SUPREME COURT OF QUEENSLAND

Transcription

1 SUPREME COURT OF QUEENSLAND CITATION: PARTIES: Fortuna Seafoods P/L as trustee for The Rowley Family Trust v The Ship Eternal Wind [2005] QCA 405 FORTUNA SEAFOODS PTY LTD as trustee for THE ROWLEY FAMILY TRUST (plaintiff/respondent) v THE SHIP ETERNAL WIND (defendant/appellant) FILE NO/S: Appeal No 1125 of 2005 Appeal No 2068 of 2005 SC No 1485 of 2000 DIVISION: PROCEEDING: ORIGINATING COURT: Court of Appeal General Civil Appeal Supreme Court at Brisbane DELIVERED ON: 4 November 2005 DELIVERED AT: Brisbane HEARING DATE: 3 August 2005 JUDGES: ORDER: CATCHWORDS: McMurdo P, Jerrard JA and Dutney J Separate reasons for judgment of each member of the Court, McMurdo P and Dutney J concurring as to the order made, Jerrard JA dissenting Both appeals dismissed with costs to be assessed TORTS NEGLIGENCE ESSENTIALS OF ACTION FOR NEGLIGENCE DUTY OF CARE RELATIONSHIP OF PROXIMITY appellant negligently caused a ship owned by a fishing company closely linked to the respondent to sink fishing company and respondent were part of a vertically integrated commercial operation which included common directors and shareholders respondent brought claim against appellant for pure economic loss evidence given that respondent processed and sold fishing company s fish as its agent and that all transactions were performed at normal market rates respondent gave uncontested evidence that such vertically integrated commercial operations were common in the Australian fishing industry at the relevant time appellant led no contrary evidence at trial whether appellant owed respondent a duty of care whether judge erred in concluding that the appellant had the means of knowledge that the

2 2 COUNSEL: SOLICITORS: respondent was part of an ascertainable determinate class of persons likely to suffer economic loss as a consequence of appellant s negligence whether judge entitled to more readily draw an inference regarding the means of knowledge where no contradictory evidence was led by the appellant PROCEDURE COSTS SCALES OF COSTS SCALE APPLICABLE judgment sum awarded to plaintiff in the Supreme Court was within the District Court s jurisdiction action was originally one of three factually related actions ordered to be heard together the other two claims settled prior to trial plaintiff s original claim was for a sum within the Supreme Court jurisdiction but a lower amount was settled upon just prior to trial whether the judge erred in awarding costs on the Supreme Court scale Bow Valley Husky (Bermuda) Ltd v St John Shipbuilding Ltd [1997] 3 SCR 1210; 153 DLR (4 th ) 385, considered Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad" (1976) 136 CLR 529, applied Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021; 91 DLR (4 th ) 289, considered Christopher & Ors v The Motor Vessel Fiji Gas [1993] QCA 22; (1993) Aust Torts Reports , not followed Jones v Dunkel (1959) 101 CLR 298, cited Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd [1985] QB 350, distinguished Perre v Apand (1999) 198 CLR 180, applied Valleyfield Pty Ltd v Primac Ltd [2003] QCA 339; Appeal No 3605 of 2002, 8 August 2003, cited A W Duffy for the appellant A J Greinke for the respondent Ebsworth & Ebsworth for the appellant Thomson Rich O Connor (Sydney) for the respondent [1] McMURDO P: On 5 April 1998 about 48 nautical miles off Noosa Heads the motor bulk carrier Eternal Wind collided with the commercial fishing vessel Melina T. Melina T suffered extensive damage and sank. Eternal Wind was owned by Ganta Shipping SA ("Ganta") and was registered in Panama. Melina T was owned by and part of the fleet of Fortuna Fishing Pty Ltd ("Fortuna Fishing"). The respondent plaintiff, Fortuna Seafoods Pty Ltd ("Fortuna Seafoods"), as agent for Fortuna Fishing processed and sold fish caught by Fortuna Fishing. Fortuna Seafoods brought an action against the appellant defendant, Eternal Wind, for damages for the loss resulting from its inability to process and market Fortuna Fishing's catch. Eternal Wind's liability for the collision was agreed and the quantum of Fortuna Seafoods' economic loss after apportionment was also agreed at $163,256. The learned trial judge found Eternal Wind was liable for Fortuna Seafoods' claimed economic loss. Eternal Wind appeals from the learned primary judge's decision in favour of Fortuna Seafoods and from a subsequent costs order in Fortuna Seafoods' favour.

3 3 The issue [2] The issue to be determined in this appeal is whether Eternal Wind, because of its careless conduct which resulted in property loss to Fortuna Fishing and pure economic loss to Fortuna Seafoods, owed Fortuna Seafoods a duty of care so as to sustain an action for damages for negligence. The applicable legal principles [3] The answer to this question lies in a developing area of the common law and one in which the path taken by the High Court of Australia (cf Perre v Apand Pty Ltd 1 ) has diverged from that taken by English (cf Caparo Industries Plc v Dickman 2 and Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd 3 ), Canadian (cf Canadian National Railway Co v Norsk Pacific Steamship Co 4 ) and New Zealand courts (cf South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd 5 ). [4] It is not the law that one person owes to another an absolute duty to take care not to cause reasonably foreseeable financial harm: 6 the law recognises there must be some intelligible limits to keep the law of negligence within the bounds of common sense and practicality. 7 The courts have, understandably, been reluctant to extend a negligent, as opposed to an intentional, tortfeasor's liability to those who have suffered only economic loss. As Gleeson CJ acknowledged in Perre, however, there is no longer a bright line rule absolutely preventing the recognition of a duty of care in every case where negligent conduct of one person causes financial loss to another, not associated with injury to the other's person or property. 8 [5] In Australia, the first major break in the bright line rule came with Caltex Oil (Australia) Pty Ltd v The Dredge "Willemstad". 9 The High Court there held that whilst damages are not as a general rule recoverable for a claimant's foreseeable economic loss which is not consequential on injury to the claimant's person or property, damages may be recoverable for breach of a duty of care where the defendant had knowledge, or the means of knowledge, that a particular claimant, not merely as a member of an unascertained class, would be likely to suffer economic loss as a consequence of the defendant's negligence. 10 Jacobs J considered that the duty of care was that owed to a claimant whose property was in such physical propinquity to the place where the negligent acts or omissions had their physical effect so that a physical effect on the property of the claimant was foreseeable as a result of the defendant's negligent acts or omissions. 11 Proximity, a central issue to the reasoning in Caltex, is no longer so pivotal in determining the existence of a duty of care in negligence, but the discussion of principles in Caltex remains a useful starting point for courts in cases where it is claimed negligence has resulted in pure economic loss (1999) 198 CLR 180. [1990] 2 AC 605. [1986] AC 1. [1992] 1 SCR [1992] 2 NZLR 282. See Cattle v Stockton Waterworks Co (1875) LR 10 QB 453. Perre, above, Gleeson CJ at 192. Perre, above, Gleeson CJ at 193. (1976) 136 CLR 529. Caltex, above, Gibbs J at 555, Stephen J at , Mason J at 593. Caltex, above, Jacobs J at 604.

4 4 [6] This developing area of Australian law has moved incrementally and cautiously. 12 Examples of its development can be seen in Bryan v Maloney, 13 Hill v Van Erp 14 and, arguably, Cattanach v Melchior. 15 The fact situations in those cases, however, bear no real resemblance to, and offer no particular assistance in addressing, the issue for determination here. Caltex and Perre suggest that the determination of whether a defendant owes a claimant a duty of care not to cause mere economic loss will depend on a combination of factors including the reasonable foresight of the likelihood of harm; the defendant's knowledge or means of knowledge of an ascertainable, determinate class of persons who are at risk of foreseeable harm; 16 the claimant's vulnerability or whether they are unable to protect themselves from the foreseeable harm; 17 whether the implication of a duty would impair the defendant's legitimate pursuit of autonomous commercial interests 18 including the existence of any contracts between the claimant and defendant; whether the damage flowed from the occurrence of activities within the defendant's control; 19 the closeness of the relationship between the parties 20 and the existence of any other special circumstances justifying compensation. 21 [7] There is, however, no simple formula to be applied in determining whether the application of these principles to the facts of this case has the result that Eternal Wind is responsible for Fortuna Seafoods' claimed economic loss. The answer to that question requires some more detailed attention to the pertinent facts of this case. The evidence [8] Fortuna Fishing and Fortuna Seafoods were closely related companies. At the relevant time, the sole shareholders of Fortuna Fishing were Ms Frances Rowley and her son Mr Jonathan Rowley. The shareholders in Fortuna Seafoods were Ms Rowley and her husband and Jonathan's father, Mr Michael Rowley. 22 It seems that at the relevant times the directors of both companies were Ms Rowley and Mr Michael Rowley. Mr Jonathan Rowley was the fleet master of the Fortuna Fishing fleet. Fortuna Seafoods was the trustee of a discretionary trust for a wide range of beneficiaries associated with the Rowley family. Fortuna Fishing owned and operated the fishing vessels and supplied all its catch to Fortuna Seafoods for processing for a fee calculated at the prevailing industry rates. [9] Mr Michael Rowley gave the following uncontested oral and affidavit evidence. He and his private companies have been operating in the fishing industry since about Up until 1995 his operations were based in New South Wales. He was developing a long line tuna and swordfish business on the east coast of Australia Caltex, above, Stephen J at 576; Perre, above, McHugh J at , Gummow J (Gleeson CJ agreeing) at , Kirby J at , Hayne J at 302, Callinan J at 325. (1995) 182 CLR 609. (1997) 188 CLR 159. (2003) 215 CLR 1, Gleeson CJ at 18-19, Callinan J at Caltex, above; Perre, above, McHugh J at , 230, Hayne J at Perre, above, McHugh J at 220, 225; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 530. Perre, above, Gaudron J at 200, Gummow J (Gleeson CJ agreeing) at 258, Hayne J at 303. Perre, above, Callinan J at 326. Perre, above, Gummow J (Gleeson CJ agreeing) at 242. Perre, above, Callinan J at 326. On one view of the evidence the shareholders may have been Ms Frances Rowley and Mr Jonathan Rowley but nothing turns on this.

5 5 with a view to exporting. He received advice that all seafoods had to be delivered through the New South Wales Fish Marketing Authority so that a fishing company wishing to process and export fish was not well placed to bypass the Fish Marketing Authority. For this reason he established the entity, Fortuna Seafoods, to conduct and expand the processing and marketing arm of his business. When his family commenced a swordfishing venture based in Mooloolaba in 1997, he used a vertically integrated family company structure with Fortuna Fishing catching and supplying the fish to Fortuna Seafoods, which processed and marketed the fish. This vertically integrated structure became a common model in the fishing industry at this time. When the collision occurred, Fortuna Fishing was a tied supplier of all its product to Fortuna Seafoods so that any drop in supply from Fortuna Fishing was a continuous loss for Fortuna Seafoods. The two companies were conducted as an integrated operation and were treated by the Rowleys for most purposes as one company but with two bank accounts. Although proper accounting procedures were adopted, money in the accounts of one company would be transferred into the account of the other, depending on the commercial needs of the business as a whole. When the Mooloolaba processing factory was completed in late 1996 or early 1997, the enterprise's printed business card recorded the business title as "Fortuna Australia" and in much smaller print referred to "Fortuna Fishing" and "Fortuna Seafoods". The business card recorded one landline telephone and fax number and one mobile telephone number with Mike Rowley as managing director. Fortuna Seafoods also processed some products from suppliers other than Fortuna Fishing. [10] The learned primary judge found that the two companies were treated by their directors and shareholders as one company although with two bank accounts and with separate books of account so that in some respects the transactions between them were at arm's length. [11] Eternal Wind did not call evidence in its case. The arguments in the appeal [12] Counsel for Eternal Wind in the appeal contends that the learned trial judge erred in concluding that Eternal Wind owed a duty of care to Fortuna Seafoods because his Honour wrongly concluded that Eternal Wind had the means of knowledge that Fortuna Seafoods was part of an ascertainable determinate class of persons. He contends there was no evidence to support his Honour's finding. He further contends that the learned primary judge erred in more readily drawing that inference because of the absence of evidence from Eternal Wind or Ganta as to the appellant's knowledge of this issue. [13] Counsel on behalf of Fortuna Seafoods in this appeal argues that his Honour was entitled on the evidence to reach the disputed conclusion. He contends that in any case knowledge or means of knowledge is but one of a number of relevant factors to be considered in determining the ultimate issue of whether Eternal Wind owed Fortuna Seafoods a duty of care not to cause economic loss when it negligently damaged Fortuna Fishing's Melina T and that in all the circumstances his Honour was right to find that it did. Does Eternal Wind owe Fortuna Seafoods a duty of care? [14] In Caltex, the defendant's knowledge or means of knowledge of the foreseeable risk of economic loss to Caltex was clearly established as was the defendant's knowledge or means of knowledge in Perre. McHugh J recognised in Perre, that

6 6 knowledge, or what his Honour and Stephen J in Caltex 23 referred to as "constructive knowledge", is a minimum requirement in finding the existence of a duty of care 24 at least where the case does not fall into a category of previously recognised liability. 25 McHugh J considered it to be unwise and perhaps impossible to exhaustively set out when it would be permissible to rely on "constructive knowledge" but suggested: " it may be necessary to draw a distinction between using constructive knowledge to identify those within a class who are primarily affected by the defendant's negligence (the first line victims) and using constructive knowledge to identify those who have suffered economic loss purely as the result of economic loss to the first line victims. That is, as a general rule, no duty will be owed to those who suffer loss as part of a ripple effect. Ordinarily, it will be an artificial exercise to conclude that, before acting or failing to act, the defendant should have contemplated the interests of those persons who suffer loss because of the ripple effect of economic loss on the first line victims. While the defendant might reasonably foresee that the first line victims might have contractual and similar relationships with others, it would usually be stretching the concept of determinacy to hold that the defendant could have realistically calculated its liability to second line victims." 26 [15] In the light of those observations and mindful of the cautious incremental approach to be taken by courts in determining issues of this kind, I would not find the existence of a duty of care here unless satisfied that Eternal Wind's master or its owner, Ganta, through Ganta's officers, had the means of knowledge that Fortuna Seafoods was a member of a determinate ascertainable class of persons or entities who were at risk of foreseeable economic harm if Eternal Wind acted negligently in colliding with and sinking Melina T. [16] The learned trial judge was conscious that there was no direct evidence of Ganta's knowledge of the commercial arrangements entered into by the Fortuna group of companies or of the arrangements likely to apply to the ownership and operation of fishing vessels in Australia. Whilst Eternal Wind was a Panamanian registered ship, his Honour inferred from Mr Rowley's evidence and the tendered exhibits relating to the Fortuna companies that its master or owner had the means of knowing that commercial fishing ventures in Australia may consist of a number of companies in an integrated company group with related shareholders with different functions undertaken by the individual companies in the group, such as the Fortuna group. In the absence of evidence from Eternal Wind, his Honour felt more able to readily draw the inference that its master or owner could have discovered that Fortuna Fishing as owner of the Melina T may have been part of a related group of companies with another related company marketing its catch (Fortuna Seafoods) and that it should have had the interests of such a processing company in contemplation when navigating Eternal Wind Caltex, above, Stephen J at Perre, above, McHugh J at 222. Perre, above, McHugh J at Perre, above, McHugh J at 223. Fortuna Seafoods Pty Ltd (as trustee for the Rowley Family Trust) v The Ship "Eternal Wind" [2005] QSC 4; SC No 1485 of 2000, 14 January 2005 at [25].

7 7 [17] The uncontradicted evidence at trial was that vertically integrated commercial operations, like those of Fortuna Australia incorporating Fortuna Fishing as the entity catching the fish and Fortuna Seafoods as the closely related entity processing and marketing the fish, were by 1997 common within the Australian fishing industry. It could reasonably be inferred from this evidence that such information was within the means of knowledge of the master or owner of Eternal Wind. Fortuna Fishing and Fortuna Seafoods are separate legal entities, but they were closely related private companies in that they had a common shareholder and their shareholders and directors were the closest of relatives, working together in a vertically integrated, family-operated commercial enterprise. The closeness of the relationship between Fortuna Fishing and Fortuna Seafoods greatly limits the size of the class to which Fortuna Fishing and Fortuna Seafoods belong so that floodgate issues and policy questions do not suggest that it is unwise to find that Eternal Wind owed a duty of care to Fortuna Seafoods. The exact details of the arrangements between Fortuna Fishing and Fortuna Seafoods may not have been expected to be within the means of knowledge of the master or owner of Eternal Wind but it was within their means of knowledge that if Eternal Wind acted negligently towards and collided with Melina T, a commercial fishing vessel, it was likely that Melina T would be unable to operate as a commercial fishing vessel, with resulting loss of profit not only to the entity owning Melina T, here Fortuna Fishing, but also to the closely associated (in terms of directors, shareholders and in their integrated commercial operation) marketer and processor of the commercial fishing catch, here Fortuna Seafoods. [18] His Honour's statement, that he felt more able to readily draw that inference in the absence of any contradictory evidence from the appellant, was not an infringement of the much cited rule in Jones v Dunkel. 28 The drawing of inferences of fact can be assisted by the failure of the party against whom the inference might be drawn to contradict that inference. 29 His Honour was not using the absence of evidence from the appellant to fill gaps in Fortuna Seafoods' case. The uncontradicted evidence from Mr Rowley was sufficient to allow his Honour to draw the inference in the absence of any competing evidence. [19] Whilst that deals with the essential arguments raised on the appeal, I would not dismiss it before determining whether the application of the concepts gleaned from Caltex and Perre to which I referred earlier in these reasons 30 when applied to the facts here warrant the conclusion that Eternal Wind owed a duty of care to Fortuna Seafoods. [20] Eternal Wind does not contend that the likelihood of economic harm to Fortuna Seafoods was not reasonably foreseeable by it. That concession is plainly right. Whilst foreseeability of harm from negligent acts or omissions is an essential prerequisite in establishing that Eternal Wind owed Fortuna Seafoods a duty of care, it is, on its own, not an especially persuasive factor. [21] For the reasons I have given, the appellant had the means of knowledge that Fortuna Seafoods was part of an ascertainable determinate group who were at risk if Eternal Wind acted negligently towards Melina T (1959) 101 CLR 298. Butterworths, Cross on Evidence, vol 1 (at service 90) [3280]. See these reasons [6].

8 8 [22] The imposition of a duty of care on Eternal Wind not to negligently cause economic loss to Fortuna Seafoods by colliding with and sinking the Melina T does not impair the appellant's pursuit of its autonomous commercial interests. The group to which Fortuna Seafoods belongs is a relatively small and determinate class of fish processors and marketers closely affiliated through integrated company structures with owners of fishing vessels. There was no contractual relationship between the appellant and Fortuna Seafoods. Those maritime cases, such as Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd, 31 where courts have been especially reluctant to impose a duty of care to avoid pure economic loss for fear of interfering with long-established international rules, have no application to the facts of this case. [23] It was clear from Mr Michael Rowley's uncontested evidence that Fortuna Seafoods was vulnerable if Melina T was negligently damaged by Eternal Wind. Fortuna Seafoods suffered resulting economic loss from its inability to process Melina T's catch. As a company processing seafood it could do little to realistically protect itself against Eternal Wind's negligent actions. Insurance is always one possible option to limit vulnerability. There was no evidence as to whether insurance was available and at what cost. But, as McHugh J recognised in Perre, insurance is generally not relevant to the issue of vulnerability. 32 [24] Fortuna Seafoods' loss flowed directly from activities within the control of the master of Eternal Wind: the negligent operation of Eternal Wind resulting in the sinking of Melina T meant that Fortuna Seafoods could not process its sister company's catch and suffered economic loss. Fortuna Seafoods was within the class of those whom McHugh J in Perre called first line victims. [25] In Perre, McHugh J included in the special categories of liability where negligence causing mere economic loss has already been recognised by the courts that of "relational economic loss". This is the loss suffered when a defendant damages property owned by a third party and the claimant suffers resultant economic loss because of the relationship that exists between the claimant and the third party. The Canadian courts have given recognition to this principle: Bow Valley Husky (Bermuda) Ltd v St John Shipbuilding Ltd 33 and Canadian National Railway Co v Norsk Pacific Steamship Co. 34 Because of the different jurisprudential path taken by the Canadian courts on economic loss, I am reluctant to place much weight on a close analysis of those cases. Callinan J in Perre also recognised that there may be special circumstances apposite in a particular case that would justify compensation for pure economic loss. 35 Kirby J in Perre observed that the closely integrated relationship of several Perre interests made it highly artificial to divide one member of a commercially integrated operation from another. 36 The close relationship in the makeup of the directors and shareholders of both Fortuna Fishing and Fortuna Seafoods and their integrated commercial relationship is a special circumstance in this case justifying the imposition of a duty of care on Eternal Wind for Fortuna Seafoods' economic loss [1985] QB 350, especially at 387. Perre, above, McHugh J at 230. [1997] 3 SCR 1210 at [1992] 1 SCR Perre, above, Callinan J at 326. Perre, above, Kirby J at

9 9 [26] Fortuna Seafoods also comes within the "physical propinquity" test which Jacobs J considered was necessary in Caltex before finding a defendant liable to a claimant for negligence for pure economic loss. 37 Eternal Wind's negligence caused Melina T to sink so that Fortuna Seafoods suffered economic loss in its inability to process its sister company's catch. There was physical propinquity between the place where Eternal Wind negligently caused the sinking of Melina T and the inevitable and foreseeable physical effect on Fortuna Seafoods' ability to process and market Fortuna Fishing's catch resulting in economic loss. [27] The appellant placed some emphasis on this Court's 1993 decision in Christopher & Ors v The Motor Vessel "Fiji Gas" 38 where this Court refused to find the existence of a duty of care for pure economic loss. Whilst the facts of that case had many similarities to those here, there were significant self-evident differences. It was decided before Perre and without the benefit of the High Court's guidance in that case so that Fiji Gas is no longer of real assistance. [28] It follows that after applying the principles extracted from Caltex and Perre to the facts of this case I am satisfied that the learned primary judge was right in concluding that Eternal Wind, because of its careless conduct which resulted in property loss to Fortuna Fishing and pure economic loss to Fortuna Seafoods, owed Fortuna Seafoods a duty of care so as to sustain an action for damages for negligence. The close relationship, both in the nature of the work undertaken by, and in the structure of, Fortuna Fishing and Fortuna Seafoods, which together formed an integrated family company group, combined with the other factors I have discussed, justify the imposition of the duty. That close relationship also adequately answers policy concerns such as indeterminacy, commercial viability and floodgates. The appeal on liability should be dismissed. The appeal as to costs [29] I turn now to the appeal from his Honour's costs order. The appellant contends that because the judgment was for a sum within the District Court jurisdiction, costs should have been awarded on the District Court scale rather than the Supreme Court scale. [30] This action was one of three related proceedings arising out of the collision of the vessels. The two other proceedings, one for personal injury by the crew of Melina T and the other by Fortuna Fishing for the loss of its vessel, were both for claims within the jurisdiction of the Supreme Court. Fortuna Seafoods' claim arose out of the same factual matrix as the other proceedings and all three proceedings were ordered to be heard together. The Fortuna Fishing action was settled only shortly before the commencement of the trial the subject of this appeal and after a Supreme Court judge was available and allocated to hear all three matters. Fortuna Seafoods' claim was originally for $297,210, an amount in excess of the jurisdiction of the District Court. It was reduced to the sum awarded ($163,256), an amount within the District Court jurisdiction, only when the question of apportionment between the parties settled shortly before trial. [31] His Honour's costs order is unexceptional in these circumstances. The appellant has failed to demonstrate that the order as to costs of the action on the Supreme Court Caltex, above, Jacobs J at 604. [1993] Aust Torts Reports

10 10 scale was outside a sound exercise of discretion. The appeal as to the costs order should be dismissed. Orders [32] Both appeals should be dismissed with costs to be assessed. [33] JERRARD JA: This appeal is about a claim for economic loss in proceedings in this Court arising out of a collision between the fishing vessel Melina T and the motor bulk carrier Eternal Wind on 5 April 1998, 48 nautical miles east of Noosa Heads. The Melina T was owned by a company Fortuna Fishing Pty Ltd ( Fishing ), and the claim in this proceeding was brought by its related company, Fortuna Seafoods Pty Ltd ( Seafoods ); Seafoods claimed as damages from Ganta Shipping SA ( Ganta Shipping ), the owners of the Eternal Wind, the profit Seafoods would have earned from processing and selling seafood that it (would have) obtained from Fishing, had the Melina T not been sunk in the collision. The appellant argues that it owed no duty to Seafoods and accordingly has no liability for that loss. The learned trial judge, after a careful analysis of recent authorities on economic loss, on what constitutes a joint venture, of time charter cases, and of the defendant s capacity to discover the commercial relationship between Fishing and Seafoods, held otherwise, and ordered that the defendant pay Seafoods an amount of damages agreed at $163,256. The defendant has appealed. The judgment under appeal [34] The learned trial judge observed that information in ASIC company extracts exhibited at the trial recorded that the shareholders in Fishing were Frances Rowley and Jonathan Rowley, a mother and son, and the shareholders in Seafoods were Frances Rowley and her husband Michael Rowley. However, the judge noted that Michael Rowley's affidavit evidence was that his wife and son were the only shareholders of either company. Michael Rowley was a director of both companies at all relevant times, and the learned trial judge found that (probably) Frances Rowley was the only other director of both at the time of the collision. [35] The learned judge found that Fishing owned and operated fishing vessels, and Jonathan Rowley was the fleet master for the vessels Fishing owned, at the time of the collision. The judge described the affidavit evidence as being that, before the collision, Fishing supplied its catch to Seafoods which processed and sold it as Fishing s agent, for a fee. It accounted to Fishing for the proceeds of sale. Seafoods also bought fish from other suppliers; Michael Rowley s unchallenged affidavit evidence was that any drop in supply from Fishing was a continuous loss for Seafoods. The judge also recorded that Michael Rowley's oral evidence was that Seafoods did not buy the catch from Fishing, although at least one of his affidavits said it did. The learned trial judge found the financial records of each company were kept separately, and the costs associated with shipping, such as unloading vessels and packaging the catch, were calculated at prevailing industry rates. However, the proceeds of sale of processed fish were fed into the Fishing bank account via the Seafoods account, and sometimes money would be transferred between the two companies and both accounts would be used to meet expenditures. Michael Rowley said in evidence that the two companies were treated as one company with two bank accounts.

11 11 [36] The trial judge recorded that Seafoods was also the trustee of a discretionary trust of which the potential beneficiaries included Fishing; those potential beneficiaries formed a very wide class. There had been significant distributions to Fishing from the trust in most of the years between 1993 and 2000, and the company s accountants said that part of the overall planning of the group was to allocate profits from Seafoods, as trustee, to Fishing, and to pay tax at the appropriate company tax rate. [37] The judge described Seafoods pleaded case, which was that it was owed a duty of care because it was in a relationship of proximity with Ganta Shipping. That was alleged to be so because Seafoods was part of a special and ascertainable class vulnerable to economic loss from the collision between the Eternal Wind and the Melina T; the pleading then described Fishing s position as a beneficiary of the discretionary trust of which Seafoods was a trustee, their status as related companies allegedly controlled and managed as a single economic entity, and the use by both companies of the Melina T to conduct the fishing operation as a common enterprise, such that the loss of the Melina T had a direct impact on the processing operations of Seafoods. Relationship between Fishing and Seafoods [38] The affidavit evidence at the trial, both from Michael Rowley and from loss assessors engaged by Seafoods, was that under an arrangement between them, Fishing sold its catch to Seafoods, which in turn packaged and on-sold those fish. 39 Michael Rowley's affidavit evidence included the statement that the purchase price of the product landed by Fishing was always the higher of the local or export market price. Further, Seafoods paid to each vessel operated by Fishing the same price it paid to any vessel operated by any other supplier. The purchase price paid to Fishing for the product processed and sold in the domestic market was based on the daily current market price for the size of fish of that species, and Michael Rowley deposed to testing that market by telephoning the Brisbane Fish Market, the Sydney Fish Market, the Melbourne Fish Market, and receiving prices on a daily basis from the Sydney Auction Market and the Tokyo Market. When fish was sold for export, Seafoods acted as packer for Fishing and remitted the whole of the sale to Fishing. [39] Consistently with that description, the loss assessor described Fishing as a highly specialised company which primarily fished for high grade tuna and swordfish, and Seafoods as a company which had carved a niche market in restaurants in the USA and in Japan for the high grade catch from Fishing. 40 The report advised that Seafoods charged a fee of $1.50 for packing the seafood, which charge "reduces the price paid by... Seafoods". 41 That evidence described Seafoods as a company which made profitable use of Fishing's catch supplied to Seafoods, but it also made clear Seafoods had other suppliers. Profit and Loss statements for both companies for the years showed variations in income for each, which income was reported as derived only from "sales". For example, in 1996 Seafoods gross income from sales was $848,034, whereas Fishing s was $1,347,810; in 1998 Seafood s gross income from sales was $6,996,027, whereas Fishing s gross income Michael Rowley swore that in an affidavit dated 29 July 2004, at AR 62 The respondent did not make anything in its argument of the fact of this niche market supplied by Fishing s catch At AR 74

12 12 was $1,825,083. Seafoods' 1999 income was in excess of $5,000,000, whereas Fishing's was in excess of $1,700,000. [40] Contrary to that affidavit evidence, Michael Rowley swore in evidence-in-chief that in fact, while the purchase price paid to Fishing was the selling price in the best available market, Seafoods did not buy the fish from Fishing, but sold it on Fishing's behalf, charging it a packing fee: That is how Seafoods earnt its keep, so to speak". 42 His oral evidence was quite clear that Seafoods did not actually buy any fish from Fishing. [41] That oral evidence contained the perhaps contradictory claims that Seafoods charged only a packing fee and sold fish on Fishing's behalf, and also that "The purchase price was actually the selling price and it would always be sold into the best market". 43 The conflicting evidence as to Seafood s role was not resolved by an express finding, or the contradiction explained, although the learned trial judge clearly acted on the view that Seafoods sold the catch for a fee as Fishing s agent. On Michael Rowley's oral evidence Seafoods was only a processor, and it would be Fishing which exploited a niche market in Japan and elsewhere. On that evidence Seafoods loss was only the packaging fees it would have charged Fishing, whereas on the affidavit evidence it was exposed to loss as an on-seller of seafood no longer available to it from Fishing. [42] The position was not clarified in any way by the limited evidence given about the Rowley family trust. That evidence did not identify the source of the money distributed, but did inform that the income of Fishing consisted of fishing income and trust distributions. Those trust distributions were intended to ensure that the rate of tax payable in the year the income was derived by the Rowley family trust was limited to 30 per cent, rather than the higher tax rates which would have been the case if the income was distributed to individual family members. 44 The implication from the assessor s report was that the trust income came in part at least from the sale of fish, but that information did not show that the existence of the trust made Seafoods more vulnerable in any way to loss because of damage to Fishing s boat. The existence of the trustee/beneficiary relationship between Seafoods and Fishing appears irrelevant to any loss Seafoods suffered because of the collision. The trial judge s conclusions [43] The learned judge s analysis of recent decisions of the High Court 45 on liability for pure economic loss led the judge to the conclusion that to succeed the plaintiff needed to show: reasonable foresight of the likelihood of harm; that the defendant knew (or knowledge should be imputed to it) that the Melina T was likely, when damaged, to be productive of consequential economic loss to those who relied directly upon its use; that it was not a case of indeterminate liability; At AR 6 Also at AR 6 This information is at AR 94 and 95 The learned judge also analysed recent articles and decisions in courts other than the High Court

13 13 that the defendant knew or had means of knowing that the plaintiff was a member of an ascertainable class of vulnerable persons who were unable to protect themselves from harm; that the implication of a duty would not impair the legitimate pursuit by the defendant of its own commercial interests; and that the damage flowed from the occurrence of activities within the defendant s control. 46 [44] The learned judge then held that the foresight of the likelihood of harm posed no problems, because if a fishing vessel was sunk it required little imagination to expect that those who might make a profit from processing and arranging the sale of its catch might suffer loss, especially if those persons had limited numbers of suppliers. Nor did the judge have any difficulty in inferring that the defendants knew that the Melina T was likely, if damaged or sunk, to be productive of consequential economic loss to those who relied directly upon its use as a fishing vessel, including those who processed and arranged the sale of its catch. The judge also held that Seafoods was a first line victim 47 whose loss was ascertainable, not indeterminate; nor, in the judge s view would the implication of a duty on the defendant impair its legitimate pursuit of its own commercial interest, since it already had a duty to take care to avoid a collision with the Melina T. Further the damage flowed from activities with the owner s control, namely the navigation of its vessel. The learned judge held that accordingly the remaining issue was whether the defendant knew or had means of knowing that Seafoods was part of an ascertainable class of vulnerable persons unable to protect themselves from harm; in fact it was the only alleged member of the class. [45] As to that, the learned judge considered that the claimed damages fell into a category that might be described as contractual relational economic loss, a term used by Professor Feldthusen in an article cited by the learned judge, 48 which category included cases where the claimant and the owner of the damaged property were parties to a joint or common venture. However, on the learned judge s analysis, relevant or salient features of a typical joint venture were not present in the relationship between Fishing and Seafoods. There was no precise agreement documented between them, they had no property held as tenants in common, no right to take product in kind, and no division in management between them. Instead, each company appeared to have earned its own income, owned its own property, and to have been managed as part of the one group that were commonly owned. The judge noted that Seafoods counsel did not place his case on the argument that the arrangement between the two companies was necessarily typical of a joint venture. [46] Rather, the learned judge held that the relationship between Fishing and Seafoods was akin to that described by McLachlin J in the Canadian Supreme Court, in Canadian National Railway Co v Norsk Pacific Steamship Co, 49 by the phrase The appellant s counsel did not challenge the learned judge s analysis on the appeal; the respondent s counsel suggested that it was unnecessary to prove all those matters for it to succeed Quoting from the judgment of McHugh J in Perre v Apand (1999) 198 CLR 180 at [112] Liability for Pure Economic Loss: Yes, But Why? University of Western Australia Law Review, vol 28 (1999) 84, 98; referred to by McHugh J in Perre v Apand at [96]-[97]; and [101] (1992) 91 DLR (4 th ) 289

14 14 common or joint venturer (or a concept akin thereto) with the property owner. McLachlin J used that phrase to illustrate a situation where to deny recovery would be to deny it to a person who for practical purposes is in the same position as if he or she owned the property physically damaged. 50 The learned trial judge in this matter held that there was a fair description 51 of the position with Fishing and Seafoods, because of the close relationship between the owners of the shares in the two companies, the common control of those companies, and the interlinked operation of their businesses. The judge also considered it significant that Seafoods was the trustee of the trust of which Fishing was a beneficiary receiving distribution from Seafoods income. The judge later remarked that One is tempted to ask rhetorically... in a case such as this, why a wrongdoer should escape paying for part of the loss for which [the wrongdoer] is responsible, merely because the loss is divided between two victims?. 52 [47] The reasoning described helped the judge to the conclusion that the defendant knew or had the means of knowing that Seafoods was part of an ascertainable class of vulnerable persons unable to protect themselves from harm by the defendant s negligence. The judge considered that the existing contract by which both companies profited from the Melina T catch was an interest capable of attracting the law s protection, leading to a result analogous to the decision in Main v Leask [1910] SC In that case the claimants were crew members of a fishing vessel sunk by the negligence of the defendants. The claimants were working at sea under an agreement by which profits of the voyage were divisible in specified proportions among the owners of the vessel, the fishing net owners, and the crew. The claimants loss was suffered at the time when they were serving as crew members on the vessel in accordance with that arrangement, for which they were engaged to the end of the season. Those claimants recovered their economic loss. I observe that they were independently the victims of a breach of duty of care by the defendants, when their negligence carelessly sank the vessel on which the claimants were travelling; and that the reasons for judgment describe the boat owners, the net owners (who were also crew members), and the crew, as all engaged in "what... may be fairly viewed as a joint adventure", 54 in which the crew each suffered a direct loss of profit on the sinking of the boat. [48] The learned judge held that while there was no direct evidence that Ganta Shipping knew of the commercial arrangements likely to apply to the ownership and operations of fishing vessels in Australia, its owner or master had the means of knowing that commercial fishing ventures in Australia might consist of a number of companies in a group, with related shareholders and different functions for the individual companies. The judge held the defendant could have discovered such information, namely that a company like Fishing which owned a vessel, might form part of a related group of companies, with another company marketing its catch, and should have the interests of another such company in mind when navigating the Eternal Wind. The learned judge concluded that because of Seafoods close association with the company whose vessel was damaged, by reason of the family connection of the shareholders, their common directors, the relationship between the CNR v Norsk Pacific Steamship at 376 At AR 160, paragraph [19] of the reasons for judgment At AR 170, in paragraph [23] That decision is discussed in the reasons for judgement of McPherson JA in Christopher & Ors v The Motor Vessel Fiji Gas [1993] Aust Torts Reports at 61,967 Main v Leask at [1910] SC 772 at 779

15 15 two companies as trustee and beneficiary, and the integrated operation of separate aspects of what was essentially one business, Seafoods was a member of an ascertainable class. 55 The judge also held that it was vulnerable to the loss claimed, because there was an absence of evidence that it could have protected itself by other means, such as by seeking and obtaining an indemnity from Fishing. The judge remarked that the conclusion was equally open that Seafoods could have indemnified itself by an insurance policy, whereas there was actually an absence of any evidence that such a policy was obtainable on reasonably commercial terms. The judge accordingly held the defendants liable. The appellant s arguments [49] Its counsel, Mr Duffy, submitted that the learned judge erred in holding that the owner or master of Eternal Wind had the means of knowing that commercial fishing ventures in Australia may consist of a number of companies in a group with related shareholders and different functions for the individual companies, as existed here. There was relatively limited evidence on that topic. Michael Rowley adopted in his oral evidence the description given to him by his counsel, that Seafoods and Fishing were vertically integrated, and Michael Rowley described that as somewhat unique when first set up as a marketing arrangement, but as now a quite common practice. 56 Michael Rowley was nevertheless unsure how the owners of other vessels arranged their marketing, but thought that what he described as imitators were a common practice since Michael Rowley s evidence did not describe clearly what the relationship between Seafoods and Fishing was. The learned judge was accordingly correct in referring only to a general proposition, describing a number of companies in a group with related shareholders and different functions for the individual companies, without describing those functions, other than that Seafoods (in some fashion) marketed the catch. [50] It would have been difficult for either the owner or master of the Eternal Wind to learn the Seafoods/Fishing structure; the ASIC returns for each company did not reveal the existence of the other, or their relationship, and there was no public register recording the existence of the trust. The appellant s counsel conceded in argument that it was foreseeable that the owner of a commercially operated vessel like the Melina T was a corporate entity, but was reluctant to concede that it was also a relatively common experience that separate legal entities conducted different aspects of a business enterprise. I consider a finding in the latter terms was certainly open to the learned judge to make, and that the owner or master of the Eternal Wind had the means of learning that information. The problem for the respondent is the absence of clear evidence as to its relationship with Fishing, other than that it was enmeshed in the process of selling Fishing s catch, and derived income from it. That relationship with Fishing does not per se establish that it was a member of an ascertainable class of vulnerable persons, such that the owner or master of Eternal Wind could or should have foreseen the likelihood of harm to it. [51] The appellants counsel made the point that in Perre v Apand (1999) 198 CLR 180, considered further below, it was an essential feature of the judgments for the plaintiffs that Apand had actual foresight of the likelihood of harm to, and At AR 172 in para [30] At AR 10 At AR 11

16 16 knowledge of, an ascertainable class of vulnerable persons 58 (by reason of its knowledge of the potato market, the growing area, and the West Australian regulations). That is a level of knowledge and foresight considerably higher than the finding by the learned trial judge that the owner or master could know that commercial fishing ventures in Australia may consist of a number of companies with related shareholders and different functions; and that Fishing might form part of such a related group, with another company marketing its catch. The respondent s counsel could not take this Court to other recent decisions in which liability for economic loss was imposed on a tortfeasor with the means of acquiring knowledge only that a class of potential victims, whose property was undamaged, might exist. Almost by definition, such a class is both not ascertainable and also indeterminate. Imposing liability in the circumstances of this case by imputed foresight of the existence of a class of victims who might exist, as marketers of fish caught by a company owning and operating the Melina T, imposes liability simply because that class of victim, if existing, was a related entity with intermingled corporate owners and controllers, when a liability would not be imposed to recompense an independent and unrelated corporate entity (or natural person), which (or who) regularly or always bought and on-sold Fishing's catch; or also processed and marketed the catch for a fee. [52] As to whether such an independent person could claim any economic loss suffered while catches from Fishing were unavailable for purchase while the Melina T was damaged and under repair, the appellant pointed to the lack of evidence that loss by a purchaser or selling agent was foreseen or foreseeable, the absence of evidence of any assumption of responsibility on the appellant s part to Seafoods or any independent purchaser or processor and agent, the absence of evidence of known reliance by Seafoods or such purchaser or agent, and the fact that liability imposed to compensate an independent purchaser, or independent processor and selling agent, would be indeterminate. Mr Duffy summarised the appellant s argument as that the closeness of the relationship between Seafoods and Fishing said nothing about any relationship between the appellant and Seafoods; and that there simply was none recognised by law as justifying an indemnity for Seafoods economic loss. Mr Duffy contended that Canadian authorities did not assist Seafoods anymore than the judgment in Perre v Apand, or Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515, did. Queensland authority [53] Mr Duffy also argued that imposing liability on it in this case would be inconsistent with the result in Christopher & Ors v The Motor Vessel Fiji Gas, 59 a case in which the appellant plaintiffs were the crew of a fishing vessel, the Antonia, which vessel was damaged when at anchor by another vessel which was being berthed. The crew (who were not then engaged in fishing) sued the owners of that other vessel; those plaintiff crew members were paid a percentage of the revenue earned from each fishing voyage undertaken by the Antonia, and their claim was for recovery for the loss of their earnings while the Antonia was out of action. The evidence admitted or established that the owner defendant knew that its vessel navigated in waters where there were likely to be fishing vessels, knew that the crew Perre v Apand per Gleeson CJ at [13]; McHugh J at [104] and [131]-[132]; Gummow J at [206] and Hayne J at [341] [1993] Aust Torts Reports