Citation: (1999) 198 CLR 180
A Summary.
N.B - This summary is a work in progress
The plaintiffs/appellants, potato growers in South Australia, suffered considerable financial harm when the D's sold to another potato grower in the vicinity seed potatoes which turned out to be infected with bacterial wilt. The reason for the P's financial loss was that they had previously sold most of their crop in Western Australia but, but legislation in that state imposed an embargo on the importation from interstate of any potatoes grown on a property within 20 km of any outbreak of bacterial wilt in the previously five years.
The conduct of the D in selling the infected potatoes, while not affecting any property owned by the Ps, caused them to lose their highly profitable market in Western Australia for at least five years. A unanimous HCA found in their favour.
Held, allowing the appeal:
Per Gaudron J:
(i) Where a person knows or ought to know that his or her acts or omissions may cause the loss or impairment of legal rights possessed, enjoyed or exercised by another, whether as an individual or as a member of a class, and that that latter person is in no position to protect his or her own interests, there is a relationship such that the law should impose a duty of care on the former to take reasonable steps to avoid a foreseeable risk of economic loss resulting from the loss or impairment of those rights.
Per McHugh J:
(ii) The concept of vulnerability is the relevant criterion for determining whether a duty of care exists. Reliance and assumption of responsibility are merely indicators of the plaintiff's vulnerability to harm from the defendant's conduct.
(iii) The issue of whether the respondent owed the appellants a duty of care depends on the answers to the following questions:
1. Was the loss suffered by the appellants reasonably foreseeable?
2. If yes to Q1, would the imposition of a duty of care impose indeterminate liability on the respondent?
3. If no to Q2, would the imposition of a duty of care impose an unreasonable burden on the autonomy of the respondent?
4. If no to Q3, were the appellants vulnerable to loss from the conduct of the respondent?
5. Did the respondent know that its conduct could cause harm to individuals such as the appellants?
(iv) Liability is indeterminate only when it cannot be realistically calculated. If the defendant knows or has the means to know who are the members of an ascertainable class affected by its conduct and the nature of the likely losses to members of that class, its liability is not indeterminate.
(v) As the respondent was already under a duty to take steps to protect the Sparnons against the consequences of bacterial wilt, the autonomy and freedom of action of the respondent was not impaired by holding that it owed a duty of care to the appellants.
(vi) The relevant acts and omissions occurred outside the lands occupied by the appellants and without their knowledge. Accordingly, the appellants were unable to protect their interests against the respondent's acts and omissions and so were vulnerable to the actions of the respondent.
Per Gummow J (with whom Gleeson CJ agreed):
(vii) The following factors combined to constitute a sufficiently close relationship between the appellants and respondent to give rise to a duty of care on the part of the respondent owed to the appellants, for breach of which the appellants could recover their purely economic loss:
(a) The respondent appreciated the consequences of the spread of disease by contaminated seed.
(b) At the time of supplying seed to the Sparnons, the respondent knew or ought to have known that the appellants grew and processed potatoes within 20 km of the Sparnons’ property and the respondent knew of the special requirements of Western Australia with respect to importation of potatoes.
(c) The respondent knew or ought to have known that the appellants exported potatoes to Western Australia.
(d) The appellants had no way of appreciating the existence of the risk to which they were exposed by the conduct of the respondent and had no way of protecting themselves against that risk.
Per Kirby J:
(viii) A three-fold approach or methodology of reasoning is required to determine whether a duty of care exists in cases where damages are sought for the negligent infliction of purely economic loss. A plaintiff must first establish that the loss was foreseeable. The plaintiff must then establish the requisite degree of proximity with the defendant. Finally, the court must evaluate the competing arguments of policy for and against the attachment of legal liability in the particular case.
(ix) The respondent not only ought to have foreseen damage of the kind suffered by the appellants, the respondent actually did foresee precisely the kind of damage that eventuated.
(x) The respondent knew or ought to have known of the existence of other potato growers within close proximity to the Sparnons’ property to which it supplied the contaminated seed.
(xi) There were no policy reasons that warranted a denial of the existence of a duty of care. In particular, the respondent was not subjected to a liability to an indeterminate class for indeterminate amounts. Nor did the imposition of a duty of care on the respondent interfere unreasonably with its economic freedom, its autonomy and the competitive operation of the marketplace.
Per Hayne J:
(xii) The appellants’ claim for pure economic loss was recoverable from the respondent because the respondent knew that the appellants were members of a limited class likely to suffer economic loss as a consequence of its negligence.
(xiii) At the time of the events giving rise to the appellants’ claims, the introduction of contaminated seeds into South Australia was illegal. Accordingly, to hold that the respondent owed a duty of care to the appellants not to cause pure economic loss would not inhibit the respondent from engaging in conduct that otherwise would have been lawful.
Per Callinan J:
(xiv) The respondent's role and position in the potato market placed it in a special relationship to growers and handlers of potatoes.
(xv) The respondent actually foresaw that the appellants were within a class of persons likely to be adversely affected by its negligent conduct.
(xvi) The imposition of liability upon the respondent would not impose an impediment in the way of ordinary commercial activity in the potato industry because the respondent's conduct which caused the appellants’ loss was not the result of legitimate, competitive, commercial activity.