LF
Sounds to me like the other pilot screwed up by being in the wrong place at the wrong time, and not knowing where he was. In that case although it's ATC's responsibility to apply a separation standard (in this case reduced in the vicinity of the circuit by usual visual separation) I don't feel they can be held totally responsible for the other guys inability.
You might get a better and fuller answer if you could give a few more details - what type of airspace was this in (CTR or ATZ in class 'G'). Was it a proper ATC service or was it FISO or even A/G. (Night flying goes on at these airfields too). At the end of the day you need a full story for a complete answer
CM
[This message has been edited by Chilli Monster (edited 26 March 2001).]