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Causation: trade practices September 4, 2015

TRADE PRACTICES – misleading and deceptive conduct under Trade Practices Act 1974 (Cth) – causation – whether legal causation established – dependent on purpose of statute as related to the circumstances of the particular case

Cummins Generator Technologies Germany GmbH v Johnson Controls Australia Pty Limited [2015] NSWCA 264


  1. In Henville v Walker at [103], McHugh J, in considering the situation in which “a person has acted to his or her detriment by reason of or following some conduct of the defendant”, stated:

“[The conduct] will not be regarded as causally connected with the detriment if it provides no more than the reason why the person acted to his or her detriment. If the defendant intended the person suffering a detriment to act in the general way that he or she did, the common law will invariably hold that a causal connection existed between the conduct and the detriment. But if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred.

  1. McHugh J went on, at [103], to provide the following example of the principle:

“If a broker negligently advises a client to retain shares because they are a good investment, the broker will be liable for the loss sustained in retaining those shares. But if, having received that advice, the client decides to buy more shares, the broker will not be liable for the further losses unless the terms of the original retainer imposed a duty on the broker to advise in respect of further purchases.”

  1. The decision of Brereton J in Street v Luna Park Sydney Pty Ltd [2009] NSWSC 1; 223 FLR 245 provides a further illustration. That case involved, relevantly, a claim by owners of premises nearby to Luna Park that, by the lodgment of two development applications, which were subsequently displayed to the public, the developers of Luna Park had engaged in misleading and deceptive conduct contrary to the Trade Practices Act 1974 (Cth), s 52. At [226], Brereton J considered the submission that:

“[Section 52 was] directed at providing a remedy only in respect of conduct directed at individuals or a section of the public, including the plaintiffs, intended to be acted on by them, in a manner consistent with the purpose for which the representations were made to them, and that the statements in the 2001 DA and the 2002 DA were not directed at the plaintiffs. This is sometimes referred to as legal – as distinct from factual – causation.” (original emphasis)

  1. In applying that principle, Brereton J held, at [231] that:

“The purpose of the development applications was to obtain permission for the conduct of certain activity at the Luna Park site. Insofar as it was foreseeable that the DAs would be placed on public exhibition and might be read by members of the public, the purpose of such public exhibition was to inform neighbours of the proposed development, so that if they wished they might exercise their rights under the planning legislation to object. It was not to inform potential purchasers and developers of future uses of the subject land … Any loss suffered by the plaintiffs as potential purchasers, investors or developers was unrelated to the capacity in which they were intended to receive – if at all – the information contained in or conveyed by the DAs … No plaintiff communicated to [the developer of Luna Park] his, her or its intention to purchase or redevelop property based on the contents of the 2001 DA or the 2002 DA, nor that they intended to use the information contained in those DAs not just for the purposes for which it was lodged with the consent authority (to obtain planning approval), but for the wider purpose of informing their decisions to purchase or redevelop properties …”

  1. That statement was quoted by Giles JA in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2009) 73 NSWLR 653, in a passage considering the misleading and deceptive conduct provisions of the Corporations Law 1991 (Cth). Giles JA observed, at [19], that “[c]onduct which merely provides the opportunity for the plaintiff to enter into the transaction will not suffice”.
  2. In Travel Compensation Fund v Robert Tambree [2005] HCA 69; 224 CLR 627, the respondents prepared and audited the financial statements of a travel agent in a way that was false and misleading, knowing that the financial statements would be submitted to the appellant for the purpose of determining the travel agent’s eligibility to continue to participate in the fund. The travel agent continued to trade illegally for approximately two months until the Department of Fair Trading closed the business. The Travel Compensation Fund paid compensation of $143,050 to persons who had dealt with the agent, of which all but $13,320 related to the period in which the agent was trading illegally. It brought a claim against the respondents for damage suffered by their misleading and deceptive conduct in the full amount of compensation it had paid out.
  3. The Court (Gleeson CJ, Gummow, Hayne, Kirby and Callinan JJ) held, in four separate judgments, that the full amount paid out was recoverable. A central issue was whether the illegality of the conduct of the agent, by trading without a licence, was sufficient to break the chain of causation with respect to losses incurred relating to that period. Gleeson CJ, with whom Callinan J agreed, found that causation in respect of the full amount was made out as the risk of the travel agent continuing to trade illegally was one of the risks against which the applicant sought protection by requiring audited financial statements. His Honour discussed the normative aspects of causation as they related to claims for misleading and deceptive conduct as follows:

“28   It is not in doubt that issues of causation commonly involve normative considerations, sometimes referred to by reference to ‘values’ or ‘policy’. However, as Stephen J pointed out in Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad [[1976] HCA 65; (1976) 136 CLR 529 at 567], the object is to formulate principles from policy, and to apply those principles to the case in hand. In the context of considering an issue of causation under the Fair Trading Act, the statutory purpose is the primary source of the relevant legal norms: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at 119 [25]-[26] …

30   … In recent cases, this Court has pointed out that, in deciding whether loss or damage is ‘by’ misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [18], [96], [164]-[165]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [26], [50], [84]. See also, more generally, Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 79 ALJR 1079.

35   The answer to the problem of causation in the present case is to be found, not in a value judgment, but in an accurate identification of the nature of the risk against which the appellant sought protection and of the loss it suffered, considered in the light of the kind of wrongful conduct in which the first and second respondents engaged.”

  1. Gummow and Hayne JJ agreed, at [40], that what had eventuated was the occurrence of the very risk against which the appellant had sought to protect itself. Their Honours explained at [49]:

“In the present case, where one of the claims made … was a statutory claim [for misleading and deceptive conduct], ‘notions of ‘cause’ as involved in [that] statutory regime are to be understood by reference to the statutory subject, scope and purpose’: Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 79 ALJR 1079 at [99] per Gummow, Hayne and Heydon JJ. In particular, the question presented by s 68 of the Fair Trading Act was whether the conduct of each respondent, that constituted a contravention of that Act, was a cause of the loss or damage sustained: I & L Securities Pty Ltd v HTWValuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [26] per Gleeson CJ, [57] per Gaudron, Gummow and Hayne JJ. The characterisation of [the travel agent’s] conduct as unlawful was not relevant to that inquiry.”

  1. Kirby J, at [74] and Callinan J, at [79], relevantly agreed with Gleeson CJ as to the proper approach to the determination of causation under the Act.
  2. In Allianz Australia Insurance v GSF Australia at [99]-[100], Gummow, Hayne and Heydon JJ stated:

“99   … the case law construing s 82 of the Trade Practices Act 1974 (Cth) (‘the TP Act’) illustrates and emphasises that notions of ‘cause’ as involved in a particular statutory regime are to be understood by reference to the statutory subject, scope and purpose. Section 2 of the TP Act states:

‘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.’

Section 82 entitles a person to recover the amount of the loss or damage suffered by conduct done in contravention of a large number and range of provisions designed to further the stated object in s 2.

100   In I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 at [26], Gleeson CJ said of the construction of s 82:

‘When a court assesses an amount of loss or damage for the purpose of making an order under s 82, it is not merely engaged in the factual, or historical, exercise of explaining, and calculating the financial consequences of, a sequence of events, of which the contravention forms part. It is attributing legal responsibility; blame. This is not done in a conceptual vacuum. It is done in order to give effect to a statute with a discernible purpose; and that purpose provides a guide as to the requirements of justice and equity in the case. Those requirements are not determined by a visceral response on the part of the judge assessing damages, but by the judge’s concept of principle and of the statutory purpose.’

The upshot in I & L Securities was the holding stated by Gaudron, Gummow and Hayne JJ [at [57]]:

‘[T]he question presented by s 82 of [the TP Act] is not what was the (sole) cause of the loss or damage which has allegedly been sustained. It is enough to demonstrate that contravention of a relevant provision of [that] Act was a cause of the loss or damage sustained.’ (original emphasis)”

  1. Most recently, in Williams v Pisano [2015] NSWCA 177 Emmett JA, at [100], confirmed that the purpose of the Trade Practices Act was:

“… to establish a standard of behaviour in trade or commerce by proscribing certain conduct and by providing a remedy in damages for contravention of the proscription.”

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