Seas Sapfor Forests Pty Ltd v Electricity Trust of South Australia No. SCGRG 89/263 Judgment No. 5718 Number of Pages 26 Negligence

[1996] SASC 5718

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA DOYLE CJ, BOLLEN AND NYLAND JJ

CWDS
Negligence - essentials of action for negligence - duty of care - proximity - pure economic loss - damage done to trees by fire - pecuniary loss to log processors - no duty of care owed in terms pleaded - possible duty of care on narrower basis. Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529; Bryan v Maloney (1995) 182 CLR 609; Ultramares Corporation v Touche
(1931) 174 NE 441; San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340, applied. French Knit Sales Pty Ltd v N Gold and Sons Pty Ltd (1972) 2 NSWLR 132, not followed. Morrison Steampship Co Ltd v Greystoke Castle (Cargo Owners) (1947) AC 265; Candlewood Navigation Corporation Ltd v Mitsui OSK Liner Ltd (1986) AC 1, discussed.

HRNG ADELAIDE, 11 July 1996 #DATE 9:8:1996

Counsel for appellants:     Mr A Besanko QC with him Mr I Robertson

Solicitors for appellants:    Piper Alderman

Counsel for respondent:     Mr D Quick QC with him Mr R White

Solicitors for respondent:    Mouldens

ORDER
Appeal dismissed.

JUDGE1 DOYLE CJ
1. An application was made to amend proceedings to join two further plaintiffs. The proposed new fourth plaintiff "P4") is Austpine Ltd. The proposed new fifth plaintiff is SEAS Export International Pty Ltd ("P5"). The Master who heard the application refused the application, on the basis that P4 and P5 were not owed any duty of care by the defendant, and that their claims were therefore untenable. The proposed fourth and fifth plaintiffs appeal to this court.

2. There are other issues that arise on this application. If this appeal succeeds, they still have to be resolved.

The Background to the Application 3. The application to join P4 and P5 was made in proceedings between the existing plaintiffs and the Electricity Trust of South Australia ("ETSA") arising out of a bushfire which took place in February 1983.

4. The existing plaintiffs are as follows: Seas Sapfor Forests Pty Ltd (the "forest company" or "P1"); IOOF Australia Trustees Ltd (the "trustee", or "P2"); and Seas Sapfor Harvesting Pty Ltd (the "milling company", or "P3"). All three allege loss arising from the bushfire. They claim damages from ETSA, relying upon various causes of action in tort. The main basis of the claim is that pine forests owned by the forest company P1 were damaged in the bushfire.

5. These three plaintiffs are inter-related to a certain extent in terms of activities and share holdings. The following is a brief sketch of the history of that inter-relationship as pleaded by the plaintiffs.

6. It is pleaded that P1 owned certain land upon which it grew timber (Statement of Claim ("SC"), para 4). P1 had, over the years, financed its operations by inviting the public to purchase bonds or "covenants" (SC para 6). To protect the rights of the holders of these covenants, P1 entered into a deed with a trustee for the covenant holders in 1934 (SC para 6.2). In 1964, another trust deed was executed (SC para 6F) It is pursuant to that deed that P2 sues as trustee for the covenant holders.

7. In 1935 an agreement was entered into between the trustees for the covenant holders (the forerunner of P2), the forest company P1, and a Mr Colville for and on behalf of a new company to be formed (SC para 7). That company was to become P3, and upon incorporation adopted the obligations undertaken on behalf of it by Mr Colville. The tripartite agreement created a certain structure of activities between P1, P2 and P3. This was superseded by a further tripartite agreement in 1964 (SC para 7K).

8. The structure of ownership and activity for some time before and at the time of the bushfire was, according to the pleadings, as follows.

9. The forest company P1 had planted timber and was to tend, maintain and supervise that timber (SC para 9.1). It was under an obligation to investigate measures to secure reasonable financial returns (SC para 9.2). P3 owned and operated a mill nearby (SC para 9.4 and para 9.5). It sold the timber on behalf of P1 or milled it (SC para 9.6). We were told that the plea was, in this regard, intended to imply that P3 did not purchase the timber from P1, but rather sold or milled the timber as its servant or agent. It is pleaded that P3 was responsible for the supervision, harvesting and hauling of the timber (SC para 9.7).

10. The trustee P2 was bound under the tripartite agreement to permit and authorise P1 to make the timber available to P3 (SC para 9.8). Under the tripartite agreement, P3 had the sole and exclusive right to mill the forest timber (SC para 9.9). P3 covenanted not to sell any forest timber other than that planted by or acquired from P1(SC para 9.10).

11. To summarise, the position at the time of the bushfire was as follows. The forest company P1 owned land upon which it grew pine forests for commercial purposes. It used funds provided by covenant holders for whom P2 was trustee. There was a tripartite agreement under which P3 was to fell the pine forests and sell the timber in log form or mill the timber at its mill and sell the timber products thereby created. This was done by P3 on behalf of the forest company, and P3 did not acquire ownership of the timber or timber products. From the proceeds of the sale of the timber, P3 was to recoup its expenses, receive an amount for depreciation and receive 12% (by the time of the fire) upon capital paid up and then pay the balance to the forest company P1. The forest company P1 would deduct 5% from the balance paid to it and pay the net balance to the trustee P2.

12. It was further pleaded that P1, P2 and P3 were, at the time of the bushfire, negotiating changes to the existing arrangements for the sale or milling of the forest timber grown by P1, so that "the company conducting the milling operation would have the facility and incentive to increase its capital expenditure and investment in the Mill, and whereby better returns might be secured for the Covenant Holders (SC para 9.11). It was also pleaded that the changes designed to achieve these objectives were agreed to be necessary (SC para 9.12).

13. It was also pleaded that the major shareholder of the forest company P1 was Cowells Ltd, and that the majority shareholders of the milling company, P3, were Cowells Ltd and P1 (SC para 9.3).

14. After the bushfire, in October 1983, the arrangements changed.

15. The proposed fourth plaintiff, P4, took over the milling operations of P3 (SC para 9B.2). It did not, however, purchase the mill, which remained in the ownership of P3. It is pleaded that P4 purchased the timber from P1 (through the medium of P3 as agent for P1) and then on-sold it to customers, presumably in milled form (SC para 9B.3). The function of P3 therefore was reduced to selling-on to P4, and the supervision and harvesting of timber. P4 assumed the responsibility for the haulage of the felled timber (SC para 9B.6).

16. P4 was incorporated on 22 February 1983, a few days after the bushfire. P4 had as its majority shareholder Cowells Ltd.

17. In 1985, P1 acquired the entire share holding in P3 (SC para 9C).

18. In August 1988 P5 acquired all of the issued share capital of P1 and of P4 (SC para 9D.1). P5 took over the operation of the mill from P4 and has conducted the milling operations to the present day (SC para 9D.2). P5 commenced purchasing timber produced by P1 through P3 at prices fixed in accordance with the tripartite agreement (SC para 9D.3).

19. P3 remained responsible for the supervision of the harvesting of the timber. P5 assumed responsibility for the haulage of the timber.

20. I now pause to attempt to summarise the situation as it was at the stage of the bushfire, as it was from October 1983 and as it was from August 1988.

21. At each of these three stages P1 was the owner of land upon which timber was grown for commercial production. At all times P1 had commercial arrangements for the harvesting, haulage and selling of the timber which it grew. The arrangements were, although the functions performed varied a little, successively with P3, P4 from October 1983 and P5 from August 1988. At each stage P3 sold the timber on behalf of P1, initially to the market (I assume) and then successively to P4 and P5 who, I assume, sold the timber to the market. P1 was bound to allow P3 to handle all of its timber, and P3 was bound not to handle any other timber without the consent of P1 and P2. I assume (it does not seem to be pleaded) that these ties continued when P4 and then P5 were involved. At all three stages the prices at which timber was purchased from P1, and the division of the proceeds of sale between P2 as financier, P1 as grower and successively P3, P4 and P5 as ultimate sellers was regulated by an overall agreement. Throughout all of this time P2 remained the financier of P1.

22. So it can be seen that at each stage there was a kind of joint venture, P1 being the producer, P2 its financier and successively (in broad terms) P3, P4 and P5 performing the roles of ultimate sellers and millers of the timber. P3 remained as a kind of middleman when P4 and P5 became the millers and ultimate sellers. At each stage the parties were tied to each other and had fixed revenue sharing arrangements.

23. A further link can be found in the fact that at each stage the control of the companies involved (other than P2) was linked through the respective shareholdings.

24. To put things even more briefly, at the risk of some over simplification, at each stage there was a form of joint venture in the milling and sale of timber grown by P1, with a sharing of returns from the sale of the timber, the companies involved being linked through their ownership structure.

25. For what it is worth I add that at the time of the fire P4 was not incorporated, but P5 was incorporated. However, at the time of the fire neither P4 or P5 had any involvement in any joint venture involving timber grown by P1. The involvement of P4 and P5 came, in each case, some time after the bushfire.

26. It is pleaded that the bushfire which broke out in 1983 was caused by negligence of the defendant. The defendant had in 1967 designed and constructed an electricity line consisting of a single wire running across land some 30 kilometers from the forests owned by P1. The wire was positioned on poles. The defendant had owned and operated that line since 1967.

27. P1, P2 and P3 have all pleaded damage arising from this negligence. The particulars of the damage are extensive and have been annexed to the statement of claim in separate volumes. Essentially the heads of damage for the various plaintiffs were: wages lost when the mill was closed due to fire damage (P3, SC para 17.5); costs of fire suppression around the plantations (P1, SC para 17.6); fencing costs (P1, SC para 17.8); value of timber destroyed or scarred by the fire (P1 and possibly P2, SC para 17.11 and para 17.12); costs of clearing damaged and destroyed plantation areas (P1, SC para 17.14); costs of rehabilitating burnt planting areas (P1, SC para 17.15); the cost of replanting the burnt areas (P1, SC para 17.16); the loss of revenue due to the non-use of the land (P1, SC para 17.17); and damages for loss of harvesting revenue from 1983 to 2015 (P3, SC para 17.18). It is worth noting that the claim by P1 for the value of timber appears to take into account the value of that timber for sale, unprocessed, rather than its value as processed logs (ExpertsÕ Report, para 2.3.3).

28. Under the proposed amendments, the P5 would claim damages ($9,312,040.00) for loss of future profits (SC para17.21). This loss arose from the loss of timber for milling, which entailed both loss of profits directly and through the extra expense of acquiring timber from other sources.

29. The loss alleged to be suffered by P5, by way of future loss of profits, is pleaded as follows. It is said that by reason of the destruction or damage of the timber grown by P1, there was an immediate and continuing reduction in the volume of wood available from the forests of P1. I take it that this pleading is to be read on the basis that, pursuant to the joint venture arrangements, P5 is entitled to and obliged to mill and sell the timber of P1, and that for this reason the value of its entitlement is reduced. In that context it is claimed that P5 will incur additional costs in obtaining alternative log supplies. As I understand the pleading P5 is to be regarded, in broad terms, as if it had stepped into the shoes of P3. It is now to be regarded as an entity which has commitments and rights in relation to the milling and selling of the timber produced by P1, and it is claiming that the damage to the timber of P1 means that those commitments and rights will be less profitable than they otherwise would have been.

30. The claim by P4 is expressed to be in the alternative to this claim by P5. The claim is for precisely the same monetary amount. It is said that this loss was suffered upon the commencement by P4 of milling operations in October 1983. I assume, once again, that the intent of the pleading is that P4 be seen as a kind of substitute for P3, in much the same way as I have said P5 is to be seen as a substitute.

31. Then, it is pleaded that P1 or P3 claim the same monetary amount on the basis that as at the date of the bushfire either P1 as the owner of timber or P3 as the milling company had the opportunity to make the profits for the loss of which the claim is now made.

32. Then there is a further claim by P4 and P5. This is a claim for compensation for the additional cost of bringing logs to the mill from more distant plantations from 1983 to 2015. As to this claim, P4 claims for the period from October 1983 to August 1988 and P5 for the period from August 1988 through to 2015. Once again, I gather that this claim is made on the basis that P4 and then P5 are to be seen as standing in the shoes of P3, and as needing to bring in extra logs for milling to make their operations profitable.

33. It therefore seems to me, at the risk of some over simplification, that P4 and P5 are claiming damages on the basis that they are to be treated as standing in the shoes of P3 and as suffering the loss which P3 would have suffered had it remained in the same relationship with P1 as it was at the time of the fire.

34. If I am right in thinking this then the case is one in which the relevant loss is at all times the anticipated loss of profits from the milling and sale of the timber grown by P1. The arrangements at the time of the fire were such that that loss would fall on P1 and P3 and ultimately, I assume, on P2. Subsequent variations have meant that any or most of the loss which would have fallen on P3 has fallen and will fall successively on P4 and then P5. At this stage I ignore the issue of the impact of the pleaded improved arrangements which led to the first change in October 1983.

35. I note further that the pleadings appear to be silent on the issue of the basis upon which P4 and P5 took over all or part of the role of P3. In a normal arms length arrangement one would have expected P4 and then P5 to enter into arrangements with P1, P2 and P3 on terms which reflected the impact of the damage done by the bushfire. One would be inclined to say that their failure to do so, if it gave rise to a loss, could not be laid at the door of the defendant. In the present case the parties are not at arms length, and although it is not, to my mind, pleaded clearly I proceed on the basis that P4 and P5 have entered into arrangements involving P1, P2 and P3 on a basis that ignores (I cannot think of a better expression) the fact that the timber holdings of P1 were at the relevant time worth substantially less than they were before the bushfire.

36. I have elaborated on these matters, at perhaps unnecessary length, in an attempt to bring out the fact that at the time of the fire the impact of the damage done to the timber holdings of the forest company P1 would be spread across P1, P2 and P3 because of their existing arrangements. The variations in those arrangements are claimed to have resulted in the shifting of some of that loss to P4 and then to P5, although, as I have already remarked, it is not clearly pleaded that P4 and P5 went into the arrangements on the basis that would have that result, because it is not pleaded that they went in on terms which ignored the damage done to the timber of P1.

37. The proposed amendments relate to causes of action in tort for the recovery of pure economic loss. Neither P4 nor P5 were involved in the bushfire events of early 1983, or had property there; P4 did not even exist at the time. However, their losses are said to arise because they took over certain business activities of the other plaintiffs and thereby have suffered financial loss which continues to accrue. In fact, it is said that the most significant part of the loss has been the financial loss in the operation of the mill. It was, apparently, only recently that the shortage of timber due to the 1983 fire began to create significant losses; those losses have been calculated (and claimed) up to 2015.

38. Therefore, although P1, P2 and P3 were the entities that were involved in the events of 1983, the most significant financial effects of the fires have been upon P4 or P5, the companies which took over the milling and sale (to the market) of timber after the fire.

39. The Master dealt with the matter in the following passage (reasons p2):
    "The causes of action of the plaintiffs and the proposed defendants
    are based in negligence. It follows, therefore, that the defendant
    at the time of the tortious act must have owed a duty of care to
    the plaintiffs, or people of the class to which the plaintiffs
    belong. (Counsel for the plaintiffs) argued that the class of
    people to whom the proposed fourth and fifth plaintiffs belonged
    were owners of the mill, which, at the time, was owned and operated
    by the third plaintiff, but subsequently owned and operated by the
    fourth and fifth plaintiffs. The defendant did not know and could
    not have known of the proposed fourth and fifth plaintiffs'
    interests. They did not, therefore, owe them a duty of care. The
    involvement of the fourth and fifth plaintiffs resulted from
    commercial decisions made subsequent to the bushfire. Any
    arrangement entered into must have been with the full knowledge and
    appreciation of the events of the bushfire."

40. It is worth pausing to correct one matter in the statement of facts by His Honour, namely that the ownership of the mill was at all times retained by P3.

41. The Master concluded that the claims of P4 and P5 were "untenable".

Arguments on Appeal 42. Before this Court, counsel for P4 and P5 acknowledged that liability required both reasonable foreseeability of the damage caused and a proximate relationship between the defendant's action and the losses suffered by P4 and P5. Counsel stressed the incremental and analogical character of an enquiry as to the existence of a relationship of proximity, referring to the cases of Caltex Oil (Aust) Pty Ltd v The Dredge "Willemstad" ("the Caltex Case") (1976) 136 CLR 529 at 555 Gibbs J, 575 Stephen J; Canadian National Railway v Norsk Pacific Steamship Co
(1992) 91 DLR (4th) 289 at 367 McLachlin J, and Bryan v Maloney (1995) 182 CLR 609 at 661 Toohey J, among others.

43. The argument of counsel for P4 and P5 was directed to establishing the existence of a duty of care owed in relation to economic loss not just to P1 and P3, but to future purchasers or operators of their business.

44. The argument before us proceeded on several different bases.

45. First, there are the cases which deal with relational economic loss, that is, economic loss suffered in consequence of damage to the property of another. In the present case, the argument is that the destruction of the trees led to economic loss in P4 and P5.

46. Secondly, there are related cases which might be termed "co-venturer loss", where economic loss flows as a result of injury done to a person who was a co- venturer in some project. It was argued that these cases lend support to an argument that P4 and P5, by reason of their connected ownership and activities in relation to P1, P2 and P3, are brought into a relationship of proximity with the defendant. This argument assumes that a relationship of proximity exists between the defendant and P1, P2 or P3. It also appears to be merely a variant on (or perhaps more accurately, an established category of) the first basis. It is convenient therefore to treat the first two bases together.

47. Thirdly, reference was made to Bryan v Maloney (supra) in relation to an argument that a duty owed to a person in relation to economic loss might lead to a duty to a third party purchasing from that person.

48. Counsel for the defendant disputed the existence of a relationship of proximity, and also the reasonable foreseeability of the loss caused to P4 and P5.

49. Other points were also raised. Counsel for the defendant submitted that, properly understood, the Master had also found in favour of the defendant on the issue of causation, namely, that there had been a break in the chain of causation between the breach of duty and the loss. This was because P4 and P5 were said to have gone into the situation aware of the consequences of the fire, and seeking a commercial opportunity. The point was also raised as to the possibility of the defendant owing a duty of care to P4, that company not yet being in existence at the time of the fire.

50. It is convenient to deal first with the issue of proximity on the basis of the three arguments outlined above.

Proximity 51. I begin by referring to the leading judgments in the Caltex Case.

52. The facts of the case are well known. A dredge fractured a pipeline owned by a refinery and used by Caltex, the owner of a terminal at one end of the pipeline. Caltex was able to recover for its purely economic loss caused by the damage to the pipeline. A number of different reasons were given for allowing the recovery of this relational loss.

53. Gibbs J reaffirmed the traditional distinction between damages for pecuniary loss and those for material or physical loss (at 555). However, His Honour noted that the case law indicated that the recovery of relational loss was not excluded on the authorities; first, "the course of authority before Hedley Byrne and Co Ltd v Heller and Partners Ltd (1964) AC 465 was not entirely uniform" (547); and secondly, the effect of the law since Hedley Byrne was to allow recovery in exceptional cases (at 555). He went on to say (at 555):
    "In my opinion, it is still right to say that as a general rule
    damages are not recoverable for economic loss which is not
    consequential upon injury to the plaintiff's person or property.
    That fact that the loss was foreseeable is not enough to make it
    recoverable. However, there are exceptional cases in which the
    defendant had knowledge or means of knowledge that the plaintiff
    individually, and not merely as a member of an unascertained class,
    will be likely to suffer economic loss as a consequence of his
    negligence, and owes the plaintiff a duty to take care not to cause
    him such damage by his negligent act. ... It will be material, but
    not in my opinion sufficient, that some property of the plaintiff
    was in physical proximity to the damaged property, or that the
    plaintiff, and the person whose property was injured, were engaged
    in a common adventure."

54. Stephen J noted the need for a "control mechanism" to ensure proximity between the tortious act and the resulting economic loss (574). His Honour noted that community perceptions as to culpability and also policy values would have a role to play in determining the question of proximity in each case (574 and 575). Stephen J enumerated a list of features of the case before him which led him to the conclusion that proximity existed in that case (576). These features included that "the defendant's knowledge that the property damaged ... was of a kind inherently likely, when damaged, to be productive of consequential economic loss to those who rely directly upon its use" (576); and "the defendant's knowledge or means of knowledge" of certain facts leading to "a quite obvious inference" that the pipeline was used in a certain way, that is, by the plaintiff (576). These two factors led to the conclusion that the plaintiff was "within the reasonable contemplation of the defendant as a person likely to suffer economic loss if the pipelines were cut" (577). Further features were the infliction of damage to the pipeline (577); the nature of the detriment suffered (presumably being that same detriment that the defendant could have envisaged) (577); and the nature of the damages claimed, those being quite directly linked to the damage suffered (being alternative transport costs rather than loss of profits) (577).

55. These factors were said to demonstrate a close degree of proximity between the defendant's conduct and the loss suffered by the plaintiff.

56. Mason J also adverted to the need to provide what Stephen J had termed a "control mechanism", and considered that (592-3):
    "... the delimitation of the duty of care in relation to economic
    damage through negligent conduct (should) be expressed in terms
    which are related more closely to the principle factor inhibiting
    the acceptance of a more generalized duty of care in relation to
    economic loss, that is, the apprehension of an indeterminate
    liability. A defendant will then be liable for economic damage due
    to his negligent conduct when he can reasonably foresee that a
    specific individual, as distinct from a general class of persons,
    will suffer financial loss as a consequence of his conduct."

57. It might fairly be said that each judgment sets out indicia of liability without clearly articulating a general principle; indeed, some of the members of the High Court expressly refrained from formulating such a principle. The Caltex Case was considered in San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340, and was re- affirmed in terms which referred to the individual judgments rather than the formulation of a general principle: at 354 Gibbs CJ, Mason, Wilson and Dawson JJ. This makes the task of applying the case to the present facts rather more difficult, in that one must take an incremental rather than a principled approach to a certain extent. Further, the approach required by the Caltex Case is rather impressionistic, in that many factors are seen as relevant, but it is not clear how the final result is reached from that amalgam of factors.

58. There are a number of factors which may be seen as relevant.

59. First, the defendant's knowledge or means of knowledge.

60. The three leading judgments in the Caltex Case display a concern with the knowledge or means of knowledge of the defendant of the plaintiff as a specific individual as opposed to a member of an unascertained class. This is combined with the question of the knowledge of the defendant of the likelihood that economic loss of the type actually suffered will flow from the negligence of the defendant; that is, the defendant's knowledge that the property damaged was inherently likely to be productive of economic loss when damaged.

61. Secondly, the position of the plaintiffs vis-ˆ-vis each other.

62. Several cases involving joint venturers or a common adventure were also referred to in the Caltex Case. These included Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) (1947) AC 265. In that case, a cargo had not been damaged, but the cargo owners had become liable to make a general average contribution after a ship collision involving the ship carrying the cargo. The owners sued the colliding ship for a proportion of the contribution, and the House of Lords upheld the claim.

63. The leading speech was that of Lord Roche, in which his Lordship drew an analogy between the carriage of goods by sea and the carriage of goods by land. He considered that in the latter case the goods were being carried as a matter of a common adventure between a carrier and the owner of goods, and that the owner of goods had a direct action against the person colliding with a vehicle operated by the carrier and causing economic loss to the owner of the goods (280). Lord Porter distinguished the case of a joint adventure from the general exclusionary rule relating to purely economic loss (296).

64. It appears that after the Caltex Case, and following cases which have accented the twin requirements of foreseeability and proximity, these co-venturer cases are best seen as a particular category within the scope of these principles of proximity. That is, where there is a relationship involving a joint adventure, the relationship between the economic damage suffered and the perpetrator of the tortious act is much more proximate.

65. One matter that flows from this is that the strict classification of two people as co-venturers is not necessary. Rather, given that the question is governed by the broad question of proximity, one might look instead to identity of interests and a relationship between the co-venturers such that that identity of interests and vulnerability to financial damage is more likely to be recognised. Thus, in the case of the transportation of goods, a person would easily foresee that goods are likely to be carried for someone, and that that person is likely to suffer financial damage if their carrier is damaged.

66. Related to this question is the link between the plaintiffs provided by their ownership structure. Although P4 and P5 are separate entities, their relationship to P1 and P3 may be relevant in so far as the foreseeability of vulnerability to economic damage is concerned.

67. In this context it is worth while referring to the case of French Knit Sales Pty Ltd v N Gold and Sons Pty Ltd (1972) 2 NSWLR 132. In that case, two companies ("F" and "S") were associated to the extent that they occupied the same warehouse, and S was the purchaser of the goods produced by F and was in fact dependent upon F as supplier of goods. No contract between F and S was alleged. While in the warehouse, the goods remained the property of F. They were damaged by water and S sued the defendant (from whose premises the water escaped) for economic loss flowing from the non-availability of the goods.

68. The New South Wales Court of Appeal upheld a demurrer to the claim by the plaintiff, rejecting an argument based on a common venture between the plaintiff and F. However, this rejection was based upon reasoning which confined the effect of Morrison Steamship Co (supra) to the question of remoteness of damage (at 142 Asprey JA), the references to common adventures being limited to "a community of interest between ship and cargo under the law of the sea" (at 143 Asprey JA). In my opinion, this case is not consonant with authority from the Caltex Case onwards, and its reasoning should not be applied to the present case.

69. Thirdly, the type of loss suffered. As pointed out by Stephen J in the Caltex Case (577), some financial loss suffered by the plaintiff may be more proximate to the tortious act than other financial loss also arising from the same tortious act.

70. Fourthly, to paraphrase the words of Cardozo CJ in Ultramares Corporation v Touche (1931) 174 NE 441 at 444 (and cf the Caltex Case at 568, 591; Bryan v Maloney at 618) there is a need to prevent the existence of an indeterminate liability in an indeterminate amount to an indeterminate class. This factor is reflected in the Caltex Case requirement of an identifiable plaintiff, but it is also of wider import as a policy factor to be borne in mind when deciding whether a relationship of proximity exists: see Bryan v Maloney at 618 Mason CJ, Deane and Gaudron JJ. If such a liability can be avoided, much of the difficulty involving the imposition of liability in an otherwise just situation is avoided.

71. In particular, the notion is relevant to the question of what have been termed "transferred loss" cases: see Fleming, The Law of Torts (8th ed) at 181. Such cases involve a loss being suffered by a plaintiff who is not the owner of goods but who suffers a loss due to a transfer of risk.

72. English authorities have continued to maintain an exclusionary rule in this area, such that the plaintiff is not entitled to recover damages unless the plaintiff has a proprietary or possessory title: see Candlewood Navigation Corporation Ltd v Mitsui OSK Liner Ltd ("Candlewood Navigaton") (1986) AC 1; Leigh and Sillavan v Aliakmon (1986) AC 785. These authorities may not be good law in Australia, given the criticism of the Caltex Case by the Privy Council in Candlewood Navigation, and the subsequent rejection of those criticisms and re- affirmation of the Caltex Case by the High Court in San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 354 Gibbs CJ, Mason, Wilson and Dawson JJ; and see Anderson v Deere
(1988) 15 NSWLR 363 at 369 Hope JA.

73. Be that as it may, the maintenance of an exclusionary rule would be difficult to maintain in such transfer of loss cases. As Professor Fleming points out, the exclusionary rule "is difficult to justify by reference to the need for limiting "floodgate" losses, since to allow the claim would merely substitute one claimant for another without increasing the defendant's liability": The Law of Torts (8th ed) at 181.

74. Therefore, one might say that in such cases the dangers of unascertainability are not as great as in others. One might conclude that one could substitute, say, a user of a pipeline for the owner of that pipeline without increasing the danger of unascertained damage, if the user is in much the same position and would suffer much the same loss as the pipeline owner normally would. This approach is supported by the justice of the case generally. The Privy Council, while adhering to the strict exclusionary rule in Candlewood Navigation, recognised the force of a submission which rhetorically asked, "why the wrongdoer should escape paying for part of the loss for which he is responsible merely because the loss is divided between two victims." ((1986) AC at 19). That is, the damage in such a case is the same sort as would have been suffered if there had been only a single victim; it has merely been imposed on more than one party.

75. This point is particularly strong if the person with a proprietary interest would in any case be entitled to recover damages from the tortfeasor, subject to having to account for those damages to the sufferer of economic loss: eg Anderson v Deere (1988) 15 NSWLR 363.

76. This also illustrates a point made analogously in relation to the co-venturer cases, namely, that a proximate relationship between the sufferer of economic loss and the tortfeasor will be more easily established if there is a close relationship between the tortfeasor and a person suffering proprietary loss such that if the economic loss had been suffered by the latter it would have been recoverable.

77. Fifthly, policy factors generally have a part to play in the identification of a duty of care in this developing area, as has been recognised on numerous occasions: see Caltex Case at 575 Stephen J, Bryan v Maloney at 618 Mason CJ, Deane and Gaudron JJ.

78. Sixthly, the issue of a sale transaction assumes some importance. In many situations, while acknowledging that a tortfeasor owes a duty to a person owning goods, many people would be surprised by a suggestion that the tortfeasor owes a duty to a purchaser of those goods as well. Thus for instance, a person might be liable in tort to a house owner for the negligent destruction of that house by fire; however, if another person later purchases that house, it would be a truly surprising result if that purchaser could establish a breach of a duty of care owed to that purchaser. The reason for this might be put on a number of bases. It might be said that the loss was not caused by the tortious act but by the purchase of the house at an overvalue; if the purchase was not at an overvalue, it might be said that there was no damage. However, it is more likely that it would be said that there was no duty of care owed to a purchaser in relation to any economic loss that the plaintiff suffered.

79. It is trite to say that a duty of care is not necessarily brought to an end by the interposition of a contract of sale, the latter constituting a barrier which the duty of care somehow may not cross. Or, to put it differently, a duty of care may be owed to a person who has by contract acquired an interest in something, the contract coming into existence after a duty of care to an original owner arises. The modern law of negligence began in a case where tortfeasor and plaintiff were separated by more than one purchase; more specifically the case of Bryan v Maloney is one where a duty of care was owed to a purchaser in relation to economic loss.

80. It was put to this Court by counsel for the appellant that duties could be owed to successive purchasers of something (generally, it would seem), but that matters of damages and causation would, essentially, control the outcome in each case and account for examples such as the purchase of a burnt down house at full value. However, I think that this is putting the argument far too widely. The approach of the High Court has been to consider the factors which might amount to a relationship of proximity on a category by category basis (see Bryan v Maloney at 630 Mason CJ, Deane and Gaudron JJ). I do not think it could be said that, if a duty is owed to a person in relation to economic loss caused by (say) damage to or poor manufacture of a chattel, a purchaser is automatically entitled to the benefit of that duty. Rather, one must look at the relationship between the purchaser and the negligent person. This is not to deny the relevance of a relationship of proximity between the first owner and the tortfeasor; it would be difficult to find a proximate relationship between purchaser and tortfeasor without that first step. Therefore, the existence of that first step provides something of a guide to the existence of a duty to a purchaser.

81. One factor indicated as relevant by the High Court in Bryan v Maloney is the discoverability of a fault in a thing or (perhaps by analogy) damage which has been done to that thing. That is, if the fault is latent and could not be discovered, later purchasers will not be able to protect themselves by demanding a lower purchase price; nor will the purchaser be characterised as having accepted the fault as part of a commercial transaction.

82. However, it would be a mistake to over-emphasise this factor. In my opinion, the underlying question is one of causal proximity. That is, proximity may be established between the purchaser and the tortfeasor on a number of bases, but most likely on that relating to causal proximity; if it is not the case that there is a likely causal relationship between the tort committed by the latter and the loss suffered by the former (and I do not necessarily mean "causal" in the technical sense relating to the causation of damage), there will be no proximity. The likelihood that defects will not be discovered goes to this question. More generally, a relationship of responsibility and reliance will also go to this question. The test will be whether the parties were so related, as a matter of cause and effect if not as a matter of physical or circumstantial proximity, that their relationship could be said to be proximate. Obviously, in many cases where purchasers have bought damaged property or businesses, that relationship did not exist; but in the case of, say, a house builder, a proximate relationship may exist.

83. It is appropriate now to consider the most recent relevant decision of the High Court. Bryan v Maloney (1995) 182 CLR 609 dealt with the liability of a professional house builder to a purchaser of the house and land from the land owner for whom the builder had first built the house. The contract between the builder and the first owner contained no relevant exclusion or limitation of liability.

84. The claim by the purchaser was made in negligence. The claim was for damages being the costs of remedying inadequate footings and consequential damage to the fabric of the house. At the time of purchase the purchaser was unaware of the defects. The loss for which the purchaser sued was clearly foreseeable as one likely to flow if the footings were inadequate. The case was dealt with on the basis that the damage sustained by the purchaser was mere economic loss. It was distinct from and not consequent upon ordinary physical injury to person or property (617).

85. It can be seen that in a sense this was a case of transferred loss. The very loss which the first owner would have sustained had she remained the owner of the house was sustained by the purchaser. The purchaser sustained that loss because of the interest which she had acquired in the house pursuant to the contract with the first owner.

86. The majority judgment (Mason CJ, Deane J and Gaudron J) proceeds on the basis that the issue of a relationship of proximity, which involved "policy considerations" and "community standards" was the critical issue (618). Proximity with respect to mere economic loss was a special case, and such cases were said commonly to involve an element of reliance or dependence and an assumption of responsibility (619).

87. The majority said that it was clear that proximity existed between the builder and the first owner, including in relation to economic loss of this type (623). The relevant proximity relationship was not restricted to physical injury to person or property. There was also a relationship of proximity between the builder and persons other than the first owner, including persons such as the purchaser, who sustained physical injury to person or property as a consequence of a collapse, as a result of inadequate footings, of part of the house (624).

88. The house was the only link between the builder and the purchaser, but it was a substantial link (625). It was obviously foreseeable by the builder that the negligent construction of inadequate footings was likely to cause the very economic loss which was sustained (625). The economic loss sustained in this particular case differed from physical damage to property only by virtue of a distinction which was "an essentially technical one" (626).

89. A finding that there was a relationship of proximity between builder and a subsequent owner would not give rise to liability in an indeterminate amount to an indeterminate class (626).

90. As between the builder and the purchaser there was a kind of assumption of responsibility and a kind of reliance (627). The purchaser had no real opportunity to find the defects (627).

91. Overall, there were noticeable similarities between the relationship of the purchaser to the builder and the relationship of the first owner to the builder, and the court could see no strong policy arguments against the imposition of liability in such a case (627). The court was clearly influenced by the analogy to the relationship with a person who suffered physical injury to person or property if the house collapsed (628).

92. For those reasons the majority found that a duty of care existed. The reasoning of Toohey J in his separate judgment was broadly similar. Brennan J dissented. He placed a heavy emphasis upon the role of the law of contract as to the condition of the building as between the builder and first owner, and upon problems which he foresaw as arising if the law of tort were to intrude either as between builder and first owner or as between the builder and later owners (643- 644).

The Facts in this Case 93. It is now necessary to apply these factors and the High Court's approach in Bryan v Maloney to the case in hand.

94. As to the first factor, the defendant's knowledge or means of knowledge of the plaintiffs was, to say the least, minimal. I do not think that it is necessary for the defendant to know (or be able to know) of the plaintiffs individually or by name (cf Candlewood Navigation above at 24); the question instead is as to knowledge (or means of knowledge) of the plaintiffs as members of an ascertained class. However, the defendant could not have had knowledge of such a class, or means of knowledge of such a class. It might be argued that P4 and P5 fell into the category of future owners or operators of the mill. However, this class is not an ascertainable one in my opinion. It might include any number of people taking over the operations of the mill or the timber company, in circumstances of bankruptcy, sale, or any other transaction.

95. Further, the wire operated by the defendant ran across a large area of countryside. The forests owned by the plaintiffs were not the only things affected, or likely to be affected, by an outbreak of fire. This is not the case of a specific pipe being broken; rather, it is a case of an entire countryside on fire. This reduces the prominence of the timber or the mill, and knowledge or foreseeability of damage to economic interests that lie behind the timber and the mill, and instead increases the spectre of indeterminate liability.

96. On the other hand, it can at least be said that the defendant had the means of knowledge of persons such as P3, by which I mean persons whose livelihood was earned by felling, milling and selling timber. This not a precisely defined class, although it is a recognisable one. And P4 and P5 can be seen as persons also in that class.

97. Secondly, it is possible to characterise P1, P2 and P3 as being involved in a common adventure at the time of the fire. However, at the time of the fire P4 was yet to come into existence and P5 was involved in other activities with no relation to the present loss.

98. In one way, it could be said that the losses arose because of the relationship between the companies, in that this relationship caused P4 and P5 to take over some of the activities of P3. But it is not clear that their relationship was such as to bring their future vulnerability to financial loss within the reasonable foresight of the defendant, or otherwise somehow into a proximate relationship with the defendantÕs act.

99. Thirdly, the type of loss suffered does not help to make the relationship proximate.

100. In one sense no doubt one could say that the destruction of timber is inherently likely to cause loss to people relying upon it for production; on the other hand, one could say roughly the same thing about the destruction of most property and those who use that property for another purpose. The guide of inherent likelihood does not therefore appear to be very helpful in this situation as a control mechanism or an indicator of proximity, although it could at least be said that the damage suffered by P4 and P5 was through the loss of the use of the property destroyed.

101. However, the claim of P4 and P5 appears to have been put on quite a wide basis, some of it not necessarily as proximate to the tortious act of the defendant as other heads of damage.

102. The proposed Statement of Claim refers to the loss of harvesting revenue (SC para 17.18) which relates to a fee for the haulage and supervision of P1's timber; the loss of future profits (SC para 17.21); and expenses involved with bringing logs from more distant plantations (SC para 17.22). The Statement of Claim refers to an experts report originally prepared in relation to P3.

103. The loss of harvesting revenue may be seen as being reasonably directly linked to the acts of the defendant. If timber is destroyed, it may obviously cause loss to those who derive profit from its use.

104. The expenses claim is somewhat less directly linked to the damage to the property. It may, however, be seen as the sort of expense that was incurred by the plaintiff in the Caltex Case, namely additional costs associated with avoidance of the full extent of the loss.

105. However, the last item is a little more difficult to relate directly to the damage. To some extent, the loss of profit appears to derive from the fact that, in response to the damage caused by the fire, timber was cut at a greater rate than normal - indeed at an unsustainable rate - in order to be able to continue supply to the mill. This has now led to a situation where mill activity cannot be maintained at "a satisfactory level" without the acquisition of logs from other sources.

106. In one sense, this loss arises through the medium of the plaintiffs' self help measures instituted after the bushfire. There is therefore a direct causal link between the damage and the lack of sufficient trees now. But the damage deriving from the loss of profits is rather less proximate all the same, even if that loss of profit is only the cost of importing trees from interstate rather than profits lost because the mill is no longer working at a satisfactory level. The loss is now much further away in time and dependent upon a number of factors which it would have been difficult for the defendant to know of or to foresee, such as the availability in the long term of timber from alternative supplies and hence the ability of P5 to keep the mill operating at a satisfactory level.

107. It should also be noted that this head of loss is based upon the profitability of the mill, and not directly upon the destruction of trees in the bushfire. That, to my mind, makes the loss more remote than, say, the loss of income earned by hauling logs.

108. Fourthly, as I have pointed out, there is a very real danger here of indeterminate liability.

109. I have already touched upon this aspect of the matter in relation to the first factor.

110. In my opinion it is foreseeable that damage to standing timber will cause loss to a range of people who derive profit or their livelihood from the felling and milling and selling of such timber. P4 and P5 became involved in these activities. If a duty is owed to them, why is not a duty owed to all similarly placed persons? In the area in which the bushfire occurred, there were no doubt other farming and pastoral activities carried on. If a duty is owed to P4 and P5, then one would think that a duty would be owed to others who derived profit or their livelihood through their involvement in some part of the farming and pastoral activities carried on on properties devoted to those purposes. In particular, one would think that a duty might well be owed to people who dealt with the produce of such activities.

111. Similar issues arise in relation to P3, although it was engaged in milling and selling activities at the time of the fire. It is also the case that P3 had premises in the general locality of the fire and of the forests owned by P1. However, the significance of that physical proximity is open to debate. Milk from a dairy farm is likely to be hauled to a plant at which it is processed, and it is not easy to see why the existence of a duty of care should depend upon the distance of the plant from the dairy farm. Grain from a farm is likely to be hauled to a grain milling company, and cattle from a pastoral property likely to be taken to a sale yard or to a slaughterhouse. Once again, it is not easy to see why the location of the dairy processing plant, grain milling plant, sale yard or slaughterhouse should be critical. The point is, it is foreseeable that economic loss will result to persons who handle the produce of persons carrying on business as primary producers on land damaged by bushfires. It must be so at least as to those functions which are the ordinary concomitants of the production of the thing damaged - standing trees, dairy cattle, growing grain, or beef cattle.

112. It is not easy to see how, if a duty is owed, the class to whom it is owed is to be limited. As I have already said, physical proximity to the place at which the relevant property is damaged by fire may be a relevant factor, but it is not an attractive decisive factor.

113. On the other hand, it can be said that the owner of timber who felled, milled and sold the timber produced is likely to recover the value to the owner of timber destroyed in a fire, and in such a case that value would reflect the profit to be made, if any, from all of those activities. So it can be said that the type of loss suffered by P4 and P5 (and P3) is the type of loss which is foreseeable (the third factor referred to above) and a type of loss which is recoverable in certain situations.

114. Does this expose a possible means of limiting the class sufficiently, that is by focusing upon the class of persons who perform for profit activities which the person to whom a duty of care is clearly owed (such as P1) in the present case might well perform?

115. This is a possible limiting factor, but the problem is that it appears to me to lack precision and again would embrace a very wide range of claimants.

116. What about the existence of a joint venture as a sufficient limiting factor? Is the class adequately limited by limiting it to those persons in a joint venture relationship with the person to whom a duty of care is clearly owed (in the present case P1)? This does provide a basis for limiting the class, and would assist P3 in establishing a duty, but the existing case law suggests that a duty can be owed to a wider range of people.

117. However, it is worth noting that the liability resulting from the recognition of a duty of care in the present case would be no greater in relation to P4 and P5 than it would have been had the loss been claimed by P1 and P3 (if the milling and timber operations had not been transferred): cf the proposed Statement of Claim (para 17.21, pleading identical amounts of damage in the alternative on behalf of P5, P4, and P1 and P3). In this way, the situation is very similar to transferred loss cases. If the loss might have been claimed by P1 and P3, the mere transfer of ownership or activity to P4 and P5 should make no difference.

118. Hence, if it can be seen that the loss claimed by P4 and P5 is no more than the loss which would have accrued to P1 and P3 in any case, this is perhaps a point in favour of allowing liability. So, too, is the factor that otherwise, owing to arrangements within a group of companies which have spread the loss among several related entities, a tortfeasor will be relieved of liability which otherwise would have been incurred.

119. Fifthly, policy factors relating to the recovery of damages in this situation.

120. Without attempting to canvass all possible factors, it strikes me as significant that a tort has occurred and that much of the damages which would otherwise have been payable may be irrecoverable due to what is, essentially, technicality. It is not as though this is an area where society recognises that infliction of economic harm is socially acceptable (cf Bryan v Maloney at 618 Mason CJ, Deane and Gaudron JJ). Further, it appears to be the sort of area where public sentiment might well recognise the culpability of the defendant and the justice of compensation (cf the Caltex Case at 575 Stephen J). I have already referred to the considerations as to the justice of the case in relation to "transferred loss" cases.

121. Sixthly, the question of causal proximity subsisting throughout a relationship. It does not seem as though there is any basis for finding a relationship of responsibility or reliance between the defendant and P4 or P5, or indeed between P1, P2 or P3 and the defendant such that this reliance formed the backdrop of the activities of P4 and P5.

122. As to knowledge of damage done to the timber, it was contended that P4 (and then later P5) was aware of the damage done, but the financial loss which would be caused by the reduced availability of trees was only appreciated at a later time.

123. More generally, one must take into account the causal relationship between the activities of the various plaintiffs and the defendant, in the sense of the group reorganisations that took place. That is, it has been pleaded that agreement had been reached at the time of the fire upon plans to expand and reorganise the mill's operations in order to use the mill more effectively. Even though there was no formal agreement to do this, this is not necessarily decisive of the matter.

124. That is, it is permissible as a matter of causal connection, and likely causal connection, to take into account movements within a group which might explain why a company taking over the operations of another might be vulnerable to its losses and hence in a relationship of proximity with a prospective tortfeasor. That said, the relationship of proximity may require a great deal more to be established than this.

Conclusions as to Duty of Care 125. It seems to me that no duty is owed by the defendant in respect of pure economic loss, of the type pleaded, to the class of persons who profit from handling or a dealing in produce of land damaged by bushfires. Ultimately, this conclusion is a product of the problem of liability to an unascertained class. There is no factor in the definition of that class which adequately restricts the class of claimants. However, my conclusion is significantly influenced by the fact that under each of the six factors considered there are significant obstacles to recognising the evidence of a duty of care.

126. There may possibly be a duty of care owed to those (such as P3) who are in a joint venture relationship (recognising the lack of precision of that term) with the owner of property to whom a duty of care is owed in respect of damage to that property.

127. First, it is relevant to enquire as to the existence of a duty of care to P3. This is of significance because, as I have noted, the joint venture, transferred loss and purchase cases all appear to depend on the existence of a relationship of proximity between the tortfeasor and a person to whom the plaintiff is somehow related.

128. Caution is required here, but when the joint venture is for the purposes that the owner of the damaged property might be expected to use that property, there may be a duty of care. However, that duty will necessarily be limited quite strictly, presumably to economic loss flowing directly from the destruction of that property such that, if the owner of the property had suffered that economic loss, the owner would have been able to claim it. Such a limitation is necessary to ensure not only that the class of claimants is ascertainable (within the imprecise limits set by the definition of a joint venture), but that the loss flowing from the tortious act is not indeterminate.

129. There is an important distinction here between such loss, and loss which flows from the disruption of "collateral commercial arrangements" (the Caltex Case at 262 Stephen J). In the Caltex Case, damages were limited to the expenses incurred in transporting products by an alternative method. It may be that in this case P3 will have difficulty in this respect, in relation to a claim for the adverse effect on profits from milling operations generally, as opposed to loss of profits directly attributable to the destruction of P1Õs timber.

130. It may also be necessary for the person who claims a duty to be a person of whom, or of whose interest in the property damaged, the defendant is aware or able to have in its reasonable contemplation. In this case, it may be that the defendant can be taken to be aware of the presence of mills in the area, or at least to have had the mills in reasonable contemplation. Nothing is presently pleaded in relation to that.

131. It follows that I can see a basis upon which a duty of care might be owed to P3 in respect of some loss; but it is necessary to stress that it does not follow that a duty is owed in respect of all loss pleaded or claimed. In particular, one must distinguish on the one hand between the loss suffered as a result of reduced profits from the processing of P1's timber, and on the other hand loss suffered from not being able to keep the mill running to full capacity and costs incurred in obtaining replacement timber. There are, in my opinion, problems in establishing a duty in relation to the latter two.

132. Even though a duty might arguably be owed to P3 in respect of some loss, I do not consider that a duty is owed generally to successors to P3, meaning persons who took over some or all of the activities which it performed in relation to the timber of P1. There is no reason to foresee loss to such a class of persons. So that in itself is an insufficient basis for a duty owed to P4 and to P5.

133. However, a duty might be put on a narrower basis. There might be a duty of care to a person who assumes a role formerly performed by P3 as a result of an arrangement which is not an ordinary arms length arrangement, such that any loss which P3 would have suffered is transferred to the new person. Once more, that duty could only be owed in relation to loss directly due to damage to timber, and not due to particular commercial arrangements in respect of its use.

134. In the present case, SC para 9A pleads the cause of action as follows:"By virtue of the matters referred to above it was at all material times reasonably foreseeable that an identifiable person namely, the company or persons operating the Mill from time to time, would or may suffer the loss particularised in paragraphs 17.5 and 17.21 below or loss and damage of that nature and that an identifiable person, namely, the company or person supervising the harvesting of the forest timber from time to time, would or may suffer the loss particularised in paragraph 17.18 below or loss and damage of that nature and that an identifiable person, namely the company or person responsible for the haulage of the forest timber from time to time, would or may suffer the loss particularised in paragraph 17.22 below or loss and damage of that nature."

135. It seems to me that this formulation is too wide. Even though some duty might be owed to P4 or P5, it seems to me that any such duty is owed on a narrower basis, based on the criteria of the sort which I have articulated.

136. In particular, as I have noted above, it does not appear that the loss which is claimed by P4 and P5 is only loss flowing directly from the loss of P1's timber for milling. The claim includes a claim for the consequent expense of obtaining and hauling equivalent timber from elsewhere, and pecuniary loss arising from the impact of the decreased volume of timber upon the profitability of the mill. There is a question whether any duty is owed in respect of such loss, or whether such loss is attributable to "collateral commercial arrangements" relating to the mill.

137. I therefore consider that it is possible that a duty was owed to P4 and P5, although on a more restricted basis than that which was pleaded, in respect of pure economic loss, although again on a more restricted basis than that pleaded.

138. In the circumstances, to allow the appeal would be allow the case to go forward as pleaded. P4 and P5 would still have to prove a duty in respect of the relevant loss at trial. But the pleadings, in my opinion, do not identify matters upon the basis of which it is arguable that a duty exists. Pre-trial skirmishes can often be unproductive, but in my opinion it would be even less productive to allow the case to proceed without an adequate identification of a basis upon which it is arguable that a can be duty (sic) said to be owed, and an adequate identification of the loss in respect of which that duty is said to be owed.

139. I would therefore dismiss the appeal, leaving it to P4 and P5 to consider the possibility of further applications to amend in the light of these reasons.

140. I add, to avoid misconceptions, that in indicating a narrower basis than that pleaded upon which P4 and P5 might be able to make out an arguable case for a duty of care (and an arguable case is all that is required), I am not expressing a concluded view. To some extent what I have said in this respect is only by way of explanation of my conclusion that, as things stand, the appeal should be dismissed.

JUDGE2 BOLLEN J
141. I have read the reasons, in draft, of the Chief Justice. I regret that IÊreach a conclusion different to that of His Honour.

142. I wish to say very little. The question of proximity in cases of suggested negligence is largely one of fact. The question must always be decided in accordance with law and principle. Some situations call for no evidence, no investigation of the facts to determine proximity. The status of the people concerned will decide the matter, eg each driver, coming to an intersection, owes a duty of care to the others. We can almost go so far as to say that each road user owes a duty of care to each other road user in the vicinity. No doubt, there are some occasions when a plaintiff was placed in an unusual position on the road and, therefore, beyond the foresight of other road users (eg Hay v Bourhill (1943) AC 92).

143. For my part, I think the question can still be answered by the application of the Atkinian theory of neighbours (Donoghue v Stevenson (1932) AC 562).

144. In some parts of the world where "our" system of law exists great help is available from Lord Wilberforce (Anns v Merton London Borough (1978) AC 758). But the approach and remarks of Lord Wilberforce in that case have not found favour in Australia and cannot be regarded as authoritative here. Perhaps there will be a swing back to Lord WilberforceÕs reasoning which will eventually percolate down under. The approach in Australia is, on the whole, the incremental theory (See per Brennan J (as he then was) in Sutherland Shire Council v Heyman (1985) 157 CLR at 481. In that case His Honour said "É The law should develop novel categories of negligence incrementally and by analogy to established categoriesÉ"

145. The question whether a situation be developed as part of incremental increase to a novel category will frequently involve a decision of fact. Of course, plain principles of law and policy will be important. But sometimes the facts will decide or help in deciding the question. The Master said:    "The defendant did not know and could not have known of the proposed fourth and fifth plaintiffsÕ interests. They did not, therefore, owe them a duty of care."

146. But that may not dispose of the matter. May it not be possible, by evidence, to establish that the defendant could have foreseen events out of which the interests of the proposed new plaintiffs were born? But in addition to that I think there are questions of law and policy. They could lead to a finding that foresight of the risks of damage to the business of the mill would suffice to establish the required proximity. That issue does not seem to have been fully considered.

147. I think that the Master should not have struck when he did. I do not think that he should have shut out the joining of the proposed plaintiffs. The points which the Master makes will be very important at trial. That is to say if there is an extension of time which permits of a trial.

148. I would allow the appeal. I would order that the plaintiff have leave to add the proposed new plaintiffs.

JUDGE3 NYLAND J
149. I have had the advantage of reading the judgment of the Chief Justice. I agree that the appeal should be dismissed for the reasons he has expressed.