Australia: PERPETUAL TRUSTEE COMPANY LTD v MILANEX PTY LTD (IN LIQUIDATION) [2011] NSWCA 36

Recent cases, headline issues and new legislation
Last Updated: 18 March 2012
Article by James Morse and Lindsay Joyce

Snapshot

Notwithstanding years of industry practice to the contrary, the New South Wales Court of Appeal has found that a defence of contributory negligence is not available in respect of a claim for damages arising as a result of a breach (or contravention) of section 42 of the Fair Trading Act 1987 (NSW) (FTA).

Please note that, for the purposes of this paper, reference will be made to the relevant provisions of the FTA and the Trade Practices Act 1974 (Cth) (TPA) prior to 1 January 2011 unless expressly stated otherwise. This is because these are the provisions discussed in case law to date, noting that the consumer protection amendments that took effect from 1 January 2011 (in the form of the Competition and Consumer Act 2010 (Cth) (CCA)) only apply to acts or omissions that occurred from that date.

Facts

Perpetual Trustee Company Limited (Perpetual) brought a claim against Milanex Pty Limited (Milanex) for damages for misleading and deceptive conduct in breach of, amongst other things, section 42 of the FTA. Milanex was a mortgage broker that submitted a loan application to one of Perpetual's mortgage managers and misrepresented that it had verified the borrower's identity and income. Perpetual suffered loss and damage as a result as its loan to the borrower was found to have been unjust at the time it was made and the loan was declared void, meaning that Perpetual could not recover the funds it had advanced. Perpetual sought to recover this loss and damage from Milanex.

At first instance

At first instance (Perpetual Trustee Company Ltd v Alexander Kotevski [2009) NSWSC1228), Patten AJ of the Supreme Court of New South Wales found that Perpetual did not rely upon any of the relevant representations that Milanex made, such that the representations were not causative of the loss and damage allegedly suffered.

On appeal

Perpetual appealed the initial decision. As part of its defence to the appeal, Milanex argued that Perpetual had failed to take reasonable care for its own interests in relation to the loan and that any damages to which Perpetual was entitled ought to be reduced to take Perpetual's contributory negligence into account.

In short, the Court of Appeal found for Perpetual. Relevantly however, no factual findings were made as to whether Perpetual had failed to take reasonable care, which had caused or contributed to its loss. The Court of Appeal did not consider it necessary to consider this issue because it held that a defence of contributory negligence was not available to Milanex as a matter of principle. The pertinent aspects of the judgment are set out below:

Whilst a defence of contributory negligence is, by statute, available in relation to claims for damages for contravention of s 52 [TPA] (see s 82(1B)) and of s 12GF(I) Australian Securities and Investments Commission Act 2001 (Cth) (see s 12GF(1B)) (which latter provision was one of the bases of Perpetual's claim), the [FTA] (upon which Perpetual also based its claim) does not contain any comparable provision. Milanex did not contend that Perpetual was not entitled to rely upon the cause of action most favourable to it, that is, that under the [FTA].

Further, no other statute or principle of law gives Milanex the right to rely upon a defence of contributory negligence. Milanex relied upon s 5R and s 5S of the Civil Liability Act [2002 (NSW)] but those sections do not confer a right to raise a defence of contributory negligence. They operate where that right otherwise exists. In any event Part 1A Civil Liability Act [2002 (NSW)], of which ss 5R and 5S form part, applies only to claims "for damages for harm resulting from negligence" (s 5A), requiring in my view that negligence be an element of the relevant cause of action (although, as s 5A makes clear, it does not matter whether the claim is brought in tort, in contract, under statute or otherwise). However, negligence is not an element of a claim for damages arising out of contravention of s 42 [FTA] (as the section appeared prior to enactment of the Fair Trading Amendment (Australian Consumer Law) Act 2010, Schedule 1). A contravention of that section may occur whether or not the defendant has been negligent. That a defendant might as a matter of fact have been careless does not convert a claim against it under s 42 into one based upon negligence.

Milanex also relied upon ss 8 and 9 Law Reform (Miscellaneous Provisions) Act 1965 [(NSW)] but those sections are only concerned with the reduction for contributory negligence of claims in respect of a "wrong", where a "wrong" is defined as an act or omission giving rise to a liability in tort or related contractual duty of care. Neither tort nor contractual liability is alleged in the present case. The claims here are under statute.

For these reasons Milanex is not entitled to have Perpetual's claim reduced as a result of Perpetual's alleged contributory negligence.

Impact

This decision, in simple terms, illustrates an anomaly of the law having regard to the fact that contributory negligence is a defence to claims:

  • At common law — and by reference to the Civil Liability Act 2002 (NSW).
  • For a breach of section 52 of the TPA and of section 12GF(l) of the Australian Securities and Investments Commission Act 2001 (Cth) — the Commonwealth equivalents of a section 42 FTA claim.
  • Under contract — in certain circumstances.

We are not aware of the submissions made by Milanex on this point but, quite frankly, the decision creates a significant lacuna in the law which ought to be addressed by the New South Wales Government — and other state governments. We (and the API) have already commenced a process via certain avenues to bring this to the attention of government in the hope of some fairly immediate law reform to correct this anomaly.

Indeed, we have not identified any evidence to suggest that the New South Wales legislature has made a conscious decision to specifically not allow a defence of contributory negligence to be raised in a claim for damages for a breach of the FTA. Rather, it appears to be an unfortunate oversight.

To understand the impact of the absence of a contributory negligence defence in a claim for damages for misleading and deceptive conduct, it is instructive to consider the usual ways in which a lender who suffers a loss after a mortgage default brings a claim against a valuer that the lender alleges was negligent in valuing the security property before the loan agreement was entered into. Numerous causes of action are often pleaded in valuation cases, including negligence (breach of duty), breach of contract, breach of section 52 of the TPA and breach of section 42 of the FTA. Whilst certain negligent acts by a lender can serve to reduce the damages awarded to the lender for such negligence, breach of contract and breach of section 52 of the TPA, as the law currently stands, no reduction can be made for such acts from an award for damages for a breach of section 42 of the FTA.

This could result in a valuer's liability increasing (potentially significantly) based upon the way that the claim is framed, rather than based upon the facts, matters and circumstances that are the subject of the claim itself. This outcome is, in our respectful opinion, anomalous, unfair and unjustified.

Whilst the decision in Milanex does not actually cause a change in the law, it certainly affects the interpretation of it. Up until the decision, courts were (it appears) prepared to proceed on the basis that contributory negligence was available and to this extent we are aware of a number of cases in which damages have been reduced by reason of contributory negligence notwithstanding a finding of breach under the FTA. In our opinion, this was (and is) the only sensible interpretation of how contributory negligence ought to be treated given its availability as a defence under other causes of action.

One argument, as yet unexplored, is that whilst the FTA does not expressly provide for contributory negligence as noted above (though we would submit by oversight), the Civil Liability Act (NSW) (CLA) itself appears to embrace notions of contributory negligence as available to a FTA action. If in the words in certain sections of the CLA, we are correct this may be because the drafters of the CLA may not have been aware of this anomaly.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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