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Balancing corrective justice and indeterminate regulator liability

By Tim Smith

The Court of Appeal’s decision in Strathboss

In Attorney-General v Strathboss Kiwifruit Ltd [2020] NZCA 98 the Court of Appeal 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 Psa’s 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). Further, the Court held that, for policy reasons, MAF did not owe the orchardists a duty of care. It found that the risk of indeterminate liability meant that such a duty would be unfair, unjust and unreasonable.

As an immediate point, and pending the inevitable appeal to the Supreme Court, the Crown will be grateful for the reprieve from an imminent potential liability for hundreds of millions of dollars (albeit that issues of quantum were put off pending determination of liability). More broadly, however, the real significance of the case lies in the Court’s finding that policy factors outweigh corrective justice concerns such that, even in a context in which both the High Court and Court of Appeal found that MAF’s failures caused the plaintiffs’ loss, those plaintiffs should be left without a remedy. That finding will be a relief – for now - to all regulators whose operational activities could lead to significant loss, including Crown entities which fall outside of the scope of the 1950 Act. To the extent that the High Court decision raised floodgate concerns for government departments, Crown entities and others carrying out operational functions for the public good, the floodgates have, for now at least, been firmly closed.

Background

Kiwifruit on a vine

In late 2010, Psa bacteria - long known to damage kiwifruit vines - were detected in two kiwifruit orchards in Te Puke. The bacteria, of the pandemic variety, 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 for their losses.

Both the High Court and Court of Appeal found, accepting the plaintiffs’ case on this point as probable, that 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.

The Crown Proceedings Act 1950

The High Court dealt with the issue of potential Crown immunity at the back end of its judgment – having already determined duty, breach and causation ([2018] NZHC 1559). In contrast, the Court of Appeal saw the question of whether the Crown Proceedings Act, as drafted at the relevant time, effectively precluded Crown liability as very much a preliminary one. Section 6(1) provided that no proceedings in tort 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. The Court extensively surveyed the history of Crown liability, back to 13th century notions that “the King can do no wrong”, as well as more contemporary academic criticisms of the principles underlying such ideas. Having done so, the Court found that, “[w]hatever the rights or wrongs of the matter may be as a matter of policy”, 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 and related provisions in the State Sector Act 1988 – with the full significance of those amendments essentially being left unexplored).

The difficulty for the plaintiffs arising from the finding that the Crown could only be vicariously liable was that they needed to attribute liability to particular MAF servants or agents. However, section 163 of the Biosecurity Act 1993, in effect, 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. The High Court had said that, to the extent that the section might apply, it should be read only as excluding personal liability for the relevant individuals rather than protecting the Crown from all vicarious liability. The Court of Appeal, however, 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.

As a preliminary point on the issue of duty, the Crown tried to argue that border control could not be subject to a duty of care at all – advocating that the plaintiffs’ claims were simply not justiciable. This was essentially 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 as to the level and manner of resourcing. The Court accepted that the principles of negligence must operate consistently with the doctrine of the separation of powers but agreed with the High Court that the risk assessment of organisms is a “technical decision” unrelated to economic or political considerations. Accordingly, the Court rejected that Crown argument and applied the standard analysis of novel duties of care – considering foreseeability of harm, proximity of relationship and policy considerations as mandated by the Supreme Court case of North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 [The Grange] (in which the court determined that the Crown, unlike councils, did not owe a duty in respect of leaky buildings).

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 between the kiwifruit growers and MAF. They included:

(a) knowledge of MAF personnel that kiwifruit was a key export crop for which border security was of real importance;

(b) knowledge that Psa was a pest;

(c) the difficulty in containment of the disease coupled with the fact that kiwifruit growers in New Zealand are highly concentrated geographically;

(d) the operational control exercised by MAF personnel at both the pre-border (import permit approval) and border (inspection) stages;

(e) the inability of growers to take steps to reduce border security risk; and

(f) 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.

The Crown further argued that proximity should not be found because MAF personnel were neither the direct cause nor the primary source of the harm. The direct harm to kiwifruit growers’ properties, it said, was caused by Kiwi Pollen through its application of the Psa infected material to the relevant orchards. The Crown said that it was not right to hold MAF personnel morally culpable (the ultimate foundation of negligence liability) for the Psa incursion on the ground that they failed to prevent a third party from bringing a dangerous good into New Zealand. However, the Court of Appeal cited familiar cases to emphasise that courts have routinely recognised duties for failing to prevent harm caused by third parties. In Home Office v Dorset Yacht Co Ltd [1970] AC 1004 (HL) the primary source of risk was the borstal trainees (not the Home Office employees). In Couch v Attorney-General (Couch No 1) [2008] NZSC 45, [2008] 3 NZLR 725 it was Mr Bell (not the parole officer). In the building inspection cases the primary sources of risk were the building, the environment and the builder (not the inspector). Further, the court recognised that kiwifruit growers, with property rights in the vulnerable vines, were a class specifically at risk from the introduction of a kiwifruit pathogen such that proximity between them and MAF should be found (noting that the Court did not engage with the cross-appeal of the post-harvest operator, in respect of which the High Court had found no duty owed).

Policy

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.

While recognising the strength in this argument, the High Court had ultimately rejected it. It considered 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 unless there is a sufficiently countervailing public interest. The High Court was not persuaded that generalised concerns about indeterminate and disproportionate liability provided such a sufficiently countervailing interest to displace the corrective justice interest in this case. Unsurprisingly, the plaintiffs, too, emphasised that ordinary principles of compensatory justice dictate 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. It emphasised that there is a legitimate interest in regulatory bodies being free to perform their role without the chilling effect of undue vulnerability to actions for negligence. 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” (at [260]). 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 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.

Comment

Issues of exclusion of liability and/or novel duty in tort are frequently dealt with at the strike out stage. It is unusual for plaintiffs to establish as a fact, as they did here, that a proximate defendant’s negligence has caused them loss and yet be left without any remedy. Accordingly, even more than usual, this case raises squarely 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 the Crown Proceedings Act may ultimately be determinative. However, it is how the Supreme Court addresses the policy tension between the desire to ensure corrective justice and the problems of indeterminate liability that will be of most significance to regulators, their insurers, those who may suffer loss as a result of state action and, of course, their potential litigation funders.

Tim Smith is a partner with Bell Gully, Wellington. Tim was formerly a Crown Counsel in the Crown Law Office and was junior counsel for the Attorney-General in North Shore City Council v Attorney-General (The Grange), the leading Supreme Court case on analysing novel duties of care.

Last updated on the 12th May 2020