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).