Alexander v Cambridge Credit Corp

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Citation: Alexander v Cambridge Credit Corp Ltd (1987) 9 NSWLR 310

This information can be found in the Casebook: Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), p. 662-71 [27.20-27.90]

Contents

Background facts

  • The Defendant [Alexander] was the auditor of the Plaintiff [Cambridge].
  • The Defendant was negligent in filling out the reports and doing its obligations under the contract several times.
  • These breaches led to the company being overvalued. If the Defendant would have performed its obligations properly, the Trustee of the Plaintiff would realise the financial troubles of the Plaintiff and close down the company.
  • Instead, the company continued trading for a couple more years and finally incurred a massive debt. It was found that if the company stopped trading earlier (as it would have, but for the breach by the Defendant), it would have incurred only $10 million debt rather than the $150 million it is now obligated to pay.
  • The Plaintiff sued the Defendant to recover these losses.

Legal issues

Judgment

Causation

Majority (McHugh):

  • The 'but for' test is a guide and not definitive or ultimate - common sense decides causation really.
    • "...to establish a causal connection between a breach of contract and the damage which the plaintiff has suffered, he needs only to show that the breach was a cause of the loss. This is to be decided by the application of commonsense principles. In general, the application of the “but for” test will be sufficient to prove the necessary causal connection. But that test is only a guide. The ultimate question is whether, as a matter of commonsense, the relevant act or omission was a cause."
  • However, the Plaintiff failed to do so in this case.
  • Firstly, the existence of a company is not the cause of its trading losses or profits - clearly other factors are the causes (business decisions etc).
  • Furthermore, even if it was the cause, there were economic changes going on at the time which served as intervening events (cutting off causation).
    • "If, contrary to my view, there was a connection between the issue of the certificates in 1971 and this collapse, it was so superseded in potency by supervening events as not to rank as a cause either in commonsense or in law. The package of economic factors together with the decisions of the directors of Cambridge to increase its borrowings and investment in real estate constituted a novus actus interveniens."
  • Thus, no causation and therefore the Plaintiff fails.

Dissent (Glass):

  • Applies a simple 'but for' test and concludes that but for the breach the company would have closed down and thus not suffer a greater loss.
  • The fact that other concurrent causes also contributed does not cut off causation (the events here do not constitute an 'intervening act' which cuts of causation).
  • Therefore, there is causation.

Remoteness

Majority (McHugh):

  • Remoteness operates to "limit the recovery of damages to those losses and damage which in a tort case were reasonably foreseeable and which in a contract case were within the reasonable contemplation of the parties."
  • "If no special circumstances were known, the defendant could only be supposed to have contemplated “the amount of injury which would arise generally."
  • In this case, it would not have been in the Defendant's contemplation that an error would cause such damage to the Plaintiff a couple of years after. The economic conditions which caused the loss were also not in the contemplation of the parties.
  • Loss is too remote, Plaintiff fails.

Dissent (Glass):

  • The loss was not to remote:
    • "The failure to close the company down in those circumstances carried with it the serious possibility that the exigencies of the market would inflict further serious loss. Those exigencies included business miscalculations, market fluctuations and economic change."

References

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