Intersections and Distributions of Liability
This brings us neatly to Part 3 of the volume, which is designed to explore the relationship between tort liabilities for misstatement and others forms of liability in equity and under statute.
It also considers the way in which both courts and legislatures have chosen to distribute liabilities as between negligent advisors and others who are also responsible for a plaintiff's financial losses.A. Intersections
The more sources of duty in respect of a misstatement there are, the more imporÂtant it becomes to co-ordinate them efficiently. The right hand must be careful to consider what the left is doing. One of the complications highlighted in the introduction is the fact that misrepresentations now potentially give rise to such a bewildering array of liabilities in contract (whether bilateral, unilateral or colÂlateral), estoppel (promissory, proprietary, conventional), tort (deceit, injurious falsehood, passing off, negligence), equity (breach of fiduciary duty, knowing assisÂtance in a breach of trust, âunconscionable conduct' ) and under statute (liability for pre-contractual misrepresentation, misleading or deceptive conduct, or the breach of directors' statutory obligations, to name but some examples). Each of these regimes is distinct, each has its own sphere of application, conceptual appaÂratus, liability requirements, causation and remoteness of damages principles, remedies, defences, limitation rules and principles of loss assessment.
Historically, there has been tension between the common law and equity. This was evident in Derry v Peek.[67] In the modern day, that relationship is more mutuÂally respectful and the tension has softened into a concern to ensure that justice is done without one set of rules treading on the toes of the other, in a complemenÂtary way. The additional introduction in some jurisdictions of statutory regimes has, however, made the challenge of maintaining overall coherence within the system more difficult.
Unless the field is to be completely codified (an unlikely prospect in most common law jurisdictions), courts and legislatures must become better team players.In Chapter 6, Professor Finn demonstrates not just the antiquity of equitable doctrine in combating misrepresentation and other forms of equitable fraud, but its fertility as a source of rights and remedies in the current day. Through the rescue and renaissance of its earlier jurisdiction to award compensation for pure economic loss, he argues, equity now does much âtort work' and plays a crucial role in bringing fairÂness to financial dealings. Finn applauds equity's more radical uses in this regard in several jurisdictions and suggests that discretionary equitable compensation should be available in respect of all wrongs falling within equity's exclusive jurisdiction. This is a welfarist vision in which equitable doctrine operates to moderate classical voluntary orderings even in the commercial arena, responding directly to plaintiff vulnerabilities. Such vulnerabilities are arguably greater in the modern day than they have been in the past, owing to the extraordinary complexity of many financial products and investors' corresponding dependence on expert opinion.
By contrast, Professor Bant and Dr Paterson (in Chapter 7) and Professor McLauchlan (in Chapter 12) explore the relationship between common law prinÂciples developed in contract and tort and the strict liability statutory regimes now applying in Australia and New Zealand. Bant and Paterson envisage a construcÂtive, two-way interpretive relationship between the law of negligence and the proÂvisions of Australia's âstrict' liability regime for misleading or deceptive conduct. Negligence concepts, they suggest, can sometimes help to shed light on the Act's provisions; and, reciprocally, the standards in the Act can sometimes assist courts in deciding duty questions at common law.
The key phrase is âsometimesâ. There are bound to be constraints on the extent to which one can interpret the provisions of a strict-liability regulatory provision by reference to a fault-based tort, as the authors admit.
This is especially likely to be the case where a statute was introduced to reverse a direction that has been taken in tort, or (as in this instance) to consciously step beyond it in terms of the protection accorded to plaintiffs. If we set too much store by negligence concepts in interpreting legislation in the latter type of case, there is a risk of hobbling what was intended by Parliament to be a liberalising, welfarist development. But âstrict liabilityâ statutes are sometimes not as far removed from negligence regimes in substance as they appear to be superficially[68] and where this is so, there must be merit in the authorsâ views that it would be counter-intuitive to entirely ignore judicial precedents regarding an issue common to both regimes. This is one way of creating a constructive interface between private law and public regulation; and of ensuring a co-ordinated approach to the law as a whole. If Bant and Paterson are right, there is more space within the strict liability provisions of the Act for ideas about fault, defendant intentions and plaintiffsâ obligations to take reasonÂable measures to protect themselves than one might assume.Professor MacLauchlans account of the New Zealand legislation is more openly critical. The statutory scheme relating to pre-contractual misrepresentation[69] that was introduced to bring simplicity to the law has, in his view, merely muddled up expectation and reliance-based remedies in ways that are not just incoherÂent, but sometimes harmful to plaintiffs. Furthermore, its one main advantageâ simplicityâhas been undercut by the subsequent introduction of misleading or deceptive practices legislation[70] that was drafted in apparent ignorance (or disÂregard) of its aims. His account highlights, I think, the importance of keeping misrepresentation remedies connected to their underlying normative justifica- tionsâto their primary rights and the reasons underpinning those rights.
A comÂpletely discretionary smorgasbord in which these ties are severed is an invitation to chaos. It also highlights what is potentially a significant problem for the coherÂence of the law of misstatements as a whole, which is the fact that governments have no formal obligation to respect prior legislative or judicial âprecedentsâ in the way that judges do. An ill-considered piece of legislation can at one careless stroke introduce radical incoherence into a field of law and no oneâsave another, later governmentâcan do anything about it. Although I am not opposed to legislating private law, this is clearly a risk that it entails. My personal view is that legislative provisions in private law matters should always be enacted with a view to achievÂing coherent systemic solutions, not simply as isolated expressions of the political will of the moment. It is not just judges that have an obligation to develop the law in a way that avoids contradiction and systemic incoherence in basic, private law matters. Governments do too.B. Distribution
Finally, we come to the matter of distribution. An advisor is often only one party among several responsible for a plaintiff's financial loss. Sometimes, indeed, he is engaged by a plaintiff precisely in order to protect the latter against the risks created by other wrongdoers, including contract breakers and fraudsters. In these circumstances, if the other wrongdoer becomes insolvent, the advisor was, for many years after Hedley Byrne, responsible for paying 100 per cent of the plainÂtiff's loss, subject to whatever contribution he could obtain from co-defendants. That system of âjoint and several' liability was accepted for decades as perfectly sound on both welfarist and corrective justice grounds, but it has been questioned in recent years.[71] Several jurisdictions have introduced reforms that presumptively make a defendant advisor liable for only a proportion of the jointly caused, indiÂvisible loss, so as to throw the risk of insolvencies back onto plaintiffs.
This is now the position in Australia, for example. At a time when insolvent wrongdoers are common and financial misdoings have been rife in the market, this has had potenÂtially serious repercussions for plaintiffs.[72]In Chapter 8, Dr Harder examines in great detail the way in which liabilities are now distributed between advisors and their clients' contracting partners in circumstances where both advisor and partner are legally responsible for causÂing the very same financial loss. He examines the rules under both under joint and several liability systems (such as still prevail in the United Kingdom and New Zealand) and under the complex proportionate liability system that now exists in Australia. His detailed work sheds much needed light on a bewilderingly complex area of law.
Proportionate liability systems come with a health warning. They are sometimes billed as âfairer' to defendants, but this conclusion is actually very questionable.[73] As between an innocent plaintiff and a careless advisor, the risk of one or more other defendants proving to be insolvent seems more fairly borne by the advisor, whether from the point of view of corrective,[74] or localised distributive justice. Some systems try to tweak things further, by assigning the risk of insolvencies between all remaining solvent parties, including the plaintiff, in proportion to their own level of responsibility for the harm,[75] but even these systems leave the plaintiff bearing some part of a loss that in principle he should not have to bear. Although such systems can potentially relieve advisors of the burden of very high liabilities flowing from financial disasters, and although they have been applauded (in fact, of course, they were often instigated) by the insurance industry, they are also proving very complex and the complexities seem almost certain to inhibit setÂtlements and cause great confusion. It is not clear that the changes are worth the systemic costs, particular now that insurance markets have largely recovered from recent shocks.
If highly uncertain and crushing liabilities stemming from recent global events really are a problem for auditors, accountants and other advisors and if they really do threaten the viability of information markets, then a simpler solution for keepÂing liabilities under control might lie, I suggest, in legislative capping, rather than proportionate liability. As is well known, caps work disproportionately harshly against those suffering the biggest losses but, on the other hand, they are clear and can be easily adjusted periodically to meet market conditions. They might enable advisors and insurers to overcome some of the indeterminacies regarding their liabilities that arguably cause problems for pricing and for liability cover. AddressÂing concerns about crushing or indeterminate liability through a legislative route may also be more acceptable than leaving judges to limit plaintiffs' rights at comÂmon law in order to meet the same concerns. Legislatures can canvas empirical evidence about social effects in ways that judges cannot.
V.