CLA: causation & Fair Trading/Trade Practices legislation

Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd [2012] NSWCA 94

Issues: causation and the interplay under the Civil Liability Act 2002 (NSW), s 5D  and other intertwined legislation such as the Fair Trading Act 1987 (NSW), s 42 – whether elements of cause of action for misleading and deceptive conduct include negligence – whether position differs under the Trade Practices Act 1974 (Cth), s 52

Causation of loss – legal principles

64.          The first step in considering the question of causation is to identify the nature of the loss or losses suffered. In circumstances where a claimant seeks to recover legal costs incurred in defending proceedings brought against it, where the litigation is said to have been caused by a third party, the harm suffered may be identified as the loss of an opportunity to avoid the litigation. Where the claimant has successfully defended the litigation, the loss will be the difference between the costs incurred and the costs recovered from the other party: see, for example, University of Western Australia v Gray (No 28) [2010] FCA 586; 185 FCR 335 (Barker J) and, on appeal Gray v Sirtex Medical Ltd [2011] FCAFC 40; 193 FCR 1 (Bennett, Gilmour and Gordon JJ). That case involved an invention by a staff member at the University which he sought to develop commercially through a company (Sirtex) of which he was a director. The University brought proceedings against Sirtex, unsuccessfully asserting a claim to intellectual property in the invention. However, Sirtex cross-claimed against Dr Gray on the basis that his failure to advise Sirtex of a possible claim of intellectual property in the University caused it to incur the costs of the litigation. It was successful in recovering those costs from Dr Gray as damages incurred by it as a result of his breach of duty. Dr Gray asserted that what had been lost was a commercial opportunity, which should have been assessed by reference to the probabilities or possibilities of the issue being resolved without litigation, in accordance with principles identified in Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332: Gray (No 28) at [7]. The primary judge adopted that approach, which was not challenged on appeal, assessing Sirtex’s loss as 86% of its costs, being the probability of the realisation of the lost chance of settlement without litigation: at [190].

65.          As this Court explained in Gett v Tabet [2009] NSWCA 76; 254 ALR 504; (2009) Aust Torts Rep 82-005 at [332]:

“The history of claims for a loss of a chance in Australia has an uncertain foundation. The uncertainty arises in part from the narrow dividing line between matters going to causation (to be determined on the balance of probabilities) and matters involving the assessment of loss in hypothetical circumstances. Cases falling within the latter category include those where damages are reduced on account of contingencies which may possibly have affected the continuation of the causal effect of the tort….”

66.          The respondent did not plead a case involving a lost opportunity, but rather asserted boldly that its losses were the actual amounts expended by it. Nor, it would seem, did either party contend that the damages might be reduced on account of contingencies, in accordance with the principles for assessment of loss identified in Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 638. On the other hand, the appellants did plead in their defence that there should be a reduction for contributory negligence and claimed that the respondent had failed to mitigate its damages. Thus, for the purposes of addressing questions of causation, the harm is to be identified as the costs incurred by the respondent and not by reference to any loss of opportunity to avoid such expenses. Where a quantified financial loss has accrued, rather than the failure of a hoped for benefit to eventuate, it cannot be said that this approach was erroneous: see generally, Tabet v Gett [2010] HCA 12; 240 CLR 537 at [38][39] and [47]-[49] (Gummow ACJ); [69] (Hayne and Bell JJ); [113] and [122]-[124] (Kiefel J).

67.          The harm suffered by the respondent was economic loss. Putting to one side the claims under the Trade Practices Act and the Fair Trading Act for misleading or deceptive conduct, each of the other claims appears to have been assumed to involve a failure to exercise reasonable care and skill. That form of breach of duty constitutes “negligence” for the purposes of the Civil Liability Act 2002 (NSW), Pt 1A. Accordingly, that Part applied to the claims for damages brought in tort and contract: s 5A(1). To determine whether particular elements of harm were recoverable, the Court needed to apply s 5D, appearing in Div 3 “Causation”. The relevant parts of the provision read:

5D General principles

(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and

(b) that it is appropriate for the scope of the negligent person’s liability to extend to the harm so caused (scope of liability).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.

(4) For the purpose of determining the scope of liability, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party.”

68.          Although the conduct in breach of contract and in tort occurred (at least in part) before the commencement of Part 1A (on 6 December 2002) those provisions had application to civil liability arising before their commencement, so long as the proceedings were not commenced before that commencement: Civil Liability Act, Sch 1, cl 6(1). These proceedings were commenced in 2005.

69.          It is clear that both s 5D(1)(b) and (2) were intended to cover factors variously described as “value judgments”, “normative considerations” or “legal policy”. Whether paragraph (a) of s 5D(1) also includes policy considerations is less clear. The purpose of s 5D(1) has been identified as establishing a two-stage test of causation whereby what is described as “factual causation” is to be addressed separately from “scope of liability”: Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420 at [43]. Factual causation may identify the relationship between the conduct of the tortfeasor held to involve a breach of duty and the harm claimed to have occurred as a consequence. It thus identifies a relationship between conduct and consequence which is not necessarily free of normative considerations. First, there are normative considerations which will influence a finding that particular conduct constitutes a breach of duty, which cannot usefully be ignored in considering the relationship between the conduct and the harm asserted by the plaintiff. In circumstances where the relationship between the conduct and the consequence is well understood (because explained by Newtonian physics) the temporal link may be sufficient to establish “causation”. In other circumstances, there may be a statistical correlation, without a full understanding as to the physical mechanism by which the particular consequence may result from the tortious conduct. (An example may be asbestos exposure followed by mesothelioma.) In other circumstances again, some elements of harm may depend upon the conduct of the injured party or the further conduct of third parties. On one view, normative elements cannot be entirely expunged from a “counter-factual inquiry” in determining whether the conduct was a necessary condition of the occurrence of harm. In a sense, so much is implicit in sub-s (2), which recognises that in some cases where the counter-factual condition cannot be satisfied, there may nevertheless be an imposition of liability: see Wallace v Kam [2012] NSWCA 82 at [163].

70.          Secondly, it appears to have been intended that the normative inquiry under paragraph (b) would extend beyond what have traditionally been seen as elements of causation, to cover questions raised by intervening and successive causes, foreseeability and remoteness.

71.          Furthermore, it is apparent from the report which formed the basis of the Act, Review of the Law of Negligence – Final Report (September 2002) (commonly known as the “Ipp Report”) that the focus of the reform was on concepts familiar in tort law. In respect of “factual causation” that does not cause a difficulty. As stated by McHugh JA in Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 352C, in a passage which is reflected in the terms of s 5D:

“So far as the law of tort is concerned, the ‘but for’ test must be taken in this Court to be the leading and, in all but exceptional cases, the exclusive test of causation. And I can see no reason why the same test should not be applied in contract. Once causation-in-fact is established, the only question is whether the damage is so remote from the breach that the defendant should not be held responsible for it.”

72.          In tort, concepts of remoteness are at least partly determined by reference to that which was “reasonably foreseeable” at the time of the conduct. In contract, according to the classic statement of Alderson B in Hadley v Baxendale (1854) 156 ER 145 at 151, liability will extend to that which “may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. This test, with its two limbs, may operate differentially depending upon whether the claim is for loss of an expected benefit or for a loss which flows from reliance by the injured party on the proper performance of the contract.

73.          Although the purpose of s 5D(1)(b) and (2) is to focus on what may, succinctly, be identified as policy issues, there is no suggestion that the content of the principles is uniform, rather than varying according to the circumstances. Nor is there any suggestion that they will not vary according to the cause of action. Although entirely obiter, in circumstances where s 5D had no operation, Ipp JA expressed the view in Ruddock v Taylor [2003] NSWCA 262; 58 NSWLR 269 at [89] that s 5D embodies principles in regard to causation that “are in accord with the common law”. As already noted, whether s 5D is properly understood to be limited to questions dealt with as “causation” under the common law may be doubted. As Allsop P, writing extra-judicially has noted, it is arguable that the structure of s 5D is apt to reflect the approach of McHugh J, rather than the reasoning of Mason CJ (for the majority) in March v Stramare (E & MH) Pty Ltd [1991] HCA 12; 171 CLR 506: J Allsop, “Causation in Commercial Law”, ch 13 in eds S Degeling, J Edelman, J Goudkamp, Torts in Commercial Law (Lawbook Co 2011), p 294; see also Adeels Palace at [43]-[44]. On the other hand, the fact that s 5D(1) identifies two separate issues which need to be addressed, does not mean that the Court must adopt a two-stage approach to its inquiry, or that the issues can properly be regarded as separate and discrete, each from the other.

74.          One question raised by the form of s 5D(1) is how it should be applied in respect of continuing or consecutive harm. Thus, if the negligence was a necessary condition of some harm, is the question of liability for continuing or consecutive harm to be answered by reposing the counter-factual question from time to time, or by reference to the policy issues intended to be covered by paragraph (b)? The question illustrates the artificiality of the attempt to impose a two-stage process. The difficulty in answering the counter-factual question arises in part from the difficulty in predicting how third persons, not witnesses or parties to the litigation, would have acted, had the circumstances been different in one respect. If the answer to the counter-factual question, on the balance of probabilities, is that the breach of duty was a necessary condition of the further harm, there would then be a question as to whether liability should be limited on the basis of a remoteness principle. If the answer to the counter-factual question was in the negative, it might then be necessary to ask whether, in policy terms, the uncertainty should be put to one side because responsibility should be placed on the tortfeasor in any event, pursuant to s 5D(2).

75.          There is a separate issue as to whether the claim under the Fair Trading Act must assessed in accordance with s 5D of the Civil Liability Act. If the conduct in a particular case involved a negligent misrepresentation, it is arguable that it would be caught by the definition of “negligence” in s 5 of the Civil Liability Act. However, negligence is not a necessary element of a contravention of s 42 of the Fair Trading Act and it would seem curious if, by a side wind, some claims under s 42 were to be subject to the Civil Liability Act, Pt 1A, and some were not.

76.          In Perpetual Trustee Co Ltd v Milanex Pty Ltd (In liq) [2011] NSWCA 367, in considering whether a defence of contributory negligence was available in response to a claim under s 42 of the Fair Trading Act 1987 (NSW), Macfarlan JA (Campbell and Young JJA agreeing) noted that ss 5R and 5S of the Civil Liability Act did not confer a right to raise a defence of contributory negligence, but operated where such a defence was otherwise available: at [87]. His Honour continued:

“In any event Part 1A Civil Liability Act, of which ss 5R and 5S form part, applies only to claims ‘for damages for harm resulting from negligence’ (s 5A), requiring in my view that negligence be an element of the relevant cause of action (although, as s 5A makes clear, it does not matter whether the claim is brought in tort, in contract, under statute or otherwise). However, negligence is not an element of a claim for damages arising out of contravention of s 42 Fair Trading Act …. A contravention of that section may occur whether or not the defendant has been negligent. That a defendant might as a matter of fact have been careless does not convert a claim against it under s 42 into one based upon negligence.”

77.          The logic of that reasoning is undeniable, in terms of the language of the statute. However, it does not address an aspect of the history of the legislation which might suggest a different result. Prior to the enactment of the Statutory Duties (Contributory Negligence) Act 1945 (NSW), contributory negligence constituted a defence to a claim for breach of statutory duty under the general law: Piro v W Foster & Co Ltd [1943] HCA 32; 68 CLR 313. The statutory reversal of that principle by the 1945 Act was repealed by the Civil Liability Amendment (Personal Responsibility) Act 2002 (NSW), Sch 3. In Booksan Pty Ltd v Wehbe [2006] NSWCA 3; 14 ANZ Insurance Cases 61-678; (2006) Aust Torts Rep 81-830, Ipp JA stated (with the concurrence of Giles and Tobias JJA) that the repeal of the 1945 Act reinstated the rule laid down in Piro and contributory negligence “once more became a defence to a cause of action based on breach of statutory duty”: at [162]. Whether the assumption as to revival of the old common law principle is correct need not be considered here: c f DC Pearce and RS Geddes, Statutory Interpretation in Australia (7th ed, 2011) at [6.15]. What is of greater concern is the possibility that Pt 1A of the Civil Liability Act should apply in relation to a breach of statutory duty, which, as explained by Latham CJ in Piro “is absolute in the relevant sense when it requires that a particular thing be done, without reference to any questions of intent or negligence, as distinct from requiring only that the person subject to the statute shall do his best to do a particular thing”: at 319. In Booksan, Ipp JA stated at [167]:

“In my opinion the consequences of the repeal of the 1945 Act … and the insertion of s 5A into the Civil Liability Act, are clear. Irrespective of how a claim is formulated, if – in substance – it is a claim for damages for harm resulting from negligence, a defence of contributory negligence may be raised to that claim even if it is based on a breach of statutory duty.”

78.          Having held that there had been no breach of the regulations giving rise to the statutory duty, it was “not strictly necessary to determine” the issue as to contributory negligence: Booksan at [155]. It may also be said, though perhaps not entirely plausibly given the context of the remarks, that Ipp JA was intending to refer to the elements of a cause of action as involving negligence. No party having identified the issue in the present case, it should not be taken further, as it is not necessary to determine it. On the assumption that s 5D(1)(b) and (2) engage questions raised under the general law as to the scope of liability, and impose no constraints themselves on relevant considerations, the result will be the same, whether the exercise is undertaken pursuant to s 5D or directly under the general law. Similarly, s 5D permits the policy of the statute under which liability arises to be given effect.

79.          The claim under the Trade Practices Act will not be subject to s 5D, because s 82, which provided the remedy by way of damages for breach of s 52, was not constrained by State law, unless that law were picked up and applied by another Commonwealth law: Insight Vacations Pty Ltd v Young [2010] NSWCA 137; 241 FLR 125 at [85][91]. It was not suggested in this case that any relevant Commonwealth law had that operation in respect of s 52 of the Trade Practices Act (as then in force).

80.          The relevant legal principles to be applied in considering the statutory causes of action must derive from the statutory purpose, which may be treated as the same in respect of both Commonwealth and State legislation. In dealing with questions of remoteness, the result is not determined by applying principles relevant to contract or tort law, although in particular circumstances the result may not be materially different: Travel Compensation Fund v Tambree [2005] HCA 69; 224 CLR 627 at [29][30] (Gleeson CJ); [49]-[50] (Gummow and Hayne JJ).


Brisbane Barrister – David Cormack


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