Pushing Against an Open Door: A Causation Conundrum Discovered

This caused considerable disquiet amongst equity scholars. For example, the learned authors of Jacobs’ Law of Trusts In Australia (7th ed., 2006) observed, at 289, that the decision exhibited “a violent approach to authority” and had been subjected to “convincing criticism”.

There was little surprise, then, when on 19 September 2006 Gummow and Heydon JJ granted special leave to appeal against the decision of the Court of Appeal.  On the hearing of the application for special leave, counsel for the applicant was interrupted just as he was commencing his submissions in reply: ¹

GUMMOW J: You are pushing, as Sir Gerard Brennan used to say, against an open door, Mr Gray.

MR GRAY: Very well, your Honour.

GUMMOW J: There will be a grant of leave in this matter.

Similarly, there was little surprise when on 24 May 2007 the High Court held that the Court of Appeal’s adoption of a restitutionary theory of liability constituted a “grave error”.²
  
In a unanimous judgment, the Court:

However, that is not to say that the decision of the High Court in Farah is without its surprises.  I will mention one that caught me.

At [199], the Court said this:

Causation in equity has never been a simple topic. It has never been susceptible to the formulation of a single test,⁵  and much has always depended upon the particular obligations owed and the nature of the particular breaches found.⁶ But, whether the remedy sought was a constructive trust, an account of profits, or equitable compensation, causation was thought to have a role to play. As Brennan CJ, Gaudron, McHugh and Gummow JJ said in Maguire v Makaronis (1997) 188 CLR 449 at 468, in respect of each of these remedies:

This notion was reinforced by the reminder issued in the unanimous judgment of the Court in Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 at [44] that:

… there is no equitable by-pass of the need to establish causation.

How are these apparently conflicting statements to be reconciled?  This is the conundrum.  As far as I am aware, it is yet to be resolved.

However, Farah itself serves as an explicit warning against giving anything less than full effect to considered dicta of the Court.

With this warning in mind, it would seem that the right to equitable relief under the first limb of Barnes v Addy (1874) LR 9 Ch App 244 may have to be consigned to the same category as the equity to a decree of rescission.  That is, both are to be regarded as having been generated immediately by the preceding breach, irrespective of causation questions.⁷

If this is right, it will pose obvious difficulties for defendants faced with a claim under the first limb of Barnes v Addy (1874) LR 9 Ch App 244.  They will not be permitted to ask what would have happened had there been no breach.⁸  And they will certainly be unable to say that the loss would been suffered (or the profit derived or asset acquired) in any event.⁹

Adam Pomerenke

Endnotes 

1.       [2006] HCA Trans 517 at 17/596-602.
2.       Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [131].
3.       Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [113].
4.       Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [115].
5.       O’Halloran v R T Thomas & Family Pty Limited (1998) 45 NSWLR 262 at 274G-275A.
6.       O’Halloran v R T Thomas & Family Pty Limited (1998) 45 NSWLR 262 at 275D-E.
7.       As to the equity to a decree of rescission, see Maguire v Makaronis (1997) 188 CLR 449 at 468.
8.       As seemed to be contemplated in the passage concerning a trustee’s obligation to restore the trust estate in the judgment of Street J in Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215; cf. Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at 469.
9.       As the defendants said, successfully, in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at 93-94.