Regal Pearl Pty Limited v Stewart & Ors

Regal Pearl Pty Limited (Appellant) Jane Ralston Stewart (First Respondent) Great Ocean Products Pty Limited (Second Respondent) Tai Kwan Seafood Pty Limited (Third Respondent) PARTIES : and four other appeals (40421/01; 40423/01; 40424/01; 40425/01): To Hung (First Respondent) Eugenia Rozenberg (First Respondent) Eva Agnes Markham (First Respondent) Shen Ping Chen (First Respondent) JUDGMENT OF : Sheller JA at 1; Stein JA at 2; Hodgson JA at 109

LOWER COURT JURISDICTION : District Court DC 1785/99 LOWER COURT DC 2943/99 FILE NUMBER(S) : DC 4742/99 DC 9013/99 DC 261/00 LOWER COURT Woods ADCJ JUDICIAL OFFICER :

J Hislop QC/R Cavanagh (Appellant) COUNSEL : No appearance (First Respondents) P Deakin QC/J Turnbull (Second Respondent) G Drake (Third Respondent) Holman Webb (Appellant) (CA 40422/01) SOLICITORS : McLaughlin & Riordan (First Respondents) McCabes (Second Respondent) Lum Mow & Associates (Third Respondent) CATCHWORDS : NEGLIGENCE - patrons contracted hepatitis A virus after eating prawns at restaurant - causation - contaminated - whether the prawns were adequately cooked - failure to warn - duty of care - foreseeability - - TRADE PRACTICES - SALE OF GOODS - fitness for purpose - merchantability - whether appellant entitled to be indemnified by the wholesaler - breach of contract - whether prawns were of merchantable quality and not fit for the purpose for which they were required - D LEGISLATION CITED : Sale of Goods Act 1923, s 19 Trade Practices Act (Cth), s 74B, s 74D, s 75AK(1) Blair v Curran (1939) 62 CLR 464 Coulton v Holcombe (1986) 162 CLR 1 CASES CITED: Heil v Hedges [1951] 1 TLR 512 Rogers v The Queen (1994) 181 CLR 251 University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 Yachetti v John Duff & Sons Ltd (1943) 1 DLR 194 DECISION : 1) The appeal by the appellant against the importer (the second respondent) is dismissed with costs; 2) The appeal by the appellant against the wholesaler (the third respondent) is allowed; 3) The wholesaler is to pay the appellant's costs of the appeal but have a certificate under the Suitors' Fund Act if otherwise entitled; 4) The verdict in favour of the wholesaler (third respondent) as against the appellant on the cross-claim be set aside and, in lieu thereof, the appellant's cross-claim against the third respondent be upheld and the third respondent ordered to indemnify the appellant in respect of the appellant's liabilty to the plaintiff in each case; 5) Liberty to apply on the costs of the trial on giving 7 days notice in writing.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40421/01; 40422/01 40423/01 CA 40424/01; 40425/01 DC 1785/99; 2943/99; 4742/99 DC 9013/99; 261/00

SHELLER JA STEIN JA HODGSON JA

15 November 2002 REGAL PEARL PTY LIMITED v STEWART & ORS

Facts: These five appeals were heard together as were the trials in the District Court. In each case Woods ADCJ found a verdict and judgment for the plaintiff against the appellant, Regal Pearl Pty Limited (Regal Pearl), in negligence and under the Sale of Goods Act 1923. His Honour dismissed the plaintiffs' cases against the second respondent, Great Ocean Products (the importer), and the third respondent, Tai Kwan Seafood (the wholesaler). The trial judge also dismissed Regal Pearl's cross-claims against the wholesaler and the importer.

In May 1997 a number of patrons of a restaurant known as the China Bowl at Coogee contracted hepatitis A virus (HAV) after eating contaminated prawns. The restaurant was owned and operated by the appellant. A total of 27 cases of hepatitis A were identified as being contracted at the restaurant, 21 of them being sourced to a Mothers Day luncheon on 11 May 1997.

The prawns used by the appellant on 11 May 1997 (and on subsequent days) were part of a shipment of approximately 10 tonnes of frozen shrimp imported from Myanmar in late February 1997. The restaurant had purchased the prawns through the wholesaler, Tai Kwan Seafood, who in turn had purchased the prawns from the importer, Great Ocean Products Pty Ltd. In making his finding against Regal Pearl in negligence and under the Sale of Goods Act, Woods ADCJ held that whilst 'we shall never know exactly when and how the virus came into the prawns', there was acceptable evidence of a 100% correlation between the illness of the plaintiffs' and their eating of prawns in the restaurant. He found that the prawns were undercooked and that adequate cooking would have neutralized the virus. His Honour also found that the prawns were purchased by Regal Pearl for cooking prawn dishes for service to restaurant customers. Because the prawns were not adequately cooked, they contained the active virus and were not of merchantable quality as between the plaintiffs and the restaurant.

In relation to the importer, Woods ADCJ found it could not be held liable in negligence for something that it was unaware and could not detect without destroying the product. Accordingly, his Honour did not determine the plaintiffs' claims against the importer under the Trade Practices Act. His Honour held that there was no liability in the importer or wholesaler and dismissed the cross-claim of the appellant.

On appeal the appellant submits that it is entitled to be indemnified by the wholesaler under the Sale of Goods Act in breach of contract. Regal Pearl contends that the evidence overwhelmingly establishes that the prawns were contaminated with HAV when imported and subsequently supplied to the appellant by the wholesaler. Accordingly, the prawns were not of merchantable quality and were not fit for the purpose for which they were required at the time of supply by the wholesaler.

The appellant also submits that his Honour should have found that the importer was liable to the plaintiffs in negligence and pursuant to ss 74B and 74D of the Trade Practices Act. The appellant argues that the importer was negligent in failing to warn the wholesaler, the appellant and the plaintiffs, of the potential contamination in the prawns.

The importer submits that his Honour was in error in referring to a cross-claim by the restaurant against it under the Sale of Goods Act. The importer further submits that there was ample evidence to support his Honour's finding that adequate cooking would have destroyed the virus in the prawns.

As to the appellant's claims under the Trade Practices Act, the importer says that such claims were not included in the appellant's amended cross claim filed shortly prior to the trial. Accordingly, the appellant should not be permitted to now rely on the defence. In any event, the importer submits that the prawns were reasonably fit for the purpose for which they were provided.

The wholesaler supports his Honour's judgment that it was not liable in negligence and not liable to the appellant under the Sale of Goods Act. It should be noted that the wholesaler did not cross-claim against the importer.

Held: per Stein JA, Sheller JA and Hodgson JA agreeing:

1. The appellant should not be permitted to rely on grounds 4-6 in the Notice of Appeal or be given leave to amend.
2. The appellant, having abandoned its cross-claim against the importer for a breach of the Trade Practices Act, is not entitled to seek to run the claim on the appeal. The appellant clearly took a decision not to pursue the claim at the trial and it ought not now be permitted to do so on appeal.

• University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 and - Coulton v Holcombe (1986) 162 CLR 1 applied

3. His Honour was entitled to find that the prawns were contaminated when imported into Australia. This conclusion is inevitable. First, the lack of cleanliness of the restaurant premises does not seem to have been relevant to the contamination of the prawns with HAV. Secondly, the theory that a food handler in the restaurant may have contaminated the prawns with the virus is against the weight of evidence. Thirdly, the expert evidence overwhelmingly points to the fact that the prawns were contaminated with HAV when imported and subsequently supplied to the restaurant.
4. There is abundant evidence that adequate cooking would have destroyed the virus in the prawns. The cooking of the prawns in the restaurant clearly did not kill the virus. This conclusion is inescapable. The finding by his Honour that the prawns had not been properly or adequately cooked by the restaurant was not only open, it was also the only finding reasonably available on the evidence.

5. The appellant's case against the importer in negligence must fail. There was no evidence that the importer was aware that the prawns contained the virus when it acquired them. Moreover, it was not foreseeable to the importer that the prawns, when purchased by the restaurant, would not be adequately cooked, thereby destroying the virus. Further, it would have been unreasonable to require the importer to have tested the prawns for the virus.
6. The appellant has failed to satisfy the onus that a warning by the importer would have avoided the outbreak of HAV.
7. His Honour was entitled to find, on the cross-claim by the restaurant against the importer, that the appellant had not established that the importer was negligent in supplying the contaminated prawns. His Honour was right to dismiss the cross-claim.

8. His Honour's findings in relation to the appellant's cross-claim against the wholesaler are unsustainable. The appellant is entitled to succeed on its cross-claim against the wholesaler for a breach of s 19 of the Sale of Goods Act. The supply of contaminated prawns by the wholesaler to the restaurant was the supply of goods of unmerchantable quality. Moreover, the supply of prawns containing the virus must mean that the prawns were not reasonably fit for the purpose of being sold for human consumption by patrons of the appellant's restaurant. This entitles the appellant to a complete indemnity. Per Hodgson JA:

If the importer (second respondent) had proved that there were well-known standards for cooking prawns which needed to be complied with before the prawns could be safely eaten, and compliance with which would destroy HAV, then contamination with HAV would not have made them not of merchantable quality or not fit for the purpose for which they were acquired. However, the evidence did not show that there were such well-known standards.

1. The appeal by the appellant against the importer (the second respondent) is dismissed with costs.
2. The appeal by the appellant against the wholesaler (the third respondent) is allowed.
3. The wholesaler is to pay the appellant's costs of the appeal but have a certificate under the Suitors' Fund Act if otherwise entitled.

4. The verdict in favour of the wholesaler (third respondent) as against the appellant on the cross-claim be set aside and, in lieu thereof, the appellant's cross-claim against the third respondent be upheld and the third respondent ordered to indemnify the appellant in respect of the appellant's liability to the plaintiff in each case.

5. Liberty to apply on the costs of the trial on giving 7 days notice in writing.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40421/01; 40422/01; 40423/01 CA 40424/01; 40425/01 DC 1785/99; 2943/99; 4742/99 DC 9013/99; 261/00

SHELLER JA STEIN JA HODGSON JA

15 November 2002 REGAL PEARL PTY LIMITED v STEWART & ORS Judgment

1 SHELLER JA: I agree with Stein JA. 2 STEIN JA: Introduction 3 These five appeals were heard together, as were the trials in the District Court. In each case Woods ADCJ found a verdict and judgment for the plaintiff against the appellant, Regal Pearl Pty Limited (Regal Pearl) in negligence and under the Sale of Goods Act 1923. His Honour dismissed the plaintiffs' cases against Great Ocean Products Pty Limited, the second respondent (the importer) and Tai Kwan Seafood Pty Limited, the third respondent (the wholesaler). 4 The trial judge also dismissed Regal Pearl's cross-claims against the wholesaler and the importer. The trials were adjourned by his Honour for assessment of damages. It seems that these were subsequently assessed or settled and, according to the appellant, have been paid. Accordingly, the plaintiffs, while joined as parties, did not appear in the appeal proceedings. 5 In May 1997 the plaintiffs were patrons of a restaurant at Coogee known as the China Bowl and owned by Regal Pearl. They each contracted hepatitis A virus (HAV) after eating at the restaurant. A total of 27 cases of hepatitis A were identified as being contracted at the restaurant, 21 of them being sourced to a Mothers' Day luncheon on 11 May 1997. Besides these present proceedings, the court understands that litigation is afoot involving other plaintiffs.

A preliminary issue 6 Grounds 4 - 6 of the Notice of Appeal are as follows:

4. The Trial Judge erred in finding that the prawns were undercooked by the Appellant when there was no evidence supporting such a finding.

5. The Trial Judge erred in finding that the cause of the damage was inadequate cooking when there was no evidence that the prawns had not been cooked sufficiently to serve to the First Respondent (the plaintiff).

6. The Trial Judge erred in making findings as to the expectations of the industry and the public as consumers when there was no evidence supporting such findings. 7 Notwithstanding these grounds, no orders were sought by the appellant in the Notices of Appeal seeking to set aside the plaintiffs' verdicts. The appellant informed the court that this was since it accepted liability to the plaintiffs under the Sale of Goods Act and has paid the verdicts. The question of whether the court could or should determine the issues arising under the above grounds, in the absence of the appellant seeking to set aside the judgments in favour of each plaintiff, was raised during argument on the appeal. 8 The appellant contends that it is not necessary that it seek to set aside the judgments because they would stand under the Sale of Goods Act and the plaintiffs have in fact been paid their damages. Further, it submits that the court has the power to determine the issues without the necessity of it challenging the plaintiffs' judgments. 9 If the court is not with the appellant on this submission, the appellant applies to amend its Notice of Appeal to seek to set aside the verdict entered for the plaintiff in each case. In so doing the appellant confirms that it does not suggest that the plaintiffs are not entitled to retain their judgments under the Sale of Goods Act. However, I note that order (1) sought in the proposed amended Notice of Appeal, forwarded to the court after judgment was reserved, belies this submission. It merely seeks an order that the verdict in favour of the plaintiff (in each case) as against the appellant, be set aside. 10 The submission of the appellant, and its fall-back application to amend, are opposed by both the importer and the wholesaler. 11 There are a number of reasons why it is my opinion that the appellant should not be permitted to rely on grounds 4 - 6 in the Notice of Appeal or be given leave to amend. 12 The appellant's supplementary submissions (lodged after the court reserved its judgment) acknowledge that an application to set aside the judgments of the plaintiffs would lack utility because they must stand insofar as they are based on the Sale of Goods Act. 13 I fail to understand how the judgments can be set aside only insofar as they relate to the cause of action in negligence but not set aside insofar as they are based on the Sale of Goods Act. So much seems to be accepted by the appellant in the form of the proposed amended Notice of Appeal attached to its supplementary submissions. It seeks, as I mentioned earlier, that the verdict for the plaintiffs against it be set aside. It does not seek to qualify it, nor could it. A verdict is a verdict. 14 It is trite to observe that an appellant's rights of appeal are limited to challenging judgments or orders of the court and not the reasons for such judgments or orders. 15 It is not to the point to say that the plaintiffs have been paid and that this position will not be disturbed. A conclusion of an appeal court that the trial judge was in error in finding the appellant negligent would undermine the judgment, even if it is not sought to be set aside. This would disturb the necessary concept of the finality of a judgment or order. 16 Even if the court had the power to proceed as the appellant seeks, it seems to me that it would be inappropriate to do so. Leave to appeal was granted by the court on the express basis of not disturbing the judgments entered below. Indeed, senior counsel for the appellant appearing on the leave application said that he wished to make it clear to the court that the appellant did 'not seek to disturb any finding of liability in favour of the plaintiffs'. 17 Moreover, it is not clear that the plaintiffs have been paid all of their costs. While four of the five plaintiffs have indicated their written consent to the proposed amended Notice of Appeal, they have done so on the basis of it seeking a different order than that in the document forwarded to the court as the proposed form of the amendment. One of the plaintiffs, Mrs Rozenberg, either does not consent or does so only on condition that no attempt is made to set aside her judgment or challenge the finding on liability. The court is also unaware of the status of other litigation by similarly injured plaintiffs. 18 Granting the application to amend the Notice of Appeal will not only be pointless, as submitted by the importer, but also potentially mischievous. It is simply unacceptable to set aside the judgment on one basis but not on another. This problem seems to be inherent in the appellant's written submissions (para 5) when it accepts that it makes no submission that the plaintiffs are not entitled to retain their judgments on the basis of the Sale of Goods Act. It appears to me that what the appellant is really seeking to do is to notionally set aside the judgments on one basis but not on another. I fail to see how this can be done. 19 The amendment application should be refused. The order which the appellant seeks in para (1) of the orders sought in the proposed amended Notice of Appeal appears to be misconceived.

Judgment at first instance 20 His Honour commenced his reasons for judgment by noting that Regal Pearl acknowledged that the plaintiffs contracted hepatitis A from the prawns which they ate in various dishes at the restaurant and that they suffered injury sufficient to constitute damages for negligence. Woods ADCJ stated that it was Regal Pearl's case that the hepatitis A virus was present in the prawns when they were imported. He noted that the importer and wholesaler did not concede this claim. 21 His Honour observed that the plaintiffs claimed in negligence against Regal Pearl and the importer in their failing to ensure that the prawns were not contaminated with the virus and under the Trade Practices Act 1974 (Cth). However, as appears later from my analysis of the pleadings, this was not strictly correct. While the plaintiffs claimed against the importer under the Trade Practices Act, it did not so claim against the appellant. 22 His Honour recorded that Regal Pearl cross-claimed against the importer and wholesaler under the Sale of the Goods Act and in negligence. This again was not accurate. Regal Pearl did not and could not claim against the importer under the Sale of Goods Act. Regal Pearl did however claim contribution from the wholesaler and importer. 23 The judge said that the importer and wholesaler had a defence to the Trade Practices Act claims under s 75 AK (1) in that the defect could not be discovered having regard to the state of scientific or technical knowledge at the time of supply. 24 After discussing the evidence, his Honour posed the question as to where the hepatitis A virus had come from. He said: Was it the prawns from the Irrawaddy Delta in Myanmar? Or did it come from handlers in the processing in Myanmar? The prawns were caught and then processed by being peeled and packed into plastic bags and boxes and frozen. Or did it come from the handling at the restaurant; the prawns were defrosted, taken out of the plastic, had cold water run over them and then handled for cooking. As already noted from the health authorities report on their investigation all persons working in the restaurant on the day the prawns were eaten were tested for the Hepatitis A virus and found negative although as noted this did not positively cover all persons who could have handled the prawns as there may have been some handling of the prawns the day before and then 6 people got hepatitis A on different days, namely the 10th, 12th and 18th. There was some cross-examination of one of the health department officers namely Mr Ian Beer on the reaction of the government however what he said only goes as far as to suggest that it seems to be Government policy that there can only be limited controls and testing on imported foods and anyway as such imported foods are to cooked before consumption and the cooking will destroy bacteria such as salmonella and virus like the Hepatitis A virus there is no need to have impossible controls.

Does this mean it is allowable to import and sell foods such as frozen prawns with such a harmful virus present in it. Some of the questioning of Mr Beer related to the analogy of the situation of salmonella contamination in chickens. It was put to Mr Beer that hepatitis A has a higher tolerance than salmonella and it is easier to get sick from a small dose of salmonella but Mr Beer stated that salmonella could have a similar infective dose to hepatitis A for susceptible people and he agreed that salmonella does exist on the surface as well as in the center of chicken in particular. He agreed that many raw foods of animal origin such as poultry, shellfish and raw seafood may be contaminated with pathogens or harmful bacteria. And this would be the same with locally produced poultry, shellfish and seafood in New South Wales. He also agrees it is correct that the Australian Quarantine Inspection Service does not generally require countries to provide certification for all prawns. The policy decision behind this is that raw prawns are expected to receive a heat process which would render them safe for human consumption. Therefore the authorities accept that the purpose of the importation is to serve the imported food, eg prawns, as prepared food to the consumer and part of that process is that the food is going to be cooked and cooking of the food that may or may not have levels of harmful pathogens in them destroys those pathogens. Mr Beer agrees that it is silly not to expect that raw products such as prawns will be coming into this country completely free of any harmful pathogens. 25 His Honour said that because of the long delay between the harvesting of the prawns, their handling in the restaurant and the outbreak of hepatitis, 'we shall never know exactly when and how the virus came into the prawns'. This statement is relied on by the importer and wholesaler to support a submission that his Honour did not positively find that the prawns were contaminated when imported and supplied. 26 His Honour then made the following important finding: Whilst the medical evidence and the health authorities who investigated the outbreak assess the highest likelihood to be that the food brought into the restaurant, namely the prawns, were already contaminated with the hepatitis A virus they all agree that it must have been consumed following inadequate cooking. Whilst I must accept the assessment of the health authorities as they all come to the same conclusion or likelihood after considering alternative explanations, I am continually conscious of the fact that they all emphasise the failure to adequately cook. The officers and in particular Dr Ferson and Ian Beer were questioned thoroughly on how they came to the assessment of what happened and in particular in the paper headed Issues raised by the Quick Frozen Seafood Importers Association in Exhibit A and many different factors were considered. And they noted that the most critical control factor in preventing hepatitis A is adequate cooking of raw seafood. [Emphasis added] 27 The trial judge found that there was acceptable evidence of a 100% correlation between the illness of the plaintiffs and their eating of prawns in the restaurant. He found as a fact that the prawns were undercooked and that adequate cooking would have neutralized the virus. With regard to this, his Honour stated: Much has been made of the different levels of temperature needed to render different pathogens and microbes safe after cooking but I am not satisfied that this means we are talking about different levels of merchantability or purposes. I am not satisfied that this makes any difference to the onus of care placed on the restaurant in the absence of any prior knowledge of different levels of risk and the failure to have any industry standards for the different styles of food preparation such as steaming and deepfrying. So before me now who is the cause of the damage? - the direct cause is the inadequate cooking. So even if the prawns had the Hepatitis A virus in them at the time of the purchase from the wholesaler and the virus was undetectable at the time as the importer had no knowledge of any defect, the purpose for which they were being sold was to be cooked in prawn dishes in such a manner that would have co-incidentally killed the virus. [Emphasis added] 28 His Honour said that it is the normal and reasonable expectation of the industry and of the general public, the eventual consumer, that prawns would be adequately cooked. Unlike other seafoods, such as oysters, prawns are never served or eaten raw. 29 His Honour concluded that the blame must lie with the restaurant for inadequately cooking the prawns. He observed: It is common knowledge that bearing in mind the risks of eating raw meats, and seafood comes within that category, that if you want to eat meats or seafood in a raw state you make that purpose known and for example with fish you will be steered towards a much more expensive and guaranteed safe batch of tuna as against the cheaper cuts recommended for cooking as steaks or fillets. The health authorities gave evidence that most meats have some level of potentially harmful bacteria present in them and it was suggested that the industry does not create a system of over-regulation or over certification as it is expected that the foods will be cooked before eating and the cooking will neutralize or kill any harmful bacteria. See here the evidence of Mr Beer. The expectation of the public at large is that while raw seafood may have harmful germs or pathogens in them, cooking will neutralize them. So it must be the responsibility of people to cook such foods adequately. The public at large finds its regulating embodiment in the government authorities which are entrusted with the duties to ensure healthy and hygienic standards are maintained. The health authorities have made it clear that they understand all raw meats and seafood may have bacteria or virus in them whether imported from overseas or farmed locally however proper cooking will neutralize them so the authorities have minimum regulatory procedures to check for the existence of pathogen and viruses in food before cooking. There is no evidence that there was any clear forewarning of any special risk over and above the accepted risk. If the lack of care is in the cooking then the blame must lie there, and this is what I find in this case here before me now . [Emphasis added] 30 Besides finding for the plaintiffs against Regal Pearl in negligence, his Honour also found for them against the restaurant under the Sale of Goods Act. His Honour held that the prawns were purchased by Regal Pearl for cooking in prawn dishes for service to restaurant customers. According to the evidence, if the prawns had been adequately cooked, they would have been fit for service to customers. 31 Because the prawns were not adequately cooked, they contained the active virus and were not of merchantable quality as between the restaurant and its customers (the plaintiffs). 32 However, when his Honour turned to the cross-claim between Regal Pearl and the importer and wholesaler, he concluded as follows: However as between the restaurant and the importer and the wholesaler what is the position? The prawns were purchased by the restaurant manager for cooking in prawn dishes for service to the customers to [sic] the restaurant. The scientific evidence is quite clear that if the prawns had been adequately cooked then they were fit for service to restaurant customers. So as the prawns were fit for the purpose how can the restaurant company claim the prawns were unmerchantable. Perhaps it is suggested that the presence of bacteria such as e coli and the hepatitis A virus means that there is a hidden defect which makes the prawns unmerchantable - but on the evidence of the health officers it is accepted by the health authorities that some bacteria would be present and even if this included the hepatitis A virus then adequate cooking would still ensure that they could be safely consumed in a prawn dish. 33 His Honour found that the importer could not be liable in negligence for something that it did not know was there and probably could not detect without destroying the product. There was no evidence of foreknowledge of specific risk in the importer or in the wholesaler. 34 His Honour concluded his judgment by saying that it was unnecessary to determine the plaintiffs' claims under the Trade Practices Act. He found that there was no liability in the importer or wholesaler and dismissed the cross-claim of the appellant.

Some further facts 35 In addition to the facts which may be gleaned from my discussion of the judgment of the trial judge, the following additional facts should be noted. 36 In early June 1997 a number of patrons of the China Bowl Restaurant began suffering various complaints at first thought by them to be influenza or some similar virus. However, on attendance at various hospitals, they were each diagnosed as having contracted hepatitis A. Hepatitis A is a notifiable disease under the relevant health legislation. As such, on 11 June 1997, staff of Sydney Children's Hospital and the Prince of Wales Hospital notified the South Eastern Sydney Public Health Unit of three cases of suspected hepatitis A, which were serologically confirmed the following day. When the patients were interviewed, a common link was apparent - all three had eaten a 'yum cha' meal at the appellant's restaurant on Mother's Day, Sunday 11 May 1997.

37 Over the following week, additional hepatitis A cases from people who had eaten at the same restaurant on the same day were identified through notification by laboratories and general practitioners. Over the following weeks further cases of HAV were reported and the restaurant was traced back as the common factor in all of them. A total of 27 cases were reported of which 21 were sourced to the Mothers Day lunch on 11 May, one each on 10 and 12 May and four on 18 May.

38 The prawns used by the restaurant on 11 May 1997 (and on the subsequent days) were part of a shipment of approximately 10 tonnes of frozen shrimp imported from Myanmar in late February 1997. The restaurant had purchased the prawns through a wholesaler company, Tai Kwan Seafood Pty Ltd, the third respondent. It in turn had purchased the prawns from an importer, Great Ocean Products Pty Ltd, the second respondent.

39 A report by Dr Marinos described HAV as a highly contagious virus that attacks the liver. The infection rates are highest in circumstances of poor sanitation. The virus is found in the stool of persons with hepatitis A. It is spread by the faecal-oral route through close person-to-person contact or ingestion of faecal contaminated food or water. For this reason, the virus is more easily spread in areas where there are poor sanitary conditions or where good personal hygiene is not observed. He noted that casual contact does not spread the virus. Most clusters of hepatitis A virus infection are related to water-borne or food-borne epidemics.

40 Dr Marinos commented that the incubation period for hepatitis A ranges from 20 to 50 days, which means that infectious patients, such as food handlers, can spread the disease well before they are aware that they have it. Ingestion of seafood (such as prawns, clams and oysters) from faecal contaminated waters is renowned to have caused epidemics of hepatitis A virus infection. Importantly, he stated that steaming the seafood may not kill the hepatitis A virus because the temperature achieved may not be sufficiently high.

41 In a report prepared by officers of the South Eastern Sydney Public Health Unit, it was noted that HAV is stable after incubation at 56º C, viable if stored at -20º C for years and still infectious if dried and stored at room temperature for several weeks. Complete inactivation of the virus can be achieved after heating at 70º C for 4 minutes, 80º C for less than 5 seconds, or 85º C for less than one second. If the core of the hepatitis contaminated food does not reach these temperatures, viral inactivation will not occur.

42 Two inspections by food inspectors and medical epidemiologists at the restaurant found evidence of dirty premises and detected inadequacies in health and hygiene practices. The health inspector who carried out the inspection reported one of the worst restaurant kitchens he had seen in 24 years experience. In the report the condition of preparation, storage and washing areas was described as below standard. It was noted that grease and food particles were found caked on to the stove and walls around the cooking areas. Food scraps were found on the floor and around the sink. No hot water was available in the kitchen for either preparation of food or cleaning of utensils at the time of inspection, the dishwasher had its own heater and sanitisers for dishwashing only. Fresh ready-to-eat food and cooked food were not appropriately separated to prevent contamination. There was also evidence of cockroaches in the storage and preparation area. 43 Nonetheless, the evidence established that the general cleanliness of the restaurant was not relevant to the contamination of the prawns with HAV and the Trial judge so found. 44 The experts were in general agreement that the prawns could have been contaminated in one of the following ways. First, an infected food handler could have contaminated a prawn dish during preparation, and the cooking was not adequate to deactivate the virus; secondly, an infected food handler contaminated only prawn dishes after cooking; thirdly, an infectious patron contaminated some food or article which resulted in transmission of infection to others; or lastly, the prawns were already contaminated with HAV when they were brought onto the premises and were consumed without adequate cooking.

45 However, all of the experts agreed that the most likely source of contamination in this case was the last hypothesis. According to the expert evidence it would seem that the most likely cause of contamination was by human faecal pollution in the Irrawaddy delta environment where the prawns were harvested or by a food handler during peeling in the processing plant in Myanmar, and then the prawns did not receive adequate cooking in the restaurant.

The submissions of the parties 46 It is the appellant's case that it is entitled to be indemnified by the wholesaler under the Sale of Goods Act in breach of contract. It also submits that his Honour should have found that the importer was liable to the plaintiffs in negligence and under the Trade Practices Act. This would result in an apportionment between the appellant and the importer. 47 Regal Pearl submits that the evidence overwhelmingly establishes that the prawns were contaminated with the virus when imported and subsequently supplied to the appellant. In effect, it is said that his Honour so found. It follows, in the appellant's submission, that the prawns were not of merchantable quality and were not fit for the purpose for which they were required at the time of supply by the wholesaler. The particular purpose was known to the wholesaler. That is, that they would be served to customers of the restaurant for human consumption. 48 The appellant submits that there was no evidence upon which his Honour could have found that the prawns had been undercooked for serving and eating. Moreover, there was no evidence of any standard of cooking of prawns which the appellant should have been aware. There was no evidence that the steaming of the prawns by the restaurant rendered them unpalatable or unsuitable for consumption. 49 On behalf of the appellant it is submitted that his Honour confused the question of duty of care and that he erred in finding that the purpose for which the prawns were sold was to be cooked in such a manner as would coincidentally have killed the virus. 50 As to the importer, the appellant submits that it was negligent in failing to warn the wholesaler, the appellant and the plaintiffs, of the potential contamination in the prawns. Regal Pearl also submits that his Honour should have found that the importer was liable pursuant to ss 74B and 74D of the Trade Practices Act. 51 The importer submits that his Honour was in error in referring to a cross-claim by the restaurant against it under the Sale of Goods Act. The pleadings disclose that the only claim against the importer by the appellant was in negligence and for contribution on the basis of co-ordinate liability. 52 The importer submits that there was ample evidence to support his Honour's finding that adequate cooking would have destroyed the virus in the prawns. On the evidence his Honour was entitled to find that the appellant was negligent in inadequately cooking the prawns. 53 The importer further submits that his Honour did not find that the prawns were contaminated with the virus when they were imported. There was no such direct evidence nor any evidence sufficient to draw the inference. 54 As to the appellant's contention that it was negligent, the importer submits that this claim must fail for lack of foreseeability. The importer could not foresee that the prawns would not be adequately cooked by the restaurant, thus ensuring destruction of the virus. 55 Also, it was not foreseeable that the prawns, when imported by it in a frozen state from Myanmar, would contain the virus. In addition, given the evidence, it was not unreasonable for the importer not to test the prawns for hepatitis A. This would have been extremely difficult, destroy the product and, in any event, produce no conclusive result. 56 Warning signs were unnecessary because the evidence clearly established that adequate cooking would destroy any virus in the prawns. Since prawns are not served raw, adequate cooking is essential. 57 As to the appellant's claims under the Trade Practices Act, the importer says that such claims were not included in the appellant's amended cross-claim filed shortly prior to the trial. Further, no submission was made to the trial judge that the importer was liable to the appellant for any breach of the Trade Practices Act. Accordingly, the appellant should not now be permitted to raise the defence and ought be limited to its claim in negligence. 58 In any event, as to the Trade Practices Act claim, the importer submits that the prawns were reasonably fit for the purpose for which they were provided. That purpose was consumption by customers after adequate cooking. 59 The wholesaler supports his Honour's judgment that it was not liable in negligence and not liable to the appellant under the Sale of Goods Act. It adopts and relies upon the submissions of the importer in most respects.

The pleadings 60 It is necessary to examine the pleadings in order to understand some of the submissions put to the court. The plaintiffs sued Regal Pearl and the importer. The former in negligence and under the Sale of Goods Act. They succeeded on both counts. The plaintiffs also sued the importer for negligence and under the Trade Practices Act. His Honour dismissed the negligence claim and, it seems, found it unnecessary to determine the Trade Practices Act claim. 61 The restaurant crossed-claimed against both the importer and the wholesaler. As to the importer, it claimed in negligence and sought contribution under the principles of co-ordinate liability. 62 By an amendment made to its cross-claim on 4 May 2001, the appellant abandoned its previous cross-claim against the importer under the Trade Practices Act. One may assume that it did this for what it believed to be good forensic reasons at the time. 63 I reject the attempt by the appellant to rely upon the reference in the cross-claim to the plaintiffs' statements of claim so as to incorporate the Trade Practices Act claims against the importer in the cross-claim. The appellant did not run its case against the importer on the basis of a breach of the Trade Practices Act. To the contrary it had abandoned such claims. 64 It may also be mentioned that there is no ground of appeal concerning the plaintiffs' claim against the importer under the Trade Practices Act or the failure of his Honour to deal with any cross-claim for a breach of the Trade Practices Act by the importer. 65 As against the wholesaler, the appellant's cross-claim was brought in negligence, under the Sale of Goods Act and for apportionment. 66 The importer cross-claimed against the restaurant for contribution based on its negligence. 67 Importantly, and for reasons unknown to the court, the wholesaler did not cross-claim against the importer. An application to bring such a claim out of time and at the eleventh hour was refused by his Honour. No appeal is brought by the wholesaler from this refusal. 68 In my opinion, the appellant, having abandoned its cross-claim against the importer for a breach of the Trade Practices Act, is not entitled to seek to run the claim on the appeal. The appellant clearly took a decision not to pursue the claim at the trial and it ought not now be permitted to do so on appeal, University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 and Coulton v Holcombe (1986) 162 CLR 1.

Where were the prawns contaminated? 69 His Honour said that the medical evidence, and that of the health authorities who investigated the outbreak, assessed that 'the highest likelihood' was that the prawns were already contaminated with the hepatitis A virus when they were supplied to the appellant. However, he also said that because of the delay from harvesting to consumption in the restaurant, and the outbreak itself, it may never be known 'exactly' how the virus came into the prawns. 70 In my opinion, the case was such that it was necessary for the trial judge to determine whether the prawns were contaminated with HAV when supplied by the wholesaler to the appellant and when they were imported into Australia by the importer. That is, of course, assuming that the evidence enabled a finding to be made. One view is that his Honour did in fact make such a finding and his remark about perhaps never knowing 'exactly when or how the virus came into the prawns', did not qualify the finding. 71 Indeed, on a fair reading of the judgment as a whole, it seems to me that this is what his Honour intended to find. However, assuming that the judge did not so positively find, I would have no hesitation in finding that the prawns were contaminated when supplied to the appellant. I would do so for a number of reasons. 72 First, the lack of cleanliness of the restaurant premises does not seem to have been relevant to the contamination of the prawns with HAV and his Honour was entitled to so find. 73 Second, the theory that the prawns may have been contaminated with the virus by a food handler in the restaurant was against the weight of the evidence. The food handlers were tested and found to be negative. Even assuming an infected food handler, the virus would likely only attach to the outside of the prawns and would have been neutralised by the appellant's cooking. According to the evidence it is probable that the virus was in the middle of the prawns and as such was unlikely to have been caused by food handling in the restaurant. All of the expert evidence agreed that the prawns were most likely to have been contaminated when supplied to the appellant. Again, it was well and truly open to his Honour and this court to so find. 74 Thirdly, the expert evidence overwhelmingly points to the fact that the prawns were contaminated with HAV when imported and subsequently supplied to the restaurant. The evidence is, for all intents and purposes, all one way and there was no reason why it should not have been accepted by his Honour, as indeed it was. 75 In my opinion, a finding that the prawns were contaminated when imported into Australia is inevitable. The patrons all contracted hepatitis A after eating prawn dishes in the restaurant. They did so over a period of days in May 1997. The only reasonable hypothesis, when one examines the evidence, is that the prawns were contaminated when supplied to the appellant by the wholesaler. Indeed, when imported into the country by the importer. There is simply no other acceptable hypothesis as to when the prawns became contaminated with the virus. 76 While the onus of proving that the hepatitis A virus was in the prawns at the time of importation or supply lay with the plaintiffs, and there was no direct evidence, the irresistible inference is that the prawns were contaminated upon importation. The 'crumbs' of evidence relied on by the importer to the contrary are not such as would displace the preponderance of the evidence and available inferences.

Were the prawns adequately cooked? 77 Because of my earlier conclusion that the appellant is not entitled to dispute its negligence to the plaintiffs, it is strictly unnecessary to address this issue. Nonetheless, I will do so, albeit briefly. 78 His Honour found that the prawns had not been properly or adequately cooked by the restaurant and that if they had been so cooked, the virus would have been neutralised. 79 The appellant attacks these findings. It submits that there was no evidence as to the 'proper' method of cooking of prawns in Chinese restaurants. Moreover, it is said that the evidence did not establish that the prawns had been undercooked for serving and eating, the appellant, of course, being unaware of the contamination. It is submitted that there was no evidence of any relevant standard of which the appellant should have been aware. The evidence established that the prawns had been cooked sufficiently for taste and palatability so that there was no 'fault' established against the restaurant for its method of cooking. 80 However, when the evidence is examined, it is plain that there was abundant evidence that adequate cooking would have destroyed the virus in the prawns. The cooking of the prawns in the restaurant clearly did not kill the virus. This conclusion is inescapable. The evidence of Dr Ferson and Mr Beer supported the finding and there was no reason to reject their opinions. See also Professor Fleet and Mr Paraskevopoulos. The finding by his Honour was not only open, it was in effect the only finding reasonably available on the evidence.

The appellant's cross-claim against the importer 81 As to the issue of negligence of the importer, his Honour found that the importer did not know of the contamination and could not detect it by testing without destroying the product. He noted that the accepted industry practice was that seafood was susceptible to harmful microbes and bacteria but that restaurants knew that adequate cooking was required. Woods ADCJ said that the importer had no foreknowledge of the specific risk. 82 The appellant submits that since the importer knew that the prawns were harvested in a tributary of the Irrawaddy River in Myanmar, it ought to have been alerted to the possibility of contamination of the prawns. It (the importer) had a duty to warn the wholesaler, the restaurant and/or consumers of the potential defect in the prawns. The importer failed to give any warning. However, I interpolate that just what the form of this warning ought to have been was never satisfactorily specified. 83 In any event, the appellant says that the prawns, when imported, did contain the virus and it was negligent of the importer to supply the wholesaler with prawns containing the defect. 84 In my opinion, the appellant's case against the importer in negligence must fail. There was no evidence that the importer was aware that the prawns contained the virus when it acquired them. There was no reason for the importer to believe that there was the potential for them to contain the virus. The outbreak of hepatitis A in the appellant's restaurant was unique. There was no evidence that prawns from the Irrawaddy delta had previously been contaminated with the virus. In addition, the importer was entitled to place some reliance on the certification process by the Fisheries Department of Myanmar. 85 Moreover, it was not foreseeable to the importer that the prawns, when purchased by the restaurant, would be other than adequately cooked, thereby destroying any virus. 86 Further, it cannot be said that the importer was negligent in not testing the prawns for HAV. Not to test the prawns was reasonable given that the prawns arrived in Australia in a frozen form and remained in that state when delivered to the appellant's restaurant. 87 The process of testing for HAV was very time-consuming, very expensive and difficult and not routinely available. The virus was almost impossible to detect and there was no laboratory available to reliably detect such a virus. The technology was still being developed in 1997 and, importantly, a negative finding did not guarantee that the prawns did contain the virus. 88 Testing would also involve destroying the product, which meant that only samples could be tested. This would further diminish the efficacy of testing. 89 In all of these circumstances, it would have been unreasonable to require the importer to have tested the prawns for the virus. 90 Lastly, the appellant claimed that the importer should have affixed warnings to the prawns. As I mentioned before, the content of such a warning to be attached to the prawns was never spelt out. 91 The appellant carries the onus of proving that an appropriate warning would have avoided the outbreak of hepatitis A. The manager of the restaurant, Mr Wong, gave evidence that if he had been warned that the virus was in the prawns, he would not have bought them. But what weight can be given to this evidence? Mr Wong, once he had knowledge of the source of the outbreak, continued to use the prawns and continued to order further prawns sourced from the Irrawaddy delta. 92 In light of all of the evidence and Mr Wong's position in the litigation, I do not see that his answer that he would not have ordered the prawns if he had been warned, should be given much weight. The appellant has failed to satisfy the onus that a warning would have avoided the outbreak of hepatitis which occurred. 93 His Honour was entitled to find, on the cross-claim by the restaurant against the importer, that the appellant had not established that the importer was negligent in supplying the contaminated prawns. It follows that his Honour was right to dismiss the cross-claim.

The appellant's cross-claim against the wholesaler 94 Unlike the appellant's cross-claim against the importer, the cross-claim by it against the wholesaler contained a claim under s 19 of the Sale of Goods Act. This is because the wholesaler sold the prawns to the restaurant. 95 I have already found that at the time of supply by the wholesaler to the appellant, the prawns were contaminated with HAV. In that circumstance the prawns were plainly not of merchantable quality and not fit for the purpose for which they were required at the time of supply, that is the supply by the appellant to patrons of the restaurant to eat. It is plain that the wholesaler would have been aware of this particular purpose of the sale. The frozen prawns had no other purpose. The wholesaler must have known that the prawns were for human consumption by restaurant patrons. The implication is obvious. 96 His Honour seems to have found a more limited purpose - that the prawns were purchased by the restaurant from the wholesaler for cooking in prawn dishes for service to customers. 97 Since the scientific evidence was that if the prawns had been adequately cooked they would have been fit for service to restaurant customers, the prawns were, according to his Honour, merchantable. 98 His Honour said that the purpose of the purchase of the prawns was for cooking in the restaurant for service to patrons. 99 In my opinion, his Honour's findings on this issue are unsustainable. 100 In my view his Honour stated the relevant purpose too narrowly. Such a limited purpose was never the subject of evidence lead by the appellant or the wholesaler. Mr Wong gave no such evidence and the wholesaler lead no evidence relating to the purpose. The evidence from the health authorities of their expectation that imported prawns (and other foods) would be cooked and served and that such cooking would destroy the pathogens, was not such as would limit the purpose implied under s 19 of the Sale of Goods Act. 101 The fact remains that the supply of contaminated prawns by the wholesaler to the restaurant was the supply of goods of unmerchantable quality. Moreover, the supply of prawns containing the virus must mean that the prawns were not reasonably fit for the purpose of being sold for human consumption by patrons of the appellant's restaurant. If the prawns had been uncontaminated when supplied, the light steaming by the restaurant would not have lead to the plaintiffs contracting hepatitis. 102 In my opinion, the appellant is entitled to succeed on its cross-claim against the wholesaler for a breach of s 19 of the Sale of Goods Act. It is accepted that this entitles the appellant to a complete indemnity. 103 The court was not referred to Heil v Hedges [1951] 1 TLR 512 or to an earlier Canadian case mentioned therein, Yachetti v John Duff & Sons Ltd (1943) 1 DLR 194. Heil v Hedges concerned a claim by a customer against a butcher. The plaintiff had brought pork which was infected with a parasitic worm and became ill after eating the chops. The trial judge accepted that the pork was undercooked and that it was generally known by the public that pork should be cooked substantially longer than other meats. There were accepted and known standards for the cooking of pork. Accordingly, McNair J found that the pork when sold, satisfied the implied conditions of fitness and merchantability. 104 However, Atiyah, Adams and MacQueen, The Sale of Goods, 10th Ed at 172, make comment on the decision in Heil v Hedges as follows: '…But it is perhaps doubtful whether Heil v Hedges would be followed today; it seems to go too far to treat the failure to cook pork thoroughly as such an unusual thing as to break the chain and relieve the seller of responsibility: it would depend upon the extent to which, as a matter of fact, the dangers of undercooked pork were commonly known. Where more exotic food stuffs are concerned, the duty of the seller must surely be to warn of the dangers'. 105 Given the dearth of evidence in the subject case on generally acceptable standards for the cooking of prawns in Chinese restaurants, referred to by Hodgson JA in his judgment, I do not see that Heil v Hedges alters my conclusion that the prawns were not of merchantable quality at the time of supply, nor fit for the purpose for which they were required.

Conclusion 106 Since there was no cross-claim by the wholesaler against the importer, the wholesaler must bear the damages suffered by the appellant at the suit of the plaintiffs. While this may not be seen as a just result, it is one dictated by the way the case was run in the court below and one brought about by the failure of the wholesaler to cross-claim against the importer. On appeal the court can only deal with the case as pleaded and run in the court below.

Proposed Orders 107 The appeal papers do not appear to contain a copy of any orders made by the trial judge. Accordingly, I am unaware of what orders his Honour made as to the costs of the trial. Since the appeal by the appellant on its cross-claim against the wholesaler is, in my judgment, to succeed, it may be necessary to revisit the costs of the trial. This can be done, if necessary, by granting the parties liberty to apply. 108 I would propose the following orders:

1. The appeal by the appellant against the importer (the second respondent) is dismissed with costs.

2. The appeal by the appellant against the wholesaler (the third respondent) is allowed.

3. The wholesaler is to pay the appellant's costs of the appeal but have a certificate under the S uitors' Fund Act if otherwise entitled.

4. The verdict in favour of the wholesaler (third respondent) as against the appellant on the cross-claim be set aside and, in lieu thereof, the appellant's cross-claim against the third respondent be upheld and the third respondent ordered to indemnify the appellant in respect of the appellant's liability to the plaintiff in each case.

5. Liberty to apply on the costs of the trial on giving 7 days notice in writing. 109 HODGSON JA: I agree with the orders proposed by Stein JA, and with his reasons, except in the following respects. 110 On the question whether the prawns were of merchantable quality and fit for the purpose for which they were acquired, I take the view that the circumstance that they were contaminated with HAV is not entirely conclusive. 111 It seems clear that chicken may be sold contaminated with salmonella, but that is not considered as making it not of merchantable quality or not fit for the purpose for which it is acquired. This is because the likelihood for contamination with salmonella is well-known, and there are well-known standards for cooking chicken which need to be complied with before chicken can safely be eaten, and compliance with which will destroy the salmonella. 112 If the respondent had proved that there were well-known standards for cooking prawns which needed to be complied with before prawns could safely be eaten, and compliance with which would destroy HAV, then contamination with HAV would not in my opinion have made them not of merchantable quality or not fit for the purpose for which they were acquired. In those circumstances, I would have held that the purpose for which they were acquired did involve the cooking of prawns to that standard. 113 However, the evidence did not show that there were such well-known standards, compliance with which would have destroyed the HAV and made the prawns safe to eat. For that reason, I agree with Stein JA that the contamination with HAV did mean that the prawns were not of merchantable quality and not fit for the purpose for which they were acquired. 114 This in turn raises a question concerning Stein JA's finding as to whether the prawns were adequately cooked by the restaurant. I agree that cooking which was "adequate" to destroy the HAV would indeed have done so; but this does not in my opinion mean that anything less than such "adequate" cooking involved some breach by the restaurant of some standard which it should have complied with. In my opinion, that would have required evidence that there was a standard as to cooking prawns that was or at least should have been recognised, and that the restaurant fell short of that standard; and there was no such evidence. 115 It could be submitted that my view on the merchantable quality and fitness for purpose of the prawns depends upon a finding of lack of standards concerning the cooking of prawns, which the restaurant is estopped from supporting because of the judgments in favour of the plaintiffs against the restaurant based on negligence as well as breach of contract; since the finding of negligence must depend on a finding that there were such standards which the restaurant did not comply with. 116 I would not uphold that submission. The judgments given by the primary judge for the plaintiffs were for damages to be assessed; and although the measure of damages for tort and contract could possibly be different, no separate judgment was given for each cause of action; and since damages were ultimately agreed, there was no occasion for the Court to determine on which basis damages were awarded. Thus the only existing judgments against the restaurant are judgments that can be wholly justified on the basis of contract; and in those circumstances I do not consider there is an issue estoppel or res judicata operating against the restaurant to the effect that it cannot, in its contest with the wholesaler, deny that it was negligent. 117 This is in my opinion consistent with the general principle of issue estoppel to the effect that there is estoppel only in respect of those issues dealt with by the Court as being necessary to sustain the judgment: Blair v. Curran (1939) 62 CLR 464 at 532-533; Rogers v. The Queen (1994) 181 CLR 251 at 262; Spencer Bower, Turner and Handley Res Judicata (Third Edition) at [182]. Further, the judgment for damages to be assessed was not a final judgment: Spencer Bower, Turner and Handley at [154]-[155]; and the final judgments as to amounts of damages were ambiguous as to the measure of damages applied: Spencer Bower, Turner and Handley at [158].

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