State of New South Wales v. R.T. & Y.E. Falls Investments Pty. Ltd.; R.T. & Y.E. Falls Investments Pty. Ltd. v. State of New South Wales [2003] NSWCA 54

State of New South Wales v. R.T. & Y.E. Falls Investments Pty. Ltd.; R.T. & Y.E. Falls Investments Pty. Ltd. v. State of New South Wales [2003] NSWCA 54 - NSWCA 2003 case summary — Zoe

[24]

Factual Contest 2 A critical factual finding by Palmer J was the determination of the contents of the conversation between Mr Peter Falls and Dr Daniel Salmon on 28 August 1992. 3 According to Dr Salmon, in response to a question from Peter Falls about whether there was any doubt about the proposal for depopulation with compensation being approved, he said: I believe that support for the proposal is very strong at Head Office and that is highly unlikely not to be approved. 4 The evidence of Mr Peter Falls was that Dr Salmon told him: The job's right and there are no problems. 5 Mr Falls's version of the conversation was the only evidence of a character that might have created contractual relations between the Appellant and the Respondent ("Falls Investments"). His Honour's preference for the version of Dr Salmon was fatal to the plaintiff's contract case and, in substantial measure, to that in estoppel also. 6 There are limited bases upon which an appellate court will interfere with a factual finding of this character. In my opinion, none are present on the facts of this case. There is no incontrovertible evidence supporting the version of Mr Falls. There is no objective evidence that makes his Honour's finding unlikely, let alone glaringly improbable. There is no basis for a submission that his Honour misused his advantage in observing the witnesses. 7 Mr P.T. Taylor, counsel for Falls Investments, directed the Court's attention to a number of pieces of evidence which suggested that Dr Salmon was of the view, indeed strongly of the view, that the proposal was likely to be approved. However, evidence of this character does not establish the proposition that he was likely to have expressed himself in terms that approval had in fact been given. 8 As Hodgson JA notes, the objective evidence tends to support Dr Salmon's account. I would emphasise in particular the two diary notes of 28 August (i.e. the day of the critical conversation between Mr Falls and Dr Salmon). These were diary notes of Mr Roe and Dr Salmon with respect to the proposal. 9 Mr Roe stated that his superiors in the Department "agree in principle to proposal" and went on to record that he had asked Dr Salmon to "document proposed program in more detail - as per Appendix II of AH Circular No 90/50 and nominate valuer for endorsement by Division". Dr Salmon's version of this conversation was to similar effect, i.e. that the superiors in the Department were not "fazed by the idea of such a big payout" and "it has to be an official application as per the appendix on Circular 90/50". 10 These contemporaneous notes refer to both the high probability of acceptance and also to the fact that further material has to be provided prior to an actual approval. Dr Salmon's account of his conversation with Mr Falls is consistent with what Mr Roe told him as recorded in these two notes. Mr Falls's version of the conversations, suggesting some kind of actual approval, is not consistent with these contemporaneous notes. His Honour was entitled to find that it was most unlikely that Dr Salmon would have failed to reflect his actual conversation with Mr Roe in his subsequent conversation with Mr Falls on the same day. 11 There was another respect in which Palmer J had a particular advantage as the trial judge who saw the witness give evidence. Dr Salmon doubted that the language attributed to him by Mr Falls, i.e. "the job's right" was language he was likely to use. His Honour accepted this evidence. The transcript of Dr Salmon's evidence does suggest that this is not his kind of language but, of course, the trial judge was in the best position to make this judgement. 12 For these additional reasons I agree with Hodgson JA that the challenge to his Honour's factual findings as to the conversation on 28 August fails.

[26]

[125] Fourth, Dr Salmon was asked whether at the time of his conversation with Mr Peter Falls on 28 August he thought it was safe for the Falls to act on the basis that the proposal for partial depopulation would be approved by NSWAg. He said: ' I think we are on sound grounds, though it had been not been formally approved [sic].': T214.45-215.5. I am satisfied that this was the impression that Dr Salmon intended to convey to Mr Peter Falls by his statements that there was 'strong support' for the proposal and that it was 'highly unlikely' not to be approved. I am satisfied that Mr Peter Falls took from those statements the belief that it was safe to proceed on the basis that NSWAg would approve the proposal when made in official form supported by a valuation. 16 The Appellant's written submissions quoted above, do not contain the words of qualification contained in the passages said to have induced a particular state of mind in Mr Falls, i.e. "strong support" and "highly unlikely". These phrases suggest a high level of probability but do not support, in terms, the inference which Mr Falls drew, i.e. that it was "safe to proceed" on the basis that the approval would be forthcoming. 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. (See e.g. Legione v Hateley (1983) 152 CLR 406 at 435-437; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-429; Commonwealth v Verwayen (1990) 170 CLR 394 at 445; Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 506; Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164 at 180.) 18 I am reinforced in this conclusion by the absence of any evidence that Dr Salmon knew of, let alone that he induced, the transfer by Mr Falls of the cattle on agistment on the properties other than Malton to the latter property, for the purpose of conducting a valuation. There was evidence that he had approved the identity of the valuer. Perhaps it can be inferred that the practicalities of valuation would require bringing of the herd together. However, even in that respect, evidence is non-existent. 19 The high point of the case for Falls Investments in this respect is the evidence that Dr Salmon did say that there was no point in separating those cattle that had been established to have the disease from the others, on the assumption that the whole herd would be slaughtered. That is not, however, an indication that he approved, or even knew, that Falls Investments intended to bring the cattle on agistment to Malton at a time prior to the approval of the proposal. 20 The evidence is not such as to permit any conclusion as to the precise date of transfer beyond "early September", as Hodgson JA notes. The valuations were conducted on 9, 10, 14 and 15 September by the valuer whose identity had been approved on 8 September. As can be seen the movement of the cattle occurred quickly after and, possibly, even in advance of, approval of the identity of the valuer. 21 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. 22 Mr Falls may have believed that it was "safe to proceed" by mingling the herds. The actual conduct of Dr Salmon was too equivocal to conclude that the Department should be held responsible for that assumption.

[27]

Carry on a Business? 23 By two alternative grounds of appeal, the Appellant contested the conclusion that the provisions of the Fair Trading Act 1987 were engaged with respect to the conduct in issue. The Appellant contended that the conduct did not occur during the course of anything which could be described as "carries on a business", within s3(1) of that Act. Alternatively, it contended that the conduct was not "in trade or commerce" within s42 of that Act. Mr S Gageler SC, who appeared for the Appellant, accepted that identical issues arose on each ground. It is convenient to consider only the "carries on a business" ground of appeal, as Hodgson JA has done. 24 It is necessary to identify with some degree of precision the particular conduct in issue in proceedings, in order to determine whether that conduct can be characterised as having been performed "in trade or commerce" or in the course of 'carrying on a business'. The conduct in issue in this case was representations to the effect that a particular proposal under consideration by a government department was "highly unlikely" to be rejected or that approval was "almost a foregone conclusion". 25 The representations were made by an officer of the Department of Agriculture in the course of the administration of two of the large number of Acts for which that Department was responsible. The relevant sections are s8(1)(b) of the Stock Diseases Act 1923 and s5(1)(a) of the Cattle Compensation Act 1951. Both sections are set out by Hodgson JA. Under the first section an inspector may order that cattle, infected with, relevantly, Johne's Disease, be removed for slaughter. Pursuant to the second section, compensation is payable to the owner of cattle destroyed pursuant to, relevantly, an order under the first section. 26 In the events that happened no formal order under s8(1)(b) was made with respect to the whole herd depopulation proposal. The order that was eventually made was restricted to the cattle in which the disease had been detected. Accordingly, no right to compensation under s5(1)(a) was triggered with respect to the herd when it was slaughtered. 27 Hodgson JA sets out the relevant circulars concerning the making of claims for compensation, namely Circular 84/24 and Circular 90/50. It is also material to note the development of the policy with respect to the eradication of Johne's Disease in cattle, which triggered the tests on the herd owned by the Respondent. 28 On 28 July 1989 the Department of Agriculture had issued a circular on Johne's Disease in cattle. The first aim of the policy was said to be: To reduce the prevalence of Johne's Disease in cattle in New South Wales by informing owners of the best methods of control and eradication thus reducing economic losses. 29 This policy circular stated that officers of the Department would order cattle for slaughter, with compensation payable on what is described in the circular as "an Order for Movement", which the Court was informed was internal terminology for an order under s8(1)(b) of the Stock Diseases Act 1923. It is noteworthy that this circular did not refer in any manner to the depopulation of herds. Indeed under the heading of "Compensation" it said: Compensation will normally be paid on clinically infected and culture positive animals only . [Emphasis added] 30 The policy of the department changed at the beginning of 1992, i.e. the year when the events with which these proceedings are concerned occurred. A new policy was issued on the subject of Johne's Disease in cattle on 3 January 1992. This policy had wider objectives including as follows: To improve the marketability of NSW cattle by reducing the prevalence of Johne's disease through the strategies of: (i) progressively eradicating Johne's disease from infected herds; (ii) preventing further New South Wales cattle herds from becoming infected with Johne's disease; … 31 The 1992 policy stated that consideration was being given to the compulsory quarantining of all infected herds from February 1994, i.e. two years after the circular. The policy also identified, for the first time, as an option for controlling and eradicating the disease, "total depopulation of the herd". Indeed, it identified whole herd depopulation with compensation, pursuant to Circular 90/50 as "the quickest and surest way to eradicate Johne's disease". 32 The implementation of the new policy was the subject of an internal circular dated 7 April 1992 from Mr R T Roe to Dr Salmon which advised steps to be taken with owners of cattle herds in which Johne's Disease had been identified in the past. It contained a standard form letter. It was a letter in this form that was sent by Dr Salmon to the principals of the Respondent on 8 May 1992. The letter is set out in the judgment of Hodgson JA. The letter makes it clear that the purpose of the new programme is disease control. This is a public purpose in a statutory context. 33 I agree with Hodgson JA, for the reasons his Honour gives and in the further context I have identified above, that is not possible to characterise the conduct in question in these proceedings as 'carrying on of a business' or as having been engaged "in trade or commerce". To take one aspect of the scheme of compensation - namely the mechanism for offsetting residual value of slaughtered cattle against the compensation otherwise payable - and thereby characterise the process as a whole, as Palmer J did, is not in my opinion, correct. The governmental character of the process remains not only the dominant but, in my opinion, the sole characterisation of the process.

[28]

Negligence 34 From the outset, the grounds of appeal in these proceedings asserted that his Honour erred in holding that the Appellant owed a duty of care to the Respondent and also challenged the specific finding of breach of the duty of care that his Honour made. During the course of the proceedings the Appellant amended its grounds of appeal to add a new ground of appeal that: His Honour erred in failing to make positive findings in relation to negligence. 35 Success on this ground of appeal would lead to an order for a new trial, which was not the Appellant's primary submission. Nevertheless, I agree with Hodgson JA that that is what should occur on this occasion. 36 The original pleadings in these proceedings identified five representations as the foundation of both the case under the Fair Trading Act 1987 and for negligent misstatements. During the course of the trial the Respondent conducted the case on a slightly different basis, without any objection on the part of the Appellant. Rather than relying on each separate representation, the case was treated as his Honour put it: … compendiously as being a representation by the NSWAg that the depopulation of the Plaintiff's herd on the terms proposed by the Plaintiff and encapsulated in Dr Salmon's facsimile of 21 August would proceed. 37 In submissions to this Court, Mr Taylor indicated that he had put to the trial judge this 'rolled up representation' on the basis of a range of statements by Dr Salmon, including the statement particularised that diseased cattle did not need to be separated. 38 This general assertion of breach should be understood as applying also to the case in negligence. The difficulties that arise on the appeal in this regard, and which justify a new trial, arise primarily from the limited attention which the separate case of negligence received from the parties at trial. As Palmer J noted: [130] It is fair to say that both parties paid very little attention to this part of the case. They were focussed upon the Plaintiff's claim in contract and the claim under FTA. The Plaintiff's submissions on its case in negligence were perfunctory and the Defendant's submissions in response were even more so. This, I suppose was understandable: if the Plaintiff succeeded in its FTA claim it did not need to succeed on its claim in negligence, the measure of damages being the same under both claims.

[30]

Damages 42 I agree with Hodgson JA that his Honour has over-estimated the damages to which the Respondent was entitled under the Fair Trading Act by not making an allowance for the effect on the stud business of the discovery of Johne's Disease in the herd. The damage that flowed from the misrepresentation arose by reason of the intermingling of the cattle on agistment with the cattle at Malton. The latter, as Hodgson JA notes, was a distinct majority of the total herd, although the precise number is not known. Furthermore, some part of the cattle on agistment was affected by prior exposure at Malton. 43 In his further report of 31 August 1992, complying with Appendix II of Circular 90/50, Dr Salmon noted: Much of the herd is run on agistment elsewhere, but all cattle spend part of their lives on Malton. 44 There was, however, evidence to the contrary. It appears that some part of the total herd, particularly on the property known as Bellvue and then Oaklands, had been separated at all relevant times. 45 On the present state of the evidence, a discount of the order of 30 percent would be appropriate as a precautionary holding on the Fair Trading Act case. The matter should not be regarded as closed on a retrial of the negligence case. 46 SHELLER JA: I have had the benefit of reading in draft the judgments prepared by the Chief Justice and Hodgson JA. Palmer J held that the respondent was entitled to recover from the appellant for damage suffered in consequence of the respondent's reliance upon a representation made on behalf of the appellant in trade or commerce which was misleading or likely to mislead; ss41 and 42 of the Fair Trading Act 1987. The Act bound the Crown in right of the State because Palmer J held that the appellant made the representation in the course of carrying on a business directly or by an authority of the State; s3(1). The representation was that the depopulation of the respondent's herd on the terms proposed by the respondent and encapsulated in Dr Salmon's facsimile of 21 August would proceed. This representation was a compendium of what, in the pleading, appeared as four separate representations (the second to fifth representations). I will return to examine this pleading more closely. 47 I agree that the representation was not made in the course of a business carried on by the New South Wales Department of Agriculture (NSWAg), a department with no separate legal status. The concept of the Crown carrying on a business even though s4(1) of the Fair Trading Act defines business to include "a business not carried on for profit" is a difficult one in borderline cases. The present is an example. The answer tends to be more intuitive than the product of a process of reasoning. The policy objective of NSWAg's activity in this case was to reduce the prevalence of Bovine Johne's Disease by progressively eradicating it from infected herds and preventing further New South Wales cattle herds from becoming infected with it; see Spigelman CJ's judgment at para 30. Those whose cattle had to be destroyed by whole herd depopulation, which was seen as "the quickest and surest way to eradicate" the disease, benefited from a scheme of compensation under the Cattle Compensation Act 1951 (since repealed). To adopt what Sundberg J said in Sirway Asia Pacific Pty Ltd v Commonwealth of Australia (2002) FCA 1152 at [62] because NSWAg's activity in this case "so obviously relates to the execution of a government function which is in the interests of the community, it does not have the characteristic of carrying on a business." The element of that activity that allowed NSWAg to recoup part of the amount of compensation paid by an assignment to it of the owner's interest in the proceeds of sale to the abattoir (Circular 90/50 issued by NSWAg in December 1990) was to avoid, for policy reasons, significant delays in payment of compensation. Once agreement on market value was obtained and the stock had left the property, a lump sum cheque would be paid. No longer did the owner have to await the outcome of the sale to be paid the difference between the market value and the residual value, in practice, the net amount received by the owner from the abattoir after deducting expenses. The assignment was to achieve this policy objective and had nothing to do with business considerations. Accordingly, the Fair Trading Act had no application to the representation complained of. 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 NSWAg. Mr Peter Falls was the son of Mr Ron Falls, one of the directors of the respondent, RT & YE 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 1951 (since repealed) 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 NSWAg would approve the proposal when made in official forms supported by a valuation. Dr Salmon's statement could not be understood to mean that NSWAg 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 (Interstate) Limited 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 The 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. Compare Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 506. As Spigelman CJ has pointed out (para 18), there was no evidence that Dr Salmon knew that the respondent had transferred the cattle on agistment from other properties to Malton for the purpose of conducting a valuation. 52 I have already referred to the representations relied upon in the respondent's Fair Trading Act claim. These were also pleaded in the respondent's negligence case. The relevant parts of the further amended statement of claim were as follows: 9 Further and alternatively in or about late July 1992 Mr Salmon on behalf of the first defendant and/or the second defendant represented to the plaintiff that the first defendant had decided to de-populate the plaintiff's herd of cattle at the plaintiff's farm at 'Malton' ('the first representation').

[45]

133 NSWAg was aware of the Plaintiff's depopulation proposal as from 21 August when it received Dr Salmon's facsimile. It received the Plaintiff's formal application on 31 August, or on 2 September at the latest. NSWAg did not immediately, or at any time prior to 29 September, instruct Dr Salmon to make no statement at all to the Plaintiff in relation to the prospects of its depopulation proposal before a formal decision had been made by the Department. In failing to give such instruction, NSWAg breached its duty of care to the Plaintiff and is liable in damages to the Plaintiff for the consequences of that breach. 54 Palmer J found that the appellant was in breach of a duty to instruct its field officers dealing with whole herd depopulation applications in August and September 1992, especially Dr Salmon, that they should make no statement at all as to the likelihood of approval of such proposals until formal applications had been dealt with and formal decisions had been made by NSWAg. No such duty is alleged in the pleading. Nor does it conform with the compendious representation relied upon in the Fair Trading Act claim. 55 However, the appellant's notice of appeal, (ground 5) goes no further than to claim that the trial Judge erred in holding that the appellant owed a duty of care to the respondent or alternatively in finding that the appellant breached the duty of care Palmer J stipulated. The amended ground 5A claimed that the trial Judge erred in failing to make dispositive findings in relation to negligence. 56 The breach of duty of care found by Palmer J flowed from the appellant's omission to do something the consequence of which was economic loss. In Tame v New South Wales (2002) 76 ALJR 1348 at 1351 [6] Gleeson CJ remarked: One of the reasons for the rejection of a general rule that one person owes to another a duty to take care not to cause reasonably foreseeable financial harm is that the practical consequence of such a rule would be to impose an intolerable burden upon business and private activity. Furthermore, such a rule would interfere with freedoms, controls and limitations established by common law and statute in various contexts; Perre v Apand Pty Ltd (1999) 198 CLR 180 at 192 [4] - [5] 57 No doubt, for any business or other persons engaged in transactions, decisions have to be made while they wait to see whether their negotiations will result in a deal being struck and a contract made. Such people have to assess whether or not this will happen. In that context, they have to make decisions about whether they will go on with it or look elsewhere. If there is delay they may seek to encourage those on the other side or receive encouragement from them which is acted on. If they give encouragement they might reasonably expect those on the other side will rely on it. Indeed, the marketplace is a place where would-be vendors encourage others to buy and would-be purchasers encourage others to sell. 58 The discussions between Dr Salmon and Mr Peter Falls were not of the nature of discussions between traders or would-be vendors and purchasers. But the principle seems to me no different. What was ultimately to regulate the relationship between the parties was contract. No contract was made. If one party prematurely reacts to the belief that a contract will be made and the contract is not made, I think the Court should be very slow to invoke principles of estoppel or negligence to enable the disappointed party to recover damages. This is quite different from the case where one party incorrectly tells another that a contract has been made or leads the other party to believe it has been made or will be made and, knowing that it has not, allows the other party to proceed on the basis that the contract is in existence or the contract is about to come into existence when it is not or will not. 59 What I have said is not necessarily sufficient to dispose of the respondent's claim in negligence. Although this was not brought to the attention of Dr Salmon, within NSWAg by 2 September 1992 there were doubts about whether the compensation fund might be reduced in size and on 7 September 1992 at the meeting referred to by Hodgson JA in para 23 of his judgment, it was 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 the respondent. 60 On reflection, I agree that the appeal should be allowed on ground 5A, namely Palmer J's failure to deal with the negligence case, and I agree with Spigelman CJ that the whole of the negligence cause of action should be remitted to include duty, breach, causation and damages. However in fairness to the appellant, I think the respondent should be required to amend its pleadings so as to embrace the duty found by Palmer J and should be limited to putting the case in negligence based on a breach of that duty. 61 Subject to what I have said I agree with the reasons for judgment of Spigelman CJ and Hodgson JA. I agree with the orders that Hodgson JA proposes. 62 HODGSON JA: On 26 November 2001, Palmer J gave judgment for R.T. & Y.E Falls Investments Pty. Limited (FI) against the State of New South Wales in the sum of $916,472.53, and made a costs order in favour of FI. The State of New South Wales appealed to this Court from those orders; and FI also appealed, claiming entitlement to greater damages.

[46]

CIRCUMSTANCES 63 FI has since 1978 conducted a highly successful beef short-horn stud, principally at its property "Malton" near Deniliquin. The Malton Stud had a very high reputation in the Australian cattle industry. By 1992 FI's herd of over 800 head was extremely valuable. 64 In early 1992, the New South Wales Department of Agriculture (NSWAg) adopted a policy for eradication of Bovine Johne's Disease (BJD) in New South Wales, which recommended as the primary method of eradication what was called total herd depopulation, that is, slaughter of all cattle in herds found to contain infected animals. Compensation was to be payable under the Cattle Compensation Act 1951 (now repealed). 65 Section 5(1)(a) of that Act, at the relevant time, provided as follows: 5(1) Subject to this Act compensation shall be payable: (a) to the owner of any cattle destroyed pursuant to an order made or given under the authority of an Act because such cattle are suffering from or are suspected of suffering from disease; or … 66 BJD was a disease within that provision. Relevantly, an order for destruction within that provision could be made under s.8(1)(b) of the Stock Diseases Act 1923, which, at the relevant time, provided as follows: 8(1) Notwithstanding the provisions of any other Act, when any stock are found by an inspector to be infected or suspected by him of being infected, the inspector may: (a) … (b) order that owner, person or occupier to remove to a specified place the stock and any fodder, fittings or other things whatsoever used in connection therewith or any thing produced by or from the stock and, if he thinks fit, order that owner, person or occupier to slaughter the stock or cause the stock to be slaughtered at that specified place; 67 "Infected" was defined in s.3(1) of the Stock Diseases Act as follows: "Infected" as applied to stock means that the stock are diseased or are in a flock or herd in which are any diseased stock, or that the stock have been kept, pastured or travelled upon, or transported across, any land upon which diseased stock have been kept, pastured or travelled, or across which diseased stock have been transported, within the next preceding twelve months; and, as applied to land includes any land upon which infected stock have been kept pastured or travelled, or across which infected stock have transported, within the like period. 68 "Stock" in those provisions included cattle, and BJD was a disease for the purpose of those provisions. 69 Other relevant provisions of the Cattle Compensation Act 1951 were set out by the primary judge in his judgment as follows: By s.6, the amount of compensation payable was the market value of the cattle.

[68]

Eradication strategies involving partial or progressive destocking may also be useful in some situations. 72 On 13 July 1992, Ron Falls, a director of FI, met Dr. Salmon in Dr. Salmon's office, and proposed to Dr. Salmon that FI would segregate thirty of its best old cows from the rest of the herd, test them to ensure they were free of BJD, and use that elite herd to build up a new herd after the remainder of the herd had been depopulated, with compensation paid. Dr. Salmon said words to the effect that "that sounds pretty good" but that he would have to check with the Department. 73 On 15 July 1992, Dr. Salmon telephoned Richard Roe, his immediate superior in NSWAg and conveyed the proposal to him. Mr. Roe said he would be prepared to support it. 74 On 23 and 24 July 1992, Dr. Salmon attended at the Malton property, and took blood from all stud cattle there aged two years and over, 301 or thereabouts in all, for testing. No blood was taken from the younger cattle at Malton, or from those of the herd that were agisted elsewhere. The evidence about how much of the herd was then agisted elsewhere is not clear; but it appears that more than half of the herd was at Malton, something over 100 head were at a property at Oatlands, about 30 or 40 at a property at Albury, and about 20 at a property at Geelong. There may also have been some on short-term agistment at properties near Malton. 75 On about 13 August 1992, Dr. Salmon received the results of the blood tests. There were eleven positive results showing BJD infection, and four regarded as suspicious. On 18 August 1992, Dr. Salmon passed on these results to Peter Falls, the son of Ron Falls. According to Peter Falls, Dr. Solomon said that it had been decided that depopulation of the entire herd was the preferred solution. 76 On 21 August 1992, Peter Falls went to Dr. Salmon's office to discuss the proposal, so that Dr. Salmon could submit it in writing to NSWAg. On the same day, Dr. Salmon sent the following facsimile to Mr. Roe: 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.

[100]

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. 85 Mr. Roth was not called to give evidence, and no evidence was called by NSWAg contradicting this passage or expanding or explaining it. Dr. Salmon was not told of these matters by NSWAg until 29 September 1992. 86 In early September 1992, FI had the herds agisted at Oatlands, Albury and Geelong transferred to Malton to be valued, and with a view to being thereafter consigned for slaughter. 87 On 8 September 1992, there was a telephone conversation between Dr. Salmon and Peter Falls. In that conversation Mr. Falls suggested that the valuation be by a stud stock agent Brian Leslie, and Dr. Salmon agreed to this. Mr. Leslie carried out the valuations of 894 cattle at Malton on 9, 10, 14 and 15 September. On 26 September he delivered the valuation, totalling $1.8 million. 88 On 29 September 1992, Dr. Salmon was informed by a superior in NSWAg that BJD compensation payments had been frozen, and at least by 1 October 1992 he had passed this information on to Peter Falls. 89 On 29 September 1992, Dr. Scott-Orr wrote to Dr. Salmon formally rejecting FI's proposal for depopulation and compensation. 90 In a memorandum made by Dr. Scott-Orr on 28 October 1992, she recorded that in a conversation that day with Peter Falls, he claimed to have been told "the job would be right" regarding full de-stocking of his herd with compensation. In a memorandum prepared by Dr. Salmon on 6 November 1992, he notes as follows: I have no record, but soon after speaking to Dick Roe on 28/8/89 I spoke to Ron Falls informing him of the state of developments. 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. 91 Subsequently, compensation was paid to FI, but only for the slaughter of those cattle that had actually tested positive for BJD and their progeny. 92 FI claimed that it had suffered damage by reason of NSWAg not proceeding with the proposal for depopulation and compensation, and in particular from the inter-mingling of its agisted herds with the infected Malton herd and associated disruption to the conduct of its business.

[101]

PROCEEDINGS AT FIRST INSTANCE 93 FI put its claim on four bases. First, that a contract had been made to the effect that NSWAg would arrange for the removal from Malton and slaughter of all FI's cattle, apart from the elite herd of 30; would pay FI for each head of cattle to be slaughtered either its value as determined by an independent valuer or $2,000, whichever was the less; and would be entitled to the proceeds of sale of cattle slaughtered. Second, that NSWAg was estopped from denying the existence of such a contract. Third, that NSWAg was liable for misleading and deceptive conduct, in breach of s.42 of the Fair Trading Act 1987, by reason of five representations made by Dr. Salmon, including a representation to the effect that depopulation of FI's herd would proceed on the terms encapsulated in Dr. Salmon's facsimile of 21 August 1992. Fourth, that Dr. Salmon and NSWAg breached duties of care to FI by making these representations. 94 The first issue dealt with by the primary judge in his reasons was the conflict between Peter Falls and Dr. Salmon as to what was said on 28 August 1992. The substance of this conflict was whether Dr. Salmon said words to the effect that the proposal was approved and/or would go ahead (Peter Falls' version), or words to the effect that this was highly likely (Dr. Salmon's version). On this issue, although he found Peter Falls to be an honest witness, the primary judge preferred the version of Dr. Salmon. 95 The primary judge then considered the contract claim, and he held that the conversation of 28 August, as he had found it, did not give rise to a contract. He also held that the approval of a valuer on 8 September did not give rise to a contract, because it should have been clear to FI that a valuation was necessary before final approval by NSWAg could be given. 96 As regards estoppel, the primary judge said he was unable to hold that the conversation as he found it justified an assumption that a contract existed, or that all the terms of such a contract had been agreed to and the actual making of a contract was a mere formality; and he held that accordingly the claim in estoppel failed. 97 The questions under the Fair Trading Act required consideration of s.3 of that Act, the definition of "business" in s.4(1), and also ss.41 and 42 of that Act. Those provisions are in the following terms: 3(1) This Act binds the Crown in right of the State in so far as the Crown in right of the State carries on a business, whether directly or by an authority of the State. (2) Nothing in this Act renders the State liable to prosecution for an offence.

[104]

42(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1). 98 The primary judge held that the representations made by Dr. Salmon had been made in the course of a business carried on by NSWAg, and made in trade or commerce within s.42(1). He held that they were representations with respect to a future matter; and that in circumstances where there was evidence that, at least by about 2 September 1992, suggestions that the Cattle Compensation Fund was in question were circulating within that Department and that for that reason no action was taken on Dr. Salmon's application of 31 August 1992, and where NSWAg led no evidence to discharge its onus under s.41(2), NSWAg did not discharge its onus of showing that it had reasonable grounds for representing on 28 August that approval and/or implementation of the proposal was highly likely. Although Dr. Salmon did have reasonable grounds for making such a representation, NSWAg did not, and it was therefore in breach of s.42(1) of the Fair Trading Act. 99 On the question of reliance and causation, the primary judge said this: For these reasons, I am satisfied that the Plaintiff relied upon the representations of Dr Salmon on 28 August in intermingling all of its agisted herds with the herd at Malton and in taking the other consequential measures to which I will refer later. Accordingly, I am satisfied that any damage which has been occasioned to the Plaintiff thereby has been suffered "by" conduct of NSWAg which was misleading, entitling the Plaintiff to damages under s.68(1) FTA. 100 In relation to negligence, the primary judge held that Dr. Salmon and NSWAg did have a duty of care to FI in relation to the representations in question. The primary judge found that there was no breach by Dr. Salmon of his duty of care, but in relation to NSWAg he said the following: NSWAg was aware of the Plaintiff's depopulation proposal as from 21 August when it received Dr Salmon's facsimile. It received the Plaintiff's formal application on 31 August, or on 2 September at the latest. NSWAg did not immediately, or at any time prior to 29 September, instruct Dr Salmon to make no statement at all to the Plaintiff in relation to the prospects of its depopulation proposal before a formal decision had been made by the Department. In failing to give such instruction, NSWAg breached its duty of care to the Plaintiff and is liable in damages to the Plaintiff for the consequences of that breach. 101 On the question of damages, the primary judge made the following findings: After the diagnosis of BJD in the herd on Malton, the status of all stud cattle in that herd was seriously compromised. I accept the evidence of Dr Sykes, the Plaintiff's expert, that after the BJD diagnosis the herd on Malton would be viewed with suspicion by stud bull buyers. Sales would be difficult.

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Submissions 109 Mr. Taylor for FI submitted that the primary judge was in error in a number of respects. 110 He submitted there was no need for a formal application, and certainly no need for a formal application accompanied by an application: Circular 90/50 contemplated that there would be approval granted in advance of valuation and in advance of a document recording agreement on valuation. 111 Mr. Taylor submitted that there was clear evidence that Dr. Salmon passed on to FI on about 15 July that Mr. Roe supported the proposal, yet the primary judge made no finding on this and did not take it into account. The primary judge gave no consideration to the urgency expressed by Dr. Salmon in his 21 August facsimile, or the inference that Dr. Salmon considered that approval had in fact been granted which arose from his failure to follow up his 31 August document with any communication to NSWAg prior to 29 September. 112 Mr. Taylor submitted that the primary judge erred in failing to apply Jones v. Dunkel in relation to the failure to call Mr. Roe; and in giving no consideration to the record made by Dr. Scott-Orr on 28 October 1992 that Peter Falls then claimed he was told on 28 August that "the job would be right": this was evidence closer to the event than Dr. Salmon's memorandum of 6 November 1992. 113 Mr. Taylor submitted that the primary judge erred in giving no weight to the circumstance that Dr. Salmon suggested to FI on or about 9 October that it submit a claim form in relation to the whole herd; and in giving no weight to Dr. Salmon's admission that by 28 August he believed the substance of the matter had been approved, and his concession that it was on his advice that reactors (cattle showing a positive reaction to the BJD test) were not kept separate from the rest of the herd. 114 Mr. Gageler SC for the State of New South Wales submitted that the primary judge dealt with this factual question carefully and thoroughly, did not misuse his advantage of seeing and hearing witnesses, and reached a result that was in no way improbable. His conclusion was, Mr. Gageler submitted, supported by objective circumstances, in particular the reference in the letter of 8 May 1992 to the necessity of approval by the Chief, Division of Animal Industries; the conversation of 28 August 1992 between Mr. Roe and Dr. Salmon confirming that there had to be an official application in accordance with the appendix to Circular 90/50; and the circumstance that on 31 August 1992 Dr. Salmon did in fact submit that official application.

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Decision 115 The primary judge was correct in stating that, as at 28 August 1992, an application was still necessary to satisfy the requirements of Circular 90/50, and that, according to the practice set out in that circular, there would be no approval before that application was made. Although that practice may not have been followed in all cases, the communication on 28 August 1992 between Mr. Roe and Dr. Salmon confirmed that it would have to be followed in this case. The primary judge's reference to the need for a valuation prior to approval was not completely correct: Circular 90/50 contemplated that "approval" would be granted before valuation, and it is possible that this approval, if communicated, could bind NSWAg either by contract or by an estoppel. But the primary judge was correct to the extent that, before there was an agreement binding as to a particular amount of compensation, there needed to be a valuation. 116 In my opinion, the communication on or about 15 July 1992 that the proposal had the support of Mr. Roe, and Dr. Salmon's suggestion on about 9 October 1992 that FI submit a claim, were matters of minimal weight. The perceived urgency of the matter and the lack of follow-up by Dr. Salmon between 31 August and 29 September 1992 could support a finding that Dr. Salmon believed the proposal had in substance been approved, as indeed did his admission to that effect; but in my opinion, these matters were not so significant that lack of reference to them shows error. I do not think there is great weight in the Jones v. Dunkel consideration, when the terms of the most important conversation involving Mr. Roe, namely that of 28 August between Mr. Roe and Dr. Salmon, were supported by contemporary notes of both parties to that conversation. I do not think the note made by Dr. Scott-Orr of what Peter Falls was claiming at about the end of October carries much weight. 117 In my opinion, the objective factors referred to by Mr. Gageler do support the view that Dr. Salmon, although he thought that the proposal was approved in substance or in principle, was well aware that there still had to be an application complying with Circular 90/50 and that true approval could not be given before that application was made. In those circumstances, I think the primary judge was correct in concluding that it was more probable that he expressed himself to the effect that approval was highly likely than that he did so to the effect that the proposal was approved or would be given effect to. Accordingly, in my opinion, FI has not made out a case for disturbing this factual finding.

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Submissions 125 Mr. Gageler submitted that the difference between the procedures under the two circulars was insufficient to support the distinction made by the primary judge. Both were procedures adopted in the administration of a statute providing for a compensation fund and the provision of compensation from that fund, and in neither case was NSWAg in any sense involved in commerce. Mr. Gageler referred to the cases of J.S. McMillan Pty. Limited v. Commonwealth (1997) 77 FCR 337; Corrections Corporation of Australia Pty. Limited v. Commonwealth (2000) 104 FCR 448; Saitta Pty. Limited v. Commonwealth (2001) 162 FCR 35; Sirway Asia Pacific Pty. Limited v. Commonwealth [2002] FCA 1152; and N.T. Power Generation v. Power & Water Authority [2002] FCAFC 302. 126 Mr. Taylor submitted that the usual meaning of business as an activity undertaken with regularity for the purpose of profit was modified by the Fair Trading Act, by the recognition that the Crown can conduct a business and the removal of the necessity of the purpose of profit. Accordingly, he submitted, what was important was the activity itself, not its purpose; and in this case, the activity was the purchase and sale of cattle, which he compared with the private sector business of cattle trading. In making this analogy, he relied on the fact that cattle were to be sent to abattoirs and used for human consumption. 127 Mr. Taylor relied on Paramedical Services Pty. Limited v. The Ambulance Service of N.S.W. [1999] FCA 548, especially at [89] where Hely J accepted there was force in the argument (relying on Mid-Density Development Pty. Limited v. Rockdale Municipal Council (1992) 39 FCR 579) that carrying out by the respondent of the statutory function of providing ambulance services for a fee was not a trading activity, but held that this argument could not stand in relation to the provision of ambulance services at sporting events for reward or first aid training to the NSW Fire Brigade for reward, in circumstances where in supplying those services the respondent was doing what any citizen or private trader might potentially do. 128 In this case, Mr. Taylor submitted, the combination of system and regularity with activities that a trader might undertake (acquisition and sale of cattle) was sufficient; and it did not matter that these things were done in carrying out governmental functions for non-commercial purposes.

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Decision 129 In my opinion, recognition by the Fair Trading Act that the Crown can carry on a business, and the provision that there can be business not carried on for profit, do not mean that the question of whether or not certain activities constitute a business is to be decided without any regard to the purpose of those activities. In my opinion, the fact that certain activities are part of the provision of governmental services will generally be relevant to the question to whether or not they amount to the carrying on of a business, although plainly it will not be conclusive. 130 I accept that a government or government agency may be carrying on a business by activities which are themselves only a part, perhaps even a small part, of activities which are, when considered as a whole, plainly the provision of government services and not a business. In my opinion, this is shown by the Paramedical Services case, and the primary judge's analogy of the Salvation Army is also apposite. 131 However, the activities in question must be sufficiently systematic and regular, and sufficiently similar to commercial activities that private persons might engage in, to justify being characterised as a business. There is no reason to question the primary judge's finding that the activities of NSWAg under Circular 90/50 were sufficiently systematic and regular to satisfy that part of the requirement for characterisation as a business, and the circumstances that those activities were only part of the administration of the Cattle Compensation Act would not of itself prevent that characterisation. Furthermore, NSWAg's activities in disposing of cattle and collecting proceeds were similar to commercial activities that private persons might engage in. 132 However, in this case the goods (cattle) that were acquired were acquired on nothing like a commercial basis, but as part of the means of carrying out a governmental compensation scheme; and in my opinion the fact that such goods were then disposed of on commercial terms would not make either the whole activity or even the disposal of the goods the carrying on of a business. Just as the acquisition of cutlery, no doubt at the best commercial terms that could be obtained, for use by the armed forces, was an activity that private persons might engage in in the course of commercial activities but did not amount to the carrying on of a business (Sirway), so also the disposal of unwanted goods, even on the best terms that could be obtained, would not in my opinion amount to the carrying on of a business, where those goods were acquired, on nothing like commercial terms, for the purposes of a compensation scheme. 133 The Paramedical Service case can be distinguished because in that case, services were provided for a fee in a competitive and commercial context, with a business character, as shown by par.[87] of the judgment: When providing ambulance services at sporting events the respondent was engaged by the relevant organising sporting body. This was not an isolated practice. While it formed a comparatively small part of the respondent's activities, the provision of ambulance services at sporting events by the respondent occur frequently. In order to secure this work the respondent competed with, amongst others, the applicant. Fees were charged for the provision of services, even if primarily to recoup costs. In my opinion it follows that, in these circumstances, the respondent was carrying on a business. 134 By contrast, NSWAg was not in this case providing goods for a fee in competition with cattle traders. The activities of NSWAg could best be characterised as a government body implementing a BJD eradication policy and providing compensation to farmers for cattle slaughter pursuant to the Cattle Compensation Act. The fact that the cattle were re-sold to abattoirs for human consumption was merely an efficient way to dispose of the carcases and recoup some of the funds. The purpose of eradicating the disease from livestock was consistent with purely governmental activity in the interests of the community, rather than constituting the carrying on of a business. 135 For those reasons, in my opinion NSWAg was not relevantly carrying on a business; and for similar reasons, the representations were not made in trade or commerce.

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Decision 145 Having regard to policy considerations which affected what NSWAg should say and do in circumstances of sensitive political decisions, there could be questions as to the existence and content of a duty of care owed by NSWAg to FI in the circumstances of this case. For reasons given by Spigelman CJ, I think it best not to rule finally on this question. 146 However, in my opinion it is arguable that NSWAg did have a duty to take reasonable care not to cause damage by misleading FI by misrepresentations concerning how NSWAg would deal with its proposal for depopulation and compensation; and that duty could extend to failure to correct misleading statements which NSWAg knew or ought to have known had been made to FI. The closeness of the relationship, NSWAg's position of power concerning both the ordering of the destruction of cattle and the grant of compensation, FI's vulnerability to such power, and the seriousness of the damage that could be caused by wrong steps being taken, could support the existence of such a duty. Although political sensitivity and other policy considerations might prevent the existence of a positive duty to keep FI informed about possible policy changes, I do not think these considerations necessarily preclude a duty not to make misleading statements or a duty to correct misleading statements that have been made. 147 There is a real question whether the Statement of Claim was wide enough to include liability in NSWAg for failure to correct statements; but in my opinion it was wide enough to include liability for statements by Dr. Salmon which NSWAg could and should have prevented. The finding of the primary judge could be read as supporting liability in NSWAg for damage caused by the fourth and fifth representations. However, there is the problem that it seems the fourth representation was not made until 8 September 1992, and the fifth representation was not made until mid-September 1992; and it seems that at least some of the agisted cattle, perhaps most or even all of them, had been brought to Malton by 8 September 1992. That would mean that NSWAg was liable only for damages (if any) by the bringing of more agisted cattle after 8 September and other disruptive steps taken after 8 September; and there is no finding by the primary judge concerning those matters. It would seem that those damages must be less than damages based on the bringing of the whole agisted herd to Malton. 148 It may be that the primary judge intended a wider finding, that is that NSWAg should have prevented even the 28 August statement, or perhaps should have ensured the immediate withdrawal of the 28 August statement on or immediately after 2 September. 2 September 1992 appears to be the earliest date, on the evidence, when the possibility of a policy change was being seriously considered in the department; although there might conceivably be some basis for inferring that this happened earlier. 149 In my opinion, the appropriate course is to remit the matter to the primary judge, so that he can re-consider the question of negligence and damages caused thereby in the light of these reasons. He could do so either just on the evidence already received, or on that evidence and such further evidence as he may permit the parties to lead.

At a glance

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Judgment (129 paragraphs)

Legislation Cited (2)

Cases Cited (18)

Cited By (5)