CAUSATION AND RELIANCE
45 The debt that DBW says it is entitled to prove in the liquidation of HIH is said to consist of damages arising from HIH's false and misleading conduct in breach of s 52 of the TPA. Section 82(1) of the TPA provides for the award of damages where the claimant suffers loss or damage "by conduct of another person" done in contravention of nominated provisions of the TPA.
46 In the Amended Statement of Claim DBW claims that HIH contravened s 52 by providing false and misleading information either directly by way of documents issued by the company and statements of its officers such as Mr Clarke or indirectly, by way of analysts' reports that were based on information provided by the company. For this contravention to entitle DBW to damages under s 82 it is necessary for DBW to establish that its loss was occasioned "by" the conduct of HIH. This inevitably raises the vexed question of causation. As Mason CJ observed in Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 525:
The statutory cause of action arises when the plaintiff suffers loss or damage "by" contravening conduct of another person. "By" is a curious word to use. One might have expected "by means of", "by reason of", "in consequence of" or "as a result of". But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by the Court in March v Stramare … Except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act.
47 In March v Stramare (E & MH) Pty Limited (1991) 171 CLR 506 both Mason CJ and Deane J stressed the importance of common sense in determining causation, acknowledging (in separate judgments) that causation at law involves a question of fact into which value judgments and policy considerations necessarily enter; see RV Miller, Miller's Annotated Trade Practices Act 31st ed, 2010 at 908. Their Honours cautioned against overemphasising the "but for" test and noted that the legal concept of causation differs from philosophical and scientific notions of causation. In this regard Mason CJ, with whom Toohey and Gaudron JJ agreed, said at 509:
In law … problems of causation arise in the context of ascertaining or apportioning legal responsibility for a given occurrence. The law does not accept John Stuart Mill's definition of cause as the sum of the conditions which are jointly sufficient to produce it. Thus, at law, a person may be responsible for damage when his or her wrongful conduct is one of a number of conditions sufficient to produce that damage …
48 In relation to the "but for" test Mason CJ said, at 516, that the results yielded by the test "must be tempered by the making of value judgments and the infusion of policy considerations". Justice Deane expressed a similar view, observing, at 524, that "whether conduct is a 'cause' of injury remains to be determined by a value judgment involving ordinary notions of language and common sense".
49 The theme was further explored in Henville v Walker (2001) 206 CLR 459, where McHugh J referred to the difference between the common law concept of causation and scientific and philosophical notions of causation and said, at [97]
The common law has avoided the technical controversies inherent in the logic of causation. Unlike science and philosophy, the common law is not concerned to discover universal connections between phenomena so as to enable predictions to be made. The common law concept of causation looks backward because its function is to determine whether a person should be held responsible for some past act or omission. Out of the many conditions that combine to produce loss or damage to a person, the common law is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage.
[Footnotes omitted]
50 McHugh J accepted that the "common sense" approach to causation means that it cannot be reduced to a test that "can be applied across the spectrum". His Honour added, at [106]:
If the defendant's breach has "materially contributed" to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of common sense to hold that the breach was not a cause of damage. But such cases are exceptional.
51 Given the mixed fact/value nature of causation at law, the context in which the issue arises is especially important. In Environment Agency v Empress Car Co (Abertillery) Ltd [1998] 2 AC 22 Lord Hoffmann endorsed the common sense approach to causation adding, at 29:
The first point to emphasise is that common sense answers to questions of causation will differ according to the purpose for which the question is asked. Questions of causation often arise for the purpose of attributing responsibility to someone … In such cases, the answer will depend upon the rule by which responsibility is being attributed. …
52 Justice Allsop, President of the New South Wales Court of Appeal, in a paper entitled "Causation in Commercial Law" presented at the Torts in Commercial Law Conference in Sydney on 17 December 2010 gave, if I may say so, a masterly overview and analysis of the topic in the course of which his Honour discussed Lord Hoffmann's views. In relation to the dependence on the rule by which responsibility is being attributed his Honour said:
This recognition leads to the reality that the open question: Who caused X? is misleading. The proper question is: Did the defendant cause X, in the context and framework of the relevant rule of responsibility? … The purpose and scope of the rule needs to be understood before common sense becomes helpful.
53 Lord Hoffmann's approach found favour in the High Court of Australia. In Chappel v Hart (1998) 195 CLR 232 at 238 Gaudron J said: "Questions of causation are not answered in a legal vacuum. Rather, they are answered in the legal framework in which they arise"; see also Gummow J at 256. Nevertheless it has been widely recognised that there is probably no simple test and that the legal concept of causation is not reducible to a single formula; Fitzgerald v Penn (1954) 91 CLR 268 at 278 per Dixon CJ, Fullagar and Kitto JJ.
54 In this case the question is did HIH cause the claimed loss to DBW? In ascertaining the purpose and scope of a statutory rule, the object and purpose of the particular statute may assist. In the case of the TPA, however, the object of the Act as stated in s 2 is expressed in such general terms as to be of little assistance. Section 2 states the object of the Act to be "to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection". Greater guidance was given by Gummow J in Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 359:
The TP Act is a fundamental piece of remedial and protective legislation which gives effect to "matters of high public policy".107 It is to be construed so as to give the fullest relief which the fair meaning of its language will allow".108
107 ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 256; 110 ALR 47
108 Bull v Attorney-General (NSW) (1913) 17 CLR 370 at 384; Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 44; 99 ALR 275; Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 at 41; 117 ALR 321.
55 Justice Lockhart's decision in Janssen-Gilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 (Janssen) is consistent with this approach. (I note, in passing, that the applicant's name in 109 ALR 638 in the judgment on the Federal Court website is spelt "Janssen-Cilag".) In Janssen, at 529, Lockhart J said:
What emerges from an analysis of the cases (and there are many of them) is that they do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision. …
Loss or damage must directly result from or be caused by the respondent's conduct. The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been 'brought about by virtue of' the conduct which is in contravention of s 52.
56 His Honour added at 530, that there was "nothing in the language of the Act or its purpose to warrant the suggestion that the right of an applicant for damages under s 82 is confined to the case where he has relied upon or personally been influenced by the [contravening] conduct of the respondent". To illustrate the point his Honour gave the example of a respondent manufacturer who, using a name deceptively similar to that of an applicant with an established reputation, enticed customers away from the applicant. The applicant would be entitled to recover its loss even though it had not, itself, relied on the respondent's conduct.
57 Justice Lockhart's views were quoted with approval by Gummow J in Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 at 528. Janssen was also followed by the Full Court in McCarthy v McIntyre [1999] FCA 784 which stated, at [48]:
All that is necessary, in our opinion, is that there be a sufficient and direct link (ie causation) between the loss or damage alleged to have been suffered.
58 The Full Court in McCarthy v McIntyre added that the contravening conduct need not be the sole cause of the loss. Causation must be established but the impugned conduct need only be a cause of the loss not the cause. This was accepted by all members of the High Court in Henville v Walker (2001) 206 CLR 459 at [14] per Gleeson CJ, [59]-[61] per Gaudron J, [106]-[109 per McHugh J and [163] per Hayne J. Justice Gummow agreed with McHugh and Hayne JJ.
59 The High Court's rejection of any argument that the contravening conduct be the sole cause of a loss that is compensable under s 82 is based on the purpose of the statute being to proscribe misleading and deceptive conduct. In I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 Gleeson CJ referred to that purpose at [33] and said:
In aid of that purpose, the statute provided for compensation, by an award of damages, to a victim of such conduct. The measure of damages stipulated was the loss or damage of which the conduct was a cause. It was not limited to loss or damage of which such conduct was the sole cause. In most business transactions resulting in financial loss there are multiple causes of the loss. The statutory purpose would be defeated if the remedy under s 82 were restricted to loss of which the contravening conduct was the sole cause.
The Chief Justice also held that there was no reason to distinguish between principal and interest in assessing an applicant's loss; see also McHugh J at [69].
60 While personal reliance on the contravening conduct by the applicant is not necessary to establish a compensable loss, reliance at some point is necessary to provide the causative link to the loss claimed. As the Full Court of the Federal Court held in Ford Motor Company of Australia Limited v Arrowcrest Group Pty Limited (2003) 134 FCR 522. Lander J, with whom Hill and Jacobson JJ agreed, said at [123]:
None of the cases relied upon support Ford's contention that causation can be established in a misrepresentation case without proof that the misrepresentations were relied upon. They support a different (but irrelevant proposition for the purpose of this case) that an applicant may establish causation in such a case by proving that a third party relied upon the misrepresentations and that party's reliance caused the applicant's damage.
61 In many cases it is personal reliance that provides the link between the loss suffered and the contravening conduct. The case advanced by DBW is based on personal reliance; it claims that it "relied upon" information that was:
(a) provided directly by HIH in Financial Reports, Media Releases and Statements issued by HIH and in direct communications with HIH personnel; and
(b) provided in analysts' reports based on information supplied by HIH.
DBW asserts that it would not have purchased the shares had it known HIH's true financial position. That assertion, even if made out, is not sufficient in itself to establish that DBW's loss was "by" the conduct of the respondent.
62 In Finishing Services Pty Ltd v Lactos Fresh Pty Ltd [2006] FCAFC 177 the Full Federal Court, referring to Janssen, McCarthy v McIntyre and others, accepted that third party reliance may cause an applicant's loss but added, at [31] that "the authorities require there to be a 'sufficient and direct link' or a 'requisite element of proximity' in order for the section to be satisfied".
63 To succeed in its claim in respect of each share purchase transaction DBW must show that it was induced to enter into the transaction by the impugned conduct of HIH. In so far as it claims to have relied on analysts' reports it must show that the misleading or deceptive information in those reports emanated from HIH. This case must be distinguished from that in the example given by Lockhart J in Janssen. It is not a case where the innocent party's act by its very nature causes the applicant's loss. Here reliance is critical to the applicant's claim; DBW must show that it relied on the misleading information and that that information emanated from HIH.
64 This distinction between Janssen and cases that depend on establishing reliance was recognised by the New South Wales Court of Appeal in Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58 at [155]-[158]. The issue was also discussed in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 where, at [12]-[13] Giles JA said:
The appellants' reliance on the reference in par [156] of Digi-Tech (Australia) v Brand to the category of claim "when plaintiffs suffer loss because they themselves are induced by misleading representations to perform an act or omission by which they are prejudiced" was in my view misplaced. Their Honours were contrasting the kinds of claim, and were not restricting what followed to where there was direct inducement of the plaintiff; they were identifying the kind of claim in which inducement of the plaintiff played a part. The distinction drawn in Digi-Tech (Australia) v Brand is between cases where conduct on the part of the plaintiff "forms a link in the causation chain" … and where it does not. Where it does, there must be reliance on the misleading conduct in the manner next explained. Where it does not, there may be recovery if the act of the innocent party induced by the misleading conduct "by its very nature, causes the plaintiff's loss" … but that is where the plaintiff passively suffers loss from another's act (as in Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529-530, where consumers were led by the misleading conduct to buy less of the plaintiff's product).
In saying that in a case of "misrepresentation inducing a transaction" reliance on the misrepresentation was required for proof of causation … they meant a case where the plaintiff was not a passive sufferer from another's act, but was someone who made a decision to enter into the transaction to which the representation was material. Their Honours did not mean direct inducement, but that the decision and the materiality to it of the representation was a link in the causal chain.
Similarly, in the same case Ipp JA said at [618]:
The rationale of Digi-Tech (Australia) is that loss incurred by plaintiffs in acting (or refraining from acting) to their prejudice can only be loss caused "by" conduct contravening s 52 if the plaintiffs are misled by that conduct. Likewise, in my view, such plaintiffs can only succeed in cases based on a contravention of s 995 if, in fact, they are misled. I stress that by "such plaintiffs" I mean plaintiffs who claim to have suffered loss brought about by their own actions or omissions coupled with misleading conduct by the defendants. As was noted in Digi-Tech (Australia), were it otherwise, such plaintiffs could succeed on the ground that, by making false representations, the defendants engaged in misleading conduct, even though the plaintiffs well knew the truth of the representations or were indifferent to them. As I have noted, different considerations apply to the Janssen-Cilag Pty Ltd v Pfizer PtyLtd category of case.
65 The applicant has placed much emphasis on the Court being able to infer the fact of reliance from the fact that HIH engaged in misleading or deceptive conduct and the fact that the applicant invested in HIH shares. In its submissions the applicant quoted the comment of Lord Blackburn in Smith v Chadwick (1884) 9 App Cas 187 at 196:
I think that if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such nature as would be likely to induce a person to enter into a contract, and it is proven that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement.
66 Lord Blackburn's observation must, however, be considered in context. His Lordship added in relation to such evidence:
Its weight as evidence must greatly depend upon the degree to which the action of the plaintiff was likely, and on the absence of all other grounds on which the plaintiff might act. I quite agree that being a fair inference of fact it forms evidence proper to be left to a jury as proof that he was so induced. But I do not think that it would be a proper direction to tell a jury that if convinced that there was such a material representation they ought to find that the plaintiff was induced by it, unless one of the things that the late Master of the Rolls specified was proved; … I think there are a great many other things which might make it a fair question for the jury whether the evidence on which they might draw the inference was of such weight that they would draw the inference.
67 Lord Blackburn's comment as to fair inferences of fact has been referred to many times however the courts have recognised, as did Lord Blackburn, that a factual inference may be rebutted by other evidence. In Gould v Vaggelas (1985) 157 CLR 215 at 236 Wilson J in summarising the principles applicable to the granting of relief in respect of misrepresentation, acknowledged the factual inference identified by Lord Blackburn but said:
The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation.
68 The applicant referred to a number of authorities in which such a factual inference has led the court to find that a misrepresentation has been a cause of the applicant's loss. In most of these cases the inference has not stood alone but rather, has been buttressed by other evidence. An example is MGICA (1992) Limited v Kenny and Good Pty Limited (1996) 140 ALR 313 in which MGICA had indemnified a mortgagee against loss occasioned by the mortgagor's default. MGICA claimed to have been induced to grant the indemnity by the respondent's valuation which contained misleading opinions and representations.
69 The respondents pointed out that Mr Anderson (for MGICA) did not actually say that the applicant had acted in reliance on the misleading valuation and submitted that the true cause of MGICA's loss was Mr Anderson's carelessness. Justice Lindgren had no hesitation in rejecting that submission however it is clear that his Honour's conclusion, at 357, that MGICA was "at the very least, substantially induced by Mr Kenny's valuation to enter into the transaction" was based not only on the factual inference. His Honour noted that Mr Anderson had made a contemporaneous file note that it was necessary to rely on the valuation. At 358, Lindgren J accepted Mr Anderson's evidence:
His evidence was that he read every part of it and that … :
The valuation was pretty important to us. It had to be correct for us to be able to proceed with the transaction.
He ticked and highlighted the valuation report as he studied it and concluded that if the valuation of $5.5 million was correct there would be no claim on MGICA if it became necessary for the property to be sold.
On 30 April 1990 he wrote to MBL advising that the special condition that there be a "satisfactory valuation by MSL panel valuer" had been satisfied.
His Honour added:
The opinions and the implied representations in the [valuation] report to which I referred earlier were, moreover, regarded objectively, of a kind calculated to influence MGICA's decision whether to grant the mortgage insurance. Therefore a fair inference of fact arises that MGICA was induced to do so by them. The authorities show that it is not fatal to a claim of reliance that a witness does not give express and direct evidence of reliance.
70 The weight of the factual inference will vary with the circumstances in which the representation is made. In Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) 19 ATPR 43,617 the vendor under a contract for the sale of a certain building advised the purchaser that the tenant "was a good tenant" and concealed the fact that the tenant was in a precarious financial position and had a history of defaults in payment of rent. The Full Federal Court held that the representations had induced the purchaser to enter into the contract of sale and that the vendors were liable for its loss, notwithstanding that the purchaser had made extensive and detailed enquiries for itself. The Full Court said that the suggestion that the purchaser relied only on the information it had obtained for itself and not on that provided by the vendor was "a two-edged argument" as the purchaser's efforts would have "provided confirmation of its importance in the eyes of those responsible for these investigations". The Court held that in the absence of the purchaser's enquiries revealing any reason to doubt the truth of the vendor's representation, the representation did not cease to have effect. In relation to that effect the Full Court said at 43,619:
The law does not consider cause and effect in mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it had some substantial rather than negligible effect. As Brennan J said in San Sebastian Proprietary Limited v Minister administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 at 366:
The representation must be a real inducement or one of the real inducements to engage in the conduct which occasions the loss.
Where a representation is relevant to the decision in question, and in its nature persuasive to induce the making of that decision, it accords with legal notions of causation to hold that it has a causative effect. And where a respondent, who may be taken to know his own business, has thought it was in his interests to misrepresent the situation in a particular respect, the Court may infer that the misrepresentation was persuasive. These inferences arise from the making of the representation followed by the respondent doing the thing it was calculated to induce him to do.
71 The applicant claims that it is entitled to the benefit of the factual inference arising from the fact (admitted by the respondents) that HIH made misleading and deceptive statements and the fact that it, acting through Mr De Bortoli, purchased shares in the market. The inference is, according to the applicant, that its purchase was induced by HIH's representations. In support of this proposition, the written submissions of the applicant quoted a comment made by Spigelman CJ (with whom Allsop P and Ipp JA agreed) in Jameson v Professional Investment Services Pty Ltd (2009) 72 NSWLR 281. Referring to a representation that the obligations of the issuer of promissory notes would be guaranteed by the parent company, the Chief Justice said, at [96]:
[T]he importance of the allegedly misleading or deceptive features of the representation is, if accepted, likely as a practical matter to reduce the salience of issues of reliance and damages in the conduct of the individual cases.
72 Jameson involved an appeal from the order of the trial judge that the proceeding no longer continue as a representative proceeding. The comment was made in the context of a submission that there were sufficient common issues for the representative proceeding to continue as such. The Chief Justice held that the common issues outweighed the differences in respect of causation and reliance in the individual investors' cases and, at [131], that this fact was entitled to "significant weight". His Honour's comment is not relevant to the issues of causation and reliance in this case.
73 In my view, any factual inference must be weighed in the light of all the evidence. If, as the respondents submit, the evidence is such as to show that some or all of the share purchases were made without regard to the HIH representations then the inference will be rebutted and the causal link required under s 82 will not be made out.
74 It must be noted, however, that carelessness on the part of the applicant is not necessarily fatal to establishing a causal connection between contravening conduct and the loss suffered. The issue was specifically addressed in Henville v Walker particularly by Gleeson CJ who said, at [13] of his reasons:
It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s 82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.
See also at [140] per McHugh J (with whom Gummow J agreed).
75 The qualification in the last sentence of the Chief Justice's comment is relevant here. The respondent accepts that any causal connection between DBW's loss and the admitted misleading conduct of HIH would not be negated by carelessness on the part of DBW or Mr De Bortoli. The respondent's primary submission is that the applicant has not established reliance. Its alternative submission is that even if reliance were established at some point, there came a time when that ceased to be the case because Mr De Bortoli relied on his own judgment to the neglect of other influences.