Report On Frank Perre V Apand Pty Ltd [1999] HCA 36 – Duty Of Care And Pure Economic Loss

Facts

Discuss about the Report for Frank Perre v Apand Pty Ltd [1999] HCA 36.

The appellant’s are a group of farmers growing potatoes in South Australia and exports the produce to Western Australia. Because of the negligence of the Respondent a disease known as bacterial wilt got introduced into the land of one of the farmer. Due to the disease the Western Australian Regulation prohibited the import of the potatoes from the infected farms as well as farms that were nearby. The appellants therefore filed a case against the Respondent for claiming damages as the Respondent owe duty of care towards the Appellants.

Issues:

• Whether the Respondent owed a duty of care to all the Appellants, even though they were not physically harmed because of the respondent, but they had to face the consequence of the negligence of the Respondent.
• Whether “pure economic loss” is an element for determining duty of care that the Respondent owed to the appellants.

1. Relevant laws and principles:

Duty of Care- this duty envisages that there should be a duty to avoid any reasonably foreseeable loss that might be caused to others due to a negligent act of the person who owes the duty. It is a legal obligation that requires an individual to adhere to a standard of foreseeable reasonable care that needs to be kept in mind while performing an act, so that no harm is inflicted on others. In Donoghue v Stevenson, the context was used referring to inflicting harm upon neighbours.

Knowledge- is a factor that needs to be taken in consideration while examining the concept of duty of care as, having knowledge (either actual or accordance with a prudent person) about people who are vulnerable and would be harmed by the actions of the individual needs to be reasonably foreseen and there lies a duty of care towards those vulnerable class of people.

Reasonable Foreseeability- this is one of the determining factors of duty of care, wherein the scope of foreseeability is measured in terms of an act or care a prudent man would take in normal circumstances, and would take precaution so as not to harm his neighbour (Donoghue v. Stevenson)

Ascertainable class- when there exists a group of people who belong to a particular category and shall be affected if any harm is caused even to any one individual that forms a part of the class and the class that so gets affected is foreseeably ascertainable by a prudent man is known as an Ascertainable class.

Vulnerability- Where the defendant holds more control over the impact on the plaintiff occurred due to the acts of the defendant, i.e. the plaintiff is vulnerable to the defendant then any economic loss caused to the plaintiff, defendant shall be liable for the same. Where the plaintiff himself owed a duty to take care of himself and protect himself from any economic loss, then the liability cannot be imposed on another, although the plaintiff was made more vulnerable due to the act of the defendant (Hill v Van Erp (1997) 188 CLR 159).

Issues

Pure economic Loss- loss when in the form of physical injury is easily seen and can be calculated, but when a loss is in terms of economic aspect then the loss cannot be seen and it may arise taking in consideration a number of factors for its calculation, such as expected future loss, loss arising from that loss etc. the financial loss could be direct or indirect.

Arguments of the Appellants: the Appellants argued that they suffered economic loss because of the activities of the Respondent, as they were a vulnerable class and hence the Respondent is liable to pay damages for the loss suffered.

Arguments of the Respondent: The case was argued by the Respondents on the sole basis as to whether there was a relationship between the Respondents and the appellants, so that the respondents are held liable for the pure economic loss of the appellants.

Analysis: there are certain factors that need to be kept in mind while determining cases of duty of care and the negligence resulted in a pure economic loss. In the case of Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2005] QSC 4, before the Supreme Court of Queensland, Justice Douglas laid the following determinants for Duty of care:

• Harm was reasonably foreseen.
• The defendants had knowledge.
• There was no indeterminate liability.
• The defendant had knowledge that there was an ascertainable class.
• The damage was a resultant factor of the activities of the defendant.
• The duty of care would not result in loses suffered to the defendant himself.

Keeping the above determinants in mind there are certain factors that needs to be seen in the present case. Firstly, the defendants were able to foresee the harm that if there is a bacterial wilt caused to one of the farms then farmers within a radius of 20km will be affected. Secondly the defendants had knowledge that the export of potatoes by the South Australians to West Australia is a lucrative business and any harm to the farms would result into economic losses to the Appellants.  Thirdly, the liability could be determined on the basis of the loss caused due to prohibition of export for 5 years, which could be calculated on the basis of the previous profits earned by the farmers from such export. Fourthly, the Respondents knew that the appellants are an ascertained class of people and loss to one farm shall affect the entire class. Earlier this factor was not taken into consideration as in the case of Christopher v MV “Fiji Gas” (1993) Aust Torts Rep 81-202, the class determinant was not taken into consideration, however after the present case the situation changed and if the respondent/ defendant is aware that the injured person of the class ascertainable by the respondent  then a duty of care was owed even to them.  Fifthly, the respondents had no economic impairment because of the duty they owe and sixthly, the economic damage caused to the appellants is a direct consequence of the activities of the respondent.

Arguments of the parties and analysis

Conclusion and Court outcome:

Decision: Out of the seven judges, five considered that the Respondent owes a duty of acre towards the Appellants. This judgement is a landmark judgment as it became possible to claim damages without any actual physical harm, but only for financial harm also. Parameters for the limitation of duty of care were not set by this judgment but various observations were made with respect to the concept of duty of care.

According to GLEESON CJ., there is lack of precision in case of economic loss, as it is difficult to be calculated since it is not apparent and could be direct or indirect. Referring to the judgement of Lord Bridge of Harwich in Caparo Industries Plc v Dickman, Gleeson CJ, said that the duty of care is not a limited concept it is extended to the concepts of proximity and foresee ability and there cannot be a three stage test for it. He held that the damage caused to the appellants who were in the proximity of the damaged area is a case of reasonable foreseeability and the harm caused to a vulnerable class of people towards whom the Respondent owed a duty of care.

GAUDRON J, also allowed the appeal, and also discussed about the relationship that the appellants had, which was that they were all interconnected in terms of ownership and working and processing of the potatoes, and as the land of one farmer was affected the others were also affected due to the relationship that they held with the infected lands farmer. He further examined that the liability of  economic loss that was caused to the appellants is based on various factors and not just one factor can be taken into consideration while calculating the liability, the factors comprises of relationship of proximity, foreseeability, and other factors that comprise the duty of care. He also added that in the present situation the proximity can only identify the foreseeability of harm caused to the appellants.

It was held that the Respondents knew that a class of people exists, who will be impaired of their legal rights if there happens to be a disease within 20km of the area where they worked and hence, the Respondents owed a duty of care to keep in mind this factor. Here the duty of care rests o the factor that the Respondent had control over the rights of the appellants and was able to inflict harm.

Proximity was culled out from the factors determining economic loss as in case of economic loss it was earlier believed that, there is a gain to the other party or to a third party, i.e. there is a transfer of the financial gain to someone. Therefore it became necessary to prove that the other party had some kind of gain and that liability must be imposed upon him. The court parted from the above view in the present case as it believed that proximity “is a category of indeterminate reference par excellence.”

McHugh J. was in favour of the determinants such as reasonable foreseeability, autonomy or control in the market, vulnerability, knowledge of the defendant and indeterminability of the liability. Kirby J, favoured the Caparo test that was ruled out by the majority.

Conclusion:

The judgement criticised 4 tests as they all suffered from some or the other glitch. In the Caparo test (Caparo Industries Plc v Dickman [1990] UKHL 2) the proximity concept is not useful in cases of pure economic harm. The determinants fair and reasonable are difficult to be set as a standard as it vary from people to people. In the Anns Test (Anns v Merton London Borough Council [1977] UKHL 4) knowledge was important which cannot be now considered in the present times in terms of duty of care. The test of Precise legal rights was also ruled out, as it cannot be said that there can be no liability on others if there has been no infringement of an already existing right. 

Pure economic loss was allowed in this judgement which still holds as a law of the land and is an authority in cases pertaining to liability of economic losses where duty of care is required. Supreme Court has also held the principles followed in the present case as being the law as was established in the judgment passed by the Supreme Court of Queensland in Fortuna Seafoods Pty Ltd v The Ship “Eternal Wind” [2005] QSC 4,wherein damages for economic loss were allowed. Vulnerability has been introduced in the concept of duty of care as one of the determinants after the decision of Perre v. Apand was passed.