R T & Y E Falls Investments Pty Limited v The State of New South Wales & ors

[2001] NSWSC 1027

CITATION:	R.T. & Y.E. Falls Investments Pty Ltd v. The State of New South Wales and Ors [2001] NSWSC 1027
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4422/93
HEARING DATE(S):	25 to 28 September and 3 & 5 October, 2001
JUDGMENT DATE:	15 November 2001
PARTIES :	R.T. & Y.E Falls Investments Pty Ltd [Plaintiff] The State of New South Wales [First Defendant] Deniliquin and Moulamein Rural Lands Protection Board [Second Defendant] Dan Salmon [Third Defendant]
JUDGMENT OF:	Palmer J

COUNSEL :	P.T. Taylor [Plaintiff] T.H. Barrett [Defendants]
SOLICITORS:	Taylor & Whitty [Plaintiff] State Crown Solicitors Office [Defendants]
CATCHWORDS:	CONTRACT - INFORMAL CONTRACT - Whether concluded agreement comprised by facsimile and conversations - significant commercial transaction involved - whether parties evidenced common intention to be bound prior to formal contract - principles discussed - as a general rule, Court should be reluctant to find informal contract where parties negotiating substantial commercial transaction in contemplation of formal contract. - FAIR TRADING ACT - GOVERNMENT DEPARTMENT - BUSINESS - Whether NSW Department of Agriculture carrying on a business in paying compensation to cattle owners under Cattle Compensation Act, 1951 - principles discussed - Department relevantly carrying on a business to the extent it was engaging in an activity in which a private trader would engage. - FAIR TRADING ACT - REPRESENTATION - Whether representation involving express or implied statements as to present circumstances excludes representation being "with respect to" a future matter - expression of presently held opinion as to what is likely to happen is representation "with respect to" a future matter within s.41 FTA. - DAMAGES - ECONOMIC LOSS - Loss of sales of stud cattle - whether additional compensation payable for loss to value of Plaintiff's business - principles discussed. - NEGLIGENCE - DUTY OF CARE - Government Department aware of possible impending change of policy - Department keeps possible change secret from field officers dealing with persons foreseeably likely to suffer loss by reason of misleading information - whether Government Department has duty of care - whether field officer has independent duty of care - whether both Department and field officer have breached duty of care. - WORDS AND PHRASES - "Representation with respect to any future matter" - s.41(1) FTA.
LEGISLATION CITED:	Cattle Compensation Act, 1951 (NSW) - s.3, s.7 Commonwealth Fair Trading Act Conveyancing Act, 1919 (NSW) - s.54A Fair Trading Act, 1987 (NSW) - s.3, s.4, s.42 Supreme Court Act, 1970 - s.94
CASES CITED:	- ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 - Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 - Bakewell v Deputy Federal Commissioner of Taxation (S.A.) (1937) 58 CLR 743 - Baulkham Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (1986) 40 NSWLR 622, on appeal, ibid 631 - G.R. Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 - Branca v Cobarro [1947] KB 854 - Clifton v Palumbo [1944] 2 All ER 497 - The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 - Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 - Corrections Corporation of Australia Pty Ltd v Commonwealth (2000) ATPR 41?787 (Finkelstein J) - Easts Van Villages v Minister Administering the National Parks & Wildlife Act [2001] NSWSC 559 (Matthews AJ) - Fasold v Roberts (1997) ATPR 41-561 (Sackville J.) - Filby v Hounsell (1896) 2 Ch 737 - Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 - Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 - Global Sportsmen Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 - Godecke v Kirwan (1973) 129 CLR 629 - Jones v Schiffman (1971) 124 CLR 303 - Re Ku-ring-gai Co-operative Building Society (No.12) Ltd (1978) 36 FLR 134 - J.S. McMillan Pty Ltd v Commonwealth (1997) 77 FCR 337 (Emmett J.) - Masters v Cameron 91 CLR 353 - Niesmann v Collingridge (1920) 29 CLR 177 - Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 - Paramedical Services Pty Ltd v The Ambulance Service of New South Wales [1999] FCA 548 (Hely J.) - Perre v Apand Pty Ltd (1999) 198 CLR 180 - Plimer v Roberts (1997) 80 FCR 303 - Rossiter v Miller (1878) 3 App Cas 1124 - B. Seppelt & Sons Ltd v Commissioner for Main Roads [1975] 1 BPR 9147 - Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310 - Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
DECISION:	No informal contract found; First Defendant liable to Plaintiff for misleading conduct under FTA and in negligence; Third Defendant not liable to Plaintiff in negligence.

Introduction
1    Mr Ron Falls has been breeding stud cattle for fifty years. His father was a stud cattle breeder before him and his son, Peter, has followed in the family tradition. The family company, which is the Plaintiff in these proceedings, has since 1978 conducted a highly successful beef shorthorn stud principally at its property, Malton , at Finley near Deniliquin. From 1983 until 1993 the Malton Stud had consistently been the most successful exhibitor of beef shorthorn cattle at the Sydney Royal Easter Show and the Royal Melbourne Show. The Malton Stud had a very high reputation in the Australian cattle industry.

2    By 1992 the Malton herd of stud cattle, numbering almost 900 head, was extremely valuable. In early 1992 the NSW Department of Agriculture (“NSWAg”) adopted a policy to eradicate Bovine Johne’s Disease (“BJD”) in New South Wales. The means of eradication primarily recommended by NSWAg was total herd depopulation, i.e., the slaughter of all cattle in herds found to contain infected beasts. Compensation for cattle slaughtered in accordance with the BJD eradication policy was to be payable to owners of affected herds pursuant to the Cattle Compensation Act, 1951( NSW) .

3    In July 1992 the Plaintiff’s stud cattle on Malton were tested and a number of cases of BJD infection were detected. The Plaintiff had three other herds which were agisted on properties at Oaklands, Geelong and Albury but they were not tested for BJD. However, NSWAg, through its District Veterinarian, Dr D. Salmon, recommended to the Falls that the whole of the Plaintiff’s herd, wherever pastured, be depopulated in accordance with NSWAg’s policy. The Falls agreed, subject to a proposal that the Plaintiff retain an élite herd of stud cattle, which had tested free of BJD, so that it might use the highly valuable genetics of that herd to restart its stud breeding operations. That proposal was supported by Dr Salmon. On 21 August 1992, he made a written submission to Head Office of NSWAg that the whole of the Malton herd be depopulated, subject to retention of the élite herd, and that compensation be paid to the Plaintiff under the Cattle Compensation Act .

4    The Falls say that, shortly afterwards, they were told by Dr Salmon that the proposal for total depopulation of the Plaintiff’s herd, subject to the retention of the élite herd, had been approved by NSWAg and that NSWAg had agreed to payment of compensation under the Cattle Compensation Act subject to receipt of an approved valuer’s valuation of the cattle to be depopulated. The Falls suggested a valuer to Dr Salmon, who approved the suggestion.

5    Acting, they say, on the assurances of Dr Salmon that NSWAg had agreed to pay compensation on the basis of the valuer’s valuations, the Falls transported the Plaintiff’s herds agisted at Oaklands, Geelong and Albury to Malton , so that all cattle could be conveniently valued by the valuer at the one time and then removed for slaughter. The agisted herds were intermingled with the Malton herd and thereby were exposed to infection with BJD.

6    Soon after the valuation of the mingled herds had been carried out at Malton Dr Salmon learned, to his astonishment, that NSWAg had apparently just changed its policy on the total depopulation of BJD infected herds and that compensation would now not be paid to the Plaintiff. This was subsequently confirmed by NSWAg to the Plaintiff. All that had been said and done by Dr Salmon in his dealings with the Falls, in perfect good faith, had been reversed by NSWAg without warning.

7    By this time, however, the Plaintiff’s total herd, apart from the élite herd which had tested free of BJD, had been exposed to infection from BJD and could no longer be sold as stud cattle. Their only value was as “commercial cattle”, i.e., cattle to be sold into the “fat market” for human consumption. Prices obtainable for commercial cattle are very much less than those for stud cattle.

8    In these proceedings, the Plaintiff claims damages for the losses which it alleges it has suffered by the acts of NSWAg and Dr Salmon. It sues the Crown in right of the State of New South Wales, of which NSWAg is a department, itself having no separate legal status. For convenience, I will refer henceforth only to NSWAg, meaning thereby the First Defendant, through its department, NSWAg. The Plaintiff has also sued the Deniliquin & Moulamein Rural Lands Protection Board, a co-employer with NSWAg of Dr Salmon, and Dr Salmon himself. However, the claims against the Board are no longer pressed.

9    The Plaintiff claims damages from NSWAg for breach of an oral contract said to have been entered into between Mr Peter Falls on the Plaintiff’s behalf and Dr Salmon on behalf of NSWAg, whereby NSWAg would arrange for the removal and slaughter of the whole of the Plaintiff’s herd, save for the élite herd, and would pay to the Plaintiff the value of each head of cattle slaughtered as determined under the Cattle Compensation Act 1951 by reference to the valuations which had been obtained from the approved valuer.

10    In the alternative, the Plaintiff claims that if there was in law no contract between itself and NSWAg as alleged, nevertheless NSWAg is precluded by estoppel from denying the existence of such a contract.

11 Further, in the alternative, the Plaintiff claims damages from NSWAg under s.42 of the Fair Trading Act, 1987 (NSW) for misleading and deceptive conduct said to be constituted by various representations made by Dr Salmon on behalf of NSWAg as to what NSWAg would do in relation to the depopulation of the Plaintiff’s herd and the payment of compensation.

12    Finally, and in the alternative, the Plaintiff claims that Dr Salmon and NSWAg, through Dr Salmon, breached a duty of care to the Plaintiff in giving negligent advice as to NSWAg’s requirements for total depopulation of the Plaintiff’s herd, whereby the Plaintiff has suffered damage.

BJD and the Cattle Compensation Fund
13    BJD is a disease of adult cattle caused by a bacterium known as Mycobacterium paratuberculosis. The disease is characterised by chronic diarrhoea, progressive emaciation and death within a few months. Affected cattle shed the bacteria in their faeces. Other animals are infected when they ingest contaminated feed or water. Calves less than six months of age are most susceptible to the infection. Older cattle appear to be relatively resistant to infection and only a small proportion of cattle exposed as adults subsequently carry the disease or succumb to it. Although BJD is incurable and generally fatal to cattle, consumption of meat from cattle infected with the disease is not harmful to humans.

14    In 1992 BJD was a disease in respect of which compensation was payable under the Cattle Compensation Act (now repealed). By s.12(1) of that Act, a fund was established, called the Cattle Compensation Fund, which was to be applied in the payment of claims for compensation made in accordance with the provisions of the Act and in the payment of expenses incurred in obtaining determinations of the value of cattle for the purpose of paying compensation to the owners.

15    By s.5(1)(a), so far as is presently relevant, compensation was payable to the owner of any cattle destroyed pursuant to an order made under the authority of any Act because such cattle were suffering from or were suspected to be suffering from a disease, defined by the Act as including BJD. By s.6, the amount of compensation payable was the market value of the cattle.

16 Section 7 provided, so far as is relevant:
“(1) For the purposes of this Act, the market value of any cattle … is to be determined by agreement between the owner of the cattle … and:
(a) in the case of cattle to which section 5(1)(a) … applies – the person or approved person, as the case may be, who made or gave the order for destruction of the cattle;
…
(2) In default of such agreement the value shall be determined by some competent and impartial person nominated for the purpose by the Minister, and the determination of such person shall be final and conclusive.
(3) Where the market value of any cattle … is determined for the purposes of this Act, the residual value of that cattle … is to be determined in the manner specified in this section for the determination of the market value of the cattle … .
(4) The amount of any such residual value shall in every case be deducted from the amount payable as compensation under this Act.

(5) Notwithstanding subsections (1) and (2), the market value of any one head of cattle shall, for the purposes of this Act, not exceed the amount [of $2,000] determined by the Minister by order published in the Gazette.”

17    “Market value” was relevantly defined for the purposes of the Act in s.3 as follows:
“(a) in relation to cattle, means the value of the cattle calculated on the basis of a sale with delivery at the place where the cattle are situated when the cattle are ordered to be destroyed or when the cattle die or are injured, and on the basis that the cattle were free from injury and disease and were not unfit for human consumption; …”

18    Section 8 relevantly provided:
“(1) Compensation is payable under this Act only if the owner of the cattle … makes an application for compensation in an approved form within 60 days after the death or destruction of the cattle … . Any such application must be verified by statutory declaration as set out in the approved form.
…
(3) The owner is to forward with the application a certificate in the approved form completed by:
(a) the person with whom the owner is required to reach an agreement in respect of the market value of the cattle or carcass under section 7(1); or
(b) a person appointed by the Minister for the purposes of this subsection.
(4) No compensation shall be payable:
…
(d) unless the Chief, Division of Animal Industries is satisfied:
…
(ii) that the owner claiming compensation has complied with this Act with respect to applications and claims for compensation;”

BJD is detected on Malton
19    On 8 May 1992 Dr Salmon, as District Veterinarian on behalf of NSWAg, wrote to the Plaintiff noting that BJD had been most recently suspected on Malton on 9 May 1991 and advising that the Department had decided that more active intervention was necessary to limit the spread of the disease in NSW. The letter continued:
“Our first step is to restrict the entry of cattle into NSW from herds which have had evidence of Johne’s Disease during the previous 5 years. This is being planned.
The second step is of direct significance to you. As from February 1994 all herds in NSW with Johne’s Disease will be quarantined. Cattle from those properties will only be allowed to go for slaughter and will not be able to be sold or sent to other properties.
We are providing you with advance notice of this decision so that you will be able to check if your property is infected with Johne’s Disease, and if it is, to commence eradication procedures.
A blood test of all cattle on your property over two years of age should show whether your property is infected. I shall be contacting you shortly to arrange this test. The first test will be free of charge.
If your herd is infected with Johne’s Disease there are several ways in which you can approach the problem. The attached pages summarise them. Please note that Johne’s Disease is a difficult disease to eradicate using present technology and there is a risk that any eradication program may not work. Also note that laboratory fees will be charged for further blood tests after the initial screening test.”

20    Attached to the letter was a document headed “Procedures for Eradicating Johne’s Disease”. The document outlined various means by which BJD could be eradicated, but there is no issue that any procedure other than whole herd depopulation was ever considered appropriate for the Plaintiff’s herd. As to whole herd depopulation, the document stated:
“Whole herd depopulation with compensation is the quickest and surest way to eradicate Johne’s disease. Depopulation may also be the only practical option where the disease prevalence in the herd is high and management techniques are not conducive to allowing an eradication program to succeed. Approval of the Chief Division of Animal Industries is necessary if compensation is to be paid.”


21    The effect of NSWAg’s policy on the Plaintiff’s business was potentially disastrous. Unless BJD could be eradicated from the Plaintiff’s herd prior to the commencement of quarantining in February 1994, the herd would be quarantined and the Plaintiff’s stud cattle could thenceforth only be disposed of as commercial cattle. The Plaintiff’s stud cattle breeding business would be destroyed.

22    On 13 July 1992 Mr Ron Falls met Dr Salmon in Dr Salmon’s office. Mr Falls said that the Plaintiff was very concerned about the Department’s change of policy. He emphasised that the Plaintiff wanted to get rid of BJD in its herd but that it did not want to depopulate the whole herd because it would thereby lose the extremely valuable genetic material which had been built up over many years. Accordingly, he put a proposal to Dr Salmon that the Plaintiff segregate thirty of its best oldest cows from the rest of the herd, test them to ensure that they were free of BJD, and use that élite herd for the building up of a new stud cattle herd after the remainder of the herd had been depopulated, with compensation paid under the Cattle Compensation Act . Dr Salmon said:
“That sounds pretty good and is within the broad guidelines of the new policy but there is a lot of money involved. I will really have to check with the Department before we can make any moves.”
It was then arranged that the cattle on the Malton property would be tested for BJD within a few days.

23    On 15 July Dr Salmon telephoned Mr Richard Roe, Regional Director Veterinary Services, his immediate superior in NSWAg. Dr Salmon said that he had received a proposal from the Plaintiff to try to get rid of BJD at Malton but at the same time retain the genetic material of the herd which Mr Falls regarded as superior. Dr Salmon explained that Malton had been a leading exhibitor at both the Melbourne and Sydney Shows for many years. He said that the Plaintiff’s proposal was to select three small groups of élite cows and test them with the idea of establishing them as BJD-free herds and then to depopulate the rest of the cattle on the property with compensation under the Cattle Compensation Act . Mr Roe said that he would be prepared to support that proposal.

24    On 23 and 24 July 1992 Dr Salmon attended the Malton property and bled all stud cattle aged two years and over, for the purpose of testing for BJD. A total of 301 cattle were bled. No tests were carried out on cattle agisted on properties other than Malton . During the testing process Dr Salmon had a conversation with Mr Peter Falls in which Mr Falls enquired what would happen if there were positive results to the tests. Dr Salmon explained that the testing would determine the prevalence of the disease within the herd. Eradication of the disease and the process of eradication would be determined by the Department’s policy and further discussion with his superiors in Head Office at Orange.

25    On or about 13 August 1992 Dr Salmon received the results of the blood tests. There were eleven positive results showing BJD infection and four suspicious results. On 18 August 1992 Dr Salmon had a telephone conversation with Peter Falls in which he advised Mr Falls of the results. Mr Falls says that during the course of this conversation Dr Salmon said words to the effect:

“I have discussed your situation with Orange and your level of reaction was high and it has been decided that depopulation of the entire herd was the preferred solution.”
There is no dispute between Dr Salmon and the Messrs Falls that it was understood at all times between them that depopulation of the Malton herd meant depopulation of the whole of the Plaintiff’s herd of cattle.
26    According to Mr Falls, the conversation continued:
Mr Falls said: “Our herd is one of the most outstanding herds in Australia and the genetic material is irreplaceable. We would like to retain a select group of élite superior cows of age who had tested negatively and separate them from the other cattle of the herd.”
Dr Salmon said: “That might be okay.”
Mr Falls said: “The cost of the proposal to depopulate the herd will be significant. Do the people at Orange realise this?”
Dr Salmon said: “They are aware that the cost will be significant.”
Mr Falls said: “Do they really understand that?”
Dr Salmon said: “Yes.”
Mr Falls said: “Make sure.”
Dr Salmon said: “Come into my office in town and we will draft up proposals. The Department has agreed to the principle of depopulation but want it in written form.”


27    Dr Salmon’s diary note of this conversation records only the discussion about the proposal for retention of an élite herd. There is no mention in the note of Dr Salmon’s superiors having agreed to the principle of depopulation but requiring it to be made in written form. As at 18 August, as far as the evidence reveals, Dr Salmon had not been told anything to that effect by anyone in NSWAg.

A depopulation proposal is made
28    On 21 August Mr Peter Falls went to Dr Salmon’s office in Deniliquin to discuss further the proposal which Dr Salmon would put to NSWAg. Mr Falls explained that he understood “the proposal” to be the Plaintiff’s proposal to retain an élite herd of cows for breeding, although depopulating the remainder of the herd with compensation: T55.20, T56.30, T58.2. On the same day Dr Salmon prepared the proposal and sent it by facsimile to his immediate superior in the Department, Mr Richard Roe. The proposal is as follows:
“The above own a Beef Shorthorn herd which has a longstanding history of Johnes Disease. The initial test of part of the herd gave 11 positive and 4 suspicious ELISA results from 301 head.
This herd was the subject of intensive investigation by me during the late 1970s.
Malton is one of the more prominent Beef Shorthorn studs in Australia. They have been the most successful exhibitor of Beef Shorthorns at both Sydney and Melbourne Royal Show on many occasions over recent years.
Messrs Falls are committed to eradication of Johnes Disease, they share my reservations as to the possibility of eradication by test and slaughter using current technology.
It is proposed to select some 30 mature cows which Messrs Falls consider to b genetically superior and which were negative on the initial ELISA. These cows will be allocated into three groups and removed to three different properties which have no history of Johnes Disease. Each group will be subject to ELISA at six monthly intervals. If all animals in any group are negative to three successive assays, it is proposed to return them to Malton mid 1994 with their calves. If any animal in a group reacts, she will be destroyed along with any calves and the procedure started again.
“It is proposed to depopulate Malton prior to December 1992. The property will be used to graze steers older than 12 months which will be sold before they reach 24 months of age.
The herd at Malton currently comprises 827 cattle. Of these some 75 are commercial cattle and the balance stud Beef Shorthorns.
Approval is sought to slaughter all but 30 of these cattle under compensation . Given the quality of the herd, it is likely that there will a substantial difference between the market value and the residual value and consequently a substantial compensation payment.
It would be appreciated if a decision on this matter be made as soon as possible so that an independent valuer can value the herd and allow depopulation before the summer.” [Emphasis added]

29    A handwritten note made by Mr Roe dated 28 August, relating to Dr Salmon’s written proposal of 21 August, records:
“Ian Roth advises Scott-Orr and Jane agree in principle to proposal. Dan Salmon asked to document proposed programme in more detail as per Appendix II of AH Circular No 90/50 and nominate valuer for endorsement by Division.”
Mr Roth was Mr Roe’s superior in NSWAg; Dr Scott-Orr was Chief, Division of Animal Industries within the Department and was ultimately responsible for approving depopulation proposals and compensation under the Cattle Compensation Act . Mr Jane was a senior officer in the Department.
30    On 28 August Dr Salmon received a telephone call from Mr Roe, who said:
“Neither Helen [Scott-Orr, Chief, Division of Animal Industries] nor Dick Jane [Deputy Chief, Division of Animal Industries] were fazed by the idea of such a big pay-out but it has to be an official application as per the Appendix on Circular 90/50.”
Dr Salmon said that he would get the application completed and forward it as soon as possible. Dr Salmon made a contemporaneous diary note of his conversation with Mr Roe.

31    The reference to Circular 90/50 was to a circular dated 21 December 1990 issued by NSWAg Division of Animal Health which set out the procedure for payment of compensation under the Cattle Compensation Act where a herd is being depopulated. I will return to the content of this circular shortly.

The conversation of 28 August
32    On 28 August, very shortly after speaking to Mr Roe, Dr Salmon spoke to Mr Peter Falls. Neither of them made a contemporaneous note of the conversation. According to Dr Salmon, he told Mr Falls that he had spoken to Mr Roe who had told him that “the people at Head Office are not fazed by the proposed pay-out but it must be in the official form” . Mr Falls asked:
“Does that mean that there is any doubt about the proposal being approved?”
Dr Salmon responded:
“I believe that support for the proposal is very strong at Head Office and that it is highly unlikely not to be approved.”

33    According to Mr Peter Falls, Dr Salmon said to him in that conversation: “We are to de-stock Malton” . He asked: “Do they [i.e. the Department] realise the cost [i.e. of compensation under the Cattle Compensation Act] ?” Dr Salmon responded:
“Yes, I’ve told them that it would be in excess of one million dollars. The job’s right and there are no problems. The Department requires you to have the cattle valued. The maximum compensation per animal is only $2,000 and if a beast is valued at more than that you would only get $2,000. If a beast is valued less you would only get its value. All the cattle are to go to an abattoir and the best price obtained for that grade of stock.”
Mr Falls asked:
“Who organises that?”
Dr Salmon said:
“An agent, who informs me of all progress. All monies from the stock go to the Department. We will pay you a cheque at the completion of the exercise.”


34    It is common ground that during this conversation Dr Salmon assured Mr Falls that NSWAg was not concerned that the compensation payable for depopulation of the Malton herd would be very substantial. It is clear that he explained to Mr Falls, either in this conversation or in the conversation which Mr Falls says occurred on 18 August (see para.26), that there would have to be a formal application for compensation, supported by a valuation of the stud cattle to be slaughtered. Likewise, it is clear – and it would be probable in any event – that Mr Peter Falls was concerned to know whether there was any possibility that the proposal could ultimately be rejected by the Department. The critical difference between the versions of the conversation given by Mr Falls and Dr Salmon is that, according to Dr Salmon he told Mr Falls that the proposal must be “in official form” , although it was “highly unlikely not to be approved” whereas, according to Mr Falls, Dr Salmon told him, without qualification, merely that “the job’s right and there are no problems” . Dr Salmon would not accept in cross examination that he had used those words attributed to him by Mr Falls.

35    Dr Salmon admits that, after speaking to Mr Roe on 28 August, he felt confident that the proposal would be accepted: T211.45. A diary note made by Dr Salmon on 5 November 1992 records a conversation with Mr Ian Roth of NSWAg at a time when the matter of compensation to the Plaintiff had become sensitive within the Department. The note shows that Mr Roth asked: “Did I tell Falls okay?” . Dr Salmon wrote: “Yes. He did know a formal application was needed but I told him the chance of rejection was extremely low” .

36    In a memorandum to his superiors prepared by Dr Salmon and dated 6 November 1992, he records that after speaking to Mr Roe on 28 August, he spoke to Mr Ron Falls – Dr Salmon now agrees that it was probably to Mr Peter Falls – to inform him of the position. The note continues:
“I recall him asking whether the fact that a formal application was still needed meant that there was any doubt about the proposal being approved. I told him of my belief that the support from NSW Agriculture for the proposal was very strong and that approval was almost a foregone conclusion.”


37    Mr Peter Falls struck me as honest witness who was endeavouring to give his best recollection of his conversation with Dr Salmon. However, in my opinion, Dr Salmon’s account of the conversation should be accepted for the following reasons.

38    First, Dr Salmon’s account is consistent with and reflects what Mr Roe told him, as noted in Mr Roe’s note made on 28 August and in Dr Salmon’s contemporaneous diary note made the same day (see paras.29 and 30). From that conversation, Dr Salmon knew that although Dr Scott--Orr had agreed to the proposal in principle, a formal approval of the proposal, when submitted in detail, was still necessary. Dr Salmon had no reason to mislead Mr Falls as to the true position, as he then believed it to be. It is apparent that there was a friendly professional relationship between the two men. In these circumstances, it is inherently probable that Dr Salmon would tell Mr Falls what he honestly believed to be the position, namely, that support for the proposal was very strong in Head Office and that although a formal application was still needed, it was highly likely to be approved.

39    Second, Dr Salmon’s notes as to his conversations with Mr Falls made in November 1992 support his account of the conversation. The matter was sensitive within NSWAg by the time that those notes were made. The statements to Mr Falls, which Dr Salmon admits having made in those notes, did not relieve NSWAg from the possibility of liability to the Plaintiff, nor did they absolve Dr Salmon from criticism from within the Department for having said more than was prudent, as he must certainly have realised at the time. Accordingly, the statements are contrary to his own interest and, for that reason, carry weight.

40    Third, while Dr Salmon has the benefit of contemporary and near--contemporary notes to aid his recollection of the conversation, Mr Peter Falls does not.

41    Finally, although it is quite possible that Mr Peter Falls came away from his conversation with Dr Salmon on 28 August with the belief that “the job [was] right and there [were] no problems”, Dr Salmon said (T.216.40ff) that those words did not particularly sound like his words – which I take to mean that the phrases are not those which he would customarily use – and he insisted steadfastly in his cross examination that the substance of what he had said was that the proposal had strong approval in Head Office and was unlikely to be rejected. In the light of the contemporaneous and near-contemporaneous records of the conversation to which I have referred, Dr Salmon’s insistence carried conviction. I conclude that Mr Falls’ belief that he had been told simply that “the job was right” was the result of an honest, but mistaken, reconstruction of the conversation. I conclude that Mr Falls has mistakenly placed Dr Salmon’s statement “the Department has agreed to the principle of depopulation but want it in written form” in the conversation which occurred on 18 August (see paras.26-27); I am satisfied that a statement to that effect was made in the conversation of 28 August.

NSWAg refuses compensation
42    On 31 August 1992 Dr Salmon sent to Dr Scott-Orr a report in respect of the Plaintiff’s proposal containing information pursuant to Appendix II of Circular 90/50. The report detailed the proposal that an élite herd of thirty cattle be retained for future breeding stock and that the remainder of the herd be consigned for slaughter prior to December 1992.

43    According to a memorandum of Mr Roth dated 3 November 1992, Dr Salmon’s report was received by NSWAg on 2 September 1992. The memorandum continues:
“No action was taken on this application as information had become available that the Compensation Fund may be reduced in size. This information was not immediately relayed to field staff due to the political sensitivity of the matter. Chief, Division of Animal Industries, was away in Canberra and then Indonesia from 6 September 1992 to 28 September 1992.”
Dr Salmon was not told of the position as revealed in Mr Roth’s memorandum.

44    In early September 1992 the Falls transported all of the Plaintiff’s herds agisted at Oaklands, Geelong and Albury to Malton for valuation and to be consigned thereafter to slaughter. There is no dispute that by this time Dr Salmon was discussing with the Falls depopulation of the whole Malton herd by December 1992. The Falls say that they transported the agisted herds to Malton in reliance on what Dr Salmon had told Mr Peter Falls on 28 August. They say that, in the light of their belief that depopulation would proceed, there was no point in keeping the agisted herds separate from the herd at Malton in order to avoid the risk of infection. Accordingly, all herds were intermingled, the consequence being that all stud cattle in the agisted herds were immediately rendered valueless as stud stock since they had been exposed to a high risk of BJD infection. Their only market value was as commercial cattle. For compensation purposes under the Cattle Compensation Act , however, they were to be valued as stud stock.

45    On 8 September Dr Salmon had a telephone conversation with Mr Peter Falls in which Mr Falls suggested that the independent valuer for the purpose of the Plaintiff’s application for compensation be a well-known local stud stock agent, Mr Brian Leslie. Dr Salmon agreed to the retention of Mr Leslie. Mr Leslie carried out the valuations of 894 stud cattle at Malton on 9, 10, 14 and 15 September. On 26 September Mr Leslie delivered his valuation, which totalled $1.8M.

46    On 29 September, Dr Salmon was informed by a superior in NSWAg that BJD compensation payments had been “frozen”. He immediately informed Mr Peter Falls that there was a problem but it was too late to do anything to reverse the damage which had been done by the intermingling of the Plaintiff’s agisted herds with the infected Malton herd.

47    On 29 October Dr Scott-Orr wrote to Dr Salmon formally rejecting the Plaintiff’s proposal for depopulation and compensation. Subsequently, compensation was paid to the Plaintiff from the Cattle Compensation Fund but only for the slaughter of those cattle which had been tested positive for BJD and their progeny. The compensation was fixed at the values determined by Mr Leslie in his valuation of 26 September.

Principles applicable to informal contracts
48    Ultimately, there was no issue that Dr Salmon had both the actual and ostensible authority of NSWAg to enter into a contract with the Plaintiff for the slaughter of the Plaintiff’s cattle with compensation under the Cattle Compensation Act . He was the acknowledged sole conduit for communication between the Plaintiff and NSWAg. If any contract with the Plaintiff was to be made, it could only be made with the assent of NSWAg as expressed by Dr Salmon.

49    The Plaintiff submits that by reason of Dr Salmon’s proposal to NSWAg on 21 August 1992 and by reason of what he said to Mr Falls on 28 August an agreement was concluded between the Plaintiff and NSWAg the terms of which were that:
– NSWAg would arrange for the removal from Malton of all of the Plaintiff’s cattle other than an élite herd of thirty and would arrange for the slaughter of the cattle so removed.
– NSWAg would receive the price paid for the Plaintiff’s cattle to be slaughtered.
– NSWAg would pay to the Plaintiff for each head of cattle to be slaughtered the value of the beast as determined by an independent valuer, or $2,000, whichever was the lesser sum.
– The removal of cattle from Malton was to commence in October 1992 and would be completed by 1 December 1992.
– NSWAg would pay for the cost of the valuation of the stud cattle to be slaughtered.

50    Where, as in this case, an informal contract arising from discussions or negotiations between the parties is alleged, the Court must be satisfied that the parties arrived at a consensus as to the terms of the agreement, that the terms were sufficiently certain to be capable of forming a binding contract and that the parties, by their words and conduct taken in the context of the surrounding circumstances, evinced a common intention that the consensus at which they had arrived should constitute an immediately binding contract: Godecke v Kirwan (1973) 129 CLR 629, at 638; Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251, at 9254ff; Air Great Lakes Pty Ltd v K.S. Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Baulkham Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (1986) 40 NSWLR 622 at 627, on appeal, ibid 631 at 634.

51    As to the third of these requirements, as a matter of principle a Court should approach with reserve an allegation that a Government Department or a trading corporation has entered into an informal though binding contract in respect of a substantial commercial transaction. Government departments are not accountable for the propriety of their expenditures to shareholders as is a board of directors of a public company but they are, nevertheless, subject to annual review by the Auditor General, who not infrequently feels justified in making public and trenchant criticisms of mismanagement by bureaucrats. Businesslike procedures are now expected to be followed by Government Departments; they have available either “in-house” legal advice or advice from the Crown Solicitor or Australian Government Solicitor.

52    It is, plainly, imprudent in the extreme for any organisation, whether in the public or the private sector, to enter into any substantial commercial transaction without documenting its terms clearly in a formal contract. This is well recognised in a community in which legal and accounting advice is readily available and is sought as a matter of course at all levels of business dealing, from the multi-million dollar merger of corporate empires to the purchase of the local newsagency business. There are exceptions, of course: for example, when merchants or traders deal every day in a particular commodity the ancillary terms of their contracts are usually supplied by trade usage or custom, so that everyone concerned knows what all the terms of a particular contract are without the need for anything more than the barest note of the agreed price, quantity and delivery date. But that type of contract is in a special and recognised category of its own.

53    As a general rule, when parties have been negotiating a substantial commercial transaction in the common expectation that, at some stage, a formal contract will be brought into existence, the Court should be reluctant indeed to find a common intention that a binding informal contract should come into existence at any time prior to the execution of the formal document. This is especially so when the terms of the alleged informal contract have to be pieced together or implied from various conversations, ill-recorded or not recorded at all, and from selective extracts from a concatenation of correspondence. Commonsense has a part to play in the Court’s enquiry: it is inherently improbable that commercial people will intend to bind themselves to a substantial transaction in that haphazard and imprudent fashion, so potentially productive of subsequent dispute, when they have already recognised the need for a formal contract to record the terms of the transaction.

54    Experience teaches that cases within the first two categories in Masters v Cameron 91 CLR 353, at 360-361, are rarely encountered in modern commercial transactions. Where a formal contract is contemplated by parties in commercial negotiation, it is usually recognised as necessary because the transaction is sufficiently complex to warrant the involvement of lawyers on both sides. The lawyers would be expected to raise, and very often do raise, for the consideration of their clients new questions for negotiation which have emerged from the very process of drafting what the parties themselves thought were the straightforward terms of their agreement. That is why parties negotiating a commercial agreement in contemplation of a formal contract will most commonly intend that there will be no concluded bargain at all unless and until they execute the formal contract – that is, the case will be in third category referred to in Masters v Cameron .

55    Because of the phenomenon that new issues of contention are often raised in the drafting of a commercial contract, it will be even more rarely found that parties intend to bind themselves immediately and exclusively to agreed terms of a commercial agreement while expecting to make a further contract in substitution for the first, containing by consent additional terms – the so-called fourth class of case additional to those referred to in Masters v Cameron : Sinclair, Scott & Co Ltd v Naughton (1929) 43 CLR 310, at 317; Baulkham Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (supra) at 628.

56    There will doubtless be cases in which parties to a substantial commercial transaction will be found to have intended to make a binding informal contract prior to the execution of a contemplated formal contract. In such cases the evidence that the parties so intended will be clear and compelling. It will usually consist of documentary evidence – typically, a letter, memorandum or other document setting out the terms with some particularity so that it is readily seen what the terms were and that those terms were sufficiently capable of forming an immediately binding contract. Similarly, acceptance of the terms will usually be acknowledged in writing: see e.g. Rossiter v Miller (1878) 3 App Cas 1124; Filby v Hounsell (1896) 2 Ch 737; Branca v Cobarro [1947] KB 854; Niesmann v Collingridge (1920) 29 CLR 177; Baulkam Hills Private Hospital Pty Ltd v G.R. Securities Pty Ltd (supra).

57    It will be extremely rare indeed, I suggest, to find that parties negotiating a substantial commercial transaction in the expectation of a formal contract will, by a series of conversations, have evidenced a common intention to be contractually bound prior to the terms of their agreement being embodied in a formal, executed contract. As I have said, commonsense and commercial experience dictate to the contrary. Allegations that such informal contracts have come into existence upon the basis of conversations – invariably disputed – are generally found to be the last refuge of the desperate.

58    What I have said in the foregoing paragraphs re-echoes sentiments expressed in cases such as Sinclair Scott & Co Ltd v Naughton (supra) at 316, Clifton v Palumbo [1944] 2 All ER 497, at 499 per Lord Greene MR, B. Seppelt & Sons Ltd v Commissioner for Main Roads [1975] 1 BPR 9147, at 9151ff per Mahoney JA; G.R. Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, at 634D-F per McHugh JA, and ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548F per Gleeson CJ. It is worth repeating those sentiments with increased emphasis.

Was there a contract?
59    I turn then to the question in the present case whether the parties arrived at a consensus as to the terms of their agreement. The Plaintiff contends that those terms are as set out in paragraph 49 above and are to be construed from Dr Salmon’s facsimile to NSWAg of 21 August (para.28), the critical term as to payment being that NSWAg would pay the value of the cattle as determined by a valuation to be provided later. The Plaintiff contends that what Dr Salmon said to Mr Peter Falls on 28 August indicated that NSWAg accepted those terms without qualification.

60    In considering this question I bear in mind that as at 28 August both the Plaintiff and NSWAg appreciated that the Plaintiff’s proposal for partial depopulation with retention of an élite herd was not strictly in accordance with NSWAg’s policy of total herd depopulation, that they both knew that the compensation payment from the Cattle Compensation Fund would be very substantial, probably exceeding $1M, that both recognised that, for those reasons, the Plaintiff’s proposal was somewhat novel and special, and that both knew that a formal application supported by a valuation was necessary. In my opinion, these considerations require me to approach the question whether an informal contract was concluded on 28 August with the reserve which I have expressed in paragraphs 51-58.

61    I find difficulty in accepting that the 21 August facsimile can be seen as putting forward terms of a contract capable of acceptance by NSWAg rather than as putting forward to NSWAg for the first time in writing merely a proposal in principle for retention of an élite herd and depopulation of the remaining herd with compensation. I have even greater difficulty in accepting that the facsimile can be seen as putting forward a contractual term as to payment, as alleged by the Plaintiff. However, even if I were to accept that the facsimile can be interpreted as proffering contractual terms capable of acceptance, I cannot accept the contention that what Dr Salmon said to Mr Falls on 28 August indicated acceptance by NSWAg of the proffered term for payment, for the following reasons.

62    First, Mr Peter Falls was aware at all times after receiving Dr Salmon’s letter of 8 May 1992 that compensation under the Cattle Compensation Act could only be paid in the case of a herd depopulation with the approval of the Chief, Division of Animal Industries within NSWAg, i.e. Dr Scott-Orr. He was aware that Dr Salmon himself could not give that approval and that Dr Salmon was only the conduit through which NSWAg’s agreement to pay compensation would be passed: T43.56-45.25.

63    Second, for the reasons which I have given in paragraphs 37-41 above, I am satisfied that what Dr Salmon said to Mr Peter Falls on 28 August informed Mr Falls that the Department’s approval to the Plaintiff’s compensation proposal was still required, but was highly likely to be given upon receipt of a formal application supported by a valuation of the cattle to be slaughtered. That conversation made it clear that a final decision on the Plaintiff’s proposal had not yet been made by the Department and that that decision could not, and would not, be made other than by Dr Salmon’s superiors in the Department after they had seen a formal application in the prescribed form supported by a valuation. Accordingly, it should have been apparent to Mr Falls from what Dr Salmon had said that it was still possible – although, as Dr Salmon said, “highly unlikely” – that when NSWAg actually saw the amount of compensation required as determined by the valuation, it could decide not to proceed.

64    In these circumstances, I cannot accept that in the conversation of 28 August the parties, by their representatives, reached a consensus that the compensation payable for the Plaintiff’s cattle was whatever amount was later determined by reference to a valuation. Further, because Dr Salmon made it clear that NSWAg would not make a final decision until a formal application supported by a valuation had been received, I cannot accept that the parties, in that conversation, evinced a common intention that there be a contract between them immediately binding and effective as at and from 28 August 1992.

65    I cannot regard Dr Salmon’s subsequent approval of Mr Leslie as the independent valuer for the stud cattle as evidencing a final acceptance by NSWAg of the terms of the Plaintiff’s proposal so as to bring into existence an immediately binding contract. For the reasons which I have given, in my opinion it should have been clear to the Plaintiff that such a valuation was necessary before final approval by Dr Salmon’s superiors in NSWAg could be given.

66    Accordingly, the Plaintiff’s claim in contract fails.

Estoppel
67    In the alternative the Plaintiff alleges that NSWAg is estopped from denying the existence of a contract for depopulation of its herd, with compensation. It relies upon the principles of estoppel enunciated in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

68    In my view, the facts in the present case are clearly distinguishable from those in Waltons and demonstrate why an estoppel cannot arise. In Waltons , the lessee’s solicitor unequivocally represented to the lessor’s solicitor that the lessee had orally advised that all amendments to a proposed lease were acceptable. He represented further that he would get formal instructions and would advise the lessor’s solicitor the next day if the lessee disagreed with the proposed amendments. The lessee’s solicitor then sent the lease, re-drafted to include the amendments, to the lessor’s solicitor. He did not advise the lessor’s solicitor the next day, or at all, that the lessee disagreed with the amendments. The lessor’s solicitor then forwarded an executed counterpart of the lease to the lessee’s solicitor “by way of exchange” . The lessee’s solicitor did not respond, even when the lessee knew that the lessor had commenced work on the subject premises upon the assumption that an exchange of executed counter-parts of the lease was a mere formality. The lessee then decided not to proceed with the lease and claimed that no binding contract for lease had come into existence because of the absence of a signed written memorandum, as required by s.54A of the Conveyancing Act, 1919 (NSW).

69    The High Court had no difficulty in finding that the lessee was estopped from denying that it was bound by the terms of the lease. Mason CJ, Wilson, Brennan and Deane JJ held that the lessee was estopped from retreating from an implied promise to complete the contract with the requisite formality. Deane J held, in addition, that the lessee’s solicitor’s actions had caused the lessor to assume that a contract had come into existence. Gaudron J. held that the lessee’s failure to advise the lessor that formal exchange of counter-parts might not take place caused the lessor to assume that an exchange had taken place.

70    What is critical to note is that in Walton the lessee had represented that it had actually agreed to all the terms of the lease and had represented, by clear implication, that the coming into existence of a binding contract by exchange of executed counter-parts was simply a formality which would be attended to in due course. In the present case, on the facts as I have found them, Dr Salmon made it clear to Mr Peter Falls on 28 August that he himself could not bind NSWAg to a contract by approving the Plaintiff’s proposal, that only his superiors in Head Office could do that, and that before they approved the proposal his superiors would require a formal application supported by a valuation. His statements to the effect that the Plaintiff’s proposal had strong support or was highly likely to be approved can only be taken reasonably as indicating that the proposal had not yet been accepted and, ultimately, might not be accepted, although that possibility was slight.

71    Because of what I have found Dr Salmon to have said to Mr Falls, I am unable to hold that NSWAg caused the Plaintiff to assume that a contract already existed as at 28 August or at any material time thereafter and that the application for compensation supported by a valuation were mere formalities which could be attended to later. If Mr Falls made that assumption as a result of the conversation on 28 August, he made it without sufficient justification.

72    Accordingly, the Plaintiff’s claim founded in estoppel fails.

Fair Trading Act claim – Issues
73 In the alternative to its claims in contract and estoppel, the Plaintiff claims against NSWAg for misleading and deceptive conduct, in breach of s.42 of the Fair Trading Act (“FTA”). In the Plaintiff’s Further Amended Statement of Claim, the conduct alleged consisted of five representations made by Dr Salmon on behalf of NSWAg, namely:
a) that NSWAg had decided to depopulate the Plaintiff’s herd;
b) that NSWAg would arrange for the removal and slaughter of the Plaintiff’s herd, save for an élite herd of thirty cattle;
c) that NSWAg would pay to the Plaintiff for each head of cattle slaughtered the value of the beast as determined by a valuation or $2,000, whichever was the less;
d) that the cattle on Malton which had tested positive to BJD did not need to be separated from the other cattle on Malton because all cattle would be removed from Malton by 1 December 1992 for slaughter;
e) that depopulation of the Plaintiff’s herd would commence in October 1992.
No separate cause of action is pleaded against Dr Salmon as a person involved in the contravention of s.42, within the meaning of s.61 FTA. Despite a suggestion by the Plaintiff in its final submissions that an independent claim against Dr Salmon under FTA was pressed, I will not entertain such a claim in the absence of an amendment to the Amended Statement of Claim.

74 The first representation pleaded is a representation as to a present or past state of affairs. The second to fifth representations are representations with respect to future matters. In his final submissions for the Plaintiff, Mr Taylor addressed his arguments only to representations with respect to future matters, treating the second to fifth representations compendiously as being a representation by NSWAg that the depopulation of the Plaintiff’s herd on the terms proposed by the Plaintiff and encapsulated in Dr Salmon’s facsimile of 21 August would proceed. Mr Taylor submitted that because that representation was with respect to a future matter, it was to be taken as misleading for the purpose of s.42(1) FTA unless NSWAg discharged its onus of establishing that it had reasonable grounds for making that representation: s.41(1), (2) FTA.

75    Mr Barrett did not object to Mr Taylor varying his case in final submissions so as to rely upon a representation broader and more general than the five representations which had been pleaded in the Plaintiff’s Amended Statement of Claim. This was very understandable in view of the way in which the evidence had unfolded during the trial. Mr Barrett met Mr Taylor’s submissions head on. His submissions in response were:
a) FTA binds NSWAg (being the Crown in right of the State) only in so far as the Crown was carrying on a business: s.3(1) FTA. On the facts of the present case, NSWAg was not carrying on a business in its dealings with the Plaintiff;
b) the only relevant representation that was made by Dr Salmon on behalf of NSWAg was to the effect that approval to the Plaintiff’s depopulation proposal was likely. That was not a representation with respect to a future matter for the purpose of s.41 FTA; it was an expression of NSWAg’s present opinion as to a future event;
c) the representation was not made “in trade or commerce”, within the meaning of those words in s.42(1) FTA;
d) the representation was not misleading or deceptive nor was it likely to be so: NSWAg had reasonable grounds for making the representation at the time it was made;
e) the Plaintiff did not rely upon the representation. The Plaintiff had commenced taking steps to implement a depopulation of its herd prior to the representation.

76    I will deal in turn with each of the issues raised by NSWAg’s defences.

Did NSWAg carry on a ‘business’?
77 By s.3 FTA, the Act binds the Crown in right of the State only in so far as the Crown in right of the State “carries on a business” . By s.4, “business” includes a business not carried on for profit. Did NSWAg’s dealings with the Plaintiff occur in the course of a business, as defined, carried on by it?

78    A number of cases have examined the principles upon which a government department or agency will be held to be carrying on a business for the purposes of the Fair Trading Act and the corresponding provisions of the Commonwealth Trade Practices Act . From those cases, the following propositions can be derived:
– a government department or agency will be carrying on a business for the purpose of the Fair Trading Act and the Trade Practices Act when it is doing what any private trader might do, such as supplying goods or services for remuneration or buying and reselling goods;
– that the proceeds derived from the activity are not commercially adequate or are calculated to produce a loss does not, in itself, detract from the character of the activity as a business. The definition of “business” in the Fair Trading Act and the Trade Practices Act includes a business not carried on for profit. Government departments or agencies may be expected in many cases to be carrying on a business not for the purpose of profit but to achieve a policy objective of government, ultimately at the expense of the public purse;
– the concept of carrying on a business requires that the subject activity be conducted with a degree of system, continuity and repetition. A single instance of the activity or engaging in the activity only in an ad hoc response to infrequent occurrences or circumstances will not normally indicate that a business is carried on;
– system, continuity and repetition in carrying out an activity are not sufficient on their own to characterise the carrying on of a business. There must always be present some element of commerce or trade such as a private citizen or trader might undertake. What is a sufficient degree of commerciality is a question of fact in each case;
– a person claiming under the Fair Trading Act or the Trade Practices Act in respect of a dealing with a government department or agency which carries on a business must show that the dealing occurred in the course of, and as part of, the carrying on of that business:
see Re Ku-ring-gai Co-operative Building Society (No.12) Ltd (1978) 36 FLR 134, esp. at 167 per Deane J; J.S. McMillan Pty Ltd v Commonwealth (1997) 77 FCR 337 (Emmett J.); Fasold v Roberts (1997) ATPR 41-561 (Sackville J.); Plimer v Roberts (1997) 80 FCR 303; Paramedical Services Pty Ltd v The Ambulance Service of New South Wales [1999] FCA 548 (Hely J.); Easts Van Villages v Minister Administering the National Parks & Wildlife Act [2001] NSWSC 559 (Matthews AJ); Corrections Corporation of Australia Pty Ltd v Commonwealth (2000) ATPR 41-787 (Finkelstein J). With these principles in mind, I turn to the facts of the present case.

79    At all relevant times, compensation under the Cattle Compensation Act was paid out of the Cattle Compensation Fund under two distinct and different procedures. The first was as set out in Circular 84/24, issued by NSWAg in June 1984. This procedure related essentially to compensation payable to cattle owners in respect of relatively small numbers of cattle destroyed. The Fund simply paid the owner the difference between the “market value” as defined in s.3 of the Cattle Compensation Act , determined in accordance with s.7, and the residual value, which the circular explained was, in practice, the net amount received by the owner from the abattoir after deducting such expenses as freight in getting the animal to the abattoir for slaughter, slaughtering fees, inspection fees and agents commission.

80    The second procedure was as set out in Circular 90/50, issued by NSWAg in December 1990. The procedure had been evolved in the first instance to deal with herd depopulations required by the National Brucellosis & Tuberculosis Eradication Campaign but was adopted by NSWAg as applicable to herd depopulations in the campaign to eradicate BJD, which commenced in late 1991 or early 1992. Under this procedure, rather than NSWAg paying to the herd owner the difference between the net amount which the owner actually received from the abattoir and the market value of the cattle as determined by the Act, the Fund was to pay the whole of the market value of the animals to the owner as soon as the animals were consigned to the abattoir. The Fund was then to recoup the residual value of the cattle from the proceeds of their sale to the abattoir pursuant to an assignment of the owner’s rights to such proceeds.

81    Circular 90/50 explains the reason for the procedure thus:

“For a variety of reasons there are often significant delays in paying compensation for cattle slaughtered following a herd depopulation.
Because of the size of such payments and the emotive circumstances which often surround a depopulation it has now been decided that once agreement on market value is obtained and the stock have all left the property that a lump sum cheque will be paid direct to the owner from the Department.”

82    The Circular continued:
“The steps in the depopulation and payment of a claim are as follows:–
1. The disease is confirmed. Field staff prepare a report covering the points in Appendix II and obtain approval of the Chief Division of Animal Health for the depopulation.
2. The value of the cattle to be slaughtered is calculated and agreed to by the inspector and the owner.
3. A claim (Form 1 or 1A under the Cattle Compensation Act) is completed at that time and signed by all concerned parties.
4. A release is prepared either locally or in Head Office, signed by owner/representative and copy faxed to Head Office. Appendix III is a draft Release prepared by Legal Branch. It is a guide only and may be varied if it is inappropriate for the circumstances, eg if there is more than one mob of cattle, if they are going to different abattoirs. However, clauses (2) and (3) of the owner’s undertaking should not be varied without discussion with Legal Branch.
5. The cattle are consigned to abattoir(s) on an Order for Movement.
6. Payment voucher is processed by Admin. Officer (TB&B) in Head Office and cheque sent to Regional office for delivery.
7. Regional staff deliver cheque once it is determined that all cattle have been sent to abattoir(s).
8. Regional staff to ensure cheque for meat value less charges and levies is sent to Admin. Officer (TB&B) in Head Office for banking (less chance of going to the wrong account).
9. Freight accounts etc. are also sent to Head Office for payment.
10. Regional staff advise Admin. Officer (TB&B) when all financial aspects have been finalised.
11. Admin. Officer (TB&B) can then reconcile and seek reimbursement from Commonwealth/Industry for the fund, if appropriate.
Whenever this procedure is adopted it is essential that regional staff maintain vigilance to ensure that all residual monies are recovered and promptly recouped to the Department to re-credit the Fund.”


83    Appendix III to the Circular contains a Release between the owner of cattle to be slaughtered and NSWAg. The Release acknowledges receipt of a cheque for compensation under the Cattle Compensation Act and that the payment is in full satisfaction of all claims for compensation. The owner warrants that the cattle have left the owner’s property and have been consigned for slaughter at a specified abattoir on a specified date. Then follows Clause 2, which the Circular stated was not to be varied without discussion with Legal Branch. Clause 2 provides that in consideration of the payment of compensation by the Department, the owner “assign(s) to [NSWAg] all my rights, title or interest of whatever nature in the proceeds of the sale of the above stock and undertake(s) to forward to [NSWAg] any of such proceeds as may be directed to me immediately upon receipt” .

84    By reference to the procedure in Circular 90/50 and the terms of the Release, it is clear enough that when NSWAg and the owner sign the claim form and the owner of the cattle signs the Release in accordance with steps 3 and 4, a contract comes into existence between the owner and NSWAg whereby, in consideration of payment by NSWAg of an agreed price, the owner assigns to NSWAg the owner’s rights to receive all proceeds of the sale of the cattle to the abattoir. Payment to the owner under the contract is to be made at the time that the cattle are sent to the abattoir.

85    Dr Salmon’s uncontradicted evidence was that the procedure specified in Circular 90/50, including the assignment of proceeds of sale, would have been applied to the depopulation of the Plaintiff’s herd, had it proceeded. There is evidence that the procedure was applied to the depopulation of a BJD infected herd of 141 cattle at Quirindi, approved by Dr Scott-Orr in about October 1991. The compensation proposed to be paid to the owner was in the order of $100,000, the estimated residual value recoverable by NSWAg from the assignment of the owner’s rights to proceeds of sale being in the order of $36,000. The proposal was carried out, the total payments by the Fund to the owner during the period from December 1991 to November 1992 being $137,840.

86    Another depopulation of a BJD infected herd of 57 cattle at Tamworth was carried out progressively between November 1991 and January 1992, a payment of $43,184 being made to the owner in March 1992. It is a fair inference that payment was made in accordance with the procedure specified by Circular 90/50.

87    A depopulation of 462 TB infected cattle at Mackay was carried out in late December 1990, payment of $139,330 being made to the owner on 19 March 1991. Again, it is a fair inference that the payment was made in accordance with the procedure specified by Circular 90/50.

88    The Fund records show two entries for 5 July 1991, each apparently relating to depopulation of TB infected herds, one of 176 cattle, the other of 321 cattle. When the depopulations occurred and what was paid to the owners are not clear.

89    The records of the Fund for the period from 7 December 1990 to 19 April 1994 show that 290 payments of compensation were made to owners of diseased cattle during that time. The very great majority of payments seem to be made in respect of small numbers of cattle, suggesting that no depopulation was involved, so that the procedure for payment specified in Circular 90/50 was not applicable.

90    The activities of NSWAg in relation to payment of compensation for diseased cattle must be evaluated against the background of its activities as a whole. In this respect, it is relevant to take into account how NSWAg itself saw its role, its functions and the nature of its operations. The Department’s Annual Report for the financial year 1 July 1992 to 30 June 1993 contains this passage on the page headed “Corporate Goals”:
“CORE BUSINESS
The Department is primarily a service provider to the entire food and fibre industry sector. ‘Food and fibre industries’ includes all industries producing products derived from agriculture and includes ornamental plants and industrial and pharmaceutical products. The Department is a vital bridge between consumers and primary producers. This is achieved by providing integrated, market driven and scientifically sound research, extension, regulatory and policy services. Our primary clients are the producers, processors and distributors of food and fibre products, but services are also provided to agribusiness organisations such as agents, brokers, consultants, accountants, banks and suppliers of agricultural and veterinary chemicals”

91    On p. vii appears the following:
“PRODUCTIVITY
NSW Agriculture continued the pattern of productivity gains of recent years with the output of high quality services being maintained despite a 3.7% fall in the 1992-93 allocation of consolidated fund recurrent expenditure in real terms (Sydney CPI adjusted) compared with 1991-92. This allocation on a per EFT staff basis fell by 4.4%.
Our 1993-94 allocation of $130m represents only 0.73% of the total $17 756m consolidated fund recurrent payments allocated for all NSW government services and only 2.2% of the $58 billion earned by the state’s agricultural industries last year.
Factors contributing to this result have included an 11.7% increase in funding from rural industry research and development corporations (in direct competition with other research organisations), the 8.5% saving in middle management wages due to management restructuring, increased deregulation and better all round efficiency in the use of operating funds.”

92    On p. ix appears:
“RECOGNITION
The NSW Agriculture team won the award for the most outstanding business plan in the 1992 NSW Enterprises Workshop (Business in Growth) program. This is the first time that a public sector organisation has won this prestigious award. The workshop provides high profile business and entrepreneurial skills training and forms part of the Department’s Senior Management Development Program.
This success provides further evidence of the Department’s commitment to become more business-like in all activities.”


93    The Report discloses that in most Divisions of the Department operating expenses were funded to a minor degree by operating revenue, the balance being provided by contribution from Consolidated Funds. The Department’s cash flow statement for the financial year shows that receipts from “user charges” totalled $8.583M.

94    In a section titled “Corporate Services”, the following appears:
“TRENDS
The New South Wales public sector leads the country and much of the world in Government financial reforms and NSW Agriculture is moving through a period of rapid change in the financial management area. On 1 July 1992 the Department moved from cash accounting to accrual accounting which places more emphasis on the net cost of services, payment for private benefit services, reductions to Consolidated Funded operations where the services are not of benefit to the general public and better management of the cash resources under the control of the Department. Financial reporting and accountability are being aligned with accounting profession standards and commercial accounting practices. Reporting and accountability to central agencies is a major function of this program. Systems must be capable of fulfilling this role with minimum effect on the core business of the program.”


95    Finally, according to the Report, the Department had a risk management and insurance strategy. Amongst the risks in respect of which insurance was arranged was “professional liability”.

96    It is evident from the Annual Report that NSWAg intended to conduct, and did conduct, all of its activities during the relevant time in a business-like way, guided by much the same systems, procedures and attitudes as would be found in the private sector. This evidence, coupled with the way in which applications for compensation payments to cattle owners under the Cattle Compensation Act were processed, recorded and paid, as revealed by Circulars 84/24 and 90/50 and the records of the Cattle Compensation Fund, shows that NSWAg’s activities in relation to payments of compensation to cattle owners were conducted in accordance with a business-like system, with continuity and with repetition.

97 But conducting an activity in a business-like way does not, in itself, mean that the activity is a business activity in the sense required by the FTA. The Salvation Army doubtless carries out with business-like efficiency the organisational operations required in order to undertake large-scale charitable activities such as distributing food and clothing to the poor or providing shelter for the homeless. Of course, that does not mean that distributing food and clothing and providing shelter constitute a business activity. Yet, if the Salvation Army, in order to provide money for those same charitable purposes, sells donated clothing or second-hand household goods to the public through “Opportunity Shops” it will, to that extent, be carrying on a business activity, because acquiring and selling goods is exactly what a private trader might do as part of a commercial enterprise.

98    The payment of compensation to cattle owners under the Cattle Compensation Act was but one of many activities of NSWAg at the relevant time. Some activities, such as formulating policy for the Government, clearly had no commercial character. Other activities plainly did have a commercial character, for example, providing laboratory testing services and research advice to agri-business “clients” for fees, thereby generating operating revenue. It will be recalled that some $8.5M in operating revenue was generated by NSWAg for the financial year ended 30 June 1993.

99    I have come to the conclusion that NSWAg’s activities in paying compensation under the Cattle Compensation Act to cattle owners under the procedure specified in Circular 84/24 did not involve the carrying on of a business in the sense required by s.3 and s.4 FTA. Under that procedure, where a compulsory order for destruction of diseased cattle had been made, NSWAg simply paid to the cattle owners the difference between the market value of the slaughtered cattle and the net proceeds of their sale actually received by the owner. The NSWAg received nothing from the cattle owner in return. The payments were, in character, ex gratia – “hand-outs” by the Government to cattle owners in order to encourage them to co-operate with the Government’s policy to eradicate cattle disease and to compensate them for that co-operation. The payments were analogous to relief provided by a charity to those experiencing hardship. Accordingly, the dealings between cattle owners and NSWAg relating to compensation under the procedure specified in Circular 84/24 bore no commercial character even though they were conducted with business-like efficiency, continuity and repetition.

100 On the other hand, I have come to the conclusion that NSWAg’s activities in paying compensation to cattle owners under the procedure specified in Circular 90/50 for herd depopulations did involve it in carrying on a business in the sense required by s.3 and s.4 FTA. The critical difference is that under this procedure NSWAg was acquiring something in consideration for its payment to a cattle owner which, in turn, NSWAg turned to its own account. By the assignment for consideration of the cattle owner’s right to the proceeds of sale of cattle consigned to the abattoir contained in Clause 2 of the Release, NSWAg was taking an assignment of a future chose-in-action enforceable in equity: Bakewell v Deputy Federal Commissioner of Taxation (S.A.) (1937) 58 CLR 743, at 761ff; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, at 24ff. That was a valuable right which NSWAg turned to account by collecting the proceeds of sale from the abattoir when they became payable. The transaction is no different in character from a transaction in which a factor acquires a trader’s book debts at a discount for immediate payment and then seeks to collect the debts when they become payable.

101 The fact that a transaction entered into by NSWAg with a cattle owner in accordance with Circular 90/50 is calculated to produce a net loss rather than a profit does not, in itself, make it any the less a “business” transaction within the sense required by FTA, as s.4 makes plain. If one puts aside the “loss making” element of the transaction, it is exactly the sort of transaction a private trader might enter into in the course of a commercial enterprise. A person regularly purchasing by assignment the rights to proceeds of cattle sales and turning those rights to account can properly be described as carrying on the business of dealing in debts arising from cattle trading.

102    In the present case, that the purchase of rights to proceeds of cattle sales in respect of herd depopulations under the procedure set out in Circular 90/50 was to be systematic and was to be conducted in a business-like way, one sees from the procedure itself and from the manner in which NSWAg, according to its Annual Report, ran all of its operations. Likewise, that the procedure for purchase of such rights was intended to be applied with continuity and repetition in dealing with herd depopulations is, again, seen from Circular 90/50.

103    In fact, however, the procedure set out in Circular 90/50 was suspended unofficially in September 1992, some twenty-one months after it was introduced. So far as the evidence reveals there were only three herd depopulations during that time, apart from the Plaintiff’s proposed depopulation. In each of these cases, the procedure set out in Circular 90/50 was applied or was to be applied. Payments of compensation for herd depopulation were, therefore, few in number. But they were not made by way of ad hoc response to adventitious occurrences. They were made as a predetermined and systematic response to a problem foreseen by NSWAg as likely to recur for a considerable time until cattle disease was sufficiently controlled within NSW.

104    In my opinion, the activity engaged in by NSWAg in making compensation payments for herd depopulations in return for assignments of the proceeds of their sale did not lack such frequency and repetition as to deprive it of the character of a business activity. The duration of the activity, intended to be long term, was cut short, it seems, by a rapid depletion of the Cattle Compensation Fund in late 1992: see para.118. Had it not been for that event, the activity would doubtless have continued for some time longer. One can hardly say that a shop-keeper who goes bankrupt two weeks after opening day has not carried on business during that time because he or she has only made two or three sales before closing the doors.

105 For these reasons, I am satisfied that the procedure for payment of compensation for herd depopulations specified in Circular 90/50 involved a transaction of a commercial character such as a private trader might undertake. Such transactions were engaged in by NSWAg systematically and with sufficient continuity and repetition so that, in its dealings with cattle owners, including the Plaintiff, for the acquisition of rights to proceeds of sale in return for payment of compensation for cattle depopulations NSWAg was carrying on a business within the sense required by s.3 and s.4 FTA.

Whether representation “in trade or commerce”
106    Mr Barrett’s submission that NSWAg’s statements to the Plaintiff as to the proposed depopulation were not made “in trade or commerce” rests largely upon his submission that NSWAg had not, relevantly, been carrying on a business. He submitted that NSWAg was implementing a disease control programme as a matter of Government policy and that that activity could not be categorised as an activity “in trade or commerce”.

107    There is no doubt that NSWAg’s over-all purpose in implementing the herd depopulation programme with compensation under the Cattle Compensation Act was as Mr Barrett submits. But that is not the end of the matter. What s.42 FTA is concerned with is the conduct of a person towards others with whom that person has dealings in the course of such part of that person’s activities as comprise the carrying on of a business: Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, at 603-604. The fact that the activity bearing the character of a business is part of a much wider range of non-business activities does not deprive the business activity of its character as such for the purposes of FTA. I refer again to the example of the Salvation Army which I gave in para.97.

108 Section 4(1) FTA provides that trade or commerce “includes any business or professional activity” . Accordingly, if an activity is carried on as part of “a business” as defined by s.4(1), it is also necessarily carried on in trade or commerce for the purposes of the Act: see Plimer v Roberts (supra) at 308 per Branson J. and at 322 per Lindgren J.

109    It is clear that what was said by Dr Salmon to the Plaintiff in respect of the Plaintiff’s proposed herd depopulation was said in the course of, and part of, the carrying on of NSWAg’s business activity, as I have found it to be. It follows that I cannot accept Mr Barrett’s submission. I hold that Dr Salmon’s statements to the Plaintiff were made by NSWAg “in trade or commerce”.

Representation or opinion?
110 Mr Barrett submits that what Dr Salmon said to Mr Peter Falls on 28 August was not a representation with respect to a future matter; rather, he says, it was an expression of a present opinion held by NSWAg as to a future event. The distinction, if it exists, is important. If Mr Barrett is correct, the Plaintiff cannot bring itself within s.41 FTA, which provides that a representation with respect to a future matter is to be taken to be misleading unless the maker of the representation discharges the onus of proving that he or she had reasonable grounds for making it. The Plaintiff would have to rely upon s.42 FTA and would bear the onus of proving that NSWAg’s opinion was not honestly held or was held without basis: Global Sportsmen Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82.

111 In my opinion, while the distinction which Mr Barrett draws between a representation with respect to a future matter and the expression of a present opinion as to a future matter may exist in the realm of semantics, it has no significance for the purposes of s.41 FTA. Every prediction or expression of opinion with respect to a future matter must necessarily involve, expressly or implicitly, a representation as to a present state of affairs. If I, as a weather forecaster, say: “it is likely to rain tomorrow”, I am explicitly representing that present meteorological conditions indicate rain tomorrow. If I say: “it will probably rain tomorrow”, I am implicitly representing that present meteorological conditions justifiably warrant that prediction. If I say: “in my opinion, it will rain tomorrow”, I am explicitly representing that I presently hold an opinion about tomorrow’s weather and I am impliedly representing that my presently held opinion is held honestly and upon an adequate basis. In each of these examples, I am making an implicit or explicit representation as to a present state of affairs. However, each of those representations is ultimately concerned with the question “will it rain tomorrow”, which is a “future matter” for the purposes of s.41 FTA.

112 It was, doubtless, to avoid arid debate as to whether one or other or none of these representations is within the ambit of s.41 FTA that the wide and malleable words “with respect to” a future matter are employed. A representation is “with respect to” a future matter if it is calculated to produce, or is capable of producing, in the representee a belief or expectation as to what will or may happen at a future time, regardless of how many express or implied representations as to an existing state of affairs are involved in the course of the representation.

113 It follows that, in the present case, it would not have mattered if Dr Salmon had said to Mr Falls: “It is the present opinion of the Department that it is highly likely to approve your application for compensation when it is made”. That statement would still have been representation “with respect to” a future matter for the purposes of s.41 FTA.

114 For these reasons, I am satisfied that the statements made by Dr Salmon to Mr Peter Falls on 28 August to the effect that it was “highly likely” that the Plaintiff’s proposal would be approved or that approval was “almost a foregone conclusion” were representations with respect to a future matter within the meaning of s.41(1) FTA.

Were the representations misleading or likely to be misleading?
115 Because of my finding in the previous paragraph, Dr Salmon’s representations on behalf of NSWAg are to be taken as misleading or likely to mislead unless NSWAg discharges its onus of establishing that it had reasonable grounds for making the representations: s.41(2) FTA.

116    Clearly enough, Dr Salmon himself had reasonable grounds for making the representations as at 28 August. The evidence is uncontradicted that he made those representations honestly and on the basis of what he had been told by his superior, Mr Roe. Mr Roe was the person properly authorised to convey to Dr Salmon the Department’s attitude to the Plaintiff’s proposal.

117    But Dr Salmon was not NSWAg. He made the representations on behalf of NSWAg, as NSWAg concedes. He was its mouthpiece as far as the Plaintiff was concerned. NSWAg was, in law, making the representations and it must show that it, not Dr Salmon, had reasonable grounds for the representations which Dr Salmon made.

118    NSWAg has not adduced any evidence directed to discharging the onus which it bears. The evidence, as far as it goes, suggests that by the time that Dr Salmon’s facsimile of 21 August 1992 was received in NSWAg’s head office, there were already concerns within the Department that the Cattle Compensation Fund would be inadequate to meet the demands likely to be made upon it. When those concerns first arose and when they reasonably ought to have become apparent within NSWAg is not revealed. The evidence discloses, however, that the concerns were regarded within the Department as “politically sensitive” so that nothing was said to field staff such as Dr Salmon to alert them to any possible problem: see the extract from Mr Roth’s memorandum of 3 November 1992 at para.43. The same memorandum suggests that “changes to the Compensation Fund and also a re-think of possible commitments led to [the Plaintiff’s proposal] being placed on hold” .

119    Whatever were the reasons which caused NSWAg to change its policy on herd depopulation, to disapprove the Plaintiff’s depopulation proposal and, ultimately, to suspend its policy formally and with Ministerial approval on 21 October 1992, NSWAg has elected not to reveal them in these proceedings.

120 It follows that, in accordance with s.41(1) FTA, NSWAg has failed to establish that Dr Salmon’s representations made on its behalf in relation to the likely fate of the Plaintiff’s depopulation proposal were made upon reasonable grounds. Accordingly, I hold that the representations were misleading or likely to mislead.

Reliance
121    Mr Barrett submits that the Plaintiff did not rely upon Dr Salmon’s representations made on 28 August. He submits that the Plaintiff was already committed to depopulating its herd prior to any approach being made to Dr Salmon. I cannot accept this submission, for the following reasons.

122    First, there is no evidence that the Plaintiff had taken any step towards herd depopulation prior to receiving Dr Salmon’s letter of 8 May 1992.

123    Second, it is clear that the Plaintiff took seriously the content of that letter and decided to work closely with Dr Salmon to achieve a desirable outcome. The letter advised that total herd depopulation was the quickest and surest way to eradicate BJD. There is no evidence to suggest that the Plaintiff did not fully accept that proposition.

124    Third, when the blood tests on the Malton cattle became available, Dr Salmon told Mr Peter Falls that he had discussed the matter with Head Office, that the level of reaction in the herd to the test was high, and that it had been decided that depopulation of the entire herd was the preferred solution: see para.25. This advice must have encouraged Mr Falls to believe that total herd depopulation with compensation would be accepted by NSWAg, subject to its consideration of the Plaintiff’s proposal for retention of an élite herd.

125    Fourth, Dr Salmon was asked whether at the time of his conversation with Mr Peter Falls on 28 August he thought it was safe for the Falls to act on the basis that the proposal for partial depopulation would be approved by NSWAg. He said: “I think we are on sound grounds, though it had been not been formally approved [sic] .” : T214.45-215.5. I am satisfied that this was the impression that Dr Salmon intended to convey to Mr Peter Falls by his statements that there was “strong support” for the proposal and that it was “highly unlikely” not to be approved. I am satisfied that Mr Peter Falls took from those statements the belief that it was safe to proceed on the basis that NSWAg would approve the proposal when made in official form supported by a valuation.

126    Fifth, the risk of infecting the Plaintiff’s herds agisted at Oaklands, Geelong and Albury with BJD by intermingling them with the Malton herd was obvious. There is no sensible reason for the Plaintiff to have thrown caution to the winds by intermingling all herds at Malton to be valued by Mr Leslie other than that it relied on the impression conveyed by Dr Salmon that it was safe to proceed on the basis that NSWAg would approve a formal application for depopulation supported by Mr Leslie’s valuation.

127    For these reasons, I am satisfied that the Plaintiff relied upon the representations of Dr Salmon on 28 August in intermingling all of its agisted herds with the herd at Malton and in taking the other consequential measures to which I will refer later. Accordingly, I am satisfied that any damage which has been occasioned to the Plaintiff thereby has been suffered “by” conduct of NSWAg which was misleading, entitling the Plaintiff to damages under s.68(1) FTA.

Negligence
128    The Plaintiff alleges that Dr Salmon and NSWAg were aware that the Plaintiff was relying on the advice of Dr Salmon “as to the need for depopulation of the Plaintiff’s cattle” whereby each of them owed a duty to the Plaintiff not to give such advice carelessly or incorrectly: Amended Statement of Claim paras.18 and 19.

129 The Amended Statement of Claim then alleges that Dr Salmon, on behalf of NSWAg, negligently and in breach of his and its duty of care, made representations to the Plaintiff in the terms pleaded in relation to the FTA claim: see para.73 above, Amended Statement of Claim para.20. The Plaintiff alleges that NSWAg was, therefore, vicariously liable for the negligence of Dr Salmon.

130 It is fair to say that both parties paid very little attention to this part of the case. They were focussed upon the Plaintiff’s claim in contract and the claim under FTA. The Plaintiff’s submissions on its case in negligence were perfunctory and the Defendant’s submissions in response were even more so. This, I suppose, was understandable: if the Plaintiff succeeded in its FTA claim it did not need to succeed on its claim in negligence, the measure of damages being the same under both claims.

131 As the Plaintiff’s claim under FTA succeeds it is, likewise, unnecessary for me to deal at length with its claim in negligence. However, in case the matter goes further, I should indicate briefly the conclusions to which I have come.

132    The evidence shows that Dr Salmon fully appreciated that the Plaintiff would be relying on what he told the Messrs Falls about NSWAg’s attitude to the Plaintiff’s depopulation proposal. When he volunteered to Mr Peter Falls on 28 August information as to NSWAg’s attitude to the Plaintiff’s depopulation proposal, he was doing so as agent of NSWAg. NSWAg, through Dr Salmon, was thereby engaged in providing information and advice to the Plaintiff upon which NSWAg knew, through Dr Salmon, the Plaintiff would rely. It was important information upon a matter of considerable financial consequence to the Plaintiff. It was foreseeable that the Plaintiff was likely to suffer serious financial harm if it acted upon the basis of that information and the information turned out to be wrong or misleading. It would not have impaired the interests of NSWAg to have instructed its field officers dealing with whole herd depopulation applications in August and September 1992, especially Dr Salmon, that they should make no statement at all as to the likelihood of approval of such proposals until formal applications had been dealt with and formal decisions had actually been made by the Department. NSWAg need not have revealed the underlying reason for that instruction, namely, that the depopulation policy was in doubt and was under review. The foreseeable damage to the Plaintiff’s interest flowing from an uninformed statement by Dr Salmon as to the prospects of its depopulation proposal was, therefore, within the control of NSWAg. All of these circumstances combine to make it appropriate that a duty of care be imposed upon NSWAg: Perre v Apand Pty Ltd (1999) 198 CLR 180.

133    NSWAg was aware of the Plaintiff’s depopulation proposal as from 21 August when it received Dr Salmon’s facsimile. It received the Plaintiff’s formal application on 31 August, or on 2 September at the latest. NSWAg did not immediately, or at any time prior to 29 September, instruct Dr Salmon to make no statement at all to the Plaintiff in relation to the prospects of its depopulation proposal before a formal decision had been made by the Department. In failing to give such instruction, NSWAg breached its duty of care to the Plaintiff and is liable in damages to the Plaintiff for the consequences of that breach.

134    In the circumstances as I have found them, Dr Salmon also had a duty of care to the Plaintiff. However, I am unable to find that Dr Salmon acted negligently in what he told Mr Peter Falls on 28 August 1992. He was not careless in advising Mr Falls as he did. He had spoken to Mr Roe on 15 July about the Plaintiff’s proposal and Mr Roe had said that he would support it. He had written to Head Office on 21 August, giving an outline of the Plaintiff’s proposal and clearly indicating that compensation to the Plaintiff would be substantial if the proposal were accepted. He had spoken to Mr Roe on 28 August and had been told that Dr Scott-Orr was not “fazed” by the proposal but that it should be in official form.

135    In those circumstances, Dr Salmon was reasonably justified in concluding that there was “strong support” for the proposal at Head Office and that the Plaintiff’s formal application was highly unlikely to be rejected.

136    Dr Salmon was not to know that there were, or ought to have been, concerns in NSWAg at that time that the Cattle Compensation Fund might not be sufficient to meet herd depopulation claims and that the Department’s policy and procedure expressed in Circular 90/50 might soon be changed. The evidence suggests that those concerns in NSWAg were deliberately kept from officers in the field, such as Dr Salmon.

137    Accordingly, on 28 August Dr Salmon passed on to the Plaintiff what, on reasonable grounds, he believed was NSWAg’s attitude to the Plaintiff’s proposal. There was no other enquiry which he could have made of his superiors in NSWAg at the time which would have revealed to him any cause to doubt what he had been told by Mr Roe.

138    For those reasons, I conclude that Dr Salmon was not negligent in making the statements to Mr Peter Falls which he did on 28 August 1992.

Damages
139    There is no issue between the parties that the measure of damages to which the Plaintiff is entitled for loss caused by the misleading conduct of NSWAg is represented by the difference between what would have been the Plaintiff’s position had the conduct not occurred and what is its position as a result of having acted in reliance on that conduct: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.

140    In order to understand how the Plaintiff calculates its loss, it is necessary to appreciate that the Plaintiff’s cattle business essentially consisted of the sale of stud bulls for breeding purposes. The stud cows in the herd were mainly used to breed bulls for sale and, at the end of their breeding lives, they were sold for slaughter. In addition, a number of commercial cattle were raised and sold for slaughter. Sales of stud cows and commercial cattle for slaughter represented a comparatively minor part of the Plaintiff’s income.

141    The Plaintiff says that had NSWAg, through Dr Salmon, not made the misleading representation that the Plaintiff’s depopulation proposal was highly likely to be approved, then it would not have suffered loss under a number of different headings.

142    First, the Plaintiff says that its herds agisted on properties other than Malton would not have been transported to Malton and exposed thereby to BJD infection. The consequence of that exposure was that all bulls in the agisted herds lost their value as stud bulls and all stud cows in the agisted herds could no longer be used for breeding stud bulls. The ability of the Plaintiff to sell stud bulls was thereby detrimentally affected for a period of years and the Plaintiff lost profits it would otherwise have derived from stud bull sales.

143    Second, by reason of the loss of sales of stud bulls over a period of years the Plaintiff suffered loss of goodwill in its business.

144    Third, the Plaintiff would not have incurred the labour costs of transporting the agisted herds to Malton and the costs of organising cattle to be sold to abattoirs as commercial cattle.

145    I should note that the Plaintiff no longer presses a claim based upon an alleged negligent diagnosis by NSWAg of BJD in a valuable bull called Exide.

Loss of profits from cattle sales
146    The quantification of the Plaintiff’s losses is sought to be proved by the expert report of Mr Favaloro, who has been the Plaintiff’s accountant for some time. No attack was made on Mr Favaloro’s credit or his expertise. The conclusions which he reached were, in many respects, disputed by NSWAg’s expert, Mr Ivey.

147    There is no dispute that the Plaintiff’s sale of stud bulls dropped dramatically after 1992 and for a number of years thereafter continued at levels below those which had been experienced before 1992.

148    As I have found, the Plaintiff transported its agisted herds to Malton and exposed them to BJD infection in reliance upon Dr Salmon’s representation that the Plaintiff’s depopulation proposal was highly likely to be approved. If that representation had not been made and the Plaintiff’s formal written application for depopulation with compensation had been rejected in due course, the consequence would have been that the Plaintiff’s agisted herds would have remained on the agisted properties. There is no evidence that any of the herds on the agisted properties was infected with BJD. The stud cattle in those herds would, therefore, have retained their status as such.

149    After the diagnosis of BJD in the herd on Malton , the status of all stud cattle in that herd was seriously compromised. I accept the evidence of Dr Sykes, the Plaintiff’s expert, that after the BJD diagnosis the herd on Malton would be viewed with suspicion by stud bull buyers. Sales would be difficult.

150    However, if the agisted herds had been kept isolated from the herd at Malton the Plaintiff may well have been able to maintain a stock of stud breeding cattle sufficient to produce annual bull sales equal, or nearly equal, to those experienced prior to 1992. No doubt the diagnosis of BJD in the herd at Malton would have been a blow to the Plaintiff’s stud breeding programme, but it would not have been as disastrous as what occurred by the intermingling of all herds.

151    Mr Ron Falls has given evidence that if he had not believed that all of the Plaintiff’s herds were to be depopulated he would have arranged only for cattle which had tested BJD-positive to be slaughtered, together with their progeny. Other cattle, such as those agisted on other properties, would not have been slaughtered. He says, further, that as a result of the proposed depopulation the bulls were removed from the cows, and the heifers due for mating were left unjoined. This was done because all cattle were to be slaughtered as commercial cattle and pregnant cattle are not suitable for sale to the fat market. As a result, Mr Falls says, the female cattle were “empty” for up to six months and the calves that would have been born in the autumn were delayed until the following spring. The whole herd was thus out of cycle. The Plaintiff lost the breeding and genetics from the young cows and heifers which were to be slaughtered. It was too risky to attempt to breed from these cattle since there was a possibility that they were diseased. As a result, two generations of breeding and genetics were lost. I accept that evidence. Mr Falls has a lifetime experience in the breeding of stud cattle. His evidence is inherently probable.

152    Mr Favaloro’s report shows that registered stud bull sales averaged 25 bulls per year in the three year period prior to 1992. The average sale price was $2,000 per head. From 1992 until 1997 average sales dropped to 5 bulls per year. Thereafter, sales recovered appreciably.

153    It is a reasonable conclusion that the fall in stud bull sales for the five year period from 1992 is the direct result of the interruption to the Plaintiff’s stud breeding programme occasioned by the intermingling of the agisted herds, coupled with the loss of two generations of stud breeding, which would not have occurred but for the Plaintiff’s belief that all cattle were to be slaughtered. Mr Favaloro has calculated the loss thereby occasioned to the Plaintiff as follows

5 years x 20 bulls per year = 100 bulls at $2,000 per head =	$200,000
Less notional proceeds of sale of the bulls as commercial cattle at an average price of $495.19 per head =	$ 49,519
Loss	$ 150,481

154    In my opinion, this is a reasonable and appropriate calculation of the Plaintiff’s loss under this heading.

Capitalisation of business loss
155    Mr Favaloro has assessed a further loss to the Plaintiff’s business which, he says, reflects a diminution in the value of the business occasioned by the loss of income from sales of stud bulls which the Plaintiff would have made but for the wrongful conduct of NSWAg. He says, on the basis of the figures which I have accepted above, that the Plaintiff’s business suffered an income loss of $30,096.20 per annum for the period of five years from 1992 until 1997. The value of a business producing that annual income would be assessed by applying a multiple of twenty to the income, so that the income would reflect a 5% per annum return on the value of the business. Applying this formula, Mr Favaloro arrives at a sum of $601,924 which, he says, reflects the lost value in the Plaintiff’s business.

156    Mr Ivey does not accept this approach. He says that capitalisation of business loss, in effect, measures the value of the lost goodwill of a business. In the present case, he says, the goodwill of the Plaintiff’s business can be quantified in terms of the expected profits from the sales of stud cattle from the period 1992 to 1997. Loss to the Plaintiff’s goodwill has already been compensated if the Plaintiff is given damages under the loss of profits heading which Mr Favaloro has already calculated. To give additional damages would be “double counting”, according to Mr Ivey.

157    In this division of opinion I must ask myself: where would the Plaintiff be today but for the wrongful conduct of NSWAg? I must answer that question by taking into account the facts as known, including those which have occurred since 1992, by applying commonsense and, as well, by engaging in not inconsiderable guesswork. Imperfect and imprecise as it is, that is the only way in which an exercise of this nature can be performed, as the Courts have often observed: see e.g. Jones v Schiffman (1971) 124 CLR 303, at 308, where Menzies J said that the assessment of damages “does sometimes of necessity involve what is guesswork rather than estimation” ; see also The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, at 83. Guesswork does not, however, license the unwarranted exercise of imagination. A Court must not, under the guise of compensation, award plaintiffs castles of marble where, if no wrong had been suffered, they would probably have had but castles in the air.

158    Mr Ivey’s contention that the goodwill of the Plaintiff’s business is represented by the expected profits of sale of stud cattle during the period 1992 to 1997 involves the assertion that the value of the Plaintiff’s stud cattle business as a profit-making enterprise was simply the value of its stock-in-trade during that period, namely, its saleable stud cattle. I do not think that this is correct.

159    It is clear from the evidence that by September 1992 the Plaintiff had a very high reputation in the Australian stud cattle industry. It had been a consistent prize exhibitor at the Sydney Royal Easter Show and at the Melbourne Royal Show for many years.

160    Mr Falls gave evidence that prior to 1992 the number of the Plaintiff’s registered stud cattle had been increasing as the company sought to build up its stud. By September 1992 the Plaintiff had more than 880 registered stud cattle. The majority of the Plaintiff’s stud cattle were sold through direct approaches from prospective buyers.

161    After the intermingling of the agisted herds with the Malton herd in September 1992, the Messrs Falls decided that it would be unfair to prospective purchasers to sell any of the stud cattle from the intermingled herd, because all such cattle had been exposed to the risk of BJD infection. Understandably, the Messrs Falls did not want to risk damage to the Plaintiff’s reputation in the stud cattle industry by selling stud cattle which could later break down with the disease.

162    From September 1992 onwards Mr Ron Falls regularly received enquiries for the sale of registered stud cattle, particularly bulls. The Plaintiff had retained an élite herd of stud cattle, keeping them isolated from the main herd which had been exposed to BJD infection, but the Plaintiff could not sell any of the élite herd because they were to be used to rebuild the stud. Mr Falls had to tell prospective purchasers simply that the Plaintiff had no bulls available. After some time, Mr Falls observed that enquiries from prospective purchasers tailed away. The Plaintiff’s sales records confirm this trend.

163    As at 21 August 2000 the Plaintiff had rebuilt its stud herd up to 383 registered stud cattle, compared with more than 880 as at September 1992.

164    It is clear from this evidence that the growth, development and profit-earning capacity of the Plaintiff’s stud cattle business received a severe setback from the intermingling of the Plaintiff’s herds in September 1992. The effect of the setback is probably not yet overcome. Had it not been for the intermingling of the Plaintiff’s herds in September 1992, the Plaintiff would very probably have continued to build up and develop its stud cattle business. Certainly, it would have had to contend with the fact that the herd pastured at Malton had all been exposed to the risk of BJD, as had been revealed by Dr Salmon’s blood tests, but there was no evidence or indication that the herds agisted elsewhere had been infected or were at risk of infection. The Plaintiff could have used the agisted herds to rebuild its total herd to full strength without missing any generation gaps in breeding; the build up in the herd would be much more rapid than the Plaintiff has in fact been able to achieve. Further, the Plaintiff could have maintained stud cattle sales in the meantime at a higher rate than it has, in fact, been able to do. It would not have had to turn away so many prospective purchasers, who may well have been lost to the Plaintiff for a considerable time, if not permanently.

165    In short, but for the intermingling of the Plaintiff’s herds, it is highly probable that the setback to the growth, development and profitability of the Plaintiff’s stud cattle business as a whole from 1992 to 1997 occasioned by the diagnosis of BJD at Malton would not have been nearly as severe as it has been. It is highly probable that the Plaintiff would today have had a larger, more successful and more profitable stud cattle business than it has.

166    All of these considerations lead to the conclusion that the goodwill and profitability of the Plaintiff’s business have suffered a considerable diminution which requires compensation in addition to restoration to the Plaintiff of the profits lost from sales of stud cattle during the period 1992 to 1997.

167    In my opinion, the appropriate and fair method of compensating the Plaintiff for the diminution in its goodwill and profitability is – as Mr Favaloro has done – to apply a certain capitalisation rate to the Plaintiff’s lost annual income for the period 1992 to 1997. However, I do not accept Mr Favaloro’s capitalisation rate of 5%. Mr Ivey’s evidence was that that is a high rate to apply to a rural business. Taking into account that observation and allowing a discount for the vicissitudes of rural businesses and of the economy generally, I think that the appropriate rate to apply is reflected by a multiplier of 15, rather than Mr Favaloro’s multiplier of 20, which gives a capitalisation of the lost value of the stud cattle business of slightly more than $450,000.

168    Accordingly, I will allow the Plaintiff the sum of $450,000 as compensation for loss to the value of its business.

Wasted labour costs
169    Mr Peter Falls has given evidence that he and his father spent ten days working fifteen hours a day to transport the Plaintiff’s agisted herds to Malton and to prepare them all for valuation. He says that they spent a further eight days in late September working twelve hours per day, to prepare the cattle for slaughter. This work would not have been done but for NSWAg’s wrongful conduct. That evidence has not been seriously challenged.

170    Under this head of damage, Mr Favaloro has allowed 500 hours of work at $15 per hour, a total of $7,500. I consider this to be a reasonable sum.

Interest
171    Mr Favaloro has calculated simple interest at the rate of 12% per annum from 1 December 1992 to 30 June 1997 on the amounts which he has allowed for lost profits on sales and wasted labour costs. He has apparently made a deduction in respect of income tax on the profits from lost sales.

172 In my opinion, interest under s.94 of the Supreme Court Act, 1970 , calculated at Supreme Court rates, should be paid on the amount to be awarded for wasted labour costs from 1 January 1993 until the date of judgment. Interest at the same rates should be paid on the sum awarded for loss of profits on sales, calculated progressively and cumulatively as at and from 30 June 1993 and on 30 June of each year thereafter until and including 30 June 1997. This calculation is to reflect interest on profits lost as at the end of each financial year and the cumulative effect of those losses during the five year period. This calculation should not be taken as indicating that interest should be compounded. The appropriate deductions should be made for tax.

Orders
173    The orders I propose to make are as follows:
(1) Judgment for the Plaintiff against the First Defendant in the sum of $607,981.

(2) The First Defendant is to pay interest on that part of the judgment debt referred to in paragraph 171 up to the date of judgment calculated in the manner set out in these reasons.

(3) The Plaintiff’s claims against the Second and Third Defendants are dismissed.

(4) The First Defendant is to pay the Plaintiff’s costs of these proceedings.

174    I will stand the matter over for a short time to enable the parties to bring in Short Minutes of Order reflecting these reasons for judgment and for argument, if necessary, as to the costs of the Second and Third Defendant.

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Last Modified: 11/16/2001