Barclay v Penberthy & Ors; Penberthy & Anor v Barclay & Ors [2012] HCATrans 98

[2012] HCATrans 98

[2012] HCATrans 098

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Perth   No P55 of 2011

B e t w e e n -

AARON BARCLAY

Appellant

and

ALEC PENBERTHY

First Respondent

FUGRO SPATIAL SOLUTIONS PTY LTD ACN 008 673 916

Second Respondent

NAUTRONIX (HOLDINGS) PTY LTD ACN 009 067 099 AND L‑3 COMMUNICATIONS NAUTRONIX LTD ACN 009 019 603

Third Respondents

MALCOLM ANTHONY CIFUENTES

Fourth Respondent

MICHAEL BRIAN KNUBLEY

Fifth Respondent

JULIE ANNE WARRINER

Sixth Respondent

JANET GRAHAM

Seventh Respondent

OZAN PERINCEK

Eighth Respondent

Office of the Registry
  Perth  No P57 of 2011

B e t w e e n -

ALEC PENBERTHY

First Appellant

FUGRO SPATIAL SOLUTIONS PTY LTD ACN 008 673 916

Second Appellant

and

AARON BARCLAY

First Respondent

NAUTRONIX (HOLDINGS) PTY LTD ACN 009 067 099 AND L‑3 COMMUNICATIONS NAUTRONIX LTD ACN 009 019 603

Second Respondents

MALCOLM ANTHONY CIFUENTES

Third Respondent

MICHAEL BRIAN KNUBLEY

Fourth Respondent

JULIE ANNE WARRINER

Fifth Respondent

JANET GRAHAM

Sixth Respondent

OZAN PERINCEK

Seventh Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 1 MAY 2012, AT 10.16 AM

Copyright in the High Court of Australia

__________________

MR B.W. WALKER, QC:   May it please the Court, I appear with my learned friends, MR H.J. LANGMEAD, SC and MR M.D. RUSH, for the appellant in P55 and the first respondent in P57.  (instructed by DLA Piper Australia)

MS W.A. HARRIS, SC:   If the Court pleases, I appear with my learned friend, MR A. GOLEM, for the Nautronix respondents in each proceeding.  (instructed by Freehills)

MR D.J. FAGAN, SC:   If the Court pleases, I appear with my learned friend, MR S.A. RICHARDS, for the 1st and 2nd respondents in P55 and the appellants in P57.  (instructed by SRB Legal)

FRENCH CJ:   Yes, Mr Walker.

MR WALKER:   As your Honours see from our outline, there are three areas that we wish to address in supplementation and elaboration of our written submissions.  As to the first, may I draw to attention that the topic introduced by paragraph 1 and covered by paragraph 2 is, of course, greatly affected by the redaction of the written submissions on behalf of the respondents to which the Court’s attention, we understand, has been drawn by letter.  However, we apprehend that we need to embrace these matters which are at the heart of our complaint of error.  In order to identify the error in particular, could we go to what we submit is the impossible strain or tension thrown up by the way in which Justice McLure reached the conclusions in question.

As your Honours know this is a part of the case where we enthusiastically, and with great respect, embrace her Honour’s conclusion on the matter which we say ought to have governed the position between the parties, and criticise as being without foundation, the method by which her Honour reasoned to the opposite outcome.  While I am talking about the pick and choose aspects of our argument, your Honours will appreciate that another way to see the whole of this case, or our argument in it I should say, is that we are saying of one old, we would choose to say, venerable rule, Baker v Bolton, leave it alone, let the legislature deal with it in the tradition commenced halfway through the 19th century with Lord Campbell’s Act.

We say about another old ‑ we will try not to say the word venerable about it ‑ matter, namely, the per quod claim, that it should receive in this Court today its quietus by reference to much more contemporary, and we would with great respect submit worked out principles in relation to negligence.  So we accept there is, at least superficially, that difference of pick and choose in the whole of our presentation.  Could I take your Honours in volume 2 of the appeal book please to the passage in the President’s reasoning, picking it up at page 419?

GUMMOW J:   Paragraph??

MR WALKER:   By paragraph 106 her Honour had concluded an exposition about which we need to add no comment in relation to this Court’s jurisprudence for the recovery, in negligence, for “pure economic loss.”

Then at paragraph 107 the fly in the ointment is introduced, namely, that which some may have labelled outdated and anomalous, a matter being for this Court the per quod claim.  In paragraphs 108 and 109 her Honour briefly elaborates on relevant qualities of the action and, in particular, its history in a way that the exchanged written submissions in this Court and particularly the academic articles to which reference has been made provide sufficient detail without me canvassing it now.  Then her Honour comes to the point which, in our submission, shows the signal error to which we refer in paragraph 2 of our outline for address.  In paragraph 110 these expressions that we would emphasise show error.  First:

the existence of this common law action is directly relevant to whether it is reasonable to impose a duty of care in negligence.

Of course, in a sense, it is.  That is one of the reasons why its continued existence or its content is at the heart of our argument.  But then the next sentence, in our submission, goes astray:

Consistency between closely related common law actions is a legitimate expectation. 

It may be conceded that coherence or consistency in the sense of avoiding the self‑contradiction of the common law by its different components is a necessary tool of reasoning, that so much may be granted, but, in our submission, there is an assumed conclusion without any foundation at all displaying an obvious fallacy in saying that these are common law actions conceptually at the same level and bearing comparison so as to produce the conclusion that they are closely related.

If they are closely related – as we will try to demonstrate and as we have written – it is because they differ radically in certain ways.  One close relation, however, needs to be borne in mind throughout the argument, and that is that the wrongful injury which is the trespass originally that gave rise to the per quod, the wrongfulness is, if this claim be admitted at all in these proceedings, the negligence.  The wrongfulness, that is, the tortiousness of the injury which was understood to give rise to the per quod claim, will be the negligence, and the negligence obviously involves the falling short of a standard of care – reasonableness – called for by circumstances, examination of which will produce, if there be a duty imposed, an understanding of the scope or content of that duty.

FRENCH CJ:   Now, do you accept the outline of the elements of the action per quod servitium amisit in paragraph 8 of the Nautronix submissions, subject to a correction, I think, in the third item where it should read “C” instead of “A”, “being unable to provide services”?

MR WALKER:   Yes, and I am concentrating particularly on the second element ‑ ‑ ‑

FRENCH CJ:   Yes.

MR WALKER:   ‑ ‑ ‑ in what I have just been saying – and, yes, is the answer.

HEYDON J:   What is comprehended by the adjective “tortious”?

MR WALKER:   Well, your Honour, as your Honour knows, one sees it almost interchangeably with wrongful, and doing the best we can in the absence of any clear or categorical statement, it appears to have grown out of the notion of trespass, and nowadays if there be per quod at all it may be fulfilled, apparently, by matters which are negligent.

GUMMOW J:   Yes, but the tort need not have been negligent. 

MR WALKER:   I understand that entirely, with respect, your Honour. 

GUMMOW J:   But I do not see why you keep talking about absorbing it in negligence.  It is a parasitic action, parasitic to any tort, is it not, including an intentional tort and a tort of strict liability?

MR WALKER:   Quite so.  It is a right to claim – that is why they are not – per quod and negligence do not sit at the same conceptual levels so as to call for the comparison that one sees in that sentence in paragraph 110 which I am addressing.  It is, to adopt what Justice Gummow has put to me, parasitical or ancillary or consequential, a mode of claiming, operating by describing the status of the claimant and a person upon whom the defendant has had a relevant effect, in this case, injury.

FRENCH CJ:   There is a question hanging off all of this and that is, then, what is the measure of damages?

MR WALKER:   Yes.  Enough has been written about that for me to put that matter briefly as follows.  There is some obscurity, perhaps an understatement, about, first of all, whether there is, as a matter of principle or rule, an exact resemblance between the recoverable damages for the tort of negligence and the recoverable damages in a claim per quod.  It would appear, it has never been pronounced to be as a rule, the same.  The valuation of the right or the receipt of service from the injured employee has, as your Honours have seen from the cases, involved consideration of whether it goes beyond the wage equivalent.  That has not proved to be a completely stable or safe measure.

FRENCH CJ:   Beyond pecuniary loss?

MR WALKER:   In particular, there is the kind of problem that the Court of Appeal in New South Wales in Marinovski (1984) 2 NSWLR 571 referred to in relation to what I will call “key man” losses where there is somebody irreplaceable. I will not take your Honours to that authority at the moment.

KIEFEL J:   But the problem of damages shows up one of the difficulties with dealing with an historical remedy, namely, that you have to intrude contractual elements to be able to found your claim for damages to what was originally an injury to a property interest which probably arose out of the Roman law claim for injury to a slave.

MR WALKER:   Yes, and it was, as your Honours have seen from the academic discussions, it was cognate, a word that we may not be able to make more precise here, cognate with consortium claims and claims for debauching daughters, for example, and there was an element of a right to service of a proprietary or, as some of the commentators say perhaps out of embarrassment, quasi proprietary nature in relation to each of those three categories.

KIEFEL J:   So I suppose in one sense you would have to ask how were damages then awarded by reference to what?  Not by reference to 19th century notions of master and servant and wages paid or profits accrued.

MR WALKER:   Quite.  In our submission, when one comes to paragraph 110, the notion that these are (a) common law actions, the relation is rather as I put in answering Justice Gummow, and (b) that they are closely related is, in our submission, simply not correct.  Therefore, the notion of seeking consistency falls to be examined rather critically. 

In this case, as will be seen, the consistency is produced by altering in the cases falling within the category propounded by those championing per quod in this case saying that for that category essential, indeed defining control mechanisms of the law of negligence as to recovery of damages in such cases will be flouted, simply will not apply.  That, in our submission, is not the achievement of consistency but is rather an illogical, unprincipled and contrary to the policy of the law, departure from recently worked out pronouncements of doctrine intended to be comprehensive as to matters falling within their ambit by this Court, moving from Caltex to Perre and articulated by way of summary in Woolcock.

CRENNAN J:   If you speak of rolling it in, to speak colloquially, to negligence, would not that result on what you have just said in an expansion?

MR WALKER:   If I understand your Honour’s question properly ‑ ‑ ‑

CRENNAN J:   Expansion of the law of negligence and the creation of boundaries by reference to foreseeability, for example.

MR WALKER:   Yes.  The law of negligence has both favourable aspects for plaintiffs seeking pure economic loss as well as favourable aspects for defendants seeking to control what might otherwise be an ultra vires outcome.  In relation to foreseeability at the initial stage of imposition of duty there will be both a broadening and narrowing if you compare negligence with per quod.  So there is obviously a broadening because it is not confined to what I will call employment, but there is a narrowing in the requirement for foreseeability which simply does not apply.  Once the status be proved in court of employer/employee all question of knowledge of the defendant of a kind that would dominate a salient features analysis under Caltex, Perre and Woolcock goes out the window.  So there are real radical differences of kind between the inquiries of per quod and negligence at that first stage.

In relation to the kind of damages which are claimable, it may be doubted whether you could simply say that under negligence they will always be either wider or narrower than under per quod.  It is probable that the potential to achieve once the duty exists and the scope of duty includes guarding against the harm to economic interests from injuring employees, it is likely that the common law negligence recoverability approach will be slightly broader than what one might think is the more valuation of services approach under per quod, though that, of course, is doubtful for the reasons everyone has pointed out in their written submissions concerning the measure of damages under per quod.

I hope I have answered Justice Crennan’s question fully.  My answer in summary is that sometimes in some aspects negligence will be broader as to the scope of recoverability.  Sometimes it will be, to use the jargon, limited by the so‑called control mechanisms, which will narrow, or as in this case, eliminate all recoverability where, if per quod were to exist, there would be recovery.  It is for those reasons that one can see that two ways of framing a claim produce such radically different possibilities.  To call them closely related is to really beg the question, closely related in what sense?  It may be they are opposite sides of a coin, it may be there is not anything quite so neat about their relation; we submit the latter.

It is, of course, because the per quod has roots in a history, which so far antedates negligence, particularly negligence so as to ground recovery for pure economic loss, but they just do not bear comparison as to what I will call principles or justifications.  Now, in the next sentence in paragraph 110 her Honour then looks at what she calls the remaining part of the common law of per quod and treats that as a condition for the following conclusion:

it is difficult to avoid the conclusion that a negligent defendant –

and that is the tortiousness or wrongfulness in question –

must owe to an employer a common law duty –

now at that point one is sweeping away the salient features analysis and simply pointing to the status, that is all –

to take reasonable care to avoid causing pure economic loss by injuring its employees.

In our submission, thus in paragraph 110 there has been the abrogation of the careful working out that the previous paragraphs from 98 onwards had been expounded by her Honour.  While we are on this page, in paragraph 111, I draw to attention that the second of our matters, the Baker v Bolton point is there referred to, and in paragraph 112 Woolworths v Crotty relied upon.  I will come back to that.

Then in paragraph 114 and following her Honour, applying Baker v Bolton, removes or rules against any possibility of recovery for losses caused by the death of employees, refers in paragraph 115 to the result of the conclusion to which her Honour felt driven in paragraph 110, and expresses it, of course, in terms as if it were an application of negligence principles; we know obviously that it is not.  Then her Honour goes on to return to the negligence principles, dehors as it were the, we submit, baleful effect of her Honour’s understanding of the role of per quod in relation to negligence.

It is instructive, with respect, to see the way in which her Honour describes that position.  It is one where either the per quod action has not survived or, importantly, it does not require the imposition of a duty of care in negligence, and that, with respect, is a compact way of describing the error that her Honour had earlier seen.  Why would per quod require the imposition of a duty where the duty, according to our jurisprudence, is to be imposed only by a careful factually driven consideration of the so‑called salient features kind?  That is the first question.  Second, why would the per quod action which looks to the existence of something that renders conduct wrongful, if you like, looks to a duty, a pre‑existing duty and its breach, why would it cause the existence of the duty?

It comes along, as it were, if it exists at all, to permit recovery for employers of a certain kind, but it comes along to a state of affairs which it can describe as wrongful or tortious.  It is, in our submission, circular to at its existence, create a duty in order that that duty be breached so as to produce the wrongful element for a per quod recovery.

KIEFEL J:   Is the per quod action more properly described as the infringement of a known acknowledged right when one describes it as a quasi proprietorial?

MR WALKER:   We would rather advance it as an invasion of a recognised interest.

KIEFEL J:   Interest.

MR WALKER:   If there be a rights analysis, it would be the, perhaps, rather generalised one of a right not to have wrongful conduct.

KIEFEL J:   But we are not talking about rights in a modern sense, are we?

MR WALKER:   No.

KIEFEL J:   We are talking about rights in a person of a quasi proprietorial nature.  That is really the origin of it.

MR WALKER:   Rather, the per quod recovery would be seen, if it exists, as a right flowing from a trespass or a wrongful or tortious act that injured a person with a status of employee.

KIEFEL J:   It still sounds like a modern analysis.

MR WALKER:   We cannot really avoid the word “right”, particularly if I am asked it, with respect, your Honour.

KIEFEL J:   Of course.

MS WALKER:   It may be, in truth, that it is more sociological than legal to describe it as an invasion of an interest, but in its own terms, as described in the scholarship to which attention has been drawn in the written submissions, it plainly sprang from the notion that justice required recompense for an injury to something in the nature of property.

KIEFEL J:   Quite so.  Its foundation is a legal rule which we just do not have.  We do not have legal rules like that any more.

MR WALKER:   No.

FRENCH CJ:   So the tortious wrong which attaches to the action is a tortious wrong from the perspective of the servant.  So a trespass to the servant which would be actionable on the part of the servant is also actionable by the master if it causes the master loss of the servant’s services, not otherwise.

MR WALKER:   Yes.

FRENCH CJ:   And if you are attaching negligence to the per quod servitium amisit, you are talking about a breach of a duty owed to the servant?

MR WALKER:   Yes.

FRENCH CJ:   It is only when you start talking in terms of a breach of a duty owed to the employer that you get this conflation of economic loss recovery and this historically based rule.

MR WALKER:   Quite so.

FRENCH CJ:   You could move one into the other by suggesting that per quod servitium amisit describes, in respect of the master, a head of economic loss.

MR WALKER:   Well, it is not just a head, it is the whole of economic loss.

FRENCH CJ:   Yes.  Well, it depends on the measure you attach to it.

MR WALKER:   Yes.  Our whole point is that it avoids or, we would say, undermines the concern of the law of negligence.  That being the law that provides the tortious or wrongful element for the putative per quod recovery, it undermines that which is foundational both as to duty and, in its train, scope or content of duty.  The Chief Justice, with respect, correctly identifies the person against whom the alleged negligence had consequences as the employee of the servant, but, of course, it is almost adventitious and in principle quite beside the point that the person was a servant when in the aeroplane.  For the purposes of the negligence analysis, it is the fact that they are a passenger that is the relevant character of the relation, if any, between plaintiff and defendant which might give rise to a duty which, in turn, might give rise to a claim to recover damages for purely economic loss.

GUMMOW J:   Now, these medieval servants did not have contracts with their masters?

MR WALKER:   They need not have.

GUMMOW J:   Well, it is before the evolution of modern law contracts surely?

MR WALKER:   It is plain to demonstration that that is the way in which the claim is understood.

GUMMOW J:   Yes.  Now, what is the relationship between this action and the action for bringing about a breach of contract – a Lumley v Gye action?  It seems to me that they are species of the same genus.

MR WALKER:   Well, they can be ‑ ‑ ‑

GUMMOW J:   None of the academic writing seems to get to grips with because they are falling into the vice that Sir Victor Windeyer complained about in Scott at page 447 in 102 CLR:

To discover remote antecedents of a rule of the common law is not to determine its application to‑day.  It is necessary to be careful in leapfrogging through the centuries.

This seems to me an example of a ‑ ‑ ‑

MR WALKER:   Yes.

GUMMOW J:   No one suggests that the Lumley v Gye action should be absorbed into negligence, do they?

MR WALKER:   No.

HAYNE J:   Lord Denning did.

MR WALKER:   Yes.  Your Honours, one is therefore reminded of Holdsworth’s comment as well.

GUMMOW J:   That is not a commendation.

MR WALKER:   Your Honours, we are not, we hope, engaged in any exercise that involves either anachronism or a treatment of history as if (a) it were knowable and (b) sufficiently accurately and authoritatively to explain across the centuries matters in an entirely coherent or consistent fashion.  That cannot be our endeavour.  It would appear to have defeated the benches that have looked at this matter previously.

GUMMOW J:   In modern terms, the interest or the right, as Justice Kiefel was suggesting, is in the contract, is it not?

MR WALKER:   Yes, of course it is and, with respect, there is no reason why, when we have the doctrine of recovery for negligently caused purely economic loss with its control mechanisms for the imposition of the duty, the description of the scope or content of the duty, there is no rationale as to why contract should be driving the matter then.  It is matter of whether or not scope or content included losses which flowed either because of contract or because of conduct which may have been extra contractual, it may have flown in a number of different ways, and that is ultimately a factual inquiry which will be subject to control by reference to (a) whether there is a duty and (b) if so, whether it extends to the avoidance of that kind of loss, the existence or not, particularly in a case like the following, of an entirely unknown contract, the terms of which did not come into any prominence, let alone detailed examination of this case precisely because per quod was not the currency of the issues between the parties, is, in our submission, indefensible as a matter of principle. 

So that the question, we say, comes down really to this.  Given what the law of negligence has done, for what it is worth, in the years after Scott, is there really room for this claim which, while requiring negligence to trigger the liability, the wrongfulness or tortiousness, abrogates, indeed, reverses the requirements of negligence in this area, we add another consideration which is again a matter of historical evolution of the tort of negligence. 

Clearly enough, if one looks back, say, to Quince in the High Court, there was a completely confident understanding that there was a general rule which, of course, has been swept away by developments in Caltex and subsequently to which per quod might be understood as a kind of exception ‑ some called it anomalous, some simply said historical.  Now, in our submission, that is enough to show that the jurisprudence which refers to per quod as still available is a jurisprudence which itself is based on an understanding of the law of negligence which has now been shown to require correction.

It is for those reasons, in our submission, that precisely because the claim of the plaintiff here, now framed as per quod and per quod alone, though that has never been the case previously, contains the seeds of its own destruction because it requires the negligence which is a falling short in performance of a duty imposed by the law of negligence, in the circumstances of the case.

KIEFEL J:   If the Court must consider whether or not the action per quod cannot be justified as an exception to negligence as it has developed do we need also to consider what has occurred with respect to other claims which arose out of the same concept as the per quod action?

MR WALKER:   Your Honour, I am afraid, asks me to embark on a matter of concept that appears to ‑ that, with respect, is too broad and deep for me to be able to achieve in the sense that the concepts involved may only be our current attribution to very imperfectly understood earlier societies of rationales that we ought not feel confident in.

KIEFEL J:   Quite so.  Well, one could say that the action which developed with the development of the law of contract and which led to the Lumley v Gye situation may be said to be in parallel in a way, but what one is left with from the cases, I think, even from Justice Fullagar’s judgment, is the claim for loss of services in the – by reason of the seduction of the daughter ‑ and one still has the – although dealt with largely, I think, by statute now ‑ claims for loss of services of the wife and the following claims for consortium which arose.  Now, the latter claim in particular has largely been dealt with, I think, by statute, seen as an obsolete action, but I am not sure if there are remnants not still there?

MR WALKER:   Partly, at least, our argument embraces that there are remnants, or appear to be, and that this Court can and should, as it has done for occupier’s liability for the liability of highway authorities for the escape of dangerous substances, identify such apparent remnants, examine whether they fit within the schema of, in particular, the law of negligence which otherwise provides remedies but on a differently understood basis, at the same time more generally based, as well as subject to control mechanisms, particularly via foreseeability and what once upon a time could be called proximity, now propinquity, if that is different from proximity.  In our submission, we are not asking for anything which is conceptually or, as a matter of judicial method, greatly different, if at all, from what happened in those cases.

It follows that the fact that there is a remnant, as your Honour Justice Kiefel has pointed out, with respect, a remnant that is like the few remaining piers of a flood destroyed bridge, I mean, you have left in the argument against us per quod, but no intellectual or policy or principle support is sought for its continued vigour from what has happened in relation to the seduction of daughters or the injury of a wife, and I stress wife, not husband.  That rather, in our submission, suggests that the recovery that is the object of per quod that recognises some invasion of interest that, as a matter of justice ought to be recompensed, may be understood, it falls readily to be understood, as covered by the law of negligence.  Then we would turn, appeals to coherence or consistency, in the opposite direction from how Justice McLure used it in paragraph 110.

We would simply say it is of the first importance that the law of negligence for the recovery of purely economic loss in this Court not contain an exception which bespeaks its unprincipled nature, that is, cannot be fitted within the pronouncement of principle in Perre, but is rather recognised simply because it exists.  We submit there is anterior question, well, given the development of the law of negligence, does it still exist, do not the concepts, the salient features, the control mechanisms, the widening of the relations or circumstances which may give rise to the imposition of a duty permitting the recovery of pure economic loss, do they not stand against the continued currency of that which is a vestige of a pre‑negligence and also pre‑contract era, so that the very development of the negligence jurisprudence drives out, must expel, that which it is replacing?

Now, we are conscious that there is a circularity here, it should be regarded as driven out because it has been drive out but, in our submission, we are faced, that is as parties, we are faced with the position that Scott says the matter still exists and we are entitled, as we have tried to write, point to what has happened to the law of negligence since Scott and to observe the premise has been removed, in particular, of the general rule against recovery to which this was an exception so as to recognise the quasi proprietary interest of a disappointed master.

BELL J:   To the extent that in your submissions at paragraphs 48 you say the appropriate response is for the action to be absorbed back into the general law of negligence, the submission is that in a circumstance where the relationship of employer and employee is a salient feature, one can accommodate recovery for pure economic loss in conventional principles as explained in Perre and cases that have followed.  That is how we are to understand paragraph 48, is it?

MR WALKER:   Yes, your Honour.  Your Honour refers to accommodating it, that does not means always allow recovery.

BELL J:   No, I understand that.  It is a parasitic action, as Justice Gummow observes.  I can understand that submission in the context of a Scott‑type case, but what about in the case of an intentional tort?

MR WALKER:   The case of an intentional tort lies outside what we are arguing.

BELL J:   Yes.  So your submission is that to the extent that an action might have lain in per quod arising out of tortious conduct that is negligent, one sees that ‑ ‑ ‑

MR WALKER:   It is the negligence.  The whole essence of our argument is that once the modern law of negligence is resorted to, in order to provide the component of per quod of wrongfulness or tortiousness, there is this impossible contradictory anachronism, because through the whole of its historical development such as it is and right up to and including the authority given to it in Scott, there was no negligence possible to be supplied as that wrongfulness component by the relation between the plaintiff and defendant in this case.  That was the general rule that could not ground recovery. 

There is another matter to which we need to refer equally whatever may follow from Wilkinson v Downton and such matters that lie outside our argument.  The key to our argument is you cannot resort to modern negligence to supply the wrongfulness without observing that it is a wrongfulness which cannot be committed by people in this lack of relevant relationship.  We are lacking the salient features, et cetera.

HAYNE J:   But are you not thereby putting together two separate cases of negligence?  The case which you are positing is one where, in breach of a duty of care owed to the employee, the defendant causes physical harm to the employee.

MR WALKER:   Yes.

HAYNE J:   The question of whether the employer has a suit against the party negligently inflicting that harm, you say is to be resolved according to whether there was a relevant duty of care owed.

MR WALKER:   Yes.

HAYNE J:   But, you cannot mask that, I think, by simply saying the wrongfulness is identified by negligence.   You have swamped it.

MR WALKER:   No.  With great respect, I accept what your Honour says.  I hope I have not masked it.  Let me go back as follows.  The wrongfulness component in the per quod recovery by the employer is supplied, as we apprehend, by the negligence committed against the employee.  However, it is with relation to recovery by the employer that that component would be used and the law of negligence says, with respect to recovery by an employer in such circumstances, that quite regardless of the straightforwardness of what might be a running‑down case against an employee, there must be a salient features analysis in order that there be another cause of action in negligence by the employer and that is what we submit shows the contradictory anachronism to which I referred earlier.

KIEFEL J:   What you are really saying is that the old action cannot be absorbed into the law of negligence and that claims by employers must simply be brought on the usual basis of claims for economic loss and dealt with accordingly.

MR WALKER:   Yes.

FRENCH CJ:   But the Nautronix case against, as reflected in their notice of contention and their submissions at 39 to 42, does not depend, am I correct, on a contention that there was breach of a duty of care owed to Nautronix, but it proceeds along the conventional per quod servitium amisit line?  In other words, there was a breach of duty of care owed to the employees.  Their cause of action is based upon that now that they have abandoned the other side.

MR WALKER:   Yes.  Why I am hesitating is that the abandonment means that there has been a complete reversal of forensic position.

FRENCH CJ:   All they have got against you here, apart from the Baker v Bolton point, is what is set out in the notice of contention.

MR WALKER:   The proper answer to the Chief Justice’s question is yes, and to go on to say that the whole of the case in the courts below was argued against us on the existence and breach of a duty of care owed by us to Nautronix.  Now, bearing in mind that that is a duty of care to avoid purely economic loss, it may be that on any view, if it existed at all, and we submit it does not, coexist with a duty of care to avoid physical injury owed to the passengers, one of whom happens to be, or some of whom happen to be, employees.  That is the same ‑ ‑ ‑

FRENCH CJ:   This cannot be winkled out of the pleading, can it?

MR WALKER:   No, it cannot.

FRENCH CJ:   It has to be out of the way the case was run.

MR WALKER:   Yes.  The case was neither pleaded, nor run, as per quod.  We are now facing the consequences of more abundant caution references, to which detailed reference has been made in our written submissions.  If anything, they rather strengthen the case concerning the way in which the matter was presented and, most significantly, not presented.  Perhaps the most telling way to see that is in the most explicit fashion in which per quod was addressed by our opponents in the court below.  Can I take your Honours in volume 1 to page 206 ‑ I am sorry, the foot of page 205, paragraph 171:

All that is required, is for the Court to determine whether:

(a)the Nautronix plaintiffs have suffered some loss or damage compensable at law; and –

and that emphasis on “some” is a reference to the so‑called split trial, quantification to follow –

(b)one or more of the defendants (specifying which) are liable, by reason of negligence, breach of contract or breach of implied statutory warranties –

there is no per quod there –

to compensate the Nautronix plaintiffs –

et cetera.  Then 172:

It is therefore not necessary, in these proceedings, to resolve the arguments raised by the defendants, namely that the Nautronix parties cannot recover damages for so‑called “pure economic loss”, or that –

HEYDON J:   That is the Court of Appeal, but the thing is we have to start with the trial.  Is there not a Suttor v Gundowda question?  Do you say that there was evidence, which was possibly available to be called by your side, which would have been called, or could have been called, if it had been pleaded as an actio per quod servitium amisit?  If so, what is that evidence?

MR WALKER:   Excuse me just one moment.  Your Honours, we have given thought to that.

HEYDON J:   It is not referred to in your written submissions.

MR WALKER:   No, and that is because it is difficult to see matters which would have received sufficiently materially different treatment factually, bearing in mind the admission of employment, their employment, in the pleadings, obviously which preceded the presentation and testing of evidence.  However, there is the reference to be found in volume 1 of the appeal book page 128 to something which during the running of the case was actually led about one of the so‑called employees, and you see at about line 37 on that page, led from him in‑chief was “working on a subcontract basis”.

Now, obviously enough, one of the anomalies, as we would put it, of per quod is the insistence on employment, whether by contract or by receipt of services, and the extent to which modern, very deliberate casting of relations by contract so as to avoid employment for various reasons, would impact upon recoverability under per quod.  None of that was followed up.  Now, I hasten to point out, that was evidence led in‑chief that went nowhere.  The parties had admitted employment in a case without per quod being raised.  The niceties of whether the admitted employment really was employment did not fall to be explored. 

In answer to Justice Heydon’s question, one view of that would be, well, there cannot be any Suttor v Gundowda prejudice because you had admitted employment so you would not have been allowed to explore it.  But we just point to that event which, had per quod been in the swim, would plainly have given rise to the question whether to seek leave to qualify or modify the admission in light of the led evidence that may indicate there was not employment which, in turn, may have provided an answer to a per quod claim.

HEYDON J:   I just need to know precisely how conceptually you resist this Court entertaining the per quod arguments.  Point one is Suttor v Gundowda you say ‑ ‑ ‑

MR WALKER:   I have said all I can say on that.

HEYDON J:   Yes.  You say point two, that even if there is no Suttor v Gundowda‑type evidence, the circumstances are such that they simply should not be allowed to run this case?

MR WALKER:   Yes.

HEYDON J:   Suttor v Gundowda does not exhaust the field of ‑ ‑ ‑

MR WALKER:   No, if I am to label it, I suppose I would label it Coulter v Holcombe.  There comes a point where deliberate choices about the framing of cases – and it was deliberate choice.  I am about to take your Honours to what was said in the Court of Appeal where there may have been a point of repentance, but it was not taken up and we say, yes, there is a point at which deliberateness of choice ought to be visited upon a party, there being no reason to do otherwise.

HEYDON J:   But what is the injustice which causes one to come to that conclusion?

MR WALKER:   That we are required to answer a claim that we took reasonable efforts to ascertain whether it was in issue or not and received ample assurance it was not in issue and that we should not be vexed again with it.  That is the injustice.

HEYDON J:   What were these measures you took to be sure?

MR WALKER:   Your Honours have seen, I think, in relation to the dead employees that in paragraph 44 of our pleading, page 38 – and this is either an amalgam of a denial of per quod and the effect of the death or just the latter – but in 44 it is said:

To the extent that –

and we know that there was no labelled reliance on it but to the extent that the plaintiffs seek to rely on per quod –

in respect of the consequences of the death of [two persons], such claim is not available –

Now, that is where ‑ ‑ ‑

HEYDON J:   That is a reference to Baker v Bolton.

MR WALKER:   It is certainly a reference to Baker v Bolton and it may only be a reference to Baker v Bolton.  That is, as I say, one of the possible readings of that.  It is certainly a reference to Baker v Bolton.  But the point is there is per quod being raised as a possible, is this being raised against us, as it were.

GUMMOW J:   That is consistent with per quod being on the table for the living parties.

MR WALKER:   I am bound to accept that.  That is why I have to go further and in the appellate’s submissions – I am sorry, before I go to the appellate’s submissions – however, at the trial there was no reliance on per quod and though in some cases the consciousness or advertence of a defendant to the possible way a plaintiff may cast a claim may be enough in a subsequent appeal to overcome any Suttor v Gundowda or Coulton v Holcombe problem, it remains significant in this case that the trailed coat did not attract any response.  There was no per quod claim.

In the appellate’s submissions that I was taking the Court to at page 206, in paragraph 172 it is said that it is not necessary to resolve arguments and, secondly, that:

part of its damages claim would be defeated by the common law principles ‑ ‑ ‑

HAYNE J:   You say that is an appellate submission.  Is that right?  Does the document begin at ‑ ‑ ‑

MR WALKER:   I am sorry, it is the closing trial submission.  I do apologise.

HAYNE J:   At 186?

MR WALKER:   Yes, it is the written closing submissions for Nautronix of 20 August 2009 at trial.  So that at 172 there is a pushing to one side, at this stage, of Commonwealth principles relating to per quod.  Then it is said “out of an abundance of caution” those questions would be addressed.  Pure economic loss is addressed over the succeeding pages, over to page 210, coincidentally, finishing at paragraph 210.  Then under the heading “Per Quod”, what follows says nothing to advance a claim either defensively against an argument or, as one would expect from a plaintiff, so as to adumbrate a claim per quod at all and, indeed, all there is is a reference to the effect of death, hence the Woolworths v Crotty point.

In paragraph 216 there is, rather, statements which, wittingly or otherwise, tend to contradict reliance on the essence of a per quod.  It is to be recalled this argument was saying I can recover notwithstanding it is death not just injury.  In 216 the assertion is made in (b) that, “‘damage’ arises, not from the death” and then there is a reference to what is clearly a purely economic loss aspect, and yet the essence of per quod is certainly not death, but the essence of per quod is injury to the employee.  It has to arise from injury to the employee.  Then paragraph 217 again shows a statement of the case which, in our submission, contains no element advancing a per quod claim. 

So there was high degree of self‑consciousness in saying what they wanted to say out of abundance of caution on a topic they said was not necessary for determination.  That should be enough, surely, to say it was not in the ring, but when one turns to what they said about per quod in that endeavour, it does not amount to a straightforward advancement of the claim in the way that one now sees advanced in the second part, the surviving part of their written submissions in this Court.

HEYDON J:   This approach to pleading is a little reminiscent of the actio per quod servitium amisit itself; it is rather antique.  If by chance all available facts were found by the trial judge and we can look at them and not trouble ourselves about the possibility of them being overturned by other evidence which you have dealt with earlier, what is the injustice to you in doing so?

MR WALKER:   Your Honour, I cannot put anything more than I have put on that and, with respect, so long as there is a control on unfairness – and I do not want to say anything further about that than what I have said – plainly a canvassing of the probanda of a cause of action as thoroughly as would have been carried out had that cause of action or form of claim been explicitly relied upon, will be par excellence the occasion for an appellate court to find liability under a rubric not advanced below.  I accept that it must be so.  However, for the reasons I have already put, here was a case where there was, as it were, a determination notwithstanding the matter is raised not to raise per quod and, without repeating myself, that ought not now be departed from.  However, as your Honours appreciate, the bulk of our argument is on the basis that we do have to face a per quod claim and that is how we have argued the matter.

Your Honours, at paragraphs 117 and following on page 421 of volume 2 of the appeal book, if I may do this in an abbreviated fashion, her Honour then deals with an analysis in the absence of the effect of per quod on the negligence case in a way which, in our submission, accurately captures the proper way to apply the salient features, et cetera, to this case.  For those reasons, as we have written, in the absence of either effect on negligence of per quod or direct claim per quod, there should have been judgment for us.  I do not wish to say anything more about that.  Your Honours, may I now then move to the last of the three topics, which is Baker v Bolton?

BELL J:   Can I just ask before you do that, to the extent that you in your written submissions contend that, as I understand it, not that per quod should be said to have no survival, but not in a context in which negligence is the basis of the tortious wrongdoing, what would be the reason in policy for that if it is accepted that there is available to an employer an action to recover economic loss in circumstances, for example, of a tortious assault upon an employee resulting in economic loss?

MR WALKER:   First, there is no, in our submission, difficulty in policy in confining differently the actionable consequences of negligence; that is, conduct which does not intend harm, and trespass, that is, conduct that does intend harm, but that, in our submission, is a rudimentary differentiation in policy that should not be troubling.  It would be odd, in our submission, rather, if a system of law treated indifferently persons who meant to hit another and persons who carelessly jostled another.

BELL J:   Why when one looks at the action per quod, which is an action providing a remedy to an employer for the loss of services of the employee, it has been said to be anomalous, and it is anomalous for a number of reasons, including perhaps it is odd that a partner does not have such a right and so forth, but when one looks at it from that point of view and recognises that it is available, if it is available, respecting an intentional tort, it is a little difficult to divine the policy for excluding it for negligence?

MR WALKER:   Because bereft of the control mechanisms of the scope of consequences for which one might become liable for your negligent act, purely economic consequences, there is this carve out which appears to privilege among all other factual circumstances that might bring people into a plaintiff/defendant relation in negligence for employers.  I stress it is only for employers, it is not for employees who suffer because their employer is wiped out of business.

BELL J:   That is the oddity with the action; that is the matter I am raising with you.

MR WALKER:   Yes.  Well, we are not just relying – I have said what I wanted to say about oddity.  Your Honours have all, I think, referred explicitly or implicitly to the way Mr Justice Fullagar puts it in Scott 102 CLR at 407. I do not need to take you to it. Those are matters which presaged, in our submission, pre the modern law of recovery in negligence for purely economic loss, the kind of considerations that we now rely upon in answer to Justice Bell’s question, namely, that given that negligence is the trigger to the recoverability, no reason is advanced inherent in the status of being an employer for there to be an immunity from the control mechanisms laid upon what will otherwise be the feared indeterminacy of liability for the economic consequences of one wrong which can flow on with a knock on effect, on and on and on.

It is our submission that it is for those reasons that it is the later development of the economic loss, recovery in negligence, which falsifies the continued availability of per quod when negligence is the trigger.  That is not to say that there may not be doubts about whether it be obsolete in relation to other circumstances, but there are no concrete facts which permit it to be argued.  Your Honours, in relation to Baker v Bolton ‑ ‑ ‑

FRENCH CJ:   Now, looking at the notice of cross‑appeal from Nautronix and I compare that – the notice of contention says the posited case against you is per quod only.

MR WALKER:   Yes.

FRENCH CJ:   On the Baker v Bolton point, however, 3(c) seems to bring back in a duty “to take reasonable care to avoid pure economic loss”.

MR WALKER:   We had understood – and I will stand corrected if I am wrong – but that has gone by the board with the ‑ ‑ ‑

FRENCH CJ:   As against you?

MR WALKER:   Yes.

FRENCH CJ:   I see Ms Harris is nodding in the affirmative.

MR WALKER:   Yes.

MS HARRIS:   Yes, your Honour.  If your Honours were to look at page 465 of the appeal book at ground 3(c), in respect of Mr Barclay we do not press the words “or, alternatively the action in  negligence”.

FRENCH CJ:   However, you are maintaining that position in respect of Mr Penberthy and the second ground in your notice of contention reflects that as well, in relation to Mr Penberthy?

MS HARRIS:   That is right.  Yes, your Honour.

FRENCH CJ:   Yes, all right.  Thank you.

BELL J:   Just on your notice of cross‑appeal, – this at 457 – you refer to the orders made by Justice Murray in proceedings 1223 of 2008.

MS HARRIS:   Your Honour, I believe that should be 1228 of 2008.

BELL J:   I thought it was 1312.

MS HARRIS:   I beg your pardon, your Honour, 1312.   I beg your pardon, your Honour, 1312.

BELL J:   Yes.

MS HARRIS:   That is an error, your Honour.  I beg your pardon.

MR WALKER:   Your Honours, on Baker v Bolton there are just two points we wish to advance in address.  The difference between us involves, at least perhaps principally, whether or not, one, Woolworths v Crotty is authority for the vigour of the rule, two, if it is, should leave be granted for its overruling and should it be overruled?  As to the first, in our submission, the exercise of statutory interpretation, which is the decision and reasoning in Woolworths v Crotty (1942) 66 CLR 603, turned essentially upon identification, historically by reference to cognate, preambles and long titles, to the rule reform or amelioration of which was the intent of the legislation from which their Honours reasoned there would follow an understanding of the scope of the words which produced the controversy as to whether they caught the particular liability in this case.

It is that use of an understanding of the pre‑existing common law to which the progenitor legislation was addressed which, in our submission, makes it an essential part of the reasoning of statutory interpretation for their Honours to have concluded that the rule existed in the terms in questions and it is for those reasons that ‑ ‑ ‑

GUMMOW J:   The point is the legislature assumed it existed.

MR WALKER:   I am so sorry, your Honour?

GUMMOW J:   The legislature had assumed it existed since 1846 in various places.

MR WALKER:   Quite so, but the relevant thing for this Court, as a matter of authority, is that their Honours thought so too.  It was not enough that there may have been a belief which could have been mistaken by legislators, that is not unknown.  Their Honours perceived the existence of that rule.

GUMMOW J:   No one asked them to perceive otherwise.

MR WALKER:   That is true, but that does not mean it is not part of the reason ‑ ‑ ‑

GUMMOW J:   It is the last thing Mr Menzies and Mr Barwick were going to debate.

MR WALKER:   I am so sorry, your Honour.

GUMMOW J:   It is the last thing Mr Menzies and Mr Barwick were going to waste the Court’s time debating, I would have thought.

MR WALKER:   No, but, your Honour, we are faced with an argument that says Woolworths v Crotty is no authority for the existence of the rule.  It is true that counsel are not seen battling about whether there is any such rule, but an essential part of the reasoning about what they did battle about, namely, the extent to which the general words in the Act went, was informed, not incidentally, but centrally by their Honours’ understanding of the existence and nature of the rule.  It is for those reasons, in our submission, that Woolworths v Crotty ought not be dealt with by simply observing that it is no authority for the existence of the rule. 

In our submission, that would be a matter tending to, rather, in discipline than otherwise, in an understanding of the common law for an essential part of the reasoning to statutory interpretation about the existence of the common law rule that the statute addressed to be disregarded by the courts below this Court on the basis that counsel had not disputed the existence of some such rule.  However, it is obviously relevant to the question for this Court, and for this Court only, as to whether there should be leave to reopen and, if so, ought it be overruled.

In our submission, there is no reason to reopen it.  There is nothing that has occurred analogous, for example, in the first part of my argument, to the development of the modern law of recovery for purely economic loss and negligence.  Nothing has happened since Woolworths v Crotty with respect to the nature of the death of a person as founding legal complaint to require the change of an understanding of the common law rule, particularly when, in large measure, so far as one can gather from the contentment of legislatures for a century and a half, particularly when it can be seen that the matter has been addressed by comprehensive legislation of that special kind, such as Lord Campbell’s Act and the abolition of the defence of contributory negligence can be seen to be, which had become part of the fabric of claims for wrongs involving theft.

That, in our submission, is an excellent example of an instance where, however hoary or obscure to explain, may be the origins of a common law doctrine, both its longevity and the longstanding measured intervention of parliaments suffices to prevent any occasion arising for this Court to reconsider the existence of the rule.  It is for those reasons, in our submission, that as to the second old rule nothing further should be done than to observe its recognition in the reasoning of Woolworths v Crotty and that no occasion arising for it to be reconsidered in this Court now.

There is a passage to which I should draw attention in the speech of Lord Parker in S.S. Amerika [1917] AC 38 at 43 which might be thought to meld together, as it were, the per quod and Baker v Bolton points in a sense.  His Lordship, having noted the severe criticisms of Baker v Bolton on the previous page – that previous page is 42, said:

If it were any part of the functions of this House to consider what rules ought to prevail in a logical and scientific system of jurisprudence, much might no doubt be said for this criticism; though it is not, in my opinion, by any means clear that the anomaly does not in reality consist rather in granting the remedy in the former case than in refusing it in the latter ‑

that is, the injured party ‑

In a society based so largely as our own is at the present day upon contractual obligations ‑

I interpolate, a matter that calls to mind matters that Justice Kiefel has raised ‑

it does not appear why the wrongful injury of A. whereby he is prevented from fulfilling his contractual obligations to B. should confer on B. a right of action only where these obligations are those arising out of the relationship of master and servant, or, indeed, why the right should not be extended so as to cover all loss, whether arising out of inability to perform a contract or otherwise.

Again, in our submission, presaging somewhat, what happened in a way that demonstrates the comparative breadth of negligence compared to per quod when economic loss became recoverable in cases of negligence.  May it please the Court.

FRENCH CJ:   Thank you, Mr Walker.  Yes, Mr Fagan.

MR FAGAN:   Your Honours, with respect to the continuance survival of this per quod action, we are largely content to rely upon our written submissions and endorse what my learned friend, Mr Walker, has said, but may I just make some short points and at a fairly high level?  In Nautronix’s submissions much is made of the proposition that the per quod action is entrenched.  It is pointed out that it has been accepted in intermediate courts of appeal and trial courts and that it seems to have been understood by the legislatures of various States to have existed in places where they have cut it down.

That all just really goes back to the circumstances that this Court did uphold in 1958 in Commissioner for Railways v Scott, and it must be accepted that at that point this Court recognised that whilst the actions ‑ origins lay in an age when the relationship between a master and servant might be regarded as one of ownership of property and there was a question of a loss of property through disablement of a servant, that this Court did say that the action had survived the transition into modern social relations and legal relations between employers and employees.

The circumstance when this Court decided Commissioner forRailways v Scott was that in England the appellate courts had determined that the action was restricted to cases of domestic or menial servants and, in effect, had pretty much sidelined the action by so constricting it.  When this Court considered the matter, Justice Dixon thought on – he has devoted most of his judgment on this topic to examining whether that was really historically, in legal and historical terms, justifiable and thought that it was not, but nevertheless was determined that the Court should follow what the English appellate courts had done.  The majority thought that the action should be regarded as continuing. 

Justice Fullagar gave reasons very strongly for disposing of it entirely.  That is 1958.  But in 1964, when the courts began to develop the concept of the rules for recovery of pure economic loss which did not involve injury to the plaintiff or his property and as those rules have developed, it has become apparent by now that the per quod action is completely anomalous.  There is a circumstance in the law which affects the subject matter, that is, the subject matter of an employer trying to recover for the loss of services of his employee as a circumstance of development in the law which makes that per quod action completely anomalous in a way which was not so at the time when Scott was decided. 

Now, all that needs to be determined for the purpose of the present appeal on this matter is that the action be regarded as not so surviving insofar as it turns upon injury to the servant which is caused by negligence.  The Court does not have to decide whether the action is completely obsolete, including, with respect, to cases where injury is occasioned to the servant through trespass.

GUMMOW J:   I am sorry.  I just do not understand this.  You are assuming an action in negligence by the injured employee which succeeds, is that right?

MR FAGAN:   I am just assuming that it would be available.

GUMMOW J:   Well, that is where I start to have problems.

MR FAGAN:   If we take the facts of this case, there has been found negligence which caused some of the employees to be injured, the consequence for the employer is that he ‑ ‑ ‑

GUMMOW J:   This word “negligence” is like a sponge, really.  You mean a cause of action in negligence or negligence in the sense that there has been a duty of care that has been broken?

MR FAGAN:   A lack of reasonable care.  Perhaps I will use that language.  It has been found that there has been injury to the servants through a lack of reasonable care on behalf of, amongst others, the pilot.

FRENCH CJ:   That is a beach of a duty owed to those employees.

MR FAGAN:   Yes.  Now, if the per quod action survives ‑ ‑ ‑

GUMMOW J:   There is duty of breach and damage, is that right?

MR FAGAN:   Yes, so far as the individual employee is concerned.

GUMMOW J:   Yes.

MR FAGAN:   Now, if the per quod action ‑ ‑ ‑

GUMMOW J:   Now, what does the employer do?

MR FAGAN:   Well, if the per quod action survives ‑ ‑ ‑

GUMMOW J:   You say it does not survive because it has been “absorbed”.

MR FAGAN:   Yes.

GUMMOW J:   What does that mean?

MR FAGAN:   Well, the subject matter has come to be covered ‑ ‑ ‑

GUMMOW J:   You mean extinguished, do you not?

MR FAGAN:   No, what I mean is that the subject matter has come to be covered by another body of law.

GUMMOW J:   It depends what you mean by “subject matter”, it depends what you mean by “covered”.

MR FAGAN:   The subject matter is the employer’s right or not to recover for pure economic loss that is inflicted upon him by not having the services of the employee; that is the subject matter.

FRENCH CJ:   That is on the basis of a breach of a duty of care owed to the employer.

MR FAGAN:   Well, the subject matter is the question of the accident and the question of recovery, loss and recovery, what actions might apply to it. If the per quod action survives, then the employer has a right of action simply because the employee was an employee and he has been injured and it has been wrongful.  It has been wrongful in a sense as between the employee and the perpetrator, that is if it survives. 

GUMMOW J:   I understand that.  We want to understand what happens after the funeral.  That is what we want to understand.

MR FAGAN:   Well, at the same time, if the law of negligence and the law of duties of care with respect to pure economic loss is brought to bear, then additional criteria have to be applied.  If the employer were to seek, as he did in this case, to recover on that basis, he must demonstrate a duty owed to him by the perpetrator – Mr Penberthy in this case – a duty to avoid pure economic loss, loss flowing from injury other than to the employer himself or to his property.

Now, the subject matter is the same.  The subject matter is the employer’s desire to recover his losses which flow from his no longer having the services of his employees because they have been injured through the lack of reasonable care of the pilot.  If the per quod action survives, it gives a straight out right of recovery without inquiring at all into all the criteria that have been carefully developed by the Court for determining when in such circumstances an employer may have a right of recovery against a person who did not injure him or his property.

GUMMOW J:   So you are saying the only action available to the employer is a negligence action for breach of a duty owed to him, the employer, in respect of this economic loss ‑ ‑ ‑

MR FAGAN:   Pure economic loss.

GUMMOW J:   ‑ ‑ ‑ which has all the difficulties that that encounters which you say are difficulties that are not present with the old per quod action and that is the reason for are getting rid of it?

MR FAGAN:   Exactly so.  Now, all of that is what we mean by saying that the subject matter is, if the per quod action survives, covered by two different rules.

FRENCH CJ:   When you say “covered by”, is this an argument that the constraints that the courts have imposed upon recovery of pure economic loss and the duty of care necessarily associated with such recovery are inconsistent with the continued existence of the action per quod?

MR FAGAN:   Yes, they are, and it was not a situation that obtained in 1958 when Scott was decided by this Court because the Court had not embarked upon generating the rules according to which pure economic loss could be recovered and duties with respect to it could be owed until the decision in Hedley Byrne v Heller in 1964.

KIEFEL J:   So in terms of your outline of argument it is paragraph 2.2 that really says what you are now saying, that is, that the action can no longer be justified, given the developments of the law of negligence?

MR WALKER:   Yes.

KIEFEL J:   That is by way saying ‑ if you go back to your 2.1 ‑ that the problem in 2.1 is this notion, which is quite at odds with 2.2, is that it can somehow be absorbed into the law of negligence.  It cannot, that is really the point, is it not?

GUMMOW J:   It is extinguished by it.

FRENCH CJ:   It is inconsistent ‑ ‑ ‑

KIEFEL J:   It is overtaken, it is inconsistent with it.

GUMMOW J:   It is a section 109 situation.

MR FAGAN:   Your Honours, I will not argue with any of your alternative terms.  I understand entirely why your Honour suggested ‑ ‑ ‑

KIEFEL J:   What you are really saying is it cannot be accommodated, within the modern rule?

MR FAGAN:   They cannot stand.  They cannot stand without the court being willing to accept that all that it has done carefully to develop principles through Perre v Apand, before that Caltex, after that Woolcock, and so on, unless all that is to be set to one side in this one unusual instance of injury to an employee, and all on the basis of something that arose out of social problems caused by the black death.

GUMMOW J:   What about the point Justice Bell was putting to Mr Walker?  What about the tortious assault on the employee?  What happens then?

MR FAGAN:   Yes, well, as I understood what Justice Bell was putting was suppose the position is taken that the action per quod, where it arises out of lack of reasonable care on the part of the perpetrator, rather than deliberate trespass, suppose that is treated as extinguished, if I can adopt that possible term for the moment, by the developments of the law with respect to pure economic loss, and suppose that leaves the per quod action only in cases where there is deliberate trespass, what would be the policy for allowing that to obtain?  Well, your Honours, perhaps there would be none and perhaps it would be appropriate to recognise that the whole per quod action ought be regarded as having been extinguished by what has developed since Hedley Byrne, because what we would be left with ‑ ‑ ‑

HAYNE J:   You are not trying to ram trespass back into negligence, are you?

MR FAGAN:   No, your Honour, certainly not.

HAYNE J:   The two are radically different.

MR FAGAN:   Absolutely, I accept that, your Honour.  If I have correctly understood the proposition that Justice Bell raised, it was to suggest that if the argument which is being advanced were upheld with respect to per quod, so far as it arose in cases where there was a want of reasonable care causing injury to the servant, but it was not to be abolished with respect to cases where there was deliberate trespass to the servant, then there would be another anomaly left.  Well, there would be, there would be a remnant of an historical remnant and the Court may well regard that as unsatisfactory.

KIEFEL J:   Is it really to say no more than the action for trespass may be seen to extend to an action on the part of the employer with respect to a servant for intentional infliction of harm?

MR FAGAN:   I cannot suggest that that would be part of any other cause of action that is modern.

HAYNE J:   If there are policy roots to the doctrine they would lie, if at all, in the notion of causation as being the only relevant controlling factor; that if you deliberately assault someone else you are responsible for all of the loss that is thereby caused, whether to the person assaulted or to others, parasitic upon or affected by.  Now, if there is any doctrinal basis, that is where you are going to find it, I think.

MR FAGAN:   Perhaps so, your Honour, yes.

HAYNE J:   But when we come to consider Scott, Scott is decided in the shadow of the Privy Council decision, what, three years earlier in Perpetual Trustees? 

MR FAGAN:   Perpetual Trustees, yes.

HAYNE J:   And Scott has to be understood in light of what the Privy Council said about PQSA in that opinion or that advice which simply accepted the existence of this cause of action.  Now, times have moved a bit since then.

MR FAGAN:   Yes, your Honour.  In particular, and there has been reference to times having moved in terms of social relations, particularly Justice Kiefel referred to the origins of this action in times of property and servants and the difference when we move to contractual relations, but Scott thought that could be accommodated, but what most particularly has moved in the times is the development in the law, the law which gives an employer on a principle basis a right of action to recover loss for damage inflicted to his servant provided that the criteria are met and that the controls which the Court has carefully worked out, the various considerations of foreseeability of the class, a reasonably narrow class of people might be affected and the vulnerability and so on, provided they are all met.

HAYNE J:   The other thing that has moved, as Chief Justice Dixon pointed out in Scott, is that employees are no longer fungible, whereas once you lost an employee, simply replace them.  Now the loss of an employee can have economic consequences. 

MR FAGAN:   It can, certainly, but that was not really developed in the evidence here, I must say and that is part of the problems that Nautronix face with seeking to demonstrate their cause of action according to the ordinary principles of recovery for pure economic loss in negligence.  Now, your Honours, I did say that I would ‑ ‑ ‑

GUMMOW J:   You have to postulate a covering appeal argument, in this sense, that there could be an action in negligence but it would fail, therefore no action per quod?  It does not seem to follow other than by some notion of covering the field.

MR FAGAN:   Well, to take the facts of this case, we do submit that the action based upon the principles in Perre v Apand and so on would fail because it would not be demonstrated that there was a duty of care owed by the pilot toward Nautronix with respect to pure economic loss arising from the loss of his servants.

GUMMOW J:   No.  I am talking about an action in negligence by the employer which will fail because of the difficulties with proving economic loss in tort.  You say, well, that is tough and you also now fail in any action you might have brought per quod.

MR FAGAN:   Well, the former is because of the application of principles which this Court has worked out.  I will come to the consideration of those in particular facts of this case shortly to support what the Court of Appeal said about that.  The latter, that they fail in relation to per quod is because the Court, we are submitting, should not continue to recognise an action which circumvents and undermines the careful constraints upon recovery for pure economic loss which have been worked out in the cases.

FRENCH CJ:   Well, so far as the law of negligence is concerned, you say it is a question of coherence?

MR FAGAN:   Yes, your Honour.  Coherence depends upon it not being the subject of an anomalous and inconsistent and historically based exception which is what the survival of the per quod action would be.  I accept that in talking about subsumed and so on it sounds as if we are falling into the fallacy of suggesting that per quod was a type of negligence action.  I recognise that it is not, that it is a parasitical sort of action, but to allow it to stand leaves a separate cause of action purely historically based and quite inconsistent with and tending to undermine the Court’s careful laying down of rules about how one decides when an employer may establish a duty of care with respect to pure economic loss of the kind.

GUMMOW J:   What do you say about Justice Windeyer in Scott at 439, about point 8 in some recent discussions?

MR FAGAN:   Page 439, your Honour?

GUMMOW J:   Yes, about point 8, the paragraph beginning “In some recent discussions”.  It refers to notions of indemnity in workers compensation law, for example?

MR FAGAN:   Well, your Honour, Justice Windeyer there is addressing a question of incongruity or otherwise of the action with, broadly speaking, social conditions but ‑ ‑ ‑

GUMMOW J:   They do not say what the social conditions are.

MR FAGAN:   No.  But I emphasise that in the argument that I have been putting to your Honours, I am not depending upon your Honours taking a view about what social conditions are or finding an incongruity in that sense.  I am, rather, addressing your Honours on the basis of looking just to what is in the Commonwealth Law Reports and in finding an incongruity of the survival of action with what is there since 1958, more particularly, since Hedley Byrne.

FRENCH CJ:   Is the coherence argument which you are putting take into account the question of what measure of damages is recoverable on the per quod action and what premise do you operate on about the measure of damages?

GUMMOW J:   Is it a liquidated claim or an unliquidated claim?

FRENCH CJ:   Just pecuniary loss of something further?

MR FAGAN:   To be quite honest, it is hard to say.  Justice Kitto in Scott spoke of it as a question of the employer recovering the value of the service, the fruits of the relationship – his Honour used the word “fruits”, I am not sure exactly what page that is – but that suggests that the recovery is to be measured somehow by what would have been the value of the service if provided.

This per quod action has been so little litigated that there really is not any graspable modern jurisprudence about how one would assess the damages and whether they really would extend to the consequence which Nautronix asserts in this case of the frustration of a technological development and business program.  I am not able to point your Honours to a body of decision which ‑ ‑ ‑

FRENCH CJ:   It is a little hard to talk about, as it were, inconsistency with constraints upon the recovery of pure economic loss if one does not know what the measure of damages is which flows from the per quod action.

MR FAGAN:   Well, your Honour, I respectfully submit not because my argument just depends upon there being recovery for any damage, for any loss under the modern rules of recovery for pure economic loss.  Absent the demonstration of the criteria and for the proof of a duty owed, there would be nothing for the employer, but this action would allow something ‑ ‑ ‑

FRENCH CJ:   You are focusing then on the constraint imposed by the requirement for duty of care related to your economic loss?

MR FAGAN:   Yes.  I am focusing on the question of liability under – unless the criteria of Perre v Apand and the like are satisfied, there will be none and nothing recovered, but per quod there would be something, difficult as it may be to work out what it is for the lack of – and the action is very, very rare.  It hardly appears in the reports.  Most of us have had extremely little experience of it.  In this case, Nautronix did not even know that it could arise on their own pleadings and when it was pointed out that it might, did not agitate it and nobody really knew what to do with it.  It is in virtual disuse.

GUMMOW J:   That is partly because for 30 years law schools just teach the tort of negligence.  Professor Morrison pounded Scott into us, I can tell you.

MR FAGAN:   I suppose that is supportive of my argument, with respect, your Honour; negligence has become the unifying principle.

GUMMOW J:   We cannot succumb to ignorance, I am afraid.  But this phrase “economic loss” itself is ambiguous, is it not?  It is the economic loss which is the injuria, is it not?  That is the harm.

MR FAGAN:   What is the?

GUMMOW J:   The injuria, the injury, the harm.

MR FAGAN:   Yes.

GUMMOW J:   The measure of damages is something else.  They are distinct concepts.

MR FAGAN:   Yes, I accept that, but the learned Chief Justice did ‑ ‑ ‑

GUMMOW J:   They seem to get run together.

MR FAGAN:   I did not mean to be running them together, your Honour, but the learned Chief Justice did ask me what was the measure and ‑ ‑ ‑

GUMMOW J:   In responding to the Chief Justice, they seem to be run together.

MR FAGAN:   I did not mean to be running them together, but I do just point out that I find it difficult to say what is the measure, when I am asked that question, under the per quod action.  One can say more easily what the measure is under the action in negligence for pure economic loss if the duty can be established.

BELL J:   Coming back to the question of the inconsistency that you identify having regard to the development of the modern law, the concerns with which the courts have approached recovery for economic loss are much broader than concerns associated with acknowledging the continued existence of an action on the part of an employer for the loss of services of an employee, are they not?

MR FAGAN:   Yes, they are.

BELL J:   I mean, one does not have considerations of indeterminacy of class in the same way.  So, I am just trying to identify what is the inconsistency?

MR FAGAN:   Well, one may have the problem of indeterminacy of class – no, I suppose not, no.  I accept what your Honour says.  The other criteria, though, of when a duty will be owed can be brought to bear upon the problem, but the ‑ ‑ ‑

BELL J:   Where it really bites is with the singularly valuable employee, in the sense that control mechanisms such as the employer’s capacity to have made other arrangements to protect itself and the knowledge of the wrongdoer as to the value of the employee, things of that character.

MR FAGAN:   Yes.  Well, under the modern law of negligence for – you take this case – one of the criteria for determining whether Mr Penberthy, as pilot, owed a duty to the employer with respect to the pure economic loss of the type that was claimed, would be whether he knew, or ought to have known, that these people – these men he was going to carry on the sortie – were of such value that if they should be injured or disabled or lost Nautronix would not be able just to draw some replacement electronics engineers out of a laboratory, but this would curtail their development of their programs.  So, that is a consideration on which there were different views as between the trial judge and the Court of Appeal.

Now, if the per quod action is operative, well that consideration does not even arise, but there is a reason for that consideration arising which the Court has expanded upon in numerous cases, namely, to contain what may be an enormous scope for liability of people effectively becoming insurers of other people’s businesses and concerns in ways that they could not have contemplated when they are going about their ordinary business and otherwise would only have in contemplation the need to be careful not to cause damage to property or person.  Now, all those considerations which the Court has been at pains to develop on the survival of this action just do not apply, and that gives rise to a particular class of defendants – a particular set of cases – in which there may be quite unbridled claims for pure economic loss, depending upon what the measure of damages might be per quod servitium.

HAYNE J:   Well, in considering those issues which you have just touched on, it may be that the possibility of liability to the key employee in very large amounts might, may it, reflect back into what reasonable care is required, for example, in repairing an engine or the like?  If the consequence of the negligence would be liability not only to the plaintiff but also to the employer of the plaintiff, and liability in very large amounts, does that reflect in what reasonable care should be taken in the activity concerned?  That is, is it liable to distort the operation of ordinary doctrines of negligence?

MR FAGAN:   Well, on principles of negligence generally as presently applicable, the extent of possible catastrophe is a factor relevant to the degree of care, what it informs what is reasonable care in the full set of circumstances.  Of course, perception or anticipation of the extent of possible catastrophe has to be understood for that to be operative.  But again, I am speaking now at a very general level, but that is generally a principle of modern negligence law.

HAYNE J:   Does not your argument have to come down to or at least include a proposition about distortion?  If you cannot make good the proposition about distortion, are we left with any incoherence, incongruity, call it what you will?

MR FAGAN:   I am not sure I fully grasped everything that is comprehended in distortion, but the incongruity that we are asserting is that this per quod action can survive and give an entitlement to a recovery of pure economic loss just proving that one had an employee, nothing more, end of it.

HAYNE J:   Yes.  But coherence does not mean singularity.  Coherence of the law does not mean that you have only one cause of action available.

MR FAGAN:   No, I accept that, your Honour, but in Quince v The Commonwealth it was explicitly referred to.  There the Court had under consideration a per quod claim in relation to a Commonwealth serviceman, and the Court – I think it was Justice Rich particularly – explicitly referred to the circumstance that the general rule was that one cannot recover damages which are occasioned by loss – or that one cannot recover losses, let us say, by damage, injury, that is inflicted upon another person.  That was a general rule, and the per quod action was recognised as an anomaly.  Justice Rich said so – I am not sure I can quickly find the reference to that.

I referred to it in my written submissions and perhaps that is the quickest way to get your Honours the reference.  Paragraph 23 of the written submissions, the judgment of Justice Rich at page 240 which has been cited again by Justice Fullagar in the Attorney‑General v Perpetual Trustee when that case was heard in the High Court:

“The mere fact that the injury prevents a third party from getting a benefit from the person injured does not invest the third party with a right of action against the wrongdoer”.

That was a general proposition and the per quod action was an exception to it.  Now, that is a completely different legal context and environment from what exists today because today the person who suffers loss by the interference of the capacities of another person can recover damages.  The employer can recover damages provided that the criteria are met for the court to find that a duty of care was owed by the perpetrator to the employer.  There is a general body of law, principled and well worked out, so that that situation has completely been surpassed.

BELL J:   But that is because the circumstances are such that there is relevantly an injury to the employer arising out of the breach of the duty owed to the employer.

MR FAGAN:   That is right, your Honour, yes.  That is part of the body of principle that has grown up to create the different legal environment.  It has not become the case – it has not become a direct reversal of what Justice Rich said.  It has not become a case that, in all circumstances, a person may recover damages which are occasioned by a third party being injured, but it has become the case in the law that there is a general body of principle which determines when that will be so and when it will not, and it is not just a case that there is a blanket no recovery with one odd historical exception, or perhaps a couple, based on circumstances arising out of shortage of labour following the black death in the middle 1300s and coaxed along and kept alive for centuries. 

KIEFEL J:   Perhaps not in that formula.  What it has morphed into was a focus upon a true master and servant situation, not a medieval notion of a servant as being an item of quasi property. 

MR FAGAN:   It has developed on from there and ‑ ‑ ‑

KIEFEL J:   And so analysed in 19th and 20th century terms it has perhaps become a third party action on the part of the master with respect to a contract of service which can no longer be performed. 

MR FAGAN:   In the annexure to our written submissions, I collected some quotations from various justices of this Court and from Privy Council, about what is required.  Is it a contract of service and the predominant view seems to be that one does not actually need a contract of service to found the action.  It will be sufficient if the services were being provided as a matter of fact and, by the person being injured, they are lost.

KIEFEL J:   I raise that because I had understood Nautronix to take the point that this is some kind of hybrid claim for an interference with contractual relations, as long as you leave the intentional aspect out.  That is the way I understood Nautronix to really describe the action in its modern form, as some sort of hybrid from Lumley v Gye, but as having a negligent act instead of an intentional act as part of the cause.

MR FAGAN:   It really is terribly difficult to try to accommodate or reconcile this per quod action into any aspect of the law of contract.  The field in which it needs to be reconciled, in our submission, is what is thrown up by what Justice Rich stated in Quince, that there was generally the principle of no recovery for damages occasioned by injury to a third person.  There was the exception of the per quod action and now what one has moved to and what one now needs to accommodate the per quod action to is the ground to which Justice Rich’s general statement has shifted, which is the ground of Perre v Apand and Woolcock.  It does not really help, in our respectful submission, for Nautronix to try to move this into some reconciliation with aspects of the law of contract or with interference with contract.

HEYDON J:   Assuming the Court does not overrule Scott’s Case do you have any submissions as to whether the requirements for the action are met in fact in this case?  Do you concede that if it exists, you lose, or do you have sufficient and specific to the particular facts that will save you?

MR FAGAN:   No, in the way ‑ it was admitted on our pleadings that these were employees and some of them were injured and we could not contest the elements on the findings that have been made.  I might just say as an aside there, perhaps this the occasion to say it, that I do not have anything to add to what Mr Walker said about Suttor v Gundowda and so on.  The only point that we make in that department is that if the Court does determine that this action ought to be treated – this per quod action ought to be treated as obsolete and extinguished, the field covered by something else, this is an occasion to do it without any detriment whatsoever to Nautronix because they never thought they were running a per quod action; they always thought they had to run this case and they ran it as far as they have come on the basis that they were trying to prove pure economic loss, a duty with respect thereto, and breach and cause of action in negligence.  That is all we are saying about the litigation history, as it were.

Now, perhaps could I then move to what I have really been addressing is points 2 and 3 of the outline of our propositions, that really takes care of 1 as well, and I do not otherwise wish to add to what has already been said about the error of the Court of Appeal in treating the per quod action as somehow dictating a pure economic loss negligence claim.

May I turn to proposition 4, and for that purpose I take your Honours first of all to the judgment of the learned trial judge, Justice Murray, in the first appeal book at 302 and what I propose to do, if I may, is just go through with your Honours what Justice Murray’s reasoning was for saying that the criteria for finding a duty a duty of care were established and then turn to the Court of Appeal’s reasons for saying that they were not.  Justice Murray commenced by considering authority from paragraph 322 on page 302 and following and then I will just pass over that and come to page 306 where his Honour commenced to apply principle.  In 339 his Honour said:

The crucial matter to be considered as to whether Nautronix may be the beneficiary of a duty of care owed by either or both of Penberthy and Barclay to enable it to recover pure economic loss suffered by it, is the question of indeterminacy of liability, whether Nautronix was a member of a class of plaintiffs or victims of negligence by the defendants causing the destruction of the aircraft and the injuries and deaths of the employees of Nautronix, which class was limited and ascertainable, or alternatively was effectively indeterminate.

His Honour said that was crucial and it becomes clear that his Honour placed undue weight on the finding that Nautronix was within a limited and ascertainable class.  That word “crucial” is important there.  If I may then pass over intervening parts of his reasoning and turn to 308, paragraph 346.  Starting from the third line, he said with respect to Mr Penberthy that:

He 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 . . . Of course, it was the case that if Penberthy failed, as he did, to discharge that duty of care, Nautronix was vulnerable –

That sentence appeared to involve a misconception about vulnerability.  The question of vulnerability, as we understand what has been said by this Court, is one of what the victim, the plaintiff may do before a want of reasonable care is exhibited, what it may do to contract and protect itself in that sense.  His Honour said:

if Penberthy failed, as he did, to discharge that the duty of care, Nautronix was vulnerable in the sense that they were unable to protect themselves form the foreseeable harm of an economic [loss] caused –

At 351 he then turned to the question of foreseeability of harm – paragraph 351 on page 309.  With respect to Mr Barclay his Honour thought there was nothing to put to show that:

the class of persons Barclay ought reasonably to have had in mind as being at risk of foreseeable harm if he was negligent in the specification of the requirements for the sleeve bearing, and the pump failed, were those persons who hired the aircraft of FSS, presumably for a variety of commercial purposes, or simply to provide chartered air transport.

In my opinion, the relevant class into which the plaintiff Nautronix must fall cannot be defined more closely, and that is the crucial difficulty in relation to this head of claim.

That is what he thought with respect to Mr Barclay’s position.  At 310, in paragraph 353, halfway through the paragraph his Honour thought the matters he had considered were:

not enough to impose a duty of care and, in this case, it seems to me that the plaintiff Nautronix fails to place itself within a reasonably determinate class of persons at risk of that foreseeable harm.  The class identified by Nautronix is essentially indeterminate.

So to sum up his Honour’s reasonings to that point, it was that Mr Barclay specified the component for this fuel pump long before, the aircraft was in use long after he had done his work.  Whom he could have in contemplation of when he did his work would be any of a range of people who had used the aircraft and people whom he would have had in contemplation was not a sufficiently narrow and ascertainable class to support a duty of care.  His Honour then distinguished the position with respect to Mr Penberthy because he said Mr Penberthy knew that Nautronix was the company that was going to charter this aircraft and its people would be on the aircraft.  In paragraph 354 his Honour also thought that Nautronix was not vulnerable vis-à-vis Mr Barclay, particularly in the last sentence, his Honour thought that Barclay was ‑ ‑ ‑

FRENCH CJ:   He is recording a submission there, is he not?

MR FAGAN:   Yes, but he accepted it.  In paragraph 355, he thought there was “merit in this submission”, that Nautronix had capability to protect itself from the foreseeable harm in question.  It is not exactly explained how.  Now, what I have picked out of that seems to be the extent of the reasoning applied to differentiate the positions of Mr Penberthy and Mr Barclay respectively.  In the Court of Appeal, it is our respectful submission that the Court, at page 421 of the appeal book and 422, validly identified deficiencies in that analysis and properly identified that there was a lack of foreseeability of the relevant type of harm to both Mr Barclay and Mr Penberthy.  At paragraph 118 on 421 the learned President said, partway through the paragraph:

There is no reasonable basis for the trial judge’s conclusion that, in relation to Mr Barclay, Nautronix was not vulnerable because it could protect itself from pure economic loss in its contract with Fugro; but that in relation to Mr Penberthy, Nautronix was vulnerable.

Now, with respect, it certainly is correct with respect to Mr Penberthy.  Nautronix, if it wished to protect itself against detriment to its business which might flow if these valuable employees were injured, was in a position to stipulate to Fugro that, “We are chartering you to run an operation using very highly‑valued technical employees.  We are in a critical stage of development.  We will only charter you on terms that you will agree to accept liability in a full range for losses that will flow to us if there is any accident and our men are injured.”  Fugro might say, “Well, we will not agree to that” and then they would not get the protection, or it might say, “We will accept that and we will get insurance and the cost of the premium will be going onto the cost of the charter.”  Any of a number of things could be done.  A critical fact about this case, as in Woolcock Street Investments, is that all of that was not explored and developed in the evidence.

Nautronix has referred to standard terms that Fugro used and have suggested that because Fugro had a set of standard terms that one may draw the inference that it would not have been possible for Nautronix to negotiate a protection of this kind, but that is not correct.  The learned trial judge found that both parties had standard terms and that neither of them in fact became incorporated in the contract, and that finding has not been challenged in the intermediate court.

It does not follow that because Nautronix had a standard set of terms that a negotiation of the type that I have summarised a little earlier could not have taken place and possibly with success.  So I am speaking for Mr Penberthy but in relation to him it is respectfully submitted that there was not vulnerability of Nautronix in the circumstances of its engaging with Fugro and in its opportunities to make contractual arrangements to cover a loss which might be suffered through loss of these employees.  Then at paragraph 120 her Honour adverted to:

The only other distinguishing factor relied on by the trial judge was Mr Penberthy’s knowledge of the commercial purpose of the flight and that his passengers were Nautronix employees.  Mr Barclay on the other hand had no knowledge relating to the particular flight, although he knew the aircraft would be chartered for purposes which included commercial purposes ‑

now that is really so far as Justice Murray had gone, but her Honour said ‑

I am not satisfied that this is sufficient to justify either the imposition of a duty of care or a different conclusion in relation to the negligent parties.

There is no finding, or evidence to support it, that Mr Penberthy knew or ought reasonably to have known of the risk that Nautronix would suffer economic loss of the type claimed.  Nautronix’s economic loss claim depended upon establishing exceptional circumstances, namely that its employees on the flight could not be replaced by others in Nautronix’s employ or the market within a reasonable time or at all.

That is perfectly sound, there was no evidence to show that Mr Penberthy ought to have appreciated that economic loss could flow to Nautronix from these men being injured if there should be carelessness in the handling of the aircraft.  There was nothing to show that he would not have had an expectation that if they were put out of action others would have to assume their duties from within the ranks or recruited shortly after.  Her Honour continued:

Moreover, there was no finding, or evidence to support it, that Nautronix was at any greater risk of harm from a crash than any other potential charterer of the aircraft, whether it be for commercial or transport services.  The involvement of Nautronix in the tragic accident was entirely serendipitous.

I am not sure that word is appropriate.  My understanding of that is that it means a happy accident.

CRENNAN J:   Random is what she meant.

MR FAGAN:   Random.  In any event, her Honour’s meaning, I think, is probably clear, that it was random.  Now, that reasoning we seek to uphold.  That was the state of things on the evidence as it came to the Court of Appeal, and Justice Murray’s reasoning, with respect, could not sustain on the application of the principles in Perre and Woolcock, properly understood, a duty of care.  I will not take your Honours to these paragraphs at the moment but your Honours may care to note them.  In the judgment in Woolcock at paragraphs 31, 84 and 96 are paragraphs which highlight in that case the problem of a dearth of evidence about scope for contracting to protect oneself.

Your Honours will recall it was a case where the plaintiff was a purchaser of a building, the predecessor in title had had the building constructed, the foundations were not adequate for it.  The purchaser wished to hold liable the engineer who had designed those foundations, but on the question of vulnerability what was pointed out in these paragraphs I have mentioned, 31, 84 and 96, was that the parties just did not go into evidence which would enable the court to conclude what were the economic circumstances as to whether the incoming purchaser could have protected itself by extracting a covenant from the vendor or the like, and particularly when the Court examined what had been the relations, first of all, between the original proprietor, the predecessor in title, and the engineer, the court thought it necessary to look at that relationship first, just as had been done in Bryan v Maloney, and there was no evidence to show what would have been the prevailing economic and business constraints which might have affected whether the proprietor could have protected itself against negligence, commercially and contractually, rather than the court imposing a duty of care. 

In reference to paragraph 121 of this judgment of Justice McLure’s, the point we submit is critical that this was not a case where the Court could find that Mr Penberthy knew or ought to have known of the class of economic loss through damage to business which might be occasioned if he flew negligently and injured these employees and it is in Mr Walker’s submissions he has quoted in paragraph 22 of the Woolcock decision where there was reference made to contrasting situations in other cases.  For example, in Woolcock at paragraph 22, reference was made to the judgments in Caltex.  Your Honours recall there the pipeline is damaged and it is connected on the one side to crude oil unloading and storage facility, on the other side to a refinery. 

What the Court said – particularly there is a cross‑reference there to the judgment of Justice Stephen in Caltex – was that damage to a pipeline in that situation has inherent in it the causation of economic loss because it is apparent inherently in the situation to the plaintiff who must exercise care around that piece of infrastructure that if care is not exercised, it will not just be repairing a hole in the pipe, it will cut off supply and it will be detrimental to businesses, both sides of the bay.  Justice Stephen made a particularly explicit point about that in Caltex but the same was said by Justice Gibbs in Caltex at 555 to 556 and Justice Mason in Caltex at 593.

Perhaps, it is a self‑evident point, but in contrast to the present case, Mr Penberthy is assigned by his company to fly this aircraft and carry.....the employees’ amenity that he knows are involved in some form of electronic testing, but it is not inherent in that that if they are injured there will be economic loss, disruption and frustration to the development of business on the part of those passengers’ employer.  It is not inherent at all and had to be proved and was not. 

GUMMOW J:   Mr Fagan, what happened, if anything, to the action against the regulatory authority?

MR FAGAN:   I was not in the trial, your Honour.

GUMMOW J:   It was put to one side, was it not?

FRENCH CJ:   I think that was stood over, yes.

GUMMOW J:   Is it still stood over?

MR FAGAN:   May I take some instructions about that?  I will see if I can find out the answer to that, but it was not litigated before Justice Murray. 

Others at the Bar table may be better informed than I.  We have not seen the regulatory authority again, not in the Court of Appeal.

GUMMOW J:   Well, he says at paragraph 5 that it is not being tried by him.

MR FAGAN:   This was Justice Murray, paragraph 5?

GUMMOW J:   Yes, at page 222.

MR FAGAN:   Yes.  Your Honours, that is all that I wished to say in support of the Court of Appeal’s findings from 116 and following, that if one reverts to assessing this Nautronix claim upon the basis of orthodox principles of Perre v Apand and so on, then it fails.  The last point, number 5 in our outline of the propositions we wish to put, is simply to support the continuance of the constraint in Baker v Bolton.  I do not wish to add to what Mr Walker has said about that.  I would only refer your Honours to the judgment of Justice Samuels in Swan (1987) 9 NSWLR 172. His Honour made a very detailed study of it at page – that is of the whole principle and how it had been dealt with in this Court – at 175E to 183G.

His Honour stated that he had the assistance of considerable research of counsel that appeared before him and he set out his acceptance that the principle in Baker v Bolton had been adopted as part of the ratio of the decision in Woolworths and that it remained law.  There would not be anything that I could usefully add by way of detail of research to what Justice Samuel set out at considerable length there with many references.  Those are our submissions, may it please the Court.

FRENCH CJ:   Thank you, Mr Fagan.

MS HARRIS:   If the Court pleases.

FRENCH CJ:   We will be rising at about 20 to.

MS HARRIS:   Thank you, your Honour.  Can I deal with the per quod action first and in addressing our submissions on that point, might I start first with some matters of policy and the purpose behind the per quod action and then move to matters of principle.  Like many antiques, and it might be said that this is an antique action, it is, nonetheless, useful and in a passage to which I will shortly come, Chief Justice Dixon in Scott made the point that the per quod action is now more relevant today almost than it ever was.  In the passage which your Honour Justice Gummow referred in Justice Windeyer’s decision in the same case, his Honour there highlighted that the action is actually highly responsive to modern conditions.

The reason why it is and the reason why it continues to justify its existence is because of the special nature of the relationship which it protects; that of employer and employee.  That is a relationship in which it is almost axiomatic that tortious conduct which prevents the employee from rendering services to the employer will occasion financial harm to the employer.

KIEFEL J:   But there does not need to be a relationship of employer and employee.  The cases show that factors such as control might be sufficient.  What it really highlights is what, I think, is referred to in paragraph 26 of your submissions that if the gist of the action is to be understood as the interest in the services which the employer obtains, what the action may have come to mean now – and I think this was touched on in discussions with Mr Walker – is a recognition of the law of the interest of the employer in the services, that is, it stands as a particular interest recognised by the law which may allow the employer not to have to prove a duty.  Because it is a recognised interest on proof of negligence you, the employer, recovers damage.  The step of establishment of duty is not necessary if it is a recognised interest.  The question then becomes whether or not the damages are too remote.  So the policy questions of problems within determinacy of if not claims at least large economic claims become necessarily dealt with at the issue of remoteness of damage.

MS HARRIS:   Well, there are a number of propositions that your Honour puts to me.

KIEFEL J:   I am sorry, there is rather a lot in that, and that is by way of a summary before lunch.

MS HARRIS:   So, the first proposition your Honour puts to me around employer/employee, I think it is fair to say, your Honour, that the cases nowadays talk of the availability of the action in terms of whether that employment relationship exists, but your Honour is perfectly right, with respect, that the question whether someone is an employee ‑ ‑ ‑

KIEFEL J:   A contract is not required so the focus is not upon the contract, and once you accept that the focus must shift to what is it that the law is really protecting and it would seem to be the interest of the employer in the services.

MS HARRIS:   What I am trying to do in these submissions, your Honour, is make that proposition good by demonstrating, your Honour, that it is almost axiomatic that where the tortious conduct of one person harms the employee of another, that that employer will suffer some financial consequence.  It is almost axiomatic.  If the tortious conduct is such as to prevent them from performing the services to which the employer is entitled, then the employer must deal with that in some way which is almost inevitably going to come at some financial cost.

So, to take an example close to home, if my nanny is harmed by the tortious conduct of another and she is unable to come to work for two weeks, then I must pay her sick pay, but I must also either pay a temp or forgo my own income during that period.  No different result follows if she is the receptionist in a doctor’s surgery.  Perhaps if she were a parking inspector then the problem would be dealt with by other employees assuming overtime burdens for which, again, the employer must pay.  It is actually very difficult to imagine a situation where an employee is harmed sufficiently to prevent them from performing services, which exposes the employer to no financial consequence.

KIEFEL J:   I suppose that points up a problem, though, in the difference in the social conditions.  In the time when the action first arose it might have been easily recognised that an injury to an employee would have an effect.  Here the question of knowledge becomes an acute one, does it not, and that is part of the reason that economic loss claims depend so much upon the knowledge of the tortfeasor.

MS HARRIS:   Your Honour, if anything, it has become much more obvious today that if harm is occasioned to an employee, such as to prevent them from performing their job that economic consequences will follow than in erstwhile times, and I think your Honour Justice Hayne made the point earlier that it was formerly the case, perhaps, that employees were fungible.  They were more like tins of soup that could be plucked off the shelf and a new one could be slotted in to perform the job.  That is no longer the case, your Honour, and after the luncheon break I would like to take the Court to what Chief Justice Dixon says in Scott.  It is no longer the case because, firstly, even if the employee in question performs a very menial service, someone else is going to have to perform that service while they are off sick, and sick pay will have to be paid.

Now, of course, that all sounds very prosaic, but that was precisely the fact ‑ scenario that confronted the High Court in Scott.  The financial consequences, the Court accepted there, were relatively minor and arose mainly out of the payment of sick pay to the injured driver and his medical expenses.  Nonetheless, there was financial harm and it was almost axiomatic.  It almost followed inevitably from the occasioning of the harm to the employee.  Your Honours, I see the time.

FRENCH CJ:   Thank you, Ms Harris.  We will adjourn until 2.15.

AT 12.40 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.30 PM:

FRENCH CJ:   Yes, Ms Harris.  I am sorry we delayed you.

MS HARRIS:   Thank you, your Honour.  We have over the luncheon adjournment provided for the use of the Court a short document to which I will come shortly that summarises the ‑ ‑ ‑

GUMMOW J:   It might be short, but it is in very small print.

MS HARRIS:   I should have at the same time arranged for some magnifying glasses.  I apologise for that, your Honour.  It is intended to set out for your Honours’ use the relevant paragraphs of the pleadings, that is Nautronix’s pleading, then the defences of each of the appellants and then the relevant concurrent findings of the trial judge and the Court of Appeal that establish the elements of per quod.  I will return to that document shortly, if I might.

Taking up where I left off, I promised to take your Honours to a passage from the judgment of Chief Justice Dixon in Commissioner for Railways v Scott 102 CLR 392 page 403 where his Honour explains why the action of per quod is, if anything, more relevant now than it has been in the past. In the passage commencing four lines down he says:

Now as I see it the fact that many employers have in various ways become chargeable when an employee suffers an incapacitating physical injury has given greater importance to the action.  The question whether the loss which is so occasioned to the employer by a wrongdoer who injures the employee is recoverable has thus become of serious economic importance.  When the cause of action has been condemned as out of keeping with modern social ideas and incongruous with the principles of our law as now understood, it seems likely that the question has been looked at as if it were sought to fit the modern relation of employer and employee into some archaic category as, for example, that of the feudal relation of dominus et nativus.  To me this seems far from the truth.  It would, I think, rather strike my mind, had the continued existence of the cause of action in its nineteenth century sense been conceded, that because by statute and otherwise some of the real loss resulting from a wrong to the employee was placed on the employer, a remedy based on recognizable principle had ceased to be of little economic significance and had come to provide a just redress, at all events so far as it might reach.

CRENNAN J:   At about point 9 of the page his Honour touches on the issue that:

were the remedy allowable, perhaps questions might arise of what was covered by the measure of damages.

and makes reference to a discussion by Justice Fullagar which, at page 290 of the Perpetual Trustee Case, Justice Fullagar touches on what he refers to as the “practical impossibility” possibly of working out the measure of damages in relation to specific employees, which might be food for thought.

MS HARRIS:   Your Honour, this Court has had the chance to have a look at the principles relating to loss since the decision in Scott (1972) 46 ALJR 432 in the Mercantile Mutual v Argent Case which is referred to in our authorities.  Your Honour, I might just briefly take your Honour to that decision.  In that case your Honours will see that the question was whether lost profits could be recovered where the tort had been committed against the managing director or the controlling director of the plaintiff companies and Chief Justice Barwick and Justices Menzies and Walsh were all of the same view that the loss of profits could be recoverable.

The test, as it has been articulated quite helpfully by the Court of Appeal, in Marinovski’s Case applying Mercantile Mutual – Marinovski v Zutti Pty Ltd (1984) 2 NSWLR 571. In this case the loss claimed was also loss of profits – and the test posited by their Honours was that the employer may recover damages for loss it suffered as a result of being deprived of the services of the employee which they would otherwise have been able to render had they not been injured. So your Honours will see at page 575 in the judgment of Justice of Appeal Hutley, his Honour has there concluded a discussion of the Mercantile Mutual Case and quotes what was said by Justice Walsh at 435 in those terms that I have just described.  Their Honours then go on to assess damages in accordance with that formulation.

KIEFEL J:   But what this tends to suggest, does it not, is that there has been a further development in this law?  It has moved from any relational context from that of master and servant when contracts were no longer required and does not seem to be now justified on the basis that it has to do with the maintenance of that relationship or that it is necessarily focused upon losses which arise out of the loss of services of an employee or quasi employee.  What this tends to suggest is that it has moved into an area where the interests now seem to be recognised by the law is a business interest.  How does one justify loss of profits claims otherwise?

MS HARRIS:   Because one has to show, as occurred in Mercantile Mutual v Argent, that the loss of the employee’s services itself occasions a loss to the business in terms of lost profits.

KIEFEL J:   But only in a causal sense.  This is only in a sense of it being a gateway to the recovery of loss of profits which are related to the protection of a business.  What I am saying is the action has developed into something far removed from its origins and far removed from the 19th century and even perhaps the mid-20th century where it was still master servant and the repayment or compensation of amounts which were lost and which had to be paid when a servant was injured.  Now, one reason for this approach now, which is the recovery of business losses, may be that workers insurance has expanded considerably since the time of Scott and that one will not likely see claims by employers in relation to those types of expenditure.  We are moving now, it would seem, more into a business related claim for loss.

MS HARRIS:   But, your Honour, it must follow that if an employer, be it a corporate employer or a sole trader, is able to maintain an action in per quod for losses suffered as a consequence of the loss of services ‑ ‑ ‑

KIEFEL J:   The loss of services was the original rule; now it is a loss of profits because of what that person could have produced within a business.

MS HARRIS:   Your Honour, the gist of the action is the loss of services, and your Honour will find that ‑ ‑ ‑

KIEFEL J:   I am not sure it is any more, that is the question.

MS HARRIS:   Well, there could be no recovery in this case without the loss of services.

KIEFEL J:   Well, as a step, but is it really a device for getting to a different kind of loss?  Whether it has been reduced to a step?

MS HARRIS:   Your Honour, I am not sure that it could be – it is fairly characterised as a device.

KIEFEL J:   Well, it has become a step rather than the remedy.

MS HARRIS:   Your Honour, the loss of services is the gist of the action.  That is not the remedy.  The loss of services is, was, always was, the gist of the action, not the remedy itself; the remedy, it was begged, by the establishment of the action.  It is probably true to say that when this action originated very few employers would be in a position where they could say they had lost profits by reason of the loss of services of their servant, and so your Honour is right, with respect, you will not find many of those sorts of cases in the English Reports.  That is a reflection of those times, not of, with respect, a change in the fundamentals of the action.

The action was then and is now one which is maintainable where someone can show that they were in an employment relationship with someone who was injured and that they have, because of that injury, that wrongful injury, suffered the loss of the services of that employee, and that makes the action complete, your Honour.  Then the question is what compensable damage flows from that and as has fallen from the High Court in this case, that includes loss of profits, if that requisite connection exists.

KIEFEL J:   I think you would have to accept that what this action, whatever form it now takes, does is not to require that there be established the usual knowledge, special relationship that gives rise to a duty of care.

MS HARRIS:   Certainly.

KIEFEL J:   That goes without saying, and it goes without saying because the law is said to recognise a particular interest or class of case where that will not be required.  Now, the maintenance of that in the face of changes in the law of negligence may require a justification.  Why should the law continue to recognise this particular interest, or class, and to do that you really need to identify what is the interest or the class that the law is said to recognise?

MS HARRIS:   That is where I commenced my submissions before lunch, your Honour, in trying to point to the purpose that this action continues to serve.  As Chief Justice Dixon pointed out in Scott ‑ ‑ ‑

KIEFEL J:   Well, some time ago.

MS HARRIS:   Well, your Honour, I do not read anything, with respect, in his words that would be inapplicable today.  In fact, they must apply with even greater force, the less fungible workforces can be said to be.

KIEFEL J:   What about changes in insurance protection to workers that do not require employers to pay, where employers pay the premiums for this?  Have they not been extended since the time of Scott?

MS HARRIS:   Well, your Honour, I cannot see how that would assist an employer who suffers a loss of the kind referred to in Scott other than, perhaps, in respect of the medical expenses.

KIEFEL J:   Well, it would, it would mean the insurers paid.  It really does create quite a different scenario.

MS HARRIS:   Your Honour, the insurance would hardly cover the sick pay.  It does not cover the overtime that one is required to pay other employees who have to step into the breach.  It most certainly does not cover this kind of case; the one before the Court, in this instance, where the loss of services were services provided by uniquely skilled employees who could not easily be replaced, who were integral to the development of profit‑making technology within this company.  So, your Honour, the scope of insurance might have expanded but it has not expanded so much as to make this action irrelevant, as the present case demonstrates amply.  So, your Honour, it would be a very big step for this Court to say that this action no longer has any role to play in modern society.  We would respectfully submit that the opposite conclusion ought to be drawn.

Added to that is this proposition.  There is substantial economic benefit in protecting employers from the financial consequences of the wrongs of others by shifting that financial consequence onto the wrongdoers, which is what the per quod action does.  Absent that shifting, the financial consequence of the wrong must fall on the employer who will then proceed to share it, presumably, with its customers or others.

HAYNE J:   But that analysis treats “wrong” as an abstract idea.  The wrong in question is breach of a duty owed to the employee.

MS HARRIS:   The employee, your Honour?

HAYNE J:   Yes.

MS HARRIS:   Yes, or it could be an intentional wrong.

HAYNE J:   Yes, but the shifting of the burden to “the wrongdoer” is masking why the last mentioned person is described as a wrongdoer.

MS HARRIS:   The action obviously cannot be sustained by the employer, unless the wrongdoer commits an actionable wrong against the employee.  We do not get through the door unless that has occurred.  The issue then is how the law deals with the financial consequence of that wrong; vis‑à‑vis the employee, that is simple.  The per quod action deals with the financial consequence of that wrong from the employer’s point of view and from the employer’s point of view there is a policy which is served by allowing – the employer, of course, in this is innocent and it has, as I have tried to contend this morning, an inexorable impact.  The commission of the wrong against the employer will have an inexorable impact; a financial consequence for the employer, which then must be absorbed by it or by the per quod action.  The consequence of it is shifted back to the wrongdoer, the person who has committed the wrong.  Your Honours, the submission is that that is consistent with the policy of the law; it is not antithetical to it. 

Your Honours, lest there be any mistake about this what is urged upon this Court is not absorption of this action.  What is urged upon this Court is abolition of this cause of action.  Your Honours will bear in mind what was said in SGIO v Trigwell (1979) 142 CLR 617, in particular by Justice Mason at page 633. I will not stay to read that passage now, your Honours, but ‑ ‑ ‑

GUMMOW J:   How did they reconcile Trigwell with what they subsequently did – the same court basically – subsequently did in dealing with the rule in Rylands v Fletcher?

MS HARRIS:   I would like to come to that next, your Honour.  What happened in those cases did not involve abolition of a cause of action.  That involved a finding on the part of the court in each of those cases in Safeway, Brodie and Burnie that the law of negligence had developed to an extent where it gave the other special rules no independent sphere of operation, so the general rules had overtaken the special rules.  Can I take your Honour first to what is said in Australian Safeway Stores v Zaluzna (1987) 162 CLR 479 on that point.

In that case what was in issue were the particular rules relating to occupier’s liability.  Your Honours will see the discussion at page 484 through to 486 of the High Court’s earlier judgment in Papatonakis and there are a number of passages quoted from the judgments in that case, each of which amounts, in effect, to the same thing, that the duty of care resting in ordinary negligence was no different to the duty of care resting on an occupier under the special rules that had been developed and so it was that their Honours then concluded, at 487 in the third line down:

It seems to us that the utility of the theory of concurrent duties –

pausing there, your Honour, it was argued that there was still room for the two duties to operate side by side –

could be accepted only if a situation could arise in which it was possible to establish a cause of action in reliance upon Indermaur v Dames which could not be pursued by reference to the general duty of care postulated in Donoghue v Stevenson.  And yet case after case affirms, as the reviews to which we have referred demonstrate, that the special duties do not travel beyond the general law of negligence.  They are no more than an expression of the general law in terms appropriate to the particular situation it was designed to address.

Your Honours will see a similar analysis in Burnie Port Authority v General Jones (1994) 179 CLR 520. This is the Rylands Case that your Honour Justice Gummow referred to.

GUMMOW J:   This is where this notion of absorption comes to.  It is not absorption.

MS HARRIS:   Precisely.

GUMMOW J:   Rylands v Fletcher was a tort of strict liability.

MS HARRIS:   And, your Honour, it is reconciled that the word “absorption” is perhaps infelicitous.

GUMMOW J:   Nothing misleads like a metaphor.

MS HARRIS:   Your Honour is, with respect, right.  But the point of this case was that their Honours were able to conclude that while there might be some Rylands cases which would still attract the rules of nuisance or trespass rather than negligence, the vast majority would be now dealt with under the rubric of negligence because of the way in which the law had developed.  Your Honours will see there is a discussion, perhaps starting on page 547 over to 548, which then culminates in the first full paragraph on 549 where their Honours say:

The main argument supporting the preservation of the rule in Rylands v Fletcher as a discrete or independent area of the law of torts is the argument that the rule cannot be accommodated within the principles of ordinary negligence without denying liability in cases where it would otherwise exist.

Your Honours, that is critical.  That was critical to the reasoning in that case and also in Brodie’s Case, which is referred to by our learned friends, and in Zaluzna. In none of those cases was the so‑called absorption of the special rule into the general productive of a situation where anyone lost an existing right. So your Honours will see, just for completeness, the conclusion of the discussion which ensues at pages 555 to 556. It is there that their Honours conclude that this rule ‑ ‑ ‑

GUMMOW J:   Then we get the idea of non‑delegable duty.

MS HARRIS:   Your Honour, that was critical to their reasoning.

GUMMOW J:   Some sort of strict liability which itself is a mare’s nest.

MS HARRIS:   Well, their Honours were able to reason that the existence of non‑delegable duties militated in favour of the conclusion that save for very few cases which could be brought in trespass or nuisance, any case which formally would have rested on Rylands v Fletcher could be brought in negligence and would succeed in negligence.  Now, your Honour, there might be room to quibble with the conclusion but the reasoning is clear, that it is only where one can say that there is no longer – because of the development in the law of negligence, there is now no longer any independent sphere of operation for the special rule that one can even begin the argument about whether the special rule has been absorbed into the general rule. 

Now, we know that there is no analogy in that context with the per quod action.  The per quod action is quite different.  It will be established regardless of whether a duty of care would exist at common law.  There is no inquiry into foreseeability.  There is no inquiry into assumption of responsibility.  There is not inquiry into reliance or any of the other touchstones which are relevant to the existence of a duty of care at common law to avoid economic harm to another.  So, with respect, our learned friends were quite right to point out in their submissions that the two are quite different. 

Indeed, I should add, that the origins of the action were also quite different.  The characterisation of the per quod action appears to be in trespass, and that appears to be the case even if the underlying wrong to the employee was one in case, which could only have been brought in case.  There are a number of references in the judgment of Chief Justice Dixon in Commissioner for Railways v Scott. I will just give your Honours the page references perhaps other than – to start by looking at page 399 about three‑quarters of the way down the page, the first full paragraph begins:

The remedy of trespass per quod servitium amisit –

Then his Honour again at 400 several times, 401 several times, 403, 404, also Justice Taylor at 422, Justice Windeyer at 499, 451, 454 and 460, all refer to this action as one to be brought in trespass – or originating in trespass.

FRENCH CJ:   To use Justice Gummow’s language earlier on, that is a tort upon which today it would be parasitic, and you in your particular case assert it is parasitic on negligence.

MS HARRIS:   In this case we assert it is parasitic on negligence.  It is derivative of negligence in that sense; that is right.  From the employer’s point of view ‑ ‑ ‑

FRENCH CJ:   That is a liability to the employer which does not depend upon the existence of any duty towards the employer.

MS HARRIS:   That is right, your Honour, and that is why it is fundamentally different from the law of negligence, so that the label, absorption, subsuming similar labels, can be used.  They are all attractive ones if one does not want the law of per quod to survive.  But make no mistake, what is really being submitted here is that this Court should abolish the action.  The law of negligence is not like some general purpose vacuum cleaner that can be used to hoover up any inconvenient or outmoded actions.  There has to be a principled basis upon which this action could be said to have disappeared, and that has not been made out, we would say.

HAYNE J:   As I understand it, the argument against you can be reduced to two propositions:  that the action PQSA which is not a duty based action should no longer be available because the common law of negligence to which the action PQSA is an exception has developed with respect to claims for economic loss and if applied to this case would deny the relief otherwise available in an action PQSA.  That is one branch which you have just been addressing.  The other branch is generally expressed as, times have moved on.  From when to when, and how, I think may not have been developed in a fashion that is, as Justice Tadgell would once have said, perspicuously clear.

MS HARRIS:   Your Honour, in relation to the first, it certainly was put against us that Scott was decided at a time when the law did not yet recognise the availability of damages for pecuniary loss arising out of negligence; that is true.  Your Honour, if anything, we say that militates in favour of the position ‑ ‑ ‑

HAYNE J:   That was the whole footing of Justice Rich’s judgment in Quince.

MS HARRIS:   That is right.

HAYNE J:   That PQSA is not to do with duty.

MS HARRIS:   With respect, your Honour, that is perfectly right.  We would say that that argument actually militates in favour of our position because it shows that, insofar as this action might formerly have been called an anomaly because it provided for the recovery of pecuniary loss damages where the law of negligence did not, the law of negligence has now caught up, but that is not to say that they still do not have independent spheres of operation, as I have just submitted to your Honours.

KIEFEL J:   Is it relevant or important if the law of negligence has overtaken in the sense that the availability of claims for pure economic loss are now, on one view, wider?  They are available more generally than they were.

MS HARRIS:   I am not sure how that can be ultimately determinative of this Court’s inquiry, your Honour, because the fact remains that these are different causes of action.  Like lots of different causes of action, they might provide a different remedy depending upon the circumstances. The remedy in tort is often different to the remedy in contract based on the same facts but that does not deny the existence of one from the other.

FRENCH CJ:   How would you formulate the measure of damages as this cause of action stands today?

MS HARRIS:   We would respectfully adopt what was said in Mercantile Mutual and then picked up in Marinovski which I took your Honours to a little while ago, to the effect that the plaintiff in such a case is entitled – and I am reading from page 575 of Marinovski:

“The plaintiff companies were entitled to recover compensation for any loss suffered as a result of being deprived of the services which but for his injuries –

the victim ‑

. . . would have probably continued to render them.”

KIEFEL J:   A further review of that shows that the claim was put forward by expert accountants for loss of profits.

MS HARRIS:   That is because the loss of services had ‑ ‑ ‑

KIEFEL J:   Resulted in that.

MS HARRIS:   ‑ ‑ ‑a consequential effect in terms of loss of profits.  That will not be every case, but it will be some cases, your Honour.

FRENCH CJ:   Beyond that you have the employee who is in a special relationship with a key client, or you have an employee who has particular skills in relation to technology, the development of technology, which is what Nautronix asserts, at least insofar as it pleads it in relation to Fugro, so this appears to be opening up, consistently with your pleading, a large field in terms of loss of opportunity.

MS HARRIS:   Well, loss of opportunity, if it is used in this context, is almost synonymous with loss of profits.  I am not sure whether it opens up a large field because one still has to relate back the loss of profits, or the loss of the opportunity if it be one, to the loss of services of the employee; that is the nexus that must be proved in each case, and that itself is a limiting factor.  Your Honours, can I move on to the question ‑ ‑ ‑

KIEFEL J:   Could I ask you, just on the question of damages, were the damages ever particularised beyond the general claims?

MS HARRIS:   No, because the matter proceeded for determination ‑ ‑ ‑

KIEFEL J:   Only on liability.

MS HARRIS:   ‑ ‑ ‑only on liability, so it had not reached that stage, your Honour.

KIEFEL J:   So, we are left at appeal book 21, paragraph 42 with claims of damage:

occasioned interruption and delays in the development and testing of the marine technology . . . loss of intellectual property and corporate knowledge –

These are all heading towards a loss of profits claim really.

MS HARRIS:   Yes, your Honour.  The trial judge did, of course, make some findings around that.  He found that Nautronix had undoubtedly suffered a loss, by reason of the unavailability to it of these key employees and he explained the reasons why that is.  There are a number of passages, your Honour, but perhaps paragraph 323 at appeal book 302.

KIEFEL J:   Thank you.

MS HARRIS:   But it was not necessary because it was only run on liability to delve into those questions any further.  Your Honours, can I be brief around the issue of whether Scott should be reopened to revisit the question of whether per quod applies to menial or domestic servants or servants in general.  It was not addressed in oral argument this morning, your Honours, and we would say for good reason because it is a distinction which, for the reasons very carefully reviewed in the majority judgments in Scott, is unsustainable in historical terms. 

Each of the majority judges in Scott, Justices Kitto, Taylor, Menzies and Windeyer, as well as Chief Justice Dixon, to whom I will come back, conducted very lengthy excurses into the history of the per quod action and could find no evidence prior to 20th century of it having been accepted that the rule only applied to menial or domestic servants.  Despite that conclusion, as you have heard, his Honour the Chief Justice felt compelled to hold that it only applied to menial or domestic servants by virtue of some decisions of the English Court of Appeal.  Your Honours will see that at the bottom of page 397 to the top of page 398 where his Honour says:

Uncorrected I am afraid that I should have said that the Commissioner might recover damages, appropriately measured, from the wrongdoer in an action per quod servitium amisit.  But I think I should accept the position –

is that which has been described by the Court of Appeal.  Now, again their Honours in the majority go to great lengths to try and explain that the holdings in the Court of Appeal, in particular, in Hambrook’s Case, Inland Revenue Commissioner v Hambrook, arose from a misconception as to what had fallen from the Privy Council in the Perpetual Trustee’s Case.  It is discussed in a number of the judgments, in particular, in Justice Kitto’s judgment at 414 to 415, Justice Taylor at 424 to 425 and Justice Windeyer at 439 and 433, but it appears most clearly perhaps or digestibly from the judgment of Justice Menzies at 436.  He there explains some observations by their Lordships in the Perpetual Case where they said, and this about a fifth of the way down the page:

“They repeat that in their view there is a fundamental difference between the domestic relation of servant and master and that of the holder of a public office and the State which he is said to serve”.

Then further discussion about the case.  His Honour concludes, having referred to later observations in the same case by the Privy Council, that the effect of this judgment is not to confine the action to the domestic relation of master and servant but to draw a distinction between holders of public office on the one hand, because what was in issue in Perpetual was a police officer who had a commission, and people in an employee/employer relationship on the other.  So each of the justices in the majority take the view that the Privy Council did not mean to give any life to a suggestion that the per quod action was limited to menial or domestic servants; rather, they were drawing that distinction between public officeholders on the one hand and people in a regular employer/employee relationship on the other. 

They make the point in several places that if the Privy Council had taken that more limited view of the action, then that would have been the basis upon which the case was dismissed.  That would have been the basis upon which the case was decided against the employer in Perpetual, but it was in fact decided on the basis that the putative employee in question was a public officeholder.  So, your Honours, we say there is no basis for holding that Scott was wrongly decided either in logic or principle or precedent and there is no basis for this Court abolishing the common law action of per quod. 

I should just finish that point by pointing out that it is inevitable that if the Court were to take this step, it would have an impact on vested rights because up until today employers have been able to bring an action for loss of services for the financial consequences – for financial harm that they have suffered because of the loss of services of an employee who has been injured in tort and that action might be maintainable in many situations where the common law of negligence would not apply and would not provide a right of recovery and that means that abolition of the action would be positively taking away existing rights or rights which were thought to exist.

HEYDON J:   But they are not vested rights unless some episode has happened in the recent past that has not yet matured in a judgment.

MS HARRIS:   That is right, your Honour.  Your Honours, again I do not want to stay long on the point about whether per quod ought to be available to Nautronix in this Court.  It is true there was no heading in the pleading per quod.  Counsel below did not run this as a per quod claim; that is all perfectly true.  That does not, we say, disentitle Nautronix from now submitting to this Court that the facts which were found by the trial judge and upheld by the Court of Appeal can give rise to a successful action on that basis.  There are several matters that we rely on in support of that proposition. 

The first is that all of the necessary facts to found an action in per quod were pleaded and were either admitted below or were put in issue and the subject of positive findings of facts, and that is the purpose of the table that we have handed up as an aide memoir.  The only matter that was admitted by both Barclay and Penberthy was the question of the employee status.  All of the other matters were put in issue by one or other of them and so positive findings had to be made in relation to those.  So your Honours see in the second part of the table the findings made in relation to the duty of care to the employees in breach of that duty of care.  Then in the third part of the table, the loss of services and there were concurrent findings on those matters at the level of the trial judge and in the Court of Appeal. 

Your Honours, it is not strictly true to say that per quod was not in play at the trial even though it was not expressly relied upon by Nautronix, and that is because counsel for Mr Barclay had realised that the facts which were pleaded against him, many of which he admitted, could give rise to an action in per quod.  One sees that from appeal book 38 at paragraph 44.  Your Honours, it is clear that this plea is not limited just to the Baker v Bolton point because if it were limited to the Baker v Bolton point, then there would be no need to refer to the per quod.  So it was understood by Mr Barclay, at the same time as he made admissions of various facts which could give rise to a per quod action, that that action was available against him. 

Now, I refer your Honours to these observations for completeness, although we do not resile from the proposition that we did not expressly run this below, but it seems to have been understood by a trial judge at least that the parties had joined issue on the matter of per quod.  Your Honours will see that from appeal book 303 at paragraph 327.  Then his Honour discusses the issue of loss of services at 311, 312, paragraph 356 to 359. 

BELL J:   If the trial judge understood that the parties had joined issue on per quod, how does that explain the approach with respect to the liability of Mr Barclay?

MS HARRIS:   Let me take a step back, your Honour.  His Honour’s reasoning is a little bit opaque on this, but at least the issue upon which the parties took a contrary stance was that identified at paragraph 44 of Mr Barclay’s pleading, namely, whether damages were available in respect of the deaths of Mr Protoolis and Mr Warriner.  But as I have sought to point out, your Honour, paragraph 44 itself went beyond simply the rule in Baker v Bolton.

BELL J:   That may be so but the matter I am raising with you is whether or not it is right to say that the trial judge approached the matter upon a view that there had been any joining issue on per quod.

MS HARRIS:   I do not think it would be fair to say, your Honour, that his Honour understood counsel for Nautronix to put forward, to articulate a claim in per quod which was then the subject of a joinder.  I think that probably takes it too far.

BELL J:   Yes.

MS HARRIS:   What happened, certainly on the pleadings, was that counsel for Barclay recognised that the facts which had been pleaded gave rise to the action and alerted Nautronix to their contention that if a claim for per quod was pressed then it would not sound in any damages arising from the deaths of those two gentlemen.

BELL J:   At paragraph 327 on appeal book 303, the reference to – this is in the second half of the paragraph:

it was contended that so far as the Nautronix claim . . . depended upon the loss of the services of its employees, it was tantamount to pursuing an action per quod servitium amisit, which was not open as a matter of law.

That does not seem confined to the Baker v Bolton point there.

MS HARRIS:   It does not, your Honour.  It does not.  I did not appear below but I apprehend that what he is getting at there is the matter which was the subject of the submissions – firstly, paragraph 44 of the pleadings to which I just took the Court and then the submissions that my learned friend, Mr Walker, took the Court to earlier, so where issue appears to have been joined is around the damages that might be available as opposed to the anterior step of the cause of action itself.

We do not make too much of that, save to say that it is clear that Mr Barclay, and therefore Mr Penberthy, and therefore everybody, was alive to the prospect that the facts pleaded and ultimately found, to the extent they were in issue, could give rise to an action per quod.  Your Honours, it is clear that it is and was open to Nautronix to contend for a different legal characterisation of the facts to that found by the trial judge in this Court.  There was argument this morning around the Suttor v Gundowda point about whether there could be said to be any prejudice which would flow if the matter was now to be pressed and no prejudice was identified which would prevent the Court now considering this question.

The only thing that was raised were the admissions around whether these individuals were employees.  Mr Barclay made that admission at the same time as acknowledging the existence of the per quod action so he must have made the admission alive to the consequence of it.  The second matter that must be pointed out is that there has been no suggestion that any evidence could have been brought forward to contradict the matter that was admitted.

Certainly if counsel for Nautronix at first instance, prior to the trial, had decided to make an application to amend the pleadings, it would have been a one‑paragraph amendment.  There would have been an additional paragraph that said by reason of the matters pleaded in the foregoing paragraphs, we are entitled to maintain an action per quod and there can be, we would respectfully suggest, no suggestion that Mr Barclay or Mr Penberthy would, at that point, have been entitled to withdraw any admissions that they had made.

Might I move on then to the question whether Mr Penberthy owed a duty of care independent of the per quod action?  Nautronix contends that the Court of Appeal was right to hold that Mr Penberthy owed a duty to Nautronix to avoid economic loss, albeit that it does not do so in reliance on the per quod action, as reasoned by her Honour.  A key in this context is what was admitted by Mr Penberthy in his pleading.  Can I take your Honours first to appeal book 9, paragraph 22 of Nautronix’s statement of claim pleads, by reason of the crash, 22.4:

Nautronix Limited suffered property damage and economic loss.

Paragraph 23 is the key paragraph in this context:

At all material times Fugro and Penberthy were aware or should have been aware that:

23.1the Plane was to be operated with the employees and the equipment of Nautronix Limited on board; and

23.2any failure to exercise reasonable care and skill in the piloting of the Plane was likely to result in death or injury to the passengers, and resultant economic loss to Nautronix Limited.

Paragraph 24:

At all material times Penberthy owed the first to fifth plaintiffs and Nautronix Limited a duty to exercise reasonable care and skill in the piloting of the Plane.

Your Honours, at paragraph 11 of his pleading at appeal book 29, Mr Penberthy admits all of those allegations.  It is now not open to him to say – and I hope I have not misunderstood what fell from my learned friend, this morning – but it is now not open to Mr Penberthy to say, “The Court should not have held that it was foreseeable by me that if I crashed the plane – negligently crashed the plane – and Nautronix employees were thereby killed or injured, Nautronix would suffer economic loss” because he has admitted that fact.  The issue which emerged as a possible reason for denying the existence of a duty to avoid that economic loss was this issue of vulnerability. 

Your Honours have been taken to what the trial judge said about that, and also the Court of Appeal.  The trial judge said that in relation to Mr Penberthy, Nautronix was vulnerable, but he had a different conclusion in relation to Mr Barclay.  The Court of Appeal said, well, there is no justification for that distinction – this is at paragraph 118 of the judgment, appeal book 421:

Nautronix was not vulnerable because it could protect itself from pure economic loss in its contract with Fugro –

Now, your Honours, there is not actually a skerrick of evidence to support that conclusion.  There was not a skerrick of evidence before the Court to justify the conclusion that Nautronix could have negotiated for itself a watertight contractual warranty.  But before I come to the evidence, might I take a step back, your Honours, and refer you to what was said by Justice McHugh in Perre v Apand, because that appears to be the genesis of this reasoning that if one could have obtained a contractual warranty, then one cannot be said to be vulnerable in a relevant sense.  The trial judge referred to paragraph 118, I believe, of what Justice McHugh had said in that case; that is Perre v Apand (1999) 198 CLR 180 and the relevant passage from his Honour’s judgment begins at page 225 at paragraph 118.

His Honour refers there to what vulnerability means to him, as it were, and specifically to the Esanda Case where the plaintiffs were, as we know, sophisticated financiers who had the means and the capability of investigating the financial circumstances of the company themselves.  He contrasts that with Hill v Van Erp and Pyrenees where the defendants’ control and knowledge and the relative inability of the plaintiff to protect themselves gave rise to a duty of care.  Then the passage upon which reliance is apparently placed, one assumes, is paragraph 120 where his Honour says:

In determining whether the plaintiff was vulnerable, an important consideration will be whether the plaintiff could easily have protected itself against the risk of loss by protective action, particularly by obtaining contractual warranties.  Pecuniary losses are one of the ordinary risks of business and, for that matter, ordinary life.  Business people frequently take, or are easily able to take, steps to minimise their business or economic losses.  Taking these steps will often be a more efficient way of dealing with the risk of these losses than requiring defendants to have regard to the risk that others may suffer economic loss.  The economic efficiency of a society requires that the person best able to deal with or avoid the consequences of an economic risk from a cost view should be responsible for the risk and its consequences.

But it is important, your Honours, not to stop there.  Can I commend to your Honours a review of the balance of his Honour’s discussion around this because he refers to jurisprudence or comments and other cases, in American cases, where it is suggested that contract is the place where commercial people should protect themselves and there ought not be room for the operation of the law of negligence.  His Honour is at pains to remind us that that is not the law in Australia.  Also, to remind us that when we are talking about vulnerability, what we are really talking about is the question of the extent to which the plaintiff can control the realisation of the risk.

GUMMOW J:   There seems to be some idea in the United States that there is a preclusion, a rule of preclusion, that there is no liability in tort for economic loss caused by negligence in performance or negotiation where there is a contract.

MS HARRIS:   I am not sure whether it is a rule, your Honour, but certainly there is commentary in other cases to that effect; that is certainly true.  His Honour Justice McHugh in paragraph 122 adverts to some of that commentary in saying, that is not the law in Australia.  He also goes on to make a special point about insurance at paragraph 130.  He says:

Whether the plaintiff has purchased, or is able to purchase, insurance is, however, generally not relevant to the issue of vulnerability.

In other words, it is not relevant to say, well, you could have shifted the burden of this loss on to someone else via some insurance.

If there is a policy consideration in this area, it is, I think, more aligned with what the majority said in Woolcock at paragraph 23, which I do not need to take your Honours to at the moment, but which suggests that the real question, the real inquiry is whether it was feasible in this case to shift the consequence from the victim back on to the wrongdoer, in this case, Mr Penberthy.  Now, the Court of Appeal’s reasoning went well beyond that and said what Nautronix should have done here, or could have done here, was contract with Mr Penberthy’s employer a warranty to protect it from the financial consequences of Mr Penberthy’s negligence.  That does take the law beyond existing notions of control, but regardless of that, it is a conclusion which is not made out on the evidence.

FRENCH CJ:   As a matter of principle it has the advantage of determinacy as distinct from the rather open‑ended measure of damages that necessarily associates with a per quod action and economic loss under the claim for that recovery.

MS HARRIS:   Well, therein lies one of the distinctions, your Honour, I guess, between the common law of negligence and the per quod action.  Bearing in mind, of course, that the per quod action, as I commenced my submissions by saying, is limited to a special category of relationship.

Can I just turn briefly to the evidence, your Honours?  Perhaps it is easiest to look at the trial judge’s reasons at appeal book 315 at paragraph 370.  So, at trial Nautronix relied on its standard terms and conditions.  It said that those had been incorporated into the contract with Fugro and those standard terms incorporated two clauses, Clause 4 and Clause 9 that your Honours there see, which effectively warranted that the services would be provided “with due skill and care”.

Now, Fugro countered – and your Honours will see this at appeal book 318 ‑ that the contract, as formed, did not include Nautronix’s standard terms and conditions but its own.  Your Honours see that at 17.2(a).  Those special –Nautronix’s terms and conditions included two terms which appear on page 323 and 324 of the appeal book.  I beg your pardon, they are Fugro’s standard terms and conditions.  Your Honours will see at paragraph 389, clause 21 is the “Force Majeure” clause excluding any liability for loss arising out of a force majeure event which included:

‘mechanical or electrical equipment failure which could not have been prevented by regular care and maintenance’.

Then most pertinently, I think, the term in clause 22 at paragraph 393 on appeal book 324.  This was a clause that Fugro expressly relied upon at trial:

Notwithstanding any other provision of the Contract to the contrary, neither party shall be liable to the other in tort, contract or otherwise at law, for any special or consequential losses or damages, however caused including without limitation, loss of use, production, product or profit.

Now, as it happened, neither of the standard terms was incorporated in the contract because they were not adequately brought to the attention of the other party, but what that evidence shows, your Honours, is that Fugro was concerned to ensure by its contractual terms that it would not incur responsibility for loss of the kind now claimed by Nautronix.  This, alone, we would say militates against any inference being drawn that Nautronix could just have gone along to Fugro and said, give me a warranty that will cover all of my potential losses if your pilot negligently pilots the plane.

So there was no evidence that Nautronix could have negotiated a warranty of the kind posited by the Court of Appeal.  The evidence was actually against it.  This was not, your Honours, a complex commercial transaction where there was argy bargy between the parties as to the terms of their commercial deal.  Your Honours will see from the correspondence which has made its way into the appeal book, that the correspondence between the parties was about the arrangements for the flight; who was going, what equipment would be taken, when it would occur, what equipment would be tested and so on; not the terms upon which the charter would occur. 

So this was not a commercial negotiation over the terms of the contract and that is why neither of the standard sets of terms actually made their way into the contract between the parties, but, as I have submitted to your Honours already, Fugro’s standard terms and conditions made it quite clear that it was not prepared to take on the responsibility for meeting this loss.  It was not prepared to warrant it.  My learned friend, Mr Fagan, says, well, if that was the case, then they should have just walked away and found another plane, another charter.  That is easier said than done. 

Your Honours will see from the supplementary appeal book at page – mine is numbered 1191 and I hope your Honours is the same.  There is an exchange of emails between Mr Warriner of Nautronix and Mr Smith of Fugro relating to the need for security clearance for all of the participants in the flight.  That is why there was a longstanding commercial relationship between Fugro and Nautronix for the testing of this equipment because, firstly, Fugro had modified its plane so as to accommodate the equipment that needed to be tested and those who participated in the testing of this equipment, which had a Defence Department end‑user in mind, had to have security clearance.  So, again, it is not like a tin of soup.  You cannot just go out and charter some other plane and hope that they will give you the warranties that you are seeking.

So for those reasons, we say, in addition to the matters raised in our written submissions about the imposition of a duty of care, they are the reasons why it was wrong to conclude that Nautronix was not vulnerable in a relevant sense and once it is concluded, as it must be that it was, once Nautronix put its employees on the plane, it had no control over the outcome.  It certainly had no control over whether they suffered injury or death by the negligent piloting of the plane.  It was vulnerable to the risk of harm here and that ought to have led, we say, to the conclusion that there was a duty of care owed by Mr Penberthy to avoid economic loss to Nautronix.  Your Honours might I come lastly to the rule in Baker v Bolton? 

FRENCH CJ:   The implied warranty point under section 74 of the Trade Practices Act was not pursued, is that right?

MS HARRIS:   It was not, that is right.

FRENCH CJ:   Okay.

MS HARRIS:   Your Honours, the test for overruling authorities of this Court was most recently and conveniently stated in the plurality judgment in Imbree v McNeilly (2008) 236 CLR 510. Might I refer your Honours to paragraph 45 in a passage with which Chief Justice Gleeson agreed, as did your Honour Justice Crennan. Their Honours there set out the four matters identified by Chief Justice Gibbs in The Commonwealth v Hospital Contribution Fund which “justified departure from earlier decisions” and they are identified as follows:

(a) the earlier decisions did not rest upon a principle carefully worked out in a significant succession of cases; (b) there were differences in the reasoning that led to the earlier decisions; (c) the earlier decisions had achieved no useful result but considerable inconvenience; and (d) that the earlier decisions had not been independently acted on in a manner which militated against the reconsideration.  The need to consider these matters is obvious.  It is necessary to do that, however, with a clear recognition of more basic principles.  In particular, it is necessary to recognise that, when a court of final appeal considers judge‑made law, “[w]hile stare decisis is a sound policy because it promotes predictability of judicial decision and facilitates the giving of advice, it should not always trump the need for desirable change in the law” especially, we would add, if the change is necessary to maintain a better connection with more fundamental doctrines and principles.

Your Honours, we would suggest that when that test is contextualised with the rule in Baker v Bolton, it militates strongly in favour of abandonment of that rule insofar as it constitutes a part of the law of Australia.  Can I just take your Honour briefly to Baker v Bolton itself and it will be a brief visit because it is a very brief little case.

GUMMOW J:   Brief report.

MS HARRIS:   It is reported in Baker v Bolton (1808) 1 Camp 493, also in 170 ER 1033. This was a case, your Honours, brought against the proprietors of a stage coach in which the plaintiff and his wife are travelling. The plaintiff was injured, as was his wife, who died in hospital a month later. The plaintiff sued for loss of consortium and distress and Lord Ellenborough, as your Honours see, held that he could only recover loss for the period prior to her dissolution and concludes with the observation, just before 494:

In a civil Court, the death of a human being could not be complained of as an injury, and in this case the damages, as to the plaintiff’s wife, must stop with the period of her existence.

Your Honours, that is the sum total and the sum total of the explanation for the rule in Baker v Bolton.  There is no explanation for it and it is a matter which has puzzled jurists ever since.  It is a rule which is irrational.  It is capricious in its operation and it is productive of unfair results.

The juridical basis for it has been a matter of speculation and remains unclear as demonstrated by the speeches of Lord Parker and Lord Sumner in the Amerika Case to which my learned friend referred earlier.  Many learned commentators, including most notably Professor Holdsworth, have had a go at explaining what Lord Ellenborough might have had in mind, but perhaps it is fair to say that they have only had limited success.

The two most popular foundations or identified foundations for the rule were the product of the researchers of Professor Holdsworth and are referred to in Swan v Williams (1987) 9 NSWLR 172. They are discussed there by Justice of Appeal Samuels. Your Honours will see there his reference to the writings of Professor Holdsworth and the theory that the first aspect of Lord Ellenborough’s dictum was an application of the rule that the representative of a deceased victim of a tort could not sue to vindicate the rights of the deceased. That rule, of course, has no application here or in most cases where Baker v Bolton might otherwise apply.

The second speculated aspect of the dictum originated in the rule which then but no longer prevails that civil action could not be brought in respect of a tort which also constituted a felony because, so it was said, the felony drowned the tort.  Again, that rule has no present day application.  Beyond that, beyond those two speculative, perhaps, theories, the legal basis for the rule is entirely opaque.  The problem with the rule is that it serves no identifiable policy of law.  On the contrary, it is, we would say, antithetical to the policy of the law because it rewards the tortfeasor who manages to kill his victim rather than just injuring him.

We would ask this Court rhetorically what policy can possibly be served by a rule which places a tortfeasor in a better position if he manages to kill his victim rather than just injuring him?  It is doubtless, for this reason, that the rule has been the subject of the most trenchant and enduring criticism, some of which is referred to in the Swan v Williams decision.  Firstly, in the judgment of Justice of Appeal Samuels, your Honours will see that from page 177 from point C of the page where his Honour refers to “Baker has been stigmatised as unjust”, “juristically deplorable”, “historically explicable, if juristically deplorable”.

FRENCH CJ:   Not by Professor Winfield with whom Justice Samuels agreed.

MS HARRIS:   I beg your pardon, your Honour?

FRENCH CJ:   Not by Professor Winfield with whom Justice Samuels agreed at 180.

MS HARRIS:   Your Honours, that is after his discussion of the various theories that I have explicated poorly for your Honours.

FRENCH CJ:   It is a kind of – it has happened, get over it approach.

MS HARRIS:   Well, except, your Honour, it is pertinent that when – that the basis for the decision in this case is not really, it has happened, get over it approach, but we are stuck with this position because it has been applied in Woolworths v Crotty, and that appears very clearly ‑ ‑ ‑

FRENCH CJ:   That is what I mean, the decision itself is a reality and that he quotes Professor Winfield for the proposition that, whatever you might think of it, it correctly stated the law at the time.

MS HARRIS:   Yes.  Well, your Honour, even that has been doubted.  If one reads Baron Bramwell’s dissent in Osborn v Gillett which is referred to at the top of page 178 – and I do not need to take your Honours to that decision at the moment – but Baron Bramwell even doubts that the rule was as stated by Lord Ellenborough and wonders about the accuracy of the report, notwithstanding that it was presumably by Lord Campbell.  However that might be, one sees in the judgment of Justice of Appeal Priestley, with whom Justice of Appeal McHugh agreed at page 190, again discussion of Baker v Bolton where his Honour says at about point C of the page, referring to the criticism by Baron Bramwell:

In Osborn however Bramwell B criticised the rule vigorously and since then the rule has been subjected to an unending stream of criticism.  Very little has been said in its favour and as far as I can see that is because there is indeed very little to say, either as a matter of legal history or in terms of any policy understandable in present times at least.  Two of the most cogent examples of the innumerable criticisms are the Law Revision Committee’s first interim report of March 1934 (Cmd 4540) which said that it was productive of injustice and should be abolished, and the decision of the United States Supreme Court in Moragne v States Marine Lines Inc 398 US 375 (1970). The decision in Moragne, which was that under Federal Maritime Law a right to recover for wrongful death should be recognised, marked the end of the rule in Baker v Bolton for United States federal law purposes.  If this Court were in a position to overrule Baker v Bolton there would seem to me to be many reasons for doing so and few for refraining from doing so.  However, in Woolworths Ltd v Crotty (1942) 66 CLR 603, it clearly appears that the High Court made the correctness of the rule in Baker v Bolton part of its ratio decidendi of the case.  That being so, the authority not of Baker v Bolton but of the High Court requires this court to accept the continuing validity of the rule in Baker v Bolton.

So that drives us, your Honours, to what was said in Woolworths v Crotty (1942) 66 CLR 603. Your Honours, this is a case which, as your Honour Justice Gummow observed this morning in argument, was not one which put in issue the correctness or otherwise of the rule in Baker v Bolton.  It was assumed by the High Court no one argued before the court that the rule was not good law.

For that purpose, and in that context, it is important to understand that what was in issue here was the interpretation of a statute.  This was not a master and servant case.  It was a case brought under the wrongful death legislation by the mother of a man who was killed by a faulty light globe and the underlying wrong was one in contract rather than tort and the question was whether that claim for damages could be supported under the wrongful death legislation.  So it was, in particular, a case concerning construction of section 1 of Lord Campbell’s Act which appears at the bottom of page 609.  Your Honours will need to understand the terms of the section because it then contextualises the balance of the case, with respect.  The section provides:

Whereas no action at law is now maintainable against a person who by his wrongful act neglect or default may have caused the death of another person . . . Be it therefore enacted . . . That whensoever the death of a person shall be caused by a wrongful act neglect or default and the act neglect or default is such as would (if death had not ensued) have entitled the party injured to maintain an action and recover damages in respect thereof then and in every such case the person who would have been liable if death had not ensued shall be liable to an action for damages notwithstanding the death –

and not withstanding that it was a felony.  In other words, the section posited an inquiry into the state of the law, what the law allowed in terms of recovery of damages in respect of the death of another.  And so it was that the Court then examined the state of the law as the legislature would have understood it at the time of the passage of the statute.  That appears, for example – if your Honours turn to page 615 of the report.  Chief Justice Latham refers, at about a quarter of the way down, to the rule in Baker v Bolton and he says:

The rule in Baker v Bolton must now be taken to be thoroughly established –

and he refers to the Amerika Case plainly –

notwithstanding the criticisms which are to be found in –

Professor Holdsworth’s writings.  That is the sum total, in effect, of what he says about the rule.  Then he, at the next full paragraph on the same page:

Actions of tort in general (there are exceptions in the case of injury to proprietary rights) are based upon a breach of duty, plus damage.

He then discusses what was established in Osborn v Gillett and then comes at the first full paragraph on page 616 and says:

Accordingly, consideration of the application of the rule in Baker v Bolton to cases of tort shows plainly that there was room for remedial action by way of legislation by giving a right of action for the benefit of some persons who had suffered damage from the death of another person caused by an act which was wrongful in relation to that person, but not wrongful in relation to other persons.

So he is reflecting upon the operation of the law as the legislature would have understood it at the time of the passage of the legislation.  Similarly, he then goes on to talk about the application of Baker v Bolton to contract and at the bottom of page 617 concludes:

Accordingly, in the case of death resulting from breach of contract, the application of the rule in Baker v Bolton was such as to leave room for remedial action by way of legislation.

Similarly, on page 618 in the last full paragraph:

For the reasons which I have stated, the contention of the appellant that there was really no room for the operation of Lord Campbell’s Act in cases of breach of contract because the law had already provided a remedy in such cases . . . should not be accepted.

GUMMOW J:   Is not the real problem for you why the Court should go beyond, in dealing with Baker v Bolton, go beyond dealing with what Chief Justice Latham called the “remedial action by way of legislation that has already been achieved”?

MS HARRIS:   Well, your Honour, our respectful submission is that that is not the test.  So your Honour will recall that in CSR v Eddy (2005) 226 CLR 1 at 25 your Honour, along with the Chief Justice and Justice Heydon, referred to the statement of Lord Reid. Your Honour, we have a copy of that case if it is helpful, but I can read the passage – it is short:

“the mere fact that an enactment shows that Parliament must have thought that the law was one thing does not preclude the courts from deciding that the law was in fact something different”.

GUMMOW J:   What paragraph in CSR?

MS HARRIS:   It is page 25, paragraph 51.  That case concerned Sullivan v Gordon damages.  The New South Wales Supreme Court had suggested in Sullivan v Gordon that one could recover damages as damages the commercial value of gratuitous services provided by someone who was unable to provide them by reason of some wrong.  Legislation in some jurisdictions, in Queensland, Victoria and the ACT, had been passed to provide that no such damages ought to be recoverable.  Now, it might have been observed in that case, I guess, that the legislature has told us what they want to do about that rule.  Some parliaments have decided that they want to retain the rule and some parliaments have decided that they want to get rid of the rule, but that was not and, with respect, was properly not a break on this Court’s consideration of whether the rule was a good one or not a good one. 

The problem with the rule in Baker v Bolton is that it is so extreme, it is so irrational, it is so capricious and so likely to occasion prejudice, but also, in the manifestation of policy that it produces, likely to bring the law into disrepute by sending the message that you are going to be in a better position if you manage to kill someone than you are if you merely injure them.

FRENCH CJ:   You are not asking us to say that it is not a common law rule, you are asking us to repeal it.

MS HARRIS:   The rule is not one of legislation.

FRENCH CJ:   No, I understand that.  I am just asking what you are asking us to do.  You are not asked to say it never existed as a rule.

MS HARRIS:   Certainly not.  We are asking you to say, with respect, that it is not good law in Australia.  Now, your Honours, I do not know that we need to ask you – for the reasons that I have explained, I am not sure that that conclusion necessitates a positive overruling of Woolworths v Crotty because the question in Woolworths v Crotty was a different one.  The question there was, what was the state of the law and their Honours, with respect, correctly discerned it.  So this Court has not had an opportunity to determine whether or not the rule in Baker v Bolton is good law.  This is

that opportunity.  For the reasons that we have outlined, both orally and in our written submissions, we would submit, with respect, that leave to bring the cross‑appeal to ventilate that question should be granted and the cross‑appeal should also be granted on that basis.  Your Honours, those are our submissions.

FRENCH CJ:   Thank you, Ms Harris.  Yes, Mr Walker.

MR WALKER:   May it please the Court.  May I start with the last matter first.  If the High Court in Woolworths v Crotty was correct in discerning the state of the law by reference to which the meaning of the words in Lord Campbell’s Act as re‑enacted in New South Wales was then ruled upon in binding fashion by the High Court, then clearly enough it was an essential part of the reasoning for all the reasons my friend has herself advanced for this Court to have ruled on the existence of the rule in Baker v Bolton.

Then, for the reasons that I do not need to repeat, that I touched on in‑chief, the policy calibration, that is, the drawing of a line by legislatures, starting with the first Lord Campbell’s Act as an answer to the question whether this Court, accepting it has power to do so, should rewrite the common law, speaking metaphorically, repeal that which my friend’s argument accepts is a rule and, in our submission, the answer to that, without repeating what we have said in‑chief and what we have written, is no, by no means. 

In elaboration, however, and in reply to what my learned friend has said this afternoon concerning what I will paraphrase as the atavistic qualities of the rule as per argument advance them, it is to be observed that the notion that the rule is in its entirety some barbaric and irrational presence in the body of the common law has certainly not been shared either by the courts upon which we have relied, but, importantly, by the legislatures that have applied the policy as seen by representative assemblies, because it has not been abolished in its entirety at all. 

It has been abolished pro tanto to reflect the social expectation, not universally true, but sufficiently often to ground legislative policy, that spouses and children, for example, are persons whose loss upon the wrongful death of a provider should not go uncompensated by the law and the parliaments, accepting that the common law would prevent such claims, statutory simulacrums, of what would be available had injury but not death occurred, has been created in their place. 

The parliaments have not seen fit to enact any similar such recompense, not so poignant but every bit as palpable as would apply, for example, in the case of business partners, business or professional partners, persons with indispensable independent contractors serving their business, persons with irreplaceably lucrative clients.  None of those relationships where death has a devastating effect, sometimes personally and sometimes economically, have ever been the subject of Lord Campbell’s Act style amelioration.  So the assertion that there is something offensively irrational and out of place in relation to societal expectations in Baker v Bolton simply does not stand scrutiny when one looks at what societies do do when they pronounce values of that kind, that is, they enact legislation so as to permit things that ought to be claimable to be claimed, and they have not done it for those classes. 

Now, either that reflects across time and place upon the heartlessness of legislatures or, much more obviously, it demonstrates the implausibility of the assertion that this is a rule that can be seen to have no merit whatever, because it is obvious that a person’s death with all the hypotheticals that are then rendered forever hypothetical as to what would have happened, thereafter can have many flow‑on effects on many people, in many different ways.  Next, in relation to our learned friend’s reliance upon Swan (1987) 9 NSWLR 172, it is of some significance, we submit, cannot possibly be decisive, but of some significance, that there was an application for special leave to appeal to this Court from that proceeding which was refused.

My learned friend referred to Lord Sumner’s speech in Amerika [1917] AC 38. The passage at 55 with which I think your Honours are familiar from the written citations of other parties is a passage where, with respect, there is an attempt to explain why death should have had a substantive effect upon what was there the per quod action in question. Again, not at all on all fours with the proposition that this lacked any possibility of justification.

Finally, may I, without taking your Honours to it at all, note that in the academic controversy that Mr Justice Samuels expounded without taking sides on every aspect of it, let alone on some of the more ad hominem ones, we have added the reference that you will find in paragraph 14, footnote 23 of our written submissions in reply, to Finkelstein’s article, the one about Deodands as well as this topic that is entitled “The Goring Ox” (1973) 46(2) Temple Law Quarterly 169.

Could I then move to the question left just a little obscure as to its place in my friend’s argument as to the role or presence of per quod in the proceedings below?  With respect, when my friend said, as she did several times and without qualification, and with great respect very properly, that it was not run below; that does remain the simple fact.  The passage that my learned friend took you to in Justice Murray’s reasons at first instance in the appeal book at page 303, paragraph 327, which concluded having made the reference to something being:

tantamount to pursuing an action per quod servitium amisit, which was not open as a matter of law.  That issue, so far as it affects liability, was firmly joined, and I will deal with it upon that basis.

Now, there is, I fear, intractable obscurity about what that means because one does not see any rough seam in his Honour’s reasons and whatever he meant may be judged by what his Honour went on to do.  He did not deal with a per quod case at all.  We can safely disregard that as having been a slip on the part of his Honour because there was no complaint by the plaintiffs that he had failed to deal with the per quod claim that he said issue had been joined with in 327 and he would go on to deal with it but nothing was dealt with.

Rather, it seems to have been some other aspect of the case and probably Baker v Bolton that his Honour had in mind.  Certainly, when one goes to page 311, paragraph 356 to see a similar proposition at the last sentence about line 30:

At trial, issue was joined on that proposition.

That is a reference, in particular, to the paragraph 44 defence plea to which your Honours’ attention has been drawn, which on probably the better reading is aimed at the point of death of some of the employees, rather than per quod itself.  In any event, what happens in paragraphs 357, 358 in particular, and 359 is that his Honour is dealing with something which is based upon breach of a duty of care; that is, it is a negligence claim.

It is antithetical to the identified quality of the per quod claim, upon which my learned friend, indeed, relies to say this is something that can and should continue to operate outside and unaffected by the existence and development of the law of negligence.  My learned friend used the language of vested rights in a manner perhaps borrowed from statutory interpretation to restrain or add resistance to any impulse your Honours might otherwise have had to change or abolish per quod.

GUMMOW J:   It comes from choice of law as well, does it not?

MR WALKER:   I am sorry, your Honour.

GUMMOW J:   The notion of vested rights comes from choice of law doctrine.

MR WALKER:   As well, yes, but it seems to be here designed to engender a reluctance to change a state of affairs upon which, as it were, people’s property rights, choses in action, are resting.  Apart from the matter raised by Justice Heydon that I do not need to develop any further, there is, in our submission, a real difficulty in this Court placing much weight in relation to claims which, as Mr Fagan has pointed out, are not clogging the court lists of this country on the basis that somewhere someone may, perhaps unwittingly like these plaintiffs until the High Court, have a per quod action available to them, and that is because it is the nature of the possibility for this Court as an ultimate appellate tribunal and guardian of the common law in this country, it is necessary from time to time to consider, as it has done in the cases to which reference has been made, occupier’s liability, highway authorities, Rylands v Fletcher, escape of animals, it is necessary to draw a line.

Now, this does not introduce the hobby horse of prospective overruling.  It rather says there comes a day when the High Court pronounces the law in a way which is remarkable because it differs from most people’s previous understandings.  Whether one calls it a change in the law or whatever does not matter, or an identification of long or inveterate error, it has to be done and it is a necessary part of the Court’s function and there ought to be no inhibition felt upon it upon the basis that there will be disappointment of some expectations by people who thought there was a common law claim or immunity claim or defence of a certain kind which has now been denied.

In any event, ex hypothesi, if one talks about the appeals to a lay sense of justice involved in that kind of argument, ex hypothesi, the cases which would not be available were the law of negligence, that is, recovery of purely economic loss, to govern this position, which would have been recoverable, which would have led to recovery under per quod, are, by definition, ex hypothesi, cases where it was not reasonable to impose, by reference to reasonableness and the relations between the parties in the circumstances of the case, an obligation of the defendant to make good the plaintiff.  In other words, the law of negligence has as an integral and inherent part of its content, notions which rather reduce the appeal of claims which are possible outside negligence but not permitted inside negligence. 

I will leave to Mr Fagan, as he may please or not, reference to the negotiation of warranty point.  We would simply note as a matter of principle that that aspect of vulnerability would not appear to rely upon the actual prediction or hypothetical reconstruction of what might have been had people engaged in a negotiation.  It is the occasional possibility or capacity to attend by contract to such protections rather than the actual outcome in a particular case. 

Next to last, Justice Kiefel raised with our learned friend the manner by which it can be seen, for example, in Marinovski that the interest that may once have fallen to be described as “in the servant” and then for a very long time rather “in the servant’s services”, can be seen in that case of what in effect is the one man band – certainly he had a factory with workers, but he was the, as it were, sole trader who had incorporated – it can be seen to have turned into a method of enabling someone who has incorporated to get what they could have got directly if they had been an unincorporated sole trader, by way of including loss of profits in that invaded interest.

It can be seen that there is a high degree of artificiality in continuing to see an invaded interest there in the work of the servant and it has become, in our submission, a form of recovery apparently in my friend’s arguments with remoteness and similar restraints resembling those of negligence but without any of the control mechanisms in terms of the liability to give recompense in the first place.

If one is searching for a principle as to why that aspect, the scope of recovery should modernise but not the liability aspect and looking for a principle to explain that, it becomes increasingly difficult, in our submission – and here I am again, of course, echoing Mr Justice Fullagar – increasingly difficult to understand why only employers.  If one talks about relations that produce economic return to a plaintiff and which are considered by and large to be a good thing for organised society, then it will not only be the employment relation, and it certainly will not, of course, be the medieval notion of the household of servants, daughters, wife and apprentices, which provides the exhaustive model of the relations that need this kind of protection.  In our submission, that is precisely why the law of negligence in looking to relations, propinquity of dealings, knowledge of the exposure by way of risk, one to the other, and a capacity to, as it were, lay off the risk, the vulnerability, in short, all of that is adapted and adaptable to deal with all relations, not just employment. 

It is for those reasons, that at great risk I refer to the metaphor of absorption as my next point in reply.  Like all metaphors, it runs the risks that have fully materialised today in argument.  However, by it we mean that there should no longer be the regulation by the stipulations attached to the rules to governing per quod for recovery when a person’s economic interests have been damaged by the wrongful or tortious, in this case only negligent, injury to his, her or its employee.  We would submit that that is a satisfying absorption, to use the canonical metaphor shortly to become a heterodox, no doubt, because it can be seen that that is a situation which now falls to be dealt with entirely under that rubric and no longer is available to develop with the overlapping but not entirely congruent set of rules for per quod.

HAYNE J:   Are you able to state in summary form why?

MR WALKER:   Because the recognition by per quod of an interest, the invasion of which requires recompense, comes from, we submit, ought to be seen nowadays as coming from a recognition of the importance of – I will call them workers ‑ in enterprise, and the importance of enterprise for society.  Your Honours will note that I am really not talking here about maid servants, I am talking more in a business context.  It could be adapted, no doubt, to domestic situations, households also being obviously important to society.  And that on the other side all Bryan v Maloney, for example, illustrates and the discussion in Woolcock, illustrates the importance of balancing against that importance which engenders the imperative for recompense when it is invaded.  Balanced against that is the need to limit the exposure of persons who have committed a wrong to a liability to make good for all the consequences of that wrong.

It is for those reasons, in our submission, that not only by rules of remoteness which would be tacked on to per quod just as they are an integral part of negligence, but also by reference to the question whether in the first place this is a kind of loss for which this wrongdoer should be made liable at all, foreseeability, et cetera, the salient features, they are a better control which enables a relationship which, that is of employer/employee, master/servant, which is not uniquely important, it is simply important, to be dealt with consistently with other relations equally important such as partnership, such as shareholders and the like.  In a nutshell, there is now no longer anything sufficiently special about master/servant to require it to be dealt with differently from other relationships where B may by injuring C harm the economic interests of A. 

Finally, in relation to the notion of identifying interests which we submit now ought to be simply dealt with by asking the questions necessary to obtain recovery in negligence for purely economic loss, it was put against us that in the cases which were discussed, Zaluzna, Brodie, Burnie, contrast Trigwell, that those were changes which did not, as it were – I may have misunderstood this for which I apologise – entrench upon the availability of recompense.  As I said in‑chief, if negligence only governed such claims in tort, that is, if only the law of pure economic loss recoverable in negligence, governed the consequences for people in Nautronix’s positions when an employee has been injured by negligence, then, in our submission, in many cases there will be broader recovery than there would be under per quod because it will include, of course, all those persons with whom you are in economic relations who are not your employees.

A huge amount of industry – one need only contemplate Western Australia as we speak – a huge amount of industry proceeds now upon contracts which are not contracts of employment.  So, it should not be assumed that what we are advocating is, as it were, a mandate for defendant’s insurers.  It will cut both ways depending upon the facts of

particular cases, but in social terms there is a greater breadth, in our submission, attended to by the law of negligence, obviously, than by the rule in per quod.  May it please the Court.

FRENCH CJ:   Thank you, Mr Walker.  Mr Fagan, I do not want you to feel in any sense constrained in terms of the length of your reply.  How long do you expect to be?

MR FAGAN:   Ten minutes, I think, your Honour.  I have only really got about four points to really reply.

FRENCH CJ:   Yes, please proceed.

MR FAGAN:   Firstly, with respect to damages for the quod action, when I was asked about that, in my submissions in‑chief I did not refer to authority but stated that there did not appear to be anything clear.  What I had in mind was the judgment of Justice Fullagar in Attorney‑General for N.S.W. v Perpetual from page 289 to 293 ‑ I need not ask your Honours to look at it now, but his Honour said that it was never the case that damages for the per quod action were “at large”.  His Honour said, particularly on page 290, that they appeared to be limited to the value of the services so that would not envisage damages which would include consequential loss.

Now, what Justice Fullagar said there at particularly 290, but generally 289 through to 293, that was then approved by Justice Dixon in Scott at page 403 and was expanded upon by Justice Fullagar in Scott at page 408 to 409. Then we have the decisions that my learned friend, Ms Harris, has referred to, the Mercantile Mutual v Argent decision of this Court and the Marinovski decision which would suggest that there can be consequential losses as well.  This leaves some question about what really is the scope, the permissible measure for the per quod action, but if I may assume for the purpose of the argument that it is now expanded to consequential losses for losing a servant, not just the cost of his labour measured by ordinary rates of pay, then that brings the per quod action into more exacerbated conflict with the more general rules of recovery for pure economic loss.  That is the collision that I was talking about before lunch.

So if those developments with respect to the measure of damages stand, it only highlights the problem of having this action continue and the embarrassment that it is to the otherwise coherent principles of recovery under the concepts of where a duty of care will and will not obtain.  That is the only real point of reply in relation to the per quod question.

GUMMOW J:   What is Justice Fullagar saying the measure was?

MR FAGAN:   Well, with due respect, it is not clear entirely to me, but at page 290 after the reference to the case of Hodsoll v Stallibrass, his Honour said:

There can be no justification for saying that the measure of damage is provided even prima facie by the amount paid as wages to the servant during the incapacity, even if wages are so paid in pursuance of a legal obligation.  It is simply not true to say that they represent the loss suffered. 

At the beginning of that paragraph, his Honour stated:

In master and servant cases . . . a great mistake to say the damages were ever “at large” . . exemplary damages might be allowable if the wrong were malicious . . . in a case of negligence ‑ ‑ ‑

CRENNAN J:   He is saying, is he not, by reference back to Justice McTiernan in Quince’s Case that items such as wages or medical expenses do not really capture fully what the value of services of a special employee may be, and he is not setting up, as I understood it – he is not stating how one would go about it.  He is just referring to what he calls anyway, as I pointed out before, the practical impossibility in some circumstances of applying the conception of damages for loss of service to a special employee.

MR FAGAN:   Yes, an employee of the Crown, yes.  But what his Honour said did not, in my respectful submission, appear to accept that the damages would be all consequential losses of, for example, of a interruption to the conduct of a business or the like and that was what appeared to be ‑ ‑ ‑

GUMMOW J:   The sentence at about point 6 on 290 seems to sum up his Honour’s view:

It is, in truth, idle to attempt to assess the value to the Crown of the services of a police constable or a soldier.

MR FAGAN:   But it is all about ‑ ‑ ‑

GUMMOW J:   It does not necessarily follow it is idle in this case – the present case, I mean.

MR FAGAN:   No, what that appears to be all directed though to evaluating the services that are lost as opposed to considering consequential losses which might flow from the absence of the employee and by his Honour stating, further up on page 290, that damages were not at large, that would appear at least at that stage of the development of the law not to have permitted a consequential loss type of claim.  But there follows Mercantile v Argent and if it is there appeared to have been accepted, although there does not seem to have been a great deal of consideration given to it or authority cited or the position much examined, but it was said in that case that there was no error in principle in allowing the damages in the nature of the loss for the business as a whole through losing a particular key employee, as I say, that brings the whole per quod action into a fully serious collision with the scope of the law of negligence, with respect to pure economic loss. 

So then may I turn to the points that I wish to make in reply about the common law duty of care case.  When I addressed your Honours I was not aware of the pleading point that my learned friend raised, but may I just point out that in the appeal book at page 10 what was pleaded was that – this is paragraph 23:

Fugro and Penberthy were aware or should have been aware –

As put in the alternative.  And 23.2 was:

any failure to exercise reasonable care and skill in the piloting of the Plane was likely to result in death or injury to the passengers, and resultant economic loss –

No more specifics than that and that is what was admitted.  I was not aware of that when I addressed your Honours.  Perhaps I should have been, but having seen that, it is relevant to note that for the purpose of determining whether a duty of care with respect to pure economic loss arises, the question of what is foreseen or ought to have been foreseen with respect to economic loss to the particular plaintiff will not be answered by a broad admission of new or ought to have known just economic loss without any specification.  In Perre v Apand at paragraph 11 the Chief Justice said:

Vulnerability can arise from circumstances other than reliance.

His Honour referred to the obvious “vulnerability of a specific plaintiff” in that case, and went on to say –

the degree (and nature) of foreseeability may have an important bearing on whether there is a duty of care.

In the same case at 104, Justice McHugh said at paragraph 104:

What is likely to be decisive, and always of relevance, in determining whether a duty of care is owed is the answer to the question, “How vulnerable was the plaintiff to incurring loss by reason of the defendant’s conduct?”  So also is the actual knowledge of the defendant concerning that risk and its magnitude.

That was further expanded by his Honour in paragraph 141.  Justice Gaudron at paragraph 41 thought it particularly significant that in the particular case the defendant, the respondent on the appeal:

knew that there was a class of persons who availed themselves of the right to sell potatoes in the Western Australian market and/or who used their property and equipment to produce potatoes for that market.  It knew that those who did so would lose those rights –

and so on.  What I am pointing out is that in this area of assessing what the defendant knew or ought to have known so far as it bears upon the Court deciding whether or not a duty of care with respect to pure economic loss is owed, the magnitude of the risks to the plaintiff, the extent of the economic loss, the particulars of it and the degree of knowledge are significant.  Here the Court of Appeal was able, quite correctly, to find at page 422 that:

there was no finding, or evidence to support it, that Mr Penberthy knew or ought reasonably to have known of the risk that Nautronix would suffer economic loss of the type claimed.  Nautronix’s economic loss claim depended upon establishing exceptional circumstances –

That is what was deficient in Nautronix attempt to demonstrate a duty of care for pure economic loss.  It is not answered by looking at that generalised pleading position. 

With respect to vulnerability, our proposition is that the onus rests on the plaintiff to demonstrate its vulnerability.  It is for the plaintiff to make out the circumstances which will constitute criteria for the Court finding a duty of care with respect to pure economic loss.  It was for the plaintiff to show that they could not protect themselves.  The suggestion made by my learned friend that it was a failure of the defendant to adduce evidence about what contractual outcomes could have been made to protect Nautronix is therefore beside the point.

I might say that that understanding of the burden resting upon the plaintiff to prove all these criteria to establish the duty, and in particular with respect to vulnerability, has generally been accepted by the trial courts and intermediate appellate courts in applying these principles from Perre and from Woolcock Street Investments.  In fact, it has, on at least a couple

of occasions that I am aware of, been said that it ought to be pleaded, that the vulnerability should be pleaded, and the other party put on notice of where is the vulnerability so that the factual issue can be properly contested, which will determine whether the duty is owed.

The last point is that there was reference made by my learned friend to the question of insurance, and it was said, well, a party’s ability to obtain insurance does not mean that that party – Nautronix, in this case – is not vulnerable.  We are not relying on the proposition.  We are not suggesting that the absence of vulnerability comes from a capacity for Nautronix to have insured itself.  That was not put at all.  Justice McHugh, I think, in Perre v Apand particularly stated that the opportunity to obtain insurance should be put to one side.  It is a question as between the parties.  That is not the way we are putting our case.  We are talking about failure to prove what could have been negotiated in terms of a distribution of risk as between Nautronix and Fugro in undertaking the air charter.  Those are the only points in reply.  May it please the Court.

FRENCH CJ:   Yes, thank you, Mr Fagan.  The Court will reserve its decision.  The Court adjourns until 2.15 tomorrow afternoon.

AT 4.40 PM THE MATTER WAS ADJOURNED