6 October 2015

In Brief

If you are a public authority (such as a regulator) with statutory powers deciding whether to exercise those powers in a given set of circumstances, the decision in Regent Holdings Pty Ltd v State of Victoria may be relevant to you. It provides guidance on when there might be a duty of care to protect individuals against economic loss.

The decision could have application to State and local government where powers exist in relation to biosecurity, food safety, the environment, wildlife, resources, dangerous dog control, occupational health and safety.  Statutory powers may range from taking samples for testing purposes to ordering quarantine, disposal and destruction, and cessation of the activity causing the threat.

It is a win for the State as the court has kept the tradition of keeping cases involving a duty of care to protect against economic loss narrow.  However, knowing when a duty might arise, even in narrow circumstances, is particularly important where the financial and reputational implications can be disastrous if the public authority gets it wrong.

With todays’ ever increasing litigious environment including the growth of litigation funders, the threat of litigation is real as we have continued to see significant class actions commenced against government in recent times, costing government and the public significantly to defend these actions.

The result of Regent Holdings is that a court is unlikely to impose a duty of care on a public authority to protect against economic loss where:

  • There are conflicting duties
  • There is the potential for indeterminacy of liability, that is, the class of people to whom the public authority may owe a duty of care is indeterminate
  • The public authority does not have sufficient control of the risk
  • The potential liability of the public authority is disproportionate to any fault that might be attributed to it
  • The powers are quasi-legislative in nature (that is, they create offences)
  • The plaintiff is able to protect itself from the risk of loss (vulnerability question)

When statutory powers are in fact exercised, they must be exercised with reasonable care.

What it means for Public Authorities

Public authorities should:

  • know their powers
  • consider on a case by case basis whether there might be a duty of care to protect third parties against economic loss, and
  • ensure consideration of financial risk forms part of their critical incidents response plans.

Facts

The case was a class action against the State of Victoria. The representative plaintiff, Regent Holdings Pty Ltd, an Abalone Access Fishery Licensee, commenced legal action in November 2010 on behalf of itself and approximately 88 group members who were made up of other licensees, divers, receivers and other affected parties from the wild abalone commercial industry.

The plaintiff argued the State owed it a duty to take reasonable care to protect it from suffering economic loss caused by the escape of a virus from a land based aquaculture farm, operated by Southern Ocean Mariculture Pty Ltd (SOM), which killed wild abalone. This was because not only did the relevant State public servants know of the risk of harm to specified individuals, which individuals they alleged were vulnerable, they had the power under legislation to take particular steps to eliminate the risk. The State public servants breached their duty by failing to exercise those statutory powers (including the power to stop the flow of effluent discharge from parts of the farm at relevant times). By reason of the diminished availability of wild abalone for commercial harvesting the plaintiff claimed it suffered loss of income and loss of value of the AFAL .

The State argued there was no duty of care because the powers were quasi-legislative in nature, there were conflicting duties (between the plaintiff and SOM) and liability was indeterminate.

On 7 November 2013, Justice Beach found the plaintiff failed to establish the State owed a duty of care to the plaintiff to protect it from economic loss arising from the escape of the virus from SOM. Even if there was a duty, breach and causation were not established.

The court did not find a duty of care because:

  • There were conflicting duties that the State would owe to SOM and aquaculture farmers on the one hand and those involved in the catching, storing and processing of wild abalone on the other
  • There was the potential for indeterminacy of the class of people to whom the duty might be owed
  • The potential liability for the State would be disproportionate to any fault that might be attributed to the State in preferring the interests of one group to the interests of another group when deciding whether to exercise or not exercise one of its relevant powers. The plaintiff’s claim alone was approximately $8m
  • The powers are quasi-legislative in nature (that is, they create offences)
  • The State did not have the requisite degree of control of the risk justifying the imposition of a duty of care on them. Control was exercised by the farmers, in this case, SOM
  • Vulnerability of the plaintiff (in not being able to take steps to prevent the spread of the disease from SOM into the wild) alone was not enough

If there was a duty, whether there was a breach depended on “what the State tortfeasors did or did not do (and did or did not know (actually or constructively) at each relevant point in time.” All relevant matters had to be weighed, without the benefit of hindsight, and by reference to what was reasonable so far as that person was concerned at the relevant time. The court found there was no breach of duty, there was no evidence that a different decision or action should have been taken given what was known at the relevant time.

On causation, Justice Beach said: “One can only speculate how and when the disease came into the wild” and therefore causation was not established.

The decision went on appeal but all claims were discontinued on 18 August 2015 when a settlement was approved by the Supreme Court and the plaintiff ordered to pay the State’s costs.

Regent Holdings Pty Ltd v State of Victoria [2013] VSC 601 (7 November 2013)

This is for general information only and formal legal advice should be sought on matters of interest arising from this article.

Giovanna Tivisini, Principal at Hive Legal

T: +61 3 8645 8413
M: +61 438 563 628
E:  giovanna.tivisini@hivelegal.com.au
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Email: giovanna.tivisini@hivelegal.com.au
Mobile: +61 438 563 628
Landline: +61 3 8645 8413