Valleyfield Pty Ltd v Primac Ltd & Anor [2004] HCATrans 443 (12 November 2004)

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Valleyfield Pty Ltd v Primac Ltd & Anor [2004] HCATrans 443 (12 November 2004)

Last Updated: 22 November 2004

[2004] HCATrans 443

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B69 of 2003

B e t w e e n -

VALLEYFIELD PTY LTD AS TRUSTEE OF THE PARKER UNIT INVESTMENT TRUST

Applicant

and

PRIMAC LTD

First Respondent

NETAFIM AUSTRALIA PTY LTD

Second Respondent

Office of the Registry
Brisbane No B79 of 2003

B e t w e e n -

NETAFIM AUSTRALIA PTY LTD

Applicant

and

VALLEYFIELD PTY LTD AS TRUSTEE OF THE PARKER UNIT INVESTMENT TRUST

First Respondent

PRIMAC LTD

Second Respondent

Applications for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 12 NOVEMBER 2004, AT 10.53 AM

Copyright in the High Court of Australia

__________________

MR P.H. MORRISON, QC: May it please the Court, I appear on behalf of the applicant in B69 and the first respondent in B79. (instructed by Lyonsmith Commercial Lawyers)

MR H.B. FRASER, QC: May it please the Court, I appear with my learned friend, MR B.T. PORTER, for the second respondent in B69 and the applicant in B79. (instructed by Clayton Utz)

GLEESON CJ: Yes, Mr Morrison.

MR MORRISON: Your Honours, the application by Valleyfield raises - - -

GLEESON CJ: I am sorry to interrupt you, Mr Morrison. I should say that there is a note from the Deputy Registrar to say that in these matters Primac Ltd is named as the first respondent in one matter and the second respondent in another matter. It was not a party to the appeal in the court below, although the name appears on the sealed orders of the Court of Appeal. The solicitors for Primac have informed the Deputy Registrar that their client does not consider itself to be a party to the applications to this Court and there will be no appearance for Primac.

MR MORRISON: Thank you, your Honour, and I think that reflects the position of everybody. They have not participated since the appeal.

Your Honours, in relation to the Valleyfield application there are three distinct areas we seek to agitate, all stemming from the decision of the Court of Appeal below principally in the judgment of Justice Williams with whom Justice Mackenzie, by and large, agreed. The three areas are that their Honours applied a discount, roughly of one-third, to several areas of loss, when in fact the trial judge had already applied that discount. The majority did so on the basis – expressly on the basis – that the learned trial judge had not applied any discount whatsoever, and in that they were simply wrong and we will be submitting to your Honours it is a little difficult to see how they missed it, but miss it they did.

The second area is that in respect of one sizeable component of the losses which were awarded, $650,000, that component relates to what his Honour Justice Williams referred to as the wasted cost of buying the system. Their Honours gave no interest on that item but then did not explain that there was a reason for not granting interest at all, so it sits there as an inexplicable miss. By contrast, the third justice on appeal, Justice Jerrard, dealt with exactly the same item, would have allowed it and would have granted interest on it in the sum of about $178,000. Your Honours can see from that the importance of that item alone to my client.

The third area that we seek to agitate relates to the approach of the majority in relation to what we contend are truly mitigation costs. They were the costs incurred in two particular years out of about five, but if I can put it broadly, they were costs incurred, specifically at the suggestion of the designer of the system, the tortfeasor, and specifically for the purpose of making the faulty system work and were done at that suggestion and for that purpose – no one suggests unreasonably – but recovery was denied on the basis, by the majority at least, that it amounted to a capital cost of purchasing a whole new system. His Honour Justice Jerrard would have allowed the same items as mitigation costs reasonably incurred just as his Honour below did.

HAYNE J: Does not that analysis you have just made identify the principal difficulty that you must confront. First, it is a claim in tort, you are entitled to be put in the position you would have been in had the tort not been committed. You are not, prima facie, to be entitled to the damages calculated according to the position that would have obtained had the system worked. Further, the further point that then arises is that there is a series of subsidiary calculations which then have to be made, all of them involving discretionary judgments of various kinds, to arrive at a global sum. Now, why should this Court undertake that task in connection with a claim founded in tort, as it is, where prima facie, I would have thought, your client was entitled to be reimbursed its out-of-pockets?

MR MORRISON: Your Honour, as a statement of general proposition what your Honour said first is right. We do not seek to have the High Court reinvestigate all items of cost and reassess the global award. We point to three quite distinct areas, two of them completely separate from the third, and we point to them because, in respect of the first two, and certainly the first much more strongly than the second, it is simply an inexplicable error of judgment by the Court of Appeal which stands as a blight on the administration of justice if it is not corrected. With respect, your Honour Justice Hayne, the High Court is the only Court that can correct it. I am there talking about the discount which, as I said to your Honours, and we have dealt with in the outline at some length, was done because their Honours wrongly took the view that the learned trial judge had made no discount.

Now, can I direct your Honours to where that appears, page 56 of the application book, and this is in the reasons of Justice Williams. Your Honours will see that he starts at about paragraph [42] where he refers to the fact that:

The learned trial judge allowed as part of the damages the difference between the value of the crops harvested . . . and the expected value of crops for the years 1997 and 1998.

That turned on a finding made by the learned trial judge and upheld by the Court of Appeal that a properly designed system could have been implemented and would have been adopted and so, therefore, the farmer was entitled to get his lost income as though he had the thing. Your Honours will see down in [44] and [45] Justice Williams says:

Having arrived at that figure of 300 cartons per acre the learned trial judge simply made an arithmetical calculation of the loss –

That is the opening lines of [44], and then in [45]:

In other words the learned trial judge took the optimum figures and made an arithmetical calculation of loss without making any discounting for contingencies.

Now, your Honours, we have given you the passages in our outline, but it perhaps will be illustrative if I point your Honours to them in the judgment itself. If we turn to page 16 of the application book, having up to that point made an assessment of the competing experts’ views about how many cartons per acre would be achievable and what the planting period would be – and I will come back to that shortly – his Honour then turns to some of the components of loss – this is the trial judge, and if you look down on the bottom of page 17 in paragraphs [93] and following where he is dealing with the 1997 watermelon crop, his Honour goes over the page to [96] where he deals expressly with the contingencies that might have occurred, that is rain, disease, high temperature, unexplained risks and fluctuating prices, and then in paragraph [97] his Honour then deals with that component and expressly says:

I would however discount the amount claimed . . . I have discounted the amount claimed . . . by some 30% -

Now, could I just direct your Honours’ attention down to the next component on the same page, that is page 18, having in paragraph [99] referred to the fact that that year was worse than 1997, and he refers in paragraph [99] to the “Excess rain”, prices being higher, “fairly late in the season that the” system was modified, “significant problems with germination and growth”. His Honour is clearly talking about risk, then in the next line, in paragraph [100]:

I propose to adopt a yield of 200 cartons per acre. This allows a 1/3 discount -

Then your Honours will see he does the same exercise in paragraphs [104] through to [107] for the watermelon crop for 1998 where he discounts it and then discounts, finally, in [107] for risks of increased disease and so forth.

Now, your Honours, with the greatest of respect, for the majority to proceed on the basis that the learned trial judge made no discount whatsoever and then to impose it is unjustifiable, and may we say, our learned friends do not seek to justify all but two of those components. They only seek to justify the first two components for 1997. They do not seek to justify those that fall at the end of 1997 and 1998.

The significance of that, your Honours, is this. If you took just those items, that is the ones to which no challenge is made by our learned friends, those alone amount to $365,000 – those alone. If you add in the interest component to which we refer, where their Honours have given no reason whatever for denying it, that would take it up to over half a million dollars. So we submit to your Honours it is a very serious case of a bungle and the administration of justice suffers for it.

Could I just say something lastly about the interest component? Our learned friends seek to say that one explanation for it might be that their Honours were offsetting whatever value the system had. That is not right because Justice Williams made it clear in paragraph [56] – this is at pages 58 to 59 of the application book - that the way he took its residual value into account was that it offset the previous irrigation system which had been destroyed in the installation, so that that value had already been accounted for.

Can I say lastly this in relation to the loss components, your Honours, and particularly your Honour Justice Hayne in terms of the comment you put to me earlier on, our learned friends did not contend for any such discounting on appeal.

HAYNE J: Discounting in what sense?

MR MORRISON: The one-third discounting that Justice Williams did. That was no part of the appellant’s case, so one does not like to use the word “frolic” but this is an exercise that the Court of Appeal has done by itself. It was not part of the case.

Now, as to the third component of the loss, your Honours, you will see what we call the mitigation costs component. Our point is this, and can we seek to put the proposition this way, and I will put it broadly and then try and synthesise it for your Honours. The tortfeasor over a period of two years and probably more, but two will suffice for this argument, made suggestions or gave advice as to what should be done to make the faulty system work.

Now, your Honours will pick up most of the points I am about to make now from paragraphs [28], [29] and [52] of Justice Williams’ reasons, and [133] to [135] of Justice Jerrard, and all of these points which I now refer to come directly from those paragraphs. Netafim, the designer, suggested or advised what should be done. My client could not revert to the previous system, it had been destroyed. The work was remedial in nature – Justice Williams uses that word to describe it, “remedial”. The work was done in an attempt to make the installed system work or to improve its performance. The work was an attempt to rectify the problem. The plaintiff wanted the new installed system to work and Netafim, the designer, continued to make promises that that was what their suggestions were designed to do, and the costs were incurred to avoid the losses flowing.

Now, your Honours, the proposition we seek to agitate on this aspect is this. Where A’s negligence causes B to alter B’s position to B’s detriment and where B incurs costs in an attempt to alleviate that detriment, A, at the instigation of A, the tortfeasor, and where that is A’s purpose in advising, those costs are properly characterised and recoverable as mitigation and are not to be excluded on the remoteness test. That is the synthesised proposition we seek to agitate. There is some authority to support us which came to your Honours late, and I hope has been sent - - -

HAYNE J: Does that not involve the element of double counting? Once you have gone down this path which you desire to go down of calculating the amount that would have been earned had you had a working system, why are you not double counting?

MR MORRISON: No, your Honours, it is not double counting because there is no proposition where mitigation must come out at less than the loss you suffered. It may increase the loss. So, for instance, if one by negligence is caused to buy a dud item, something valueless, the fact that you pursue by mitigation attempts to make it into something valuable does not prevent you from recovering those costs. The same thing applies where - - -

HAYNE J: I doubt of that, and there is no doubt that you would be entitled, I would have thought, to the costs of mitigation in addition to any other costs thrown away, but once you have gone down this path of saying, “No, put us in the position we would have been in had we had this wonderful new system, increasing our crop yields”, why is there not double counting?

MR MORRISON: Your Honours, in my submission, there is not double counting because the mitigation costs go to making the thing work. The by-product is the income, but it is costs to make the thing work. You only get the income because of the money that is being spent to make it work. Had that not been spent, no doubt the losses would have been greater. It is costs expended to make the actual thing work. It is the difference between, on the one hand, business loss and the inherent value of the business itself.

Now, your Honours, I was referring to the support that we derived from it. Can I ask have the decisions in Lloyds and Scottish Finance v Modern Cars and Mann Judd reached your Honours? They were sent down late yesterday.

GLEESON CJ: Yes. This is the decision of Justice Ipp, Justice Wallwork and Justice Steytler?

MR MORRISON: Yes. That is the decision in Western Australia, and that expressly adopts what was said by Justice Edmund Davies in Lloyd and Scottish Finance v Modern Cars.

GLEESON CJ: Yes, they have reached us.

MR MORRISON: In Lloyd and Scottish Finance what happened was that the defendants sold to the plaintiffs a caravan. They did not have title to it. It was seized by the sheriff who, upon the defendants protesting about the seizure, started interpleader proceedings. Then the defendants suggested that the plaintiffs should claim their title, which they then did. On proper advice they gave up the claim, as they should have done, and ended up paying all the interpleader costs. Justice Edmund Davies at pages 782 to 783 said that where the steps were taken at the instigation of the tortfeasor it did not lie in the mouth of the tortfeasor to say that the costs were not reasonable or recoverable.

The same point is made by the Full Court of Western Australia in Mann Judd, and particularly your Honours will see – unfortunately, the pages on these printouts do not come numbered, but it is the fourth physical page. There, a negligent accountant was supposed to check the accounts of businesses, the plaintiff bought the business because of the negligent failure to check the accounts. It was worthless. He pursued the vendors and got a judgment, but the judgment was worthless, and then those costs of pursuing the vendors were part of what was claimed against the negligent accountant whose response was, “No, you cannot recover those against me.” The Full Court said, “Yes, you can”, and what is more, at the bottom of that fourth page said so because the conduct of the negligent accountant, as it were, urged on the course which had been taken, and expressly adopted Lloyds and Scottish.

That is the case here. The tortfeasor expressly advised the steps that were taken for a particular purpose, a joint purpose, and for that reason we say it does not lie in their mouth to say that they cannot be recovered at mitigation and why the Court of Appeal was wrong to treat them as the purchase of an alternate system. That point stands quite separate from the first two we advance about the discount and the interest. On that component alone, that is the first two, my client suffered unjustifiably over a half a million dollar deduction on its judgment. This judgment was only $1.7 million. Your Honours can see the comparative worth of it. Those are the submissions, your Honours.

GLEESON CJ: Thank you, Mr Morrison. Yes, Mr Fraser.

MR FRASER: Thank you, your Honour. Dealing first, if I may, with the - - -

GLEESON CJ: Just excuse me for a moment, please, Mr Fraser. Mr Fraser, in relation to Mr Morrison’s application, we do not need to hear you in relation to the proposed ground of appeal in paragraph (c) on page 98 of the application book, but we would like to hear what you have to say about proposed grounds (a) and (b) on pages 97 and 98, as well, of course, as what you have to say about your own application.

MR FRASER: Yes, your Honour.

GLEESON CJ: In other words, we want to hear you about the discount and the interest.

MR FRASER: Yes. In relation to the interest point on the $650,000 costs thrown away, the first point we make about it is that this is interest on the amount of money paid to my client to install the system, and the basis of our learned friend’s proposition is that this money was wholly thrown away at the time of installation, and my learned friend’s client should be entitled to receive interest for that reason.

The first error, in my submission, appears from the finding of the trial judge that the cost was not in fact wholly thrown away. At page 21 of the application book, in paragraph [124], his Honour is discussing the alterations that were made subsequently by the installation of various combinations of systems. At the end of that paragraph, in the second last sentence, his Honour found that:

The system in use –

and this is the system final in use at the date of trial –

involves the SSDI infrastructure -

that is the subsurface drip irrigation infrastructure which my client installed and was paid the $350,000 for –

to deliver water through an SDI -

which is the surface drip irrigation system –

in the way just described.

So what actually happened was that for the money that the plaintiff spent in purchasing and installing the system, it retained, so far as capital is concerned, the benefit of that part of the system which is described by the trial judge as the “infrastructure”. What was changed ultimately was not that infrastructure but the tapes that were used to deliver the water to the crops. Instead of using the ones that were buried in the ground by Primac the plaintiff put in surface tapes but still used the infrastructure that it had paid the $650,000 for.

The second point we would make about this is that it cannot be said, even to the extent that some of the cost of installing the original system was wasted because the plaintiff adopted different components for delivering the water, that the expenditure on it turned out to be worthless. Can I explain that by mentioning what the nature of the claim for the loss was and what was allowed? It appears most conveniently in my learned friend’s outline at page 102 of the record.

The plaintiff did not make a claim that it should recover the expenditure on the original system on the grounds that it was worthless. It made a claim that although the system installed by my client did increase the yields, it did not increase them to the extent of the plaintiff’s anticipated increases in the yields. So that the damages sought were the difference between the increased profit that the plaintiff earned from use of the system designed by my client and the larger profit that the plaintiff contended it could have earned had the system been designed differently. That was what the learned trial judge allowed.

Your Honours can also see it in the judgment of the majority in the Court of Appeal at page 49, for example. It appears in many places but in paragraph [12] when his Honour describes the found negligence which was that my client should have engaged in a far more extensive assessment of the soils, his Honour then goes on to mention – the last sentence of paragraph [12]:

All of that resulted in lower than expected crop yields.

So in the end the award made by the majority provided to the plaintiff that shortfall in the anticipated profit that it was said the plaintiff ought to have received, so that ultimately – you can see this at page 59 of the record in paragraph [57] of his Honour Justice William’s judgment – the damages which were awarded by the majority against our submissions included both the costs of installing the original system and all of the additional profits which had been claimed by the plaintiff as being that additional component of profit that the plaintiff said it should have and did not earn.

So, in our submission, it is, with respect, very difficult to see how our learned friends in seeking to attack just this one small component of this award and within that framework can argue that they lost the use, that is to say the income, from the capital equipment that the plaintiff paid for. There is, in my respectful submission, a claimed double counting in that respect as in other respects. That is all I wish to say about that topic.

The other point raised by my learned friend concerned the adoption by the majority of a one-third discounting of those profits I have just been discussing in circumstances where my learned friend contends that there had already been such a discounting by the trial judge. Now, as to this, your Honours, it seems to be common ground – at least my learned friend has not submitted to the contrary – that so far as part of the discounting was concerned, it was appropriate for the majority to allow that discounting. That concerns what is called the 1997 bean crop and bean seed crop which is the largest part of the crop grown on the farm – the bean crop, anyway - and by far the largest figures. So my learned friend then has submitted that it was inappropriate for the majority to further discount other crops including watermelon crops and later bean crops.

GLEESON CJ: No, I think his submission is that the majority made an error of fact in their appreciation of what the trial judge had done. If the argument against you is correct, they simply overlooked the fact that a discount had been allowed by the trial judge.

MR FRASER: Yes, in relation to everything except the 1997 bean and bean seed crops.

GLEESON CJ: What is your answer to that?

MR FRASER: Your Honour, we cannot submit that that was not an error adopting the framework which was adopted by the majority. It is correct to say that the majority approached the matter in a way which was very different from the submissions we made at the trial. The difficulty with it is that the reasons of the majority, as we say, adopted an approach which did not reflect any parties’ submissions.

The points we make in response to it in our written outline are that the issue will raise a series of contentions on our side in response to it which we have set out in our written submissions starting at page 112 of the application book, and these are points in relation to the loss of profits claims, the subject of our learned friend’s application this.....for which we were given no reasons by the majority for not dealing with them.

GLEESON CJ: That seems to leave us in the situation where you acknowledge that the majority in the Court of Appeal made a mistake which on the face of it seems to involve some hundreds of thousands of dollars, and then you say, but they made a lot of other mistakes, too, and if the matter came to this Court, it may be that the other mistakes that they made would cancel out the one you acknowledge.

MR FRASER: That is so, your Honour.

GLEESON CJ: It leaves us in a rather awkward situation - - -

MR FRASER: It does.

GLEESON CJ: - - - where it is common ground between the parties that a big mistake has been made.

MR FRASER: Your Honour, can I say about the points that we make in this paragraph, too, we make the point, and we set it out and I will not go through it, that when you read it, the arguments we presented to the Court of Appeal - and our learned friends do not suggest we did not present them – on the face they are substantial arguments. Our learned friends also do not suggest that we got any reasons in response to these arguments, so that we would seek to raise them either by way of notice of contention or cross-appeal if leave were granted to our learned friends and - - -

HAYNE J: Just a moment, Mr Fraser. If that were so, what relief would you then seek? Would you have this Court embark upon recalculation, or would you seek any more than the setting aside of the judgment below and remitter for reconsideration?

MR FRASER: If it were only on this point probably, your Honours, the result would be because of the necessity to go through the argument to understand the issue, that if the Court accepted our submissions explaining why the judgment should be set aside, there would not be any debate left about the calculation, because ultimately there was a conflict of expert reports, and our submission was that fundamental difficulties with the other side’s expert included that there was no verification of the factual basis upon which the information in that report was contained, whereas our expert’s report was based on the plaintiff’s own historical records.

Now, if the Court accepted that contention, there would be no evidence left, save for that in our expert’s report. So to answer your Honour’s question there may be a shortcut in remitting it, but it seems more likely that the bulk of the time would be taken up in dealing with the
arguments about error that we have agitated. In addition to that, we would submit of course, that if it was necessary for us to - - -

HAYNE J: Mr Fraser, you must answer my question. Would you submit that this Court should recalculate the damages, or would you ask for remitter?

MR FRASER: Your Honour, if there was a calculation left to be done, we would be content to ask for a remitter for that purpose. Can I say also that in addition to the points we make in those early paragraphs about the reports, the claim by our learned friend also involves the question of the whole framework that the majority adopted for awarding damages, and in relation to that something which could not possibly be done by a notice of contention but rather by cross-appeal concerns the arguments we have in our own application for special leave about the correct approach to causation and measure of damages.

GLEESON CJ: It is probably convenient for you to go on to your own application when you have said what you want to say about your opponent’s application.

MR FRASER: Yes. The only other thing I would say is acknowledging the difficulty that exists by reason of the fact that the reasons of the majority do not deal either with our submissions as to why none of those damages should be allowed, or provide an explanation of the discounting, acknowledging that, the only other thing we can say is that plainly there is no other particular question of principal importance in the application for special leave. My learned friend is indicating to me that he wishes to reply to what I have said about his application. Does your Honour wish me to go on with my application before that?

GLEESON CJ: All right. We will hear what Mr Morrison has to say. Yes, Mr Morrison.

MR MORRISON: I am sorry to wrest it from your Honour the Chief Justice’s hands, but if I do not say it now I may forget it in 20 minutes time. Justice Williams dealt with the question of value that our learned friends referred to at the application book pages 58 to 59, that is, residual value in the new system, and he said whatever it had would be offset against the value lost by destroying the previous one. So that is the way in which it was dealt with.

I do not accept that I have given up the bean and bean seed components in 1997. That is quite clear from our outline. They stand on a slightly different basis, though, because to make good that argument, one has to go back to the discounts already allowed in the expert report upon
which his Honour operated. That expert report already discounted the figures, so when his Honour accepted them, he was accepting a discount already. It is just not expressed on the face of the judgment.

In respect of the discount and interest points that I refer to, and accepting what your Honour has said about item (c), those three components could be remitted to the Court of Appeal for quite discrete reconsideration without rehashing the entire appeal or anything else for that matter. They are three quite discrete components. That is all I wish to say in reply, your Honour.

GLEESON CJ: Yes, Mr Fraser.

MR FRASER: Thank you. The particular points that I hope to complete in the time allotted in our application concern the question of duty of care to avoid the particular kind of loss and the question of causation. I should say first, your Honours, that unless we can bring this by way of a cross-appeal, in other words, if special leave is allowed in our learned friend’s application then we are within time because we can bring all of these claims by way of cross-appeal, but if special leave were refused in our application we would need an extension of time, which we have sought, to agitate these points as our own appeal and an affidavit of Mr Waller, I think, was provided to the Court about that.

GLEESON CJ: The application with which we are dealing at the moment is your application for special leave to appeal.

MR FRASER: Yes, and we need an extension of time to pursue that and I mention, only for completeness, that if our learned friend’s - - -

GLEESON CJ: Well, is your extension of time opposed?

MR FRASER: No, it is not opposed, your Honour.

GLEESON CJ: Yes, you have that extension of time.

MR FRASER: Thank you. Firstly in relation to the duty of care, can I just before going to the detail broadly summarise what we say about it. In our submission, the Court was mistaken in finding that my client owed to the respondent a duty to take care to ensure that it earned the profits which it expected to earn from the system which was designed by my client. The matters upon which we rely in particular to support that proposition are these things. Firstly, that this Court, in our respectful submission, held quite clearly in Bryan v Maloney that the particular nature of the loss said to be guarded against by the duty of care can be an important consideration in determining whether there is a duty. The second point related to that, that here, unlike in Bryan v Maloney, the loss sought to be guarded against by the duty is plainly not merely pure economic loss but expectation loss of the kind which is conventionally protected by contractual warranties. Thirdly, we submit that it is particularly significant that the parties chose deliberately a particular chain of contracts in circumstances in which the trial judge had found that the applicant had made it clear to the respondent that the applicant would not deal directly with the respondent and that any transaction which eventuated would be between the applicant and Primac and the respondent would have to enter into its transaction with Primac, in other words, a chain of contracts.

We also submit as a related point to that, that this case does raise a question which has been adverted to in a number of judgments of the Court but is not the subject of any decision of the Court, concerning the significance of a clause seeking to limit liability in the contract between the defendant and the other party here, Primac, to which the plaintiff is not a party. That clause is set out in our outline at page 134 of the application book and quoted it in paragraph 18(b). This is in the contract between the applicant, Netafim, and Primac, to whom the applicant sold the sprinkler system, and it contained an acknowledgment by Primac that it had not relied upon the skill or judgment of Netafim or the design of any irrigation system for any particular purpose.

Now, there are obviously matters set against us below but we submit that it is plain that the trial judge and the majority failed to give any proper regard to these points and can I say, your Honour, that I went back and checked the submissions that were made to the trial judge and these points were made to the trial judge and submissions were made to the same effect to the majority.

If I can take the Court to what was said about it by the trial judge at page 11 of the application book at paragraph [66], his Honour commences the discussion by reference to this Court’s decision in Perre v Apand and lists the features over the page and because the Court of Appeal effectively adopted this, can I make a few remarks about them.

The first one concerns proximity, is the way it is put, and as to that we say first that, the reference to Junior Books Ltd v Veitchi perhaps is illuminating. Your Honours will recall that it is the dissenting judgment of Lord Brandon in that case which now commands acceptance in England and that was referred to by his Honour Chief Justice Brennan in Bryan v Maloney.

The second point (b), reliance upon “skill and experience”, we accept, of course, that there are findings there indicated by the learned trial judge to that effect but they overlook, with respect, the question of reliance to protect what interest and they overlook the context of the earlier finding at paragraph [14] on page 4 that all of this was occurring in the context that it had been made plain by my client that the plaintiff would have to deal with Primac and that any transaction would be between the plaintiff and Primac.

The next point in (c) again, in our respectful submission, overlooks reference to the nature of the harm. One might accept these as reasons for imposing a duty not to cause harm, but the claim here was that the system, although it did produce increased yields, did not produce a sufficiently high increased yield. The fourth point, indeterminate liability, is correct.

The fifth point about vulnerability – we do, with respect, take issue about this because this was a case not in which somebody was purchasing a house with hidden foundations, but in which a very substantial agricultural business with income – I think it is of the order of $1.5 million a year – was acquiring a new irrigation system in order to increase the yield that it obtained from its commercial use of the land and, in my submissions, vulnerability should be looked at in that context having regard to the usual means that one has to protect oneself, that is to say, either to seek a warranty from the person with whom one contracts. If that is not available, to engage one’s own expert retainer, so that you do have someone who owes you direct contractual duties or direct duties or not to enter into the transaction if analysis shows that one cannot be sure that the yields that are thought to be achievable are not achievable.

It is really for these reasons that I stressed the nature of the loss. It would be a different case if this claim had been framed as one in which the plaintiff said we have expended a large amount of money and we have been left with the result that you have, by your design, rendered our farm an unprofitable one or if the expenditure of the money had resulted in damage to the property in a different way; physical damage or damage to a person. But in our submission, when one is looking at the particular nature of the loss in this case, there is no vulnerability at all and merely referring to reliance in a context in which the parties have chosen deliberate contractual structure, does not establish vulnerability.

Can I say also about this, that it is not our submission that expectation loss is never recoverable in tort. For example, the Court gave it in Hill v Van Erp, but your Honours will recall that was a very unusual case. One feature of it was that the beneficiary could not protect the beneficiary’s expected interest by any means. Another feature of it was that the interests of the beneficiary and the testator were identical. Here, the imposition of the duty cuts across the contractual relationship that had been established in a very significant way.

If I could develop that a little, the particular breach that was alleged was that my clients ought to have conducted an extensive soil survey in the interests of ensuring that the plaintiff received the maximum yield that could be obtained by design of the system. This is referred to at paragraph [40] of the judgment at page 7 of the application book. What in fact my client did was to, as was found, obtain a representation by the plaintiff that there was a uniform depth of topsoil over the farm, but the trial judge found that my client should have gone further and, with reference to a document about guidelines for finding out soil information in paragraphs [40] and [41], find out by tests matters “which would not be apparent on a visual inspection”, trials and so on and, your Honour, that means a series of subsurface investigations, bore holes throughout the farm and obviously enough just a few of them would not be enough.

So returning to the contractual point, my client would have had to reduce its profit on its contract with Primac by the cost of doing all of this because the only consideration my client got was the sale price and the circumstances were, of course, that it was in my client’s commercial interest to maximise its profit in its interest in its contract with Primac. Primac’s interest was in obtaining the system as cheaply as possible so it could make a large profit in the sale to the plaintiff. Yet the duty that is said to be imposed to cut across these contractual arrangements is one that requires my client to sacrifice its profit and would have the effect, if carried out, of increasing the cost to Primac, presumably. So, in our respectful submission, the trial judge was really approaching the matter from the wrong angle.

The majority adopted the trial judge’s approach. At page 47 of the application book his Honour Justice Williams deals with duty in paragraph [2], really simply adopting what was said by the trial judge, and his Honour Justice Jerrard does the same thing in paragraph [118] on page 75. One of the things his Honour says is that the trial judge:

concluded that the relationship . . . almost approximated that which existed between contracting parties -

We submit that that is hard to sustain in a case where the parties have made it plain that they will not contract with each other and where the parties who do contract include an exclusion clause in the outline.

Can we say, with respect, that this case does raise a question which has been adverted to in a number of decisions of the Court but is not the subject of any decision on point as to the significance of an exclusion clause in one of these contracts in this kind of situation. We also, with respect, criticise the analysis of vulnerability by Justice Jerrard at the same page, at page 76 starting at paragraph [119]. There is a reference to our attack on that finding of vulnerability there including reference to the fact that we did not suggest the respondent obtain a warranty, which is presumably true, and a comment that:

it was unrealistic to expect that the respondent could obtain a warranty from Primac -

It is unclear what evidence that was reference to, but, in our submission, it is not the question. Vulnerability is not established by showing that in fact this commercial entity, business, could not obtain a warranty. It had other ways of protecting itself.

Your Honours, we adverted to the authorities in our outline of submissions and gave the references to them. I did not propose to take the Court through them. Perhaps I should take the Court to Bryan v Maloney simply to make good the proposition that the nature of the economic loss which the duty is erected to guard against is of particular importance because in Bryan v Maloney one aspect of the ratio appears to have been that the loss was only economic in a technical sense rather than in a real sense.

HAYNE J: We did spend some time looking at Bryan v Maloney in recent times, Mr Fraser, but if you wish to take us to it.

MR FRASER: Your Honour, we gave your Honours the reference to some later cases including Woolcock Street Investments v CGD Pty Ltd. I will not go to the judgment then because your Honours are plainly very familiar with it, but there is a difference, of course, a big difference in Bryan v Maloney which was that finding that the economic loss was in fact only economic in that technical sense. This is, in our respectful submission, a very important case because here we have a duty erected to protect the recovery of expectation loss of a particular level and, with the exception of cases which are exceptions, such as Hedley Byrne v Heller where one finds a representation and it is found to be reasonable to rely upon the particular representation - that was not the case here - or very exceptional cases such as Hill v Van Erp, in our respectful submission, this case does break new ground.

I really, in order to try and deal with it, would like to move to the causation point. I can hear the buzzer. We would submit that there is a very plain error in the judgment of the majority here. Justice Jerrard accepted our submissions that the plaintiff had not established that there could have been a differently designed system or that if there had been, the plaintiff would have adopted it. Can I just mention that one thing was really clear on the findings of the judgment, that had my client done what the trial judge said that it was supposed to do, the only way to solve it would be by
supplementing the system which was installed with some portable sprinkler systems to assist in germination of the surface.

That appears most clearly from paragraphs [129] and [131] of the judgment at page 22 of the application book and his Honour refers to the evidence of Mr Purcell about the use of a portable sprinkler system and even then it might require a trial of about a year to make sure that it would work. Your Honour, the easiest way to look at it is to deal with the proposition that the plaintiff’s own case was that it would not have adopted any such system and that appears from the application book at pages 32 and 33. In page 33 at about line 50 – and this is the only evidence on the point – the plaintiff’s managing director, Mr Parker, was giving evidence and the plaintiff’s counsel asked a question, which was:

if you’d been told that this project might be one that would require additional or supplementary irrigation to achieve germination, would you have proceeded with it?---No.

That was consistent with the opening, which is at the page before, at the bottom of page 32, and the opening referred to the fact that:

it was not initially suggested that such an irrigator –

this is a travelling irrigator -

might be required in addition to the sub-surface system. Mr Parker’s view of things is that he wouldn’t have proceeded with this at all had he thought it was necessary to supplement it in that way.

His evidence on the next page is even clearer. He would not have done it if he had had to supplement it with anything.

Now, your Honours, this submission was made to the Court of Appeal. These passages of evidence were referred to the Court of Appeal and the submission was made that, not only did the evidence not justify a finding that the system could have been produced once the difficulties in the soil were discovered, the submission was made that had it been able to be achieved, the plaintiff’s own case is that it would not have gone ahead with it.

GLEESON CJ: Yes, thank you Mr Fraser. We will adjourn for a short time to consider the course that we will take in relation to the further hearing of this matter.

AT 11.51 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.57 AM:

GLEESON CJ: Mr Fraser.

MR FRASER: Yes, your Honour.

GLEESON CJ: I want you to assume for purposes of this discussion that we are against you on your application for special leave to appeal and that we are against Mr Morrison on his application in relation to paragraphs (b) and (c) on page 98, but that we are in his favour in relation to paragraph (a).

MR FRASER: Yes, your Honour.

GLEESON CJ: As I understood what you said, although there is an argument between you as to the extent of the consequences of this error, it is common ground that there was an error in the Court of Appeal in relation to paragraph (a)?

MR FRASER: Yes.

GLEESON CJ: In those circumstances, and on the assumptions that I have invited you to make, why should we not at this stage grant special leave to appeal limited to paragraph (a) to your opponent then allow the appeal and remit the matter to the Court of Appeal of the Supreme Court of Queensland to reconsider grounds 2.11, 2.12 and 2.13 in the original notice of appeal to that court which appear on pages 42 and 43 of the application book?

MR FRASER: Your Honour, I suppose the difficulty which occurs to me instantly is that whilst my concession about the error makes it clear to the Court that there was an error of the kind contended for by my learned friend, our submission that there was an error about the same topic as to this assessment expected yields not conceded by our learned friends. If it was remitted to the court to allow a reconsideration of 2.11 and 2.12, one assumes that the majority will adopt the same approach that they adopted at first instance unless, I suppose, there was a direction to be given reasons in relation to the rejection of our arguments.

We made these arguments before and they apparently found no favour in the court and one of our complaints is that we were given no
reasons for their rejection. So, subject to that being corrected in some way so that we could have a reconsideration of those arguments with reasons and not just an adherence to the existing rejection of them by the majority, your Honour’s proposal would seem to solve that problem.

GLEESON CJ: Well, it would be a matter for the Court of Appeal to decide how it dealt with the matter.

MR FRASER: Yes.

GLEESON CJ: Then if you were aggrieved with the way the Court of Appeal dealt with the matter you would be able to come back and seek special leave to appeal, would you not?

MR FRASER: Yes, we would, your Honour.

HAYNE J: A possible point of view would be that the computation of damages miscarried and grounds 2.11, 12 and 13 would fall entirely for reconsideration.

MR FRASER: Yes, if 2.13 is remitted that would seem to cover the point. A point that we are particularly concerned about was really the one that is related to 2.13 which is the reversal of onus point in 2.10 and I think that your Honour Justice Hayne might be referring inferentially to that - - -

HAYNE J: No, Mr Fraser, I am not engaging in a debate with you. I am inviting attention to the consequences of a remitter on 2.11, 12 and 13.

MR FRASER: Well, your Honour, in answer to the question that was put to me, the potential injustice that we would see from it is that we have seen no response by our learned friends to our argument that on the plaintiff’s own evidence it would not have installed this system and the question would be whether that is able to be agitated on this remitter, and, if it were able to be agitated we could not see that as an injustice.

GLEESON CJ: Is there anything else you wanted to say?

MR FRASER: No, your Honour.

GLEESON CJ: Mr Morrison, is there anything you want to say on the matter that I just raised?

MR MORRISON: Only this, your Honours. Your Honours may – I am trying to catch this as delicately as I may – 2.12 (d) and (e) were not the subject of any challenge except in the limited sense that I raised today and
2.13 was not at all, so I wonder if including 13 is probably too wide. That is all I wish to raise.

GLEESON CJ: Thank you.

Two applications for special leave to appeal against a decision of the Court of Appeal of the Supreme Court of Queensland are before us. They are matter No 3 in today’s list, Valleyfield Pty Ltd v Primac Ltd & Anor, and matter No 4, Netafim Australia Pty Ltd v Valleyfield Pty Ltd & Anor. It is convenient to identify them by reference to their numbers in the list.

In relation to matter No 3, no point of general principle is raised suitable for a grant of special leave to appeal, nor, subject to one qualification, are we persuaded that it is in the interests of justice to revisit the complicated calculations of damages and discretionary judgments that would have to be made in considering the competing contentions of the parties. The qualification is that it has been common ground before us, in relation to paragraph (a) of the draft notice of appeal that appears on pages 97 and 98 of the application book, that there was an error on the part of the Court of Appeal of Queensland and that the error involved a substantial sum of money.

In relation to matter No 4, we consider that in the particular circumstances the case does not raise an issue suitable to a grant of special leave and we are not persuaded that the interests of justice require such a grant.

We have invited counsel for the parties to assume that we might come to such a conclusion and then to address the possibility that, in that event, the appropriate order for us to make would be to fix the appeal foreshadowed in matter No 3 for hearing instanter, allow the appeal and remit the matter to the Court of Appeal of the Supreme Court of Queensland to deal with certain limited issues.

The course that we will take then is as follows. In matter No 4, the application for special leave to appeal is dismissed with costs. In matter No 3, the application insofar as it relates to paragraphs (b) and (c) of ground 2 of the proposed grounds of appeal in the draft notice of appeal commencing on page 97 of the application book is dismissed. In relation to paragraph (a), special leave to appeal is granted. The appeal is listed for hearing instanter and is allowed with costs. The matter is remitted to the Court of Appeal of the Supreme Court of Queensland for further consideration of the grounds raised by paragraphs 2.11, 2.12 and 2.13 in the notice of appeal to the Court of Appeal of the Supreme Court of Queensland which appears on page 39 and following of the application book in this Court.

We will adjourn for a short time to reconstitute.

AT 12.09 PM THE MATTERS WERE CONCLUDED