Apache Energy Ltd v Alcoa of Australia Ltd [No 2]
[2013] WASCA 213
•17 SEPTEMBER 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: APACHE ENERGY LTD -v- ALCOA OF AUSTRALIA LTD [No 2] [2013] WASCA 213
CORAM: McLURE P
BUSS JA
NEWNES JA
HEARD: 10 APRIL 2013
DELIVERED : 17 SEPTEMBER 2013
FILE NO/S: CACV 95 of 2012
CONSOLIDATED WITH CACV 94 OF 2012 AND CACV 97 OF 2012 BY ORDER DATED 4 SEPTEMBER 2012
BETWEEN: APACHE ENERGY LTD
First Appellant
APACHE NORTHWEST PTY LTD
Second AppellantHARRIET (ONYX) PTY LTD
Third AppellantAND
ALCOA OF AUSTRALIA LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :LE MIERE J
Citation :ALCOA OF AUSTRALIA LTD -v- APACHE ENERGY LTD [2012] WASC 209
File No :CIV 1481 of 2011
Catchwords:
Tort - Negligence - Duty of care - Pure economic loss - Contracts for the supply of gas by the appellants to the respondent - Interruption in the supply of gas - Whether respondent's claim in negligence untenable - Whether summary judgment should be entered for the appellants
Legislation:
Petroleum Pipelines Act 1969 (WA), s 36A, s 38
Petroleum Pipelines Regulations 1970 (WA), reg 10 (repealed)
Rules of the Supreme Court of Western Australia 1971 (WA), O 16 r 1(1)
Result:
Leave to appeal refused
Appeals dismissed
Category: A
Representation:
Counsel:
First Appellant : Mr J H Karkar QC & Mr G P Harris
Second Appellant : Mr J H Karkar QC & Mr G P Harris
Third Appellant : Mr K N Stewart & Ms A Richmond-Scott
Respondent: Mr D G Collins SC & Mr K J Lyons SC
Solicitors:
First Appellant : Middletons
Second Appellant : Clifford Chance
Third Appellant : Lavan Legal
Respondent: Tottle Partners
Case(s) referred to in judgment(s):
Alcoa of Australia Ltd v Apache Energy Ltd [2012] WASC 209
Alcoa of Australia Ltd v Apache Energy Ltd [No 2] [2012] WASC 280
Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1
Baker v Bolton (1808) 1 Camp 493; (1808) 170 ER 1033
Barclay v Penberthy [2012] HCA 40; (2012) 246 CLR 258
Bell v The State of Western Australia [2004] WASCA 205
Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210
British American Tobacco Australia Ltd v The State of Western Australia [2003] HCA 47; (2003) 217 CLR 30
British Columbia Hydro and Power Authority v BG Checo International Ltd [1993] 1 SCR 12
Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609
Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529
Caltex Refineries (Qld) Pty Ltd v Stavar [2009] NSWCA 258; (2009) 75 NSWLR 649
Canadian Pacific Hotels Ltd v Bank of Montreal [1987] 1 SCR 711
Caparo Industries Plc v Dickman [1990] 2 AC 605
Central Trust Co v Rafuse [1986] 2 SCR 147
Cifuentes v Fugro Spatial Solutions Pty Ltd [2009] WASC 316
Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1
Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
Fugro Spatial Solutions Pty Ltd v Cifuentes [2011] WASCA 102; [2011] Aust Torts Reports ¶82-087
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Graham Barclay Oysters Pty Ltd v Ryan [2002] HCA 54; (2002) 211 CLR 540
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159
Hongkong Bank of Australia Ltd v BPTC Ltd (in liq) (1995) Aust Torts Reports ¶81-358
Lonrho Plc v Fayed [1992] 1 AC 448
Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412; (2009) 171 LGERA 165
McGrath v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230
Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594
Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556; [1971] AC 793
Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180
R v The Martel Building Ltd [2000] 2 SCR 860
Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] [1981] HCA 59; (1981) 150 CLR 225
Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118
Stuart v Kirkland-Veenstra [2009] HCA 15; (2009) 237 CLR 215
Sullivan v Moody [2001] HCA 59; (2001) 207 CLR 562
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80
The State of Victoria v Richards [2010] VSCA 113; (2010) 27 VR 343
The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40
Ultramares Corporation v Touche (1931) 174 NE 441
Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598
Western Districts Developments Pty Ltd v Baulkham Hills Shire Council [2009] NSWCA 283; (2009) 75 NSWLR 706
Wickstead v Browne (1993) 10 Leg Rep 522
Wickstead v Browne [1992] NSWCA 272; (1992) 30 NSWLR 1
Wilson v Metaxas [1989] WAR 285
Winnipeg Condominium Corporation No 36 v Bird Construction Co Ltd [1995] 1 SCR 85
Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515
Table of Contents
McLure P:................................................................................................................................. 6
Buss JA:................................................................................................................................... 17
Alcoa's amended statement of claim: various material facts
Alcoa's amended statement of claim: Apache Energy's duty of care
Alcoa's amended statement of claim: the incident on 3 June 2008
Alcoa's amended statement of claim: Apache Energy's breaches of its duty of care
Alcoa's amended statement of claim: negligence claim against Apache Northwest
Alcoa's amended statement of claim: negligence claim against Apache Northwest, Harriet and Kufpec
Alcoa's amended statement of claim: prayer for relief
The appellants' applications for summary dismissal of Alcoa's claims in negligence
The applications for summary dismissal of Alcoa's claims in negligence against the appellants: applicable legal principles
Overview of the primary judge's reasons for decision
The appellants' grounds of appeal
Leave to appeal: applicable principles
The High Court and pure economic loss
Issue 1: introduction
Issue 1: relevant provisions of the Supply Contracts
Issue 1: the appellants' submissions
Issue 1: its merits
Issue 2: introduction
Issue 2: the appellants' submissions
Issue 2: its merits
Issue 3: introduction
Issue 3: the appellants' submissions
Issue 3: its merits
Issue 4: introduction
Issue 4: the appellants' submissions
Issue 4: its merits
Issue 5: introduction
Issue 5: the appellants' submissions
Issue 5: its merits
Issue 6: introduction
Issue 6: the appellants' submissions
Issue 6: its merits
Conclusion
Newnes JA: ..............................................................................................................................72
Confidential Schedule to the reasons of Buss JA
Issue 1: relevant provisions of the Supply Contracts
Issue 1: its merits: analysis of various provisions of the Harriet GSA and the John Brookes GSA
Issue 5: the appellants' submissions
McLURE P: I agree with Buss JA that leave to appeal should be refused and the appeals dismissed. I propose briefly to explain my reasons.
The facts are detailed by Buss JA. For present purposes, it is sufficient to note the following (using the definitions adopted by Buss JA). Apache Northwest, Harriet and Kufpec (the Sellers), with other parties, co‑owned the facilities at Varanus Island for the production, processing and transport of gas (the Facilities). They were also the licensees of a 12 inch sales gas pipeline (SGL) that ruptured, causing an explosion and fire at the Facilities on 3 June 2008. The pipeline licence was issued under the Petroleum Pipelines Act 1969 (WA). Regulation 10 of the Petroleum Pipelines Regulations 1970 (WA) required the pipeline to be operated in a proper and workmanlike manner and in accordance with good pipeline operating practice.
Alcoa is the owner and operator of three alumina refineries in this State which use significant quantities of natural gas. Alcoa (as purchaser) entered into two long‑term contracts for the supply of gas from the Facilities. One contract was with Apache Northwest, Harriet and Kufpec (the Harriet GSA) and the other with Apache Northwest (the John Brookes GSA). Both agreements are in writing, very detailed and constitute the entire agreement between the parties. Clause 16.3 of the Harriet GSA excludes all terms implied by (inter alia) general law. There is also a cap on the extent of the Sellers' liability for a failure to supply gas in accordance with the gas sales agreement (the liability cap).
Apache Energy is the operator of the Facilities pursuant to 'contracts, arrangements or understandings with Apache Northwest and/or the other parties' who co‑owned the Facilities (par 2(d)(iii) of the amended statement of claim). Apache Energy, the holding company of Apache Northwest, is the Sellers' representative under both agreements.
Under the licence, the 12 inch SGL could be operated and maintained by a person other than the licensees. The licensees had nominated Apache Energy as the entity controlling the day to day operation, management and maintenance of the Varanus Island pipelines, including the 12 inch SGL.
The pleaded claims against the appellants (defendants) are as follows. First, a claim in negligence against Apache Energy. The relevant duty of care is pleaded in the following terms:
Apache Energy owed Alcoa a duty to exercise reasonable care and skill in operating, maintaining and/or repairing the 12" SGL to prevent a rupture of the pipeline in the area of the Beach Crossing and thereby avoid economic loss being suffered by Alcoa by reason of any rupture to the pipeline in that area [26].
The alleged breach of duty is, in substance, a series of omissions to take steps that would have prevented the rupture of the 12 inch SGL. The appellants had been put on notice of the risk of corrosion.
The economic loss is the cost to Alcoa of having to acquire alternative energy supplies at a cost exceeding the price payable under the gas sales agreements. The increased cost is in excess of $100 million.
There is a separate claim of negligence against Apache Northwest who, it is pleaded, is the entity responsible for the operation of the Facilities on its own behalf and for and on behalf of the other parties to the Varanus Island Joint Ventures [35]. The duty owed by Apache Northwest to Alcoa is in the following terms:
Apache Northwest owed Alcoa a duty to exercise reasonable care and skill in supervising, overseeing and/or monitoring the operation, maintenance and/or repair of the 12" SGL to prevent rupture of the pipeline due to corrosion in the area of the Beach Crossing and thereby avoid economic loss being suffered by Alcoa by reason of any rupture to the pipeline in that area. (emphasis added)
The pleas of breach and loss against Apache Northwest are, in substance, the same as those pleaded against Apache Energy.
There is also a claim that Apache Northwest, Harriet and Kufpec, as licensees of the 12 inch SGL, owed a general law duty of care to Alcoa. That duty is in the same terms (to supervise, oversee, monitor) as the claim against Apache Northwest as the entity responsible for the operation of the Facilities.
The 'salient features' relied on by Alcoa for the tortious duties are as follows: the appellants, as licensees and as the nominated entity of the 12 inch SGL, assumed statutory obligations and a responsibility to maintain and operate it in a proper and workmanlike manner, and to maintain it in good condition and repair; the appellants knew or ought to have known that the 12 inch SGL was particularly susceptible to external corrosion in the area of the beach crossing where the rupture occurred; the appellants knew or ought to have known that a rupture of the 12 inch SGL in that area was likely to cause substantial damage to the only other sales gas pipeline transporting gas to the mainland from Varanus Island and cessation in the supply of gas for a substantial period; the appellants controlled the security of supply of gas through the sales gas pipelines; the appellants knew or ought to have known that Alcoa was dependent on the supply of gas through the sales gas pipelines and would suffer economic loss if the supply of gas through the sales gas pipeline was interrupted for a substantial period; and Alcoa was vulnerable because it could not avoid the consequences of the appellants' failure to exercise reasonable skill and care.
Alcoa also claims in contract for breach of the Harriet GSA and the John Brookes GSA, the breach being the Sellers' failure to deliver their percentage interest share of gas under the relevant contract.
The nature and terms of the gas sales agreements are at the centre of the appellants' claim that the primary judge erred in failing to dismiss summarily Alcoa's non‑contractual claims.
The determination of the summary judgment application requires an understanding of the law relating to recovery for negligently inflicted pure economic loss. In 2004, McHugh J wrote that confusion approaching chaos has reigned in that branch of the law of negligence concerned with the plaintiff suffering pure economic loss: Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 [45]. Little has changed. The parties are in deep disagreement as to the meaning and effect of the plurality majority judgment in Barclay v Penberthy (2012) 246 CLR 258. A close examination of that case is unavoidable.
The appellants rely on three primary propositions. First, they claim that vulnerability, in the sense of the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, is a necessary condition of a duty to take reasonable care to avoid pure economic loss (the Woolcock sense). In this context, 'vulnerability' includes the plaintiff's inability to protect itself in advance from the consequences of a defendant's want of reasonable care. It is as well to understand the factual basis for the claims relating to vulnerability.
Alcoa pleads that it was relevantly vulnerable because: (1) the sellers had not agreed, and were not prepared to agree, to contractual terms in the gas sales agreements protecting Alcoa from loss caused by a cessation in the supply of gas from the Facilities for a substantial period; (2) the cost of acquiring alternative fuels was significantly higher than the cost of gas under the gas sales agreements; (3) it could not obtain a backup supply of a large volume of gas; and (4) it could not monitor the condition of the pipelines operated by the licensees and relied upon Apache Energy to operate and maintain them.
The appellants contend that the fact that Alcoa might have preferred and sought a different allocation of risk than it agreed under the gas sales agreements does not establish vulnerability. I will address this issue in the context of examining Barclay.
The appellants also contend that Alcoa was not relevantly vulnerable because Alcoa's pleading and its publicly filed documents establish that Alcoa: (1) was aware of the risk of an interruption to supply under the gas sales agreements and was in actual control of that risk by taking steps to protect itself in the event the risk materialised; (2) had no difficulty in obtaining alternative supplies of gas; (3) had set up its systems so as to be able to operate on energy other than gas (it also acquired diesel); (4) had inserted force majeure clauses in contracts with its customers and declared force majeure; and (5) had insured against the relevant loss.
There is no binding authority that vulnerability is a necessary condition of a duty of care to avoid pure economic loss. The plurality in Woolcock expressly declined to take that step [24]. Even McHugh J does not go that far: Perre v Apand Pty Ltd (1999) 198 CLR 180 [118]. In any event, there is no fixed or certain scope of the concept of vulnerability. The nature and degree of vulnerability sufficient to support a duty will vary from case to case, category to category: Perre [129] (McHugh J). Finally, for the reasons discussed below, it is arguable that vulnerability in the sense used by Alcoa is consistent with Barclay. The state of the law on this subject is not sufficiently clear to enable it to be determined summarily.
The appellants' second and third propositions raise for determination the circumstances in which a contract can have the effect of preventing a tortious duty of care arising, accepting of course, that the general law permits concurrent contractual and tortious duties: Astley v AustrustLtd (1999) 197 CLR 1. Both propositions relate to the claims against those appellants who are parties to the gas sales agreements. They have no direct application to Apache Energy.
The appellants' second proposition is that if the terms of a contract between a plaintiff and defendant exclude or limit liability for an act or omission relied on to establish liability in tort, there will be no duty in tort or the liability will be limited.
It is clear that tortious duties can be excluded or limited by the express or implied terms of a contract between the plaintiff and defendant. However, the appellants contend that a contract can have this result even if, on its proper construction, liability in tort is not in terms expressly or impliedly excluded or limited. It is arguable that the relevant provisions of the gas sales agreements do not in terms (express or implied) exclude tortious liability for the damage claimed by Alcoa. Whether or not that is otherwise the effect of the gas sales agreements, in particular the liability cap, is linked with the appellants' third proposition discussed below.
In any event, there are conflicting contentions as to the proper characterisation of the relevant act or omission for the purpose of the second proposition. The appellants contend that the relevant act or omission relied on by Alcoa is, in substance and effect, their failure to supply gas under the gas sales agreements, relying on McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 [65] ‑ [66].
Alcoa contends that the relevant act or omission is the failure to prevent damage to the 12 inch SGL and that it is legitimate to formulate a duty in respect of an item of property or damage to avoid loss of another nature (that is, a negligent failure to avoid damage to the 12 inch SGL thereby causing economic loss to Alcoa), relying on Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976) 136 CLR 529 and Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594, 598 ‑ 599.
Alcoa does not in terms rely on the Sellers' failure to supply gas as the negligent act or omission. It relies on the appellants' failure to take positive action (an omission) to maintain the structural integrity of their gas transport and delivery systems. The failure to perform the contractual supply obligation is relied on by Alcoa to establish the fact and extent of its economic loss. Alcoa claims that the pleaded tortious omission (and thus the duty) is outside the scope of, and not governed by, the gas sales agreements. The characterisation issue is not amenable to summary determination.
The appellants' third proposition, which is related to their second, is that the general law will not impose a tortious duty when the same duty has been rejected as an implied term of the contract between the plaintiff and the defendant: Canadian Pacific Hotels Ltd v Bank of Montreal [1987] 1 SCR 711; Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] 1 AC 80, 107; Central Trust Co v Rafuse [1986] 2 SCR 147, 206.
Applied to the facts of this case, the appellants contend that there is no implied term to exercise reasonable care to supply gas to Alcoa under the gas sales agreements (or to prevent the rupture of the 12 inch SGL), in which event there can be no such duty in tort. For present purposes, it can be accepted that there are no such implied terms in the gas sales agreements.
On the issue of whether there can be a duty in tort, absent a correlative duty in contract, the parties disagree as to the scope and effect of Barclay. It appears that Barclay is the first case considered by the High Court in which liability for pure economic loss in negligence between contracting parties has been directly in issue. However, the first and second propositions were not put in issue in the appeal to this court nor, it seems from a reading of its reasons, in the High Court.
The appellants contend that Barclay supports summary judgment and Alcoa contends that it mandates its refusal. In that case a twin engine aircraft piloted by Mr Penberthy crashed shortly after take‑off, killing two and injuring three passengers on the aircraft who were employees of Nautronix. The aircraft failed shortly after take‑off because of the failure of a fuel pump sleeve bearing designed by a qualified aeronautical engineer, Mr Barclay. Mr Penberthy's negligence was in the way he dealt with the emergency caused by the negligence of Mr Barclay. The negligent acts and omissions occurred against the background of a contractual matrix. Mr Penberthy was employed by Fugro Spatial Solutions Pty Ltd (Fugro) which was in the business of providing air charter services for commercial purposes. Nautronix entered into an air charter contract with Fugro. Fugro performed its contractual obligations to Nautronix by its employee, Mr Penberthy. Mr Barclay provided his services to Fugro pursuant to a contract for services.
Part of the loss claimed by Nautronix against Fugro, Mr Penberthy and Mr Barclay was pure economic loss resulting from the death of, and injury to, its employees.
Recovery of pure economic loss in contract is, of course, uncontroversial. Nautronix claimed that it was an express, alternatively an implied, term of the air charter contract that Fugro would perform the services for which it was engaged with due care, diligence and skill. Because Fugro had conceded that there was an implied term to that effect, the trial judge went on to determine whether that term had been breached. He held that there was no breach of the implied term ([427], [428]).
In addition, Nautronix claimed against Fugro for breach of contractual warranties said to be implied under s 74 of the Trade Practices Act 1974 (Cth) (TPA), one of which was that the services would be rendered with due care and skill. The trial judge held that the statutory warranties were not implied into the air charter contract and that there was no breach of those implied warranties in any event. Nautronix cross‑appealed against those conclusions. The cross‑appeal was dismissed. This court held that the statutory warranties were not implied because the air charter contract was a contract for, or in relation to, the transportation of goods for the purposes of a business carried on or engaged in by Nautronix and thus was not a contract for the supply of services under s 74(3) of the TPA. If the statutory warranties were implied, this court concluded that the trial judge erred in holding that there was no breach of the implied warranty of due care and skill [142]. The trial judge had erroneously concluded that the implied warranty was confined to lack of care and skill for which Fugro was directly (not vicariously) liable [142]. However, Nautronix did not at any stage challenge the trial judge's finding that there was no breach of the implied contractual term to the same effect.
Nautronix also claimed against Fugro, Mr Penberthy and Mr Barclay in negligence for pure economic loss resulting from the death of, and injury to, its employees. The trial judge upheld the claim against Mr Penberthy and Fugro but dismissed the claim against Mr Barclay. The trial judge found that Fugro was vicariously, not directly, liable for Nautronix's pure economic loss. There were appeals and cross‑appeals to this court from the trial judge's determination of the tortious claims for pure economic loss.
The Court of Appeal (McLure P, Martin CJ & Mazza J agreeing) held that, on the basis that the common law action per quod was still good law, both Mr Penberthy and Mr Barclay owed to Nautronix a common law duty to take reasonable care to avoid causing it pure economic loss by injuring its employees.
On the influence of the action per quod, I said:
[T]he existence of [the common law action per quod] is directly relevant to whether it is reasonable to impose a duty of care in negligence. Consistency between closely related common law actions is a legitimate expectation. Whilst the action for loss of services remains part of the common law of Australia, it is difficult to avoid the conclusion that a negligent defendant must owe to an employer a common law duty to take reasonable care to avoid causing pure economic loss by injuring its employees. That conclusion is applicable to both Mr Penberthy and Mr Barclay [110].
The reason for the conclusion in [110] was that:
The action [per quod] had its origins at a time when a master was understood to have a quasi‑proprietary interest in his servants (and later his services), in which event the economic loss would be seen to be consequential and its recovery unexceptional … Moreover, no issue of indeterminacy arises because of the need for the plaintiff to have an existing employment relationship [108].
In the High Court, Nautronix conceded that this court erred in upholding its claim that Mr Barclay was liable to it in negligence for pure economic loss, instead confining itself to a (new) claim that Mr Barclay was liable under the action per quod. Further, Nautronix did not support this court's reasoning in upholding its tortious economic loss claim against Mr Penberthy, relying instead on that of the trial judge.
The High Court held that I erred in treating the existence of a claim against a defendant on the action per quod as indicative of an action for negligently inflicted economic loss against that defendant. On my reading of their reasons, the plurality accept that the theoretical foundation for the action per quod remains, in substance, the master's contractual right to the services of its employee, which can still be described as 'quasi‑proprietary' [39] ‑ [40]. I infer the reason why the action per quod is not indicative of a claim in negligence is that the injury to the employer under the action per quod is wrongful because it is done to the servant not because there was any breach of a duty of care owed to the master [34].
As there had been widespread criticism of the action per quod and doubts expressed as to whether it would survive a High Court challenge, I considered the common law duty of care on the assumption that the action per quod had not survived or alternatively did not require the imposition of a duty of care in negligence. This was done in the context of the unchallenged finding by the trial judge that Fugro did not breach its implied contractual obligation to Nautronix to exercise reasonable care and skill in the provision of its air charter services. I concluded that, but for the existence of the common law action for loss of services and the significance there attached to the employer/employee relationship, neither Mr Penberthy nor Mr Barclay owed Nautronix a duty of care to avoid the pure economic loss the subject of the claim [125].
The High Court (at [49]) upheld the reasoning of the trial judge in finding that Mr Penberthy owed a duty to avoid causing pure economic loss to Nautronix. The trial judge reasoned as follows:
[Mr Penberthy] knew the purpose of the flight. He knew that it was a commercial purpose. He knew that the company who employed his passengers was Nautronix. Mr Penberthy knew, therefore, not only that Nautronix was a member of an ascertainable class of commercial users of the aircraft, but that Nautronix was the particular commercial entity which depended upon the exercise of his professional skill as a pilot for the successful performance of the service for which the aircraft was chartered. Of course, it was the case that if Penberthy failed, as he did, to discharge that duty of care, Nautronix was vulnerable in the sense that they were unable to protect themselves from the foreseeable harm of an economic nature caused, in part, by Penberthy's negligence. There are no other circumstances specially affecting the existence of a duty of care owed by Penberthy, and vicariously by [Fugro], to Nautronix in relation to economic loss suffered by that plaintiff.
The trial judge's formulation of the vulnerability test in relation to Mr Penberthy focuses attention on the vulnerability flowing from the particular negligent act or omission (negligent flying), which is apt in cases involving damage to the plaintiff's person or property, rather than on vulnerability in the Woolcock sense of a plaintiff's inability to protect itself in advance from the risk and consequences of a defendant's want of reasonable care.
On the subject of vulnerability, the trial judge found that in relation to Mr Barclay, but not Mr Penberthy, Nautronix was not vulnerable because it could protect itself from pure economic loss in its contract with Fugro. I concluded that, on this aspect of vulnerability, there was no material difference between the positions of Mr Barclay and Mr Penberthy and that 'Nautronix was not vulnerable in the same way as the plaintiffs in either Caltex or Perre' [118]. I had noted that in Caltex and Perre, but not in Woolcock, there was no commercial relationship, or chain of commercial relationships, linking the plaintiff with the creator of the risk [106]. That was the extent of my conclusions on vulnerability, save for an earlier observation that the application of the principles of negligence to the recovery of pure economic loss may be partly attributable to the fact that parties involved in a competitive economy can reasonably be expected to take into account and allocate the risk of pure economic loss, with this allocation reflected in the pricing of goods and services [104]. As McHugh J observed in Woolcock, a prudent purchaser will factor risk into the price or obtain contractual protection or, if necessary, walk away from the negotiations [110].
The particular focus of the submissions in this appeal was on the meaning of pars [46] and [47] in the plurality's reasons in Barclay. They said:
[46] The Court of Appeal proceeded on the footing that Nautronix could have protected itself from the pure economic loss, which it suffered from the injury to its employees, by appropriate terms in its charter contract with Fugro. An express term presumably would have gone further than an implied term in the charter contract that Fugro would exercise reasonable care and skill in the performance of the charter contract, and would have required Fugro to accept liability to Nautronix for pure economic loss suffered by Nautronix from injury to its employees.
[47] In response, counsel for Nautronix pointed to the absence of evidence that it could have negotiated successfully for the inclusion of such a term in the charter agreement. Further, in order to establish the existence of a duty of care owed to Nautronix for which Fugro was vicariously liable, it was not incumbent upon Nautronix to establish that it could not have bargained with Fugro for a particular contractual provision. The presence or absence of a claim in contract would not be determinative of a claim in tort.
The last sentence in [47] is supported by a footnote reference to Astley v Austrust Ltd (1999) 197 CLR 1 [44] ‑ [48] and Fleming JG, Fleming's The Law of Torts, (10th ed, 2011) at [8.350] (on the topic of concurrent duties in contract and tort).
There are indications in Barclay that the notion that an intending party to a contract 'could protect itself [in the Woolcock sense] from pure economic loss in its contract' may be narrowly confined to the question of whether or not the other contracting party would in fact have agreed to a request from the plaintiff for the insertion of a relevant term in the contract. Thus it is arguable that the Sellers' refusal to accept full contractual liability for a failure to perform their supply obligation to Alcoa under the gas sales agreements is an indication of its vulnerability, as Alcoa contends.
On my reading of [47] of the plurality's reasons, they, like the trial judge, concluded that, on the facts in Barclay, it was unnecessary to establish vulnerability in the Woolcock sense in order to succeed in the pure economic loss claims against either Mr Penberthy or Fugro. I infer that was because, in the case of Mr Penberthy, Nautronix did not have any contractual relationship with him and, in the case of Fugro, because its tortious liability was vicarious, not direct. Direct tortious liability may have been seen as inconsistent with the absence of any breach by Fugro of an implied contractual term to exercise reasonable care and skill. It is the generally held view that an employer's vicarious liability in tort is not based on the breach by the employer of any personal duty of care but on the employee's tort being imputed to the employer: Bell v The State of Western Australia [2004] WASCA 205 [26]. That is, the employer is liable not because of any breach of duty it owed to the plaintiff but because the employee's tort is imputed to the employer.
The appellants claim that Barclay positively supports the third proposition. There are a number of steps to their argument. First, that the second sentence in [47] of the reasons of the plurality is a statement of their position, not of the submissions put on behalf of Nautronix. Second, it was an implied term of the air charter contract that Fugro would exercise reasonable skill and care in the performance of its contractual obligations and had breached that duty. Third, in those circumstances, vulnerability relates to the act or omission that caused the loss (negligent flying) rather than vulnerability in the Woolcock sense.
With one qualification arising from the fact that Fugro was in fact held not to be in breach of the implied contractual term, those steps can be accepted for present purposes. One of the functions of contract is to allocate the risks of economic loss arising out of, or in connection with, the performance or non‑performance of the contract. The risk allocation reflects the objectively determined intention of the contracting parties. In the absence of a term to the contrary effect, an express or implied contractual term requiring the exercise of reasonable care and skill would, by virtue of the function of a contract, compensate for pure (and consequential) economic loss. It would follow that a concurrent tortious duty to exercise reasonable care arising out of the same factual circumstances would also extend to economic loss (pure and consequential) because the contract reflects an assumption of responsibility by the promisor and reliance by the promisee in respect of that type of loss. Vulnerability in the Woolcock sense has no application when the plaintiff and the defendant have contractually allocated the relevant risk in question. However, there would be no assumption of responsibility and reliance if there was no concurrent contractual duty of care.
The qualification relates to the situation that occurred in Barclay. In relation to precisely the same negligent act (negligent flying), Fugro was held not to be in breach of its contractual duty to Nautronix to exercise reasonable care and skill but was liable to Nautronix in tort for its pure economic loss. The footnote reference to Astley in the third sentence of [47] suggests it may offer an explanation for the different outcomes.
In Astley, a client claimed against its solicitors for pure economic loss. There was an implied term of reasonable care in the contract of retainer by operation of law. The client sued in both contract and tort for professional negligence. As noted by the High Court, acceptance of concurrent contractual and tortious duties does not mean identical outcomes because the two causes of action have different elements, different limitation periods, different tests for remoteness of damage and different apportionment rules: Astley [47]. However, the outcome on the question of breach resulting from the application of a concurrent contractual and tortious duty to exercise reasonable care and skill should, prima facie, be the same on the same facts; that is, there should be no scope for conflicting outcomes on the question whether a particular act or omission is a breach of the concurrent duties. Perhaps the answer is that vicarious liability in tort is not relevantly 'concurrent' when the contractual duty is held to be (as in Barclay) confined to negligent acts and omissions for which the contracting party is directly liable.
The final step in the appellants' argument based on the plurality reasons in Barclay, is that there can only be a tortious duty to exercise reasonable skill and care if there is a concurrent contractual duty. There is no direct statement to that effect in the reasons of the plurality. Further, it does not sit comfortably with the fact that Fugro did not breach its contractual duty to exercise reasonable care yet was held liable in tort for pure economic loss. In those circumstances, the proper course is to refuse summary judgment on the third proposition.
The second and third propositions do not apply to Apache Energy, which was not a party to the contract. The appellants rely on the statement in the judgment of McHugh J in Woolcock that in the absence of contract, those involved in the design or construction of commercial premises do not owe a duty in tort to the first (or subsequent) owner of the premises [37]. It is arguable that what is reasonable in the context of the long, well established contractual matrix in building and construction law does not necessarily apply more generally. Moreover, the contractual matrix in Barclay was irrelevant to, or at least did not stand in the way of, Mr Penberthy's liability to Nautronix for pure economic loss.
BUSS JA: The appellants have applied for leave to appeal from an interlocutory decision of the primary judge, Le Miere J, in pending proceedings in the General Division of the Supreme Court. See Alcoa of Australia Ltd v Apache Energy Ltd [2012] WASC 209.
His Honour dismissed the appellants' applications summarily to dismiss the respondent's (Alcoa's) claims against the appellants under the law of negligence for pure economic loss.
At all material times, Alcoa has been:
(a)engaged in the business of bauxite mining, alumina refining and aluminium smelting in Australia; and
(b)the owner and operator of alumina refineries located in Kwinana, Pinjarra and Wagerup (the Alcoa Refineries), each of which consumes significant amounts of natural gas under normal operating conditions.
At all material times, about one third of the gas used by Alcoa to fuel the Alcoa Refineries has been supplied by the second appellant (Apache Northwest), the third appellant (Harriet) and the fourth defendant in the pending proceedings (Kufpec) under long‑term negotiated gas sales agreements (the Supply Contracts). The gas has been produced, processed and transported from facilities (the Facilities) at Varanus Island.
On 3 June 2008, there was an explosion and fire at the Facilities. The explosion and fire resulted from the rupture of a 12 inch sales gas pipeline (the 12 inch SGL).
As a result of the explosion and fire, and consequential damage to the Facilities, there was an interruption in the supply of gas to Alcoa under the Supply Contracts.
At all material times:
(a)the first appellant (Apache Energy) was the operator of the Facilities and the 12 inch SGL;
(b)Apache Northwest, Harriet and Kufpec were the licensees of a licence granted by the State of Western Australia to operate the pipelines in the Facilities, including the 12 inch SGL.
In the pending proceedings, Alcoa claims, relevantly, damages in negligence against Apache Energy, Apache Northwest and Harriet for pure economic loss suffered as a result of the interruption of its gas supply.
On 9 October 2012, Pullin JA referred the applications for leave to appeal to the hearing of the appeals.
Alcoa's amended statement of claim: various material facts
Alcoa pleads material facts in its amended statement of claim, relevantly, as follows:
(a)At all material times, the only significant sources of supply of gas in Western Australia were from North West Shelf Gas operated by Woodside Petroleum Limited and from the Facilities operated by Apache Energy (par 5).
(b)At all material times, dry processed gas (Sales Gas) produced from the Facilities was only supplied to approximately 15 large commercial gas customers, including Alcoa (the Customers) (par 6).
(c)At all material times, the Sales Gas produced from the Facilities was delivered to the Customers, including Alcoa, through, amongst others, two sales gas pipelines (being the 12 inch SGL and a 16 inch sales gas pipeline (the 16 inch SGL)), each approximately 100 kms in length, which transported the Sales Gas from Varanus Island to the Australian mainland (the Sales Gas Pipelines) (par 7).
(d)At all material times, Apache Energy (as the entity controlling the day‑to‑day operation, management and maintenance of the Facilities and/or the entity controlling the day‑to‑day operation, management and maintenance of the Sales Gas Pipelines), controlled the supply of Sales Gas from the Facilities to the Customers, including Alcoa (par 8).
(e)Alcoa entered into the Supply Contracts to acquire up to an agreed amount of Sales Gas produced from the Facilities for the purposes of providing fuel required for the operation of the Alcoa Refineries. The Supply Contracts comprised: an agreement made on or about 20 August 2001, as varied by a deed made in or about April 2005, pursuant to which Apache Northwest, Harriet and Kufpec, being the parties to the Harriet Joint Venture, agreed to supply gas to Alcoa on the terms and conditions contained therein (the Harriet GSA); and an agreement made on or about 12 June 2006, pursuant to which Apache Northwest agreed to supply gas to Alcoa on the terms and conditions contained therein (the John Brookes GSA) (par 9).
(f)At all material times prior to 3 June 2008, Alcoa was supplied with an average of a specified amount of Sales Gas produced from the Facilities, which gas was purchased by Alcoa under the Supply Contracts, delivered to Alcoa through, amongst others, the Sales Gas Pipelines and used by Alcoa to provide the fuel required for the normal operation of the Alcoa Refineries (par 10).
(g)At all material times, Apache Energy knew, or ought reasonably to have known, of the matters referred to in pars (a) ‑ (f) above (par 11).
(h)At all material times, the 12 inch SGL crossed the beach perimeter of Varanus Island at a point to the north east of the island en route from the island to the mainland (Beach Crossing) (par 12).
(i)At all material times, the 12 inch SGL was susceptible to corrosion, particularly in the area of the Beach Crossing (par 13).
(j)At all material times, there were five other pipelines (including the 16 inch SGL) in close proximity to the 12 inch SGL in the vicinity of the Beach Crossing which also conveyed hydrocarbon products (par 14).
(k)At all material times, a consequence of the proximity of the pipelines in the vicinity of the Beach Crossing (including the 12 inch SGL and the 16 inch SGL) was that each pipeline was particularly vulnerable and susceptible to damage from a rupture to any other pipeline, and in the event of a rupture of any of the pipelines there was a real likelihood that the Sales Gas Pipelines would be severely damaged in a manner that would result in a total cessation in the supply of Sales Gas from the Facilities for a substantial period; and other parts of the Facilities would also be severely damaged thereby further preventing supply of Sales Gas (par 15).
(l)In a review conducted for Apache Energy by QCL International (QCL) in 1998 (the 1998 QCL Review), QCL advised Apache Energy that 'intelligent pigging' of the 12 inch SGL should be conducted due to the significant external corrosion risk (par 16).
(m)In a further review conducted for Apache Energy by QCL in 2004 (the 2004 QCL Review), QCL advised Apache Energy that the 'shore zone' areas of the 12 inch SGL, which included the Beach Crossing area, were particularly susceptible to corrosion damage due to the effects of weather and environmental conditions; nevertheless, these areas were the subject of very little inspection data and were not included in either the 'onshore' or 'offshore' standard work scopes for regular inspection and maintenance (par 17).
(n)At all material times, Apache Energy knew, or ought reasonably to have known, of the matters referred to in pars (h) ‑ (m) above (par 18).
(o)At all material times, reg 10 of the Petroleum Pipelines Regulations 1970 (WA) (the Pipelines Regulations) required the Sales Gas Pipelines to be operated in a proper and workmanlike manner and in accordance with good pipeline operation practice (par 19).
(p)At all material times, Apache Energy held itself out to the relevant statutory authorities and to the Customers, including Alcoa, as the entity in control of the day‑to‑day operation, management and maintenance of the Sales Gas Pipelines (par 20).
(q)By reason of the matters referred to in pars (o) and (p) above, at all material times Apache Energy assumed responsibility to operate and maintain the Sales Gas Pipelines in a proper and workmanlike manner and in accordance with good pipeline operating and maintenance practice (par 21).
(r) At all material times, Alcoa had no means of monitoring the condition of the Sales Gas Pipelines and relied on the operator of the Sales Gas Pipelines, Apache Energy, to operate and maintain them in a proper and workmanlike manner and in accordance with good pipeline operating and maintenance practice so as to preserve and maintain the structural and operational integrity of the Sales Gas Pipelines and their capacity to function as such (par 22).
(s)At all material times, Alcoa required approximately 260 TJ/d of gas to be supplied on an ongoing basis to enable the Alcoa Refineries to operate under normal operating conditions (par 22A).
(t)At no material time could Alcoa obtain a 'back up' supply of gas to enable the Alcoa Refineries to operate under normal operating conditions in the event of a total cessation of gas supplies from the Facilities for a substantial period (par 22B).
(u)Further and alternatively, at all material times the cost of acquiring alternative fuels to enable the Alcoa Refineries to operate in the event of a total cessation of gas supplies from the Facilities for a substantial period was significantly higher than the cost of gas acquired under the Supply Contracts and/or any other long‑term gas supply contract (par 22C).
(v)At no material time were any of Apache Northwest, Harriet or Kufpec prepared to enter into a contract with Alcoa to compensate it for the increased cost of acquiring alternative fuels to enable the Alcoa Refineries to operate in the event of a total cessation of Sales Gas from the Facilities for a substantial period (par 22D).
(w)In the premises, at all material times Alcoa was vulnerable and susceptible to suffering economic loss from a cessation in the supply of Sales Gas from the Facilities for a substantial period in the event that the Sales Gas Pipelines were not operated and maintained in a proper and workmanlike manner and in accordance with good pipeline operating and maintenance practice (par 23).
(x)At all material times, Apache Energy knew, or ought reasonably to have known, of the matters referred to in pars (v) and (w) above (par 24).
It is unnecessary to reproduce various particulars that Alcoa has given of the material facts pleaded in the amended statement of claim.
Alcoa's amended statement of claim: Apache Energy's duty of care
Alcoa pleads in par 25 of its amended statement of claim that, in the premises, at all material times it was, or ought reasonably to have been, foreseeable to Apache Energy that:
(a)in the event the 12 inch SGL in the area of the Beach Crossing was not properly or adequately inspected, monitored, maintained and/or repaired, a rupture of the pipeline due to damage by corrosion was likely to occur;
(b)a rupture of the 12 inch SGL was likely to lead to a catastrophic rupture of other pipelines in the vicinity of the 12 inch SGL, including the 16 inch SGL, causing a total cessation of the supply of Sales Gas from the Facilities for a substantial period; and
(c)a total cessation of the supply of Sales Gas from the Facilities for a substantial period was likely to lead to Alcoa suffering substantial economic loss and damage.
In par 26 of its amended statement of claim, Alcoa alleges that, in the premises, at all material times Apache Energy owed Alcoa 'a duty to exercise reasonable care and skill in operating, maintaining and/or repairing the [12 inch SGL] to prevent a rupture of the pipeline in the area of the Beach Crossing and thereby avoid economic loss being suffered by Alcoa by reason of any rupture to the pipeline in that area'.
Alcoa's amended statement of claim: the incident on 3 June 2008
Alcoa pleads in par 28 of its amended statement of claim that on 3 June 2008, during the course of production operations, the following series of events occurred at the Facilities:
(a)the 12 inch SGL ruptured at the Beach Crossing;
(b)this rupture caused a violent release to the atmosphere of a stream of highly pressurised Sales Gas, which ignited and resulted in an explosion and fire in the Beach Crossing area; and
(c)this initial explosion and fire caused consequential ruptures to other pipelines including the 16 inch SGL.
In par 29 of its amended statement of claim, Alcoa alleges that the initial rupture at the Beach Crossing occurred due to a structural failure of the 12 inch SGL caused by significant corrosion damage to the external surface of the pipe.
In par 30 it is alleged that the incident on 3 June 2008 severely damaged, among others, the 12 inch SGL, the 16 inch SGL and other parts of the Facilities, resulting in an immediate and total cessation of supply of Sales Gas.
In par 31 it is alleged that, as a result of the incident:
(a)from 4 June 2008 until 5 August 2008, Alcoa did not receive any Sales Gas from the Facilities under the Supply Contracts or otherwise; and
(b)from 6 August 2008 to 13 June 2009, while Alcoa received some Sales Gas from the Facilities, the volume of Sales Gas received by it on a daily basis was insufficient to enable the Alcoa Refineries to operate in the manner they would operate in the usual course on an ongoing basis under normal operating conditions.
It is unnecessary to reproduce various particulars that Alcoa has given of the incident in question.
Alcoa's amended statement of claim: Apache Energy's breaches of its duty of care
Alcoa pleads in par 32 of its amended statement of claim that, in breach of the duty of care referred to in [66] above, Apache Energy failed to exercise reasonable care and skill in operating, maintaining and/or repairing the 12 inch SGL in the area of the Beach Crossing to prevent rupture of the pipeline as occurred in the incident on 3 June 2008.
In par 34 of its amended statement of claim, Alcoa alleges that the incident was caused by Apache Energy's breach of duty as alleged and, as a result of the incident, Alcoa has suffered economic loss.
The particulars of the economic loss assert, amongst other things, that:
(a)Alcoa was forced to acquire alternative energy supplies in the form of alternative gas, diesel and electricity to make up for the shortfall in the supply of Sales Gas from the Facilities in order to enable the normal operation of the Alcoa Refineries.
(b)Alcoa obtained alternative gas from the Western Australian domestic gas market.
(c)Despite its best endeavours, Alcoa was unable to acquire sufficient alternative gas to operate the Alcoa Refineries in the manner they would operate in the usual course on an ongoing basis under normal operating conditions.
(d)As such, Alcoa was required also to acquire and use substitute diesel.
(e)The cost of acquiring the alternative energy supplies exceeded the price payable by Alcoa for the Sales Gas under the Supply Contracts by a total amount of $137,190,838.
It is unnecessary to reproduce particulars of other economic loss suffered by Alcoa.
Alcoa's amended statement of claim: negligence claim against Apache Northwest
Alcoa pleads in par 35 of its amended statement of claim that, further and alternatively, at all material times Apache Northwest was the entity responsible for the operation of the Facilities on its own behalf and for and on behalf of the following joint ventures (Varanus Island Joint Ventures):
(a)the Harriet Joint Venture, the parties to which are Apache Northwest, Harriet and Kufpec;
(b)the East Spar Joint Venture, the parties to which are Apache Northwest and Santos (BOL) Pty Ltd; and
(c)the John Brookes Joint Venture, the parties to which are Apache Northwest and Santos (BOL) Pty Ltd.
In par 36 of its amended statement of claim, Alcoa alleges that, at all material times, Apache Northwest knew or ought reasonably to have known of the matters referred to in [63](a) ‑ (f), (h) ‑ (m), (o), (p) and (r) ‑ (w) and [65] above.
Paragraph 37 alleges that in the premises, at all material times, Apache Northwest owed Alcoa a duty of care. This duty is formulated, in essence, in identical terms to the duty allegedly owed by Apache Energy to Alcoa.
Similarly, pars 38 and 39 plead breach of the duty of care and economic loss in, relevantly, identical terms to the pleas made in relation to Apache Energy.
Alcoa's amended statement of claim: negligence claim against Apache Northwest, Harriet and Kufpec
Alcoa pleads in par 51 of its amended statement of claim that, further and alternatively, at all material times Apache Northwest, Harriet and Kufpec (being, in the case of Apache Northwest, a supplier under both Supply Contracts and, in the case of Harriet and Kufpec, a supplier under one of the Supply Contracts) knew or ought reasonably to have known of the matters referred to in [63](a) ‑ (f), (h) ‑ (m), (o), (p) and (r) ‑ (w) and [65] above.
Paragraph 52 alleges that, in the premises, at all material times Apache Northwest, Harriet and Kufpec owed Alcoa a duty of care. This duty is formulated, in essence, in identical terms to the duty allegedly owed by Apache Energy to Alcoa.
Similarly, pars 53 and 54 plead breach of the duty of care and economic loss in, relevantly, identical terms to the pleas made in relation to Apache Energy.
Alcoa's amended statement of claim: prayer for relief
In its prayer for relief, Alcoa claims, relevantly, damages, interest on the damages and costs.
The appellants' applications for summary dismissal of Alcoa's claims in negligence
On 5 or 6 July 2011, each of Apache Energy, Apache Northwest and Harriet applied by chamber summons for an order, relevantly, that Alcoa's claims in negligence be dismissed on the grounds that the claims disclosed no reasonable cause of action and were frivolous or vexatious.
The applications for summary dismissal of Alcoa's claims in negligence against the appellants: applicable legal principles
Order 16 r 1(1) of the Rules of the Supreme Court 1971 (WA) provides, relevantly, that the court, if satisfied that an action is frivolous or vexatious, that the defendant has a good defence on the merits, or that the action should be disposed of summarily, may order that judgment be entered for the defendant.
On an application by a defendant for summary dismissal of the plaintiff's claim, the defendant must demonstrate that, on the material before the court, the action should not be permitted to go to trial in the ordinary way because it is apparent that the action must fail. The power to order the summary dismissal of a claim must be exercised with 'exceptional caution' (General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 129 (Barwick CJ)) and 'should never be exercised unless it is clear that there is no real question to be tried' (Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99 (Mason, Murphy, Wilson, Deane & Dawson JJ)).
In Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, Dixon J said:
A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process (91).
See also Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598, 602 (Mason CJ, Deane & Dawson JJ); Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118 [24] (French CJ & Gummow J).
Extensive legal analysis may be necessary, in some cases, to establish that the plaintiff's case is so clearly untenable that it cannot possibly succeed. See Dey (84) (Latham CJ); General Steel Industries (130).
However, an application for summary dismissal must not be treated as though it were the preliminary trial of a question of law. See Lonrho Plc v Fayed [1992] 1 AC 448, 469 ‑ 470 (Lord Bridge of Harwich); Hongkong Bank of Australia Ltd v BPTC Ltd (in liq) (1995) Aust Torts Reports ¶81-358, 62,634 (Batt J).
Where a case involves a novel cause of action, a measure of caution must be exercised in entering summary judgment, especially if the facts, adduced at trial, might cast 'light and colour upon the resolution of the legal questions'. See British American Tobacco Australia Ltd v The State of Western Australia [2003] HCA 47; (2003) 217 CLR 30 [103] (Kirby J).
In Wickstead v Browne [1992] NSWCA 272; (1992) 30 NSWLR 1, Kirby P (who dissented in the result) made the following comments:
Common experience teaches that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle. That is why leave is usually required for an appeal from interlocutory orders. Appellate courts, including this Court, will usually require evidence to be adduced and a trial concluded before considering the application of the law to that evidence. Out of the detail of the evidence ultimately proved, affecting the relationship of the respondent and the appellant, may arise a finding of a duty of care which the common law of negligence would uphold (5 ‑ 6).
These comments were referred to and applied by the Court of Appeal of Victoria in The State of Victoria v Richards [2010] VSCA 113; (2010) 27 VR 343 [8] (Redlich JA, Nettle JA & Hansen AJA agreeing).
In Wickstead, the High Court granted special leave to appeal from the decision of the majority of the Court of Appeal of New South Wales who had dismissed the appellant's negligence claim for economic loss. The High Court heard the appeal instanter and allowed the appeal. Deane, Toohey and Gaudron JJ said they were in general agreement with the reasons of Kirby P for concluding that the majority of the Court of Appeal should not have struck out the claim in negligence. See Wickstead v Browne (1993) 10 Leg Rep 522.
Overview of the primary judge's reasons for decision
The appellants submitted to the primary judge that it was not reasonably arguable that they owed a duty of care to Alcoa to avoid the pure economic loss which Alcoa seeks to recover. His Honour said that three reasons were advanced [31]. First, 'vulnerability' is a necessary, but not sufficient, reason to impose a duty of care to avoid pure economic loss, and Alcoa was not relevantly 'vulnerable'. Secondly, the relationship between the appellants and Alcoa was 'ordinary'. That is, it was an ordinary and voluntary commercial relationship. The amended statement of claim did not plead facts that take Alcoa's relationship with the appellants 'out of the ordinary'. Thirdly, the terms and conditions of the Supply Contracts preclude the existence of a duty of care. In particular, a concurrent duty in tort cannot arise if its nature and scope depend on specific obligations created by the express terms of a contract or the manner in which an obligation has been specifically defined by a contract. Further, a concurrent duty in tort cannot arise if the effect of the duty would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability provision for the act or omission that would constitute the tort [31].
As to whether Alcoa was relevantly 'vulnerable', his Honour held:
(a)The law 'is not sufficiently certain to hold on a summary judgment application that a plaintiff's claim must be dismissed if vulnerability is not established, without having regard to any other feature of the case' [53].
(b)It is 'not appropriate to summarily determine whether or not Alcoa was vulnerable' [61].
(c)At trial, 'there will be evidence in relation to the efforts made by Alcoa to obtain contractual protection against the relevant risk of damage and the responses of the [appellants] in relation to that matter' [61]. The characterisation of 'the degree of vulnerability should be determined in the light of evidence concerning the primary facts relating to the matters pleaded by Alcoa' [61].
As to whether the relationship between Alcoa and the appellants was 'ordinary', his Honour held:
If the posited duty of care does not fall within an established category of case it will often be inappropriate to summarily determine whether or not a duty of care exists. It is inappropriate in this case. That task should be undertaken by a close analysis of the facts. The facts pleaded in the statement of claim to give rise to the claimed duty of care are at a high level of generality. Whether or not a duty of care exists should be determined having regard to findings of fact made at trial [64].
A little later, his Honour reiterated that the question 'of whether each of the [appellants] owed Alcoa a duty of care should be resolved in light of the facts established at trial' [69]. In particular, the issues of 'control, assumption of responsibility and vulnerability should be analysed and determined in light of the facts established at trial' [69].
As to whether the alleged duties of care were precluded by the terms and conditions of the Supply Contracts, his Honour held:
The contractual matrix is a salient feature to be considered in determining whether or not the [appellants] owed a duty of care to Alcoa. It is not to be considered in isolation from the other salient features. I have already found that it is inappropriate to undertake an analysis of the salient features of this case to determine the existence of a duty of care summarily [74].
The appellants' grounds of appeal
The appellants rely on 15 grounds of appeal. It is unnecessary to reproduce them. The grounds raise six issues.
First, grounds 1 ‑ 4 and 14(a), (c) and (d) allege in substance that the primary judge erred in not holding that the terms of the Supply Contracts precluded a tortious duty of care (Issue 1).
Secondly, ground 5 alleges in substance that his Honour erred in holding that it is not sufficiently certain that 'vulnerability' is a necessary pre‑condition for the imposition of a duty of care to avoid pure economic loss (Issue 2).
Thirdly, grounds 6 ‑ 9, 11 and 12 allege in substance that his Honour erred in failing to find that Alcoa was not 'vulnerable' (Issue 3).
Fourthly, ground 10 alleges in substance that his Honour erred in failing to find that the relationship between Alcoa and the appellants was ordinary, not special, such that the appellants did not owe Alcoa a tortious duty of care to avoid pure economic loss (Issue 4).
Fifthly, grounds 13 and 14(b) allege in substance that his Honour erred in failing to find that the pending proceedings in the General Division of the Supreme Court constitute an abuse of process (Issue 5).
Sixthly, ground 15 alleges in substance that his Honour erred in not holding that s 36A and s 38 of the Petroleum Pipelines Act 1969 (WA) (the Act) and reg 10 of the Pipelines Regulations could not be relied on by Alcoa as a basis for erecting the alleged duty of care (Issue 6).
Leave to appeal: applicable principles
The primary judge's decision was interlocutory in character and leave to appeal is therefore required.
In general, an applicant for leave must demonstrate that the relevant decision was wrong or at least attended with sufficient doubt to justify the grant of leave, and that substantial injustice would occur if the decision were left unreversed. See Wilson v Metaxas [1989] WAR 285, 294 (Malcolm CJ, Brinsden & Smith JJ agreeing). It must be emphasised, however, that these are not rigid or exhaustive requirements, and leave may be granted if, in all the circumstances, it is in the interests of justice to grant leave. See The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40, 56 ‑ 57 (Malcolm CJ, Rowland & Walsh JJ agreeing).
The High Court and pure economic loss
The term 'pure economic loss', in the context of the law of tort, describes loss suffered by a plaintiff that is not a consequence of injury or damage caused by the defendant to the plaintiff's person or property.
It is well‑established that, in general, a person does not owe a duty in tort to another to take care not to cause reasonably foreseeable economic loss. See Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' [1976] HCA 65; (1976) 136 CLR 529, 555 (Gibbs J), 558 ‑ 559 (Stephen J), 592 (Mason J), 598 (Jacobs J).
In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, the Privy Council restated the law on negligent misstatement and permitted the recovery of pure economic loss in that area of the law of tort. Since Hedley Byrne, the High Court has recognised that, in some circumstances, a duty in tort will arise that will enable a plaintiff to recover pure economic loss.
In Caltex, the defendant dredge negligently severed pipelines on the seabed of Botany Bay while dredging a channel. Australian Oil Refining Pty Ltd (AOR) owned the pipelines. AOR used the pipelines to transport refined products from its oil refinery to the plaintiff's terminal. The plaintiff suffered loss as a result of the rupture of the pipelines, being the cost of transporting refined products by road from AOR's refinery to its terminal. The plaintiff did not have a proprietary or possessory interest in the pipelines. The only physical damage it had suffered was a small amount of refined product which was lost when the pipelines were severed. The High Court held that the plaintiff was entitled to recover damages for pure economic loss suffered as a result of the negligent navigation of the dredge.
Gibbs J reiterated the general rule against the recovery of damages for economic loss which is not consequential upon injury to the plaintiff's person or property (555). After noting that the fact that a loss is foreseeable is not enough to make it recoverable in the law of tort, his Honour said that 'there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence, and owes the plaintiff a duty to take care not to cause him such damage by his negligent act' (555).
Stephen J said that the necessity, in cases of pure economic loss, 'for some further control of liability apart from that offered by the concept of reasonable foreseeability arises in part because, in cases of physical injury to person or property, the concept has been given a very far‑reaching operation' (573). There was a requirement for 'some control mechanism based upon notions of proximity between tortious act and resultant detriment' (574). His Honour was of the view that the case before the court contained 'a number of salient features which will no doubt ultimately be recognised as characteristic of one particular class of case among the generality of cases involving economic loss' (576). The features of the case in question, which established sufficient proximity to entitle the plaintiff to recover its pure economic loss, were: the defendant's knowledge that the pipelines were property of a kind inherently likely, when damaged, to be productive of consequential economic loss to those who relied directly upon their use; the defendant's knowledge or means of knowledge, from various charts being used on the dredge, that the pipelines extended across Botany Bay from AOR's refinery to the plaintiff's terminal, leading to the 'quite obvious inference' that the pipelines were used to transport refined products from the refinery to the terminal; the infliction of damage by the defendant to AOR's property (that is, the pipelines) as a result of the defendant's breach of a duty of care owed to AOR; the nature of the detriment suffered by the plaintiff, that is, its loss of use of the pipelines to receive refined products from AOR; and the nature of the damages claimed, which directly reflected that loss of use of the pipelines, and not merely some indirect loss of profits (576 ‑ 577).
In Bryan v Maloney [1995] HCA 17; (1995) 182 CLR 609, a professional builder constructed a dwelling house for a landowner. The building contract did not include a relevant provision excluding or limiting the builder's liability. After the house was completed, the owner who had contracted with the builder sold the house. After the purchaser had taken possession, the walls of the house cracked because the footings were inadequate. A majority of the High Court (Brennan J dissenting) held that the builder owed the purchaser a duty in tort to take reasonable care in the construction of the house. The builder was liable to the purchaser in damages for the decrease in the property's value resulting from the inadequate footings.
When Bryan was decided, the common law of negligence, as established by decisions of the High Court, was, as noted by Mason CJ, Deane and Gaudron JJ, that a duty of care arose only where there existed 'a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage' (617).
Mason CJ, Deane and Gaudron JJ said that liability for pure economic loss was 'a comparatively new and developing area of the law of negligence' (618). They added (618):
In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the 'notion of proximity ... is of vital importance' (San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, at p 355, per Gibbs CJ, Mason, Wilson and Dawson JJ). As Stephen J indicated in Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' ((1976) 136 CLR, at p 575), it is the 'articulation', in the different categories of case, 'of circumstances which denote sufficient proximity' with respect to mere economic loss, including 'policy considerations', which will gradually provide 'a body of precedent productive of the necessary certainty'. Inevitably, the policy considerations which are legitimately taken into account in determining whether sufficient proximity exists in a novel category will be influenced by the courts' assessment of community standards and demands (See, eg Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, at p 536; Dorset Yacht Co v Home Office [1970] AC 1004, at pp 1038 ‑ 1039, 1058; Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad' (1976) 136 CLR, at p 575; Sutherland Shire Council v Heyman (1985) 157 CLR, at p 497).
Their Honours observed that the policy considerations which have militated against the recognition of a relationship of proximity in cases involving pure economic loss include (618):
(a)avoiding the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class': Ultramares Corporation v Touche (1931) 174 NE 441, 444 (Chief Judge Cardozo); and
(b)inconsistency with community standards as to what is ordinarily legitimate in pursuing personal advantage in the context of a competitive environment where one person's economic gain may be another's loss.
Mason CJ, Deane and Gaudron JJ noted that there was no decision of the High Court which directly determined whether the relationship between the builder and the purchaser 'possessed the requisite degree of proximity to give rise to a duty', on the part of the builder, to take reasonable care to avoid the kind of economic loss suffered by the purchaser (619). Their Honours said that the resolution of that question necessarily required 'the articulation of both the factual components of the relevant category of relationship and the identification of any applicable policy considerations' (619). After engaging in that task, they concluded that the requisite relationship of proximity existed and that the policy considerations which ordinarily militate against the recognition of a relationship of proximity and a consequent duty of care with respect to pure economic loss were insignificant (627).
Their Honours expressly confined the significance, for future cases, of their decision (630):
It should be apparent from what has been written above that the decision in this case turns, to no small extent, on the particular kind of economic loss involved, namely, the diminution in value of a house when the inadequacy of its footings first becomes manifest by reason of consequent damage to the fabric of the house. In particular, the nature of the property involved, namely a building which was erected to be used as a permanent dwelling house, constitutes an important consideration supporting the conclusion that a relevant relationship of proximity existed between Mr Bryan, as the builder, and Mrs Maloney, as a subsequent owner. That being so, the decision in this case is not directly decisive of the question whether a relevant relationship of proximity exists in other categories of case or as regards other kinds of damage. In particular, the decision in this case should not be seen as determinative of the question whether a relationship of proximity can, in some circumstances, exist between the manufacturer and the purchaser or subsequent owner of a chattel in respect of the diminution in the value of the chattel which is sustained when a latent defect in it first becomes manifest (cf Rivtow Marine Ltd v Washington Iron Works (1973) 40 DLR (3d) 530).
In Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, a number of farmers grew potatoes in a rural location in South Australia. Some of the potatoes were exported to Western Australia. The respondent negligently introduced a disease known as bacterial wilt on to the land of one of the farmers, Sparnon. Western Australian regulations prohibited the import into Western Australia of potatoes grown on land known to be affected by the disease and, also, of potatoes grown on land within a prescribed distance of the affected land. The appellants were involved in growing potatoes on land within the prescribed distance of the affected land. They claimed to have suffered financial loss. The issue was whether the respondent owed a duty of care to the appellants or any of them. No property belonging to or used by the appellants suffered any physical harm. The loss they had allegedly suffered was pure economic loss. The High Court held that the respondent owed the appellants a duty of care not to cause economic loss as a result of the introduction of the disease. There was, however, no majority agreement within the High Court as to the general principle to be applied.
It is apparent, however, that the 'vulnerability' of the appellants in Perre was an important factor in the High Court's recognition of a duty of care to avoid economic loss.
Gleeson CJ referred to the speech of Lord Oliver of Aylmerton in Caparo Industries Plc v Dickman [1990] 2 AC 605:
In Caparo, Lord Oliver emphasised that, in this field of discourse, the mere foreseeability of possible damage, without some further control, (which he summarised as 'proximity', after explaining what he meant by that term), would not be useful as the test of liability (Caparo [1990] 2 AC 605 at 643). At the same time, however, his Lordship made it clear that 'in some cases the degree of foreseeability is such that it is from that alone that the requisite proximity can be deduced' (Caparo [1990] 2 AC 605 at 633). In relation to the giving of advice or information, questions of reliance and actual foresight of the possibility of harm, (or, what is the same thing, the foresight that a reasonable person would have), are closely related. Moreover, knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care [10].
Gleeson CJ said that 'vulnerability' can arise from circumstances other than reliance. He noted that in Caltex 'the obvious vulnerability of a specific plaintiff was influential in a number of the judgments' and that this reasoning process 'was not merely an arbitrary method of solving the problem of potentially indeterminate liability' [11]. Rather, it involved an application of Lord Oliver's idea, discussed later in Caparo, that 'in a given case, the degree (and nature) of foreseeability may have an important bearing on whether there is a duty of care' [11].
Gleeson CJ, in deciding that, for the reasons given by Gummow J, the respondent owed the appellants a duty of care, stressed the following matters:
The acknowledgment, in the internal communications of the respondent, that there was a need to be careful so as not to damage the interests of those involved in potato growing on land within 20 km of a farm that might be affected by bacterial wilt, is not merely a matter of legally irrelevant prejudice. It shows actual foresight of the likelihood of harm, and knowledge of an ascertainable class of vulnerable persons.
If it had been the fault of the Sparnons, rather than the respondent, that there was an outbreak of bacterial wilt on their land, then the resulting interference with the use and enjoyment of neighbouring land would not have gone without remedy. The respondent controlled the activity on the Sparnons' land, which resulted in land and facilities within 20 km being treated by Western Australian law, for practical purposes, as if contaminated.
… the combination of circumstances involving the use and ownership or enjoyment of land, the physical propinquity of such land to the Sparnons' land, the known vulnerability of people in the position of the appellants, and the control exercised by the respondent over the relevant activity on the Sparnons' land, is unlikely to apply to an extent sufficient to warrant an apprehension of indeterminate liability [13] ‑ [15].
Gaudron J emphasised that the law concerning liability for pure economic loss was a comparatively new and developing area of the law of negligence; the law had not yet developed to a stage where a governing principle, applicable in all cases, had been enunciated; and, perhaps, no such governing principle ever will be enunciated [25].
The 'vulnerability' of a plaintiff appears to be a highly significant 'salient feature' in deciding whether the defendant was under a duty to exercise reasonable care to prevent the plaintiff from suffering pure economic loss. The notion of 'vulnerability', in this context, refers to the plaintiff's inability to protect itself from the defendant's failure to exercise reasonable care, either completely or, at least, in a manner which would impose the consequences of loss on the defendant. See Woolcock [23].
In Perre, McHugh J said that the vulnerability of the plaintiff to harm from the defendant's conduct is 'ordinarily a prerequisite to imposing a duty' in cases of pure economic loss [118] (emphasis added).
In Woolcock, Gleeson CJ, Gummow, Hayne and Heydon JJ observed that since Caltex (and most notably in Perre) the plaintiff's vulnerability had become 'an important requirement' (emphasis added) in cases where a plaintiff had succeeded in establishing the existence of a duty of care to avoid pure economic loss [23]. McHugh J, in Woolcock, described the plaintiff's vulnerability to the risk of injury from the defendant's conduct as 'a key issue in determining whether the defendant owed a duty of care to the plaintiff' [80] (emphasis added).
In Woolcock, Gleeson CJ, Gummow, Hayne and Heydon JJ said that the decisions in Perre and Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159 turned on the plaintiff's vulnerability [23]. Their Honours also said that the negligent misstatement cases like Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74; (1968) 122 CLR 556; [1971] AC 793 and Shaddock & Associates Pty Ltd v Parramatta City Council [No 1] [1981] HCA 59; (1981) 150 CLR 225 may be able to be explained by reference to the notion of vulnerability [24]. See Stapleton, 'Comparative Economic Loss: Lessons from Case‑Law‑Focused "Middle Theory"', UCLA Law Review, vol 50 (2002) 531 at pages 558 ‑ 559. Their Honours added that the reference in Caltex to economic loss being 'inherently likely' could also be understood consistently with the importance of the notion of vulnerability [24].
However, Gleeson CJ, Gummow, Hayne and Heydon JJ noted in Woolcock that it was unnecessary, in that case, 'to attempt to identify or articulate the breadth of any general proposition about the importance of vulnerability' [24].
In Barclay, French CJ, Gummow, Hayne, Crennan and Bell JJ did not explore the nature or content of vulnerability or expound upon the importance this notion in negligence claims for pure economic loss. Their Honours merely observed that the relevant principles governing the law of negligence in relation to pure economic loss were considered in Woolcock and were not in dispute [42].
It is true that Gleeson CJ, Gummow, Hayne and Heydon JJ emphasised in Woolcock that vulnerability had become an important requirement in cases where a duty of care had been found to have been established. However, in my opinion, their Honours did not hold that vulnerability was an essential 'salient feature' in all cases or that, in the absence of vulnerability, a duty of care to avoid pure economic loss could not, as a matter of law, arise in any case. The point is, at least, attended by doubt.
The appellants' case on appeal in relation to Issue 2 fails.
Issue 3: introduction
Issue 3 raises, in substance, whether the primary judge erred in failing to find that Alcoa was not 'vulnerable'.
Issue 3: the appellants' submissions
Counsel for the appellants submitted that Alcoa's plea of 'vulnerability' was misconceived as a matter of law.
It was argued that the primary judge erred in holding that the 'characterisation of the degree of vulnerability should be determined in the light of evidence concerning the primary facts relating to the matters pleaded by Alcoa' [61], without first having determined an anterior question, namely whether the facts pleaded by Alcoa in aid of the alleged duty were capable of constituting 'vulnerability' as a matter of law. According to counsel for the appellants, the answer to that question must be 'no'.
It was submitted that it is essential for a plaintiff who asserts a duty of care to avoid pure economic loss to identify the interest it seeks to protect. It is only when the relevant interest has been identified that any issue of vulnerability can be resolved.
Counsel for the appellants contended that, on its pleaded case, the interest in respect of which Alcoa alleges that it was vulnerable must be its interest in having access to the energy required to undertake its normal operations.
It was submitted that, on Alcoa's pleading and its publicly filed documents, Alcoa was not only aware of the risk of an interruption to supply under the Supply Contracts, but it was in actual control of the risk and took steps to protect itself from the risk when it eventuated. Accordingly, so it was argued, Alcoa was not vulnerable in relation to its interest in having access to the energy required to undertake its normal operations.
Counsel for the appellants contended that Alcoa's complaint, namely that it was compelled to obtain other gas and energy resources at a higher cost than the prices it had negotiated under the Supply Contracts, was not vulnerability in the relevant legal sense. It was not a risk to which Alcoa was exposed 'by reason of ignorance or social, political or economic constraints' (Woolcock [80] (McHugh J)), and it was a risk in respect of which Alcoa was able to protect itself.
The fact that Alcoa might have preferred a different allocation of risk than the allocation it agreed to under the Supply Contracts is not vulnerability. If it did not want supply on the terms of the Supply Contracts, then it should have 'walked away'.
As to Alcoa's plea that it was vulnerable because it could not monitor the condition of the Sales Gas Pipelines, it was submitted on behalf of the appellants that this plea was also unsustainable. Counsel advanced three points in support of the appellants' argument. First, Alcoa cannot have an interest in the operation and maintenance of the Sales Gas Pipelines. The applicable legislative regime prohibits Alcoa from having any such interest and the existence of any such interest is not part of Alcoa's pleaded case. Secondly, the alleged vulnerability is inconsistent with the express terms of the Supply Contracts, which permit Alcoa to obtain gas from elsewhere in the event of a failure of the infrastructure at Varanus Island. Thirdly, any claim based upon an alleged interest by Alcoa in the operation and maintenance of the Sales Gas Pipelines is inconsistent with the express terms of the Supply Contracts, which exclude liability for a failure to deliver gas (for reasons which expressly include pipeline rupture) and preclude recovery in all cases of damages for indirect loss and damages for loss of profit.
Issue 3: its merits
Alcoa alleges that it was 'vulnerable' by reason of the following facts:
(a)Alcoa had no means of monitoring the condition of the Sales Gas Pipelines, this being a matter within the control of Apache Energy and the licensees;
(b)Alcoa was dependent on Apache Energy to operate and maintain the Sales Gas Pipelines in a proper and workmanlike manner and in accordance with good pipeline operating and maintenance practice consistent with the Pipelines Regulations;
(c)Alcoa could not obtain a back‑up supply of gas in the event of a total cessation of supply under the Supply Contracts;
(d)the cost of obtaining alternative fuels (gas obtained on a short term, short notice 'spot market' basis, diesel or electricity) was significantly higher than the cost of equivalent gas under the Supply Contracts; and
(e)the licensees were not prepared to agree to enter into a contract which would compensate Alcoa for the increased cost of acquiring alternative fuel in the event of a total cessation of gas supply for a substantial period.
According to Alcoa, the appellants knew, or ought reasonably to have known, of all of these facts.
I am not persuaded that Alcoa's case that it was vulnerable is so clearly untenable that it must fail. I am of that opinion for the following reasons.
First, in Woolcock, Gleeson CJ, Gummow, Hayne and Heydon JJ said 'vulnerability', in the context of an alleged duty of care to avoid economic loss, was to be understood as 'the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant' [23] (emphasis added). In Perre, McHugh J said, more generally, that if the plaintiff 'could have taken steps to protect itself from the defendant's conduct and was not induced by the defendant's conduct from taking such steps', there is no reason why the law should impose a duty of care on the defendant to protect the plaintiff from the risk of pure economic loss [118].
Alcoa alleges that it was vulnerable in that the cessation in the supply of gas from the Facilities for a substantial period was a consequence of the appellants' want of reasonable care which Alcoa was unable to protect itself against.
Secondly, the fact that Alcoa was able to obtain other gas and energy supplies after the incident at Varanus Island does not necessarily establish that Alcoa was not vulnerable in the relevant legal sense. The loss claimed by Alcoa includes the additional cost of obtaining alternative fuel supplies in lieu of gas under the Supply Contracts. It is reasonably arguable that this loss is a consequence of the appellants' alleged want of reasonable care and that Alcoa was unable to protect itself from this consequence. Also, it is reasonably arguable that the proper focus of inquiry in relation to Alcoa's alleged vulnerability is its alleged inability to protect itself against this loss rather than, as the appellants contend, its interest in having access to the energy required to undertake its normal operations.
Thirdly, in Woolcock, McHugh J said that actual or potential knowledge of the defects of a building is central to any evaluation by a prudent purchaser of its worth as an investment and, insofar as risks are uncertain or unknown, 'the prudent purchaser will factor the risk into the price or obtain contractual protections or, if necessary, walk away from the negotiations' [110].
It is reasonably arguable that those observations were not a statement of general principle and, in any event, a statement to similar effect does not appear in the reasons of Gleeson CJ, Gummow, Hayne and Heydon JJ.
Also, the reasons of French CJ, Gummow, Hayne, Crennan and Bell JJ in Barclay, in approving the findings and reasoning of Murray J as to the duty of care owed by Mr Penberthy to Nautronix to avoid the pure economic loss that Nautronix sought to recover, indicate, at least arguably, that the possibility of negotiating contractual terms and, by analogy, the possibility of walking away from contractual negotiations, does not necessarily foreclose the existence of a duty of care.
Further, whether and, if so, to what extent Alcoa was able to negotiate or walk away from the terms of the Supply Contracts is a question of fact which requires evidence and a determination at trial. The evidence at trial might cast 'light and colour' upon the facts to be found and the resolution of the legal issues. See Wickstead (5 ‑ 6) (Kirby P).
In Woolcock, McHugh J said that whether the securing of an alternative contractual remedy was really open to a plaintiff who seeks to recover economic loss 'depends upon current market conditions and conveyancing practices' [95]. Evidence at trial as to the conditions in the relevant market when the Supply Contracts were being negotiated may illuminate the contractual and other protections against loss available to Alcoa in the event of a cessation in the supply of gas for a substantial period.
Fourthly, the nature and extent of any vulnerability which may be required to establish a duty of care by a defendant to protect the plaintiff from the risk of pure economic loss is, no doubt, fact specific, and may vary depending on the facts and circumstances of the particular case. See Perre [129] (McHugh J). Usually, there will be a significant overlap between the notions of vulnerability, control, reliance and assumption of responsibility. These notions are concerned with questions of fact and should be analysed and determined at trial.
Fifthly, on the current state of the law as enunciated by the High Court, it is reasonably arguable that the facts pleaded by Alcoa in aid of the alleged duty of care are capable of constituting vulnerability as a matter of law.
The appellants' case on appeal in relation to Issue 3 fails.
Issue 4: introduction
Issue 4 alleges, in substance, that the primary judge erred in failing to find that the relationship between Alcoa and the appellants was ordinary, not special, such that the appellants did not owe Alcoa a tortious duty of care to avoid pure economic loss.
Issue 4: the appellants' submissions
Counsel for the appellants submitted that there was nothing in the facts pleaded by Alcoa which permitted a finding that Alcoa was in a special relationship with the appellants.
It was argued that the appellants' relationship with Alcoa was an ordinary, routine and voluntary relationship between a large commercial supplier of gas and a large commercial consumer of gas, and nothing pleaded by Alcoa suggested otherwise.
According to the appellants, the primary judge erroneously treated assumption of responsibility, dependence and reliance, and the numerous 'salient features' set out in the reasons of Allsop P in Stavar [103], as if each of them was a freestanding consideration capable of supporting the duty for which Alcoa contends, notwithstanding an absence of vulnerability. This approach, so it was submitted, is inconsistent with the High Court cases on pure economic loss and, to the extent that the reasoning of Allsop P in Stavar suggests otherwise, it should not be followed.
Issue 4: its merits
I have already referred to the 'multi‑faceted inquiry' or 'salient features' analysis which must be undertaken in determining whether a duty of care exists in a novel category of case. The court must closely examine and evaluate the facts pertinent to the relationship between the plaintiff and the defendant. See [134] above. I am not satisfied that a duty of care will not exist unless, in addition, the relationship between the plaintiff and the defendant is characterised as 'special'.
In my opinion, on a fair reading of primary judge's reasons as a whole, his Honour did not treat the relevant 'salient features' in the present case as if each was a freestanding consideration capable of supporting the duty. His Honour appears to me to have understood, correctly, that it is necessary to undertake an analysis of each of the relevant 'salient features', and the relationship between them, in the course of deciding whether, as a matter of principle, the relationship between the parties gives rise to a tortious duty of care. See, especially, his Honour's reasons at [62] ‑ [69] and [71] ‑ [74].
In any event, whether the relationship between the appellants and Alcoa was merely an ordinary, routine and voluntary relationship between a large commercial supplier of gas and a large commercial consumer of gas, as submitted by the appellants, is not suitable for summary determination. The nature of the relationship requires illumination by findings of fact based on the evidence adduced at a trial.
The appellants' case on appeal in relation to Issue 4 fails.
Issue 5: introduction
Issue 5 alleges, in substance, that the primary judge erred in failing to find that the pending proceedings in the General Division of the Supreme Court constitute an abuse of process.
Issue 5: the appellants' submissions
The appellants' submissions on Issue 5 are set out in the Confidential Schedule to these reasons.
Issue 5: its merits
The appellants' contention in relation to Issue 5 is, in essence, that the maintenance of the proceedings is an abuse of process because Alcoa's claim in negligence is hopeless. The contention assumes the correctness of the appellants' submissions on other issues in the appeal. This premise has not been made out and, accordingly, the appellants' case on appeal in relation to Issue 5 fails.
Issue 6: introduction
Issue 6 alleges, in substance, that the primary judge erred in not holding that s 36A and s 38 of the Act and reg 10 of the Pipelines Regulations could not be relied on by Alcoa as a basis for erecting the alleged duty of care.
Issue 6: the appellants' submissions
Counsel for the appellants submitted that, even if the cause of action in negligence is permitted to proceed, Alcoa's pleading remains defective. It was argued that, before the terms of a statute or regulation may be relied upon to found a duty of care, they must be relevant to both a class of person of whom the plaintiff is a member and have the purpose of protecting that class against the kind of damage claimed by the plaintiff. See Stuart v Kirkland-Veenstra [2009] HCA 15; (2009) 237 CLR 215 [131] (Crennan & Kiefel JJ).
It was argued that the primary judge, having correctly found that the provisions of the Act and the Pipelines Regulations relied on by Alcoa were not for the benefit or protection of commercial consumers of gas, erred in holding that the Act and the Pipelines Regulations were still relevant to whether the alleged duty of care existed.
Issue 6: its merits
Alcoa pleads, in its amended statement of claim, s 36A and s 38 of the Act and reg 10 of the Pipelines Regulations, and the licence conditions, relating to the operation and maintenance of the 12 inch SGL.
I have already referred to the provisions of reg 10.
At all material times, s 36A provided:
A licensee shall operate the pipeline specified in the licence of which he is the registered holder in a proper and workmanlike manner and shall secure the safety, health and welfare of persons engaged in operations in connection with the pipeline.
Penalty: $10 000.
At all material times, s 38 provided:
A licensee ‑
(a)shall mark and keep marked in such manner as may be approved, the route of the pipeline specified in the licence of which he is the registered holder;
(b)shall maintain the pipeline in good condition and repair; and
(c)shall remove from the licence area all structures, equipment and other property that are neither being used nor will be used in connection with the operation of the pipeline.
Penalty: $10 000.
The primary judge held that:
(a)the issues of control, assumption of responsibility and vulnerability should be analysed and determined in light of the facts established at trial; and
(b)those facts include the statutory framework and licence conditions which the appellants assumed responsibility to comply with, either as licensees (in the case of the licensees) or as the operator of the Facilities (in the case of Apache Energy) [68] ‑ [69].
His Honour concluded that the disputed paragraphs in Alcoa's amended statement of claim were relevant, alternatively arguably relevant, to several of the 'salient features' which had to be considered in the context of establishing whether the relationship between Alcoa and the appellants was sufficiently proximate to justify the imposition of the alleged duty of care. See his Honour's further reasons: Alcoa of Australia Ltd v Apache Energy Ltd [No 2] [2012] WASC 280 [11] ‑ [16], [18].
In Stuart, Crennan and Kiefel JJ said:
No guiding principle, by which an authority might be considered to be obliged to exercise its powers at common law, has been identified; the search continues (Brodie v Singleton Shire Council (2001) 206 CLR 512 at 630 [316] per Hayne J). There is agreement that the statutory powers in question must be directed towards some identifiable class or individual, or their property, as distinct from the public at large (Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 40 [99] per McHugh J; Brodie v Singleton Shire Council (2001) 206 CLR 512 at 633 [326] per Hayne J; Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540 at 562 [32] per Gleeson CJ; at 575 [79] per McHugh J) [131].
Stuart, and the cases cited by Crennan and Kiefel JJ in the passage I have reproduced, were concerned with the exercise by a statutory authority of a statutory power.
As McHugh J observed in Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59; (1999) 200 CLR 1, 'there may be special factors applicable to a statutory authority which negative a duty of care that a private individual would owe in apparently similar circumstances' [79].
In Graham Barclay Oysters, McHugh J explained why the relevant statutory framework is of vital importance in cases where a duty of care is sought to be imposed on a public authority:
A public body invested with a discretionary statutory power may be in breach of a common law duty of care if it fails to exercise the power for the benefit of an individual or class of individuals. In these cases, failure to exercise the power given constitutes actionable negligence that sounds in damages (Sutherland Shire Council v Heyman (1985) 157 CLR 424; Pyrenees Shire Council v Day (1998) 192 CLR 330; Romeo v Conservation Commission (NT) (1998) 192 CLR 431; Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1; Brodie v Singleton Shire Council (2001) 206 CLR 512). In determining whether a public authority has breached a common law duty by failing to exercise a statutory power, it is essential to examine the words and policy of the legislation (Pyrenees Shire Council v Day (1998) 192 CLR 330 at 377 [126], per Gummow J; Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 19 [27], per Gaudron J; at 59 [160], per Gummow J; at 72 [203], per Kirby J; Brodie v Singleton Shire Council (2001) 206 CLR 512 at 540 [56], per Gaudron, McHugh and Gummow JJ. See also Stovin v Wise [1996] AC 923 at 934, per Lord Nicholls of Birkenhead, Lord Slynn of Hadley agreeing; at 952, per Lord Hoffmann, Lord Goff of Chieveley and Lord Jauncey of Tullichettle agreeing). That is because the legislation may indicate that the legislature has legislated to cover the field and excluded all common law duties of care (Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at 18-19 [26]-[27], per Gaudron J; South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 at 297-298, per Cooke P). In other cases, the imposition of a common law duty may be inconsistent with or undermine the effectiveness of the duties imposed by the statute (Sullivan v Moody (2001) 207 CLR 562; Attorney‑General (NZ) v Prince and Gardner [1998] 1 NZLR 262 at 275‑276, per Richardson P, Thomas and Keith JJ, Henry J agreeing). In some cases, the circumstances of the case ‑ for example, active intervention by the authority or reliance by the plaintiff ‑ may establish a duty of care. But the legislation may give the authority such a wide discretion to exercise the power in question that the tribunal of fact cannot find that the failure to exercise the power constituted a breach of the duty [78].
The reasons stated by McHugh J in this passage do not apply in the present case. None of the appellants is a public authority and the Parliament did not, by s 36A or s 38, vest any discretionary power in any of the licensees.
In any event, where it is alleged that a statutory authority (or the holder of a statutory power) owed a duty of care to a plaintiff, the evaluation of the relationship between the statutory authority (or the holder of the statutory power) and the plaintiff 'will require examination of the degree and nature of control exercised over the risk of harm that has eventuated, the degree of vulnerability of those who depend on the proper exercise of the relevant power, and the consistency or otherwise of the asserted duty of care with the terms, scope and purpose of the relevant statute': Stuart [113] (Gummow, Hayne & Heydon JJ). Other considerations may also be relevant [113].
On Alcoa's case, the appellants voluntarily assumed obligations to operate and maintain the 12 inch SGL under the applicable statutory framework for the purpose of using the pipeline in a profit making undertaking with large commercial consumers of gas including Alcoa.
I am not persuaded that the primary judge erred in reasoning that, in the circumstances of the present case, the disputed paragraphs in Alcoa's amended statement of claim are relevant, or at least arguably relevant, to a
number of 'salient features' for the purposes of establishing whether the alleged duty of care arose.
The appellants' case on appeal in relation to Issue 6 fails.
Conclusion
In my opinion, the appellants have not demonstrated that the primary judge's decision to dismiss their applications was wrong or at least attended with sufficient doubt to justify the grant of leave. Also, I am not persuaded that substantial injustice would occur if the decision were left unreversed. In the circumstances, it is not in the interests of justice to grant leave.
Leave to appeal should be refused and the appeals dismissed.
NEWNES JA: I agree that leave to appeal should be refused and the appeals dismissed for the reasons given by McLure P.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: APACHE ENERGY LTD -v- ALCOA OF AUSTRALIA LTD [No 2] [2013] WASCA 213 (S)
CORAM: McLURE P
BUSS JA
NEWNES JA
HEARD: ON THE PAPERS
DELIVERED : 18 OCTOBER 2013
FILE NO/S: CACV 95 of 2012
CONSOLIDATED WITH CACV 94 OF 2012 AND CACV 97 OF 2012 BY ORDER DATED 4 SEPTEMBER 2012
BETWEEN: APACHE ENERGY LTD
First Appellant
APACHE NORTHWEST PTY LTD
Second AppellantHARRIET (ONYX) PTY LTD
Third AppellantAND
ALCOA OF AUSTRALIA LTD
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :LE MIERE J
Citation :ALCOA OF AUSTRALIA LTD -v- APACHE ENERGY LTD [2012] WASC 209
File No :CIV 1481 of 2011
Catchwords:
Costs - Whether an allowance should be made for two senior counsel
Legislation:
Nil
Result:
Allowance made for one senior counsel and one junior counsel but not two senior counsel
Category: B
Representation:
Counsel:
First Appellant : Mr J H Karkar QC & Mr G P Harris
Second Appellant : Mr J H Karkar QC & Mr G P Harris
Third Appellant : Mr K N Stewart & Ms A Richmond-Scott
Respondent: Mr D G Collins SC & Mr K J Lyons SC
Solicitors:
First Appellant : Middletons
Second Appellant : Clifford Chance
Third Appellant : Lavan Legal
Respondent: Tottle Partners
Case(s) referred to in judgment(s):
Apache Energy Ltd v Alcoa of Australia Ltd [No 2] [2013] WASCA 213
JUDGMENT OF THE COURT: On 17 September 2013, this court refused leave to appeal and dismissed the appellants' appeals. See Apache Energy Ltd v Alcoa of Australia Ltd [No 2] [2013] WASCA 213.
The appellants had applied for leave to appeal from an interlocutory decision of the primary judge, Le Miere J, in pending proceedings in the General Division of the Supreme Court. His Honour had dismissed the appellants' applications summarily to dismiss the respondent's claims against the appellants under the law of negligence for pure economic loss.
On 17 September 2013, this court made the following orders:
1.Leave to appeal be refused
2.The appeals be dismissed.
3.Until further order, the court will not publish the Confidential Schedule to the reasons of Buss JA to any person or entity except the parties to the appeals.
4.The appellants pay the respondent's costs of the applications for leave to appeal and the appeals to be taxed, if not agreed.
5.By 4.00 pm on 26 September 2013 the respondent file and serve written submissions as to the basis on which the costs of the two senior counsel for the respondent should be taxed.
6.By 4.00 pm on 3 October 2013 the appellants file and serve any written submissions in response.
Pursuant to Order 5, the respondent applied for this court to certify for two senior counsel in the appeal, alternatively for second counsel.
The appellants accept that the respondent should be entitled to claim taxed costs for a senior counsel and a junior counsel in the appeal, but not for two senior counsel.
The respondent's submissions
The respondent's submissions in support of its application are, in summary, as follows:
(a)Mr KJ Lyons SC, the second senior counsel, was made senior counsel on 27 November 2012.
(b)At the three‑day hearing before the primary judge on 26 - 27 and 31 October 2011, Mr Collins SC appeared with Mr Lyons as his junior (and another junior, Mr De Young). The first and second appellants were represented by two senior counsel, Mr Karkar QC and Mr O'Callaghan SC, and by junior counsel, Mr Harris. The third appellant was also represented by senior counsel, Mr Howard SC, and junior counsel, Mr Lockhart.
(c)The respondent filed its written submissions in the appeal on 26 October 2012. Those submissions were prepared by Mr Collins SC, Mr Lyons and Mr De Young. At the time, Mr Lyons was a junior counsel.
(d)Mr De Young is no longer briefed in the matter. His brief ended after the written submissions were filed.
(e)In these circumstances, in addition to the ground of complexity, it was less expensive to retain Mr Lyons as Mr Collins' junior in the appeals, given his longstanding involvement in the matter, rather than brief new junior counsel.
(f)In addition, the fact that a single day 'pleading appeal' resulted in a 76‑page closely reasoned judgment of this court shows the matter was of sufficient complexity, particularly as to the law of vulnerability and causation and the inter‑relationship of those principles with some express terms of the gas supply contracts, to justify the involvement of two senior counsel on behalf of the respondent.
The merits of the application
Although Mr Lyons had been appointed senior counsel when this court heard the appeals, he was briefed in the appeals as junior counsel to Mr Collins SC.
Mr Lyons assisted Mr Collins in the preparation of the respondent's written submissions and acted in the role of junior counsel at the hearing. Mr Lyons did not prepare separate written submissions and he did not have a speaking role at the hearing. Accordingly, notwithstanding Mr Lyons' appointment as senior counsel during the course of the appeal proceedings, his role in the appeals was that of junior counsel rather than senior counsel.
It is true that the appeals raised issues of legal complexity. Also, the respondent was entitled to engage counsel of its choice. However, this court should not order the appellants, as the unsuccessful parties, to pay the respondent's taxed costs of two senior counsel unless the engagement of two senior counsel was reasonably necessary for the adequate presentation of its case.
We are not persuaded that, by reason of the complexity of the issues raised in the appeals or for any other reason, it was reasonably necessary, for the adequate presentation of the respondent's case, that two senior counsel be retained.
In the circumstances, an allowance should be made for one senior counsel and one junior counsel, but not two senior counsel.
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