North Kalgurli Mines Ltd v FFE Minerals Australia Pty Ltd
[2001] WASC 119
NORTH KALGURLI MINES LTD & ORS -v- FFE MINERALS AUSTRALIA PTY LTD [2001] WASC 119
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 119 | |
| Case No: | CIV:2129/1998 | 23 MARCH 2001 | |
| Coram: | HASLUCK J | 18/05/01 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Application for leave to amend refused with leave to replead | ||
| PDF Version |
| Parties: | NORTH KALGURLI MINES LTD HOMESTAKE GOLD OF AUSTRALIA LTD NORKAL PTY LTD GOLD RESOURCES PTY LTD FFE MINERALS AUSTRALIA PTY LTD |
Catchwords: | Pleadings Particulars of claim Processing mill on mining tenements Claim for damages after breakdown Application for leave to amend claim Duty of care Whether plaintiff obliged to plead defendant's knowledge of prospective claimants |
Legislation: | Fair Trading Act 1987 (WA), s 10 Trade Practices Act 1974 (Cth), s 52 |
Case References: | Anns v Merton London Borough Council [1978] AC 728 Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 Caparo Industries Plc v Dickman [1990] 2 AC 605 Dare v Pulham (1982) 148 CLR 658 Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Fox v H Wood (Harrow) Ltd [1963] 2 QB 601 North Kalgurli Mines Ltd & Ors v FFE Minerals Australia Pty Ltd [2000] WASC 218 Opat v National Mutual Life Association of Australasia Ltd [1992] 1 VR 283 Perre v Apand Pty Ltd (1999) 164 ALR 606 Pyrenees Shire Council v Day (1998) 192 CLR 330 Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) ATPR 41-696 Johnson Tiles Pty Ltd v Esso Australia Ltd (No 2) (2000) 97 FCR 175 Kimberley Downs Pty Ltd & Ors v State of Western Australia & Anor, unreported; SCt of WA; Library No 6414; 25 August 1986 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- HOMESTAKE GOLD OF AUSTRALIA LTD
NORKAL PTY LTD
GOLD RESOURCES PTY LTD
Plaintiffs
AND
FFE MINERALS AUSTRALIA PTY LTD
Defendant
Catchwords:
Pleadings - Particulars of claim - Processing mill on mining tenements - Claim for damages after breakdown - Application for leave to amend claim - Duty of care - Whether plaintiff obliged to plead defendant's knowledge of prospective claimants
Legislation:
Fair Trading Act 1987 (WA), s 10
Trade Practices Act 1974 (Cth), s 52
(Page 2)
Result:
Application for leave to amend refused with leave to replead
Representation:
Counsel:
Plaintiffs : Mr M J Buss QC & Mr N A Egan
Defendant : Mr M Orlov
Solicitors:
Plaintiffs : Mullins Handcock
Defendant : Hammond Worthington
Case(s) referred to in judgment(s):
Anns v Merton London Borough Council [1978] AC 728
Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529
Caparo Industries Plc v Dickman [1990] 2 AC 605
Dare v Pulham (1982) 148 CLR 658
Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Fox v H Wood (Harrow) Ltd [1963] 2 QB 601
North Kalgurli Mines Ltd & Ors v FFE Minerals Australia Pty Ltd [2000] WASC 218
Opat v National Mutual Life Association of Australasia Ltd [1992] 1 VR 283
Perre v Apand Pty Ltd (1999) 164 ALR 606
Pyrenees Shire Council v Day (1998) 192 CLR 330
Case(s) also cited:
Johnson Tiles Pty Ltd v Esso Australia Ltd (1999) ATPR 41-696
Johnson Tiles Pty Ltd v Esso Australia Ltd (No 2) (2000) 97 FCR 175
Kimberley Downs Pty Ltd & Ors v State of Western Australia & Anor, unreported; SCt of WA; Library No 6414; 25 August 1986
(Page 3)
1 HASLUCK J: The plaintiffs in this matter have applied for leave pursuant to O 21 r 5 of the Supreme Court Rules to amend their statement of claim in accordance with a further substituted minute of proposed amended statement of claim filed 7 March 2001. I note in passing that counsel for the plaintiffs at the hearing before me obtained leave to amend par 6(b) of the minute in question by adding as a preface to the existing words these further words: "Except for references to KCGM in paragraph 13 below … ". I will henceforth refer to the minute as amended as the proposed claim.
2 It will be useful to begin by looking briefly at the nature of the dispute between the parties and the procedural history of the matter. In doing so, I am conscious that on 7 September 2000 I delivered written reasons in respect of a number of procedural rulings, the relevant citation being North Kalgurli Mines Ltd & Ors v FFE Minerals Australia Pty Ltd [2000] WASC 218. Accordingly, in these reasons, I will confine myself to an abbreviated version of the dispute.
3 The plaintiffs appointed Kalgoorlie Consolidated Goldmines Pty Ltd, known as KCGM, as manager of a joint venture. That company, assisted by expert advice from Minproc Engineers, engaged the defendant, FFE Minerals Australia Pty Ltd, to establish a semi-autogenous grinding mill or SAG mill on the Fimiston site in substitution for an existing ore crusher. In October 1995 and again in July 1996 the SAG mill broke down and the plaintiffs now complain of financial loss as a consequence of the cessation of operations on each occasion.
4 The plaintiffs claim that the defendant is liable to them under and by virtue of s 52 of the Trade Practices Act 1974 or, alternatively, under and by virtue of s 10 of the Fair Trading Act 1987 (WA), as a result of certain misrepresentations allegedly made by or on behalf of the defendant prior to the mill being handed over. The plaintiffs say further, and in any event, that the defendant's conduct in the design, supply, installation and commissioning of the mill was negligent and in breach of a duty of care owed to the plaintiffs. The defendant contends that the breakdown occurred because of the way in which the mill was being operated.
5 Pleadings were exchanged by the parties and this gave rise to an application for further and better particulars on both sides. These applications came before me on 4 August 2000 and various orders were then made for the supply of further and better particulars, including a requirement that the plaintiffs provide particulars in response to a number of requests directed to par 37 of the statement of claim.
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6 At that time, the plaintiffs had asserted, in par 37, that the defendant owed the plaintiffs a duty of care not to act in a fashion that would expose the plaintiffs to an unreasonable risk of suffering financial harm through negligent acts relating to the design, supply or commissioning of the mill. Particulars in support of the plea at that time included reference to the plaintiffs' vulnerability to financial harm if the mill did not operate effectively and to financial harm being a reasonably foreseeable outcome to the defendant in the event of the mill not operating effectively. Reference was also made to a relationship of proximity between the parties and upon the plaintiffs' reliance upon the mill as being fit for ore processing as from 15 October 1995.
7 The defendant sought particulars of the facts and matters said to give rise to a relationship of proximity and the facts and matters whereby the defendant should have acquired knowledge that the plaintiffs were vulnerable to financial harm. The plaintiffs were also asked to specify facts and matters from which it is alleged that the defendant should have acquired knowledge of the existence of a class of persons, namely, ore owners seeking to process their ore through the SAG mill, who were said to be at risk of loss, other than KCGM.
8 I said at par 51 of my reasons dated 7 September in respect of that matter of controversy:
"In my view, the plaintiffs are obliged to provide particulars in response to each of these requests. It is true that, as a matter of form, the requests resemble interrogatories. Nonetheless, as a matter of substance, it follows from the reasoning of the High Court in Dare v Pulham (1982) 148 CLR 658 that the particulars concerning the relationship must be provided. It follows from earlier discussion concerning Fox v H Wood (Harrow) Ltd [1963] 2 QB 601 that particulars relevant to knowledge must also be provided."
9 That ruling was followed by various exchanges between the parties. In essence, however, the plaintiffs undertook, in purported compliance with the order for further and better particulars of the claim, to file and serve a minute of proposed amended statement of claim not only addressing the rulings made by the Court, but also introducing various other refinements of the pleading.
10 When an early version of the minute of proposed amended statement of claim reached the solicitors for the defendant, certain objections to the
(Page 5)
- adequacy of the proposed pleading were foreshadowed and this gave rise to further exchanges between the parties. In the end, the stance adopted by the plaintiffs was that the proposed claim represents sufficient compliance with the orders previously made and reflects the claim that the plaintiffs wish to advance.
11 Accordingly, as I have already indicated, being aware of the objections made by the defendant, the plaintiffs have brought on an application for leave to amend in terms of the proposed claim. The defendant opposes the application upon the grounds that the repleading of par 37 and related particulars cannot be regarded as sufficient compliance with the order for particulars previously made. Further, and in any event, the defendant says that the plea is embarrassing and the plaintiffs should not be allowed leave to amend a claim that could be struck out on that ground pursuant to O 20 r 19(1)(c).
12 I digress briefly to observe that at the hearing before me, counsel for the defendant foreshadowed the possibility of an application being made to strike out par 37 on the ground that it did not disclose a reasonable cause of action. He did not press this point, however, from which it follows that I do not, in these reasons, purport to deal with such an issue.
13 Against this background, it now becomes necessary to look at the proposed claim in greater detail and especially at par 37 of the proposed pleading.
14 In par 4 of the proposed claim, the plaintiffs refer to a joint venture agreement made between themselves for the exploitation of certain mining tenements at Fimiston. It is said in par 5 and par 6 that KCGM has been the manager of the joint venture since 1989 and was given possession and control of all joint venture properties. It is said in the newly amended par 6(b) that, except for references to KCGM in par 13 of the claim, all references to KCGM are to KCGM in its capacity as manger of the joint venture and agent of the plaintiffs. In par 7 to par 12 inclusive one finds a description of the mining and crushing operation and reference to the steps whereby KCGM, with the assistance of Minproc, engaged the defendant to design and construct the SAG mill on the Fimiston site.
15 In par 13 the plaintiffs plead that at all material times the defendant was aware that KCGM was conducting mining operations at a location at Fimiston. I pause to note that the consequence of the recent amendment to par 6(b) of the proposed claim is that the plaintiffs do not allege in par 13 that the defendant was aware that KCGM was conducting mining
(Page 6)
- operations at Fimiston as manager of the joint venture and as agent of the plaintiffs.
16 Paragraph 19 of the proposed claim asserts that on or about 3 September 1995 the defendant, by its representatives at Fimiston, handed over the SAG mill to representatives of Minproc and KCGMES (the latter being a company related to KCGM that would fulfil the purchase order), subject to KCGM's agreement to indemnify the defendant against any loss occasioned by such an arrangement. The handing-over was allegedly accompanied by the defendant's so-called "fitness representations" that the mill had been commissioned, that it was now capable of being used for the intended purpose of grinding ore and that the defendant had achieved practical completion on 2 September 1995.
17 In following paragraphs the plaintiffs go on to plead that, contrary to s 52 of the Trade Practices Act and s 10 of the Fair Trading Act, the fitness representations were made falsely in that various constituents of the mill were subject to faults and imperfections. Reference is then made to the mill breaking down and to subsequent events, including the nature of the financial loss allegedly suffered by the plaintiffs.
18 Paragraph 37 marks the point at which the plaintiffs, in their proposed claim, introduce an alternative head of claim. This paragraph in the proposed claim is an expanded version of the former par 37. The plaintiffs repeat earlier paragraphs, including par 9 concerning the fitness representations, and assert that the defendant at all material times owed the plaintiffs a duty of care (a) not to act in a fashion that would expose the plaintiffs to an unreasonable risk of suffering financial harm through negligent acts relating to the design and commissioning of the SAG mill; (b) to ensure that (i) if the defendant made any representations relating to the fitness for use of the mill, and (ii) if the defendant knew, or should reasonably have known that those representations would be made known to and relied upon by KCGM, that those misrepresentations were not misleading.
19 The particulars in support of the expanded plea in par 37 have been substantially revised. In contending for the said duty of care, the plaintiffs rely upon various matters, including (1) that the defendant held itself out as having the expertise to design and construct the mill; (2) the plaintiffs' vulnerability to financial harm if the mill did not operate effectively; (4) that financial harm "to those persons who relied on the SAG mill to crush their ore" was a reasonably foreseeable outcome to the defendant in the
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- circumstances of the SAG mill not operating effectively; (6) the plaintiffs' reliance (through their agent KCGM) upon the mill being fit for ore processing.
20 It will be useful to set out subpar (3) of the particulars to par 37 in its entirety.
"(3) At all material times:
(a) the defendant was aware that the SAG mill was to replace older plant; and
(b) it was or should have been obvious to the defendant that if the SAG mill did not operate effectively then those persons who relied on the SAG mill to crush their ore would be unable to use the SAG mill during the period of any breakdown, with the consequence that they would not generate saleable product from that ore and hence would suffer financial loss,
and in support of the contentions in paragraphs (a) and (b), the plaintiffs rely upon the facts alleged in paragraphs 2, 13, 14 and 18 herein, the admissions made in paragraphs 2, 13, 14 and 18 of the defendant's defence, and the content of the defendant's tender document dated 29 April 1994, pleaded in paragraph 10 herein … "
22 Subparagraph (5) of the particulars to par 37 is another matter the plaintiffs rely upon in contending for the existence of a duty of care. In par 37(5), it is pleaded that a relationship of proximity existed between the plaintiffs and the defendant, alternatively, between the defendant and the plaintiffs' agent KCGM, arising from (a) a geographical closeness between the plaintiffs who owned the ore and the defendant who was engaged to design and construct the mill and (b) at all material times
(Page 8)
- KCGM was the plaintiffs' agent as pleaded in par 6 to par 10 and par 12 of the proposed claim and the defendant was "aware" of the matters pleaded in par 13 and, accordingly, there was a connection between the defendant on the one hand and KCGM and the plaintiffs on the other.
23 In subpar (7) of the particulars to par 37, it is said that at all material times the class of persons at risk should the SAG mill fail to operate effectively was confined and readily defined (being, allegedly, those persons who relied on the SAG mill to crush their ore), and would not give rise to any risk of indeterminate liability on the part of the defendant.
24 It is said further in subpar (8) of the particulars to par 37, that at all material times the plaintiffs were members of the class of persons at risk, as referred to in par (7) of the particulars, should the SAG mill fail to operate effectively.
25 The plaintiffs then plead in par 38 that the defendant's conduct in the design and construction of the mill was negligent and in breach of the duty of care as pleaded in par 37(a) owed by the defendant to the plaintiffs. It is said further that the defendant's conduct in making each of the fitness representations was negligent and in breach of the duty of care owed by the defendant to the plaintiffs as pleaded in par 37(b) of the proposed claim. By reason of the defendant's breach of its duty of care, the plaintiffs have suffered loss and damage.
26 At the hearing before me, counsel for the plaintiffs provided an overview of the plaintiffs' claim in negligence. KCGM was the manager of the joint venture and in that capacity acted as agent for the plaintiffs. However, the SAG mill, which was an integral part of the mining and processing operations at the site, was acquired by KCGM as the legal and beneficial owner. The claim in negligence being advanced by the plaintiffs was therefore for purely economic loss because no property of the plaintiffs was damaged by the alleged negligence. The plaintiffs' case was that the defendants owed the plaintiffs a duty of care not to act in a way which might give rise to financial loss in regard to the design and construction of the mill.
27 Counsel for the plaintiffs said further that par 37 of the proposed claim pleads a duty of care which forms the basis of a reasonably arguable cause of action. In particular, it is at least reasonably arguable that a plaintiff who is a member of a determinate class may recover purely economic loss suffered in consequence of injury to, or defect in, property belonging to another pursuant to the common law principles emerging
(Page 9)
- from leading High Court decisions such as Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 and, more recently, Perre v Apand Pty Ltd (1999) 164 ALR 606.
28 Counsel for the plaintiffs went on to say, with greater particularity, that a duty of care existed "even though the defendant may not at material times have known the specific identity of the plaintiffs or that the plaintiffs' ore was being treated or processed by the SAG mill."
29 Counsel for the plaintiffs recognised that in regard to claims for economic loss the courts have not been prepared to treat foreseeability of loss as a sufficient criterion for the existence of a duty of care as this could impose on an individual defendant a liability in an indeterminate amount to an indeterminate class. See the Caltex Oil case at 591. Accordingly, a statement of claim must be constructed so as to take account of the various relevant considerations mentioned in the decided cases. It quickly became apparent as the argument proceeded that, in the circumstances of the present case, a critical issue concerning the claim in negligence being advanced by the plaintiffs turns upon whether the defendant knew, or ought to have known, that the plaintiffs were users of the mill.
30 Counsel for the plaintiffs submitted that there was knowledge on the part of the defendant as to what KCGM was doing as the owner and operator the mill and related mining activities at Fimiston. The case reflected in the proposed claim, as presently formulated, was not based upon the defendant's state of knowledge as to whether the defendant was acting in a representative capacity as agent for the plaintiffs. A duty of care should be held to exist simply because there was a small and easily defined class of persons at risk of financial harm, being (to use the language of the particulars to par 37) "those persons who relied on the SAG mill to crush their ore". The plaintiffs were members of that class and it was immaterial that at the time of the alleged negligent act they were not identifiable or known to the defendant by name. See Opat v National Mutual Life Association of Australasia Ltd [1992] 1 VR 283.
31 Counsel for the plaintiffs contended that the plaintiffs could not be compelled to provide particulars of allegations directed to the defendant's actual or constructive knowledge as to those likely to be affected by a breakdown at the mill in a context where particulars of that kind were no longer part of the plaintiffs' case. In other words, although earlier versions of the statement of claim and certain facets of the relevant common law principles might have suggested that the plaintiffs intended
(Page 10)
- to or were obliged to rely upon actual or constructive knowledge on the part of the defendant as to the identity of the plaintiffs, there had been a been a "recasting" of the plaintiffs' case in the proposed claim. The result was that the plaintiffs had now essentially complied with the order previously made for the supply of further and better particulars in that the particulars forming part of the proposed claim, and especially the particulars to par 37 concerning the alleged duty of care, were sufficient to set up an arguable case in law and to put the defendant on notice as to the case it had to meet.
32 In the course of his submissions in reply at the hearing, while dealing with the particulars in par 37(3), counsel for the plaintiffs said this:
"The point of difference between the plaintiffs and the defendant is that we say that it is sufficient in terms of this particular and as part of our overall case to allege in the context of an ascertained class that there is a confined and readily definable group who are at risk of suffering loss. We do not need to plead and we do not plead on any view that at any time that is material the defendant knew the identity of the individuals concerned or indeed that the defendant knew that particular people were putting their ore through the mill. The point that we say is that the ascertained class is simply this: the people who were going to put their ore through the mill, whether that was one person; namely, KCGM, whether it was five people, whether it was 10 people didn't matter. One avoids the aspect of indeterminate liability by defining the class and one can define the class acceptably for the purposes of this branch of the law in negligence in the way that we have done so."
33 On the other hand, counsel for the defendant submitted that, notwithstanding a substantial recasting of the plaintiffs' case, upon close analysis, the case still depended on the plaintiffs pleading and proving that the defendant knew or ought to have known that there was a class of persons (namely, the plaintiffs) at risk other than KCGM. The decision in Perre's case (supra) did not relieve the plaintiffs of the need to provide particulars relevant to knowledge of the matters alleged by the plaintiffs. The proposed claim was embarrassing because it was not clear whether it was being alleged that the defendant should have known that there was a class of persons (namely, those persons who relied on the SAG mill to crush their ore) who were at risk other than KCGM as the owner/operator of the mill.
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34 Counsel for the defendant concentrated his attack upon the particulars of the alleged duty of care to be found in par 37(3)(b) of the proposed claim, where it was alleged that at all material times it was, or should have been, "obvious" to the defendant that if the SAG mill did not operate effectively, then those persons who relied on the SAG mill to crush their ore would be unable to use the mill during the period of any breakdown, with the consequence that they would not generate saleable product from that ore and, hence, would suffer financial loss. Counsel submitted that this, in effect, was an allegation that the defendant knew, or ought to have known, that there was a class of persons likely to be affected beyond KCGM as the owner/operator of the mill. If the allegation was viewed in that light, then the crucial question was whether the plea was embarrassing in not setting out the nature of the claim clearly and further, and in any event, whether the particulars provided were sufficient, bearing in mind that the pleading did not purport to set out any facts and matters by way of particulars directed to the defendant's actual or constructive state of knowledge about the way in which the mill was being used.
35 In answer to a question from the bench, counsel for the defendant agreed that it was the use of the word "obvious" in par 37(3)(b) that lay at the heart of the defendant's objection to the proposed claim. He said:
"It is said it should have been obvious to the plaintiff that its actions may cause harm to a class of persons. It is necessary for that class of persons to be ascertainable by the defendant. In other words, it is an integral part of the allegation in 37(3)(b) in order for something to have been obvious to the defendant, that it knew [sic] or ought to have known that there was such a class of persons described as persons who relied on the SAG mill to crush their ore."
36 He went on to point out that no facts and matters were identified in the proposed claim that KCGM was not the only person who might be affected by a breakdown. In his submission, an allegation that there was a small and easily defined class of prospective plaintiffs likely to be affected by the defendant's alleged negligent conduct could only stand if it was supported by particulars showing that the members of that class were ascertainable by the defendant, this being consistent with what the High Court had said in Perre's case (supra). Counsel argued further that in the absence of any plea directed to the defendant's knowledge of users of the mill other than KCGM it was embarrassing for the pleading to suggest, by implication, that the defendant was liable to other parties.
(Page 12)
37 It becomes apparent from this summary of the respective positions that the logical extension of the defendant's submissions was that the plaintiffs' proposed claim failed to disclose a reasonable cause of action because, in the circumstances of the present case, a plea that the defendant had actual or constructive knowledge that the plaintiffs were using the mill and were at risk of economic loss if the mill failed was an essential ingredient of the plaintiffs' cause of action. I have already noted, however, that counsel for the defendant did not press this line of argument and preferred to reserve his position in regard to such an issue. Accordingly, the question before me is whether leave to amend in terms of the proposed claim should be allowed or refused in the face of objections raised by the defendant that the claim is embarrassing and, in any event, the particulars provided are not sufficient.
38 In addressing this issue, it will be useful to look briefly at some of the decided cases bearing upon claims in negligence for recovery of economic loss.
39 In the Caltex case, the High Court accepted that there is no general rule that one person owes to another a duty of care not to cause reasonably foreseeable harm, although, as the decision in that case showed, there are some circumstances in which the law recognises a duty of care which will permit recovery of pure economic loss.
40 Debate in subsequent years has been particularly concerned with refining the exclusionary rule or control factors that will limit the range of plaintiffs affected by foreseeable loss to manageable proportions. In other words, the theoretical underpinnings of the exclusionary rule have always been related to the need to avoid imposing indeterminate liability and a concern not to render ordinary business conduct tortious.
41 I digress to note that in the Caltex case, the plaintiff had suffered the economic loss of having to transport oil products by road rather than through the pipeline which it had been using until that line was ruptured by the negligence of the defendant's dredge. The loss to Caltex was economic only, because the pipeline was owned by the refinery company to and from which Caltex sent oil products. There is therefore some resemblance to the facts of the present case where the plaintiffs, not being the owners of the SAG mill where the breakdown occurred, complain of economic loss only arising from disruption of the mill as a processing facility.
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42 An approach formulated by Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728 involved first, foreseeability, and secondly, considerations which negative or limit the scope of the duty of care or the class of persons to whom it is owed.
43 In Caparo Industries Plc v Dickman [1990] 2 AC 605 at 617, Lord Bridge spoke of a three-stage test being first, foreseeability, secondly, the existence of a relationship between the parties of proximity or neighbourhood and, thirdly, a consideration of policy to determine whether it is just and reasonable to impose the duty of care in question.
44 Justice Kirby was an advocate of the three-stage Caparo test in Pyrenees Shire Council v Day (1998) 192 CLR 330 at 419 and in Perrev Apand (supra) at par 259, but other members of the High Court have doubted the utility of such a test. It might be thought to perpetuate the doubts that led to the demise of proximity as a unifying theme. According to McHugh J in Perre at par 74, the reason that proximity cannot be the touchstone of a duty of care is that it is a category of indeterminate reference par excellence.
45 Nonetheless, various members of the High Court have conceded that the use of proximity as a control factor in determining duty of care has not been entirely abandoned. However, since the fall of proximity, the court has not made any alternative pronouncement as to what is to be the correct approach for determining the duty of care question. See McHugh J in Perreat par 76.
46 It seems that the circumstances which attract a duty of care in the context of claims for negligent misstatement are known reliance, or dependence, or the assumption of responsibility, or a combination of the two, the word "known" including circumstances in which reliance, or dependence ought to be known. In Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, it was not pleaded that the auditors in question knew, or ought to have known, that a finance provider would rely on their audited statement of accounts and, thus, it was held, on the pleadings, that no duty of care was owed by the auditors to the finance provider.
47 In Perre v Apand Pty Ltd (supra), the respondents supplied diseased seed to the Sparnons, who were potato growers in South Australia. The appellants were unable to export potatoes to Western Australia because they carried on business close to the Sparnons' property, even though the appellants' crops were not infected with bacterial wilt. While the High
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- Court was unanimous in upholding the appeal and allowing the appellants to recover for economic loss, there was no unanimity in the reasons for that conclusion. Each member of the court recognised that, with respect to liability for purely economic loss, to establish a duty of care requires more than establishing reasonable foreseeability of harm. The court was divided, however, in the determination of the requisite control factors.
48 I have already noted that Kirby J relied upon the Caparo test. McHugh J indicated that the law should be developed incrementally by reference to the reasons why the material facts in analogous cases did or did not found a duty of care and by reference to the few principles of general application that could be found in the duty cases. He also indicated that specific factors relevant to the existence of a duty of care included the degree to which liability, if imposed in one case, might lead to indeterminate liability in others; whether liability would constitute an undue burden on the defendant's legitimate trading activities; whether the plaintiff was in a position of relative inability to protect itself; and whether the defendant knew of, or was grossly careless as to, the extent of the risk of harm to the plaintiff.
49 Hayne J considered that the necessary control mechanism could be found in two factors - the need to prevent indeterminate liability and the concern not to interfere with ordinary business conduct. Liability would not be indeterminate, so long as it was known to the defendant that it was possible to identify all those who would be affected by its acts or omissions.
50 I have already noted that, for present purposes, it is not necessary for me to resolve any issue as to whether, in the circumstances of the present case, actual or constructive knowledge of the defendant about those using the mill is an essential ingredient of the plaintiffs' cause of action. It is material to note, however, as one reviews the various judgments in Perre that actual or constructive knowledge of an individual or an ascertainable class of persons likely to be affected by negligent conduct, and therefore vulnerable, was thought by several members of the court to be a significant factor in establishing a duty of care. McHugh J said at par 131 that knowledge, actual or constructive, of the defendant that its act will harm the plaintiff is "virtually a prerequisite of a duty of care in cases of pure economic loss" because negligence at common law is still a fault-based system. He added: "It would offend current community standards to impose liability on a defendant for acts or omissions which he or she could not apprehend would damage the interests of another."
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51 It is certainly true, as counsel for the plaintiffs pointed out, that the plaintiffs cannot be compelled to plead, or rely upon, matters that they do not themselves regard as intrinsic to the case they wish to advance. Nonetheless, it follows from the notion that the defendant's state of knowledge may be a critical factor in the determination of a duty of care that the defendant is entitled to insist that the claim be pleaded with precision and that any ambiguity as to what is being alleged be characterised as embarrassing, for it may turn out that the question of liability ultimately turns upon the degree of knowledge, if any, held by the defendant as to the manner in which the mill was being used.
52 When I apply these considerations to the circumstances of the present case, it seems to me that par 37 of the proposed claim, and especially par 37(3)(b), is embarrassing. I am persuaded by the submissions made by counsel for the defendant that, when it is pleaded that it was, or should have been, "obvious" to the defendant that if the SAG mill did not operate effectively, then those persons who relied on the mill to crush their ore would suffer loss, this can arguably be viewed as another way of saying that the defendant knew, or ought to have known, that such persons might suffer loss. In other words, if a matter is thought to be obvious, then this means, by implication, that the observer is acquainted with facts and matters which make the outcome of the activity, or event, in question seem clear and predictable. This conclusion is reinforced to some extent by the fact that in par 13 of the proposed claim (being a plea used to support the plea in par 37(3)(b)) reference is made to the defendant being, allegedly, "aware" of certain matters - a term that appears to be directed to the defendant's state of knowledge.
53 When the matter is viewed in that light, it follows, consistently with the rules concerning pleadings and particulars as summarised in Dare v Pulham (1982) 148 CLR 658 at 664 and in Fox v H Wood (Harrow) Ltd [1963] 2 QB 601, that the plaintiff is obliged to provide particulars of the facts and matters on which it intends to rely in asserting that the defendant had a state of knowledge of such a degree that certain things must have been "obvious" to it.
54 On the other hand, if the plaintiffs intend to assert that a duty of care arises in the circumstances of the present case simply from the fact that there was a small and readily ascertainable class of persons using the mill to process their ore, then it may be, if that is the case they wish to advance, that there is no need to use the word "obvious". I note in passing, however, that in the course of argument, when pressed about use of the word "obvious", counsel for the plaintiffs did seem to accept that
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- the term was referable to the defendant's state of knowledge. He said that the plaintiffs did not have to go further than simply saying that it was obvious that users of the mill would be disadvantaged if the mill did not work, which is "an alternative way of saying, the defendant knew or should have known."
55 In summary, then, I consider that in regard to those passages of the proposed claim bearing upon the existence of the alleged duty of care, and especially par 37, the proposed claim is embarrassing and, in its present form, may prejudice or delay the fair trial of the action. It follows that, in my view, leave to amend in the form proposed should not be allowed. It follows equally, however, that the plaintiffs should be allowed an opportunity to address the issues reflected in this ruling and to submit a further minute of proposed amendment. I will hear from the parties as to the precise orders and directions that are now required.
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