The Court of Appeal has allowed the Crown's appeal from the High Court decision finding that the then Ministry of Agriculture and Forestry (MAF) owed a duty of care to kiwifruit orchardists to avoid the devastating Psa bacteria entering New Zealand in 2010.
The Court of Appeal agreed with the High Court that relevant MAF personnel had not acted with reasonable care and that MAF's failures were the likely cause of Pseudomonas syringae pv. actinidiae's (Psa) introduction into New Zealand. But it also held that the Crown had immunity from tort claims under the Crown Proceedings Act 1950 (as then worded). Even more importantly, the Court held that, for policy reasons, MAF did not owe the orchardists a duty – finding that the risk of indeterminate liability meant that such a duty would be unfair, unjust and unreasonable. Accordingly, while the case will no doubt head to the Supreme Court, the decision will be a relief to all regulators whose activities could lead to significant loss.
In 2010, Psa bacteria, long known to damage kiwifruit vines, were detected in two kiwifruit orchards in Te Puke. The bacteria spread rapidly causing severe damage to orchardists throughout the North Island. A number of them, as well as one post-harvest operator, sued the Crown.
On the plaintiffs' case, accepted as probable by both the High Court and Court of Appeal, Psa arrived in New Zealand in a consignment of anthers – being the part of the flower from which pollen is extracted. The anthers were imported from China by a small local company, Kiwi Pollen, with a view to artificially pollinating a number of orchards.
Unsurprisingly, given that the claim was for hundreds of millions of dollars, the plaintiffs' claim was against the Crown rather than Kiwi Pollen – centring on, firstly, at the pre-border stage, the decision to grant Kiwi Pollen the permit to import the anther consignment and, secondly, at the border stage, the inspection and risk-screening of the anthers on arrival in New Zealand.
See a detailed summary in our earlier article.
The Crown Proceedings Act 1950
A preliminary question was whether the Crown Proceedings Act, as drafted at the relevant time, effectively precluded Crown liability. Section 6(1) provided that no proceedings should lie against the Crown unless the relevant act or omission would have given rise to a cause of action in tort against a Crown servant or agent. Having extensively surveyed the history of Crown liability, the Court found that the Crown could only be vicariously, and not directly, liable (at least in respect of actions before July 2013 when there were amendments to the Crown Proceedings Act).
The difficulty for the plaintiffs here was that section 163 of the Biosecurity Act 1993 effectively provides that those acting pursuant to any functions, powers or duties under that Act could not be liable unless they had acted in bad faith. Following earlier Supreme Court authority, the Court held that given this section excluded the personal liability of a Crown servant then the Crown's liability, which could only be vicarious, was also extinguished.
Duty of care
The case was determined on the short above point. However, recognising that the case was likely to go to the Supreme Court, the Court continued with a detailed analysis of both duty and breach, as well as causation.
The Crown tried to argue that border control could not be subject to a duty of care at all, on the basis that that would require the Court to make a determination as to the correct public policy or political decisions to be made, including the level and manner of resourcing. The Court, however, rejected that argument and applied the standard duty analysis – considering foreseeability of harm, proximity of relationship and policy considerations.
Foreseeability and proximity
Foreseeability of harm was easily determined and the Court rejected the Crown submission that proximity should be confined to an actual relationship, such as that between MAF personnel and Kiwi Pollen as an import permit applicant. Rather the Court found that there were numerous factors supporting the finding of a proximate relationship – including:
knowledge of MAF personnel that kiwifruit was a key export crop for which border security was of real importance,
knowledge that Psa was a pest,
the difficulty in containment of the disease coupled with the fact that kiwifruit growers in New Zealand are highly concentrated geographically,
the operational control exercised by MAF personnel at both the pre-border (import permit approval) and border (inspection) stages,
the inability of growers to take steps to reduce border security risk, and
hence the inevitable reliance upon MAF personnel to manage and control risks to the industry and the growers' particular vulnerability to the consequences of a failure to manage and control the risks.
Further, the court recognised that kiwifruit growers were a class specifically at risk from the introduction of a kiwifruit pathogen.
The most significant aspect of the case, however, is the Court's analysis of policy arguments. The Crown argued that the growers' claim was one of liability for failure to protect their economic expectations against the adverse consequence of a biosecurity risk crossing the border and being realised. Such liability involved the potential indemnification of participants in any primary industry against such consequences – and hence enormous damages.
The High Court had rejected this argument – considering that there was a societal benefit from corrective justice, stating that if a person was harmed by the negligence of a government body, it was in society's interests that the government compensate for that harm. The High Court was not persuaded that generalised concerns about indeterminate and disproportionate liability provided a sufficiently countervailing interest to displace the corrective justice interest in this case. Unsurprisingly, the plaintiffs, too, emphasised that ordinary principles of compensatory justice are that a victim should not be left to bear reasonably foreseeable loss caused by a proximate defendant (which, as a matter of fact, both the High Court and Court of Appeal found in this case).
The Court of Appeal, however, saw indeterminacy as a more important issue – emphasising the example that a 2014 Economic Impact Assessment estimated that a large-scale foot and mouth disease incursion in New Zealand would result in a net present value loss in real GDP over the years 2012 to 2020 of $16.2 billion. Its view was that the fact that the Crown was the defendant was not a reasonable rejoinder to the problem of indeterminate liability. The Court expressly rejected the High Court's views on corrective justice saying that “the implications of indeterminate liability of the scale in contemplation here are of such significance that even the Crown ought not to be cast in the role of indemnifier." It stated that “[i]f liability of this magnitude is to be contemplated for biosecurity hazards, we suggest that it would better it be introduced by legislation, in which its metes and bounds might be thoroughly examined and laid down."
Further, the Court of Appeal also saw that the fact that imposition of liability would have potentially significant financial implications, both in terms of paying compensation and having to pay the costs of dealing with claims, which would either result in a reduction in spending on other public services or an increased burden on the public, or both, as “an additional telling consideration which serves to negate the imposition of a duty of care in the present case." Thus the Court concluded that the imposition of a duty of care in this case would not be fair, just or reasonable.
The Kiwifruit case is unusual in that issues of exclusion of liability and/or novel duty are frequently dealt with at the strike out stage. It is unusual for plaintiffs to establish, as a matter of fact, that a defendant's negligence has caused them loss and yet be left without any remedy.
Accordingly, even more than usual, the case focusses squarely on the tension between the role of tort law being to ensure corrective justice and the legitimate policy reasons to avoid the state being the ultimate indemnifier of social costs – particularly in areas in which it has no real choice but to regulate. The interpretive points relating to the Crown Proceedings Act may ultimately be determinative of this case. However, it is how the Supreme Court addresses the tension between the desire to ensure corrective justice and the problems of indeterminate liability that will be of most interest to regulators (many of whom are not covered by the Crown Proceedings Act), their insurers, those who may suffer loss as a result of state action and, of course, their litigation funders (noting that this case was an early funded class action).
Bell Gully will continue to provide updates on this case as it progresses. If you have any questions about the matters raised in this article please get in touch with the contacts listed, or your usual Bell Gully adviser.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.