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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Negligence - Alleged negligent misrepresentation by Minister of the Crown - whether a government promise which has the effect of fettering future executive action is void - whether a statement which fetters the exercise of statutory powers may be actionable as a misrepresentation - whether negligent exercise of statutory powers is actionable - whether for reasons of public policy Ministers of the Crown and government officers are automatically exempt from duties of care - reasonableness of reliance on "reassuring" speech of Minister.Trade Practices Act 1974: ss. 52, 82
Wool Tax Acts (Nos 1-5) 1964
HEARING
SYDNEYCounsel for the Applicants: J. Hamilton QC and S. Warmsley
Solicitors for the Applicants: Blessington Judd Freeman Lazarus
Counsel for the Respondent: D. Bennett QC and S.W. Gibb
Solicitors for the Respondent: Australian Government Solicitor
ORDER
THE COURT ORDERS THAT:2. The applicants pay the costs of the respondent of the proceedingNote: Settlement and entry of orders is dealt with in Order 36 of the
including any reserved costs.
DECISION
LOCKHART J. In June 1990 the International Wool Textile Organization ("the IWTO") held its annual conference at Dubrovnik, Yugoslavia. The conference was attended by representatives of bodies involved in the international wool trade including growers, exporters, spinners, weavers, topmakers, brokers, buyers' agents and the Australian Wool Corporation ("the AWC"). The respondent, the Honourable John Charles Kerin, Australia's Minister for Primary Industry and Energy, attended the conference, and, on 6 June 1990 made a speech to the delegates which is the genesis of this proceeding. The typescript of the speech covers 13 pages; I will refer to it later. It is the concluding passages of the speech upon which the applicants rely to found their case.2. They assert that in making the speech the respondent represented to the
people present, including representatives of the applicants:
-
(a) that the floor price indicator for Australian wool3. In making this speech the applicants assert that the respondent was guilty of negligence. They claim that the respondent did not have reasonable grounds for making it and was aware or believed that it was likely or possible that in the near future the floor price indicator would be further reduced or the reserve price scheme abolished. The applicants allege that, acting on the faith of the speech and in particular the statements mentioned above, they were induced to retain their then stockpiles of wool and incurred further expense in processing the wool and in storing it. The reserve price scheme for Australian wool was suspended in February 1991 for the remainder of the 1990-91 wool season and thereafter abandoned. The applicants assert that in consequence of these matters they have suffered loss or damage in excess of $11m which they claim from the respondent.
would not be reduced below 700 cents per kg to which
it had just been reduced from 870 cents per kg;
(b) that any change in the floor price indicator would be
an increase, not a decrease; and
(c) that the reserve price scheme for Australian wool
would be maintained and not abolished.
4. The respondent denies these allegations of the applicants and says that the statements made by him in his speech at Dubrovnik were on their face and to the knowledge of the persons present, including the representatives of the applicants, a stance being taken by the Australian government. The respondent says that the statements were incapable of bearing their literal meanings, obvious hyperbole, statements of present intention on the assumption that there were no major changes of circumstances, and policy statements by a Minister of the Crown on matters of high economic policy. The respondent asserts that the cause of action for damages for negligence is incompetent. He says that, although he made the statements attributed to him by the applicants at Dubrovnik, they did not constitute representations upon which reliance could have been reasonably placed by any person so as to sustain a cause of action for damages for negligence.
5. The applicants, Unilan Holdings Pty Ltd, Unilan Australia Pty Ltd and Hamilton Wool Processing Pty Ltd, are companies incorporated in Australia engaged in the international wool trade. The applicants, together with a number of other companies, constitute the Unilan Group which is owned almost entirely by the Shasha family of Argentina. The President of the group is James Shasha, an Argentinian citizen, who gave evidence in this case.
6. When the proceeding was commenced by the applicants on 27 September 1991, they alleged two causes of action against the respondent, each sounding in damages: the first claim was for damages under s. 82 of the Trade Practices Act 1974 on the basis that the statements made by the respondent at Dubrovnik constituted representations made in trade or commerce between Australia and places outside Australia which constituted conduct that was misleading or deceptive, contrary to s. 52 of the Trade Practices Act. The second claim was for damages for negligence.
7. A Judge of the Court, on the application of the respondent, struck out so much of the Statement of Claim as asserted a cause of action based on alleged contraventions of s. 52 of the Trade Practices Act on the basis that the giving of the speech by the respondent was not conduct in trade or commerce. The sole remaining cause of action is the claim for damages for negligence at common law. It is this issue (and no other) which proceeded to trial before me.
8. The parties contend that the case involves questions of law, including the
following: -
. Whether a government promise which has the effect ofThese are broad statements of the propositions to which I shall return later.
fettering future executive action is void;
. Whether conduct which, if engaged in by a private citizen,
might constitute actionable misrepresentation, will be
construed as constituting such a representation where it
relates to the exercise of statutory powers in the future;
. Whether negligent exercise of statutory powers is actionable
in the circumstances of this case;
. Whether for reasons of public policy Ministers of the Crown
are automatically exempt from assuming duties of care.
9. The case turns primarily on the facts to which I now turn.
10. Wool accounts for less than 5% of total world textile fibre production. Synthetic fibres account for the bulk of manufactured fibres. Wool's market share has halved over the past 30 years or so. The level of wool supplies is influenced by many factors. The level of stocks has a direct bearing on the availability of wool. In the short term, wool growers are less able to adjust their production to changing market circumstances because of the lead time required to change flock sizes and production regimes. However, production is much more responsive to price in the longer term. Accordingly, accumulated stocks can play an important role in moderating short term imbalances in production and demand. Wool stocks are held all along the processing chain, but the quantity held at each point fluctuates considerably in the light of market conditions and expectations. In a buoyant market, processors tend to increase their stocks, whilst those held by producers are run down. The converse applies in a depressed market.
11. Australia accounts for one third of world wool production. Australia's dominance is most marked in fine apparel wools.
12. About 80% of the wool produced in Australia is exported as greasy wool. Most of the remainder is exported as clean fibre (that is scoured, carbonised and tops). Very little is exported as yarn or further processed products. The European Community provides the largest market for Australian wool, having taken an average of one third of Australia's raw wool exports during the 1980s. France, Italy and Germany are Australia's major customers within the Community. Japan is the second largest buyer of Australian wool, taking about 19% of exports. During the 1980s, eastern Europe, China and the USSR (now the Commonwealth of Independent States) emerged as important buyers of Australian wool, purchasing an average of 6%, 8% and 10% of the value of Australia's wool exports respectively. However, their purchases declined sharply in the years 1990 and 1991, and this contributed to the dramatic decline that occurred in the market. The importance of various destinations for Australian raw wool has changed markedly over time. Historically, the United Kingdom was the dominant market, but now accounts for only 2% of Australia's wool exports. Japan's share of Australia's raw wool exports increased to over 30% in the early 1970's; but with the decline in its early stage processing industry, Japan's share fell to under 20% in the 1980s. Japan now imports significant quantities of semi-processed wool from its Asian neighbours.
13. A variety of wool selling systems has operated in Australia over the past 25 years or so. Buffer stocks, deficiency payments and price pooling schemes have all operated at one time or another during this period. Earlier, compulsory acquisition schemes were instituted during the two world wars.
14. The original Reserve Price Scheme ("the Scheme") was introduced in November 1970 during a period of depressed wool prices and great market uncertainty. Under the Scheme the then Australian Wool Commission attempted to smooth price fluctuations (commonly referred to as "potholes") rather than to defend a minimum price. Because of the depressed state of the market, the Australia Wool Commission began buying wool immediately and by the end of the 1970-71 season had accumulated over 582,000 bales, which were subsequently sold at a profit. The Scheme was initially funded through a government established credit facility where borrowings were charged at the rural credit rate of interest. Several changes have been made to the Scheme since 1970. In particular, the AWC was established in 1973, by merging the Australian Wool Board and the Australian Wool Commission, and given responsibility for the operation of the Scheme. The Minimum Reserve Price was introduced in 1974 to provide growers with a guaranteed minimum price for their wool. This modification was introduced when market prices were weak and stocks were rapidly accumulated. The floor price was initially underwritten by government guarantee, but eventually was financed by growers through the wool tax, trading profits from the purchase and sale of wool by the AWC, and interest on investment of surplus funds. The government guarantee of commercial borrowings by the AWC was introduced in June 1990.
15. Under the original legislation, the then Minister for Primary Industry determined the Minimum Reserve Price. During the mid 1980s there was a significant change in the respective roles of the Government and industry in rural affairs. The Wool Marketing Act 1987 gave responsibility to the AWC and the Wool Council of Australia ("the WCA") for the management and day to day running of the wool industry. The Government's role was one of broad strategic oversight and direction. However, the 1987 Act did not involve significant changes to the wool selling or other functions of the AWC.
16. The original purpose of the Scheme was twofold: to protect growers against disastrously low prices and to provide them with some protection against short term falls in the market. Over time, the perceived objectives of the Scheme changed considerably. In particular, by 1989 many producers, buyers and users came to regard the Minimum Reserve Price as a means of setting the market price.
17. The Scheme was a buffer stock scheme, namely, the AWC bought and sold wool to offset the consequences to price of changes in supply and demand. At times of low prices the AWC purchased wool which failed to reach the floor price; and conversely, when prices moved significantly above the floor, the AWC became a net seller of wool. The AWC was also permitted to purchase wool at prices above the Minimum Reserve Price which had been set for a particular season. It did this through the use of flexible reserves and intervention reserves. Flexible reserves were set above the minimum reserve price for short periods of time within a season. They were used in response to short term market aberrations. Only a small proportion of the AWC's purchases were made using flexible reserves. Intervention reserves were introduced in September 1986, the objective being similar to flexible reserves; but, unlike flexible reserves, they were announced publicly and tended to operate across all types of wool and for longer periods of time.
18. The Scheme was funded by a proportion of the tax paid by growers on the value of shorn wool. As at early 1991 the tax was 25%. In addition the AWC was permitted to borrow up to 50% of the value of its net assets without ministerial approval; but since 1989-90, borrowings in excess of this amount have been necessary and Government approval has been required.
19. In 1983-84 the AWC accumulated a stockpile of 1.6 million bales of wool. Since the AWC was holding such a large amount of wool, private buyers and processors allowed their stocks to run down. Increased demand over the mid to latter part of the 1980s (particularly from China, the USSR and Japan) resulted in the virtual elimination of the AWC's stockpile. The rapid increase in prices which occurred during 1987-88 was attributed in part to panic buying by the trade to rebuild their stocks as the AWC's stocks fell. Normally, prices would have fallen when privately held stocks had been replenished, but this was prevented from occurring by the substantial increases that were made to the Minimum Reserve Price to maintain the higher level of recent prices. There was an increase in the Minimum Reserve Price from 508 c/kg clean in 1986-87 to 870 c/kg clean in 1988-89 (an increase of more than 70%). This changed the reserve price from its traditional conservative level to one that was potentially interventionist. At the time it was considered that with wool prices over 1,000 c/kg and up to an average of 1,257 c/kg in April 1988, a floor price of 870 c/kg was not unreasonable. The expectation was that inflation would gradually reduce its level relative to the long term price trend and that any stockpile created in the meantime would be manageable and supportable within the available $1.5 billion of funds then in the Market Support Fund and the additional $800 million borrowing available to the AWC. There were divergent views on this strategy, particularly within the WCA.
20. Wool peaked at over 1250 c/kg clean in April 1988, but during late 1988 and 1989 fell by some 30% and by the end of the 1988-89 season had reached 893 c/kg clean. This meant that, for some grades of wool, the market was well below the Minimum Reserve Price. This resulted in the AWC's stocks of wool increasing from almost nothing at the start of the season to just over 188,000 bales by the end of the season. During the 1989-90 season, wool prices fell even further, with the result that the AWC's stocks rose rapidly to a level of about 2.5 million bales in May 1990. This downturn in the wool market was due to a number of factors: an increase in the supply of wool following good seasonal conditions, a build up of sheep numbers in Australia, the withdrawal of China from the market, problems associated with payments by countries in the former Soviet block, warm winters in the northern hemisphere and the negative reaction of world wool processors to the high prices of 1988. In the course of purchasing wool at the auctions, the AWC used the $1.8 billion of wool growers' funds in the Market Support Fund ("the MSF"), which comprised the moneys collected from the wool tax, as well as interest which had accrued on the MSF's investments. The AWC was therefore purchasing wool with funds obtained from growers through the wool tax. The advice to the respondent was that the AWC would finish the 1989-90 season with a stockpile of about 2.7 million bales and with commercial borrowings of more than $1 billion in excess of the $1.8 billion which had come from growers. The purchases by the AWC under the Scheme reached record levels with the Minimum Reserve Price being 870 c/kg clean, the AWC having increased this price by some 70% over two seasons. Senior officers of the respondent's department expressed the department's concern to him, and he himself became seriously concerned about the position in October and November 1989 when his attention was drawn to the very fast rate of increase in the level of the AWC's stockpile. The respondent met with the Prime Minister at which the respondent and his departmental secretary alerted the Prime Minister to the potential situation that would emerge if the trends then becoming evident were to continue. It was the respondent's view that the appropriate responses of the Government should be to encourage the leaders of the wool industry to take the necessary initiatives themselves to ameliorate the situation. Consequently, the respondent called a meeting with industry leaders, both of the AWC and the WCA, in Melbourne in December 1989 at which he told them that, if they took the necessary action, the emerging difficulties could be "headed off". However, the clear position of the board of the AWC, as represented to the respondent by its members, was that little needed to be done apart from monitoring the situation. The board's view was founded in part on the fact that there had been two previous episodes of stockbuilding during the life of the Reserve Price Scheme and on both those occasions the AWC had been able to trade its way out of its difficulties. In January 1990 the respondent agreed to increase the AWC's borrowing limit to $1.5 billion.
21. During February 1990 it became even more obvious to the respondent, as well as other observers in the industry, that the wool industry would experience a very difficult time, mainly due to lack of demand, record production, rising stocks and a loss of wool buyers' confidence in the capacity of the AWC to hold the price. Unlike previous periods of stockbuilding, this one was very quick, and representatives of a large part of Australia's traditional market had stopped buying. Also, the price of cotton and synthetics relative to wool was far lower in comparative terms than on previous occasions when the AWC's stockpile of wool had grown. As stocks of the AWC rose, the AWC started running down its reserves and put forward a case to the Government that there would be a need for it to borrow additional funds and to increase the market support component of the wool tax to service its borrowings, the costs associated with scoring and insuring the rapidly increasing stocks.
22. Following requests from the AWC, and after consulting the Federal Treasurer, the respondent agreed in March 1990 to a new borrowing limit for the AWC of $2.5 billion and also to support amendments to the Wool Tax Acts (Nos 1-5) 1964 to increase to 15% the maximum rate of wool tax which could be applied to the sale value of shorn wool. The respondent considered that these measures would be adequate to enable the industry to generate sufficient funds to support the Scheme through 1990-91. The AWC's stockpile of wool had grown to 2.45 million bales by April 1990.
23. By that time it was becoming apparent to many observers, including the respondent, that the wool industry's situation in 1989-90 was not a short term phenomenon and that the market would remain subdued in the medium term. The AWC had, in the respondent's view, no viable strategy other than promoting the "middle market" blends, and selling men's trousers in the United States. Production was not expected to fall dramatically, nor demand to increase dramatically, and the prospect in the opinion of the respondent was that the AWC's stockpiles of wool would continue to rise for at least the next few years. The very firm position of the majority of the wool industry, particularly the WCA, was at that time to maintain the Minimum Reserve Price at 870 c/kg clean with some appropriate increase in the amount of the wool tax. The WCA had at about that time decided that the maximum rate of the wool tax should be set at 25%, and its representatives requested the respondent to include this in the Wool Tax Amendments Bills proposed to be introduced in the May 1990 sittings of the Parliament.
24. At the same time, representatives of the wool industry strongly resisted a reduction in the Minimum Reserve Price and argued for an increase in the wool tax to accommodate increased borrowing requirements of the AWC and storage costs. The respondent became increasingly concerned about the rising liability for increased borrowings by the AWC and the producers' inability, in his opinion, to appreciate their real situation. The respondent believed that the flaw in the argument of the producers was that it required the full burden of adjustment to be carried on the suppliers' side. A tax increase meant an effective cut in the producers' net price, but the consumers' price was to stay high. Hence, producers would carry all the burden of the adjustment, suffering a larger fall in their net price and higher taxes than would have been needed if the price to consumers was also cut, thereby bringing about an increase in demand.
25. The options which the respondent believed were available to him as Minister at the time were either to approve industry requests for an increase in the rate of the wool tax paid by wool producers in order to maintain the Scheme, or to intervene directly or indirectly in the setting of the Minimum Reserve Price for the 1991 wool selling year, which commenced on 1 July 1990. At that stage advice to the respondent was that wool stocks were likely to reach 2.75 million bales by 30 June 1990, and if the Minimum Reserve Price were held at 870 c/kg and the tax set at 20%, stocks would increase to about 4.8 billion bales by mid 1991, and the borrowing of the AWC would exceed the limit of $2.5 billion. The advice was also that stocks by the end of the 1991-92 season could be in the vicinity of some 6 million bales, with the AWC having a borrowing requirement in excess of $3.7 billion. The respondent decided that the projected stockpile, along with the projected AWC's borrowing levels, demonstrated that the strategy favoured by the AWC was fraught with risks which were too high for the Government to accept. The respondent believed that on the best projections, with stockpiles of wool and AWC's borrowing being at this level, the industry would not be able to trade its way out of trouble. He also believed that in general there was a limit to which a prudent industry should tax itself and borrow in order to become both its own major customer as well as holder of its own stockpiles.
26. It was the respondent's view that the main aim of any ministerial involvement in setting the Minimum Reserve Price should be to attempt to effect a realignment of the supply and demand for wool as quickly as possible, and to reduce any unnecessary risks to the industry and the Scheme. The respondent considered it essential for the AWC and the industry as a whole to come to a commercial decision in respect of the Minimum Reserve Price and an appropriate rate of wool tax.
27. The respondent had, from time to time, been provided with the results of economic modelling by the Australian Bureau of Agricultural and Resource Economics ("ABARE") which showed that with a Minimum Reserve Price of 700 c/kg and a tax rate of 20%, stocks would increase to 4.1 billion bales in the 1990-91 period, and would be about 4.5 billion by the end of 1991-92, but then would begin to decline after 1992-93. ABARE's economic modelling showed that a reduction in the Minimum Reserve Price from 870 c/kg to 700 c/kg with a wool tax of 20% would result in higher aggregate incomes for growers over the succeeding four or five years, by as much as $530 million or $3.10 for each sheep then in the Australian flock. This equated to about $6,700 per farm. The respondent was aware that a reduction in the Minimum Reserve Price would initially reduce farm incomes, but he was also concerned that in net terms the industry would be better off in the long run and recovery would occur earlier with such a reduction. It was the respondent's view, and the view of his advisers, that it was better for the growers to take the larger reductions in income early, as they would be better off in aggregate terms over the ensuing 4 or 5 year period. The respondent was particularly of this view since the industry had had several very good seasons, both for production and price. He favoured a decision to "front end load" the adjustment for the further reason that pastoral conditions were then good throughout much of the wool growing areas in Australia, whereas to make a hard decision later, perhaps in a drought affected year, would be impossible politically for the Government to countenance.
28. Accordingly, the respondent met with representatives of the AWC and the WCA on 3 May 1990 when the representatives of the industry argued for the maintenance of the 870 c/kg Minimum Reserve Price together with an extension of the AWC's borrowing limit and wool tax rate of 25% in order both to service borrowings and to build growers' equity in the MSF. Representatives of the industry also indicated to the respondent that they wished the Government to allow the AWC to go beyond its then $2.5 billion borrowing limit. However, the respondent had received advice from ABARE, supported by the AWC's own staff analysis furnished to him, that a Minimum Reserve Price of 870 c/kg combined with a wool tax of 25% and a borrowing limit of $2.5 billion would make the Scheme unsustainable and would impact adversely in the longer term on wool growers' income. Based upon that advice the respondent was of the view that maintenance of the Minimum Reserve Price at 870 c/kg would have very serious consequences for the industry and its structures, as well as the towns and workers dependent on the industry. Therefore the respondent advised the industry leaders that, given all the risks involved, he thought it most undesirable to increase the wool tax rate above 15% and that he looked to them to take a leadership role in bringing the industry around to a more realistic position in relation to the wool tax rate and the Minimum Reserve Price. However, eventually, despite the respondent's own misgivings and in the face of persistent industry demands for a tax rate of 25%, he ultimately agreed to a rate of 20%.
29. The respondent next met with the leaders of the AWC on 18 May 1990 and on 23 May 1990 addressed the national meeting of the WCA in Roma, Queensland. His objective at those meetings, he said in evidence, was to seek to persuade the industry to achieve a balanced package of tax rate and Minimum Reserve Price, matching a maximum tax rate of 25% with a substantial cut in the Minimum Reserve Price to 700 c/kg. On 28 May 1990 the AWC provided the respondent with a submission in support of 870 c/kg for the 1990-91 season.
30. Shortly thereafter, the Government accepted the respondent's recommendation that he should intervene directly in setting the Minimum Reserve Price, and on 31 May 1990 he met with the AWC and issued a direction instructing it to lower the Minimum Reserve Price to a level which would mean that the weighted average reserve price was not more than 700 c/kg for 1990-91. The direction was given pursuant to s. 120 of the Wool Marketing Act 1987.
31. On 1 June 1990 the respondent made a statement to Parliament on the
question of the new reserve price for wool as part of his
second reading
speech on amendments to the Wool Marketing Act. Amongst other things he said
on that occasion: -
"Mr Speaker, for the reasons I have given, it was necessary32. The respondent said in evidence that it was his view that by this time the only option which he could reasonably exercise was to direct the industry to take a sensible approach to the problems facing it. He said this was the fundamental reason for his decision to intervene to lower the Minimum Reserve Price from 870 c/kg to 700 c/kg. At the time he made the decision, he said that he was confident, based on ABARE's projections on sales, the level of stocks, production and the financing of borrowings, that the Minimum Reserve Price of 700 c/kg could be held and that the Scheme would continue to be maintained. The respondent said, in other words, that he believed that the effect on supply and demand of a one-off corrected price of 700 c/kg would allow the market itself to clear the AWC's stockpile of wool over a reasonable period.
for me to issue the direction to the Australian Wool
Corporation to set and publish next season's reserve price
at no more than 700 cents per kilogram clean.
The government believes that at this level the
competitiveness of wool will be restored and stocks,
borrowings and the wool tax rate will be able to be brought
down to manageable levels more quickly than under the
present floor price. The risks of the financial collapse of
the AWC or the industry are substantially lower.
Furthermore, the decision will restore the reserve price to
its original purpose as a floor: to underwrite the market
in order to protect growers against large sudden falls in
wool prices.
In taking the decision to lower the floor, the Government
will not contemplate, under any circumstances, further
downward movement from this level.
The decision of 700 cents as a floor is immutable. The wool
trade can now act with confidence that the price will not be
reduced further.
The Government has given tangible expression in offering to
guarantee all borrowings of the Australian Wool Corporation
for the next two years.
Against this background, the Government has decided that a
review of pricing policy in the wool industry should be conducted.
The basic aim of such a review would be to analyse changes
which have taken place since the current arrangements were
introduced in 1974 and to recommend measures to make the
arrangements more effective. I will be announcing details
of the review at a later date.
Let me make this perfectly clear.
The Government's commitment to the 700c per kg floor is rock
solid.
Any recommendations will not be allowed to induce another
dizzy round of speculation.
Of critical importance now is for the AWC and the industry
leaders to manage the future, for the sake
of the future and for the long term benefits of growers."
33. At that time, the respondent also decided to establish a special committee of inquiry, the Wool Review Committee, headed by Sir William Vines (the "Vines Committee"), and a new interim wool policy council to provide a means whereby the industry leaders and the Government could consult each other closely. One of the crucial variables at that time was the degree of confidence of the market in the industry's ability to trade out of difficulty.
34. The respondent said in evidence that from his observation the lowering of the Minimum Reserve Price from 870 c/kg to 700 c/kg acted in the short term to reduce instability and the lack of confidence then being exhibited by buyers of wool. He said that he believed that it would be more effective if the Government and the industry stood behind the decision. His advice had been that with the "wool demand pipeline" virtually empty, it was certain that the AWC and growers would bear the greatest cost, but that downstream sectors of the industry on the demand side would be able to accommodate the new Minimum Reserve Price with judicious commercial management. The respondent's advice, based on ABARE's projections, was that if supply and demand remained the same, a Minimum Reserve Price of 870 c/kg would have required a tax of over 30% to finance borrowings by the end of 1991.
35. The respondent said that on all the facts and projections known to him in the first half of 1990 and his own detailed knowledge of the wool industry over some 20 years, he believed that the "one-off" correcting decision to lower the Minimum Reserve Price from 870 c/kg to 700 c/kg would allow the "producing and using" industries to trade out of trouble, albeit at a significant but unavoidable cost to producers, but also, most importantly, would lower the potential contingent liability which could otherwise have fallen upon all Australian taxpayers.
36. The respondent gave evidence that all the "economic and arithmetic" evidence available to him before he decided that this was the only viable option, pointed to the conclusion that the course of action favoured by many in the industry, namely, the maintenance of the Minimum Reserve Price at 870 c/kg at any cost, was undesirable and not sustainable. The respondent said that, given the unwillingness of the industry to act for itself, he believed that there was no alternative for him as Minister of the day but to intervene and to lower the Minimum Reserve Price. He said that he was in possession of a wide range of economic, market and production evidence, all of which pointed to the need to lower the Minimum Reserve Price. He was conscious of the vital importance of reinstating full confidence in the industry on behalf of all sectors involved, from growers to buyers and manufacturers. Based on the advice he received, the respondent confidently expected the change to a Minimum Reserve Price of 700 c/kg to be sufficient to enable the industry to recover. He said that he had it most firmly fixed in his mind that this was the "one-off" change required. However, he said what he did not and could not anticipate was the set of international and political economic events which took place after the decision had been taken and which resulted in a large proportion of the traditional buyers of Australian wool ceasing to operate in the Australian wool market, particularly from November 1990.
37. Evidence was given by Dr Brian Stanley Fisher, former Dean of the Faculty of Agriculture and Professor of Agricultural Economics at the University of Sydney, who since November 1988 has been the Executive Director of ABARE. In his position as Executive Director of ABARE, Dr Fisher was the primary source of advice to the respondent with respect to economic issues affecting the wool industry and the market outlook for wool. Professor Fisher and the respondent discussed matters relevant to this on a regular basis, sometimes two or three times a week. Dr Fisher gave evidence that the advice that he furnished the respondent was "formalised" in a paper presented by Dr Fisher on 23 May 1990 to the WCA's meeting at Roma, Queensland, entitled "Wool Outlook and Options for the Future". In this paper ABARE examined the effects on growers' returns of alternative floor price and tax options, whilst taking into consideration the risks to the financial viability of the Scheme and the industry associated with each option. The analysis by ABARE had considered two alternative floor price settings: 600 c/kg and 700 c/kg. Greater long term benefits were found under the Scheme of 600 c/kg floor price and a 15% tax rate compared with the 700 c/kg floor price and a 20% tax rate. However, the 600 c/kg alternative was found to have a much more significant adverse impact on growers' incomes in the short term. By comparison, a 700 c/kg floor and a 20% tax rate would have a smaller adverse effect on growers' returns, but still provide large gains relative to the then existing 870 c/kg floor price.
38. Dr Fisher gave evidence that it was his opinion at the time of writing and presenting the paper that, if the minimum reserve price was retained at 870 c/kg, there was an 85% chance that the Scheme would collapse and impose significant adjustment costs on growers. It was his opinion that, if the Minimum Reserve Price was lowered to 700 c/kg, there was between an 80% and 90% chance that the Scheme could be retained and that the adjustment costs would be substantially less. It was his opinion also that a 700 c/kg floor price could not be retained without some element of risk.
39. The respondent believed that he should explain the reasons for the Minimum Reserve Price reduction to influential interests in the European textile industry. An invitation was therefore arranged for him to attend and address the annual conference of the International Wool Textile Organisation (IWTO) which met in Dubrovnik, Yugoslavia in June 1990.
40. The conference of IWTO in Dubrovnik in June 1990 was attended by delegates involved in the wool trade representing more than 30 countries. The meeting lasted for about a week; the respondent addressed the delegates at the conference and Mr Shasha was present.
41. The text of the speech as transcribed occupies 13 pages: it is not
necessary to set it out in full. I will refer to the significant
statements
made by the respondent to the conference as reported in the written text.
". . . The main reason why I was so pleased to be afforded42. As mentioned earlier, the respondent said in evidence that what he did not and could not anticipate, when making the change to a Minimum Reserve Price of 700 c/kg, was the international and political economic events which took place after the decision was made. In particular, he said that no one could have predicted the changes which took place in the Soviet Union and elsewhere in Eastern Europe. The Soviet Union withdrew from the market in mid-1990 as a result of internal political problems and foreign exchange problems. China also further reduced its purchases "on top of" the severe reduction which had occurred in the previous year. There was a slackening of demand in Japan and in Western Europe as a result of a warm northern winter. In Australia, the year 1990-1991 turned out to be an excellent wool growing season. With low wheat prices, there was little incentive for Australian farmers to turn to alternative forms of production. Finally, the invasion of Kuwait resulted in a further blow to economic prospects in Western Europe, Japan and the United States, and hence to market confidence. The respondent said that he did not anticipate, and, did not think anyone anticipated, the complete collapse of European communism at the speed at which it did occur, and he was confident that the price effect of the reduction by China of its purchases on top of the severe reduction which had already occurred would stimulate demand there more than in any other country. Nor did he anticipate the events which later occurred in Yugoslavia or, of course, the invasion of Kuwait. The basic problem that arose after June 1990 was that the trade did not buy at the reduced price of 700 c/kg. In January 1991 the market collapsed and suddenly the AWC had no funds. The respondent said that he did not predict that the Vines Committee would raise the questions and problems which it did raise and certainly not the recommendations which it later made.
the opportunity to be here is to explain why we have taken
the decision to lower the Minimum Reserve Price for
Australian wool. It was not an easy decision for us to drop
the floor price from 870 c/kg clean to 700 c, a drop of about 20%
Two years ago, prices were at record levels, the demand was
high and the $A was relatively low through 1986 and 1987.
Australia had enjoyed several years of high clearances of
wool, fashion trends were running with us, with natural
fibres enjoying a resurgence with consumers. Stockpiles of
wool held by exporters were negligible.
The situation now, however, is very different.
The developments in China have been felt by all wool
exporters with that nation virtually withdrawing from the
market. The "rising star" of the market had disappeared
from the international arena with a dramatic effect on the
fortunes of all exporters. Unfortunately, we are unlikely
to see a substantial return by China to the marketplace in
the short term, although I believe that the longer term
prospects remain sound.
Internal wool pricing policies in China, combined with
credit restrictions and shortage of foreign exchange, have
all impacted on the Chinese ability to purchase wool. China
still has a large wool stockpile.
The developments in Eastern Europe have also taken their
toll. Again, given the hope that these countries can turn
their economies around, the longer term prospects remain
bright; but this prospect remains some time off.
Underlying the developments has been the impact of higher
prices on demand. The price ratio of wool to synthetics
remains above the long term trend, and this has adversely
affected markets in the United States, the European
Community, Japan and developing countries. In Europe, the
situation has not been helped by mild winters. Rising
interest rates in importing countries and some speculation
about the Australian dollar has resulted in a run down in
stocks of raw wool held by importers. With large stockpiles
being held by all major exporters, and with interest rates
predicted to remain high, this situation is unlikely to
change. . .
In short, the prospect we faced consisted of an Australian
stockpile of between four to five million bales in a year's
time, with two years out the prospect of a full season's
wool in stock. If demand fell further say by five percent,
which is not unlikely given the situation in China, the USSR
and Eastern Europe, we faced the prospect of stock which
would overhang the market into the late 1990's. . .
In announcing the Government's decision to reduce the
reserve price, I also indicated that we would hold an open
public inquiry into price policy for the wool industry.
Since the current scheme was introduced in the early 1970's
there have been enormous changes in the world textile
industry and in financial markets.
We need to satisfy ourselves that our wool pricing and
marketing system is appropriate to the new world of the
1990's, a world of fluctuating exchange rates and an
increasing globalisation of international markets.
Having said that, let me make it quite clear that the
inquiry will not affect the reserve price. If we are going
to make changes, they will be much further down the track.
They will be made at a time in the future when we would be
considering increasing the reserve price. They will not
result in its reduction.
I have given a cast-iron guarantee, which I repeat here,
that the Australian government will not contemplate, under
any circumstances, any further downward movement in the
floor price. We want to see stability and growth in the
wool market. The one-off decision made realigns the price
of our product to make it competitive. Any speculation on a
further price drop is doomed to disappointment and would
only be counterproductive. The floor price, the MRP, has
been restored to its proper level and purpose. . ."
43. The Vines Committee report is dated 28 March 1991. Prior to the setting up of the Committee on 23 July 1990 by the respondent, after the reduction of the floor price to 700 c/kg, buyers were still not confident that even this lower price could be sustained. This attitude, and continued high wool production due to the absence of viable alternatives from many wool growers, together with the events overseas to which reference has been made, ultimately caused stocks and the debts of the AWC to reach a level which in the view of the Government could not be allowed to increase further. In February 1991 the scheme was suspended for the remainder of the 1990-91 season. One of the tasks of the Vines Committee was to consider whether it should recommend that the Scheme be reinstated with or without modifications on 1 July 1991 or at any subsequent time. The Vines Committee recommended that no reserve price or any similar scheme involving market intervention be introduced on 1 July 1991 (Recommendation 1). The Committee made other far reaching recommendations with respect to the wool industry which it is unnecessary to recite for present purposes.
44. The respondent gave evidence that a further reason for suspending the Scheme was a claim that the AWC's release of stock was affecting the market's perception. Also, there was an allegation that a letter from Mr Campbell, the Member of the House of Representatives for Kalgoorlie, to members of the wool trade in Britain led to a reaction supporting the abolition of the Scheme. The respondent said that the main cause of the decision made by the Government in February 1991 was that the WCA's Chairman telephoned the respondent and told him that it could no longer trade, that it had run out of funds. The respondent said that this was not something he could have predicted in June 1990; and that he did not know about it even a week before the conversation occurred.
45. The respondent gave evidence that after the blow to market confidence which resulted from the invasion of Kuwait in August 1990, purchase rates at auction by the AWC increased sharply from about 40% to about 70%. In the light of this further development, the AWC recommended, and the Government agreed, that the ceiling on the AWC's borrowings should be removed to "head off" further continuing speculation about the viability of the Scheme. The respondent called for the AWC to submit a business plan outlining how it intended to manage its financial exposure for the remainder of 1990-91, and to submit also a 3 year strategic plan as to how the AWC intended to trade its way out of its difficulties over the period ahead. In October 1990 the industry presented its business plan to the Government. The Government subsequently made and announced decisions the objectives of which were to continue the borrowing requirements of the AWC, to hold the growers' equity in the MSF at reasonably sustainable levels, to reduce wool production and to increase trade clearances. These decisions essentially involved further increases in the wool tax. On 4 October 1990 the operative wool tax rate was increased from 18% to 25%.
46. During November 1990 the respondent led an industry mission to talk to overseas buying countries as part of the Government's effort to leave no grounds for speculation as to its support for the 700 c/kg Minimum Reserve Price. The mission visited Italy, France, Germany, the then Soviet Union, Korea, Japan and China. Trade purchases at auction continued to be well above the AWC's expectations. They improved in early January 1991, but they fell away again. The Soviet Union did not immediately take up $400 million credit which was advanced by the Government for the purchase of wool. The AWC developed its longer term strategic plan as requested by the respondent, but virtually from the day the draft strategic plan was formulated, the situation deteriorated rapidly to the point where ultimately the AWC found itself in a position where it could not bring forward a plan which it unequivocally endorsed. The plan was eventually put to the respondent as a basis for discussion on 1 February 1991. On the same day, faced with having to continue to borrow to meet its statutory obligation to buy wool not taken up at auction, it had a total debt approaching $3 billion. The AWC suspended auction sales. In its plan the AWC put forward proposals that the 700 c/kg Minimum Reserve Price be maintained for at least the next season, the wool tax be set at 35%, marketing quotas be introduced at 700 kilo tonnes, backed by export control, and the flock reduction scheme be further expanded, together with additional measures to increase demand. As it was put to the respondent, tax and quota percentages in the plan represented the extent of the sacrifice which the industry itself could tolerate, and in some quarters even this was seen as going too far. The view put was that any downside risk of increased borrowing would have to be accommodated by the Government. Confronted with this prospect, the respondent concluded (the AWC did not disagree with him) that stocks overall could reach some 8 million bales in 1991-92, peaking at over 8.6 million bales in 1992-93 with an MSF balance of minus $4 billion in 1991-92. This was not a commitment which, in the respondent's view, the Government could with any sense of responsibility contemplate or accept. The respondent formed the view that the AWC's proposal was not viable.
47. The respondent examined a wide range of options in addition to the option of suspending the Scheme. Approaches which phased in a lower Minimum Reserve Price over the balance of the season, either in pre-announced steps or by a progressive lowering of the AWC's buying rate, would not have brought, in the respondent's opinion, the problem of speculation against the scheme under control, and the AWC's debt and stockpile would have continued to climb. After considering all the options, upon the respondent's recommendation, the Government decided that there was no choice but to allow the market to set the price of wool, and that there was a much better prospect of bringing both the AWC's debt and wool stockpiles under control in the absence of the Minimum Reserve Price and without the AWC buying in the market.
48. With the benefit of hindsight, the respondent said that he now believed that the decision to reduce the Minimum Reserve Price from 870 c/kg to 700 c/kg may have been made too late and that the delay may have contributed to the loss of confidence by buyers. Nevertheless, he said that he believed that he did everything he could as Minister, within the limits of the relevant legislation and the political realities of the wool industry, as early as he could and on the best available evidence, to achieve the correct result. He said that at no time did he contemplate that the decision to suspend the Scheme would be anything but a "one-off" decision, and that when he made his speech at Dubrovnik he did not contemplate that it was at all likely or even a practical possibility that in the near future the Minimum Reserve Price would again be reduced. Nor was he then contemplating that the Scheme would in the near future be abolished. He said it was "a central motivation" in what he did that his decision would serve to maintain, not destroy, the Scheme.
49. Dr Fisher gave evidence that his opinion on the viability of the scheme changed in late September 1990 as a result of continued rapid accumulation of wool stocks in Australia and in the wool industry's debt as a result of a continued deterioration in the demand for wool. He said that this resulted from significant falls in demand by the former Soviet Union and continued depressed demands from China for internal economic reasons. Moreover, the lack of confidence by the processing industry that the new floor price could be sustained created uncertainty amongst buyers, which resulted in them "holding out" of the market and placing still further pressures on the scheme. At that time is was his opinion that these events made it highly unlikely that the 700 c/kg floor price could be sustained. He advised the respondent that it was his judgement that there was a low probability on 5 October 1990 of the AWC trading out of its mounting financial difficulties. He advised the respondent also that the probability would diminish if the stocks of the AWC and the debt continued to accumulate beyond their then level.
50. Evidence was led by the applicants to suggest that at the time the respondent made his speech at Dubrovnik in June 1990 he knew that the drop in the Minimum Reserve Price to 700 c/kg was a "big risk". The respondent denied that this was his view at the time he made that speech; and he adhered to his evidence that at that time it was his opinion that there was at least a 90% change that the Scheme could be retained and that the risk to the contrary was minimal or slight.
51. Evidence was led by the applicants that the respondent held a press
conference in Canberra on 11 February 1991 during which the
respondent said:
"the 700 cent price was never going to work unless theIt appeared that the press conference contained a number of pointed questions, bordering on hostility. The respondent gave evidence in cross-examination that he could not recall whether he used those words or not at the press conference; but when confronted with an article that appeared in the Sydney Morning Herald on 12 February 1991, the day following the respondent's press conference, which purported to quote his exact words at the press conference, namely those mentioned above including "I knew it was a big risk", he said that it was far more probable that he did say those words than that he did not; but that he really had no independent recollection.
Chinese and Russians came back in the market and unless
farmers started cutting back on production. I knew it was a
big risk."
52. Mr M.J. Seccombe gave evidence on this question. He is a journalist who in February 1991 was employed by the Sydney Morning Herald and was based in Canberra. He was the author of the article that appeared in the Sydney Morning Herald newspaper on 12 February 1992. The report of Mr Seccombe included the words attributed to the respondent mentioned above. Mr Seccombe said in evidence that, though he no longer had his original notes which he took at the press conference and no longer had a tape which he used at the press conference to record what was said there, he used both his longhand notes and the tape when transcribing their contents into a visual display terminal at his place of work for the purpose of writing the article, and that he typed this into the machine within hours after the news conference had concluded.
53. The respondent then led evidence from Mr S.D.M. Gross, the media adviser to the respondent, who has held this position since May 1990. Mr Gross attended the press conference on 11 February 1991 which was held in one of the committee rooms in Parliament House, Canberra. There is a service run by the Joint House Department called "Sound and Vision" which, amongst other things, provides the service of recording and/or broadcasting press conferences within various rooms of Parliament House, a system that operated with respect to the press conference of the respondent on 11 February 1991. Mr Gross subsequently obtained a tape of the conference and placed it in the drawer of his desk where it remained until recently. Following Mr Seccombe's evidence, the tape was obtained and a transcript made of its contents. Both the transcript and the tape were tendered in evidence by the respondent. I heard played in court the relevant parts of the tape. There is no doubt that the tape does not contain the quotation attributed to Mr Kerin in the newspaper article of Mr Seccombe of 12 February which I mentioned earlier which included the words "I knew it was a big risk" or any words like these.
54. Mr Seccombe gave evidence after the evidence of Mr Gross had been given and the tape (exhibit 9) and transcript from the tape (exhibit 10) had been tendered in evidence. He said that the only explanation he could find for what had occurred was that he must have spoken privately to Mr Kerin on 11 February or thereabouts; but he had no actual recollection of any such discussion, although he did from time to time have private discussions with him on various matters, though it was not suggested that their subject matter included the matters germane to this proceeding.
55. Mr Seccombe said that when he wrote newspaper articles which contained "words attributed to a person then they were accurate quotations using the words actually used by the persons concerned and that on this occasion the remarks attributed to Mr Kerin in the 12 February were actual quotes of what he said though he had no independent recollection of them." There are several discrepancies between the words attributed by Mr Seccombe in his 12 February article to the respondent and the words of Mr Kerin used at the press conference as appear from the transcript of the tape produced by Mr Gross. I need not refer to the details of these discrepancies.
56. The tape was, at the request of the applicants, released into the joint
custody of the solicitors for the parties so that they
could be checked by
experts for authenticity and generally. Evidence was later led by the parties
concerning the integrity of the
tape. In the result the applicants by their
counsel made the following statement to the Court which is embodied in writing
(and
became exhibit 13) in the following terms"
"The applicants procured an affidavit from a Mr57. I do not think that Mr Seccombe set out to give inaccurate evidence to the Court. However, his evidence cannot be accepted. I am satisfied that the transcript of the tape prepared by the Joint House Department called Sound and Vision accurately transcribes in all relevant material respects what was said at the press conference by the respondent and others present on that occasion and that, where the transcription does not accord with Mr Seccombe's article of 12 February, the former is to be preferred.
Kenneth Taylor, a former officer of the Royal
Canadian Mounted Police, which threw doubt on
the authenticity and integrity of the tape Ex 9
and the transcript Ex 10.
The respondent then produced affidavits of Mr
Kathner, Mr Grose, Mr Gregory and of Mr Laundon,
an officer of the Australian Federal Police, and
particularly an ABC videotape of the press conference.
Mr Taylor over the weekend was able to conduct a
further review at leisure of Exs 9 and 10 and
the material mentioned in the last preceding paragraph.
As a result, it is now conceded by the
applicants that, whilst there are at least 2
points at which Exs 9 and 10 fail to provide a
complete record of what occurred at the press
conference, the breaks are short, occurred in
the manner set out in the respondent's
affidavits and are not relevant to the present case."
58. The respondent candidly conceded in cross-examination that the statements made by him at Dubrovnik were made for the purpose of giving reassurances to the people present at the conference that the Government was totally committed to standing behind the 700 c/kg, that they were reassurances to the trade upon the basis of which they would buy wool. The intention that he had when he made the statements was to encourage the overseas trade to buy Australian wool, (an intention which he reinforced by his subsequent visits to some of the countries in Europe in November-December 1990) and he knew that people might lose money if they bought or held wool and the floor price fell further or was abolished. He said that he intended everybody present at the conference to take seriously what he said and that he hoped they would act upon it because there was no point going there otherwise. He agreed that he said that anyone who heard his statement and took it seriously, as he intended they should, would understand it to be a firm statement that there would be no change in the floor price during the ensuing year 1990-91. He said that he was under extreme pressure from the WCA and the AWC to use hyperbole at Dubrovnik.
59. I accept the respondent and Dr Fisher as witnesses of truth and reliability. I am satisfied that when the respondent made the statements upon which the applicants found their case in this proceeding, he believed them to be essentially true, notwithstanding their unequivocal yet rather exaggerated terms.
60. Also, it has not been established that the respondent's belief about the matters included in his speech at Dubrovnik was not based on reasonable grounds. The respondent believed at the time of the Dubrovnik speech that there was at least a 90% chance that the Scheme would be retained and he based this view on a number of matters including the documentary material available to him and the inflation rate. He knew that there was some risk that the Scheme might be abolished, but he put the risk as being less than 10%. Dr Fisher, his principal adviser, put the risk as being no higher than 20%. In my opinion the respondent believed at the time of the Dubrovnik conference that the Scheme would be maintained and the 700 c/kg level not reduced, although he realized than that there was a slight risk that the Scheme would be abolished. Certainly the respondent recognized there was some measure of risk, as no doubt there is with most things in life; but the correct analysis of the events is that the existence of a slight percentage of risk did not detract from his firm view consistent with what he said at Dubrovnik, albeit that his statements were in terms of enlargement. Dr Fisher did not convey to the respondent his own perception that the risk was no higher than 20%. In any event the respondent was entitled to hold his own view whatever Dr Fisher may have told him; but I am satisfied that he held the view which he claimed in evidence that he held and that there were reasonable grounds for the holding of that belief.
61. I am satisfied that the events that occurred after the making of the speech at Dubrovnik in June 1990, being the events to which reference has been made earlier (some of which were further developments of previous trends), occasioned the change of mind by the respondent and the Government in February 1991 for the remainder of that wool year, and in due course, following the receipt by the Government of the Vines Committee's report, led to the abandonment of the Scheme. Those events were not reasonably foreseeable by the respondent.
62. In these circumstances, if the respondent owed a duty to take reasonable care in the making of any statements of fact or any promises or representations, as to present or future conduct of himself as Minister or of the Government, in my opinion there was no breach of any such duty by the respondent. Accordingly, there was no negligence on his part. The applicants' case fails.
Reasonableness of Reliance
63. Whether it was reasonable in all the circumstances for the applicants to
rely upon the statement of the respondent at Dubrovnik
though not strictly
necessary for me to consider, is a matter with which I shall deal briefly.
64. The statements were made by the responsible Minister of the Australian Government to the International Wool Industry. I have held that they were believed to be true by the respondent in all material respects and that when he made them he intended them to be acted upon. The question of reasonableness of reliance does not however stop there for all the relevant circumstances are to be considered. The respondent represented one of the most important nations in the International Wool Market and he was seeking to uphold the scheme and to ensure that the reserve price of 700 c/kg was maintained and it could be maintained only by support from buyers. The respondent was in a sense an advocate for a cause and his statement must be understood as such and therefore to some extent must be discounted as a source upon which reliance could be placed.
65. There was also an obvious degree of hyperbole. Also, all that the respondent is doing was indicating the then present belief or intention of the Australian Government and it is clear that the statements that he made, if one leaves aside the degree of hyperbole, in fact did represent the views which the respondent genuinely held. But it is obvious that circumstances could arise after June 1990 for which it could become impossible for the floor price of 700 c/kg or for the scheme itself to be maintained. For example, there might be a change of government in Australia. I take into account the fact that a Federal election had been held not long before the making of the statements. Nevertheless, it is always open for a government to change or for different interests within a ruling party to emerge with different champions. What in fact happened by February 1991 was that the AWC was being forced to buy some 90% of wool at the floor price of 700 c/kg and the market had collapsed in which case it could not reasonably be expected that the Australian Government would simply continue indefinitely to outlay billions of dollars, thereby increasing a stockpile of wool. A possibility of this kind was inherent at the times at which the statements, the subject of this proceeding, were made by the respondent. A reasonable person who attended the conference and heard what was said by the respondent would, in my view, have discounted heavily the absolute nature of the statements which could never be regarded as representations that the scheme would never be abolished or that the floor price would ever be reduced irrespective of future circumstances.
66. Persons in the wool industry who heard statements of the respondent were not entitled, in my opinion, to treat the statement as an absolute and unconditional guarantee and trade on the basis that if they made profits they would belong to them, but if they made losses they would be borne by the respondent or the Australian Government. Mr Shasha himself described this situation a "a good situation to be in".
67. Furthermore, as 1990 unfolded there was growing speculation in the media, particularly in the second half of 1990, about the possible abolition of the Scheme. Mr Peterson was aware of this and in my opinion his knowledge must be treated as the knowledge of the applicants. Both Mr Peterson and Mr Shasha were reluctant to concede in evidence that Mr Peterson conveyed this information to Mr Shasha, but in my view it is more likely than not that the substance of it was communicated to him. In any case, it was not reasonable for parties in the circumstances of the applicant to rely in November-December 1990 and thereafter on the assumption that the statements made in June at Dubrovnik continued and that there was no relevant difference in the circumstances.
68. In short, although people attending the Dubrovnik conference were
entitled to assume that what the respondent said was said genuinely
by him and
represented the view of himself and the Australian Government, it could not
rationally be assumed that it was other than
a statement of belief at the
time. Many considerations including those of a political nature in Australia
could have led to a change
in attitude by the Australian Government and any
person attending the conference should, in my view, have known or assumed
that.
Certainly persons were not entitled to trade on the basis that any
profits made thereafter would be theirs and any losses would
be borne by the
Australian Government. The statements were not of this character at all.
Actual Reliance
69. Whether the applicants actually relied on the statements made by the respondent at Dubrovnik is a related question.
70. When, at the end of May 1990, the minimum price for wool dropped from 870
c/kg to 700 c/kg, the price worldwide dropped immediately
by 170 c/kg. Mr
Shasha gave evidence that the value of all wool stocks held by the applicants
fell by that amount and that he felt
very apprehensive lest the minimum price
indicator would drop even further which would make the applicants vulnerable.
He heard that
the respondent had made the speech in the Australian Parliament
to which reference has already been made, but he said that he was
hesitant to
believe the statement. He initially said in his affidavit that he was
"distrustful" of politicians; but he later modified
this in his oral evidence
in chief to "hesitant to believe". He was present at the IWTO conference in
Dubrovnik in June 1990. He
heard the speech of the respondent. He said in
evidence:
"I can recall vividly those words as they had a great impact71. In about February - March 1990 Mr Shasha became aware that a large quantity of wool had been sold by the second applicant to Jean Paul Eschmann AG ("JPE") and was being stored at a warehouse in Flushing, Belgium, pending payment. When the Scheme was suspended on 11 January 1991 Mr Shasha said it came as a complete surprise and shock to him and "I felt that all of my work of the past 40 years was now at stake", but he later modified this somewhat under cross-examination.
on me and after listening to the Respondent I firmly
believed that as a trader and processor of wool I could
depend on the assurances given by him without any shadow of
a doubt, and I made a decision to hold wool stock rather
than sell it."
72. Prior to 31 May 1990 the second applicant had sold for $13,734,225.14 a large quantity of Australian wool under IWTO contract conditions to JPE. The wool had been shipped to Flushing where it was placed in warehouses pending payment by JPE. JPE was then engaged in buying greasy wool, sub-contracting the wool topmaking process and selling wool tops to spinners.
73. JPE did not pay for the wool when it should have done; and in April 1990
Mr Eshmann and his financial adviser met Mr Peterson,
the Managing Director of
the companies which constitute the Unilan Group in Australia, in Sydney to
discuss JPE's debt to the applicants.
Correspondence ensued between them, and
in the result Mr Peterson was faced with the decision of re-evaluating the
program which
he had been discussing with JPE for cleaning the wool stored in
Flushing and reducing JPE's debt to the applicants. It appears that,
as a
result of the reduction in the floor price to 700 c/kg, the second applicant's
wool stored in Flushing as at 31 May 1990 suffered
an estimated devaluation of
$2,146,959. The applicants' case is that, based on the assurances given at
Dubrovnik, they did not decide
to quit the stock at that time, but to hold it
and incur expense in processing and storing the wool. Mr Peterson authorised
the
release of the wool in storage in Flushing to mills in Italy and Israel,
which sub-contracted JPE's work, and he also released additional
wool to mills
in France. He decided to retain the balance of the wool in Flushing, whilst
giving JPE time to obtain finance rather
than disposing of the wool in its
greasy state. From July to October 1990 a lot of time was spent by Mr Peterson
in organising the
release of certain of the wool from storage in Flushing,
reconciling the debt by JPE to the applicants and attempting to agree on
a
repayment schedule with JPE. Numerous discussions and telexes passed between
the applicants and JPE on this subject. Mr Peterson
visited JPE in
Switzerland in November/December 1990. During that visit he evaluated JPE's
financial and stock positions and the
contracts which JPE had with its
customers, and came to the conclusion that there were 3 options which the
second applicant could
then adopt: -
(a) to sell the wool still stored in Flushing on the openMr Peterson preferred the third option. After discussions with Mr Shasha he exercised that option and authorised the release of the balance of the wool from storage in Flushing to various topmakers. Following the abolition of the Scheme JPE ceased to pay the second applicant under its revised contract and on 19 June 1991 bankruptcy proceedings against JPE were commenced by the President of the District Court in Lucerne.
market in a greasy state;
(b) to continue conversion and convert the balance of the
wool into tops through the services of topmakers and
supply it to the open market; or
(c) to continue converting the wool into tops through the
services of topmakers and supply the wool to JPE's
customers who had originally agreed to buy it from JPE.
74. Both Mr Shasha and Mr Peterson believed that JPE would be able to enforce the sub-contracts (that is contracts between JPE and its purchases) at prices based on 870 c/kg. Throughout 1990, including the latter half of that year the belief of Mr Shasha was that JPE would be able to pay the 870 c/kg that it had contracted to pay the applicants. The applicants did not know then that JPE would proceed to bankruptcy the following year.
75. In the absence of other relevant circumstances for the applicants to then proceed after the making of the speeches at Dubrovnik to sell the stocks of wool held by them at Flushing at a price of 700 c/kg would have been a strange business decision. Why sell at 700 c/kg when they were entitled to receive and thought they would receive 870 c/kg? Option C mentioned earlier which Mr Peterson preferred and which the applicants proceeded to adopt was to continue converting the wool into tops through the services of topmakers and to supply it to JPE's customers who had originally agreed to buy it. This preference was for the very sensible and no doubt good commercial reason that the prices were based on 870 c/kg whereas the other options were based on prices of 700 c/kg. It was Mr Peterson's estimate that it would take some twelve months for this process to continue until in effect the wool stocks had been exhausted.
76. I do not accept the evidence of witnesses on behalf of the applicants that there was actual reliance placed by the applicant upon the statement of the respondent at Dubrovnik which altered the commercial decision that they otherwise would have made in any event. I therefore reject the applicants' case based on actual reliance.
Promises made by Ministers and Government officials
77. It is not strictly necessary for me to deal with various interesting and
important questions of law that were the subject of
argument concerning
government promises which have the effect of fettering future Executive
action, their legality, and the questions
as to whether for reasons of public
policy Ministers of the Crown are automatically exempt from assuming duties of
care. I will
however say something about them.
78. As a general proposition it is correct that a government promise which has the effect of fettering future Executive action is void: Watsons Bay and South Shore Ferry Co Limited v Whitfield [1919] HCA 69; (1919) 27 CLR 268 at 277; The Amphitrite (1921) 3 KB 500; William Corry and Son Limited v London Corporation (1951) 2 KB 476; Ansett Transport Industries (Operations) Pty Limited v The Commonwealth [1977] HCA 71; (1977) 139 CLR 54 at 61, 62, 71, 86, 113 and Attorney-General for New South Wales v Quin (1990) 170 CLR 1 at 17, 18. The principle does not however deny the availability of legal consequences such as, for example, estoppel, arising against the Executive. If the government engaged in conduct amounting to a representation circumstance where the government purported to bind itself; see the observations of Mason C.J. in Quin at 18; Laker Airways v Department of Trade (1977) QB 643 per Lord Denning M.R. at 707 and the criticism advanced by Gummow J. in Minister for Immigration v Kurtovic (1990) 92 ALR 93 at 121-122. The second principle which was said to exist was that conduct which, if engaged in by a private citizen, might constitute actionable misrepresentation will not be construed as constituting such a representation where it relates to the exercise of statutory powers in the future. This principle was said to be derived from the judgment of the High Court in San Sebastian Pty Limited v Minister Administering the Environmental Planning and Assessment Act 1979 [1986] HCA 68; (1986) 162 CLR 340, especially the judgment of Brennan J. at 374. I agree with Hill J., who heard a motion to strike out a statement of claim in this case, judgment unreported 29 April 1992, that perusal of the joint judgments of Gibbs C.J., Mason, Wilson and Dawson JJ. reveals no such statement of principle. As I read the reasons for judgment of the majority in San Sebastian especially at 358 their Honours were of the view that an action would have lain against the respondents had a misrepresentation have been made with the intention of inducing the appellant or members of a class to which the appellant belonged to act in reliance on the representation. However, I prefer to regard the question as being still open as this was not the ratio decidendi of the judgment in San Sebastian. See also the judgment of Rolfe J. in Durant v Greiner (1990) 21 NSWLR 119 at 123 and 130.
79. It was argued by counsel for the respondent that the negligent exercise of statutory powers is generally not actionable and reliance was placed upon Rowling v Gakaro Properties Limited [1987] UKPC 2; (1988) 1 AC 473 at 503, a decision of the Privy Council. In my opinion that case does not support this principle. Their Lordships found it unnecessary to decide whether the Minister owed a duty of care to the plaintiff, because on the facts no breach of any such duty had been established.
80. This question arose directly, so far as the research of counsel has disclosed, in one case only, namely, the decision of the New Zealand Court of Appeal in Meates v Attorney-General (1983) NZLR 308. The majority of the New Zealand Court of Appeal, (Woodhouse P. and Ongley J.; Cooke J. dissenting) reversed the judgment at first instance of the Chief Justice. The Chief Justice at first instance dismissed the plaintiff's claim essentially on the ground that the New Zealand Government did not owe a duty of care in the circumstances of the case. The majority of the Court of Appeal took the view that this was too narrow an approach to the question, preferring to follow L Shaddock and Associates Pty Limited v Parramatta City Council (No 1) [1981] HCA 59; (1981) 150 CLR 225 per Stephen J. at 240-241 and Anns v Merton London Borough Council [1977] UKHL 4; (1978) AC 728 per Lord Wilberforce at 751-2. Cooke J. dissented in his finding that there was in fact no breach of duty of care disclosed on the facts. All three members of the Court of Appeal were of the view, as I read their judgments, that "there can be no doctrinal reason to start with an assumption that Ministers are automatically exempt from duties of care" per Cooke J. at 379.
81. In my opinion the existing state of authority in Australia is that a duty
of care may exist in circumstances where a Minister
of the Crown makes a
statement about the future policy of the Government. I agree with Hill J.
delivering judgment in the strike
out application at p. 24, that the joint
judgment of Gibbs C.J., Mason, Wilson and Dawson JJ. in San Sebastian makes it
clear
"that the treatment of the duty of care in theDamages
context of misstatements is but an application
of general principle to which the relationship
of proximity is integral. There is no reason to
assume that in other areas the government or its
minister remains immune from judicial action."
83. Mr Shasha, the President of the Unilan group, has been involved in the wool industry since 1954. He is Vice-President of the Argentine Wool Federation and has been the head of the delegation of the Argentine Wool Mission to the IWTO conference for the past 20 years.
84. The Unilan group commenced operations in Australia in 1987. Unilan Holdings Pty Ltd, the first applicant, is the finance and investment arm of the group in Australia which borrows and lends money and holds shares. Unilan Australia Pty Ltd, the second applicant, is an Australian trading company which buys and sells wool and deals in ancillary matters; its primary activity is to export wool. Hamilton Wool Processing Pty Ltd, the third applicant, operates a wool scouring business and sells its products on both local and international markets.
85. I have already set out the circumstances surrounding the sale by the second applicant of a large quantity of Australian wool to JPE, and the subsequent bankruptcy of the JPE in June 1991.
86. The applicants' case is that, had the second applicant decided in June 1990 to sell the wool warehoused in Flushing immediately and succeeded in doing so, rather than keeping it and continuing negotiations with JPE, given the then state of the world market, the second applicant would probably have lost either nothing or somewhere between nothing and $1.7 million. Following the abolition of the Scheme, the price of wool throughout the world dropped substantially. The second applicant was then owed considerable sums by JPE. Mr Peterson expects that the second applicant will recover some money from the JPE estate between $494,000 and $750,000. He says that the second applicant would not have suffered any loss had JPE remained financially viable and honoured its contractual commitments.
87. It is not alleged that the first applicant suffered any loss from the conduct of the respondent. As to the third applicant, the applicants assert that, after the respondent's statement at Dubrovnik, the world market settled and trade continued in wool. Between June 1990 and February 1991 the third applicant bought and traded wool. When the scheme was abolished, the third applicant was holding 199,136 kg of wool of which about 139,000 is subject to this claim. It commenced selling the wool the subject of the claim in March 1991 on the then deregulated market and completed selling its stocks by May 1991. As a result of buying the wool and then selling in a deregulated market it claims to have suffered a loss of $181,695.35. The third applicant recommenced buying wool on 10 June 1990 following discussions with Mr Shasha and Mr Peterson. The applicants assert that, had the third applicant not bought and traded wool, it would not have suffered any loss. It had stopped buying wool at the end of May 1990.
88. The applicants claimed initially that their total loss was $11,385,023.25 of which all but $181,695.25 had been sustained by the second applicant, the difference having been sustained by the third applicant.
89. The parties agreed at the conclusion of addresses on the quantum of damages. They agreed that, if the applicants or any of them are held to be entitled to damages, judgment should be entered in favour of the applicants (the parties did not differentiate as between the applicants themselves) in the sum of $5m.
90. The application is dismissed with costs.
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