R.T. & Y.E. Falls Investments Pty Ltd v State of New South Wales

• R.T. & Y.E. Falls Investments Pty Ltd v State of New South Wales [2001] NSWSC 1027 - Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 CASES CITED : - State of New South Wales v R.T. & Y.E. Falls Investments Pty Ltd (2003) 57 NSWLR 1 - Sutherland Shire Council v Heyman (1985) 157 CLR 424

R.T. & Y.E. Falls Investments Pty Ltd - Plaintiff State of New South Wales - First Defendant PARTIES : Deniliquin and Moulamein Rural Lands Protection Board - Second Defendant Dan Salmon - Third Defendant

Philip T. Taylor SC - Plaintiff COUNSEL : Peter Taylor SC, G.A. Laughton SC - First Defendant

Taylor & Whitty - Plaintiff SOLICITORS : State Crown Solicitor - First Defendant

1 On 15 November 2001, I gave judgment for the Plaintiff in what might be called 'round one' of these proceedings: R.T. & Y.E. Falls Investments Pty Ltd v State of New South Wales [2001] NSWSC 1027. The Defendants appealed and the Plaintiff cross appealed. On 25 March 2003, the Court of Appeal upheld the Defendants' appeal and dismissed the Plaintiff's Cross Appeal: State of New South Wales v R.T. & Y.E. Falls Investments Pty Ltd (2003) 57 NSWLR 1. The Court of Appeal remitted the case to me for a new trial on one cause of action, namely, breach of an alleged tortious duty of care said to be owed by the First Defendant to the Plaintiff not to cause economic loss in the particular circumstances of this case. 2 In the new trial the parties consented to the re-tender of the vast majority of the material which had been admitted into evidence at the first trial. None of the witnesses who had earlier given evidence were recalled and examined afresh; a comparatively small number of new documents were tendered and admitted. How this came about is discussed in judgments which I delivered on 11 June and 18 October 2004. 3 A great deal of the background to the proceedings is set out in my first judgment and it will be convenient to repeat it here, so that the reader of this judgment does not have to refer back to the first judgment.

4 The Plaintiff has, since 1978, conducted a highly successful beef shorthorn stud principally at its property, Malton , at Finley near Deniliquin. From 1983 until 1993 the Malton Stud had consistently been the most successful exhibitor of beef shorthorn cattle at the Sydney Royal Easter Show and the Royal Melbourne Show and had a very high reputation in the Australian cattle industry. 5 By 1992 the Plaintiff had a large number of cattle, divided into stud cattle and non-stud or "commercial" cattle. The Malton herd of stud cattle, numbering almost 900 head, was extremely valuable. 6 In early 1992 the NSW Department of Agriculture ("NSWAg") adopted a policy to eradicate Bovine Johne's Disease ("BJD") in New South Wales. The means of eradication primarily recommended by NSWAg was total herd depopulation, i.e., the slaughter of all cattle in herds found to contain infected beasts. Compensation for cattle slaughtered in accordance with the BJD eradication policy was to be payable to owners of affected herds pursuant to the Cattle Compensation Act, 1951 ( NSW). I will return shortly to a description of BJD and the relevant provisions of the Cattle Compensation Act . 7 In July 1992 the Plaintiff's stud cattle on Malton were tested and a number of cases of BJD infection were detected. The Plaintiff had other herds, containing both stud and commercial cattle, which were agisted on other properties, but they were not tested for BJD. However, NSWAg, through its District Veterinarian, Dr D. Salmon, recommended to the Plaintiff through its director, Mr Ron Falls, and his son Mr Peter Falls, that the whole of the Plaintiff's herds, wherever pastured, be depopulated in accordance with NSWAg's policy. The Plaintiff agreed, subject to a proposal that it retain an élite herd of stud cattle, which had tested free of BJD, so that it might use the valuable genetics of that herd to restart its stud breeding operations. That proposal was supported by Dr Salmon. On 21 August 1992, he made a written submission to Head Office of NSWAg that the whole of the Plaintiff's herd be depopulated, subject to retention of the élite herd of stud cattle, and that compensation be paid to the Plaintiff under the Cattle Compensation Act . 8 The Messrs Falls say that, shortly afterwards, they were told by Dr Salmon that the proposal for total depopulation of the Plaintiff's herd, subject to the retention of the élite herd, had been approved by NSWAg and that NSWAg had agreed to payment of compensation under the Cattle Compensation Act subject to receipt of an approved valuer's valuation of the cattle to be depopulated. The Plaintiff suggested a valuer to Dr Salmon, who approved the suggestion. 9 Acting, it says, on the assurances of Dr Salmon that NSWAg had agreed to pay compensation on the basis of the valuer's valuations, the Plaintiff transported its agisted stud cattle to Malton , so that all stud cattle could be valued by the valuer at the one time and then removed for slaughter. The agisted stud cattle which were intermingled with the herd at Malton were thereby exposed to BJD infection. 10 After the valuation of the mingled herds had been carried out at Malton Dr Salmon learned that NSWAg had changed its policy on the total depopulation of BJD infected herds and that compensation would now be paid to the Plaintiff only for the slaughter of cattle which had tested positive to BJD. This was subsequently confirmed by NSWAg to the Plaintiff. 11 By this time however, according to the Plaintiff, its total herd of stud cattle, apart from the élite herd which had tested free of BJD, had been exposed to infection from BJD and could no longer be sold as stud cattle. Their only value was as "commercial cattle", i.e., cattle to be sold into the "fat market" for human consumption. Prices obtainable for commercial cattle are much less than those for stud cattle. 12 In these proceedings, the Plaintiff claims damages for the losses which it alleges it has suffered by the acts of NSWAg and Dr Salmon. It sues the Crown in right of the State of New South Wales, NSWAg itself having no separate legal status. For convenience, I will refer henceforth only to NSWAg, meaning thereby the First Defendant, through its department, NSWAg. The Plaintiff has also sued the Deniliquin & Moulamein Rural Lands Protection Board, a co-employer with NSWAg of Dr Salmon, and Dr Salmon himself. However, the claims against the Board are no longer pressed and it did not appear at the trial.

13 The only cause of action for determination in this trial is the Plaintiff's claim for damages against NSWAg for breach of an alleged tortious duty of care to avoid economic loss to the Plaintiff in the particular circumstances of this case. In accordance with the direction of the Court of Appeal, the Plaintiff amended its Statement of Claim for the purposes of the new trial, in order to plead its cause of action more explicitly. 14 It is necessary to give close attention to the pleading. The Third Further Amended Statement of Claim now relevantly states: "9. … in or about late July Mr Salmon on behalf of [NSWAg] … represented to the plaintiff that [NSWAg] had decided to de-populate the plaintiff's herd of cattle at the plaintiff's farm at "Malton" ('the first representation').

10. In or about August 1991 Mr Salmon on behalf of [NSWAg] … represented to the plaintiff that [NSWAg] … would arrange for the removal and slaughter of all of the plaintiff's cattle, except for a select group of 30 head of cattle which would be kept on a separate property ('the second representation').

11. In or about late August 1992 Mr Salmon on behalf of [NSWAg] … - a) Repeated the first representation to the plaintiff; b) Further represented to the plaintiff that for each of the plaintiff's cattle involved, the plaintiff would receive the value of the beast or $2,000 whichever was the lesser amount ('the third representation').

12. On or about late August 1992 or early September 1992 or 8 September 1992 Mr Salmon on behalf of [NSWAg] … represented to the plaintiff that the cattle on "Malton" which had tested positive for Johne's Disease did not need to be separated from the other cattle at "Malton" because all cattle would be removed from "Malton" by 1 December 1992, and that Brian Leslie should proceed to value the plaintiff's stud cattle ('the fourth representation').

13. In or about September 1992 Mr Salmon on behalf of [NSWAg] … represented to the plaintiff that the depopulation of the plaintiff's cattle would commence in October 1992 ('the fifth representation').

In reliance on the first representation, the second representation, the third representation, the fourth representation and the fifth representation and each of them the plaintiff transported all of the plaintiff's cattle to "Malton", cancelled agistment contracts, entered agistment contracts on properties nearby "Malton", refrained from selling cattle on the market, separated bulls from cows, exposed the whole herd of the plaintiff's cattle to Johne's disease, refrained from selling cattle to clients, and in other respects suffered substantial loss and damage.

… Mr Salmon, [NSWAg] …were aware that the plaintiff was relying upon the advice of Mr Salmon as to the need for depopulation of the plaintiff's cattle and that the plaintiff would suffer damage if the advice from Mr Salmon, [NSWAg] … in respect to the need for depopulation was given carelessly or incorrectly.

18A During the period 28 August 1999 to 28 September 1992 [NSWAg]: a) was aware of the authority of Mr Salmon to make [the first to fifth representations] …; b) was aware that Mr Salmon had made and was continuing to make representations to the plaintiff in respect of the depopulation of, and compensation for, the plaintiff's cattle; c) was aware of the facts pleaded in sub-paragraphs 20(a),(b), (c) and (d) herein; d) was aware that the NSWAg policy concerning depopulation with compensation for Johne's Disease involved an initial screening investigation in an attempt to determine whether a state-wide eradication campaign was feasible, as pleaded in sub-paragraphs 20A(e) herein; e) was aware that the future of the Cattle Compensation Fund was in question; f) was aware that any depopulation proposal involving the plaintiff's cattle was, or was to be, deferred; g) was aware that any depopulation proposal involving the plaintiff's cattle was indefinitely deferred; h) was aware that Mr Salmon and the plaintiff were not informed of the deferral of the proposal involving the plaintiff's cattle.

By reason of the matters alleged in the preceding paragraphs and paragraph 20B herein: i) Mr Salmon, [NSWAg] … owed a duty to the plaintiff to exercise all reasonable care and skill in advising the plaintiff as to the requirements to depopulate its herd of cattle; and ii) [NSWAg] owed a duty to the plaintiff to exercise all reasonable care in instructing its officers and agents as to a) the policy of [NSWAg] applicable to the depopulation proposal, b) the likelihood of a depopulation application being approved, and c) the need for the officer or agent not to make representations about the likelihood of approval until a formal decision had been made.

In the period July to September 1992 Mr Salmon, on behalf of [NSWAg] … negligently, carelessly and in breach of his and their duty of care made representations to the plaintiff concerning [NSWAg] … requirement of the need to depopulate the plaintiff's cattle.

PARTICULARS See the matters pleaded as the first representation, the second representation, the third representation, the fourth representation and the fifth representation herein.

20 A In the period July to September 1992 [NSWAg] negligently, carelessly and in breach of its duty of care: a) by its agent Richard Roe represented that Richard Roe as Mr Salmon's superior would support the depopulation proposal in respect of the plaintiff's cattle; b) by its agent Richard Roe represented to Mr Salmon that [NSWAg] … had agreed in principle to the depopulation proposal, and was not concerned about a large payout c) by its agent Ian Roth represented to Richard Roe that [NSWAg] had agreed in principle to the depopulation proposal, and was not concerned about a large payout; d) by its agents Dick Jane and Helen Scott-Orr represented to Ian Roth that [NSWAg] had agreed in principle to the depopulation proposal, and was not concerned about a large payout; e) represented to Mr Salmon that [NSWAg] policy for Johne's disease preferred depopulation (whether total or partial) with compensation whereas [NSWAg] policy involved an initial screening investigation in an attempt to determine whether a state-wide eradication campaign was feasible; f) in the period 28 August 1992 to 28 September 1992 made no representation, and gave no instruction, to Mr Salmon that there was any change to i) the previous [NSWAg] Johne's Disease policy that favoured the depopulation proposal ii) the agreement in principle, proffered in respect of the depopulation proposal or iii) the earlier assertion that [NSWAg] was not concerned about a large payout; g) failed to instruct Mr Salmon, in the period 28 August 1992 to 28 September 1992 i) to make no statement as to the likelihood of formal approval of the depopulation proposal, ii) to withdraw any statement already made by Mr Salmon as to the likelihood of formal approval of the depopulation proposal, iii) to take no further steps with the depopulation proposal.

20 B It was foreseeable likely and contemplated by [NSWAg] that Mr Salmon would pass on to the plaintiff representations and instructions he received from [NSWAg].

20 C Mr Salmon, as agent of and on behalf of [NSWAg], and in accordance with the instructions and representations he received from [NSWAg] i) represented to the plaintiff that [NSWAg] had agreed in principle to the depopulation proposal, and ii) represented to the plaintiff that there was a very strong support in [NSWAg] for the depopulation proposal, and that approval was almost a foregone conclusion; iii) represented to the plaintiff that the plaintiff was safe to proceed with the depopulation proposal by having Mr Leslie value the plaintiff's stud cattle.

The representations made by Mr Salmon on behalf of [NSWAg] … were false and misleading.

FURTHER PARTICULARS On 2 September 1992 [NSWAg] decided that because the Cattle Compensation Fund was in question, any approval of the depopulation proposal was deferred. On 7 September 1992 [NSWAg] decided to defer indefinitely any decision on approval of the depopulation proposal, but that neither Mr Salmon nor the plaintiff should be informed of this deferral.

[NSWAg] … were vicariously liable for the negligence of Mr Salmon.

By reason of the negligent conduct of Mr Salmon, [NSWAg] … and in reliance thereon the plaintiff suffered loss and damage."

15 The issues for determination may be summarised as follows:

a) whether NSWAg owed a duty of care to the Plaintiff as alleged in paragraph 19 of the Third Further Amended Statement of Claim;

b) if so, whether NSWAg breached its duty of care to the Plaintiff: i) in saying what, through Dr Salmon, it actually said to the Plaintiff; or

ii) in failing to instruct its officers as to the present state of its depopulation and compensation policy and as to the need for such officers not to make representations about the likelihood of depopulation approval until a formal decision about such approval had been made;

c) if there was a breach of duty by NSWAg, was the loss suffered by the Plaintiff caused by that breach;

d) if the answers to all of the foregoing questions is 'yes', what is the amount of the Plaintiff's loss.

16 The first factual question which must be determined is whether Dr Salmon made representations to the Plaintiff as alleged. The representations alleged in the Plaintiff's Third Further Amended Statement of Claim are exactly the same as those alleged at the first trial. 17 As I have said, in this trial neither the Messrs Falls nor Dr Salmon gave evidence afresh. Their affidavits in the first trial were tendered and admitted by consent, subject to some deletions, upon objection, which are noted in a separate judgment delivered on the first day of the trial. In addition, the transcript of their evidence at the first trial - also subject to some deletions - was tendered and admitted. Those documents admitted into evidence in this trial which have not been admitted in the first trial related chiefly to what had transpired within NSWAg and the Government as to the Cattle Compensation Fund and NSWAg's depopulation policy. They did not relate directly to what Dr Salmon may have said to the Messrs Falls. 18 The Plaintiff submitted that, as this was a new trial, I was bound to look at all of this evidence afresh and was entitled, and indeed compelled, to come to a conclusion as to what Dr Salmon said to the Messrs Falls which was different from the conclusion to which I had come in the first trial. In support of this submission, the Plaintiff took me through most of the evidence, particularly the documentary evidence, which I had reviewed in the first trial. 19 I have carefully considered all of the evidence, doing the best I can to put from my mind the conclusion to which I had earlier come. However, I find myself driven to the same conclusion and for the same reasons. They are, in the briefest summary, that Dr Salmon's account of what he said and when he said it is inherently probable and is supported by contemporaneous or near contemporaneous documentary evidence, whereas the account of Mr Peter Falls is not so supported. Accordingly, I repeat and adopt in this judgment the findings which I made in the first judgment as to what was said by Dr Salmon and the reasons for those findings. For the sake of convenient reference, those findings and reasons are now set out below.

20 On 8 May 1992 Dr Salmon, as District Veterinarian on behalf of NSWAg, wrote to the Plaintiff noting that BJD had been most recently suspected on Malton on 9 May 1991 and advising that the Department had decided that more active intervention was necessary to limit the spread of the disease in NSW. The letter continued: "Our first step is to restrict the entry of cattle into NSW from herds which have had evidence of Johne's Disease during the previous 5 years. This is being planned. The second step is of direct significance to you. As from February 1994 all herds in NSW with Johne's Disease will be quarantined. Cattle from those properties will only be allowed to go for slaughter and will not be able to be sold or sent to other properties. We are providing you with advance notice of this decision so that you will be able to check if your property is infected with Johne's Disease, and if it is, to commence eradication procedures. A blood test of all cattle on your property over two years of age should show whether your property is infected. I shall be contacting you shortly to arrange this test. The first test will be free of charge. If your herd is infected with Johne's Disease there are several ways in which you can approach the problem. The attached pages summarise them. Please note that Johne's Disease is a difficult disease to eradicate using present technology and there is a risk that any eradication program may not work. Also note that laboratory fees will be charged for further blood tests after the initial screening test." 21 Attached to the letter was a document headed "Procedures for Eradicating Johne's Disease". The document outlined various means by which BJD could be eradicated, but there is no issue that any procedure other than whole herd depopulation was ever considered appropriate for the Plaintiff's herd. As to whole herd depopulation, the document stated: "Whole herd depopulation with compensation is the quickest and surest way to eradicate Johne's disease. Depopulation may also be the only practical option where the disease prevalence in the herd is high and management techniques are not conducive to allowing an eradication program to succeed. Approval of the Chief Division of Animal Industries is necessary if compensation is to be paid." 22 The effect of NSWAg's policy on the Plaintiff's business was potentially disastrous. Unless BJD could be eradicated from the Plaintiff's herd prior to the commencement of quarantining in February 1994, the herd would be quarantined and the Plaintiff's stud cattle could thenceforth only be disposed of as commercial cattle. The Plaintiff's stud cattle breeding business would be destroyed. 23 On 13 July 1992 Mr Ron Falls met Dr Salmon in Dr Salmon's office. Mr Falls said that the Plaintiff was very concerned about the Department's change of policy. He emphasised that the Plaintiff wanted to get rid of BJD in its herd but that it did not want to depopulate the whole herd because it would thereby lose the valuable genetic material which had been built up over many years. Accordingly, he put a proposal to Dr Salmon that the Plaintiff segregate thirty of its best oldest cows from the rest of the herd, test them to ensure that they were free of BJD, and use that élite herd for the building up of a new stud cattle herd after the remainder of the herd had been depopulated, with compensation paid under the Cattle Compensation Act . Dr Salmon said: "That sounds pretty good and is within the broad guidelines of the new policy but there is a lot of money involved. I will really have to check with the Department before we can make any moves." It was then arranged that the cattle on the Malton property would be tested for BJD within a few days. 24 On 15 July Dr Salmon telephoned Mr Richard Roe, Regional Director Veterinary Services, his immediate superior in NSWAg. Dr Salmon said that he had received a proposal from the Plaintiff to try to get rid of BJD at Malton but at the same time retain the genetic material of the herd which Mr Falls regarded as superior. Dr Salmon explained that Malton had been a leading exhibitor at both the Melbourne and Sydney Shows for many years. He said that the Plaintiff's proposal was to select three small groups of élite cows and test them with the idea of establishing them as BJD-free herds and then to depopulate the rest of the cattle on the property with compensation under the Cattle Compensation Act . Mr Roe said that he would be prepared to support that proposal. 25 On 23 and 24 July 1992 Dr Salmon attended the Malton property and bled all stud cattle aged two years and over, for the purpose of testing for BJD. A total of 301 cattle were bled. No tests were carried out on cattle agisted on properties other than Malton . During the testing process Dr Salmon had a conversation with Mr Peter Falls in which Mr Falls enquired what would happen if there were positive results to the tests. Dr Salmon explained that the testing would determine the prevalence of the disease within the herd. Eradication of the disease and the process of eradication would be determined by the Department's policy and further discussion with his superiors in Head Office at Orange. 26 On or about 13 August 1992 Dr Salmon received the results of the blood tests. There were eleven positive results showing BJD infection and four suspicious results. On 18 August 1992 Dr Salmon had a telephone conversation with Mr Peter Falls in which he advised Mr Falls of the results. Mr Falls says that during the course of this conversation Dr Salmon said words to the effect: "I have discussed your situation with Orange and your level of reaction was high and it has been decided that depopulation of the entire herd was the preferred solution." 27 There is no dispute between Dr Salmon and the Messrs Falls that it was understood at all times between them that depopulation of the Malton herd meant depopulation of the whole of the Plaintiff's herd of cattle, wherever agisted. 28 According to Mr Peter Falls, the conversation continued: Mr Falls said: "Our herd is one of the most outstanding herds in Australia and the genetic material is irreplaceable. We would like to retain a select group of élite superior cows of age who had tested negatively and separate them from the other cattle of the herd."

Mr Falls said: "The cost of the proposal to depopulate the herd will be significant. Do the people at Orange realise this?"

Dr Salmon said: "They are aware that the cost will be significant."

Dr Salmon said: "Come into my office in town and we will draft up proposals. The Department has agreed to the principle of depopulation but want it in written form." 29 Dr Salmon's diary note of this conversation records only the discussion about the proposal for retention of an élite herd. There is no mention in the note of Dr Salmon's superiors having agreed to the principle of depopulation but requiring it to be made in written form. As at 18 August, as far as the evidence reveals, Dr Salmon had not been told anything to that effect by anyone in NSWAg.

A depopulation proposal is made 30 On 21 August Mr Peter Falls went to Dr Salmon's office in Deniliquin to discuss further the proposal which Dr Salmon would put to NSWAg. Mr Falls explained that he understood "the proposal" to be the Plaintiff's proposal to retain an élite herd of cows for breeding, although depopulating the remainder of the herd with compensation. 31 On the same day Dr Salmon prepared the proposal and sent it by facsimile to his immediate superior in the Department, Mr Richard Roe. The proposal is as follows: "The above own a Beef Shorthorn herd which has a longstanding history of Johnes Disease. The initial test of part of the herd gave 11 positive and 4 suspicious ELISA results from 301 head.

This herd was the subject of intensive investigation by me during the late 1970s.

Malton is one of the more prominent Beef Shorthorn studs in Australia. They have been the most successful exhibitor of Beef Shorthorns at both Sydney and Melbourne Royal Show on many occasions over recent years.

Messrs Falls are committed to eradication of Johnes Disease, they share my reservations as to the possibility of eradication by test and slaughter using current technology.

It is proposed to select some 30 mature cows which Messrs Falls consider to b genetically superior and which were negative on the initial ELISA. These cows will be allocated into three groups and removed to three different properties which have no history of Johnes Disease. Each group will be subject to ELISA at six monthly intervals. If all animals in any group are negative to three successive assays, it is proposed to return them to Malton mid 1994 with their calves. If any animal in a group reacts, she will be destroyed along with any calves and the procedure started again.

It is proposed to depopulate Malton prior to December 1992. The property will be used to graze steers older than 12 months which will be sold before they reach 24 months of age.

The herd at Malton currently comprises 827 cattle. Of these some 75 are commercial cattle and the balance stud Beef Shorthorns.

Approval is sought to slaughter all but 30 of these cattle under compensation . Given the quality of the herd, it is likely that there will a substantial difference between the market value and the residual value and consequently a substantial compensation payment.

It would be appreciated if a decision on this matter be made as soon as possible so that an independent valuer can value the herd and allow depopulation before the summer." [Emphasis added] 32 A handwritten note made by Mr Roe dated 28 August, relating to Dr Salmon's written proposal of 21 August, records: "Ian Roth advises Scott-Orr and Jane agree in principle to proposal. Dan Salmon asked to document proposed programme in more detail as per Appendix II of AH Circular No 90/50 and nominate valuer for endorsement by Division."

Mr Roth was Mr Roe's superior in NSWAg; Dr Scott-Orr was Chief, Division of Animal Industries within the Department and was ultimately responsible for approving depopulation proposals and compensation under the Cattle Compensation Act . Mr Jane was a senior officer in the Department. 33 On 28 August Dr Salmon received a telephone call from Mr Roe, who said: "Neither Helen [Scott-Orr, Chief, Division of Animal Industries] nor Dick Jane [Deputy Chief, Division of Animal Industries] were fazed by the idea of such a big pay-out but it has to be an official application as per the Appendix on Circular 90/50."

Dr Salmon said that he would get the application completed and forward it as soon as possible. Dr Salmon made a contemporaneous diary note of his conversation with Mr Roe. 34 The reference to Circular 90/50 was to a circular dated 21 December 1990 issued by NSWAg Division of Animal Health which set out the procedure for payment of compensation under the Cattle Compensation Act where a herd is being depopulated.

35 On 28 August, very shortly after speaking to Mr Roe, Dr Salmon spoke to Mr Peter Falls. Neither of them made a contemporaneous note of the conversation. According to Dr Salmon, he told Mr Falls that he had spoken to Mr Roe who had told him that "the people at Head Office are not fazed by the proposed pay-out but it must be in the official form" . Mr Falls asked: "Does that mean that there is any doubt about the proposal being approved?"

Dr Salmon responded: "I believe that support for the proposal is very strong at Head Office and that it is highly unlikely not to be approved." 36 According to Mr Peter Falls, Dr Salmon said to him in that conversation: "We are to de-stock Malton" . Mr Falls asked: "Do they [i.e. the Department] realise the cost [i.e. of compensation under the Cattle Compensation Act ] ?" Dr Salmon responded: "Yes, I've told them that it would be in excess of one million dollars. The job's right and there are no problems. The Department requires you to have the cattle valued. The maximum compensation per animal is only $2,000 and if a beast is valued at more than that you would only get $2,000. If a beast is valued less you would only get its value. All the cattle are to go to an abattoir and the best price obtained for that grade of stock."

Mr Falls asked: "Who organises that?"

Dr Salmon said: "An agent, who informs me of all progress. All monies from the stock go to the Department. We will pay you a cheque at the completion of the exercise." 37 It is common ground that during this conversation Dr Salmon assured Mr Falls that NSWAg was not concerned that the compensation payable for depopulation of the Malton herd would be very substantial. It is clear that he explained to Mr Falls, either in this conversation or in the conversation which Mr Falls says occurred on 18 August (see paras. 26 to 29), that there would have to be a formal application for compensation, supported by a valuation of the stud cattle to be slaughtered. Likewise, it is clear - and it would be probable in any event - that Mr Peter Falls was concerned to know whether there was any possibility that the proposal could ultimately be rejected by the Department. The critical difference between the versions of the conversation given by Mr Falls and Dr Salmon is that, according to Dr Salmon he told Mr Falls that the proposal must be "in official form" , although it was "highly unlikely not to be approved" whereas, according to Mr Falls, Dr Salmon told him, without qualification, merely that "the job's right and there are no problems" . Dr Salmon would not accept in cross examination that he had used those words attributed to him by Mr Falls. 38 Dr Salmon admits that, after speaking to Mr Roe on 28 August, he felt confident that the proposal would be accepted. A diary note made by Dr Salmon on 5 November 1992 records a conversation with Mr Ian Roth of NSWAg at a time when the matter of compensation to the Plaintiff had become sensitive within the Department. The note shows that Mr Roth asked: "Did I tell Falls okay?" . Dr Salmon wrote: "Yes. He did know a formal application was needed but I told him the chance of rejection was extremely low" . 39 In a memorandum to his superiors prepared by Dr Salmon and dated 6 November 1992, he records that after speaking to Mr Roe on 28 August, he spoke to Mr Ron Falls - Dr Salmon now agrees that it was probably to Mr Peter Falls - to inform him of the position. The note continues: "I recall him asking whether the fact that a formal application was still needed meant that there was any doubt about the proposal being approved. I told him of my belief that the support from NSW Agriculture for the proposal was very strong and that approval was almost a foregone conclusion." 40 Mr Peter Falls struck me as honest witness who was endeavouring to give his best recollection of his conversation with Dr Salmon. However, in my opinion, Dr Salmon's account of the conversation should be accepted for the following reasons. 41 First, Dr Salmon's account is consistent with and reflects what Mr Roe told him, as noted in Mr Roe's note made on 28 August and in Dr Salmon's contemporaneous diary note made the same day (see paras. 28 and 29). From that conversation, Dr Salmon knew that although Dr Scott Orr had agreed to the proposal in principle, a formal approval of the proposal, when submitted in detail, was still necessary. Dr Salmon had no reason to mislead Mr Falls as to the true position, as he then believed it to be. It is apparent that there was a friendly professional relationship between the two men. In these circumstances, it is inherently probable that Dr Salmon would tell Mr Falls what he honestly believed to be the position, namely, that support for the proposal was very strong in Head Office and that although a formal application was still needed, it was highly likely to be approved. 42 Second, Dr Salmon's notes as to his conversations with Mr Falls made in November 1992 support his account of the conversation. The matter was sensitive within NSWAg by the time that those notes were made. The statements to Mr Falls, which Dr Salmon admits having made in those notes, did not relieve NSWAg from the possibility of liability to the Plaintiff, nor did they absolve Dr Salmon from criticism from within the Department for having said more than was prudent, as he must certainly have realised at the time. Accordingly, the statements are contrary to his own interest and, for that reason, carry weight. 43 Third, while Dr Salmon has the benefit of contemporary and near-contemporary notes to aid his recollection of the conversation, Mr Peter Falls does not. 44 Finally, although it is quite possible that Mr Peter Falls came away from his conversation with Dr Salmon on 28 August with the belief that "the job [was] right and there [were] no problems" , Dr Salmon said that those words did not particularly sound like his words - which I take to mean that the phrases are not those which he would customarily use - and he insisted steadfastly in his cross examination that the substance of what he had said was that the proposal had strong approval in Head Office and was unlikely to be rejected. In the light of the contemporaneous and near-contemporaneous records of the conversation to which I have referred, Dr Salmon's insistence carried conviction. I conclude that Mr Falls' belief that he had been told simply that "the job was right" was the result of an honest, but mistaken, reconstruction of the conversation. I conclude that Mr Falls has mistakenly placed Dr Salmon's statement "the Department has agreed to the principle of depopulation but want it in written form" in the conversation which occurred on 18 August (see paras.26 to 29); I am satisfied that a statement to that effect was made in the conversation of 28 August. 45 I find therefore that:

• in a conversation on 28 August 1992, Dr Salmon told Mr Peter Falls that there would have to be a formal application to NSWAg for depopulation of the whole Malton herd with compensation, supported by a valuation of the stud cattle to be slaughtered;

• in that conversation, Dr Salmon told Mr Peter Falls that he believed that support for the Plaintiff's depopulation proposal was very strong at NSWAg's head office and that it was highly unlikely not to be approved;

• Dr Salmon did not make statements to the Plaintiff in the terms alleged in the first to third representations pleaded in the Plaintiff's Third Further Amended Statement of Claim: these are the representations said to have been relied upon by the Plaintiff in deciding to move the agisted stud cattle onto Malton . 46 As will appear shortly, the movement of agisted stud cattle to Malton must have been commenced by 5 September at the latest, if not earlier. The fourth and fifth representations were allegedly made "in late August or early September" . The evidence as to when they were made is vague. However, the terms of the representations suggest that they were made after the decision to move agisted cattle to Malton had been made by the Plaintiff and implemented. In those circumstances, the representations could not have produced the loss claimed by the Plaintiff.

47 On 31 August 1992 Dr Salmon sent to Dr Scott-Orr a report in respect of the Plaintiff's proposal containing information pursuant to Appendix II of Circular 90/50. The report detailed the proposal that an élite herd of thirty cattle be retained for future breeding stock and that the remainder of the herd be consigned for slaughter prior to December 1992. 48 According to a memorandum of Mr Roth dated 3 November 1992, Dr Salmon's report was received by NSWAg on 2 September 1992. The memorandum continues: "No action was taken on this application as information had become available that the Compensation Fund may be reduced in size. This information was not immediately relayed to field staff due to the political sensitivity of the matter. Chief, Division of Animal Industries [Dr Scott-Orr] , was away in Canberra and then Indonesia from 6 September 1992 to 28 September 1992." Dr Salmon was not told of the position as revealed in Mr Roth's memorandum. 49 According to the Plaintiff, in early September 1992 it transported all its agisted stud cattle to Malton for valuation. There is no dispute that by this time Dr Salmon was discussing with the Messrs Falls depopulation of the whole Malton herd by December 1992. The Plaintiff says that it transported the agisted herds to Malton in reliance on what Dr Salmon had told Mr Peter Falls on 28 August. It says that, in the light of its belief that depopulation would proceed, there was no point in keeping the agisted herds separate from the herd at Malton in order to avoid the risk of infection. 50 However, it is of critical importance that there is no evidence to suggest that the Messrs Falls told Dr Salmon on or after 28 August that they intended to begin transporting agisted stud cattle to Malton for valuation in reliance upon what he had said to them. 51 Stud cattle from the agistment properties were intermingled on Malton in early September 1992. Whether all or some of such agisted cattle were intermingled is an issue in the case. The consequence was that the intermingled agisted stud cattle were rendered valueless as stud stock since they had been exposed to a high risk of BJD infection. Their only market value was as commercial cattle. For compensation purposes under the Cattle Compensation Act , however, they were to be valued as stud stock. 52 On 8 September Dr Salmon had a telephone conversation with Mr Peter Falls in which Mr Falls suggested that the independent valuer for the purpose of the Plaintiff's application for compensation be a local stud stock agent, Mr Brian Leslie. Dr Salmon agreed to the retention of Mr Leslie. Mr Leslie carried out the valuations of 894 stud cattle at Malton on 9, 10, 14 and 15 September. On 26 September Mr Leslie delivered his valuation, which totalled $1.8M. 53 On 29 September, Dr Salmon was informed by a superior in NSWAg that BJD compensation payments had been "frozen". He immediately informed Mr Peter Falls that there was a problem. On 29 October Dr Scott-Orr wrote to Dr Salmon formally rejecting the Plaintiff's proposal for whole herd depopulation and compensation. Subsequently, compensation was paid to the Plaintiff from the Cattle Compensation Fund but only for the slaughter of those cattle which had been tested positive for BJD and their progeny. The compensation was fixed at the values determined by Mr Leslie in his valuation of 26 September.

The consequences of the findings as to representations

54 Essential to the Plaintiff's cause of action in negligence is that it relied upon the statement made by Dr Salmon to Mr Peter Falls on 28 August 1992 in bringing stud cattle from the agisted herds and mingling them with the infected herd on Malton in early September 1992. However, the Plaintiff's reliance on that statement must be a reasonable reliance. A defendant is not liable for negligent misstatement if he or she makes a correct statement but, through no fault of the defendant, the plaintiff miss-hears it and relies upon the statement as miss-heard. Nor is a defendant liable in negligence if he or she makes a correct statement but, through no fault of the defendant, the plaintiff places an unreasonable construction on it and relies on that construction. 55 Reliance, and whether it is reasonable in the circumstances, is a question of fact. There is not one test for reliance if the cause of action is founded on estoppel by representation and another test if the cause of action is negligence or deceit founded upon an erroneous statement. 56 When this case went on appeal from the judgment in the first trial, one of the questions debated in the Court of Appeal was whether NSWAg was estopped from denying the existence of a binding contract between it and the Plaintiff for depopulation of the whole of the Plaintiff's herd with compensation. The contract was said to have been concluded by the statement made by Dr Salmon to Mr Peter Falls in the conversation which occurred on 28 August 1992. An issue arising in that question was whether the Plaintiff had reasonably relied on what Dr Salmon had said to Mr Peter Falls in that conversation. The Court of Appeal accepted my finding of fact in the first trial that Dr Salmon had told Mr Peter Falls that it was highly unlikely that the depopulation proposal would not be approved. 57 What the Court of Appeal said on the issue of reliance is highly pertinent to the question which I must now decide. The cause of action with which the Court of Appeal was concerned was, certainly, different from the cause of action which I am now deciding but the facts are the same and, in my view, the test as to whether reliance on Dr Salmon's statement was reasonable is also the same. 58 At paragraphs 48 to 51 of the Court of Appeal's judgment, Sheller JA said: "[48] I agree that this Court has no ground for interfering with Palmer J's finding about what was said by Dr Salmon to Mr Peter Falls on 28 August 1992. Dr Salmon was a veterinarian employed by the New South Wales Department of Agriculture. Mr Peter Falls was the son of Mr Ron Falls, one of the directors of the respondent, R.T. & Y.E. Falls Investments Pty Ltd, and himself involved in the respondent's business. Palmer J's finding inevitably meant that this conversation did not result in a contract between the appellant State of New South Wales and the respondent. Nor, according to this finding, did Dr Salmon represent to Mr Falls that such a contract existed.

[49] Palmer J found that the impression that Dr Salmon intended to convey to Mr Peter Falls by his statement was that there was 'strong support' for the proposal to depopulate the respondent's herd and compensate the respondent in accordance with the Cattle Compensation Act and that it was 'highly unlikely' not to be approved. The trial judge found that Mr Peter Falls took from this statement the belief that it was safe to proceed on the basis that the New South Wales Department of Agriculture would approve the proposal when made in official forms supported by a valuation. Dr Salmon's statement could not be understood to mean that the New South Wales Department of Agriculture had approved the proposal, either formally or informally . Accordingly, I find it difficult to see how Dr Salmon's statement, so understood, could have any consequence in contract or estoppel (compare Waltons Stores (Inter-state) Ltd v Maher (1988) 164 CLR 387).

[50] Dr Salmon's statement that it was highly unlikely that the proposal would not be approved carried with it the possibility that even so it might not be approved . The respondent had no grounds based on anything said by Dr Salmon for concluding that there was a contract. Indeed, it acted as it did knowing that there was no such contract but believing that it was highly unlikely that one would not, in due course, come into existence.

[51] I agree with the other members of the Court that the respondent fails both in contract and in reliance upon estoppel. As Spigelman CJ has pointed out, the language of Dr Salmon could not reasonably lead Mr Falls to believe that it was 'safe to proceed' because approval would be forthcoming . To adapt the language of Mason CJ in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 413, any assumption the respondent made about the existence of a contract or that a contract would certainly come into existence was not an assumption Dr Salmon could be held to have induced the respondent to make." [Emphasis added.] 59 Spigelman CJ said at paragraph 17: "The actual statements made by Dr Salmon are not, in my opinion, the kind of conduct on the basis of which it can be said that the party on behalf of whom the representation was made has played such a role in the creation of a state of mind leading to adverse reliance, that it would be unconscionable to allow the former to resile from the representations." [Citations omitted.] 60 At paragraph 21, the Chief Justice said: "The loss suffered arose by reason of the mixing of the cattle on agistment with those already on Malton. There is nothing in the evidence which implicates the State of New South Wales in the transfer of the cattle beyond indications on the part of Dr Salmon that approval was highly likely and other similar expressions, and that it was unnecessary to separate the cattle on Malton known to have the disease. In my opinion this is not sufficient to give rise to an equitable estoppel." 61 I am not, of course, bound by those observations in deciding the present case. However, the observations of the Chief Justice and Sheller JA express my own conclusions as to whether the reliance placed by the Plaintiff on Dr Salmon's statement was reasonable in the circumstances. 62 In my opinion, as the Court of Appeal has pointed out, what Dr Salmon said to Mr Peter Falls could not reasonably be interpreted as suggesting to the Plaintiff that the Plaintiff's depopulation proposal would be approved by NSWAg with compensation and that it was, therefore, safe to proceed with mingling the agisted stud cattle with the stud cattle on Malton . Dr Salmon's statement necessarily conveyed that there was a risk - slight, no doubt, but still a risk - that the proposal would not be approved. 63 Accordingly, in mingling its herds of stud cattle, either the Plaintiff consciously exercised its own judgment in deciding to take the risk, evident from Dr Salmon's statement, that the depopulation proposal would not be approved or else it placed an unreasonable construction on Dr Salmon's statement, concluding that there was no risk and that it was safe to proceed. In either case, the loss which the Plaintiff suffered was caused by its own act, not by the statement actually made by Dr Salmon. 64 The causative link between Dr Salmon's statement to Mr Peter Falls and the Plaintiff's loss has not been established. That conclusion is sufficient to dispose of the case. Even if NSWAg had a duty of care to the Plaintiff to prevent Dr Salmon from making the statement which he did and even if a breach of that duty of care resulted in Dr Salmon making the statement which he did, that statement nevertheless produced no loss to the Plaintiff which is compensable in law. 65 However, in case I am wrong in the foregoing conclusion, I should make the necessary findings of fact and give my views as to the law relating to the other issues which have been raised in the proceedings.

66 BJD is a disease of adult cattle caused by a bacterium known as Mycobacterium paratuberculosis. The disease is characterised by chronic diarrhoea, progressive emaciation and death within a few months. Affected cattle shed the bacteria in their faeces. Other animals are infected when they ingest contaminated feed or water. Calves less than six months of age are most susceptible to the infection. Older cattle appear to be relatively resistant to infection and only a small proportion of cattle exposed as adults subsequently carry the disease or succumb to it. Although BJD is incurable and generally fatal to cattle, consumption of meat from cattle infected with the disease is not harmful to humans. 67 In 1992 BJD was a disease in respect of which compensation was payable under the Cattle Compensation Act (now repealed). By s.12(1) of that Act, a fund was established, called the Cattle Compensation Fund, which was to be applied in the payment of claims for compensation made in accordance with the provisions of the Act and in the payment of expenses incurred in obtaining determinations of the value of cattle for the purpose of paying compensation to the owners. 68 By s.5(1)(a), so far as is presently relevant, compensation was payable to the owner of any cattle destroyed pursuant to an order made under the authority of any Act because such cattle were suffering from or were suspected to be suffering from a disease, defined by the Act as including BJD. By s.6, the amount of compensation payable was the market value of the cattle. 69 Section 7 provided, so far as is relevant: "(1) For the purposes of this Act, the market value of any cattle … is to be determined by agreement between the owner of the cattle … and: (a) in the case of cattle to which section 5(1)(a) … applies - the person or approved person, as the case may be, who made or gave the order for destruction of the cattle; …" 70 Section 8 relevantly provided: "(1) Compensation is payable under this Act only if the owner of the cattle … makes an application for compensation in an approved form within 60 days after the death or destruction of the cattle … . Any such application must be verified by statutory declaration as set out in the approved form. … (3) The owner is to forward with the application a certificate in the approved form completed by: (a) the person with whom the owner is required to reach an agreement in respect of the market value of the cattle or carcass under section 7(1); or (b) a person appointed by the Minister for the purposes of this subsection. (4) No compensation shall be payable: … (d) unless the Chief, Division of Animal Industries is satisfied: … (ii) that the owner claiming compensation has complied with this Act with respect to applications and claims for compensation." 71 The funding of compensation payable from the Cattle Compensation Fund under the Cattle Compensation Act was provided pursuant to the Cattle Compensation (Taxation) Act 1951 (NSW), as amended. The principal sources of revenue for the fund were a stamp duty payable on every head of cattle slaughtered at abattoirs and slaughterhouses in New South Wales, interest in accumulated reserve funds on fixed deposit with Treasury, and certain rebates from the Commonwealth Government. The diseases occasioning slaughter of cattle for which compensation was payable from the fund were expanded over time and by 1983 included BJD. 72 A circular issued by NSWAg to its senior officers in June 1984 (No 84/24) explained in detail the operation of the Cattle Compensation Fund and the procedures for obtaining compensation for owners of slaughtered cattle. A further circular dated in July 1989 (No 89/36) dealt specifically with NSWAg's policy and procedures for the eradication of BJD. There was no reference in this circular to depopulating (i.e. slaughtering) a whole herd to ensure eradication of the disease. 73 On 21 December 1990, NSWAg published circular 90/50 which amplified the procedures for compensation stated in circular 84/24. The circular referred in particular to the depopulation of whole herds and set out twelve steps which had to be followed in the process of depopulation and obtaining payment of a claim from the Cattle Compensation Fund. Step 1 required confirmation of BJD in the herd, preparation of a report by NSWAg's field staff containing specified information, and the obtaining of approval for the depopulation from the Chief, Division of Animal Health. Step 2 required that the value of the cattle to be slaughtered be ascertained and agreed between the owner and NSWAg's officer. 74 On 3 January 1992, NSWAg issued circular 92/1, replacing circular 89/36 and setting out in more detail NSWAg's policies and procedures for the eradication of BJD in New South Wales. The action to be taken by district veterinarians or district officers responsible for administering the policy in the field included carrying out investigation of herds and, if tests for BJD proved positive, discussing with the owner options for controlling and eradicating the disease in that herd. The first option was stated to be "total depopulation of the herd" . 75 On 8 May 1992, Dr Salmon wrote to the Plaintiff regarding suspected BJD on Malton and referring to the possibility of mandatory quarantining of BJD infected herds in early 1994. On 15 and 22 June, Dr Salmon had preliminary discussions with the Plaintiff concerning testing for BJD. 76 On 29 June 1992, the Premier of New South Wales wrote to the Minister for Agriculture advising that he had given approval in principle for the use of $2M from the Cattle Compensation Fund for research relating to the cattle industry. As at 1 July, the Cattle Compensation Fund stood at $9,014,000, which included $8,250,000 on fixed deposit with Treasury. 77 On 9 July 1992, a legal officer within NSWAg advised that funds in the Cattle Compensation Fund could not be applied for research without an amendment to the Cattle Compensation Act . 78 On 17 July 1992, the Minister for Agriculture wrote to the head of his department requiring preparation of a letter to the Premier opposing use of the funds in the Cattle Compensation Fund for research purposes. Shortly thereafter, a draft letter was prepared in response to the Minister's request, urging retention of the money in the Cattle Compensation Fund for the purposes of compensating owners of slaughtered cattle, saying that the Fund was essential to enable eradication of BJD as well as another major cattle disease. 79 A financial analysis of the Cattle Compensation Fund was prepared in support of the arguments set out in the draft letter. The analysis showed the sources of revenue of the Fund and its projected expenditure on compensation claims. The projection showed that claims on the Fund were expected to increase very substantially from the 1992/93 year onwards. The figures showed that, assuming that the sum of $2M was not withdrawn from the Fund for research purposes, the Fund would be reduced to $1,525,000 by the close of the 1999/2000 year. However, if the $2M had been withdrawn immediately, there would still have remained in the Fund an amount in excess of $6.5M to meet expected claims during the 1992/93 year - i.e., the year in which the Plaintiff's claim was expected to occur. 80 A handwritten note dated 4 August 1992, author unknown but produced by NSWAg under a Notice to Produce, contains the statement "CC Fund down to $1.5M by 2000 - CRC [i.e. Cattle Research Centre] Armidale - Premier agrees to $2M - if so Fund will be broke by 2000" . 81 On 7 August 1992, NSWAg issued a circular to its senior officers advising that the maximum compensation from the Cattle Compensation Fund had been increased to $2,000 per head of cattle. There was no indication in this circular that NSWAg's policy relating to administration of the Fund might be under review. 82 On 11 August 1992, a legal officer within NSWAg prepared a draft Cabinet Minute approving amendment of the Cattle Compensation Act to permit "the use of surplus funds [in the Cattle Compensation Fund] for research and development projects in the cattle industry" . 83 On 28 August 1992, Dr Salmon had the conversations with Mr Roe, his superior, and with Mr Peter Falls which I have recounted in paragraphs 32 to 34. It was in reliance upon this conversation with Dr Salmon that the Plaintiff began to move its agisted stud cattle onto Malton in early September 1992. It must be borne in mind, however, that the Plaintiff did not tell Dr Salmon on 28 August or at any time before 29 September that, in reliance upon what he had said on 28 August, it would immediately begin moving its agisted stud cattle to Malton for valuation. 84 On 9 September 1992, a valuer began valuing the Plaintiff's stud cattle at Malton , including stud cattle which were being brought to Malton from agistment. Clearly, the Plaintiff had made a decision shortly after 28 August to bring the agisted cattle to Malton for valuation and had begun to implement its decision. The stud cattle valuations were completed on Malton on 15 September. Mr Peter Falls said in paragraph 11 of his affidavit of 7 July 1997: "The valuation took place over four (4) days being the 9th, 10th, 14th and 15th September, 1992. It took my father and I ten days working fifteen hours per day to ensure all beasts had correct ear-tags to match tattoos and pedigrees and sort all the stock on or transported to 'Malton'."

Even if one allows that some of the work referred to by Mr Peter Falls was still being carried out on 15 September, the last day of the valuation on Malton , the work must have started at the latest by 5 September. 85 On 1 September 1992, the Director General of NSWAg wrote to the Secretary, Cabinet Office, advising that the Minister for Agriculture and Rural Affairs had signed a Cabinet Minute recommending that the Cattle Compensation Act be amended to provide for Ministerial approval for the use of surplus funds for research and disease control. The Director General requested the Secretary to arrange circulation of the Cabinet Minute in anticipation of it being brought before the Cabinet as soon as possible. 86 On 2 September 1992, the President of the NSW Farmers' Association wrote to the Minister stating that the Association was deeply concerned by the Government's proposal to "transfer all monies in the Cattle Compensation Fund to consolidated revenue" and seeking an undertaking that that would not occur. 87 On the same day, NSWAg received from Dr Salmon the Plaintiff's formal application for depopulation of its herd in accordance with its prior proposal. An internal memorandum of Dr Scott-Orr dated 4 November 1992 reveals what happened: "A full application for destocking of Mr Falls' herd was received in the Division on 2 September 1992 with an estimated value of the herd of $1.6 million. Because this estimated valuation seemed very high I instructed that a formal valuation be obtained. The valuation was carried out by Mr Brian Leslie from Bendigo, a stud stock auctioneer with Elders, who arrived at a total valuation of $1.8 million. This valuation was received on 8th October, 1992.

It was still considered unlikely that all stock in the herd would actually be worth as much as was listed by the valuer, as all individual values were very high. It was evident that all had been valued as stud stock. The potential cost to the Cattle Compensation Fund was also a consideration and the Minister approved suspension of the policy of paying compensation for depopulation on account of Johnes Disease on 21/10/92. Animal Industries Circular 92/28 was signed by me on 22/10/92 and faxed by the next day to relevant District Veterinarians." 88 To the same effect is an internal memorandum prepared by Mr Roth, a senior officer of NSWAg: "No action was taken on [the Plaintiff's application] as suggestions that the Cattle Compensation Fund was in question were circulating. Chief, Division of Animal Industries was away in Canberra and then Indonesia from 6 September 1992 to 28 September 1992." 89 In another memorandum, Mr Roth said: "No action was taken on [the Plaintiff's application] as information had become available that the compensation fund may be reduced in size. This information was not immediately relayed to field staff due to the political sensitivity of the matter. Chief, Division of Animal Industries was away in Canberra and then Indonesia from 6 September 1992 to 28 September 1992." 90 It is clear, in my opinion, that by 2 September 1992 NSWAg rightly perceived that the fate of the Cattle Compensation Fund generally was a politically sensitive matter, that changes to the Act might soon be made which could impact on the availability of funds to meet large claims, and that a change to NSWAg's policy on total herd depopulation might be necessary. A memorandum of Mr Roth dated 3 November 1992 records: "On 7 September 1992 Mr Roth, Mr Graeme Eggleston, Program Manager, Agricultural Protection, Mr Barry Buffier, Deputy Director-General, and Mr Phil Small, Executive Director, Administration met concerning the cattle compensation fund. A briefing note was prepared following this meeting. This meeting indicated that the compensation funds were in question and that no decision could be made with regard to such a large payout as was the case with Mr Falls. This meeting also indicated that the whole question of the future of the cattle compensation fund should be kept in confidence and that no information should be distributed prior to the Minister making an announcement on any future changes." 91 It is clear that no firm decision about NSWAg's policy in relation to the Cattle Compensation Fund had been made by 2 September or at the conclusion of the meeting of senior officers of NSWAg on 7 September. Obviously, before any change in policy could be considered further and implemented, the Chief, Division of Animal Industries, Dr Scott-Orr, would have to be consulted but Dr Scott-Orr was absent from 6 September until 28 September. 92 An interim decision about what to do with depopulation proposals generally was made as soon as Dr Scott-Orr returned. On 29 September, Dr Salmon was informed by a superior that BJD compensation payments from the Cattle Compensation Fund had been "frozen" . It was not until 21 October 1992, however, that the Minister actually approved the change to NSWAg's policy of paying compensation for total herd depopulations. On 29 October, Dr Scott-Orr wrote to Dr Salmon formally rejecting the Plaintiff's application. 93 I find that by early August 1992 there was concern being expressed by some officers within NSWAg about the long term ability of the Cattle Compensation Fund to meet claims upon it if the Government adopted a proposal to use part of the Fund for research purposes. However, there is no evidence to suggest that the Government's proposal, if accepted, would mean that the Cattle Compensation Fund would be unable to meet claims upon it in the 1992/93 year or would be unable to meet the Plaintiff's claim in particular. There is no evidence to suggest that anyone in NSWAg believed that to be the case at any time in August 1992. Indeed, the evidence shows that as at 28 August 1992 Dr Scott-Orr and her senior officers did not believe that the Cattle Compensation Fund would be unable to meet the Plaintiff's claim because they had told Mr Roe on or shortly before 28 August that they would not be "fazed" by a big pay-out from the Fund to the Plaintiff. 94 By 1 September 1992, the Government's proposals, or some rumour of them, had become known in the cattle industry and the use of the Cattle Compensation Fund had already emerged as a sensitive political issue. A draft briefing paper had been prepared for the Minister for Agriculture and a draft background paper had been prepared for Government Members of Parliament. 95 The fate of the Cattle Compensation Fund, whether there would be any change to the Act, and whether there would be any consequent impact on NSWAg's current policy on herd depopulation with compensation was discussed by senior officers of NSWAg on 7 September but no decision was made about the policy, nor could any such decision reasonably be made until Dr Scott-Orr returned on 28 September. 96 I find that at no time prior to 15 September - the latest date upon which movement of the Plaintiff's agisted stud cattle to Malton could have occurred - did NSWAg make any decision concerning the administration of the Cattle Compensation Fund generally or as to any change in the current policy in favour of whole herd depopulation. There had been nothing more than discussions and they had been left "suspended in mid-air", at least until Dr Scott-Orr's return on 28 September. It seems that when Dr Scott-Orr returned a decision was made to seek the Minister's approval for a change in NSWAG's policy concerning whole herd depopulation for BJD. 97 Bearing in mind that any policy change in the administration of the Cattle Compensation Fund was a sensitive political issue, it is difficult to see what NSWAg could reasonably have told its officers in the field, such as Dr Salmon, in August and early September 1992 as to the way in which they should continue to carry out the policies already formulated and promulgated in circulars such as 90/50 and 92/1. Any statement to field officers at that time that compensation applications for whole herd depopulation should be "put on hold" or that officers should not make any statement consistent with current policy would inevitably have given rise to rumours in the cattle industry when such rumours might have proved inaccurate and harmful: people might have acted on the basis of such rumours, to their subsequent detriment. 98 In summary, I find that even if, as at 28 August 1992 and at all material times up until the Plaintiff suffered its damage by 15 September 1992, at the latest, NSWAg owed a duty to the Plaintiff in tort to advise it carefully as to herd depopulation requirements or a duty to instruct Dr Salmon as to NSWAg's policy, nevertheless that duty did not require NSWAg to say anything further to Dr Salmon or to the Plaintiff about NSWAg's policy or about the Plaintiff's application for depopulation. 99 In my opinion, NSWAg was justified in believing during August and September 1992 that its position in relation to the Plaintiff's application for depopulation was protected: it had not formally approved the application, Dr Salmon had been informed that formal approval of the application was necessary and it could rely on Dr Salmon to make that position clear to the Plaintiff - as, in fact, Dr Salmon had done. Further, and critically, the Plaintiff had never intimated to Dr Salmon or NSWAg that, in reliance upon what Dr Salmon had said on 28 August, it intended to begin moving agisted stud cattle to Malton for valuation, prior to formal approval of the Plaintiff's depopulation application being given by NSWAg. 100 I find, therefore, that even if the duty of care alleged by the Plaintiff in paragraph 19 of the Third Further Amended Statement of Claim existed, NSWAg did not breach that duty. That finding, also, is sufficient to defeat the Plaintiff's claim.

101 In case I am wrong in the foregoing conclusions, I should state my views as to whether NSWAg owed the Plaintiff a duty of care as alleged in the Third Further Amended Statement of Claim. 102 The Plaintiff's submissions as to the existence of the alleged duty of care are as follows: "a) Reliance by the Plaintiff was reasonable.

b) Advice was given by Dr Salmon in response to questions, rather than being volunteered unprompted.

c) The Plaintiff's reliance was known to Dr Salmon.

e) Dr Salmon's advice was given to a restricted class of persons, in Ron and Peter Falls.

f) The potential damage was not merely economic loss, but physical damage or disease to the Plaintiff's cattle.

g) NSWAg knew Dr Salmon was making representations on its behalf. h) NSWAg was relevantly aware that -

(i) Dr Salmon's superior Richard Roe had agreed to support the proposal.

(ii) Roe had told Dr Salmon that NSWAg agreed in principle, was not concerned about a large payout, and that a formal valuation was required.

(iii) Dr Salmon conveyed the matters Roe had told him, to the Plaintiff. i) NSWAg was relevantly aware that

(i) The BJD policy involved a screening investigation.

(ii) The future of the Cattle Compensation Fund was in doubt.

(iii) The Plaintiff's application was likely to be deferred, indefinitely.

(iv) The Plaintiff had not been informed of the deferral of the application.

(v) There was a real likelihood of damage from cross-contamination if depopulation did not proceed.

(vi) That Dr Salmon and the Plaintiff needed to be informed about the true status of the Plaintiff's application.

(vii) Because of the presence of BJD reactors in the Plaintiff's herd the Plaintiff was vulnerable to loss.

(viii) It was within its control to remove the risk of damage to the Plaintiff.

j) Positive conduct of NSWAg gave rise to liability - it involved misfeasance rather than non-feasance." 103 It will have emerged from my earlier discussion that several important alleged factual foundations for the duty of care are absent. First, it cannot rightly be said that at any time up to 15 September 1992 "the fate of the Cattle Compensation Fund was in doubt" . There were discussions within Government and within NSWAg about a proposal for using $2M of the Fund for research and about the effect that that proposal would have on the long term position of the Fund. However, by 15 September 1992, the proposals had not resulted in any final decision. 104 Second, it cannot rightly be said that as at any time up to 15 September the Plaintiff's application was "likely to be suspended indefinitely" . What happened was that when the Plaintiff's application was received on 2 September, Dr Scott-Orr considered that the estimated value of the stud cattle was very high and she required a formal valuation to be provided. It is clear that at that time the Government's proposal to use $2M of the Fund for research was being discussed within NSWAg but the discussions as to what might be the consequences for the Fund and NSWAG's depopulation policy could go no further until Dr Scott-Orr returned to NSWAg at the end of September. 105 Third, for the reasons I have given above, I consider that it would have been premature and possibly harmful to the cattle industry generally for NSWAg to have informed Dr Salmon that one of the circumstances relevant to consideration of the Plaintiff's application for depopulation was the fact that there was a possibility, and no more than a possibility, that NSWAg's policy as to total herd depopulations might be changed. 106 Fourth, I do not agree that Dr Salmon and the Plaintiff "needed to be informed about the true state of the Plaintiff's application" . Dr Salmon had been informed, and he had passed on to the Plaintiff, that an official application for depopulation had to be made and formally approved by NSWAg. That was, in fact, the true state of the Plaintiff's application as at 28 August and it remained so at least until 28 or 29 September, as the Plaintiff should reasonably have appreciated. It followed that it was not safe for the Plaintiff to proceed on the basis that approval had already been given - as the Plaintiff ought reasonably to have appreciated. 107 Fifth, and critically, I do not accept that either NSWAg or Dr Salmon was aware that "there was a real likelihood of damage from cross-contamination if depopulation did not proceed" . As I have observed on a number of occasions, there is no evidence that Dr Salmon and NSWAg had been informed by the Plaintiff that it intended to act on Dr Salmon's statement to Mr Peter Falls on 28 August by bringing agisted cattle onto Malton for valuation prior to formal approval of the Plaintiff's application. There was no need for the Plaintiff to bring its agisted cattle to Malton for valuation: as Mr Ron Falls conceded, the Plaintiff transported the agisted cattle to Malton for valuation because it was more convenient for the Plaintiff to do so. There was no reason for Dr Salmon to suppose that the Plaintiff was likely to 'jump the gun' and to act on the basis that it was safe to proceed as if the Plaintiff's application for depopulation had already been approved by NSWAg. 108 In my view, the five considerations to which I have referred lead to a conclusion that NSWAg did not owe the Plaintiff the duty of care alleged in the Third Further Amended Statement of Claim.

109 The Defendants submitted that, as a matter of law, the duty of care alleged by the Plaintiff could not arise because NSWAg's conduct concerned the content, duration and review of Government policy. Copious reference to authority in support of the principle was given. Without intending disrespect to the careful submissions advanced by the Defendants, I do not propose to deal with those submissions with any degree of elaboration: first, because there are several other grounds upon which the Plaintiff's claim fails; second, because a conclusion as to this question of law does not depend upon any finding of fact which I have not already made. If I am wrong in all other conclusions, an appellate court should be able to determine the legal question as to the characterisation of NSWAg's acts without further fact-finding. For those reasons, I will express, very briefly, the view to which I have come. 110 Stated at its broadest, the relevant principle is that: "… a public authority is under no duty of care in relation to decisions which involve or are dictated by financial, economic, social or political factors or constraints. Thus budgetry allocations and the constraints which they entail in terms of allocation of resources cannot be made the subject of a duty of care. But it may be otherwise when the courts are called upon to apply a standard of care to action or inaction that is merely the product of administrative direction, expert or professional opinion, technical standards or general standards of reasonableness."

Sutherland Shire Council v Heyman (1985) 157 CLR 424, at 469. 111 This principle was quoted with approval by Gleeson CJ in Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 at para 12. The Chief Justice said: "Although the first principle is that the tortious liability of governments is, as completely as possible, assimilated to that of citizens, there are limits to the extent to which that is possible. They arise from the nature and responsibilities of governments. In determining the existence and content of a duty of care, there are differences between the concerns and obligations of governments, and those of citizens. Such differences led to an attempt to distinguish between matters of policy and operational matters. That distinction was never rigorous, and its validity and utility have been questioned. Even so, the idea behind it remains relevant in some cases, such as the present." 112 I accept that minds may differ as to whether NSWAg's acts or omissions in relation to the Plaintiff's application in late August and early September 1992 fall under the classification of "policy" or "operational". However, I have come to the conclusion that the duty which the Plaintiff alleges - a duty on the part of NSWAg to instruct Dr Salmon either to refrain from making statements consistent with current NSW policy on depopulations as published in circular 90/50 and 92/1 or to withdraw statements which he had made to the Plaintiff consistent with that policy - is a duty to act in relation to matters of policy rather than in relation to operational matters. My reasons are as follows. 113 In July, August and September 1992 the proposed changes to the use of the Cattle Compensation Fund, which might affect the ability of the Fund to pay compensation for whole herd depopulations, were being considered at the highest political levels in the State Government. The proposal, if accepted, would require Cabinet approval and subsequent amendment to the Cattle Compensation Act . The proposal was opposed by the New South Wales Farmers' Association. Senior officers of NSWAg recognised at a meeting on 7 September 1992 that any policy change as to payments from the Cattle Compensation Fund consequent upon funds being made available for research in accordance with the Premier's approval in principle, was a politically sensitive matter "and that no information should be distributed prior to the Minister making an announcement on any future changes" : see paragraphs 91 and 92 above. 114 The change in NSWAg's policy on whole herd depopulation clearly had to take into account "financial, economic, social or political factors" as well as "budgetry allocations" : Heyman , supra. In my opinion, these considerations take the deliberations of NSWAg in August and September 1992 as to the Plaintiff's application out of the category of "operational" and into the category of "political" . Accordingly, I would hold that NSWAg did not owe to the Plaintiff the duty of care alleged.

115 The Plaintiff's case on damages is straightforward. It says that as at 28 August 1992 it had stud cattle at Malton which were exposed to BJD infection and stud cattle agisted elsewhere, which were all free of BJD. It says that when it brought the agisted stud cattle to Malton for valuation they were exposed to BJD infection and rendered of no value as stud cattle, whereby the Plaintiff claims the loss flowing therefrom. 116 The Defendants say that the Plaintiff has not proved on the balance of probabilities that its agisted stud cattle were free of BJD prior to being moved to Malton . If, as the Defendants suggest, the Plaintiff's agisted stud cattle were exposed to BJD infection before 28 August 1992, then bringing them to Malton in reliance upon what Dr Salmon said on that day or as a consequence of NSWAg failing to take corrective action, produced no damage to the Plaintiff: the Plaintiff's agisted stud cattle had already been devalued by reason of their exposure to BJD infection. 117 The Defendants rightly point out that neither of the Messrs Falls have given direct and explicit evidence to the effect that the Plaintiff's stud cattle were, as at 28 August 1992, free of BJD and there had been no movements of cattle between Malton and the agistment properties which could have exposed the agisted cattle to BJD infection. 118 To highlight the gap in the Plaintiff's evidence on the BJD status of the Plaintiff's agisted stud cattle, the Defendants have carried out a careful analysis of the following information which may throw light on the location of stud cattle at various times:

i) the valuations of stud cattle performed by the valuer, Mr Leslie, on Malton in early September 1992. Those valuation records should, according to the Plaintiff, show all the Plaintiff's stud cattle, both those already on Malton (the BJD infected herd) and those stud cattle brought to Malton from agistment (the BJD-free herds);

ii) records of the cattle at Malton tested for BJD on 27 July 1992;

iii) records of cattle tested at Malton for BJD on 15 December 1992 for the purposes of obtaining compensation from the Cattle Compensation Fund;

iv) records of cattle tested at Malton for BJD on 14 January 1993, for the same purpose;

v) records of cattle tested at Malton for BJD on 21 January 1993, for the same purpose. 119 The Defendants say that the following emerges from the analysis of this information. Ninety-five cattle which were tested at Malton on 27 July 1992 do not appear in the valuations conducted on Malton in September 1992. This may be because some cattle tested were not stud cattle and therefore were not valued, or because as at September 1992 those cattle were on agistment at other properties, or had died or been sold. The Defendants say that some of these ninety-five were, however, stud cattle, as appears from a record of cattle tested on 14 January 1993 for compensation purposes. One such beast is identified as 29P, which was tested at Oaklands but does not appear in the valuation records for the valuation conducted in September 1992. Another such beast is identified as 83P. Both 29P and 83P had tested positive to BJD infection. 120 The Plaintiff says in answer that cattle identified as "29" and "83" are shown in the September valuations and that those cattle are the stud cattle identified as "29P" and "83P" which were tested in January 1993. The Plaintiff says that it should be inferred that the valuer valued only stud cattle in September 1992 and did not always take care to identify the cattle valued by reference to the suffixes to the numbers on their ear-tags or tattoos. 121 The Defendants respond by saying that there may have been two beasts with the same number, one with a suffix and one without. The Defendants give as an example a beast identified by the valuer as "362P" , valued at $1,500, and another beast identified as "362" , valued at $30,000. 122 Further, the Defendants say that beast "362" , being extremely valuable, was part of the Plaintiff's élite herd and was to be kept away from Malton so that it could be used for breeding purposes. It was tested in July but, obviously, it was brought to Malton for valuation in September and thereby was exposed to BJD infection. The Defendants say that these circumstances, unexplained by direct evidence from the Messrs Falls, cast doubt on the Plaintiff's implied assertion that there was no movement of stud cattle between Malton and the agisted herds prior to 28 August 1992 which could have exposed the agisted stud cattle to BJD infection. 123 On the Defendants' analysis of the information contained in the sources to which I have referred, there were about 170 cattle tested for BJD in December 1992 and January 1993 which were not valued by the valuer on Malton in September 1992. Twelve of those cattle are said to have been stud cattle, including the beasts identified as 29P and 83P, which had tested positive to BJD. That circumstance demonstrates, the Defendants submit, that there is a reason to doubt strongly that all stud cattle were brought to Malton for valuation in September; if some stud cattle, such as 29P and 83P, were on the agisted properties and were infected with BJD, then all the Plaintiff's agisted stud cattle were not exposed to BJD for the first time when they were brought to Malton in September for valuation. 124 The Plaintiff has responded to that analysis with a careful and thorough submission which seeks to show that most, if not all, stud cattle tested and said not to be included the September valuations were in fact included in those valuations. The analysis is, as I say, thorough but, in the end, it is founded on inference derived from documentary evidence, such as valuation records. Those records are liable to contain errors, which renders uncertain the analyses of both the Plaintiff and the Defendants. 125 The best evidence to prove that the agisted stud cattle were free from BJD as at 28 August and had not been exposed to BJD prior to that time by movement to and from Malton , was evidence directly to that effect which could have been given by the Messrs Falls, who had direct knowledge of the facts. The best evidence that the September valuations had not always identified the stud cattle by reference to their full tattoos or ear-tag identifications was evidence directly to that effect which could have been given by the valuer, Mr Leslie. 126 The Plaintiff was on notice prior to the commencement of the present trial that the Defendants wished to contest what stud cattle were on Malton when the September valuations were carried out and whether stud cattle were not brought to Malton and were nevertheless exposed to BJD infection. Interrogatories were administered to the Plaintiff directed to the identification and location of the beasts 29P and 83P. Notice was given to the Plaintiff two weeks before the trial commenced that if the previous affidavits of the Messrs Falls were to be tendered, the Defendants wished to cross examine them further. The Plaintiff's response was that the Messrs Falls did not intend to file any further affidavit evidence and whether they should be permitted to be cross examined further on their previous affidavits was a matter for the Court. 127 When the trial commenced there was a debate as to whether evidence given by the Messrs Falls going to the question of movements of agisted stud cattle to Malton given in the first trial should be admitted again without affording the Defendants the right to cross examine on that evidence. I held that it was the Plaintiff which was tendering that evidence and as this was a new trial, the Defendants should, in justice, be entitled to cross examine upon that evidence. I said that I would reject certain of the evidence tendered by the Plaintiff on that issue unless the Messrs Falls were made available for cross examination upon that evidence. 128 The Plaintiff's Counsel stated that the Messrs Falls were not available for cross examination. I indicated that I would entertain an application by the Plaintiff for an adjournment to permit the Messrs Falls to attend for cross examination. No application for an adjournment was made. The relevant evidence was, therefore, rejected and the trial proceeded without the attendance of the Messrs Falls. Mr Brian Leslie, the valuer, was not called by the Plaintiff either. 129 The best and most direct evidence going to proof of the Plaintiff's loss has not been placed before the Court. No satisfactory explanation for its absence has been given. The Plaintiff's case on loss is founded on inference. The records upon which that inference is founded are themselves susceptible to error and to differing analyses. 130 In those circumstances, I am not satisfied that I should find the Plaintiff's case as to damages proved on the balance of probabilities. There are too many other possibilities or interpretations open as to what could have happened which have not been removed by the simple expedient of calling the witnesses who could most easily have removed them, the Messrs Falls and the valuer, Mr Brian Leslie. 131 For these reasons, I am not satisfied that the Plaintiff has proved the loss which it claims.

132 There will be judgment for the Defendants on the Third Further Amended Statement of Claim. I will hear argument as to costs. - oOo -

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