From:
Neil Foster
Sent: Wednesday, November 16, 2005 9:33 PM
Subject: ODG: 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.
139
As a value judgment I do not think that what Ms Fry did following
her termination of participation could be regarded as a normal
occurrence. A person would not normally terminate the licence
which enabled that person to conduct a travel agent’s
business and yet continue to conduct that business illegally.
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!
