Medtel Pty Ltd v Courtney

[2003] HCATrans 496

[2003] HCATrans 496

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S445 of 2003

B e t w e e n -

MEDTEL PTY LIMITED

Applicant

and

KEVIN GLYNN COURTNEY IN A REPRESENTATIVE CAPACITY ON BEHALF OF THE PERSONS REFERRED TO IN PARAGRAPH 1 OF THE EIGHTH AMENDED STATEMENT OF CLAIM

Respondent

Application for special leave to appeal

GLEESON CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 2 DECEMBER 2003, AT 12.29 PM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with MR C.B. LOVEDAY for the applicant.  (instructed by Clayton Utz)

MR A.J.L. BANNON, SC:   May it please the Court, I appear with MR J.R. CLARKE for the respondent.  (instructed by Maurice Blackburn Cashman)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, if this decision, including all the common elements in the three sets of reasons or the sets of reasons in the Full Court were to stand, then the notion of merchantable quality will have been established by this decision in a way which poses very peculiar circumstances for the manufacture or, indeed, for the growing and exploitation of all sorts of commodities, not merely highly sophisticated medical devices.

GLEESON CJ:   Does anything turn on the difference between the warranty of merchantable quality and the warranty of reasonable fitness for the purpose?

MR WALKER:   No.  So that you will have noticed that there is, I think, an almost complete focus on 74D in all the material, including the judgments, and that was because, whether by reason of the co‑operation lauded by Justice Sackville or not, the parties chose that as the bellwether issue.

GLEESON CJ:   On the other hand, if the case had been decided the other way, would it have stood for the proposition that if you have in your chest a pacemaker that requires what you call “explantation” in order to decide whether or not it is going to kill you, it is reasonably fit for the purpose.

MR WALKER:   No, it would not stand for that proposition as authority.  It would stand, rather, for the proposition that the precautionary principle is more than a political slogan in relation to the environment.  The precautionary principle is also one of the aspects of ordinary life, including in one’s dealings with commerce, which need not be compensable.

GLEESON CJ:   Yes.  What is involved in the product recall of an implanted pacemaker is different from what is involved in a product recall of a bottle of jelly beans.

MR WALKER:   Unquestionably so.  For one thing, there is a far closer nexus between the explant and the implant in relation to something subject to a hazard alert or product recall and something not in the case of a device for this reason:  unless you die of other causes before your device needs to be explanted, it is going to be explanted, unless you are in the very small theoretical class of people who are so non‑dependent that your doctor thinks you can do without it for the rest of your life.

GLEESON CJ:   What does explantation involve?

MR WALKER:   Explantation involves a relatively minor – but it is easy for me to say that – process of removing from below the subcutaneous layer a relatively small object which I might gesture like that.  I do not want to suggest it is the equivalent of a tickle.  The evidence showed that Mr Courtney obtained modest but real damages for the physical discomfort involved.

May I say in further elaboration of my answer to the Chief Justice, that another important aspect about this was that there was a warranty – you do not have to worry about privity at the moment – that is a voluntary warranty offered by the manufacturer because of the nature of these goods to pick up the costs of and to supply the replacement of a prematurely explanted device covered by a product recall.

The consequences to which we have just referred and the consequences that Mr Fain deposes to in the supplementary application book are consequences which must be generalised beyond medical devices because there is absolutely nothing in the reasoning, nor would one expect that from the pleadings against us, that confines any of this reading of 74D to devices which are used for the enhancement of human health or the avoidance of human disease.  That means that this case involves liability for, not the few goods which human artifice cannot avoid being defective as a matter of so‑called background or random risk, which is really only a euphemism for “We have not yet found out what caused them”, but for all the others as well because they too cannot be known a the time of their acquisition as to whether they are the one per cent or the 99 per cent.

That is important because both our opponents and the court below recognising how that would, in effect, make every manufactured and grown – that is agricultural product – in breach of 74D, leaving the only issue to damages, volunteered, insisted indeed, on the part of our opponents, that the background or random risk which is, as they point out, merely means the one where the causes cannot be assigned – we do not know what they are yet, they are just the incidence rate of failure – does not render all the other members of that class able to be described statistically defective, but one thing is clear, it certainly says of every member of the class that they are subject to a risk, call it one in 100 or one in 200, which was the actual figure used here for the background risks of these devices.

GLEESON CJ:   But fitness for the purpose of an implant means fit to be put and left in your body, does it not?

MR WALKER:   That is right.  Absolutely.  It is not possible to get a product all individual items of which are guaranteed not to fail prematurely.  Now, that is not only true of my client’s goods, that is true of anything made by man.

GLEESON CJ:   What happens if an implant stops working?

MR WALKER:   That would depend medically – that would depend upon the patient.  For some people, the non‑dependent, as they are called, their heart will take over, keep going.

GLEESON CJ:   But if they are dependent?

MR WALKER:   If they are dependent, they could well suffer a serious illness and in extreme cases, of which there is no evidence in this case, none at all, death.  That is why the highly sophisticated technology includes prior warning of battery depletion.

GLEESON CJ:   But then in a product like that does not fitness for that purpose involve a level of unacceptable or acceptable risk?

MR WALKER:   Unquestionably it does.

GLEESON CJ:   And although you do not know whether your particular implant is going to fail, does not the fact that it carries with it such a level of risk that it has to be explanted mean that it is not reasonably fit for the purpose of being kept in your body?

MR WALKER:   That is the logic, if I may call it that, by which the judgments below proceed against us but, in our submission, that raises a very serious fallacy – a very serious fallacy for this reason.  At the point that you are asking a merchantability or fit for purpose question it is not known, because the future still lies ahead, what is going to happen to your item and what is going to happen, much more importantly in this case, to other people’s items of the same kind whose experience will be counted and statistically expressed to produce what the judgments below call a superadded risk.

You do not know that in the future when you acquire. What you do know, on the evidence, is that there is a risk that this will fail, but without warning.  It is a small risk, not quantified.  Furthermore, you know that the expected lifetime of the product is uncertain and depends upon future contingencies, including your own way of life, your heartbeat.  For all those reasons, uncertainty is the hallmark of the position obtained by somebody acquiring one of these products and, certainly, no countable risk.

There was no evidence in this case by which one could say that the background or random risk did not include what came from counting premature failures for reasons which could have been discovered but which had not been.  Which means, as we have put out in 228, paragraph 24 of our written outline, the thing that distinguished the so‑called background from superadded risk categories in this case was simply that a root cause had become not merely hypothesised but on the probabilities found by Justice Sackville.

Now, that merely meant that from the general class of actual failures before investigation they are in the general garbage dump of background or random risk of one in 100.  That subgroup is taken out and it is hypothesised and then sufficiently demonstrated, if not to certainty – certainly not to certainty – that there is a root cause which distinguishes them, it is thought, from others and they have a higher rate.  Of course they do.  But they were also part, before that knowledge was possessed, of the one in 100.

So that simply by the investigation of root cause of other people’s items – not Mr Courtney’s, of other people’s items – his goes from being in the one in 100 background risk to being, I will call it the five in 100 yellow spool solder risk.  That, in our submission, has been accomplished without any change in the nature of his product at all.  If no root cause had ever been found, Mr Courtney would never have had a cause of action because his device had not failed.

If there had been no root cause found, there could have been no statistics because there could have been no grouping according to yellow spool solder.  You can only do the statistics on yellow spool solder once you identify the use of yellow spool solder as the thing which is the common element.  They would have been just in the general muddy puddle of the one in 100, the two in 100.

Now, that is not a mark, in our submission, of a logical no fault product liability statutory allocation of risk based on 19^th century precursors and still of great commercial importance.  It will affect pricing as well as regulatory and quality control conduct inside and outside manufacturers.  What we have here, furthermore, is within the yellow spool solder group that which is clung to by the other side as the physical quality of Mr Courtney’s device which, by the way, for all we know is still ticking, certainly, as the evidence showed, never shown anything untoward at all and had reached a minimum expected life.

So the risk of premature failure in Mr Courtney’s device is apparently something which still entitles him to damages notwithstanding the time at which one defines prematurity has passed.  I have a risk of not surviving to Christmas.  On New Year’s Day it is not sensible to talk about that risk.  It has passed.  It no longer exists.  It is not a risk.  A device which has a risk of not making it to two years cannot sensibly be seen to be not fit for purpose three years later still going strong.

Question:  “Because I did not know it was going to make the two years, does that render it not fit for purpose?”  The answer is:  “But that is true of every item however produced.”  So that cannot be enough.  That is why, in answer to your Honour the Chief Justice, the logic against us – illogic as we seek to demonstrate – is simply that you now know that there is a subgroup of the overall incidence of failure which has a sufficiently designated root cause to enable their own sub‑statistics to be done with a higher figure and that higher figure is what is said to constitute the difference between acceptable and unacceptable level of risk.

One difficulty with that, of course, is that it means, by definition, that only those products about which least is known or least effort is made to find out the cause of failure or those products which are the best, in terms of recorded failure rates, can ever be fit for purpose or merchantable because everything else will show a material discrepancy of rate.  According to the reasoning of the Full Court, that will be enough without any further evidence to distinguish between acceptable and unacceptable.

This was not a case like a surgical warning case where one might have had evidence of a kind it is difficult to imagine, admittedly, of some perceptual difference between one in 14,000 and one in 4,000 and one in 400.  We did not have any evidence of that kind because we did not have figures of that kind.  That finally brings us to something which was factually the contrary of the way the Full Court put the point against us and the way in which our opponents embrace it.

It is not a physical quality of Mr Courtney’s product that yellow spool solder was used in it which renders it defective.  They insist upon that but simple demonstration will show that according to the evidence the yellow spool solder had a higher incidence of ionic contamination.  Now, this is at a very, very microscopic level indeed.  The crystalline residue of the yellow spool solder peculiarly provided a so‑called “trap” so as to pick up from a number of potential sources, including one which could not be excluded, which was also peculiar to a particular batch – a particular run.

If you do not trap the ionic contaminant, there is in fact not the physical requirements which, according to the scientific evidence, uncontested evidence, rendered the process of dendritic growth – a tiny little ramified crystallising produced by voltage, moisture and ions, and if you did not get that, you did not get the kind of defect for which they sued under 74D.

On the evidence, upheld by Justice Sackville – on the evidence you could not possible say of Mr Courtney’s that it had exhibited any dendritic growth.  We do not know.  It is still working, but dendritic growth is a process that must, if it starts at all, start immediately.  It will proceed at varying rates according to the variables of moisture and, in this case, ionic contamination.  So that the probabilities are – leave aside the sheer statistics, which is over 90 per cent of the hazard alert devices are not defective in the sense of premature failure – over 90 per cent.  Leave aside that probability that there is nothing wrong with Mr Courtney’s device at all, there is also the testing of it and the nature of the science concerning dendritic growth which shows to a very high degree that there is nothing wrong with his device. 

We now know that and that comes then to the issue that combines all of these matters that we wish to urge to this Court, it being an argument that this Court has never entertained in relation to the difference between risk of a defective operation and actual defective operation in goods which, like all goods, can never be guaranteed of perfection.  Certainly, if something is defective, this no fault liability provision should give the statutory compensation. 

That means, whether it is the one of the one in 100 random or whether it is one of the five in 100 yellow spool solder later attributed cause pulled out as a subset from the random case, of course you get it in the cases of failure.  But for the 99 per cent, the 95 per cent or the 90 per cent that never exhibit any defective operation the precautionary principle is something which simply, though reasonable to follow, does not render a product unmerchantable.  It is an inevitable part of entrusting one’s life or property or happiness to the acquisition of manufactured or produced goods where perfection cannot be ever assured, that uncertainty being certain.

For those reasons, the approach taken by the majority of the Full Court to the question of the after acquired knowledge and the artificial segregation between some knowledge and other is quite indefensible because they take into account the after acquired knowledge of my client’s root cause investigation so as to be able to perform the statistics showing this, we submit, artifactual superadded risk, but they do not take into account the after acquired knowledge that Mr Courtney’s device has passed any point of premature battery depletion, so that the very risk about which the hazard alert warned, “It may stop before it should”, has not fallen in, can no longer fall in, just as one cannot die before Christmas if you reach New Year.

For those reasons, in our submission, this Court has an opportunity in an ideal factual vehicle, so many of the scientific facts being common ground or settled by unappealed matters of fact to investigate whether or not the uncertainty which is inevitable in manufactured and produced goods is enough, of itself, to show that anything that cannot be safely consigned to the unknown category is therefore defective.  To put it another way, to investigate the paradox that here we are liable because we now know things that enable us to appreciate that nobody knew when Mr Courtney bought this product whether it would have been subject to ionic contamination and dendritic growth or not, but we know by the time of the trial that it was not. 

In our submission, that ducking in and ducking out of the issue of knowledge is a second and very fundamental problem with the Full Court’s reasoning.  May it please your Honours.

GLEESON CJ:   We do not need to hear you, Mr Bannon.

The primary judge and the Full Court of the Federal Court made concurrent findings that the goods were not of merchantable quality and were not reasonably fit for the purpose for which they were intended.  Those findings turned on the application of familiar legal and statutory expressions to the particular facts and circumstances of the case.  There are insufficient prospects of success to warrant a grant of special leave.  The application is refused with costs.

We will adjourn until 1.30.

AT 12.49 PM THE MATTER WAS CONCLUDED