Courtney v Medtel Pty Ltd

[2003] FCA 36

FEDERAL COURT OF AUSTRALIA

Courtney v Medtel Pty Limited [2003] FCA 36

TRADE PRACTICES – consumer protection – representative proceedings – batch of
pacemakers subject to hazard alert because of risk of premature failure due to battery depletion – only a small proportion of batch actually fail prematurely – all pacemakers subject to a “background” risk of premature failure – whether superadded risk of failure due to use of a particular solder in the manufacturing process constitutes pacemakers unfit for purpose or not of merchantable quality – ss 74B and 74D of the Trade Practices Act 1974 (Cth).

COMPENSATION – whether minor stress and anxiety compensable under ss 74B and 74D of the Trade Practices Act 1974 (Cth) – assessment of compensation in respect of pain and suffering following explantation of pacemaker – whether compensation available under ss 74B and 74D in respect of past gratuitous services provided to patient following explantation of pacemaker.

Trade Practices Act 1974 (Cth) ss 4B, 68, 71, 74A, 74B, 74D, 74K, 82
Federal Court of Australia Act 1976 (Cth), ss 33J, 51A
Trade Practices Amendment Act 1978 (Cth)
Therapeutic Goods Act 1989 (Cth) s 30(1), (2)(b)

Federal Court Rules O 29 r 2

Law Reform (Manufacturers Warranties) Ordinance 1975 (ACT)
Supreme Court Rules (NSW), Schedule J
Manufacturers Warranties Act 1974 (SA)

Sale of Goods Act 1893 (UK)
Supply of Goods (Implied Terms) Act 1973 (UK)
Sale of Goods Act 1979 (UK)
Supply of Goods Act 1994 (UK)

Uniform Law on the International Sale of Goods art 33(1)(d)
United States Uniform Commercial Code s 2-314(2)(c)

Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 cited.
Director of Fisheries (Northern Territory) v Arnhem Land Aboriginal Land Trust (2001) 109 FCR cited.
Australian Knitting Mills Ltd v Grant (1933) 50 CLR 387 discussed.
Rasell v Cavalier Marketing (Australia) Pty Ltd [1991] 2 Qd R 323 followed.
Rogers v Parish (Scarborough) Ltd [1987] QB 933 cited.
Bristol Tramways & Carriage Co Ltd v Fiat Motors Ltd [1910] 2 KB 831 cited.
Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 cited.
Graham Barclay Oysters Pty Ltd v Ryan (2000) 102 FCR 307 followed.
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 cited.
George Wills and Co Ltd v Davids Pty Ltd (1957) 98 CLR 77 distinguished.
O’Brien v Medtronic, Inc 149 Wis 2d 615; 439 NW 2d 151 (1989) cited.
Khan v Shiley, Inc 217 Cal. App. 3d 848; 266 Cal Rptr 106 (1990) cited.
Larsen v Pacesetter Systems Inc 74 Haw 1, 837 P 2d 1273 (1992) cited.
Michael v Shiley, Inc, 46 F 3d 1316 (1995) cited.
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 followed.
Tame v New South Wales (2002) 191 ALR 449 discussed.
Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445 cited.
Zoneff v Elcom Credit Union Ltd (1990) ATPR 41-058 cited.
Farley v Skinner [2002] 2 AC 732 cited.
Griffiths v Kerkemeyer (1977) 139 CLR 161 followed.
Van Gervan v Fenton (1992) 175 CLR 327 followed.
Grincelis v House (2000) 173 ALR 564 followed.
MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657 followed.
White Industries (Qld) v Flower & Hart (No 2) [2000] FCA 1132 followed.

Trade Practices Act Review Committee, Report to Minister for Business and Consumer Affairs (August 1976), par 9.127
Cth Parl Deb, HR, 13 April 1978, at 1507 (Minister for Business and Consumer Affairs). 
G M Gregg and T D Tzovaras, “The Liability of Manufacturer and Importers under the Trade Practices Amendment Act 1978” (1979) 10 Fed LR 398
Benjamin’s Sale of Goods (6^th ed 2002), par 11-026)
The Law Commission and the Scottish Law Commission, Exemption Clauses in Contracts – First Report: Amendments to the Sale of Goods Act 1893 (Law Com No 24; Scot Law Com No 12; 1969), par 42

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in par 1 of the Eighth Amended Statement of Claim v MEDTEL PTY LIMITED & ANOR
N 661 of 2000

SACKVILLE J
SYDNEY
5 FEBRUARY 2003

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 661 OF 2000

BETWEEN:

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in paragraph 1 of the Eighth Amended Statement of Claim
APPLICANT

AND:

MEDTEL PTY LIMITED
FIRST RESPONDENT

PACESETTER INC a Delaware corporation with its principal place of business 15900 Valley View Court, Sylmar, California
SECOND RESPONDENT

JUDGE:

SACKVILLE J

DATE OF ORDER:

5 FEBRUARY 2003

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The parties file written submissions within fourteen days as to the appropriate orders and directions for the further conduct of the proceedings.

2.The matter be listed for further directions on 27 February 2003.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 661 OF 2000

BETWEEN:

KEVIN GLYNN COURTNEY in a representative capacity on behalf of the persons referred to in paragraph 1 of the Eighth Amended Statement of Claim
APPLICANT

AND:

MEDTEL PTY LIMITED
FIRST RESPONDENT

PACESETTER INC a Delaware corporation with its principal place of business 15900 Valley View Court, Sylmar, California
SECOND RESPONDENT

JUDGE:	SACKVILLE J
DATE:	5 FEBRUARY 2002
PLACE:	SYDNEY

REASONS FOR JUDGMENT
INDEX

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [1]
THE SEPARATE QUESTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [6]
THE LEGISLATION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [19]
THE PLEADINGS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [24]
COMMON GROUND........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [37]

WITNESSES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [40]
THE HEART AND PACEMAKERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [44]

THE HEART........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [44]

PACEMAKERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [53]
PACEMAKER DEPENDENCY........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [63]
IMPLANTATION AND REPLACEMENT SURGERY........ ........ ........ ........ ........ ........ ...... [65]

THE PROBLEM OF DENDRITIC GROWTH........ ........ ........ ........ ........ ........ ........ ........ .... [68]
THE HAZARD ALERT PACEMAKERS........ ........ ........ ........ ........ ........ ........ ........ ........ .... [78]

COMMENCEMENT OF OPERATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ... [78]
THE INVESTIGATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [80]
THE HAZARD ALERT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [96]
THE HAZARD ALERT PACEMAKERS AND YELLOW SPOOL SOLDER........ ........ ... [102]

CAUSE OF THE PREMATURE DEPLETION OF BATTERIES........ ........ ........ ........ .... [109]

THE CONTENTIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [109]
THREE SIDE ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [114]
THE SOURCES OF IONIC CONTAMINATION........ ........ ........ ........ ........ ........ ........ .... [121]

EXTENT OF PREMATURE FAILURE........ ........ ........ ........ ........ ........ ........ ........ ........ .... [133]

“BACKGROUND” FAILURE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [133]
THE SUPERADDED RISK........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [136]
WHEN DID FAILURES OCCUR?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [144]

EXPECTATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [146]

THE APPLICANT’S PACEMAKER........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [149]

IMPLANTATION OF THE PACEMAKER........ ........ ........ ........ ........ ........ ........ ........ ..... [149]
EXPLANTATION OF THE PACEMAKER........ ........ ........ ........ ........ ........ ........ ........ ..... [158]

SUBMISSIONS ON LIABILITY........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [165]

THE APPLICANT’S SUBMISSIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [165]
THE RESPONDENTS’ SUBMISSIONS........ ........ ........ ........ ........ ........ ........ ........ ........ .. [174]

REASONING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [181]

THE ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [181]
THE CONSTRUCTION OF S 74D OF THE TP ACT........ ........ ........ ........ ........ ........ ..... [188]
APPLICATION OF S 74D OF THE TP ACT........ ........ ........ ........ ........ ........ ........ ........ .. [199]

The Purpose........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [199]
Fitness for Purpose........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [204]

The in-situ Failures........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [206]
The Explanted Pacemakers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [223]

Answering the Respondents’ Submissions........ ........ ........ ........ ........ ........ ........ ........ . [227]

Devices Remaining in situ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [237]

United States Authorities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [239]

THE APPLICATION OF s 74B OF THE TP ACT........ ........ ........ ........ ........ ........ ........ .. [241]

THE APPLICANT’S CLAIM FOR COMPENSATION........ ........ ........ ........ ........ ........ .... [243]

DAMAGES FOR STRESS AND ANXIETY........ ........ ........ ........ ........ ........ ........ ........ ...... [247]
PAIN AND SUFFERING, ETC........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [252]
GRIFFITHS V KERKEMEYER DAMAGES........ ........ ........ ........ ........ ........ ........ ........ ... [255]

INTEREST........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [258]

CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [260]

INTRODUCTION

1. These are representative proceedings brought pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”).  They arise out of a “Hazard Alert” issued on 5 June 2000 by the Therapeutic Goods Administration (“TGA”), then a division of the Commonwealth Department of Health and Aged Care.  The Hazard Alert related to a particular production run identified by serial numbers, of St Jude Telectronics Tempo Pacemakers, models 2102, 2902, 1102 and 1902.  The Hazard Alert stated that it had been issued

   “due to an increased risk of early battery depletion and a resulting no output condition.  The failure mechanism identified is a potential short circuit at the site of the battery/hybrid connector”.

   (I refer to Tempo Pacemakers models 2102, 2902, 1102 and 1902 as the “Tempo Pacemakers”.  I refer to Tempo Pacemakers which were surgically implanted in Australia and were subject to the Hazard Alert as the “Hazard Alert Pacemakers”.  When I simply use the expressions “Pacemaker” or “Pacemakers”, the context should make the meaning clear.)

2. A pacemaker is a device, comprising a pulse generator (including a battery) and one, two or three leads, which is implanted into the body of a patient and connected via the leads to the heart.  In essence, a pacemaker monitors the heart’s rate and rhythm and produces electrical impulses when the patient’s own heart does not.  It is designed to restore the proper heart rate and rhythm of a patient whose heart is subject to arrhythmia.

3. Only a relatively small proportion of the Hazard Alert Pacemakers have failed or will fail, in the sense that they have experienced or will experience accelerated battery depletion leading to premature loss of function.  The difficulty presented by the case is that, unless an implanted Hazard Alert Pacemaker has already ceased to function or shown signs of malfunction in situ, it is not possible to ascertain whether it will actually lose function prematurely until it is explanted (removed) and tested outside the patient’s body.

4. The applicant says, among other things, that each Hazard Alert Pacemaker is unfit for the purpose for which it was acquired by the “consumer” (the patient in whom it was implanted). He also says that each such Pacemaker is not of merchantable quality. Thus, so he argues, he and each group member whom he represents, is entitled to compensation pursuant to ss 74B and 74D of the Trade Practices Act 1974 (Cth) (“TP Act”) from the first respondent (“Medtel”), the Australian distributor of Tempo Pacemakers.  This is so notwithstanding that the vast majority of the Hazard Alert Pacemakers (including those that have been explanted as a precautionary measure) have not been and will not be subject to early battery depletion or any other form of premature loss of function. 

5. The second respondent (“Pacesetter”), the United States manufacturer of the Tempo Pacemakers, offers, in conjunction with Medtel, a warranty to patients who have a Pacemaker implanted. The warranty provides that where a Pacemaker is subject to a hazard alert and is replaced, regardless of whether it exhibits the problem identified in the hazard alert, the patient is entitled to receive a replacement Pacesetter pacemaker and up to $A2,000 of unreimbursed medical expenses associated with the replacement procedure. The respondents say that they are under no further liability to a patient who has received a Hazard Alert Pacemaker. In particular, Medtel disputes that it is liable to compensate patients pursuant to ss 74B or 74D of the TP Act merely because those patients face or have faced a greater than usual risk that their Hazard Alert Pacemakers will prove to be defective.

   THE SEPARATE QUESTION

6. The present proceedings were commenced on 22 June 2000 by the applicant, one of the patients affected by the Hazard Alert.  Three respondents were originally joined, but only two remain.  Medtel, a company incorporated in New South Wales, markets and distributes products in Australia.  Since January 1998, Medtel has been the distributor in Australia of the Pacemakers under the business names “Cardiac Rhythm Solutions”, “Medtel Australia” and “Telectronic Pacing Systems”.  Pacesetter, now the second respondent, is incorporated in Delaware, in the United States of America.  Its principal place of business is Sylmar, California.  Pacesetter is and has been since March 1997 the manufacturer of the Tempo Pacemakers.  It is a wholly owned subsidiary of St Jude Medical Inc (“St Jude”) and at the relevant times constituted St Jude’s Cardiac Rhythm Management Division (“CRMD”).

7. As is often the case with representative proceedings, the pleadings have undergone many amendments.  According to the eighth amended application (the “application”), the applicant brings the proceedings on his own behalf and on behalf of the following class of persons (“group members”):

   “(a)persons who have had a St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102, 2902 (singularly, a ‘Pacemaker’, and together, the ‘Pacemakers’), surgically implanted by a doctor in Australia, where that Pacemaker was the subject of a hazard alert issued on or about 5 June 2000 (the ‘Hazard Alert’), or would have been the subject of the hazard alert had the Pacemaker not already been explanted, including persons who have had or may in the future have surgical removal of the Pacemaker; and

   (b)the legal personal representatives of the estates of deceased persons who had a St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102, 2902, surgically implanted by a doctor in Australia, where that Pacemaker was the subject of the Hazard Alert, or would have been the subject of the hazard alert [sic] had the Pacemaker not already been explanted, including persons who had surgical removal of the Pacemaker.”

   The pleadings allege that there are 992 group members, although the evidence suggests that the Hazard Alert in fact applied to 1,048 Pacemakers implanted in Australia. After allowing for those group members who have opted out of the proceedings pursuant to s 33J of the Federal Court Act, it appears the represented group consists of approximately 616 persons who had a Pacemaker surgically implanted in Australia (“the remaining group members”).  (This figure includes the legal personal representatives of the estates of deceased persons who had Tempo Pacemakers surgically implanted by a doctor in Australia.  Each such person has been counted as one group member although it is that person’s legal representatives, of whom there may be more than one, who actually form part of the represented group.)

8. It will be seen that the remaining group members include at least three different sub-groups, namely:

   (i)those whose Hazard Alert Pacemakers have remained in situ notwithstanding the Hazard Alert;

   (ii)those whose Hazard Alert Pacemakers have been explanted (either before or after the Hazard Alert) and, on examination, the Pacemakers have been found not to be functioning normally; and

   (iii)those whose Hazard Alert Pacemakers have been explanted and, on subsequent examination, have been found to be functioning normally.

   The applicant falls into the third sub-group.  His Pacemaker was explanted on 1 September 2000 at Geelong Hospital in Victoria, and replaced with a new pacemaker.  Subsequent testing revealed the explanted Pacemaker to be operating normally.

9. The eighth amended statement of claim (“ASC”) pleads a number of causes of action, as follows:

   • an action for compensation under s 74B of the TP Act against Medtel by reason of its supplying goods (the Hazard Alert Pacemakers) not reasonably fit for the purpose for which they were acquired by the consumer (the patient);
   • an action for compensation under s 74D of the TP Act against Medtel by reason of its supplying goods to patients that were not of merchantable quality;
   • an action for compensation under s 75AD of the TP Act against Medtel by reason of its supplying goods manufactured by it that had a defect causing an individual to suffer injuries;
   • an action seeking relief against both respondents by reason of misleading and deceptive conduct or false representations in contravention of ss 52 and 53(a) of the TP Act; and
   • an action founded in breach of a duty of care said to be owed by each respondent to the applicant and the remaining group members.

10. The parties agreed between themselves that there should be a separate determination of the causes of action against Medtel arising under ss 74B and 74D of the TP Act. To this end they jointly proposed that an order should be made pursuant to Federal Court Rules (“FCR”), O 29 r 2, that certain issues be determined separately and in advance of all other issues in the proceedings.  The order is as follows:

    “The claims made in the Eighth Amended Statement of Claim under sections 74B and 74D of the Trade Practices Act 1974 (Cth) raised by paragraphs 1-3, 6-16, 18-43, 69, 70(a)(i) and (ii) and 70(e), and paragraphs 67(a) and (b), 68, 70(b), (c) and (g)-(i) insofar as they relate to the injury, loss and damage allegedly suffered by the Applicant and any other group member called during the hearing, be determined separately and in advance of the determination of all other issues in these proceedings by resolution of the following questions:

    a.Whether the Pacemakers are subject to the Fault as defined in the Eighth Amended Statement of Claim:

    b.Whether:

    (i)the Pacemakers are not reasonably fit for their purpose within the meaning of section 74B of the Trade Practices Act;

    (ii)the Pacemakers are not of merchantable quality within the meaning of section 74D of the Trade Practices Act;

    c.Whether, as a result of:

    (i)the Pacemakers not being reasonably fit for their purpose;

    (ii)the Pacemakers not being of merchantable quality;

    (iii)the Applicant has suffered and may continue to suffer injury, loss and damage.”

1. The difficulties associated with attempts to formulate separate questions for determination are well-known: cf Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, at 355-360 (joint judgment); Director of Fisheries (Northern Territory) v Arnhem Land Aboriginal Land Trust (2001) 109 FCR at 519-522, per Sackville J. This case is no exception. It is appropriate to make five observations at the outset.

2. First, the order refers to “the Pacemakers”.  The application defines “Pacemakers” to mean St Jude Medical Tempo Pacemaker Model numbers 1102, 1902, 2102, 2902.  The order, as I understand the position, is intended to raise questions concerning a subset of “Pacemakers” (as that term is defined in the application).  That is, the order is concerned with those “Pacemakers” that were surgically implanted in Australia and were subject to the Hazard Alert (including those that would have been subject to the Hazard Alert had they not already been explanted).  In other words, the expression “Pacemakers” in the order is apparently intended to be equivalent to “Hazard Alert Pacemakers” as I have used the latter expression.

3. As will be seen, the Hazard Alert was expressed to apply to a defined batch of Tempo Pacemakers, being those within the range of serial numbers OU6100663 to OU6227334.  This batch corresponded to Tempo Pacemakers manufactured at the Sylmar facility between March 1997 and 31 December 1998.  Only about one tenth of the Tempo Pacemakers bearing those serial numbers were subject to the Hazard Alert, since most of the batch were exported to countries other than Australia and implanted into patients in those countries.

4. Secondly, Mr Bannon SC, who appeared with Mr J Clarke for the applicant, acknowledged in opening that the expression “the Pacemakers” was inappropriate, since the thrust of the applicant’s case was that each and every one of the Hazard Alert Pacemakers was neither fit for the purpose for which it was acquired nor of merchantable quality.  Mr Bannon suggested that “the Pacemakers” should be read as meaning “each of the Pacemakers”, and that consequential grammatical changes should be made to the questions.  He did not, however, propose that the order for the determination of separate questions be amended.

5. Thirdly, the order contemplates that the hearing might deal with the pleaded claims not only of the applicant but of any other group member called during the hearing. In fact no remaining group member, other than the applicant himself, gave evidence at the hearing. Accordingly, this judgment is concerned only with the applicant’s claim to compensation under ss 74B and 74D of the TP Act, although the order calls for that claim to be determined by answering question (c).

6. Fourthly, it follows from the terms of the separate questions that it is no part of this phase of the case to determine whether the respondents, or either of them, should have done more to detect or remedy the “Fault” alleged in the ASC. That issue presumably will arise if the causes of action founded on alleged breaches of a duty of care proceed to trial. But questions of negligence as such are not relevant to the pleaded claims arising under ss 74B and 74D of the TP Act.  In this connection, it should be noted that some of the evidence, particularly certain material in Dr Brydon’s affidavits, would seem to have been relevant only to a cause of action founded on a breach of a duty of care.  Mr Walker SC, who appeared with Mr S S Clark for the respondents, did not attempt, in his word, to “fillet” this material. Mr Walker’s restraint was due to the fact that Mr Bannon accepted that it would not be appropriate for the Court to make any findings in this phase of the proceedings that relate only to the alleged breaches of duty. 

7. Fifthly, despite the respondents having consented to the order for the separate determination of the identified questions, Mr Walker ultimately submitted that it was unnecessary or inappropriate to answer them.  This change of heart on the part of the respondents reflected the difficulties to which I have referred and, it is fair to say, the fact that the questions were formulated prior to the filing of the eighth (and final) version of the statement of claim.

8. In order to understand the issues the separate questions were intended to address, it is necessary to set out the relevant provision of the TP Act and to recount the case pleaded by the applicant.

   THE LEGISLATION

9. Section 74B of the TP Act imposes liability on the manufacturer of goods supplied to a consumer, where the goods are not reasonably fit for the particular purpose for which they were acquired. Section 74B, which is in Div 2A of Part V of the TP Act, provides as follows:

   “(1)     Where

   (a)a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;

   (b)a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;

   (c)the goods are acquired by the consumer for a particular purpose that was, expressly or by implication, made known to the corporation, either directly, or through the person from whom the consumer acquired the goods or a person by whom any antecedent negotiations in connexion with the acquisition of the goods were conducted;

   (d)the goods are not reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied; and

   (e)the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not reasonably fit for that purpose;

   the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

   (2)     Subsection (1) does not apply:

   (a)if the goods are not reasonably fit for the purpose referred to in that subsection by reason of:

   (i)an act or default of any person (not being the corporation of a servant or agent of the corporation); or

   (ii)a cause independent of human control;

   occurring after the goods have left the control of the corporation; or

   (b)where the circumstances show that the consumer did not rely, or that it was unreasonable for the consumer to rely, on the skill or judgment of the corporation.”

10. Section 74D of the TP Act imposes liability on a corporation that supplies goods to a consumer that are not of merchantable quality. Section 74D, also in Div 2A, provides as follows:

    “(1)     Where:

    (a)a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;

    (b)a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer;

    (c)the goods are not of merchantable quality; and

    (d)the consumer or a person who acquires the goods from, or derives title to the goods through or under, the consumer suffers loss or damage by reason that the goods are not of merchantable quality;

    the corporation is liable to compensate the consumer or that other person for the loss or damage and the consumer or that other person may recover the amount of the compensation by action against the corporation in a court of competent jurisdiction.

    (2)     Subsection (1) does not apply:

    (a)if the goods are not of merchantable quality by reason of:

    (i)an act or default of any person (not being the corporation or a servant or agent of the corporation); or

    (ii)a cause independent of human control;

    occurring after the goods have left the control of the corporation;

    (b)as regards defects specifically drawn to the consumer’s attention before the making of the contract for the supply of the goods to the consumer; or

    (c)if the consumer examines the goods before that contract is made, as regards defects that the examination ought to reveal.

    (3)Goods of any kind are of merchantable quality within the meaning of this section if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to:

    (a)       any description applied to the goods by the corporation;

    (c)the price received by the corporation for the goods (if relevant); and

    (d)all the other relevant circumstances.”

11. Section 4B(1) of the TP Act provides that a person shall be taken to have acquired particular goods as a consumer if and only if (relevantly) the price of the goods did not exceed the prescribed amount and the person did not acquire the goods for the purpose of resupply or for the purpose of using them up or transforming them in trade or commerce.

12. Section 74A provides as follows:

    “(1)     …

    (2)     In this Division

    (a)a reference to goods shall, unless the contrary intention appears, be read as a reference to goods of a kind ordinarily acquired for personal, domestic or household use or consumption;

    …

    (b)a reference to the quality of goods includes a reference to the state or condition of the goods;

    …

    (3)     If:

    (a)a corporation holds itself out to the public as the manufacturer of goods;

    (b)a corporation causes or permits the name of the corporation, a name by which the corporation carries on business or a brand or mark of the corporation to be applied to goods supplied by the corporation; or

    (c)a corporation causes or permits another person, in connexion with the supply or possible supply of goods by that other person, or in connexion with the promotion by that other person by any means of the supply or use of goods, to hold out the corporation to the public as the manufacturer of the goods;

    the corporation shall be deemed, for the purposes of this Division, to have manufactured the goods.

    (4)     If:

    (a)goods are imported into Australia by a corporation that was not the manufacturer of the goods; and

    (b)at the time of the importation the manufacturer of the goods does not have a place of business in Australia;

    the corporation shall be deemed, for the purposes of this Division, to have manufactured the goods.”

13. Section 74K of the TP Act invalidates any term of a contract that purports to exclude, restrict or modify any liability of a person to compensate another person that may arise under Div 2A.

    THE PLEADINGS

14. The ASC first pleads that the action is brought by the applicant on his own behalf and on behalf of the represented group which is identified in the same terms as in the application.  Accordingly, the ASC uses the term “Pacemaker” to refer to the St Jude Medical Tempo Pacemaker, model number 1102, 1902, 2102 or 2902.

15. After pleading a number of non-contentious matters, the applicant pleads that he was supplied with a Pacemaker, model number VR 1102 (“the applicant’s Pacemaker”), “for his personal use” on 21 July 1999, by reason of it being surgically implanted into his body on that date (par 9).  He says that he was a “consumer” of the applicant’s Pacemaker within the meaning of the TP Act (par 10).

16. The applicant alleges that in or about June 2000 he was notified by Geelong Hospital that his Pacemaker was the subject of a hazard alert and required testing (par 11).  The applicant underwent a medical examination shortly thereafter (par 12) and was advised by a cardiologist to have his Pacemaker removed surgically (par 13).  The applicant’s Pacemaker was removed at Geelong Hospital on 1 September 2000 and a new pacemaker implanted (par 14).

17. The Pacemaker is described in the ASC as follows (par 16):

    “The Pacemaker is a cardiac device manufactured and used for the particular purpose of being surgically implanted on the advice of doctors inside the human body attached to the heart so as to restore and maintain a normal heart beat by providing an electrical impulse or energy or beat that is carried through leads to the heart.  The Pacemaker is triggered by an irregular pulse in the user to send a series of light electric pulses activating a regular heart beat.  Once fitted, the Pacemaker can only be used for the personal use of the user.”

18. Paragraph 18 of the ASC alleges the “Fault” referred to in the order providing for the determination of the separate questions:

    “At all material times, the Pacemakers were designed or manufactured in such a way or with such inputs or under such conditions that:

    (a) (i)  they were prone to accelerated battery depletion and consequential failure, whereby the Pacemaker may cease to function without any prior warning or indication; and

    (ii)their longevity indicators or measurements could not be depended upon to give a reliable estimate of the Pacemaker’s remaining longevity; or

    (b)the possibility that they had the characteristics identified in subparagraphs (i) and (ii) above could not be excluded

    (each of the circumstances referred to in (a) and (b) being hereinafter referred to as ‘the [F]ault’).”

19. It is said that on or about 5 June 2000, the Pacemakers were the subject of the Hazard Alert at the direction of the TGA, which alert “arose as a result of a complication arising out of the Pacemakers having the Fault” (par 19). 

20. The ASC then pleads that the Pacemakers were “goods” within the meaning of the TP Act (par 20) and that at the material times:

    • Pacesetter was the manufacturer of the Pacemakers (par 21);
    • Pacesetter did not have a place of business within Australia (par 22);
    • Medtel imported the Pacemakers into Australia (par 23); and
    • Medtel caused or permitted its name to be applied to the Pacemakers for sale in Australia (par 25).

    Accordingly, it is said that Medtel is deemed to be the manufacturer of the Pacemaker by virtue of s 74A(3) or, alternatively, s 74A(4) of the TP Act (par 26).

21. The chain of supply is pleaded as follows:

    • the applicant and each group member was supplied with a Pacemaker by his or her treating hospital on the advice of his or her treating doctor (par 27);
    • Medtel, as the deemed manufacturers of the Pacemakers, supplied Pacemakers to the treating hospitals for the purpose of resupply to consumers, including the applicant and group members (par 28); and
    • each of the treating hospitals acquired the pacemakers from Medtel for resupply to other persons, including the applicant and group members (par 29).

22. It is then alleged that Pacesetter promoted the Pacemakers in trade or commerce between Australia and a place outside Australia, namely the United States (par 30).  Medtel is said to have promoted and supplied Pacemakers to treating hospitals in trade and commerce in Australia (par 33).

23. The claim under s 74B of the TP Act is pleaded as follows:

    • by reason of the matters pleaded in par 33, Medtel’s conduct referred to in pars 27-29 was in trade or commerce (par 35);
    • the applicant and the group members acquired the Pacemakers as consumers of the Pacemakers for the particular purpose for which they were manufactured, that is for ensuring the regular beating of the heart as pleaded in par 16 (par 36);
    • Medtel was aware of the purpose for which all users of the Pacemaker acquired them (par 37);
    • the Pacemakers acquired by each of the applicant and the group members were subject to the Fault (par 38);
    • accordingly, the Pacemakers acquired by each of the applicant and the group members were not reasonably fit for the particular purpose for which they were acquired within the meaning of s 74B of the TP Act (par 39).

24. The claim under s 74D is pleaded by repeating the allegations in pars 27-29, 33 and 38 and claiming that, accordingly, the Pacemakers acquired by each of the applicant and the group members were not of merchantable quality within the meaning of s 74D (pars 40-43).

25. It is alleged that by reason of the Pacemakers not being reasonably fit for their purpose and not being of merchantable quality, each of the applicant and the group members has suffered and may continue to suffer loss and damage (par 67).  The applicant claims to have suffered stress, anxiety, worry and grave concern at the risk of imminent failure of the applicant’s Tempo and (albeit to a “lesser extent”) since the implant of the new pacemaker on 1 September 2000 (par 69(a), (b)).  He also claims that the invasive surgery of 1 September 2000 caused hurt, discomfort and loss of enjoyment of life, as well as economic loss (par 69(d), (e), (f)).

26. The relief sought by the applicant includes declarations that the Pacemakers were not reasonably fit for their purpose within the meaning of s 74B of the TP Act and were not of merchantable quality within the meaning of s 74D of the TP Act (par 70(a)(i) and (ii)). The applicant also seeks compensation pursuant to ss 74B and 74D (par 70(b) and (d)).

    COMMON GROUND

27. Section 74B(1)(a) and (b) and s 74D(1)(a) and (b) are identical. Each sub-paragraph applies where:

    “(a)a corporation, in trade or commerce, supplies goods manufactured by the corporation to another person who acquires the goods for re-supply;

    (b)a person (whether or not the person who acquired the goods from the corporation) supplies the goods (otherwise than by way of sale by auction) to a consumer”.

28. There was no dispute that these provisions were satisfied in the present case, for the following reasons:

    (i)Medtel admitted that the Pacemakers are “goods” as defined in s 74A(2) of the TP Act, being goods of a kind ordinarily acquired for the personal use of the patients in whom they have been implanted.

    (ii)Medtel admitted that, although the Pacemakers were manufactured in Sylmar, California, it caused or permitted a name by which it carried on business, namely “Telectronics”) to be applied to the goods (the Pacemakers) supplied by it. The consequence is that s 74A(3) deems Medtel to have manufactured the goods. In any event, Medtel did not dispute that the terms of s 74A(4) of the TP Act were satisfied, so that it is also deemed by that provision to have manufactured the goods.

    (iii)Medtel admitted that it supplied the Pacemakers to treating hospitals and doctors for the purpose of resupply to patients requiring implants of pacemakers.

    (iv)Medtel admitted that it supplied the Pacemakers in the course of its business of marketing and distributing medical devices.  It did not dispute that it thereby supplied the Pacemakers in trade or commerce.

    (v)Medtel admitted that each of the treating hospitals and doctors acquired the Pacemakers from it to resupply to other persons including the applicant and the group members.

    (vi)Since the price for each Pacemaker was under $5,000 (that is, lower than the “prescribed amount” of $40,000 under s 4B(2)(a) of the TP Act) and the applicant and the remaining group members did not acquire the goods for the purpose of resupply or to use them in trade or commerce, they had acquired the Pacemakers as “consumers”. (See also s 4B(2)(d).)

29. There was also no dispute that the applicant had a Tempo Pacemaker model number VR 1102, serial number OU 6226435, being a Pacemaker within the Hazard Alert, surgically implanted by a doctor in Australia.  By definition, each living remaining group member must also have had a Tempo Pacemaker, being a Pacemaker within the Hazard Alert, surgically implanted by a doctor in Australia (otherwise that person could not be a member of the represented group, as defined in the pleadings).  Similarly, each deceased person, whose personal legal representatives are remaining group members, must have had a Tempo Pacemaker, being a Pacemaker within the Hazard Alert, surgically implanted by a doctor in Australia.

    WITNESSES

30. The applicant gave evidence and was cross-examined.  His wife (“Mrs Courtney”) gave affidavit evidence but was not required for cross-examination. 

1. The following treating doctors gave evidence on behalf of the applicant:

   • Dr Murdock, a consultant cardiologist, practising in Geelong, Victoria.  Dr Murdock treated the applicant for cardiac disease from 1994 and selected the model of Pacemaker implanted into the applicant in July 1999.
   • Dr Purnell, Cardiology Registrar at Geelong Hospital in 1999.  Dr Purnell was not cross-examined.
   • Associate Professor Black, Director of Cardiology at Geelong Cardiology Practice.  Professor Black performed the operation to explant the applicant’s Pacemaker.  Professor Black was not cross-examined.

2. The applicant called four experts:

   • Dr Brydon, Adjunct Associate Professor of Electrical Engineering at the University of Sydney and Visiting Associate Professor in the Graduate School of Biomedical Engineering at the University of New South Wales.  Dr Brydon has qualifications in the field of design and functionality of biomedical equipment.
   • Professor Hibbert, Professor of Analytical Chemistry at the University of New South Wales.  Professor Hibbert has expertise in the subject of electrochemistry including the formation of dendrites.
   • Professor Chard, Head of Cardiothoracic Surgery at Westmead Hospital and Clinical Associate Professor at the Department of Surgery, University of Sydney.  Professor Chard’s field of expertise includes the clinical management of patients requiring pacemaker implantation and explantation.
   • Dr Yiannikas, a cardiologist holding appointments at Royal Prince Alfred and Concord Hospitals.

3. The respondents called evidence from the following:

   • Dr Fain, Senior Vice President, Development and Clinical/Regulatory Affairs at Pacesetter.  Dr Fain’s research areas include the biochemical, physiological and electrophysiological aspects of the cardiovascular system.
   • Dr Morris, from December 1999 to July 2001 the Manager – Product Analysis and Reliability, St Jude Medical, Inc, at Sylmar, California.  Dr Morris’ qualifications include a Doctor of Philosophy in Natural Science and Engineering.
   • Mr Bruneel, currently the President of Interflux USA, Inc and formerly a partner in Interflux Solder NV, a Belgian company which manufactured and supplied solder to Pacesetter.
   • Professor Hughes, Head of the Cardiothoracic Surgical Unit at Royal Prince Alfred Hospital and the Repatriation General Hospital.  From 1987 to 2002 Professor Hughes was Chairman of the Therapeutic Devices Evaluation Committee.

   THE HEART AND PACEMAKERS

   THE HEART

4. The heart consists of four chambers: the atria (left and right) at the top of the heart and the ventricles (left and right) at the bottom.  The left ventricle pumps blood around the circulatory system.  The blood returns from the body to the right atrium, which in turn pumps the blood into the right ventricle.  The right ventricle then pumps the blood to the lungs.  In the lungs, the blood gives out waste products, such as carbon dioxide, and takes in oxygen.  The oxygenated blood then returns from the lungs to the left atrium, which delivers the blood into the left ventricle, to be pumped around the body again.

5. Each “heartbeat” actually consists of two beats: a contraction of the atria, followed very shortly thereafter by a contraction of the ventricles.  The delay of a fraction of a second allows the blood pumped from the atria to fill the ventricles before the ventricles contract in a “wringer-like” way.  This efficient natural rhythm is maintained and coordinated by regulated electrical stimuli provided by bundles of specialised cells (called nodes) located in the heart muscle.

6. The heart’s natural pacemaker is the sinus or sinoatrial node (“the SA node”), a bundle of specialised muscle cells in the superior wall of the right atrium.  The SA node sends an electrical signal both to the atria and to the ventricles.  The signal to the atria causes them to contract immediately.  However, the signal to the ventricles passes through the atrioventricular node (“the AV node”), which sits within the walls between the atria and ventricles.  The AV node, another bundle of specialised muscle cells, delays the signal, causing the ventricles’ contraction to be delayed by the required fraction of a second for efficient pumping.

7. Any damage, disease or abnormality affecting the heart system can cause an arrhythmia, that is a deviation from the normal heart rhythm.  An arrhythmia that is slower than the normal rate is called a bradycardia, and an arrhythmia that is faster than the normal rate is called a tachycardia.  Symptoms of bradycardia vary widely but include syncope (fainting), transient dizziness, fatigue, exercise intolerance and congestive failure.  Arrhythmias can be detected on an electrocardiogram (“ECG”), a graphic representation of the electrical signal emitted by the cardiac tissue and recorded through electrodes placed on the patient’s skin either side of the heart.  Abnormalities of the conductive system of the heart can occur between the SA node and the atria, within the AV node and in the intraventricular conduction pathways.

8. The normal resting heart rate controlled by the SA node is around sixty to seventy beats per minute.  However, even if no signal arrives from the SA node, the ventricles will contract, but at a slower than normal rate.  This is because the AV node, and other bundles of cells further along the conduction pathway inside the ventricles, can supply their own electrical signals (but at a slower rate than the signal from the SA node).  Indeed, each individual heart muscle cell can generate its own rhythmical electrical pulse and will beat at its own intrinsic pace if placed in a dish with oxygen and nutrients.  The rate supplied by the AV node to the ventricles is usually about forty to sixty beats per minute, and the rate supplied by bundles further along than the AV node is usually about thirty to forty beats per minute.  A rate of forty beats per minute or less may be insufficient to pump enough blood around the body to maintain consciousness.

9. The two most common diseases which affect the heart’s natural rhythm involve either the SA node or the electrical conduction system within the atria and ventricles.  When disease involves the SA node it causes a condition usually known as “sick sinus syndrome” or “sinus node dysfunction”.  Sick sinus syndrome can be asymptomatic, or manifested by symptoms associated with bradycardia, or by pauses in heartbeat.  However, many patients with SA node problems have occasional tachycardia.  If sinus bradycardia or sinus pauses produce significant symptoms, the insertion of a pacemaker is generally indicated.  If the patient is asymptomatic, a pacemaker may still be warranted, for example where the heartbeat falls below forty beats per minute or there are sinus pauses exceeding three seconds during waking hours.

10. Atrioventricular block (“AV Block”) or heart block occurs when the conduction of the electrical signal from the atria to the ventricles is impaired by damage, disease or abnormality.  There are three types of heart block: first degree, where the signals get through, but are delayed; second degree, where some, but not all of the signals get through from the atria to the ventricles; and third degree, or complete, heart block, where none of the signals gets through (that is, no atrioventricular function).  Second degree heart block can be either type I (Wenckebach) heart block, where the delay between atrial and ventricular contraction increases until a ventricular contraction is missed; or type II heart block, in which a ventricular contraction is missed after a fixed number of atrial contractions.  The applicant in this case has second degree, type I (Wenckebach) heart block.

11. AV Block can be asymptomatic, but even then the degree of heart block may be sufficient to require the insertion of a pacemaker to prevent any future events.  AV Block, if symptomatic, can require urgent pacemaker insertion due to severe bradycardia or cardiac standstill producing syncope or cardiac arrest.

12. Common conduction problems inside the ventricles are bifascicular and trifascicular heart block, which can progress to third degree heart block.  These conditions can be asymptomatic, but can also produce symptoms of bradycardia or supraventricular arrhythmias.

    PACEMAKERS

13. As has already been indicated, a pacemaker is inserted in order to address chronotropic (electrical heart related) problems.  Whether a pacemaker is to be implanted in a patient involves the exercise of clinical judgment.  Sometimes implantation of a pacemaker may be indicated, on a temporary or permanent basis, even where the patient is asymptomatic.  On the other hand, a pacemaker might not be implanted notwithstanding that the patient is experiencing significant symptoms.  The main considerations to be taken into account include:

    • the underlying condition causing the conduction impairment (such as sick sinus syndrome, coronary disease and myocardial infarction);
    • the type and degree of the conduction problem; and
    • the severity of symptoms caused by the arrhythmia.

14. It is important to appreciate that the role of a pacemaker is only to support a failed or failing biological system.  It does not treat the underlying medical condition, but rather corrects the arrhythmia being experienced by the patient.  As Professor Chard remarked, a pacemaker is a man-made mechanical and electrical device, while the heart’s conductive system is an intricate and powerful biological system.  The former cannot replace the latter. 

15. Pacemakers, such as the Tempo Pacemakers, are implantable devices that can generate an electrical impulse which is transmitted to the heart via the pacemaker leads, thereby causing the heart muscle to contract.  A pacemaker is implanted under the skin in the upper chest near the collarbone, and is attached to one to three specially insulated wires (“pacing leads” or “J leads”).  The leads are passed through an incision in a vein in the upper chest and fed through the vein into the right atrium and right ventricle.

16. The pacemaker consists of the pulse generator (which itself may be referred to as a “pacemaker”), and the pacing leads.  The pulse generator contains a hybrid circuit, including a microprocessor, and a battery.  The electronic circuitry produces the electrical impulses which are conducted via the pacing leads to the electrode tip at the end of the leads.  This, in turn, carries the impulses to the heart, stimulating it to beat.

17. The battery is designed to be small and flat, so as to fit within the pacemaker case.  In current model pacemakers, a lithium iodine battery is usually used.  A typical pulse generator is very small, often less than 50 mm wide and 6 mm thick.  The battery occupies between 50 and 70 percent of the volume of a pacemaker.

18. The pulse generator is hermetically sealed inside a titanium case.  The Tempo Pacemaker case is roughly circular in shape, and has a diameter of 45 mm and a thickness of 8 mm.  The seal is airtight and watertight, and cannot be broken without the device ceasing to operate.  Accordingly, when it is time for a battery to be replaced, the entire pulse generator must be explanted and replaced.

19. Pacemakers may be single or dual chamber.  A single chamber pacemaker can pace and sense in one chamber of the heart, while a dual pacemaker can pace and sense in both chambers.  The choice between them depends upon a medical assessment of the patient’s underlying condition and needs.  Two of the four models of Tempo Pacemaker, numbers 1102 and 1902, are single chamber devices.  The remaining models, numbers 2102 and 2902, are dual chamber devices.

20. Modern pacemakers have many functions, in addition to pacing the heart at a fixed rate.  For example, the pacemaker can detect the electrical signal from the heart’s inherent conducting pathway, and send a pulse to the heart only when it senses a problem with the intrinsic rhythm.  Pacemakers can also be rate responsive, in that they can sense the patient’s level of physical activity and adjust the pacing of the heart accordingly.  Dual chamber pacing enables the contraction of the atria and ventricles to be synchronised, so that the paced heartbeat mimics a normal heartbeat.  Dual chamber pacing is particularly helpful to patients with electrical conduction problems between the atria and the ventricles.  Current pacemakers also include diagnostics and data logging features which record information on the functioning of the pacemakers themselves and on the patient’s intrinsic rhythm.  The physician or technician can communicate with the pacemaker via a specialised computer known as a programmer which “interrogates” the pacemaker.

21. In the case of Tempo Pacemakers, a programmer can be used to interrogate the Pacemaker to obtain a longevity estimate, that is (according to a manual):

    “a conservative estimate of the minimum number of months remaining until the pulse generator enters [end of life (EOL)] mode assuming 100 per cent pacing at the current settings”.

22. In addition, the physician can estimate the longevity of Tempo Pacemakers by a “magnet rate” test.  This shows, by reference to pulses per minute (“ppm”) of output, what stage in the pulse generator’s life has been reached.  The stages, according to the Implant Manual for the Tempo Pacemakers are:

100 ppm	Beginning of life (“BOL”)	Pulse generator may be implanted
100-85 ppm	Standard operation	Monitor pulse generator at standard intervals
82.5 ppm	Elective replacement indicator (“ERI”) 3 months remains at current settings before EOL indicator	Plan to replace the pulse generator at EOL
80 ppm	EOL.  When first indicated, 6 months of operation remain at 63 ppm before end of service	Replace pulse generator

It follows that the warning time ordinarily available before cessation of function in a non-faulty Tempo Pacemaker during its operational life is at least nine months (the period from ERI to end of service).

PACEMAKER DEPENDENCY

1. It appears that there is no generally accepted definition of pacemaker dependency.  According to Dr Yiannikas, some definitions require a patient to be virtually asystolic (that is, in a state of cardiac standstill) without a pacemaker before the patient can be said to be dependent.  Others define dependency as a state where failure of the pacemaker would result in significant symptoms, such as syncope.  Dr Yiannikas himself said that

   “pacemaker dependency generally refers to patients in whom abrupt cessation of pacing may produce immediate and serious cardiac events, and where such categorisation allows pacemaker clinics and physicians to flag that subset of patients and respond more urgently.”

2. Whatever the definitional difficulties, it was common ground that there is a wide spectrum of patients who have pacemakers implanted.  At one extreme are those with complete heart block and an intrinsic heart rate of between 0 and 10 beats per minute.  Patients in heart block would quickly be unconscious without the pacemaker and obviously would be at risk of death.  At the other extreme are patients who suffer only very intermittent symptoms of bradycardia, such as dizziness or near syncope.  Most patients are not dependent on pacemakers for their immediate survival.  In these patients, if the pacemaker ceases to function for any reason, the intrinsic rhythm takes over the pacing of the heart.  Nonetheless, some of those patients may suffer significant symptoms if the pacemaker ceases to function, including abrupt and serious syncope or persistent debility.  If the degree of bradycardia is not overwhelming, the symptoms will be less severe but still may include fatigue, breathlessness, dizziness and increasing angina.  Of course, as Professor Chard pointed out in his evidence, a pacemaker’s abrupt cessation of function may create the risk of harm to a patient who is in a potentially dangerous situation at the time, such as driving a motor vehicle or operating equipment.

   IMPLANTATION AND REPLACEMENT SURGERY

3. A pacemaker is implanted by means of an incision of about 5 cm in the skin.  The pacemaker is inserted under the skin or, occasionally, under the muscle.  The operation is usually conducted under a local anaesthetic.  The patient cannot eat or drink for several hours before the operation.  Soreness around the incision wound is common.  Wound healing is a variable matter.  Patients can usually go home anywhere from several hours to several days after surgery.

4. The complications associated with insertion of modern pacemaker systems are rare, but can be serious.  Professor Chard estimated, for example, that the risk of infection, which may have very serious consequences, was about one in 300.

5. The replacement of an existing pacemaker is a relatively simple procedure, performed under local anaesthetic with associated sedation.  An incision is made over the pacemaker pocket, the dysfunctional pacemaker box or can is removed and the new pacemaker inserted and connected to the existing leads.  The risk of infection with a pacemaker replacement is about the same as with the original implantation.  There is some degree of post-operative pain, but chronic and debilitating pain is rare.

   THE PROBLEM OF DENDRITIC GROWTH

6. It was common ground in the present case that the accelerated battery depletion affecting some of the Hazard Alert Pacemakers was the consequence of a short circuit between the solder terminals where the battery was soldered to the flex circuit.  While there was a suggestion in some of the evidence that some of the bridges creating the short circuit in the affected Pacemakers may have been caused by poor soldering, it was also common ground (as the applicant put it) that “the fundamental short circuit problem was due to electrochemical dendrites”.

7. The term “dendrite” is derived from the Greek word for tree and refers to a branch-like structure.  The dendritic shape, which is quite ubiquitous in nature, tends to be formed by a diffusional process, namely the random movement of ions in a solution.  In the present context, that means an aqueous ionic solution.  An ion is a charged atom or molecule.

8. Dendrites can be observed under a microscope, but also can become visible to the naked eye.  Electrochemical dendrites are usually thin and delicate because of the manner in which they are formed.  Professor Hibbert explained the conditions necessary for electrochemical dendrites to form as follows:

   “1.Two electrodes with a sufficient potential difference between them to effect the reaction (about at least 1 V).

   2.A conducting solution between the electrodes, containing ions of the metal to be plated.  (An ion is a charged form of a species, for example Pb²⁺ is the ion of lead which has two positive charges.)  The solution is made conducting by any ions dissolved in water.  These ions can be impurities such as chloride or sodium.”

   If these conditions are fulfilled, dendrites will start growing immediately, although the rate of growth depends on the circumstances.  If any one condition is absent, dendrites do not form.

9. The conditions referred to by Professor Hibbert were summarised and simplified by all the experts to three components, namely:

   • electrical bias;
   • moisture; and
   • ionic contamination.

   Of the three essential conditions for dendritic growth, there was no real dispute that the first two were present in the case of the Tempo Pacemakers.

10. First, electrical bias or voltage must exist in electronic circuitry.  The bias, or difference in electrical potential, is between the opposite (positive and negative) terminals of the battery.

11. Secondly, so far as moisture is concerned, it must be borne in mind that, as Professor Hibbert explained, only a minuscule volume of water is required to provide the medium within which the ions can move.  Dr Morris acknowledged that, although Pacesetter took careful steps to remove as much moisture as possible before sealing the can (including subjecting the devices to a “bake out” prior to sealing and filling the cans with inert gas), it is not possible to remove all moisture.  Professor Hibbert was sceptical about whether any moisture could survive these processes, but neither party invited me to reject Dr Morris’ opinion based, as it was, on the practical experience of manufacturing the Tempo Pacemakers.  Indeed, the fact that dendritic growth appeared in the Tempo Pacemakers notwithstanding the procedures adopted by Pacesetter tends to supports Dr Morris’ view.

1. The third condition is ionic contamination.  It is here that there was some measure of disagreement as to the source or sources of ionic contamination.  I shall return to this question later.

2. The dendritic growth observed in the Tempo Pacemakers occurred between one of the points of connection of the hybrid (the module bearing electronic circuitry that generates pulses and controls the device) to the battery and another point of connection.  An electrical current flows around a circuit from the battery to the hybrid and back again.  A conductive path constituted by the very small amount of moisture containing ionic contaminants (the aqueous ionic solution) extends between the two lines of the battery circuit.  (In this connection, it must be remembered that the distances are very small.  I was told that the gap between the conductive lines on a Tempo Pacemaker is 1.27 mm.)  According to Professor Hibbert, the lead in the solder at the positive anode loses two electrons, which dissolve in the moisture and migrate as positive lead ions along the moisture path to the negative cathode.  At this point they are converted back to metal and start or add to (as the case may be) the dendrite.  Ultimately, unless interrupted, the build up will create a continuous path that completes the short circuit.  Because the lead is conductive, electrical current from the battery circuit is diverted along the short circuit.  (See the diagram reproduced [85] below.)

3. The conductivity of a circuit reflects resistance to the passage of current.  The more current that can flow, the more quickly the circuit will deplete the battery.  The conductivity of a dendrite is determined by the size and length of the path, bearing in mind that the path will not be constituted by a straight line.  The thinner the dendrite and the longer the path, the lower the conductivity of the circuit that is thereby produced.  Professor Hibbert, however, expressed the view that conductivity was not necessarily of great significance in determining the rate of battery depletion because a metal dendrite would have sufficient conductivity to create a circuit that would reduce the life of the battery.

4. After the dendrite has formed a bridge, thereby establishing a partial short circuit, it is not necessary for the three conditions required for dendritic growth to continue.  So long as the battery runs, the short circuit will continue to operate, unless the bridge is fractured.  Fracture may occur, for example, in consequence of a mechanical shock.

   THE HAZARD ALERT PACEMAKERS

   COMMENCEMENT OF OPERATIONS

5. On 29 November 1996, Pacesetter acquired the cardiac rhythm management assets (including assets related to the Tempo Pacemakers) from Telectronic Pacing Systems (“Teletronics”).  In March 1997, the manufacture of Tempo Pacemakers shifted from Telectronics’ facility in Miami, California, to Pacesetters’ facility in Sylmar, California.  The Hazard Alert Pacemakers were all manufactured by Pacesetter at Sylmar.

   In June 1997, Pacesetter entered into agreements with Getz Bros & Co Inc (“Getz”) in relation to the supply and distribution of the Tempo Pacemakers.  Getz was appointed the exclusive distributors of the Pacemakers in Australia.  On 1 September 1997, Getz appointed Medtel the distributor of the Tempo Pacemakers in Australia.  Thereafter, Medtel imported Tempo Pacemakers into Australia.

6. On 27 August 1997, the Food and Drug Administration (“FDA”) of the United States Department of Health and Human Services granted approval to market the Tempo Pacemakers.  The TGA placed the Tempo Pacemakers on the Australian Register of Therapeutic Goods on 23 January 1998.

   THE INVESTIGATIONS

7. As a matter of policy, Pacesetter encourages the return of all explanted pacemakers for laboratory examination and analysis.  In about April 1998, Pacesetter became aware of a Tempo Pacemaker exhibiting the problem that was later the subject of the Hazard Alert – that is, early battery depletion and a resulting “no output condition”.  By July 1999, Pacesetter had received ten such devices.  A more comprehensive investigation was then launched.  The investigation was undertaken by Dr Morris, who was at the relevant time employed as Manager-Product Analysis and Reliability by St Jude Medical Inc in Sylmar, California facility.  Dr Morris reported to Dr Khosravi, Vice President, Quality Assurance.  Dr Khosravi was closely involved in the investigation and reviewed the work of Dr Morris and others.  Dr Morris gave evidence.  Dr Khosravi did not.

8. It is clear from the evidence that the task of isolating the cause of the problem proved extremely difficult.  A variety of inquiries were undertaken but initially yielded no results.  For example, in an attempt to ascertain the cause of the problem, the titanium can of some of the affected Tempo Pacemakers was cut open, using a high speed rotary cutting device.  When that was done, the Pacemakers generally recovered both output and telemetry.  In February 2000, a method was developed to open the cans in a way that minimised the mechanical disturbance to the contents.

9. Following this development, Dr Morris used an optical microscope to detect a minute bridge that had formed between the terminals or solder pads in the flex circuit.  The flex circuit is a flexible insulated printed circuit used to connect the battery to the hybrid.  The terminals or solder pads are only 0.25 mm apart.  According to Dr Morris, many of the bridges were on the underside of the flex circuit, making them extremely difficult to see.  The difficulty was compounded by the fact that the bridge was often covered by a white residue.

10. As a result of reviewing data relating to the no output Tempo Pacemakers, Dr Morris observed that all had been manufactured at Sylmar before January 1999.  In March 2000, an accelerated life test was conducted on Tempo Pacemakers manufactured after 1998.  The test seemed to confirm that no device manufactured after 1998 exhibited the problem of early battery depletion.

11. Initial analysis of the bridges observed by Dr Morris suggested that they were dendrites.  The fact that dendrites are extremely thin and delicate was said to explain why the fault generally disappeared when, earlier in the investigations, the Pacemaker can had been cut open.  The electrical pathway had simply been severed by the mechanical vibration and shock.  (The evidence did not address whether and, if so, how the vibration could lead to a depleted battery being recharged.)

12. The effect of the bridge was to create an extra conductive path (a “partial short circuit”) between the internal electrical connections of the affected Tempo Pacemaker.  In other words, a circuit was made across a bridge that was formed between the solder pads, the points at which the copper conductive lines are connected to the battery terminals.  This constituted an alternate and shorter circuit than the ordinary electrical circuit of the battery from the negative terminal to the hybrid and then back to the positive terminal.  A diagrammatic representation (not, of course, to scale) of this effect was provided by Dr Brydon, as follows:

13. Dr Morris and his staff proceeded on the basis that of the three requirements for dendritic growth – electrical bias, moisture and ionic contamination – the first two were necessarily present in the devices.  That was because, as already explained, electrical bias necessarily exists in electronic circuitry and it is inevitable, despite all precautions, that a small quantity of moisture will be present in all devices.  It followed that the focus of the investigation had to be directed to locating the source of the ionic contamination.

14. One study initially suggested that the failed devices had a thin network of tin on the flex circuits.  This led to a hypothesis, recorded as a memorandum of 15 May 2000 prepared by Dr Khosravi, that the root cause of the premature battery depletion was the presence of tin contamination in the flex circuits.  A report prepared by Hi-Rel Laboratories established that flex circuits manufactured after December 1998 had traces of tin.  Accordingly, Dr Morris concluded that the presence of tin in the flex circuits could not be the source of ionic contamination.

15. After considering various theories, inquiries concentrated on the solder that had been used in the production line.  Solder is a low melting point alloy, commonly a 70:30 ratio of lead (Pb) and tin (Sn), used to form an electrically conducting point between one metallic component of a circuit board and another.  The investigators ascertained that the solder which Pacesetter used when it commenced manufacturing the Tempo Pacemakers at Sylmar was different from the solder that Telectronics had used.  Moreover, Telectronics had never experienced the bridging problem that Pacesetter had encountered.

16. The solder used by Pacesetter during the period until late 1998 was IF 14 solder supplied in a yellow spool and manufactured by Interflux NV Belgium (“yellow spool solder”).  Pacesetter commenced using IF 14 solder supplied in blue spools by Interflux USA (“blue spool solder”) in about late 1998.  According to Dr Morris, operators had quickly shown a preference for the blue spool solder because, unlike the yellow spool solder, it did not leave a white residue.  Dr Morris, upon reviewing the records, formed the view that production operators had more or less stopped using the yellow spool solder when the blue spool solder became available.  He also concluded that Tempo Pacemakers manufactured after the yellow spool solder had ceased to be used had not failed in consequence of dendritic growth.

17. Armed with these discoveries, Dr Morris telephoned Mr Bruneel, a principal of Interflux USA which supplied the blue spool solder to  Pacesetter.  Mr Bruneel had previously been a partner in a Belgian business, Interflux Solder NV, which had supplied the yellow spool solder to Pacesetter.  Mr Bruneel told Dr Morris that the two solders had slightly different chemistry in that the blue spool solder did not produce the white crystalline residue characteristic of the yellow spool solder.  Mr Bruneel also said in that conversation that neither solder should have caused dendritic growth because they were both non-ionic and the residue from the yellow spool solder was non-conductive.

18. On 26 May 2000, Dr Morris travelled to Dallas to meet with Mr Bruneel.  Dr Morris took with him a number of flex circuits from failed Tempo Pacemakers on which dendritic growth had been found.  Mr Bruneel inspected the flex circuits using a hand held microscope.  He identified a substance on the flex circuit that he described both to Dr Morris and in his evidence as a “moist residue”.  Mr Bruneel gave evidence that although he did no scientific testing, he was “pretty sure”, based on his twenty-five years’ experience, that this was conventional flux residue.  Conventional flux is a compilation of ionic chemicals used to remove contaminants, usually oxides, from metallic surfaces prior to or during soldering.  Mr Bruneel thought that the moist residue was likely to be a halide, probably a chloride or fluoride.  He said in evidence that a halide flux should not be used in the process of manufacture in conjunction with the solder.

19. Upon his return to Sylmar, Dr Morris compared flex circuits that had not exhibited dendritic growth with flex circuits that had.  He observed that the “moist residue” was not present on those flex circuits which had not exhibited dendritic growth.  That prompted him to initiate a search for anything in the manufacturing area that might contain conventional flux.  That search ultimately turned up a de-soldering wick which contained conventional flux.  A de-soldering wick is used to remove solder from a connection that has previously been made.  In order to remove the solder, the joint is heated and the de-soldering wick placed against the joint.  The liquid solder is then absorbed by the de-soldering wick and can be removed.

20. According to Dr Morris, it was a “comparatively rare occurrence” for a de-soldering wick to be used in the manufacturing process for Tempo Pacemakers.  Operators in the manufacturing area would visually inspect each solder joint after it had been completed.  If the operator formed the view that it was not an optimal joint, the solder was removed using the de-soldering wick and the joint was re-soldered.  This procedure was not regarded as “rework” for the purposes of Pacesetter’s internal record-keeping.  In particular, the “Traveler”, which is the record of work carried out in relation to each Tempo Pacemaker, did not include any record of re-soldering carried out in this fashion.  (Mr Bannon challenged Dr Morris on his evidence that re-soldering was not recorded on the Traveler, but I accept his evidence.)  Accordingly, Pacesetter had no record as to which of the Tempo Pacemakers had been de-soldered using a de-soldering wick.

21. Since the de-soldering wick contained conventional flux (which is an ionic contaminant), it became clear to Dr Morris that some of the flex circuits for the Tempo Pacemakers must have come in contact with an ionic contaminant.  The question still remained, however, as to why the cleaning process, which was designed to remove contaminants, both ionic and non-ionic, from the surface of the joint, had not removed all traces of the conventional flux.  The answer that Dr Morris arrived at (which he supported in his evidence) was that, where the yellow spool solder was used, it left a tenacious crystalline residue.  In Dr Morris’ view, the residue was both non-metallic and non-ionic and thus could not cause or contribute to dendritic growth.  Accordingly, he concluded (as he explained in his evidence) that:

    “if the solder joint was re-soldered, using the de-soldering wick, the crystalline residue from the yellow spool solder absorbed the flux from the wick.  Despite swabbing the joint at the completion of the re-soldering process, the residue still retained some flux from the wick.  This flux then provided the source of ionic contamination which allowed the dendritic growth to proceed”.

    This view of the “most probable root cause” of the “failures” was recorded by Dr Khosravi in a memorandum of 30 May 2000, as follows:

    “‘Active flux’ residue from the solder-wick (cases of re-soldering) retained by fluxes of the crystallizing solder, forming significant ionic contaminants, that in the presence of very low levels of moisture (after vacuum bake) and voltage of 3.5 V are forming dendrites”.

22. Dr Morris’ ultimate conclusion was that dendritic growth would only occur in circumstances where the yellow spool solder had been used in conjunction with the de-soldering wick.  Accordingly, Pacesetter informed the TGA in a letter of 7 June 2000 that

    “the solder used from the time that manufacturing transferred from Telectronics in 1997 until late in 1998 for attaching the battery to the flex circuit is susceptible to dendritic growth if the solder operation required re-work.  Analysis has identified that an ionic contaminant can be introduced during the re-soldering process, which can then act to promote dendritic growth”.

    THE HAZARD ALERT

23. On 20 March 2000, Mr Braico, the General Manager of Medtel, recorded in an internal email that the “Tempo failure rate has now reached an unacceptable level”.  Shortly after this, the Royal Prince Alfred Hospital in Sydney experienced a failure of a Tempo Pacemaker and sent the unit directly to the TGA.

24. On 27 March 2000, Pacesetter halted the supply of Tempo Pacemakers.  On 5 April 2000, Medtel followed suit, perhaps anticipating a recommendation made by the TGA a week later that supply of the product be halted until the cause of the failure had been determined.  By 1 May 2000, Medtel had withdrawn supplies from hospital stocks.

25. On 25 May 2000, a teleconference took place involving representatives of the TGA, including Professor Hughes, in his capacity as Chairman of the Therapeutic Devices Evaluation Committee, an advisory body to the TGA.  Later that day, the TGA advised Pacesetter and Medtel that the evidence was sufficient to indicate a “Recall/Hazard Alert” of all Tempo Pacemakers distributed prior to January 1999.  The TGA requested that such an alert be initiated by 1 June 2000 at the latest.  Clearly enough, this advice carried considerable weight since the TGA has power to cancel goods from the Australian Register of Therapeutic Goods and to require that steps be taken to recover cancelled goods that have been distributed: Therapeutic Goods Act 1989 (Cth) , s 30(1), (2)(a), (b).

26. On 5 June 2000, the Hazard Alert was issued by the TGA to relevant clinicians and hospitals.  The Hazard Alert advised that the “sponsor”, identified as Medtel, would distribute Hazard Alert letters to clinicians and hospitals.  On the same date, Medtel sent a letter under the heading “Hazard Alert” to hospitals and doctors whose patients were recorded as having had a Tempo Pacemaker implanted.  Medtel’s letter contained the following recommendations:

    “Clinicians are advised to review patients and evaluate pacemaker function.

    For patients who are pacemaker dependent, consideration should be given to explantation and replacement as soon as practicable.

    For patients who are not considered pacemaker dependent, clinical consideration should be given for replacement where any abnormal function is identified (such as no output, loss of telemetry, or premature end of life indication).”

    As already noted, the TGA’s Hazard Alert stated that it had been issued due to an increased risk of early battery depletion and a resulting no output condition.  The failure mechanism identified was a potential short circuit at the site of the battery/hybrid connectors.  Medtel’s letter contained a similar statement.

27. The Hazard Alert was expressed to include Models 2102, 2902, 1102 and 1902, serial numbers OU6100663 to OU6227334.  As Dr Morris explained, the start of the serial number range was determined to be the date the first device was manufactured at the Sylmar facility (March 1997).  The cut-off date was 31 December 1998, since Dr Morris believed that no yellow spool solder would have been used in the manufacture of Tempo Pacemakers after that date, after allowing a margin for possible error.  As already explained, only about ten per cent of the serial numbers identified in the Hazard Alert represented Tempo Pacemakers implanted in Australia.  The bulk of the Tempo Pacemakers bearing those serial numbers had been implanted into patients in countries other than Australia.

28. A letter apparently sent by Pacesetter to doctors shortly after the Hazard Alert stated that the condition (premature battery depletion), to that time had occurred in 0.6 per cent of devices in the defined population, but that engineering analysis and modelling suggested that it could occur in up to 2.6 per cent of devices over the first five years of service.  Pacesetter’s letter stated that if the doctor elected to replace the Tempo Pacemaker, St Jude Medical would honour the terms of its warranty for replacement purposes and, in addition, pay up to $800 of the patient’s unreimbursed medical expenses.  Dr Fain gave evidence that Pacesetter’s warranty included up to $2,000 of unreimbursed medical expenses associated with the replacement procedure.  The evidence did not explain the apparent minor discrepancy in the amount of compensation available under the warranty.

    THE HAZARD ALERT PACEMAKERS AND YELLOW SPOOL SOLDER

29. Until the latter part of the respondents’ final submissions it seemed to be common ground that all, or virtually all, the Hazard Alert Pacemakers had been manufactured using the yellow spool solder.  Accordingly, to that point it was common ground that the applicant’s Pacemaker had been manufactured using the yellow spool solder and not the blue spool solder.

30. As the argument developed, it became clear that the question of whether or not yellow spool solder had been used in the manufacture of the Hazard Alert Pacemakers might be significant in determining the applicant’s claim that those Pacemakers were not of merchantable quality or were unfit for their particular purpose.  As will be seen, the applicant submitted that each of the Hazard Alert Pacemakers was not of merchantable quality or fit for its purpose precisely because it had been manufactured with the yellow spool solder thereby creating a superadded risk of dendritic growth and, consequently, of premature failure of the device.  In order to counter this submission, Mr Walker somewhat belatedly invited me to find that “a number (probably many)” of the Hazard Alert Pacemakers had been manufactured using the blue spool solder and that the applicant’s Pacemaker had probably fallen within this category.  If these findings were made, it would seem to follow that the applicant’s Pacemaker was not subject to any superadded risk of premature failure.

1. The application of s 74D to the circumstances of a particular case does not call for an exercise in mathematical theory. The question posed by the legislation is whether the particular goods are as fit for the purpose for which goods of that kind are commonly bought as it is reasonable to expect. If it is reasonable to expect that products of a certain kind will not have a physical anomaly that materially increases the risk that they will not fulfil the relevant purpose, it seems to me consistent with the statutory language to hold that each item with that physical anomaly is not of merchantable quality. To so hold is also consistent with the “remedial character” of the legislation (Rasell v Cavalier Marketing, at 348, per Cooper J).

2. Nor do I consider that acknowledging that the reasonable expectations of consumers can extend to the superadded risk that a particular device will fail imposes an inappropriate or unsustainable burden on a manufacturer or distributor.  The complaint in the present case is not that Pacesetter and Medtel have been unable to eliminate all risk from a product that human ingenuity can never make risk-free.  The complaint is that each Pacemaker implanted into a patient was manufactured using materials that exposed the patient to a substantial risk of failure that did not apply to other similar devices manufactured using different materials.  It is not clear to me why the patient, rather than the manufacturer or distributor, should bear any loss or damage fairly attributable to the use of materials in the manufacturing process that significantly increased the risk that the goods would fail to achieve their purpose.  Doubtless, the manufacturer did not appreciate at the time that the yellow spool solder should not have been used to manufacture pacemakers.  But as between the manufacturer and distributor, on the one hand, and the consumer, on the other, it was the former that had the capacity to prevent or eliminate the problem.

3. The distinctive feature of the present case is that because of the nature of the product, the very fact of the increased risk of physical failure of a particular device, was capable of causing loss or damage to at least some consumers.  Imposing liability for such loss or damage, where the consumer was reasonably entitled to expect that his or her device would not be manufactured in a way that created the additional risk, creates an incentive for manufacturers and distributors to avoid subjecting consumers to the superadded risk.  It does not create a disincentive to manufacturing products that are necessarily subject to an irreducible background or random risk of failure.  Nor does it create a disincentive to corporate frankness.

4. Mr Walker cited George Wills and Co Ltd v Davids Pty Ltd (1957) 98 CLR 77 in support of his argument. In my opinion, the case illustrates why care must be taken in citing authorities on the implied contractual warranty of merchantability in construing and applying a provision such as s 74D of the TP Act. In George Wills v Davids, a wholesale grocer sued the supplier of a quantity of canned beetroot pickled in vinegar and described by the supplier as such.  The contents of many of the cans deteriorated within about fifteen months from purchase.  The wholesaler alleged that the goods were unmerchantable because canned vegetables usually had a life of three years, as did beetroot canned in brine.  The supplier had introduced beetroot canned in vinegar instead of brine only shortly before the relevant transaction.  According to the High Court, since the normal life of beetroot in vinegar was only about twelve months, it could not be said that the goods were defective at the time of delivery.  A reasonable person would have accepted the goods in performance of the offer to purchase them: see at 89-91, per curiam.

5. As I have explained, the very point of s 74D of the TP Act is to provide remedies to consumers who are not in a contractual relationship with the supplier of goods. A test that focuses on whether the goods would have been accepted by a reasonable buyer is inappropriate when considering the position of a consumer who has never made any such offer. It is for that reason that s 74D(3) is framed in the way it is. In the present case, as I have found, a reasonable consumer would expect that the Pacemakers would not be manufactured using materials that created a substantially greater risk of premature failure than that applicable to pacemakers generally. In George Wills v Davids, by contrast, it was not reasonable for the buyer to expect the canned beetroot to last more than about twelve months.

   Devices Remaining in situ

6. Some of the devices subject to the Hazard Alert were not explanted but remained in situ.  Presumably the major reason for the devices remaining in situ was that the treating doctor did not consider it appropriate, having regard to the patients’ condition and other relevant circumstances, to recommend explantation of the device.  It is possible, however, that some remaining group members simply did not contact their medical practitioners despite being notified of the Hazard Alert, although there was no evidence to this effect.

7. It would seem to follow from what I have said, subject to any further arguments that might be put, that the Hazard Alert Pacemakers remaining in situ were not of merchantable quality if they were manufactured using yellow spool solder.  Of course, a remaining group member who has such a Pacemaker in situ will be entitled to recover compensation pursuant to s 74D of the TP Act only if he or she has suffered loss or damage by reason of the device not being merchantable quality.  Any individual claim by a remaining group member will therefore require proof that loss or damage was sustained and that the loss or damage was caused by the device being unmerchantable.

   United States Authorities

8. I should record that the respondents referred in argument to some United States authorities in support of the proposition that the Hazard Alert Pacemakers, including the applicant’s Pacemaker, were of merchantable quality. I have found these authorities to be of little assistance for present purposes primarily because this case is concerned with specific statutory provisions which have no precise counterpart in the United States. Cases which turn on product liability law or the law of implied warranties shed little light on the construction, for example, of s 74D of the TP Act.

9. There are, moreover, considerable differences in approach in the United States cases.  Some have held that a plaintiff is not entitled to damages for a device said to have a high risk of malfunctioning but which has not yet malfunctioned: see, for example, O’Brien v Medtronic, Inc 149 Wis 2d 615; 439 NW 2d 151, review denied, 446 NW 2d 286 (1989) (Court of Appeals, Wisconsin); Khan v Shiley, Inc 217 Cal App 3d 848; 266 Cal Rptr 106 (1990) (Court of Appeals, California). Others have taken the view that a product such as a pacemaker can be defective for the purposes of a products liability claim even though it has not actually malfunctioned but has been removed on the advice of a physician or has been left in situ: see, for example, Larsen v Pacesetter Systems Inc 74 Haw 1, 837 P 2d 1273 (1992) (Supreme Court of Hawaii); Michael v Shiley, Inc, 46 F 3d 1316 (1995) (Court of Appeals, 3^rd Cir).  Larsen distinguished the earlier decision in O’Brien (where a pacemaker was removed against a physician’s advice) and Khan (where the heart valve remained in situ because the risk of removal was greater than the risk of failure and the plaintiff claimed damages for emotional distress), on the ground that each of the earlier decisions turned on questions of causation. It is difficult to discern any consistent pattern in the United States authorities that might be helpful in construing and applying ss 74B and 74D of the TP Act.

   THE APPLICATION OF s 74B OF THE TP ACT

10. As I have explained, it was not suggested that the applicant or remaining group members could succeed in their claims for compensation under s 74B of the TP Act if they did not succeed under s 74D. In the event, I have concluded that each of the Hazard Alert Pacemakers manufactured using yellow spool solder was not of merchantable quality and that the applicant is entitled to compensation for the loss or damage caused by the supply to him of the unmerchantable Pacemaker. There is therefore no need to consider the alternative claims under s 74B of the TP Act.

11. For the sake of completeness, however, I record that, if it were necessary to do so, I would have found that the applicant and each of the remaining group members acquired his or her Pacemaker for a particular purpose made known to Medtel by implication.  That purpose was the same as that already identified, namely to enable the Pacemaker to be implanted, on the advice of doctors, into the individual patient experiencing heart-related problems in order to restore and maintain regular heart beat by means of electrical impulses sent to the heart.  For the reasons already given, each Pacemaker manufactured using yellow spool solder was not reasonably fit for that purpose.

    THE APPLICANT’S CLAIM FOR COMPENSATION

12. The parties agreed that if the applicant’s Pacemaker was found to be not of merchantable quality or not fit for its particular purpose I should assess the compensation to which he is entitled pursuant to ss 74B and 74D of the TP Act.

13. The applicant claimed the following heads of damage:

    (i)Past economic loss of $68.20.  This claim was admitted by Medtel.

    (ii)Damages for stress, anxiety, concern and inconvenience.  Mr Bannon suggested a figure in the range of $3,000 to $5,000 under this head.

    (iii)Post-operative hurt, scarring, discomfort and loss of enjoyment of life following explantation of the Pacemaker.  Mr Bannon suggested $15,000 as an appropriate figure for this head of damage, while Mr Walker suggested a figure of $5,000.

    (iv)“Griffiths v Kerkemeyer damages” in respect of gratuitous services provided to the applicant by his wife after his discharge from hospital.  It was agreed that if the applicant was entitled to so-called Griffiths v Kerkemeyer damages, the appropriate figure was $2,420.

    (v)Interest on non-economic loss from 7 June 2000 at the rate of 4 per cent per annum and interest on damages for economic loss and Griffiths v Kerkemeyer damages at commercial rates of interest.

14. The written submissions proceeded on the basis that the applicant’s claim was for damages under s 82 of the TP Act. Both Mr Bannon and Mr Walker recognised in oral argument that this was an error and that the applicant’s claim for compensation was founded on the statutory causes of action created by ss 74B and 74D of the TP Act.

15. As I have noted, the language of s 74B(1)(c) and s 74D(1)(d) (“loss or damage by reason that”) is not identical to that in s 82 (“loss or damage by conduct”). It was common ground, however, that the language in ss 74B and 74D, like that of s 82, seeks to identify a causal connection between the loss or damage that is alleged to have occurred and the relevant conduct (in this case supplying goods not fit for their purpose or not of merchantable quality): see Wardley v Western Australia, at 525; Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, at 510, per McHugh, Hayne and Callinan JJ.

    DAMAGES FOR STRESS AND ANXIETY

16. Medtel resisted the applicant’s claim for compensation under this head on two grounds. First, it was said that the extent of the applicant’s worry and anxiety about the superadded risk of failure (as distinct from his worry about the durability of the device from the outset) was so minor and so difficult to identify that compensation was not appropriate. Secondly, it was said that there should be no compensation under ss 74B or 74D for pure worry or anxiety falling short of psychiatric illness. Mr Walker relied on Tame v New South Wales (2002) 191 ALR 449, where several members of the Court restated the proposition that in an action for negligence, in the absence of physical injury, damages are not recoverable for emotional distress as distinct from a recognisable psychiatric injury. Gummow and Kirby JJ (with whom Gaudron J agreed) said (at 495-496 [193]) that

    “a plaintiff who is unable affirmatively to establish the existence of a recognisable psychiatric illness is not entitled to recover. Grief and sorrow are among the ‘ordinary and inevitable incidents of life’; the very universality of those emotions denies to them the character of compensable loss under the tort of negligence.  Fright, distress or embarrassment, without more, will not ground an action in negligence.  Emotional harm of that nature may be evanescent or trivial”.  (Citations omitted.)

    See, too, at 524 [296], per Hayne J; at 541 [366], per Callinan J.

17. In an action for damages under s 82 of the TP Act, once the necessary causal relationship is established, neither the amount that can be recovered nor the orders that can be made are limited by drawing analogies with the law of contract or torts: Marks v GIO, at 510, per McHugh, Hayne and Callinan JJ, at 529, per Gummow J. Sections 74B and 74D differ from s 82 in that the actions for compensation for which they provide are available only in the circumstances identified in each section, while s 82 applies to “widely differing contraventions of the Act”: Marks v GIO, at 510. Nonetheless, ss 74B and 74D provide for statutory causes of action for which there is no precise common law or equitable equivalent. There is no reason to suppose that the scope of the statutory remedies is to be circumscribed by analogies of the kind referred to in Marks v GIO.  It seems to me, therefore, that notwithstanding the limitations on damages for non-economic loss in negligence cases recognised in Tame v New South Wales, there may be cases where it is appropriate to award compensation under ss 74B and 74D for stress and anxiety: cf Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445, at 468-469, per Hill J; aff’d (1990) ATPR 41-058.

18. While there may be cases where compensation can be awarded pursuant to ss 74B and 74D of the TP Act in respect of anxiety, worry and stress, I do not think that an award for this head of damage should be made in the present case.  The applicant accepted that he had doubts and worries about his Pacemaker from the time of implantation and became worried before his first six monthly check-up that the device might not be working properly.  His worries therefore predated the Hazard Alert.  The applicant was reassured by his initial check-up but again became worried when he read the newspaper article in June 2000 referring to the Hazard Alert.  He felt a “little better” when a subsequent check-up revealed no abnormality in function and he was told that his case was not urgent.  He began to get a bit more worried when the replacement procedure was put off (the explantation ultimately took place on 1 September 2000).  On 14 August 2000, the applicant completed a multiple choice form in which he described his mood over the previous four weeks as “slightly” anxious, depressed, irritable or downhearted.  He agreed in evidence that his answer accurately reflected his state of mind at the time.

19. I accept that the Hazard Alert and the uncertainty pending explantation of the Pacemaker created some anxiety and worry in the applicant additional to his initial worry about whether the Pacemaker would work.  I accept also that, as Mrs Courtney said, he was more agitated and worried than usual while he was waiting for the Pacemaker to be explanted.  But in his own words, he was only “slightly” worried and anxious about the possibility of failure.  Without in any way denigrating the applicant’s reasonable concerns, his worry and anxiety can fairly be regarded as short-lived (if not “evanescent”) and relatively minor.  The applicant impressed me as a fairly stoic and phlegmatic person who had not been unduly concerned about the complication he had encountered.

20. In my view, not every consumer who has experienced anxiety or worry as a consequence of acquiring goods that are not fit for their purpose or not of merchantable quality should receive compensation on that account.  In the absence of special or unusual circumstances, I think something more substantial than the worry and anxiety experienced by the applicant in the present case is required before compensation should be awarded under this head.  Some restraint is appropriate in cases where compensation is sought for worry and anxiety as such to avoid “the creation of a society bent on litigation”: Farley v Skinner [2002] 2 AC 732, at 751, per Lord Steyn. Accordingly, no compensation should be awarded to the applicant in respect of anxiety, worry and stress.

    PAIN AND SUFFERING, ETC

21. The applicant’s Pacemaker was explanted in an operation which took approximately half an hour.  The surgery was performed under local anaesthetic.  The applicant attended the hospital from approximately 7.50 am until about 2 pm on the day of the operation.

22. The applicant was in some discomfort for approximately four to five days after the operation.  He was still a little bruised and sore on the sixth day.  Some four weeks after the operation, the injury was still a little swollen, although the bruising had gone away.  The scar was significantly worse than that resulting from the original implantation of the Pacemaker, although the evidence did not establish that the scarring will necessarily be permanent.  The applicant was unable to raise his arms for about six weeks after the application and, because of the discomfort, he could not help his wife with household chores as he usually did.  The general discomfort, soreness around the wound and the difficulty in raising his arms lasted longer on this occasion than with the original implantation.

23. The pain and discomfort experienced by the applicant after the explantation of his Pacemaker were not trivial, but neither were they of major proportions.  It would seem that the pain and discomfort continued, although with diminishing intensity, for about six weeks.  I think that a modest award would adequately compensate the applicant for the losses claimed under this head.  In these circumstances, I think that an award of $7,500 for this head of damage is appropriate.

    GRIFFITHS V KERKEMEYER DAMAGES

24. In Griffiths v Kerkemeyer (1977) 139 CLR 161, it was held that a claim for damages for personal injuries could include a component with respect to care or services provided gratuitously to the injured person. In Van Gervan v Fenton (1992) 175 CLR 327, it was held that the true basis of such a claim is the need of the injured person for the services, not the actual financial loss suffered as the result of the provision of those services. For this reason, damages are not determined by reference to the actual cost to the injured person of having the care or services provided, but by reference to the market cost of providing them: see Grincelis v House (2000) 201 CLR 321, at 327, per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ.

25. The point taken by Mr Walker in relation to this head of damage was a very narrow one. He conceded that the care provided to the applicant by his wife during the period of his convalescence from the explantation operation would have been compensable, had the applicant been claiming damages in a common law negligence action. Mr Walker also conceded that there may be some cases arising under s 74B or s 74D of the TP Act where an award for compensation on the principle established in Griffiths v Kerkemeyer would be appropriate.  He contended, however, that compensation should not be awarded in respect of gratuitous services provided in the past, that is in respect of a closed period.  He explained the distinction between services rendered in the past and those required for the future on the basis that it cannot be known whether future services would be provided gratuitously to the injured plaintiff or whether he or she would have to purchase the services on the open market.  By contrast, the gratuitous nature of past services is known. 

1. Had Mr Walker not made the concession to which I have referred, I would have had serious doubts whether, on the evidence, the applicant had satisfied the requirements for an award of damages in respect of so-called gratuitous services. But having made that concession, I do not think that a distinction can be drawn, for the purposes of assessing compensation in a claim under s 74B or s 74D of the TP Act, between past and future periods.  Any entitlement to compensation rests on the existence of the need for care services and a causal relationship between the creation of that need and the supply of goods that are not of merchantable quality or are unfit for their purpose.  In this connection, I note that the award of compensation in Graham Barclay v Ryan included a component in respect of past gratuitous services: see at 452, per Lindgren J.  Accordingly, the applicant should be award $2,420 as compensation for this head of loss.

   INTEREST

2. Section 51A of the Federal Court of Australia Act 1976 (Cth) provides that in any proceedings for the recovery of any moneys the Court shall, unless good cause is shown to the contrary, order that interest be included in the sum for which judgment is given on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date of entry of judgment.

3. The award of compensation for payment for pain and suffering and loss of enjoyment of life should attract interest from 1 October 2000 at the rate of four per cent per annum: MBP (SA) Pty Ltd v Gogic (1991) 171 CLR 657. The award of compensation in respect of the care services provided by Mrs Courtney should attract interest from the same date, at commercial rates: Grincelis v House.  In accordance with the practice of the Court, the rates should be those specified in Supreme Court Rules (NSW), Sched J: White Industries (Qld) v Flower & Hart (No 2) (2000) 103 FCR 559, at 574-575. There should be no allowance for interest in respect of economic loss, on the de minimis principle.

   CONCLUSION

4. The applicant has succeeded in his claim against Medtel for compensation pursuant to ss 74B and 74D of the TP Act. I have assessed the compensation at $9,988.20, comprising $7,500 for pain and suffering and loss of enjoyment of life, $2,420 in respect of past gratuitous care services provided by Mrs Courtney and $68.20 for economic loss.  I have also provided for interest on the first two amounts.

5. Some remaining group members are in a position similar to that of the applicant, although obviously each claim requires individual consideration.  I have also expressed views on the judgment that bear on the claims of other remaining group members.  To that extent, the judgment may assist in resolving these claims.

6. My present view, subject to further submissions, is that I should not answer the separate questions formulated by the parties.  The order pursuant to FCR, O 29 r 2 was made by consent.  The respondents, however, have effectively resiled from their agreement to following the course suggested by the order.  Moreover, I see little point in attempting to answer question (a) (which is framed by reference to the “Fault” identified in the statement of claim) and the applicant’s own claim can be resolved on the facts without answering question (c).  Question (b) assumes that an answer should be given in respect of the Hazard Alert Pacemakers as a class and apparently invites an “all or nothing answer”.  For the reasons I have given, there are differences among the Hazard Alert Pacemakers depending upon whether a particular Pacemaker was manufactured using the yellow spool solder.

7. I think the appropriate course is to invite submissions from the parties as to the orders that should be made at this stage of the proceedings and to give the parties an opportunity to consider the further conduct of the litigation.

8. I wish to record that the present proceedings have been conducted by the parties in a most co-operative manner, an approach not always evident in representative proceedings.  I also wish to record my gratitude to the legal representatives for the expeditious conduct of the hearing and for their most helpful written and oral submissions.

I certify that the preceding two hundred and sixty-four (264) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE.

Associate:

Dated:            5 February 2003

Counsel for the Applicant:	Mr A J L Bannon SC with Mr J Clarke
Solicitor for the Applicant:	Maurice Blackburn Cashman
Counsel for the Respondent:	Mr B W Walker SC with Mr S S Clark
Solicitor for the Respondent:	Clayton Utz
Date of Hearing:	14-17, 21-22, 24-25 October 2002
Date of Judgment:	5 February 2003