Introduction

The Full Court of the High Court of Australia recently handed down judgment in the case of Perre v Apand Pty Ltd [1999] HCA 36. This case is important in that it sets a new high water mark for the liability of defendants for pure economic loss.

What is pure economic loss?

Pure economic loss is financial damage suffered as the result of the negligent act of another party which is not accompanied by any physical damage to a person or property. This kind of loss is generally not compensable for a number of reasons, including but not limited to the courts’ fear that if pure economic loss were actionable, there would be no reasonable limit to a defendant’s liability and the courts would become bogged down in claims. The courts often describe this policy as a fear of an indeterminate number of claims by an indeterminate number of parties in indeterminate amounts of money for an indeterminate amount of time. The courts (not surprisingly) refer to this as the problem of indeterminacy.

Example

For example, if a truck crashed into an electricity sub-station, it would come as no surprise that the driver would be liable to ETSA for the cost of repairing the sub-station, along with any profit that ETSA lost from its inability to supply electricity during the repairs. If the sub-station supplied an industrial area, it is likely that the manufacturers and other businesses which were without electricity during the repairs would suffer millions of dollars of lost profits. These lost profits would be characterised as pure economic loss, as the financial damage is not accompanied by any physical damage to person or property. It is these types of losses that are generally not compensable.

The Facts of the case

The claim was brought by the Perre family, potato growers in the Riverland whose major sources of profit were lucrative contracts to supply potatoes to Western Australia. Seed potatoes supplied by Apand to a farm owned by the Sparnons near the Perre's land introduced a potato disease, bacterial wilt, onto the Sparnons’ property. The disease did not spread to the Perres’ land, but because Western Australian regulations forbid the importation of potatoes grown within 20 kilometres of an outbreak of bacterial wilt for 5 years after the outbreak, the Perres lost all of their lucrative potato supply contracts to Western Australia.

Exceptions to the Bar on Recovery for Pure Economic Loss

Previous cases have established limited exceptions to the bar upon recovery for pure economic loss. These include:

• negligent misrepresentations;
• builders’ and engineers’ liability to subsequent house purchasers;
• the duties of statutory public authorities; and
• a solicitor’s liability to a beneficiary under a will.

Each of the above represents a novel category of recovery that was grafted onto the law to allow recovery in a particular case where justice demanded that the plaintiff recover despite rather than because of legal principle. Indeed, the question of recovery for pure economic loss is possibly the prime example of the maxim that hard cases make bad law.

In justifying recovery, each of the judges noted that neither of the two main public policy reasons for denying recovery for pure economic loss were present in the case at bar.

Firstly, given that only potato growers within 20 kilometres were banned from selling to Western Australia, there was no indeterminacy of Apand’s liability.