Case: Perre v Apand Pty Ltd [1999] HCA 36 ; (1999) 198 CLR 180
Outcome: cited
In Perre v Apand Pty Ltd [1999] HCA 36 ; (1999) 198 CLR 180, by majority, the High Court of Australia held that the respondent owed a duty of care to the appellants. In his judgment, Gummow J said at [198] that the question was whether the salient features of the matter gave rise to a duty of care owed by the respondent, and that there was no simple formula which can mask the necessity for examination of the particular facts. 59 The facts or elements upon which the respondents rely support the contention that a party such as KPMG may owe a duty of care to a confined class comprising investors who had acquired promissory notes issued by either York Street or Market Street. In the present case, the vulnerability of the applicant arose subsequent to the making of the investment by reason of the loss of control over the use of the funds and the lack of capacity to take any steps to monitor the recoverability of the loan made by the mezzanine companies to the primary borrowing entity. There is a basis for concluding that KPMG either may have known or ought to have known of these facts, and that KPMG may have had the relevant control itself to take steps to protect the confined class of investors. 60 The concept of vulnerability is now an important requirement in providing a basis for a duty of care to avoid economic loss. It cannot be said that the decision in Esanda [1997] HCA 8 ; 188 CLR 241 should not be considered in light of the concept of vulnerability. Both these propositions follow from the passage in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16 ; (2004) 216 CLR 515 at [23] (footnotes omitted): Since Caltex Oil , and most notably in Perre v Apand Pty Ltd , the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. "Vulnerability", in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, "vulnerability" is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant. So, in Perre , the plaintiffs could do nothing to protect themselves from the economic consequences to them of the defendant's negligence in sowing a crop which caused the quarantining of the plaintiffs' land. In Hill v Van Erp , the intended beneficiary depended entirely upon the solicitor performing the client's retainer properly and the beneficiary could do nothing to ensure that this was done. But in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords , the financier could itself have made inquiries about the financial position of the company to which it was to lend money, rather than depend upon the auditor's certification of the accounts of the company. 63 As to the question of indeterminate liability as raised by KPMG it is necessary to make some observations. First, just because there is an exposure to potential indeterminate liability, this in itself does not preclude the existence of a duty of care to avoid economic loss. It is one factor, maybe a very important factor, in determining whether such a duty arises. It is not a principle of law, but only a policy consideration to take into account: see Perre 198 CLR at [32] per Gaudron J. 64 Secondly, as Hayne J commented in Perre 198 CLR at [336], it is important to understand what is meant by indeterminate liability. As his Honour said: It means more than "extensive" or "large". The damage suffered by persons affected by the defendant's negligence may be very large; there may be many who are affected. But neither of those considerations means that the liability is indeterminate. What is meant by indeterminate in the present context is that the persons who may be affected cannot readily be identified. That formulation invites attention to when this identification is to be possible: is it to be possible at or before the time of the negligent act or omission, or is it sufficient if it is possible to identify the class of those affected after the event? I do not think it necessary to say, in this case, whether identification at the later time would suffice. If, as here, it was possible to identify those who would be directly affected by the conduct concerned at the time of the act or omission that is said to be negligent, and it was known to the person alleged to have been negligent that that was possible, then the liability to those persons is not indeterminate. 65 I do not think that any question of indeterminate liability arises here because the promissory note holders could be readily identified at the time of the act or omission that is said to be negligent, and it would probably have been known by KPMG that that was possible. Further, it may have also been possible that KPMG would have known or have the means to know the nature of the likely losses to the promissory note holders. 67 I accept that to focus upon the promissory note holders as a class as a means of denying the existence of indeterminate liability is arbitrary, but as Hayne J said in Perre 198 CLR at [343]: It may be said that defining the class of those to whom the duty was owed as those growers and processors to whom the Western Australian regulation would apply directly, is to do no more than seize upon an arbitrary means for limiting liability that happens to be available in this case. But there are at least two answers to that contention. First, the application of any limiting mechanism (whether foreseeability alone, or, in cases of pure economic loss, foreseeability and some other criterion or criteria) will apply tests that will leave some persons within their reach and others beyond it. Any test is, to that extent, an arbitrary one.