The High Court rejects claims of contributory negligence in an action for misleading or deceptive conduct under section 52 of the Trade Practices Act.
Is negligence by a lender any defence?
The High Court rejects claims of contributory negligence in an action for misleading or deceptive conduct under section 52 of the Trade Practices Act
Section 52 of the Trade Practices Act (see also section 12 of the Australian Securities and Investments Commission Act) permits recovery of damages where there is misleading or deceptive conduct in transactions between parties.
This is so whether the parties are la rge businesses, small businesses or individuals. In I and L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd ((2002) ATPR 41-894) a company had failed to make repayments in relation to a loan provided by I and L Securities (the lender). The loan had be en supported by a valuation prepared by HTW Valuers (Brisbane) Pty Ltd (HTW).
Because of the loss suffered by the lender as a result of the company\rquote s collapse, it sought contribution from the HTW on the basis that it had been negligent, or alternatively, that its valuation was misleading or deceptive in breach of section 52 of the Trade Practices Act. It further argued that all of the loss should be paid by the valuer because it breached the Act. HTW, however, argued that as the lender had been negligent in not carrying out the proper due diligence on the borrower company, it should be partially liable.
At the trial both negligent and misleading or deceptive conduct were conceded. The judge held that if reasonable inquiries had been made before approval of the loan, it would have been obvious that the borrower never had any realistic opportunity of meeting monthly interest payments. The court, however, assessed the negligence of the valuers as equivalent to one-third of the loss sustained by the lender and reduced the amount of the damages claim by that amount.
The appeal to the Court of Appeal of the Supreme Court of Queensland by HTW was unanimously dismissed. The court felt it was appropriate under the Trade Practices Act for issues of this kind (that is contributory negligence etc) to be taken into account in evaluating damages.
The lender then appealed to the High Court of Australia on one ground alone--- whether the court had erred in allowing itself discretion in reducing the damages otherwise recoverable under the Trade Practices Act for misleading or deceptive conduct. It argued that the proper construction of the statute meant that any contributory negligence on its part could not be taken into account in evaluating damages. HTW, however, argued that carelessness on the part of the lender in not carrying out its own due diligenc e as to the borrower\rquote s capacity to pay should be taken into account.
In a landmark decision the High Court of Australia confirmed that section 52 of the Trade Practices Act operates without exception. Contributory negligence or other conduct by the person e ngaged in the misleading or deceptive conduct, should not affect the damages to be awarded against that person.
A number of separate judgments were delivered and these are summed up briefly in this note, based on the CCH report.
The Chief Justice (Gleeson J) stated that where a person has suffered loss or damage following the conduct of another person in contravention of the Trade Practices Act, there may be questions as to the amount of loss or damage attributable to the relevant conduct. However, once t h e amount of a loss or damage was established then that amount was recoverable under the Act. Insofar as section 52 of the Trade Practices Act is concerned, and when it was applied to the relationship between the valuer and a lender in this case, the legal responsibility of the "guilty party" was such that it would have to be the whole of the loss that arose as a result of the misleading or deceptive conduct. This was so even if its conduct was not the sole cause of the loss or damage. As long as the misleading conduct was a cause of the whole of the relevant loss, then that loss could be recovered and contributory negligence was irrelevant.
Gaudron, Gummow, Hayne and McHugh JJ held that the way the Act was drafted, once a cause of action was proved then as l ong as there was a causal link between the contravention and the loss suffered, the measure of the compensation for which the section provided, and for which the person bringing the action was entitled, was the amount of the whole loss or damage sustained and not any lesser amount. There was nothing in the legislation, or the policy behind it to suggest that carelessness by a plaintiff could have been taken into account to reduce the amount which the person was entitled to recover under the legislation.
Most of the judges felt there were no provisions in the legislation which permitted the court to provide any discretionary relief because of contributory negligence.
Justice Kirby dissented. He suggested that the policy of the legislation was not to create an unjust or unfair outcome or to arbitrarily burden a person who breached the Trade Practices Act with the whole of the loss or damage where part of that loss or damage could have been related to the conduct of others. In his view, and on the basis of the e vidence, the trial judge who had heard it at first instance had ruled that there were distinct causes of the loss or damage. In such a case, in the view of Kirby J, it was appropriate for the court to apportion loss between the parties and it was open for the court to do so. There was no language in the legislation which required a different result to be reached. However, as noted above, most of the court disagreed with this view.
Section 52 of the Trade Practices Act continues to pose significant problems for the business community generally.
It and its corresponding provisions in the corporations legislation clearly points to the fact that we have a law here which replaces the law of negligence and contract in many situations. Great care needs to be taken in commercial transactions to avoid the possible application of this provision and its corresponding provision in the corporations law context.
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