Perre v Apand Pty Ltd - [1999] HCA 36

HIGH COURT OF AUSTRALIA

GLEESON CJ,
GAUDRON, McHUGH, GUMMOW, KIRBY, HAYNE AND CALLINAN JJ

FRANK PERRE & ORS APPELLANTS

AND

APAND PTY LTD RESPONDENT

Perre v Apand Pty Ltd [1999] HCA 36
12 August 1999
A27/1998

ORDER

Appeal allowed with costs.

Orders of the Full Court of the Federal Court made on 21 November 1997 set aside; and in lieu thereof order that the appeal to that Court be allowed with costs.

Order 5 of the orders made by Justice von Doussa on 20 and 26 December 1996 varied to refer to the second and third respondents; orders 6 and 10 of those orders set aside.

Remit the matter to a single judge of the Federal Court of Australia for further hearing.

Costs of the first hearing to abide the outcome of the further hearing.

Liberty to parties to apply to a single judge of the Federal Court of Australia to vary order 12 of the orders made by Justice von Doussa as may be appropriate.

On appeal from the Federal Court of Australia

Representation:

T A Gray QC with J S Roder and N G Rochow for the appellants (instructed by Townsends)

P R Garling SC with M A Frayne and A R Harris for the respondent (instructed by Phillips Fox)

Notice: This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Perre v Apand Pty Ltd

Negligence – Duty of care – Economic loss – Factors relevant to determination of duty.

Words and phrases – "Duty of care", "Economic loss".

Plant Diseases Regulations (WA) Sched 1, Pt B, Item 14(1)(b).

GLEESON CJ. The issue to be decided is whether the respondent, whose careless conduct resulted in financial loss to others, unconnected with physical injury to their persons or property, owed them a duty of care such as to sustain an action for damages for negligence.
The facts of the case are set out in the reasons for judgment of other members of the Court. In broadest outline, they are as follows. In a rural locality in South Australia, a number of farmers grew potatoes, some for export to Western Australia. The respondent negligently introduced a form of disease, known as bacterial wilt, onto the land of one farmer. The Western Australian regulations imposed a prohibition on the importation into Western Australia, not only of potatoes grown on land known to be affected by the disease, but also of potatoes grown on land within a certain distance of affected land. The appellants were involved, in various ways, in potato growing on such land, and claimed to suffer financial loss. The issue is whether the respondent, whose conduct is, for the purposes of argument, assumed to have caused harm to each of the appellants, owed a duty of care to all or any of them. In the Federal Court at first instance[1], and in the Full Court[2], that question was answered in the negative as to all appellants.
[1]von Doussa J.
[2]Perre v Apand Pty Ltd (1997) 80 FCR 19.
Although the appellants, considered collectively, owned, or had other interests in, land which was in the neighbourhood of land directly affected by the respondent's negligent conduct, no property belonging to, or used by, the appellants suffered any physical harm. The loss allegedly suffered by each appellant was of a kind conventionally described as pure economic loss[3], although the utility of considering such loss without further categorisation has been questioned by some judges and commentators[4].
[3]An attempt was made in argument to demonstrate that the productive use of land owned by some of the appellants was effectively sterilised and that this should be regarded as the equivalent of a physical effect. However, the facts do not support the argument.
[4]eg La Forest J in Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021; Feldthusen, "Economic Loss in the Supreme Court of Canada: Yesterday and Tomorrow" (1991) 17 Canadian Business Law Journal 356.
In Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad”[5] all the members of the Court, except Murphy J, accepted that there is no general rule that one person owes to another a duty to take care not to cause reasonably foreseeable financial harm[6]. The consequences of such a rule would be intolerable. However, as the decision in that case showed, and as had previously been shown in Hedley Byrne & Co Ltd v Heller & Partners Ltd[7], there are circumstances in which the law recognises a duty of care such as will permit recovery of pure economic loss.
[5](1976) 136 CLR 529.
[6](1976) 136 CLR 529 at 555, 558-559, 592, 598.
[7][1964] AC 465.
There are at least three considerations which have been, and will remain, influential in restraining acceptance of such a duty of care in particular cases, or categories of case. First, bearing in mind the expansive application which has been given to the concept of reasonable foreseeability in relation to physical injury to person or property, a duty to avoid any reasonably foreseeable financial harm needs to be constrained by "some intelligible limits to keep the law of negligence within the bounds of common sense and practicality"[8]. Secondly, to permit recovery of foreseeable economic loss, which may or may not occur in a commercial setting, for any negligent conduct, may interfere with freedoms, controls and limitations established both by common law and statute in many legal contexts. Thirdly, in those cases where the loss occurs in a commercial setting, a third party, C, may suffer financial harm as a result of conduct which is regulated by a contract between A and B. It may be that the consequences of such conduct, as between A and B, are governed and limited by the contract. This is a problem which commonly occurs in relation to maritime claims, and may help to explain the strictness with which an exclusionary rule has been applied in shipping cases[9].
[8]Caparo Industries Plc v Dickman [1990] 2 AC 605 at 633 per Lord Oliver of Aylmerton; see also Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 573 per Stephen J.
[9]See Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd [1985] QB 350 at 397 per Robert Goff LJ. It may be noted, however, that Caltex was an action in rem commenced in the Admiralty Division of the Supreme Court of New South Wales.
Another matter of concern is the lack of precision in the concept of financial or economic loss. Physical injury to person or property is usually readily identifiable, even if it may take time to manifest itself. However, the concept of financial or economic loss or harm is wide enough to comprehend a variety of circumstances or contingencies, some of which may be indirect and difficult to identify or measure. Suppose, for example, that a child’s parents are killed as a result of the negligent conduct of another. In many jurisdictions there are statutory provisions which govern entitlement to compensation[10]. However, if the matter were at large, how would a court set about identifying, and estimating, the kinds of financial loss which might sound in damages? What kinds of detriment, harm, or disadvantage, would be treated as "financial loss"? The law of tort is a blunt instrument for providing a remedy for many kinds of harm which may be suffered as a consequence of someone else’s carelessness, and which are capable of being described as financial.
[10]eg Compensation toRelatives Act 1897 (NSW).
If there once was a bright line rule which absolutely prevented recognition of a duty of care in any case where the negligent conduct of one person caused financial loss to another, not associated with injury to the other's person or property, and which assigned claims to recover such loss to the field of contract rather than tort, the line gave way in an area where there is a clear potential for carelessness to cause financial harm: negligent misstatements made to a person who, to the knowledge of the maker of the statement, relies upon the advice or information provided. However, there is no convincing reason why conveying advice or information should be treated as the solitary exception to an otherwise absolute exclusionary rule.
Once the exclusionary rule ceased to be a bright line rule, it lost one of its principal justifications. Nevertheless, the considerations underlying the rule remain cogent, even if they are no longer seen as absolutely compelling. Courts have found difficulty in proposing an alternative general rule which makes better sense and which, at the same time, pays due regard to the problems earlier mentioned.
The solution does not lie in what is sometimes described as the three-stage "test" said to have been formulated by Lord Bridge of Harwich in Caparo Industries Plc v Dickman[11]. Lord Bridge never said it did. He said it did not. In the much quoted passage[12] in his Lordship's speech where he referred to the necessary ingredients of foreseeability, proximity, and a situation in which the court considers it fair, just and reasonable that the law should impose a duty, he immediately went on to say that "the concepts of proximity and fairness ... are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope". He also quoted with approval an observation of Brennan J concerning incremental development of the law. In the same case, Lord Oliver of Aylmerton[13], whose speech has been equally influential in later cases, said that "to search for any single formula which will serve as a general test of liability is to pursue a will-o'-the wisp."
[11][1990] 2 AC 605.
[12][1990] 2 AC 605 at 617-618.
[13][1990] 2 AC 605 at 632-633.
In Caparo, Lord Oliver emphasised that, in this field of discourse, the mere foreseeability of possible damage, without some further control, (which he summarised as "proximity", after explaining what he meant by that term), would not be useful as the test of liability[14]. At the same time, however, his Lordship made it clear that "in some cases the degree of foreseeability is such that it is from that alone that the requisite proximity can be deduced."[15] In relation to the giving of advice or information, questions of reliance and actual foresight of the possibility of harm, (or, what is the same thing, the foresight that a reasonable person would have), are closely related. Moreover, knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care.
[14][1990] 2 AC 605 at 643.
[15][1990] 2 AC 605 at 633.
Vulnerability can arise from circumstances other than reliance. In Caltex, the obvious vulnerability of a specific plaintiff was influential in a number of the judgments.[16] This was not merely an arbitrary method of solving the problem of potentially indeterminate liability. It was an application of what Lord Oliver later discussed as the idea that in a given case, the degree (and nature) of foreseeability may have an important bearing on whether there is a duty of care.
[16](1976) 136 CLR 529 at 555, 576-577, 593.
I agree with the reasons given by Gummow J for concluding that, in the present case, the respondent owed the appellants a duty of care. In particular, I would emphasise the following matters.
The acknowledgment, in the internal communications of the respondent, that there was a need to be careful so as not to damage the interests of those involved in potato growing on land within 20 km of a farm that might be affected by bacterial wilt, is not merely a matter of legally irrelevant prejudice. It shows actual foresight of the likelihood of harm, and knowledge of an ascertainable class of vulnerable persons.
If it had been the fault of the Sparnons, rather than the respondent, that there was an outbreak of bacterial wilt on their land, then the resulting interference with the use and enjoyment of neighbouring land would not have gone without remedy. The respondent controlled the activity on the Sparnons' land, which resulted in land and facilities within 20 km being treated by Western Australian law, for practical purposes, as if contaminated.
The reasoning in the Federal Court was strongly influenced by the consideration that there was seen to be no rational basis for distinguishing between the position of the present appellants and that of an indeterminate number of other people. That was unquestionably an important issue to address. A decision that a duty of care is owed to some who suffer financial harm as a consequence of negligent conduct, but not to others, is only just if it is capable of being explained on a rational basis. As the judgments of other members of this Court show, to an extent the Federal Court's conclusion was based upon a view of the facts, and in particular of the critical aspect of the negligent conduct, which cast the net of potential liability too wide. Furthermore, the combination of circumstances involving the use and ownership or enjoyment of land, the physical propinquity of such land to the Sparnons' land, the known vulnerability of people in the position of the appellants, and the control exercised by the respondent over the relevant activity on the Sparnons' land, is unlikely to apply to an extent sufficient to warrant an apprehension of indeterminate liability.
I agree that the appeal should be allowed, and orders made as proposed by Gaudron J.

GAUDRON J. The relevant facts and the history of these proceedings are set out in other judgments. I shall repeat them only to the extent necessary to make clear my reasons for concluding that the appeal in this matter should be allowed.
The relationship between the appellants
In order to identify the interests of the appellants which were infringed by the respondent's transmission of seed potatoes affected by bacterial wilt to South Australia for planting on the property of Mr and Mrs David Sparnon and their son, Michael ("the Sparnon property"), it is necessary to say something of the relationship which is said to have existed between the various appellants when bacterial wilt was detected on that property in April 1992. Until then, none of the appellants suffered any damage; and prima facie, at least, if damage was suffered, it was suffered when the disease was detected, for it was detection of the disease that prevented the appellants from selling potatoes into the Western Australian market or using their land and equipment to grow and pack potatoes for that market.
What follows with respect to the relationship between the appellants is taken from the Ninth Statement of Claim which, unfortunately, does not seem to have been drafted with a view either to elucidating the precise nature of the appellants' legal arrangements or to particularising the damage that each claims to have suffered. However, the relationships appear to centre on two corporate appellants, Warruga Farms Pty Ltd ("Warruga Farms") and Perre's Vineyards Pty Ltd ("Perre's Vineyards"), and a partnership known as the Rangara joint venture.
Warruga Farms grew potatoes on land three kilometres distant from the Sparnon property using, it seems, its own machinery and equipment. The Crown leasehold in the land was held by the first to eighth appellants, they being the fourth to eleventh applicants in the action. Although it is not clear from the pleadings, it seems likely that Warruga Farms owned the potatoes grown on the land. It is convenient to proceed on the assumption that that was so. Additionally and as part of its business, Warruga Farms acquired potatoes grown by the Rangara joint venture.
Warruga Farms washed and packed the potatoes it grew and, apparently, those it acquired from the Rangara joint venture in a purpose built packing shed on land leased by Perre's Vineyards three kilometres distant from the Sparnon property. Warruga Farms used that packing shed pursuant to a tenancy at will for which it paid between $16,000 and $20,000 per year. Perre's Vineyards held a Crown lease over the land on which the packing shed was located.
The Rangara joint venture is a partnership between Pasquale and Grace Perre, the twelfth and thirteenth appellants and Rangara Pty Limited ("Rangara"), a company in which the shares are held by Francesco and Maria Perre, the fourteenth and fifteenth appellants. Although it is not entirely clear, it seems that, in its potato growing operations, the Rangara joint venture used equipment which Rangara owned and, also, some owned by Francesco and Maria Perre. The Rangara joint venture grew potatoes on two blocks of land which were each two kilometres distant from the Sparnon property and which were owned, respectively, by Pasquale and Grace Perre and by Francesco and Maria Perre.
Again, it seems likely that the Rangara joint venture owned the potatoes it grew until they were sold to Warruga Farms although the pleadings do not disclose when, if at all, Warruga Farms obtained the property in them. It is convenient to proceed on the assumption that some potatoes were owned by the Rangara joint venture when bacterial wilt was discovered on the Sparnon property.
Liability for economic loss
As the other judgments make clear, bacterial wilt neither infected the potatoes grown by Warruga Farms nor those grown by the Rangara joint venture. Nor did it spread to any of the lands on which the potatoes were grown or packed. The case is, thus, a case of pure economic loss, in the sense that the loss in issue does not result from any physical injury. Rather, the loss occurred because, by reason of the outbreak of bacterial wilt on the Sparnon property, Warruga Farms and the Rangara joint venture were unable to sell their potatoes into the Western Australian market and, for a period of five years, the other appellants were unable to use their land or equipment for the production or preparation of potatoes for that market.
The law as to liability for economic loss is a "comparatively new and developing area of the law of negligence."[17] It has not yet developed to a stage where there has been enunciated a governing principle applicable in all cases[18]. Perhaps it never will. Not surprisingly, given the present stage of development, different approaches have been advanced as to the way in which claims for which there is no legal precedent should be dealt with.
[17]Bryan v Maloney (1995) 182 CLR 609 at 618 per Mason CJ, Deane and Gaudron JJ.
[18]See Pyrenees Shire Council v Day (1998) 192 CLR 330 at 397 per Kirby J. See also McHugh, "Neighbourhood, Proximity and Reliance", in Finn (ed), Essays on Torts, (1989) 5 at 11; Fleming, The Law of Torts, 9th ed (1998) at 202.
The first of the various approaches propounded in this area of the law was formulated by Lord Wilberforce in Anns v Merton London Borough Council[19].That approach involved two considerations: firstly, foreseeability and, secondly, considerations which "negative, or ... reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise"[20]. In Sutherland Shire Councilv Heyman, Brennan J favoured the development of "novel categories of negligence incrementally and by analogy with established categories"[21], an approach later adopted by the House of Lords in Murphy v Brentwood District Council[22]. And in Pyrenees Shire Council v Day[23], Kirby J advocated the three stage test which is now generally applied in England[24]. That test involves firstly, foreseeability, secondly, the existence of a relationship between the parties of "proximity" or "neighbourhood" and finally, a consideration of policy to determine whether it is "fair, just and reasonable" to impose the duty of care in question[25].
[19][1978] AC 728.
[20][1978] AC 728 at 752.
[21](1985) 157 CLR 424 at 481. See also Hawkins v Clayton (1988) 164 CLR 539 at 556 per Brennan J.
[22][1991] 1 AC 398 at 461 per Lord Keith of Kinkel with whom all other Law Lords agreed in separate judgments.
[23](1998) 192 CLR 330 at 419-420.
[24]See Caparo Industries Plc v Dickman [1990] 2 AC 605 at 617-618 per Lord Bridge of Harwich; X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 729 per Lord Jauncey of Tullichettle, 749 per Lord Browne-Wilkinson, with whom Lord Lane, Lord Ackner and Lord Nolan agreed; Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211 at 235 per Lord Steyn with whom Lord Keith of Kinkel, Lord Jauncey of Tullichettle and Lord Browne-Wilkinson agreed.
[25]Pyrenees Shire Council v Day (1998) 192 CLR 330 at 419-420.

It is clear that foreseeability does not, of itself, suffice to render a defendant liable for negligently inflicted economic loss. This notwithstanding, the notion of proximity, which has generally been adopted by this Court to describe the special feature or features that attract a duty of care in economic loss cases[26], has been criticised as being incapable of constituting a universal criterion of liability[27] and, also, as having only limited utility in determining whether there exists a duty of care in a particular case[28]. It may well be that, at this stage, the notion of proximity can serve no purpose beyond signifying that it is necessary to identify a factor or factors of special significance in addition to the foreseeability of harm before the law will impose liability for the negligent infliction of economic loss[29].
[26]See, for example, Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 575 per Stephen J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355 per Gibbs CJ, Mason, Wilson and Dawson JJ; Hawkins v Clayton (1988) 164 CLR 539 at 544-545 per Mason CJ and Wilson J, 576-579 per Deane J, 593-594 per Gaudron J; Bryan v Maloney (1995) 182 CLR 609 at 617-618 per Mason CJ, Deane and Gaudron JJ, 656 per Toohey J.
[27]See, for example, San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 368-369 per Brennan J; Hawkins v Clayton (1988) 164 CLR 539 at 555-556 per Brennan J; Gala v Preston (1991) 172 CLR 243 at 260-263 per Brennan J, 276278 per Dawson J; Bryan v Maloney (1995) 182 CLR 609 at 652-655 per Brennan J. See also McHugh, "Neighbourhood, Proximity and Reliance", in Finn (ed), Essays on Torts, (1989) 5 at 36-39.
[28]See, for example, Hill v Van Erp (1997) 188 CLR 159 at 177-178 per Dawson J, 210, 213 per McHugh J, 237 per Gummow J. See also Gala v Preston (1991) 172 CLR 243 at 261 per Brennan J.
[29]Hill v Van Erp (1997) 188 CLR 159 at 177-178 per Dawson J, 189 per Toohey J, 192 per Gaudron J.
Categories of case: negligent misstatement
It seems to me that much judicial effort has been devoted to, but little gained by, criticising the approaches that have been advanced or theories propounded in this area of the law. Rather, it seems likely that, in time, there will develop a sufficient body of case law from which it is possible to discern different categories for which the special circumstances that call a duty of care into existence can be articulated. That is what Stephen J predicted in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[30].
[30](1976) 136 CLR 529 at 575.
So far as concerns the category of negligent misstatement - more accurately, the failure to provide information or advice or, usually, the failure to provide accurate information or advice - the prediction of Stephen J in Caltex Oil has largely been borne out. That category was impliedly recognised as a discrete category in San Sebastian Pty Ltd v The Minister[31], and expressly recognised as such by Brennan CJ and, also, by Dawson J in Hill v Van Erp[32].
[31](1986) 162 CLR 340 at 355 per Gibbs CJ, Mason, Wilson and Dawson JJ.
[32](1997) 188 CLR 159 at 170-171 and 175 respectively. Note that at 188 Toohey J agreed with Dawson J.
So far as concerns negligent misstatement, the circumstances which attract a duty of care are "known reliance (or dependence) or the assumption of responsibility or a combination of the two"[33], the word "known" including circumstances in which reliance or dependence ought to be known[34]. And in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, 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[35].
[33]Bryan v Maloney (1995) 182 CLR 609 at 619 per Mason CJ, Deane and Gaudron JJ, referring to Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 466-468 per Mason J, 501-502 per Deane J and Hawkins v Clayton (1988) 164 CLR 539 at 545 per Mason CJ and Wilson J, 576 per Deane J, 593 per Gaudron J.
[34]See Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 252 per Brennan CJ, 255 per Dawson J, 261-262 per Toohey and Gaudron JJ.
[35](1997) 188 CLR 241 at 252 per Brennan CJ, 254, 258 per Dawson J, 259-260, 266 per Toohey and Gaudron JJ, 289-291 per McHugh J, 308-311 per Gummow J.
Policy considerations
It seems to me possible to discern another category for which the circumstances that attract a duty of care can now be articulated. Although that category does not cover this precise case, it is one by analogy with which this case is, in my view, to be decided. Before turning to that second category, however, it is convenient to note two policy considerations that are frequently invoked in this area of the law.
The first policy consideration is "the law's concern to avoid the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class'."[36] It is important to remember that that is a policy consideration, not a rule of law. Thus, it is not necessarily fatal to the recognition of a duty of care that the duty is owed to a class whose members cannot be identified with complete accuracy.
[36]Bryan v Maloney (1995) 182 CLR 609 at 618 per Mason CJ, Deane and Gaudron JJ citing Ultramares Corporation v Touche 174 NE 441 at 444 (1931) per Cardozo CJ. See also Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 568 per Stephen J, 591 per Mason J; Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 465 per Mason J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 353-354 per Gibbs CJ, Mason, Wilson and Dawson JJ, 367 per Brennan J; Hill v Van Erp (1997) 188 CLR 159 at 171 per Brennan CJ, 179 per Dawson J, 192 per Gaudron J, 216 per McHugh J, 235 per Gummow J.
The second policy consideration is that, in a competitive commercial environment, "a duty to take reasonable care to avoid causing mere economic loss to another ... may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage."[37] It is because of this that the law requires some special factor or factors before it will impose a duty of care in protection of commercial interests, opportunities or, even, advantages. However, the factor or factors which will attract liability may be of a somewhat broader character when economic loss results from the destruction or impairment of a legal right.
[37]Bryan v Maloney (1995) 182 CLR 609 at 618 per Mason CJ, Deane and Gaudron JJ referring to Jaensch v Coffey (1984) 155 CLR 549 at 578 per Deane J and Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503 per Deane J. See also Hill v Van Erp (1997) 188 CLR 159 at 179 per Dawson J, 192-193 per Gaudron J, 215-216 per McHugh J, 235-236 per Gummow J.
Categories of case: protection of legal rights
As I pointed out in Hawkins v Clayton, "[t]he law of tort already protects contractual rights from intentional interference ... [and the] torts of trespass, conversion, detinue and slander of title are intimately concerned with the protection of legal rights"[38]. And that is so even where loss or impairment results in pure economic loss. In that context, it is not surprising that, in some situations, the law of negligence may be invoked where economic loss is suffered in consequence of the loss or impairment of a legal right. On the contrary, there are situations (for example, the retained solicitor whose negligence results in a cause of action becoming statute barred) in which it would be surprising if the law of negligence could not be invoked.
[38](1988) 164 CLR 539 at 594.
It is in the area of legal rights that, in my view, there is to be discerned a second discrete category of liability for pure economic loss. Indeed, in some situations, the existence of a duty of care with respect to another's legal rights may be so obvious as to pass without argument. Thus, for example, there was no issue in Bennett v Minister of Community Welfare but that "the circumstances of the guardianship and the injury to the appellant while under the care and control of the [servant or agent of the Minister] gave rise to a common law duty on the part of the latter to take reasonable care to ensure that the appellant did not suffer economic loss by not being advised of his rights in respect of that injury."[39]
[39](1992) 176 CLR 408 at 427 per McHugh J.
The legal right involved in Bennett was the right to bring an action for damages for personal injury. The appellant, who was, in effect, a ward of State, was dependent on his guardian for information and advice as to his rights in that regard. By corollary, his guardian was in a position to control the appellant's exercise of his right to seek damages. The circumstances involved in Hawkins[40] and in Hill[41] are comparable. In Hawkins, the legal right involved was that of the named executor to obtain probate of a will. The solicitor, who had custody of the will, was held to have been under a duty of care to take reasonable steps to inform the named executor of its terms. In Hill, the right involved was that of a beneficiary to receive a testamentary gift intended by a testatrix, the right having been defeated by a solicitor's failure to ensure that the will was not witnessed by the beneficiary's husband.
[40](1988) 164 CLR 539.
[41](1997) 188 CLR 159.
In Hill, both Gummow J and I saw the solicitor's control over the realisation of the intentions of the testatrix as a special factor warranting the imposition of a duty of care[42]. And Dawson J, with whom Toohey J agreed, placed emphasis on the fact that "the intended beneficiary's interests [were] totally and unavoidably dependent upon the proper performance of a function within the sole province of the solicitor"[43], which, of course, is simply the corollary of the solicitor's control. And as I said in Hill[44], it seems to me that Hawkins is also to be explained in terms of the solicitor's control, as a matter of practical reality, over the exercise by the executor of his right to apply for probate.
[42](1997) 188 CLR 159 at 234 and 198-199, respectively.
[43](1997) 188 CLR 159 at 186.
[44](1997) 188 CLR 159 at 198.
Where a person is in a position to control the exercise or enjoyment by another of a legal right, that position of control and, by corollary, the other's dependence on the person with control are, in my view, special factors or, which is the same thing, give rise to a special relationship of "proximity" or "neighbourhood" such that the law will impose liability upon the person with control if his or her negligent act or omission results in the loss or impairment of that right and is, thereby, productive of economic loss.
The appeal
As earlier indicated, the circumstances of this case are analogous but not truly comparable with those in Bennett, Hawkins and Hill. The main difference is that, in those cases, the right involved was a right peculiar to the plaintiff. In this case, the rights involved are general rights, namely, the right to sell potatoes in the Western Australian market and the right to use one's land and equipment for the production of potatoes for that purpose. So far as concerns persons not resident in Western Australia, those rights can only be exercised or enjoyed by those who satisfy the conditions imposed by the law of Western Australia for the entry of potatoes into that State. More precisely, the rights are rights which can be exercised or enjoyed only by members of a particular class. And in fact, they were exercised or enjoyed by some only of that class.
The consideration that the legal rights involved in this case are rights which attach to members of a class rather than to an individual is, to my mind, of no significance. There is no principled basis on which a distinction can be drawn between rights which are peculiar to an individual plaintiff and those which inhere in a plaintiff as a member of a particular class. And that is so even if the members of that class cannot be identified with complete accuracy.
Although it would not be strictly accurate in this case to describe the respondent as being in a position of control, its relationship with the appellants is closely analogous to that which obtains where one person is in a position to control the exercise or enjoyment of a legal right by another person. In this case, the respondent knew that there was a class of persons who availed themselves of the right to sell potatoes in the Western Australian market and/or who used their property and equipment to produce potatoes for that market. It knew that those who did so would lose those rights or would have them impaired for a period of five years if bacterial wilt were discovered within 20 kilometres of the place or places in which their potatoes were grown, cleaned, washed, graded or packed. And the respondent knew or ought to have known that, if bacterial wilt were to be transmitted to potatoes grown within that 20 kilometre zone, those persons who grew potatoes for the Western Australian market or who used their land and equipment for that purpose were powerless to protect their own interests.
In my view, where a person knows or ought to know that his or her acts or omissions may cause the loss or impairment of legal rights possessed, enjoyed or exercised by another, whether as an individual or as a member of a class, and that that latter person is in no position to protect his or her own interests, there is a relationship such that the law should impose a duty of care on the former to take reasonable steps to avoid a foreseeable risk of economic loss resulting from the loss or impairment of those rights.
Notice of contention
I agree with Gummow J, for the reasons that his Honour gives, that there is no substance in either of the points pressed by the respondent pursuant to its Notice of Contention.
Loss or damage
The case was argued in this Court and in the Full Court solely on the question whether there was a special feature or relationship such that the respondent might be held liable to the appellants for pure economic loss. In the case of each appellant, however, liability is dependent on his, her or its having suffered damage, a matter on which the pleadings could have been more precise. This notwithstanding, Perre's Vineyards and each of the individual appellants had an interest in land and may have suffered loss in consequence of a diminution in its value following the detection of bacterial wilt on the Sparnon property. And on the assumption that Warruga Farms and the Rangara joint venture each owned potatoes which either could not be sold or could not be sold in Western Australia, Warruga Farms and, as a member of the joint venture, Rangara would seem to have lost some part of the value of those potatoes.
Perhaps, some or all of the appellants suffered damage other than that referred to above. Perhaps, also, the assumption that Warruga Farms and the Rangara joint venture each owned potatoes which could not be sold in Western Australia is not justified. It is, however, convenient to dispose of the appeal on the basis of that assumption, leaving it to the parties to amend the pleadings appropriately or to move to have the action struck out to the extent that an appellant has not clearly alleged loss or damage.
Orders
The appeal should be allowed with costs. The orders of the Full Court with respect to the present appellants should be set aside and, in lieu thereof, the appeal to that Court should be allowed with costs and Order 5 of the Orders made by von Doussa J varied to refer to the second and third respondents, Orders 6 and 10 set aside and the matter remitted to a single judge for further hearing. The costs of the first hearing should abide the outcome of the further hearing. The parties should have liberty to apply to a single judge to vary Order 12 of the Orders of von Doussa J as may be appropriate.

McHUGH J. The principal question in this appeal is whether a supplier of diseased seed to South Australian potato growers owed a duty to prevent economic loss to other growers, whose farms were a few kilometres away, in circumstances where the second growers sold most of their crop in the Western Australian market, and the supplier knew that Western Australia was a lucrative market for South Australian growers, but prohibited the import of potatoes grown within 20 kilometres of a known outbreak of the disease during the last 5 years. The supplier also knew that the second growers' farms were within 20 kilometres of the growers to whom the seed had been supplied, although I do not regard that knowledge as a decisive factor in the case (it would have been enough that the supplier could have ascertained the identity of the second growers.)
The supplier was the respondent, Apand Pty Ltd ("Apand"); the growers to whom the seed was supplied were the Sparnons; and the second growers were the Perres, a convenient name for a group of companies and partnerships, linked by membership of the Perre family, who are the appellants.
The Sparnons and the Perres sued Apand for damages for negligence in the Federal Court of Australia which held that Apand owed a duty of care to Sparnons and had breached it but owed no duty to the Perres. The Full Court of the Federal Court upheld those findings[45].
[45]Perre v Apand Pty Ltd (1997) 80 FCR 19.
In my opinion, the Federal Court erred in not finding that Apand had a duty to take reasonable care to protect the Perres from economic loss and in not finding that it breached that duty by supplying the seed, through a selling agent, to the Sparnons. The decision and the reasoning in Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad"[46] have been criticised, most notably by the Judicial Committee of the Privy Council in Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd[47]. But in my opinion the decision in Caltex was correct. Although the facts of the present case are very different from those present in Caltex, the reasons (with some modification) that led this Court in that case to hold that the defendant owed a duty to the plaintiff to protect it from economic loss, apply here. The losses suffered by the Perres were a reasonably foreseeable consequence of Apand's conduct in supplying the diseased seed; the Perres were members of a class whose members, whether numerous or not, were ascertainable by Apand; the Perres' business was vulnerably exposed to Apand's conduct because the Perres were not in a position to protect themselves against the effects of Apand's negligence apart from insurance (which is not a relevant factor); imposing the duty on Apand does not expose it to indeterminate liability although its liability may be large; imposing the duty does not unreasonably interfere with Apand's commercial freedom because it was already under a duty to the Sparnons to take reasonable care; and Apand knew of the risk to potato growers and the consequences of that risk occurring.
[46](1976) 136 CLR 529.
[47][1986] AC 1.
The Factual and Legal Background
The Perres grew potatoes and had a potato processing plant on land a few kilometres from the Sparnon farm in South Australia. They exported much of their potato crop to Western Australia which was a lucrative market for South Australian potato growers. The Western Australians paid $670 a tonne – much more than could be achieved in the local market. During 1992, 79.2% of the Perres' crop was exported to Western Australia.
The Perre interests
The "Perre interests" can be divided into four separate groups:
Warruga Farms Pty Ltd

Warruga conducted three activities:
(i) growing potatoes on land owned by some of the Perres;
(ii)processing potatoes grown on that land and potatoes purchased from Rangara;
(iii) exporting processed potatoes to Western Australia.
Warruga's shareholders were the natural persons who owned the land on which it operated (although Frank and Caterina Perre held their shares through Perre's Vineyards Pty Ltd). Warruga pleaded that it had suffered damage because it had lost the opportunity to pursue the Western Australian export market and had incurred costs in mitigating its damage.
Rangara Joint Venture
Rangara was a joint venture between Rangara Pty Ltd (owned by Francesco and Maria Perre) and Pasquale and Grace Perre. The venturers grew potatoes on the Rangara land. They pleaded that they had suffered loss by losing those sales.

Perre's Vineyards Pty Ltd

Perre's Vineyards Pty Ltd owned a processing facility and the land upon which it was situated. Its shareholders are Frank and Caterina Perre. Perre's Vineyards let the processing facility to Warruga. It pleaded that it had suffered loss by losing the benefit of its tenancy with Warruga and the opportunity to relet the land for 5 years because it is used as a potato processing facility and is within 20 kilometres of a bacterial wilt outbreak.
Perres – Natural Persons
The Perres were the owners of Warruga, Rangara and Perre's Vineyards. They pleaded that they had suffered loss because the Warruga land had diminished in value and they had lost money on the sale of the Rangara land.
For the purposes of trial, the parties assumed that the Perres had suffered loss as pleaded.
The Regulation
Regulations made under the Plant Diseases Act 1914 (WA) restricted the importation of potatoes into Western Australia to those which complied with its conditions. Relevantly those conditions were that the potatoes had to be certified that they were:[48]
"(ii) grown on a property situated at least 20 kilometres from a known outbreak of the disease Bacterial Wilt detected within the last 5 years;
(iii) not, unless otherwise approved by the Director General, harvested, cleaned, washed, graded or packed with equipment or in premises with or in which potatoes, grown within 20 kilometres of a known outbreak of the disease Bacterial Wilt detected within the last 5 years, have been handled; ... "
[48]Schedule 1, Pt B, Item 14(1)(b), Plant Diseases Regulations, (WA) ("the Regulation").

The Saturna seed experiment

At all material times, Apand commanded approximately 60% of the Australian potato crisping industry and had numerous contracts for supply of potatoes with growers. It employed staff to liaise with the growers and to remain familiar with the industry in their areas.
In 1987, Apand imported Saturna potato seed from The Netherlands to assess its suitability as a winter crop and for crisping. After introducing the Saturna seed into the Victorian Department of Agriculture and Rural Affairs' seed certification scheme, it removed the seed from the scheme in order to have it "processed out of existence", ie grown for consumption rather than for seed. It decided to do this in the Koo Wee Rup swamp area in Victoria – an area which Apand knew was generally unsuitable for the production of seed owing to the high risk of disease, including bacterial wilt. In February 1991, after a meeting of company executives at Pakenham in Victoria, Apand decided to resume the trial of the Saturna seed and have it grown at various properties throughout Australia. For commercial reasons, it decided not to resume the certification process. Instead it used seed grown in Koo Wee Rup swamp area (the "Tymensen seed") to grow further seed for the trials. Trials were conducted with 26 growers in South Australia, Queensland, NSW and Victoria. Six of them were in South Australia.
To enable the trials to be conducted in South Australia, Apand supplied Tymensen seed to Virgara Brothers in Adelaide. Virgara Brothers supplied the seed to the Sparnons on 2 February 1992. They planted it in early March. The land on which the Perres grew and processed potatoes was within 20 kilometres of the Sparnons' property. In April, bacterial wilt was observed on that property, Virgara's property and Tymensen's property. As a result, on 28 May 1992 the Perres received a letter from the South Australian Department of Agriculture informing them that they could not supply potatoes to Western Australia for 5 years. None of the land owned and operated by the Perre interests was affected by bacterial wilt.
The finding of negligence
The trial judge formulated the duty of care owed by Apand to the Sparnons as follows:[49]
"In my opinion the duty imposed by the relationship was to take all reasonable steps to ensure that seeds which Apand provided to its growers had not come from a source where there was a real risk which Apand knew about or should have foreseen that the seeds might be infected by pests and disease."
[49]Extracted in the judgment of the Full Court, Perre v Apand Pty Ltd (1997) 80 FCR 19 at 27.
That formulation of the duty was approved by the Full Court which also approved the trial judge's finding of breach of duty, expressed in these terms:[50]
"[T]he Sparnons would succeed merely on proof, which I find is established, that Apand, with its intimate knowledge of the potato industry and the Koo Wee Rup swamp area, should have foreseen the risk, which was a significant one, that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected with a pest or disease that could be transmitted to subsequent growers using the seed or its progeny."
[50]Perre v Apand Pty Ltd (1997) 80 FCR 19 at 28.
The Full Court found it unnecessary:[51]
"to give detailed consideration to his Honour's more general finding of a breach by Apand of its duty of care by not foreseeing the risk that seed potatoes multiplied in the Koo Wee Rup swamp area could be infected by pests or disease that could be transmitted to subsequent growers using the seed or its progeny."
[51]Perre v Apand Pty Ltd (1997) 80 FCR 19 at 32.
These findings of breach of duty are not easy to understand. A defendant does not breach its duty simply because it foresees a risk of harm. Foreseeability of harm is an element of breach. A defendant only breaches a duty of care when it both knows or ought to know of a risk of harm from doing or failing to do an act and does or fails to do that act and has reasonable means available to it of avoiding that harm. Here the breach of duty was the supplying of seed which Apand knew or ought to have known would cause harm to the property of the Sparnons and which it could have avoided by not supplying the seed.
Apand's knowledge
Apand knew of the risks associated with bacterial wilt and the vulnerability of potato farmers to the effects of the disease. Its knowledge or means of knowledge can be inferred partly from correspondence with the Victorian Department of Agriculture and Rural Affairs and internal company memoranda and partly from its admissions.

The trial judge found that Apand knew:[52]
(i)     that bacterial wilt was a potentially disastrous disease for potato growers;
(ii)    that WA was an export market for South Australian growers and that a regulation prohibited the import of potatoes grown within 20 kilometres of an outbreak of disease;
(iii)   that the Sparnons were located in a potato growing area and that Warruga was a grower within 20 kilometres of the Sparnons.
[52]Perre v Apand Pty Ltd (1997) 80 FCR 19 at 34-35.
An internal memorandum from Apand's Supply Manager to the Manufacturing Managers of Queensland, NSW, South Australia and Western Australia dated 18 April 1990 showed that it knew that "Bacterial Wilt is a potentially serious and pernicious disease which can cause heavy losses to growers. Infected paddocks take up to 4-5 years to clear and is a costly process." Another internal memorandum from the National Potato Supply Manager to the Manufacturing Managers of Queensland, NSW, Western Australia and South Australia dated 28 June 1990 shows that Apand knew that "[t]he economic impact on a grower who has the disease on his farm can be disastrous – he is unable to continue to grow potatoes in that part of the farm and unable to sell his infected farm" and that "[t]he major cause of spread is through growers buying non certified seed." A letter written on 11 April 1990 by an officer of the Victorian Department of Agriculture and Rural Affairs to Apand's National Supply Manager had informed him that "[t]he main way of spreading 'Bacterial Wilt' is by planting infected seed potatoes which, sometimes depending on the seasonal conditions or time of harvest, may not show obvious visual disease symptoms."
Duty of Care and Proximity
The demise of proximity as a unifying theme
Where a defendant knows or ought reasonably to know that its conduct is likely to cause harm to the person or tangible property of the plaintiff unless it takes reasonable care to avoid that harm, the law will prima facie impose a duty on the defendant to take reasonable care to avoid the harm. Where the person or tangible property of the plaintiff is likely to be harmed by the conduct of the defendant, the common law has usually treated knowledge or reasonable foresight of harm as enough to impose a duty of care on the defendant. Where a person suffers pure economic loss, however, the law has not been so willing to impose a duty of care on the defendant. By pure economic loss, I mean loss which is not the result of injury to person or tangible property.
Until 1963, the so-called "exclusionary rule" prohibited the recovery of any damages for pure economic loss suffered as the result of the negligence of another. Yet even before then, courts recognised that the rigour of the rule, if it ever existed in a pristine form, often occasioned injustice to plaintiffs. To overcome those injustices, the courts allowed recovery in a number of exceptional situations[53]. Denial of recovery for pure economic loss remains the rule, but, since Hedley Byrne & Co Ltd v Heller & Partners Ltd[54] was decided in 1963, many exceptions to the rule have been recognised. However, they have been developed in a haphazard and ad hoc fashion with no single principle underlying them. Indeed, Professor Feldthusen denies that such a principle may be divined, although he concedes that all cases of pure economic loss share certain characteristics[55].
[53]Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265; Woods v Martins Bank Ltd [1959] 1 QB 55; Schneider v Eisovitch [1960] 2 QB 430.
[54][1964] AC 465.
[55]Feldthusen, "Liability for Pure Economic Loss: Yes, But Why?" (1999) 28 University of Western Australia Law Review 84 at 85-86.
No doubt one important reason why courts have felt the necessity to distinguish between liability for harm resulting in pure economic loss and liability for harm to person or tangible property is that pure economic losses frequently result in mere transfers of wealth. The plaintiff's loss is the defendant's or a third party's gain. Harm to person or property, on the other hand, ordinarily involves a net loss to social wealth. Furthermore, the risk of sustaining economic loss is "a burden which is much more often and easily spread than the risk of physical damage."[56] So even with the demise of the exclusionary rule, courts in most jurisdictions still require a plaintiff in a pure economic loss case to show some special reason why liability should be imposed on the defendant.
[56]Atiyah, "Negligence and Economic Loss" (1967) 83 Law Quarterly Review 248 at 270.
In Murphy v Brentwood District Council[57], Lord Oliver said:
"The infliction of physical injury to the person or property of another universally requires to be justified. The causing of economic loss does not. If it is to be categorised as wrongful it is necessary to find some factor beyond the mere occurrence of the loss and the fact that its occurrence could be foreseen. Thus the categorisation of damage as economic serves at least the useful purpose of indicating that something more is required ... "
[57][1991] 1 AC 398 at 487.
For some years in this Court, the "something more" was "proximity" which Deane J suggested in Jaensch v Coffey[58] "involves the notion of nearness or closeness". However, this Court no longer sees proximity as the unifying criterion of duties of care[59]. The reason that proximity can not be the touchstone of a duty of care is that it "is a category of indeterminate reference par excellence."[60]
[58](1984) 155 CLR 549 at 584.
[59]Hill v Van Erp (1997) 188 CLR 159 at 176-177 per Dawson J, 210 per McHugh J, 237-239 per Gummow J; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 414 per Kirby J.
[60]McHugh, "Neighbourhood, Proximity and Reliance", in Finn (ed), Essays on Torts (1989) 5 at 13, also 36-39; see also Stapleton, "Duty of Care Factors: a Selection from the Judicial Menus" in Cane & Stapleton (eds) The Law of Obligations – Essays in Celebration of John Fleming (1998) 59 at 60-62.
The need for a new framework for determining the existence of a duty of care
Although proximity may no longer be the talisman for determining a duty of care, neither this Court nor the English courts – which have also rejected proximity as the duty of care determinant – have entirely abandoned the use of proximity as a factor in determining duty. Nor do courts generally now appear to accept the categories approach although individual judges have favoured it. Under that approach, courts asked whether the instant case fell into a category where the existence of a duty had been judicially recognised or, alternatively, could be regarded as an incremental development of one of those categories.
Members of this Court have said that the differences between proximity as a criterion and the incremental approach are to a great extent more apparent than real[61]. But neither proximity nor the categories approach or any synthesis of them has gained the support of a majority of Justices of this Court. Indeed, since the fall of proximity, the Court has not made any authoritative statement as to what is to be the correct approach for determining the duty of care question[62]. Perhaps none is possible. At all events, the differing views of the members of this Court in the present case suggest that the search for a unifying element may be a long one.
The Caparo test
[61]Hill v Van Erp (1997) 188 CLR 159 at 178 per Dawson J, 190 per Toohey J.
[62]See Pyrenees Shire Council v Day (1998) 192 CLR 330 at 397 per Kirby J.
The continuing use of proximity as a duty indicator in England appears most clearly in Caparo Industries Plc v Dickman[63] where the House of Lords proposed a three stage approach for determining duty. That approach has been adopted in this Court by Kirby J[64]. Under the three stage approach, the plaintiff can establish a duty of care only when it can prove three matters: first, that the causing of the damage was reasonably foreseeable; second, that a relationship of "proximity" existed; third, that in all the circumstances of the case, it is fair, just and reasonable to impose a duty of care on the defendant. However, in Caparo Lord Bridge (with whose speech Lords Roskill and Ackner agreed) went on to say[65] "that the concepts of proximity and fairness ... are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope." The three stage approach formulated in Caparo was applied by the House of Lords in Marc Rich & Co v Bishop Rock Marine Co Ltd[66]. In my respectful opinion, the Caparo formulation suffers from three defects.
[63][1990] 2 AC 605 at 617-618 per Lord Bridge.
[64]Pyrenees Shire Council v Day (1998) 192 CLR 330 at 419-420.
[65][1990] 2 AC 605 at 618.
[66][1996] AC 211.
First, proximity as the second stage in a three stage test has no more content than it did when it was used as the unifying criterion, a point which it is fair to say was recognised by Lord Bridge in Caparo. If the meaning of proximity is restricted to nearness or closeness, neither logic nor policy requires that it should always be elevated above other factors that are relevant in a particular case. I think that Dawson J was correct when he said in Hill v Van Erp that proximity is neither a necessary nor a sufficient criterion for the existence of a duty of care[67]. Furthermore, proximity in the sense of nearness or closeness is hardly a useful concept in most cases of pure economic loss.
[67](1997) 188 CLR 159 at 176-177.
Second, there is a danger that the Caparo test will be used as the test of duty in every case where duty is in issue. That would deny the operation of the established categories and the certainty that they provide. Even at its zenith, proximity was a rationale to be applied in aid of the principled development of new categories[68]. It was not meant to "invade" the existing categories and wreak havoc with accepted and unproblematic principles developed within those categories.
[68]See Pyrenees Shire Council v Day (1998) 192 CLR 330 at 360-361 per Toohey J.
Third, almost everyone would agree that courts should not impose a duty of care on a person unless it is fair, just and reasonable to do so. But attractive as concepts of fairness and justice may be in appellate courts, in law reform commissions, in the academy and among legislators, in many cases they are of little use, if they are of any use at all, to the practitioners and trial judges who must apply the law to concrete facts arising from real life activities. While the training and background of judges may lead them to agree as to what is fair or just in many cases, there are just as many cases where using such concepts as the criteria for duty would mean that "each judge would have a distinct tribunal in his own breast, the decisions of which would be as irregular and uncertain and various as the minds and tempers of mankind".[69] Lord Devlin was surely right when he said:[70]
"For a judge to decide fairly and convincingly every case that comes before him in the light only of his own sense of justice, he would have to be a superman. I doubt if there have ever been more than a handful of men on the Bench who could do it, though doubtless there are slightly more who think that they could."
[69]Donaldson v Beckett (1774) 2 Brown 129 per Lord Camden cited in "The Judge and Case Law" in Devlin, The Judge (1979) at 180.
[70]"The Judge and Case Law" in Devlin, The Judge (1979) at 181.
Furthermore, when legislatures and courts formulate legal criteria by reference to indeterminate terms such as "fair", "just", "just and equitable" and "unconscionable", they inevitably extend the range of admissible evidentiary materials. Cases then take longer, are more expensive to try, and, because of the indeterminacy of such terms, settlement of cases is more difficult, practitioners often having widely differing views as to the result of cases if they are litigated. Bright line rules may be less than perfect because they are under-inclusive, but my impression is that most people who have been or are engaged in day-to-day practice of the law at the trial or advising stage prefer rules to indeterminate standards.
No doubt in some cases judges cannot escape applying notions of "current ideas of justice or morality" in determining the duty question, any more than they can escape them in determining whether the foreseeable consequences of negligence should be regarded as too remote for liability to be imposed[71]. As Cooke P pointed out in South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd[72] "whatever formula be used, the outcome in a grey area case has to be determined by judicial judgment. Formulae can help to organise thinking but they cannot provide answers." But if negligence doctrine is to escape the charge of being riddled with indeterminacy, ideas of justice and morality should be invoked only as criteria of last resort when more concrete reasons, rules or principles fail to provide a persuasive answer to the problem.
The Anns test
[71]Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagon Mound) [1961] AC 388 at 422; cf Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 591 per Mason J.
[72][1992] 2 NZLR 282 at 294.

In Anns v Merton London Borough Council[73], the House of Lords formulated a two stage test for duty that is still applied in Canada[74] and New Zealand[75] although it had been rejected in this Court[76] and now in England[77]. Under the Anns test, the court will find that a duty existed if the defendant knew or ought to have known that its conduct might cause harm to the plaintiff and there is no policy reason for negating the existence of such a duty[78]. To approach the duty question by holding that reasonable foreseeability of the relevant harm grounds a prima facie duty of care widens the scope of liability, probably enormously[79] and of itself provides no principled formulation. To now adopt it in this country would also be contrary to the growing consensus, evidenced by recent cases, that, if there is to be an in-built bias in the determination of duty of care, particularly in cases of pure economic loss, it should be against imposing a duty of care. According to that consensus, any potential claimant in a novel situation should affirmatively demonstrate that its loss deserves vindication via the law of negligence[80].
[73][1978] AC 728.
[74]Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021.
[75]South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd [1992] 2 NZLR 282.
[76]Sutherland Shire Council v Heyman (1985) 157 CLR 424.
[77]Murphy v Brentwood District Council [1991] 1 AC 398.
[78]cf South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd [1992] 2 NZLR 282 at 294-295 per Cooke P.
[79]Murphy v Brentwood District Council [1991] 1 AC 398 at 468-469 per Lord Keith.
[80]See Feldthusen, "Liability for Pure Economic Loss: Yes, But Why?" (1999) 28 University of Western Australia Law Review 84 at 88-89.
Precise legal rights
Nor do I think that this Court should accept that a defendant should owe a duty of care merely because its conduct may defeat or impair "a precise legal right" of the plaintiff in circumstances where the defendant is in a relationship with the plaintiff and in a position to control the enjoyment of that right. The strongest judicial support for imposing a duty in this situation is found in the judgment of Gaudron J in Hill v Van Erp[81].
[81](1997) 188 CLR 159 at 197-199.
To give meaning to "precise legal right" in this context, however, requires a definition of "right". It is one thing if it means only proprietary, equitable and contractual "rights". But the very "right" recognised in Hill v Van Erp suggests that "a precise legal right" includes a right in the sense of an extension of the private law closure rule – ie that anything which is not prohibited is permitted, and therefore a "right". Hill v Van Erp[82] shows that it is wrong to say there can be no claim in negligence for pure economic loss unless there has been an infringement of an existing right or interest. That case decided that loss of a mere expectation interest is recoverable in damages in negligence. But that does not mean that a duty should arise whenever a precise legal right has been infringed or impaired even if the plaintiff must also prove that the defendant controlled their relationship. To impose duties of care in such situations would extend the liability of defendants, perhaps massively. Many such cases would be – as was Hill v Van Erp itself – simply cases of transfers of wealth. Unlike damage to person or tangible property, there would often be no net loss of social wealth. The plaintiff's loss would be the defendant's or a third party's gain. Future categories of liability may develop which are based on a more limited definition of "right". However, that is a matter that I need not pursue in this case. The Perres no doubt had a right to trade, and that is a right that in various circumstances the law will protect[83], but not by imposing duties of care on others simply because they are in a position to control the enjoyment of the plaintiff's right to trade.
[82](1997) 188 CLR 159 at 170 per Brennan CJ.
[83]See Thorsten Nordenfelt v The Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535 at 565 per Lord Macnaghten; Quinn v Leathem [1901] AC 495 at 534 per Lord Lindley; Nagle v Feilden [1966] 2 QB 633 at 646 per Lord Denning MR, 653-655 per Salmon LJ; Buckley v Tutty (1971) 125 CLR 353.
So if proximity is not the unifying test for negligence, if the two stage and three stage tests are defective, if the "precise legal right" formula is unacceptable and if the categories and incremental approach is not accepted favourably by the majority of judges, is there any solution to the problems posed by the development of a tort of negligent economic loss? Or must we now accept that Hedley Byrne was a glorious mistake and retreat to the exclusionary rule of the common law?
The exclusionary rule is often justified on the ground that it is certain[84] – which it certainly is. But its certainty is obtained by rejecting claims that most people would agree ought to sound in damages. As will appear, it is not necessary, in my view, to use the exclusionary rule to obtain stability and predictability in the law of negligently inflicted pure economic loss. Furthermore, in Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad”[85], this Court rejected the exclusionary rule, and nearly 25 years later there should be no turning back. It is true that in Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd[86] the Privy Council said that the judgments in Caltex did not disclose "any single ratio decidendi"[87]. That being so, their Lordships "concluded that they are entitled, and indeed bound, to reach their own decision without the assistance of any single ratio decidendi to be found in the Caltex case."[88] Even accepting the correctness of their Lordships' comments, in Australia it is Caltex and not Candlewood which represents the law. Whatever else Caltex may have decided, it determined that Australia no longer adheres to the strict exclusionary rule with or without defined exceptions[89].
[84]See Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021 at 1131-1133 per La Forest J; Stapleton, "Duty of Care and Economic Loss: A Wider Agenda", (1991) 107 Law Quarterly Review 249 at 256-257.
[85](1976) 136 CLR 529.
[86][1986] AC 1.
[87][1986] AC 1 at 22.
[88][1986] AC 1 at 24.
[89]Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 555 per Gibbs J, 567-568 per Stephen J, 591-592 per Mason J, 606 per Murphy J. See also Perre v Apand Pty Ltd (1997) 80 FCR 19 at 37; The Hon Sir Anthony Mason, "The Recovery and Calculation of Economic Loss", in Mullany (ed), Torts in the Nineties (1997) 1 at 16.
The Need for Predictability
Law is one of the most important means by which a Western society remains socially cohesive while encouraging the autonomy of its individual members and the achieving of its social, political and economic goals. But the effectiveness of law as a social instrument is seriously diminished when legal practitioners believe they cannot confidently advise what the law is or how it applies to the diverse situations of everyday life or when the courts of justice are made effectively inaccessible by the cost of litigation. When legal practitioners are unable to predict the outcome of cases with a high degree of probability, the choice for litigants is to abandon or compromise their claims or defences or to expose themselves to the great expense and unpredictable risks of litigation.
The cost of litigation also increasingly denies effective access to, and competent representation in, the courts of justice. Most lawyers now charge hundreds of dollars an hour for their services and legal aid is often unavailable to litigants in tort cases. The cost of those services is substantially increased when lawyers cannot give advice to their clients without the need to read numerous and lengthy academic articles and judgments – this being one of them – to find out what the law is. The cost of those services is also substantially increased when trial lawyers have to make lengthy and complex arguments about what appellate courts have "decided" and what policies govern their cases. Inevitably, some litigants must compromise or abandon what they believe to be just claims or defences and be left with a sense of grievance. Many more litigants must question whether litigation is a rational course of action given the return for them after deducting irrecoverable solicitor and client costs and taking into account the risks always inherent in litigation.
Obscure rules or rules whose application cannot confidently be predicted also have a public cost. Cases take longer to hear both because time is taken up in debating what are the governing rules and how they apply and because obscure rules inevitably extend the range of materials which the judge will think are admissible because they may have relevance to the issues. Judges therefore hear fewer cases than they should with the result that more judges must be appointed or the administration of justice becomes beset with unreasonable delays.
If negligence law is to serve its principal purpose as an instrument of corrective justice, the principles and rules which govern claims in negligence must be as clear and as easy of application as is possible. Ideally, arguments about duty should take little time with need to refer to one or two cases only instead of the elaborate arguments now often heard, where many cases are cited and the argument takes days. The needs of the litigant or potential litigant, the legal practitioner and the trial judge should guide the formulation of the applicable principles. That does not mean, however, that the common law must adopt arbitrary "bright-line" rules for the sake of certainty at the expense of what most people including judges would regard as a desirable result.
In many areas of law, judges cannot realistically ignore the past or change legal rules. This is the case with constitutional law and statutes. In those areas, the doctrine of separation of powers requires that judges be faithful to the past decisions of legislators and the makers of the Constitution. But in the area of judge-made law, the duty of judges to be faithful to the past is weaker. While stare decisis is a sound policy because it promotes predictability of judicial decision and facilitates the giving of advice, it should not always trump the need for desirable change in the law[90]. In developing the common law, judges must necessarily look to the present and to the future as well as to the past.
[90]cf Mabo v Queensland [No 2] (1992) 175 CLR 1 at 29-30 per Brennan J.
The Further Development of the Common Law of Negligence
Having rejected arbitrary exclusions, proximity, impairment of precise legal rights and Anns and Caparo as suitable determinants of duty, where does one find a conceptual framework that will promote predictability and continuity and at the same time facilitate change in the law when it is needed? I think that the existing legal materials already contain part of the answer. We have the established categories, a considerable body of case law and the useful concept of reasonable foreseeability. If a case falls outside an established category, but the defendant should reasonably have foreseen that its conduct would cause harm to the plaintiff, we have only to ask whether the reasons that called for or denied a duty in other (usually similar) cases require the imposition of a duty in the instant case. No doubt that may sometimes mean that, whether or not a duty is imposed at a particular time, will depend on the extent to which the case law has progressed to that time. But that is the way of the common law, the judges preferring to go "from case to case, like the ancient Mediterranean mariners, hugging the coast from point to point, and avoiding the dangers of the open sea of system or science"[91]. It is not an approach that appeals to grand theorists who prefer to decide cases by general principles applicable to all cases. But in an area of law such as awarding damages for negligently inflicted economic loss, which is still developing and which has been recently cast adrift from any unifying principle, there is no alternative to a cautious development of the law on a case by case basis[92]. Perhaps another unifying principle may emerge and gain widespread acceptance. Past experience suggests that, if it does, its fall from favour will not be long in coming. Until a unifying principle again emerges, however, the best solution is to proceed incrementally from the established cases and principles.
[91]Lord Wright, "The Study of Law" (1938) 54 Law Quarterly Review 185 at 186.
[92]Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 555 per Gibbs J, 576 per Stephen J.
The incremental approach is the most satisfactory approach
In my view, given the needs of practitioners and trial judges, the most helpful approach to the duty problem is first to ascertain whether the case comes within an established category. If the answer is in the negative, the next question is, was the harm which the plaintiff suffered a reasonably foreseeable result of the defendant’s acts or omissions? A negative answer will result in a finding of no duty. But a positive answer invites further inquiry and an examination of analogous cases where the courts have held that a duty does or does not exist[93]. 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 and by reference to the few principles of general application that can be found in the duty cases.
[93]McHugh, "Neighbourhood, Proximity and Reliance", in Finn (ed), Essays on Torts (1989) 5 at 39; Dorset Yacht Co Ltd v Home Office [1970] AC 1004 at 1058-1060 per Lord Diplock; Hill v Van Erp (1997) 188 CLR 159 at 178-179 per Dawson J.
Further, I think that, so far as possible, the reasons for upholding or denying a duty in particular cases should be regarded as principles to be applied in determining whether a duty exists in cases within that category. Such reasons will reflect policies that the courts have recognised as relevant in determining the duty issue. In some cases, they will be so decisive in determining duty that they can be applied as rules or principles in other cases.
The present case is not one falling within any categories of liability hitherto recognised. The Canadian Supreme Court has adopted the categorisation of cases of pure economic loss proposed by Professor Feldthusen[94]:
1.The Independent Liability of Statutory Public Authorities;
2.Negligent Misrepresentation;
3.Negligent Performance of a Service;
4.Negligent Supply of Shoddy Goods or Structures;
5.Relational Economic Loss.
[94]Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85 at 96-97.
The present case is not within any of these categories. It is perhaps closest to the last category. Professor Feldthusen has said that relational economic loss exists "when the defendant damages property owned by a third party and the plaintiff thereby suffers economic loss because of some relationship that exists between the plaintiff and the third party."[95] However, this case is not a typical case of relational economic loss as the relationship between the third party (the Sparnons) and the plaintiff (the Perres) is purely a matter of physical proximity.
[95]Feldthusen, "Liability for Pure Economic Loss: Yes, But Why?" (1999) 28 University of Western Australia Law Review 84 at 98.
In Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd McLachlin J (La Forest J concurring) held that the categories where relational economic loss had been recovered in Canada were:[96]
"(1) cases where the claimant has a possessory or proprietary interest in the damaged property; (2) general average cases; and (3) cases where the relationship between the claimant and property owner constitutes a joint venture."
[96][1997] 3 SCR 1210 at 1242.
None of these three categories applies in this case. The present case is therefore novel in terms of the categories. But that does not mean that no duty of care was owed to the Perres. "The categories of negligence", said[97] Lord Macmillan, "are never closed." The issue of duty must be decided by reference to the few general principles that appear to govern all cases of pure economic loss.
[97]Donoghue v Stevenson [1932] AC 562 at 619.
The Reasons for Denying or Imposing a Duty of Care in Cases of Pure Economic Loss
In determining whether the defendant owed a duty of care to the plaintiff, the ultimate issue is always whether the defendant in pursuing a course of conduct that caused injury to the plaintiff, or failing to pursue a course of conduct which would have prevented injury to the plaintiff, should have had the interest or interests of the plaintiff in contemplation before he or she pursued or failed to pursue that course of conduct[98]. That issue applies whether the damage suffered is injury to person or tangible property or pure economic loss[99]. If the defendant should have had those interests in mind, the law will impose a duty of care. If not, the law will not impose a duty. Illustrations of situations where the law does not require a defendant to contemplate the interests of the plaintiff and refuses to impose a duty of care are situations where plaintiff and defendant are engaged in a joint illegal enterprise[100], where the defendant is a public body exercising a quasi-legislative function[101] and where the defendant is the Crown conducting military operations against the enemy during wartime[102]. For policy reasons, the law denies a duty in each of these situations, irrespective of whether the damage suffered is injury to person or tangible property or pure economic loss. For policy reasons, the law may also deny or restrict the imposition of a duty of care because of the kind of damage suffered. Thus, only in limited situations does a defendant owe a duty to take reasonable care to avoid nervous shock being suffered by another[103]. Similarly, in many situations, a defendant owes no duty to avoid causing economic loss to another person.
[98]Donoghue v Stevenson [1932] AC 562 at 580 per Lord Atkin.
[99]See Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529.
[100]Gala v Preston (1991) 172 CLR 243.
[101]Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 468-469 per Mason J.
[102]Shaw Savill & Albion Co Ltd v The Commonwealth (1940) 66 CLR 344.
[103]Jaensch v Coffey (1984) 155 CLR 549.
Until 1963, the almost universal rule was that, absent contract or fiduciary relationship, a person owed no duty to avoid causing economic loss to another person, and, although no longer a universal rule, no duty is the general rule. Judges and academic commentators have subjected this exclusionary rule to an intense scrutiny which has yielded a broad consensus on the rationale for the rule. They generally agree that the theoretical underpinnings of the exclusionary rule are the need to avoid imposing indeterminate liability and the need to avoid imposing unreasonable burdens on the freedom of individuals to protect or pursue their own legitimate social and business interests without the need to be concerned with other persons' interests[104].
[104]See Caltex Oil (Australia) Pty Ltd v The Dredge “Willemstad” (1976) 136 CLR 529 at 551-552 per Gibbs J; Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 502-503 per Deane J; Bryan v Maloney (1995) 182 CLR 609 at 618-619 per Mason CJ, Deane and Gaudron JJ; Hill v Van Erp (1997) 188 CLR 159 at 184 per Dawson J, 211 per McHugh J; Feldthusen, "Liability for Pure Economic Loss: Yes, But Why?" (1999) 28 University of Western Australia Law Review 84 at 8687.

Murphy J expressed a quite different view which left little or no room for the limitation of damages or liability of ordinary people or corporations on grounds of policy except in the case of public authorities or corporations who his Honour thought might require some special protection or immunity[498].
[498](1976) 136 CLR 529 at 606.
In Bryan v Maloney Mason CJ, Deane and Gaudron JJ adopted the same sort of approach as commended itself to Stephen J in Caltex. Their Honours said[499]:
"The cases in this Court establish that a duty of care arises under the common law of negligence of this country only where there exists a relationship of proximity between the parties with respect to both the relevant class of act or omission and the relevant kind of damage. In more settled areas of the law of negligence concerned with ordinary physical injury to the person or property of a plaintiff caused by some act of the defendant, reasonable foreseeability of such injury will commonly suffice to establish that the facts fall into a category which has already been recognized as involving a relationship of proximity between the parties with respect to such an act and such damage and as 'attracting a duty of care, the scope of which is settled'[500]. In contrast, the field of liability for mere economic loss is a comparatively new and developing area of the law of negligence. In that area, the question whether the requisite relationship of proximity exists in a particular category of case is more likely to be unresolved by previous binding authority with the consequence that the 'notion of proximity ... is of vital importance'[501]. As Stephen J indicated in Caltex Oil (Australia) Pty Ltd v The Dredge 'Willemstad'[502], it is the 'articulation', in the different categories of case, 'of circumstances which denote sufficient proximity' with respect to mere economic loss, including 'policy considerations', which will gradually provide 'a body of precedent productive of the necessary certainty'. Inevitably, the policy considerations which are legitimately taken into account in determining whether sufficient proximity exists in a novel category will be influenced by the courts' assessment of community standards and demands[503].
One policy consideration which may militate against recognition of a relationship of proximity in a category of case involving mere economic loss is the law's concern to avoid the imposition of liability 'in an indeterminate amount for an indeterminate time to an indeterminate class'[504]. Another consideration is the perception that, in a competitive world where one person's economic gain is commonly another's loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another's person or property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage[505]. The combined effect of those two distinct policy considerations is that the categories of case in which the requisite relationship of proximity with respect to mere economic loss is to be found are properly to be seen as special. Commonly, but not necessarily, they will involve an identified element of known reliance (or dependence) or the assumption of responsibility or a combination of the two[506]."
[499](1995) 182 CLR 609 at 617-619.
[500]Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 441 per Gibbs CJ and see also at 495, 501; Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 572-574; Jaensch v Coffey (1984) 155 CLR 549 at 581582.
[501]San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355 per Gibbs CJ, Mason, Wilson and Dawson JJ.
[502](1976) 136 CLR 529 at 575.
[503]See, eg, Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 536; Dorset Yacht Co Ltd v Home Office [1970] AC 1004 at 1038-1039, 1058; Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 575; Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 497.
[504]Ultramares Corporation v Touche 174 NE 441 at 444 (1931) per Cardozo CJ; Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 568, 591; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 at 537; and see also Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 465.
[505]Jaensch v Coffey (1984) 155 CLR 549 at 578; Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 503.
[506]See, generally, Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 466-468, 501-502; Hawkins v Clayton (1988) 164 CLR 539 at 545, 576, 593.
In Hill v Van Erp, Dawson J and Toohey J held that a disappointed beneficiary who was deprived of a testamentary disposition by reason of a solicitor's negligence in inviting the beneficiary's husband to attest the will could recover against the solicitor because of the duty of care arising out of the proximity between the beneficiary and the solicitor[507].
[507](1997) 188 CLR 159 at 187, 190.
An important consideration in that case was that there was no prospect of indeterminate liability: the class of persons to whom the duty was owed was readily ascertainable. Giving effect to the duty did not diminish any competitive advantage a solicitor might have or supplant or supplement other legal remedies. Furthermore, the acknowledgment of the existence of the duty did not disturb any general body of rules constituting a coherent body of law. Gaudron J[508] and Gummow J[509] were both of the view that an important factual matter arguing in favour of liability was the misuse of effective control exercised by the solicitor, and that such a factor would always be relevant and important in determining whether a case was of such a kind as to justify an award of damages for pure economic loss.
[508](1997) 188 CLR 159 at 198-199.
[509](1997) 188 CLR 159 at 232.
In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords[510], this Court held that a financier was not entitled to succeed on the facts pleaded against auditors of a borrower corporation for losses from transactions which it claimed it had entered into in reliance upon audited accounts and the accompanying auditor's report. The financier alleged that mandatory accounting standards applied and that the auditors had fallen short of those standards in conducting the audit. The financier claimed that it was a member of a class of persons whom the auditors foresaw or ought reasonably to have foreseen might reasonably have relied upon the accounts and the report.
[510](1997) 188 CLR 241.
The Court (Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ) unanimously rejected the financier's claim but for reasons that were not identical. Brennan CJ thought it critical that, among other things, the circumstances justifying recovery should be such that the defendant knew, or ought reasonably to have known that the information would be communicated to the plaintiff, either individually, or as a member of an identified class, and that it would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of a kind that he did enter; and further, that it would be very likely that the plaintiff would enter into such a transaction in reliance upon the information and thereby risk economic loss if the information were to turn out to be untrue or unsound[511].
[511](1997) 188 CLR 241 at 252.
Dawson J thought it important in a case of pure economic loss that, in addition to foreseeability of harm, there be a special relationship between the parties which might be described as a relationship of proximity[512]. Both Dawson J and McHugh J thought it relevant that there was a statutory regime in force to regulate the conduct of auditors and the contents of any report that they made or auditing work that they did[513].
[512](1997) 188 CLR 241 at 256.
[513](1997) 188 CLR 241 at 258, 282.
Toohey and Gaudron JJ were of the view that whether a duty of care to take reasonable steps to avoid economic loss to another exists, depends upon a relationship of proximity which may be found in special categories of cases only, such as those in which there is an expectation, rather than mere reliance, on the part of the person who has suffered the loss[514]. So too, an assumption of responsibility for providing information in a context in which it is known or ought reasonably to be known that it may be acted upon for a serious purpose will be, in a case such as Esanda, of importance. Their Honours thought that other relevant questions were whether the defendant possessed any special expertise or knowledge, or had special access to information not available to the recipient of the information, and the reasonableness or otherwise of the conduct of the recipient in acting upon the information without further inquiry[515].
[514](1997) 188 CLR 241 at 264.
[515](1997) 188 CLR 241 at 264-265.
McHugh J had regard (among other things) to wider considerations of policy such as the impact of prolonged and multiple actions against auditors upon the courts, the insurability or otherwise of the risks, the magnitude of the losses of which they would be productive if realised, the availability of other civil proceedings, the possibility of criminal proceedings against the auditors, and the public interest in ensuring that there be auditors ready, willing and able to perform their professional duties at a reasonable cost[516]. Gummow J was of the opinion that the allegations, if established, would not be sufficient to found a duty of care, and that there was not a sufficiently close relationship between the financier and the auditors to warrant any imposition of liability upon them[517].
[516](1997) 188 CLR 241 at 289.
[517](1997) 188 CLR 241 at 310.
In Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd[518] the Judicial Committee was of the opinion that there was not a sufficient commonality of statement of principle in the respective judgments of Gibbs J, Stephen J and Mason J in Caltex to enable a clear ratio to be extracted from that case and that therefore they did not think they could derive any assistance from it[519]. Since Candlewood however there have been a number of cases in Australia, both in this Court and in other courts[520], in which Caltex has been considered and applied or distinguished.
[518] [1986] AC 1.
[519][1986] AC 1 at 24.
[520]See for example Warwicker Assessments v Zadow (1989) 1 WAR 307; Brickhill v Cooke [1984] 3 NSWLR 396; Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR 224.
The cases subsequent to Caltex in this country show that all judges are united in their opinions that, for policy reasons, there is a need for a control mechanism to limit the availability of relief for pure economic loss so that commerce, providers of services, courts and society generally will not have to bear the burden and uncertainty of incalculable claims by a mass of people whose identity or very existence may be unknown to the defendant. It is not surprising, having regard to the different factual situations in which pure economic loss has been suffered and will no doubt be suffered in the future, and the frank judicial acknowledgments that have been made of the relevance of public policy and social issues, that the principles governing or controlling the mechanisms to limit liability have not always been stated identically.
The different path which this Court has followed in Caltex and the ensuing cases to which I have referred makes it unnecessary to consider Caparo Industries Plc v Dickman[521] in the House of Lords and Hercules Managements Ltd v Ernst & Young[522] in the Supreme Court of Canada (applying Caparo) which may in any event perhaps be taken to depend upon the special statutory framework in which auditors' reports are prepared, matters which both Dawson J and McHugh J thought of relevance in the Australian auditor's case of Esanda[523].
[521][1990] 2 AC 605.
[522][1997] 2 SCR 165.
[523](1997) 188 CLR 241.
In her essay "Duty of Care Factors: a Selection from the Judicial Menus"[524], Professor Stapleton discusses some of the difficulties which have confronted the courts in trying to find, and express one clear principle which judges may readily apply in cases of pure economic loss. There is much I think to commend her view that[525]:
"while the listing of these judicial menus of sound factors relevant to the duty issue help unmask the substantive determinations being made by judges in this field, they cannot operate as some sort of mechanical guide as to how a novel case will be decided in the future. … [A]t the end of the day, even if judges agree on the relevant factors to be weighed in the individual case, different judges may well place different weight on competing factors and do so quite reasonably."
It should be made clear however that the determination of a claim for pure economic loss is not a merely discretionary matter: it requires the application of the principles stated in Caltex and the subsequent cases in this Court to the various factual situations as they arise in the courts.
[524]In Cane and Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) 59.
[525]In Cane and Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming (1998) 59 at 88.
And it must be accepted that this is an area of the law in which the courts should move incrementally and very cautiously indeed. It is not yet possible to identify a bright line of demarcation between those cases of pure economic loss in which damages are recoverable and those in which they are not. The law is still developing in the somewhat piecemeal fashion that Stephen J predicted in Caltex[526]:
"As the body of precedent accumulates some general area of demarcation between what is and is not a sufficient degree of proximity in any particular class of case of pure economic loss will no doubt emerge; but its emergence neither can be, nor should it be, other than as a reflection of the piecemeal conclusions arrived at in precedent cases."
[526](1976) 136 CLR 529 at 576.
I turn now to a consideration of the factors which in combination I think relevant in this case and which establish a sufficient degree of proximity, foreseeability, a special relationship, determinacy of a relatively small class, a large measure of control on the part of the respondent, and special circumstances justifying the compensation of the appellants for their losses.
The respondent played a leading role in the industry. It was involved in all phases of it, from the introduction of particular varieties of seed, and the encouragement of growers to sow that seed, to the acquisition of the produce of that seed, its processing into a manufactured commodity and the distribution of that commodity in the community. In short, its role and position in the market were commanding ones. This role of itself tended very much to place the respondent in a special relationship to growers and handlers of potatoes.
The respondent was in effective control of the particular operation which led ultimately to the imposition of the embargo upon the appellants' properties[527]. That operation was the selection of the Saturna seed and its invitation to Mr Tymensen and then the Sparnons to sow it.
[527]cf Hill v Van Erp (1997) 188 CLR 159 at 198-199 per Gaudron J.
I am of the view that the appellants were members of a determinate class. As Hayne J points out, the respondent effectively chose where the seed was to be grown. By force of the Western Australian Regulations, if bacterial wilt did occur, then all of those operating in the industry and involved in the provision of land for, and the cultivation and preparation of potatoes for the Western Australian market, within 20 kilometres of the occurrence of the disease were capable of being directly affected by the respondent's actions. The evidence shows that there were relatively few growers in fact of potatoes within 20 kilometres of the Sparnons' property. Furthermore, only 26 growers in the whole country were asked to plant this seed. The respondent, having regard to its dominating position in the industry, must have known, or at least it ought to have known, of the special attractions of the Western Australian market and the likelihood that growers and handlers of potatoes such as the appellants would wish to take advantage of it. Furthermore, the respondent was well aware, as the memorandum of 26 June 1990 shows, that the trend in the industry was for concentration of activity, in growing, packing and processing, with a consequent increase in risk. Accordingly the respondent actually foresaw as being within a class of people likely to be adversely affected, packers and processors of potatoes, including those who were also growers, or handlers and land owners or facility owners closely connected with them such as those appellants as were not growers.
The geographical propinquity of the property to which the respondent caused the Saturna seed to be introduced (the Sparnons' property) to the appellants' property is relevant[528].
[528]Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 601-602 per Jacobs J.
So too, the commercial propinquity, that is to say the facts that the appellants and the respondent were both involved in the same industry in the same year and had been so involved for some time, is relevant. Both this and the preceding matter to which I have referred bespeak, in a real sense, proximity.
I think it relevant that the respondent in this case had an especially heightened awareness of the dangers of bacterial wilt and the strict attitude of the Western Australian authorities towards that disease. Those portions of the memorandum of 26 June 1990 which I have emphasised make this proposition graphically clear. The effects of an embargo go beyond slight harm. Indeed, as the memorandum also makes clear, for a particular grower or processor the consequences of an outbreak within 20 kilometres could be devastating as they were here, effectively putting the appellants out of business.
In this case the respondent assumed a risk of which it was well aware or should have been aware[529]. It made two important, conscious decisions against the background of its awareness of the potential consequences of an outbreak of bacterial wilt. It chose to withdraw the seed from the certification programme and to invite growers to plant it when it knew that the best way of avoiding the risk was to ensure that certified seed be used. There would have been no inconvenience to the respondent in taking appropriate steps to avoid risk of injury to the appellants. All that the respondent needed to have done was to have encouraged and arranged the use of certified or other proved seed, or to have persisted with the certification programme for the Saturna seed.
[529]See White v Jones [1995] 2 AC 207 at 268; Hill v Van Erp (1997) 188 CLR 159 at 204 per McHugh J, 231 per Gummow J.
The harm that was done to the appellants was done in relation to their participation in a national commodity market. It is notorious that commodity markets are fragile (as the evidence here indicates) and in particular are very vulnerable in modern times to contamination both prospective and actual. Interstate trade in commodities, as well as in other products, is to be encouraged, and it is apparent that there was in place in this case a co-operative scheme for the benefit of the industry involving authorities in Victoria, South Australia and Western Australia and perhaps even elsewhere.
What the respondent was doing here was undertaking an experiment. The respondent's officers referred to the use of the seed on the Sparnons' property in those terms and clearly so regarded it. An experiment almost always involves risks and those risks needed evaluation in light of the dangers which the respondent's own officers were stressing in writing[530].
[530]See generally Weller & Co v Foot and Mouth Disease Research Institute [1966] 1 QB 569.

The appellants were rendered powerless to abate, or to prevent the occurrence of the loss to which they were subjected[531]. In no way did they act illegally, improperly, or unreasonably or without regard for their own interests.
[531]cf Hill v Van Erp (1997) 188 CLR 159 at 216 per McHugh J; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 370 per McHugh J.
It was not suggested in argument before this Court that there was any statutory penalty or other sanction which might be imposed upon the respondent or that there was any statutory or regulatory regime to govern the way in which the respondent relevantly acted in effectively controlling the planting of the seed.
Although it could not be said that the appellants had any particular expectations with respect to the selection of the seed by the respondent, the appellants were entitled to assume that those who were involved in and played a leading role in their industry and might distribute or arrange for the use of seed which if infected could damage the appellants' business and properties, would be responsible in the way in which they caused or permitted a particular seed to be sown.
What happened to the appellants here was not the result of merely legitimate, competitive, commercial activity[532].
[532]See Hill v Van Erp (1997) 188 CLR 159 at 179 per Dawson J.
I do not regard the likely number of growers at risk actually or potentially as a result of the respondent's activities to be so numerous as to be likely to give rise to a crippling burden upon the respondent. In a country such as Australia it is open I think, for a court to take judicial notice of the likelihood that generally speaking the cultivation of potatoes is not a market garden activity but will usually be a broadacre activity not involving a very large number of growers, especially growers exporting to Western Australia, and in an area within a radius of 20 kilometres from an infected property. The evidence here is that the area of Mr Tymensen's property was 69 hectares. The Sparnons' holding was 409 hectares of which at least 14 hectares were sown with potato seed in 1989. The Perres' property was 807 hectares of which more than a hundred hectares were used for growing potatoes.
The imposition of liability upon the respondent would not impose an impediment in the way of ordinary commercial activity in the potato industry[533].
[533]See Hill v Van Erp (1997) 188 CLR 159 at 179 per Dawson J.
What the respondent did went considerably beyond careless inadvertence and resulted from conscious decisions carrying with them obvious risks.
What happened to the properties (the lands, the plant and equipment, and the leaseholds or tenancies) of the appellants here may not have been actual physical damage but it came very close to that. "Blight" is a familiar concept in compensation and town planning cases[534]. In a sense, the amenity of a property is very much akin to a physical attribute of a property. A particular activity on parcel "A" may adversely affect the amenity of parcel "B" although the two parcels do not adjoin each other. This may occur for example, as a result of a massive and overwhelming development on parcel A rendering obsolescent a building on parcel B; or a particular activity on parcel A, although not constituting an actionable nuisance, may make the outlook from parcel B much less attractive, or subject it to noise pollution. A similar comparison might be made in respect of plant and equipment the use of which has been effectively sterilized by force of a Regulation, in the same way as the infliction of physical damage to it might disable it. Such effects are very similar to actual physical damage and are not logically readily distinguishable from physical damage. Absent negligence or infringement of legislation the causing of blight will not ordinarily be actionable. Such effects are very similar in impact to the negligently caused effects upon the appellants' properties of the outbreak of bacterial wilt on the Sparnons' property leading to the Western Australian embargo, and consequentially, in a real sense, involve the imposition of a blight upon their properties by way of a significant reduction in the utility and productivity of them, and accordingly their value. I regard this too therefore as a relevant consideration.
[534]Kentucky Fried Chicken Pty Ltd v Gantidis (1979) 140 CLR 675; Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1; Warren v Living Water Home Healing Committee [1981] VR 551; Zieta No 59 Pty Ltd v Gold Coast City Council [1987] 2 Qd R 116.
To grant the appellants relief in this case would not undermine any principle of law or liability which might otherwise be invoked, or which might provide a basis upon which the respondent might otherwise resist the appellants' claims[535].
[535]cf Hill v Van Erp (1997) 188 CLR 159 at 216 per McHugh J.
To hold this respondent liable represents no departure from previous case law.
The considerations which I have outlined bring this case within the principles stated in Caltex and the subsequent cases in which it has been applied and outweigh the relatively few countervailing considerations to which the respondent points in resisting the claims.
One of the major touchstones in a case of this kind will always be reasonableness[536], or as it has sometimes been put, proportionality[537]. I do not regard the damages which are likely to be available to the appellants as being unfair, or unreasonable, or disproportionate in all of the circumstances of this case.
[536]Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 498 per Deane J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 372 per Brennan J; Caparo Industries Plc v Dickman [1990] 2 AC 605 at 618 per Lord Bridge of Harwich.
[537]Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529 at 591 per Mason J.
The Court became aware after the hearing that there was legislation which prohibited the importation or introduction into South Australia of any plant affected by bacterial wilt[538]. There had been no reliance on that legislation in the Federal Court. At the very least the existence of that legislation as well as the stringent Western Australian requirements may serve to emphasise the importance that the market and governments attach to uncontaminated produce. But because the parties did not argue the case by reference to this legislation, I do not take it into account in reaching my decision.
[538]See Fruit and Plant Protection Act 1968 (SA), s 4 (now repealed):
"(1) The Governor may, by proclamation, prohibit absolutely, or prohibit unless certain conditions specified in the proclamation are complied with, the importation or introduction into the State or any part thereof of -
(a) any pest, or any fruit or plant affected by disease;
(b)any fruit or plant of a species that is, in the opinion of the Governor, likely to introduce a pest or disease into the State;
(c)any host fruit or host plant of any species that has been grown in a place, country, region, area or place, specified in the proclamation, in which host fruit or host plants of that species are subject to pests or disease;
and
(d)any packaging in which any fruit or plant affected by disease has been contained or packed, or any goods with which it has come in contact.
(2) A person shall not contravene a proclamation under subsection (1) of this section."
"Disease" is defined in s 3 to include:
"any infection or affection of a fruit or plant that the Governor declares by proclamation (which he is hereby empowered to do) to be a disease for the purposes of this Act, and any abnormality or disorder of, or injury to, a fruit or plant caused by a pest".
Bacterial wilt was added to the list of declared diseases and pests by notice in the South Australian Government Gazette, 1 November 1990 at 1347.
The respondent correctly submits that this is not a case of a common adventure: it is not a case in which the appellants can be shown to have relied upon any statement, or act, or abstention from doing an act by the respondent[539]. The respondent also urges that its responsible officers did not know of the existence of the appellants except for Frank Perre and did not in fact know that the appellants, except perhaps for Warruga Farms, exported potatoes to Western Australia. There was no direct injury to the appellants' property and no infection by bacterial wilt of crops grown on it. The appellants were not deprived of an opportunity of selling their potatoes other than to buyers in Western Australia.
[539]cf Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 461-464 per Mason J; Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 at 287 per McHugh J.
To each of these matters, undoubtedly relevant as they may be, there is a clear answer. Liability is not confined to a case of common adventure. The appellants were entitled to expect that a person such as the respondent would act carefully and responsibly in carrying out an experimental activity that had a real and acknowledged potential to cause grave harm to the appellants. The appellants fell within a class of which the respondent was or should have been aware: growers and processors of potatoes for possible export to Western Australia operating within 20 kilometres of the Sparnon property. In a case of economic loss there will frequently be no "direct" or "physical injury" to property. The appellants' chances of sale of potatoes other than into Western Australia provide no consolation for the appellants' loss of their valuable Western Australian market. Accordingly neither singly nor collectively do the respondent's arguments provide an answer to the matters to which I have referred in detail earlier. Those factors make it clear in my view that what happened here was foreseeable, and that there was sufficient proximity between the appellants and the respondent to give rise to liability on the part of the respondent. The case is an exceptional one of a special relationship between the parties arising out of the unusual combination of circumstances operating here. The appellants' "class" was a relatively small and determinate one. The respondent owed a duty of care to the appellants and failed to discharge a duty of reasonable care by taking the risks and acting in the way in which it did. The Full Court of the Federal Court failed to take into account not only several of the factors which are important in this case, such as the experimental nature of the respondent's activity, the commanding position of the respondent in the industry, the risks associated with the use of a new, (in this country) uncertified seed, the fragility of the market, the relative ease of avoiding the risk, and the great harm done to the appellants, but also the cumulative effect of these, and the other matters I have listed. For those reasons I would allow the appeal.
It is unnecessary to express any opinion on the appellants' first argument that the fact that there may have been a species of harm to, or impact upon the appellants' properties indistinguishable from, or very similar to physical harm entitled the appellants on that account alone to recover.
The respondent has filed a notice of contention. Much of what is sought by it, effectively findings of unforeseeability, is already covered by what I have so far said and should be rejected. The notice also takes up a matter adverted to by the trial judge, that is, as to the characterisation of what had occurred at a meeting of employees of the respondent at Pakenham in Victoria as negligence. However, what occurred at that meeting was not the negligence relied on by the appellants to establish their claim. It is true that the pleadings do not in terms define the appellants' case as well as they might have but there is no doubt that the issue of causative negligence upon which it turns was fully litigated: the causing or permitting of the experimental cultivation of an uncertified, relatively recently imported variety susceptible to bacterial wilt within 20 kilometres of the appellants' land and business operations. That is of course only a broad particular of the negligence and has to be considered in the context of the whole case.
What else is fatal to the notice of contention is that it really seeks to relitigate in this appeal the finding of negligence in favour of the Sparnons who are not parties to this appeal. That finding was made in proceedings which were heard together with these. No finding other than that the respondent was negligent in arranging for the Sparnons to grow Saturna was open in either proceedings. The evidence leading to that result was largely uncontradicted.
The appeal should be allowed with costs and the matter remitted to the Federal Court for a hearing on the issue of damages.
I would make some observations about damages. The appellants are not in identical positions. There is obviously a difference between the situation of the owners of land, its cultivators when they are not the owners, and the processors of the crop. Although all were sufficiently proximate to the respondent, and sufficiently directly affected by its negligence to enable them to make claims in the particular circumstances of this case, the processors because of their close connexion with the affected lands and producers, their exploitation of the Western Australian market, and the quarantining of the processing plant by operation of the Western Australian Regulations; and, the land owners who were not actual cultivators, because of their intention and purpose in causing their lands to be used to grow potatoes for export to Western Australia and the economic impact upon their lands of the statutory embargo; the proof and assessment of damages in respect of each of them may call for the application of different approaches and care to ensure that there is no double counting. It may even be possible that one or more appellants will be unable to prove any substantial damages.
Care does need to be taken in deciding whether to conduct separate trials of different issues. It sometimes happens that they may turn out to be productive of the disadvantages of delay, extra expense, appeals and uncertainty of outcome which they are intended to avoid. In tort cases in which damage is the gist of the action, it will generally be undesirable to accede to requests for them, or to order them, unless all parties accept that compensable damage has been sustained by the plaintiffs or applicants as the case may be.
The order I would make is appeal allowed with costs and further order that the matter be remitted to the Federal Court for trial on the issue of damages.