Perre v Apand Pty Ltd

What happened

In the early 1990s Apand Pty Ltd, which then controlled approximately 60 per cent of the Australian potato-crisping market, was experimenting with a Dutch variety known as Saturna. The company had imported tissue culture, multiplied it through three generations under the Victorian Seed Potato Certification Scheme, and then withdrawn it from certification. In February 1991 senior officers met at Pakenham and decided to use uncertified seed grown on Mr Tymensen's property in the Koo Wee Rup swamp (an area known to be disease-prone) for further multiplication trials. That seed was supplied to 26 growers across four States, including six in South Australia.

Judgment (103 paragraphs)

[1]

The application of these provisions made it impossible for the appellants to continue to export potatoes to Western Australia.

[2]

Following discovery of the disease, and loss of its valuable market in Western Australia, the appellants (as did the Sparnons) commenced proceedings against the respondent for negligence. The Sparnons also alleged causes of action based on s 14 of the Sale of Goods Act 1895 SA and s 71 of the Trade Practices Act 1974 Cth. The damages were potentially very large. The appellants claimed $8.933m at trial. The owners of the Sparnon property also claimed in respect of their losses that the State of South Australia and the State Department of Primary Industries had negligently failed to investigate the history of the original Saturna seed and diagnose that it was infected with bacterial wilt. The claims against the State and the Department were dismissed at trial and were no longer pursued.

[3]

The trial judge von Doussa J, by consent, embarked upon a separate trial confined to the issue of liability of these appellants' claims against the respondent. The Sparnons' claim was litigated on all issues at trial.

[4]

Although the primary judge found that the respondent was in breach of its duty of care owed to the Sparnons, the appellants were unsuccessful. His Honour found that the respondent owed no duty of care to Warruga Farms on the basis that:

[5]

the factors relied [upon] do not create a special relationship of proximity with [the respondent] which takes [the] claims in negligence out of the general rule that damages are not recoverable for purely economic loss.

[6]

The trial judge found that the respondent had never heard of Perre's Vineyards and Rangara. His Honour referred to Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad [8] and quoted a passage from the reasons of Gibbs J in that case in which his Honour said [9] that foreseeability of loss may not be enough to make that loss recoverable but that in some exceptional cases, and taken with other matters, it may give rise to a claim for economic loss.

[7]

(1976) 136 CLR 529. 2. Caltex Oil (1976) 136 CLR 529 at 555.

[8]

The trial judge gave judgment in favour of the Sparnons in negligence for a sum of money.

[9]

The appellants appealed to the Full Court of the Federal Court (constituted by O'Loughlin, Branson and Mansfield JJ) against the dismissal of their claims in negligence against the respondent [10] . There was no appeal against the judgment in favour of the State of South Australia. The respondent appealed against the judgment in favour of the Sparnons. The Sparnons did not appear when the appeal came on for hearing. The Full Court nonetheless dismissed the respondent's appeal against the judgment in favour of the Sparnons.

[10]

The Full Court was of the view that the appellants' claims were within a new category of cases not covered by the decision and principles stated in Caltex or any of the subsequent cases in this Court in which pure economic loss has been recovered.

[11]

After reviewing the authorities the Full Court said [11] :

[12]

It is, in our view, appropriate to elicit from the above decisions, the additional observation that despite the absence of any anterior dealing between [the respondent] and [the appellants], it would be relevant to the existence or otherwise of a relationship of proximity to found the necessary duty if [the respondent's] conduct in relation to the Sparnons carried with it some circumstance involving direct reliance by, or an assumption of responsibility towards, or control of events directed to producing an outcome for, the [appellants]. Whether such considerations, if they exist, amount to a refinement of the "identity of interests" or "common adventure" descriptions that have been used in some cases, or are simply another way of expressing the same, but more general, concept as discussed by Gaudron J and Gummow J in Hill v Van Erp , is not critical to resolution of the present appeal.

[13]

The subsequent decision of the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [12] , which dismissed a claim for damages for negligent misstatement against a firm of auditors is also consistent with our above observation

[14]

[I]t is, in our view, difficult to elevate the relationship between the [appellants] on the one hand and [the respondent] on the other to the category of "special" as that expression has been applied in the High Court.

[15]

Perre (1997) 80 FCR 19 at 41-42 2. (1997) 188 CLR 241.

[16]

Their Honours were influenced by the absence of anterior relationships between the respondent and the appellants. They also commented on the absence of evidence of how many growers there were within a radius of 20 km of all growers who planted Saturna seed, and, of these, where their potatoes were washed or packed, and how many of them were exporters to Western Australia. They thought that the losses sustained here were not distinguishable in kind from losses that might be sustained in adopting measures to avoid contamination. All of the appellants fell outside, their Honours concluded, any ascertained class; and, even if they were to be regarded as being members of an ascertainable class, there was no circumstance such as, for example, a customary sharing of washing facilities by the Sparnons with the appellants to require the respondent to take precautions for the protection of the appellants. Their Honours concluded [13] that the appellants' detriment was quite different in quality from that suffered by the plaintiff in Caltex .

[17]

The appellants' appeal to the Full Court of the Federal Court therefore failed.

[18]

The appellants' grounds of appeal to this Court which were pressed were that the intermediate court erred in that it: 1. "failed to find the instant case came within the principles enunciated in Caltex Oil (Aust) Pty Ltd v The Dredge Willemstad [14] for the purposes of deciding whether a duty of care not to cause economic loss was owed by the respondent to the appellants"; 2. "failed to equate causing an apprehension of injury with causing actual injury for this purpose"; 3. "failed to correctly consider both the actual knowledge and constructive knowledge possessed by the respondent's servant Hughes of the economic harm which Hughes' negligent acts would have on the appellants as individuals. In particular it failed to take into account Hughes' actual and constructive knowledge of the appellants, their location within 20 km of the Sparnon property and the potato exports conducted by the appellants to Western Australia"; 4. "failed to adequately consider the evidence of Hughes' knowledge by dismissing it as evidence of knowledge "casually given" to Hughes and therefore not knowledge acquired by the respondent"; 5. "failed to find that the appellants were members of a determinate class of potential claimants"; 6. "failed to appreciate the similarity in nature of the economic loss caused by the respondent's negligence to that which would have been caused by actual physical contamination, namely the appellants' inability to grow or process export potatoes for Western Australia on the appellants' property for a period of five years from the date of the detection of the outbreak of bacterial wilt."

[19]

The respondent has filed a notice of contention but consideration of it may be deferred.

[20]

The appellants essentially presented two arguments in this Court: that the nature of the damage suffered by the appellants was not "pure economic loss" but that it was properly characterisable as a physical effect on property falling just short of physical injury, but indistinguishable in principle from physical injury, or, it flowed from a threat or apprehension of actual physical damage and was therefore sufficiently analogous to loss consequent upon actual physical damage to justify recovery; alternatively, if the damage suffered was properly to be characterised as "pure economic loss", a duty of care was owed because of the existence of special circumstances.

[21]

In Caltex [15] this Court held that, although as a general rule damages are not recoverable for foreseeable economic loss which is not consequential on injury to person or property, damages may be, and were there recoverable in a case in which the defendant had knowledge, or the means of knowledge that a particular plaintiff would be likely to suffer economic loss as a consequence of the defendant's negligence. Although the principle emerging from Caltex may be stated in those broad terms, its application in any particular case requires a careful marshalling of all the relevant facts and circumstances, and has on occasions been frankly acknowledged [16] as involving the weighing of relevant policy considerations.

[22]

(1976) 136 CLR 529. 2. Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 498, per Deane J; Hill v Van Erp (1997) 188 CLR 159 at 179, per Dawson J; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 536-537

[23]

In Caltex [17] Gibbs J reviewed the earlier cases, and discussed some of the policy considerations and other reasons which had led the courts in the past to hold against liability. His Honour accepted the possibility of illogicality in the distinction between recovery for economic loss and recovery for material loss, but expressed the same view as Lord Denning that the distinction was founded in common sense [18] :

[24]

It may be right to say that the distinction between recovery for economic loss and recovery for material loss is illogical, but that does not mean that the decisions that have drawn that distinction were erroneous, because the law aims at practical justice rather than logical consistency. However, I am in respectful agreement with Lord Denning MR in SCM (United Kingdom) Ltd v W J Whittall and Son Ltd [19] that the distinction is not lacking in common sense. If a person committing an act of negligence were liable for all economic loss foreseeably resulting therefrom, an act of careless inadvertence might expose the person guilty of it to claims unlimited in number and crippling in amount. For example, if, through the momentary inattention of an officer, a ship collided with a bridge, and as a result a large suburban area, which included shops and factories, was deprived of its main means of access to a city, great loss might be suffered by tens of thousands of persons, but to require the wrongdoer to compensate all those who had suffered pecuniary loss would impose upon him a burden out of all proportion to his wrong. Similarly, the driver of a vehicle which collided with a pylon carrying electric power lines in an industrial area might dislocate the work of dozens of factories. It is true that under modern conditions some claims arising from physical injury or material damage can be very large in amount - for example if a passenger train were derailed. Nevertheless, the extent of claims for loss that is purely economic is likely to be very much wider than that of claims arising out of physical injury and material damage. Further, a law which imposed a general duty to take care to avoid causing foreseeable pecuniary loss to others would interfere greatly with the ordinary affairs of life. There are sound reasons of policy why economic loss should not be treated in exactly the same way as material loss. His Honour's conclusions were stated in this passage [20] : In my opinion it is still right to say that as a general rule damages are not recoverable for economic loss which is not consequential upon injury to the plaintiff's person or property. The fact that the loss was foreseeable is not enough to make it recoverable. However, there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act. It is not necessary, and would not be wise, to attempt to formulate a principle that would cover all cases in which such a duty is owed; to borrow the words of Lord Diplock in Mutual Life & Citizens' Assurance Co Ltd v Evatt [21] : "Those will fall to be ascertained step by step as the facts of particular cases which come before the courts make it necessary to determine them." All the facts of the particular case will have to be considered. It will be material, but not in my opinion sufficient, that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure. 1. (1976) 136 CLR 529 at 545 et seq. 2. Caltex (1976) 136 CLR 529 at 551-552 3. [1971] 1 QB 337 at 344. 4. Caltex (1976) 136 CLR 529 at 555 5. (1970) 122 CLR 628 at 642; [1971] AC 793 at 809.

[25]

Stephen J accepted that policy considerations dictated the need to look beyond mere foreseeability of loss or damage as a test for liability for economic loss. His Honour said [22] :

[26]

The need is for some control mechanism based upon notions of proximity between tortious act and resultant detriment to take the place of the nexus provided by the suggested exclusory rule which I have rejected. Its precise nature and the extent to which it should restrict recovery for purely economic loss must depend upon policy considerations just as does the conclusion that for cases of economic loss such an additional control mechanism is necessary. Both in actions for negligent misstatement and in products liability actions based upon negligence, the particular fact situations encountered are likely themselves to provide material out of which formulations limiting the extent of liability may be fashioned; Hedley Byrne [23] and Rivtow Marine [24] respectively provide examples of this process in these two areas. But in the general realm of negligent conduct it may be that no more specific proposition can be formulated than a need for insistence upon sufficient proximity between tortious act and compensable detriment. The articulation, through the cases, of circumstances which denote sufficient proximity will provide a body of precedent productive of the necessary certainty; the gradual accumulation of decided cases and the impact of evolving policy considerations will reflect "the courts' assessment of the demands of society for protection from the carelessness of others" - per Lord Pearce in Hedley Byrne [25] reiterated by Lord Diplock in Dorset Yacht Co v Home Office [26] . It was Lord Pearce in Hedley Byrne who explained the divergence between the law of negligence in word and that of negligence in act in terms of the quite special characteristics of words as the instrument of negligence [27] . Economic loss possesses many of the characteristics which Lord Pearce attributed to negligence by word and the need which his Lordship recognised for proximity as a precondition of liability for negligence by word applies equally to all cases of recovery for purely economic loss.

[27]

Some guidance in the determination of the requisite degree of proximity will be derived from the broad principle which underlies liability in negligence. As Lord Atkin put it in a much cited passage from his speech in Donoghue v Stevenson [28] the liability for negligence "is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay". Such a sentiment will only be present when there exists a degree of proximity between the tortious act and the injury such that the community will recognise the tortfeasor as being in justice obliged to make good his moral wrongdoing by compensating the victims of his negligence. Again, as Lord Morris said in the Dorset Yacht Case courts may have recourse to a consideration of what is "fair and reasonable" in determining whether in particular circumstances a duty of care arises [29] ; so too, I would suggest, in determining the requisite degree of proximity before there may be recovery for purely economic loss.

[28]

[1932] AC 562 at 580. 2. Dorset Yacht [1970] AC 1004 at 1039.
1. Caltex (1976) 136 CLR 529 at 574-575
2. [1964] AC 465.
3. Rivtow Marine Ltd v Washington Iron Works [1974] SCR 1189
4. [1964] AC 465 at 536.
5. [1970] AC 1004 at 1058.
6. Hedley Byrne [1964] AC 465 at 534.
7. [1932] AC 562 at 580.
8. Dorset Yacht [1970] AC 1004 at 1039.

[29]

Mason J emphasised the undesirability of the multiplication of claims by a large number of members of a general class of persons for a virtually indeterminate liability [30] :

[30]

It is preferable, then, as Mr P P Craig suggests in his illuminating article, "Negligent Misstatements, Negligent Acts and Economic Loss" [31] that the delimitation of the duty of care in relation to economic damage through negligent conduct be expressed in terms which are related more closely to the principal factor inhibiting the acceptance of a more generalised duty of care in relation to economic loss, that is, the apprehension of an indeterminate liability. A defendant will then be liable for economic damage due to his negligent conduct when he can reasonably foresee that a specific individual, as distinct from a general class of persons, will suffer financial loss as a consequence of his conduct. This approach eliminates or diminishes the prospect that there will come into existence liability to an indeterminate class of persons; it ensures that liability is confined to those individuals whose financial loss falls within the area of foreseeability; and it accords with the decision in Rivtow . [32] 1. Caltex (1976) 136 CLR 529 at 592-593 2. Law Quarterly Review, vol 92 (1976) 213. 3. [1974] SCR 1189.

[31]

Jacobs J adopted a somewhat broader approach which does not seem to have attracted the support of other members of the Court then or subsequently. In his Honour's opinion, where foreseeable economic loss arises from a physical effect on the plaintiff's property there is no bar to recovery on the ground only that the loss is economic. In a passage upon which the appellants rely for their first argument Jacobs J said [33] :

[32]

A question of central importance in the present case is whether the physical effect in this context is limited to actual physical injury. In my opinion it is not. Person or property may be injured not only physically but also by physical effect thereon short of physical injury: eg by an act or omission which prevents physical movement of a person or which prevents physical movement or operation of property.

[33]

The damages for immobilisation of property may frequently be quantified as the cost of mobilising the property and the loss of the use of the property during its immobilisation. Such damage may be called pecuniary or economic loss. However, it is an error to concentrate attention on the question whether a particular loss is pecuniary or economic. Rather it is necessary to examine the circumstances of the loss. If the loss arises from the physical effect of an act or omission on the person or property of a plaintiff and that physical effect is one which was foreseeable and that foreseeability gives rise to a duty in the defendant to take reasonable care to avoid that physical effect, it is no answer to the plaintiff's claim for damages that his loss was pecuniary or economic. Nor is there any need or place for such a concept as has been expressed in the term "parasitic damages". [34]

[34]

cf Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 at 34-36, per Lord Denning MR.
1. Caltex (1976) 136 CLR 529 at 597-598
2. cf Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 at 34-36, per Lord Denning MR.

[35]

Murphy J expressed a quite different view which left little or no room for the limitation of damages or liability of ordinary people or corporations on grounds of policy except in the case of public authorities or corporations who his Honour thought might require some special protection or immunity [35] .

[36]

In Bryan v Maloney Mason CJ, Deane and Gaudron JJ adopted the same sort of approach as commended itself to Stephen J in Caltex . Their Honours said [36] :

[37]

The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognised as involving a relationship of proximity between the parties with respect to such an act and such damage and as "attracting a duty of care, the scope of which is settled" [37] . In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the "notion of proximity is of vital importance" [38] . As Stephen J indicated in Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad [39] , it is the "articulation", in the different categories of case, "of circumstances which denote sufficient proximity" with respect to mere economic loss, including "policy considerations", which will gradually provide "a body of precedent productive of the necessary certainty". Inevitably, the policy considerations which are legitimately taken into account in determining whether sufficient proximity exists in a novel category will be influenced by the courts' assessment of community standards and demands [40] .

[38]

One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the law's concern to avoid the imposition of liability "in an indeterminate amount for an indeterminate time to an indeterminate class" [41] . Another consideration is the perception that, in a competitive world where one person's economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another's person or property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage [42] . The combined effect of those two distinct policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two. [43]

[39]

Ultramares Corporation v Touche (1931) 225 NY 170 at 179[174 NE 441 at 444], per Chief Judge Cardozo; Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 568, 591; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 537and see also Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 465 2. Jaensch v Coffey (1984) 155 CLR 549 at 578 Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503 3. See, generally, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 466-468, 501-502; Hawkins v Clayton (1988) 164 CLR 539 at 545, 576, 593.
1. Bryan v Maloney (1995) 182 CLR 609 at 617-619
2. Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 441, per Gibbs CJ and see also at 495, 501; Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 572-574 Jaensch v Coffey (1984) 155 CLR 549 at 581-582
3. San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355, per Gibbs CJ, Mason, Wilson and Dawson JJ.
4. (1976) 136 CLR 529 at 575.
5. See, eg, Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 536 Dorset Yacht Co Ltd v Home Office [1970] AC 1004 at 1038-1039, 1058; Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 575 Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 497
6. Ultramares Corporation v Touche (1931) 225 NY 170 at 179[174 NE 441 at 444], per Chief Judge Cardozo; Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 568, 591; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 537and see also Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 465
7. Jaensch v Coffey (1984) 155 CLR 549 at 578 Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503
8. See, generally, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 466-468, 501-502; Hawkins v Clayton (1988) 164 CLR 539 at 545, 576, 593.

[40]

In Hill v Van Erp , Dawson J and Toohey J held that a disappointed beneficiary who was deprived of a testamentary disposition by reason of a solicitor's negligence in inviting the beneficiary's husband to attest the will could recover against the solicitor because of the duty of care arising out of the proximity between the beneficiary and the solicitor [44] .

[41]

An important consideration in that case was that there was no prospect of indeterminate liability: the class of persons to whom the duty was owed was readily ascertainable. Giving effect to the duty did not diminish any competitive advantage a solicitor might have or supplant or supplement other legal remedies. Furthermore, the acknowledgment of the existence of the duty did not disturb any general body of rules constituting a coherent body of law. Gaudron J [45] and Gummow J [46] were both of the view that an important factual matter arguing in favour of liability was the misuse of effective control exercised by the solicitor, and that such a factor would always be relevant and important in determining whether a case was of such a kind as to justify an award of damages for pure economic loss.

[42]

Hill v Van Erp (1997) 188 CLR 159 at 198-199 2. Hill v Van Erp (1997) 188 CLR 159 at 232

[43]

In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [47] , this Court held that a financier was not entitled to succeed on the facts pleaded against auditors of a borrower corporation for losses from transactions which it claimed it had entered into in reliance upon audited accounts and the accompanying auditor's report. The financier alleged that mandatory accounting standards applied and that the auditors had fallen short of those standards in conducting the audit. The financier claimed that it was a member of a class of persons whom the auditors foresaw or ought reasonably to have foreseen might reasonably have relied upon the accounts and the report.

[44]

The Court (Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ) unanimously rejected the financier's claim but for reasons that were not identical. Brennan CJ thought it critical that, among other things, the circumstances justifying recovery should be such that the defendant knew, or ought reasonably to have known that the information would be communicated to the plaintiff, either individually, or as a member of an identified class, and that it would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of a kind that he did enter; and further, that it would be very likely that the plaintiff would enter into such a transaction in reliance upon the information and thereby risk economic loss if the information were to turn out to be untrue or unsound [48] .

[45]

Dawson J thought it important in a case of pure economic loss that, in addition to foreseeability of harm, there be a special relationship between the parties which might be described as a relationship of proximity [49] . Both Dawson J and McHugh J thought it relevant that there was a statutory regime in force to regulate the conduct of auditors and the contents of any report that they made or auditing work that they did [50] .

[46]

Esanda (1997) 188 CLR 241 at 256 2. Esanda (1997) 188 CLR 241 at 258, 282.

[47]

Toohey and Gaudron JJ were of the view that whether a duty of care to take reasonable steps to avoid economic loss to another exists, depends upon a relationship of proximity which may be found in special categories of cases only, such as those in which there is an expectation, rather than mere reliance, on the part of the person who has suffered the loss [51] . So too, an assumption of responsibility for providing information in a context in which it is known or ought reasonably to be known that it may be acted upon for a serious purpose will be, in a case such as Esanda , of importance. Their Honours thought that other relevant questions were whether the defendant possessed any special expertise or knowledge, or had special access to information not available to the recipient of the information, and the reasonableness or otherwise of the conduct of the recipient in acting upon the information without further inquiry [52] .

[48]

Esanda (1997) 188 CLR 241 at 264 2. Esanda (1997) 188 CLR 241 at 264-265

[49]

McHugh J had regard (among other things) to wider considerations of policy such as the impact of prolonged and multiple actions against auditors upon the courts, the insurability or otherwise of the risks, the magnitude of the losses of which they would be productive if realised, the availability of other civil proceedings, the possibility of criminal proceedings against the auditors, and the public interest in ensuring that there be auditors ready, willing and able to perform their professional duties at a reasonable cost [53] . Gummow J was of the opinion that the allegations, if established, would not be sufficient to found a duty of care, and that there was not a sufficiently close relationship between the financier and the auditors to warrant any imposition of liability upon them [54] .

[50]

Esanda (1997) 188 CLR 241 at 289 2. Esanda (1997) 188 CLR 241 at 310

[51]

In Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [55] the Judicial Committee was of the opinion that there was not a sufficient commonality of statement of principle in the respective judgments of Gibbs J, Stephen J and Mason J in Caltex to enable a clear ratio to be extracted from that case and that therefore they did not think they could derive any assistance from it [56] . Since Candlewood however there have been a number of cases in Australia, both in this Court and in other courts [57] , in which Caltex has been considered and applied or distinguished.

[52]

[1986] AC 1. 2. Caparo [1986] AC 1 at 24 3. See, eg, Warwicker Assessments v Zadow (1989) 1 WAR 307 Brickhill v Cooke [1984] 3 NSWLR 396 Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR 224

[53]

The cases subsequent to Caltex in this country show that all judges are united in their opinions that, for policy reasons, there is a need for a control mechanism to limit the availability of relief for pure economic loss so that commerce, providers of services, courts and society generally will not have to bear the burden and uncertainty of incalculable claims by a mass of people whose identity or very existence may be unknown to the defendant. It is not surprising, having regard to the different factual situations in which pure economic loss has been suffered and will no doubt be suffered in the future, and the frank judicial acknowledgments that have been made of the relevance of public policy and social issues, that the principles governing or controlling the mechanisms to limit liability have not always been stated identically.

[54]

The different path which this Court has followed in Caltex and the ensuing cases to which I have referred makes it unnecessary to consider Caparo Industries Plc v Dickman [58] in the House of Lords and Hercules Managements Ltd v Ernst & Young [59] in the Supreme Court of Canada (applying Caparo ) which may in any event perhaps be taken to depend upon the special statutory framework in which auditors' reports are prepared, matters which both Dawson J and McHugh J thought of relevance in the Australian auditor's case of Esanda [60] .

[55]

[1990] 2 AC 605. 2. [1997] 2 SCR 165. 3. (1997) 188 CLR 241.

[56]

In her essay "Duty of Care Factors: a Selection from the Judicial Menus" [61] , Professor Stapleton discusses some of the difficulties which have confronted the courts in trying to find, and express one clear principle which judges may readily apply in cases of pure economic loss. There is much I think to commend her view that [62] :

[57]

while the listing of these judicial menus of sound factors relevant to the duty issue help unmask the substantive determinations being made by judges in this field, they cannot operate as some sort of mechanical guide as to how a novel case will be decided in the future [A]t the end of the day, even if judges agree on the relevant factors to be weighed in the individual case, different judges may well place different weight on competing factors and do so quite reasonably. It should be made clear however that the determination of a claim for pure economic loss is not a merely discretionary matter: it requires the application of the principles stated in Caltex and the subsequent cases in this Court to the various factual situations as they arise in the courts. 1. In Cane and Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) 59. 2. In Cane and Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) 59, at p 88.

[58]

And it must be accepted that this is an area of the law in which the courts should move incrementally and very cautiously indeed. It is not yet possible to identify a bright line of demarcation between those cases of pure economic loss in which damages are recoverable and those in which they are not. The law is still developing in the somewhat piecemeal fashion that Stephen J predicted in Caltex [63] :

[59]

As the body of precedent accumulates some general area of demarcation between what is and is not a sufficient degree of proximity in any particular class of case of pure economic loss will no doubt emerge; but its emergence neither can be, nor should it be, other than as a reflection of the piecemeal conclusions arrived at in precedent cases. 1. (1976) 136 CLR 529 at 576.

[60]

I turn now to a consideration of the factors which in combination I think relevant in this case and which establish a sufficient degree of proximity, foreseeability, a special relationship, determinacy of a relatively small class, a large measure of control on the part of the respondent, and special circumstances justifying the compensation of the appellants for their losses.

[61]

The respondent played a leading role in the industry. It was involved in all phases of it, from the introduction of particular varieties of seed, and the encouragement of growers to sow that seed, to the acquisition of the produce of that seed, its processing into a manufactured commodity and the distribution of that commodity in the community. In short, its role and position in the market were commanding ones. This role of itself tended very much to place the respondent in a special relationship to growers and handlers of potatoes.

[62]

The respondent was in effective control of the particular operation which led ultimately to the imposition of the embargo upon the appellants' properties [64] . That operation was the selection of the Saturna seed and its invitation to Mr Tymensen and then the Sparnons to sow it.

[63]

cf Hill v Van Erp (1997) 188 CLR 159 at 198-199, per Gaudron J.

[64]

I am of the view that the appellants were members of a determinate class. As Hayne J points out, the respondent effectively chose where the seed was to be grown. By force of the Western Australian Regulations, if bacterial wilt did occur, then all of those operating in the industry and involved in the provision of land for, and the cultivation and preparation of potatoes for the Western Australian market, within 20 km of the occurrence of the disease were capable of being directly affected by the respondent's actions. The evidence shows that there were relatively few growers in fact of potatoes within 20 km of the Sparnons' property. Furthermore, only twenty-six growers in the whole country were asked to plant this seed. The respondent, having regard to its dominating position in the industry, must have known, or at least it ought to have known, of the special attractions of the Western Australian market and the likelihood that growers and handlers of potatoes such as the appellants would wish to take advantage of it. Furthermore, the respondent was well aware, as the memorandum of 26 June 1990 shows, that the trend in the industry was for concentration of activity, in growing, packing and processing, with a consequent increase in risk. Accordingly the respondent actually foresaw as being within a class of people likely to be adversely affected, packers and processors of potatoes, including those who were also growers, or handlers and land owners or facility owners closely connected with them such as those appellants as were not growers.

[65]

The geographical propinquity of the property to which the respondent caused the Saturna seed to be introduced (the Sparnons' property) to the appellants' property is relevant [65] .

[66]

Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 601-602, per Jacobs J.

[67]

So too, the commercial propinquity, that is to say the facts that the appellants and the respondent were both involved in the same industry in the same year and had been so involved for some time, is relevant. Both this and the preceding matter to which I have referred bespeak, in a real sense, proximity.

[68]

I think it relevant that the respondent in this case had an especially heightened awareness of the dangers of bacterial wilt and the strict attitude of the Western Australian authorities towards that disease. Those portions of the memorandum of 26 June 1990 which I have emphasised make this proposition graphically clear. The effects of an embargo go beyond slight harm. Indeed, as the memorandum also makes clear, for a particular grower or processor the consequences of an outbreak within 20 km could be devastating as they were here, effectively putting the appellants out of business.

[69]

In this case the respondent assumed a risk of which it was well aware or should have been aware [66] . It made two important, conscious decisions against the background of its awareness of the potential consequences of an outbreak of bacterial wilt. It chose to withdraw the seed from the certification programme and to invite growers to plant it when it knew that the best way of avoiding the risk was to ensure that certified seed be used. There would have been no inconvenience to the respondent in taking appropriate steps to avoid risk of injury to the appellants. All that the respondent needed to have done was to have encouraged and arranged the use of certified or other proved seed, or to have persisted with the certification programme for the Saturna seed.

[70]

See White v Jones [1995] 2 AC 207 at 268 Hill v Van Erp (1997) 188 CLR 159 at 204, per McHugh J; at 231, per Gummow J.

[71]

The harm that was done to the appellants was done in relation to their participation in a national commodity market. It is notorious that commodity markets are fragile (as the evidence here indicates) and in particular are very vulnerable in modern times to contamination both prospective and actual. Interstate trade in commodities, as well as in other products, is to be encouraged, and it is apparent that there was in place in this case a co-operative scheme for the benefit of the industry involving authorities in Victoria, South Australia and Western Australia and perhaps even elsewhere.

[72]

What the respondent was doing here was undertaking an experiment. The respondent's officers referred to the use of the seed on the Sparnons' property in those terms and clearly so regarded it. An experiment almost always involves risks and those risks needed evaluation in light of the dangers which the respondent's own officers were stressing in writing [67] .

[73]

See generally Weller & Co v Foot and Mouth Disease Research Institute [1966] 1 QB 569

[74]

The appellants were rendered powerless to abate, or to prevent the occurrence of the loss to which they were subjected [68] . In no way did they act illegally, improperly, or unreasonably or without regard for their own interests.

[75]

cf Hill v Van Erp (1997) 188 CLR 159 at 216, per McHugh J; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 370, per McHugh J.

[76]

It was not suggested in argument before this Court that there was any statutory penalty or other sanction which might be imposed upon the respondent or that there was any statutory or regulatory regime to govern the way in which the respondent relevantly acted in effectively controlling the planting of the seed.

[77]

Although it could not be said that the appellants had any particular expectations with respect to the selection of the seed by the respondent, the appellants were entitled to assume that those who were involved in and played a leading role in their industry and might distribute or arrange for the use of seed which if infected could damage the appellants' business and properties, would be responsible in the way in which they caused or permitted a particular seed to be sown.

[78]

What happened to the appellants here was not the result of merely legitimate, competitive, commercial activity [69] .

[79]

See Hill v Van Erp (1997) 188 CLR 159 at 179, per Dawson J.

[80]

I do not regard the likely number of growers at risk actually or potentially as a result of the respondent's activities to be so numerous as to be likely to give rise to a crippling burden upon the respondent. In a country such as Australia it is open I think, for a court to take judicial notice of the likelihood that generally speaking the cultivation of potatoes is not a market garden activity but will usually be a broadacre activity not involving a very large number of growers, especially growers exporting to Western Australia, and in an area within a radius of 20 km from an infected property. The evidence here is that the area of Mr Tymensen's property was 69 ha. The Sparnons' holding was 409 ha of which at least 14 ha were sown with potato seed in 1989. The Perres' property was 807 ha of which more than 100 ha were used for growing potatoes.

[81]

The imposition of liability upon the respondent would not impose an impediment in the way of ordinary commercial activity in the potato industry [70] .

[82]

See Hill v Van Erp (1997) 188 CLR 159 at 179, per Dawson J.

[83]

What the respondent did went considerably beyond careless inadvertence and resulted from conscious decisions carrying with them obvious risks.

[84]

What happened to the properties (the lands, the plant and equipment, and the leaseholds or tenancies) of the appellants here may not have been actual physical damage but it came very close to that. "Blight" is a familiar concept in compensation and town planning cases [71] . In a sense, the amenity of a property is very much akin to a physical attribute of a property. A particular activity on parcel "A" may adversely affect the amenity of parcel "B" although the two parcels do not adjoin each other. This may occur for example, as a result of a massive and overwhelming development on parcel A rendering obsolescent a building on parcel B; or a particular activity on parcel A, although not constituting an actionable nuisance, may make the outlook from parcel B much less attractive, or subject it to noise pollution. A similar comparison might be made in respect of plant and equipment the use of which has been effectively sterilised by force of a regulation, in the same way as the infliction of physical damage to it might disable it. Such effects are very similar to actual physical damage and are not logically readily distinguishable from physical damage. Absent negligence or infringement of legislation the causing of blight will not ordinarily be actionable. Such effects are very similar in impact to the negligently caused effects upon the appellants' properties of the outbreak of bacterial wilt on the Sparnons' property leading to the Western Australian embargo, and consequentially, in a real sense, involve the imposition of a blight upon their properties by way of a significant reduction in the utility and productivity of them, and accordingly their value. I regard this too therefore as a relevant consideration.

[85]

Kentucky Fried Chicken Pty Ltd v Gantidis (1979) 140 CLR 675 Spurling v Development Underwriting (Vict) Pty Ltd [1973] VR 1 Warren v Living Water Home Healing Committee [1981] VR 551 Zieta No 59 Pty Ltd v Gold Coast City Council [1987] 2 Qd R 116

[86]

To grant the appellants relief in this case would not undermine any principle of law or liability which might otherwise be invoked, or which might provide a basis upon which the respondent might otherwise resist the appellants' claims [72] .

[87]

cf Hill v Van Erp (1997) 188 CLR 159 at 216, per McHugh J.

[88]

To hold this respondent liable represents no departure from previous case law.

[89]

The considerations which I have outlined bring this case within the principles stated in Caltex and the subsequent cases in which it has been applied and outweigh the relatively few countervailing considerations to which the respondent points in resisting the claims.

[90]

One of the major touchstones in a case of this kind will always be reasonableness [73] , or as it has sometimes been put, proportionality [74] . I do not regard the damages which are likely to be available to the appellants as being unfair, or unreasonable, or disproportionate in all of the circumstances of this case.

[91]

Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 498, per Deane J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 372, per Brennan J; Caparo Industries Plc v Dickman [1990] 2 AC 605 at 618, per Lord Bridge of Harwich. 2. Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 591, per Mason J.

[92]

The Court became aware after the hearing that there was legislation which prohibited the importation or introduction into South Australia of any plant affected by bacterial wilt [75] . There had been no reliance on that legislation in the Federal Court. At the very least the existence of that legislation as well as the stringent Western Australian requirements may serve to emphasise the importance that the market and governments attach to uncontaminated produce. But because the parties did not argue the case by reference to this legislation, I do not take it into account in reaching my decision.

[93]

See Fruit and Plant Protection Act 1968 SA, s 4 (now repealed): "(1) The Governor may, by proclamation, prohibit absolutely, or prohibit unless certain conditions specified in the proclamation are complied with, the importation or introduction into the State or any part thereof of - (a) any pest, or any fruit or plant affected by disease; (b) any fruit or plant of a species that is, in the opinion of the Governor, likely to introduce a pest or disease into the State; (c) any host fruit or host plant of any species that has been grown in a place, country, region, area or place, specified in the proclamation, in which host fruit or host plants of that species are subject to pests or disease; and (d) any packaging in which any fruit or plant affected by disease has been contained or packed, or any goods with which it has come in contact. (2) A person shall not contravene a proclamation under subsection (1) of this section." "Disease" is defined in s 3 to include: "any infection or affection of a fruit or plant that the Governor declares by proclamation (which he is hereby empowered to do) to be a disease for the purposes of this Act, and any abnormality or disorder of, or injury to, a fruit or plant caused by a pest." Bacterial wilt was added to the list of declared diseases and pests by notice in the South Australian Government Gazette, 1 November 1990, p 1347.

[94]

The respondent correctly submits that this is not a case of a common adventure: it is not a case in which the appellants can be shown to have relied upon any statement, or act, or abstention from doing an act by the respondent [76] . The respondent also urges that its responsible officers did not know of the existence of the appellants except for Frank Perre and did not in fact know that the appellants, except perhaps for Warruga Farms, exported potatoes to Western Australia. There was no direct injury to the appellants' property and no infection by bacterial wilt of crops grown on it. The appellants were not deprived of an opportunity of selling their potatoes other than to buyers in Western Australia.

[95]

cf Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 461-464, per Mason J; Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 287, per McHugh J.

[96]

To each of these matters, undoubtedly relevant as they may be, there is a clear answer. Liability is not confined to a case of common adventure. The appellants were entitled to expect that a person such as the respondent would act carefully and responsibly in carrying out an experimental activity that had a real and acknowledged potential to cause grave harm to the appellants. The appellants fell within a class of which the respondent was or should have been aware: growers and processors of potatoes for possible export to Western Australia operating within 20 km of the Sparnon property. In a case of economic loss there will frequently be no "direct" or "physical injury" to property. The appellants' chances of sale of potatoes other than into Western Australia provide no consolation for the appellants' loss of their valuable Western Australian market. Accordingly neither singly nor collectively do the respondent's arguments provide an answer to the matters to which I have referred in detail earlier. Those factors make it clear in my view that what happened here was foreseeable, and that there was sufficient proximity between the appellants and the respondent to give rise to liability on the part of the respondent. The case is an exceptional one of a special relationship between the parties arising out of the unusual combination of circumstances operating here. The appellants' "class" was a relatively small and determinate one. The respondent owed a duty of care to the appellants and failed to discharge a duty of reasonable care by taking the risks and acting in the way in which it did. The Full Court of the Federal Court failed to take into account not only several of the factors which are important in this case, such as the experimental nature of the respondent's activity, the commanding position of the respondent in the industry, the risks associated with the use of a new, (in this country) uncertified seed, the fragility of the market, the relative ease of avoiding the risk, and the great harm done to the appellants, but also the cumulative effect of these, and the other matters I have listed. For those reasons I would allow the appeal.

[97]

It is unnecessary to express any opinion on the appellants' first argument that the fact that there may have been a species of harm to, or impact upon the appellants' properties indistinguishable from, or very similar to physical harm entitled the appellants on that account alone to recover.

[98]

The respondent has filed a notice of contention. Much of what is sought by it, effectively findings of unforeseeability, is already covered by what I have so far said and should be rejected. The notice also takes up a matter adverted to by the trial judge, that is, as to the characterisation of what had occurred at a meeting of employees of the respondent at Pakenham in Victoria as negligence. However, what occurred at that meeting was not the negligence relied on by the appellants to establish their claim. It is true that the pleadings do not in terms define the appellants' case as well as they might have but there is no doubt that the issue of causative negligence upon which it turns was fully litigated: the causing or permitting of the experimental cultivation of an uncertified, relatively recently imported variety susceptible to bacterial wilt within 20 km of the appellants' land and business operations. That is of course only a broad particular of the negligence and has to be considered in the context of the whole case.

[99]

What else is fatal to the notice of contention is that it really seeks to re-litigate in this appeal the finding of negligence in favour of the Sparnons who are not parties to this appeal. That finding was made in proceedings which were heard together with these. No finding other than that the respondent was negligent in arranging for the Sparnons to grow Saturna was open in either proceedings. The evidence leading to that result was largely uncontradicted.

[100]

The appeal should be allowed with costs and the matter remitted to the Federal Court for a hearing on the issue of damages.

[101]

I would make some observations about damages. The appellants are not in identical positions. There is obviously a difference between the situation of the owners of land, its cultivators when they are not the owners, and the processors of the crop. Although all were sufficiently proximate to the respondent, and sufficiently directly affected by its negligence to enable them to make claims in the particular circumstances of this case, the processors because of their close connection with the affected lands and producers, their exploitation of the Western Australian market, and the quarantining of the processing plant by operation of the Western Australian Regulations; and, the landowners who were not actual cultivators, because of their intention and purpose in causing their lands to be used to grow potatoes for export to Western Australia and the economic impact upon their lands of the statutory embargo; the proof and assessment of damages in respect of each of them may call for the application of different approaches and care to ensure that there is no double counting. It may even be possible that one or more appellants will be unable to prove any substantial damages.

[102]

Care does need to be taken in deciding whether to conduct separate trials of different issues. It sometimes happens that they may turn out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which they are intended to avoid. In tort cases in which damage is the gist of the action, it will generally be undesirable to accede to requests for them, or to order them, unless all parties accept that compensable damage has been sustained by the plaintiffs or applicants as the case may be.

[103]

The order I would make is appeal allowed with costs and further order that the matter be remitted to the Federal Court for trial on the issue of damages.

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