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Date: Thu, 17 Nov 2005 14:32:53 +1100 From: Neil Foster Subject: High Court of Australia on causation and policy issues
Dear Colleagues; The High Court of Australia has just handed down judgement in Travel Compensation Fund v Robert Tambree t/as R Tambree and Associates [2005] HCA 69. The case concerns the issue of causation, for statutory purposes under legislation prohibiting misleading and deceptive conduct (specifically the Fair Trading Act 1987 (NSW) s 42, identical except that a man is not a corporation to s 52 of the Trade Practices Act 1974 (Cth)). But the comments made are explicitly said to also be relevant to causation for the purposes of common law negligence - see para [29] per Gleeson CJ, para [50] per Gummow & Hayne JJ, Kirby J at [56]. The Travel Compensation Fund (TCF) is a body set up by the travel agents' industry and the various State governments to provide compensation for travellers who book trips with agents, who then take the money but fail to provide the trips etc. A travel agency run by a Ms Fry and her father went under after having previously been licenced agents. Their previous approval as licenced agents had been granted by TCF on the basis of 2 annual audit reports provided by Mr Tambree and his firm. At trial it was found that those audit reports had been misleading as they had not taken into account trips booked but not paid for. If the reports had been accurate Ms Fry's firm would not have been licenced for as long as it was. When complaints from creditors became obvious TCF did its own investigation and revoked the licence to trade. But for some 2½ months after this, until a Government inspector actually went to the shop and changed the locks, the firm continued illegally to trade. Claims for compensation for loss of funds by customers were made to TCF. TCF sued Tambree for the losses caused due to the illegal trading, under s 42 of the FTA and in common law negligence. The trial judge found in favour of TCF. The statutory cause of action was made out and there was a duty of care in this sort of negligent misstatement case. The NSW Court of Appeal ([2004] NSWCA 24) agreed but overturned that part of the verdict (the bulk of it) that related to money paid during the period of illegal trading. Sheller JA, in a judgement concurred in by the other 2 members of the Court, held that the illegal nature of Ms Fry's activity in the period, while a "factual" cause of the damage (see para [153]), should be held as a matter of policy not to be a "legal" cause.
Even before the HC judgement I said to students that I would have thought it was reasonably "normal" for people who are not supervised by the Government to attempt to rip others off! Given that the Fund was set up to deal with cases of dishonesty, it is hard to see why the dishonesty of a former travel agent was not the "very sort of thing" likely to happen from a failure of supervision. It is always pleasing when the HC agrees with me! All 5 members of the Court hold for this sort of reason that the loss suffered by a fraudulent agent being enabled to continue trading was just the sort of loss that the accountants should have known was to be avoided by their report being provided to the TCF (which they knew it would be). The most interesting part of the HC judgement is the internal debate over how to frame the test for causation at common law (and for statutory purposes) in Australia today. An unspoken part of the background (since the facts here occurred before 2002) is the change to the law of causation made under the "tort reforms" which I have mentioned previously in this forum. In NSW, for example, the relevant provisions now are contained in Part 1A, Division 3 of the Civil Liability Act 2002. In particular s 5D (1) now explicitly "divides up" the question of causation into what is a "necessary condition" of the harm ("factual causation"), and the question "whether it is appropriate for the scope of the negligent person's liability to extend to the harm so caused ("scope of liability"). In addition s 5D(4) says that the "scope" question is to be determined by considering "whether or not and why responsibility for the harm should be imposed on the negligent party". Colleagues here will no doubt be aware that Prof Jane Stapleton has had an immense influence on recent discussions of causation in the common law world. The Ipp Report (the committee convened by the Commonwealth Government in 2001-2002 to deal with the "tort crisis" that led to the recent reforms, chaired by Justice Ipp of the NSW Court of Appeal) explicitly adopted her analysis of the law in recommending the provisions that lie behind s 5D. Sheller JA in the NSWCA decision appealed from in TCF v Tambree cited the judgement of Ipp JA writing (judicially this time) in Ruddock v Taylor and adopting explicitly a "two-stage" test of causation. So what does the High Court in Tambree has to say about this? My initial quick reading is that there are two (or maybe three?) approaches. (1) Gummow & Hayne JJ in a joint judgement, esp at [45]-[46], specifically reject the view that in answering the question of causation the broad question "ought the defendant be held liable?" is what the court should be addressing. In doing so they specifically reject the approach of Ipp JA in Ruddock. However, they accept the view for which Environment Agency v Empress Car Co (Abertillery) Ltd [1999] 2 AC 22 is often cited, that the test of causation may vary according to the purposes for which it is asked. And they also accept that "consideration of legal policy" (as opposed, presumably, to "policy at large" or "social policy") will inform the selection of causative factors to determine liability. Their Honours suggest at [48] that the wider "policy" approach is at work in the judgement of Lord Nicholls of Birkenhead in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 & 5) [2002] AC 883 and to cast doubt on that. (I will frankly admit I'm not familiar with this decision yet; but will have to read it over Christmas!) Their Honours at [47] link their rejection of these "broad" policy considerations in the area of causation with the rejection by the Court in Sullivan v Moody (2001) 207 CLR 562 of similar "broad" criteria for determination of duty of care under the Caparo three-stage test. What is very interesting from a purely Australian perspective is that there also seems to be an attempt in their comments in [45] to reject what has been known as the "common sense" approach to causation laid down in March v Stramare, which seemed to be one of the few points in the law of negligence on which courts could agree in recent years! (2) Kirby J is in almost complete disagreement on all these points, while concurring in the result in this case. His Honour refuses to accept that the approach outlined in March v Stramare needs to be revisited - [55]. In particular reference in that decision to the need to consider "policy" issues is still relevant, and the NSWCA here were correct to refer to those issues. His Honour at [59] is even able to cite a specific passage from the judgement of Gummow J in Chappel v Hart which approves of the need to refer to "policy considerations"! He supports the comments of Lord Nicholls in Kuwait Airways impliedly criticised by Gummow and Hayne JJ. He rejects the distinction between "policy" and "principle", while acknowledging that at the moment the HCA is bound not to follow the Caparo approach to the duty of care. He calls for greater transparency in articulation of reasons for drawing the line of causation at one point rather than another. (3) It is slightly harder to pin down the other two members of the Court on these broader issues. Gleeson CJ allows that issues of causation involve "normative" considerations, but still sees that the distinction between "policy" at large and "legal principles" is valid, and the court should be applying the latter- [28]-[29]. "Mere" value judgements about whether someone "ought" to be held liable are not appropriate. Callinan J affirms the approach in March v Stramare. Candour in revealing reasons for causation decisions is desirable- [80]. But he rejects a formal "two-stage" approach to causation as out forward by Ipp JA in Ruddock. The illegality of Ms Fry's actions did not affect the chain of causation here. This email is far too long already so I conclude with some final brief remarks. (1) It is perhaps unfortunate that the decision of the NSWCA was so wrong. I had little doubt it would be overturned. The core paragraphs of Sheller JA's reasons for finding that causation was not established seemed (with all respect to Kirby J who valiantly defends the general reasoning) to be a classic example of a reliance on unvarnished "policy" or personal prediliction. His Honour's reference in para [139] quoted above to what he personally "as a value judgement" would have regarded as a "normal occurrence" seems to be at the worst end of the scale here. That has made it easy for those who seem to want a return to a higher degree of certainty and legal rules to criticise an approach which argues for broader matters to be taken into account. (2) And just when Australian torts lawyers thought things couldn't get worse given the confusion over what ultimate criteria should be applied for determination of a duty of care in negligence, we now also find that we aren't completely clear on the issue of causation either!
Regards
Neil
Foster
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