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Rt Hon Justice Tipping --- "Causation at Law and in Equity-Do we have fusion?" [2000] CanterLawRw 1; (2000) 7 Canterbury Law Review 443


CAUSATION AT LAW AND IN EQUITY: DO WE HAVE FUSION?

Rt Hon Justice Tipping[*]

I. INTRODUCTION

In presenting this, the third Neil Williamson Memorial Lecture, I will address four aspects of my topic. First, I will examine the development of the concepts of causation at law and in equity and in doing so, I will as a second matter, pause to reflect on the position which we have reached today. Thirdly, I will allow myself the luxury of speculating in what direction the law may develop in the future, and fourthly, I will use the subject of causation to examine in a more general way the current relationship between law and equity - a subject often described in terms of fusion or intermingling. I will suggest that those descriptions are not entirely accurate.

Historically, a closer causal relationship between the wrong committed and the harm or loss suffered has been required at law than in equity. At law the wrongs usually in issue are breach of contract and the commission of a tort, normally the tort of negligence. In equity the courts are most frequently concerned with breaches of trust in the strict sense and with breaches of fiduciary duty. The legal wrongs of breach of contract and tort must be shown to have caused the loss or damage in issue before damages can be awarded. This need to demonstrate a casual relationship is conceptually separate from and precedes the further controls provided by the concepts of foreseeability and remoteness. unless a sufficient causal relationship exists between wrong and loss, issues of foreseeability (tort), or reasonable contemplation (contract) and remoteness (both) do not logically arise; for without a sufficient causal link there can in any event be no recovery.

In equity the position has never been as strict. put shortly, all that is necessary following an equitable, as opposed to a legal wrong, is loss or harm arising from or out of the transaction constituting the wrong. Thus, the relationship between the equitable wrong and ensuing loss does not have to be as close in equity as at law.

When I started my legal studies in 1961, the first edition of Hart & Honore's Causation in the Law had just been published - in 1959. The second edition published in 1985 is still, in my view, basic and essential reading for anyone interested in this subject. The first paragraph in the introduction to the 1985 edition, sets the scene and describes the competing forces of plain commonsense and more sophisticated analysis[1] :

...The images and metaphors, the fluid and indeterminate language, upon which both courts and textbook writers (even when most anxious to jettison traditional ideas) still fall back when deciding issues in causal terminology, or explaining such decisions to others, have their roots in certain features of a variety of concepts which permeate the daily non- legal discourse of ordinary men. These features need to be brought to light and described in literal terms; for the assertion often made by the courts, especially in England, that it is the plain man's notions of causation (and not the philosopher's or the scientist's) with which the law is concerned, seems to us to be true. At least it is true that the plain man's causal notions function as a species of basic model in the light of which the courts see the issues before them, and to which they seek analogies, although the issues are often very different in kind and complexity from those that confront the plain man. These notions have very deep roots in all our thinking and in common ideas of when it is just or fair to punish or exact compensation.

With the introduction I will now briefly survey developments in both areas and in doing so will endeavour to describe the present state of the law.

II. Causation at Law

Any discussion of this topic tends to be concerned, as already suggested, not only with the concept of causation but also with the concepts of foreseeability and remoteness. In some cases these concepts are run together. In his recent judgment in BNZ v Guardian Trust[2] Fisher J said:[3]

For those rash enough to embark upon such an inquiry, then, the first step would seem to be the usual one of picking a path through divergent taxonomy and terminology. To begin with, clarity has not been aided by the different places in which the demarcation has been drawn between "causation" and "remoteness" (compare, for example, the different judgment in Alexander v Cambridge Credit itself). This may not matter substantively in view of the large and overlapping policy elements traditionally brought to bear upon both (for examples of the overlap see Todd, The Law of Torts in New Zealand (2nd ed, 1997) at pp 1046 and 1050). But unless and until "causation" is stripped of policy influences there would seem little point in approaching causation and remoteness as distinct topics. It may be simpler to treat the whole subject of the link between breach and loss as a single topic and to describe it comprehensively as "remoteness" (for integrated approaches see Cooke P's dictum in McElroy Milne at p 41 (quoted supra) and Fleming, The Law of Torts (8th ed, 1992) at p 192 et seq). The purely philosophical aspects of causation, as distinct from policy influences, have been fully examined on many occasion (Alexander v Cambridge Credit will suffice) and at least in a case like the present one it seems unnecessary to single out that aspect of remoteness for separate treatment.

When the case reached the Court of Appeal[4] the court, of which I was a member, did not take up Fisher J's suggestion that the whole subject of the link between breach and loss might be treated as a single topic described comprehensively as remoteness. For myself, I consider there is value in keeping the concept of causation distinct from those of foreseeability and remoteness, even though, as some suggest, considerations of policy may be involved in the causation enquiry as well as in the subsequent enquiries necessary for determining matters of foreseeability and remoteness. I agree with what Glass JA said in Alexander v Cambridge Credit Corporation:[5]

there is no occasion to consider whether responsibility is incurred for the plaintiff's loss until it is first established that the defendant's default caused it.

In the same case, McHugh JA, as he then was, took much the same view:[6]

[W]hether or not a particular act or omission attracts legal liability ultimately depends on policy and not logic. Thus the common law is concerned with whether on a particular occasion a particular act or omission contributed to the occurrence of a particular event (causation) and, if so, with whether responsibility should attach to that act or omission

(remoteness). In principle, therefore, there is no reason why the legal theory of causation should be concerned with any question other than whether a particular act or condition was one of the conditions or relations necessary to complete the set of conditions which represents the total cause. This is the basis of the "but for" test of causation ... (Emphasis in original).

The first but not determinative question in respect of causation at law is indeed the well known "but for" test. Failure to meet that criterion will mean there is no sufficient link between the defendant's conduct and the plaintiff's loss. As is now generally accepted, however, it is not enough at law to show simply that the plaintiff's loss would not have occurred but for the defendant's conduct. This is because the defendant's conduct may only have set the scene for the plaintiff's loss, or provided the opportunity for its occurrence. The usual formulation is that the defendant's conduct must be a material or substantial cause of the plaintiff's loss, not merely part of the background which gave the opportunity for the occurrence of the loss: Fleming v Securities Commission.[7] Relevant cases supporting that approach are BNZ v Guardian Trust,[8] Alexander v Cambridge Credit,[9] Sew Hoy & Sons Ltd (in rec & in liq) v Coopers & Lybrand[10] and Galoo Ltd (in liq) v Bright Grahame Murray (a firm).[11] For reasons to be mentioned a little later I prefer to ask whether the conduct of the defendant was a material and substantial cause of the plaintiff's loss rather than a material or substantial cause.

That ultimate question is not a sophisticated or metaphysical one but rather an essentially pragmatic commonsense one. This has been brought out by a number of decisions over the years. An important example is Lord Wright's observation in Yorkshire Dale Steamship Ltd v Minister of War Transport (The Coxwold):[12]

This choice of the real or efficient cause from out of the whole complex of facts must be made by applying commonsense standards. Causation is to be understood as the man in the street, and not as the scientist of metaphysician, would understand it.

In Sew Hoy[13] Thomas J said:

. the commonsense notion of causation which the common law champions does not provide a test of causation. An issue may be resolved, and no doubt should be resolved, by the application of common sense. But common sense is not in itself a test. The answer, of course, is not to abandon common sense, for that is a valuable adjunct to all judicial reasoning, but to cease to think of causation in terms of required a "test". The basic question remains whether there is a causal connection between the defendant's default and the plaintiff's loss. Galoo provides, perhaps, a timely reminder that the answer to this question will not be resolved by the application of a formula but by the application of a Judge's common sense. The Judge needs to stand back from the case, examine the facts closely, and then decide whether there is a causal link between the default and the loss in issue which can be identified and supported by reasoned argument.

In Fleming v Securities Commission[14] Cooke P observed that whether there is sufficient connection between damage and fault is a question of fact and degree. This observation brings out the important point that in the end whether there is or is not a sufficient causal relationship is a question of fact, not a question of law. This point in itself suggests that policy considerations may be better reserved to the foreseeability/remoteness stage of the enquiry, if reached. Calling the question one of fact is not however to deny that essentially the answer is one of judgment. It is a factual conclusion, not of course a matter of objective or primary fact.

If the "but for" test is satisfied, the question whether the defendant's conduct was a material and substantial cause of the plaintiff's loss will often, but not always, arise in circumstances where it is contended either that there were other more dominant causes, or that there has been a new cause which has intervened (a novus actus interveniens) and which has robbed the asserted cause of any causal potency. In respect of concurrent causes it is

important to remember that the asserted cause, in order to qualify, needs only to be a material and substantial cause, not necessarily the material and substantial cause. The fact that there are other causes does not of itself rob the asserted cause of causal potency, provided it has had a sufficient influence on the plaintiff's loss to qualify as a cause. The concept of materiality finds a place in the enquiry to remind us that the defendant's conduct must have a rational connection with the plaintiff's loss. The concept of substantiality is included to show that the defendant's conduct must have had more than a minimal (de minimis) influence on the occurrence of the plaintiff's loss. In short, the asserted cause does not have to be the whole or the major cause; it must, however be a sufficiently contributing cause.[15]

III. CAUSATION IN EQUITY

As mentioned earlier, the historical approach of equity has been to accept a less stringent approach to causation. Generally equity is not concerned with questions of remoteness and foreseeability. An equitable wrong is seen as affecting the conscience of the wrongdoer, as opposed to being simply a breach of legal duty, and thus equity has taken a more expansive view of causation: see the speech of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns (a firm).[16] Equity's approach to relief for conventional breach of trust has tended to permeate the whole field of causation in equity. A breach of trust followed by loss to the trust estate to which the breach was material was enough to establish liability in the trustees for that loss, without regard to questions of foreseeability, remoteness or common law concepts of causation. An example of the rigours of this approach, translated into the field of breach of fiduciary duty, can be seen the decision of the Privy Council in Brickenden v London Loan & Savings Co.[17] In that case, in a judgment delivered by Lord Thankerton, the Privy Council indicated that where there had been a breach of fiduciary duty by failure to disclose material facts, the party in breach would not be allowed to maintain that disclosure would not have altered the other party's decision to proceed with the transaction. Once the non- disclosed facts are found to be material, speculation as to what course the other party would have taken following disclosure was not regarded as relevant.

This general approach was followed by our Court of Appeal in Farrington v Rowe McBride Partners,[18] and Sims v Craig Bell & Bond.[19] But under the influence of developments in England, and in particular the speech of Lord-Browne-Wilkinson in Target Holdings, more recent decisions in the Court of Appeal have materially modified the strictness of the Brickenden approach. The relevant cases are Witten-Hannah v Davis,[20] Haira v Burbery Mortgage Finance & Savings Ltd (in rec): Koya v Haira,[21] and Gilbert v Shanahan.[22]

Another influential case mentioned by Lord Browne-Wilkinson was the decision of the Supreme Court of Canada in Canson Enterprises Ltd v Boughton & Co.[23] The position which we have now reached in New Zealand represents a significant shift from the Brickenden approach. In Gilbert the Court of Appeal applied the approach I had taken in Everist v McEvedy:[24]

To succeed in a claim for breach of fiduciary duty the plaintiff must show three things: first that the defendant owed the plaintiff a fiduciary duty; second that the defendant was in breach of that duty; and third that the plaintiff has suffered a loss arising out of a transaction or circumstance to which the breach was material.
If the position rests there, the plaintiff is entitled to recover the amount of the loss from the defendant. However, the defendant may resist the plaintiff's claim by showing that the plaintiff's loss would have occurred in any event without any breach on the defendant's part. To establish this in a case involving a solicitor, it is necessary for the solicitor to show that even with appropriate independent advice or full information the plaintiff client would nevertheless have entered into the impugned transaction upon materially the same terms. If that can be shown equity should not attribute the loss to the errant fiduciary; for it cannot fairly be said that without the breach the loss would not have occurred. The breach cannot be regarded as causing the loss.
To establish the point the errant fiduciary cannot invite speculation. There must be a proper evidentiary foundation for the conclusion which the Court is asked to draw. Usually the point will be one of inference rather than direct evidence. If so the conclusion sought by the fiduciary must be a fair and reasonable inference from the evidence. The necessary conclusion should be cogent and should not be lightly reached.

In essence the position in equity, at least so far as breach of fiduciary duty is concerned, can be put in this way. The more expansive approach of equity to causation remains as the prima facie position but defendants are given the opportunity, the onus being on them, to show that the plaintiff's loss would have occurred irrespective of the breach. If that is so, the court will take the view that the loss was not materially caused by the breach. This approach seems to me to combine appropriately the policy reasons for the adoption by equity of a generous attitude to causation, with the inequity of allowing a plaintiff to recover, if the defendant can show that the loss in suit would probably have occurred in any event.

To this point I have surveyed the different approaches at law and in equity to the issue of causation and have set out what I understand to be the present position in each area. I will now move to consider possible future developments.

IV. WHERE TO NEXT

In introducing this aspect of my subject, I wish to refer to the line of thought I expressed in my concurring judgment in BNZ v Guardian Trust.[25] I there suggested that the nature of the breach of duty is often more important for causation, and indeed other purposes, than the historical source of the duty. What matters is the nature and content of the obligation which has not been fulfilled. By way of example I referred to duties of care which can exist both at law and in equity. It will not usually be appropriate as a matter of policy, if the nature and content of the duty are the same, to have different approaches to causation according to the historical source or classification of the duty. This proposition is relevant to the question of the so-called fusion of law and equity which I will address below.

I suggest in the BNZ case that, although the relationship of the parties may be the same, i.e. trustee and beneficiary, this does not mean the same approach should be taken to causation in all cases, irrespective of the nature of the breach. For example, if a trustee is found guilty of negligence, the fact that a fiduciary duty was also owed, will not be relevant to causation because in a case of simple negligence there is no breach of fiduciary duty, certainly not of a kind justifying the equitable approach to causation. Writing for the other members of the court in BNZ v Guardian Trust[26] Gault J said that recent cases showed a trend in favour of analysis by reference to the scope of the duty. In particular it was pointed out that not every breach of duty by a fiduciary is a breach of fiduciary duty. Hence a trustee's duty to exercise reasonable care, although equitable, is not specifically a fiduciary duty.[27]

Building on these developments I suggest we will see an increasing emphasis on the nature of the duty and the nature of the breach rather than their historical classification Rather than asking whether an asserted duty of care arises at law or in equity, I suggest it will increasingly be seen as more productive to enquire simply whether there was an obligation to take care. The setting in which, and any relationship against which the breach is alleged to have occurred will obviously be relevant to that enquiry. In the case of non-fulfilment of a duty to take care, causation and indeed remoteness issues may be influenced by the circumstances and quality of the non-fulfilment. A simple example of how this would work in another area is the case of a fiduciary who has been fraudulent. Such a person has been guilty of deceit at common law and breach of fiduciary duty in equity. The case is one of a true breach of fiduciary duty, not simply a breach by a fiduciary of a legal duty. The breach, in our example, engages the conscience of the fiduciary. As a matter of policy we should adopt an expansive approach to causation in such circumstances. There is little point in trying to harmonise or even talk of choosing between the common law and equitable approaches. What matters is the nature of the breach of duty and the policy considerations relevant to compensating for and deterring such breaches.

As something of a tangent I suggest that the same general approach may develop in the field of remedies. This branch of the law will, I suggest, follow the attention now being given to the nature of the wrong rather than its historical source. This topic was addressed by Thomas J in a recent paper.[28] It matters little that specific performance and injunction were historically equitable remedies. They should not be, and indeed have not been reserved for cases where the cause of action arises in equity. These remedies should be and are available equally where the cause of action arises at law. Following a breach of contract by non-performance, in appropriate cases specific performance will be awarded and, if necessary, an injunction in aid. If damages are appropriate as well, this whole basket of remedies, as it may be called, can all be awarded. Non-performance of a contract raises a cause of action at law. In traditional terms equity is seen as coming to the aid of the law, when appropriate, by granting a remedy which was not historically available at law; but in essence specific performance is awarded so as to do justice between the parties. By the same token, it is no longer necessary or desirable to distinguish between damages at law and damages in equity.[29]

So I suggest we can expect to see two general developments in the relationship between the breach of an obligation and the available remedies. First, in relation to whether the breach of obligation has caused the loss or damage for which compensation or other relief is sought, we will find ourselves asking what is the nature of the obligation which has been breached. The appropriate approach to causation will be chosen in terms of the answer to that enquiry. In some cases an expansive "but for" approach may be appropriate. In others the nature of the obligation breached will mandate the "material and substantial cause" approach conventionally adopted by the common law. In intermediate cases the prima facie "but for" approach will be appropriate but with a reverse onus escape for the person in breach, along the lines of Gilbert v Shanahan.[30]

The second probable development is linked but conceptually separate. It concerns what remedy should be available when a breach of obligation is established. In such circumstances equity and the law, working together, should be able to provide whatever relief or combination of remedies best suits the justice of the case. The greatest challenge in this area will be to decide when it is appropriate to grant proprietary relief, i.e. an interest in, or trust relief in respect of, particular assets, rather than the personal relief of damages or account. The sort of issues which arise in that field can be seen from Fortex Group Ltd v MacIntosh[31] but I must stop, as this is a whole new topic outside my present purpose.

V. Do we have fusion?

When we speak of the fusion of law and equity, or express the general concept in any other way, it is important to recall that the English legislation which started the so-called process of fusion, was essentially procedural in kind. The courts in the new structure had full power to exercise all the jurisdiction and grant all the remedies which hitherto had been the province of the separate courts of equity and common law. Lord Selborne LC said as much during the debate on the Bill which became the Judicature Act 1873 (UK).[32] So too did Sir George Jessel MR in Salt v Cooper.[33]

The earlier procedural separation of the courts of equity and common law tended to encourage judges and practitioners to see the two systems as substantively self-contained. Following structural integration the perspective of practitioners and judges underwent a gradual change. There has developed a growing appreciation of the possibility, often the desirability, of both hitherto separate systems having a combined influence on the way an issue is resolved. This process is a good example of an essentially procedural change having a major influence on substantive law.

Various concepts have been used, as well as that of fusion, to express the new relationship between law and equity. They have included confluence, integration, interaction and intermingling. In her valuable article[34] Professor Julie Maxton used the word "intermingling" in her title: "Some Effects of the Intermingling of Common Law and Equity". I immediately express my indebtedness to her article which contains a survey of a number of relevant cases and expressed the view, beyond doubt rightly, that procedural fusion or intermingling has not stifled the independent development of common law and equitable principles. My purpose in seeking to burden the legal literature with yet another metaphor to express the modern relationship between law and equity, is born of the view that those used hitherto do not quite achieve the correct perspective. My fundamental point is that the principles of law and equity both remain separately recognisable as such. Both are essential ingredients in the composite whole which makes up the body of our judge-made law. It is no longer as simple as saying that the common law provides the law with stability, and equity provides it with flexibility; albeit some force remains in that dichotomy. The concept of fusion suggests that two discrete parts have become one. Those of intermingling, integration and to a lesser extent confluence, suggest that what were two discrete parts are now so interwoven that neither retains any discrete existence.

For myself, I see the position as best described in a way which borrows from the familiar metaphor of a rope often used when explaining circumstantial evidence to a jury. There are a number of strands of evidence, none of which alone amounts to sufficient evidence but together the strands are enough to bear the weight of proof required. For me, equity and common law are like the individual strands of a two-stranded rope. The rope as a whole is the corpus of judge-made law. Each strand, which an essential part of the whole rope, is still recognisable for what it is - a discrete strand having a separate existence. The two strands work together to do the task required of the whole rope. To achieve this they are intertwined. Each depends on the other, and without each the whole rope would not exist. The development of each strand may be influenced by its partner. Thus, if a single word is to be used to describe the modern relationship between

law and equity, I would use the word "intertwined", and I would answer the question inherent in my topic by saying that, in relation to causation, we do not have fusion of law and equity, rather we have intertwining. Certain types of equitable wrong may justify a common law approach to causation. Certain legal wrongs conversely may justify an equitable approach. The same sort of development can be expected with remedies. There is nothing inherently heretical or wrong in salving a legal wound with equitable balm. As suggested earlier, one important area in which difficulties and tensions can be expected, is where a proprietary (trust) type of remedy is sought as redress for what traditionally would be seen as a common law wrong - for example, a constructive trust for breach of contract.

There will be those who may wish to leap forward without establishing a properly surveyed path. There will be those whose over-analysis will tend to stifle or impede development. As always, the way forward is likely to involve a combination of solid building blocks of the law with equity's perennial search for fairness and justice. The challenge will be to bring to each new issue an appropriate mix of these two vital ingredients.


[*] Lecture delivered by the Rt Hon Justice Tipping at Christchurch on 14 October 1999. 1 Hart and Honore Causation in the Law (Oxford; New York: Clarendon Press, 2 ed 1985).

[2] [1999] 1 NZLR 213.

[3] Ibid at 240.

[4] [1999] 1 NZLR 664.

[5] (1987) 9 NSWLR 310 at 315.

[6] Ibid at 350.

[7] [1995] 1 NZLR 514 at 523 per Cooke P.

[8] Op cit n 2.

[9] Op cit n 5.

[10] [1996] 1 NZLR 392 (CA).

[11] [1995] 1 All ER 16 (CA).

[12] [1942] 2 All ER 6 at 15.

[13] Op cit n 10, at 408-9.

[14] Op cit n 1.

[15] Cf McHugh JA in Alexander v Cambridge Credit Corporation, op cit n 5.

[16] [1995] UKHL 10; [1995] 3 All ER 785 at 788.

[17] [1934] UKPC 25; [1934] 3 DLR 465.

[18] [1985] NZCA 21; [1985] 1 NZLR 83.

[19] [1991] 3 NZLR 535.

[20] [1995] 2 NZLR 141.

[21] [1995] 3 NZLR 396.

[22] [1998] 3 NZLR 528.

[23] (1991) 85 DLR (4th) 129.

[24] [1996] 3 NZLR 348 at 355.

[25] Op cit n 2 at 686.

[26] Ibid at 683.

[27] See Ipp J in Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 at 157, cited by Millett LJ in Bristol & West Building Society v Mothew [1996] EWCA Civ 533; [1996] 4 All ER 698 at 710, both cases being referred to in BNZ v Guardian Trust, op cit n 2 at 680.

[28] Paper presented at the triennial conference of the New Zealand Law Society (Rotorua, 1999).

[29] See NZ Land Development Co v Porter [1992] 2 NZLR 462 at 468.

[30] Op cit n 22.

[31] [1998] 3 NZLR 171 (CA).

[32] See Hansard 3rd Series Vol 214 at 339.

[33] (1880) 16 ChD 544 at 549.

[34] (1993) 5 Canta LR 299.


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