Current Legal Issues Seminar – Causation in the Trade Practices Act 1974 (Cth)

To download the paper by Mr Kelly SC, CLICK HERE.

To download the commentary of Professor Stapleton, CLICK HERE.

The papers and the speakers’ presentations were of an outstanding quality.  The following brief summary is no substitute for reading their papers.

Mr Kelly SC has kindly provided notes prepared by him for his oral address. These notes helpfully summarise issues and arguments canvassed in his more substantial paper. [CLICK HERE]

Mr Kelly SC’s address

Mr Kelly concluded his presentation by making the following  points:

1. Wardley (1992) 175 CLR 514 drew upon the common law (common sense) test of causation as applying to s 82 of the TPA;

2. Subsequent decisions of the High Court emphasise that s 82 is a unique provision in a unique statute, and only analogies can be made with the common law

3. For a practitioner it is difficult to find any difference of substance between how causation is treated under s 82 for a contravention of s 52, and how causation is treated at common law for a paradigm case involving negligent misstatement causing economic harm;  further, it would be odd if there were a difference when s 82 is concerned with compensation.

4. The amendments to the TPA are hit and miss (and anomalous in part) and interfere with our ability to interpret the TPA as coherently being about consumer protection.

5. The common sense test is of no real assistance (either at common law or under s 82).  The test should be discarded.  Particular reasons for criticising the test are the following:

(a)    It does not add anything to our expectation that a court will act rationally based upon proven evidence;

(b)    It is particularly unhelpful if the test is confused with a notion that the ordinary person makes simple causative judgments; the contrary is the case;

(c)    The test is also shown as particularly unhelpful in hard cases and does not explain them.

6.  The common law also gave us the “but for” test.  The limitations of the test have been well documented in academic writing and in the authorities.  The case law in the High Court, however, has not caught up with the rigour of analysis developed in academia as to how the problems with the use of the test should be overcome.

7. The law on causation as identified by courts in Australia has not kept pace with the rigour and complexity of the analysis that has occurred in academic commentary.

8. This lagging behind is partly due to the lingering effects of the common sense test.  It has been a convenient but overall unhelpful label which is devoid of real meaning.  The lagging is also partly explicable by the courts’ natural reticence about stating principles that foreclose possible unforeseen cases that may arise in the future and that is something for which we can respect and have sympathy.

9. Finally the indirect causation theory that began really in Digi Tech is not at all convincing. Courts are in fact wrestling in these cases with a kind of substitute limiting device for the duty of care at common law or with the “scope of liability” inquiry which Professor Stapleton has identified in relation to causation although this is being masked by the use of terms such as “direct” and “indirect” causation.  It would be appropriate for the High Court to put an end to the specious distinction between a passive and a non passive plaintiff.

Professor Stapleton’s commentary

Professor Stapleton commented on Mr Kelly’s paper.  In short summary her views were that:

•    The common sense test of causation is an empty slogan, neither a test nor anything to do with common sense.

•    For clarity of legal analysis the separation of the issue of historical involvement and the issue of truncation of responsibility should be vigilantly observed.

•    Expressing the truncation issue as a causal issue is obfuscating and should be abandoned.

•    Though statutory language must be interpreted in terms of the statutory purpose, it can only be fully understood against the background of the common law.

•    The promotion of the purposes of the TPA may well support interpretations of s.82 that yield different scope of liability according to which section of the TPA has been contravened and the degree of wrongfulness of the contravenor.

•    In s 82 TPA cases, the Digi-Tech rejection of the ‘indirect causation’ argument is, at best, merely stipulated, and, at worst, based on incorrect understanding of what the law recognizes as a causal chain.

The addresses of each speaker were of a high quality and were appreciated by the large audience.  A stimulating discussion followed the presentations.

The speakers

Liam Kelly SC is well known as a leading member of the Bar.  Mr Kelly graduated in Arts and in Law from the University of Queensland.  He was awarded the University Medal for Law in 1988. He was the Rhodes Scholar for Queensland in 1989 and spent two years at Oxford where he received the Bachelor of Civil Law.  He was admitted to the Bar in August 1989, and began practice in April 1992.  He was appointed Senior Counsel in December 2005.  Mr Kelly brought to the seminar his substantial experience in major commercial and other litigation. 

Professor Stapleton brings to the topic of causation and the law a unique background:  her first degrees were in science, and she holds a doctorate in chemistry.  After graduating in law from the ANU Professor Stapleton completed her doctorate in law at the University of Oxford.  She is a professor at the Australian National University, the Ernest E Smith Professor of Law at the University of Texas School of Law, a Statutory Visiting Professor at the University of Oxford and will be a Visiting Professor in Cambridge next year.  She was awarded the rare honour of a DCL from the University of Oxford.

Her work on causation, products liability and torts in general is remarkable and has been frequently cited with approval by the highest appellate courts in this country, the House of Lords, the US Supreme Court and appellate courts in many other common law jurisdictions.

Professor Stapleton’s work was recognised in 2004 when she was elected to the Council of the American Law Institute, the first foreigner to be honoured in this way.  She is a member of the American Law Institute.

Late last year she was elected as an Honorary Bencher of Gray’s Inn in company with Lord Phillips, the President of the Supreme Court of the United Kingdom and Justice Sonya Sotomayor of the US Supreme Court.

Justice Peter Applegarth

ORAL NOTES – CAUSATION

Introduction

1. Causation is unquestionably a very important topic in the law, at common law and, for practitioners, in relation to s 82 of the Trade Practices Act (“TPA”).

2. One of the real problems with causation is that it is a term that has been used in cases and academic writing with ambiguity. We must first be clear about what we are discussing.  The debate becomes fraught if one person uses the term to mean factual involvement in an event (which is the better use) and another person (as courts have done for many years) use it to include a number of other concepts, such as remoteness and whether a person should be liable or not, without articulating these matters.

3. Debating causation can draw us into the Humpty Dumpty quandary: “when I use a word it means just what I choose it to mean, neither more nor less”.

4. The issue that is important for present purposes is how much use can we make of the common law of causation when we approach s 82 for contraventions of s 52 regarding negligent misstatement.

5. We have been informed repeatedly now by the High court that analogies with the common law are useful as a guide only but not to govern interpretation.  Personally I have a real difficulty in finding that a distinction of substance  exists.

6. I will deal with 6 points, each of them briefly:

(a) The connection between the common law and s 82

(b) Proportionate liability reforms affecting the TPA and the common law

(c) What are the guiding principles of causation from the common law

(d) Why is common sense such a poor test to guide us in causation

(e) The use of the but for test and situations where it does not work

(f) The indirect causation test that is developing in relation to s 82

Point 1: Connection between common law and s 82

7. The connection between common law causation and causation under s 82 was established 18 years by the High Court in Wardley as a direct relationship.

8. Over time the directness has been attenuated to the status of an analogy and has been described as merely useful guidance : see Henville v Walker, I & L Securities, and Murphy v Overton.

9. The High Court has been cautious not to foreclose recovery in a s 82 case, given the ambitious aims of the TPA.  Section 2 provides:

“The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.”

10. But we can ask this question:  is there anything more important about the purpose of s 82 when it applies to an innocent misrepresentation than the purpose of damages at common law for the tort of deceit?  I think the answer is clearly no.   S 82 is important but it cannot trump the social importance of the remedy of damages for deceit. 

11. Since s 82 is concerned with compensation it would be a very odd kind of result to find that it gives relief for cases of contravention of s 52 that is in some way alien to what we understand as the reliance or expectation measure for compensation.  The High Court has never said that s 82 was meant to overcompensate.

12. Looking at Henville v Walker, nothing said by the High Court was substantially divergent from an analysis that would prevail in the common law of negligence save that contributory negligence did not apply.  And, of course, at common law, the pernicious effect of the original rule of contributory negligence, that it was a total defence, had to be ameliorated by statute. And a similar amendment was made to the TPA by s 82(1B)

13. But in I & L Securities, the majority judgment, after noting the statutory context of s 82 and its applicability to a wide range of norms, said: “In the light of these considerations, it is evident that to approach the construction of s 82 or s 87 as if they were concerned principally with cases of negligent misrepresentation would be an invitation to error”.

14. So we have this warning.

15. My instinct as a practitioner in relation to s 82 (in a case of a misleading statement) is that causation seems indistinguishable from the common law but one is always on one’s guard from ever assuming it is identical.  Trying to find the precise points of difference is grappling with something quite elusive.

Point 2: The Proportionate Liability/Contributory Negligence Reforms

16. The TPA amendments of 2004 were anomalous in various respects.  A kind of hotch potch system is now in place. 

17. I can accept that Henville v Walker and I&L Securities were correctly decided on the law as it stood at the time. 

18. But they were very harsh results indeed: commercial enterprises with plaintiffs quarantined from the effect of their own carelessness.  With respect, the High Court should have just acknowledged the unfairness of the statutory outcome law and left it to the legislature to fix it up, as Callinan J did in I & L Securities, rather than try to shape a special jurisprudence for s 82 in these cases.

19. Section 82(1B) now provides for contributory negligence to operate with respect to s 82 in limited cases (for example, it will not apply for a case of fraud).  We would not expect a different apportionment to apply in common law for negligence to 82(1B) no matter what s 2 of the TPA provides.  Again, one searches for any valid reason why there would be a difference.

20. The proportionate liability amendments to the TPA have arbitrary aspects to them.  If one has a statement that contravenes s 52 and also s 53 (which is not far removed from s 52, involving false representations concerning the quality of goods or services), then, provided the other qualifying conditions in s 82(1B) are satisfied, contributory negligence of the plaintiff will reduce the damages awarded under s 82 for contravention of s 52 but not s 53.  Section 52 has been singled out as special from other provisions which trigger relief under s 82.  This is anomalous. 

21. Further, section 87, which provides for compensation, is not expressed to be subject to reduction for contributory negligence.  This does not make sense.

22. There are other anomalies about the amendments.

23. Personal injuries are not subject to diminution by apportionment but claims for some kinds of economic loss are.  Yet neither claim more obviously warrants the description consumer protection which the High Court has pointed to as the factor requiring us to be so careful about making analogies with the common law.

24. It is difficult to see how the amendments maintain a coherent justification that s 82 in relation to a misstatement under s 52 causing economic loss is about consumer protection and is markedly different from the common law.  Consumer protection, one would think, has a primary focus on protecting the consumer from the effect of proscribed conduct. 

25. It is difficult to see why a consumer should have less protection in terms of compensation for economic loss if he or she has been misled by a negligent contravention of s 52 as compared with a situation where the person responsible for the misleading conduct has been fraudulent – this seems to focus on issues of culpability of the wrongdoer rather than protection of the consumer.

Point 3: Propositions about causation in negligence

26. What are important propositions about causation at common law?  May I be very brief.  The best place I would recommend for the history of the law of causation in the common law, and in academia, is found in Professor Stapleton’s article “Choosing What We Mean by ‘Causation in the Law’”.  (2008) 73 Missouri Law Review. 

27. A central proposition which we may take for granted is that the cause in negligence does not have to be the sole or dominant cause. The same reasoning applies to s 82 of the TPA .

28. In academic commentary where there are multiple sufficient (duplicative) causes this is described as the event being “overdetermined”. See the explanation by Professor Stapleton in “Cause-In-Fact and the Scope of Liability for Consequences (2003) 119 LQR 388 at 392.

29. There are a set of causes for any event which are too numerous for us to identify.  If a man is carelessly shot by another and dies, his death may be caused by the damage the bullet does to his heart, the explosion that occurs within the barrel of the rifle, the speed of the bullet, the force of its impact, the effect of gravity and air resistance.  It is also caused by the negligence of the man holding the rifle when it was discharged.

30. Obviously not all causes are of interest to the law. 

31. So, how does the law move to identify relevant causes?  My answer is a prosaic one.  For reasons of self interest parties narrow down issues to those which sound in monetary value.  People don’t litigate abstract disputes unless there is a failure in the legal system at some point.  The widow of the deceased man will narrow down the multiplicity of imaginable causes to the one of legal interest by alleging negligence by the man who held and fired the rifle. That is where the possibility of compensation will lie.

32. The historian AJP Taylor made a similar point about the law’s pragmatism when he wrote about the causes of wars: 

Point 4: Common sense

33. The common sense test for causation is prevalent in causation.   It still has a lingering and unwholesome effect on the law.

34. In March v Stramare the majority of the High Court clearly endorsed the common sense test. 

35. Hart & Honore elevated common sense in a vaguely patronising way.  They said that common sense as used by the ordinary person to express causal notions rested on statable principles although the common person might not be able to make them explicit.  The implication is that the great and the wise can make these principles explicit (but juries can use common sense without having to and without being able to).

36. This, in my view, is not a stable platform to underpin a doctrine of causation.

37. One reason for the development of the common sense approach was the historical fact that questions of causation were formerly decided by juries and that, when the matter had to be decided by a judge, it did not make sense to make the question more complex than it was when a jury decided it.

38. The test of common sense for causation was expressed in this way by Lord Reid in Stapley v Gypsum Mines Ltd: [1953].  And the test was applied repeatedly in subsequent decisions the House of Lords.

39. But the common sense test, whatever it meant, was used, amongst other purposes, as a filtering device to discard consequences that were too remote.

40. Professor Stapleton has made the point that ordinary causal language in daily life does not distinguish between the factual inquiry of historical involvement and the normative judgment as to which consequences fall within the appropriate scope of liability.  Linguistic confusion affects the application of a common sense test. In ordinary language this occurs regularly.  I would commend to you Professor Stapleton’s writings on this subject.

A.      Common Sense can be Complex

I personally have three problems with a common sense test for causation.  The first is that it seems to suggest that causation, if common sense is applied, is easy.  But the opposite is true in my view.  Leaving philosophy to one side (where the history of common sense is hardly unproblematic), what the law calls common sense is variable, unpredictable and complex.

42. Some examples of what might come to mind as common sense that come to mind include the most complex of statements involving complex judgments:

• The failure of the marriage was caused by his infidelity (moral judgment).  Or the failure of the marriage was caused by fault on both sides
• If you read about the causes of world war 2 you will find historians who say that a cause of World War Two was the failure by France or Britain or the League of Nations to take up arms against Germany when it re-occupied the Rhineland on 7 March 1936.  You will find other distinguished historians who take the contrary view.  Each purports to speak with common sense. 
• If you go to a rugby game you will hear people say team lost a rugby union game by two points because fifteen minutes from full time the referee failed to award a penalty in front of the posts which we would have kicked and then won by one point. 

43. Hitler’s re-occupation of the Rhineland, and the other example concerning the rugby game, are particularly interesting.  In terms of causation they are not greatly different in principle.

44. In each case the statement involves a “but for” test.  However, the application of the test is much more complex and unpredictable than what courts generally make judgments about in negligence.  With the re-occupation of the Rhineland  there is no way that a court could make a positive finding of causation that the failure to react to that even in a particular way was a cause of the second world war.  This is because the events that might have unfolded from March 1936 onwards were so unpredictable and complex that one could not hope to satisfy any legal standard of proof about them in the practical sense in which a court and practitioners has to administer justice.  If you were a lawyer and you were asked to advise you would advise that you could not establish causation.  But people who have an interest in that part of history have regularly expressed views, one way or the other, in causative terms about this topic.

45. People using ordinary, everyday language of causation will attempt to answer very complex questions which courts would not attempt to answer. 

46. The example of the rugby game is entirely commonplace in everyday language but in some ways is as uncertain and fraught a task as the exercise concerning the re-occupation of the Rhineland. 

47. So a problem with relying upon the plain person’s notions of causation is that the ordinary person makes complex causative judgments where courts would fear to tread.

B.      What does it add to rational thought?

48. Further, I do not understand, if applying common sense means not more than applying rational thought in a logical manner, based upon the evidence, that it adds anything to what we would expect the law to do anyway.  We do not expect the law to reach irrational conclusions, or to act illogically, and not act upon evidence. 

C.  Hard cases

49. My third real problem with common sense is that it utterly fails to help us on those occasions where we come across a very difficult case not accommodated comfortably by precedent.  Yet if the test were worth anything we would expect it to help us in hard cases to predict a result.  It does not assist.

50. In hard cases courts tend to decide issues of causation on policy grounds, and rules become subject to incremental adjustments, based on a kind of rough justice.

51. In some hard cases courts opt to find that causation exists, or, that something which is a proxy for it exists, to avoid an unjust result, according to a value judgment about what is unjust.  An appeal to common sense does not take us far in justifying these decisions.

52. An example was Cook v Lewis [1952] 1 DLR 1.  In that case a man was wounded by one or both of two hunters.  Each of them had been in the vicinity of the victim and each had discharged their shotguns at the same time.  The victim was wounded immediately after this.  The jury found that one of the two hunters had injured the plaintiff but they could not say which one.

53. In Cook v Lewis the Supreme Court of Canada (Cartwright J, with whom Estey and Fauteux JJ agreed) said in obiter that if the jury “was unable to decide which of the two shot him because in their opinion both shot negligently in his direction, both defendants should have been found liable.”

54. In 2007 the Supreme Court of Canada reconsidered Cook v Lewis in Hanke v Resurfice Corp [2007] 1 SCR 333.  The court affirmed the correctness of Cook v Lewis.  In Hanke the court recognised that there are exceptional cases where a plaintiff can overcome an evidentiary deficit in relation to causation where two requirements apply: 

“First it must be impossible for the plaintiff to prove that the defendant’s negligence caused the plaintiff’s injury using the ‘but for’ test.  The impossibility must be due to factors that are outside of the plaintiff’s control; for example, current limits of scientific knowledge.  Second, it must be clear that the defendant breached a duty of care owed to the plaintiff, thereby exposing the plaintiff to an unreasonable risk of injury, and the plaintiff must have suffered that form of injury.  In other words, the plaintiff’s injury must fall within the ambit of the risk created by the defendant’s breach.

In those exceptional cases where these two requirements are satisfied liability may be imposed, even though the ‘but for’ test is not satisfied, because it would offend basic notions of fairness and justice to deny liability by applying a ‘but for’ approach.” [underlining added]

55. A type of difficult case has, in recent years, been considered by the House of Lords and the High Court in the context of asbestos related diseases.

56. Insofar as science is revealed in the judgments of the House of Lords and High Court, mesothelioma is not a disease that one contracts necessarily because of prolonged or accumulated exposure to asbestos.  It only takes one fibre to cause the fatal disease.  The disease typically manifests itself thirty to forty years after the inhalation which causes it and death follows quickly, within one to two years, after diagnosis.  In this way mesothelioma is considered different from asbestosis which is a disease which is aggravated by accumulated exposure to respirable asbestos fibres.

57. So with a case such as mesothelioma where there has been more than one employer it may be impossible to prove causation by the but for test.  You cannot prove when the fatal fibre was inhaled.

58. In Fairchild [2003] 1 AC 32 the House decided that a worker who had contracted mesothelioma after being wrongfully exposed to significant quantities of asbestos dust at different times, by more than one wrongdoer, could sue any of them, notwithstanding that he could not prove which exposure had caused the disease.  The House identified these principles:

• It was an exceptional liability.
• It was not possible to prove causation on the balance of probabilities.
• The state of scientific knowledge prevented causation being proved.
• In all the circumstances it would be unjust for the plaintiff to fail.

59. It was emphasised that the exception must be kept under very tight constraints.

60. Not long after this, in Barker v Corus UK Ltd [2006] 2 AC 572 the House had to consider the exceptional type of case again.  The development of the principle took an interesting and arbitrary twist.  Confronted with the situation where one former employer was insolvent and where Mr Barker had, in one of the three episodes of asbestos exposure, been self-employed, and not exercised reasonable care for his own safety, the House decided, by majority, to smooth out the rough edges in rough justice for the single solvent defendant by making an adjustment in its favour.

61. The House of Lords decided that fairness required that liability should be attributed according to each defendant’s relative degree of contribution to the risk, measured by the duration and intensity of the exposure involved.  Each defendant’s liability was several only.

62. Thus, where a solvent defendant had contributed 10% of the exposure and the insolvent defendant contributed 90%, the solvent defendant would only be liable severally for 10% of the loss, this being the contrary result which would traditionally apply at common law, where causation of the same or an indivisible loss was established against each defendant.  In that latter case the common law holds the solvent defendant 100% liable, leaving it to shift for itself to claim contribution from the other defendant.

63. Lord Hoffmann explained the majority position in these terms:

(a) Fairchild was an exceptional type of case;

(b) “the attribution of liability according to the relative degree of contribution to the chance of the disease being contracted would smooth the roughness of the justice which a rule of joint and several liability creates.  The defendant was a wrongdoer, it is true, and should not be allowed to escape liability altogether, but he should not be liable for more than the damage which he caused and, since this is a case in which science can deal only in probabilities, the law should accept that position and attribute liability according to probabilities. 

64. His Lordship’s reasoning is lucid and clear. The only problem I have with this statement is his Lordship’s use of the expression “the damage which he caused” because there was no proof whether the wrongdoer had in fact caused the damage or not.  That was the point of the exception.  It is really a deemed causation.

65. I prefer the dissenting judgment of Lord Rodger of Earlsferry. His Lordship said that joint liability was itself a form of rough justice ie a defendant is liable for 100% of the plaintiff’s loss if he made a material, say 5% contribution to the indivisible injury.  The risk of insolvency is traditionally on the wrongdoer.  He said:

“The desirability of Courts, rather than Parliament, throwing this lifeline to wrongdoers and their insurers at the expense of claimants is not obvious to me.”

66. The High Court considered a difficult case recently in Amaca Pty Ltd v Ellis (2010) 240 CLR 14.  In that case the issue was whether the deceased’s estate had established that the lung cancer which caused the death of the deceased had been caused by exposure to respirable asbestos fibre.  The deceased was a smoker.   There were two possible agents of disease: smoking or asbestos. This distinguished the case from Barker.

67. The deceased’s estate had run the case on the basis that causation was to be decided by applying a “but for” test.  The plaintiff lost due to a failure to cause causation.  Because of the way in which the case was conducted the High Court did not have to consider Fairchild, Barker or Hanke.  The High Court is yet to deal with these cases.

68. My point is that none of the hard cases sit well with the common sense test.

69. It is time for the common sense test to be discarded by Australian courts as a meaningful test of causation.

Point 5: The But For Test

70. In many cases the “but for” test satisfies and exhausts the law’s interest in causation. The ‘but for’ test will tell the lawyer that if she takes away the effect of the carelessness of the man holding the rifle then the victim would not have died. 

71. The “but for” test of causation requires us to consider a hypothetical universe in which an event did not occur and then to rationalise what would have happened.

72. In a paradigm case identified by Professor Stapleton X and Y are hunting and each shoot carelessly in the direction of Z, each hitting him.  Z is killed, with each bullet being sufficient to have killed him.  In this case the law will have the dilemma, when Z’s widow sues X and Y, of analysing whether the negligence of one or both of them was a cause of Z’s death.

73. In this overdetermined situation the “but for” test does not work.  It yields an anomalous outcome which exonerates each hunter from having caused the death.

74. When X’s conduct is subtracted the result will be that X’s negligence was not necessary for the death of Z, because Y’s conduct would have killed him. So the plaintiff is worse off because he or she has been the victim of the negligence of two wrongdoers instead of one.

75. This is why it is simply incorrect to say that the but for test gives one the answer to factual causation (in the sense of involvement) in each case.  In overdetermined cases it will be an unreliable test.

76. In her writings Professor Stapleton identifies how this dilemma can be dealt with in practice in an overdetermined case.  Time does not permit examination of it at the moment although it is described in my paper by the acronym which Professor Stapleton uses, the NESS test.

Point 6:  Indirect Causation and the TPA

77. Finally I will refer to what can be called “indirect causation” cases under the TPA. This strain of reasoning developed in a case called Digi Tech (Australia) v Brand (2004) ATPR 46-248, is dubious and it directly concerns causation and s 82.

78. Normally the paradigm case is of a plaintiff who relies upon the negligent misstatement and, in the law of negligence, is a person specially foreseeable as being likely to rely upon the statement, or foreseeable as a person vulnerable to carelessness in the making of the statement.

79. Traditionally, the common law has sought to keep floodgates under control for damages for negligence causing economic loss by the way in which the duty of care is defined.  The common law recognises that many losses may have been caused by a negligent statement but that there may not be a duty of care to prevent all of them occurring.  A market economy recognises that we can lawfully inflict economic loss upon competitors.  In the law of negligence something more than foreseeability of economic harm being suffered by the plaintiff because of the defendant’s negligent misstatement is required.  See Brennan CJ in Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 at 252, Perre v Apand Pty Ltd (1999) 198 CLR 180 at 193 [7] — [8], Tepko v Water Board (2001) 206 CLR 1 at 16-18 [45] — [51].

80. Under s 52 and s 82 of the TPA the concept of a duty of care has no statutory relevance.  So in Digi Tech the court turned to an idea of indirect causation to limit the reach of s 82.

81. Before we get to Digi Tech, it is well settled and good law that a claim for damages under s 82 for contravention of s 52 may succeed where the plaintiff has not relied on a misleading and deceptive statement but a third party has.  Three examples demonstrate this:

(a) Janssen—Cilag (1992) 37 FCR 526: celebrated judgment by Lockhart J; a plaintiff (being a rival trader) might recover damages under s 82 where the reliance on the misleading conduct was by members of the public not by the plaintiff. 

(b) Hampic Pty Ltd v Adams (2000) ATPR 40,545 Mason P and Davies AJA said, at [35]:

“The requirement of causation is not a stringent one …”.

The cleaner in question was injured when she used a cleaning fluid given to her by her employer with no warning label.  The employer had received it with a warning label which was misleading.  It was found that but for that misleading label the employer would have acted differently and so would the employee.

(c) unanimous decision, the New South Wales Court of Appeal in Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84 at [27] followed Janssen-Gilag Pty Ltd v Pfizer Pty Ltd.

82. Each of those 3 cases recognised that the plaintiff can claim damages under s 82 when suffering loss without having to rely upon a misleading statement that contravened s 52.

83. The difficulties started with the decision of the NSWCA in Digi Tech in 2004 and the difficulties in the reasoning of the court are quite profound.

Digi-Tech

84. In Digi-Tech (Australia) v Brand the New South Wales Court of Appeal (Sheller, Ipp and McColl) dealt with an argument raised by the appellants as to the “indirect theory of causation”.

85. The court’s reasoning is obiter .

86. The investors who had lost out in an investment scheme said that if Digi Tech had not produced misleading and deceptive forecasts concerning the revenue of the products Deloitte would not have produced a valuation to support the price of $72.5 m.  In the absence of that valuation the investment scheme would not have gone ahead and Mr Urwin would not have proposed the scheme to any of the investors.  The investors submitted that Digi Tech’s misleading conduct caused Urwin to act in a way which led to their suffering loss.

87. The court then made a distinction, which appears quite spurious, between a case where a plaintiff is induced to take a step (as an indirect consequence of a misleading statement — in which case he or she cannot succeed) (the non-passive, or active plaintiff) and another case in which the plaintiff takes no step, but is passive, and suffers a loss (in which case he or she can succeed).

88. In my view the distinction between the passive and the active plaintiff is not coherent and is not a useful or compelling basis to differentiate between those who should recover damages and those who should not.

Ingot

89. Unfortunately the reasoning in Digi Tech has received some impetus.  It was picked up by McDougall J at first instance in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2007) 63 ACSR 1.  It was then applied (in obiter) by the majority of the court of appeal in that case.

90. McDougall J held that it was not open to the plaintiffs to contend that but for the allegedly misleading or deceptive conduct of Macquarie, relating to various representations made by it to a due diligence committee, a re-insurance company would not have issued the prospectus and the plaintiffs would not have agreed to sub-underwrite the issue of the prospectus or acquire rights or other securities, and thereby suffered loss.

91. As such the case involved actual conduct on the part of the plaintiffs (that is, they were active not passive) as part of the chain of causation.

92. On appeal, the NSW Court of Appeal approved McDougall J’s reasoning, (2008) 73 NSWLR 653.  In obiter, Ipp and Giles JJA endorsed the reasoning in Digi-Tech. Hodgson JA outlined his own view and expressly refrained from commenting as to whether or not it was consistent with Digi-Tech.

93. In obiter Hodgson JA was willing to allow the possibility of recovery where the opportunity to invest would not have come about at all in the absence of the misleading conduct.

The Distinction Made in Indirect Causation Losses

94. It is my view that the distinction in Digi Tech between a plaintiff who has been caused loss in a passive sense and a plaintiff who has been caused loss by engaging in some conduct does not provide any sort of satisfactory dividing line between those who should recover damages and those who should not under s 82.  Obviously the person who knows that a misrepresentation is untrue ought not to be able to recover damages because of it.  But if loss has been caused to a plaintiff because a third party relied upon the truth of a misleading statement and the plaintiff relied upon the third party’s consequential conduct and suffered a loss then the “involvement” issue of causation is established.

Conclusion

95. The concluding points I make are as follows:

(c) My contention is that for a practitioner it is difficult to find any difference of substance between how causation is treated under s 82 for a contravention of s 52, and how causation is treated at common law for a paradigm case involving negligent misstatement causing economic harm;  further, it would be odd if there were a difference when s 82 is concerned with compensation .

(d) The amendments to the TPA are hit and miss (and anomalous in part) and interfere with our ability to interpret the TPA as coherently being about consumer protection

(e) the common sense test is of no real assistance (either at common law or under s 82).  The test should be discarded.  My particular reasons for criticising the test are the following:

(i) It does not add anything to our expectation that a court will act rationally based upon proved evidence; 

(ii) It is particularly unhelpful if the test is confused with a notion that the ordinary person makes simple causative judgments; the contrary is the case;

(iii) The test is also shown as particularly unhelpful in hard cases and does not explain them;

(f) The common law also gave us the “but for” test.  The limitations of the test have been well documented in academic writing and in the authorities.  The case law in the High court, however, has not caught up with the rigour of analysis developed in academia as to how the problems with the use of the test should be overcome.

(g) The law on causation as identified by courts in Australia has not kept pace with the rigour and complexity of the analysis that has occurred in academic commentary;

(h) This lagging behind is partly due to the lingering effects of the common sense test.  It has been a convenient but overall unhelpful label which is devoid of real meaning.  The lagging is also partly explicable by the courts’ natural reticence about stating principles that foreclose possible unforeseen cases that may arise in the future and that is something with which we can respect and have sympathy for.

(i) Finally the indirect causation theory that began really in Digi Tech is not at all convincing.  It is my view that courts are in fact wrestling in these cases with a kind of substitute limiting device for the duty of care at common law or with the “scope of liability” inquiry which Professor Stapleton has identified in relation to causation although this is being masked by the use of terms such as “direct” and “indirect” causation.  It would be appropriate for the High Court to put an end to the specious distinction between a passive and a non passive plaintiff.

Liam Kelly SC