2002: Australia's year zero of tort reform: but federal government's response is crucial: in the wake of the recommendations of the Ipp Report, legislation at the state and territory level will shape litigation for years to come.

• Author: Clark, S. Stuart

IT MAY have taken the collapse of a major insurer and a medical indemnity organisation, spiralling premiums and some highly publicised cases, but 2002 was a year of unprecedented law reform in Australia.

The immediate trigger for the flurry of reform was the widespread perception that insurance for many socially useful activities--medicine, volunteer activities and community organisations and events--was either no longer available or so expensive as to be unaffordable. It was assumed that this had come about as the consequence of a legal system "out of control" and the emergence of a "culture of blame." Both assumptions have some validity.

Throughout 2002 there was intense debate amongst lawyers about what gave rise to the culture of blame and what contributed to a legal system being perceived as out of control. While there were many contributing factors, the genesis of the problem can be traced to the frenzy of law reform seen in Australia in 1992. Fuelled by plaintiffs' lawyers, those reforms included the removal of a ban on advertising by lawyers and the introduction of a form of contingency fees and culminated in the introduction of a class action system more plaintiff friendly than that of the United States. It is perhaps no surprise then that Australia is now the most likely place outside North America for a plaintiff to bring a class action.

Australia has one of the highest lawyer per capita ratios in the world (38,000 lawyers in a population of 18.8 million people, for a ratio of 537 persons per lawyer), and in some key practice areas, levels of litigation in Australia now exceed those in most parts of the United States. For example, only California tops Australia for medical negligence litigation. (1)

Whatever the causes of the problem, there is no doubt that 2002 was Australia's year zero of tort reform, the effects of which will guide the development of law for many years to come. The initial response of the various state governments included capping damages and introducing procedural changes. The real engine for reform, however, was the federal government's Review of the Law of Negligence. This review, chaired by Justice David Andrew Ipp of the Supreme Court of Western Australia, was established to inquire into the law of negligence and recommend a series of proposals to provide a principled approach to reforming that area of the law.

The panel released its report, colloquially known as the Ipp Report, in two stages. The first report was made public in September 2002 and the final report, which incorporated the first, was released in October 2002. (2) It is the final report to which chapter, recommendation and paragraph references are made in this article.

AUSTRALIAN LEGAL SYSTEM

Australia is a federation composed of six states and two self-governing territories. The Australian Constitution specifies a range of matters that are the responsibility of the federal government. The balance of legal issues remain the responsibility of the various state and territory governments.

Australia's laws and legal system have their foundation in the common law of England. However, while the judgments of the House of Lords and English Court of Appeal are of persuasive authority, they are not binding on Australian courts. Australia has both a federal court system and a hierarchy of courts in each of the states and territories. In all cases, the ultimate appellate court is the High Court of Australia.

Actions heard by Australian courts proceed on an adversarial basis. The practice and procedure, including rules of evidence, are similar to those in English courts. Civil proceedings in Australia are generally heard by a judge sitting without a jury, but it is possible to have a matter heard by a judge and jury in most of the state and territory supreme courts. (3)

WHAT IS PROPOSED

While a detailed discussion of the proposals for reform contained in the Ipp Report is beyond the scope of this article, there follows a review of the principal proposals and the progress made for implementation. Parenthetical references are to paragraphs of the report.

1. Restatement of the Law of Negligence

   1. Standard of Care

      The most fundamental proposals in the report concern a restatement, with emphasis, of aspects of the law of negligence. These proposals will not result in extensive changes to the law in Australia. Rather, they are an attempt to emphasise elements of the law that have, according to the report, been increasingly overlooked by courts in recent times.

      The report notes that under current Australian law, the concept of negligence has two components: foreseeability of the risk of harm and the "negligence calculus." ([paragraph] 7.7) That calculus has four distinct components: (1) the probability that the harm would occur if care was not taken; (2) the likely seriousness of that harm; (3) the burden of taking precautions to avoid the harm; and (4) the social utility of the risk-creating activity. The report argues that some aspects of the negligence calculus are being ignored and contends that the first condition--the probability of the risk--is being over-emphasised by Australian courts, which are focusing too heavily on the issue of foreseeability. ([paragraphs] 7.8-7.14)

      The genesis of this problem is said to be the decision of the High Court of Australia in Wyong Shire Council v. Shirt, (4) which held, in effect, that a person cannot be held liable for failure to take precautions against a risk that could be described as "far-fetched or fanciful," even if it was foreseeable. The report is of the opinion that this decision has created a situation in which lower courts are ignoring the other elements of the calculus and justifying a finding of negligence simply on the basis that the risk was not far-fetched or fanciful, without giving due weight to the counter considerations found in the elements of the calculus. ([paragraph] 7.14)

      Accordingly, the report proposes a restatement of the law of negligence so as to ensure an appropriate emphasis on the other elements of the calculus. The first element of the proposal is to replace the words "not far-fetched or fanciful" with "not insignificant." That is to say, a person may be held liable only for failure to take precautions against a risk if the risk was "not insignificant." The phrase is designed to indicate a risk that is of a higher probability than is indicated by the words "not far-fetched or fanciful." ([paragraph] 7.15.)

      However, this proposal does not, of itself, adequately address the problem noted above. There is still a risk that courts would consider an action to be negligent merely because the risk could be considered "not insignificant." To address this shortcoming, the report proposes a statutory provision requiring consideration of the other elements of the calculus. ([paragraph] 7.17)

      The report proposes that a person should not be considered to have been negligent by reason only of failing to take precautions against a foreseeable risk of harm--that is a risk of harm of which the person knew or ought to have known; or by failing to take precautions against a risk of harm, unless that risk can be described as "not insignificant;" or by failing to take precautions against a risk that can be described as "not insignificant" unless, under the circumstances, the reasonable person in that person's position would have taken precautions against the risk. These are Recommendations 28(a), (b) and (c).

      Recommendation 28(d) of the report then states that in determining whether the reasonable person would have taken precautions against a risk of harm, the four elements of the calculus of negligence should be considered, namely: (1) the probability that the harm would occur if care was not taken; (2) the likely seriousness of that harm; (3) the burden of taking precautions to avoid the harm; and (4) the social utility of the risk-creating activity.

   2. Causation

      The report also attempts to provide some guidance to courts in relation to causation issues. It sees causation as having two elements, with the plaintiff bearing the burden of proof: (1) factual causation, which concerns the factual issue of whether the negligence played a part in bringing about the harm; and (2) scope of liability, which concerns the normative issue of the appropriate scope of the negligent person's liability for the harm, once it has been established that the negligence was a factual cause of the harm. ([paragraph] 7.41)

      In Australia, the basic test of factual causation is whether the negligence was a necessary condition of the harm--the "but for" test. That is to say, would the loss or damage have occurred "but for" the negligent act or omission? While the "but for" test is not without its limitations, the report supports its retention as a basic test of factual causation, with a limited exception. In "appropriate cases" proof that the negligence materially contributed to the harm or risk of the harm may be treated as sufficient to establish factual causation, notwithstanding an inability to satisfy the "but for" test. ([paragraphs] 7.31-7.32)

      If it is relevant to the determination of factual causation to determine what the plaintiff would have done if the defendant had not been negligent, this is to be determined subjectively in light of the relevant circumstances, but any statement made by the plaintiff after suffering the harm is inadmissible. ([paragraph] 7.40)

      In adopting this proposal, the report has not extended the common law. Rather, the departure from the "but for" test is intended to focus the court's mind.

2. Professional Negligence

   The professional negligence proposal deals specifically with medical negligence. As will be seen below, however, it has been adopted more broadly. It is one of the more controversial proposals in the report because it amends in part a well-established principle in medical negligence cases by, in effect, reverting to the common law position...