The blurring of Contract and Tort: is there a need for
unification to the law of obligations or should the divisions
remain distinct.
https://southwales.academia.edu/CarlTaylor
For years academics theorised whether there truly is a
breakdown of the boundaries between contract and tort.
Competing opinions disseminate whether there is a need for
unification to the law of obligations or whether the
divisions remain distinct but just blurred. Whichever opinion
is held proffers judicial interpretation has muddied the
waters between these two distinct areas of obligations,
creating uncertainty within the law.
Consequently this paper will first appraise the prescribed
approach of deciding cases on categorisation of founded
principles set down by previous decisions to attain
certainty: hence formalistic adherence encumbered unjustly
law’s advancement through its rigidity. Secondly consider the
increased use of tort of negligence through the development of
physical damage identifying inconsistent judicial
interpretation. Thirdly explore pure economic loss and the
judiciary’s willingness to develop new doctrines to fill
lacunas within other categories of law so to remove
inequitable principles overlooked by societal changes.
Fourthly conclude unification is not possible due to
inconsistent decision-making which obfuscates the law.
1
by Carl Taylor
More Info: Key Words: Contract law; Tort law; blurring; law of
obligation; boundaries; unification and; uncertainty
Publication Date: Nov 24, 2013
Publication Name: USW - LLM Assignment Paper
Research Interests:
Law, Jurisprudence, Contract Law, Legal Theory, Philosophy Of
Law, and 5 more
Table of Cases
UK Cases
Anns v Merton London Borough Council [1978] AC 728 (HL)
Carlill v The Carbolic Smoke Ball Co. Ltd [1893] 1QB 256 (CA)
Caparo Industries Plc v Dickman [1990] 2AC 605 (HL)
Commissioners of Customs and Excise v Barclays Bank [2006]
UKHL 28
Concord Trust v Law Debenture Trust Corp [2005] UKHL 27
Cattle v Stockton Waterworks Co. (1875) LR 10 QB 453
D & F Estates Ltd v Church Comrs for England [1989] AC 177
(HL)
Dallman v King (1837) 4 Bing NC 105; 132 ER 729
2
De La Bere v Pearson Ltd [1908] 1 KB 280 (CA)
Derry v Peek (1889) 14 App Cas 337 (HL)
Donoghue v Stevenson [1932] AC 562 (HL)
Dunlop Pneumatic Tyres Co. Ltd v Selfridge & Co. Ltd [1915] AC
847 (HL)
Edginton v Fitzmaurice (1885) 29 Ch D 459
Gartside v Sheffield Young & Ellis [1983] NZLR 37 (PC)
Grant v Australian Knitting Mills Ltd [1936] AC 85 (PC)
Greater Nottingham Co-operative Society v Cementation Piling
and Foundation Ltd [1989] QB 71
Hedley Byrne v Heller & Partners Ltd [1964] AC 465 (HL)
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL)
Jackson v Mayfair Window Cleaning Co. Ltd [1952] 1All ER 215
(CA)
Junior Books v Veitchi Co [1983] 1 AC 520 (HL)
Midland Bank v Hett, Stubbs & Kemp [1979] Ch 384
Murphy v Brentwood District Council [1990] 2 All ER 908 (HL)
Pearce v Brooks (1866) LR 1 Ex 213
Pinnel’s Case (1602) 5 Co Rep 117a
Robinson v National Bank of Scotland SC (HL) [1916] 154
Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9
3
Ross v Caunters [1980] Ch 297
Rush v Reid & Tompkins [1990] 1WLR 212
Scally v Southern Health and Social Services Board [1991] ICR
771 (HL)
Seymour v Maddox (1851) 16 LTOS 387; 16 QB 326
Simms Jones Ltd v Protochem Trading New Zealand Ltd [1993] 3
NZLR (PC) 369
Simpson v Thompson (1877) 3 App Cas 279 (HL)
Smith v Eric S Bush (A Firm); Harris v Wyre Forest DC [1990] 1
AC 831 (HL)
Spartan Steel and Alloys Ltd v Martin & Co. Ltd [1937] QB 27
Tai Hing Cotton Mill Lt v Lui Chong Hing Bank [1986] AC 80
(PC)
Tweddle v Atkinson [1861] 121 ER 762
Van Open v Trustees of Bedford School [1990] 1 WLR
White v Jones [1995] 2 AC 207 (HL)
Winterbottom v Wright (1842) 10 M & W 109; 152 ER 402
Table of Statutes
Statutes
Contract (Rights of Third Parties) Act 1999
Law Reform (Miscellaneous Provisions) Act 1934
4
Law Reform (Personal Injuries) Act 1948
Limitation Act 1980
Unfair Contract Terms Act 1977
Wills Act 1857
Workmen’s Compensation Act 1897
Official Publications
Law Revision Committee ‘Sixth Interim Report’ (Law Com Cmd.
5449 1937)
Law Commission, ‘Privity of Contract: Contract for the Benefit
of Third Parties’ (Law Com No.242 Cm. 3329 1996)
Law Commission ‘Limitation of Action: Item 2 of the Seventh
Programme of Law Reform: Limitation of Actions’ (Law Com No
270, 2001)
5
For years academics theorised whether there truly is a
breakdown of the boundaries between contract and tort.
Competing opinions disseminate whether there is a need for
unification to the law of obligations1 or whether the divisions
remain distinct but just blurred.2 Whichever opinion is held
proffers judicial interpretation has muddied the waters
between these two distinct areas of obligations, creating
uncertainty within the law. Consequently this paper will first
appraise the prescribed approach of deciding cases on
categorisation3 of founded principles4 set down by previous
decisions to attain certainty: hence formalistic adherence
encumbered unjustly law’s advancement through its rigidity.5
Secondly consider the increased use of tort of negligence
1 P S Atiyah, The Rise and Fall of Freedom of Contract (1st edn, Oxford University Press 1979); P S Atiyah, The Damage Lottery (1st edn, Hart Publishing 1997) and; Hedley S, ‘Contract, Tort and Restitution; or, cutting the legal system down to size’ (1988) 8 Legal Stud. 137.2A Burrows, Understanding the law of obligations: Essays on Contract, Tort and Restitution (1st edn, Hart Publishing 1998) ch1, 2-9. 3 Categorisation is referring specifically to the law of contract and law of torts.4 Principles refer to the individual rules within the categories such as the components making up a contract; offer; acceptance; consideration; binding promise; privity et al. 5 J Dawson, ‘Restitution or Damages’ (1959) 20 Ohio St. LJ 175, 187; “the well-known ailment of lawyers [is the] hardening of the categories.”
6
through the development of physical damage identifying
inconsistent judicial interpretation. Thirdly explore pure
economic loss and the judiciary’s willingness to develop new
doctrines to fill lacunas within other categories of law so to
remove inequitable principles overlooked by societal changes.
Fourthly conclude unification is not possible due to
inconsistent decision-making which obfuscates the law.
I
The fundamental principle of English nineteenth century
contract law was based on parties’ autonomy facilitating
absolute freedom to contract to serve their interests.6 The
courts’ approach was to enforce whatever agreement the parties
attained with the exception of illegality7 and
misrepresentation.8 This left little scope for claims for lost
chance arising from bad bargains or inequality of bargaining
power. The courts’ also upheld parties’ exercise of absolute
discretion in a contract by favouring determination of the
6 G H Treitel, An Outline of The Law of Contract (6th edn, Oxford University Press 2004) ch1, 3; “freedom of contract’ refers to the general principle that the law does not restrict the terms on which the parties may contract.”7 Pearce v Brooks (1866) LR 1 Ex 213: prostitute hired carriages for her trade in full knowledge of owner but failed to pay hire. Held: contract for immoral purposes and known by both parties therefore against public policy and unenforceable. 8 Edginton v Fitzmaurice (1885) 29 Ch D 459: Company director borrowed money on representation the loan was used for company building improvements when in fact used to pay off personal debts. Held - misrepresentation of actual intentions arising to false statement of material fact leading to actionable misrepresentation. cf Derry v Peek (1889) 14 App Cas 337 per Lord Herschell action in tort of deceit.
7
extent rather than how the discretion was exercised:9 therefore
upholding the will of the parties.10 The courts’ justification
was each party had come to the contract voluntarily.
This Victorian general theory of contract was founded on
entrepreneurism centred solely on individual wealth and market
economy with little or no allocation of risk to give rise to
fault-based liability. Voluntary assumption of risk was
applied to workers who shoulder liability for accidents at
work.11 The maxim volenti non fit injuria12 was used regularly when the
master was partially responsible.13 Even a theatre owner
escaped liability after an actor fell down an unfenced hole on
the premises because…he knew it was there.14 ‘Liability for
personal fault had undoubtedly appealed to the strongly
individualistic strain in Victorian moralising’15 until
legislation interposed.16
Consequently for justice and fairness to prevail in overcoming
unjust rigid principles of contract excluding remedy,
intuitive judicial activism took place. For instance, courts’
9 Dallman v King (1837) 4 Bing NC 105, 109 per Tindall CJ Held; court only considered the effect landlord’s unfettered discretion to approve repairs and not the arbitrary way he exercised it. 10 Treitel (n6) 7 ‘(the offeror) is willing to contract on terms stated, as soon as these are accepted by the person to whom the statement is addressed (offeree).’11 This later changed with the introduction of the Workmen’s Compensation Act 1897 where employers were liable to pay compensation where personal injury was caused to any of their workmen; see Cornish and Clarke (n13) 525-541 for an account of the Act’s effect.12 Latin: “to a willing person, injury is done.”13 W R Cornish and G de N Clarke, Law and Society in England 1750-1950 (1st edn, Sweet and Maxwell 1989) 499.14 Seymour v Maddox (1851) 16 LTOS 387.15 Cornish and Clarke (n13) 538.16 Law Reform (Personal injuries) Act 1948 s1; incorporating the recommendations of the Monckton Committee on Alternative Remedies.
8
assumed a contract when one did not exist,17and even created
contractual obligations by turning a mere advertisement trade
puff into a reward.18 The courts’ justification to stretch
contractual reasoning was to give remedy where none existed.
Tort was still a developing theory of miscellaneous actions
‘lumped together in books.’19 Non-contractual harm was
increasingly being dealt with by courts within the tort of
negligence but only to compensate on for accidental injury to
person or property.20 The Georgian eighteenth century
generalisation of a concept of a duty owed to any neighbour
still remained concealed.21
The eliding boundaries between contract and tort did not
materialise until the turn of the twentieth century. Some
reasoning offered was the changing ‘role of the state in
protecting the weak and dependent’ 22 increasing tort liability
dependency and/or the increase of affluence amongst average
persons linked with growth of credit for material needs and
wants.23 These generated different types of contractual
relationships resulting in certain principles within the
Victorian law of contract in need of reform or abolished ‘root
17 De La Bere v Pearson Ltd [1908] 1 KB 280.18 Carlill v The Carbolic Smoke Ball Co. Ltd [1893] 1QB 256 (CA).19 M Lunney and K Ophilant, Tort Law: Text and Materials (3rd edn, Oxford UniversityPress 2008) 920 Cornish and Clarke (n13) 538.21 Buller’s, An Institute of the Law Relative to Trials at Nisi Pruis (1st edn, Buller’s Publication 1768)35-36; (4th edn, Buller’s Publication 1785) 25-26; ‘Every manought to take reasonable care that he does not injure his neighbour; therefore where-ever a man receives any hurt through the default of another, though the same were not wilful, yet if it occasionedby negligence or folly, the law gives him an action to recover damages for the injury so sustained.’22 M Furmston (ed), The Law of Tort: Policies and Trends in Liability for Damage to Property andEconomic Loss (1st edn, Duckworth & Co. Ltd 1986)132.23 ibid 132-33.
9
and branch:’24 consideration25 was not ‘justified on the
grounds it distinguishes between onerous and gratuitous
contracts;’26 Pinnel’s Rule27 rebuked as ‘one of the most
absurd doctrines which have succeeded in becoming established
as part of the English law of contract’ and, the rule of
privity28 being, ‘completely out of harmony with conditions of
modern commerce and industry.’ 29
Such admonishment that principled reasoning was completely out
of harmony with modern society clearly supported certainty may
come at a price by encumbering law’s advancement through its
rigidity:30 an essential requirement of the rule of law.
Unfortunately, with the exception of the privity rule some
sixty years later,31 none of the other recommendations made it
onto the statute books ‘leaving the courts by their very
function compelled to act as legislators.’32
This compulsion to leave reform to judicial pragmatism to fill
lacunas within the hardened principles is a burden. Parliament
through enacting legislation is better equipped to promote
24 Law Revision Committee ‘Sixth Interim Report’(Law Com Cmd. 5449 1937) in (1937) 1 MLR 2 97-110 under nine heads: i)-ix).25 Tweddle v Atkinson [1861] 121 ER 762; Consideration must pass from both sidesparty to the contract. Despite being named in an agreement if no consideration has passed there is no right to sue under the rule of privity.26 Law Revision Committee (n22)100.27 Pinnel’s Case (1602) 5 Co Rep 117a: part-payment of a debt can never satisfythe whole debt.28 Dunlop Pneumatic Tyres Co. Ltd v Selfridge & Co. Ltd [1915] AC 847 (HL) per Lord Haldane ‘only a person who is party to a contract can sue on it…’29 Law Revision Committee (n22)106.30 Dawson (n5)175.31 Contract (Rights of Third Parties) Act 1999.32 Lord Diplock, ‘The Courts as Legislators - Annual Dinner address on 26th March 1965’ (Birmingham: Holdsworth Club, University of Birmingham1965) 1, 2.
10
societal change. Nevertheless any reform was left to common
law through the development of the law of obligations of
contract and tort. The method of choice to overcome such
injustices was to ‘move beyond a conception of negligence
liability as a pre-existing relationship and adopt a
generalised theory of liability.’33
Therefore the question advanced is whether rejecting clarity
and rationality for judicial decision-making by pure intuition
will be a slide from the rule of law begetting uncertainty. 34
II
The leading pivotal tortious inroad to contract was Lord
Atkin’s35 creation of the tort of negligence expanding on
Buller’s eighteenth century concept, ‘Every man ought to take
reasonable care he does not injure his neighbour…’ 36 This
“neighbour test” based itself around an appropriate standard
of reasonable foreseeability not to harm a person where a duty
of care was owed. Any breach of such duty could give rise to a
cause of action in tort liability for negligently caused
physical harm.
The decision’s enormity established concurrent liability
enabling claimants to choose which action was most beneficial
to settle claims for a breach of a general duty of care. Thus
tortious action overlapped into contractual obligations 33 Lunney & Olliphant (n19)14.34 Burrows (n2) Ch2 16; submitted “to reject the discipline of clarity and rationality imposed by categorisation is to slide from the rule of law into potential disastrous regime of decision-making by pure intuition.”35 Donoghue v Stevenson [1932] AC 562 (HL) 580 ‘neighbour test’.36 Buller’s (n21).
11
whether a contract exists between the parties or not37
resulting, in a weakening of the rule of privity. Lord
Buckmaster dissenting38 remonstrated cases against the privity
rule ‘should be buried so securely their perturbed spirits
shall no longer vex the law.’ Hitherto the law of negligence
remained steeped in the rule of privity of contract to control
any floodgate action feared by Lord Arbringer CB in Winterbottom
v Wright.39
Nevertheless Lord Atkin’s intuitive decision imposed a general
duty on manufacturers not to injure their ultimate end-users
from defective produce: therefore filling a lacuna within the
rigid contractual decision of Winterbottom v Wright40 which denied
similar liability for negligently caused injury due to absence
of privity. Lord Atkin’s pioneering tortious skirmish eliding
the boundaries of contract not only changed the “privacy
fallacy” but also the legal landscape by switching, ‘the
entire law of product liability from contract to tort.’41
Arguably Lord Atkin’s success hinged on both judicial and
public consensus on delivering a standard of care society
expected. Moreover, Lord Devlin promulgated judicial activism 37 Jackson v Mayfair Window Cleaning Co. Ltd [1952] 1All ER 215, 217-18: per Barry J.successful claim to sue in tort for damages when a chandelier being cleanedfell causing further property damage. Held: Whether in pursuance of a contract or otherwise-they are under an obligation not to damage that property as a result of their negligence. 38 Donoghue (n35) 576. 39 Winterbottom v Wright (1842) 10 M & W 109 per Lord Abringer CB cautioned; ‘There is no privity of contract between these parties…Unless we confine the operation of such contracts as this to the parties who entered them, the most absurd and outrageous consequences, to which I can see no limit, would ensue…’ 40 ibid.41 B Markesinis, S Deakin and A Johnston, Tort Law (7thedn, Oxford University Press 2013) 21.
12
can only be permissible on the basis of community consensus
when everybody agrees with the law made.42 Consequently the
neighbour test became the general principle whereby foresight
of harmful interference became the central benchmark.
Regrettably what transpired was exuberant expansion of the
“neighbour test” resulting in unsettled law. Creative
judicial interpretation began framing the initial test for
negligent physical damage from manufacturers of food produce
to include non-food goods.43
In Anns v Merton London Borough Council44 Lord Wilberforce widened the
possibility of duty of care owed in a two-part test. If
foreseeable damage was established and, no policy grounds
existed, a cause of action on tort would follow. Further, His
Lordship considered it was irrelevant to analysis the novel
situational facts from previous cases where a duty was held to
exist.45 Thus, in this instance sufficient proximity could be
established for a duty to be owed by a Local Authority to its
tenant irrespective of no physical harm occurring.
This simple “two-part” test unlimitedly broadened the tort of
negligence to include foreseeability of economic loss.46
Judiciary highlighted contextual difficulty on reconciling the
decision of proximate relationship with the pre-existing
42 Lord Devlin, ‘Judicial Activism’ (1975) 28 Current Legal Problems 1, 2. 43 Grant v Australian Knitting Mills Ltd [1936] AC 85 (PC) per Lord Wright; claimant brought an action against the respondent, claiming damages he had contracted dermatitis from the improper condition of underwear purchased byhim.44 [1978] AC 728 (HL).45 ibid 751.46 Junior Books v Veitchi Co [1983] 1 AC 520 (HL).
13
principles from the neighbour test: giving rise to uncertainty
of the nature and scope within the new principles.47 This
blurring between negligent economic losses and negligent
physical damage became unpalatable enough to see such cases
‘slowly whittled away.’ 48
A retreat from Anns decision came with its overruling in Murphy
v Brentwood District Council.49 Lord Keith considered Lord Wilberforce
had inconsistently applied the neighbour test set for
negligent physical harm to further encapsulate cases where
pure economic loss was recognised: 50 in absence of injury any
loss was economic thus unrecoverable unless assumed
responsibility is found under the Hedley test.51
Nevertheless the current position for claims of pure economic
loss in such cases has reverted back into a contractual
liability with the overruling of Murphy’s decision.52 In Robinson v
P E Jones53 Lord Jackson clearly reasoned contractual and tortious
liabilities are distinct: contractual obligations arise from
consensual parties whereas tortious duties are imposed by law
on policy grounds54. Accordingly foreseeable damage or injury 47 D & F Estates Ltd v Church Comrs for England [1989] AC 177 (HL) per Lord Oliver and Lord Bridge.48 S Hedley, ‘Recovering Lost Legacies: White v Jones in the Lords,’ [1995] 1Web JCLI http://webjcli.ncl.ac.uk/articles1/hedley1.html accessed 19 November 2013.49 Murphy v Brentwood District Council [1990] 2 All ER 908 (HL).50 ibid 919, per Lord Keith, ‘In my opinion it must now be recognised that, although the damage in Anns was characterised as physical damage by Lord Wilberforce, it was purely economic loss.51 Hedley Byrne v Heller & Partners Ltd [1964] AC 465 (HL); a duty of care established through a special relationship arising from a voluntary assumption of responsibility when imparting advice/information to another who later relies upon it to his/her detriment.52 Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9. 53 Ibid.54 ibid [76].
14
caused to other property or persons by a defective product
would only be recoverable through tort providing the contract
does not reasonably exclude such loss.55 This decision clearly
undermined the concurrent liability debate by declaring, in
absence of assumed responsibility in a contract, there is no
liability in tort.56
Such competing division within judicial interpretation is
muddying the waters between two distinct areas of obligations.
In defence of fairness, the sympathetic judiciary are
pragmatically attempting to navigate unchartered waters within
the law of obligations to find remedy in tort where remedy in
contract was/is denied.
III
The second leading pivotal tortious inroad to contract arose
from the decision in Hedley Byrne v Heller.57 This decision expanded
tort of negligence to encompass pure economic loss caused by
negligent misstatement. Unlike the catholic approach of Lord
Atkin’s, the Hedley duty of care relied on a special
relationship arising from a defendant’s voluntary assumption
of responsibility when giving advice or a service.
Nevertheless this expansion of negligence into misstatement
was not taken lightly. There was a potential of opening the
55 Nota Bene: Unfair Contract Terms Act 1977 s2(1) death or personal injury can never be excluded per se.56 Robinson (n49) [83] per Jackson LJ.57 Hedley (n51).
15
floodgates from unscrupulous claims of mere utterances.58
Therefore Lord Reid in Hedley, expanding on earlier case
dicta,59 reasoned a mere statement required imposition of a
special relationship to establish a duty of care.
Lord Morris in Hedley further explained a special relationship
is capable of existing where someone with special skills gives
assistance to another whom then relies upon it, ‘irrespective
of contract.’60 Thus any claim for pure economic loss for a
breach of duty would be able to be framed in tortious
liability concurrent with contract. Furthermore this decision
permeated previous contractual decisions where pure loss of
profit through interruption of services or physical damage was
held too remote for damages capable in breach of contract.61
A more significant judicial assault on contract was put
forward by Lord Devlin in Hedley by acknowledging a promise
given without consideration to perform a service can be
recoverable in tort if performed negligently.62 Therefore
dismissing for not being law any claim gratuitous acts did not
amount to performing a service under contract for lack of 58 Hedley (n51) 483 per Lord Reid; ‘there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action.’59 Robinson v National Bank of Scotland SC (HL) [1916] 154, 157per Lord Haldane. 60 Hedley (n51) 494-495 per Lord Morris; ‘…though gratuitously, to give deliberate advice (I exclude what I might call casual and perfunctory conversations) they would be under a duty to exercise reasonable care in giving it. They would be liable if they were negligent although, there beingno consideration, no enforceable contractual relationship was created.’61 Cattle v Stockton Waterworks Co. (1875) LR 10 QB 453 per Blackburn J and approvedin House of Lords decision in Simpson v Thompson (1877) 3 App Cas 279 (HL); see also Spartan Steel and Alloys Ltd v Martin & Co. Ltd [1937] QB 27 per Lord Denning’s later decision permitting a claim for loss of profit from the consequence of physical damage but not ‘economic loss independent of physical damage.’ 62 Hedley (n51) 526 per Lord Devlin; ‘A promise given without consideration to perform a service cannot be enforced as a contract by the promisee; but if the service is in fact performed and done negligently, the promisee can recover in an action of tort…’
16
consideration.63 This not only reflects the current position of
the Law Commission’s Report on the similar reform64 but also
the Law Revision Committee Report in 1937.65 In furtherance
Lord Devlin elucidated the concept as, a special relationship
equivalent to contract but absent of consideration whereby an
assumption of responsibility arises.66 Nevertheless, other than
the few models identified67 the categories afforded a special
relationship offered little guidance to the scope of
categories affected.
Both Lord Roskill68 and Lord Griffiths69 in subsequent cases
rebuffed their Lordships’ explanations in Hedley as unhelpful.
Academic opinions reproached the decision purporting ‘[n]ever
has there been such a judicial jamboree…where…their lordships
had been on a trip to Mount Olympus and perhaps smoked a joint
on the bus.’70
Not all commentators were critical of the decision. One
proponent acknowledged the Hedley decision adopted the law of
63 ibid.64 Law Commission, ‘Privity of Contract: Contract for the Benefit of Third Parties’ (Law Com No.242 Cm. 3329 1996), 73, Part VI; Third Party Rule and Consideration. 65Law Revision Committee (n22) 100; ‘cannot be justified on the grounds that it distinguishes between onerous and gratuitous contracts, or between contracts and arrangements notintended to have legal consequences’.66 Hedley (n51) 528-9 per Lord Devlin;‘…to include also relationships… equivalent to contract…where there is an assumption of responsibility…in which, but for the absence of consideration, there would be a contract.’67 Banker, solicitors and their respective clients.68 Caparo Industries Plc v Dickman [1990] 2AC 605 (HL) 628.69 Smith v Eric S Bush (A Firm); Harris v Wyre Forest DC [1990] 1 AC 831 (HL) 864-5.70 T Weir, ‘Errare Humanum Est’, in P Birks (ed), Frontiers of Liability, (Vol 2 OxfordUniversity Press 1994) 103, 107 ‘Never has there been such a judicial jamboree as Hedley Byrne where one almost has the feeling that their lordships had been on a trip to Mount Olympus andperhaps smoked a joint on the Bus. Something certainly went to their heads, presumably not the merit of the claim, which they dismissed.’
17
negligence as ‘an interstitial, gap-filling role to make good
deficiencies in the law of contract by rectifying damage
caused by promises the law of contract cannot enforce.’71
Although the above non-promissory justification is embraced by
the judiciary concerning negligent misstatement, its
justification becomes less palatable and more confusing when
confronted with negligent performance of a beneficial service.
The conceptual difficulty is the failure through omission or
negligent performance of beneficial services to bring about a
spes successions72 for a client. The conundrum is, if it has not
made a man better off nor has it made him worse off then, is
it truly a wrong worthy of being recognised as pure economic
loss capable of compensation73 or is simply a breach of
contract offering nominal damages.
The issue becomes more intensified where the negligent
performance arises from a contractual relationship for the
benefit of a third party. Prior to 199974 the rigid
contractual rule of privity simply excluded third parties from
bringing a cause of action for a failure to benefit under a
contractual agreement for lack of consideration.75 In context
failed Wills produced claims by disappointed third party
beneficiaries for seeking compensatory awards for failure to
71 K Barker, ‘Unreliable assumption in the modern law of obligation,’ (1993) LQR 461, 462.72 Latin: hope of succeeding.73 White v Jones [1995] 2 AC 207 (HL) per Lord Goff.74 Contract (Rights of Third Parties) Act 1999 s1(a)(b).75 Tweddle v Atkinson [1861] 121 ER 762; Consideration must pass from both sidesparty to the contract. Despite being named in an agreement if no consideration has passed there is no right to sue under the rule of privity.
18
benefit arising from omissions by solicitors. The legal
obstacle was solicitors’ duty of care owed was only extended
to living clients through their retainer: offering the normal
contractual nominal damages to remedy a defect within the
Will. In furtherance after death of a client all causes of
actions vested in the deceased survived for the benefit of
his/her Estate.76
The inherent problem was two-fold: a deceased Estate could not
bring an action as it had suffered no loss and; intended
beneficiaries named in a Will were barred both by statute77 and
the contractual rule of privity.78 Therefore on death of a
client no redress for a solicitor’s negligence would be
afforded to any intended beneficiaries deprived of their
rightful inheritance: hence an injustice within the law.
This was addressed in Ross v Caunters79 where a negligent omission
by a solicitor during preparation of a client’s Will failed to
pass to the intended beneficiary the subsequent inheritance.80
Therefore to find liability the court need to intuitively
overcome the contractual boundary of privity.
Lord Megarry VC constructed the solicitor’s liability not
around the Hedley principle81 of an assumption of responsibility
76 Law Reform (Miscellaneous Provisions) Act 1934 s1.77 Ibid.78 Dunlop Pneumatic Tyres Co. Ltd v Selfridge & Co. Ltd [1915] AC 847 (HL) per Lord Haldane ‘only a person who is party to a contract can sue on it…’79 [1980] Ch 297, 303.80 Wills Act 1857 s15; attestation of a Will by a beneficiary’s spouse wouldinvalidate a gift to the beneficiary.81 Hedley [n51] a special relationship arising from a voluntary assumption ofresponsibility where it would be reasonably foreseeable the act or advice given would give rise to reliance by the recipient to their detriment.
19
but more in line with the neighbour rule from Donoghue v
Stevenson.82 Confusingly the court found the solicitor liable
for harmful interference and not a failure to benefit. The
decision resulted in any subsequent claim for pure economic
loss due to negligent omission being framed in reliance
damages in tort for harmful interference rather than extending
to third party beneficiaries expectancy damages for failure to
benefit.83
Arguably fairness prevailed with the emergence of tortious
liability for negligent omission blurring contractual
boundaries by overcoming the rule not to acknowledge pure
economic loss.84
Nevertheless Ross v Caunters85was distinguished in White v Jones86
based on similar facts of duty of care owed to beneficiaries
whilst preparing a Will. This time the Hedley principle was
extended to the intended beneficiaries. Lord Goff asserted a
more objective evaluation on whether the solicitor should be
held in law to have reasonable foreseeability to accept
responsibility regardless to whether he did.87 Further, after 82 Donoghue (n35). 83 Midland Bank v Hett, Stubbs & Kemp [1979] Ch 384: solicitor failed to register the client’s interest of buying a farm which resulted in the failure to purchase. Claimant was not worse off for no service rendered by solicitor but rather in a worse position than if the solicitor had registered the option to purchase. Claimant sued for expectancy damages of the value of the farm due to a failure to benefit.84 Cattle v Stockton Waterworks Co. (1875) LR 10 QB 453 per Blackburn J approved in Simpson & Co v Thompson (1887) 3 App Cas 279 (HL).85 [1980] Ch 297.86 [1995] 2 AC 207 (HL).87 ibid 268 per Lord Goff ‘…remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's
20
an express assumption of responsibility was not availing Lord
Goff was willing to imply one.88 This clearly contradicted Lord
Morris’s account in Hedley where voluntary assumed
responsibility is the subjective state of mind of the
defendant and not to be imposed by law.89 Nonetheless Lord
Goff’s justification was to apply practical justice to the
role solicitors play in society drawn from dicta from
Commonwealth judiciary.90
Unconvinced Lord Mustill (dissenting) expounded courts should
‘not to act as a second-line disciplinary tribunals imposing
punishment in the shape of damages.’91
Such judicial prevarications of the rationale of merging tort
into contract boundaries has obfuscated the true reasoning
behind both decisions in Ross v Caunters92 and White v Jones:93 a
pragmatic approach to overcome the rigid contractual
principles of privity and consideration.94
negligence, be deprived of his intended legacy…’88 White (n86) 269 per Lord Goff ‘(3) Such assumption of responsibility will of course be subject to any term of the contract…It is true that such a term would be most unlikely to exist in practice; but as a matter of principle it is right that this largely theoretical question should be addressed.’89 Hedley (n51) 529 per Lord Morris ‘I do not understand any of your Lordships to hold that itis a responsibility imposed by law upon certain types of persons or in certain sorts of situations. It is aresponsibility that is voluntarily accepted or undertaken…’90 Gartside v Sheffield Young & Ellis [1983] NZLR (PC) 37, [43] per Cooke J‘…to deny an effective remedy in a plain case would seem to imply a refusal to acknowledge the solicitor’s professional role in the community…’ 91 White (n83) 278 per Lord Mustill, ‘the purpose of the courts when recognising tortious acts and their consequences is to compensate those plaintiffs who suffer actionable breaches of duty, not to act as a second-line disciplinary tribunals imposing punishment in the shape of damages.’92 [1980] Ch 297. 93 [1995] 2 AC 207.94 Tweddle v Atkinson [1861] 121 ER 762; Consideration must pass from both sidesparty to the contract. Despite being named in an agreement if no consideration has passed there is no right to sue under the rule of privity.
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IV
Concurrent liability in the area of judicial decision-making
has caused controversy and uncertainty amongst the judiciary
on whether liability in contract and tort should truly co-
exist. The problem lies where courts are permitted to impose a
general duty for failure to comply with a reasonable standard
of care rather than based on a breach of contractual
obligations. This can benefit claimants by circumventing
statutory limitations rules for bringing an action in contract
for the more favourable extending time-limit in negligent tort
actions:95 though parity has been called for through reform.96
Undoubtedly during negotiations parties set express or implied
terms in the contract for risk allocation in advance thus
unquestionably reflecting the price paid for the bargain
entered. Any failed term the parties could not agree upon
should ‘…not [be left] open to the courts to impose a duty of care…not contained in
any express or implied terms of the contract.’ 97 For the courts to give
95 Limitation Act 1980 ss 2 (breach of contract) and 5 (tort) primary limitation period of six years from the date of the cause of action; Where claimants are out of time in breach of contract if a duty of care in tort can be established there is a secondary limitation period for tort of negligence being three years from date of discovery being section 14A tortious negligence causes of action.96 Law Commission ‘Limitation of Action: Item 2 of the Seventh Programme of Law Reform: Limitation of Actions’ (Law Com No 270, 2001) 4 ‘…we proposed to resolve the problems identified above by applying a single, unified, limitations regime as far as possible to all causes of action…’97 Rush v Reid & Tompkins [1990] 1WLR 212 per Ralph Gibson LJ; see also cases; Greater Nottingham Co-operative Society v Cementation Piling and Foundation Ltd [1989] QB 71 held; court refused to apply a duty of care to meet an absence of a contractual remedy; Scally v Southern Health and Social Services Board [1991] ICR 771 and; Van Oppen v Trustees of Bedford School [1990] 1 WLR 235 held; failure to extend insurance cover in absence of any express term undertaken the schoolowed no duty in tort to extend insurance cover to pupils.
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such effect would debatably interfere not only with the
bargain positions of the parties but with the historical
approach for minimal interference to the parties’ freedom to
contract.
Therefore any blurring of boundaries has been vociferously
rejected by purists of the division of the law of obligations.
Any such liability arising from a breach of a duty of care
should be decided within the historical precedent principles
of the categories of their respective law of obligations or,
left to parliament to legislate.
This formalistic approach continually raises tension within
the judiciary when the question arises to what extent should
contractual liability exclude causes of actions in tort
between the contracting parties. Lord Scarman98 clearly opposed
the pragmatic development of concurrent liability believing
there was no ‘advantage of the law’s development in searching
for a liability in tort where the parties are in a contractual
relationship.’ 99 Equally in a Commonwealth High Court decision
Tipping J expressed, ‘if the parties have chosen a contractual
bed they should ordinarily be expected to lie in it alone,
without the seductive company of tort.’100
In disagreement Lord Goff101 established a negligent
professional service can establish a duty of care which
98 Tai Hing Cotton Mill Lt v Lui Chong Hing Bank [1986] AC 80 (PC); case concerning customers duties towards their banks and liability arising from forged cheques.99 ibid 107.100 Simms Jones Ltd v Protochem Trading New Zealand Ltd [1993] 3 NZLR (PC) 369, 381.101 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL).
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coexists alongside contractual obligations.102 However His
Lordship accepted the general law of tort would not be
permitted to circumvent or escape a contractual limitation or
exclusion clause inserted into a contract.103
Perhaps this acceptance was to appease those judges against
concurrent liability. Thus by identifying parties can contract
out tortious duty through exclusion or limitation clauses,
albeit subject to statutory reasonableness,104 assert the
parties’ autonomy remains. Still, the debate concerning
concurrent liability existence was seemingly settled by
Henderson.105
However, Lord Scott in Concord Trust106 rekindled the debate by
contending if a contract has not imposed a contractual duty it
would be difficult to argue a tortious duty was owed.107 This
decision disquieting the concurrent liability position did not
pass unnoticed. Lord Bingham attempted in his obiter in a later
case108 to re-establish the original position by explicitly
inserting concurrent liability can co-exist with contract.109
Nonetheless more recently Lord Jackson110 followed a similar
contractual rationale as Lord Scott maintaining both contract
102 ibid 193.103 Henderson (n101) 193.104 Unfair Contract Terms Act 1977 s4 (1)(2) Unreasonable indemnity clauses;s11 ‘The reasonableness test’.105 Henderson (n101).106 Concord Trust v Law Debenture Trust Corp [2005] UKHL 27 per Lord Scott. 107 ibid [38].108 Commissioners of Customs and Excise v Barclays Bank [2006] UKHL 28 per Lord Bingham.109 ibid [19] ‘It is clear...that a duty of care in tort may co-exist with a similar duty in contract or a statutory duty…’110 Robinson v P E Jones (Contractors) Ltd [2011] EWCA Civ 9, [76] per Lord Jackson.
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and tort obligations are distinct: therefore unless excluded
tortious liability does not run concurrent with contract.111
This clearly leaves the concurrent liability debate in a very
awkward and inconsistent position. Such uncertainty within the
judiciary could not justify any proposal for unification to
the law of obligations. Then again there is no consistent
evidence this is what the judiciary wish as most recent
concurrent liability decisions seemingly include the will of
the parties to reasonably exclude the general law of tort;
thus upholding parties’ autonomy.
In conclusion through the lacklustre of parliamentary reform
fairness within the law had no other ally than a pragmatic
‘regime of decision-making by pure intuition.’112 Such
decision-making developed tortious liability as a tool to
overcome the rigidity of the historic law of contract,
especially in the area of privity and consideration. The only
indictment against this form of decision-making is the
apparent blurring of the boundaries between the law of
obligations of contract and tort which sometimes brings
uncertainty within the law. Even so, this rejection of the
disciplines of clarity and rationality has not seen a slide
from the rule of law. In fact the result has been quite
noteworthy: an antiquated Victorian law of contract based on
individualism of the few now progressing into a more
practicable doctrine in the twenty first century for the
masses.111 ibid [83] per Jackson LJ. 112 Burrows (n2) ch1, 2
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