Background

On 7 November 2013, Beach J delivered his judgment in the Supreme Court of Victoria class action Regent Holdings Pty Ltd v State of Victoria [2013] VSC 601 commenced by the plaintiff on behalf of wild abalone licensee holders.

The action claimed the loss of income of the licensee holders from reduced stocks of wild abalone for commercial harvesting following the outbreak of an abalone virus. In this matter, the plaintiff alleged the State of Victoria (the State)1 (through the actions of various tortfeasors) was negligent in failing to exercise statutory powers which may have prevented the spread of the virus from an abalone aquaculture farm through the coast of Victoria.2 It was alleged the escape caused economic loss for individuals and/or companies involved in and/or connected with the commercial abalone industry, including the plaintiff. 

Justice Beach dismissed the plaintiff’s claim against the State on the basis that the plaintiff failed to establish the State owed a duty to take reasonable care to protect it from economic loss caused by an escape of the virus from the SOM farm. The plaintiff also failed on the issues of breach and causation.

Duty of care

The duty of care alleged to have been owed was a duty to take reasonable care to protect it from suffering pure economic loss caused by an escape of the virus from the SOM farm.

In support of the duty being owed, the plaintiff relied on the High Court’s decision in Pyrenees Shire Council v Day3 (Pyrenees). In particular, the plaintiff relied on Justice McHugh’s characterisation of Pyrenees in the High Court’s decision in Graham Barclay Oysters v Ryan4. The plaintiff contended the State owed the plaintiff a duty of care because it knew of the risk of harm to specific individuals, had the power under relevant legislation to take steps to eliminate that risk and importantly, at an earlier stage, had given directions to eliminate the risk.

The plaintiff further argued the State exercised a sufficient degree of control over the risk of harm that has eventuated to justify the imposition of a duty of care. The plaintiff also submitted that it was vulnerable, in that it could do nothing to prevent or stop the virus from escaping the SOM farm and spreading along the Victorian coast.

The plaintiff alleged each of the State tortfeasors had powers under the Livestock Diseases Control Act 1994or the Fisheries Act 1995 (the Act), and that the proper exercise of one or more of these powers would, as a probability, have prevented the virus from escaping into the wild. In particular, the plaintiff alleged:

  • Dr Millar (the ‘livestock’ inspector under the Act) had powers to make orders to isolate dispose or destroy affected livestock or livestock product; quarantine or keep secure any place affected and to prohibit or restrict movement of any livestock.
  • the Secretary had powers to declare a place as an infected place if the Secretary  reasonably suspects that a place is infected with an exotic disease.
  • the Minister had powers to declare a place as a restricted area and specify prohibitions, restrictions and requirements to operate in the restricted area. It was further alleged that the Minister had power to make a fisheries notice under section 152 of the Fisheries Act to order a person to cull, dispose or decontaminate affected livestock or cease effluent discharge from the farm.

In defence, the State contended that no such duty of care existed, as the powers relied upon were quasi-legislative in nature (in that each of the powers creates an offence) and therefore cannot be compelled or constrained by a common law duty of care.

The State placed significant reliance on the High Court authority of Sullivan v Moody5 in denying the existence of a duty of care on the basis that it would result in the imposition of conflicting duties upon the State (ie between those owed in the public interest to the commercial licensee plaintiff’s and SOM, the owner of the farm) and an indeterminacy of liability (ie it was not foreseeable the extent to which the escape might affect the stocks of wild abalone).

Ultimately, Beach J found that a duty of care does not exist for the following reasons:

  1. imposing a duty would result in conflicting duties owed by the State to the owners and operators of abalone farms on the one hand, and duties owed to those (licensees) involved in the catching, storing and processing of wild abalone on the other hand;
  2. the potential indeterminacy of the class of people the State owes the alleged duty to;
  3. the State did not have sufficient degree of control which justifies the imposition of a duty of care as alleged by the plaintiff. Rather, control was exercised by the farmers who could have taken steps to eradicate or stop the spread of the virus;
  4. the plaintiff’s claim of vulnerability, in that it was not able to take steps to prevent the virus from spreading into the wild, was not a sufficient foundation upon which to base a duty on when looked at in light of other relevant considerations;
  5. the potential liability of the State is disproportionate to any fault that might be attributed to it, in preferring the interests of one group over another, when deciding whether or not to exercise one of the relevant statutory powers6;
  6. the State’s powers in question are quasi-legislative nature (in that they each create offences), therefore the exercise of these powers cannot be constrained by a common law duty of care.

In relation to the reasoning in Pyrenees, his Honour found that the concepts of general reliance and proximity are no longer determinative factors when considering the existence of a duty of care.7

His Honour distinguished this case from Pyrenees on facts, as this was only a claim involving pure economic loss. Secondly, in Pyrenees, there were no conflicting duties or indeterminacy in respect of the class of people to whom a duty of care might be owed. Additionally in Pyrenees there was no disproportionality between the liabilities contended for and the fault of the Council.

Implications

This decision may have implications for insurers involved in class actions where novel duties of care are alleged. The decision will be particularly relevant for insurers of the State, public authorities and/or other parties exercising statutory functions, as it may be indicative of an move away the concepts of general reliance and proximity in determining whether a duty of care sourced from statutory duties, exists.8

This judgment provides guidance on the circumstances where a duty may or may not be imposed and the factors that are relevant to the assessment of whether such duty exists or have been breached. Importantly, Justice Beach’s judgment indicates the existence of a duty of care may be unlikely to be imposed if:

  1. It would impose conflicting duties upon a public authority (ie between the public interest and commercial stakeholders); 
  2. The class of persons who are owed the duty would be indeterminable (ie leads to potential indeterminacy of liability).

Further lessons for the duty of care owed by statutory authorities include:

  1. The State must exercise a sufficient degree of control (vis-à-vis other parties’ ability to take steps to prevent or mitigate the risk) to justify the imposition of a duty of care;
  2. The vulnerability of the plaintiff is not determinative, nor will it provide a sufficient foundation upon which to base a duty on – it must be considered in light of other relevant considerations;
  3. Pyrenees now stands for the general proposition that “when statutory powers are conferred, they must be exercised with reasonable care – so that if the relevant function is performed negligently, a cause of action may arise”.