Perre v Apand Pty Ltd [1999] HCA 36
Chapter 4 – Page 187
Relevant facts
Apand Pty Ltd was a manufacturer of potato chips. The Perre family was one of a number of potato growers in the Riverland region of South Australia who sold potatoes to buyers in Western Australia. This was a lucrative business, as the price of potatoes in Western Australia was more than double the prices elsewhere in Australia.
Apand sold an experimental batch of potato seed to the Perres’ neighbour Sparnon, another potato grower. The seed was infected with a disease called ‘bacterial wilt’ which contaminated Sparnon’s potatoes. Under Western Australian law, Sparnon’s potatoes could not be imported into Western Australia for a period of five years after the outbreak. Nor could any potatoes from farms within a 20km radius of Sparnon’s farm, which included the Perres’ farm.
The Perre family, along with other potato farmers affected by the five year ban, sued Apand for compensation for the economic loss they incurred as a result of being unable to export their potatoes to Western Australia.
Legal issue
The main issue to be decided by the court was whether Apand owed a duty to the Perres and to the other potato farmers to avoid causing them to suffer purely economic loss, that is, financial loss that does not involve any harm to their person or property.
Decision
The High Court of Australia decided that Apand did owe the farmers such a duty of care. The judges gave different reasons for their decisions, but all agreed that it was reasonably foreseeable that the supply of infected seeds to one farmer could affect the ability of neighbouring farmers to sell their produce, and thus cause them to suffer purely economic loss.
According to Kirby J (at para 259):
As an approach or methodology for deciding whether a legal duty of care in negligence exists, I suggested that the decision-maker must ask three questions: (1) Was it reasonably foreseeable to the alleged wrongdoer that particular conduct or an omission on its part would be likely to cause harm to persons who have suffered damage or a person in the same position? (2) Does there exist between the alleged wrongdoer and such person a relationship characterised by the law as one of "proximity" or "neighbourhood"? (3) If so, is it fair, just and reasonable that the law should impose a duty of a given scope upon the alleged wrongdoer for the benefit of such a person?”
Significance
The law of negligence did not previously recognise the existence of a duty of care to avoid causing pure economic loss except in a very narrow range of circumstances. The law was thought to be concerned primarily with responsibility for physical injury and damage to property. Courts appeared to be concerned with the problem of indeterminacy: allowing recovery for pure economic loss would expose defendants to an unpredictably wide scope of liability, since everyone who was out of pocket as a result of the defendant’s careless act would be entitled to sue for compensation, even if they were not directly injured or harmed. This would lead to the courts being flooded with claims for compensation.
This decision demonstrates an increased willingness by the courts to allow a person who has suffered purely financial loss to recover compensation using the law of negligence. The courts are now more likely to recognise the existence of a duty of care where the plaintiff is particularly vulnerable to the type of harm suffered. In this case the Perres had no power to prevent the outbreak of bacterial wilt, and once the outbreak occurred there was nothing they could do avoid losing the lucrative Western Australian contracts as a result of being within the 20km radius. In similar circumstances a defendant will owe a duty of care ot a plaintiff to avoid causing them to suffer pure economic loss.