas Sales Agreement by which Esso and BHP Petroleum (Bass Strait) Pty Ltd ("BHP") sold gas to Gascor ("the Gas Sales Agreement"), which was subsequently resold by Gascor to the public. In particular, it is said that cl 23.5 of the Gas Sales Agreement expressly excluded Esso and BHP from liability for economic loss arising out of a negligent failure to supply gas to Gascor. For present purposes I will assume, without deciding, that cl 23.5 operates in the manner contended by Esso. 24 Esso's argument that it does not owe to the applicants and group members a duty of care to avoid economic loss arising from negligent conduct was expressed by it as follows: "(a) gas is supplied to the applicants and group members through a chain of contracts; (b) but for that chain of contracts, no duty could be owed to avoid the economic loss claimed; (c) [Esso] cannot owe a duty to Gascor which cannot co-exist with the terms of the Gas Sales Agreement; and (d) [Esso] could not owe any greater duty to the more remote applicants than they would have owed to the more proximate party, Gascor, in respect of the negligent conduct alleged." 25 The principle for which Esso contends is that a contractual exclusion of liability in negligence for economic loss in a contract between A (eg a producer of goods) and B (eg a distributor) operates to exclude such liability in respect of C (eg a purchaser of the goods from B) irrespective of whether C was, or ought to have been, aware of the contract or the terms of the contract by which B acquired the goods from A. While it may be readily accepted that the contract between A and B is a factor that can be relevant to the existence of a duty of care owed by A to C to avoid economic loss, Esso's case is that it is determinative of the existence of the duty. 26 Esso does not contend that the principle applies to injury to a person or damage to property as a result of negligent conduct. In such cases, it is said that the injury or damage creates the relationship upon which the law of tort relies to impose the duty to take reasonable care. 27 Although there is English authority, to which I will later refer, that supports the principle contended for by Esso, the problem it must overcome is that there is no binding Australian authority that supports its contentions and, such Australian authority as there is, suggests that in Australia there is no such principle. 28 Bryan v Maloney (1995) 182 CLR 609 was concerned with whether a purchaser, who buys a defective home from the original landowner, can have a cause of action in negligence for economic loss against the professional builder who constructed the home for the landowner. The contract between the builder and the landowner did not contain any relevant exclusion or limitation of liability but consideration was given to the effect of the contract on the landowner's liability in negligence. 29 In the majority judgment Mason CJ, Deane and Gaudron JJ said (at 620-621): "The fact that the law recognizes the existence of concurrent duties in contract and tort does not mean that the existence of a contractual relationship is irrelevant to either the existence of a relationship of proximity or the content of a duty of care under the ordinary law of negligence. In some circumstances, the existence of a contract will provide the occasion for, and constitute a factor favouring the recognition of, a relationship of proximity either between the parties to the contract or between one or both of those parties and a third person. In other circumstances, the contents of a contract may militate against recognition of a relationship of proximity under the ordinary law of negligence or confine, or even exclude the existence of, a relevant duty of care." 30 In discussing the relevance of the contract to liability in negligence to a third party their Honours said (at 624-625): "It is unnecessary, for the purposes of the present case, to consider whether such a relationship of proximity or any consequent duty of care can be excluded or modified by the terms of the contract between the builder and the first owner. As has been mentioned, it is not suggested that there was any special feature of the contract or agreement between [the builder] and [the landowner] that had that effect in the present case. There is, however, obvious force in the conclusion expressed by Windeyer J in Voli v Inglewood Shire Council [(1963) 110 CLR 74 at 85] to the effect that, while such a contractual exclusion would be relevant to identifying the task upon which the architect had entered, it could not directly operate to discharge the architect from a duty of care which would otherwise exist 'to persons who are strangers' to the contract". 31 Although Voli related to liability in negligence for physical injury rather than economic loss, their Honours' observations were made in the context of the claim for economic loss by the third party purchaser. Similarly, at 662, Toohey J referred to the judgment of Windeyer J in Voli at 85, and noted that the terms of the builder's contract are "not an irrelevant circumstance" in determining the builder's liability to the third party purchaser. 32 In Hill v Van Erp [1997] 188 CLR 159 at 182-183 Dawson J also considered the comments of Windeyer J in Voli at 85 saying: "The contract may give rise to an obligation to perform a task but the performance of the task may, in all the circumstances, give rise to a duty of care to perform it so as not to cause damage, whether of a physical or economic kind, to another. Even if one party to a contract can exclude liability to the other party for negligence in the performance of the contract but cannot do so with respect to someone who is not a party to the contract, that is no reason to deny the existence of a duty of care to that third party. A party to a contract is able to negotiate with respect to the protection of his interests whereas a third party is not in a position to do so." 33 In Perre v Apand (1999) 164 ALR 606 at 610 Gleeson CJ discussed three considerations which have been, and will remain, influential in restraining acceptance of a duty of care to avoid economic loss in particular cases, or categories of cases. The third consideration related to: "…those cases where the loss occurs in a commercial setting, a third party, C, may suffer financial harm as a result of conduct which is regulated by a contract between A and B. It may be that the consequences of such conduct, as between A and B, are governed and limited by the contract. This is a problem which commonly occurs in relation to maritime claims, and may help to explain the strictness with which an exclusionary rule has been applied in shipping cases." (Emphasis added) 34 McHugh J, in discussing the role of contract in negligence claims for economic loss, stated (at 638): "Australian courts must be careful before holding that the existence of obligations under a contract automatically denies liability in tort for pure economic loss. That said, if we are to aspire to a coherent law of civil obligations, courts must keep the contractual background in mind in determining whether a duty of care should be imposed on the defendant in pure economic loss cases. Developments in negligence should occur in sympathy with the law of contract." and "This court has recognised that in certain circumstances concurrent duties in tort and contract can exist and that the law of contract and the law of negligence are informed by differing rationales. That difference supports the conclusion that the vulnerability of the plaintiff may often be a justifiable, but not sufficient, reason for imposing a duty of care in cases of negligence resulting in pure economic loss where the plaintiff could not have protected itself in contract. One of the assumptions of the law of contract, for example, is that the parties can bargain to protect their interests. A plaintiff who is vulnerable - for whatever reason - cannot do this in any meaningful way. In its quest for corrective justice, the law of negligence may be able to fill the gap which the law of contract has left." 35 Finally, in McMullin v ICI Australia (1997) 72 FCR 1 at 81 Wilcox J, in response to the proposition that imposing a duty of care on the respondent would "circumvent limitations of liability in the chain of contractual relationships", said: "The answer to this submission was given by Mason CJ, Deane and Gaudron JJ in Bryan v Maloney at 624: whatever may have been the position in other times or in other places, Australian law does not require 'liability under the ordinary principles of negligence' to be excluded as between parties in a contractual relationship, notwithstanding the absence of any agreement between them to that effect. Even more so, I would suggest, does it require the exclusion of liability as between persons who have not entered into a relevant agreement." 36 The above passages do not support the existence of a principle to the effect of that contended for by Esso. The current position in Australia appears to be that the contract, including any exclusionary clause, between A and B may be relevant to, but is not necessarily determinative of, A's liability in negligence for economic loss to C who has contracted with B but not A. 37 The extensive reliance by Esso on a line of English authority, in which greater emphasis has been placed on exclusionary clauses as limiting the rights of a third party, is significantly undermined by the divergence between Australia and England on the law relating to liability in negligence for economic loss. In the majority judgment in Bryan v Maloney (at 629) the English position was described as having: "…rested upon a narrower view of the scope of the modern law of negligence and a more rigid compartmentalization of contract and tort than is acceptable under the law of this country." 38 In Australia greater emphasis has been placed on the issue of proximity, rather than on seeking to establish specific categories of cases where economic loss might be recovered. The departure from the more restricted approach in England was manifest when any "broad exclusionary" rule in Australia of no liability in negligence for economic loss was rejected in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1977) 136 CLR 529. Since Caltex Oil it has generally been accepted that a claim for pure economic loss will depend, inter alia, on whether where there is a relationship of proximity. The extent to which Australian and United Kingdom authority on this issue has parted ways was demonstrated when the Caltex decision was rejected by the House of Lords in Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd [1986] AC 1, in which it was said at 22 that the Caltex judgments did not disclose "any single ratio decidendi". However, as McHugh J commented in Perre v Apand at 628: "The exclusionary rule is often justified on the ground that it is certain - which it certainly is. But its certainty is obtained by rejecting claims that most people would agree ought to sound in damages... It is true that in Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd [1986] AC 1 it was said that the judgments did not disclose 'any single ratio decidendi'…Even accepting the correctness of their Lordships' comments, in Australia it is Caltex and not Candlewood which represents the law. Whatever else Caltex may have decided, it determined that Australia no longer adheres to the strict exclusionary rule with or without defined exceptions." 39 There can be little doubt that the law in Australia in economic loss cases is still evolving. In that regard in Perre v Apand (at 613) Gaudron J observed: "The law as to liability for economic loss is a 'comparatively new and developing area of the law of negligence'. It has not yet developed to a stage where there has been enunciated a governing principle applicable in all cases. Perhaps it never will. Not surprisingly, given the present stage of development, different approaches have been advanced as to the way in which claims for which there is no legal precedent should be dealt with." 40 In permitting recovery for economic loss by an intended beneficiary under a failed testamentary disposition in Hill v Van Erp, emphasis was placed upon the nature of the duty owed by the solicitor to the client in determining whether a duty was owed by the solicitor to the intended beneficiary: see for example Dawson J at 182 and Gaudron J at 197. Whilst that factor is plainly relevant to, and may be determinative of, the existence of a duty of care in particular relationships (eg solicitor-client and in the shipping cases), Hill v Van Erp is not authority for Esso's contention that this will always be the case irrespective of the particular category of relationship that exists between the original contracting parties. 41 The foregoing discussion demonstrates that, under Australian law, the limitation in cl 23.5 of the Gas Sales Agreement on Esso's liability in negligence for economic loss may be a relevant factor in considering whether Esso owed the applicants and group members a duty of care to avoid that loss. However, it does not resolve that issue. Accordingly, I decline to accede to Esso's claim that the negligence claim is untenable and ought not to be permitted to proceed. 42 In arriving at that conclusion it can be accepted that a number of English authorities support a general, but not inflexible, principle of the kind contended for by Esso: see Leigh and Sillivan Ltd v Aliakman Shipping Co Ltd [1985] QB 350 at 396-397, Muirhead v Industrial Tank Limited [1986] QB 507 at 530, Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 All ER 791 at 803-804 and 805-806, Pacific Associates Inc v Baxter [1990] 1 QB 993 at 1022-1023, 1027, 1033 and 1038, Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 195-196 and 205-206, White v Jones [1995] 2 AC 207 at 268 and 279. In view of the conclusions set out above, little purpose is served by an analysis of the English cases, resting as they do on a common law framework that is not accepted as the law in Australia. It is, however, relevant to observe that: · the cases are significantly influenced by the notion that a contracting party, which has contracted to exclude liability for economic loss to another contracting party, cannot be taken to have assumed responsibility for that loss to another party further down the contractual chain; · the view that an exclusion clause in respect of economic loss will prevent the existence of a duty of care to a third party to avoid that loss, rather than be a factor that is to be considered on that issue is not uniform: see for example Junior Book Ltd v Veitchi Co Ltd [1983] AC 520 at 546 per Lord Roskill. 43 Further, in the present case the Gas Sales Agreement (including the exclusion clause) was, by agreement, a confidential document. It is far from clear as to what, if any, significance that might have to the notion prevalent in many of the English cases that an exclusion clause is inconsistent with an assumption of responsibility to a third party. Conclusions 44 For the foregoing reasons I have concluded that it is appropriate to grant the applicants the leave to amend that they seek. 45 The applicants, by seeking leave to amend, have sought an indulgence which usually would result in them being liable for the costs of the application. On the other hand, Esso and the cross-respondents have failed on the substantive matters argued by them in opposing the leave being granted. In the circumstances, the costs of the application should be costs in the cause. I propose to reserve liberty to the parties to apply in respect of all other questions of costs arising by reason of this order. I certify that the preceding Forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.