Perre and ORS v Apand Pty Ltd A27/1998 [1999] HCATrans 7 (10 February 1999)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A27 of 1998

B e t w e e n -

FRANK PERRE and OTHERS

Appellants

and

APAND PTY LTD

Respondent

GLEESON CJ

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 10 FEBRUARY 1999, AT 10.18 AM

(Continued from 9/2/99)

Copyright in the High Court of Australia

GLEESON CJ: Yes, Mr Gray.

MR GRAY: May it please the Court, could I just deal with a couple of minor matters from yesterday. Your Honour the Chief Justice inquired as to what happened to potatoes in the Perre lands after the outbreak. The position is that both Rangara Joint Venture and Warruga Farms had potatoes growing. As far as Rangara Joint Venture is concerned, there is simply no plea as to what happened to those potatoes. There is just no evidence and no plea.

As far as Warruga Farms is concerned, the plea is that there was an attempt to sell, but unable to sell, in the markets in Brisbane, Sydney, Melbourne and Adelaide, and that comes from volume 1 of the appeal books, pages 28 through to 29, and in particular the statement of claim, paragraph 53(a).

GLEESON CJ: But is there any claim or evidence that the inability to sell those potatoes or the difficulty in selling them was related to the bacterial wilt?

MR GRAY: No, there is not. I beg your Honour's pardon. No, the claim was that it was due to the wilt in the area, but there was no evidence because the damages matter was not explored.

KIRBY J: What was the defence raised to that plea?

MR GRAY: Do not know and cannot admit.

GLEESON CJ: But, do you mean there was an outstanding unresolved issue in the case as to whether the inability of Warruga to dispose of their potatoes was related to the occurrence of the bacterial wilt on the nearby land.

MR GRAY: Yes.

GLEESON CJ: That is an issue that remains unresolved?

MR GRAY: Unresolved and which will be dealt with on the damages part of the claim.

GLEESON CJ: The corollary of that is that it is an issue that is irrelevant to the liability question.

MR GRAY: Other than that this matter proceeds on the basis of an assumption that the assertions in the statement of claim as to damages are correct. So, on that hypothesis the matter proceeded forward.

GLEESON CJ: Is that so?

MR GRAY: Yes. I will have that reference turned up, if the Court pleases.

GLEESON CJ: Thank you.

CALLINAN J: Was there any request made for the court to assess damages in respect of the claim that failed? To assess damages in any event. I take it there was not.

MR GRAY: No, the issue of damages was left totally to one side, by agreement, and by order of the court. The passage is in volume 11 at page 3809 in the judgment of Justice von Doussa. It is an order of the court:

the following issues be decided in the claims by the 4th to 18th applicants -

that is the Perre interests -

separately from the balance of the issues in their said claims, and at the same time as the claims of the 1st to 3rd applicants, namely - - -

HAYNE J: Where are you reading from, Mr Gray?

MR GRAY: It is the top of 3809.

HAYNE J: Thank you.

MR GRAY: And it is an order his Honour made in regard to separation of issues. And then:

in the event that that the 4th to 18th applicants later establish such of the facts and losses or some of them alleged in paragraphs -

so, in the event that that is established, what is the position on liability?

The other matter, very minor, I wish to just clarify was that in answer to your Honour Justice Gummow, I indicated that there are about 160 growers in South Australia. The evidence was that there were over 150 and that came from Mr van Velsen, volume 10 of the appeal books, page 3650.

GUMMOW J: Thank you.

MR GRAY: The third of the matters that I wish to complete from yesterday was the reference in the judgment of Justice Jacobs in Caltex to what we would describe as being what was a restriction of mobility in that case that was treated as a physical effect. It is 136 CLR, and I wish just to read some discrete passages from pages 601 and a few pages thereafter. At the foot of page 601 Justice Jacobs, in the final paragraph, says:

I come now to Morrison Steamship Co Ltd v Greystoke Castle (Cargo owners). This decision on my view of it supports two presently relevant propositions; first, that a physical effect, short of physical injury, is a kind of injury the risk of which, if it be foreseeable, there may be a duty of care to avoid; and secondly that there will be such a duty where there is physical propinquity of the plaintiff's property to the place where the defendant's act or omission has its physical effect. The cargo was at the place where the careless act or omission of the other ship had its physical effect. The cargo was not physically damaged but there was the physical effect on it of being immobilized in a damaged ship.

There the immobilisation was being effectively put on to, I think, a wharf and held there for a period of time. Then there is the reference to the illustrated instance of the two lorries in which Lord Roche allowed for that principle. In particular, having dealt with the quotation the Court is more familiar with, Justice Jacobs says:

I do not think that Lord Roche's reference to "common adventure" was more than a statement of commercial reality. It introduced no special qualification of law.

We respectfully adopt that position. Then there is a reference to the Spartan Steel Case, and Justice Jacobs identifies him as agreeing with the dissenting conclusion of Lord Justice Edmund Davies. In that judgment Lord Justice Edmund Davies treated Justice Blackburn's comments in Cattle v Stockton as being particular to the case, but I move on.

Over the page at 603 in the second paragraph, in the second sentence:

In the present case the loss suffered by Caltex may be described as a pecuniary or economic loss but that in itself tells us nothing. It is necessary to examine the circumstances out of which the loss arose and whether any, and if so what, duty of care existed on the part of the dredge and Decca towards Caltex.

He then proceeds with a very detailed analysis of the facts, and then I move to the foot of 604 in the last paragraph about five lines in:

The duty of care was that owed to a person whose property was in such physical propinquity to the place where the acts or omissions of the dredge and Decca had their physical effect that a physical effect on the property of that person was foreseeable as the result of such acts or omissions.

GLEESON CJ: Well, perhaps you need to read the first sentence of that paragraph.

MR GRAY: Yes, certainly:

The defendants owed no duty of care to Caltex arising simply from a risk that A.O.R. might by the physical injury to its property be unable to supply refined petroleum products to Caltex under a contract for the supply thereof.

GLEESON CJ: Well, one way you put your case you say that is dead wrong. If the broadest proposition for which you contend is correct, that is simply wrong, is it not?

MR GRAY: Yes, on the broadest proposition, it would be. We put a series of alternative propositions. If the Court pleases, this particular point that I was wishing to identify was the way in which Justice Jacobs treats physical propinquity and, in particular, how partial immobility is treated as being a sufficient physical effect to found a claim in tort. His Honour continues:

The physical effect of Decca's act or omission was at the place where the dredge went as a result of a navigational error, caused by that act or omission. The physical effect of the dredge's act or omission was at the place where it went in its dredging operation. The property of Caltex in physical propinquity to the place where the acts or omissions of the defendants had their physical effect was its crude oil at the refinery and the products thereof so far as the crude oil had been refined.

We would draw the analogy here between the physical effect on the Sparnon's land, having physical effect at a place in physical propinquity.

Though there was no evidence of precisely how much crude oil of Caltex was at the refinery at the time of the incident or of how much refined product was awaiting delivery, there was evidence that some was there. The physical effect on this property of Caltex was the immobilization through the pipeline of the crude oil and the products thereof. The risk of such a physical effect was foreseeable as the result of the act of breaking the pipeline. The damage suffered was the immobilization through the pipeline of the processed crude oil.

And then:

A quantification of the damage was the cost of arranging alternative means of obtaining delivery of the products processed from the crude oil provided that so to do was reasonable.

Then that was done by, as Justice Gibbs the Chief Justice had mentioned, by alternative transport by ship or by road. So the oil, the property, the equivalent of the potato, could be moved. There was a restricting in mobility. It could not go through the desired route of the pipeline, and the conclusion is that the impairment of mobility, but not total immobility, was a physical effect - it was treated for the purposes of tort as being physical injury.

Now, by analogy, we say here that at the time following harvest the potatoes took on the form of personalty; they were the equivalent of the oil at the refinery; there was an impairment in their mobility, that is, they could not be moved to Western Australia and as a result one has a case, we would say, on that analogy on all fours. The reason why the case at bar is a fortiori is that there could be no movement to Western Australia - the total restriction in that direction. In the case of the Caltex Oil, the oil could reach its destination and market. So, on the question of is this a case of pure economic loss, we say, no, for the reasons that Justice Jacobs analyses in the Caltex Oil Case.

If the Court pleases, could I move from there to the judgment of Lord Justice Robert Goff in Leigh and Sillivan Ltd (1985) 1 QB that the Court referred to yesterday. That case raised the issue that confronts in part this Court. In particular, at the foot of page 391G and H Lord Justice Robert Goff identified the Anns test. If I could just start there in the second sentence:

When Lord Wilberforce formulated his now celebrated statement of principle in the Anns case, he referred to Weller's case with apparent approval; but his formulation of principle nevertheless requires us to reconsider our past attitudes, especially in cases of economic loss (on which he expressly abstained from comment), and to search for a reason of principle or policy which can justify a denial of recovery when the defendant has inflicted foreseeable damage on the plaintiff.

Over the page his Honour then dealt with the first of the tests posed by Lord Wilberforce and found that that was satisfied, and then he came to the second. At paragraph C at the end of the first paragraph:

But Lord Wilberforce's second question, which is whether there are any considerations which ought to negative, or reduce or limit, the scope of the duty of care which prima facie arises, is far more difficult to answer. The difficulty arises from the fact that we are faced with all the problems of principle and policy which have arisen in cases of liability in negligence for purely economic loss.

So, effectively acknowledging that that decision was was not to be made in a vacuum, that there was a series of established matters.

Then his Lordship proceeds and he starts with Donoghue v Stevenson and then at the top of page 393 he identifies really a precursor to Cattle. That was Justice Blackburn, as he then was, his statement that a purist approach would not differentiate between economic loss and other loss because such a distinction, with respect, is arbitrary. He then proceeds to identify of course the rule from Cattle v Stockton and the other cases - that is the exclusionary rule - that is an arbitrary rule and an arbitrary rule that is against the purist approach. So, from the start, one sees a policy decision being taken last century and against a recognition that it does not address all cases or do justice in all cases. And then it was, as his Lordship notes, articulate a number of cases.

GUMMOW J: Well he points out, significantly in a way, the existence of economic torts involving intention.

MR GRAY: Yes, and he deals with the two rationales that lay behind that and the first identifies on page 393 paragraph D as the "floodgates" fear, which his comment really is perhaps not of substance, and then he deals with the one that he thinks is based on good sense, and that is the interference with ordinary commercial activity.

GLEESON CJ: And the aspect that Justice Gummow just mentioned, the point being that you would be driving a horse and buggy through large areas of legal principle if you allowed a general recovery for foreseeable economic harm.

MR GRAY: Yes, in terms of the, what had become by then, established precedent, yes. But then at the foot of he page he makes, with respect, we would say, quite an important distinction, in paragraph H:

But a striking result of this line of thought is that criticism of the absence of recovery for economic loss tends to be concentrated on those cases where liability has in fact been caused to person or property, though not to the person or property of the plaintiff himself.

And so one can see two different classes: one where there has been, in fact, some damage to property or person, but not the claimant; and one where there has been no such, as it were, intermediate damage. Of course, the case at bar falls into the former. His Lordship then traces the developments since, which are, effectively, the development of exceptions to the rule, and he starts with Greystoke as being seen to be the first of those. Then he traces through Hedley Byrne v Heller, Rivtow, then the series of building cases, Dutton, Sparham, Anns and then the New Zealand case of Bowen, and then he comes to Caltex, and so, by this time, one can see there has developed, over several decades, a recognition that not only there needs to be exceptions to the rule, but that being given effect to by the courts in a number of jurisdictions.

GLEESON CJ: At line C on page 395 he says:

there has been a reaffirmation of the widely accepted view that there cannot be a general right of recovery for economic loss on the simple basis of proximity -

MR GRAY: Yes, and that is true, that in those cases one finds a reaffirmation of general principle and then the - - -

GLEESON CJ: What he seems to be saying is that the general principle remains, but the courts are ready to find exceptions to it.

MR GRAY: Yes, and that is the way it has developed and in the process he identifies Ross & Caunters, which was one of the disappointed legatee cases in the Junior Books Ltd Case. Now, since that time, of course, there have been further inroads, Hill v Van Erp, in this Court; Husky Oil in the Canadian Court; the Inglewood Case in New Zealand. So, the body of case law as it develops continues to recognise the need for and the development of exceptions to the exclusionary rule, and the reason for that is because the exclusionary rule is too harsh; it causes injustice, and the point must come when the exceptions built up to such a point that one has to question the starting point - does the exclusionary rule remain an appropriate rule. In that process, of course, there is reference to Caltex Oil and - - -

GLEESON CJ: And a criticism of the judgment of Justice Jacobs on the bottom of 395 and the top of 396.

MR GRAY: Yes; in particular, Lord Justice Robert Goff does have that criticism in regard to, what he calls, how this should transcend. When we come to Candlewood, Candlewood approves Justice Jacobs. But, if the Court pleases, undoubtedly Lord Justice Robert Goff finds himself in disagreement with the reasoning of the High Court, and a number of the judges in the High Court in Caltex Oil. He goes through that in - - -

GLEESON CJ: He goes further. He says the very fact that they could not themselves agree on what the principle was is evidence that there is no principle.

MR GRAY: Yes, and it is plain that they arrived at their conclusion by different strands of reasoning. Having undergone that historical analysis of case.....reasoning, at 396 at the end of the first paragraph, paragraph B to C:

Speaking for myself, I can see nothing wrong in asserting that, in the present state of the law, there is no generalised principle upon which liability will be imposed in negligence for purely economic loss; that such liability will only be imposed when there are special circumstances which, on an identifiable principle, justify recovery; and further that, in those cases in which recovery is allowed, the principle underlying recovery need not be the same.

He then comes to consider the particular circumstances. Ultimately he finds against the claimant, but on factual grounds rather than grounds of principle.

All of that, with respect, is a recognition of problems with the starting point with the exclusionary rule. We would not be having this debate over decades with the cases coming forward time and time again, unless there was a problem with the exclusionary rule, and the answer is that it is too harsh.

McHUGH J: Perhaps the solution, or perhaps the problem is to look at this area in terms of the type of damage. We do it in respect of nervous shock; we do it in respect of economic loss, yet, in each case there is an invasion of an interest, or there may be an invasion of an interest. Perhaps a better approach is to abandon the exclusionary rule, having regard to the many cases that have been held to be exceptions, and say there is no real distinction except it may be much more difficult in an economic loss case to prove a duty by reason of various circumstances.

MR GRAY: Yes. Well, we would say plainly the exclusionary rule and the exceptions to it are causing so many problems that one has to say now, "Have the exceptions overtaken the rule?". And perhaps not yet, but plainly there is something wrong with the foundation block.

Another way of approaching it is to take up, or perhaps we could describe it as the Caparo or Anns, whether it be a two test or three test I think matters not for the purposes of this proposition, and that is that if there is foreseeability of the risk of injury, then a prima facie duty arises. All of the matters that have been discussed in these cases, whether it be Leigh and Sillivan, whether it be Candlewood, whether it be Caltex - - -

HAYNE J: Again, Mr Gray, you are dropping your voice, I cannot hear you.

MR GRAY: I beg your Honour's pardon. All of these problems can be overcome if one starts with the Anns or Caparo approach, that is, ask the question, "Is there reasonable foreseeability?". If there is, there is a prima facie duty. The next question becomes, "Are there reasons to negate that duty?". Now, the types of policy arguments that are used in the various cases are all open for debate at that point. But one starts out with the clear proposition that the entire community, whatever that means, can understand that if there is a reasonable foreseeability, then prima facie there is a duty, and that is a clear unequivocal statement. All the other concerns and the weight to be given to them and the balance to be struck can all be struck under the second limb of the Lord Wilberforce test or the second and third limbs of the Caparo test.

McHUGH J: That really means overruling Hayman's Case, does it not, because Hayman rejected Anns?

MR GRAY: Yes.

KIRBY J: It rejected Anns but Caparo was a later development.

MR GRAY: Yes, and - - -

KIRBY J: And Caparo poses a three-fold step. You have to first, I think, find neighbourhood or proximity, and then you find foreseeability, and then you have to look at the third stage of disqualifying factors.

MR GRAY: Yes. The Caparo test, that three-stage test, we would respectfully submit, allow a circumstance where there would be justice done in every case, and I would not - - -

KIRBY J: Does Caparo stand as the law in England now?

MR GRAY: Yes.

KIRBY J: Does it stand in New Zealand as the law?

MR GRAY: It would appear that Anns - - -

KIRBY J: Or had New Zealand adhered to Anns?

MR GRAY: No, the most recent decision of Inglewood would suggest that New Zealand adheres to Anns and Canada, of course, adheres to Anns and it adheres to Anns in this area of pure economic loss.

GLEESON CJ: Could you just remind us what was actually decided in Caparo. It concerned the liability of auditors, did it not, to investors?

MR GRAY: Yes, it did.

GUMMOW J: It is a strike-out application like many of these English decisions. We never know what a trial will reveal.

MR GRAY: But effectively, Caparo is at all fours with Esanda in this Court, that there was a finding of no liability in the auditors, no duty.

GLEESON CJ: No duty in auditors to investors?

MR GRAY: To investors.

GLEESON CJ: Well, why not?

MR GRAY: I just cannot recall the precise detail but it is on all fours with Esanda and Hercules in Canada.

GLEESON CJ: I mean, that is about as plain a case as you can think, is it not, of foreseeable economic harm resulting from negligence?

MR GRAY: Yes, and one where that has the possibility of a duty and the duty is negatived by other factors and the other - - -

HAYNE J: Do those other factors include the notion that liability will be to too wide or too large a class of persons?

MR GRAY: Yes, it does.

HAYNE J: If that is so, then is not the debate only a debate about the order in which questions are asked or the stage at which the question is asked? In the end, are we not simply bandying words? If, once you acknowledge that there is to be a limitation which is a limitation founded in the conclusion liability is to too wide a class, what does it matter when you ask that question?

MR GRAY: If your Honour pleases, our propositions do involve what has been called a consideration of controlled mechanisms and, by definition, that raises the point that your Honour has put. The difference between Anns and Caparo, as we see it, is that after stage one of Anns one comes out with a prima facie duty and in Caparo one does not come to that stage. One has foreseeability and then one considers other factors and the question from a prima facie position would, of course, be very, very material in a particular case before a trial judge, for example.

HAYNE J: Why? If a relevant consideration is, is the duty too wide, why does it matter that there is a prima facie conclusion?

MR GRAY: It allows the trial judge, for example, to say that, "There is nothing before me that negatives that", which is, with respect, an easier question to answer than to say, "Is there a duty?".

HAYNE J: Then is the point that you make a point about proof or is it a point of principle?

MR GRAY: No, we would say, with respect, it is a point of principle because - - -

HAYNE J: Then if the point is one of principle, what does it matter when you ask the question?

MR GRAY: Well, in the ultimate sense it may not.

GAUDRON J: For that matter, may I say, how do you elevate what sounds like a very pragmatic consideration, namely, too great a liability to too great a number of people, to a question of principle? It has always seemed to be that that is just pure pragmatism. I mean, it is a factor that has undoubtedly been influential but it is a statement of a factor which does not seem to relate to the law in this area.

MR GRAY: Could I answer that in this way, that the matter of principle is that the courts will have regard to controlling factors or policy - - -

GAUDRON J: But why is not the question of principle simply whether the plaintiff and defendant are neighbours?

MR GRAY: Yes, well - - -

GLEESON CJ: What you have to be careful of is erecting a principle that does not mock a whole lot of other established principles, the problem that Lord Justice Goff referred to. For example, a whole lot of ink has been spilled on the question of the necessity for reliance in relation to liability for negligent misstatements. What has reliance to do with it if there is foreseeable economic loss caused to somebody?

MR GRAY: Again, we respectfully agree with that. The reason why there has been the debate about reliance as a necessary step in regard to the assertion of that cause of action is because there has been an attempt to get around the exclusionary rule and the court has been driven to look for reasons that justify what is seen to be a very fair result and, as a result, one gets the creation of those doctrines. Interesting enough, Lord Justice Robert Goff describes the damage in this case as not being purely economic loss. He, at page 390, paragraph E, says:

The loss, which is the subject matter of the buyer's claim against the shipowner, is therefore not merely a purely economic loss -

So, there is really a precursor, we would say, to the reasoning of Justice Gaudron in Hill v Van Erp. He has looked behind the economic loss to see what has given rise to it. It is the same approach Justice Jacobs has taken. So, these are all attempts, with respect, by courts to militate against the rigours of an unfair exclusionary rule.

To put it another way, once you have an exclusionary rule that is arbitrary in nature and you allow for exceptions to it, immediately you completely undermine the exclusionary rule. The moment the exception is allowed, there is uncertainty and the exceptions build.

GLEESON CJ: The fear seems to be that you also undermine a lot of other rules too.

MR GRAY: Yes.

GAUDRON J: Negligence has necessarily done that right from its inception.

MR GRAY: Yes. That is inevitably a consideration that must face a court when it is in a developing area of the law. There is always a striving for the guiding principle that can be viewed in its application and, as the common law is developing in an area, there is always the risk that that principle might cut across another.

GLEESON CJ: Speaking purely for myself, I thought you made a very effective point at the commencement of your argument yesterday when you drew attention to those internal documents in which Apand were in effect worrying about the possible consequences for people like your clients of what they were proposing to do. Is there any case in which a duty of care has been found in the recognition by the alleged tortfeasor itself of a responsibility to others?

MR GRAY: I will take that on notice for a few moments.

GLEESON CJ: You can come back to that.

HAYNE J: May it not in fact lie behind the knowing reliance cases, those cases where reliance is not enough but the defendant knew that there would be reliance upon what it did, said or omitted to do?

MR GRAY: Indeed. The other case that sprang to mind was the matter that your Honour Justice McHugh mentioned yesterday of the American fishermen cases where there has been the pollution which then led to the destruction of the fishing reserve.

HAYNE J: But may it not then direct attention to the fact that if it is legitimate to impose any control mechanism, as to which you say no, and the control mechanism is one that is directed to limiting the class of persons who may sue, that the mechanism may focus upon those whom the defendant either actually knew or had within its contemplation - that is, that the degree of specificity of identification must be the greater in cases where the injury is not to tangible property?

MR GRAY: The answer to that is yes, that is a control mechanism that could be utilised and, in fact, would appear to lie behind the reasoning of Justice Mason, for example, in Caltex. It is that very line of reasoning, of course, that the English courts in Candlewood found to be unsatisfactory. That was their point of difference between Chief Justice Gibson and Justice Mason in Caltex, and those cases.

GAUDRON J: I am wondering if the principle behind it all is not something akin to that which underlies the principle of estoppel.

MR GRAY: Yes.

GAUDRON J: The plaintiff assumes something. In this case, assumes that nobody is going to do anything which might lead to the spread of bacterial wilt in his potato crops. The assumption is reasonable in circumstances, whatever that means, but that will depend on the circumstances. Thirdly, the defendant knew or ought to have known that such an assumption would be made, or was likely to be made, and therefore came under a duty, in essence, to give effect to it or, in other cases, to warn and so on, in much the same way as estoppel operates.

MR GRAY: Yes, if equity was placed with these problems that is the - - -

GAUDRON J: I do not know that estoppel is purely a matter of equity any more.

MR GRAY: No, but that approach, whether it be at common law or if one was looking at the principles of equity, is an example of how the problem could well be addressed. One has no difficulty in looking at this case and answering each of those questions, each of the steps along the way.

GAUDRON J: But if one did adopt that approach I would think it simply defined who are neighbours.

MR GRAY: Yes, it would be the touchstone of it.

KIRBY J: Leave aside what Justice Jacobs said in Caltex, what is the case that you say comes closest to this case which a court has upheld duty of care and the right to recover for economic loss, or is this case avowedly breaking new ground?

MR GRAY: We would say it would be within the dicta of Justice Widgery in Weller's Case when he allowed for a claim by owners of cattle in the area who would be affected by the quarantine.

GAUDRON J: And are you not close to Mengel, in which case I think negligence was not pursued, but there were statements in Mengel that an action could have been framed in negligence.

MR GRAY: Yes, but as your Honour said, negligence was not pursued. Undoubtedly Caltex is the closest, and when one analyses the facts of Caltex they are extremely close, indeed.

The Greystoke decision, again, we would say, would fall within that principle. There was a case of the uninjured cargo owned by the third party and the court allowed there the recovery against the negligent ship. They are some that spring to mind immediately.

KIRBY J: Has the United States adopted and followed the same principle in relation to pure economic loss and have there been any changes in that country in recent years, given the economic arguments that are said to stand against the expanding the principle of recovery?

MR GRAY: There is diverse approach in the United States in various jurisdictions but in Caltex Chief Justice Gibbs referred to one of the American decisions. The decision is Union Oil v Oppen [1974] USCA9 260; 501 F 2d 558 and in Caltex, Justice Gibbs at page 553 cited that with approval:

The United States Court of Appeals, Ninth Circuit, has also rejected the view that damages for loss which is purely economic cannot be recovered where the negligence consisted in acts rather than in words, and has allowed fishermen to recover damages for economic loss sustained when fishing grounds were affected by a spill of oil.

KIRBY J: But assume in the fishing village the newsagent said, "Because of the spill of oil this has destroyed the fishermen and that has had a run-on effect to me". I mean, by what principle would one say, "No, the newsagent cannot recover"? You would have to test the proposition against the principle.

MR GRAY: Yes.

GLEESON CJ: Is not - my memory may be playing tricks on me but I though that the example that really worried them in North America was what they called the blocking cases where somebody's negligence in relation to an internal waterway could cause a great hold-up of vessels, all of whom would suffer and, perhaps in turn, cause economic loss.

MR GRAY: Yes. That very example is one of the examples, I think, being considered in the Union Oil Case. They cite a series of such examples of the ongoing - what has been called the "ripple effect". That particular decision does draw together quite a lot of the American jurisprudence and it does.....to a Scottish case, for example, where economic recovery was allowed.

GLEESON CJ: Yes, well the blocking of vessels in a canal is a pretty good example of immobilisation of property, is it not?

MR GRAY: Yes.

KIRBY J: Do we have the citation of that case?

MR GRAY: Union Oil v Oppen?

KIRBY J: That is the one you just gave us?

MR GRAY: Yes, and we will provide a copy to the Court on the adjournment.

KIRBY J: It is a long while ago. It is a quarter of a century ago.

MR GRAY: Yes, 1974 and there have been - - -

McHUGH J: It was followed in one of the - is Oppen the Louisiana case - - -

MR GRAY: No, the Louisiana case is 1985. The reference to that is [1985] USCA5 200; 752 F 2d 1019. That was a case where the majority of the court rejected in particular circumstances the claim that the principles in Union Oil were, as we understand it, continued. But I cannot claim our researches were exhaustive in that regard.

The Court also raised the question of the attitude of the non-common law jurisdictions. We did make some investigations in that regard. On our researches there is no equivalent concept to pure economic loss that is discussed under the Codes. They have a differing approach according to the jurisdiction. By and large they protect certain interests in certain circumstances and when the interest is identified, then often what are called business losses simply follow and there is no suggestion of any exclusionary rule. So there the Code systems on our investigations appear to approach the matter quite differently, and as such no great assistance can be obtained from that.

Whilst just dealing with perhaps recent authorities, in New Zealand the most recent authority is Invercargill City Council v Hamlin [1996] UKPC 56; (1996) 1 AC 624. In Canada the two most recent cases of perhaps relevance are Hercules 146 DLR (4th) 577, which is the auditors case, and the Husky Oil Operations Case 153 DLR (4th) 385. Hercules denied recovery, adopting an Anns approach, and Husky Oil allowed recovery, again adopting an Anns approach.

GUMMOW J: Hercules was decided two months after Esanda in this Court.

MR GRAY: Yes. There is a great similarity in reasoning and approach in Hercules as in Esanda. Hercules draws very heavily on Caparo.

KIRBY J: Is there some hard-working academic who has pulled all these things together and, as it were, taken an overview of where the common law in these jurisdictions you have been mentioning has come from, is and is going?

MR GRAY: Not as yet. The Court will find, for example, in the Law Quarterly Case notes that the academics are starting to deal with each of these jurisprudential changes, but nobody yet has pulled all the threads together. There are two articles that discuss the Canadian position: Duncan Wallace, Contractual Relational Loss in Canada 114 Law Quarterly Review 370 and Fleming (1993) 1 Tort Law Review 68. That is particularly in regard to the Canadian aspect of the matters.

KIRBY J: Did Professor Fleming, who knew so much about Australian law, say anything as to the directions in which the common law was going or should go or not?

MR GRAY: Yes, they have said that the court is yet to decide what it will do with Caltex.

GLEESON CJ: Could you repeat that.

MR GRAY: Professor Fleming suggested that the Australian courts had yet to decide what they would do with Caltex in the light of the criticisms elsewhere. San Sabastian in this Court gave specific approval to Caltex, and other cases have cited it in the High Court since, and we have listed those in our outline of argument, but San Sabastian is probably the most explicit treatment of it.

Now, if the Court pleases, I did wish to deal with the notice of contention and I did wish to finish close to the hour if I could. I have dealt with the Greystoke authority, whilst dealing with Lord Robert Goff's submissions, and we say the Greystoke Case, as understood by his Honour and as applied in Caltex, is an authority directly in our favour. Candlewood, we submit, is wrongly decided and is distinguishable and is not authority in Australia. Candlewood, of course, went straight from a single judge to the Privy Council.

KIRBY J: But it is a decision of the Privy Council at a time when the Privy Council had authority as part of the Australian judicature. Why would it not be authority in Australia?

GAUDRON J: At a time when this Court had decided it was not bound by the Privy Council decisions.

MR GRAY: And, in particular, where this Court has since reaffirmed Caltex, certainly in dicta, on a number of occasions. But, more importantly, at the level of principle, Candlewood, we say, is treating the Cattle v Stockton Waterworks Co and Simpson principles as black letter law and is approaching the matter through Anns and saying that the past case law is a powerful factor against recognising duty and the exceptional case must be shown, and we say that that is not the correct approach.

GLEESON CJ: I think the Supreme Court of New South Wales has actually had to face up to the question of whether it is bound by Candlewood or Caltex.

MR GRAY: Yes.

GLEESON CJ: The case that Justice McHugh mentioned yesterday which, as a matter of interest, came at first instance before Justice Yeldham, was the case arising out of the second incident involving a damage to this pipeline by the same company that operated the dredge. Both at first instance and in the Court of Appeal, as I recollect it, they decided they were bound by Caltex, not by Candlewood.

MR GRAY: Yes.

GLEESON CJ: But we, if we were to get into that area, would have to consider the merits of the criticism, the very specific criticisms that have been made of Caltex, for example, by Lord Justice Goff.

MR GRAY: Yes, and, in particular, in Candlewood itself where the Court will find Justice Jacobs was the one judge approved of, and then one goes to the appeal decision from Justice Goff, where they reject his views in the House of Lords.

Now, if the Court pleases, I feel as though I am rather in a labyrinth and it is difficult to get out of in this area because whichever jurisdiction one goes to, one is finding competing authorities and no clear guidance. I would like to leave that topic, if I could, and move the notice of contention.

If the Court pleases, I would hope to be short in regard to this topic. We have a point that we have articulated that this is not a proper matter for a notice of contention. What happened following Justice von Doussa's joint hearing was that the Perre interests appealed, so did Apand, and Apand appealed against the finding in favour of Sparnon. When the case came on for hearing at the Appeal Court there was an oddity in that the Sparnons did not appear on the appeal. The court proceeded to hear both appeals. The court proceeded to dismiss both appeals. So that the Apand appeal against the Sparnon finding was dismissed by the intermediate court, and that is dealt with in the reasons.

At the same time as putting the appeal, the Apand interests put in a notice of contention before the intermediate court, but the substantive matters between Apand and Sparnon before that court and the matters raised or that remain for issue on the notice of contention are the very matters that were the subject of the dismissal of their appeal.

We say that what is happening here is that by this technique, in substance, Apand is seeking to pursue an appeal from the intermediate court on the rejection of their appeal and they need special leave on that, and they cannot avoid that by simply a notice of contention. In a sense, they want to leave the dismissal of their appeal to the intermediate court standing but seek to undermine it by way of a notice of contention in this matter. Now, we are talking about the one action - - -

GUMMOW J: Yes, I was looking at that. The ninth statement of claim that we have at volume 1, in fact, is a statement of claim with the whole miscellany of claimants.

MR GRAY: Yes, it is, and so, what we have is a finding of dismissal of appeal by the superior intermediate court of the Apand claims. They have not appealed that but they seek to collaterally challenge it by way of a notice of contention. Now, we would say, with respect, that is not the intention of the notice of contention procedure. It was not designed to advance the matter in that way because, by that technique, they can challenge, in effect, the appeal without obtaining special leave. When one looks at the grounds being agitated, they are purely factual, we would say, or at best, mixed fact and law, and that this Court should reject the notice of contention.

It is not as though my learned friends are not on notice of this because when the notice of contention was received, we wrote to draw to their attention what we said was the problem. At the time the security costs was argued before Justice Gaudron the issue was ventilated there but did not need to be addressed or resolved, but it was certainly raised. So, at all times, we have put the Apand interest on notice that we object to their procedure. It is not appropriate.

GAUDRON J: The question really boils down to this, does it, in terms of Order 70 rule 6(5), whether by their notice of contention they seek a discharge or variation of a part of the judgment actually pronounced?

MR GRAY: Yes. In our submission, in substance, they are seeking to - - -

GAUDRON J: Well, do they? Judgment was pronounced, was it?

MR GRAY: Yes.

GAUDRON J: Dismissing their cross-appeal?

MR GRAY: No, dismissing their appeal.

GAUDRON J: Dismissing their appeal. There were two appeals but it was the one matter in this.

MR GRAY: Yes, two notices of appeal.

GAUDRON J: But the one matter.

MR GRAY: But the one matter. We do not want to advance the matter beyond that and we have articulated the argument that we put in our outline.

GUMMOW J: We have an order at 3909 in volume 11 from the Full Court. That is in your clients' appeal. Have we any other order disposing of the other appeal?

MR GRAY: I do not know that it has been drawn up but it is referred to explicitly in the intermediate court's reasons. If the Court as 80 FCR 34D to E:

This ground of appeal must also fail. Apand's appeal should be dismissed with costs.

That follows a section of the judgment that deals with the very matters that Apand wishes to agitate in this Court. So, in our respectful submission, the notice of contention is not an appropriate vehicle to raise these points and it is incumbent on Apand - - -

GUMMOW J: There would be an absence of parties, would there not?

MR GRAY: At the - - -

GUMMOW J: Now.

MR GRAY: Yes. The Sparnons are not here. What is sought to be done is to challenge findings that Justice von Doussa made and the intermediate court upheld against Sparnon.

HAYNE J: It wants conflicting findings in the one action.

MR GRAY: Yes, and that is our point and why the notice of contention was never designed to deal with this situation, and my learned friends have been on notice of this from the start and have turned their face against taking any other procedure.

KIRBY J: What do you say is the correct procedure that would tender the issue to the Court, because they surely cannot be left without an opportunity to - - -

MR GRAY: No, they should seek special leave to appeal.

KIRBY J: But that seems odd, given that they won the case. It would be a contingent special leave, would it? In the event that the appeal succeeded, they sought special leave to appeal against the order, though the order is in their favour. That seems odd.

MR GRAY: No, they lost their appeal in the intermediate court.

HAYNE J: They would want leave against Sparnon, would they not, is the point you make? That is either good or bad, but that is the point you make.

MR GRAY: Yes, the substance of what they are doing is to challenge the Sparnon findings and they need leave against Sparnon. The court is available to them. They were told of our complaint when the notice came in and they have chosen to do nothing about it. Our position is that we say that, for the reasons that have been just discussed, this is an inappropriate way to handle it and is wrong. They had their alternative procedure. It was a matter they could have followed through.

GAUDRON J: You have to go further, do you not? You have to say it is simply not within the rules, because it seems to vary a portion of the judgment actually pronounced. It is not just the "appeal dismissed with costs" part it challenges, but the Full Court's upholding of Justice von Doussa's reasons with respect to negligence.

MR GRAY: Yes, so that is our preliminary point. If the Court is against that then we would wish to make some submissions in regard to the mixed matters of fact and law they seek to agitate. In a sense, we would far prefer to be responding to that because it is, in substance, a matter where they are appealing.

GLEESON CJ: It may be convenient to hear what you have to say further in relation to this matter in reply. We will see what Mr Garling has to say about this point.

MR GRAY: If the Court pleases. The only remaining matter that I wanted to raise was that your Honour Justice Kirby raised the issue about have we tied policy considerations to cases, providing a list of cases that have raised particular policy considerations in these matters. I have a document that does that, and we provide that, if I might, at the adjournment. It simply is a list of policy considerations the courts have considered and identifies where they have been raised. It is not exhaustive but, on the other hand, it does provide a point of reference for a number of these matters.

GUMMOW J: You also provided us with a collection of regulations from Western Australia, the Plant Diseases Regulations. There are about a dozen of them.

MR GRAY: Could I perhaps speak to that then very briefly.

GUMMOW J: Subject to what may be said, perhaps we could have a short note to explain to us how all that works.

MR GRAY: I can provide a short index. There are very few pages the Court needs to consider. I will have that prepared and also provided after lunch. If the Court pleases, they are the submissions for the appellants.

GLEESON CJ: Thank you, Mr Gray. Mr Garling.

MR GARLING: If the Court pleases. Your Honours, we submit that the trial judge and the Full Court correctly found that there was no duty owing. Your Honours have been reminded this morning - I do not need to take your Honours back to it - of the specific order made by the trial judge with respect to this claim. That was at page 3809 of volume 11 where his Honour decided to hear the claim in effect as to liability on the assumption that certain matters of damage were made out.

Your Honours need, with respect, to concentrate with some care, in our respectful submission, on the difference in the appellants' positions as between themselves. A convenient commencing point for that analysis is in the judgment of the trial judge in volume 11 at pages 3813 and 3814. Immediately preceding his Honour's summary on that page is a setting out by his Honour of the relevant paragraphs in the pleading as to damage. His Honour then says at page 3813:

Each of the heads of loss alleged by the three groups in the Perre interests is for purely economic loss.

It would appear, your Honours, that the reason that his Honour said there were three groups and not four was the concession at trial that if the individuals recovered, then the tenant did not and so on, which is referred to in our submissions, but for present purposes it does not matter whether one has three or four groups.

None of the groups or individual members suffered direct injury to their property. None of their properties became infected with bacterial wilt. None of their properties were quarantined or subject to any statutory or other restriction against growing or selling potatoes or any other crop in South Australia or elsewhere, save for the export of potatoes to Western Australia. All the losses claimed are based on the inability of Warruga Farms -

that is one of the appellants -

to continue exporting potatoes to the Western Australian market. Warruga Farms was the actual exporter. Rangara Joint Venture, although a potato grower, lost the benefit of the contract it had with Warruga Farms to sell to Warruga Farms a substantial part of its crop. Perre's Vineyards Pty Ltd was neither an exporter, nor a grower of potatoes. It benefited under a tenancy at will from the fact that Warruga Farms conducted a potato packing business. It was therefore in a similar position to, say, the interstate carriers who transported Warruga Farms' potatoes to Western Australia who also benefited under contracts, the continuance of which depended on the export of potatoes by Warruga Farms.

Your Honours, we say that is a convenient starting point for an analysis of the nature of the claims being made. The Full Court of the Federal Court in the reported decision at pages 43 and 44 dealt with a similar issue, perhaps in slightly different detail. May I invite your Honours' attention to that, commencing just under paragraph G at page 43. The sentence commences just two lines above the bullet point:

Here, as appears from the statement of claim on behalf of each of the Perre interest, the claims as alleged were as follows:

Warruga Farms, being unable to export to Western Australia potatoes grown by it (or acquired by it from the Rangara Joint Venture) suffered a loss of income, an alleged diminution in the value of its property, and ultimately was unable to refinance or procure further finance to develop a different farming program with a different crop. The expense incurred in its endeavours to mitigate its loss of income is also claimed.

GLEESON CJ: What is the property there referred to at the bottom of page 43?

MR GARLING: Potatoes, your Honour.

GLEESON CJ: Thank you.

MR GARLING: And, perhaps, conceivably, a leasehold interest in the packing facility, the processing facility because it leased it. It was a tenant at will of Perre Vineyards, of the processing facility so, conceivably, that could cover as well its leasehold interest. Three lines down on 44, the Full Court says:

There is not the same relationship between that sort of claim for economic loss and the immediate damage to the Sparnon's property as existed in the Caltex Oil case.

It says:

Warruga Farms was still entitled to sell its potatoes; it was still entitled to grow potatoes. Its loss flows only from its market for the sale of its potatoes being confined and its exclusion from an apparently remunerative market. But the character of that claimed loss.....has no special feature which in logic distinguishes it from other forms of indirect economic disadvantage which were, or may have been, suffered by many other potato growers whose farms were near to a grower whose farm, through Apand's negligence, became infected with bacterial wilt.

The next bullet point, your Honours, deals with Perre Vineyards:

Perre Vineyards lost its captive tenant at will and Warruga Farms was unable to procure a suitable alternate tenant thereby suffering loss of income.

Then the court comments with respect to that and then lastly between D and E, the next bullet point, the Full Court says:

The Rangara Joint Venture was no longer able to supply its potatoes to Warruga Farms at the price at which Warruga Farms had previously been paying. It, and Warruga Farms, were able to continue to sell potatoes but did not have as ready a market. It thereby suffered a loss of income. Ultimately, that loss of income is alleged to have resulted in such a reduced cash flow that other resources were used to reduce indebtedness generally. In addition, the principals of the Rangara Joint Venture suffered loss on the sale of equipment. The very detail of that claim illustrates the potential, if the claim is to succeed, for the liability of Apand to be to a wide number of persons and for unlimited amounts.

Your Honours, they are the descriptions in the judgments of the differences in the position and those descriptions appear to be founded in the ninth statement of claim, paragraphs 52 through to 56, 58 and 68 which are to be found variously between pages 28 and 37 of volume 1 of the appeal book.

GAUDRON J: But again, does not the point of what you are saying seem to link, to focus for the purposes of proximity or whatever the control mechanism is, on the event and its consequences, whereas the notion as it has developed is as to a relationship between the plaintiff and the defendant?

MR GARLING: Yes, your Honour, but one needs to note the different positions to see whether, in accordance with principle to date, their claims would be allowed; and to see whether, in accordance with principle, there is anything to differentiate these individuals or companies or entities from other entities that may suffer loss. Because otherwise, unless one - - -

GAUDRON J: Well, the land used in or for their income producing activities was adjacent to the land on to which Apand released bacterial wilt in circumstances in which it knew that there were other growers in the area, and which it also knew that potato growers exported to Western Australia and could suffer loss if there was bacterial wilt in the vicinity of their property.

MR GARLING: Yes, the answer to your Honour's point is multi-factorial - - -

GAUDRON J: That is always a good start, Mr Garling.

MR GARLING: - - -and I did hope to develop a complete answer. There are many features to it, your Honour, and I did hope to develop a complete answer over time. But it may be convenient if I just invite your Honours' immediate attention, since your Honour has raised it, to this finding of the trial judge at 3818 of volume 11. Perhaps it is convenient to give your Honours the background if your Honours look at the previous page where his Honour is considering the question as between Warruga Farms and Apand. His Honour considered the question separately with the various appellants in the three classes he had earlier identified, and at the top of 3818 his Honour says this:

The close geographic proximity of the two properties (3-31/2 kms) does not provide a satisfactory control mechanism either. That is a distance which, on the evidence, was sufficient for there to be no risk of the disease moving from the Sparnon property to Warruga Farms - - -

GUMMOW J: But that misses the point. The point is this Western Australian law. This is a criticism of the reasoning behind the Western Australian law, is it not? The Western Australian law operated and you are the one knew it operated too.

MR GARLING: Yes, your Honour, but I took from her Honour's question that one of the issues was the relevance of physical propinquity and I was - - -

GLEESON CJ: Well, just to descend to detail for a moment, what is the 3 to 31/2 kilometres a reference to?

MR GARLING: That is the measurement of the distance between Sparnon and Perre.

GLEESON CJ: So they are not adjacent?

MR GARLING: They are not immediately adjacent.

GAUDRON J: Did I not read somewhere that one abuts the other?

MR GARLING: Well, that may be with respect to the Perres amongst themselves, your Honour, because they had adjacent land one to the other, but I do not believe that there would be a reference between Perre and Sparnon to abuttal.

GLEESON CJ: So whilst there might have been Donoghue v Stevenson neighbours, they were not next door neighbours?

MR GARLING: That is so, your Honour, and they were not neighbours in the sense that there was any risk of the bacterial wilt travelling from one property to the other, but for an external additional link, as his Honour identifies - - -

GUMMOW J: The wilt did not travel; that is not their the complaint.

GAUDRON J: But, in any event, if it had travelled, their actions would have been a substantive contributing cause to its travelling.

MR GARLING: When you say there - - -

HAYNE J: It is a wholly different piece of litigation.

GAUDRON J: Yes.

MR GARLING: Well, your Honours, in part that is one of the answers to Justice Gaudron's question. May I answer quickly, but I wish to develop it, your Honour Justice Gummow's proposition - - -

GUMMOW J: It is not a proposition.

MR GARLING: - - - that the question of duty should be determined by the existence or the fact of the regulation. With respect, we would submit, that is the wrong question to ask. It is true we knew of the regulation, but the question to be asked is, at the time of the negligent act, which was at the Pakenham meeting in 1991 - - -

HAYNE J: Well, is that right? Is the negligent act that or is the negligent act that and giving uncertified seed potatoes to the Sparnons or is it only the latter?

MR GARLING: Well, firstly, your Honour, that is the only act of negligence found by the trial judge in the Full Court. Secondly, your Honour, we would submit, that was correct because the decision to distribute the seed in South Australia was nothing more than the causative link from the act of negligence at Pakenham, namely to turn the seed from commercial into seed potato, the causal link to the way in which the damage occurred. So that is the way we put the answer to your Honour's question, but may I just go back to what I was seeking to put, which is that if one looks at the time of the breach, one asks the question, "Who might foreseeably suffer economic loss as a consequence of this act?".

Now, that question is not answered by saying, "Only those caught by the quarantine regulation of Western Australia". That question is answered in a much broader way. There are many, many people who would suffer, by various mechanisms, economic loss by that negligent act.

HAYNE J: Let that be assumed for the purposes of debate, how does that help you if, at the core of that class, are those persons who grow potatoes within 20 kilometres of the intended point of introduction of uncertified seed potatoes?

MR GARLING: That is one mechanism leading to damage to a group of people. May I invite your Honours' attention as a convenient way to the regulation, perhaps the most convenient location of the regulation for present purposes is that annexed A to the written submissions of the appellant. I am sorry, I do not have the bundle that your Honours have of the regulations so I cannot assist your Honours by reference to that. It is the second-last page, your Honours, of the appellants' submission and for present purposes, may I invite your Honours' attention to (1)(b) of the regulation? Now, it is clear that the regulation addresses a distinct and very broad group. Firstly, the potatoes were:

grown in a district where Potato Spindle Tuber Viroid is not known to occur.

Secondly:

grown on a property situated at least 20 kilometres from a known outbreak of the disease.....detected within the last 5 years.

That, stopping there, your Honours, would cover people who suffered economic loss who did not own property at the time of the breach but who came to purchase property with the intention of growing potatoes on it within that five year period or, alternatively, they owned land but did not use it at the time of the breach to grow potatoes but may, within five years, have had a business plan to grow potatoes on that land. So that, one is dealing not only with a geographic radius but a time sensitive period from a future date, namely, the date upon which the bacterial wilt is detected on the target property. Then in subparagraph (iii):

not, unless otherwise approved by the Director General, harvested, cleaned, washed, graded or packed with equipment or in premises with or in which potatoes, grown within 20 kilometres of a known outbreak of the disease Bacterial Wilt detected within the last 5 years, have been handled.

So that, your Honours, if the Perres potatoes had been taken to a washing plant or processing plant at which any time in the last five years there had been potatoes grown within 20 kilometres of an outbreak of wilt, then they would be caught by the same quarantine regulation, unless otherwise subject to an approval from the Director General. Then, lastly, a question of where potatoes were contained in bulk bins which had not been adequately sterilised, would be, I think, a shorthand way of dealing with that.

Your Honours, with respect, to say, be it for a moment at Pakenham or at a later time when the seed is introduced into South Australia, that it was obvious that the group covered by this regulation would be able to be identified, ascertained and that the tortfeasor would be liable to the entirety of that group begs, the question that it is just a few neighbours within 20 kilometres because there was no reason, with respect, to distinguish between those who fall within subparagraph (ii) of the regulation or those whose crop would fall within subparagraph (iii). That does, in fact, as we would submit, correctly, the trial judge and the Full Court found, does raise a real question of an unascertainable class because one has a future period in which the class can continue to develop. What its limits may be is not capable of being ascertained at the time of the breach.

HAYNE J: Is that saying any more than that it is possible that those within the class foreseeable may be very large?

MR GARLING: Yes, your Honour.

HAYNE J: It is saying more than that?

MR GARLING: Yes, it does.

HAYNE J: What more is it saying?

MR GARLING: It is saying that one is not capable of determining at the relevant time which, in my respectful submission, is the time of breach, if not immediately before but at the latest at the time of breach, one is not capable of knowing at that time who might be affected within the terms of this regulation.

GAUDRON J: Excuse me, but is not damage the gist of the action? We are talking about people who suffered damage within a reasonably short period thereafter. We are not talking about people who may come in and buy within five years. It may be that the people who owned the property suffered loss in the vicinity, suffered loss because there was a diminution in value of their property. The other people have suffered no loss.

MR GARLING: With respect, not, your Honour. The people who are going to come into this radius of 20 kilometres, at any - - -

GAUDRON J: They may buy a property at an over value. We have all done that or we are all likely to do that.

MR GARLING: But they can claim that they have suffered loss because they are unable to run a business which has a particular level of profitability. Now, let it be assumed they have a business plan that shows that. Let it be assumed they have made inquiries in Western Australia and they have set out their plan and they intend at the time of the tort to purchase land but the contract has not yet come to fruition. They would be within that class, your Honour, and they would suffer a real loss.

GLEESON CJ: The key paragraph in the reasoning of the trial judge that deals with the point you are now on, as I understand it, is the second paragraph on page 3818 in which he identifies as the act of negligence the:

failure by officers of Apand at Pakenham, Victoria, to appreciate the risk of spreading bacterial wilt by using as seed Saturna potatoes grown by Mr Tymensen.

MR GARLING: Yes, your Honour.

GLEESON CJ: Is the corollary of that that by the time they supplied seed potatoes to Sparnons, Apand had no knowledge of any risk.

MR GARLING: Yes, your Honour. As I understood it, there was no finding that the - there was certainly no finding that the particular seed from Tymensen ever disclosed any signs or symptoms, if that be the correct word, of bacterial wilt. There was a finding that it had been carefully inspected by the consultants or staff of Apand. It was not ever found that Apand knew that the seed it was distributing in fact carried wilt.

GLEESON CJ: Or had the risk of carrying wilt.

MR GARLING: Your Honours, for reasons that I wish to come to, all seed carries the risk of wilt. One can never have, in Australia, potato seed which is free of the risk of carrying disease.

McHUGH J: Mr Garling, your argument, as did the learned trial judge's judgment, seems to concentrate on the existence of an ascertainable or unascertainable class or numbers in a class as being the determinant of a duty. But damage is the gist of the action for negligence, and so why should not one concentrate on the kind of damage that particular persons suffer? People in this class that you are talking about may suffer damage of very different kinds: diminution in value of property, diminution in value of export trade and so on.

Why is not the proper approach to a case such as this this: you say, "Would the defendant as a reasonable person free from the prejudice of self-interest think that it had an obligation to protect this plaintiff against financial loss from its negligence in this enterprise, bearing in mind that it would also have to protect other persons in similar circumstances from that kind of loss?"? And then you concentrate on the damage. You take into account the number of persons that may be affected but you rarely concentrate on the kind of damage that this particular plaintiff is claiming. The defendant might say, "Unfortunate as it is, there are just too many persons to make it reasonable to require me to compensate these people". Why do you not concentrate on the kind of damage in the so-called class rather than regarding the numbers in a very general class who may affected by your action as determinative of the kind of duty? Do you follow what I am putting to you?

MR GARLING: I hope so, your Honour. Firstly, if one takes that step, one cannot thereby place on to the respondent the obligation of being an insurer because the law does not oblige - - -

McHUGH J: No, but he is not. We are only talking about whether a duty of care should be imposed.

MR GARLING: Yes, but a duty of care should not be imposed so that the consequence is the tortfeasor is, in effect, an insurer of all who suffer loss, because that would be oppressive. I wish to avoid cliches, your Honour, but it would be a real inhibitor of ordinary commercial conduct. But, more particularly, in answer to your Honour's question is this: kind of loss bespeaks of larger classifications or more particular classifications, so one can readily identify and say one kind of loss is personal injury, one kind of loss is actual damage to property. Once one gets to economic loss, it is very hard, your Honour, to say that this kind of economic loss or that kind of economic loss or this mechanism for economic loss or that mechanism for economic loss provides a proper method of distinguishing between the two. Because if that be so, in effect, a practical determinant of that ends up being, who sues?

McHUGH J: Well, it may be. Supposing you knew that there were only four people who had this export trade and who suffered loss in that category but there were hundreds of people whose properties might be lowered in value by reason of this existence or the potential or lack of potential for use, and so, why should not the four succeed, whereas perhaps the others do not?

MR GARLING: Because there is nothing, on that simple example, your Honour, to distinguish them as a matter of principle, other than the fact they come from a small group from the other form of - - -

McHUGH J: No, it is the kind of loss they suffer, just as we distinguish between nervous shock and physical injury.

MR GARLING: But, your Honour, there is no difference in principle to the transporter who suffers financial loss from a loss to contract and - - -

McHUGH J: Well, I am not sure about that. That is a relational loss.

MR GARLING: But so is Perres'. Perres' is a relational loss in accordance with the way those categories or those terms are given to the categories in Canada, and certainly in Feldthusen's book on it, this claim would fall within relational loss. And one cannot categorise relational loss to any - - -

McHUGH J: I am not sure that is right, is it? I mean, this is a direct loss suffered as a result. It cannot pursue its contractual rights. It is not as if it is depending on some loss suffered by some other party who says, "I have a contract with that party, and therefore I suffer loss".

MR GARLING: May I pose an example, your Honour. Let it be assumed that Perre Vineyards had leased their processing plant to Sparnon, by contract, to process and wash Sparnons' potatoes. Perre Vineyards would suffer a contractual, relational loss in the terms in which that is used. They had lost the value of the contract by reason of what happened to Sparnon. Perre Vineyards - - -

McHUGH J: It would be a clear case for recovery, would it not? Common venture.

MR GARLING: No, your Honour, that is not a common venture, that is a contract. It is not a joint venture. That is no different from the carter who turns up at the Sparnon gate and says, "May I take my weekly load to Western Australia, I have a contract to cart the potatoes to Western Australia". It is no different.

That is not a joint venture, your Honour; that is a simple contract. It is no different in principle from the deliverer of diesel fuel, who turns up and says, here is the diesel fuel that I contract to sell you to operate your machinery and the Sparnons say, thank you very much, but we are terminating our contract because of the bacterial wilt. In fact, the Perre interests, the only connection between Sparnon and Perre is not a contract or any contractual relation; the connection in the analysis that your Honour poses is by force of the Western Australian regulation. That is a weaker case, we would submit, than the contract. It is a weaker case than a contract; a contract is a more direct connection than would be a regulation.

So that, with respect we would say, there is nothing of assistance that can be gained by attempting to subdivide economic loss where the economic loss is not directly consequential upon property damage. Once one gets to the term "pure economic loss" defined in that way, with respect, there is no further reasonable subdivision of the groups, and that is why we put, with respect, that the real question, as at the time of the Pakenham meeting, where the breach occurs is, who may suffer economic loss as a consequence of this decision, and that includes a very broad range of people. Even if the question be, who will suffer loss as a consequence of the Western Australia regulation, there is a very, very broad class. Can I invite your Honours attention to - - -

GUMMOW J: Well, just before you do that, Mr Garling, you refer to page 3818, line 17, where the trial judge says, "The act of negligence" et cetera, you just repeated that again.

MR GARLING: Yes, your Honour.

GUMMOW J: What was pleaded was rather different, was it not, the duty at page 40 in volume 1, paragraph 72, and the breach, paragraph 75 page 42?

MR GARLING: Yes, your Honour, and the trial judge found that that pleading was not made out; he found a lesser - - -

GUMMOW J: Well, did he actually make affirmative findings about this matter?

MR GARLING: I think so, your Honour. I think your Honour will find it, specifically where he deals with the Sparnon claim.

GUMMOW J: It just seems to me there is a lot more going on in this case than what happened at the Pakenham meeting, inside your company.

MR GARLING: Your Honours, we would submit that that is not a correct way of looking at what was going on, because your Honours have not yet been pointed to the evidence that showed all the reasons why the decision that was made was not, in our respectful submission, and, although we have put them in our written submissions, correctly categorises even being negligent, because I think your Honours have a misconception, may I say with respect, of quite the effect of wilt and those things, and I did want to take your Honours, in due course, just to some passages that may assist that.

GAUDRON J: You might assist me, because the formulation of the duty of care and the way it was formulated at first instance seems to equate with this: Justice Gaudron was negligent in deciding to drive to Canberra; not Justice Gaudron was negligent in failure to take care to keep a proper lookout while driving to Canberra. I mean, the decision, of itself, could be causative of nothing, and you cannot ever divorce causation from the law of torts.

MR GARLING: With respect, the decision was causative of a - it was the first step in a course of conduct which resulted in the seed being distributed in four States.

GAUDRON J: If the decision was negligent and assume it was, that was the finding, must it not inevitably follow that putting the decision into effect is negligent?

MR GARLING: Not of itself, your Honour.

HAYNE J: But may it not also be necessary to read his Honour's findings in light of what he said about the Sparnon claim at 3768 line 20, where he speaks of the duty as a duty:

to take all reasonable steps to ensure that seeds which Apand provided to its growers had not come from a -

particular source, and goes on, as I understand it, to find that that duty was breached. The breach constituted by provision of seed where it had not taken all reasonable steps, et cetera. Not a breach constituted by a decision, but a breach constituted by handing out seed that it had not checked enough.

MR GARLING: Your Honour, whether the - I was about to go back to Justice Gaudron's example, which I hope will assist in answering your Honour's question. The example of a motor vehicle may be something similar, as your Honour posed, a failure to keep a proper lookout. The consequence of that is one did not put one's foot on the brake, the consequence is that the speed was not reduced quickly enough, and the outcome of that was that an accident occurred and damage ensued. But the negligent act, the negligence - it is not productive in respect to analyse and say each of those three acts were negligent - namely the failure to keep a proper lookout, the failure to put the foot on the brake, and the failure to slow the vehicle down. The negligence is the driver was looking in the wrong direction and did not see the traffic stopped in front.

GLEESON CJ: Mr Garling, negligence involves breach of a duty of care. What duty of care did Apand owe to the Sparnons in 1990 at Pakenham? That was two years or 18 months before they supplied the seed in question to the Sparnons, was it not?

MR GARLING: Yes, it was, separated by that sort of period, your Honour.

GLEESON CJ: Well then, how did the officers of Apand, when they were standing around at Pakenham making a decision about something, at that stage owe a duty of care to the Sparnons?

MR GARLING: Well, they owed a duty, your Honour, because they determined that the crop that was being grown as commercial crop would have its purpose changed to seed crop and be distributed to four States and a number of growers in those four States, for propagation. Now, your Honour, at that point in time, the damage against which the duty would be measured is the damage of physical harm to the Sparnon's property, being the potatoes, and their real property. So that, one can measure the duty. It did not matter at the Pakenham meeting that the Sparnons by name were not identified. It was clear that there were a limited class of growers to whom the seed was to be distributed and, as the court found, at which point there was a risk that the seed would carry a disease and affect the potatoes in the property.

GLEESON CJ: I think what is being suggested to you is that this is an incomplete description of the relevant act of negligence. This might have been an aspect of the negligent conduct of Apand, but so far as their negligence towards the Sparnons was concerned, the supply of seed potatoes was an essential aspect of that negligence, was it not?

MR GARLING: Yes, your Honour.

GLEESON CJ: So, the act of negligence would have been the initial failure to appreciate the risk of spreading bacterial wilt by using seed potatoes grown by Tymensen and then supplying seed potatoes to the Sparnons against the background of that lack of appreciation of the risk.

MR GARLING: But, your Honour, with respect, the proper characterisation of that is the supply to Sparnon, as opposed to grower X or Y in another State, bears no particular negligent conduct, of itself.

McHUGH J: But that is the whole point, is it not? I just do not understand what Pakenham has to do with it except as a background factor. Supposing, for example, that nobody knew of the existence of bacterial wilt at that time, that really throws up the point that what was said at Pakenham in terms of negligence would be totally irrelevant if, within the next two years, by the time of supply, all the problems about the wilt was well known in the industry. Surely, the critical time when the duty arose was when the seed was supplied.

GLEESON CJ: On page 2588 at line 26 it is said, within Apand:

The major cause of spread -

of bacterial wilt -

is through growers buying non certified seed.

That is what the Sparnons did. They bought non-certified seed and bacterial wilt resulted.

MR GARLING: Yes, your Honour.

HAYNE J: Is this not an area where the order of asking the questions is important and the order of asking the questions is, "Was the plaintiff damaged?" Answer, "Yes." "Was the negligence of the defendant a cause of that damage?", but first catch your damage. Damage is the gist of the action and to inquire about duty before the occurrence of damage is to engage in a theoretical and irrelevant inquiry.

MR GARLING: But, your Honour, with respect, when one does inquire about the duty at that point in time, one says, "Apand owed a duty". One then inquires, "When was that duty breached? When was there negligence on the part of Apand?" Now, the negligence identified on the part of Apand was the considered decision at Pakenham. The subsequent conduct bore of itself, in our respectful submission, no particular additional negligent quality, namely, it was just the putting into effect of that decision.

McHUGH J: But you were in no relationship with Sparnons at Pakenham. Your relationship with Sparnons started some time subsequent to that. Now, what happened at Pakenham may be very relevant in determining the existence of a duty, determining the existence of a breach but I, at the moment, have real difficulty in seeing how the duty of care arose at that stage. Supposing they had never done anything. The next day they rescinded their resolution.

MR GARLING: There would have been a duty of care which was productive of no loss.

GLEESON CJ: You indicated to us, I think, Mr Garling, that we need to know a good deal more about bacterial wilt.

MR GARLING: Yes, your Honour.

GLEESON CJ: I am interested in that because I think I may have it myself but if you could explain to us what it is that we need to know before we can appreciate accurately this issue.

MR GARLING: Yes, your Honour. Your Honour, it may be convenient just before I do that to invite your Honours to note one thing about breach. Your Honour Justice Gummow drew my attention to page 40, paragraph 72 of the statement of claim.

GUMMOW J: And 42, paragraph 75.

MR GARLING: Yes, I was just going to come to paragraph 75 which is the breach, the pleaded breach, and paragraph 75 deals with the present appellants. Paragraph 74 dealt with the Sparnons. The particulars of the breach were as follows:

(i) The potato seed sold by Apand to the Sparnon partnership.....was infected with bacterial wilt - - -

GUMMOW J: We can read that.

MR GARLING: Thank you, your Honour. Secondly, at the time of importation into South Australia the seed was infected with wilt. Thirdly:

Apand arranged for and permitted the seed obtained from Toolgani Research Centre to be multiplied in the area north of the Bunyip River in the Koo-Wee-Rup swamp area.

(iv) Apand failed to have the seed produced.....tested to determine whether it was affected by disease.

(v) Apand failed to comply with the -

particular standard and then it said that the applicants relied:

on the principle of res ipsa loquitur-

and then an addition, namely a failure to warn the Sparnons -

that the seed received.....had been multiplied in the area north of the.....Koo-Wee-Rup swamp area.

The point of my taking your Honours to that is that it was not said as a breach that we supplied non-certified seed to the Sparnons.

GAUDRON J: It said you sold them seed that was infected with bacterial wilt.

MR GARLING: Yes, your Honour, but that could apply to whether it was certified or non-certified or wherever it came from. I sought to show the result. Your Honours, we say that when one looks at the nature of the potato industry - and I will invite your Honours to what the trial judge said: it is pages 3752 and 3753. This is under the heading of the Victorian Seed Potato Certification Scheme. At about the middle of the page your Honours see that the generations in the scheme are identified, then at line 17:

There is no similar certified seed scheme in South Australia. Where certified seed is used in South Australia, it is imported from Victoria. Departments of Agriculture in Southern Australia recommend and encourage the use of certified seed to assist in the prevention of disease, but not all growers always use certified seed. It is expensive and often in short supply. It is - - -

GUMMOW J: But the duty of care was to ensure that the seed was disease free, that is all.

MR GARLING: Yes, your Honour, but one cannot ensure that. The reason that the appellants failed on that was because it is not possible to ensure that the potato is disease free.

GAUDRON J: You can take reasonable steps to ensure that it as disease free as can possibly be the case. To ensure that it is as free from disease as it is possible to do.

MR GARLING: As reasonable steps - - -

GAUDRON J: Yes, the reasonable steps being to put - - -

CALLINAN J: Which they set out to achieve by entering it into the Victorian certification scheme.

MR GARLING: Your Honours, with respect, the certification scheme - your Honours have the perception - in our respectful submission, incorrectly - that the certification scheme resulted in disease-free potato seed. It did not. For reasons to which I will come, what was critical with respect to seed was the particular ground in which it was grown. May I develop that point.

CALLINAN J: Why bother then? Let me ask you this: why bother with the certification scheme at all? Why have a six generation program? Surely there was some purpose in it.

MR GARLING: Yes, your Honour.

CALLINAN J: Well, what was the purpose?

MR GARLING: The purpose was to minimise the risk that the seed coming from the certified seed program would carry disease.

CALLINAN J: That is exactly what I took Justice Gaudron to be putting to you, to take steps to minimise it or reasonable steps to reduce the risk.

MR GARLING: But the question, your Honours, we submit, and the evidence discloses this, is that what happened was, the seed was taken out of the scheme, it was then grown in ground which was clean. Rumler and then Tymensen were both - Rumler, who was the first grower, was a certified seed grower, and then it was grown at Tymensen. The Tymensen property had been free at all times of bacterial wilt and there was no reason why, we will submit in due course, the fact that the seed was out of certified seed program and then grown in clean ground, there is no reason to suppose that there is any risk additional to or different from that which comes from certified seed.

CALLINAN J: Well why the memorandum of 26 June?

MR GARLING: Your Honour, that was a memorandum of pointing to the major causes, and other causes, of the spread of the disease. It says, in terms, and this is at page 2588 line 26:

The major cause of spread is through growers buying non certified seed.

But, your Honours, that does not say, and nor does it mean, that there are particular circumstances in which non-certified seed grown out in clean ground is not an acceptable source of seed.

CALLINAN J: Well I have to say I do not find that persuasive, in light of the language in the memorandum.

MR GARLING: Your Honour will see, obviously, that the memorandum does not purport to be a complete description of all ways in which bacterial wilt develops or always in which to protect against it. If I might just return to what his Honour the trial judge found. His Honour says, at line 22:

It is common for commercial growers to use "one-off" seed, that is potato seed taken from a crop grown from certified seed, or to rely on their own hygiene precautions and the disease free history of their own properties to multiply seed for their own use. The introduction of disease where multiplication outside the certified scheme occurs can be minimised by growing the crop from which seed is collected in "new" ground, i.e. ground that has not been planted with potatoes for several years, by subjecting plant and equipment to careful hygiene procedures, and by inspection of the crop as it grows to ensure it is disease free.

And then, we submit, the next paragraph is of importance:

Because the certified seed growing areas are in cool places, seed is harvested in time for the following summer crops in South Australia, but it is very difficult to store for long enough to use in winter crops. Consequently most winter crops are not grown for certified seed.

And, your Honours, this was a winter crop trial.

Mr J A Mundy, the current chairman of the Potato Growers South Australia -

an industry association -

in evidence estimated that only about 50% of commercial crops in South Australia are grown from certified seed.

So that one starts from the proposition - - -

GLEESON CJ: That is a typographical error, is it, on line 13? It says "not grown for certified seed"; that should be "not grown from"?

MR GARLING: Yes, I think so, your Honour. Your Honours, can I invite you to go on this topic to page 2825 volume 6. The document at page 2825 was exhibited to the statement of Mr Hayward, an expert who was called. It is a document called an "AGNOTE" issued by the Department of Agriculture in the State of Victoria, they being the State which conducted the certification seed. Your Honours, for present purposes, may I invite your Honours to go to the next page in the left-hand column:

Certified seed -

in the third paragraph, do your Honours see that -

is the end of the seed potato certification scheme. Crops planted with certified seed are not eligible for certification -

so that, they will not certify the product of the certified seed.

Crops intended for the production of certified seed potatoes must comply with the following requirements:-

1. they must be planted with foundation seed or mother seed -

If your Honours go back one page, that is the fourth of fifth generation of the process, and the potatoes in this case, your Honours, the Sparnon potatoes were two off mother seed because they had first been to Virgara in South Australia and then to Sparnon - I am sorry, they had first been to Tymensen and then to Virgara, so they were two off mother seed. May I return to 2826. The crops intended for production of certified seed must first be planted with foundational mother seed:

they must be separated by.....one blank row from crops of other varieties.....which are being grown for certification, two blank rows from crops of the variety.....being submitted for certification, two blank rows from commercial crops which are grown from certified seed in which visible symptoms of virus disease are less than permitted for crops and certified seed, and 20 m from crops in which visible symptoms of virus disease are greater than those permitted for crops of certified seed.

In 3, the:

potato plants must not have been grown in the paddock at any time during the preceding three years; and

4. there shall have been no evidence of bacterial wilt on the farm during the preceding five years.

So that, when one is talking about the actual certified seed being grown, the minimum requirements with respect to distance from commercial crops, in which there are no visible symptoms of the disease, is 20 metres separation. So far as bacterial wilt is concerned, the only requirement is there must be no evidence of bacterial wilt on the farm during the preceding five years. Now, ground of that kind is ground in which certified seed may be grown from mother or foundation seed. Mr Tymensen's property was ground of that kind. The evidence is there had been no history of bacterial wilt on Mr Tymensen's property at all.

Then, at line 20 in the left-hand column, there must be:

field inspections. Crops will be inspected.....twice during the growing season -

where various diseases will be tolerated to particular percentages so that the certified scheme, of itself, permits of disease of various kind to particular tolerances.

There must be no evidence of bacterial wilt.

The tolerance of wilt was zero, and then:

Any crop showing poor strike -

et cetera -

will be rejected. Self-sown plants will be counted as impurities.

It was obviously important, your Honours, for the seed certification process that the seed supplied was of the variety determined.

So that, as it appeared yesterday when my learned friend took your Honours to the comment of Mr Tymensen, "You have got to be kidding", what the evidence showed he was referring to was the prospect of self-sown crops or rogue crops coming within the plants that he had grown. Then it says:

Any undesirable plants must be completely removed from crops as soon as practicable.

Then there is a process of grading, packing and sealing, and so on, which I do not wish to take your Honours through.

Now, this was the document, as your Honours will see at 2827, which set out the background for growers who wished to have their land included as being available for growing of certified seed and deals with those growers who wish to make application. So that so far as Mr Tymensen is concerned, we would submit that given - and I will take your Honours to the precise evidence and finding about this - that his was land on which there had been no evidence of wilt at any time, he would have otherwise qualified to be a certified seed grower, but for one issue. His land was in the Koo Wee Rup area. I do not know if your Honours have appreciated this, but the area is immediately to the north of the Western Port Bay to the east of Melbourne. It is a low-lying area. Aphids - more commonly seen, no doubt, in your Honours' experiences on rose bushes - transmit a particular series of viruses, leaf roll viruses and other viruses which attack the potatoes.

KIRBY J: Viruses or bacteria?

MR GARLING: Viruses, your Honour, which attack the potatoes. Aphids do not exist above particular altitudes. So, if the land is low-lying it is more prevalent to aphid infestation. Koo Wee Rup was subject to aphid infestation. Leaf roll virus existed. It was not suitable by reason of that to be part of the seed certification scheme. Now, your Honours will see from the ag note that unless the particular land had a history of bacterial wilt, it could be used in the seed certification scheme.

GUMMOW J: How does this then fit in with the memorandum at 2588, line 26-27, which is saying what you have been putting to us, I think, that certified seed is not available for winter harvest: "Winter harvest", "certified seed", "unavailable", that is what you have been saying to us.

MR GARLING: Yes, your Honour.

GUMMOW J: You have referred us to the primary judge at 3753.

MR GARLING: Yes, your Honour.

GUMMOW J: Well, that is the criterion upon which the situation of which this memorandum spoke.

MR GARLING: Yes, your Honour, but 50 per cent of growers in South Australia do not use certified seed. Not to use certified seed is not of itself negligent and no case was put - as I have taken your Honours to the pleadings of breach - that the mere use of non-certified seed of itself was negligent. And there was a very good reason for that, your Honours, because the Sparnons knew that the seed was not certified seed. The trial judge found that they knew it was two-off mother seed.

GLEESON CJ: But the key word in what you have just said is the word "mere". "Mere" use of non-certified seed is not negligent. The problem here was the use of non-certified seed coming from a particular locality against the background of a negligent mistake that had been made a couple of years before in relation to that seed and that locality. It was the combination, was it not, of the careless mistake that was made in 1990 and the mistake having a practical consequence in relation to the Sparnons when the seed was supplied in early 1992. It was the combination of those circumstances that constituted the breach of the duty of care to Sparnons, was it not?

MR GARLING: No, we would submit that the act of supply, as I put earlier, was an act on the causal chain which brought the negligent conduct, which demonstrates the connection between the negligent conduct and the Sparnons.

GLEESON CJ: Where do we find in Justice von Doussa's reasons his finding as to the breach of duty to Sparnons?

MR GARLING: At page 3786 he deals with the Pakenham meeting at the top of the page. He deals with what happened as a consequence of that, and then at 3768 under the heading "Negligence of Apand" he commences the consideration of that. At 3771 line 16 he specifically finds the breach which seems dependent upon the immediately preceding paragraph commencing, "The liability of Apand".

HAYNE J: Is the duty that his Honour there refers to the duty he identifies at 3768 lines 20 to 24?

MR GARLING: Yes, your Honour.

MR GARLING: May I invite your Honours to go back to page 3757 because I think it may be relevant. At 3757 his Honour has finished recounting what occurred at the Pakenham meeting. He then says:

Following the Pakenham meeting Mr Moorthy inspected the crop, as he would have inspected a crop in the certified potato seed scheme. The potato plants were then at a late stage: some diseases might then not be apparent, but bacterial wilt should have been as it has a progressive effect.....He also inspected the tubers during the grading process in a packing shed. Some of the crop was actually graded twice.....No sign of disease was observed. Mr Cullen also inspected some of the tubers during grading and saw no sign of disease. Mr Tymensen produced approximately 86 tonnes. By arrangement with Apand he retained 10 tonnes as seed for a further crop. Of the balance the largest tubers - some 25 tonnes - were processed. The rest were shared by Apand between 13 growers in Queensland, South Australia, Victoria.....

The Saturna seed allocated to South Australia was 2 tonnes, sold and delivered by Apand to Virgara Bros at Virginia on about 20 June 1991.

He traces that through and then on the next page, 3758, line 5:

Mr Hughes on behalf of Apand invited five of its contract potato growers in different localities - - -

GUMMOW J: So do we take from that that Virgara was the only South Australian?

MR GARLING: Initially, yes, your Honour. Would your Honours be assisted by looking at a chart? I think your Honours would be. A convenient reference can be found in volume 6, page 2596. Perhaps I will invite your Honours to go to a clearer one which is page 2585 for present purposes. This is a chart that was produced to demonstrate what happened to the seed. Your Honours see on the very left it was imported from Holland. In the first box there is a reference to Toolangi which is where it was in the certified seed program. The following box is a reference to Rumler Bros at Ballarat. He grew foundation seed. He was the foundation seed grower. That was part of the ordinary process of growing certified seed.

Then one gets to GMT Trading which is Mr Tymensen, which was the first crop. Your Honours will see in the middle of the page that the Tymensen crop in the next box was distributed, 25 tonnes at the top to factory for processing, and then there were eight growers in Queensland, Virgara Bros in South Australia, five growers in Victoria, and then one tonne was split amongst various growers in New South Wales. The other evidence suggested that that was about four growers or so.

Now, the product then went to Virgara Bros. One tonne was put into cool store and one tonne of Virgara Bros produced 17 tonnes in December 1991 and that was then distributed, as the next box shows, to the Sparnons, a grower called Hodge and the other growers listed there in the quantities listed. But what was decided at the Pakenham meeting, which is referred to at 3757 by his Honour at line 21 where he says:

The rest were shared by Apand between 13 growers in Queensland, South Australia, Victoria -

is that large box on slightly to the left of halfway across the page commencing with the word "Factory" at the top. Now, that is when the importation occurred into South Australia of the seed, at that point in time. Your Honours, at 3758 of the judgment and I was just taking your Honours at line 5 to what it was that Mr Hughes did. He invited five potato growers to grow the crop.

They each agreed. The experimental crops were planted in February, 1992 -

and then his Honour lists the growers and the quantities in which they planted the seed.

Your Honours, there was no suggestion of, or finding to the effect that anything that happened after the seed was grown on Tymensen's property made any difference to this seed in terms of risk of bacterial wilt. It was not found that the transport from Tymensen into South Australia, the growing at Virgara or the transport from Virgara to Sparnon or any other connection, changed the risk of, increased the risk of, or otherwise affected the risk of this seed being contaminated with wilt. What was found with respect to wilt was because the Tymensen property had, prior to the planting of this crop, been subject of a flood, that was the way in which this potato crop obtained its source of bacterial wilt.

So that inn that context, your Honours, we would submit that it is unsurprising and, we would submit with respect, correct to say that there was no separate or identifiable negligent act of Apand after the Pakenham meeting. So that the trial judge and the Full Court were correct to say that was where the negligence was, and one at that point in time can identify some persons specifically who may be affected by it, and there may be many others who subsequently may be affected by it.

Your Honours, his Honour, in a single line at 3819 of the judgment, under the heading of "Warruga Farms v Apand", where he was considering the breach so far as Warruga Farms was concerned, at the last few lines of the first paragraphs on that page, says:

The negligent conduct of Apand occurred at the Pakenham meeting in February 1991.

GAUDRON J: One has to read into that "and continued and manifested itself in supply".

MR GARLING: We would say, as I have earlier put, your Honour, that it was nothing more than the causal link which turned that negligent act into damage so far as Perres were concerned. Your Honours, we would submit also that the issue - well, we do submit that the issue substantially of whether this was or was not certified seed is irrelevant. May I just for a moment, invite your Honours' attention to the judgment again?

At 3762 of the judgment, at line 16, I should start at line 13, this was a part of his Honour's judgment where he dealt with the question of whether the bacterial wilt on the Sparnon property was causally related to the Tymensen property. He says:

Making every allowance for the epidemiological methodology espoused by Dr Wimalajeewa, the overwhelming probability is that seed emanating from Mr Tymensen's first Saturna crop was infected with bacterial wild and I so find.

That finding is not now subject to any challenge.

I find this to be so even though there is evidence that no symptoms of the disease were observed during inspections of Mr Tymensen's first crop by Mr Moorthy and Mr Cullen.

He says:

There are two possible explanations for that; first, that only a very small area of the crop was then infected and secondly, that the level of infection was low. Virgara Bros say they grew a healthy first crop of Saturna which showed no symptoms of the disease.

And his Honour then gives an explanation for that. Then he deals with the source of infection.

GUMMOW J: He makes a conclusion at 3767, line 30.

MR GARLING: Yes, your Honour, across to the next page. And the precise cause is - - -

GUMMOW J: Well, we can see that but where is all this going?

MR GARLING: Yes, your Honour. Well, it goes this way, your Honour, that what the Court seemed to be putting to me when I commenced the submissions was as a consequence of the internal memorandum of the Apand officer at 2588 that there was an obvious recognition on the part of the Apand relevant officers that there would be damage occasioned in the way it in fact occurred. What I have attempted to put to your Honours is that whilst damage from bacterial wilt generally, of course, is a problem and, of course, Apand would turn its mind to it and be conscious of it, it is of no particular assistance to say at line 26:

The major cause of spread is through growers buying non certified seed.

Because, there are steps one can take. For example, with the minimum distances and of the kind specified in the agricultural note, on land that has no previous history of bacterial wilt which would demonstrate that there is no increased risk of bacterial wilt and which would show that what is being referred to in that inter-office memorandum is not in fact what occurred in this case.

This was not a case of a grower merely growing non-certified seed or using non-certified seed and that the way in which the negligence finding was made points to a particular act at a time when, for reasons which I have earlier put, that was why it was the breach of duty. That is why the breach was held to be at Pakenham and not later because what had happened was there was seed grown from - originally out of the certified seed program but not completely grown - grown through a property of good husbandry and circumstances where it did not contravene seed grown in land that would otherwise be available for certified seed and distributed without any ongoing knowledge of anything more happening.

HAYNE J: What is the legal proposition in aid of which this argument is deployed?

MR GARLING: Your Honour, it goes to a number. One is it obviously goes to our notice of contention and I was hoping, in due course, to address the specific legal proposition for that, but in the context of the discussion that took place this morning I was asked why it was that the Pakenham meeting was the relevant time of negligence and not some later time because it was put to me, your Honour, that it was the fact of introducing seed that was not certified into South Australia, or seed which was at risk of carrying the disease, constituted negligence and I was intending to demonstrate that the finding of the trial judge and the Full Court about the Pakenham meeting was the correct finding.

That then leads directly to the question of who might suffer economic loss as a consequence of the negligence of Apand. That, in our respectful submission, is an important factual basis to lead into the principle of why no duty was owed to the Perres.

GLEESON CJ: Is that a convenient time? We will adjourn until 2.00 pm.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.01 PM:

GLEESON CJ: Yes, Mr Garling?

MR GARLING: Your Honours, it may be convenient to move to our submission that it is not correct to categorise the respondent's loss as other than economic loss, namely, it is not physical injury for the reasons that have already been put earlier in my submissions and, secondly, it is not physical damage in the sense of the way that term is used in Caltex because there was no physical immovability and to say that one market is closed but other markets are open says nothing more, with respect, to the physical property, or the physical characteristics of the property, and does not elevate this from being anything other than a pure economic loss case. Your Honours, with respect to that, we set out in our written submissions also the references to the way in which the case was pleaded and put and I think I have summarised those to your Honours this morning.

We move, your Honours, then to say that if it be correct, as we submit it was, for the trial judge and the Full Court to find that this was a claim for pure economic loss, then the courts below were correct to reject the existence of any duty of care.

In the first place, whatever rule may be regarded as the appropriate rule to construct a duty of care, no court, to our knowledge, has ever held that one could have liability to a group which is not capable of being determined, hence the use of the phrase in Ultramares of an indeterminate class in an indeterminate amount. In this case, the trial judge and the Full Court, we submit, correctly held that that was the nature of, and extent of the group who would suffer damage as a result of Apand's conduct.

GAUDRON J: What if they were wrong in that?

MR GARLING: We have to deal with that in three steps, with respect: firstly we submit that they were correct because of the question of time and the multiplicity of categories in the regulation to which I earlier took the Court. Secondly, we submit that in any event merely regarding the regulation as being the only determinate of economic loss is to pose the wrong question because there is no reason to distinguish between people whose economic loss is occasioned by reason of the regulation from many other ways in which their economic loss may be created.

Thirdly, we submit that even if the court be wrong about the Pakenham meeting, and the relevant negligence is to be viewed at the time of importation to South Australia or at the time of supply to Sparnon, there is still necessarily an indeterminate class. Now, if it be that there is no indeterminate class, in this case, then we submit that one gets to what can conveniently be called the general exclusionary rule. That is to say, one starts with the proposition for which we submit is the correct starting point, namely, there is a general exclusionary rule with respect to claims for pure economic loss. There are certain identified exceptions to that general exclusionary rule and the question then one asks is, "Do these applicants fall within any of those identified exceptions?"

Your Honours, we submit that there are two ways in which one can view these generally identified exceptions. There have been identified, for example, in Canada, various categories which are identified as exceptions. One of those categories includes negligent misstatement. Another category includes general average cases, and the Canadians would hold that the decision in Greystokes, for example, fell within that category. The third category of exception the Canadians would identify would be a joint venture category, namely, where the plaintiffs were engaged in a joint venture with the person or party whose property was physically affected.

And they would also hold that there would be an exceptional category where the claimant has a possessory or proprietary interest in the property that was actually damaged. That, your Honours, is not very different from the joint venture case, but they see it as being a slightly different category. Those categories have been referred to in the Canadian decisions, the most recent of which is the decision of Husky Oil Operations v Saint John Shipbuilding - - -

KIRBY J: Just before you go to it, the odd rag-bag of exceptions rather presents the common law as stumbling from case to case looking for a concept. I mean, what is there in common with these exceptions? What an unconceptual and unprincipled development of the law if we are simply to say, "Oh well, this one comes within an exception", instead of looking for a principle that unifies the exceptions or questioning the foundational principle in the first place.

MR GARLING: Well, your Honour, the difficulty is that the common law has yet to find a perfect solution. Each of the various ways in which the common law would approach it have real difficulties. Full recovery is not a possibility. The common law does not embrace the concept of complete recovery for all people who have suffered loss as a consequence of a tortious act. So one starts with a proposition that complete recovery is not possible.

The real question is, we submit, to ask whether the general exclusionary rule, which admits of exceptions, is, nevertheless, the best and most practical application when compared with the alternatives.

GLEESON CJ: Incidentally, Mr Gray yesterday told us that he thought civil law systems did not have a problem with this concept but a passage in that work in praise of Professor Fleming that Justice Kirby referred to yesterday that I was looking at at lunchtime seems to suggest that in German law there is no recovery for economic loss unless there is a contract.

MR GARLING: As I would understand it, your Honour, unless there is a contract or some proprietary right of a kind recognised by the German law or code which is interfered with. May I give your Honours a reference to a book which may be helpful on the code countries. There is a series of publications put on by Kluwer entitled "United Kingdom Comparative Law Series". Volume 16 of that series is a publication entitled "Civil Liability for Pure Economic Loss" which was edited by Dr Banakas who is the Director of the Centre of European Law and Practice at the University of East Anglia.

It is a publication which deals with the proceedings of a September 1994 colloquium and deals with, other than an introduction, the English position, the German position, America, Canada, Austria, Switzerland and Italy. Now, your Honours, that publication came to our attention last night and we have attempted to summarise in a few lines how each country would deal with it but I regret that that is not an easy - it is a task that we attempted but have not successfully completed. I can tell your Honour this, that a reading of that - - -

KIRBY J: Is that book in our library by the way, in the High Court library?

MR GARLING: No, this came from the University of Adelaide, your Honour, via an inter-library loan but my learned junior would be happy to lose his lending of it, your Honour, but I am certainly happy to make it available to the Court.

It was of interest to note that your Honour the Chief Justice yesterday gave an example of a delayed appointment as a consequence of a motor traffic accident - the taxi driver. In Austria there has been a very similar case to that. An opera singer was delayed and suffered loss and was held not to be able to recover.

It may be convenient also at this point to answer a question that came along a similar line from his Honour Justice Kirby about academic writings that may be of some assistance. We have identified five possible sources of academic writings which may be of assistance to the Court. One is the latest edition of a book previously referred to by the Court in a number of earlier cases called Economic Negligence: The Recovery of Pure Economic Loss by Dr Feldthusen. It is now in its third edition which was published in 1994.

KIRBY J: What is the name of the author?

MR GARLING: Dr Feldthusen. It was footnoted, for example, by Justice Toohey in Bryan v Maloney in an earlier edition. There were a couple of articles, your Honour. I cannot recall now if my learned friend referred your Honours to the article of Professor Stapleton in (1991) 107 Law Quarterly Review 249 entitled Duty of Care and Economic Loss: A Wider Agenda, the publication of Professor Fleming, Economic Loss in Canada, which I think my learned friend referred your Honours to, and then two articles by Karen Hogg, which are to be found respectively in (1995) 3 TLR 26 and (1997) 5 TLR 127.

In addition, your Honours, there is a chapter in a publication entitled "The Recovery and Calculation of Economic Loss" written by the former Chief Justice Sir Anthony Mason. The name of the publication, being a 1997 publication, is "Torts in the `90s", the author is Mullany - he is the editor, I should say, and Sir Anthony deals with a review of economic loss, looks at England, Australia, Canada, New Zealand and the US in - I say this with no disrespect - not altogether enormous detail for each of those jurisdictions. Some jurisdictions bear closer examination than others but it may be of some assistance to the Court.

Your Honours, I was putting the proposition that we submit that the preferable way to proceed is to proceed commencing with the general exclusionary rule, to look at the identified exceptions and ask whether this case falls within them. We answer that by saying it does not, and then ask whether this case is so close to any of those identified exceptions as would suggest that an ordinary incremental approach would allow recovery in this case. We submit that this case does not fall within that category either.

HAYNE J: Of the four classes of exception you identified in Canada, where would you put Hill v Van Erp and Bryan v Maloney?

MR GARLING: Bryan v Maloney will fall within the exception of cases where claimants had a possessory or proprietary interest in the damaged property.

HAYNE J: Yes. Hill v Van Erp?

MR GARLING: The closest that that would fall to that circumstance, your Honour, would be the same category, namely a possessory interest. That would be the closest. It does not fall precisely within one of those categories but would, nevertheless, be closest to that.

CALLINAN J: Mr Garling, I rather thought that because the Supreme Court in Canada seemed to apply Caparo, I think it was, in Hercules Management, is that right - - -?

MR GARLING: I believe so, your Honour, yes.

CALLINAN J: That it really involved an acceptance of the English approach which seems to me to be somewhat different having regard to the rejection in the Privy Council of Caltex in the case in which the Chief Justice appeared.

MR GARLING: The Canadians, I think, start with Anns as their principal application, and move from there.

KIRBY J: What is wrong with that approach? You say, first of all, is there a relationship of neighbourhood? Secondly, is it foreseeable; and thirdly, is there some basis of principle of which these categories of exceptions may be the type of example, or may point to the type of example: indeterminate amount, huge losses, people not likely to be insured, and so on, as a check list of exclusions. Now, at least that has a conceptual unity. This business of stumbling from exception to exception and trying to squeeze Hill v Van Erp into one of them is really unconceptual thinking and it leads to error at trial, more appeals, more uncertainty of the law.

MR GARLING: Well, your Honour, the only certain rule, if one was to seek absolute certainty, not just for the trial judge, but for the lawyer in their office, would be the general exclusionary rule, and that is what England has done.

KIRBY J: But that has already been whittled away by these exceptions.

MR GARLING: Yes, your Honour, but your Honour was asking about a process of establishing certainty. My submission is there is really only one process of absolute certainty.

KIRBY J: We cannot go back to that, because there has been 30 years of development that has whittled away at that.

MR GARLING: Yes, your Honour, so that - - -

KIRBY J: So we are in the realm of searching for a new basis of not certainty perhaps, but at least a mode of addressing the mind to the problem. If you take the third category in Caparo, it is not certain, but maybe at least then you get the judge focussing on the three central questions: neighbourhood relationship, foreseeability, reasons of principle or policy why it would be appropriate to exclude recovering of the case.

MR GARLING: Your Honour, may I address the third category in Caparo? In one sense, and we submit a relevant sense, it is no different from the second stage of the Anns' test, and this Court has rejected that as the appropriate test.

KIRBY J: It is a constantly developing area of the law.

GLEESON CJ: But one of the things about Caparo is that the two leading speeches in Caparo, those of Lord Bridge and Lord Oliver, both expressly endorsed a passage in the judgment of Justice Brennan in Sutherland Shire Council. At page 618, Lord Bridge, and in Lord Oliver at page 633 to 634, and they both said that he was right when he said:

the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable `considerations which ought to negative -

a duty. Their express endorsement of that proposition of Justice Brennan's seems a little difficult to reconcile with the proposition that they were simply repeating and modifying slightly the formula in Anns.

MR GARLING: Well except this, your Honour, the way in which the third step - - -

GLEESON CJ: They said at page 618 they would "recognise the wisdom" of that.

MR GARLING: Yes, they do, your Honour, but at 619, at about E in Lord Bridge's speech it goes on to say:

Consistently with the traditional approach it is to these authorities and to subsequent decisions directly relevant in this relatively narrow corner of the field that we should look to determine the essential characteristics of a situation giving rise, independently.....to a duty

which was the one - this, of course, your Honours was a negligent misstatement case, so that their Honours were not looking any more broadly in this particular case at other exceptions to the rule, negligent misstatement having been identified for many years as being a category of economic loss which was appropriately allowable.

GLEESON CJ: The House of Lords actually held that Anns was wrong, did it not, in one of those building cases?

MR GARLING: Murphy & Brentwood District Council, your Honour.

GLEESON CJ: Yes.

MR GARLING: They declined to continue the Anns line, but there are, we would submit, with respect to the third step in the process that Justice Kirby put to me, significant similarities with the second step in Anns where one asks whether there are factors - - -

GUMMOW J: One asks whether they are saying one thing and doing another, to be brutal about it, because the third step is not in Sir Gerard Brennan's formulation.

MR GARLING: No, that is so, your Honours, and we really effectively see no real difference between the last two steps in those two tests.

GUMMOW J: And they have been criticised for it severely.

MR GARLING: Your Honours, may I just return to answering Justice Kirby's query about what was wrong with the Caparo process. In one sense, nothing is wrong with it in the sense that it will not, in most cases, achieve an appropriate result; but we submit it is not the best method or the most appropriate method for so doing because there is no clear distinction with respect to that third step between matters upon which a party bears an onus of proof, whether they are matters to which evidence ought be adduced, whether they are matters that the Court can take into account by reference to the Court's understanding of appropriate community standards or perceptions, or matters of the like. There is no certainty in the way in which that test would give to the trial judge or the lawyer in the office the ability to limit what is taken into account.

It is a much safer process, we submit, to say, "As the law presently stands, there is a general rule, there are identified exceptions. Firstly, does this case fall within those exceptions or not?" If the answer is yes, then the lawyer or the trial judge can say, "This is a claim which is allowable subject, of course, always to the indeterminancy question which is an overriding policy."

KIRBY J: But there must have been a day before the decision in the exceptions cases were handed down when it was not an exception. By what principle did an exception emerge and why is this case not an exception, or should we seek some common principle amongst them or some common way of reasoning that embraces not categories but concepts? That is what the common law in this Court has been moving towards in recent years in the area of tort - concepts, not categories.

McHUGH J: It started with Hedley Byrne. Prior to Hedley Byrne the exclusionary rule prevailed. Cases like Morrison and Greystoke are regarded as something of an aberration. Then in Hedley Byrne you had liability for negligence statements and the common lawyers say that is an exception, it is a category - negligence statements - that others develop.

MR GARLING: I am indebted to your Honour. I was going to answer Justice Kirby by saying the very nature of the common law is that categories of negligence are never closed and there will be incremental development of categories, and the exceptions are in no different position, with respect.

CALLINAN J: Mr Garling, the passage that the Chief Justice drew your attention to in Caparo which endorsed what Sir Gerard Brennan said. His passage looks to me to be very, very similar to the passage at the top of page 576 of Justice Stephen in Caltex. His Honour there said:

As the body of precedent accumulates some general area of demarcation between what is and is not a sufficient degree of proximity in any particular class of case of economic loss will no doubt emerge -

Are you saying that we have reached a stage where one can draw a line of demarcation? If we can, what is it?

MR GARLING: I think, your Honour, my answer to that is that we have not reached a stage where one can draw a complete line of demarcation which will touch on all cases arising out of the variety of factual possibilities. We have reached the stage of demarcation which says so far as those that fall within particular categories identified, claims of that kind will be allowed. As for others, the general exclusionary rule applies. But the common law being a developing law, there will always be an incremental approach.

McHUGH J: The principle which was seen as uniting these categories was the principle of proximity. That was the way Justice Deane saw it and that was the approach favoured in this Court for some considerable time, favoured by eminent judges in other jurisdictions such as Justice McLachlin in Canada in Norsk's Case, but then later proximity seemed to come as to be describing result and as indicating that something more than foreseeability is required.

MR GARLING: Your Honours, of course, foreseeability itself is really not adequate and this Court has never held that that of itself was adequate so that unless one goes back to the general exclusionary rule and admit no exceptions, for example, there is no certainty but we do not urge that, your Honours, because the exceptions are too well identified and too easily categorised.

Your Honours, it is of significance though, when considering those exceptions and the incremental approach, to observe that in those categories of cases that are commonly described as relational economic loss, that is to say, economic loss that arises not from property damage as a direct consequence from the Sparnons, for example, but by reason of being causally related to the original tort, categories of relational economic loss are not allowed, your Honours, with respect, in any country so far as we can determine. Canada does not permit them and if your Honours need the most recent decision on that it is the Husky Oil Operations Case. I think my learned friend gave your Honours a reference to that.

McHUGH J: Yes, he did.

MR GARLING: Can I just indicate the relevant pages are at pages 404 through to 407. Your Honours may have appreciated that in Canada there was a history in Norsk where Justice McLachlin and Justice La Forest differed in their view of what ought be appropriately allowed. In Husky Oil Justice McLachlin writes an opinion, a judgment with which Justice La Forest agrees.

McHUGH J: Well, the same thing had happened in Hercules, had it not, because Justice La Forest is a critic of the notion of proximity. He says it is nothing more than a label which expresses a result and Justice McLachlin, I think, either agreed with him or was actually a party to the judgment which he wrote in Hercules, so she seems to have abandoned her earlier championship of in proximity.

MR GARLING: In Husky Oil she writes a judgment which explains how one brings the two conflicting judgments in Norsk together and how it was, perhaps, a misconception that there was ever a real difference between them.

McHUGH J: Yes.

MR GARLING: So, your Honours, rather than taking the time now to read that to your Honours, if I can invite your Honours' attention to those pages I think you will see there, your Honours, how the Canadians resolve that position. The result is though, that Husky Oil being what was described as a contractual relational economic loss, they held that it was completely irrecoverable.

McHUGH J: Well, how do we go about - Anns is rejected in this Court. Proximity, if not unconscious is at least out on its feet. What do we do?

MR GARLING: Well, Professor Fleming would urge your Honours to stay with the general exclusionary rule with categorised exceptions because he would see that in the Tort Law Review article to which your Honours have a reference as being the best of the competing alternatives.

KIRBY J: Professor Stapleton, in the book of essays in honour of the late Professor Fleming, urges us to be bold spirits, look for a new concept.

GUMMOW J: She does not say what it is though.

MR GARLING: Not in this case, your Honour, we invite your Honours. We prefer to proceed in this case in accordance with the common law. But, your Honours, it seemed to us, and we have in our written submissions, and we do not think it would be particularly helpful to the Court to go through the detail we have put, to - - -

GUMMOW J: The proper basis is negligence is an action on the case, no one remembers that anymore except Justice McHugh. That is the nature of an action on the case. You will throw up these particular instances and eventually, Sir Ninian Stephen was saying, you may be able to extract a principle but that is the basic problem. Negligence does not start with any clear grounding of principle at all, it starts as a response to particular circumstances. That is the difficulty.

McHUGH J: Yes. We start off, historically, with a performance of action and then, 1932, the old learning, in effect, is jettisoned and there is an attempt to unifying principle. That is all right in physical damage cases. When you reach the area of pure economic loss, all sorts of problems are perceived. The courts have just been unable to come up with any satisfactory rule, either here, Canada, or in England, not without trying the best legal minds in the last 30 years.

GAUDRON J: Or perhaps there have not been sufficient cases decided to enable the identification of principle.

MR GARLING: In some respects, your Honour, there have been. For example, negligent misstatement now, would be almost universally accepted as being a form of case in which pure economic loss would be known reliance, or the like.

GLEESON CJ: But the history of that area illustrates what is happening. The subsequent cases have been directed mainly to drawing boundaries around Hedley Byrne v Heller. A series of restrictions or limitations follow the acceptance in Hedley Byrne v Heller of a liability for negligent misstatements as people, as it were, shrink from the consequences.

MR GARLING: Or, your Honour, as it may be that as cases attempt by increment to increase the common law. For example, the auditors cases, upon which there seems to be a universal view, that auditors are not liable to the potential investors, at least, for loss, specific reliance apart, is nothing more than an increment on the negligent misstatement case which the common law has rejected.

GLEESON CJ: What, if any, effect on the development of the common law in this area might result from the existence of a statute of the Commonwealth Parliament that imposes a general liability for damages resulting from innocently misleading conduct?

MR GARLING: What affect that would have on the common law, your Honour?

GLEESON CJ: Yes. Does the common law respond in any way to that statutory liability?

MR GARLING: If there were a statutory liability the common law would not be involved, in one sense, because the cause of action would be a suit pursuant to the statutory-created liability. But, let it be assumed that there is a circumstance not covered by the statutory liability but akin to it, which was subject to a common law action, the common law would react, we would submit, by saying the common law rule stays in existence for such cases as remain apart from the statute, and if - - -

GLEESON CJ: If you can find in trade and commerce an erroneous misstatement that causes somebody damage, why would you ever bother suing for negligent misstatement with all the complicated checks and balances within the legal principles?

MR GARLING: Your Honour, it would be certainly our experience that suits of that kind are far more common than negligent misstatement suits now. One of the difficulties may be that there is, when it comes to assessment of damages, not necessarily much of a difference between damages at statute - for example, in trade and commerce cases under section 82, and damages of tort. There may still, nevertheless, be a restriction in terms of the nature of damages awarded. The principle being, as I would understand section 82 cases, that not without exception, but generally, the ordinary principles of assessment of damage in accordance with the law of tort would apply.

But your Honour's question is, if directed to the practicalities of it, we would submit is, in fact, the way in which the law is developing. There are far more section 52 or similar cases based on State legislation than there are for negligent misstatement.

But, your Honours, we have not found, and we do not find in any of the cases to which the appellants have made reference here, any case which would permit of a loss of the kind claimed here. We submit that these cases that are before the Court are not analogous to any decided authority or so sufficiently close to any decided authority that they should be allowed. That, we would submit, is not surprising for this reason, that there is no difference in the nature of the damage suffered here than one of a damage suffered by reason of any number of the contractors with the Sparnons who are in fact - - -

GLEESON CJ: Could I suggest a possible analogy for your comment: Rylands v Fletcher. Bringing onto land a dangerous substance.

MR GARLING: Which escaped. The dangerous substance causes harm to the property of another. Rylands v Fletcher in that sense sought to compensate for physical damage and associated economic loss. It was not ever a rule that would compensate for pure economic loss. Your Honours, with respect, the other reason such an example is not analogous is that it is wrong to think of a potato seed carrying bacterial wilt as a dangerous product which is liable to or may escape.

GAUDRON J: Why? I would have thought, for example, it should say exactly that about prickly pear, and I do not see any difference between prickly pear and infected potato seed.

MR GARLING: Your Honour, as I would understand the growth pattern of prickly pear itself, it multiplies and covers large tracts of land and is hard to remove, but potatoes carry with them the risk of many diseases. It is like ordinary fruit orchards carry with them the risk of many diseases. It is not a dangerous product in itself to grow a fruit tree. It is not a dangerous thing to grow a potato plant. The fact that the potato plant or the fruit tree or the fruit of those plants may carry a disease which has physical consequences on one property and economic consequences on another is not, in our respectful submission, of the same type or nature of the dangerous product or dangerous thing contemplated in Rylands v Fletcher which escaped.

HAYNE J: Might I ask you then to comment on what seems to me at the moment at least to mark this case apart. What marks this case apart is what the respondent knew; not so much what it ought to have known as what it knew in fact. It knew that Western Australia would not permit the importing of potatoes grown or processed within 20 kilometres of an outbreak of bacterial wilt. It knew that bacterial wilt could be introduced by planting uncertified seed potatoes. It knew that to preclude a grower from selling into the Western Australian market would harm that producer. It knew that there were other potato growers within 20 kilometres of the place in which it introduced uncertified seed potatoes. Why does that not set this case apart and your client apart?

MR GARLING: Because, your Honour, those matters individually or in combination amount to nothing more than foreseeability of harm.

HAYNE J: To a particular group of persons, namely potato growers within 20 kilometres of the place, or in this case the several places, in which it introduced uncertified seed potatoes.

MR GARLING: Not just potato growers, your Honour, because there is no reason to differentiate between subparagraphs (ii) and (iii) in the regulation.

HAYNE J: Your answer is that, because others may say that they stand in like case to the potato grower, there was no duty to the potato grower?

MR GARLING: Yes, because once one asks the question, as the trial judge and the Full Court did, who else would be owed a like duty, one is left with a question of indeterminate liability, and the question of indeterminate liability necessarily excludes the person who is, if I can use a colloquial expression, the first in the chain of those that suffer loss; the nearest as well as the furthest away.

McHUGH J: But indeterminacy has got nothing to do with there being a large number of claims, has it? It is really directed to the inability to determine in advance the existence of a number of those claims or the size of the class of possible claimants. That is what indeterminacy is about. If there is 80 people in a class and you know there are 80 people in the class, why should not the defendant pay?

MR GARLING: Your Honour, it is a matter of degree. Indeterminacy may refer to an enormous number because, to use the example used by the Chief Justice yesterday, the bridge in Tasmania that is knocked down, one can say, by drawing a line on a map, anybody falling within this area will be affected economically by that bridge falling down. It may be such a size of a class that the liability is indeterminate.

McHUGH J: Well I am not sure about that. It may be indeterminate, but not because of the fact that there may be 100,000 people involved; it may be indeterminate because you cannot say what sort of claims they would have.

MR GARLING: Or how much each of those claims may be; one could not estimate, in a reasonable sense - - -

McHUGH J: But you never can; in advance you could never - until judicial determination, you could never say, about any particular plaintiff, what the size of the claim may be. Even somebody, the plaintiff that is known, the known plaintiff cases, you may not know what the extent of that person's damage may be until you have a trial.

MR GARLING: But, your Honour, there is a difference between saying with respect to one party, "I do not know how much it will be because I do not know all of the interstices of your business and in what respects you will or will not suffer loss but I know how big you are or how small you are and I can make a general estimation of the likelihood of what that is going to be."

McHUGH J: What is the difference in, "I know there are 60 potato growers in this area serving different parts of the nation with farms of certain sizes."? Why is that indeterminate in any real sense of the word?

MR GARLING: Firstly, your Honours, we are not talking of every potato grower because the quarantine regulation touches only exporting to Western Australia.

McHUGH J: No, but I am dealing with your argument on your terms, that you have to look at the whole of this class and so that you are not only dealing with people who may be affected by the regulation, but others.

MR GARLING: And the others, your Honour, include those who one could never know how they suffered loss. So, for example, one poses this question as an example. If Perre Vineyards, and I only use that because it is a convenient example, were permitted to recover loss, that is to say they were an owner of land that leased by agreement their property to someone who is caught by the quarantine regulation, it is no different in principle between anybody who had a contract with Perre relating to the growing of potatoes because that is the same - if one imagined the ripple effect - that is the next ripple out.

GAUDRON J: But it is not, is it really? It is something that is defined in the regulation of which your clients had some knowledge. There is no regulation about truck drivers. There is a regulation about where and how they can be packed.

MR GARLING: Yes, your Honour, but Perre Vineyards lease their packing facility to Warruga Farms so they have lost their tenancy at will.

GAUDRON J: Well, they had an asset which served a particular purpose and conformed to the requirements of the regulation. Now they have got an asset that cannot serve that purpose because it does not conform to the regulation. They are right in the heart of the regulation. It seems to me they are different from truck drivers.

MR GARLING: Our response to that is, firstly, the regulation itself, as I put earlier, does not provide any real method for determining either the number in the group of claimants or the extent to which they may be liable. Secondly, there is no good reason to ask the question why one would limit loss by reference only to the West Australian regulation?

GLEESON CJ: A possible point of view is that what brings this case at least close to established situations in which there is a duty of care is that here the negligent conduct of the respondent affected property of one kind or another in which each of these plaintiffs had an interest of one kind or another. It did not necessarily physically affect the property in the sense which Justice Jacobs was at such pains to establish in Caltex but it had, according to the argument put against you, an effect on that property which was not materially different from the kind of effect that Justice Jacobs identified on property in Caltex.

MR GARLING: Your Honour, the reason it is not analogous or is sufficiently different from the kind of effect that Justice Jacobs was talking about is that what is limited with this land is one of a number of potential usages. Justice Jacobs was talking about complete limitation. The difficulty, if one then says it does not matter if it is limited only for one purposes as opposed to for all purposes, is one could get to a position which is no different in principle from that by saying if it has been a temporary interruption for a very short period for one purpose only, that is sufficient. We would submit that there is no reason as a matter of principle to regard that affect on a fleeting, temporary, very minor effect on property, if that be the correct way of regarding it, as being in any way analogous to Justice Jacobs' reasoning.

It would be different, perhaps, if I may suggest an analogy closer to the Justice Jacobs' analogy, or - I withdraw that. In our respectful submission, it is not comparable because Justice Jacobs' analogy is one of not an extreme, but of a certainty; namely, complete physical immobility of the product in a way which is akin to physical damage.

GLEESON CJ: Whereas Justice von Doussa and the members of the Full Federal Court did not have to concern themselves about Caparo and cases like that. They were bound by Caltex.

MR GARLING: Yes, your Honour.

GLEESON CJ: As I understand their reasoning, they distinguished Caltex on this indeterminacy of liability basis.

MR GARLING: A and B, and they then applied, as I would understand it, the general exclusionary rule. This is a case of pure economic loss was the first step. It is not generally allowed and, in any event, this is a case of indeterminate liability because one of the other things which Justice von Doussa did in examining each of the relationships was to see if there was anything he described as "special" in the relationship to take it out of the ordinary exclusionary rule.

If I may just give your Honours an example of that: at page 3824 of volume 11 in Justice von Doussa's judgment about line 10, dealing with the Perre Vineyard and Rangara Joint Venture, he says:

There is nothing in the evidence to establish that Apand or Mr Hughes had ever heard of these applicants. These claims fail as no duty of care owed.....has been established.

He sought, albeit very briefly, your Honour, to ask - - -

McHUGH J: Is that a relevant question, that they have heard of the applicants if there is an identifiable class? If auditors give a report to a company which has 100,000 shareholders who are on a public register, they can all sue, can they not?

MR GARLING: Leaving aside what this Court held in Esanda, they could sue if there was some - - -

McHUGH J: But we were talking about outside investors in Esanda, were we not?

MR GARLING: I am talking about shareholders, I am sorry, your Honour, yes.

McHUGH J: So, when you talk about indeterminate class, if the class or the numbers can be identified as at the time when the defendant does whatever.....to give rise to its liabilities, is that not enough? In this particular case your client could readily identify who are likely to be affected by its activities.

MR GARLING: Well, your Honour, we submit that is an overstatement to say we could readily identify who might be affected.

GAUDRON J: Let us say you confine it to those landowners and potato growers, those landowners and those who use that land for growing potatoes in the general area.

MR GARLING: If I may deal with that example, your Honour? The first question is - and if one limited it, may I say, to those growers in existence at the time of the negligent act, it would be hard for me to resist a proposition that one was capable of identifying the people in that category because one could physically drive around an area of 20 kilometres and look to see who at the relevant time was in fact growing potatoes. But one could not, without impinging into areas that are not commonly known, identify who would be caught by the regulation because many of those potato growers, or a number of them, may not export to Western Australia.

GAUDRON J: Exactly. The risk was twofold. The most obvious one was that the bacterium would spread. The second was that it did not spread but nonetheless the potato growing and marketing activities of people would be affected. We are not talking about something unknowable. At least that much must have been clear if you turned your mind to it.

MR GARLING: Certainly the - - -

GAUDRON J: Perhaps the two classes are coextensive. One would assume they are coextensive in any event: to whom it might spread and those who might be affected even if it does not spread.

MR GARLING: But, your Honour, one does not identify that group simply by driving around looking to see who is presently growing potatoes because this case demonstrates the very point, with respect, that one may have not just the grower of potatoes, one may have others in arrangement with those growers of potatoes, firstly. Secondly, one cannot know which of those potatoes by that process, potato growers, would be marketing, et cetera, would be likely to be affected by this regulation.

KIRBY J: But if you took the Caparo approach you could say, in a case of these plaintiffs, that they are not indeterminate. They are determinable and few, and clearly identified, but all these other people down the line - the service station on the way to Perth - is indeterminate and, therefore, that falls outside the realm of recovery.

MR GARLING: But the difficulty, your Honour, with respect, is that the question of determinants or determination cannot fall to be judged by the fact that later one or other party sue and say, "I was in that category and you either specifically knew me or you could have found out who I was", because - - -

KIRBY J: Yes, but your difficulty here is you have these memoranda and they identify knowledge of the regulation and that is a determinant area, and you are conducting this so-called experiment and 25 kilometres from where you do it is pretty determinant.

MR GARLING: Well, your Honour, it may not be - - -

KIRBY J: You just happened to get a sort of a little circle and you put it round.

MR GARLING: It may not be, your Honour. The land encompassed by a 20 kilometre radius is 1,250 square kilometres. The land encompassed by 26 such areas, remembering we sent this to 26 growers around Australia, is 32,500 square kilometres. That, on any view, your Honour, is a very large tract of land.

KIRBY J: But you have, at least in South Australia, this officer whose job it is is to familiarise himself with potato growers. So, you do not have to worry about flower growers or banana growers, you are just concerned with potato growers within that area.

MR GARLING: Yes. His obligation is to be generally familiar with the industry and to service those who have contractual relations with Apand and administer the ordinary contractual relations and obligations with Apand. But, the Perres never, with the exception of the one telephone conversation about which your Honours have heard, when Mr Frank Perre rings up and says, "Can I grow potatoes for you or are there any" - words to this effect - "are there any contracts going at the moment to grow potatoes for you?", and he is told there are not, with the exception of that there is no finding of any prior conduct or association between Mr Hughes, the officer, or the company, Apand, with the Perres.

So, your Honour, it is not a question of Mr Hughes - there was an assertion, an allegation that Mr Hughes had visited the Perres property, but that was denied and rejected by the trial judge. The factual matrix is that, with the exception of a one conversation which was, we submit, correctly categorised as casual - a casual inquiry about whether contracts were available - there was no pre-existing contract. So, the question is not, with respect, were the Perres proved to be, at trial, within the 20 kilometres. That is, of course, a necessary fact they would have to prove but that is to apply hindsight. With respect, one has to look at the question of indeterminacy at the time of breach and say - and this is not a statement of overwhelming principle, but as a practical matter- the tortfeasor has to be able to say to himself, or herself, or itself, "If I do this and it happens that I do it negligently, who will suffer economically?"

HAYNE J: Is not the answer to that question, those specified in the regulations, namely, the growers and packers within 20 kilometres radius. In this case, four people.

MR GARLING: Well, your Honour, may I come back to that question of four people, because there were findings that that was not proved - and there was a good reason for that - but can I come back to that, leave aside whether it is four or some other numbers - - -

HAYNE J: Growers or packers within a 20 kilometre radius.

MR GARLING: Because that proposition, your Honour, takes only part of the regulation. One asks rhetorically, if the determinant of damage is the regulation, why pick only a part of it?

HAYNE J: What part does that not encompass?

MR GARLING: It does not encompass, your Honour, the part in (b)(iii).

HAYNE J: Nor should it where (iii) is capable of ready satisfaction by spraying with 1 percent formaldehyde. Anybody can deal with that instantly. Why should (iii) have anything to say in this?

MR GARLING: I am sorry, your Honour, we do not read (iv) as being joined only to (iii).

HAYNE J: I am sorry, I am reading (iv). Then why is (iii) not limited to the processing plant within 20 kilometres?

MR GARLING: Because, your Honour, if one reads it, it does include the processing plant but it includes any consignment of potatoes which have been harvested, cleaned, washed, graded or packed with equipment. So harvested with equipment, cleaned or washed with equipment, or graded or packed with equipment in premises within 20 kilometres or in premises in which potatoes grown within 20 kilometres of a known outbreak have been so treated and - - -

GUMMOW J: The packing here is Perre's Vineyards, it is not?

MR GARLING: They are the landlord. They own the packing facility but lease it to Warruga Farms.

GUMMOW J: Yes.

MR GARLING: But one could have, for example, in answer to his Honour Justice Hayne's question, a grower of potatoes in Darwin who has their potato processed at a plant at which Perre potatoes are being processed within five years of the outbreak of bacterial wilt.

GLEESON CJ: You seem to be quoting determinacy of liability with the idea that you could work out fairly accurately what would be an appropriate premium to pay for an insurance policy.

MR GARLING: Or, alternatively, whether the commercial risk attendant upon the conduct or the financial risk attendant upon the conduct permits it to be undertaken.

GLEESON CJ: How does an oil company which transports oil in tankers work out the likely consequences of an oil spill for the purpose of insuring itself or for the purpose of determining whether the operation is commercially viable?

MR GARLING: Well, it would approach it in this way, we would submit, your Honour: firstly, it determines what quantities of oil it would carry in any one vessel; secondly, it determines the construction of the vessel in which the oil would be carried - will it have tanks that are sealed once, twice or three times; what construction will there be that may prevent or alleviate spills.

GLEESON CJ: But it would have no way of knowing the extent of the liability it might incur as a result of a particular incident.

MR GARLING: As it set out from port, that must be so, your Honour, because the spill could occur at different geographical locations with different consequences, but it accepts the risk by taking steps to manage or minimise its risk: it gets the appropriate vessel; it provides for recovery processes where an oil spill takes place; it puts into place a risk-management program and, no doubt, it insures itself to a level which is commercially reasonable, having regard to the coverage and the premium. In one sense it leaves to its insurer the calculation of the extent of the risk but, your Honour, an oil spill has two parts to it: it has the physical damage part, which would not be affected by any question of indeterminacy and it has the pure economic loss part, which would be affected by indeterminacy.

KIRBY J: Is that why the common law insisted on the physical damage, because it allowed a clear identification of those who were within the scope of each tort, or was it some other principle of the common law that was tender to physical and property damage?

MR GARLING: I cannot answer that question directly, your Honour, but there is no doubt that by limiting it to physical damage one provided a very easily and readily identifiable limit on claims, and it certainly, if one limited it that way, avoided any possible question of indeterminacy, because one could follow the path in the Chief Justice's example of the oil and identify where it hit or where it affected physically.

Your Honours, I said to Justice Hayne that we took issue with the question of whether there were four people identified and perhaps that is a convenient time to just deal with that issue. Firstly, we would submit with respect to that issue that the evidentiary onus was on the appellants. Secondly, there is a finding at 3813 in volume 11, a few lines up from the bottom of the page, your Honours, of the trial judge:

It should also be noted that the Perre interests were not the only growers who actually or potentially suffered economic loss through the inability to export potatoes to Western Australia. There were other growers not only in the Loxton area but within 20 kms of each of the other bacterial wilt outbreaks.....The number of these growers is not disclosed by the evidence, if it is known, but it is likely to be many.

That was how the trial judge dealt with that.

GAUDRON J: Well, that, of course, proceeds if you take the negligence back to the meeting. If you identify the negligence as providing the seeds to the Sparnons and look at the people affected by that act of negligence we are only dealing with people in the Loxton area, are we not?

MR GARLING: Yes, your Honour, the Riverland. It was called the Riverland area but I am told by those who know that is also the Loxton area but, your Honour, there were other growers in South Australia no different from Sparnon who got the seed at the same time, so even if one is looking at the use of the seed in South Australia to identified growers, one is looking at all of those South Australian growers. One is not looking at one 20 kilometre radius. The other references I wish to give your Honour are these.

GUMMOW J: Who bears the evidentiary onus, seeing we are talking about this, of proving the indeterminacy of the class?

MR GARLING: The applicants, in a suit, would prove the evidentiary onus of - - -

GUMMOW J: By proving the non-indeterminacy of the class, is it?

MR GARLING: Correct. To say the reason that we are owed a duty in this case is that we were part of a class which the common law would not regard as indeterminate.

GAUDRON J: It is not an element of the tort, anyway, is it? It does not have to be proved. It is not an element of the tort, as such, is it?

GUMMOW J: It is, on your formulation, is it not?

MR GARLING: It is, your Honour, it is a question of duty because the common law does not recognise a duty if the class is indeterminate. So, in proving that there is a duty of care, the appellants have to demonstrate that the class is not indeterminate. As a practical matter, of course, in many cases that is not going to be either very difficult or very onerous.

Can I then take your Honours to these other findings? The Full Court at page 42 paragraph F. At the paragraph just below F, there were:

the 26 growers who planted second generation seed throughout Australia, 18 produced crops infected.....The Sparnon's property was but one of those 26 properties.....No evidence was identified to this Court which indicated how many potato growers were within a 20 kilometre radius of each of those 26 growers, or even more widely, how many potato growers there were who had washed or packed their potatoes in premises.....Nor was any evidence identified which would enable a finding to be made that some particular number or numbers of growers within that category did or might export potatoes to Western Australia. If there were any such growers, were their export programs interfered with by bacterial wilt developing on any one of those 26 properties? Had they used a washing or packing shed -

et cetera. Then, across to the top of the next page:

The fact that, as events apparently revealed, within that distance from the Sparnon's property, it was only the Perre interests which fell within that group does not in our view indicate, in a relevant sense, that they were either an ascertained or ascertainable members of an ascertained group at a material time. There is no apparent reason why economic loss, due to an inability to export potatoes to Western Australia, is of any special significance compared with other causes of economic loss -

and their Honours then give - - -

GUMMOW J: I do not understand the first sentence on the first paragraph on page 43. They seem to be thinking what has to be conducted. I do not know by whom. There is some inquisitorial investigation. To scan the world from China to Peru as Lord Justice Harman said somewhere, to round up the members of this class, and unless that is done it is just too bad for the plaintiff. The best finding that is made is in the first sentence, that it was only Mr Gray's clients.

MR GARLING: No, but, your Honours, that is not, it seems to us, with respect, a finding that contradicts Justice von Doussa's finding because it is preceded by the question at 42 between F and G about the number of growers that were identified within the relevant radius of those properties. What is of significance is that my learned friend referred your Honours to a document which he said demonstrated that there were four growers. That was a document to be found at volume 6, page 2691. Your Honours may wish to go to it but need not for the purposes of this argument.

HAYNE J: Are the maps referred to at page 2691 those which appear at 2770 and 2771?

MR GARLING: May I check that, your Honour. I am sorry, did your Honour say 2770?

HAYNE J: Yes, it is the scale plan of the packing facility referred to in para 1.2 on 2691, I would assume, but is it?

MR GARLING: It would appear to be so, your Honour.

HAYNE J: And the map referred to in 1.1 is that appearing at 2771, is it?

MR GARLING: It would appear to be, your Honour. Perhaps I can check whether that is so but it would appear to be.

GUMMOW J: There are various markings on 2771 about Perre's sheds and installations.

MR GARLING: Yes, your Honour, and Sparnon is identified.

HAYNE J: As is Haby.

MR GARLING: "Daservo" I think is also identified next to Sparnon but it is a little difficult for me to read. Your Honours, there is a fundamental problem about this document. Your Honours will have noted the order that Justice von Doussa made about the matter of trial. He was not determining at the hearing that he conducted any issue of damages relating to the present appellants.

GUMMOW J: Well, he was not determining an issue of quantum, is that right?

MR GARLING: He was proceeding on the basis that damages were as pleaded, of the nature pleaded. I think that is at 3809, volume 11. The issue that was for trial was whether:

in the event that the -

present appellants -

later establish such of the facts and losses or some of them alleged in.....the statement of claim as relate to them whether the respondents or any of them are liable in law for damages for the said losses on any one or more of the causes of action -

The way in which the trial counsel for all of the applicants conducted the case was to provide to his Honour at an early stage and to continue to provide large volumes of documents that had been collated from various sources.

This was one such document. Your Honours will see, for example, it came into existence after the relevant wilt and was a document of the Department of Agriculture to the relevant Western Australia authorities. That document was objected to and the trial transcript records, and we have provided your Honours a copy of this trial transcript, which is page 556 of the transcript, we have attached it to our written submissions. Perhaps I can just correct what I said about a specific discrete objection. Your Honours, we have only provided you with page 556, but the process that was happening was Mr Morcombe, the trial counsel, was taking his Honour through the bundle and describing the relevance of the various documents, and his Honour says, at line 6:

Well, now, this is relevant to damages, is not it?

MR N. MORCOMBE: It is. It is, only.

HIS HONOUR: And only for the Perre case. Can we just mark it on that for the moment.

MR N. MORCOMBE: Sure.

HIS HONOUR: Because, what I envisage will happen is that there be a determination of liability, and if it is necessary to embark upon an assessment of damages you will have to re-marshal all these pages anyway.

MR N. MORCOMBE: Yes.

HIS HONOUR: Because it will be run, really, as a separate case.

MR N. MORCOMBE: I would see it that way, sir.

HIS HONOUR: Probably removed in time by months, if not longer, from this case.

MR N. MORCOMBE: Yes.

HIS HONOUR: So, that is all right. No-one is prejudiced by simply marking this as Perre damages and leaving it here for the moment.

In other words, leaving it as part of the bundle, identifying the issue to which it was relevant and only relevant, which was not an issue that was being litigated between the parties at the time, and that happened with a large number of the documents as well. So this was not the only document.

So, your Honours, for my friends to say, this is a document that was available to be used on the question of liability is, we would submit, contrary to the way in which the case was conducted at trial and they ought not be permitted to so rely on this document, and, we would submit, in the absence of a document such as this, the finding that the trial judge made to which I have taken your Honours is unsurprising, namely that there was no evidence before the court as to the number of growers who may have been affected, et cetera.

GUMMOW J: Well, the fact is, it was relevant to more than damages.

MR GARLING: But the trial was not conducted on that basis, your Honour, and the appellants - - -

GUMMOW J: I hear what you are saying. This is the sort of argument that eventually leads to litigants rioting in the street. The fact is, it was relevant on several bases and you are saying it was only admitted on one.

MR GARLING: Yes, to one issue: the parties understood that and they left it there and consequently, they do not cross-examine on it, they do not deal with it by way of evidence; it is just not dealt with on these issues, your Honour. To say now we should be caught by it is, we would submit, unfair and not the way in which the trial is conducted. And may I add one other point, which may be of interest - it may not be: it does not, in fact, postulate the 20 kilometre radius around the Sparnon property; it postulates a 20 kilometre radius around the Warruga farm production area.

Now, we know that that is three to three and a half kilometres one way. The 20 kilometre radii are not coexistent. There may be a difference by only six or six and a half kilometres, however one measures it but, nevertheless, it does not prove what it is that the appellants assert in any event.

Your Honours, may I move then to deal with our notice of intention. I am conscious of the time.

GUMMOW J: You have got to come to this entertaining cross-appeal, have you not?

MR GARLING: Your Honour, I am sure, mischievously describes it as a cross-appeal. I mean that, your Honour, with no disrespect. Can I just remind your Honours of this: There was one proceeding in front of Justice von Doussa. There was an appeal from that by Apand. That is at page 3854 of volume 11.

Your Honours will see that that is a separately numbered proceeding in the Federal Court on appeal. The appellant is Apand and the respondents were the three Sparnons. That appeal was, as your Honours have been informed, dismissed.

GUMMOW J: Just a minute. Was there another notice of appeal for the appeal?

MR GARLING: Yes, yes there is. There was an order made in proceedings 28 of 1994 which is the Apand appeal dismissing that appeal and ordering Apand to pay some costs. There was then - - -

GUMMOW J: Do we see the other notice of appeal in the Full Court?

MR GARLING: I will just take your Honour to that.

McHUGH J: One is at page 3854.

MR GARLING: That is the Apand appeal against the Sparnon finding.

GUMMOW J: The other one is at 3848, is it?

MR GARLING: The Perre appeal is at 3848 which has a different number and was a different appeal.

GUMMOW J: Now, was there any order made that the appeals be heard together?

MR GARLING: I am sure there was, your Honour, but it is not reproduced in this book and there is no question but that the appeals were heard together. The order with relation to the Perre appeal, that is the appeal at 3848 and following, is to be found at 3909 so that the order in the Perre appeal was that:

1. The appeal be dismissed.

2. The appellants pay the respondent's costs.

It was against that order, which your Honours will see the date of the order "21 November 1997", and one goes to the next page there is the order granting special leave of this Court, and the order was that special leave be granted against that order. Now, your Honours, it is not open to us to cross-appeal from the order at 3909. There is no relief we seek - - -

GAUDRON J: But it might be open to you to appeal from it by joining the Sparnons as parties. You have the one judgment and your difficulty in this case is there are no Sparnons here.

MR GARLING: But, your Honour, that is not, with respect, our difficulty, for this reason: we are not seeking to amend, or vary, or otherwise alter in any way the order at page 3909 which was the judgment given on appeal by the Full Court so far as these appellants are concerned. The Sparnon's case is no longer of any relevance. There was a judgment given in it, the judgment has been attended to and that case has gone away. So, we were never seeking to upset the judgment in favour of the Sparnons. We did not wish to contest that. The appellants here, obtained leave to appeal and say, "The court was wrong to hold that there was no duty of care", for the various reasons they put. Classically, it is open to the respondent to say by notice of contention, "Well, we submit they were not but if - - -

GUMMOW J: No duty of care to whom?

MR GARLING: To the Perres. We have heard nothing about a duty of care to the Sparnons, your Honour. We have not heard a word from my friend saying that there was anything about the Sparnon judgment that should be overturned but - - -

GAUDRON J: It was one judgment, was it not?

MR GARLING: No, your Honour, separate judgments were given.

GAUDRON J: Separate judgments in the Full Court?

MR GARLING: Yes, because the Sparnons had a judgment from Justice von Doussa for a certain money sum - - -

GAUDRON J: Separate orders.

MR GARLING: Yes, one reasons for judgment but separate judgment and orders with respect to the Sparnons on the one hand and the Perres on the other. Now, we would submit, your Honours, that - Justice von Doussa's orders are at 3846 of volume 11.

CALLINAN J: Can you tell me where the finding of negligence is in favour of the Sparnons?

MR GARLING: By Justice von Doussa?

CALLINAN J: Yes.

MR GARLING: In his reasons, your Honour?

CALLINAN J: Yes, please.

MR GARLING: Certainly, your Honour.

GLEESON CJ: Pages 3768 to 3771, I think.

MR GARLING: Yes, I am indebted to your Honour the Chief Justice. Yes, your Honour, the precise conclusion is at 3771, line 16. I was inviting your Honours' attention to 3846 which are the orders. Separate orders were made both in respect to judgments, dismissal of various cross-claims, judgment in - the relevant judgments are at paragraph 1 which is the judgment in favour of the Sparnons. We sought to overturn that and the appeal was dismissed so that remained and there was a judgment 6 in paragraph 6 in favour of Apand against the fourth to eighteenth applicants who are the Perre interests who are now appealing.

Your Honours, we are not concerned to overturn any aspect of any judgment against the Sparnons. We do not seek to. What we seek to overturn is, in the event this Court is persuaded there is a duty, by ordinary contention in accordance with the rules, that there has not been a breach of it. We would submit, with respect, that is classically a notice of contention and appropriately within the rules

GAUDRON J: Does that concede a duty or would you proceed on - because there has been a lot of debate about what is said to have been the act of negligence, a debate which cannot be isolated from duty. And as I presently see it, nothing has persuaded me that the duty involved in this case, if there was one, was a duty not to provide seeds to the Sparnons that had not been so dealt with as to minimise the risk of bacterial wilt. Now, if that is identified as the duty, there can be no doubt about its breach, can it?

MR GARLING: Yes, your Honour, for three reasons. And the way in which we put why there can be no doubt about the breach is that there was a very real question decided against us by the trial judge - but we would urge wrongly - about the foreseeability of the infection of the Tymensen crop with bacterial wilt.

HAYNE J: And that was raised in your appeal involving Sparnon by ground 9 at 3858, and resolved against you in the Full Court.

MR GARLING: And it was raised by notice of contention in the Full Court with respect to the Perre appeal as well, your Honour.

HAYNE J: Resolved?

MR GARLING: Well, resolved because the factual issue was resolved against us. Resolved because the factual issue was resolved against us, not resolved in any formal sense, because there was no need for the court to deal with the notice of contention in a formal sense. But, your Honours, it may be - and let me be entirely frank - it may be that the - - -

GUMMOW J: It is a good idea. Yes, go on, Mr Garling.

MR GARLING: It may be that the circumstances of this notice of contention would border on the way in which the rule is expressed. In other words, the rule was not expressed to have regard to the specific way in which this notice of contention is brought, but, in our respectful submission, it does not mean that we are not within the rule.

GAUDRON J: But why should we be concerned with it? You have just told us that there was a notice of contention in the Full Court that was not dealt with, in essence, because there was a finding for you on this issue.

MR GARLING: Yes, your Honour.

GAUDRON J: Let us assume we decided that the Full Court's reasoning could not be supported, why would we not simply set aside its orders and remit the matter to the Full Court to deal with any outstanding issue in the proceedings before it?

MR GARLING: That course is open to the Court.

HAYNE J: And were we to do so, would not the Full Court, consistent with its holding in Sparnon, necessarily conclude it against you? A valid argument.

MR GARLING: Yes, your Honour, that course would follow, and then we would consider whether or not we wished to bring an application for special leave back to this Court.

GAUDRON J: How would you rate your chances?

MR GARLING: I do not think frankness requires me to answer that question, your Honour.

CALLINAN J: One of the difficulties, Mr Garling, I think, is if you look at those passages that you referred us to where the finding of negligence is made against the respondent in favour of the Sparnons, some of the factual findings are really factual findings that are appropriate to all of the cases. It is probably only the ultimate conclusion of negligence in respect of Sparnons that is different, I think, from the findings which are generally made. There are a number of factual findings made there: reference to the Pakenham meeting, formulation of the claim, and it really is, I think, rather unrealistic to say that any different factual conclusion could be reached on the issue in the case in which the issue is agitated so far as these appellants are concerned.

MR GARLING: The problem, though, your Honour, is, because the appellants chose to formulate their case as part of a joint trial with the Sparnons, and to have the case heard with one set of counsel appearing, as a joint trial. With respect, it does not mean they can avoid the ordinary consequences of the way in which the appellate process works.

CALLINAN J: I am not sure that the trial judge intended those findings to be confined to the Perre case. Certainly the ultimate finding of negligence, yes - the ultimate conclusion; but, the actual factual findings, to the extent that they are relevant to the appellants' case, would, I think, stand, in the appellants' case - or may stand in the appellants' case.

MR GARLING: Yes, your Honour, but it always open by the process of notice of contention to challenge findings that were adverse to us, but which have not resulted in an adverse judgment. That is the nature of a notice of contention.

CALLINAN J: And did you fully argue this aspect of the matter in the Full Federal Court, so far as the appellants are concerned.

MR GARLING: Yes, your Honour. The point sought to be raised here by notice of contention were raised and argued in the Full Court. The appellants argued to the contrary of them.

CALLINAN J: Was a different argument presented in respect of the appellants on this point from the argument that was presented in respect of the Perres on this point?

MR GARLING: The Sparnons?

CALLINAN J: I am sorry, the Sparnons.

MR GARLING: No, your Honour.

CALLINAN J: So it was the same argument, and you failed on it so far as the Sparnons were concerned; no conclusions expressed on it by the Full Court with respect to the appellants.

MR GARLING: And they strictly did not need to, because they dismissed the appellants' appeal.

CALLINAN J: But as Justice Hayne points out, it is really unthinkable that they would have said anything different had they needed to in the appellants' case.

MR GARLING: Yes, that is so, your Honour. I thought I had frankly acknowledged that proposition, but the proposition that is put against us is that we should cross-appeal. Now a cross-appeal could only be against the Perres and we do not seek to disturb the judgment below. Now, your Honours, as I said, it may well be that this is on the cusp of the rule but, in our respectful submission, we do not clearly fall outside it.

GLEESON CJ: Now, you said, did you, that the issue that you want to direct attention to is that of foreseeability?

MR GARLING: Yes, your Honour.

GLEESON CJ: Foreseeability of what? By whom?

MR GARLING: Foreseeability of the likelihood of the seed on Tymensen land being afflicted with bacterial wilt, which was the reason why it was held against us that it was negligent to give it to Sparnon - to let it out to be planted in South Australia. Your Honours, I am not about to delve into myriads of fact; it is a short point, because we say his Honour has misapplied Hughes v Lord Advocate or has misunderstood it in the way in which he dealt with it and, your Honours, we have set out in writing, from page 29 through to page 39 of our submissions what we put in full and I do not wish your Honours to repeat those or to do anything other than to highlight, in support of our submission, a couple of points which, we submit, highlight the difficulty. Can I invite your Honours' attention to page 3763 of the judgment.

GLEESON CJ: Yes.

MR GARLING: At about line 11 in the first paragraph:

In its widest presentation -

his Honour says -

the applicants' case alleges that it was negligent for Apand to allow potatoes grown in the Koo Wee Rup swamp area to be used as seed because that is not a certified seed growing area, and, moreover it is an area well known for pests and diseases. The applicants say it is not necessary to show how the infection was introduced. It could have been by any one of numerous possibilities similar to those suggested by Apand as the source of infection to the Sparnon property. The risk of infection by pest or disease was well recognised in the area, and that is why it was used only for growing commercial crops. The fact that diseases of various kinds can be transferred by the casual movement of people, stock, vehicles and machinery, and containers was also recognised, and is the reason for the imposition of 20 km restrictions.....

Apand responded to this by saying that as a matter of law it is wrong to pose the test of foreseeability so widely: the relevant risk which the defendants had to foresee and guard against was the risk of bacterial infection - not generally against any kind of infection including viral infection, pests such as PCN -

I am told that stands for "Potato Cyst Nematode", your Honours -

fungal infections or bacterial infections. Apand contends that the risk of infection present in low lying areas from viral infection, and the risks of fungal infections and pests that may exist in heavily used commercial growing areas, are risks of an altogether different kind: see Hughes v Lord Advocate [1963] UKHL 1; (1963) AC 837.

If it were necessary to decide the negligence claim on the evidence so far discussed, I would reject the submission of Apand based on Hughes v Lord Advocate.

His Honour then goes on to criticise Apand's submission as being questions of:

fine distinctions between types of pests and diseases, each of which can be transmitted -

et cetera. His Honour says at line 6:

on proof, which I find is established, that Apand, with its intimate knowledge of the potato industry and the Koo Wee Rup swamp area should have foreseen the risk, which was a significant one, that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny.

Now, your Honours, we submit that to pose the test of foreseeability in that way is to misunderstand what Hughes v Lord Advocate and like subsequent authorities stand for and it is in essence for these reasons that - - -

GAUDRON J: But this is a relevant consideration once you move negligence along, as it were.

MR GARLING: It is a relevant consideration wherever the negligent act is, your Honour.

GAUDRON J: I am not too sure that is. Assume it is defined as putting into circulation in the Riverland area seed potatoes in respect of which not all possible steps had been taken to ensure, as far as possible, freedom from bacterial wilt.

MR GARLING: Yes, your Honour. That was not the case in the way it was put or found but assume that to be so for a minute.

GAUDRON J: Well, it would seem to be comprehended in it.

MR GARLING: Well, your Honours, we would say not and not seen that way by the trial judge or the Full Court.

GAUDRON J: This is a duty to the Perre interests.

MR GARLING: Yes, your Honour, but the question is - and assume that the duty is formulated in that way, we submit it was not and ought not be, but assume that it is - the question is was there a foreseeable risk of harm in that process. The foreseeable risk of harm which his Honour finds is that the seed could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny.

Now, with respect, we say that is too broad a question of foreseeability because, in the potato industry, there are an enormous range of diseases, some of which are contemplated as being present even in certified seed to a particular level. One has to ask the question, "Is it a disease of the same kind?" because otherwise the harm is quite different and the matters that we submit in general, your Honour, the precise evidentiary basis for them is contained in our submission, but the matters which we submit in general are of importance to look at are whether the disease is created by one form or another. Is it a bacteria or virus, for example?

Secondly, how easily it is spread. The disease looked at by his Honour principally related to the Koo Wee Rup area was a question of aphid spread leaf roll virus as opposed to some bacteria transmitted in some other way.

Thirdly, would the prevention or treatment of the diseases be the same and we would submit that, as we have put in our submissions, the evidence discloses they are not. Fourthly, therefore, whether they are damage of the same kind.

We submit that they are not, and it was wrong of his Honour to place to define the foreseeability in such a broad way. That is shortly put, the way we put it, your Honours. The detail of the evidentiary references are in our submission. I do not wish, having regard to the time of the day to put them.

GUMMOW J: Was this dealt with in the Full Court? They did deal with the Hughes v Lord Advocate point, did they not?

MR GARLING: Your Honour, they dealt with Hughes v Lord Advocate - - -

GUMMOW J: Do you take issue with that as well?

MR GARLING: They dealt with a different point in Hughes v Lord Advocate, as we read it. I will just take your Honours to that. They dealt with the Hughes v Lord Advocate point at page 31 about paragraph E:

The appropriateness of the trial judge's conclusion that Apand was in beach of its duty.....depends, in our view, upon the applicability to the circumstances of this case of the principle -

and then at 32E, they apply the principle saying:

Even accepting it was not reasonably foreseeable that the flood could transfer bacterial wilt by the mechanism of depositing a piece of infected plant material at its outer limit, it was nonetheless foreseeable that flood waters could transfer bacterial wilt from one property to another.

Their Honours applied the Hughes v Lord Advocate test to the method of transmission from one property to another, not to the question of what was the foreseeable risk of disease, and did not, as we read their judgment, deal with that point at all, your Honour.

Your Honours, the second point on our notice of contention picks up that point, the way in which the Full Court dealt with it, to say that, effectively, as the Full Court held, the so-called flood theory was not foreseeable. But their Honours then applied Hughes v Lord Advocate in the way I have just indicated to your Honours.

Can I just for a moment trespass on your Honours' patience to provide your Honours with a quick tour around what was known as the flood theory. There were three properties at Koo Wee Rup: Mr Summers; in the middle was Mr O'Sullivan; and at the end was Mr Tymensen. Mr Tymensen's property was at all times inspected and found to be wilt free. No wilt was discovered on that property until after the outbreak in South Australia, and it was traced back. Mr O'Sullivan. the middle of the three properties, at no relevant time demonstrated any outbreak of bacterial wilt. Mr Summers, the uphill of the three, had had bacterial wilt at a time prior to the flood. A flood occurred. It covered land which was both Mr Summers', Mr O'Sullivan's and Mr Tymensen's. The postulated theory - there were two postulated theories as to how the wilt got from Mr Summers, skipped Mr O'Sullivan and came out at Mr Tymensen's land. The first was that the bacterium was carried in the waters itself.

That possibility was - although it was known that bacteria could be carried in irrigation water or channels or other - by that medium - was discounted by the experts because the amount of bacterium one would get in flood waters that were as extensive as this would mean that it was diluted to such an extent that it was unlikely that infection would result. The alternative was a theory which arose out of a question his Honour asked of Dr Wimalajeewa, which was to the effect that, "Could not the bacterium have been carried from one property to the 30 line and missed the middle one, in effect, in a piece of plant material or plant debris carried by the flood?". That was known, your Honours, as the flood theory and that was the basis of his Honour's ultimate finding. The finding with respect to that is at 3771.

Your Honours, if I can just put the argument shortly because it is in substance in our written submission. What we submit is and - I am sorry, I will take your Honours to 3771 and then put the argument. What his Honour found was this, at line 7:

I think with the benefit of the knowledge collectively possessed by the officers at the Pakenham meeting, they should have foreseen the risk that the flood may have spread bacterial wilt to the area of Mr Tymensen's property where the crop was growing, and should have foreseen the risk that the crop could be infected with low levels of bacterial wilt that may not be seen in the crop on the inspections which had occurred -

The evidence - and the reference is at paragraph 45 of our submissions and subsequently - was that when put to Mr Wimalajeewa, he said, in effect - and I summarise it very briefly, your Honours - "That is a theoretical possibility. There was no scientific writing to suggest that a tuber of potato or plant material could be suspended by flood from one place, the other missing the intermediate and thereby cause the infection. It had not been identified as a relevant cause of transmission of bacterial wilt in any publication. It was not addressed in any way, we submit, in the relevant expert's evidence and it was not said to be something which was commonly known - - -

GAUDRON J: What difference does this make? The potatoes were grown in an area on a farm in proximity to another which had had bacterial wilt which is a condition which is known to be transmissible in a variety of ways including shared plant, machinery, et cetera. Is not that the beginning and the end of it?

MR GARLING: No, with respect, your Honour, we would submit that is too broad because if one is looking at foreseeability, one could say, for example - - -

GAUDRON J: One could say the farmer might have come over to the Tymensen property wearing boots with affected soil clinging to the bottoms.

MR GARLING: That is so, your Honour, but the factual matrix of this case was that Mr Tymensen was found by his Honour, and proved to be on the evidence, to be a man with very good hygiene practices. So, if one is looking at foreseeability of using the Tymensen seed, which is what the question is, with respect, one can ask the question, "Is it foreseeable that seed from this area will carry that disease?". With respect, if one has investigated and found that the grower undertakes precautions against all of the identified sources of transmission, and there is later identified, for the first time, a source of transmission about which there has been no other identification, to say that that source of transmission is foreseeable is, with respect, we put, too broad. Your Honours, the balance of our submissions and the detail of them, in that respect, are in our written outline.

GLEESON CJ: Thank you, Mr Garling. Yes, Mr Gray.

MR GRAY: May it please the Court, there are some short matters in reply. This morning my learned friend put a submission that although the seed was non-certified seed, it was not at-risk seed, apparently, because it had been planted on new ground, and he identified that matter, in particular, in the Department of Agricultural memorandum. It spoke about three years of no previous growth.

Justice von Doussa, in his judgment, defined and addressed this issue. It is at 3752 line 28 to 3753 line 3. His Honour concluded:

The introduction of disease where multiplication outside the certified scheme occurs can be minimised by growing the crop from which seed is collected in "new" ground, i.e. ground that has not been planted with potatoes for several years -

which accords with the three years mentioned in the agricultural advice.

In this case the Tymensen land was not new ground. My learned friend's submission carried with it the import that Tymensen land was new ground. The explicit evidence of Tymensen and Moorthy was that that was not so. At appeal book 4, page 1650, lines 20 to 25, Mr Tymensen was being cross-examined:

What was your assessment of the crop as at the time you spoke to Mr Moorthy in early 1991 as you refer to in paragraph 18?---It was an excellent crop. The only problems I had with it were the self-sowns for the purpose that Kan -

Kan Moorthy -

indicated that they were required for.

Could you explain that, please?---It had a previous crop of potatoes in it. That was of a different variety.

Then Mr Moorthy's evidence is in book 3, page 1086, line 34. Mr Moorthy was being examined:

The next matter that is mentioned in that same sentence is that there was no rotation of that paddock at Tymensens. What was the significance of that to you?---In fact, certified seed crop you need three years clear rotations in that field, whereas Gerry Tymensen of course he has - he's a good grower, a very profitable grower and the only thing is he don't have enough land to do the rotation because he don't need to do it because he produces all for commercial production. So there is no rotation done because I knew that paddock has been planted with the crops in the previous year, so there's no rotation, so there's no point in growing as a seed crop.

HIS HONOUR: You knew that particular paddock - - -?---Yes.

Where the crop was growing had been cropped the year before?---Yes. Yes, sir.

MR MORCOMBE: What is the significance of not having a rotation for that particular paddock in terms of growing seed potato?---Because one is a varietal mixture because I knew that he grew some different varieties in that particular block and he grows this particular Saturn in that block again, it's very hard to control this cell zone, as I said to you before, because all the small ones will start sprouting again for the next season and that will produce some more seed. So it would be a varietal mixture and, again, all these diseases like pulp scab I mentioned and the silver scurf or black dot which are all fungal organisms is in the soil, where will you grow potatoes? So which of course it will carry on to the next crop, so which is not suitable for seed on that.

So the very regime that my learned friend suggested would protect against the risk of non-certified seed being then grown out, in fact, not addressed here. This was not clean ground. The other reference, and my friend took the Court to it, was volume 6 page 2826 which was a Department of Agriculture pamphlet which spoke of the need for clean ground to be kept clean for three years.

The fact of the matter is that Tymensen, when he grew this crop, grew it as a commercial crop to be produced and processed out of existence and that is why, with respect, he was chosen and no concern. Nobody would choose the Koo Wee Rup swamp from which to obtain seed because of the overall risks.

The next matter my learned friend suggested, that we say is factually incorrect, and might be of some importance is the date of the decision to introduce the seed into South Australia. Now, as we understood my friend's submission, he suggested that decision was taken at the Pakenham meeting and we submit, with respect, that is not correct.

His Honour speaks of the matter going into South Australia following that meeting but the decision was not taken at the meeting. The decision was not taken until about mid-1991. Now, the evidence that supports that is from Mr Hughes. It is Mr Hughes' own evidence - volume 4 page 1709 line 9, a question from Mr Hughes' own counsel:

Did you learn from that meeting that a decision was taken -

that is the Pakenham meeting -

to trial the Saturna crop in a number of areas in Australia?---Yes, although at that stage I hadn't made a decision to trial it in South Australia.

That is as at the time of the meeting?---Yes.

At some time after the meeting...?---It was principally decided to go to Queensland.

At some time after the meeting did you make a decision to trial the Saturna crop in South Australia?---Yes.

HIS HONOUR: It was your decision, was it?---Along with the people in Victoria?

Was that made at this meeting or subsequently?---Subsequently.

MR FRAYNE: Who were the people in Victoria that you were referring to in the course of your last answer?---Ken Moorthy and Ray Cullen.

HIS HONOUR: When was that?---May, June '91.

So the position is that at the time of the Pakenham meeting there was no decision made at all to go to South Australia, but that decision was not made until May and June and then not implemented, well first with Virgara, but as far as the Sparnons were concerned, it was not implemented until probably December, when they were approached in regard to this experimental crop, and we say our learned friend's submissions that have hinged so heavily on the relevant breach of duty occurring at Pakenham, and for other reasons, simply cannot stand, but that part of his factual assertion, with respect, is incorrect.

The third matter of our learned friend that we wish to reply on was my learned friend's suggestion about the finding of duty. In this regard I would like to take the Court to the intermediate court decision in 80 FCR at page 27. It is page 27 paragraph C, there is a heading "Allegations of negligence":

Before the Court, counsel for Apand did not challenge the finding of the trial judge that:

"Apand owed a duty of care to the Sparnon partnership arising from their relationship created when Mr Hughes [of Apand] invited the partnership to participate in growing an experimental crop with Saturna seed to be supplied by Apand."

That is taking place in or about December 1991 through to January 1992. We say it is simply not open to my learned friend to seek, having made that concession, and rightly so, to seek to enter a different case before this Court, which has taken up, with respect, so much of today. My learned friends, we would say - - -

GLEESON CJ: Tell me, if Apand had not been involved in this activity at all, but it had been the Sparnons who decided to grow an experimental crop on their land with Saturna seed, and the Sparnons had been negligent in the selection of the seed, would they have owed a duty of care to the Perres?

MR GRAY: Yes, we would say they would. They would have been carrying on a dangerous activity in circumstances where they could foresee a risk and were aware of the danger. It would depend on the precise findings about their state of knowledge. Of course, it would involve their knowledge that we were potato growers as neighbours and were exporters.

My learned friend's desire to backdate the duty is being driven by a desire to expand the possible class of those subject to potential damage because if the duty is properly characterised as being at the time of the engagement, in effect, of the Sparnons, then we are not concerned about 25 other sites elsewhere in the country. We are not concerned about five other possible sites in South Australia. Apand control where they choose to conduct their experiments and on each occasion they will be confronting a particular circumstance. In Queensland, for example, bacterial wilt is endemic. So, there is not going to presume to be a problem and why Mr Oates was unconcerned about it. But we say the relevant inquiry relates from this breach of duty that arose at this time in this circumstance.

KIRBY J: But what do you say to the proposition that that involves wisdom after the event, that you are making a mistake but looking backwards from what happened instead of looking forward to what it is reasonable to impose as a duty on the respondent?

MR GRAY: We say that their mistake was present as at the time of supply. It may have existed historically for some time but it remained present and active at the relevant date, namely the time of supply to Sparnons. No doubt their knowledge had been there for some time - ought to have been there for some time and it was activated in regard to this particular matter, and gave rise to this particular duty.

KIRBY J: But what you assert they have to do for the protection of you they would have to do for the protection at least of everybody else within the radius in South Australia, would they not?

MR GRAY: When they elected to have some other grower plant the crop. Each time they made a decision to, for example, have an experimental crop at Murray Bridge, then they had an obligation to consider the matter in regard to that location and that contract. They are the ones who elected how many experiments they do. They are the ones who have the control over those decisions. When they take those decisions they take them having regard to their neighbours. Who are their neighbours will depend on their particular program for experimentation.

KIRBY J: Twenty kilometres does not sound much - a comment Justice Callinan made on the special leave application - in the context of Australia but when you look at the circle that is thereby drawn, as Mr Garling pointed out, it is quite a large slice of territory that is then drawn in respect of which you are asserting. It seems inherent in your argument that unless you are to look backwards from what happened to your client, looking forward you are really saying that the respondent had to exercise a duty of care to everybody within that quite large area of territory.

MR GRAY: Well, no, with respect. They may, depending on what choices they take but as far as we were concerned, there was no need to consider the Perre interests until they introduced seed into our neighbour's property. It was that act that gave rise to the relationship of neighbourhood.

It was out of that that grew the duty. To then simply say because Apand may do something somewhere else, they might have an exposure somewhere else, the answer is yes, they may well have. If it is an identical set of circumstances, they will. It would depend. There might be, for example, no exporter to Western Australia from somebody in the south-east, for example, of South Australia. It is simply the transport costs involved might eliminate that as a market. So one would have to look at the particular circumstances. If we are talking about interstate, the further one goes east the more difficult it is to access the Western Australian market because of the cost of transport. Once you erode the price differential, the export market becomes obviously less and less attractive. So one then gets to a situation where one has a different set of circumstances. The Western Australian regulation and its impact is a significant relevant feature to this particular area.

GLEESON CJ: The cost of transporting potatoes is fairly high by comparison with their intrinsic value.

MR GRAY: Yes. Again, we would answer the question in that way. We say that it is important when one considers the question of indeterminacy to correctly identify the precise duty we are talking about. That is, with respect, where Justice von Doussa and the intermediate court were led astray because they looked in effect at the whole of these 20 acre lots, wherever they might be. It was being suggested that my client had some duty to lead evidence to say how many potato growers there were in these other areas.

KIRBY J: But there is a vivid phrase in one of the English judgments about even a fool after the event can have foresight, and we are concerned with what the prudent person before the event would do.

MR GRAY: Indeed.

KIRBY J: So we have to escape being fools and simply look at what it is reasonable to impose on the respondents before the event.

MR GRAY: And such matters as the internal memoranda of Apand demonstrate very clearly their state of mind, their awareness of the rural risk, and their awareness of the consequences, in particular to themselves. So we say, if the Court pleases, that the matter about duty and when the duty arose was clearly found by Justice von Doussa - and the Court has already referred to those passages - found by the Full Court, conceded by my learned friend's client, and yet today we have been faced with a different case.

Now, if the Court pleases, the other matter in reply - before I come to deal with the notice of contention - was that my learned friend made a submission that suggested that the effects on mobility or on operation of property, to put it more widely in this case, were fleeting and momentary by comparison with the Caltex Case, and we would wish to join issue with that. If one looks at the question of the effect on the operation of this property, here is a property that was designed and run for the Western Australian export market. The operation of the property in that material sense changed fundamentally. I have discussed already and will not go over again the more narrow question of the moveability of the potatoes. By contrast - - -

GUMMOW J: It also includes the effect of the regulation on the packing plant, does it not?

MR GRAY: Yes, it does, and my learned friend's reference to subparagraph (iii) of the regulation effectively makes our point, that that plant becomes quarantined. Everything in the 20 kilometres radius becomes quarantined, including the plant. And obviously the Darwin grower, if he wants to export to Western Australia, will have his potatoes washed somewhere else. So he would have, at most, perhaps one load en route or at the washing plant. And once news of this broke out, he would not go near it.

GUMMOW J: But that may have a significance for the position of Perre's Vineyards, may it not?

MR GRAY: Yes it does, because it impacts on - - -

GUMMOW J: The uses to which it could turn the plant.

MR GRAY: Yes, I had hoped I had covered those points in earlier submissions and I did not want to go over that ground, but we do say that that washing plant is, in effect, quarantined and it, and obviously the land on which it stands, has a consequent diminution in value. But we do, by contrast, say that if one is looking for what is fleeting and momentary in the scheme of things, the damage to Caltex was in that category; it lost the ability for its preferred method of delivery for a period of time, that is all. No evidence that impacted on its sales at all. The only damages brought forward were for the cost of the alternative transport. There was no suggestion that there was any material delay in regard to supply to consumer that affected its otherwise profitability. So the fleeting effect is in Caltex; the major effect is in the case at bar.

Now, if the Court pleases, if I could come to the matters in the notice of contention. We maintain our submission that this is a matter on which my friend needs leave and, with respect, a party should not be allowed to.....avoid that hurdle by this technique, and we maintain that submission. My learned friend, we say, talked of arriving at the cusp of the rule; the rule was not designed to allow them to go to a substantive matter - special leave to be avoided.

If the Court pleases, could I then come to the notice of contention. The Court will find that in volume 11 at page 3917. The Court would have noted that ground 1.2 of the notice of contention is not pressed, and that leaves ground 1.1 and 1.3. My learned friend, to our understanding, advanced no oral submission at all in support of 1.1, but did, of course, advance an argument touching foreseeability.

In my learned friend's submission at paragraph 45, under the heading "The Flood Theory", in the second sentence, having identified Mr Justice von Doussa's finding, he has then written:

the Respondent does not now contend that this finding of fact was not open to His Honour -

So again, that part of the notice of contention also falls away.

If the Court pleases, in regard to the first notice of contention, the first of the grounds, that is, that there was no breach of duty because the respondent's action did not fall below the relevant standard of care. As we understand the written submission, what it is suggested is because the Sparnons were aware that they were using non-certified seed, indeed a two-off, as it is described, that the Sparnons understood and accepted the risk, or in some way that lowered the standard of duty owed to Sparnon.

Now, we would, in a sense, without accepting that for a moment, and we say that that does not accord with the court's findings, say that, in particular, it cannot touch this case because the standard of care owed to my client cannot be affected by some knowledge exclusively within the domain of the Sparnons. In any event, we say the primary factual foundation fails. At book 11 page 3792, line 17, Justice von Doussa made this finding - perhaps I should start line 14:

They -

That is Sparnons -

knew Apand was heavily involved in research and development and promoted the use of good seed stock. To that end Apand encouraged and assisted its contract growers to use certified seed. I think it is highly improbable that the Sparnon partnership gave any thought to the possibility that experimental seed supplied to them by Apand could be diseased or could pose any threat to their property. Their evidence to the contrary -

and, in particular, his Honour earlier finds there was knowing of running of the risk in any way at all.

Could I then turn to the foreseeability question? The Court would understand that we would join issue with this, both as a matter of fact and law. At the factual level, I have already identified to the Court a little earlier that to the knowledge of Apand, Tymensen were not growing on new ground, clean ground. They knew that it was the non-certified seed and that the first step of minimisation, namely growing on clean ground, was not addressed.

GAUDRON J: Is there evidence that they knew that there had been an outbreak of bacterial wilt two farms along?

MR GRAY: Yes, there is, if the Court pleases. Mr Cullen, who I spoke of earlier in my submissions, a person of some seniority in operation, he knew that Summers had wilt. That is volume 5 appeal book, page 1953, lines 24 to 32. At line 23:

Did you, at that time, that is the time of the Pakenham meeting, know of a person by the name of Summers?---I did, yes.

Did you know Mr Summers to be the owner of land and a potato grower on the Koo Wee Rup swamp?---Yes, I did and do.

Was he a grower for CCA from time to time?---He was.

Did you become aware of the fact he had bacterial wilt diagnosed on his property at some time?---I was aware.

Do you know when you became aware of that?---In late '89, I believe. The '89 crop of potatoes, in 1990.

He was aware of the flood, the next page, page 1954 -

As a result of becoming aware of that information -

the top of the page, about Mr Summers -

we ceased to contract with him.

Then, at line 14:

Now, I will just take you to another matter. Were you aware that at some stage there was a flood in the KooWeeRup swamp area?---Yes, I was.

Was that - are you able to now tell us when that flood was?---I can tell you precisely. You don't forget things like that, 12 October.

Which year?.....1990.

1990, thank you. Did you make any observations of the flood?---Yes, I certainly did.

Then he knew that Tymenson's property was flooded. Page 1993 in this book, line 5:

Did you know the extent of the flood in terms of Tymenson's property?---Yes.

You knew that a part of the paddock where his Saturna crop was sown had been subject to the flooding?---I believe it to be, I didn't see it.

At the end of December '90 you believed it had been?---No.

Did you have a belief one way or the other?---No.

I think it is the case that at the end of December 1990 you knew that a part of Tymensen's property had been under water in the flood?---Yes.

He knew that wilt could be transferred by water movement, at page 1955.

GAUDRON J: Page 1955, line 17. Mr Cullen, in answer to his Honour's question:

Were you aware at that stage that bacterial wilt could be transferred by water?---I was, your Honour.

He knew that Tymenson had planted Saturna on his property; page 1993 in this book. He said that with the benefit of hindsight his decision would not have been taken again. That is in this book at page 2006, line 34. At line 20:

So if you had applied your mind to the question of transfer of bacterial wilt at the end of December 1990 I suggest you would have come up with the same attitude as you had in May '92, that is it was a reasonable theory that the flood could transfer bacterial wilt from Jack Summers' property to Tymensen's property in the flood October '90? ---Reasonable theory if it crossed one's mind.

Yes, and that was what I said.

He agrees. So there was ample evidence of Cullen's knowledge of that matter, and there is other material that carries the same impact, but that should be, with respect, sufficient unto the day, and clearly showing Cullen's explicit knowledge of these matters.

We would put the submission that it was perfectly open to Justice von Doussa to find that anybody who had thought about it, with the knowledge that Apand had, would have seen that using non-certified seed, that then had been grown for further seed in the Koo Wee Rup swamp area, then appeared on the Sparnon land, did involve a risk of injury.

So that against that background one has then to turn to consider my learned friend's argument about Hughes v Lord Advocate. Could we say, initially, that what the intermediate court and Justice von Doussa did was to apply well-settled law in a conventional way, and there has been no error of law or mixed law and fact. Could I just take the Court to Justice von Doussa's judgment - - -

GLEESON CJ: Perhaps it is sufficient if you give us the page references and we can look at them for ourselves.

MR GRAY: Yes, if the Court pleases. My learned friend referred to the foreseeability finding and there were two findings: the first finding referred to was at 3764 - I am sorry, I have lost my place. I am sorry, I had the right page, 3764 line 15 was the general finding my friend referred to and he took the Court then, I think, to 3765 but at 3765 line 11 his Honour makes a much more precise finding in regard to the specific issue of what happened at Koo Wee Rup swamp and the fact that the bacterial wilt was, in fact, there. His first finding was about general disease, the second finding was in regard to the specific fact of bacterial wilt and.....foreseeability. We say those findings, properly based on fact, lay a proper foundation in regard to foreseeability to found the duty of care. May it please the Court.

GLEESON CJ: Thank you, Mr Gray. We will reserve our decision in this matter.

AT 4.29 PM THE MATTER WAS ADJOURNED