[7] In 1932 the law of negligence however was radically altered by the House of Lords in the decision of Donoghue v Stevenson,[8] where Lord Atkin held that the particular relationships that had hitherto been held to give rise to a duty of care were but instances of a general rule that a person owed a duty of care who ought reasonably have been contemplated as being closely and directly affected by the actions.
Dr Grant blamed the underwear and sued John Martin & Co. for breach of contract, being the statutory warranties that the goods were fit for the purpose and were of merchantable quality.
[10] Dr Grant also sued the manufacturer, Australian Knitting Mills,[11] alleging that they had been negligent in failing to take reasonable care in the preparation of the garments.
[9]: at p. 467–8 Murray CJ held that the retailer was liable under the statutory warranty because Grant had asked for woollen underwear and relied on the salesman's skill in selecting the "golden fleece" brand manufactured by Australian Knitting Mills.
Murray CJ applied the landmark decision of Donoghue v Stevenson,[8] which had been decided by the House of Lords less than 12 months previously,[13] holding that the manufacturer owed a duty of care to the consumer because (1) it intended the underwear would reach the consumer for wear in the same condition as when it left the manufacturer, (2) there was no reasonable possibility of testing for the presence of sulphur compounds and (3) Australian Knitting Mills knew that the absence of reasonable care in the preparation of the garments would result in an injury to the purchaser's health.
[14]: at p. 409 Starke J held that it was unreasonable to expect John Martin & Co to exercise skill and judgement that the goods were free from irritant chemicals when they had no means of detecting the sulphur compounds.
Dixon J did not determine which view was correct, instead holding that the evidence did not establish that the underwear had the sulphur compounds of such a strength so as to have caused Dr Grant's dermatitis.
[14]: at p. 450 Evatt J dissented, holding that Dr Grant's dermatitis was caused by sulphur compounds and that the manufacturer had failed to fully or completely carry out its washing process.
417–8 McTiernan J agreeing, and Evatt J,[14]: at p. 448 held that because they were described by Dr Grant as woollen underclothing, the goods were bought by description, even though he was shown specific items.
[18] The headnote writer in the authorised reports of Donoghue v Stevenson expressed the duty of care as being confined to ‘the manufacturer of an article of food, medicine or the like’,[19] an argument that was adopted for Australian Knitting Mills in seeking to distinguish the case from one in which an item of clothing was to be worn externally.
[8]: at p. 599 The Privy Council rejected the attempts to distinguish Donoghue v Stevenson, stating "No distinction however, can be logically drawn for this purpose between a noxious thing taken internally and a noxious thing applied externally",[1]: CLR at p. 66 and that "The decision in Donoghue's Case did not depend on the bottle being stoppered and sealed: the essential point in this regard was that the article should reach the consumer or user subject to the same defect as it had when it left the manufacturer.
[1]: CLR at p. 61–2 Dr Grant was held to have relied upon the skill and judgment of the retailer that the garments were fit for wearing, with the Privy Council saying: It is clear that the reliance must be brought home to the mind of the seller, expressly or by implication.