Valleyfield P/L v Primac Ltd & Anor [2003] QCA 339

SUPREME COURT OF QUEENSLAND

CITATION: Valleyfield P/L v Primac Ltd & Anor [2003] QCA 339

PARTIES: VALLEYFIELD PTY LTD ACN 051 841 279 AS TRUSTEE OF THE PARKER UNIT INVESTMENT TRUST (plaintiff/respondent) v PRIMAC LIMITED ACN 010 023 284 (first defendant) NETAFIM AUSTRALIA PTY LIMITED ACN 056 229 755 (second defendant/appellant)

FILE NO/S: Appeal No 3605 of 2002 SC No 344 of 1999

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Townsville

DELIVERED ON: 8 August 2003

DELIVERED AT: Brisbane

HEARING DATE: 24 February 2003; 25 February 2003; 26 February 2003

JUDGES: Williams and Jerrard JJA and Mackenzie J Separate reasons for judgment of each member of the Court, Williams JA and Mackenzie J agreeing as to the orders made, Jerrard JA dissenting in part

ORDERS: Appeal allowed to the extent of varying the judgment at first instance by deleting the amount $3,768,276.70 and inserting in lieu thereof $1,754,390.00Appeal against the dismissal of the counterclaim dismissedOrder that the respondent pay the appellant’s costs of and incidental to the appeal to be assessed

CATCHWORDS: TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – WHERE ECONOMIC OR FINANCIAL LOSS – CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE – GENERALLY – where appellant designed irrigation system for respondent’s farms – where system failed to operate effectively – where no contractual relationship between appellant and respondent – whether appellant owed a duty of care to respondent – whether breach of any duty caused the damage suffered / DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTIONS FOR TORT – MEASURE OF DAMAGES – IN GENERAL – where learned trial judge awarded damages on past lost crop yields, calculated as the difference between the value of the crops harvested and the expected value of the crops – where expected value was calculated with reference to optimum market values – whether award should be discounted to take account of the vicissitudes of crop farming – whether learned trial judge’s assessment of damages was correct generally / Trade Practices Act 1974 (Cth), s 52, s 82 / Astley v Austrust Ltd (1999) 197 CLR 1, considered / Bryan v Maloney (1995) 182 CLR 609, followed / Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, followed / Graham Barclay Oysters Pty Ltd v Ryan (2003) 194 ALR 337, cited / March v E. & M.H. Stramare Pty Ltd (1991) 171 CLR 506, cited / Modbury Triangle Shopping Centre Pty Ltd v Anzil & Anor (2000) 205 CLR 254, cited / Perre v Apand Pty Ltd (1999) 198 CLR 180, followed / Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257, cited / State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588, cited / Sullivan v Moody (2001) 207 CLR 562, cited / Tame v New South Wales (2002) 191 ALR 449, cited / Toteff v Antonas (1952) 87 CLR 647, considered

COUNSEL: H B Fraser QC, with B T Porter, for the appellant / J R Baulch SC, with A J Moon, for the respondent

SOLICITORS: Clayton Utz for the appellant / Lee Turnbull & Co for the respondent

WILLIAMS JA: I have had the advantage of reading the reasons for judgment of Jerrard JA wherein all facts relevant to the appeal on liability are set forth. It is sufficient for me to say that those reasons demonstrate there is no merit in the appeal against the finding that the appellant was liable to the respondent in damages. Nor is there any merit in the appeal against the finding for the respondent on the appellant’s counter-claim.

The learned trial judge concluded that the appellant owed a duty of care to the respondent because of the following considerations:

the proximity of the parties;

the respondent to the knowledge of the appellant relied on the skill and experience of the appellant;

it was clear to the appellant that a failure to take care on its part in the preparing of the design could cause harm to the respondent;

the imposition of the duty would not give rise to indeterminate liability;

the respondent was vulnerable to loss if the appellant was negligent;

there were no public policy reasons for denying recovery.

Those considerations were clearly derived from the reasoning of the High Court in cases such as Bryan v Maloney (1995) 182 CLR 609, Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 and Perre v Apand Pty Ltd (1999) 198 CLR 180. As Jerrard JA has demonstrated there was ample evidence supporting those conclusions.

The obligation on the appellant was to design a SSDI system for the respondent’s farm which would provide adequate irrigation to all parts thereof. Because of the appellant’s negligence the system designed and installed did not achieve that goal.

It follows that the appeal against the finding of liability must be dismissed.

Quantum

The learned trial judge assessed the damages to which the respondent was entitled in the sum of $3,768,276.70 including interest. The appeal against that award raises a number of issues.

There is no doubt that the respondent proceeded with the implementation of the SSDI system because it promised increased crop yields and savings in production costs. No express representations to that effect were alleged or proved against the appellant, but, as the reasons of the learned trial judge imply, such considerations lay behind all the dealings between the respondent and the appellant.

It was expressly found that the respondent’s farming operations up to 1997 were “successful” and the respondent “attained better than average crop yields and better than average prices in the market.” There was an expectation on all sides that with the new system in place there would be increases in yields through the use of sub-surface drip irrigation.

The arrangement finally reached was that the appellant would design the system and identify all the components the respondent would require. There would be a contract between the respondent and Primac Ltd whereby the latter would sell the components identified by the appellant to the respondent. Included in “the package” was technical advice and supervision by the appellant as to installation which was the financial responsibility of the respondent; that advice and supervision was to “ensure a high standard of installation.” The total contract price (not including costs of actual installation) was $350,158.50.

The learned trial judge accepted evidence that the “advice and supervision” by the appellant included overseeing the installation of the project, the overseeing of all contractors, repairing and fixing any faults that occurred in the system, commissioning the work, educating the respondent, and doing everything to ensure the system worked perfectly. He also found that it was “apparent” to the appellant that “a failure to take care on its part in the carrying out of the necessary investigations in the course of preparing a design could cause harm” to the respondent.

Having found that the appellant was negligent the learned trial judge proceeded to assess quantum. By way of introduction to that issue he noted that the irrigation system “as it was installed was not able to provide germination of seeds throughout the farm as the system was intended to and did not properly promote the growth of the plants which emerged from germinated seeds.” There were “areas widely spread throughout the farm where germination did not occur and where plants that had germinated did not grow properly.” Significantly he then said:

“The measure of damages in tort is that sum which would put the Plaintiff in the position it would have been in if the tort had not been committed. Here the position, as I take it to be, is that the Plaintiff would but for the negligence of the Second Defendant have had a properly designed SSDI system in place.”

The learned trial judge found that the “primary problem with the system is that in many areas because of the variability of the subsoil of coarse river sand the emitters were placed at too low a depth resulting in the water being drained down through the sand.” It followed, given those findings, that a “proper assessment of the soils would have revealed the variability of the subsoil and would have resulted in the emitters being placed at different levels in those areas where the problems occurred”. It was also found that there was a secondary problem in that the “emitters were placed too far apart”. All of that resulted in lower than expected crop yields.

The learned trial judge also made a finding that an efficient system, capable of producing the expected yields could have been designed for similar cost; that finding was expressed in these terms:

“No witness expressed the view that a SSDI system could not have been satisfactorily designed for the farm. Purcell’s evidence plainly assumes this could be done although he does not suggest that the current system now be altered to make it sufficient in itself . . . Nor is there anything to suggest that such a system could not have been designed and installed for a similar cost.”

The learned trial judge assessed damages in the total sum of $3,768,276.70 made up of the following components:

a) Loss of income 1997 $ 586,000.00

Interest at 5 per cent for 4.5 years $ 131,850.00

b) Loss of income 1998 $ 724,000.00

Interest of 5 per cent for 3.5 years $ 126,700.00

c) 1997 – Soil Amendment Costs $ 47,913.18

Interest at 5 per cent for 4.5 years $ 10,780.46

d) 1998. Additional costs as particularised in Exhibit 4 G $ 378,753.09

Interest at 5 per cent for 3.5 years $ 66,281.78

e) 1999. Additional costs (as taken from Exhibit 4 G but with the deletion of some of the items included there) $ 349,744.34

Interest at 5 per cent for 2.5 years $ 43,718.00

f) 2000. Additional costs (deleting costs for insect treatment) $ 361,838.80

Interest at 5 per cent for 1.5 years $ 27,137.91

g) 2001. Additional costs (deleting costs for insect treatment) $ 213,559.15

h) Future costs $ 700,000.00

Before considering the legal issues involved in that assessment it is necessary to record the findings which led to the learned trial judge arriving at each of the figures set out in that summary.

He found that the plaintiff suffered significant losses of income in 1997 and 1998 because of the problems with the irrigation system. In his view it was necessary to “make some findings about what is likely to have occurred if the system functioned as it ought to have in the course of 1997 farming operations. . . . This involves identifying what the yield per acre is likely to have been on the areas planted or which would have been planted but for the problems which arose with the system, establishing the lost yield, and the income which would have been obtained less the costs not incurred.” In order to make the necessary findings the learned trial judge had to consider competing reports from experts; MacGregor called on behalf of the respondent and McDougall called by the appellant. Generally the learned trial judge preferred the evidence of MacGregor and that was a conclusion open on the evidence.

The respondent’s principal crop was beans and the first calculation made was the loss with respect to the bean crop in 1997. The learned trial judge found that the respondent could not plant some areas because of the problems with the system and in other areas obtained a lesser yield; but he also found that even with “all of the problems of the system in 1997 the Plaintiff averaged overall about 229 cartons per acre, a substantial increase over the previous year’s yield of 186 cartons per acre with flood irrigation.” Both MacGregor and McDougall expressed the opinion that with the SSDI system an increased yield should have resulted. MacGregor arrived at a potential yield of 325 cartons per acre whereas McDougall’s range was about 257 cartons per acre. The learned trial judge referred to the evidence and finally concluded: “I assess the likely yield had the system functioned properly as being about 300 cartons per acre, and adopt this figure.”.

Then the learned trial judge referred to the competing expert evidence and made a finding that the respondent would have implemented a 20 week planting period. Again that was a factual finding open on the evidence.

On the basis of those findings the learned trial judge assessed the loss of income because of the lower yield per acre of beans for the 1997 year as $350,000.00. There is no demonstrable error in the arithmetical calculation.

The learned trial judge then considered the claim for loss of bean seed in 1997. He accepted the evidence of MacGregor that the bean seed crop “failed because of the inability of the SSDI to irrigate the lands properly.” There was a consequential finding that the respondent lost income “as a result of the failure of the system and a consequent inability to grow the bean seed it intended to.” The problem was described as “patchy”. After referring to the evidence of the experts (he accepted Meurant) the learned trial judge allowed the amount of $80,000.00 under this head.

The respondent’s evidence was that in 1997 it was intended to plant a watermelon crop after the second bean harvest. A crop was in fact planted on a reduced area of 21.86 hectares; it had been planned to utilise some 40.5 hectares for a watermelon crop that year. The learned trial judge found that the SSDI irrigation system was unable to provide sufficient soil moisture for that crop. Again there was a conflict of expert testimony; this time between MacGregor and Meurant, the latter being the expert called by the appellant on this point. The learned trial judge analysed the competing evidence, generally preferred that of MacGregor, but discounted it because of various risks which were identified in the reasons. There was reference to the fluctuating market price but it is not clear how the learned trial judge took that factor into account. The learned trial judge then made an assessment of $156,000.00 as being the loss with respect to watermelons in 1997.

The figure of $586,000.00 for loss of income in 1997 is made up of the amounts of $350,000.00, $80,000.00 and $156,000.00 particularised above.

The learned trial judge then turned to loss of income in the 1998 year for both beans and watermelons. Towards the end of the 1998 season the respondent modified the irrigation system, but until then there had been significant problems with germination and growth. It was also noted that excess rain in 1998 made the conditions that year much more difficult for growing than in 1997. Further, the prices obtained for beans were substantially higher in 1998 than they were in 1997.

The learned trial judge noted some errors by MacGregor in making his assessment of loss of income in 1998 and he made due allowance for that. Ultimately he arrived at a figure for lost income from beans in the 1998 year in the sum of $649,000.00.

So far as loss with respect to watermelons in 1998 was concerned the learned trial judge noted that only about 28 hectares were planted (the original intention was to plant 44 hectares) and an allowance had to be made for the impact of wet weather. The learned trial judge arrived at a figure of $75,000.00 for this loss.

It is the addition of $649,000.00 and $75,000.00 which gives the total lost income for 1998 of $724,000.00.

The next item allowed was $47,913.18 for soil amendment costs in 1997. This related to the addition of gypsum to the soil by the respondent to make the irrigation system more effective. The learned trial judge noted in his reasons that such steps were “taken at the suggestion of the Second Defendant [appellant] to attempt to break up the soil to make it easier to obtain the benefit of the irrigation system.” Parker gave evidence that on separate occasions, Nigel Thompson and Gilan recommended that that be done. Henning of Primac gave evidence confirming that such advice was given by Nigel Thompson.

The learned trial judge then allowed what were referred to as additional costs taken from exhibit 4G for the years 1998, 1999, 2000 and 2001 in the sums of $378,753.09, $349,744.34, $361,838.80 and $213,559.15. Exhibit 4G was a document headed Additional Costs Report (1997 - 2014) prepared by MacGregor. It would appear that the amounts awarded primarily represent the cost to the respondent of putting into practice suggestions coming from the appellant’s representatives, Nigel Thompson and Gilan, as to ways and means of improving the effectiveness of the irrigation system. The learned trial judge referred to the fact that Thompson and Gilan first suggested restoring the flood irrigation system but that was impossible because it had been damaged or dismantled when the SSDI was installed. Other suggestions were made about using a localised flood system or a mobile surface system. Parker was not satisfied with those suggestions because they would only have been temporary arrangements. Ultimately a surface drip irrigation system to be used in conjunction with the SSDI was designed; it worked reasonably well early but ultimately proved inadequate. Eventually Parker disconnected the SSDI system and put all of the water through the surface drip irrigation system. That improved the situation but there were still problems with germination and growth requiring further adjustments using different sized valves. Such a system has apparently continued to be used.

Given the significance of what is said in the previous paragraph it is desirable to quote some extracts from the reasons for judgment of the learned trial judge indicating the extent of the appellant’s continuing involvement in supervising the use of the system during 1997 and 1998, and making suggestions as to how its performance could be improved. Relevantly he said:

“Following Parker’s complaints, Thompson and Gilan came to the farm. In the course of discussions in 1997 and in early 1998 a number of steps were suggested. Initially Gilan suggested that gypsum be used to break up the soils. This was done and is the subject of a claim for the costs incurred.

I am satisfied that Parker made it clear he wanted the system which had been installed to work and I am satisfied that the Second Defendant’s [appellant’s] representatives assured him that they were attempting to do so with Gilan in particular assuring the Parkers that the problem would be fixed.

A number of suggestions were raised in the course of discussions between the Second Defendant’s [appellant’s] representatives and Parker. It was suggested he should restore his flood irrigation system. Parker says this was impossible. It had been damaged when the SSDI was installed and some of the pipes had been broken and some of the broken pipes were at the same level as components of the SSDI. According to Parker there was not enough water available to use that system again as the flood pumps had been disconnected. Parker had initially wanted to keep this system in place but was assured by Thompson that he would have no need for it.

Suggestions were made about a localised flood system or a mobile surface system. Other suggestions included a travelling irrigator and a portable irrigation system. It is the latter which the Defendants particularly rely upon. Each called an expert to give evidence about how such a system would work with the SSDI and the effectiveness of the combined systems.

As I have said Parker was anxious for the SSDI for which the Plaintiff [respondent] had paid a lot of money to function and saw difficulties with each of the suggested courses. Some of these could only have been temporary arrangements. Others had to be used in an improvised way with the SSDI. None of them gave him the self-sufficient permanent drip irrigation system throughout the farm for which the Plaintiff [respondent] had paid and from which it was seeking to obtain efficiencies and increased production.

. . .

As I have said Gilan repeatedly promised the Parkers during 1997 that the problem would be fixed. In early 1998 he was discussing with them the possibility of conducting further tests with a view to rectifying the problem with the SSDI.

Parker gave evidence of a meeting in early in 1998 at which Badger, an officer of the Second Defendant [appellant] was present.

. . .

It was suggested that Badger was a financial officer of the First Defendant and as such was not someone who the Plaintiff [respondent] could have relied upon for any advice about irrigation matters. On the other hand it seems from Exhibit 86B (Gilan’s diary) that Badger was being used by the Second Defendant [appellant] to discuss propositions with Parker following the deterioration of the relationship between Parker and Gilan. . . .

Parker arranged for IAMA to design a SDI to be used in conjunction with the SSDI. According to Parker it worked reasonably well early when there was subsoil moisture but after a couple of months proved inadequate. . . . As a result he disconnected the SSDI system and put all of the water through the SDI system. This improved the situation but there were still problems with germination and growth. He made a further adjustment to the system by removing two inch valves from the SDI and putting one four inch valve directly into the surface tape. According to Parker this produced the best result that the Plaintiff [respondent] had achieved until that time and the Plaintiff [respondent] has continued to use it since. “

It was noted by the learned trial judge that the respondent had lower than anticipated crop yields in 1999, 2000 and 2001 but no claim was advanced for loss of income in those years.

Finally the learned trial judge noted that he did “not think that the Plaintiff [respondent] acted unreasonably in persisting with this system in the last three years given the circumstances”; that must mean the last three years prior to the trial in February 2002.

Much of the additional expenditure reflected in the additional costs allowed represents the cost of surface tape and extra labour associated with the various systems tried. The figures also apparently include something for the use of portable sprinklers when they were relied upon. Before itemising the amounts allowed, the learned trial judge said: “It follows that the expenses incurred in taking these steps to avoid the losses flowing from the failure of the system and in its attempts to obtain the benefits of a trickle irrigation system are recoverable.” As appears from the figures in the reasons for judgment, not all the costs particularised in exhibit 4G were allowed. It is not possible to discern with accuracy how the final figures were arrived at; for example, with respect to additional costs in 1999 the learned trial judge speaks of “the deletion of some of the items relating to a warranty claim” without further particularisation.

But nevertheless it can be seen in broad terms what was involved in the calculation of the additional costs for 1998, 1999, 2000 and 2001.

Finally, the learned trial judge addressed future costs. He commenced his consideration of those by saying:

“The evidence before the court raises a number of options to place the Plaintiff [respondent] as best can be done in the position it would have been in if the system had been properly designed and the Plaintiff [respondent] had had an efficient system. None of these options involve either the installation of a new SSDI system or the rectification of the existing one.”

His Honour then rejected the opinion of C Thompson, who gave evidence for the appellant, that a portable sprinkler system used in conjunction with the existing SSDI would be sufficient to overcome all the problems. The learned trial judge then dealt with the evidence of Purcell who was called by the first defendant. His opinion was that changes should be made to the existing SSDI system; in particular there should be changes to the emitter spacings and the flow rate. That altered system should then be used in conjunction with a portable sprinkler system. His finding was expressed as follows:

“The use of a portable sprinkler system in conjunction with the altered SSDI system would, I am satisfied from the evidence of Purcell, give the Plaintiff [respondent] a satisfactory system to grow its crops and its immediate installation, whilst not being what Purcell suggested, would allow it to continue its operations with a secure and reliable system to obtain germination and growth. It involves combining two different systems and does not give the Plaintiff [respondent] what it was to obtain but as I have said, I am satisfied it would irrigate the farm satisfactorily. The costs of altering the system would seem to be, on Purcell’s evidence, about $525,000 at the present time.”

There would in addition be the costs of installing the portable sprinkler system of $100,000.00 together with the annual cost of $10,200.00.

The learned trial judge then referred to other options, including what was described as the Richter system. Those other systems, on his view of the evidence, would be far more expensive and should be disregarded for that reason.

That all led to the learned trial judge to conclude:

“Taking the various considerations into account I think that the cost of Purcell’s proposal introduced immediately provides the most appropriate way to compensate the Plaintiff [respondent] for the future losses flowing from the Defendant’s [appellant’s] negligence. That is, whilst I do not think the Plaintiff [respondent] has acted unreasonably in the steps that he has taken until the present time I think that the appropriate measure of damages so far as the future is concerned is to introduce such a system which would satisfactorily irrigate the Plaintiff’s [respondent’s] farms. I allow the Plaintiff [respondent] by way of damages the cost of rectifying the system in the sum of $700,000.”

The claim is for pure economic loss, but as already noted the findings made by the learned trial judge clearly satisfy the test for recovery of such loss formulated in cases such Bryan v Maloney and Perre v Apand. Submissions from either side concentrated in particular on a passage in the judgment of Mason, Wilson and Dawson JJ in Gates v CML at 13, where it was said:

“Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation. If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may be well so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed . . . The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract.”

I have quoted above in paragraph [13] the extract from the reasons of the learned trial judge in which concluded that an effective system could have been designed and installed for a similar cost to that outlaid by the respondent, namely “something like $650,000”. It is clear that the respondent had adequate funds to cover the cost of an irrigation system capable of increasing his yield of beans to approximately 300 cartons per acre. In addition to the $650,000.00 outlaid in 1997 the evidence clearly establishes that in 1998 he expended approximately $300,000.00 on irrigation equipment and its installation, another $350,000.00 for that in 1999, another $270,000.00 in 2000, and finally $200,000.00 in 2001. Even the most expensive system, the Richter System, would only have required an outlay of approximately $1.14M. It is clear from the finding of the learned trial judge as to future outlays, quoted above, that a system capable of achieving the production of 300 cartons of beans per acre could be achieved for the additional outlay of $700,000.00. Such a system would in all probability not be a sub-surface drip irrigation system but a combination of surface drip irrigation and complementary measures where required by the nature of the soil.

All of that clearly establishes that an alternative, but satisfactory, system could have been designed and installed for similar cost in 1997. Putting that in terms of the passage quoted from Gates, if the respondent had not relied on the representation by the appellant that its design was satisfactory and would meet the respondent’s requirements, the respondent would have been able to have a satisfactory system that met those requirements designed by someone else, and designed and installed for a similar cost. Since the benefits would have been identical and the costs similar, the only rational inference open is that the respondent would have entered into that alternative arrangement. In those circumstances loss of profit can be recovered “on the footing that it is part of the loss which [the appellant] has suffered in consequence of altering [its] position under the inducement of the representation” by the appellant that the design would be satisfactory and meet the relevant requirements.

As already noted the finding at trial was that though there was some increase in crop yields, the yields did not meet expectations in the years 1997, 1998, 1999, 2000 and 2001. The learned trial judge allowed as part of the damages the difference between the value of the crops harvested (which was considerable) and the expected value of crops for the years 1997 and 1998. He did not allow anything for the remaining three years. Whilst the learned trial judge did not provide any reason for that, one could infer that such a conclusion flowed from the court’s concern that the recovery of pure economic loss ought not give rise to an indeterminate liability, and also because of considerations associated with the respondent’s obligation to mitigate its loss. It would be unreasonable to allow recovery of projected crop losses over the anticipated lifetime of the system.

It has already been noted that with respect to the 1997 year there was a conflict of opinion between MacGregor and McDougall as to the potential yield of cartons of beans per acre. The former contended for a potential yield of 325 cartons and the latter about 257 cartons per acre. After referring to that conflict the learned trial judge assessed “the likely yield had the system functioned properly as being about 300 cartons per acre”.

Having arrived at that figure of 300 cartons per acre the learned trial judge simply made an arithmetical calculation of the loss of income because of the lower yield per acre of beans for the 1997 year using figures in MacGregor’s evidence for the expected profit component per carton. Similarly there was an arithmetical calculation of the value of loss of bean seed in 1997, the loss with respect to the 1997 watermelon crop, and the loss of income in 1998 for both beans and watermelons. The only adjustment made to the optimum figures was because of “some errors” by MacGregor in making his assessment for loss of income in 1998.

In other words the learned trial judge took the optimum figures and made an arithmetical calculation of loss without making any discounting for contingencies. Though one is concerned with past losses and not projected losses in the future some discounting was called for to take account of the vicissitudes of crop farming. The evidence from numerous witnesses contains reference to the problems which regularly beset crop farmers. Prevailing weather conditions, insects and disease, breakdowns involving plant, equipment and systems, and often unexplained factors result in lower than anticipated yields; that list is by no means exhaustive. Also there is often a degree of luck in marketing the crop when prices are fluctuating; harvesting does not always coincide with the best market price. The evidence reveals marked differences in price month by month, and also marked differences in the prices obtained in the markets in various Australian capital cities. One cannot assume that the best monthly price would always have been obtained.

Because of such considerations some discounting was required from the figure calculated arithmetically using optimum figures. Resort to discounting along those lines is not an unusual step in the calculation of damages in tort.

Taking into account the factors I have mentioned I am of the view that the total figures arrived at by the learned trial judge for loss of income in the years 1997 and 1998 should be reduced by one third. That would reduce the loss of income for 1997 year from $586,000.00 to $390,666.00. Interest at 5% for 4.5 years would give a figure of $87,899.00 in lieu of $131,850.00. Similarly the loss of income for the 1998 year should be reduced from $724,000.00 to $482,666.00, with interest at $84,466.00 in lieu of $126,700.00.

The soil amendment costs for the 1997 year in the amount of $47,913.18, with interest totalling $10,780.46, should be allowed. As already noted that referred to the addition of gypsum to the soil on the advice of the appellant for the purpose of improving the soil’s response to the irrigation system. Clearly it was not unreasonable for the respondent to act on the appellant’s advice in that regard in 1997.

That leaves for consideration five major items in the trial judge’s assessment of quantum; “additional costs” for the years 1998, 1999, 2000 and 2001 in the sums of $378,753.00, $349,744.00, $361,838.00 and $213,559.00 respectively, and $700,000.00 for future costs. As already noted the learned trial judge calculated the “additional costs” by reference to MacGregor’s exhibit 4G, but made some deletions therefrom. Specifically he deleted insect treatment (the quantum of which can clearly be identified), but it is not clear what other specific items were deleted, or why. Apparently some of the deletions with respect to the calculation for 1999 were due to what was described as a “warranty claim”.

When one looks at the calculations in exhibit 4G it is clear that almost all of the amounts allowed relate to the acquisition and installation of irrigation equipment. As I read the exhibit for the 1998 year a total of $197,596.00 is attributable to equipment and a further sum in excess of $100,000.00 is for labour and machinery involved in its installation. In the 1999 year some $231,000.00 was for irrigation equipment and $127,000.00 for labour and machinery used in its installation. Then in 2000 the figure for equipment is $190,000.00 and for labour and machinery used in its installation some $89,000.00. Finally for 2001 the equipment component was $79,000.00 and labour and machinery $121,000.00. As already noted much of the cost appears to relate to surface tape used in the drip irrigation system during those years. Again the $700,000.00 for the future largely represents the capital cost of an ongoing replacement system.

In considering the allowance of those sums it must also be borne in mind that the learned trial judge did not make any allowance for the fact that the system installed in accordance with the appellant’s design (costing approximately $650,000.00) was virtually valueless (at least after the 1997 season).

Whilst it is correct to say, as the learned trial judge did in the passages quoted above, that much of the remedial work carried out in 1998 and ensuing years was in accordance with advice emanating from the appellant, the amount outlaid was really expenditure on an alternative system involving (at least to some extent) capital investment. The magnitude of the amounts that were spent on alternative systems during the years in question demonstrates, in my view, that the system installed in accordance with the appellant’s design had by 1998 become worthless and this was really expenditure, more of a capital nature, in providing an alternative system. Whilst it is true that the installation of the system designed by the appellant necessitated the removal of the pre-existing flood irrigation system, if the appellant’s system had not been installed major additional expenditure on irrigation would probably have been incurred in 1998 and the years following. No allowance has been made for that in the assessment of the learned trial judge.

Further, no adequate reasons are given for concluding that, in addition to those substantial sums payable for the installation of additional systems in the years 1998 to 2001, the appellant should be burdened with an additional $700,000.00 to cover the cost of a future irrigation system.

The High Court authorities to which I have referred earlier all indicate that the court must act with moderation in assessing damages where pure economic loss has been sustained. Citing authority both from the High Court and overseas, Mason CJ, Deane and Gaudron JJ in Bryan v Maloney at 618 spoke of the “law’s concern to avoid the imposition of liability ‘in an indeterminate amount for an indeterminate time to an indeterminate class.’” Later those judges (particularly at 626) emphasised the importance of the factors of “remoteness” and “foreseeability” when determining the extent of recoverable economic loss. They also spoke of the applicable “time span”; they said at 626:

“It is true that, in so far as “an indeterminate time” is concerned, the time span in which liability to a subsequent owner might arise could be greater than if liability were restricted to the first owner. Nonetheless, the extent of that time span would be limited by the element of reasonableness both in the requirement that damage be foreseeable and in the content of the duty of care. In any event, it would prima facie correspond with that applicable to the relationship of proximity which clearly exists as regards physical injury to person or other property.”

Those concerns, in my view, indicate that a court must determine the limits within which pure economic loss is recoverable. Bearing in mind the relevance of foreseeability, remoteness, and the necessity to avoid the imposition of liability for an indeterminate amount for an indeterminate time, the court must determine the relevant cut-off point in the calculation of recoverable economic loss. On the facts of this case those considerations exclude from recovery the “additional costs” for the years 1998, 1999, 2000 and 2001, and the amount assessed for future costs.

However, bearing in mind that the system installed in accordance with the appellant’s design has proved valueless, the respondent should recover the amount outlaid with respect to its installation, namely a sum of the order of $650,000.00. Whilst it is true that that system was of some value to the respondent during 1997 (and perhaps into 1998) that value is offset by the fact that its installation involved the destruction of the previously existing flood irrigation system. For that reason the full $650,000.00 should be allowed.

That means that the respondent’s recoverable damages are as follows:

(i) Loss of income 1997 $ 390,666.00

Interest at 5% for 4.5 years $ 87,899.00

(ii) Loss of income 1998 $ 482,666.00

Interest 5% for 3.5 years $ 84, 466.00

(iii) 1997 – soil amendment costs $ 47,913.00

Interest at 5% for 4.5 years $ 10,780.00

(iv) Costs thrown away by installation of valueless system $ 650,000.00

Total $1,754,390.00

The Orders of the Court should therefore be:

Appeal allowed to the extent of varying the judgment at first instance by deleting the amount $3,768,276.70 and inserting in lieu thereof $1,754,390.00.

Appeal against the dismissal of the counterclaim dismissed.

Order that the respondent pay the appellant’s costs of and incidental to the appeal to be assessed.

JERRARD JA: In the latter part of 1996 the appellant, Netafim Australia Pty Ltd, designed a sub-surface irrigation system (“the system”) for the respondent’s two farms at Airdmillin via Ayr in North Queensland. Installation of that system in accordance with the appellant’s design began on or about 18 March 1997 and was completed by late April 1997. Usage began near immediately but the system failed to provide to the respondent’s satisfaction water to either germinate sufficient of the seeds of the respondent’s predominantly bean crops, or to sustain crop growth from seeds that did germinate throughout 1997, and in the 1998 season and thereafter the respondent respectively supplemented, and then substituted other irrigation systems for, the system. On 25 March 2002, the respondent obtained judgment against the appellant for $3,768,276.70 in damages for negligent breach of a duty of care in the design and installation of the system to the respondent. The appellant contends on this appeal that it owed no duty of care, was not in negligent breach of it in any event, and that if it was, the respondent did not show that it suffered a loss thereby; and that in any event the damages awarded were assessed on irrelevant grounds, and anyway were excessive. The appellant also complains of the dismissal of its counterclaim for damages pursuant to s 82 of the Trade Practices Act 1974 (Cth), claimed by reason of the respondent’s allegedly misleading or deceptive conduct in contravention of s 52 of that Act.

The parties’ non-contractual relationship

On the appellant’s insistence, these parties were never in any contractual relationship. The appellant contends this is a particularly salient factor¹ or feature, or a policy consideration,² mitigating against finding it owed a duty of care, and making that finding unreasonable.³ Mr Parker, the respondent’s farm manager, agreed that Netafim had made it clear in their dealings with him from day one that it would not contract directly with the respondent, whose contract for the provision of the appellant’s system was with Primac Ltd, the first defendant to the respondent’s case at trial. The learned trial judge dismissed the respondent’s claims in contract and negligence against Primac, and there is no appeal against that judgment and orders. The respondent had contended at trial that it was an express or implied term of its contract with Primac that Primac would design a sub-surface drip irrigation system for the respondent, but the learned judge rejected that contention, holding that the parties had proceeded upon the basis that a design would be prepared by the appellant, as indeed it was; and the judge dismissed the respondent’s claim in tort against Primac on the grounds that it had not undertaken the design of the system.

The judgment under appeal contained only the negative finding on the absence of the critical term alleged in the respondent’s contract with Primac, and did not find it necessary to construe further the respondent’s contract with Primac. That contract, apparently contained in the tersely worded quotation which is exhibit 2, (partly reproduced at [48] of the judgment under appeal) was for the supply of parts, and for the provision of technical advice and supervision of installation of the system, to be done by the appellant.

The appellant submitted all its quotations to Primac, and the respondent made no payments to the appellant. Those parties came into contact with each other when Primac’s manager in the Burdekin area, a Mr Henning, arranged for the appellant’s manager in North Queensland, a Mr Nigel Thompson, to visit Mr Parker at the respondent’s farms. This visit was arranged after Mr Parker, who had dealt with Primac for some years, had discussed with Mr Henning reports which Mr Parker had heard regarding substantial increases in the yield of crops of beans in the Bowen district, following a change by Bowen district farmers from flood irrigation of those crops to a system of drip irrigation.

The Parker farms

In May 1996, the approximate date of those conversations and of the first meeting between Mr Thompson and Mr Parker, the latter was irrigating the respondent’s bean crops solely by flood irrigation. The larger of the two farms, the 180 acre “home” farm on Parker Road, had been owned by that family for many years. Water for flood irrigation was pumped from three bores, and one further pump from a deep creek-hole, with that pump water drawn from those bores being taken by underground concrete pipes to water tanks. The respondent’s nearby 50 acre farm on Burstall Road had been bought in 1995 and first farmed by it in 1996. That farm drew its water from bores and delivered water for flood irrigation by polythene pipe. The home farm had originally grown sugar cane, switching to growing beans in 1990, and since 1991 had been completely used for that latter crop. Mr Parker, whom the evidence showed to be an innovative farmer eager to increase the yield from the farms, had had the Burstall Road farm laser-levelled in 1996. The home farm had been levelled some years earlier, and before laser-levelling was available; and subsequently, as described by Mr Parker, had had its top soil brushed with a laser scoop.⁴

Mr Parker was one of only a few bean farmers in the Burdekin area. At that time of Mr Thompson’s first visit, Mr Parker was enquiring only about a surface drip irrigation system, in which the tapes carrying the water to the crop are either on the soil surface, or situated an inch or so below it. Mr Thompson told Mr Parker about the availability from Netafim of a sub-surface drip irrigation system (the system installed), in which the tapes carrying the water are situated some distance below the level of the surface soil, and emitters placed along those tapes transmit water pumped into those tapes by capillary movement of that water through the soil upwards and laterally, and thus to seeds planted in the soil and above the level of those emitters.

The advantage of a drip irrigation system over a flood irrigation one, as described to Mr Parker, included substantial economy in water usage, a high degree of control over the application of both water and nutrients (the latter can be supplied in the water, and when that happens is described as a “fertigation” system), and a high degree of uniformity of discharge of water, with both resulting economies and increased yields. The parties believed that had happened for bean farmers in the Bowen area. The immediately obvious advantage of a sub-surface drip irrigation system, for a bean farmer like Mr Parker, is that that system, compared to the surface drip irrigation Mr Parker had originally contemplated, does not require replacing of the tapes after each crop, and the tapes buried in the soil are not exposed to damage from farm machinery and activities on the farm. Mr Parker’s evidence was that he understood he was being told that the tapes could be in position under the soil for up to 20 years, and although Mr Thompson recalled representing that it would be between five to seven years, it appeared common ground that a particular attraction of a sub-surface irrigation system as described to Mr Parker was the considerable saving in labour and direct costs in not having to replace tapes after each crop.

The nature of the farms’ topsoil and subsoil

The description of the expected capillary movement of the water upwards and outwards from the underground emitters, as opposed to downwards from gravity, would probably suggest even to a lay person that the nature and composition of the soils on the respondent’s farms was relevant to the efficiency of a sub-surface drip irrigation system. Mr Parker’s evidence was that the contractor who laser-levelled the Burstall Road farm had assured him that the contractor would obtain an even 22 inches of topsoil over that farm, and Mr Parker’s evidence was that:

“…from some of the digging that I’ve done there with pipelines et cetera that’s exactly what I saw.”⁵

His evidence was that the soil at the Burstall Road farm was very even, with some lighter soils in the middle, and the soil on the home farm varied considerably, from light silty soil which was like the soil at Burstall Road, to a much heavier clayey soil with a different texture.

The ultimate finding of liability in the appellant was based on the finding of fact that it did not take adequate steps to inform itself of the texture and structure of the soils on the farms and, in so doing, departed from what could be expected of a reasonably competent designer of a sub-surface drip irrigation system,⁶ and in breach of its duty (as pleaded, being to ensure that the planning, design, supply, installation and commissioning of the trickle irrigation system would be carried out in a proper, professional and competent manner). The learned trial judge was satisfied from the evidence that a primary problem with the system as installed was that in many areas, because of the variability in the depth below the surface topsoil of the subsoil of coarse river sand, the emitters were placed at too low a depth, resulting in the water being drained down through the sand. In other areas, the system performed well. The judge found that a proper assessment of the soils would have revealed the variability of the subsoil, and would have resulted in the emitters being placed at different levels in those areas where the problems occurred.⁷ The learned trial judge also found that a secondary problem was that the emitters were placed too far apart, and in at least some areas, and perhaps throughout, should have been placed closer together than the 0.5 of a metre spacing along each tape which was uniformly applied.

The respondent had installed the system, as the appellant knew, to improve production on the farms. What Mr Parker found using it in 1997 was that it could not wet the ground sufficiently to get a satisfactory level of seed germination on the home farm, and his flood irrigation system had been rendered inoperable by then. Nor did the Netafim system supply sufficient water to all parts of the farms to grow all of the crop satisfactorily. In the 1997 season the respondent complained of patches of yellow and poor, or no growth, in parts of the lines of planted bean seeds, and insufficient water to germinate a subsequent watermelon crop in 1997.

For its part, the appellant pleaded and led evidence of its reliance upon the description of the topsoil on both farms given to it by Mr Parker, and contended that it was reasonable for it to rely on that description, and for it not to conduct any independent tests of the nature and composition of the soils. The actual nature of those was established at the trial by all evidence and a report from a David Ridge, an agricultural consultant called by the appellant. His report described the respondent’s farms by reference to the “block” numbers, those being the bays or separate growing areas into which the respondent divided the farms. It also refers to “wetting up” the soil, that being the upward and outward capillary action earlier described.

The report describes the soil on the home farm as varying in texture from sandy loam to clay loam, and difficulties with wetting up that soil being mainly linked to the presence of a coarse sand layer at variable depths below the soil surface. The large pores of that sand layer led to limited upward movement of capillary water, as well as allowing for preferential downward (gravity-induced) flow of water. In some sections of both farms, this sand layer had actually been exposed over small areas by levelling operations; for example, in blocks 21-23 on the home farm and blocks 43-45 on the Burstall Road one. On those blocks the exposed sand is visible, as demonstrated by photographs of the Burstall Road farm incorporated in his report.

In more extensive sections of the farms (in blocks 15-18, 19-24, 30-34 on the home farm and 43-48 on the Burstall Road farm), the surface soil layer over the sand is shallow, and sub-surface applied water is likely to drain downwards in preference to upwards by capillary action. The location of those latter problem areas was only obvious after a detailed inspection, including examination of the sub-surface soil profile. Mr Ridge thought that Mr Parker should have been aware of the different behaviour of those different blocks when flood irrigated, particularly the high water usage in the sandy areas which would have been most evident in blocks 43-48 on the Burstall Road farm and blocks 15 and 19-24 on the home farm. Those particular blocks have areas of sandy loam surface soil overlying the coarse sand subsoil.

Overall, Mr Ridge thought a visual inspection of the home farm would not have suggested that it would be difficult to wet up that farm because, apart from the “couple of little pockets with sand exposed on the surface”,⁸ in general the coarse sand subsoil on that farm was “probably down about 12 inches or something like that”. His written reports did not say that a visual inspection of the Burstall Road farm would not have suggested difficulties in wetting up, and that is consistent with his photographic evidence that on the Burstall Road farm sand was visible in parts as surface soil. The relatively brief examination in chief and cross-examination of this witness suggests that both parties saw his evidence as assisting them, or no benefit in further enquiry.

This evidence of the actual and variable nature of the topsoil both in depth and texture, and on both farms, makes relevant evidence of the detailed discussion and dealings between the parties prior to the design and installation of the system. That evidence demonstrates the extent to which the respective parties relied upon the other.

Reliance by Mr Parker

Mr Parker had been keen in 1996 to replace his flood irrigation system with a different system. He had been intending to install a system, marketed by a firm trading as Aqua Tec, and designed by a Mr Richter, which had a capital installation cost of $1.14m, and recurrent costs of a half a million dollars per year. The respondent’s gross yearly receipts were described by Parker’s evidence as $1.5m from farming operations, and Mr Parker plainly expected considerable benefit from the Richter system. Instead, after his dealings with Mr Thompson, he was attracted to the Netafim system.

Apart from supplying information about a sub-surface drip system, Mr Thompson suggested and caused a test of the respondent’s water quality from the bores on the home farm, and established that they were unsuitable for drip irrigation. He explained to Mr Parker the capacity of the system to provide fertigation, and that it would be possible for the appellant to run both farms by computer. Mr Parker did get training on computers, as promised by the appellant. Mr Thompson also explained the workings of the “Netap” system which the appellant offered, that being the effective commissioning of the system for the individual farm, and the respondent contracted for the supply of that as well. Mr Parker’s evidence was:

“I told them from the start that I understand nothing about it and then - particular with the computerisation side of it. I told them I’d need education in that area and this Netap system was to cover all of that.” (AR 53);

and that

“I told him right from the start that I didn’t know anything about trickle irrigation, the whole thing was new to me and that we would have to start from scratch…” (AR 53)

Steps Mr Parker took in reliance on his expectation of the system, and on what he was told, included changing his planter by putting big compaction wheels behind it, and this was done because Mr Thompson had suggested the soil be compacted in a radius of about 12 inches over the seeds, in order to improve the wetting up. He also altered other farm machinery to suit farming with the system, including changing his fertiliser box; and allowing the trenching installer, when the system was being in put in place in early 1997, to destroy the concrete pipelines that had carried the flood irrigation system water on the home farm for many years. In expectation of the benefit the system would provide, he expended about $650,000.00, being the original quote for $350,158.50 and a further amount over time of extra expenses of about $300,000.00. His evidence of expenditure of those amounts was not challenged.

Mr Thompson also suggested that a trial be conducted of a sub-surface drip system. It began in early November 1996, and was conducted in bay 47, of which an area of some 20 to 30 metres in width and 120 to 150 metres in length of soil was rotary hoed, and 12 tapes of about 130 metres in length were laid, at depths of 2 inches and 7 inches, and with the emitters on some spaced at 0.3 metres apart, and on the others 0.5 metres. There were therefore 4 “trials”. On Mr Ridge’s evidence, bay 47 falls within the shallow surface soil part of the Burstall Road farm where difficulty could be predicted, and where the problem would only be obvious after examination of that sub-surface soil. Installation of some (presumably 6) of 12 parallel trial tapes at the 7 inch depth may have provided that opportunity, and Mr Thompson was present throughout this tape laying. Mr Parker was present for part of it.

Representation and evidence about topsoil by Mr Parker

It was common ground between Mr Parker and Mr Thompson that Mr Parker had given Mr Thompson a description of the topsoil on the farms. Neither was quite clear as to when this description was given. Mr Thompson also swore, and Mr Parker denied, that Mr Parker had likewise given a description of the soil on the farms to a Mr Shaul Gilan, who was the general manager for the agric-technical department of Netafim, and its then state manager. Mr Gilan and Mr Thompson swore this happened during the currency of the trial, but Mr Parker had no recollection of Mr Gilan’s presence during those trials. The other evidence demonstrated, and the learned trial judge accepted, that Mr Gilan was indeed at the farm during the trial period. However, the judge did not accept that Mr Gilan met Mr Parker at that time, nor that Mr Parker made statements about the farm soils as claimed by Mr Gilan. The judge also rejected Mr Gilan’s evidence of statements he swore he had made to Mr Parker, and denied by Mr Parker. The appellant claims the judge made an appealable error of fact in rejecting evidence that Mr Parker had made representations to at least Mr Thompson, as agreed by both those witnesses, and likewise to Mr Gilan, as sworn by Thompson and Gilan. It is necessary to consider this evidence in some detail, and determine quite what was evidence the learned judge did and did not reject.

Mr Parker, whom the learned trial judge described as a straightforward man and who made a generally favourable impression on the judge, swore that he would have given Mr Thompson a very honest description of the farm soils and would have told him:

“… exactly what - if somebody asked me today.”⁹

He swore in evidence in chief that he had been told by the earthmover, and it appeared still believed, that he had ended up with 22 inches of topsoil all over the Burstall Road farm, and that on the home farm the topsoil depth varied a little bit but that there was at least 18 inches of good fertile topsoil, and (at AR 91):

“The loamy subsoil type material that’s under a lot of it varies a little bit from a foot to probably two feet and under that it’s beach sand.”

What impresses about that description is both that it accords with what Mr Thompson describes being told, and that Mr Parker even at trial gave this somewhat idealised description of farm properties to which he is obviously attached, despite his own case being that the system designed by the appellants was unsuitable precisely because those farms did not have that consistent depth of topsoil; and being further that the appellant ought to have conducted tests by which it would have discovered this fact.

Importantly, he also described having given Mr Thompson some more realistic information, namely of the home farm having some lighter soils very similar to the Burstall Road block, and some heavier soils. Mr Thompson’s evidence confirmed receiving that description; and Mr Parker admitted that he could have given the same description of the farm topsoils to Mr Gilan as he had given to Thompson.¹⁰ He agreed that that was the “sort of thing” he would say. He also agreed that he had dug hundreds of bore holes on the home farm, and Mr Thompson recalled in evidence being told by Mr Parker that the latter was very confident of his soils, partly because of this investigation to find good water on the home farm. That evidence was not challenged in cross-examination, and Mr Parker’s only reason for denying making statements to Mr Gilan during the trial in November 1996 about the farm soil was that he had no recollection about Mr Gilan being present.

The date of the contested conversation with Mr Gilan was fixed by the latter as 14 November 1996, and in the kitchen of Mr Parker’s residence during the trial, and in Mr Thompson’s presence. Mr Parker denied that that meeting had occurred, and Mr Thompson said it had. The learned judge rejected that evidence of Mr Gilan and Mr Thompson, and their evidence Mr Parker made representations about the topsoil to Mr Gilan. The appellant mounts a strong challenge against that rejection, and a more subdued challenge to the acceptance of evidence by Mr Parker that he had deliberately taken Mr Thompson during the trial to Lot 15 on the home farm, and described that as an area more difficult to “wet up than the Burstall Road farm”. To assess those complaints it is necessary to describe the trial which was conducted.

The Trial

Mr Parker’s evidence, not contradicted by Mr Thompson, was that he had chosen a trial site on the Burstall Road farm because that was where he had available water under pressure. He swore he had told Mr Thompson that that area on a bay 47 was very light soil and that there were areas on the home farm that took much more water (from flood irrigation) to “wet up”. Regarding the trial itself, Mr Thompson recalled having seen after the first day’s pumping that the soil had become wetted up along the trial tapes, with little difference between those with the emitters spaced 0.3 metres apart from those that were 0.5 metres apart; but that at that stage the soil had not wetted up enough for Mr Parker’s “planting location” of his beans. By that, Mr Thompson meant that to his knowledge Mr Parker planted his bean seeds in parallel rows 30 inches apart, and so for his farm management required that the tapes carrying the water be placed five feet (60") apart, and running down the centre point of the gap between, for example, rows 1 and 2, and then the gap between rows 3 and 4. The object was for water emitted from each tape to wet an area of at least 15 inches in width on either side of that tape, thus providing water to each planted row.

Mr Thompson’s evidence was that by the fourth day of the trial a continuous wetted strip 18 inches to two feet wide was visible,¹¹ by which stage he thought that the trial had worked well. This was although the wetted area was only 9-12 inches on either side of each tape, and Mr Thompson considered that “definitely there would be a compromise” to Mr Parker’s “existing farming distance between the two rows of beans and I advised him it should come in slightly closer”.¹² Mr Thompson recalled digging with a spade on that occasion and observing “success”¹³ by which he meant:

“The success was in terms of being able to germinate the beans, Gary would - at the time, planting beans at one or two inches deep, and the water profile had reached that because it wet the surface of the soil, and beyond that the water profile dropped off and maintained a sort of a wetted area which would have been, if I remember right, another foot or so past the actual wetted area of the bean germination line.”¹⁴

Mr Thompson swore he was quite impressed by that result, that thereafter his conversations with Mr Parker “wasn’t indeed whether or not it would wet-up any more, it was indeed how wide and where would he place his beans in a sub-surface system.” (AR 1175).

Mr Parker was not asked in evidence if he was ever advised to plant bean rows closer together, and his evidence was that “my rows were 30 inches, and they still are today”,¹⁵ and that Mr Thompson was very aware of that. It appears the system was both designed and installed with a 1.52 metre (or five feet) parallel spacing of tapes, as required by Mr Parker.

Mr Thompson’s evidence as to why the trial was a success after day four contained the apparently inconsistent suggestions of modification of Mr Parker’s farming practice, and that the water was “wetted” past the bean germination line. This may be a description of this occurring under the very top soil. Despite Mr Thompson’s views that what he observed on day four was a success, on the occasion when Mr Gilan visited the test site, at a time which Mr Thompson’s evidence puts at about day six, both Mr Thompson and Mr Gilan agree that Mr Gilan considered another “subbing up” (pumping more water through the tapes) was necessary, and this was done. Even so, Mr Gilan swore that on the day of his visit, digging at three different tape positions showed that the water front went over the intended location of the line of bean seeds.¹⁶ Mr Thompson described seeing this as visible on the surface by the end of day eight.¹⁷

By the end of the trials Mr Thompson saw no difference between the result produced by the tapes buried at seven inches from those buried at two inches below the surface, and no difference produced by 0.3 metre as opposed to 0.5 metre spacings of the emitters.¹⁸ Mr Gilan agreed that the emitter spacings made no difference, but recalled different results “mainly between the depth of the buried tape.”.¹⁹

Despite those observations by Mr Gilan, the system was designed and installed with the tapes placed nine inches below the surface. This was done because Mr Parker was concerned that the discs on his plough would damage tapes set at a depth of seven inches.²⁰ Although Mr Thompson demonstrated to Mr Parker’s satisfaction that those discs only penetrated the soil to a depth of five inches, (on Mr Parker’s recollection) or seven inches, (on Mr Thompson’s), Netafim’s design yielded to Mr Parker’s concerns, although no trials were ever conducted at nine inches.

Mr Parker’s evidence was that all he had noticed during the trials were rows of wet dots down the paddock of which the largest ones were as big as a saucer,²¹ and that while the trial did not satisfy Mr Parker,²² Mr Thompson said he was happy or very happy with it, and that he had seen “what they wanted to see, and he was happy with it.”.²³ That evidence from Mr Parker was unchallenged. Mr Parker’s apparent reliance on Mr Thompson’s judgment that the trial was successful, and his insistence in evidence that:

“I was told from the start that they were the experts, they would take care of all the – what is it – the technical side of it, and I knew nothing about it anyway”

led to the perhaps exasperated concession by senior counsel for the appellant in cross-examination that:

“All right, Mr Parker, let’s - let it be accepted that Netafim is the expert and they design the system.”²⁴

That comment in cross-examination reflected the extent of reliance by Mr Parker upon the appellant.

The disputed conversations

The critical disagreements of fact between Mr Parker and Mr Gilan, and to a lesser extent Mr Thompson, involved Mr Parker’s evidence that after hearing Mr Thompson’s view of the success of the trial conducted in bay 47, he had then told Mr Thompson that the test area contained “very light soil”, and that there were areas on the home farm that took a lot more water (with flood irrigation) to wet up. He recalled taking Mr Thompson to bay 15 and bay 22. This visit was in Mr Henning’s presence, and all three men got out of the vehicle and Mr Thompson felt the soil. Mr Parker recalled his then advising Mr Parker that “you’ll have no trouble with this soil wetting up”.

Mr Thompson could not recall that conversation, but conceded that on the fourth day of the trial after he expressed happiness with the results, Mr Parker drove him in the latter’s vehicle around the farm, stopping at a number of places and talking about the soil present at them.²⁵ Mr Thompson recalled getting out and looking at the soil and feeling it in his hands, and accepted that Mr Parker may have suggested that he wanted to show Mr Thompson soil at particular parts of the farm. Although he could not recall being told that some areas were difficult, he agreed that the point of the exercise was to ascertain whether or not there might be difficulty in watering up any parts of the farm.²⁶ Mr Henning’s evidence supported Mr Parker’s, both as to what Mr Henning observed about the trial at bay 47 (that the wetted soil appeared with a saucepan like effect rather than as a continuous watered up area), and as to a visit to an area adjoining Parker’s Road that Mr Parker had said was “one of his worst parts of his farm”. Mr Henning recalled Mr Thompson getting out of the vehicle, examining the soil and saying, “No, that would be okay, it wouldn’t be a problem.”²⁷

The appellant complained in its grounds of appeal and outline of submissions that the learned judge erred in accepting Mr Parker’s evidence that he took Mr Thompson to those areas of the home farm, and had the described conversations. There is no merit in those submissions. Mr Parker’s evidence was relevantly supported by both the evidence of Mr Henning and by the concessions in Mr Thompson’s evidence.

The appellant did not challenge in the appeal the learned judge’s rejection of evidence from Mr Gilan that Mr Parker had told him, in the conversation Mr Gilan said occurred at Mr Parker’s house, that the test site at bay 47 was the most difficult area of the farm to “sub-up”. Any challenge to the rejection of that evidence would be hopeless, since not only did Mr Thompson not give evidence of hearing any such statement, but it would be inconsistent with the evidence quite appropriately accepted by the learned judge that Mr Parker had given that description about those areas in bays 15 and 22.

The appellant’s far stronger challenge is to his Honour’s rejection of the evidence by Messrs Gilan and Thompson that at Mr Parker’s house, the latter gave Mr Gilan the same description of the uniformity in depth of farm topsoil on both Burstall Road and the home farm as the evidence showed Mr Parker gave Mr Thompson. The learned judge’s findings and reasons in the judgment were as follows:

“[38] Whilst I accept that Gilan was on the farm at some time during the trial I do not accept that he met with Parker or that Parker made the statements which Gilan claims he made. It follows that I do not accept the evidence of Thompson in this regard also. Thompson was a witness who gave the impression of being very nervous and greatly discomfited at being in the witness box.

[39] The finding that Parker took Thompson to the home farm where he pointed out areas which he said were the most difficult to sub up and that Thompson after looking at the soil said that there would be no difficulty in wetting this area with drip irrigation goes a long way it seems to me towards a rejection of Gilan and Thompson’s evidence as to the later conversations about the quality of the soil at the trial site and the uniformity of the soils throughout as this would be inconsistent with what Parker had earlier said. However whether this is correct or not I accept Parker’s account that he did not make any such statements of this kind to Gilan. I also accept Parker’s evidence that he told Thompson just the soil at the trial site was light and wet up easily.”

Findings not made

The learned judge made no express finding as to whether or not Mr Parker had told Mr Thompson of the uniformity of topsoil throughout the farms. The judge had noted in paragraph [34] of his reasons for judgment that:

“The Second Defendant relies upon what it says is the information provided by Parker to Gilan that the area of the trial represented the most difficult area on the farm to sub up under flood irrigation and that there was a uniformity of topsoil across the farms”.

The appellant’s pleadings in paragraph 7(g) plead that in November 1996 when Netafim was undertaking trials Mr Parker orally represented to Mr Thompson and Mr Gilan that:

“…the subsoil and the topsoil on the Valley field farms had been laser levelled and that the topsoil was good fertile top soil which was between 18 inches and 24 inches deep”.²⁸

In para 13 a representation in similar terms is pleaded, which also contains a further pleaded representation of Mr Parker’s familiarity with the farm topsoil from his having dug numerous holes. This is specifically pleaded in para 13 as being made on 14 November 1996 and in that “kitchen” conversation. The respondent’s reply and answer to the pleading in para 7(g) included (at AR 3385) that:

“…the Plaintiff admits that Garry Parker said that the land had been laser levelled and that the good fertile topsoil was of a depth of 18 – 24 inches approximately”.

But that reply and answer denied, with respect to paragraph 13 of the amended defence, that the pleaded representation was made. Presumably this was because of Mr Parker’s insistence that Mr Gilan was not in his kitchen during the trial.

The significance of admissions made in pleadings was recently demonstrated by the judgments in the High Court in Placer v Thiess (2003) 196 ALR 257, at [5], [17]-[18], and [73]. That appellant succeeded precisely because a relevant admission was made, and here the admission in response to 7(g) sits comfortably with the evidence which is common ground of representations made to Mr Thompson. Further, a report prepared for a mediation by a Mr MacGregor (Exhibit 4B at the trial) and dated 14 December 1998, described both farms having been laser levelled with the result that there was a uniform depth of topsoil and a uniform slope (AR 1621), which topsoil depth was described as being 22 inches. Those statements in the report reflected information supplied by Mr Parker to its author. This was established in cross examination (at AR 537).

The learned trial judge considered Mr Gilan was an intelligent person who was very astute to advance the appellant’s case wherever possible, and thought that Mr Gilan had sought to boost that case in Mr Gilan’s evidence about his conversations with Mr Parker at the time of the trial on Bay 47. His observations on Mr Gilan’s credibility, and on Mr Thompson’s conduct of himself in the witness box, are matters relevant to findings based on credibility, which are not to be set aside because an appellate court thinks that the probabilities of the case are against or even strongly against a particular finding of fact.²⁹

The observations in SRA v Earthline at [3] and [85], requiring real respect for the advantages of a trial judge in observing witnesses give their evidence, mean that the trial judge’s finding that Mr Parker and Mr Gilan did not meet during the trial will not be overturned on this appeal. Even so, on the matter on which no finding was made, a conclusion is unavoidable that Mr Parker did tell Mr Thompson and through him the appellant, that both farms had uniformly level topsoil, albeit to differing depths on the two farms. The respondent’s admissions in pleading, Mr Parker’s evidence, and what Mr Parker told Mr MacGregor, make that conclusion inescapable.

Paragraph [39] of the reasons for the judgment under appeal suggest that the learned judge thought it was inconsistent for the appellant to say both that Mr Parker had described the farms as having uniform and even topsoil and also had described areas which were harder to wet up. However, with respect to the learned judge, Mr Parker did exactly that in the witness box. It follows that the appellant was entitled at trial to a finding that it had made out the representation to Mr Thompson in the particulars pleaded in 7(g)(i), and the first paragraph of 13(a) of its further amended defence and counter claim.

How the system was designed

Mr Thompson’s evidence explained that the actual designer of the system was a Mr Binder, who worked in the appellant’s Adelaide office, never visited the farm, and who relied upon Mr Thompson for the “input they had from on the ground at Valleyfield’s farm”.³⁰ After the design went into its initial stages Mr Thompson left this country for a six week overseas trip, leaving Mr Gilan in charge of the project; and Mr Gilan went to Israel in December 1996, and returned to Australia in January 1997, at which time he moved to Melbourne to take up a position as National Sales Manager for Netafim.³¹ Mr Gilan’s statement informs that he prepared the “Netafim design information brief” for the two farms, that being a one page document reproduced at AR 3249 and 3251, and in which the “no” box is ticked opposite the question “Is soil survey information required for design?” His statement explains that that one page document, together with a plan provided by Mr Thompson for each farm, was the information provided to the Netafim Design Information Centre. Mr Gilan made the handwritten entries on that design information brief, and justifies the “no” answer, in paragraph 65 of his statement, on the following grounds:-

From his experience a soil survey is not completed for crops other than permanent crops, such as vineyard or orchard crops.

Soil surveys are expensive.

Such a survey would tell little, and probably miss localised variations in the soil if they existed.

He considers the only way to really assess a soil wetting up pattern is to do a trial, of the type actually conducted.

Netafim’s practice in 1996 and 1997 did not include conducting soil surveys when designing drip systems for small crops.

The actual irrigation regime and water behaviour experienced by a farmer who for years has conducted flood irrigation is the best soil survey, because it gives the full picture of the farm soils; and

Mr Parker had told Mr Gilan of the soil profile of the farm, and Mr Gilan relied on that as sufficient information for Netafim’s purposes. Had Mr Parker not been able to tell “me” about the soil profile, or had he indicated that in parts there was a shallow topsoil on top of the sandy loam subsoil, Mr Gilan would have conducted a further inspection of the soils over the farm.

The last dot point assertion must be rejected, in its claim that Mr Parker had told Mr Gilan of the soil profile of the two farms, but Mr Gilan’s justification loses none of whatever strength it has by substituting the undisputable claim that Mr Parker had told Mr Thompson of the farm’s soil profile, and that had he not done so, Mr Gilan would have considered a further inspection.

Mr Gilan’s evidence showed that he spent about an hour at most at the trial site and otherwise did not inspect the farms. Mr Thompson had also examined only the trial site and those areas (bays 15 and 22) to which Mr Parker had taken him. Neither man had walked over either farm. Mr Gilan’s design information brief completed by him did not even describe the soils on the farm, that is, whether black soil, clay soil, light soil or heavy soil, or the depth of topsoil or nature of subsoil. Mr Gilan’s statement advises [25] that:

“Unfortunately we have only now found out about the high variability of the soils on the farms, when the system already was installed and operational for one season.”

There was no challenge to the finding by the learned judge that the primary problem with the system was that because of the variability of the topsoil depth and subsoil of coarse river sand in many areas, the emitters were placed at too low a depth. Nor was there any challenge to the finding that a secondary problem was the emitters being placed too far apart. With respect to the primary problem, the appellant challenged the learned judge’s conclusion that the appellant had failed to take adequate steps to inform itself of the texture and structure of the soil on the two farms, and in so doing had departed from what could be expected of a reasonably competent designer of a subsurface drip irrigation system.

What a designer should do

Mr MacGregor’s report annexed to it a document describing design “guidelines” for Whole Farm Planning for irrigation. That document advises that in most cases a detailed soil survey should be undertaken, either by experienced departmental soil surveyors or private consultants. The depth and texture of each soil layer within the soil profile to at least 1.5 metres should be assessed, as should be the depth of topsoil or zone of soil exploited by the proposed crop root system. The preparation “guidelines” for pressurised irrigation systems described the following information as particularly important design criteria:

The nature of the soils, especially the infiltration rate; and the change in soil type and soil profile restrictions.

As the learned trial judge remarked, the principles contained in that publication were common ground between the witnesses experienced in irrigation practice and design. It was published by the Irrigation Association of Australia Limited in 1991, at which time that entity was developing irrigation design strategies for the industry throughout Australia. The appellant contends it did enough in relying entirely on what Mr Parker said.

Mr C Thompson (no relation apparently to Mr N Thompson of Netafim), a past director and National Education Chairman of the Irrigation Association of Australia Limited, and a certified irrigation designer called as an independent expert by Netafim, described the opinion of an established farmer with a history for growing good crops as the biggest single source of information available to an irrigation designer,³² and suggested³³ that prior to a problem developing, had he walked “across that paddock (bay 15) backwards and forwards for – for three days, I doubt that I would’ve seen those issues.” Despite that evidence, he agreed with the principles described in the guideline document Mr Macgregor produced, which had in fact been published by the Association when Mr C Thompson was its National Education Chairman.

Mr Ridge, whose examinations resulted in the accurate description of the farms’ soils, advised that a designer would walk around the whole property just to check on what the designer had been told by the farmer,³⁴ and further suggested that a designer who was told that there was an area or areas which were harder to “wet up” than an area where a trial had been conducted, might consider conducting a trial in that other area. No trials were conducted in bay 15.

Mr MacGregor advised that from just walking over the farm, variation in soil types could be observed (it was not clear if he had done that before writing his first report) and further that:

“…you know you’re going to be - have variation in soil type, so you’d have to do a range of - a range of trials on those different soil types before you could say a sub-surface system would work.”³⁵

He also advised that in his opinion as soon as the first bucket of a backhoe went in, when installing a subsurface system, and when an amount of sand and variation in soil became visible; then:

“…you would call a halt and reassess the total situation.”³⁶

The actual installation was carried out under the supervision of a Mr Bail of Netafim acting as foreman, and by contractors organised by Netafim but paid by the respondent. Mr N Thompson was present the day installation began and, it appears, throughout the installation.

The evidence supports the further observations of the learned trial judge, in his reasons for judgment [41], that in cross-examination Mr Ridge said that in his opinion one ought to take tests to establish the texture of the soil which would not be apparent on a visual inspection, and that in areas where there is information that the soils are variable, it would be necessary when designing an irrigation system to either conduct trials or to obtain relevant information about the structure and texture of the soils in various areas before completing the design. The judge added that Mr Purcell, an expert on irrigation systems called by Primac, also suggested steps which could readily be taken to obtain the necessary information.

Those observations and the other findings of the judge quoted, led to his conclusion which is supported by the evidence described herein, that the appellant did not take adequate steps to inform itself of the texture and structure of the soils on the farm, and thereby departed from the standard expected of a reasonably competent subsurface irrigation system designer. One cannot help but also observe that not only did the appellant not find out about the actual nature of the soils on either farm, or notice the sand visible at some surface areas, but it designed a system with the tapes buried at nine inches without tests at that depth.

Did the appellant owe a duty of care?

The respondent was at pains at the hearing to endeavour to establish that its claim was not for “pure” economic loss but rather for economic loss resulting from damage to the seeds from lack of water, meaning they did not germinate; and the restricted or poor growth of some of those that did. This argument really seems to obfuscate rather than illuminate whether a duty of care owed to it was breached causing that loss. The principles upon which a duty of care is imposed or not imposed in differing circumstances in which one party to a non contractual relationship has suffered either damage to property, injury to the person, psychological injury, or pure economic loss, as a result of the conduct of another party, have been discussed and analysed in a number of quite recent decisions in the High Court; as well as academic writings and the commissioned Further Report on the Review of the Law of Negligence September 2002, chaired by the Honourable Justice David Ipp.

Those decisions include Bryan v Maloney,³⁷ Perre v Apand Pty Ltd,³⁸ Modbury Triangle Shopping Centre Pty Ltd v Anzil & Anor,³⁹ Sullivan v Moody,⁴⁰ Tame v New South Wales,**⁴¹ and Graham Barclay v Ryan.⁴² These judgments identify as important criteria identifying the existence or non existence of a duty of care:

actual foresight of the likelihood or possibility of harm of the kind suffered;⁴³

or, absent actual foresight, reasonable foreseeability of that harm to the extent of recognition of it being an unreasonable risk created for others;⁴⁴

who are either known to the person causing damage, or members of an ascertainable group or class reasonably foreseen as subject to that risk;⁴⁵

where there is known or reasonably foreseen vulnerability of the person suffering damage to harm of that type, (often arising from their relying on the person causing harm to take care) and against which harm the person injured could not otherwise take steps adequately to protect themselves;⁴⁶

in the absence of preventative action by reasonable care taken to avoid causing that damage;⁴⁷

because of the degree of control exercised by the person causing the damage in or over the activity which causes it;⁴⁸

and often relevant is the physical, geographic, or commercial propinquity of the parties, in the activities of each in which one suffered and the other caused the harm.⁴⁹

These matters have been described as salient factors in determining if a duty of care exists.⁵⁰ More general considerations also identified in recent authoritative judgments include a concern to avoid the imposition of liability in an indeterminate amount for an indeterminate time to an indeterminate class,⁵¹ expressed by the quotation cited in Perre v Apand by Gummow J (at [170]) that “a single overturned lantern may burn Chicago”. There is likewise recognition of the necessity to ensure that the imposition of a duty to take care does not unreasonably interfere with the commercial freedom of the person upon whom it is imposed, or, as observed in the joint judgment in Sullivan v Moody (at [53]), cut across other legal principles. That consideration, and the necessity to avoid imposing an indeterminate liability, are examples of matters of policy, which matters are increasingly articulated as something sufficient in themselves for denying the existence of a duty of care.⁵² Kirby J in Graham Barclay v Ryan described policy considerations as having returned to the fundamental test, that a duty of care will be imposed when it is reasonable in all the circumstances to do so.⁵³

In Tame v New South Wales, a number of the judgments dealt with both the general principles in which a duty of care would be imposed as well as those applicable to cases in which the claimant had suffered “nervous shock”. Gleeson CJ, when writing of the wider issue and Lord Atkin’s descriptions in Donoghue v Stevenson⁵⁴ of to whom a duty is owed, described the need to ask whether it was reasonable to require a defendant to have certain persons and certain interests in contemplation, and likewise in contemplation the risk of injury that had eventuated.⁵⁵ The recent judgments in the High Court identify vulnerability to the injury caused as one way of supplying an answer to that question, and the judgments in Tame and Barclay v Ryan stress that a significant measure of control of the relevant activity causing risk is important to the answer.⁵⁶ The joint judgment of Gummow and Hayne JJ in Graham Barclay also requires a court to consider the totality of the relationship between the claimant and the defendant and not simply the knowledge of a risk of harm and a power to avert or minimise that harm.⁵⁷

The learned judge below analysed the evidence in terms of the salient factors, principles and policies discussed herein. He concluded that the relationship between the respondent and appellant was a close one and almost approximated that which existed between contracting parties, and further that the respondent clearly relied upon the appellant’s skill and expertise in the preparation of a design of the system. He considered it would have been apparent to the appellant that a failure to take care on its part in the carrying out of the necessary investigations in the course of preparing a design could cause harm to the plaintiff, and further that the imposition of a duty of care in those circumstances would not impose indeterminate liability on the appellant. He held the respondent was vulnerable to loss from the appellant’s conduct, and that whether or not the respondent could have protected itself against the risk of that loss by obtaining contractual warranties from Primac, that possibility - which he considered unrealistic - should not stand in the way of a finding that the appellant was under a duty of care to the respondent. He also considered there were no policy reasons for denying recovery. He concluded a duty of care existed.

The appellant attacks the finding of vulnerability, submitting that the respondent knew it was not getting a warranty from Primac and went ahead without one. That submission overlooks that the appellant, who was aware from the start of the respondent’s reliance on the appellant’s asserted and assumed expertise in irrigation system design and installation, did not suggest that the respondent obtain any warranties from Primac. Further, the appellant made no criticism of the judge’s observations that it was unrealistic to expect that the respondent could obtain a warranty from Primac in relation to the second defendant’s design.

The appellant also submitted that a policy consideration mitigating against finding a duty in it arose from its refusal to contract with the respondent. Its submissions did not advance that argument beyond asserting it; and it is difficult to grasp why declining to regulate the parties’ relationships by a contract between them should have the result that the appellant was thereby able to carry out the task it was performing for the respondent without any liability to it for work carelessly done, at considerable cost and little benefit to the respondent. The submission also has the problem that it challenges the observations of the majority in Astley v Austrust Ltd,⁵⁸ quoted below.

The trial judge was correct in finding the appellant owed a duty of care to the respondent. This is so particularly because of the respondent’s known reliance upon the appellant, the appellant’s control over what steps would be taken to acquire necessary information before designing the system, the changes made by the respondent to its farm and farming practices in reliance on the system, the obvious loss the respondent could expect to suffer if due care was not taken in designing the system, including in obtaining the necessary information about the farms’ soil and performance, and the many occasions the appellant came to the respondent’s farm, creating a close working relationship between the parties. There is nothing which cuts across any established legal concepts and which should surprise the appellant in imposing on it a finding that, in the absence of contractual terms excluding or reducing its liability,⁵⁹ it was under an obligation to the respondent to exercise due care in the design of the system, including by taking adequate steps to inform itself of the texture and structure of the soils to be irrigated. Instead, in the words of the majority judgment in Astley v Austrust:⁶⁰

“…..the imperial march of modern negligence….has broadened the responsibility of professional persons and requires them to take reasonable care and skill even in situations where a contractual relationship cannot be established.”

Did any breach cause damage?

One of the appellant’s alternative arguments is that accepting the duty exists, the respondent did not establish that it had suffered any damage which was caused by the respondent’s established breach of that duty, as described in [113] herein. The argument was that the respondent had not established that any soil tests it could reasonably be expected to have carried out would have disclosed what became common ground at the trial, namely that the variations in top soil depth and nature were such that the system was not appropriate for either farm. It submitted that the evidence did not establish that such tests as a reasonable system designer would have undertaken would have revealed the real nature of those soils.

The variation in top soil nature and depth was there to be seen and Mr Ridge saw it. The difficulties that a subsurface drip irrigation system would have in wetting up, for example, bay 15, were there to be found, had a trial been conducted there. Mr Parker specifically took Mr Thompson to it, and Mr Parker subsequently had considerable difficulties with that bay after the system was installed. His evidence included the description of how on one occasion he had continuously supplied water in the tape to that bay for 21 days, and been unable to get moisture to near its surface. On digging he discovered that he had some three to four inches in depth of dry soil, below which the soil was quite saturated. Mr Gilan’s description of what had occurred there was that the clay soil had become cloggy, creating large gaps between clogs which did not allow the capillary action to work. It seems obvious this could have been established by a trial at that site. The appellant’s attention was drawn to that bay by Mr Parker, and that fact, together with the visibility of surface sand in other areas, make untenable the appellant’s submission that tests which might reasonably have been expected would not have alerted it to the top soil variability.

The respondent needed to establish by evidence that the appellant’s falling below the level of competence in design reasonably expected of it materially contributed to the damage that the respondent suffered from the design and installation of a subsurface irrigation system which did not suit the respondent’s variable farm soils. The respondent was not required to establish that if the appellant had not been negligent in obtaining information about the respondent’s soil quality, the appellant would have designed and installed a system which did satisfy the respondent’s needs. The last proposition is really what the appellant was urging upon this court; and it appears to be a considerable refinement of the “but for” test which the majority judgment in March v Stramare, while regarding as useful, did not approve as the exclusive test of causation of negligence cases.⁶¹ The effect of the appellant’s argument is that the respondent would have to establish the appellant was skilful or careful in all respects bar one.

Was there contributory negligence?

The finding that Mr Parker made representations about the uniformity and depth of topsoil on the farms upon which the appellant relied entitles it to a judgment on whether damage the respondent suffered from the installation of the system was the result partly of its own fault. The evidence supports a conclusion that Mr Parker failed over time to grasp what his eyes and his experience ought to have told him, namely that the farm topsoil was not of the quality he believed and asserted, and – in part – as the laser leveller had told him it was. Mr Nigel Thompson’s evidence showed that he was impressed by Mr Parker, whom he thought demonstrated “a lot of ability in his engineering and his growing and understanding of things even in fine detail like the - the packing box that he used and the forward thinking that he used in order to command a better price for his product in the market.”.⁶²

Of necessity, a designer would rely heavily on observations made over time by a farmer and the farmer’s knowledge of her or his farm soils and performance. This was common ground between the witnesses Purcell, Ridge, C Thompson and Mr Gilan himself. However, those witnesses, other than Mr Gilan, did not suggest that an irrigation system designer would exclusively rely upon the farmer for information, or without establishing the accuracy of representations made by the farmer by the designer’s own observation, soil sampling, (perhaps by an auger which most farms would be able to supply), and by trial.

No witness suggested it would have been sufficient to rely upon Mr Parker’s description of the uniformity of depth of good topsoil when he had also advised that some areas were harder to wet up. Once it is accepted that the appellant did have notice of that description of Mr Parker’s experience it follows that the appellant made an inadequate examination of the reasons for that described difficulty. It should not occur if the topsoil was of even depth and quality across the farms. Description of that difficulty necessarily implies that the topsoil was either uneven in depth or of differing quality; and it was in fact both.

Mr Parker did make it clear in his dealings with the appellant that he relied on it for the opinion that a subsurface drip irrigation system would be effective on both farms. On the other hand, the appellant did not reveal to Mr Parker during such dealings as each of Mr Thompson and Mr Gilan had with him, that Netafim would rely solely, or even at all, on Mr Parker’s description of the farms’ soils as a reason for not conducting any soil tests. Mr Parker was not asked by either Mr Gilan or Mr Thompson if he thought soil tests were advisable or necessary, nor told that Netafim did not and that this was only because of what Mr Parker had said to them.

In determining whether or not the respondent, through Mr Parker, was at fault which contributed to its losses in not giving the appellant accurate information about the nature of the topsoil on the farm, the absence of notice to Mr Parker, or knowledge in him, of reliance by the appellant on what he said is relevant. The evidence did not show any reason for his being aware of the importance of that reliance. He was not shown to have ever suffered loss in the past, when flood irrigating, because of wrong beliefs about the farms’ topsoil, and, importantly, he had told Mr Thompson some areas performed differently to others. Also relevant is the fact of the appellant having the real control, because of Mr Parker’s reliance on it, over whether or not soil tests were conducted and what sort of tests; and the fact of the appellant’s knowledge of the necessity for accurate information about farm soil nature and performance when designing an irrigation system. This follows from the principles of irrigation design described earlier. In the circumstances described, the respondent was not at fault when supplying inaccurate information as to the farm topsoil.

Consequences of the breach

Mr Parker described problems during the 1997 season in both germinating and growing beans. Where germination and growth did occur the average yield per bay was above that previously produced by flood irrigation, but the 1997 difficulty was the actual decrease in the total area growing beans, and ultimately in the area that Mr Parker planted in his second crop that year. His description of crops appearing in sequence green, then yellow, then green, then yellow down a row, was supported by the evidence of Mr Thompson and Mr Gilan. Mr Parker explained that this patchy crop interrupted his supply and marketing of beans, in a market which values beans of uniformly fresh appearance.⁶³ Mr Thompson’s description of the crop appearance was that:

“…between the patches of germinated beans, you could see um, five metres, sometimes 10 metres, sometimes one metre, where there was no beans.”⁶⁴

and Mr Gilan described the “few patches that the water didn’t come up properly”⁶⁵ as being between “five to 15 per cent of the area” (of those blocks), which individual patches were “say about four, five metre wide and about 10 metre long”.⁶⁶ For his part, Mr Thompson’s evidence described the areas of apparent trouble as being “say 20, 30 per cent” (apparently of the whole farms’ area).⁶⁷

Mr Gilan’s description of the problem in the areas he went to was that the clay soil was clogging up, as previously described; whereas Mr Parker’s was that he had found by digging that water from the Netafim system was just going straight down and not spreading.⁶⁸ It was not disputed at the trial that the system had failed to meet both the respondent’s reasonable expectations and the appellant’s announced expectations of it.

This resulted in Mr Parker using both the Netafim and a surface tape system supplied by IAMA Farmers Agencies together during the 1998 season. He said he spent between $120,000.00 and $150,000.00 doing that, and described the dual system as totally inadequate and resulting in patchy crops.⁶⁹ In 1999 and thereafter he used a totally surface system, in which the tapes had to be replaced after each planting, and which system he considered was not doing the job properly.⁷⁰ He described having a lot of unplanted areas in the 2001 season, although he had installed bigger valves at the end of the 1998 season. At the hearing on the trial, he was once again contemplating the installation of the expensive Richter system marketed by Aqua Tec. He had begun removing the Netafim subsurface tape at the end of 1998 and finished doing that in early 1999. His evidence was that he had not used those Netafim tapes since mid 1998, having laid the IAMA tapes above the Netafim ones. He has reduced the emitter spacing, first to 0.3 of a metre each (in 1998), and then to 0.2 of a metre. His judgment, in hindsight, was that the Netafim system had delivered water to the surface in some but not all areas of the farm, and that the problem lay in the spacing of the emitters. He considered there had not been enough water delivered to push it to the surface.⁷¹

The appellant suggested different solutions to him throughout 1997 and Mr Parker considered all of them inadequate. Mr Gilan pressed Mr Parker to supplement the Netafim system, with either an overhead sprinkler system or even with flood irrigation. As to the latter, the respondent’s underground concrete pipes had been damaged in installation of the system, any irrigation furrows would need to be placed down the centre of each seed bed, and thus over the tape, (risking damage to it), the pump capacity installed by Netafim was too small, and finally any such system would need a “tail” drain deeper than the buried tape.⁷² Mr Parker accordingly considered the suggestion of supplementary flood irrigation an impossible one, requiring a great deal of work to reinstate that system and necessitating the removal of the Netafim one.⁷³

He described the problem with another suggestion, namely a travelling boom irrigator, as being the “ill shape” of his farm,⁷⁴ which would result in parts of that boom irrigator spraying water out onto the road, onto other paddocks, and onto neighbouring properties (some are residential blocks). A travelling irrigator needs a square shaped block, and his farm does not have a single such block. He considered that suggestion totally “unfeasible”;⁷⁵ also, he did not have enough water for such a system. Regarding a portable sprinkler system, in which above ground pipes are placed and moved from row to row, Mr Parker thought that an extremely labour intensive irrigation system, requiring up to eight farm workers, and too expensive for him to afford.

Mr McGregor’s evidence (at AR 416-7) supported Mr Parker’s reasons for rejecting each of those supplementary systems as being either impractical, too expensive, or unworkable. Mr McGregor particularly mentioned that a portable sprinkler system has specific problems during periods of wind, with the sprayed water resulting in a lack of uniform distribution of it and uneven germination of seed. The significant point about each matter suggested by Netafim to Mr Parker, to alleviate the problems he was having, was that there was no suggestion made then or in evidence of any real likelihood of being able to amend the design of the system so that it could satisfy the respondent’s farm needs without assistance from some other variety of irrigation.

Damage

The fact that Netafim did not seriously argue for the installation of a redesigned subsurface irrigation system as sufficient for those farm soils is relevant to the finding made by the learned trial judge at [74] of the reasons for judgment. His Honour wrote:

“The measure of damages in tort is that sum which would put the Plaintiff in the position it would have been in if the tort had not been committed. Here the position, as I take it be, is that the Plaintiff would but for the negligence of the Second Defendant have had a properly designed SSDI system in place.”

That last finding was important for the variety of damages awarded. These did not include the respondent’s money thrown away on having the system designed and installed, but instead its lost income in 1997 and 1998 resulting from the lack of such a properly designed system, what were described as its soil amendment costs in 1997, and what were described as its additional costs in 1998, 1999, 2000, and 2001. The soil amendment costs reflected the respondent’s expenditure in applying gypsum to its soil, as suggested by the appellant, in an unsuccessful endeavour to improve its wetting up performance; and the very substantial additional costs awarded were its expenses incurred in removing the system’s components and installing and maintaining the surface drip irrigation system in place during and since the 1998 season, and in substitution for the system. In 1998, that surface system was used with the system. Additionally, the respondent was awarded an amount of $700,000.00 for its future costs “of rectifying” the system, with that award apparently being intended to allow the provision of a workable irrigation system.

The appellant forcefully complains that the damages awarded resemble those which may have been appropriate had it been found to have breached a warranty for fitness for purpose of the system. It points to the fact that the damages awarded were the same as those the respondent had sought from Primac, the party with whom it had contracted. The appellant complains that the respondent should not have the benefit of that “lost opportunity” variety of damages in tort described in the joint judgment in Gates v City Mutual Life Insurance Society Limited (1986) 160 CLR 1 at 13. That variety of damages compensates a plaintiff who establishes that but for the tort the plaintiff would have entered into a contract from which the plaintiff would have made future profit. The appellant submits the respondent had not established that absent the appellant’s negligence the respondent would have had a properly designed subsurface drip irrigation system in place. In essence the appellant’s submission on appeal, also made to the trial judge, was that the evidence did not allow the conclusion that a subsurface drip irrigation system could be designed and installed which would work satisfactorily with Mr Parker’s soil, farming practices, and in circumstances where he was either unwilling, or it was impractical, to supplement that system.

There is force in that submission. The learned trial judge considered that no witness had expressed the view that a subsurface system could not have been satisfactorily designed for the farm, and that the appellant was in the best position to lead evidence of that, and had not done so. Those observations by the learned judge are accurate, but with respect they overlook the described impracticability of supplementing a deficient system, and the actual absence of evidence of the detailed design of a satisfactory subsurface system. Mr McGregor’s evidence was that he could not be confident such a system would work without a lot of research and trials (AR 436), and the effect of the evidence of Mr C Thompson was that while 90% of the farm could be “dealt with” in some way with a subsurface drip irrigation system (AR 1071), the variations in depth and texture of the top soil meant the other 10% could not.⁷⁶ The evidence of the witness Purcell, whose expertise was not challenged, (at AR 786 and 797) was that Mr Ridge’s report showed there were some obviously very bad blocks (on which to use the system) in respect of which Mr Parker would have to decide whether or not to abandon those for growing crops, or instead use a portable sprinkler system for germination.

I consider, with respect, that the evidence does not support a positive finding that but for the appellant’s negligence the respondent would have had a proper subsurface drip irrigation system in place, and which would work effectively for it on those farms. The learned judge made the former finding but not the latter, and even the former was not open in view of the evidence last described. It follows that I respectfully disagree with the contrary views of the learned trial judge. I have read the reasons of Williams JA and respectfully agree with much of what he has written, save that I am not confident Mr Parker would have agreed to an irrigation system requiring the use of a portable irrigation system on part of the two farms. That was not what the appellant designed, and I consider the evidence did not establish that a combined subsurface and surface drip irrigation system, suitable for the respondent’s soils and practices and capable of the required results, can be designed. My differing view means that I consider the damages the respondent can properly be awarded should be significantly reduced. As it happens, I reach a figure very close to that of Williams JA but by different reasoning.

As expressed by Dixon J as he then was in Toteff v Antonas⁷⁷ the question is how much worse off is the respondent than if it had not entered into its dealings with the appellant. It would not have expended money on purchase and installation of the system, and would have had in place its flood irrigation system, albeit that system was less productive than an irrigation system Mr Parker wanted and that he intended to replace it. The respondent was worse off by the $650,000.00 it expended, all spent apparently in 1996 and early 1997, in installing the system; by the $47,913.00 expended in 1997 on the appellant’s recommendation on applying gypsum to its soil; and certainly by the money spent in 1998 on the surface tape system supplied by IAMA and used in conjunction with the appellant’s system. That latter expenditure was necessitated because the respondent could not revert to its flood irrigation system, and to grow crops it had to spend money supplementing the defective system. As the learned trial judge observed at [134] of his reasons:

“The Plaintiff found itself in a difficult situation in 1997 when the system that it had paid for failed with serious consequences to its farming operations. In the following year it attempted to overcome the problems with an SDI system in conjunction with the SSDI system but this was not successful. It then attempted to use the SDI system alone (this has been referred to as the Furlong system) but with only limited success.”

That expenditure on the IAMA system in 1998 used that year in conjunction with the appellant’s system is fairly regarded as expenditure attempting to mitigate the respondent’s damage being suffered from its inability to water all of its crop. The evidence showed that Mr Parker was not attracted by the idea of a system like IAMA’s in which tapes needed removal at the end of each season, but expenditure on just that variety of surface drip irrigation system was forced on him by the failure of the appellant’s. He would certainly not have used that system in conjunction with his original flood irrigation system. It cannot be concluded he would have chosen, absent necessity, to replace that flood irrigation system with a surface drip system.

Expenditure on the surface drip system in 1999 does begin to look more like capital expenditure of a variety which the respondent may have chosen to make, had it had no dealings at all with the appellant. However, I agree with the finding of the learned trial judge that even in 1999, use of the surface drip irrigation system by itself, and after complete removal of the component parts of the appellant’s system, was conduct by the respondent reasonably attempting to mitigate. The appellant’s system had proved worthless to it, it had to grow crops to survive, and its choices were limited. It was forced to rely on a system which required expensive installation and removal of tapes, and as well to purchase irrigation equipment for that replacement system. I agree with Williams JA that for the years 2000 and onwards the costs of whatever irrigation system the respondent used or will use are capital expenditure too remote from the failure of the appellant’s system to be recovered as damages. If a badly designed building is unusable then once it is dismantled and cleared away, the disappointed land owner who sues the designer in tort, and who paid a third party for its erection, is left with the original problem faced, namely that a suitable building is needed. While costs of makeshift accommodation and temporary use of another building, necessitated by the uselessness of what was designed, may be recoverable, I do not see that the cost of a replacement building is recoverable as damages in tort in a case of this nature.

In this case, and continuing that analogy, I am satisfied that the 1999 expenditure on the surface drip system, which also proved unsatisfactory to the respondent, falls sufficiently on the “makeshift accommodation” side of the line to be recoverable as damages. But the different approach I take to that of Williams JA and of the learned trial judge means that I would not allow the respondent to recover its lost income in 1997 and 1998 as damages, since those damages necessarily assume that but for the appellant’s negligence the respondent would have had a satisfactory system (or building) in place.

The damages I would allow can be calculated as follows. There is the $650,000.00 thrown away on the purchase and installation of the system, together with the interest thereon that I would allow over 5.5 years at 5%, which totals $178,750.00. These two amounts total $828,750.00.

Next there are the 1998 costs. These appear at AR 1747 in the report of Mr MacGregor and were:

equipment - $22,262.00;

irrigation purchases - $175,334.15;

labour and machinery installation, removal of surface trickle

irrigation system - $96,851.94;

surface trickle tape removal off farm - $5,400.00;

removal of subsurface trickle irrigation system - $86,405.00;

which total - $386,253.09

I would allow interest at 5% on this for 3.5 years making $67,594.00. Those amounts total $453,847.09.

Then there is the 1999 year. The relevant figures appear at AR 2026 in that same report. They are:

irrigation purchases - $221,681.32;

irrigation installation, and removal from fields - $76,876.80;

trickle tape removal off farm - $5,400.00;

which total - $303,958.12

I would allow interest at 5% for 2.5 years being $37,994.70, and the figures for 1999 total $341,952.82.

Then there is the amount expended in 1997 spreading gypsum on the respondent’s farm. I agree with the calculations of Williams JA which result in a total amount of $58,693.00 under this head. All up the amounts that I would allow namely:

money thrown away plus interest - $828,750.00;

1998 costs reasonably necessitated with interest - $453,847.09;

1999 costs reasonably necessitated with interest - $341,952.82;

costs of gypsum - $58,693.00;

total - $1,683,242.91

It follows that while I respectfully agree with Williams JA that the amount awarded as damages should be varied, I would order that the judgment at first instance be varied by deleting the amount of $3,768,276.70 and inserting in lieu thereof $1,683,242.91. This is subject to the caveat that there is a possibility of over compensating the respondent by that order, in that the $650,000.00 presumed spent in 1997 may actually include within it some of the $386,253.09 allowed as the 1998 costs. For that reason I would order that the parties have leave to make written submissions within 14 days of publication of the judgment, either as to the agreed correct figure or terms of an order for a further hearing in the trial division limited to that issue of expenditure by the respondent in 1997 and 1998. I would also order that the parties have leave to make submissions as to the costs of and incidental to the appeal.

The appellant’s counter claim

The appellant’s appeal against the dismissal of its counter claim fails on a number of grounds. It simply did not establish in evidence that, had no representations been made to Mr Thompson by Mr Parker about the quality and depth of the farm’s subsoil, it would in fact have taken any more steps than it did, namely conducting the trial in bay 47. The evidence from Mr Gilan was restricted to the assertion in his statement cited in paragraph [102] herein, and nothing else was led from him in chief. Mr Thompson was not asked at all about what else he might have done had those representations not been made to him.

Likewise Mr Thompson was not asked at all about his likely recommendations to Mr Parker had Mr Parker accurately described to him the nature of the farm’s soil. This was left to Mr Gilan’s statement, presented in evidence in chief via exhibit 76, and restricted to the assertion that he would have conducted a further inspection of the soils over the farm. The sheer weight of his other statements also cited in [102] of the reasons herein, and which argue against conducting any soil survey and in favour of conducting a trial, reinforce the conclusion that the appellant did not establish that it would have in fact done any more than it did, if told the true position. That is, it would simply have conducted the same trial.

It follows the appellant has not established that its liability to the respondent in damages is loss or damage which it suffered by any misleading conduct of the respondent. In any event, the inconsistency between what Mr Parker told Mr Thompson about the uniformity of the top soil and what he later said about its performance in the parts more difficult to “wet up”, and the lack of any reason for Mr Parker to understand that the appellant was relying on the first statement alone for its design, would make it unreasonable to hold that Mr Parker’s conduct in making the first statement was misleading or deceptive. It is unnecessary to consider this further in the absence of evidence of damage suffered “by” that asserted contravention of s 52.

MACKENZIE J: I have had the advantage of reading the reasons prepared by Williams JA and Jerrard JA.

With regard to liability, Jerrard JA has comprehensively analysed the issues and reached a conclusion with which I agree.

Damages present a more difficult question. They should be calculated on the basis that whatever is awarded should place the plaintiff in the position in which it would have been but for the commission of the tort. The system actually installed was adequate to perform the function for which it was designed in relation to some parts of the farms but not others. The result was that crops produced fell short of what the evidence established was achievable if the areas in respect of which the deficient performance occurred had been fully productive.

There is a divergence between the methods used by Williams JA and Jerrard JA to calculate damages, although the final sums so derived are within $50,000 of one another. The most critical findings of fact for present purposes are summarised in paragraph [12] of Williams JA’s reasons. Having reviewed the relevant evidence, relating to that issue and to the issue of what the shortfall was with regard to production, I am not prepared to conclude that those findings were not open to the learned trial judge to make. Had the SSDI system been installed without negligence, there would have been a system in place that would have been capable of producing the optimum crop yields. Had difficulties been identified as part of the process of designing the system, they could have been accommodated as part of the process of commissioning the system. The practical consequence was that because the extent of the difficulties was not identified by the appellants, Mr Parker was not given the opportunity to make an informed decision whether or not to go ahead with the system, including any modification necessary to make it fully effective. He therefore proceeded with the system, as installed, that proved inadequate in the belief it would produce the contemplated improved yields.

It follows that the methodology adopted by Williams JA which includes loss of income due to deficiencies in the system and interest on it and costs of attempting to improve the problematical soil, with interest, is an appropriate measure. With regard to loss of income by reason of lower than anticipated crop yields, the learned trial judge did not make any allowance for the ordinary hazards of producing and marketing crops. It is very much a matter of judgment and impression as to what allowance is appropriate in that regard. Given the inherent uncertainty in farming and market fluctuations, I am satisfied that a discount of one-third should be applied to the potential loss. I agree with what has been said by Williams JA as to the period for which losses should be allowed.

With regard to the remaining component of $650,000 allowed by Williams JA, the respondent was left in the position of having the pre-existing system of flood irrigation made inoperable as a result of the process of installing the SSDI system. It was able to use the SSDI system to produce a lesser quantity of crops, but had to expend moneys to supplement its use. In the end, it was replaced, not unreasonably, and the capital cost invested in it became wasted. Balancing these components, in my view a sum equivalent to the cost of the SSDI system is an appropriate award.

For the reasons given by Jerrard JA, the appeal against dismissal of the counterclaim should be dismissed.

I agree with the orders proposed by Williams JA.

Footnotes

1. Perre v Apand Pty Ltd (1999) 198 CLR 180, at [198] and [201] judgment of Gummow J, referring with approval to the approach of Stephens J in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at pp 576-7. ↩

2. Perre v Apand at [32], judgment of Gaudron J. ↩

3. Graham Barclay Oysters Pty Ltd v Ryan (2003) 194 ALR 337 at [244] per Kirby J. ↩

4. AR 321. ↩

5. At AR 46. ↩

6. Judgment at [42]. ↩

7. Judgment at [72]. ↩

8. AR 997. ↩

9. AR 91; and the similar description he gave in cross-examination is at AR 160-162. ↩

10. At AR 162. ↩

11. AR 1173. ↩

12. AR 1174. ↩

13. AR 1174, line 60. ↩