Medtel Pty Limited v Courtney

Issues before the primary judge and his Honour's reasons 4 Because of the limited number of issues raised in the appeal, it will be unnecessary to refer to all of the primary judge's comprehensive reasons for judgment. The reasons were published on 5 February 2003 ([2003] FCA 36) though the orders against which the appeal is sought to be brought were made on 3 March 2003 (when supplementary reasons concerning the orders were published: [2003] FCA 129). It is convenient to commence by discussing the procedural framework in which his Honour gave judgment. By his judgment, he did two things. First, he answered three questions tried separately under O 29 r 2 of the Federal Court Rules. Secondly, he awarded Mr Courtney $9,988.20 in compensation (plus interest) for his claim concerning the pacemaker he had been fitted with in July 1999. 5 The questions the primary judge was asked to answer were formulated by the parties. They concerned the liability of the appellant and Pacesetter under s 74B and s 74D. At the time the hearing commenced, the terms of the questions had been agreed and there was also agreement that it was appropriate for him to answer them. The questions were in the following terms: The claims made in the Eighth Amended Statement of Claim under sections 74B and 74D of the Trade Practices Act 1974 (Cth) raised by paragraphs 1-3, 6-16, 18-43, 69, 70(a)(i) and (ii) and 70(e), and paragraphs 67(a) and (b), 68, 70(b), (c) and (g)-(i) insofar as they relate to the injury, loss and damage allegedly suffered by the Applicant and any other group member called during the hearing, be determined separately and in advance of the determination of all other issues in these proceedings by resolution of the following questions: a. Whether the Pacemakers are subject to the Fault as defined in the Eighth Amended Statement of Claim: b. Whether: (i) the Pacemakers are not reasonably fit for their purpose within the meaning of section 74B of the Trade Practices Act; (ii) the Pacemakers are not of merchantable quality within the meaning of section 74D of the Trade Practices Act; c. Whether, as a result of: (i) the Pacemakers not being reasonably fit for their purpose; (ii) the Pacemakers not being of merchantable quality; (iii) the Applicant has suffered and may continue to suffer injury, loss and damage. 6 These questions contain one expression which requires explanation. His Honour proceeded on the basis that "the Pacemakers" should be treated as a reference to "each of the Pacemakers" which, in turn, was a reference to any of the Hazard Alert Pacemakers. Thus the questions raised for consideration whether each of the pacemakers which was of a model referred to in the Hazard Alert and implanted in Australia, was of merchantable quality or fit for the purpose for which it was sold. His Honour concluded, with a qualification, that each was not. This conclusion applied to the pacemaker implanted into Mr Courtney in July 1999 (and surgically removed in September 2000 by a process described as explantation) which was why, after concluding that Mr Courtney had suffered loss and damage by reason of his pacemaker being defective in these respects, he awarded Mr Courtney compensation. The answers given by his Honour were in the following terms: (a) Whether the Pacemakers are subject to the Fault as defined in the Eighth Amended Statement of Claim: A. Inappropriate to answer. (b) Whether: (i) The Pacemakers are not reasonably fit for their purpose within the meaning of section 74B of the Trade Practices Act [1974 (Cth)]; (ii) The Pacemakers are not of merchantable quality within the meaning of section 74D of the Trade Practices Act [1974 (Cth)]; A. Those Pacemakers manufactured using yellow spool solder (as that expression is used in [89] of the judgment given on 5 February 2003 that expression is used in [89] of the judgment given on 5 February 2003) were: (i) not reasonably fit for their purpose within the meaning of s.74B of the Trade Practices Act 1974 (Cth); and (ii) not of merchantable quality within the meaning of s.74D of the Trade Practices Act 1974 (Cth). (c) Whether, as a result of: (i) The Pacemakers not being reasonably fit for their purpose; (ii) the Pacemakers not being of merchantable quality; (iii) the Applicant has suffered and may continue to suffer injury, loss and damage. A. Unnecessary to answer. [Emphasis in original] By the time the hearing before the primary judge concluded, the position of the appellant concerning whether the question should be answered had altered. Its approach at the conclusion of the hearing was that they should not be answered. 7 The order concerning Mr Courtney was in the following terms: Judgment be entered in respect of the applicant's individual causes of action under ss 74B and 74D of the Trade Practices Act 1974 (Cth) for the applicant against the first respondent in the sum of $9,988.20, plus interest in the sum of $1,304.19. Plainly enough, this order reflected the primary judge's conclusion that Mr Courtney had suffered loss and damage and the answer to question (c)(iii) ("unnecessary to answer") was directed to other members of the representative group. 8 To understand why the trial judge reached these conclusions and also the issues raised in this appeal, it is necessary to refer to aspects of his reasons for judgment. After setting out the background, discussing the formulation of the separate question and setting out the relevant provisions of the Act (including s 74B and s 74D), his Honour discussed the pleadings and what was common ground between the parties. It was not in issue (in relation to the Hazard Alert Pacemakers): (i) The pacemakers were "goods" as defined in subs 74A(2) of the Act, being goods of a kind ordinarily acquired for the personal use of the patients in whom they have been implanted. (ii) Although the pacemakers were manufactured in Sylmar, California, the appellant caused or permitted a name by which it carried on business, namely "Telectronics" to be applied to the goods (the pacemakers) supplied by it. The consequence was that subs 74A(3) deemed the appellant to have manufactured the goods. In any event, the appellant did not dispute that the terms of subs 74A(4) of the Act were satisfied, so that it was also deemed by that provision to have manufactured the goods. (iii) The appellant supplied the pacemakers to treating hospitals and doctors for the purpose of resupply to patients requiring implants of pacemakers. (iv) The appellant supplied the pacemakers in the course of its business of marketing and distributing medical devices. It did not dispute that it thereby supplied the pacemakers in trade or commerce. (v) Each of the treating hospitals and doctors acquired the pacemakers from the appellant to resupply to other persons including Mr Courtney and the group members. (vi) Since the price for each pacemaker was under $5,000 (that is, lower than the "prescribed amount" of $40,000 under par 4B(2)(a) of the Act) and Mr Courtney and the remaining group members did not acquire the goods for the purpose of resupply or to use them in trade or commerce, they had acquired the pacemakers as "consumers" (See also par 4B(2)(d).). 9 The primary judge then identified the various witnesses and set out their professional and other qualifications. His Honour went on to describe, in some detail, how the heart operates and how a pacemaker assists the heart in functioning. It is sufficient to note that a pacemaker generates an electrical impulse and, relevantly for present purposes, contains two components. One component is a battery and the other is electronic circuitry which produces the electrical impulses. The battery is the power source. He later noted that in the pacemaker of Mr Courtney, and the pacemakers of the other group members, the electronic circuitry was in a module called a hybrid and the battery in each of those pacemakers was connected to the hybrid creating an electrical circuit providing the hybrid with power. Of central importance in the proceedings was a possible defect in those pacemakers which could cause a short-circuiting of the electrical circuit between the battery and the hybrid. 10 His Honour described in the following passage ([69] to [77]) what was agreed by the parties to be the cause of the short circuit problem, namely electrochemical dendrites: The term "dendrite" is derived from the Greek word for tree and refers to a branch-like structure. The dendritic shape, which is quite ubiquitous in nature, tends to be formed by a diffusional process, namely the random movement of ions in a solution. In the present context, that means an aqueous ionic solution. An ion is a charged atom or molecule. Dendrites can be observed under a microscope, but also can become visible to the naked eye. Electrochemical dendrites are usually thin and delicate because of the manner in which they are formed. Professor Hibbert explained the conditions necessary for electrochemical dendrites to form as follows: "1. Two electrodes with a sufficient potential difference between them to effect the reaction (about at least 1 V). 2. A conducting solution between the electrodes, containing ions of the metal to be plated. (An ion is a charged form of a species, for example Pb2+is the ion of lead which has two positive charges.) The solution is made conducting by any ions dissolved in water. These ions can be impurities such as chloride or sodium." If these conditions are fulfilled, dendrites will start growing immediately, although the rate of growth depends on the circumstances. If any one condition is absent, dendrites do not form. The conditions referred to by Professor Hibbert were summarised and simplified by all the experts to three components, namely: electrical bias; moisture; and ionic contamination. Of the three essential conditions for dendritic growth, there was no real dispute that the first two were present in the case of the [pacemakers of the same type as the Hazard Alert Pacemakers]. First, electrical bias or voltage must exist in electronic circuitry. The bias, or difference in electrical potential, is between the opposite (positive and negative) terminals of the battery. Secondly, so far as moisture is concerned, it must be borne in mind that, as Professor Hibbert explained, only a minuscule volume of water is required to provide the medium within which the ions can move. Dr Morris acknowledged that, although Pacesetter took careful steps to remove as much moisture as possible before sealing the can (including subjecting the devices to a "bake out" prior to sealing and filling the cans with inert gas), it is not possible to remove all moisture. Professor Hibbert was sceptical about whether any moisture could survive these processes, but neither party invited me to reject Dr Morris' opinion based, as it was, on the practical experience of manufacturing the [pacemakers of the same type as the Hazard Alert Pacemakers]. Indeed, the fact that dendritic growth appeared in the [pacemakers of the same type as the Hazard Alert Pacemakers] notwithstanding the procedures adopted by Pacesetter tends to supports Dr Morris' view. The third condition is ionic contamination. It is here that there was some measure of disagreement as to the source or sources of ionic contamination. I shall return to this question later. The dendritic growth observed in the [pacemakers of the same type as the Hazard Alert Pacemakers] occurred between one of the points of connection of the hybrid (the module bearing electronic circuitry that generates pulses and controls the device) to the battery and another point of connection. An electrical current flows around a circuit from the battery to the hybrid and back again. A conductive path constituted by the very small amount of moisture containing ionic contaminants (the aqueous ionic solution) extends between the two lines of the battery circuit. (In this connection, it must be remembered that the distances are very small. I was told that the gap between the conductive lines on a [pacemaker of the same type as the Hazard Alert Pacemakers] is 1.27 mm.) According to Professor Hibbert, the lead in the solder at the positive anode loses two electrons, which dissolve in the moisture and migrate as positive lead ions along the moisture path to the negative cathode. At this point they are converted back to metal and start or add to (as the case may be) the dendrite. Ultimately, unless interrupted, the build up will create a continuous path that completes the short circuit. Because the lead is conductive, electrical current from the battery circuit is diverted along the short circuit… The conductivity of a circuit reflects resistance to the passage of current. The more current that can flow, the more quickly the circuit will deplete the battery. The conductivity of a dendrite is determined by the size and length of the path, bearing in mind that the path will not be constituted by a straight line. The thinner the dendrite and the longer the path, the lower the conductivity of the circuit that is thereby produced. Professor Hibbert, however, expressed the view that conductivity was not necessarily of great significance in determining the rate of battery depletion because a metal dendrite would have sufficient conductivity to create a circuit that would reduce the life of the battery. After the dendrite has formed a bridge, thereby establishing a partial short circuit, it is not necessary for the three conditions required for dendritic growth to continue. So long as the battery runs, the short circuit will continue to operate, unless the bridge is fractured. Fracture may occur, for example, in consequence of a mechanical shock. 11 While the parties had agreed that the fundamental short circuit problem in the Hazard Alert Pacemakers was due to electrochemical dendrites, they did not agree what caused the dendrites. The primary judge addressed this issue. He first described the investigations that had been undertaken by the manufacturer, Pacesetter, to identify the cause of the problem when it first became evident in about April 1998. One matter investigated was the solders used in manufacturing the pacemakers. One type of solder used had been manufactured and supplied by a Belgian business ("yellow spool solder") and another type supplied by a company in the United States ("blue spool solder"). He noted that the question of whether or not yellow spool solder might be significant in determining the claim that the Hazard Alert Pacemakers were not of merchantable quality or were unfit for the particular purpose. He found, as a matter of fact, that Mr Courtney's pacemaker had been manufactured using yellow spool solder. 12 The primary judge then addressed the question of what caused the premature depletion of the batteries. He noted substantial agreement between the parties about certain matters: (i) The Hazard Alert Pacemakers were at greater risk of failing by reason of accelerated battery depletion than pacemakers manufactured by Pacesetter outside the period covered by the Hazard Alert. (ii) The accelerated battery depletion was the consequence of partial short circuits forming between the solder pads or terminals where the flex circuit was soldered to the battery terminals. (iii) The short circuits were created by the formation of electrochemical dendrites. (iv) The problem of increased risk of failure by reason of premature battery depletion was confined to pacemakers manufactured by Pacesetter that were manufactured using the yellow spool solder. That solder produced a white crystalline residue after soldering by a process that one witness, Mr Bruneel (an executive associated with both the Belgian business which had supplied the yellow spool solder and the US company which had supplied the blue spool solder), described as a "form of condensation" resulting from differences in temperatures around the solder joint. The residue had the capacity to trap ionic contaminants and, as Mr Bruneel said, could be extremely difficult to remove. (v) For dendritic growth to occur, three factors must be present, namely electrical bias, moisture and ionic contamination. When those three conditions are present, dendritic growth must occur. (vi) In relation to the Hazard Alert Pacemakers, the condition of electrical bias was satisfied, since electrical bias inevitably exists in electronic circuitry. The second condition, moisture, was also satisfied since the appellant (and Pacesetter) accepted that, despite the measures taken by Pacesetter to remove moisture from the flex circuit, it was inevitable that some moisture would remain. (vii) The remaining question was therefore the source of ionic contamination that allowed the dendritic growth to occur. 13 It was to this last question that the primary judge then turned. He was satisfied that the use of the yellow spool solder in the manufacturing process was the sine qua non of the phenomenon of premature battery depletion resulting from partial short circuits that affected some of the Hazard Alert Pacemakers. 14 His Honour then considered the background risk of failure of pacemakers and what he described as the superadded risk in relation to Hazard Alert Pacemakers. In discussing the latter matter, his Honour noted that evidence given by Dr Fain (Senior Vice President, Development and Clinical/Regulatory Affairs at Pacesetter) to the effect that 5.5% (58) of the Hazard Alert Pacemakers (1048) exhibited dendritic growth. That 5.5% resulted from an analysis of the number of pacemakers returned in Australia (581) and not an analysis of the entire number in Australia (1048) the subject of the Hazard Alert. He then said (at [138]): It follows that Dr Fain's figures must be taken as minimum estimates of the proportion of Tempo Pacemakers exhibiting dendritic growth. The likelihood is that the actual proportions are higher, although the evidence does not permit a finding to be made of the "true" rate. Viewed in context, his Honour was concluding that the evidence did not permit a finding about the true rate of Hazard Alert Pacemakers exhibiting dendritic growth, though the likelihood was it would be more than 5.5% of them. 15 Later in his reasons when discussing the application of s 74D, his Honour referred to the significance of the conceded existence of the white residue in the Hazard Alert Pacemakers. He said (at [212]): In my view, the critical point is that, with the possible exception of some devices manufactured very late in 1998, all Hazard Alert Pacemakers were manufactured using yellow spool solder. All were therefore affected by the white residue which had a tendency to attract or "trap" ionic contaminants. The use of the yellow spool solder in the manufacturing process created conditions in which dendritic growth and associated short circuits and premature battery depletion were much more likely to occur than had the yellow spool solder not been used. As it happens, the risk was further increased by the (unrecorded) use in some cases of de-soldering wicks containing conventional flux. 16 Earlier in his reasons the primary judge addressed the condition of Mr Courtney's pacemaker, and concluded (at [164]): On the basis of this history I infer, on the balance of probabilities, that [Mr Courtney's] Pacemaker has at all times functioned normally and that had it remained in situ it would not have ceased to function prematurely by reason of battery depletion. In other words, it is one of 90 per cent or more of Hazard Alert Pacemakers that, despite the use of yellow spool solder in the manufacturing process, did not suffer from a short circuit problem in consequence of dendritic growth. 17 Nonetheless, in relation to Mr Courtney's pacemaker (and the pacemakers of other group members where the pacemaker had not failed in situ) his Honour concluded it was not of merchantable quality. His reasons, in summary, were (at [224]): · the purpose for which pacemakers are commonly bought is to enable them to be implanted, on the advice of doctors, into patients experiencing electrical heart related problems in order to restore regular heart beat by means of electrical impulses to the heart; · [Mr Courtney's] Pacemaker was manufactured using yellow spool solder and was therefore affected by white residue which acted as a trap or attraction for ionic contaminants; · the Pacemaker was therefore subject at the time of implantation to a risk of premature failure over and above the background or random risk affecting all pacemakers; · this superadded risk related to premature battery depletion caused by dendritic growth which, in turn, was the product of ionic contamination attracted or trapped by the white residue interacting with ever present electrical bias and moisture; · a reasonable person in the position of [Mr Courtney] (or other remaining group members similarly placed) would not expect his or her Pacemaker to have been manufactured in such a way as to be subject to a superadded risk of premature failure (that is, a superadded risk that it will be unable to fulfil the purpose of restoring and maintaining the heart rate of patients experiencing electrical heart-related problems); · accordingly, [Mr Courtney's] Pacemaker was not of merchantable quality for the purposes of s 74D(1)(c) of the TP Act. 18 Of the Hazard Alert Pacemakers which had failed in situ, that failure, did not itself demonstrate, in his Honour's opinion, that the particular device was not of merchantable quality. He identified (when discussing the position of those that had failed in situ) what was necessary to establish they were not of merchantable quality (at [209]): …a remaining group member cannot establish that his or her Hazard Alert Pacemaker was not of merchantable quality at the time of implantation simply by proving that the device had in fact failed prematurely. That group member must also show, on the balance of probabilities, that · the failed Pacemaker was manufactured using yellow spool solder; and · the failure that occurred was not attributable to a cause unconnected with the use of the yellow spool solder and an associated partial short circuit. Assuming that the group member satisfies these evidentiary requirements, I think it correct to say that the particular Pacemaker was not as fit for the purpose of restoring and maintaining heart beat as it is reasonable to expect. However, I do think that this is because of some physical characteristic of the Pacemaker that sets it apart from other Hazard Alert Pacemakers that have not failed prematurely. Like the Pacemakers that failed in situ, those that did not fail, leaving aside the small number that may have been manufactured using the blue spool solder, were manufactured using the yellow spool solder. 19 When considering the Hazard Alert Pacemakers which had failed in situ, the primary judge discussed what he concluded had been demonstrated by the evidence, namely a superadded risk of failure. He said (at [213]): It is important to appreciate that the additional risk of failure (as is now known) was of a particular kind: that is, premature battery depletion caused by dendritic growth which, in turn, was the product of ionic contamination attracted or trapped by the white residue interacting with ever-present electrical bias and moisture. Although the evidence as to the background or random rate of failure was meagre, it is clear that the risk of failure of each Hazard Alert Pacemaker manufactured with yellow spool solder was substantially greater than the risk applicable to other available pacemakers, including other [pacemakers manufactured by Pacesetter]. The primary judge (at [223]) indicated that the other remaining group members whose pacemaker's had been explanted were in the same or very similar position to Mr Courtney. In context, this led to what can be viewed as a finding that their pacemakers also were not of merchantable quality. 20 In the following passage (at [229]) his Honour explained his approach in concluding that Mr Courtney's pacemaker and the pacemakers of other group members which had been manufactured with yellow spool solder were not of merchantable quality: The applicant has succeeded in his claim that his Pacemaker was not of merchantable quality because of a particular element introduced into the manufacturing process by the manufacturer, albeit unwittingly, that materially increased the risk that the product would fail prematurely. The "batch" of Pacemakers implanted in Australia affected by what I think can be fairly described as a physical anomaly in the manufacturing process (that is, the yellow spool solder) is not in fact co-extensive with the batch covered by the Hazard Alert. (The expression "physical anomaly" is intended to convey that the use of the yellow spool solder in the manufacture of Pacemakers is recognised by Pacesetter itself, with the knowledge it now has, as unacceptable. The expression is not intended to imply that Pacesetter was negligent in using the yellow spool solder or in any other way.) Some Hazard Alert Pacemakers, as I have found, may not have been manufactured with yellow spool solder. Further, it appears that some Pacemakers manufactured outside the time limits implicit in the Hazard Alert were manufactured with yellow spool solder. In short, the fact that a Pacemaker was included in the Hazard Alert does not of itself establish want of merchantability. 21 The reason for rejecting the suggestion that an approach based on "risk" was (at [231-232]) an inappropriate one: Mr Walker's main objection to the conclusion I have reached was that it is inappropriate to apply to a single item (a particular Pacemaker) the concept of risk which, so he argued, is properly applicable only to generic products (Hazard Alert Pacemakers or yellow spool solder Pacemakers). It is true that the "rate" of failure of a product can be ascertained only by reference to past experience of a group of items and that the concept of a failure rate in that sense cannot be applied to an individual item. But that does not mean that a risk of future failure based on physical anomalies in a product is not a concept that can be meaningfully applied to an individual item, such as the applicant's Pacemaker. Indeed the evidence in this case indicates that decisions are necessarily made in relation to individual items by reference to the risk that the item will fail to perform correctly. For example, I infer that Professor Black [the doctor advising Mr Courtney] took into account the risk (so far as it could be assessed at the time) that the applicant's Pacemaker would fail, as well as other considerations, when recommending explantation of the device. The application of s 74D to the circumstances of a particular case does not call for an exercise in mathematical theory. The question posed by the legislation is whether the particular goods are as fit for the purpose for which goods of that kind are commonly bought as it is reasonable to expect. If it is reasonable to expect that products of a certain kind will not have a physical anomaly that materially increases the risk that they will not fulfil the relevant purpose, it seems to me consistent with the statutory language to hold that each item with that physical anomaly is not of merchantable quality. To so hold is also consistent with the "remedial character" of the legislation (Rasell v Cavalier Marketing, at 348, per Cooper J).

Issues in the appeal and cross-appeal and the submissions 22 The issues raised in these appeal proceedings have been conveniently summarised in the written submissions of the parties. Counsel for the appellant identified the issues in its application for leave to appeal as follows: (a) Are goods not of "merchantable quality", pursuant to sub-section 74D(3) of the Trade Practices Act 1974 ("the TPA"), if there is only evidence that the goods have a possibility (or risk) of failure, as opposed to evidence that the goods have in fact failed? (b) Is a manufacturer strictly liable pursuant to section 74D of the TPA by reason of actions, such as a product recall, designed to prevent injury from a possibly, as distinct from an actually, defective product? (c) In circumstances where there is no product failure and only the risk of a failure, is the appropriate remedy under section 74D of the TPA, a refund or replacement or must the manufacturer also pay damages? (d) Where it is alleged that a manufacturer is strictly liable pursuant to section 74D of the TPA in Part IVA proceedings, is it necessary to prove the cause of the failure or is it sufficient to prove only the fact of failure? Does it make any difference if the defect is the risk of a failure? 23 Counsel for Mr Courtney identified the issues in his application for leave to cross-appeal as follows: His Honour erred in failing to find that all of the Pacemakers were not reasonably fit for their purpose and not of merchantable quality on the basis that: (a) the Pacemakers were part of a group of pacemakers about which it was not possible to ascertain that any individual was not manufactured using yellow spool solder; or (b) alternatively, the Pacemakers that were part of a group of pacemakers about which it was not possible to ascertain that any individual pacemaker was not manufactured using a conventional flux from a de-soldering wick used in reworking of solder; or (c) alternatively, the Pacemakers were all manufactured using yellow spool solder. 24 Mr Courtney also sought to support the judgment below with a notice of contention on grounds summarised in counsels' written submissions: In the alternative to the primary submission that the trial judge came to the correct conclusion for the reasons stated in the judgment (at least in the individual case of Mr Courtney) [It is contended that] the judgment…should be affirmed on the grounds that [Mr Courtney's] pacemaker was not reasonably fit for its purpose and was not of merchantable quality because it was one of a group of pacemakers which included pacemakers with a superadded risk or propensity for failure (through premature battery depletion) and given that: a. [Mr Courtney's] Pacemaker was part of a group of pacemakers about which it was not possible to ascertain that any individual pacemaker was not manufactured using yellow spool solder; or b. alternatively, [Mr Courtney's] Pacemaker was part of a group of pacemakers about which it was not possible to ascertain that any individual pacemaker was not manufactured using a conventional flux from a de-soldering wick used in reworking of solder. 25 However during the hearing of the appeal, counsel for Mr Courtney indicated that neither the cross-appeal nor the notice of contention were being pursued and accepted leave to appeal should be granted in the appellant's appeal. 26 The appellant commenced its submissions by arguing that the primary judge erred in concluding that Mr Courtney's pacemaker was not of merchantable quality given that it continues to function as it should (this is because of the finding set out at [15] above). It cannot be characterised as not being of merchantable quality simply because it is a member of a class of pacemaker manufactured in a way different to other pacemakers. It should not be treated, to use the language of the appellant's counsel, as having "the mark of Cain" simply because it was one of a number of pacemakers the subject of a Hazard Alert. 27 Reference was made to certain facts agreed between the parties, namely that Mr Courtney's pacemaker was tested on 10 occasions, the first during the course of its manufacture and the most recent on 27 September 2002, and on every occasion on which it was tested, the test indicated that the pacemaker was functioning normally with an estimated longevity of in excess of 60 months. It is erroneous to assess merchantability by reference to a risk that a product may fail to perform or operate in a particular way in the face of the known fact that the product has performed and operated as it should. The finding of the primary judge at [164] (set out at [15] above) supports the conclusion that Mr Courtney's pacemaker was of merchantable quality and that the appellant was not liable under s 74D. It was conceded that if Mr Courtney's pacemaker was not of merchantable quality then the loss and damage (arising from its explantation) was caused by its unmerchantability. It was also accepted, for present purposes, that merchantability was to be assessed at the time of supply and acquisition. 28 The appellant accepted that merchantability at the time of supply and acquisition could be determined by reference to facts now known. However it put in issue the approach of the primary judge that although Mr Courtney's pacemaker would probably not have failed prematurely had it remained in situ, that fact did not bear on the question of whether the pacemaker was or was not of merchantable quality. Unmerchantability was not demonstrated by showing Mr Courtney's pacemaker was one in a class of pacemakers which had a background risk of failure or even a super added risk of failure by short circuiting as a result of dendritic growth. This argument was also advanced in relation to the other pacemakers manufactured using yellow spool solder to which the answer to question (b) applied. It was submitted that Mr Courtney did not seek to establish, and could not, that his pacemaker suffered from ionic contamination which would lead to premature failure. Unmerchantability of a particular pacemaker was not demonstrated by establishing that it was a member of a class in which some pacemakers had a physical characteristic which might lead to premature failure. It was only on this basis that it could be said that there was a superadded risk Mr Courtney's pacemaker would fail prematurely. But risk described in these terms is risk only in a statistical sense. It does not address the physical condition of Mr Courtney's pacemaker at the time of sale and acquisition. 29 The appellant submitted that an inference could be drawn from the known facts that there was no dendritic growth in Mr Courtney's pacemaker at the time of its supply and acquisition, nor had the conditions existed for such growth then or earlier. If there was no initial dendritic growth then there would be no later dendritic growth and no short circuiting and consequential premature failure for that reason. At the very least, Mr Courtney had failed to demonstrate his pacemaker had ever had the physical attributes which would give rise to dendritic growth. While the appellant's position appeared to shift during the hearing of the appeal, ultimately it did not challenge the primary judge's finding that yellow spool solder had been used in the manufacture of Mr Courtney's pacemaker. It should be noted that in the proceedings below, the thrust of the submissions of the appellant appeared to be that there had been no dendritic growth in Mr Courtney's pacemaker because it had been manufactured using blue spool solder. No concession was made by the appellant in this appeal that any other particular pacemaker acquired by any other individual member of the representative group had been manufactured using yellow spool solder. The appellant's position was that this was an issue that would need to be determined in relation to each of individual pacemaker. 30 The appellant contended that this inference (that there had been no dendritic growth in Mr Courtney's pacemaker and the conditions for its growth had never been present) could be drawn on essentially two bases, though they appeared to be linked. The first was that it was highly unlikely Mr Courtney's pacemaker suffered from dendritic growth, having regard to evidence accepted by his Honour, concerning the demonstrated incidence of dendritic growth in pacemakers (the subject of the Hazard Alert) returned to Pacesetter. Of the 1048 pacemakers the subject of the Hazard Alert, 581 were returned to Pacesetter. An analysis was undertaken of those returned pacemakers which had failed (no finding was made by the primary judge about the number of pacemakers in this class nor was it submitted by the appellant that a finding (of a particular number) should have been made). The analysis of the returned failed pacemakers revealed that only 58 exhibited dendritic growth. It was submitted that on the assumption (and as found by his Honour) that the vast majority of the pacemakers the subject of the Hazard Alert were manufactured using yellow spool solder, only a very small number (58 which is 5.5% of the 1048) exhibited dendritic growth. Thus it was more probable than not that Mr Courtney's pacemaker did not suffer from dendritic growth notwithstanding that it had been manufactured using yellow spool solder. As dendritic growth must occur if the conditions for growth are present, those conditions had never been present in Mr Courtney's pacemaker. 31 The second basis on which the appellant submitted the inference could be drawn concerning the state of Mr Courtney's pacemaker was the scientific evidence. First, reference was made to his Honour's acceptance of the evidence of Professor Hibbert concerning the three conditions which, if fulfilled, will result in the immediate growth of dendrites. However, it was submitted, it is difficult to accept that the third condition, ionic contamination, flowed from the use of yellow spool solder (and nothing more) given the low incidence of detected dendritic growth in the returned failed pacemakers (referred to in the previous paragraph). Those figures were more consistent with the appellant's hypothesised mechanism for the introduction of ionic contamination (de-soldering and re-soldering). That was particularly so given that once dendritic growth commences it will continue until a conductive path is made. Once the path is established, battery depletion will occur even if the dendrite is of low conductivity (as arises with a thin dendrite). Reference was also made to the evidence of Dr Morris (apparently accepted by his Honour) that the two other conditions (electrical bias and moisture) were present in all pacemakers. 32 Counsel for the appellant appeared to accept that its hypothesised cause of the ionic contamination (de-soldering and re-soldering) could not explain all instances of dendritic growth, given that only 1 to 2 per cent of all pacemakers were re-soldered. But, it was submitted, the scientific evidence did not support a finding that the use of yellow spool solder, of itself, made dendritic growth and associated premature battery depletion more likely to occur. In addition, this conclusion was based on the erroneous assumption that all pacemakers manufactured using yellow spool solder contained the white residue which could trap ironic contamination. However in reply the appellant appeared to accept that the matter might be approached on the footing that, on the balance of probabilities, each pacemaker covered by the Hazard Alert contained the white residue, at least when yellow spool solder had been used in its manufacture. If so, however, regard must be had to the limited incidence of observed dendritic growth and the fact that a high proportion of pacemakers in this general class had not failed. 33 Several matters the appellant did not put in issue should be noted. The first was the primary judge's approach to the construction of s 74B and s 74D. The appellant accepted his Honour's approach. The second was that the appellant appeared ultimately to accept that any pacemaker which failed prematurely (even if only one of a group which, numerically, conformed to the background or random failure rate) was not of merchantable quality, though added that liability based only on failure was not raised in this matter by the pleadings. This was so notwithstanding that the appellant appeared initially to adopt as correct the conclusion of the primary judge that the fact that a pacemaker had failed in situ (and having regard to the context in which the conclusion was expressed, failed prematurely)did not establish that it was not of merchantable quality. Part of the context in which the proceedings were conducted below included a concession by counsel for Mr Courtney that a random risk of failure did not render a pacemaker unfit for the purpose for which it was acquired nor did it render it of unmerchantable quality. It should also be noted that the appellant did not seriously press a submission that Div 2A of the Act did not apply to the pacemakers to which the proceedings related. 34 The third matter concerned a contention that the primary judge did not deal with the defence under subs (2) of s 74B concerning its liability under that section in relation to Mr Courtney. That point was not pursued in the appeal. 35 Counsel for Mr Courtney sought to answer each of the points raised by the appellant by the same process of reasoning adopted by the primary judge. A submission made to the primary judge was repeated in the appeal concerning why the Hazard Alert Pacemakers were not of merchantable quality. Reference was made to the following evidence as supporting that conclusion: (a) Dr Fain agreed that it would not have been "wise, sensible or practical" to sell any pacemakers that were known to have a failure rate higher than the typical pacemaker for a specific reason where it was not possible to identify the particular unit; (b) Professor Chard (an Australian expert in the clinical management of patients requiring pacemaker implantation and explantation) would not have implanted the pacemakers the subject of the Hazard Alert in patients had he known the information set out in the Hazard Alert at the time of implantation, regardless of pacemaker dependency. It also follows that he would have ceased using the device. He would not have regarded the pacemaker as an appropriate pacemaker for its purpose; (c) Professor Chard did not expect pacemakers to be manufactured in such a way as to increase the likelihood of a short circuit occurring. Manufacture with a white residue ionic contaminant trap which is practically impossible to clean increases the likelihood of a short circuit occurring. (d) The failure rate of the models of pacemakers the subject of the Hazard Alert had, by March 2000, "reached an unacceptable level" and representatives of the appellant required "an assurance that the units we are selling now are not prone to this failure modality"; (e) The appellant and the Australian distributor decided to "withhold shipping any further Tempo based product" at about 5 April 2000; (f) The Therapeutic Goods Authority recommended that supply of the models of pacemakers the subject of the Hazard Alert in Australia be halted "until the cause of these device failures is determined and device safety can be assured"; (g) the appellant halted supply by 12 April 2000 and resolved not to "recommence supply until the issue has been resolved"; (h) the company of which Pacesetter was a subsidiary, was not prepared to resume shipment of the models of pacemakers the subject of the Hazard Alert until it had made a changes to the inspection procedures in the manufacturing process; (i) Doctors consulting with the Therapeutic Goods Authority "agreed that the reported failure rate…was unacceptable"; (j) the models of pacemakers the subject of the Hazard Alert were withdrawn from the market; (k) Pacesetter halted distribution of the models of pacemakers the subject of the Hazard Alert on 27 March 2000 once they determined the basis for failure of the devices; (l) the appellant appears to have removed pacemakers on consignment to hospitals from the shelves; (m) Some Australian doctors stated they would suspend implants of all pacemakers supplied or manufactured by the company of which Pacesetter was a subsidiary, until they received assurances that other pacemakers do not share the same soldering process and hence risk of suffering the same failure mode; (n) Supply of the models of pacemakers the subject of the Hazard Alert only resumed after testing to ensure the then current batch were not subject to the problem.

Consideration 36 Central to this appeal is the apparent paradox arising from a conclusion that Mr Courtney's pacemaker was not fit for the purpose for which pacemakers are acquired (and therefore not of merchantable quality) yet it served that purpose prior to explantation and would, on the findings of the primary judge, have continued to serve that purpose into the foreseeable future had it remained implanted. Both elements of the paradox are sustained by facts now known but not known (or at least the significance of which was not known) at the time Mr Courtney acquired his pacemaker. It was common ground both before the primary judge and on appeal that facts now known can be relied on in determining whether Mr Courtney's pacemaker was of merchantable quality. 37 It is not entirely clear from the terms of s 74D, when the assessment is made of whether goods are of merchantable quality. That is, the time at which goods must be of unmerchantable quality for liability to arise under the section. Paragraphs (a) to (d) of subs 74D(1) identify four conditions which, if satisfied, create liability in a corporation to pay compensation (if loss or damage has been suffered). The condition in par (c) is that the goods "are not" of merchantable quality. The use of the present tense, in context, suggests that the question of whether the goods were of merchantable quality is to be assessed at the time the goods are supplied to, and acquired by, the consumer at least where the claim for compensation is by the consumer. 38 Subsection 74D(2) identifies three circumstances in which subs 74D(1) does not apply. One (identified in par (a) of subs 74D(2)) is that the goods "are not" of merchantable quality by reason of, inter alia, specified events occurring after the goods had left the control of the corporation which might otherwise be liable to pay compensation. That is, the goods may have been of merchantable quality when supplied, but not when acquired. This qualification allows for the possibility that between supply and acquisition the goods ceased to be of merchantable quality for reasons for which the corporation should not be held responsible. As this is an exception to subs 74D(1), this provision reinforces the notion that merchantability is otherwise to be assessed for the purposes of that subsection at the time of acquisition and supply. 39 While subs 74D(3) also contains the present tense ("are"), that tense is used because the subsection points to a quality in the goods (fitness for purpose) to be assessed (and therefore existing) at the time an assessment is made about merchantable quality. The use of the present tense probably says nothing about when the underlying assessment of merchantability is made. However it is unnecessary to express a concluded view about the time or times, as a matter of construction, merchantability is to be assessed. That is because it was common ground in the appeal that the assessment of whether Mr Courtney's pacemaker was fit for the purpose for which pacemakers are commonly bought, and thus whether it was of merchantable quality, is to be made at the time it was acquired by Mr Courtney. 40 If it was not then in that condition, the appellant is liable to pay the compensation ordered by the primary judge (having regard to a concession made by the appellant about loss and damage flowing from proven unmerchantability). The finding of the primary judge that Mr Courtney's pacemaker has at all times functioned normally and would not have ceased functioning prematurely by reason the battery depletion, is a finding about the condition of the pacemaker at points between the time of its supply and acquisition and the present and its likely condition into the future. Its condition after supply and acquisition is relevant to the extent that might enable an inference to be drawn about its condition at the time of its supply and acquisition. However the fact that it has operated and will operate in a way which is consistent with the purpose for which it was (and other pacemakers might be) acquired does not compel the conclusion that at the time of supply and acquisition it was of merchantable quality. That conclusion is reached by considering the condition it was then in, though informed by what is now known about its subsequent condition thereafter. 41 That question can, in the first instance, be addressed by reference to the facts as found by the primary judge. The condition of Mr Courtney's pacemaker at the time of supply and acquisition had several features. It had been manufactured using yellow spool solder. It had been manufactured approximately nine months earlier. Because it had been manufactured using yellow spool solder it contained a white residue which might have trapped (or possibly been a source of) ionic contamination. It contained moisture and an electrical bias. While no finding was made that it then had dendritic growth, the conditions existed for such growth to have by then commenced. If dendritic growth had by then commenced, premature failure by battery depletion would be likely to occur. Was a pacemaker in that condition fit for the purpose for which pacemakers were bought? In my opinion it was not, essentially for the reasons given by the primary judge. Because of its physical condition having regard to how it was manufactured, there was a real prospect it would fail prematurely, and the risk of it doing so was greater than might otherwise have been expected. That being so it was not fit for the purpose or purposes for which goods of that kind are commonly bought. 42 The next question is whether a different conclusion about the merchantability of Mr Courtney's pacemaker is warranted having regard to the submissions of the appellant critical of some of the findings or conclusions of the primary judge. At the forefront of those submissions was that an inference should be drawn that at the time of supply and acquisition, Mr Courtney's pacemaker was not experiencing, and therefore would never experience, dendritic growth. This submission raises two issues. The first is whether the inference should be drawn and the second is whether, if drawn, it is determinative of the liability of the appellant to pay compensation to Mr Courtney. 43 On one approach, the liability of the appellant could depend on whether this inference can be drawn. Liability under s 74D arises when goods are not of merchantable quality. That is determined by considering whether the goods are fit for the purpose or purposes for which goods of that kind are commonly bought having regard to the matters referred to in subs 74D(3). While the Court must consider, when making that determination, the reasonable expectations of a reasonable consumer placed in the position of, in this case, Mr Courtney: see Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 the assessment of the state or condition of the goods at (for present purposes) the time of supply and acquisition of the goods is nonetheless one to be made objectively: see Cavalier Marketing (Australia) Pty Ltd v Rasell (1990) 96 ALR 375 at 400 (per Cooper J with Kneipp and Shepherdson JJ agreeing). 44 The parties agreed that facts now known about the state or condition of the goods at that time can be considered in making that assessment. I take this to be a shorthand description of facts now known and revealed in proceedings for compensation, but not known at the time of supply and acquisition (for example, a latent physical defect) or what were then unknown or unforeseen consequences (for example, the likely physical or chemical degradation of the goods resulting from the use of known components, parts or ingredients in their manufacture) of things that were known. I will refer to known facts on the same basis. 45 Even accepting s 74D is a remedial provision intended to protect consumers, its terms do not suggest that, as a broad statement of principle, it is to be applied by selectively drawing on facts now known when assessing the state or condition of the goods in question. Situations can arise where some facts now known would tend to indicate that the goods were not of merchantable quality but other facts now known would clearly dispel that initial impression. In such cases there is no rational basis, nor any basis evident from the Act, for suggesting the Court should do anything other than consider all the facts and conclude the goods were not of merchantable quality. Notwithstanding the apparent division of opinion in the House of Lords in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 about whether all after acquired knowledge is relevant to assessing fitness for the purpose, all their Lordships appeared to accept that facts known at the time of trial about the physical condition of the goods in question could be called in aid in making that assessment. The concerns of Lord Pearce (at 118-119) appear to relate to after acquired knowledge (exemplified by knowledge that a later discovered antidote could be formulated rendering otherwise poisonous goods, harmless) which did not bear, at least directly, on the condition of the goods at the time of sale. The establishment of rights by reference to facts later revealed but not known when the right was said to arise or asserted is neither recent nor novel: see Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 particularly per Dixon J at 377-378. 46 A claim for compensation under Div 2A is a statutory cause of action: see, by analogy, the observations concerning s 82 of the Act in Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525, accruing when loss or damage is suffered. There is no reason to doubt that findings of fact about the state or condition of the goods at the time of supply and acquisition would be made by applying the normal civil standard: see s 140 of the Evidence Act 1995 (Cth). However as that section makes clear, the level of assurance about the existence of a fact when applying the civil standard can be influenced by the nature of the cause of action and the subject matter of the proceedings. In the present case, the cause of action is intended to afford protection to consumers who have suffered loss or damage and the subject matter of the proceedings are highly sophisticated goods upon which the consumer's life may depend. There is no issue that Mr Courtney suffered loss or damage. In these circumstances it would be appropriate, in my opinion, for the Court to approach the question of whether his pacemaker ever experienced dendritic growth on the basis that a high level of assurance would be necessary to find, as a matter of fact, that it never did. 47 No finding was made by the primary judge that Mr Courtney's pacemaker never experienced dendritic growth. His Honour had the benefit of listening to all the expert evidence (much or all of which was given orally) and lengthy submissions analysing that evidence. His Honour was particularly well placed to form a view about what the evidence revealed: see the observations of Gleeson CJ and Gummow and Kirby JJ in Fox v Percy (2003) 197 ALR 201 at 207. As counsel for Mr Courtney pointed out, no expert evidence was given expressing the conclusion that dendritic growth had commenced in Mr Courtney's pacemaker at the time of its acquisition. Though it could have been, no physical examination of Mr Courtney's pacemaker has been undertaken by the appellant or Pacesetter to ascertain whether dendritic growth is present even allowing for limitations inherent in that process of examination. 48 The case advanced by the appellant that an inference should be drawn that dendritic growth had never occurred (and consequential premature battery depletion would not follow) was substantially based on the finding of the primary judge concerning the continued operation of the pacemaker (together with the science concerning the commencement and continuation of dendritic growth and its consequences) and the statistics concerning the number of pacemakers examined which have exhibited dendritic growth. However, the continued operation of the pacemaker (and the finding of the primary judge that it would not have ceased to function prematurely by reason of battery depletion) is not inconsistent with the existence of dendritic growth. No finding was made that dendritic growth inevitably leads to short circuiting and consequential premature battery depletion. His Honour discusses at [77] the fracturing by mechanical shock of a bridge (directly causing the short circuiting) brought about by the dendritic growth. Thus, whether the pacemaker continues to function does not depend on whether dendritic growth has occurred. Extraneous factors can avoid that result. The appellant has not established that an inference should be drawn that Mr Courtney's pacemaker had not experienced dendritic growth at the time he acquired it. Consequently the appellant has not established the judgment in Mr Courtney's favour should be set aside on the basis it advanced. 49 However even if that inference was drawn that would not result, in my opinion, in the order awarding Mr Courtney compensation being set aside. It cannot be doubted that Mr Courtney suffered loss and damage. He underwent the painful and traumatic experience of having his pacemaker surgically explanted. He did so on medical advice which the appellant has not challenged. The basis for that advice was the uncertainty attending the future operation of his pacemaker arising from the Hazard Alert which, in turn, was a result of a number of pacemakers failing prematurely and the investigations undertaken to ascertain the cause of those failures. At the time the loss and damage was suffered, Mr Courtney, his medical advisers, the appellant and Pacesetter could not predict whether his pacemaker would or would not fail prematurely. Testing which predicted longevity did not conclusively establish there would be no premature failure. Why, in these circumstances, ought not Mr Courtney be entitled to compensation for that loss and damage on the basis that his pacemaker was not of merchantable quality because of the doubts about its reliability? Additionally why should compensation be denied because all facts now known (and only fully exposed in the proceedings for compensation) indicate that it was in a condition that would ensure continued operation at the time of acquisition? 50 The answer, on the approach of the primary judge, lies in the nature of the right conferred on consumers by the Act. It could be expected that in many cases in which compensation is sought, the loss and damage was a direct and immediate result of the defective condition of the goods at the time of acquisition, rendering them unmerchantable. A simple example would be loss and damage caused by a car crashing as the result of a latent defect in the braking system arising from incorrect assembly of the brake components. Mr Courtney did not suffer loss and damage because his pacemaker failed prematurely. This case is different at least in the sense that it was the prospect that Mr Courtney's pacemaker was in a defective physical condition (because of a substance used in its manufacture which remained present in it) which would lead to premature failure, and the prospect it had been at the time of acquisition, that led to the loss and damage. But that is no less, in my opinion, a physical condition of a pacemaker than the condition of a pacemaker which, in fact, will (because of its physical condition) certainly fail prematurely. Section 74D affords consumers a remedy to obtain compensation for loss and damage resulting from goods in a particular condition (not of merchantable quality) at the time of acquisition (it is unnecessary in these proceedings to consider a situation where unmerchantability might arise after acquisition). If they are in an unmerchantable condition and loss and damage results, the Act contemplates a remedy. In my opinion, this is, as the primary judge determined, an approach to the facts of this case consistent with the statutory protection Div 2A is intended to afford and it is an approach with which I agree. Mr Courtney is entitled to compensation and the primary judge did not err in ordering it. 51 In the submissions of the appellant in this appeal, no clear distinction was consistently drawn between the position of Mr Courtney and the other members of the representative group. The focus of those submissions was often on Mr Courtney though understandably so, given that the primary judge made an express finding about the state of his pacemaker in the passage at [164] but made no express finding about the condition of the pacemakers of other members of the group. As I understood the approach of the appellant, its success in impugning the finding of unmerchantability in relation to Mr Courtney's pacemaker, was to determine its success in relation to other members of the group to whom the answers to the questions applied. 52 I would grant leave to appeal but dismiss the appeal with costs. I certify that the preceding fifty-two (52) paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore.

branson j 53 I have had the benefit of reading in draft the reasons for judgment of Moore J. I agree with his Honour that the applicant should be granted leave to appeal. The respondent did not contend to the contrary. The applicant will hereafter be referred to as the appellant. I gratefully adopt his Honour's outline of the background to the appeal and the issues to be determined on the appeal. 54 The principal issue to be determined on the appeal, as it seems to me, is whether a product which, at the time of trial, can be demonstrated to have performed, and to be continuing to perform, satisfactorily can nonetheless be found to be 'not of merchantable quality' within the meaning of s 74D(1) of the Trade Practices Act 1974 (Cth) ('the TPA'). 55 Section 74D of the TPA provides: 'Action in respect of goods of unmerchantable quality (1) Where: (a) a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply; (b) a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer; (c) the goods are not of merchantable quality; and (d) the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality; the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction. (2) Subsection (1) does not apply: (a) if the goods are not of merchantable quality by reason of: (i) an act or default of any person (not being the corporation or a servant or agent of the corporation); or (ii) a cause independent of human control; occurring after the goods have left the control of the corporation; (b) as regards defects specifically drawn to the consumer's attention before the making of the contract for the supply of the goods to the consumer; or (c) if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal. (3) Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to: (a) any description applied to the goods by the corporation; (b) the price received by the corporation for the goods (if relevant); and (c) all the other relevant circumstances.' 56 Section 74D of the TPA creates a statutory cause of action. The circumstances which must exist before a corporation is liable to compensate, relevantly, a consumer who suffers loss or damage by reason that the goods are not of merchantable quality are those identified in paragraphs (a), (b) and (c) of s 74D(1). Whether or not the circumstance in paragraph (c) exists is to be determined by reference to s 74D(3) which gives meaning to the element of the statutory cause of action that 'the goods are not of merchantable quality'. 57 It was accepted on this appeal, as it was before the learned primary judge, Sackville J, that the time at which it is to be determined whether the goods are of merchantable quality is the time of the supply of the goods to the consumer. However, although the determination to be made is whether the goods supplied to the consumer were of merchantable quality when so supplied, it is accepted that at least some information not available at that time may be taken into account at trial for the purpose of making that determination. A critical question on this appeal, as it seems to me, is how much later-acquired information may be taken into account. 58 Before turning to that question, it is important to note that the parties accept that s 74D(1) is concerned with the quality of the particular goods, or product, supplied to the consumer who seeks to recover compensation under the section. That is, so far as Mr Courtney's individual claim is concerned, the quality of the particular pacemaker supplied to Mr Courtney. It follows, in my view, that for the purposes of the subsection, it is not appropriate to attribute to Mr Courtney's pacemaker any qualities derived by statistical analysis of the total population, or pool, of pacemakers from which Mr Courtney's pacemaker came. So, for example, while statistical analysis of the total population of pacemakers from which Mr Courtney's pacemaker came might show that pacemakers of that type have a 2 per cent chance of premature failure, that analysis would reveal nothing about the quality of Mr Courtney's particular pacemaker. 59 So far as Mr Courtney's pacemaker is concerned it is not suggested that it was known, or could have been known, at the time that it was supplied to him that it was unmerchantable. On the information then available there was no reason for either the appellant or Mr Courtney to suspect that it was other than fit for its intended purpose, which was the purpose for which pacemakers are commonly bought. That purpose, as the primary judge found at [202], was the purpose of being implanted into a patient on the advice of a medical practitioner so as to restore and maintain a normal heart beat by providing an electrical impulse carried through leads to the heart. 60 Sackville J at [213]-[214] concluded that Mr Courtney's pacemaker was not of merchantable quality within the meaning of s 74D of the TPA because it was manufactured with yellow spool solder and thus was subject to a 'superadded risk of premature failure' by reason of partial short circuit. At [213] his Honour observed: 'Although the evidence as to the background or random rate of failure was meagre, it is clear that the risk of failure of each Hazard Alert Pacemaker manufactured with yellow spool solder was substantially greater than the risk applicable to other available pacemakers, including other Tempo Pacemakers.'

Sackville J at [214]-[217] concluded that because of the 'superadded risk of premature failure', Mr Courtney's pacemaker was not as fit for the purpose for which pacemakers are commonly bought as it is reasonable to expect having regard to all relevant circumstances. His Honour noted that the appellant, the Therapeutic Goods Administration and specialist medical practitioners all regarded the additional risk of premature failure as unacceptable to consumers.

61 Nonetheless, his Honour found at [164] that Mr Courtney's pacemaker has at all times functioned normally and, had it remained in situ, it would not have ceased to function prematurely by reason of battery depletion. The appellant contends that the primary judge erred in not bringing into account, in determining whether Mr Courtney's pacemaker was of merchantable quality within the meaning of s 74D of the TPA, the after-acquired knowledge that Mr Courtney's pacemaker did not suffer from premature battery depletion. 62 The appellant, in arguing that the primary judge erred in not bringing to account all of the information available at trial, placed reliance on Grimsdale & Sons Ltd v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 (the 'Hardwick Game Farm case'). That case involved consideration of, amongst other things, the operation of s 14(2) of the Sale of Goods Act 1893 (UK) which is concerned with an implied contractual condition when goods are bought by description that the goods should be of merchantable quality. 63 The primary judge at [189]-[190] noted the need, when construing the provisions of Division 2A of Part V of the TPA, to be cautious about resorting too readily to authorities which illuminate the common law approach to merchantable quality. The definition of 'merchantable quality' in s 74D(3) is significantly different from the concept of merchantable quality at common law. The common law concept of 'merchantable quality' was clarified by Dixon J in Australian Knitting Mills Limited v Grant (1933) 50 CLR 387 at 418 where his Honour said: '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.' 64 Section 74D is intended to provide a remedy to consumers in respect of goods of a kind ordinarily acquired for personal, domestic or household use or consumption (see s 74A(2)(a)). The requirement of merchantable quality, which is given meaning by s 74D(3), is a requirement defined by reference to what 'it is reasonable to expect'; that is, in my view, with what it is objectively reasonable to expect at the time of supply to the consumer. The test contained in s 74D(3) is a test that requires the making of a comparison. It calls for the fitness for purpose of the goods in question to be measured against what it was objectively reasonable to expect, in terms of fitness for purpose, in all the relevant circumstances. Those circumstances include the description applied to the goods by the manufacturer and the price received by the manufacturer for the goods. What it is objectively reasonable to expect in terms of fitness for purpose of goods of one description may be quite different from what it would be reasonable to expect of goods of another description. What it would be reasonable to expect in terms of fitness for purpose of an inexpensive product might be quite different from what it would be reasonable to expect of an expensive product of the same kind. 65 However, to the extent that s 74D(3) has an application to goods with defects of which the consumer did not know, and could not by actual examination have learned, I accept that some assistance may be gained from consideration of common law authorities concerning latent defects in goods bought by description. 66 In the Hardwick Game Farm case the House of Lords was concerned with a compounded meal that had been bought and subsequently fed, with ill-effects, to pheasants and partridges. The compounded meal was found to contain a proportion of a Brazilian groundnut extraction which was contaminated by a toxic substance. Lord Reid at 75-76 observed: 'It is quite clear that some later knowledge must be brought in for otherwise it would never be possible to hold that goods were unmerchantable by reason of a latent defect. By definition a latent defect is something that could not have been discovered at the time by any examination which in light of then existing knowledge it was reasonable to make. But there is a question as to how much later knowledge ought to be brought in. … I think it would be very artificial to bring in some part of the later knowledge and exclude other parts. … There is clear evidence that before the date of the trial Indian groundnut extractions so contaminated were sold under the ordinary description and were not rejected by the buyers when the contamination was discovered; … So I think that it sufficiently appears that groundnut extractions contaminated to an extent not said to be different from the contamination of the Brazilian product were regarded as of merchantable quality under the ordinary description at the date of the trial.' 67 Lord Guest took a similar view. His Lordship at 108-109 said: 'It is clear that the quality of the goods has to be assessed at the time of the trial when the latent defect has become known. But it is said you must not, in ascertaining the condition of the goods and their merchantability, attribute the knowledge that they would not be harmful if compounded at a low rate of inclusion. This is, in my view, to approach the true situation with blinkers. The defect as ultimately discovered must be taken with its qualifications. It is not possible to stop halfway and say "We know there is a defect" without proceeding to say "Although there is a defect we know it can be cured by a limited rate of inclusion". The defect was thus of only a limited character and did not in that state detract from the merchantability of the goods. I would, therefore, hold that the judge was entitled to view the matter in the state of knowledge at the date of the trial, namely, that the goods were saleable for a limited purpose at a limited rate of inclusion.' 68 It appears that Lord Morris of Borth-y-Gest at 92 also took the view that all after‑acquired knowledge was relevant to the determination of merchantable quality. 69 Lord Pearce, with whom in this regard Lord Wilberforce agreed, took a different approach from that adopted by Lord Reid, Lord Guest and, it seems, Lord Morris of Borth‑y‑Gest. His Lordship at 118-119 observed: 'Logic might seem to indicate that the court should bring to the task [of estimating merchantability] all the after-acquired knowledge which it possesses at the date of trial. But I do not think that this is always so. For one is trying to find what market the goods would have if their subsequent ascertained condition had been known. As it is a hypothetical exercise, one must create a hypothetical market. Nevertheless the hypothetical market should be one that could have existed, not one that could not have existed at the date of delivery. Suppose goods contained a hidden deadly poison to which there was discovered by scientists two years after delivery a simple, easy, inexpensive antidote which could render the goods harmless. They would be unmarketable at the date of delivery if the existence of the poison was brought to light, since no purchaser could then have known the antidote to the poison. Hypothesis is no reason for complete departure from possibility. One must keep the hypothesis in touch with the facts as far as possible.' (emphasis in original) 70 In my view, in the context of s 74D of the TPA, the approach of Lord Pearce to the use of after‑acquired knowledge in the Hardwick Game Farm case is compelling. Section 74D, as is mentioned above, calls for the quality, or fitness for purpose, of the goods to be measured against what it was reasonable to expect in that regard at the time of the supply of the goods to the consumer. That measurement must be undertaken, in my view, in the light of information concerning the goods available at the time of trial. However, the issue remains whether the goods were as fit for the relevant purpose as it was reasonable to expect at the time of their supply to the consumer. 71 It seems to me that the above conclusion is strengthened, not weakened, by consideration of a hypothetical situation to which considerable attention was paid during the hearing of this appeal. The hypothetical situation concerned a grocer who buys a case of 100 cartons of yoghurt in which three cartons, which cannot be distinguished from the other ninety-seven, have had arsenic introduced into them. Mr Walker SC, who appeared with Mr Loveday and Mr Clark for the appellant, accepted that the case of 100 cartons of yoghurt was unmerchantable as a case because the grocer could not know which cartons had arsenic in them. However, in respect of a purchaser who bought and ate without ill-effect an individual carton of yoghurt, Mr Walker argued: 'The suggestion that it [i.e. the carton of yoghurt] was not merchantable because it belonged to a class in which the rate of arsenic contamination was 3 per cent … would be absurd.' 72 The test of merchantability in the above context involves consideration of whether the carton of yoghurt was as fit for human consumption at the time of its sale to the consumer as it is objectively reasonable to expect in all of the circumstances. It seems to me to be instructive to consider the application of that test in different hypothetical situations. These situations might include:

(1) a sale to a purchaser who learned of the risk of poisoning before eating the yoghurt; (2) a sale to a purchaser who only learned of the risk of poisoning well after eating the yoghurt; and (3) a sale to a purchaser who learned of the risk of poisoning after eating the yoghurt but before any poison might be expected to have taken effect.

A purchaser in the first class could reasonably be expected to return the carton of yoghurt or discard it. Surely it could not be said at trial, even if at that time all three poisoned cartons had been identified in the hands of other purchasers, that the carton of yoghurt was at the time of its sale as fit for human consumption as it is objectively reasonable to expect so as to deny the purchaser relief under s 74D. A purchaser in the second class could reasonably be expected to feel relieved to have survived but angry that he or she had been placed at risk of poisoning. Again, in my view, it would be unrealistic to say of the carton of yoghurt that it was at the time of its sale as fit for human consumption as it was objectively reasonable to expect. A purchaser in the third class could reasonably be expected to feel the most keenly of the three that the yoghurt was not fit for human consumption at the time of purchase. The anxiety experienced by that purchaser, in my view, would flow directly from the carton of yoghurt not being, at the time of its sale, as fit for human consumption as it is objectively reasonable to expect. In short, I am not persuaded that it would be absurd to characterise a food product as not merchantable in the relevant sense where the product carries a slight but appreciable risk of contamination by a deadly poison.

73 It seems to me that to deny that all, or any, of the purchasers in the above classes purchased goods of a kind that were not as fit for human consumption as it is reasonable to expect is to read into the test of merchantable quality a requirement concerning loss or damage. Section 74D(1)(c) is not concerned with loss or damage. It is s 74D(1)(d) that imports into the statutory cause of action created by s 74D the requirement that the consumer suffers loss and damage by reason that the goods are not of merchantable quality. 74 I reject the argument that the mere fact that it was known at the time of trial that Mr Courtney's pacemaker had not failed prematurely meant that it could not be demonstrated that Mr Courtney's pacemaker was not of merchantable quality within the meaning of s 74D at the time of its supply to Mr Courtney. 75 The characteristic of Mr Courtney's pacemaker which the trial judge found rendered it unmerchantable at the time of its supply to Mr Courtney was that it had been manufactured with yellow spool solder. His Honour found that the evidence established that the population of pacemakers that were manufactured with yellow spool solder had a higher rate, or as the primary judge described it a 'superadded risk', of premature failure when compared with the normal population of pacemakers manufactured by the appellant. The reason for this superadded risk, as his Honour found at [212], was that the pacemakers manufactured with yellow spool solder were 'affected by the white residue which had a tendency to attract or "trap" ionic contaminants'. 76 The appellant challenged his Honour's conclusion that Mr Courtney's pacemaker was affected by white residue. In my view, it is immaterial in this regard whether the primary judge concluded that all of the pacemakers manufactured with yellow spool solder were affected by white residue (see [212] of his Honour's judgment) or that white residue frequently resulted from the use of yellow spool solder (see [130] of his Honour's judgment). His Honour plainly concluded that it was more likely than not that the use of yellow spool solder would result in a white residue and that, for that reason, it could be inferred that Mr Courtney's pacemaker was affected by yellow spool solder. Section 140 of the Evidence Act 1995 (Cth) is concerned with the standard of proof in civil proceedings. It is to be understood as incorporating the common law rule that evidence is to be weighed according to the proof which it was in the power of one party to produce and in the power of the other to contradict (see Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation [1985] 1 NSWLR 561 at 565 citing Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 and other authorities). It was within the power of the appellant who was in possession of Mr Courtney's pacemaker, but not the respondent, to establish whether or not Mr Courtney's pacemaker was in fact affected by white residue. I do not suggest that the appellant is to be criticised for deciding to preserve Mr Courtney's pacemaker in working order rather than to open it to check for white residue. However, having chosen that course, it is in no position to attack his Honour's finding that the pacemaker is affected by white residue. 77 Sackville J did not conclude that Mr Courtney's pacemaker was unmerchantable within the meaning of s 74D because it came from a population of pacemakers that statistically had an unacceptable rate of premature failure. Rather his Honour concluded that Mr Courtney's pacemaker was unmerchantable in the relevant sense because it had the physical characteristic of having been manufactured with yellow spool solder. As a consequence of its method of manufacture it was itself at added risk because of the white residue, when compared with pacemakers not so manufactured, of premature battery depletion caused by dendritic growth. That is, his Honour concluded that, because it had been manufactured with yellow spool solder, Mr Courtney's pacemaker was not as fit for the purpose for which pacemakers are commonly bought as it was reasonable to expect for the reason that its method of manufacture gave it the quality of carrying a risk of premature failure which was higher than it was objectively reasonable to expect in a pacemaker. 78 In my view, having regard to the evidence before the primary judge (see [59] above), no error can be shown to have been involved in his Honour's conclusion that a pacemaker that has only the ordinary or usual risk of premature failure is more fit for the purpose of being used as a pacemaker than a pacemaker that has, by reason of the method of its manufacture, an appreciably higher risk of premature failure. In this case it was reasonable to expect, at the time of the supply to Mr Courtney of his pacemaker, that Mr Courtney's pacemaker had been manufactured in a way which gave rise to only the ordinary or usual risk of premature failure. However, the use of yellow spool solder in the manufacture of Mr Courtney's pacemaker meant that Mr Courtney's pacemaker had an appreciably higher risk of premature failure than the ordinary or usual risk of premature failure to be expected in pacemakers. 79 The above analysis has deliberately been undertaken without reference to the existence or otherwise of dendritic growth in Mr Courtney's pacemaker. What, in my view, made Mr Courtney's pacemaker, at the time that it was supplied to him, less fit for use as a pacemaker than it was reasonable in the circumstances to expect was its method of manufacture (i.e. that it was manufactured with yellow spool solder). It was that method of manufacture which created, because of the white residue, the 'superadded' risk of dendritic growth. While proof of actual dendritic growth in Mr Courtney's pacemaker at the time of its supply to him would have constituted proof that the pacemaker was not of merchantable quality within the meaning of s 74D, absence of proof of actual dendritic growth at that time did not logically lead to the contrary finding. 80 I would dismiss the appeal with costs. I certify that the preceding twenty-eight (28) paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson.

REASONS FOR JUDGMENT JACOBSON J: 81 I agree with the reasons for judgment of Branson J. I certify that the preceding paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate: Date: 7 July 2003 Counsel for the Applicant/Appellant: Mr Walker SC with Mr Loveday and Mr Clark

Solicitor for the Applicant/Appellant: Clayton Utz

Counsel for the Respondent: Mr Bannon SC with Mr Clarke and Mr Cashman

Solicitors for the Respondent: Maurice Blackburn Cashman

Date of Hearing: 5-6 June 2003

Date of Judgment: 7 July 2003