Obligations and Remedies (Sourcebook)

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SOURCEBOOK ON OBLIGATIONS AND LEGAL REMEDIES Second Edition

Cavendish Publishing Limited

London • Sydney

SOURCEBOOK ON OBLIGATIONS AND LEGAL REMEDIES Second Edition

Geoffrey Samuel, MA, LLB, PhD (Cantab), Dr (Maastricht) Professor of Law, Kent Law School

Cavendish Publishing Limited

London • Sydney

Second edition first published in Great Britain 2000 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX, United Kingdom Telephone: +44 (0) 20 7278 8000 Facsimile: +44 (0) 20 7278 8080 E-mail: [email protected] Visit our Home Page on http://www.cavendishpublishing.com

© Samuel, Geoffrey 2000 First edition 1995 Second edition 2000

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE, UK, without the permission in writing of the publisher.

Samuel, Geoffrey, 1947 Obligations and Legal Remedies—2nd ed—(Cavendish Publishing Sourcebook series) 1 Obligations (Law)—England 2 Obligations (Law)—Wales 3 Remedies (Law)—England 4 Remedies (Law)—Wales I Title 346.4'2'02

ISBN 1 85941 522 9

Printed and bound in Great Britain

To all my friends

PREFACE TO THE FIRST EDITION

This sourcebook started life as a collection of materials for the DEA courses on the common law at Paris I and II. It is offered in this English version, in these days of research ratings, simply as an old fashioned undergraduate teaching casebook, although it is to be hoped that there is material and comment which will be of interest to postgraduates and law teachers. Some of the comments are somewhat provocative; the purpose is simply to bring a little life to the case law and to the doctrine and to stimulate readers into responses. The aim is to get students to see that law is not just about learning and applying rules. In adopting such an approach, I am deliberately adopting the methods of those teachers I found, and still find, so stimulating. Many thanks to my colleague and friend Pierre Legrand, now Professor of Comparative Legal Culture at Tilburg University, not only for encouraging me to publish it in England, but for correcting my French in the Paris edition and giving me so many ideas with respect to comparative law. Many thanks also to Jo Reddy of Cavendish Publishing for agreeing almost at once to accept the manuscript (with major changes of course) and for being so patient both with respect to this manuscript, rewritten during the first months of my Paris appointment, and with my other commitments to Cavendish Publishing. I should, in addition, like to acknowledge the great debt owed to Paris I and II for providing me with the opportunity to reflect upon the common law in the context of the civilian tradition; the many discussions with professors and students are proving most stimulating and I hope that some of this will be reflected in the notes and questions in this present collection. The law faculty at the University of Nancy also deserves thanks for giving me many opportunities over the last few years to research into, and discuss, French law, legal history and comparative law in the comfort of its town and institution. Of course, I owe much to others as well—professionally, to my teachers, friends and acquaintances in common law and civil law faculties who have proved so supportive, not forgetting the works of others, too numerous to mention by name, but hopefully reflected in the notes in this collection. Beyond the profession, my family, as usual, have been particularly patient, not just in uprooting themselves to come to Paris for a year, but in not complaining too much about the attempts to meet deadlines. A special thanks.

Geoffrey Samuel La Sorbonne May 1995

vii

PREFACE TO THE SECOND EDITION

This second edition gives me the welcome opportunity not just to update the material, but to double the size of the book and to place that little bit more emphasis on Europe. The original orientation towards method and remedies is retained and developed, although the new edition has equally allowed me to expand the coverage of non-contractual obligations. Tort and restitution now have their own separate chapters which, inter alia, contain generous extracts from important recent cases. Many thanks to Kevin Gray, John Bell, Bernard Rudden, Pierre Legrand and my colleagues here at Kent for their support and encouragement. Thanks, also, to the Universities of Paris II and Nancy for the continuing invitations to their law faculties which allow me to pursue my interests in aspects of the civil law. Finally, another special thanks to my family. Geoffrey Samuel Kent Law School October 1999

ix

CONTENTS

Preface to the First Edition Preface to the Second Edition Table of Cases Table of Statutes Table of Statutory Instruments Table of Other Legislation Table of Abbreviations Introduction 1

2

vii ix xvii li lvii lix lxi lxv

THE STRUCTURE OF THE COMMON LAW 1 INTRODUCTION 2 THE ROLE OF THE COURTS (a) Trial judge (b) Court of Appeal (c) House of Lords 3 THE ROLE OF PRECEDENT 4 THE ROLE OF PARLIAMENT 5 THE ROLE OF INSTITUTIONS (a) The institutional system (b) Legal subject (persona) (c) Legal object (res) (d) Legal remedy (actio) 6 THE ROLE OF LEGAL CATEGORIES (a) Introduction (b) Civil and criminal law (c) Contract (d) Tort (e) Restitution (unjust enrichment) (f) Property (1): real and personal property (g) Property (2): bailment (h) Equity 7 THE ROLE OF THE CATEGORIES OF PUBLIC AND PRIVATE LAW (a) Introduction (b) Administrative contracts (c) Administrative liability in tort (d) Restitution and public law 8 THE ROLE OF TEXTBOOKS

85 85 88 90 104 107

LEGAL METHOD AND THE COMMON LAW 1 INTRODUCTION 2 CAUSES OF ACTION

111 111 114

xi

1 1 2 3 7 10 13 23 26 27 31 38 50 57 57 60 62 65 70 78 80 83

Sourcebook on Obligations and Remedies

3 4 5 6

7

8

9 3

(a) Historical considerations: the forms of action (b) Modern law: remedies and rights PLEADINGS (STATEMENTS OF CASE) THE LEGAL RULE GENERAL PRINCIPLES OF LAW LEGAL CONCEPTS (a) Normative concepts (i) Rights (ii) Duty (b) Quasi-normative concepts (i) Introductory note (ii) Interests (iii) Proximity (iv) Damage (v) Interests and damage LAW AND FACT (a) Questions of law and questions of fact (b) Establishing the facts (c) Legal categorisation of the facts (d) Role of quasi-normative concepts (e) Utilisation of hypothetical facts to determine the law LEGAL REASONING (a) Introductory note (b) Reasoning in the social sciences (c) Induction and deduction (d) Syllogism (e) Reasoning by elimination (f) Reasoning by absurdity (g) Reasoning by holistic analysis (h) Reasoning by individualistic analysis (i) Reasoning by analogy (j) Reasoning by metaphor (k) Appeal to values (1) Appeal to policy (m) Appeal to certainty (n) Appeal to symmetry (o) Practical reasoning INTERPRETATION OF TEXTS

REMEDIES 1 INTRODUCTION 2 REMEDIES AND RIGHTS 3 REMEDIES AND INTERESTS xii

114 116 118 122 123 125 125 125 131 132 132 133 136 141 156 157 157 158 161 163 164 167 167 169 177 183 187 187 188 188 190 192 193 194 198 199 199 202 209 209 209 220

Contents

4

5

6 7 8 9 10 11 12

13 14 15

16 17 18 4

SELF-HELP (a) Personal justice (b) Self-protection (c) Refusal to pay DEBT (a) Contractual debt (b) Debt and damages (c) Non-contractual debt TRACING SPECIFIC PERFORMANCE RESCISSION IN EQUITY RECTIFICATION IN EQUITY ACCOUNT SUBROGATION INJUNCTION (a) The nature of an injunction (b) Interlocutory injunction (interim orders) (c) The role of injunctions DECLARATION DISCOVERY OF DOCUMENTS DAMAGES (a) The role of damages (b) Contractual liability and damages (c) Tortious liability and damages (d) Exemplary damages (e) Personal injury (f) Fraud (g) Damages for wrongful interference (h) Loss of a chance (i) The limitation of liability (j) Damages in equity REMEDIES AND PUBLIC LAW ACTIONS IN REM LIENS

INTRODUCTION TO CONTRACTUAL OBLIGATIONS 1 INTRODUCTION 2 CONTRACT AND THE LAW OF OBLIGATIONS 3 TYPES OF CONTRACT (a) Bilateral contracts (b) Unilateral contracts (c) Contract or contracts 4 CONTRACTUAL LIABILITY xiii

222 222 224 226 230 230 237 239 240 249 256 265 267 268 270 270 271 276 281 285 293 293 294 307 310 311 313 328 332 339 361 365 369 373 379 379 380 384 384 385 386 389

Sourcebook on Obligations and Remedies

5 6 7 8 9

STATUS AND CONTRACT PROMISE AND AGREEMENT FREEDOM OF CONTRACT GOOD FAITH THE INTERPRETATION OF CONTRACTS

400 402 406 409 416

5

THE FORMATION OF A CONTRACT 1 INTRODUCTION 2 OFFER AND ACCEPTANCE (a) Introduction (b) Fact and law (c) Offers and the consumer (d) Offers and commerce (e) The end of an offer (f) Pre-contractual liability 3 INTENTION AND CERTAINTY 4 CONSIDERATION (a) Introduction (b) Validity of consideration (c) Consideration and abuse of rights (d) Third parties 5 MISREPRESENTATION (a) Definition of misrepresentation (b) Liability in contract (c) Liability in tort (1): deceit (d) Liability in tort (2): negligence (e) Liability in tort (3): statute (f) Rescission in equity (g) Liability in account 6 MISTAKE (a) Introduction (b) Error in corpore (c) Error in negotio (d) Error in persona (e) Error in verbis 7 FRAUD 8 DURESS 9 UNDUE INFLUENCE

421 421 424 424 424 426 430 433 434 447 448 448 449 453 458 466 466 466 469 470 473 476 482 483 483 488 499 501 503 503 504 508

6

NON-PERFORMANCE OF A CONTRACT 1 INTRODUCTION 2 LIABILITY AND IMPLIED TERMS

511 511 512

xiv

Contents

7

3 4 5 6 7 8

BREACH AND NON-PERFORMANCE THE ROLE OF FAULT CONTRACTUAL LIABILITY FOR PEOPLE CONTRACTUAL LIABILITY FOR THINGS EXCLUSION AND LIMITATION CLAUSES REMEDIES AND BREACH (a) Self-help (b) Damages (c) Debt 9 IMPEDIMENT TO PERFORMANCE 10 ILLEGALITY AND PERFORMANCE 11 CONTRACT: FINAL OBSERVATIONS

516 522 533 543 551 572 572 578 581 588 602 609

NON-CONTRACTUAL OBLIGATIONS (1): TORT 1 INTRODUCTION TO NON-CONTRACTUAL OBLIGATIONS 2 THE LEGACY OF THE FORMS OF ACTION 3 DAMAGE CAUSED TO ANOTHER (a) Damage (b) Damage and contribution (c) Damage and time (d) Damage and causation 4 LIABILITY FOR INDIVIDUAL ACTS 5 LIABILITY FOR PEOPLE 6 LIABILITY FOR THINGS 7 LIABILITY FOR WORDS (a) Defamation (b) Negligence (c) Inducing a breach of contract (d) Malicious prosecution (e) Trespass 8 PARTICULAR LIABILITIES (a) Professional liability (b) Local authorities (c) Police 9 ROAD ACCIDENTS (a) Breach of statutory duty (b) Public nuisance (c) Negligence (d) Burden of proof (e) Liability of a car owner 10 DEFENCES TO TORT ACTIONS

611 611 612 615 615 617 621 625 639 645 660 685 685 693 695 699 702 702 702 727 757 758 758 761 763 765 766 770

xv

Sourcebook on Obligations and Remedies

8

11 ABUSE OF RIGHTS POSTSCRIPT: LIABILITY FOR WORDS (DEFAMATION)

774 775

NON-CONTRACTUAL OBLIGATIONS (2): RESTITUTION 1 INTRODUCTION: NON-CONTRACTUAL DEBT CLAIMS 2 QUASI-CONTRACTS (a) Introduction (b) The action for money had and received (c) The action for money paid (d) Quantum meruit 3 PROPRIETARY REMEDIES (a) Introduction (b) Common law proprietary claims (c) Equitable proprietary claims 4 DEFECTIVE TRANSACTIONS (a) Mistake (b) Fraud (c) Duress (d) Undue influence (e) Incapacity (f) Illegal contracts (g) Contracts discharged through breach (h) Contracts discharged through frustration 5 RESTITUTION FOR WRONGS (a) Common law claims for damages (b) Claims in equity 6 UNJUST ENRICHMENT 7 LAW OF OBLIGATIONS: FINAL OBSERVATIONS

777 778 781 781 782 790 793 796 796 798 799 823 823 832 832 833 834 835 835 838 838 838 839 849 853

Index

855

xvi

TABLE OF CASES A/S Awilco of Oslo v Fulvia SpA Di Navigazione of Cagliari; Chikuma, The [1981] 1 WLR 314 Abse v Smith [1986] 1 QB 536 Addis v Gramophone Co Ltd [1909] AC 488 Adler v Dickson [1955] 1 QB 158 Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788 Agip (Africa) Ltd v Jackson [1990] Ch 265, Ch D; [1991] Ch 547 Air Canada v Secretary of State for Trade (No 2) [1983]2 AC 394 Airedale NHS Trust v Bland [1993] AC 789 Al-Kandari vJR Brown Co [1988] QB 665 Albacruz (Cargo Owners) v Albazero (Owners); Albazero, The [1977] AC 774 Albazero, The See Albacruz (Cargo Owners) v Albazero (Owners) Alder v Moore [1961] 2 QB 57 Aldora, The [1975] QB 748 Alexandrou v Oxford [1993] 4 All ER 328 Allen v Bloomsbury Health Authority [1993] 1 All ER 651 Allen v Gulf Oil Refining Ltd [1980] QB 156 Allen v Jambo Holdings Ltd [1980] 2 All ER 502 Allied Irish Banks plc v Byrne [1995] 2 FLR 325 Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602 Alman v Associated Newspapers Ltd (1980) unreported, 20 June Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552 270 American Cyanamid Co v Ethicon Ltd [1975] AC 396 Ampthill Peerage Case [1977] AC 547 Anchor Brewhouse Developments v Berkley House [1987] EG 173 Andre et Compagnie SA v Marine Transocean Ltd [1981] QB 694 Angliss (W) and Co (Australia) Proprietary Ltd v Peninsular and Oriental Steam Navigation Co [1927] 2 KB 456 Anglo-Continental Holidays Ltd v Typaldos Lines (London) Ltd [1967] 2 Lloyd’s Rep 61 xvii

17, 198, 418, 420 5 305, 311, 324–26 720 325, 327 240, 798, 799, 851 12 32, 33, 135, 633 96 294, 460, 464, 707, 710

587 239, 781 138, 139 622, 625 678, 739 272, 373 480 332, 625 474

17, 271 33 280 19

366, 715 327

Sourcebook on Obligations and Remedies Anns v Merton LBC [1978] AC 728

344, 643, 654, 721, 722, 723, 730, 739, 743–5, 747, 753

Anton Piller KG v Manufacturing Processes Ltd See Piller (Anton) KG v Manufacturing Processes Ltd Arantzazu Mendi, The [1939] AC 256 Archer v Brown [1985] QB 401 Argentino, The (1888) 13 PD 191 Arkwright vNewbold (1881) 17Ch D 301 Ashington Piggeries Ltd v Christopher Hill Ltd, See Christopher Hill Ltd v Ashington Piggeries Ltd Asmore, Benson, Pease and Co v AV Dawson Ltd [1973] 1 WLR 828 Associated Distributors Ltd v Hall [1938] 2 KB 83 Associated Japanese Bank (International) Ltd v Credit du Nord SA[1989] 1 WLR 255 Associates British Ports v Transport and General Workers Union [1989] 1 WLR 939 Atkins (GW) Ltd v Scott (1991) 7 Const LJ 215 Atlantic Lines and Navigation Co Inc v Hallam Ltd; Lucy, The [1983] 1 Lloyd’s Rep 188 Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989]QB 833 Attia v British Gas plc [1988] QB 304 Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH [1976] 1 Ll Rep 250 Attorney General v Guardian Newspapers (No 2) [1990] AC 109 Attorney General v PYA Quarries [1957] 2 QB 169 Attorney General’s Reference (No 2 of 1992) [1994] QB 91 Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 Baden v Société Générale pour Favoriser le Développement du Commerce et de 1’Industrie en France SA [1993] 1 WLR 509 Bailey v Bullock [1950] 2 All ER 1167 Bainbrigge v Browne (1881) 18 Ch D 188 Baker v Market Harborough Industrial Co-operative Society [1953] 1 WLR 1472 Ballard v Tomlinson (1885) 29 Ch D 115 xviii

370 60, 313 80 469

609 582 484, 493 280 306 474 507 137, 519, 522, 523, 616 235 268, 839 222 764 263, 499, 509, 833

845, 848 298 260 394 665

Table of Cases Bamford v Turnley (1862) 3 B & S 62 667 Banco, The [1971] P 137 373 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 258, 260 Bank of Montreal v Stuart [1911] AC 120 259 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818 398 Bankers Trust Co vShapira [1980] 1 WLR 1274 818 Banque Belge pour 1’Etranger v Hambrouck [1921] 1 KB 321 241 Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 315, 320, 353, 722 Banque Financière de la Cité SA V Westgate Insurance Co, sub nom Banque Keyser Ullman v Skandia (UK) Insurance Co [1991] 2 AC 249; [1990] 1 QB 665 488 Banque Keyser Ullman v Skandia Insurance See Banque Financière de la Cité SA v Westgate Insurance Co Barclays Bank plc v Fairclough Building Ltd [1995] QB 214 118, 360, 395 Barclays Bank v O’Brien [1993] QB 109; CA; [1994] 1 AC 180, HL 38, 196, 256, 257, 264, 479–81, 509, 510, 833 Barker v Herbert [1911] 2 KB 633 675 Barnes v Addy (1874) LR 9Ch App 244 843 Barnett v Chelsea & Kensington Hospital Management Committee [1969] 1 QB 428 352 Barrett v Enfield LBC [1999] 3 WLR 79 131, 141, 748, 757 Barrett v Ministry of Defence [1995] 1 WLR 1217 641, 645 Barver v NSW Bank [1996] 1 WLR 641 237 Beamish v Beamish (1861) 9 HL Cas 274 15 Bell v Lever Brothers [1932] AC 161 20, 379, 484, 486, 490, 495–98, 832 Benjamin vStorr (1874) LR 9CP 400 219 Bentsen v Taylor Sons & Co (No 2) [1893] 2 QB 274 575 Beresford v Royal Insurance Co Ltd [1938] AC 586 633 Berkoff v Burchill [1996] 4 All ER 1008 690 Berry v Berry [1987] Fam 1 455 Best v Samuel Fox & Co Ltd [1952] AC 716 69, 195, 299, 615 Beswick v Beswick [1968] AC 58; [1966] Ch 538 41, 78, 126, 157, 163, 164, 221, 222, 249, 251, 436, 459, 460, 462, 465, 466, 512, 610, 694, 710, 774, 789, 799, 853 xix

Sourcebook on Obligations and Remedies Billings (AC) Sons Ltd v Riden [1958] AC 240 Birmingham and District Land Co v London and North Western Ry Co (1888) 40 ChD 268 Birse Construction v Haistie Ltd [1996] 1 WLR 675 Black v Yates [1992] QB 526 Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990] 1 WLR 1195

Blue Circle Industries plc v MOD [1999] 2 WLR 295 Bolton (HL) (Engineering) Co Ltd v TJ Graham & Sons Ltd [1956] Ch 577 Bolton v Mahadeva [1972] 1 WLR 1009

345 458 68, 617, 792 117 58, 65, 90, 133, 163, 166, 194, 380, 436, 440, 442, 446, 610, 737, 774 155, 685 34 65, 227, 228, 237, 511, 514, 518, 519, 602, 790, 795, 835, 838 14, 52 309

Bolton v Stone [1951] AC 850 Bone v Scale [1975] 1 All ER 787 Borag, The See Compania Financiera ‘Soleada’ SA Boscawen v Bajwa [1995] 4 All ER 769 244, 269, 799 Bourgoin SA v Ministry of Agriculture, Fisheries and Food [1986] QB 716 95 Bourhill v Young [1943] AC 92 521, 522 Bowmaker Ltd v Wycombe Motors Ltd [1946] KB 505 374 Bowmakers Ltd v Barnett Instruments Ltd [1945] KB 45 605, 606, 608, 789 Boys v Chaplin [1971] AC 356 17 BP Exploration (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783; [1981] 1 WLR 232, CA; [1983] 2 AC 352, HL 838 Bradford Building Society v Borders [1941] 2 All ER 205 469, 488, 504, 694 Bradford CC v Arora [1991] 2 QB 507 311 Bradford Corporation v Pickles [1895] AC 587 67, 222, 223, 640, 699, 774 Brandeis Goldscmidt & Co v Western Transport [1981] QB 864 329 Brasserie du Pêcheur v Germany [1996] QB 404 383 Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 16, 18–20 Bridge v Campbell Discount Co Ltd [1962] AC 600 187, 581 Bridlington Relay Ltd v Yorkshire Electricity Board [1965] Ch 436 144, 145 Britannic Merthyr Coal Co v David [1910] AC 74 759 xx

Table of Cases British Airways Board v Laker Airways Ltd [1985] AC 58; [1984] QB 142 British Columbia Saw-Mill Co v Nettleship (1868) LR 3 CP 499 British Movietonews Ltd v London and District Cinemas Ltd [1951] 1 KB 190 British Railways Board v Herrington [1972] AC 877 British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 British Transport Commission v Gourley [1956] AC 185 British Waggon Co v Lea and Co (1880) 5 QBD 149 British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 Brook’s Wharf & Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 Broome v Cassell & Co Ltd See Cassell & Co Ltd v Broome . Brown v Boorman (1844) 11 Cl & Fin 1; 8 ER 1003 Brunsden v Humphrey (1884) 14 QBD 141 Bryant v Herbert (1877) 3 CPD 389 Buckland v Palmer [1984] 1 WLR 1109 Building and Civil Engineering Holidays Scheme Management Ltd v Post Office [1966] 1 QB 247 Bumper Development Corporation v Commissioner of Police for the Metropolis [1991] 1 WLR 1362 Bunge Corporation v Tradax SA [1981] 1 WLR 711 Burns, The [1907] P 137 Burris v Azadani [1995] 1 WLR 1372 Burton v Winters [1993] 1 WLR 1077 Business Computers International Ltd v Registrar of Companies [1988] Ch 229 Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) [1979] 1 WLR 401 C (A Minor) v DPP [1996] AC 1 CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013 CTN Cash & Carry v Gallaher Ltd [1994] 4 All ER 714

xxi

219 80 597 651 444, 446, 794 313 540

460 528, 790

547 622 56, 67, 113, 114, 187, 613, 780 622 80 36 577 369, 371 133, 278 223 96 190, 430, 432 6

437 8, 49, 452, 504, 507, 833

Sourcebook on Obligations and Remedies Cambridge Water Co v Eastern Leather plc [1994] 2 AC 264

24, 68, 183, 219, 383, 641, 662, 665, 674 Camelot plc v Centaur Communications Ltd [1999] QB 124 135, 293, 691 Campbell (A Bankrupt), In re [1997] Ch 14 39 Canadian Pacific Ry Co vLockhart [1942] AC591 537 Canham v Barry (1855) 24 LJCP 100 405 Caparo Industries plc v Dickman [1990] 2 AC 605 26, 94, 133, 136, 191, 192, 353, 354, 636, 694, 709, 711, 720, 731, 732, 734, 743, 751, 753 Carl Zeiss Stiftung v Herbert Smith Co (No 2) [1969] 2 Ch 276 845, 846 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 132, 385, 386, 428–30, 433, 511, 517, 518 Cassell & Co v Broome [1972] AC 1027 16, 17, 60, 61, 69, 293, 310, 311, 687, 689 Cassidy v Ministry of Health [1951] 2 KB 343 345, 394, 732 Cattle v Stockton Waterworks Co (1875) LR 10 QB 453 195, 653 Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 HL 81 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 424, 454, 455, 457, 588 Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983) The Times, 8 March, CA 421 Chaplin v Hicks [1911] 2 KB 786 334, 335, 337, 338 Chapman v Honig [1963] 2 QB 502 775 Chase Manhatten Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 243, 809, 812 Chase v Westmore (1816) 5 M & S 180; 105 ER 1016 374 Chasemore v Richards (1859) 7 HLC 349; 11 ER 140 223 Cheshire v Bailey [1905] 1 KB 237 81 Chief Constable of Leicestershire v M [1989] 1 WLR 20 841, 842 Chief Constable of North Wales v Evans [1982] 1 WLR 1155 87 Chikuma, The See A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari; Chikuma, The China-Pacific SA v Food Corp of India; Winson, The [1983] AC 939 792 Christie v Griggs (1809) 2 Camp 79 546 Christie v Leachinsky [1947] AC 573 193, 202 Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441 345, 387 xxii

Table of Cases Cia Sud Americana de Vapores v Shipmair BV; Teno, The [1977] 2 Lloyd’s Rep 289 Clark vUrquhart [1930] AC 28 Clarke v Cato [1998] 1 WLR 1647 Clarke v Dickson (1858) EB & E 148; 120 ER 463 Clarke v Dunraven (Earl); Satanita, The [1897] AC 59 Clarke v Shee and Johnson (1774) 1 Cowp 197 Clay v AJ Crump and Sons Ltd [1964] 1 QB 533 Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 Co-operative Insurance Society Ltd v Argyll Stores Ltd [1998] AC 1 Coggs v Bernard (1703) 2 Ld Raym 909; 92 ER 107 Cointax v Myhan Son [1913] 2 KB 220 Coldman v Hill [1919] 1 KB 443 Coltman v Bibby Tankers; Derbyshire, The [1988] AC 276 Columbia Picture Industries Inc vRobinson [1987] Ch 38 Commissioner for Railways v Quinlan [1964] AC 1054 Commissioner of Public Works v Hills [1906] AC 368 Compania Financiera ‘Soleada’ SA Netherlands Antilles Ships Management Corp and Dammers and van der Heide’s Shipping and Trading Co v Hamoor Tanker Corp Inc; Borag, The [1981] 1 WLR 274 Compania Naviera Vascongada v SS Cristina [1938] AC 485 Connecticut Fire Insurance Co v Kavanagh [1892] AC 473 Constantine (Joseph) SS Line v Imperial Smelting Corp [1942] AC 154 Cooden Engineering Co Ltd v Stanford [1953] 1 QB 86 Cook vS [1966] 1 WLR 635 Cooper v Phibbs (1867) LR 2 HL 149 Cope v Sharpe (No 2) [1912] 1 KB 496 Corocraft Ltd v Pan-American Airways [1969] 1 QB 616 Cory v Thames Ironworks and Shipbuilding Co (1872) LR 7CP 499 Cosslett (Contractors) Ltd, Re [1998] 2 WLR 131 Couldery v Bartram (1881) 19 Ch D 394 Courtney and Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297 xxiii

228 318 208 469 406 785 713, 722 634 65, 253 81 327 80, 580 25 275 646 837

350 371 120 65, 523, 524, 529, 531 582 580 157 99 25 80 377 453 441

Sourcebook on Obligations and Remedies Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700 Cox v Phillips Industries Ltd [1976] 1 WLR 638 Cozens v Brutus [1973] AC 854 Crabb v Arun DC [1976] Ch 179 Crawford v AEA Prowting Ltd [1973] QB 1 Credit Lyonnais Bank Netherland v Burch [1997] 1 All ER 144 Cresswell v Sirl [1948] 1 KB 241 Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949 Currie v Misa (1875) LR 10 Ex 153 Cutler v Wandsworth Stadium Ltd (Cutler’s Case) [1949] AC 398 Cutter v Powell (1795) 6 Term Rep 320; 101 ER 573 Czarnikow (C) Ltd v Koufos See Koufos v Czarnikow (C); Heron II, The D & C Builders Ltd v Rees [1966] 2 QB 617 D v National Society for the Prevention of Cruelty to Children [1978] AC 171 Daily Mirror Newspapers v Gardner [1968] 2 QB 762 Dakin (H) & Co Ltd v Lee [1916] 1 KB 566 Damon Compania Naviera SA v Hapag-Lloyd International SA; Blankenstein, The [1985] 1 WLR 435, CA Dann v Hamilton [1939] 1 KB 509 Darbishire v Warren [1963] 1 WLR 1067 Darlington DC v Wiltshire Northern Ltd [1995] 1 WLR 68 Davies v Taylor [19754] AC 207 Davis Contractors Ltd v Fareham UDC [1956] AC 696 Davy v SpelthorneBC [1984] AC 262 Day v McLea (1889) 22 QBD 610 De L’Isle (Viscount) v Times Newspapers [1988] 1 WLR 49 Deichland, The [1990] 1 QB 361 Department of Social Security v Butler [1995] 1 WLR 1258 Derby & Co v Weldon (No 5) [1989] 1 WLR 1244 Derbyshire CC v Times Newspapers Ltd [1993] AC 534 xxiv

846 580 206 457, 248 18 509, 510, 833 99 268 452 728, 760 226, 794

452, 453, 455, 507, 832 197 696, 697 227

238, 239 638 360 157, 459 338 89, 485, 496, 529, 593, 599, 600, 610, 794 218 454 7 372 367, 369 3, 7 87, 97, 104, 691

Table of Cases Derbyshire, The See Coltman v Bibby Tankers Derry v Peek (1889) 14 App Cas 337; (1887) 37 Ch D 541 469, 694 Devon Lumber Co Ltd v MacNeill (1987) 45 DLR (4th) 300 150 Deyong vShenburn [1946] KB 227 646 Diamond v Campbell-Jones [1960] 1 All ER 583 340 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 467–69, 487 Dick, Re Knight v Dick [1953] Ch 343 200 Dictator, The [1892] P 304 370, 371 Dies v British & International Mining & Finance Corporation [1939] 1 KB 724 117 Dimskal Shipping Co SA v International Transport Worker’s Federation; Evia Luck, The [1992] 2 AC 152 508, 699, 852 Diplock, Re Diplock v Wintle [1948] Ch 465 241, 243 Director of Public Prosecutions v Smith [1961] AC 290 17 Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 315 Dominion Mosaics & Tile Ltd v Trafalgar Trucking Co Ltd [1990] 2 All ER 246 308 Donoghue v Stevenson [1932] AC 562 20, 49, 65, 68, 123, 124, 131, 141, 162, 165, 180–83, 379, 382, 383, 470, 473, 520, 640, 641, 646, 649, 674, 676, 685, 710, 712, 718, 721, 722, 738, 831 Dorset Yacht Co v Home Office See Home Office v Dorset Yacht Co Downs v Chappell [1997] 1 WLR 426 315, 316, 320, 469, 792 Downside Nominees Ltd v First City Cororation Ltd [1993] AC295 97 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 313–20, 356 Drane v Evangelou [1978] 2 All ER 437 121 Drive Yourself Hire Co (London) Ltd v Strutt [1954] 1 QB 250 78 Dunbar v A and B Painters Ltd [1986] 2 Lloyd’s Rep 38 335, 337 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 586, 587 Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 460, 461 xxv

Sourcebook on Obligations and Remedies Dunlop v Lambert (1839) 6 Cl & F 600 Dunne v North Western Gas Board [1964] 2 QB 806 Dutton v Bognor Regis UDC [1972] 1 QB 373 Dymond v Pearce and Others [1972] 1 QB 496 Eaglesfield v Marquis of Londonderry (1876) 4 Ch D 693 East Ham Corporation v Bernard Sunley and Sons Ltd [1966] 1 AC 406 East Suffolk Rivers Catchment Board v Kent [1941] AC 74 East vMaurer [1991] 1 WLR 461 Electrochrome Ltd v Welsh Plastics Ltd [1968] 2 All ER 205 Elguzouli-Daf v Commissioner of Police of the Metropolis [1995] 1 All ER 833 Eller v Grovecrest Investments Ltd [1994] 4 All ER 845 Elliott Steam Tug Co Ltd v The Shipping Controller [1922] 1 KB 127 ElphickvBarnes (1880) 5 CPD 321 Emeh v Kensington and Chelsea and Westminster Area Health Authority [1985] QB 1012 Emerald Construction Co v Lowthian [1966] 1 WLR 691 Emperor of Austria v Day (1861) 3 DeGF&J 217 Empire Jamaica, The [1955] P 259; [1957] AC 386 English v Dedham Vale Properties [1978] 1 All ER 382 Entores v Miles Far East Corporation [1955] 2 QB 327 Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350; [1998] 1 All ER 481 Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218; [1953] 3 WLR 773, CA; [1954] 2 QB 182, QBD

Evans v Glasgow DC 1978 SLT 17, Outer House

463 743 315, 319 196 93, 98, 131, 139, 715, 758 228 195 533 622 696 212, 213 354, 635 83, 268, 482, 483, 774, 789, 839 434, 436, 440

637, 771

8, 67, 99, 100, 117, 119, 120, 137, 216, 218-20, 345, 413, 501, 613, 641, 659, 662, 677, 761, 852 653

F (Mental Patient: Sterilisation), Re [1990] 2 AC 1 FA & AB Ltd v Lupton [1972] AC 634 Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 Ferret v Hill (1854) 15 CB 207 xxvi

460, 461, 464 103, 189 197 761 157

281, 282 18, 183, 188, 423 795 607

Table of Cases Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 Financings Ltd v Stimson [1962] 1 WLR1184 Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 Fisher v Bell [1961] 1 QB 394 Fitzpatrick v Sterling Housing Association Ltd [1998] Ch 204 Fletcher v Rylands See Rylands v Fletcher Foakes v Beer (1884) 9 App Cas 605 Foaminol Laboratories Ltd v British Artid Plastics Ltd [1941] 2 All ER 393 Forsikringsaktieselskapt Vesta v Butcher [1989] AC 852; [1986] 2 All ER 488 Forster v Silvermere Golf and Equestrian Centre (1981)125 SJ 397 Forth v Simpson (1849) 13 QB 680 Foster v Warblington UDC [1906] 1 KB 648 Fothergill v Monarch Airlines Ltd [1981] AC251 Francis vCockrill (1870) LR5QB501 Francovich v Republic of Italy (Joined Cases C-6/90 and C-9/90) [1995] ICR722 Freeman v Home Office (No 2) [1984] QB 524 Friends’ Provident Life Office v Hillier Parker May and Rowden [1997] QB 85 Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 608

77, 239, 778, 802 163, 433, 487, 492 425, 444, 448 24, 25, 60, 63, 163, 186, 426

GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555 Gainsford v Carroll (1824) 107 ER 516 Geddis v Proprietors of Bann Reservoir (1878) 3 App Cas 430 Geismar v Sun Alliance and London Insurance Ltd [1978]QB 383 General Engineering Services v Kingston & Andrews Corp [1989] 1 WLR 69 Genossenschaftsbank v Burnhope [1995] 1 WLR 1580 George Mitchell (Chesterfield) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803; [1983] QB284 Gibbon v Mitchell [1990] 1 WLR 1304

xxvii

37, 264

453 327 398 462 374 147, 148 198 547 95 141, 633 239, 620, 780, 792 2, 47, 383, 392, 429, 523

325, 327 357 729 62, 602 660 202, 204, 417 569 265, 267

Sourcebook on Obligations and Remedies Gibson v Manchester CC [1979] 1 WLR 294; [1978] 1 WLR 520, CA Gillingham BC v Medway (Chatham) Dock Co Ltd [1993] QB 343 Gissing v Gissing [1971] AC 886 Gly Mills Currie and Co v East and West India Dock Co (1882) 7 App Cas 591 Gold v Essex CC [1942] 2 KB 293 Goldcorp Exchange Ltd, Re [1995] 1 AC 74 Goldman (Allan William) v Hargrave (Rupert William Edeson) [1967] 1 AC 645 Goodwill v British Pregnancy Advisory Service [1996] 1 WLR 1397 Goodwin v UK (1996) 22 EHRR 123 Gorman v Nudd (1992) (unreported), 15 October, CA (Civil Division) Gorris v Scott (1874) LR 9 Ex 125 Gott vGandy (1853)23LJQB 1 Gouriet v Union of Post Office Workers [1978] AC 435 Grant v Australian Knitting Mills Ltd [1936] AC 85 Greaves & Co Contractors Ltd v Baynham Meikle & Partners [1975] 1 WLR 1095 Green (RW) Ltd v Cade Bros Farm [1978] 1 LI Rep 602 Green v West Cheshire Ry Co (1871) LR 13 Eq 44 Grey v Pearson (1857) 6 HL Cas 61 Grismar v Sun Alliance and London Insurance Ltd [1978] QB 383 Grist vBailey [1967] Ch 532 Groom v Crocker [1939] 1 KB 194 Grosvenor, Re; Peacey v Grosvenor [1944] Ch 138 Groves v Lord Wimbourne [1898] 2 QB 402 Guaranty Trust Co of New York v Hannay and Co [1915] 2 KB 536 H and Others (Minors), Re [1996] 1 All ER 1 Hadley v Baxendale (1854) 156 ER 145; (1854)9Exch 341

Halifax Building Society v Thomas [1996] Ch 217 xxviii

402, 406, 424 679, 680 605 416 732 50, 246, 798, 815 649, 652, 668, 742, 744 191, 694, 722 292 688 354 407 87, 126, 210, 283, 294 180, 182, 345, 547, 685, 718 391, 515, 549, 550 569 256 596 835 496, 497 580 200 759, 760 281, 283 158 237, 296, 326, 339–12, 344, 349, 350, 352, 580, 822 839

Table of Cases Hall vBeckenham Corporation [1949] 1 KB 716 Hall vMeyrick [1957] 2 QB 455 Hall (Inspector of Taxes) vLorimer [1992] 1 WLR 939 Hallett’s Estate, In re; Knatchbull v Hallett (1880) 13 Ch D 696 Hamlin v Great Northern Ry Co (1856) 1 H & N 408 Hancock v Brazier (BW) (Anerley) [1966] 1 WLR 1317 Hannah Blumenthal, The [1983] 1 AC 854 Harbour Assurance Ltd v Kansa General Insurance Co [1993] QB 701 Harbutts ‘Plasticine’ Ltd v Wayne Tank and Pump Co [1970] 1 QB 447 Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 Hargrave v Goldman (1963) 110CLR40 Harmer vBell (1851) 7 Moo PC 267 Harnett v Bond [1925] AC 669 Harris v Watson (1791) Peake 72 Haseldine v CA Daw and Son Ltd [1941] 2 KB 343 Haynes v Harwood [1935] 1 KB 146 Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1 Heap v Ind Coope and Allsopp Ltd [1940] 2 KB 476 Heaven vPender (1883) 11 QBD 503 Hedley Byrne & Co v Heller & Partners [1964] AC 465

Heil vHedges [1951] 1 TLR 512 KB Heilbut Symons & Co v Buckleton [1913] AC 30 Helby v Matthews [1895] AC 471 Henderson v Jenkins (Henry E) & Sons and Evans [1970] AC 282 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 Hern vNichols (1701) 1 Salk 289 Heron II, The See Koufos v Czarnikow (C); Heron II, The xxix

44 337 188, 192 21 298 392 16, 423 162, 185, 204 308 345 738 370 137, 352 451 722 637, 560, 651, 653 70, 75, 812, 819 676 66, 641 124, 195, 383, 436, 466, 470, 473, 488, 694, 704, 708-10, 721, 724, 725, 743, 831 531 467 581, 582 547, 765, 766 353, 612, 703, 714, 719, 724, 731, 735, 736 325 82

Sourcebook on Obligations and Remedies Herrington v British Railways Board See British Railways Board v Herrington Heywood v Wellers (A Firm) [1976] QB 446 Hickman vPeacey [1945] AC 304 Hicks v Chief Constable of the South Yorkshire Police [1992] 2 All ER 65 Hill v Chief Constable of West Yorkshire [1989] AC 53 Hill v Parsons (CA) & Co Ltd [1972] 1 Ch 305 Hillesden Securities v Ryjack [1983] 1 WLR 959 Hobbs v London & South Western Ry Co (1875) LR QB 111 Hoecheong Products Ltd v Cargill Ltd [1995] 1 WLR 404 Hoenigv Isaacs [1952] 2 All ER 176 Hollywood Silver Fox Farm v Emmett [1936] 2 KB 468 Holmes v Hall (1704) 6 Mod Rep 161 Holmes v Mather (1875) LR 10 Exch 261 Home Office v Dorset Yacht Co [1970] AC 1004

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Hopkins v Tanqueray (1854) 139 ER 369 Horrocks v Lowe [1975] AC 135 Hotson v East Berkshire Health Authority [1987] AC 750 Howe v David Brown Tractors (Retail) Ltd [1991] 4 All ER 30 Howe v Smith (1884) 27 Ch D 89 Howes v Bishop [1909] 2 KB 390 Hua Lien, The [1991] 1 Lloyd’s Rep 309 Hudson’s Concrete Products Ltd v Evans (DB) (Bilston) Ltd (1961)105 SJ 281 Hughes v Lord Advocate [1963] AC 837 Hughes v Metropolitan Ry Co (1877) 2 App Cas 439 Hunter v Canary Wharf Ltd [1997] AC 655

xxx

579 4 152 90, 95, 98, 138-40, 715, 718, 731, 732, 734, 749, 757 201 332 298 119 226, 227, 518 774 778 216 58, 69, 104, 138, 141, 177, 182, 270, 343, 520, 645, 647, 649, 650, 654, 711, 727, 729, 738, 739, 741, 752, 754 573, 577 403, 405, 406, 466, 468, 469 685 339 623, 625 836 259 721 8 346, 627, 629 453 143, 309, 614, 655, 657, 681

Table of Cases Hussain v Lancaster CC [1999] 2 WLR 1142 Hyman v Nye (1881) 6 QB 685

655, 658, 757 131, 392, 393, 523, 530, 545, 547

IBL Ltd v Coussens [1991] 2 All ER133 ICI v Shatwell [1965] AC 656 ICS v West Bromwich BS [1998] 1 WLR 896 Ingham v Ernes [1955] 2 QB 366 Ingram v Little [1961] 1 QB 31 Inland Revenue Commissioners v Hambrook [1956] 2 QB 641 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 Isenberg v East India House Estate Co Ltd (1863) 3 De GJ & S 263 Island Records, ex p [1978] Ch 122

315, 329 638 418 532, 533, 577, 610 789

Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468

Jackson v Union Marine Insurance Co Ltd (1873) LR 8 CP 572 Jacobs v Seward (1872) LR 5 App Cas 464 Jaggard v Sawyer [1995] 2 All ER 189 James v South Western Ry Co (1872) LR 7 Ex 287 Jarvis v Swans Tours Ltd [1973] 1 QB 233 Jasperson v Dominion Tobacco Co [1923] AC 709 Jervis v Harris [1996] Ch 195 Jobson v Johnson [1989] 1 WLR 1026 John vMGM Ltd [1997] QB 586 Johnson v Agnew [1980] AC 367 Johnson v The King [1904] AC 817 Jolley vSuttonLBC [1998] 1 WLR 1546 Jones (RE) Ltd v Waring & Gillow Ltd [1926] AC 670 Jones v Ffestiniog Ry Co (1868) LR 3 QB 733 Jones v National Coal Board [1957] 2 QB 55 Jones v Page (1867) 15 LT 619 Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 Jorden v Money (1854) 5 HL Cas 185 xxxi

195 409, 413, 432, 515, 774 310, 329, 839 255 38, 40, 125, 209 37, 38, 193, 209, 215, 220, 305, 459, 465, 710 575 116 361 369 297, 305, 539, 580, 616 696 230 584 4, 311, 685 315, 460 811 173, 350, 360, 626 778, 780 100 5 530 430, 572 455, 456

Sourcebook on Obligations and Remedies Junior Books Ltd v Veitchi Co Ltd [1983] AC 520 Jupiter,The [1924] P 236

653 371

KD, Re (A Minor) [1988] AC 806 Kelly vSolari(1841)9M&W 54 Kennedy v Panama, New Zealand and Australian Royal Mail Co Ltd (1867) LR 2 QB 580 Keppel Bus Co Ltd v Sa’ad bin Ahmad [1974] 2 All ER 700

125 778

Khorasandjian v Bush [1993] QB 727

King v Liverpool City Council [1986] 1 WLR 890 King v Phillips [1953] 1 QB 429 King, Ex p [1954] 3 All ER 897 Kingdom of Spain v Christie, Manson & Woods Ltd [1986] 1 WLR 1120 Kirkham v Boughey [1958] 2 QB 338 Kirklees Metropolitan BC v Wickes Building Supplies Ltd [1993] AC 227 Kitchen v Royal Air Force Association [1958] 1 WLR 563 Kleinwort Benson v Birmingham CC [1997] QB 380 Kleinwort Benson v Glasgow CC [1996] QB 678; [1999] 1 AC 153 Kleinwort Benson v Lincoln CC [1998] 3 WLR 1095 Kleinwort Benson v Sandwell BC See Westdeutsche Landesbank v Islington LBC Kleinwort Benson v South Tyneside Metropolitan BC [1994] 4 All ER 972 Knightley v Johns [1982] 1 WLR 349 Knights v Wiffen (1870) LR 5 QB 660 Knuller Ltd v DDP [1973] AC 435 Kopitoff v Wilson (1876) 1 QBD 377 Koufos v Czarnikow (C); Heron II, The [1969] 1 AC 350 Koursk, The [1924] P 140 Krell v Henry [1903] 2 KB 740 xxxii

496 35, 537, 541, 543, 554, 647, 659, 660 38, 141, 147, 148, 150–52, 154, 155, 279, 613, 616, 640, 774 653 195 200 51, 117, 118, 187, 201, 209, 215, 613 195, 634 95 334, 337 70, 106, 777, 780, 799, 823 64, 71, 107, 799, 823, 834, 850 13, 21, 107, 158, 823, 832, 850 824

811 90 247 15, 16, 123 14 340, 343, 344, 346, 350 622 591, 592

Table of Cases Lamb v Camden LBC [1981] QB 625 Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 Lazenby Garages Ltd v Wright [1976] 1 WLR 459 Leaf v International Galleries (A Firm) [1950] 2 KB 86 Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd; Aliakmon, The [1985] QB 350; [1986] AC 785 Leslie (R) Ltd v Sheill [1914] 3 KB 607 Letang vCooper [1965] 1 QB 232 Lewis vAveray [1972] 1 QB 198 Liddesdale, The [1900] AC 190 Liesbosch Dredger Edison, The [1933] AC 449 Lillicrap vNalder and Son [1993] 1 WLR 94 Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174 Linden Gardens Trust v Lenesta Sludge Disposals Ltd [1994] AC 85 Lion Natham Ltd v CC Bottlers Ltd (1996) The Times, 16 May Lipkin Gorman v Karpnale [1991] 2 AC 548

Lippiatt v South Gloucestershire Council [1999] 3 WLR 137 Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 Liverpool CC v Irwin [1977] AC 239 Livingstone v Rawyards Coal Co (1880) 5 App Cas 25 Lloyd v Grace, Smith & Co [1912] AC 716 Lloyd’s v Harper (1880) 16ChD290 Lloyds Bank Ltd vBundy [1975] QB 326 Lock International v Beswick [1989] 1 WLR 1268 Lockett v A & M Charles Ltd [1938] 4 All ER 170 London Steam Tranways Co Ltd v London CC [1898]AC 375 London, Chatham and Dover Ry v South Eastern Ry [1892] 1 Ch 120, CA; [1893] AC 429

xxxiii

653 437 113, 578 477, 479 654, 706 818 68, 80, 116, 609, 623 501, 503, 798 307 349 336 17 156, 157, 460, 463, 464, 707, 708, 710 357 40, 70, 78, 79, 124, 245, 780, 782, 789, 790, 797, 798, 811, 823, 827, 850, 851

658, 757 77, 270, 534, 577, 614, 615, 793 515 294, 318 81 221, 460 500 296, 4210 161, 392, 465 15 237, 267, 822

Sourcebook on Obligations and Remedies Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173 Lonrho plc v Fayed (No 5) [1993] 1 WLR 1489 Lonrho plc vTebbit [1991] All ER 973 Lord Napier and Ettrick v Hunter [1993] AC 713 Lumley v Gye (1853) 2E & B 216; 118 ER 749 Lumley v Wagner (1852) 1 De GM & G 604; 42 ER 687 Lupton v FA & AB Ltd See FA & AB Ltd v Lupton McCance v L & NW Ry (1861) 31 LJ Exch 65 McCarey v Associated Newspapers Ltd (No 2) [1965] 2 QB 86 McCormick vGrogan (1869) LR 4 HL 82 McDermid v Nash Dredging and Reclamation Co Ltd [1987] AC 906 McGhee v National Coal Board [1973] 1 WLR 1 M’Intosh v Great Western Ry See Mackintosh v Great Western Ry Co Mackintosh v Great Western Ry Co (1865) 4 Giff 683 McLoughlin vO’Brian [1983] AC 410 Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 978,ChD; [1996] 1 WLR 387, CA McNaughton (James) Papers Group Ltd v Hicks Anderson Co [1991] 2 QB 113 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Mc Williams v Sir William Arrol and Co Ltd [1962] 1 WLR 295 Maciej Rataj, The (The Tatry) (Case C-406/92) [1995] 1 Lloyd’s Rep 302 Mafov Adams [1970] 1 QB 548 Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 Mahmud v BCCI [1998] AC 20 Mahoney vPurnell [1996] 3 All ER 61 Malone v Laskey [1907] 2 KB 141 Manchester Airport plc v Dutton [1999] 3 WLR 524 Mannai Investment Co v Eagle Star Life Assurance [1997] AC 749 Mansfield v Weetabix Ltd [1998] 1 WLR 1263 Mapp v News Group Newspapers [1998] QB 520 xxxiv

760 324 754 815 695, 696 695

405 687 818 732 158, 161, 338

267 743 796 726 497 333 372 61 496 311, 322 483 147–49, 152 46 418 763 97

Table of Cases Marc Rich and Co v Bishop Rock Marine Co Ltd [1996] 1 AC 211 Mareva Compania Naviera SA v International Bulk Carriers [1980] 1 AllER 213 Margarine Union Gmbh v Cambay Prince Steamship Co (The Wear Breeze) [1969] 1 QB 219 Martin Peters Bau-unternehmung GmbH v Zuid Nederlandse Aannemers Vereniging (Case 34/82) [1983] ECR 987 Martin v Watson [1996] AC 74 May and Butcher Ltd v R [1934] 2 KB 17 Mediana (Owners of Steamship) v Comet (Owners of Lightship), Mediana, The [1900] AC 113 Mercedes Benz AG v Leiduck [1996] 1 AC 284 Merchant Prince, The [1892] P 179 Mercury Communications Ltd v Director General of Telecommmunications [1996] 1 WLR 48 Merlin v British Nuclear Fuels [1990] 2 QB 557 Mersey Docks and Harbour Board Trustees v Gibbs (1866) LR 1 HL 93 Meux v Great Eastern Ry [1895] 2 QB 387 MGFM Asia Ltd v Securities Commission [1995] 2 AC 500 Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp (A Firm) [1979] Ch 384 Midland Silicones v Scruttons, See Scruttons v Midland Silicones Miliangos v George Frank (Textiles) Ltd [1976] AC 443 Miller v Jackson [1977] QB 966 Miller v Stapleton [1996] 2 All ER 449 Ministry of Defence v Ashman [1993] 2 EGLR 102 Ministry of Health v Simpson [1975] AC 251 Ministry of Housing v Sharp [1970] 2 QB 223 Mint v Good [1951] 1 KB 517 Mitchell v Baling LBC [1979] QB 1 Mogul SS Co vMcGregor,Gow&Co [1892] AC 25 Montagu’s Settlements, Re; Duke of Manchester v National Westminster Bank [1987] Ch 264 Moorcock, The (1889) 14 PD 64 xxxv

136, 366, 694, 711, 722 273, 274 195

71, 75 699 444 190, 330 117, 219, 273 100 85 685 739 80 36 703

10, 12, 383 35, 51, 56, 133–35, 278, 280, 365, 580, 614, 659, 674 415 329 788 97 10, 62, 613, 675, 677 352 699 243 375, 494, 512

Sourcebook on Obligations and Remedies Moorgate Mercantile Co Ltd v Twitchings [1976] QB 225; cf [1977] AC 890 Morgan Guaranty Trust of New York v Lothian Regional Council 1995 SC 151 Morgan v Fry (1966) The Times, 27 October Morgan v Oldhams Press [1971] 2 All ER 1156 Morgans v Launchbury [1973] AC 127; [1971] 2 QB 245 Morris v Ford Motor Co, Cameron Industrial Services (Third Party), Roberts (Fourth Party) [1973] 1 QB 792 Morris v Martin (CW) & Sons Ltd [1966] 1 QB 716 Morris v Murray [1991] 2 QB 6 Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265 Morton v Wheeler (1956) The Times, 1 February, CA Moschi vLep Air Services Ltd [1973] AC 331 Moses v Macferlan (1760) 2 Burr 1005; 97 ER 676 Moule vGarrett (1872) LR 7Exch 101 Muirhead v Industrial Tank Specialists Ltd [1986] QB 507 Murphy v Brentwood DC [1991] 1 AC 398 Murray vFoyle Meats Ltd [1999] 3 WLR 356 (NI) Myers (GH) & Co v Brent Cross Service Co [1934] 1 KB 46 NWL Ltdv Woods [1979] 1 WLR 1294 National Bank of Greece SA v Pinios Shipping Co (No 1) [1990] 1 AC 637 National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 National Telephone Co v Baker [1893] 2 Ch 186 National Westminster Bank v Morgan [1985] AC 686 Naylor v Preston Area Health Authority [1987] 1 WLR 958 Nettleship v Weston [1971] 2 QB 691 New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd; Eurymedon, The [1975] AC 154, PC New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1 News of the World Ltd v Friend [1973] 1 All ER 422 Nichol v Attorney General for the State of Victoria [1982] VR 353 Nocton v Lord Ashburton [1914] AC 932

xxxvi

457 23 696, 697 692 766 270, 536, 615, 793 80, 82, 83, 458, 541, 542, 660 353 195 762 62, 381 70, 779, 811 790 722 24, 25, 106, 709, 721 207 532 17 803 187 183 84, 505 623 638, 764, 765 199, 465 696 201 94 469, 472, 721

Table of Cases Nor-Video Services Ltd v Ontario Hydro (1978) 84 DLR (3d) 221 Nordglimt, The [1988] QB 183 North London Ry Co v Great Northern Ry Co (1883) 11 QBD 30 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 Northcote v Owners of the Henrich Björn (1886) 11 App Cas 270 Norton Tool Co Ltd v Tewson [1973] 1 WLR 45 Norweb plc v Dixon [1995] 1 WLR 636 Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 Nurdin and Peacock plc v DBN Ramsden and Co Ltd [1999] 1 WLR 1249 O’Leary v London Borough of Islington (1983) 9 HLR 81 Orakpo v Manson Investments Ltd [1978] AC 95 O’Reilly vMackman [1983] 2 AC 237 Oropesa, The [1943] P 32 Oscar Chess v Williams [1957] 1 WLR 370 Osman v Ferguson [1993] 4 All ER 344 Osman v UK (1998) 5 BHRC 293; (1998) The Times, 5 November Otter v Church, Adams, Tatham and Co [1953] Ch 280 Overseas Tankship (UK) Ltd v Miller Steamship Co Pty (The Wagon Mound (No 2)) [1967] 1 AC 617 Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co (The Wagon Mound (No 1)) [1961] AC 388 Overstone v Shipway [1962] 1 WLR 117 Owen v Tate [1975] 2 All ER 129 Owens v Liverpool Corporation [1939] 1 KB 394 P (Minors) (Custody Order: Penal Notice), Re [1990] 1 WLR 613 Pacific Associates Inc v Baxter [1990] 1 QB 993 Pao On v Lau Yiu Long [1980] AC 614

xxxvii

145, 153 372 274 450 370 327 88, 737 219, 287, 292 832 656 268, 269, 849, 851 85 622 467 749–51 131, 139, 749 337 345, 669 319, 345, 352, 627–29, 633, 636, 669 235 791 519

271 715 450, 451

Sourcebook on Obligations and Remedies Parish v Judd [1960] 1 WLR 867 Parker v British Airways Board [1982] QB 1004 Parker v South Eastern Ry Co (1877) 2 CPD 416 Parry v Cleaver [1970] AC 1 Parsons (H) (Livestock) Ltd v Uttley Ingham & Co [1978] QB 791 Pasley v Freeman (1789) 3 Durn E 51; 100 ER 450 Patel v Patel [1988] 2 FLR 179 Peek v Deny See Deny v Peek Peek v Gurney (1873) LR 6 HL Pepper (Inspector of Taxes) v Hart [1993] AC 593 Perl (P) (Exporters) Ltd v Camden LBC [1984] QB 342 Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) [1953] 1 QB 401 Phelps v Hillingdon LBC [1997] 1 WLR 500 Phillips v Britannia Hygienic Laundry Co Ltd [1923]2 KB 832 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 Piller (Anton) KG v Manufacturing Processes Ltd [1976] 1 All ER 779 Pinnel’s Case (1602) 5 Co Rep 117a; 77 ER 237 Pitt v PHH Asset Management Ltd [1994] 1 WLR 327 Poland v Parr (John) & Sons [1927] 1 KB 236 Poole v Smith’s Car Sales (Balham) Ltd [1962] 1 WLR 744 Poussard v Spiers & Pond (1876) 1 QBD 410 Powell v Fall (1880) 5 QBD 597 Powstaniec Wielkolposki, The [1989] QB 279 Practice Direction (Court of Appeal (Civil Division)) [1999] 1 WLR 1027 Practice Statement (Judicial Precedent) [1996] 1 WLR 1234 Preist v Last [1903] 2 KB 148 Prenn v Simmonds [1971] 1 WLR 1381 President of India v La Pintada Compania NavigacionSA [1985] AC 104 Price vStrange [1978] Ch 337 Printing and Numerical Registering Co v Sampson (1875) LR 19Eq 462 xxxviii

762 43 410 193 202, 342, 350, 361 318 142

469 475 560 426 754 758, 760 270, 353, 408, 432, 541, 552, 554, 570, 660 274–76 453 442, 443, 446 537 533, 853 695 100 107 8 15, 806, 807 48 418 800 251, 253 124, 407

Table of Cases Qualcast (Wolverhampton) Ltd v Haynes [1959] AC 743 Quinn v Leathern [1910] AC 495 R v Barnet Magistrates’ Court ex p Cantor [1999] 1 WLR 334 R v Bow Street Magistrates ex p Pinochet (No 2) [1999] 2 WLR 272 R v Central Independent Television plc [1994] 3 WLR 20 R v Chief Constable of Sussex ex p International Trader’s Ferry Ltd [1998] 3 WLR 1260 R v Commissioner of Police of the Metropolis ex p Blackburn [1968] 2 QB 118 R v Cunningham [1982] AC 566 R v Deputy Governor of Parkhurst Prison ex pHague [1992] 1 AC58 R vDytham [1979] QB 722 R vGhosh [1982] QB 1053 R v Kelly [1999] 2 WLR 384 R v Leeds County Court ex p Morris [1990] 2 WLR 175 R vLewishamLBC ex p Shell UK [1978] 1 All ER 938 R v McDonald (1885) 15QBD 323 R v Secretary of State for Education and Science ex p AvonCC (No 2) [1991] 1 QB 558 R v Self [1992] 1 WLR 657 R v Somerset CC ex pFewings [1995] 1 WLR 1037 R vSpurge [1961] 2QB 205 R v West Sussex Quarter Sessions [1973] 3 All ER 289 R v Young R v Secretary of State for the Environment ex p Nottinghamshire CC [1986] AC 240 RCA Corporation v Pollard [1983] Ch 135 Racz v Home Office [1994] 2 AC 45 Radford v De Froberville [1977] 1 WLR 1262 Raineri vMiles [1981] AC 1050 Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465 Ramsden v Dyson (1886) LR 1 HL 129 Rantzen v Mirror Group Newspapers (1986) Ltd [1994] QB 670 xxxix

13, 157 696

367, 369 536 129, 293 752 91 20 728 90 844 38 10 90, 440 80 59 187, 224 85 764 215 5 747 213 647 302, 303 523 199, 671 457 688, 689

Sourcebook on Obligations and Remedies Read v J Lyons & Co [1947] AC 156

12, 68, 101, 103, 187, 192, 199, 383, 662, 667, 670, 671, 673, 674, 760 65, 543, 546, 547 85

Readhead v Midland Ry (1869) LR 4 QB 379 Reading v R[1949]2 KB 232 Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989 418, 596 Redgrave v Hurd (1881) 20 Ch D 1 264, 265, 360, 476 Reed v Dean [1949] 1 KB 188 530, 577, 590, 602, 853 Reeves v Commissioner of Police of the Metropolis [1999] 3 WLR 363 360, 631, 641, 758, 770 Regalian Properties plc v London Dockland Development Corporation [1995] 1 WLR 212 445, 446 Reid v Rush & Tompkins plc [1990] 1 WLR 212 416, 514, 536, 614 Republic of Haiti v Duvalier [1990] 1 QB 202 789 Republic of India v India Steamship Co (No 2) [1998]AC 878 369 Revill v Newbery [1996] QB 567 224 Reynolds v Times Newspapers Ltd [1998] 3 WLR 862; (1999) Internet Transcript, HL 691, 692, 775–76 Richardson v Mellish (1824) 2 Bing 229 337 Rickards v Lothian [1913] AC 263 188, 668, 672 Rigby v Chief Constable of Northamptonshire [1985] 1 WLR 1242 90, 98, 613, 614, 655, 757 Riverplate Properties Ltd v Paul [1975] Ch 133 266 Roberts (A) & Co Ltd v Leicestershire CC [1961] Ch 555 265, 266 Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] AC 192 8, 122 Roberts v Ramsbottom [1980] 1 WLR 823 763, 764 Robinson v Harman (1848) 1 Exch 850 301 Roe v Minister of Health [1954] 2 QB 66 189, 393, 395, 722, 732 Rogers v Night Riders (A Firm) [1983] RTR 324 539 Rondel v Worsley [1969] 1 AC 191 92, 718 Rookes v Barnard [1964] AC 1129 17, 142, 310, 454, 697, 838 Ross v Caunters (A Firm) [1980] Ch 297 107, 108, 702–04, 708 Ross v Fedden (1872) 26 LT 966 667 Rover International Ltd v Canon Films Ltd [1989] 1 WLR 912 790

xl

Table of Cases Rowe v Herman [1997] 1 WLR 1390 Rowland v Divall [1923] 2 KB 500 Rowland, Re; Smith v Russell [1963] 1 Ch 1 Rowling v Takaro Properties Ltd [1988] AC 473 Roy v Kensington and Chelsea and Westminster Family Practitioner Committee [1992] 1 AC 624 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 Ruben v Great Fingall Consolidated [1906] AC 439 Rutter v Palmer [1922] 2 KB 87 Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344 Rylands v Fletcher (1868) LR 3 HL 330; (1866) LR 1 Exch 265

659, 677 236, 237, 782, 789, 790 33, 166, 167, 188, 204 731, 747, 755 88, 116 797, 823, 842 317, 320, 321 82 471 239, 301, 307–10, 321,360, 581 68, 98, 100, 101, 125, 144, 183, 188, 189, 199, 660, 662, 664–73

S (Hospital Patient: Court’s Jurisdiction), Re [1995] 3 WLR 78 Samuels v Davis [1943] KB 526 Saunders v Anglia Building Society, sub nom Gallic v Lee [1971] AC 1004 Sayers vHarlowUDC [1958] 1 WLR 623 Scally v Southern Health and Social Services Board [1992] 1 AC 294 Schering Agrochemicals Ltd v Resibel NV SA (1992) unreported, 26 November, CA (Civil Division) Transcript No 1298 of 1992; noted in (1993) 109 LQR 175 Schuler (L) AG v Wickman Machine Tools Sales Ltd [1974] AC 235 Scott v Brown, Doering, McNab and Co [1892] 2 QB 724 Scott v Shepherd (1773)3 Wils 403; 96 ER 525 Scottish Co-operative Wholesale Society Ltd vMeyer [1959] AC 324 Scruttons v Midland Silicones [1962] AC 446 Sedleigh-Denfield v O’Callaghan [1940] AC 880 Sheikh Bros Ltd v Ochsner [1957] AC 136

xli

281 392 499 398 326, 414, 415

398 419, 420, 577 608 637 580 80, 460, 720 217, 218, 655, 668 496

Sourcebook on Obligations and Remedies Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 Shepherd (FC) & Co v Jerrom [1986] 3 All ER 589 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 Simon v Pawson and leafs Ltd (1932) 38 Com Cas 151 Simpson & Co v Thomson (1877) LR 3 App Cas 279 Sinclair v Brougham [1914] AC 398

Singh v Ali [1960] AC 167 Siskina, The [1979] AC 210 Slomanv Walter (1784) 1 BroCC 418 Smith and Snipes Hall Farm v River Douglas Catchment Board [1949] 2 KB 500 Smith Kline French Laboratories Ltd v Long [1989] 1 WLR 1 Smith New Court Securities Ltd v Scrimgeour Vickers Ltd [1997] AC 254 313, Smith vChadwick (1882) 20 ChD 27 Smith v Eric S Bush [1990] 1 AC 831 Smith vHughes (1871) LR 6QB 597 Smith v Littlewoods Organisation Ltd [1987] AC 241, HL (Scotland) Smith v Scott [1973] Ch 314 Snelling v Whitehead (1975) The Times, 31 July Société Anonyme de Remorquage a Hélice v Bennetts [1911] 1 KB 243 Solholt, The See Sotiros Shipping Inc v Schmeiet Solholt Solle v Butcher [1950] 1 KB 671 Sotiros Shipping Inc v Schmeiet Solholt, The Solholt [1983] 1 LI Rep 605 359 Southcote’s Case (1601) 4 Co Rep 836; 76 ER 1061 Southport Corporation v Esso Petroleum Co Ltd See Esso Petroleum Co Ltd v Southport Corporation Spartan Steel Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 Spring v Guardian Assurance plc [1995] 2 AC 296

362, 365 590 494 346 195 12, 64, 240, 779, 780, 799, 801, 803–07, 812, 817, 821,822 608 274 585 78 319 470 469 200, 736 416, 488, 490 14, 647, 655, 657, 674 656, 659 764 195

478, 485, 487, 496, 498

458

192, 194, 197, 294, 297, 307, 344, 625, 711 97, 122, 123, 327, 335, 337, 693

xlii

Table of Cases St George’s Healthcare Trust vS [1999] Fam 26 St Helen’s Smelting Co v Tipping (1865) 11 HL Cas 642 St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 St Martin’s Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] AC 85 Staffordshire Area Health Authority v South Staffordshire Waterworks [1978] 1 WLR 1387

633 310 603 460, 461, 464 89, 90, 202, 380, 418, 595, 599, 600 636,

Stansbie v Troman [1948] 2 KB 48 650 Stapely v Gypsum Mines Ltd [1953] AC 663 638 State of Norway’s Application (Nos 1 and 2), Re [1987] QB 433, CA; [1990] 1 AC 723, HL 58, 85 Staveley Iron & Chemical Co Ltd v Jones [1956] AC 627 659 Stears v South Essex Gas-Light & Coke Co (1861) 30 LJCP 49 405 Stedman v Swan’s Tours (1951) 95 SJ 727 299 Sterman v EW & WJ Moore Ltd [1970] 1 QB 596 118 Stevenson v Beverley Bentinck Ltd [1976] 1 WLR 483 400, 401, 798 Stewart Gill Ltd v Horatio Myer Co Ltd [1992] QB 600 229 Stewart v Reavell’s Garage [1952] 2 QB 545 532, 539 Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168 450-52 Stockloser v Johnson [1954] 1 QB 476 836, 837 Stocks v Magna Merchants Ltd [1973] 2 All ER 329 190 Stocks v Wilson [1913] 2 KB 235 818 Stoke-on-Trent City Council v W & J Wass Ltd [1988] 1 WLR 1406 126, 330 Stovin v Wise [1996] AC 923 104, 367, 645, 656, 737, 748, 749, 763 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 296, 332 Stratford (JJ) & Son Ltd v Lindley [1965] AC 307 454, 696-98 Stubbings v Webb [1993] AC 498 68, 383 Sturges v Bridgman (1879) 11 Ch D 852 52 Sumpter v Hedges [1898] 1 QB 673 519, 793, 835 Supply of Ready Mixed Concrete (No 2), Re [1995] 1 AC 456 36

xliii

Sourcebook on Obligations and Remedies Surrey CC v Bredero Homes Ltd and Mole DC [1993] 1 WLR 1361

Sutcliffe v Pressdram Ltd [1991] 1 QB 153 Swain v The Law Society [1983] 1 AC 598 Swingcastle Ltd v Alastair Gibson [1991] 2 AC 223 Swinney v Chief Constable of Northumbria [19997] QB 464 Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113 TSB Bank plc v Camfield [1995] 1 WLR 430 Talbot v Berkshire CC [1994] QB 290 Tappenden v Artus [1964] 2 QB 185 Tarry v Ashton (1876) 1 QBD 314 Tasmania (Owners of) v City of Corinth (Owners of) (1890) 14 App Cas 223 Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 Taylor v Chester (1869) LR 4 QB 309 Taylor v Plumer (1815) 3 M & S 562; 105 ER 721 Techno-Impex v Gebr Van Weelde Scheepvaartkantoor BV [1981] 1 QB 648 Tennant Radiant Heat Ltd v Warrington Development Corporation [1988] 1 EGLR 41 Teno, The See Cia Sud Americana de Vapores v Shipmair BV; Teno, The Tervaete,The [1922] P 259 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 TH Knitwear (Wholesale) Ltd [1988] Ch 275 Thake v Maurice [1986] QB 644 Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 Thomas v Countryside Council for Wales [1994] 4 All ER 853

xliv

135, 222, 295, 297, 332, 362, 578, 778, 782, 790, 838, 839 688, 689, 691 462, 463 356 137, 141, 758 330 336 479, 509, 510 622 373, 459 218, 675 120 496, 588, 591, 592, 853 607 241, 783 55 398

371 33, 36, 37, 711 269 65, 395, 547, 550, 622, 722, 725 265, 503 358

Table of Cases Thomas v National Union of Mineworkers (South Wales Area) [1976] Ch 20 Thompson (WL) v Robinson (Gunmakers) Ltd [1955] Ch 177 Thompson-Schwab vCostaki [1956] 1 WLR 335 Thomson (DC) & Co Ltd v Deakin [1952] Ch 646 Thorne v Motor Traders Association [1937] AC 797 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 Tinsley v Milligan [1994] 1 AC 340 Tojo Maru, The [1972] AC 243 Tolstoy Miloslavsky v UK (1995) 20 EHRR 442 Topp v London County Bus Ltd [1993] 1 WLR 976 Torquay Hotel Co v Cousins [1969] 2 Ch 106 Town Investments Ltd v Department of the Environment [1978] AC 359 Treseder-Griffin v Co-operative Insurance Society [1956] 2 QB 127 597 Turnbull & Co v Duval [1902] AC 429 Tweedle v Atkinson (1861) B & S 393; 121 ER 762 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74 Universal Cargo Carriers Corporation vCitati (No 2) [1958] 2 QB 254 University of Nottingham vEyett [1999] 2 All ER 437 Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1971] 1 QB 88 Van den Boogaard v Laumen [1997] 3 WLR 284 Van Toll v SE Ry (1862) 31 LCJP 241 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 Vigers v Cook [1919] 2 KB 475 Viscount de L’Isle v Times Newspaper, See De L’Isle (Viscount) v Times Newspaper

xlv

280 579 145 696,697 508 410, 411 604, 835, 840 366, 367, 719, 720 690 538 695 59,86

258–60 461 239, 779, 781 384, 385 574 413, 416

300 38 407 344 65, 226–28, 512, 516,522, 523

Sourcebook on Obligations and Remedies Wadsworth v Lydall [1981] 1 WLR 598 237, 822 Wagon Mound (No 1), The See Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Walford v Miles [1992] 2 AC 128 413, 440, 442 Walkin v South Manchester Health Authority [1995] 1 WLR 1543 621 Wall v Silver Wing Surface Arrangements Ltd (unreported) 539–41 Wallis v Smith (1882) 21 Ch D 243 583 Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 478 Wandsworth LBC v Winder [1985] AC 461 87 Ward v Byham [1956] 1 WLR 496 450 Ward v James [1966] 1 QB 273 312, 313, 687 Ward v Tesco Stores Ltd [1976] 1 WLR 810 159–61, 547, 766 Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209 276 Watt (or Thomas) v Thomas [1947] AC 484 7 Watt v Hertfordshire CC [1954] 1 WLR 835 103, 189 Watt vLongsdon [1930] 1 KB 130 691 Watts vMorrow [1991] 1 WLR 1421 299 Waverley BC vFletcher [1996] QB 334 42,401 Weaver v Ward (1616) Hob 134 218 Weld-Blundell v Stephens [1920] AC 956 343, 649, 651 Weller & Co v Foot and Mouth Disease Research Institute [1966] 1 QB 569 195 Wells (Merstham) Ltd v Buckland Sand & Silica Ltd [1965] 2 QB 170 430 Welsh v Chief Constable of the Merseyside Police [1993] 1 All ER 692 94 West v Bristol Tramways Co [1908] 2 KB 14 100, 101, 671 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669; [1994] 1 WLR 938; (1993) 91 LGR 323, CA 11, 75, 78, 106, 238, 368, 797, 799, 824, 834,850 Wheeler v Leicester CC [1985] AC 1054 86 Wheeler vSaunders (JJ) Ltd [1996] Ch 19 154, 677 White & Carter (Councils) Ltd v McGregor [1962] AC 413, HL (Scotland) 231, 235, 439, 581, 584, 775

xlvi

Table of Cases White v Jones [1995] 1 All ER 691; [1993] 3 WLR 730; [1995] 2 AC 207

Whittaker and Whittaker v Campbell [1984] QB 318 186, 421, 503, 832 Wilchick v Marks and Silverstone [1934] 2 KB 56 Wilkinson v Downton [1897] 2 QB 57 William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016 Williams v Roffey & Nicholls (Contractors) Ltd [1991] 1 QB 1 Williams v Williams [1957] 1 WLR 148 Willis (RH) & Son v British Car Auctions [1978] 2 All ER 392 Wilsher v Essex Area Health Authority [1988] AC 1074 Wilson v Best Travel Ltd [1993] 1 All ER 353 Wilsons and Clyde Coal Co Ltd v English [1938] AC 57 Winson, The See China-Pacific SA v Food Corp of India Wiseman v Borneman [1971] AC 297 Withers v General Theatre Corporation Ltd [1933] 2 KB 536 Witter Ltd v TBP Industries [1996] 2 All ER 573 Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 Wookey v Wookey (S) (A Minor), Re [1991] 3 WLR 135 Wooldridge v Sumner [1963] 2 QB 43 Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 Workers Trust Bank Ltd v Dojap Ltd [1993] AC 573 Wright v British Railways Board [1983] 2 AC 773 Wringe v Cohen [1940] 1 KB 229 Wrotham Park Estate v Parkside Homes [1974] 1 WLR 798 xlvii

64, 107, 157, 191, 198, 202, 251, 383, 440, 465, 466, 674, 694, 702, 711, 712, 719, 724, 725, 735, 736

676 68, 151, 155, 640, 702 265, 484, 499 449, 452, 455, 832 450 200 158 539 732

94 325 466, 474 538, 541, 659 460, 462, 465 270 161 70, 104, 124, 367, 780, 828, 850 587, 835 311 218, 674–76 297, 363

Sourcebook on Obligations and Remedies X (Minors) v Bedfordshire CC [1995] 2 AC 633

X Ltd v Morgan-Grampian (Publishers) plc [1991] 1 AC 1, HL; [1990] 2 WLR 421, CA Yachuk v Oliver Blais Co Ltd [1949] AC 386 Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691 Young & Marten Ltd v McManusChilds Ltd [1969] 1 AC 454 Young v Sun Alliance and London Insurance Ltd [1977] 1 WLR 104 Yuen Kun Yeu v Attorney General of Hong Kong [1988] AC 175 OTHER JURISDICTIONS

xlviii

25, 104, 107, 191, 194, 365–57, 685, 727, 732, 735, 737, 739, 747–9, 755, 756, 759 200, 285 637 321 345, 392 205, 208 734, 743

Table of Cases AUSTRALIA Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 51 ALGR 270 Cameron v Campbell & Worthington (1930) SASR 402 Commissioner of State Revenue v Royal Insurance Australia Ltd (1994) 182 CLR 51 Field vNott (1939) 62 CLR 660 Smith vLeurs [1945] CLR 256 Stoakes vBrydges [1958] QWN 5 Sutherland Shire Council v Heyman (1985) 157 CLY 424 Voli v Inglewood Shire Council (1963) 110 CLR 74 Yerkey v Jones [1940] 63CLR 649 CANADA Mason v Risch Piano Co Ltd v Christner (1920) 48 OLR 8; 54 DLR 653 Motherwell v Motherwell (1976) 73 DLR (3d) 62 Rivtow Marine Ltd v Washington Iron Works and Walkem Machinery Equipment Ltd [1973] 6 WWR 692, SC (Canada) Stewart v Hawsen(1858)7CP 168 Swanson Estate v Canada (1991) 80 DLR (4th) 741 FRANCE Jand’heur Ch reun 13 fevr 1930; DP 1930 1.57 note Ripert: S1930 1.121 note Esmein GERMANY G v City of Hamburg, 21 October 1983, Decisions of the Federal Supreme Court in Civil Matters, Vol 88, p 344

344 579 828 96 650 152 643, 740, 747 722 260

579 142, 150, 154

344 579 747

674

146, 153

MALAYA Linggi Plantations Ltd v Jagatheesan [1972] 1 MLJ 89

836

USA Channel Home Centres, Division of Grace Retail Corporation v Grossman (1986) 795 F 2d 291

441

xlix

Sourcebook on Obligations and Remedies Federal Sugar Refining Co v United States Sugar Equalization Board (1920) 268 F 575 Jacob and Youngs v Kent (1921) 129 NE 889 Linkletter v Walker (1965) 381 US 618 Sherlock v Stillwater Clinic (1977) 260 NW 2d 169 South Pacific Co v Jensen (1917) 244 US 2095 Torkomian v Russell (1916) Atlantic Reporter 760 Utica City National Bank vGunn (1918) 222 NY 204 Wiggins v Moskins Credit Clothing Store (1956) 137F Supp 764 Williams v State of New York (1955) 127NE 2d 545

l

842 305 15 623 22 579 596 152 646

TABLE OF STATUTES Administration of Justice Act 1982— s 15 Animals Act 1971 s2 Animals (Scientific Procedures) Act 1986— s 5(3)(c)

Consumer Credit Act 1974 389, 500, 560 s 75 229 s 100 584 Consumer Protection Act 1987 201, 681 s1 681 ss 2-A 682 s2 49, 683 s 2(2) 683 s5 683 s 5(1) 194 ss 6,7 684 s 41 685 Contempt of Court Act 1981— s 10 288–92 County Courts Act 1984 114 s 38 278 Courts and Legal Services Act 1990— s 8(2) 688 Criminal Justice Act 1967— s8 17 Criminal Justice Act 1988 842 PtVI 841, 842

812 684 769

136

Carriage of Goods by Sea Act 1992 706 s 2(1) 706 Chancery Amendment Act (Lord Cairn’s Act) 1858 255, 361–64 s2 361, 363 Child Support Act 1991 367 s 33 367 Children Act 1989 734, 748 s1 38 s 17 733 Civil Jurisdiction and Judgments Act 1982— s 34 369, 372, 373 Sched 1 372 Civil Liabilities (Contribution) Act 1978 617–21, 792 s1 617, 793 s 1(1) 240, 618–21 s 1(6) 793 s2 792 s 2(3) 619 s3 239 s 6(1) 240, 618–21 Common Law Procedure Act 1852 240, 612, 779, 780 Common Law Procedure Act 1854 329, 361 Companies Act 1985 354 s 395 377 Congenital Disabilities (Civil Liability) Act 1976 31, 33

Damages (Scotland) Act 1976 681 Defamation Act 1952— ss 5, 6 691 Defamation Act 1996 691 s 15 691 Defective Premises Act 1972 676, 684 s4 676, 677 Education Act 1944 Education Act 1981 Employers Liability (Defective Equipment) Act 1969 Employment Rights Act 1996— s 123(1) li

727 727 684 327

Sourcebook on Obligations and Remedies English Workmen’s Compensation Act 1897—

Landlord and Tenant Act 1927 231 Law of Property Act 1925— s 40 253, 426 s 56 79 s 56(1) 78 s 84 363 s 205(1)(xx) 78, 79 Law of Property (Miscellaneous Provisions) Act 1989 426, 448 s1 449 s2 253, 425, 443, 448 Law Reform (Contributory Negligence) Act 1945 360, 397– 99, 632, 637, 770, 771 s1 771 s 1(1) 773 s4 397, 398, 773 Law Reform (Frustrated Contracts) Act 1943 574, 601, 602, 838 s1 601, 602 s2 601 Law Reform (Married Women and Tortfeasors) Act 1935 619 s6 620, 621 Law Reform (Miscellaneous Provisions) Act 1934 32, 33, 641, 770, 812, 818 s1 711 s 1(1) 632 s3 812 s 3(1) 818 Limitation Act 1939— s 27 19 Limitation Act 1980— s5 823, 824 s 11 622, 625 s 11(1) 621, 623 s 32(1)(c) 823, 824, 829

103

Factories Act 1937 334, 771 Factors Act 1889 400 Family Law Act 1996 149 Fatal Accidents Act 1846 765 Fatal Accidents Act 1976 225, 616, 632, 641, 645, 681, 770 s 1(1) 632 s 1A 299 s5 632 Food Safety Act 1990 182 Gaming Act 1845 s 18

785 784, 786

Harbour, Docks, and Piers Clauses Act 1847— s 74 239 Highways Act 656, 657 Hire-Purchase Act 1964— ss 27, 29 400, 401 Housing Act 1985 47, 125, 655– 57 s 119 47 Housing Act 1996— s 16(1)(a), (b) 47 Human Organ Transplants Act 1989— s1 38, 40 Human Rights Act 1998 87, 98, 117, 691, 692, 751 Insolvent Debtor’s Relief Act 1729 Judicature Act 1873 s 25(8) Judicature Act 1875

228

116, 229, 369, 370 273 229, 369, 370, 476 lii

Table of Statutes s 38(1) s 76 Local Government Act 1972 s 222 s 222(1)

626, 676, 677, 684, 720 626, 676 626 627

621, 623 734

s2 s 2(2) s 2(3) Occupiers’ Liability Act 1984 366, 684, 720 Occupiers’ Liability Act (Northern Ireland) 1957 555 Offences Against the Person Act 1861— s 38 224

461 297, 790 134

Matrimonial Homes Act 1983 38, 149 Mental Health Act 1959 282 Merchant Shipping Act 1894— s 503 354, 718–20 Merchant Shipping Act 1995— s 93 107 s 185 718 Sched 7 718 Merchant Shipping (Safety and Load Line Conventions) Act 1932 603 Minors’ Contracts Act 1987 834 s3 835 Misrepresentation Act 1967 60, 298, 317, 320, 466, 473–75, 480, 488 s1 474, 480 s2 60, 474 s 2(1) 320, 321, 474, 475, 484, 488 s 2(2) 474, 475, 479, 481, 488 s 2(3) 475 s3 558 Misrepresentation Act (Northern Ireland) 1967— s3 558 Moneylenders Acts 1900–27 500 Occupiers’ Liability Act 1957 345, 366, 402, 555,

Police and Criminal Evidence Act 1984— s 24 224 Powers of the Criminal Courts Act 1973— s 35 87 Protection from Harrassment Act 1997 142, 148, 151, 155, 156 ss 1–5, 7 143 Real Property Act 1845 s5 Redundancy Payments Act 1965 Reservoirs Act 1975— s7 Restrictive Trade Practices Act 1956 Road Traffic Act 1930

78 78, 79 190 617 697 535

Sale and Supply of Goods Act 1994— s2 479 Sale of Goods Act 1893 48, 49, 234, 387, 388, 392, 393, 469, 496, 552, 574, 575 liii

Sourcebook on Obligations and Remedies s 11(1)(c) 236, 478 s 14 342, 531, 532 s 14(1) 48, 342, 347 s 14(2) 347 s 16 246 s 25(2) 400 s 35 478 s 50 579 s 53(2) 342, 349 Sale of Goods Act 1979 49, 389, 402, 447, 559 s5 526 s6 492, 526 s8 444, 447 s9 447 ss 12,13 557 s 13(1) 468 s 14 49, 393, 514, 515, 523, 557 s 14(2) 515 s 14(3) 48, 515 s 14(6) 515 s 15 557 ss 16–20 40 ss 16–18 49 ss 20A-20B 50 s 35 479 s 53(2) 350 Statute of Frauds 1677 426 Suicide Act 1961 633 Supply of Goods and Services Act 1982 65, 391–93, 447, 531, 547 s2 557 s9 1, 391, 393 s 13 1, 49, 357, 382, 383, 391, 393, 523, 711 ss 14,15 447 Supply of Goods (Implied Terms) Act 1973— ss 8–11 557

Supreme Court Act 1981— s 31 87 s 31(3) 136 s 35A 799, 812, 818 s 37 1, 51, 273, 279 s 37(1) 271, 278 s 37(3) s 49 585 s 50 363 s 69 692 Supreme Court of Judicature Act 1873 585 Supreme Court of Judicature Act 1875 Theft Act 1968 Torts (Interference with Goods) Act 1977 s 2(1) s 2(2) s3 s 3(1)-(4) Trade Disputes Act 1906 s3 Trade Union and Labour Relations Consolidation) Act 1992— ss 10,12 Trading Stamps Act 1964 Trading Stamps Act (Northern Ireland) 1965

124 24, 56, 328, 329, 382, 402 328, 782 328 329 328 44 697

35 558 558

Unfair Contract Terms Act 1977 24, 402, 408, 432, 466, 552, 553, 555, 561, 569, 572, 584 s1 408, 555 s 1(1) 560 ss 2–7 555 ss 2–4 555, 560 liv

Table of Statutes s2 s 2(1) s 2(2) s3 s 3(2) s4 ss 5-7 s5 s6

s 6(3) s 6(4) s7 s 7(3), (4) ss 9-11 ss 12-14 ss 13, 20, 21 Sched 1 Sched 2

408, 555, 559, 638 194, 560, 561 560, 561 555, 560 556 556, 560 559 556 557, 558

lv

561 555 555, 557-60 561 558 559 561 560 558, 561

TABLE OF STATUTORY INSTRUMENTS Asbestos Products (Safety) (Amendment) Regulations 1987(SI 1987No 1979) Control of Asbestos at Work Regulations 1987 (SI 1987 No 2115) Control of Misleading Advertisements Regulations 1988 (SI 1988 No 915)— reg 6(1), (3) County Court Remedies Regulations 1991 (SI 1991 No 1222) County Court Rules 1981 (SI 1981 No 1681)— Ord 13, r 5 Motor Cars (Use and Construction) Order 1904 Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No 3288) s 15 Rules of the Supreme Court Ord 14A Ord 15, r 16 Ord 18, r 19 Ord 18, r 19(1)(a) Ord 18, r 19(2) Ord 25, r 5 Ord 53, r 9(5) Ord 59, r 3(1) Ord 59, r 11(4) Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083) regs 2–5 reg 5 reg 5(5) regs 6–10 reg 8 reg 10(2), (3) regs 11–13 reg 12 reg 13(2)-(6) reg 14 reg 15 Sched 1 Sched 2 Sched 2, para 1 Sched 2, para 2 lvii

396 396

136 278 723 758 540 540 617 281 137 94, 139 137 281 368 7 688 51, 408, 409, 561, 572, 584 562 409, 562 567 563 408 564 564 563–66 565 565 566 562, 566 563, 567 567–69 568

TABLE OF OTHER LEGISLATION FRANCE Code civil

Code PenalArts 121–1, 121–3 175 Loi 5 juillet 1985 674, Nouveau Code de Procedure Civile— Art 16 176 Art 31 136, 222

38, 41, 46, 64, 175, 199, 381, 391, 611, 674, 774, 849, 853 Art 5 184 Art 9 38 Art 16 38, 692 Art 16–1 38 Arts 16–3, 117 135 Art 184 136 Arts 220–1, 232, 264–1 135 Art 371 38 Art 388–2 135 Art 544 46 Arts 581, 644 47 Art 1101 387 Art 1102 384, 448 Art 1103 384, 449 Arts 1105, 1106 449 Art 1107 387 Art 1108 834 Art 1109 406, 422, 483 Arts 1110, 1117 483 Art 1134 63, 64, 406 Art 1135 406 Art 1147 64, 390, 516 Art 1148 390, 516 Art 1150 340 Art 1156 416, 536 Art 1370 777 Arts 1372, 1376 57, 777 Art 1382 38, 68, 199, 639, 640, 645, 774, 850 Art 1383 640 Art 1384 68, 125, 133, 199, 645, 660, 662, 674, 677, 760, 769 Art 1387 33 Art 1400 38 Art 2279 503

GERMANY Bürgerliches Gesetzbuch (Civil Code) § 276 § 812

199, 827, 828 391 777, 827

SPAIN Código Civil Arts 30, 32 SWITZERLAND Code Civil— Art 62 Code of Obligations— Art 62

41, 199 33

133

77

EUROPE AN UNION DIRECTIVES Directive 85/374/EEC (Product Liability Directive) Directive 90/314/EC

681 540

CONVENTIONS Baltic and International Maritime Conference (Copenhagen) 19 Brussels Convention (Convention on the Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters) 71–74 lix

Sourcebook on Obligations and Remedies Art 2:201 Art 2:202 Art 2:205 Art 2:206 Arts 2:208, 2:209 Art 2:211 Art 2:301 Art 4:103 Art 4:106 Art 4:107 Art 4:108 Art 4:109 Art 4:110 Art 4:111 Arts 4:112–4:116 Art 4:117 Art 5:101 Arts 5:102–5:106 Arts 5:103, 5:104 Art 6:101 Art 6:102 Art 6:108 Art 6:110 Art 6:111 Art 8:101

Art 5 71, 74 Art 5(1) 71–74, 76 Art 5(3) 71, 74, 76 Convention for the Protection of Human Rights and Fundamental Freedoms 1953 130, 690 Art 6 749–51 Art 6(1) 749, 750 Art 10 690 Art 10(2) 130 Convention (Draft) on Civil Liability for Damage Resulting from Activities Dangerous to the Environment (Strasbourg 26 January 1993)— Art 5.1 672 Declaration of the Rights of Man— Art 13 103 European Economic Area Agreement (EEA Agreement) 1992 562 Hague Rules 714, 715, 718, 719 Hague-Visby Rules 714, 715 EUROPEAN CONTRACT LAW Principles of European Contract Law 379, 382, 391, 402, 416, 418, 421, 425, 427, 432, 442, 507, 517, 522, 551, 561, 572, 577, 578, 590, 600, 609 Art 1:101 380 Art 1:102 407, 551 Arts 1:201, 1:202 409 Art 2:101 379, 402 Art 2:102 402, 421, 424 Art 2:103 402, 447

Arts 8:103, 8:106 Art 8:108

Art 8:109 Arts 9:301, 9:303 Art 9:307 Art 9:309 Art 9:501 Arts 9:502–9:505 Art 9:503 Art 9:509

lx

424 430 430, 433 433 431 402 434 476, 486, 488, 490 476, 482 503, 504 504 508 407, 482, 551 508 482 476, 482 379, 416, 536 417 551 466, 469 379, 512 307 465, 466 592, 599 379, 382, 390, 516, 600 572 294, 382, 390, 516, 523, 573, 588, 601 551 572 601 601, 602 294 295 340 581, 588

TABLE OF ABBREVIATIONS AC AJCL All ER APD App Cas

Appeal Cases (Third Series) American Journal of Comparative Law All England Law Reports (Butterworths & Co) Archives de Philosophic du Droit Appeal Cases (Second Series)

BGB BGH

Bürgerliches Gesetzbuch Bundesgerichtshof

C CA Cass civ CC Ch Ch D CJQ CLJ CLP CLR COM CUP

Code of Justinian Court of Appeal Cour de cassation (chambre civile) Code civil (France) Chancery Division (Third Series) Chancery Division (Second Series) Civil Justice Quarterly Cambridge Law Journal Current Legal Problems Commonwealth Law Reports Commission Documents (EU) Cambridge University Press

D Dig DS

Dalloz (also Digest of Justinian) Digest of Justinian Dalloz-Sirey

EC ECR EG EGLR EHRR EP ER EU

European Community European Case Reports Estates Gazette Estates Gazette Law Reports European Human Rights Reports European Parliament English Reports European Union

FLR Fs

Family Law Reports Festschrift

G

Institutes of Gaius

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House of Lords

ICLQ IECL IJSL

International and Comparative Law Quarterly International Encyclopedia of Comparative Law International Journal for the Semiotics of Law

J JCP JLH

Institutes of Justinian Jurisclasseur Périodique Journal of Legal History

KB

King’s Bench (Third Series)

LC LGR LJCP LJ Ex LJQB LI Rep LQR LR...CP LR...Eq LR…Ex LR…HL LR...QB LS LT

Lord Chancelleor Knight’s Local Government Reports Law Journal Common Pleas Law Journal Exchequer Law Journal Queen’s Bench Lloyd’s List Law Reports Law Quarterly Review Common Pleas Cases (First Series) Equity Cases (First Series) Exchequer Cases (First Series) English and Irish Appeals (First Series) Queen’s Bench Cases (First Series) Legal Studies Law Times Reports

MJ MLJ MLR

Maastricht Journal of European and Comparative Law Malayan Law Journal Modern Law Review

NCPC NILQ NJW NBW

(French) Nouveau Code de Procedure Civile Northern Ireland Legal Quarterly Neue Juristische Wochenschrift (Germany) Nieuw Burgerlijk Wetboek (Netherlands Civil Code)

OJ OJLS OUP

Official Journal (EC) Oxford Journal of Legal Studies Oxford University Press

lxii

Table of Abbreviations P PC PECL PL PUF

Probate Division (Third Series) Privy Council Principles of European Contract Law Public Law Presses Universitaires de France

QB QBD QWN

Queen’s Bench (Third Series) Queen’s Bench (Second Series) Queensland Law Reporter and Weekly Notes

RabelsZ RIDC RLR RSC RTD civ

Zeitschrift für Ausländisches und Internationales Privatrecht Revue Internationale de Droit Comparé Restitution Law Review Rules of Supreme Court Revue Trimestrielle de Droit Civil

SLR Swiss CO

Statute Law Review Swiss Code of Obligations

UWAL Rev

University of Western Australia Law Review

WLR

Weekly Law Reports

ZEuP

Zeitschrift fur Europäisches Privatrecht

lxiii

INTRODUCTION

GENERAL REMARKS In their joint statement issued in July 1993, the Law Society and the Council of Legal Education recognised the validity of the comparative, jurisprudential, historical and interdisciplinary approaches to the teaching of the foundational subjects. And, in renaming Contract and Tort as Obligations I and Obligations II, they seemingly went some way to injecting a comparative dimension into the common law. In addition, the statement emphasised the need for an understanding of the fundamental doctrines and principles which underpin the law, together with a knowledge and appreciation of the sources, institutions, concepts and reasoning and research methods employed by lawyers. Mere knowledge of the rules is recognised as not being enough; the good jurist must be able to apply the law to the facts and to communicate the reasons for the answers arrived at, and the sources used, when it comes to problem solving in law. In other words, legal method, legal reasoning, jurisprudence and comparative law are now formally an integral part of subjects like the law of obligations. All this may seem self-evident. However, it is by no means so easy to assert as a matter of form what it is to have knowledge of, say, the law of obligations, since the old idea that law is a matter of learning and mechanically applying rules is no longer a viable knowledge thesis. The processes of legal reasoning and legal problem solving are now known—thanks, in part, to artificial intelligence research1—to be much more complex and sophisticated processes. This is not to say that rules and principles are not important; knowledge of statutory rules and case law principles is undoubtedly a central aspect of learning the law. What must be emphasised is the gap between the rule and the decision: the process of moving from a legal proposition (that is, a rule or principle) to an actual decision in a legal problem involves reasoning processes that need to be examined in themselves. These processes are, in other words, part of legal knowledge itself. Traditionally, these reasoning processes have been associated with the assumption that law is a matter of prepositional knowledge - that is to say, that it is a subject consisting of rules and principles. Thus, reasoning has, particularly on the continent, been seen largely as a matter of mechanical application. Legal theorists have, of course, recognised a distinction between easy and hard cases. The easy case will be one where a rule can be mechanically

1

See, generally, Samuel, The Foundations of Legal Reasoning, 1994, Maklu; Thomasset and Bourcier (eds), Interpreter le droit: le sens, l’interprète, la machine, 1997, Bruylant.

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applied via the syllogism (see Chapter 2), whereas the hard case will be one where the reasoner will have to undertake difficult interpretation exercises before an acceptable decision can be reached.2 But these theorists have never questioned the assumption that law consists of rules and principles, with the result that legal textbooks have, on the whole, been seen as being little more than descriptive works. Their role is to set out, as clearly as possible, the rules and principles of the area to which they are devoted. Sourcebooks and casebooks are, admittedly, different; their role has been to emphasise aspects of legal knowledge not to be found in the traditional textbook. And so a good casebook will invite its readers to “brief each case read; that is to say, it will ask the reader to think not only about the rule or principle in issue, but also about the interests, values, ideologies, methods and the like that each case raises. Casebooks and sourcebooks thus make good vehicles for learning to see beyond the rules.

SCOPE OF THE PRESENT WORK This present work will, however, go beyond the standard sourcebooks in as much as it will explicitly devote chapters to the structure of the common law (Chapter 1) and to legal reasoning and method (Chapter 2). The aim of these chapters will be to provide a methodological context within which the details of the law of obligations can be understood. They will seek to give readers of the contract, tort and remedies source material some further material which will explicitly help them with research and problem solving. The point to be emphasised here is that no area of positive law can be properly understood without, first, some understanding of the mentality of the common law. In addition to these structure and method chapters, there will be a chapter devoted to the law of remedies (Chapter 3). There is a range of reasons for including such a chapter, but two are particularly important. First, the history of the law of obligations in both the common law and civil law is closely interrelated with the law of actions (remedies). In the Digest of Roman law, the title dealing specifically with the category of obligations is entitled de obligationibus et actionibus3 and in the common law, before the categories of contract and tort were adopted, problems were analysed via forms of action such as trespass and debt. Secondly, in English law at any rate, practising lawyers have still not escaped from remedies thinking. Liability in contract and in tort—and even more in restitution—is often measured in relation to the existence of a cause of action. And this cause of action, in turn, has been

2 3

See Bengoetxea, The Legal Reasoning of the European Court of Justice, 1993, OUP, pp 184ff, 146ff. Dig 44.7. A good introduction to Roman law is Borkowski, Textbook on Roman Law, 2nd edn, 1997, Blackstone.

lxvi

Introduction

described by Diplock LJ as ‘simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person’.4 The linking of remedies to obligations has, then, not only a historical and comparative dimension, but an important practical aspect. One of the first questions that needs to be asked when ‘briefing’ a case is: what is the plaintiff seeking to obtain from the court? As we shall see, the law applicable to a factual situation may vary, depending upon whether a plaintiff is seeking, say, damages or an injunction. The chapters following the one on remedies will divide obligations into two broad kinds: those that are contractual (Chapters 4–6) and those arising outside of contract (Chapters 7–8). There is nothing inevitable about such a dichotomy and, as far as English law is concerned, it is arguable that isolating contractual obligations from the non-contractual might even be misleading since, historically and conceptually, compensation actions have the same remedial basis in the action of trespass. Moreover, when it comes to restitution, the linking of debt to contract has caused a number of conceptual problems. Nevertheless, in both the civil and the later common law, contract has such a specific and particular history that the subject has become more than a subcategory of the law of obligations.5 It is a fundamental legal relationship which cannot easily be abandoned, in that it continues to act not just as a means of directly or indirectly transferring rights of property,6 but as a paradigm obligation through which all other obligations often have to defer. Non-contractual obligations may be unavailable in situations where a contractual obligation governs. The distinction between contractual and noncontractual obligations continues, then, to command practical and philosophical respect and, just as important perhaps, remains a useful bridge between the English legal system and those of our continental partners.7

EUROPEAN DIMENSION This comparative aspect to legal knowledge has been specifically recognised by the Lord Chancellor’s Advisory Committee on Legal Education and Conduct in its First Report on Legal Education and Training.8 Now, from a comparative position, the law of contract, as we have just seen, dominates the law of obligations in that it takes up most of the articles in the obligations section of the civil codes. Non-contractual obligations seem, by comparison, an afterthought (although the case law tells a different story). Thus, a work

4 5 6 7 8

Letang v Cooper [1965] 1 QB 232, pp 242–43. See, generally, Gordley, The Philosophical Origins of Modern Contract Doctrine, 1991, OUP. See, eg, Sale of Goods Act 1979, ss 16–18. See, now, PECL. ACLEC, First Report on Legal Education and Training, 1996, para 1.3.

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wishing to state the English law of obligations, always assuming that such a category is viable this side of the Channel, is almost forced to devote pride of place to contract. Yet, contract holds a central position in the law of obligations for another reason as well. Not only does a good knowledge of contract act as an introduction to Western private law as a whole, but the subject lies at the centre of the legal system, in as much as it relates, often directly, to all the other areas of private and public law. Contract is central to commercial law, property law, employment law and even administrative law and criminal law. Indeed, it is important to the understanding of a number of jurisprudential and political theories. This present sourcebook in no way wishes to underestimate or diminish the importance of non-contractual obligations. However, the aim of the work is to provide a structural approach to the English law of obligations which reflects the category in a European, rather than a strictly English, context. This central position of contract in Western law is important for another reason as well. The law of contract is one of the first foundational subjects where international and European unification has been seriously attempted. There are now two codes that attempt to harmonise contract law. The first is the UNIDROIT Principles for International Commercial Contracts. This code provides a set of uniform contract rules applicable anywhere in the world, whatever the legal tradition. It is a code supposedly dictated by the needs of commerce and thus represents a new reincarnation of the old idea of a universal lex mercatoria. The second, and perhaps the more important for the European lawyer, is the code unofficially known as the Lando Code. This code’s official title is Principles of European Contract Law and it is an attempt to represent a harmonised law of contract for the EU. The first point to be made about both of these codes is that they do not reflect English law as a whole, only certain aspects of it. If the English lawyer wishes to understand the structure and symmetry of the Lando code, then some knowledge of civilian legal thinking is essential. A second point is that these codes may represent the future. As Professor Kötz has pointed out: ‘If Europe is to be economically unified in a Single Market, there is no doubt that its private law will also have to be unified, at least to some extent/ Professor Kötz is one of a number of European jurists who are in favour of ‘books which disregard national boundaries and, freed from any particular national system or systematics, are addressed to readers of different nationalities’.9 The scope of this present sourcebook is not designed to meet the Kötz vision. For a start, books which attempt to transcend particular legal systems can so easily end up as works of legal tourism.10 A few cases from a whole range of national systems provide little insight into the way the law of obligations

9 10

Kötz, European Contract Law, 1997, OUP (trans Weir), p v. Cf Legrand [1999] CLJ 439.

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Introduction

functions as part of an institutional whole (courts, reasoning, remedies, etc). Furthermore, it has to be said that not all jurists are in favour of EU harmonised codes. Professor Kötz’s own translator has described such codes as ‘demented’;11 and while this might be seen as something of an exaggeration, Tony Weir has subsequently made the valuable point that Kötz’s statement is actually not supported by the evidence. England and Scotland have long enjoyed both a Single Market and monetary union without ever having felt the need to harmonise their private laws.12 Other writers have equally raised serious objections about the level of debate on harmonisation.13 All the same, none of these arguments should be allowed to eclipse the important European dimension to legal knowledge, in particular with regard to the whole notion of a law of obligations. Indeed, a further point to make about the two contract codes is that they have a relevance in respect of contract theory. They act as a link between the common law of contract and the civilian systems of contract. This link is of importance when it comes to contract theory because, as we have seen, ‘even in the late 18th century, English judges did not think in terms of a law of contract’; the judges ‘thought in terms of forms of action such as assumpsit and covenant’. However, by ‘the end of the 19th century…the common law had acquired a new doctrinal structure largely by borrowing from the continent’.14 Roman, German and French law are thus of importance when it comes to thinking about the theoretical basis of contract. Accordingly, this present work adopts a civilian orientation, even if such an orientation is relatively marginal. The aim is to begin to present English law in a European context.

LAW OF OBLIGATIONS When one turns to the idea of a law of obligations, this civilian foundation is of fundamental importance, since the category itself is a civilian invention. In fact, it is by no means easy to impose on the common law a law of obligations framework, and thus knowledge of the civilian dimension is of relevance. It may seem simple enough to put the old subjects of contract and tort together under a generic heading, but it has always to be remembered that, in the civil law tradition, the idea of a law of obligations has had, since Roman times, a specific meaning and purpose. An obligation was not a means of making something ours or a vehicle for vindicating some right of possession or

11 12 13 14

Weir, A Casebook on Tort, 8th edn, 1996, Sweet & Maxwell, p 3. Weir, ‘Divergent legal systems in a single Member State’ [1998] ZEuP 564. See, in particular, Legrand, ‘European legal systems are not converging’ (1996) 45 ICLQ 52. Gordley, ‘Contract in pre-commercial societies and in Western history’, IECL, Vol VII, Chapter 2, para 22. See also Simpson, ‘Innovation in nineteenth century contract law’ (1975) 91 LQR 247.

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property; it was a means by which someone was obliged to do, to give or not to do something.15 So, as Gaius points out in his Institutes, we cannot use an obligations remedy to get back our own property, since what is already ours cannot be conveyed to us (nec enim quod nostrum est nobis dari potest).16 In Roman law, an obligation was defined in relation to an actio in personam—that is to say, in terms of a personal remedy aimed at a specific and named person. This personal claim had to be distinguished from claims in respect of things; an actio in rem was a legal remedy that was aimed at a specific piece of property (res) and was used to assert either ownership (dominium) or a real right (ius in re) in a thing. This remedial dichotomy between personal and real actions in turn gave rise to a fundamental distinction in civil law thinking between the law of obligations and the law of property.17 This distinction between property and obligations continues to lie at the heart of the continental civil codes, and it acts as the basis for classifying legal rights. Indeed, so strong is the dichotomy in German law that it is impossible to progress as a private lawyer without a thorough understanding of the difference between the relationship between person and person (obligations) and the relationship between person and thing (property). The distinction between the two relationships acts as the starting point for the whole of private law. It is this strict separation between real and personal rights, between property and obligations, which causes the trouble for the common lawyer. Certainly, the English jurist will have little difficulty in distinguishing, as a matter of form, between, for instance, contract and possession or tort and ownership, but in problem solving substance it is very easy indeed for these fundamental notions to become confused.18 O lends goods to D and these goods are stolen by D’s employee; is this a contract, tort or property problem? T steals money from P, his employer, and gambles it away at D’s casino; if P sues D for the return of the stolen money, is this an action in personam or in rem? The German lawyer will want clear answers to these questions, since they raise issues of basic legal science. The common lawyer, however, will be little troubled by such questions, save perhaps if the defendant is bankrupt. The common lawyer will simply think in terms of whether P has a remedy against D. From the historical position, the English forms of action, unlike those of Roman law, were little interested in conforming to the property and obligations dichotomy. To the early common lawyer, all actions were a mixture of both property and obligations.19 This has resulted in a situation where the modern law of contract and tort has to do the work of the law of property as well as the law of obligations (see Morris v Martin, p 80). The torts of trespass, nuisance and

15 16 17 18

Dig 44.7.3 pr. G4.4. Jolowicz, Roman Foundations of Modern Law, 1957, OUP, pp 61–81. See Samuel, ‘Property notions in the law of obligations’ [1994] CLJ 524.

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Introduction

conversion often involve litigation problems arising out of the relationship between person and thing (see Waverley EC v Fletcher, p 42). Moreover, any problem involving damage to, or loss of, movable property owned by one person but in the possession of another can often appear particularly complex, since these facts will give rise to rights and duties arising out of contract, tort and possession (bailment).20 This confusion between property and obligations works against the development in English law of a category of the law of obligations in the full continental meaning of the term. Nevertheless, the notion presents common lawyers and civil lawyers with a challenge. If harmonisation of private law is to become a reality, the English jurist will have to make some compromises at the level of legal science. The civil lawyer, equally, might have much to learn from the English emphasis on remedies which can inject into problem solving an element of flexibility. By starting out from an injunction rather than a rigid definition of ownership, the common lawyer finds it much easier to cope with changing notions of property even if it is at the price of introducing uncertainty, if not anarchy, into legal thinking. In turn, a rational and structured legal science can, on occasions, aid problem solving by allowing the lawyer to operate with ease at one and the same time at the level of law and fact. The relationships between person and person and between person and thing permit an ordered analysis of factual problems while, at the same time, facilitating with ease the application of the law (see below, pp 381–84).

LEGAL INSTITUTIONS AND LEGAL ANALYSIS The idea that law can act at one and the same time inside and outside of the facts is the key to its success as a ‘scientific’ discourse. Law can, seemingly, ‘explain’ social facts and ‘predict’ what, in particular circumstances, ought to happen. If a coach company loses the suitcase of one of its passengers, legal discourse can explain these facts in terms of legal relationships (contract, bailment) which act as the medium for turning the factual situation into one of rights and duties. These rights and duties then become the basis for predicting what ought to happen in terms of responsibility for its loss. Thus, the taking into possession of the passenger’s suitcase (relationship between person and thing) gives rise to a bailment relationship which endows the passenger with certain rights and the coach company with certain duties. The passenger has the right to have her suitcase returned unless the coach company can show that it has fulfilled all its duties with respect to the thing; that is to say, it can show that the case was lost through no fault on its part.21 The key

19 20

Milsom, Historical Foundations of the Common Law, 2nd edn, 1981, Butterworths, p 263. See, eg, The Albazero [1977] AC 774.

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relationships here are those between passenger and suitcase, between passenger and coach company and between coach company and suitcase; and these relationships translate into rights of ownership, possession, contract and tort. Sometimes, the mere relationship between person and thing can, of itself, give rise to rights and duties; thus, possessory rights often follow the thing itself. If, however, instead of losing her suitcase, the coach company, through the act of one of its employees, managed to injure the passenger through bad driving, then, as far as English law is concerned at any rate, merely to show that the company was ‘in possession’ of the passenger is not enough (see Readhead v Midland Ry, p 543).22 Although the relationship is undoubtedly close enough of itself to give rise to a duty on the part of the coach company to take care of its passengers, the passenger still has to show, in addition to the relationship (duty of care), damage and fault. These latter notions are typical legal focal points, for they are notions that have meaning at one and the same time in the world of fact (broken bones, torn clothes, carelessness, etc) and the world of law (tort of negligence, definitions of damage). They are, in other words, notions that operate within and without the facts. However, even within the world of law, damage and fault cannot exist in isolation. They can only attach to things and to people. Accordingly, two other legal notions that exist inside and outside of facts are the notions of a person and a thing. This may seem too obvious to warrant attention. Yet,, it is more sophisticated than it first appears, since many ‘persons’ who cause or suffer damage are not real persons at all. They are organisations endowed with legal personality by the law. They are collectivities manifesting not only the characteristics of subjectivity which one normally associates with the human individual, but also their own characteristics, some of which may, in turn, be imposed upon the individual human (see Tesco v Nattrass, p 33). Equally, there are many ‘things’ that are not real things in the sense that they can be touched. And so, for example, if D owes C £50,000, C has an asset that is a very real asset in terms of wealth, but intangible in terms of physical existence in the real world. The result of these legal creations is that there can be, in effect, fictional people (companies) owning fictional things (debts), and it is only when lawyers are faced with certain types of criminal proceedings that the unreality of the situation has a habit of intruding. If an angry coach driver assaults one of the passengers, is it true to say that the passenger, who, of course, has a contract with the coach company, has been assaulted by the coach company (cf Keppel Bus Co, p 537)?

21 22

Houghland v RR Low (Luxury Coaches) Ltd [1962] 1 QB 694. Note, however, that French law takes a different view; the railway company undertakes by contract to achieve a result (obligation de résultat), that is to say, to deliver the passenger to his or her destination.

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Introduction

LAW OF ACTIONS All this brings one back to remedies. For, whatever the rights, duties, relations or persons in issue, the key question for the parties to any legal dispute is the nature of the legal action. Can P sue D for compensation? Can P obtain against D an order stopping him from playing his trumpet after midnight? Can P obtain restitution of property mistakenly given to the wrong person? The granting or refusing of such actions may well, on many occasions, depend upon the rights and obligations of the parties, but these rights and obligations owe their existence to a legal structure that recognises the institutions of ‘persons’ and ‘actions’. If P is granted an injunction against D prohibiting the latter from interfering with goods in P’s possession, then the court is effectively constructing an institutional structure between ‘person’, ‘thing’ and ‘action’ that can act as the basis for a property ‘right’. It is the action that acts as the dynamic means of constructing a relationship between person and thing (see, for example, Lipkin Gorman, p 782 and Kingdom of Spain v Christie, p 209). In the civil law systems on the continent, this institutional role of the legal action has been suppressed by codes of rights which express the institutional structures only through written propositions (regulae iuris—rules and principles). For example, in the civil law, in a dispute over the title to goods, one would start not with an injunction, but with a definition of ownership, and one would then work from there towards a court order. But in the common law, one would not start out from a definition of ownership; one would start from an action for damages for wrongful interference with goods, or, alternatively, from an injunction, and this would lead the court towards a discussion about property rights.23 Of course, if the court grants the damages or injunction, it is implying the existence of an institutional relationship between plaintiff and goods. The action remains a live institution in the common law and has not, as yet, been replaced by the notion of a right (in the continental sense of the term). However, before one can think in terms of the institutions of persons, things and actions, it is first necessary to look at the physical institutions of private law itself. In other words, it is necessary to look at the courts, judges, legislators and parties who, or which, give the law of actions its dynamic aspect.

23

For an extreme example, see Ex p Island Records [1978] Ch 122.

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OBLIGATIONS AND METHOD It may seem, at first sight, somewhat undisciplined, if not self-indulgent, to stray from the substantive details of contract, tort and restitution into areas normally reserved for introduction to law or English legal system courses. Indeed, even the idea of reducing the massive case law and legislative texts on contract and tort, not to mention unjust enrichment and remedies, to a single collection is likely to seem in itself reckless. However, several points can be offered in response to such criticisms. The first point has already been touched on at the beginning of this introductory essay: what is it to have knowledge of the law of obligations? Is such knowledge dependent simply on what Professor Collins has called an ‘operationally closed system’?24 Or is it rather different in nature? An alternative approach to the positivistic closed system view of contract, tort and restitution is one that sees these subjects as part of a much broader legal culture. This culture itself is two-dimensional. The first dimension is the common law tradition itself, which in many ways is a ‘seamless web’. This expression, first used by Maitland, is used here to mean that drawing frontiers not just between contract, tort and restitution, but equally between obligations, legal method, legal system, property and so on is fundamentally misleading.25 The methodology of the common law and the roles of the various courts are, for example, just as much a part of the English law of contract as offer and acceptance (see, for example, Blackpool and Fylde, p 436). Cases, whatever category they may be squeezed into by textbook writer or law reporter, are about reaching solutions on a set of facts; how these facts are ‘constructed’ and how the judges envisage their roles are pieces of knowledge just as vital as any precedent or statutory rule.26 The second dimension is Europe. This dimension is of particular importance, as we have seen, since the category of ‘law of obligations’ is civilian in origin. Even in Europe, however, the methods of judge and jurist, together with the procedural structures within which the courts function, are of fundamental importance when it comes to understanding the way factual situations are handled. Had the facts of Rigby found themselves in a French court, for example, the procedural structure of the French judicial system would have had a direct bearing on both the category applicable and the solution adopted (see below, p 103). The second point to be made is that knowledge of contract or tort is not necessarily a matter of knowing in detail a vast number of cases and statutes. Of course, a huge databank of information is never to be dismissed, since the

24 25 26

See Collins, ‘Legal classifications as the product of knowledge systems’, in Birks (ed), The Classification of Obligations, 1997, OUP, pp 57–70. Cf Lord Goff in Kleinwort Benson Ltd v Lincoln CC [1998] 3 WLR 1095, p 1118. See, further, op cit, fn 1, Samuel.

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ability to cite and to apply to a particular set of facts a large range of precedents and texts is one important aspect of legal knowledge and method. The professional practitioner working in the area of personal injury litigation will need a highly detailed knowledge of procedure, of case law and statutory texts and of the latest figures concerning the quantum of damages. Yet, it has to be asked if this is the kind of knowledge and technique model that should be underpinning the courses at a university law school. One only has to read a judgment like the one delivered by Bingham LJ in Blackpool and Fylde (p 436)—or, indeed, the judgments in a range of other cases extracted in the chapters which follow—to see that there might be more to legal technique than learning vast numbers of detailed rules and precedents. Might it not be more important to place the emphasis on the kind of structural patterns used by jurists in the analysis of facts? How might a German, a French and an English jurist—indeed even, on occasions, a Roman lawyer—conceptualise the problem in Rigby or in Esso Petroleum v Southport? Might it not be more valuable to teach the kind of argumentation techniques employed by lawyers, rather than forcing students to learn the minute details of the law of damages? This is not to prefer, in some abstract way, one type of knowledge over the other. The point is that there are different knowledge models, depending upon the category of lawyer. Thus, the judge uses a different knowledge model from the legislator, and these two categories of jurist are in turn to be differentiated from the academic lawyer.27 A sourcebook on the law of obligations will hopefully be judged for the scope of its vision, rather than for the inadequacy of its textual database. A third point to be stressed is that the professional bodies themselves seem to be stressing the importance of the foundational subjects as vehicles, inter alia, to teach the wider aspects of law as a discipline.28 Few, surely, would argue that courses on contract, tort or restitution are in the law school curriculum simply to convey a descriptive knowledge of the texts and cases within these categories. In addition to laying the foundations of liability, they are courses that should be familiarising the student with legal method, the legal system, legal remedies and even the foundations of legal theory and philosophy. Naturally, one does not wish to overexaggerate these aspects to the detriment of the foundations of contract, tort and restitution. Moreover, there are other contextual aspects, such as law-and-economics or law-andsociety, that could equally be emphasised. Yet, it is in the end a question of balance: the European, the methodological and the institutional are dimensions

27 28

Atias, Épistémologie du droit, 1994, PUF, pp 21–28. Law Society and Council of Legal Education, ‘Announcement on full-time qualifying law degrees’, January 1995, set out in ACLEC, First Report on Legal Education and Training, 1996, pp 137–42. See, now, Joint Statement on Qualifying Law Degrees Issued by the Law Society and General Council of the Bar, Sixth Draft, 1999.

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that will be of increasing importance as the English legal system becomes, for better or for worse, more integrated into the other systems of Europe. The chapters which follow will, accordingly, attempt to prepare today’s students for tomorrow’s Europe, in which pressures for harmonisation will probably not have decreased.

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CHAPTER 1

THE STRUCTURE OF THE COMMON LAW

The purpose of this first chapter is to set the law of obligations in the context of the common law as a whole. On the continent, a legal system is constructed through codes, which organise the law into highly systematic bodies of principles and rules. The various codes themselves define a particular domain: private law, civil procedure, criminal law, criminal procedure, and so on. In turn, each of these codes is subdivided into books, chapters and sections. The law of obligations can thus be located and identified through its relationship with other categories of the law; these categories can equally be related to the courts, to remedies and to the role of the various personnel via codes of procedure. The system is easily seen as fitting together as a whole. The common law, by contrast, seems amorphous; there are no great codes and the whole court system appears more often to be the result of historical accident than rational planning. In truth, there is a structure hidden beneath the apparent disorder of statutes and cases, and an appreciation of this structure is important for an ultimate understanding of civil liability.

1 INTRODUCTION In order to appreciate this structure, it is helpful to see law as a system which functions at several levels. At the level of the rules themselves, the structure of the system focuses around the elements of persons, things and actions; that is to say, rules attach themselves to people, to things or to actions (remedies). For example, s 13 of the Supply of Goods and Services Act 1982 states that ‘…the supplier will carry out the service with reasonable care and skill’ (emphasis added), whereas s 9 states that ‘the goods supplied under the contract are of satisfactory quality’ (emphasis added). In s 37 of the Supreme Court Act 1981, it is stated that the ‘High Court may…grant an injunction …in all cases in which it appears to the court to be just and reasonable to do so’ (emphasis added). These elements of persons, things and actions are central to legal science, because they act as the bridges between the world of social fact and the world of law. Persons and things (if not actions) have a meaning both for the lawyer and for the sociologist. In addition, the institutional emphasis can help determine the nature of the duty. In s 13, where the emphasis is on the person, it is the nature of the behaviour that will determine liability (liability for fault). However, in s 9, which focuses on the thing, failure to supply goods that are reasonably fit or of satisfactory quality is strict; if thegoods are 1

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unfit, there is liability irrespective of any fault on behalf of the supplier (see Frost v Aylesbury Dairy, p 47). At another level, however, law functions as a political and social institution, which requires it to focus around elements that stretch beyond individual persons and things to embrace the institutions of society itself. At this level, law is a matter of courts, judges, legislators and parties as a class. Accordingly, before one can understand the operation of particular areas of legal rules, it is first important to have some grasp of the role of the various social and political institutions as rule and decision makers. For between the law as social system and the law as institutional system, there is the reasoning system of the politicians and jurists themselves. This reasoning system acts, once again, as a bridge between social fact and legal conceptualisation.

2 THE ROLE OF THE COURTS Perhaps the central social institution of the law, for the English obligations lawyer at any rate, is the court. The foundations of contract, tort and restitution are to be found in case law and not in a statutory code of abstract principles (although this is not to underestimate the role of statute). On the continent, things appear a little different, since it is the legislator who has pride of place in the social and political system; the starting point of any form of liability will normally be an article in a code. Yet, one should not exaggerate the codes as sources of law. The case law and doctrine interpreting the codes are now more important (if unofficial) sources than the code articles themselves. It would not now be unreasonable to say that, throughout Europe, the essence of the law of obligations is to be found in decided cases. Equally, the role of Parliament as law maker in the United Kingdom must never be underestimated. Whole areas of law—for example, real property, company law and consumer credit—are founded on statutes, and an increasing number of topics in the law of obligations have attracted statutory intervention. Statutory interpretation is a central skill for all jurists in Europe. However, the English lawyer’s habit of focusing upon remedies means that it is the facts of litigation that often form the starting point for thinking about contract and tort and litigation entails parties, lawyers and judges. What role do these judicial persons, and the social institutions in which they function, play in the development of the law of obligations?

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(a) Trial judge Derby and Co v Weldon (No 5) [1989] 1 WLR1244, Chancery Division Vinelott J:… The function of a judge of first instance is to find the relevant facts and, with the assistance of counsel, to ascertain the law as set out in any relevant statutory provisions and in principles to be derived from the decisions of the House of Lords and the Court of Appeal, and to draw the appropriate legal consequences. It is not open to the judge in performing this primary function to consider, far less express an opinion, as to the correctness of a decision of the Court of Appeal or the House of Lords except in those rare cases where he is faced with conflicting decisions of the Court of Appeal and must choose which to follow. That does not rest solely upon the feelings of deference and respect which a judge of first instance will naturally and properly approach a decision of the Court of Appeal or the House of Lords. An opinion which the judge may entertain as to the correctness or otherwise of, for instance, the interpretation of a decision of the House of Lords by the Court of Appeal, is simply irrelevant to his primary duty which is to ascertain the statutory provisions and the principles stated in decisions that are binding on him which govern the case before him…

Notes and questions 1

2

These judicial observations may seem unexceptional. However, on closer inspection, a couple of points are worthy of comment. First, as the judge hints, it is not solely the judges who make law; counsel equally have their input. Indeed, perhaps it is counsel more than the judges who determine the shape of the law of obligations, since it is they and not the judges who do the research and frame the issues. Could it be said, then, that the idea of judge made law is misleading? Can judges carry out their own research, or do they have to decide points of law only on cases cited to them? Secondly, the judge is making an assumption about the nature of legal knowledge. Law is a matter of statutory rules and case law principles. Knowledge of law, in other words, is about knowledge of propositions. Yet, is law simply about rules and principles? Are legal propositions really capable of governing factual situations? As one French jurist has observed, ‘the passage from general rule—or from previous decision—to the solution of a concrete case cannot be analysed into a simple deductive application process; the subsuming of the actual case under the rule brings into play a multitude of circumstances, elements and variables which prevent anyone from claiming with certainty its result’ (Atias, Épistémologie du droit, 1994, PUF, p 119). One question, therefore, that will continually need to be considered throughout this sourcebook is the extent to which cases (and statutes) are objectively binding on judges. Are legal propositions really capable of governing factual situations? Are there correct and incorrect decisions in law? What is meant by a wrong decision?

3

Sourcebook on Obligations and Remedies Hickman v Peacey [1945] AC 304, HL Viscount Simon LC:… [A] sharp distinction must be drawn between reaching a correct conclusion in a court of law, and establishing an absolute scientific truth. A court of law, whether it takes the form of a judge sitting alone, or sitting with the help of a jury, is not engaged in ascertaining ultimate verities: it is engaged in determining what is the proper result to be arrived at, having regard to the evidence before it. In most cases, there is a contest, and the court merely has to decide between the parties. And in reaching its conclusion, the court is greatly helped by considering upon which party rests the burden of establishing its contention. The conclusion, therefore, that the party upon which the burden rests has not proved an essential proposition, leads to the result that for the purposes of that litigation the proposition is to be rejected— a course of reasoning which could never establish a positive truth of science…

Notes and questions 1

2

This distinction between law and science may seem self-evident. But in the context of Europe, it is not quite so simple, since one important aspect of the civilian tradition is the idea of law as a science (scientia iuris). The codes were originally envisaged as propositional axioms analogous to mathematical axioms; the judge was little more than a machine or calculator (juge automate) automatically applying these axioms to factual situations. One talked of the mos geometricus (see Wieacker, A History of Private Law in Europe, 1995, OUP (trans Weir), pp 254ff). The law was thus to be viewed like any other science. Few continental lawyers subscribe to this thesis today. Yet, many jurists on both sides of the Channel still dream of law as something of an inference tool; that is to say, a model from which solutions can be arrived at in some kind of objective way (see, for example, Birks (1996) 26 UWAL Rev 1). Of course, there will be gaps in the system, and these gaps mean that interpretation and argumentation are the key methods, but for many theorists, such interpretation is not to be identified with discretion. It is to be disciplined by a ‘scientific’ and ‘logical’ mentality. Viscount Simon talks of scientific truths. However, do scientists today actually see their work in terms of discovering truths? Or (perhaps like lawyers?) do they construct contingent models that simply explain and predict? There are several reasons why the common lawyer has never really subscribed to the notion of law as science. The absence of a university tradition in English law until this century is one, but the jury is another. Until relatively recently, there were juries in all private law cases heard in the common law courts and jurors never had to give reasons for their decisions. Their job was to decide questions of fact, and how they arrived at their decisions was outside of the scope of legal science. Juries are still to be found in one area of the law of obligations, the law of defamation (see John v MGN, p 685). What if it is discovered that a jury reached its

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3

4

decisionby throwing a dice or consulting an astrological chart? (Cf R v Young [1995] QB 324.) If a plaintiff is able to establish that there is a 51% probability that the defendant’s wrong caused his injury, ought the plaintiff to succeed (assuming all the other requirements for a cause of action are satisfied)? Is it true to say that a court of law is never engaged in any search for truth? Jones v National Coal Board [1957] 2 QB 55, CA Denning LJ:…No one can doubt that the judge, in intervening as he did, was actuated by the best motives… Nevertheless we are quite clear that the interventions, taken together, were far more than they should have been. In the system of trial which we have evolved in this country, the judge sits to hear and determine the issues raised by the parties, not to conduct an investigation or examination on behalf of society at large, as happens, we believe, in some foreign countries. Even in England, however, a judge is not a mere umpire to answer the question: “How’s that?” His object, above all, is to find out the truth, and to do justice according to the law; and in the daily pursuit of it the advocate plays an honourable and necessary role… So firmly is all this established in our law that the judge is not allowed in a civil dispute to call a witness whom he thinks might throw some light on the facts… So also it is for the advocates, each in his turn, to examine the witnesses, and not for the judge to take it on himself lest by so doing he appear to favour one side or the other… The judge’s part in all this is to hearken to the evidence, only himself asking questions of witnesses when it is necessary to clear up any point that has been overlooked or left obscure; to see that the advocates behave themselves seemly and keep to the rules laid down by law; to exclude irrelevancies and discourage repetition; to make sure by wise intervention that he follows the points that the advocates are making and can assess their worth; and at the end to make up his mind where the truth lies. If he goes beyond this, he drops the mantle of a judge and assumes the robe of an advocate; and the change does not become him well…

Notes and questions 1

2

‘The only interest and duty of the judge is to seek to do justice in accordance with the law. The interest of the parties is to seek a favourable decision and their duty is limited to complying with the rules of the court, giving truthful testimony and refraining from taking positive steps to deceive the court’ (Sir John Donaldson, Abse v Smith [1986] 1 QB 536, p 545). Is a judge, as Denning LJ seems to claim, under any duty to search for the truth? Ought judges to have to rely upon the parties when it comes to expert witnesses, cross-examination, etc, or should they be able to take a more active role? Denning LJ says that the judge who goes beyond the passive role assumes the role of an advocate. Does this mean that all 5

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civilianjudges—who do have much more active roles than their common law brethren—are not true judges, but partisan advocates? Professor Jolowicz once observed how the disappearance of the jury in civil cases (defamation remains an exception) has hardly affected the procedural structure of litigation; one has to imagine that a jury still exists. Why do you think the jury has largely disappeared from non-criminal cases and why do you think that its ghost remains? If the judge does not represent society, who does he or she represent when hearing a case? C (A Minor) v DPP [1996] AC 1 Queen’s Bench Division and House of Lords Laws J (QBD):… But antiquity of itself confers no virtue upon the legal status quo. If it did, that would assault one of the most valued features of the common law, which is its capacity to adapt to changing conditions. The common law is not a system of rigid rules, but of principles, whose application may alter over time, and which themselves may be modified. It may, and should, be renewed by succeeding generations of judges, and so meet the needs of a society that is itself subject to change… … [T]he rules as to stare decisis provide a crucial counterpoint to the law’s capacity for change: apparently established principles are not to be altered save through measured deliberation of a hierarchical system. First instance courts do not, on the whole, effect root and branch changes to legal principle, since if they were permitted to do so legal certainty, which is at least as important as legal adaptability, would be hopelessly undermined. But the Divisional Court is in a peculiar position. In point of hierarchy, it is a first instance court, an arm of the Queen’s Bench Division. But it is also an appellate court for cases like the present; and in such cases there is no appeal from its decisions save to the House of Lords… Lord Lowry (House of Lords):… It is hard, when discussing the propriety of judicial law-making, to reason conclusively from one situation to another,…I believe, however, that one can find in the authorities some aids to navigation across an uncertainly charted sea. (1) If the solution is doubtful, the judges should beware of imposing their own remedy. (2) Caution should prevail if Parliament has rejected opportunities of clearing up a known difficulty or has legislated, while leaving the difficulty untouched. (3) Disputed matters of social policy are less suitable areas for judicial intervention than purely legal problems. (4) Fundamental legal doctrines should not be lightly set aside. (5) judges should not make a change unless they can achieve finality and certainty… It is always a worry, at any level of adjudication, when what is thought to be the law and what is alleged to represent common sense do not appear to coincide…

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Questions 1 2 3 4

Does Laws J have a different view of the role of a first instance judge than Vinelott J (in Derby v Weldon)? Are judges under a duty to bring, if at all possible, the law into line with common sense? Would a lawyer from a codified system ever see law and legal reason in terms of ‘navigation across an uncertainly charted sea’? Is Lord Lowry’s view of the judicial role too restrictive in comparison with the role of judges in other EU jurisdictions?

(b) Court of Appeal Viscount de L’Isle v Times Newspapers [1988] 1WLR 49 Court of Appeal Balcombe LJ:… An appeal to the Court of Appeal is by way of rehearing: see RSC Ord 59 r 3(1). Unlike those cases where statute limits the right of appeal to a question of law, this court in a case such as the present has the right, and indeed the duty, to review the decision of the judge at first instance both on law and on fact. In doing so, it will, of course, follow certain well-established principles. Thus, it will not normally interfere with a finding of fact by the judge of first instance, where that finding depends on the credibility of a witness whom the judge has observed giving evidence. Again, an appellate court may interfere with the exercise of a discretion by a judge of first instance only if it is satisfied that the judge has erred in certain well-defined respects… But, subject to the established limitations, this court can and should be prepared to review the decision of a judge of first instance, both as to law and as to fact… Watt or Thomas v Thomas [1947] AC 484 House of Lords Viscount Simon:… If there is no evidence to support a particular conclusion (and this is really a question of law), the appellate court will not hesitate so to decide. But if the evidence as a whole can reasonably be regarded as justifying the conclusion arrived at the trial, and especially if that conclusion has been arrived at on conflicting testimony by a tribunal which saw and heard the witnesses, the appellate court will bear in mind that it has not enjoyed this opportunity and that the view of the trial judge as to where credibility lies is entitled to great weight… I would only add that the decision of an appellate court whether or not to reverse conclusions of fact reached by the judge at the trial must naturally be affected by the nature and circumstances of the case under consideration. What I have said applies to appeals from a judge sitting alone. Conclusions of fact embodied in the verdict of a jury cannot be subjected to the same degree of re-examination—for the course of reasoning by which the verdict has been reached is not disclosed—and consequently the verdict of a jury on fact must stand if there was any evidence to support it and if the conclusion is one at which a reasonable jury when properly directed might reasonably arrive…

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Questions 1 2

3 4

What is meant by a ‘rehearing’? Can the Court of Appeal hear witnesses? If so, could the appeal judges question these witnesses in any depth? (Cf Practice Direction (Court of Appeal (Civil Division)) [1999] 1 WLR 1027.) What is the role of the Court of Appeal in English law? (Cf Practice Direction, above.) Can appeal judges decide cases on points of law not raised by the parties? What if they feel that a plaintiff has pleaded a case in the wrong sort of way? (Cf Esso v Southport, p 216 and CTN Cash and Carry v Gallaher, p 504.) Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192 House of Lords Lord Diplock:… I do desire, however, to comment upon the use sought to be made both in this House and in the Court of Appeal of previous judgments of that court which do not appear in any series of published law reports. This is a growing practice and one which, in my view, ought to be discouraged. Transcripts of the shorthand notes of oral judgments delivered since April 1951 by members of the Court of Appeal, nearly all extempore, have been preserved at the Royal Courts of Justice, formerly in the Bar Library but since 1978 in the Supreme Court library. For much of this period this course has been followed as respects all judgments of the civil division of the Court of Appeal, though recently some degree of selectivity has been adopted as to judgments to be indexed and incorporated in the bound volumes. Unreported judgments which have been delivered since the beginning of 1980 are now also included in the computerised database known as Lexis and this has facilitated reference to them. Two such transcripts are referred to in the judgment of the Court of Appeal in the instant case. One of these was a case, Hudson’s Concrete Products Ltd v DB Evans (Bilston) Ltd, to which my noble and learned friend refers, which had been the subject of a note in the Solicitors’ Journal (1961) 105 SJ 281. The other had not been noted in any professional journal, nor had either of the two additional transcripts to which your Lordships were referred at the hearing in this House. For my part, I gained no assistance from perusal of any of these transcripts. None of them laid down a relevant principle of law that was not to be found in reported cases; the only result of referring to the transcripts was that the length of the hearing was extended unnecessarily. This is not surprising. In a judgment, particularly one that has not been reduced into writing before delivery, a judge, whether at first instance or upon appeal, has his mind concentrated upon the particular facts of the case before him and the course which the oral argument has taken. This may have involved agreement or concessions, tacit or explicit, as to the applicable law, made by counsel for the litigating parties in what they conceived to be the interests of their respective clients in obtaining a favourable outcome of the particular case. The primary duty of the Court of Appeal on an appeal in any case is to determine the matter actually in dispute between the parties. Suchpropositions 8

The Structure of the Common Law of law as members of the court find necessary to state and previous authorities to which they find it convenient to refer in order to justify the disposition of the actual proceedings before them will be tailored to the facts of the particular case. Accordingly, propositions of law may well be stated in terms either more general or more specific than would have been used if he who gave the judgment had in mind somewhat different facts, or had heard a legal argument more expansive than had been necessary in order to determine the particular appeal. Even when making successive revisions of drafts of my own written speeches for delivery upon appeals to this House, which usually involve principles of law of wider application than the particular case under appeal, I often find it necessary to continue to introduce subordinate clauses supplementing, or qualifying, the simpler, and stylistically preferable, wording in which statements of law have been expressed in earlier drafts. There are two classes of printed law reports: the two weekly series of general law reports: (a) the Weekly Law Reports of the Incorporated Council of Law Reporting, of which the more important, contained in Parts 2 and 3, are later reproduced in the Law Reports proper, together with a summary of the arguments of counsel, and (b) the All England Law Reports which report much the same cases as the former series; these do not err on the side of overselectivity. Then there are the various series of specialised law reports which seem to have proliferated in the course of the last few decades; these may be useful in helping lawyers practising in specialised fields to predict the likely outcome of the particular case in which they are advising or instituting proceedings, by seeing how previous cases in which the facts were in various respects analogous were actually decided; but these specialised reports contain only a small minority of leading judgments in which some new principle of law of general application in the specialised field of law is authoritatively propounded, as distinct from some previously accepted principle being applied to the facts of a particular case. If a civil judgment of the Court of Appeal (which has a heavy case load and sits concurrently in several civil divisions) has not found its way into the generalised series of law reports or even into one of the specialised series, it is most unlikely to be of any assistance to your Lordships on an appeal which is sufficiently important to reach this House. My Lords, in my opinion, the time has come when your Lordships should adopt the practice of declining to allow transcripts of unreported judgments of the Civil Division of the Court of Appeal to be cited upon the hearing of appeals to this House unless leave is given to do so; and that such leave should only be granted upon counsel’s giving an assurance that the transcript contains a statement of some principle of law, relevant to an issue in the appeal to this House, that is binding upon the Court of Appeal and of which the substance, as distinct from the mere choice of phraseology, is not to be found in any judgment of that court that has appeared in one of the generalised or specialised series of reports.

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Notes and questions 1

2 3

How is a law reporter to know if a case is one of principle? At the time of the giving of the judgments, did (for example) Mint v Good (p 675) seem an important case of principle? Is an unreported case incapable of acting as a precedent? ‘[T]he Divisional Court…is not called a court of appeal for in my opinion it is not such a court. It is, generally speaking, a court of review having wide powers to countermand the decisions of others no matter where those decisions emanate from, be it below the High Court or outside the courts altogether. It should therefore, in my judgment, be regarded as sui generis, for such it is. At times, depending on the function it is exercising, I dare say it could, practically speaking, be called a Court of Appeal, at other times clearly not. What I am confident it can never, in any circumstances, be called is a court of first instance’ (Watkins LJ in R v Leeds County Court ex p Morris [1990] 1 QB 523, p 531). What is the difference between a court of review and a Court of Appeal? Is a Divisional Court a public (rather than private) law court?

(c) House of Lords Miliangos v George Frank (Textiles) Ltd [1976] AC 443 House of Lords Lord Wilberforce:… The law on this topic is judge made; it has been built up over the years from case to case. It is entirely within this House’s duty, in the course of administering justice, to give the law a new direction in a particular case where, on principle and in reason, it appears right to do so. I cannot accept the suggestion that because a rule is long established only legislation can change it—that may be so when the rule is so deeply entrenched that it has infected the whole legal system, or the choice of a new rule involves more farreaching research than courts can carry out… Lord Simon (dissenting):… Law is too serious a matter to be left exclusively to judges… [T]he training and qualification of a judge is to elucidate the problem immediately before him, so that its features stand out in stereoscopic clarity. But the beam of light which so illuminates the immediate scene seems to throw surrounding areas into greater obscurity; the whole landscape is distorted to the view. A penumbra can be apprehended, but not much beyond; so that when the searchlight shifts a quite unexpected scene may be disclosed. The very qualifications for the judicial process thus impose limitations on its use. This is why judicial advance should be gradual. ‘I am not trained to see the distant scene: one step is enough for me’ should be the motto on the wall opposite the judge’s desk. It is, I concede, a less spectacular method of progression than somersaults and cartwheels; but it is the one best suited to the capacity and resources of a judge. We are likely to perform better the duties society imposes on us if we recognise our limitations. Within the proper limits there is more than enough to be done which is of value to society… 10

The Structure of the Common Law

There are three more general questions which are raised by this important appeal. (1) Overruling…involves that the law must be deemed always to have been as my noble and learned friends now declare it. This may affect the vires of some rules of court; but beyond this there has been, so far as I can see, no consideration of what consequences the retrospective alteration of the law (for, let us face it, that is the reality) may have. I would be more ready to go along with my noble and learned friends if the decision had prospective effect only. One of the several reasons why radical law reform is in general more appropriately carried out by Parliament is that a statute can (and usually does) operate prospectively. I venture once again to plead that consideration should be given to the various forms of prospective overruling, such as obtain in some other common law systems. (2) The type of law reform by judiciary which is here exemplified, and which has been exemplified in some other recent cases, is a very considerable social responsibility. Of course, no worthwhile judge is afraid of responsibility. But I presume to suggest that consideration should be given to the desirability of the Lords of Appeal sitting in banc in such circumstances—at least where the overruling of a recent decision of your Lordships’ House is in question. (3) The main ground of my dissent from the opinions of my noble and learned friends is that this type of issue is unsuitable for law reform by judiciary. It is the sort of case where, in my view, a wide range of advice, official especially but also commercial, is required. The training and experience of a judge is unsuitable for this type of decision making unaided: his circumspection is too narrow; his very qualities of keen perception of his immediate problem tend to militate against sound judgment of the wider and more general issues involved. But if the courts are to undertake legislative responsibilities, something might be done to equip them better for the type of decision making which is involved. Official advice and a balanced executive view might be made available by a law officer or his counsel acting as amicus curiae. I venture to suggest consideration of some such machinery.

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 House of Lords (See also p 799.) Lord Goff (dissenting):… In the present case,…it is not the function of your Lordships’ House to rewrite the agenda for the law of restitution, nor even to identify the role of equitable proprietary claims in that part of the law. The judicial process is neither designed for, nor properly directed towards, such objectives. The function of your Lordships’ House is simply to decide the questions at issue before it in the present case… It is a truism that, in deciding a question of law in any particular case, the courts are much influenced by considerations of practical justice, and especially by the results which would

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flow from the recognition of a particular claim on the facts of the case before the court… As a matter of practical justice,… it was to achieve justice that the House [in Sinclair v Brougham] had recourse to equity to provide the answer. It is, I think, apparent from the reasoning of the members of the Appellate Committee that they regarded themselves, not as laying down some broad general principle, but as solving a particular practical problem… …I regard the decision in Sinclair v Brougham as being a response to that problem in the case of ultra vires borrowing contracts, and as not intended to create a principle of general application. From this it follows, in my opinion, that Sinclair v Brougham is not relevant to the decision in the present case. In particular it cannot be relied upon as a precedent that a trust arises on the facts of the present case, justifying on that basis an award of compound interest against the council…

Notes and questions 1

2

3

4

‘Your Lordships’ task in this House is to decide particular cases between litigants and your Lordships are not called upon to rationalise the law of England. That attractive if perilous field may well be left to other hands to cultivate… Arguments based on legal consistency are apt to mislead for the common law is a practical code adapted to deal with the manifold diversities of human life, and as a great American judge has reminded us, “the life of the law has not been logic; it has been experience”’ (Lord Macmillan in Read v J Lyons and Co [1947] AC 156, p 175). Upon whom, then, is the task of rationalising the law of England? ‘In a contest purely between one litigant and another, such as the present, the task of the court is to do, and be seen to be doing, justice between the parties… There is no higher or additional duty to ascertain some independent truth?’ (Lord Wilberforce in Air Canada v Secretary of State for Trade [1983] 2 AC 394, p 438). Is it really realistic to treat the parties in this case as ordinary litigants involved in some private dispute? Is not the House of Lords diminishing its own role? How might the above judicial comments be affected by the Woolf Reforms introduced in 1999? (Cf Holland and Webb, Learning Legal Rules, 4th edn, 1999, Blackstone, pp 13–17.) The judicial extracts from the Miliangos case, together with the comments from other House of Lords cases, are set out not just in order to try to establish the role of the UK’s highest court. They are set out for comparative reasons. Jurists from civil law countries will, hopefully, glean from these extracts something of the mentality of the common lawyer. There is no notion here of the juge automate mechanically applying axioms to factual situations; the common law is conceived, instead, as a system of practical justice where the role of even the highest court is simply to decide particular cases as they come before the court. There is, of course, something fictional about this attitude just as there is about the juge automate. Nevertheless, 12

The Structure of the Common Law

5 6 7

8

the extracts ought to help explain why metaphors such as ‘uncharted seas’ are so easily applied to the common law. One question that the civilian might wish to ask is this. Is the mentality of the common lawyer too conservative to achieve much in the way of law reform? What is meant by prospective overruling? (Cf Kleinwort Benson v Lincoln CC, p21.) How can the executive make its view known in an English court? How might the role of a court influence the development of the law of obligations? If the duty of a trial or an appeal judge were to change, would this, in the longer term, lead to changes in legal thinking itself? Is Lord Simon saying that cases do not lay down general principles?

3 THE ROLE OF PRECEDENT On the continent, the civil codes are seen as providing both structure and stability to the law. In an uncodified system like English law, this structure and stability has, of course, to come from elsewhere and this is the reason why precedent assumes such importance in theory, if not so much in practice. It is important for law to appear as a rational discourse, and part of this rationality is to be found in its apparent ability to predict as well as to explain. Precedent thus becomes part of the science of the common law; it acts as the means of analysis of past decisions and the basis for predicting future decisions. In practice, the doctrine of precedent must be treated with a certain caution, since the methodology of distinguishing cases can always act as a means by which inconvenient authorities can be bypassed; and when this happens, the method of analysing cases needs to stretch beyond the precedent doctrine itself. One needs to look very closely at the reasoning methods used (cf Chapter 2) and the objectives (social, economic, political) of the relevant areas of law (cf, for example, Chapter 7). Qualcast (Wolverhampton) Ltd v Haynes [1959] AC 743 House of Lords Lord Somervell: My Lords, I also would allow the appeal. In the present case the county court judge, after having found the facts, had to decide whether there was, in relation to this plaintiff, a failure by the defendants to take reasonable care for his safety. It is, I think, clear from the passage cited by my noble and learned friend that he would have found for the defendants but for some principle laid down, as he thought, by the authorities, to which he referred. I hope it may be worthwhile to make one or two general observations on the effect on the precedent system of the virtual abolition of juries in negligence actions. Whether a duty of reasonable care is owed by A to B is a question of law… When negligence cases were tried with juries, the judge would direct them as to the law… The question whether on the facts in that particular case there was or was not a failure to take reasonable care was a question for the jury. 13

Sourcebook on Obligations and Remedies There was not, and could not be, complete uniformity of standard. One jury would attribute to the reasonable man a greater degree of prescience than would another. The jury’s decision did not become part of our law citable as a precedent. In those days, it would only be in very exceptional circumstances that a judge’s direction would be reported or be citable. So far as the law is concerned, they would all be the same. Now that negligence cases are mostly tried without juries, the distinction between the functions of judge and jury is blurred. A judge naturally gives reasons for the conclusion formerly arrived at by a jury without reasons. It may sometimes be difficult to draw the line, but if the reasons given by a judge for arriving at the conclusion previously reached by a jury are to be treated as ‘law’ and citable, the precedent system will die from a surfeit of authorities… Lord Denning:… The question that did arise was this: What did reasonable care demand of the employers in this particular case? That is not a question of law at all but a question of fact. To solve it the tribunal of fact—be it judge or jury—can take into account any proposition of good sense that is relevant in the circumstances, but it must beware not to treat it as a proposition of law… So here, this being a case governed by the common law and not by any statute or regulation, the standard of care must be fixed by the judge as if he were a jury, without being rigidly bound by authorities. What is ‘a proper system of work’ is a matter for evidence, not for law books. It changes as the conditions of work change. The standard goes up as men become wiser. It does not stand still as the law sometimes does. I can well see how it came about that the county court judge made this mistake. He was presented with a number of cases in which judges of the High Court had given reasons for coming to their conclusions of fact. And those reasons seemed to him to be so expressed as to be rulings in point of law: whereas they were in truth nothing more than propositions of good sense…

Notes and questions 1

2 3 4

We have already mentioned how the absent jury in private law continues to exert an influence. Perhaps this case provides a good example of how the roles of judge and jury must be properly understood before one can have a proper understanding of the modern law of contract and tort. Take the tort case of Bolton v Stone [1951] AC 850 (read it in the law report): in the days of judge and jury, would the point in issue have been one for the judge or one for the jury? What about Smith v Littlewoods (p 647)? Is the question of reasonable behaviour a matter of judicial intuition? Is it really realistic to say that decisions of fact will not influence future cases? Read Kopitoff v Wilson (1876) 1 QBD 377 in the law report. What was the role of a jury in a contract case?

14

The Structure of the Common Law Knuller Ltd v DPP [1973] AC 435 House of Lords Lord Simon of Glaisdale:… In my view, the appeal turns on how far your Lordships are justified in altering the law as previously established. The sanction for your Lordships’ departure from a rule of law laid down by a previous decision of your Lordships’ House rests on an announcement made on 26 July, 1966, by Lord Gardiner LC with the approval of all the Lords of Appeal in Ordinary at that time [Practice Statement (Judicial Precedent) [1966] 1 WLR 1234]. The background to, the mode of, and the terms of, this announcement are all of importance to the decision of the instant appeal. Before that announcement there had been judgments in your Lordships’ House to the effect that your Lordships, sitting judicially, were bound by a previous decision of your Lordships’ House in that capacity… This was put on two grounds: first, that a decision of your Lordships’ House, sitting judicially, established the law in such a way that it was binding on all subjects of the Crown, including your Lordships, so that it could only be altered by a decision of the entire Parliament: Beamish v Beamish (1861) 9 HL Cas 274, especially p 338 (Lord Campbell); and, secondly, that such a rule was necessary in order to provide the law with desirable certainty: London Street Tramways Co Ltd v London County Council [1898] AC 375, especially p 380 (Lord Halsbury LC). The declaration of 26 July, 1966, was not made in the course of decision of a judicial appeal to your Lordships—even though it is in fact arguable that, notwithstanding anything said in previous cases, your Lordships are entitled at common law to depart from previous decisions: cf the judgment of the Supreme Court of the United States in Linkletter v Walker (1965) 381 US 618. Nor was the declaration of July 26, 1966, the subject matter of statutory enactment. But, since the announcement was made by the Lord Chancellor, it must be taken to have had general executive approval; nor was any objection raised elsewhere in Parliament. The new practice announced in the declaration of 26 July 1966 must, therefore, in my view, be considered to be one of those conventions which are so significant a feature of the British Constitution, as Professor Dicey showed in his famous work. But it follows, in my respectful submission, that the actual terms of the declaration must provide essential guidance to your Lordships in making use of the new freedom vouchsafed by it. These terms were as follows [1966] 1 WLR 1234: Their Lordships regard the use of precedent as an indispensable foundation upon which to decide what is the law and its application to individual cases. It provides at least some degree of certainty upon which individuals can rely in the conduct of their affairs, as well as a basis for orderly development of legal rules. Their Lordships nevertheless recognise that too rigid adherence to precedent may lead to injustice in a particular case and also unduly restrict the proper development of the law. They propose, therefore, to modify their present practice and, while treating former decisions of this House as normally binding, to depart from a previous decision when it appears right to do so. In this connection they will bear in mind the danger of disturbing retrospectively the basis on which contracts, settlements of property and fiscal arrangements have been entered into and also the especial need for certainty as to the criminal

15

Sourcebook on Obligations and Remedies law. This announcement is not intended to affect the use of precedent elsewhere than in this House. I draw particular attention to the words ‘the especial need for certainty as to the criminal law’… Certainty is a desirable feature of any system of law. But there are some types of conduct desirably the subject matter of legal rule which cannot be satisfactorily regulated by specific statutory enactment, but are better left to the practice of juries and other tribunals of fact. They depend finally for their juridical classification not upon proof of the existence of some particular fact, but upon proof of the attainment of some degree… But, in any case, the type of ‘uncertainty’ invoked by the appellants is not that with which the declaration of 26 July 1966 [1966] 1 WLR 1234 was concerned. The context was the doctrine of precedent. The declaration was, in other words, concerned with that certainty which comes from following rules of law already judicially determined, not with any such certainty as may come from the abrogation of those judicially determined rules of law which involve issues of fact and degree… The Hannah Blumenthal [1983] 1 AC 854 Court of Appeal and House of Lords Lord Denning MR (Court of Appeal):… At the outset, there is this point. Is this court bound by the decision of the House of Lords in Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909? That was very like this. It was a case between German shipbuilders and Indian buyers. The contract there was governed by German law, but provided for arbitration in London. It included a time bar, barring any claim for defects. It barred them after 12 months. The claim went to arbitration in London. The alleged defects appeared in 1966. The arbitration was not started for five years. The buyers sought to overcome the time bar by saying that it did not apply to the arbitration in London. The arbitration dragged on so long that after 12 years, the German shipbuilders applied to stop the arbitration from going any further. Donaldson J [1981] AC 909, p 933, stopped it. So did this court consisting of myself and Roskill and Cumming-Bruce LJJ [1981] AC 909, p 961. Yet the House of Lords reversed us. It was by three against two. In a single judgment, the three allowed the arbitration to go on. It is, we are told, still going on, though it is now 16 years past. I remember, of course, the rebuke which Lord Hailsham of St Marylebone LC gave to us in Broome v Cassell and Co Ltd [1972] AC 1027, p 1054, when he said: …in the hierarchical system of courts which exists in this country, it is necessary for each lower tier, including the Court of Appeal, to accept loyally the decisions of the higher tiers. But that raises at once the question: what do you mean by the ‘decision’ of the higher courts? Presumably the reason for the decision. The ratio decidendi as the classicists call it. The reason which is necessary for the decision. It is binding on the lower courts. It is to be distinguished from the obiter dicta. These are the reasons which are not necessary for the decision. They are not binding on the lower courts. The task of distinguishing between them is formidable. Especially when there are four or five speeches and they each gave different reasons, as

16

The Structure of the Common Law in Boys v Chaplin [1971] AC 356. Then ‘the ratio decidendi of the case must be somewhat speculative’: see Dicey and Morris, The Conflict of Laws, 10th edn, 1980, Vol 2, p 942; and the lower court can choose which it likes. To avoid this embarrassment there has been a marked tendency in recent years in the House of Lords for one of their Lordships to give a single speech and the others to concur. The object is, no doubt, to avoid the difficulties caused by different reasons given by different judges. This object is laudable enough. It is much to be commended in some cases. But it is apt to give rise to problems in others. It may be presumptuous of me to criticise but I make so bold as to indicate to their Lordships the problems to which a single judgment may give rise. Not often, but just occasionally, it makes it exceedingly difficult to discover what is the ratio decidendi of a case—as distinct from the obiter dicta. It is so difficult that often times the lower courts do not even attempt the task. They treat the words of the single judgment as binding authority. They treat them almost as if they were the words of a statute. So treated, the words are apt to lead lower courts astray. Whereas if there had been, not one single judgment, but three or four or five, it would have been much easier to separate the wheat from the chaff and to discover what was really the ratio decidendi—and therefore binding—as distinct from obiter dicta and not binding. As an instance of the problems created by a single judgment, I would draw attention to a few recent cases in which the obiter dicta have been treated as binding and have afterwards been discovered to be erroneous or to have given rise to an infinity of trouble. First, of course, Director of Public Prosecutions v Smith [1961] AC 290, on criminal intent, where I would have liked to deliver a separate judgment but was discouraged from doing so. The reasoning was at once much criticised by academic writers and was reversed by Parliament by s 8 of the Criminal Justice Act 1967. Next, Rookes v Barnard [1964] AC 1129 where, pp 1221–31, there was one single judgment on exemplary damages. It gave rise to the controversy in Broome v Cassell and Co Ltd [1972] AC 1027, where Lord Wilberforce gave a reasoned dissent from it, pp 1114–21. To these I would add the single judgment in American Cyanamid Co v Ethicon Ltd [1975] AC 396, on interlocutory injunctions, which has given rise to ceaseless misunderstandings in the lower courts, and had to be explained in NWL Ltd v Woods [1979] 1 WLR 1294, p 1306. Then to Lim Poh Choo v Camden and Islington Area Health Authority [1980] AC 174, where the House of Lords in a single judgment admitted that a radical reappraisal of the law was needed, but not one of them undertook the task—and it looks as if it never will be undertaken. There is also the single judgment in A/S Awilco of Oslo v Fulvia SpA di Navigazione ofCagliari [1981] 1 WLR 314, which has been severely criticised in the Law Quarterly Review: (1981) 97 LQR 379. By contrast, in the Court of Appeal, if we reverse the judgment of a judge below, our custom, save in exceptional cases, is for each member of the court to give his own reasons in his own words. We do it out of courtesy to him. But it is, in truth, not mere courtesy. It helps the judges of first instance to discover the ratio decidendi of the case.

17

Sourcebook on Obligations and Remedies All this makes me regret very much that in Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation Ltd [1981] AC 909 there was only one single judgment in the House of Lords—concurred in by two othersas against two fully reasoned judgments in the House, three in the Court of Appeal, and one at first instance.

(2) The ratio decidendi of Bremer Vulkan I turn, therefore, to the principal task - to find out the ratio decidendi of the single judgment in the Bremer Vulkan case, I take as my starting point the words of Lord Simon of Glaisdale in Lupton v FA and AB Ltd [1972] AC 634, p 658: ...what constitutes binding precedent is the ratio decidendi of a case, and this is almost always to be ascertained by an analysis of the material facts of the case - that is, generally, those facts which the tribunal whose decision is in question itself holds, expressly or implicitly, to be material. I find the material facts in the Bremer Vulkan case in the concluding words of Lord Diplock [1981] AC 909, p 987: In the instant case, however, as in Crawford v AEA Prowting Ltd [1973] QB 1, the respondents were content to allow the claimant to carry out voluntarily the preparation of detailed points of claim. They never made an application for directions to the arbitrator and none were made by him. For failure to apply for such directions before so much time had elapsed that there was a risk that a fair trial of the dispute would not be possible [both claimant and respondent were in my view in breach of their contractual obligations to one another; and neither can rely upon the other’s breach as giving him a right to treat the primary obligations of each to continue with the reference as brought to an end]. Respondents in private arbitrations are not entitled to let sleeping dogs lie and then complain that they did not bark’ [Emphasis and brackets added.] In that passage I would ask you to note the emphasis placed on the breach by the respondents—on their failure to apply for directions. That is the real ratio decidendi of the case. To illustrate this I have put brackets round the words which I suggest are obiter dicta. The reasoning in the passage would be just as cogent if there were substituted there these words: ‘the respondents were in my view in breach of their contractual obligations and cannot rely on the claimant’s breach as giving them the right to treat the arbitration as at an end.’ This shows that the material facts - to use the test of Lord Simon of Glaisdale were that the respondents had failed to apply for directions and were thus in breach of their contractual obligations. The respondents were not entitled to let sleeping dogs lie. It was quite immaterial that the claimants had failed to apply for directions. The sleeping dog was not bound to wake up and bark. But if it was bound to wake up and bark—meaning, if the claimants were bound to apply for directions—en it was not as a mutual obligation binding on both jointly. It was a separate obligation binding on each separately. Like the separate obligation on each side of a contract of sale. If one side is guilty of a repudiatory breach, the other can accept it, and vice versa.

18

The Structure of the Common Law On this analysis I regard the ratio decidendi—the essential reason for the decision, as being that, on the facts of that case, the respondents were at fault themselves. They had not applied for directions as they should have done. They were disentitled—by their own conduct—from asking for an injunction to stop the arbitration. If I am right in regarding this as the ratio decidendi of the case, it follows that the observations about there being a ‘mutual obligation’ on each party were obiter dicta. They are not binding on lower courts. I have given my reasons in Andre et Compagnie SA v Marine Transocean Ltd [1981] QB 694, pp 700–02, for believing them to be erroneous; and in this I am reinforced by the judgment which Kerr LJ is about to give. The result in this case The present case on its facts is quite distinguishable from the facts in the Bremer Vulkan case. I see no fault whatever—no failure whatever—of the Norwegian sellers or their solicitors. I can see no reason why they should have tried to awaken the sleeping dog. No reason at all why they should have applied for directions. In point of law they could not have done so until a third arbitrator was appointed; and he never was appointed. It was not any failure of the Norwegian sellers, but the failure of the German buyers—which has made a fair trial impossible. The German buyers allowed over two years to elapse before they made any claim at all. Another eight months before they appointed an arbitrator. They never took any steps to appoint a third arbitrator. For three years they forgot all about the case. And the last word from them was when they said that they might need to amend their points of claim ‘at some stage in the future’. I cannot help thinking that these failures on their part were because they had no confidence in their claim. The exclusion clause is in all probability a complete answer to it… Another point While I was preparing my judgment in this case, another point occurred to me. It was simply this: the arbitration has never been commenced because the third arbitrator has never been appointed. The claim is, therefore, statute barred. Under s 27 of the Limitation Act 1939, the arbitration should have been commenced within six years. The cause of action accrued in December 1969. In 1972 each side appointed an arbitrator, but those two had no jurisdiction at all by themselves. Under the arbitration clause it was necessary for a third arbitrator to be appointed, not by the parties nor by the two arbitrators, but by a third person—the Baltic and International Maritime Conference in Copenhagen. In order to commence the arbitration, the German buyers ought to have requested the Baltic and International Maritime Conference in Copenhagen to appoint the third arbitrator. They never did so. The arbitration has, therefore, never been commenced. But this point was not taken before us. Nor was it argued. So all that I have said on it is obiter dicta and can, if desired, be discarded… Lord Roskill (House of Lords):… My Lords, I turn to consider the first reason which was advanced for urging that the decision in the Bremer Vulkan case

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Sourcebook on Obligations and Remedies should now be departed from. This submission when analysed amounts to no more than that this House, which by a majority rejected the conclusion of Donaldson J and the Court of Appeal, should now, less than two years later, say that the reasoning which led to that conclusion was wrong and that the reasons which appealed to the Court of Appeal and two of my noble and learned friends in this House should now be held to be the law. I have re-read all the judgments and speeches in the Bremer Vulkan case. It is apparent from their perusal that there were two possible views of the correct analysis of the nature of an arbitration agreement. One commanded the greater numerical support. The other commanded the support of the majority in this House. The law of this country is determined in this way and it was the latter view which prevailed. There are many cases where the common law of this country has been similarly determined. Two well known examples are Donoghue v Stevenson [1932] AC 562 and Bell v Lever Brothers Ltd [1932] AC 161. Each decision was subjected to considerable contemporary criticism. Each has stood the test of time and the former has been widely regarded as a milestone in the development of the law of negligence… In commercial law it is essential that the law should be certain. Your Lordships have recently re-asserted this principle on a number of occasions notably in cases arising from the alleged wrongful withdrawal of time chartered ships for supposedly unpunctual payment of hire. To review the Bremer Vulkan decision [1981] AC 909 would create not certainty but uncertainty. Were your Lordships to yield to the respondents’ submissions a few years have only to elapse and other litigants might hope to persuade a differently constituted appellate committee once again to reconsider the position and to restore the Bremer Vulkan decision to its present role… Lord Brightman (House of Lords): My Lords, I am in agreement with your Lordships, and I wish to add only a few words of emphasis of my own. I turn first to the sellers’ invitation that this House should depart from the conclusion which it reached less than two years ago in the Bremer Vulkan case [1981] AC 909. That is an invitation which I would unhesitatingly decline. Nothing has occurred since January 1981 in the field of arbitration to warrant such an inroad into the principle of ‘stare decisis’, described in R v Cunningham [1982] AC 566, p 581 as ‘the indispensable foundation of the use by your Lordships of the appellate jurisdiction of the House and its normal practice’. I appreciate that the decision in the Bremer Vulkan case may have caused alarm and despondency to respondents in moribund arbitration cases, by encouraging the attempted resuscitation of stale claims. But that is a transitory consequence of the decision. So far as the future is concerned, the decision introduces a sense of urgency into arbitration proceedings which is just as commendable there as it is in court proceedings. I would have thought that the parties themselves would welcome the incentive for speed which the Bremer Vulkan decision injects into their cases. I appreciate that some busy professional people may find this irksome, because speed tends to increase the weight of an overload of work, while deferment may sometimes ease the burden. This is a disadvantage to professional people which must be accepted. I cannot see that it is remotely unjust or unfair to tell respondents that if they suffer claimants to delay, they will lose the right to complain of that delay…

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The Structure of the Common Law [An appeal against the decision of the Court of Appeal was allowed.]

Questions 1 2

3

Where exactly did the House of Lords get its power to issue the Practice Direction of 1966? Was Lord Denning MR exceeding his powers in raising the limitation point without it having been argued in open court? Are judges entitled to use precedents in their judgments that have not been mentioned by either counsel in their arguments? Is the House of Lords giving preference to commercial certainty over justice? Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095 House of Lords (See also p 823.) Lord Goff:… Historically speaking, the declaratory theory of judicial decisions is to be found in a statement by Sir Matthew Hale over 300 years ago, viz, that the decisions of the courts do not constitute the law properly so called, but are evidence of the law and as such ‘have a great weight and authority in expounding, declaring and publishing what the law of this Kingdom is’: see Male’s Common Law of England, 6th edn, 1820, p 90. To the like effect, Blackstone Commentaries, 6th edn, 1774, pp 88–89, stated that ‘the decisions of courts are the evidence of what is the common law’. In recent times, however, a more realistic approach has been adopted, as in Sir George Jessel’s celebrated statement that rules of equity, unlike rules of the common law, are not supposed to have been established since time immemorial, but have been invented, altered, improved and refined from time to time: see In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696, p 710. There can be no doubt of the truth of this statement; and we all know that in reality, in the common law as in equity, the law is the subject of development by the judges—normally, of course, by appellate judges. We describe as leading cases the decisions which mark the principal stages in this development, and we have no difficulty in identifying the judges who are primarily responsible. It is universally recognised that judicial development of the common law is inevitable. If it had never taken place, the common law would be the same now as it was in the reign of King Henry II; it is because of it that the common law is a living system of law, reacting to new events and new ideas, and so capable of providing the citizens of this country with a system of practical justice relevant to the times in which they live. The recognition that this is what actually happens requires, however, that we should look at the declaratory theory of judicial decision with open eyes and reinterpret it in the light of the way in which all judges, common law and equity, actually decide cases today. When a judge decides a case which comes before him, he does so on the basis of what he understands the law to be. This he discovers from the applicable statutes, if any, and from precedents drawn from reports of previous judicial decisions. Nowadays, he derives much assistance from academic writings in

21

Sourcebook on Obligations and Remedies interpreting statutes and, more especially, the effect of reported cases; and he has regard, where appropriate, to decisions of judges in other jurisdictions. In the course of deciding the case before him he may, on occasion, develop the common law in the perceived interests of justice, though as a general rule he does this ‘only interstitially’, to use the expression of OW Holmes J in South Pacific Co v Jensen (1917) 244 US 2095, p 221. This means not only that he must act within the confines of the doctrine of precedent, but that the change so made must be seen as a development, usually a very modest development, of existing principle and so can take its place as a congruent part of the common law as a whole. In this process, what Maitland has called the ‘seamless web’, and I myself (The Search for Principle, Proc Brit Acad Vol LXIX (1983) 170, p 186) have called the ‘mosaic’, of the common law, is kept in a constant state of adaptation and repair, the doctrine of precedent, the ‘cement of legal principle’, providing the necessary stability. A similar process must take place in codified systems as in the common law, where a greater stability is provided by the code itself; though as the years pass by, and decided cases assume a greater importance, codified systems tend to become more like common law systems. Occasionally, a judicial development of the law will be of a more radical nature, constituting a departure, even a major departure, from what has previously been considered to be established principle, and leading to a realignment of subsidiary principles within that branch of the law. Perhaps the most remarkable example of such a development is to be found in the decisions of this House in the middle of this century which led to the creation of our modern system of administrative law. It is into this category that the present case falls, but it must nevertheless be seen as a development of the law, and treated as such. Bearing these matters in mind, the law which the judge then states to be applicable to the case before him is the law which, as so developed, is perceived by him as applying not only to the case before him, but to all other comparable cases, as a congruent part of the body of the law. Moreover, when he states the applicable principles of law, the judge is declaring these as constituting the law relevant to his decision. Subject to consideration by appellate tribunals, and (within limits) by judges of equal jurisdiction, what he states to be the law will, generally speaking, be applicable not only to the case before him but, as part of the common law, to other comparable cases which come before the courts, whenever the events which are the subject of those cases in fact occurred. It is in this context that we have to reinterpret the declaratory theory of judicial decision. We can see that, in fact, it does not presume the existence of an ideal system of the common law, which the judges from time to time reveal in their decisions. The historical theory of judicial decision, though it may in the past have served its purpose, was indeed a fiction. But it does mean that, when the judges state what the law is, their decisions do, in the sense I have described, have a retrospective effect. That is, I believe, inevitable. It is inevitable in relation to the particular case before the court, in which the events must have occurred some time, perhaps some years, before the judge’s decision is made. But it is also inevitable in relation to other cases in which the law as so stated will in future fall to be applied. I must confess that I cannot imagine how a common law system, or indeed any legal system, can

22

The Structure of the Common Law operate otherwise if the law is be applied equally to all and yet be capable of organic change. This I understand to be the conclusion reached in Cross and Harris on Precedent in English Law, 4th edn, 1991, from which I have derived much assistance, when at p 33 they ask the question: ‘what can our judges do but make new law and how can they prevent it from having retrospective effect?’ This is also the underlying theme of Lord Coulsfield’s evidence to the Scottish Law Commission quoted in para 3.14 of their Discussion Paper No 99, Judicial Abolition of the Error of Law Rule and its Aftermath (1996) (which I have read with interest and respect) in which, in the light of the decision of the Inner House in Morgan Guaranty Trust Co of New York v Lothian Regional Council 1995 SC 151, and especially the notable judgment of my noble and learned friend Lord Hope of Craighead in that case, they reconsider and resile from their previous proposal that Scots law should adopt a ‘settled understanding of the law’ provision along the lines proposed by our own Law Commission. The only alternative, as I see it, is to adopt a system of prospective overruling. But such a system, although it has occasionally been adopted elsewhere with, I understand, somewhat controversial results, has no place in our legal system. I wish to add that I do not regard the declaratory theory of judicial decision, as I have described it, as an aberration of the common law. Since I regard it as an inevitable attribute of judicial decision making, some such theory must, I imagine, be applied in civil law countries, as in common law countries; indeed I understand that a declaratory theory of judicial decision applies in Germany, though I do not know its precise form…

Questions 1

2

How accurate is Lord Goff in saying that ‘codified systems tend to become more like common law systems’? Could it be said that the common law and civil law traditions are converging? (See Zimmermann and Jansen, ‘Quieta movere: interpretative change in a codified system’, in Cane and Stapleton (eds), The Law of Obligations, 1998, OUP, pp 285–315; cf Legrand, ‘European legal systems are not converging’ (1996) 45 ICLQ 52.) Is precedent simply a matter of cases, or do academic writing and Law Commission reports now form part of the common law?

4 THE ROLE OF PARLIAMENT It is easy to think, given the history of the law of obligations in Western law, that it is a subject that has its source in case law and doctrine (academic writing). As we have suggested, to an extent it does. Yet formally, in the civil law tradition, it is statute (the codes) that acts as the primary source of liability and although the common law remains uncodified it is, today at any rate, impossible to ignore legislation as a major primary source. This legislation, admittedly, is dependent on the notions and classification categories developed by the judges. So, for example, statute uses terms, often undefined in the Act, such as “contract’, “trespass to goods’, ‘negligence’, ‘conversion’ and the like 23

Sourcebook on Obligations and Remedies

(see Torts (Interference with Goods) Act 1977; Unfair Contract Terms Act 1977). But statute has intruded into so many particular factual areas that it has become possible to say that certain types of liability are now almost exclusively statute based. Thus, liability for things (cf Chapter 7) is now a form of liability that the courts are hesitant to develop themselves; it is something they prefer to leave to Parliament (see Cambridge Water, p 665). However, even where statute governs, the courts still have a major role to play in interpreting the words of the legislation, and this interpretative role is as important as any case law analysis (see Chapter 2). Does the word ‘offer’ in a statute mean the same as in a contract textbook? What objects are covered by the word ‘plant’ in a statute dealing with safety at work? Is a car park a ‘road’? In fact the approach towards legislation is often very similar to the one adopted by the courts in interpreting wills and contracts: the point in issue is what a particular word or phrase means in the context of a particular factual situation. Statute can also exert a negative influence. And so, in some recent cases, the courts have specifically refused to develop a common law principle on the basis that the factual situation has, in general, been taken into consideration by the legislator when formulating a statute (see, for example, Murphy v Brentwood DC [1991] 1 AC 398). In these situations, the courts often claim to be responding to the policy aspect that attaches to civil liability problems. However, the idea that the courts work in partnership with the legislator—an idea that forms part of the civil law tradition—is not something that is part of English legal history. Fisher v Bell [1961] 1 QB 394 Queen’s Bench Division Lord Parker CJ:… The sole question is whether the exhibition of that knife in the window with the ticket constituted an offer for sale within the statute. I think that most lay people would be inclined to the view (as, indeed, I was myself when I first read these papers), that if a knife were displayed in a window like that with a price attached to it, it was nonsense to say that was not offering it for sale. The knife is there inviting people to buy it, and in ordinary language it is for sale; but any statute must be looked at in the light of the general law of the country, for Parliament must be taken to know the general law. It is clear that, according to the ordinary law of contract, the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract. That is clearly the general law of the country… In those circumstances I, for my part, though I confess reluctantly, am driven to the conclusion that no offence was here committed…

Notes and questions 1

This decision was altered by statute: did, then, the court give effect to the will of Parliament? Was it logically necessary to use the law of contract to decide a criminal case? 24

The Structure of the Common Law

2

3

4

‘I must confess to having felt some attraction for this approach, as a matter of logic; but I have come to the conclusion that its practical consequences are such that I do not think that it can have been the intention of the legislature so to provide’ (Lord Goff in The Derbyshire [1988] AC 276, p 302). If Lord Goff had to decide Fisher v Bell, would he have arrived at the same conclusion as Lord Parker? ‘The duty of the courts is to ascertain and give effect to the will of Parliament as expressed in its enactments. In the performance of this duty the judges do not act as computers into which are fed the statute and the rules for the construction of statutes and from whom issue forth the mathematically correct answer. The interpretation of statutes is a craft as much as a science and the judges, as craftsmen, select and apply the appropriate rules as the tools of their trade. They are not legislators, but finishers, refiners and polishers of legislation which comes to them in a state requiring varying degrees of further processing’ (Donaldson J in Corocraft Ltd v Pan-American Airways [1969] 1 QB 616, p 638). What is the difference between a craftsman and a scientist? Do they operate according to quite different theories? ‘There may be very sound social and political reasons for imposing upon local authorities the burden of acting, in effect, as insurers that buildings erected in their areas have been properly constructed in accordance with the relevant building regulations. Statute may so provide. It has not done so and I do not, for my part, think that it is right for the courts not simply to expand existing principles but to create at large new principles in order to fulfil a social need in an area of consumer protection which has already been perceived by the legislature but for which, presumably advisedly, it has not thought it necessary to provide’ (Lord Oliver in Murphy v Brentwood DC [1991] 1 AC 398, p 491–92). Are these the words of a craftsman or a scientist? X (Minors) v Bedfordshire County Council [1995] 2 AC 633 House of Lords (See also p 727.) Lord Jauncy:… Where a statute confers a private law right of action a breach of statutory duty howsoever caused will found the action. Where a statute authorises that to be done which will necessarily cause injury to someone no action will lie if the act is performed with reasonable care. If, on the other hand, the authorised act is performed carelessly whereby unnecessary damage is caused a common law action will lie. This is because the act would, but for the statute, be actionable at common law and the defence which the statute provides extends only to the careful performance of the act. The statute only authorises invasion of private rights to the extent that the statutory powers are exercised with reasonable and proper regard for the holders of such rights. Thus, careless performance of an authorised act rather than amounting to breach of a new duty simply ceases to be a defence to a common law right of action. 25

Sourcebook on Obligations and Remedies Where a statute empowers or ordains the doing of an act which, if done with due care, will cause no harm to a third party but which, if done carelessly will be likely to cause harm, and the circumstances also satisfy the other two requirements in Caparo Industries plc v Dickman [1990] 2 AC 605, namely that the relationship between plaintiff and defendant is sufficiently proximate and that it would be just and reasonable to impose a duty of care, an action will lie at common law. But it will lie simply because careless performance of the act amounts to common law negligence and not because the act is performed under statutory authority. Thus, the owners of a National Health Service Hospital owe precisely the same duty of care to their patients as do the owners of a private hospital and they owe it because of the common law of negligence and not because they happen to be operating under statutory provisions. Conversely an act which, if performed in a particular manner by a private individual, would give rise to no cause of action will no more be actionable if it happens to be performed in the same way in exercise of a statutory power or duty, breach of which does not confer a private law right of action, even if such performance is careless.

Questions 1

2

The torts of negligence and breach of statutory duty were once quite separate causes of action. They represented the distinction between a wrongful and an unlawful act. Are they still quite separate causes of action? (Cf Chapter 7.) Do owners of an NHS hospital owe precisely the same duty to a patient as a private hospital? If a private hospital carelessly causes pure economic loss to a private patient why should the patient not recover this money in an action for breach of contract against the hospital? (Cf Chapters 3 and 6.)

5 THE ROLE OF INSTITUTIONS The word ‘Institution’ is generally applied to physical manifestations of the law such as courts, the police and the judiciary. But people and things are also physical manifestations of the law since, as the Romans recognised, all law is focused around personae and res (and actiones) (Dig 1.5.1). Institutions thus have a central role with respect not just to the construction of the law but to problem solving in the whole of private and public law. For institutions, in this sense, act as the bridges between the world of law and the world of fact.

26

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(a) The institutional system Samuel G, The Foundations of Legal Reasoning, 1994, Maklu, pp 171–78 (footnotes omitted) Jacques Ellul, in a perceptive essay on the importance of Roman law, makes the point that, in addition to bequeathing the notion of the State, the concept of law and the range of judicial techniques, the Romans also provided the modern Western world with a number of legal institutions. These institutions, as others have noticed, are fundamental not just to legal thought and to legal technique, but also to the relationship between law and social reality. ‘Society handles the institutions of the law much in the same way as a child handles his bricks’, wrote Kahn-Freund in a celebrated passage in the introduction to an English translation of Renner, ‘It uses the same bricks all the time—or for a long time—today to build a manor house, tomorrow to build a factory, and the day after to build a railway station’ he continued. And he went on to make the point, a point which he described as ‘Renner’s positivist axiom’, that ‘the bricks remain the same’. What the lawyer does is to provide the bricks, but what society makes of these bricks ‘is none of the lawyer’s business’. § 1 Definitional problems Now it has to be emphasised at once that when it comes to defining a legal institution one is faced with ambiguity in that much will depend upon whether a wide or a narrow view is taken. If one takes a wide view, then the term ‘institution’ can embrace nearly all of the private law concepts of Roman law such as ownership, servitudes, contracts and marriage together with the courts and personnel of the law; however, if a narrow view is taken the term is restricted to a social reality around which rules form. With this narrower definition it is difficult to describe, say, a contract as a ‘social reality’ since it does not have the same basis in empirical reality as a person or a thing. On the other hand many legal concepts could attract the label ‘institution’ once a definition is framed around the idea of durability, communal organisation or social creation tending towards a common social end. All this may seem at first sight a rather sterile debate. Yet for the epistemologist keen to gain insights into case law a narrow view of a legal institution might well prove more useful for several reasons. First, because if one restricts institution to a social reality around which rules form this will provide a model capable of acting as a meeting point for the worlds of social fact, of legal analysis and of language in general; such a model has obvious attractions for anyone searching for an ontological starting point in legal science. Secondly, because a narrower definition of institution will allow the epistemologist to see the fundamental and enduring influence of Roman law on legal analysis and legal thought in general; this influence ought never to be underestimated by anyone interested in legal knowledge and legal habits of mind. Finally, because a narrower view of legal institution will allow the epistemologist to distinguish between legal institutions, institutional relations, legal concepts and legal categories; and such distinctions, in turn, will be useful when it comes to comprehending the kind of systems that are operating within the complexities of legal reasoning, legal method and legal education.

27

Sourcebook on Obligations and Remedies § 2 Gains and the institutional system Starting out, then, from a narrow definition of legal institution it is possible to see that the notion has its foundation in Roman legal thought and, in particular, in the Institutiones of Gaius. ‘All law’, said Gaius, ‘relates either to persons (personae), to things (res) or to actions (actiones)’. Now the importance of this structure, which as many have observed has left its mark on all the modern codes, is that it went much further than just conveniently classifying all the rules of private law under three headings or into three books. Each element of the tripartite classification had a meaning at one and the same time in the world of fact and the world of law. Thus the sociologist can talk of persons, things and courts as existing in the world of social fact just as the jurist can talk of legal subjects (personae), legal objects (res) and legal remedies (actiones) as existing in the world of law. The three terms are descriptive as well as conceptual in that they can at one and the same time be attached to ‘real’ and ‘metaphysical’ entities. Actions, admittedly, are more ambiguous in this respect since the only way they can be envisaged as existing in social reality is in terms of court buildings and legal officials; but, in tying the nature of legal claims to the processes of court procedure, the Roman jurists had a means of keeping legal ‘rights’ (iura) and legal justice (suum cuique tribuere: giving to each what is due) tied to objective social realities with the result that fundamental legal relations such as ownership (dominium) and obligations were never in need of abstract definition in terms of axiomatic propositions. In other words Roman legal thought had little need of propositional mediating concepts since they had the means of creating iura simply through the manipulation of apparent social entities. Persons, things and actions are, therefore, institutions because they act as a structure capable of envisaging at one and the same time a system of legal and a system of social relations. Indeed they go further than this. In addition to acting as elements in a system of legal and social thought, the three institutions are equally capable of forming focal points in political and economic systems with the result that the moment one devises a system of juridical relations between the institutional elements one is in effect also creating a structure that has some meaning in the worlds of political, social and economic relations. Indeed, to the Marxist, legal institutions—persona and res in particular—are the basis of capitalism and economic power. ‘Legal institutions’, writes Kahn-Freund, ‘can and must be understood as the tools used by society in achieving this ultimate aim’ of ‘production’ and ‘reproduction’. This, of course, is one reason why (Roman) law has proved so central to Western social thought and Western rationality in general. ‘Legal analysis’, observes Renner, ‘is of necessity determined by history’, for it is history that has provided law with its ‘arsenal of concepts, its terminology’… § 4 Institution and system It would be idle to think that this Gaian structure alone acted as the epistemological foundation of Western legal thought. It is, to use the explanation of Teubner with respect to systems theory in general, more concerned with explaining broad structural patterns rather than with 28

The Structure of the Common Law providing an analysis of court decisions, statutes and the like. However, the institutional structure is, of itself, a central contribution to legal thought since it acts as the basis not only for subjects and objects around which rules are affixed (‘no person shall…’; ‘no vehicle heavier than five tons shall…’), but for the elements in a system of institutional relations. Between persona and res the Roman lawyers developed the fundamental relationships of ownership (dominium) and possession (possessio); between person and person they established the legal chain’ (vinculum iuris) of the obligatio; and between actio and persona they conceived the relationship of an interest. Each of these institutions and each of these relations acted, directly or indirectly, as a classification category for a whole mass of more detailed legal propositions and judicial opinions concerning slavery, guardianship, property, succession, loss and acquisition of ownership and possession, contracts, delicts and so on. But the point is that the details within these categories were only to a limited extent defined by the institutions and institutional relations themselves; and so, as we have seen, it is quite possible to have, as between two legal systems, contrasting rules with regard to, say, the passing of property in a supermarket without the structural relationship between personae and res being in any abstract way any different. Both systems could be said to be using a model of relations based on personae, res, obligatio and dominium. What Gaius had produced, therefore, was a genuine structural model since his scheme could transcend the details of Roman law to act as an organising model for bodies of rules thrown up by societies separated from Rome by space and by time. ‘Having set out these grand categories’, writes Villey, ‘it remains continually possible to modify the contents’. And so, for example, one can add new types of property to the institutional category of res as new economic situations create new forms of wealth; equally one can add to the institution of persona non human legal subjects such as corporate groups, animals (‘animal rights’) or, indeed, even an inanimate object such as a temple. The tripartite institutional plan is, then, as Jacques Ellul has observed, the basis for a juristic world quite separate from the world of social reality. The law’, he says, ‘becomes a kind of reality imposed upon the social situation, putting it into order, and ending up by becoming more ‘true’ than the facts’. Such an abstraction is of importance to epistemology in that it immediately suggests that institutions and institutional relations function as a system. Each institution as an element, and each institutional relation as a relation between elements, make sense within the Gaian scheme only by reference to the other elements and relations. However, the Gaian structure went further than this static model in that the interrelationships between the elements and relations endowed the model with a dynamic aspect; it could, so to speak, alter the very object it was attempting to describe. Legal relations could create institutions as much as institutions could create legal relations. A good example of this dynamic ability is to be found in the notion of persona. Legal persons are those persons recognised in the legal scheme as being able to sue and be sued as an individual entity; and while it has to be said at once that the Roman materials on legal personality are very fragmented, a study of the Corpus Iuris will at least indicate that ‘the personality attached by the law to human beings is no less its own creation than that of so called ‘legal’ persons, and the questions at issue are closely bound up with those

29

Sourcebook on Obligations and Remedies which concern the nature of subjective rights and the purposes for which they exist’. Two important consequences flow from the recognition that the legal subject is as much a creation of law as it is of social fact. First, if a legal person is an entity capable of bringing or defending a legal actio in its own right, then the moment that a person—or more importantly a group of persons (universitas)—is granted the procedural power to bring an action in his, her or its own name this will have the effect of turning that person or group into a legal person. In other words a legal persona can be created indirectly simply through rules attaching to the institution of the actio. This point was clearly recognised by the later classical jurists and seems even to have been appreciated by Gaius himself who is recorded as observing that, in the grand plan, towns are treated as private people. Secondly, if a legal person is capable as an entity of bringing and defending legal actions, then it follows that such an entity must also be capable of having its own patrimony—its own fund of tangible and intangible assets and liabilities treated as a single whole. For any entity that can bring an actio in personam for a debt or for damages and an actio in rem for vindicating property rights must, by the sheer logic of the Gaian scheme, be capable of owing and owning. The modern commercial corporation is, then, a direct result of the dynamic qualities of the Gaian structure. Alongside this legal personality development was an analogous development with regard to the institution of property (res). The starting point for the institution of a thing was the piece of tangible property which could be seen and touched (res corporales) and thus represented both a social fact and a legal object. However, as Gaius himself recognised, a res was quite capable of being conceived through the obligation relationship between persona and persona; the moment that one person owed to another person a sum of money or some other performance under a contract the debt or performance became a res in itself. One person could then lay claim to this res as if it was a form of property owned by the claimant. Accordingly, a debt was, and remains today, both a creature of the law of obligations and the law of property and this duality still causes a certain conceptual confusion. In Roman law itself, the conceptual confusion at the legal relation level was largely avoided at a practical level through the fundamental dichotomy in the law of actions between actions in rem and actions in personam; the form of property which a debt represented was not so much the sum of money as the entitlement to an actio in personam. The res, therefore, was the legal relation between persona and actio and not an actual right (ius) to the money itself. In English law, one finds a similar situation with regard to debts as property in that a debt is both a personal obligation and a form of property. However, despite the fact that the res is actually called a ‘chose in action’ in the common law, the lack of a distinction between real and personal actions in the area of movable property has meant that English lawyers have found it difficult to avoid conceptual confusion when talking about rights to a debt. Is one asserting a property right or merely an obligational right? This is a point to which we shall return. But for the moment what needs to be emphasised is that a debt is a form of economic wealth that has been created entirely out of the Gaian system itself. It has no independent existence as a social reality and as a result was an example of a piece of property which was intangible (res incorporates) and existing only because of the existence of the institutional system itself. As

30

The Structure of the Common Law Gaius himself put it: Incorporates sunt quae tangi non possunt, qualia sunt ea quae iure consistunt, sicut hereditas, usufructus, obligationes quoquo modo contractae…

Notes and questions 1

2

‘[L]egal rules must be grouped in organised sets which constitute the legal authority of a certain kind of social relation around a directing idea, around a common intellectual focal point. Legal institutions correspond accordingly to these organic and systematic rule sets which govern, according to a common object, a permanent and abstract manifestation of social life… Institutions are genuine legal bodies, Ihering having written: “‘…the rules find in this common object their point of reunion: they surround it like muscles surround bones…”’ (Bergel, Théorie générate du droit, 3rd edn, 1999, Dalloz, pp 178–79). Do the rules of contract attach to the contractual relationship or to the parties to the contract? English law is not based on Roman law. Does it nevertheless conform to the institutional system?

(b) Legal subject (persona) The starting point of the institutional system was, according to one Roman jurist, the person: for all law was constituted for the sake of man (cum igitur hominum causa omne ius constitutum: Dig 1.5.2). The Latin term persona has a long and complicated history. It started life as the mask in Greek and Roman theatre—where a single actor played more than one part, different masks representing different characters—to end up as a highly technical legal term representing the capacity of a legal subject to be the bearer of legal rights and duties (Duff, Personality in Roman Private Law, 1938, CUP, pp 1–26). In Roman law itself, persona was never, as such, the focal point of any general theory or specific definition (that was never the Roman way). But it was, nevertheless, an institutional focal point in as much as it assumed a specific role in the construction of certain rules and was a term to be contrasted with res (things). Thus, in relation to remedies (and note the interrelation of the institutional system), actions (actiones) were either in rem or in personam. Also, slaves were not persons, but things, while towns, and certain other groups, were not things, but persons (Dig 50.16.16). In addition, de personis was the basis for Book I of Gaius’ Institutes: the person was a focal point to which legal rules attached. Congenital Disabilities (Civil Liability) Act 1976 (c 28) 1

Civil liability to child born disabled (1)

If a child is born disabled as the result of such an occurrence before its birth as is mentioned in subsection (2) below, and a 31

Sourcebook on Obligations and Remedies person (other than the child’s own mother) is under this section answerable to the child in respect of the occurrence, the child’s disabilities are to be regarded as damage resulting from the wrongful act of that person and actionable accordingly at the suit of the child. (2)

An occurrence to which this section applies is one which (a) (b)

(3)

affected either parent of the child in his or her ability to have a normal, healthy child; or affected the mother during her pregnancy, or affected her or the child in the course of its birth, so that the child is born with disabilities which would not otherwise have been present.

Subject to the following subsections, a person (here referred to as ‘the defendant’) is answerable to the child if he was liable in tort to the parent or would, if sued in due time, have been so; and it is no answer that there could not have been such liability because the parent suffered no actionable injury, if there was breach of legal duty which, accompanied by injury, would have given rise to the liability…

Law Reform (Miscellaneous Provisions) Act 1934 (24 & 25 Geo V, c 41) 1

Effect of death on certain causes of action (1)

Subject to the provisions of this section, on the death of any person after the commencement of this Act all causes of action subsisting against or vested in him shall survive against, or, as the case may be, for the benefit of, his estate. Provided that this subsection shall not apply to causes of action for defamation…

Questions 1 2

3

4 5 6

An unborn child is not regarded as a legal persona. Why is this? If it were to be regarded as a legal subject, at what point would this be? Why was this section drafted in the way it was? Why could it not have been drafted ‘an unborn child, when its interests are in issue, shall be treated for purposes of civil liability as a legal subject’? Are there any situations in which children who have not yet been conceived should, nevertheless, be considered as legal subjects having interests in need of protection? Is the effect of the 1934 Act to keep alive the persona of the dead legal subject? Or is it the patrimony (res) that becomes the persona? Do the dead have rights? Do the unborn have rights? Do the unconceived have rights? Which of these have, if not rights, then interests? Read Airedale NHS Trust v Bland [1993] AC 789 in the law report. Was Tony Bland being treated as a persona or a res? Whose interests did the courts protect? 32

The Structure of the Common Law

Notes 1

2

The first point to be made about the institution of the persona is that it acted as the foundation of one of the great categories of law: the law of persons. In modern civil law, the law of persons can be divided into two broad areas: legal personality and status. The former is concerned with the nature and definition of the legal subject (for example, children in the womb, companies, associations), while the latter is ‘the condition of belonging to a class in society to which the law ascribes peculiar rights and duties, capacities and incapacities’ (the Ampthill Peerage case [1977] AC 547, p 577) (for example, children, citizens, aliens, etc). In truth, the law of persons is much more complex than this broad division suggests, in that it has come to embrace not just company law (and associated groups), nationality, aspects of mental health law and the like, but also family law, including the law relating to children. These subjects are often intimately tied up with the law of things (property and obligations) and law of actions (remedies)—indeed, persona and partrimonium are inextricably interlinked in a bipolar relationship. And thus, in some respects, the arbitrary allocation of a subject like company or family law to the law of persons can appear both conceptually and empirically artificial (cf CC, Art 1387). Nevertheless, there is a logic to the inclusion of family law within the law of persons, since marriage is more than a contract between two individuals; it is an institution capable of attracting its own rules and marriage itself is a form of status. Accordingly, viewed from the institutional scheme as preserved by the European codes, the law of persons remains a valuable category for orientating thinking towards the legal subject as starting point. If the human (homo) is the starting point for legal thought, it should by no means be assumed that all human beings, even in modern law, automatically have legal personality. Unborn children present particular problems, in that they have interests, but not personality (as the 1976 Act above indicates, and see Dig 1.5.7); and death of a human does not always extinguish the right to sue (as the 1934 Act illustrates). That said, birth and death act as the fundamental factual determinants for legal personality (Código civil, Arts 30, 32) and thus detailed rules are required to deal with problems such as disappearance and the presumption of death. New technology is presenting new problems (Airedale NHS Trust v Bland [1993] AC 789). The moment of death can also give rise to difficulties when it comes to succession (Re Rowland, p 166). Western legal systems once recognised civil death, but this has almost completely disappeared in modern liberal democracies. Tesco Supermarkets Ltd v Nattrass [1972] AC 153 House of Lords Lord Reid:… I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind 33

Sourcebook on Obligations and Remedies which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent. In that case any liability of the company can only be a statutory or vicarious liability… Reference is frequently made to the judgment of Denning LJ in HL Bolton (Engineering) Co Ltd v TJ Graham and Sons Ltd [1951] AC 850. He said: A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. In that case the directors of the company only met once a year: they left the management of the business to others, and it was the intention of those managers which was imputed to the company. I think that was right. There have been attempts to apply Lord Denning’s words to all servants of a company whose work is brain work, or who exercise some managerial discretion under the direction of superior officers of the company. I do not think that Lord Denning intended to refer to them. He only referred to those who ‘represent the directing mind and will of the company, and control what it does’. I think that is right for this reason. Normally, the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company. It may not always be easy to draw the line but there are cases in which the line must be drawn. Leonard’s case was one of them. In some cases, the phrase alter ego has been used. I think it is misleading. When dealing with a company the word alter is I think misleading. The

34

The Structure of the Common Law person who speaks and acts as the company is not alter. He is identified with the company. And when dealing with an individual no other individual can be his alter ego. The other individual can be a servant, agent, delegate or representative but I know of neither principle nor authority which warrants the confusion (in the literal or original sense) of two separate individuals… What good purpose could be served by making an employer criminally responsible for the misdeeds of some of his servants but not for those of others? It is sometimes argued—it was argued in the present case—that making an employer criminally responsible, even when he has done all that he could to prevent an offence, affords some additional protection to the public because this will induce him to do more. But if he has done all he can how can he do more? I think that what lies behind this argument is a suspicion that magistrates too readily accept evidence that an employer has done all he can to prevent offences. But, if magistrates were to accept as sufficient a paper scheme and perfunctory efforts to enforce it, they would not be doing their duty—that would not be ‘due diligence’ on the part of the employer. Then it is said that this would involve discrimination in favour of a large employer like the appellants against a small shopkeeper. But that is not so. Mr Clement was the ‘opposite number’ of the small shopkeeper and he was liable to prosecution in this case. The purpose of this Act must have been to penalise those at fault, not those who were in no way to blame. The Divisional Court decided this case on a theory of delegation. In that they were following some earlier authorities. But they gave far too wide a meaning to delegation. I have said that a board of directors can delegate part of their functions of management so as to make their delegate an embodiment of the company within the sphere of the delegation. But here the board never delegated any part of their functions. They set up a chain of command through regional and district supervisors, but they remained in control. The shop managers had to obey their general directions and also take orders from their superiors. The acts or omissions of shop managers were not acts of the company itself…

Questions 1

2 3

4 5

What if the customer in the supermarket had been injured by the carelessness of one of the employees: in what circumstances could the supermarket claim that the negligent act was not its act? What if the customer had been assaulted by a supermarket employee (a) while in the store or (b) while walking home? (Cf Keppel Bus Co, p 537.) Can a trade union own property and make contracts? Can it be sued? Can it sue? (Cf Trade Union and Labour Relations (Consolidation) Act 1992, ss 10, 12.) Do legal persons have all the rights that natural persons have? Can one sue a cricket club? (Cf Miller v Jackson, p 51.)

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6

7

8

9

Can an inanimate object ever have legal personality? Can an animal? (Cf Bumper Development Corporation v Metropolitan Police Commissioner [1991] 1 WLR 1362.) Do companies actually exist or are they simply a name? Do classes (for example, consumers) exist or do only individuals exist? Do groups and classes have interests and rights? (Cf Jolowicz, “Protection of diffuse, fragmented and collective interests in civil litigation: English law’ [1983] CLJ 222.) The first principle is that a company is an entity separate from its members but, not being a physical person is only capable of acting by its agents. The second principle is that a company, in its capacity as supplier of goods, like any other person in the capacity of taxpayer, landlord or in any other capacity, falls to be judged by its actions and not by its language. An employee who acts for the company within the scope of his employment is the company. Directors may give instructions, top management may exhort, middle management may question and workers may listen attentively. But if a worker makes a defective product or a lower manager accepts or rejects an order, he is the company’ (Lord Templeman in In re Supply of Ready Mixed Concrete (No 2) [1995] 1 AC 456, p 465). Can this statement be reconciled with the decision in Tesco v Nattrass? There is in fact no such thing as the company as such, no Ding an sich, only the applicable rules. To say that a company cannot do something means only that there is no one whose doing of that act would, under the applicable rules of attribution, count as an act of the company’ (Lord Hoffmann in MGFM Asia Ltd v Securities Commission [1995] 2 AC 500, p 507). Are the legal institutions of persona, res and actiones creations only of a rule system? Is the same true of the institution of the family?

Notes 1

Legal personality might arguably be seen as one of the most important contributions of Roman legal thought to the modern commercial world, although its actual modern development owes more to the later civilians than to the Roman jurists themselves. Nevertheless, the idea that groups could be endowed with a legal personality separate from the individual humans that made up the group was specifically recognised by the Roman jurists (Dig 3.4.7.1). Indeed, the Romans described towns as being like human persons in the legal plan (Dig 50.16.16). That said, the Romans never developed the commercial partnership into a legal person. This institution remained firmly entrenched in the law of contract (societas) and was to act as a formidable obstacle to the development of legal personality in the ius commune (the Roman ‘common law’ of continental Europe in the period before codification). In terms of theory, legal personality was originally based on the idea of a persona ficta 36

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2

(Post-Glossators), but in the 19th century, German theorists developed a realist approach whereby legal personality was founded on the notion that groups within society had a real existence. English law, which was slow at first to recognise legal personality, quickly developed the commercial company in the 19th century via legislation; and the courts still appear to favour the fiction theory (as Tesco indicates). Several characteristics are particularly important with respect to the development of legal personality: independent patrimony; ability to own and to contract; not affected by death of humans; limited liability. Given these characteristics, the legal person (that is, corporation) has proved capable of assuming considerable legal and social dominance in both the legal and the social world. Nevertheless, the kinds of corporate structures are not the same in all systems. Moreover, in the common law systems, the trust has assumed roles played by the legal person in civilian systems. Does the law of trusts take anything from the law of persons (universitas personarum) or is it exclusively a creation of the law of things (universitas rerum)? Jackson v Horizon Holidays Ltd [1975] 1WLR 1468 Court of Appeal (See p 220.)

Notes and questions 1

2

Mrs Thatcher is reported as saying that there ‘is no such thing as society’; there ‘are individual men and women and there are families’ (Woman’s Own, 31 October 1987). Whatever one’s political views, the statement is of importance, since it certainly reflects an ontological preoccupation of Western law. With the exception of legal personality (interestingly not alluded to by Mrs Thatcher), the law of persons has been largely preoccupied with individuals and families. The family, as such, has never been granted automatic legal personality—indeed it has not been properly defined in legal terms (Fitzpatrick v Sterling Housing Association Ltd [1998] Ch 304; Cass civ 17.12.1997, D.1998.111). But it was and remains indirectly of fundamental importance in Roman and modern law. Does the case of Jackson support Mrs Thatcher’s view of the world? In Roman law, the family was an institution attracting its own legal rules for reasons of power (patria potestas), status and relationship. However, it tended to be defined not actually as an institution but through the various relations out of which it was and remains constructed. Marriage and filiation are the main relationships. Marriage, therefore, was more than a mere contract between two people since it affected the status both of the parties themselves and of their children and grandchildren. Marriage is a common institution of Western law, thanks, partly, to the great influence and control of canon law from the 11th century. All the same, the 37

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3

relationship between the family and its property is one important focal point for comparison; common law and civil law differ in their approach to matrimonial regimes (cf the notion of dowry: Dig 24.3.1). The French model has a notion of community property (CC, Art 1400, etc) whereas English law sees only two individuals governed by the ordinary law of property (Van den Boogaard v Laumen [1997] 3 WLR 284, pp 292–93). That said, a spouse in UK law may have a real right in the family home, just as a wife did in late Roman law with respect to her dowry (C 8.18.12), and there are statutory rights of occupation (Matrimonial Homes Act 1983). In addition, the law of remedies and the general private law might provide indirect protection of the family (see, for example, Barclays Bank v O’Brien, p 256). Does Jackson indicate that the law of obligations does not recognise the family as a formal institution? What about the law of remedies? The status of individuals (in particular women and children) within the institution of the family is another focal point of comparison (cf Children Act 1989, s 1). What rights does the law of persons give children vis à vis parents and vice versa (cf CC, Arts 371, etc)? Khorasandjian v Bush [1993] QB 727 Court of Appeal (See p 141.)

Notes and questions 1

2

In French law, the law of persons itself endows individuals with certain rights, in particular privacy and dignity (CC, Arts 9, 16). These rights are separate from the law of obligations (cf CC, Art 1382). Would, then, Khorasandjian have been treated as an obligations case in France? English law, not having a code (and thus a formal institutional structure), has no separate rights of personality as such and must use the law of tort (cf torts of trespass, nuisance and defamation), remedies and (or) property (cf Ex p Island Records [1978] Ch 122). The law of persons can also decree that parts of the body are res extra commercium (CC, Art 16–1; cf Human Organ Transplants Act 1989, s 1). But can parts of the body be subject to the law of theft? (Cf R v Kelly [1999] 2 WLR 384.)

(c) Legal object (res) The second element in the institutional scheme after persona is res. This latter term can loosely be translated as ‘thing’—although the Latin word is rather amorphous—and represents another focal point around which legal propositions can be grouped. ‘Things’ (res) act to some extent as a counterpoint to ‘person’ (persona) and thus the law of things cannot be understood divorced from persons. Indeed, it has been said that, in the Code civil, persons are dealt 38

The Structure of the Common Law

with only from the angle of potential subjects of the law of property (Halpérin, Histoire du droit privé français depuis 1804, 1996, PUF, p 25). Equally, the law of things was, and arguably remains (in some systems at least), wedded to the law of actions. Moreover, the varying structural patterns of these interrelationships are the key to the different comparative models. In re Campbell (A Bankrupt) [1997] Ch 14 Chancery Division Knox J:… The point that arises is brought about by a singularly sad story of the events that had occurred. Mrs Campbell suffered very serious injuries as a result of a criminal assault some considerable time ago, long before the bankruptcy. She made an application to the Criminal Injuries Compensation Board for an award to be made to her. That was equally a very long time before she was made bankrupt. The indications are that the attack on her was in 1984 and her application to the Criminal Injuries Compensation Board was in 1985—the precise dates do not matter… The question which has been argued before me is whether the entitlement of Mrs Campbell to the award that ultimately was made in her favour in September 1992 was or represented something which was vested in the trustee in bankruptcy when she was made bankrupt. Of course, at that date, it was only a prospect of receiving an award from the Criminal Injuries Compensation Board and it is again common ground that, unlike the situation that obtains when a person has a right to sue for trespass for personal injuries (as no doubt Mrs Campbell had as against the criminal in question), when it is a Criminal Injuries Compensation Board award that is in issue there is no right either to sue for the award or, when the award is made, to recover the award. The latter does not really signify. What matters is that there is no right in a citizen who suffers injuries as a result of a criminal assault to enforce any form of award from the Criminal Injuries Compensation Board. The prospect of getting such an award has variously been described in argument as a hope and a spes (which is the Latin word for the same thing) but it is not, and this is again common ground, ‘a thing in action’ or, to speak law French for a second, ‘a chose in action’… The submission made by Mr McCulloch, for the trustee, is that although the prospect of recovering under an award by the Criminal Injuries Compensation Board is not a thing in action it was or represented something which did come within the definition of property and the way he put that claim, as I understood it, was to say that there was an interest vested in Mrs Campbell which was either future or contingent and arose out of or was incidental to property. The property which he identified as being the relevant asset was the money that was prospectively going to be paid if and when an award was made. Treating the matter purely as a matter of construction I am quite unable to accept that the word ‘property,’ when it is used in that definition of property, is intended to describe anything other than an existing item. In other words I do not accept that it is susceptible of referring to something which has no present existence but may possibly come into existence on some uncertain event in the future. There seems to me to be a very clear distinction between two situations. The 39

Sourcebook on Obligations and Remedies first is when there is a contingent interest in property, for example, the right to receive £50,000 under a legacy contingently on attaining the age of x years when one is x-y years old. That is an interest which is contingent and future but, if there is a trust fund—which I assume in my example there is—there is existing property in respect of which there is a contingent interest. That seems to me to be quite different from the second situation, the possibility of achieving an interest in something which presently does not exist but may exist in the future. Examples might perhaps be the owner of a lottery ticket in relation to the prize that may, perhaps, at the end of the following week arise in his or her possession. Similarly, the person who has filled in a coupon on the football pools might perhaps become entitled to property should that coupon have been successfully filled. In neither case there can it be described as a future or contingent interest arising out of or incidental to property because there is no underlying existing property which, or the proceeds of sale of which, are susceptible to the existence of a proprietary interest, even a future one. It seems to me that the trustee’s argument, purely as a matter of construction of the Act and the definition or enlargement of the concept of property which is contained in it, cannot succeed… Accordingly, I have come to the conclusion that the hope that Mrs Campbell had of being awarded an award, which in fact fructified two years later, was not at the date when she became bankrupt part of her property in such a way as to vest in the trustee in bankruptcy when she became bankrupt…

Notes 1

2

Res might be a difficult word to define or to translate, but within the institutional model it was a key institution in that it had meaning both in the empirical and in the legal worlds. As Gaius himself implied, tangible things (res corporales) are things that can be touched (quae tangi possunt)— land, a man, clothes, gold and the like (G 2.13); such things exist both in fact and in law. Physical property thus acts as a bridge between the real and the legal worlds. However, Gaius goes on to explain that res also encompasses intangible things (res incorporates) which exist only in law (quae iure consistunt) (G 2.14); here it is, in effect, the institutional system itself that is creating the res. A right to a debt is a res—a form of property— even although the legal asset consists only of an entitlement to a legal action (actio in personam). In English law, this idea of a debt as a res is to be found in private law (see, for example, Lipkin Gorman v Karpnale, p 782). Indeed, even a live performance by a musical group has been deemed property (Ex p Island Records [1978] Ch 122). One focal point for the comparatist is, then, the idea of property (res) itself: what can constitute a res in different systems? When will an ‘expectation’ become a res?

40

The Structure of the Common Law Beswick v Beswick [1966] Ch 538 Court of Appeal; [1968] AC 58 House of Lords (See pp 78, 249.)

Notes 1

2

3

4

Just as persona acted as the basis for a law of persons, so res acted as the foundation in the institutional scheme for a law of things. This category, in the Gaian scheme, must not be confused with the law of property’: for in the Institutes, the law of things consisted of ‘things’ in their widest sense and thus included obligations (G 2.14). Only by a careful study of the law of actions does one come to realise that the law of things is subdivided into two separate subcategories, the law of property and the law of obligations (see Jolowicz, Roman Foundations of Modern Law, 1957, OUP, pp 61–63). The substantive separation was appreciated by the Roman jurists (Dig 44.7.3 pr) and in the Institutes of Justinian, an obligation is given its famous definition of a vinculum iuris (J.3.13 pr). Is a contractual promise a form of property in English law? In the modern codes, these subcategories were to be elevated into generic categories, each category containing two fundamentally different kinds of right. Yet the distinction between real rights (in rem) and personal rights (in personam) was never made at the level of ‘rights’ (iura) in Gaius. In the Institutes, the distinction is made in the law of actions between an actio in rem and an actio in personam (G 4.1–5; and see below, p 382). It was the nature of the remedy which expressed the difference between property and obligations. One might note that in the Code civil, the law of obligations still forms part of the law of property in that obligations are classified alongside succession and gifts in Book III, entitled Des différentes manières dont on acquiert la propriete. In the Código civil, obligations are elevated into their own Book IV under the title of De las obligaciones y contractos. The BGB makes a fundamental distinction between property and obligations. Another way of viewing the law of things is exclusively in relation to the person. The mass of things, tangible and intangible, that each natural or legal person has can be viewed as a legal entity in itself, and this entity has attracted the name patrimony from the Roman law term patrimonium. The Romans themselves did not develop any kind of general theory with regard to patrimony, but they certainly established some of its foundational ideas which were to be built upon by the later civilians (see Ourliac and de Malafosse, Histoire du droit privé: 2 Les biens, 2nd edn, 1971, PUF, pp 60– 68). In particular, they developed the idea of a mass of individual tangible and intangible things as an entity in itself (Dig 50.16.208) capable of being protected by its own legal remedy. This notion of a universitas rerum is of particular importance to the 41

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comparatist for a number of reasons: (a) the patrimony is particularly well developed in French law as a key institutional structure; (b) the idea of a universitas rerum can be found to underpin the Anglo-American trust; (c) the New Dutch Code has specifically incorporated the notion of patrimony as part of its system: Book III is concerned only with patrimonial rights and thus one finds in a single book all things, both corporeal and incorporeal; (d) the idea of a universitas rerum is fundamental to succession law. Waverley Borough Council v Fletcher [1996] QB 334 Court of Appeal Auld LJ: This appeal concerns the collision of two familiar notions of English law: ‘finders keepers’ and that an owner or lawful possessor of land owns all that is in or attached to it. More particularly, it raises two questions. (1) Who, as between an owner or lawful possessor of land and a finder of an article in or attached to the land, is entitled to the article? (2) How is the answer to (1) affected by, or applied, when the land is public open space? The appellant, Waverley Borough Council, is the freeholder of a park, Farnham Park, in Farnham, Surrey, to which it gave free access to the public for pleasure and recreational uses. It exercised control over the park by means of a ranger and his staff and by bylaws. On 28 August 1992, the respondent, Ian Fletcher, took a metal detector into the park to search for metal objects which might be of interest or value. He found, by use of the detector and some determined digging in hard ground, a mediaeval gold brooch about nine inches below the surface. He reported his find, and a coroner’s inquisition was held to determine whether it was treasure trove. The jury found that it was not, and the coroner returned the brooch to Mr Fletcher. The council then issued proceedings against Mr Fletcher, claiming a declaration that the brooch was its property and delivery up of it or damages. Mr Fletcher, by his defence, relied on the argument of ‘finders keepers’. He maintained that the council’s claim to ownership of the brooch required it to prove not only ownership, but also occupation, of the park. He admitted that it owned the park, but asserted that it did not occupy it because it was bound to allow the public to use it for pleasure and recreation. He said that he found the brooch whilst he was a lawful visitor there, and that, therefore, because the true owner of it had not been found, he was entitled, as finder, to keep it. The judge, Judge Fawcus, sitting as a judge of the High Court, found for Mr Fletcher. After reviewing the authorities, he held that the rule that an owner of land owns everything in his land applies only to things that are naturally there, not to lost or abandoned objects; that the crucial factor is the control that he intends and is able to exercise over lawful visitors in relation to any objects that might be on or in the land; that Mr Fletcher was a lawful visitor and did not become a trespasser by digging and removing the brooch; but that it was not necessary to decide the question of control because the council had not established ‘a paramount claim so as to displace the maxim “finders keepers’”. Mr Munby [counsel for the defendant]…argued that it is against common sense that it should make all the difference whether an object is just under or on the surface. That was also the view of the judge. He said that he could see 42

The Structure of the Common Law no reason in common sense why the better possessory claim should depend upon whether an object was found on or in ground. Mr Munby gave as one of a number of examples in support of his argument, a lost watch on a muddy path which might within a day or two become covered by a thin coating of mud. Why, he asked, should the landowner’s claim be different and stronger when the watch finally, but only just, disappears from sight? In my view, the authorities reveal a number of sound and practical reasons for the distinction. First, as Donaldson LJ said in Parker v British Airways Board [1982] QB 1004, p 1010, an object in land Is to be treated as an integral part of the realty as against all but the true owner’ or that the finder in detaching the object would, in the absence of licence to do so, become a trespasser. Mr Munby suggested that this is wrong because if an object is treated as part of the realty the true owner cannot have priority. However, the English law of ownership and possession, unlike that of Roman law, is not a system of identifying absolute entitlement but of priority of entitlement, and Donaldson LJ’s rationale is consistent with that: see Buckland and McNair, Roman Law and Common Law, 2nd edn, revised 1965, p 67… Second, removal of an object in or attached to land would normally involve interference with the land and may damage it: cf AL Goodhart’s view in his article in (1944) CLJ 195, p 207, that this distinction is not of sufficient importance in principle to warrant separate rules as to possession. Third, putting aside the borderline case of a recently lost article which has worked its way just under the surface, in the case of an object in the ground its original owner is unlikely in most cases to be there to claim it. The law, therefore, looks for a substitute owner, the owner or possessor of the land in which it is lodged. Whereas in the case of an unattached object on the surface, it is likely in most cases to have been recently lost, and the true owner may well claim it. In the meantime, there is no compelling reason why it should pass into the possession of the landowner as against a finder unless he, the landowner, has manifested an intention to possess it. As to borderline cases of the sort mentioned by Mr Munby, potential absurdities can always be found at the margins in the application of any sound principle. It is for the trial judge to determine as a matter of fact and degree on which side of the line, on or in the land, an object is found. The distinction is now long and well established. In addition to the judicial and academic authority to which I have referred, it is to be found in Annex 1 to the Eighteenth Report (Conversion and Detinue) of the Law Reform Committee (1971) (Cmnd 4774); the Law Commission’s paper Treasure Trove—Law Reform Issues 1987, para 9; Megarry and Wade, The Law of Real Property, 5th edn, 1984, p 61; and Halsbury’s Laws of England, 4th edn, reissued 1991, Vol 2, p 840, para 1814 and 4th edn, 1981, Vol 35, p 623, para 1120. In my view, the two main principles established by the authorities, and for good practical reasons, are as stated by Donaldson LJ in Parker v British Airways Board [1982] QB 1004. I venture to restate them with particular reference to objects found on or in land, for he was concerned primarily with an object found in a building. (1) Where an article is found in or attached to land, as between the owner or lawful possessor of the land and the finder of the article, the owner or lawful possessor of the land has the better title. (2) Where 43

Sourcebook on Obligations and Remedies an article is found unattached on land, as between the two, the owner or lawful possessor of the land has a better title only if he exercised such manifest control over the land as to indicate an intention to control the land and anything that might be found on it… Members of the public have access to the park at all times, save for part of it given over to a golf course and the ranger’s house and garden. The council employed a ranger who, with other part time voluntary rangers, regularly patrolled and managed the maintenance of the park and supervised the use of it by the public. The council’s declared policy was not to permit the use of metal detectors in the park. But, though it had made approved bylaws forbidding certain activities, it had not been able to persuade the Home Office to approve a bylaw prohibiting the use of metal detectors. There had been notices prohibiting the use of metal detectors in the park, but they had been pulled down, and there was none at the material time. Despite the absence of such notices, the ranger had on two or three occasions stopped people using them. Mr Fletcher was unaware of the council’s policy and had regularly used his metal detector there. The judge held, on those facts: first, that metal detecting was ‘recreation’ which the council was obliged to permit under the terms on which it held the land; second, that ‘digging in response to the metal detector’s signal, provided it is within reasonable bounds, is incidental to such recreational activity’; third, that the council had not made plain to Mr Fletcher its policy to prohibit metal detecting; and, fourth, that, in any event, in the absence of any applicable bylaws, the council had no authority to stop him. In my view, the judge’s reasoning that metal detecting was a recreation within the terms under which the council held the land and that, therefore, it included a right to excavate and carry away objects found, is strained. Whilst some sports or recreations, such as golf or cricket, may involve some disturbance of the soil, metal detecting is not, in my view, ‘of a like nature’ to the ‘sports pastimes or recreations’ mentioned in the second of the covenants to which I have referred. Moreover, the very fact that the activity is inherently invasive is against it being recreational in this context. Even if I am wrong about that, it cannot entitle members of the public to excavate the soil, whether ‘within reasonable bounds’ or not… Accordingly, in my view, neither Mr Fletcher’s metal detecting nor his digging nor his removal of the brooch was within any of the purposes for which the council was permitted to, or did, allow the public use of the park… Mr Munby submitted in reliance on Hall’s case [Hall v Beckenham Corporation [1949] 1 KB 716] that the council did not occupy the park; and that it had no right qua owner to regulate its use by a member of the public, who could do what he liked there unless he breached a bylaw or the general criminal law. In my view, the council, whether as owner, possessor or occupier of the park, was a trustee for the general public in the exercise of its powers and duties of management and control under the Act of 1906 and the terms under which it held the land. As such it had a superior right to the brooch over that of Mr Fletcher who, in the absence of a licence from the council, had no entitlement to dig and remove it. In my view, the council was not restricted in its enforcement of that right to the mechanisms of prosecution under bylaws or 44

The Structure of the Common Law the general criminal law. The purpose of a bylaw is simply to provide a local authority with a convenient criminal sanction in the enforcement of its public powers and duties. The absence of a bylaw on any matter does not mean that the council has no corresponding civil right, in this instance in its management and control of its land… Accordingly, I can see no basis for not applying the general rule that an owner or lawful possessor of land has a better title to an object found in or attached to his land than the finder, or for modifying it in some way to produce a different result in the circumstances of this case. Mr Fletcher did not derive a superior right to the brooch simply because he was entitled as a member of public to engage in recreational pursuits in the park. Metal detecting was not a recreation of the sort permitted under the terms under which the council held the land on behalf of the general public. In any event, digging and removal of property in the land were not such a permitted use, and were acts of trespass. And the council was entitled to exercise its civil remedy for protection of its property regardless of the absence of any applicable bylaw. As to the judge’s third point, the absence of a manifest intention to control, it is, for the reasons I have given in the earlier part of this judgment, not the test for objects found in or attached to land; and, for the reasons I have just given, there is no reason for its application to the circumstances of this case. If there were, given the council’s statutory powers and duties, the terms under which it holds and controls and manages the park and the way in which it exercises that control and management, I would regard it as clearly having the requisite intent and ability to control. For those reasons, I would allow the appeal. Ward LJ: I agree. Sir Thomas Bingham LJ: I have had the benefit of reading in draft the judgment of Auld LJ I am in complete agreement with it, and would allow this appeal for the reasons which he gives.

Notes and questions 1

Ownership has been described as ‘one of the most characteristic institutions of human society’ (Honoré, ‘Ownership’, in Guest (ed), Oxford Essays in Jurisprudence, 1961, OUP, p 107). Some may dispute this, but there is no doubt that the notions of dominium and proprietas (they were synonymous in Classical Roman law: Dig 41.1.13) is one of the great contributions of Roman law to Western culture and mentality. As usual, the actual Roman notion of ownership (dominium) is more elusive than would appear from all the later civilian interpretations and its modern definition based on usus, fructus and abusus owes more to the work of the medieval jurists than to the Romans themselves. But the main characteristics of dominium are to be found scattered around the Roman sources (see, for example, Dig 5.3.25.11) and the idea of an exclusive and individual power relation

45

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2

3

4

between persona and res is inherent not just in the word itself, but also in the texts. This exclusivity and power was to become a key idea in Revolutionary France, dedicated to overthrowing feudal property ideas, and thus ownership is defined in the Code civil as the ‘right to enjoy and to dispose of things in the most absolute manner’ (droit de jourir et disposer des choses de la manière la plus absolue) (Art 544). Nevertheless, the exclusivity must never be overemphasised as a matter of history. For neither the Romans nor the French post-Revolutionaries ever accepted such an idea in everyday practice; dominium was always more of a bridge between the legal and the ideological worlds than between the worlds of law and social fact. When one turns to the Waverley case interesting questions arise. Ought ownership (a property concept) to be determined by the status (law of persons) of the finder (that is, status of ‘trespasser’)? Did the council succeed because it was deemed the possessor of the brooch or because it was held to have a better right to possession? What if Mr Fletcher had some months previously lost a ring in the park and had repeatedly returned with a metal detector to search for it until he found it: could the council claim the ring if it had been recovered several inches below the surface? A homeless person in breach of the park bylaws enters the park each night to sleep on a park bench and one night finds a £10 note which he hands in to the local police the next day. If the note is never claimed, who will be entitled to it? In addition to dominium (a legal relationship) the Romans also developed the relationship of possession: the factual relationship between person and thing (Dig 41.2.3). Physical (corpus) and mental (animus) control were vital (Dig 41.2.3.1; 41.2.17.1); and what, practically speaking, distinguished ownership from possession were two quite different sets of remedies. Ownership was protected by the actio in rem, whereas possession was protected by the public law remedy of the interdict. In civil law, possession and ownership were quite different notions (nihil commune habet proprietas cum possessione: Dig 41.2.12.1), but is this true of the common law? Waverley involved a chattel. But what if the dispute involved land? What if a building contractor, who does not have actual possession of the land on which he is erecting a building, is prevented from working by trespassing squatters? Must the contractor, in order to get a repossession order from the courts, show that he had possession of the land or will a ‘sufficient interest’ be enough? (Cf Manchester Airport plc v Dutton [1999] 3 WLR 524.)

46

The Structure of the Common Law Housing Act 1985 (c 68) (as amended)

118 The right to acquire (1)

A tenant of a registered social landlord who satisfies the conditions in section 16(1)(a) and (b) of the Housing Act 1996 has the right to acquire, that is to say, the right, in the circumstances and subject to the conditions and exceptions stated in the following provisions of this Part(a) (b)

if the dwelling house is a house and the landlord owns the freehold, to acquire the freehold of the dwelling house; if the landlord does not own the freehold or if the dwelling house is a flat (whether or not the landlord owns the freehold), to be granted a lease of the dwelling house.

Notes and questions 1

2

The development of the notion of a right is discussed in a later chapter (see pp 126–29). Briefly, the Roman notion of dominium (proprietas) was based upon the relationship between person and physical thing and thus identified ownership with the thing itself (Patault, Introduction historique au droit des biens, 1989, PUF, p 17; cf CC, Art 644). However two important developments in Roman law laid the foundations for further evolution: the extension of things to include intangible property (res incorporates) and the extension of the actio in rem, the remedy which protected ownership, to include certain rights in another’s property (for example, usufruct) (cf CC, Art 581). Here were the foundations for an abstract institutional structure capable of expressing property rights independently of physical things themselves (Patault, pp 109–11). The next step was to see the ‘right’ as an object in itself. Indeed, once dominium had been merged with the Roman concept of ius (meaning substantive legal relationship or connection) a model was emerging by which all legal relationships, including obligations and ownership (ius in re), could be envisaged in terms of (property) ‘rights’ (Patault, pp 108–09). One thus arrives at the situation in the 1985 Act whereby the secure tenant, who already has a property right in the house or flat, now has a further ‘right’. Is this a ‘right’ to a ‘right’? In other words, what actually is the object of the ‘right to acquire’? Is it the property itself, the freehold or lease or some other res incorporates? If one does have a ‘right to buy’, is this a form of property which, in principle, could be bought and sold? Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 608 Court of Appeal Collins MR: This is an appeal by the defendants in an action in which the plaintiff sued to recover expenses to which he was put by the illness and death of his wife, caused, as he alleged, by typhoid fever of which the infection was caught from milk supplied by the defendants. The jury found that the milk was the cause of the fever, and gave a verdict for the plaintiff, for whom

47

Sourcebook on Obligations and Remedies judgment was entered. The first point taken is whether in point of law, on the facts as ascertained, there can be any liability on the defendants even if it is admitted that the milk was the cause of the fever, and on this it is contended for the defendants that there was no actionable wrong on their part. The point is whether the circumstances under which the milk was bought bring the case within the provisions of s 14, sub-s 1 [see, now, s 14(3) of the 1979 Act] of the Sale of Goods Act 1893… Considering the matter by steps, it appears that there was no specific evidence as to the inception of the relation of buyer and seller, because, as a matter of fact, people do not, when they want a milk supply, enter into an elaborate negotiation with the vendor of the milk. We begin the discussion with the practice followed in the dealing between two parties. The fact of the supply of the article involves a contract. That contract is for the supply of food, for no one would question that the milk was bought as an article of consumption… [M]ilk was supplied for a purpose known to the sellers under circumstances which showed that the buyer relied on the sellers’ skill or knowledge, and that the goods were of a description which it was in the course of the sellers’ business to supply. The point mainly pressed upon us on behalf of the defendants was that the buyer could not be said to rely on the skill or judgment of the sellers in a case in which no amount of skill or judgment would enable them to find out the defect in the milk supplied. That amounts to a contention that a seller of goods cannot be answerable for a latent defect in them unless upon a special contract to that effect. That argument is not employed for the first time, for it was used before the Sale of Goods Act 1893, which consolidated and crystallised the law, which seems to me to be just the same under the statute as it was under the common law. The matter was specifically dealt with in the considered judgment of the Court of Appeal in Randall v Newson, where it was held that on the sale of an article for a specific purpose there is a warranty by the vendor that it is reasonably fit for the purpose, and that there is no exception as to latent undiscoverable defects. That was the case of a defective pole for a carriage, and the view of the court is expressed thus: If the subject matter be an article or commodity to be used for a particular purpose, the thing offered or delivered must answer that description, that is to say, it must be that article or commodity, and reasonably fit for the particular purpose. The governing principle, therefore, is that the thing offered and delivered under a contract of purchase and sale must answer the description of it which is contained in words in the contract, or which would be so contained if the contract were accurately drawn out. And if that be the governing principle, there is no place in it for the suggested limitation.’ The suggested limitation was that the principle applied only to such defects as could be discovered by reasonable care and skill. The judgment continues: If the article or commodity offered or delivered does not in fact answer the description of it in the contract, it does not do so more or less because the defect in it is patent, or latent, or discoverable. That appears to me to be a conclusive authority on that part of the case raised on behalf of the defendants. I may, however, refer also to a matter that was dealt with in the judgment of this court in Preist v Last, that a good deal of difficulty and some confusion may arise as to whether an article is sold for a particular purpose where it is capable of being used for a number of purposes. Where the thing dealt with carries in its description a limitation to a particular 48

The Structure of the Common Law purpose the difficulty does not arise. In this case, we begin with the purchase of milk, a commodity which carries with it a special limitation to the purpose of food. It is obvious that the obligation of the seller of food must stand in a different position from that of the seller of an article that may or may not, according to the special circumstances of the case, be used for a particular object. All the difficulty is gone when once we get in the description of the article itself the purpose for which it is to be used. That principle was applied in the case to which I have referred, which was that of the purchase of a hot water bottle, a description which carries with it the purpose for which the article is bought. The same principle applies in this case, where it is clear that the milk was bought for a special purpose, and sold by persons who claimed and received the confidence of the purchaser in the special skill and knowledge asserted by the sellers. It seems to me to be clear that there is no legal difficulty in upholding this verdict, and that the appeal should be dismissed. [Mathew and Cozens-Hardy LJJ were of the same opinion.]

Notes and questions 1

2

The sellers of the milk were strictly liable in this case because the rules regarding merchantable [now satisfactory] quality and reasonable fitness in the Sale of Goods Act focus, not on the seller, but on the object of the sale (res). Either the milk was fit, or it was not. Had the rule been drafted differently—for example, had it been drafted around the institution of the seller, rather than the thing sold—the duty may well have turned out to have been different. Compare s 14 of the Sale of Goods Act 1979 with s 13 of the Supply of Goods and Services Act 1982. What if a manufacturer of a product puts a defective product onto the market: do (a) the common law and (b) statute focus upon the person or the thing? (Cf Donoghue v Stevenson, p 65; Consumer Protection Act 1987, s 2, p 682.) Sale of goods contracts always involve persons (legal subjects) and things (legal objects) and thus a statute like the Sale of Goods Act is relevant not only to the law of obligations but also to the law of property. In Roman law, and in modern German law, the obligation and property aspects of a sale of goods transaction were always kept quite separate, but this is not true of English law, which uses the contract itself as a means of passing ‘property’ in goods (Sale of Goods Act 1979, ss 16–18). What if the contract turns out to be defective: does this put the property title at risk? Or what if the seller goes bankrupt, or the goods are destroyed, before they have been delivered to the buyer: what kind of claim does the buyer have? Can the buyer bring an action in rem against the thing? CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 Court of Appeal (See also p 504.) Steyn LJ:… On 20 November 1986, the manager of the plaintiffs’ warehouse in Preston placed an order for a large consignment of cigarettes. The invoice 49

Sourcebook on Obligations and Remedies value of the order inclusive of VAT was of the order of £17,000. By mistake an employee of the defendants put the address of the plaintiffs’ warehouse in Burnley on the delivery note. On 24 November 1986 the defendants’ driver delivered the goods to the plaintiffs’ warehouse in Burnley. The goods were unloaded. Mr Nuttall, an assistant branch manager of the plaintiffs, signed the delivery note. Shortly afterwards, Mr Nuttall discovered that the delivery was intended for the Preston warehouse and not the Burnley warehouse. He telephoned the defendants’ dispatch department about the matter. Eventually it was agreed that the defendants would arrange for the carriage of the goods from Burnley to Preston. The defendants were to undertake the carriage of the goods to Preston on 28 November 1986. Unfortunately, there was a robbery at the Burnley warehouse on the day before. The entire consignment of cigarettes was stolen... The question was, who should suffer the loss resulting from the theft of the goods at the Burnley warehouse?...

Questions 1 2 3

What is your answer to Steyn LJ’s question? Are ss 16-20 of the Sale of Goods Act 1979 of any help? Were the plaintiffs possessors of the cigarettes before they were stolen? What if the cigarettes had been defective and not reasonably fit for their purpose? In re Goldcorp Exchange Ltd [1995] 1 AC 74 Privy Council (See p 246.)

Questions 1 2 3

Is the result of this case dependent upon the existence or non-existence of an image of a relationship between person and thing? Was there ever a thing to which the plaintiffs were entitled? If these facts arose again today, would the result be the same? (Cf Sale of Goods Act 1979, ss 20A-B.)

(d) Legal remedy (actio) The third institution of Gaius and Justinian is the actio. An action, says Justinian, is nothing but the right (ius) to go to court to seek what is due to one (J 4.6 pr; Dig 44.7.51)—ubi ius ibi remedium (where there is a right, there is a remedy), as later lawyers put it. But this was not always the role of actions. In Gaius’ time it might have been more accurate to say: ubi remedium ibi ius (where there is a remedy, there is a right), for the question of what was due to one was determined less by any idea of a pre-existing ius and much more by the existence or non-existence of a legal remedy. A similar observation could be

50

The Structure of the Common Law

made of the common law before the procedural reforms of the 19th century. Yet how relevant is the remedy—the actio—to modern law? Is it simply a procedural institution confined these days to giving expression to pre-existing rights, or does it still have a more active role? English law presents a somewhat complex picture. Supreme Court Act 1981 (c 54) 37

Powers of High Court with respect to injunctions and receivers (1) The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.

The Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 12

Injunctions to prevent continued use of unfair terms (1) The Director or, subject to paragraph (2), any qualifying body may apply for an injunction (including an interim injunction) against any person appearing to the Director or that body to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers. (2) A qualifying body may apply for an injunction only where (a) it has notified the Director of its intention to apply at least fourteen days before the date on which the application is made, beginning with the date on which the notification was given; or (b) the Director consents to the application being made within a shorter period. (3) The court on an application under this regulation may grant an injunction on such terms as it thinks fit. (4) An injunction may relate not only to use of a particular contract term drawn up for general use but to any similar term, or a term having like effect, used or recommended for use by any person.

Kingdom of Spain v Christie, Manson and Woods Ltd [1986] 1 WLR 1120 Chancery Division (See p 209.) Miller v Jackson [1977] QB 966 Court of Appeal Lord Denning MR: In summer time village cricket is the delight of everyone. Nearly every village has its own cricket field where the young men play and the old men watch. In the village of Lintz in County Durham they have their own ground, where they have played these last 70 years… Yet now after these 70 years a judge of the High Court has ordered that they must not play there any more. He has issued an injunction to stop them. He has done it at the instance of a newcomer who is no lover of cricket. This newcomer has built, or has had built for him, a house on the edge of the cricket ground which four years ago was a field where cattle grazed. The animals did not mind the cricket.

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Sourcebook on Obligations and Remedies But now this adjoining field has been turned into a housing estate… Now he complains that, when a batsman hits a six, the ball has been known to land in his garden or on or near his house. His wife has got so upset about it that they always go out at weekends. They do not go into the garden when cricket is being played… No one has been hurt at all by any of these balls, either before or after the high fence was erected. There has, however, been some damage to property, even since the high fence was erected. The cricket club have offered to remedy all the damage and pay all expenses… But Mrs Miller and her husband have remained unmoved. Every offer by the club has been rejected. They demand the closing down of the cricket club. Nothing else will satisfy them. They have obtained legal aid to sue the cricket club. In support of the case, the plaintiff relies on the dictum of Lord Reid in Bolton v Stone [1951] AC 850, p 867: ‘…if cricket cannot be played on a ground without creating a substantial risk, then it should not be played there at all.’ I would agree with that saying if the houses or road were there first, and the cricket ground came there second… But I do not agree with Lord Reid’s dictum when the cricket ground has been there for 70 years and the houses are newly built at the very edge of it. I recognise that the cricket club are under a duty to use all reasonable care consistently with the playing of the game of cricket, but I do not think the cricket club can be expected to give up the game of cricket altogether. After all they have their rights in their cricket ground. They have spent money, labour and love in the making of it; and they have the right to play on it as they have done for 70 years… If we were to approach this case with the eyes of the judges of the 19th century they would, I believe, have seen it in this way. Every time that a batsman hit a ball over the fence so that it landed in the garden, he would be guilty of a trespass… So would the committee of the cricket club, because they would have impliedly authorised it. They cheered the batsman on. If one or two of the players went round and asked the householder if they could go into the garden to find it, the householder could deny them access… Of course, if the householder picked up the ball himself and gave it to his son to play with, he would be liable in conversion… Even if there was any doubt about the plaintiffs right to sue in trespass, he would have a claim in nuisance, once he proved that the balls were repeatedly coming over or under the fence and making things uncomfortable for him. To those claims, in the 19th century, either in trespass or in nuisance, the committee of the cricket club would have no answer… It would be no good for them to say that the cricket ground was there before the house was built. The householder could rely on… Sturges v Bridgman (1879) 11 Ch D 852… The case here was not pleaded by either side in the formulae of the 19th century. The plaintiffs did not allege trespass… The case was pleaded in negligence or alternatively nuisance… The tort of nuisance in many cases overlaps the tort of negligence… But there is at any rate one important distinction between them. It lies in the nature of the remedy sought. Is it damages? Or an injunction? If the plaintiff seeks a remedy in damages for injury done to him or his property, he can lay his claim either in negligence or in nuisance. But, if he seeks an injunction to stop the playing of

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The Structure of the Common Law cricket altogether, I think he must make his claim in nuisance. The books are full of cases where an injunction has been granted to restrain the continuance of a nuisance. But there is no case, so far as I know, where it has been granted so as to stop a man being negligent. At any rate in a case of this kind, where an occupier of a house or land seeks to restrain his neighbour from doing something on his own land, the only appropriate cause of action, on which to base the remedy of an injunction, is nuisance... He must have been guilty of the fault, not necessarily of negligence, but of the unreasonable use of land... I would, therefore, adopt this test: is the use by the cricket club of this ground for playing cricket a reasonable use of it? To my mind it is a most reasonable use... On taking the balance, I would give priority to the right of the cricket club to continue playing cricket on the ground, as they have done for the last 70 years. It takes precedence over the right of the newcomer to sit in his garden undisturbed. After all he bought the house four years ago in mid summer when the cricket season was at its height. He might have guessed that there was a risk that a hit for six might possibly land on his property. If he finds that he does not like it, he ought, when cricket is played, to sit in the other side of the house or in the front garden, or go out; or take advantage of the offers the club have made to him of fitting unbreakable glass, and so forth. Or, if he does not like that, he ought to sell his house and move elsewhere. I expect there are many who would gladly buy it in order to be near the cricket field and open space. At any rate he ought not to be allowed to stop cricket being played on this ground. This case is new. It should be approached on principles applicable to modern conditions. There is a contest here between the interest of the public at large and the interest of a private individual. The public interest lies in protecting the environment by preserving our playing fields in the face of mounting development, and by enabling our youth to enjoy all the benefits of outdoor games, such as cricket and football. The private interest lies in securing the privacy of his home and garden without intrusion or interference by anyone. In deciding between these two conflicting interests, it must be remembered that it is not a question of damages. If by a million to one chance a cricket ball does go out of the ground and cause damage, the cricket club will pay. There is no difficulty on that score. No, it is a question of an injunction. And in our law you will find it repeatedly affirmed that an injunction is a discretionary remedy. In a new situation like this, we have to think afresh as to how discretion should be exercised... As between their conflicting interests, I am of opinion that the public interest should prevail over the private interest... In my opinion, the right exercise of discretion is to refuse an injunction; and, of course, to refuse damages in lieu of an injunction. Likewise as to the claim for past damages. The club were entitled to use this ground for cricket in the accustomed way. It was not a nuisance, nor was it negligence... So, if the club had put it to the test, I would have dismissed the claim for damages also. But as the club very fairly say that they are willing to pay for any damage, I am content that there should be an award of £400 to cover any past or future damage. I would allow the appeal, accordingly.

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Sourcebook on Obligations and Remedies Geoffrey Lane LJ:… No one has yet suffered any personal injury, although Mrs Craig at least was perhaps lucky to have avoided it. There is no doubt that damage to tiles or windows at the plaintiffs’ house is inevitable if cricket goes on. There is little doubt that if the plaintiffs were to stay in their garden whilst matches are in progress they would be in real danger of being hit… There is no obligation on the plaintiffs to protect themselves in their own home from the activities of the defendants. Even if there were such an obligation it would be unreasonable to expect them to live behind shutters during the summer weekends and to stay out of their garden… It is true that the risk must be balanced against the measures which are necessary to eliminate it and against what the defendants can do to prevent accidents from happening… In the present case, so far from being one incident of an unprecedented nature about which complaint is being made, this is a series of incidents, or perhaps a continuing failure to prevent incidents from happening, coupled with the certainty that they are going to happen again. The risk of injury to persons and property is so great that on each occasion when a ball comes over the fence and causes damage to the plaintiffs, the defendants are guilty of negligence… Was there here a use by the defendants of their land involving an unreasonable interference with the plaintiffs’ enjoyment of their land? …A balance has to be maintained between on the one hand the rights of the individual to enjoy his house and garden without the threat of damage and on the other hand the rights of the public in general or a neighbour to engage in lawful pastimes. Difficult questions may sometimes arise when the defendants’ activities are offensive to the senses, for example, by way of noise. Where, as here, the damage or potential damage is physical the answer is more simple. There is… no excuse I can see which exonerates the defendants from liability in nuisance… There is here a real risk of serious injury… I would accordingly uphold the grant of the injunction to restrain the defendants from committing nuisance. However, I would postpone the operation of the injunction for 12 months to enable the defendants to look elsewhere for an alternative pitch… I have not thought it necessary to embark on any discussion of the possible rights of the defendants arising from matters which were neither pleaded nor argued. Cumming-Bruce LJ: I agree with all that Geoffrey Lane LJ has said in his… reasoning and conclusion on the liability of the defendants in negligence and nuisance… The only problem that arises is whether the learned judge is shown to be wrong in deciding to grant the equitable remedy of an injunction which will necessarily have the effect that the ground which the defendants have used as a cricket ground for 70 years can no longer be used for that purpose… So on the facts of this case a court of equity must seek to strike a fair balance between the right of the plaintiffs to have quiet enjoyment of their house and garden…and the opportunity of the inhabitants of the village in which they live to continue to enjoy the manly sport which constitutes a summer recreation for 54

The Structure of the Common Law adults and young persons, including one would hope and expect the plaintiffs’ son. It is a relevant circumstance which a court of equity should take into account that the plaintiffs decided to buy a house which in June 1972 when completion took place was obviously on the boundary of a quite small cricket ground where cricket was played at weekends and sometimes on evenings during the working week. They selected a house with the benefit of the open space beside it… [T]hey must have realised that it was the village cricket ground, and that balls would sometimes be knocked from the wicket into their garden, or even against the fabric of the house. If they did not realise it, they should have done. As it turns out, the female plaintiff has developed a somewhat obsessive attitude to the proximity of the cricket field and the cricketers who visit her to seek to recover their cricket balls. The evidence discloses a hostility which goes beyond what is reasonable, although as the learned judge found she is reasonable in her fear that if the family use the garden while a match is in progress they will run the risk of serious injury… It is reasonable to decide that during matches the family must keep out of the garden… With all respect, in my view the learned judge…does not appear to have had regard to the interest of the inhabitants of the village as a whole. Had he done so he would in my view have been led to the conclusion that the plaintiffs having accepted the benefit of the open space marching with their land should accept the restrictions on enjoyment of their garden which they may reasonably think necessary… There are here special circumstances which should inhibit a court of equity from granting the injunction claimed…

Notes and questions 1

2

‘“Actions’” do not form a part of modern civil codes, and this is not merely, as might be thought, because procedure has come to be recognised as something very different from substantive law. Though related to procedure, the subject of “actions” had never been equivalent to it… An “action” is…, as was a “form of action” to the common lawyer, an instrument of attack, and the correct instrument must be chosen for the attack contemplated… Whether, in logic, the right or the remedy comes first is not for discussion here, but if we ask the question historically, there is no doubt that in the majority of cases at Rome it was the remedy… [T]he Roman…thus often said “I have an action” where a modern man would be as likely to say “I have a right”’ (Jolowicz, Roman Foundations of Modern Law, 1957, Oxford, OUP, pp 75–76, 77). Is this an accurate description of modern English law as well? Does Lord Denning nevertheless use the notion of a ‘right’ as an integral part of his reasoning? Or does he base his decision on the notion of an “interest’? ‘It may be that, in some jurisprudential theory, it is possible to classify as a legal right some claims which will not be enforced by the court, but on a practical level the existence of a right depends upon the existence of a remedy for its infringement’ (Oliver LJ in Techno-Impex v Gebr Van Weelde [1981] 1 QB 648, p 672). What is meant by remedy in this context—a form of action or an actual remedy, such as damages or rescission? Was it the 55

Sourcebook on Obligations and Remedies

remedy of the injunction that determined the rights in Miller v Jackson? If so, what role did the cause of action in nuisance play? 3 How did Lord Denning know that the animals did not mind the cricket? 4 What if the Millers’ household insurance premiums had been raised as a result of the possible danger of cricket balls: could the Millers have claimed this expense from the club? 5 What if the Millers continued to sit in their garden during cricket matches and Mrs Miller was hit, and seriously injured, by a cricket ball: would the club be liable? Could the club raise the defence of contributory negligence? 6 Conversion requires an act denying the plaintiffs title in his movable property: is merely playing with another’s cricket ball conversion? Is it a trespass? If the owner of the land refused to return the cricket ball, would he be liable today for conversion? (Cf Torts (Interference with Goods) Act 1977.) 7 The court awarded modest damages: was this in lieu of an injunction? 8 What if the Millers had bought the house in the middle of winter? 9 How many separate reasons does Lord Denning give to support his decision? 10 Is this, in effect, an estoppel case? 11 Consider the notion of the ratio decidendi of a case. What is the ratio decidendi of Miller v Jackson? 12 Was it unreasonable of the female plaintiff to develop ‘a somewhat obsessive attitude’ given that the judge found that she was reasonable in her fear of serious injury? Is this case a good example of a court deciding a case through the manipulation of the facts rather than the law? What if the facts had involved some sport other than a ‘manly sport’: would the result have been different? Bryant v Herbert (1877) 3 CPD 389 Court of Appeal (See p 114.)

Notes 1

One of the similarities said to exist between Roman and English law is the historical foundation on a system of forms of action. In English law, these actions were the result of the early administrative writs required for entry into the royal courts; trespass, debt, detinue, trover, nuisance, habeas corpus, certiorari and others were the ‘instruments of attack’ and these were later supplemented by Chancery remedies such as account, injunction, rescission and rectification. The common law writs shaped English mentality in that each writ gave expression not only to its own particular procedural and remedial rules but equally to fundamental substantive ideas. Substantive law was ‘secreted in the interstices of procedure’ (Maine, Early Law and Custom, 1890, John Murray, p 389). 56

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2

These English forms of action stand in rather stark contrast to developments on the continent. Even by late Roman times, actions had merged with obligations (Dig 44.7) and the emphasis was more and more on the systematisation of iura themselves increasingly being viewed as ‘rights’ attaching to the individual (persona, individuum). Nevertheless, this does not mean that the Roman forms of action have not left their mark on the codes. The law of contract remains divided into named and unnamed contracts, which is a hangover from the different species of contractual actions in Roman law, and these old Roman forms are to be found elsewhere in private law (see, for example, CC, Arts 1372, 1376). In addition, the ‘multiplicity of special proceedings deriving from the different legal transactions and situations of substantive law’ is ‘an unfortunate holdover from the old system of forms of action’ (Vescovi, IECL, Vol XVI, Chapter 6, para 381). Such special proceedings (actions) include the difference between possessory and revindication claims, commercial and ordinary proceedings, marital disputes, minors and guardianship and so on. Even more modern civilian thinking cannot always escape from distinctions between public and private actions, ordinary and summary proceedings or contentious and non-contentious jurisdiction (Vescovi, paras 382–85). Actions may have given way to a law of subjective rights, but beneath these rights, and their remedies, are to be found the traces, if not structures, of older forms of claim.

6 THE ROLE OF LEGAL CATEGORIES

(a) Introduction In Roman law, the institutional system acted not just as a means of linking the social and the legal worlds: it also acted as the basis for legal classification. Law was to be divided into three areas, each representing the institutional emphasis: the law of persons, the law of things and the law of actions. Within these generic categories, there were further subdivisions expressly, or implicitly, recognised by the Romans themselves. Thus, the law of persons could be subdivided into personality and status (a development that owes more to the modern civilian jurists) and the law of things into property and obligations; remedies, of course, could be subdivided into real (in rem) and personal (in personam) claims. However, there remains another important division recognised by the Romans which is still of the utmost importance today: at the beginning of the Digest, the Roman jurist Ulpian tells us that the law falls into two branches—the ius publicum and the ius privatum. The former is concerned with the interests of the State, while the latter is concerned with the private interests of individuals. 57

Sourcebook on Obligations and Remedies In re State of Norway’s Application [1990] 1 AC 723 House of Lords Lord Goff:… In France, as in other civil law countries, civil matters are categorised as a matter of substance and are regarded as limited to private law matters, excluding public law matters and in particular fiscal matters. There appears to be little doubt that, in most if not all civil law countries, an important distinction is drawn between private law and public law, and that public law matters are generally excluded from civil or commercial matters. In theory…an English court would not treat a matter as civil or commercial which would, by English law, fall to be classified as criminal… [Proceedings in any civil matter should include all proceedings other than criminal proceedings, and proceedings in any commercial matter should be treated as falling within proceedings in civil matters. On this simple approach, I do not see why the expression should be read as excluding proceedings in a fiscal matter… In his case note… Dr FA Mann stated that: ‘…it can be asserted with confidence that very few states (if any) will ever regard a tax claim as a civil or commercial matter.’ I myself have little doubt that this is broadly true in the case of most civil law countries, with their classification of law into public law (including fiscal matters) and private law matters (with which alone civil and commercial matters are concerned)… But, so far as common law countries are concerned, the matter is, on the material before your Lordships’ House, completely unresolved…

Notes and questions 1

2

The Divisions of English law are much less clear-cut than those of most other legal systems, and there has been much less discussion of what the divisions should be. The absence of clear divisions is principally attributable to two factors. First, the jurisdiction of the higher courts is unified, for they can deal with all justiciable matters, whether public, private, commercial, civil or criminal; divided jurisdictions tend to create, unified jurisdictions to conceal or prevent divisions of law. Secondly, English law has grown in bits according to need and was not laid down in slices by an act of will, and “any system of law in which legal rules are always created ad hoc must at its best lack form and symmetry” (Stone). Codes, by the application they require and the commentaries they induce, make lawyers think that the law is divided in a certain way; England has no codes in this sense. Since, then, it is unimportant to the English lawyer to which type of court or book he should turn in order to solve his problem, the law tends to seem seamless’ (Weir, The common law system’, IECL, Vol II, Chapter 2, Part III, para 82). Would a division into public and private law help with the solving of case law problems? Take a case like Dorset Yacht (p 645): would this have been decided the same way in France? What about Blackpool and Fylde (p 436)? In English law, the division into public and private law is by no means as 58

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3

4

pronounced as it is in France—indeed, the division has traditionally been unrecognised at the formal level. Nevertheless, at the level of remedies there is an important distinction between judicial review and a claim for damages, and this remedial distinction implies that the common law adheres to a dichotomy between public and private interests (R v Secretary of State for Education ex p Avon CC [1991] 1 QB 558, p 561). Perhaps where the common law differs from the civil law is in its failure to develop, at the institutional level, a notion of the State: common lawyers, as Lord Diplock once recognised, continue to rely upon the notion of the ‘Crown’ to represent government and the (so called) public interest (Town Investments Ltd v Dept of Environment [1978] AC 359, pp 380–81). And this reliance on a feudal institution has tended to engender a legal structure that sees all institutions as ‘private’ in the sense of having their own personality and particular interests. The Crown or a local authority, in this scheme, is like any other (commercial) organisation. Accordingly, when it comes to litigation, it has its own interest to advance and to protect with the result that there is little room for civil law ideas like le bien public or the ‘equality before public burdens principle’. Does such a mentality encourage secrecy? The distinction between civil and commercial law does not have its formal roots in Roman law in the sense that the distinction is to be found in the Corpus Iuris Civilis. It is more a creature of the later civil law. After the Dark Ages, the expansion of trade in the late Middle Ages gave rise to special legal requirements. However, customary law was very inadequate to meet these, often rather contradictory, needs of confidence, credit, speed and security. Roman law brought a much more developed and sophisticated technique, above all in the area of the law of obligations. Yet this very conceptual sophistication could equally be an obstacle, since it did not always accord with practice. The refusal of Roman law to recognise the partnership (societas) as a corporate legal person was a particular problem. On the other hand, the ius commune (Roman and canon law) did make some major contributions: the development of a flexible law of contract based on the will of the parties is one notable example. These obstacles and advantages meant that commercial practice took ideas from where it could and adapted them for its own advantage (Hilaire, Introduction historique au droit commercial, 1986, PUF, pp 14–19). Gradually, a literature developed devoted entirely to commercial customs and court decisions (Szramkiewicz, Histoire du droit des affairs, 1989, Montchrestien, pp 63–64). In France, the increasing State centralisation and economic regulation in the era of Louis XIV resulted in commercial law becoming a subcategory of public law. Indeed, the attempt at codification by Colbert confirmed commercial law as a separate branch of law in France and, while it no longer formally forms part of public law, it still has its own code. Should commercial law be considered, today, as 59

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part of economic law? And, if so, should economic law be seen as belonging both to public and to private law? Is the case law of the European Court of Justice to be classified under public, private or commercial law?

(b) Civil and criminal law Fisher v Bell [1961] 1 QB 394 Queen’s Bench Division (See p 24.)

Questions 1 2

This case is often regarded as a contract problem. Why? Is it really an obligations case? Is criminal law part of public or private law? Archer v Brown [1985] QB 401 Queen’s Bench Division This was an action for damages in deceit by the victim of a fraud perpetrated by the defendant. The defendant had sold the victim share capital in a company for £30,000, having already sold the shares to others. In addition to the claim for return of the £30,000, the victim claimed damages: (i) for bank charges and interest incurred in raising the £30,000; (ii) for his injured feelings; and (iii) for exemplary damages. The defendant argued that he was liable only for rescission of the contract and for the return of the £30,000. The judge held that the victim was entitled to damages under heads (i) and (ii). Peter Pain J: This case arises out of a swindle practised upon the plaintiff by the defendant… In cases of fraudulent misrepresentation the plaintiff has always been entitled to damages as well as rescission… In cases of innocent misrepresentation a plaintiff was entitled to rescission only until recently. This was considered to work injustice and the Misrepresentation Act 1967 was passed to put this matter right. Even if the defendant’s misrepresentation had been innocent the plaintiff would in my opinion have been entitled to claim damages as well as rescission by virtue of s 2 of that Act… While it is true that the measure of damages is different in tort and in contract, it makes no difference which measure one applies in this case: the damages are the same. The damages which flow from the defendant’s deceit are no different from what must have been in the reasonable contemplation of the parties at the time of the contract… I do not think that the argument that the defendant could not make a profit here defeats the plaintiff’s claim. It seems to follow from what Lord Diplock said in Broome v Cassell and Co Ltd that the wrongdoer may be caught if he weighs the risk of loss against the chance of getting away with it. In this case, as one sees from the course of proceedings, the defendant could well have got away with it against a less determined plaintiff. But what seems to put the claim under this head out of court is the fact that exemplary damages are meant to punish and the defendant has been punished. Even if he wins his appeal he will have spent a considerable time in gaol. It is not surprising that 60

The Structure of the Common Law there is no authority as to whether this provides a defence, since there is no direct authority as to whether exemplary damages can be given in deceit. I rest my decision on the basic principle that a man should not be punished twice for the same offence. Since he has undoubtedly been punished, I should not enrich the plaintiff by punishing the defendant again… In recent years, damages for injured feelings have been awarded in a number of cases sounding in contract… I now have to ask myself: is there any reason why these damages should sound in breach of contract and not in deceit?… I find nothing in the passages…from the speeches of Lord Hailsham of St Marylebone LC and Lord Diplock in Broome v Cassell and Co Ltd which should extend their doubts whether exemplary damages should be awarded for deceit to aggravated damages for deceit. I cannot help wondering whether the close relationship between contract and deceit mentioned by Lord Hailsham of St Marylebone LC is the reason why exemplary damages have not been awarded in deceit. Sachs LJ’s reference to the Theft Act 1968 in his judgment in Mafo v Adams leads me to ask whether the true reason why there is no reported case where exemplary damages have been given for deceit is that most deceits are punishable by the criminal law and that it would therefore be inappropriate to award exemplary damages. If this be so, then it is no reason for refusing to award damages which are compensatory for injured feelings. I can see no reason in logic or justice why such damages should not be awarded in deceit on the same basis as in contract. The authorities make it plain that the sum awarded should be moderate. In the light of the findings of fact which I have already made I think a sum of £500 would be appropriate under this head…

Notes and questions 1

2 3

4

The distinction between civil and criminal law, though probably that best understood today by laymen, is not primitive. It is indeed a commonplace to point out how in an early state of society wrongs such as assault and murder, which we regard now as typical subjects for criminal law, are treated as giving rise merely to a sort of action for damages at the suit of the party injured or his relatives, and that these damages are the substitute for the yet more primitive right to vengeance… Even in its most advanced period Roman law still kept traces of the old confusion between crime and tort in the penal damages it allowed, for example, in furtum, and ‘punitive’ damages which combine punishment with reparation are familiar in English law’ (Jolowicz, Lectures on Jurisprudence, 1963, Athlone, pp 344, 345). Does the English law of tort still have a punitive element? Is the development of criminal law dependent on a notion of the ‘State’? To what extent should one person be liable in private law for crimes committed by another person under his, her or its control? Should victims of crimes be able to use the criminal trial process to obtain full compensatory damages? What are the arguments against such a procedure? The relationship between the law of tort (see Chapter 7) and criminal law 61

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is still close in a number of areas. The crime of public nuisance will give rise to a damages action in tort if the plaintiff suffers special damage (see Mint v Good, p 675) and the breach of a criminal statute may give also rise to a damages claim in certain circumstances (see pp 758–60). A person who suffers damage, injury or loss while involved in a criminal activity may be prevented from recovering compensation either in contract or in tort; much will depend upon the circumstances (see, for example, Geismar v Sun Alliance Insurance, p 602). Consider some examples. D shoots P, a burglar who has just broken into D’s house: can P sue D for his injuries? P contracts with D for D to transport P’s very heavy piece of machinery from Liverpool to London and on the way the lorry crashes as a result of being overloaded: can P sue for his badly damaged machine if he acquiesced in the overloading? P, very drunk, encourages D, also very drunk, to drive badly; if the car crashes and P is injured, can he sue D?

(c) Contract Moschi v Lep Air Services Ltd [1973] AC 331 House of Lords Lord Diplock: The law of contract is part of the law of obligations. The English law of obligations is about their sources and the remedies which the court can grant to the obligee for a failure by the obligor to perform his obligation voluntarily. Obligations which are performed voluntarily require no intervention by a court of law. They do not give rise to any cause of action. English law is thus concerned with contracts as a source of obligations. The basic principle which the law of contract seeks to enforce is that a person who makes a promise to another ought to keep his promise. This basic principle is subject to an historical exception that English law does not give the promisee a remedy for the failure by a promisor to perform his promise unless either the promise was made in a particular form, for example, under seal, or the promisee in return promises to do something for the promisor which he would not otherwise be obliged to do, that is, gives consideration for the promise… Each promise that a promisor makes to a promisee by entering into a contract with him creates an obligation to perform it owed by the promisor as obligor to the promisee as obligee. If he does not do so voluntarily there are two kinds of remedies which the court can grant to the promisee. It can compel the obligor to pay to the obligee a sum of money to compensate him for the loss that he has sustained as a result of the obligee’s failure to perform his obligation. This is the remedy at common law in damages for breach of contract. But there are some kinds of obligation which the court is able to compel the obligor actually to perform. In some cases…a remedy to compel performance by a decree of specific performance or by injunction is also available. It was formerly obtainable only in a court of equity… But, since a court of common law could make and enforce orders for payment of a sum of money, where the obligation was itself an obligation to pay a sum of money, even a court of common law could compel the obligor to perform it… 62

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Questions 1 How does one recognise a set of facts as being contractual? 2 In Fisher v Bell (above, p 24), if the owner of the shop had sold the knife on credit to the buyer, and the buyer had failed to pay the debt, could the owner have sued the buyer for a contractual debt? 3 If an employee of a supermarket steals goods from his employer and sells them to an acquaintance in his local pub, could the employee sue the acquaintance if the latter failed to pay for the goods? Could the supermarket sue the acquaintance? 4 Besides contract, what are the other parts of the law of obligations? Notes 1

2

The notion of a law of contract goes back to Roman law, from where it found its way into modern European law through the rediscovery in the 11th century of Justinian’s compilation of the writings of the Roman jurists and of imperial legislation published in 533AD (Corpus Iuris Civilis). The succession of continental jurists from medieval to modern times who worked on these sources took the Roman law of contracts from its fragmented nature to a general theory of contract (Samuel and Rinkes, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, pp 1– 9). A range of Roman characteristics are still to be found in the contract sections of all the modern codes, but a Roman jurist would not recognise the modern style of presenting private law in terms of codes. Nor, probably, would he recognise the notion of a general theory of contract based on the will theory (CC, Art 1134), although the idea is stimulated by a Roman text (Dig 50.17.23). In terms of legal style, the Roman jurist would be more comfortable in the common law system where contract is founded upon concrete cases (Weir (1992) 66 Tulane LR 1615). Despite the historical emphasis on the form of the action, to say that contract was unknown in England before the 18th century would be to misinterpret legal history. The Court of Chancery had been familiar with (Romanist) contractual notions long before the industrial revolution and academic writing since the Middle Ages was well acquainted with Roman law (and thus the law of contract) (Gordley, The Philosophical Origins of Modern Contract Doctrine, 1991, OUP). But contract as a dominant legal institution is largely a creature of the 19th century common law, and it is during this period that it reached its ‘classical’ form (Atiyah, The Rise and Fall of Freedom of Contract, 1979, OUP). The basic principles of offer and acceptance, consideration, terms and breach were all worked out—or, more accurately, imported from the codes (Simpson (1975) 91 LQR 247)—during the period between the end of the 18th century and the beginning of the 20th century (Samuel and Rinkes, pp 75–82). The result was that many of the older forms of liability founded on status, debt and bailment became 63

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completely submerged under the new doctrine. Indeed, even the noncontractual debt claims were rationalised in terms of implied contract or equitable property rights (Sinclair v Brougham [1914] AC 398), and it is only today that the courts are beginning to rethink and reformulate at a theoretical level the categories of debt liability (Kleinwort Benson v Glasgow CC, p 71). Whether an English contract can be seen as a form of private legislation as in France (CC, Art 1134) is not easy to determine, since its basis is in promise rather than agreement (below, p 402). But freedom of contract was, until the consumer society of the postwar period, the dominant ideology of the courts. And, even today, contract, as an aspect of commercial law, is an instrument for businesses to establish their own rights and duties and it is for the courts to enforce these terms without regard to notions such as good faith (Photo Production, p 552; cf UNIDROIT, Art 1.1; PECL, Art 1:102). Only where consumers (interpreted widely?) are concerned will the courts take a more interventionist approach (Interfoto, p 409). In all the continental codes, the part or book devoted to the law of obligations is dominated by the law of contract. In the French Code civil, non-contractual obligations take up only a few articles compared with the large number dealing with contract in general and with the various named contracts. Contracts are binding agreements—a legal chain (vinculum iuris) between two people (J 3.13pr)—which, in some systems, as we have seen, have the force of private legislation. Any failure, for whatever reason, to perform such an obligation is regarded as a nonperformance (inexécution) with the result that liability for such nonperformance starts out from the reason for non-performance (CC, Art 1147; PECL, Art 8:101). Was the non-performance the result of the contractor’s fault? Did the contractor undertake to guarantee a result or did he undertake only to use skill and care? This idea of liability being based on fault comes from Roman law (Dig 13.6.5.2, 7; below, p 389) and is still a central feature of the modern civil law (PECL, Art 8:108; Treitel, Remedies for Breach of Contract, 1988, OUP, Chapter 2). However, the actual position is more complex, since liability (la responsabilité contractuelle) in contract is linked to the formation and contents of the contractual obligation itself, and this may depend on the actual facts of the contract problem in issue (see, for example, Boy note to TGI Paris 5.5.1997, Dalloz Jur 558; cf Atias Dalloz 1998 Chron 137). The point to be stressed, then, is that contract and liability in contract must be distinguished to the extent that the former is concerned with rights (obligationes, iura, droits subjectifs) while the latter is primarily a matter of remedies (actiones). Thus, when viewed from the position of compensation based on either fault (obligation de moyens) or strict liability (obligation de résultat), there is little difference between contractual and non-contractual liability. This makes it possible for the 64

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law of tort to ‘fill in the gaps’ of the law of contract (see, for example, White v Jones, p 702) (but cf ‘tort’, below). In English law, the distinction between contract and liability ex contractu is particularly important, since the law of remedies (debt, damages, injunction, specific performance, rescission, etc) is relatively independent from the law of rights (contract and tort) (see, for example, Co-op v Argyll, p 253; cf PECL, Art 9:102). Certainly contractual liability in English law can, at first sight, appear to transcend the forms of action mentality, since contract is a subject seemingly dominated by rules which are capable of being codified in much the same way as in the civil codes (McGregor, Contract Code: Drawn up on behalf of the English Law Commission, 1993, Giuffrè). However, remedies respond not so much to rights, but to causes of action, and thus liability in contract is founded on the idea, not of nonperformance of an obligation as such, but of a breach of contract. This notion of breach is in turn related to the theoretical foundation of contract in English law, which is not conventio (agreement), but promise. Contractual liability arises from a breach of promise and historically such a cause (form) of action for breach was as much delictuel (tort of deceit) as contractual. Some contractual liability cases are thus difficult to distinguish from noncontractual compensation claims (see, for example, Blackpool and Fylde, p 436). The idea of non-performance is not, however, absent from the common law of contract, since a contractor may be prevented from performing as a result of an event beyond his control (doctrine of frustration) or because the non-performer is under no actual obligation to perform as in a unilateral contract. Consequently, it is on occasions important to distinguish a claim based on breach of contract (usually a claim for damages) from one based on non-performance (usually a refusal to pay a debt) (see, for example, Vigers v Cook, p 516; Bolton v Mahadeva, p 226). Difficult questions can also arise not only about whether the nonperformance was a breach (Joseph Constantine, p 523), but also whether the defendant had actually promised the result claimed by the plaintiff (see, for example, Readhead v Midland Ry, p 543; Thake v Maurice, p 547; Supply of Goods and Services Act 1982) (cf obligation de moyens and obligation de résultat).

(d) Tort Donoghue v Stevenson [1932] AC 562 House of Lords Lord Atkin: My Lords, the sole question for determination in this case is legal: Do the averments made by the pursuer in her pleading, if true, disclose a cause of action? I need not restate the particular facts. The question is whether the manufacturer of an article of drink sold by him to a distributor, in 65

Sourcebook on Obligations and Remedies circumstances which prevent the distributor or the ultimate purchaser or consumer from discovering by inspection any defect, is under any legal duty to the ultimate purchaser or consumer to take reasonable care that the article is free from defect likely to cause injury to health. I do not think a more important problem has occupied your Lordships in your judicial capacity: important both because of its bearing on public health and because of the practical test which it applies to the system under which it arises. The case has to be determined in accordance with Scots law…but my own research, such as it is, satisfies me that the principles of the law of Scotland on such a question as the present are identical with those of English law; and I discuss the issue on that footing. The law of both countries appears to be that in order to support an action for damages for negligence the complainant has to show that he has been injured by the breach of a duty owed to him in the circumstances by the defendant to take reasonable care to avoid such injury. In the present case we are not concerned with the breach of the duty; if a duty exists, that would be a question of fact which is sufficiently averred and for present purposes must be assumed. We are solely concerned with the question whether, as a matter of law in the circumstances alleged, the defender owed any duty to the pursuer to take care… At present I content myself with pointing out that in English law there must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances. The liability for negligence, whether you style it such or treat it as in other systems as a species of ‘culpa’, is no doubt based upon a general public sentiment of moral wrongdoing for which the offender must pay. But acts or omissions which any moral code would censure cannot in a practical world be treated so as to give a right to every person injured by them to demand relief. In this way rules of law arise which limit the range of complainants and the extent of their remedy. The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer’s question, who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be—persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question. This appears to me to be the doctrine of Heaven v Pender… There will no doubt arise cases where it will be difficult to determine whether the contemplated relationship is so close that the duty arises. But in the class of case now before the court I cannot conceive any difficulty to arise. A manufacturer puts up an article of food in a container which he knows will be opened by the actual consumer. There can be no inspection by any purchaser and no reasonable preliminary inspection by the consumer. Negligently, in the course of preparation, he allows the contents to be mixed with poison. It is said that the law of England and Scotland is that the poisoned consumer has no remedy against the negligent manufacturer. If this were the result of the authorities, I should consider the result a grave defect in the law, and so contrary to principle that I should hesitate long before following any decision to that effect which had not the authority of this House. I would point out that, in the assumed state of the authorities, not only would the consumer have no remedy against the manufacturer, he would have none against any one else, for in the circumstances alleged there would be no evidence of negligence 66

The Structure of the Common Law against any one other than the manufacturer; and, except the case of a consumer who was also a purchaser, no contract and no warranty of fitness, and in the case of the purchase of a specific article under its patent or trade name, which might well be the case in the purchase of some articles of food or drink, no warranty protecting even the purchaser-consumer… I do not think so ill of our jurisprudence as to suppose that its principles are so remote from the ordinary needs of civilised society and the ordinary claims it makes upon its members as to deny a legal remedy where there is so obviously a social wrong… In my opinion, several decided cases support the view that in such a case as the present the manufacturer owes a duty to the consumer to be careful… Lord Buckmaster (dissenting):… The principle contended for must be this: that the manufacturer, or indeed the repairer, of any article, apart entirely from contract, owes a duty to any person by whom the article is lawfully used to see that it has been carefully constructed. All rights in contract must be excluded from consideration of this principle; such contractual rights as may exist in successive steps from the original manufacturer down to the ultimate purchaser are ex hypothesi immaterial. Nor can the doctrine be confined to cases where inspection is difficult or impossible to introduce. This conception is simply to misapply to tort doctrine applicable to sale and purchase. The principle of tort lies completely outside the region where such considerations apply, and the duty, if it exists, must extend to every person who, in lawful circumstances, uses the article made. There can be no special duty attaching to the manufacture of food apart from that implied by contract or imposed by statute. If such a duty exists, it seems to me it must cover the construction of every article, and I cannot see any reason why it should not apply to the construction of a house. If one step, why not 50? Yet if a house be, as it sometimes is, negligently built, and in consequence of that negligence the ceiling falls and injures the occupier or any one else, no action against the builder exists according to the English law, although I believe such a right did exist according to the laws of Babylon…

Notes and questions 1

If it is not contract it must be tort, said Bramwell LJ in Bn/ant v Herbert (see p 114). Damages claims that could not be accommodated under contract were put into a separate category of ‘tort’, an Anglo-Norman word meaning ‘wrong’. Tort is seen as an equivalent category to contract, yet it is actually rather different, in that it is not a normative obligation in itself. There is no such thing as a ‘breach of tort obligation’ (Bradford Corpn v Pickles, p 222). In order to succeed in a tort claim, the plaintiff must establish a specific cause of action such as trespass, negligence, nuisance, defamation, conversion, interference with contract (or whatever: see Rudden, ‘Torticles’ (1991–92) 6/7 Tulane Civil Law Forum 105). Failure to plead and to prove a specific cause of action will result in failure of the damages action (Esso v Southport, p 216). 67

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3

In 1897, a judge recognised a general right not to be physically harmed by an intentional (malicious) act of another (Wilkinson v Downton, p 640). But this would seem not to be reducible to a general pre-existing ‘duty’ (Stubbings v Webb [1993] AC 498, p 508). However, in Donoghue v Stevenson, the House of Lords recognised a general duty of care not carelessly to injure another. It would appear, then, that English law has moved some way towards a general non-contractual obligation for physical damage based upon fault (Letang v Cooper [1965] 1 QB 232; cf CC, Art 1382). Damage is usually the starting point of tort (but cf defamation); however, economic loss presents problems when it comes to the tort of negligence and breach of statutory duty (and see Birse Construction v Haistie, p 617). With respect to liability without fault (liability for people or things under one’s control), it is by no means easy to establish any general principle similar to CC, Art 1384. The decision in Rylands v Fletcher (p 660) could have acted as the basis for such a general principle, but the House of Lords has consistently refused to develop any such strict liability principle (Read v J Lyons and Co, p 662; Cambridge Water v Eastern Counties Leather, p 665). The result is that the UK law is out of line with many of its EU partners. Tort thus remains a rather fragmented subject protecting a whole range of different interests and, as a result, it is impossible to think in terms of a general theory (as the notes that follow indicate; and see, in particular, Chapter 7). ‘We have had several compendious theories as to the law of tort. Lynxeyed predecessors who noticed that a tort suit often resulted in a transfer of funds from the defendant to the plaintiff inferred that it was the purpose of tort law to effect such transfers: the more transfers the better, or tort was being false to its purpose. This was especially true if the defendant could spread the loss, very thinly like jam, so that no one could taste it… An appropriate basis for discriminating between plaintiffs would be according to whether they were the victims of misfortune or of mismanagement, of bad luck or of bad behaviour, that is, whether they have just a pain or a grievance as well, whether we can say of them that, the world being what it is, they should not have been hurt… The purpose of fault would be to determine not who must pay but who may claim, to distinguish between plaintiffs rather than between defendants. And we would also distinguish according to the nature of the harm in issue, and make the law reflect society’s proper value judgments by letting people recover more easily in respect of personal injury than financial harm, and for property damage only if it also represented financial loss to them…’ (Weir, ‘Governmental liability’ [1989] PL 40, pp 62–63). Is fault a realistic criterion for determining who should receive compensation in road accident cases? Was Mrs Donoghue the victim of misfortune or of mismanagement—of bad luck or of bad behaviour? 68

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What if the manufacturer had been able to prove that, on average, only one bottle in a million was defective? ‘It is submitted that a suitable criterion is to be found in the concept of risk and that a satisfactory body of legal rules could quite rapidly be developed by the courts if in every case they were to pose the question “Whose risk was it that this damage might occur?” in place of the present “Whose fault was it that this damage did occur?”. It is essential, however, that the traditional refusal of the courts to consider the factor of insurance be reversed. It is perhaps this refusal of the courts to face up to the facts of contemporary life which has led them to overlook loss distribution as it already exists and to insist on fault as the criterion of liability as if every defendant had to find the damages from his own pocket’ (Jolowicz, ‘Liability for accidents’ [1968] CLJ 50, p 60). If this thesis had been applied to Dorset Yacht (p 645), what would have been the result? What about Best v Samuel Fox (p 615)? ‘The real weakness of the insurance argument is that insurance is essentially a group or social phenomenon, whereas the common law of obligations is concerned with individuals. Disputes between individuals do not provide a good medium through which to decide what is the best pattern of insurance in a particular area… As Weinrib says, the invocation of insurance in tort disputes undermines the conception of tort law as concerned with the immediate personal interaction of the doer and the sufferer of harm’ (Cane, Tort Law and Economic Interests, 1991, OUP, p 460). Is the problem here an institutional one? If one were to move towards insurance-based liability, would the law of persons need rethinking? Is the law of tort founded upon the interests of individuals or the interest of groups (or classes) of individuals? ‘It cannot lightly be taken for granted, even as a matter of theory, that the purpose of the law of tort is compensation, still less that it ought to be, an issue of large social import, or that there is something inappropriate or illogical or anomalous (a question-begging word) in including a punitive element in civil damages, or conversely that the criminal law, rather than the civil law is in these cases the better instrument for conveying social disapproval, or for redressing a wrong to the social fabric… As a matter of practice English law has not committed itself to any of these theories, it may have been wiser than it knew…’ (Lord Wilberforce in Cassell and Co Ltd v Broome [1972] AC 1027, p 1114). Ought punitive damages ever to be awarded in traffic accident cases? If the law of tort is not about compensation, what is, or are, its aim(s)? Could one run a whole tort course simply devoted to theories of tort? If one could run such a course, what would this tell us about legal knowledge?

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(e) Restitution (unjust enrichment) Kleinwort Benson Ltd v Birmingham CC [1997] QB 380 Court of Appeal Evans LJ: During the 1980s a number of local authorities entered the financial markets in order to trade in a new form of derivative, known as interest rate swaps contracts. Then the courts held that these contracts were ultra vires the local authorities and therefore void: Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1. That judgment launched what has been called a great raft of litigation… More than 100 writs were issued, mostly in the Commercial Court, claiming to recover the net amounts which had been paid out by one party or the other under the void contracts… The right of recovery…was established by a number of judgments… The claims fall within the principle of unjust enrichment, giving the plaintiffs a right to restitution which the courts have upheld… The principle of unjust enrichment is recognised in English as in other systems of law. It requires the recipient of money to repay it when the circumstances are such that it is contrary to ‘the ties of natural justice and equity’ for him to retain it; cf Lord Mansfield CJ’s celebrated dictum in Moses v Macferlan (1760) 2 Burr 1005, p 1012. How those circumstances may be identified has been the subject of countless judicial decisions over the centuries. A number of recognisable forms of action emerged from the mists of legal history. These entitled the plaintiff to recover, not damages, but a quantified sum from the defendant who was not necessarily a wrongdoer and who was not bound by any contract or express undertaking to pay the sum claimed by the plaintiff. The circumstances in which such a non-contractual obligation can arise are various; the recovery of money paid under a mistake of fact (though not, historically and so far as English law is concerned, under a mistake of law), or where the consideration in return for which the money paid has failed, are well-established examples. Now, the mists have cleared still further. It is recognised that these different forms spring from a single underlying principle, which is described as the right to recover on grounds of unjust enrichment; that is to say, the defendant has been unjustly enriched by the payment made to him and which the plaintiff seeks to recover… That the principle forms part of English law has been authoritatively recognised in two recent judgments of the House of Lords: Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 and Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70. Notwithstanding its roots in natural justice and equity, the principle does not give the courts a discretionary power to order repayment whenever it seems in the circumstances of the particular case just and equitable to do so… So the search for rules defining the circumstances in which the general principle gives a remedy continues, and it is subject as always to the binding authority of previous decisions. But the two House of Lords judgments recognise that this is a developing area of the law and that the courts should be ready to apply the general principle when it is appropriate and consistent with authority to do so…

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The Structure of the Common Law Saville LJ:… The basis for this kind of unjust enrichment claim lies in the fact that the only right the payee can assert to the money he has received is that created by the contract under which it was paid. If that contract is void, then it inexorably follows that this right does not exist, and the payee has no right to that money. The payee is thus unjustly enriched, since there is no justification for the retention of money to which he has no right. Leaving aside defences such as change of position, that injustice can only be corrected by returning the money to the payer, whose performed obligation to pay only arose under the same contract. That obligation to pay is correlative to the payee’s right to receive and retain the payment, and likewise does not in fact exist if the contract is void. In short the payer was under no obligation to part with his money, nor the payee any correlative right to receive or retain it. Justice is done by imposing an obligation on the payee to repay the payer… Kleinwort Benson Ltd v Glasgow CC [1996] QB 678 Court of Appeal; [1999] 1 AC 153 House of Lords Millett LJ (Court of Appeal): The principal question in this appeal is whether a claim to recover money paid under a contract which is ultra vires the recipient is a matter ‘relating to a contract’ within Art 5(1) of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, commonly known as the Brussels Convention. More generally, it is whether the word ‘contract’ in that article is capable of including a contract which is void because it is beyond the capacity of one of the parties… In considering whether a claim is to be regarded as falling within Art 5(1) (or Art 5(3)), therefore, it is wrong to ask whether the claim would be characterised as contractual (or tortious) under domestic law. The correct approach is to ask whether, for the purposes of the Convention, which applies to a number of Member States with different national laws and systems of characterisation, the defendant should broadly be regarded as being sued in a matter ‘relating to a contract’ (or tort, delict or quasi-delict). The jurisdictional criteria must be interpreted by reference to the system and objectives of the Convention in order to ensure that it is effective. Those objectives include legal certainty, consistency, the avoidance of parallel proceedings, and the avoidance of possibly conflicting decisions in different jurisdictions. The principal rationale for the special jurisdictions conferred by Art 5 is that there should be, in certain clearly defined situations, ‘a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings’: the Martin Peters case [1983] ECR 987, p 1002, para 11. [Emphasis added.] It is to be observed that jurisdiction is not allocated according to the remedy sought. Provided that the matter relates to a contract, the jurisdiction conferred by Art 5(1) is available whether the plaintiff seeks to enforce the contract, either specifically or by way of damages for breach, or to escape from it and recover money paid under it. Some restitutionary claims, at least, fall within Art 5(1). Further, jurisdiction is not allocated by reference to the cause of action. The words ‘matters relating to a contract’ are intentionally indefinite. They are designed to get away from technical classifications of causes of action in national laws, which may well differ. The expression ‘matters relating to a 71

Sourcebook on Obligations and Remedies contract’ is not, in my opinion, to be equated with ‘contractual causes of action’ or ‘the enforcement of contractual obligations’ or even ‘claims based on contract’. There seems no doubt that, while national laws of contract differ, there is a general sense in which the word contract is understood by the signatories to the Convention. English notions of consideration and privity must be discarded. But at its irreducible minimum a contract is a consensual arrangement intended to create legal relations and to be legally enforceable. So I come at last to the central question: ‘Does the word ‘contract’ in Art 5(1) include a void contract?’ The authorities say: ‘No. A void contract is a nullity. It is not a contract. It has no legal effect. It gives rise to no legal obligations. There is no place of performance. If one party claims to recover money paid pursuant to it, his claim is not a contractual claim. The action lies in restitution, not contract. The recipient’s obligation to repay is not a contractual obligation. It does not arise from the void contract, which is incapable of generating any legal rights and obligations. It arises solely by reason of the original payment and because the recipient would be unjustly enriched if he were allowed to retain it.’ These are powerful arguments, but I am not persuaded by them. They appear to me to depend upon the kind of analysis which is employed by a national law in the classification of causes of action for domestic purposes rather than the very broad and unanalytical approach which the Convention requires. Even if every Member State treats a contract as a nullity if one of the parties lacks capacity, this should not be treated as if it were a rule of natural law and of universal application. In the present case the parties purported to enter into a contract. They assumed obligations to each other and intended them to be legally enforceable. The payments were made and received on an agreed basis, and are explicable only by reference to the supposed contract. When parties act pursuant to such a contract, the intended place of performance is no less relevant a connecting factor because the contract is afterwards found to be void. I can see no reason, as a matter of language, why the word ‘contract’ in Art 5(1) should not include ‘void contract’ and the expression ‘place of performance of the obligation in question’ should not mean ‘intended place of performance of the supposed obligation’. There is a real difference between the case where negotiations have not led to a concluded contract, where there is no contract at all, and the case where they have led to a contract, so that there is an agreement in fact, but one of the parties lacks contractual capacity, so that there is no contract in law. Every legal system has to make provision for contracts which are defective for one reason or another. They may lack the necessary legal formalities; they may be contrary to public policy or illegal; they may be made by a party without capacity or by an agent without authority; they may contain some unresolved uncertainty or ambiguity, or be incomplete in some material particular; or the consent of one of the parties may be vitiated by mistake or misrepresentation or duress or some other factor. The consequences of these defects may differ. Some may make the contract void; others may make it voidable; still others may make it merely unenforceable. But these are merely 72

The Structure of the Common Law useful shorthand methods of describing the different legal consequences which follow from the defect in question. A defect which renders a contract void in one jurisdiction may merely make it voidable in another. A voidable contract which is avoided may be treated as void ab initio in one jurisdiction and not in another. In English law want of capacity, like mistake, sometimes makes a contract void and sometimes makes it voidable. A contract entered into by a party acting ultra vires is void; a contract entered into by a minor, or a person under the influence of drink, or a person of unsound mind, is voidable. A contract which is properly described as void is not necessarily a complete nullity. A contract which is entered into by an agent without authority, for example, does not impose any legal obligations upon the principal, but it may afterwards be ratified by him. So it is best to lay aside these terms when considering the meaning of Art 5(1) of the Convention. They merely tell us what the consequences of the defect are in national law. That is not relevant to the allocation of jurisdiction under the Convention, which must be ascertained independently of the national laws of the Member States. The question, therefore, is not whether a contract which is ‘void’ under national law is a contract for the purposes of Art 5(1), but whether a contract which is ultra vires one of the parties is such a contract… Three considerations persuade me that it is also correct. First, in most cases the validity of the contract will be in issue. It would not be consistent with the objectives of the Convention if a court having jurisdiction to decide the validity of the contract did not also have jurisdiction to decide the consequences; or if it had jurisdiction to grant relief in one event and not in the other. It should not be necessary in order to found jurisdiction that the claimant should be compelled to allege the validity of the contract if its invalidity is not seriously disputed. Secondly, it is often notoriously difficult to distinguish between contractual and restitutionary causes of action. Claims in quantum meruit, for example, are usually thought of as contractual, and in most situations are clearly ‘matters relating to a contract’. But there is a respectable case for classifying all such claims as restitutionary, and in some situations they clearly are. The remedy is available, for example, at least in English law, even where the party who received the benefit of the services lacked contractual capacity. Jurisdiction under the Convention should not depend upon such nice distinctions of the national laws. Thirdly, if the claim is properly regarded as a matter ‘relating to a contract’, then the court having jurisdiction under Art 5(1) is the court for the place where the supposed contractual obligation should have been performed, not the place where the unjust enrichment occurred and the restitutionary obligation arose. This produces a scheme for the allocation of jurisdiction which is both coherent and satisfying. Suppose P agrees to buy goods from D, the goods to be delivered in London and payment to be made in Frankfurt. P pays for the goods, but the goods are not delivered. P has a choice of remedies. He can sue D for damages for breach of contract, bringing the action in England, the place where the obligation to deliver the goods should have been performed. Or he can treat the contract as discharged by breach and sue to recover the payment for a total failure of consideration. 73

Sourcebook on Obligations and Remedies The nature of the remedy sought does not prevent the action from being tried in England, the place of performance of the contractual obligation the breach of which has given rise to the relief claimed. Next, suppose that after one consignment has been delivered, D refuses to deliver any more, and alleges want of contractual capacity. P may accept this or dispute it. If he accepts it, or it is established, he is entitled to recover the payment after giving credit for the value of the consignment delivered. It makes no sense to deprive the court in England of jurisdiction to try the action, England being the intended place of performance of the supposed obligation the failure to perform which has given rise to the relief sought. The factor which connects the dispute with England is the same whether D’s contention that he lacked contractual capacity is right or wrong. The authority’s arguments all proceed from three basic assumptions: (1) that all Member States recognise the existence of three categories of civil action, contractual, delictual and restitutionary, with broadly the same lines of demarcation; (2) that all restitutionary claims must be treated alike; and (3) that they fall outside Art 5(1) and (3). In my view, the structure of the Convention precludes that analysis. Its failure to provide specifically for restitutionary claims must, I think, be due to a recognition of the fact that they overlap with contractual and delictual claims and that the lines of demarcation are not identical in the various national laws. A claim to recover money paid under a valid contract where there has been a total failure of consideration, for example, is a restitutionary claim in a contractual context; restitutionary claims for wrongs are delictual or quasi-delictual; a claim by the victim of fraud to trace and recover his money would not be classified by English law as either contractual or delictual, but in civilian systems which deny the possibility of restitutionary proprietary claims it would probably be classified as delictual. Accordingly, I reject the authority’s submission that all restitutionary claims necessarily fall outside Art 5. For the reasons I have endeavoured to express, I accept the bank’s submission that a claim to recover money paid under a supposed contract which is rendered abortive by the recipient’s want of contractual capacity is a matter ‘relating to a contract’ within Art 5(1). I am not deterred by the need to read the word ‘contract’ in that article as meaning ‘void contract’ or the expression ‘place of performance of the obligation in question’ as ‘intended place of performance of the supposed obligation’. I would leave it for future consideration whether the word ‘contract’ is capable of including ‘anticipated contract’, but I would not exclude it as a possibility. Many civilian systems require good faith in the negotiation of a proposed contract. Is a breach of such an obligation not ‘a matter relating to a contract?’ I pose the question, not to suggest an answer, but to indicate that the answer is not obvious… Roma locuta est, causa finita non est. I would allow the appeal. Leggatt LJ (Court of Appeal) (dissenting):… In 1981, there came into existence a new type of financial transaction known as an interest rate swap contract. Such contracts are of many kinds. But in its simplest form it consists of an agreement between two parties whereby one pays to the other, over a period of months or years, sums calculated by reference to the difference between a fixed rate of interest and the current market rate of interest from

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The Structure of the Common Law time to time. The principal sum is purely notional and exists solely for the purpose of calculating the obligations of the parties to pay differences. The essential feature of the transaction is that it is a futures contract, the financial outcome of which depends on future movements in interest rates. From about 1982 interest rate swap contracts came to be used by a number of local authorities, of which Glasgow was one. In September 1982, Glasgow entered into seven transactions with Kleinwort. In Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1, the House of Lords held that all such transactions were void ab initio for lack of capacity to enter into them. There followed many claims in the Commercial Court, mostly by banks against local authorities. In the first such action Hobhouse J held in Westdeutsche Landesbank Girozentrale v Islington London Borough Council (1993) 91 LGR 323 that the bank was entitled to recover from the local authority the balance standing to the credit of the local authority when the transactions were aborted by the decision of the House of Lords. That decision was upheld in this court [1994] 1 WLR 938, but judgment is still awaited in a further appeal to the House of Lords [see now [1996] AC 669, below, p 799]. The writ in the present action was issued on 6 September 1991. It sought restitution of the sum of £807,230, then standing to the credit of Glasgow under the seven interest swap transactions to which I have referred... ... Most European jurisdictions, including England and Scotland, regard restitution as a separate cause of action from contract and tort. The Martin Peters case [1983] ECR 987 shows that under Community law the court will assume jurisdiction even in a case where the relationship between the parties is not contractual but only akin to contract. But there still is a continuing consensual basis for the action. The point of conferring a special jurisdiction for contractual matters is that there may be expected to be a connection between the place of performance of the obligation in question and the courts for that place. Here the cause of action arises only because there proved not to be any contractual relationship between the parties. They had of course contracted with each other in the belief that they were entering into an enforceable contract. The place where the contract was, or would have been, performed, if it had been enforceable, is quite irrelevant. Thus the quirk that the contracts provided for payment in London is happenstance and has nothing to do with the question whether money thus paid should be repaid. To accord to the English courts jurisdiction it would be necessary to construe the phrase ‘matters relating to a contract’ as meaning ‘matters relating to a relationship which the parties erroneously believed to be contractual’. As Professor Guest puts it in Chitty on Contracts, 27th edn, 1994, Vol 1, p 19, para 1–023: A void contract is strictly a contradiction in terms, because if an agreement is truly void it is not a contract; but the term is a useful one and well understood by lawyers. Properly speaking, a void contract should produce no legal effects whatsoever. Neither party should be able to sue the other on the contract… If money has been paid, it should be recoverable by an action in restitution, because the money was not due.

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Sourcebook on Obligations and Remedies Here there was a relationship between the parties which was akin to contract, but it was bereft of legal effect when transactions of that nature were adjudged by the House of Lords to be void… It is said that, if the claim in restitution is regarded as a matter ‘relating to a contract’, the ‘obligation’ relied on is to repay, and if that occurs it will be in London. But in Art 5(1) the phrase ‘performance of the obligation in question’ most naturally refers to the performance prescribed by the contract of relevant contractual obligations: in other words, the payment in London of money due under the supposed contract. That has nothing to do with the claim in restitution, which is concerned with the repayment of money received by Glasgow… … This action is based not on tort or delict, but on unjust enrichment, and is accordingly not within Art 5(3). In my judgment, the judge came to the right conclusion on this point also. It is 13 years now since the void transactions were entered into. So far this litigation has benefited only the lawyers. It had taken four hearings, including two in this court, to decide which court should determine the dispute. No doubt that is because Glasgow know that they will be likely to lose in this country, and hope that they might do better in Scotland. If no appeal is permitted to their Lordships’ House on the issue of jurisdiction, the time may not be far off when a court will determine whether Glasgow should part with the balance that happened to stand in their favour when it became apparent that their contracts with Klein wort were void. Already the aggregate costs probably exceed the sum at issue. Omnia Romae cum pretio… Lord Goff (House of Lords):… In truth, the claim in the present case is simply a claim to restitution, which in English law is based upon the principle of unjust enrichment; and claims of this kind do not per se fall within Art 5(1)… May I by way of postscript express my indebtedness to the written observations of the Federal Republic of Germany to the Court of Justice in the present case, prepared by Professor Dr Christof Böhmer. These observations are of particular relevance because, as appears from the Jenard Report, the wording of Art 5(1) of the Convention was influenced by German law. It is of significance that, as Dr Böhmer records, the unanimous view in German case law and literature has hitherto been that Art 5(1) does not cover claims based on unjust enrichment… … I find myself to be in agreement with the conclusion reached by Hirst J, and by Leggatt LJ in his dissenting judgment in the Court of Appeal. I would, therefore, allow the appeal… Lord Clyde (House of Lords):… The claim which is being made by Klein wort in the present case is simply and solely a claim for restitution. That is not a claim based on contract but a claim based on the principle of unjust enrichment. The remedy of restitution is in a category distinct from that of contractual remedies. That appears to be the position not only in England and Scotland but also in at least a number of other States in Europe. That the parties purported to enter into a contract which turned out to be void ab initio is a matter of background history, too remote from the claim now made to be related to a contract in the sense intended by Art 5(1), even if what is now agreed to be a void contract can properly be called a contract at all. In

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The Structure of the Common Law the present case the plaintiffs do not seek to found on any contract; indeed their claim is one which is pursued in the absence of any contract. There is no contractual obligation forming the basis of their claim… … I would allow the appeal. Lord Hutton (House of Lords):… I would allow this appeal. Lord Nicholls (House of Lords) (dissenting):… It would be surprising and unfortunate if, having decided that the contract is null and void, the same court cannot proceed to decide on the restitutionary consequences following directly from this. What matters is not whether the consequential relief is classified by English or Scottish law or the law of some other Contracting State as part of its national law of contract or part of its national law of restitution. What matters is that, however labelled, the relief is no more than part of the effective determination of a dispute relating to a contract. It is one facet of a single dispute…

Notes and questions 1

2

The most striking inroad into the contract and tort dichotomy has been the acceptance in recent years of what Lord Wright in 1943 called the ‘third category of the common law which has been called quasi-contract or restitution’ (Fibrosa v Fairbairn, p 778). Quasi-contract was recognised, of course, but it was subsumed under the category of contract. Equally, many of the equitable remedies used in restitution cases, if they were not able to be squeezed within the contract and tort dichotomy, were classified under trusts. Today, all this is changing. The common law is in the process of adopting the independent category of restitution based upon the normative principle of unjust enrichment (no one should be unjustly enriched at the expense of another) (see, for example, Swiss CO, Art 62). It is probably true to say that there has not yet been a complete break with the law of causes of action and equitable remedies; that is to say, there is no general enrichment action based directly upon the unjust enrichment principle. In order to succeed in a restitution claim, the plaintiff must bring himself within an existing head of claim, such as money had and received, or within the scope of an established remedy, such as tracing. Nevertheless, the value of the unjust enrichment principle lies in the fact that it can act not just as a common denominator for a whole range of debt, damages and equitable remedy cases (see Chapter 8), but as counterpoint both to the fault principle and to the promissory obligation (but cf Lister v Romford Ice, p 534). In civil law systems, restitution is part of the law of obligations and thus stands in contrast to proprietary claims; in the common law, however, there is an intermixing within the category or restitution, of in rem and in personam remedies. This can cause confusion when comparison is made

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3

with Roman and continental law (see, generally, Lipkin Gorman, p 782; Westdeutsche Landesbank v Islington LBC, p 799). Does Glasgow represent a return to a ‘forms of action’ approach to legal liability? Is it really realistic to say that the cause of action was unconnected with a contract?

(f) Property (1): real and personal property Beswick v Beswick [1966] Ch 538 Court of Appeal; [1968] AC 58 House of Lords (See also p 249.) Lord Denning MR (Court of Appeal):… Section 56(1) of the Law of Property Act 1925 says that: A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument and by s 205(1)(xx) ‘Property’ includes any thing in action, and any interest in real or personal property. Apply that section to this case. The promise of the nephew to pay the widow £5 a week was a ‘thing in action’: for the simple reason that it could be enforced by action, namely, an action by the contracting party. This section says, as clearly as can be, that the widow can take the benefit of the agreement, although she is not named as a party to it. Seeing that she is to take the benefit of it, she must be able to sue for it, if not by herself alone, at least jointly with the contracting party. Otherwise the section is made of no effect. Ubi jus, ibi remedium. If there was, therefore, any doubt as to her ability to sue at common law or equity, that doubt is removed by this section. I adhere, therefore, to the view which I expressed on this section in Smith and Snipes Hall Farm v River Douglas Catchment Board and Drive Yourself Hire Co (London) Ltd v Strutt: and I am fortified by the judgment which Danckwerts LJ is about to deliver… Danckwerts LJ (Court of Appeal):… The definition of ‘property’ in s 205(1)(xx) ‘includes any thing in action, and any interest in real or personal property’. The section replaces s 5 of the Real Property Act 1845 and applies to personal as well as real property. The Act of 1845 only applied to real property, and presumably there was some intelligible object in the extension. The new section obviously cannot be confined to covenants running with the land. Why should the section not be taken to mean what it says? There really is no ambiguity. The section says that ‘A person may take…the benefit of…any agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument’. The section seems to have come as a shock to conventional lawyers who could not believe their eyes, but the section does say that a person not a party can take the benefit of a contract. Faced with the unexpected and unfamiliar

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The Structure of the Common Law there has been a tendency to take a timorous view of the provisions of this section… Lord Guest (House of Lords):… It may be that the draftsman in incorporating the wide definition of ‘property’ into s 56 had overlooked the result which it would have on the effect of this section by extending it beyond its predecessor. I am constrained to hold that if s 56 is to replace the previous law in s 5 of the Act of 1845, this can only be done by limiting the word ‘property’ in s 56 to real property and thereby excluding the wide definition of ‘property’ contained in s 205(1)(xx). The result is that the respondent has, in my view, no right to sue on the agreement of 14 March 1962 in her individual capacity…

Notes and questions 1 2 3 4 5

6

Is the House of Lords’ decision in this case an example of the courts ignoring the actual words of a statute? Are obligations property? If so, can one own a debt? (Cf Lipkin Gorman, p 782.) Are all rights forms of property? From a law of actions viewpoint, did the plaintiff succeed in her debt claim? (Cfp 249.) ‘[T]he common law systems differ radically from the civil law. Thus, although the distinction between real and personal rights is perfectly well understood by common law lawyers, its various applications are thought of as belonging not to property law but to the law of remedies, including the law of insolvency; and the much discussed question whether the beneficiary of a trust has a real or only a personal right is of little more than academic significance. Moreover, such personal claims arising out of contracts as debts are, along with industrial property such as patents, treated as property under the generic term of choses in action. Again, the relativity of most titles to things, and the frequent co-existence of interests in them, make it unprofitable to pay much attention to ownership…’ (Lawson, ‘Structural variations in property law: comparative conclusion’, IECL, Vol VI, Chapter 2, Part VIII, para 274). Do Western legal systems need a definition of ownership? When one talks of ‘interest’ in the context of the law of property, does it have a special meaning? ‘Initially…it will seem a little strange that property language should be chosen to express claims which have hitherto belonged largely within the public law domain… But this merely goes to underline the fact that, in some important sense, all property rights enjoy an inherent public law character’ (Gray, ‘Equitable property’ [1994] CLP 157, pp 210–11). In English law, has ownership not always been a public law as much as a private law device? Is this a result of feudalism?

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(g) Property (2): bailment Building & Civil Engineering Holidays Scheme Management Ltd v Post Office [1966] 1 QB 247 Court of Appeal Lord Denning MR:… At common law, bailment is often associated with a contract, but this is not always the case, see R v McDonald, Meux v Great Eastern Railway. An action against a bailee can often be put, not as an action in contract, nor in tort, but as an action on its own, sui generis, arising out of the possession had by the bailee of the goods, see Winfield on the Province of the Law of Tort, p 100, Fifoot’s History of the Common Law, p 24; Midland Silicones v Scrutton. The incidents of this cause of action are not to be found by looking at the old books on detinue and trover. We have outlived those forms of action, together with trespass and case, see Letang v Cooper. Suffice it to say at the present day that if goods, which have been delivered to a bailee, are lost or damaged whilst in his custody he is liable to the person damnified (who may be the owner or the bailor) unless the bailee proves that the loss or damage is not due to any fault on his part, see Coldman v Hill, per Scrutton LJ… At common law in a case of bailment, the general principle is restitutio in integrum, which means that the party damnified is entitled to such a sum of money as will put him in as good a position as if the goods had not been lost or damaged. This is subject, however, to the qualification that the damages must not be too remote, that is, they must be such damages as flow directly and in the usual course of things from the loss or damage, see The Argentina. If the party damnified suffers damage of a special kind, he is entitled to recover it, subject to the qualification that the damages must not exceed such damages as would be produced in the ordinary course of things by the act complained of, see Cony v Thames Ironworks. When goods are lost or damaged in transit, the damage ordinarily produced is, in the case of loss, the cost of replacement; or in the case of damage, the cost of repair. That is the amount which, in the absence of contract, the bailor can recover. He cannot recover indirect or consequential damages (such as loss of profits on a business) because those can only be recovered in cases on contracts proper, where notice of special circumstances is brought home, see British Columbia Saw-Mill Co v Nettleship… Morris v CW Martin & Sons Ltd [1966] 1 QB 716 Court of Appeal This was an action by the owner of a mink stole for its value brought against a firm of cleaners. The owner had sent her mink stole to one Beder, a furrier, for cleaning and Beder, with the owner’s consent, gave it to the defendants to clean. The defendants’ employee who was supposed to clean it stole it instead. The trial judge held the defendants not liable; an appeal to the Court of Appeal was allowed. Lord Denning MR:… [W]hen a principal has in his charge the goods or belongings of another in such circumstances that he is under a duty to take all reasonable precautions to protect them from theft or depredation, then if he entrusts that duty to a servant or agent, he is answerable for the manner in which that servant or agent carries out his duty. If the servant or agent is careless so that they are stolen by a stranger, the master is liable. So also if the

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The Structure of the Common Law servant or agent himself steals them or makes away with them. It follows that I do not think that Cheshire v Bailey can be supported. The job-master was clearly under a duty to take all reasonable precautions to protect the goods from being stolen, either as a bailee for reward or under the contract. He entrusted that duty to the coachman and must be answerable for the way in which the coachman carried out that duty; and it is all the same whether he did it negligently or fraudulently and whether he did it for his master’s benefit or his own benefit. The decision cannot survive Lloyd v Grace, Smith and Co and should be overruled… Diplock LJ:… Duties at common law are owed by one person to another only if there exists a relationship between them which the common law recognises as giving rise to such duty. One of such recognised relationships is created by the voluntary taking into custody of goods which are the property of another. By voluntarily accepting from Beder the custody of a fur which they knew to be the property of a customer of his, they brought into existence between the plaintiff and themselves the relationship of bailor and bailee by sub-bailment. The legal relationship of bailor and bailee of a chattel can exist independently of any contract, for the legal concept of bailment as creating a relationship which gives rise to duties owed by a bailee to a bailor is derived from Roman law and is older in our common law than the legal concept of parol contract as giving rise to legal duties owed by one party to the other party thereto. The nature of those legal duties, in particular as to the degree of care which the bailee is bound to exercise in the custody of the goods and as to his duty to redeliver them, varies according to the circumstances in which and purposes for which the goods are delivered to the bailee. But we are concerned here with conversion. This is a breach of a particular duty common to all classes of bailment. While most cases of bailment today are accompanied by a contractual relationship between bailee and bailor which may modify or extend the common law duties of the parties that would otherwise arise from the mere fact of bailment, this is not necessarily so—as witness gratuitous bailment or bailment by finding… One of the common law duties owed by a bailee of goods to his bailor is not to convert them, that is, not to do intentionally in relation to the goods an act inconsistent with the bailor’s right of property therein. (See Caxton Publishing Co Ltd v Sutherland Publishing Co, per Lord Porter.) This duty, which is common to all bailments as well as to other relationships which do not amount to bailment, is independent of and additional to the other common law duty of a bailee for reward to take reasonable care of his bailor’s goods. Stealing goods is the simplest example of conversion; but, perhaps because in his classic judgment in Coggs v Bernard Sir John Holt CJ discusses the circumstances in which bailees are liable to their bailors for the loss of goods stolen not by the servant of the bailee but by a stranger, some confusion has, I think, arisen in later cases through failure to recognise the co-existence of the two duties of a bailee for reward; to take reasonable care of his bailor’s goods and not to convert them—even by stealing.

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Sourcebook on Obligations and Remedies If the bailee in the present case had been a natural person and had converted the plaintiffs fur by stealing it himself, no one would have argued that he was not liable to her for its loss. But the defendant bailees are a corporate person. They could not perform their duties to the plaintiffs to take reasonable care of the fur and not to convert it otherwise than vicariously by natural persons acting as their servants or agents. It was one of their servants to whom they had entrusted the care and custody of the fur for the purpose of doing work upon it who converted it by stealing it. Why should they not be vicariously liable for this breach of their duty by the vicar whom they had chosen to perform it? Sir John Holt, I think, would have answered that they were liable ‘for seeing that someone must be the loser by this deceit it is more reason that he who employs and puts a trust and confidence in the deceiver should be the loser than a stranger’: Hern v Nichols… Salmon LJ:… A bailee for reward is not answerable for a theft by any of his servants but only for a theft by such of them as are deputed by him to discharge some part of his duty of taking reasonable care. A theft by any servant who is not employed to do anything in relation to the goods bailed is entirely outside the scope of his employment and cannot make the master liable. So in this case, if someone employed by the defendants in another depot had broken in and stolen the fur, the defendants would not have been liable. Similarly in my view if a clerk employed in the same depot had seized the opportunity of entering the room where the fur was kept and had stolen it, the defendants would not have been liable. The mere fact that the master, by employing a rogue, gives him the opportunity to steal or defraud does not make the master liable for his depredations: Ruben v Great Fingall Consolidated. It might be otherwise if the master knew or ought to have known that his servant was dishonest, because then the master could be liable in negligence for employing him… (See also p 458.)

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Does bailment as a notion in itself give rise to duties and rights, or do the duties and rights associated with bailment arise from the law of contract and tort (conversion, trespass and negligence)? Is bailment part of the law of obligations? D delivers goods to P by mistake. An employee of P, thinking the goods belong to his employer, uses them while going about his work and is badly injured because the goods are defective. Can the employee claim compensation from D or P? Can P obtain compensation from D? A bailee incurs expenditure looking after a bailor’s goods. Is the bailor under a duty to reimburse the bailee? If so, what is the legal source of this duty? In Morris v Martin, what one difference of fact might have allowed the defendants to have escaped liability?

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Morris v Martin should also be read in the law reports (and see p 458 below), for in addition to the bailment question there was a problem concerning an exclusion clause in the contract between bailee and subbailee. Why was the plaintiffs right not affected by the clause? Was her status as a consumer relevant? Are Diplock LJ’s last two sentences in the extract above of great relevance from a legal reasoning point of view? Is he basing his decision on a different legal notion from that of Salmon LJ?

(h) Equity English v Dedham Vale Properties Ltd [1978] 1WLR 93 Chancery Division This was an action for damages and (or) an account of profits in equity brought by the vendors of a bungalow and land against the purchasers, a property company. Before conveyance of the property the purchasers had, without the knowledge of the vendors, successfully applied for planning permission using the name of the vendors, and the plaintiffs only became aware of what had happened after conveyance. The judge held that, although the purchasers were not guilty of fraud, they were liable in equity to account to the plaintiffs for the profit they had made as a result of the increase in the value of the land on the granting of planning permission. Slade J:… In my judgment, in the end the question of the liability, if any, of the defendants to account must depend on the view which the court takes as to the nature of the relationship subsisting between them and the plaintiffs at the date when the planning application was made. The liability to account would, in my judgment, arise if, though only if, the relationship was in the eyes of equity a fiduciary one in the sense that it imposed relevant fiduciary duties on the defendants towards the plaintiffs… Counsel for the defendants in effect submitted that the mere making of a planning application could not by itself have given rise to any such relationship when none would have otherwise existed. I see the force of this submission but am not in the end convinced by it. My reasons may be put in the form of two general propositions. (1) Where during the course of negotiations for a contract for the sale and purchase of property, the proposed purchaser, in the name of and purportedly as agent on behalf of the vendor, but without the consent or authority of the vendor, takes some action in regard to the property…which, if disclosed to the vendor, might reasonably be supposed to be likely to influence him in deciding whether or not to conclude the contract, a fiduciary relationship in my judgment arises between the two parties. (2) Such fiduciary relationship gives rise to the consequences that there is a duty on the proposed purchaser to disclose to the vendor before the conclusion of the contract what he has done as the vendor’s purported agent, and correspondingly, in the event of nondisclosure, there is a duty on him to account to him for any profit made in the course of the purported agency, unless the vendor consents to his retaining it…

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Sourcebook on Obligations and Remedies On my analysis of the facts of the present case, the plaintiffs never consented to the defendants…purporting to make the planning application as their agent before contract; the fact that this had been done was never disclosed to them before the exchange of contracts; and they never consented to the defendants retaining the profit ultimately received by them as a result of the making of the planning application. In these circumstances, they are in my judgment accountable for such profit…

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‘Although the principle of distinction between important parts of a legal system should be easy to identify and state, this is not possible for the division of English law into law and equity, since one cannot identify equity either by its sphere of application or by the intrinsic nature of its rules. The doctrines of equity are not confined to any particular area of substantive law; they have had differing effects in most areas at different times… Nor is there any unifying principle within the system of equity. Whereas common law is conceivable as an independent and coherent though defective system, equity is not autonomous at all, but rather presupposes the law or is built round and upon it…’ (Weir, The common law system’, IECL, Vol II, Chapter 2, Part III, para 89). Does this mean that equity cannot be defined as an independent system of law? Are the remedies of equity independent? ‘There is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence. This is the world of doctrine, not of neat and tidy rules. The courts of equity have developed a body of learning enabling relief to be granted where the law has to treat the transaction as unimpeachable unless it can be held to have been procured by undue influence. It is the unimpeachability at law of a disadvantageous transaction which is the starting point from which the court advances to consider whether the transaction is the product merely of one’s own folly or of the undue influence exercised by another. A court in the exercise of this equitable jurisdiction is a court of conscience. Definition is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case’ (Lord Scarman in National Westminster Bank v Morgan [1985] AC 686, p 709). Are the equitable rules governing contractual transactions part of the law of contract or should they be seen as independent or as part of the law of actions (remedies)? Is Lord Scarman saying that equity cannot be reduced to rules? ‘When a servant, or agent, by a breach of duty damnifies his master or principal, the latter can, of course, recover in an ordinary action for breach of contract for any loss he has actually suffered. But there is a well established class of cases in which he can so recover, whether or not he has suffered any detriment in fact. These are cases in which the servant or 84

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agent has realised a secret profit, commission or bribe in the course of his employment; and the amount recoverable is a sum equal to such profit… This amount the plaintiff can recover, either as money had and received to his use, or as an equitable debt…’ (Asquith LJ in Reading v R [1949] 2 KB 232, p 236). Are the equitable principles governing account part of the law of obligations? Could it be said that secret profits and the like belong to the principal? What exactly is meant by ‘equitable debt’: is it an action for an account?

7 THE ROLE OF THE CATEGORIES OF PUBLIC AND PRIVATE LAW

(a) Introduction In re State of Norway’s Application [1987] QB 433 Court of Appeal Kerr LJ:… [T]he common law does not—or at any rate not yet—recognise any clear distinction between public and private law. But the division is beginning to be recognised… Mercury Communications Ltd v Director General of Telecommunications [1996] 1WLR 48 House of Lords Lord Slynn:… The recognition by Lord Diplock [in O’Reilly v Mackman [1983] 2 AC 237] that exceptions exist to the general rule may introduce some uncertainty but it is a small price to pay to avoid the over-rigid demarcation between procedures reminiscent of earlier disputes as to the forms of action and of disputes as to the competence of jurisdictions apparently encountered in civil law countries where a distinction between public and private law has been recognised. It is of particular importance, as I see it, to retain some flexibility as the precise limits of what is called ‘public law’ and what is called ‘private law’ are by no means worked out. The experience of other countries seems to show that the working out of this distinction is not always an easy matter. In the absence of a single procedure allowing all remedies—quashing, injunctive and declaratory relief, damages—some flexibility as to the use of different procedures is necessary. It has to be borne in mind that the overriding question is whether the proceedings constitute an abuse of the process of the court… R v Somerset CC ex p Fewings [1995] 1 WLR 1037 Court of Appeal Sir Thomas Bingham MR:… The point is often made that unelected unrepresentative judges have no business to be deciding questions of potentially far-reaching social concern which are more properly the preserve of elected representatives at national or local level. In some cases the making of such decisions may be inescapable, but in general the point is well made. In the present case it certainly is. The court has no role whatever as an arbiter between those who condemn hunting as barbaric and cruel and those who support it as a traditional country sport more humane in its treatment of 85

Sourcebook on Obligations and Remedies deer or foxes (as the case may be) than other methods of destruction such as shooting, snaring, poisoning or trapping. This is of course a question on which most people hold views one way or the other. But our personal views are wholly irrelevant to the drier and more technical question which the court is obliged to answer. That is whether the county council acted lawfully in making the decision it did on the grounds it did. In other words, were members entitled in reaching their decision to give effect to their acceptance of the cruelty argument? In seeking to answer that question it is, as the judge very clearly explained, pp 523–25, critical to distinguish between the legal position of the private landowner and that of a land-owning local authority. To the famous question asked by the owner of the vineyard (Is it not lawful for me to do what I will with mine own?’ St Matthew, Chapter 20, verse 15) the modern answer would be clear: ‘Yes, subject to such regulatory and other constraints as the law imposes.’ But if the same question were posed by a local authority the answer would be different. It would be: ‘No, it is not lawful for you to do anything save what the law expressly or impliedly authorises. You enjoy no unfettered discretions. There are legal limits to every power you have.’ As Laws J put it, p 524, the rule for local authorities is that any action to be taken must be justified by positive law…

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Ownership (dominium) and sovereignty (imperium) remain fundamental concepts in modern Western legal systems. However, between the civil law and common law there are a number of important differences. On the continent, the gradual development of the State, as a public legal person, out of the Roman notions of civitates and respublica permitted legal theory to develop imperium as a specific legal relationship between individual and the State. In England, on the other hand, constitutional legal thinking never developed beyond the Crown (Town Investments Ltd v Dept of Environment [1978] AC 359, p 380); it is, then, much more difficult to think in terms of a strict dichotomy between sovereignty (imperium) and private rights (dominium). Nevertheless, public bodies are not free to act in the same way as private commercial bodies (see Wheeler v Leicester CC [1985] AC 1054.) In addition to the ius publicum/ius privatum and imperium/dominium distinctions, Roman law also distinguished between private and public actions (Dig 47.23.1). However, the actiones populares (popular actions) were incorporated into the private law of obligations and thus became part of private law in respect of the substantive rights (iura) that they expressed (Dig 44.7.5.5). This intermixing of public and private actions finds expression, to some extent, in the action civile in modern civil law (although criminal law is treated as part of private law in France) and, in the common law, in compensation orders (Powers of the Criminal Courts Act 1973, s

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35) and the torts of breach of statutory duty and public nuisance. Do these kinds of claims raise both dominium and imperium issues? Where the exercise of imperium prejudiced individuals, later civil law, with the help of canon law, developed specific public law procedures by which an interested party could appeal (appelare) against an administrative—or indeed judicial—decision (Mestre, Introduction historique au droit administratif frangais, 1985, PUF, pp 14CM1). Such an administrative appeal procedure has resulted, today, in two quite separate recours. There is, first, the normal appeals process; this process is now seen simply as part of civil procedure, that is to say the hierarchy of the courts. (But is civil procedure public or private law?) Secondly, there are separate public law remedies for use against administrative decisions: here the courts are reviewing, to put it in Roman law terms, the decisions of those charged with imperium (cf Dig 49.4.1.3) to see if they have exceeded their powers (recours pour excès de pouvoir). Equally, in the common law, the judicial review remedies (Supreme Court Act 1981, s 31), although quite separate from actions in debt and damages (cf Wandsworth LBC v Winder [1985] AC 461), are not always easily distinguishable from appeals (cf Chief Constable ofN Wales v Evans [1982] 1 WLR 1155, pp 1174–75). Moreover, some remedies (habeas corpus, declaration and injunction) cannot, in themselves, be easily classified as either public or private. Several specific questions arise. To what extent can, and should, private law remedies be available for the infringement of public law rights? To what extent should private law remedies be allowed to infringe constitutional rights? (Cf Derbyshire CC v The Times [1993] AC 534.) Should public law remedies ever be available for the protection of private rights? Does the remedy of damages raise special problems with respect to imperium? Are relator actions public or private claims? (Cf Gouriet v UPOW [1978] AC 435.) To what extent do these public and private law of actions issues interrelate with the law of persons (for example, with respect to dignity or privacy)? To what extent can the existence of public law remedies influence the availability of private law claims? Does the Human Rights Act 1998 add to these complications? The confusion at the level of actions and procedure between the public and the private might suggest that the categories of public and private law are outdated (Harlow (1980) 43 MLR 241; cf Samuel (1983) 46 MLR 558; (1988) 8 LS 277). Yet the difference is fundamental to the French model, if not to civil law in general, and the difference has resulted in quite specific legal developments. The most notable is in respect of administrative liability, where compensation for damage resulting from State action in France is founded upon a quite different basis from ordinary civil liability. In particular, the role of the risk and the equality 87

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principle stand in sharp contrast to the role of fault in English law (Jolowicz [1985] CLJ 370). The public/private debate thus remains important for the comparative obligations lawyer. However, does the distinction between public and private law actually have any relevance in late 20th century economies? The distinction is vague and tenuous, and perhaps arises not so much from the different matter of public and private law as from the different remedies which may be sought; the Divisional Court dealing with an application for [judicial review] seems to think differently from a puisne judge hearing a claim for damages’ (Weir, The common law system’, IECL, Vol II, Chapter 2, Part III, para 129). Is this difference in thinking engendered by a difference of remedies or a difference of substance? How is the thinking different? Once utilities like gas, water, electricity and railways are privatised, should they immediately be the subject of a different legal regime? What about a commercial corporation whose shares are purchased by the State? (Cf Norweb plc v Dixon [1995] 1 WLR 636.)

(b) Administrative contracts Roy v Kensington and Chelsea Family Practitioner Committee [1992] 1 AC 624 House of Lords A doctor brought, inter alia, an action in debt against his Family Practitioner Committee for breach of contract. The FPC sought to have the claim struck out as an abuse of process on the basis that the relationship between a doctor and the FPC was a matter only of public law and that the sole remedy available to the doctor was an action for judicial review. The House of Lords refused to strike out the claim. Lord Bridge:… I do not think the issue in the appeal turns on whether the doctor provides services pursuant to a contract with the family practitioner committee. I doubt if he does and am content to assume that there is no contract. Nevertheless, the terms which govern the obligations of the doctor on the one hand, as to the services he is to provide, and of the family practitioner committee on the other hand, as to the payments which it is required to make to the doctor, are all prescribed in the relevant legislation and it seems to me that the statutory terms are just as effective as they would be if they were contractual to confer upon the doctor an enforceable right in private law to receive the remuneration to which the terms entitle him. It must follow, in my view, that in any case of dispute the doctor is entitled to claim and recover in an action commenced by writ the amount of remuneration which he is able to prove as being due to him. Whatever remuneration he is entitled to under the statement is remuneration he has duly earned by the services he has rendered. The circumstance that the quantum of that remuneration, in the case of a particular dispute, is affected by a discretionary decision made by the committee cannot deny the doctor

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The Structure of the Common Law his private law right of recovery or subjecthim to the constraints which the necessity to seek judicial review would impose upon that right… Lord Lowry:… An important point is that the court clearly has jurisdiction to entertain the doctor’s action… It is concerned with a private law right, it involves a question which could in some circumstances give rise to a dispute of fact and one object of the plaintiff is to obtain an order for the payment (not by way of damages) of an ascertained or ascertainable sum of money. If it is wrong to allow such a claim to be litigated by action, what is to be said of other disputed claims for remuneration? I think it is right to consider the whole spectrum of claims which a doctor might make against the committee. The existence of any dispute as to entitlement means that he will be alleging a breach of his private law rights through a failure by the committee to perform their public duty. If the committee’s argument prevails, the doctor must in all these cases go by judicial review, even when the facts are not clear. I scarcely think that this can be the right answer… Although he seeks to enforce performance of a public law duty…his private law rights dominate the proceedings… Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 House of Lords (See p 593.) Staffordshire Area Health Authority v South Staffordshire Waterworks [1978] 1WLR 1387 Court of Appeal (Seep 595.)

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‘English law has conspicuously failed to develop any general theory of public contracts… Even with individual departmental engagements the following may not be clear: whether the arrangement is contractual at all; whether certain obligations expressed in it bind the State; or whether (as in the case of transactions between private citizens) interpretation of the arrangement leads to the conclusion that it could have been, but in the event was not, a contract… The result of this…is that one of the commonest of everyday events [posting a letter], on which many people rely constantly, is entirely within the realm of non-law’ (Rudden, The domain of contract’, in Harris and Tallon (eds), Contract Law Today: Anglo-French Comparisons, 1989, OUP, pp 95, 96, 97). A postman carelessly loses letters: can he be sued for the loss? Will his employer be liable? What if he deliberately destroys letters? ‘Contracts between private persons are not concluded in a preserve of unrestricted self-interest, and therefore even the ordinary civil law of contract of any country necessarily includes rules which reflect a public interest in the objects and terms of private contracts. The element of the public interest is, however, significantly more prominent in the sphere ofpublic contracting’ (Turpin, ‘Public contracts’, IECL, Vol VII, Chapter 4, 89

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para 52). Is a local authority entitled to refuse to contract with anyone it does not like? (Cf R v Lewisham LBC ex p Shell (UK) [1988] 1 All ER 938; Blackpool and Fylde Aero Club Ltd v Blackpool BC, p 436.) The Cour de cassation, in consistent case law since 1876, has always forbidden judges to annul or revise contracts for imprévision, whatever the consequences might be… Contradicting the thesis upheld by the Cour de cassation, the Conseil d’Etat has elaborated since 1916 a theory of imprévision in administrative contracts… The interests of the public service require that this extra-contractual situation should not release the contracting party from his obligation. By way of compensation, the government has come to his help and take its share of the additional costs due to the imprévision… The basis for revision is precisely that the interests of a contracting party will be seriously prejudiced. It is a question of protecting an individual interest… This can thus be called protective public policy” (de Lamberterie, The effect of changes in circumstances’, in Harris and Tallon (eds), Contract Law Today: Anglo-French Comparisons, 1989, OUP, pp 228, 231, 233–34). Is the Staffordshire case authority for the proposition that inflation can frustrate an English contract? Does English law distinguish between change of circumstances (cf PECL, Art 6:111) and intervening event (cf PECL, Art 8:108)? Is an action for debt for services rendered founded on contract (law) or the actual rendering of the services (fact)? Are all debts private law rights?

(c) Administrative liability in tort Hill v Chief Constable of West Yorkshire [1989] AC 53 House of Lords This was an action for damages brought against the police by the estate of the last victim of the notorious ‘Yorkshire Ripper’ (Peter Sutcliffe). The writ alleged negligence on behalf of the police in failing to apprehend the murderer and thus leaving him free to murder the last victim. The judge ordered that the claim be struck out on the ground that it disclosed no cause of action. An appeal against this decision was dismissed by the Court of Appeal and House of Lords. Lord Keith:… There is no question that a police officer, like anyone else, may be liable in tort to a person who is injured as a direct result of his acts or omissions. So he may be liable in damages for assault, unlawful arrest, wrongful imprisonment and malicious prosecution, and also for negligence. Instances where liability for negligence has been established are Knightley v Johns [1982] 1 WLR 349 and Rigby v Chief Constable of Northamptonshire [1985] 1 WLR 1242. Further, a police officer may be guilty of a criminal offence if he wilfully fails to perform a duty which he is bound to perform by common law or by statute: see R v Dytham [1979] QB 722, where a constable was convicted of wilful neglect of duty because, being present at the scene of a

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The Structure of the Common Law violent assault resulting in the death of the victim, he had taken no steps to intervene. By common law police officers owe to the general public a duty to enforce the criminal law: see R v Commissioner of Police of the Metropolis ex p Blackburn [1968] 2 QB 118. That duty may be enforced by mandamus, at the instance of one having title to sue. But as that case shows, a chief officer of police has a wide discretion as to the manner in which the duty is discharged. It is for him to decide how available resources should be deployed, whether particular lines of inquiry should or should not be followed and even whether or not certain crimes should be prosecuted. It is only if his decision upon such matters is such as no reasonable chief officer of police would arrive at that someone with an interest to do so may be in a position to have recourse to judicial review. So the common law, while laying upon chief officers of police an obligation to enforce the law, makes no specific requirements as to the manner in which the obligation is to be discharged. That is not a situation where there can readily be inferred an intention of the common law to create a duty towards individual members of the public… … [I]n my opinion there is another reason why an action for damages in negligence should not lie against the police in circumstances such as those of the present case, and that is public policy… Potential existence of such liability may in many instances be in the general public interest, as tending towards the observance of a higher standard of care in the carrying on of various different types of activity. I do not, however, consider that this can be said of police activities. The general sense of public duty which motivates police forces is unlikely to be appreciably reinforced by the imposition of such liability so far as concerns their function in the investigation and suppression of crime. From time to time they make mistakes in the exercise of that function, but it is not to be doubted that they apply their best endeavours to the performance of it. In some instances the imposition of liability may lead to the exercise of a function being carried on in a detrimentally defensive frame of mind. The possibility of this happening in relation to the investigative operations of the police cannot be excluded. Further it would be reasonable to expect that if potential liability were to be imposed it would be not uncommon for actions to be raised against police forces on the ground that they had failed to catch some criminal as soon as they might have done, with the result that he went on to commit further crimes. While some such actions might involve allegations of a simple and straightforward type of failure— for example, that a police officer negligently tripped and fell while pursuing a burglar—others would be likely to enter deeply into the general nature of a police investigation, as indeed the present action would seek to do. The manner of conduct of such an investigation must necessarily involve a variety of decisions to be made on matters of policy and discretion, for example as to which particular line of inquiry is most advantageously to be pursued and what is the most advantageous way to deploy the available resources. Many such decisions would not be regarded by the courts as appropriate to be called in question, yet elaborate investigation of the facts might be necessary to ascertain whether or not this was so. A great deal of police time, trouble and expense might be expected to have to be put into the preparation of the defence to the action and the attendance of witnesses at the trial. The result would be a significant diversion of police manpower and attention from their

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Sourcebook on Obligations and Remedies most important function, that of the suppression of crime. Closed investigations would require to be reopened and retraversed, not with the object of bringing any criminal to justice but to ascertain whether or not they had been competently conducted. I therefore consider that Glidewell LJ, in his judgment in the Court of Appeal [1988] QB 60, p 76, in the present case, was right to take the view that the police were immune from an action of this kind on grounds similar to those which in Rondel v Worsley [1969] 1 AC 191 were held to render a barrister immune from actions for negligence in his conduct of proceedings in court. My Lords, for these reasons I would dismiss the appeal. Lord Templeman: My Lords, the appellant, Mrs Hill, is tormented with the unshakeable belief that her daughter would be alive today if the respondent, the West Yorkshire police force, had been more efficient. That belief is entitled to respect and understanding. Damages cannot compensate for the brutal extinction of a young life and Mrs Hill proposes that any damages awarded shall be devoted to an appropriate charity. Damages awarded by the court would not be paid by any policeman found wanting in the performance of his duty but would be paid by the public. Mrs Hill therefore brings these proceedings with the object of obtaining an investigation into the conduct of the West Yorkshire police force so that lives shall not be lost in the future by avoidable delay in the identification and arrest of a murderer. The question for determination in this appeal is whether an action for damages is an appropriate vehicle for investigating the efficiency of a police force. The present action will be confined to narrow albeit perplexing questions, for example, whether, discounting hindsight, it should have been obvious to a senior police officer that Sutcliffe was a prime suspect, whether a senior police officer should not have been deceived by an evil hoaxer, whether an officer interviewing Sutcliffe should have been better briefed, and whether a report on Sutcliffe should have been given greater attention. The court would have to consider the conduct of each police officer, to decide whether the policeman failed to attain the standard of care of a hypothetical average policeman. The court would have to decide whether an inspector is to be condemned for failing to display the acumen of Sherlock Holmes and whether a constable is to be condemned for being as obtuse as Dr Watson. The plaintiff will presumably seek evidence, for what it is worth, from retired police inspectors, who would be asked whether they would have been misled by the hoaxer, and whether they would have identified Sutcliffe at an earlier stage. At the end of the day the court might or might not find that there had been negligence by one or more members of the police force. But that finding would not help anybody or punish anybody. It may be, and we all hope that the lessons of the Yorkshire Ripper case have been learned, that the methods of handling information and handling the press have been improved, and that co-operation between different police forces is now more highly organised. The present action would not serve any useful purpose in that regard. The present action could not consider whether the training of the West Yorkshire police force is sufficiently thorough, whether the selection of candidates for appointment or promotion is defective, whether rates of pay are sufficient to attract recruits of the required calibre,

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The Structure of the Common Law whether financial restrictions prevent the provision of modern equipment and facilities, or whether the Yorkshire police force is clever enough and if not, what can and ought to be done about it. The present action could only investigate whether an individual member of the police force conscientiously carrying out his duty was negligent when he was bemused by contradictory information or overlooked significant information or failed to draw inferences which later appeared to be obvious. That kind of investigation would not achieve the object which Mrs Hill desires. The efficiency of a police force can only be investigated by an inquiry instituted by the national or local authorities which are responsible to the electorate for that efficiency. Moreover, if this action lies, every citizen will be able to require the court to investigate the performance of every policeman. If the policeman concentrates on one crime, he may be accused of neglecting others. If the policeman does not arrest on suspicion a suspect with previous convictions, the police force may be held liable for subsequent crimes. The threat of litigation against a police force would not make a policeman more efficient. The necessity for defending proceedings, successfully or unsuccessfully, would distract the policeman from his duties. This action is in my opinion misconceived and will do more harm than good. A policeman is a servant of the public and is liable to be dismissed for incompetence. A police force serves the public and the elected representatives of the public must ensure that the public get the police force they deserve. It may be that the West Yorkshire police force was in 1980 in some respects better and in some respects worse than the public deserve. An action for damages for alleged acts of negligence by individual police officers in 1980 could not determine whether and in what respects the West Yorkshire police force can be improved in 1988. I would dismiss the appeal. Elguzouli-Daf v Commissioner of Police of the Metropolis [1995] QB 335 Court of Appeal This was an unsuccessful claim for damages brought against the Crown Prosecution Service by two men who had been arrested for two quite different serious crimes. The CPS discontinued proceedings against them, but not before the two men had been held in prison for 22 and 85 days respectively. The men claimed that had the CPS not been negligent in respect of investigating the evidence against them, they would not have been detained for such long periods. Steyn LJ: These appeals raise the question of law whether the Crown Prosecution Service (“the CPS’) owes a duty of care to those it is prosecuting. We are asked to consider this question in the context of an order made on 8 October 1993 by Mr Patrick Bennett QC, sitting as a deputy High Court judge in the Queen’s Bench Division, striking out statements of claim in two actions brought by the plaintiffs against the CPS. In both actions the plaintiffs alleged that the CPS caused a prolongation of their detention by negligence. The judge ruled that under RSC Ord 18 r 19(1)(a) there was no sustainable cause of action in either case against the CPS… The general approach Leaving aside the first instance decision in Welsh v Chief Constable of the 93

Sourcebook on Obligations and Remedies Merseyside Police [1993] 1 All ER 692, to which I will turn in due course, the question before us is a novel one. The authority of a series of decisions in the House of Lords, and notably Caparo Industries plc v Dickman [1990] 2 AC 605, require us to consider the critical question not from the point of view of high principle but pragmatically and by analogy with established categories of liability. And in so approaching the question we must consider the ultimate question from three perspectives, namely (a) the foreseeability of the harm that ensues, (b) the nature of the relationship between the parties, usually called the element of proximity, and (c) the question whether it is fair, just and reasonable that the law should impose a duty of care… The general approach enunciated in the House of Lords cases such as the Caparo case [1990] 2 AC 605 must take into account the public nature of the functions of the CPS The CPS acts for the public as a whole. It acts in the public interest. In applying the twofold test whether there is a sufficiency of evidence to warrant a prosecution and whether the prosecution is in the public interest, the prosecutor has a role independent of the interests of the government of the day. It is a matter for examination whether this public role requires the CPS to be treated differently in the law of tort from private citizens and corporations. The backcloth of other protections and remedies The need for, or desirability of, a duty of care owed by the CPS to those it is prosecuting must be considered in the context of other protections and remedies offered by the principles on which our democracy is founded. First, by convention the Attorney General is answerable to Parliament for general prosecution policy and for specific cases where the Attorney General or the Director of Public Prosecutions intervenes. The sanction is an adverse vote in Parliament on the conduct of the Attorney General, which could make his position untenable. But, in the nature of things, Parliament can usually only call the Attorney General to account after a prosecution has run its course. And Parliament will not give directions to the Attorney General. That is cold comfort for a citizen who suffered as a result of maladministration. On the other hand the Attorney General’s accountability to Parliament is a brake on maladministration. Secondly, there is the possibility of judicial review of decisions by the CPS. Given the nature of the prosecution process it is, however, right to say that the scope for such judicial review proceedings is very limited indeed: Wiseman v Borneman [1971] AC 297, p 308; Nicol v Attorney General for the State of Victoria [1982] VR 353; Dickens, The Attorney General’s consent to prosecutions’ (1972) 35 MLR 347. Turning to private law remedies there is first of all the tort of malicious prosecution. In order to succeed in such an action the plaintiff must prove that the prosecution failed, that there was no reasonable or probable cause for the prosecution and that the defendant was actuated by malice. It is also necessary to consider the tort of misfeasance in public office. The essence of the tort is the abuse of public office. Potentially such liability might attach to a decision of a CPS prosecutor. But, as the law stands, the plaintiff has to establish either that the holder of the public office maliciously acted to the plaintiffs detriment or that he acted knowing that he did not possess the relevant power. That is the effect of the decision of the Court of Appeal in Bourgoin SA v Ministry of Agriculture, Fisheries and Food [1986] QB 716. In this corner of the law our legal system

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The Structure of the Common Law possibly has a capacity for further development, notably under the direct or indirect influence of the jurisprudence of the European Court of Justice: see Fmncovich v Republic of Italy (Joined Cases C-6/90 and C-9/90) [1995] ICR 722 and Kirklees Metropolitan Borough Council v Wickes Building Supplies Ltd [1993] AC 227, pp 281–82, per Lord Goff of Chieveley. But it would be wrong to say more in this case about this complex area of the law. By way of summary, one can say that as the law stands a citizen, who is aggrieved by a prosecutor’s decision, has in our system potentially extensive private law remedies for a deliberate abuse of power. That still leaves open the question whether the CPS should also be held to owe a common law duty of care to those it is engaged in prosecuting. The police immunity The analogy of Hill v Chief Constable of West Yorkshire [1989] AC 53 is instructive. The issue was whether a claim against the police for negligent failure to apprehend a violent criminal was sustainable. The claim failed at all levels of the judicial hierarchy. The House of Lords held that there was no general duty of care owed by the police to individual members of the public to identify and apprehend a criminal. But the House of Lords further held, as a second and separate ground of decision, that as a matter of public policy the police were immune from actions of negligence in respect of their activities in the investigation and suppression of crime… Putting the decision in Hill’s case [1989] AC 53 in perspective, I would only add that it does not follow that the police may not be held liable in a case where there is some form of assumption of responsibility by the police. But for present purposes the significance of Hill’s case is that, while the prime function of the police is the investigation of crime, the CPS as part and parcel of its prosecuting function needs to investigate and prepare cases. Indeed, the complaints in the present cases assert negligence by the CPS in preparing the prosecution cases. The reasoning in Hill’s case militates by way of analogy against recognising a duty of care in the case of the CPS. Indeed, in some ways it could be said that the argument against a duty of care, and for immunity, is even stronger in the present case since much of police work is operational whereas the function of the CPS involves to a large extent matters of judgment and discretion… That brings me to the policy factors which, in my view, argue against the recognition of a duty of care owed by the CPS to those it prosecutes. While it is always tempting to yield to an argument based on the protection of civil liberties, I have come to the conclusion that the interests of the whole community are better served by not imposing a duty of care on the CPS. In my view, such a duty of care would tend to have an inhibiting effect on the discharge by the CPS of its central function of prosecuting crime. It would in some cases lead to a defensive approach by prosecutors to their multifarious duties. It would introduce a risk that prosecutors would act so as to protect themselves from claims of negligence. The CPS would have to spend valuable time and use scarce resources in order to prevent law suits in negligence against the CPS. It would generate a great deal of paper to guard against the risks of law suits. The time and energy of CPS lawyers would be diverted from concentrating on their prime function of prosecuting offenders. That would be likely to happen not only during the prosecution

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Sourcebook on Obligations and Remedies process but also when the CPS is sued in negligence by aggrieved defendants. The CPS would be constantly enmeshed in an avalanche of interlocutory civil proceedings and civil trials. That is a spectre that would bode ill for the efficiency of the CPS and the quality of our criminal justice system. Conclusion While Mr Richards, who appeared for the CPS, disputed that even the element of foreseeability of harm is established, I would be prepared to accept that the plaintiffs can satisfy this requirement. For my part the matter turns on a combination of the element of proximity and the question of whether it is fair, just and reasonable that the law should impose a duty of care. It does not seem to me that these considerations can sensibly be considered separately in this case: inevitably they shade into each other. Recognising that individualised justice to private individuals, or trading companies, who are aggrieved by careless decisions of CPS lawyers, militates in favour of the recognition of a duty of care, I conclude that there are compelling considerations, rooted in the welfare of the whole community, which outweigh the dictates of individualised justice. I would rule that there is no duty of care owed by the CPS to those it prosecutes… Finally, if I had answered the substantive question in favour of the plaintiffs, I would have wanted to hear argument on the question whether the CPS is in law vicariously liable for the acts of the CPS prosecutors. Having regard to the duties imposed on prosecutors by statute and common law, the CPS might not have been so liable: see Field v Nott (1939) 62 CLR 660, p 675, per Dixon J. In the result, this question falls away. Morritt LJ:… I do not think that the imposition of either of the duties contended for is required by the relationship between the CPS and the plaintiffs or that it would be fair, just and reasonable for the law to do so. There are a number of reasons why I reach that conclusion. None of them may be sufficient in itself but the overall combination is in my judgment compelling. First, there is the analogy with civil litigation. One party to a civil action does not owe a duty of care to the other, nor does his solicitor: Business Computers International Ltd v Registrar of Companies [1988] Ch 229; Al-Kandari v JR Brown Co [1988] QB 665. The reason is obvious: the duty to the other side might conflict with the duty to his own client. The analogy is not precise because criminal proceedings and the role of the prosecutor are different from civil proceedings and the role of a plaintiff in them. But the respects in which the roles differ appear to me to suggest that the prosecutor is an a fortiori case. Some of his duties and in particular where they differ from those of a plaintiff are equated with those of a minister of justice. In that respect a liability in negligence would be even more inapposite than in the case of the opposing party or his solicitor in civil ligitation. Secondly, not only would it be surprising to find a common law duty in the circumstance that the CPS is a recent creature of statute but under no statutory duty to individuals, but it would suggest that in this field at least the

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The Structure of the Common Law independent torts of malicious prosecution and misfeasance in a public office are unnecessary. In the case of the former a plaintiff has to establish the absence of reasonable and probable cause and malice. In the case of the latter knowledge of the want of power is an essential element. If the plaintiffs are right want of reasonable care will suffice. To conclude that the duties for which the plaintiffs contend do exist would be to disregard the danger to which Lord Templeman referred in Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295, p 316, namely: …of extending the ambit of negligence so as to supplant or supplement other torts, contractual obligations, statutory duties or equitable rules in relation to every kind of damage including economic loss… I do not understand that warning to have lost its relevance by virtue of the decision of the House of Lords in Spring v Guardian Assurance plc [1995] 2 AC 296…

Notes and questions 1

2

3

French law distinguishes between civil liability (private law) and administrative liability (public law): each is governed by a different set of courts with its own case law. In English law all legal and natural persons, public and private, are governed by the same tort regime with the result that tort, in addition to its compensatory role, has an important constitutional function. It is the tort of trespass that provides the remedy for wrongful arrest. Malicious prosecution (see p 699) and misfeasance in public office are other important constitutional torts. However, the police or other government officials can, in turn, use the law of tort against citizens who make a nuisance of themselves. The tort of defamation has proved a useful weapon to wield against those who complain or comment upon the activities of government officials (see, for example, Mapp v News Group Newspapers [1998] QB 520). Is this healthy? Ought politicians to be able to sue those who criticise their abilities or their outside interests? In one response to this kind of question a Law Lord has stated: ‘It is of the highest public importance that a democratically elected governmental body, or indeed any governmental body, should be open to uninhibited public criticism. The threat of a civil action for defamation must inevitably have an inhibiting effect on freedom of speech’ (Lord Keith in Derbyshire CC v Times Newspapers [1993] AC 534, p 547). What might be the effect of this judicial statement on the right of a policeman to sue a newspaper or complaining citizen in defamation? Read Ministry of Housing v Sharp [1970] 2 QB 223 in the law report. Is it really sensible that central government is here encouraged to sue local government because of an error made by an employee who is in effect a civil servant? Is the public interest being served?

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4 5

6

In what circumstances should the State compensate citizens for damage arising through non-negligent government action? (Cf Rigby, below.) Do you not find it disturbing that an innocent person can be held for three months in prison without any legal redress? Is this not a breach of the European Convention on Human Rights in UK law? Can one have faith in the English judiciary when it comes to upholding human rights? What might be the effect of the Human Rights Act 1998 on cases like Hill and Elguzouli-Daf when it finally comes into force? Would it surprise you to learn that one plaintiff in Elguzouli-Daf was a political refugee from Sudan while the other was a resident of Northern Ireland? Rigby v Chief Constable of Northamptonshire [1985] 1 WLR 1242 Queen’s Bench Division Taylor J: On 17 December 1977, the Sportsman’s Lodge, a gunsmiths shop in Northampton owned by the first plaintiff, Michael Rigby, was burned out. The cause of the fire was most unusual. A young psychopath had broken into the premises and armed himself. The police laid siege to the shop. Eventually they fired in a canister of CS gas to smoke out the intruder. The canister set the shop ablaze. The first plaintiff now sues the Chief Constable of Northamptonshire for damages for loss and damage to the premises and contents. The second plaintiff makes a small claim for damage to his guns which were in the first plaintiff’s custody in the shop. The case is put in a variety of ways; in trespass, in nuisance, in Rylands v Fletcher (1868) LR 3 HL 330 and in negligence. The defendant denies liability and raises, by way of specific defences, implied consent, necessity and contributory negligence of the first plaintiff… I now turn to consider the several…heads under which the plaintiffs’ claim is advanced. First, trespass or nuisance. Mr O’Brien concedes that the allegation of nuisance adds nothing to his claim in trespass. Mr Machin puts it more strongly. He contends that since the firing of the canister causing the damage was a direct rather than an indirect act, trespass rather than nuisance would be the appropriate cause of action. Either way, I do not need to consider nuisance any further. It is common ground that to project an article such as the canister on to another’s land from outside would, without justification or lawful excuse, constitute trespass. Mr Machin, however, puts the defence on three separate footings: first, implied consent; secondly, the necessary and proper exercise of police powers; and thirdly, the general defence of necessity. As to implied consent, Mr Machin contends that the first plaintiff’s evidence supports this defence. He said in cross-examination that he was prepared to leave things to the police to use their judgment from their experience. He gave the shop keys to the police. He had no objection to their going into the premises if they thought it right. Had they asked him if he minded their firing a CS canister into the shop he would have agreed with it. He added,

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The Structure of the Common Law however,that had he known the firing of a canister involved a fire risk he would have asked the police to make sure that there was a fire appliance immediately available. I am somewhat doubtful whether this evidence given seven years after the event, as to what the first plaintiff would have said had he been asked, is a sound footing for a defence of implied consent. In any event, I accept Mr O’Brien’s contention that any implied consent would be limited to permitting the police to do what was necessary and no more. I therefore think that this head of defence merges with or is co-extensive with the defence of necessity… There is a surprising dearth of authority as to the nature and limits of necessity as a defence in tort. Mr Machin referred me to three cases. Cope v Sharpe (No 2) [1912] 1 KB 496 was a case of alleged trespass where the defendant had sought to prevent a heather fire from spreading. Creswell v Sirl [1948] 1 KB 241 was a case of alleged trespass to a dog which the defendant had shot to prevent it worrying sheep. In each case the defence prevailed. Esso Petroleum Co Ltd v Southport Corp n[1956] AC 218 is the leading case on the topic and both counsel referred to it in detail. It concerned an oil tanker stranded in a river estuary. Her master jettisoned 400 tons of oil cargo to prevent the tanker breaking her back. The tide carried the oil slick on to a fore-shore causing damage. The foreshore owners sued the ship owners in trespass, nuisance and negligence. However, the only negligence alleged on the pleadings was faulty navigation by the master for which it was said the owners were vicariously liable. The owners’ case was that the stranding was due to faulty steering gear caused by a crack in the stern frame. The defence of necessity was raised, inter alia, and Devlin J upheld it [1953] 3 WLR 773. The Court of Appeal reversed Devlin J’s judgment [1954] 2 QB 182 but it was restored by the House of Lords… The case is therefore clear authority for the application of necessity as a defence to trespass especially where human life is at stake. However, Mr O’Brien relies on dicta in their Lordships’ speeches to support the proposition that the defence is not available if the necessity is brought about by the defendant’s own negligence, and that the burden of negativing negligence lies upon the defendant once the issue has been raised. The Court of Appeal took the view that the defendants had failed to discharge the burden of showing that the cracked frame causing a defect in the steering gear was not due to their negligence. Mr O’Brien says the House of Lords restored Devlin J’s judgment solely on pleading grounds. There had been no allegation of negligence against the ship owners except in relation to the master’s handling of the vessel. Mr O’Brien’s two propositions are clearly right. Necessity is not a good defence if the need to act is brought about by negligence on the part of the defendant. Once that issue is raised the defendant must show on the whole of the evidence that the necessity arose without negligence on his part. The more difficult question is as to what is meant by ‘negligence’ in this context… From these passages, Mr O’Brien argues that in the present case, where the issue has been raised, unless the defendant can show that to have equipped himself with Ferret would not have been a reasonable precaution, he fails to discharge the onus of proof. Necessity would therefore not avail him. I have already indicated that in my judgment the defendant was not negligent

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Sourcebook on Obligations and Remedies in exercising his discretion not to purchase Ferret. However, Mr O’Brien argues that, notwithstanding that, if the purchase of Ferret would have been a reasonable or a not unreasonable precaution then the necessity to use the CS canister would have been brought about by fault on the part of the defendant. I cannot accept this argument. The passages cited…were both in the context of a defence of inevitable accident as raised in The Merchant Prince [1892] P 179, upon which, as Lord Radcliffe said, much of the argument in Esso Petroleum Co Ltd v Southport Corpn [1956] AC 218 turned. I do not think that the observations of Lord Normand and Lord Radcliffe, which were obiter in any event, were intended to lay down a higher duty than the duty in the tort of negligence as a condition precedent to the application of the defence of necessity. It would be most unfair to do so. Whether or not the defendant has been negligent prior to the occurrence of the alleged necessity must surely be viewed as at the time of the alleged negligence. If by the ordinary criteria of negligence the defendant can show that at that time he was not at fault, it cannot be just when the necessity arises to impose retrospectively a higher duty on the defendant. Nor do I think Southport Corporation’s case is authority for that proposition. I am reinforced in this view by statements in two of the leading text books on the law of tort… I therefore hold that a defence of necessity is available in the absence of negligence on the part of the defendant creating or contributing to the necessity. In this case there was a dangerous armed psychopath whom it was urgently necessary to arrest. I have already found that it was not negligent of the defendant to be without Ferret. It is conceded that the only alternative was to fire in a CS gas canister, which was done. I therefore find that the defence of necessity prevails and that the cause of action in trespass fails. Next, Rylands v Fletcher (1868) LR 3 HL 330. Mr O’Brien contends that this was an escape, albeit intentional, of a dangerous thing under the defendant’s control on to the first plaintiff’s property and that strict liability must attach. In answer, Mr Machin makes three submissions. First, he says, the Rylands v Fletcher principle only applies where there is an escape of a dangerous thing from land owned or occupied by the defendant at least under a franchise. A defendant who projects a missile on to the plaintiff’s land from the highway has no sufficient interest in the land whence the missile escapes. He cited West v Bristol Tramways Co [1908] 2 KB 14 (escape of creosote fumes from wood blocks which the defendant had built into the highway) and Powell v Fall (1880) 5 QBD 597 (sparks from the highway). In neither of those cases was the point taken as to the sufficiency of the defendant’s occupancy of the land. In Jones v Ffestiniog Railway Co (1868) LR 3 QB 733 (escape of sparks from the railway), the defendants were at least occupiers and managers of the railway track. I am unconvinced by this argument… I can see no difference in principle between allowing a man-eating tiger to escape from your land on to that of another and allowing it to escape from the back of your wagon parked on the highway. Secondly, and more fundamentally, Mr Machin says that Rylands v Fletcher does not apply to an intentional or voluntary release of a dangerous thing. The essence of the principle, he says, is an escape which predicates that 100

The Structure of the Common Law there is no intentional or voluntary release. If the defendant deliberately releases or discharges the dangerous thing, then the right cause of action is trespass. Rylands v Fletcher, he says, derives from an action on the case for indirect damage. Mr Machin relies on a dictum of Viscount Simon in Read v J Lyons and Co Ltd [1947] AC 156, p 166: The circumstances in Fletcher v Rylands (1865) LR 1 Ex 265 did not constitute a case of trespass because the damage was consequential, not direct.’ Mr O’Brien concedes that he can find no reported case of the principle being applied to an intentional release or firing of a dangerous thing. But, in principle, he argues that if the strict liability attaches in respect of an escaping tiger, the duty can be no lower in the case of a deliberately released tiger. The defendant’s duty, he says, is to keep the tiger in at his peril. That makes sense but begs the question as to whether the liability for deliberate release is in trespass or Rylands v Fletcher. I am inclined to the view that Mr Machin is right on this point. In any event, however, the issue on this cause of action is clinched by Mr Machin’s third point, which is again the defence of necessity. In the classic and it may be the only Rylands v Fletcher situation, where there is an involuntary escape, the defence of necessity would be inappropriate. Since the defendant ex hypothesi would not have made any decision or choice whether to release the dangerous thing, he could hardly rely on necessity at that stage. He could at most rely upon the necessity of bringing the dangerous thing to the point whence it escaped. However, if one is to embrace cases of voluntary release or firing (such as this one) within the Rylands v Fletcher principle, it seems irresistibly logical that the defence of necessity must be open on the same basis as in trespass. Mr O’Brien, whilst accepting that necessity can apply to Rylands v Fletcher liability, sought to argue that it has a more limited scope there than in answer to alleged trespass. He based this on the decision in West v Bristol Tramways Co [1908] 2 KB 14, the creosote case. However, there the defence was statutory authority and I do not think Mr O’Brien made his submission good. In the result, I conclude that if, which I doubt, this case falls to be considered at all under Rylands v Fletcher, necessity would provide a good defence as it does in trespass. This leads me to consider the remaining allegation of negligence. I have already ruled that there was no negligence in being without the Ferret and in relying upon the CS canister. However, the plaintiffs allege, and have done since their action was brought, a number of heads of negligence in connection with the defendant’s use of the canister or cartridge. These narrowed down in the end to allegation (v): ‘Firing the said cartridge when the fire brigade was not in attendance.’ It is conceded that the defendant must be fixed with knowledge of the Green Goddess’s departure. From 8.35 pm, therefore, the defendant had constructive knowledge that there was no fire-fighting equipment standing by should it be necessary to use CS gas. The canister was not fired until 9.20 pm. Although I consider Mr Greenwood overstated the fire risk, I am satisfied that it was a very real and substantial one, acceptable only if there was equipment readily available to put out any fire at an early stage. This would be so, in my 101

Sourcebook on Obligations and Remedies judgment, even excluding the possibility of any accelerant happening to be present. Chief Inspector McGhee’s first reaction, as one trained in the use and risks of the CS canister, was to have the fire brigade called to stand by even before he set out for the scene from the police station. I bear in mind the pressures and burdens upon the officers in the fraught situation with which they were dealing. Mr Machin argues that they could not have prevented the Green Goddess going to an existing fire elsewhere, that there is no evidence that another fire appliance could have been got to the scene in time, and that at 9.20 it would have been necessary to fire the canister even if Chief Inspector McGhee had known of the Green Goddess’s departure. On the other hand, had the police acted immediately at 8.35, Mr O’Brien argues the probability is that a fire appliance (for example, the Wellingborough Green Goddess which in fact came later) could have been brought to the scene and would have arrived before 9.20. Bearing all these matters in mind, I conclude that the defendant by his officers was negligent in failing to react to the departure of the Green Goddess by seeking other help, and in using the canister without any fire-fighting equipment. Mr Machin then says the burden remains on the plaintiffs to show that the damage would have been appreciably less if there had been a fire appliance nearby. The Green Goddess had been 80 to 100 yards away, agreed to be a proper distance. By the time it could be brought up in safety and deployed, the fire, accelerated by the presence of the powder, would inevitably have done as much damage as was in fact done. This argument, it seems to me, might have been of more substance if the shop had been totally razed to the ground. It was not, as can be seen on the photographs. True, there was no evidence from the plaintiffs’ side to establish by expert opinion that less damage would have resulted had the fire been fought quicker and how much less. But it seems to me inevitable that some reduction in the damage would have been effected by quicker deployment of pumps. Part of the shop, in fact, remained unconsumed; appreciably more of it would have done so. I therefore find that the negligence was causative of actionable damage. There remains the allegation of contributory negligence. This is based upon the Eley smokeless powder which Porter-Harris emptied on the floor. The first plaintiff said that all the tins of powder were locked in a safe in the back shop or should have been. He conceded that as it had been a busy Saturday, by human error they could have been left out on a shelf (as indeed he had said they were in his original statement). If the tins had been locked away, Porter-Harris could not have had ready access to them; powder would therefore not have been spilt on the floor. It may be that no fire would have been started by the canister, or at any rate such fire as did start would have been less dramatic and damaging. I bear in mind that the first plaintiff had a number of security devices which were correctly put into operation. There was the alarm system to the police station; there was armoured window glass; the door was heavily locked; there were grills on the outside of some windows and bars on the windows at the rear. Most of the weapons were in racks with security chains. In these circumstances I do not consider that leaving tins of powder on shelving in the back shop constituted contributory negligence.

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I am not asked to consider the issue of damages. Suffice it to say, therefore, that in the upshot I find the defendant liable in negligence to both plaintiffs. The damages issue must be tried by another tribunal unless agreed.

Notes and questions 1

2

3

Do you think the real plaintiff in this action was an insurance company subrogated (see p 268) to the shop owner’s rights? If not, could it not be said that the plaintiff deserved to lose the case for having an uninsured building? Might he have been insured, but the company had refused to pay? ‘The jurisprudential basis for liability without fault [in French administrative law] has often been said to be that of the “risk theory”. The activities of the State, even when conducted without fault, may in certain circumstances constitute the creation of a risk; if the risk materialises and an individual is occasioned injury or loss, it is only just that the State should indemnify him. An alternative and perhaps more profound rationale is to connect liability without fault to the fundamental principle of the equality of all citizens in bearing public burdens. This principle of “egalite devant les charges publiques”, which is founded in Art 13 of the Declaration of the Rights of Man, has been vividly expressed by Duguit: “the activity of the State is carried on in the interest of the entire community; the burden that it entails should not weigh more heavily on some than others…”’ (Neville, Brown and Bell, French Administrative Law, 4th edn, 1993, OUP, p 184). Does English law subscribe to the egalite principle? (Cf Dunne v NW Gas Board, p 189.) ‘France introduced a comprehensive system of workmen’s compensation in 1898 (a year after the English Workmen’s Compensation Act). But three years before…the Conseil d’Etat had anticipated this legislation...taking the view that the State owed an obligation to indemnify against the risks of employment (le risque professionnel) to those engaged in a public service. Even without statute, this principle has been used to give no-fault compensation to servicemen and women and their families for injuries on active service or in training… Subsequently the Conseil d’Etat extended this right to compensation to those assisting in the public service even in a voluntary capacity…’ (Neville, Brown and Bell, French Administrative Law, 4th edn, 1993, OUP, p 185). A government inspector is injured in a munitions factory by an unexplained explosion: can she recover damages in English law without proving fault? A fireman is injured while rushing to a fire: can he recover compensation or does he take the risk of such an injury? (Cf Read v J Lyons and Co, p 662; Watt v Hertfordshire CC [1954] 1 WLR 835.)

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Sourcebook on Obligations and Remedies X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (See p 727.) Stovin v Wise [1996] AC 923 (See p 737.)

Notes and questions 1

2

Rigby concerned the police. But consider the position of local authorities: ‘From the point of view of the tort lawyer, local government is much more important than central government. Local government may decide less, but it does more, and tort liability attaches to people who do rather than to people who decide… The liability of central government may admittedly be impressive in amount… But generally, apart from the prisons and to a smaller extent the military, central government does not seem to be very vulnerable to tort suits. They do not occupy schools, though they seek increasingly to control them; and they do not mend the sidewalks, they only deny the ha’porth of tar required to mend them. Quite different is local government. Everyone sues them, even the Minister for Local Government himself…’ (Weir, ‘Governmental liability’ [1989] PL 40, 47–48). Can the owner of a yacht damaged by escaping prisoners sue the Home Office for damages? (Cf Home Office v Dorset Yacht Co, below, p 645.) There are, however, features of a local authority which may be regarded as distinguishing it from other types of corporation, whether trading or non-trading. The most important of these features is that it is a governmental body’ (Lord Keith, Derbyshire CC v Times Newspapers [1993] AC 534, p 547). How should this distinction affect the question of liability in tort?

(d) Restitution and public law Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 House of Lords A building society paid several instalments of tax under regulations that it believed were void. In subsequent judicial review proceedings the regulations were finally declared void in a judgment by the House of Lords and the revenue repaid the money with interest from the date of the judgment. The building society brought an action in debt (money had and received) for interest from the date of payment. The trial judge refused the claim, but this was reversed by a majority of the Court of Appeal. A bare majority of the House of Lords dismissed an appeal. Lord Goff:… Take any tax or duty paid by the citizen pursuant to an unlawful demand. Common justice seems to require that tax to be repaid, unless special

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The Structure of the Common Law circumstances or some principle of policy require otherwise; prima facie, the taxpayer should be entitled to repayment as of right… I would…hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right… I do not consider that the principle of recovery should be inapplicable simply because the citizen has paid the money under a mistake of law. Lord Browne-Wilkinson:… Although there is in English law no general rule giving the plaintiff a right of recovery from a defendant who has been unjustly enriched at the plaintiffs expense, the concept of unjust enrichment lies at the heart of all the individual instances in which the law does give a right of recovery… In the present case, the concept of unjust enrichment suggests that the plaintiffs should have a remedy… If the revenue is right, it will be enriched by the interest on money to which it had no right during that period. In my judgment, this is the paradigm of a case of unjust enrichment… There is in my view a close analogy to the right to recover money paid under a contract the consideration for which has wholly failed… The money was demanded by the State from the citizen and the inequalities of the parties’ respective positions is manifest even in the case of a major financial institution like Woolwich. There are…sound reasons by way of analogy for establishing the law in the sense which Lord Goff proposes. Lord Slynn:… I do not consider that the fact that Parliament has legislated extensively in this area means that no principle of recovery at common law can or should at this stage of the development of the law be found to exist… Although as I see it the facts do not fit easily into the existing category of duress or of claims colore officii, they shade into them. There is a common element of pressure which by analogy can be said to justify a claim for repayment… I find it quite unacceptable in principle that the common law should have no remedy for a taxpayer who has paid large sums or any sum of money to the revenue when those sums have been demanded pursuant to an invalid regulation and retained free of interest pending a decision of the courts. Lord Keith (dissenting):… The principle to be derived from [the cases], in my opinion, is that payments not lawfully due cannot be recovered unless they were made as a result of some improper form of pressure… In the present case no pressure to pay was put upon Woolwich by the revenue. Woolwich paid because it calculated that it was in its commercial interest to do so. It could have resisted payment, and the revenue had no means other than the taking of legal proceedings which it might have used to enforce payment. The threat of legal proceedings is not improper pressure. There was no improper pressure…and…there was no duress. Lord Jauncey (dissenting):… Running through the authorities is the distinction between payments voluntary and payments made under compulsion or duress—the former being irrecoverable, the latter recoverable. 105

Sourcebook on Obligations and Remedies The difference in the various authorities lies in the determinations as to what constitutes compulsion or duress… Duress to be relevant must be found within the four walls of the transaction. In this case Woolwich would, in relation to the revenue, have been no worse off if they had refused payment of the tax claimed and raised the defence which subsequently proved successful… That is sufficient for the disposal of this appeal which I would allow albeit with no little regret. The revenue obtained a huge sum of money which they had no right to demand and they are now hanging on to a very large amount of interest which they have no moral right to retain… However… I do not consider that it would be appropriate for this House to make new law in this instance… For example…how long should any right to repayment last? Is it in the public interest that a public authority’s finances should be disrupted by wholly unexpected claims for repayment years after the money in question has been received? These are all matters…with which the legislature is best equipped to deal.

Questions 1 2 3

Upon what principle was recovery allowed in this case? Is this case an example of the private (commercial) interest being given precedence over the public interest? Does Lord Slynn’s view conflict with the views expressed in Murphy v Brentwood DC [1991] AC 398 (see above, p 25)? Kleinwort Benson Ltd v Birmingham CC [1997] QB 380 Court of Appeal (See p 70.) Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 1 WLR 938 Court of Appeal Leggatt LJ (Court of Appeal): The parties believed that they were making an interest swaps contract. They were not, because such a contract was ultra vires the council. So they made no contract at all. The council say that they should receive a windfall, because the purpose of the doctrine of ultra vires is to protect council taxpayers whereas restitution would disrupt the council’s finances. They also contend that it would countenance ‘unconsidered dealings with local authorities’. If that is the best that can be said for refusing restitution, the sooner it is enforced the better. Protection of council taxpayers from loss is to be distinguished from securing a windfall for them. The disruption of the council’s finances is the result of ill-considered financial dispositions by the council and its officers. It is not the policy of the law to require others to deal at their peril with local authorities, nor to require others to undertake their own inquiries about whether a local authority has power to make particular contracts or types of contract. Any system of law, and indeed any system of fair dealing, must be expected to ensure that the council do not profit by the fortuity that when it became known that the contract was

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The Structure of the Common Law ineffective the balance stood in their favour. In other words, in circumstances such as these they should not be unjustly enriched… (See, now, p 799.) Kleinwort Benson Ltd v Glasgow CC [1999] 1 AC 153 House of Lords (Seep 71.) Kleinwort Benson Ltd v Lincoln CC [1998] 3 WLR 1095 House of Lords (See p 823.)

Questions 1 2 3

4

Are these causation cases? What if the contract had turned out to be illegal rather than void? Why should these interest swap cases not be seen in terms of risk rather than unjust enrichment? If such an approach were to be adopted, would the results be different? The courts seem very keen to protect the interests of the bank rather than those of the local authorities: does this contrast sharply with the attitude to be found in the X (Minors) (p 727) case? The Powstaniec Wielkopolski [1989] QB 279 Queen’s Bench Sheen J:… When construing an Act of Parliament it is to be presumed that Parliament intended to legislate in the public interest. My view as to what is in the public interest is based upon two factors, namely (1) that one of the reasons for awarding salvage is to encourage mariners to go voluntarily to the assistance of ships in distress, and it is in the public interest that they should be so encouraged…

Questions 1 2 3

Is the law of salvage part of public law or commercial law? Is commercial law part of public or private law? Is a master of ship under a legal duty to go to the aid of another ship in distress? (Cf Merchant Shipping Act 1995, s 93.)

8 THE ROLE OF TEXTBOOKS White v Jones [1993] 3 WLR 730 Court of Appeal; [1995] 2 AC 207 House of Lords (See p 702.) Steyn LJ (Court of Appeal):… The question decided in Ross v Caunters was a difficult one. It lies at the interface of what has traditionally been regarded as the separate domains of contract and tort. It is therefore not altogether surprising that the appeal in the present case lasted three days, and that we 107

Sourcebook on Obligations and Remedies were referred to about 40 decisions of English and foreign courts. Pages and pages were read from some of the judgments. But we were not referred to a single piece of academic writing on Ross v Caunters. Counsel are not to blame: traditionally counsel make very little use of academic materials other than standard textbooks. In a difficult case it is helpful to consider academic comment on the point. Often such writings examine the history of the problem, the framework into which a decision must fit, and countervailing policy considerations in greater depth than is usually possible in judgments prepared by judges who are faced with a remorseless treadmill of cases that cannot wait. And it is arguments that influence decisions rather than the reading of pages upon pages from judgments. I am not suggesting that to the already extremely lengthy appellate process there should be added the reading of lengthy passages from textbooks and articles. But such material, properly used, can sometimes help to give one a better insight into the substantive arguments. I acknowledge that in preparing this short judgment the arguments for and against the ruling in Ross v Caunters were clarified for me by academic writings… Lord Mustill (House of Lords) (dissenting):… My Lords, I have two final observations. The first concerns the marked contrast between the scores of authorities cited in argument, and the very few reported cases which I have called up. This may seem discouraging to those who with great skill and labour have gathered together and analysed all this diverse material. Such a feeling would be understandable but mistaken. The extensive citation has been indispensable as a means of placing before your Lordships the interplay of ideas so copiously developed by jurists here and abroad. The whole of the landscape has been exposed. Yet when it comes to reaching a decision and explaining the grounds for it there is a possibility of surfeit. The construction of an intelligible mosaic becomes impossible if there are too many pieces. Many of them will not fit. A full account of all the previous decisions would be endless and useless. Ultimately it is the broad shape of the principles which matters, and to obscure them in a fog of citation would not in my opinion advance the development of the law of negligence, so important to everyday life. Secondly, the judgment of Steyn LJ remarked on the sparseness of reference to academic writings in the argument before the Court of Appeal. No such complaint could be made of the proceedings in this House. There can be few branches of contemporary law on which the commentators have had so much to say. Citation has been copious, and of great value. If I refer to none of the writings it is only because, as with the reported cases, the volume is too large to permit accurate and economical exposition; and the selection of some in preference to others would be invidious. It is the practice in official law reports to record not only the cases referred to in the judgments, but also those brought forward in argument. This is an invaluable feature for those who follow behind. A similar record of the doctrinal materials brought forth in argument would, I believe, greatly help to place in perspective the views which your Lordships have expressed… Lord Goff:… Strongly though I support the study of comparative law, I hesitate to embark in an opinion such as this upon a comparison, however brief, with a civil law system; because experience has taught me how very

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The Structure of the Common Law difficult, and indeed potentially misleading, such an exercise can be. Exceptionally however, in the present case, thanks to material published in our language by distinguished comparatists, German as well as English, we have direct access to publications which should sufficiently dispel our ignorance of German law and so by comparison illuminate our understanding of our own…

Notes and questions 1

2

3

4

5

‘Modern textbooks are important…as guides to the case law with which they are concerned. But if they are good they are more than mere guides, for they seek not only to arrange the cases systematically but to extract from them the general principles of the law and to show how those principles may be developed. And the same is true, on a smaller scale, of articles in the Law Reviews… To deny persuasive authority to textbooks today may be to state the formal position in England quite correctly, but it is to conceal the substantial and increasing importance of law doctrine in the formation of English law’ (Jolowicz, Lectures on Jurisprudence, 1963, Athlone, pp 314–15). Why do you think it is that doctrine is not a formal source of law in the English system? (Cf Birks (1994) 14 LS 156.) Is law based on general principles? Is the role of the House of Lords to develop broad principles or is it to decide particular cases between particular litigants? (Cf above, pp 10–13.) Is academic writing (doctrine) now a formal source of law? Is the civil (continental) law becoming a formal source of law? Should UK law schools now be teaching the law of obligations in a comparative, or at least a European, context? Are there different kinds of law textbooks—for example, are there ‘academic’ and ‘practitioner’ textbooks? If you had written what you considered to be an ‘academic’ work, would you regard it as an insult if a colleague called it a ‘practitioner’ work? Is there too much law?

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CHAPTER 2

LEGAL METHOD AND THE COMMON LAW

1 INTRODUCTION An understanding of the English law of obligations requires knowledge not just of the law applicable to factual situations falling within its province, but also of the application process itself. This may seem a statement of the obvious. Yet it is only in more recent years that the importance of legal method as an object of study in itself has become fully recognised and this recognition is, in turn, having an impact both on substantive legal subjects and on legal theory. There are several reasons for the traditional lack of emphasis in legal education on methodology. First, it was assumed until quite recently that knowledge of law consisted of having knowledge of legal propositions, that is to say, rules and principles. In turn, these rules and principles applied themselves to factual situations in a rather mechanical fashion. Once the facts were established, the rule applied itself to these facts through the syllogism (deductive logic); the rule acted as the major premise, the facts as the minor, and the court decision as the conclusion. This logical approach to legal method has been particularly strong in the civil law tradition where the codes represented axiomatised—that is to say, logically complete—systems of major premises ready to apply themselves to any factual situation that arose. Secondly, legal historians, despite having a profound knowledge of law (particularly Roman law) in terms of rules and institutions, have been less interested in the methods and habits of thought of the Roman jurists and their successors (Strömholm, A Short History of Legal Thinking in the West, 1985, Norsteds, pp 46, 67). This is not to say that there are no profound studies. But the strength of the rule thesis of legal knowledge has been such that it has militated against the search for alternative methodological models. And so, as Susskind has observed, there is ‘unequivocal help available neither from legal theory nor from the primary or secondary sources of law’ when it comes to alternatives to the rule thesis (Expert Systems in Law, 1987, OUP, p 154). One must add that this lack of interest in alternatives has also been encouraged by the ideological factor that underpins the rule thesis. The idea that law is a set of ascertainable rules which are to be applied in a neutral fashion is part of a positivist philosophy that has been particularly strong for well over a century now. It is only with the search for an escape from positivism that methodology has come back into focus. Yet even a philosopher like Ronald Dworkin, who 111

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has done more than anyone in the common law world to re-emphasise the role of adjudication in the formulation of philosophical theory, continues to subscribe to the thesis that legal knowledge is based on rules and principles (Susskind, Expert Systems in Law, 1987, OUP, pp 78–79). All the same, Dworkin has moved thinking away from the mechanics of the syllogism towards the interpretative role of the judge, and while this shift has not undermined, as such, the rule thesis, he has opened up the methodological debate in, for example, distinguishing between easy and hard cases (see Taking Rights Seriously, 1977, Duckworth, pp 24ff, 105ff). In easy cases, it may be that a legal rule applies itself in a mechanical fashion, but in hard cases—that is, cases where there is no easy correspondence between the rule and the facts—the interpretative role of the judge becomes the central object of study. The judge, according to Dworkin, involves himself in a process that is analogous to writing a chain novel. ‘In this enterprise’, writes Dworkin, ‘a group of novelists writes a novel seriatim; each novelist in the chain interprets the chapters he has been given in order to write a new chapter, which is then added to what the next novelist receives, and so on’ (Law’s Empire, 1986, Fontana, p 229). The difficulty with this otherwise valuable methodological analysis is that it assumes that legal reasoning is a matter of interpreting language—a matter of interpreting texts, of interpreting rules and principles (ars hermeneutica). There are two general problems with this approach. First, the hermeneutical (interpretative) method is just one of a number of different schemes of intelligibility that are used in social science reasoning. Thus the hermeneutical scheme can be contrasted with a functional approach or a structural approach or, indeed, with several other schemes of intelligibility. These various schemes have been identified and analysed by the French social theorist J-M Berthelot in his book, L’intelligence du social, 1990, PUF, Chapter II; and while this work is rather outside a course on the law of obligations, it cannot be completely ignored by lawyers. What Berthelot can teach lawyers is that their legal reasoning schemes are nothing special. The various approaches adopted by judges in their analysis of facts and their fashioning of solutions can be classed according to the same schemes of analysis as those used by social scientists in general. Thus, lawyers and legal theorists make use of the causal scheme, the functional scheme, the structural scheme, the hermeneutical scheme, the actional scheme and the dialectical scheme depending upon their standpoint and/or view of the world (see below, pp 169–77). When one judge differs from another in respect of the same facts, it is often because each judge is approaching the case from a different schematic viewpoint (see, for example, Re Rowland, p 166). Equally, there is little point in trying to reconcile the theory of Ronald Dworkin with the functional approaches of the American Realists or with scholastic (dialectical) methods of the medieval Glossators or with the structural approach of the semioticians. This is not to say, of course, that the various approaches are mutually exclusive. Criminal and tort lawyers use, for example, the causal (chain of causation) and the actional (reasonable man, 112

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bon père de famille, etc) as well as a dialectical approach at the procedural level (accusatorial procedure). The Glossators, and in fact the Roman jurists themselves on occasions (see Dig 50.16), share with Dworkin the general hermeneutical assumption that the source of law is a text. Indeed all lawyers have to resort to the hermeneutical scheme when it comes to the interpretation of contracts and statutes. The point to be made, however, is that this is just one scheme of analysis amongst several. The second problem with the Dworkin approach is that it assumes that knowledge of law is knowledge of rules and principles (written or unwritten). Is this a satisfactory knowledge thesis? Can the hermeneutical analysis ever be the basis of an exclusive scientific analysis of method? Does not a science function at one and the same time at the level of a discourse (language and texts) and at the level of the facts themselves? Does not a science organise the facts? Law, of course, may not be a science in the natural, or hard, science sense; yet it does seem to construct its own facts, as the materials in this chapter will hopefully show. Now, when it comes to fact construction, two further points need to be stressed. First, as Berthelot concludes, if one had to abstract from all the various schemes one fundamental theme or dichotomy, it is perhaps that of the opposition between a ‘holistic’ and ‘atomistic’ analysis of social facts (Berthelot, pp 152–61). Does one view a series of facts as a ‘thing’ or event in itself, or only as a collection of individual and separate events? This kind of question has a long history in philosophy and epistemology (see below, p 128) and is beyond the scope of an obligations course. Yet the difference is crucial in legal analysis, as cases like Re Rowland (p 166) or Lazenby Garages v Wright (p 578) show. Secondly, the relationship between a ‘science’ and facts is an extremely complex one. Scientific theory does not have as its object actual facts, but what one leading philosopher of science has called virtual facts. That is to say, facts that are as much determined by the scientific model through which they are analysed as by any objective reality (Granger, La science et les sciences, 2nd edn, 1995, PUF, p 49). Thus, the object of science is not reality itself, but the schemes and models of science, and the effectiveness of such a model is determined by its ability at one and the same time to explain and predict (Granger, pp 70, 78–84). Law, as we have said, may not be a science in the natural science sense. But its history is not so different in many ways. This history is not a history of events as such; it is ‘above all a genealogy of “categories” which have successively made up the objects of a science’ (Granger, p 115; and see Bryant v Herbert, p 114). Legal method is thus not just about interpretation. It is equally about the construction and reconstruction of facts through the use of institutions (see Chapter 1), concepts and categories.

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(a) Historical considerations: the forms of action Bryant v Herbert (1877) 3 CPD 389 Court of Appeal Bramwell LJ: It seems to me that the question in this case is, what is the meaning of the words ‘in any action founded on contract’, and ‘on any action founded on tort’… The words are not words of art even as much as ex contmctu or ex delicto would be. They are plain English words, and are to have the meaning ordinary Englishmen would give them. What is the foundation of an action? Those facts which it is necessary to state and prove to maintain it, and no others. This really seems a truism: unless those necessary facts exist, the action is unfounded. All other facts are no part of the foundation. There is a further observation. This statute passed after the Common Law Procedure Acts. They did not abolish forms of action in words. The Common Law Commissioners recommended that: but it was supposed that, if adopted, the law would be shaken to its foundations; so that all that could be done was to provide as far as possible that, though forms of actions remained, there never should be a question what was the form. This was accomplished save as to this very question of costs in actions within the county court jurisdiction. Until the passing of the statute [County Courts Act] we are discussing, it was necessary to see if an action was assumpsit, case, etc. But the Common Law Procedure Act having passed, and the forms of actions being practically abolished, the legislature pass this Act dropping the words ‘assumpsit, case’, etc, and using the words ‘founded on contract’, ‘founded on tort’. This shows to me that the substance of the matter was to be looked at. One may observe there is no middle term; the statute supposes all actions are founded either on contract or on tort. So that it is tort, if not contract, contract if not tort. Then is this action on the face of the statements of claim and defence founded on contract or on tort. All that is alleged is that the plaintiffs are owners of the picture, and that the defendant detains it. This means wrongfully detains it, not merely has in his possession, and negatively does not give it up. Then the action is manifestly founded on a tort on the pleadings. But so it is if the facts are looked at. I doubt if there was any contract between the parties… These are the considerations on which I think this case ought to be decided, and not by inquiries whether detinue is an action ex contractu or ex delicto. I think that the legislature intended that the substance of the action and not its form should be looked at. It leaves out what was in the former Act, ‘assumpsit, case’, etc, and uses general words ‘founded on contract’, ‘founded on tort’. But if the old learning as it was called is to be brought to help us, I should come to the same conclusion. No doubt dicta and decisions are to be found that detinue is an action ex contractu or ex quasi contractu, etc, but there are dicta and decisions the other way. It is not easy to make sense of them: perhaps the nature of the thing does not admit of it. It cannot be settled by saying that debt and detinue could be joined, and that actions of tort could not be joined with actions on contract. Actions on contract could not be joined, for example, debt and assumpsit. The reason being unconnected with the question whether

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Legal Method and the Common Law the action was ex contractu or ex delicto… But I believe that it was intended that all this useless, and worse than useless, learning should be disregarded, and the matter decided on its substance. Brett LJ: I concur in the judgment of my learned Brother, but I cannot agree with the reasons given… With the greatest deference to my Brother Bramwell I cannot conceive that those words are what he calls plain English, because they seem to me to be technical terms. The conclusion to which I have come is this, that the action of detinue is technically an action founded on contract. The action was invented to avoid the technicalities of the old law: the invention was to state a contract which could not be traversed. Therefore I think the action of detinue, or the form of the action of detinue, so far as the remedy is concerned in its legal signification was founded on contract. But, then, did the statute which we have to construe mean to use these terms in that sense? I have great doubts whether it did not, and whether using the terms ‘founded on contract’, or ‘founded on tort’, it was not having regard to the form of action. But I am not prepared to disagree with the conclusion that the statute meant to deal not with the form of action, but with the facts with reference to which the form of action is to be applied. Now, if that be so, the question then is, whether the cause of action in fact here is a cause of action founded on contract in the sense of its being a breach of contract, or whether it is founded on tort in the sense of its being founded on a wrongful act… The real substantial cause of action is a wrongful act… My Brother Baggallay agrees in the result at which we have arrived.

Notes and questions 1

‘The principles of the common law were not laid down in the abstract, but grew around the forms through which justice was centralised and administered by the king’s courts. There was a law of writs before there was a law of property, or of contract, or of tort… A plaintiff did not… concoct his own writ… He had either to find a known formula to fit his case, or apply for a new one to be invented… After [the 13th century], although occasional innovations were sanctioned by Parliament, the categories became more or less closed. The effect was momentous. Finding the right formula was no longer simply a matter of consistency and routine… Formulae…were seen as defining the rights and remedies recognised by the common law, and thus as fixing the common law within an immutable conceptual framework… Later lawyers referred to the compartments of law and practice associated with different writs as the “forms of action”. These forms of action were the first object of legal study’ (Baker, An Introduction to English Legal History, 3rd edn, 1990, Butterworths, pp 63, 65, 66–67). How did the English law of actions differ from the Roman law of actions? How did the reforms of the 19th century change legal analysis? What must a plaintiff plead after the procedural reforms: just the facts, or the facts plus the law?

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These judgments illustrate the point made in the introduction about the unreality of distinguishing between ‘fact’ and ‘science’ (that is, law). What are contractual facts as opposed to tort facts? How does one know if a set of facts gives rise to an action founded on ‘contract’ or ‘tort’? Must all actions for damages which cannot be classified under ‘contract’ be classified under ‘tort’? Is it not the law, as much as any social fact, that is ‘constructing’ and categorising the facts? Where do the categories ‘contract’ and ‘tort’ come from, given that they do not appear to be part of the early history of English legal thought? What is the relationship between these two categories and the facts which go to make up a common law ‘action’? Is there a difference between an action founded on ‘contract’ and an action ex contractu? If so, what is the difference? What is Bramwell LJ advocating in respect of legal education? In what way does Brett LJ differ from Bramwell LJ? ‘The plaintiff has chosen to bring an action of trover, and he now says, I ought to be allowed to amend by turning this action into an action of account… But the whole case is entirely different. The whole question before the jury would be different, and the whole account would have to be taken upon totally different principles from anything that was done before the jury… That verdict has been founded on a notion of tort’ (Lord Hatherley LC in Jacobs v Seward (1872) LR 5 HL 464, p 476). Is this an example of the forms of action ruling from the grave? Do judges still have to deal with these ‘forms of action’ problems? (Cf Roy v Kensington and Chelsea FPC, p 88.)

(b) Modern law: remedies and rights Letang v Cooper [1965] 1 QB 232 Court of Appeal Diplock LJ:… A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person. Historically, the means by which the remedy was obtained varied with the nature of the factual situation and causes of action were divided into categories according to the ‘form of action’ by which the remedy was obtained in the particular kind of factual situation which constituted the cause of action. But that is legal history, not current law… The Judicature Act 1873 abolished forms of action. It did not affect causes of action; so it was convenient for lawyers and legislators to continue to use, to describe the various categories of factual situations which entitle one person to obtain from the court a remedy against another, the names of the various ‘forms of action’ by which formerly the remedy appropriate to the particular category of factual situation was obtained. But it is essential to realise that when, since 1873, the name of a form of action is used to identify a cause of action, it is used as a convenient and succinct description of a particular category of factual situation which entitles one person to obtain from the court a remedy against another person.

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Legal Method and the Common Law To forget this will indeed encourage the old forms of action to rule us from their graves...

Notes and questions 1

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‘The words “cause of action” comprise every fact, though not every piece of evidence, which it would be necessary for the plaintiff to prove, if traversed, to support his right to judgment of the court… It seems to me clear that the facts which give rise to a remedy in England gave rise to a comparable civil remedy in Spain, albeit such remedy falls to be pursued in essentially criminal proceedings by intervention of the aggrieved party …’ (Potter J in Black v Yates [1992] QB 526, pp 543,544). What if one did not have to prove fault in one system in order to succeed in a claim in damages? Would this make the cause of action very different from one based on fault? ‘In the pragmatic way in which English law has developed, a man’s legal rights are in fact those which are protected by a cause of action. It is not in accordance, as I understand it, with the principles of English law to analyse rights as being something separate from the remedy given to the individual… [I]n my judgment, in the ordinary case to establish a legal or equitable right you have to show that all the necessary elements of the cause of action are either present or threatened’ (Sir Nicolas BrowneWilkinson, Kingdom of Spain v Christie, Manson and Woods Ltd [1986] 1 WLR 1120, p 1129). Is the notion of a ‘right’ (le droit subjectif) unknown in English law? Will the Human Rights Act 1998 eventually change this remedial view of English law? ‘[T]he question whether the right exists cannot be determined by inquiring whether the action for money had and received is the appropriate form of plea. If the right exists, the form of the plea is appropriate enough. If the right does not exist it cannot be enforced no matter how attractively it might be disguised by the pleader. The question is not now one of the appropriate form in which to clothe the right, but whether or not the right exists, although the absence of any clothing that fits may be an indication of the non-existence of the right’ (Stable J in Dies v British and International Mining and Finance Corporation [1939] 1 KB 724, pp 738–39). Compare and contrast the view of Stable J with that of Sir Nicolas Browne-Wilkinson. Mercedes Benz AG v Leiduck [1996] 1 AC 284 Privy Council (See pp 219, 273.)

Questions 1

Is it really possible to talk of rights underlying causes of action in English law? What were the rights of the plaintiff, if any, in Esso v Southport Corporation (p 216)? Are not rights defined only in respect of the existence 117

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or non-existence of a cause of action. (Cf Kingdom of Spain v Christie’s, p 209?) Can equitable remedies create new rights?

3 PLEADINGS (STATEMENTS OF CASE) Sterman v EW and WJ Moore Ltd [1970] 1 QB 596 Court of Appeal Lord Denning MR:… Here was a plaintiff who issued his writ and served it on the defendants well within the period of limitation. They knew perfectly well that the plaintiff was claiming damages for his fall from the trestle because it was their fault. Yet they seek to bar him on the most technical consideration—just because he omitted the words ‘for negligence and breach of statutory duty’. I do not think that we should allow this technical objection to prevail… [W]e should allow the plaintiff to amend the writ so as to state in terms that his claim is for damages ‘for negligence and breach of statutory duty’. I see no harm in adding the further claim for damages for ‘breach of agreement’… Salmon LJ: I agree. I would emphasise that it is highly desirable that the indorsement to the writ should plainly set out the cause of action on which the plaintiff relies. It may be that it is sufficient…if the writ merely gives a concise statement of the nature of the relief or remedy required by the plaintiff; but the disadvantage of confining the indorsement of the writ to a concise statement of the relief or remedy required (as the plaintiff has done in the present case) is that the plaintiff may find himself in considerable difficulty when he comes to deliver his statement of claim. It seems to me, although I am expressing no concluded view on the point, that the provisions of [the Rules of Supreme Court] preclude the plaintiff from including any cause of action in his statement of claim which is not mentioned in the writ… Barclays Bank plc v Fairclough Building Ltd [1995] QB 214 Court of Appeal (See p 395.) Beldam LJ:… Finally, though it is unnecessary to do so, I should deal with the point raised by Mr Elliott that the ground on which the judge found the plaintiff at fault was not pleaded. Mr Elliott did not put his case on the footing that he would have called any additional evidence had the case found against the plaintiff been pleaded. He frankly stated that he could not now say with the benefit of hindsight how he would have approached the allegation on which the plaintiff was found to have been at fault. It is not, however, difficult to see that there might have been evidence, for example directed to the issue whether the plaintiff in the light of its previous dealings with the defendants ought to have regarded it as prudent to inform itself of the method of cleaning adopted by the subcontractor of whose employment it was not informed. Mr Butcher emphasised that the judge’s findings were based on the evidence of the plaintiff’s own witnesses given in answer to questions in crossexamination.

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Legal Method and the Common Law As in many arguments on pleadings, the question ultimately comes down to one of degree. At one end of the scale there are arguments which could be said to be merely technical; at the other there are cases in which the party concerned is entitled to hold his adversary to the case pleaded against him. One such case was Esso Petroleum Co Ltd v Southport Corpn [1956] AC 218. Lord Radcliffe said, p 241: My Lords, I think this case ought to be decided in accordance with the pleadings. If it is, I am of opinion, as was the trial judge, that the respondents failed to establish any claim to relief that was valid in law. If it is not, we might do better justice to the respondents—I cannot tell, since the evidence is incomplete—but I am certain that we should do worse justice to the appellants, since in my view they were entitled to conduct the case and confine their evidence in reliance upon the further and better particulars of para 2 of the statement of claim which had been delivered by the respondents. It seems to me that it is the purpose of such particulars that they should help to define the issues and to indicate to the party who asks for them how much of the range of his possible evidence will be relevant and how much irrelevant to those issues. Proper use of them shortens the hearing and reduces costs. But if an appellate court is to treat reliance upon them as pedantry or mere formalism, I do not see what part they have to play in our trial system. Whilst the departure in that case was more florid than that in the present case, it is the fact that the plaintiff succeeded in refuting the allegations of fault made against it in the pleadings. For my part I would hold that the ground on which the judge found the plaintiff at fault so far departed from the scope of the pleaded case that the defendant should not have been allowed to rely on it without amending its pleaded case. The plaintiff objected at the trial but no amendment was made. Had it been necessary to do so, I would have allowed the appeal on this ground too. Hoecheong Products Ltd v Cargill Ltd [1995] 1 WLR 404 Privy Council This was a successful appeal to the Privy Council against a decision of the Court of Appeal of Hong Kong. One ground of the appeal was that the Court of Appeal had ‘decided in favour of the buyers on a ground of its own devising, which had not been pleaded, investigated at the trial or even argued before the Court of Appeal itself (Lord Mustill). Lord Mustill: This appeal from a decision of the Court of Appeal of Hong Kong springs from a contract whereby Hoecheong Products Co Ltd (‘the sellers’) agreed to sell to Cargill Hong Kong Ltd (‘the buyers’) 10,000 tonnes of cotton seed expellers. The sellers did not deliver the whole contract quantity. The buyers claimed damages. The sellers relied on a ‘force majeure’ clause in the contract to exempt them from liability. The ground asserted was that the contract called for shipment of goods originating in Henan province, and that there had been such a severe drought in Henan during the growing season that it was impossible for them to procure goods from the only permitted suppliers, the China National Native Produce and Animal ByProducts Import and Export Corporation (‘CNNP’). The buyers denied that the force majeure clause applied to the facts of the case, or that the formalities

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Sourcebook on Obligations and Remedies which it prescribed had been complied with. There were numerous other points of contention between the parties. Although the sum in dispute was, by the standards of modern commercial litigation, comparatively modest, every issue was tenaciously fought. At the trial before Deputy Judge Sharwood the sellers won on sufficient of the points to obtain a judgment in their favour. On appeal many of the deputy judge’s conclusions were upheld, but the buyers prevailed on two central issues, and judgment was given in their favour for US$108,000 with interest and costs. The sellers now appeal to their Lordships’ Board… Thus far, there is nothing exceptional about the case. There is, however, another and much less conventional feature; namely, that the Court of Appeal of Hong Kong also decided in favour of the buyers on a ground of its own devising, which had not been pleaded, investigated at the trial or even argued before the Court of Appeal itself… … [I]f the third element in the chain of reasoning had been exposed to argument it may be—their Lordships cannot say—that the law would have been differently stated. The proposition extracted from Benjamin on Sale of Goods, 4th edn, 1992, does not in fact represent the concluded view of the editors, but merely their opinion that it is arguable. The cases on this question (and there are others beside those cited in the judgment) are not straightforward, and it is at least possible that closer scrutiny would have led the court to a reading which allowed the sellers the benefit of the clause, even on the assumed facts. In the event, the sellers had no opportunity to test the proposition which defeated their defence. The sellers now contend that this procedure was impermissible, and that the decision of the Court of Appeal of Hong Kong on the new question cannot be allowed to stand. Their Lordships must agree. The principles which inhibit the parties from raising new points on appeal, particularly where the facts have not been investigated at the trial, are so well established that it is unnecessary to quote from authorities such as Tasmania (Owners of) v City of Corinth (Owners of) (1890) 15 App Cas 223, Connecticut Fire Insurance Co v Kavanagh [1892] AC 473 and Esso Petroleum Co Ltd v Southport Corpn [1956] AC 218. These principles apply equally where it is the court, rather than the parties, which seeks to introduce the new legal issue. If in the present case the matter had been ventilated in open court it would, their Lordships believe, soon have become apparent that there had been insufficient exploration of the facts at the trial to permit the application of whatever law might have emerged from an examination of the authorities. In the event, however, even this modest examination did not take place. The point appears to have been an afterthought. It does, of course, happen from time to time that a court comes to learn of a statute or authority bearing importantly on an issue canvassed in argument but, through an oversight, not then brought forward. The court may wish to take the new matter into account. Before doing so it should always ensure that the parties have an opportunity to deal with it, either by restoring the appeal for further oral argument, or at least by drawing attention to the materials which have come to light and inviting written submissions upon them. The present case required even more meticulous procedures, for what the court introduced was not new material on the existing issue but an entirely new question of

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Legal Method and the Common Law law and fact. The occasions when an appellate court would find it proper even to contemplate such a course after the conclusion of the arguments must be rare, but if it were ever to do so the first step must always be to have the matter thoroughly explored by adversarial means, as regards not simply the merits of the new question but also the propriety of entering upon it at all. If this had happened here, the sellers should have had little difficulty in showing that the case had proceeded too far to enable the question to be taken into account. The judgment would then have proceeded on the basis of the issues which had been in existence throughout, although the court could, if it had wished, have kept the point open for consideration in some future case by emphasising that it had not been argued and did not form part of the decision. In the event, however, none of this happened. The course taken deprived the sellers not only of the opportunity to argue the point on the merits (which in itself would have required the Board to set aside this part of the judgment) but also of an unanswerable objection on procedural grounds. With the best of intentions, the Court of Appeal of Hong Kong acted in a way which was unfair to the sellers. The new issue should not have formed a ground for the decision under appeal, and their Lordships propose to say nothing more about it… … Accordingly, their Lordships will humbly advise Her Majesty that the appeal should be allowed, and the judgment of the trial judge restored. The buyers must pay to the sellers their costs of the appeal to the Board and in the courts below.

Notes and questions 1

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What role do the pleadings play in the determination of the law applicable? Can a judge raise points of law not mentioned by the parties in their pleadings? Da mihi factum, dabo tibi ius (‘give me the facts and I will give you the law’). Is it not a principle of Western law that parties are under a duty to plead only the facts and that it is the court that applies the law? Are there any systems of law where the parties plead no law at all, only the facts? P applies for an injunction against D to stop D from distributing “bootleg’ (unauthorised) recordings of live concerts performed by P. In his pleadings and arguments P bases his claim on the sole ground that D is committing the tort of breach of statutory duty. It is clear to you, as trial judge, that there is no tort of breach of statutory duty: nevertheless, can you issue the injunction on the ground of unjust enrichment? Could you issue the injunction on the basis that there is an interference with P’s property rights? Read Drane v Evangelou [1978] 1 WLR 455 in the law report. Would you have appealed against Lord Denning’s judgment?

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4 THE LEGAL RULE Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192 House of Lords (See p 8.) Spring v Guardian Assurance plc [1995] 2 AC 296 House of Lords The central issue in this appeal is whether a person who provides a reference in respect of another who was formerly engaged by him as a member of his staff…may be liable in damages to that other in respect of economic loss suffered by him by reason of negligence in the preparation of the reference’ (Lord Goff). The House of Lords held that an employer may be liable in negligence for such an inaccurate reference (see p 693). Lord Lowry:… It is in the tradition of the English case law method to decide this appeal on its facts and not be deterred by reflecting on all possible situations in which a reference might be called for. Even if it is debatable where the line should be drawn, I am confident that from the plaintiffs point of view this case falls on the right side of it… Lord Woolf:… It only remains for me to underline what I anticipate is already clear, that is, that the views which I have expressed are confined to the class of case with which I am now dealing. Some of the statements I have made I appreciate could be applied to analogous situations. However, I do not intend to express any view either way as to what will be the position in those analogous situations. I believe that they are better decided when, and if, a particular case comes before the court. This approach can lead to uncertainty which is undesirable. However, that undesirable consequence is in my view preferable to trying to anticipate the position in relation to other situations which are not the subject matter of this appeal…

Notes and questions 1

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3 4

‘When a judge asserts a legal rule to be applied, he does so only in view of, and in relation to, the facts of the case before him’ (David). What the late Professor David was alluding to here is the habit of common lawyers to formulate and apply rules only within specific factual situations. Not for them the broad principle capable of covering a range of factual situations. Is his observation supported by the comments of the judges above? Are rules formulated within very narrow and specific factual situations capable of being applied via the syllogism? What method of application does Lord Woolf envisage? What do the Lords of Appeal envisage their role to be in the legal system? The common law does not consist of “rules” in the orthodox sense of the term, say, according to the meaning which civilians attach to the notion. In other words, the common law does not generate canonical texts or formulations. To represent the common law as a set of rules is to inflict an “alien conception” on it. Judicial decisions may, in time, produce what 122

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appears like a set of rules; yet… [t]he “rules” are…no more than renditions by later judges of patterns which they perceive as having emerged from discrete and particularistic judicial interventions… Common law “rules” having minimal prescriptive impact, the courts effectively make and unmake the law at will’ (Legrand, ‘European legal systems are not converging’ (1996) 45 ICLQ 52, pp 67–68). As legislation increasingly becomes the main source of English law, will this view of the common law have to change? Is Legrand saying that English law can be described by rules but does not consist of rules? Professor Peter Birks has criticised Spring on the ground that two legal categories intersect. Defamation, which is an infringement of the reputation interest, intersects with negligence, which is a wrong based on a species of fault. According to Birks, this leads to a situation where a careless invasion of the reputation interest could give rise to two wrongs, namely defamation and negligence, when a rational system should see only one wrong. In order to give intellectual support to his criticism, he draws an analogy with zoology: ‘My canary is yellow and eats seeds. If all birds are seed-eaters, yellow, or others, my canary counts twice. Are there two birds or one? If there come to be two birds, the double-vision is due to the bent classification. There is only one bird’ ((1996) 26 UWAL Rev 1, p 6). Is this criticism based upon a sound epistemological (theory of knowledge) understanding of the role of taxonomy? Is there not an important difference between taxonomy schemes based on observable objects (plants, animals, rocks, etc) and schemes, like law, based on what Villa has called ‘atypical objects’, which cannot be observed without the aid of concepts and theoretical categories (La science du droit, 1990, Story/LGDJ, p 84)? Are not these concepts and theoretical categories part of the ‘science’ (that is, law) itself, thus making law the object of its own science? If so, is not the result as follows: that there is no rigour emanating from the object of science and that law is free to construct or deconstruct its own objects? Is this not what happened in Donoghue v Stevenson?. Indeed, if Birks is right, could it not be said that Donoghue must be wrong? Does it not allow commercial contractual interests (no duty based on privity of contract) to intersect with negligence (duty based on wrong)?

5 GENERAL PRINCIPLES OF LAW Knuller Ltd v DPP [1973] AC 435 House of Lords Lord Simon of Glaisdale:… It is, in general, the difference between mature and rudimentary legal systems that the latter deal specifically with a number of particular and unrelated instances, whereas the former embody the law in comprehensive, cohesive and rational general rules. The law is then easier to 123

Sourcebook on Obligations and Remedies understand and commands a greater respect. Fragmentation, on the other hand, leads to anomalous (and therefore inequitable) distinctions and to hedging legal rules round with technicalities that are only within the understanding of an esoteric class. The general development of English law (like that of other mature systems) has been towards the co-ordination of particular instances into comprehensive and comprehensible general rules. The evolution of the compendious tort of negligence from a number of disparate forms of action is a well known example from the common law: the Theft Act 1968 may be regarded as a statutory counterpart. (I must, however, add the rider that English law has never felt bound to carry every rule to its logical conclusion in the face of convenience.) But the common law proceeds generally by distilling from a particular case the legal principle on which it is decided, and that legal principle is then generally applied to the circumstances of other cases to which the principle is relevant as they arise before the courts… Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 House of Lords (See p 104.)

Notes and questions 1

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‘By natural law it is equitable that no one should be enriched by the loss or injury of another’ (Dig 50.17.206). Was this principle actually applied in Lipkin Gorman v Karpnale Ltd, p 782, and in Woolwich? ‘I call a “principle” a standard that is to be observed, not because it will advance or secure an economic, political, or social situation deemed desirable, but because it is a requirement of justice or fairness or some other dimension of morality… Rules are applicable in an all-or-nothing fashion… But this is not the way…principles…operate… A principle… states a reason that argues in one direction, but does not necessitate a particular decision’ (Dworkin, Taking Rights Seriously, 1977, Duckworth, pp 22, 24, 25, 26). Does the law of contract consist of rules or principles? (Cf Chapters 4–6.) What about the French or German civil codes: are these codes of rules or principles? ‘[I]f there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of Justice’ (Sir George Jessel MR in Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462, p 465). (Cf CC, Art 1134.) Is this a principle? ‘You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour’ (Lord Atkin, Donoghue v Stevenson, above, p 65). (Cf CC, Art 1382; Hedley Byrne and Co v Heller and Partners, p 470.) Is this a rule or a principle?

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‘We think that the true rule of law is, that the person who for his own purposes brings on his lands and collects and keeps there anything likely to do mischief if it escapes, must keep it in at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape’ (Blackburn J in Rylands v Fletcher, below, p 000). If this is a principle, would you expect it function in much the same way as CC, Art 1384?

6 LEGAL CONCEPTS (a) Normative concepts (i) Rights Housing Act 1985 (c 68) (See p 47.) Ex p Island Records [1978] Ch 122 Court of Appeal Lord Denning MR:… The question…becomes this: has the plaintiff a particular right which he is entitled to have protected? To this the answer which runs through all the cases is: a man who is carrying on a lawful trade or calling has a right to be protected from any unlawful interference with it… It is a right which is in the nature of a right of property… [The Attorney General] has, we are told, refused his consent to a relator action—presumably because no public rights are involved. So perforce if the law is to be obeyed— and justice to be done—the courts must allow a private individual himself to bring an action against the offender—in those cases where his private rights and interests are specially affected by the breach [of the criminal law]. This principle is capable of extension so as to apply not only to rights of property or rights in the nature of it, but to other rights or interests… Samuel, G and Rinkes, J, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, p 68 A legal right…is a construct of legal science: it takes its form from the relationship between persona and res and this is the reason why one always talks of a right to something. In other words a right is a legal concept that uses the conceptual structure of the property relationship between person and thing and applies it to other legal (and indeed political and social) relationships. Thus performance under a contract can be seen as a res to which the other contracting party (persona) is entitled and this leads to a situation where one can talk in terms of a right arising from a contract. Re KD (A Minor) [1988] 1 AC 806 House of Lords Lord Oliver:… The word ‘right’ is used in a variety of different senses, both popular and jurisprudential. It may be used as importing a positive duty in some other individual for the non-performance of which the law will provide an appropriate remedy, as in the case of a right to the performance of a contract. 125

Sourcebook on Obligations and Remedies It may signify merely a privilege conferring no corresponding duty on any one save that of non-interference, such as the right to walk on the public highway. It may signify no more than the hope of or aspiration to a social order which will permit the exercise of that which is perceived as an essential liberty, such as, for instance, the so called ‘right to work’ or a ‘right’ of personal privacy.

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What is a relator action? (Cf Gouriet v UPOW [1978] AC 435.) Does a trader really have a right not to have his, her or its trade unlawfully interfered with? If D unlawfully causes a road accident with the result that a street is closed to the public for several hours, can traders in that street sue D for their loss of takings? What if D unlawfully sets up his market stall near a place where others are lawfully trading: can these traders sue D for any drop in their takings? Can they deprive D of any profit he might make? Can the local authority, which issues trading licences, sue D for damages? Could the local authority obtain an injunction against D? Could they sue D in debt or account for the (illegal?) profit? (Cf Stoke-on-Trent CC vWandJ Wass Ltd [1988] 1 WLR 1406.) Is the purpose of the criminal law to protect individual rights? When one talks of rights in contract, is this to import into contract language from the law of property? Is a contractual right a property right? (Cf Beswick v Beswick, pp 78, 249.) Are there such things as natural and/or human rights? Are such rights recognised by the English courts? If there are certain rights that are inalienable, does this undermine the theory that legislation is the supreme source of law? Does it undermine the idea that law consists of positive rules? Does one have a right to liberty? Samuel, G, The Epistemology of Rights, Conference Paper, March 1999 The purpose of this paper is to provide an epistemological (theory of knowledge) background to the concept of a right. The topic is, however, so vast that it is unrealistic in a single conference presentation to do more than present a number of general lines of enquiry. These lines will focus mainly on the legal structure of a right viewed diachronically and in the contexts of a legal and a social science epistemological investigation. § 1 Introduction The term ‘right’ expresses a legal relation or situation viewed from the position of the individual. It is a concept that is fully normative in that it expresses in itself an ought situation. To say that a person has a right to something is a complete legal statement and nothing more needs to be added to give effect to its normative quality. ‘P has a right to X’ means that P is entitled to X and if X is in the possession of D this latter person is said to be under a duty (another normative concept) to deliver X up to P. Rights are normally divided 126

Legal Method and the Common Law into real and personal rights. The first are good against the whole world (in rem), while the second are valid only in respect of another person (in personam). In the civil law tradition, whose languages do not have the term ‘right’, the concept is given expression by the term droit subjectif (and equivalents in other languages). Several epistemological questions emerge. First, how did the term ‘subjective right’ develop as such a powerful legal concept? Secondly, how are rights to be distinguished from other legal concepts such as ‘duty’, ‘interest’ and ‘expectation’? Thirdly, what are the theoretical and ideological contexts required for the development of rights? § 2 Ius and dominium The term right (droit subjectif) is developed from the Roman law term ius. In Roman law itself ius did not mean ‘right’ in the modern sense; it meant, among other things (D 1.1.11), a legal connection (D 1.1.12). Originally, it gave expression to an objective legal relation flowing between two people or between a person and a thing. However such a relation came, in late Roman law, to give expression to substantive ‘rights’ in the sense of entitlements at the level of the law of actions. Actio autem nihil aliud est, quam jus persequendi judicio, quod sibi debetur (J 4.6 pr; D 44.7.51). This is clearly a major development, but ius was never seen as a form of potestas (power) by the Roman jurists (D 1.1.11). Power was, instead, to be found in the two key concepts of dominium (ownership) and imperium (sovereignty) (D 50.16.215). Now the Romans never identified dominium with ius; this was a development brought about by the later civilians (see Tuck, Natural Rights Theories, 1979). Thus, the Post-Glossators (13th–14th centuries) in attempting to Romanise feudal relations with land ended up by seeing dominium as a form of ius. Ownership became a kind of ‘super real right’ with the implication that all other iura were lesser, but still powerful, ‘rights’; in other words iura (rights) had become powers which all persons had in relation to things (res) (Zenati and Revet, Les biens, 2nd edn, 1997, p 134). This was an important development since not only was dominium a power relation in itself, but the power was given expression in law through a vindicatio claim, the paradigm actio in rem. Once P had established that he was owner of a thing in the wrongful possession of another, the judge had to order the thing to be redelivered to P (D 6.1.9). Ius thus became infected with this ability to vindicate something. This ‘something’ (res) was also capable of abstraction since the Romans themselves had recognised intangible things as forms of property (res incorporates). The medieval lawyers accordingly provided the structural foundation in law for the development of ius as a power relation; as a legal relation giving expression to vindicate a claim for a rarefied ‘thing’. Rights are thus property talk. § 3 The nominalist revolution Roman law might have provided the structural foundation for the development of the modern right, but the Romans did not provide the political context as such. Roman society was not envisaged as a mass of individuals, but in terms of the Aristotelian polis. Certainly the legal foundation could be seen as being essentially individualist in as much as the ius privatum was specifically devoted to the interests of individuals (D 1.1.1.2) and there is even the outline of an early social contract theory with the lex regia (D 1.4.1). 127

Sourcebook on Obligations and Remedies But such individualism was strictly confined to the commercial domain. Neither dominium nor ius were sources of political power in any conceptual sense. However at the time when the Post-Glossators were beginning to see dominium as a ius, the philosopher William of Ockham and his followers were provoking an epistemological and ideological revolution. According to Ockham terms such as ‘town’ or ‘forest’ were verbal entities only; that is to say, they were nothing more than names (nomina). What they referred to had no existence outside the human mind. What existed were individual human beings (individuum) and individual trees. Thus ‘the individualist paradigm began to take shape in the epistemological, then in the ‘sociological’ and ethical, fields, in opposing the realist and holistic philosophy of Saint Thomas Aquinas’ (Laurent, Histoire de I’individualisme, 1993, p 23). The individual is a unique and separate being who lives only through himself. The Church and the town no longer existed as ‘realities’ but were simply names to express a collection of individuals. The political birds (so to speak) that took wing in this nominalist revolution, finally came home to roost in the celebrated ideological statement of Margaret Thatcher that ‘there is no such thing as society’. There ‘are individual men and women and there are families’ ((1987) Woman’s Own, 31 October). § 4 Social contract theory The result of this thinking was revolutionary in that political, social and legal theory no longer started out from the idea of the group as a reality (ubi societas ibi ius). It was simply a construction built upon the individual human endowed with natural rights. Political and legal theory thus had to change dramatically since the idea if ubi societas ibi ius no longer sufficed as an explanation of imperium (sovereignty). Political power had to be justified in relation to each individual (Carbasse, Introduction historique au droit, 1998, pp 281–90). Hobbes, Locke and Rousseau developed their own particular versions of social contract theory; but the problem bequeathed to modern legal and political theory is the unsolved tension between imperium and dominium, the latter term being used to mean ‘right’ in the modern power sense. Does the former trump the latter (cf CC, Art 544) or the latter trump the former (Dworkin, Nozick)? This question has been answered only ideologically. § 5 Methodological individualism Much depends on the ontological question. Does society exist or do only individuals exist? Now philosophical methodology equally changed with Ockham in as much as Ockham took a ‘razor’ to the multiplication of these entities (entia non sunt multiplicanda praeter necessitatem). It was necessary to cut one’s way through the mere names and signs in order to arrive at the true ontological foundations of society. What are the basic units in physics, in chemistry, in economics and so on? What is the nature of mathematical entities and the foundational elements used in logic? How does one reconcile the old dichotomy between individual and the State? Is the ‘working class’ a thing or simply a name? What holism and individualism have to offer as methodologies are, then, two ways of ‘seeing’ in turn leading to two different ways of analysis. As Jon Elster has succinctly put it, ‘the explanation of the macro by the micro is preferable to that of the macro by the macro’ since ‘it is always more satisfying to open the black box and to see the cogs of the machine’ (see Laurent, L’individualisme mèthodologique, 1994, p 37). Of course, 128

Legal Method and the Common Law as this black box analogy implies, the individual is not to be taken as an isolated element. The individual is an ‘atom’ that interrelates with other atoms. It is an individual that reacts with, and relates to, other individuals. The individual is thus never to be envisaged within an empty space; (s)he is an ‘atom’ to be seen within an institutional structure which supports a cultural and social collective. And this institutional and cultural context will certainly act as a restraint upon individual action. What the individualist theorists claim, however, is that this social context is only a restraint; it is never the cause. The social group never determines the conditioning and behaviour of the individual. This, needless to say, is what makes methodological individualism so controversial. § 6 Theoretical and methodological dimensions Finally, something must be said about the theoretical context in which rights can be understood and about their role in legal discourse. Rights and duties are fully normative concepts which distinguish themselves from concepts such as ‘interest’ or ‘fault’. These are descriptive concepts (although they often in reality have quasi-normative effects). What gives a right its normative quality? Hohfeld attempted to construct a definitional model in which duty and right are correlative: Mrs Carlill has a right to £100 because the Carbolic Smoke Ball Co is under a duty to pay her the debt. A prisoner does not, on the other hand, have a right to parole since the authorities are not under a duty to grant it; the prisoner has only a privilege. Equally a person is only at liberty to park in a free space in the street, whereas the person who has paid for a particular parking space has a right to use it. However if humans owe duties to animals it would seem to follow that animals have rights. Yet, if they have rights, do they also not have duties? The problem with theories founded simply on linguistic terms is that one can play logical tricks with the terms. This, however, is equally true with the (Roman) structural basis to a right whereby a persona vindicates a res. Both these institutional concepts are empty and thus one can talk of ‘consumer’ rights or a right to parole or a parking space in the street (res). As an advert for cat food once said in the late 1970s: ‘Your cat has the right to eat Whiskers.’ Sic transit gloria mundi. R v Central Independent Television plc [1994] 3 WLR 20 Court of Appeal Hoffmann LJ: There are in the law reports many impressive and emphatic statements about the importance of the freedom of speech and the press. But they are often followed by a paragraph which begins with the word ‘nevertheless’. The judge then goes on to explain that there are other interests which have to be balanced against press freedom. And in deciding upon the importance of press freedom in the particular case, he is likely to distinguish between what he thinks deserves publication in the public interest and things in which the public are merely interested. He may even advert to the commercial motives of the newspaper or television compared with the damage to the public or individual interest which would be caused by publication. The motives which impel judges to assume a power to balance freedom of speech against other interests are almost always understandable and humane on the facts of the particular case before them. Newspapers are sometimes 129

Sourcebook on Obligations and Remedies irresponsible and their motives in a market economy cannot be expected to be unalloyed by considerations of commercial advantage. Publication may cause needless pain, distress and damage to individuals or harm to other aspects of the public interest. But a freedom which is restricted to what judges think to be responsible or in the public interest is no freedom. Freedom means the right to publish things which government and judges, however well motivated, think should not be published. It means the right to say things which ‘right-thinking people’ regard as dangerous or irresponsible. This freedom is subject only to clearly defined exceptions laid down by common law or statute. Furthermore, in order to enable us to meet our international obligations under the Convention for the Protection of Human Rights and Fundamental Freedoms, Cmnd 8969, 1953, it is necessary that any exceptions should satisfy the tests laid down in Art 10(2)… It cannot be too strongly emphasised that outside the established exceptions, or any new ones which Parliament may enact in accordance with its obligations under the Convention, there is no question of balancing freedom of speech against other interests. It is a trump card which always wins… In any area of human rights like freedom of speech, I respectfully doubt the wisdom of creating judge made exceptions, particularly when they require a judicial balancing of interests. The danger about such exceptions is that judges are tempted to use them. The facts of the individual case often seem to demand exceptional treatment because the newspaper’s interest in publication seems trivial and the hurt likely to be inflicted very great. The interests of the individual litigant and the public interest in the freedom of the press are not easily commensurable. It is not surprising that in this case the misery of a five year old girl weighed more heavily with Kirkwood J than the television company’s freedom to publish material which would heighten the dramatic effect of its documentary. This is what one would expect of a sensitive and humane judge exercising the wardship jurisdiction. But no freedom is without cost and in my view the judiciary should not whittle away freedom of speech with ad hoc exceptions. The principle that the press is free from both government and judicial control is more important than the particular case… I would not for a moment dispute…the fact that a right of privacy may be a legitimate exception to freedom of speech. After all, other countries also a party to the Convention have a right of privacy for grown-ups as well. But we do not and there may be room for constitutional argument as to whether in a matter so fundamentally trenching upon the freedom of the press as the creation of a right of privacy, it would not be more appropriate for the remedy to be provided by the legislature rather than the judiciary…

Questions 1 Does this judicial observation represent a new direction in English judicial thinking? 2 Can you detect the influence of any particular legal philosopher in Hoffmann LJ’s comments? 130

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‘Politically conservative members of a former generation would doubtless find it unfamiliar that claims of civic or social right should nowadays be formulated in terms of the private law institution of property. But this merely goes to underline the fact that, in some important sense, all property rights enjoy an inherent public law character’ (Gray, ‘Equitable property’ [1994] CLP 157, p 211). Could one say that the reverse is equally true: all public law ‘expectations’ can be seen as forms of ‘property’? And could not this ‘property’ aspect be translated into ‘rights’? Could the claims of the plaintiffs in Elguzouli-Daf (above, p 93) be seen as ‘rights’ which an English court failed to vindicate? What might the European Court of Human Rights have made of Elguzouli-Daf? (Cf Osman v UK [1999] 1 FLR 193, discussed in Barrett v Enfield LBC, below, p 748.) Rights (and duties, see below) are described as normative concepts because their existence implies obligation: if P has a right, or if D is under a duty, no more is required in the sentence to make it a normative statement. Thus, to say that P has a right to X means that he is entitled to X without further question. Equally, to say that D is under a duty to do X implies that D must do X without further question. These normative concepts thus become central to legal reasoning, since the moment one can construct a legal statement around one or other of them one has gone far in establishing both the reason for a decision and the justification for it. The classic right is, of course, that of ownership—an owner is entitled to vindicate what is his, her or its property without further question. And the Roman law word for ownership was dominium, which implied power over a thing owned (res). Does this mean that all rights are power-conferring concepts? Does an owner have the right to issue orders to all those on his property? What are the constitutional implications of all this? If public law intervenes—for example, to prohibit an owner of a listed building from knocking it down—does this mean that the owner no longer has a ‘right’ over the thing? Is a legislator entitled to revoke any individual right it sees fit to revoke? Does the government have the right to sell public land to a private body? And, if so, will this private buyer have all the rights of an owner over the newly acquired land? What about long established ‘communal rights’ with respect to the land? (it) Duty Donoghue v Stevenson [1932] AC 562 House of Lords (See p 65.) Hyman v Nye (1881) 6 QBD 685 Queen’s Bench Division (Seep 545.) 131

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Notes and questions 1

2 3

Is the correlative of a right a duty? In other words, if D is under a duty to pay P £50, does this mean that P has a right to £50? Does a duty have the same history as a right? Did it develop out of the term ius? If owners of vehicles for hire are under a duty to see that they are reasonably fit for their purpose, does this mean that consumers, as a class, have rights? A road user owes a duty of care to other road users. What rights do road users have? Can they enforce any such rights easily?

(b) Quasi-normative concepts (i) Introductory note Legal concepts have been described as ‘knowledge instruments and instruments of expression of a knowledge’ whose main purpose is ‘to provoke the application of appropriate solutions’ and whose origin is both ‘institutional and doctrinal’ (Atias, Épistémologie juridique, 1985, PUF, pp 154–57). Now, a number of institutional concepts such as persona, res, dominium, imperium, contract and the like have already been studied in Chapter 1, and their definition is as much a matter of their place and role in the institutional system as their relationship as words to some ‘reality’. One can go further, and say that institutional concepts (persona and res in particular) go far in creating their own ‘reality’. Thus, just as sociologists can talk of ‘social construction’, so jurists can talk of legal construction’ of facts. When it comes to provoking solutions, a fundamental distinction needs to be made between normative and descriptive concepts. A normative concept, of which ‘right’ and ‘duty’ are the paradigm examples, is capable of provoking a solution in itself. As we have already observed, to say that Mrs Carlill has a right to £100 is a complete normative statement in itself; nothing else needs to be added in order for her to revindicate the debt. Equally, the statement that the Carbolic Smoke Ball Company is under a duty to pay Mrs Carlill £100 is a complete normative statement (although, unlike a right, a duty does need another person or group of persons as an object). A descriptive concept, on the other hand, carries no normative implication on its face. Thus, to say that it is in the ‘commercial interest’ of a tobacco company that a reporting restriction order be obtained in respect of legal proceedings concerning the company does not, of itself, imply that such an order ought to be issued; the concept is merely descriptive. And, being descriptive, such a concept may well have a role and meaning in discourses and disciplines outside of law (for example, in economics and sociology) (Leroux and Marciano, La philosophie économique,

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1998, PUF, pp 15–18). One might also mention, alongside interests, notions such as ‘fault’ and ‘damage’ which are, in theory, merely descriptive. Having said that interest, fault and damage are in theory descriptive, in truth they often play a role that is at once descriptive and normative (Dubouchet, Sémiotique juridique, 1990, PUF, pp 144–45). Thus, to say that D has carelessly caused damage to P is to go far in implying that D ought to compensate P; in other words, the mere juxtaposition of the two descriptive concepts of ‘damage’ and ‘fault’ can endow them both with a quasi-normative character (CC, Art 1382). Some systems require a third descriptive concept, such as ‘interest’ (BGB, § 823) or ‘proximity’ (Caparo Industries plc v Dickman [1990] 2 AC 605) before the required normativity is generated, but the point remains that these descriptive concepts can combine to produce more than the sum of their individual parts. Other useful descriptive concepts are legitimate expectation’ (see, for example, Blackpool and Fylde Aero Club v Blackpool BC, below p 436), ‘control’ (sous sa garde) (CC, Art 1384) and ‘enrichment’ (Swiss CC, Art 62). And what makes them central to legal analysis is that they function at the level of the facts themselves. They emerge out of the facts to act as bridges between the descriptive (fact) and the normative (law) and thus hold the key to the construction of legal solutions: ex facto ius oritur (law arises out of fact). When combined with the institutions of persona, res and actiones— which are, of course, also notions that function at one and the same time at the level of fact and of law—the legal analyst can see how legal facts and their solutions are a matter of legal construction (ex iure factum oritur) (out of law fact arises). (ii) Interests Miller v Jackson [1977] QB 966 Court of Appeal (See p 51.) Burris v Azadani [1995] 1 WLR 1372 Court of Appeal (See p 278.) Sir Thomas Bingham MR:… Neither statute nor authority in my view precludes the making of an ‘exclusion zone’ order. But that does not mean that such orders should be made at all readily, or without very good reason. There are two interests to be reconciled. One is that of the defendant. His liberty must be respected up to the point at which his conduct infringes, or threatens to infringe, the rights of the plaintiff. No restraint should be placed on him which is not judged to be necessary to protect the rights of the plaintiff. But the plaintiff has an interest which the court must be astute to protect. The rule of law requires that those whose rights are infringed should seek the aid of the court, and respect for the legal process can only suffer if those who need protection fail to get it. That, in part at least, is why disobedience to orders of the court has always earned severe

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Sourcebook on Obligations and Remedies punishment. Respect for the freedom of the aggressor should never lead the court to deny necessary protection to the victim. Schiemann LJ: I agree with the judgment delivered by Sir Thomas Bingham MR. As he points out, there are in these cases two interests to be reconciled— that of the plaintiff not to be harassed and that of the defendant to be allowed to move freely along the highway. An exclusion zone order interferes with the latter in order to secure the former. On its face it forbids what are lawful actions. The defendant has rendered himself liable to such an order because of his previous harassing behaviour. Nonetheless, a judge imposing such an order must be careful not to interfere with the defendant’s rights more than is necessary in order to protect the plaintiffs.

Questions 1

2 3

‘Where a local authority consider it expedient for the promotion or protection of the interests of the inhabitants of their area…they may prosecute…any legal proceedings…’ (Local Government Act 1972, s 222(1)). Does this statute recognise that the inhabitants are a kind of persona? Is an interest playing the role of a right in Miller v Jackson? ‘Now it is certainly true that consumer, worker and environmental interests are not to be found directly in traditional legal science. Yet the object of Roman legal science was—as is quite specifically stated in the Digest itself— public and private interests (utilitas) and when this notion is associated with the Roman institution of the legal subject (persona) it can be seen that the recognition of new social realities in modern law does not require any new epistemological discourse as such. The recognition by the law of new interests is simply the application of a traditional scientific structure (persona and utilitas) to new social circumstances’ (Samuel and Rinkes, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, p 66). To what extent can this empirical interest relationship be used as a means of creating class rights? (Cf Jolowicz [1983] CLJ 222.)

Notes 1

Having looked at the various key elements and relationships in the institutional structure of law, attention should finally be given to one of the key concepts that features in a number of different roles within the model. This is the notion of an Interest’, a concept that acts as a ‘passport’ to all areas of the law (Ost, Droit et intérêt: Vol 2—entre droit et non-droit: l’intérêt, 1990, Facultés Saint-Louis, pp 10–11). Thus Interest’ can be seen as a means of access to the whole spectrum of public and private law, not just in England, but in Europe in general. Interest is, thus, a central concept for the comparative lawyer.

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Interests and persons. Persons (personae) have interests and these are given expression as part of personality itself. Accordingly, children have their own interests which can be used to trump those of others (see, for example, CC, Art 388–2) and all humans might be said to have interests that are both subjective (reputation, dignity and the like: for example, CC, Art 16– 3) and objective (Airedale NHS v Bland [1993] AC 789; In re S, p 281). Indeed, each person has his own mass of interests (CC, Arts 117, 232). What makes them particularly valuable as a legal notion is that interest can become a means of giving expression to a ‘person’ who has not as yet been endowed with physical or legal existence. Thus, one can talk of the interests of unborn children or even future generations (see p 32). One might observe, in this respect, how ‘best interests’ assumed a central mediating role, with a supposedly moral dimension, in the Tony Bland case (Airedale, above). The judges constructed a ‘virtual’ fact in turning the unconscious Bland into a non-persona (like an unborn child) whose best Interest’ then acted as the object of the legal decision (cf Py, La mort et le droit, 1997, PUF, pp 27–29). One can also use interest to give a class of persons such as the family (CC, Arts 220–1, 264–1), consumers, or more fragmented groups with an interest thus endowing them with a kind of legal personality (Jolowicz [1983] CLJ 222). Legal (corporate) persons have ‘commercial interests’ which can act as the object of legal protection, although this may give rise to conflict with other interests, if not rights. Public interest. Private interests are often contrasted with the general or the public interest. Thus imprévision in French contract law differs as between public and private law contracts since the courts must take account of the ‘general interest’ when deciding a problem of public law (CE 30.3.1916; D 1916.3.25). Often, cases can be made to turn on the conflict between public and private interests and when this happens, the notion of an interest becomes a means of giving expression to the community vis à vis the individual (see, for example, Miller v Jackson, above). Public interest can also be used to give expression to certain constitutional ‘rights’ or, indeed, as a reason for limiting such ‘rights’ (see, for example, Camelot plc v Centaur Communications Ltd [1999] QB 124). Property interests. Interest can also attach to the res. Thus, in English land law, ‘rights’ in land belonging to another are expressed in terms of interests and different kinds of losses can be analysed via different types of interest. For example, damages in English contract law are said to protect three different types of interest—expectation, reliance and restitution (Surrey CC v Bredero Homes Ltd, below, p 295). And in tort law, some argue that the whole objective of this category can be reduced to protecting interests of one kind or another (see, for example, Cane, Tort Law and Economic Interests, 2nd edn, 1996, OUP). Interest can be seen as the empirical foundation of a ‘right’ and, although it cannot obviously be synonymous with such a normative concept, interest is often used as 135

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the basis for granting a remedy and thus erecting a right (Samuel and Rinkes, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, pp 66–68, 83–90). In contrast, the distinction between (legitimate) interest and right lies at the heart of the civilian principle of an abuse of a right. Animals, it seems, also have interests (Animals (Scientific Procedures) Act 1986, s5(3)(c)). Actions and interests. The notion of an ‘interest’ is also important in the law of actions in that it is used to determine the standing of a legal subject (persona) in relation to the entitlement to bring a legal action. This is particularly important in public law, where individuals can sue for judicial review only if they have a ‘sufficient interest’ in the matter (Supreme Court Act 1981, s 31(3)). And such a rule applies equally to private law in most civilian systems (see, for example, NCPC Art 31; CC, Art 184). No doubt in English law all plaintiffs have to have a legitimate interest before they are entitled to pursue an action (Jolowicz (1990) 9 CJQ 262); but often this requirement is masked by more substantive ideas such as ‘duty of care’ in tort. Some kinds of harm, in other words, will not entitle a person even to get an action off the ground. This standing question has become particularly acute when ‘more and more frequently the complexity of modern societies generates situations in which a single human action can be beneficial or prejudicial to large numbers of people, thus making entirely inadequate the traditional scheme of litigation as merely a twoparty affair’ (Cappelletti, The Judicial Process in Comparative Perspective, 1989, OUP, p 271). The law of actions is accordingly an area dealing with fundamental questions about access to justice. The notion of an interest is a key notion which acts not only as a control device, but as a defining focal point for giving expression to the function of legal claims and legal procedure (see, for example, Control of Misleading Advertisements Regulations 1988, reg 6(1), (3)). (iii) Proximity Caparo Industries plc v Dickman [1990] 2 AC 605 House of Lords Lord Oliver:… ‘Proximity’ is, no doubt, a convenient expression so long as it is realised that it is no more than a label which embraces not a definable concept but merely a description of circumstances from which, pragmatically, the courts conclude that a duty of care exists. Marc Rich and Co v Bishop Rock Marine Co Ltd [1996] 1 AC 211 House of Lords (See p 711.) Lord Steyn:… Counsel for the cargo-owners argued that the present case involved the infliction of direct physical loss. At first glance the issue of directness may seem a matter of terminology rather than substance. In truth 136

Legal Method and the Common Law it is a material factor. The law more readily attaches the consequences of actionable negligence to directly inflicted physical loss than to indirectly inflicted physical loss… Attia v British Gas plc [1988] QB 304 Court of Appeal (See p 519.)

Questions 1 2 3

4

What is the relationship, if any, between the concepts of proximity and duty? Can they be compared? Is proximity a notion that is ever of relevance in the law of contract? P suffers an invasion of an interest by the act of a proximate person: is this ever, in itself, enough to give rise to a right to damages? If not, what more must be shown? Is ‘directness’ of damage an essential ingredient of the tort of trespass? (Cf Harriett v Bond [1925] AC 669; Esso v Southport, p 216.) Swinney v Chief Constable of Northumbria [1997] QB 464 Court of Appeal This was an action for damages for personal injury and loss brought against the police by two plaintiffs who had been severely threatened and intimidated by an alleged criminal. The plaintiffs had given confidential information about the alleged criminal to the police, but their names and address had, so they claimed, been carelessly left in a police car which had then been broken into, allowing their names and address to end up in the hands of the alleged criminal. The police unsuccessfully applied to have the action struck out. Hirst LJ: This is an appeal by the defendant, the Chief Constable of the Northumbria Police Force, from the order of Laws J dated 24 January 1995, whereby he ordered that the appeal of the plaintiffs against the order of District Judge Lancaster striking out the plaintiffs’ claim be allowed. The application to strike out was made under RSC Ord 18 r 19 on the footing that the case disclosed no reasonable cause of action. By virtue of Ord 18 r 19(2) no evidence is admissible on the application and the only material for consideration by the court is the facts as pleaded in the statement of claim, on the assumption (which, of course, may or may not be borne out in the end) that they are true. Furthermore it is, of course, an elementary principle that it is only appropriate to strike out if the defendant establishes beyond peradventure that the plaintiffs would be bound to fail at the trial should the case proceed. So long as the case is arguable, it must be allowed to go ahead. The grounds of attack on the present pleading are twofold. First, that the pleaded facts are incapable of founding a duty of care owed by the police to the plaintiffs, so that no cause of action in negligence is disclosed; secondly, in the alternative, that even if it is arguable that the facts would establish a cause of action in negligence so as to give rise to a duty of care, the chief constable would have an unanswerable defence to the claim based on public policy. It is not in dispute, for the purposes only of the present application,

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Sourcebook on Obligations and Remedies that on the pleaded facts, if made out, there is a viable case that harm to the plaintiffs was reasonably foreseeable… However, in my judgment, Mr Powell [counsel for the plaintiff] is right in his ably presented submissions that at least arguably this case falls into the Dorset Yacht category rather than the Hill category on proximity… This seems to me to show that it is at least arguable that a special relationship did exist, which renders the plaintiffs distinguishable from the general public as being particularly at risk. In my judgment, Alexandrou v Oxford [1993] 4 All ER 328 is arguably distinguishable because there was no element of confidentiality in that case, when that element looms so large in the present case. Thus the first ground put forward by Mr Gompertz [counsel for the defendant], namely the attack on the judge’s conclusions on proximity, fails. I now turn to the second issue, that of public policy… Mr Gompertz submitted that the Hill case [1989] AC 53 established that the police are immune from liability for negligence in the investigation of crime, at least where the harm to the plaintiff is caused by a third party, save where the police have assumed a responsibility to the plaintiff. He pointed out that the principle applies whether the alleged negligence relates to policy or operations. The reasons for the rule, to be drawn from Lord Keith of Kinkel’s speech in the Hill case are, he said, that police resources should not be diverted from their essential public function in the pursuit of criminals in order to defend private actions at law, and that this is particularly pertinent when the claim is that the police have failed to save the plaintiff from harm caused by third parties: moreover, imposition of a civil liability might lead to an unduly defensive frame of mind among police officers investigating crime. He submitted that liability for the acts of third parties arising from the loss of documents, in circumstances comparable to the present, would place an intolerable burden on police officers, the CPS and counsel to ensure that confidential documents are always kept in a safe or in personal custody. Thus, the overwhelming public interest lies in ensuring that, providing the police act in good faith they should be able to operate without constantly having to consider whether, with the benefit of hindsight, their actions might give rise to civil liability. He criticised Laws J’s Janus analogy on the ground that in reality there was no conflict between the two strands of public policy identified by Laws J, since the police were not seeking voluntarily to disclose the identity of the informant. In summary, Mr Gompertz contended the Hill case [1989] AC 53, and the ensuing cases, lay down a fundamental principle of public policy that there is a blanket immunity’ (his words) for police officers in relation to their activities in the investigation or suppression of crime. The only exception which he was prepared to recognise was if, in the circumstances of the present case, the police had deliberately broken the plaintiffs’ confidence and disclosed the information, since it would be unthinkable that public policy would countenance such misconduct. But his exception did not extend to inadvertent disclosure, which he contended fell into a quite different category and was covered by the blanket immunity. Finally he said that it was impossible, in the circumstances of the present case, to attribute to the police an assumption of responsibility since they were merely the recipients of information handed over to them by the plaintiffs. 138

Legal Method and the Common Law I am unable to accept these submissions substantially for the reasons advanced by Mr Powell. The Hill case [1989] AC 53 is, of course, one of cardinal importance. As was held in the Alexandrou case [1993] 4 All ER 328 and in the Osman case [1993] 4 All ER 344, it lays down a principle of general application which was not specifically limited to the actual facts of that particular case, and nothing I say should be interpreted as in any shape or form seeking to undermine that principle. However, in my judgment, that principle cannot be completely divorced from the circumstances highlighted by Lord Keith of Kinkel in his judgment, which recurred mutatis mutandis in the Osman case and in the Elguzouli-Daf case [1995] QB 335. It follows that I cannot accept Mr Gompertz’s submission that the police have a blanket immunity which gives them a complete answer in the present case. As Laws J pointed out in his judgment, there are here other considerations of public policy which also have weight, namely, the need to preserve the springs of information, to protect informers, and to encourage them to come forward without an undue fear of the risk that their identity will subsequently become known to the suspect or to his associates. In my judgment, public policy in this field must be assessed in the round, which in this case means assessing the applicable considerations advanced in the Hill case [1989] AC 53, which are, of course, of great importance, together with the considerations just mentioned in relation to informers, in order to reach a fair and just decision on public policy. Mr Powell invited us to hold that most of the considerations advanced in the Hill case did not apply here. I prefer not to express any view on that either way without fuller knowledge of the facts. Suffice it to say that, if all the relevant aspects of public policy referred to above are considered in the round, it is in my judgment at least arguable that the immunity should not apply here. I also consider that it is at least arguable in the present case that, on the facts pleaded on the statement of claim, including the texts of the two messages quoted, the police did, in fact, assume a responsibility of confidentiality to the plaintiffs, or at least to the first plaintiff. If that view should prevail, it would bring into play the exception identified by this court in the ElguzouliDaf case [1995] QB 335. It follows that I reject Mr Gompertz’s submission on the second ground also. I wish to end this judgment by stressing a point with which I began, namely that I am upholding no more than the arguability of the plaintiffs’ case on these two grounds. It by no means follows that they will succeed on either of them at the trial. Nor, for that matter, does it follow that the plaintiffs will establish, when all the evidence is considered, the necessary substratum of fact as pleaded in the statement of claim on which their whole case depends. However, for all these reasons I would dismiss this appeal. Peter Gibson LJ: This case, to my mind, exemplifies the difficulty facing a defendant who seeks to strike out pleadings against him on the ground provided for by RSC Ord 18 r 19(1)(a), that the pleadings disclose no reasonable cause of action. The court is obliged to treat the facts averred in the statement of claim as true, notwithstanding that difficulties of proof may be obvious, and no other evidence is admissible. Accordingly, we must

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Sourcebook on Obligations and Remedies accept what is pleaded, and the relevant pleadings which Hirst LJ has already recited. It is to be noted that there is nothing pleaded as to why the document recording the confidential information was placed and left in the vehicle which was broken into, and we therefore do not know whether the police were in the course of investigating or suppressing crime when they went in that vehicle with that document to the place where the vehicle was parked on 8 April 1991… The general immunity which Mr Gompertz asserted was…as he accepted, subject to an exception. He did not dispute that where there is deliberate disclosure by the police of confidential information imparted by that informant to the police, the police will not be immune. But he sought to distinguish such a case from the case where there has been a negligent disclosure of the confidential information. For my part, I have difficulty in seeing why the police should be immune in such a case on the ground of public policy, regardless of whether or not the police were, at the time of the negligence, investigating or suppressing crime. But whether or not this is right, it seems to me that the judge was justified in taking the view that in a case of this sort the important public policy considerations asserted by the police must be balanced against the other public policy considerations to which I have referred, and that the appropriate time to do the balancing is at the trial, when all the facts are known to the court… Ward LJ: I can summarise my reasons very shortly. The plaintiffs must establish only that it is arguable that they have a good cause of action. It seems to me that it is indeed properly arguable that (1) the risk of theft of the documents from the police car is foreseeable, it being conceded that the harm to the plaintiffs in consequence of the theft is also foreseeable; (2) there is a special relationship between the plaintiffs and the defendant, which is sufficiently proximate: proximity is shown by the police assuming responsibility, and the plaintiffs relying upon that assumption of responsibility, for preserving the confidentiality of the information which, if it fell into the wrong hands, was likely to expose the first plaintiff and members of her family to a special risk of damage from the criminal acts of others, greater than the general risk which ordinary members of the public must endure with phlegmatic fortitude; (3) it is fair, just and reasonable that the law should impose a duty, there being no overwhelming dictate of public policy to exclude the prosecution of this claim. On the one hand, there is, as is more fully set out in Hill v Chief Constable of West Yorkshire [1989] AC 53, p 63, an important public interest that the police should carry out their difficult duties to the best of their endeavours without being fettered by, or even influenced by, the spectre of litigation looming over every judgment they make, every discretion they exercise, every act they undertake or omit to perform, in their ceaseless battle to investigate and suppress crime. The greater public good rightly outweighs any individual hardship. On the other hand, it is incontrovertible that the fight against crime is daily dependent upon information fed to the police by members of the public, often at real risk of villainous retribution from the criminals and their associates. The public interest will not accept that good citizens should be expected to entrust information to the police, without also expecting that they are entrusting their safety to the police. The public interest would be affronted were it to be 140

Legal Method and the Common Law the law that members of the public should be expected, in the execution of public service, to undertake the risk of harm to themselves without the police, in return, being expected to take no more than reasonable care to ensure that the confidential information imparted to them is protected. The welfare of the community at large demands the encouragement of the free flow of information without inhibition. Accordingly, it is arguable that there is a duty of care, and that no consideration of public policy precludes the prosecution of the plaintiffs’ claim, which will be judged on its merits later. I would accordingly also dismiss the appeal.

Notes and questions 1

2

This case does not decide that the police were negligent and thus liable to the plaintiffs. It simply decides that the police have a case to answer. (In fact it was subsequently held that the police were not liable.) Many of the great negligence cases, including Donoghue v Stevenson itself (p 65), are striking out claims and this is why it could be defamatory to say, for example, that the Home Office was held liable for negligence in Dorset Yacht (p 645). It was not. The issue in Donoghue and Dorset Yacht was this: assuming the defendant (or its employee) to have been careless and the plaintiff to have suffered damage as a result, could the defendant nevertheless escape liability on the basis that there was no legal duty of care owed to the plaintiff? This is a question of law and it arises for decision when a defendant seeks to stop a legal action going any further by applying for the claim to be struck out for abuse of process. It is often said that it was never proved that there was a snail in the bottle of ginger beer; this is because the case never actually went to trial (freeman v Home Office (No 2) [1984] QB 524, pp 555–56). If a defendant fails in a striking out action, the case is often settled out of court. Could striking out claims ever be a means of infringing human rights? (Cf Barrett v Enfield LBC, p 748.) The main quasi-normative concept in play in Swinney is ‘proximity’. But is it also a case about ‘interests’? Would you classify the case as one of public, or private law? (iv) Damage Khorasandjian v Bush [1993] QB 727 Court of Appeal This was an action by a daughter, living in her parents’ home, for an interlocutory injunction to prevent threatening phone calls from an exboyfriend. Dillon LJ:… To my mind, it is ridiculous if in this present age the law is that the making of deliberately harassing and pestering telephone calls to a person is only actionable in the civil courts if the recipient of the calls happens to have the freehold or a leasehold proprietary interest in the premises in which he or she has received the calls. Miss Harry Thomas submits, however, that 141

Sourcebook on Obligations and Remedies English law does not recognise any tort of harassment or invasion of privacy or, save in the different context of such a case as Rookes v Barnard [1964] AC 1129, intimidation. Therefore, she says that, save as expressly conceded as set out above, the defendant’s conduct to the plaintiff is, even on the plaintiffs version of it, under the English civil law, legitimate conduct of which the plaintiff has no power or right to complain. I apprehend that it is correct, historically, that the tort of private nuisance, which originated as an action on the case, was developed in the beginning to protect private property or rights of property, in relation to the use or enjoyment of land. It is stated in Clerk and Lindsell on Torts, 16th edn, 1989, p 1354, para 24–01, that ‘the essence of nuisance is a condition or activity which unduly interferes with the use or enjoyment of land’. That a legal owner of property can obtain an injunction, on the ground of private nuisance, to restrain persistent harassment by unwanted telephone calls to his home was decided by the Appellate Division of the Alberta Supreme Court in Motherwell v Motherwell (1976) 73 DLR (3d) 62… Rose LJ: I agree with the judgment of Dillon LJ. Peter Gibson J (dissenting):… For my part, to the extent that Scott J was holding that there is now a tort of unreasonable harassment, with all respect to him, I cannot agree with him. There is no tort of harassment (Patel v Patel [1988] 2 FLR 179, p 182, per Waterhouse J) and I do not think that the addition of the adjective ‘unreasonable’ would convert harassing conduct into tortious conduct… I know of no authority which would allow a person with no interest in land or right to occupy land to sue in private nuisance. Given that the purpose of an action in nuisance is to protect the right to use and enjoyment of land (see Salmond and Heuston on the Law of Torts, 20th edn, 1992, p 67), it seems to me to be wrong in principle if a mere licensee or someone without such right could sue in private nuisance… Protection from Harassment Act 1997 (c 40) 1

Prohibition of harassment (1)

A person must not pursue a course of conduct(a) (b)

(2)

(3)

which amounts to harassment of another, and which he knows or ought to know amounts to harassment of the other.

For the purposes of this section, the person whose course of conduct is in question ought to know that it amounts to harassment of another if a reasonable person in possession of the same information would think the course of conduct amounted to harassment of the other. Subsection (1) does not apply to a course of conduct if the person who pursued it shows(a)

that it was pursued for the purpose of preventing or detecting crime,

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Legal Method and the Common Law (b) (c) 3

Civil remedy (1) (2)

7

that it was pursued under any enactment or rule of law or to comply with any condition or requirement imposed by any person under any enactment, or that in the particular circumstances the pursuit of the course of conduct was reasonable.

An actual or apprehended breach of section 1 may be the subject of a claim in civil proceedings by the person who is or may be the victim of the course of conduct in question. On such a claim, damages may be awarded for (among other things) any anxiety caused by the harassment and any financial loss resulting from the harassment…

Interpretation of this group of sections (1) (2) (3) (4)

This section applies for the interpretation of sections 1 to 5. Reference to harassing a person includes alarming the person or causing the person distress. A ‘course of conduct’ must involve conduct on at least two occasions. ‘Conduct’ includes speech.

Hunter v Canary Wharf Ltd [1997] AC 655 Court of Appeal and House of Lords This case concerned two damages actions for nuisance brought by groups of plaintiffs. In both cases the plaintiffs were unsuccessful with regard to the two main preliminary issues of law to reach the House of Lords (Lord Cooke dissenting in part). The facts are set out in Lord Goff’s judgment. In the Court of Appeal the question was also raised as to whether a deposit of dust could amount to ‘damage’ for the purposes of the tort of negligence. Lord Goff: My Lords, there are before your Lordships’ House appeals in two actions, which raise fundamental questions relating to the law of private nuisance. In the first action, Hunter v Canary Wharf Ltd, the appellant plaintiffs claim damages in respect of interference with the television reception at their homes. This, they claim, was caused by the construction of the Canary Wharf Tower, which was built on land developed by the defendants. The tower is nearly 250 metres (about 800 feet) high and over 50 metres square. The source of television transmissions in the area is a BBC transmitter at Crystal Palace; and the plaintiffs claim that, because of its size and the metal in its surface (it has stainless steel cladding and metallised windows), it has caused interference with the television signals from Crystal Palace. The plaintiffs all lived at the material time in an area on the Isle of Dogs affected by the interference, which has been called ‘the shadow area’. They claim that the interference began in 1989, during the construction of the tower. A relay transmitter was then built to overcome the problem of interference in the shadow area. This came into operation in April 1991, and it is claimed that the aerials at the plaintiffs’ homes were adjusted or replaced between July 1991 and April 1992 to achieve satisfactory reception. The plaintiffs claim 143

Sourcebook on Obligations and Remedies damages in respect of the interference with their television reception during the intervening period. Their claim was framed in nuisance and in negligence, though their claim in negligence has since been abandoned. In the second action, Hunter v London Docklands Development Corpn, the respondent plaintiffs claim damages in respect of damage caused by what they claim to be excessive amounts of dust created by the construction by the defendants of a road 1,800 metres in length, known as the Limehouse Link Road, which was constructed by the defendants between November 1989 and May 1993. The plaintiffs are residents in the affected area, and they advanced their claims in negligence and nuisance and under the rule in Rylands v Fletcher (1868) LR 3 HL 330, though this last head of claim has been abandoned. In both actions, Judge Fox-Andrews QC made orders for the trial of a number of preliminary issues of law. Of the issues of law in the first action, two have survived to reach your Lordships’ House, viz (1) whether interference with television reception is capable of constituting an actionable nuisance, and (2) whether it is necessary to have an interest in property to claim in private nuisance and, if so, what interest in property will satisfy this requirement. In the second action, the only issue to reach your Lordships’ House is the latter of these two issues. The preliminary issues in the two actions were considered by Judge Havery QC at separate hearings. In respect of the two issues in the first action, he held (1) that interference with television reception is capable of constituting an actionable nuisance, but (2) that a right of exclusive possession of land is necessary to entitle a person to sue in private nuisance. He later held that his answer on the second issue was applicable in the case of the same issue in the second action. The Court of Appeal, ante, pp 662Gff, reversed the decision of Judge Havery on both issues, holding (1) that the creation or presence of a building in the line of sight between a television transmitter and other properties is not actionable as an interference with the use and enjoyment of land, but (2) that occupation of property as a home provided a sufficiently substantial link to enable the occupier to sue in private nuisance. The plaintiffs in the first action now appeal to your Lordships’ House against the first of these answers, and the defendants in both actions appeal or cross-appeal against the second. Interference with television signals I turn first to consider the question whether interference with television signals may give rise to an action in private nuisance. This question was first considered over 30 years ago by Buckley J in Bridlington Relay Ltd v Yorkshire Electricity Board [1965] Ch 436. That case was concerned not with interference caused by the presence of a building, but with electrical interference caused by the activities of the defendant electricity board. Buckley J held that such interference did not constitute a legal nuisance, because it was interference with a purely recreational facility, as opposed to interference with the health or physical comfort or well being of the plaintiffs. He did not however rule

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Legal Method and the Common Law out the possibility that ability to receive television signals free from interference might one day be recognised as ‘so important a part of an ordinary householder’s enjoyment of his property that such interference should be regarded as a legal nuisance’: p 447. Certainly, the average weekly hours for television viewing in this country, which your Lordships were told were 24 hours per week, show that many people devote much of their leisure time to watching television, even allowing for the fact that it is not clear whether the relevant statistic is based more on the time when television sets are turned on, rather than being actually watched. Certainly, it can be asserted with force that for many people television transcends the function of mere entertainment, and in particular that for the aged, the lonely and the bedridden it must provide a great distraction and relief from the circumscribed nature of their lives. That interference with such an amenity might in appropriate circumstances be protected by the law of nuisance has been recognised in Canada, in Nor-Video Services Ltd v Ontario Hydro (1978) 84 DLR (3d) 221, p 231. However, as I see the present case, there is a more formidable obstacle to this claim. This is that the complaint rests simply upon the presence of the defendants’ building on land in the neighbourhood as causing the relevant interference. The gravamen of the plaintiffs’ case is that the defendants, by building the Canary Wharf Tower, interfered with the television signals and so caused interference with the reception on the plaintiffs’ television sets; though it should not be overlooked that such interference might be caused by a smaller building and moreover that, since it is no defence that the plaintiff came to the nuisance, the same complaint could result from the simple fact of the presence of the building which caused the interference. In this respect the present case is to be distinguished from the Bridlington Relay case, in which the problem was caused not just by the presence of a neighbouring building but by electrical interference resulting from the defendant electricity board’s activities. As a general rule, a man is entitled to build on his own land, though nowadays this right is inevitably subject to our system of planning controls. Moreover, as a general rule, a man’s right to build on his land is not restricted by the fact that the presence of the building may of itself interfere with his neighbour’s enjoyment of his land. The building may spoil his neighbour’s view…in the absence of an easement, it may restrict the flow of air on to his neighbour’s land…and, again in the absence of an easement, it may take away light from his neighbour’s windows…nevertheless his neighbour generally cannot complain of the presence of the building, though this may seriously detract from the enjoyment of his land…From this it follows that, in the absence of an easement, more is required than the mere presence of a neighbouring building to give rise to an actionable private nuisance. Indeed, for an action in private nuisance to lie in respect of interference with the plaintiff’s enjoyment of his land, it will generally arise from something emanating from the defendant’s land. Such an emanation may take many forms—noise, dirt, fumes, a noxious smell, vibrations, and suchlike. Occasionally activities on the defendant’s land are in themselves so offensive to neighbours as to constitute an actionable nuisance, as in Thompson-Schwab v Costaki [1956] 1 WLR 335, where the sight of prostitutes and their clients entering and leaving

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Sourcebook on Obligations and Remedies neighbouring premises were held to fall into that category. Such cases must however be relatively rare… It is of some interest that the same conclusion has been reached in German law. I refer in particular to the decision of the Bundesgerichtshof in G v City of Hamburg, 21 October 1983; Decisions of the Federal Supreme Court in Civil Matters, Vol 88, p 344. The facts of the case were very similar to the present case. The plaintiffs were the owners of their family home. The local municipality erected a nine-storey hospital on a neighbouring site, and as a result there was significant interference with television reception in the plaintiffs’ house, making it impossible for them to receive certain programmes. The plaintiffs’ claim for damages against the municipality failed. Nothing was emitted from the defendants’ land, and the so called ‘negative Immissionen’ (negative effects) which resulted in interference with the plaintiffs’ television reception gave rise to no cause of action. It was stated that the court, by the adoption of the settled jurisprudence of the Reichsgericht, had repeatedly affirmed that the so called ‘negative adverse effects’ caused by interference with access to natural amenities like light and air are not ‘impermissible’ within the meaning of the relevant provisions of the Civil Code. Within the boundaries of his land the owner may in principle deal with his property as he wishes. That decision demonstrates that English law is not alone in reaching this conclusion. The German principle appears to arise from the fact that the appropriate remedy falls within the law of property, in which competing property rights have to be reconciled with each other. In English law liability falls, for historical reasons, within the law of torts, though the underlying policy considerations appear to be similar. In the result I find myself to be in agreement on this point with Pill LJ, who delivered the judgment of the Court of Appeal, ante, pp 662Gff, when he expressed the opinion, p 666E-F, that no action lay in private nuisance for interference with television caused by the mere presence of a building… For these reasons I would dismiss the appeal of the plaintiffs in the first action on this issue. Right to sue in private nuisance I turn next to the question of the right to sue in private nuisance. In the two cases now under appeal before your Lordships’ House, one of which relates to interference with television signals and the other to the generation of dust from the construction of a road, the plaintiffs consist in each case of a substantial group of local people. Moreover they are not restricted to householders who have the exclusive right to possess the places where they live, whether as freeholders or tenants, or even as licensees. They include people with whom householders share their homes, for example as wives or husbands or partners, or as children or other relatives. All of these people are claiming damages in private nuisance, by reason of interference with their television viewing or by reason of excessive dust. Judge Havery held that the right to sue in private nuisance did not extend to include so wide a class of plaintiffs, but was limited to those with a right to

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Legal Method and the Common Law exclusive possession of the relevant property. His decision on this point was however reversed by the Court of Appeal… The basic position is, in my opinion, most clearly expressed in Professor Newark’s classic article on The boundaries of nuisance’ (1949) 65 LQR 480 when he stated, p 482, that the essence of nuisance was that ‘it was a tort to land. Or to be more accurate it was a tort directed against the plaintiff’s enjoyment of rights over land…’. The historical origin of the tort lay in the fact that: Disseisina, transgressio and nocumentum [nuisance] covered the three ways in which a man might be interfered with in his rights over land. Wholly to deprive a man of the opportunity of exercising his rights over land was to disseise him, for which he might have recourse to the assize of novel disseisin. But to trouble a man in the exercise of his rights over land without going so far as to dispossess him was a trespass or a nuisance according to whether the act was done on or off the plaintiff’s land [p 481]. Later, when distinguishing cases of personal injury, he stated, pp 488–89: In true cases of nuisance the interest of the plaintiff which is invaded is not the interest of bodily security but the interest of liberty to exercise rights over land in the amplest manner. A sulphurous chimney in a residential area is not a nuisance because it makes householders cough and splutter but because it prevents them taking their ease in their gardens. It is for this reason that the plaintiff in an action for nuisance must show some title to realty. Finally, he proclaimed four theses which should be nailed to the doors of the Law Courts and defended against all comers. The first was that: The term “nuisance” is properly applied only to such actionable user of land as interferes with the enjoyment by the plaintiff of rights in land.’ There are many authoritative statements which bear out this thesis of Professor Newark… Since the tort of nuisance is a tort directed against the plaintiff’s enjoyment of his rights over land, an action of private nuisance will usually be brought by the person in actual possession of the land affected, either as the freeholder or tenant of the land in question, or even as a licensee with exclusive possession of the land… It was however established, in Foster v Warblington Urban District Council [1906] 1 KB 648, that, since jus tertii is not a defence to an action of nuisance, a person who is in exclusive possession of land may sue even though he cannot prove title to it… Subject to this exception, however, it has for many years been regarded as settled law that a person who has no right in the land cannot sue in private nuisance. For this proposition, it is usual to cite the decision of the Court of Appeal in Malone v Laskey [1907] 2 KB 141… The decision in Malone v Laskey on nuisance has since been followed in many cases… Recently, however, the Court of Appeal departed from this line of authority in Khorasandjian v Bush [1993] QB 727, a case which I must examine with some care…

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Sourcebook on Obligations and Remedies … If a plaintiff, such as the daughter of the householder in Khorasandjian v Bush, is harassed by abusive telephone calls, the gravamen of the complaint lies in the harassment which is just as much an abuse, or indeed an invasion of her privacy, whether she is pestered in this way in her mother’s or her husband’s house, or she is staying with a friend, or is at her place of work, or even in her car with a mobile phone. In truth, what the Court of Appeal appears to have been doing was to exploit the law of private nuisance in order to create by the back door a tort of harassment which was only partially effective in that it was artificially limited to harassment which takes place in her home. I myself do not consider that this is a satisfactory manner in which to develop the law, especially when, as in the case in question, the step so taken was inconsistent with another decision of the Court of Appeal, viz Malone v Laskey [1907] 2 KB 141, by which the court was bound. In any event, a tort of harassment has now received statutory recognition: see the Protection from Harassment Act 1997. We are therefore no longer troubled with the question whether the common law should be developed to provide such a remedy. For these reasons, I do not consider that any assistance can be derived from Khorasandjian v Bush by the plaintiffs in the present appeals. It follows that, on the authorities as they stand, an action in private nuisance will only lie at the suit of a person who has a right to the land affected. Ordinarily, such a person can only sue if he has the right to exclusive possession of the land, such as a freeholder or tenant in possession, or even a licensee with exclusive possession. Exceptionally however, as Foster v Warblington Urban District Council shows, this category may include a person in actual possession who has no right to be there; and in any event a reversioner can sue in so far his reversionary interest is affected. But a mere licensee on the land has no right to sue. The question therefore arises whether your Lordships should be persuaded to depart from established principle, and recognise such a right in others who are no more than mere licensees on the land. At the heart of this question lies a more fundamental question, which relates to the scope of the law of private nuisance. Here I wish to draw attention to the fact that although, in the past, damages for personal injury have been recovered at least in actions of public nuisance, there is now developing a school of thought that the appropriate remedy for such claims as these should lie in our now fully developed law of negligence, and that personal injury claims should be altogether excluded from the domain of nuisance. The most forthright proponent of this approach has been Professor Newark, in his article The boundaries of nuisance’ (1949) 65 LQR 480, from which I have already quoted. Furthermore, it is now being suggested that claims in respect of physical damage to the land should also be excluded from private nuisance: see, for example, the article by Mr Conor Gearty on The place of private nuisance in a modern law of torts’ [1989] CLJ 214. In any event, it is right for present purposes to regard the typical cases of private nuisance as being those concerned with interference with the enjoyment of land and, as such, generally actionable only by a person with a right in the land. Characteristic examples of cases of this kind are those concerned with noise, vibrations, noxious smells and the like. The two appeals with which your Lordships are here concerned arise from actions of this character.

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Legal Method and the Common Law For private nuisances of this kind, the primary remedy is in most cases an injunction, which is sought to bring the nuisance to an end, and in most cases should swiftly achieve that objective. The right to bring such proceedings is, as the law stands, ordinarily vested in the person who has exclusive possession of the land. He or she is the person who will sue, if it is necessary to do so. Moreover he or she can, if thought appropriate, reach an agreement with the person creating the nuisance, either that it may continue for a certain period of time, possibly on the payment of a sum of money, or that it shall cease, again perhaps on certain terms including the time within which the cessation will take place. The former may well occur when an agreement is reached between neighbours about the circumstances in which one of them may carry out major repairs to his house which may affect the other’s enjoyment of his property. An agreement of this kind was expressly contemplated by Fletcher Moulton LJ in his judgment in Malone v Laskey [1907] 2 KB 141, p 153. But the efficacy of arrangements such as these depends upon the existence of an identifiable person with whom the creator of the nuisance can deal for this purpose. If anybody who lived in the relevant property as a home had the right to sue, sensible arrangements such as these might in some cases no longer be practicable. Moreover, any such departure from the established law on this subject, such as that adopted by the Court of Appeal in the present case, faces the problem of defining the category of persons who would have the right to sue. The Court of Appeal adopted the not easily identifiable category of those who have a ‘substantial link’ with the land, regarding a person who occupied the premises ‘as a home’ as having a sufficient link for this purpose. But who is to be included in this category? It was plainly intended to include husbands and wives, or partners, and their children, and even other relatives living with them. But is the category also to include the lodger upstairs, or the au pair girl or resident nurse caring for an invalid who makes her home in the house while she works there? If the latter, it seems strange that the category should not extend to include places where people work as well as places where they live, where nuisances such as noise can be just as unpleasant or distracting. In any event, the extension of the tort in this way would transform it from a tort to land into a tort to the person, in which damages could be recovered in respect of something less serious than personal injury and the criteria for liability were founded not upon negligence but upon striking a balance between the interests of neighbours in the use of their land. This is, in my opinion, not an acceptable way in which to develop the law. It was suggested in the course of argument that at least the spouse of a husband or wife who, for example as freeholder or tenant, had exclusive possession of the matrimonial home should be entitled to sue in private nuisance. For the purposes of this submission, your Lordships were referred to the relevant legislation, notably the Matrimonial Homes Act 1983 and the Family Law Act 1996. I do not however consider it necessary to go through the statutory provisions. As I understand the position, it is as follows. If under the relevant legislation a spouse becomes entitled to possession of the matrimonial home or part of it, there is no reason why he or she should not be able to sue in private nuisance in the ordinary way. But I do not see how a spouse who has no interest in the matrimonial home has, simply by virtue of his or her

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Sourcebook on Obligations and Remedies cohabiting in the matrimonial home with his or her wife or husband whose freehold or leasehold property it is, a right to sue. No distinction can sensibly be drawn between such spouses and other cohabitees in the home, such as children, or grandparents. Nor do I see any great disadvantage flowing from this state of affairs. If a nuisance should occur, then the spouse who has an interest in the property can bring the necessary proceedings to bring the nuisance to an end, and can recover any damages in respect of the discomfort or inconvenience caused by the nuisance. Even if he or she is away from home, nowadays the necessary authority to commence proceedings for an injunction can usually be obtained by telephone. Moreover, if the other spouse suffers personal injury, including injury to health, he or she may, like anybody else, be able to recover damages in negligence. The only disadvantage is that the other spouse cannot bring an independent action in private nuisance for damages for discomfort or inconvenience. It follows that, with all respect, I do not feel able to follow the decision on this point by the majority of the Court of Appeal of New Brunswick in Devon Lumber Co Ltd v MacNeill (1987) 45 DLR (4th) 300, preferring as I do the dissenting judgment of Rice JA in that case… Since preparing this opinion, I have had the opportunity of reading in draft the speech of my noble and learned friend, Lord Cooke of Thorndon, and I have noticed his citation of academic authority which supports the view that the right to sue in private nuisance in respect of interference with amenities should no longer be restricted to those who have an interest in the affected land. I would not wish it to be thought that I myself have not consulted the relevant academic writings. I have, of course, done so as is my usual practice; and it is my practice to refer to those which I have found to be of assistance, but not to refer, critically or otherwise, to those which are not. In the present circumstances, however, I feel driven to say that I found in the academic works which I consulted little more than an assertion of the desirability of extending the right of recovery in the manner favoured by the Court of Appeal in the present case. I have to say (though I say it in no spirit of criticism, because I know full well the limits within which writers of textbooks on major subjects must work) that I have found no analysis of the problem; and in circumstances such as this, a crumb of analysis is worth a loaf of opinion. Some writers have uncritically commended the decision of the Court of Appeal in Khorasandjian v Bush [1993] QB 727, without reference to the misunderstanding in Motherwell v Motherwell (1976) 73 DLR (3d) 62, on which the Court of Appeal relied, or consideration of the undesirability of making a fundamental change to the tort of private nuisance to provide a partial remedy in cases of individual harassment. For these and other reasons, I did not, with all respect, find the stream of academic authority referred to by my noble and learned friend to be of assistance in the present case. For all these reasons, I can see no good reason to depart from the law on this topic as established in the authorities. I would therefore hold that Khorasandjian v Bush must be overruled in so far as it holds that a mere licensee can sue in private nuisance, and I would allow the appeal or cross-appeal of the defendants in both actions and restore the order of Judge Havery on this issue.

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Legal Method and the Common Law Lord Lloyd:… Like, I imagine, all your Lordships, I would be in favour of modernising the law wherever this can be done. But it is one thing to modernise the law by ridding it of unnecessary technicalities; it is another thing to bring about a fundamental change in the nature and scope of a cause of action. It has been said that an actionable nuisance is incapable of exact definition. But the essence of private nuisance is easy enough to identify, and it is the same in all three classes of private nuisance, namely, interference with land or the enjoyment of land… If the occupier of land suffers personal injury as a result of inhaling the smoke, he may have a cause of action in negligence. But he does not have a cause of action in nuisance for his personal injury, nor for interference with his personal enjoyment. It follows that the quantum of damages in private nuisance does not depend on the number of those enjoying the land in question. It also follows that the only persons entitled to sue for loss in amenity value of the land are the owner or the occupier with the right to exclusive possession… I can well understand Dillon LJ’s concern to find a remedy for the wife or daughter who suffers from harassment on the telephone, whether at home or elsewhere. But to allow them a remedy in private nuisance would not just be to extend the existing law. It would not just be to get rid of an unnecessary technicality. It would be to change the whole basis of the cause of action. For the reasons given by Peter Gibson LJ in his dissenting judgment in Khorasandjian v Bush, with which I agree, I would hold that that case was wrongly decided, and should be overruled… On the first point I would allow the appeal, and answer the question in the same manner as Judge Havery. I need add very little on the second point, since I agree with the unanimous decision of the Court of Appeal that interference with television reception is not capable of constituting an actionable private nuisance... Lord Hoffmann:... Is there any reason of policy why the rule should be abandoned? Once nuisance has escaped the bounds of being a tort against land, there seems no logic in compromise limitations, such as that proposed by the Court of Appeal in this case, requiring the plaintiff to have been residing on land as his or her home. This was recognised by the Court of Appeal in Khorasandjian v Bush [1993] QB 727 where the injunction applied whether the plaintiff was at home or not. There is a good deal in this case and other writings about the need for the law to adapt to modern social conditions. But the development of the common law should be rational and coherent. It should not distort its principles and create anomalies merely as an expedient to fill a gap. The perceived gap in Khorasandjian v Bush was the absence of a tort of intentional harassment causing distress without actual bodily or psychiatric illness. This limitation is thought to arise out of cases like Wilkinson v Downton [1897] 2 QB 57 and Janvier v Sweeney [1919] 2 KB 316. The law of harassment has now been put on a statutory basis (see the Protection from Harassment Act 1997) and it is unnecessary to consider how the common law might have developed. But as at present advised, I see no reason why a tort of intention

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Sourcebook on Obligations and Remedies should be subject to the rule which excludes compensation for mere distress, inconvenience or discomfort in actions based on negligence: see Hicks v Chief Constable of the South Yorkshire Police [1992] 2 All ER 65. The policy considerations are quite different. I do not therefore say that Khomsandjian v Bush was wrongly decided. But it must be seen as a case on intentional harassment, not nuisance… Lord Cooke (dissenting in part): My Lords, having had the privilege of reading in draft the opinions of the other four members of your Lordships’ Committee in these cases, I begin my own contribution by respectfully acknowledging that they achieve a major advance in the symmetry of the law of nuisance. Being less persuaded that they strengthen the utility or the justice of this branch of the common law, I am constrained to offer an approach which, although derived from concepts to be found in those opinions, would lead to principles different in some respects. Naturally I am diffident about disagreeing in any respect with the majority of your Lordships, but such assistance as I may be able to give in your deliberations could not consist in mere conformity and deference; and, if the common law of England is to be directed into the restricted path which in this instance the majority prefer, there may be some advantage in bringing out that the choice is in the end a policy one between competing principles… In Khorasandjian v Bush, Dillon and Rose LJJ thought that, if the wife of the owner is entitled to sue in respect of harassing telephone calls, the same should apply to a child living at home with her parents. I agree. The persistent ringing of the telephone may be a nuisance in fact to all occupants of the home, not any primary target only, and all members of the family living there should be entitled to redress in law for substantial disturbance of their amenity. It has been recognised in jurisdictions other than England and Canada that continual telephoning to a house may be a nuisance: see, for instance, Stoakes v Bn/dges [1958] QWN 5 and Wiggins v Moskins Credit Clothing Store (1956) 137 F Supp 764. I share the disposition to think that harassment by telephone calls or otherwise should also be actionable when it occurs outside the home; but that is surely no reason for denying relief in nuisance when it or any other form of serious disturbance of amenity occurs within the home… In logic more than one answer can be given. Logically it is possible to say that the right to sue for interference with the amenities of a home should be confined to those with proprietary interests and licensees with exclusive possession. No less logically the right can be accorded to all who live in the home. Which test should be adopted, that is to say which should be the governing principle, is a question of the policy of the law. It is a question not capable of being answered by analysis alone. All that analysis can do is expose the alternatives. Decisions such as Malone v Laskey [1907] 2 KB 141 do not attempt that kind of analysis, and in refraining from recognising that value judgments are involved they compare less than favourably with the approach of the present day Court of Appeal in Khorasandjian and this case. The reason why I prefer the alternative advocated with unwonted vigour of expression by the doyen of living tort writers is that it gives better effect to widespread conceptions concerning the home and family…

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Legal Method and the Common Law Turning to the television action, I am in the happier position of being able to agree with all your Lordships and the Court of Appeal that this cannot succeed. Television has become a significant and, to many, almost an indispensable amenity of domestic life. For the reasons given more fully by Robins J in Nor-Video Services Ltd v Ontario Hydro (1878) 84 DLR (3d) 221 and my noble and learned friend Lord Goff, I agree that, in appropriate cases, television and radio reception can and should be protected by the law of nuisance, although no doubt rights to reception cannot be acquired by prescription. Inhabitants of the Isle of Dogs and many another concentrated urban area might react with incredulity, and justifiably so, to the suggestion that the amenity of television and radio reception is fairly comparable to a view of the surroundings of their homes. Neither in nature nor in value is that so. It may be suspected that only a lawyer would think of such a suggestion. What in my opinion must defeat an action for interference with television reception by the construction of a building, not only in this but in most cases, is the principle of reasonable user, of give and take. The 1983 decision in Germany of the Federal Supreme Court to which Lord Goff refers, G v City of Hamburg, Decisions of the Federal Supreme Court in Civil Matters, Vol 88, p 344 rejected a claim by neighbours, whose television reception of certain programmes had been spoilt by the erection of a nine-storey hospital, to connect their aerial to the system in the defendants’ building. In the translation available to your Lordships the essential ground of the decision appears thus, p 348: In respect of the so called negative adverse effects there is no gap in the [Civil] Code; on the contrary, it deliberately leaves it to the freedom of the owner to use his property as he wishes within the framework of the Code, as long as he does not cross the boundary of neighbouring land by the emission of imponderables. Although turning on the Code, that is of interest as a matter of comparative law and some help… The Canary Wharf project in general, and the tower at One Canada Square in particular, were obviously of a scale totally transforming the environment. There was an original planning condition that building heights were not to exceed 120 feet except by agreement with the enterprise zone authority. Agreements were obtained and it is not suggested that they were insufficient for what was done. Under the fast track procedure the rights of residents were limited to the making of representations regarding the project. It may be that what seems plain with hindsight, that there would be a dramatic effect on television reception, was not at first sufficiently realised. After a year or so, however, the problem was rectified by the establishment of a relay station and adjustment of the aerials of affected properties (apparently without cost to the owners). Although this was presumably the result, not of representations under the statutory procedure, but of subsequent complaints, it does show that the right to make representations is not necessarily without real value. The tower is clad in stainless steel and the windows are metallised but it would seem hopeless to contend that the use of these materials and the design of the tower constituted any unreasonable or unexpected mode of constructing a building of this height. In these circumstances, to adopt the 153

Sourcebook on Obligations and Remedies words of Staughton LJ in Wheeler v JJ Saunders Ltd, p 30, the tower falls fairly within the scope of ‘a strategic planning decision affected by considerations of public interest’… For these reasons, while not satisfied that a categorical universally applicable answer can be given to the issue about television reception, I agree that in this case the claim of nuisance consisting of interference with such reception cannot succeed; but I would dismiss the appeal from the Court of Appeal’s ruling that occupation of a property as a home provides a sufficiently substantial link to enable the occupier to sue in private nuisance, to the extent that the ruling relates to interference with amenities as distinct from injury to the land. Lord Hope:… In my opinion the decision in Khomsandjian v Bush [1993] QB 727 is open to criticism because the majority who adopted the same approach as that taken in Motherwell v Motherwell (1976) 73 DLR (3d) 62—a decision which I think, with respect, is equally flawed on this ground—failed to apply the general rule of law, noted by Peter Gibson J, p 745A, that only an owner or occupier of the property affected can maintain an action for private nuisance. The interlocutory order which was made in that case and was held on appeal to have been worded appropriately was in the widest terms. It restrained the defendant from ‘using violence to, harassing, pestering or communicating with’ the plaintiff. It was so widely drawn that it covered the defendant’s conduct wherever he happened to be when making the unwanted telephone calls and wherever the plaintiff happened to be when she received them. Its use of language demonstrates that the case was concerned with the invasion of the privacy of the plaintiffs person, not the invasion of any interest which she might have had in any land. I would be uneasy if it were not possible by some other means to provide such a plaintiff with a remedy. But the solution to her case ought not to have been found in the tort of nuisance, as her complaint of the effects on her privacy of the defendant’s conduct was of a kind which fell outside the scope of the tort… Pill LJ (Court of Appeal):… Lord Irvine [counsel for the defendants] submits that there must be damage in the sense of a physical change in property as a necessary ingredient of a cause of action in negligence… In the absence of physical damage, a mere deposit is not actionable. For the purpose of question 7, Mr Brennan [for the plaintiffs] does not submit that economic loss is sufficient and the court is not invited to consider that question. His submission is that the deposit of dust, subject to the de minimis principle, amounts to damage in the ordinary sense of the word because it impairs the utility of the object onto which the dust is deposited. He equates impairment of utility with damage. In my judgment, the deposit of dust is capable of giving rise to an action in negligence. Whether it does depends on proof of physical damage and that depends on the evidence and the circumstances. Dust is an inevitable incident of urban life and the claim arises on the assumption that the defendants have caused ‘excessive’ deposits. Reasonable conduct and a reasonable amount of cleaning to limit the ill-effects of dust can be expected of householders. Subject to that, if, for example, in ordinary use the excessive deposit is trodden into

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Legal Method and the Common Law the fabric of a carpet by householders in such a way as to lessen the value of the fabric, an action would lie. Similarly, if it follows from the effects of excessive dust on the fabric that professional cleaning of the fabric is reasonably required, the cost is actionable and if the fabric is diminished by the cleaning that too would constitute damage. Excessive dust might also be shown to have damaged electrical apparatus and there could no doubt be many other examples. The damage is in the physical change which renders the article less useful or less valuable. On the assumptions we are invited to make, that rather than any general concept of loss of utility is the appropriate test. In the circumstances, I do not propose to consider whether the cost of preventive measures would be recoverable. I agree with Lord Irvine that the fact it costs money or labour to remove a deposit of material on property does not necessarily involve a finding that the property has been damaged. I also agree with him that the meaning attributed to the word damage in a criminal statute may be different from that in the law of negligence.

Notes and questions 1

2

3

4

5 6

Can abusive telephone calls ever amount to a form of assault? Why can such calls, however mild, not be seen as a form of trespass if they cause damage? An animal rights group advises sympathisers to telephone, late at night, various individuals said to be involved in experiments on animals. Can any of the individuals obtain an injunction against the group to stop them advising sympathisers to telephone? What if the group advised its sympathisers to telephone only during office hours? The tendency of the English law of obligations is to classify damage into various kinds: (a) personal injury; (b) physical damage to property; (c) economic loss; (d) nervous shock; (e) mental distress; and (f) interference with the use and enjoyment of property. Under what heading would you classify the damage in Khorasandjian? Does the mere invasion of one of these interests entitle the person whose interest has been invaded to a remedy? If not, what more must be shown? Could the plaintiff in Khorasandjian have obtained damages to compensate her for the harm suffered? Can Khorasandjian be justified on the basis of Wilkinson v Downton (see p 640)? Does the House of Lords confirm this? If the facts of Wilkinson v Downton arose again today, would the plaintiff be entitled to damages under the 1997 Act? Is interference with television reception a form of damage recognised by the law? Is the contamination of land by radioactive material physical damage to property? (Cf Blue Circle Industries plc v MOD [1999] 2 WLR 295.)

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7

A bottle of orange juice explodes just as a customer in a supermarket is lifting it out of his trolley at the cash desk. The customer is uninjured, but his clothes are covered in orange juice. Do you think that the customer has suffered any damage, over and above the cost of cleaning the clothes? 8 What is the focal point of an action for private nuisance: the persona or the res? 9 A firm of solicitors specialising in defamation is hired by D to threaten one of D’s employees who has complained to the police about D sexually harassing her. The solicitors send a number of letters to the employee stating that the employee’s complaint to the police amounts to defamation and that unless she withdraws her complaint and apologises to D she will be sued for ‘six figure damages’. The employee suffers severe mental anxiety as a result of these solicitors’ letters. Can the employee sue the solicitors and/or D for damages (a) at common law; or (b) under the 1997 Act? Would your answer be different if the solicitors were aware that previous employees had tried to complain about being sexually harassed by D? 10 Can a group of employees harass their employer for better working conditions and/or higher wages?

(v) Interests and damage Linden Gardens Ltd v Lenesta Sludge Disposals Ltd [1994] AC 85 House of Lords Lord Bridge:… I cannot accept that in a contract of this nature, namely for work, labour and the supply of materials, the recovery of more than nominal damages for breach of contract is dependent upon the plaintiff having a proprietary interest in the subject matter of the contract at the date of the breach. In everyday life contracts for work and labour are constantly being placed by those who have no proprietary interest in the subject matter of the contract. To take a common example, the matrimonial home is owned by the wife and the couple’s remaining assets are owned by the husband and he is the sole earner. The house requires a new roof and the husband places a contract with a builder to carry out the work. The husband is not acting as agent for his wife, he makes the contract as principal because only he can pay for it. The builder fails to replace the roof properly and the husband has to call in and pay another builder to complete the work. Is it to be said that the husband has suffered no damage because he does not own the property? Such a result would in my view be absurd and the answer is that the husband has suffered loss because he did not receive the bargain for which he had contracted with the first builder and the measure of damages is the cost of securing the performance of that bargain by completing the roof repairs properly by the second builder.

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Legal Method and the Common Law Darlington BC v Wiltshier Northern Ltd [1995] 1WLR 68 Court of Appeal (See p 459.)

Questions 1 2

3

4

Is the law in effect treating the family as a legal person? In the example given by Lord Bridge, could the wife sue the builder who fails to replace the roof properly? (Cf Beswick v Beswick, p 249.) What kind of damage does the wife suffer: physical or economic? What if the builder, while replacing the roof, managed to set fire to the house: could the husband and the wife sue the builder for the mental distress they suffer at seeing the family house burn down? ‘In the Lenesta Sludge case…the House made available a remedy as a matter of law to solve the problem of transferred loss in the case before them’ (Lord Goff in White v Jones [1995] 2 AC 207, p 268). Discuss.

7 LAW AND FACT (a) Questions of law and questions of fact Qualcast (Wolverhampton) Ltd v Haynes [1959] AC 743 House of Lords (See p 13.)

Notes and questions 1

2

‘It is not the less a fact because that fact involves some knowledge or relation of law. There is hardly any fact which does not involve it. If you state that a man is in possession of an estate of £10,000 a year, the notion of possession is a legal notion, and involves knowledge of law; nor can any other fact in connection with property be stated which does not involve such knowledge of law’ (Jessel MR in Eaglesfield v Marquis of Londonderry (1876) 4 Ch D 693, p 703). Is proximity a question of fact? Is damage a question of fact? ‘It is said, “Ignorantia juris haud excusat” [ignorance of the law never excuses]; but in that maxim the word “jus” is used in the sense of denoting general law, the ordinary law of the country. But when the word “jus” is used in the sense of denoting a private right, that maxim has no application. Private right of ownership is a matter of fact; it may be the result also of a matter of law; but if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that that agreement is liable to be set aside as having proceeded upon a 157

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3

4

common mistake’ (Lord Westbury in Cooper v Phibbs (1867) LR 2 HL 149, p 170). What is meant by ‘private right’? Is this not a question of law? P is able to prove that, but for D’s negligent failure to diagnose the correct medical condition, he would have had a 25% chance of recovery. In losing this 25% has P lost something that can be classified as damage? Is this a question of fact or law? (Cf McGhee v NCB [1973] 1 WLR 1; Wilsher v Essex AHA [1988] AC 1074.) ‘ZThe distinction [between mistake of fact and mistake of law]…does not turn upon the fact that the person making the payment could not have discovered the true state of affairs about the law any more than about the facts. It turns upon the purely abstract proposition that in principle (and leaving aside the problem of Schrödinger’s cat) the truth or falsity of any proposition of existing fact could have been ascertained at the time, whereas the law, as it was subsequently declared to have been, could not’ (Lord Hoffmann in Kleinwort Benson Ltd v Lincoln CC [1998] 3 WLR 1095, p 1138). B buys, and takes possession of, a consignment of drugs from S, both parties honestly, but mistakenly, believing that the drugs are not illegal. Can S sue B for the price? Can he sue B for the return of the drugs or their value?

(b) Establishing the facts Re H and Others (Minors) [1996] 1 All ER 1 House of Lords Lord Nicholls:… The general principle is that he who asserts must prove. Generally, although there are exceptions, a plaintiff or applicant must establish the existence of all the preconditions and other facts entitling him to the order he seeks… Where the matters in issue are facts the standard of proof required in noncriminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle… The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury… Evidence is the means whereby relevant facts are proved in court. What the evidence is required to establish depends upon the issue the court has to decide. At some interlocutory hearings, for instance, the issue will be whether the plaintiff has a good arguable case. The plaintiff may assert he is at risk of 158

Legal Method and the Common Law the defendant trespassing on his land or committing a breach of contract and that, in consequence, he will suffer serious damage. When deciding whether to grant an interlocutory injunction the court will not be concerned to resolve disputes raised by the parties’ conflicting affidavit evidence. At trials, however, the court normally has to resolve disputed issues of relevant fact before it can reach its conclusion on the issue it has to decide. This is a commonplace exercise, carried out daily by courts and tribunals throughout the country. This exercise applies as much where the issue is whether an event may happen in the future as where the issue is whether an event did or did not happen in the past. To decide whether a car was being driven negligently, the court will have to decide what was happening immediately before the accident and how the car was being driven and why. Its finding on these facts form the essential basis for its conclusion on the issue of whether the car was being driven with reasonable care. Likewise, if the issue before the court concerns the possibility of something happening in the future, such as whether the name or get-up under which goods are being sold is likely to deceive future buyers. To decide that issue the court must identify and, when disputed, decide the relevant facts about the way the goods are being sold and to whom and in what circumstances. Then, but only then, can the court reach a conclusion on the crucial issue. A decision by a court on the likelihood of a future happening must be founded on a basis of present facts and the inferences fairly to be drawn therefrom… Ward v Tesco Stores Ltd [1976] I WLR 810 Court of Appeal Lawton LJ: This is an appeal by the defendants from a judgment of his Honour Judge Nance given in the Liverpool County Court…whereby he adjudged that the plaintiff should recover against the defendants £178.50 damages and her costs…for personal injuries said to have been caused by the negligence of the defendants in the maintenance of the floor in their supermarket at Smithdown Road, Liverpool… The plaintiff went round the store, carrying a wire basket, as shoppers are expected to do in supermarkets. She was doing her shopping at the back of the store when she felt herself slipping. She appreciated that she was slipping on something which was sticky. She fell to the ground, and sustained minor injuries. She had not seen what had caused her to slip. It was not suggested… that she had in any way been negligent in failing to notice what was on the floor as she walked along doing her shopping. When she was picking herself up she appreciated that she had slipped on some pink substance which looked to her like yoghourt. It was yoghourt. Later, somebody on the defendants’ staff found a carton of yoghourt in the vicinity which was two-thirds empty… That is all the plaintiff was able to prove, save for one additional fact. About three weeks later when she was shopping in the same store she noticed that some orange squash had been spilt on the floor. She kept an eye on the spillage for about a quarter of an hour. During that time nobody came to clear it up. The trial judge was of the opinion that the facts which I have related constituted a prima facie case against the defendants. I infer that this case, which involves only a small amount of damages, has been brought to this court because the defendants are disturbed that any judge should find that a

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Sourcebook on Obligations and Remedies prima facie case is established merely by a shopper proving that she had slipped on a supermarket floor. At the trial the defendants called some evidence… The defendants did not call any evidence as to when the store floor had last been brushed before the plaintiffs accident. It follows that there was no evidence before the court as to whether the floor had been brushed a few moments before the accident, or an hour, or possibly an hour and a half. The court was left without any information on what may have been an important matter… In this case the floor of this supermarket was under the management of the defendants and their servants. The accident was such as in the ordinary course of things does not happen if floors are kept clean and spillages are dealt with as soon as they occur. If an accident does happen because the floors are covered with spillage, then in my judgment some explanation should be forthcoming from the defendants to show that the accident did not arise from any want of care on their part; and in the absence of any explanation the judge may give judgment for the plaintiff. Such burden of proof as there is on the defendants in such circumstances is evidential, not probative. The trial judge thought that prima facie this accident would not have happened had the defendants taken reasonable care. In my judgment he was justified in taking that view because the probabilities were that the spillage had been on the floor long enough for it to have been cleaned up by a member of the staff… Megaw LJ:… It is for the plaintiff to show that there has occurred an event which is unusual and which, in the absence of explanation is more consistent with fault on the part of the defendants than the absence of fault; and to my mind the learned judge was wholly right in taking that view of the presence of this slippery liquid on the floor of the supermarket in the circumstances of this case:…that if it should happen…it created a serious risk that customers would fall and injure themselves. When the plaintiff has established that, the defendants can still escape from liability…if they could show that the accident must have happened, irrespective of the existence of a proper and adequate system…to provide for the safety of customers… That, in this case, they wholly failed to do… Ormrod LJ (dissenting):… I do not think that it was established that this accident was caused by any want of care on the part of the defendants. The accident described by the plaintiff—and she did no more than describe the accident, namely that she slipped in some yoghourt which was on the floor of the supermarket—could clearly have happened no matter what degree of care these defendants had taken. The crucial question is how long before the accident the yoghourt had been on the floor…

Notes and questions 1 2 3

Does Ward actually lay down a rule? If so, what is the rule? Why do the judges differ in Ward: is it because the majority focus on the operational system and the dissenting judge on the actual yoghourt? Where the balance of probabilities is equally weighted, ought the court to

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find for the plaintiff or the defendant? Could it not be argued that where there is an equal balance of probabilities the risk should be on the defendant rather than the plaintiff? (Cf McGhee v NCB [1973] 1 WLR 1.) If Mrs Ward had been injured by an exploding bottle of lemonade in the supermarket, could she have sued them in contract? If not, why not? The relevant events took place in the course of a few seconds; all or some of them were seen by 12 different witnesses…and, as is inevitable when honest witnesses give their recollections of what occurred in a very brief space of time there were wide divergences in their respective accounts. In such a case an appellate court will not lightly disturb the findings of the trial judge as to what in fact occurred’ (Diplock LJ in Wooldridge v Sumner [1963] 2 QB 43, p 60). Is the court under a duty to attempt to establish the truth? If not, what is its duty with respect to the facts? Does Ward v Tesco indicate that facts are much more important than law in the law of obligations?

(c) Legal categorisation of the facts Lockett v A and M Charles Ltd [1938] 4 All ER 170 King’s Bench This was an action for damages by Mr and Mrs Lockett against a restaurant in respect of food poisoning caught from the whitebait hors d’oeuvre. Mr Lockett had paid the bill. Tucker J:… With regard to the female plaintiffs position in respect of breach of warranty, every proprietor of a restaurant is under a duty to take reasonable care to see that the food which he supplies to his guests is fit for human consumption. If he does not take such reasonable steps, and if he is negligent, a person who buys the food which he supplies can recover damages from him based on his negligence. As, however, there is no allegation of such negligence in this case, it must be assumed that the proprietor of the hotel and his servants could not be at fault in any way, and either plaintiff can recover only if he or she establishes that there was a contract between him or her and the proprietor of the hotel… Counsel for the plaintiffs is, in my opinion, right when he submits that, when persons go into a restaurant and order food, they are making a contract of sale in exactly the same way as they are making a contract of sale when they go into a shop and order any other goods. I think that the inference is that the person who orders the food in a hotel or restaurant prima facie makes himself or herself liable to pay for it, and when two people—whether or not they happen to be husband and wife—go into a hotel and each orders and is supplied with food, then, as between those persons and the proprietor of the hotel, each of them is making himself liable for the food which he orders, whatever may be the arrangement between the two persons who are eating at the hotel. On the facts in this case, it is, in my opinion, right to hold that there was a contract implied by the conduct of the parties between the plaintiff,

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Sourcebook on Obligations and Remedies Mrs Lockett, and the defendants when she ordered and was supplied with the whitebait at the Hotel de Paris… If that is so, it follows beyond all doubt that there is an implied warranty that the food supplied is reasonably fit for human consumption. I hold that the whitebait delivered in this case were not reasonably fit for human consumption, and that there was a breach of warranty. Accordingly 1 give judgment for the male plaintiff for the agreed sum of £98 8s, and for Mrs Lockett for £100.

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How does this case differ from Donoghue v Stevenson (p 65)? Why was Donoghue not a contract case? ‘To attribute a label (qualification) is, from the formal point of view, to practise an act of classification. The class under consideration can be defined by objective describers and the labelling is then of a factual order (“this animal is male or female, this mass is liquid or solid…”). In a great many cases the describers are fuzzy and imply an appreciation which can itself be a matter of dispute… The legal domain offers good examples of where the categorisation is executed from explicit norms which nevertheless leave much room for argument. The labelling of a prohibited act by the law defines the court before which its author is going to be brought as well as the margin of punishment that he incurs… The categorisation is an argument since it operates in order to determine the decision of the judge or the jury. But it is also the consequence of an argument: it is the analysis of facts and the putting of them into contact with the legal texts which are going to determine the categorisation’ (Oléron, L’argumentation, 4th edn, 1996, PUF, pp 88–90). Do cases like Lockett indicate that categories such as ‘contract’ are more fluid than they might first appear? What is the relationship between the categorisation of facts and the operation of the syllogism? Is logic as secure as it seems or can it be undermined by the process of categorisation? (Cf Harbour Assurance Ltd v Kansa, p 185.) The goal of the sciences is a description as accurate as possible of facts… But facts are never evident. They never directly thrust themselves upon one, and it can be said that they exist neither a priori nor separately. Facts have sense only in relation to a system of thought, through a pre-existing theory…’ (Astolfi and Develay, La didactique des sciences, 1989, PUF, pp 25, p 27). Does one have to know the law applicable before one can categorise the facts? How would you classify the facts in Lockett: as contractual, tortious, sale of goods or consumer protection? Do you think the facts disclose a criminal offence?

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Financings Ltd v Stimson [1962] 1 WLR 1184 Court of Appeal (See p 492.) Notes and questions 1 Would you classify the facts of this case as falling within the chapter on the formation of a contract or within a chapter dealing with rescission for mistake? 2 ‘Either there is a situation of isomorphy (lex clara est), that is, correspondence between the norm and the case, or else there is a situation of doubt which calls for interpretation in the strict sense; in this case directives of interpretation are needed, and the choice among them implies further evaluations’ (Bengoetxea, The Legal Reasoning of the European Court of Justice, 1993, OUP, p 130). Was there any doubt as to the rule applicable in Stimson? What about Fisher v Bell (above, p 24)?

(d) Role of quasi-normative concepts Beswick v Beswick [1966] Ch 538 Court of Appeal (See also pp 78, 249.) Lord Denning MR:… The general rule undoubtedly is that ‘no third person can sue, or be sued, on a contract to which he is not a party’; but at bottom that is only a rule of procedure. It goes to the form of remedy, not to the underlying right. Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third party in the name of the contracting party or jointly with him or, if he refuses to join, by adding him as a defendant. In that sense, and it is a very real sense, the third person has a right arising by way of contract. He has an interest which will be protected by law… It is different when a third person has no legitimate interest, as when…he is seeking to rely, not on any right given to him by the contract, but on an exemption clause… Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 Court of Appeal (Seep 436.) Bingham LJ:… [I]f he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered… Had the club, before tendering, inquired of the council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been ‘of course’. The law would, I think, be defective if it did not give effect to that.

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Contrast Lord Denning’ s judgment with the decision of the House of Lords in Beswick v Beswick (see p 249). Did they find fault with this technique used by Lord Denning? Can you isolate the various legal concepts employed by Lord Denning and by Bingham LJ? How do they get from the world of fact to the world of law? ‘…The reflections of jurists on the relationship between fact and law can also be brought to bear on the way in which the law ought to take in fact. Several difficulties are to be faced here… In the first place, the jurist can hardly study the facts without seeing them through a pre-qualification. In the second place, the incessant coming and going from fact to law which permits him progressively to arrive at the best qualification available is evidently not independent of the opinion that he has on the just solution in the case. In the third place, the function of the categorisation is not to describe reality, but to subject it to the most appropriate legal regime… Consequently, the difficulty of the work of categorisation consists in finding the balance between the consideration of fact and the objective to be promoted in law’ (Atias, Épistémologie juridique, 1985, PUF, p 129). Do the approaches of Lord Denning and Bingham LJ support this view of legal method? Is Bingham LJ using facts to change the law? Are the facts being discussed by Bingham LJ actual facts? If not, are they being invented by the court? And, if so, is such invention an important aspect of legal reasoning?

(e) Utilisation of hypothetical facts to determine the law Samuel, G, The Foundations of Legal Reasoning 1994, Maklu, pp 193–195 (footnotes omitted) The notion of ‘what if?’ is…something that binds Roman and English law. What if one person lights a fire on his property, leaving another person to look after it, and the fire gets out of control and spreads to a neighbour’s property? Who should be liable? What if the lease prohibited the lighting of fires? What if the person who failed to control it had a history of falling asleep on the job? What about a farmer who lights a fire to burn off the stubble in his field and the fire spreads to a neighbour’s farm? Does it make any difference if it is a windy day or not? What if a carpenter, while working in another’s house, goes out for a while leaving the house unguarded and a thief enters? These kinds of question are to be found in the Corpus Iuris and in the All England Law Reports and while the jurists in both systems are prepared to induce out of these ‘what if?’ factual situations some general propositions, these propositions, in Roman law at least, were usually just a technique for explaining some further factual point. They were not designed to be part of a process for the construction of a deductive model of legal propositions… 164

Legal Method and the Common Law Accordingly, despite the occasional flights into generalisation, it can perhaps be said that on the whole English law continues to share the same interpretative closeness to the facts as the Roman law of the classical and medieval eras and this means that the technique of ‘what if?’ could be a useful device for understanding the operation of institutions in both systems. Legal development is not a matter of inducing rules, terms or institutions out of a number of factual situations and applying these rules, terms or institutions to new factual situations. Rather it is a matter of pushing outwards from within the facts themselves. It is a matter of moving from one res, say a public highway, to another res like private property and seeing the extent to which the relationships between the various institutions themselves create a new normative situation. Legal development, in other words, is a matter of expanding the facts.

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Are all the cases following Donoghue v Stevenson (above, p 65) examples of pushing outwards from a bottle of ginger beer? The Romans, like the modern English jurist, seem to have reasoned at the level of fact. Indeed they often used the expression ‘what if?’ (quid enim s 1 …?). Yet it was the Roman lawyers who developed the institutional system which rigidly distinguished between public and private law and between property and obligations. Is there a contradiction here? Why do the English jurists seem much less interested in systematics? ‘[Imagination] contributes to the fulfilment of theorising through the hypothetical variation of specific factual situations so as to bring out the essential core and borderlines of legal ideas. What is crucial here is imagination’s capacity for conjuring up and holding fast to an infinity of hypothetical situations which present exemplifications of legal problems and doctrines both as if they were actual and under the governance of the operationalism principle of legal ideas… Imagination allows both judges and theorists to both make available and explore the nature and limits of legal ideas qua ideas. For example, in legal education we frequently take the facts of a decided case and ask students to reflectively consider, on a “what if?” basis, a series of imaginative variations…’ (Salter, ‘Towards a phenomenology of legal thinking’ (1992) 23 Journal of the British Society for Phenomenology 167, p 172). Are Roman and common lawyers phenomenologists? Are facts simply ideas? ‘Much of the strength of Roman law is due to the fact that it is both rooted in actuality and linked to procedure. It contrived to avoid the patchiness of a purely casuistic system because, rather like professors of law in the United States when teaching with the method that Socrates used in conversation with slaves, the jurists hypothetically varied the actual facts of the situations presented to them, and considered what the legal effect of such hypothetical variations would be’ (Weir, ‘Contracts in Rome and 165

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England’ (1992) 66 Tulane LR 1615, pp 1616–17). Do common lawyers reason in the same way as the classical Roman lawyers? Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 Court of Appeal (See p 436.) Bingham LJ:… During the hearing the questions were raised: what if, in a situation such as the present, the council had opened and thereupon accepted the first tender received, even though the deadline had not expired and other invitees had not yet responded? Or if the council had considered and accepted a tender admittedly received well after the deadline? [Counsel for the defendant] answered that although by so acting the council might breach its own standing orders, and might fairly be accused of discreditable conduct, it would not be in breach of any legal obligation because at that stage there would be none to breach. This is a conclusion I cannot accept. And if it were accepted there would in my view be an unacceptable discrepancy between the law of contract and the confident assumptions of commercial parties… Re Rowland [1963] Ch 1 Court of Appeal Lord Denning MR (dissenting):… I decline…to ask myself: what do the words mean to a grammarian? I prefer to ask: What did Dr Rowland and his wife mean by the word ‘coincide’ in their wills? When they came to make their wills it is not difficult to piece together the thoughts that ran through their minds. The doctor might well say: ‘We are going off for three years to these far off places and in case anything happens to either of us we ought to make our wills. If I die before you, I would like everything to go to you, but if you die before me, I should like it to go to my brother and his boy’. She might reply: ‘Yes, but what if we both die together. After all, one of those little ships might run on the rocks or something and we might both be drowned; or we might both be killed in an aeroplane crash’. To meet that,’ he would say, ‘I will put in that if your death coincides with mine, it is to go to my brother and his boy just the same’. He would use the words ‘coinciding with’, not in the narrow meaning of ‘simultaneous’, but in the wider meaning of which they are equally capable, especially in this context, as denoting death on the same occasion by the same cause. It would not cross Dr Rowland’s mind that anyone would think of such niceties as counsel for the first defendant has presented to us. Russell LJ:… If the evidence was that the testator and his wife were below decks in their cabin and the vessel plunged abruptly to the bottom of the sea, the view might be taken that their deaths were, metaphysics apart, coincident in point of time. But we simply do not know what happened to them. Counsel for the appellants could not suggest, in the case of either spouse, whether the correct inference was death by drowning, trapped in the ship, or death by drowning, sucked down by the sinking ship after going overboard, or death by shark or similar fish, or by thirst, or by drowning after swimming about or floating for a greater or less period with or without a lifebelt. This makes it plain that there is no evidence at all that the deaths were coincident in point of time (in the natural sense of simultaneous) in the mind of the ordinary man.

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Is Bingham LJ adopting a similar reasoning approach to that adopted by Lord Denning in Re Rowland? What justifies Bingham LJ’s move from ‘expectation’ to ‘right’? What facilitates the move? Is Re Rowland about the interpretation of a text (the will) or the interpretation of an event (the loss of the ship and the deaths)? Can events be ‘interpreted’ or can they only be ‘reconstructed’? What was the cause of the testator’s death according to (a) Lord Denning; and (b) Russell LJ? Why, exactly, did Lord Denning arrive at a different result from Russell LJ? Is the difference to be found in the distinction between a nominalist (individualistic) and a universalist (holistic) scheme of intelligibility? Or, put another way, could the approach of Russell LJ be described as methodological individualism—that is to say that, in a collection of events, each event is an event in itself? Did the judges invent their own facts? What role did the facts play in the interpretation of the will?

8 LEGAL REASONING (a) Introductory note One of the purposes of the foundational subjects is to develop ‘the intellectual and practical skills needed to research the law on specific matters and to analyse both statute and case law, to apply it to the solution of legal problems and to communicate…the results of such work’ (joint announcement issued by Law Society and Council of Legal Education on Full Time Qualifying Law Degrees, January 1995). This raises the question of how law is applied to facts. The materials studied so far ought to indicate that the link between ‘facts’ and ‘law’ is by no means simple. However, one link is the reasoning process of lawyers in as much as opinions and judgments act as the manifestation of the application process. Cases without reasoned judgments are unthinkable in the Western tradition of law. Yet what exactly is legal reasoning? This question goes to the heart of law as a discipline since only certain reasons and methods are acceptable to courts. Thus, as Professor Bergel has observed, legal reasoning is ‘a discursive exercise which is to be distinguished from intuition, that is from the immediate and total grasping of an object of thought’. Such reasoning has as its aim to exclude ‘purely individual and subjective attitudes…such as those which became famous from the ‘good judge’ Magnaud who, at the end of the 19th century, 167

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was claiming to justify “the application of the law by human and social considerations, outside of any professional approach”’ (Théorie générate du droit, 3rd edn, 1999, Dalloz, para 246). The ‘professional approach’ is, however, a focal point both for an historical and for a jurisprudential investigation. From the historical viewpoint, legal reasoning cannot be reduced to a single and coherent method; it is more a matter of differing methods associated with different traditions and different schools of jurists. The Roman methods (in causa ius esse position) (see p 389) can thus be contrasted with the methods of 19th century French lawyers (la méthode exégétique), just as the techniques of the humanists (mos Gallicus) can be contrasted with those of the medieval civilians (mos Italicus). The reasoning of common lawyers can equally be contrasted with the German-inspired mos geometricus. If one had to draw out of the history of legal methods one fundamental theme, it might be the tension between inferential reasoning on the one hand and argumentation on the other. That is to say the idea of the ‘juge automate’ functioning within a closed logical system as against the notion of the judge as creative craftsman mediating between ambiguities arising out of an open-ended intellectual system. Both these positions make an assumption about the nature of law and thus the jurisprudential viewpoint also reflects this tension between reasoning and argumentation. However, the tension is less easy to perceive in AngloAmerican legal theory because common lawyers have never really subscribed to the idea that law can be reduced to the kind of mathematical logic that implies ‘not only an axiomatic approach and a deductive presentation, but also the symbolisation substituting calculus based on signs for reasoning based on ideas’ (Bergel, Theorie generate du droit, 3rd edn, 1999, Dalloz, para 252). Law has, to the common lawyer, always been a matter of ordinary, as opposed to mathematical, language. Moreover, the historical emphasis on remedies together with the lack of a faculty-led scientia iuris based on Roman structures has given rise to a system where legal method is a matter of debate. The object is ‘to exclude certain arguments in showing that they were not relevant, then in the elimination of certain solutions because of unreasonableness, without necessarily imposing one type of argument and a single constrained solution’ (Bergel, Théorie generate du droit, 3rd edn, 1999, Dalloz, para 253). Jurisprudential theory has, accordingly, been concerned more with the tension between absolute judicial discretion in the face of uncertainty, on the one hand, and relative or indeed constrained judicial freedom on the other. The common lawyer, in other words, has preferred theories of argumentation to theories of inference. This emphasis on judicial discretion has equally taken theories of legal reasoning into areas well beyond positive legal structures. The relationship between law and politics, law and economics, law and literature and so on have been important contextual frameworks for understanding legal reasoning. 168

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The disadvantage of this otherwise rich Anglo-American tradition is that the actual (as opposed to the ideal) techniques employed in legal reasoning both today and yesterday have not, perhaps, been investigated in the depth they deserve. Or, put another way, techniques such as induction, deduction, syllogistic logic and analogy have perhaps been accepted at face value without proper investigation by the lawyers into the viability of transferring these scientific methods into law. There are, let it be said at once, honourable exceptions to this lack of literature. Yet often these exceptions have not been able to be incorporated directly into a foundational or other positive law subject. This is a serious omission, because the reasoning techniques employed by judges are as much a part of the ultimate solution as any legal precedent or statutory text. It has already been seen how judges can use quasinormative concepts such as ‘interest’ or ‘expectation’ to move from a seemingly objective description of facts to a normative dimension that will ultimately allow the judge to arrive at the solution which he or she thinks correct. Is this the application of scientific methods or is it ideology masquerading as science? The materials that follow will try to open up this question, but this will not be the main focal point. The main point of emphasis will be the tension between reasoning (an inferential approach based on induction, deduction and logic) and argumentation (analogy, metaphor, imagery as well as the standard reasoning techniques). In addition, all these materials—indeed the materials in the whole of this sourcebook—need to be understood in the more general context of reasoning in the social sciences. For, as Donald Kelley observes, law is one of the oldest social sciences (The Human Measure, 1990, Harvard UP).

(b) Reasoning in the social sciences Samuel, G, Schemes of Intelligibility (Seminar Paper, Research Methods in Law, December 1998) The location of a viewpoint inside or outside of law, and its precise positioning within either domain, are by no means the only questions that need to be considered with regard to the theoretical perspective to be brought to bear by the intellectus on the res. The manner in which the interrogation of the phenomena to be studied is to be conducted constitutes ‘a linchpin of the research’ (Quivy and Van Campenhoudt, Manuel de recherche en sciences sociales, 2nd edn, 1995, p 85). Perhaps a change of metaphor is in order since the term ‘theoretical perspective’ is too general. In addition to locating a viewpoint, the researcher must be aware of the various ways in which one can think about, and study, social reality… § 1 Introduction: natural sciences and human sciences The problem of the various schemes of thought that might be utilised in social science research can be viewed in the context of a larger debate between natural and social science. Is it possible to apply the label of ‘science’ when it 169

Sourcebook on Obligations and Remedies comes to knowledge of human facts? The problem is a complex one but essentially has its foundation in the difference between objects in the sense of empirical phenomena independent of humans and humans in the sense of objects of research. Clearly, when humans are the objects of their own study the relationship between intellectus and res becomes much more problematical. Not only is the behaviour of humans itself complex and cultural contexts so diverse, but the researchers themselves could be said to be actively influencing the behaviour and predictability of their object of research in as much as their own scientific investigation is part of the behaviour being investigated. This merging of the intellectus and the res can deprive social ‘science’ of its criteria of validity since it can easily become impossible to falsify a ‘scientific’ hypothesis (cf Karl Popper). In contrast a theory explaining the orbit of a comet and predicting its return to the vicinity of the Earth can be, at least in part, validated by observation. § 2 Natural science and facts Science aims to describe, to explain and to predict the behaviour of objects and it does this through the construction of abstract schemes or models which themselves provide the knowledge. The objects of the empirical sciences are not, then, reality itself; they are the schemes and models and the effectiveness of the model to explain and to predict become in themselves criteria of validity (Granger, La science et les sciences, 1995, pp 70, 78–84). The trajectory of the orbiting comet is not therefore explained in concepts that directly describe the astrophysical reality. The reality is reduced to a model consisting of concepts, relations and/or symbols—for example, a mathematical model— and it is the manipulation of this model that provides the information about the comet’s reappearance. If the model fails to predict correctly, then this will make it suspect. Yet if it does predict correctly, it does not follow that the model is correctly describing the actual facts down to the last detail. As Granger explains, it is a matter of virtual facts; that is to say, facts schematically created within a scheme of intelligence. Objects of differing weight are said to fall at the same speed. But these objects are virtual facts in as much as one is talking of ideal conditions which do not take account of cross-winds or whatever that might actually result in one object hitting the ground before the other (Granger, p 49). § 3 Human sciences The problem facing the social or human scientist is that when they try to construct models of social facts a central aspect of these sciences is human behaviour. This is incapable of being translated into objects (res) which can form part of an abstract model capable logically and mathematically of being manipulated (Granger, p 85). Human behaviour cannot be reduced to such models because it is too complex and unforeseeable; it lacks regularity in the sense of being predictable at the level of the individual. It cannot be mathematically predicted if or if not Dr X will assault a patient or if Mr Y will fail to stop at a road junction. Certainly the number of assaults committed by doctors on patients and the number of road accidents per year can be reduced to statistics and these statistics in turn may well reveal certain regularities allowing prediction. What is the risk of a patient being assaulted or a road user being injured? But the moment one moves to the

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Legal Method and the Common Law holistic level other problems emerge. Why do a certain number of doctors assault their patients every year and why are there x number of car accidents every year? Certainly, explanatory theories can be formulated. But these explanations are always contestable because, for example, they are not easily falsified and because they are founded upon premises which are themselves ambiguous. Do doctors assault patients because they belong to the class of doctors, or to the class of professionals, or because they are human beings and a certain number of human beings assault other human beings every year? Do car accidents happen because all humans make mistakes or because there is something about the activity of car driving? The individual and the holistic analysis may well present quite different explanations each of which seems, in its own way, rationally plausible. A further problem, of course, is that such theories are often based on virtual rather than actual facts. They are facts conceptualised not in terms of each actual and individual human being, but in terms of ‘car driver’—or class of ‘car drivers’—and objects simply labelled as ‘cars’. One is moving from ontology (what exists) to epistemology (theory of knowledge) through models which are ideological in the wide sense of the term. Does the world consist of billions of individual humans or millions of groups of humans? If one replies by saying groups of humans, is one moving from ontology (individual persons that can be touched) to epistemology (a theory of social relations)? And to what extent is epistemology motivated by ideology (an idealised, holistic view of humans)? § 4 Causation In both the natural and the human sciences a range of theories that explain are based on ideas of causation. What causes comets to circle the sun in a regular pattern? What causes doctors to assault patients and car drivers to have accidents? With respect to the natural sciences two interrelated points need to be made. First, causation is, for an empiricist, a question of belief rather than fact since cause and effect cannot be directly observed (Hume). It is a belief based on past observation, on induction and on faith that the future will repeat the past. This faith may be very rationally based (induction), but it cannot actually be proved that, say, cancer cluster spots outside leaking nuclear power stations are caused by the effects of nuclear power. What statistical models show is a probability and this probability factor might be increased by medical research models. Indeed it might well be argued that the probability is so regular—particularly when supported by the (seemingly) causal effects of radiation on human cells—that it transcends belief to become a ‘law’. Yet it is still only a hypothesis; it can be falsified. The second point to be made, therefore, is that a causal theory in science is open—and according to Popper must be open—to falsification. When one turns to the human sciences, because of the complexities of behaviour and social interaction, causation is much more problematic. A range of causal theories can be advanced in respect, say, of the causes of crime. But these theories, and indeed the notion of crime and criminals, are themselves open to doubt, if only because many cannot in the scientific sense be falsified. Historical theories face the same problems. A thesis that the First World War was prolonged because the soldiers enjoyed the experience cannot really be proved or disproved; it is a matter of interpretation and argumentation. Other equally convincing models can be constructed, each representing a ‘singular reality’

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Sourcebook on Obligations and Remedies (Granger, pp 86–87). In economics the difficulty has been analysed as being one of the capacity of a social science to constitute theories based on facts since there are problems both with the object and with the method. ‘Where the experimental sciences can develop laws from repeated observation’, write two economic theorists, ‘the economy (social sciences in general) come up against the difficulty of separating fictional causes from real causes’ (Leroux and Marciano, La philosophic économique, 1998, p 95). § 5 falsification, coherence and interpretation Models, even scientific models, are not always dependent upon empirical verification. Some systems, such as mathematics, are validated by the internal coherence of the system itself. The point is summed up by Bunge: ‘If a mathematician postulates the existence of a new conceptual object and does it without falling into contradiction, nobody will be able to refute it, even if his postulate ends up being ignored or considered wanting in interest. In contrast, if a physicist, a biologist or an historian postulates the existence of a concrete object which has not yet been discovered, they are thus acting in the hope of its discovery’ (Épistémologie, 1983, p 60). When this dichotomy is transferred into the social sciences, the problem of the object becomes evident. Is the model one that can be falsified by external reality? If not, then the object’s existence is probably one constructed by the theory itself and this forces one back to the ‘coherence’ of the model or theory and to the plausibility of its explanatory power. What is the internal structure of the model or theory? Is it a model claiming to be based on facts, on abstract concepts or on texts? If it is constructed out of facts, are these virtual or concrete facts? In short, how can the model and its assertions be validated? Can economists predict with accuracy or are their virtual facts models simply inadequate? Can historians predict or are their factual models too singular? Granger makes two important points. First, ‘a theory dealing with human facts is constantly menaced, if one is not careful, with becoming an ideology, substituting myths for concepts and prescriptions for descriptions’ (p 99). Secondly, it may be that social facts, like the weather, are too complex. This difficulty may be overcome with simulation and the development of ever more powerful computers (p 101). § 6 Schemes of intelligibility The complexity of human facts and the impossibility of subjecting these facts to laboratory experimentation have resulted in recourse to a range of other methods of analysis and schemes of intelligibility. These methods and schemes, by no means easy to isolate and enumerate, reflect in turn theoretical (epistemological) perspectives and thus need to be appreciated by anyone researching into the human and social sciences. Law might appear different in as much as it is tempting to believe that it has fashioned its own methodology. However legal technique and method are not in themselves unproblematic (as will be seen in a future seminar); such methods as commonly set out in the textbooks are possibly of limited epistemological value to the serious researcher (save perhaps as objects of research in themselves). Whatever the position, different social science schemes of intelligibility are, perhaps on occasions unconsciously, brought to bear both from within legal technique itself (statutory interpretation as compared to

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Legal Method and the Common Law case law analysis) and from an external standpoint (syllogistic method as compared to hermeneutics). Decoding and enumerating these different schemes of conceptualisation and observation presents serious problems given the diversity and unsystematised (in comparison with those used in the natural sciences) nature of concepts employed (Granger, pp 87–89). However a major contribution to the typology of such schemes of intelligibility in the social science has been made by J-M Berthelot in L’intelligence du social, 1990, Chapter II (see also Granger, pp 90–92). § 7 The causal scheme Bethelot identifies six basic types of scheme of intelligence. The first scheme identified is the causal scheme whereby one phenomenon (B) is seen as depending on another phenomenon (A) according to a relation in which it is impossible to have B without A and that in any variation of A there corresponds a variation in B (reciprocal implication). It follows’, says Bethelot, ‘that A and B are distinct either in reality (different objects or realities) or analytically (different levels of a global reality) and that the element A is conceived as being necessarily prior, chronologically or logically, to the element B’ (pp 62–63). One example that might be given of this scheme is Durkheim’s study of suicide: the number of suicides is seen as being caused by another phenomenon, social cohesion, which is logically prior to the suicides (Quivy and Van Campenhoudt, Manuel de recherche en sciences societies, 2nd edn, 1995, p 94). In the medical sciences the scheme is of importance in diagnosing and treating specific illness and it is of course relevant to the interpretation of statistical data. The phenomena in play (A and B) are not necessarily individualised objects, for the scheme can be applied, as Berthelot observes, to structural systems. Thus, the Marxist thesis concerning the relationship between economic infrastructure (A) and social superstructure (B) is one of causality and dependence (pp 64–65). In legal reasoning the causal scheme is particularly prevalent: a victim of harm (A) must prove that the harm was caused by the act or activity of the defendant (B) before the defendant will be liable for the harm (see, for example, Dig 9.2.52.2; CC, Art 1382; Jolley v Sutton LBC [1998] 1 WLR 1546). § 8 The functional scheme The second scheme is based on the idea that organisms, and indeed machines, are to be understood in terms of their practical functions (rather than say their individual parts). This scheme is better known today under the label of systems analysis whereby organisms are seen as being made up of circular relations. The logical form symbolised by the circular relation (S?B?S) is that of the reciprocal action’; and ‘the functional requirements of S require that B fulfils a function useful to S’ (Berthelot, p 65). A carburettor in a car engine is thus to be understood not by a researcher dismantling it into its component parts, but by viewing its function within the car engine itself seen as a functioning system. In sociology this scheme has quite old roots in as much as it underpins holistic theories of society; in particular those now much criticised theories which envisaged society as being analogous to biological organisms. However it has reappeared in a much more sophisticated version under the label ‘systems theory’. This theory, drawing its inspiration from contemporary scientific thinking, envisages as the object of knowledge not

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Sourcebook on Obligations and Remedies society itself, but an abstracted model of society viewed as a functioning system. The epistemological strength of this scheme is to be found in its ability ‘to go beyond the purely empirical that is to say the study of singular events’, and thus to escape the traditional dichotomy between the whole and its parts (Lucan, La systèmique sociale, 1993, pp 11, 37). When applied to law, systems theory and the functional approach can provide important insights into codification, legal classification and indeed the role of law in society (Samuel (1997) 17 LS 448). § 9 The structural scheme The main characteristic’ of the structural scheme ‘is that [the elements] are inserted into a system of oppositions where…objects, properties, relations… become signs, elements of a system operating as a code’ (Berthelot, p 70). This scheme was introduced into social science through linguistics (in particular the work of Lèvi-Strauss) since language is perhaps the paradigm example of a closed structure of arbitrary and solid signs, oppositions and correlations. In such a code a term A takes its signification in comparison with terms B, C, D, etc, which are in opposition to it; thus the ‘most simple code is one which has only two signs: ‘red light’…‘green light’…’. When applied to social science the structural scheme is used to analyse social behaviour in terms of a code. ‘Affection, tenderness, reserve, respect, coldness,’ writes Berthelot, ‘are attitudes that the kinship system selects (amongst others) in order to signify its component relations through the interplay of their association and their opposition’. However the significance of the structural scheme goes beyond that of a formal code to embrace the symmetry and pattern of the structure itself, its isomorphic qualities (pp 71–72). Thus at its most concrete level analogy and metaphor would be examples of the use of isomorphic structures as a scheme of reasoning. At more abstract levels the use of structural patterns is fundamental to the understanding and applicability of theoretical structures. Thus, Weber’s thesis of the relationship between the Protestant ethic and the Spirit of Capitalism can be seen as an example of the use of an isomorphic model (Berthelot, p 72). Another, more general, example is the use of hierarchical structures in social and scientific theory. As an historian has observed: The argument from animal hierarchies to human hierarchies may be mere nonsense; probably it is nonsense; but it is not just medieval nonsense. The human mind has never ceased to be fascinated by natural hierarchy; and the point that hierarchical ordering is a near-universal manifestation among human cultures seems self-evident’ (Tierney, Religion, Law and the Growth of Constitutional Thought 1150–1650, 1982, p 44). § 10 The hermeneutical scheme The hermeneutical scheme has its immediate intellectual foundation in the theological interpretation of old written texts. But it is ‘a very ancient scheme of intelligibility, probably one of the first developed by humanity in its attempt to explain reality’. And it ‘consists of developing systematically a vertical logic of the beyond of appearance or surface of things: B is not only B, for example a tree a little odd in the way it twists its branches into an isolated entanglement’. Thus ‘B is simultaneously something else, a force, a spirit, a power which is recognisable by this form’. B and A (this below the surface

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Legal Method and the Common Law spirit) become one in that ‘B and A combine in an animistic ontology where B is both A and B’. However today the hermeneutical scheme has transcended such pre-scientific thinking: it ‘involves B being seen only as a sign, and thus divided into a signifier (what it is) and a signified (what it expresses)’ (Berthelot, p 73). In the social sciences it is the human facts which act as the signifier and it is for the particular science to explain these significations (Dilthey). The idea of interpreting facts is also of relevance to law in that the role of the judge has been said to be ‘a hermeneutical process aiming to discover unknown facts from the known facts of every cause’ (Ivainer, L’interpretation des faits en droit, 1988, p 22). However the hermeneutical scheme is particularly relevant to those human sciences involving the interpretation of texts. It is thus a scheme that especially characterises the work of the medieval Roman lawyers—whose object of study (sign) was the Corpus Iuris— and the exegetical school of French lawyers whose object of study and interpretation was uniquely the Code civil (Van Caenegem, Judges, Legislators and Professors, 1987, pp 124–26). More generally the interpretation of statutes and reported cases might equally be labelled ars hermeneutica. However hermeneutics also characterises the contemporary school of legal philosophy represented by jurists such as Dworkin and Habermas. Law, for Dworkin, is interpretation. § 11 The actional scheme The emphasis of the actional scheme (le schème actanciel) is on the actor. The phenomenon B that one wants to study is thought of as the result of the behaviour of the implicated actors’ and thus it ‘involves the actual recognition of the intentionality of the action, its irreducibility into a causal determination: the strategic concepts in politics, and rational calculation in economics, imply a submission of the action to particular desired ends’ (Berthelot, p 76). Economists for example build up a specific picture of the actor as homo rationalis and lawyers, of course, have developed a range of actors. The ‘bon père de famille’, the ‘reasonable man’, the ‘contracting party’ and so on are some of the more well-known examples. Indeed, the whole of Western criminal law could be said to be premised on this scheme. Thus, one is criminally liable only for one’s own act (see, for example, French Code pénal, Art 121–1) and this act must be founded upon an intention to commit the criminal act (Art 121–3). The action as linked to intention is not, however, confined to the individual; it can, as Berthelot points out, be applied to collective entities and to organisations. In sociology the scheme appears under the epistemological label of ‘methodological individualism’ which in turn is associated with Max Weber (although its epistemological roots are much older). As far as Weber was concerned, ‘the foundational sociological unit could consist in first analysis only in “single persons”, “particular individuals” and even “isolated” or “separated” persons—consequently postulated as social science “atoms’” (Laurent, L’individualisme méthodologique, 1994, p 64). This individualist methodology is a theoretical perspective of such importance in both the human and by analogy the natural sciences that it transcends the actional scheme to warrant its own analysis as an epistemological paradigm (see § 14).

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Sourcebook on Obligations and Remedies § 12 The dialectical scheme The dialectical scheme in many ways stands in opposition to methodological individualism in that it is essentially holistic in its structural form. It is ‘a system basically defined by the existence of two terms at one and the same time indissociable and opposed constituting what can be called a contradiction’ (Berthelot, p 82). It can be expressed in the formula A & non A?B. This methodology is associated with the philosopher Hegel (died 1831) who developed a whole thesis of history based on the idea of a process of internal contradiction. But as a method dialectica was a hermeneutical device used by the medieval scholastic philosophers and lawyers for ironing out apparent contradictions in texts. The view in the late Middle Ages was that contradictions were only apparent not real since ‘the unity of the human mind, being a divine creation, could not contradict itself in fundamental matters’ (Ullmann). The way to solve these contradictions was through the operation of a distinctio which itself could be tested through argumentation (disputatio). The results of this scholastic methodology must never be underestimated as the great work of the canon lawyer Gratian, finished in 1140, bears witness. Entitled Concordia discordantium canonum, it harmonised a huge mass of discordant and contradictory texts to become the most influential textbook on canon law during the whole of the early modern period. The dialectical methodology thus became associated with legal studies and with philosophy in general and this was the intellectual foundation for the modern idea that reality is riddled with contradictions which must be transcended. The method still finds important expression in Western legal systems in the maxim audi alterant partem which translates into the procedural principle of contradiction (see NCPC, Art 16). However as a scheme of intelligibility ‘the difficulty consists in actually grasping the internal process at work’. For the ‘risk is always to project onto it something which is only an external form: the formula aÚnot aÚnot not a often illustrated by biological phenomena (caterpillarÚ chrysalisÚ butterfly, budÚ flowerÚ fruit) is explicative only if it leads to an effective account of the passage from one state to the other’. And, if not, ‘it is only descriptive’ (Berthelot, p 82). Nevertheless, the importance of the dialectical scheme in the structuring and presentation of a thesis (the two part French plan for example) remains of fundamental importance. § 13 Interrelationship of schemes The isolation of these schemes of intelligibility implies neither that the typology is exhaustive nor that the various schemes are mutually exclusive. The causal and the actional scheme for example might be said to typify much of substantive Western criminal and private law. At the level of procedure the dialectical scheme is of particular relevance and codification certainly lends itself to a structural analysis and possibly a functional analysis as well. The hermeneutical scheme, while primarily associated, historically, with theological texts, deserves a special place in the history of legal theory (see, for example, Goodrich, Languages of Law, 1990, pp 66–71, 108–110). It was one of the central schemes of intelligibility used by academic lawyers working in the medieval and modern universities. Nevertheless it has never been a unique scheme. The use of analogy for example has an equally respectable pedigree in legal reasoning and this is a form of analysis that is based on the isomorphic qualities to be found in factual situations. Analogy might well then be seen 176

Legal Method and the Common Law as an aspect of structuralism. The American Realists, while not systems theorists, nevertheless put the emphasis only on the functional role of legal concepts and this functional approach is, so some comparative lawyers have argued, the only methodology that is possible in comparative law (Zweigert and Kötz, An Introduction to Comparative Law, 3rd edn, 1998, pp 34ff). Dialectical methodology would, however, seem to have its relevance for the comparative lawyer as well since “he may be able to fashion a new solution, superior to all others, out of parts of different national solutions’ (Zweigert and Kötz, p 47). Indeed dialectical argument and hermeneutics would appear to be the two main schemes which characterised the scholastic methods of the medieval Romanists. In short, legal method involves a melange of social science schemes of intelligibility. § 14 Holistic and individualistic methodology If one had to abstract from Berthelot’s schemes one fundamental theme or dichotomy it is perhaps that of the opposition between a ‘holistic’ and an ‘atomistic’ analysis of society (Berthelot, pp 152–61). The dichotomy is one of ontology, that is say it is concerned with what exists as a physical reality. Does one view society as a ‘thing’ in itself or does one view society only as a collection of individual people and physical objects? The debate is an old one and indeed is reflected in a number of Roman legal texts (see, for example, Dig 5.1.76; Dig 41.3.30)…

Notes and questions 1

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‘We can find an even more fruitful comparison between literature and law…by constructing an artificial genre of literature that we might call the chain novel. In this enterprise a group of novelists writes a novel seriatim; each novelist in the chain interprets the chapters he has been given in order to write a new chapter, which is then added to what the next novelist receives, and so on. Each has the job of writing his chapter so as to make the novel being constructed the best it can be, and the complexity of this task models the complexity of deciding a hard case under law…’ (Dworkin, Law’s Empire, 1986, Fontana, p 229). What scheme of intelligibility is Dworkin proposing? Is there not an important difference between writing a novel and writing a judgment? Is Berthelot/s scheme exhaustive?

(c) Induction and deduction Home Office v Dorset Yacht Co Ltd [1970] AC 1004 House of Lords (See also p 645.) Lord Diplock:… The method adopted at this stage of the process is analytical and inductive. It starts with an analysis of the characteristics of the conduct and relationship involved in each of the decided cases. But the analyst must know what he is looking for; and this involves his approaching his analysis 177

Sourcebook on Obligations and Remedies with some general conception of conduct and relationships which ought to give rise to a duty of care. This analysis leads to a proposition which can be stated in the form: In all the decisions that have been analysed a duty of care has been held to exist wherever the conduct and the relationship possessed each of the characteristics A, B, C, D, etc, and has not so far been found to exist when any of these characteristics were absent.’ For the second stage, which is deductive and analytical, that proposition is converted to: In all cases where the conduct and relationship possess each of the characteristics A, B, C, D, etc, a duty of care arises.’ The conduct and relationship involved in the case for decision is then analysed to ascertain whether they possess each of these characteristics. If they do the conclusion follows that a duty of care does arise in the case for decision. But since ex hypoihesi the kind of case which we are now considering offers a choice whether or not to extend the kinds of conduct or relationships which give rise to a duty of care, the conduct or relationship which is involved in it will lack at least one of the characteristics A, B, C or D, etc. And the choice is exercised by making a policy decision…which…will be influenced by the same general conception of what ought to give rise to a duty of care as was used in approaching the analysis. The choice to extend is given effect to by redefining the characteristics in more general terms so as to exclude the necessity to conform to limitations imposed by the former definition which are considered to be inessential… Inherent in this methodology, however, is a practical limitation which is imposed by the sheer volume of reported cases. The initial selection of previous cases to be analysed will itself eliminate from the analysis those in which the conduct or relationship involved possessed characteristics which are obviously absent in the case for decision. The proposition used in the deductive stage is not a true universal. It needs to be qualified so as to read: In all cases where the conduct and relationship possess each of the characteristics A, B, C and D, etc, but do not possess any of the characteristics Z, Y or X, etc, which were present in the cases eliminated from the analysis, a duty of care arises.’ But this qualification, being irrelevant to the decision of the particular case, is generally left unexpressed… From the previous decisions of the English courts…it is possible to arrive by induction at an established proposition of law as respects one of those special relations: viz, A is responsible for damage caused to the person or property of B by the tortious act of C (a person responsible in law for his own acts) where the relationship between A and C has the characteristics: (1) that A has the legal right to detain C in pénal custody and to control his acts while in custody; (2) that A is actually exercising his legal right of custody of C at the time of C’s tortious act; and (3) that A if he had taken reasonable care in the exercise of his right of custody could have prevented C from doing the tortious act which caused damage to the person or property of B; and where also the relationship between A and B has the characteristics; (4) that at the time of C’s tortious act A has the legal right to control the situation of B or his property as respects physical proximity to C; and (5) that A can reasonably foresee that B is likely to sustain damage to his person or property if A does not take reasonable care to prevent C from doing tortious acts of the kind which he did…

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Questions 1

2 3

Lord Diplock suggests that, in form, legal method is a matter of induction and deduction, but that in substance, there is much room for choice. Is this space for choice something inherent in induction and deduction itself, or is it something special to legal reasoning? Does Sherlock Holmes reason by induction or deduction? If choice is to be determined by the making of a policy decision, does this in effect mean that all legal reasoning is, in the final analysis, a matter of policy? What do you think is meant by policy in this context?

Notes 1

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There is no science without method and, so it may be argued, there is no reliable method without science. Science and methodology are locked in a close embrace. Now, with respect to scientific research, method is usually presented via models which constitute at one and the same time both the particular science and its method. One can discover reliable new knowledge only by conforming to set procedures and these procedures relate in turn to a model which itself forms part of a scientific theory. Two stages are normally envisaged: induction and verification. That is to say, since Galileo, the scientist proposes a hypothesis and then subjects it to experimental proof (Bunge, Épistémologie, 1983, Maloine, p 31). If the hypothesis is confirmed, one can move towards a third stage: the hypothesis is translated into a scientific law and finally to an axiom from which one can then deduce knowledge. Induction, verification and deduction are, then, the methods commonly associated with all aspects of science (of course the position is, in truth, much more complex than this). However, when one talks about methodology in the context of legal research, can it be reduced to induction, verification and deduction? Is there a single scientific method applicable to all sciences, including the social sciences? In a very general sense, induction is a word which gives expression to all reasoning which generalises. Aristotle defined it in his Topics as the passage from the particular to the general. However, induction is not a reliable form of reasoning in that general principles, laws or theories induced by observation of facts might ultimately prove to be mistaken. Indeed, in the area of politics it can be dangerous (for example, it can lead to discrimination on the basis of inaccurate inductions). With regard to law, induction as a methodological tool has a long history stretching back to Roman law. For example, the movement from a law of contracts to a law of contract could be seen in terms of induction; ‘agreement’, originally recognised as a common denominator (Dig 2.14.1.3), became the ‘law’ underpinning the general theory of contract (CC, Art 1101). The original 179

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edition of Goff and Jones, Law of Restitution, 1966, Sweet & Maxwell, can be seen as a good example of induction as a research tool. The authors argued for a reinterpretation of a diverse range of common law and equity cases in terms of the unjust enrichment principle; in other words, this principle could be induced out of the English cases so as to act as a law capable of explaining and predicting. Deduction is often seen as the reverse of induction: that is to say, it is a reasoning process by which one goes from the general to the particular. More precisely, deduction can be described as saying that certain pieces of knowledge being considered as acquired, other knowledge can be inferred as a consequence. Thus if A=B and B=C, then it can be deduced that A=C What is so valuable about deduction as a knowledge technique is that information can be acquired without recourse to empirical investigation, experience or any other exterior source (Oléron, Le raisonnement, 4th edn, 1995, PUF, pp 73–74). Thus, someone who lives far away from the UK and knows that cotton requires hot and dry conditions to grow can deduce whether or not cotton grows naturally in the UK. All that is needed is information on UK weather conditions. In law, the deductive method finds expression through the use of the syllogism (see below, p 183). Grant v Australian Knitting Mills Ltd [1936] AC 85 Privy Council This was a successful action for damages, against a manufacturer of underpants, for injury caused to a purchaser by a pair of underpants which had not been properly decontaminated of chemicals before leaving the factory. Lord Wright:… But when the position of the manufacturers is considered different questions arise: there is no privity of contract between the appellant and the manufacturers: between them the liability if any, must be in tort, and the gist of the cause of action is negligence. The facts set out in the foregoing show, in their Lordships’ judgment, negligence in manufacture… The appellant is not required to lay his finger on the exact person in all the chain who was responsible, or to specify what he did wrong. Negligence is found as a matter of inference from the existence of the defects taken in connection with all the known circumstances: even if the manufacturers could by apt evidence have rebutted that inference they have not done so… It is clear that [Donoghue v Stevenson] treats negligence, where there is a duty to take care, as a specific tort in itself, and not simply as an element in some more complex relationship or in some specialised breach of duty, and still less as having any dependence on contract. All that is necessary as a step to establish the tort of actionable negligence is to define the precise relationship from which the duty to take care is to be deduced. It is however, essential in English law that the duty should be established: the mere fact that a man is injured by another’s act gives in itself no cause of action: if the act is deliberate, the party injured will have no claim in law even though the injury is intentional, so long as the other party is merely exercising a legal right: if the act involves lack of due care, again no case of actionable negligence will arise 180

Legal Method and the Common Law unless the duty to be careful exists. In Donoghue’s case the duty was deduced simply from the facts relied on—namely, that the injured party was one of a class for whose use, in the contemplation and intention of the makers, the article was issued to the world, and the article was used by that party in the state in which it was prepared and issued without it being changed in any way and without there being any warning of, or means of detecting, the hidden danger: there was, it is true, no personal intercourse between the maker and the user; but though the duty is personal, because it is inter partes, it needs no interchange of words, spoken or written, or signs of offer or assent; it is thus different in character from any contractual relationship; no question of consideration between the parties is relevant: for these reasons the use of the word ‘privity’ in this connection is apt to mislead, because of the suggestion of some overt relationship like that in contract, and the word ‘proximity’ is open to the same objection… The principle of Donoghue’s case can only be applied where the defect is hidden and unknown to the consumer, otherwise the directness of cause and effect is absent: the man who consumes or uses a thing which he knows to be noxious cannot complain in respect of whatever mischief follows, because it follows from his own conscious volition in choosing to incur the risk or certainty of mischance. If the foregoing are the essential features of Donoghue’s case they are also to be found, in their Lordships’ judgment, in the present case. The presence of the deleterious chemical in the pants, due to negligence in manufacture, was a hidden and latent defect, just as much as were the remains of the snail in the opaque bottle: it could not be detected by any examination that could reasonably be made. Nothing happened between the making of the garments and their being worn to change their condition. The garments were made by the manufacturers for the purpose of being worn exactly as they were worn in fact by the appellant: it was not contemplated that they should be first washed. It is immaterial that the appellant has a claim in contract against the retailers, because that it a quite independent cause of action, based on different considerations, even though the damage may be the same. Equally irrelevant is any question of liability between the retailers and the manufacturers on the contract of sale between them. The tort liability is independent of any question of contract. It was argued, but not perhaps very strongly, that Donoghue’s case was a case of food or drink to be consumed internally, whereas the pants here were to be worn externally. No distinction, however, can be logically drawn for this purpose between a noxious thing taken internally and a noxious thing applied externally: the garments were made to be worn next to the skin: indeed Lord Atkin specifically puts as examples of what is covered by the principle he is enunciating things operating externally, such as ‘an ointment, a soap, a cleaning fluid or cleaning powder’… The decision in Donoghue’s case did not depend on the bottle being stoppered and sealed: the essential point in this regard was that the article should reach the consumer or user subject to the same defect as it had when it left the manufacturer. That this was true of the garment is in their Lordships’ opinion beyond question. At most, there might in other cases be a greater difficulty of proof of the fact…

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Sourcebook on Obligations and Remedies No doubt, many difficult problems will arise before the precise limits of the principle are defined: many qualifying conditions and many complications of fact may in the future come before the courts for decision. It is enough now to say that their Lordships hold the present case to come within the principle of Donoghue’s case…

Notes and questions 1

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4 5

6

Why can no logical distinction be drawn between a bottle of ginger beer and a pair of underpants? Is a pair of underpants subject to the Food Safety Act 1990? Was the plaintiff injured by (a) a dangerous pair of underpants; or (b) by a dangerous product; or (c) by a careless act of the defendant? Do ‘products’ exist, or are they an invention of the legal mind? What reasoning method was employed in this case: a method similar to that outlined by Lord Diplock in Dorset Yacht (above) or a method that one might describe as reasoning by analogy? What is the difference between induction, deduction and analogy? Did Grant in any way alter the material facts of Donoghue? The term “clear case” refers to a situation of isomorphy in which the applicability of a legal rule or a set of legal rules to certain facts is clear and unproblematic… In these cases of isomorphy, where the facts of the case clearly fit into the operative facts of the legal rule, which attaches a legal consequence to those facts, judicial action can be accounted for by pointing to the fact that a rule is being almost unreflectively applied…’ (Bengoetxea, The Legal Reasoning of the European Court of Justice, 1993, OUP, pp 184, 186). Is Grant an easy case? Do rules actually have ‘operative facts’? ‘But problems arise when hard cases have to be decided and those decisions justified. What if no valid norm seems to govern the case? Which norm has to be chosen? What if a norm which tendentially governs the case leads to undesirable consequences? How must a norm be interpreted in order to obtain the best possible result? It is clear that all these questions take us to the domain of axiology, morality, or politics and yet legal justification is not expected to question the very system of law nor the ideology of adjudication embodied therein, that is, the postulate that legal decisions have to be grounded on legally relevant sources, a postulate that embodies the rule of law ideal…’ (Bengoetxea, The Legal Reasoning of the European Court of Justice, 1993, OUP, p 146). How do policy decisions fit into this scheme of easy and hard cases?

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(d) Syllogism FA and AB Ltd v Lupton [1972] AC 634 House of Lords Lord Simon:… A judicial decision will often be reached by a process of reasoning which can be reduced into a sort of complex syllogism, with the major premise consisting of a pre-existing rule of law (either statutory or judge-made) and with the minor premise consisting of the material facts of the case under immediate consideration. The conclusion is the decision of the case, which may or may not establish new law—in the vast majority of cases it will be merely the application of existing law to the facts judicially ascertained. Where the decision does constitute new law, this may or may not be expressly stated as a proposition of law: frequently the new law will appear only from subsequent comparison of, on the one hand, the material facts inherent in the major premise with, on the other, the material facts which constitute the minor premise. As a result of this comparison it will often be apparent that a rule has been extended by an analogy expressed or implied. I take as an example… National Telephone Co v Baker [1893] 2 Ch 186. Major premise: the rule in Rylands v Fletcher (1866) LR 1 Exch 265; (1868) LR 3 HL 330. Minor premise: the defendant brought and stored electricity on his land for his own purpose; it escaped from the land; in so doing it injured the plaintiff’s property. Conclusion: the defendant is liable in damages to the plaintiff (or would have been but for statutory protection). Analysis shows that the conclusion establishes a rule of law, which may be stated as ‘for the purpose of the rule in Rylands v Fletcher electricity is analogous to water’ or ‘electricity is within the rule in Rylands v Fletcher’. That conclusion is now available as the major premise in the next case, in which some substance may be in question which in this context is not perhaps clearly analogous to water but is clearly analogous to electricity. In this way, legal luminaries are constituted which guide the wayfarer across uncharted ways.

Questions 1 Why is electricity analogous to water? 2 Does Lord Simon imply that knowledge of law consists of having knowledge of legal rules? If so, where does policy fit into the system? 3 What is meant by ‘material facts’? What are the material facts of (a) Donoghue v Stevenson (see p 65) and (b) Rylands v Fletcher (see p 660)? Have the material facts of Rylands been altered by the Cambridge Water case (see p 665)? 4 What is the hardest part of Lord Simon’s complex syllogism: the decision that electricity is analogous to water or the decision that the defendant is or is not liable? 5 Is Lord Simon really telling us how law is applied to facts? 6 The syllogism remains…the general support of reasoning but the choice of premises presupposes each time a debate. No premise can be admitted without admitting at the same time the opposite premise, so that no conclusion can be retained without having envisaged the opposite 183

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conclusion and without having operated a choice between two possible conclusions… The influence of dialectics on legal reasoning does not exclude, then, all intervention of formal logic. This implies a certain comprehensiveness to legal reasoning which gives it its specific character …’ (Bergel, Theorie generale du droit, 3rd edn, 1999, Dalloz, p 276). Is the specific character of legal reasoning simply the intermixing of the dialectical scheme of intelligibility with a structural (logical) scheme (cf above, pp 169–77)? Notes 1

2

3

It has long been thought that deduction was reducible to the syllogism. In its classical form (Aristotle, as developed by the medieval philosophers) the typical example is a structure of three parts: (a) all men are mortal; (b) Socrates is a man; (c) therefore, Socrates is mortal. The syllogism is thus composed of three propositions: (a) the major premise; (b) the minor premise; and (c) the conclusion. What makes this seemingly banal example so important is that the structure is entirely abstract and formal. The elements ‘man’, ‘mortal’ and ‘Socrates’ can be replaced by other elements. For example: (a) cotton grows naturally where it is hot and dry; (b) in England it is cold and humid; (c) therefore, cotton does not grow naturally in England. And ‘it is on these formal properties that the conclusive value of the syllogism rests’ (Oléron, Le raisonnement, 4th edn, 1995, PUF, p 75). This technique of moving from a general proposition (law) to a particular proposition (fact) has always appeared particularly valuable to the jurist. Thus: (a) whereas judges are forbidden to make general and regulatory pronouncements on matters which are submitted to them (CC, Art 5); (b) that in assessing damage resulting from a crime the judges referred to a general rule established by them in previous cases; (c) therefore, the text of the code has been infringed (Cass crim 3.11.1955; D 1956.1.557). According to Lord Simon, the syllogism is seen as being at the basis of reasoning in the common law as well. However, as Piaget has expressed it, deduction ‘becomes explicable only at the moment when it takes a constructive form, that is to say when it tends to set up a “structure”…[or] what one can call “models”’ (L’epistemologie génétique, 4th edn, 1988, PUF, p 103). Conclusions are arrived at as a result of transformations at the level of the model. One has need, therefore, of abstract structures for the understanding of cotton and the understanding of weather (see above); without these scientific models the conclusion about whether cotton grows in England would not be possible without empirical investigation. Accordingly, when one looks at the use of deduction in law, it only becomes possible when legal thinking 184

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has reached a certain level of sophistication. A Roman jurist was able to deduce that one does not lose possession of money one has buried in a place now forgotten: for otherwise one would lose possession of slaves when they wandered out of sight (Dig 41.2.44 pr). Such thinking requires a ‘structure’ whereby both slave and money are conceptualised as a res, thus allowing the structure persona-res to be applied to both situations (see Samuel and Rinkes, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, pp 4–6). The more that one wants to rely upon the deductive method, the more it has to be accompanied by systematisation of law into ever ‘harder’ models (see Wieacker, A History of Private Law in Europe, 1995, OUP (trans Weir), pp 239–56, 341–6). As Pédamon has summarised it: the ‘transposition, in the legal domain, to a mode of reasoning which was essentially deductive, applied in a rigorous manner and independently of all consideration drawn from experience or from social life could be labelled mos geometricus; it had important consequences for legal method’ in that it ‘orientated German legal science towards a kind of “conceptual hardening” (Holleaux) which foreshadowed the work of the Pandectic school and which still characterises today, at least in some respects, the German legal spirit’ (Le droit allemand, 1985, PUF, pp 15–16). The BGB was the final result of this modelisation. Harbour Assurance Co v Kansa General International Insurance Co Ltd [1993] QB 701 Court of Appeal This was a claim for a declaration that an arbitration clause contained in an insurance contract void for illegality was also void. The Court of Appeal held that the arbitration clause was not affected in this case by the illegality of the contract. Hoffmann LJ:… Mr Longmore’s argument is extremely simple. He says that the question raised on the pleadings is whether the retrocession agreement was void ab initio. The arbitration clause formed part of the retrocession agreement. Therefore the issue must involve the validity of the arbitration clause itself. Mr Longmore calls this logic. I call it over-simplification. The flaw in the logic, as it seems to me, lies in the ambiguity of the proposition that the arbitration clause ‘formed part’ of the retrocession agreement. In one sense of course it did. It was clause 12 of a longer document which also dealt with the substantive rights and duties of the parties. But parties can include more than one agreement in a single document. They may say in express words that two separate agreements are intended. Or the question of whether the document amounts to one agreement or two may have to be answered by reference to the kind of provisions it contains… There is no single concept of ‘forming part’ which will provide the answer in every case…

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Notes and questions 1

2

The syllogism is reliable only in certain situations. Because natural language is a system in itself, there are a number of dangers when it is used to give expression to other knowledge systems: (a) a mouse eats cheese; (b) a mouse is a word of one syllable; (c) therefore, words of one syllable eat cheese. In particular, the words employed must keep their same signification in the major and minor premises. If they do not, then the conclusion can be absurd, as the example indicates. Also care must be taken not to confuse genus and species: (a) cats eat meat; (b) cats are animals; (c) therefore, animals eat meat. This conclusion might not be quite as absurd as words eating cheese, but it is equally wrong, in as much as it does not accord with reality. Not all animals eat meat. In addition, there is the problem of the missing premise (tertium non datur): (a) smoking causes lung cancer; (b) Socrates died of lung cancer; (c) therefore, Socrates was a smoker. The missing premise is that lung cancer has other causes as well as smoking. Harbour Assurance shows how the syllogism can prove particularly weak in law in as much as the structure or model is subject to little external restraint and thus proves a ‘movable goal post’. Intellectual systems can, in short, contain uncertainties and ambiguities. Does Harbour Assurance indicate that logic is simply a form of argumentation? Or does it indicate that legal reasoning should never be seen as a matter of logic as such, but a matter of what premise is to be adopted? Whittaker v Campbell [1984] QB 318 Queen’s Bench Division Robert Goff LJ:… We are concerned in the present case with the construction of certain words, viz, ‘without having the consent of the owner’, in their context in a particular sub-section of a criminal statute. However, the concept of consent is relevant in many branches of the law, including not only certain crimes but also the law of contract and the law of property. There is, we believe, danger in assuming that the law adopts a uniform definition of the word ‘consent’ in all its branches…

Questions 1 2 3

If the law adopts a uniform definition of ‘offer’, why should things be different with a word like ‘consent’? (Cf Fisher v Bell, p 24.) Are the categories of crime, contract and property distinct ‘blocks’ of rules? If so, to what extent do rules from different blocks interrelate? ‘It is clear for instance that if a man brings and keeps a wild beast on his land…he may be liable for any damage occurring within or without his premises without proof of negligence. Such an exception will serve to illustrate the proposition that the law of torts has grown up historically in separate compartments and that beasts have travelled in a compartment 186

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4

of their own’ (Lord Simonds, Read v J Lyons and Co [1947] AC 156, p 182). Is liability for a dangerous animal in France based on a general principle? If so, why should this principle not be relevant to English law? ‘[T]he law should if possible be founded on comprehensive principles: compartmentalisation, particularly if producing anomaly, leads to the injustice of different results in fundamentally analogous circumstances’ (Lord Simon, National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, p 701). Does this statement undermine Hoffmann LJ’s approach? Does it conflict with the view of Lord Simonds in Read v Lyons (above)? Does compartmentalisation always lead to injustice? What determines if something is ‘fundamentally analogous’? Is electricity fundamentally analogous to water? Is a pair of underpants fundamentally analogous to a bottle of ginger beer?

(e) Reasoning by elimination Bryant v Herbert (1877) 3 CPD 389 Court of Appeal (See p 114.)

Notes and questions 1

2 3

Reasoning by elimination consists of examining and applying a complete range of categories, premises or hypotheses and eliminating all those that do not fit, so to speak. Thus the police might be said to reason in this way when they eliminate all potential suspects but one: equally, the doctor who eliminates all the possible diseases save one. Is this a form of logical reasoning? Just how reliable is it? If it is not contract, then it must be tort. But what about unjust enrichment? Read Kingdom of Spain v Christie (below, p 209). Does reasoning by elimination play a role in the judgment?

(f) Reasoning by absurdity Bridge v Campbell Discount Co Ltd [1962] AC 600 House of Lords Lord Denning:… Let no one mistake the injustice of this. It means that equity commits itself to this absurd paradox: it will grant relief to a man who breaks his contract but will penalise the man who keeps it. If this be the state of equity today, then it is in sore need of an overhaul so as to restore its first principles. R v Self [1992] 1WLR 657 Court of Appeal (See p 224.)

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(g) Reasoning by holistic analysis Hall v Lorimer [1992] 1 WLR 939 Queen’s Bench Mummery J:… In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.

Questions 1 2 3

4

Is Mummery J rejecting logic as the reasoning method in this particular case? Were the judges in Re Rowland (above, p 166) painting pictures? Is the method being proposed by Mummery J very different from that proposed by Lord Simon in the Lupton case (above, p 183)? Do you think they are two different methods appealing to different aspects of the mind? Do humans think in terms of pictures? What is the relationship, if any, between visual imagery, symmetry and logic? To what extent does the syllogism use visual imagery as its means of operation?

(h) Reasoning by individualistic analysis Rickards v Lothian [1913] AC 263 Privy Council This was an unsuccessful action for damages in respect of damage done to the claimant’s goods as a result of water overflowing from the defendant’s flat. The overflow had been caused by the malicious act of some third person who had blocked the outlet of the defendant’s basin. The plaintiff did not allege fault on the part of the defendant, but based his claim on the strict liability rule in Rylands v Fletcher [see p 660]. Lord Moulton:… Their Lordships…are of opinion that a defendant is not liable on the principle of Fletcher v Rylands for damage caused by the wrongful acts of third persons… … The provision of a proper supply of water to the various parts of a house is not only reasonable, but has become, in accordance with modern sanitary views, an almost necessary feature of town life. It is recognised as being so desirable in the interests of the community that in some form or other it is 188

Legal Method and the Common Law usually made obligatory in civilised countries. Such a supply cannot be installed without causing some concurrent danger leakage or overflow. It would be unreasonable for the law to regard those who install or maintain such a system of supply as doing so at their own peril, with an absolute liability for any damage resulting from its presence even when there has been no negligence… Dunne v North Western Gas Board [1964] 2 QB 806 Court of Appeal This was an unsuccessful action for damages in respect of personal injuries suffered by the claimant as a result of a gas explosion in the street. The claimant based his claim in nuisance and on the strict liability rule in Rylands v Fletcher [see p 660]. Sellers LJ:… Gas, water and also electricity services are well-nigh a necessity of modern life, or at least are generally demanded as a requirement for the common good, and one or more are being taken with considerable despatch to every village and hamlet in the country with either statutory compulsion or sanction. It would seem odd that facilities so much sought after by the community and approved by their legislators should be actionable at common law because they have been brought to places where they are required and have escaped without negligence by an unforeseen sequence of mishaps. A sequence of events may be just as unforeseeable and unavoidable and as extraneous to an individual or a supplier of services as an act of God is recognised to be… Roe v Minister of Health [1954] 2 QB 66 Court of Appeal (Seep 393.)

Notes and questions 1

2

Although there is much talk of the community interest in these three cases, the judges are actually envisaging society only in terms of individuals. If the individual suffers harm he or she is entitled to compensation only if it can be proved that the harm was caused by the blameworthy act of another person. This is, in Professor Berthelot’s scheme, very much the causal and actional analysis (see above, pp 169–77). It is an example of ‘methodological individualism’. The French, as we have seen (p 103), take a very different approach, at least in public law. They start off from the same premise as Lord Mouton and Sellers LJ, that public services benefit the community, but they use it as a reason for imposing liability without fault. If the community enjoys the benefits, then it is the community that should carry the burdens. Such burdens are shared amongst the community by compensating out of public funds the individual who has suffered damage. Is this a more just system? Read Watt v Hertfordshire CC [1954] 1 WLR 835 in the law report. Does Denning LJ take a similar approach to Sellers LJ?

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3

Ought God to be blamed for a gas explosion which blows a girl off her bicycle and injures others playing in the street?

(i) Reasoning by analogy Stocks v Magna Merchants Ltd [1973] 2 All ER 329 Queen’s Bench Division Arnold J:… There is no authority on the point and the parties agree that it is a matter of principle, that is that it falls to be determined by reference to the proper method of assessing damages in such a case as the present… The present question, in my judgment, falls to be answered in favour of the plaintiff if the redundancy payment in quality and, in particular, as regards its remoteness or proximity in relation to the dismissal of the plaintiff is analogous to a retirement pension, or predominantly analogous to that, but in favour of the defendants if it is analogous, or predominantly analogous, in those respects to unemployment benefit… My view is that there is a closer analogy, as regards remoteness or proximity to the dismissal of the plaintiff, between the payment of unemployment benefit and the payment of a sum for redundancy under the 1965 Act than there is between the payment of a retirement pension and a redundancy payment. Consequently, in my judgment…the right conclusion here is that the amount of the redundancy payment does fall to be deducted in calculating the damages payable by the defendants to the plaintiff… The Mediana [1900] AC 113 House of Lords Earl of Halsbury LC:… Now, in the particular case before us...the broad proposition seems to me to be that by a wrongful act of the defendants the plaintiffs were deprived of their vessel. When I say deprived of their vessel, I will not use the phrase ‘the use of the vessel’. What right has a wrongdoer to consider what use you are going to make of your vessel? More than one case has been put to illustrate this: for example, the owner of a horse, or of a chair. Supposing a person took away a chair out of my room and kept it for 12 months, could anybody say you had a right to diminish the damages by showing that I did not usually sit in that chair, or that there were plenty of other chairs in the room? The proposition so nakedly stated appears to me to be absurd… Butler Machine Tool Co Ltd v Ex-Cell-O Corporation [1979] 1 WLR 401 Court of Appeal (See also p 430.) Lord Denning MR:… Applying this guide, it will be found that in most cases when there is a ‘battle of forms’ there is a contract as soon as the last of the forms is sent and received without objection being taken to it… The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions: and, if

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Legal Method and the Common Law they are not objected to by the other party, he may be taken to have agreed to them… In some cases, however, the battle is won by the man who gets the blow in first… There are yet other cases where the battle depends on the shots fired on both sides… Lawton LJ:… In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition… White v Jones [1995] 2 AC 207 House of Lords (See p 702.) Lord Browne-Wilkinson:… In my view, although the present case is not directly covered by the decided cases, it is legitimate to extend the law to the limited extent proposed using the incremental approach by way of analogy advocated in Carparo Industries plc v Dickman [1990] 2 AC 605… … In my judgment, this is a case where such development should take place since there is a close analogy with existing categories of special relationship giving rise to a duty of care to prevent economic loss… X (Minors) v Bedfordshire County Council [1995] 2 AC 633 House of Lords (See p 727.) Lord Browne-Wilkinson:… Like the majority in the Court of Appeal, I cannot accept these arguments. The social workers and the psychiatrists were retained by the local authority to advise the local authority, not the plaintiffs. The subject matter of the advice and activities of the professionals is the child. Moreover the tendering of any advice will in many cases involve interviewing and, in the case of doctors, examining the child. But the fact that the carrying out of the retainer involves contact with and relationship with the child cannot alter the extent of the duty owed by the professionals under the retainer from the local authority. The Court of Appeal drew a correct analogy with the doctor instructed by an insurance company to examine an applicant for life insurance. The doctor does not, by examining the applicant, come under any general duty of medical care to the applicant. He is under a duty not to damage the applicant in the course of the examination: but beyond that his duties are owed to the insurance company and not to the applicant… Goodwill v British Pregnancy Advisory Service [1996] 1 WLR 1397 Court of Appeal (See p 722.) Peter Gibson LJ:… Miss Booth also relied on White v Jones [1995] 2 AC 207 as providing an example of an analogous situation in which a duty of care has been recognised. In that case a solicitor who was instructed to prepare a will but delayed in carrying out his instructions was held to owe a duty of care to the intended beneficiaries. She submitted that a woman who had a sexual relationship with Mr MacKinlay is in an analogous position to the intended beneficiaries under the will, because just as the solicitor was employed to

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Sourcebook on Obligations and Remedies confer a benefit (in the form of bequests) on a particular class of people (the beneficiaries), so the doctor is employed to confer a benefit (not getting pregnant) on a particular class of people (women who have sexual relationships with Mr MacKinlay). I admire the ingenuity of the suggested analogy, but I have to say that I am wholly unpersuaded that the analogy is real…

Notes and questions 1 2

3

4 5 6

Is war a useful analogy through which to understand contractual relationships? Does such an analogy capture the spirit of the PECL? ‘Perhaps…the most that can be attempted is a broad categorisation of the decided cases according to the type of situation in which liability has been established in the past in order to found an argument by analogy’ (Lord Oliver in Caparo Industries plc v Dickman [1990] 2 AC 605, p 635). Does this mean that English case law is not actually about the induction of general principles of liability? The owner or keeper of…an animal has an absolute duty to confine and control it so that it shall not do injury to others… But such an exceptional case as this affords no justification for its extension by analogy’ (Lord MacMillan in Read v J Lyons and Co [1947] AC 156, p 171). Why? Is reasoning by analogy a form of painting a picture along the lines suggested in Hall v Lorimer (above, p 188)? Are metaphors forms of analogy? Why should a rule applicable to a chair also be applicable to a lightship? Are they not entirely different kinds of property? Why would it be absurd for a defendant who mistakenly deprived an owner of one of his chairs to argue that the owner had suffered no damage?

(j) Reasoning by metaphor Spartan Steel and Alloys Ltd v Martin and Co (Contractors) Ltd [1973] 1 QB 27 Court of Appeal (See also p 194.) Lord Denning MR:… I do not like this doctrine of ‘parasitic damages’. I do not like the very word ‘parasite’. A ‘parasite’ is one who is a useless hangeron sucking the substance out of others. ‘Parasitic’ is the adjective derived from it. It is a term of abuse. It is an opprobrious epithet. The phrase ‘parasitic damages’ conveys to my mind the idea of damages which ought not in justice to be awarded, but which somehow or other have been allowed to get through by hanging on to others. If such be the concept underlying the doctrine, then the sooner it is got rid of the better…

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Questions 1 2 3 4

If Lord Denning finds parasitic damages so offensive, why does he allow the plaintiff in Jackson v Horizon Holidays (below, p 220) to recover them? Is this reasoning through painting a picture? Is Lord Denning proposing a reason or putting forward an argument? Read MG Duncan, In slime and darkness’ (1994) 68 Tulane LR 725. Are metaphors central to our understanding of criminal law?

(k) Appeal to values Christie v Leachinsky [1947] AC 573 House of Lords Viscount Simon:… No one, I think, would approve a situation in which when the person arrested asked for the reason, the policeman replied ‘that has nothing to do with you: come along with me’. Such a situation may be tolerated under other systems of law, as for instance in the time of lettres de cachet in the 18th century in France, or in more recent days when the Gestapo swept people off to confinement under an over-riding authority which the executive in this country happily does not in ordinary times possess. This would be quite contrary to our conceptions of individual liberty… Parry v Cleaver [1970] AC 1 House of Lords Lord Reid:… It would be revolting to the ordinary man’s sense of justice, and therefore contrary to public policy, that the sufferer should have his damages reduced so that he would gain nothing from the benevolence of his friends or relations or of the public at large, and that the only gainer would be the wrongdoer.

Notes and questions 1

‘In practical terms the effectiveness of a legal argument is tied to its conformity with the values held by the person to whom it is addressed. It presupposes a tacit, but vital, accord on the values held by society in whose name the judge renders justice. This accord has to be carried even as far as the hierarchy established between these values. There are the “universal hierarchies: the values relative to persons are superior to the values relative to things; a man is not to be run over in order to avoid a dog; a human life is worth more than private property”. And the “hierarchies that are often said to be social: the testimony of a retired general is worth more, in support of a proposition, than that of an active tramp”’ [Bredin] (Ghestin and Goubeaux, Traité de droit civil: introduction generate, 3rd edn, 1990, LGDJ, pp 46–47). Has the criminal law always accepted that human life is worth more than private property? To what extent does the law of tort put human life before economic interests? 193

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‘There are several good things in life, such as liberty, bodily integrity, land, possessions, reputation, wealth, privacy, dignity, perhaps even life itself. Lawyers call these goods “interests”. These interests are all good, but they are not all equally good. This is evident when they come into conflict (one may jettison cargo to save passengers, but not vice versa, and one may detain a thing, but not a person, as security for a debt). Because these interests are not equally good, the protection afforded to them by the law is not equal: the law protects the better interests better. Accordingly, the better the interest invaded, the more readily does the law give compensation for that harm. In other words, whether you get the money you claim depends on what you are claiming it for. It would be surprising if it were otherwise’ (Weir, A Casebook on Tort, 7th edn, 1992, Sweet & Maxwell, pp 4–5). Does English law protect bodily integrity better than it protects reputation? Is it easier for an employer to obtain compensation for financial loss caused by a uncaring workers going on strike than it is for a worker to obtain compensation for personal injury caused by an uncaring employer? Compare Blackpool and Fylde (p 436) with X (Minors) (p 727). If the results of these two cases are compared in terms of values, does it mean that the law gives greater protection to commercial interests than to the interests of children? Do s 2(1) of the Unfair Contract Terms Act 1977, and s 5(1) of the Consumer Protection Act 1987 reflect values?

(l) Appeal to policy Spartan Steel and Alloys Ltd v Martin and Co (Contractors) Ltd [1973] 1 QB 27 Court of Appeal This was an action for damages by the owners of a factory against a firm of contractors for damage and loss suffered when the supply of electricity was cut off as a result of the contractors, while excavating with a mechanical shovel on the highway, carelessly cutting through an electric cable. The factory owners claimed damages under three heads: (i) damage to metal in a furnace when the power failed; (ii) loss of profit on the ruined metal in the furnace; (iii) loss of profit on four other metal melting operations that could have been carried out if the electricity had not been off. A majority of the Court of Appeal held that the plaintiffs could recover under heads (i) and (ii), but not under head (iii). Lord Denning MR:… At bottom I think the question of recovering economic loss is one of policy. Whenever the courts draw a line to mark out the bounds of duty, they do it as matter of policy so as to limit the responsibility of the defendant. Whenever the courts set bounds to the damages recoverable— saying that they are, or are not, too remote—they do it as matter of policy so as to limit the liability of the defendant.

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Legal Method and the Common Law In many of the cases where economic loss has been held not to be recoverable, it has been put on the ground that the defendant was under no duty to the plaintiff. Thus where a person is injured in a road accident by the negligence of another, the negligent driver owes a duty to the injured man himself, but he owes no duty to the servant of the injured man—see Best v Samuel Fox and Co Ltd: nor to the master of the injured man—Inland Revenue Commissioners v Hambrook: nor to anyone else who suffers loss because he had a contract with the injured man—see Simpson and Co v Thomson: nor indeed to anyone who only suffers economic loss on account of the accident: see Kirkham v Boughey. Likewise, when property is damaged by the negligence of another, the negligent tortfeasor owes a duty to the owner or possessor of the chattel, but not to one who suffers loss only because he had a contract entitling him to use the chattel or giving him a right to receive it at some later date: see Elliott Steam Tug Co Ltd v Shipping Controller and Margarine Union GmbH v Cambay Prince Steamship. In other cases, however, the defendant seems clearly to have been under a duty to the plaintiff, but the economic loss has not been recovered because it is too remote. Take the illustration given by Blackburn J in Cattle v Stockton Waterworks Co, when water escapes from a reservoir and floods a coal mine where many men are working. Those who had their tools or clothes destroyed could recover: but those who only lost their wages could not. Similarly, when the defendants’ ship negligently sank a ship which was being towed by a tug, the owner of the tug lost his remuneration, but he could not recover it from the negligent ship: though the same duty (of navigation with reasonable care) was owed to both tug and tow: see Société Anonyme de Remorquage Hélice v Bennetts. In such cases if the plaintiff or his property had been physically injured, he would have recovered: but, as he only suffered economic loss, he is held not entitled to recover. This is, I should think, because the loss is regarded by the law as too remote: see King v Phillips. On the other hand, in the cases where economic loss by itself has been held to be recoverable, it is plain that there was a duty to the plaintiff and the loss was not too remote. Such as when one ship negligently runs down another ship, and damages it, with the result that the cargo has to be discharged and reloaded. The negligent ship was already under a duty to the cargo-owners: and they can recover the cost of discharging and reloading it, as it is not too remote: see Morrison Steamship Co Ltd v Grey stoke Castle (Cargo-owners). Likewise, when a banker negligently gives a reference to one who acts on it, the duty is plain and the damage is not too remote: see Hedley Byrne and Co Ltd v Heller and Partners Ltd. The more I think about these cases, the more difficult I find it to put each into its proper pigeon-hole. Sometimes I say: There was no duty’. In others I say: The damage was too remote’. So much so that I think the time has come to discard those tests which have proved so elusive. It seems to me better to consider the particular relationship in hand, and see whether or not, as a matter of policy, economic loss should be recoverable, or not. Thus in Weller and Co v Foot and Mouth Disease Research Institute it was plain that the loss suffered by the auctioneers was not recoverable, no matter whether it is put on the ground that there was no duty or that the damage was too remote. Again in Electrochrome Ltd v Welsh Plastics Ltd, it is plain that the economic

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Sourcebook on Obligations and Remedies loss suffered by the plaintiffs’ factory (due to the damage to the fire hydrant) was not recoverable, whether because there was no duty or that it was too remote… The second consideration is the nature of the hazard, namely, the cutting of the supply of electricity. This is a hazard which we all run. It may be due to a short circuit, to a flash of lightning, to a tree falling on the wires, to an accidental cutting of the cable, or even to the negligence of someone or other. And when it does happen, it affects a multitude of persons; not as a rule by way of physical damage to them or their property, but by putting them to inconvenience, and sometimes to economic loss. The supply is usually restored in a few hours, so the economic loss is not very large. Such a hazard is regarded by most people as a thing they must put up with—without seeking compensation from anyone. Some there are who install a stand-by system. Others seek refuge by taking out an insurance policy against breakdown in the supply. But most people are content to take the risk on themselves. When the supply is cut off, they do not go running round to their solicitor. They do not try to find out whether it was anyone’s fault. They just put up with it. They try to make up the economic loss by doing more work next day. This is a healthy attitude which the law should encourage… Edmund Davies LJ (dissenting):… For my part, I cannot see why the £400 loss of profit here sustained should be recoverable and not the £1,767. It is common ground that both types of loss were equally foreseeable and equally direct consequences of the defendants’ admitted negligence, and the only distinction drawn is that the former figure represents the profit lost as a result of the physical damage done to the material in the furnace at the time when power was cut off. But what has that purely fortuitous fact to do with legal principle? In my judgment, nothing… Barclays Bank v O’Brien [1992] 3 WLR 593 Court of Appeal [1994] 1 AC 180 House of Lords (See also p 256.) Scott LJ (Court of Appeal):… These authorities seem to me to leave the developing law, if not at the crossroads, at least at the junction of two diverging roads… The choice between the two roads cannot, in my opinion, be made simply by reference to binding authority. Binding authority can be found to justify either. The choice should, I think, be a matter of policy. Ought the law to treat married women who provide security for their husband’s debts, and others in an analogous position, as requiring special protection? The position of married women today, both generally and vis à vis their husbands, is very different from what it was… But…in the culturally and ethnically mixed community in which we live, the degree of emancipation of women is uneven. Lord Browne-Wilkinson (House of Lords):… On the other hand, it is important to keep a sense of balance in approaching these cases. It is easy to allow sympathy for the wife who is threatened with the loss of her home at the suit of a rich bank to obscure an important public interest, viz, the need to ensure that the wealth currently tied up in the matrimonial home does not become economically sterile. If the rights secured to wives by the law renders

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Notes and questions 1

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‘In previous times, when faced with a new problem, the judges have not openly asked themselves the question: what is the best policy for the law to adopt? But the question has always been there in the background. It has been concealed behind such questions as: Was the defendant under a duty to the plaintiff? Was the relationship between them sufficiently proximate? Was the injury direct or indirect? Was it foreseeable, or not? Was it too remote? And so forth’ (Lord Denning MR in Dutton v Bognor Regis UDC [1972] 1 QB 373, p 397). Does an appeal to ‘policy’ really help decide cases? Are not judges usurping the role of politicians? ‘Of course, every rule of law is a legal manifestation of public policy. But your Lordships are…instantly concerned with “public policy” in a narrower sense—namely, consideration of social interests beyond the purely legal which call for the modification of a normal legal rule…’ (Lord Simon in D v NSPCC [1978] AC 171, p 235). Is policy simply the link between the notion of a legal rule and the notion of an interest? ‘But suppose…that a judge successfully justifies a decision in a hard case, like Spartan Steel, on grounds not of policy but of principle. Suppose, that is, that he is able to show that the plaintiff has a right to recover its damages… [A]n argument of principle fixes on some interest presented by the proponent of the right it describes, an interest alleged to be of such a character as to make irrelevant the fine discriminations of any argument of policy that might oppose it. A judge who is insulated from the demands of the political majority whose interests the right would trump is, therefore, in a better position to evaluate the argument… The rights thesis…provides a more satisfactory explanation of how judges use precedent in hard cases than the explanation provided by any theory that gives a more prominent place to policy… The rights thesis provides that judges decide hard cases by confirming or denying concrete rights…’ (Dworkin, Taking Rights Seriously, 1977, Duckworth, pp 85, 87,101,116–17). Dworkin talks of rights, but then switches to the notion of an interest: is he not undermining his own argument? Is there not a major difference between rights and interests? If the law endows some interest with the status of a right, is this not a matter of policy? Do English lawyers, as far as tort cases are concerned at any rate, think in terms of rights?

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(m) Appeal to certainty Fothergill v Monarch Airlines Ltd [1981] AC 251 House of Lords Lord Diplock:… Elementary justice or…the need for legal certainty demands that the rules by which a citizen is to be bound should be ascertainable by him (or, more realistically, by a competent lawyer advising him)… The Chikuma [1981] 1 WLR 314 House of Lords Lord Bridge:… It has often been pointed out that shipowners and charterers bargain at arm’s length. Neither class has such a preponderance of bargaining power as to be in a position to oppress the other. They should be in a position to look after themselves by contracting only on terms which are acceptable to them. Where, as here, they embody in their contracts common form clauses, it is, to my mind, of overriding importance that their meaning and legal effect should be certain and well understood. The ideal at which the courts should aim, in construing such clauses, is to produce a result, such that in any given situation both parties seeking legal advice as to their rights and obligations can expect the same clear and confident answer from their advisers and neither will be tempted to embark on long and expensive litigation in the belief that victory depends on winning the sympathy of the court. This ideal may never be fully attainable, but we shall certainly never even approximate to it unless we strive to follow clear and consistent principles and steadfastly refuse to be blown off course by the supposed merits of individual cases. White v Jones [1995] 2 AC 207 House of Lords (See p 702.) Lord Mustill (dissenting):… A broad new type of claim may properly be met by a broad new type of rationalisation, as happened in Hedley Byrne; but rationalisation there must be, and it does not conduce to the orderly development of the law, or to the certainty which practical convenience demands, if duties are simply conjured up as a matter of positive law, to answer the apparent justice of an individual case. Be that as it may, the present case does not as it seems to me concern a unique and limited situation, where a remedy might be granted on an ad hoc basis without causing serious harm to the general structure of the law; for I cannot see anything sufficiently special about the calling of a solicitor to distinguish him from others in a much broader category. If the claim in the present case is sound, for any reasons other than those given by my noble and learned friends, it must be sound in every instance of the general situation which I have already identified, namely: where A promises B for reward to perform a service for B, in circumstances where it is foreseeable that performance of the service with care will cause C to receive a benefit, and that failure to perform it may cause C not to receive that benefit. To hold that a duty exists, even prima facie, in such a situation would be to go far beyond anything so far contemplated by the law of negligence…

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(n) Appeal to symmetry Read v J Lyons and Co [1947] AC 156 House of Lords (See p 662.) Lord Simonds:… My Lords, it was urged by counsel for the appellant that a decision against her when the plaintiff in the Rainham case succeeded would show a strange lack of symmetry in the law. There is some force in the observation. But your Lordships will not fail to observe that such a decision is in harmony with the development of a strictly analogous branch of the law, the law of nuisance, in which also negligence is not a necessary ingredient in the case… To confine the rule in Rylands v Fletcher…appears to me consistent and logical.

Questions 1 2 3

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What is meant by ‘symmetry in the law’? What is the relationship between symmetry and (a) reasoning by syllogism; and (b) reasoning by analogy? ‘L’article 1384 [du Code civil]…retrouve sa symétrie’ (Ghestin J, Note, sub Ass plén, 29 mars 1991, JCP 1991 11.21673 no 1). Discuss. Could such an observation ever be made of a common law decision? Is there a symmetry between Art 1382 and Art 1384 of the Code civil? If so, what is the effect of an absence of such symmetry in other legal systems? Does symmetry play a role in legal theory? Is the symmetry of the German Civil Code (BGB) similar to that of the French Civil Code? What about the new Dutch Civil Code—does this have a quite different symmetry? Is symmetry in law (and/or legal theory) capable of acting as an object in itself of legal knowledge? Is symmetry important in the understanding of analogies and metaphors?

(o) Practical reasoning The Eurymedon [1975] AC 154 Privy Council Lord Wilberforce:… If the choice, and the antithesis, is between a gratuitous promise and a promise for consideration, as it must be, in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is… English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration…

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Sourcebook on Obligations and Remedies RH Willis and Son v British Car Auctions [1978] 2 All ER 392 Court of Appeal Lord Denning MR:… This system is the commercial way of doing justice between the parties. It means that all concerned are protected. The true owner is protected by the strict law of conversion. He can recover against the innocent acquirer and the innocent handler. But those innocents are covered by insurance so that the loss is not borne by any single individual but spread through the community at large. Ex p King [1984] 3 All ER 897 Court of Appeal Griffiths LJ:... [T]he common law of England has not always developed on strictly logical lines, and where logic leads down a path that is beset with practical difficulties the courts have not been frightened to turn aside and seek the pragmatic solution that will best serve the needs of society. Smith v Eric Bush [1990] 1 AC 831 House of Lords Lord Templeman:... The public are exhorted to purchase their homes and cannot find houses to rent... In these circumstances it is not fair and reasonable for building societies and valuers to agree together to impose on purchasers the risk of loss arising as a result of incompetence or carelessness on the part of valuers. Re Grosvenor [1944] Ch 138 Court of Appeal Lord Greene MR:… The statement that time is infinitely divisible was said to be a scientific fact. I should prefer to call it a metaphysical conception. No doubt, when a bevy of angels is performing saltatory exercises on the point of a needle it is always possible to find room for one more, but propositions of this character appear to me to be ill suited for adoption by the law of this country which proceeds on principles of practical common sense. Re Dick [1953] Ch 343 Court of Appeal Evershed MR:… I confess that I have found the case one of most vexing difficulty, and I have been conscious of some vacillation and many doubts during the course of the careful arguments to which we have listened. I have, however, come to the conclusion that I cannot hold that the judge wrongly determined the issue presented to him, and my doubts have been, perhaps, assuaged by the circumstance that my two brethren have felt, perhaps with less nervousness than I, that the conclusion reached is right. X Ltd v Morgan-Grampian plc [1990] 2 WLR 421 Court of Appeal Lord Donaldson MR:… Lord Hailsham once said that ‘the rule of law is a confidence trick’. What he meant was that the rule of law depends upon public confidence and public acceptance of the system whereby Parliament makes the laws, the courts enforce them and the vast majority of citizens accept them until they can get them changed. The stance of the journalists’ profession in relation to this particular law, of which it happens to disapprove, threatens this confidence and acceptance. This, surely, is contrary to the highest possible public interest.

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Legal Method and the Common Law Kingdom of Spain v Christie, Manson and Woods Ltd [1986] 1 WLR 1120 Chancery Division (See p 209.) Sir Nicolas Browne-Wilkinson VC:… In the pragmatic way in which English law has developed, a man’s legal rights are in fact those which are protected by a cause of action. It is not in accordance, as I understand it, with the principles of English law to analyse rights as being something separate from the remedy given to the individual… [I]n my judgment, in the ordinary case to establish a legal or equitable right you have to show that all the necessary elements of the cause of action are either present or threatened… Hill v CA Parsons and Co Ltd [1972] Ch 305 Court of Appeal Lord Denning MR:… The judge said that he felt constrained by the law to refuse an injunction. But that is too narrow a view of the principles of law. He has overlooked the fundamental principle that, whenever a man has a right, the law should give a remedy. The Latin maxim is ubi jus ibi remedium. This principle enables us to step over the trip-wires of previous cases and to bring the law into accord with the needs of today… News of the World Ltd v Friend [1973] 1 All ER 422 House of Lords Lord Simon: My Lords, the philosopher FH Bradley described metaphysics as the finding of bad reasons for what we believe on instinct. An opinion on a short point of construction is apt to be the rationalisation of a first impression; and I am all the more conscious of Bradley’s jibe when I find myself differing from my noble and learned friends whose judgment I deeply respect…

Notes and questions 1

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‘If patriotism is the last refuge of the scoundrel, then common sense must be the last refuge of the incompetent… Common sense is a quintessentially English obsession. It suits the English self-image to suppose that in any area of life and experience there is a corpus of plain, simple, unadorned, instinctive ways of doing things… Nothing fancy is how we like it. Nothing intellectual. Nothing continental. British common sense is, of course, particularly sensible’ (Kettle (1994) The Guardian, 19 February, p 25). Is this a fair comment in respect of some forms of reasoning in English courts? What do you think Lord Wilberforce means by ‘commercial reality’? Does such a notion imply ‘commercial unreality’? Industry lobbied against strict liability in the area of products: were they advocating a position based on ‘commercial reality’? Is, then, the Consumer Protection Act 1987 founded on commercial unreality? It turned out that as a matter of human rights the journalist was justified (see p 292). Does this mean that it is judges like Lord Donaldson who are undermining the public interest? If law is a confidence trick, what does this say about legal reasoning? Is Lord Donaldson’s observation of much

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help to the law student? Is freedom of the press not the highest possible public interest? What is meant by ‘justice’ in Lord Diplock’s and Lord Reid’s comment? What does Lord Denning mean by ‘commercial justice’? What is the relationship between justice and commercial justice? In White v Jones (p 702), Lord Goff talks of ‘practical justice’: is this something different from justice and commercial justice? Can you reconcile the approach of Browne-Wilkinson VC in Christie with that of Lord Denning in Parsons? Is the approach of Browne-Wilkinson VC ubi remedium ibi jus? Can you list the various different types of arguments and reasons set out in this sub-section on practical reasoning? How do they relate to each other and to the other methodologies set out in this chapter? Is there a difference between reasoning, argumentation and justification? How would you classify the various statements in this section on legal reasoning? ‘[A] theory dealing with human facts is constantly menanced, if one is not careful, with becoming an ideology, substituting myths for concepts and prescriptions for descriptions’ (Granger, La science et les sciences, 1995, PUF, p 99). Discuss in relation to the judicial statements set out in this chapter. Is Dworkin’s chain novel thesis in danger of reducing legal method to a ‘mythical’, rather than ‘scientific’, process?

9 INTERPRETATION OF TEXTS Staffordshire Area Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387 (Seep 595.) Genossenschaftsbank v Burnhope [1995] 1 WLR 1580 House of Lords This was an action by a bank against an insurance company for an indemnity in respect of a large sum of money lost to the bank by a fraud. The insurance policy stated that the company would indemnify the bank in respect of property lost through ‘theft…or false pretences, committed by persons present on the premises’. The fraud had not involved the thief actually being present on the premises—the chairman of the company who masterminded the fraud (Mr Smith) had used an innocent agent—and thus the insurance company refused to pay. On the preliminary question of whether the bank had a good cause of action against the insurance company, a majority of the House of Lords decided that the bank did not have a good claim. Lord Keith:… The criminal offence of theft was committed by Mr Smith and through him by the company. On the natural and ordinary meaning of the

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Legal Method and the Common Law words in clause 2, theft had not been committed by any person on the bank’s premises… … No doubt if Mr Smith himself had, in this case, taken delivery of the securities in the premises of the bank, the company, as well as Mr Smith himself, would have been criminally liable for the theft, and it could be said that the company had been present in the premises of the bank within the meaning of clause 2. That is because Mr Smith was the directing mind and will of the company. But the company’s liability would be irrelevant, since theft would in any event have been committed by a real live person on those premises, in the shape of Mr Smith. In the situation where Mr Smith could not be said to be present on the bank’s premises then neither could that be said of the company… Lord Lloyd:… No doubt the bank could, by paying an increased premium, have covered themselves against theft by electronic transfer. But equally they may have decided, for sound commercial reasons, to pay a lower premium, and limit the cover to thefts by persons actually present on the premises. It is true that this leads to a distinction, on the facts of the present case, according to whether Mr Smith was actually present in the bank, or waiting in a car outside. But that is the sort of distinction which is often unavoidable, whenever it is necessary to draw a line. It does not cast any doubt on what seems to be the obvious commercial purpose of limiting the cover so as to exclude, inter alia, theft by electronic means. Lord Nicholls:… These words are not satisfied by the presence of some other innocent person acting on his behalf. The other person, being innocent, is not committing theft. Through him his principal is committing theft, but the principal himself is not present… Lord Steyn (dissenting):… The concept of presence is not inconsistent with the word ‘persons’ including a company. The company was present at the bank’s premises through its innocent agent, Mr Towers, who was duly authorised by the company to receive the securities… … In my view as a matter of business common sense the theft took place at the bank’s premises where the company through its agent appropriated the securities. The insurers’ contrary argument is a literalist argument devoid of any redeeming commercial sense… Lord Hoffmann:… I do not think it helps to produce examples of where the difference between theft by a person on the premises and a person off the premises is narrow and arbitrary. The clause deliberately uses a physical boundary line of delimit liability. If Mr Smith had gone round and collected the securities himself, there would clearly have been a theft by a person on the premises. If he had parked outside on a double yellow line and called up on his car telephone to ask an employee of the bank to bring them to him, there would equally clearly have been no theft by a person on the premises. I agree with my noble and learned friend, Lord Lloyd of Berwick, that the obvious case which the parties intended to exclude was theft by electronic means employed from a remote location. But in order to achieve this, the

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Notes and questions 1

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4 5

It is to be doubted whether a separate section on interpretation of written texts is really necessary. For interpretation often involves the kind of reasoning devices and arguments set out in the previous section (see, for example, Harbour Assurance, p 185) and the application of a text to a set of facts raises the kind of issues set out in the section on law and fact (see, for example, Re Rowland, p 166). Nevertheless, the relationship between law and language is a special one and thus requires lawyers and judges to switch into what Berthelot has described as one of the oldest schemes of intelligibility (see above, pp 169–77). And given that, on the continent, all legal reasoning is, in theory, statutory interpretation, one can understand how some theorists see legal method as nothing more nor less than a hermeneutical exercise. Hopefully, this chapter has indicated that things are more complicated. Yet there is no doubt that the interpretation of wills, contracts and statutory texts is a central activity of judges. Could one go further and say, like Dworkin, that even when judges are dealing with unwritten law, the scheme of intelligibility is still hermeneutical? If so, what assumption is being made about law as a form of knowledge? ‘Traditional rule systems are brittle, and can be made to capture…detailed phenomena only awkwardly (for example, by having a separate rule for each ‘exception’)… Rules and symbols have their most obvious use in building higher-level models that abstract away from many of the detailed phenomena exhibited in behavioural data. When the details are not needed these are the models of choice (at least for description); but to model the actual mechanisms of cognition, more detailed, less brittle models are needed…[T]he behaviour of the cognitive system is not rulegoverned, but rather is only (approximately) rule-described’ (Bechtel and Abrahamsen, Connectionism and the Mind, 1991, Blackwell, p 227). Is the role of the judge simply to apply the rules? When one argues about causes of actions and rights is one arguing about rules? Is knowledge of law knowledge of rules? Is the result in Genossenschaftsbank an example of the courts refusing to look beyond the words of the contract? Does the case involve, equally, the institution of persona? When a court is interpreting a word like ‘reasonable’, is it involved in a different exercise from when it is interpreting a word such as ‘road’? In English law, statutory interpretation has traditionally been seen in terms of three rules: the literal rule, the golden rule and the mischief rule. Have the courts now moved beyond these three rules? 204

Legal Method and the Common Law Young v Sun Alliance and London Insurance Ltd [1977] 1 WLR 104 Court of Appeal This was a claim by a householder for an indemnity under his household insurance in respect of the expense incurred in remedying an ingress of water into his bathroom which left the room covered in three inches of water. The claim was rejected by the Court of Appeal. Shaw LJ:… The plaintiff appeals to this court on the ground that the judge erred in his construction of the word ‘flood’ in the context in which it appeared in the policy. Mr Jacob has put before this court a most able argument, and an almost persuasive one, to the effect that in this context, notwithstanding the juxtaposition of those three words, ‘storm, tempest or flood’, which appear to denote different forms of violent manifestation of some natural phenomenon, ‘flood’ here, when one is considering its application in relation to a private dwelling, ought to be construed in a wide rather than a narrow sense. First because the language was adopted by the insurers so that the contra proferentem principle should apply, and secondly because, so far as a householder is concerned, if he finds that in part of his property he cannot walk about except by putting his feet into three inches of water, and if that happens in a significant part of his property, then he is entitled to say that it has been flooded; and if any damage results from it, the damage has resulted from or has been caused by flood. At first sight—or perhaps I should say at second sight having heard Mr Jacob’s argument—that appears to be a plausible proposition. But on further consideration it seems apparent that what the policy was intending to cover, whatever may be the colloquial use of the word ‘flood’ in common parlance, were three forms of natural phenomena which were related not only by the fact that they were natural, but also that they were unusual manifestations, certainly of those phenomena: that is to say, ‘storm’ meant ‘rain accompanied by strong wind’; ‘tempest’ denoted an even more violent storm; and ‘flood’ was not something which came about by seepage or by trickling or dripping from some natural source, but involved ‘an overflowing or irruption of a great body of water’ as one of the definitions in the Shorter Oxford English Dictionary, 3rd edn, 1944, puts it. The slow movement of water, which can often be detected so that the loss threatened can be limited, is very different from the sudden onset of water where nothing effective can be done to prevent the loss, for it happens too quickly. It is because the word ‘flood’ occurs in the context it does, that I have come to the conclusion that one must go back to first impressions, namely, that it is used there in the limited rather than the wider sense; that it means something which is a natural phenomenon which has some element of violence, suddenness or largeness about it. If that is the right view, it disposes of the matter. It is the view which was taken by the judge, who expressed very much the same idea about the meaning of the word ‘flood’ in this connection. I see no reason, after reflection, to differ from the judge, and accordingly I would dismiss the appeal.

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Sourcebook on Obligations and Remedies Lawton LJ: This appeal raises a semantic problem which has troubled many philosophers for centuries, and it can, I think, be expressed in the aphorism that an elephant is difficult to define but easy to recognise. I find difficulty in defining the word ‘flood’ as used in this policy; I have no difficulty in looking at the evidence in this case and coming to the conclusion, as I do, that the water in the lavatory was not a flood within the meaning of para 8 of this policy. Mr Day pointed out to the court that the phrase in the policy is ‘storm, tempest or flood,’ and that the word ‘flood’ is used as a word in ordinary English usage to cover a situation which may be very different from the situations to which the words ‘flooded’ or ‘flooding’ are appropriate. I agree. It is not without relevance that para 9, the next paragraph in the policy, refers to the ‘escape of water from or frost damage to any water, drainage or heating installation’. So ‘flood’ is something different for the purposes of this policy from an ‘escape of water’. I agree with Shaw LJ that the essence of ‘flood’ in ordinary English is some abnormal, violent situation. It may not necessarily have to be sudden, but it does, in my judgment, have to be violent and abnormal. This seepage of water through a rise in the water level was not violent, and it was not all that abnormal; it was the sort of incident which householders sometimes have to suffer as a result of ‘rising damp’. I, too, would dismiss the appeal. Cairns LJ: I also would dismiss the appeal. It is not necessary to decide in this case whether the interpretation of the word ‘flood’ in an insurance policy is a matter of law, or whether the problem is to be approached in the way that Lord Reid in Cozens v Brutus [1973] AC 854, p 861, approached the meaning of the word ‘insulting’, because there is apparently no previous decision of the court as to the meaning of the word ‘flood’ in this context. Therefore, the only way in which one can interpret it is by asking oneself what is the meaning that an ordinary Englishman reading this word in the context in which it appears would give to it. I think in such circumstances one’s first impression may be the best guide to the real meaning. Giving oneself for the moment the credit of assuming that one is an ordinary Englishman, when I first looked at this case my reaction to it was: ‘No; you really could not call this a flood.’ But when one began to analyse it, and to listen to the argument of Mr Jacob, I, like Shaw LJ, was almost persuaded that this could be called a flood. That it could be called a flooded floor, that an ordinary man or an ordinary housewife would say, ‘The water is flooding my floor,’ I have no doubt. But we come back to the question: Is it a flood? Is it a flood in a clause which refers also to ‘storm and tempest’?– which I think, contributes to giving a colour to the meaning of it. I think it is very largely a question of degree. Mr Day made it the main part of his concise argument before us that a flood involved a large quantity of water. That seems to me to be right. I do not think that water three inches deep in a room 6 ft by 4 ft would be regarded by any normal person in the context of this policy as a flood. Therefore, I agree with Shaw and Lawton LJJ that the appeal fails.

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Legal Method and the Common Law

Questions 1

2

3

4

5

What prevented the plaintiff from recovering: (a) the small amount of water; (b) the wording of the policy; or (c) the visual imagination of the judges? Would the result have been different if (a) the whole of the plaintiffs ground floor or (b) the whole of the neighbourhood had been submerged under three inches of water? What if the three inches of water had been caused by excessive rainfall? What if the claimant had taken out his household policy on the basis of a television advertising campaign which stated that the insurance company ‘did not make a drama out of a crisis’: do you think the claimant would have a contractual expectation to be indemnified given the damage he suffered? Imagine that the claimant had said to his partner on seeing the water: ‘the bathroom is flooded’. Would this have been a false description? If not, why, then, was the contra proferentem rule not applied? An elephant is difficult to define but easy to recognise. Does this suggest that knowledge cannot be completely reduced to linguistic propositions? Did the judges stand back and paint a picture (cf above, p 188)? Murray v Foyle Meats Ltd [1999] 3 WLR 356 House of Lords (N Ireland) Lord Clyde: My Lords, it is an elementary rule in the interpretation and the application of statutory provisions that it is to the words of the legislation that attention must primarily be directed. Generally it will be the ordinary meaning of the words which will require to be adopted. On appropriate occasions it may be proper as matter of interpretation to adopt extended meanings to words or phrases, particularly if thereby the purpose of the legislation can be best effected or the validity of the legislation preserved. On other occasions it may be appropriate to adopt a strict or narrow meaning of the language used. But whatever the intensity of the process the temptation of substituting other expressions for the words of the statute in the course of interpreting it is to be discouraged, however attractive such a course may seem to be by way of explaining what it is thought the legislature is endeavouring to say. It may certainly be useful to analyse a statutory provision so as to identify the successive elements of which it is composed and so focus attention on the particular word or words which call for interpretation, or isolate the particular requirements which have to be met for its application… But such an exercise should not involve any significant departure from the actual language which has been used. When it comes to a matter of applying a statutory provision to particular circumstances it may be tempting to devise so called tests for its application. In the context of the particular area of employment law with which the present appeal is concerned the labels of a ‘contract test’ and a ‘function test’ have been identified. But the only test for the application of a statutory provision, such as occurs in the present case, is whether or not on a proper construction of the statutory language the facts which have been established fall within 207

Sourcebook on Obligations and Remedies the provision. I see no advantage in prescribing labels as a means of giving guidance to the method to be adopted in applying the provision. Once the statute has been properly construed its application does not depend upon any test but on the language used and the particular facts and circumstances of the case. On the other hand there is in my view a danger in prescribing and designating tests since they may encourage an approach not intended by the legislator…

Questions 1 2

3

Is Lord Clyde advocating a return to (a) to the literal rule; (b) to the golden rule; or (c) to the mischief rule? Can a word ever be understood outside the context of any particular factual situation? How might Lord Clyde have decided the Young v Sun Alliance case? Using Lord Clyde’s test, would you define a car park as a ‘road’? (Cf Clarke v Cato [1998] 1 WLR…1647.)

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CHAPTERS 3

REMEDIES

1 INTRODUCTION One of the themes to have emerged from the previous chapters is the tension between rights and remedies. According to one judge, it is the entitlement to a remedy that defines the existence of rights, whereas, according to another judge, the idea of a legal right has now liberated itself from the law of actions. Ubi ius ibi remedium. Yet, whatever the actual situation with respect to the relationship between rights and remedies, there is no doubt that English law continues to see the remedy as an active institution in the sense that it is a focal point for legal rules which is capable of operating at the level both of law and of fact. Indeed, it is often the remedy which takes the initiative when it comes to expanding liability (see, for example, Jackson v Horizon Holidays, p 220). Thus, the tendency of the common lawyer is to ask ‘Has my client a remedy?’ rather than ‘Has my client a right to…?’. And, while this thinking is the result of English legal history, as various writers have pointed out, it is not merely a piece of antiquarian thinking and practice. The remedy, being a legal institution (that is, a factual and legal focal point to which rules attach), can act as a vehicle for organising the facts in such a way as they appear to reveal legal rights. This is why a celebrated medieval jurist said of Roman law (which also used the law of actions in an active sense): ‘ex facto ius oritur’ (law arises out of fact). If P is entitled to an injunction (actio) to stop D interfering with P’s live musical performances by illegally recording them, this in itself will both turn the live performances into a form of property and create a legal relationship (dominium) between P and his performances (see Ex p Island Records [19781 1 Ch 122). One does not need a theory of ownership or possession.

2 REMEDIES AND RIGHTS Kingdom of Spain v Christie, Mason and Woods Ltd [1986] 1 WLR 1120 Chancery Division Sir Nicolas Browne-Wilkinson VC: These proceedings relate to an oil painting by Goya called ‘La Marquesa de Santa Cruz’. By an originating summons dated 5 March 1986 the Kingdom of Spain claims certain declarations relating to three documents; two of them are dated 30 March 1983 and the third is dated 5 April 1983. Those three documents purport to 209

Sourcebook on Obligations and Remedies be official documents of the Government of Spain authorising the export of the picture from Spain. The declarations are sought against the first defendant, Christie Manson and Woods Ltd (‘Christie’s’), who is offering the picture for sale at auction in London on 11 April this year on the instructions of the owner of the picture, the second defendant, Overseas Art Investments Ltd (‘OAD’)… At first sight I thought that…if it were established that the picture had been exported from Spain with the use of forged documents, Christie’s, giving effect to that clause, would not have been prepared to auction it. That certainly was the view of the plaintiffs when they started these proceedings. However, in the course of argument counsel for Christie’s made it clear that even if it were to be declared by the court that the documents were forgeries, Christie’s would feel free to continue with the sale. They take the view that [the Dealers’ Code of Practice] does not apply where the vendor has acquired the picture innocently (that is, is not implicated in the illegal export) and that such a case falls to be dealt with under clause 4. Christie’s also apparently take the view that the Spanish Government have refused to agree ‘satisfactory reimbursement’ to OAI. Whether Christie’s are right on either of those views is not for this court to say. The fact is that Christie’s are prepared to and will go ahead with the sale, even if the documents are found by the court to be forgeries. In any event the Code is not a document on which the Spanish Government can directly rely; it is not a party to the Code… Against that background I turn to the law. This is an application to strike out the proceedings before trial. That is an extreme step for a court to take and is only done when it is obvious and clear beyond doubt that the plaintiff has no claim fit to go to trial. To shut out somebody from the judgment seat has been said many times to be an extreme step. Only in exceptional circumstances, therefore, is it right on such an application finally to determine any difficult point of law. Normally, if a case involves sustained argument, it is not a case for striking out but for a preliminary point of law to be set down. In the present case, as will emerge, as the argument went on, the basis of possible resistance to striking out changed, and what at one time might have been thought to have been a plain and obvious case may no longer be so. For the purpose of considering whether a case should be struck out as disclosing no cause of action, it is necessary for the court to assume the truth of the facts alleged by the plaintiffs; but I must emphasise that that is an assumption. The fundamental difficulty in this case is that the plaintiffs have chosen only to claim declarations. They have made no claim against the defendants by way of injunction or for damages. It is clearly established by the authorities that in proceedings for a declaration, other than for judicial review, the court will only make such a declaration in defence of a legal or equitable right of the plaintiff: see Gouriet v Union of Post Office Workers [1978] AC 435, p 501… Obviously in that statement ‘legal rights’ include equitable rights…

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Remedies The defendants in this case contend that the Spanish Government have no rights as against them at all relating to the use of the allegedly forged documents. The central question therefore is what legal or equitable rights do the Spanish Government have in relation to these documents and as against these defendants. During the course of the argument my view has changed more than once. At the outset it seemed to me extraordinary if the law of England provided no civil remedy to a man, whose signature or stamp has been forged on a document, to prevent the continued circulation of that document as a genuine document. If the law provides no such remedy for a citizen of this country to prevent the continued circulation of a false representation in the form of a document, in my judgment the law is defective. However, as the argument developed it seemed to me more and more likely that I was going to be forced to the conclusion that no such right did exist. Mr Littman, for the plaintiffs, put his case in this way. He said he did not need to show an accrued cause of action to restrain the use of the documents; all he had to do was to isolate a right which, when other factors were added to it, would constitute a cause of action. He relied on three well known forms of action: the right to restrain passing off, malicious falsehood and defamation. As I understand it, he did not claim that he had an accrued cause of action for any of those wrongs; and, indeed, in my judgment he plainly has not. The requisite constituent elements of a claim in passing off are, first, that there has to be misrepresentation; second, that it is made by a trader in the course of trade; third, to a prospective customer of his, or to consumers of goods or services supplied by him; fourth, which is calculated to injure the business or goodwill of another trader; and, fifth, which causes actual damage to the business or goodwill of the trader by whom the action is brought. It would be stretching concepts of trade and business in this case well beyond anything that has previously occurred to suggest either that the Spanish Government are traders or that OAI is a trader in business. As to malicious falsehood, there has to be not only an untrue statement but that untrue statement must be made maliciously and said without any belief in its truth. The evidence here certainly does not suggest that that is the current position. Finally, in relation to defamation, in addition to any untrue statement there has to be at least damage to the reputation of the plaintiff. At the moment I can see no way in which it can be said that the continued circulation of forged documents would be defamatory to the Spanish Government. However, Mr Littman submits that that is not the question. He says that the underlying right in each of those forms of action is the basic right of a citizen not to have untruths told about himself. Having identified that as the right, he says that the other elements necessary to bring an action successfully are mere appendages or conditions attached to the possession of a cause of action rather than being a basic legal right protected. Therefore, says Mr Littman, he is entitled in this case to a declaration of the falsity of the documents, there being a general right to restrain the circulation of untrue statements. He has shown a basic right and therefore is entitled to a declaration to the effect that the documents are untrue. I was unpersuaded by that analysis. In 211

Sourcebook on Obligations and Remedies the pragmatic way in which English law has developed, a man’s legal rights are in fact those which are protected by a cause of action. It is not in accordance, as I understand it, with the principles of English law to analyse rights as being something separate from the remedy given to the individual. Of course, in quia timet proceedings you do not have, for example, to show that damage has occurred even if damage is a necessary constituent of the cause of action. It is enough to show that the defendant has an intention to do an act which, if done, will cause damage. But in my judgment, in the ordinary case to establish a legal or equitable right you have to show that all the necessary elements of the cause of action are either present or threatened. I am fortified in that view by submissions made by Mr Scott for OAI that if there were any such general right as Mr Littman contends for, it is impossible to see why the specific constituent elements of passing off or malicious falsehood have ever developed. If every man can protect the false use of his name or reputation by having a basic right so to do, why is it that the courts have developed the very limited class of cases in which an action for passing off or malicious falsehood can be brought? Therefore, I was very far from satisfied that Mr Littman had shown that the plaintiffs had any legal or equitable right as against the defendants that they were entitled to enforce by way of declaration. The case is just not one in which the defendants have done or are threatening to do acts which constitute defamation, malicious falsehood or passing off. However, the case took a new turn when a number of cases were cited, one of which at least was directly in point. Emperor of Austria v Day (1861) 3 De GF & J 217 is a decision of the Court of Appeal in Chancery… I find it very difficult to discover what was the cause of action of the Emperor of Austria in that case. The judgments make it clear that the court was not enforcing the prerogative rights of the Emperor as sovereign of Hungary. The essential ingredient concentrated on by the court was that the acts of the defendant in printing the notes were a threat to do some act which would injure the property or cause pecuniary damage to the Emperor and to his subjects. So far as I can see, the court proceeded on the basis that if the acts of the defendant did threaten such damage, it was self-evident that there was a threat of an equitable wrong which should be restrained by injunction: see per Lord Campbell LC, pp 233, 240, and Knight Bruce LJ, p 245. The proposition being put forward by the Court of Appeal in that case appears to be that a deliberate act of the defendant which will cause injury to the plaintiffs property or pecuniary damage to him will be restrained by injunction in the Courts of Equity… Is such damage possible in this case? It is certainly not currently alleged in the originating summons as such. However, in my judgment it is certainly arguable in the present case that the continued use of forged documents of the Spanish State, purporting to show the lawful export of works of art from Spain, is directly comparable to the false currency which was under consideration in the Emperor of Austria case. The issue of false currency could debase the lawful currency of Hungary; the use of forged documents of the Government of Spain could debase the credibility of genuine export documents issued by that government. The question in this case will be

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Remedies whether such debasement would cause damage to the property of the Kingdom of Spain or the property of its subjects. It is plain that in the Emperor of Austria case ‘property’ in relation to a claim by a foreign sovereign was used in rather a loose sense: see RCA Corporation v Pollard [1983] Ch 135, p 153, per Oliver LJ. Mr Littman suggested that such damage flowing from the continued use of forged documents is in this case to be found in the diminution in the value of pictures still in Spain for which genuine export licences could be obtained in the future and the fact that, if illicitly exported pictures can continue to be sold with forged documents, the expense to the Kingdom of Spain of buying them back for the benefit of Spain will be pro tanto increased. To that I would add that possibly the ability to continue to use forged documents after illicit export is a factor calculated to increase the attractions of illicit export to wrongdoers, thereby depriving the inhabitants of Spain of public works of art owned by the Kingdom of Spain and injury to the property in Spain. Whether those arguments are well founded or not is not for me to determine finally on this application. The Emperor of Austria case (1861) 3 De GF & J 217 has satisfied me that there may be—and I say no more than that—a legal right in this case which the plaintiffs are entitled to have declared by way of declaration in the way sought. It is not plain and obvious that the action cannot succeed. I turn then to consider the second ground on which the defendants seek to strike out this claim, namely, that the claim is an abuse of the process of the court. It is submitted on behalf of the defendants that the purpose of these proceedings is to denigrate the value of the picture at the forthcoming sale by a collateral attack so as to secure the eventual return of the picture to Spain at a cheaper price. They point to what they say is delay in the bringing of proceedings; that although the Government of Spain had known of the illegal export since 1983, and indeed have known that OAI were the owners since then, they have not thought fit to bring proceedings until just before the forthcoming sale. The defendants say that there is no way in which this action can be determined before the sale on 11 April, and the intention is to have it as a blight cast on the sale. They point to the statements made in the Spanish press to the effect that the government are going to do everything they can to stop the sale. They point also to the fact that the Spanish Government have not sought to proceed by way of an application for an injunction which would require them to give a cross-undertaking in damages, but have satisfied themselves with this unusual procedure of a simple declaration as to truth and falsity. In the light of all those circumstances, it is said that the court is being used by the Spanish Government for a collateral purpose and not bona fide for the purpose for which the right of action, if any, exists. I agree with the defendants that if they could make out that case it would be a case for striking out. But I am not myself satisfied that the Spanish Government are motivated either exclusively or primarily by the collateral motive suggested. First, as to delay, I can see no grounds for criticising the 213

Sourcebook on Obligations and Remedies Spanish Government in not having taken proceedings. For purposes which are no doubt good ones, the defendants OAI are a cosmopolitan body of people spread over many jurisdictions: Liberia, British Virgin Islands, Channel Islands and Paris. There is no obvious jurisdiction in which those people could be sued. What is more, the whereabouts of the picture have been unknown since it was with the Getty Museum. There was no cause for proceedings when the picture was with the Getty Museum because that museum declined to go on in any event. I ask rhetorically: where could these proceedings have been brought, unless and until the Spanish Government knew that the picture was to be in this country and that there was to be a sale of it? I can see no ground for criticism of the Spanish Government on that head. Secondly, as to the chances of the matter being tried before 11 April, although I have not yet decided or indeed heard full argument I am bound to say that my present impression coincides with that of the defendants, namely, that there is really no hope of this matter being tried before 11 April on the merits. The Spanish Government are advised by very reputable and skilled solicitors and counsel, and I am told that the legal advisers took the view that the case could be determined before 11 April, and it was for that purpose that the claim for relief was limited to a declaration. I am satisfied that that was a view genuinely, if possibly mistakenly, held. In my judgment the Spanish Government have here, if I am right on there being a possible cause of action, a legitimate interest which they are seeking to defend in this action, namely, in preventing the continued use of forged documents of the Spanish State. As to the failure to apply for an interim injunction, it is not a necessity that a party threatened with an injury is forced to apply for interlocutory relief. If they choose not to do so, that is for them to decide. The Spanish Government say that they will continue with this action, even if the sale does take place on 11 April and is not postponed. It is suggested that that is in some way indicative also of an abuse. I cannot see it that way. Proceedings now having started in a jurisdiction in which OAI has consented to be joined, it seems to me no hardship for the action to continue (if it is to go on) until judgment, even if the defendants choose not to postpone the sale. It may well be that the Spanish Government will receive a collateral advantage by pursuing this action in the form of a diminution in the price of the picture. They have said that they are not intending to bid at the sale, but there is no suggestion that they are no longer interested in buying under any circumstances. But I am not satisfied that their sole or predominant objective in this case is to force down the price. It appears to be a much wider concern, namely, the concern not to permit false documents to continue to circulate in support of a picture which they say has been illicitly exported. Often in litigation parties hope to use the litigation as a weapon to achieve wider results. In my judgment, in such cases the action cannot be struck out as an abuse of the process until it is shown that that is their predominant objective as opposed to a collateral benefit. I therefore refuse also to strike out the whole summons as an abuse of the process of the court.

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Remedies Finally, in fairness to the defendants I should emphasise two points, because it is important that the existence of these proceedings should not be either misconstrued or misunderstood. The action does not in any way impugn the title of OAI to sell the picture. The title to the picture of any buyer will not be affected by anything which eventually happens in this action. The action only relates to the question whether the picture was or was not lawfully exported from Spain. Secondly, I must emphasise that for the purposes of this judgment I have had to assume that the allegations as to forgery as made by the Government of Spain are correct. This judgment in no way constitutes a finding or any indication that those allegations have been proved.

Notes and questions 1

2

3 4

‘Ubi jus ibi remedium: where there’s a right there’s a remedy. To this, the realist replies—ubi remedium ibi jus: where there’s a remedy there’s a right’ (Lawson, Remedies of English Law, 2nd edn, 1980, Butterworths, p 1). Does Spain v Christie support this realist view? The effectiveness of the system of English civil justice may be attributed to the vast number, variety, diversity and flexibility of its judicial remedies. The remedies depend on the nature of the legal rights, claims and interests established, and as these may themselves vary considerably, so the corresponding remedies will vary also, which is why civil remedies are by their nature so multifarious and multi-varied… [T]he categories of civil remedies are not closed, and the judicial machinery…may devise and operate new remedies, or variations of old remedies…’ (Jacob, The Fabric of English Civil Justice, 1987, Stevens, pp 171–72). To what extent can the courts themselves devise new remedies as opposed to thinking up new variations of old remedies? Do they have the power actually to devise new remedies? (Cf Lawton LJ, below.) What substantive rights are in issue in the Spain case? Are rights and causes of action synonymous? Can one ever have a right without a cause of action? Can one ever have a cause of action without a right? (Cf Jackson v Horizon Holidays, below, p 220.) R v West Sussex Quarter Sessions [1973] 3 All ER 289 Court of Appeal Lawton LJ:… If this court had jurisdiction to change the law so that justice could be done more easily and effectively, there are many new remedies which could be introduced; but we have no such jurisdiction. We must administer the law as we find it. Part of that law is the common law: that part has a history which has formed it. Once a remedy developed by the common law has taken a certain form and its limitations have been defined, in my opinion the judges should accept that form and use the remedy within its limitations. They can cast off any medieval or procedural shackles which may restrict the use of a remedy; they should not seek to change its nature…

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Sourcebook on Obligations and Remedies Esso Petroleum Co Ltd v Southport Corporation [1953] 3 WLR 773 Queen’s Bench Division; [1954] 2 QB 182 Court of Appeal; [1956] AC 218 House of Lords This was an action for damages brought by Southport Corporation against an oil company whose tanker had run aground and whose cargo of oil, when deliberately released from the stricken ship by the captain in order to avoid loss of life, had polluted the corporation’s beaches. The corporation pleaded as causes of action trespass, nuisance (private and public) and negligence of the captain; they subsequently, at the appeal stage, attempted to plead a further cause of action, namely that the company itself was negligent in putting to sea an unseaworthy ship. The trial judge held that the captain had not been negligent and dismissed the damages action; the Court of Appeal allowed an appeal on the ground that it was for the defendants to disprove any negligence; the House of Lords restored the trial judge’s decision. Devlin J (Queen’s Bench Division):… If there is an unlawful interference with the plaintiff’s property, the question whether it is a trespass or a nuisance depends upon whether or not it is a direct physical interference. I incline to the view that in this case it is; but having regard to the views which I have expressed about nuisance I think it is unnecessary to enter into this matter, which is not covered exactly by precedent. It may well be that it is one of those cases which are described in the books as a nuisance of a particular kind analogous to trespass… In my judgment the plaintiffs have a good cause of action in trespass or nuisance subject to the special defences raised by the defendants which I shall next consider. On the first of these, if one seeks an analogy from traffic on land, it is well established that persons whose property adjoins the highway cannot complain of damage done by persons using the highway unless it is done negligently… These cases amplify the principle in Holmes v Mather which dealt with collisions on the highway itself and which is the foundation of the modern practice whereby a plaintiff in a running-down action sues for negligence and not for trespass… Denning LJ (Court of Appeal): This is one of those cases, rare nowadays, where much depends on ascertaining the proper cause of action, particularly with regard to the burden of proof… The judge seems to have thought that it did not matter much what was the proper cause of action; it all came back in the end to the universal tort of negligence… I do not share this view… (1) Trespass to land… I am clearly of opinion that the Southport Corporation cannot here sue in trespass. This discharge of oil was not done directly on to their foreshore, but outside in the estuary. It was carried by the tide on to their land, but that was only consequential, not direct. Trespass, therefore, does not lie. (2) Private nuisance. In order to support an action on the case for a private nuisance the defendant must have used his own land or some other land in such a way as injuriously to affect the enjoyment of the plaintiffs’ 216

Remedies land. ‘The ground of responsibility’, said Lord Wright in Sedleigh-Denfield v O’Callaghan, ‘is the possession and control of the land from which the nuisance proceeds’. Applying this principle, it is clear that the discharge of oil was not a private nuisance, because it did not involve the use by the defendants of any land, but only of a ship at sea. (3) Public nuisance. The term ‘public nuisance’ covers a multitude of sins, great and small… Suffice it to say that the discharge of a noxious substance in such a way as to be likely to affect the comfort and safety of Her Majesty’s subjects generally is a public nuisance… Applying the old cases to modern instances, it is, in my opinion, a public nuisance to discharge oil into the sea in such circumstances that it is likely to be carried on to the shores and beaches of our land to the prejudice and discomfort of Her Majesty’s subjects. It is an offence punishable by the common law. Furthermore, if any person should suffer greater damage or inconvenience from the oil than the generality of the public, he can have an action to recover damages on that account, provided, of course, that he can discover the offender who discharged the oil. This action would have been described in the old days as an action on the case, but it is now simply an action for a nuisance… (4) Burden of proof. One of the principal differences between an action for a public nuisance and an action for negligence is the burden of proof. In an action for a public nuisance, once the nuisance is proved and the defendant is shown to have caused it, then the legal burden is shifted on to the defendant to justify or excuse himself. If he fails to do so, he is held liable, whereas in an action for negligence the legal burden in most cases remains throughout on the plaintiff. In negligence, the plaintiff may gain much help from provisional presumptions like the doctrine of res ipsa loquitur, but, nevertheless, at the end of the case the judge must ask himself whether the legal burden is discharged. If the matter is left evenly in the balance, the plaintiff fails. But in public nuisance, as in trespass, the legal burden shifts to the defendant, and it is not sufficient for him to leave the matter in doubt. He must plead and prove a sufficient justification or excuse. (5) Justification or excuse. The defendants seek to justify themselves by saying that it was necessary for them to discharge the oil because their ship was in danger. She had been driven by rough seas on to the revetment wall, and it was necessary to discharge the oil in order to get her off. If she had not done so, lives might have been lost. This is, no doubt, true at that stage in the story, but the question is, how came she to get upon the wall? If it was her own fault, then her justification fails, because no one can avail himself of a necessity produced by his own default. Where does the legal burden rest in this respect? Must the Southport Corporation prove that the ship was at fault in getting on to the wall, or must the ship prove that she herself was not at fault? In my opinion the burden is on the ship. She does not justify herself in law by necessity alone, but only by unavoidable necessity, and the burden is on her to show it was unavoidable.

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Sourcebook on Obligations and Remedies Public nuisance is, in this respect, like unto a trespass, as to which it was said by the Court of King’s Bench as long ago as 1616 in Weaver v Ward, that no man shall be excused ‘except it may be judged utterly without his fault’… Those were, it is true, cases in trespass; but the same principle applies to cases of public nuisance. That is shown by Tarry v Ashton, where a lamp which projected over the Strand fell on to a passer-by. This was described by Lord Wright as private action for a public nuisance: see Sedleigh-Denfield v O’Callaghan. Another example is Wringe v Cohen, where the gable of a house next the highway was blown down in a storm (which was treated by this court as a public nuisance). In both cases the defendant was held liable because his premises were in a defective state. He did not know of the defect, and he was not negligent in not knowing, but, nevertheless, he was liable because he did not prove any sufficient justification or excuse. He did not prove inevitable accident… Lord Radcliffe (House of Lords): My Lords, I think that this case ought to be decided in accordance with the pleadings. If it is, I am of opinion, as was the trial judge, that the respondents failed to establish any claim to relief that was valid in law. If it is not, we might do better justice to the respondents— I cannot tell, since the evidence is incomplete—but I am certain that we should do worse justice to the appellants, since in my view they were entitled to conduct the case and confine their evidence in reliance upon the further and better particulars of the statement of claim which had been delivered by the respondents. It seems to me that it is the purpose of such particulars that they should help to define the issues and to indicate to the party who asks for them how much of the range of his possible evidence will be relevant and how much irrelevant to those issues. Proper use of them shortens the hearing and reduces costs. But if an appellate court is to treat reliance upon them as pedantry or mere formalism, I do not see what part they have to play in our trial system…

Notes and questions 1 2

3

Did Denning LJ have a different image of the facts than either Devlin J or Lord Radcliffe? The expressions “private law” and “public law” have recently been imported into the law of England from countries which, unlike our own, have separate systems concerning public law and private law. No doubt, they are convenient expressions for descriptive purposes. In this country they must be used with caution, for, typically, English law fastens not on principles but on remedies. The principle remains intact that public authorities and public servants are, unless clearly exempted, answerable in the ordinary courts for wrongs done to individuals’ (Lord Wilberforce in Davy v Spelthorne BC [1984] AC 262, p 276). Is Esso a public or a private law case? Maitland said that the forms of action continue to rule from the grave. Do you agree? Did the plaintiffs lose in the House of Lords because they did not plead the right cause (form?) of action? 218

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What kind of damage did Southport Corporation suffer: physical damage or economic loss? Read Benjamin v Storr (1874) LR 9 CP 400 in the law report. Why did Devlin J not draw an analogy with this case rather than with the traffic accident cases? Did Esso have control of the tanker? Under what circumstances should control, of itself, give rise to liability on the part of the person in control when the thing controlled does damage? Should something more than control itself be required before one can attribute liability? (Cf Chapter 7.) Do Esso and Cambridge Water (see p 665), when taken together, reject, as a matter of common law, the principle that it is the polluter who should pay? Mercedes Benz AG v Leiduck [1996] 1 AC 284 Privy Council This was an appeal to the Privy Council in respect of an action, brought in the Hong Kong courts, for a Mareva injunction to freeze the assets of two defendants who had allegedly misappropriated the claimant’s money. One defendant succeeded in Hong Kong in getting the injunction set aside on the ground that the injunction claim was not associated with any action for substantive relief in Hong Kong. A majority of the Privy Council dismissed an appeal. Lord Nicholls (dissenting):… The substantive relief sought by a writ or other originating process needs to be founded on a cause of action… Two preliminary points are to be noted. First, practising lawyers tend to think in terms of established categories of causes of action, such as those in contract or tort or trust or arising under statute. They do not always appreciate that the range of causes of action already extends very widely, into areas where identification of the underlying ‘right’ may be elusive. For instance, a writ may properly be issued containing nothing materially more than a claim for an injunction to restrain a defendant from continuing proceedings abroad on the ground that this would be unconscionable: see British Airways Board v Laker Airways Ltd [1985] AC 58, pp 81, 95; [1984] QB 142, p 147. In such a case, the underlying right, if sought to be identified, can only be defined along the lines that a party has a right not to be sued abroad when that would be unconscionable. This formulation exemplifies the circular nature of the discussion. Second, originating process is not always concerned with the determination of an underlying dispute between the parties. For instance, a plaintiff may bring an action for discovery against a person, in respect of whom he has otherwise no cause of action, in aid of other proceedings not yet commenced: see Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133. In such a case the only relief sought is of an interim character in the sense that it is in aid of other proceedings. A right to obtain an interlocutory injunction in aid of the substantive relief sought in an action is not normally regarded as a cause of action. This is because ordinarily proceedings bring a substantive dispute before the court. Attention is therefore focused on the cause of action involved in the substantive dispute the court is being asked to resolve. The claim to interim

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Questions 1

2

Is it really possible to talk of rights underlying causes of action in English law? What were the rights of the claimant, if any, in Esso v Southport Corpn? Are not rights defined only in respect of the existence or non-existence of a cause of action? Can equitable remedies create new rights?

3 REMEDIES AND INTERESTS Jackson v Horizon Holidays Ltd [1975] 1WLR 1468 Court of Appeal This was an action for damages brought by a father against a tour operator in respect of a holiday booked by the father for himself and his family. The father had booked the holiday in reliance upon statements made over the telephone and in the tour operator’s brochure. Many of the promised facilities were not available and the hotel and food were of poor quality. The father sought compensation for mental distress in respect of himself, his wife and his children and the trial judge, who thought that they had had half a holiday, awarded half the total price of the holiday, plus another £500 for mental distress. An appeal by the defendants as to the amount awarded was dismissed by the Court of Appeal. Lord Denning MR:… The judge said that he could only consider the mental distress to Mr Jackson himself, and that he could not consider the distress to his wife and children. He said: The damages are the plaintiff’s… I can consider the effect upon his mind of the wife’s discomfort, vexation, and the like, although I cannot award a sum which represents her own vexation. Mr Davies, for Mr Jackson, disputes that proposition. He submits that damages can be given not only for the leader of the party—in this case, Mr Jackson’s own distress, discomfort and vexation—but also for that of the rest of the party. We have had an interesting discussion as to the legal position when one person makes a contract for the benefit of a party. In this case it was a husband making a contract for the benefit of himself, his wife and children. Other cases readily come to mind. A host makes a contract with a restaurant for a dinner for himself and his friends. The vicar makes a contract for a coach trip for the choir. In all these cases there is only one person who makes the contract. It is the husband, the host or the vicar, as the case may be. Sometimes he pays the whole price himself. Occasionally he may get a contribution from the others.

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Remedies But in any case it is he who makes the contract. It would be a fiction to say that the contract was made by all the family, or all the guests, or all the choir and that he was only an agent for them. Take this very case, it would be absurd to say that the twins of three years old were parties to the contract or that the father was making the contract on their behalf as if they were principals. It would equally be a mistake to say that in any of these instances there was a trust. The transaction bears no resemblance to a trust. There was no trust fund and no trust property. No, the real truth is that in each instance, the father, the host or the vicar, was making a contract himself for the benefit of the whole party. In short, a contract by one for the benefit of third persons. What is the position when such a contract is broken? At present the law says that the only one who can sue is the one who made the contract. None of the rest of the party can sue, even though the contract was made for their benefit. But when that one does sue, what damages can he recover? Is he limited to his own loss? Or can he recover for the others? Suppose the holiday firm puts the family into a hotel which is only half built and the visitors have to sleep on the floor? Or suppose the restaurant is fully booked and the guests have to go away, hungry and angry, having spent so much on fares to get there? Or suppose the coach leaves the choir stranded halfway and they have to hire cars to get home? None of them individually can sue. Only the father, the host or the vicar can sue. He can, of course, recover his own damages. But can he not recover for the others? I think he can. The case comes within the principle stated by Lush LJ in Lloyd’s v Hcmper. I consider it to be an established rule of law that where a contract is made with A for the benefit of B, A. can sue on the contract for the benefit of B, and recover all that B could have recovered if the contract had been made with B himself. It has been suggested that Lush LJ was thinking of a contract in which A was trustee for B. But I do not think so. He was a common lawyer speaking of common law. His words were quoted with considerable approval by Lord Pearce in Beswick v Beswick. I have myself often quoted them. I think they should be accepted as correct, at any rate so long as the law forbids the third persons themselves from suing for damages. It is the only way in which a just result can be achieved. Take the instance I have put. The guests ought to recover from the restaurant their wasted fares. The choir ought to recover the cost of hiring the taxis home. Then is no one to recover from them except the one who made the contract for their benefit? He should be able to recover the expense to which he has been put, and pay it over to them. Once recovered, it will be money had and received to their use. (They might even, if desired, be joined as plaintiffs.) If he can recover for the expense, he should also be able to recover for the discomfort, vexation and upset which the whole party have suffered by reason of the breach of contract, recompensing them accordingly out of what he recovers. Applying the principles to this case, I think that the figure of £1,100 was about right. It would, I think, have been excessive if it had been awarded only for the damage suffered by Mr Jackson himself. But when extended to his wife and children, I do not think it is excessive. People look forward to a 221

Sourcebook on Obligations and Remedies holiday. They expect the promises to be fulfilled. When it fails, they are greatly disappointed and upset. It is difficult to assess in terms of money; but it is the task of the judges to do the best they can. I see no reason to interfere with the total award of £1,100.1 would therefore dismiss the appeal.

Notes and questions 1

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5 6

The legal action is open to anyone who has a legitimate interest in the success or failure of the claim’ (NCPC, Art 31). Is this true of English law? ‘Take…a landowner who collects pestilential rubbish near a village... The householders nearest to it suffer the most, but everyone in the neighbourhood suffers too. In such cases, the Attorney General can take proceedings for an injunction to restrain the nuisance: and when he does so he acts in defence of the public right, not for any sectional interest… But when the nuisance is so concentrated that only two or three property owners are affected by it…then they ought to take proceedings on their own account to stop it and not expect the community to do it for them…’ (Denning LJ in AG v PYA Quarries [19571 2 QB 169, p 191). How does one distinguish between ‘sectional interest’ and ‘public right’? The notion of an interest can apply to the institutional relationship either between a party and a remedy (see, for example, Besivick v Beswick, p 163) or between a party and the kind of harm they suffer (see, for example, Surrey CC v Bredero Homes, p 295). How easy is it for an English lawyer to move from an ‘interest’ to a ‘right’? Are there any intermediate terms that help facilitate the movement? If the father refused to hand over to his wife the damages he had obtained on her behalf, could the wife bring an action in debt against him to recover them? Could the wife and children have sued in their own right, in tort, Horizon Holidays for damages? Would it make sense to allow a family to contract, to own property and to sue as a legal subject (persona) in itself? Does the family exist as a social reality? Does it have its own interests that the law should recognise?

4 SELF-HELP (a) Personal justice Bradford Corporation v Pickles [1895] AC 587 House of Lords This was an action for an injunction brought by a local authority against a landowner who, so it was alleged, was deliberately interfering with the natural supply of water to the corporation’s waterworks by digging holes on his 222

Remedies land. The landowner, it seemed, was trying to bring pressure on the corporation to purchase his land. The House of Lords gave judgment for the landowner. Lord Halsbury LC:… The acts done, or sought to be done, by the defendant were all done upon his own land, and the interference whatever it is, with the flow of water is an interference with water, which is underground and not shown to be water flowing in any defined stream, but is percolating water, which, but for such interference, would undoubtedly reach the plaintiffs works, and in that sense does deprive them of the water which they would otherwise get. But although it does deprive them of water which they would otherwise get, it is necessary for the plaintiffs to establish that they have a right to the flow of water, and that the defendant has no right to do what he is doing… The very question was…determined by this House [in Chasemore v Richards], and it was held that the landowner had a right to do what he had done whatever his object or purpose might be, and although the purpose might be wholly unconnected with the enjoyment of his own estate… The only remaining point is the question of fact alleged by the plaintiffs, that the acts done by the defendant are done, not with any view which deals with the use of his own land or the percolating water through it, but is done, in the language of the pleader, ‘maliciously’… This is not a case in which the state of mind of the person doing the act can affect the right to do it. If it was a lawful act, however ill the motive might be, he had a right to do it. If it was an unlawful act, however good his motive might be, he would have no right to do it… Lord Macnaghten:… But the real answer to the claim of the corporation is that in such a case motives are immaterial. It is the act, not the motive for the act, that must be regarded. If the act, apart from motive, gives rise merely to damage without legal injury, the motive, however reprehensible it may be, will not supply that element…

Notes and questions 1

2 3 4

‘Self-redress is a summary remedy, which is justified only in clear and simple cases, or in an emergency’ (Lloyd LJ in Burton v Winters [1993] 1 WLR 1077, p 1082). Was the defendant in Bradford actually exercising a self-help remedy? Does Bradford mean that English law has no doctrine of abuse of rights? (Cf below, p 774.) If the parties had been reversed—that is to say, if it had been the corporation that was digging the holes—would Mr Pickles have had a remedy? The defendant builds a wall that intrudes by a couple of inches into the plaintiff’s land. The claimant is refused an injunction against the defendant. Is the claimant entitled to knock the wall down himself? (Cf Burton v Winters, above.) 223

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5

If the corporation had made a contract to purchase Mr Pickles’ land as a result of his digging the holes, could the contract have been set aside in equity on the basis of duress?

(b) Self-protection R v Self [1992] 1 WLR 657 Court of Appeal Garland J:… This matter comes before the court by leave of the single judge on a point of law. There is one point central to the appeal. It is this. Since the appellant was acquitted of theft neither Mr Frost nor Mr Mole were entitled by virtue of s 24 of the Police and Criminal Evidence Act 1984 to effect a citizen’s arrest. If they were not entitled to do that then this appellant could not be convicted of an assault with intent to resist or prevent the lawful apprehension or detainer of himself, that is to say his arrest… The view of this court is that little profit can be had from taking examples and trying to reduce them to absurdity. The words of the statute are clear and applying those words to this case there was no arrestable offence committed. It necessarily follows that the two offences under s 38 of the Offences Against the Person Act 1861 could not be committed because there was no power to apprehend or detain the appellant. It follows also, that that being the law, as this court sees it, the convictions on counts 2 and 3 must be quashed and this appeal allowed.

Questions 1

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A person is entitled to use reasonable force to resist a trespass: thus selfhelp can be used in cases of assault, false imprisonment and trespass to land and goods. But what are the limits? What if a trespasser gains actual possession of the land or goods of another: can the owner use force to recover the land or goods? If not, why not? D, without any justification whatsoever, attacks C on a public highway and C, in order to protect himself, throws a large brick at D. The brick misses D and hits P, an innocent passer-by. Can P sue C or D for trespass? A bolt of lightning starts a fire on D’s land. P, worried by the fire and the fact that D is making no effort to put it out, enters D’s land and puts the fire out himself. If D assaults P while on the land, could P sue D for trespass? Revill v Newbery [1996] QB 567 Court of Appeal This was an action for damages by a burglar injured when shot by the owner of a shed into which he was trying illegally to enter. The Court of Appeal upheld an award of damages suitably reduced for contributory negligence. Neill LJ:… Each case must depend on its own facts. There may well be cases where in order to frighten a burglar away a gun is discharged in the air and 224

Remedies the burglar is injured because unexpectedly he is on the roof. That, however, is not this case. I have carefully considered what weight should be given to the fact that the defendant thought that the intruder was at the window rather than at the door. I have come to the conclusion, however, that the judge was entitled to treat the discharge of the gun not merely as a warning shot but as a shot which was likely to strike anyone who was in the vicinity of the door. Although the intruder may have been at the window a person in the defendant’s position could reasonably have anticipated that if the window were shuttered, as it was, the intruder might move to the door. The hole through which the gun was discharged was at body height and, as I understand it, the gun was fired more or less horizontally. It is right to emphasise, as did the judge, that the defendant certainly did not intend to hit the plaintiff. Nevertheless, I am satisfied that on the facts of this case the judge was entitled to find that the plaintiff was a person to whom the defendant owed some duty and that the defendant was in breach of that duty. The finding of a substantial proportion of contributory negligence was more than justified. I would dismiss the appeal. Millett LJ: For centuries the common law has permitted reasonable force to be used in defence of the person or property. Violence may be returned with necessary violence. But the force used must not exceed the limits of what is reasonable in the circumstances. Changes in society and in social perceptions have meant that what might have been considered reasonable at one time would no longer be so regarded; but the principle remains the same. The assailant or intruder may be met with reasonable force but no more; the use of excessive violence against him is an actionable wrong. It follows, in my opinion, that there is no place for the doctrine ex turpi causa non oritur actio in this context. If the doctrine applied, any claim by the assailant or trespasser would be barred no matter how excessive or unreasonable the force used against him. I agree that, for the reasons given by Neill LJ, the judge was entitled to find that the defendant’s conduct was not reasonable. It was clearly dangerous and bordered on reckless. I would dismiss the appeal.

Questions 1 2

3 4

Is the defendant liable to the claimant in the tort of trespass or negligence? Is this case authority for the proposition that one should never try to defend oneself, one’s family or one’s property against a burglar, for there is always a risk that one will have to pay him or her damages? Why is it not possible to say that a burglar who enters another’s property takes the risk of the householder behaving, perhaps out of fear, irrationally? A householder shoots and kills a professional burglar. The wife of the burglar sues the householder for damages under the Fatal Accidents Act 1976. Can she claim compensation for the ‘earnings’ that her late husband

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would have made from his ‘professional’ activity had he not been wrongfully killed?

(c) Refusal to pay Principles of European Contract Law Article 9.201 Right to withhold performance (1) A party who is to perform simultaneously with or after the other party may withhold performance until the other has tendered performance or has performed. The first party may withhold the whole of its performance or a part of it as may be reasonable in the circumstances. (2) A party may similarly withhold performance for as long as it is clear that there will be a non-performance by the other party when the other party’s performance becomes due. Vigers v Cook [1919] 2 KB 475 Court of Appeal (See p 516.) Bolton v Mahadeva [1972] 1 WLR 1009 Court of Appeal This was a debt action for £560 brought by a firm of heating engineers against a householder who had contracted with the engineers to have a central heating system installed in his house for £560. The householder claimed that the work of installation was so defective that it amounted to a non-performance of the contract and that, accordingly, he was not liable to pay anything. The trial judge held that the system was defective and would cost £174.50 to remedy; he gave judgment for £385.50 plus another £46 for extras. The Court of Appeal allowed an appeal by the householder. Cairns LJ:… The main question in the case is whether the defects in workmanship found by the judge to be such as to cost £174 to repair—that is, between one-third and one-quarter of the contract price—were of such a character and amount that the plaintiff could not be said to have substantially performed his contract. That is, in my view, clearly the legal principle which has to be applied to cases of this kind. The rule which was laid down many years ago in Cutter v Powell in relation to lump sum contracts was that unless the contracting party had performed the whole of his contract, he was not entitled to recover anything. That strong rule must now be read in the light of certain more recent cases… Perhaps the most helpful case is the most recent one of Hoenig v Isaacs. That was a case where the plaintiff was an interior decorator and designer of furniture who had entered into a contract to decorate and furnish the defendant’s flat for a sum of £750; and, as appears from the statement of facts, the official referee who tried the case at first instance found that the door of a wardrobe required replacing, that a bookshelf which was too short would have to be re-made, which would require alterations being made to a bookcase, and that the cost of remedying the defects was £55 18s 2d. That is 226

Remedies on a £750 contract. The ground on which the Court of Appeal in that case held that the plaintiff was entitled to succeed, notwithstanding that there was not complete performance of the contract, was that there was substantial performance of the contract and that the defects in the work which there existed were not sufficient to amount to a substantial degree of nonperformance. In considering whether there was substantial performance I am of opinion that it is relevant to take into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price. It would be wrong to say that the contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule… Now, certainly it appears to me that the nature and amount of the defects in this case were far different from those which the court had to consider in H Dakin and Co Ltd v Lee and Hoenig v Isaacs. For my part, I find it impossible to say that the judge was right in reaching the conclusion that in those circumstances the contract had been substantially performed. The contract was a contract to install a central heating system. If a central heating system when installed is such that it does not heat the house adequately and is such, further, that fumes are given out, so as to make living rooms uncomfortable, and if the putting right of those defects is not something which can be done by some slight amendment of the system, then I think that the contract is not substantially performed. The actual amount of expenditure which the judge assessed as being necessary to cure those particular defects were £40 in each case. Taking those matters into account and the other matters making up the total of £174, I have reached the conclusion that the judge was wrong in saying that this contract had been substantially completed; and, on my view of the law, it follows that the plaintiff was not entitled to recover under that contract…

Notes and questions 1

2

One of the most effective remedies that a consumer has against a supplier who provides shoddy goods or services is the option not to pay the bill. In effect the consumer is either (a) simply repudiating the contract for serious breach by the other party (see Chapter 6); or (b) refusing to perform because the other party has not performed. What is the difference between breach of contract and non-performance of a contract? Were the consumers in Vigers and Mahadeva refusing to pay because the other party was in breach? If, of course, the consumer is not justified in repudiating because (a) the breach by the supplier does not go to the root of the contract; or (b) the other party has substantially performed, then the consumer will be in breach of contract. What remedies will the supplier then have against the consumer? If the refusal to pay the bill caused the undertaker or the firm of heating engineers to borrow money at a high rate of interest to stop them going bankrupt, could they claim this interest in an action for damages against the consumer? 227

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3

4

5

In both Vigers and Mahadeva, it could be said that the consumer received something from the supplier. Ought they to pay for this something? If the houseowner in Mahadeva had brought another firm in to get the heating working for a price of £100 (1972 prices), would it be just and equitable that the owner could obtain a heating system so cheaply? Had he unjustly enriched himself at the expense of the first heating firm? What if the firm had been a cowboy firm of builders: can one unjustly enrich oneself at the expense of a cowboy firm of builders? In Mahadeva, the refusal to pay was a particularly effective remedy. But what if the heating engineers had not only installed a bad system, but also had caused extensive damage to the owner’s house? In this situation, the owner would have had to sue for damages for breach of contract and such a remedy covers only the actual loss suffered by the plaintiff. Would the court, then, have set off the cost of the pipes, radiators, etc, against the loss suffered by the owner? What if this case had come before the courts in the days when there were still juries in civil cases and the jury had decided that the heating engineers had substantially performed the contract: could the Court of Appeal have reversed their finding? Eller v Grovecrest Investments Ltd [1994] 4 All ER 845 Court of Appeal Hoffmann LJ: The question in this appeal is whether set off against a claim for rent can be invoked against a landlord exercising the ancient common law remedy of distress… [The] authorities can be understood only against the background of the principles which governed set off at common law and equity before the Judicature Acts. At common law, a defendant could resist a money claim on the ground that he had already paid money to the plaintiffs use… But no cross-claim could be set off in any proceedings until the Insolvent Debtors Relief Act 1729… Nevertheless, set off under the statute was restricted to mutual debts and did not, for example, allow the set off of a claim for unliquidated damages such as the tenant makes in this case… So much for the position at common law. The Court of Chancery approached set off on a wider basis and would relieve a debtor against a common law liability when he had a cross-claim ‘so directly connected with [the claim] that it would be manifestly unjust to the claimant to recover without taking into account the cross-claim’ (see Cia Sud Americana de Vapores v Shipmair BV, The Teno [1977] 2 Lloyd’s Rep 289, p 297, per Parker J). The procedural remedy given by the Court of Chancery was to injunct the plaintiff from bringing or proceeding with his common law action until the cross-claim had been taken into account…

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Remedies What fair dealing requires seems clear enough. It is contrary to principle that a landlord should be able to recover more by distress than he can by action… In my judgment, therefore, this court is free to hold that set off is available against a claim to levy distress. Mr Philip Wood, in his comprehensive book on English and International Set Off, 1989, para 4.86, says that this is the better view. I agree… Neill LJ:… It is necessary to remember that before the passing of the statutes of set off in the time of George II there was no right of set off in an action at law… The introduction of the statutory right of set off represented an important development, but the set off was only available in the circumstances prescribed in the statute, that is, in respect of debts or liquidated demands due between the same parties in the same right. It followed, therefore, that a claim for damages for tort or in pursuit of a remedy in respect of some tortious liability could not be used by way of a set off under the statutes… It would appear that another effect of the strict rules governing a statutory set off at law was that in the 18th and 19th centuries, before the Judicature Acts 1873 and 1875, courts of equity were very reluctant to intervene where the position of the parties inter se was regulated by their rights at law… The position was different, however, where the set off relied on was a true equitable set off and one which was not even arguably within the statutes…

Notes and questions 1

2 3

Two important self-help remedies in commercial law are set off and liens: the first operates within the remedy of debt (see below), while the second is, like the landlord’s remedy of distress, a self-help remedy in rem exercised against the goods of another. Thus, a bailee may in certain circumstances have a lien on the thing bailed. What are the circumstances? Could banking function without set off? What is the relationship, if any, between set off and subrogation? P buys an expensive washing machine using his credit card. The washing machine explodes after the third use and damages clothes and surrounding property. Can P set off the cost of all this against his credit card bill? What if the Conditions of Use in the credit card contract contains a clause denying the right of any credit card holder to use the remedy of set off? (Cf Consumer Credit Act 1974, s 75; Stewart Gill Ltd v Horatio Myer Co Ltd [1992] QB 600.)

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5 DEBT (a) Contractual debt Principles of European Contract Law Article 9.101 Monetary obligations (1) The creditor is entitled to recover money which is due. (2) Where the creditor has not yet performed its obligation and it is clear that the debtor will be unwilling to receive performance, the creditor may nonetheless proceed with its performance and may recover any sum due under the contract unless: (a) it could have made a reasonable substitute transaction without significant effort or expense; or (b) performance would be unreasonable in the circumstances. Article 9.307 Recovery of money paid On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected. Jervis v Harris [1996] Ch 195 Court of Appeal Millett LJ:… The question…is whether the landlord’s right to enter the property, effect the repairs himself and then claim to recover the cost of doing so from the tenant is a claim for damages for breach of a covenant by the tenant ‘to keep or put in repair during the currency of the lease all or any of the property comprised in the lease’… The short answer to the question is that the tenant’s liability to reimburse the landlord for his expenditure on repairs is not a liability in damages for breach of his repairing covenant at all. The landlord’s claim sounds in debt not damages; and it is not a claim to compensation for breach of the tenant’s covenant to repair, but for reimbursement of sums actually spent by the landlord in carrying out repairs himself. I shall expand on each of these distinctions in turn. The law of contract draws a clear distinction between a claim for payment of a debt and a claim for damages for breach of contract. The distinction and its consequences are set out in Chitty on Contracts, 27th edn, 1994, Vol 1, p 1046, para 21–031. As there stated, a debt is a definite sum of money fixed by the agreement of the parties as payable by one party to the other in return for the performance of a specified obligation by the other party or on the occurrence of some specified event or condition; whereas damages may be claimed from a party who has broken his primary contractual obligation in some way other than by failure to pay such a debt. The plaintiff who claims payment of a debt need not prove anything beyond the occurrence of the event or condition on the occurrence of which the debt became due. He need prove no loss; the rules as to remoteness of damage 230

Remedies and mitigation of loss are irrelevant; and unless the event on which the payment is due is a breach of some other contractual obligation owed by the one party to the other the law on penalties does not apply to the agreed sum. It is not necessary that the amount of the debt should be ascertained at the date of the contract; it is sufficient if it is ascertainable when payment is due. The landlord’s monetary claim under clause 2(10) does not arise unless and until he has carried out the repairs; when it does arise, his claim is for an account and payment, not for damages. Moreover, the landlord’s monetary claim under such a clause is not a claim for compensation for loss suffered by him by reason of the tenant’s failure to repair but for reimbursement of expenditure which he incurred in order to avoid such loss. The difference is one of substance. The loss which the landlord suffers by reason of the tenant’s failure to repair is the diminution of the value of his interest in the property. Even before the Landlord and Tenant Act 1927 the landlord could not recover more than the diminution in the value of the reversion unless he coupled his claim with a claim for forfeiture of the lease. Even if the landlord left the lease on foot then, having recovered damages for breach of the tenant’s repairing covenant, he was not bound to apply them in carrying out repairs. He could choose to leave the property unrepaired; he had been fully compensated for the diminution in the value of his interest, and the tenant would have to live with the diminution in the value of his. But a clause such as clause 2(10) works very differently. It enables the landlord to take remedial action himself to avoid any loss consequent on the tenant’s failure to repair. Once the landlord has carried out the repairs himself, the value of his interest in the property is restored. The work of repair enures to the benefit of the tenant as well as the landlord. The landlord is out of pocket, but that is because he has carried out repairs, not because the property is in disrepair… The landlord’s claim to reimbursement is not triggered by the tenant’s breach of covenant but by his own expenditure on carrying out repairs. The fact that the property is in disrepair is not enough. The landlord must have carried out work to remedy the want of repair; and his right to do so does not depend upon the existence of any covenant on the part of the tenant, but simply upon there being a want of repair which the tenant has failed to remedy within the stated period after notice. The fact that the tenant is thereby in breach of covenant is neither here nor there. It merely means that the landlord has an alternative remedy of claiming damages for breach of covenant. But the presence of an alternative remedy which the landlord does not choose to enforce cannot affect the proper characterisation of the remedy which he does… White & Carter (Councils) Ltd v McGregor [1962] AC 413 House of Lords (Scotland) Lord Reid: My Lords, the pursuers supply to local authorities litter bins which are placed in the streets. They are allowed to attach to these receptacles plates carrying advertisements, and they make their profit from payments made to them by the advertisers. The defender carried on a garage in Clydebank and in 1954 he made an agreement with the pursuers under which they displayed 231

Sourcebook on Obligations and Remedies advertisements of his business on a number of these bins. In June 1957 his sales manager made a further contract with the pursuers for the display of these advertisements for a further period of three years. The sales manager had been given no specific authority to make this contract and when the defender heard of it later on the same day he at once wrote to the pursuers to cancel the contract. The pursuers refused to accept this cancellation. They prepared the necessary plates for attachment to the bins and exhibited.them on the bins from 2 November 1957 onwards. The defender refused to pay any sums due under the contract and the pursuers raised the present action in the Sheriff Court craving payment of £196 4s the full sum due under the contract for the period of three years. After sundry procedure the Sheriff Substitute on 15 March 1960 dismissed the action… The case for the defender (now the respondent) is that, as he repudiated the contract before anything had been done under it, the appellants were not entitled to go on and carry out the contract and sue for the contract price: he maintains that in the circumstances the appellants’ only remedy was damages, and that, as they do not sue for damages, this action was rightly dismissed… The general rule cannot be in doubt. It was settled in Scotland at least as early as 1848 and it has been authoritatively stated time and again in both Scotland and England. If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the contract; the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract, whether or not the time for performance has come; or he may if he chooses disregard or refuse to accept it and then the contract remains in full effect… I need not refer to the numerous authorities. They are not disputed by the respondent but he points out that in all of them the party who refused to accept the repudiation had no active duties under the contract. The innocent party’s option is generally said to be to wait until the date of performance and then to claim damages estimated as at that date. There is no case in which it is said that he may, in face of the repudiation, go on and incur useless expense in performing the contract and then claim the contract price. The option, it is argued, is merely as to the date as at which damages are to be assessed… Of course, if it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the court would not have compelled the defender to act, the contract would not have been completed and the pursuers’ only remedy would have been damages… It might be said that, because in most cases the circumstances are such that an innocent party is unable to complete the contract and earn the contract price without the assent or co-operation of the other party, therefore in cases where he can do so he should not be allowed to do so. I can see no justification for that. [Another] ground would be that there is some general equitable principle or element of public policy which requires this limitation of the contractual rights 232

Remedies of the innocent party. It may well be that, if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself. If a party has no interest to enforce a stipulation, he cannot in general enforce it: so it might be said that, if a party has no interest to insist on a particular remedy, he ought not to be allowed to insist on it. And, just as a party is not allowed to enforce a penalty, so he ought not to be allowed to penalise the other party by taking one course when another is equally advantageous to him. If I may revert to the example which I gave of a company engaging an expert to prepare an elaborate report and then repudiating before anything was done, it might be that the company could show that the expert had no substantial or legitimate interest in carrying out the work rather than accepting damages: I would think that the de minimis principle would apply in determining whether his interest was substantial, and that he might have a legitimate interest other than an immediate financial interest. But if the expert had no such interest then that might be regarded as a proper case for the exercise of the general equitable jurisdiction of the court. But that is not this case. Here the respondent did not set out to prove that the appellants had no legitimate interest in completing the contract and claiming the contract price rather than claiming damages; there is nothing in the findings of fact to support such a case, and it seems improbable that any such case could have been proved. It is, in my judgment, impossible to say that the appellants should be deprived of their right to claim the contract price merely because the benefit to them, as against claiming damages and re-letting their advertising space, might be small in comparison with the loss to the respondent: that is the most that could be said in favour of the respondent. Parliament has on many occasions relieved parties from certain kinds of improvident or oppressive contracts, but the common law can only do that in very limited circumstances. Accordingly, I am unable to avoid the conclusion that this appeal must be allowed and the case remitted so that decree can be pronounced as craved in the initial writ. Lord Keith of Avonholm (dissenting):… If I understand aright, counsel for the appellants would read time of performance as time of performance by the defender after the appellants had discharged their part of performance under the contract. Their claim then becomes a claim, not for damages for breach of contract, but for a debt due by the defender under the contract. In other words, there would be an anticipatory repudiation by the defender which the appellants were not bound to accept as a breach of contract and which did not cease to be anticipatory until the moment when the defender was due to make payment under the contract. This, I think, goes beyond anything that has been decided in the cases where anticipatory repudiation has been considered. It makes an arbitrary distinction and one differing in its consequences according as performance is first called for under the contract from the repudiating party, or from the other party. In the former case there is a plain breach of contract making the repudiating party liable in damages, unless where a claim for specific implement is available. In the latter case, according to the submission made, he is liable contractually for a debt at least where the consideration for performance by the other party is expressed in money. The law of Scotland has always stressed the mutuality of contracts and it should follow, in my opinion, that the consequences of

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Sourcebook on Obligations and Remedies breach of contract by either party should correspond. I would state the position in the case of an anticipatory repudiation not accepted by the other party as a breach of contract thus: If the contract is to take operative effect in the first place by performance of the repudiating party and he maintains his repudiation by refusing, or failing to give performance, the other party has a cause of action for either damages or specific implement. If performance is first to be given by the other party and the time for his performance has arrived he must tender performance, in the sense of showing that he is now ready and able to give performance, and if this tender is still rejected by the repudiating party his only cause of action again arises to him as at that date. I would refer first to contracts for the sale of goods which were touched on in the course of the debate, for the reason that one of the remedies provided to the seller by the Sale of Goods Act 1893, is an action for the price. This, however, applies only in two cases. One is where the property in the goods has passed to the buyer. But property cannot pass without the intention of the buyer as well as that of the seller and, except in some such cases as fraud or lack of consensus in idem or breach of contract by the seller, no question of repudiation can arise. The contract is completed and finished apart from delivery and nothing remains but payment of the price. The only other case is where parties have contracted for payment on a day certain, irrespective of delivery or the passing of property. This is a clear case of a contractual debt unconditioned by any question of performance by the other party. A much closer parallel with the present case is a contract to sell future, or unascertained goods. In this case there can be no appropriation of, and therefore passing of, property in the goods without the assent of both buyer and seller. If therefore the buyer repudiates the contract before appropriation, or refuses his assent to appropriation, there can be no passing of property. The seller is then confined to an action of damages for breach of contract. This, of course, is a rule of statute. But the Act is largely declaratory of English law, though not of Scots law. So the rule can only be treated as an analogy, but it is an analogy which seems to me to make a hole in the principle contended for by the appellants… I find the argument advanced for the appellants a somewhat startling one. If it is right it would seem that a man who has contracted to go to Hong Kong at his own expense and make a report, in return for remuneration of £10,000, and who, before the date fixed for the start of the journey and perhaps before he has incurred any expense, is informed by the other contracting party that he has cancelled or repudiates the contract, is entitled to set off for Hong Kong and produce his report in order to claim in debt the stipulated sum. Such a result is not, in my opinion, in accordance with principle or authority, and cuts across the rule that where one party is in breach of contract the other must take steps to minimise the loss sustained by the breach…

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Notes and questions 1

2

3

The two causes of action, namely, that for debt or money due under the contract and that for damages for breach of contract, are quite different…’ (Davies LJ in Overstone Ltd v Shipway [1962] 1 WLR 117, p 129). Does this mean that if the plaintiff in White & Carter had lost his debt claim he could, at a later date, have brought a quite separate damages action? Might it be an abuse of a right to sue in debt rather than damages? Does equity have a doctrine of abuse of rights? Does the common law? What about EU law? What is meant by legitimate interest’ in this context? Attica Sea Carriers Corporation v Ferrostaal Poseidon [1976] 1 LI Rep 250 Court of Appeal This was an action for debt brought by the owners of a ship against the hirers of the vessel. The hirers were under a contractual duty to redeliver the ship in good repair, but, owing to engine trouble, it transpired that to put the ship in good repair would cost over twice its actual value. The hirers accordingly tried to redeliver the ship without the full repairs being done. The owners refused to accept redelivery and were thus claiming the hire fees for the whole period during which the ship remained unrepaired. The Court of Appeal held that the owners ought to have accepted redelivery and thus were not entitled to sue in debt. They were entitled only to damages. Lord Denning MR:… [White & Carter (Councils) Ltd v McGregor] has no application whatever in a case where the plaintiff ought, in all reason, to accept the repudiation and sue for damages—provided that damages would provide an adequate remedy for any loss suffered by him. The reason is because, by suing for the money, the plaintiff is seeking to enforce specific performance of the contract—and he should not be allowed to do so when damages would be an adequate remedy… [The owners] cannot sue for specific performance—either of the promise to pay the charter hire, or of the promise to do the repairs—because damages are an adequate remedy for the breach. What is the alternative which the shipowners present to the charterers? Either the charterers must pay the charter hire for years to come, whilst the vessel lies idle and useless for want of repair. Or the charterers must do the repairs which would cost twice as much as the ship would be worth when repaired—after which the shipowners might sell it as scrap, making the repairs a useless waste of money. In short, on either alternative, the shipowners seek to compel specific performance of one or other of the provisions of the charter—with most unjust and unreasonable consequences—when damages would be an adequate remedy. I do not think the law allows them to do this.

Questions 1

Is it true to say that English law is reluctant specifically to enforce contracts? 235

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2 3

Were the owners abusing their right? Did equity prevent them suing in debt? Could this case be seen as one where the owners were not acting in good faith? Rowland v Divall [1923] 2 KB 500 Court of Appeal This was an action for money had and received by a purchaser of a car, which subsequently turned out to be stolen and had to be surrendered to its true owner, for the return of the price paid. The Court of Appeal allowed the purchaser to recover the full price. Atkin LJ:… It seems to me that in this case there has been a total failure of consideration, that is to say that the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer. Therefore the buyer, during the time that he had the car in his actual possession had no right to it, and was at all times liable to the true owner for its conversion. Now there is no doubt that what the buyer had a right to get was the property in the car, for the Sale of Goods Act expressly provides that in every contract of sale there is an implied condition that the seller has a right to sell; and the only difficulty that I have felt in this case arises out of the wording of s 11, sub-s 1(c), which says that: ‘Where a contract of sale is not severable, and the buyer has accepted the goods…the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there be a term of the contract, express or implied, to that effect.’ It is said that this case falls within that provision, for the contract of sale was not severable and the buyer had accepted the car. But I think that the answer is that there can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another. And I think that in every contract of sale of goods there is an implied term to the effect that a breach of the condition that the seller has a right to sell the goods may be treated as a ground for rejecting the goods and repudiating the contract notwithstanding the acceptance, within the meaning of the concluding words of sub-s (c); or in other words that the sub-section has no application to a breach of that particular condition. It seems to me that in this case there must be a right to reject, and also a right to sue for the price paid as money had and received on failure of the consideration, and further that there is no obligation on the part of the buyer to return the car, for ex hypothesi the seller had no right to receive it. Under those circumstances can it make any difference that the buyer has used the car before he found out that there was a breach of the condition? To my mind it makes no difference at all. The buyer accepted the car on the representation of the seller that he had a right to sell it, and inasmuch as the seller had no such right he is not entitled to say that the buyer has enjoyed a benefit under the contract. In fact, the buyer has not received any part of that which he contracted to receive—namely, the property and right to possession—and, that being so,

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Remedies there has been a total failure of consideration. The plaintiff is entitled to recover the £334 which he paid.

Questions 1

2 3 4

Is this case the reverse side of the coin, so to speak, of Bolton v Mahadeva (above, p 226)? Did the plaintiff, by succeeding in debt, get a benefit that he did not have to pay for? What is meant by total failure of consideration? Was the consideration for the promise to pay the price that title actually be transferred? Was the plaintiffs claim based on contract? Would Rowland v Divall be decided the same way today? (See Barber v NWS Bank [1996] 1 WLR 641.)

(b) Debt and damages Wadsworth v Lydall [1981] 1 WLR 598 Court of Appeal Brightman LJ:… The second question on the appeal is a little more difficult. It is whether the plaintiff is entitled to recover as special damages the loss which he has suffered as a result of the defendant’s failure to pay his debt under the contract on the due date… The defendant contends that…although interest can be awarded nowadays under [statute], damages cannot be awarded in respect of unpaid indebtedness. The plaintiff is confined, the defendant says, to such interest as he is able to claim under the [statute], but is not entitled to damages… In my view the court is not so constrained by the decision of the House of Lords. In London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429, the House of Lords was not concerned with a claim for special damages. The action was an action for an account. The House was concerned only with a claim for interest by way of general damages. If a plaintiff pleads and can prove that he has suffered special damages as a result of the defendant’s failure to perform his obligation under a contract, and such damage is not too remote on the principle of Hadley v Baxendale (1854) 9 Exch 341, I can see no logical reason why such special damage should be irrecoverable merely because the obligation on which the defendant defaulted was an obligation to pay money and not some other type of obligation… Ormrod LJ:… The court has to look not at what this particular defendant knew or contemplated but what a reasonable person in his position would have contemplated… This case is not on all fours with—and can be distinguished from—the London, Chatham and Dover case and clearly ought to be so distinguished.

Questions 1

Is it an abuse of a right when a debtor fails to pay a debt on time and this causes damage to the creditor? Or is it a simple breach of contract causing damage? 237

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2

Why has the common law been so reluctant to award interest on debts not paid on time? (Cf Lord Woolf in Westdeutsche Landesbank, p 799.) Damon Compania Naviera SA v Hapag-Lloyd [1985] 1 WLR 435 Court of Appeal This was an action for damages brought by a seller of three ships against prospective buyers who, in breach of a contract concluded via telexes, failed to sign a formal contract of purchase. The telex contract contained a clause that a deposit of 10% would be payable on the signing of the formal contract. The disappointed sellers claimed this 10% by way of damages, and a majority of the Court of Appeal upheld their claim. Fox LJ:… Damages for breach of contract are a compensation for the loss which the plaintiff has suffered through the breach. Accordingly, the plaintiff is entitled to be placed in the same position as if the contractual obligation had been performed. In the present case, if the obligation had been performed, Hapag-Lloyd could have sued Damon in debt for the amount of the deposit and it seems to me that that should be reflected in the damages recoverable for breach of the obligation. Robert Goff LJ (dissenting):… If the repudiation occurred after Damon had paid the deposit, Hapag-Lloyd would be safe: they would have the deposit and could keep it. If the repudiation occurred after the obligation to pay the deposit had accrued due, but before Damon had paid it, HapagLloyd could sue Damon for the deposit as a debt… But if the repudiation occurred before Damon’s obligation to pay the deposit had fallen due, then Hapag-Lloyd could only recover damages for repudiation, which would fall to be assessed on the usual basis of compensating Hapag-Lloyd for the loss of their bargain… The normal measure, in a contract of sale of goods, is of course the difference between the contract and market prices for the goods. I can see no reason for departing from that ordinary measure of damages in the present case. To award Hapag-Lloyd damages assessed on the basis of the amount of the deposit would be to compare their present position with what their position would have been if the contract had only been partially performed (that is, the deposit paid), and not with their position if the contract had been performed in full; if damages were assessed in that way, they would be over-compensated for the loss of their bargain. In truth, the inability of Hapag-Lloyd to obtain the protection of the deposit, in the circumstances of the present case, flows from their contracting on such terms that the deposit was not payable forthwith upon the making of the contract. Stephenson LJ:… On the last point I am attracted by the logic of Robert Goff LJ’s contrary opinion. But the measure of damages resulting from Damon’s repudiatory breach is, in my opinion, the loss directly and naturally resulting from the breach in the ordinary course of events, and I agree with Fox LJ that that loss is the amount of the deposit…

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Questions 1

2 3

What interest does an action in debt protect? Is this an interest that is always protected by an action in damages? What must the plaintiff show in order to succeed in protecting this interest via damages? What was the cause of the plaintiffs’ loss? Is Damon still good authority after Ruxley Electronics v Forsyth (below, p 301)?

(c) Non-contractual debt United Australia Ltd v Barclays Bank Ltd [1941] AC 1 House of Lords (Seep 781.) Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 House of Lords (See p 778.) The Aldora [1975] QB 748 Queen’s Bench Brandon J:… I do not think that a claim for salvage is a proceeding for the recovery of damages, and the question is accordingly reduced to this: whether it is a proceeding for the recovery of a debt. As to this it is to be observed that the words used are ‘any debt’, indicating that the net is being spread as widely as possible. Those words are, as it seems to me, apt to cover sums, whether liquidated or unliquidated, which a person is obliged to pay either under a contract, express or implied, or under a statute. They would, therefore, cover a common law claim on a ‘quantum meruit’, or a statutory claim for a sum recoverable as a debt, for instance a claim for damages done to harbour works under s 74 of the Harbour, Docks, and Piers Clauses Act 1847. Friends’ Provident Life Office v Hillier Parker May and Rowden [1997] QB 85 Court of Appeal (See also p 620.) Auld LJ:… As to the judge’s reliance on the special provision for debt in s 3 [of the Civil Liability (Contribution) Act 1978], an action of debt is, historically and in everyday parlance, quite distinct from a claim for compensation for damage. It is true that a claim for restitution in quasi-contract may in some respects be close to a claim in debt because of the former’s origin in indebitatus assumpsit (see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, pp 61–63, per Lord Wright). However, indebitatus assumpsit, as its name indicates, was, when it developed in the 16th and 17th centuries, a hybrid of an action on a (fictitious) contract and in debt. Its origin, explained by FW Maitland in his Forms of Action at Common Law, 1936, pp 63, 68–70, was quite distinct from that of debt, and delictual in nature. It emerged as an offshoot of the action on the case, developing into the action of assumpsit and then indebitatus assumpsit, largely supplanting debt (see also Goff and Jones, 239

Sourcebook on Obligations and Remedies Chapter 1). Even though the need for precise categorisation has disappeared since the Common Law Procedure Act 1852, the hybrid character of indebitatus assumpsit and its modern manifestation, quasi-contract, lingered on (see, for example, Sinclair v Brougham [1914] AC 398, p 452, per Lord Sumner). In any event, for the reasons I have given, even if the judge was right in associating a claim for restitution in quasi-contract with an action for debt, that would not exclude it from being a claim for compensation in respect of damage in quasi-contract within the meaning of ss 1(1) and 6(1) of the 1978 Act…

Notes and questions 1

2

If the focal point of an action for damages is loss, what is the focal point for an action in debt? Is it helpful to associate restitution claims with damages claims? The common law recognises three categories of non-contractual debt claims: (a) the action for money had and received; (b) the action for money paid; and (c) an action on a quantum meruit (see Chapter 8). What is the obligation basis of these claims? Is this an area where civil law learning can be helpful? What is the relationship, if any, between these common law claims and equitable remedies? (Cf Asquith LJ, above, p 85.)

6 TRACING Agip (Africa) Ltd v Jackson [1990] Ch 265 Chancery Division; [1991] Ch 547 Court of Appeal This was an action in common law for money had and received and in equity for tracing in respect of money which had fraudulently been embezzled from the plaintiffs and disseminated through a number of bank accounts. The Court of Appeal confirmed that the plaintiff could succeed in equity but not at common law. Millet J (Chancery Division):… The plaintiffs claim to recover money paid under a mistake… Unlike a tracing claim in equity, the common law claim for money had and received is a personal and not a proprietary claim and the cause of action is complete when the money is received. With only limited exceptions, it is no defence that the defendant has parted with the money. The claim does not depend on any impropriety or want of probity on the part of the defendants… Tracing at common law … Tracing at common law, unlike its counterpart in equity, is neither a cause of action nor a remedy but serves an evidential purpose. The cause of action is for money had and received. Tracing at common law enables the defendant to be identified as the recipient of the plaintiffs money and the measure of his liability to be determined by the amount of the plaintiffs money he is shown to have received. 240

Remedies The common law has always been able to follow a physical asset from one recipient to another. Its ability to follow an asset in the same hands into a changed form was established in Taylor v Plumer 3 M & S 562. In following the plaintiffs money into an asset purchased exclusively with it, no distinction is drawn between a chose in action such as the debt of a bank to its customer and any other asset: In re Diplock [1948] Ch 465, p 519. But it can only follow a physical asset, such as a cheque or its proceeds, from one person to another. It can follow money but not a chose in action. Money can be followed at common law into and out of a bank account and into the hands of a subsequent transferee, provided that it does not cease to be identifiable by being mixed with other money in the bank account derived from some other source: Banque Belge pour l’Étranger v Hambrouck [1921] 1 KB 321… The cause of action for money had and received is complete when the plaintiff’s money is received by the defendant. It does not depend on the continued retention of the money by the defendant. Save in strictly limited circumstances it is no defence that he has parted with it. A fortiori it can be no defence for him to show that he has so mixed it with his own money that he cannot tell whether he still has it or not. Mixing by the defendant himself must, therefore, be distinguished from mixing by a prior recipient. The former is irrelevant, but the latter will destroy the claim, for it will prevent proof that the money received by the defendant was the money paid by the plaintiff… That case [Banque Belge] apart, there is none so far as I am aware in which a claim for money had and received has been successfully brought against anyone other than the immediate recipient of the money or his principal. In that case H obtained by fraud from his employer a number of cheques purporting to be drawn by the employer on the plaintiff bank. He paid the cheques into a bank account in his own name. His bank collected the proceeds from the plaintiff bank and credited them to H’s account. H then drew cheques on his account in favour of S, his mistress, who paid them into her own account at her own bank. She spent most of the money but a balance of £315 remained. This sum was paid into court by her bank and was claimed by the plaintiff bank. The plaintiff bank was held entitled to it. It is not easy to know what that case decided. The plaintiff bank sought a declaration that the £315 was its property. The relief it claimed was not a money judgment but an order for payment of the £315. In other words, it was making a proprietary claim. The trial judge, however, treated it as a common law action for money had and received and entered an ordinary money judgment against S for the sum claimed. Her appeal was dismissed. The plaintiff had limited its claim to the £315 in court. That was also consistent with a proprietary claim, though the decision to limit the claim may have been due to other considerations. But there is no hint in any of the judgments in the Court of Appeal that the claim need not have been so limited; although if S was in truth personally accountable for money had and received, the fact that she had dissipated the money was irrelevant. On the contrary, Banks LJ was concerned to show that the money had not been mixed in her account, which indicates that he considered the claim to be a proprietary one in which it was necessary to establish not what S had received but what she still retained.

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Sourcebook on Obligations and Remedies Scrutton LJ held that the money could be traced in equity. It is not clear whether he relied on this to support the common law claim or to found relief in equity, but since the plaintiff had limited its claim to the £315, this made no difference to the result. Atkin LJ alone drew attention to the difference between the two types of claim. He, too, held that the money could be followed in equity, and that this entitled the plaintiff to a specific order for the return of the money in question. He then dealt expressly with the common law action for money had and received and held that the plaintiffs ability to follow the money at common law entitled it to bring such an action. I think that at first instance I am bound to regard that case as authority for the proposition that an action for money had and received is not limited to the immediate recipient or his principal but may be brought against a subsequent transferee into whose hands the money can be followed and who still retains it. But it is no authority for the proposition that it lies against a subsequent transferee who has parted with the money, and I doubt that it does. At this remove the action begins to take on the aspect of a proprietary claim rather than the enforcement of a personal liability to account. Should it be sought to impose personal liability on a person who has parted with the money, recourse can be made to equity which has developed appropriate principles by which such liability can be determined. The alternative is to expose an innocent transferee who has dissipated the money to a claim at law where none would exist in equity and to make that liability depend on the fortuitous circumstance that the money had not been mixed with other money prior to its receipt by him. Such a difference in outcome cannot be justified as reflecting the fact that in one case the defendant is being required to account to the former legal owner while in the other he is accounting merely to an owner in equity, for the equitable remedies are available to the former legal owner who has been deprived of his property as the result of a breach of fiduciary obligation… There is no difficulty in tracing the plaintiffs’ money in equity, which has well developed principles by which the proceeds of fraud can be followed and recovered from those through whose hands they pass. Whether equity can make its tracing rules available in aid of common law remedies, or whether, as I think, it would be preferable to develop a unified restitutionary remedy for the recovery of property transferred without consideration to a recipient with no legitimate justification for receiving it, are questions which must be left for others to decide. There is certainly no need for recourse to the common law action for money had and received, which is not well equipped for the task. In my judgment, the plaintiffs’ attempted reliance on the common law was unnecessary and misplaced. The claim in equity There is no difficulty in tracing the plaintiffs’ property in equity, which can follow the money as it passed through the accounts of the correspondent banks in New York or, more realistically, follow the chose in action through its transmutation as a direct result of forged instructions from a debt owed by the Banque du Sud to the plaintiffs in Tunis into a debt owed by Lloyds Bank to Baker Oil in London. The only restriction on the ability of equity to follow assets is the requirement that there must be some fiduciary relationship which permits the assistance 242

Remedies of equity to be invoked. The requirement has been widely condemned and depends on authority rather than principle, but the law was settled by In re Diplock [1948] Ch 465. It may need to be reconsidered but not, I venture to think, at first instance. The requirement may be circumvented since it is not necessary that the fund to be traced should have been the subject of fiduciary obligations before it got into the wrong hands; it is sufficient that the payment to the defendant itself gives rise to a fiduciary relationship: Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105. In that case, however, equity’s assistance was not needed in order to trace the plaintiffs money into the hands of the defendant; it was needed in order to ascertain whether it had any of the plaintiff’s money left. The case cannot, therefore, be used to circumvent the requirement that there should be an initial fiduciary relationship in order to start the tracing process in equity. The requirement is, however, readily satisfied in most cases of commercial fraud, since the embezzlement of a company’s funds almost inevitably involves a breach of fiduciary duty on the part of one of the company’s employees or agents… The tracing remedy The tracing claim in equity gives rise to a proprietary remedy which depends on the continued existence of the trust property in the hands of the defendant. Unless he is a bona fide purchaser for value without notice, he must restore the trust property to its rightful owner if he still has it. But even a volunteer who has received trust property cannot be made subject to a personal liability to account for it as a constructive trustee if he has parted with it without having previously acquired some knowledge of the existence of the trust: In re Montagu’s Settlement Trusts [1987] Ch 264. The plaintiffs are entitled to the money in court which rightfully belongs to them. To recover the money which the defendants have paid away the plaintiffs must subject them to a personal liability to account as constructive trustees and prove the requisite degree of knowledge to establish the liability… Knowing assistance A stranger to the trust will also be liable to account as a constructive trustee if he knowingly assists in the furtherance of a fraudulent and dishonest breach of trust. It is not necessary that the party sought to be made liable as a constructive trustee should have received any part of the trust property, but the breach of trust must have been fraudulent. The basis of the stranger’s liability is not receipt of trust property but participation in a fraud… In my judgment, it necessarily follows that constructive notice of the fraud is not enough to make him liable. There is no sense in requiring dishonesty on the part of the principal while accepting negligence as sufficient for his assistant. Dishonest furtherance of the dishonest scheme of another is an understandable basis for liability; negligent but honest failure to appreciate that someone else’s scheme is dishonest is not… Fox LJ (Court of Appeal):… Agip’s claim was for money paid under a mistake

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Sourcebook on Obligations and Remedies of fact. The defendants’ contention was that Agip had disclosed no title to sue. The basis of that contention was that the relationship between banker and customer was one of debtor and creditor. When the customer paid money into the bank, the ownership of the money passed to the bank. The bank could do what it liked with it. What the bank undertook to do was to credit the amount of the money to the customer’s account, and to honour his drafts or other proper directions in relation to it… The banker’s instruction is to pay from the customer’s account. He does so by a payment from his own funds and a corresponding debit. The reality is a payment by the customer, at any rate in a case where the customer has no right to require a re-crediting of his account. Nothing passes in specie. The whole matter is dealt with by accounting transactions partly in the paying bank and partly in the clearing process… The order, after all, was an order to pay with Agip’s money. I agree, therefore, with the view of Millett J [1990] Ch 265, p 283H, that ‘the fact remains that the Banque du Sud paid out the plaintiffs’ money and not its own’. If Banque du Sud paid away Agip’s money, Agip itself must be entitled to pursue such remedies as there may be for its recovery. The money was certainly paid under a mistake of fact… Tracing at common law The judge held that Agip was not entitled to trace at law. Tracing at law does not depend upon the establishment of an initial fiduciary relationship. Liability depends upon receipt by the defendant of the plaintiff’s money and the extent of the liability depends on the amount received. Since liability depends upon receipt the fact that a recipient has not retained the asset is irrelevant. For the same reason dishonesty or lack of inquiry on the part of the recipient are irrelevant. Identification in the defendant’s hands of the plaintiff’s asset is, however, necessary. It must be shown that the money received by the defendant was the money of the plaintiff. Further, the very limited common law remedies make it difficult to follow at law into mixed funds… Tracing in equity Both common law and equity accepted the right of the true owner to trace his property into the hands of others while it was in an identifiable form. The common law treated property as identified if it had not been mixed with other property. Equity, on the other hand, will follow money into a mixed fund and charge the fund. There is, in the present case, no difficulty about the mechanics of tracing in equity. The money can be traced through the various bank accounts to Baker Oil and onwards. It is, however, a prerequisite to the operation of the remedy in equity that there must be a fiduciary relationship which calls the equitable jurisdiction into being… Boscawen v Bajwa [1995] 4 All ER 769 Court of Appeal This was a counterclaim by a building society to be subrogated to the rights of a mortgagee in respect of a charge on a house. The building society ‘claims to be entitled to the benefit of the charge in equity by subrogation, by reason of the fact that it provided virtually the whole of the money with which it was discharged’ (Millett LJ). The Court of Appeal upheld the counterclaim.

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Remedies Millett LJ:… Equity lawyers habitually use the expressions ‘the tracing claim’ and ‘the tracing remedy’ to describe the proprietary claim and the proprietary remedy which equity makes available to the beneficial owner who seeks to recover his property in specie from those into whose hands it has come. Tracing properly so called, however, is neither a claim nor a remedy but a process. Moreover, it is not confined to the case where the plaintiff seeks a proprietary remedy; it is equally necessary where he seeks a personal remedy against the knowing recipient or knowing assistant. It is the process by which the plaintiff traces what has happened to his property, identifies the persons who have handled or received it, and justifies his claim that the money which they handled or received (and if necessary which they still retain) can properly be regarded as representing his property. He needs to do this because his claim is based on the retention by him of a beneficial interest in the property which the defendant handled or received. Unless he can prove this, he cannot (in the traditional language of equity) raise an equity against the defendant or (in the modern language of restitution) show that the defendant’s unjust enrichment was at his expense. In such a case, the defendant will either challenge the plaintiff’s claim that the property in question represents his property (that is, he will challenge the validity of the tracing exercise), or he will raise a priority dispute (for example, by claiming to be a bona fide purchaser without notice). If all else fails, he will raise the defence of innocent change of position. This was not a defence which was recognised in England before 1991, but it was widely accepted throughout the common law world. In Lipkin German (A Firm) v Karpnale Ltd [1991] 2 AC 548, the House of Lords acknowledged it to be part of English law also. The introduction of this defence not only provides the court with a means of doing justice in future, but allows a re-examination of many decisions of the past in which the absence of the defence may have led judges to distort basic principles in order to avoid injustice to the defendant. If the plaintiff succeeds in tracing his property, whether in its original or in some changed form, into the hands of the defendant and overcomes any defences which are put forward on the defendant’s behalf, he is entitled to a remedy. The remedy will be fashioned to the circumstances. The plaintiff will generally be entitled to a personal remedy; if he seeks a proprietary remedy he must usually prove that the property to which he lays claim is still in the ownership of the defendant. If he succeeds in doing this, the court will treat the defendant as holding the property on a constructive trust for the plaintiff and will order the defendant to transfer it in specie to the plaintiff. But this is only one of the proprietary remedies which is available to a court of equity. If the plaintiff’s money has been applied by the defendant, for example, not in the acquisition of a landed property but in its improvement, then the court may treat the land as charged with the payment to the plaintiff of a sum representing the amount by which the value of the defendant’s land has been enhanced by the use of the plaintiff’s money. And if the plaintiff’s money has been used to discharge a mortgage on the defendant’s land, then the court may achieve a similar result by treating the land as subject to a charge by way of subrogation in favour of the plaintiff… (See also p 269.)

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Questions 1 2

3 4 5

Is tracing at common law based on a right of property in the money? Is this right a right in rem? Millett LJ describes tracing as neither a cause of action nor a remedy, but something which ‘serves an evidential purpose’ or a ‘process’. What does he mean? Is he inventing a new concept? What is the relationship between tracing at common law and an action for money had and received? Will tracing at common law ever be available in circumstances where tracing in equity is not available? If so, in what circumstances? E steals £500 from P, his employer, and gives the cash to his mother, D, who invests it on the stock exchange and ends up with £50,000. Can P claim the £50,000 from D? What if D had invested the money in an old painting that turned out to be worth £50,000: could P claim the painting? In re Goldcorp Exchange Ltd [1995] 1 AC 74 Privy Council Lord Mustill: On 11 July 1988 the Bank of New Zealand Ltd…caused receivers to be appointed under the terms of a debenture issued by Goldcorp Exchange Ltd…dealer in gold and other precious metals. The company was then and still remains hopelessly insolvent… The discovery that not only was there a shortfall in available bullion but also that the stock of bullion had been dealt with internally in a manner quite different from what had been promised by the vendors in their promotional literature has aroused great indignation amongst the members of the public (more than 1,000) whose faith in the promises made by the vendors has proved to be misplaced. These feelings were exacerbated when it was realised that the debt secured by the debenture and the floating charge which it created were in excess of the entire assets of the company, including the stocks of bullion, so that if the secured interest of the bank is satisfied in preference to the claims of the purchasers, the latter will receive nothing at all. This has impelled the private investors…to assert in the liquidation of the company, not their unanswerable personal claims against the company for damages or for the repayment of sums paid in advance, but claims of a proprietary nature… In the High Court all the claims were founded on the proposition that the customers had, or must be deemed to have, proprietary interests in the bullion which could be traced into the stock remaining on liquidation… Their Lordships begin with the question whether the customer obtained any form of proprietary interest, legal or equitable, simply by virtue of the contract of sale, independently of the collateral promises. In the opinion of their Lordships, the answer is so clearly that he did not that it would be possible simply to quote…s 16 of the Sale of Goods Act 1893…and one reported case, and turn to more difficult issues. It is common ground that the contracts in question were for the sale of unascertained goods… Approaching these situations a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates. Whether 246

Remedies the property then passes will depend upon the intention of the parties and in particular on whether there has been a consensual appropriation of particular goods to the contract… A more plausible…argument posits that the company, having represented to its customers that they had title to bullion held in the vaults, cannot now be heard to say that they did not. At first sight, this argument gains support from a small group of cases, of which Knights v Wiffen (1870) LR 5 QB 660 is the most prominent… Assuming that the decision was nevertheless correct the question is whether it applies to the present case. Their Lordships consider that, notwithstanding the apparent similarities, it does not… The present case is quite different, for there was no existing bulk and therefore nothing from which a title could be carved out by a deemed appropriation. The reasoning of Knights v Wiffen does not enable a bulk to be conjured into existence for this purpose simply through the chance that the vendor happens to have some goods answering the description of the res vendita in its trading stock at the time of the sale— quite apart, of course, from the fact that if all the purchasers obtained a deemed title by estoppel there would not be enough bullion to go around… Let it be assumed, however, that the company could properly be described as a fiduciary and let it also be assumed that notwithstanding the doubts expressed above the non-allocated claimants would have achieved some kind of proprietary interest if the company had done what it said. This still leaves the problem, to which their Lordships can see no answer, that the company did not do what it said. There never was a separate and sufficient stock of bullion in which a proprietary interest could be created. What the nonallocated claimants are really trying to achieve is to attach the proprietary interest, which they maintain should have been created on the non-existent stock, to wholly different assets. It is understandable that the claimants, having been badly let down in a transaction concerning bullion should believe that they must have rights over whatever bullion the company still happens to possess. Whilst sympathising with this notion their Lordships must reject it, for the remaining stock, having never been separated, is just another asset of the company, like its vehicles and office furniture. If the argument applies to the bullion it must apply to the latter as well, an obviously unsustainable idea… Finally, it is argued that the court should declare in favour of the claimants a remedial constructive trust, or to use another name a restitutionary proprietary interest, over the bullion in the company’s vaults… Their Lordships…are unable to understand how the doctrine in any of its suggested formulations could apply to the facts of the present case. By leaving its stock of bullion in a non-differentiated state the company did not unjustly enrich itself by mixing its own bullion with that of the purchasers: for all the gold belonged to the company. It did not act wrongfully in acquiring, maintaining and using its own stock of bullion, since there was no term of the sale contracts or of the collateral promises, and none could possibly be implied, requiring that all bullion purchased by the company should be set aside to fulfil the unallocated sales. The conduct of the company was wrongful in the sense of being a breach of contract, but it did not involve any injurious dealing with the subject matter of the alleged trust… The company’s stock of bullion had no connection 247

Sourcebook on Obligations and Remedies with the claimants’ purchases, and to enable the claimants to reach out and not only abstract it from the assets available to the body of creditors as a whole, but also to afford a priority over a secured creditor, would give them an adventitious benefit devoid of the foundation in logic and justice which underlies this important new branch of the law… Whilst it is convenient to speak of the customers ‘getting their money back’ this expression is misleading. Upon payment by the customers the purchase moneys became, and rescission or no rescission remained, the unencumbered property of the company. What the customers would recover on rescission would not be ‘their’ money, but an equivalent sum. Leaving aside for the moment the creation by the court of a new remedial proprietary right, to which totally different considerations would apply, the claimants would have to contend that in every case where a purchaser is misled into buying goods he is automatically entitled upon rescinding the contract to a proprietary right superior to those of all the vendor’s other creditors, exercisable against the whole of the vendor’s assets. It is not surprising that no authority could be cited for such an extreme proposition… It may be…that where one party mistakenly makes the same payment twice it retains a proprietary interest in the second payment which (if tracing is practicable) can be enforced against the payees’ assets in a liquidation ahead of unsecured creditors. But in the present case, the customers intended to make payment, and they did so because they rightly conceived that that was what the contracts required… As in the case of the misrepresentation, the alleged mistake might well have been a ground for setting aside the contract if the claimants had ever sought to do so, and in such a case they would have had a personal right to recover the sum equivalent to the amount paid. But even if they had chosen to exercise this right, it would not by operation of law have carried with it a proprietary interest… There remains the question whether the court should create after the event a remedial restitutionary right superior to the security created by the charge. The nature and foundation of this remedy were not clearly explained in argument. This is understandable, given that the doctrine is still in an early stage and no single juristic account of it has yet been generally agreed… The bank relied on the floating charge to protect its assets; the customers relied on the company to deliver the bullion and to put in place the separate stock. The fact that the claimants are private citizens whereas their opponent is a commercial bank could not justify the court in simply disapplying the bank’s valid security. No case cited has gone anywhere near to this, and the Board would do no service to the nascent doctrine by stretching it past breaking point. So far as concerns an equitable interest deemed to have come into existence from the moment when the transaction was entered into, it is hard to see how this could coexist with a contract which, so far as anyone knew, might be performed by actual delivery of the goods. And if there was no initial interest, at what time before the attachment of the security, and by virtue of what event, could the court deem a proprietary right to have arisen? None that their Lordships are able to see…

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Remedies For these reasons the Board must reject all the ways in which the non-allocated claimants assert a proprietary interest over the purchase price and its fruits…

Questions 1 Did the company not enrich itself as a result of its breaches of contract? 2 Does not a person who mistakenly makes the same payment twice nevertheless intend to make the second payment? 3 If the bullion company was a fiduciary, why should equity be prevented from intervening with its remedy of an equitable lien over the purchase price? 4 If the bullion company asserted that the customers had property rights, why should the company not be estopped from denying this assertion? Is not the existence of the res itself irrelevant? Or, alternatively, could it not be said that the company is estopped from denying the existence of the res?

7 SPECIFIC PERFORMANCE Principles of European Contract Law Article 9.102 Non-monetary obligations (1) (2)

The aggrieved party is entitled to specific performance of an obligation other than one to pay money, including the remedying of a defective performance. Specific performance cannot, however, be obtained where: (a) (b (c) (d)

(3)

performance would be unlawful or impossible; or performance would cause the obligor unreasonable effort or expense; or the performance consists in the provision of services or work of a personal character or depends upon a personal relationship, or the aggrieved party may reasonably obtain performance from another source.

The aggrieved party will lose the right to specific performance if it fails to seek it within a reasonable time after it has or ought to have become aware of the non-performance.

Beswick v Beswick [1968] AC 58 House of Lords Lord Guest: My Lords, by agreement, dated 14 March 1962, the late Peter Beswick assigned to Joseph Beswick his business as coal merchant in consideration of Joseph employing Peter as a consultant for the remainder of his life at a weekly salary of £6 10s 0d. For the like consideration Joseph, in the event of Peter’s death, agreed to pay his widow an annuity charged on the business at the rate of £5 per week. Peter Beswick died on 3 November 1963, and the respondent is the administratrix of his estate. She claims in 249

Sourcebook on Obligations and Remedies these proceedings personally and as administratrix of her late husband against Joseph Beswick the appellant for specific performance of the agreement and for payment of the annuity… The first question is whether the respondent as administratrix of the estate of the late Peter Beswick is entitled to specific performance of the agreement of 14 March 1962. On this matter I have had the opportunity of reading the speech of my noble and learned friend, Lord Reid. I agree with him in thinking that the respondent is entitled to succeed on this branch of the case Lord Reid:… [T]he respondent in her personal capacity has no right to sue, but she has a right as administratrix of her husband’s estate to require the appellant to perform his obligation under the agreement. He has refused to do so and he maintains that the respondent’s only right is to sue him for damages for breach of his contract. If that were so, I shall assume that he is right in maintaining that the administratrix could then recover only nominal damages, because his breach of contract has caused no loss to the estate of her deceased husband. If that were the only remedy available the result would be grossly unjust. It would mean that the appellant keeps the business which he bought and for which he has only paid a small part of the price which he agreed to pay… I am of opinion that specific performance ought to be orderedi… Lord Hodson:… It is no part of the law that in order to sue on a contract one must establish that it is in one’s interest to do so… In such a case as this, there having been an unconscionable breach of faith, the equitable remedy sought is apt. The appellant has had the full benefit of the contract and the court will be ready to see that he performs his part… Lord Pearce: My Lords, if the annuity had been payable to a third party in the lifetime of Beswick, senior, and there had been default, he could have sued in respect of the breach. His administratrix is now entitled to stand in his shoes and to sue in respect of the breach which has occurred since his death. It is argued that the estate can recover only nominal damages and that no other remedy is open, either to the estate or to the personal plaintiff. Such a result would be wholly repugnant to justice and common sense. And if the argument were right it would show a very serious defect in the law… The administratrix is entitled, if she so prefers, to enforce the agreement rather than accept its repudiation, and specific performance is more convenient than an action for arrears of payment followed by separate actions as each sum falls due. Moreover, damages for breach would be a less appropriate remedy since the parties to the agreement were intending an annuity for a widow, and a lump sum of damages does not accord with this; and if (contrary to my view) the argument that a derisory sum of damages is all that can be obtained be right, the remedy of damages in this case is manifestly useless. The present case presents all the features which led the equity courts to apply their remedy of specific performance. The contract was for the sale of a business. The appellant could on his part clearly have obtained specific performance of it if Beswick senior or his

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Remedies administratrix had defaulted. Mutuality is a ground in favour of specific performance. Moreover, the appellant on his side has received the whole benefit of the contract and it is a matter of conscience for the court to see that he now performs his part of it… Lord Upjohn:… In this case the court ought to grant a specific performance order all the more because damages are nominal. [The defendant] has received all the property; justice demands that he pay the price and this can only be done in the circumstances by equitable relief…

Questions 1

2

3

4

Does it not seem a little bizarre that equity should order specific performance of a common law duty of specific performance (see p 235, above)? Is it really the law that a person who has no interest in the performance of a contract can sue for a remedy for breach of the contract? Would it not have been better to treat this problem as one of unjust enrichment? Or transferred loss? Did Mrs Beswick have an interest in the performance of the contract? Could equity have intervened in White v Jones (p 702) on behalf of the third party (plaintiff)? What equitable remedy might have been appropriate? The contractor (nephew) in Beswick intentionally refused to perform his contractual duty and this caused a loss of expectation to a third party (Mrs Beswick). If he had carelessly forgotten to pay her, could she have sued him for damages in the tort of negligence? (Cf White v Jones, p 702.) Price v Strange [1978] Ch 337 Court of Appeal The question before the Court of Appeal in this case was whether a tenant could obtain an order for specific performance of an oral agreement with his landlord to grant a sub-lease. The tenant had performed a substantial part of his side of the agreement (which included certain repairs), but the trial judge dismissed the claim for specific performance for lack of mutuality at the date of the contract. That is to say, that as the defendant could not have obtained specific performance in respect of her rights under the agreement, it would be inequitable for the remedy to be available to the other party. The Court of Appeal allowed an appeal and ordered specific performance subject to certain terms. Buckley LJ:… I will first deal with the question of mutuality. It is easy to understand that, as the equitable jurisdiction to enforce specific performance of contractual obligations developed, it should have become an accepted rule that equity would not compel one party to perform his obligations specifically in accordance with the terms of the contract unless it could also ensure that any unperformed obligations of the other party would also be performed specifically. For breaches of some kinds of contract, pre-eminently contracts for the sale of land, the common law remedy of damages was inadequate. The courts of equity consequently supplemented the common law by 251

Sourcebook on Obligations and Remedies introducing the equitable remedy of specific performance, compelling the defendant to carry out his contract instead of penalising him in damages for failing to do so. Considering the position a priori and apart from authority, it would seem that the questions which should be asked by any court which is invited to enforce specific performance of a contractual obligation should be: (1) is the plaintiff entitled to a remedy of some kind in respect of the alleged breach of contract? (2) if so, would damages be an adequate remedy? (3) if not, would specific performance be a more adequate remedy for the plaintiff? (4) if so, would it be fair to the defendant to order him to perform his part of the contract specifically? The first question goes to the validity and enforceability of the contract. Only if it is answered affirmatively do the subsequent questions arise. If the second question is answered affirmatively there is no occasion for equity to interfere, so that again the subsequent questions do not arise. If the second question is answered in the negative it will not necessarily follow that the third question must be answered affirmatively. For instance, the circumstances may not be such as to admit of specific performance, as where the subject matter of the contract no longer exists. Only in the event of the third question arising and being answered in the affirmative can the fourth question arise. It is here, as it seems to me, that the alleged principle of mutuality comes in. If one party were compelled to perform his obligations in accordance with the terms of the contract while the obligations of the other party under the contract, or some of them, remained unperformed, it might be unfair that the former party should be left to his remedy in damages if the latter party failed to perform any of his unperformed obligations. This is a consideration which bears on the appropriateness of specific performance as a remedy in the particular case; it has no bearing on the validity or enforceability of the contract, that is to say, on whether the plaintiff has a cause of action. A contract of which mutual specific performance cannot be enforced may yet afford a good cause of action for a remedy in damages at law… The present case differs from any decided case…in this respect, that, although all the agreed repairs have been done, they have not all been done by the plaintiff. In my judgment, however, this is no bar to the plaintiffs right to a grant of the sub-lease in accordance with the contract. That the plaintiff did not do all the work was not due to any default of his; it was due to the defendant’s unjustified repudiation of the contract. She was, in my opinion, clearly under an implied obligation not to prevent the plaintiff from performing his part of the contract, but she did so. This was an incident of her wrongful repudiation of her obligation to grant him a sub-lease. The financial consequences of the defendant’s having carried out at her own expense work which under the contract should have been done by the plaintiff at his expense could be adjusted by appropriate accounts, enquiries and adjustments under the court’s order…

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Questions 1 2

3

Is mutuality a general principle of the law of contract itself? Could Mrs Beswick have been in breach of contract vis à vis the nephew? What effect would any breach have had on the nephew’s obligation to pay the annuity? Was there mutuality between Mrs Beswick and the nephew? Contracts for the sale of an interest in land had to be in writing (Law of Property Act 1925, s 40, now replaced by the Law of Property (Miscellaneous Provisions) Act 1989, s 2). Why was it, then, that equity was prepared to enforce the oral agreement in Price v Strange? Co-operative Insurance Society Ltd v Argyll Stores Ltd [1998] AC 1 House of Lords Lord Hoffmann: My Lords… In this case… The appellant defendants, Argyll Stores (Holdings) Ltd (‘Argyll’), decided in May 1995 to close their Safeway supermarket in the Hillsborough Shopping Centre in Sheffield because it was losing money. This was a breach of a covenant in their lease, which contained in clause 4(19) a positive obligation to keep the premises open for retail trade during the usual hours of business. Argyll admitted the breach and, in an action by the landlord, Co-operative Insurance Society Ltd (‘CIS’) consented to an order for damages to be assessed. But the Court of Appeal [1996] Ch 286, reversing the trial judge, ordered that the covenant be specifically performed. It made a final injunction ordering Argyll to trade on the premises during the remainder of the term (which will expire on 3 August 2014) or until an earlier subletting or assignment. The Court of Appeal suspended its order for three months to allow time for Argyll to complete an assignment which by that time had been agreed. After a short agreed extension, the lease was assigned with the landlord’s consent. In fact, therefore, the injunction never took effect. The appeal to your Lordships is substantially about costs. But the issue remains of great importance to landlords and tenants under other commercial leases. Specific performance is traditionally regarded in English law as an exceptional remedy, as opposed to the common law damages to which a successful plaintiff is entitled as of right. There may have been some element of later rationalisation of an untidier history, but by the 19th century it was orthodox doctrine that the power to decree specific performance was part of the discretionary jurisdiction of the Court of Chancery to do justice in cases in which the remedies available at common law were inadequate. This is the basis of the general principle that specific performance will not be ordered when damages are an adequate remedy. By contrast, in countries with legal systems based on civil law, such as France, Germany and Scotland, the plaintiff is prima facie entitled to specific performance. The cases in which he is confined to a claim for damages are regarded as the exceptions. In practice, however, there is less difference between common law and civilian systems than these general statements might lead one to suppose. The principles upon which English judges exercise the discretion to grant specific performance are reasonably well settled and depend upon a number of considerations, mostly of a practical nature, which are of very general application. I have made no 253

Sourcebook on Obligations and Remedies investigation of civilian systems, but a priori I would expect that judges take much the same matters into account in deciding whether specific performance would be inappropriate in a particular case… … A principal reason [for regarding constant supervision as undesirable] is that…the only means available to the court to enforce its order is the quasicriminal procedure of punishment for contempt. This is a powerful weapon; so powerful, in fact, as often to be unsuitable as an instrument for adjudicating upon the disputes which may arise over whether a business is being run in accordance with the terms of the court’s order. The heavy-handed nature of the enforcement mechanism is a consideration which may go to the exercise of the court’s discretion in other cases as well, but its use to compel the running of a business is perhaps the paradigm case of its disadvantages and it is in this context that I shall discuss them. The prospect of committal or even a fine, with the damage to commercial reputation which will be caused by a finding of contempt of court, is likely to have at least two undesirable consequences. First, the defendant, who ex hypothesi did not think that it was in his economic interest to run the business at all, now has to make decisions under a sword of Damocles which may descend if the way the business is run does not conform to the terms of the order. This is, as one might say, no way to run a business. In this case the Court of Appeal made light of the point because it assumed that, once the defendant had been ordered to run the business, self-interest and compliance with the order would thereafter go hand in hand. But, as I shall explain, this is not necessarily true. Secondly, the seriousness of a finding of contempt for the defendant means that any application to enforce the order is likely to be a heavy and expensive piece of litigation. The possibility of repeated applications over a period of time means that, in comparison with a once-and-for-all inquiry as to damages, the enforcement of the remedy is likely to be expensive in terms of cost to the parties and the resources of the judicial system. This is a convenient point at which to distinguish between orders which require a defendant to carry on an activity, such as running a business over or more or less extended period of time, and orders which require him to achieve a result. The possibility of repeated applications for rulings on compliance with the order which arises in the former case does not exist to anything like the same extent in the latter. Even if the achievement of the result is a complicated matter which will take some time, the court, if called upon to rule, only has to examine the finished work and say whether it complies with the order… This distinction between orders to carry on activities and to achieve results explains why the courts have in appropriate circumstances ordered specific performance of building contracts and repairing covenants... It by no means follows, however, that even obligations to achieve a result will always be enforced by specific performance... There is a further objection to an order requiring the defendant to carry on a business, which was emphasised by Millett LJ in the Court of Appeal. This is that it may cause injustice by allowing the plaintiff to enrich himself at the defendant’s expense. The loss which the defendant may suffer through having to comply with the order (for example, by running a business at a 254

Remedies loss for an indefinite period) may be far greater than the plaintiff would suffer from the contract being broken. As Professor RJ Sharpe explains in ‘Specific relief for contract breach’, in Reiter and Swan (eds), Studies in Contract Law, 1980, p 129: In such circumstances, a specific decree in favour of the plaintiff will put him in a bargaining position vis à vis the defendant whereby the measure of what he will receive will be the value to the defendant of being released from performance. If the plaintiff bargains effectively, the amount he will set will exceed the value to him of performance and will approach the cost to the defendant to complete. This was the reason given by Lord Westbury LC in Isenberg v East India House Estate Co Ltd (1863) 3 De GJ & S 263, p 273, for refusing a mandatory injunction to compel the defendant to pull down part of a new building which interfered with the plaintiff’s light and exercising instead the Court of Chancery’s recently acquired jurisdiction under Lord Cairns’s Act 1858 to order payment of damages… It is true that the defendant has, by his own breach of contract, put himself in such an unfortunate position. But the purpose of the law of contract is not to punish wrongdoing but to satisfy the expectations of the party entitled to performance. A remedy which enables him to secure, in money terms, more than the performance due to him is unjust. From a wider perspective, it cannot be in the public interest for the courts to require someone to carry on business at a loss if there is any plausible alternative by which the other party can be given compensation. It is not only a waste of resources but yokes the parties together in a continuing hostile relationship. The order for specific performance prolongs the battle. If the defendant is ordered to run a business, its conduct becomes the subject of a flow of complaints, solicitors’ letters and affidavits. This is wasteful for both parties and the legal system. An award of damages, on the other hand, brings the litigation to an end. The defendant pays damages, the forensic link between them is severed, they go their separate ways and the wounds of conflict can heal. The cumulative effect of these various reasons, none of which would necessarily be sufficient on its own, seems to me to show that the settled practice is based upon sound sense. Of course, the grant or refusal of specific performance remains a matter for the judge’s discretion. There are no binding rules, but this does not mean that there cannot be settled principles, founded upon practical considerations of the kind which I have discussed, which do not have to be re-examined in every case, but which the courts will apply in all but exceptional circumstances… CIS argued that the court should not be concerned about future difficulties which might arise in connection with the enforcement of the order. It should simply make the order and see what happened… I think that it is normally undesirable for judges to make orders in terrorem, carrying a threat of imprisonment, which work only if no one inquires too closely into what they mean.

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Sourcebook on Obligations and Remedies … Both landlord and tenant in this case are large sophisticated commercial organisations and I have no doubt that both were perfectly aware that the remedy for breach of the covenant was likely to be limited to an award of damages. The interests of both were purely financial: there was no element of personal breach of faith, as in the Victorian cases of railway companies which refused to honour obligations to build stations for landowners whose property they had taken: compare Greene v West Cheshire Railway Co (1871) LR 13 Eq 44. No doubt there was an effect on the businesses of other traders in the centre, but Argyll had made no promises to them and it is not suggested that CIS warranted to other tenants that Argyll would remain. Their departure, with or without the consent of CIS, was a commercial risk which the tenants were able to deploy in negotiations for the next rent review. On the scale of broken promises, I can think of worse cases, but the language of the Court of Appeal left them with few adjectives to spare… [The other Law Lords agreed with Lord Hoffmann.]

Questions 1 2 3

Are there special rules for commercial contractors? Did the defendants make a promise to the local community? Should they not have been estopped in equity from going back on this promise? ‘When money talks people whisper’ (graffiti in Swiss Cottage, London, 1970s). Discuss in relation to the law of remedies.

8 RESCISSION IN EQUITY Barclays Bank plc v O’Brien [1994] 1 AC 180 House of Lords This was an action by a bank for possession of a matrimonial home which had been used as security for an overdraft extended to a company in which the husband, but not the wife, had an interest. The wife resisted the possession action on the ground that she signed the charge documents in reliance on her husband’s false representation that it was limited to £60,000. The Court of Appeal held that the wife was entitled to special protection in equity and that the charge was enforceable against her only to the extent of £60,000. The House of Lords, although not agreeing with the special protection in equity, dismissed an appeal. Lord Browne-Wilkinson: My Lords, in this appeal your Lordships for the first time have to consider a problem which has given rise to reported decisions of the Court of Appeal on no less than 11 occasions in the last eight years and which has led to a difference of judicial view. Shortly stated the question is whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as surety for her husband’s debt by the undue influence or misrepresentation of the husband…

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Remedies The decision of the Court of Appeal The Court of Appeal (Purchas, Butler-Sloss and Scott LJJ) reversed [the trial judge’s order for possession]. The leading judgment in the Court of Appeal was given by Scott LJ, who found that there were two lines of authority. One line would afford no special protection to married women; the rights of the creditor bank could only be adversely affected by the wrongful acts of the principal debtor, the husband, in procuring the surety’s liability if the principal debtor was acting as the agent of the creditor in procuring the surety to join or the creditor had knowledge of the relevant facts. I will call this theory ‘the agency theory’. The other line of authority detected by Scott LJ (which I will call ‘the special equity theory’) considers that equity affords special protection to a protected class of surety, viz, those where the relationship between the debtor and the surety is such that influence by the debtor over the surety and reliance by the surety on the debtor are natural features of the relationship. In cases where a surety is one of this protected class, the surety obligation is unenforceable by the creditor bank if (1) the relationship between the debtor and the surety was known to the creditor; (2) the surety’s consent was obtained by undue influence or by misrepresentation or without ‘an adequate understanding of the nature and effect of the transaction’; and (3) the creditor had failed to take reasonable steps to ensure that the surety had given a true and informed consent to the transaction. The Court of Appeal preferred the special equity principle. They held that the legal charge on the O’Brien’s matrimonial home was not enforceable by the bank against Mrs O’Brien save to the extent of the £60,000 which she had thought she was agreeing to secure. Policy considerations The large number of cases of this type coming before the courts in recent years reflects the rapid changes in social attitudes and the distribution of wealth which have recently occurred. Wealth is now more widely spread. Moreover, a high proportion of privately owned wealth is invested in the matrimonial home. Because of the recognition by society of the equality of the sexes, the majority of matrimonial homes are now in the joint names of both spouses. Therefore in order to raise finance for the business enterprises of one or other of the spouses, the jointly owned home has become a main source of security. The provision of such security requires the consent of both spouses. In parallel with these financial developments, society’s recognition of the equality of the sexes has led to a rejection of the concept that the wife is subservient to the husband in the management of the family’s finances. A number of the authorities reflect an unwillingness in the court to perpetuate law based on this outmoded concept. Yet, as Scott LJ in the Court of Appeal rightly points out [1993] QB 109, p 139, although the concept of the ignorant wife leaving all financial decisions to the husband is outmoded, the practice does not yet coincide with the ideal. In a substantial proportion of marriages it is still the husband who has the business experience and the wife is willing to follow his advice without bringing a truly independent mind and will to bear on financial decisions. The number of recent cases in this field shows that in practice many wives are still subjected to, and yield to, undue influence by their husbands. Such wives can reasonably look to the law for some protection when their husbands have abused the trust and confidence reposed in them. 257

Sourcebook on Obligations and Remedies On the other hand, it is important to keep a sense of balance in approaching these cases. It is easy to allow sympathy for the wife who is threatened with the loss of her home at the suit of a rich bank to obscure an important public interest, viz, the need to ensure that the wealth currently tied up in the matrimonial home does not become economically sterile. If the rights secured to wives by the law renders vulnerable loans granted on the security of matrimonial homes, institutions will be unwilling to accept such security, thereby reducing the flow of loan capital to business enterprises. It is therefore essential that a law designed to protect the vulnerable does not render the matrimonial home unacceptable as security to financial institutions. With these policy considerations in mind I turn to consider the existing state of the law. The whole of modern law is derived from the decision of the Privy Council in Turnbull and Co v Duval [1902] AC 429 which, as I will seek to demonstrate, provides an uncertain foundation. Before considering that case however, I must consider the law of undue influence which (though not directly applicable in the present case) underlies both Duval’s case and most of the later authorities. Undue influence A person who has been induced to enter into a transaction by the undue influence of another (‘the wrongdoer’) is entitled to set that transaction aside as against the wrongdoer. Such undue influence is either actual or presumed. In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, p 953, the Court of Appeal helpfully adopted the following classification. Class 1: actual undue influence In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned. Class 2: presumed undue influence In these cases the complainant only has to show, in the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In Class 2 cases, therefore, there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways, viz: Class 2(A) Certain relationships (for example, solicitor and client, medical advisor and patient) as a matter of law raise the presumption that undue influence has been exercised.

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Remedies Class 2(B) Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned. As to dispositions by a wife in favour of her husband, the law for long remained in an unsettled state. In the 19th century, some judges took the view that the relationship was such that it fell into Class 2(A), that is, as a matter of law undue influence by the husband over the wife was presumed. It was not until the decisions in Howes v Bishop [1909] 2 KB 390 and Bank of Montreal v Stuart [1911] AC 120 that it was finally determined that the relationship of husband and wife did not as a matter of law raise a presumption of undue influence within Class 2(A). It is to be noted therefore that when the Duval case was decided in 1902 the question whether there was a Class 2(A) presumption of undue influence as between husband and wife was still unresolved. An invalidating tendency? Although there is no Class 2(A) presumption of undue influence as between husband and wife, it should be emphasised that in any particular case a wife may well be able to demonstrate that de facto she did leave decisions on financial affairs to her husband thereby bringing herself within Class 2(B), that is, that the relationship between husband and wife in the particular case was such that the wife reposed confidence and trust in her husband in relation to their financial affairs and therefore undue influence is to be presumed. Thus, in those cases which still occur where the wife relies in all financial matters on her husband and simply does what he suggests, a presumption of undue influence within Class 2(B) can be established solely from the proof of such trust and confidence without proof of actual undue influence… In my judgment [the] special tenderness of treatment afforded to wives by the courts is properly attributable to two factors. First, many cases may well fall into the Class 2(B) category of undue influence because the wife demonstrates that she placed trust and confidence in her husband in relation to her financial affairs and therefore raises a presumption of undue influence. Second, the sexual and emotional ties between the parties provide a ready weapon for undue influence: a wife’s true wishes can easily be overborne because of her fear of destroying or damaging the wider relationship between her and her husband if she opposes his wishes. For myself, I accept that the risk of undue influence affecting a voluntary disposition by a wife in favour of a husband is greater than in the ordinary run of cases where no sexual or emotional ties affect the free exercise of the individual’s will.

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Sourcebook on Obligations and Remedies Undue influence, misrepresentation and third parties Up to this point I have been considering the right of a claimant wife to set aside a transaction as against the wrongdoing husband when the transaction has been procured by his undue influence. But in surety cases the decisive question is whether the claimant wife can set aside the transaction, not against the wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing husband is acting as agent for the creditor bank in obtaining the surety from the wife, the creditor will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as against the creditor. Apart from this, if the creditor bank has notice, actual or constructive, of the undue influence exercised by the husband (and consequentially of the wife’s equity to set aside the transaction) the creditor will take subject to that equity and the wife can set aside the transaction against the creditor (albeit a purchaser for value) as well as against the husband: see Bainbrigge v Browne (1881) 18 Ch D 188 and Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, p 973. Similarly, in cases such as the present where the wife has been induced to enter into the transaction by the husband’s misrepresentation, her equity to set aside the transaction will be enforceable against the creditor if either the husband was acting as the creditor’s agent or the creditor had actual or constructive notice. Turnbull and Co v Duval [1902] AC 429 This case provides the foundation of the modern law: the basis on which it was decided is, to say the least, obscure… [His Lordship considered Duval and subsequent authorities and concluded…] Accordingly, the present law is built on the unsure foundations of the Duval case. Like most law founded on obscure and possibly mistaken foundations, it has developed in an artificial way, giving rise to artificial distinctions and conflicting decisions. In my judgment your Lordships should seek to restate the law in a form which is principled, reflects the current requirements of society and provides as much certainty as possible. Conclusions (a) Wives My starting point is to clarify the basis of the law. Should wives (and perhaps others) be accorded special rights in relation to surety transactions by the recognition of a special equity applicable only to such persons engaged in such transactions? Or should they enjoy only the same protection as they would enjoy in relation to their other dealings? In my judgment, the special equity theory should be rejected. First, I can find no basis in principle for affording special protection to a limited class in relation to one type of transaction only. Second, to require the creditor to prove knowledge and understanding by the wife in all cases is to reintroduce by the back door either a presumption of undue influence of Class 2(A) (which has been decisively rejected) or the Romilly heresy (which has long been treated as bad law). Third, although Scott LJ found that there were two lines of cases one of which supported the special equity theory, on analysis although many decisions are not inconsistent with that theory the only two cases which

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Remedies support it are Yerkey v Jones 63 CLR 649, and the decision of the Court of Appeal in the present case. Finally, it is not necessary to have recourse to a special equity theory for the proper protection of the legitimate interests of wives as I will seek to show. In my judgment, if the doctrine of notice is properly applied, there is no need for the introduction of a special equity in these types of cases. A wife who has been induced to stand as a surety for her husband’s debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction will be enforceable against third parties (for example, against a creditor) if either the husband was acting as the third party’s agent or the third party had actual or constructive notice of the facts giving rise to her equity. Although there may be cases where, without artificiality, it can properly be held that the husband was acting as the agent of the creditor in procuring the wife to stand as surety, such cases will be of very rare occurrence. The key to the problem is to identify the circumstances in which the creditor will be taken to have had notice of the wife’s equity to set aside the transaction. The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it. Therefore where a wife has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety… What, then, are the reasonable steps which the creditor should take to ensure that it does not have constructive notice of the wife’s rights, if any? Normally the reasonable steps necessary to avoid being fixed with constructive notice consist of making inquiry of the person who may have the earlier right (that is, the wife) to see whether such right is asserted. It is plainly impossible to require of banks and other financial institutions that they should inquire of one spouse whether he or she has been unduly influenced or misled by the other. But in my judgment, the creditor, in order to avoid being fixed with constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. As to past transactions, it will depend on the facts of each case whether the steps taken by the creditor satisfy this test. However, for the future, in my judgment, a creditor will have satisfied these requirements if it insists that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice. If these steps are taken, in my

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Sourcebook on Obligations and Remedies judgment, the creditor will have taken such reasonable steps as are necessary to preclude a subsequent claim that it had constructive notice of the wife’s rights. I should make it clear that I have been considering the ordinary case where the creditor knows only that the wife is to stand surety for her husband’s debts. I would not exclude exceptional cases where a creditor has knowledge of further facts which render the presence of undue influence not only possible but probable. In such cases, the creditor to be safe will have to insist that the wife is separately advised… If the law is established as I have suggested, it will hold the balance fairly between on the one hand the vulnerability of the wife who relies implicitly on her husband and, on the other hand, the practical problems of financial institutions asked to accept a secured or unsecured surety obligation from the wife for her husband’s debts. In the context of suretyship, the wife will not have any right to disown her obligations just because subsequently she proves that she did not fully understand the transaction: she will, as in all other areas of her affairs, be bound by her obligations unless her husband has, by misrepresentation, undue influence or other wrong, committed an actionable wrong against her. In the normal case, a financial institution will be able to lend with confidence in reliance on the wife’s surety obligation provided that it warns her (in the absence of the husband) of the amount of her potential liability and of the risk of standing surety and advises her to take independent advice. Mr Jarvis, for the bank, urged that this is to impose too heavy a burden on financial institutions. I am not impressed by this submission. The Report by Professor Jack’s Review Committee on Banking Services: Law and Practice, Cmnd 622, 1989, recommended that prospective guarantors should be adequately warned of the legal effects and possible consequences of their guarantee and of the importance of receiving independent advice. Pursuant to this recommendation, the Code of Banking Practice (adopted by banks and building societies in March 1992) provides in paragraph 12.1 as follows: ‘Banks and building societies will advise private individuals proposing to give them a guarantee or other security for another person’s liabilities that: (i) by giving the guarantee or third party security he or she might become liable instead of or as well as that other person; (ii) he or she should seek independent legal advice before entering into the guarantee or third party security. Guarantees and other third party security forms will contain a clear and prominent notice to the above effect.’ Thus, good banking practice (which applies to all guarantees, not only those given by a wife) largely accords with what I consider the law should require when a wife is offered as surety. The only further substantial step required by law beyond that good practice is that the position should be explained by the bank to the wife in a personal interview. I regard this as being essential because a number of the decided cases show that written warnings are often not read and are sometimes intercepted by the husband. It does not seem to me that the requirement of a personal interview imposes such an additional administrative burden as to render the bank’s position unworkable.

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Remedies (b) Other persons I have hitherto dealt only with the position where a wife stands surety for her husband’s debts. But in my judgment the same principles are applicable to all other cases where there is an emotional relationship between cohabitees. The ‘tenderness’ shown by the law to married women is not based on the marriage ceremony but reflects the underlying risk of one cohabitee exploiting the emotional involvement and trust of the other. Now that unmarried cohabitation, whether heterosexual or homosexual, is widespread in our society, the law should recognise this. Legal wives are not the only group which are now exposed to the emotional pressure of cohabitation. Therefore if, but only if, the creditor is aware that the surety is cohabiting with the principal debtor, in my judgment the same principles should apply to them as apply to husband and wife. In addition to the cases of cohabitees, the decision of the Court of Appeal in Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 shows (rightly in my view),that other relationships can give rise to a similar result. In that case a son, by means of misrepresentation, persuaded his elderly parents to stand surety for his debts. The surety obligation was held to be unenforceable by the creditor inter alia because to the bank’s knowledge the parents trusted the son in their financial dealings. In my judgment, that case was rightly decided: in a case where the creditor is aware that the surety reposes trust and confidence in the principal debtor in relation to his financial affairs, the creditor is put on inquiry in just the same way as it is in relation to husband and wife. Summary I can therefore summarise my views as follows. Where one cohabitee has entered into an obligation to stand as surety for the debts of the other cohabitee and the creditor is aware that they are cohabitees: (1) the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor; (2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety’s right to set aside the transaction; (3) unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice. I should make it clear that in referring to the husband’s debts I include the debts of a company in which the husband (but not the wife) has a direct financial interest. The decision of this case Applying those principles to this case, to the knowledge of the bank Mr and Mrs O’Brien were man and wife. The bank took a surety obligation from Mrs O’Brien, secured on the matrimonial home, to secure the debts of a company 263

Sourcebook on Obligations and Remedies in which Mr O’Brien was interested but in which Mrs O’Brien had no direct pecuniary interest. The bank should therefore have been put on inquiry as to the circumstances in which Mrs O’Brien had agreed to stand as surety for the debt of her husband. If the Burnham branch had properly carried out the instructions from Mr Tucker of the Woolwich branch, Mrs O’Brien would have been informed that she and the matrimonial home were potentially liable for the debts of a company which had an existing liability of £107,000 and which was to be afforded an overdraft facility of £135,000. If she had been told this, it would have counteracted Mr O’Brien’s misrepresentation that the liability was limited to £60,000 and would last for only three weeks. In addition according to the side letter she would have been recommended to take independent legal advice. Unfortunately, Mr Tucker’s instructions were not followed and to the knowledge of the bank (through the clerk at the Burnham branch) Mrs O’Brien signed the documents without any warning of the risks or any recommendation to take legal advice. In the circumstances the bank (having failed to take reasonable steps) is fixed with constructive notice of the wrongful misrepresentation made by Mr O’Brien to Mrs O’Brien. Mrs O’Brien is therefore entitled as against the bank to set aside the legal charge on the matrimonial home securing her husband’s liability to the bank. For these reasons I would dismiss the appeal with costs.

Questions 1

2

3 4

‘A person who has been induced to enter into a transaction by the undue influence of another (‘the wrongdoer’) is entitled to set that transaction aside as against the wrongdoer. Such undue influence is either actual or presumed’ (Lord Browne-Wilkinson). Can one commercial corporation be guilty of undue influence over another commercial corporation? ‘Equity in this jurisdiction acts upon the conscience of the creditor. In coming to the conclusion whether it would be unconscionable for the creditor to enforce the charge against the surety, all the circumstances involving the relationships between the creditor, the debtor and the surety will be taken into account” (Purchas LJ in the Court of Appeal [1992] 3 WLR 593, p 624). Does this mean that the equitable remedy of rescission is not governed by specific rules as such? Is Barclays Bank v O’Brien a policy decision? If so, what is the policy? ‘Now that unmarried cohabitation, whether heterosexual or homosexual, is widespread in our society, the law should recognise this’. Does the law actually treat a homosexual couple living together in the same way as it treats a heterosexual couple? (Cf Fitzpatrick v Sterling Housing Association Ltd [1998] Ch 304.) Redgrave v Hurd (1881) 20 Ch D 1 Court of Appeal (See p 476.) 264

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Questions 1

2

Is Redgrave authority for the proposition that contributory negligence is never a defence against fraudulent misrepresentation? Is it a defence against negligent misrepresentation? What if the defendant had not actually counterclaimed for rescission? Could the court have refused the plaintiffs action for specific performance on the basis that the contract was voidable at the defendant’s option (that is, without going to court)? William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016 Court of Appeal (See p 484.)

Notes and Questions 1

2 3

In my judgment…a voluntary transaction…will be set aside for mistake whether the mistake is a mistake of law or fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. The proposition that equity will never relieve against mistakes of law is clearly too widely stated…’ (Millet J in Gibbon v Mitchell [1990] 1 WLR 1304, p 1309). How would one distinguish between the ‘effect’ and the ‘consequences’ of, say, an earthquake? Why have legal systems traditionally distinguished between mistakes of law and mistakes of fact? Is rescission for mistake governed by rules? Read Gibbon v Mitchell [1990] 1 WLR 1304 in the law report. Would this case have survived an appeal?

9 RECTIFICATION IN EQUITY Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 Court of Appeal This was an action by a landlord for rectification of a lease which, to the knowledge of the tenant, did not actually reflect what had been agreed between them during negotiations. The Court of Appeal held that the lease should be rectified. Buckley LJ:… The landlords claim rectification in the present case on the basis of a principle enunciated by Pennycuick J in A Roberts and Co Ltd v Leicestershire Council [1961] Ch 555, p 570, where he said: The second ground rests upon the principle that a party is entitled to rectification of a contract upon proof that he believed a particular term to be included in the contract, and that the other party concluded the contract

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Sourcebook on Obligations and Remedies with the omission or a variation of that term in the knowledge that the first party believed the term to be included… The principle is stated in Snell on Equity, 25th edn, 1960, p 569, as follows: ‘By what appears to be a species of equitable estoppel, if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he (and those claiming under him) will be precluded from resisting rectification on the ground that the mistake is unilateral and not common.’ Of course, if a document is executed in circumstances in which one party realises that in some respect it does not accurately reflect what down to that moment had been the common intention of the parties, it cannot be said that the document is executed under a common mistake, because the party who has realised the mistake is no longer labouring under the mistake. There may be cases in which the principle enunciated by Pennycuick J applies although there is no prior common intention, but we are not, I think, concerned with such a case here, for it seems to me, upon the facts that I have travelled through, that it is established that the parties had a common intention down to the time when Mr Avon realised the mistake in the terms of the lease, a common intention that the rent in respect of any period after the first five years should be agreed or, in default of agreement, fixed by an arbitrator. The principle so enunciated by Pennycuick J was referred to, with approval, in this court in Riverlate Properties Ltd v Paul [1975] Ch 133, where Russell LJ, reading the judgment of the court, said, p 140: It may be that the original conception of reformation of an instrument by rectification was based solely upon common mistake: but certainly in these days rectification may be based upon such knowledge on the part of the lessee: see, for example, A Roberts and Co Ltd v Leicestershire County Council [1961] Ch 555. Whether there was in any particular case knowledge of the intention and mistake of the other party must be a question of fact to be decided upon the evidence. Basically it appears to us that it must be such as to involve the lessee in a degree of sharp practice. In that case the lessee against whom the lessor sought to rectify a lease was held to have had no such knowledge as would have brought the doctrine into play. The reference to ‘sharp practice’ may thus be said to have been an obiter dictum. Undoubtedly I think in any such case the conduct of the defendant must be such as to make it inequitable that he should be allowed to object to the rectification of the document. If this necessarily implies some measure of ‘sharp practice’, so be it; but for my part I think that the doctrine is one which depends more upon the equity of the position. The graver the character of the conduct involved, no doubt the heavier the burden of proof may be; but, in my view, the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake. For this doctrine—that is to say the doctrine of A Roberts and Co Ltd v Leicestershire County Council—to apply I think it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, 266

Remedies that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A’s intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake… For these reasons I think that the judge…reached the right conclusion on the matter relating to rectification. I would accordingly uphold that part of his order which directed rectification…

Questions 1 2 3

4 5

Is rectification a form of estoppel? Is Wyndham an unjust enrichment case? What is actually meant by ‘the equity of the position’? Is this something that is entirely bound up with the conduct of the parties? Or might the nature of the transaction be a consideration? Is the remedy of rectification governed by rules? The equitable remedy of rectification…is only one aspect of a much wider equitable jurisdiction to relieve from the consequences of mistake’ (Millett J in Gibbon v Mitchell [1990] 1 WLR 1304, p 1307). If a claimant sues only for rectification, could the court nevertheless grant rescission if it thought fit?

10 ACCOUNT London, Chatham and Dover Railway Co v South Eastern Railway Co [1892] 1 Ch 120 Court of Appeal Lindley LJ:… Before the Judicature Acts a suit for an account could be maintained in equity in the following cases: (1) Where the plaintiff had a legal right to have money payable to him ascertained and paid, but which right, owing to defective legal machinery, he could not practically enforce at law. Suits for an account between principal and agent, and between partners, are familiar instances of this class of case. (2) Where the plaintiff would have had a legal right to have money ascertained and paid to him by the defendant, if the defendant had not wrongfully prevented such right from accruing to the plaintiff. In such a case a court of law could only give unliquidated damages for the defendant’s wrongful act; and there was often no machinery for satisfactorily ascertaining what would have been due and payable if the defendant had acted properly. In such a case, however, a Court of Equity decreed an account, ascertained what would have been payable if the defendant had acted as he ought to have done and ordered him to pay the amount: M’Intosh v Great Western Railway Company (1865) 4 Giff 683 is the leading authority in this class of case. (3) Where the plaintiff had no legal but only equitable rights against the defendant, and where an account was 267

Sourcebook on Obligations and Remedies necessary to give effect to those equitable rights. Ordinary suits by cestuis que trust against their trustees and suits for equitable waste fell within this class. (4) Combination of the above cases. AG v Guardian Newspapers (No 2) [1990] AC 109 House of Lords Lord Goff:… The statement that a man shall not be allowed to profit from his own wrong is in very general terms, and does not of itself provide any sure guidance to the solution of a problem in any particular case. That there are groups of cases in which a man is not allowed to profit from his own wrong, is certainly true… The plaintiff’s claim to restitution is usually enforced by an account of profits made by the defendant through his wrong at the plaintiffs expense. This remedy of an account is alternative to the remedy of damages… English v Dedham Vale Properties [1978] 1 All ER 382 Chancery Division (See p 83.)

Questions 1

2

3 4

What is the relationship between an action in debt and an action in account? Could the plaintiff in English law have sued in common law debt (money had and received) for the profit? If not, why not? Read the case of Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949 in the law report. Was this an action in account? If not, what kind of action was it (assuming that equity does not have its own damages remedy)? Must there always be a fiduciary relationship before account will lie? Is account a remedy or a procedural process? What is the relationship, if any, between account and tracing in equity?

11 SUBROGATION Orakpo v Manson Investments Ltd [1978] AC 95 House of Lords Lord Diplock:… My Lords, there is no general doctrine of unjust enrichment recognised in English law. What it does is to provide specific remedies in particular cases of what might be classified as unjust enrichment in a legal system that is based on the civil law. There are some circumstances in which the remedy takes the form of ‘subrogation’, but this expression embraces more than a single concept in English law. It is a convenient way of describing a transfer of rights from one person to another, without assignment or assent of the person from whom the rights are transferred and which takes place by operation of law in a whole variety of widely different circumstances. Some rights by subrogation are contractual in their origin, as in the case of contracts of insurance. Others, such as the right of an innocent lender to recover from a company moneys borrowed ultra vires to the extent that these have been expended on discharging the company’s lawful debts, are in no way based

268

Remedies on contract and appear to defeat classification except as an empirical remedy to prevent a particular kind of unjust enrichment. This makes particularly perilous any attempt to rely on analogy to justify applying to one set of circumstances which would otherwise result in unjust enrichment a remedy of subrogation which has been held to be available for that purpose in another and different set of circumstances. One of the sets of circumstances in which a right of subrogation arises is when a liability of a borrower B to an existing creditor C secured on the property of B is discharged out of moneys provided by the lender L and paid to C either by L himself at B’s request and on B’s behalf or directly by B pursuant to his agreement with L. In these circumstances L is prima facie entitled to be treated as if he were the transferee of the benefit of C’s security on the property to the extent that the moneys lent by L to B were applied to the discharge of B’s liability to C. This subrogation of L to the security on the property of B is based on the presumed mutual intentions of L and B; in other words where a contract of loan provides that moneys lent by L to B are to be applied in discharging a liability of B to C secured on property, it is an implied term of that contract that L is to be subrogated to C’s security… Lord Salmon:… The test whether the courts will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is, I think, impossible to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demand that it should be. Typical cases in which the doctrine has been held to apply are, for example, (1) A is insured against damage done to his car; his car is damaged in a collision with another car driven by Y; the insurers pay for the repair to A’s car and are subrogated to any rights which A may have against Y for causing the damage by negligence. The right to subrogation may be stipulated for in the insurance policy; but if it is not, it will be implied by the law. (2) When A, acting as B’s agent, pays out of his own pocket at B’s request, the price of the land which B has contracted to buy from V, and V thereupon conveys the land to B. The law will subrogate to A the rights which V had over the land after the contract of sale and before completion… Boscawen v Bajwa [1995] 4 All ER 769 Court of Appeal (See also p 244.) Millett LJ:… Subrogation…is a remedy, not a cause of action (see Goff and Jones, Law of Restitution, 4th edn, 1993, pp 589ff; Orakpo v Manson Investments Ltd [1978] AC 95, p 104, per Lord Diplock; and Re TH Knitwear (Wholesale) Ltd [1988] Ch 275, p 284 per Slade LJ). It is available in a wide variety of different factual situations in which it is required in order to reverse the defendant’s unjust enrichment. Equity lawyers speak of a right of subrogation, or of an equity of subrogation, but this merely reflects the fact that it is not a remedy which the court has a general discretion to impose whenever it thinks it just to do so. The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff. A constructive trust arises in the same way. Once the equity is established the 269

Sourcebook on Obligations and Remedies court satisfies it by declaring that the property in question is subject to a charge by way of subrogation in the one case or a constructive trust in the other…

Notes and questions 1

2 3 4

5

6

Subrogation is best understood as an institutional structure rather than as a remedy defined and governed by rules. It concerns the relationship between persona (legal subject) and res (legal object) and is a means by which one legal object (res) is substituted for another legal object (real subrogation) or one legal subject (persona) is substituted for another legal subject (personal subrogation). It was probably imported into the common law from the civil law, although it is part and parcel of the institutional scheme as developed by the Romans (see above, p 27). Subrogation plays a central role in the English law of obligations, since it is the means by which an insurance company is able to gain access to the courts: thus in Dorset Yacht (p 645) and Lister (p 534) the real plaintiff was an insurance company subrogated to the rights of the plaintiff. Can such a remedy defeat the loss spreading policy of the law of obligations? Is it still true to say that there is no doctrine of unjust enrichment in English law? (Cf Chapter 8.) Does the remedy of subrogation ever defeat the aims of unjust enrichment? (Cf Lister v Romford Ice Co, p 534.) To what extent is the idea of retention of title in supply of goods contracts dependent upon a form of subrogation? (Cf Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552.) Should subrogation in insurance be governed by principles from the common law (contract) or by principles from equity? (Cf Morris v Ford Motor Co [1973] 1 QB 792.) Was Photo Production v Securicor (p 552) a subrogation case? If so, did the existence of subrogation radically affect the outcome of the litigation?

12 INJUNCTION (a) The nature of an injunction Wookey v Wookey [1991] 3 WLR 135 Court of Appeal Butler-Sloss LJ:… The grant of an injunction is a discretionary remedy derived from the equitable jurisdiction which acts in personam and only against those who are amenable to its jurisdiction; nor will it act in vain by granting an injunction which is idle and ineffectual. An injunction should not, therefore, be granted to impose an obligation to do something which is impossible or cannot be enforced. The injunction must serve a useful purpose for the person seeking the relief and there must be a real possibility that the order, if made, 270

Remedies will be enforceable by the process in personam. However, the courts expect and assume that their orders will be obeyed and will not normally refuse an injunction because of the respondent’s likely disobedience to the order.

Notes and questions 1

2

3 4 5

‘It is obvious…that there may be orders of the court which are not injunctions. The direction as to the removal of the children is such an order. It is neither an injunction nor in the nature of an injunction’ (Lloyd LJ in In re P (Minors) [1990] 1 WLR 613, p 615). What is so special about an injunction, and why is it different from other orders? The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so’ (Supreme Court Act 1981, s 37(1)). Does this statutory rule allow a court to issue an injunction in every case where they think it ‘just and convenient’ to do so? Can injunctions ever bind those who are not parties to the litigation? If so, does this mean that they do act in rem? In what circumstances will a court issue an injunction to prevent breaches of the criminal law? In what ways can injunctions be used to develop the law? Can they be used in ways that are not available to other remedies, such as debt, damages and rescission?

(b) Interlocutory injunction (interim orders) American Cyanamid Co v Ethicon Ltd [1975] AC 396 House of Lords Lord Diplock:… The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiffs need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiffs undertaking in damages… The court must weigh one need against another and determine where ‘the balance of convenience’ lies… The court, no doubt, must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried… It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial… So, unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose 271

Sourcebook on Obligations and Remedies that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought. As to that, the governing principle is that the court should first consider whether if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If the damages...would be adequate... no interlocutory injunction should normally be granted… It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises. It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case… The court is not justified in embarking on anything resembling a trial of the action…

Questions 1 2

Is an interlocutory injunction (interim order) a discretionary remedy that bears little relationship to the substantive rights of the parties? An employer seeks an interlocutory injunction against a trade union or group of employees in respect of a threatened strike: is the ‘balance of convenience’ question a matter of political judgment? Whose ‘convenience’ is to be considered? Allen v Jambo Holdings Ltd [1980] 2 All ER 502 Court of Appeal Lord Denning MR:… It is a new case altogether. In the past, Mareva injunctions have been confined to the commercial court. The judges of that court have granted injunctions to restrain foreign companies from removing moneys so as to defeat their creditors… But this is new. Not because it concerns an aircraft. There was one case where an aircraft ran up a bill for fuel. Its bill was not paid. The aircraft was restrained from moving until it was paid. But this is the first case we have had of a personal injury (this is a fatal accident case) where a Mareva injunction has been sought. The nearest parallel is a ship in an English port where there is an accident causing personal injuries or death. It has been settled for centuries that the claimant can bring an action in rent and arrest the ship. She is not allowed to leave the port until security is provided so as to ensure that any proper claim will be duly met. The question in this case is whether a similar jurisdiction can be exercised in regard to an aircraft. In principle I see no reason why it should not, except that it is to be done by a Mareva injunction instead of an action in rem…

272

Remedies Mercedes Benz AG v Leiduck [1996] 1 AC 284 Privy Council (See p 219.) Lord Mustill:… Ideally…the first step would be to ascertain, not only what a Mareva injunction does, but also how, juristically speaking, it does it. This should be straightforward, but is not. After only a few years the development of a settled rationale was truncated by the enactment of s 37(3) of the Supreme Court Act 1981. This did not, as is sometime said, turn the common law Mareva injunction into a statutory remedy, but it assumed that the remedy existed, and tacitly endorsed its validity. An all-out challenge to the entire concept, such as may be found in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd edn, 1992, pp 607–08, para 2186, seems a rather unlikely event, at least in the courts of England and Hong Kong. The remedy is now 20 years old and the problems, of which there is no lack, are of a practical kind; how to frame an order which, on the one hand, protects the claimant against the manipulations of a defendant who may prove to be unscrupulous, without strangling the working capital of a defendant at the instance of a claimant who may prove to be unscrupulous… These problems did not arise in the early days of the injunction, where the remedy was given only in the clearest of cases, but they have been increasing ever since. Amidst all the burdensome practicalities theory has been left behind. The only rationalisations which can be found in the cases are as follows. First, that although Mareva relief takes the shape of an injunction it is really a kind of attachment… This explanation cannot, their Lordships believe, be sustained in the light of the subsequent practical development of the regime… Moreover, it is now quite clear that Mareva relief takes effect in personam alone; it is not an attachment; it gives the claimant no proprietary rights in the assets seized, and no advantage over other creditors of the defendant… The courts administering the remedy always distinguish sharply between tracing and other remedies available where the plaintiff asserts that the assets in question belong to him and that the dealings with them should be enjoined in order to protect his proprietary rights, and Mareva injunctions granted where the plaintiff does not claim any interest in the assets and seeks an inhibition of dealings with them simply in order to keep them available for a possible future execution to satisfy an unconnected claim. The second rationalisation was advanced in the earlier case of Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509, the appeal heard ex parte from which the remedy draws its popular name. Lord Denning MR accepted a narrow view of the power to grant injunctive relief…to the effect that, notwithstanding its apparent width, s 25(8) of the Judicature Act 1873, the predecessor of the present s 37 of the Act of 1981, did not confer an unlimited jurisdiction to grant an injunction regardless of the existence of a legal or equitable right which the injunction was designed to protect. He went on to hold, however, that even this restricted jurisdiction could found injunctive relief, since the plaintiff had a right to be paid the debt owing to him, even before he had established his right by getting judgment for it, in the action which was already afoot in England…

273

Sourcebook on Obligations and Remedies There is, however, a problem with this explanation, for not only in The Siskina [1979] AC 210 but also in the subsequent decisions of the House of Lords…it was laid down that the statement of Cotton LJ in the North London Railway case, 11 QBD 30, was right and that the wider interpretation of the statutory power is not. On the face of it this would appear to negative the only surviving basis for the jurisdiction, unless the Mareva injunction is…a special exception to the general law. Further than this it is at present impossible to go, at least so far as concerns the law of England and Hong Kong. The most that can be said is that whatever its precise status the Mareva injunction is a quite different kind of injunction from any other…

Notes and questions 1

2

‘If it appears that the debt is due and owing, and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment, the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets’ (Lord Denning MR in Mareva Compania Naviera v International Bulkcarriers [1980] 1 All ER 213, p 215). Does this mean that the interlocutory injunction is, in substance if not in form, a remedy in rem? How does the law enforce such an injunction? There are two particular kinds of interlocutory injunction of the utmost importance to English commercial law: (a) the Mareva injunction (above) (freezing injunction); and (b) the Anton Piller order (below) (search order). Are these examples of the creativity of the common law? Could the civil law judges ever have developed such remedies? Would civil law judges want to develop such remedies? Does the power to issue interlocutory remedies in civil law systems attach to the remedy or to the judge? Anton Piller KG v Manufacturing Processes Ltd [1976] 1 All ER 779 Court of Appeal Lord Denning MR:… Let me say at once that no court in this land has any power to issue a search warrant to enter a man’s house so as to see if there are papers or documents there which are of an incriminating nature… But the order sought in this case is not a search warrant. It does not authorise the plaintiffs’ solicitors or anyone else to enter the defendants’ premises against their will. It does not authorise the breaking down of any doors, nor the slipping in by the back door, nor getting in by an open door or window. It only authorises entry and inspection by the permission of the defendants. The plaintiffs must get the defendants’ permission. But it does do this: it brings pressure on the defendants to give permission. It does more. It actually orders them to give permission—with, I suppose, the result that if they do not give permission, they are guilty of contempt of court. Ormrod LJ:… The proposed order is at the extremity of this court’s powers. Such orders, therefore, will rarely be made… There are three essential 274

Remedies preconditions for the making of such an order, in my judgment. First, there must be an extremely strong prima facie case. Secondly, the damage, potential or actual, must be very serious for the plaintiff. Thirdly, there must be clear evidence that the defendants have in their possession incriminating documents or things, and that there is a real possibility that they may destroy such material before any application inter partes can be made. The form of the order makes it plain that the court is not ordering or granting anything equivalent to a search warrant. The order is an order on the defendant in personam to permit inspection. It is therefore open to him to refuse to comply with such an order, but at his peril either of further proceedings for contempt of court…but more important, of course, the refusal to comply may be the most damning evidence against the defendant at the subsequent trial…

Questions 1 2

Were the judges being realistic when they said that such orders would only rarely be made? Do you think Anton Piller (search) orders belong in the category of private or public law? Columbia Picture Industries Inc v Robinson [1987] Ch 38 Chancery Division Scott J:… It is implicit in the nature of Anton Piller orders that they should be applied for ex parte and dealt with by the courts in secrecy. In the Queen’s Bench Division applications…are heard in chambers. Secrecy is ensured. In this division applications are heard in court but it is customary for the court to sit in camera… [T]he most significant feature of Anton Piller orders is that they are mandatory in form and are designed for immediate execution… It is a fundamental principle of civil jurisprudence in this country that citizens are not to be deprived of their property by judicial or quasi-judicial order without a fair hearing. Audi alterem partem is one of the principles of natural justice and contemplates a hearing at which the defendant can, if so advised, be represented and heard… What is to be said of the Anton Piller procedure which, on a regular and institutionalised basis, is depriving citizens of their property and closing down their businesses by orders made ex parte, on applications of which they know nothing and at which they cannot be heard, by orders which are forced, on pain of committal, to obey, even if wrongly made?… It is the experience of [the solicitors acting for plaintiffs] that, when they apply for Anton Piller orders, they almost invariably succeed in getting them…

Questions 1

2

Would it be unreasonable to say that legal remedies tend to be available for the convenience of commerce rather than the convenience of the citizen? If the UK had had a written constitution, together with a constitutional court, would Anton Piller (search) orders have ever been allowed?

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Sourcebook on Obligations and Remedies Lock plc v Beswick [1989] 1 WLR 1268 Chancery Division Hoffmann J:… Even in cases in which the plaintiff has strong evidence that an employee has taken what is undoubtedly specific confidential information, such as a list of customers, the court must employ a graduated response. To borrow a useful concept from the jurisprudence of the European Community, there must be proportionality between the perceived threat to the plaintiffs rights and the remedy granted. The fact that there is overwhelming evidence that the defendant has behaved wrongfully in his commercial relationships does not necessarily justify an Anton Piller order… The making of an intrusive order ex parte even against a guilty defendant is contrary to normal principles of justice and can only be done when there is a paramount need to prevent a denial of justice to the plaintiff. The absolute extremity of the court’s powers is to permit a search of a defendant’s dwelling house, with the humiliation and family distress which that frequently involves.

Questions 1

2

3

Ought the principle of proportionality to be applicable to all types of interlocutory (interim) injunctions? Do you think, in substance, it is a principle that the English courts have always tried to apply? Does it apply to remedies other than injunctions? Is the interlocutory (interim) injunction a remedy that is sometimes difficult to reconcile with the idea of human rights? Or is it a remedy that supports human rights? Should interlocutory injunctions ever be available to inhibit publication of a true story whose publication might be in the public interest?

(c) The role of injunctions Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209 King’s Bench Branson J: The facts of this case are few and simple. The plaintiffs are a firm of film producers in the United States of America. In 1931, the defendant [Bette Davis], then not well known as a film actress, entered into a contract with the plaintiffs. Before the expiration of that contract the present contract was entered into between the parties. Under it the defendant received a considerably enhanced salary, the other conditions being substantially the same. This contract was for 52 weeks and contains options to the plaintiffs to extend it for further periods of 52 weeks at ever-increasing amounts of salary to the defendant… It is a stringent contract, under which the defendant agrees ‘to render her exclusive services as a motion picture and/or legitimate stage actress’ to the plaintiffs, and agrees to perform solely and exclusively for them. She also agrees, by way of negative stipulation, that ‘she will not, during such time’—that is to say, during the term of the contract—‘render any services for or in any other phonographic, stage or motion picture production…or engage in any other occupation without the written consent of the producer…’.

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Remedies In June of this year, the defendant, for no discoverable reason except that she wanted more money, declined to be further bound by the agreement, left the United States and, in September, entered into an agreement in this country with a third person. This was a breach of contract on her part, and the plaintiffs …commenced this action claiming a declaration that the contract was valid and binding, an injunction to restrain the defendant from acting in breach of it, and damages… I turn then to the consideration of the law applicable to this case on the basis that the contract is a valid and enforceable one. It is conceded that our courts will not enforce a positive covenant of personal service; and specific performance of the positive covenants by the defendant to serve the plaintiffs is not asked in the present case… The defendant, having broken her positive undertakings in the contract without any cause or excuse which she was prepared to support in the witness box, contends that she cannot be enjoined from breaking the negative covenants also… The conclusion to be drawn from the authorities is that, where a contract of personal service contains negative covenants the enforcement of which will not amount either to a decree of specific performance of the positive covenants of the contract or to the giving of a decree under which the defendant must either remain idle or perform those positive covenants, the court will enforce those negative covenants; but this is subject to a further consideration. An injunction is a discretionary remedy, and the court in granting it may limit it to what the court considers reasonable in all the circumstances of the case… The case before me is, therefore, one in which it would be proper to grant an injunction unless to do so would in the circumstances be tantamount to ordering the defendant to perform her contract or remain idle or unless damages would be the more appropriate remedy. With regard to the first of these considerations, it would, of course, be impossible to grant an injunction covering all the negative covenants in the contract. That would, indeed, force the defendant to perform her contract or remain idle; but this objection is removed by the restricted form in which the injunction is sought. It is confined to forbidding the defendant, without the consent of the plaintiffs, to render any services for or in any motion picture or stage production for any one other than the plaintiffs. It was also urged that the difference between what the defendant can earn as a film artiste and what she might expect to earn by any other form of activity is so great that she will in effect be driven to perform her contract. That is not the criterion adopted in any of the decided cases. The defendant is stated to be a person of intelligence, capacity and means, and no evidence was adduced to show that, if enjoined from doing the specified acts otherwise than for the plaintiffs, she will not be able to employ herself both usefully and remuneratively in other spheres of activity, though not as remuneratively as in her special line. She will not be driven, although she may be tempted, to perform the contract, and the fact that she may be so tempted is no objection to the grant of an injunction… I think…that an injunction should be granted… 277

Sourcebook on Obligations and Remedies Miller v Jackson [1977] QB 966 Court of Appeal (Seep 51.) Burris v Azadani [1995] 1 WLR1372 Court of Appeal Sir Thomas Bingham MR: Mr Behrooz Azadani, the appellant in this court, was the subject of an injunction granted in ordinary common law proceedings by the county court. One of the terms of that injunction was that he should not go within 250 yards of a specified address. He did so. The breach was proved and he was committed to prison. He submits on this appeal that the term in question was one which the judge was not entitled to impose or should not have imposed. He seeks to be released from prison on one or other of those grounds. Miss Burris is a divorced woman living with her two children, now aged about 10 and eight, in Mandrake Road, London, SW 17. In September 1992, she and her children began to attend classes in martial arts at the Balham Leisure Centre. Mr Azadani was one of their instructors and they became acquainted with him in that way. Mr Azadani sought a close and intimate relationship with Miss Burris. This was something she did not want and did her best to resist. Unfortunately, Mr Azadani was unwilling to respect her wishes. He made a number of uninvited visits to her house, often in the middle of the night, and refused to leave. He made nuisance telephone calls to her on repeated occasions. He made threats to commit suicide and threats against her. He also made threats to slash the tyres of her car, and the tyres of her car were thereafter slashed, although she cannot state positively that he was responsible. She was understandably very worried about the safety of her children and herself. It is unnecessary to recite the history which gave rise to the proceedings in detail, since there has been no dispute concerning Miss Burris’s account, which discloses an intolerable history of harassment and molestation. On 28 January 1994, Miss Burris applied ex parte to the district judge at Wandsworth County Court for grant of an interlocutory injunction. Her application was supported by an affidavit of the same date, exhibiting a summary of the history on which she relied. It is evident that the application was made in some haste, and no proceedings had at that stage been issued. On Miss Burris’s undertaking to file particulars of claim within seven days leave was given to issue a summons. An injunction was also granted... Section 38 of the County Courts Act 1984 provides: (1)

Subject to what follows, in any proceedings in a county court the court may make any order which could be made by the High Court if the proceedings were in the High Court.

The County Court Remedies Regulations 1991 SI 1991/1222 (L8) restrict the grant of Anton Piller orders and Mareva injunctions by county courts, but otherwise the power of the county court to grant an interlocutory injunction is the same as that of the High Court. The power of the High Court is found in s 37(1) of the Supreme Court Act 1981, which provides:

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The High Court may by order (whether interlocutory or final) grant an injunction…in all cases in which it appears to the court to be just and convenient to do so.

It is, of course, quite clear that the court cannot properly grant an injunction unless the plaintiff can show at least an arguable cause of action to support the grant, but subject to this overriding requirement s 37, as has often been observed, is cast in the widest terms. If an injunction may only properly be granted to restrain conduct which is in itself tortious or otherwise unlawful, that would be a conclusive objection to term (c) of the 28 January 1994 injunction, since it is plain that Mr Azadani would commit no tort nor otherwise act unlawfully if, without more, he were to traverse Mandrake Road without any contact or communication with Miss Burris, exercising his right to use the public highway peacefully in the same way as any other member of the public. I do not, however, think that the court’s power is so limited. A Mareva injunction granted in the familiar form restrains a defendant from acting in a way which is not, in itself, tortious or otherwise unlawful. The order is made to try and ensure that the procedures of the court are in practice effective to achieve their ends. The court recognises a need to protect the legitimate interests of those who have invoked its jurisdiction. [Sir Thomas referred to and discussed in detail Khorasandjian v Bush [1993] QB 727]… Neither statute nor authority in my view precludes the making of an ‘exclusion zone’ order. But that does not mean that such orders should be made at all readily, or without very good reason. There are two interests to be reconciled. One is that of the defendant. His liberty must be respected up to the point at which his conduct infringes, or threatens to infringe, the rights of the plaintiff. No restraint should be placed on him which is not judged to be necessary to protect the rights of the plaintiff. But the plaintiff has an interest which the court must be astute to protect. The rule of law requires that those whose rights are infringed should seek the aid of the court, and respect for the legal process can only suffer if those who need protection fail to get it. That, in part at least, is why disobedience to orders of the court has always earned severe punishment. Respect for the freedom of the aggressor should never lead the court to deny necessary protection to the victim. Ordinarily, the victim will be adequately protected by an injunction which restrains the tort which has been or is likely to be committed, whether trespass to the person or to land, interference with goods, harassment, intimidation or as the case may be. But it may be clear on the facts that if the defendant approaches the vicinity of the plaintiff’s home he will succumb to the temptation to enter it, or to abuse or harass the plaintiff; or that he may loiter outside the house, watching and besetting it, in a manner which might be highly stressful and disturbing to a plaintiff. In such a situation the court may properly judge that in the plaintiff’s interest—and also, but indirectly, the defendant’s—a wider measure of restraint is called for… Millett LJ: I agree.

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Sourcebook on Obligations and Remedies Schiemann LJ: I agree with the judgment delivered by Sir Thomas Bingham MR. As he points out, there are in these cases two interests to be reconciled that of the plaintiff not to be harassed and that of the defendant to be allowed to move freely along the highway. An exclusion zone order interferes with the latter in order to secure the former. On its face, it forbids what are lawful actions. The defendant has rendered himself liable to such an order because of his previous harassing behaviour. Nonetheless, a judge imposing such an order must be careful not to interfere with the defendant’s rights more than is necessary in order to protect the plaintiffs. I draw attention to the fact that in the present case we are dealing with an interlocutory not a final injunction. Moreover the injunction was granted ex parte with liberty to Mr Azadani to apply to discharge it. So, the interference with Mr Azadani’s liberty to use the highway was merely temporary and the judge left himself opportunity for reconsideration after having heard Mr Azadani. A judge faced with an application for a permanent injunction is faced with a different problem. As presently advised I consider that any such injunction should include a liberty to apply so that the defendant should not be precluded from exercising his normal rights if the fears which gave rise to the imposition of the injunction no longer have any basis in fact sufficient to justify its continuation.

Notes and questions 1

2

3

‘I have before me an application by three plaintiffs for injunctions to restrain tower cranes erected and operated by the defendants from oversailing their respective properties…[Counsel for the plaintiff] has submitted that if I am satisfied, as I am, that the oversailing booms…are committing a trespass…the plaintiffs are entitled to an injunction as of course. An injunction is a discretionary remedy, but it is well settled that the discretion must be exercised in accordance with judicial precedent and principle and there is authority…that a trespass threatened to be continued will be restrained by injunction as of course. There is a sense in which the grant of an injunction against trespass enables a landowner to behave like a dog in a manger… But…[t]he authorities establish, in my view, that the plaintiffs are entitled as of course to injunctions…’ (Scott J in Anchor Brewhouse Developments v Berkley House [1987] EG 173). If the injunction is not available as of course, would this not make nonsense of any notion of ownership in English law? In Miller v Jackson, was the discretion exercised in accordance with judicial precedent? Can a court issue an injunction simply to protect the public interest? (Cf Thomas v NUM [1986] Ch 20; Associated British Ports v TGWU [1989] 1 WLR 939.) Do injunctions protect rights or interests?

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13 DECLARATION In re S (Hospital Patient: Court’s Jurisdiction) [1995] 3 WLR 78 Court of Appeal Sir Thomas Bingham MR:… This appeal concerns a gentleman named S. S is a Norwegian citizen, aged 76, and a man of considerable wealth. While in England in September 1993, he suffered a severe and disabling stroke. Underlying the present appeal is a substantial question: whether the best interests of S are served by his returning to Norway, to be cared for in a nursing home outside Oslo, or by his remaining in England, either at the private hospital in which he is now a patient or at some other suitable place. The first of these courses is strongly favoured by S’s wife and only son, the second and first defendants in these proceedings. The second course is strongly favoured by the plaintiff, a woman whose companionship and support S enjoyed in the years before his stroke. S himself is third defendant in the proceedings, represented by the Official Solicitor. I describe that issue as the substantial issue underlying these proceedings. It is not the issue now before the court. The sole issue now before us is a procedural question concerning the standing of the plaintiff to invoke the jurisdiction of the court to grant declaratory relief. This is an important question going to the jurisdiction of the court, for if the plaintiff has no standing to claim declaratory relief the court has no jurisdiction to grant it… The jurisdiction of the court to grant declaratory relief is not conferred, but is regulated, by RSC Ord 15 r 16 (replacing what had been Ord 25 r 5). The rule provides: No action or other proceeding shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the court may make binding declarations of right whether or not any consequential relief is or could be claimed. In Guaranty Trust Co of New York v Hannay and Co [1915] 2 KB 536, the defendants had sued the plaintiffs in the United States to recover an amount which the defendants had paid to the plaintiffs under a bill of exchange. The plaintiffs brought these proceedings in England against the defendants claiming a declaration that they were not bound to repay the sum which they had received. The defendants applied to strike out the proceedings for want of jurisdiction. This application found favour with Buckley LJ on the ground, p 548, that no declaration or injunction could be granted unless it were founded upon alleged facts showing (if true) a cause of action by the plaintiff against the defendant… The jurisdiction of the court to grant declaratory relief in private law proceedings was squarely raised in In re F (Mental Patient: Sterilisation) [1990] 2 AC 1. The issue in the case concerned the lawfulness of an operation to sterilise an adult but mentally handicapped woman. The woman herself, by her mother and next friend, applied to the court for a declaration that the operation would not be unlawful although performed without her consent. Despite doubts expressed by the Court of Appeal, the House of Lords was in no doubt that the procedure adopted was appropriate… 281

Sourcebook on Obligations and Remedies … It cannot of course be suggested that any stranger or officious busybody, however remotely connected with a patient or with the subject matter of proceedings, can properly seek or obtain declaratory or any other relief (in private law any more than public law proceedings). But it can be suggested that where a serious justiciable issue is brought before the court by a party with a genuine and legitimate interest in obtaining a decision against an adverse party the court will not impose nice tests to determine the precise legal standing of that claimant… I would dismiss the appeal of S’s wife and son and uphold the decision of the judge, very much for the reasons which she gave. Kennedy LJ:… I have read the judgments of Sir Thomas Bingham MR and Millett LJ. I agree the appeal should be dismissed for the reasons given. Millett LJ: This is not a case about medical treatment or the withdrawal of medical treatment, nor is it a case about the provision or withdrawal of care. It is in effect a custody dispute between two parties each of whom claims the right to look after an elderly gentleman (whom I will call ‘the patient’) in accordance with what each of them plausibly asserts he would wish if he were not by reason of incapacity unable to formulate or communicate his wishes. Formerly the court would have resolved the dispute by exercising its parens patriae jurisdiction, but as Lord Donaldson of Lymington MR pointed out in In re F (Mental Patient: Sterilisation) [1990] 2 AC 1, p 12, that jurisdiction was taken away from the courts in 1960, possibly in the mistaken belief that they had been given all the necessary powers by the Mental Health Act 1959. It is clear from the authorities (and was conceded before us) that the court would have jurisdiction to determine the dispute if the proceedings were brought by the patient himself acting by the Official Solicitor; or by the hospital authority seeking guidance from the court as to the course it should take. The circumstances of the case did not admit of the former course, and the hospital authority cannot be compelled to adopt the latter. It follows, however, that it is a case about the plaintiff’s standing, not about the court’s jurisdiction, save in the narrow sense that the court may be said to have no jurisdiction to grant relief to a person with no standing to seek it. The increasing number of elderly and incapacitated dependants who are unable to formulate and articulate their wishes but who are expected to be cared for in the community, and the growing number of persons who for one reason or another have more than one family wishing to undertake responsibility for them, mean that disputes of the present kind are likely to recur with increasing frequency. They are justiciable in proceedings brought by the proper party, yet unless the court is willing to entertain proceedings brought by the parties who claim the responsibility for looking after the patient it will often not be possible to bring proceedings at all. In such circumstances the parties are likely to resort to self-help. This would be a lamentable state of affairs and would in my judgment represent a serious abdication of responsibility by the court.

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Remedies On behalf of the patient’s wife and son it was argued that, in private law proceedings like the present, it is not sufficient for a party who asks the court to grant a declaration to demonstrate that he has a legitimate interest in obtaining it. He need not assert a cause of action, but he must have a legal right to obtain relief. There must, it was submitted, be some legal relationship between the parties giving rise to mutual rights and obligations capable of being the subject matter of the declaration sought. In the present case there is no legal relationship between the plaintiff on the one hand and the patient’s wife and son on the other. They have competing claims; but neither of them is asserting any legal right of its own. Each of them, no doubt for commendable reasons, wishes to undertake responsibility for the future welfare of the patient; and each of them may feel under a moral or social duty to assume such responsibility. But neither of them has any legal right or duty to do so; the legal right to choose where he should live and the nature and extent of his medical and other care is the right of the patient and no one else. The jurisdiction of the court to grant declaratory relief was considered in the well known case of Guaranty Trust Co of New York v Hannay and Co [1915] 2 KB 536. The majority of the court held that the court had jurisdiction to grant declaratory relief whether there was a cause of action or not. The actual scope of the decision was narrow, since the plaintiff was seeking no more than a declaration that it was not liable under a contract between it and the defendant, a course of proceedings which has since become a commonplace. But the judgments of the majority were couched in wide language. Pickford LJ considered that it was sufficient if the plaintiff was interested in the subject matter of the declaration (which I take to mean that he had a legal interest); and Bankes LJ considered that it was sufficient if the plaintiff was claiming relief, giving that word its fullest meaning. There is an inevitable circularity in these formulations, for the tendency of English law to view rights in terms of remedies makes it difficult to place limits on the right to a remedy which is available without a pre-existing cause of action. In Gouriet v Union of Post Office Workers [19781 AC 435, Lord Diplock said, p 501: Authorities about the jurisdiction of the courts to grant declaratory relief are legion. The power to grant a declaration is discretionary; it is a useful power and over the course of the last hundred years it has become more and more extensively used... Nothing that I have to say is intended to discourage the exercise of judicial discretion in favour of making declarations of right in cases where the jurisdiction to do so exists. But that there are limits to the jurisdiction is inherent in the nature of the relief: a declaration of rights. The only kinds of rights with which courts of justice are concerned are legal rights; and a court of civil jurisdiction is concerned with legal rights only when the aid of the court is invoked by one party claiming a right against another party, to protect or enforce the right or to provide a remedy against that other party for infringement of it, or is invoked by either party to settle a dispute between them as to the existence or nature of the right claimed. So for the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally 283

Sourcebook on Obligations and Remedies on the happening of an event… But the jurisdiction of the court is not to declare the law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not of anyone else. Since that decision the courts have developed the jurisdiction to grant declaratory relief in a number of cases which, though distinguishable from the present, are nevertheless not altogether dissimilar to it. We have now reached a position where the court is prepared in an appropriate case to fill much of the lacuna left by the disappearance of the parens patriae jurisdiction by granting something approaching an advisory declaration. In my judgment, the passage which I have cited from Lord Diplock’s speech in the Gouriet case [1978] AC 435, p 501, can no longer be taken to be an exhaustive description of the circumstances in which declaratory relief can be granted today. It is to be regarded rather as a reminder that the jurisdiction is limited to the resolution of justiciable issues; that the only kind of rights with which the court is concerned are legal rights; and that accordingly there must be a real and present dispute between the parties as to the existence or extent of a legal right. Provided that the legal right in question is contested by the parties, however, and that each of them would be affected by the determination of the issue, I do not consider that the court should be astute to impose the further requirement that the legal right in question should be claimed by either of the parties to be a right which is vested in itself. The layman would, I think, be astonished to be told that the plaintiff had sufficient legal standing to set in motion the process of medical treatment which the patient’s condition required and to decide where he should be treated but lacked sufficient legal standing to set in motion the legal proceedings which later became necessary in order to decide where he should live. He would also be surprised to learn that, while the court had jurisdiction to decide that issue in proceedings brought by the patient himself joining the rival claimants as defendants, it had no jurisdiction to decide it in proceedings brought by either claimant joining the other claimant and the patient himself as defendants. He would conclude, inter alia, that the objection must be technical and procedural. If the patient were a sack of potatoes, instead of a living person unable by reason of incapacity of making his wishes known, the court would have undoubted jurisdiction to resolve any dispute between rival claimants. It would do so by resort to considerations of legal title and possession. Why should it make a difference that the subject matter of the dispute is the right to look after a human being, and that the resolution of the dispute depends upon ascertaining his wishes or, if they cannot be ascertained, by determining what is in his best interest and inferring that that is what he would wish? The answer given is that the so called right is not a legal right at all, but rather a social or moral duty; and that the only legal rights which are in question are rights which belong to the patient. If necessary, I would hold that a claim to be allowed without interference to look after an elderly and incapacitated relative or other person in accordance with his presumed wishes

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Remedies is a legal right which the court will recognise and protect, and not merely a moral or social obligation. But I do not think that it is necessary. The patient has a legal right to decide where and with whom he should live; he is incapable of making that decision or, if he can make it, of articulating it; there are two rival claimants each of whom wishes to care for him in accordance with his alleged wishes; and the court is asked to rule on which of them would be carrying out his wishes and which of them would be infringing his rights. The dispute raises a justiciable issue; it concerns the legal rights of the patient; all proper parties, including the patient, are before the court; and the determination of the issue affects the rival claimants and their rights and obligations to the patient. In my judgment the court is entitled and bound to decide it. I would dismiss the appeal.

Questions 1 2

Was S being treated more as a res than a persona? In these days of disappearing legal aid, would it be of value for Parliament to introduce a statutory procedure by which disputed points of law could easily be brought before the judiciary for a declaration (for example, with regard to duty of care)? On what grounds might the judges object to such a statutory reform?

14 DISCOVERY OF DOCUMENTS X Ltd v Morgan-Grampian (Publishers) Ltd [1991] 1 AC 1 House of Lords Lord Bridge: My Lords, the plaintiffs are two associated private companies whose anonymity it is essential to preserve if the proceedings they have brought are to serve their intended purpose. In 1989 the plaintiffs wished to raise additional capital and a number of their senior officers with the assistance of their accountants were engaged in preparing a corporate plan for submission to prospective lenders. Much of the information in the plan was in the highest degree confidential and, as Hoffmann J found, its publication pending the finalisation of the negotiations for the purpose of which it was being prepared would be likely to cause severe damage to the plaintiffs. This finding of fact has not been challenged. On 1 November 1989 there were eight numbered copies of the latest, but not yet final, draft of the plan in existence, each in a ring binder marked ‘strictly confidential.’ Between 3 pm and 4 pm on 1 November one copy was left in an unattended, unlocked room at the plaintiffs’ premises. During that time it disappeared. On the next day somebody, whom it is convenient to refer to as ‘the source’, telephoned to the third defendant, Mr Goodwin, who is a young trainee journalist employed by one or other of the defendant companies, the publishers of a weekly journal called The Engineer. I shall refer to these 285

Sourcebook on Obligations and Remedies defendants as ‘the publishers’. The source gave Mr Goodwin certain information about the plaintiffs. The nature of the information and the timing of the communication justify the inference that the source had obtained the information from the plan and was either the person who had stolen the missing copy or was closely associated with that person. Mr Goodwin was minded to write an article for The Engineer about the plaintiffs based in part on the information given to him by the source and in part on other information which he could obtain from publicly accessible sources. He telephoned to the plaintiffs and their bankers to check certain facts. He then drafted an article which was circulated for consideration by members of the publishers’ editorial staff. But before any decision was taken to publish, the plaintiffs, alerted by Mr Goodwin’s inquiries, obtained an ex parte injunction to restrain publication. When the matter came before Hoffmann J, inter partes, the plaintiffs sought not only injunctions against all the defendants to restrain publication but also orders for disclosure of the identity of the source and of the notes which Mr Goodwin had made of his conversation with the source as a means of discovering that identity. No issue arises regarding the injunctions. The outcome of several hearings between 14 and 22 November was that the publishers, who did not know the identity of the source, were ordered to disclose the notes but could not comply with the order because they had no means of coercing Mr Goodwin. By order dated 22 November, Mr Goodwin was ordered to disclose his notes to the plaintiffs by 3 pm on the following day, but later on 22 November the Court of Appeal (Lord Donaldson of Lymington MR, Ralph Gibson and McCowan LJJ) varied this order by giving Mr Goodwin the option of delivering his notes to the court in a sealed envelope which would remain sealed until final determination of Mr Goodwin’s appeal against the order. If the appeal was allowed, the envelope was to be returned to him unopened. Mr Goodwin failed to comply with the order. On 24 November the plaintiffs moved to commit him for contempt… Jurisdiction to order disclosure The first submission made on behalf of the defendants is that the court had no jurisdiction to order them to make discovery of Mr Goodwin’s notes. It is said that, since the sole purpose for which the plaintiffs seek the notes is to derive from them whatever assistance they may afford in identifying the source, Mr Goodwin and the publishers are in the position of mere witnesses who, though they might be compelled by subpoena to testify in proceedings instituted by the plaintiffs against either the source or the thief of the missing copy of the corporate plan, are not amenable to any process of discovery to assist the plaintiffs in advance of litigation against those parties. The short answer to this submission is that the defendants are already subject to the court’s jurisdiction as parties properly impleaded as defendants to claims for quid timet injunctions to restrain them from publishing information imparted to them in breach of confidence. In that capacity they are amenable to the full scope of the court’s wide power to order discovery inter partes. The notes are unquestionably discoverable for the purposes of the quia timet litigation. It is said that, in disclosing the notes for that purpose, the defendants 286

Remedies would be entitled to cover up any material which identified the source on the ground that it would be irrelevant to any issue in the quia timet litigation. But it is not until it is disclosed that the relevance of the material can be determined. The fact that the plaintiffs’ primary purpose in seeking to obtain disclosure of the notes is to identify the source does not in any way inhibit or restrict the court’s power to order discovery for the purposes of the quid timet litigation, subject always to any claim for privilege from disclosure which the defendants can establish. But if it were necessary to invoke the principle which enables the court, in certain circumstances, to order discovery by a party against whom the party seeking discovery has no cause of action, I have no doubt that the circumstances here bring the defendants within that principle. The principle was fully explored and expounded in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133. It is shortly stated by Lord Reid in the following terms, p 175: [The authorities] seem to me to point to a very reasonable principle that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. In the Norwich case, the plaintiffs alleged that the Customs and Excise Commissioners were, in the exercise of their official duties, handling goods which infringed the plaintiffs’ patent and which were being illicitly imported into this country. They sought discovery of documents in the possession of the commissioners which would enable them to identify the importers. The commissioners resisted the claim. Although the commissioners had acted entirely innocently, they were required to make disclosure. Just as in the Norwich case the commissioners had innocently come into possession of goods tortiously imported, so here the defendants, whether innocently or not, came into possession of confidential information tortiously obtained and tortiously imparted to them. In the Norwich case, the commissioners had already delivered some infringing goods to the importer. The plaintiffs’ purpose in seeking discovery was to enable them to identify the importer and bring proceedings against him to restrain further infringing importations. Here the defendants were about to publish the confidential information and would have done so if not restrained by injunction. The plaintiffs here seek the identity of the source to enable them to take the necessary steps to protect themselves from other tortious dissemination of the confidential information which threatens to damage them so severely. It was submitted by Mr Robertson, on behalf of Mr Goodwin, that the jurisdiction to order discovery was not here available because the defendants had been successfully restrained from publishing the confidential information. I do not think this affects the applicability of the principle in any way. Just as the commissioners in the Norwich case were, in Lord Reid’s phrase, ‘mixed up’ in the tortious acts of others from the moment they received the infringing goods tortiously imported, so the defendants here were ‘mixed up’ in the tortious acts of the source from the moment that Mr Goodwin in the course of his employment

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Sourcebook on Obligations and Remedies by the publishers received the confidential information tortiously disclosed. The argument against jurisdiction wholly fails. Privilege from disclosure The courts have always recognised an important public interest in the free flow of information. How far and in what circumstances the maintenance of this public interest operated to confer on journalists any privilege from disclosure of their sources which the common law would recognise admitted of no short and simple answer on the authorities. But the matter is no longer governed by the common law and I do not think any assistance is to be gained from the authorities preceding the coming into force of s 10 of the Contempt of Court Act 1981 which is in these terms: No court may require a person to disclose, nor is any person guilty of contempt of court for refusing to disclose, the source of information contained in a publication for which he is responsible, unless it be established to the satisfaction of the court that disclosure is necessary in the interests of justice or national security or for the prevention of disorder or crime. It has been accepted in this case at all levels that the section applies to the circumstances of the instant case notwithstanding that the information obtained by Mr Goodwin from the source has not been ‘contained in a publication’… … It is, in my opinion, ‘in the interests of justice’, in the sense in which this phrase is used in s 10, that persons should be enabled to exercise important legal rights and to protect themselves from serious legal wrongs whether or not resort to legal proceedings in a court of law will be necessary to attain these objectives. Thus, to take a very obvious example, if an employer of a large staff is suffering grave damage from the activities of an unidentified disloyal servant, it is undoubtedly in the interests of justice that he should be able to identify him in order to terminate his contract of employment, notwithstanding that no legal proceedings may be necessary to achieve that end. Construing the phrase ‘in the interests of justice’ in this sense immediately emphasises the importance of the balancing exercise. It will not be sufficient, per se, for a party seeking disclosure of a source protected by s 10 to show merely that he will be unable without disclosure to exercise the legal right or avert the threatened legal wrong on which he bases his claim in order to establish the necessity of disclosure. The judge’s task will always be to weigh in the scales the importance of enabling the ends of justice to be attained in the circumstances of the particular case on the one hand against the importance of protecting the source on the other hand. In this balancing exercise it is only if the judge is satisfied that disclosure in the interests of justice is of such preponderating importance as to override the statutory privilege against disclosure that the threshold of necessity will be reached. Whether the necessity of disclosure in this sense is established is certainly a question of fact rather than an issue calling for the exercise of the judge’s 288

Remedies discretion, but, like many other questions of fact, such as the question whether somebody has acted reasonably in given circumstances, it will call for the exercise of a discriminating and sometimes difficult value judgment. In estimating the weight to be attached to the importance of disclosure in the interests of justice on the one hand and that of protection from disclosure in pursuance of the policy which underlies s 10, on the other hand, many factors will be relevant on both sides of the scale. It would be foolish to attempt to give comprehensive guidance as to how the balancing exercise should be carried out. But it may not be out of place to indicate the kind of factors which will require consideration. In estimating the importance to be given to the case in favour of disclosure there will be a wide spectrum within which the particular case must be located. If the party seeking disclosure shows, for example, that his very livelihood depends upon it, this will put the case near one end of the spectrum. If he shows no more than that what he seeks to protect is a minor interest in property, this will put the case at or near the other end. On the other side the importance of protecting a source from disclosure in pursuance of the policy underlying the statute will also vary within a wide spectrum. One important factor will be the nature of the information obtained from the source. The greater the legitimate public interest in the information which the source has given to the publisher or intended publisher, the greater will be the importance of protecting the source. But another and perhaps more significant factor which will very much affect the importance of protecting the source will be the manner in which the information was itself obtained by the source. If it appears to the court that the information was obtained legitimately this will enhance the importance of protecting the source. Conversely, if it appears that the information was obtained illegally, this will diminish the importance of protecting the source unless, of course, this factor is counterbalanced by a clear public interest in publication of the information, as in the classic case where the source has acted for the purpose of exposing iniquity. I draw attention to these considerations by way of illustration only and I emphasise once again that they are in no way intended to be read as a code. In the circumstances of the instant case, I have no doubt that Hoffmann J and the Court of Appeal were right in finding that the necessity for disclosure of Mr Goodwin’s notes in the interests of justice was established. The importance to the plaintiffs of obtaining disclosure lies in the threat of severe damage to their business, and consequentially to the livelihood of their employees, which would arise from disclosure of the information contained in their corporate plan while their refinancing negotiations are still continuing. This threat, accurately described by Lord Donaldson of Lymington MR [1990] 2 WLR 421, p 439, as ‘ticking away beneath them like a time bomb’ can only be defused if they can identify the source either as himself the thief of the stolen copy of the plan or as a means to lead to the identification of the thief and thus put themselves in a position to institute proceedings for the recovery of the missing document. The importance of protecting the source on the other hand is much diminished by the source’s complicity, at the very least, in a gross breach of confidentiality which is not counterbalanced by any legitimate interest which publication of the information was calculated to serve. Disclosure in the interests of justice is, on this view of the balance, clearly of preponderating importance so as to

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Sourcebook on Obligations and Remedies override the policy underlying the statutory protection of sources and the test of necessity for disclosure is satisfied… The maintenance of the rule of law is in every way as important in a free society as the democratic franchise. In our society the rule of law rests upon twin foundations: the sovereignty of the Queen in Parliament in making the law and the sovereignty of the Queen’s courts in interpreting and applying the law. While no one doubts the importance of protecting journalists’ sources, no one, I think, seriously advocates an absolute privilege against disclosure admitting of no exceptions. Since the enactment of s 10 of the Act of 1981 both the protection of journalists’ sources and the limited grounds on which it may exceptionally be necessary to override that protection have been laid down by Parliament. I have not heard of any campaign in the media suggesting that the law itself is unjust or that the exceptions to the protection are too widely drawn. But if there were such a campaign, it should be fought in a democratic society by persuasion, not by disobedience to the law. Given the law as laid down by s 10, who, if not the courts, is to interpret it and to decide in the circumstances of any given case whether the protection is to prevail or whether the case is brought within one of the exceptions? The journalist cannot be left to be judge in his own cause and decide whether or not to make disclosure. This would be an abdication of the role of Parliament and the courts in the matter and in practice would be tantamount to conferring an absolute privilege. Of course the courts, like other human institutions, are fallible and a journalist ordered to disclose his source may, like other disappointed litigants, feel that the court’s decision was wrong. But to contend that the individual litigant, be he a journalist or anyone else, has a right of ‘conscientious objection’ which entitles him to set himself above the law if he does not agree with the court’s decision, is a doctrine which directly undermines the rule of law and is wholly unacceptable in a democratic society. Any rule of professional conduct enjoining a journalist to protect his confidential sources must, impliedly if not expressly, be subject to whatever exception is necessary to enable the journalist to obey the orders of a court of competent jurisdiction. Freedom of speech is itself a right which is dependent on the rule of law for its protection and it is paradoxical that a serious challenge to the rule of law should be mounted by responsible journalists. I would dismiss the appeals of both the publishers and Mr Goodwin with costs. In view of his contempt I would order that the costs as against Mr Goodwin be taxed on an indemnity basis. Lord Templeman: My Lords, the publication of the information given by the source to Mr Goodwin would have done no good to anybody but would have been partly inaccurate, partly misleading and wholly injurious to the business of the plaintiffs and the interests of their creditors, shareholders and employees. The article drafted by Mr Goodwin was a mixture of information which was not confidential and had already been made available to the public and information derived from the source which Mr Goodwin had been unable to check and which he ought to have recognised as both confidential and damaging. The use of stolen material by the source was wholly irresponsible and either malicious or designed to forward the career of Mr Goodwin without regard to any damage thereby caused to the plaintiffs.

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Remedies It is necessary for the source to be revealed so that the plaintiffs can take steps to ensure that the source does not remain in the position in which he may by disclosing confidential information cause serious damage to the plaintiffs. There is not absolute immunity for a journalist to conceal his sources. Such an absolute immunity would enable the source or the journalist or both to make use of any untrue, misleading or confidential information with impunity. This means that the journalist is in a dilemma. He wishes to encourage disclosure but he cannot promise absolute immunity to his source unless the information reveals crime or some other iniquity. The journalist can only protect the source if the court decides that it is not necessary to protect the victim of the disclosure. Where, as in the present case, there is no question of iniquity or misconduct on the part of the plaintiffs, the journalist is not entitled to protect his source if the court decides that it is necessary to protect the plaintiff victims by enabling them to identify and disarm a proven and potential wrongdoer who has attempted and may again attempt to cause serious harm to the plaintiffs. Disclosure of the source in these circumstances seems to me to be necessary within s 10 of the Contempt of Court Act 1981 and necessary in the sense in which that word has been interpreted by the European Court of Human Rights… Lord Griffiths: My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Bridge of Harwich and Lord Oliver of Aylmerton. I agree with both of them and for the reasons which they have given I too would dismiss the appeals. Lord Oliver:… The detection of crime, the security of the State and the prevention of disorder are clearly and obviously all matters which affect the public. But the public equally has an interest in the maintenance of the rights of private citizens under the law which cannot reasonably be confined simply to the area of actual or contemplated proceedings. The interest of the public in the administration of justice must, in my opinion, embrace its interest in the maintenance of a system of law, within the framework of which every citizen has the ability and the freedom to exercise his legal right to remedy a wrong done to him or to prevent it being done, whether or not through the medium of legal proceedings. To deny to an employer engaged in proceedings to restrain a breach of confidence the opportunity to discover and proceed against a treacherous employee who is causing him loss and damage is no less a denial of justice because the employer is able, and may prefer in the event, to protect himself by the exercise of his legal right to terminate the contract of service rather than by civil proceedings in court or by prosecution. Whether the denial of that right is of such importance as to necessitate overriding the privilege of non-disclosure will depend on the facts of each case, including the magnitude of the damage or potential damage, the opportunities for repetition and so on. In the instant case, however, the potential damage to the plaintiffs’ business is very substantial and I see no reason for differing from the conclusion of Hoffmann J and the Court of Appeal that the importance to the plaintiffs of ensuring that further dissemination of the highly confidential material contained in the stolen document should be prevented rendered the discovery that he ordered ‘necessary in the interests of justice’. I accordingly agree that the appeals of

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Sourcebook on Obligations and Remedies both the publishers and Mr Goodwin should be dismissed and I concur in the order for costs which my noble and learned friend Lord Bridge of Harwich has proposed… Lord Lowry: My Lords, I have had the advantage of reading in draft the speech delivered by my noble and learned friend, Lord Bridge of Harwich. I agree with it in its entirety and, if I venture to add some observations of my own, it is because of the importance of the subjects canvassed before your Lordships in this appeal. As to the jurisdiction to order disclosure, the facts proved and admitted refute the contention (which, if justified, would have altered the position) that the publishers and Mr Goodwin were ‘mere witnesses’. I respectfully agree with the analysis of my noble and learned friend and would only remark that Mr Goodwin’s case not only is covered by Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133 but is a fortiori, because he and the source were joint tortfeasors… The defendants have contended that the section ought to receive a purposive construction so as to implement the admittedly important and well recognised public interest of protecting sources by strictly limiting the court’s power to order disclosure. An answer to this approach is: (1) that the words of the section are reasonably clear and ought therefore to be given their plain and natural meaning; and (2) that the argument fails to recognise the already strong tendency in favour of non-disclosure as compared with the pre-Act common law position: the section confers substantial protection (where, strictly speaking, there was none before) by enacting a complete prohibition against ordering disclosure unless the court is satisfied that disclosure is necessary in one of just four crucial areas. On the other hand, the words of s 10 itself show that Parliament has recognised and accepted other countervailing interests by virtue of which sources will on occasions have to be disclosed and accordingly has further accepted the fact that the adverse effects of disclosure on freedom of information must on those occasions be endured in deference to those other interests. Thus, within the narrow limits laid down by the section, Parliament contemplates that disclosure of a source may sometimes be more in the public interest than non-disclosure… I, too, would dismiss the appeals with costs and would order the costs as against Mr Goodwin to be taxed on an indemnity basis.

Questions 1

2

Is this case about the balancing of a public interest against a commercial interest? Given that most judges come from the commercial bar, is the decision surprising? There are references to the European Court of Human Rights. Do you think this court supported the decision of the House of Lords? (Cf Goodwin v UK (1996) 22 EHRR123.)

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3

Is this case still a good precedent? (Cf Camelot Group plc v Centaur Communications Ltd [1999] QB 124.) 4 Do these judgments conflict with the observations of Hoffmann LJ in the Central Television case (p 129)? 5 Ought one to be concerned about the English judiciary’s willingness or ability to protect human rights? 6 In refusing to disclose his source, is it actually true to say that the journalist was disobeying the law? If it transpired that he had the right not to disclose, is it not true to say that it was the judges who were in contempt of the law? 7 Was the plaintiff a ‘private citizen’? Did it have the right to vote? 8 ‘Freedom of speech is itself a right which is dependent on the rule of law for its protection and it is paradoxical that a serious challenge to the rule of law should be mounted by responsible journalists’. Is this statement not, in its own way, paradoxical? 9 Do you think that the remedy of discovery of documents is a common law or a civil law invention? (Cf Dig 2.13.) 10 Could the plaintiff company have sued the journalist for damages? What would have been the cause of action?

15 DAMAGES (a) The role of damages Cassell and Co v Broome [1972] AC 1027 House of Lords Lord Hailsham:… Of all the various remedies available at common law, damages are the remedy of most general applications at the present day, and they remain the prime remedy in actions for breach of contract and tort. They have been defined as ‘the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract’. They must normally be expressed in a single sum to take account of all the factors applicable to each cause of action… In almost all actions for breach of contract, and in many actions for tort, the principle of restitutio in integrum is an adequate and fairly easy guide to the estimation of damage, because the damage suffered can be estimated by relation to some material loss. It is true that where loss includes a pre-estimate of future losses, or an estimate of past losses which cannot in the nature of things be exactly computed, some subjective element must enter in. But the estimate is in things commensurable with one another… In many torts, however, the subjective element is more difficult. The pain and suffering endured, and the future loss of amenity, in a personal injuries case are not in the nature of things convertible into legal tender… The principle

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Sourcebook on Obligations and Remedies of restitutio in integrum, which compels the use of money as its sole instrument for restoring the status quo, necessarily involves a factor larger than any pecuniary loss. In actions of defamation and in any other actions where damages for loss of reputation are involved, the principle of restitutio in integrum has necessarily an even more highly subjective element. Such actions involve a money award which may put the plaintiff in a purely financial sense in a much stronger than he was before the wrong… The next point to notice is that it has always been a principle in English law that the award of damages when awarded must be a single lump sum in respect of each separate cause of action… Lord Diplock:… The award of damages as the remedy for all civil wrongs was in England the creature of the common law. It is a field of law in which there has been but little intervention by Parliament. It is judge made law par excellence. Its original purpose in cases of trespass was to discourage private revenge in a primitive society inadequately policed, at least as much as it was to compensate the victim for the material harm occasioned to him…

Notes and questions 1 2

3

Are most county court contractual claims actions for damages? The general rule in English law today as to the measure of damages recoverable for the invasion of a legal right, whether by breach of a contract or by commission of a tort, is that damages are compensatory. Their function is to put the person whose right has been invaded in the same position as if it had been respected so far as the award of a sum of money can do so…’ (Lord Diplock in The Albazero [1977] AC 774, p 841). Is the role of damages only to compensate? ‘[W]here any injury is to be compensated by damages, in settling the sum of money to be given for reparation of damages you should as nearly as possible get at that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation’ (Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, p 39). Was there restitutio in integrum in Spartan Steel v Martin (p 194)?

(b) Contractual liability and damages Principles of European Contract Law Article 9.501 Right to damages (1)

The aggrieved party is entitled to damages for loss caused by the other party’s non-performance which is not excused under Article 8:108.

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Remedies (2) The loss for which damages are recoverable includes: (a) non-pecuniary loss; and (b) future loss which is reasonably likely to occur. Article 9.502 General measure of damages The general measure of damages is such sum as will put the aggrieved party as nearly as possible into the position in which it would have been if the contract had been duly performed. Such damages cover the loss which the aggrieved party has suffered and the gain of which he has been deprived. Article 9.503 Foreseeability The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent. Article 9.504 Loss attributable to aggrieved party The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects. Article 9.505 Reduction of loss (1) The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party could have reduced the loss by taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 Court of Appeal Dillon LJ: This is an appeal by the plaintiffs, the Surrey County Council… against a decision of Ferris J given on 21 November 1991… By his decision, the judge awarded the plaintiffs nominal damages only against the defendant, Bredero Homes Ltd, for breaches of virtually identical positive covenants contained in transfers by the plaintiffs to the defendant of certain land in Surrey in 1981… The plaintiffs object to the development of the final 3.64 acres… As a legal basis it is said by the plaintiffs, and conceded by the defendant, that in building 77 houses in all under the later planning permission, rather than 72 under the first planning permission, the defendant acted in breach of the covenants in the transfers. The plaintiffs therefore seek damages. They have never sought an interim injunction to restrain the defendant from developing the land otherwise than in accordance with the first planning permission. They never sought an injunction at the trial requiring the defendant to pull down the completed houses. They recognised that there was never any practical possibility of such an injunction being granted…The plaintiffs accept that they have not suffered any damage at all of the nature of damage to adjoining property owned or occupied by them. What they claim as damages is essentially the 295

Sourcebook on Obligations and Remedies profit made by the defendant by breaking the covenants and building 77 houses and not just 72… The starting point, however, in my judgment is that the remedy at common law for a breach of contract is an award of damages, and damages at common law are intended to compensate the victim for his loss, not to transfer to the victim if he has suffered no loss the benefit which the wrongdoer has gained by his breach of contract… Every student is taught that the basis of assessing damages for breach of contract is the rule in Hadley v Baxendale (1854) 9 Ex 341, which is wholly concerned with the losses which can be compensated by damages. Such damages may, in an appropriate case, cover profit which the injured plaintiff has lost, but they do not cover an award, to a plaintiff who has himself suffered no loss, of the profit which the defendant has gained for himself by his breach of contract. In the field of tort, there are areas where the law is different and the plaintiff can recover in respect of the defendant’s gain. Thus, in the field of trespass, it is well established that if one person has, without leave of another, been using that other’s land for his own purposes he ought to pay for such user. Thus, even if he had done no actual harm to the land he was charged for the user of the land… The same principle was applied to patent infringement… The infringer was ordered to pay by way of damages a royalty for every infringing article because the infringement damaged the plaintiff’s property right, that is to say, his patent monopoly. So in a case of detinue the defendant was ordered to pay a hire for chattels he had detained: Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246… As I see it, therefore, there never was in the present case, even before the writ was issued, any possibility of the court granting an injunction… The plaintiffs’ only possible claim from the outset was for damages only, damages at common law. The plaintiffs have suffered no damage. Therefore, on basic principles, as damages are awarded to compensate loss, the damages must be merely nominal. For these reasons, which substantially accord with those of Ferris J, I would dismiss this appeal. Steyn LJ:… An award of compensation for breach of contract serves to protect three separate interests. The starting principle is that the aggrieved party ought to be compensated for loss of his positive or expectation interests. In other words, the object is to put the aggrieved party in the same financial position as if the contract had been fully performed. But the law also protects the negative interest of the aggrieved party. If the aggrieved party is unable to establish the value of a loss of bargain he may seek compensation in respect of his reliance losses. The object of such an award is to compensate the aggrieved party for expenses incurred and losses suffered in reliance on the contract. These two complementary principles share one feature. Both are pure compensatory principles… There is, however, a third principle which protects the aggrieved party’s restitutionary interest. The object of such an award is not to compensate the plaintiff for a loss, but to deprive the defendant of the benefit he gained by the breach of contract. The classic illustration is a claim for the return of 296

Remedies goods sold and delivered where the buyer has repudiated his obligation to pay the price. It is not traditional to describe a claim for restitution following a breach of contract as damages. What matters is that a coherent law of obligations must inevitably extend its protection to cover certain restitutionary interests… The object of the award in the Wrotham Park case [[1974] 1 WLR 798] was not to compensate the plaintiffs for financial injury, but to deprive the defendants of an unjustly acquired gain. Whilst it must be acknowledged that the Wrotham Park case represented a new development, it seems to me that it was based on a principled legal theory, justice and sound policy… The Wrotham Park case is analogous to cases where a defendant has made use of the aggrieved party’s property and thereby saved expense… I readily accept that ‘property’ in this context must be interpreted in a wide sense. I would also not suggest that there is no scope for further development in this branch of the law. But, in the present case, we are asked to extend considerably the availability of restitutionary remedies for breach of contract. I question the desirability of any such development… The present case involves no breach of fiduciary obligations. It is a case of breach of contract. The principles governing expectation or reliance losses cannot be invoked. Given the fact of the breach of contract, the only question is whether restitution is an appropriate remedy for this wrong. The case does not involve any invasion of the plaintiffs’ property interests even in the broadest sense of that word, nor is it closely analogous to the Wrotham Park position. I would therefore rule that no restitutionary remedy is available and there is certainly no other remedy available. I would dismiss the appeal. Rose LJ: I agree…

Questions 1 2 3 4

5 6

What is the specific reason that would have prevented the plaintiff from obtaining the defendant’s profit via an action in account? Is expectation interest equivalent to lucrum cessans in the civil law? Did the defendant unjustly enrich himself (or itself)? Was it at the expense of the plaintiff? What if the builder had made a huge profit as a result of his breach of the planning permission: who should be entitled to this profit? Might s 222 of the Local Government Act 1972 provide any clues? Is Bredero a hard case (cf above, p 177, note 182)? If Spartan Steel v Martin (above, p 194) had been a contract case, would the plaintiff have recovered a higher figure? Jarvis v Swans Tours Ltd [1973] 1 QB 233 Court of Appeal This was an action for damages brought by a customer against a tour operator in respect of a holiday which fell far short of the promises made in the 297

Sourcebook on Obligations and Remedies brochure. The winter holiday in Switzerland cost £63.45 and the brochure promised a series of exciting events which included afternoon teas, parties, yodlers and an English-speaking mein-host; also promised were nearby ski-runs with adequate ski-hire facilities. Few of the promised events and facilities were forthcoming. In an action by the plaintiff against the operator the county court judge awarded damages of £31.72, based on the idea that the plaintiff got only half a holiday. On appeal the Court of Appeal raised the damages to £125. Lord Denning MR:… What is the legal position? I think that the statements in the brochure were representations or warranties. The breaches of them give Mr Jarvis a right to damages. It is not necessary to decide whether they were representations or warranties because since the Misrepresentation Act 1967, there is a remedy in damages for misrepresentation as well as for breach of warranty. The one question in the case is: What is the amount of damages? The judge seems to have taken the difference in value between what he paid for and what he got. He said that he intended to give ‘the difference between the two values and no other damages’ under any other head. He thought that Mr Jarvis had got half of what he paid for. So the judge gave him half the amount which he bad paid, namely, £31.72. Mr Jarvis appeals to this court. He says that the damages ought to have been much more… What is the right way of assessing damages? It has often been said that on a breach of contract damages cannot be given for mental distress. Thus, in Hamlin v Great Northern Railway Co, Pollock CB said that damages cannot be given ‘for the disappointment of mind occasioned by the breach of contract’. And in Hobbs v London and South Western Railway Co, Mellor J said that: …for the mere inconvenience, such as annoyance and loss of temper, or vexation, or for being disappointed in a particular thing which you have set your mind upon, without real physical inconvenience resulting, you cannot recover damages. The courts in those days only allowed the plaintiff to recover damages if he suffered physical inconvenience, such as having to walk five miles home, as in Hobbs’ case, or to live in an overcrowded house: Bailey v Bullock. I think that those limitations are out of date. In a proper case damages for mental distress can be recovered in contract, just as damages for shock can be recovered in tort. One such case is a contract for a holiday, or any other contract to provide entertainment and enjoyment. If the contracting party breaks his contract, damages can be given for the disappointment, the distress, the upset and frustration caused by the breach. I know that it is difficult to assess in terms of money, but it is no more difficult than the assessment which the courts have to make every day in personal injury cases for loss of amenities. Take the present case. Mr Jarvis has only a fortnight’s holiday in the year. He books it far ahead, and looks forward to it all that time. He ought to be compensated for the loss of it. A good illustration was given by Edmund Davies LJ in the course of the argument. He put the case of a man who has taken a ticket for Glyndebourne. It is the only night on which he can get there. He hires a car to take him. The 298

Remedies car does not turn up. His damages are not limited to the mere cost of the ticket. He is entitled to general damages for the disappointment he has suffered and the loss of the entertainment which he should have had. Here, Mr Jarvis’s fortnight’s winter holiday has been a grave disappointment. It is true that he was conveyed to Switzerland and back and had meals and bed in the hotel. But that is not what he went for. He went to enjoy himself with all the facilities which the defendants said he would have. He is entitled to damages for the lack of those facilities, and for his loss of enjoyment. A similar case occurred in 1951. It was Stedman v Swan’s Tours. A holidaymaker was awarded damages because he did not get the bedroom and the accommodation which he was promised. The county court judge awarded him £13.15. This court increased it to £50. I think the judge was in error in taking the sum paid for the holiday £63.45 and halving it. The right measure of damages is to compensate him for the loss of entertainment and enjoyment which he was promised, and which he did not get. Looking at the matter quite broadly, I think the damages in this case should be the sum of £125.1 would allow the appeal, accordingly. Watts v Morrow [1991] 1WLR1421 Court of Appeal Bingham LJ:… A contract-breaker is not in general liable for any distress, frustration, anxiety, displeasure, vexation, tension or aggravation which his breach of contract may cause to the innocent party… But the rule is not absolute. Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead … A contract to survey the condition of a house for a prospective purchaser does not, however, fall within this exceptional category. In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort… But I also agree that awards should be restrained…

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Is mental distress a form of damage now recognised by the common law? Will it be protected by the law of tort? Should the plaintiff in Best v Samuel Fox (p 615) have been given damages for mental distress? Is her case not more deserving than that of the disappointed holidaymaker? While cutting P’s lawn for a price of £15, D runs over Tibbins, P’s much loved cat, causing P to suffer severe mental distress. If the cat had a value of 50p, how much can P claim from D in an action for damages? Does it make any difference whether the case is pleaded in contract or tort? Assuming that D had more or less finished the lawn when the accident occurred, does P have to pay D the £15? Can a parent claim damages for mental distress for a child killed by the wrongful act of another? (Cf Fatal Accidents Act 1976, s 1A.) 299

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Are damages for misrepresentation governed by the same rules as damages for breach of warranty (that is, breach of contract)? Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1971] 1 QB 88 Queen’s Bench Division This was an action for damages in respect of death and damage arising out of an explosion in the plaintiffs’ laboratory. The explosion occurred when a chemical, marketed and sold by the defendants, came into contact with water while one of the plaintiffs’ employees was washing labels off the chemical’s glass containers. The only warning on the label referred to ‘Harmful Vapour’ and both the defendants, who had done inadequate research, and the plaintiffs were unaware of its explosive habits. Rees J:… The term and its breach having been established, the next question is whether Vacwell have shown that the accident was caused by BDH’s breach of contract. It was strenuously and helpfully argued by Mr Tapp that the conduct for which Vacwell is responsible, which gave immediate rise to the explosion, was not foreseeable and amounted to a novus actus interveniens which broke the chain of causation. Upon the hypothesis that BDH foresaw, or should have foreseen, that an ampoule might be washed with water and might be dropped or that in some other way the contents of one or two ampoules might come into contact with water, the damage to be expected would be a small, violent reaction with consequent burning, minor cuts from glass, or, at worst, injury to one or more eyes. But, so his argument runs, no one could foresee, or should have foreseen, that the contents of 40 to 100 ampoules of boron tribromide would suddenly come into contact with such an amount of water as would produce the violent and lethal explosion which occurred in this case. The explosion itself and its consequences are, he says, of a different order from those foreseeable. Thus, he takes the point as going to causation and also to remoteness of damage… As a result of the breach of contract in the instant case, an explosion, albeit of a small or minor kind, was reasonably foreseeable. An explosion of the magnitude which did occur was not reasonably foreseeable but I find that it was the direct result of the supply of boron tribromide without an adequate warning label, for use in Vacwell’s manufacturing process. Looking at the whole of the circumstances as disclosed by the evidence, I hold that the explosion was caused by the breach of contract… …Taking all these circumstances into account, including that an explosion involving some damage to property caused by the explosion was reasonably foreseeable, I am unable to find that because the damage to property was much greater than could have been reasonably foreseen, it was too remote to be recoverable in law. When one bears in mind that the delicate glassware which constituted the equipment in connection with which boron tribromide was to be used was of the value of over £800,000, it may be unduly favourable to BDH to hold, as I do, that damage to property of the order of £74,000 was not reasonably foreseeable. Accordingly I find that Vacwell has established a breach of contract and that the explosion and its consequences were caused thereby…

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In damages actions for breach of contract, is it true to say that defendants are liable for all direct damage arising out of the breach? Does foreseeability have a role? Did the defendants contemplate the actual explosion and damage at the time they made the contract? Ruxley Electronics Ltd v Forsyth [1996] 1 AC 344 House of Lords Lord Jauncey: My Lords, the respondent entered into a contract with the appellants for the construction by them of a swimming pool at his house in Kent. The contract provided for the pool having a maximum depth of 7 ft 6 in but, as built, its maximum depth was only 6 ft. The respondents sought to recover as damages for breach of contract the cost of demolition of the existing pool and construction of a new one of the required depth. The trial judge made the following findings which are relevant to this appeal: (1) the pool as constructed was perfectly safe to dive into; (2) there was no evidence that the shortfall in depth had decreased the value of the pool; (3) the only practicable method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of £21,560; (4) he was not satisfied that the respondent intended to build a new pool at such a cost; (5) in addition such cost would be wholly disproportionate to the disadvantage of having a pool of a depth of only 6 ft as opposed to 7 ft 6 in and it would therefore be unreasonable to carry out the works; and (6) that the respondent was entitled to damages for loss of amenity in the sum of £2,500. The Court of Appeal by a majority (Staughton and Mann LJ, Dillon LJ dissenting) allowed the appeal holding that the only way in which the respondent could achieve his contractual objective was by reconstructing the pool at a cost of £21,560 which was accordingly a reasonable venture. The general principles applicable to the measure of damages for breach of contract are not in doubt. In a very well known passage, Parke B said in Robinson v Harman (1848) 1 Exch 850, p 855: The next question is: what damages is the plaintiff entitled to recover? The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed. ... Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to the aggrieved party from which it follows that the reasonableness of an award of damages is to be linked directly to the loss sustained. If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate. A failure to achieve the precise contractual objective does not necessarily result in the loss which is occasioned by a total failure… 301

Sourcebook on Obligations and Remedies I take the example suggested during argument by my noble and learned friend, Lord Bridge of Harwich. A man contracts for the building of a house and specifies that one of the lower courses of brick should be blue. The builder uses yellow brick instead. In all other respects, the house conforms to the contractual specification. To replace the yellow bricks with blue would involve extensive demolition and reconstruction at a very large cost. It would clearly be unreasonable to award to the owner the cost of reconstructing because his loss was not the necessary cost of reconstruction of his house, which was entirely adequate for its design purpose, but merely the lack of aesthetic pleasure which he might have derived from the sight of blue bricks. Thus, in the present appeal the respondent has acquired a perfectly serviceable swimming pool, albeit one lacking the specified depth. His loss is thus not the lack of a usable pool with consequent need to construct a new one. Indeed, were he to receive the cost of building a new one and retain the existing one he would have recovered not compensation for loss but a very substantial gratuitous benefit, something which damages are not intended to provide. What constitutes the aggrieved party’s loss is in every case a question of fact and degree. Where the contract breaker has entirely failed to achieve the contractual objective it may not be difficult to conclude that the loss is the necessary cost of achieving that objective. Thus, if a building is constructed so defectively that it is of no use for its designed purpose, the owner may have little difficulty in establishing that his loss is the necessary cost of reconstructing. Furthermore, in taking reasonableness into account in determining the extent of loss it is reasonableness in relation to the particular contract and not at large. Accordingly, if I contracted for the erection of a folly in my garden which shortly thereafter suffered a total collapse it would be irrelevant to the determination of my loss to argue that the erection of such a folly which contributed nothing to the value of my house was a crazy thing to do. As Oliver J said in Radford v De Froberville [1977] 1 WLR1262, p 1270: If he contracts for the supply of that which he thinks serves his interestsbe they commercial, aesthetic or merely eccentric—then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit. However, where the contractual objective has been achieved to a substantial extent, the position may be very different. It was submitted that where the objective of a building contract involved satisfaction of a personal preference the only measure of damages available for a breach involving failure to achieve such satisfaction was the cost of reinstatement. In my view this is not the case. Personal preference may well be a factor in reasonableness and hence in determining what loss has been suffered but it cannot per se be determinative of what that loss is. My Lords, the trial judge found that it would be unreasonable to incur the cost of demolishing the existing pool and building a new and deeper one. In 302

Remedies so doing he implicitly recognised that the respondent’s loss did not extend to the cost of reinstatement. He was, in my view, entirely justified in reaching that conclusion. It therefore follows that the appeal must be allowed. It only remains to mention two further matters. The appellant argued that the cost of reinstatement should only be allowed as damages where there was shown to be an intention on the part of the aggrieved party to carry out the work. Having already decided that the appeal should be allowed I no longer find it necessary to reach a conclusion on this matter. However I should emphasise that in the normal case the court has no concern with the use to which a plaintiff puts an award of damages for a loss which has been established. Thus, irreparable damage to an article as a result of a breach of contract will entitle the owner to recover the value of the article irrespective of whether he intends to replace it with a similar one or to spend the money on something else. Intention, or lack of it, to reinstate can have relevance only to reasonableness and hence to the extent of the loss which has been sustained. Once that loss has been established intention as to the subsequent use of the damages ceases to be relevant. The second matter relates to the award of £2,500 for loss of amenity made by the trial judge. The respondent argued that he erred in law in making such award. However as the appellant did not challenge it, I find it unnecessary to express any opinion on the matter. Lord Mustill:… It is a common feature of small building works performed on residential property that the cost of the work is not fully reflected by an increase in the market value of the house, and that comparatively minor deviations from specification or sound workmanship may have no direct financial effect at all. Yet the householder must surely be entitled to say that he chose to obtain from the builder a promise to produce a particular result because he wanted to make his house more comfortable, more convenient and more conformable to his own particular tastes; not because he had in mind that the work might increase the amount which he would receive if, contrary to expectation, he thought it expedient in the future to exchange his home for cash. To say that in order to escape unscathed the builder has only to show that to the mind of the average onlooker, or the average potential buyer, the results which he has produced seem just as good as those which he had promised would make a part of the promise illusory, and unbalance the bargain. In the valuable analysis contained in Radford v De Froberville [1977] 1 WLR 1262, Oliver J emphasised, p 1270, that it was for the plaintiff to judge what performance he required in exchange for the price. The court should honour that choice. Pacta sunt servanda. If the appellant’s argument leads to the conclusion that in all cases like the present the employer is entitled to no more than nominal damages, the average householder would say that there must be something wrong with the law. In my opinion there would indeed be something wrong if, on the hypothesis that cost of reinstatement and the depreciation in value were the only available measures of recovery, the rejection of the former necessarily entailed the adoption of the latter; and the court might be driven to opt for the cost of reinstatement, absurd as the consequence might often be, simply

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Sourcebook on Obligations and Remedies to escape from the conclusion that the promisor can please himself whether or not to comply with the wishes of the promise which, as embodied in the contract, formed part of the consideration for the price. Having taken on the job the contractor is morally as well as legally obliged to give the employer what he stipulated to obtain, and this obligation ought not to be devalued. In my opinion however the hypothesis is not correct. There are not two alternative measures of damage, at opposite poles, but only one; namely, the loss truly suffered by the promisee. In some cases the loss cannot be fairly measured except by reference to the full cost of repairing the deficiency in performance. In others, and in particular those where the contract is designed to fulfil a purely commercial purpose, the loss will very often consist only of the monetary detriment brought about by the breach of contract. But these remedies are not exhaustive, for the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure. This excess, often referred to in the literature as the ‘consumer surplus’ (see, for example, the valuable discussion by Harris, Ogus and Philips (1979) 95 LQR 581) is usually incapable of precise valuation in terms of money, exactly because it represents a personal, subjective and nonmonetary gain. Nevertheless where it exists the law should recognise it and compensate the promisee if the misperformance takes it away. The lurid bathroom tiles, or the grotesque folly instanced in argument by my noble and learned friend, Lord Keith of Kinkel, may be so discordant with general taste that in purely economic terms the builder may be said to do the employer a favour by failing to install them. But this is too narrow and materialistic a view of the transaction. Neither the contractor nor the court has the right to substitute for the employer’s individual expectation of performance a criterion derived from what ordinary people would regard as sensible. As my Lords have shown, the test of reasonableness plays a central part in determining the basis of recovery, and will indeed be decisive in a case such as the present when the cost of reinstatement would be wholly disproportionate to the non-monetary loss suffered by the employer. But it would be equally unreasonable to deny all recovery for such a loss. The amount may be small, and since it cannot be quantified directly there may be room for difference of opinion about what it should be. But in several fields the judges are well accustomed to putting figures to intangibles, and I see no reason why the imprecision of the exercise should be a barrier, if that is what fairness demands. Lord Lloyd:…In building cases, the pecuniary loss is almost always measured in one of two ways; either the difference in value of the work done or the cost of reinstatement. Where the cost of reinstatement is less than the difference in value, the measure of damages will invariably be the cost of reinstatement. By claiming the difference in value the plaintiff would be failing to take reasonable steps to mitigate his loss. In many ordinary cases, too, where reinstatement presents no special problem, the cost of reinstatement will be the obvious measure of damages, even where there is little or no difference in value, or where the difference in value is hard to assess. This is why it is often said that the cost of reinstatement is the ordinary measure of damages for defective performance under a building contract.

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Remedies But it is not the only measure of damages. Sometimes it is the other way round. This was first made clear in the celebrated judgment of Cardozo J giving the majority opinion in the Court of Appeals of New York in Jacob and Youngs v Kent 129 NE 889… Cardozo J’s judgment is important, because it establishes two principles, which I believe to be correct, and which are directly relevant to the present case; first, the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the good to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value, even though it would result in a nominal award. Does Mr Forsyth’s undertaking to spend any damages which he may receive on rebuilding the pool make any difference? Clearly not. He cannot be allowed to create a loss, which does not exist, in order to punish the defendants for their breach of contract. The basic rule of damages, to which exemplary damages are the only exception, is that they are compensatory not punitive… Addis v Gramophone Co Ltd [1909] AC 488 established the general rule that in claims for breach of contract, the plaintiff cannot recover damages for his injured feelings. But the rule, like most rules, is subject to exceptions. One of the well established exceptions is when the object of the contract is to afford pleasure, as, for example, where the plaintiff has booked a holiday with a tour operator. If the tour operator is in breach of contract by failing to provide what the contract called for, the plaintiff may recover damages for his disappointment: see Jarvis v Swans Tours Ltd [1973] QB 233 and Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468. This was, as I understand it, the principle which Judge Diamond applied in the present case. He took the view that the contract was one ‘for the provision of a pleasurable amenity’. In the event, Mr Forsyth’s pleasure was not so great as it would have been if the swimming pool had been 7 ft 6 in deep. This was a view which the judge was entitled to take. If it involves a further inroad on the rule in Addis v Gramophone Co Ltd [1909] AC 488, then so be it. But I prefer to regard it as a logical application or adaptation of the existing exception to a new situation. I should, however, add this note of warning. Mr Forsyth was, I think, lucky to have obtained so large an award for his disappointed expectations. But as there was no criticism from any quarter as to the quantum of the award as distinct from the underlying principle, it would not be right for your Lordships to interfere with the judge’s figure. That leaves one last question for consideration. I have expressed agreement with the judge’s approach to damages based on loss of amenity on the facts of the present case. But in most cases such an approach would not be available. What is then to be the position where, in the case of a new house, the building does not conform in some minor respect to the contract, as, for example, where there is a difference in level between two rooms, necessitating a step. Suppose there is no measurable difference in value, and the cost of reinstatement would be prohibitive. Is there any reason why the court should not award by way of damages for breach of contract some modest sum, not based on difference in value, but solely to compensate the buyer for his 305

Sourcebook on Obligations and Remedies disappointed expectations? Is the law of damages so inflexible, as I asked earlier, that it cannot find some middle ground in such a case? I do not give a final answer to that question in the present case. But it may be that it would have afforded an alternative ground for justifying the judge’s award of damages. And if the judge had wanted a precedent, he could have found it in Sir David Cairns’s judgment in GW Atkins Ltd v Scott 7 Const LJ 215, where, it will be remembered, the Court of Appeal upheld the judge’s award of £250 for defective tiling. Sir David Cairns said, p 221: There are many circumstances where a judge has nothing but his common sense to guide him in fixing the quantum of damages, for instance, for pain and suffering, for loss of pleasurable activities or for inconvenience of one kind or another. If it is accepted that the award of £2,500 should be upheld, then that at once disposes of Mr Jacob’s argument that Mr Forsyth is entitled to the cost of reinstatement, because he must be entitled to something. But even if he were entitled to nothing for loss of amenity, or for difference in value, it would not follow as Mr Jacob argued that he was entitled to the cost of reinstatement. There is no escape from the judge’s finding of fact that to insist on the cost of reinstatement in the circumstances of the present case was unreasonable. I would therefore allow the appeal and restore the judgment of Judge Diamond. Lord Bridge:… My Lords, damages for breach of contract must reflect, as accurately as the circumstances allow, the loss which the claimant has sustained because he did not get what he bargained for. There is no question of punishing the contract breaker. Given this basic principle, the court, in assessing the measure of the claimant’s loss has ultimately to determine a question of fact, although the law has of course developed detailed criteria which are to be applied in ascertaining the appropriate measure of loss in a wide variety of commonly occurring situations. Since the law relating to damages for breach of contract has developed almost exclusively in a commercial context, these criteria normally proceed on the assumption that each contracting party’s interest in the bargain was purely commercial and that the loss resulting from a breach of contract is measurable in purely economic terms. But this assumption may not always be appropriate… But…to hold in a case such as this that the measure of the building owner’s loss is the cost of reinstatement, however unreasonable it would be to incur that cost, seems to me to fly in the face of common sense. My Lords, since the populist image of the geriatric judge, out of touch with the real world, is now reflected in the statutory presumption of judicial incompetence at the age of 75, this is the last time I shall speak judicially in your Lordships’ House. I am happy that the occasion is one when I can agree with your Lordships still in the prime of judicial life who demonstrate so convincingly that common sense and the common law here go hand in hand. For the reasons given in the speeches of my noble and learned friends, Lord Lloyd of Berwick, Lord Jauncey of Tullichettle and Lord Mustill, I, too, would allow the appeal and restore the judgment of Judge Diamond QC.

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Questions 1

Did the plaintiffs (who were claiming the price of the swimming pool) substantially perform the contract? If they did, how could they be liable up to the whole cost of the pool? If they did not, why should the defendants have to pay for the pool? 2 If the plaintiffs were in breach of contract, why did the defendant not receive damages to put him in the position he would have been in had the contract been performed? Are the House of Lords saying that the trial judge did in fact compensate his expectation interest? Why do you think a majority of the Court of Appeal came to a different conclusion on this point? Ought damage to attach to the res (swimming pool) rather than to the persona (Mr Forsyth’s mental well being) in contract cases? 3 Read The Liddesdale [1900] AC 190 in the law report. Has this case now been overruled by Ruxley? 4 Should the trial judge ever have been entitled in a contract case where the contract specified certain measurements to come to the conclusion that the swimming pool was reasonable? 5 Does Ruxley discriminate against the consumer? What if the defendant had been a commercial organisation or a local authority? 6 Read the French case of Cass civ 17.1.1984 to be found in Rudden, A Sourcebook on French Law, 3rd edn, 1991, OUP, p 501. Should Mr Forsyth have been entitled to the same kind of remedy? Why could he not have claimed specific performance? 7 Is there now a principle that contracts must be enforced in a reasonable way? 8 Is Ruxley a proportionality case? 9 PECL, Art 6:108 states: ‘If the contract does not specify the quality, a party must tender performance of at least average quality.’ Might it be said that the House of Lords was applying, indirectly (via the law of damages), the second limb of this article? But what about the first half: did not the swimming pool contract specify the quality? Does this mean that, in the common law, contractual rights are completely divorced from remedial rights? 10 Whose interests were being protected in this breach of contract case?

(c) Tortious liability and damages Spartan Steel and Alloys Ltd v Martin and Co [1973] 1 QB 27 Court of Appeal (See p 194.)

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Sourcebook on Obligations and Remedies Dominion Mosaics and Tile Ltd v Trafalgar Trucking Co Ltd [1990] 2 All ER 246 Court of Appeal This was an appeal against an award of damages made in respect of the destruction of the claimant’s factory and machinery by a fire negligently caused by the defendants. The claimant argued that they should have recovered the full cost (£65,000) of certain carpet-holding machinery destroyed in the fire, despite the fact that it cost them only £13,500 to buy. The defendants argued that they should not be liable for the full cost of the acquisition of new and better premises by the claimant. The Court of Appeal awarded the £65,000 for the carpet-holding machinery and dismissed the defendants’ appeal with respect to the new premises. Taylor LJ:… The basic principle governing the measure of damages where the defendant’s tort has caused damage to the plaintiff’s land or building is restitutio in integrum. The damages should be such as will, so far as money can, put the plaintiff in the same position as he would have held had the tort not occurred. In applying that principle to particular cases, the problem has been whether restitutio is to be achieved by assessing the diminution in value of the damaged premises or the cost of reinstatement or possibly on some other basis… It is important to remember, however…that insurance moneys are not to be taken into account. In fact [the new property] was purchased with insurance moneys. The insurance company has therefore stood out of its £390,000 and is entitled, by way of subrogation, to the return of its money, plus interest, from the proceeds of this action. Thus the respondents are not enriched in cash to the tune of £390,000, plus interest. True…they got a more valuable building than they had before, but on the authority of the Harbutt’s Plasticine Ltd case [1970] 1 QB 447 that does not necessarily render the award excessive or require any discount for betterment… Had it been argued that in fairness to the appellants some discount from £65,000 should have been allowed to reflect the depreciation of the machines in their few months of service, the point would have merited consideration. But no such submission was made, nor was there any evidence on which to base an assessment of an appropriate discount…

Notes and questions 1 2 3

4

Is it right, after Ruxley, that the law of damages should confer benefits upon plaintiffs in addition to compensating them for their losses? Was counsel for the appellants negligent in any way? To what extent is the measure of damages dependent upon the parties themselves? Why does the law of damages not take account of insurance money? Does not such money diminish the loss? Is it because the tortfeasor should not receive a benefit at the plaintiffs expense? It is not, I think, possible to say we must adopt, or seek to adopt, any rigid standard of comparison between a nuisance case and personal injury litigation. Nevertheless, overall the law ought to remain consistent when it is dealing with analogous situations… One must bear in mind 308

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also a further general principle, that, when one is removed from the world of pecuniary loss and is attempting to measure damages for nonpecuniary loss, an element in reasonableness is the fairness of the compensation to be awarded. There must be moderation; some attention must be paid to the rights of the offending defendant as well as to the rights of the injured plaintiff…’ (Scarman LJ in Bone v Scale [1975] 1 WLR 797, p 805). What amount should be awarded to a person who has to put up with unpleasant smells from a neighbour’s pig farm? (Cf Hunter v Canary Wharf, below.) Hunter v Canary Wharf Ltd [1997] AC 655 House of Lords (See p 143.) Lord Hoffmann:… I cannot…agree with Stephenson LJ in Bone v Scale [1975] 1 WLR 797, pp 803–04, when he said that damages in an action for nuisance caused by smells from a pig farm should be fixed by analogy with damages for loss of amenity in an action for personal injury. In that case it was said that ‘efforts to prove diminution in the value of the property as a result of this persistent smell over the years failed’. I take this to mean that it had not been shown that the property would sell for less. But diminution in capital value is not the only measure of loss. It seems to me that the value of the right to occupy a house which smells of pigs must be less than the value of the occupation of an equivalent house which does not. In the case of a transitory nuisance, the capital value of the property will seldom be reduced. But the owner or occupier is entitled to compensation for the diminution in the amenity value of the property during the period for which the nuisance persisted. To some extent this involves placing a value upon intangibles. But estate agents do this all the time. The law of damages is sufficiently flexible to be able to do justice in such a case: compare Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344. There may, of course, be cases in which, in addition to damages for injury to his land, the owner or occupier is able to recover damages for consequential loss. He will, for example, be entitled to loss of profits which are the result of inability to use the land for the purposes of his business. Or if the land is flooded, he may also be able to recover damages for chattels or livestock lost as a result. But inconvenience, annoyance or even illness suffered by persons on land as a result of smells or dust are not damage consequential upon the injury to the land. It is rather the other way about: the injury to the amenity of the land consists in the fact that the persons upon it are liable to suffer inconvenience, annoyance or illness. It follows that damages for nuisance recoverable by the possessor or occupier may be affected by the size, commodiousness and value of his property but cannot be increased merely because more people are in occupation and therefore suffer greater collective discomfort. If more than one person has an interest in the property, the damages will have to be divided among them. If there are joint owners, they will be jointly entitled to the damages. If there is a reversioner and the nuisance has caused damage of a permanent character which affects the reversion, he will be entitled to damages

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Sourcebook on Obligations and Remedies according to his interest. But the damages cannot be increased by the fact that the interests in the land are divided; still less according to the number of persons residing on the premises… Once it is understood that nuisances ‘productive of sensible personal discomfort’ (St Helen’s Smelting Co v Tipping 11 HL Cas 642, p 650) do not constitute a separate tort of causing discomfort to people but are merely part of a single tort of causing injury to land, the rule that the plaintiff must have an interest in the land falls into place as logical and, indeed, inevitable…

Questions 1 2

Is Lord Hoffmann doing the reverse to what the judges did in Ruxley? Is he taking the emphasis off the persona and putting it onto the res? Are damages available in nuisance for personal injury? Inverugie Investments Ltd v Hackett [1995] 1 WLR 713 Privy Council (See p 329.)

Questions 1 2

Is it just that a plaintiff should be awarded damages for a loss that it did not suffer? What is the role of damages in these kinds of trespass case?

(d) Exemplary damages Rookes v Barnard [1964] AC 1129 House of Lords Lord Devlin:… The first category [for an award of exemplary damages] is oppressive, arbitrary or unconstitutional action by servants of the government. I should not extend this category… Where one man is more powerful than another…he is not to be punished simply because he is the more powerful. In the case of the government it is different, for the servants of the government are also servants of the people and the use of their power must always be subordinate to their duty of service… Cases in the second category are those in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff… Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.

Notes and questions 1

‘It cannot lightly be taken for granted, even as a matter of theory, that the purpose of the law of tort is compensation…’ (Lord Wilberforce in Cassell and Co Ltd v Broome [1972] AC 1027, p 1114). What are the other purposes of a damages action founded in the law of tort?

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4 5

‘I thought and still think that that is highly anomalous. It is confusing the function of the civil law which is to compensate with the function of the criminal law which is to inflict deterrent and punitive penalties… [But the] right to give punitive damages in certain cases is so firmly embedded in our law that only Parliament can remove it… Local government is as much government as national government, and the police and many other persons are exercising governmental functions…’ (Lord Reid in Cassell and Co Ltd v Broome [1972] AC 1027, pp 1086, 1087, 1088). Do exemplary damages compensate the plaintiff or do they simply give the plaintiff a windfall? Is Parliament intending to abolish exemplary damages? Can a defendant insure against liability for exemplary damages? (Cf draft Damages Bill 1997.) ‘Exemplary damages are anomalous. Indeed, it is difficult to find any satisfactory basis for allowing such damages against a small local authority and refusing them against a powerful international company. But the anomaly exists and governmental bodies, including local authorities, are treated as being in a special category. I do not find it possible to accept the suggestion that when the applicant was being interviewed the committee were carrying out some private function of the council… Cases where exemplary damages are justified will be rare, probably very rare. Before awarding such damages the court or tribunal will need to consider whether the conduct which is criticised falls within one of the special categories… It will also have to consider whether the award of compensatory damages, including aggravated damages, is not by itself sufficient to punish the defendant…’ (Neill LJ in Bradford City Council v Arora [1991] 2 QB 507, pp 518, 519). Are public bodies not in a different position from the private body? Do not organs of the State have a special duty to conform to the law? Exemplary damages cannot be awarded in contract: Addis v Gramophone Co Ltd [1909] AC 488. Why not? (But cf Mahmud v BCCI, below, p 322.) Can punitive (exemplary) damages be awarded in negligence and/or trespass cases? John v MGN Ltd [1997] QB 586 Court of Appeal (See p 685.)

(e) Personal injury Wright v British Railways Board [1983] 2 AC 773 House of Lords Lord Diplock:… My Lords, claims for damages in respect of personal injuries constitute a high proportion of civil actions that are started in the courts in this country. If all of them proceeded to trial the administration of civil justice would break down; what prevents this is that a high proportion of them are 311

Sourcebook on Obligations and Remedies settled before they reach the expensive and time-consuming stage of trial, and an even higher proportion of claims, particularly the less serious ones, are settled before the stage is reached of issuing and serving a writ. This is only possible if there is some reasonable degree of predictability about the sum of money that would be likely to be recovered if the action proceeded to trial. The principal characteristics of actions for personal injuries that militate against predictability as to the sum recoverable are, first, that the English legal system requires that any judgment for tort damages, not being a continuing tort, shall be for one lump sum to compensate for all loss sustained by the plaintiff in consequence of the defendant’s tortious act whether such loss be economic or non-economic, and whether it has been sustained during the period prior to the judgment or is expected to be sustained thereafter. The second characteristic is that non-economic loss constitutes a major item in the damages. Such loss is not susceptible of measurement in money. Any figure at which the assessor of damages arrives cannot be other than artificial and, if the aim is that justice meted out to all litigants should be even-handed instead of depending on idiosyncrasies of the assessor, whether jury or judge, the figure must be ‘basically a conventional figure derived from experience and from awards in comparable cases’. So Lord Denning MR put it, speaking for a unanimous five-member Court of Appeal in Ward v James… The Court of Appeal, with its considerable case load of appeals in personal injury actions and the relatively recent experience of many of its members in trying such cases themselves, is, generally speaking, the tribunal best qualified to set the guidelines for judges currently trying such actions, particularly as respects non-economic loss… As regards assessment of damages for non-economic loss in personal injury cases, the Court of Appeal creates the guidelines as to the appropriate conventional figure by increasing or reducing awards of damages made by judges in individual cases for various common kinds of injuries. Thus, so called ‘brackets’ are established broad enough to make allowance for circumstances which make the deprivation suffered by an individual plaintiff in consequence of the particular kind of injury greater or less than in the general run of cases, yet clear enough to reduce the unpredictability of what is likely to be the most important factor in arriving at settlement of claims…

Notes and questions 1

‘In an action for personal injuries the damages are always divided into two main parts. First, there is what is referred to as special damage, which has to be specially pleaded and proved. This consists of out-of-pocket expenses and loss of earnings incurred down to the date of trial, and is generally capable of substantially exact calculation. Secondly, there is general damage which the law implies and is not especially pleaded. This includes compensation for pain and suffering and the like, and, if the injuries suffered are such as to lead to continuing or permanent disability, 312

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compensation for loss of earning power in the future…’ (Lord Goddard in British Transport Commission v Gourley [1956] AC 185, p 206). To what extent is general damage compensation for mental injury? ‘[R]ecent cases show the desirability of three things: First, assessability: In cases of grave injury…the award must basically be a conventional figure, derived from experience or from awards in comparable cases. Secondly, uniformity… Thirdly, predictability…’ (Lord Denning MR in Ward v James [1966] 1 QB 273, pp 299–300). Why have these three principles been ignored for so long in defamation cases? Would it be cheaper, fairer and more efficient if liability for serious personal injury was placed on a no-fault basis? Does it depend upon the source of the personal injury (traffic, industrial and/or medical accidents, for example)? What about accidents in the home? What view do civil law systems take? (Cf Zweigert and Kötz, An Introduction to Comparative Law, 3rd edn, 1998, OUP (trans Weir), pp 646–84.) Let us assume that law is a science and that the law of damages is a scientific rationalisation of a particular phenomenon. What is the phenomenon? Is it the actual injury suffered by a plaintiff, or is it some mathematical figure set by the Court of Appeal? If the latter, does this not mean that law is the object (that is, the phenomenon) of its own science?

(f) Fraud Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 Court of Appeal Lord Denning MR:… Damages for fraud and conspiracy are assessed differently from damages for breach of contract… On principle, the distinction seems to be this: in contract, the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far again, as money can do it… Archer v Brown [1985] QB 401 Queen’s Bench Division (See p 60.) Smith New Court Securities Ltd v Scrimgeour Vickers Ltd [1997] AC 254 House of Lords This was an action for damages in the tort of deceit against a defendant who had induced, by fraudulent misrepresentation, the plaintiffs to buy shares at a price which, soon after the purchase, dropped considerably. The trial judge awarded damages of over £10 million, but this was reduced to just over £1 million by the Court of Appeal. The House of Lords reinstated the trial judge’s award.

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Sourcebook on Obligations and Remedies Lord Browne-Wilkinson:… The damages issue which is the subject matter of the appeal raises for decision for the first time in your Lordships’ House the question of the correct measure of damages where a plaintiff has acquired property in reliance on a fraudulent misrepresentation made by the defendant. The position in the present case is complicated by the fact that there are two frauds involved. The first, ‘Roberts fraud’, is the fraudulent representation made by Mr Roberts on behalf of Citibank on 21 July 1989 which induced Smith to buy 28, 141, 424 Ferranti shares for £23, 141, 424. The second, ‘Guerin fraud’, is the fraud practised by Mr Guerin on Ferranti. Although the Guerin fraud was committed before 21 July 1989, its existence was unknown to Citibank, Smith, Ferranti and the market until after that date. Shortly stated, the question is who should bear the risk of the Guerin fraud: Smith (which still held the Ferranti shares when the Guerin fraud was discovered) or Citibank, which by its servant had fraudulently induced Smith to buy the Ferranti shares … The decision which restated the law correctly is Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158. In that case, the plaintiff had been induced by the fraudulent misrepresentation of the defendant to buy an ironmonger’s business for £4,500 plus stock at a valuation of £5,000. Shortly after purchase, he discovered the fraud and started the action. But despite this, he had to remain in occupation: ‘he had burned his boats and had to carry on with the business as best he could.’… The damages awarded by the Court of Appeal in that case were calculated (admittedly on a rough and ready basis as to the figures) as follows, pp 169– 70. The plaintiff was treated as having lost £9,500, the price paid for the business and stock. Against this, he had to give credit for £3,500, that is, not for the value of the business at the transaction date, but for the amount he actually received on the resale of the business three years later. To this £3,500 there were added other benefits which he had received so as to give a total of £7,000 benefits received to be set against the sum lost of £9,500, that is, a balance of loss of £2,500. In addition, the plaintiff was awarded by way of consequential damages the sum of £3,000 in respect of liabilities incurred by him in running the business. Thus, the total award for direct and consequential damages was £5,500. Doyle v Olby (Ironmongers) Ltd establishes four points. First, that the measure of damages where a contract has been induced by fraudulent misrepresentation is reparation for all the actual damage directly flowing from (that is, caused by) entering into the transaction. Second, that in assessing such damages it is not an inflexible rule that the plaintiff must bring into account the value as at the transaction date of the asset acquired: although the point is not adverted to in the judgments, the basis on which the damages were computed shows that there can be circumstances in which it is proper to require a defendant only to bring into account the actual proceeds of the asset provided that he has acted reasonably in retaining it. Third, damages for deceit are not limited to those which were reasonably foreseeable. Fourth, the damages recoverable can include consequential loss suffered by reason of having acquired the asset.

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Remedies In my judgment, Doyle v Olby (Ironmongers) Ltd was rightly decided on all these points. It is true, as to the second point, that there were not apparently cited to the Court of Appeal the 19th century cases which established the ‘inflexible rule’ that the asset acquired has to be valued as at the transaction date: the successful appellant was not legally represented. But, in my judgment, the decision on this second point is correct. The old ‘inflexible rule’ is both wrong in principle and capable of producing manifest injustice. The defendant’s fraud may have an effect continuing after the transaction is completed, for example, if a sale of gold shares was induced by a misrepresentation that a new find had been made which was to be announced later it would plainly be wrong to assume that the plaintiff should have sold the shares before the announcement should have been made. Again, the acquisition of the asset may, as in Doyle v Olby (Ironmongers) Ltd itself, lock the purchase into continuing to hold the asset until he can effect a resale. To say that in such a case the plaintiff has obtained the value of the asset as at the transaction date and must therefore bring it into account flies in the face of common sense: how can he be said to have received such a value if, despite his efforts, he has been unable to sell? Doyle v Olby (Ironmongers) Ltd has subsequently been approved and followed by the Court of Appeal in East v Maurer [1991] 1 WLR 461 and Downs v Chappell [1997] 1 WLR 426. In both cases, the plaintiffs had purchased a business as a going concern in reliance on the defendant’s fraudulent misrepresentation. In each case, after discovery of the fraud, they sold the business at a loss and recovered by way of damages the difference between the original purchase price and the price eventually realised on a resale, that is, the old date of transaction rule was not applied. In Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 your Lordships treated the measure of damages for fraud as being in a special category regulated by the principles of Doyle v Olby (Ironmongers) Ltd. Turning for a moment away from damages for deceit, the general rule in other areas of the law has been that damages are to be assessed as at the date the wrong was committed. But recent decisions have emphasised that this is only a general rule: where it is necessary in order adequately to compensate the plaintiff for the damage suffered by reason of the defendant’s wrong a different date of assessment can be selected. Thus in the law of contract, the date of breach rule ‘is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances’: per Lord Wilberforce in Johnson v Agnew [1980] AC 367, p 401 A. Similar flexibility applies in assessing damages for conversion (IBL Ltd v Coussens [1991] 2 All ER 133) or for negligence (Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433)… In the light of these authorities, the old 19th century cases can no longer be treated as laying down a strict and inflexible rule. In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it

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Sourcebook on Obligations and Remedies thereafter is entirely up to him, freed from any continuing adverse impact of the defendant’s wrongful act. The transaction date rule has one manifest advantage, namely that it avoids any question of causation. One of the difficulties of either valuing the asset at a later date or treating the actual receipt on realisation as being the value obtained is that difficult questions of causation are bound to arise. In the period between the transaction date and the date of valuation or resale other factors will have influenced the value or resale price of the asset. It was the desire to avoid these difficulties of causation which led to the adoption of the transaction date rule. But in cases where property has been acquired in reliance on a fraudulent misrepresentation, there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired. Finally, it must be emphasised that the principle in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, strict though it is, still requires the plaintiff to mitigate his loss once he is aware of the fraud. So long as he is not aware of the fraud, no question of a duty to mitigate can arise. But once the fraud has been discovered, if the plaintiff is not locked into the asset and the fraud has ceased to operate on his mind, a failure to take reasonable steps to sell the property may constitute a failure to mitigate his loss requiring him to bring the value of the property into account as at the date when he discovered the fraud or shortly thereafter. In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property: (1) the defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset; or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property; (6) in addition, the plaintiff is entitled to recover consequential losses caused by the transaction; (7) the plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud. Before seeking to apply those principles to the present case, there are two points I must make. First, in Downs v Chappell [1997] 1 WLR 426, Hobhouse LJ having quantified the recoverable damage very much along the lines that

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Remedies I have suggested, sought to cross-check his result by looking to see what the value of the business would have been if the misrepresentations had been true and then comparing that value to the contract price. Whilst Hobhouse LJ accepted that this was not the correct measure of damages, he was seeking to check that the plaintiff was not being compensated for a general fall in market prices (for which the defendant was not accountable) rather than for the wrong done to him by the defendant. In my view, such a cross-check is not likely to be helpful and is conducive to over-elaboration both in the evidence and in argument. Second, in Royscot Trust Ltd v Rogerson [1991] 2 QB 297 the Doyle v Olby (Ironmongers) Ltd measure of damages was adopted in assessing damages for innocent misrepresentation under the Misrepresentation Act 1967. I express no view on the correctness of that decision… In the circumstances, it would not in my judgment compensate Smith for the actual loss they have suffered (that is, the difference between the contract price and the resale price eventually realised) if Smith were required to give credit for the shares having a value of 78p on 21 July 1989. Having acquired the shares at 82p for stock Smith could not commercially have sold on that date at 78p. It is not realistic to treat Smith as having received shares worth 78p each when in fact, in real life, they could not commercially have sold or realised the shares at that price on that date. In my judgment, this is one of those cases where to give full reparation to Smith, the benefit which Smith ought to bring into account to be set against its loss for the total purchase price paid should be the actual resale price achieved by Smith when eventually the shares were sold… For these reasons I would hold that the damages recoverable amount to £11, 352, 220 being the difference between the contract price and the amount actually realised by Smith on the resale of the shares. However, as there was no appeal by Smith against the judge’s assessment of the damages at £10, 764, 005, Smith’s claim must be limited to that latter amount. I would therefore allow the appeal and restore the judge’s order. Lord Steyn:… That brings me to the question of policy whether there is a justification for differentiating between the extent of liability for civil wrongs depending on where in the sliding scale from strict liability to intentional wrongdoing the particular civil wrong fits in. It may be said that logical symmetry and a policy of not punishing intentional wrongdoers by civil remedies favour a uniform rule. On the other hand, it is a rational and defensible strategy to impose wider liability on an intentional wrongdoer. As Hart and Honoré, Causation in the Law, 2nd edn, 1985, p 304, observed, an innocent plaintiff may, not without reason, call on a morally reprehensible defendant to pay the whole of the loss he caused. The exclusion of heads of loss in the law of negligence, which reflects considerations of legal policy, does not necessarily avail the intentional wrongdoer. Such a policy of imposing more stringent remedies on an intentional wrongdoer serves two purposes. First, it serves a deterrent purpose in discouraging fraud. Counsel for Citibank argued that the sole purpose of the law of tort generally, and the tort of deceit in particular, should be to compensate the victims of civil wrongs. That is far too narrow a view. Professor Glanville Williams identified four possible purposes of an action for damages in tort: appeasement, justice,

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Sourcebook on Obligations and Remedies deterrence and compensation: see The aims of the law of tort’ (1951) 4 CLP 137. He concluded, p172: Where possible the law seems to like to ride two or three horses at once; but occasionally a situation occurs where one must be selected. The tendency is then to choose the deterrent purpose for tort of intention, the compensatory purpose for other torts. And in the battle against fraud, civil remedies can play a useful and beneficial role. Secondly, as between the fraudster and the innocent party, moral considerations militate in favour of requiring the fraudster to bear the risk of misfortunes directly caused by his fraud. I make no apology for referring to moral considerations. The law and morality are inextricably interwoven. To a large extent the law is simply formulated and declared morality. And, as Oliver Wendell Holmes, The Common Law (ed M De W Howe), p 106, observed, the very notion of deceit with its overtones of wickedness is drawn from the moral world. The old cases For more than 100 years at least English law has adopted a policy of imposing more extensive liability on intentional wrongdoers than on merely careless defendants. This policy was trenchantly spelt out by Lord Blackburn in Livingstone v Rawyards Coal Co (1880) 5 App Cas 25. He said, p 39: There could be no doubt that there you would say that everything would be taken into view that would go most against the wilful wrongdoer. Many things which you would properly allow in favour of an innocent mistaken trespasser would be disallowed as against a wilful and intentional trespasser on the ground that he must not qualify his own wrong, and various things of that sort. Since Victorian times there have been great developments in our law of obligations. But there has been no retreat from the policy spelt out by Lord Blackburn. On the other hand, the way in which the law can distinguish between the intentional wrongdoer and a man who caused loss by a foolish but honest mistake was not worked out clearly in the old cases. Pasley v Freeman (1789) 3 Durn E 51, decided more than 200 years ago, marks the emergence of the tort of deceit. In cases framed in deceit the measure of damages was held to involve ascertainment of the ‘real’ or ‘face’ value of the shares at the time of allotment or purchase… Except for some useful general observations on valuation as a method of measuring loss, and the explanation of the inquiry into a past hypothetical event in the sense of the valuation of shares absent the fraud, I do not think those cases help much… Doyle v Olby (Ironmongers) Ltd Eventually, the idea took root that an intentional wrongdoer is not entitled to the benefit of the reasonable foreseeability test of remoteness. He is to be held liable in respect of ‘the actual damage directly flowing from the fraudulent inducement’: see the obiter dictum of Lord Atkin in Clark v Urquhart [1930] AC 28, p 68…

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Remedies The logic of the decision in Doyle v Olby (Ironmongers) Ltd justifies the following propositions. (1) The plaintiff in an action for deceit is not entitled to be compensated in accordance with the contractual measure of damage, that is, the benefit of the bargain measure. He is not entitled to be protected in respect of his positive interest in the bargain. (2) The plaintiff in an action for deceit is, however, entitled to be compensated in respect of his negative interest. The aim is to put the plaintiff into the position he would have been in if no false representation had been made. (3) The practical difference between the two measures was lucidly explained in a contemporary case note on Doyle v Olby (Ironmongers) Ltd: Treitel, ‘Damages for deceit’ (1969) 32 MLR 556, pp 558–59. The author said: If the plaintiff’s bargain would have been a bad one, even on the assumption that the representation was true, he will do best under the tortious measure. If, on the assumption that the representation was true, his bargain would have been a good one, he will do best under the first contractual measure (under which he may recover something even if the actual value of what he has recovered is greater than the price). (4) Concentrating on the tort measure, the remoteness test whether the loss was reasonably foreseeable had been authoritatively laid down in The Wagon Mound in respect of the tort of negligence a few years before Doyle v Olby (Ironmongers) Ltd was decided: Overseas Tankship (UK) Ltd v Morts Dock Engineering Co Ltd (The Wagon Mound) [1961] AC 388. Doyle v Olby (Ironmongers) Ltd settled that a wider test applies in an action for deceit. (5) The dicta in all three judgments, as well as the actual calculation of damages in Doyle v Olby (Ironmongers) Ltd, make clear that the victim of the fraud is entitled to compensation for all the actual loss directly flowing from the transaction induced by the wrongdoer. That includes heads of consequential loss. (6) Significantly in the present context the rule in the previous paragraph is not tied to any process of valuation at the date of the transaction. It is squarely based on the overriding compensatory principle, widened in view of the fraud to cover all direct consequences. The legal measure is to compare the position of the plaintiff as it was before the fraudulent statement was made to him with his position as it became as a result of his reliance on the fraudulent statement. Doyle v Olby (Ironmongers) Ltd was subsequently applied by the Court of Appeal in two Court of Appeal decisions: East v Maurer [1991] 1 WLR 461 and Smith Kline French Laboratories Ltd v Long [1989] 1 WLR 1. East v Maurer is of some significance since it throws light on a point which arose in argument. Counsel for Citibank argued that in the case of a fraudulently induced sale of a business, loss of profits is only recoverable on the basis of the contractual measure and never on the basis of the tort measure applicable to fraud. This is an oversimplification. The plaintiff is not entitled to demand that the defendant must pay to him the profits of the business as represented. On the other hand, East v Maurer shows that an award based on the hypothetical profitable business in which the plaintiff would have engaged but for deceit is permissible: it is classic consequential loss. Turning to the Smith Kline case, it has been suggested that the Doyle v Olby (Ironmongers) Ltd rule was wrongly applied: Burrows, Remedies for Torts and Breach of Contract, 2nd edn, 1994, pp 173–74. The correctness of that comment I need not examine. In my view, it is

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Sourcebook on Obligations and Remedies sufficient to say that the principles emerging from Doyle v Olby (Ironmongers) Ltd are good law. Side-tracking At the risk of being side-tracked I must now refer to two Court of Appeal decisions which were discussed in argument. In Royscot Trust Ltd v Rogerson [1991] 2 QB 297 the Court of Appeal held that under s 2(1) of the Misrepresentation Act 1967 damages in respect of an honest but careless representation are to be calculated as if the representation had been made fraudulently. The question is whether the rather loose wording of the statute compels the court to treat a person who was morally innocent as if he was guilty of fraud when it comes to the measure of damages. There has been trenchant academic criticism of the Royscot case: see Richard Hooley, ‘Damages and the Misrepresentation Act 1967’ (1991) 107 LQR 547. Since this point does not directly arise in the present case, I express no concluded view on the correctness of the decision in the Royscot case. The second case is the decision of the Court of Appeal in Downs v Chappell [1997] 1 WLR 426. The context is the rule that in an action for deceit the plaintiff is entitled to recover all his loss directly flowing from the fraudulently induced transaction. In the case of a negligent misrepresentation the rule is narrower: the recoverable loss does not extend beyond the consequences flowing from the negligent misrepresentation: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191. In Downs v Chappell [1997] 1 WLR 426, Hobhouse LJ applied this narrower rule to an action for deceit. He enunciated the following ‘qualification’ of the conventional rule, p 443: In my judgment, having determined what the plaintiffs have lost as a result of entering into the transaction, their contract with Mr Chappell it is still appropriate to ask the question whether that loss can properly be treated as having been caused by the defendants’ torts, notwithstanding that the torts caused the plaintiffs to enter into the transaction. That led Hobhouse LJ, p 444, ‘to compare the loss consequent upon entering into the transaction with what would have been the position had the represented, or supposed, state of affairs actually existed’. The correctness of this proposition in a case of deceit was debated at the Bar. Counsel for Citibank in whose interest it was to adopt this proposition felt some difficulty in doing so. In my view, the orthodox and settled rule that the plaintiff is entitled to all losses directly flowing from the transaction caused by the deceit does not require a revision. In other words, it is not necessary in an action for deceit for the judge, after he had ascertained the loss directly flowing from the victim having entered into the transaction, to embark on a hypothetical reconstruction of what the parties would have agreed had the deceit not occurred. The rule in deceit is justified by the grounds already discussed. I would hold that on this point Downs v Chappell was wrongly decided… Causation So far, I have discussed in general terms the scope of a fraudster’s liability in accordance with the rule identified with Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158. It is now necessary to consider separately the three limiting 320

Remedies principles which, even in a case of deceit, serve to keep wrongdoers’ liability within practical and sensible limits. The three concepts are causation, remoteness and mitigation. In practice, the inquiries under these headings overlap. But they are distinct legal concepts. For present purposes causation is the most important. The major issue in the present case is whether there is a causal link between the fraud and the loss arising by reason of the preexisting fraud perpetrated on Ferranti. How should this matter be approached? The development of a single satisfactory theory of causation has taxed great academic minds: see Hart and Honoré, Causation in the Law, and Honoré, ‘Necessary and sufficient conditions in tort law’, in Owen, Philosophical Foundations of Tort Law, p 363. But, as yet, it seems to me that no satisfactory theory capable of solving the infinite variety of practical problems has been found. Our case law yields few secure footholds. But it is settled that at any rate in the law of obligations causation is to be categorised as an issue of fact. What has further been established is that the ‘but for’ test, although it often yields the right answer, does not always do so. That has led judges to apply the pragmatic test whether the condition in question was a substantial factor in producing the result. On other occasions, judges assert that the guiding criterion is whether in common sense terms there is a sufficient causal connection: see Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691, p 706, per Lord Wright. There is no material difference between these two approaches. While acknowledging that this hardly amounts to an intellectually satisfying theory of causation, that is how I must approach the question of causation. Remoteness and mitigation The second limiting principle is remoteness. I have already discussed the special rule of remoteness developed by the courts in the context of deceit. This requirement is in issue in the present case: if there is a sufficient causal link it must still be shown that the entire loss suffered by Smith is a direct consequence of the fraudulently induced transaction. The third limiting principle is the duty to mitigate. The plaintiff is not entitled to damages in respect of loss which he could reasonably have avoided. This limiting principle has no special features in the context of deceit. There is no issue under this heading and I need say no more about it…

Questions 1 2

3

If the law of damages is about compensation (restitutio in integrum), ought not the behaviour of the defendant to be irrelevant? Is an action for damages founded upon s 2(1) of the Misrepresentation Act 1967 technically an action in the tort of deceit? If so, will damages be awarded on the basis of fraud? (Cf Royscot Trust Ltd v Rogerson [1991] 2 QB 297.) In the Ruxley case (p 301), if the breach of contract had been deliberate, would the court have had little difficulty in awarding the £21,560 damages?

321

Sourcebook on Obligations and Remedies Mahmud v BCCI [1998] AC 20 House of Lords Lord Nicholls: My Lords, this is another case arising from the disastrous collapse of Bank of Credit and Commerce International SA in the summer of 1991. Thousands of people around the world suffered loss. Depositors lost their money, employees lost their jobs. Two employees who lost their jobs were Mr Raihan Nasir Mahmud and Mr Qaiser Mansoor Malik. They were employed by BCCI in London. They claim they lost more than their jobs. They claim that their association with BCCI placed them at a serious disadvantage in finding new jobs. So in March 1992 they sought to prove for damages in the winding up of BCCI. The liquidators rejected this ‘stigma’ head of loss in their proofs. Liability for notice money and statutory redundancy pay was not in dispute… A dishonest and corrupt business These questions are best approached by focusing first on the particular conduct of which complaint is made. The bank operated its business dishonestly and corruptly. On the assumed facts, this was not a case where one or two individuals, however senior, were behaving dishonestly. Matters had gone beyond this. They had reached the point where the bank itself could properly be identified with the dishonesty. This was a dishonest business, a corrupt business. It is against this background that the position of an innocent employee has to be considered. In my view, when an innocent employee of the bank learned the true nature of the bank’s business, from whatever source, he was entitled to say: ‘I wish to have nothing more to do with this organisation. I am not prepared to help this business, by working for it. I am leaving at once.’ This is my intuitive response in the case of all innocent employees of the business, from the most senior to the most junior, from the most long serving to the most recently joined. No one could be expected to have to continue to work with and for such a company against his wish. This intuitive response is no more than a reflection of what goes without saying in any ordinary contract of employment, namely, that in agreeing to work for an employer the employee, whatever his status, cannot be taken to have agreed to work in furtherance of a dishonest business. This is as much true of a doorkeeper or cleaner as a senior executive or branch manager. An implied obligation Two points can be noted here. First, as a matter of legal analysis, the innocent employee’s entitlement to leave at once must derive from the bank being in breach of a term of the contract of employment which the employee is entitled to treat as a repudiation by the bank of its contractual obligations. That is the source of his right to step away from the contract forthwith. In other words, and this is the necessary corollary of the employee’s right to leave at once, the bank was under an implied obligation to its employees not to conduct a dishonest or corrupt business. This implied obligation is no more than one particular aspect of the portmanteau, general obligation not to engage in conduct likely to undermine the trust and confidence required if the employment relationship is to continue in the manner the employment 322

Remedies contract implicitly envisages. Second, I do not accept the liquidators’ submission that the conduct of which complaint is made must be targeted in some way at the employee or a group of employees. No doubt that will often be the position, perhaps usually so. But there is no reason in principle why this must always be so. The trust and confidence required in the employment relationship can be undermined by an employer, or indeed an employee, in many different ways. I can see no justification for the law giving the employee a remedy if the unjustified trust-destroying conduct occurs in some ways but refusing a remedy if it occurs in others. The conduct must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer. That requires one to look at all the circumstances. Breach The objective standard just mentioned provides the answer to the liquidators’ submission that unless the employee’s confidence is actually undermined there is no breach. A breach occurs when the proscribed conduct takes place: here, operating a dishonest and corrupt business. Proof of a subjective loss of confidence in the employer is not an essential element of the breach, although the time when the employee learns of the misconduct and his response to it may affect his remedy. Remedies: (1) acceptance of breach as repudiation The next step is to consider the consequences which flow from the bank being in breach of its obligation to its innocent employees by operating a corrupt banking business. The first remedy of an employee has already been noted. The employee may treat the bank’s conduct as a repudiatory breach, entitling him to leave. He is not compelled to leave. He may choose to stay. The extent to which staying would be more than an election to remain, and would be a waiver of the breach for all purposes, depends on the circumstances. I need say no more about waiver in the present case. The assumed facts do not state whether the appellants first learned of the corrupt nature of BCCI after their dismissal on 3 October 1991, or whether they acquired this knowledge earlier, in the interval of three months between the appointment of the provisional liquidators on 5 July 1991 and 3 October 1991. If anything should turn on this, the matter can be investigated further in due course. In the nature of things, the remedy of treating the conduct as a repudiatory breach, entitling the employee to leave, can only avail an employee who learns of the facts while still employed. If he does not discover the facts while his employment is still continuing, perforce this remedy is not open to him. But this does not mean he has no remedy. In the ordinary course breach of a contractual term entitles the innocent party to damages. Remedies: (2) damages Can an employee recover damages for breach of the trust and confidence term when he first learns of the breach after he has left the employment? The answer to this question is inextricably bound up with the further question of what damages are recoverable for a breach of this term. In turn, the answer 323

Sourcebook on Obligations and Remedies to this further question is inextricably linked with one aspect of the decision in Addis v Gramophone Co Ltd [1909] AC 488. At first sight, it seems almost a contradiction in terms that an employee can suffer recoverable loss if he first learns of the trust-destroying conduct after the employment contract has already ended for other reasons. But of the many forms which trust-destroying conduct may take, some may have continuing adverse financial effects on an employee even after his employment has ceased. In such a case the fact that the employee only learned of the employer’s conduct after the employment had ended ought not, in principle, to be a bar to recovery. If it were otherwise, an employer who conceals a breach would be better placed than an employer who does not… Addis v Gramophone Co Ltd Against this background I turn to the much discussed case of Addis v Gramophone Co Ltd [1909] AC 488. Mr Addis, it will be recalled, was wrongfully and contumeliously dismissed from his post as the defendant’s manager in Calcutta. At trial he was awarded damages exceeding the amount of his salary for the period of notice to which he was entitled. The case is generally regarded as having decided, echoing the words of Lord Loreburn LC, p 491, that an employee cannot recover damages for the manner in which the wrongful dismissal took place, for injured feelings or for any loss he may sustain from the fact that his having been dismissed of itself makes it more difficult for him to obtain fresh employment. In particular, Addis’s case is generally understood to have decided that any loss suffered by the adverse impact on the employee’s chances of obtaining alternative employment is to be excluded from an assessment of damages for wrongful dismissal… In my view, [Lord Loreburn’s] observations cannot be read as precluding the recovery of damages where the manner of dismissal involved a breach of the trust and confidence term and this caused financial loss. Addis v Gramophone Co Ltd was decided in the days before this implied term was adumbrated. Now that this term exists and is normally implied in every contract of employment, damages for its breach should be assessed in accordance with ordinary contractual principles. This is as much true if the breach occurs before or in connection with dismissal as at any other time… Breach of contract and reputation I must now turn to two submissions made concerning injury to reputation. The liquidators submitted that injury to reputation is protected by the law of defamation. The boundaries set by the tort of defamation are not to be sidestepped by allowing a claim in contract that would not succeed in defamation: see Lonrho plc v Fayed (No 5) [1993] 1 WLR 1489, p 1496, per Dillon LJ. Here, it was submitted, a claim in defamation would not succeed: the bank made no defamatory statements, either referring to the applicants or at all. This submission is misconceived. I agree that the cause of action known to the law in respect of injury to reputation is the tort of defamation. With certain exceptions this tort provides a remedy, where the necessary ingredients are present, whether or not the injury to a person’s reputation causes financial loss. No proof of actual damage 324

Remedies is necessary, and damages are at large. If, as a result of the injury to his reputation the plaintiff does in fact suffer financial loss, this may be recoverable in a defamation action as ‘special damage’. All this is commonplace. It by no means follows, however, that financial loss which may be recoverable as special damage in a defamation action is irrecoverable as damages for breach of contract. If a breach of contract gives rise to financial loss which on ordinary principles would be recoverable as damages for breach of contract, those damages do not cease to be recoverable because they might also be recoverable in a defamation action. There can be no justification for artificially excising from the damages recoverable for breach of contract that part of the financial loss which might or might not be the subject of a successful claim in defamation… Furthermore, the fact that the breach of contract injures the plaintiff’s reputation in circumstances where no claim for defamation would lie is not, by itself, a reason for excluding from the damages recoverable for breach of contract compensation for financial loss which on ordinary principles would be recoverable. An award of damages for breach of contract has a different objective: compensation for financial loss suffered by a breach of contract, not compensation for injury to reputation. Sometimes, in practice, the distinction between damage to reputation and financial loss can become blurred. Damage to the reputation of professional persons, or persons carrying on a business, frequently causes financial loss. None the less, the distinction is fundamentally sound, and when awarding damages for breach of contract courts take care to confine the damages to their proper ambit: making good financial loss. In Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209, p 220, when considering an award of damages to an actor who should have been billed to appear at the London Hippodrome, Lord Buckmaster regarded loss of publicity rather than loss of reputation as the preferable expression. In Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788, pp 796–97, where aerial advertising (‘Eat Batchelors Peas’) took place during Armistice Day services, Atkinson J was careful to confine damages to the financial loss flowing from public boycotting of the defendant’s goods and to exclude damages for loss of reputation. Lord Denning MR drew the same distinction in GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555, p 573… Conclusion For these reasons I would allow these appeals. The agreed set of assumed facts discloses a good cause of action. Unlike the courts below, this House is not bound by the observations in Addis v Gramophone Co Ltd [1909] AC 488 regarding irrecoverability of loss flowing from the manner of dismissal, or by the decision in Withers v General Theatre Corporation Ltd [1933] 2 KB 536… Lord Steyn: My Lords, the applicants, two employees of a bank, were summarily dismissed on grounds of redundancy. Subsequently it became public knowledge that the bank had been operating in a dishonest manner. Relying on an alleged breach of an implied obligation of mutual trust and confidence, the applicants submitted claims to the liquidators of the bank for 325

Sourcebook on Obligations and Remedies so called stigma compensation. The claims were rejected. The issue at first instance, in the Court of Appeal and before your Lordships’ House, was whether on assumed facts the claims were in principle sustainable… The implied term of mutual trust and confidence The applicants do not rely on a term implied in fact. They do not therefore rely on an individualised term to be implied from the particular provisions of their employment contracts considered against their specific contextual setting. Instead they rely on a standardised term implied by law, that is, on a term which is said to be an incident of all contracts of employment: Scatty v Southern Health and Social Services Board [1992] 1 AC 294, p 307B. Such implied terms operate as default rules. The parties are free to exclude or modify them. But it is common ground that in the present case the particular terms of the contracts of employment of the two applicants could not affect an implied obligation of mutual trust and confidence… The evolution of the implied term of trust and confidence is a fact. It has not yet been endorsed by your Lordships’ House. It has proved a workable principle in practice. It has not been the subject of adverse criticism in any decided cases and it has been welcomed in academic writings. I regard the emergence of the implied obligation of mutual trust and confidence as a sound development… Remoteness and mitigation In order to succeed at trial the applicants will have to establish not only a breach of the obligation, which caused them financial loss, but also that such loss is not too remote. It was not argued that remoteness on the test posed in Hartley v Baxendale (1854) 9 Exch 341 is an answer to the claims. That is not surprising; it is a matter of fact whether the claims in this case are too remote. It is at least arguable that they are not too remote. Mitigation is, of course, another potential limiting principle to the employees’ claims. But that issue also does not arise on the appeal. The availability of the remedy of damages In considering the availability of the remedy of damages it is important to bear in mind that the applicants claim damages for financial loss. That is the issue. It will be recalled that the Court of Appeal decided the case against the applicants on the basis that there is a positive rule debarring the recovery of damages in contract for injury to an existing reputation, and that in truth the two applicants were claiming damages for injury to their previously existing reputations… The true ratio decidendi of the House of Lords’ decision in Addis v Gramophone Co Ltd has long been debated. Some have understood it as authority for the proposition that an employee may not recover damages even for pecuniary loss caused by a breach of contract of the employer which damages the employment prospects of an employee. If Addis’s case establishes such a rule it is an inroad on traditional principles of contract law. And any such restrictive rule has been criticised by distinguished writers: Treitel, The Law of Contract, 9th edn, 1995, p 893; Burrows, Remedies for Torts and Breach of Contract, 2nd edn, 1994, pp 221–25. Moreover, it has been pointed out that 326

Remedies Addis’s case was decided in 1909 before the development of modern employment law, and long before the evolution of the implied mutual obligation of trust and confidence… In my judgment…the authorities relied on by Morritt LJ do not on analysis support his conclusion. Moreover, the fact that in appropriate cases damages may in principle be awarded for loss of reputation caused by breach of contract is illustrated by a number of cases which Morritt LJ discussed: Aerial Advertising Co v Batchelors Peas Ltd (Manchester) [1938] 2 All ER 788; Foaminol Laboratories Ltd v British Artid Plastics Ltd [1941] 2 All ER 393 and Anglo-Continental Holidays Ltd v Typaldos Lines (London) Ltd [1967] 2 Lloyd’s Rep 61. But, unlike Morritt LJ, I regard these cases not as exceptions but as the application of ordinary principles of contract law. Moreover, it is clear that a supplier who delivers contaminated meat to a trader can be sued for loss of commercial reputation involving loss of trade: see Cointax v Myham Son [1913] 2 KB 220 and GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555. Rhetorically, one may ask, why may a bank manager not sue for loss of professional reputation, if it causes financial loss flowing from a breach of the contract of employment? The speeches of the majority of the House of Lords in Spring v Guardian Assurance plc [1995] 2 AC 296 are also instructive. In that case, the majority held that a former employee could recover damages for financial loss which he suffered as a result of his employer’s negligent preparation of a reference. The reference affected his reputation. The majority considered that, if the reference had been given while the plaintiff was still employed, his claim could have been brought in contract. On that hypothesis he could have sued in contract for damage to his reputation. The dicta in Spring v Guardian Assurance plc show that there is no rule preventing the recovery of damages for injury to reputation where that injury is caused by a breach of contract. The principled position is as follows. Provided that a relevant breach of contract can be established, and the requirements of causation, remoteness and mitigation can be satisfied, there is no good reason why in the field of employment law recovery of financial loss in respect of damage to reputation caused by breach of contract is necessarily excluded. I am reinforced in this view by the consideration that such losses are in principle recoverable in respect of unfair dismissal: see s 123(1) of the Employment Rights Act 1996 and Norton Tool Co Ltd v Tewson [1973] 1 WLR 45, pp 50–51. It is true that the relevant statute does not govern the appeals under consideration. But in the search for the correct common law principle one is not compelled to ignore the analogical force of the statutory dispensation: see Professor Jack Beatson, ‘Has the common law a future?’, inaugural lecture delivered on 29 April 1996 (1997), CUP pamphlet, pp 23–43. Not only does legal principle not support the restrictive principle, which prevailed in the Court of Appeal, but there are no sound policy reasons for it. The effect of my conclusions Earlier, I drew attention to the fact that the implied mutual obligation of trust and confidence applies only where there is ‘no reasonable and proper cause’ for the employer’s conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence. That circumscribes the potential reach and scope of the implied obligation. Moreover, even if the employee can establish a breach of this obligation, it does not follow that he will be able to recover damages for injury to his employment prospects. The Law Commission has pointed out that loss of 327

Sourcebook on Obligations and Remedies reputation is inherently difficult to prove: Consultation Paper No 132 on Aggravated, Exemplary and Restitutionary Damages, p 22, para 2.15. It is, therefore, improbable that many employees would be able to prove ‘stigma compensation’. The limiting principles of causation, remoteness and mitigation present formidable practical obstacles to such claims succeeding. But difficulties of proof cannot alter the legal principles which permit, in appropriate cases, such claims for financial loss caused by breach of contract being put forward for consideration. Conclusion I would therefore allow the appeals. [Lords Goff and Mackay agreed with Lord Nicholls and Lord Steyn; Lord Mustill agreed with Lord Steyn.]

(g) Damages for wrongful interference Torts (Interference with Goods) Act 1977 (c 32) 2

Abolition of detinue (1) (2)

3

Detinue is abolished. An action lies in conversion for loss or destruction of goods which a bailee has allowed to happen in breach of his duty to his bailor (that is to say it lies in a case which is not otherwise conversion, but would have been detinue before detinue was abolished).

Forms of judgment where goods are detained (1) (2)

In proceedings for wrongful interference against a person who is in possession or in control of the goods relief may be given in accordance with this section, so far as appropriate. The relief is(a) (b)

(c) (3)

Subject to rules of court(a) (b)

(4)

an order for delivery of the goods, and for payment of any consequential damages, or an order for delivery of the goods, but giving the defendant the alternative of paying damages by reference to the value of the goods, together in either alternative with payment of any consequential damages, or damages.

relief shall be given under only one of paragraphs (a), (b) and (c) of subsection (2), relief under paragraph (a) of subsection (2) is at the discretion of the court, and the claimant may choose between the others.

If it is shown to the satisfaction of the court that an order under subsection (2)(a) had not been complied with, the court may(a) (b)

revoke the order, or the relevant part of it, and make an order for payment of damages by reference to the value of the goods… 328

Remedies IBL Ltd v Coussens [1991] 2 All ER133 Court of Appeal Neill LJ:… At common law, an action in conversion was purely a personal action and it resulted in a judgment for pecuniary damages only. An action in detinue however…was akin to an action in rem and was appropriate where the plaintiff sought specific restitution of his chattel. Before the Common Law Procedure Act 1854, a plaintiff who wished to insist on the return of his chattel had to have recourse to Chancery… It is to be observed that the 1977 Act does not give any guidance as to the date at which the value of the goods is to be assessed… In considering any award of damages in an action in tort it is necessary to bear in mind the general principle which was restated by Brandon LJ in Brandeis… At the same time, it is necessary to bear in mind that where the goods are irreversibly converted and are not recovered the general rule is that the measure of damages is the value of the goods at the time of conversion… I have come to the conclusion that if one takes account of all these considerations and the fact that several different remedies are available under s 3 of the 1977 Act it is not possible, or indeed appropriate, to attempt to lay down any rule which is intended to be of universal application as to the date by reference to which the value of goods is to be assessed. The method of valuation and the date of valuation will depend on the circumstances. Inverugie Investments Ltd v Hackett [1995] 1WLR 713 Privy Council Lord Lloyd: This is in form an ordinary claim for mesne profits, that is to say a claim for damages for trespass to land. But the facts are unusual, since the land consists of 30 specified apartments in a much larger hotel. The hotel is owned by the defendants, Inverugie Investments Ltd. The plaintiff, the late Mr Richard Hackett, was the lessee of the apartments under a lease dated 5 June 1970 for a term of 99 years. On 25 November 1974, the plaintiff was ejected by the defendants. On 6 March 1975, he brought proceedings for possession. Those proceedings culminated on 19 December 1984 when the Board dismissed the defendants’ appeal against a decision of the Court of Appeal of the Commonwealth of the Bahamas in favour of the plaintiff. Despite a further order granted by Malone J on 23 June 1986 requiring the defendants to give up possession forthwith, they did not do so until 12 April 1990. The trespass thus lasted for a continuous period of 15 years. The question for decision is the appropriate measure of damages. Mr Mowbray [counsel for the plaintiff] made clear to the Board, as he had already made clear in the courts below, that the plaintiff is claiming a reasonable rent for the apartments throughout the period of the trespass. This is the basis on which damages for mesne profits are awarded every day in the county courts. The plaintiff is not asking for an account of profits, perhaps because the hotel was running at a loss, as the defendants have maintained throughout. He is not asserting a restitutionary claim as an independent cause of action. So the point which divided the Court of Appeal in Ministry of Defence v Ashman [1993] 2 EGLR 102, and the interesting theoretical questions discussed in Part VII of the Law Commission Consultation Paper on Aggravated, Exemplary and Restitutionary Damages (1993) (Consultation Paper No 132) do not arise for decision. They have not 329

Sourcebook on Obligations and Remedies been argued. Mr Price, for the defendants, accepts that the plaintiff is entitled to a reasonable rent. Accordingly, on the arguments presented, no issue of legal principle arises. The problem is how a reasonable rent should be calculated. In the ordinary case, where the plaintiff is the landlord of domestic premises, and the defendant is or was the tenant, this creates no difficulty. The reasonable rent is almost always the rent reserved under the expiring lease. The difficulty in the present case arises because the facts are the other way round. It is the tenant who is the plaintiff, and the defendants who are the reversioners under the lease… Before stating their own conclusions on the facts, their Lordships should say a brief word on the law. The cases to which they have already referred establish, beyond any doubt, that a person who lets out goods on hire, or the landlord of residential property, can recover damages from a trespasser who has wrongfully used his property whether or not he can show that he would have let the property to anybody else, and whether or not he would have used the property himself. The point is well expressed by Megaw LJ in Swordheath Properties Ltd v Tabet [1979] 1 WLR 285, p 288: It appears to me to be clear, both as a matter of principle and of authority, that in a case of this sort the plaintiff, when he has established that the defendant has remained on as a trespasser in residential property, is entitled, without bringing evidence that he could or would have let the property to someone else in the absence of the trespassing defendant, to have as damages for the trespass the value of the property as it would fairly be calculated; and, in the absence of anything special in the particular case it would be the ordinary letting value of the property that would determine the amount of damages. It is sometimes said that these cases are an exception to the rule that damages in tort are compensatory. But this is not necessarily so. It depends how widely one defines the loss’ which the plaintiff has suffered. As the Earl of Halsbury LC pointed out in Mediana (Owners of Steamship) v Comet (Owners of Lightship) [1900] AC 113, p 117, it is no answer for a wrongdoer who has deprived the plaintiff of his chair to point out that he does not usually sit in it or that he has plenty of other chairs in the room. In Stoke-on-Trent City Council v WJ Wass Ltd [1988] 1 WLR 1406, Nicholls LJ called the underlying principle in these cases the ‘user principle’. The plaintiff may not have suffered any actual loss by being deprived of the use of his property. But under the user principle he is entitled to recover a reasonable rent for the wrongful use of his property by the trespasser. Similarly, the trespasser may not have derived any actual benefit from the use of the property. But under the user principle he is obliged to pay a reasonable rent for the use which he has enjoyed. The principle need not be characterised as exclusively compensatory, or exclusively restitutionary; it combines elements of both. If this is the correct principle, how does it apply to the facts of the present case? Mr Mowbray argues that it makes no difference whether there were 30 apartments, or only one. If there had been only one, the defendants would 330

Remedies have been obliged to pay a reasonable rent for the use of the apartment for 365 days in the year, even though the apartment might not be taken by a tour operator, or otherwise occupied, for more than 35% of the time. The same must apply, says Mr Mowbray, to each of the 30 apartments. Mr Price argues that the unusual facts of the present case take it outside the normal rule. The defendants are hotel operators. If one assumes that the parties had negotiated a notional rent for the 30 apartments as a whole, they would have taken account of the average occupancy. What has to be valued is the chance of the defendants making a profit from the letting of the 30 apartments to tour operators, not the rent which an individual operator would pay per apartment. On the basis of $3 per day per apartment—the figure calculated by the registrar—a hotel proprietor would not have been prepared to pay more than $400 per apartment per year. In this way Mr Price arrives at $159,360 as the appropriate measure of damages. The point is not altogether easy. But their Lordships have concluded that Mr Mowbray’s argument is to be preferred. If a man hires a concrete mixer, he must pay the daily hire, even though he may not in the event have been able to use the mixer because of rain. So also must a trespasser who takes the mixer without the owner’s consent. He must pay the going rate, even though in the event he has derived no benefit from the use of the mixer. It makes no difference whether the trespasser is a professional builder or a do-it-yourself enthusiast. The same applies to residential property. In the present case the defendants have had the use of all 30 apartments for 15 years. Applying the user principle, they must pay the going rate, even though they have been unable to derive actual benefit from all the apartments for all the time. The fact that the defendants are hotel operators does not take the case out of the ordinary rule. The plaintiff is not asking for an account of profits. The chance of making a profit from the use of the apartments is not the correct test for arriving at a reasonable rent. It follows that their Lordships cannot agree with the judgment of the majority in the court below…

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What interests are protected by ‘consequential damages’? Is the term equivalent to the civilian term damnum emergens? If so, does this mean a failure to make a gain (lucrum cessans) is excluded? Why should damages in the tort of conversion be measured by the value of the goods converted? Is not the role of an action for damages to compensate for loss? Why should damages be awarded in trespass for a loss that was not incurred? ‘If a wrongdoer has made use of goods for his own purpose, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss… The claim for a hiring charge is…not based on the loss to the plaintiff, but on the fact that the defendant has used the goods for his own 331

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purposes. It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution, rather than an action of tort’ (Denning LJ in Strand Electric and Engineering Ltd v Brisford Entertainments Ltd [1952] 2 QB 246, pp 254–55). Given that damages are designed to compensate for loss, would it not be better to see an action for a hiring charge, or sometimes an action for damages in trespass, as a claim in debt? ‘[W]hat was in effect held in [the Strand Electric] case was that, in the case of conversion of a profit earning chattel which a defendant has used for his own benefit, the owner can recover by way of damages a hire charge plus either the return of the chattel or, if there has been a subsequent conversion by disposal, the value of the chattel at the date of such conversion… Although damages for conversion normally consist in the value of the goods at the date of conversion, consequential damages are always recoverable if not too remote… What the plaintiffs have lost is the use of the car over the whole period from the original conversion until ultimate return’ (Parker J in Hillesden Securities v Ryjack [1983] 1 WLR 959, p 963). Why should owners of profit earning chattels be treated more favourably by the law of damages than owners of non-profit earning chattels? Is it the role of the law of tort to protect expectation interests? ‘In the field of tort, there are areas where the law is different and the plaintiff can recover in respect of the defendant’s gain. Thus, in the field of trespass it is well established that if one person has, without leave of another, been using that other’s land for his own purposes he ought to pay for such user… So, in a case of detinue the defendant was ordered to pay a hire for chattels he had detained: Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd…’ (Dillon LJ in Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361, p 1365). Should tort continue to play this unjust enrichment role now that there appears to be an independent category of restitution? (Cf Chapter 8.)

(h) Loss of a chance Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602 Court of Appeal Stuart-Smith LJ: This is an appeal by the defendants from a judgment of Turner J given on 8 June 1993 on the trial of a preliminary issue as to liability. The plaintiffs are a subsidiary of Asda Group plc and are the retailing arm of that group which is concerned with carpets, furniture and soft furnishings. The defendants are a well known firm of solicitors in the City of London with extensive experience in the field of company takeovers and mergers. The proceedings arise from the takeover by the plaintiffs of assets and businesses within the Gillow group of companies. 332

Remedies The plaintiffs brought this action complaining that in the course of the negotiation of the takeover and in the agreement itself they were insufficiently advised in respect of, and protected from, the liabilities that might and did eventuate from leases originally held by one of the companies in the Gillow group and which had been assigned by it prior to the date of the takeover agreement. This species of liability is referred to as ‘first tenant liability’… In these circumstances, where the plaintiffs’ loss depends upon the actions of an independent third party, it is necessary to consider as a matter of law what it is necessary to establish as a matter of causation, and where causation ends and quantification of damage begins. (1) What has to be proved to establish a causal link between the negligence of the defendants and the loss sustained by the plaintiffs depends in the first instance on whether the negligence consists of some positive act or misfeasance, or an omission or non-feasance. In the former case, the question of causation is one of historical fact. The court has to determine on the balance of probability whether the defendant’s act, for example the careless driving, caused the plaintiff’s loss consisting of his broken leg. Once established on balance of probability, that fact is taken as true and the plaintiff recovers his damage in full. There is no discount because the judge considers that the balance is only just tipped in favour of the plaintiff, and the plaintiff gets nothing if he fails to establish that it is more likely than not that the accident resulted in the injury. Questions of quantification of the plaintiff’s loss, however, may depend upon future uncertain events. For example, whether and to what extent he will suffer osteoarthritis, whether he will continue to earn at the same rate until retirement, whether, but for the accident, he might have been promoted. It is trite law that these questions are not decided on a balance of probability, but rather on the court’s assessment, often expressed in percentage terms, of the risk eventuating or the prospect of promotion, which it should be noted depends in part at least on the hypothetical acts of a third party, namely the plaintiff’s employer. (2) If the defendant’s negligence consists of an omission, for example to provide proper equipment, given proper instructions or advice, causation depends, not upon a question of historical fact, but on the answer to the hypothetical question, what would the plaintiff have done if the equipment had been provided or the instruction or advice given? This can only be a matter of inference to be determined from all the circumstances. The plaintiff’s own evidence that he would have acted to obtain the benefit or avoid the risk, while important, may not be believed by the judge, especially if there is compelling evidence that he would not. In the ordinary way, where the action required of the plaintiff is clearly for his benefit, the court has little difficulty in concluding that he would have taken it. But in many cases the risk is not obvious and the precaution may be tedious or uncomfortable, for example the need to use ear-defenders in noisy surroundings or breathing apparatus in dusty ones. It is unfortunately not unknown for workmen persistently not to wear them even if they are available 333

Sourcebook on Obligations and Remedies and known to be so. A striking example of this is McWilliams v Sir William Arrol and Co Ltd [1962] 1 WLR 295; the employers failed in breach of their statutory duty to provide a safety belt for the deceased steel erector. But his widow failed in her claim under the Factories Act 1937, because there was compelling evidence that, even if it had been provided, he would not have worn it. Although the question is a hypothetical one, it is well established that the plaintiff must prove on balance of probability that he would have taken action to obtain the benefit or avoid the risk. But again, if he does establish that, there is no discount because the balance is only just tipped in his favour. In the present case the plaintiffs had to prove that if they had been given the right advice, they would have sought to negotiate with Gillow to obtain protection. The judge held that they would have done so. I accept Mr Jackson’s [counsel for the defendants] submission that, since this is a matter of inference, this court will more readily interfere with a trial judge’s findings than if it was one of primary fact. But, even so, this finding depends to a considerable extent on the judge’s assessment of Mr Harker and Mr Moore, both of whom he saw and heard give evidence for a considerable time. Moreover, in my judgment there was ample evidence to support the judge’s conclusion. Mr Jackson’s attack on this finding was, as I have explained, something of an afterthought and not, I think, undertaken with great enthusiasm. I am quite unable to accede to it. (3) In many cases the plaintiff’s loss depends on the hypothetical action of a third party, either in addition to action by the plaintiff, as in this case, or independently of it. In such a case, does the plaintiff have to prove on balance of probability, as Mr Jackson submits, that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff, or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages? Although there is not a great deal of authority, and none in the Court of Appeal, relating to solicitors failing to give advice which is directly in point, I have no doubt that Mr Jackson’s submission is wrong and the second alternative is correct. In Chaplin v Hicks [1911] 2 KB 786 the defendant’s breach of contract prevented the plaintiff from taking part in a beauty contest and deprived her of the chance of winning one of the prizes. The Court of Appeal upheld the judge’s award on the basis that, while there was no certainty that she would have won, she lost the chance of doing so. In Kitchen v Royal Air Force Association [1958] 1 WLR 563 the defendant solicitors negligently failed to issue a writ against the tortfeaser with the result that the plaintiff’s claim was statute barred. The Court of Appeal upheld the judge’s award of £2,000, which was two-thirds of the full liability value of the claim. The court firmly rejected the defendant’s contention that she had to establish on a balance of probability that she would have won the action… Mr Jackson made two submissions on those authorities. First, that they should be confined to cases where the plaintiff has lost a valuable right or chose in action; in the present case he said that the plaintiffs had no such right. It is true that in 334

Remedies Chaplin v Hicks [1911] 2 KB 786 both Vaughan Williams and Fletcher Moulton LJJ referred to the plaintiff losing a valuable right, but I can see no difference in principle between the chance of gaining a benefit and the chance of avoiding a liability. Secondly, Mr Jackson submitted that the plaintiffs can only succeed if in fact the chance of success can be rated at over 50%… In Spring v Guardian Assurance plc [1995] 2 AC 296, the House of Lords held that an employer who negligently gave a bad reference for the plaintiff, their ex-employee, might be liable to him in damages. The case was remitted to the Court of Appeal for the assessment of damages, the plaintiffs case being in essence that he failed to obtain employment with a third party because of the adverse reference. The defendant’s case was that the third party would not have employed him anyway. Lord Lowry expressed the opinion obiter, p 327: Once the duty of care is held to exist and the defendants’ negligence is proved, the plaintiff only has to show that by reason of that negligence he has lost a reasonable chance of employment (which would have to be evaluated) and has thereby sustained loss: McGregor on Damages, 14th edn, 1980, pp 198–202, paras 276–78; and Chaplin v Hicks [1911] 2 KB 786. He does not have to prove that, but for the negligent reference, Scottish Amicable would have employed him. I respectfully agree with that statement of the law… Hobhouse LJ:… Negotiations may depend upon the will of the parties and neither party was under any obligation at that stage to agree anything. But it is unrealistic to treat the outcome of further negotiation between commercial parties as arbitrary and wholly unpredictable. Those with experience of commercial negotiation are able, with a reasonable degree of accuracy, to form a view of what can be achieved by such negotiation. The present was such a case. It is possible to make an informed judgment of what the chances were of achieving certain results. The situation is certainly less speculative than that in Chaplin v Hicks [1911] 2 KB 786 (the beauty competition case) or Dunbar v A and B Painters Ltd [1986] 2 Lloyd’s Rep 38 (the underwriters’ waiver case)… Millett LJ (dissenting in part): I have had the advantage of reading in draft the judgment of Stuart-Smith LJ. I agree with his analysis of the law and with much of his reasoning. I do not, however, accept that it was open to the judge on the evidence before him to find that the plaintiffs had a substantial or measurable chance of persuading Gillow to accept the reinstatement of warranty 29 or to offer any other protection against the risk of what has been called first tenant liability; and I have the gravest doubt whether the plaintiffs would ever be in a position to call such evidence. But for the unsatisfactory procedural history of the proceedings, I would have allowed the appeal and dismissed the action… A plaintiff who sues for negligence must establish (i) the existence of a duty of care, (ii) breach of that duty and (iii) loss resulting from that breach. The plaintiffs came to trial prepared to prove only (i) and (ii). This was a mistake, since the court had not ordered the trial of these as preliminary issues as it 335

Sourcebook on Obligations and Remedies might have done. It had merely ordered that the issue of liability should be tried before the assessment of damages. In order to obtain an order for the assessment of damages (in the Queen’s Bench Division) or for an inquiry as to damages (in the Chancery Division), however, it is not sufficient for the plaintiff to establish a breach of duty on the part of the defendant. He must also identify some head of loss which is alleged to have resulted from the breach and, if it is not of a kind which would naturally result from the breach, establish a causal link between the breach and the loss. Only once he has done this is he entitled to have the loss quantified. The plaintiffs succeeded in establishing the existence of a duty on the part of the defendants to give them specific advice in relation to the consequences of the deletion of warranty 29 and breach of that duty. They also identified two possible heads of loss. The first was the net loss which the plaintiffs had sustained by entering into the transaction. In order to recover this loss, the plaintiffs would have to establish that, had they received proper advice from the defendants, they would not have entered into the transaction at all unless warranty 29 was reinstated or replaced by some other protection whether total or partial against the risk of first tenant liability. Since this would depend on what they themselves would have done in a hypothetical situation, the plaintiffs would have to establish this on a balance of probabilities but, if they succeeded, they would not suffer any diminution of damages to allow for the possibility that they might have proceeded with the transaction without the desired protection: see Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113; Lillicrap v Nalder and Son [1993] 1 WLR 94, p 99. The judge dismissed the plaintiffs’ claim in respect of this head of loss; he found that, if the worst had come to the worst, it was improbable that the plaintiffs would not have proceeded with the deal even without the necessary protection. That left the second head of loss: the chance that, if properly advised, the plaintiffs might have succeeded in persuading the defendants to agree to reinstate warranty 29 or to provide some other total or partial protection against the risk of first tenant liability. This depended on (i) whether the plaintiffs would have sought to reopen the negotiations to obtain such protection and (ii) whether and if so how far they would have been successful. The first of these again depended on what the plaintiffs themselves would have done in a hypothetical situation and accordingly had to be established on a balance of probabilities. The judge thought that it had been so established, and I agree with Stuart-Smith LJ that there was evidence to support his conclusion. That, however, was all that the plaintiffs came to court prepared to prove. They evidently believed that the question whether and to what extent Gillow would have acceded to the plaintiffs’ request could be left to the assessment of damages. In my view they were in error. It was incumbent on them to establish, at the very least, that there was a chance that Gillow would have been receptive to their request, and in my opinion this was not something which could simply be inferred… The reported cases on the loss of a chance may be grouped into three categories. There are first those cases where the outcome is not dependent on the unrestricted volition of a third party, since his decision must be 336

Remedies justifiable by objective criteria. Into this category fall the cases of the loss of the right to be a finalist in a competition (Chaplin v Hicks [1911] 2 KB 786) or to bring legal proceedings (Kitchen v Royal Air force Association [1958] 1 WLR 563). In these cases the plaintiff has clearly lost something of value and its value must be assessed, however difficult the task may be. The prospects of ultimate success (or, in the case of litigation, of receiving an offer of settlement) may be less than 50%, but they are nevertheless capable of objective evaluation. Secondly, there are those cases where the outcome depends upon whether a third party who had been properly advised would have acted in accordance with his own best interests. Kitchen v Royal Air Force Association [1958] 1 WLR 563 and Otter v Church, Adams, Tatham and Co [1953] Ch 280 must be classified in this category, though it was probably wrong to treat it as a case of a loss of a chance at all. In these cases there is obviously a very strong probability that the third party would have acted in his own interests, and accordingly the plaintiff is likely to be awarded the full amount of his damages less a discount to allow for the possibility that something might have occurred to prevent his doing so. Thirdly, there are cases where the outcome appears to depend on the unrestricted volition of a third party but there are objective considerations which make it possible to predicate how he would have acted. Into this category fall Hall v Meyrick [1957] 2 QB 455 (where the outcome depended on whether a man who had already made a will in favour of his fiancée would have made a fresh will in her favour after his marriage to her if advised that this had had the effect of revoking it—clearly a strong likelihood and such as to make the case virtually indistinguishable from the second category); Dunbar v A and B Painters Ltd [1986] 2 Lloyd’s Rep 38 (where the outcome depended on whether an insurance company would act against its commercial interests; again unlikely and virtually indistinguishable from the second category); and Richardson v Mellish (1824) 2 Bing 229 (where evidence of the third party’s customary practice was available). Spring v Guardian Assurance plc [1995] 2 AC 296 probably falls into this category. These cases only have to be described to demonstrate how very different is the present case. The chance of which the plaintiffs complain they have been deprived is the chance of persuading Gillow to act against their own interests by reinstating a warranty which their own solicitors had already struck out or to give some other protection against a risk for which their own solicitors had not thought fit to provide. Gillow might have yielded to the plaintiffs’ demand, of course, particularly if they believed (wrongly) that they might lose the deal if they did not. But there are no objective criteria by which the chance can be evaluated. Gillow would no doubt have consulted their solicitors. If so, they would if correctly advised have learnt that it was not standard conveyancing practice for vendors to give the protection which the plaintiffs were seeking: vendors sometimes gave it but often did not; and the decision whether to accommodate the plaintiffs was a commercial one for Gillow to make. The outcome would then have depended on Gillow’s perception of the relative strength of the parties’ bargaining positions, the extent of the risk which they were being asked to assume and the effect on the deal if they refused. These are all subjective matters; none of them is known and none can be inferred… The ‘chance’ of which the plaintiffs claim to have been deprived is the chance that they might have negotiated better 337

Sourcebook on Obligations and Remedies terms from their vendors. In the absence of evidence from Gillow, what would have been the outcome of such negotiations is a matter of pure speculation. No case has gone so far as to allow damages in such a situation, and in my view it would be wrong to do so. The nearest is Davies v Taylor [1974] AC 207, where the outcome depended on whether a married couple who had separated would have had a reconciliation; it was held that this was too speculative to sound in damages. I call to mind the words of Vaughan Williams LJ in Chaplin v Hicks [1911] 2 KB 786, pp 792–93: There are cases, no doubt, where the loss is so dependent on the mere unrestricted volition of another that it is impossible to say that there is any assessable loss resulting from the breach. In my judgment, this is just such a case. Accordingly, but for the unfortunate procedural history of the proceedings I would have allowed the appeal and dismissed the action. But, having regard to the way in which the proceedings were conducted below, I have no doubt that the plaintiffs should be allowed a further opportunity to prove, if necessary by calling witnesses from Gillow and Theodore Goddard, that there was a real and substantial chance that Gillow would have yielded. It may well be that Gillow will be unable to answer the hypothetical question, in which case the action should in my opinion be dismissed. It will not avail the plaintiffs if Gillow say: ‘We might have yielded; we might not. It is really not possible to say.’ That does not lead to the conclusion that there was a 50% chance, or any substantial chance: it is still all speculation. Nor will it avail the plaintiffs to obtain apparent admissions from Gillow that: ‘Of course we might have yielded; so there was a chance,’ and then to drive the witness into hazarding a percentage by asking: ‘A 50% chance? 40%? 30%?’ until he reluctantly accepts a figure. That would not be inviting the witness to give evidence, but to speculate. Nevertheless, it is theoretically possible that further evidence could establish the facts one way or the other, and I agree that such evidence should not be shut out…

Questions 1

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P contracts dermatitis, which he believes was caused by the hot and dusty conditions of his workplace. P sues D, his employer, for damages but cannot prove conclusively that his dermatitis was caused by D’s workplace conditions. Can P claim, instead, that D’s behaviour has deprived P of a chance of being free of dermatitis? (Cf McGhee v NCB [1973] 1 WLR 1.) P fell out of a tree and the resulting injury had, at the time of the actual injury, a 75% chance of developing into a permanent disability. The hospital, however, carelessly failed to diagnose the correct problem and proper treatment was delayed, increasing the chance of permanent disability to 100%. Can P claim that the negligence of the hospital has

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deprived him of a 25% chance of recovery from permanent disability? (Cf Hotson v East Berkshire HA [1987] AC 750.) Is loss of a chance simply a causation problem or does it equally involve how one envisages a res (that is a ‘thing’ lost)?

(i) The limitation of liability Principles of European Contract Law (See p 294.) Hadley v Baxendale (1854) 156 ER 145 Court of Exchequer Alderson B:… We think the proper rule in such a case as the present is this. Where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, that is, according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it. If special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract which they would reasonably contemplate would be the amount of injury which would ordinarily follow from a breach of contract under the special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to the damages in that case; and of this advantage it would be very unjust to deprive them. In the present case, if we are to apply the principles above laid down, we find that the only circumstances here communicated by the plaintiffs to the defendants at the time the contract was made were that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill. But how do these circumstances show reasonably that the profits of the mill must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person? Suppose the plaintiffs had another shaft in their possession and that they only wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the intermediate profits of the mill. It follows, therefore, that the loss of profits here cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract. For such loss would neither have flowed naturally from the breach 339

Sourcebook on Obligations and Remedies of this contract in the great multitude of such cases occurring under ordinary circumstances, nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants. The judge ought, therefore, to have told the jury that, upon the facts there before them, they ought not to take the loss of profits into consideration at all in estimating the damages. There must, therefore, be a new trial in this case.

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This famous case remains the starting point for the measure of damages in actions for breach of contract. It has a European flavour, in that it is generally considered to have been influenced by Pothier and by the rule in CC, Art 1150, which stipulates: ‘A debtor is liable only for damages which were foreseen or which could have been foreseen at the time of the contract, when it is not by his fraud that the obligation is not executed’ (‘Le débiteur n’est tenu que des dommages et interets qui out été prévus ou qu’on a pu prévoir lors du contrat, lorsque ce n’est point par son dol que l’obligation n’est point exécutéé’). However, the use of the word ‘contemplation‘ in Hadley has attracted much attention, since it appears to mean, in the context of a contractual relationship, something different from the word ‘foreseeability’ used, subsequently, in the context of a tort situation (The Heron II [1969] 1 AC 350). Can one contemplate something that the reasonable man would not foresee? Can one foresee something that the reasonable contractor, at the time of the contract, would not contemplate? How would an English court interpret PECL, Art 9:503? How many rules are being formulated by Alderson B? Can one be liable for damage which, although not in the contemplation of the parties at the time of the contract, arises naturally from the breach? What was the plaintiffs expectation interest in Hadley? Did the court protect this interest? If not, what interest did the court protect? P hired a horse from D and used it in battle. The horse proved most unsuitable for war and as a result P was captured and spent five years in captivity. Ought D to be liable for the five years in captivity? Does CC, Art 1150 (above) function as a statutory limitation of liability clause? If so, does this mean that the rule in Hadley v Baxendale is an implied limitation clause? What about PECL, Art 9:503? Diamond v Campbell-Jones [1960] 1 All ER 583 Chancery Division Buckley J: In this case I have to determine the amount of damages payable by the defendants to the plaintiff under a judgment of Harman J… By that judgment it was declared that the defendants had wrongfully repudiated an agreement…for the sale by the defendants to the plaintiff of No 44 Green Street, Mayfair, for £6,000, and an inquiry was directed as to what damages (if any) the plaintiff had suffered as a result of such repudiation…

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Remedies The plaintiff carries on business as a dealer in real estate, and in the course of that business he has bought and converted a number of houses in the centre of London. In his affidavit he says as follows:… The purpose of my acquiring No 44 Green Street, as the defendants at all material times well knew, was to obtain vacant possession so that I could develop the same by sub-division thereof... The plaintiff contends that the proper measure of damages is the profit which it is reasonable to suppose he would have made had he converted the four upper floors into two maisonettes, the ground floor into offices, and the basement into a self-contained flat… The defendants, on the other hand, contend that the proper measure is the difference between the sale price and the market value of the property at the date of their breach of contract. The general rule of common law is that where a party has sustained a loss by reason of a breach of contract he is, so far as money can do it, to be placed by way of damages in the same position as if the contract had been performed… It will be convenient for me to read a very well known passage from… Hadley v Baxendale… [C]ounsel for the plaintiff says that the damage to the plaintiff consequent on the defendants’ repudiation of their contract which the defendants could reasonably have foreseen at the date of the contract depends on the circumstances of which knowledge at the date of the contract ought to be imputed to the defendants. This imputed knowledge, he says, includes the general conditions of everyday life and the general circumstances of the business of the parties. He says that the subject matter of the contract was a house which everyone considered to be fit only for conversion and no longer to be suited to single occupation. He says that it was at least ‘on the cards’ that a purchaser would convert the house before disposing of it. It follows, he says, that if the purchaser in fact intended to do this, and can show that by doing so it was reasonable to suppose that his profit would have been greater than if he had sold the property for its market value at the date of the breach of contract, he is entitled to damages measured by that probable profit. I have had no evidence at all of any such knowledge or of any actual knowledge by the defendants that the plaintiff either intended or was likely to carry out the conversion of the property himself… In some cases the nature or the subject matter of a contract may be such as to make it clear that one of the parties is entering into the contract for the purpose of a particular business, and the circumstances may be such that the court will infer that the other party must have appreciated that this was so. It seems to me, however, that this can rarely be the case where the contract is for the sale of land. The vendor of a shop equipped for use as a butcher’s shop would not, in my judgment, be justified by that circumstance alone in assuming, and ought not to be treated as knowing, that the purchaser would intend to use it for the business of a butcher rather than that of a baker or candlestick-maker. Special circumstances are necessary to justify imputing to a vendor of land a knowledge that the purchaser intends to use it in any particular manner. In my judgment neither the fact that No 44 Green Street was ripe for conversion, nor indeed the fact that everybody recognised this, 341

Sourcebook on Obligations and Remedies was sufficient ground for imputing to the vendors knowledge that the purchaser was a person whose business it was to carry out such conversions, or that he intended, or was even likely, to convert the house himself for profit. For these reasons, in my judgment, the plaintiff is not entitled to damages measured by reference to the profit obtainable by converting the property. The damages should be assessed in accordance with the principle normally applicable to cases of breach of contract for the sale of land, that is to say, by reference to the difference between the purchase price and the market value at the date of the breach of contract. [His Lordship then proceeded to consider the evidence as to the market value in February 1956, of No 44 Green Street and continued:] I hold that the market value of the property at the relevant date was £14,500. The difference between this figure and the purchase price is, accordingly, £8,500… Parsons (Livestock) Ltd v Uttley Ingham and Co [1978] QB 791 Court of Appeal A pig farmer brought an action in damages for breach of s 14 of the Sale of Goods Act against the vendor of a hopper used for storing pig food nuts. The vendor of a hopper had failed to remove, when erecting the hopper on the buyer’s farm, some sticky tape holding the ventilator closed; the closed ventilator could not be seen from the ground and the nuts stored in the hopper went mouldy. The farmer nevertheless continued to feed the nuts to his pigs and, as a result, the herd was decimated by a very rare disease. The Court of Appeal held that the vendor was to be liable in damages not just for the mouldy nuts but also for the death of the pigs. Lord Denning MR:… The judge derived his ‘absolute warranty’ from s 14(1) of the Sale of Goods Act 1893 about reasonable fitness for the purpose. I agree that the warranty in s 14(1) is absolute in this sense: if the goods are unfit owing to a latent defect, which could not be discovered by any amount of care, nevertheless the seller is liable. But I do not think this absoluteness means that the seller is liable for all consequences of a breach, however remote the consequences may be. He is only liable, as s 53(2) of the Act of 1893 says, for ‘the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty’. That section is an attempted codification of the rule in Hadley v Baxendale (1854) 9 Exch 341 and should be so interpreted. But I am not sure that s 14(1) was really appropriate here. The contract was divisible into two parts: the sale of the hopper and the erection of it. Under the second part, the maker was under a duty to use reasonable care in erecting the hopper. But even so, here again the maker would not be liable for all consequences. He would only be liable for such damage ‘as may fairly and reasonably be considered either arising naturally, that is, according to the usual course of things, from such breach’: see Hadley v Baxendale (1854) 9 Exch 341, p 354. That is virtually the same as s 53(2). On either view, therefore, the maker is not liable for all the consequences, but only for such damage as is not too remote in law. So I turn to examine the judge’s findings of fact in regard to it.

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Remedies The judge’s findings of fact As I read the judge’s findings of fact, he was of opinion that the makers of the hopper could reasonably contemplate the following consequences as the result of the breach: (i) that the ventilator would remain closed whilst the hopper was in use; (ii) that the pignuts stored in it would become mouldy for want of proper ventilation; (iii) that the pignuts would be fed to the pigs in a mouldy condition. But the judge, in the important extract I have already read from his judgment, was also of opinion that the makers would not reasonably contemplate that there was a serious possibility that the mouldy nuts would cause the pigs to become ill. There may have been a slight possibility, but not a serious possibility. It was so slight that the plaintiff pig farmers (who fed the nuts to the pigs knowing that they were mouldy) did not themselves feel any concern about feeding the mouldy nuts to the pigs. By making that last finding, the judge has presented us with a nice problem of remoteness of damage. Mr Drake submitted that it means that the plaintiffs should fail. The action is for breach of contract. It has, he says, been held by the House of Lords that a contract-breaker is only liable for the consequences which he may reasonably contemplate as a serious possibility and not for those which he can only foresee as a slight possibility. There is no problem here about causation. The closed ventilator was clearly the cause, or one of the causes, of the deaths of the pigs. There was an unbroken sequence all the way. There was no intervening human action such as gave rise to the discussion on causation in Weld-Blundell v Stephens [1920] AC 956 or Dorset Yacht Co Ltd v Home Office [1970] AC 1004, p 1030. The only problem here is with remoteness of damage. The law as to remoteness Remoteness of damage is beyond doubt a question of law. In C Czarnikow Ltd v Koufos [1969] AC 350 the House of Lords said that, in remoteness of damage, there is a difference between contract and tort. In the case of a breach of contract, the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of making the contract, would contemplate them as being of a very substantial degree of probability. (In the House of Lords various expressions were used to describe this degree of probability, such as, not merely ‘on the cards’ because that may be too low: but as being ‘not unlikely to occur’ (see pp 383 and 388); or likely to result or at least not unlikely to result’ (see p 406); or ‘liable to result’ (see p 410); or that there was a ‘real danger’ or ‘serious possibility’ of them occurring (see p 415).) In the case of a tort, the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of the tort committed, would foresee them as being of a much lower degree of probability. (In the House of Lords various expressions were used to describe this, such as, it is sufficient if the consequences are liable to happen in the most unusual case’ (see p 385); or in a ‘very improbable’ case (see p 389); or that ‘they may happen as a result of the breach, however unlikely it may be, unless it can be brushed aside as far fetched’ (see p 422).)

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Sourcebook on Obligations and Remedies I find it difficult to apply those principles universally to all cases of contract or to all cases of tort, and to draw a distinction between what a man ‘contemplates’ and what he ‘foresees’. I soon begin to get out of my depth. I cannot swim in this sea of semantic exercises—to say nothing of the different degrees of probability—especially when the cause of action can be laid either in contract or in tort. I am swept under by the conflicting currents. I go back with relief to the distinction drawn in legal theory by Professors Hart and Honoré in their book, Causation in the Law, 1959, pp 281–87. They distinguish between those cases in contract in which a man has suffered no damage to person or property, but only economic loss, such as, loss of profit or loss of opportunities for gain in some future transaction: and those in which he claims damages for an injury actually done to his person or damage actually done to his property (including his livestock) or for ensuing expense (damnum emergens) to which he has actually been put. In the law of tort, there is emerging a distinction between economic loss and physical damage: see Spartan Steel Alloys Ltd v Martin Co (Contractors) Ltd [1973] QB 27, pp 36–37. It underlies the words of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, recently, where he classified the recoverable damage as ‘material, physical damage’. It has been much considered by the Supreme Court of Canada in Rivtow Marine Ltd v Washington Iron Works and Walkem Machinery Equipment Ltd [1973] 6 WWR 692 and by the High Court of Australia in Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 51 ALGR 270. It seems to me that in the law of contract, too, a similar distinction is emerging. It is between loss of profit consequent on a breach of contract and physical damage consequent on it. Loss of profit cases I would suggest as a solution that in the former class of case—loss of profit cases—the defaulting party is only liable for the consequences if they are such as, at the time of the contract, he ought reasonably to have contemplated as a serious possibility or real danger. You must assume that, at the time of the contract, he had the very kind of breach in mind—such a breach as afterwards happened, as for instance, delay in transit—and then you must ask: ought he reasonably to have contemplated that there was a serious possibility that such a breach would involve the plaintiff in loss of profit? If yes, the contractor is liable for the loss unless he has taken care to exempt himself from it by a condition in the contract—as, of course, he is able to do if it was the sort of thing which he could reasonably contemplate. The law on this class of case is now covered by the three leading cases of Hadley v Baxendale (1854) 9 Exch 341; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528; and C Czarnikow Ltd v Koufos [1969] 1 AC 350. These were all loss of profit’ cases, and the test of ‘reasonable contemplation’ and ‘serious possibility’ should, I suggest, be kept to that type of loss or, at any rate, to economic loss. Physical damage cases In the second class of case—the physical injury or expense case—the defaulting party is liable for any loss or expense which he ought reasonably to have foreseen at the time of the breach as a possible consequence, even if it was only a slight possibility. You must assume that he was aware of his breach,

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Remedies and then you must ask: ought he reasonably to have foreseen, at the time of the breach, that something of this kind might happen in consequence of it? This is the test which has been applied in cases of tort ever since The Wagon Mound cases [1961] AC 388 and [1967] 1 AC 617. But there is a long line of cases which support a like test in cases of contract. One class of case which is particularly apposite here concerns latent defects in goods: in modern words ‘product liability’. In many of these cases the manufacturer is liable in contract to the immediate party for a breach of his duty to use reasonable care and is liable in tort to the ultimate consumer for the same want of reasonable care. The ultimate consumer can either sue the retailer in contract and pass the liability up the chain to the manufacturer, or he can sue the manufacturer in tort and thus bypass the chain. The liability of the manufacturer ought to be the same in either case. In nearly all these cases the defects were outside the range of anything that was in fact contemplated, or could reasonably have been contemplated, by the manufacturer or by anyone down the chain to the retailers. Yet the manufacturer and others in the chain have been held liable for the damage done to the ultimate user, as for instance the death of the young pheasants in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 and of the mink in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441. Likewise, the manufacturers and retailers were held liable for the dermatitis caused to the wearer in the woollen underwear case of Grant v Australian Knitting Mills Ltd [1936] AC 85, even though they had not the faintest suspicion of any trouble. So were the manufacturers down the chain to the sub-contractors for the disintegrating roofing tiles in Young Marten Ltd v McManus Childs Ltd [1969] 1 AC 454. Another familiar class of case is where the occupier of premises is under the common duty of care, either in pursuance of a contract with a visitor or under the Occupiers’ Liability Act 1957. If he fails in that duty and a visitor is injured, the test of remoteness must be the same no matter whether the injured person enters by virtue of a contract or as a visitor by permission without a contract. No matter whether in contract or tort, the damages must be the same. Likewise, when a contractor is doing work on premises for a tenant—and either the tenant or a visitor is injured—the test of remoteness is the same no matter whether the person injured is a tenant under the contract or a visitor without a contract: see AC Billings Sons Ltd v Riden [1958] AC 240. Yet another class of case is where a hospital authority renders medical services in contract to a paying patient and gratuitously to another patient without any contract. The paying patient can sue in contract for negligence. The poor patient can sue in tort: see Cassidy v Ministry of Health [1951] 2 KB 343, pp 359–60. The test of remoteness should be the same whether the hospital authorities are sued in contract or in tort: see Esso Petroleum Co Ltd v Mardon [1976] QB 801, p 802. Instances could be multiplied of injuries to persons or damage to property where the defendant is liable for his negligence to one man in contract and to another in tort. Each suffers like damage. The test of remoteness is, and should be, the same in both.

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Sourcebook on Obligations and Remedies Coming to the present case, we were told that in some cases the makers of these hoppers supply them direct to the pig farmer under contract with him, but in other cases they supply them through an intermediate dealer— who buys from the manufacturer and resells to the pig farmer on the selfsame terms—in which the manufacturer delivers direct to the pig farmer. In the one case, the pig farmer can sue the manufacturer in contract. In the other, in tort. The test of remoteness should be the same. It should be the test in tort. Conclusion The present case falls within the class of case where the breach of contract causes physical damage. The test of remoteness in such cases is similar to that in tort. The contractor is liable for all such loss or expense as could reasonably have been foreseen, at the time of the breach, as a possible consequence of it. Applied to this case, it means that the makers of the hopper are liable for the death of the pigs. They ought reasonably to have foreseen that, if the mouldy pignuts were fed to the pigs, there was a possibility that they might become ill. Not a serious possibility. Nor a real danger. But still a slight possibility. On that basis the makers were liable for the illness suffered by the pigs. They suffered from diarrhoea at the beginning. This triggered off the deadly E coli. That was a far worse illness than could then be foreseen. But that does not lessen this liability. The type or kind of damage was foreseeable even though the extent of it was not: see Hughes v Lord Advocate [1963] AC 837. The makers are liable for the loss of the pigs that died and of the expenses of the vet and such like, but not for loss of profit on future sales or future opportunities of gain: see Simon v Pawson and Leafs Ltd (1932) 38 Com Cas 151. So I reach the same result as the judge, but by a different route. I would dismiss the appeal. Orr LJ: I agree with Lord Denning MR and also with Scarman LJ, whose judgment I have had the opportunity of reading, that this appeal should be dismissed, but with respect to Lord Denning MR I would dismiss it for the reasons to be given by Scarman LJ and not on the basis that a distinction is to be drawn for the present purposes between loss of profits and physical damage cases. I have not been satisfied that such a distinction is sufficiently supported by the authorities… Scarman LJ:… My conclusion in the present case is the same as that of Lord Denning MR but I reach it by a different route. I would dismiss the appeal. I agree with him in thinking it absurd that the test for remoteness of damage should, in principle, differ according to the legal classification of the cause of action, though one must recognise that parties to a contract have the right to agree on a measure of damages which may be greater, or less, than the law would offer in the absence of agreement. I also agree with him in thinking that, notwithstanding the interpretation put on some dicta in C Czarnikow Ltd v Koufos [1969] AC 350, the law is not so absurd as to differentiate between contract and tort save in situations where the agreement, or the factual relationship, of the parties with each other requires it in the interests of justice. I differ from him only to this extent: the cases do not, in my judgment, support

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Remedies a distinction in law between loss of profit and physical damage. Neither do I think it necessary to develop the law judicially by drawing such a distinction. Of course (and this is a reason for refusing to draw the distinction in law), the type of consequence—loss of profit or market or physical injury—will always be an important matter of fact in determining whether in all the circumstances the loss or injury was of a type which the parties could reasonably be supposed to have in contemplation… The court’s task…is to decide what loss to the plaintiffs it is reasonable to suppose would have been in the contemplation of the parties as a serious possibility had they had in mind the breach when they made their contract… I agree with the judge’s findings that this was a contract for the sale of goods by description made in circumstances in which the plaintiffs had made clear to the defendants that they relied on the defendants’ skill and judgment to supply a hopper reasonably fit for storing pignuts to be fed to the plaintiffs’ pigs. Accordingly, the contract included the following terms: (1) that the hopper would be suitable for the plaintiffs’ requirements—an express term; (2) that the hopper would have a ventilated top—an express term; (3) that the hopper was of merchantable quality—an implied term under s 14(2) of the Sale of Goods Act 1893; and (4) that the hopper was reasonably fit for storing pignuts to be fed to the plaintiffs’ pigs—an implied term under s 14(1) of the Sale of Goods Act 1893. The plaintiffs say that the defendants were in breach of the contract in that the hopper, as delivered, was not suitable for their requirements, did not have a ventilated top, and was not reasonably fit for storing pignuts to be fed to their pigs. They claim damages for the heavy losses they sustained from the death and sickness of a great number of pigs caused by food rendered unfit by bad storage conditions in the unventilated hopper. As I understand Mr Drake for the defendants, he does not challenge the presence in the contract of the terms I have listed. He submits however, that there were two contracts, not one: the sale of the hopper and a contract for its installation. The hopper, he says, complied with the contract. The trouble was that it was installed on site without proper care in that the cowl on the top of the hopper was not adjusted to its lifted, or fully open, position. He admits, therefore, a breach of the installation contract, but denies any breach of the contract of sale. I do not accept Mr Drake’s analysis of two contracts. I think there was only one: for the sale and delivery of a hopper with a ventilated top reasonably fit for the purpose which the plaintiffs had explained to the defendants. But I think that the result of this case must be the same whichever way the contractual position is analysed. The actual or imputed knowledge of the parties was the same whatever the breach which caused the damage. More particularly, the defendants knew that an unventilated hopper was not suitable for the plaintiffs’ requirements, that is, the bulk storage of pignuts in a condition fit to be fed to the plaintiffs’ pigs. It cannot, therefore, matter whether this unsuitability arose from a breach of contract in its installation or from a breach of warranty.

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Sourcebook on Obligations and Remedies At the trial, there developed a very complicated dispute about a great many issues, all of which, save that of remoteness of damage, have ceased to be live issues. But, as can be seen from Swanwick J’s very careful judgment, they bedevilled both the advocates and the witnesses. In particular, Mr Bathurst, fighting hard for his clients, the plaintiffs, had to repel attacks from so many different quarters that he was not always facing the same way or aiming his shafts of argument in the same direction. It is only fair that one should approach the plaintiffs’ evidence, as did the trial judge, bearing in mind that they came to court to meet, inter alia, a defence that the plaintiffs were themselves the cause of their own loss in that they knew or ought to have known that the pignuts were poisonous—a case which assorts ill with the point, which alone is now taken, that the possibility of serious illness arising from the mouldy pignuts was not known or appreciated by anyone, save perhaps a very few experts, at the time of the contract… A formidable volume of expert evidence upon this point was deployed for the consideration of the judge. His finding as to the contemplatability of E coli was as follows: I would not consider that I would be justified in finding that, in the spring of 1971 at the time of the contract, either a farmer in the position of the plaintiffs or a hopper manufacturer in the position of the defendants would reasonably have contemplated that there was either a very substantial degree of possibility or a real danger or serious possibility that the feeding of mouldy pignuts in the condition described by Mr Parsons would cause illness in the pigs that ate them, even on an intensive farm such as that of the plaintiffs. The plaintiffs, by their respondent’s notice, challenge this finding. I have done my best to study the evidence as it appears from the detailed and lucid judgment under appeal. I confess that I think I might well have reached a different conclusion, but bearing in mind the inevitable limitations upon an appellate court’s consideration of such a question and the great advantages available to the judge, and most assuredly used to the full by him, I think it would be wrong to disturb his finding. But it is necessary to note the essence—and the limits—of the finding. It is a finding that the parties could not reasonably be supposed to have had in contemplation that there was a serious possibility of mouldy nuts causing illness in the plaintiffs’ pigs. It is not a finding that they could not reasonably have had in contemplation that a hopper unfit for its purpose of storing food in a condition suitable for feeding to the pigs might well lead to illness… The judge…is contrasting a natural result, that is, one which people placed as these parties were would consider as a serious possibility, with a special, specific result, that is, E coli disease, which, as he later found, the parties could not at the time of contract reasonably have contemplated as a consequence. He distinguished between ‘presumed contemplation’ based on a special knowledge from ordinary understanding based upon general knowledge and concludes that the case falls within the latter category. He does so because he has held that the assumption, or hypothesis, to be made is that the parties had in mind at the time of contract not a breach of warranty limited to the delivery of mouldy nuts but a warranty as to the fitness of the hopper for its purpose. The assumption is of the parties asking themselves 348

Remedies not what is likely to happen if the nuts are mouldy, but what is likely to happen to the pigs if the hopper is unfit for storing nuts suitable to be fed to them. While, on his finding, nobody at the time of contract could have expected E coli to ensue from eating mouldy nuts, he is clearly—and, as a matter of common sense, rightly—saying that people would contemplate, upon the second assumption, the serious possibility of injury and even death among the pigs. And so the question becomes: was he right to make the assumption he did? In my judgment, he was… This is so, in my judgment, not because there is, or ought to be, a specific rule of law governing cases of physical injury but because it would be absurd to regulate damages in such cases upon the necessity of supposing the parties had a prophetic foresight as to the exact nature of the injury that does in fact arise. It is enough if upon the hypothesis predicated physical injury must have been a serious possibility. Though in loss of market or loss of profit cases the factual analysis will be very different from cases of physical injury, the same principles, in my judgment, apply. Given the situation of the parties at the time of contract, was the loss of profit, or market, a serious possibility, something that would have been in their minds had they contemplated breach? It does not matter, in my judgment, if they thought that the chance of physical injury, loss of profit, loss of market, or other loss as the case may be, was slight, or that the odds were against it, provided they contemplated as a serious possibility the type of consequence, not necessarily the specific consequence, that ensued upon breach. Making the assumption as to breach that the judge did, no more than common sense was needed for them to appreciate that food affected by bad storage conditions might well cause illness in the pigs fed upon it. As I read the judgment under appeal, this was how the judge, whose handling of the issues at trial was such that none save one survives for our consideration, reached this decision. In my judgment, he was right, upon the facts as found, to apply the first rule in Hadley v Baxendale (1854) 9 Exch 341 or, if the case be one of breach of warranty, as I think it is, the rule in s 53(2) of the Sale of Goods Act 1893 without inquiring as to whether, upon a juridical analysis, the rule is based upon a presumed contemplation. At the end of a long and complex dispute, the judge allowed common sense to prevail. I would dismiss the appeal.

Notes and questions 1

The law cannot take account of everything that follows a wrongful act; it regards some subsequent matters as outside the scope of its selection… In the varied web of affairs, the law must abstract some consequences as relevant, not perhaps on grounds of pure logic but simply for practical reasons’ (Lord Wright in The Liesbosch [1933] AC 449, p 460). When a court regards certain matters as being outside the scope of its selection, is it saying that there is no causal link between the matters and the wrongful act? What caused the lost profits in Hadley v Baxendale? 349

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6

‘In cases like Hadley v Baxendale or the present case, it is not enough that in fact the plaintiffs loss was directly caused by the defendant’s breach of contract. It clearly was so caused in both. The crucial question is whether …the loss…should have been within his contemplation. The modern rule in tort is quite different and it imposes a much wider liability. The defendant will be liable for any type of damage which is reasonably foreseeable as liable to happen even in the most unusual case…’ (Lord Reid in The Heron II [1969] 1 AC 350, p 385). Is Lord Reid accurate; do not most contractors suffering direct damage get compensated? If the vendor could contemplate the illness of the pigs, why not the farmer? If the farmer should have contemplated the illness of the pigs from mouldy nuts, could it not be said that, by continuing to use the nuts after noticing mould, he caused their death? Why could the seller of the hopper not have pleaded contributory negligence? It is these questions that make Parsons v Uttley Ingham an interesting (although by no means leading) case. The facts raise a paradox: if the defendant argues that they could not foresee or contemplate the illness and/or death of the pigs, then they cannot argue that the farmer should have foreseen or contemplated the illness or deaths. Equally, if the farmer claims that the sellers of the hopper should have contemplated the illness or death, then the farmer is leaving himself open to the accusation that he, also, should have contemplated the possibility. This is why it was better to try to argue that the loss was ‘directly and naturally resulting…from the breach of warranty’ (Sale of Goods Act 1979, s 53(2)). If the court had insisted that, before the seller of the hopper could be liable, he must be found to have contemplated the possibility of the death of the pigs from E coli, would the result of the Parsons case have had to be different? Why did the court not insist on this? Does the approach taken in Parsons differ from the approach taken in Jolley v Sutton LBC (p 626)? How much should the farmer in Parsons get for his dead pigs? Should he get (a) the cost of replacing the pigs; (b) the cost of replacing the pigs plus compensation for the trouble and mental distress at seeing, and clearing up, the dead animals; (c) the sale value of the pigs; (d) the sale value plus compensation for mental distress, etc? Does the distinction between damnum emergens and lucrum cessans have any meaning in the Parsons case? What if a neighbouring farmer had borrowed (mouldy) nuts from the hopper: should he be able to sue either the vendor or buyer of the hopper? How much should the neighbouring farmer get if successful? The Borag [1981] 1 WLR 274 Court of Appeal This was an action for damages brought by the owners of a ship against a contractor who had agreed to manage the ship but who had caused it to be 350

Remedies wrongfully arrested. The owners incurred heavy interest charges in getting the ship released and they claimed these charges as damages. The Court of Appeal held that the interest charges were too remote and unreasonable to be recovered. Lord Denning MR: In this case a vessel was wrongfully arrested. It was afterwards released on the owner providing security. The question is: what is the proper measure of compensation for the owner?… I can understand that in some cases [the] distinction [between damages and mitigation] may be useful and valuable: but for myself, when expenditure is incurred as a result of a wrongful act, the common law has always looked upon it as damages. I need not go through all the cases. In a personal injury case, the medical expenditure incurred is regarded as damages. In damage to property, if you have a lorry or motor car which has been damaged and put out of action, the cost of providing a substitute is not regarded as sums expended in mitigation. It is always regarded as sums recoverable by way of damages for the wrongful act. … It seems to me, as a matter of common sense and common law, that expenditure made to obtain the release of a vessel from arrest should be regarded as an item of damages, and not as mitigation. It is the natural way of dealing with it. … Next there was the question of causation or remoteness. I would agree that the overdraft interest was in a sense a consequence of the unlawful arrest. It flowed from it in the sense that, if there had been no unlawful arrest, the overdraft would not have been incurred. But, as we all know, it is not every consequence of a wrongful act which is the subject of compensation. The law has to draw a line somewhere… Although the overdraft interest may be a consequence of the initial unlawful arrest, is it such a consequence that ought to be visited in damages? Upon this point—I do not care whether you call it ‘causation’ or whether you call it ‘remoteness’—causation and remoteness are two different ways of stating the same question. Is the consequence sufficiently closely connected with the cause as to be the subject of compensation or not? To my mind causation and remoteness here are the same… It comes back to what Templeman LJ said in the first hour or two of hearing this appeal: they are entitled to all the reasonable expenditure which they incurred as a result of the wrongful arrest and getting the ship released; but not ‘unheard-of overdraft interest of this kind… Shaw LJ:… [The umpire] looked at the whole matter as should a man of business who was sufficiently informed in regard to the broad legal principles involved in breach of contract and the right and reasonable basis for compensation for the damage occasioned by a particular breach… Templeman LJ:… The managers, in breach of contract, arrested the owners’ vessel to secure payment of the owners’ debts. The managers became liable for the reasonably foreseeable damages suffered by the owners as a result of that breach of contract…

351

Sourcebook on Obligations and Remedies Whatever principle is invoked—whether it be the principle of causation or mitigation—the acid test in the present circumstances must have been reasonableness; and, if the interest charges were unreasonable, they were not damages for which the managers are liable… [I]f the interest charges were unreasonable—they were too remote; they were not caused by the breach; they were not part of a reasonable form of mitigation—all these matters hang together…

Notes and questions 1 2

3

Is there really no difference between the rules of causation, remoteness and mitigation? (See below, p 359, for mitigation.) English law tackles the difficult problem of causation by splitting it up into a number of quite separate rules and principles (see Samuel and Rinkes, Law of Obligations and Legal Remedies, 1996, Cavendish Publishing, Chapter 7). These different rules function, as it were, at different levels. The first level of operation is actionability: some causes of action are not complete unless the damage has been caused directly (for example, false imprisonment) (Harnett v Bond [1925] AC 669). The second level is that of fact (and, thus, was once in the province of the jury): there must be factual cause and connection between the wrongful act and the damage. Thus, the negligent doctor who fails to save the life of a patient mortally injured by another will not be liable for the patient’s death; only if he caused the death will he be liable (Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 QB 428). The third level is that of law (and, thus, in the province of the judge): even though there might be cause and connection between the wrongful act and the damage, the law might exclude all or part of the damage on the ground that it is too remote (The Wagon Mound (No 1) [1961] AC 388). Here, as we have seen, there appear to be two different tests depending upon whether the claim is in contract (Hadley v Baxendale, above, p 339) or in tort (The Wagon Mound, above). In fact, the position can become more complex when one moves into the area of the property torts and bailment, since remoteness, causation and actionability often become one and the same question: is the defendant liable for the full value of the plaintiffs property stolen in unforeseeable circumstances from the bailee? (Cf Mitchell v Ealing LBC [1979] QB 1.) The fourth level is that of the law of damages: here, it might be said, the rules attach themselves more to the institution of the actio (remedy) rather than to the substantive legal relationship between the parties and, thus, the cases do not, as such, raise questions about the liability itself. It is at this level that contributory negligence and mitigation function. An important defence in the English law of tort is volenti non fit injuria—a plaintiff who consents to damage has no claim. Thus if someone willingly decides to go on an aeroplane flight with a drunken pilot, then the claim 352

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might be barred (although statute prevents this rule applying in respect of motor vehicles) (Morris v Murray [1991] 2 QB 6). A moment’s thought will reveal just how important consent is to the law of tort and, of course, it is an idea that is reflected in contractual exclusion and limitation clauses (see, for example, Photo Productions v Securicor, p 552). At what level does consent function in contract and tort: at the level of actionability, causation or damages? Can a dead person ever be deemed to consent? Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 House of Lords Lord Hoffmann: My Lords, the three appeals before the House raise a common question of principle. What is the extent of the liability of a valuer who has provided a lender with a negligent overvaluation of the property offered as security for the loan? The facts have two common features. The first is that if the lender had known the true value of the property, he would not have lent. The second is that a fall in the property market after the date of the valuation greatly increased the loss which the lender eventually suffered… Because the valuer will appreciate that his valuation, though not the only consideration which would influence the lender, is likely to be a very important one, the law implies into the contract a term that the valuer will exercise reasonable care and skill. The relationship between the parties also gives rise to a concurrent duty in tort: see Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. But the scope of the duty in tort is the same as in contract. A duty of care such as the valuer owes does not however exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. Both of these requirements are illustrated by Caparo Industries plc v Dickman [1990] 2 AC 605. The auditors’ failure to use reasonable care in auditing the company’s statutory accounts was a breach of their duty of care. But they were not liable to an outside takeover bidder because the duty was not owed to him. Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares. Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares. As Lord Bridge of Harwich said, p 627: It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless. In the present case, there is no dispute that the duty was owed to the lenders. The real question in this case is the kind of loss in respect of which the duty was owed. How is the scope of the duty determined? In the case of a statutory duty, the question is answered by deducing the purpose of the duty from the language 353

Sourcebook on Obligations and Remedies and context of the statute: Gorri’s v Scott (1874) LR 9 Ex 125. In the case of tort, it will similarly depend upon the purpose of the rule imposing the duty. Most of the judgments in the Caparo case are occupied in examining the Companies Act 1985 to ascertain the purpose of the auditor’s duty to take care that the statutory accounts comply with the Act. In the case of an implied contractual duty, the nature and extent of the liability is defined by the term which the law implies. As in the case of any implied term, the process is one of construction of the agreement as a whole in its commercial setting. The contractual duty to provide a valuation and the known purpose of that valuation compel the conclusion that the contract includes a duty of care. The scope of the duty, in the sense of the consequences for which the valuer is responsible, is that which the law regards as best giving effect to the express obligations assumed by the valuer: neither cutting them down so that the lender obtains less than he was reasonably entitled to expect, nor extending them so as to impose on the valuer a liability greater than he could reasonably have thought he was undertaking. What therefore should be the extent of the valuer’s liability? The Court of Appeal said that he should be liable for the loss which would not have occurred if he had given the correct advice. The lender having, in reliance on the valuation, embarked upon a transaction which he would not otherwise have undertaken, the valuer should bear all the risks of that transaction, subject only to the limitation that the damage should have been within the reasonable contemplation of the parties. There is no reason in principle why the law should not penalise wrongful conduct by shifting on to the wrongdoer the whole risk of consequences which would not have happened but for the wrongful act. Hart and Honoré, in Causation in the Law, 2nd edn, 1985, p 120, say that it would, for example, be perfectly intelligible to have a rule by which an unlicensed driver was responsible for all the consequences of his having driven, even if they were unconnected with his not having a licence. One might adopt such a rule in the interests of deterring unlicensed driving. But that is not the normal rule. One may compare, for example, The Empire Jamaica [1955] P 259, in which a collision was caused by a ‘blunder in seamanship of…a somewhat serious and startling character’ (Sir Raymond Evershed MR, p 264) by an uncertificated second mate. Although the owners knew that the mate was not certificated and it was certainly the case that the collision would not have happened if he had not been employed, it was held in limitation proceedings that the damage took place without the employers’ ‘actual fault or privity’ (s 503 of the Merchant Shipping Act 1894) because the mate was in fact experienced and (subject to this one aberration) competent. The collision was not therefore attributable to his not having a certificate. The owners were not treated as responsible for all the consequences of having employed an uncertificated mate but only for the consequences of his having been uncertificated. Rules which make the wrongdoer liable for all the consequences of his wrongful conduct are exceptional and need to be justified by some special policy. Normally the law limits liability to those consequences which are attributable to that which made the act wrongful. In the case of liability in negligence for providing inaccurate information, this would mean liability for the consequences of the information being inaccurate.

354

Remedies I can illustrate the difference between the ordinary principle and that adopted by the Court of Appeal by an example. A mountaineer about to undertake a difficult climb is concerned about the fitness of his knee. He goes to a doctor, who negligently makes a superficial examination and pronounces the knee fit. The climber goes on the expedition, which he would not have undertaken if the doctor had told him the true state of his knee. He suffers an injury which is an entirely foreseeable consequence of mountaineering but has nothing to do with his knee. On the Court of Appeal’s principle, the doctor is responsible for the injury suffered by the mountaineer because it is damage which would not have occurred if he had been given correct information about his knee. He would not have gone on the expedition and would have suffered no injury. On what I have suggested is the more usual principle, the doctor is not liable. The injury has not been caused by the doctor’s bad advice because it would have occurred even if the advice had been correct. The Court of Appeal [1995] QB 375 summarily rejected the application of the latter principle to the present case, saying, p 404: The complaint made and upheld against the valuers in these cases is…not that they were wrong. A professional opinion may be wrong without being negligent. The complaint in each case is that the valuer expressed an opinion that the land was worth more than any careful and competent valuer would have advised. I find this reasoning unsatisfactory. It seems to be saying that the valuer’s liability should be restricted to the consequences of the valuation being wrong if he had warranted that it was correct but not if he had only promised to use reasonable care to see that it was correct. There are, of course, differences between the measure of damages for breach of warranty and for injury caused by negligence, to which I shall return. In the case of liability for providing inaccurate information, however, it would seem paradoxical that the liability of a person who warranted the accuracy of the information should be less than that of a person who gave no such warranty but failed to take reasonable care. Your Lordships might, I would suggest, think that there was something wrong with a principle which, in the example which I have given, produced the result that the doctor was liable. What is the reason for this feeling? I think that the Court of Appeal’s principle offends common sense because it makes the doctor responsible for consequences which, though in general terms foreseeable, do not appear to have a sufficient causal connection with the subject matter of the duty. The doctor was asked for information on only one of the considerations which might affect the safety of the mountaineer on the expedition. There seems no reason of policy which requires that the negligence of the doctor should require the transfer to him of all the foreseeable risks of the expedition. I think that one can, to some extent, generalise the principle upon which this response depends. It is that a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the 355

Sourcebook on Obligations and Remedies consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them. The principle thus stated distinguishes between a duty to provide information for the purpose of enabling someone else to decide upon a course of action and a duty to advise someone as to what course of action he should take. If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action. If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken. If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong… The principle that a person providing information upon which another will rely in choosing a course of action is responsible only for the consequences of the information being wrong is not without exceptions. This is not the occasion upon which to attempt a list, but fraud is commonly thought to be one. In Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, Lord Denning MR said, p 167: The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement. The person who has been defrauded is entitled to say: T would not have entered into this bargain at all but for your misrepresentation…’ Such an exception, by which the whole risk of loss which would not have been suffered if the plaintiff had not been fraudulently induced to enter into the transaction is transferred to the defendant, would be justifiable both as a deterrent against fraud and on the ground that damages for fraud are frequently a restitutionary remedy… The measure of damages in an action for breach of a duty to take care to provide accurate information must also be distinguished from the measure of damages for breach of a warranty that the information is accurate. In the case of breach of a duty of care, the measure of damages is the loss attributable to the inaccuracy of the information which the plaintiff has suffered by reason of having entered into the transaction on the assumption that the information was correct. One therefore compares the loss he has actually suffered with what his position would have been if he had not entered into the transaction and asks what element of this loss is attributable to the inaccuracy of the information. In the case of a warranty, one compares the plaintiffs position as a result of entering into the transaction with what it would have been if the information had been accurate. Both measures are concerned with the consequences of the inaccuracy of the information but the tort measure is the extent to which the plaintiff is worse off because the information was wrong whereas the warranty measure is the extent to which he would have been better off if the information had been right.

356

Remedies This distinction was the basis of the decision of this House in Swingcastle Ltd v Alastair Gibson [1991] 2 AC 223. Simplifying the facts slightly, the plaintiffs were moneylenders who had advanced £10,000 repayable with interest at the rate of 36.51%, rising in the event of default to 45.619%, on the security of a house which had been valued at £18,000. The valuation was admittedly negligent and the property fetched only £12,000. By that time, arrears of interest had increased the debt to nearly £20,000 and the lenders claimed £8,000 damages. This House held that the lenders were not entitled to damages which represented the contractual rate of interest. That would be to put them in the position in which they would have been if the valuation had been correct; a measure of damages which could be justified only if they had given a warranty. In an action for breach of a duty of care, they could not recover more than what they would have earned with the money if they had not entered into the transaction. As there was no evidence that they would have been able to obtain the same exorbitant rate of interest elsewhere, the claim in respect of arrears of interest failed… Before I come to the facts of the individual cases, I must notice an argument advanced by the defendants concerning the calculation of damages. They say that the damage falling within the scope of the duty should not be the loss which flows from the valuation having been in excess of the true value but should be limited to the excess over the highest valuation which would not have been negligent. This seems to me to confuse the standard of care with the question of the damage which falls within the scope of the duty. The valuer is not liable unless he is negligent. In deciding whether or not he has been negligent, the court must bear in mind that valuation is seldom an exact science and that within a band of figures valuers may differ without one of them being negligent. But once the valuer has been found to have been negligent, the loss for which he is responsible is that which has been caused by the valuation being wrong. For this purpose the court must form a view as to what a correct valuation would have been. This means the figure which it considers most likely that a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold upon the open market. While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range. There is no basis for calculating damages upon the basis that it would have been a figure at one or other extreme of the range. Either of these would have been less likely than the mean: see Lion Nathan Ltd v CC Bottlers Ltd (1996) The Times, 16 May…

Notes and questions 1 2

Is this a causation or a remoteness case? Or is it neither? If it is neither, what kind of case is it? Is the liability in this case based on the tort of negligence or on breach of s 13 of the Supply of Goods and Services Act 1982? Gainsford v Carroll (1824) 107 ER 516 Court of King’s Bench Action for the non-performance of three contracts entered into by the defendants with the plaintiff for the sale of 50 bales of bacon, to be shipped 357

Sourcebook on Obligations and Remedies by them from Waterford, in the months of January, February, and March 1823 respectively. The defendant suffered judgment by default, and, upon the execution of the writ of inquiry in London, the secondary told the jury that they were at liberty to calculate the damages according to the price of bacon on the day when the inquiry was executed, and that the difference between that and the contract price ought to be the measure of damages. Parke had obtained a rule nisi for setting aside the inquiry on the ground that the plaintiff was only entitled to recover the difference between the contract price and the price which the article bore at or about the time when, by the terms of the contract, it ought to have been delivered. In the case of a purchase of goods, the vendee is in possession of his money, and he has it in his power, as soon as the vendor has failed in the performance of the contract, to purchase other goods of the like quality and description, and it is his own fault it he does not do so. Per curium. Here the plaintiff had his money in his possession and he might have purchased other bacon of the like quality the very day after the contract was broken, and if he has sustained any loss, by neglecting to do so, it is his own fault. We think that the under sheriff ought to have told the jury that the damages should be calculated according to the price of the bacon at or about the day when the goods ought to have been delivered. Thomas v Countryside Council for Wales [1994] 4 All ER 853 Queen’s Bench Division Rougier J:… [I]n order to assess the net profits foregone, the arbitrator first estimated the profit which the appellants would have earned had they been allowed to continue as before, and as the second half of the equation he assessed what was the maximum income the farm could produce, the sole criterion being that of finance; no other considerations entered the picture. In my judgment that approach is wrong in law. It would have appealed to Mr Gradgrind but it does not appeal to me… Take the case of a farmer who farms sheep and nothing else because that is what he wishes to do. Restrictions are placed upon him which will entail a very considerable diminution of the number of sheep he is able to farm; bowing to the inevitable, he takes advice and is told that rather than continue with a limited herd he will make more money if he converts his entire farm to turnips and mangoldwurzels. Is he not to be allowed to say: ‘I don’t like turnips and mangoldwurzels; I don’t like their smell, I don’t like the mud they produce, and I fail to see why this intrusive body, “drest in a little brief authority”, should come and radically alter the amenities and tenor of the life that I have led for many years.’ Are not such arguments to be heard? If the answer is ‘No then the world will have grown grey indeed. For these reasons the matter must be remitted to the arbitrator for him to apply the correct test. This naturally leads to the question what is the correct test?… I think that the wording of the guidelines, although far short of ideal, was intended to equate the manner of assessing compensation with the normal law applicable to cases of contractual or tortious liability… Under the normal law of contract and tort the fundamental basis for the measure of damages is compensation for pecuniary loss which directly and 358

Remedies naturally flows from the breach… There is, however, a qualification that a plaintiff suing for breach of contract or, for that matter, for tort cannot call upon a defendant to pay the full direct consequences unless he himself has acted reasonably to mitigate the loss. It is sometimes loosely described as a plaintiff’s duty to mitigate… If he wishes to claim the full measure of his loss, a plaintiff must act reasonably, but, as was recently pointed out in… The Solholt…a plaintiff is under no duty to mitigate his loss. He is completely free to act as he judges to be in his best interests. The significance of his failure to act in a reasonable manner is merely that he cannot then call upon the defendant to pay for losses which he might have avoided had he taken reasonable steps to do so. For the purposes of the present remission to the arbitrator I would stress that fundamentally the matter is one of causation—that is to say the assessment of the loss which has naturally flowed as a result of the restrictions. Put another way, was the appellants’ decision to adopt the farming system which they did a reasonable one? That question is not to be answered solely in terms of the commercial optimum…

Notes and questions 1

2

‘A plaintiff is under no duty to mitigate his loss, despite the habitual use by the lawyers of the phrase “duty to mitigate”. He is completely free to act as he judges to be in his best interests. On the other hand, a defendant is not liable for all loss suffered by the plaintiff in consequence of his so acting. A defendant is only liable for such part of the plaintiffs loss as is properly to be regarded as caused by the defendant’s breach of duty… Whether a loss is avoidable by reasonable action on the part of the plaintiff is a question of fact not law’ (Sir John Donaldson MR in The Solholt [1983] 1 Ll Rep 605, p 608). Is the distinction between ‘duty’ and ‘interest’ helpful in this context? What are the rights of a plaintiff vis à vis a defendant in breach of an obligation? What are the rights of a defendant in these circumstances? If the defendant has certain rights, is not the plaintiff under certain duties? Can one apply Sir John Donaldson’s reasoning in The Solholt to the law of obligations in general: for example, could one say that one is under no ‘duty’ in the law of contract to execute one’s promises, but that if one does not, then one must pay damages? In short, [a plaintiff] is fully entitled to be as extravagant as he pleases, but not at the expense of the defendant… [The plaintiff] was fully entitled to have his damaged vehicle repaired at whatever cost because he preferred it. But he was not justified in charging against the defendant the cost of repairing the damaged vehicle when that cost was more than twice the replacement market value and he had made no attempt to find a replacement vehicle… It is vital, for the purpose of assessing damages fairly between the plaintiff and the defendant, to consider whether the plaintiff’s course of action was economic or uneconomic, and if it was uneconomic it cannot…form a proper basis for assessment of damages. 359

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3 4

The question has to be considered from the point of view of a businessman’ (Pearson LJ in Darbishire v Warran [1963] 1 WLR 1067, pp 1075, 1076). If the plaintiff is not entitled to rebuild a much loved chattel at the full expense of the wrongdoer, is the plaintiff entitled to damages for mental distress instead? If the tort of conversion distinguishes between profit earning and non-profit earning chattels, why cannot other torts distinguish between economic and non-economic chattels? Is Rougier J appealing to values, or is it a form of practical reasoning? Is Ruxley Electronics v Forsyth (see p 301) a mitigation case? Law Reform (Contributory Negligence) Act 1945 (8 & 9 Geo VI, c 28) 1

Apportionment of liability in case of contributory negligence (1)

4

Where any person suffers damage as the result partly of his own fault and partly of the fault of any other person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent as the court thinks just and equitable having regard to the claimant’s share in the responsibility of the damage…

Interpretation

… ‘damage’ includes loss of life and personal injury… ‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to liability in tort or would, apart from this Act, give rise to the defence of contributory negligence. Barclays Bank plc v Fairclough Building Ltd [1995] QB 214 Court of Appeal (See p 395.)

Notes and questions 1

2

Before this Act, contributory negligence was treated as a matter of factual causation: that is to say, it operated in an all-or-nothing fashion. Either the defendant caused the plaintiff’s damage or, because of the contributory negligence, he did not. Many plaintiffs whose own carelessness had contributed to their damage were thus debarred from obtaining compensation. The effect of the 1945 statute was to change the level at which contributory negligence functioned; instead of functioning at the level of causation itself, it now functions at the level of the assessment of damages. In other words, carelessness by the plaintiff need not affect liability itself. However, can a court still hold that a plaintiff was the cause of his or her own damage? (Cf Jolley v Sutton LBC, p 626; Reeves v MPC, p 770.) Would the Act be applicable to the facts of Redgrave v Hurd (p 476)? 360

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3 4 5 6

Why was the Act not applied to the facts of Parsons v Uttley Ingham (above, p 342)? Should the Act be applicable to a plaintiff who is suing in debt? To what extent should: (a) smoking; (b) drinking; (c) eating too much butter be treated as contributory negligence? What about a plaintiff who is injured while indulging in unlawful behaviour? (Cf p 224.)

(j) Damages in equity Jaggard v Sawyer [1995] 2 All ER 189 Court of Appeal Sir Thomas Bingham MR: On 26 January 1993, Judge Jack QC ([1993] 1 EGLR 197), sitting in the Weymouth County Court, refused the plaintiff, Mrs Jaggard, injunctions to restrain continuing acts of trespass and breaches of covenant and awarded damages in lieu. The plaintiff says the judge should have granted injunctions. This appeal requires the court to consider the principles on which judges should act when deciding whether to grant injunctions or to award damages in lieu… The law In considering the legal issues in this case, I should acknowledge at the outset my debt to an illuminating article by Professor Jolowicz, ‘Damages in equity— a study of Lord Cairns’ Act’ [1975] CLJ 224. Historically, the remedy given by courts of common law was damages. These afforded retrospective compensation for past wrongs. If the wrongs were repeated or continued, a fresh action was needed. Courts of equity, in contrast, were able to give prospective relief by way of injunction or specific performance. A mandatory injunction would require the defendant to observe a legal obligation or undo the effects of a past breach of legal obligation. A negative injunction would restrain a defendant from committing breaches of legal obligation in future. But these courts could not award damages. This anomaly was mitigated by the Common Law Procedure Act 1854, which gave courts of common law a limited power to grant equitable relief as well as damages. It was further mitigated by the Chancery Amendment Act 1858 (Lord Cairns’ Act), which gave the Court of Chancery the power to award damages. Section 2 of Lord Cairns’ Act provided: In all cases in which the Court of Chancery has jurisdiction to entertain an application for an injunction against a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act, or for the specific performance of any covenant, contract, or agreement, it shall be lawful for the same Court, if it shall think fit, to award damages to the party injured, either in addition to or in substitution for such injunction or specific performance; and such damages may be assessed in such manner as the Court shall direct.

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Sourcebook on Obligations and Remedies This enabled the Chancery Court on appropriate facts to award damages for unlawful conduct in the past as well as an injunction to restrain unlawful conduct in the future. It also enabled the Chancery Court to award damages instead of granting an injunction to restrain unlawful conduct in the future. Such damages can only have been intended to compensate the plaintiff for future unlawful conduct, the commission of which, in the absence of any injunction, the court must have contemplated as likely to occur. Despite the repeal of Lord Cairns’ Act, it has never been doubted that the jurisdiction thereby conferred on the Court of Chancery is exercisable by the High Court and by county courts. The authorities show that there were, not surprisingly, differing approaches to the exercise of this new jurisdiction. [The Master of the Rolls discussed the authorities]… Mention should finally be made of Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361… The court’s approach to restitutionary damages in this case has provoked some regretful comment (see Professor Birks, ‘Profits of breach of contract’ (1993) 109 LQR 518), and it may be (as suggested, p 520) that these judgments will not be the last word on that subject. But the court plainly treated the case as one not falling under the principles derived from Lord Cairns’ Act. I cannot, however, accept that Brightman J’s assessment of damages in Wrotham Park was based on other than compensatory principles. The defendants had committed a breach of covenant, the effects of which continued. The judge was not willing to order the defendants to undo the continuing effects of that breach. He had therefore to assess the damages necessary to compensate the plaintiffs for this continuing invasion of their right. He paid attention to the profits earned by the defendants, as it seems to me, not in order to strip the defendants of their unjust gains, but because of the obvious relationship between the profits earned by the defendants and the sum which the defendants would reasonably have been willing to pay to secure release from the covenant… The present case The judge recognised that a plaintiff who can show that his legal right will be violated by the defendant’s conduct is prima facie entitled to the grant of an injunction. He accepted that the court will only rarely and reluctantly permit such a violation to occur or continue. But he held that this case fulfilled the four tests laid down by AL Smith LJ in Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 to bring this case within the exception:… (1) He regarded the injury to the plaintiff’s right as small… (2) The judge considered the value of the injury to the plaintiff’s right as capable of being estimated in money… (3) The judge held that the injury to the plaintiff’s legal right was one which could be adequately compensated by a small money payment… (4) The judge concluded that in all the circumstances it would be oppressive to the defendants to grant the injunction sought… It is important to bear in mind that the test is one of oppression, and the court should not slide into application of a general balance of convenience test. But 362

Remedies oppression must be judged as at the date the court is asked to grant an injunction, and (as Brightman J recognised in Wrotham Park) the court cannot ignore the reality with which it is then confronted … As s 84 of the Law of Property Act 1925 makes clear, restrictive covenants cannot be regarded as absolute and inviolable for all time. The judge was, in my view, entitled to hold on all the facts before the court at the trial that the grant of an injunction would be oppressive to the defendants, and I share that view … Kennedy LJ: I agree … Millett LJ: This appeal raises yet again the questions: what approach should the court adopt when invited to exercise its statutory jurisdiction to award damages instead of granting an injunction to restrain a threatened or continuing trespass or breach of a restrictive covenant? And if the court accedes to the invitation, on what basis should damages be assessed? Before considering these questions, it is desirable to state some general propositions which are established by the authorities and which are, or at least ought to be, uncontroversial. (1)

(2)

(3)

(4)

The jurisdiction was originally conferred by s 2 of the Chancery Amendment Act 1858, commonly known as Lord Cairns’ Act. It is now to be found in s 50 of the Supreme Court Act 1981. It is a jurisdiction to award damages ‘in addition to, or in substitution for, an injunction or specific performance’. The principal object of Lord Cairns’ Act is well known… It was to enable the Court of Chancery, when declining to grant equitable relief and leaving the plaintiff to his remedy at law, to award the plaintiff damages itself instead of sending him to the common law courts to obtain them. From the very first, however, it was recognised that the Act did more than this. The jurisdiction of the Court of Chancery was wider than that of the common law courts, for it could give relief where there was no cause of action at law … Damages at common law are recoverable only in respect of causes of action which are complete at the date of the writ; damages for future or repeated wrongs must be made the subject of fresh proceedings. Damages in substitution for an injunction, however, relate to the future, not the past. They inevitably extend beyond the damages to which the plaintiff may be entitled at law The nature of the cause of action is immaterial; it may be in contract or tort. Lord Cairns’ Act referred in terms to ‘a breach of any covenant, contract, or agreement, or against the commission or continuance of any wrongful act’ … Equitable relief, whether by way of injunction or damages under Lord Cairns’ Act, is available because the common law remedy is inadequate; but the common law remedy of damages in cases of continuing trespass is inadequate not because the damages are likely to be small or nominal but because they cover the past only and not the future. The power to award damages under Lord Cairns’ Act arises whenever the court ‘has jurisdiction to entertain an application’ for an injunction or specific performance… When the court comes to consider whether to grant an injunction or award damages instead, of course, it must do

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(5) (6)

(7)

so by reference to the circumstances as they exist at the date of the hearing. The former question is effectively one of jurisdiction. The question is whether, at the date of the writ, the court could have granted an injunction, not whether it would have done… It is not necessary for the plaintiff to include a claim for damages in his writ… By a parity of reasoning it is not in my opinion necessary for a plaintiff to include a claim for an injunction in order to found a claim for damages under the Act. It would be absurd to require him to include a claim for an injunction if he is sufficiently realistic to recognise that in the circumstances he is unlikely to obtain one and intends from the first to ask the court for damages instead. But he ought to make it clear whether he is claiming damages for past injury at common law or under the Act in substitution for an injunction. … The court can, in my judgment, properly award damages ‘once and for all’ in respect of future wrongs because it awards them in substitution for an injunction and to compensate for those future wrongs which an injunction would have prevented. The doctrine of res judicata operates to prevent the plaintiff and his successors in title from bringing proceedings thereafter to recover even nominal damages in respect of further wrongs for which the plaintiff has been fully compensated.

It has always been recognised that the practical consequence of withholding injunctive relief is to authorise the continuance of an unlawful state of affairs… After the passing of Lord Cairns’ Act, many of the judges warned that the jurisdiction to award damages instead of an injunction should not be exercised as a matter of course so as to legalise the commission of a tort by any defendant who was willing and able to pay compensation... What does need to be stressed, however, is that Lord Cairns’ Act did not worsen the plaintiff’s position but improved it. Thenceforth, if injunctive relief was withheld, the plaintiff was not compelled to wait until further wrongs were committed and then bring successive actions for damages; he could be compensated by a once and for all payment to cover future as well as past wrongs … Nevertheless, references to the ‘expropriation’ of the plaintiff’s property are somewhat overdone, not because that is not the practical effect of withholding an injunction, but because the grant of an injunction, like all equitable remedies, is discretionary. Many property rights cannot be protected at all by the common law. The owner must submit to unlawful interference with his rights and be content with damages. If he wants to be protected he must seek equitable relief, and he has no absolute right to that. In many cases, it is true, an injunction will be granted almost as of course, but this is not always the case, and it will never be granted if this would cause injustice to the defendant … When the plaintiff claims an injunction and the defendant asks the court to award damages instead, the proper approach for the court to adopt cannot be in doubt. Clearly, the plaintiff must first establish a case for equitable relief, not only by proving his legal right and an actual or threatened infringement by the defendant, but also by overcoming all equitable defences 364

Remedies such as laches, acquiescence or estoppel. If he succeeds in doing this, he is prima facie entitled to an injunction. The court may nevertheless in its discretion withhold injunctive relief and award damages instead. How is this discretion to be exercised? [Millett LJ then referred to AL Smith’s checklist in the Shelfer case]… Reported cases are merely illustrations of circumstances in which particular judges have exercised their discretion… Since they are all cases on the exercise of a discretion, none of them is a binding authority on how the discretion should be exercised… In the present case, the defendants acted openly and in good faith and in the not unreasonable belief that they were entitled to… access to the house that they were building. At the same time, they had been warned by the plaintiff and her solicitors…that they were not entitled to use it for access… They went ahead, not with their eyes open, but at their own risk. On the other hand, the plaintiff did not seek interlocutory relief at a time when she would almost certainly have obtained it. She should not be criticised for that, but it follows that she also took a risk, viz, that by the time her case came for trial the court would be presented with a fait accompli. The case was a difficult one, but in an exemplary judgment the judge took into account all the relevant considerations, both those which told in favour of granting an injunction and those which told against, and in the exercise of his discretion he decided to refuse it. In my judgment, his conclusion cannot be faulted…

Questions 1 2

3

4 5

Must a plaintiff specifically claim equitable relief before a court can award damages in equity? Does the statutory power to award damages in equity effectively allow defendants an opportunity to purchase the right to commit a nuisance? What implications might this have for environmental law? ‘Many property rights cannot be protected at all by the common law. The owner must submit to unlawful interference with his rights and be content with damages. If he wants to be protected he must seek equitable relief, and he has no absolute right to that’ (Millet LJ). Discuss. Does a court of equity have the power to make and unmake property and obligational rights? Is Miller v Jackson (above, p 51) a precedent? How can the defendants have acted in good faith if they knew they were taking a risk with respect to the legal situation?

16 REMEDIES AND PUBLIC LAW X (Minors) v Bedfordshire County Council [1995] 2 AC 633 House of Lords (See also p 727.)

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Sourcebook on Obligations and Remedies Lord Browne-Wilkinson:… The question is whether, if Parliament has imposed a statutory duty on an authority to carry out a particular function, a plaintiff who has suffered damage in consequence of the authority’s performance or non-performance of that function has a right of action in damages against the authority. It is important to distinguish such actions to recover damages, based on a private law cause of action, from actions in public law to enforce the due performance of statutory duties, now brought by way of judicial review. The breach of a public law right by itself gives rise to no claim for damages. A claim for damages must be based on a private law cause of action. The distinction is important because a number of earlier cases (particularly in the field of education) were concerned with the enforcement by declaration and injunction of what would now be called public law duties. They were relied on in argument as authorities supporting the plaintiffs’ claim for damages in this case: I will consider them in a little more detail later. Marc Rich and Co v Bishop Rock Ltd [1996] 1 AC 211 House of Lords (See also p 711.) Lord Steyn:… In W Angliss and Co (Australia) Proprietary Ltd v Peninsular and Oriental Steam Navigation Co [1927] 2 KB 456, p 462, Wright J (later to become Lord Wright)—a great judge with special expertise in maritime law and practice—described classification societies, such as Lloyd’s, as occupying ‘a public and quasi-judicial position’. There is a refrain of this idea to be found in Singh and Colinvaux, Shipowners (British Shipping Laws), 1967, Vol 13, pp 167–69, paras 391–94, where the editors describe a classification society as an impartial critic and arbiter (as opposed to arbitrator). These observations are helpful but not definitive. Nowadays, one would not describe classification societies as carrying on quasi-judicial functions, but it is still the case that (apart from their statutory duties) they act in the public interest. The reality is simply that NKK—and I am deliberately reverting to the evidence about NKK—is an independent and non-profit making entity, created and operating for the sole purpose of promoting the collective welfare, namely the safety of lives and ships at sea. In common with other classification societies, NKK fulfils a role which in its absence would have to be fulfilled by States. And the question is whether NKK, and other classification societies, would be able to carry out their functions as efficiently if they become the ready alternative target of cargo-owners, who already have contractual claims against shipowners. In my judgment, there must be some apprehension that the classification societies would adopt, to the detriment of their traditional role, a more defensive position. Lord Lloyd (dissenting):… Then it was pointed out that classification societies are charitable non-profit making organisations, promoting the collective welfare and fulfilling a public role. But why should this make any difference? Remedies in the law of tort are not discretionary. Hospitals also are charitable non-profit making organisations. But they are subject to the same common duty of care under the Occupiers’ Liability Acts 1957 and 1984 as betting shops or brothels. Take again the position of salvors. They also fulfil an important public role. It was argued in The Tojo Maru that salvors should receive every proper inducement on grounds of public policy, and that to

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Remedies hold them liable for the negligence of their servants in the course of salvage operations would only serve to discourage their beneficial activities. This is very similar to the argument advanced in the present case. It did not succeed in The Tojo Maru, and should not, I think, succeed here… Stovin v Wise [1996] AC 923 House of Lords (See p 737.) Department of Social Security v Butler [1995] 1 WLR 1528 Court of Appeal Morritt LJ:… The Child Support Act 1991 introduced a wholly new framework for the assessment and collection of the sums required for the maintenance of children by their parents. There is no provision for the enforcement of any maintenance assessment except by the Secretary of State and his methods of enforcement are limited in the way I have mentioned. It seems to me that it would be inconsistent with the Act as a whole in general and with s 33 in particular if the Secretary of State were to be at liberty to apply for Mareva injunctions in the High Court… Simon Brown LJ:… Put shortly, my conclusions are, first, that Mareva relief is only obtainable where there is already available to the applicant a cause of action properly so called, viz, a right to litigate or arbitrate an existing monetary claim, and, secondly, that the Act of 1991 affords to the Secretary of State no such cause of action and, indeed, no rights at all save only those expressly conferred upon him… R v Barnet Magistrates’ Court ex p Cantor [1999] 1 WLR 334 Queen’s Bench Division This was an action for judicial review in which the applicant sought to recover money paid into court by his mother. Garland J: The applicant seeks an order of certiorari quashing a suspended committal order made by justices for the Petty Sessional Division of Barnet on 2 September 1996 and a further order on 9 December 1996, whereby the applicant was committed to prison for nine months for default in payment of an order for costs in the sum of £30,000: in addition, he seeks an order of mandamus directing the clerk to the justices to repay to his mother, Eve Cantor, the sum of £30,000 plus accrued interest, representing the amount paid into court on her behalf by solicitors acting upon her instructions on 9 December 1996… … In my judgment…both the suspended committal order and the order actually committing the applicant to prison were made on an incorrect basis in law; the sum to be paid was plainly beyond the applicant’s means and if there was an expectation that it would be paid by a third party that too was unlawful. For these reasons I would quash the orders… In my judgment, a claim by Mrs Cantor to recover her £30,000, although meritorious and receiving some support from the Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 and encouragement from the Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 cases, would be…both novel and not free from difficulty. It would, of course, be convenient if all matters consequent upon the quashing

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Sourcebook on Obligations and Remedies of an unlawful order could be dealt with at the same time by the same court, but ordering mandamus to enforce a civil claim by a third party would be an extension of jurisdiction of the court substantially beyond RSC Ord 53 r 9(5); in addition, the court should be cautious in supplying a remedy by way of judicial review where a claim by writ would be anything other than obvious and certain… … [I]t has been stated that the evidence of Miss Evans and Mrs Cantor made it clear that the money was deposited and paid in order to avoid the applicant being committed to prison. The committal order was unlawful. The court would be minded to make a declaration subject to redrafting it to read in the last line: ‘transferred in consequence of an unlawful committal order.’ Conclusion In my judgment, the court, even if it felt able to do so, should not give effect to a private claim for restitution, however meritorious, when the cause of action is other than obvious and certain. The court would, however, be minded to grant a declaration… Pill LJ:… The court has power to require a public body to perform its duty by an order for mandamus. The existence of a duty to Mrs Cantor with respect to the money and the extent of that duty, if it exists, is far from clear. The duty does not obviously extend to require repayment to a third party of money received by the court in consequence of an unlawful order. The position is not so plain as to permit the court to make an order of mandamus in this case. There is no claim for damages. There remains the possibility of a declaration… Whether the money should be retained by the court depends upon the resolution of the difficult questions identified by Garland J… It would be inappropriate to resolve the question upon the present application. The most which can properly be declared is that proposed by Garland J. I reach that conclusion with some reluctance because Mrs Cantor should not have been put by the court in a position of parting with a substantial sum of money to obtain her son’s release. Permitting the court or the Crown Prosecution Service to retain the money may be an encouragement to unlawful committals. Neither the justices’ clerk nor the Crown Prosecution Service have shown any appetite for retaining the money paid pursuant to an unlawful order but the £30,000 is at present to be regarded as public money and the justices understandably would, therefore, before releasing the money, require a plain statement from the court that it is lawful to do so…

Questions 1

2

Given the common law’s traditional reluctance to distinguish formally between public and private law, is it not surprising that the court should refuse to entertain the restitution claim? If a claimant is under a duty simply to state the facts and the claim, is the court not failing in its duty when it refuses to investigate areas of law relevant these facts and claim?

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3

4

If the court in Cantor had been prepared to utilise a public law remedy to enforce a private law restitution claim, would it logically follow that the court in Butler ought to have been prepared to use a private law remedy to support the public law debt claim? Ought a court to have power to award damages or restitution in judicial review actions?

17 ACTIONS IN REM Republic of India v India Steamship Co (No 2) [1998] AC 878 House of Lords This was an action in rem brought against a ship that was in an English port. The owners of the ship disputed the action on the ground that an in personam action against the owners had already been brought in another court on the same cause of action. The question arose as to whether the action in rem amounted to ‘proceedings…brought…on a cause of action in respect of which a judgment has been given’ and thus barred under s 34 of the Civil Jurisdiction and Judgments Act 1982. The House of Lords held that the action in rem was to be barred under the Act. Lord Steyn:… Clarke J [1994] Lloyd’s Rep 331, p 350, concluded that the authorities show that, although an action in personam and an action in rem may involve the same cause of action, historically they have been regarded as being between different parties. Recognising that an action in rem affects the owners, the judge cited the dictum of Fletcher Moulton LJ in The Burns [1907] P 137, p 149, that ‘the action in rem is an action against the ship itself. He also relied on the judgment of Hobhouse J in The Nordglimt [1988] QB 183 along the same lines. Accordingly, the judge held that s 34 is inapplicable because the parties in the two sets of proceedings were different. Counsel for the plaintiffs supported this reasoning and amplified it in a helpful argument. It is necessary to understand the nature of the pending action in rem… The historical perspective The historical context of the problem before the House of Lords is noteworthy. Before the Judicature Acts 1873–75, the courts of King’s Bench regarded the High Court of Admiralty as in a sense a superior court but being of limited jurisdiction, amenable to restraint by prohibition: James v South Western Railway Co (1872) LR 7 Ex 287. The common law courts effectively blocked the assumption by the High Court of Admiralty of in personam jurisdiction. This was done by writs of prohibition to restrain the expansion of the jurisdiction of the High Court of Admiralty. The writ of prohibition did not extend to the Admiralty jurisdiction over the ship. Maritime liens over the ship were immune from the writ of prohibition: see the valuable discussion in Thomas, Maritime Liens, 1980, p 7. Admiralty practitioners and judges used the concept that the ship is a defendant in an action in rem as a means of defending and extending the jurisdiction of the High Court of Admiralty. An enlarged view

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Sourcebook on Obligations and Remedies was taken of what constitutes a maritime lien. The personification theory flourished. But this struggle for power was ended by the Judicature Acts. In the 19th century it was believed that an admiralty action could only be brought in respect of a maritime lien: Harmer v Bell (1851) 7 Moo PC 267. By statute actions in rem were subsequently permitted in new categories. But only after the Judicature Acts was it established that the new categories did not involve maritime liens: Northcote v Owners of the Henrich Björn (1886) 11 App Cas 270. While the action in rem was still confined to maritime liens, courts sometimes ascribed personality to a ship. The ship was regarded as both the source and limit of liability. The ship herself was the ‘wrongdoer’. After the Judicature Acts the personification theory fell into decline. The interaction, and cumulative effect, of a number of factors contributed to the decline of this theory. First, there is the factor, already noted, that actions in rem were permitted in new categories which did not involve maritime liens. It became less easy to personify the ship as the real defendant. Secondly, before 1873 actions in rem were commenced by a form of writ which did not name the owners of the ship as defendants. By 1883 the modern form of process, which named the owners as defendants, had evolved. This development made it easier to regard an action in rem as an action against the owners of the vessel. An argument that the procedural changes brought about no change in substance was expressly rejected by Jeune J in The Dictator [1892] P 304, p 307. The procedural change influenced the reasoning of judges in subsequent important decisions:… In The Arantzazu Mendi [1939] AC 256, the plaintiffs sought to avoid a plea of sovereign immunity by issuing a writ naming the ship as a defendant. Lord Atkin observed, pp 262–63, that the writ was wholly irregular since it ‘purported to make a chattel (the ship) a defendant and to order the chattel to enter an appearance’. The other Law Lords agreed. Thirdly, until the Judicature Acts, it was not possible to combine an action in rem with an action in personam in the Admiralty. Since The Dictator was decided in 1892 the law has been that once the owners enter an appearance (or in modern phraseology when they acknowledge issue of the writ) there are two parallel actions: an action in personam and an action in rem. From that moment the owners are defendants in the action in personam. This development militated against the personification theory. It became implausible to say that the owners are the defendants in the action in personam but the ship is the defendant in the action in rem or, alternatively, as counsel for the Indian Government suggested, there is no defendant in the action in rem. Fourthly, judges, steeped in Admiralty history with its civilian roots, tended to be more sympathetic to the personification theory than judges trained in the common law. At appellate level common law judges tended to take the robust view that a ship is an inanimate thing, incapable of making contracts and committing torts, and devoid of legal personality. In authoritative judgments, common law judges eschewed the mystique of the personification theory. The personification theory gave way to a more realistic view of the nature of actions in rem. This development took place in the context of the changes which I have sketched. The breakthrough came in The Dictator. In one of his first sittings as President of the new Probate, Divorce and Admiralty Division Sir Francis Jeune, a common lawyer, undertook a comprehensive review of

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Remedies the development of actions in rem. He concluded, p 320, that when the defendants do appear the action in rem: …not only determines the amount of the liability, and in default of payment enforces it on the res, but is also a means of enforcing against the appearing owners, if they could have been made personally liable in the Admiralty Court, the complete claim of the plaintiff so far as the owners are liable to meet it. This was the procedural theory which subsequently became dominant. The historical analysis in The Dictator has been criticised: Wiswall, The Development of Admiralty Jurisdiction and Practice since 1800, 1970, Chapter 6. On the other hand, the foremost historian of Admiralty history has supported it: Select Pleas in the Court of Admiralty, edited by RG Marsden for the Selden Society, Vol 1, 1894, pp lxxi-lxxii. The Dictator was followed and endorsed by the Court of Appeal in The Gemma [1899] P 285. It is true that a few years later, in The Burns [1907] P 137, p 149, Fletcher Moulton LJ appeared in effect to be repudiating the procedural theory by saying that ‘the action in rem is an action against the ship’ and by acknowledging only that ‘the action indirectly affects them’ (the owners). That observation was made on a point of statutory construction and did not reflect the reasoning of the majority. The reasoning in The Dictator prevailed. In The Tervaete [1922] P 259, p 270, Scrutton LJ said that it was established that an action in rem was not based upon the wrongdoing of the ship personified as an offender but was a means of bringing the owner of the ship to meet this personal liability by seizing his property. Atkin LJ, p 274, expressed a similar view. See also The Jupiter [1924] P 236. In Compania Naviera Vascongada v SS Cristina [1938] AC 485 the House of Lords unambiguously rejected the personification theory, and adopted the realist view that in an action in rem the owners were the defendants. This historical account of the evolution of the procedural theory must be qualified. Thomas, Maritime Liens, p 7, n 40, p 8, n 44, has pointed out that the procedural theory does not explain why a maritime lien may be enforced against a bona fide purchaser and that it is not entirely consistent with the fact that certain maritime liens accrue independently of personal liability of the shipowner. These may be regarded as distant echoes of the personification theory. But this case is not concerned with maritime liens. That is a separate and complex subject which I put to one side. Given this general historical perspective, counsel for the plaintiffs acknowledged that the procedural theory became dominant but argued that it tells us nothing about the answer to the question before the House. He said that the procedural theory is a neutral fact. That is unrealistic. The procedural theory stripped away the form and revealed that in substance the owners were parties to the action in rem. The sovereign immunity cases The reality that an action in rem is an action against the owner of the ship is supported by the line of sovereign immunity cases… Further developments Confining myself to the more important decisions only, there are other decisions of high authority for the proposition that the true defendant in a 371

Sourcebook on Obligations and Remedies duly constituted action in rem are the owners of the ship. In The August 8 [1983] 2 AC 450, p 456, Lord Brandon of Oakbrook, a former Admiralty judge, explained: By the law of England, once a defendant in an Admiralty action in rem has entered an appearance in such action, he has submitted himself personally to the jurisdiction of the English Admiralty Court, and the result of that is that, from then on, the action continues against him not only as an action in rem but also as an action in personam…[Emphasis added.] More importantly, in The Deichland [1990] 1 QB 361 the Court of Appeal held that the owner of a vessel which is served with proceedings in rem is ‘sued’ for the purpose of Art 2 of Sched 1 to the Act of 1982. The essential basis of the decision is to be found in the observation of Sir Denys Buckley, p 389, that In reality, distinguished from formal aspects, the instant action is, in my judgment, as much a suit against Deich as would be an action in personam … This reasoning was based on a perception of the true nature of an action in rem in English law. It is a view that I share. The decision of the European Court of Justice in The Maciej Rataj In The Maciej Rataj (Case C-406/92) [1995] 1 Lloyd’s Rep 302 the European Court of Justice…held that an action in rem and an action in personam involve the same cause of action, the same object and the same parties: paras 47 and 48… This consideration reinforces the view that I take on a consideration of the nature of an action in rem judged from the perspective of domestic English law… The Nordglimt Clarke J relied on the judgment of Hobhouse J in The Nordglimt [1988] QB 183. Hobhouse J had to consider whether in the context of Art 21 a Belgian action in personam against owners was between ‘the same parties’ as an Admiralty action in rem. Hobhouse J held that at the date of its commencement an action in rem was not between the same parties as an action in personam. That was always a very narrow view. Given the decision of the European Court of Justice in The Maciej Rataj (The Tatry) the decision in The Nordglimt is no longer good law… Conclusion on the action in rem point The role of Fictions in the development of the law has been likened to the use of scaffolding in the construction of a building. The scaffolding is necessary, but after the building has been erected scaffolding serves only to obscure the building. Fortunately, the scaffolding can usually be removed with ease: Fuller, Legal Fictions, 1967, p 70. The idea that a ship can be a defendant in legal proceedings was always a fiction. But before the Judicature Acts this fiction helped to defend and enlarge Admiralty jurisdiction in the form of an action in rem. With the passing of the Judicature Acts that purpose was effectively spent. That made possible the procedural changes which I have described. The fiction was discarded. 372

Remedies It is now possible to say that for the purposes of s 34 an action in rem is an action against the owners from the moment that the Admiralty Court is seised with jurisdiction. The jurisdiction of the Admiralty Court is invoked by the service of a writ, or, where a writ is deemed to be served, as a result of the acknowledgment of the issue of the writ by the defendant before service: The Banco [1971] P 137. From that moment, the owners are parties to the proceedings in rent. Subject to the plea of estoppel, s 34 is therefore a bar to the action in rent…

Notes and questions 1

2

The original Roman actio in rem was an action against the thing itself; consequently, the thing, or some representative part of it, had to be in court (G 4.16–17). Later Roman thinking saw these actions as being against the possessor of the thing. Is it necessary, however, to regard the idea of suing a thing as a fiction? Why should actions always be against a person and not a thing? Is not a mortgage something which attaches to a res rather than a personal Why was it that the common law courts never developed the in rem action as a general means of protecting property rights? Allen v Jambo Holdings Ltd [1980] 2 All ER 502 Court of Appeal (See p 272.)

Questions 1 2

Could an injunction now replace an admiralty action in rem? Is the defendant in an in rem claim always going to be the owner or might it be a possessor?

18 LIENS Tappenden v Artus [1964] 2 QB 185 Court of Appeal Diplock LJ: This is an appeal from a judgment of Judge Buckee giving judgment for the plaintiff in an action for detinue of a motor vehicle, a Bedford Dormobile, the property of the plaintiff, which the defendants refused to deliver to the plaintiff in purported exercise of an artificer’s lien for repairs which they had done to it. The case raises an important question of common law as to the circumstances in which an artificer’s lien may be asserted against the owner of a vehicle whose bailee has handed over possession of the vehicle to an artificer for the purpose of effecting repairs necessary to render the vehicle roadworthy. We are indebted to counsel on both sides for their able argument. [His Lordship stated the facts and continued:] The only defence with which we are concerned in this appeal is that of the second defendants, hereinafter called ‘the artificer’, who relied upon their common law lien. The question of 373

Sourcebook on Obligations and Remedies law is whether upon the facts which we have stated the artificer was entitled to assert his common law lien against the true owner of the van, the bailor. The county court judge held that he was not so entitled. The common law lien of an artificer is of very ancient origin, dating from a time when remedies by action upon contracts not under seal were still at an early and imperfect stage of development: see the old authorities cited by Lord Ellenborough CJ in Chase v Westmore. Because it arises in consequence of a contract, it is tempting to a 20th century lawyer to think of a common law lien as possessing the characteristics of a contractual right, express or implied, created by mutual agreement between the parties to the contract. But this would be to mistake its legal nature. Like a right of action for damages, it is a remedy for breach of contract which the common law confers upon an artificer to whom the possession of goods is lawfully given for the purpose of his doing work upon them in consideration of a money payment. If, pursuant to the contract, the artificer does his work, he is entitled to retain possession of the goods so long as his charges, whether agreed in advance or (if not so agreed) payable upon a quantum meruit, are satisfied. The remedy can be excluded by the terms of the contract made with the artificer either expressly or by necessary implication from other terms which are inconsistent with the exercise of a possessory lien; cf Forth v Simpson, in the same way as the common law remedy in damages for breach of contract may be excluded or modified by the terms of the contract itself. But this does not mean that the remedy of lien, any more than the remedy in damages, is the result of an implied term in the contract to which what we may conveniently call the Moorcock criteria relevant to implying terms in a contract apply. The test whether or not the remedy exists is not whether or not its existence is necessary to give business efficacy to the contract. Judged by this test there would in modern times never be an artificer’s lien. The common law remedy of a possessory lien, like other primitive remedies such as abatement of nuisance, self-defence or ejection of trespassers to land, is one of self-help. It is a remedy in rem exercisable upon the goods, and its exercise requires no intervention by the courts, for it is exercisable only by an artificer who has actual possession of the goods subject to the lien. Since, however, the remedy is the exercise of a right to continue an existing actual possession of the goods, it necessarily involves a right of possession adverse to the right of the person who, but for the lien, would be entitled to immediate possession of the goods. A common law lien, although not enforceable by action, thus affords a defence to an action for recovery of the goods by a person who, but for the lien, would be entitled to immediate possession. Since a common law lien is a right to continue an existing actual possession of goods (that is to say, to refuse to put an end to a bailment), it can only be exercised by an artificer if his possession was lawful at the time at which the lien first attached. To entitle him to exercise a right of possession under his common law lien adverse to the owner of the goods, he must thus show that his possession under the original delivery of the goods to him was lawful— Bowmaker Ltd v Wycombe Motors Ltd—and continued to be lawful until some work was done by him upon the goods. Where, therefore, as in the present case, possession of the goods was originally given to the artificer not by the owner himself, but by a bailee of the owner, the test whether the artificer can 374

Remedies rely upon his common law lien as a defence in an action for detinue brought against him by the owner is whether the owner authorised (or is estopped as against the artificer from denying that he authorised) the bailee to give possession of the goods to the artificer. This, it seems to us, is the test which, after some vacillation, is laid down by the modern authorities… These cases, all of which fall upon one side of the line, seem to us to do no more than support the propositions that where no question of ostensible authority arises: (1) the mere fact of delivery of possession of goods by an owner to a bailee does not of itself give the bailee authority to deliver possession of the goods to a third party; and (2) that whether the bailee has such authority depends in each case upon the purpose of the bailment and terms of the contract (if any) under which the goods are bailed to him… … [The bailee] is entitled to make reasonable use of the goods, and if it is reasonably incidental to such use for the bailee to give possession of them to a third person in circumstances which may result in such person acquiring the common law remedy of lien against the goods, the bailee has the authority of the owner to give lawful possession of the goods to the third person. This is not strictly an ‘implied term’ in the Moorcock sense of the contract between the bailor and the bailee. The grant of authority to use goods is itself to be construed as authority to do in relation to the goods all things that are reasonably incidental to their reasonable use. If the bailor desires to exclude the right of the bailee to do in relation to the goods some particular thing which is reasonably incidental to their reasonable use, he can, of course, do so, but he must do so expressly. In the case of a bailment for use, therefore, where there is no express prohibition upon his parting with possession of the goods (and no question of ostensible authority arises), the relevant inquiry is whether the giving of actual possession of the goods by the bailee to the person asserting the common law lien was an act which was reasonably incidental to the bailee’s reasonable use of the goods… To this statement of principle we would only add the rider that the latter part of it which deals with ostensible authority should be understood as restricted to cases where the artificer has no express notice of the limit upon the authority of the person to whom the owner has given possession of the chattel… In the present case the purpose of the bailment of the Dormobile van was clearly for use on the roads by the bailee. Mr Forbes has submitted that it was a gratuitous bailment, made in anticipation of the bailee’s entering into a hire purchase agreement in respect of the van. We do not think this is right. It was a term of the bailment that the bailee, not the bailor, should license the van at his own expense and insure it upon comprehensive terms. This was in fact done in the bailee’s own name although it does not appear whether or not this was a term of the prior agreement as to licensing and insurance. There was thus good consideration in law for the bailment, and it is unnecessary to consider what the position would have been if the bailment had been purely gratuitous. It is a statutory offence to use a motor vehicle on the highway which is in an unroadworthy condition. If the van should become unroadworthy during the period of the bailment the bailee could not use it for the purposes of the 375

Sourcebook on Obligations and Remedies bailment unless he were to have it repaired. In the ordinary way, save in the case of minor adjustments, a motor vehicle can be repaired only by delivering possession of it to an expert mechanic to effect the repairs; and in our view the giving of actual possession of a motor vehicle to an artificer for the purpose of effecting repairs necessary to render it roadworthy is an act reasonably incidental to the bailee’s reasonable use of the vehicle. If the bailor desires to exclude the bailee’s authority to do this, he must do so expressly. In the present case, it is not suggested that there was any express exclusion of this right by the bailor, but Mr Forbes has argued that on the facts of the present case, such authority is to be excluded by necessary implication because the bailor himself carried on business as a motor mechanic. It is contended that he can hardly have intended that if the van became unroadworthy, it should be repaired by any artificer other than himself so as to give the other artificer a remedy of lien against the van for the costs of the repairs. Even if it were possible to exclude the authority of a bailee for use by implication (which we do not think that it is), we would not be impressed by this submission. The bailee was not restricted in his use of the van; the unroadworthiness might have developed at a considerable distance from the bailor’s premises. Furthermore, the bailor, as owner of the vehicle, would obtain the benefit of the repairs by whomever they were executed, and there is nothing unreasonable in his having to pay for them if his bailee makes default in doing so. Different considerations would apply to repairs which were not necessary to make the van roadworthy, for the execution of such repairs might not be reasonably necessary to the reasonable use of the van by the bailee, which was the purpose of the bailment; but there is no suggestion in the evidence that any of the repairs in respect of which the lien was claimed were not necessary to make the van roadworthy. We are, therefore, of opinion that the artificer was entitled to a common law lien upon the van in respect of the repairs which he effected, and he is entitled to assert that lien against the bailor because the bailor gave the bailee authority to give lawful possession of the van to the artificer for the purpose of effecting such repairs as were necessary to make the van roadworthy. For these reasons we allow this appeal.

Questions 1 2 3 4 5

Does a lien confer upon a holder a right in rem? What if the owner of the van had just driven his van away when a garage employee was not looking? Can one ever have a lien on stolen property? What if the garage’s debt was settled by a third party: would the third party be subrogated to the lien? What if the van was destroyed in a fire on the garage premises and the van owner was paid its value by his own insurance company? Would the garage have any kind of lien on the money in the van owner’s bank account?

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What is the distinction between a lien and tracing? What is the distinction between subrogation and liens? Is an admiralty action in rem a kind of lien? In re Cosslett (Contractors) Ltd [1998] 2 WLR 131 Court of Appeal Millett LJ: I have had the advantage of reading in draft the judgment of Evans LJ. I gratefully adopt his recital of the facts. As appears therefrom, by the present proceedings the administrator of the company claims the delivery up of certain plant as property of the company together with damages for its wrongful retention. The council has refused delivery up in reliance on its contractual rights under the standard form of contract issued by the Institution of Civil Engineers. Clause 63(1) of this contract grants the council two distinct rights in the event of the company being expelled from the site. One is the right to retain possession of the plant and use it to complete the works without further payment to the company. The other is the right to sell plant on completion of the works as well as plant not required to complete the works and to apply the proceeds of sale towards whatever sums might be or become due from the company under the contract. The administrator contends that these rights constitute a floating charge which is void against him for want of registration under s 395 of the Companies Act 1985. The judge held that the rights in question constitute a fixed but not a floating charge and accordingly do not require registration… There are only four kinds of consensual security known to English law: (i) pledge; (ii) contractual lien; (iii) equitable charge; and (iv) mortgage. A pledge and a contractual lien both depend on the delivery of possession to the creditor. The difference between them is that in the case of a pledge the owner delivers possession to the creditor as security, whereas in the case of a lien the creditor retains possession of goods previously delivered to him for some other purpose. Neither a mortgage nor a charge depends on the delivery of possession. The difference between them is that a mortgage involves a transfer of legal or equitable ownership to the creditor, whereas an equitable charge does not. In the present case, the council’s rights in relation to the plant and materials are exclusively contractual, and are not attributable to any delivery of possession by the company. When the company brings plant and materials onto the site they remain in the possession of the company to enable it to use them in the completion of the works. There is no question of the company delivering possession at that stage, either by way of security (that is, as a pledge) or otherwise (that is, by way of lien). The council comes into possession of the plant and materials when it expels the company from the site leaving the plant and materials behind. But this does not amount to a voluntary delivery of possession by the company to the council. It is rather the exercise by the council of a contractual right to take possession of the plant and materials against the will of the company. In my judgment, therefore, the council’s rights are derived from contract not possession and, in so far as they are conferred by way of security, constitute an equitable charge…

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Sourcebook on Obligations and Remedies The essence of a floating charge is that it is a charge, not on any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee. The question is not whether the chargor has complete freedom to carry on his business as he chooses, but whether the chargee is in control of the charged assets… In my judgment, therefore, the failure to register the charge renders the security created by the power of sale void as against the administrator, but does not affect any other right of the council which is not a security and which does not require registration. In particular, it does not invalidate the council’s contractual right to retain possession of plant and materials and use them to complete the works. But after the completion of the works the council’s right to continue in possession is referable to a security which is void against the administrator and cannot prevail against him… I would dismiss the appeal. [Evans LJ delivered a judgment dismissing the appeal; Sir Ralph Gibson agreed with both judgments.]

Questions 1 2 3

What kind of right was in issue in this case: a right in rem or in personam? Did the company remain the owner of the plant? Ought a contract, a relation in personam, to be able to deliver possession of physical property to another person against the will of the owner of the property? Ought not the owner simply to be held liable for breach of contract? Or could it be said that the owner is estopped from denying the transfer of possession?

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CHAPTER 4

INTRODUCTION TO CONTRACTUAL OBLIGATIONS

1 INTRODUCTION The law of contract has acted as the paradigm obligation in the civil law systems since the development of the law of obligations itself (see above, pp 63–65). Even in the modern codes, delict (tort) and restitution can still seem an afterthought, and it is only the case law that reveals the impact of the industrial revolution. In English law, the historical position is much more complex, since contract is a relatively new import; yet once it had taken hold during the 19th century, nearly all obligations problems assumed a contractual flavour (Atiyah, The Rise and Fall of Freedom of Contract, 1979, OUP). The modern tort of negligence retains a ‘contractual’ element in its insistence upon a duty of care based on the empirical requirement of proximity (see Donoghue v Stevenson, p 65). The basis upon which English law has built its law of contract is the notion of promise. This, as we shall see, is in contrast to the Romanist systems, which have used the idea of agreement (and see PECL, Art 2:101). Of course, one can say that English contract law is about agreements and many writers do say this, but the judges are, on the whole, more circumspect. Agreement suggests a meeting of subjective minds, and this in turn implies that mistake will undermine the contract; promise, in contrast, is much more objective. Once one has launched a promise, others may come to rely upon it. This is probably one reason why the common law (in contrast to equity) has never developed a proper doctrine of mistake (see Bell v Lever Bros, p 490). Despite this difference in theoretical foundation, it has to be recognised that the law of contract is a legal institution common both to Anglo-American and to continental legal traditions. Indeed, as we have seen (Chapter 1), many of the ideas basic to English contract law were imported from the civil law during the 19th century. Not surprisingly, then, contract has been the prime subject for harmonisation not just in Europe (PECL), but on a global level (UNIDROIT). However, while the PECL incorporates many ideas from the common law (see, for example, Art 6:102), its structure is largely civilian. The theoretical foundation is agreement and not promise (Art 2:101) and, thus, it does not think in terms of breach of contract. The emphasis is on nonperformance of a contractual obligation (Art 8:101). Another civilian characteristic is the formal identification of interpretation as an aspect of contractual knowledge (Arts 5:101, etc). Of course, it would be idle to think that common lawyers are never faced with interpretation problems (see, for 379

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example, Staffordshire Waterworks, p 595). But, in general, the textbooks rarely contain separate chapters on rules of interpretation; the topic is hidden within other areas, such as terms and exclusion clauses. What a ‘European’ approach to English contract law can achieve, therefore, is a more structural approach to the subject. This, however, must never be allowed to eclipse the importance of remedies (cf Chapter 3) and pragmatic reasoning (cf Chapter 2) in the common law of contract (see, for example, Blackpool and Fylde, p 436). Principles of European Contract Law Article 1:101 Application of the principles (1) These Principles are intended to be applied as general rules of contract law in the European Communities. (2) These Principles will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them. (3) These Principles may be applied when the parties (a) have agreed that their contract is to be governed by ‘general principles of law’, the ‘lex mercatoria’ or the like; or (b) have not chosen any system or rules of law to govern their contract. (4) These Principles may provide a solution to the issue raised where the system or rules of law applicable do not do so.

2 CONTRACT AND THE LAW OF OBLIGATIONS Justinian, Institutes, Book 3, Title 13 An obligation is a legal bond (iuris vinculum) whereby we are bound by the need to perform something according to the laws of our city. Digest of Roman Law, Book 44, Title 7 (De obligationis et actionibus) 1 GAIUS. Obligations arise out of contract (ex contmctu), out of wrongs (ex maleficio) or from some special legal connection (ius) arising out of various causes. (1) Obligations ex contractu are contracted by the transfer of a thing (re), by words or by consent… 2 GAIUS. Consent (consensus) makes obligations in purchase and sale, letting and hiring, partnership, mandate. (1) Accordingly, we say that an obligation is contracted by consent in these forms of contract because neither words nor writing in any special form is required, but it is sufficient for those who conduct negotiations to agree…(3) Likewise in these contracts one person is obligated to another with regard to this, that one person with respect to the other ought to perform in accordance with fairness and equity. 3 PAUL. The substance of obligations does not consist in making some tangible thing (corpus) or servitude ours, but in binding another person to give, to do or to perform something for us…

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Introduction to Contractual Obligations 4 GAIUS. Obligations arise from wrongs, for example, out of theft, damage, robbery, insult (injuria). They are all of one genus, for they consist only in something that has happened (re), that is wrongdoing itself, whereas obligations ex contractu consist not only through the transfer of a thing (re), but also by words and by consent. 5 GAIUS… (1) Also guardians who are held liable at law are not properly considered bound ex contractu (for no transaction between guardian and ward is contracted): but because they are clearly not held liable ex maleficio, they are regarded as liable quasi ex contractu… (5) Also any person from whose upper floor (either his own or hired or where he is living gratis), something has been thrown or poured, so that it injures another, is regarded as being held liable quasi ex maleficio. But not properly an obligation ex maleficio is understood here since he is usually held liable for the fault of another, either slaves or children 25 ULPIAN. Actions are of two genera, in rem, which is called vindicatio, and in personam, which is called condictio. An action in rem is where we claim our thing which is in the possession of another; and always it is against the person who possesses the thing. An action in personam is when we act against one who is obligated to us to do something or to give something; and always it has place against that person. (1) Some actions, however, are ex contractu, some ex facto, some in factum. An action ex contractu is whenever someone contracts with another for his own profit, such as by buying and selling, by letting and hiring and similar transactions. An action ex facto is whenever someone is held liable for something he caused, what he himself set in train, such as where he has committed theft, insult or has done damage. An action is called in factum, as for example the action that is given to an ex-master against his freedman, by whom for breach of the praetor’s edict he was summoned to law. (2) Again, all actions are said to be either civil or praetorian. Code civil 1126 Every contract has for its object a thing which one party obligates himself to give or which one party binds himself to do or not to do. 1127 The mere use or the mere possession of a thing may be, like the thing itself, the object of a contract. 1128 Only things which are in commerce may be the object of agreements. Moschi v Lep Air Services Ltd [1973] AC 331 House of Lords (p 62.)

Notes 1

Lord Diplock recognises the important role of the remedy in English contract law. An action for damages is, for example, quite different from a claim in debt, the latter being more akin to a claim for specific performance. However, he also shifts sharply from the law of actions to substantive law in saying that contract is part of the English law of obligations. Now there is no doubt that the English law of civil liability is experiencing some re381

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orientation and Lord Diplock’s comment might be said to be one starting point. Senior judges are now talking less and less in terms of a twofold division of contract and tort, and more in terms of a law of obligations, and doctrine is adopting the same attitude. This reorientation is partly the result of the increasing acceptance of restitution as an independent third category and, possibly, partly the result of a growing influence of Europe on the English legal mind. Nevertheless, the transplanting of a law of obligations category does not come without considerable conceptual problems. Real and personal rights. In civilian legal thought, the law of obligations is part of a highly systematic structure of legal rights which rigidly distinguishes rights in rem from rights in personam (see the Roman jurist Paul, above). The law of obligations acts as the basis for all personal rights and thus, as a category, stands in contrast to the law of property; or, put another way, owing is kept quite distinct from owning. Such rigid systematics are inapplicable to the common law, since not only is much of the law of property to be found in contract and tort (see, for example, Torts (Interference with Goods) Act 1977), but the law of restitution is a mixture of personal and proprietary claims (see, for example, pp 794–819). A law of obligations, for the foreseeable future, can never have the same meaning for a common lawyer as it does for a continental jurist. General principles of liability. Another characteristic of the continental codes is that liability in the law of obligations is expressed through general principles (and see, now, PECL and UNIDROIT). Of course, an important distinction is made between contractual and non-contractual liability. However, the notion of liability itself, that is to say, non-performance of an obligation, tends to be viewed as an abstract notion founded not only upon specific contract or delict rules but also upon general ideas, as we shall see, such as fault and impossibility of performance (see, for example, PECL, Art 8:101). In the common law, it is often much harder to isolate such general principles, since the basis of civil liability has grown up around different types of forms of action and different species of remedy. Certainly, there are generalities, as we have seen in Chapter 3, with respect to the remedy of damages (for example, mitigation) and fault itself is now more or less a general principle of liability (Donoghue v Stevenson, p 65; Supply of Goods and Services Act 1982, s 13). But the forms (causes) of action can still exert an influence, with the result that it remains difficult to talk about liability in terms of general obligations. Thus, Act of God, breach of contract, breach of duty of care, frustration, self-induced frustration, contributory negligence, mitigation, novus actus interveniens, remoteness and so on tend to be approached as discrete rule areas. Put another way, there is little symmetry in English civil liability (cf PECL, Art 8:108). 382

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Nature of an obligation. A further difficulty with regard to an English law of obligations is that common lawyers have never worked with any notion of an obligation as a general legal bond (vinculum iuris). Certainly, they developed a general contractual duty (obligation) based on skill and care (The Moorcock, p 512; Supply of Goods and Services Act 1982, s 13) and it could be said that they even extended this general duty to non-contractual situations in most cases of physical injury (Donoghue v Stevenson, p 65) and some cases of pure economic loss when the relationship was close to contract (Hedley Byrne and Co v Heller, p 470; White v Jones, p 702). But, outside of negligence, it is almost impossible to conceive of any general pre-existing obligation, since strict liability is very much an exception, save perhaps in the area of supply of goods (Frost v Aylesbury Dairy, p 47). Strict liability is governed by discrete causes of action or statutes. Indeed, it has been specifically stated that the tort of trespass to the person cannot be envisaged in terms of a pre-existing duty (Stubbings v Webb [1993] AC 498, p 508) and there is certainly no general obligational liability in respect either of individual acts or of damage done by things under the control of another (Read v J Lyons and Co, p 662). One problem with this lack of any obligational principle outside of negligence is that strict liability causes of action are being re-interpreted in terms of fault (Cambridge Water Co v Eastern Leather, p 665) and this rounding down towards negligence in the common law is probably against the general flow of obligational liability in continental legal thought (see, for example, Brasserie du Pêcheur v Germany [1996] QB 404; Zweigert and Kötz, An Introduction to Comparative Law, 3rd edn, 1998, OUP, p 684). Methodology. The idea of a vinculum iuris is, then, not easy to find in the common law. Now the absence of any abstract notion of a vinculum iuris is due not just to the lack of a Roman legal scholarship tradition in English legal history: it also results from a methodological approach which is somewhat different from that to be found on the continent. The styles of legal reasoning in the common law and in the civil law are, for some, evidence of contrasting mentalities which, in turn, reflect quite different understandings of what it is to have legal knowledge (Legrand (1996) 45 ICLQ 52). This view is not shared by all comparatists (see, for example, Bell (1995) 48 CLP 63). However, for the obligations lawyer there is, arguably, sufficient difference of style to raise a serious question about transplanting continental ideas about obligations on to the common law of civil liability. English lawyers simply do not reason at the abstract level of the codes where form and symmetry help shape the institutional structures. Indeed, for the English lawyer, arguments based upon formal consistency are apt to mislead (Read v J Lyons and Co [1947] AC 156, p 175, above, p 662) and thus, legal reasoning is geared towards the search for the pragmatic solution. It is a question of proceeding one step at a time (Miliangos v George Frank, p 10) via analogy and metaphor rather than 383

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logical consistency and conceptual dialectic. Ex facto ius oritur. None of this is to retreat from saying that English contract law must now be studied in the context of Europe; it is simply to issue a warning against simplistic harmonisation arguments.

3 TYPES OF CONTRACT (a) Bilateral contracts United Dominions Trust Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74 Court of Appeal Diplock LJ:… [T]he present appeal does turn on the difference in legal character between contracts which are synallagmatic (a term which I prefer to bilateral, for there may be more than two parties), and contracts which are not synallagmatic but only unilateral, an expression which, like synallagmatic, I have borrowed from French law (Code civil, Art 1102 and Art 1103). Under contracts of the former kind, each party undertakes to the other party to do or to refrain from doing something, and, in the event of his failure to perform his undertaking, the law provides the other party with a remedy. The remedy of the other party may be limited to recovering monetary compensation for any loss which he has sustained as a result of the failure, without relieving him from his own obligation to do that which he himself has undertaken to do and has not yet done, or to continue to refrain from doing that which he himself has undertaken to refrain from doing. It may, in addition, entitle him, if he so elects, to be released from any further obligation to do or to refrain from doing anything… The mutual obligations of parties to a synallagmatic contract may be subject to conditions precedent, that is to say, they may not arise until a described event has occurred; but the event must not be one which one party can prevent from occurring, for if it is, it leaves that party free to decide whether or not he will enter into any obligations to the other party at all. The obligations under the contract lack that mutuality which is an essential characteristic of a synallagmatic contract…

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French law does not have a requirement of consideration. Are there not, therefore, important differences between the French notion of a bilateral contract and the English notion? Is not the English notion bound up with the requirement of consideration? What if a contract between A and B contains an exclusion clause that exonerates A from any contractual liability towards B in any circumstance: will the contract be void for lack of mutuality? Ought such a contract to be void? A contracts to work for B. A is then found guilty of a serious crime and sent to prison for a long period. Is A in breach of his contract with B? 384

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How does a condition precedent actually operate in English law? Are they individual promises, or are they events upon which other promises are based? A purchases a newspaper from B’s shop. What is the consideration for this sale contract?

(b) Unilateral contracts United Dominions Trust Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74 Court of Appeal Diplock LJ:… Under contracts which are only unilateral—which I have elsewhere described as ‘if’ contracts—one party, whom I will call ‘the promisor’, undertakes to do or to refrain from doing something on his part if another party, ‘the promisee’, does or refrains from doing something, but the promisee does not himself undertake to do or to refrain from doing that thing. The commonest contracts of this kind in English law are options for good consideration to buy or to sell or to grant or take a lease, competitions for prizes, and such contracts as that discussed in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. A unilateral contract does not give rise to any immediate obligation on the part of either party to do or to refrain from doing anything except possibly an obligation on the part of the promisor to refrain from putting it out of his power to perform his undertaking in the future. This apart, a unilateral contract may never give rise to any obligation on the part of the promisor; it will only do so on the occurrence of the event specified in the contract, viz, the doing (or refraining from doing) by the promisee of a particular thing. It never gives rise, however, to any obligation on the promisee to bring about the event by doing or refraining from doing that particular thing. Indeed, a unilateral contract of itself never gives rise to any obligation on the promisee to do or to refrain from doing anything. In its simplest form (for example, ‘If you pay the entrance fee and win the race, I will pay you £100’), no obligations on the part of the promisee result from it at all. But in its more complex and more usual form, as in an option, the promisor’s undertaking may be to enter into a synallagmatic contract with the promisee on the occurrence of the event specified in the unilateral contract, and in that case the event so specified must be, or at least include, the communication by the promisee to the promisor of the promisee’s acceptance of his obligations under the synallagmatic contract. By entering into the subsequent synallagmatic contract on the occurrence of the specified event, the promisor discharges his obligation under the unilateral contract and accepts new obligations under the synallagmatic contract. Any obligations of the promisee arise, not out of the unilateral contract, but out of the subsequent synallagmatic contract into which he was not obliged to enter but has chosen to do so. Two consequences follow from this. The first is that there is no room for any inquiry whether any act done by the promisee in purported performance of a unilateral contract amounts to a breach of warranty or a breach of condition on his part, for he is under no obligation to do or to refrain from doing any

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Sourcebook on Obligations and Remedies act at all. The second is that, as respects the promisor, the initial inquiry is whether the event, which under the unilateral contract gives rise to obligations on the part of the promisor, has occurred. To that inquiry the answer can only be a simple ‘Yes’ or ‘No’…

Questions 1

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A yacht club stipulates, If any yachtsman pays the entrance fee and wins the yacht race to be held on Saturday at 2 pm, we will pay the yachtsman £1,000’. D pays the fee and enters the race; however, during the race, he collides with P’s yacht and sinks it. Can P sue D for breach of contract? What if D won the race by cheating: can the yacht club, if it later discovers the deceit, sue D to recover the £1,000 and/or can C, who would be the winner if D is disqualified, sue D for £1,000? Could C sue D in damages for all his expenditure in entering the race? At what point in a unilateral contract is the contractual offer accepted? D advertises in his local newspaper that he will pay £10 to anyone who returns his lost wallet. P finds the wallet, which contains D’s address, and returns it to D, who says nothing about the reward. The next day P sees, for the first time, the reward advert in the paper: can he claim the £10? What if P, after seeing the advert and then finding the wallet, carelessly loses it while taking it to D’s house: can D sue P for the value of the wallet and its contents? In Carlill v Carbolic Smoke Ball Co (p 428), the plaintiff sued in debt on the basis of a unilateral contract. Did the plaintiff gain any kind of property right in the debt the moment the condition precedent matured?

(c) Contract or contracts Digest of Roman Law, Book 2, Title 14 (de pactis) 1 ULPIAN. The present Edict is based on natural justice. For what more can be in accordance with mutual trust among human beings than that which persons have agreed to should be kept? (I) Pactum is derived from pactio (from this term the word peace also comes). (2) And pactio means the agreement and mutual consent (consensus) of two or more persons over the same thing. (3) Agreement (conventio) is a general word applying to all things about which persons who deal with each other agree by contracting (contrahendi) or compromising a dispute (transigendi); for just as two people are said to come together when they are brought together and come to a single place from different locations, so also when people of different minds agree as one, that is come together in one mind. So general is the term agreement (conventio) Pedius makes the nice point that there can be no contract and no obligation, either made by the transfer of a thing (re) or by words, if

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Introduction to Contractual Obligations not involving agreement; for even a stipulation which is made by words, without having agreement, is void. (4) But most agreements are formed under some name, for example, sale, hire, pledge or stipulation. 7 ULPIAN. With regard to law of nations (ius gentium) agreements, some give rise to actions (actiones), some to defences (exceptiones). (I) Those that give rise to actions are not known under the term agreement, but in their own contract names: that is to say, sale, hire, partnership, loan, deposit and other similar contracts. (2) Even if the matter cannot be classified under one of these contracts, yet a sufficient ground (causa) exists, Aristo’s nice reply to Celsus says there is an obligation. So that I gave you a thing on the basis that you were to give me another thing or that you were to do something: this will be a synallagma and gives rise to a civil obligation… (4) But if no ground (causa) exists with regard to the agreement, then no obligation can exist; a bare agreement (nudum pactum) gives rise to no obligation, but to an exceptio… Code civil 1101 A contract is an agreement by which one or more persons obligate themselves toward one or more others to give, to do or not to do something. 1107 Contracts, whether they have a name of their own or not, are subject to general rules, which are the subject of the present Title. Particular rules for certain contracts are established under the Titles relating to each of them; and the particular rules for commercial transactions are established by the laws relating to commerce. Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 House of Lords Lord Diplock:… My Lords, the claim in each of these appeals is for damages for breach of a contract for the sale of goods. It will, therefore, be necessary to relate them to the relevant statutory provisions of the Sale of Goods Act 1893. In the form in which the Bill was originally drafted by Sir MacKenzie Chalmers that Act was intended to state the common law rules relating to the sale of goods as they had been developed by judicial decision up to 1889. Although a number of amendments were made in committee during the passage of the Bill through Parliament, they did not alter the essential character of the Act as expository of the common law of England at the date at which it was passed. But the exposition contained in the Act is only partial. It does not seek to codify the general law of contract of England or of Scotland. It assumes the existence as a basic principle of the English law of contract that, subject to any limitations imposed by statute or by common law rules of public policy, parties to contracts have freedom of choice not only as to what each will mutually promise to do but also as to what each is willing to accept as the consequences of the performance or non-performance of those promises so far as those consequences affect any other party to the contract… The provisions of the Act are in the main confined to statements of what promises are to be implied on the part of the buyer and the seller in respect of matters upon which the contract is silent, and statements of the consequences of 387

Sourcebook on Obligations and Remedies performance or non-performance of promises, whether expressed or implied, where the contract does not state what those consequences are to be. Even a code whose content is so limited must proceed by classifying promises, both those which are expressed and those to be implied; the circumstances which give rise to implied promises, and how they are to be performed and the consequences of performing each class of promise or of failing to perform it. Because of the source of the rules stated in the Sale of Goods Act 1893 the classification adopted is by reference to the promises made in relatively simple types of contracts for the sale of goods which were commonly made in the 19th century and had been the subject of judicial decision before 1893. But although the language in which the rules are expressed is appropriate to these simple types of contracts, it has to be applied today to promises made in much more complicated contracts which cannot be readily allotted to any single class of contract which appears to be primarily envisaged by a particular section or sub-section of the code. Unless the Sale of Goods Act 1893 is to be allowed to fossilise the law and to restrict the freedom of choice of parties to contracts for the sale of goods to make agreements which take account of advances in technology and changes in the way in which business is carried on today, the provisions set out in the various sections and sub-sections of the code ought not to be construed so narrowly as to force upon parties to contracts for the sale of goods promises and consequences different from what they must reasonably have intended. They should be treated rather as illustrations of the application to simple types of contract of general principles for ascertaining the common intention of the parties as to their mutual promises and their consequences which ought to be applied by analogy in cases arising out of contracts which do not appear to have been within the immediate contemplation of the draftsman of the Act in 1893. In each of the instant appeals the dispute is as to what the seller promised to the buyer by the words which he used in the contract itself and by his conduct in the course of the negotiations which led up to the contract. What he promised is determined by ascertaining what his words and conduct would have led the buyer reasonably to believe that he was promising. That is what is meant in the English law of contract by the common intention of the parties. The test is impersonal. It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the seller would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller’s promise was, unless that belief would have been shared by a reasonable man in the position of the buyer. The result of the application of this test to the words themselves used in the contract is ‘the construction of the contract’. So far as the reasonable belief of the buyer as to what the seller’s promise was, would have been influenced by any conduct of the seller before the contract was made, any implication as to the nature of his promise falls to be determined by applying to his conduct the general principles for ascertaining the common intention of parties to a contract for the sale of goods which underlie the relevant provisions of the Sale of Goods Act 1893… A contract for the sale of goods is one whereby the property in goods which have been physically identified is transferred from the seller to the buyer (see ss 1(1) and 16). But a contract may be made for the sale of unascertained 388

Introduction to Contractual Obligations goods before the actual goods in which the property is to be transferred are physically identified and agreed upon. At the time of making such a contract, the kind of goods which are its subject matter can only be identified verbally and/or by reference to a sample…

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English law, unlike classical Roman law, is committed in theory to the idea of a law of contract rather than contracts. Accordingly, the hire of a supertanker is in principle governed by the same general rules as the sale of an orange. In practice, of course, things are different (as Roman law recognised), and even in English law, different types of contract can be governed by different statutes. Thus, the sale of an orange will be governed by the Sale of Goods Act 1979, while the hire of a supertanker will not. What statutes will govern the hire of a supertanker? Will any statutes govern all types of contract? Lord Diplock talks about the classification of promises into those that are express and those that are implied. If it is statute that implies some promises, is it true to say that such promises (terms) have been agreed by the parties? Are they not simply rules imposed upon those entering certain kinds of transactions? To what extent ought parties, today, to be able to exclude implied terms? Is Lord Diplock reinforcing the thesis that English contract law is based upon promise rather than agreement? Is the Sale of Goods Act a code? If so, how does it differ from those statutes that are not codes? Would you call the Consumer Credit Act 1974 a code?

4 CONTRACTUAL LIABILITY Digest of Roman Law, Book 13, Title 6 (commodati vel contra) 5 ULPIAN… (2) Now let us see what is to be taken into account in the action on a loan for use, whether it is wilful wrongdoing (dolus) or fault (culpa) or in fact any risk (omne periculum). And indeed in contracts sometimes one is liable for dolus alone sometimes for culpa as well; dolus in deposit, for, because there is no interest (utilitas) of the depositee that is engaged, it is right that he is liable for dolus alone; unless perhaps payment is attached (for then, because of an imperial enactment (constitutio), fault is taken account of as well) or if it was agreed at the outset that the depositee is to be liable for both culpa and periculum. But where the interest of each party is advanced such as in sale, hire, dowry, pledge or partnership, one is liable for dolus and culpa… (4) In fact where something happened through old age or illness, or something is taken by robbers or something similar happens, it is laid down that no liability for this loss is to be imputed to the borrower, unless fault is to be found on his part. Consequently, if a fire or collapse of a building happens or some 389

Sourcebook on Obligations and Remedies similar fateful damage he is not liable, unless by chance he might have saved the things borrowed, he preferred to save his own… (7) But occasionally loss arising from death falls on the one who asked for the loan: thus if I lend you a horse for you to take to your country house, and you take it to war, you will be held liable on the contract of loan. The same applies with regard to a slave. It is obvious if I lent it so that you were to take it to war the risk (periculum) is mine. For if I lend you a slave plasterer and he falls from the scaffolding Namusa holds the risk to be mine. But I think this is right if I have lent him to you in order to work on the scaffolding; but if he was to work on the ground, and you ordered him up the scaffolding, or if the scaffolding is faulty through having been tied together, not by him, with lack of care or with old ropes or poles, I say the accident, which has happened through the fault of the person who asked for the loan, ought to be the responsibility of the borrower himself. For Mela has written, if a borrowed slave stone-cutter died under scaffolding, the artisan is liable to an action on loan for use because he has negligently fastened together the scaffolding. (8) In addition one who puts the thing lent for use to some other use, not only will he be held liable for an action on the loan, but also for an action for theft… (10) It is clear that on occasions the person who asks for a loan will be liable for dolus alone, as for instance if this is what he agreed; or if the loan relates only to his interest (causa), as by chance to his fiancée or wife so that she might be dressed in a dignified manner when brought to him… Code civil 1147 A debtor is judged liable, if there are grounds for it, to the payment of damages, either by reason of the non-performance of the obligation or by reason of delay in the performance at all times when he does not prove that the non-performance came from an outside cause (cause étrangère) which cannot be imputed to him, and further that there was no bad faith on his part. 1148 No damages arise when, as a result of an act of God (force majeure) or of a fortuitous event (cas fortuit), the debtor was prevented from giving or doing that for which he had bound himself, or did what was forbidden to him. Principles of European Contract Law Article 8:101 Remedies available (1)

Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Art 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9.

Article 8:108 Excuse due to an impediment

(1) A party’s non-performance is excused if it proves that it is due to an impediment beyond its control and that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences.

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The piece of text from the Corpus Iuris might at first sight seem mundane, but it is the foundation for the modern civil law of contractual liability (about which there is still debate: see, for example, Savaux [1999] RTD civ 1). It establishes that the starting point for such liability is fault and it shows how, at the level of liability, there is a close relationship between contractual and delictual (tortious) actions (see Treitel, Remedies for Breach of Contract, 1988, OUP, p 8). The Roman foundation is particularly evident in German law (BGB § 276), but it is implied by most of the other codes as well. This does not mean that contractual liability cannot be strict (that is, without fault); indeed, the Roman text itself indicates that this is possible. However, in the absence of agreement about the level of liability, fault will be the starting point. Or, put another way, when it comes to analysing facts in order to determine liability, one searches for individual fault linked to the damage via causation (the methodology applicable in the Roman law of tort: see Dig 9.2.52.2). That said, there has in the French model been a retreat from fault in as much as the codes (CC and PECL) themselves suggest that the onus of disproving fault is on the non-performing party. However, the position is more complex, in as much as the fault or strict liability dichotomy depends upon the nature of the obligation broken (see below, p 392, note 1). When one turns to English law, the position is said to be different. Liability depends upon breach of promise rather than on the nature of the defendant’s behaviour (Treitel, above, pp 8–9). In practice, however, the role of fault is of equal importance, as the materials which follow (and later chapters) should indicate. Supply of Goods and Services Act 1982 (c 29) 9

Implied terms about quality or fitness (2)

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Where…the bailor bails goods in the course of a business, there is…an implied condition that the goods supplied under the contract are of satisfactory quality.

Implied term about care and skill

In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill. Greaves and Co (Contractors) Ltd v Baynham Meikle and Partners [1975] 1 WLR 1095 Court of Appeal Lord Denning MR:… [I]t has often been stated that the law will only imply a term when it is reasonable and necessary to do so in order to give business efficacy to the transaction; and, indeed, so obvious that both parties must 391

Sourcebook on Obligations and Remedies have intended it. But those statements must be taken with considerable qualification. In the great majority of cases it is no use looking for the intention of both parties. If you asked the parties what they intended, they would say that they never gave it a thought; or, if they did, the one would say that he intended something different from the other. So that courts imply—or, as I would say, impose—a term such as is just and reasonable in the circumstances. Take some of the most familiar of implied terms in the authorities cited to us, such as the implied condition of fitness on a sale of goods at first implied by the common law and afterwards embodied in the Sale of Goods Act 1893. Or the implied warranty of fitness on a contract for work and materials: Young and Marten Ltd v McManus Childs Ltd. Or the implied warranty that a house should be reasonably fit for human habitation: see Hancock v BW Brazier. And dozens of other implied terms. If you should read the discussions in the cases, you will find that the judges are not looking for the intention of both parties; nor are they considering what the parties would answer to an officious bystander. They are only seeking to do what is ‘in all the circumstances reasonable’. That is how Lord Reid put it in Young and Marten Ltd v McManus Childs Ltd; and Lord Upjohn said quite clearly that the implied warranty is ‘imposed by law’. Apply this to the employment of a professional man. The law does not usually imply a warranty that he will achieve the desired result, but only a term that he will use reasonable care and skill. The surgeon does not warrant that he will cure the patient. Nor does the solicitor warrant that he will win the case. But, when a dentist agrees to make a set of false teeth for a patient, there is an implied warranty that they will fit his gums: see Samuels v Davis. What then is the position when an architect or an engineer is employed to design a house or a bridge? Is he under an implied warranty that, if the work is carried out to his design, it will be reasonably fit for the purpose? Or is he only under a duty to use reasonable care and skill? This question may require to be answered some day as a matter of law… Hyman v Nye (1881) 6 QBD 685 Queen’s Bench Division (See p 545.) Frost v Aylesbury Dairy Co Ltd [1905] 1 KB 608 (See p 47.) Lockett v A and M Charles Ltd [1938] 4 All ER 170 King’s Bench Division

(Seep 161.) Notes and questions 1

One of the central questions in the law of obligations is, for want of a better word, the intensity of the obligation itself. This can express itself in a number of ways. For example, in French law, it is the difference between obligations attaching to the means (obligation de moyens) and obligations attaching to the ends (obligations de résultat). This, in effect, usually comes down to the role of fault and its proof. In what circumstances will a person incur liability in the absence of fault (or proving fault)? The dichotomy is 392

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particularly evident in the 1982 Act extracted above: if goods are not of satisfactory quality then the bailor will be liable even if he himself was in no way to blame. The seller of goods incurs a similar liability (Sale of Goods Act 1979, s 14). This strict liability is justified on economic and social grounds in Hyman v Nye, but it still leaves open the question as to why, particularly in a consumer society, services are treated differently. Ought one to start off from the assumption that an action for breach of contract is based upon fault? Should contributory negligence be a defence? Does the Sale of Goods Act (see p 514) (and the Supply of Goods and Services Act) recognise contributory negligence as a defence? One reason for the difference between goods and services is to be found in the wording and institutional structure of the statutory provisions. Section 9 of the Supply of Goods and Services Act 1982, like s 14 of the Sale of Goods Act 1979, is framed around the res (goods), rather than the persona (seller). Thus, liability becomes dependent upon the state and condition of the goods. In s 13 of the 1982 Act, however, the rule is framed around the persona (supplier), and this automatically brings into play the behaviour of the supplier. The obligation, in other words, attaches to the person rather than to the thing. Imagine that Parliament had wanted to introduce strict liability for services: can you redraft s 13 so as to reflect Parliament’s wishes? English contract law is often said to be an obligation of strict liability rather than one that is fault-based; the civilian systems, in contrast, are said to be fault-based. There is truth in this at the level of contractual theory, but in practice it often comes down to interpretation. What did the parties actually promise (common law) or agree (civil law)? And policy has its role as well. Who ought to bear the risk of this damage or loss: the plaintiff or the defendant? Does, or should, insurance have a role here? Roe v Minister of Health [1954] 2 QB 66 Court of Appeal Denning LJ: No one can be unmoved by the disaster which has befallen these two unfortunate men. They were both working men before they went into the Chesterfield Hospital in October 1947. Both were insured contributors to the hospital, paying a small sum each week, in return for which they were entitled to be admitted for treatment when they were ill. Each of them was operated on in the hospital for a minor trouble, one for something wrong with a cartilage in his knee, the other for a hydrocele. The operations were both on the same day, 13 October 1947. Each of them was given a spinal anaesthetic by a visiting anaesthetist, Dr Graham. Each of them has in consequence been paralysed from the waist down. The judge has said that those facts do not speak for themselves, but I think that they do. They certainly call for an explanation. Each of these men is entitled to say to the hospital: ‘While I was in your hands something has been done to me which has wrecked my life. Please explain how it has come to pass’. The reason why the judge took a different view was because he 393

Sourcebook on Obligations and Remedies thought that the hospital authorities could disclaim responsibility for the anaesthetist, Dr Graham: and, as it might be his fault and not theirs, the hospital authorities were not called upon to give an explanation. I think that that reasoning is wrong. In the first place, I think that the hospital authorities are responsible for the whole of their staff, not only for the nurses and doctors, but also for the anaesthetists and the surgeons. It does not matter whether they are permanent or temporary, resident or visiting, whole time or part time. The hospital authorities are responsible for all of them. The reason is because, even if they are not servants, they are the agents of the hospital to give the treatment. The only exception is the case of consultants or anaesthetists selected and employed by the patient himself. I went into the matter with some care in Cassidy v Ministry of Health and I adhere to all I there said. In the second place, I do not think that the hospital authorities and Dr Graham can both avoid giving an explanation by the simple expedient of each throwing responsibility on to the other. If an injured person shows that one or other or both of two persons injured him, but cannot say which of them it was, then he is not defeated altogether. He can call on each of them for an explanation: see Baker v Market Harborough Industrial Co-operative Society. I approach this case, therefore, on the footing that the hospital authorities and Dr Graham were called on to give an explanation of what has happened. But I think that they have done so. They have spared no trouble or expense to seek out the cause of the disaster. The greatest specialists in the land were called to give evidence. In the result, the judge has found that what happened was this. [His Lordship discussed how the accident had occurred: disinfectant had seeped into the anaesthetic by means of invisible cracks in the ampoules; the anaesthetic was thus contaminated when used.]… That is the explanation of the disaster, and the question is: were any of the staff negligent? I pause to say that once the accident is explained, no question of res ipsa loquitur arises. The only question is whether on the facts as now ascertained anyone was negligent … If the anaesthetists had foreseen that the ampoules might get cracked with cracks that could not be detected on inspection they would no doubt have dyed the phenol a deep blue; and this would have exposed the contamination. But I do not think that their failure to foresee this was negligence. It is so easy to be wise after the event and to condemn as negligence that which was only a misadventure. We ought always to be on our guard against it, especially in cases against hospitals and doctors. Medical science has conferred great benefits on mankind, but these benefits are attended by considerable risks. Every surgical operation is attended by risks. We cannot take the benefits without taking the risks. Every advance in technique is also attended by risks. Doctors, like the rest of us, have to learn by experience; and experience often teaches in a hard way. Something goes wrong and shows up a weakness, and then it is put right. That is just what happened here. Dr Graham sought to escape the danger of infection by disinfecting the ampoule. In escaping that known danger he unfortunately ran into another danger. He did not know that there could be undetectable cracks, but it was not negligent for him not to know it at that time. We must not look at the 1947 accident with 1954 spectacles. The judge acquitted Dr Graham of negligence and we should uphold his decision… One final word. These two men have suffered such terrible consequences that there is a natural

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Introduction to Contractual Obligations feeling that they should be compensated. But we should be doing a disservice to the community at large if we were to impose liability on hospitals and doctors for everything that happens to go wrong. Doctors would be led to think more of their own safety than of the good of their patients. Initiative would be stifled and confidence shaken. A proper sense of proportion requires us to have regard to the conditions in which hospitals and doctors have to work. We must insist on due care for the patient at every point, but we must not condemn as negligence that which is only a misadventure. I agree with my Lord that these appeals should be dismissed. Thake v Maurice [1986] QB 644 Court of Appeal (See p 547.)

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Roe is not a contract case as such. But what implications, if any, does it have for the law of contract? If the plaintiff in Roe had been injured in a private hospital, in business for profit, would the reasoning and/or result have been different? Should the hospital have informed the plaintiffs of any risks of having an operation before carrying it out? What if the plaintiffs had claimed that they would never have consented to surgery if they had known of any general risks? What if the hospital had claimed that it was in a patient’s ‘best interests’ not to be told of any risks? The benefits of modern medicine may well be attended by considerable risks. But does it follow that individual citizens should be the people who have to carry the risk? If doctors have to learn the hard way, why is it that they (or their employers) do not have to bear the risks? Did the doctors or hospital administrators end up in wheelchairs? Why should the community not bear the risks, since the community benefits from good health? ‘Forget the stiff upper lip, this groundswell of litigation is turning us into grasping whingers and self-pitying milksops… Citizens should be discouraged from exploiting public services: suing should become shameful’ (Toynbee, P (1999) The Guardian, 21 April, p 18.) Were the plaintiffs in Roe whingers and self-pitying milksops who ought to be ashamed of themselves? What about the plaintiffs in Thake? Barclays Bank plc v Fairclough Building Ltd [1995] QB 214 Court of Appeal This was an action in damages for breach of contract brought by the owner of premises against a firm of contractors who had undertaken to carry out specialist maintenance work with respect to asbestos roofs on the premises. The contract specified that the work should be done by specialist roofing contractors. The defendant contractors, and their subcontractors, failed to do the work properly with the result that the plaintiffs incurred very expensive

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Sourcebook on Obligations and Remedies remedial work. The defendants claimed that the damage was caused wholly or in part by the plaintiffs’ own negligence. Beldam LJ: On 13 May 1993, in an action brought by the plaintiff bank against the defendant contractors to recover damages for breach of contract, Judge Richard Havery QC, sitting on official referees’ business, gave judgment for the plaintiff for damages to be assessed but held that such damages should be reduced by 40% because of the plaintiff’s contributory negligence. He summarised his decision in this sentence: In my judgment, the defendant is the party primarily at fault; the fault of the plaintiff is a failure to prevent the defendant from committing that fault.’ The fault committed by the defendant was the breach of two of the main obligations it had undertaken to perform under a standard form of building contract. The plaintiff now appeals raising the question whether contributory negligence is a partial defence to a claim founded on breach of contract and in particular whether the employer of a skilled contractor is at fault if he fails to supervise the manner in which the contractor executes the work. In short, is the employer entitled to assume that the contractor will carry out his promise properly?… The requirement that the workmanship should be the best of its kind required a standard to be achieved. It would not be satisfied by workmanship of average competence or skill or by the exercise of reasonable care to try to attain the standard. Taken in conjunction with the requirement that roofing work should only be executed by a specialist firm of roofing contractors or by craftsmen of the defendant’s properly experienced in such work, it is clear that the specification required the standard to be achieved, not merely that reasonable care should be taken in carrying out the work. It was argued by Mr Butcher for the defendant that it was inapposite to apply the term ‘workmanship’ to an operation of the kind undertaken to clean the asbestos roofs. In my view ‘workmanship’ in the context of the specification was intended to cover the whole of the works which the defendant had undertaken to perform. I consider therefore there was a clear breach of the defendant’s obligation to carry out the work in accordance with the specification and to achieve the standard specified. The defendant’s failure was not simply a failure to exercise reasonable care and skill, although out of caution an implied term to that effect had been pleaded on the plaintiff’s behalf. The defendant’s failure to comply with the requirements of the Asbestos Regulations 1987 in breach of condition 5.1 was likewise a breach of a strict contractual term. In its re-re-amended defence the defendant pleaded that the loss or damage suffered by the plaintiff was caused wholly or in part by its own negligence and/or by its breach of the contractually binding provisions of its own safety notes… … The judge then summarised the defendant’s argument. First, the plaintiff was under a comprehensive statutory duty to its employees and others not to expose them to asbestos dust. The plaintiff was also under a similar duty at common law which was non-delegable because the operation was extrahazardous. Secondly, an obvious risk existed which precautions could have been taken to minimise or obviate. Thirdly, the consequences of an escape of asbestos in a dry state were potentially catastrophic. Accordingly, it must 396

Introduction to Contractual Obligations have been the obligation of the plaintiff in its own interest in common with the interests of possible victims to see that proper procedures were in place to secure that the work was safely carried out… In finding that the plaintiff was partly responsible for the contamination of the building, the judge thought it indicative of a general attitude on its part that there had been some leakage of water into at least one of the buildings and that probably the water had asbestos in it and the plaintiff had taken no action. … In the present case, as I have already indicated, the judge did not consider the character of the obligations broken by the defendant and dealt with the case as if the only breach of duty was breach of a duty to take reasonable care coextensive with the breach of such a duty in tort. For the reasons I have given, I think he was wrong to do so. Breach of contract and contributory negligence The common law rule that in an action in tort a plaintiff whose own fault contributed with the defendant’s to cause his damage could recover nothing was perceived to be unfair and, as a result of the Law Revision Committee’s Eighth Report (Contributory Negligence), Cmnd 6032, 1939, the Law Reform (Contributory Negligence) Act 1945 was passed. Its purpose was to enable a court in actions of tort to apportion responsibility for the damage suffered by the plaintiff where there had been fault by both parties. It is the definition of ‘fault’ under s 4 which has since 1945 given rise to continuing debate and uncertainty whether the court’s ability to apportion damages applies to a case in which the plaintiff’s cause of action lies in contract. After nearly half a century of extensive academic analysis, inconclusive discussion in a number of decided cases and conflicting Commonwealth decisions, the position remained uncertain and in 1989 the Law Commission published Working Paper No 114, Contributory Negligence as a Defence in Contract. In this consultation paper the competing arguments based on the interpretation of s 4 and the state of the law as it then appeared to be were fully examined. After consultation the Commission reported its recommendations in December 1993, Contributory Negligence as a Defence in Contract (Law Com No 219). In the light of this extensive review of the law, a short summary of the position is in my view sufficient for the purposes of the present case. Section 4 of the Act defines ‘fault’: … ‘fault’ means negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence… It is generally agreed that the first part of the definition relates to the defendant’s fault and the second part to the plaintiff’s but debate has focused on the words ‘or other act or omission which gives rise to a liability in tort’ in the first part and ‘other act or omission which…would, apart from this Act, give rise to the defence of contributory negligence’ in the second part. It has been argued that, merely because the plaintiff frames his cause of action as a breach of contract, if the acts or omissions on which he relies could equally 397

Sourcebook on Obligations and Remedies well give rise to a liability in tort the defendant is entitled to rely on the defence of contributory negligence. Examples frequently cited are claims for damages against an employer or by a passenger against a railway or bus company where the plaintiff may frame his action either in tort or in contract and the duty relied on in either case is a duty to take reasonable care for the plaintiffs safety. Contributory negligence has been a defence in such actions for many years. So it is argued that, in all cases in which the contractual duty broken by a defendant is the same as and is coextensive with a similar duty in tort, the defendant may now rely on the defence. An opposing view based on the second part of the definition is that, if the plaintiff framed his action for breach of contract, contributory negligence at common law was never regarded as a defence to his claim and so cannot be relied on under the Act of 1945. Under the first part of the definition, if the plaintiff claims damages for breach of a contractual term which does not correspond with a duty in tort to take reasonable care, the defendant’s acts or omissions would not give rise to a liability in tort and accordingly no question of contributory negligence could arise. These arguments have led courts to classify contractual duties under three headings: (i) where a party’s liability arises from breach of a contractual provision which does not depend on a failure to take reasonable care; (ii) where the liability arises from an express contractual obligation to take care which does not correspond to any duty which would exist independently of the contract; (iii) where the liability for breach of contract is the same as, and coextensive with, a liability in tort independently of the existence of a contract. This analysis was adopted by Hobhouse J in Forsikringsaktieselskapet Vesta v Butcher [1986] 2 All ER 488 and by the Court of Appeal in the same case [1989] AC 852, pp 860, 862, 866–67. The judgments in the Court of Appeal in that case assert that in category (iii) cases the Court of Appeal is bound by the decision in Sayers v Harlow Urban District Council [1958] 1 WLR 623 to admit the availability of the defence. Since I do not regard the case before the court as being in that category, I am content to accept that decision. To regard the definition of fault in s 4 as extending to cases such as employer’s liability places no great strain on the construction of the words used. In 1945 actions brought by an employee whether framed in contract or tort were usually regarded as actions in negligence and the defence of contributory negligence was by no means uncommon. On the other hand, in category (i) cases there is no decision in which contributory negligence has been held to be a partial defence. There are powerful dicta to the effect that it cannot be: see the judgment of the court in Tennant Radiant Heat Ltd v Warrington Development Corporation [1988] 1 EGLR 41, in Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] 1 QB 818, p 904, and the observations of Nolan LJ in Schering Agrochemicals Ltd v Resibel NV SA (1992) unreported, 26 November; Court of Appeal (Civil Division) Transcript No 1298 of 1992, noted in (1993) 109 LQR 175, p 177… In my judgment, therefore, in the present state of the law contributory negligence is not a defence to a claim for damages founded on breach of a 398

Introduction to Contractual Obligations strict contractual obligation. I do not believe the wording of the Law Reform (Contributory Negligence) Act 1945 can reasonably sustain an argument to the contrary. Even if it did, in the present case the nature of the contract and the obligation undertaken by the skilled contractor did not impose on the plaintiff any duty in its own interest to prevent the defendant from committing the breaches of contract. To hold otherwise would, I consider, be equivalent to implying into the contract an obligation on the part of the plaintiff inconsistent with the express terms agreed by the parties. The contract clearly laid down the extent of the obligations of the plaintiff as architect and of the defendant. It was the defendant who was to provide appropriate supervision on site, not the architect… For the reasons I have given, I would allow the appeal. Simon Brown LJ:… But when, as in a category (i) case, the contractual liability is by no means immaterial, when rather it is a strict liability arising independently of any negligence on the defendant’s part, then there seem to me compelling reasons why the contract, even assuming it is silent as to apportionment, should be construed as excluding the operation of the Act of 1945. The very imposition of a strict liability on the defendant is to my mind inconsistent with an apportionment of the loss. And not least because of the absurdities that the contrary approach carries in its wake. Assume a defendant, clearly liable under a strict contractual duty. Is his position to be improved by demonstrating that besides breaching that duty he was in addition negligent? Take this very case. Is this contract really to be construed so that the defendant is advantaged by an assertion of its own liability in nuisance or trespass as well as in contract? Are we to have trials at which the defendant calls an expert to implicate him in tortious liability, whilst the plaintiff’s expert seeks paradoxically to exonerate him? The answer to all these questions is surely ‘No’. Whatever arguments exist for apportionment in other categories of case—and these are persuasively deployed in the 1993 Law Commission Report (Law Com No 219)—to my mind there are none in the present type of case and I for my part would construe the contract accordingly. For these reasons in addition to those given by Beldam LJ, I, too, would allow this appeal. Nourse LJ:… I am in complete agreement with the judgment of Beldam LJ. It ought to be a cause of general concern that the law should have got into such a state that a contractor who was in breach of two of the main obligations expressly undertaken by him in a standard form building contract was able to persuade the judge in the court below that the building owner’s damages should be reduced by 40% because of its own negligence in not preventing the contractor from committing the breaches. In circumstances such as these release, waiver, forbearance or the like are the only defences available to a party to a contract who wishes to assert that the other party’s right to recover damages for its breach has been lost or diminished. It ought to have been perfectly obvious that the Law Reform (Contributory Negligence) Act 1945 was never intended to obtrude the defence of contributory negligence into an area of the law where it has no business to be. I, too, would allow the appeal.

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5 STATUS AND CONTRACT Stevenson v Beverley Bentinck Ltd [1976] 1 WLR 483 Court of Appeal This was an action in conversion and detinue by the purchaser of a motor car, which, unknown to the purchaser, was still on hire purchase from a finance company, against the finance company who had seized the vehicle. The action failed in the Court of Appeal. Roskill LJ:… Ever since hire purchase was invented, round about the turn of the century, there have been hire purchase frauds, and the books are full of examples of such frauds, which have caused loss to innocent parties. Again and again—and the present case is yet another example—courts have to decide where as between two wholly innocent parties, that loss should fall. This is particularly so in the case of motor cars, because persons who hire motor cars under hire purchase agreements persist in selling them or purporting to sell them, to innocent purchasers when as persons in possession they have no right whatever to sell. The common law had a plain answer in those cases. It said that the true owner was never divested of his title, but as things have progressed through this century (if ‘progress’ is the right word), Parliament thought it necessary to alter the common law position and to give limited protection to those who bought vehicles or other goods in such circumstances. There was nothing new in that concept. The Factors Acts go back to the early part of the last century, and came to rest, after a number of amendments, in 1889. The 1889 Act is still on the statute book. Section 25(2) of the Sale of Goods Act 1893 is another example of the statutory protection of an innocent purchaser of goods. Now, under ss 27 and 29 of the Hire Purchase Act 1964, we have yet further though limited protection given to an innocent purchaser of a car on hire purchase whose hirer has purported to convey a title to that car which at common law he cannot give. The sole question, to my mind, is whether the plaintiff can bring himself within that protection. The argument advanced by counsel for the plaintiff (I think it was in substance the argument which junior counsel for the plaintiff advanced in the court below, and which failed) was this. The plaintiff did not acquire this Jaguar in his capacity as a part time motor trader. He acquired it in his private capacity. Therefore, it is said, he is within the protection given to a ‘private purchase’ under ss 27 and 29. If it were relevant to look at the capacity in which he bought the car, that would be a very attractive argument, and if this were a case under the Factors Act 1889 that might well be the position, but this is not a case under the Factors Act. As I ventured to point out to counsel for the plaintiff, the Factors Act is entirely different, both in concept and in expression, from the language of ss 27 and 29 of the 1964 Act. The Factors Act in the type of case to which counsel for the plaintiff referred unquestionably requires the court to look both at the status of the person said to be a mercantile agent, and also at the capacity in which he has dealt with the particular goods in question.

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Introduction to Contractual Obligations Counsel for the defendants, if I may say so, put the point in a succinct sentence when he said that under the present Act the court is concerned not with capacity, but only with status. I think that is right. I think Parliament created a clear dichotomy. It may work hardly in some cases. In the present case it seems to work hardly on the plaintiff as an innocent purchaser, but we cannot stretch the construction of s 27 and the definitions in s 29 merely to meet a hard case. When one looks at the sections, here is, as Bridge J put it, a clear dichotomy between a ‘trade or finance purchaser’ on the one hand and a ‘private purchaser’ on the other. A ‘private purchaser’ does not mean a person who buys a car otherwise than in his capacity as a ‘trade or finance purchaser’. It means someone who does not at the material time carry on any such business as is defined as being the business of a ‘trade or finance purchaser’. So, one has to resolve the question by asking oneself, as did the learned judge: at the time when the disposition in question was effected, was the purchaser carrying on wholly or partly the business of a ‘trade or finance purchaser’? The learned judge, by a slip of the tongue, used the word ‘date’ instead of ‘time’. That question in this case seems to me to be susceptible of only one answer. The purchaser (the plaintiff) was at the time of the disposition carrying on in part the business of a motor dealer—a trade or finance purchaser—and that disentitles him to the statutory protection given to a ‘private purchaser’ under s 27.1 would, therefore, dismiss this appeal. It follows that I am afraid that I am unable to agree with the passage in Goode on Hire Purchase on which counsel for the plaintiff relies. Waverley BC v Fletcher [1996] QB 334 Court of Appeal (Seep 42.)

Notes and questions 1

These cases, if they do nothing else, prove that one needs a knowledge of Roman law in order to be able to understand legal thought and legal reasoning in any of the Western systems of law. English law may not adhere to the rigid systematics of Gaius and Justinian, but Stevenson indicates that it still appears to distinguish between the law of persons and the law of things. In general, one is in the realm of the law of persons when dealing with status and personality; the former is usually encountered in problems about nationality, and the latter forms the basis of company law. However, a knowledge of the law of persons is vital even when in the area of the law of things, since the law of obligations raises problems about corporate liability. Where Stevenson and Waverley are interesting is in their use of the law of persons to decide a problem from the law of property. In Stevenson ownership of a car is directly dependent upon the status of the plaintiff, and in Waverley title to the brooch seems to depend upon the labelling of the finder as a ‘trespasser’. Ought ownership to be dependent upon status? Is this not to confuse concepts?

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2

Are the following matters of status: (a) a Visitor’ and an ‘occupier’ in the Occupiers’ Liability Act 1957; (b) a ‘consumer’ in the Unfair Contract Terms Act 1977; (c) a ‘bailor’ and a bailee’ in the Torts (Interference with Goods) Act 1977; (d) a seller of goods in the ‘course of a business’ in the Sale of Goods Act 1979? Are there other law of obligations statutes that might raise questions of status?

6 PROMISE AND AGREEMENT Principles of European Contract Law Article 2:101 Conditions for the conclusion of a contract (1)

A contract is concluded if (a) (b)

(2)

the parties intend to be legally bound, and they reach a sufficient agreement without any further requirement.

A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses.

Article 2:102 Intention The intention of a party to be legally bound by contract is to be determined from the party’s statements or conduct as they were reasonably understood by the other party. Article 2:103 Sufficient agreement (1)

There is sufficient agreement if the terms: (a) (b)

(2)

have been sufficiently defined by the parties so that the contract can be enforced, or can be determined under these Principles.

However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached.

Article 2:211 Contracts not concluded through offer and acceptance The rules in this section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance. Gibson v Manchester City Council [1978] 1 WLR 520 Court of Appeal; [1979] 1 WLR 294 House of Lords (See also p 424.) Lord Denning MR (Court of Appeal):… We have had much discussion as to whether Mr Gibson’s letter of 18 March 1971 was a new offer or whether it was an acceptance of the previous offer which had been made. I do not like 402

Introduction to Contractual Obligations detailed analysis on such a point. To my mind it is a mistake to think that all contracts can be analysed into the form of offer and acceptance. I know in some of the textbooks it has been the custom to do so; but, as I understand the law, there is no need to look for a strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and see therefrom whether the parties have come to an agreement on everything that was material. If by their correspondence and their conduct you can see an agreement on all material terms, which was intended thenceforward to be binding, then there is a binding contract in law even though all the formalities have not been gone through… Lord Diplock (House of Lords):… My Lords, there may be certain types of contract, although I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these. I can see no reason in the instant case for departing from the conventional approach of looking at the handful of documents relied on as constituting the contract sued on and seeing whether on their true construction there is to be found in them a contractual offer by the council to sell the house to Mr Gibson and an acceptance of that offer by Mr Gibson. I venture to think that it was by departing from this conventional approach that the majority of the Court of Appeal was led into error… Hopkins v Tanqueray (1854) 139 ER 369 Court of Common Pleas This was an action for damages by the purchaser, at an auction at Tattersall’s, of a horse subsequently found to be unsound and resold at a loss by the purchaser. He claimed that the horse was warranted as sound because of statements by the seller to the purchaser on the day previous to the auction; but it was established that horses sold at Tattersall’s were not warranted unless so stated in the catalogue and that the horse in question was not warranted. The jury found in favour of the purchaser, but the Court of Common Pleas held that there was no evidence to support their finding. Jervis CJ:… I am of opinion that the rule to enter a nonsuit in this case must be made absolute. No doubt, there is no necessity that the word ‘warrant’ or ‘promise’ should occur in the bargain… Nor is it necessary that the statement or representation should be simultaneous with the close of the bargain: if it be part of the contract, it matters not at what period of the negotiation it is made … Whether, assuming what was said in this case prior to the sale, to have amounted to a warranty, such warranty would under the circumstances have been binding between the parties, I give no opinion, because I think it is quite clear that what passed amounted to a representation only, and not to a warranty. The facts were simply these: The defendant seeing the plaintiff in the stable on the Sunday prior to the sale, examining the horse’s legs, said to him, ‘You need not examine his legs; you have nothing to look for: I assure you he is perfectly sound in every respect’ to which the plaintiff replied, ‘If you say so, I am satisfied’. The plaintiff made no further examination; and he did not employ a veterinary surgeon, relying upon a representation made by an honourable

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Sourcebook on Obligations and Remedies man. The defendant, doubtless, believed the horse to be as he represented it: no fraud is imputed to him: on the contrary, indeed, the plaintiff expressly disclaims it. There is, consequently, no basis on which to rest this action. On the day following, Mr Tattersall announces that he is about to sell California without a warranty: and the defendant becomes the purchaser. It seems to me to be perfectly clear, that, in what took place between them on the Sunday, the defendant did not mean to warrant the horse, but was merely making a representation of that which he bona fide believed to be the fact; and that the plaintiff so understood it. What passed afterwards cannot in any degree affect the case: it only amounts to this, that the parties thought at one time that there had been a warranty. I think the rule must be made absolute. Maule J: I also am of opinion that the rule to enter a nonsuit in this case must be made absolute, the event in which the leave for that purpose was reserved having arisen, viz, that there was no evidence to go to the jury that the horse was sold with a warranty. That there was no warranty at the time of the actual sale, is perfectly clear; for, it was shown to be the course of dealing at Tattersall’s, that no horse is sold with a warranty unless it is expressly mentioned; and this has been dealt with as a case in which no mention of warranty was made at the time of the sale. The question, then, is, whether we can import a warranty of soundness, as between the plaintiff and the defendant, from that which took place at Tattersall’s on the day preceding the auction—a conversation pointing towards a sale of the horse… The evidence, properly understood, and appreciated, amounts to no more than this, that the defendant was believed to be a gentleman of veracity, as well as of skill in horses, and the plaintiff was about to examine the horse in question, as persons who are, or affect to be, very knowing usually perform that operation, when the defendant says to him, ‘You need not take the trouble to examine my horse to ascertain if there is any defect that may be seen or felt: he is perfectly sound’. That is a clear representation: and, if it were made with intent to deceive, the defendant would undoubtedly be liable. That, however, is not only not insinuated, but actually disclaimed on the part of the plaintiff, and I think very properly. There appears to have been no more than an honest representation that the horse in the defendant’s opinion, and so far as his knowledge went, was a perfectly sound horse. There is nothing whatever to show that the representation was one that was to subject the defendant to a liability to pay damages in the event of the horse proving to be unsound—nothing to show that the defendant meant more than what he actually did say on the occasion. The fact of that conversation passing between the plaintiff and the defendant at the time when it was known to both that the sale was to take place by public competition on the following day, affords to my mind a very strong reason for thinking that the defendant could not have intended what he then said to be imported as a warranty into the transaction. If there be any ambiguity, that affords an additional presumption that that conversation was not intended for a warranty. I therefore think there was no evidence to go to the jury, and consequently that a nonsuit must be entered pursuant to the leave reserved. It is unnecessary to say anything as to the other point which was thrown out in the course of the argument.

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Introduction to Contractual Obligations Cresswell J (concurred). Crowder J: I am of the same opinion. The conversation which took place between the parties on the Sunday was a mere representation, and was evidently not made with an intention to warrant the horse. A representation, to constitute a warranty, must be shown to have been intended to form part of the contract. I think it abundantly clear upon the evidence that the matter here relied on was not understood or intended as forming part of the contract which might be made at the auction on the following day, which it was well known to both parties would be without a warranty. It was a mere representation, quite distinct from any intention to warrant the animal. It is unnecessary to consider whether a party may lawfully warrant as between himself and a particular individual under circumstances like these. It is a very grave question whether such a contract could be upheld in a court of justice, in the case of a sale by auction, where all have a right to suppose they are bidding upon equal terms…

Notes and questions 1

2

3

4

If a man covenant, for a valid consideration, that it shall rain tomorrow, he cannot afterwards say, “I could not make it rain; I did all I could to make it rain; but it would not”. He chooses to covenant that such a thing shall happen, and if it does not, he has broken his covenant. If a man enter into a covenant that a thing shall be of a particular quality, it would be no answer to say, “it is impossible the thing can be of that quality”’ (Maule J in Canham v Barry (1855) 24 LJCP 100, p 106). Would a promise that it shall rain tomorrow be capable of forming the basis of a contract in Roman and French law? ‘When a person has been induced to enter into a contract by a representation which, whether wilfully or not, was a mistake, equity will give relief…’ (Byles J in Stears v South Essex Gaslight and Coke Co (1861) 30 LJCP 49, p 55). Could the plaintiff in Hopkins v Tanqueray have claimed relief in equity? If there is one principle more clear than another, it is, that if a man has made a deliberate statement, and another has acted upon it, he cannot be at liberty to deny the truth of the statement he has made’ (Bramwell B in McCance v L and NW Railway (1861) 31 LJ Exch 65, p 71). Is this a principle that is reflected both in common law (contract and deceit) and in equity (estoppel)? In the civil law systems, contract has, since classical Roman law, been based on the agreement (conventio). In Roman law itself, this did not have a great deal of meaning since, as we have seen, the classical jurists did not think in terms of a general theory of contract; what mattered was the type of transaction in issue (Weir, ‘Contracts in Rome and England’ (1992) 66 Tulane LR 1615). Conventio was a common denominator that linked all the various types of contract. It was the medieval Roman and canon lawyers who turned this common 405

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5

6

7

8

denominator into a principle and the 19th century jurists who made it an axiom (Zimmermann, The Law of Obligations, 1996, OUP, pp 537–45, 559–69). The history of contract in the common law is founded on a rather different institutional basis: the role of covenant, deceit and assumpsit saw liability more in terms of broken promises rather than unperformed obligations (Zimmermann, pp 572–76). And while, at first sight, it may seem of little relevance whether the notion of contract is based on promise or on agreement, the difference can have practical effects. For example, agreement founded upon consent implies a doctrine of error (CC, Art 1109). How can there be true consent when one party is labouring under a mistake? A doctrine of promise, on the other hand, does not necessarily imply that mistake should undermine a contract. It is perfectly possible to say that a promisor takes the risk of error. Does this difference between promise and agreement mean that English and, say, French contract law are based on quite different foundations, possibly acting as an obstacle to harmonisation? What is the value in distinguishing between representations and warranties? Was the court in Hopkins in effect treating the representation as a mere ‘puff, which would not attract legal liability? Was Lord Denning attempting to replace the promise thesis with the theory that contract was a matter of agreement? Was this attempt rejected in the House of Lords? Is contractual liability to be found within the actual facts of a dispute or is it to be found within the intention of the parties? In a case like Gibson, does a court have to look only at the documents, or must it look beyond the documents? Read Clarke v Dunraven [1897] AC 59 in the law reports. Is this one of Lord Diplock’s exceptional cases?

7 FREEDOM OF CONTRACT Code civil 1134 Agreements legally made take the place of legislation (tiennent lieu de loi) for those who make them. They may be revoked only by mutual consent or for causes which the law authorises. They must be performed in good faith. 1135 Agreements bind not only for what is expressed therein, but also for all the consequences which equity, usage or legislation give to an obligation according to its nature.

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Introduction to Contractual Obligations Principles of European Contract Law Article 1:102 Freedom of contract (1) (2)

Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles. The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these principles.

Article 4:110 Unfair terms which have not been individually negotiated (1)

(2)

A party may avoid a term which has not been negotiated individually if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of that party, taking into account the nature of the performance to be rendered under the contract, all the other terms of the contract and the circumstances at the time the contract was concluded. This Article does not apply to: (a) (b)

a term which defines the main subject matter of the contract, provided the term is in plain and intelligible language; or to the adequacy in value of one party’s obligations compared to the value of the obligations of the other party.

Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462 Chancery Sir George Jessel:… If there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice…

Notes and questions 1

2

3

‘I think, if we held this action to be maintainable, we should violate a most important principle of law, that parties to contracts are to be allowed to regulate their contracts and liabilities themselves, and that the Court will only give effect to the intention of the parties as it is expressed by the contract’ (Erle J in Gott v Gandy (1853) 23 LJQB 1, p 3). Is contract a form of private legislation? ‘[T]he defendants are at liberty to make any contract they please, and where the question is, what were the terms of the bailment so made? the reasonableness of the terms is an irrelevant inquiry, the parties being at liberty to choose their own terms…’ (Erle CJ in Van Toll v SE Railway (1862) 31 LJCP 241, p 244). Will courts enforce unreasonable contracts? Is (or was) the doctrine of freedom of contract a device to suit the City of London? If the influence of commerce was of importance, why did English 407

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law not distinguish between commercial and non-commercial transactions? Does it do so today? If parties have the right to make contracts on their own terms, is this a right that can be abused? Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 House of Lords (See p 552.) Unfair Contract Terms Act 1977 (c 50) (See also p 555.) 1

Scope of Part I (1)

For the purposes of this Part of this Act, ‘negligence’ means the breach (a) (b)

(3) 2

of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty);…

In the case of both contract and tort, subsections 2–7 apply…only to business liability…

Negligence liability (1)

(2)

A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence. In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness…

The Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 8

Effect of unfair term (1) (2)

An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.

(See also p 56.)

Questions 1

2

Do the 1977 statute and the 1999 Regulations undermine in a significant way the doctrine of freedom of contract? Do contractual promises in business liability situations now have to be reasonable? (Cf below, p 569.) Why does the 1977 Act distinguish between business liability and nonbusiness liability when the law of contract does not? 408

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3

Do the courts now distinguish between commercial and consumer transactions as a matter of general contractual principle?

8 GOOD FAITH Principles of European Contract Law Article 1:201 Good faith and fair dealing (1) (2)

Each party must act in accordance with good faith and fair dealing. The parties may not exclude or limit this duty.

Article 1:202 Duty to co-operate Each party owes to the other a duty to co-operate in order to give full effect to the contract. The Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 5

Unfair terms A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 Court of Appeal Dillon LJ:… The plaintiffs run a library of photographic transparencies. The defendants are engaged in advertising. On 5 March 1984, Mr Beeching, a director of the defendants, wanting photographs for a presentation for a client, telephoned the plaintiffs, whom the defendants had never dealt with before. He spoke to a Miss Fraser of the plaintiffs and asked her whether the plaintiffs had any photographs of the 1950s which might be suitable for the defendants’ presentation. Miss Fraser said that she would research his request, and a little later on the same day, she sent round by hand to the defendants 47 transparencies packed in a jiffy bag. Also packed in the bag, among the transparencies, was a delivery note which she had typed out… Having received the transparencies, Mr Beeching telephoned the plaintiffs at about 3.10 on the afternoon of 5 March, and told Miss Fraser…that he was very impressed with the plaintiffs’ fast service, that one or two of the transparencies could be of interest, and that he would get back to the plaintiffs. Unfortunately, he did not get back on to the plaintiffs and the transparencies seem to have been put on one side and overlooked by the defendants. The plaintiffs tried to telephone Mr Beeching on 20 and again on 23 March, but only spoke to his secretary. In the upshot the transparencies, which the defendants did not use for their presentation, were not returned to the plaintiffs until 2 April. The plaintiffs thereupon sent an invoice to the defendants for £3,783.50 as a holding charge for the transparencies. The invoice was rejected by the defendants, and accordingly in May 1984 the plaintiffs started this action 409

Sourcebook on Obligations and Remedies claiming £3,783.50, the amount of the invoice. That is the sum for which the judge awarded the plaintiffs judgment by his order now under appeal. The plaintiffs’ claim is based on conditions printed on their delivery note... The sum of £3,783.50 is calculated by the plaintiffs in strict accordance with condition 2 as the fee for the retention of 47 transparencies from 19 March to 2 April 1984. It is of course important to the plaintiffs to get their transparencies back reasonably quickly, if they are not wanted, since if a transparency is out with one customer it cannot be offered to another customer, should occasion arise. It has to be said, however, that the holding fee charged by the plaintiffs by condition 2 is extremely high, and in my view exorbitant. The judge held that on a quantum meruit a reasonable charge would have been £3.50 per transparency per week, and not £5 per day… The question is therefore whether condition 2 was sufficiently brought to the defendants’ attention to make it a term of the contract which was only concluded after the defendants had received, and must have known that they had received the transparencies and the delivery note. This sort of question was posed, in relation to printed conditions, in the ticket cases, such as Parker v South Eastern Railway Co (1877) 2 CPD 416, in the last century. At that stage the printed conditions were looked at as a whole and the question considered by the courts was whether the printed conditions as a whole had been sufficiently drawn to a customer’s attention to make the whole set of conditions part of the contract; if so the customer was bound by the printed conditions even though he never read them. More recently the question has been discussed whether it is enough to look at a set of printed conditions as a whole. When for instance one condition in a set is particularly onerous does something special need to be done to draw customers’ attention to that particular condition?… [I]n Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 both Lord Denning MR and Megaw LJ held as one of their grounds of decision, as I read their judgments, that where a condition is particularly onerous or unusual the party seeking to enforce it must show that that condition, or an unusual condition of that particular nature, was fairly brought to the notice of the other party… Counsel for the plaintiffs submits that Thornton v Shoe Lane Parking Ltd [1971] 2 QB 613 was a case of an exemption clause and that what their Lordships said must be read as limited to exemption clauses and in particular exemption clauses which would deprive the party on whom they are imposed of statutory rights. But what their Lordships said was said by way of interpretation and application of the general statement of the law by Mellish LJ in Parker v South Eastern Railway Co (1877) 2 CPD 416, pp 423–24 and the logic of it is applicable to any particularly onerous clause in a printed set of conditions of the one contracting party which would not be generally known to the other party. Condition 2 of these plaintiffs’ conditions is in my judgment a very onerous clause. The defendants could not conceivably have known, if their attention was not drawn to the clause, that the plaintiffs were proposing to charge a

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Introduction to Contractual Obligations ‘holding fee’ for the retention of the transparencies at such a very high and exorbitant rate. At the time of the ticket cases in the last century, it was notorious that people hardly ever troubled to read printed conditions on a ticket or delivery note or similar document. That remains the case now. In the intervening years the printed conditions have tended to become more and more complicated and more and more one-sided in favour of the party who is imposing them, but the other parties, if they notice that there are printed conditions at all, generally still tend to assume that such conditions are only concerned with ancillary matters of form and are not of importance. In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties’ attention to the printed conditions or they would not be part of the contract. It is, in my judgment, a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party. In the present case, nothing whatever was done by the plaintiffs to draw the defendants’ attention particularly to condition 2; it was merely one of four columns’ width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties. I would therefore allow this appeal and reduce the amount of the judgment which the judge awarded against the defendants to the amount which he would have awarded on a quantum meruit on his alternative findings, that is, the reasonable charge of £3.50 per transparency per week for the retention of the transparencies beyond a reasonable period, which he fixed at 14 days from the date of their receipt by the defendants. Bingham LJ: In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical colloquialisms as ‘playing fair’, ‘coming clean’ or ‘putting one’s cards face upwards on the table’. It is in essence a principle of fair and open dealing. In such a forum it might, I think, be held on the facts of this case that the plaintiffs were under a duty in all fairness to draw the defendants’ attention specifically to the high price payable if the transparencies were not returned in time and, when the 14 days had expired, to point out to the defendants the high cost of continued failure to return them. English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness. Many examples could be given. Thus equity has intervened to strike down unconscionable bargains. Parliament has stepped in to regulate the imposition of exemption clauses and the form of certain

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Sourcebook on Obligations and Remedies hire purchase agreements. The common law also has made its contribution, by holding that certain classes of contract require the utmost good faith, by treating as irrecoverable what purport to be agreed estimates of damage but are in truth a disguised penalty for breach, and in many other ways. The well known cases on sufficiency of notice are in my view properly to be read in this context. At one level they are concerned with a question of pure contractual analysis, whether one party has done enough to give the other notice of the incorporation of a term in the contract. At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature… The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned. Turning to the present case, I am satisfied for reasons which Dillon LJ has given that no contract was made on the telephone when the defendants made their initial request. I am equally satisfied that no contract was made on delivery of the transparencies to the defendants before the opening of the jiffy bag in which they were contained. Once the jiffy bag was opened and the transparencies taken out with the delivery note, it is in my judgment an inescapable inference that the defendants would have recognised the delivery note as a document of a kind likely to contain contractual terms and would have seen that there were conditions printed in small but visible lettering on the face of the document. To the extent that the conditions so displayed were common form or usual terms regularly encountered in this business, I do not think the defendants could successfully contend that they were not incorporated into the contract. The crucial question in the case is whether the plaintiffs can be said fairly and reasonably to have brought condition 2 to the notice of the defendants. The judge made no finding on the point, but I think that it is open to this court to draw an inference from the primary findings which he did make. In my opinion the plaintiffs did not do so. They delivered 47 transparencies, which was a number the defendants had not specifically asked for. Condition 2 contained a daily rate per transparency after the initial period of 14 days many times greater than was usual or (so far as the evidence shows) heard of. For these 47 transparencies, there was to be a charge for each day of delay of £235 plus value added tax. The result would be that a venial period of delay, as here, would lead to an inordinate liability. The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not; but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention. I would accordingly allow the defendants’ appeal and substitute for the judge’s award the sum which he assessed upon the alternative basis of quantum meruit. In reaching the conclusion I have expressed I would not wish to be taken as deciding that

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Introduction to Contractual Obligations condition 2 was not challengeable as a disguised penalty clause. This point was not argued before the judge nor raised in the notice of appeal. It was accordingly not argued before us. I have accordingly felt bound to assume, somewhat reluctantly, that condition 2 would be enforceable if fully and fairly brought to the defendants’ attention.

Questions 1 2

3 4

5

6

On what legal ground was the debt clause in Interfoto set aside? Will Bingham LJ (now Lord Bingham CJ) have to change his views on good faith in English law? Or was he simply preparing English law for change from outside? Are consumer contracts now subject to the principle of good faith? Are consumers, as a group, now a legal subject with their own rights and interests? Or, put another way, are they, as a class, a quasi-subject in a law of persons sense? If so, does this not undermine the individualism upon which the traditional law of contract is based? To what extent is the law of obligations now a matter of quasi-subjects rather than individuals? If parties are under a duty only to plead the facts, why is it that a court cannot raise any question of law (for example, whether the clause is a penalty) to be found in the facts? (Cf Esso, p 216.) Bingham LJ suggests that the cases on sufficiency of notice function on two levels. Is this true of all cases? What implications might this have for legal analysis? Waiford v Miles [1992] 2 AC 128 House of Lords (See p 440.) University of Nottingham v Eyett [1999] 2 All ER 437 Chancery Division Hart J: This is an appeal by the University of Nottingham (the university) against a determination dated 8 July 1998 of the Pensions Ombudsman, whereby the Pensions Ombudsman upheld a complaint by Mr Eyett (the complainant) that the university, in its capacity as employer of Mr Eyett, had been guilty of maladministration of the university’s pension scheme (the scheme). Under the rules of the scheme as applied with effect from 1 January 1992, the complainant was entitled, with the university’s consent, to take early retirement on or after reaching the age of 60 with immediate payment of pension unreduced for early payment. His 60th birthday being in July 1994, he inquired in early 1994 of the university as to what his pension entitlement would be if he were to retire on 31 July 1994. In response to that inquiry, he was supplied with a quotation showing what the position would then be, depending on whether or not he took part of the then projected pension as a lump sum…

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Sourcebook on Obligations and Remedies Armed with that information, which was entirely accurate, the complainant, in April 1994, notified the university of his intention to retire on 31 July 1994. The university consented to that course and the complainant duly retired as contemplated on 31 July 1994 and received a pension correctly reflecting his entitlement under the scheme. What the complainant had not realised was that he would have been better off had he sought to defer the date of his retirement to the earliest date after 31 July 1994 to which the university would have been agreeable, which would in fact have been 31 August. Had he done that, his final pensionable salary would have been calculated by reference to his salary levels at 1 August 1992, 1 August 1993 and 1 August 1994 which, because of a salary increase which was subsequently announced and backdated to 1 April 1994, would have raised his final pensionable salary to £15,354 and his consequent pension to £5,118. The complaint, therefore, was that the university had been at fault in not having alerted him at any stage to the fact that he would be better off in pension terms if he were to make this different choice. It was not disputed that the university would have been perfectly willing for him to make this choice had he indicated it. The short question before the ombudsman and before this court is whether the university was under any duty to alert him and, if so, whether it had been in breach of that duty. In upholding the complaint, the ombudsman held that the university had been under a …contractual duty which extended to providing him with sufficient information to enable him reasonably to realise that 1 August 1994 rather than 31 July 1994 would have been the most advantageous date on which he should retire and begin drawing his retirement benefits. If the information actually provided was not sufficient for this purpose, reasonable steps would not have been taken within the Scally principle. I interpose that the reference to 1 August appears to have been a slip for 31 August, since the evidence before the ombudsman showed that the university would not have been willing for him to retire otherwise than at the end of a calendar month. However, nothing turns on this. The ombudsman based this holding on the principle laid down in Scally v Southern Health and Social Services Board (British Medical Association, third party) [1991] 4 All ER 563; [1992] 1 AC 294. He went on to hold that the information, which was available to the complainant in the form of the scheme’s explanatory booklet, was insufficient to discharge the duty. He also held that the fact that the complainant was himself unaware of the advantages of delaying his proposed date of retirement, coupled with the university’s own awareness of those advantages, rendered its failure to alert him to those advantages a breach of its ‘general duty of good faith’, being a duty owed to the complainant as its employee… Finally, he held that even if the university had not breached any contractual duty, its failure to advise or warn the complainant had not accorded with good practice and was, accordingly, maladministration…

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Introduction to Contractual Obligations In the final analysis, the question for determination comes down to this: does the implied term include a positive obligation on the employer to warn an employee who is proposing to exercise important rights in connection with his contract of employment that the way in which he is proposing to exercise them may not be financially the most advantageous way in the particular circumstances? Expressed in those terms, it can be seen that the recognition of such a duty has potentially far-reaching consequences for the employment relationship. A degree of caution is therefore required. In my judgment, a proper caution requires the court to examine how such a positive obligation would cohere with other default obligations implied by law in the employment context. The answer is ‘not well’. In the specific area of giving advice to employees in connection with their pension rights, the furthest the courts have gone in recognising such a default obligation appears to have been in Scally’s case itself, where the term implied was a duty to take reasonable steps to bring the existence of a valuable right to the attention of the employee and where the conditions necessary for the implication of the term were said by Lord Bridge to be: (1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit; (3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention. [See [1991] 4 All ER 563, pp 571–72; [1992] 1 AC 294, p 307.] It is, as I have said, rightly conceded that Scally’s case provides no support for the complainant. He undoubtedly knew of the existence of his early retirement rights. He was also able, pace the ombudsman, to have worked out for himself how best to avail himself of those rights by carefully studying the information set out in the explanatory booklet. There is no suggestion that he ever asked for advice as to whether the choice he was making was a suitable one, nor, as I have already indicated, was there any finding that the university knew that he was making a decision under the influence of any mistake. The fact that Scally’s case provides no support for the complainant’s contention in my judgment tends to subvert, rather than assist, the proposition that the implied term of mutual trust and confidence includes within it a positive obligation to give advice of the kind which is now asserted. In addition, the authorities on the duties of pension fund trustees, who may be subject to a similar implied term, to give advice to beneficiaries do not encourage the idea that the term imposes any such obligation on them. See, for example, the judgment of Carnwath J in Miller v Stapleton [1996] 2 All ER 449, p 463. In my judgment, the authorities neither compel nor indeed justify me in holding that the university was in breach of contract in failing to alert the complainant to the possibility that he was making a financial mistake in seeking the university’s permission for him to cease service on the first available date following his 60th birthday. I reach that conclusion with some, but not much, regret. The mistake made by the complainant could easily 415

Sourcebook on Obligations and Remedies have been avoided had the university had a standardised procedure for warning employees contemplating retirement of the particular significance of choosing a retirement date one side or the other of 1 August in any particular year. On the other hand, had the complainant continued in employment for the additional month, he would have enjoyed at least two financial advantages which must have been manifest to him, but which he was plainly deciding were not worth the candle of a month’s additional service. The most obvious of these was his enjoyment during that month of his salary (about £1,263 before tax at the old 1993 rate) as opposed to his pension, about £411 before tax, an immediate sacrifice by the complainant of some £850 or so. In addition, he would have earned another month’s pensionable service. He could not for a moment claim that he was unaware of these advantages or of the fact that he was foregoing them. Had it applied its mind to the question (which it did not), the university might in those circumstances be forgiven for having assumed that the complainant had carefully reckoned the financial consequences of his selected retirement date. The additional pension foregone by the mistake amounted to some £15 per month before tax. For the reasons I have given, the university’s appeal will be allowed.

Questions 1 2 3 4

5

Does this case confirm that Smith v Hughes (p 488) is still good law? If the PECL were applied to the facts of Eyett, would the result be different? Is Eyett really a good faith case, or is it a causation problem? Read Reid v Rush and Tompkins plc [1990] 1 WLR 212 in the law report. Is this yet another case indicating that good faith has little or no role in English contract law? If the PECL had been applicable, would the result have been different? ‘Bona fides [is] an implied term in every mercantile contract’ (Lord Watson in Gly Mills Currie and Co v East and West India Dock Co (1882) 7 App Cas 591, p 615). Is this really true?

9 THE INTERPRETATION OF CONTRACTS Code civil 1156 The common intention of the contracting parties must be sought in agreements rather than to stop at the literal sense of terms. Principles of European Contract Law Article 5:101 General rules of interpretation (1)

A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words.

416

Introduction to Contractual Obligations (2)

(3)

If it is established that one party intended the contract to have a particular meaning and at the time of the conclusion of the contract the other party could not have been unaware of the first party’s intention, the contract is to be interpreted in the way intended by the first party. If an intention cannot be established according to (1) or (2), the contract is to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

Article 5:102 Relevant circumstances In interpreting the contract, regard shall be had, in particular, to: (a) (b) (c) (d) (e) (f) (g)

the circumstances in which it was concluded, including the preliminary negotiations; the conduct of the parties, even subsequent to the conclusion of the contract; the nature and purpose of the contract; the interpretation which has already been given to similar clauses by the parties and the practices they have established between themselves; the meaning commonly given to terms and expressions in the branch of activity concerned and the interpretation similar clauses may already have received; usages; and. good faith and fair dealing.

Article 5.103 Contra proferentem rule Where there is doubt about the meaning of a contract term not individually negotiated, an interpretation of the term against the party who supplied it is to be preferred. Article 5:104 Preference to negotiated terms Terms which have been individually negotiated take preference over those which are not. Article 5:105 Reference to contract as a whole Terms are to be interpreted in the light of the whole contract in which they appear. Article 5:106 Terms to be given effect An interpretation which renders the terms of the contract lawful, or effective, is to be preferred to one which would not. Genossenschaftsbank v Burnhope [1995] 1 WLR 1580 House of Lords (See p 202.) Lord Steyn (dissenting):… It is true the objective of the construction of a contract is to give effect to the intention of the parties. But our law of construction is based on an objective theory. The methodology is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. Intention is determined by reference to expressed rather than actual intention. The question therefore resolves itself 417

Sourcebook on Obligations and Remedies in a search for the meaning of language in its contractual setting. That does not mean that the purpose of a contractual provision is not important. The commercial or business object of a provision, objectively ascertained, may be highly relevant: see Prenn v Simmonds [1971] 1 WLR 1381, p 1385B, per Lord Wilberforce; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989, p 996, per Lord Wilberforce. But the court must not try to divide the purpose of the contract by speculating about the real intention of the parties. It may only be inferred from the language used by the parties, judged against the objective contextual background. It is, therefore, wrong to speculate about the actual intention of the parties in this case… The Chikuma [1981] 1 WLR 314 House of Lords (See p 198.) Mannai Investment Co v Eagle Star Life Assurance [1997] AC 749 House of Lords Lord Steyn:… In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law…generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language… Lord Hoffmann:… In the case of commercial contracts, the restriction on the use of background has been quietly dropped. There are certain special kinds of evidence, such as previous negotiations and express declarations of intent, which for practical reasons which it is unnecessary to analyse, are inadmissible in aid of construction. They can be used only in an action for rectification. But apart from these exceptions, commercial contracts are construed in the light of all the background which could reasonably have been expected to have been available to the parties in order to ascertain what would objectively have been understood to be their intention: Prenn v Simmonds [1971] 1 WLR 1381, p 1383. The fact that the words are capable of a literal application is no obstacle to evidence which demonstrates what a reasonable person with knowledge of the background would have understood the parties to mean, even if this compels one to say that they used the wrong words. In this area, we no longer confuse the meaning of words with the question of what meaning the use of the words was intended to convey… Staffordshire Area Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387 Court of Appeal (See p 595.)

Questions 1

To what extent, if at all, do the PECL reflect English law? (Cf ICS v West Bromwich BS [1998] 1 WLR 896.) 418

Introduction to Contractual Obligations

2 3 4

Why is it that many English contract textbooks do not have a chapter devoted to interpretation of contracts? Do the rules applicable to statutory interpretation in English law apply equally to the interpretation of written contracts? Is there a significant difference between the French and English approaches towards interpretation of contracts? If there was a difference, is English law now moving closer to French law? L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 House of Lords This was a dispute as to whether Schuler, a German company, was entitled to repudiate a contract for breach of a term of the written contract, described as a ‘condition’, whereby a certain number of visits would be made by employees of Wickman, an English company, to clients in respect of promoting Schuler’s products. Most of the visits were made by Wickman but, on a few occasions, they failed to make the required number of visits stipulated for in the contract. The arbitrator held that Schuler was not entitled to repudiate or terminate the contract and a majority of the House of Lords confirmed this decision. Lord Reid:… In the ordinary use of the English language, ‘condition’ has many meanings, some of which have nothing to do with agreements. In connection with an agreement it may mean a pre-condition: something which must happen or be done before the agreement can take effect. Or it may mean some state of affairs which must continue to exist if the agreement is to remain in force… No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole. Use of the word ‘condition’ is an indication— even a strong indication—of such an intention but it is by no means conclusive. The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear… Lord Morris:… Subject to any legal requirements, businessmen are free to make what contracts they choose but unless the terms of their agreement are clear a court will not be disposed to accept that they have agreed something utterly fantastic. If it is clear what they have agreed a court will not be influenced by any suggestion that they would have been wiser to have made a different agreement. If a word employed by the parties in a contract can have only one possible meaning, unless any question of rectification arises, there will be no problem. If a word either by reason of general acceptance or by reason of judicial construction has come to have a particular meaning then, if used in a business or technical document, it will often be reasonable to suppose that the parties intended to use the word in its accepted sense. But if a word in a contract may have more than one meaning then, in interpreting the contract, a court will have to decide what was the intention of the parties as revealed by or deduced from the terms and subject matter of their contract.

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Sourcebook on Obligations and Remedies Words are but the instruments by which meanings or intentions are expressed. Often the same word has in differing contexts to do service to convey differing meanings… Lord Wilberforce (dissenting):… The general rule is that extrinsic evidence is not admissible for the construction of a written contract; the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used… There are, of course, exceptions. I attempt no exhaustive list of them… [E]vidence may be admitted of surrounding circumstances or in order to explain technical expressions or to identify the subject matter of an agreement; or (an overlapping exception) to resolve a latent ambiguity. But ambiguity in this context is not to be equated with difficulty of construction, even difficulty to a point where judicial opinion as to meaning has differed. This is, I venture to think, elementary law… I would only add that, for my part, to call the clause arbitrary, capricious or fantastic, or to introduce as a test of its validity the ubiquitous reasonable man (I do not know whether he is English or German) is to assume, contrary to the evidence, that both parties to this contract adopted a standard of easygoing tolerance rather than one of aggressive, insistent punctuality and efficiency… Lord Simon:… Most words in English are capable of a number of meanings, either in popular usage or as legal terms of art or both. In either category, prima facie they will be read in their most usual and natural (or primary) sense. But this again is a rebuttable presumption; so that a word will be construed in a less usual or natural (or secondary) sense if the instrument shows that it is intended in such sense…

Questions 1 2 3 4

5 6

Does this case suggest that a contractor will not be permitted to exercise his right to repudiate a contract if it is unreasonable for him to do so? Could Schuler have sued Wickman for damages? If not (because they could not prove loss), ought this to effect their self-help remedy of repudiation? Is this case an example of the courts remaking a contract for two commercial parties? P contracts to paint D’s building for a fixed price. The written contract stipulates that it is a ‘condition’ that only a particular named type of paint is to be used. P paints the building but does not use the paint stipulated for in the contract. Can D refuse to pay P? What if the paint, although not the one stipulated for in the contract, is a better quality and more expensive paint? Can Schuler be reconciled with Lord Bridge’s statement in The Chikuma? Is Schuler a proportionality case? (Cf Lock, p 276.)

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CHAPTER 5

THE FORMATION OF A CONTRACT

Broadly, the law of contract can be divided into two parts. The first part deals with the formation of the obligation together with any obstacles and/or vitiating factors. The second part deals with performance, or indeed nonperformance, of the contractual obligation. It is in the second part that one can look in some depth at the actual contents of the obligation, since contents normally become of relevance only in situations where there is a problem over performance. This chapter will deal with formation, while Chapter 6 will be devoted to problems of performance. Remedies have already been covered in Chapter 3.

1 INTRODUCTION Principles of European Contract Law (See also p 402) Article 2:102 Intention The intention of a party to be legally bound by contract is to be determined from the party’s statements or conduct as they were reasonably understood by the other party. Whittaker v Campbell [1984] QB 318 Queen’s Bench Division Robert Goff LJ:… [T]here is, in our opinion, no general principle of law that fraud vitiates consent. Let us consider this proposition first with reference to the law of contract. In English law every valid contract presupposes an offer by one party which has been accepted by the offeree. Plainly there can be no such acceptance unless offer and acceptance correspond, so the offer can only be accepted by the offeree, the acceptance must relate to the same subject matter as the offer and must also be, in all material respects, in the same terms as the offer. But the test whether there has been correspondence between offer and acceptance is not subjective but objective. If there is objective agreement, there may be a binding contract, even if in his mind one party or another has not consented to it, a principle recently affirmed by the Court of Appeal in Centrovincial Estates plc v Merchant Investors Assurance Co Ltd (1983) The Times, 8 March. Furthermore putting on one side such matters as the ancient doctrine of non est factum and relief from mistake in equity, there is no principle of English law that any contract may be ‘avoided’, that is, not come into existence, by reason simply of a mistake, whether a mistake of one or both parties. The question is simply whether objective agreement has been reached and, if so, on what terms. If objective agreement has been reached, in 421

Sourcebook on Obligations and Remedies the sense we have described, then the parties will be bound, unless on a true construction the agreement was subject to a condition precedent, express or implied, failure of which has in the event prevented a contract from coming into existence. What is the effect of fraud? Fraud is, in relation to a contract, a fraudulent misrepresentation by one party which induces the other to enter into a contract or apparent contract with the representor. Apart from the innocent party’s right to recover damages for the tort of deceit, the effect of the fraud is simply to give the innocent party the right, subject to certain limits, to rescind the contract. These rights are similar to (though not identical with) the rights of a party who has been induced to enter into a contract by an innocent, as opposed to a fraudulent, misrepresentation, though there the right to recover damages derives from statute, and the limits to rescission are somewhat more severe. It is plain, however, that in this context fraud does not ‘vitiate consent’, any more than an innocent misrepresentation Vitiates consent’. Looked at realistically, a misrepresentation, whether fraudulent or innocent, induces a party to enter into a contract in circumstances where it may be unjust that the representor should be permitted to retain the benefit (the chose in action) so acquired by him. The remedy of rescission, by which the unjust enrichment of the representor is prevented, though for historical and practical reasons treated in books on the law of contract, is a straightforward remedy in restitution subject to limits which are characteristic of that branch of the law. The effect of rescission of a contract induced by a misrepresentation is that property in goods transferred under it may be revested in the transferor (the misrepresentee). But this may not be possible if the goods have been transferred to a third party, for the intervention of third party rights may preclude rescission. In such a case, especially if the misrepresentor has disappeared from the scene or is a man of straw so that damages are an ineffective remedy, the misrepresentee’s only practical course may be to seek to establish that there never was any contract (that is, that the supposed contract was ‘void’), so that he never parted with the property in the goods and can claim the goods or their value from the third party. To succeed in such a claim, he has generally to show that there was no objective agreement between him and the representor. For that purpose, however, the misrepresentation (fraudulent or innocent) is simply the origin of a set of circumstances in which it may be shown that there was no objective agreement, for example, that the offer was, objectively speaking, made to one person and (perhaps as a result of fraud), objectively speaking, accepted by another. Again, it cannot be said that fraud Vitiates consent’; fraud was merely the occasion for an apparent contract which was, in law, no contract at all…

Notes and questions 1

2

It has already been noted in the previous chapter that English contract law is founded upon the notion of promise rather than agreement. Does this extract from Goff LJ confirm this thesis? In French law, fraud can undermine the agreement, since it undermines the consent upon which contract is based (CC, Art 1109). In English law, 422

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however, fraud does not, of itself, undermine agreement; it simply gives rise to the equitable remedy of rescission (cf p 256) which, when viewed from the position of the common law, means that the contract is ‘voidable’. In addition, damages may be available in tort. Of course, as Goff LJ points out, fraud may result in a court holding that there never was a contract, because the fraud prevented effective offer and acceptance, an essential requirement for most contracts. In this situation, one talks of a ‘void’ contract, even although this is actually a contradiction in terms. However, the courts are usually reluctant to hold that a contract for the sale of goods is void rather than voidable. Why? In addition to offer and acceptance, there must also be consideration and intention to create legal relations in order that a valid contract be constituted. The sub-sections that follow examine some of these requirements, and additional sections look at the main factors that can vitiate a contract. One question that should be borne in mind while reading the materials in this chapter (indeed, in all the chapters on contractual and non-contractual obligations) is the extent to which the cases can be reduced to actual rules. We have already seen from Lord Simon in Lupton (p 183) that no case is an authority outside of its ‘material facts’. To what extent, then, is a subject like contract determined by the kind of transactional disputes that find themselves before the courts? And what factors, in addition to the strict ‘principles’ of the law of contract, might be relevant in determining the actual decision? The Hannah Blumenthal [1983] 1 AC 854 House of Lords Lord Diplock:… To the formation of the contract of abandonment, the ordinary principles of the English law of contract apply. To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for the promise of the other, what is necessary is that the intention of each as it has been communicated to and understood by the other (even though that which has been communicated does not represent the actual state of mind of the communicator) should coincide. That is what English lawyers mean when they resort to the Latin phrase consensus ad idem and the words that I have italicised are essential to the concept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law. Thus if A (the offeror) makes a communication to B (the offeree) whether in writing, orally or by conduct, which, in the circumstances at the time the communication was received, (1) B, if he were a reasonable man, would understand as stating A’s intention to act or refrain from acting in some specified manner if B will promise on his part to act or refrain from acting in some manner also specified in the offer; and (2) B does in fact understand A’s communication to mean this, and in his turn makes to A a communication conveying his willingness so to act or to refrain from acting which mutatis mutandis satisfies the same two conditions as respects A, the consensus ad idem essential to the formation of a contract in English law is complete.

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Sourcebook on Obligations and Remedies The rule that neither party can rely upon his own failure to communicate accurately to the other party his own real intention by what he wrote or said or did, as negativing the consensus ad idem, is an example of a general principle of English law that injurious reliance on what another person did may be a source of legal rights against him. I use the broader expression ‘injurious reliance’ in preference to ‘estoppel’ so as to embrace all circumstances in which A can say to B: ‘You led me reasonably to believe that you were assuming particular legally enforceable obligations to me,’ of which promissory or High Trees estoppel [Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130] affords another example; whereas ‘estoppel’, in the strict sense of the term, is an exclusionary rule of evidence, though it may operate so as to affect substantive legal rights inter partes.

Questions 1 2

Does PECL, Art 2:102, represent English law? Is English contract law based on the theory of injurious reliance? If so, does this mean that subjective ideas about consensus are rather meaningless?

2 OFFER AND ACCEPTANCE (a) Introduction Principles of European Contract Law Article 2:201 Offer (1)

A proposal amounts to an offer if: (a) (b)

(2) (3

it is intended to result in a contract if the other party accepts it, and it contains sufficiently definite terms to form a contract.

An offer may be made to one or more specific persons or to the public. A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier’s capacity to supply the service, is exhausted.

(b) Fact and law Gibson v Manchester City Council [1979] 1 WLR 294 House of Lords (See also p 402.) This was an action for specific performance by a potential purchaser of a council house against a local authority which, after a number of preliminary letters indicating a willingness to sell, and setting out the steps to be followed, 424

The Formation of a Contract suddenly, and as a result of a change of political control, refused to carry on with the sale. The Court of Appeal granted the specific performance, but an appeal to the House of Lords was allowed. Lord Diplock:… My Lords, the words…make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by Mr Gibson’s written acceptance of it. The words ‘may be prepared to sell’ are fatal to this… My Lords, the application form and letter of 18 March 1971 were relied on by Mr Gibson as an unconditional acceptance of the council’s offer to sell the house; but this cannot be so unless there was a contractual offer by the council available for acceptance, and, for the reason already given I am of opinion that there was none…

Notes and questions 1

2 3 4

5

If English contract law was based on agreement and consent, as in French law, would there have been a contract in this case? What if the PECL had been applicable? What if the letter had read ‘will be prepared to sell’? What if it had contained the phrase ‘subject to contract’? What if the incoming political party had promised, during the local election, not to deprive council house tenants of their ‘right’ to buy? What if the letter formally offering to sell the house to the plaintiff had not been sent before the change of political control owing to the negligence of a council official? What if it had not been sent owing to deliberate action on behalf of some council officials opposed on political grounds to the sale of council houses? Did the plaintiff fail because of the facts, or because of the existence of a clear legal rule? Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 Court of Appeal This was an action for specific performance of an alleged contract to sell land brought against the personal representatives of the vendor who, before her death, had agreed to sell her land to the plaintiffs. A letter had been prepared by the plaintiffs which was signed by the vendor before her death, but this letter was not signed by the plaintiffs. They had signed the attached plan which also had been signed by the vendor. The defendants applied to have the action struck out on the ground that there was no contract and the Court of Appeal agreed. There was not a sufficient single and signed document to constitute a valid contract of sale according to s 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Peter Gibson LJ:… The district judge took the view that it was arguable that the letter and the plan might be one document for the purposes of s 2. On that ground he refused to prevent the case from going to trial. The judge, however, on the appeal to him, took a more robust view. He regarded the letter as what he called the primary document… Accordingly, he allowed the appeal and struck out the action… 425

Sourcebook on Obligations and Remedies A contract must contain mutual obligations and a commitment by each party. If one reads the wording of the letter dated 9 April, it is, to my mind, plain that there is no commitment by Mr Hale or the plaintiffs. The letter simply indicates what Mrs Fletcher is agreeing to sell, that is to say it is committing her to a sale but the letter does not contain any corresponding obligation by Mr Hale or the plaintiffs to purchase the land and pay the consideration. Mr Seymour [counsel for the plaintiffs] accepted that there was no express commitment. Nevertheless, he submitted that such a commitment and such an obligation on the part of the plaintiffs should be implied. He points to the fact that Mrs Fletcher says, ‘I now agree to sell you’. He submits that in the context the implication should be made. Mr Wakefield [counsel for the defendants] does not dispute that in certain circumstances it may be appropriate to imply into a document that there is a commitment to buy, for example, if the document was headed ‘contract for sale’ and there were obligations expressly undertaken by the purchaser. But that is not the case… … The Act of 1989 seems to me to have a new and different philosophy from that which the Statute of Frauds 1677 and s 40 of the Act of 1925 had. Oral contracts are no longer permitted. To my mind it is clear that Parliament intended that questions as to whether there was a contract, and what were the terms of the contract, should be readily ascertained by looking at the single document said to constitute the contract…

Questions 1 2

If there were no statutory requirements covering contracts to sell land, would there have been a contract in this case? Is the result of this case entirely dependent upon how one views the facts?

(c) Offers and the consumer Fisher v Bell [1961] 1 QB 394 Queen’s Bench Division (Seep 24.) Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401 Court of Appeal Somervell LJ:… The point taken by the plaintiffs is this: it is said that the purchase is complete if and when a customer going round the shelves takes an article and puts it in the receptacle which he or she is carrying, and that therefore, if that is right, when the customer comes to the pay desk, having completed the tour of the premises, the registered pharmacist, if so minded, has no power to say: This drug ought not to be sold to this customer.’ Whether and in what circumstances he would have that power we need not inquire, but one can, of course, see that there is a difference if supervision can only be exercised at a time when the contract is completed.

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The Formation of a Contract Whether the view contended for by the plaintiffs is a right view depends on what are the legal implications of this layout—the invitation to the customer. Is a contract to be regarded as being completed when the article is put into the receptacle, or is this to be regarded as a more organised way of doing what is done already in many types of shops—and a bookseller is perhaps the best example—namely, enabling customers to have free access to what is in the shop, to look at the different articles, and then, ultimately, having got the ones which they wish to buy, to come up to the assistant saying, ‘I want this’? The assistant in 999 times out of 1,000 says: That is all right,’ and the money passes and the transaction is completed. I agree with what the Lord Chief Justice has said, and with the reasons which he has given for his conclusion, that in the case of an ordinary shop, although goods are displayed and it is intended that customers should go and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed. I can see no reason at all, that being clearly the normal position, for drawing any different implication as a result of this layout. The Lord Chief Justice, I think, expressed one of the most formidable difficulties in the way of the plaintiffs’ contention when he pointed out that, if the plaintiffs are right, once an article has been placed in the receptacle the customer himself is bound and would have no right, without paying for the first article to substitute an article which he saw later of a similar kind and which he perhaps preferred. I can see no reason for implying from this selfservice arrangement any implication other than that which the Lord Chief Justice found in it, namely, that it is a convenient method of enabling customers to see what there is and choose, and possibly put back and substitute, articles which they wish to have, and then to go up to the cashier and offer to buy what they have so far chosen. On that conclusion, the case fails…

Notes and questions 1

2

3

In a French case involving a bottle of lemonade, which exploded just as the customer was handing it to the cashier, the French courts decided that a contract for the sale of goods in a supermarket is complete as soon as the customer takes the goods from the shelf and puts it in the trolley or basket provided. The customer was thus able to recover damages in contract for her injury (Cass civ 20.10.1964; DS 1965.62). Why do you think the French courts took this approach? What problems might arise from the French rule? How would English law have dealt with the facts of the French case? Do you think this French case is still good law in France? A customer in a supermarket is covered in orange juice when the bottle explodes for some unexplained reason just as he is lifting it out of the trolley to present to the cashier. Can the customer sue the supermarket for damages? Are goods displayed in a shop window contractual offers if they have a ticket attached saying ‘special offer’? What is the position under the PECL? 427

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4 5

What legal problems might virtual reality shopping present to future contract lawyers? What about internet shopping? A shopkeeper rings up on his till the price of a packet of cigarettes before realising that the customer buying the cigarettes is under age: must the shopkeeper hand over the cigarettes to the customer? Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Court of Appeal This was an action in debt against a manufacturer who had inserted in newspapers an advertisement offering ‘£100 reward’ to anyone who caught influenza after using their smoke ball inhalant as per directions for two weeks. The advert also stated that £1,000 had been deposited with the Alliance Bank ‘showing our sincerity in the matter’. On the faith of the advertisement the plaintiff bought one of the inhalants and used it as directed for two weeks; the product proved ineffective and the defendants insincere. The plaintiff sued for the £100 and the Court of Appeal allowed her to recover. Bowen LJ:… It is…contended that the advertisement is rather in the nature of a puff or a proclamation than a promise or offer intended to mature into a contract when accepted. But the main point seems to be that the vagueness of the document shows that no contract whatever was intended. It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it? It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased… And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the carbolic smoke ball, and then caught cold, he would be entitled to the reward… Was it intended that the £100 should, if the conditions were filled, be paid? The advertisement says that £1,000 is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that £100 would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon. But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise £100 to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them…

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The Formation of a Contract AL Smith LJ:… In my judgment, the advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was consideration for that promise. The defendants have contended that it was a promise in honour or an agreement or a contract in honour—whatever that may mean. I understand that if there is no consideration for a promise, it may be a promise in honour, or, as we should call it, a promise without consideration and nudum pactum, but if anything else is meant, I do not understand it. I do not understand what a bargain or a promise or an agreement in honour is unless it is one on which an action cannot be brought because it is nudum pactum, and about nudum pactum I will say a word in a moment… [I]t was said that there was no consideration, and that it was nudum pactum. There are two considerations here. One is the consideration of the inconvenience of having to use this carbolic smoke ball for two weeks three times a day; and the other more important consideration is the money gain likely to accrue to the defendants by the enhanced sale of the smoke balls, by reason of the plaintiffs user of them. There is ample consideration to support this promise. I have only to add that as regards the policy and the wagering points, in my judgment, there is nothing in either of them…

Notes and questions 1

This most famous of contract cases remains of central importance to English contract law for several reasons. First, because it indicates, once again, how objective promise rather than subjective agreement acts as the foundation of liability. The defendant was liable because it launched on to the consumer market (so to speak) a promise and this promise was taken up by a consumer who, as an individual, was never known to the promisor. Secondly, because it shows that an offer made to the world at large, or at least to a class, does not have to be specifically accepted by verbal communication by the person taking up the offer. All that the promisee has to do, if he or she wants what is promised, is to perform the required act which will constitute the consideration moving from the promisee. Thirdly, because it established an important role for the collateral contract in the world of commerce and consumer affairs. Mrs Carlill did not buy the product from the manufacturers; she probably purchased it from her local chemist and, thus, if it had been defective, causing her injury, she would probably have sued the shop under the contract of sale for breach of an implied term (cf Frost v Aylesbury Dairy, p 47). Collateral contracts continue to have an important role in the area of formation of contracts. Fourthly, because it illustrates the importance of conditions in contracts. If Mrs Carlill had not caught flu, she could not have sued for the money. Before she caught flu, was there, however, a contractual relationship between her and the Carbolic Smoke Ball Co?

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2

3

4 5

6

The case is also of importance in terms of the remedy. Was Mrs Carlill seeking compensation for breach of contract or specific enforcement of a contractual obligation based on the idea of non-performance? Could Mrs Carlill have sued the company in damages? If not, why not? Under what circumstances might a manufacturer of a product be liable, on the basis of an advertising campaign, to compensate a consumer in damages? (Cf Wells v Buckland Saud [1965] 2 QB 170.) Would these facts have given rise to a contractual obligation in a system where contract is founded on agreement rather than promise? The defendants attempted to argue that there was no intention to create legal relations. Is such an argument ever likely to be successful (in the absence of a specific clause) in commercial and/or consumer transactions? What if the advert had contained the following clause: ‘no statement whatsoever in this advertisement shall be capable of giving rise to any contractual relationship or any other legal rights or duties or to any liability in contract or otherwise’? (Cf Jones v Vernon’s Pools Ltd [1938] 2 All ER 626.) Principles of European Contract Law Article 2:202 Revocation of an offer (1) (2) (3)

An offer may be revoked if the revocation reaches the offeree before it has dispatched its acceptance or, in cases of acceptance by conduct, before the contract has been concluded under Art 2:205(2) or (3). An offer made to the public can be revoked by the same means as were used to make the offer. However, a revocation of an offer is ineffective if: (a) (b) (c)

the offer indicates that it is irrevocable; or it states a fixed time for its acceptance; or it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Questions 1 2

Does Art 2:202 represent English law? Under what circumstances, if any, ought a person who successfully revokes an offer under Art 2:202(1) to be liable for any damage caused to another as a result of the revocation?

(d) Offers and commerce Butler Machine Tool Co Ltd v Ex-Cell-O Corporation [1979] 1 WLR 401 Court of Appeal (See also p 190.) 430

The Formation of a Contract This was an action in debt by sellers of a machine in respect of an amount over and above the original sale price of the machine. The sellers claimed they were entitled to this extra sum as a result of a price variation clause contained in their original written offer of sale, but the buyers claimed that the contract was governed by their written acceptance form which did not contain a price variation clause and which contained a tear-off acknowledgment slip which the plaintiffs had returned. The Court of Appeal, allowing an appeal, held that the plaintiffs were not entitled to recover. Lord Denning MR:… In the present case the judge thought that the sellers in their original quotation got their blow in first; especially by the provision that These terms and conditions shall prevail over any terms and conditions in the Buyer’s order’. It was so emphatic that the price variation clause continued through all the subsequent dealings and that the buyer must be taken to have agreed to it. I can understand that point of view, but I think that the documents have to be considered as a whole. And, as a matter of construction, I think the acknowledgment of 5 June 1969 is the decisive document. It makes clear that the contract was on the buyers’ terms and not on the sellers’ terms and the buyers’ terms did not include a price variation clause… Lawton LJ:… It cannot be said that the buyers accepted the counter-offer by reason of the fact that ultimately they took physical delivery of the machine. By the time they took physical delivery of the machine, they made it clear by correspondence that they were not accepting that there was any price escalation clause in any contract which they had made with the plaintiffs. Principles of European Contract Law Article 2:208 Modified acceptance (1) (2)

(3)

A reply by the offeree which states or implies additional or different terms which would materially alter the terms of the offer is a rejection and a new offer. A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies terms additional to or different terms, provided these do not materially alter the terms of the offer. The additional or different terms then become part of the contract. However, such a reply will be treated as a rejection of the offer if: (a) (b) (c)

the offer expressly limits acceptance to the terms of the offer; or the offeror objects to the additional or different terms without delay; or the offeree makes its acceptance conditional upon the offerer’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time.

Article 2:209 Conflicting general conditions (1)

If the parties have reached agreement except that the offer and acceptance refer to conflicting general conditions of contract, a contract is nonetheless formed. The general conditions form part of the contract to the extent that they are common in substance.

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However, no contract is formed if one party: (a) (b)

(3)

has indicated in advance, explicitly, and not by way of general conditions, that it does not intend to be bound by a contract on the basis of paragraph (1); or without delay, informs the other party that it does not intend to be bound by such contract.

General conditions of contract are the terms which have been formulated in advance for an indefinite number of contracts of a certain nature, and which have not been individually negotiated between the parties.

Questions 1

2 3 4

Is the rule that a counter-offer amounts to the rejection (and destruction) of the original offer a realistic one in the world of standard form commercial documents? Do the PECL attempt a compromise with this reality? If English contract law was based on agreement rather than promise, would the plaintiffs have recovered their debt in Butler? What if the plaintiffs had not returned the acknowledgment slip, but had simply delivered the machine which the buyers had accepted? Would such a price variation clause now be covered by the Unfair Contract Terms Act 1977? Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 Court of Appeal (Seep 409.)

Questions 1 2 3

4 5 6

Was there consensus ad idem (meeting of the minds)? If not, why was there a contract? Do the parties not have to be agreed on the price? Was the plaintiff in breach of contract? Was it this breach that prevented it from suing for the contractual debt? Civil lawyers recognise three fundamental principles: abuse of rights, good faith and unjust enrichment. Which of these principles, if any, found expression in Interfoto? Why was the clause not covered by the Unfair Contract Terms Act 1977? Why was a non-contractual debt claim (quantum meruit) allowed in a situation that was plainly covered by contract? What if the plaintiffs’ photographs had been deliberately destroyed by one of the defendant’s employees: would the defendant have had a defence? (Cf Photo Production v Securicor, p 552.)

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(e) The end of an offer Principles of European Contract Law Article 2:205 Time of conclusion of the contract (1) (2) (3)

If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror. In case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror. If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by performing an act without notice to the offeror, the contract is concluded when the performance of the act begins.

Article 2:206 Time limit for acceptance (1) (2) (3)

In order to be effective, acceptance of an offer must reach the offeror within the time fixed by it. If no time has been fixed by the offeror acceptance must reach it within a reasonable time. In the case of an acceptance by an act of performance under Art 2:205(3), that act must be performed within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time.

Financings Ltd v Stimson [1962] 1 WLR 1184 Court of Appeal (See p 492.)

Notes and questions 1

2

3 4

An offer can only be accepted if it remains in existence. The most obvious way in which an offer can come to an end is by revocation; clearly, however, this must be done before acceptance. Could the Carbolic Smoke Ball Co have revoked its offer after Mrs Carlill had purchased the smoke ball but before the two weeks’ usage time had elapsed? In Financings, was there any kind of contractual relationship between the hire purchase company and the defendant during the period the car was in the defendant’s possession? Was the plaintiff in Financings under a duty to repay to the defendant the deposit? Besides revocation, in what other ways may an offer lapse or come to an end?

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(f) Pre-contractual liability Principles of European Contract Law Article 2:301 Negotiations contrary to good faith (1) (2) (3)

A party is free to negotiate and is not liable for failure to reach an agreement. However, a party who has negotiated or broken off negotiations contrary to good faith and fair dealing is liable for the losses caused to the other party. It is contrary to good faith and fair dealing, in particular, for a party to enter into or continue negotiations with no real intention of reaching an agreement with the other party.

Entores Ltd v Miles Far East Corporation [1955] 2 QB 327 Court of Appeal Denning LJ:… When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by telex. Communications by these means are virtually instantaneous and stand on a different footing. The problem can only be solved by going in stages. Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound… Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes ‘dead’ so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off: because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next, that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offer. Lastly, take the telex. Suppose a clerk in a London office taps out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a clerk at that end taps out an acceptance. If the line goes dead in the middle of the sentence of acceptance, the teleprinter motor will stop. There is then obviously no contract. The clerk at Manchester must get through again and send his complete sentence. But it may happen that the line does not go dead, yet the message does not get through to London. 434

The Formation of a Contract Thus the clerk at Manchester may tap out his message of acceptance and it will not be recorded in London because the ink at the London end fails, or something of that kind. In that case, the Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send back a message ‘not receiving’. Then, when the fault is rectified, the Manchester clerk will repeat his message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his message is received that the contract is complete. In all the instances I have taken so far, the man who sends the message of acceptance knows that it has not been received or he has reason to know it. So he must repeat it. But, suppose that he does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated: or the ink on the teleprinter fails at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance—yet the sender of it reasonably believes it has got home when it has not—then I think there is no contract. My conclusion is, that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received. In a matter of this kind, however, it is very important that the countries of the world should have the same rule. I find that most of the European countries have substantially the same rule as that I have stated. Indeed, they apply it to contracts by post as well as instantaneous communications. But in the United States of America it appears as if instantaneous communications are treated in the same way as postal communications. In view of this divergence, I think that we must consider the matter on principle: and so considered, I have come to the view I have stated, and I am glad to see that Professor Winfield in this country ((1939) LQR 514), and Professor Williston in the United States of America (Contracts, § 82, p 239), take the same view…

Notes and questions 1

There can be no formal contract between two parties until there has been offer and acceptance. Yet what is the position if one of the parties thinks that there is a contract and incurs expenditure, or acts in some other way, in carrying out what he thinks is his contractual duty? Obviously, the person incurring the expenditure or doing the act cannot found any claim upon the non-existent contract; but he might be able to found a claim in some other area of the law of obligations. Much will depend upon the behaviour of the other party, as Denning LJ indicates in his famous obiter 435

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dictum in Entores. Thus, if the other party is somehow at fault and this fault can be seen as a cause of the plaintiffs expenditure loss, then an action might lie in the tort of negligence, although the economic loss rule will present a serious obstacle (cf Hedley By me, p 470). Alternatively, as we shall see, the plaintiff may be able to claim any benefit conferred on the other party via a quasi-contractual debt claim (cf Chapter 8). Another possibility, of course, is estoppel. Yet how can one be estopped from denying the existence of a contract? Does the existence of such an equitable principle confirm, yet again, that English law is based on promise rather than agreement? Can a person be liable in damages for breach of a non-existent contract simply on the basis that such a person is estopped from denying the existence of a contract? If this kind of situation is possible, is it better to talk of equity awarding damages, or would such talk undermine the essence of the doctrine of estoppel? Is Entores relevant for contractual negotiations carried out by fax? What about e-mail? Why was the nephew in Beswick (p 249) not estopped from denying the existence of an obligation to pay Mrs Beswick? Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 Court of Appeal Bingham LJ: In this action the plaintiffs (‘the club’) sued the defendants (‘the council’) for damages for breach of contract and common law negligence. It was in issue between the parties whether there was any contract between them and whether the council owed the club any duty of care in tort. These issues of liability came before Judge Jolly sitting as a judge of the Queen’s Bench Division and he decided them both in favour of the club, all questions of quantum being deferred. The council appeal, contending that the judge was wrong on each point. The council own and manage Blackpool Airport. For purposes of raising revenue they have made it a practice to grant a concession to an air operator to operate pleasure flights from the airport, no doubt largely for the entertainment of holidaymakers. The club, one of whose directors was and is a Mr Bateson, tendered for and were granted this concession in 1975 and again in 1978 and again in 1980. In 1983 the most recently granted concession was due to expire. The council accordingly prepared an invitation to tender. This was sent to the club and to six other parties, all of them in one way or another connected with the airport. This document was headed and began as follows: ... The council do not bind themselves to accept all or any part of any tender. No tender which is received after the last date and time specified shall be admitted for consideration... Only three of the selected tenderers responded to the council’s invitation. One put in a low bid for the lighter size of aircraft only. The second, Red Rose

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The Formation of a Contract Helicopters Ltd, submitted a larger bid, also for the lighter size of aircraft. Mr Bateson for the club filled in the form of tender, submitting a bid substantially larger, on its face, than the others for the lighter size of aircraft, and also submitting a bid for the heavier size. He put it in the envelope provided by the council, took it to the town hall and posted it in the town hall letter box at about 11 am on Thursday 17 March. This was about an hour before the advertised deadline expired. The town clerk’s staff were supposed to empty the letter box each day at 12 o’clock. They failed to do so. The club’s tender accordingly remained in the letter box until the next morning, 18 March, when the letter box was next opened. The envelope was then taken out and datestamped 18 March 1983 by the town clerk’s department. At some time thereafter the word ‘late’ was written on the envelope, because that is what the club’s tender was mistakenly thought to be. On 29 March 1983 the chairman of the council’s relevant committee considered which tender to accept. The club’s tender had been recorded as being late, and was in accordance with the council’s standing orders excluded from consideration when the chairman made his decision. He accordingly made his choice between the two tenders believed to be in time, recommending acceptance of Red Rose Helicopters’ tender, no doubt because it was bigger. An indication that its tender was accepted was given to Red Rose Helicopters. The town clerk wrote to the club to say that their tender was not received until 18 March and was therefore received too late for consideration. Mr Bateson replied that the club’s tender had been delivered to the town hall before the deadline. ‘You will appreciate’, he wrote, ‘that this matter is of some considerable importance to our company’. The council evidently made inquiries and established that the club’s tender had been received in time… The judge resolved the contractual issue in favour of the club, holding that an express request for a tender might in appropriate circumstances give rise to an implied obligation to perform the service of considering that tender. Here, the council’s stipulation that tenders received after the deadline would not be admitted for consideration gave rise to a contractual obligation, on acceptance by submission of a timely tender, that such tenders would be admitted for consideration… Mr Toulson [counsel for the council] submitted that the warranty contended for by the club was simply a proposition ‘tailor-made to produce the desired result’ (per Lord Templeman in CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] AC 1013, p 1059F) on the facts of this particular case. There was a vital distinction between expectations, however reasonable, and contractual obligations: see per Diplock LJ in Lavarack v Woods of Colchester Ltd [1967] 1 QB 278, p 294. The club here expected its tender to be considered. The council fully intended that it should be. It was in both parties’ interests that the club’s tender should be considered. There was thus no need for them to contract. The court should not subvert well understood contractual principles by adopting a woolly pragmatic solution designed to remedy a perceived injustice on the unique facts of this particular case… I found great force in the submissions made by Mr Toulson and agree with much of what he said. Indeed, for much of the hearing I was of opinion that

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Sourcebook on Obligations and Remedies the judge’s decision, although fully in accord with the merits as I see them, could not be sustained in principle. But I am in the end persuaded that Mr Toulson’s argument proves too much. During the hearing the questions were raised: what if, in a situation such as the present, the council had opened and thereupon accepted the first tender received, even though the deadline had not expired and other invitees had not yet responded? Or if the council had considered and accepted a tender admittedly received well after the deadline? Mr Toulson answered that although by so acting the council might breach its own standing orders, and might fairly be accused of discreditable conduct, it would not be in breach of any legal obligation because at that stage there would be none to breach. This is a conclusion I cannot accept. And if it were accepted, there would in my view be an unacceptable discrepancy between the law of contract and the confident assumptions of commercial parties, both tenderers (as reflected in the evidence of Mr Bateson) and invitors (as reflected in the immediate reaction of the council when the mishap came to light). A tendering procedure of this kind is, in many respects, heavily weighted in favour of the invitor. He can invite tenders from as many or as few parties as he chooses. He need not tell any of them who else, or how many others, he has invited. The invitee may often, although not here, be put to considerable labour and expense in preparing a tender, ordinarily without recompense if he is unsuccessful. The invitation to tender may itself, in a complex case, although again not here, involve time and expense to prepare, but the invitor does not commit himself to proceed with the project, whatever it is; he need not accept the highest tender; he need not accept any tender; he need not give reasons to justify his acceptance or rejection of any tender received. The risk to which the tenderer is exposed does not end with the risk that his tender may not be the highest or, as the case may be, lowest. But where, as here, tenders are solicited from selected parties all of them known to the invitor, and where a local authority’s invitation prescribes a clear, orderly and familiar procedure—draft contract conditions available for inspection and plainly not open to negotiation, a prescribed common form of tender, the supply of envelopes designed to preserve the absolute anonymity of tenderers and clearly to identify the tender in question, and an absolute deadline—the invitee is in my judgment protected at least to this extent: if he submits a conforming tender before the deadline he is entitled, not as a matter of mere expectation but of contractual right, to be sure that his tender will after the deadline be opened and considered in conjunction with all other conforming tenders or at least that his tender will be considered if others are. Had the club, before tendering, inquired of the council whether it could rely on any timely and conforming tender being considered along with others, I feel quite sure that the answer would have been ‘of course’. The law would, I think, be defective if it did not give effect to that. It is of course true that the invitation to tender does not explicitly state that the council will consider timely and conforming tenders. That is why one is concerned with implication. But the council do not either say that they do not bind themselves to do so, and in the context a reasonable invitee would understand the invitation to be saying, quite clearly, that if he submitted a

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The Formation of a Contract timely and conforming tender it would be considered, at least if any other such tender were considered. I readily accept that contracts are not to be lightly implied… In all the circumstances of this case, and I say nothing about any other, I have no doubt that the parties did intend to create contractual relations to the limited extent contended for. Since it has never been the law that a person is only entitled to enforce his contractual rights in a reasonable way (White and Carter (Councils) Ltd v McGregor [1962] AC 413, p 430A, per Lord Reid), Mr Shorrock was in my view right to contend for no more than a contractual duty to consider. I think it plain that the council’s invitation to tender was, to this limited extent, an offer, and the club’s submission of a timely and conforming tender an acceptance… I accordingly agree with the judge’s conclusion on the contractual issue, essentially for the reasons which he more briefly gave. This conclusion makes it unnecessary to consider at length the club’s alternative argument, which the judge also accepted, that if there was no contract at all between the parties the council nonetheless owed the club a duty to take reasonable care to see to it that if the club submitted a tender by the deadline it would be considered along with other tenders duly returned when the decision to grant the concession was made… I am reluctant to venture into this somewhat unvirginal territory when it is unnecessary to do so for the purpose of deciding this case. Having heard the argument, I am tentatively of opinion that Mr Toulson’s objections are correct and that the club cannot succeed on this point if they fail on the other. But I do not think it necessary or desirable to express a final conclusion. I would accordingly dismiss the appeal. The practical consequences of deciding the contractual issue on liability in the club’s favour must, if necessary, be decided hereafter. Stocker LJ:… I…agree that in all the circumstances of this case there was an intention to create binding legal obligations if and when a tender was submitted in accordance with the terms of the invitation to tender, and that a binding contractual obligation arose that the club’s tender would be before the officer or committee by whom the decision was to be taken for consideration before a decision was made or any tender accepted. This would not preclude or inhibit the council from deciding not to accept any tender or to award the concession, provided the decision was bona fide and honest, to any tenderer. The obligation was that the club’s tender would be before the deciding body for consideration before any award was made. Accordingly, in my view, the conclusion of the judge and his reasons were correct… Farquharson LJ: I agree.

Notes and questions 1

This rather extraordinary case is important for a whole range of reasons: first and foremost because it shows that knowledge of law is not simply a matter of knowing rules. Indeed, this case seems to defy most of the settled 439

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contract rules, yet its process of reasoning is typical of the common law jurist. Bingham LJ starts from within the facts and works outward towards the notion of an ‘expectation’ which, in turn, rather by sleight of hand, becomes a ‘right’ (see Chapter 2). This methodology does not consist of knowing rules and applying them to a set of facts; and if Blackpool does nothing else, it certainly will prove a challenge to those who think that law is amenable to some existing artificial intelligence system. Can a ratio decidendi be drawn out of this decision? Secondly, the case is important because it indicates the central role of the collateral contract in pre-contractual liability problems. Thus, in addition to the possibilities outlined above (in the note after Entores v Miles Far East Corpn), there is the possibility that the court can turn the pre-contractual behaviour into an independent contract in itself. Is the case, in effect, an example of a contract to negotiate? What damage did the plaintiff suffer? Was it caused by the defendants? Thirdly, the case is interesting because of the status of the defendant. No doubt the decision deserves its place in law of obligations books, but one may ask whether its real place is in works on administrative law. The duty attached to the procedures rather than to the transaction, and while Bingham LJ recognised that a contracting party is under no duty to exercise his rights in a reasonable way, he nevertheless seems to be intervening to prevent an abuse of position. Note, also, how Stocker LJ refers to bona fides. Public law, both in the case law and in statute, has recognised for some time now that a public body does not have the same contractual rights and liberties as a private person, particularly at the pre-contract stage (see, for example, R v Eewisham LEC ex p Shell UK [1988] 1 All ER 938). If the defendant had been a private commercial body seeking tenders for a private commercial venture, would the result have been the same? ‘The court should not subvert well understood…principles by adopting a woolly pragmatic solution designed to remedy a perceived injustice on the unique facts of this particular case’ (Bingham LJ). Did not the House of Lords do just this in White v Jones (see p 702)? Waiford v Miles [1992] 2 AC 128 House of Lords This was an action for damages for misrepresentation and breach of contract brought by disappointed prospective purchasers of a business against the owners of the business who had eventually sold it, not to the plaintiffs, but to a third party. The plaintiffs claimed that the defendants had orally agreed to negotiate only with the plaintiffs and were thus in breach of this ‘lock-out’ agreement when they sold the business to the third party. The trial judge awarded damages for breach of contract and misrepresentation, but a majority of the Court of Appeal allowed an appeal on the breach of contract decision. An appeal to the House of Lords was dismissed.

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The Formation of a Contract Lord Ackner:… The [plaintiffs] relied upon an oral agreement, collateral to the negotiations which were proceeding to purchase the company and land it occupied ‘subject to contract’. The consideration for this oral agreement was twofold—firstly the [plaintiffs] agreeing to continue the negotiations and not withdraw and secondly, their providing the comfort letter from their bankers in the terms requested… As thus pleaded, the agreement purported to be what is known as a ‘lockout’ agreement, providing the plaintiffs with an exclusive opportunity to try and come to terms with the defendants, but without expressly providing any duration for such an opportunity… [Counsel for the plaintiffs] accepted that as the law now stands and has stood for approaching 20 years, an agreement to negotiate is not recognised as an enforceable contract. This was first decided in terms in Courtney and Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297… Before your Lordships it was sought to argue that the decision in Courtney’s case…was wrong. Although the cases in the United States did not speak with one voice your Lordships’ attention was drawn to the decision of the United States’ Court of Appeal, Third Circuit, in Channel Home Centers, Division of Grace Retail Corporation v Grossman (1986) 795 F 2d 291, as being ‘the clearest example’ of the American cases in the appellants’ favour. That case raised the issue whether an agreement to negotiate in good faith, if supported by consideration, is an enforceable contract. I do not find the decision of any assistance. While accepting that an agreement to agree is not an enforceable contract, the Court of Appeal appears to have proceeded on the basis that an agreement to negotiate in good faith is synonymous with an agreement to use best endeavours and as the latter is enforceable, so is the former. This appears to me, with respect, to be an unsustainable proposition. The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. This uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for the termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering him improved terms. [Counsel for the plaintiffs], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question—how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either

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Sourcebook on Obligations and Remedies party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly, a bare agreement to negotiate has no legal content… … I believe it helpful to make…observations about a so called ‘lock-out’ agreement. There is clearly no reason in the English contract law why A, for good consideration, should not achieve an enforceable agreement whereby B agrees for a specified period of time not to negotiate with anyone except A in relation to the sale of his property. There are often good commercial reasons why A should desire to obtain such an agreement from B… But I stress that this is a negative agreement—B by agreeing not to negotiate for this fixed period with a third party, locks himself out of such negotiations. He has in no legal sense locked himself into negotiations with A. What A has achieved is an exclusive opportunity, for a fixed period, to try and come to terms with B, an opportunity for which he has, unless he makes his agreement under seal, to give good consideration…

Notes and questions 1

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If the Blackpool case had gone to the House of Lords, do you think the decision of the Court of Appeal would have been upheld? Who do you think was the dissenting judge in the Court of Appeal decision in Walford? Walford is a very good case to compare with cases from civilian jurisdictions where, as the PECL indicate, the doctrine of good faith has been used to impose duties upon parties at a pre-contractual stage. Why is it that English law insists upon a different approach: is it really because the doctrine is ‘unworkable’? What if A has expended much money on the basis that some kind of contract will be negotiated with B; ought B to be allowed to have the right to disregard completely the interests of A? Ought B to be free to pull out of negotiations without giving reasons? What if B is a public body? Does Walford stipulate that there is no principle of pre-contractual liability in English law? Could Walford be an obstacle to the harmonisation of the law of obligations in the EU? Is Lord Ackner’s analysis of a lock-out agreement convincing? Is B’s duty, in Lord Ackner’s example, simply one not to negotiate with anyone else? Can the courts imply a ‘lock-out’ agreement? If so, might such an implication be based on reasonableness and fairness? Pitt v PHH Asset Management Ltd [1994] 1 WLR 327 Court of Appeal Sir Thomas Bingham MR:… For very many people their first and closest contact with the law is when they come to buy or sell a house. They frequently find it a profoundly depressing and frustrating experience. The vendor puts his house on the market. He receives an offer which is probably less than his asking price. He agonises over whether to accept or hold out for more. He

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The Formation of a Contract decides to accept, perhaps after negotiating some increase. A deal is struck. Hands are shaken. The vendor celebrates, relaxes, makes plans for his own move and takes his house off the market. Then he hears that the purchaser who was formerly pleading with him to accept his offer has decided not to proceed. No explanation is given, no apology made. The vendor has to embark on the whole dreary process of putting his house on the market all over again. For the purchaser the process is, if anything, worse. After a series of futile visits to unsuitable houses he eventually finds the house of his dreams. He makes an offer, perhaps at the asking price, perhaps at what the agent tells him the vendor is likely to accept. The offer is accepted. A deal is done. The purchaser instructs solicitors to act. He perhaps commissions an architect to plan alterations. He makes arrangements to borrow money. He puts his own house on the market. He makes arrangements to move. He then learns that the vendor has decided to sell to someone else, perhaps for the price already offered and accepted, perhaps for an increased price achieved by a covert, unofficial auction. Again, no explanation, no apology. The vendor is able to indulge his self-interest, even his whims, without exposing himself to any legal penalty. The reasons why purchaser and vendor can act in this apparently unprincipled manner are to be found in two legal rules of long standing: first, the rule that contracts for the sale and purchase of land must be evidenced (or now made) in writing; secondly, the rule that terms agreed subject to contract do not give rise to a binding contract. These rules are deeply imbedded in statute and authority. They make possible the behaviour I have described, but the validity and merits of those rules are not, and could not be, the subject of challenge in this appeal. For the purchaser there is, however, one means of protection: to make an independent agreement by which the vendor agrees for a clear specified period not to deal with anyone other than that purchaser. The effect is to give that purchaser a clear run for the period in question. The vendor does not agree to sell to that purchaser, such an agreement would be covered by s 2 of the Law of Property (Miscellaneous Provisions) Act 1989, but he does give a negative undertaking that he will not for the given period deal with anyone else. That, I am quite satisfied, is what happened here, as the judge rightly held. The vendor and the prospective purchaser made what has come to be called a lock-out agreement’. That was a contract binding on them both. The vendor broke it. He is liable to the prospective purchaser for damages which remain to be assessed. I would dismiss the appeal.

Notes and questions 1 How does a lock-out agreement differ from a contract to contract? 2 Could a lock-out agreement ever be the basis of an injunction or specific performance? 3 If PHH were to go to the House of Lords, do you think the views of Sir Thomas Bingham would be upheld? 4 Note that Sir Thomas Bingham mentions two reasons why there is no contract. With respect to the first reason, one might return to Firstpost Homes

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v Johnson (p 425). The second reason is the ‘subject to contract’ rule. This rule can be seen within a variety of contexts. First, it can be seen as an application of the intention to create legal relations requirement; the parties (or one party at least) do not intend a binding contract until formal exchange of contracts. Secondly, it can be seen as a variation of the consensus ad idem rule; the parties are not to be considered ‘at one’ until exchange. Thirdly, it could, perhaps, be seen in terms of the rule of certainty; there is no contract until all the major terms are agreed upon and this does not happen formally until exchange of contracts. Thus, even if a party has ‘agreed’ a price with a buyer, this price is not regarded as a certainty until exchange. The point of raising these different contexts is that they are very important factual perspectives to contract. There are many relationships which are ambiguous: the ‘contract’ in which a price is yet to be fixed; the ‘contract’ where some further details are yet to be negotiated (see, for example, May and Butcher Ltd v R [1934] 2 KB 17); the ‘contract’ where parties have worked out all the terms in great detail, but still do not, as yet, wish to be contractually bound. How should the law of obligations deal with these kinds of situation? If one party to a sale ‘contract’ has actually delivered the goods to the other party despite the fact that the two parties have not agreed a price, is there a contract? In many situations, the question may not be that important; even if there were to be no contract, the buyer will normally be liable in restitution to pay a reasonable sum (but see Sale of Goods Act 1979, s 8, and see the next case, below). Yet often, there may just be a décalage between the formal rules of contract and commercial practice which only comes to light when things go wrong. British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 Queen’s Bench Division This was a successful action in debt (quantum meruit) for work done, at the request of the defendants, in anticipation of a formal contract that never materialised. The defendants conterclaimed for damages for breach of contract. Robert Goff LJ:… Now the question whether in a case such as the present any contract has come into existence must depend on a true construction of the relevant communications which have passed between the parties and the effect (if any) of their actions pursuant to those communications. There can be no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement: everything must depend on the circumstances of the particular case. In most cases, where work is done pursuant to a request contained in a letter of intent, it will not matter whether a contract did or did not come into existence, because, if the party who has acted on the request is simply claiming payment, his claim will usually be based on a quantum meruit, and it will make no difference whether that claim is contractual or quasicontractual. Of course, a quantum meruit claim

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The Formation of a Contract (like the old actions for money had and received and for money paid) straddles the boundaries of what we now call contract and restitution, so the mere framing of a claim as a quantum meruit claim, or a claim for a reasonable sum, does not assist in classifying the claim as contractual or quasi-contractual. But where, as here, one party is seeking to claim damages for breach of contract, the question whether any contract came into existence is of crucial importance. As a matter of analysis the contract (if any) which may come into existence following a letter of intent may take one of two forms: either there may be an ordinary executory contract, under which each party assumes reciprocal obligations to the other; or there may be what is sometimes called an ‘if contract, that is, a contract under which A requests B to carry out a certain performance and promises B that, if he does so, he will receive a certain performance in return, usually remuneration for her performance. The latter transaction is really no more than a standing offer which, if acted on before it lapses or is lawfully withdrawn, will result in a binding contract… In my judgment, the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances, to expedite performance under that anticipated contract, one requested the other to commence the contract work, and the other complied with that request. If thereafter, as anticipated, a contract was entered into, the work done as requested will be treated as having been performed under that contract; if, contrary to their expectation, no contract was entered into, then the performance of the work is not referable to any contract the terms of which can be ascertained, and the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation sounding in quasi-contract or, as we now say, in restitution. Consistently with that solution, the party making the request may find himself liable to pay for work which he would not have had to pay for as such if the anticipated contract had come into existence, for example, preparatory work which will, if the contract is made, be allowed for in the price of the finished work… I only wish to add to this part of my judgment the footnote that, even if I had concluded that in the circumstances of the present case there was a contract between the parties and that that contract was of the kind I have described as an ‘if’ contract, then I would still have concluded that there was no obligation under that contract on the part of BSC to continue with or complete the contract work, and therefore no obligation on their part to complete the work within a reasonable time. However, my conclusion in the present case is that the parties never entered into any contract at all. Regalian Properties plc v London Dockland Development Corporation [1995] 1WLR 212 Chancery Division This was an unsuccessful action for reimbursement of expenses incurred by a property company in carrying out preparatory works in respect of a contract that never materialised.

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Sourcebook on Obligations and Remedies Rattee J:… I can well understand why Goff J [in British Steel Corpn v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504] concluded that where one party to an expected contract expressly requests the other to perform services or supply goods that would have been performable or suppliable under the expected contract when concluded in advance of the contract, that party should have to pay a quantum meruit if the contract does not materialise. The present case is not analogous. The costs for which Regalian seeks reimbursement were incurred by it not by way of accelerated performance of the anticipated contract at the request of LDDC, but for the purpose of putting itself in a position to obtain and then perform the contract… … I appreciate that the English law of restitution should be flexible and capable of continuous development. However, I see no good reason to extend it to apply some…principle…to facts such as those of the present case, where, however much the parties expect a contract between them to materialise, both enter negotiations expressly (whether by use of the words ‘subject to contract’ or otherwise) on terms that each party is free to withdraw from the negotiations at any time. Each party to such negotiations must be taken to know (as in my judgment Regalian did in the present case) that pending the conclusion of a binding contract any cost incurred by him in preparation for the intended contract will be incurred at his own risk in the sense that he will have no recompense for those costs if no contract results. In other words… each accepted that in the event of no contract being entered into, any resultant loss should lie where it fell…

Questions 1 2 3 4

5

6

Is a quantum meruit founded upon an implied contractual relationship? Is the Cleveland case an example of pre-contractual liability? Were the actions in both these cases debt or damages claims? Compare and contrast Cleveland with Blackpool and Fylde. Could the plaintiff in Blackpool have sued on a quantum meruit for all the expenses incurred in preparing and submitting the tender? Discuss the role that risk plays in the law of restitution. Is it a helpful concept in the law of obligations? Is it a normative, quasi-normative or descriptive concept? (Cf Chapter 2.) If the result of Regalian had been different, would this have altered in any way the legal situation described by Sir Thomas Bingham MR in Pitt v PHH (above, p 442)?

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3 INTENTION AND CERTAINTY Sale of Goods Act 1979 (c 54) 8

Ascertainment of price (1) (2) (3)

9

The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties. Where the price is not determined as mentioned in subsection (1) above the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Agreement to sell at valuation (1)

(2)

Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of them have been delivered to and appropriated by the buyer he must pay a reasonable price for them. Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the party at fault.

Supply of Goods and Services Act 1982 (c 29) 14

Implied term about time of performance (1)

(2)

Where, under a contract for the supply of a service by a supplier acting in the course of a business, the time for the service to be carried out is not fixed by the contract, left to be fixed in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the supplier will carry out the service within a reasonable time. What is a reasonable time is a question of fact.

15

Implied term about consideration

(1)

Where, under a contract for the supply of a service, the consideration for the service is not determined by the contract, left to be determined in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge. What is a reasonable charge is a question of fact.

(2)

Principles of European Contract Law Article 2:103 Sufficient agreement (1)

There is sufficient agreement if the terms: (a)

have been sufficiently defined by the parties so that the contract can be enforced, or

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Sourcebook on Obligations and Remedies (b) (2)

can be determined under these Principles.

However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached.

Questions 1

2

3

S concludes a ‘contract’ for the supply of goods with B, and this contract contains a clause allowing S to fix the price of the goods at S’s own discretion. Is there an enforceable contract? S concludes a ‘contract’ for the supply of services with B, and this contract contains a clause allowing S to fix the price for the services at S’s own discretion. Is there an enforceable contract? S concludes a ‘contract’ for the supply of services with B and this contract contains a clause allowing S to fix the price for the services at S’s own discretion. S performs the first of the services under the contract and sends B a bill for these services; B pays the bill without complaint, considering the price reasonable. S performs further agreed services, but sends B a bill that B considers outrageous, unfair and abusive. Advise B. Law of Property (Miscellaneous Provisions) Act 1989 (c 34) 2

Contracts for sale, etc, of land to be made by signed writing. (1)

(2) (3)

A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. The terms may be incorporated in a document either by being set out in it or by reference to some other document. The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 Court of Appeal (Seep 425.)

4 CONSIDERATION (a) Introduction Code civil 1102 A contract is synallagmatic or bilateral when the contracting parties obligate themselves reciprocally toward each other.

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The Formation of a Contract 1103 It is unilateral when one or more persons are obligated toward one or more others without there being an engagement on the part of the latter. 1105 A gratuitous contract (contrat de bienfaisance) is one in which one of the parties procures for the other a purely gratuitous advantage. 1106 An onerous contract (a Hire onèreux) is one which obliges each one of the parties to give or to do something.

Notes and questions 1

2

3

4

One might explain consideration to a civil lawyer by saying that only ‘onerous contracts’ are contracts in English law. A ‘gratuitous contract’ is enforceable only if it is a deed, the requirements of which are now set out in statute (Law of property (Miscellaneous Provisions) Act 1989, s 1). English law, as has been seen, distinguishes between unilateral and bilateral contracts. In a bilateral contract, the reciprocal obligations (promises) act as the consideration moving from each party. What is the consideration for the contract of sale when B enters S’s shop and buys a newspaper? What is the consideration if B enters S’s shop, sees no one around, and just takes a newspaper, leaving the money on the counter? In a unilateral contract, only one party makes a promise and, thus, the consideration moving from the promisee has to be his performance rather than his non-existent promise. Thus if D promises £5 reward to anyone who returns his lost cat Tibbins and P finds and returns Tibbins, then D must pay the £5. But what if P did not know of the reward offer and just returned Tibbins out of kindness; can P claim the £5 if he subsequently discovers the reward offer? What if D had seen P walking towards his house carrying Tibbins and shouted out of the window that the offer was withdrawn? With regard to this last question, is it of importance that P was aware of the reward offer when D shouted his revocation at him? D borrows £5 from P: why, in law, must D repay P? D borrows a book from P: why, in law, must D return the book to P?

(b) Validity of consideration Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1 Court of Appeal This was an action in debt for building work done pursuant to a promise made by the defendants whereby they undertook to pay more for this work than they had stipulated in the original contract. The defendant claimed that the promise to pay the extra money was unsupported by consideration, but the Court of Appeal disagreed; the defendants had received a real benefit in return for their promise to pay more.

449

Sourcebook on Obligations and Remedies Glidewell LJ:… Mr Evans [counsel for the defendants] submits that, though his clients may have derived, or hoped to derive, practical benefits from their agreement to pay the ‘bonus’, they derived no benefit in law, since the plaintiff was promising to do no more than he was already bound to do by his subcontract, that is, continue with the carpentry work and complete it on time. Thus there was no consideration for the agreement. Mr Evans relies on the principle of law which, traditionally, is based on the decision in Stilk v Myrick (1809) 2 Camp 317. That was a decision at first instance of Lord Ellenborough CJ. On a voyage to the Baltic, two seamen deserted. The captain agreed with the rest of the crew that if they worked the ship back to London without the two seamen being replaced, he would divide between them the pay which would have been due to the two deserters. On arrival at London, this extra pay was refused, and the plaintiffs action to recover his extra pay was dismissed. Counsel for the defendant argued that such an agreement was contrary to public policy, but Lord Ellenborough CJ’s judgment was based on lack of consideration… In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, Mocatta J regarded the general principle of the decision in Stilk v Myrick (1809) 2 Camp 317 as still being good law. He referred to two earlier decisions of this court, dealing with wholly different subjects, in which Denning LJ sought to escape from the confines of the rule, but was not accompanied in his attempt by the other members of the court… It was suggested to us in argument that, since the development of the doctrine of promissory estoppel, it may well be possible for a person to whom a promise has been made, on which he has relied, to make an additional payment for services which he is in any event bound to render under an existing contract or by operation of law, to show that the promisor is estopped from claiming that there was no consideration for his promise. However, the application of the doctrine of promissory estoppel to facts such as those of the present case has not yet been fully developed… There is, however, another legal concept of relatively recent development which is relevant, namely, that of economic duress. Clearly if a subcontractor has agreed to undertake work at a fixed price, and before he has completed the work declines to continue with it unless the contractor agrees to pay an increased price, the subcontractor may be held guilty of securing the contractor’s promise by taking unfair advantage of the difficulties he will cause if he does not complete the work. In such a case an agreement to pay an increased price may well be voidable because it was entered into under duress. Thus this concept may provide another answer in law to the question of policy which has troubled the courts since before Stilk v Myrick (1809) 2 Camp 317, and no doubt led at the date of that decision to a rigid adherence to the doctrine of consideration. This possible application of the concept of economic duress was referred to by Lord Scarman, delivering the judgment of the Judicial Committee of the Privy Council in Pao On v Lau Yiu Long [1980] AC 614… Accordingly, following the view of the majority in Ward v Byham [1956] 1 WLR 496 and of the whole court in Williams v Williams [1957] 1 WLR 148 and

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The Formation of a Contract that of the Privy Council in Pao On [1980] AC 614 the present state of the law on this subject can be expressed in the following proposition: (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding… Russell LJ:… [W]hilst consideration remains a fundamental requirement before a contract not under seal can be enforced, the policy of the law in its search to do justice between the parties has developed considerably since the early 19th century when Stilk v Myrick (1809) 2 Camp 317 was decided by Lord Ellenborough CJ. In the late 20th century, I do not believe that the rigid approach to the concept of consideration to be found in Stilk v Myrick is either necessary or desirable. Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties… Purchas LJ:… In my judgment,…the rule in Stilk v Myrick (1809) 2 Camp 317 remains valid as a matter of principle, namely that a contract not under seal must be supported by consideration. Thus, where the agreement upon which reliance is placed provides that an extra payment is to be made for work to be done by the payee which he is already obliged to perform then unless some other consideration is detected to support the agreement to pay the extra sum that agreement will not be enforceable. The two cases, Harris v Watson, Peake 102 and Stilk v Myrick (1809) 2 Camp 317 involved circumstances of a very special nature, namely the extraordinary conditions existing at the turn of the 18th century under which seamen had to serve their contracts of employment on the high seas. There were strong public policy grounds at that time to protect the master and owners of a ship from being held to ransom by disaffected crews. Thus, the decision that the promise to pay extra wages even in the circumstances established in those cases, was not supported by consideration is readily understandable. Of course, conditions today on the high seas have changed dramatically and it is at least questionable, as Mr Makey submitted, whether these cases might not well have been decided differently if they were tried today. The modern cases tend to depend more upon the defence of duress in a commercial context rather than lack of consideration for the second agreement. In the present case the question of duress does not arise… Nevertheless, the court is more ready in the presence of this defence being available in the commercial context to look for mutual advantages which would amount to sufficient consideration to support the second agreement under which the extra money is paid…

451

Sourcebook on Obligations and Remedies The question must be posed: what consideration has moved from the plaintiff to support the promise to pay the extra £10,300 added to the lump sum provision? In the particular circumstances which I have outlined above, there was clearly a commercial advantage to both sides from a pragmatic point of view in reaching the agreement of 9 April. The defendants were on risk that as a result of the bargain they had struck the plaintiff would not or indeed possibly could not comply with his existing obligations without further finance. As a result of the agreement the defendants secured their position commercially. There was, however, no obligation added to the contractual duties imposed upon the plaintiff under the original contract. Prima facie this would appear to be a classic Stilk v Myrick case. It was, however, open to the plaintiff to be in deliberate breach of the contract in order to ‘cut his losses’ commercially. In normal circumstances the suggestion that a contracting party can rely upon his own breach to establish consideration is distinctly unattractive. In many cases it obviously would be and if there was any element of duress brought upon the other contracting party under the modern development of this branch of the law the proposed breaker of the contract would not benefit. With some hesitation… I consider that the modern approach to the question of consideration would be that where there were benefits derived by each party to a contract of variation even though one party did not suffer a detriment this would not be fatal to the establishing of sufficient consideration to support the agreement. If both parties benefit from an agreement it is not necessary that each also suffers a detriment. In my judgment, on the facts as found by the judge, he was entitled to reach the conclusion that consideration existed and in those circumstances I would not disturb that finding. This is sufficient to determine the appeal…

Notes and questions 1

2 3 4 5

The second formal requirement, after offer and acceptance, for a valid contract in English law is consideration. The standard definition is ‘A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other’ (Lush J in Currie v Misa (1875) LR 10 Ex 153, p 162). What do you think is the role of consideration in contract law? Does the definition need amending in the light of Roffey? A and B exchange Christmas presents every year. Is the exchange a contract? If not, is this only because the parties do not intend legal relations? In Roffey, is it a material fact that the transaction was one for building work? What is meant by economic duress? (Cf CTN Cash and Carry v Gallaher Ltd, below, p 504.) How does Roffey differ from D &C Builders v Rees (below)?

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The Formation of a Contract

(c) Consideration and abuse of rights D & C Builders Ltd v Rees [1966] 2 QB 617 Court of Appeal This was an action in debt by a firm of builders in respect of money owed for work done. The debtor argued that the plaintiffs had accepted a lesser figure in full and final settlement of the debt. The creditor argued that this lesser sum had been accepted only after the debtor had threatened to pay them nothing at a time when the firm was on the verge of bankruptcy. The Court of Appeal gave judgment in favour of the builders. Lord Denning MR:… This case is of some consequence: for it is a daily occurrence that a merchant or tradesman, who is owed a sum of money, is asked to take less. The debtor says he is in difficulties. He offers a lesser sum in settlement, cash down. He says he cannot pay more. The creditor is considerate. He accepts the proffered sum and forgives him the rest of the debt. The question arises: Is the settlement binding on the creditor? The answer is that, in point of law, the creditor is not bound by the settlement. He can the next day sue the debtor for the balance: and get judgment. The law was so stated in 1602 by Lord Coke in Pinnel’s Case (1602) 5 Co Rep 117a—and accepted in 1889 by the House of Lords in Foakes v Beer (1884) 9 App Cas 605. Now, suppose that the debtor, instead of paying the lesser sum in cash, pays it by cheque. He makes out a cheque for the amount. The creditor accepts the cheque and cashes it. Is the position any different? I think not. No sensible distinction can be taken between payment of a lesser sum by cash and payment of it by cheque. The cheque, when given, is conditional payment. When honoured, it is actual payment. It is then just the same as cash. If a creditor is not bound when he receives payment by cash, he should not be bound when he receives payment by cheque… In point of law payment of a lesser sum, whether by cash or by cheque, is not discharge of a greater sum. This doctrine of the common law has come under heavy fire. It was ridiculed by Sir George Jessel in Couldery v Bartram (1881) 19 Ch D 394, p 399. It was said to be mistaken by Lord Blackburn in Foakes v Beer. It was condemned by the Law Revision Committee, Cmd 5449,1945, paras 20 and 21. But a remedy has been found. The harshness of the common law has been relieved. Equity has stretched out a merciful hand to help the debtor. The courts have invoked the broad principle stated by Lord Cairns in Hughes v Metropolitan Railway Co: It is the first principle upon which all courts of equity proceed that if parties, who have entered into definite and distinct terms involving certain legal results, afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them when it would be inequitable having regard to the dealings which have taken place between the parties.

453

Sourcebook on Obligations and Remedies It is worth noticing that the principle may be applied, not only so as to suspend strict legal rights, but also so as to preclude the enforcement of them. This principle has been applied to cases where a creditor agrees to accept a lesser sum in discharge of a greater. So much so that we can now say that, when a creditor and a debtor enter upon a course of negotiation, which leads the debtor to suppose that, on payment of the lesser sum, the creditor will not enforce payment of the balance, and on the faith thereof the debtor pays the lesser sum and the creditor accepts it as satisfaction: then the creditor will not be allowed to enforce payment of the balance when it would be inequitable to do so. This was well illustrated during the last war. Tenants went away to escape the bombs and left their houses unoccupied. The landlords accepted a reduced rent for the time they were empty. It was held that the landlords could not afterwards turn round and sue for the balance, see Central London Property Trust Ltd v High Trees House Ltd. This caused at the time some eyebrows to be raised in high places. But they have been lowered since. The solution was so obviously just that no one could well gainsay it. In applying this principle, however, we must note the qualification: The creditor is only barred from his legal rights when it would be inequitable for him to insist upon them. Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor afterwards to insist on the balance. But he is not bound unless there has been truly an accord between them. In the present case, on the facts as found by the judge, it seems to me that there was no true accord. The debtor’s wife held the creditor to ransom. The creditor was in need of money to meet his own commitments, and she knew it. When the creditor asked for payment of the £480 due to him, she said to him in effect, ‘We cannot pay you the £480. But we will pay you £300 if you will accept it in settlement. If you do not accept it on those terms you will get nothing. £300 is better than nothing.’ She had no right to say any such thing. She could properly have said: ‘We cannot pay you more than £300. Please accept it on account,’ But she had no right to insist on his taking it in settlement. When she said: ‘We will pay you nothing unless you accept £300 in settlement’, she was putting undue pressure on the creditor. She was making a threat to break the contract (by paying nothing) and she was doing it so as to compel the creditor to do what he was unwilling to do (to accept £300 in settlement): and she succeeded. He complied with her demand. That was on recent authority a case of intimidation: see Rookes v Barnard and Stratford (JT) and Son Ltd v Lindley. In these circumstances there was no true accord so as to found a defence of accord and satisfaction: see Day v McLea. There is also no equity in the defendant to warrant any departure from the due course of law. No person can insist on a settlement procured by intimidation. In my opinion there is no reason in law or equity why the creditor should not enforce the full amount of the debt due to him. I would, therefore, dismiss this appeal.

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The Formation of a Contract

Notes and questions 1

2

3

4

5

D & C Builders is obviously a useful case to compare with Williams v Roffey. Why was the Court of Appeal prepared to find consideration in one, but not in the other? Did the parties in D & C Builders not receive a benefit? Would the result of Roffey have been different if the plaintiff had simply threatened not to continue with the building work unless the plaintiff promised to pay more? If the creditor’s debt claim had failed in D & C Builders, would the defendant have been unjustly enriched? In which chapter in a book on the law of restitution (unjust enrichment) would you expect to find this case? If the plaintiff in D & C Builders had suffered considerable financial loss as a result of the defendant’s refusal to pay the full bill, could the plaintiff have sued for damages for breach of contract or for a tort? The workers at P’s factory threaten to go on strike unless P agrees to pay them higher wages. P agrees to the demands, because he wishes to fulfil an urgent order. After the order is fulfilled, P wishes to know if he is bound by the promise to pay higher wages. Advise. Central London Property Trust Ltd v High Trees House Ltd [1957] 1 KB 130 King’s Bench Division This was an action in debt by a landlord company against a tenant company claiming arrears of rent, for the year of 1945 only, in respect of a block of flats let during the war years. The arrears were based on the amount of rent payable as stipulated in the formal lease, but the tenant claimed that the landlord had agreed to take a reduced rent from 1941 because of the difficulty of letting the flats during the war. Denning J:… If I were to consider this matter without regard to recent developments in the law, there is no doubt that, had the plaintiffs claimed it, they would have been entitled to recover ground rent at the rate of £2,500 a year from the beginning of the term, since the lease under which it was payable was a lease under seal which, according to the old common law, could not be varied by an agreement by parol (whether in writing or not), but only by deed. Equity, however, stepped in, and said that if there had been a variation of a deed by a simple contract (which in the case of a lease required to be in writing would have to be evidenced by writing), the courts may give effect to it as is shown in Berry v Berry. That equitable doctrine, however, could hardly apply in the present case because the variation here might be said to have been made without consideration. With regard to estoppel, the representation made in relation to reducing the rent was not a representation of an existing fact. It was a representation, in effect, as to the future, namely, that payment of the rent would not be enforced at the full rate but only at the reduced rate. Such a representation would not give rise to an estoppel because, as was said in Jorden v Money, a representation as to the future must be embodied as a contract or be nothing. 455

Sourcebook on Obligations and Remedies But what is the position in view of developments in the law in recent years? The law has not been standing still since Jorden v Money. There has been a series of decisions over the past 50 years which, although they are said to be cases of estoppel are not really such. They are cases in which a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so acted on. In such cases the courts have said that the promise must be honoured… The logical consequence, no doubt, is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration: and if the fusion of law and equity leads to this result, so much the better… I am satisfied that a promise such as that to which I have referred is binding and the only question remaining for my consideration is the scope of the promise in the present case. I am satisfied on all the evidence that the promise here was that the ground rent should be reduced to £1,250 a year as a temporary expedient while the block of flats was not fully, or substantially fully let, owing to the conditions prevailing. That means that the reduction in the rent applied throughout the years down to the end of 1944, but early in 1945 it is plain that the flats were fully let, and, indeed the rents received from them (many of them not being affected by the Rent Restrictions Acts), were increased beyond the figure at which it was originally contemplated that they would be let. At all events the rent from them must have been very considerable. I find that the conditions prevailing at the time when the reduction in rent was made, had completely passed away by the early months of 1945. I am satisfied that the promise was understood by all parties only to apply under the conditions prevailing at the time when it was made, namely, when the flats were only partially let, and that it did not extend any further than that. When the flats became fully let, early in 1945, the reduction ceased to apply. In those circumstances, under the law as I hold it, it seems to me that rent is payable at the full rate for the quarters ending 29 September and 25 December 1945. If the case had been one of estoppel it might be said that in any event the estoppel would cease when the conditions to which the representation applied came to an end, or it also might be said that it would only come to an end on notice. In either case it is only a way of ascertaining what is the scope of the representation. I prefer to apply the principle that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply. Here it was binding as covering the period down to the early part of 1945, and as from that time full rent is payable. I therefore give judgment for the plaintiff company for the amount claimed.

Questions 1

Is this an example of equity modifying a contract? Did not the landlord have the contractual right to the full rent? Was the landlord in effect estopped in equity from abusing his common law right? 456

The Formation of a Contract

2

If the facts of High Trees arose again today, would recourse to equity still be necessary? Crabb v Arun District Council [1976] Ch 179 Court of Appeal This was an action for a declaration that the plaintiff had a right of access over the defendants’ land in order to reach one of his plots which no longer had an access owing to the sale of part of his land. The plaintiff claimed that he would not have gone ahead with the sale of part of his property if the council representative had not given the clear impression in discussions that the plaintiff would be granted access at point B. The council at first left a gap at point B, but later fenced it off, denying the plaintiff access unless he paid £3,000 for such a right. The Court of Appeal granted the declaration. Lord Denning MR:… When counsel for Mr Crabb said that he put his case on an estoppel, it shook me a little, because it is commonly supposed that estoppel is not itself a cause of action. But that is because there are estoppels and estoppels. Some do give rise to a cause of action. Some do not. In the species of estoppel called proprietary estoppel, it does give rise to a cause of action. We had occasion to consider it a month ago in Moorgate Mercantile Co Ltd v Twitchings where I said that the effect of estoppel on the true owner may be that: … his own title to the property, be it land or goods, has been held to be limited or extinguished, and new rights and interests have been created therein. And this operates by reason of his conduct—what he has led the other to believe—even though he never intended it. The new rights and interests, so created by estoppel in or over land, will be protected by the courts and in this way give rise to a cause of action… The basis of this proprietary estoppel—as indeed of promissory estoppel—is the interposition of equity. Equity comes in, true to form, to mitigate the rigours of strict law. The early cases did not speak of it as ‘estoppel’. They spoke of it as ‘raising an equity’… What then are the dealings which will preclude him from insisting on his strict legal rights? If he makes a binding contract that he will not insist on the strict legal position, a court of equity will hold him to his contract. Short of a binding contract, if he makes a promise that he will not insist upon his strict legal rights—even though that promise may be unenforceable in point of law for want of consideration or want of writing—and if he makes the promise knowing or intending that the other will act upon it, and he does act upon it, then again a court of equity will not allow him to go back on that promise: see Central London Property Trust Ltd v High Trees House Ltd and Charles Richards Ltd v Oppenheim. Short of an actual promise, if he, by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights—knowing or intending that the other will act on that belief— and he does so act, that again will raise an equity in favour of the other, and it is for a court of equity to say in what way the equity may be satisfied. The cases show that this equity does not depend on agreement but on words or conduct. In Ramsden v Dyson Lord Kingsdown spoke of a verbal agreement

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Sourcebook on Obligations and Remedies ‘or what amounts to the same thing, an expectation, created or encouraged’. In Birmingham and District Land Co v London and North Western Railway Co, Cotton LJ said that ‘…what passed did not make a new agreement, but what took place…raised an equity against him,’… The question then is: were the circumstances here such as to raise an equity in favour of Mr Crabb? True the council on the deeds had the title to their land, free of any access at point B. But they led Mr Crabb to believe that he had or would be granted a right of access at point B… The council actually put up the gates at point B at considerable expense. That certainly led Mr Crabb to believe that they agreed that he should have the right of access through point B without more ado… The council knew that Mr Crabb intended to sell the two portions separately and that he would need an access at point B as well as point A. Seeing that they knew of his intention—and they did nothing to disabuse him, but rather confirmed it by erecting gates at point B—it was their conduct which led him to act as he did; and this raises an equity in favour against them…

Questions 1 2

3

Did the plaintiff gain a ius in rem as a result of the injunction? Would a continental lawyer classify this case in the law of obligations? How, and in what court, would this case have been decided in France? Do you think the status of the defendant influenced the Court of Appeal in Crabb? Was there not promise and consideration in this case?

(d) Third parties Morris v CW Martin & Sons Ltd [1966] 1 QB 716 Court of Appeal (See p 80.) Lord Denning MR:… Now comes the question: can the defendants rely, as against the plaintiff, on the exempting conditions although there was no contract directly between them and her? There is much to be said on each side. On the one hand, it is hard on the plaintiff if her just claim is defeated by exempting conditions of which she knew nothing and to which she was not a party. On the other hand, it is hard on the defendants if they are held liable to a greater responsibility than they agreed to undertake. As long ago as 1601, Lord Coke advised a bailee to stipulate specially that he would not be responsible for theft, see Southcote’s case (1601) 4 Co Rep 83b, a case of theft by a servant. It would be strange if his stipulation was of no avail to him. The answer to the problem lies, I think, in this: the owner is bound by the conditions if he has expressly or impliedly consented to the bailee making a sub-bailment containing those conditions, but not otherwise. Suppose the owner of goods lets them out on hire, and the hirer sends them for repair, and the repairer holds them for a lien. The owner is bound by the lien because he impliedly consented to the repairs being done, since they were reasonably 458

The Formation of a Contract incidental to use of the car: see Tappenden v Artus. So also if the owner of a ship accepts goods for carriage on a bill of lading containing exempting conditions (that is, a bailment upon terms’) the owner of the goods (although not a party to the contract) is bound by those conditions if he impliedly consented to them as being in ‘the known and contemplated form’… In this case the plaintiff agreed that Beder should send the fur to the defendants, and by so doing I think she impliedly consented to his making a contract for cleaning on the terms usually current in the trade. But when I come to study the conditions I do not think they are sufficient to protect the cleaners. We always construe such conditions strictly. Clause 9 applies only to ‘goods belonging to customers’, that is, goods belonging to Beder, and not to goods belonging to his customers such as the plaintiff. The conditions themselves draw a distinction between ‘customer’ and ‘his own customer’, see clause 16. Clause 14 only applies to ‘the loss of or damage to the goods during processing’. The loss here was not during processing. It was before or after processing. Seeing that the conditions do not protect the defendants, I am of opinion that they are liable for the loss due to the theft by their servant. I would allow the appeal accordingly, and direct judgment to be entered for the value of the stole as found by the judge £200. Beswick v Beswick [1968] AC 58 House of Lords (Seep 249.) Jackson v Horizon Holidays Ltd [1975] 1WLR 1468 Court of Appeal (See p 220.) Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68 Court of Appeal This was an action in damages for breach of contract by a local authority (Darlington) against a construction company (Wiltshier) in respect of defects in a building constructed for the authority. The local authority had not contracted directly with the construction company, but were assignees of all rights and causes of action from the actual contractor (Morgan Grenfell). The judge held that, as assignees, the local authority was entitled only to nominal damages; the local authority successfully appealed against this judgment. Dillon LJ:… The council claims that there are serious defects in the Dolphin Centre which are due to bad workmanship, or other breaches of provisions in the building contracts, on the part of Wiltshier. It is said, for instance, that all the masonry walls of the centre are defective and dangerous, principally because of defects in the mortar used. It is said also that roofing tiles used in the flat roofs have deteriorated prematurely under the effects of normal weathering and were not of merchantable quality. It is said also that parts of the structural steelwork columns and beams were not provided with adequate fire protection. The council claims that it will incur expenses of the order of £2 m in carrying out repairs to remedy these defects.

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Sourcebook on Obligations and Remedies Whether the defects exist and are the fault of Wiltshier has, of course, not yet been tried. We are only concerned with preliminary issues and for the purposes of those issues it is to be assumed that there are such defects and that they are the result of breaches by Wiltshier of its obligations under the building agreements as alleged. It is also, as I see it, to be assumed, in so far as necessary, that the assumed defects will be made good by the council, through other contractors, at considerable expense to the council… We start, therefore, with certain elementary propositions in the law as to damages for breach of contract which are binding on this court. Thus, in the first place, the general principle for the assessment of damages for breach of contract is compensatory—to compensate the plaintiff for the damage, loss or injury he has suffered through the breach: see Lord Wilberforce in Johnson v Agnew [1980] AC 367, p 400; and Viscount Haldane LC in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673, p 689. In the second place, though the doctrine has been much criticised, it remains the law binding on this court that a third party cannot sue for damages on a contract to which he was not a party: see the decisions of the House of Lords in Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847; Midland Silicones Ltd v Scruttons Ltd [1962] AC 446; and Beswick v Beswick [1968] AC 58. In the third place, the general position is that if a plaintiff contracts with a defendant for the defendant to make a payment or confer some other benefit on a third party who was not a party to the contract, the plaintiff cannot recover substantial damages from the defendant for breach of that obligation on the part of the defendant: see Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277. The plaintiff can, prima facie, only recover for his own loss… It has been recognised in the House of Lords, however, that there are certain exceptions to the general principles I have mentioned. One exception, recognised in the Woodar Investment case [1980] 1 WLR 277, is where the plaintiff made the contract as agent or trustee for the third party and was enforcing the rights of a beneficiary, there being a fiduciary relationship: see per Lord Wilberforce, p 284A-B and per Lord Russell of Killowen, p 293H. This is recognised in the decision of this court in Lloyd’s v Harper (1880) 16 Ch D 290, where it was held that the corporation of Lloyd’s, as successors to the committee of Lloyd’s, were entitled to enforce a guarantee of the liabilities of an underwriting member which had been given to the committee, which had itself suffered no loss, for the benefit of all persons, whether members or not, with whom the member had contracted engagements as underwriting member. A further exception is to be found, in the law as to the carriage of goods by sea, in the recognition by the House of Lords in The Albazero [1977] AC 774 of the continuing validity in such a context of the earlier decision of the House in Dunlop v Lambert (1839) 6 Cl & F 600. It is unnecessary to go into details of the circumstances in The Albazero and Dunlop v Lambert, since what Lord Diplock referred to in The Albazero [1977] AC 774, p 846, as the rule laid down by the House in Dunlop v Lambert was applied by the House in a building contract context in St Martin’s Property Corporation Ltd v Sir Robert McAlpine Ltd, reported with Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] AC 85… 460

The Formation of a Contract Accordingly, I would allow this appeal by direct application of the rule in Dunlop v Lambert as recognised in a building contract context in Lord BrowneWilkinson’s speech in the McAlpine case… Steyn LJ:… In order lawfully to avoid the financial constraints of the Local Government Act 1972 Morgan Grenfell acted as financier to the council in connection with the construction of the Dolphin Centre in Darlington. Morgan Grenfell entered into building contracts with Wiltshier for the benefit of the council. That is how the transaction was structured and that is how all three parties saw it. And it is, of course, manifest that the council, as the third party, accepted the benefit of the building contract. But for the rule of privity of contract the council could simply have sued on the contract made for its benefit. The case for recognising a contract for the benefit of a third party is simple and straightforward. The autonomy of the will of the parties should be respected. The law of contract should give effect to the reasonable expectations of contracting parties. Principle certainly requires that a burden should not be imposed on a third party without his consent. But there is no doctrinal, logical or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where that is the expressed intention of the parties. Moreover, often the parties, and particularly third parties, organise their affairs on the faith of the contract. They rely on the contract. It is therefore unjust to deny effectiveness to such a contract. I will not struggle further with the point since nobody seriously asserts the contrary; but see a valuable article by Jack Beatson, a law commissioner, now Rouseball Professor of English Law at Cambridge, ‘Reforming the law of contracts for the benefit of third parties: a second bite at the cherry’ (1992) 45 CLP 1. The genesis of the privity rule is suspect. It is attributed to Tweedle v Atkinson (1861) B & S 393. It is more realistic to say that the rule originated in the misunderstanding of Tweddle v Atkinson: see Atiyah, The Rise and Fall of Freedom of Contract, 1979, p 414; and Simpson, A History of the Law of Contract: The Rise of the Action of Assumpsit, 1975, p 475. While the privity rule was barely tolerable in Victorian England, it has been recognised for half a century that it has no place in our more complex commercial world. Indeed, as early as 1915, in Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847, p 855, when the House of Lords restated the privity rule, Lord Dunedin observed in a dissenting speech that the rule made: … it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce. Among the majority, Viscount Haldane LC asserted as a self-evident truth, p 853, that ‘only a person who is a party to a contract can sue on it’. Today the doctrinal objection to the recognition of a stipulatio alteri continues to hold sway. While the rigidity of the doctrine of consideration has been greatly reduced in modern times, the doctrine of privity of contract persists in all its artificial technicality.

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Sourcebook on Obligations and Remedies In 1937 the Law Revision Committee in its Sixth Report, Cmd 5449, paras 41– 48, proposed the recognition of a right of a third party to enforce the contract which by its express terms purports to confer a benefit directly on him. In 1967, in Beswick v Beswick [1968] AC 58, p 72, Lord Reid observed that if there was a long period of delay in passing legislation on the point the House of Lords might have to deal with the matter. Twelve years later Lord Scarman, who as a former chairman of the Law Commission usually favoured legislative rather than judicial reform where radical change was involved, reminded the House that it might be necessary to review all the cases which ‘stand guard over this unjust rule’: Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, p 300G. See also Lord Keith of Kinkel, pp 297H-98A. In 1981 Dillon J described the rule as ‘a blot on our law and most unjust’: Forster v Silvermere Golf and Equestrian Centre (1981) 125 SJ 397. In 1983 Lord Diplock described the rule as ‘an anachronistic shortcoming that has for many years been regarded as a reproach to English private law’: Swain v The Law Society [1983] 1 AC 598, p 611D. But as important as judicial condemnations of the privity rule is the fact that distinguished academic lawyers have found no redeeming virtues in it: see, for example, Markesinis (1987) 103 LQR 354; Reynolds (1989) 105 LQR 1; Beatson (1992) 44 CLP 1; and Adams and Brownsword (1993) 56 MLR 722. And we do well to remember that the civil law legal systems of other members of the European Union recognise such contracts. That our legal system lacks such flexibility is a disadvantage in the single market. Indeed, it is a historical curiosity that the legal system of a mercantile country such as England, which in other areas of the law of contract (such as, for example, the objective theory of the interpretation of contracts) takes great account of the interests of third parties, has not been able to rid itself of this unjust rule deriving from a technical conception of a contract as a purely bilateral vinculum juris. In 1991 the Law Commission revisited this corner of the law. In cautious language appropriate to a consultation paper the Law Commission has expressed the provisional recommendation that ‘there should be a (statutory) reform of the law to allow third parties to enforce contractual provisions made in their favour’: Privity of Contract: Conflicts for the Benefit of Third Parties, 1991, Consultation Paper No 121, p 132. The principal value of the consultation paper lies in its clear analysis of the practical need for the recognition of a contract for the benefit of third parties, and the explanation of the unedifying spectacle of judges trying to invent exceptions to the rule to prevent demonstrable unfairness. No doubt there will be a report by the Law Commission in the not too distant future recommending the abolition of the privity of contract rule by statute. What will then happen in regard to the proposal for legislation? The answer is really quite simple: probably nothing will happen. But on this occasion I can understand the inaction of Parliament. There is a respectable argument that it is the type of reform which is best achieved by the courts working out sensible solutions on a case by case basis, for example, in regard to the exact point of time when the third party is vested with enforceable contractual rights: see Consultation Paper No 121, para 5.8. But that requires the door to be opened by the House of Lords reviewing the

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The Formation of a Contract major cases which are thought to have entrenched the rule of privity of contract. Unfortunately, there will be few opportunities for the House of Lords to do so. After all, by and large, courts of law in our system are the hostages of the arguments deployed by counsel. And Mr Furst for the council, the third party, made it clear to us that he will not directly challenge the privity rule if this matter should go to the House of Lords. He said that he is content to try to bring his case within exceptions to the privity rule or what Lord Diplock in Swain v The Law Society [1983] 1 AC 598, p 611D, described as ‘juristic subterfuges…to mitigate the effect of the lacuna resulting from the non-recognition of a jus quaesitum tertio…’ Morgan Grenfell’s lack of a proprietary interest It seems to me helpful to start by considering the problem from the point of view of legal principle. The judge appeared to say that because Morgan Grenfell had neither a freehold nor a leasehold in the site, but only a licence for the period that it took to complete the works, that by itself is fatal to the contention that Morgan Grenfell had a claim for substantial damages. Given that a proprietary interest at the time of breach may conceivably be relevant to the appropriate measure of damages for defective work, it is difficult to see why its absence should by itself be a bar to recovery of damages in contract. Mr Blackburn does not go as far as the judge did. He does not submit that a proprietary interest is an indispensable requirement for a claim for damages for defective work under a building contract. Rhetorically, one is entitled to ask: why, as a matter of legal principle should it make a material difference if Morgan Grenfell had been granted a lease for the period of the completion of the works? After all, as Mr Furst pointed out, developers are quite frequently mere licensees of a site, for example, in joint ventures for the development of car parks. Why should they not be entitled under building contracts to claim substantial damages for defective building work? There seems no logical or policy reason why recovery of substantial damages for such a breach of contract should be denied. As a matter of precedent, it is significant that in the Court of Appeal judgments in the Linden Gardens case (1992) 57 BLR 57, so far as they are unaffected by the decision in the House of Lords, there is no hint of such an artificial bar to recovery of damages for breach of contract. Moreover, the measure of damages causes no complication in such cases. After all, in the case of a building contract, the prima facie rule is cost of cure, that is, the cost of remedying the defect: East Ham Corpn v Bernard Sunley and Sons Ltd [1966] 1 AC 406. But where the cost of remedying the defects involves expense out of all proportion to the benefit which could accrue from it, the court is entitled to adopt the alternative measure of difference of the value of the works: see Hudson, Building and Engineering Contracts, 10th edn, 1970, p 587; Keating on Building Contracts, 5th edn, 1991, p 202; and McGregor on Damages, 15th edn, 1988, p 675, para 1091. The ‘no loss’ point I turn to the more substantial point. The judge regarded it as fatal to the claim that Morgan Grenfell had not paid for the cost of remedying the defects and had no intention of doing so. Mr Blackburn supports the judge’s reasoning.

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Sourcebook on Obligations and Remedies He says that a prima facie meritorious claim has indeed disappeared down a legal black hole. He says that, if Morgan Grenfell had done the repairs or had undertaken to do so, or if there was evidence that it intended to do so, Morgan Grenfell would have been able effectively to assign a claim for substantial damages to the council. As a mere financier of the transaction Morgan Grenfell, of course, had no interest in taking such action. Accordingly, Mr Blackburn submits that Morgan Grenfell, the party in contractual relationship with Wiltshier, suffered no loss and could transfer no claim for substantial damages; and the council, which suffered the loss, is precluded by the privity rule from claiming the damages which it suffered. He submits that established doctrine deprives the council of a remedy and allows the contract-breaker to go scot-free. Recognising that this is hardly an attractive result, he reminds us of our duty to apply the law as it stands. That brings me to the speech of Lord Browne-Wilkinson in the Linden Gardens case [1994] AC 85. In his speech Lord Browne-Wilkinson rested his decision on the exception to the rule that a plaintiff can only recover damages for his own loss which was enunciated in The Albazero [1977] AC 774 in the context of carriage of goods by sea, bills of lading and bailment… But Lord BrowneWilkinson extracted the rationale of the decision and by analogy applied it to the purely contractual situation in Linden Gardens. He particularly justified this extension of the exception in The Albazero by invoking Lord Diplock’s words in The Albazero: …there may still be occasional cases in which the rule would provide a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it. Lord Browne-Wilkinson’s conclusion was supported by all members of the House of Lords, although, it is right to say, Lord Griffiths wished to go further. Relying on the exception recognised in the Linden Gardens case, as well as on the need to avoid a demonstrable unfairness which no rational legal system should tolerate, I would rule that the present case is within the rationale of Lord Browne-Wilkinson’s speech. I do not say that the relevant passages in his speech precisely fit the material facts of the present case. But it involves only a very conservative and limited extension to apply it by analogy to the present case. For these reasons I would hold that the present case is covered by an exception to the general rule that a plaintiff can only recover damages for his own loss… Waite LJ: I agree with both Dillon LJ and Steyn LJ that this appeal should be allowed by direct application of the rule in Dunlop v Lambert (1839) 6 Cl & F 600 as recognised in a building contract context in the speech of-Lord BrowneWilkinson in the McAlpine case [1994] AC 85. I also would reach the same result by the different route of a constructive trust…

Notes and questions 1

Three party situations have presented problems in the law of contract since Roman times. Both in civil law and in the common law, the idea that

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2

one person could use contract to the benefit or the burden of a third party has been only reluctantly overcome and then, usually, by recourse either to fiction or to tort. The reason in the civil law for this reluctance is to be found in the idea of an in personam obligation itself: an obligation is a vinculum juris (legal chain) which binds only two named parties. If contract could confer rights or duties on third parties, then it would become a matter of iura in rem. In the common law, which did not inherit the legacy of Roman legal science, the problem of the third party is founded in the notion of consideration which must move from the promisee. Beswick indicates that the doctrine remains alive at common law, although legislation is set to intervene. Why do you think it is that the judges, who have often criticised the doctrine of privity, have not actually reformed the law themselves? Jackson shows how the courts can outflank the doctrine if they wish. Sometimes this is done through the use of the tort of negligence (although the economic loss rule can present a problem) (see, for example, White v Jones, p 702). At other times, the courts find a collateral contract between one of the main contractors and the third party (see Lockett v Charles, p 161; The Eurymedon [1975] AC 154). What is interesting about Jackson is that it uses the law of remedies (damages) to allow the third parties to obtain compensation. The reasoning in the case has been criticised, subsequently, by the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd (1980] 1 WLR 277, but the actual decision was upheld. Does Jackson confirm that the law of actions in English law continues to play an important, independent and creative role in the development of the law of obligations? Principles of European Contract Law Article 6:110 Stipulation in favour of a third party (1)

(2) (3)

A third party may require performance of a contractual obligation when its right to do so has been expressly agreed upon between the promisor and the promisee, or when such agreement is to be inferred from the purpose of the contract or the circumstances of the case. The third party need not be identified at the time the agreement is concluded. If the third party renounces the right to performance the right is treated as never having accrued to it. The promisee may by notice to the promisor deprive the third party of the right to performance unless: (a) (b)

the third party has received notice from the promisee that the right has been made irrevocable, or the promisor or the promisee has received notice from the third party that the latter accepts the right.

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Questions 1 2

Imagine that this article was an English statute. Reconsider Beswick (p 249) and White v Jones (p 702). Reform of the privity rule is imminent in England: see what will, hopefully, soon be the Contracts (Rights of Third Parties) Act. Do you think this statute will read like PECL, Art 6:110?

5 MISREPRESENTATION (a) Definition of misrepresentation Hopkins v Tanqueray (1854) 139 ER 369 Court of Common Pleas (See p 403.) Witter Ltd v TBP Industries [1996] 2 All ER 573 Chancery Division Jacob J:… The law concerning non-fraudulent misrepresentation which induces a party to enter into a contract is that embodied under the common law (including equity) as modified by the 1967 Act as amended by the 1977 Act. Before the 1967 Act the remedy where a non-fraudulent misrepresentation of fact had been made and relied upon lay in equity. Equity could not provide damages: it provided rescission where this was possible. It was not in some cases for certain; in others there was doubt as to the law. It remains the law that a misrepresentation as to law, opinion, or a mere puff will not give rise to a remedy. The misrepresentation must be one of fact, not a mere unfulfilled promise. Nor is there a remedy unless the representee relies upon the representation. By 1967 there may also have been a remedy in negligence, where the misrepresentation of fact was negligently made and there was some kind of special relationship between the parties. Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] 2 All ER 575; [1964] AC 465 had recently been decided. Liability for negligent misrepresentation had become part of the law but its scope was not fully resolved.

(b) Liability in contract Principles of European Contract Law Article 6:101 Statements giving rise to contractual obligation (1)

A statement made by one party before or when the contract is concluded is to be treated as giving rise to a contractual obligation if that is how the other party reasonably understood it in the circumstances, taking into account: (a)

the apparent importance of the statement to the other party;

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(3)

whether the party was making the statement in the course of business; and the relative expertise of the parties.

If one of the parties is a professional supplier who gives information about the quality or use of services or goods or other property when marketing or advertising them or otherwise before the contract for them is concluded, the statement is to be treated as giving rise to a contractual obligation unless it is shown that the other party knew or could not have been unaware that the statement was incorrect. Such information and other undertakings given by a person advertising or marketing services, goods or other property for the professional supplier, or by a person in earlier links of the business chain, are to be treated as giving rise to a contractual obligation on the part of the professional supplier unless it did not know and had no reason to know of the information or undertaking.

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 Court of Appeal Lord Denning MR: The plaintiff, Charles Walter Bentley, sometimes known as Dick Bentley, brings an action against Harold Smith (Motors) Ltd for damages for breach of warranty on the sale of a car… The county court judge found that there was a warranty, that it was broken, and that the damages were more than £400; but as the claim was limited to £400, he gave judgment for the plaintiff for that amount. The first point is whether this representation, namely, that it had done 20,000 miles only since it had been fitted with a replacement engine and gearbox, was an innocent misrepresentation (which does not give rise to damages), or whether it was a warranty. It was said by Holt CJ, and repeated in Heilbut, Symons and Co v Buckleton, that: ‘An affirmation at the time of the sale is a warranty, provided it appear on evidence to be so intended.’ But that word ‘intended’ has given rise to difficulties. I endeavoured to explain in Oscar Chess Ltd v Williams that the question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice. What conduct, then? What words and behaviour lead to the inference of a warranty? Looking at the cases once more as we have done so often, it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is a prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that it was intended to be acted upon and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it. In the Oscar Chess case the inference was rebutted. There a man had bought a second hand car and received with it a log-book which stated the year of the car: 1948. He afterwards

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Sourcebook on Obligations and Remedies resold the car. When he resold it he simply repeated what was in the logbook and passed it on to the buyer. He honestly believed on reasonable grounds that it was true. He was completely innocent of any fault. There was no warranty by him, but only an innocent misrepresentation. Whereas in the present case it is very different. The inference is not rebutted. Here we have a dealer, Smith, who was in a position to know, or at least to find out, the history of the car. He could get it by writing to the makers. He did not do so. Indeed, it was done later. When the history of this car was examined, his statement turned out to be quite wrong. He ought to have known better. There was no reasonable foundation for it… The judge found that the representations were not dishonest. Smith was not guilty of fraud. But he made the statement as to 20,000 miles without any foundation. And the judge was well justified in finding that there was a warranty… It seems to me that on this point there is nothing wrong in the way the judge has dealt with the case, and therefore… I would hold the appeal fails and should be dismissed. Danckwerts LJ: I agree with the judgment of Lord Denning MR. Salmon LJ: I agree. I have no doubt at all that the judge reached a correct conclusion when he decided that Smith gave a warranty to the plaintiff and that that warranty was broken. Was what Smith said intended and understood as a legally binding promise? If so, it was a warranty and as such may be part of the contract of sale or collateral to it. In effect, Smith said: If you will enter into a contract to buy this motor car from me for £1,850,1 undertake that you will be getting a motor car which has done no more than 20,000 miles since it was fitted with a new engine and a new gearbox,’ I have no doubt at all that what was said by Smith was so understood and was intended to be so understood by Bentley. I accordingly agree that the appeal should be dismissed.

Questions 1

2 3 4 5

‘Where there is a contract for the sale of goods by description, there is an implied condition [now ‘term’] that the goods will correspond with the description’ (Sale of Goods Act 1979, s 13(1)). Why did the plaintiff not seek damages under this section? Is this a collateral contract case? If these facts occurred again today, would the plaintiff have to rely upon the law of contract in order to get damages? Did the plaintiff get what he contracted for in (a) Hopkins v Tanqueray and (b) Dick Bentley? To what extent was the status of the defendant of importance in Dick Bentley?

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6 7

If Hopkins v Tanqueray had arisen after the Sales of Goods Act 1893, would the result have been different? Does Art 6:101 of the PECL accurately represent English law?

(c) Liability in tort (1): deceit Bradford Building Society v Borders [1941] 2 All ER 205 House of Lords Viscount Maugham:… My Lords, we are dealing here with a common law action of deceit, which requires four things to be established. First, there must be a representation of fact made by words, or, it may be, by conduct. The phrase will include a case where the defendant has manifestly approved and adopted a representation made by some third person. On the other hand, mere silence, however morally wrong, will not support an action of deceit: Peek v Gurney, per Lord Chelmsford, and per Lord Cairns, and Arkwright v Newbold. Secondly, the representation must be made with a knowledge that it is false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true: Derry v Peek and Nocton v Ashburton (Lord). Thirdly, it must be made with the intention that it should be acted upon by the plaintiff, or by a class of persons which will include the plaintiff, in the manner which resulted in damage to him: Peek v Gurney and Smith v Chadwick. If, however, fraud be established, it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made: Derry v Peek, and Peek v Gurney. Fourthly, it must be proved that the plaintiff has acted upon the false statement and has sustained damage by so doing: Clarke v Dickson. I am not, of course, attempting to make a complete statement of the law of deceit, but only to state the main facts which a plaintiff must establish… Downs v Chappell [1997] 1WLR 426 Court of Appeal Hobhouse LJ:… I will take the tort of deceit first. For a plaintiff to succeed in the tort of deceit it is necessary for him to prove that: (1) the representation was fraudulent; (2) it was material; and (3) it induced the plaintiff to act (to his detriment). A representation is material when its tendency, or its natural and probable result, is to induce the representee to act on the faith of it in the kind of way in which he is proved to have in fact acted. The test is objective… … Causation is a question of fact. The related questions of mitigation of loss, remoteness and contributory negligence are based upon legal principles and the citation of authority may be necessary to derive those principles and clarify their application. Similarly, the citation of authority may be appropriate accurately to identify the wrong in respect of which the claimant is entitled to recover damages. A breach of warranty does not have the same consequences as a failure to advise or warn. But when one is concerned, as here, with what is purely a question of causation, the citation of authority may be of little assistance.

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Sourcebook on Obligations and Remedies [The] cases show that where a plaintiff has been induced to enter into a transaction by a misrepresentation, whether fraudulent or negligent, he is entitled to recover as damages the amount of the (consequential) loss which he has suffered by reason of entering into the transaction. The principle is the same. Where the representation relates to the profitability and, by necessary inference, the viability of the business, the plaintiff can recover both his income and his capital losses in the business… Smith New Court Securities Ltd v Scrimgeour Vickers Ltd [1997] AC 254 House of Lords (See p 313.)

(d) Liability in tort (2): negligence Hedley Byrne and Co v Heller and Partners Ltd [1964] AC 465 House of Lords This was an action for damages brought by a firm of advertising agents against a bank in respect of financial loss incurred by the agents when one of their clients, to whom they had extended credit, went into liquidation. The advertising agents had extended the credit on the basis of a credit reference supplied by the defendant bank. The bank denied liability on the ground either that they owed no duty of care to the agency or that they were protected by an exclusion clause. The House of Lords, while giving judgment for the bank on the basis of the clause, nevertheless decided that such facts could give rise to a duty of care. Lord Reid:… The appellants’ first argument was based on Donoghue v Stevenson. That is a very important decision, but I do not think that it has any direct bearing on this case. That decision may encourage us to develop existing lines of authority, but it cannot entitle us to disregard them. Apart altogether from authority, I would think that the law must treat negligent words differently from negligent acts. The law ought so far as possible to reflect the standards of the reasonable man, and that is what Donoghue v Stevenson sets out to do. The most obvious difference between negligent words and negligent acts is this. Quite careful people often express definite opinions on social or informal occasions even when they see that others are likely to be influenced by them; and they often do that without taking that care which they would take if asked for their opinion professionally or in a business connection. The appellant agrees that there can be no duty of care on such occasions, and we were referred to American and South African authorities where that is recognised, although their law appears to have gone much further than ours has yet done. But it is at least unusual casually to put into circulation negligently made articles which are dangerous. A man might give a friend a negligently prepared bottle of home-made wine and his friend’s guests might drink it with dire results. But it is by no means clear that those guests would have no action against the negligent manufacturer.

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The Formation of a Contract Another obvious difference is that a negligently made article will only cause one accident, and so it is not very difficult to find the necessary degree of proximity or neighbourhood between the negligent manufacturer and the person injured. But words can be broadcast with or without the consent or the foresight of the speaker or writer. It would be one thing to say that the speaker owes a duty to a limited class, but it would be going very far to say that he owes a duty to every ultimate “consumer” who acts on those words to his detriment. It would be no use to say that a speaker or writer owes a duty but can disclaim responsibility if he wants to. He, like the manufacturer, could make it part of a contract that he is not to be liable for his negligence, but that contract would not protect him in a question with a third party, at least if the third party was unaware of it. So it seems to me that there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action. There must be something more than the mere misstatement. I therefore turn to the authorities to see what more is required. The most natural requirement would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility, and that appears to me not to conflict with any authority which is binding on this House… A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require… The appellants founded on a number of cases in contract where very clear words were required to exclude the duty of care which would otherwise have flowed from the contract. To that argument there are, I think, two answers. In the case of a contract it is necessary to exclude liability for negligence, but in this case the question is whether an undertaking to assume duty to take care can be inferred: and that is a very different matter. And, secondly, even in cases of contract, general words may be sufficient if there was no other kind of liability to be excluded except liability for negligence: the general rule is that a party is not exempted from liability for negligence ‘unless adequate words are used’—per Scrutton LJ in Rutter v Palmer. It being admitted that there was here a duty to give an honest reply, I do not see what further liability there could be to exclude except liability for negligence: there being no contract, there was no question of warranty. I am therefore of opinion that it is clear that the respondents never undertook any duty to exercise care in giving their replies. The appellants cannot succeed unless there was such a duty and therefore in my judgment this appeal must be dismissed.

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Sourcebook on Obligations and Remedies Lord Morris:… My Lords, I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise… Lord Devlin:… [T]he distinction is now said to depend on whether financial loss is caused through physical injury or whether it is caused directly. The interposition of the physical injury is said to make a difference of principle. I can find neither logic nor common sense in this. If irrespective of contract, a doctor negligently advises a patient that he can safely pursue his occupation and he cannot and the patient’s health suffers and he loses his livelihood, the patient has a remedy. But if the doctor negligently advises him that he cannot safely pursue his occupation when in fact he can and he loses his livelihood, there is said to be no remedy. Unless, of course, the patient was a private patient and the doctor accepted half a guinea for his trouble, then the patient can recover all. I am bound to say my Lords, that I think this to be nonsense. It is not the sort of nonsense that can arise even in the best system of law out of the need to draw nice distinctions between borderline cases. It arises, if it is the law, simply out of a refusal to make sense. The line is not drawn on any intelligible principle. It just happens to be the line which those who have been driven from the extreme assertion that negligent statements in the absence of contractual or fiduciary duty give no cause of action have in the course of their retreat so far reached… I think…that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v Lord Ashburton are ‘equivalent to contract’, that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract. Where there is an express undertaking, an express warranty as distinct from mere representation, there can be little difficulty. The difficulty arises in discerning those cases in which the undertaking is to be implied. In this respect the absence of consideration is not irrelevant. Payment for information or advice is very good evidence that it is being relied upon and that the informer or adviser knows that it is. Where there is no consideration, it will be necessary to exercise greater care in distinguishing between social and professional relationships and between those which are of a contractual character and those which are not. It may often be material to consider whether the adviser is acting purely out of good nature or whether he is getting his reward in some indirect form. The service that a bank performs in giving a reference is not done simply out of a desire to assist commerce. It would discourage the customers of the bank

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The Formation of a Contract if their deals fell through because the bank had refused to testify to their credit when it was good… Lord Pearce:… To import such a duty the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer…

Questions 1 2 3 4

Is Hedley Byrne, in effect, an extension of the tort of deceit? Is it an extension of the law of contract? Is it an extension of the equitable notion of fiduciary relationship? Is Hedley Byrne an extension of the Donoghue v Stevenson principle, or is it a new principle within the law of tort?

(e) Liability in tort (3): statute Misrepresentation Act 1967 (c 7) 1

Removal of certain bars to rescission for innocent misrepresentation Where a person has entered into a contract after a misrepresentation has been made to him, and(a) (b)

2

the misrepresentation has become a term of the contract; or the contract has been performed; or both, then, if otherwise he would be entitled to rescind the contract without alleging fraud, he shall be so entitled, subject to the provisions of this Act, notwithstanding the matters mentioned in paragraphs (a) and (b) of this section.

Damages for misrepresentation (1)

(2)

Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true. Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently and he would be entitled, by reason of the misrepresentation/to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so, having regard to the nature of the 473

Sourcebook on Obligations and Remedies

(3)

misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party. Damages may be awarded against a person under sub-s (2) of this section whether or not he is liable to damages under sub-s (1) thereof, but where he is so liable any award under the said sub-s (2) shall be taken into account in assessing his liability under the said sub-s (1).

Questions 1 2 3 4

Is misrepresentation part of the law of contract or of tort? Are all breaches of contract torts? Is an action for damages under s 2(1) of the 1967 Act an action in the tort of deceit as modified by the statute? Can one now get damages for innocent misrepresentation? Witter Ltd v TBP Industries [1996] 2 All ER 573 Chancery Division Jacob J:… The 1967 Act essentially widened the remedies available. By s 1 it was made clear that the remedies are available even if the misrepresentation has become a term of the contract (a point doubtful before) or if the contract has been performed. By s 2, a remedy in damages was created, both for negligent and non-negligent misrepresentation. As a result, it now seldom matters whether a misrepresentation is made fraudulently or not; the 1967 Act confers substantial remedies in respect of non-fraudulent misrepresentation. The principal difference may now lie in relation to clauses attempting to exclude liability for misrepresentation… Both ss 2(1) and 2(2) provide for damages for misrepresentation. Section 2(1) provides a defence for the misrepresentor—a defence which I shall for brevity call ‘innocence’ but which involves proof of belief and reasonable grounds for belief that the representation was true. Thus, it is sometimes said that s 2(1) relates to ‘negligent’ misrepresentation in the sense that it has the ‘innocence’ defence. Section 2(2) provides no such defence. However, damages are only available ‘in lieu of rescission’. The defendants…argued that the discretion under s 2(2) to award damages crucially depends upon the rescission remedy remaining extant at the time the court comes to consider the question. Whether that argument is right has been a moot point since the Act was passed. The leading article of the time, Atiyah and Treitel, ‘Misrepresentation Act 1967’ [1967] MLR 369, noticed the point at once. I found the argument unattractive: rescission might or might not be available at the time of trial depending on a host of factors which have nothing to do with behaviour of either party. I was not surprised to find that the authors of Chitty on Contracts, 27th edn, 1994, para 6–058, p 372, found the suggested construction ‘strange’ even though Mustill J had apparently accepted it obiter in Atlantic Lines and Navigation Co Inc v Hallam Ltd, The Lucy [1983] 1 Lloyd’s Rep 188 and one of the plaintiffs conceded it in Alman v Associated Newspapers Ltd (1980) unreported, 20 June.

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The Formation of a Contract The argument assumes that the Act is referring to the remedy of ‘rescission’, though this is not clear. If it were the only remedy referred to then it is difficult to understand the reference to ‘has been rescinded’ in the section. It seemed to me that the reference might well be to a claim by the representee that he was entitled to rescission, in which case it would be enough for the court to find that the agreement was ‘rescissionable’ at least by the date when the representee first claimed rescission or at any time. There was enough ambiguity here to look to see what was said in Parliament at the time of the passing of the Act, pursuant to the limited new-found freedom given by Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42; [1993] AC 593… So, the Solicitor General told the House of Commons that it was his view that damages could be awarded under s 2(2) when there was an impossibility of restitution. Accordingly, I hold that the power to award damages under s 2(2) does not depend upon an extant right to rescission—it only depends upon a right having existed in the past… Given that construction of s 2(2), it may be asked: what is the difference between s 2(2) and s 2(1)? In particular, since s 2(1) has a defence of ‘innocence’ is that in practical terms useless because damages can be had under s 2(2)? There is, of course, overlap between the two sub-sections on any construction, and s 2(3) explicitly recognises this. But if my construction covered all the cases covered by s 2(1) then the latter would be pointless and my construction would probably be wrong. However, I do not think there is complete overlap. First, under s 2(1) damages can be awarded in addition to rescission. So if there is ‘innocence’ the representor cannot have both remedies and never could, whatever the date of the decision. Secondly, the question of an award of damages under s 2(2) is discretionary and the court must take into account the matters referred to in the concluding words of the sub-section. Thirdly, the measure of damages under the two subsections may be different—s 2(3) certainly contemplates that this may be so and, moreover, contemplates that s 2(1) damages may be more than s 2(2) damages and not the other way round. It is fair to say, as Chitty, para 6–059, p 373, observes, that ‘the Act gives little clue as to how damages are to be assessed under this sub-section if they are not to be assessed in the same way as under sub-s (1)’. However, both Chitty and Treitel, Law of Contract, 8th edn, 1991, p 326 (see also Atiyah and Treitel [1967] MLR 369, p 376) suggest that damages under s 2(2) may be limited to the loss in value of what is bought under the contract whereas s 2(1) damages may also include consequential loss. I reach my conclusion under s 2(2) without misgivings: as between the person making the innocent misrepresentation and his misrepresentee, the ‘merits’ favour the latter. The constant and justified academic criticism of the Act indicates a subject well worth the attention of the Law Commission. Fortunately, so far as I am concerned, in the circumstances of this case there can be no difference between the two sub-sections, for no consequential loss is claimed…

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Sourcebook on Obligations and Remedies Principles of European Contract Law Article 4:106 Incorrect information A party who has concluded a contract relying on incorrect information given it by the other party may recover damages in accordance with Art 4:117(2) and (3) even if the information does not give rise to a right to avoid the contract on the ground of mistake under Article 4:103, unless the party who gave the information had reason to believe that the information was correct.

(f) Rescission in equity Redgrave v Hurd (1881) 20 ChD 1 Court of Appeal This was an action, brought by the seller, for specific performance of a contract to buy a house and solicitor’s practice. The defendant counterclaimed for rescission of the contract on the basis that the plaintiff had seriously misrepresented the amount of income from the business. It appeared that the defendant had not examined the books of the business to see if the plaintiffs representations were accurate; and the trial judge gave judgment for the plaintiff on the basis that the defendant ought to have examined the books and papers. An appeal to the Court of Appeal was allowed. Jessel MR:… As regards the rescission of a contract, there was no doubt a difference between the rules of courts of equity and the rules of courts of common law—a difference which, of course, has now disappeared by the operation of the Judicature Act, which makes the rules of equity prevail. According to the decisions of the court of equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways, either of which was sufficient. One way of putting the case was: ‘A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false; he ought to have found that out before he made it.’ The other way of putting it was this: ‘Even assuming that moral fraud must be shown in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements.’ The rule in equity was settled, and it does not matter on which of the two grounds it was rested… There is another proposition of law of very great importance which I think it is necessary for me to state, because, with great deference to the very learned judge from whom this appeal comes, I think it is not quite accurately stated in his judgment. If a man is induced to enter into a contract by a false representation it is not a sufficient answer to him to say: ‘If you had used due diligence you would have found out that the statement was untrue. You had the means afforded you of discovering its falsity, and did not choose to avail yourself of them.’ I take it to be a settled doctrine of equity, not only as regards specific performance but also as regards rescission, that this is not an answer…

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The Formation of a Contract One of the most familiar instances in modern times is where men issue a prospectus in which they make false statements of the contracts made before the formation of a company, and then say that the contracts themselves may be inspected at the offices of the solicitors. It has always been held that those who accepted those false statements as true were not deprived of their remedy merely because they neglected to go and look at the contracts. Another instance with which we are familiar is where a vendor makes a false statement as to the contents of a lease, as, for instance, that it contains no covenant preventing the carrying on of the trade which the purchaser is known by the vendor to be desirous of carrying on upon the property. Although the lease itself might be produced at the sale, or might have been open to the inspection of the purchaser long previously to the sale, it has been repeatedly held that the vendor cannot be allowed to say, ‘You were not entitled to give credit to my statement’. It is not sufficient, therefore, to say that the purchaser had the opportunity of investigating the real state of the case, but did not avail himself of that opportunity… [W]hen a person makes a material representation to another to induce him to enter into a contract, and the other enters into that contract, it is not sufficient to say that the party to whom the representation is made does not prove that he entered into the contract relying upon the representation. If it is a material representation calculated to induce him to enter into the contract, it is an inference of law that he was induced by the representation to enter into it, and in order to take away his title to be relieved from the contract on the ground that the representation was untrue, it must be shown either that he had knowledge of the facts contrary to the representation, or that he stated in terms, or showed clearly by his conduct, that he did not rely on the representation. If you tell a man, ‘You may enter into partnership with me, my business is bringing in between £300 and £400 a year’, the man who makes that representation must know that it is a material inducement to the other to enter into the partnership, and you cannot investigate as to whether it was more or less probable that the inducement would operate on the mind of the party to whom the representation was made. Where you have neither evidence that he knew facts to show that the statement was untrue, or that he said or did anything to show that he did not actually rely upon the statement, the inference remains that he did so rely, and the statement being a material statement, its being untrue is a sufficient ground for rescinding the contract…

Questions 1 2

Who caused the defendant’s damage? Has the difference between the rules of the courts of equity and the rules of the courts of common law now disappeared? Leaf v International Galleries [1950] 2 KB 86 Court of Appeal This was a rescission action brought by the purchaser of a painting. In 1944 the plaintiff purchased a picture called ‘Salisbury Cathedral’ from the defendant for £85. At the time of the purchase the defendant said that the

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Sourcebook on Obligations and Remedies picture was a Constable; but when the plaintiff came to sell the painting five years later he was informed that it had not been painted by Constable. The Court of Appeal dismissed the plaintiffs claim. Denning LJ: The question is whether the plaintiff is entitled to rescind the contract on the ground that the picture in question was not painted by Constable. I emphasise that it is a claim to rescind only: there is no claim in this action for damages for breach of condition or breach of warranty. The claim is simply one for rescission… No claim for damages is before us at all. The only question is whether the plaintiff is entitled to rescind. The way in which the case is put by Mr Weitzman, on behalf of the plaintiff, is this: he says that this was an innocent misrepresentation and that in equity he is, or should be, entitled to claim rescission even of an executed contract of sale on that account. He points out that the judge has found that it is quite possible to restore the parties to their original position. It can be done by simply handing back the picture to the defendants. In my opinion, this case is to be decided according to the well known principles applicable to the sale of goods. This was a contract for the sale of goods. There was a mistake about the quality of the subject matter, because both parties believed the picture to be a Constable; and that mistake was in one sense essential or fundamental. But such a mistake does not avoid the contract: there was no mistake at all about the subject matter of the sale. It was a specific picture, ‘Salisbury Cathedral’. The parties were agreed in the same terms on the same subject matter, and that is sufficient to make a contract: see Solle v Butcher. There was a term in the contract as to the quality of the subject matter: namely, as to the person by whom the picture was painted—that it was by Constable. That term of the contract was, according to our terminology, either a condition or a warranty. If it was a condition, the buyer could reject the picture for breach of the condition at any time before he accepted it, or is deemed to have accepted it; whereas, if it was only a warranty, he could not reject it at all but was confined to a claim for damages. I think it right to assume in the buyer’s favour that this term was a condition, and that, if he had come in proper time he could have rejected the picture, but the right to reject for breach of condition has always been limited by the rule that, once the buyer has accepted, or is deemed to have accepted, the goods in performance of the contract, then he cannot thereafter reject, but is relegated to his claim for damages: see s 11, sub-s 1(c) of the Sale of Goods Act 1893, and Wallis, Son and Wells v Pratt and Haynes. The circumstances in which a buyer is deemed to have accepted goods in performance of the contract are set out in s 35 of the Act, which says that the buyer is deemed to have accepted the goods, amongst other things, ‘when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them’. In this case the buyer took the picture into his house and, apparently, hung it there, and five years passed before he intimated any rejection at all. That, I need hardly say, is much more than a reasonable time. It is far too late for him at the end of five years to reject this picture for breach of any condition. His remedy after that length of time is for damages only, a claim which he has not brought before the court. Is it to 478

The Formation of a Contract be said that the buyer is in any better position by relying on the representation, not as a condition, but as an innocent misrepresentation?… Although rescission may in some cases be a proper remedy, it is to be remembered that an innocent misrepresentation is much less potent than a breach of condition; and a claim to rescission for innocent misrepresentation must at any rate be barred when a right to reject for breach of condition is barred. A condition is a term of the contract of a most material character, and if a claim to reject on that account is barred, it seems to me a fortiori that a claim to rescission on the ground of innocent misrepresentation is also barred. So, assuming that a contract for the sale of goods may be rescinded in a proper case for innocent misrepresentation, the claim is barred in this case for the self-same reason as a right to reject is barred. The buyer has accepted the picture. He had ample opportunity for examination in the first few days after he bad bought it. Then was the time to see if the condition or representation was fulfilled. Yet he has kept it all this time. Five years have elapsed without any notice of rejection. In my judgment he cannot now claim to rescind. His only claim, if any, as the county court judge said, was one for damages, which he has not made in this action. In my judgment, therefore, the appeal should be dismissed.

Questions 1 2 3

Could the plaintiff in Leaf have sued the defendants for damages? If the facts of Leaf occurred again today, could the plaintiff get damages under s 2(2) of the Misrepresentation Act 1967? Section 35 of the Sale of Goods Act 1979 has now been amended by s 2 of the Sale and Supply of Goods Act 1994. How might the new s 35 affect the facts of Leaf? TSB Bank plc v Camfield [1995] 1WLR 430 Court of Appeal This was an action by a bank for possession of a matrimonial home which had been mortgaged by a husband and his wife to the bank for security of a business loan made to the husband. The wife had agreed to the security as a result of an innocent misrepresentation made by the husband to his wife that liability would be limited to £15,000. The bank had failed to ensure that the wife was given independent legal advice or that she understood that liability was in fact unlimited. The wife sought rescission of the mortgage transaction on the basis of misrepresentation, but the judge held that she was liable up to £15,000 and awarded possession of the house to the bank. An appeal against this judgment was allowed. Roch LJ: I agree [with the judgment of Nourse LJ]. In Barclays Bank plc v O’Brien [1994] 1 AC 180, pp 195–96, Lord Browne-Wilkinson said: The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against 479

Sourcebook on Obligations and Remedies the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it. Therefore where a wife has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety. The transaction that Lord Browne-Wilkinson was referring to must, in my judgment, be the transaction in which the wife binds herself as surety, giving as security her interest in the matrimonial home. That is, in my view, made clear by Lord Browne-Wilkinson when he turned to the decision in O’Brien’s case, and said, p 199: In the circumstances the bank (having failed to take reasonable steps) is fixed with constructive notice of the wrongful misrepresentation made by Mr O’Brien to Mrs O’Brien. Mrs O’Brien is therefore entitled as against the bank to set aside the legal charge on the matrimonial home securing her husband’s liability to the bank. (The other parties to that transaction in this case were Mr Camfield and the bank.) Although the point which arises for decision in this case was not before their lordships in O’Brien’s case, the answer to the question we have to decide is, in my opinion, to be found in Lord Browne-Wilkinson’s speech. The earlier right of the innocent, misled surety to set aside the transaction is to prevail against the later right of the lender. The innocent surety is entitled, as against the lender who has constructive notice of the misrepresentation because he failed to take reasonable steps, to set aside the legal charge on the matrimonial home securing the borrower’s liability to the lender. The right to set aside or rescind the transaction is that of the representee, not that of the court. The court’s role in a disputed case will be to decide whether the representee has lawfully rescinded the transaction or is entitled to rescind it. Normally, if the representee is entitled to rescind the legal charge, that will have been effected by the representee’s pleading that the transaction has been or should be set aside; that is to say, the transaction would have been set aside before the matter reaches the court. The court is not being asked to grant equitable relief; nor is it, in my view, granting equitable relief to which terms may be attached. If this analysis, which, as I understand it, is the analysis adopted by Ferris J in Allied Irish Banks plc v Byrne (1994) unreported, 1 February is correct, then the provisions of the Misrepresentation Act 1967 become, in my view, of the utmost significance. Section 1 of that Act is in terms consistent with the right to rescind for misrepresentation being that of the person to whom

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The Formation of a Contract the misrepresentation has been made. Section 2(2) gives the court power, where such a person has rescinded or is entitled to rescind a contract, to declare the contract subsisting and to award damages in lieu of rescission in certain circumstances. That implies that but for that sub-section the court does not have the power to declare the contract to be subsisting when, as in this case, the representee has exercised her right to set aside the transaction. In this case, Judge Meier did not consider it appropriate to declare the contract to be subsisting and to award damages, although he gave no reason for that conclusion. The absence of reasons, in my view, is explained by the fact that in this case an award of damages against Mr Camfield would have been an empty remedy, and no court could have formed the opinion that in this case it would be equitable to exercise its power under s 2(2). The loss to the wife by upholding the legal charge in exchange for an award of damages against her husband would have far outweighed the loss that rescission would cause to Mr Camfield. The judge decided to limit the extent to which the transaction—that is to say, the legal charge—was enforceable by the bank against the wife, namely, to the extent of £15,000. The judge was, in effect, declaring the legal charge to be subsisting and depriving the wife of her right to rescind it on terms that the enforceability of the charge against her would be limited to £15,000. In my judgment, the judge has no power to do that. Once it was proved that the wife had the right to rescind the transaction, she could not be deprived of that right by the court unless hers was a case which fell within s 2(2) of the Act of 1967. The judge found that had the true nature of the legal charge been known to the wife she would not have entered into the charge and the enjoyment of her home would never have been at risk. But for the bank’s failure to take reasonable steps, the wife would have known the true nature of the proposed legal charge and the potential risk to her interest in the family home, and she would have refused to enter into that transaction. The wife is entitled to be placed in the position she would have been in had the misrepresentation not been made and had she been made aware of the true nature of the legal charge. This conclusion is not one which need strike terror into the hearts of banks and other lenders, for they can avoid a situation where their legal charge is liable to be rescinded by taking the simple steps indicated in O’Brien’s case; in other words, by following good banking practice. For those reasons, I agree that this appeal should be allowed.

Questions 1 2 3

Is it really true to say that the ‘court is not being asked to grant equitable relief? Is rescission in equity a self-help remedy? Was the bank in breach of any legal duty? If so, what duty? Is the duty equitable or common law?

481

Sourcebook on Obligations and Remedies Principles of European Contract Law Article 4:112 Notice of avoidance Avoidance must be by notice to the other party. Article 4:113 Time limits (1) (2)

Notice of avoidance must be given within a reasonable time, with due regard to the circumstances, after the avoiding party knew or ought to have known of the relevant facts or became capable of acting freely. However, a party may avoid an individual term under Art 4:110 if it gives notice of avoidance within a reasonable time after the other party has invoked the term.

Article 4:114 Confirmation If the party who is entitled to avoid a contract confirms it, expressly or impliedly, after it knows of the ground for avoidance, or becomes capable of acting freely, avoidance of the contract is excluded. Article 4:115 Effect of avoidance On avoidance either party may claim restitution of whatever it has supplied under the contract, provided it makes concurrent restitution of whatever it has received. If restitution cannot be made in kind for any reason, a reasonable sum must be paid for what has been received. Article 4:116 Partial avoidance If a ground of avoidance affects only particular terms of a contract, the effect of an avoidance is limited to those terms unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold the remaining contract. Article 4:117 Damages (1)

(2)

(3)

A party who avoids a contract under this Chapter may recover from the other party damages so as to put the avoiding party as nearly as possible into the same position as if it had not concluded the contract, provided that the other party knew or ought to have known of the mistake, fraud, threat or taking of excessive benefit or unfair advantage. If a party has the right to avoid a contract under this Chapter but does not exercise its right, or has lost its right under the provisions of Arts 4:113 or 4:114, it may recover, subject to para (1), damages limited to the loss caused to it by the mistake, fraud, threat or taking of excessive benefit or unfair advantage. The same measure of damages shall apply when the party was misled by incorrect information in the sense of Art 4:106. In other respects, the damages shall be in accordance with the relevant provisions of Chapter 9, Section 5, with appropriate adaptations.

(g) Liability in account English v Dedham Vale Properties Ltd [1978] 1WLR 93 Chancery Division (See p 83.) 482

The Formation of a Contract

Questions 1

2

Is equity confined to the remedy of account when it rescinds a contract and seeks to restore each party to its pre-contractual position? Or does it have a power to award damages? (Cf Mahoney v Purnell [1996] 3 All ER 61.) Is Dedham Vale a case about ‘equitable’ misrepresentation? Does it represent another exception to the ‘silence is no misrepresentation’ rule?

6 MISTAKE (a) Introduction Pothier, R, Traité des obligations, 1761 17

18

19

Mistake is the great vice of agreements (conventions); for agreements are formed by the consent of the parties and there can be no consent when the parties have erred on the object of their agreement, non videntur qui errant consentire. That is why if someone intends to sell me something and I intend to take it as a loan or a present there is in such a case no sale, nor loan nor gift. If someone intends to sell or to give me a certain thing and I intend to buy some other thing from him or to accept something else as a gift, there is neither sale nor gift. If someone intends to sell me a thing for a certain price and I intend to buy it at a lower price there is no sale; for in all these cases there is no consent… Mistake annuls the agreement not only when it goes to the thing itself but when it goes to the quality of the thing which the contracting parties had principally in mind, and which forms the substance of this thing. …Mistake as to the person annuls the agreement on every occasion that the consideration of the person enters into the agreement. In contrast, when… the contract [is a contract] that I would have wanted to make…with any person whoever they were, as with the person that I believed to contract with, the contract must be valuable.

Code civil Art 1109 There is no valid consent if the consent has been given only by error, or if it has been extorted by duress (violence) or obtained by deceit (dol). Art 1110 Error is a cause of nullity of the agreement only when it falls on the substance itself of the thing which is the object of the agreement. It is not a cause of nullity when it falls on the person with whom one intended to contract, unless the consideration of this person was the principal reason for the agreement. Art 1117 The agreement contracted by error, duress or deceit is not void as a matter of law; it gives rise only to an action in nullity or rescission… 483

Sourcebook on Obligations and Remedies William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 Court of Appeal Evans LJ: This could be a textbook case on the law of mistake in contract. Cambridgeshire sold 6.71 acres of land, which had been used for nearly 20 years as a school playing field, to a firm of builders, Sindall, who intended to develop an estate of about 70 houses and 30 flats. The sale was duly completed in March 1989 but then Sindall’s troubles began. Obtaining detailed planning permission took longer than had been expected and by October 1990 that process was far from complete. Meanwhile, the value of the land, even with planning permission, had fallen dramatically due to the general decline in market prices. The contract price in 1988 was £5,082,500. The value in 1990 was less than half that figure. Sindall had borrowed the whole of the amount which they had paid, and interest rates were high. Then came the chance discovery in October 1990 of a sewage pipe crossing the land diagonally about two metres below the surface. Because the land had been used as a playing field, the manhole which would have revealed its existence had been covered and grassed over. The pipe carried foul sewage, as opposed to surface water drainage, from a neighbouring block of flats owned by the Cambridge City Council. It discharged into a public sewer outside the boundary on the far corner of the site. It also served a building, the youth centre, which had been constructed on that part of the site but which would inevitably be demolished in order to make room for the housing development planned. Neither Sindall nor the officers of Cambridgeshire at the time of the sale knew of the existence of the sewer. Sindall seek to set aside the contract and thus to recover the sum of £5,082,500 which they paid in 1989, on grounds of misrepresentation and mistake. The judge held that they are entitled to do so, and Cambridgeshire now appeals, contending that Sindall are not entitled to any remedy, or alternatively, that Sindall should be restricted to a claim for damages under s 2(1) of the Misrepresentation Act 1967. First, mistake. There are certain circumstances in which the courts will hold that an agreement made between two parties, each labouring under fundamental mistake, is invalid as a contract, that is to say, it has no legal effect. The judge applied the test established by the majority judgments of the House of Lords in Bell v Lever Brothers [1932] AC 161 as defined by Steyn J in Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] I WLR 255, and he reached the following conclusion: ‘…there are undoubtedly important differences between what was contracted for and what was purchased. They do not, as it seems to me, meet the essential test of being essentially and radically different.’ There is no appeal against that finding or against the judge’s conclusion that the builders failed to establish any common law remedy on the basis of mistake. I would add merely this, that the concept of a factual situation ‘essentially and radically different’ from that by reference to which the parties made their agreement is the same concept, in my view, as that which may lead to frustration of the contract where there has been a change in circumstances due to a supervening event. Before 1956, there was much debate as to the legal basis for the discharge of contracts by frustration, but this was authoritatively

484

The Formation of a Contract settled by the House of Lords in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 and, in particular, by the speech of Viscount Radcliffe, p 729: …frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do. The judge proceeded to consider Sindall’s claim for rescission on the ground of mutual mistake, that is to say, for the equitable remedy which is available in circumstances like those described by Denning LJ in Solle v Butcher [1950] 1 KB 671, p 692. He found in this context that there was ‘such a mistake as would entitle equity to order rescission’. This implies that the mistake was ‘fundamental’ (per Denning LJ, p 693) and the question arises whether simultaneously the mistake can be fundamental, yet the land not ‘essentially and radically different’ from what it was supposed to be. But it is unnecessary and inappropriate, in my judgment, to consider this issue at this stage, because on any view of the matter, as Mr Sher I think accepts, the first question is whether the contract on its true construction covers the new situation which has arisen by reason of a change of circumstances (frustration) or the emergence of a factual situation different from that which was assumed (mutual mistake). If the scope of the contract is wide enough to cover the new, or newly discovered, situation, then there is no room either for discharge by frustration or for rescission in equity on the grounds of mistake. Put another way, if the agreed terms provide for this situation, then the parties have ‘allocated the risk’ as between themselves, as Mr Etherton submits that they did in the present case… Equitable mistake Logically, there remains the question whether the contract, notwithstanding that on its true construction it covers the situation which has arisen, and that it cannot be set aside for misrepresentation, nevertheless may be rescinded on the ground of equitable mistake, as defined by Denning LJ in Solle v Butcher [1950] 1 KB 671. It must be assumed, I think, that there is a category of mistake which is ‘fundamental’, so as to permit the equitable remedy of rescission, which is wider than the kind of ‘serious and radical’ mistake which means that the agreement is void and of no effect in law: see Chitty on Contracts, 26th edn, 1989, Vol 1, para 401; Treitel, The Law of Contract, 8th edn, 1991, p 276; and Cheshire, Fifoot and Furmston’s Law of Contract, 11th edn, 1991, p 245. The difference may be that the common law rule is limited to mistakes with regard to the subject matter of the contract, whilst equity can have regard to a wider and perhaps unlimited category of ‘fundamental’ mistake. However, that may be, I am satisfied that the judge’s finding in the present case was vitiated by his assumption that the presence of the sewer and of the city’s easement had serious consequences for the proposed development, even if the sewer was incorporated into the public sewer that was envisaged for the development itself (option 2A). This would not involve the loss of seven 485

Sourcebook on Obligations and Remedies houses and three flats, as the judge appears to have thought, but, at most, of one three-bedroomed house. The additional cost of the alterations to the sewer would not have exceeded about £20,000. Given the breadth of the contract terms, in particular condition No 14 which, on its face, was intended to cover precisely such a situation as this, and the relatively minor consequences of the discovery of the sewer, even if some period of delay as well as additional cost was involved, it is impossible to hold, in my judgment, that there is scope for rescission here… Principles of European Contract Law Article 4:103 Mistake as to facts or law (1)

A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) (i) (ii) (iii) (b)

(2)

the mistake was caused by information given by the other party; or the other party knew or ought to have known of the mistake and it was contrary to good faith and fair dealing to leave the mistaken party in error; or the other party made the same mistake, and

the other party knew or should have known that the mistaken party, had it known the truth, would not have entered the contract or would have done so only on fundamentally different terms.

However a party may not avoid the contract if: (a) (b)

in the circumstances his mistake was inexcusable, or the risk of the mistake was assumed, or in the circumstances should be borne, by it.

Notes and questions 1

Mistake is one area of the law of contract where the distinction between promise and agreement has a practical effect. In French law, where contract is based on consent and agreement, it logically follows that mistake ought, in principle, to be a vitiating factor: for if the parties have agreed on the basis of an error, then there cannot be true agreement. In a system where promise is the basis of a contract, it does not logically have to follow that mistake will nullify the contract, since a promise is a promise even if based on a mistake. In other words, one does not need to look into the minds of one or both of the parties; one need only look at the objective promise. Here is the reason why the common law (as opposed to equity) has no doctrine of mistake (see Bell v Lever Bros, below). However, as Evans LJ points out, there some situations where the court will seemingly set aside a contract based on mistake; these cases are not, it must be stressed, in theory based on some substantive doctrine of error. They are either offer and acceptance problems, where the court holds that the mistake vitiates 486

The Formation of a Contract

2

3

4

5

the formation of a contract, or implied condition precedent problems, where the court holds that there is an implied condition that, for example, the object of the contract is in existence or is of a certain quality (see Financings Ltd v Stimson, below). In these situations, the common law is saying either that there never was a contract or, if there was, it has imploded as a result of the condition precedent. The common law, in other words, is declaring the contract void. Equity, however, can, since Solle v Butcher, intervene with its remedy of rescission (see p 256). Here, the contract will be voidable rather than void. Is this dual approach now outdated? Ought the courts to start thinking in terms of a substantive doctrine of error? Before answering the questions posed above, consider the following problem. B sees an old painting in a junk shop and asks P, the owner, how much he wants for it. P says he thinks the painting is by a minor artist and is worth around £500, and he offers it to B for £480 which B readily accepts. Having purchased the picture, B takes it to an antiques expert for a valuation and the expert says that the picture is a missing masterpiece by a major artist and is worth at least £1 million. The find is widely reported in the press and P is much put out. Can P ask for the contract to be set aside? Would your answer be different if B had verbally agreed with P that the painting was by a minor artist knowing full well that it was not? When viewed from the position of the English substantive law of contract, mistake may seem to lack any fundamental principles. If one shifts to the law of remedies, the position changes quite dramatically, in that there are a number of remedies which become available depending on the kind of error in issue. If the source of the error is a statement by one of the contracting parties (‘this painting is by Constable’ or ‘this car has done only 20,000 miles’) then there may be remedies for misrepresentation or, sometimes, for breach of contract (see Dick Bentley, above, p 467). If the source of the error cannot be attributed to a pre-contractual statement, then one of the parties will usually be seeking either to have the contract declared void (an action for a declaration) or to enforce a contract that the other party is refusing to perform (specific performance or damages). If the error concerns a document, a special defence of non est factum (this is not my deed) comes into play; and if the mistake concerns the identity of a person, the tort of conversion is usually the remedy in play, since mistake of identity often involves property problems. In fact, many cases involving non est factum and mistake of identity deserve to be classed more in the law of property than the law of obligations. Why do you think it is that the common law distinguishes between misrepresentation and mistake? One fundamental remedy distinction that must always be borne in mind when dealing with mistake and misrepresentation problems is the difference between the remedy of damages at common law and the remedy of rescission in equity (see Chapter 3). A party who has entered a contract 487

Sourcebook on Obligations and Remedies

6

under a misrepresentation made by the other party can in principle ask the court to rescind the contract in equity; and such rescission will be available irrespective of fault. Thus, even if the misrepresentation was made on reasonable grounds, the representee can, in principle, still ask the court for rescission. However, the court now has power to grant damages in lieu of the equitable remedy of rescission in non-fraudulent misrepresentation cases (see Misrepresentation Act 1967, s 2(2)). If a contracting party suffers loss as a result of the misrepresentation, the common law remedy of damages might be available if the representee suffering the loss can establish: (a) the tort of deceit (as modified by the Misrepresentation Act 1967, s 2(1)); (b) the tort of negligence (see Hedley Byrne, above, p 470); or (c) breach of contract (or a collateral contract). Before Hedley Byrne, it was extremely difficult to found a damages action in tort, since deceit required proof of fraud (see Bradford v Borders, above, p 469); and even after 1964, establishing all the requirements for an action in negligence was not easy. The effect of the 1967 Act is to remove the requirement of proving fraud or negligence in a damages claim for misrepresentation, although if a defendant can establish that he was not negligent, he will have a defence. What if a representee can establish all the requirements for the equitable remedy of rescission: ought this to be enough to found a damages action as well? (Cf Banque Keyser Ullmann v Skandia Insurance [1990] 1 QB 665 CA; [1992] 2 AC 249 HL.) The equitable remedy of rescission may also be available for mistake as well as misrepresentation. Thus there are now, seemingly, two doctrines of mistake in contract: there is the position at common law (offer and acceptance and implied condition precedent) and the position in equity (remedy of rescission). When viewed from the position in equity, it may be that the courts take a broad view: rescission depends upon the circumstances of each case and is in principle available to prevent unjustified enrichment or to stop abuses of power or rights. When analysing factual problems involving error it is, then, worth keeping these two broad principles in mind. Is this distinction between common law and equity helpful, or should the courts move towards developing a single doctrine? (Cf PECL, Art 4:103.)

(b) Error in corpore Smith v Hughes (1871) LR 6 QB 597 Court of Queen’s Bench This was an action in debt brought by a farmer for the price of new oats sold to the defendant, a trainer of racehorses. The defendant did not want ‘new’ oats—as the farmer knew—and thus he argued that he was not bound by the contract; but the plaintiff claimed that the defendant had offered to buy ‘good oats’, making no mention of the word ‘old’. The jury returned a verdict for the defendant and the plaintiff appealed. The Court of Queen’s Bench ordered a new trial. 488

The Formation of a Contract Cockburn CJ:… [W]e must assume that nothing was said on the subject of the defendant’s manager desiring to buy old oats, nor of the oats having been said to be old; while, on the other hand, we must assume that the defendant’s manager believed the oats to be old oats, and that the plaintiff was conscious of the existence of such belief, but did nothing, directly or indirectly, to bring it about, simply offering his oats and exhibiting his sample, remaining perfectly passive as to what was passing in the mind of the other party. The question is whether, under such circumstances, the passive acquiescence of the seller in the self-deception of the buyer will entitle the latter to avoid the contract. I am of opinion that it will not. The oats offered to the defendant’s manager were a specific parcel, of which the sample submitted to him formed a part. He kept the sample for 24 hours, and had, therefore, full opportunity of inspecting it and forming his judgment upon it. Acting on his own judgment, he wrote to the plaintiff, offering him a price. Having this opportunity of inspecting and judging of the sample, he is practically in the same position as if he had inspected the oats in bulk. It cannot be said that, if he had gone and personally inspected the oats in bulk, and then, believing—but without anything being said or done by the seller to bring about such a belief—that the oats were old, had offered a price for them, he would have been justified in repudiating the contract, because the seller, from the known habits of the buyer, or other circumstances, had reason to infer that the buyer was ascribing to the oats a quality they did not possess, and did not undeceive him. I take the true rule to be, that where a specific article is offered for sale, without express warranty, or without circumstances from which the law will imply a warranty—as where, for instance, an article is ordered for a specific purpose— and the buyer has full opportunity of inspecting and forming his own judgment, if he chooses to act on his own judgment, the rule caveat emptor applies… The question is not what a man of scrupulous morality or nice honour would do under such circumstances… Blackburn J:… The jury were directed that, if they believed the word ‘old’ was used, they should find for the defendant—and this was right; for if that was the case, it is obvious that neither did the defendant intend to enter into a contract on the plaintiff’s terms, that is, to buy this parcel of oats without any stipulation as to their quality; nor could the plaintiff have been led to believe he was intending to do so. But the second direction raises the difficulty. I think that, if from that direction the jury would understand that they were first to consider whether they were satisfied that the defendant intended to buy this parcel of oats on the terms that it was part of his contract with the plaintiff that they were old oats, so as to have the warranty of the plaintiff to that effect, they were properly told that, if that was so, the defendant could not be bound to a contract without any such warranty unless the plaintiff was misled. But I doubt whether the direction would bring to the minds of the jury the distinction between agreeing to take the oats under the belief that they were old, and agreeing to take the oats under the belief that the plaintiff contracted that they were old.

489

Sourcebook on Obligations and Remedies The difference is the same as that between buying a horse believed to be sound, and buying one believed to be warranted sound; but I doubt if it was made obvious to the jury, and I doubt this the more because I do not see much evidence to justify a finding for the defendant on this latter ground if the word ‘old’ was not used… I agree, therefore, in the result that there should be a new trial.

Questions 1 2 3 4

5

Is this case authority for the proposition that English contract law has no doctrine of good faith? Who caused the buyer’s loss? Is this case authority for the proposition that silence is no misrepresentation? Would this case be decided the same way today? What if the PECL, Art 4:103 (see p 486) governed the facts of Smith v Hughes:; would the result of the case have to be different? Is this case further evidence in support of the idea that English contract law is based on promise rather than agreement? Bell v Lever Brothers Ltd [1932] AC 161 House of Lords This was an action for rescission of two contracts, together with a claim for the repayment of moneys paid thereunder, made between a company and two of its directors whereby the directors terminated their employment contracts in return for large compensation payments. After the compensation payments had been made, the company discovered that they could legally, and without compensation, have dismissed the two directors for breaches of their employment contracts. The jury found that the two directors had not fraudulently concealed their breaches. The trial judge, Court of Appeal and two Law Lords thought that the compensation contracts were void for mistake; a majority of the House of Lords thought that they were not. Lord Atkin:… Two points present themselves for decision. Was the agreement of 19 March 1929 void by reason of a mutual mistake?… Could the agreement of 19 March 1929 be avoided by reason of the failure of Mr Bell to disclose his misconduct?… My Lords, the rules of law dealing with the effect of mistake on contract appear to be established with reasonable clearness. If mistake operates at all it operates so as to negative or in some cases to nullify consent. The parties may be mistaken in the identity of the contracting parties, or in the existence of the subject matter of the contract at the date of the contract, or in the quality of the subject matter of the contract. These mistakes may be by one party, or by both, and the legal effect may depend upon the class of mistake above mentioned. Thus a mistaken belief by A that he is contracting with B whereas in fact he is contracting with C, will negative consent where it is clear that the intention of A was to contract only with B…

490

The Formation of a Contract Mistake as to quality of the thing contracted for raises more difficult questions. In such a case a mistake will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be… It is essential on this part of the discussion to keep in mind the finding of the jury acquitting the defendants of fraudulent misrepresentation or concealment in procuring the agreements in question. Grave injustice may be done to the defendants and confusion introduced into the legal conclusion, unless it is quite clear that in considering mistake in this case no suggestion of fraud is admissible and cannot strictly be regarded by the judge who has to determine the legal issues raised. The agreement which is said to be void is the agreement contained in the letter of 19 March 1929, that Bell would retire from the Board of the Niger Company…and that in consideration of his doing so Levers would pay him as compensation the sum of £30,000 in full satisfaction… I have come to the conclusion that it would be wrong to decide that an agreement to terminate a definite specified contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise. The contract released is the identical contract in both cases, and the party paying for release gets exactly what he bargains for. It seems immaterial that he could have got the same result in another way, or that if he had known the true facts he would not have entered into the bargain. A buys B’s horse; he thinks the horse is sound and he pays the price of a sound horse; he would certainly not have bought the horse if he had known, as the fact is, that the horse is unsound. If B has made no representation as to soundness and has not contracted that the horse is sound, A is bound and cannot recover back the price. A buys a picture from B; both A and B believe it to be the work of an old master, and a high price is paid. It turns out to be a modern copy. A has no remedy in the absence of representation or warranty… A buys a roadside garage business from B abutting on a public thoroughfare: unknown to A, but known to B it has already been decided to construct a bypass road which will divert substantially the whole of the traffic from passing A’s garage. Again, A has no remedy. All these cases involve hardship on A and benefit B, as most people would say, unjustly. They can be supported on the ground that it is of paramount importance that contracts should be observed, and that if parties honestly comply with the essentials of the formation of contracts, that is, agree in the same terms on the same subject matter they are bound, and must rely on the stipulations of the contract for protection from the effect of facts unknown to them. [His Lordship then went on to hold that the defendants owed no duty to the Lever Company to disclose the impugned transactions.] Lord Thankerton:… [I]n the present case, there being no obligation to disclose [misconduct], Bell and Snelling, if they had had their misconduct in mind, would have been entitled to say nothing and Lever would have been bound by the contract. I have difficulty in seeing how the fact that Bell and Snelling did not remember at the time is to put Lever in a better position…

491

Sourcebook on Obligations and Remedies

Questions 1 2 3 4

Is the decision in this case inevitable, given that English law does not, in general, treat silence as a misrepresentation? Did the plaintiffs consent to the payments to the directors? Did the directors unjustly enrich themselves at the expense of the plaintiffs? If these facts arose again today, would the contracts be voidable in equity? Sale of Goods Act 1979 (c 54) 6

Goods which have perished Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when a contract is made, the contract is void.

Questions 1 2

Why is the contract ‘void’? S agrees to sell a wrecked ship to B and supplies B with details of its position on some reef in the ocean. B spends much time and money looking for the wreck, but is never able to locate it. Can B sue S for breach of contract? Financings Ltd v Stimson [1962] 1WLR1184 Court of Appeal This was an action for damages for breach of contract brought by a finance company against a defendant who had signed a hire purchase form at the premises of a motor dealer, paid a deposit, and then took possession of a car. The hire purchase form stated that the hire purchase contract would become binding only upon acceptance by the finance company. The defendant later returned the car to the dealer saying that he was dissatisfied with it and that he did not want to go on with the agreement; he also offered to forgo his deposit. Before the finance company had signed the agreement, but after the car had been returned to the dealer, the vehicle was stolen from the dealer’s premises and severely damaged. The finance company then signed the agreement and claimed there was a contract. A majority of the Court of Appeal dismissed the finance company’s claim for damages. Donovan LJ: The dealer in this case was clearly the plaintiff finance company’s agent to do a variety of things: to receive an offer of hire purchase; to tell the proposed hire purchaser, the defendant, that the plaintiffs would accept the business; to ensure that comprehensive insurance was effected by the defendant; and thereafter to deliver the car to him. In the written hire purchase form of agreement there was no clause negativing agency between the plaintiffs and the dealer. In these circumstances, authority to receive a notice of revocation of the hire purchase offer was, in my opinion, within the dealer’s authority as ostensible agent for the plaintiffs…

492

The Formation of a Contract Then was a notice of revocation given before the offer was accepted? That acceptance must be taken to have taken place not earlier than 25 March 1961. Before then, namely, on 20 March, the defendant had taken the car back to the dealer, told him he did not want to go on with the transaction and offered to forfeit his deposit. The dealer said words to the effect that he would get in touch with the plaintiffs to see what could be arranged, and told the defendant that he himself should also communicate with the plaintiffs, which the defendant did not do. Clearly, both parties were under the impression that what was in view was the rescission of an existing concluded contract, whereas at this moment there was no contract at all. But it is conceded, and I think rightly so, that, if an offeror makes it clear that he does not want to go on with the transaction, it is properly treated as a revocation of his offer, notwithstanding that the words used would be more appropriate to a case of rescission. Thus one reaches the stage that an offer here has been revoked before acceptance and the revocation communicated to the ostensible agent of the offered. There is thus an end of the matter in favour of the defendant. But if this view be wrong, I would agree that the offer here was on the basis that the car remained substantially in the same condition until acceptance, and that this did not happen…

Questions 1 2

3

Should this case be classified under offer and acceptance or mistake? What if the car had been defective and the defendant had been injured while driving it back to the dealer? Could the defendant have sued the plaintiff for his injuries? What if the car had been defective and it had gone out of control while in the hands of the thief, injuring both the thief and another road user? Could the thief and/or the other road user sue: (a) the dealer? (b) the hire purchase company? (c) the manufacturer of the vehicle? (d) the thief? Associated Japanese Bank (International) Ltd v Credit du Nord [1989] 1 WLR 255 Queen’s Bench Division Steyn J: Throughout the law of contract, two themes regularly recur—respect for the sanctity of contract and the need to give effect to the reasonable expectations of honest men. Usually, these themes work in the same direction. Occasionally, they point to opposite solutions. The law regarding common mistake going to the root of a contract is a case where tension arises between the two themes. That is illustrated by the circumstances of this extraordinary case. In broad but necessarily imprecise terms the shape of this case is as follows. In February 1984 Mr Jack Bennett concluded a sale and leaseback transaction with the plaintiffs in respect of four machines, which were described by serial numbers. In other words, Mr Bennett sold the machines to the plaintiffs, and the plaintiffs then leased the machines to Mr Bennett. The plaintiffs had been unwilling to enter into the transaction unless the lessee’s obligations were guaranteed by an acceptable guarantor. The defendants proved to be acceptable guarantors, and for a guarantee fee the defendants 493

Sourcebook on Obligations and Remedies guaranteed the obligations of the lessee under the lease agreement. The plaintiffs paid a sum in excess of £1 million to Mr Bennett. Out of the proceeds of the sale Mr Bennett paid the first quarterly rental. But in May 1984 he was arrested. The second quarterly rental was never paid. And it was discovered that the machines, which were the subject matter of the sale and lease, did not exist. Mr Bennett had committed a fraud upon both the plaintiffs and the defendants. Pursuant to the terms of the lease, the plaintiffs claimed the total outstanding balance from Mr Bennett. In July 1984 Mr Bennett was adjudged bankrupt. The plaintiffs sued the defendants on the guarantee… The central…question to be resolved is whether the plaintiffs are entitled under the guarantee to judgment in the sum of £1,021,000 together with interest. The principal issues to which most of counsel’s submissions were directed related to the questions (a) whether the guarantors were excused from liability by the non-fulfilment of an express or implied condition precedent of the guarantee, viz, the existence of the machines, or (b) whether the guarantee was void ab initio by reason of a common mistake affecting the guarantee, viz, the existence of the machines… The construction point The first question to be considered is whether the guarantee was expressly made subject to a condition precedent that the four machines existed… Clause 6 of the guarantee…contemplated the existence of the machines, and made provision for a right of substitution only if the guarantors granted consent. Against that background the question is whether it was expressly agreed that the guarantee would only become effective if there was a lease of four existing machines. The point is not capable of elaborate analysis. It is a matter of first impression. On balance, my conclusion is that, sensibly construed against its objective setting, the guarantee was subject to an express condition precedent that there was a lease in respect of four existing machines. If this conclusion is right, the plaintiffs’ claim against the defendants as guarantors or as sole or principal debtors under clause 11 fails. If my conclusion about the construction of the guarantee is wrong, it remains to be considered whether there was an implied condition precedent that the lease related to four existing machines. In the present contract such a condition may only be held to be implied if one of two applicable tests is satisfied. The first is that such an implication is necessary to give business efficacy to the relevant contract, that is, the guarantee. In other words, the criterion is whether the implication is necessary to render the contract (the guarantee) workable. That is usually described as the Moorcock test, being a reference to The Moorcock (1889) 14 PD 64. It may well be that this stringent test is not satisfied because the guarantee is workable in the sense that all that is required is that the guarantors who assumed accessory obligations must pay what is due under the lease. But there is another type of implication, which seems more appropriate in the present context. It is possible to imply a term if the court is satisfied that reasonable men, faced with the suggested term which was ex hypothesi not expressed in the contract, would without hesitation say: yes, of

494

The Formation of a Contract course, that is ‘so obvious that it goes without saying’: see Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, p 227, per MacKinnon LJ. Although broader in scope than the Moorcock test, it is nevertheless a stringent test, and it will only be permissible to hold that an implication has been established on this basis in comparatively rare cases, notably when one is dealing with a commercial instrument such as a guarantee for reward. Nevertheless, against the contextual background of the fact that both parties were informed that the machines existed, and the express terms of the guarantee, I have come to the firm conclusion that the guarantee contained an implied condition precedent that the lease related to existing machines. Again, if this conclusion is right, the plaintiffs’ claim against the defendants as guarantors or as sole or principal debtors under clause 11 fails… Notwithstanding these conclusions, which are determinative of the case, I will now consider the arguments as to common or mutual mistake which played such a large part at the hearing of this case. Mistake The common law regarding mutual or common mistake There was a lively debate about the common law rules governing a mutual or common mistake of the parties as to some essential quality of the subject matter of the contract. Counsel for the defendants submitted that Bell v Lever Brothers Ltd [1932] AC 161 authoritatively established that a mistake by both parties as to the existence of some quality of the subject matter of the contract, which makes the subject matter of the contract without the quality essentially different from the subject matter as it was believed to be, renders the contract void ab initio. Counsel for the plaintiffs contested this proposition. He submitted that at common law a mistake even as to an essential quality of the subject matter of the contract would not affect the contract unless it resulted in a total failure of consideration. It was not clear to me that this formulation left any meaningful and independent scope for the application of common law rules in this area of the law. In any event, it is necessary to examine the legal position in some detail. The landmark decision is undoubtedly Bell v Lever Brothers Ltd. Normally a judge of first instance would simply content himself with applying the law stated by the House of Lords. There has, however, been substantial controversy about the rule established in that case. It seems right therefore to examine the effect of that decision against a somewhat wider framework. In the early history of contract law the common law’s preoccupation with consideration made the development of a doctrine of mistake impossible. Following the emergence in the 19th century of the theory of consensus ad idem it became possible to treat misrepresentation, undue influence and mistake as factors vitiating consent. Given that the will theory in English contract law was cast in objective form, judging matters by the external standard of the reasonable man, both as to contract formation and contractual interpretation, it nevertheless became possible to examine in what circumstances mistake might nullify or negative consent. But even in late Victorian times there was another powerful policy consideration militating against upsetting bargains on the ground of unexpected circumstances, which occurred before or after the

495

Sourcebook on Obligations and Remedies contract. That was the policy of caveat emptor which held sway outside the field of contract law subsequently codified by the Sale of Goods Act 1893. Nevertheless, principles affecting the circumstances in which consent may be vitiated gradually emerged. The most troublesome areas proved to be two related areas, viz, common mistake as to an essential quality of the subject matter of the contract and post-contractual frustration. Blackburn J, an acknowledged master of the common law, who yielded to no one in his belief in the sanctity of contract, led the way in both areas. In Taylor v Caldwell (1863) 3 B & S 826, Blackburn J first stated the doctrine of frustration in terms which eventually led to the adoption of the ‘radical change in obligation’ test of commercial frustration in modern law: see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696… In Kennedy v Panama, New Zealand and Australian Royal Mail Co Ltd (1867) LR 2 QB 580… Blackburn J, delivering the judgment of the court, held (1867) LR 2 QB 580, p 588: …the principle of our law is the same as that of the civil law; and the difficulty in every case is to determine whether the mistake or misapprehension is as to the substance of the whole consideration, going, as it were, to the root of the matter, or only to some point, even though a material point, an error as to which does not affect the substance of the whole consideration. None of the cases between the decisions in Kennedy v Panama, New Zealand and Australian Royal Mail Co Ltd; and Bell v Lever Brothers Ltd [1932] AC 161 significantly contributed to the development of this area of the law. But Bell v Lever Brothers Ltd was a vitally important case. The facts of that case are so well known as to require no detailed exposition… It seems to me that the better view is that the majority in Bell v Lever Brothers Ltd [1932] AC 161 had in mind only mistake at common law. That appears to be indicated by the shape of the argument, the proposed amendment (see p 191) placed before the House of Lords, and the speeches of Lord Atkin and Lord Thankerton. But, if I am wrong on this point, it is nevertheless clear that mistake at common law was in the forefront of the analysis in the speeches of the majority. The law has not stood still in relation to mistake in equity. Today, it is clear that mistake in equity is not circumscribed by common law definitions. A contract affected by mistake in equity is not void but may be set aside on terms: Solle v Butcher [1950] 1 KB 671; Magee v Pennine Insurance Co Ltd [1969] 2 QB 507; and Grist v Bailey [1967] Ch 532. It does not follow, however, that Bell v Lever Brothers Ltd is no longer an authoritative statement of mistake at common law. On the contrary, in my view, the principles enunciated in that case clearly still govern mistake at common law… No one could fairly suggest that in this difficult area of the law there is only one correct approach or solution. But a narrow doctrine of common law mistake (as enunciated in Bell v Lever Brothers Ltd [1932] AC 161), supplemented by the more flexible doctrine of mistake in equity (as developed in Solle v Butcher [1950] 1 KB 671 and later cases), seems to me to be an entirely sensible and satisfactory state of the law: see Sheikh Bros Ltd v Ochsner [1957] AC 136. And there ought to be no reason to struggle to avoid its application by artificial interpretations of Bell v Lever Brothers Ltd.

496

The Formation of a Contract It might be useful if I now summarised what appears to me to be a satisfactory way of approaching this subject. Logically, before one can turn to the rules as to mistake, whether at common law or in equity, one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary. Only if the contract is silent on the point, is there scope for invoking mistake. That brings me to the relationship between common law mistake and mistake in equity. Where common law mistake has been pleaded, the court must first consider this plea. If the contract is held to be void, no question of mistake in equity arises. But, if the contract is held to be valid, a plea of mistake in equity may still have to be considered: see Grist v Bailey [1967] Ch 532 and the analysis in Anson’s Law of Contract, 26th edn, 1984, p 290. Turning now to the approach to common law mistake, it seems to me that the following propositions are valid although not necessarily all entitled to be dignified as propositions of law. The first imperative must be that the law ought to uphold rather than destroy apparent contracts. Secondly, the common law rules as to a mistake regarding the quality of the subject matter, like the common law rules regarding commercial frustration, are designed to cope with the impact of unexpected and wholly exceptional circumstances on apparent contracts. Thirdly, such a mistake in order to attract legal consequences must substantially be shared by both parties, and must relate to facts as they existed at the time the contract was made. Fourthly, and this is the point established by Bell v Lever Brothers Ltd [1932] AC 161, the mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist. While the civilian distinction between the substance and attributes of the subject matter of a contract has played a role in the development of our law (and was cited in speeches in Bell v Lever Brothers Ltd), the principle enunciated in Bell v Lever Brothers Ltd is markedly narrower in scope than the civilian doctrine. It is therefore no longer useful to invoke the civilian distinction. The principles enunciated by Lord Atkin and Lord Thankerton represent the ratio decidendi of Bell v Lever Brothers Ltd. Fifthly, there is a requirement which was not specifically discussed in Bell v Lever Brothers Ltd. What happens if the party, who is seeking to rely on the mistake, had no reasonable grounds for his belief? An extreme example is that of the man who makes a contract with minimal knowledge of the facts to which the mistake relates but is content that it is a good speculative risk. In my judgment a party cannot be allowed to rely on a common mistake where the mistake consists of a belief which is entertained by him without any reasonable grounds for such belief: cf McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, p 408. That is not because principles such as estoppel or negligence require it, but simply because policy and good sense dictate that the positive rules regarding common mistake should be so qualified. Curiously enough, this qualification is similar to the civilian concept where the doctrine of error in substantia is tempered by the principles governing culpa in contrahendo. More importantly, a recognition of this qualification is consistent with the approach in equity where fault on the part of the party adversely affected

497

Sourcebook on Obligations and Remedies by the mistake will generally preclude the granting of equitable relief: Solle v Butcher [1950] 1 KB 671, p 693. Applying the law to the facts It is clear, of course, that in this case both parties—the creditors and the guarantors—acted on the assumption that the lease related to existing machines. If they had been informed that the machines might not exist, neither the plaintiffs nor the defendants would for one moment have contemplated entering into the transaction. That by itself, I accept, is not enough to sustain the plea of common law mistake. I am also satisfied that the defendants had reasonable grounds for believing that the machines existed… No doubt the guarantors relied to some extent on the creditworthiness of Mr Bennett. But I find that the prime security to which the guarantors looked was the existence of the four machines as described to both parties… The non-existence of the subject matter of the principal contract is therefore of fundamental importance. Indeed the analogy of the classic res extincta cases, so much discussed in the authorities, is fairly close. In my judgment the stringent test of common law mistake is satisfied: the guarantee is void ab initio… Equitable mistake Having concluded that the guarantee is void ab initio at common law, it is strictly unnecessary to examine the question of equitable mistake. Equity will give relief against common mistake in cases where the common law will not, and it provides more flexible remedies including the power to set aside the contract on terms. It is not necessary to repeat my findings of fact save to record again the fundamental nature of the common mistake, and that the defendants were not at fault in any way. If I had not decided in favour of the defendants on construction and common law mistake, I would have held that the guarantee must be set aside on equitable principles. Unfortunately, and counsel are not to blame for that, the question of the terms (if any) to be imposed (having regard particularly to sums deposited by Mr Bennett with the defendants) were not adequately explored in argument. If it becomes necessary to rule on this aspect, I will require further argument… Conclusion Subject to any observations by counsel as to the form of the order, my conclusion is that the plaintiffs’ claim must be dismissed…

Questions 1 2 3 4 5

Does the common law of contract actually have independent rules governing mistake? Would the contracts in Bell v Lever Brothers now be subject to rescission in equity? What role does fault play in mistake problems? What are the reasonable expectations of honest men? ‘It is a matter of first impression.’ Discuss, from a legal reasoning point of view. 498

The Formation of a Contract

6

‘In the early history of contract law, the common law’s preoccupation with consideration made the development of a doctrine of mistake impossible.’ Why? William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 Court of Appeal

(Seep 484.) Questions 1 2

Is mistake now governed by rules similar to those used in frustration problems? (Cf Chapters 7–8.) Could the equitable remedy of rescission now have a role to play in frustration problems?

(c) Error in negotio Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 Court of Appeal The plaintiffs brought an action for possession of the defendants’ house which had been charged to the plaintiffs as security for a loan. The charge had been signed by the defendants, but only because they had been misled as to the nature of the document by their son. The judge dismissed the plaintiffs’ claim on the basis of non est factum and an appeal to the Court of Appeal was unsuccessful. Lord Denning MR: A few years ago we had a case about old Herbert Bundy, a father who was let down by his son. Now we have the case of George Bridger, a postman, who has also been let down by his son… It is plain that the son was a very bad lot. He went missing. He owed debts all round. Newspapers reported him as saying that his life had crumbled; that he had been sleeping in his car; and so forth. It seems to me that the legal position was not fully canvassed before the county court judge. One could not expect Mr Bridger to understand the law. He set out the facts. In his pleadings he was only bound to set out the material facts. The case was argued as though it depended on the legal doctrine of non est factum… The judge thought that the issue depended on whether or not Mr and Mrs Bridger were careless in not checking the documents and unreasonable in trusting their son… The judge…held that it was a case of non est factum and that the parents were not liable. Now I am afraid I cannot agree with the judge about non est factum. The doctrine is of very limited application as was explained in the Court of Appeal in Saunders v Anglia Building Society, sub nom Gallie v Lee…as modified by Lord Pearson in the House of Lords… In that case, Mrs Gallie’s signature was obtained by fraud just as Mr and Mrs Bridger’s was here. Yet the plea of non est factum did not prevail. 499

Sourcebook on Obligations and Remedies But I think the case should be considered on a different footing altogether, namely on the principle of ‘inequality of bargaining’ as set out in Lloyds Bank Ltd v Bundy... Here this son brought undue pressures on his parents for the benefit of the plaintiffs, and for himself of course, because he wanted the loan. They left it all to him. They said that he was to procure the execution of the deed. He brought undue pressure to bear on his parents by giving them an entirely misleading account of the documents. It seems to me that the parents’ bargaining power was impaired by their own ignorance, and that this court should not uphold the transaction. On this ground I would uphold the judge’s decision. I would just like to comment on a point which was not canvassed in the court below. We were referred to the Consumer Credit Act 1974, which now replaces many of the provisions of the old Moneylenders Acts 1900 to 1927 which were in force. Without going into the details of the sections... it seems to me that under the statute now, in regard to an agreement such as the one in this case, if it grossly contravenes the ordinary principles of fair dealing, and if regard is had to factors such as the age, experience and business capacity of Mr and Mrs Bridger, this is a case which may well come within the provisions of the 1974 Act. The agreement should be regarded as extortionate and the court can set aside the whole of the obligation. It is unnecessary to consider those matters in detail because they were not gone into. But, as far as I can see, if that statute were considered in detail, it is very likely that the same result would be reached as I would reach in this case, which is that the plaintiffs in these circumstances cannot enforce this legal charge against the parents. Brandon LJ: The deputy county court judge found in favour of the defendants on the basis of the defence non est factum. I would not agree with the decision of the deputy county court judge on that aspect of the case. A defendant can only rely on that plea when he has exercised reasonable care in the circumstances in connection with the transaction. The deputy county court judge found as a fact that the defendants had exercised reasonable care; but his decision on that matter, although one of fact, was a decision based on an inference from primary facts which are not in dispute, and this court is as well placed to draw the appropriate inference as was the deputy county court judge. In my judgment, it is impossible on the facts of this case to find that the defendants exercised such reasonable care as was appropriate in the circumstances in entering into the transaction. I would therefore find it impossible to support the judgment on the ground on which it was given. In this court, however, a different defence has been discussed, which I think it is right the court should consider because the defendants were in person and were not in a position to put all the relevant legal arguments before the court below. That defence is that the transaction relating to the second mortgage is voidable in equity... The matters which seem to me to give rise to an equity in favour of the defendants are three. The first matter is that the plaintiffs chose to appoint the son, who was the debtor, to procure from his parents the security which 500

The Formation of a Contract he and they needed to further the transaction on which they were engaged. It was for the plaintiffs’ benefit to have this security because they are in business for money lending, and they wanted a good secure money lending contract. They chose to appoint the son, a young accountant in the prime of life, to procure this contract from his parents, both of whom were old age pensioners, much less well educated than he was. The person whom they chose to appoint, being a son, could be expected to have some influence over his elderly parents, and that is something of which the plaintiffs could or should have been aware. In fact, the son was fraudulent. He deceived his parents, and by his deception induced them to enter into this transaction. We have those two matters, the procurement of the security by the son and the relationship between the son and his elderly parents of different educational attainment. Finally, we have the third factor of the absence of any independent advice. The fact is that there was no independent advice, and, insofar as the plaintiffs thought there was independent advice, they were in error…

Questions 1 2 3 4 5

Where is the line to be drawn between error and undue influence? Does it matter? Was the son acting as agent of the plaintiffs? Could the plaintiffs sue the son for their legal expenses incurred in the action against the parents? Is this a mistake case? If so, which party was labouring under a mistake? Does this case conflict with the House of Lords’ decision in Esso Petroleum v Southport Corpn (above, p 216)?

(d) Error in persona Lewis v Averay [1972] 1 QB 198 Court of Appeal This was an action in the tort of conversion by the seller of a motor car for its return after it had been resold by the original purchaser, who had misrepresented his identity to the plaintiff, to a bona fide purchaser. The plaintiff claimed that the original sale contract was void for mistake of identity and thus no title could pass. The Court of Appeal dismissed the plaintiffs claim. Lord Denning MR:… Who is entitled to the goods? The original seller? Or the ultimate buyer? The courts have given different answers… [T]here was, to all outward appearance, a contract: but there was a mistake by the seller as to the identity of the buyer. This mistake was fundamental. In each case it led to the handing over of the goods. Without it the seller would not have parted with them. This case therefore raises the question: What is the effect of a mistake by one party as to the identity of the other? It has sometimes been said that if a party 501

Sourcebook on Obligations and Remedies makes a mistake as to the identity of the person with whom he is contracting there is no contract, or, if there is a contract, it is a nullity and void, so that no property can pass under it. This has been supported by a reference to the French jurist Pothier; but I have said before, and I repeat now, his statement is no part of English law… Pothier’s statement has given rise to such refinements that it is time it was dead and buried altogether… Again, it has been suggested that a mistake as to the identity of a person is one thing: and a mistake as to his attributes is another. A mistake as to identity, it is said, avoids a contract, whereas a mistake as to attributes does not. But this is a distinction without a difference. A man’s very name is one of his attributes. It is also a key to his identity. If, then, he gives a false name, is it a mistake as to his identity? Or a mistake as to his attributes? These fine distinctions do no good to the law. As I listened to the argument in this case, I felt it wrong that an innocent purchaser (who knew nothing of what had passed between the seller and the rogue) should have his title depend on such refinements. After all, he has acted with complete circumspection and in entire good faith: whereas it was the seller who let the rogue have the goods and thus enabled him to commit the fraud. I do not, therefore, accept the theory that a mistake as to identity renders a contract void… When two parties have come to a contract—or rather what appears, on the face of it, to be a contract the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it… In this case Mr Lewis made a contract of sale with the very man, the rogue, who came to the flat. I say that he ‘made a contract’ because in this regard we do not look into his intentions, or into his mind to know what he was thinking or into the mind of the rogue. We look to the outward appearances. On the face of the dealing, Mr Lewis made a contract under which he sold the car to the rogue, delivered the car and the log book to him, and took a cheque in return. The contract is evidenced by the receipts which were signed. It was, of course, induced by fraud. The rogue made false representations as to his identity. But it was still a contract, though voidable for fraud. It was a contract under which this property passed to the rogue, and in due course passed from the rogue to [the bona fide purchaser], before the contract was avoided. Though I very much regret that either of these good and reliable gentlemen should suffer, in my judgment it is [the plaintiff] who should do so. I think the appeal should be allowed and judgment entered for the defendant.

Questions 1

These cases assume that the conveyance of title stood or fell with the contract. But why could the handing over of the car not pass title? Did not the seller in both cases intend to pass ownership and the rogue intend to acquire ownership? 502

The Formation of a Contract

2

3

Is the reference to Pothier misleading given Art 2279 of the Code civil, which states that possession is equivalent to ownership in the case of the sale of movable property? If English law had the same rule as the one to be found in Art 2279, what effect would such a rule have to the facts of Lewis? Does this case belong more to the law of property than to the law of obligations?

(e) Error in verbis Thomas Bates and Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 Court of Appeal (Seep 265.)

7 FRAUD Principles of European Contract Law Article 4:107 Fraud (1)

(2) (3)

A party may avoid a contract when it has been led to conclude it by the other party’s fraudulent representation, whether by words or conduct, or fraudulent non-disclosure of any information which in accordance with good faith and fair dealing it should have disclosed. A parry’s representation or non-disclosure is fraudulent if it was intended to deceive. In determining whether good faith and fair dealing required that a party disclose particular information, regard should be had to all the circumstances, including (a) (b) (c) (d)

whether the party had special expertise; cost to it of acquiring the relevant information; whether the other party could reasonably acquire the information for itself; and the apparent importance of the information to the other party.

Whittaker v Campbell [1984] QB 318 Queen’s Bench Division (Seep 421.)

Questions 1 2

Is fraud part of the law of restitution rather than the law of contract? Why does English law distinguish between promise as a legal act and fraud as a legal fact? Surely, the latter could be said to undermine the former? 503

Sourcebook on Obligations and Remedies

3

4

Does fraud vitiate consent as far as the tort of trespass is concerned? A fraudulently conceals from B that he has the AIDS virus; could it be said that B consents to having sexual intercourse with A? Does Art 4:107 of the PECL represent English law? Bradford Building Society v Borders [1941] 2 All ER 205 House of Lords (See p 469.)

Questions 1

2 3

4

A newspaper accuses a politician of fraud and the politician successfully sues the newspaper for damages in defamation on the basis that the newspaper cannot actually prove the allegation. It is subsequently proved in criminal proceedings that the politician is guilty of fraud. Could the newspaper recover the defamation damages it has paid to the politician in an action either for damages or for debt? Would it make any difference if, during the defamation proceedings, the politician had specifically denied the fraud, but later admitted it after the criminal proceedings? Will all fraudulent behaviour which causes loss now give rise to an action for damages in the tort of negligence? If it is ever proved that a cigarette manufacturer has suppressed evidence that smoking causes cancer, will this be enough to found an action for deceit on behalf of anyone who can show that they have developed cancer from smoking that manufacturer’s cigarettes? Is it fraudulent for a commercial corporation to fail to make public health risk information concerning the corporation’s product? Is there a distinction to be made between a fraudulent statement and one that is economical with the truth?

8 DURESS Principles of European Contract Law Article 4:108 Threats A party may avoid a contract when it has been led to conclude it by the other party’s imminent and serious threat of an act: (a) (b)

which is wrongful in itself, or which it is wrongful to use as a means to obtain the conclusion of the contract, unless in the circumstances the first party had a reasonable alternative.

CTN Cash and Cany Ltd v Gallaher Ltd [1994] 4 All ER 714 Court of Appeal Steyn LJ: A buyer paid a sum of money to his supplier. The sum of money was in truth not owed by the buyer to the supplier. The buyer paid the 504

The Formation of a Contract sum as a result of the supplier’s threat to stop the buyer’s credit facilities in their future dealings if the sum was not paid. The supplier acted in the bona fide belief that the sum was owing. Does the doctrine of economic duress enable the buyer to recover the payment? In a judgment given on 8 August 1991, Judge Michael Kershaw QC gave a negative answer to this question. This appeal challenges the correctness of the deputy judge’s conclusion… Miss Heilbron QC, who appeared for the plaintiffs, submitted that the deputy judge erred in rejecting the plea of duress. She submitted that the payment was made under illegitimate pressure. She emphasised that there was objectively no legal basis for demanding the price of the goods, and the threat of withdrawing the credit facilities was made solely in order to obtain the payment. The threat was powerful because the removal of credit would have seriously jeopardised the plaintiffs’ business. The clear purpose, she said, was to extort money to which the plaintiffs were in truth not entitled. In the circumstances, the threat was illegitimate and the case of duress was made out. Miss Heilbron cited a number of authorities which illustrate developments in this branch of the law. While I found the exercise of interest, I was reminded of the famous aphorism of Oliver Wendell Holmes that general propositions do not solve concrete cases. It may only be a half-truth, but in my view the true part applies to this case. It is necessary to focus on the distinctive features of this case, and then to ask whether it amounts to a case of duress. The present dispute does not concern a protected relationship. It also does not arise in the context of dealings between a supplier and a consumer. The dispute arises out of arm’s length commercial dealings between two trading companies. It is true that the defendants were the sole distributors of the popular brands of cigarettes. In a sense the defendants were in a monopoly position. The control of monopolies is, however, a matter for Parliament. Moreover, the common law does not recognise the doctrine of inequality of bargaining power in commercial dealings (see National Westminster Bank plc v Morgan [1985] AC 686). The fact that the defendants were in a monopoly position cannot therefore by itself convert what is not otherwise duress into duress. A second characteristic of the case is that the defendants were in law entitled to refuse to enter into any future contracts with the plaintiffs for any reason whatsoever or for no reason at all. Such a decision not to deal with the plaintiffs would have been financially damaging to the defendants, but it would have been lawful. A fortiori, it was lawful for the defendants, for any reason or for no reason, to insist that they would no longer grant credit to the plaintiffs. The defendants’ demand for payment of the invoice, coupled with the threat to withdraw credit, was neither a breach of contract nor a tort. A third, and critically important, characteristic of the case is the fact that the defendants bona fide thought that the goods were at the risk of the plaintiffs and that the plaintiffs owed the defendants the sum in question. The defendants exerted commercial pressure on the plaintiffs in order to obtain payment of a sum which they bona fide considered due to them. The

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Sourcebook on Obligations and Remedies defendants’ motive in threatening withdrawal of credit facilities was commercial self-interest in obtaining a sum that they considered due to them. Given the combination of these three features, I take the view that none of the cases cited to us assist the plaintiffs’ case. Miss Heilbron accepted that there is no decision which is in material respects on all fours with the present case. It is therefore unnecessary to disinter all those cases and to identify the material distinctions between each of those decisions and the present case. But Miss Heilbron rightly emphasised to us that the law must have a capacity for growth in this field. I entirely agree. I also readily accept that the fact that the defendants have used lawful means does not by itself remove the case from the scope of the doctrine of economic duress… We are being asked to extend the categories of duress of which the law will take cognisance. That is not necessarily objectionable, but it seems to me that an extension capable of covering the present case, involving lawful act duress’ in a commercial context in pursuit of a bona fide claim, would be a radical one with far-reaching implications. It would introduce a substantial and undesirable element of uncertainty in the commercial bargaining process. Moreover, it will often enable bona fide settled accounts to be re-opened when parties to commercial dealings fall out. The aim of our commercial law ought to be to encourage fair dealing between parties. But it is a mistake for the law to set its sights too highly when the critical inquiry is not whether the conduct is lawful but whether it is morally or socially unacceptable. That is the inquiry in which we are engaged. In my view, there are policy considerations which militate against ruling that the defendants obtained payment of the disputed invoice by duress. Outside the field of protected relationships, and in a purely commercial context, it might be a relatively rare case in which ‘lawful act duress’ can be established. And it might be particularly difficult to establish duress if the defendant bona fide considered that his demand was valid. In this complex and changing branch of the law I deliberately refrain from saying ‘never’. But as the law stands, I am satisfied that the defendants’ conduct in this case did not amount to duress. It is an unattractive result, inasmuch as the defendants are allowed to retain a sum which at the trial they became aware was not in truth due to them. But in my view the law compels the result. For these reasons, I would dismiss the appeal. Farquharson LJ: I agree. Sir Donald Nicholls VC: I also agree. It is important to have in mind that the sole issue raised by this appeal and argued before us was duress. The plaintiff claims payment was made by it under duress and is recoverable accordingly. I agree, for the reasons given by Steyn LJ, that the claim must fail. When the defendant company insisted on payment, it did so in good faith. It believed the risk in the goods had passed to the plaintiff company, so it considered it was entitled to be paid for them. The defendant company took a tough line. It used its commercial muscle. But the feature underlying and dictating this 506

The Formation of a Contract attitude was a genuine belief on its part that it was owed the sum in question. It was entitled to be paid the price for the goods. So it took the line: the plaintiff company must pay in law what it owed, otherwise its credit would be suspended. Further, there is no evidence that the defendant’s belief was unreasonable. Indeed, we were told by the defendant’s counsel that he had advised his client that on the risk point the defendant stood a good chance of success. I do not see how a payment demanded and made in those circumstances can be said to be vitiated by duress. So that must be an end to this appeal… D & C Builders Ltd v Rees [1966] 2 QB 617 Court of Appeal (Seep 453.)

Questions 1

If the plaintiff in CTN paid the money to retain the credit facilities, was this a contract? Is it a contract that might be set aside in equity via the remedy of rescission? 2 How does CTN differ from D & C Builders v Rees? 3 If the defendants in CTN had decided to withdraw the credit facilities out of malice, would this have been a tort? What would be the position if the defendants did not genuinely believe they were owed the money by the plaintiffs? 4 The disputed invoice in CTN arose because the suppliers had delivered cigarettes to the plaintiffs—but to the wrong warehouse—and these cigarettes were stolen from the plaintiffs’ warehouse. What was the insurance position with respect to the theft of the cigarettes and how, if at all, might the insurance position be of importance to the case? 5 Does CTN deny the thesis that abuse of power is a tort? 6 If English contract law had a doctrine of good faith, would CTN have been decided differently? What if the PECL had been applicable? 7 If the plaintiff in CTN had brought an action for money had and received, based on payment made under a mistake, would they have been able to recover? (Cf Chapter 8.) 8 Under what circumstances, if any, might the plaintiff in CTN have been allowed to trace the money they paid to the defendant? 9 Read Atlas Express Ltd v Kafko Ltd [1989] QB 833 in the law report. If this case had been heard after CTN, would the result be different? How do the two cases differ? If the facts of Kafko had fallen to be decided under the PECL, would the result have been the same? 10 Is it duress for a trade union to threaten industrial action? If so, can any person who suffers loss as a result of the duress obtain, at common law, damages? What about equity? Will it always allow rescission of any 507

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contract entered into as a result of a threat of industrial action? (Cf Dimskal Shipping Co v ITWF [1992] 2 AC 152.) Is the threat of unemployment a form of duress? Is the threat of legal action duress when the person making the threat knows full well that he has no legal basis for his threat? Can a threat to withdraw from pre-contractual negotiations ever amount to duress? Are there situations where one has a right to make threats? (Cf Thorne v MTA [1937] AC 797.) When there was actual duress to the person (that is, threats of violence), does this give rise only to an action in equity for rescission, or are there some forms of duress that will make a contract void?

9 UNDUE INFLUENCE Principles of European Contract Law Article 4:109 Excessive benefit or unfair advantage (1)

A party may avoid a contract if, at the time of the conclusion of the contract: (a)

(b)

(2)

(3)

it was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill, and the other party knew or ought to have known of this and, given the circumstances and purpose of the contract, took advantage of the first party’s situation in a way which was grossly unfair or took an excessive benefit.

Upon the request of the party entitled to avoidance, a court may if it is appropriate adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealing been followed. A court may similarly adapt the contract upon the request of a party receiving notice of avoidance for excessive benefit or unfair advantage, provided that this party informs the party who gave the notice promptly after receiving it and before that party has acted in reliance on it.

Article 4:111 Third persons (1)

Where a third person for whose acts a party is responsible, or who with a party’s assent is involved in the making of a contract: (a) (b) (c)

causes a mistake by giving information, or knows of or ought have known of a mistake, gives incorrect information, commits fraud,

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The Formation of a Contract (d) (e)

makes a threat, or takes excessive benefit or unfair advantage

remedies under this Chapter will be available under the same conditions as if the behaviour or knowledge had been that of the party itself. (2)

Where any other third person (a) (b) (c) (d)

gives incorrect information, commits fraud, makes a threat, or takes excessive benefit or unfair advantage,

remedies under this Chapter will be available if the party knew or ought to have known of relevant facts, or at the time of avoidance it has not acted in reliance on the contract. Avon Finance Co Ltd v Bridget [1985] 2 All ER 281 Court of Appeal (See p 499.) Barclays Bank plc v O’Brien [1992] 3 WLR 593 Court of Appeal; [1994] 1 AC 180 House of Lords (Seep 256.) TSB Bank plc v Camfield [1995] 1 WLR 430 Court of Appeal (Seep 479.) Credit Lyonnais Bank Nederland v Burch [1997] 1 All ER 144 Court of Appeal Millett LJ:… Mr Pelosi provided the bank with an unlimited all moneys guarantee given by Miss Burch at his request. She was a junior employee of the company employed at a modest wage. She was not a director of the company or shareholder in it. Her guarantee was supported by a second charge on her home, a small flat of suitably modest value, which was valued at £100,000 and was subject to a mortgage of £30,000. She understood that the guarantee and charge were unlimited in time and amount, but she had not taken independent legal advice. No court of equity could allow such a transaction to stand. The facts which I have recited are sufficient to entitle Miss Burch to have the transaction set aside as against Mr Pelosi and the company. Every one of those facts was known to the bank when it accepted the security. The bank must accordingly be taken to have had notice of Miss Burch’s equity, and must submit to the transaction being set aside against it also. An 18th century Lord Chancellor would have contented himself with saying as much. It is an extreme case. The transaction was not merely to the manifest disadvantage of Miss Burch; it was one which, in the traditional phrase, ‘shocks the conscience of the court’… The transaction gives rise to grave suspicion. It cries aloud for an explanation…

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Questions 1

2 3 4 5 6

Undue influence is an equitable form of duress which may give rise to the equitable remedy of rescission. In what circumstances can the relationship between a bank and a customer be subject to the doctrine of undue influence? Was the husband in O’Brien acting as agent of the bank? Could the bank sue the husband in O’Brien for all its losses arising out of the mortgage transaction? Do the courts have a general equitable power to set aside unconscionable transactions? Is Camfield actually an undue influence case? What small changes of fact in Credit Lyonnais would be required in order to arrive at a situation where a court of equity might not be so prepared to set aside the transaction?

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CHAPTER 6

NON-PERFORMANCE OF A CONTRACT

1 INTRODUCTION Contracts that are fully performed by both parties rarely raise problems involving the courts. There seems little point, therefore, in describing the contents of a contractual obligation in the abstract. Indeed, even when one party fails fully to perform his, her or its side of a contract, the two parties may prefer to settle the matter outside the law. It is when one person suffers injury, damage and/or loss that the courts usually become involved and, even then, the chances are that the matter will be settled before getting to court. Most contracts are performed by both sides satisfactorily and, if this were not the case, commerce—indeed, everyday life in a consumer society—would cease to function. When problems do arise between contracting parties it is, as far as the common law is concerned at any rate, helpful to start out from the nature of the complaint (something which is true in respect of non-contractual obligations as well). Is the plaintiff claiming compensation for damage, or loss caused by the act or omission of the other party? Or is the claimant complaining that the other party is failing to do what he had undertaken to do (for example, pay a debt) or undertaken not to do (work for someone else, for example)? Again, is the claimant trying to escape from an obligation which he had taken on when market conditions were different or, rather more innocently, which he had assumed as a result of what he had been led to believe by the other party? Or is he trying to renegotiate the price because of a change of circumstances or whatever? These questions lead one towards the appropriate remedy (see Chapter 3) which, in turn, helps the lawyer to conceptualise the obligational problem at a substantive level. Thus, a rescission in equity claim usually raises a question about the events surrounding the formation of a contract (see Chapter 5); a claim in damages, on the other hand, often leads to problems about the contents of a contract (implied terms, exclusion clauses and the like). In addition, there may well be a dispute surrounding the nature of the damage itself and whether it is of a type which the defendant should compensate. However, when a debt case gets to court and into the law reports, it is usually because such a claim has raised a problem about the very existence of a contract (see, for example, Carlill, p 428) or about whether the creditor has performed his side of the bargain (see Bolton v Mahadeva, p 226). It is not in the nature of debt claims to raise questions about causation and foreseeability as such, 511

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although sometimes behaviour and fault can prove indirectly relevant (see, for example, Vigers v Cook, below, p 516). Equally, a debt claim can raise a question about just who has the right to claim performance of a contract, as in Beswick v Beswick (see p 249). This, in its turn, can give rise to the more abstract questions about the difference between rights and interests (see Chapter 2) and the relationship between rights and remedies (see Chapter 3). The point to remember in all this is that the type of damage suffered by a contractor or other claimant is an excellent starting point for an analysis of a set of facts. One then works from the damage towards the actors (personae, that is, parties), the props (res—for example, goods sold or hired, factory guarded and so on) and the possible actions (remedies—for example, debt, damages, injunction, rescission or whatever) that could come into play. And the interplay of all these should reveal the relevant relationships (contractual terms, unilateral promise, duty of care, bailment and the like) which will motivate and justify the granting or refusal of a remedy.

2 LIABILITY AND IMPLIED TERMS Principles of European Contract Law Article 6:102 Implied obligations In addition to the express terms, a contract may contain implied terms which stem from (a) (b) (c)

the intention of the parties; the nature and purpose of the contract; and good faith and fair dealing.

The Moorcock (1889) 14 PD 64 Court of Appeal This was an action for damages by the owner of a ship against the owners of a wharf in respect of damage sustained by the ship when she rested on hard ground at low tide. The Court of Appeal held the wharf owners liable. Bowen LJ:… The question which arises here is whether, when a contract is made to let the use of this jetty to a ship which can only use it, as is known to both parties, by taking the ground, there is any implied warranty on the part of the owners of the jetty, and if so, what is the extent of that warranty. Now, an implied warranty, or as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side and I believe if one were to take all the cases, and they are many, of implied warranties and covenants in law, it will be found that in all of them the law is raising an implication from the presumed 512

Non-Performance of a Contract intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that in all events it should have. In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. Now what did each party in a case like this know? For, if we are examining into their presumed intention, we must examine into their minds as to what the transaction was. Both parties knew that this jetty was let for hire, and knew that it could only be used under the contract by the ship taking the ground. They must have known that it was by grounding that she used the jetty; in fact …they must have known, both of them, that unless the ground was safe the ship would be simply buying an opportunity of danger, and that all consideration would fail unless some care had been taken to see that the ground was safe. In fact, the business of the jetty could not be carried on except upon such a basis. The parties also knew that with regard to the safety of the ground outside the jetty the shipowner could know nothing at all, and the jetty owner might with reasonable care know everything. The owners of the jetty, or their servants, were there at high and low tide, and with little trouble they could satisfy themselves, in case of doubt, as to whether the berth was reasonably safe. The ship’s owner, on the other hand, had not the means of verifying the state of the jetty, because the berth itself opposite the jetty might be occupied by another ship at any moment. [I]t may well be said that the law will not imply that the persons who have not control of the place have taken reasonable care to make it good, but it does not follow that they are relieved from all responsibility. They are on the spot. They must know the jetty cannot be used unless reasonable care is taken, if not to make it safe, at all events to see whether it is safe. No one can tell whether reasonable safety has been secured except themselves, and I think if they let out their jetty for use they at all events imply that they have taken reasonable care to see that the berth, which is the essential part of the use of the jetty, is safe, and if it is not safe, and if they have not taken such reasonable care, it is their duty to warn persons with whom they have dealings that they have not done so…

Notes and questions 1

The notion of an implied term is central to English contract law, since it is the means by which a court can interpret contractual facts in order to insert into the facts a normative element that can then be used to establish liability. Thus, the wharf owner was liable, not because he was at fault (one possible normative concept), but because he had ‘promised’ (another normative concept) that the berth was safe. The berth was not safe, so the wharf owner was liable to compensate in damages because he was in breach of his promise. Fault and the implied term do, however, often come 513

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4

together: if, in Bolton v Mahadeva (above, p 226), a fire had accidentally started, the question of the level of duty (fault or strict liability) would have centred on the implied term. Did the heating engineers promise to use care and skill, or did they warrant that the materials they used were safe? Is the implied term a means by which courts can remake contracts? Do employees impliedly promise their employers in their contracts of employment that they will not be negligent? Does an employer impliedly promise to warn employees about any lack of insurance cover when the employer asks the employee to work abroad? Is a university under an implied obligation to take out insurance on behalf of its postgraduate students who go abroad to do research? (Cf Reid v Rush and Tompkins plc [1990] 1WLR 212.) What if the owner of the ship had been compensated for the damage by his insurance company: would the court still have implied the term so as to allow the insurance company to recover from the wharf owner via the doctrine of subrogation? Sale of Goods Act 1979 (c 54) 14

Implied terms about quality or fitness

(1)

Except as provided by this section and section 15 below and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale. (2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality; (2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances. (2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods(a) (b) (c) (d) (e)

fitness for all the purposes for which goods of the kind in question are commonly supplied, appearance and finish, freedom from minor defects, safety, and durability.

(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory(a)

which is specifically drawn to the buyer’s attention before the contract is made,

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Non-Performance of a Contract (b) (c)

(3)

Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known(a) (b)

(6)

where the buyer examines the goods before the contract is made, which that examination ought to reveal, or in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample.

to the seller… …any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller…

As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions…

Notes and questions 1

2 3

Terms can be implied in fact and in law. Or, put another way, there are some contracts where implied promises will automatically apply, either because of precedent or because of legislation. The notion of an implied term can thus become a means of importing objective rules into contractual situations. To what extent can these objective rules be expressly excluded by the parties to a contract? Does s 14 embody the idea that contributory negligence is a complete defence to an action for damages in contract? Is a new car with a deep scratch on one of its doors reasonably fit for its purpose and/or of satisfactory quality? Greaves and Co v Baynham Meikle and Partners [1975] 1 WLR 1095 Court of Appeal (Seep 391.)

Questions 1 2

3 4

Will the court imply a term when it is reasonable to do so? Or must something more be shown? (Cf Liverpool CC v Irwin [1977] AC 239.) Would it be reasonable to imply into all contracts a term that the contract be performed in good faith? Are there any contracts where good faith is an implied term? (Cf Interfoto v Stiletto, p 409.) Can an implied term ever be dependent upon the status of one or both parties to a contract? Can an implied term ever exist independently of the main contract? 515

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3 BREACH AND NON-PERFORMANCE Code civil 1147 A debtor is judged liable, if there are grounds for it, to the payment of damages, either by reason of the non-performance of the obligation or by reason of delay in the performance at all times when he does not prove that the non-performance came from an outside cause (cause étrangère) which cannot be imputed to him, and further that there was no bad faith on his part. 1148 No damages arise when, as result of an act of God (force majeure)or of a fortuitous event (cas fortuit), the debtor was prevented from giving or doing that for which he had bound himself, or did what was forbidden to him. Principles of European Contract Law Article 8:101 Remedies available (1) (2) (3)

Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Art 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. Where a party’s non-performance is excused under Art 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party’s non-performance.

Article 8:108 Excuse due to an impediment (1)

(2)

(3)

A party’s non-performance is excused if it proves that it is due to an impediment beyond its control and that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences. Where the impediment is only temporary the excuse provided by this article has effect for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the obligee may treat it as such. The non-performing party must ensure that notice of the impediment and of its effect on his ability to perform is received by the other party within a reasonable time after the non-performing party knew or ought to have known of these circumstances. The other party is entitled to damages for any loss resulting from the non-receipt of such notice.

Vigers v Cook [1919] 2 KB 475 Court of Appeal This was an action in debt by a funeral undertaker against the defendant in respect of a funeral of the defendant’s son. The Court of Appeal held that the defendant was justified in refusing to pay the bill. Bankes LJ:… The first question is, what was the contract between the parties? … 516

Non-Performance of a Contract Undertaking an order for a funeral indicates not a single but a complex operation, that is to say, a series of single operations and, naturally, there must have been a discussion in reference to these various single operations which went to make up the entire transaction in respect of which the contract was made. For instance, there must have been an intimation as to where the interment was to take place, and as to the kind of coffin desired… But, having been concluded, in my opinion it is one entire contractpsd Not a word has been said against the plaintiff in this case. He is an undertaker of repute… He took the order, and the order included the supply of the elm shell, the lead coffin, and the oak case… On 1 August the lead coffin was soldered down in the mortuary, and the pinhole was left… On 2 August the complaint came from the mortuary authorities, and on that day the pinhole was closed. As the natural result of closing the pinhole, the gas accumulated in the lead coffin to such an extent that by the time the coffin arrived at the entrance to the church the lead coffin had burst, and there was a leakage from the coffin, sufficient to render it extremely undesirable that the body should be taken into the church …and as a result the body was not taken in. In my opinion the contract which was made between the parties included…as an essential term the conveying of the body into the church for a part of the service, subject to this condition, that the body was in such a state as to permit of that being done. The body in this coffin was not in that state, but the onus was on the plaintiff to establish that it was not in that state owing to no default on his part. In my opinion he did not discharge that onus… I think that, although the plaintiff down to the time of the closing of the aperture did nothing other than what a competent and careful undertaker would do, in the difficult circumstances which arose when he felt it necessary to close the aperture, he has not shown that it was owing to no fault on his part that one essential term of his contract was not fulfilled; and it being one entire contract, in my opinion he fails in proving that he is entitled to any portion of the one entire price which was payable for the entire contract…

Notes and questions 1

It has been observed many times in the previous chapter that the difference between contract in French and English law is that one is based on agreement and the other is based on promise. This distinction becomes evident, once again, in the way failure to perform a contract is envisaged. In French law, and in the PECL, all failures to perform are labelled ‘nonperformance’ (inexécution), but in English law, the notion of promise gives rise to a different expression. A failure to do what one has promised to do is called a ‘breach’ of promise, and this has given rise to the notion of breach of contract. However, the idea of a non-performance cannot be disregarded in English law because, in a unilateral contract, the promisee cannot ever be in breach, since such a person has never promised anything. Thus, Mrs Carlill (see p 428) could never be in breach of contract; all she could ever be accused of by the Carbolic Smoke Ball Company is nonperformance of the consideration stipulated in the advertisement. Was 517

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the Carbolic Smoke Ball Co in breach of the contract with Mrs Carlill or were they guilty only of a non-performance? From the position of the law of remedies, the difference between breach and non-performance can be important. If a contractor wishes to claim damages, it must be established that the other party is in breach of contract and that this breach has caused the plaintiffs damage. But what if the damage suffered by the plaintiff as a result of the other party’s failure to perform is less than the price that the plaintiff had agreed to pay for the performance? Is a claim in damages on the basis of breach the best way, from the claimant’s point of view, of conceptualising the problem? (Cf Bolton v Mahadeva, p 226.) What if a contractor performs most, but not all, of his obligations under a contract: can the other party refuse to pay any of the agreed price? Hoenig v Isaacs [1952] 2 All ER 176 Court of Appeal This was an action in debt for the balance outstanding in respect of decoration and furnishing work carried out in the defendant’s flat. The defendant claimed that the plaintiff had not performed the contract and it was found at first instance that, although the contract had been substantially performed, there were some defects in the workmanship which would cost just under £56 to put right. The Court of Appeal held that the plaintiff was entitled to the outstanding balance of £350 less the cost of the defects by way of set off. Denning LJ:… In determining this issue the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price… It is, of course, always open to the parties by express words to make entire performance a condition precedent… Even if entire performance was a condition precedent, nevertheless, the result would be the same, because I think the condition was waived… [The defendant] did not refuse to accept the work. On the contrary, he entered into possession of the flat and used the furniture as his own, including the defective items. That was a clear waiver of the condition precedent. Just as in a sale of goods the buyer who accepts the goods can no longer treat a breach of condition as giving a right to reject but only a right to damages, so also in 518

Non-Performance of a Contract a contract for work and labour an employer who takes the benefit of the work can no longer treat entire performance as a condition precedent, but only as a term giving rise to damages…

Questions 1 2

3

Are all non-performances presumed to be breaches of contract? D offers £10 to anyone who will cut his hedge. P cuts three-quarters of the hedge and then gives up and goes home. Is P entitled to any money from D? What if D finishes the last quarter himself? (Cf Sumpter v Hedges, p 793.) At what point does non-performance become substantial performance? Bolton v Mahadeva [1972] 1WLR 1009 Court of Appeal (Seep 226.)

Questions 1 2

Why could the heating firm not reclaim the heating equipment, such as boiler and radiators, that they had installed in the house? Was the houseowner in Bolton enriched at the expense of the heating contractor? Does it matter? Is your answer to this second question influenced by the fact that the houseowner could be described as a consumer? Attia v British Gas plc [1988] QB 304 Court of Appeal Bingham LJ: The plaintiffs claim pleaded in this action is a simple one. She alleges that the defendants were installing central heating in her house and that a fire occurred as a result of the defendants’ negligent work. This the defendants admit. The plaintiff further pleads that she returned home to see smoke coming from the loft of the house and then witnessed the burning of the house for over four hours until the fire was brought under control. This experience, she alleges, caused her ‘nervous shock in the form of a serious psychological reaction evidenced by an anxiety state and depression’. Her claim is accordingly one for what have in the authorities and the literature been called damages for nervous shock. Judges have in recent years become increasingly restive at the use of this misleading and inaccurate expression, and I shall use the general expression ‘psychiatric damage’, intending to comprehend within it all relevant forms of mental illness, neurosis and personality change. But the train of events (all of which must be causally related) with which this action, like its predecessors, is concerned remains unchanged: careless conduct on the part of the defendant causing actual or apprehended injury to the plaintiff or a person other than the defendant; the suffering of acute mental or emotional trauma by the plaintiff on witnessing or apprehending that injury or witnessing its aftermath; psychiatric damage suffered by the plaintiff.

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Sourcebook on Obligations and Remedies There is, however, one respect in which this case differs from all the decided cases; or almost all: Owens v Liverpool Corpn [1939] 1 KB 394 would appear to be an exception. Although the plaintiff suffered injury in that her home and presumably her possessions were burned and damaged, it is not said that she was at any time in fear for her own personal safety or that of anyone else, nor is it said that physical injury (as opposed to the psychiatric damage of which she complains) was suffered by anyone. It was no doubt this singular feature of the case which led the parties to agree to the trial of a preliminary issue: Can the plaintiff recover damages for nervous shock caused by witnessing her home and possessions damaged and/or destroyed by a fire caused by the defendants’ negligence while installing central heating in the plaintiffs home? The parties are not to be criticised for adopting a procedure which they conscientiously believed would save costs and time. But it would, I think, have been better if the action had proceeded to trial, at any rate on liability, perhaps leaving the assessing of damages, if any, to a later date. For I think that there are, within the issue set down for trial, two distinct questions. One is a question of far-reaching legal principle: is a claim for damages for psychiatric damage suffered by one who has witnessed the destruction of her property, in the absence of any actual or apprehended physical injury, one that must necessarily fail as a matter of law? In the light of such illustrious precedents as Donoghue v Stevenson [1932] AC 562 and Dorset Yacht Co Ltd v Home Office [1970] AC 1004, questions such as this cannot be regarded as unsuitable for determination on, in effect, demurrer. But there is in this case a special feature to which I shall return, namely, a pre-existing relationship between the defendants as contractors and the plaintiff as occupant of a house in which they were working. I would be happier deciding even this legal question against a background of full and proven, rather than outline and assumed, facts. The second question is much more limited. It is whether on the facts pleaded it was reasonably foreseeable by the defendants that careless performance of their work might cause psychiatric damage to the plaintiff. This is a question of fact which, for reasons I shall give, cannot in my view be fairly decided at this stage… Since the defendants were working in the house where the plaintiff lived, it must have been obvious to them that she would be so closely and directly affected by their performance of their work that they ought reasonably to have her in contemplation as being so affected when they carried out the work. It is not, I think, contested that the defendants owed her a duty to take reasonable care to carry out the work so as to avoid damaging her home and property. But it is said that the defendants owed her no duty to take reasonable care to carry out the work so as to avoid causing her psychiatric damage. This analytical approach cannot, I think, be said to be wrong, but it seems to me to be preferable, where a duty of care undeniably exists, to treat the question as one of remoteness and ask whether the plaintiffs psychiatric damage is too remote to be recoverable because not reasonably foreseeable as a consequence of the defendant’s careless conduct.

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Non-Performance of a Contract The test of reasonable foreseeability is, as I understand, the same in both contexts, and the result should be the same on either approach. So the question in any case such as this, applying the ordinary test of remoteness in tort, is whether the defendant should reasonably have contemplated psychiatric damage to the plaintiff as a real, even if unlikely, result of careless conduct on his part… Whether the psychiatric damage suffered by this plaintiff as a result of the carelessness of the defendants was reasonably foreseeable is not something which can be decided as a question of law. In considering the present question of principle reasonable foreseeability must for the present be assumed in the plaintiff’s favour. So the question is whether, assuming everything else in the plaintiffs favour, this court should hold this claim to be bad in law because the mental or emotional trauma which precipitated the plaintiffs psychiatric damage was caused by her witnessing the destruction of her home and property rather than apprehending or witnessing personal injury or the consequences of personal injury. It is submitted, I think rightly, that this claim breaks new ground. No analogous claim has ever, to my knowledge, been upheld or even advanced. If, therefore, it were proper to erect a doctrinal boundary stone at the point which the onward march of recorded decisions has so far reached, we should answer the question of principle in the negative and dismiss the plaintiffs action, as the deputy judge did. But I should for my part erect the boundary stone with a strong presentiment that it would not be long before a case would arise so compelling on its facts as to cause the stone to be moved to a new and more distant resting place. The suggested boundary line is not, moreover, one that commends itself to me as either fair or convenient. Examples which arose in argument illustrate the point. Suppose, for example, that a scholar’s life’s work of research or composition were destroyed before his eyes as a result of a defendant’s careless conduct, causing the scholar to suffer reasonably foreseeable psychiatric damage. Or suppose that a householder returned home to find that his most cherished possessions had been destroyed through the carelessness of an intruder in starting a fire or leaving a tap running, causing reasonably foreseeable psychiatric damage to the owner. I do not think a legal principle which forbade recovery in these circumstances could be supported. The only policy argument relied on as justifying or requiring such a restriction was the need to prevent a proliferation of claims, the familiar floodgates argument. This is not an argument to be automatically discounted. But nor is it, I think, an argument which can claim a very impressive record of success. All depends on one’s judgment of the likely result of a particular extension of the law. I do not myself think that refusal by this court to lay down the legal principle for which the defendants contend, or (put positively) our acceptance that a claim such as the plaintiff’s may in principle succeed, will lead to a flood of claims or actions, let alone a flood of successful claims or actions. Insistence that psychiatric damage must be reasonably foreseeable, coupled with clear recognition that a plaintiff must prove psychiatric damage as I have defined it, and not merely grief, sorrow or emotional distress, will in my view enable the good sense of the judge to ensure, adopting Lord Wright’s language in Bourhill v Young [1943] AC 92, p

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Sourcebook on Obligations and Remedies 110, that the thing stops at the appropriate point. His good sense provides a better, because more flexible, mechanism of control than a necessarily arbitrary rule of law. I would therefore answer this broad question of principle in favour of the plaintiff… Dillon LJ:… The law has developed step by step and is still developing. In those circumstances I would be particularly reluctant to lay down any general rule as to the conditions in which such damages can or cannot be recovered as a matter of public policy… [A] great deal of difficulty which has been felt over the development of the law as to damages for ‘nervous shock’ has arisen in relation to what, in the terminology of the tort of negligence, is described as the question of proximity … But that difficulty does not arise in the present case because in the present case there is no problem of proximity. The defendants knew about the plaintiff … I can see no good reason why, in such a context, the law should have refused to allow her damages for ‘nervous shock’ if she could get over the hurdles of causation and foreseeability as an aspect of remoteness…

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Is Attia a contract case? If the fire had been caused, not by British Gas, but by lightning, do you think that the householder would have had to pay for the work done by British Gas even if the house had been completely destroyed? What if the cause of the fire was unexplained? Upon whom is the burden of proof? What if the householder, while at the office, had been informed by a neighbour that her house was on fire; would she still be entitled to damages for nervous shock? Does the law of property (possession) play a fundamental role in this case?

4 THE ROLE OF FAULT Principles of European Contract Law (Seep 516.) Vigers v Cook [1919] 2 KB 475 Court of Appeal (Seep 516.)

Notes and questions 1

The distinction between agreement and promise is to be found at the root of the problem of the role of fault in contract. In systems based on agreement, the normative dimension to non-performance is provided by 522

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fault (see above, p 389); accordingly, if the non-performance is due to factors that cannot be attributed to the fault of the non-performing party he has, prima facie, a defence (PECL, Art 8:108). Only if such a party has agreed to guarantee a particular result will the plaintiff be entitled to damages irrespective of fault. In English law, the normative dimension is provided by the notion of promise itself; thus, all that a contractor has, prima facie, to show in order in order to obtain damages for breach is a breach of promise. Whether or not the defendant is guilty of fault is, prima facie, irrelevant (Raineri v Miles [1981] AC 1050, p 1086). However, as Vigers indicates, the English position is not quite so simple. Could it not be said that the undertaker was unable to claim in debt because he could not prove he was not at fault? To what extent is debt based on fault? The position regarding fault in English contract law is not so simple because, although promise is a normative concept in itself, much will depend on what was actually promised. This problem has already been encountered under the heading of contractual liability (see p 389). In contracts where the object is a physical thing, the commercial supplier will usually be promising that the thing supplied will be reasonably fit and of satisfactory quality; if the goods are not fit, then there will be a breach of promise irrespective of the fault of the supplier (see Hyman v Nye, below, p 545, and Frost v Aylesbury Dairy, p 47). The supplier is liable because he is in breach of a promise now implied by statute (see the paradigm provision: Sale of Goods Act 1979, s 14, above, p 514). Where the object of the contract is a service rather than the supply of goods, a quite different promise is implied, as s 13 of the Supply of Goods and Services Act 1982 now makes clear (see p 391). A supplier of a service promises to carry out the service with reasonable care and skill. Accordingly, in order to show a breach of promise, the contractor suffering damage must show fault (that is, lack of reasonable care and skill). Is this the same requirement as for the tort of negligence? (Cf Attia, above.) Where fault is relevant, upon whom is the burden of proving fault? Joseph Constantine SS Ltd v Imperial Smelting Co Ltd [1942] AC 154 House of Lords This was an action for damages in contract brought by the hirers of a ship (the respondents) against its owners (the appellants). During the period of hire, the ship blew up for some unexplained reason. The Court of Appeal held that the owners could rely upon frustration only if they could prove that they were not at fault with regard to the explosion. The House of Lords allowed an appeal. Viscount Simon LC: My Lords, by a charterparty, dated 5 August 1936, the appellants, who were the owners of a steamship called The Kingswood, chartered the ship to agents for the respondents for a voyage with a cargo of ores and concentrates from Port Pirie in South Australia to Europe. The vessel 523

Sourcebook on Obligations and Remedies duly sailed for Port Pirie to load her cargo. On 3 January 1937, while she was anchored in the roads at Port Pirie, but before she became an ‘arrived ship’, there was an explosion of extreme violence in the neighbourhood of her auxiliary boiler, which caused such damage to the steamer that she could not perform the charterparty, and the appellants gave notice to the respondents to that effect. The respondents claim damages from the appellants, alleging that the latter have broken the charterparty by failing to load a cargo. The appellants set up the defence that the contract was ‘frustrated’ by the destructive consequences to the Kingswood of the explosion… After examining three principal theories which were suggested in evidence as possibly accounting for the disaster, the arbitrator declares himself unable to decide whether any one of them provided the true explanation, and he goes on to say that he is not satisfied that the direct cause of the disaster has as yet been suggested at all. His conclusion is that he was not satisfied that any of the servants of the appellants were guilty of negligence. On the other hand, neither was he satisfied that negligence on the part of the servants of the appellants did not cause or contribute to the disaster. It is this nicely balanced conclusion on the facts which provides the question of law which this House has now to decide. That question is whether, when parties have contracted in such circumstances as require a term to be implied in the contract that it shall be determined, and the mutual obligations of the parties discharged, by supervening destruction of essential subject matter of the contract, the party alleging frustration must prove affirmatively that the destruction has not been brought about by his own neglect or default. The charterers appealed to the Court of Appeal, which reversed Atkinson J’s decision. Scott LJ delivered the first judgment, with which the Master of the Rolls and Goddard LJ agreed. Scott LJ declared that this was a ‘very simple case’, and this view is no doubt the explanation of the fact that his judgment does not provide this House with the arguments or authorities which led the Court of Appeal to their conclusion. The only help your Lordships can get is the assertion by the learned Lord Justice that ‘a party prima facie guilty of a failure to perform his contract cannot escape under the plea of frustration, unless he proves that the frustration occurred without his default. There is no frustration in the legal sense unless he proves affirmatively that the cause was not brought into operation by his default.’ If this assertion is correct, it, of course, disposes of the case… The question to be answered is not, in my view, a very simple one, and it has not as yet, so far as I can discover, been the subject of direct decision. There is no doubt, of course, that… ‘self-induced’ frustration provides no defence… All this, however, is really beside the present point, for the question raised by the arbitrator’s award is not whether the defence of frustration fails if the frustration is proved to be ‘self-induced’ (Lord Sumner), or ‘due to the act or election of the party’ (Lord Wright), or, to use Scott LJ’s phrase, ‘brought into operation by his default’. The question here is where the onus of proof lies; that is, whether, when a supervening event has been proved which would, apart from the defendant’s ‘default’ put an end to the contract, and when at the end of the case no inference of ‘default’ exists and the evidence is equally consistent with either view, the defence fails because the defendant has not

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Non-Performance of a Contract established affirmatively that the supervening event was not due to his default. I may observe, in the first place, that, if this were correct, there must be many cases in which, although in truth frustration is complete and unavoidable, the defendant will be held liable because of his inability to prove a negative— in some cases, indeed, a whole series of negatives. Suppose that a vessel while on the high seas disappears completely during a storm. Can it be that the defence of frustration of the adventure depends on the owner’s ability to prove that all his servants on board were navigating the ship with adequate skill and that there was no ‘default’ which brought about the catastrophe? Suppose that a vessel in convoy is torpedoed by the enemy and sinks immediately with all hands. Does the application of the doctrine require that the owners should affirmatively prove that those on board were keeping a good look-out, were obscuring lights, were steering as directed, and so forth? There is no reported case which requires us so to hold. The doctrine on which the defence of frustration depends is nowhere so stated as to place this onus of proof on the party relying on it… In this connection, it is well to emphasise that when ‘frustration’ in the legal sense occurs, it does not merely provide one party with a defence in an action brought by the other. It kills the contract itself and discharges both parties automatically. The plaintiff sues for breach at a past date and the defendant pleads that at that date no contract existed. In this situation the plaintiff could only succeed if it were shown that the determination of the contract were due to the defendant’s ‘default’, and it would be a strange result if the party alleging this were not the party required to prove it… The point as to onus of proof is put very clearly in the third paragraph of Art 91 of Scrutton on Charterparties, 14th edn, p 297. See also, Carver on Carnage by Sea, 8th edn, s 78. The decision in The Northumbria involves the same conclusion. Another example, from the law of bailment, confirms this view. Assume a bailment of goods to be kept in a named warehouse with an express exception of loss by fire. Proof of destruction by fire would prima facie excuse the bailee. The bailor could counter by alleging either: (a) fire caused by the negligence of the bailee; or (b) goods when burnt were not stored in the agreed warehouse. But it would be for the bailor not only to allege but to prove either (a) or (b), though he might rely on facts proved or admitted by the bailee as establishing his proposition… I reach the conclusion that Atkinson J took the right view in this case, and that the Court of Appeal was mistaken in holding that once the frustration in fact was established and any inference of default alleged to arise from the fact that the ship was under the control of the appellants’ servants was negatived, it lay on the appellants to go further and satisfy the arbitrator positively that the frustration occurred without their default… For purposes of clearness and to avoid possible misunderstanding hereafter, I must add (though this is not necessary for the present decision) that I do not think that the ambit of ‘default’ as an element disabling the plea of frustration to prevail has as yet been precisely and finally determined. ‘Selfinduced’ frustration…involves deliberate choice, and those cases amount to

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Sourcebook on Obligations and Remedies saying that a man cannot ask to be excused by reason of frustration if he has purposely so acted as to bring it about. ‘Default’ is a much wider term and in many commercial cases dealing with frustration is treated as equivalent to negligence. Yet in cases of frustration of another class, arising in connection with a contract for personal performance, it has not, I think, been laid down that, if the personal incapacity is due to want of care, the plea fails. Some day it may have to be finally determined whether a prima donna is excused by complete loss of voice from an executory contract to sing if it is proved that her condition was caused by her carelessness in not changing her wet clothes after being out in the rain. The implied term in such a case may turn out to be that the fact of supervening physical incapacity dissolves the contract without inquiring further into its cause, provided, of course, that it has not been deliberately induced in order to get out of the engagement. I move that this appeal be allowed and that the order of Atkinson J be restored … Lord Wright:… There is another aspect of the doctrine of frustration which I find it difficult to reconcile with the decision of the Court of Appeal. Frustration operates automatically. It does not depend on the choice or election of the parties to the contract. If the court holds that the meaning of the contract is such that its life is dependent on the existence or continuance in existence of a thing or state of things, and then finds in fact that the frustrating circumstance has come to pass because the thing or state of things has not existed at the date of the contract or has ceased to exist at some later material date, it follows by operation of law that the contract was either void to begin with or has become avoided, to use the language of ss 5 and 6 of the Sale of Goods Act. This position must, accordingly, be distinguished from a somewhat analogous, but really quite different, position, which arises when a contract is terminated by the injured party, who rescinds it on the ground of a fundamental breach by the other party and who further claims damages for the breach while treating it as no longer binding for the future. Such a procedure involves a choice or option by the party who rescinds. But in the case of frustration, the contract is ended and dead, simply by the frustrating event. If the parties choose to go on with it, that is in truth entering into a new contract… The position of the parties ought to be determined at once, and an indefinite suspense avoided. But this result is just what the decision of the Court of Appeal would prevent, because, according to the decision, it cannot be known whether there has been frustration in a legal sense unless and until it is proved affirmatively by one party or the other that the frustration was not brought into operation by his default… I have tried to find authority for the rule enunciated by the Court of Appeal, but have found none either in English or American cases or in the writings of eminent legal authors. Cases in which the courts have refused to give relief on the ground of frustration because the frustration was due to the fault of the promisor or of either party, or have considered the question, are very rare in the English reports. In the vast majority of cases, questions of responsibility do not arise… But…it would be tempting to say that the more logical view might be that there are two elements to be considered: (1) impossibility or frustration

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Non-Performance of a Contract under the contract and the facts; and (2) the causation of that impossibility or frustration, whether or not it is imputable to the fault of either party. The question has generally been approached from the point of view of a party relying on frustration as an excuse for failure to perform his contract, and obviously if frustration means not only that performance has become impossible but that neither party is responsible, there can be no frustration in that sense unless both conditions are fulfilled. It is that definition which English law seems to have accepted, and I think the Court of Appeal must have proceeded on it. But I can conceive a case in which the injured party, instead of electing to rescind on the ground of the other party’s breach and claiming damages for a repudiation, might wish to rely on frustration as involving automatically the destruction of the contract and at the same time claim damages for the breach of contract which has frustrated and destroyed the contract, except so far as it remains alive to enforce rights accrued under it. So far as I know, such a case has never arisen but, logically, it might be open, if the authorities have not excluded it. This way of looking at the matter might explain the reference to the fault of either party instead of the fault of the party relying upon the doctrine, though ‘either party’ may simply mean ‘one party or the other, if either is responsible’. This view of the matter would obviously be fatal to the conclusion of the Court of Appeal, because there would then be two separate issues to be separately proved by the parties who severally raised the one or the other. But I do not desire to decide the question in this appeal on that debatable or untenable ground. The appeal can, I think, be decided according to the generally accepted view that frustration involves as one of its elements absence of fault, by applying the ordinary rules as to onus of proof. If frustration is viewed (as I think it can be) as analogous to an exception, since it is generally relied on as a defence to a claim for failure to perform a contract, the same rule will properly be applied to it as to the ordinary type of exceptions. The defence may be rebutted by proof of fault, but the onus of proving fault will rest on the plaintiff. This is merely to apply the familiar rule which is applied, for instance, where a carrier by sea relies on the exception of perils of the seas. If the goods owner then desires to rebut that prima facie defence on the ground of negligence or other fault on the part of the shipowner, it rests on the goods owner to establish the negligence or fault. Thus, on the view most favourable to the conclusion of the Court of Appeal I still reject it. In addition, the ordinary rule is that a man is not held guilty of fault unless fault is established and found by the court. This rule, which is sometimes described as the presumption of innocence, is no doubt peculiarly important in criminal cases or matters, but it is also true in civil disputes… It is clear that the rule which the Court of Appeal laid down would in many cases work serious injustice and nullify the beneficial operation of the doctrine of frustration which has been somewhat empirically evolved with the object of doing what is reasonable and fair, as I have already explained. That the rule adopted by the Court of Appeal is inconvenient seems to me to be obvious. It is true that in many cases of frustration there is little or no room for human

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Sourcebook on Obligations and Remedies activity. As instances, I might mention earthquakes and unusual floods. In other cases there is little room for intervention by the parties, such as in case of governmental requisition or the refusal of a licence. But it cannot be that in any of these cases the party claiming that the contract is frustrated has to prove affirmatively that he has not caused or induced the frustration. Where natural forces have operated there may still be room for inquiry, but, if a ship is lost with all hands in a cyclone, must the shipowners establish affirmatively that the master did not receive and ignore warnings of the danger area? There may be many maritime losses in which evidence how they happened is impossible. If a ship is torpedoed with all hands, must the shipowner prove affirmatively absence of fault, such as that a light was not shown on the ship or that the ship obeyed the convoy regulations? In any case of unexplained sinking it may be impossible to exclude the possibility of fault on the part of the owner, as in the case of Ajum Goolam. But, indeed, the present is a sufficiently good illustration of an unprecedented and unexplained casualty where the real cause cannot be ascertained even after prolonged and exhaustive inquiry. On the ruling of the Court of Appeal the shipowners have placed on them the unusual task of proving a negative. It is sought to say that the rule is not anomalous because of some other cases in which a party is required to prove a negative, but what are cited as parallels are so different and are so few in number as to emphasise the general rule. Thus, the law as to the liability of a bailee depends on the special obligation which the law has imposed on him from ancient times. It has recently been discussed by the Court of Appeal in Brooks Wharf v Goodman. If the bailee fails duly to redeliver the goods, he must, in the absence of exceptions, show that he has taken reasonable care in keeping them. Similarly, the liability of a common carrier depends, according to the old law, on the custom of the realm, like that of the innkeeper. Under this special rule a carrier is an insurer who is absolutely liable for the safe carriage of the goods unless he can explain the loss as due to the act of God, the King’s enemies, or inherent vice. In modern times the practice of having special contracts has been superimposed on the custom of the realm. These contracts contain exceptions. If the carrier pleads an exception, the goods owner may counter by pleading the fault of the carrier, but the onus of proving that, as also of proving an allegation of unseaworthiness, is, as I have already explained, on the goods owner who makes it… In my opinion, this is a case in which it is found that there has been an unexplained casualty frustrating the contract. The real cause cannot be ascertained. No fault is shown against the appellants. I think that they are entitled to rely on the frustration as a defence to the claim. The judgment of the Court of Appeal should, in my opinion, be set aside, and that of Atkinson J restored. Lord Porter:… The true principle seems to be, not that all contracts must prima facie be performed whether performance be possible or not but that there are some contracts absolute in their nature where the promisor warrants the possibility of performance. These he is bound to perform in any event or to pay damages, but there are other cases where the promisor is only obliged to perform if he can. In a contract for personal performance where he dies, or in certain other cases where the subject matter of the contract is destroyed, he

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Non-Performance of a Contract cannot implement his promise. In such cases he is excused unless he be in fault. Of course, if he is in fault because his deliberate act has done away with the subject matter of the contract, and, perhaps, if he has been negligent, he cannot recover. But prima facie he escapes. To make him liable, his fault must be proved by the party which alleges that it destroys his excuse. It has, I think, long been recognised that a particular contract may or may not impose an absolute undertaking on the promisor… Where the promisor makes an absolute promise he takes the risk of his ability to fulfil his contract and must do so or pay damages. No question of frustration does or can arise. Whatever occurs the promisor is bound. The very fact, however, that in certain cases impossibility of performance is an excuse shows that in those cases there is no absolute promise. It is conditional on something, ie, the possibility of performance. If, then, in certain contracts the promisor need only fulfil his obligations if performance be possible and this be such a contract, there seems no valid reason for imposing on him the obligation of proving his innocence of fault. In truth, the words ‘without default on either side’ are not used for the purpose of establishing what has to be proved by either party. Rather they are necessarily inserted to limit the cases to which the doctrine of frustration applies. If a party be in fault the doctrine is not to be invoked by him. If he is not in fault, it may be. But they have no bearing on the onus of proof. They qualify the doctrine; they do not impose on the party seeking to be excused the necessity of proving want of fault either in himself or in his opponent… I have thought it unnecessary to trouble your Lordships with a discussion of the question whether a contractor should be held liable in a case where the impossibility on which he relies was due to his negligence only or whether some more deliberate act is required if the plea is to be defeated… A contractor who negligently destroys the subject matter of the contract is not free from blame and in some cases may not be within the exception ‘without default’ as used in the cases, but I prefer to leave the question for determination until it comes directly in issue. For the reasons I have stated I would allow the appeal.

Questions 1 2 3 4 5 6

Does this decision conflict with the rules laid down in the PECL? Is this decision still good law after Davis Contractors v Fareham UDC (p 593)? Is not the hirer of a ship under an absolute duty to supply a seaworthy vessel? Are charterparty contracts different from other kinds of contract? If a ship sinks for some unexplained reason, is a court entitled to assume that it has sunk because it was unseaworthy? Does the ratio decidendi of Joseph Constantine apply to the hire of things other than ships?

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Sourcebook on Obligations and Remedies Reed v Dean [1949] 1 KB 188 King’s Bench Division This was an action for damages by the hirers of a motor launch who had suffered injury and loss when the boat caught fire. Lewis J:… In my view, the present case is governed by cases like Hyman v Nye and Jones v Page. Where a vessel or other thing is hired there is an implied term that the vessel or thing hired shall be as fit for the purpose as reasonable care and skill can make it. In my view the plaintiffs are right in saying that that term was implied in the present contract. But it has been argued that the fact that The Golden Age caught fire does not of necessity show that it was not fit for the purpose for which it was hired. I think I am entitled to say that, when a motor launch catches fire, apparently for an entirely unexplained cause, there is a presumption that the launch was not reasonably fit for that purpose. The evidence was that the launch, including the engine, was in perfect condition at the commencement of the hire, except that there was evidence that when the engine was cold the device known as ‘tickling the carburettor’ was necessary, and that that caused a certain amount of petrol to flow outside the engine into the bilge. It is quite clear that there was a leak of petrol somewhere or somehow. This engine caught fire and, in my view, it is necessary for the defendants to satisfy me that it was not through any fault of theirs. I do not think that the admission by the plaintiff husband to the fireman that he might have spilt some petrol was sufficient to rebut the presumption that there was something wrong with the engine, as is proved by the fact that it caught fire, and the defendant has not discharged the onus of showing that the fire was not caused through any deficiency in the engine. One other matter has caused me considerable anxiety. There was no form of fire appliance on this vessel, except an extinguisher which was useless. It was argued for the plaintiffs that proper fire-fighting equipment was part of the necessary equipment of a motor launch, that failure to provide such equipment was a breach of the implied warranty of fitness and that the fact that The Golden Age had no proper fire-fighting appliances was therefore a breach of the implied warranty. I was not referred by counsel to any authority directly on the point as to whether the implied warranty of fitness, where there is one, requires that a vessel shall be provided with equipment that is unnecessary to make it go or with equipment such as any reasonable person would supply in order that the vessel should be safe. I do not know; I have tried to find whether there is any such authority and my researches have failed to find any case immediately in point. I venture to suggest that in the case of a ship or motor launch one knows that one of the essentials of the vessel is to have lights. The lights do not assist in making the vessel go, but I should be very much surprised to learn that a vessel which was hired out to be sent to sea without any port or starboard lights was as fit as reasonable care and skill could make it for the purpose for which it was hired. I hold therefore that the defendant was under an implied obligation to make The Golden Age as reasonably safe as care and skill could make it, that that obligation included an obligation to provide fire-fighting equipment and that one of the causes of the loss that the plaintiffs have suffered was the failure by him to provide efficient fire-fighting equipment. There will therefore be judgment for the plaintiffs.

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Non-Performance of a Contract

Questions 1

2 3 4 5

This modest case is possibly more important than it looks, in that it goes some way to tackling a problem exposed in the decision of Joseph Constantine SS Ltd v Imperial Smelting Corp.n Why could the owners of the motor launch not plead frustration? Could frustration be an effective defence in situations where a consumer product explodes for some unexplained reason? Would the owner of the motor launch be entitled to the hire fee up to the moment the boat sank? Has this decision been modified by the Supply of Goods and Services Act 1982? Could the defendants have raised the defence of contributory negligence? Does reasoning by analogy play an important role in Lewis J’s decision? Heil v Hedges [1951] 1 TLR 512 King’s Bench Division

The claimant consumed a pork chop for lunch that had only been partly cooked by her maid and she suffered trichinosis as a result. The claimant unsuccessfully brought an action for damages against the butcher who had sold the pork, claiming that the chop was neither of merchantable quality nor reasonably fit for its purpose. McNair J:… The next question is whether the defendant was in breach of the implied condition of reasonable fitness and merchantability under s 14…of the Sale of Goods Act 1893. I have already stated that the evidence satisfies me that if pork infested with trichinella is subjected to a temperature of 131 °F, or on a more conservative estimate 137 °F, the trichinella is killed and the pork is innocuous. I am also satisfied on the evidence called by the defendant that it is common knowledge among the general public, as distinct from experts in nutrition and dietectics, that pork should be cooked substantially longer than other meat, given the same temperature, and that the proper way to cook pork is to cook it until it is white. A well qualified witness called by the defendant told me that she had consulted 40 or 50 cookery books on the subject and that they were all to the same effect. She had also, by way of reinforcing her view, asked a number of housewives of humble station as to their views, and they had unanimously formed the view which she had formed. In these circumstances it seems to me that, so far as trichinella spiralis is concerned, the implied condition of fitness or merchantability is complied with if the pork, when supplied, is in such condition that if properly cooked according to accepted standards it is innocuous… It being the common contemplation of the parties that the pork will be cooked before consumption, it seems to me that the implied condition must be applied in relation to pork which is not only cooked but properly cooked according to accepted standards. In my opinion, on the facts, it is plain that the pork in question in this case was not properly cooked according to accepted and 531

Sourcebook on Obligations and Remedies known standards, but was fit for human consumption and merchantable if so cooked. Accordingly, in my judgment, the plaintiff’s allegation that the implied conditions of fitness and merchantability were broken fails. If liability had been established, I should have assessed the damages recoverable at £209 6s 10d in respect of special damage and £750 as general damages, but as I have taken the view that no liability is established there will be judgment for the defendant.

Questions 1 2 3

If the meat had been lamb, rather than pork, would the result have been different? What about beef? Is this decision confined (a) to meat; (b) to food; or (c) to products? Will this decision apply to eggs purchased in the UK? In other words, is a consumer under a duty not to eat raw or undercooked eggs? And, if a consumer who eats such eggs suffers salmonella food poisoning, could he or she sue for damages for breach of s 14 of the Sale of Goods Act 1979? Ingham v Ernes [1955] 2 QB 366 Court of Appeal This was an action for damages brought by a customer, Mrs Ingham, against ‘Maison Ernes’, a ladies’ hairdressers in Godalming. Mrs Ingham had gone to the hairdressers to have her hair dyed by the use of a product called Inecto, a preparation known to be dangerous in some cases, but she had failed to disclose to the hairdressers that she had suffered acute dermatitis when Inecto had been used on her some seven years previously. This second use of the product again caused dermatitis, but the Court of Appeal rejected the damages claim. Denning LJ:… The difficulty that I have felt is that this looks like a plea of contributory negligence, or a plea that Mrs Ingham was the author of her own misfortune; and that has never been pleaded or found. But I think the same result is reached by saying that the implied term as to fitness is dependent on proper disclosure by the customer of any relevant peculiarities known to her, and in particular of the fact that she knew by experience that Inecto might have a bad effect on her. The way this result is reached in law is this: in a contract for work and materials (such as the present) there is an implied term that the materials are reasonably fit for the purpose for which they are required: see Myers v Brent Cross Service Co. This term is analogous to the corresponding term in the sale of goods: see Stewart v Reavell’s Garage. In order for the implied term to arise, however, the customer must make known to the contractor expressly or by implication the ‘particular purpose’ for which the materials are required so as to show that he relies on the contractor’s skill or judgment. The particular purpose in this case was to dye the hair, not of a normal person, but of a person known to be allergic to Inecto. Mrs Ingham did not make that particular purpose known to the assistant. She cannot therefore recover on the implied term…

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Notes and questions 1

2 3

4 5

It can easily be forgotten that it is a fundamental principle of the law of obligations that the breach of the obligation must be the cause of the claimant’s damage. Contributory negligence, as we have seen (Chapter 3), is simply one device for dealing with difficult causal problems. In Ingham v Ernes, did the claimant fail because the hairdresser was not the factual cause of the claimant’s dermatitis? What if the claimant had forgotten that she was allergic to Inecto? What if the claimant had suffered the dermatitis for the first time at the defendants’ salon but could not actually prove beyond doubt that Inecto causes dermatitis; she could prove only that there was a 50% chance that her illness was caused by the product? Is a person with a bad cold or flu under a duty to disclose to the hairdresser that they have such an illness? If not, why not? What if a hairdresser accidentally cuts the ear off a customer after having been startled by a car backfiring in the street outside?

5 CONTRACTUAL LIABILITY FOR PEOPLE Poole v Smith’s Car Sales (Balham) Ltd [1962] 1WLR 744 Court of Appeal This was a successful action in debt by one car dealer against another for the price of a car. The vehicle had been transferred by the plaintiff to the defendants with a view to the latter selling it to one of their customers for £325. Subsequently, the plaintiffs, without success, asked for the return of the vehicle and it was only after a final demand that the car was returned in a very bad condition. It seemed that this damage had been caused by two of the defendants’ employees who had used the car without permission. Willmer LJ:… Had the defendants returned the car within a reasonable time, and had the plaintiff then refused to accept it because of the damage it had sustained, I think a really interesting question could have arisen. Our attention has been called to Elphick v Barnes which shows that where goods delivered under a sale or return contract are lost or damaged without default on the part of the defendant, the plaintiff cannot maintain an action for the price so long as the stipulated time or a reasonable time has not elapsed. For the party to whom the goods are delivered is not an insurer. I accept that. Such party would doubtless be liable in the event of loss or damage occurring through his fault while the goods are in his possession, but not if the damage occurred without any fault on his part. Had the defendants returned this car within a reasonable time in its damaged condition, it would at least have been open to them to contend that the damage was caused by no fault on their part, and that, accordingly, the plaintiff, on the principle of Elphick v Barnes, would be bound to accept the return of the car. But that could only be

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Sourcebook on Obligations and Remedies on the basis that the property had never passed under rule 4(b). On the view to which we have come in this case, however, this very interesting question does not, in my judgment, arise. I think that the plaintiff is entitled to recover, quite regardless of the fact of the car having been damaged, on the basis that a reasonable time had elapsed, so that the property had passed to the defendants. Accordingly, the contract price of £325 was, in my judgment, payable. I would allow the appeal.

Questions 1

2

This case once again illustrates the important difference between debt and damages. The defendant can be liable in contractual debt only if property in the goods (the car) had passed to him. Yet is not the prospective purchaser a bailee of the car on sale or return, and would not the defendant be liable in damages? Might he be liable in trespass or conversion for the value of the car? Could the defendant garage have claimed that they were not responsible for the acts of the employees who used the car without authority? Could the plaintiffs have sued the employees for (a) debt and/or (b) damages? Could the defendant garage have recovered the cost of the car from one or both of the employees? Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 House of Lords This was an action in damages and/or debt by an insurance company, subrogated to the rights of an assured employer, against an employee who had negligently injured a fellow employee. The fellow employee had obtained damages, paid by the insurance company, on the basis that the employer was vicariously liable for the fault of its employee. The insurance company based its claims on breach of an implied term of the employee’s contract of employment (damages) and/or on statutory rights of contribution and indemnity (debt). A majority of the House of Lords gave judgment for the insurance company. Viscount Simonds:… [referring to Denning LJ’s dissenting judgment in the Court of Appeal]… [H]e says: This shows that there is an implied term in these cases whereby, if the employer is insured, he will not seek to recover contribution or indemnity from the servant.’ It will be observed that the implied term which thus commended itself to the learned Lord Justice is limited in its scope. The driver is to be relieved from liability if his master is covered by insurance against the claim. If he is not covered, for instance, because the accident takes place not on a road but on private premises and the law does not require him to insure against such a risk, and he has not done so, then under this plea the driver must bear the consequences of his negligence if he is himself sued. This consideration led counsel to yet another variation of the plea. This was that the driver was entitled to be indemnified not only if the employer was in fact insured or

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Non-Performance of a Contract was required by law to be insured, but also if he ought, as a reasonable and prudent man, to have been insured against the risk in question… My Lords, undoubtedly there are formidable obstacles in the path of the appellant… First, it is urged that it must be irrelevant to the right of the master to sue his servant for breach of duty that the master is insured against its consequences. As a general proposition it has not, I think, been questioned for nearly 200 years that in determining the rights inter se of A and B the fact that one or other of them is insured is to be disregarded… And this general proposition no doubt applies if A is a master and B his man. But its application to a case or class of case must yield to an express or implied term to the contrary, and, as the question is whether that term should be implied, I am not constrained by an assertion of the general proposition to deny the possible exception. Yet I cannot wholly ignore a principle so widely applicable as that a man insures at his own expense for his own benefit and does not thereby suffer any derogation of his rights against another man… Here, it was said, was a duty alleged to arise out of the relation of master and servant in this special sphere of employment which was imposed by the common law. When, then, did it first arise? Not, surely, when the first country squire exchanged his carriage and horses for a motor car or the first haulage contractor bought a motor lorry. Was it when the practice of insurers against third party risk became so common that it was to be expected of the reasonable man or was it only when the Act of 1930 made compulsory and therefore universal what had previously been reasonable and usual?… It was contended, too, that a term should not be implied by law of which the social consequences would be harmful. The common law demands that the servant should exercise his proper skill and care in the performance of his duty: the graver the consequences of any dereliction, the more important it is that the sanction which the law imposes should be maintained. That sanction is that he should be liable in damages to his master: Other sanctions there may be, dismissal perhaps and loss of character and difficulty of getting fresh employment, but an action for damages, whether for tort or for breach of contract, has, even if rarely used, for centuries been available to the master, and now to grant the servant immunity from such an action would tend to create a feeling of irresponsibility in a class of persons from whom, perhaps more than any other, constant vigilance is owed to the community… Lord Radcliffe (dissenting):… Now, the insurance policy required [by the Road Traffic Act 1930] could not come into existence of its own motion. One of the two parties, employer and employed, had to assume responsibility for taking it out or keeping it running and for paying up the necessary premiums to buy the cover. To which of them ought we to attribute that responsibility, having regard to the relationship of the parties? In my view, to the employer. I cannot suppose that, short of special stipulation, any other answer would be given in such a case… Then it is sought to show that the term in question cannot exist in law because it has never been heard of before this case. When did it first enter into the relations of employer and employed? Could it really have existed since the Road Traffic Act 1930, if it did not exist before it? My Lords, I do not know because I do not think that I need to know. After all we need not speak of the 535

Sourcebook on Obligations and Remedies master’s action against his servant for negligence as if it had been common fare at the law for centuries. Economic reasons alone would have made the action a rarity. If such actions are now to be the usual practice I think it neither too soon nor too late to examine afresh some of their implications in a society which has been almost revolutionised by the growth of all forms of insurance… Lord Sornerville (dissenting):… Romer LJ [in the Court of Appeal], at the end of his judgment said that it was not in the public interest that drivers should be immune from the financial consequences of their negligence. The public interest has for long tolerated owners being so immune, and it would, I think, be unreasonable if it was to discriminate against those who earned their living by driving. Both are subject to the sanction of the criminal law as to careless or dangerous driving. The driver has a further sanction in that accidents causing damage are likely to hinder his advancement…

Questions 1

2

3

4

5

Is there an implied term in a contract of employment that, in the case of an employee working abroad in a country where there is no compulsory driving insurance, an employer will make sure the employee is covered by an insurance policy? If not, is there at least a duty to warn the employee of the insurance position? (Cf Reid v Rush and Tompkins plc [1990] 1 WLR 212.) In French law, a judge must search for the real intention of the parties and, in case of ambiguity, must find for the debtor rather than the creditor (CC, Art 1156). If this principle had been applied in Lister, would the result have had to be different? What if Art 5:101, etc, of the PECL had been applicable? Research appears to show that drivers make one mistake about every two minutes. Does this mean that commercial drivers are in constant breach of contract? Should a judge with shares in an insurance company sit in judgment on cases involving, directly or indirectly, insurance companies? (Cf R v Bow Street Magistrate ex p Pinochet (No 2) [1999] 2 WLR 272.) This extraordinary, and rightly much criticised, decision illustrates what can happen when attention is not carefully given to each institution in play (person, thing and action) together with the role of each category (tort, contract and equity). Of course, the majority ought to have considered the reality of the insurance position and Viscount Simonds’ reasoning seems a bit daft by today’s standards (although cf Reid v Rush and Tompkins plc [1990] 1 WLR 212). Nevertheless, if the majority had focused just on the equitable remedy of subrogation they, like Lord Denning MR in a later case, could have arrived at a different result without having to admit, as such, insurance into the law of tort (cf Morris v Ford Motor Co Ltd [1973] 1 QB 782). Ought subrogation to have been available to the insurance company? Were they not paid to carry the risk of motor accidents? Perhaps 536

Non-Performance of a Contract

the absence of a third category in the law of obligations is partly to blame: for categories allow jurists to think about the roles of each subject and the role of restitution is to prevent unjust enrichment. Allowing an insurance company to recover an indemnity from an employee via the equitable remedy of subrogation is to undermine the role of equity and the law of tort at one and the same time. Equally, it undermines the law of contract, because the implied term is contrary to anything that employees would have ever agreed to (as insurance companies recognised). It is often said that hard cases make bad law, but might it not be better to say that bad lawyers make bad law? Keppel Bus Co Ltd v Sa’ad bin Ahmad [1974] 2 All ER 700 Privy Council This was an action for damages brought against a bus company in respect of personal injuries suffered by a passenger when he was assaulted by an angry bus conductor. The Singapore Court of Appeal held the company liable, but this decision was reversed by the Privy Council. Lord Kilbrandon:… The question in the case is whether the conductor did what he did ‘in the course of his employment’. The course of the employment is not limited to the obligations which lie on an employee in virtue of his contract of service. It extends to acts done on the implied authority of the master. In Poland v John Parr and Sons a carter, who had handed over his wagon and was going home to his dinner, struck a boy whom he suspected, wrongly but on reasonable grounds, of stealing his master’s property. The master was held liable for the consequences, since a servant has implied authority, at least in an emergency, to protect his master’s property… There is no dispute about the law. The Court of Appeal relied on the well known passage from Salmond on Torts which was approved in Canadian Pacific Railway Co v Lockhart; it is not necessary to repeat it. The Court of Appeal rightly point out that the question in every case is whether on the facts the act done, albeit unauthorised and unlawful, is done in the course of the employment; that question is itself a question of fact… It is necessary, accordingly, in the present appeal to examine the grounds on which the learned judge held that, on the facts, this assault was committed in the course of carrying out, by a wrong mode, work which the conductor was expressly or impliedly authorised and therefore employed to do, and to see whether there is any evidence to support them. If there be no evidence, it is a matter of law that his conclusions could not stand… On the facts as found by the learned judge, and after examining, with the assistance of learned counsel, the testimony of those witnesses whom the judge accepted as credible, their Lordships are unable to find any evidence which, if it had been under the consideration of a jury, could have supported a verdict for the respondent. It may be accepted that the keeping of order among the passengers is part of the duties of a conductor. But there was no evidence of disorder among the passengers at the time of the assault. The only sign of disorder was that the conductor had gratuitously insulted the respondent, and the respondent had asked him in an orderly manner not to 537

Sourcebook on Obligations and Remedies do it again… Their Lordships are of opinion that no facts have been proved from which it could be properly inferred that there was present in that bus an emergency situation, calling for forcible action, justifiable on any express or implied authority, with which the appellants could be said on the evidence to have clothed the conductor. A similar criticism can be levelled at the second ground on which the learned judge found that the conductor was acting under authority. There is no evidence that the respondent was interfering with the conductor in his due performance of his duty. His interference, if so it could be described, was a protest against the conductor’s insulting language. Insults to passengers are not part of the due performance of a conductor’s duty, as the learned judge seems to recognise in the paragraph of his judgment which follows. The function of a bus conductor, from which could be deduced the scope of the authority committed to him, was attractively put by counsel for the respondent as ‘managing the bus’; it was said that what he did arose out of that power and duty of management. But this concept, it seems, if pushed to its extremes could serve to bring anything which the conductor did during his employment within the class of things done in the course of it. There must be room for some distinction between the acts of a manager, however foreign to his authority, and acts of management, properly so called. Probably, this way of putting the case is fundamentally no different from that which the learned trial judge adopted and their Lordships reject, because there is no evidence of circumstances which would suggest that what the manager actually did was, although wrongful, within the scope of his authority, express or implied, and thus an act of management…

Questions 1 2 3

4

5

Is this a contract case? If not, why not? Were the defendants guilty of a breach of contract? Do bus companies make promises to passengers? If so, what are these promises? Did the defendants escape liability because they were not, themselves, at fault? What if they had had evidence that the bus conductor could be violent on occasions? Do you think that it is an affront to common sense, as a leading English law professor (with a great knowledge of French law) once argued, that because the bus conductor’s behaviour was worse than merely careless, the company should not be liable? What if the bus conductor had, while the driver of the bus was having a cup of tea, driven off the bus himself and had knocked down a pedestrian: would the bus company be liable to the pedestrian? (Cf Topp v London Country Bus Ltd [1993] 1 WLR 976.) Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 Privy Council This was an action for damages in contract and in negligence brought by a mother in respect of her daughter’s death during a package holiday in China 538

Non-Performance of a Contract offered by the first defendant travel company. The death resulted from a speedboat accident caused by the negligence of the driver, an employee of the third defendant owners of the boat who had volunteered to take the group across the lake. And the question arose as to whether the first defendant (the travel company), in addition to the other defendants, was to be liable for this death. The Privy Council held that the first defendant was to be liable. Lord Slynn:… There are of course many contracts under which a person agrees to supply services when he may arrange for his obligations to be performed by others, and where it is indeed contemplated that he will do so… The fact that the supplier of services may under the contract arrange for some or all of them to be performed by others does not absolve the supplier from his contractual obligation. He may be liable if the service is performed without the exercise of due care and skill on the part of the sub-contractor just as he would be liable if the sub-contractor failed to provide the service or failed to provide it in accordance with the terms of the contract. The obligation undertaken is thus, if the person undertaking to supply the services performs them himself, that he will do so with reasonable skill and care, and that if, where the contract permits him to do so, he arranges for others to supply the services, that they will be supplied with reasonable skill and care (see Chitty on Contracts, 27th edn, 1994, pp 987–88, paras 19–046 and 19–047). The distinction between the two categories of case—where the party agrees merely as agent to arrange for services to be provided and where he undertakes to supply the services—is drawn in Craven v Strand Holidays (Canada) Ltd (1982) 40 OR (2d) 186; 142 DLR (3d) 31… It is…clear that the fact that it is known that another person will or may perform the services or part of them does not mean that the contract is one of agency. In each case it has to be asked as a matter of construction into which category the contract falls. This may not always be easy… [Lord Slynn then discussed Stewart v Reavell’s Garage [1952] 2 QB 545; Rogers v Night Riders (A Firm) [1983] RTR 324; Jarvis v Swans Tours Ltd [1973] QB 233; and Wilson v Best Travel Ltd [1993] 1 All ER 353, p 356; Wall v Silver Wing Surface Arrangements Ltd, unreported.] It was clearly always the first defendant’s intention that parts of the package tour would be carried out by others and, in particular, in their respective spheres, by the second and third defendants. [The daughter] and her colleagues may have appreciated that someone other than the first defendant would carry out some parts of the tour. That does not, however, conclude the question. It still has to be considered whether the first defendant was in reality doing no more than ‘arranging’ the tour so that they undertook no liability for any default by those providing the goods and services or, at most, a liability to take reasonable care in the selection of those who provided the services. In the present case there are in the terms of the brochure, which are treated as part of the contractual arrangements, no clear statements that the first defendant was doing no more than arranging the tour as agent for the travellers. The heading of the brochure ‘Kwan Kin Travel Tours—everything more comprehensively and thoughtfully worked out’ gives some indication that it 539

Sourcebook on Obligations and Remedies is the first defendant who has undertaken the task of supplying the package tours. Throughout the detailed itinerary it is always ‘we’ who will do things— board the bus, go for lunch, live in the hotel. Their Lordships do not think ‘we’ is to be read simply as referring to the customers—that is, in an attempt to lay the foundation for a friendly atmosphere on the tours, ‘we’ includes the company offering the tour and integrates the company into each stage of the tour… Taking the contract as a whole their Lordships consider that the first defendant here undertook to provide and not merely to arrange all the services included in the programme, even if some activities were to be carried out by others… In their Lordships’ view, it was an implied term of the contract that those services would be carried out with reasonable skill and care. That term does not mean, to use the words of Hodgson J in Wall v Silver Wing Surface Arrangements Ltd, that the first defendant undertook an obligation to ensure ‘the safety of all the components of the package’. The plaintiff’s claim does not amount to an implied term that her daughter would be reasonably safe. It is a term simply that reasonable skill and care would be used in rendering the services to be provided under the contract. The trip across the lake was clearly not carried out with reasonable skill and care in that no steps were taken to see that the driver of the speedboat was of reasonable competence and experience and the first defendant is liable for such breach of contract as found by the trial judge. Their Lordships of course appreciate the desire of the Court of Appeal to avoid imposing a burden which is ‘intolerable’ on package tour operators. It must, however, be borne in mind that the tour operator has the opportunity to seek to protect himself against claims made against him in respect of services performed by others by negotiating suitable contractual terms with those who are to perform those services. He may also provide insurance cover. He may include an appropriate exemption clause in his contract with the traveller. It also has to be borne in mind, in considering what is ‘tolerable’ or reasonable between the parties, that a traveller in the position of [the daughter] could have no influence on the terms negotiated by the tour operator with third parties, and if injured by their lack of care would, if having no right against the package tour operator, be obliged to pursue a claim in a foreign country. The difficulty involved in doing so does not need to be elaborated. In considering what is or is not tolerable as between traveller and tour operator it is of some relevance to note the Package Travel, Package Holidays and Package Tours Regulations 1992 SI 1992/3288, made pursuant to Council Directive EC 90/314. [Lord Slynn then quoted s 15 of the Regulations.]… These terms do not of course apply to the present contract but they do throw some light on the contention that an unreasonable burden would be imposed if the contract were held to contain a term that reasonable skill and care would be used. Their Lordships are satisfied that in the present case such a term was to be implied in respect of the services provided, and, to quote Cockburn CJ in British Waggon Co v Lea and Co (1880) 5 QBD 149, p 154, whether the work ‘is done by the immediate party to the contract, or by someone on his behalf. Their Lordships accordingly conclude that, if the tour operator agrees that services will be supplied, whether by him or others on his behalf, to 540

Non-Performance of a Contract imply a term that those services will be carried out with reasonable skill and care is not imposing on the tour operator a burden which is ‘intolerable’, as the Court of Appeal thought. Nor is it wholly unreasonable, as Hodgson J thought in Wall v Silver Wing Surface Arrangements Ltd. It was not pleaded in the defence that cl 1 of the brochure constituted a valid exemption clause upon which the first defendant could rely. The judge refused the late application to amend to plead that clause. There was no appeal to the Court of Appeal from that refusal (perhaps because the judge indicated that he thought that ‘the clause is couched in vague and unsatisfactory terms’) and the point was not raised before their Lordships’ Board. Nor has any question been raised as to the amount of damages found by the trial judge…

Questions 1

2 3 4 5

What if the driver of the speedboat had assaulted the daughter and thrown her overboard; would the tour operator have been liable? (Cf Keppel Bus Co v Ahmad, above.) Was the term implied in the contract because it was reasonable to imply it? Or was it implied because it represented the intention of the parties? Could the tour operator sue the owners and/or driver of the speedboat? Why did the tour operator not claim that clause 1 of the brochure prevented the relevant term being implied? French lawyers sometimes talk of an obligation of security which transcends the contract and tort division: is Wong Mee an obligation of security case? Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 House of Lords (See also p 552.) Lord Wilberforce: My Lords, this appeal arises from the destruction by fire of the respondents’ factory involving loss and damage agreed to amount to £615,000. The question is whether the appellant is liable to the respondents for this sum… The duty of Securicor was, as stated, to provide a service. There must be implied an obligation to use due care in selecting their patrolmen, to take care of the keys and, I would think, to operate the service with due and proper regard to the safety and security of the premises. The breach of duty committed by Securicor lay in a failure to discharge this latter obligation. Alternatively it could be put upon a vicarious responsibility for the wrongful act of Musgrove—viz, starting a fire on the premises: Securicor would be responsible for this upon the principle stated in Morris v CW Martin Sons Ltd [1966] 1 QB 716, p 739. This being the breach, does condition 1 apply? It is drafted in strong terms, ‘Under no circumstances’…‘any injurious act or default by any employee’. These words have to be approached with the aid of the cardinal rules of construction that they must be read contra proferentem and that, in order to escape from the consequences of one’s own wrongdoing, 541

Sourcebook on Obligations and Remedies or that of one’s servant, clear words are necessary. I think that these words are clear. The respondents in facts relied upon them for an argument that since they exempted from negligence they must be taken as not exempting from the consequence of deliberate acts. But this is a perversion of the rule that if a clause can cover something other than negligence, it will not be applied to negligence. Whether, in addition to negligence, it covers other, for example deliberate, acts, remains a matter of construction requiring, of course, clear words. I am of opinion that it does, and being free to construe and apply the clause, I must hold that liability is excluded. On this part of the case I agree with the judge and adopt his reasons for judgment. I would allow the appeal. Lord Diplock:… My Lords, it is characteristic of commercial contracts, nearly all of which today are entered into not by natural legal persons, but by fictitious ones, that is, companies, that the parties promise to one another that some thing will be done; for instance, that property and possession of goods will be transferred, that goods will be carried by ship from one port to another, that a building will be constructed in accordance with agreed plans, that services of a particular kind will be provided. Such a contract is the source of primary legal obligations upon each party to it to procure that whatever he has promised will be done is done. (I leave aside arbitration clauses which do not come into operation until a party to the contract claims that a primary obligation has not been observed.) Where what is promised will be done involves the doing of a physical act, performance of the promise necessitates procuring a natural person to do it; but the legal relationship between the promisor and the natural person by whom the act is done, whether it is that of master and servant, or principal and agent, or of parties to an independent subcontract, is generally irrelevant. If that person fails to do it in the manner in which the promisor has promised to procure it to be done, as, for instance, with reasonable skill and care, the promisor has failed to fulfil his own primary obligation. This is to be distinguished from Vicarious liability’—a legal concept which does depend upon the existence of a particular legal relationship between the natural person by whom a tortious act was done and the person sought to be made vicariously liable for it. In the interests of clarity the expression should, in my view, be confined to liability for tort… Lord Salmon:… No one has suggested that Securicor could have foreseen or avoided by due diligence the act or default which caused the damage or that Securicor had been negligent in employing or supervising Musgrove. The contract between the two parties provided that Securicor should supply a patrol service at Photo Production’s factory by four visits a night for seven nights a week and two visits every Saturday afternoon and four day visits every Sunday. The contract provided that for this service, Securicor should be paid £8 15s a week. There can be no doubt that but for the clause in the contract which I have recited, Securicor would have been liable for the damage which was caused by their servant, Musgrove, whilst indubitably acting in the course of his employment: Morris v CW Martin Sons Ltd [1966] 1 QB 716…

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Questions 1 2

3

If the Keppel Bus Co case arose today, would the result be different? Lord Diplock says that vicarious liability must be confined to tort. Does this mean that, when a victim sues a company in contract, the course of employment rule is irrelevant? Could Photo Production have sued Securicor in trespass?

6 CONTRACTUAL LIABILITY FOR THINGS Readhead v Midland Railway Co (1869) LR 4 QB 379 Court of Exchequer Chamber Montague Smith J: In this case, the plaintiff, a passenger for hire on the defendants’ railway, suffered an injury in consequence of the carriage in which he travelled getting off the line and upsetting; the accident was caused by the breaking of the tyre of one of the wheels of the carriage owing to ‘a latent defect in the tyre which was not attributable to any fault on the part of the manufacturer, and could not be detected previously to the breaking’. Does an action lie against the company under these circumstances? This question involves the consideration of the true nature of the contract made between a passenger and a general carrier of passengers for hire. It is obvious that, for, the plaintiff on this state of facts to succeed in this action, he must establish either that there is a warranty, by way of insurance on the part of the carrier to convey the passenger safely to his journey’s end, or, as the learned counsel mainly insisted, a warranty that the carriage in which he travels shall be in all respects perfect for its purpose, that is to say, free from all defects likely to cause peril, although those defects were such that no skill, care, or foresight could have detected their existence. We are of opinion, after consideration of the authorities, that there is no such contract either of general or limited warranty and insurance entered into by the carrier of passengers, and that the contract of such a carrier and the obligation undertaken by him are to take due care (including in that term the use of skill and foresight) to carry a passenger safely. It of course follows that the absence of such care, in other words negligence, would alone be a breach of this contract, and as the facts of this case do not disclose such a breach, and on the contrary negative any want of skill, care or foresight, we think the plaintiff has failed to sustain his action and that the judgment of the court below in favour of the defendant ought to be affirmed. The law of England has, from the earliest times, established a broad distinction between the liabilities of common carriers of goods and of passengers. Indeed the responsibility (like the analogous one of innkeepers) of the carrier to redeliver the goods in a sound state can attach only in the case of goods. This responsibility has been so long fixed, and is so universally known, that carriers of goods undertake to carry on contracts well understood to comprehend this implied liability… 543

Sourcebook on Obligations and Remedies The court is now asked to declare the same law to be applicable to contracts to carry passengers… The reason suggested was, as we understood it, that a passenger when placed in a carriage was as helpless as a bale of goods, and therefore entitled to have for his personal safety a warranty that the carriage was sound… The argument founded on this reason, however, would obviously carry the liability of the carrier far beyond the limited warranty of the roadworthiness of the carriage in which the passenger happened to travel. His safety is no doubt dependent on the soundness of the carriage in which he travels, but in the case of a passenger on a railway it is no less dependent on the roadworthiness of the other carriages in the same train and of the engine drawing them, on the soundness of the rails, of the points, of the signals, of the masonry, in fact of all the different parts of the system employed and used in his transport, and he is equally helpless as regards them all. If, then, there is force in the above reason, why stop short at the carriage in which the passenger happens to travel?… An obligation to use all due and proper care is founded on reasons obvious to all, but to impose on the carrier the burden of a warranty that everything he necessarily uses is absolutely free from defects likely to cause peril, when from the nature of things defects must exist which no skill can detect, and the effects of which no care or foresight can avert, would be to compel a man, by implication of law and not by his own will, to promise the performance of an impossible thing, and would be directly opposed to the maxims of law, lex non cogit ad impossibilia and nemo tenetur ad impossibilia. If the principle of implying a warranty is to prevail in the present case, there seems to be no good reason why it should not be equally applied to a variety of other cases, as for instance to the managers of theatres and other places of public resort, who provide seats or other accommodation for the public. Why are they not to be equally held to insure by implied warranty the soundness of the structures to which they invite the public? But we apprehend it to be clear that such persons do no more than undertake to use due care that their buildings shall be in a fit state… ‘Due care’, however, undoubtedly means, having reference to the nature of the contract to carry, a high degree of care, and casts on carriers the duty of exercising all vigilance to see that whatever is required for the safe conveyance of their passengers is in fit and proper order. But the duty to take due care, however widely construed or however rigorously enforced, will not, as the present action seeks to do, subject the defendants to the plain injustice of being compelled by the law to make reparation for a disaster arising from a latent defect in the machinery which they are obliged to use, which no human skill or care could either have prevented or detected. In the result we come to the conclusion that the case of the plaintiff, so far as it relies on authority, fails in precedent; and so far as it rests on principle, fails in reason…

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Notes and questions 1

2 3

Why is there one rule for goods and another for passengers? What justification(s) for the difference does Montague Smith J offer? Are they convincing? Why should it be the passengers and not the railway company (and its shareholders) that have to carry the risks of faulty trains? In order for a contractor to be in breach of contract he, she or it must be in breach of one of the actual promises (terms) which go to make up the contract. However, as the above case makes clear (‘after a consideration of the authorities’), this exercise is one of interpretation, not of the parties’ minds, but of the law. Yet the parties’ minds become one reason for not implying an absolute promise since that would, according to the court, lead to a situation where the parties have promised the impossible. Why, however, does Lindley J in the case below seem to take a different approach? Hyman v Nye (1881) 6 QBD 685 Queen’s Bench Division Lindley J: The defendant in this case was a jobmaster at Brighton, letting out carriages and horses for hire. The plaintiff hired of him a landau, and a pair of horses, and a driver, for a drive from Brighton to Shoreham and back. After having driven some way, and whilst the carriage was going down hill and slowly over a newly mended part of the road, a bolt in the underpart of the carriage broke. The splinter-bar became displaced; the horses started off; the carriage was upset; the plaintiff was thrown out and injured, and he brought this action for compensation. It was proved at the trial that no fault could be imputed to the horses nor to the driver; and although the plaintiff was charged with having caused the accident by pulling the reins, the jury found in the plaintiff’s favour on this point, and nothing now turns upon it. It further appeared that the carriage had been built by a good builder some eight or nine years before the accident; had been repaired by a competent person about 15 months before it; that the defendant had no reason to suppose that there was any defect in the carriage or in any of its bolts; and that the defect, if any, in the bolt which broke could not have been discovered by any ordinary inspection. The bolt itself was not produced at the trial, and the nature of the defect, if any, in it when the carriage started was not proved. The learned judge at the trial told the jury in substance that the plaintiff was bound to prove that the injury which he had sustained was caused by the negligence of the defendant; and if in their opinion the defendant took all reasonable care to provide a fit and proper carriage their verdict ought to be for him. Being thus directed, the jury found a verdict for the defendant; and in particular they found that the carriage was reasonably fit for the purpose for which it was hired, and that the defect in the bolt could not have been discovered by the defendant by ordinary care and attention. The plaintiff complains of this direction, and of the verdict founded upon it, and we have to consider whether the direction was correct… 545

Sourcebook on Obligations and Remedies A careful study of these authorities leads me to the conclusion that the learned judge at the trial put the duty of the defendant too low. A person who lets out carriages is not, in my opinion, responsible for all defects discoverable or not; he is not an insurer against all defects; nor is he bound to take more care than coach proprietors or railway companies who provide carriages for the public to travel in; but in my opinion, he is bound to take as much care as they; and although not an insurer against all defects, he is an insurer against all defects which care and skill can guard against. His duty appears to me to be to supply a carriage as fit for the purpose for which it is hired as care and skill can render it; and if whilst the carriage is being properly used for such purpose it breaks down, it becomes incumbent on the person who has let it out to show that the breakdown was in the proper sense of the word an accident not preventable by any care or skill. If he can prove this, as the defendant did in Christie v Griggs, and as the railway company did in Readhead v Midland Ry Co, he will not be liable; but no proof short of this will exonerate him. Nor does it appear to me to be at all unreasonable to exact such vigilance from a person who makes it his business to let out carriages for hire. As between him and the hirer the risk of defects in the carriage, so far as care and skill can avoid them, ought to be thrown on the owner of the carriage. The hirer trusts him to supply a fit and proper carriage; the lender has it in his power not only to see that it is in a proper state, and to keep it so, and thus protect himself from risk, but also to charge his customers enough to cover his expenses. Such being, in my opinion, the law applicable to the case, it follows that the direction given to the jury did not go far enough, and that it was not sufficient, in order to exonerate the defendant from liability, for him to prove that he did not know of any defect in the bolt; had no reason to suppose it was weak, and could not see that it was by an ordinary inspection of the carriage. It further follows that, in my opinion, the evidence was not such as to warrant the finding that the carriage was in a fit and proper state when it left the defendant’s yard. In many of the cases bearing on this subject, the expression ‘reasonably fit and proper’ is used. This is a little ambiguous, and requires explanation. In a case like the present, a carriage to be reasonably fit and proper must be as fit and proper as care and skill can make it for use in a reasonable and proper manner, ie, as fit and proper as care and skill can make it to carry a reasonable number of people, conducting themselves in a reasonable manner, and going at a reasonable pace on the journey for which the carriage was hired; or (if no journey was specified) along roads, or over ground reasonably fit for carriages. A carriage not fit and proper in this sense would not be reasonably fit and proper, and vice versa. The expression ‘reasonably fit’ denotes something short of absolutely fit; but in a case of this description the difference between the two expressions is not great. It was objected on the part of the defendant that the plaintiff had in his statement of claim based his case on negligence on the part of the defendant, and not on any breach of warranty express or implied, and consequently that the plaintiff could not recover in this action, at least, without amending. But the absence of such care as a person is by law bound to take is negligence; and whether the plaintiff sues the defendant in tort for negligence in not

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Non-Performance of a Contract having supplied such a fit and proper carriage as he ought to have supplied, or whether the plaintiff sues him in contract for the breach of an implied warranty that the carriage was as fit and proper as it ought to have been, appears to me wholly immaterial. Upon this point, I adopt the opinion of Baron Martin in Francis v Cockrell, which is based upon and warranted by Brown v Boorman… For the above reasons, I am of opinion that there should be a new trial. Mathew J [concurred].

Notes and questions 1

2 3 4 5 6 7

Is Lindley J applying to the facts before him exactly the same rule as the court in Readhead applied to the facts before it? If so, why the different result? Is there any concept that is applied in Hyman but was not applied in Readhead? Did the defendant in Hyman promise the impossible? Why did the court in Hyman order a new trial rather than make its own decision? Are railway carriages (and the like) ‘products’? Does the Supply of Goods and Services Act 1982 impose the same level of duty on an owner as Hyman? Is the duty on the defendant in Hyman the same as the duty on the defendants in: (a) Henderson v Jenkins (p 762); (b) Ward v Tesco (p 159); (c) Grant v Australian Knitting Mills (p 180)? Thake v Maurice [1986] QB 644 Court of Appeal This was a successful action for damages founded in contract and tort against a surgeon for failing to warn a married couple that a vasectomy does not always render a man permanently sterile (the facts are given in detail by Kerr LJ). One question that arose for discussion in the case was about the level of duty: was the defendant under a strict contractual duty to render Mr Thake permanently sterile or only under a duty to use care and skill? One judge thought that it was a strict duty, but the majority thought that it was a duty to take care. Kerr LJ (dissenting in part): This is an appeal by the defendant, a consultant surgeon in general practice, from a judgment delivered by Peter Pain J [1985] 2 WLR 215 on 26 March 1984, after a trial which occupied five days. The facts and the parties’ contentions are set out with admirable clarity, and, save on one issue, the judge’s findings of facts were unchallenged on this appeal. Since the facts are highly unusual, it is desirable to set them out in full, and I cannot do better than by quoting extensively from the judgment itself. The background and the issues are summarised, pp 217–18:

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Sourcebook on Obligations and Remedies In 1975 the two plaintiffs, Mr and Mrs Thake, were at their wits’ end. They had four children and a fifth on the way. Mr Thake was a railway guard and they were having the greatest difficulty in managing on his pay, so Mr Thake had a vasectomy which was performed by the defendant. The operation appeared to be a success and both plaintiffs were convinced that Mr Thake was now sterile. They resumed normal sexual intercourse without any further contraceptive precaution. In 1978 Mrs Thake began to miss her periods. She did not worry because she was convinced that it was impossible for her to conceive. She put it down to an early onset of the change of life. Eventually she went to her doctor and was shattered to find that she was four months’ pregnant. Her husband was tested and it was found that he had become fertile again. He was one of those rare cases in which nature had formed a bridge of scar tissue between the cut ends of the vas through which the sperm could pass. The two plaintiffs now claim damages against the defendant on three alternative grounds. First, they assert that the contract was not simply a contract to carry out a vasectomy, but was a contract to sterilise Mr Thake which was broken when he became fertile again. Secondly, they put their case on breach of collateral warranty or innocent misrepresentation. They submit that they were induced to enter into the contract by a false warranty or representation that the operation would render Mr Thake irreversibly sterile. Thirdly, they allege contractual negligence in that the defendant failed to warn them that there was a small risk that Mr Thake would become fertile again. An interesting point also arises as to the assessment of damages, should the plaintiffs succeed on liability. The defendant asserts that, as a matter of public policy, damages may not be awarded for the birth of a healthy child. The claim in contract The judge reached the conclusion that in the unusual circumstances of this case the plaintiffs had established that the revival of Mr Thake’s fertility gave rise to a breach of the contract concluded between the defendant and the plaintiffs… On this issue, I have reached the same conclusion as the judge. Having regard to everything that passed between the defendant and the plaintiffs at the meeting, coupled with the absence of any warning that Mr Thake might somehow again become fertile after two successful sperm tests, it seems to me that the plaintiffs could not reasonably have concluded anything other than that his agreement to perform the operation meant that, subject to two successful sperm tests, he had undertaken to render Mr Thake permanently sterile. In my view this follows from an objective analysis of the undisputed evidence of what passed between the parties, and it was also what the plaintiffs understood and intended to be the effect of the contract with the defendant. The considerations which lead me to this conclusion can be summarised as follows. First, we are here dealing with something in the nature of an amputation, not treatment of an injury or disease with inevitably uncertain results. The nature of the operation was the removal of parts of the channels

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Non-Performance of a Contract through which sperm had to pass to the outside in such a way that the channels could not reunite. This was vividly demonstrated to the plaintiffs by the defendant pulling apart his arms and fists and turning back his wrists, as well as by a sketch. The defendant repeatedly and carefully explained that the effect of the operation was final, as the plaintiffs said again and again in their evidence, subject only to a remote possibility of surgical reversal, and that was the only warning which the defendant impressed on them. Subject to this and the two sperm tests of which the plaintiffs were told, designed to make sure that the operation had in fact been successful, I cannot see that one can place any interpretation on what the defendant said and did other than that he undertook to render Mr Thake permanently sterile by means of the operation. Nor can I see anything in the transcripts of the evidence which leads to any other conclusion, and the defendant himself agreed that in the context of the discussion as a whole, the word ‘irreversible’ would have been understood by the plaintiffs as meaning ‘irreversible by God or man’. On the evidence in this case the position is quite different, in my view, from what was in the mind of Lord Denning MR in Greaves and Co (Contractors) Ltd v Baynham Meikle and Partners [1975] 1 WLR 1095, p 1100, when he said: The surgeon does not warrant that he will cure the patient.’ That was said in the context of treatment or an operation designed to cure, not in the context of anything in the nature of an amputation. The facts of the present case are obviously extremely unusual, but I do not see why the judge’s and my conclusion on these unusual facts should be viewed by surgeons with alarm, as mentioned by the judge. If the defendant had given his usual warning, the objective analysis of what he conveyed would have been quite different… Accordingly, I would uphold the judge’s conclusion that the plaintiffs succeed in their claim that the revival of Mr Thake’s fertility gave rise to a breach of contract on the part of the defendant… Neill LJ: I have had the advantage of reading in draft the judgment of Kerr LJ and… I regret to say, however, that I am unable to agree with his conclusion as to the claim in contract… I accept that there may be cases where, because of the claims made by a surgeon or physician for his method of treatment, the court is driven to the conclusion that the result of the treatment is guaranteed or warranted. But in the present case I do not regard the statements made by the defendant as to the effect of his treatment as passing beyond the realm of expectation and assumption. It seems to me that what he said was spoken partly by way of warning and partly by way of what is sometimes called ‘therapeutic reassurance’. Both the plaintiffs and the defendant expected that sterility would be the result of the operation and the defendant appreciated that that was the plaintiffs’ expectation. This does not mean, however, that a reasonable person would have understood the defendant to be giving a binding promise that the operation would achieve its purpose or that the defendant was going further than to give an assurance that he expected and believed that it would have the desired result. Furthermore, I do not consider that a reasonable person would have expected a responsible medical man to be intending to give a guarantee. Medicine, though a highly skilled profession, is not, and is not generally regarded as being, an exact science. The reasonable man would

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Sourcebook on Obligations and Remedies have expected the defendant to exercise all the proper skill and care of a surgeon in that speciality; he would not in my view have expected the defendant to give a guarantee of 100% success. Accordingly, though I am satisfied that a reasonable person would have left the consulting room thinking that Mr Thake would be sterilised by the vasectomy operation, such a person would not have left thinking that the defendant had given a guarantee that Mr Thake would be absolutely sterile. For these reasons I would allow the appeal in so far as the claim in contract is concerned… Nourse LJ:… The question…is whether the defendant contracted to carry out a vasectomy or to render Mr Thake permanently sterile. The latter alternative necessarily involved a guarantee; in other words, a warranty that there was not the remotest chance, not one in ten thousand, that the operation would not succeed. Peter Pain J held, in my view correctly, that the contract was contained partly in the words used between the parties and partly in the words of the consent form. The object of the operation, as stated in the form, was to render Mr Thake sterile and incapable of parenthood. The contract contained an implied warranty that, in carrying out the operation, the defendant would exercise the ordinary skill and care of a competent surgeon. It did not contain an implied warranty that, come what may, the objective would be achieved: see Greaves and Co (Contractors) Ltd v Baynham Meikle and Partners [1975] 1 WLR 1095, p 1100, per Lord Denning MR… Lord Denning thought, and I respectfully agree with him, that a professional man is not usually regarded as warranting that he will achieve the desired result. Indeed, it seems that that would not fit well with the universal warranty of reasonable care and skill, which tends to affirm the inexactness of the science which is professed. I do not intend to go beyond the case of a doctor. Of all sciences, medicine is one of the least exact. In my view a doctor cannot be objectively regarded as guaranteeing the success of any operation or treatment unless he says as much in clear and unequivocal terms. The defendant did not do that in the present case…

Notes and questions 1 2

3 4

Should the level of duty ever be dependent upon the price of the service? If one supplies faulty goods, the seller is strictly liable; why is there a different rule for services? Is the distinction a sensible one when viewed from the position of the consumer? What about when viewed from the position of the supplier? Is there a policy issue behind this decision? It is perhaps giving a rather generous interpretation to the word ‘thing’ to incorporate Thake v Maurice under this heading. Nevertheless, words can be viewed as ‘things’ and sometimes can do as much damage as a physical object. Furthermore, the arrival of the unexpected baby could be seen as a res which caused loss to the parents. If this seems a rather insensitive

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analysis—and, indeed, it is rather insensitive—then such insensitivity is meant only to underline the rather indelicate problem which cases like these raise. After all, the plaintiffs in such cases are claiming that the arrival of the baby is ‘damage’ for which damages should be awarded. This is to reduce the whole issue to one of partimonial loss. Is this desirable?

7 EXCLUSION AND LIMITATION CLAUSES Principles of European Contract Law Article 1:102 Freedom of contract (1) (2)

Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles. The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these principles.

Article 4:110 Unfair terms which have not been individually negotiated (1)

(2)

A party may avoid a term which has not been negotiated individually if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of that party, taking into account the nature of the performance to be rendered under the contract, all the other terms of the contract and the circumstances at the time the contract was concluded. This article does not apply to (a) (b)

a term which defines the main subject matter of the contract, provided the term is in plain and intelligible language; or to the adequacy in value of one party’s obligations compared to the value of the obligations of the other party.

Article 5:103 Contra proferentem rule Where there is doubt about the meaning of a contract term not individually negotiated, an interpretation of the term against the party who supplied it is to be preferred. Article 5:104 Preference to negotiated terms Terms which have been individually negotiated take preference over those which are not. Article 8:109 Clause excluding or restricting remedies Remedies for non-performance may be excluded or restricted unless it would be contrary to good faith and fair dealing to invoke the exclusion or restriction.

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Sourcebook on Obligations and Remedies Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 House of Lords This was an action for damages brought by the owners of a factory (or, more precisely, their insurance company) against a security company in respect of a fire deliberately started by one of the security company’s patrolmen. The fire completely destroyed the plaintiffs’ factory, but the security company resisted liability on the basis of a clause in the contract which stipulated that ‘under no circumstances’ were the defendants to be ‘responsible for any injurious act or default by any employee unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of the [defendants] as his employer; nor, in any event, [were the defendants to] be held responsible for any loss suffered by the [plaintiffs] through fire or any other cause, except in so far as such loss [was] solely attributable to the negligence of the [defendants’] employees acting within the course of their employment’. The trial judge gave judgment for the security company; the Court of Appeal reversed this decision; an appeal to the House of Lords was allowed. Lord Diplock:… My Lords, the contract in the instant case was entered into before the passing of the Unfair Contract Terms Act 1977. So what we are concerned with is the common law of contract, of which the subject matter is the legally enforceable obligations as between the parties to it of which the contract is the source… A basic principle of the common law of contract, to which there are no exceptions that are relevant in the instant case, is that parties to a contract are free to determine for themselves what primary obligations they will accept. They may state these in express words in the contract itself and, where they do, the statement is determinative; but in practice a commercial contract never states all the primary obligations of the parties in full; many are left to be incorporated by implication of law from the legal nature of the contract into which the parties are entering. But if the parties wish to reject or modify primary obligations which would otherwise be so incorporated, they are fully at liberty to do so by express words. Leaving aside those comparatively rare cases in which the court is able to enforce a primary obligation by decreeing specific performance of it, breaches of primary obligations give rise to substituted secondary obligations on the part of the party in default, and, in some cases, may entitle the other party to be relieved from further performance of his own primary obligations. These secondary obligations of the contract breaker and any concomitant relief of the other party from his own primary obligations also arise by implication of law, generally common law, but sometimes statute, as in the case of codifying statutes passed at the turn of the century, notably the Sale of Goods Act 1893. The contract, however, is just as much the source of secondary obligations as it is of primary obligations; and like primary obligations that are implied by law secondary obligations too can be modified by agreement between the parties, although, for reasons to be mentioned later, they cannot, in my view, be totally excluded. In the instant case, the only secondary obligations and concomitant reliefs that are applicable arise by implication of the common law as modified by the express words of the contract.

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Non-Performance of a Contract Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach… My Lords, an exclusion clause is one which excludes or modifies an obligation, whether primary, or secondary, that would otherwise arise under the contract by implication of law. Parties are free to agree to whatever exclusion or modification of obligations they please within the limits that the agreement must retain the legal characteristics of a contract and must not offend against the equitable rule against penalties, that is to say, it must not impose on the breaker of a primary obligation a general secondary obligation to pay to the other party a sum of money that is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained by him in consequence of the breach of the primary obligation. Since the presumption is that the parties by entering into the contract intended to accept the implied obligations, exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend on the extent to which they involve departure from the implied obligations. Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court’s view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another is a relevant consideration in deciding what meaning the words were intended by the parties to bear. But this does not entitle the court to reject the exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only. My Lords, the reports are full of cases in which what would appear to be very strained constructions have been placed on exclusion clauses, mainly in what today would be called consumer contracts and contracts of adhesion. As Lord Wilberforce has pointed out, any need for this kind of judicial distortion of the English language has been banished by Parliament’s having made these kinds of contracts subject to the Unfair Contract Terms Act 1977. In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of various kinds of contract can be most economically borne (generally by insurance), it is, in my view, wrong to place a strained construction on words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations. Applying these principles to the instant case, in the absence of the exclusion clause a primary obligation of Securicor under the contract, which would be implied by law, would be an absolute obligation to procure that the visits by the night patrol to the factory were conducted by natural persons who would exercise reasonable skill and care for the safety of the factory. That primary obligation is modified by the exclusion clause. Securicor’s obligation to do

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Sourcebook on Obligations and Remedies this is not to be absolute, but is limited to exercising due diligence in their capacity as employers of the natural persons by whom the visits are conducted, to procure that those persons shall exercise reasonable skill and care for the safety of the factory. For the reasons given by Lord Wilberforce, it seems to me that this apportionment of the risk of the factory being damaged or destroyed by the injurious act of an employee of Securicor while carrying out a visit to the factory is one which reasonable businessmen in the position of Securicor and Photo Productions might well think was the most economical… The risk that a servant of Securicor would damage or destroy the factory or steal goods from it, despite the exercise of all reasonable diligence by Securicor to prevent it, is what in the context of maritime law would be called a ‘misfortune risk’, is something which reasonable diligence of neither party to the contract can prevent. Either party can insure against it. It is generally more economical for the person by whom the loss will be directly sustained to do so rather than that it should be covered by the other party by liability insurance… Lord Wilberforce:… Securicor undertook to provide a service of periodical visits for a very modest charge… It did not agree to provide equipment. It would have no knowledge of the value of Photo Productions’ factory; that, and the efficacy of their fire precautions, would be known to Photo Productions. In these circumstances nobody could consider it unreasonable that as between these two equal parties the risk assumed by Securicor should be a modest one, and that Photo Productions should carry the substantial risk of damage or destruction… Lord Salmon:… I think that any businessman entering into this contract could have had no doubt as to the real meaning of this clause and would have made his insurance arrangements accordingly…

Questions 1

2 3 4 5

Why is it that an employer is, in principle, liable for violence done by its employee to a building, but not liable (see Keppel above) for violence done by its employee to a person? If you had to devise an artificial intelligence programme on the law of obligations, how would you deal with Keppel and Photo Production? Did the court focus on risk rather than fault? If so, why? Would the plaintiffs have had to pay for the services rendered by Securicor? Which legal subject caused the plaintiffs’ damage? In his analysis of contract into primary and secondary obligations, does Lord Diplock overlook the action for debt? Does this action not enforce directly a primary obligation?

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Non-Performance of a Contract Unfair Contract Terms Act 1977 (c 50) 1

Scope of Part I (1)

For the purposes of this Part of this Act, ‘negligence’ means the breach(a) (b) (c)

(2) (3)

of any obligation, arising from the express or implied terms of a contract, to take reasonable care to exercise reasonable skill in the performance of the contract; of any common law duty to take reasonable care or exercise reasonable skill (but not any stricter duty); of the common duty of care imposed by the Occupiers’ Liability Act 1957 or the Occupiers’ Liability Act (Northern Ireland) 1957.

This Part of this Act is subject to Part III; and in relation to contracts, the operation of sections 2–4 and 7 is subject to the exceptions made by Sched 1. In the case of both contract and tort, sections 2–7 apply (except where the contrary is stated in section 6(4)) only to business liability, that is liability for breach of obligations or duties arising(a) (b)

from things done or to be done by a person in the course of a business (whether his own business or another’s); or from the occupation of premises used for business purposes of the occupier;

and references to liability are to be read accordingly [but liability of an occupier of premises for breach of an obligation or duty towards a person obtaining access to the premises for recreational or educational purposes, being liability for loss or damage suffered by reason of the dangerous state of the premises, is not a business liability of the occupier unless granting that person such access for the purposes concerned falls within the business purposes of the occupier]. (4)

2

Negligence liability (1)

(2) (3)

3

In relation to any breach of duty or obligation, it is immaterial for any purpose of this Part of this Act whether the breach was inadvertent or intentional, or whether liability for it arises directly or vicariously.

A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence. In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.

Liability arising in contract (1)

This section applies as between contracting parties where one of them deals as consumer or on the other’s written standard terms of business. 555

Sourcebook on Obligations and Remedies (2)

As against that party, the other cannot by reference to any contract term(a) (b)

when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or claim to be entitled(i) (ii)

to render a contractual performance substantially different from that which was reasonably expected of him, or in respect of the whole or any part of his contractual obligation, to render no performance at all,

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness. 4

Unreasonable indemnity clauses (1)

(2)

A person dealing as consumer cannot by reference to any contract term be made to indemnify another person (whether a party to the contract or not) in respect of liability that may be incurred by the other for negligence or breach of contract, except in so far as the contract term satisfies the requirement of reasonableness. This section applies whether the liability in question(a) (b)

5

is directly that of the person to be indemnified or is incurred by him vicariously; is to the person dealing as consumer or to someone else.

‘Guarantee’ of consumer goods (1)

In the case of goods of a type ordinarily supplied for private use or consumption, where loss or damage(a) (b)

arises from the goods proving defective while in consumer use; and results from the negligence of a person concerned in the manufacture or distribution of the goods,

liability for the loss or damage cannot be excluded or restricted by reference to any contract term or notice contained in or operating by reference to a guarantee of the goods. (2)

For these purposes(a) (b)

(3)

goods are to be regarded as ‘in consumer use’ when a person is using them, or has them in his possession for use, otherwise than exclusively for the purposes of a business; and anything in writing is a guarantee if it contains or purports to contain some promise or assurance (however worded or presented) that defects will be made good by complete or partial replacement, or by repair, monetary compensation or otherwise.

This section does not apply as between the parties to a contract under or in pursuance of which possession or ownership of the goods passed.

556

Non-Performance of a Contract 6

Sale and hire purchase (1)

Liability for breach of the obligations arising from(a) (b)

[section 12 of the Sale of Goods Act 1979] (seller’s implied undertakings as to title, etc); section 8 of the Supply of Goods (Implied Terms) Act 1973 (the corresponding thing in relation to hire purchase),

cannot be excluded or restricted by reference to any contract term. (2)

As against a person dealing as consumer, liability for breach of the obligations arising from(a)

(b)

[section 13, 14 or 15 of the 1979 Act] (seller’s implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose); section 9, 10 or 11 of the 1973 Act (the corresponding things in relation to hire purchase),

cannot be excluded or restricted by reference to any contract term. (3)

(4)

7

As against a person dealing otherwise than as consumer, the liability specified in subsection (2) above can be excluded or restricted by reference to a contract term, but only in so far as the term satisfies the requirement of reasonableness. The liabilities referred to in this section are not only the business liabilities defined by section 1(3), but include those arising under any contract of sale of goods or hire purchase agreement.

Miscellaneous contracts under which goods pass (1)

Where the possession or ownership of goods passes under or in pursuance of a contract not governed by the law of sale of goods or hire purchase, subsections (2)–(4) below apply as regards the effect (if any) to be given to contract terms excluding or restricting liability for breach of obligation arising by implication of law from the nature of the contract. (2) As against a person dealing as consumer, liability in respect of the goods’ correspondence with description or sample, or their quality or fitness for any particular purpose, cannot be excluded or restricted by reference to any such term. (3) As against a person dealing otherwise than as consumer, that liability can be excluded or restricted by reference to such a term, but only in so far as the term satisfies the requirement of reasonableness. [(3A)Liability for breach of the obligations arising under section 2 of the Supply of Goods and Services Act 1982 (implied terms about title, etc, in certain contracts for the transfer of the property in goods) cannot be excluded or restricted by references to any such term.] (4) Liability in respect of(a)

the right to transfer ownership of the goods, or give possession; or 557

Sourcebook on Obligations and Remedies (b)

the assurance of quiet possession to a person taking goods in pursuance of the contract,

cannot [(in a case to which subsection (3A) above does not apply)] be excluded or restricted by reference to any such term except in so far as the term satisfies the requirement of reasonableness. (5)

9

Effect of breach (1)

(2)

10

This section does not apply in the case of goods passing on a redemption of trading stamps within the Trading Stamps Act 1964 or the Trading Stamps Act (Northern Ireland) 1965.

Where for reliance upon it a contract term has to satisfy the requirement of reasonableness, it may be found to do so and be given effect accordingly notwithstanding that the contract has been terminated either by breach or by a party electing to treat it as repudiated. Where on a breach the contract is nevertheless affirmed by a party entitled to treat it as repudiated, this does not of itself exclude the requirement of reasonableness in relation to any contract term.

Evasion by means of secondary contract A person is not bound by any contract term prejudicing or taking away rights of his which arise under, or in connection with the performance of, another contract, so far as those rights extend to the enforcement of another’s liability which this Part of this Act prevents that other from excluding or restricting.

11

The ‘reasonableness’ test (1)

(2)

(3)

(4)

In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. In determining for the purposes of section 6 or 7 above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Sched 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract. In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen. Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies 558

Non-Performance of a Contract the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to(a) (b) (5) 12

It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does.

‘Dealing as consumer’ (1)

A party to a contract ‘deals as consumer’ in relation to another party if(a) (b) (c)

(2) (3) 13

the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and how far it was open to him to cover himself by insurance.

he neither makes the contract in the course of a business nor holds himself out as doing so; and the other party does make the contract in the course of a business; and in the case of a contract governed by the law of sale of goods or hire purchase, or by section 7 of this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption.

But on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as consumer. Subject to this, it is for those claiming that a party does not deal as consumer to show that he does not.

Varieties of exemption clause (1)

To the extent that this Part of this Act prevents the exclusion or restriction of any liability it also prevents(a) (b) (c)

making the liability or its enforcement subject to restrictive or onerous conditions; excluding or restricting any right or remedy in respect of the liability, or subjecting a person to any prejudice in consequence of his pursuing any such right or remedy; excluding or restricting rules of evidence or procedure;

and (to that extent) sections 2 and 5–7 also prevent excluding or restricting liability by reference to terms and notices which exclude or restrict the relevant obligation or duty. (2)

14

But an agreement in writing to submit present or future differences to arbitration is not to be treated under this Part of this Act as excluding or restricting any liability.

Interpretation of Part I In this Part of this Act‘business’ includes a profession and the activities of any government department or local or public authority; ‘goods’ has the same meaning as in [the Sale of Goods Act 1979];

559

Sourcebook on Obligations and Remedies ‘hire purchase agreement’ has the same meaning as in the Consumer Credit Act 1974; ‘negligence’ has the meaning given by section 1(1); ‘notice’ includes an announcement, whether or not in writing, and any other communication or pretended communication; and ‘personal injury’ includes any disease and any impairment of physical or mental condition. SCHEDULE 1 SCOPE OF SECTIONS 2–4 AND 7 1

Sections 2–4 of this Act do not extend to(a) (b) (c)

(d)

any contract of insurance (including a contract to pay an annuity on human life); any contract so far as it relates to the creation or transfer of an interest in land, or to the termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise; any contract so far as it relates to the creation or transfer of a right or interest in any patent, trade mark, copyright [or design right], registered design, technical or commercial information or other intellectual property, or relates to the termination of any such right or interest; any contract so far as it relates(i) (ii)

(e) 2

to the formation or dissolution of a company (which means any body corporate or unincorporated association and includes a partnership), or to its constitution or the rights or obligations of its corporators or members;

any contract so far as it relates to the creation or transfer of securities or of any right or interest in securities.

Section 2(1) extends to(a) (b) (c)

any contract of marine salvage or towage; any charterparty of a ship or hovercraft; and any contract for the carriage of goods by ship or hovercraft;

but subject to this sections 2–4 and 7 do not extend to any such contract except in favour of a person dealing as consumer. 3

Where goods are carried by ship or hovercraft in pursuance of a contract which either(a) (b)

specifies that as the means of carriage over part of the journey to be covered, or makes no provision as to the means of carriage and does not exclude that means,

then sections 2(2), 3 and 4 do not, except in favour of a person dealing as consumer, extend to the contract as it operates for and in relation to the carriage of the goods by that means.

560

Non-Performance of a Contract 4 5

Section 2(1) and (2) do not extend to a contract of employment, except in favour of the employee. Section 2(1) does not affect the validity of any discharge and indemnity given by a person, on or in connection with an award to him of compensation for pneumoconiosis attributable to employment in the coal industry, in respect of any further claim arising from his contracting that disease.

SCHEDULE 2 ‘GUIDELINES’ FOR APPLICATION OF REASONABLE TEST The matters to which regard is to be had in particular for the purposes of sections 6(3), 7(3) and (4), 20 and 21 are any of the following which appear to be relevant(a) (b) (c)

(d)

(e)

the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met; whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term; whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; whether the goods were manufactured, processed or adapted to the special order of the customer.

Questions 1 2

3

Does this Act treat consumers as incapable? Does it treat the class of consumers as a legal person? Is s 13 in effect wide enough to cover almost any contractual clause that puts duties on one of the parties? Does s 13 conform to Lord Diplock’s thesis of primary and secondary obligations? Compare the Unfair Contract Terms Act 1977 with the relevant sections dealing with exclusion clauses in the PECL. Is the latter much wider than the former, or do the PECL come close to reflecting English law? The Unfair Terms in Consumer Contracts Regulations 1999 SI 1999/2083 1 Citation and commencement These Regulations may be cited as the Unfair Terms in Consumer Contracts Regulations 1999 and shall come into force on 1 October 1999.

561

Sourcebook on Obligations and Remedies 2 3

Revocation The Unfair Terms in Consumer Contracts Regulations 1994 are hereby revoked. Interpretation (1)

In these Regulations-

‘the Community’ means the European Community; ‘consumer’ means any natural person who, in contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession; ‘court’ in relation to England and Wales and Northern Ireland means a county court or the High Court, and in relation to Scotland, the Sheriff or the Court of Session; ‘Director’ means the Director General of Fair Trading; ‘EEA Agreement’ means the Agreement on the European Economic Area signed at Oporto on 2 May 1992 as adjusted by the protocol signed at Brussels on 17 March 1993; ‘Member State’ means a State which is a contracting party to the EEA Agreement; ‘notified’ means notified in writing; ‘qualifying body’ means a person specified in Sched 1; ‘seller or supplier’ means any natural or legal person who, in contracts covered by these Regulations, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned; ‘unfair terms’ means the contractual terms referred to in regulation 5. (2)

4

In the application of these Regulations to Scotland for references to an ‘injunction’ or an ‘interim injunction’ there shall be substituted references to an ‘interdict’ or ‘interim interdict’ respectively.

Terms to which these Regulations apply (1) (2)

These Regulations apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer. These Regulations do not apply to contractual terms which reflect(a)

(b) 5

mandatory statutory or regulatory provisions (including such provisions under the law of any Member State or in Community legislation having effect in the United Kingdom without further enactment); the provisions or principles of international conventions to which the Member States or the Community are party.

Unfair terms (1)

A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

562

Non-Performance of a Contract (2) (3)

(4) (5) 6

A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term. Notwithstanding that a specific term or certain aspects of it in a contract has been individually negotiated, these Regulations shall apply to the rest of a contract if an overall assessment of it indicates that it is a pre-formulated standard contract. It shall be for any seller or supplier who claims that a term was individually negotiated to show that it was. Schedule 2 to these Regulations contains an indicative and nonexhaustive list of the terms which may be regarded as unfair.

Assessment of unfair terms (1)

(2)

Without prejudice to regulation 12, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate(a) (b)

7

Written contracts (1) (2)

8

A seller or supplier shall ensure that any written term of a contract is expressed in plain, intelligible language. If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12.

Effect of unfair term (1) (2)

9

to the definition of the main subject matter of the contract; or to the adequacy of the price or remuneration, as against the goods or services supplied in exchange.

An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer. The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term.

Choice of law clauses These Regulations shall apply notwithstanding any contract term which applies or purports to apply the law of a non-Member State, if the contract has a close connection with the territory of the Member States.

10

Complaints—consideration by Director (1)

It shall be the duty of the Director to consider any complaint made to him that any contract term drawn up for general use is unfair, unless(a)

the complaint appears to the Director to be frivolous or vexatious; or 563

Sourcebook on Obligations and Remedies (b) (2)

(3)

11

The Director shall give reasons for his decision to apply or not to apply, as the case may be, for an injunction under regulation 12 in relation to any complaint which these Regulations require him to consider. In deciding whether or not to apply for an injunction in respect of a term which the Director considers to be unfair, he may, if he considers it appropriate to do so, have regard to any undertakings given to him by or on behalf of any person as to the continued use of such a term in contracts concluded with consumers.

Complaints—consideration by qualifying bodies (1)

(2) 12

If a qualifying body specified in Part 1 of Sched 1 notifies the Director that it agrees to consider a complaint that any contract term drawn up for general use is unfair, it shall be under a duty to consider that complaint. Regulation 10(2) and (3) shall apply to a qualifying body which is under a duty to consider a complaint as they apply to the Director.

Injunctions to prevent continued use of unfair terms (1)

(2)

The Director or, subject to para (2), any qualifying body may apply for an injunction (including an interim injunction) against any person appearing to the Director or that body to be using, or recommending use of, an unfair term drawn up for general use in contracts concluded with consumers. A qualifying body may apply for an injunction only where(a)

(b) (3) (4)

13

a qualifying body has notified the Director that it agrees to consider the complaint.

it has notified the Director of its intention to apply at least 14 days before the date on which the application is made, beginning with the date on which the notification was given; or the Director consents to the application being made within a shorter period.

The court on an application under this Regulation may grant an injunction on such terms as it thinks fit. An injunction may relate not only to use of a particular contract term drawn up for general use but to any similar term, or a term having like effect, used or recommended for use by any person.

Powers of the Director and qualifying bodies to obtain documents and information (1)

The Director may exercise the power conferred by this Regulation for the purpose of(a) (b)

facilitating his consideration of a complaint that a contract term drawn up for general use is unfair; or ascertaining whether a person has complied with an undertaking or court order as to the continued use, or recommendation for use, of a term in contracts concluded with consumers. 564

Non-Performance of a Contract (2)

A qualifying body specified in Part 1 of Sched 1 may exercise the power conferred by this Regulation for the purpose of(a) (b)

facilitating its consideration of a complaint that a contract term drawn up for general use is unfair; or ascertaining whether a person has complied with(i) (ii)

an undertaking given to it or to the court following an application by that body, or a court order made on an application by that body,

as to the continued use, or recommendation for use, of a term in contracts concluded with consumers. (3)

The Director may require any person to supply to him, and a qualifying body specified in Part 1 of Sched 1 may require any person to supply to it(a)

(b)

(4)

The power conferred by this Regulation is to be exercised by a notice in writing which may(a) (b)

(5) (6)

14

a copy of any document which that person has used or recommended for use, at the time the notice referred to in para (4) below is given, as a pre-formulated standard contract in dealings with consumers; information about the use, or recommendation for use, by that person of that document or any other such document in dealings with consumers.

specify the way in which and the time within which it is to be complied with; and be varied or revoked by a subsequent notice.

Nothing in this Regulation compels a person to supply any document or information which he would be entitled to refuse to produce or give in civil proceedings before the court. If a person makes default in complying with a notice under this Regulation, the court may, on the application of the Director or of the qualifying body, make such order as the court thinks fit for requiring the default to be made good, and any such order may provide that all the costs or expenses of and incidental to the application shall be borne by the person in default or by any officers of a company or other association who are responsible for its default. Notification of undertakings and orders to Director A qualifying body shall notify the Director(a) (b) (c)

of any undertaking given to it by or on behalf of any person as to the continued use of a term which that body considers to be unfair in contracts concluded with consumers; of the outcome of any application made by it under regulation 12, and of the terms of any undertaking given to, or order made by, the court; of the outcome of any application made by it to enforce a previous order of the court.

565

Sourcebook on Obligations and Remedies 15

Publication, information and advice (1)

The Director shall arrange for the publication in such form and manner as he considers appropriate, of(a) (b)

(c) (d) (2)

details of any undertaking or order notified to him under regulation 14; details of any undertaking given to him by or on behalf of any person as to the continued use of a term which the Director considers to be unfair in contracts concluded with consumers; details of any application made by him under regulation 12, and of the terms of any undertaking given to, or order made by, the court; details of any application made by the Director to enforce a previous order of the court.

The Director shall inform any person on request whether a particular term to which these Regulations apply has been(a) (b)

the subject of an undertaking given to the Director or notified to him by a qualifying body; or the subject of an order of the court made upon application by him or notified to him by a qualifying body;

and shall give that person details of the undertaking or a copy of the order, as the case may be, together with a copy of any amendments which the person giving the undertaking has agreed to make to the term in question. (3)

The Director may arrange for the dissemination in such form and manner as he considers appropriate of such information and advice concerning the operation of these Regulations as may appear to him to be expedient to give to the public and to all persons likely to be affected by these Regulations.

SCHEDULE 1 Regulation 3 QUALIFYING BODIES PART ONE 1 2 3 4 5 6 7 8 9 10

The Data Protection Registrar. The Director General of Electricity Supply. The Director General of Gas Supply. The Director General of Electricity Supply for Northern Ireland. The Director General of Gas for Northern Ireland. The Director General of Telecommunications. The Director General of Water Services. The Rail Regulator. Every weights and measures authority in Great Britain. The Department of Economic Development in Northern Ireland.

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Non-Performance of a Contract PART TWO 11 Consumers’ Association. SCHEDULE 2 Regulation 5(5) INDICATIVE AND NON-EXHAUSTIVE LIST OF TERMS WHICH MAY BE REGARDED AS UNFAIR 1

Terms which have the object or effect of(a) (b)

(c) (d)

(e) (f)

(g) (h)

(i) (j)

excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier; inappropriately excluding or limiting the legal rights of the consumer vis à vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him; making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone; permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract; enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so; automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early; irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract; enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;

567

Sourcebook on Obligations and Remedies (k)

enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided; (1) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded; (m) giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract; (n) limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality; (o) obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his; (p) giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement; (q) excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract. 2

Scope of paragraphs 1(g), (j) and (1) (a)

(b)

(c)

Paragraph 1(g) is without hindrance to terms by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately. Paragraph 1(j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately. Paragraph 1(j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract. Paragraphs 1(g), (j) and (1) do not apply to: —

transactions in transferable securities, financial instruments and other products or services where the price is linked to

568

Non-Performance of a Contract fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; —

(d)

contracts for the purchase or sale of foreign currency, travellers’ cheques or international money orders denominated in foreign currency;

Paragraph 1(1) is without hindrance to price indexation clauses, where lawful, provided that the method by which prices vary is explicitly described.

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284 Court of Appeal; [1983] 2 AC 803 House of Lords This was an action for damages by a farmer against the seller of Dutch Winter cabbage seed. The seed, which cost £201.60, turned out to be of inferior quality and useless to the farmer and he claimed compensation for all his losses when the crop of cabbages had to be destroyed. The sellers relied on a clause on the invoice purporting to limit their liability, should the seed prove defective, to replacing the seed or repaying the price. The trial judge awarded the farmer £61,513.78 damages plus £30,756 interest and appeals to the Court of Appeal and House of Lords were dismissed. Lord Denning MR (Court of Appeal) [having reviewed the case law and the Unfair Contract Terms Act 1977]: The effect of the changes What is the result of all this? To my mind it heralds a revolution in our approach to exemption clauses; not only where they exclude liability altogether and also where they limit liability; not only in the specific categories in the Unfair Contract Terms Act 1977, but in other contracts too. Just as in other fields of law we have done away with the multitude of cases on ‘common employment’, ‘last opportunity’, ‘invitees’ and ‘licensees’ and so forth, so also in this field we should do away with the multitude of cases on exemption clauses. We should no longer have to go through all kinds of gymnastic contortions to get round them. We should no longer have to harass our students with the study of them. We should set about meeting a new challenge. It is presented by the test of reasonableness… Fair and reasonable There is only one case in the books so far on this point. It is RW Green Ltd v Cade Bros Farm. There Griffiths J held that it was fair and reasonable for seed potato merchants to rely on a limitation clause which limited their liability to the contract price of the potatoes. That case was very different from the present. The terms had been evolved over 20 years. The judge said: ‘They are therefore not conditions imposed by the strong upon the weak; but are rather a set of trading terms upon which both sides are apparently content to do business.’ The judge added: ‘No moral blame attaches to either party; neither of them knew, nor could be expected to know, that the potatoes were infected.’ In that case the judge held that the clause was fair and reasonable and that the seed merchants were entitled to rely on it.

569

Sourcebook on Obligations and Remedies Our present case is very much on the borderline. There is this to be said in favour of the seed merchants. The price of this cabbage seed was small: £192. The damages claimed are high: £61,000. But there is this to be said on the other side. The clause was not negotiated between persons of equal bargaining power. It was inserted by the seed merchants in their invoices without any negotiation with the farmers. To this I would add that the seed merchants rarely, if ever, invoked the clause. Their very frank director said: The trade does not stand on the strict letter of the clause… Almost invariably when a customer justifiably complains, the trade pays something more than a refund.’ The papers contain many illustrations where the clause was not invoked and a settlement was reached. Next, I would point out that the buyers had no opportunity at all of knowing or discovering that the seed was not cabbage seed, whereas the sellers could and should have known that it was the wrong seed altogether. The buyers were not covered by insurance against the risk. Nor could they insure. But, as to the seed merchants, the judge said: I am entirely satisfied that it is possible for seedsmen to insure against this risk. I am entirely satisfied that the cost of so doing would not materially raise the price of seeds on the market. I am entirely satisfied that the protection of this clause for the purposes of protecting against the very rare case indeed, such as the present, is not reasonably required. If and in so far as it may be necessary to consider the matter, I am also satisfied that it is possible for seedsmen to test seeds before putting them on to the market. To that I would add this further point. Such a mistake as this could not have happened without serious negligence on the part of the seed merchants themselves or their Dutch suppliers. So serious that it would not be fair to enable them to escape responsibility for it. In all the circumstances I am of opinion that it would not be fair or reasonable to allow the seed merchants to rely on the clause to limit their liability. Kerr LJ (Court of Appeal):… I would unhesitatingly also decide this case in favour of the plaintiffs on the ground that it would not be fair and reasonable to allow the defendants to rely on this clause… The plaintiffs have suffered a loss of some £61,000 in terms of money; and in terms of time and labour the productivity of over 60 acres has been wasted for over a year. There was nothing whatever the plaintiffs could have done to avoid this. As between them and the defendants all the fault lay admittedly on the side of the defendants. Further, farmers do not, and cannot be expected to, insure against this kind of disaster; but suppliers of seed can… Lord Bridge (House of Lords):… My Lords, it seems to me, with all due deference, that the judgments of the learned trial judge and of Oliver LJ on the common law issue come dangerously near to re-introducing by the back door the doctrine of ‘fundamental breach’ which this House in Securicor (No 1) had so forcibly evicted by the front. The learned judge discusses what I may call the ‘peas and beans’ or ‘chalk and cheese’ cases, sc, those in which it

570

Non-Performance of a Contract has been held that exemption clauses do not apply where there has been a contract to sell one thing, for example, a motor car, and the seller has supplied quite another thing, for example, a bicycle. I hasten to add that the judge can in no way be criticised for adopting this approach since counsel appearing for the appellants at the trial had conceded ‘that if what had been delivered had been beetroot seed or carrot seed, he would not be able to rely upon the clause’. Different counsel appeared for the appellants in the Court of Appeal, where that concession was withdrawn… This is the first time your Lordships’ House has had to consider a modern statutory provision giving the court power to override contractual terms excluding or restricting liability, which depends on the court’s view of what is ‘fair and reasonable’… It may…be appropriate to consider how an original decision of what is ‘fair and reasonable’ made in the application of any of these [statutory] provisions should be approached by an appellate court. It would not be accurate to describe such a decision as an exercise of discretion. But… the court must entertain a whole range of considerations, put them in the scales on one side or the other and decide at the end of the day on which side the balance comes down… The question of relative bargaining strength under para (a) and of the opportunity buy seeds without a limitation of the seedsman’s liability under para (b) were interrelated. The evidence was that a similar limitation of liability was universally embodied in the terms of trade between seedsmen and farmers and had been so for very many years. The limitation had never been negotiated between representative bodies but, on the other hand, had not been the subject of any protest by the National Farmers’ Union. These factors, if considered in isolation, might have been equivocal. The decisive factor, however, appears from the evidence of four witnesses called for the appellants, two independent seedsmen, the chairman of the appellant company, and a director of a sister company (both being wholly owned subsidiaries of the same parent). They said that it had always been their practice, unsuccessfully attempted in the instant case, to negotiate settlements of farmers’ claims for damages in excess of the price of the seeds, if they thought that the claims were ‘genuine’ and ‘justified’. This evidence indicated a clear recognition by seedsmen in general, and the appellants in particular, that reliance on the limitation of liability imposed by the relevant condition would not be fair or reasonable. Two further factors, if more were needed, weight the scales in favour of the respondents. The supply of autumn, instead of winter, cabbage seeds was due to the negligence of the appellants’ sister company. Irrespective of its quality, the autumn variety supplied could not, according to the appellants’ own evidence, be grown commercially in East Lothian. Finally, as the trial judge found, seedsmen could insure against the risk of crop failure caused by supplying the wrong variety of seeds without materially increasing the price of seeds. My Lords, even if I felt doubts about the statutory issue, I should not, for the reasons explained earlier, think it right to interfere with the unanimous original decision of that issue by the Court of Appeal. As it is, I feel no such doubts. If I were making the original decision, I should conclude without

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Sourcebook on Obligations and Remedies hesitation that it would not be fair or reasonable to allow the [defendants] to rely on the contractual limitation of their liability…

Questions 1

2 3

4

Did fault play a central role in determining the outcome of this case? If so, how can this be reconciled with risk, which is, surely, the notion that underpins insurance? Did the House of Lords base their decision on an issue of fact? Compare the Unfair Contract Terms Act 1977, together with the Unfair Terms in Consumer Contract Regulations 1999, with the relevant exclusion clause provisions in the PECL. Can you think of any exclusion clause that would be caught by one system and not by the other? Read Jones v Vernon’s Pools Ltd [1938] 2 All ER 626 in the law report. Would this kind of case now be affected by the 1977 Act and/or the 1999 Regulations?

8 REMEDIES AND BREACH

(a) Self-help Principles of European Contract Law Article 8:103 Fundamental non-performance A non-performance of an obligation is fundamental to the contract if: (a) (b) (c)

strict compliance with the obligation is of the essence of the contract; or the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result; or the non-performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance.

Article 9:301 Right to terminate the contract (1) (2)

A party may terminate the contract if the other party’s non-performance is fundamental. In the case of delay the aggrieved party may also terminate the contract under Art 8:106(3).

Article 9:303 Notice of termination (1) (2)

A party’s right to terminate the contract is to be exercised by notice to the other party. The aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable time after it has or ought to have become aware of the non-performance. 572

Non-Performance of a Contract (3)

(4)

(a)

When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later made it loses his right to terminate if it does not give such notice within a reasonable time after it has or ought to have become aware of the tender.

(b)

If, however, the aggrieved party knows or has reason to know that the other party still intends to tender within a reasonable time, and the aggrieved party unreasonably fails to notify the other party that it will not accept performance, it loses its right to terminate if the other party in fact tenders within a reasonable time.

If a party is excused under Art 8:108 through an impediment which is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 Court of Appeal This was an action for damages by the owners of a ship against the charterers of the vessel for wrongful repudiation of the charterparty. The charterers claimed they were entitled to repudiate the contract because the ship was unseaworthy and the crew inadequate. The trial judge held that the owners were in breach of contract, but that the charterers had not been entitled to repudiate. An appeal to the Court of Appeal was dismissed. Diplock LJ:… Every synallagmatic contract contains in it the seeds of the problem: in what event will a party be relieved of his undertaking to do that which he has agreed to do but has not yet done? The contract may itself expressly define some of these events, as in the cancellation clause in a charterparty; but, human prescience being limited, it seldom does so exhaustively and often fails to do so at all. In some classes of contracts such as sale of goods, marine insurance, contracts of affreightment evidenced by bills of lading and those between parties to bills of exchange, Parliament has defined by statute some of the events not provided for expressly in individual contracts of that class; but where an event occurs the occurrence of which neither the parties nor Parliament have expressly stated will discharge one of the parties from further performance of his undertakings, it is for the court to determine whether the event has this effect or not. The test whether an event has this effect or not has been stated in a number of metaphors all of which I think amount to the same thing: does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings? This test is applicable whether or not the event occurs as a result of the default of one of the parties to the contract, but the consequences of the event are different in the two cases. Where the event occurs as a result of the default of one party, the party in default cannot rely upon it as relieving himself of the performance of any further undertakings on his part, and the innocent party, although entitled to, need not treat the event as relieving him of the further performance of his own undertakings. This is only a 573

Sourcebook on Obligations and Remedies specific application of the fundamental legal and moral rule that a man should not be allowed to take advantage of his own wrong. Where the event occurs as a result of the default of neither party, each is relieved of the further performance of his own undertakings, and their rights in respect of undertakings previously performed are now regulated by the Law Reform (Frustrated Contracts) Act 1943. This branch of the common law has reached its present stage by the normal process of historical growth, and the fallacy in Mr Ashton Roskill’s [counsel for the charterer] contention that a different test is applicable when the event occurs as a result of the default of one party from that applicable in cases of frustration where the event occurs as a result of the default of neither party lies, in my view, from a failure to view the cases in their historical context. The problem: ‘in what event will a party to a contract be relieved of his undertaking to do that which he has agreed to do but has not yet done?’ has exercised the English courts for centuries, probably ever since assumpsit emerged as a form of action distinct from covenant and debt and long before even the earliest cases which we have been invited to examine… Once it is appreciated that it is the event and not the fact that the event is a result of a breach of contract which relieves the party not in default of further performance of his obligations, two consequences follow. (1) The test whether the event relied upon has this consequence is the same whether the event is the result of the other party’s breach of contract or not, as Devlin J pointed out in Universal Cargo Carriers Corpn v Citati. (2) The question whether an event which is the result of the other party’s breach of contract has this consequence cannot be answered by treating all contractual undertakings as falling into one of two separate categories: ‘conditions’ the breach of which gives rise to an event which relieves the party not in default of further performance of his obligations, and ‘warranties’ the breach of which does not give rise to such an event. Lawyers tend to speak of this classification as if it were comprehensive, partly for the historical reasons which I have already mentioned and partly because Parliament itself adopted it in the Sale of Goods Act 1893, as respects a number of implied terms in contracts for the sale of goods and has in that Act used the expressions ‘condition’ and ‘warranty’ in that meaning. But it is by no means true of contractual undertakings in general at common law. No doubt there are many simple contractual undertakings, sometimes express but more often because of their very simplicity (‘It goes without saying’) to be implied, of which it can be predicated that every breach of such an undertaking must give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract. And such a stipulation, unless the parties have agreed that breach of it shall not entitle the non-defaulting party to treat the contract as repudiated, is a ‘condition’. So too there may be other simple contractual undertakings of which it can be predicated that no breach can give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and such a stipulation, unless the parties have agreed that breach of it shall entitle the non-defaulting party to treat the contract as repudiated, is a ‘warranty’. 574

Non-Performance of a Contract There are, however, many contractual undertakings of a more complex character which cannot be categorised as being ‘conditions’ or ‘warranties’, if the late 19th century meaning adopted in the Sale of Goods Act 1893 and used by Bowen LJ in Bentsen v Taylor, Sons and Co be given to those terms. Of such undertakings, all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or a ‘warranty’. For instance, to take Bramwell B’s example in Jackson v Union Marine Insurance Co Ltd itself, breach of an undertaking by a shipowner to sail with all possible dispatch to a named port does not necessarily relieve the charterer of further performance of his obligation under the charterparty, but if the breach is so prolonged that the contemplated voyage is frustrated it does have this effect… As my brethren have already pointed out, the shipowners’ undertaking to tender a seaworthy ship has, as a result of numerous decisions as to what can amount to ‘unseaworthiness’, become one of the most complex of contractual undertakings. It embraces obligations with respect to every part of the hull and machinery, stores and equipment and the crew itself. It can be broken by the presence of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in a total loss of the vessel. Consequently, the problem in this case is, in my view, neither solved nor soluble by debating whether the shipowner’s express or implied undertaking to tender a seaworthy ship is a ‘condition’ or a ‘warranty’. It is, like so many other contractual terms, an undertaking one breach of which may give rise to an event which relieves the charterer of further performance of his undertakings if he so elects and another breach of which may not give rise to such an event but entitle him only to monetary compensation in the form of damages… What the judge had to do in the present case, as in any other case where one party to a contract relies upon a breach by the other party as giving him a right to elect to rescind the contract, and the contract itself makes no express provision as to this, was to look at the events which had occurred as a result of the breach at the time at which the charterers purported to rescind the charterparty and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charterparty that the charterers should obtain from the further performance of their own contractual undertakings… The question which the judge had to ask himself was, as he rightly decided, whether or not at the date when the charterers purported to rescind the contract, namely, 6 June 1957, or when the shipowners purported to accept such rescission, namely, 8 August 1957, the delay which had already occurred as a result of the incompetence of the engine room staff, and the delay which

575

Sourcebook on Obligations and Remedies was likely to occur in repairing the engines of the vessel and the conduct of the shipowners by that date in taking steps to remedy these two matters, were, when taken together, such as to deprive the charterers of substantially the whole benefit which it was the intention of the parties they should obtain from further use of the vessel under the charterparty… Upjohn LJ:… Why is this apparently basic and underlying condition of seaworthiness not, in fact, treated as a condition? It is for the simple reason that the seaworthiness clause is breached by the slightest failure to be fitted ‘in every way’ for service. Thus, to take examples from the judgments in some of the cases I have mentioned above, if a nail is missing from one of the timbers of a wooden vessel or if proper medical supplies or two anchors are not on board at the time of sailing, the owners are in breach of the seaworthiness stipulation. It is contrary to common sense to suppose that in such circumstances the parties contemplated that the charterer should at once be entitled to treat the contract as at an end for such trifling breaches… It is open to the parties to a contract to make it clear either expressly or by necessary implication that a particular stipulation is to be regarded as a condition which goes to the root of the contract, so that it is clear that the parties contemplate that any breach of it entitles the other party at once to treat the contract as at an end. That matter has to be determined as a question of the proper interpretation of the contract… Where, however, upon the true construction of the contract, the parties have not made a particular stipulation a condition, it would in my judgment be unsound and misleading to conclude that, being a warranty, damages is necessarily a sufficient remedy. In my judgment, the remedies open to the innocent party for breach of a stipulation which is not a condition strictly so called, depend entirely upon the nature of the breach and its foreseeable consequences. Breaches of stipulation fall, naturally, into two classes. First, there is the case where the owner by his conduct indicates that he considers himself no longer bound to perform his part of the contract; in that case, of course, the charterer may accept the repudiation and treat the contract as at an end. The second class of case is, of course, the more usual one and that is where, due to misfortune such as the perils of the sea, engine failures, incompetence of the crew and so on, the owner is unable to perform a particular stipulation precisely in accordance with the terms of the contract try he never so hard to remedy it. In that case the question to be answered is, does the breach of the stipulation go so much to the root of the contract that it makes further commercial performance of the contract impossible, or in other words is the whole contract frustrated? If yea, the innocent party may treat the contract as at an end. If nay, his claim sounds in damages only. If I have correctly stated the principles, then as the stipulation as to the seaworthiness is not a condition in the strict sense the question to be answered is, did the initial unseaworthiness as found by the judge, and from which there has been no appeal, go so much to the root of the contract that the charterers were then and there entitled to treat the charterparty as at an end? The only unseaworthiness alleged, serious though it was, was the insufficiency and incompetence of the crew, but that surely cannot be

576

Non-Performance of a Contract treated as going to the root of the contract for the parties must have contemplated that in such an event the crew could be changed and augmented. In my judgment, on this part of his case counsel for the charterers necessarily fails…

Questions 1

2

3

4 5

6

A contractor faced with a serious breach of contract on the part of his cocontractor has the self-help remedy of repudiation of the contract, sometimes referred to as a right of rescission. However, rescission is confusing in this context, since the common law remedy of repudiation has, conceptually speaking, nothing in common with the equitable remedy of rescission. The power to repudiate is a self-help remedy, in that a party does not need permission of the court (but does one need permission in equitable rescission?). All the same, if a contractor repudiates when the breach does not justify it, then the person repudiating will himself be in breach, rendering him liable in damages. This, of course, is what happened in Hong Kong. Ought a party to be able to exercise a self-help remedy in this way? The difficulty facing lawyers is one of determining when a breach is serious (or ‘fundamental’, to use the PECL expression). Basically, there are two approaches to the problem: either the breach can be measured in relation to the status of the particular promise (term) broken, or it can be measured in relation to the actual consequences of the breach itself. The former approach, developed in respect of sale of goods contracts, was, until Hong Kong, considered good for all contracts; however, it gave rise to logical problems in that the breach of a serious term, labelled a ‘condition’ (on which, see Schuler v Wickman, p 419), might lead to little or no damage. Consequently, the courts started to take account of the consequences flowing from the breach. Did this new approach invent a new type of term that was neither a ‘condition’ nor a ‘warranty’? Or did it simply require the courts to look at the consequences of the breach? (Cf Bunge Corpn v Tradax SA [1981] 1 WLR 711.) Can a breach of warranty ever give rise to a breach that goes to the root of the contract? Can a breach of condition ever give rise to a breach that does not go to the root of the contract? Could the employers in Lister v Romford Ice (p 534) have dismissed the employee for his breach of contract in injuring his fellow employee? Could the hirers of the motor launch in Reed v Dean have repudiated the contract of hire the moment they discovered there was no fire extinguisher? Was the hairdresser in Ingham v Ernes in breach of any contractual term? If so, was it a breach of a condition or a warranty?

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Sourcebook on Obligations and Remedies

(b) Damages Principles of European Contract Law (See p 294.) Surrey CC v Bredero Homes Ltd [1993] 1 WLR 1361 Court of Appeal (See p 295.)

Questions 1

2

3 4

The award of damages in contract will protect three different types of interest: the expectation interest; the reliance interest; and the restitution interest. How is a lawyer to know which interest the court will protect? Is it for the plaintiff to decide? Where a plaintiff suffers personal injury as a result of the defendant’s breach of contract, will the assessment of damages fall under one of the above heads? If so, which one? Assuming that the law of damages is a science, what is the object of this science? Is the object of the law of damages social interests? What defines these interests: social science or legal science or a mixture of both? Do you think the status of the plaintiff is of relevance in Bredero? Could the plaintiffs have brought an equitable account action for the profit made by the defendant? Lazenby Garages Ltd v Wright [1976] 1 WLR 459 Court of Appeal Lord Denning MR: Mr Wright works on the land. On 19 February 1974 he went to the showrooms of motor dealers called Lazenby Garages Ltd. He saw some second hand cars there. He agreed to buy a BMW 2002. He signed a contract to pay £1,670 for it. It was to be delivered to him on 1 March 1974. He went back home to his wife and told her about it. She persuaded him not to buy it. So next day he went back to the garage and said he would not have it after all. They kept it there offering it for resale. Two months later on 23 April 1974 they resold it for £1,770, that is for £100 more than Mr Wright was going to pay. Notwithstanding this advantageous resale, the garage sued Mr Wright for damages. They produced evidence that they had themselves bought the car second hand on 14 February 1974, that is, five days before Mr Wright had come in and agreed to buy it. They said that they had bought it for £1,325. He had agreed to buy it from them for £1,670. So they had lost £345 and they claimed that sum as damages. In answer Mr Wright said: ‘You haven’t lost anything; you’ve sold it for a higher price.’ The garage people said that they were dealers in second hand cars; that they had had a number of cars of this sort of age and type, BMW 2002s; and that they had lost the sale of another car. They said that, if Mr Wright had taken this car, they would have been able to sell one of those other cars to the purchaser. So they had sold one car less and were entitled to profit accordingly. 578

Non-Performance of a Contract The judge thought that they had not proved that they had sold one car less but that there was a 50:50 chance that they would have sold an extra car. So he gave them damages for half the sum claimed. Instead of £345 he gave them £172.50. Now there is an appeal to this court. The cases show that if there are a number of new cars, all exactly of the same kind, available for sale, and the dealers can prove that they sold one car less than they otherwise would have done, they would be entitled to damages amounting to their loss of profit on the one car: see the judgment of Upjohn J in WL Thompson v Robinson (Gunmakers) Ltd. The same has been held in the United States: Torkomian v Russell and Stewart v Hawsen; in Canada, Mason and Risch Ltd v Christner; and in Australia, Cameron v Campbell and Worthington. But it is entirely different in the case of a second hand car. Each second hand car is different from the next, even though it is the same make. The sales manager of the garage admitted in evidence that some second hand cars, of the same make, even of the same year, may sell better than others of the same year. Some may sell quickly, others sluggishly. You simply cannot tell why. But they are all different. In the circumstances the cases about new cars do not apply. We have simply to apply to s 50 of the Sale of Goods Act 1893. There is no available market for second hand cars. So it is not sub-s (3) but sub-s (2). The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. That throws us back to the test of what could reasonably be expected to be in the contemplation of the parties as a natural consequence of the breach. The buyer in this case could not have contemplated that the dealer would sell one car less. At most he would contemplate that, if they resold this very car at a lower price, they would suffer by reason of that lower price and should recover the difference. But if they resold this very car at a higher price, they would suffer no loss. Seeing that these plaintiffs resold this car for £100 more than the sale to Mr Wright, they clearly suffered no damage at all. In my opinion the appeal should be allowed and judgment entered for the defendant, Mr Wright. [Lawton and Bridge LJJ agreed.]

Questions 1 2 3

Is this case an example of the court refusing to accept loss of a chance as a form of damage? What if the plaintiffs bought and resold many second hand BMW cars? Is the object (res) in this case a car or a particular second hand BMW 2002? If the latter, does this mean that English law is more interested in actual things as opposed to names (or words)? Heywood v Wellers [1976] QB 446 Court of Appeal This was an action in debt, for the return of money paid, and damages, for mental distress, brought by a client against a firm of negligent solicitors who 579

Sourcebook on Obligations and Remedies had failed to take proper legal proceedings to stop the client from being molested by an off-duty policeman. Lord Denning MR:… [T]he solicitors were entitled to nothing for costs; and Mrs Heywood could recover the £175 as money paid on a consideration which had wholly failed. She was, therefore, entitled to recover it as of right. And she is entitled to recover as well damages for negligence. Take this instance. If you engage a driver to take you to the station to catch a train for a day trip to the sea, you pay him £2—and then the car breaks down owing to his negligence. So that you miss your holiday. In that case you can recover, not only your £2, but also damages for the disappointment, upset and mental distress which you suffered—see Jarvis v Swan’s Tours Ltd; Jackson v Horizon Holidays Ltd. So here, Mrs Heywood employed the solicitors to take proceedings at law to protect her from molestation by Mr Marrion. They were under a duty by contract to use reasonable care. Owing to their want of care, she was molested by this man on three or four occasions. This molestation caused her much mental distress and upset. It must have been in their contemplation that, if they failed in their duty, she might be further molested and suffer much upset and distress. This damage she suffered was within their contemplation within the rule in Hadley v Baxendale. That was the test applied by Lawson J in the recent case of Cox v Phillips Industries Ltd. Counsel for the solicitors urged that damages for mental distress were not recoverable. He relied on Groom v Crocker and Cook v S. But those cases may have to be reconsidered. In any case they were different from this. Here Wellers were employed to protect her from molestation causing mental distress—and should be responsible in damages for their failure. It was suggested that, even if Wellers had done their duty and taken the man to court, he might still have molested her. But I do not think they can excuse themselves on that ground. After all, it was not put to the test; and it was their fault it was not put to the test. If they had taken him to court as she wished—and as they ought to have done—it might well have been effective to stop him from molesting her any more. We should assume that it would have been effective to protect her, unless they prove that it would not: see Coldman v Hill by Scrutton LJ; Scottish Co-operative Wholesale Society Ltd v Meyer. So the remaining question is: what damages should be awarded to Mrs Heywood for the molestation she suffered on three or four occasions, and the mental distress and upset she suffered? The judge, unfortunately, did not quantify the damages. In her claim as amended she put them at £150.1 would allow her that sum. Some reduction should be made for the fact that, if Wellers had done their duty (and saved her from the molestation), it would have cost her something. I should put that at the figure which Mr Price gave in the beginning, £25…

Questions 1

Is Lord Denning treating the plaintiff in this case quite differently from the plaintiff in Miller v Jackson (p 51)? If so, why? 580

Non-Performance of a Contract

2

3

Is mental distress a form of damage—an ‘interest’—protected by the law of obligations? Or is it an interest protected only by certain causes of action? If the latter, does this mean that the notion of an ‘interest’ as a social concept is rather meaningless? Is not an interest, in other words, just another legal concept? Why was the burden of proving causation put onto the shoulders of the defendant? Ruxley Electronics Ltd v Forsyth [1996] I AC 344 House of Lords (Seep 301.)

(c) Debt White & Carter (Councils) Ltd v McGregor [1962] AC 413 House of Lords (Scotland) (Seep 231.) Principles of European Contract Law Article 9:509 Agreed payment for non-performance (1)

(2)

Where the contract provides that a party who fails to perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party shall be awarded that sum irrespective of its actual loss. However, despite any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances.

Bridge v Campbell Discount Co Ltd [1962] AC 600 House of Lords This was an action in debt brought by a finance company against a hire purchaser of a car who had written to the finance company terminating the hire-purchase contract. The company was claiming two-thirds of the hire purchase price, which the contract stipulated was to be payable if the purchaser decided to terminate the agreement. The purchaser claimed that this two-thirds clause was a penalty and thus unenforceable in equity (doctrine of relief against penalties). The Court of Appeal held that the equitable doctrine applied only to breaches of contract and thus had no application where the contract was lawfully terminated; the House of Lords, allowing an appeal, held that, on the facts of this case, the hire purchaser had been in breach of contract. Lord Denning:… When hire purchase transactions were first validated by this House in 1895 in Helby v Matthews, the contract of hire had most of the features of an ordinary hiring. In particular, the hirer was at liberty to terminate the hiring at any time without paying any penalty. He could return the goods and not be liable to make any further payments beyond the monthly sum

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Sourcebook on Obligations and Remedies then due. There was no clog on his right to terminate. And this was one of the reasons why the House saw nothing wrong with the transaction… Since that time, however, the finance houses have imposed a serious clog on the hirer’s right to terminate the hiring. They have introduced into their printed forms a ‘minimum payment’ clause such as never appeared in Helby v Matthews. The clause in this case is a good example. The minimum payment is two-thirds of the hire-purchase price… What possible justification have the finance houses for inserting this ‘minimum payment’ clause? They call it ‘agreed compensation for depreciation’, but it is no such thing. It is not ‘agreed’. Nor is it ‘compensation for depreciation’. There is not the slightest evidence that Bridge ever agreed it, and I do not suppose for a moment that he did. He simply signed the printed form and, as for ‘depreciation’, everyone knows that a car depreciates more and more as it gets older and older, but this sum gets less and less. It is obvious that the initial rental of £105 (which was one-quarter of the cash price) would compensate at once for a 25% depreciation: and the monthly rentals covered any remaining depreciation over the next three years. The truth is that this minimum payment is not so much compensation for depreciation but rather compensation for loss of the future instalments which the hire purchase company expected to receive, but which they had no right to receive. It is a pénal sum which they exact because the hiring is terminated before two-thirds has been paid. In cases when the hiring is terminated, as it was here, within a few weeks, it is beyond doubt oppressive and unjust. Is not this, then, a classic case for equity to intervene? The contract is contained in a printed form. Not one hirer in a thousand reads it, let alone understands it. He takes it on trust and signs it. It is binding at law but when it comes to be examined it is found to contain a penalty which is oppressive and unjust. It seems to me that such a case comes within the very first principles on which equity intervenes to grant relief. The whole system of equity jurisprudence proceeds upon the ground that a party, having a legal right, shall not be permitted to avail himself of it for the purpose of injustice, or fraud, or oppression, or harsh and vindictive injury.’ See Story’s Commentaries on Equity Jurisprudence, 1839, Vol II, p 508. The Court of Appeal acknowledge that in some cases there is room for the intervention of equity. They accept that, where the hiring is terminated because the hirer is in breach, equity will relieve him from payment of the penalty: see Cooden Engineering Co Ltd v Stanford. But they say that when it is terminated for any other reason, as, for instance, if the hirer gives notice of termination himself, or if he dies, there is no equity to relieve him or his executors from the rigours of the law, see Associated Distributors Ltd v Hall The jurisdiction of equity is confined, they say, to relief against penalties for breach of contract and does not extend further. Applied to this case it means this: if Bridge, after a few weeks, finds himself unable to keep up the instalments and, being a conscientious man, gives notice of termination and returns the car, without falling into arrear, he is liable to pay the pénal sum of £206 3s 4d without relief of any kind. But if he is an unconscientious man who falls into arrear without saying a word, so that the company retake the car for his default, he will be relieved from payment of the penalty.

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Non-Performance of a Contract Let no one mistake the injustice of this. It means that equity commits itself to this absurd paradox: it will grant relief to a man who breaks his contract but will penalise the man who keeps it. If this be the state of equity today, then it is in sore need of an overhaul so as to restore its first principles. But I am quite satisfied that such is not the state of equity today. This case can be brought within long established principles without recourse to any new equity. From the very earliest times equity has relieved not only against penalties for breach of contract, but also against penalties for nonperformance of a condition. And the stipulation for a ‘minimum payment’ was, it seems to me, a penalty which was payable upon non-performance of a condition… In my judgment, therefore, the courts have power to grant relief against the pénal sum contained in this ‘minimum payment’ clause, no matter for what reason the hiring is terminated. The ‘minimum payment’ clause is single and indivisible, and no just distinction can be drawn between the cases where the hirer is in breach and where he is not… If I am wrong about all this, however, and there is no jurisdiction to grant relief unless the hirer is in breach, then I would be prepared to hold in this case Bridge was in breach… Lord Radcliffe:…Having regard to the view that your Lordships have taken as to the true facts of the case, our decision does not, I take it, conclude the question of an owner’s rights under such agreements, when the hiring is determined under a hirer’s option or by an event specified in the contract but not involving breach. Such questions are closely related to what we have to consider here, but it does not follow that the legal arguments that sustain the hirer, when he is sued on breach, would be capable of sustaining him in these other situations. Indeed, although I wish to decide nothing, I appreciate that the doctrine of penalties can only be applied to those situations by the construction of almost a new set of arguments that would not arise naturally out of the arguments and considerations that have prevailed with courts either of equity or of common law, when relieving against penalties in the past. ‘Unconscionable’ must not be taken to be a panacea for adjusting any contract between competent persons when it shows a rough edge to one side or the other, and equity lawyers are, I notice, sometimes both surprised and discomfited by the plenitude of jurisdiction, and the imprecision of rules that are attributed to ‘equity’ by their more enthusiastic colleagues. Since the courts of equity never undertook to serve as a general adjuster of men’s bargains, it was inevitable that they should in course of time evolve definite rules as to the circumstances in which, and the conditions under which, relief would be given, and I do not think that it would be at all an easy task, and I am not certain that it would be a desirable achievement to try to reconcile all the rules under some simple general formula. Even such masters of equity as Lord Eldon and Sir George Jessel, it must be remembered, were highly sceptical of the court’s duty to apply the epithet ‘unconscionable’ or its consequences to contracts made between persons of full age in circumstances that did not fall within the familiar categories of fraud, surprise, accident, etc, even though such contracts involved the payment of a larger sum of money on breach of an obligation to pay a smaller sum (see the latter’s judgment in Wallis v Smith).

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Sourcebook on Obligations and Remedies But I do not speculate as to what principles they would have thought applicable to a hire purchase contract, in which the hirer, I dare say willingly enough, transacts only with a dealer who is not the agent of the owner and if he signs up at all, signs up to an elaborate fixed menu of stipulations and conditions, which he probably does not bother himself to read and very likely does not or cannot understand. I agree that the appeal should be allowed.

Questions 1 2

3 4

5

Is this case an example of the House of Lords deciding a question of fact? Leaving aside s 100 of the Consumer Credit Act 1974, would the facts of this case now be covered by the Unfair Contract Terms Act 1977 and/or the Unfair Terms in Consumer Contracts Regulations 1999? What role, if any, does causation play in debt claims? Could the court have implied into the contract in White & Carter a bona fides term? If they had, could the debtor have sued the creditor for damages for breach of this term? Could the debtor have repudiated the whole contract? Do Lords Radcliffe and Scarman (p 84) view the role of equity and contract in the same way? Jobson v Johnson [1989] 1 WLR 1026 Court of Appeal This was an action for specific performance of a retransfer clause in a contract for the sale of shares. The clause stipulated that the shares were to be retransferred to the vendor for £40,000 if the buyer defaulted in the payment of any instalment of the purchase price. The Court of Appeal held that the retransfer clause was a penalty and unenforceable in equity. Nicholls LJ: This case, as it has proceeded on appeal in this court, is a very unusual one. Partly this is because the term in the contract, para 6(b), of which the plaintiff is seeking specific performance, is itself a somewhat unusual provision. More especially is this case unusual because of two other matters. First, in the court below the judge struck out the defendant’s counterclaim for relief, not after an investigation of its merits, but because of the defendant’s failure to comply with an undertaking given by him to the court regarding discovery of documents considered material on the issues raised by his counterclaim for relief. Secondly, there has been no appeal from the striking out order. This has made it necessary to grapple with problems concerning the effect of an admittedly ‘pénal’ provision in a case where there is no extant application for relief from ‘forfeiture’. Equitable relief In considering this appeal it is right to have in mind that the legal principles applicable today regarding penalty clauses in contracts and those applicable regarding relief from forfeiture stem from a common origin. A penalty clause in a contract, as that expression is normally used today, is a provision which, on breach of the contract, requires the party in default to make a payment to 584

Non-Performance of a Contract the innocent party of a sum of money which, however it may be labelled, is not a genuine pre-estimate of the damage likely to be sustained by the innocent party, but is a payment stipulated in terrorem of the party in default. For centuries equity has given relief against such provisions by not permitting the innocent party to recover under the pénal provision more than his actual loss… Penalty clauses The particular procedure by which the Court of Chancery prevented a party seeking payment under a penalty clause in a contract, including a bond, from recovering more than his actual loss seems to have differed a little according to whether the penalty was intended to secure only a payment of money on a specified date or was intended to secure the performance of an obligation other than a payment of money. The details are not material for the purpose of this appeal. It suffices to say that an example of the latter type of case is to be found in Sloman v Walter (1784) 1 Bro CC 418. The party seeking payment of the penalty was prevented by injunction from recovering, by execution or otherwise, more from his judgment obtained at law on a bond than the amount of his loss as established by an issue of quantum damnificatus directed by the Court of Chancery. In the former case, of a bond securing only a money payment, the Court of Chancery proceeded on the principle that failure to pay the principal on a certain day could be compensated sufficiently by payment of principal, interest and costs on a subsequent day. Thus, it was unnecessary to direct an issue of quantum damnificatus… Subsequently the common law courts became obliged to give effect to these equitable principles, under…statutes… After the Supreme Court of Judicature Act 1873 came into force, these two statutes ceased to be necessary, and eventually they were repealed. Thus today, when law and equity are administered concurrently in the same courts, and the rules of equity prevail whenever there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter (s 49 of the Supreme Court Act 1981), a penalty clause in a contract is, in practice, a dead letter. An obligation to make a money payment stipulated in terrorem will not be enforced beyond the sum which represents the actual loss of the party seeking payment, namely, principal, interest and, if appropriate, costs, in those cases where (to use modern terminology) the primary obligation is to pay money, or where the primary obligation is to perform some other obligation, beyond the sum recoverable as damages for breach of that obligation. (For convenience, I shall hereafter refer to that sum as ‘the actual loss of the innocent party’.) Hence, normally there is no advantage in suing on the penalty clause… Although in practice a penalty clause in a contract as described above is effectively a dead letter, it is important in the present case to note that, contrary to the submissions of Mr Joseph, the strict legal position is not that such a clause is simply struck out of the contract, as though with a blue pencil, so that the contract takes effect as if it had never been included therein. Strictly, the legal position is that the clause remains in the contract and can be sued upon, but it will not be enforced by the court beyond the sum which represents, in the events which have happened, the actual loss of the party seeking payment …

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Sourcebook on Obligations and Remedies In this respect, as the law has developed, a distinction has arisen between the enforcement of penalty clauses in contracts and the enforcement of forfeiture clauses. A penalty clause will not be enforced beyond the sum which equals the actual loss of the innocent party. A forfeiture clause, of which a right of re-entry under a lease on non-payment of rent is the classic example, may also be pénal in its effect. Such a clause frequently subjects the defaulting party, in the event of non-payment of rent or breach of some other obligation, to a sanction which damnifies the defaulting party, and benefits the other party, to an extent far greater than the actual loss of the innocent party. For instance, the lease may be exceedingly valuable and the amount of unpaid rent may be small, but in such a case, the court will lend its aid in the enforcement of the forfeiture, by making an order for possession, subject to any relief which in its discretion the court may grant to the party in default. Normally, the granting of such relief is made conditional upon the payment of the rent with interest and costs. If that condition is not complied with, and subject to any further application by the tenant or other person in default for yet more time, the forfeiture provision will be enforced. Thus, the innocent party is in a better position when seeking to enforce a forfeiture clause than when seeking to enforce a penalty clause in a contract. This is not the occasion to attempt to rationalise the distinction. One possible explanation is that the distinction is rooted in the different forms which the relief takes. In the case of a penalty clause in a contract equity relieves by cutting down the extent to which the contractual obligation is enforceable: the ‘scaling down’ exercise, as I have described it. In the case of forfeiture clauses, equitable relief takes the form of relieving wholly against the contractual forfeiture provision, subject to compliance with conditions imposed by the court. Be that as it may, I see no reason why the court’s ability to grant discretionary relief automatically granted in respect of a penalty clause if, exceptionally, a contractual provision has characteristics which enable a defendant to pray in aid both heads of relief… Kerr LJ (dissenting in part): I respectfully differ on one aspect of this puzzling case from the conclusions reached in the judgments of Dillon and Nicholls LJJ which I have had the great advantage of reading. This concerns the choice of remedies to which the plaintiff should now be entitled… It is common ground that para 6(b) is pénal in its nature. The reason is, of course, not that the value of the shares might rise substantially above the agreed price before the end of the period during which the instalments fall to be paid, although in my view…this may be relevant to the appropriate order which should now be considered in the unusual circumstances of this case. The reason why para 6(b) is pénal in its nature, as explained by Dillon LJ, is that it subjects the defendant to the same liability irrespective of the gravity and consequences of the breach relied upon by the plaintiff in seeking to enforce the clause: see Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, p 87, para 4(c), per Lord Dunedin… However, it does not follow that a penalty clause is illegal in the same way as, for instance, provisions imposing unlawful restraints of trade. These are simply struck down, or ‘blue-pencilled’, because they are prohibited on the 586

Non-Performance of a Contract ground of public policy, unless it is possible to sever the good from the bad. Penalty clauses falling within the principles considered in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd are not in the same category. In my view, the combined effect of law and equity upon penalty clauses is simply that they will not be enforced in favour of a plaintiff without first giving to the defendant a proper opportunity to obtain relief against their pénal consequences… In these circumstances it seems to me that, in equity, the plaintiff is entitled to a further alternative. This would be an order giving effect to para 6(b), but on terms that the plaintiff repays to the defendant, perhaps with interest, the £160,000 which he has received under the agreement. In my view, a further option to this effect would do justice to the plaintiff without contravening any principle of equity. It would give effect to the unenforceability of para 6(b) because of its pénal nature, but without simply ‘blue-pencilling’ it, which would be wrong. Secondly, it would provide some compensation to the plaintiff for having lost the opportunity of obtaining an order in terms of para 6(b) because the normal process of an application for relief from forfeiture was frustrated by the defendant’s decision to allow his counterclaim to be struck out. Above all, it would result in equitable restitution to both parties, without either enforcing or ‘blue-pencilling’ para 6(b). There is nothing pénal about a provision that, in the event of a failure by the defendant to pay any instalment of the price, the plaintiff is to be entitled to rescind the contract and to recover the goods against a refund of all sums received by him: cf Alder v Moore [1961] 2 QB 57. Paragraph 6(b) is penal, because its operation takes no account of the sums already received, and to that extent it is unenforceable, but it is enforceable to the extent that it is not a penalty, by requiring full restitution by the plaintiff as a condition of its enforcement. That would not be a case of ‘mending men’s bargains’, but the enforcement of a pénal forfeiture clause by the removal of its pénal element, and in a situation where relief from forfeiture can no longer be claimed by the defendant. Subject to offering this further alternative to the plaintiff I therefore agree that the order of Harman J should be set aside and that the defendant’s appeal should be allowed to this extent. Workers Trust Bank Ltd v Dojap Ltd [1993] AC 573 Privy Council (See p 835.)

Notes and questions 1

The equitable doctrine against penalties is one area of substantive contract law where equity makes a direct contribution. In many ways, of course, the doctrine is more a remedy than a right, in as much as it attaches to the creditor’s claim in debt and involves enforcement rather than substantive obligation. Nevertheless, it would probably be incorrect to describe the doctrine as a remedy to be placed alongside injunction and rescission. The doctrine is more like an estoppel. A contractual party is simply prevented from enforcing a debt right that he has at common law. 587

Sourcebook on Obligations and Remedies

2

3

If equity was prepared to intervene with respect to penalty clauses, why was it not prepared to do the same thing with exclusion and limitation clauses? Does Art 9:509 of the PECL represent English law? Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 King’s Bench Division (Seep 455.)

Questions 1 2

Were the defendants in High Trees guilty of a breach of contract? Can a refusal to pay a debt which causes damage to the creditor be the basis for an action for damages for breach of contract?

9 IMPEDIMENT TO PERFORMANCE Principles of European Contract Law Article 8:108 Excuse due to an impediment (1)

A party’s non-performance is excused if it proves that it is due to an impediment beyond its control and that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences.

Taylor v Caldwell (1863) 122 ER 309 Court of Queen’s Bench Blackburn J: In this case, the plaintiffs and defendants had, on 27 May 1861, entered into a contract by which the defendants agreed to let the plaintiffs have the use of The Surrey Gardens and Music Hall on four days then to come…for the purpose of giving a series of four grand concerts…and the plaintiffs agreed to take the Gardens and Hall on those days, and pay £100 for each day… After the making of the agreement, and before the first day on which a concert was to be given, the Hall was destroyed by fire. This destruction, we must take it on the evidence, was without the fault of either party, and was so complete that in consequence the concerts could not be given as intended. And the question we have to decide is whether, under these circumstances, the loss which the plaintiffs have sustained is to fall upon the defendants. The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it, so that the answer to the question must depend upon the general rules of law applicable to such a contract. There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not 588

Non-Performance of a Contract doing it, although in consequence of unforeseen accidents, the performance of his contract has become unexpectedly burthensome or even impossible… But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied: and…where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor. There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract. For, in the course of affairs, men in making such contracts in general would, if it were brought to their minds, say that there should be such a condition. Accordingly, in the civil law, such an exception is implied in every obligation of the class which they call obligatio de certo corpore. The rule is laid down in the Digest, lib XLV, tit 1, de verborum obligationibus… The general subject is treated of by Pothier, who in his Traité des Obligations, Partie 3, Chap 6, Art 3, p 668, states the result to be that the debtor corporis certi is freed from his obligation when the thing has perished, neither by his act, nor his neglect, and before he is in default, unless by some stipulation he has taken on himself the risk of the particular misfortune which has occurred. Although the civil law is not, of itself, authority in an English court, it affords great assistance in investigating the principles on which the law is grounded. And it seems to us that the common law authorities establish that in such a contract the same condition of the continued existence of the thing is implied by English law. There is a class of contracts in which a person binds himself to do something which requires to be performed by him in person; and such promises, eg, promises to marry, or promises to serve for a certain time, are never in practice qualified by an express exception of the death of the party… These are instances where the implied condition is of the life of a human being, but there are others in which the same implication is made as to the continued existence of a thing… In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the performance; but that excuse is by law implied, because from the nature of the contract it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel. In the present case, looking at the whole contract, we find that the parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given; that being essential to their performance.

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Sourcebook on Obligations and Remedies We think, therefore, that the Music Hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the gardens and paying the money, the defendants from performing their promise to give the use of the Hall and Gardens and other things.

Notes and questions 1

2

3 4

In French law, and according to the PECL, non-performance (inexécution) of a contract will usually give rise to no liability if the defendant can show that the cause of the non-performance is some act or event outside, and beyond, his control. In other words, if the defendant can show that he is not at fault, he may escape liability. Such a principle was imported into English law by Blackburn J via the notion of an implied term; fault, in other words, got translated into promise. Take the following example. A promises his friend B that he will attend B’s birthday party ‘come what may’; on the day of the party, A does not turn up, and B is most put out until he learns that his friend has been badly injured by a bus while crossing the road on the way to the party. Why is it that B does not ‘lame’ A for failing to turn up? Is it because there was an implied understanding that A’s promise to turn up was subject to obvious exceptions? Or is it because A was not ‘at fault’? What if A had been careless in crossing the road: would B have good grounds to be put out? Much, of course, depends on the nature of the arrangement or transaction within which the promises are made. If A promises B that he will look after B’s car while B is away, B will no doubt not hold it against A if the car is damaged in a freak thunderstorm. But what if it is damaged by a freak thunderstorm partly because A has failed to put the car in a safe parking place? In these circumstances, carelessness on the part of the promisor becomes important because the Institution’ (res) damaged is B’s property. Ownership and property change the nature of the problem—the nature of the interest—and thus the nature of the promises. Can this be translated into a question of ‘duty’? What is the duty of A in respect of B’s car? Does such a notion depend upon fault or promise? Why could the defendant in Reed v Dean (p 530) not claim that the contract of hire was frustrated by the fire? D contracts with P to perform in P’s theatre on a certain night, but when the night arrives, D fails to turn up and later claims, and can prove, that he was ill. Will the contract be frustrated if P can show that D was ill only because he had carelessly neglected to take proper care of himself? What if, before the night he was supposed to perform, D had been arrested for possession of illegal drugs and was in custody on the night he was supposed to perform? What if part of D’s attraction is his adherence to a ‘drug culture’? (Cf Shepherd and Co v Jerrom [1986] 3 All ER 589.) 590

Non-Performance of a Contract

5

6

‘Although the civil law is not, of itself, authority in an English court, it affords great assistance in investigating the principles on which the law is grounded.’ Is this statement still true today? Do the courts today often refer to doctrine, legislation and/or cases from civil law countries? Ought English judges to treat the systems of our EU partners as authoritative? Could an English lawyer ever teach English law to a French or German lawyer without the English lawyer having a knowledge of the civil codes? Krell v Henry [1903] 2 KB 740 Court of Appeal This was an action in debt for rent owing for the use of rooms overlooking Pall Mall. The defendant had contracted to rent the rooms for £75 for two days during the coronation of the King and had paid the plaintiff £25 in advance. However, when the coronation was cancelled, owing to the illness of the King, the defendant refused to pay the £50 and counterclaimed for the return of his £25. The trial judge gave judgment for the defendant on the claim and counterclaim. The plaintiff appealed. Vaughan Williams LJ: The real question in this case is the extent of the application in English law of the principle of the Roman law which has been adopted and acted on in many English decisions, and notably in the case of Taylor v Caldwell… I do not think that the principle of the civil law as introduced into the English law is limited to cases in which the event causing the impossibility of performance is the destruction or non-existence of some thing which is the subject matter of the contract or of some condition or state of things expressly specified as a condition of it. I think that you first have to ascertain, not necessarily from the terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognised by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the nonexistence of the state of things assumed by both contracting parties as the foundation of the contract there will be no breach of the contract thus limited. Now what are the facts of the present case? The contract is contained in two letters of 20 June, which passed between the defendant and the plaintiffs agent, Mr Cecil Bisgood. These letters do not mention the coronation, but speak merely of the taking of Mr Krell’s chambers, or, rather, of the use of them, in the daytime of 26 and 27 June, for the sum of £75, £25 then paid, balance £50 to be paid on the 24th. But the affidavits, which by agreement between the parties are to be taken as stating the facts of the case, show that the plaintiff exhibited on his premises, third floor, 56A, Pall Mall, an announcement to the effect that windows to view the Royal coronation procession were to be let, and that the defendant was induced by that announcement to apply to the housekeeper on the premises, who said that the owner was willing to let the suite of rooms for the purpose of seeing the Royal procession for both days, but not nights, of 26 and 27 June. In my

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Sourcebook on Obligations and Remedies judgment the use of the rooms was let and taken for the purpose of seeing the Royal procession. It was not a demise of the rooms, or even an agreement to let and take the rooms. It is a licence to use rooms for a particular purpose and none other. And in my judgment the taking place of those processions on the days proclaimed along the proclaimed route, which passed 56A Pall Mall, was regarded by both contracting parties as the foundation of the contract; and I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or the processions not take place on those days along the proclaimed route… I think, for the reasons which I have given, that the principle of Taylor v Caldwell ought to be applied. This disposes of the plaintiffs claim for £50 unpaid balance of the price agreed to be paid for the use of the rooms. The defendant at one time set up a cross-claim for the return of the £25 he paid at the date of the contract. As that claim is now withdrawn it is unnecessary to say anything about it… [The other judges concurred.]

Questions 1

2 3

What was the object of the contract in Krell v Henry; was it to hire a room or to hire a viewing place? Is the answer to this question determined by the owner’s pre-contractual statement? What if the contract had contained a clause stipulating that it was a contract for the demise of rooms? Might it be said that it is the law of property which determined whether or not the contract was frustrated? Why should the owner of the rooms, and not the hirer, be the one to shoulder the risk of the coronation being cancelled? Ought the defendant to have been able to reclaim the £25 in debt? Principles of European Contract Law Article 6:111 Change of circumstances (1) (2)

A party is bound to fulfil its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance it receives has diminished. If, however, performance of the contract becomes excessively onerous because of a change of circumstances, the parties are bound to enter into negotiations with a view to adapting the contract or terminating it, provided that: (a) (b) (c)

the change of circumstances occurred after the time of conclusion of the contract, the possibility of a change of circumstances was not one which could reasonably have been taken into account at the time of conclusion of the contract, and the risk of the change of circumstances is not one which, according to the contract, the party affected should be required to bear.

592

Non-Performance of a Contract (3)

If the parties fail to reach agreement within a reasonable period, the court may: (a) (b)

terminate the contract at a date and on terms to be determined by the court; or adapt the contract in order to distribute between the parties in a just and equitable manner the losses and gains resulting from the change of circumstances.

In either case, the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing. Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 House of Lords This was an action in quasi-contractual debt (quantum meruit) by a firm of building contractors for expenditure incurred over and above the agreed contract price of £92,425 to build 78 houses. The extra expenditure had been incurred as a result of an unforeseen serious shortage of skilled labour and building materials; and the plaintiffs claimed that the contract itself had been frustrated by these unforeseen shortages. The House of Lords held that the contract had not been not frustrated. Lord Radcliffe:… The theory of frustration belongs to the law of contract and it is represented by a rule which the courts will apply in certain limited circumstances for the purpose of deciding that contractual obligations, ex facie binding, are no longer enforceable against the parties. The description of the circumstances that justify the application of the rule and, consequently, the decision whether in a particular case those circumstances exist are, I think, necessarily questions of law. It has often been pointed out that the descriptions vary from one case of high authority to another… Lord Loreburn ascribes the dissolution to an implied term of the contract that was actually made. This approach is in line with the tendency of English courts to refer all the consequences of a contract to the will of those who made it. But there is something of a logical difficulty in seeing how the parties could even impliedly have provided for something which ex hypothesi they neither expected nor foresaw, and the ascription or frustration to an implied term of the contract has been criticised as obscuring the true action of the court which consists in applying an objective rule of the law of contract to the contractual obligations that the parties have imposed upon themselves… By this time, it might seem that the parties themselves have become so far disembodied spirits that their actual persons should be allowed to rest in peace. In their place there rises the figure of the fair and reasonable man. And the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be the court itself. So perhaps it would be simpler to say at the outset that frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the 593

Sourcebook on Obligations and Remedies circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do. There is, however, no uncertainty as to the materials upon which the court must proceed. The data for decision are, on the one hand, the terms and construction of the contract, read in the light of the then existing circumstances, and on the other hand the events which have occurred…’ But, even so, it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for. I am bound to say that, if this is the law, the appellants’ case seems to me a long way from a case of frustration. Here is a building contract entered into by a housing authority and a big firm of contractors in all the uncertainties of the post-war world. Work was begun shortly before the formal contract was executed and continued, with impediments and minor stoppages but without actual interruption, until the 78 houses contracted for had all been built. After the work had been in progress for a time, the appellants raised the claim, which they repeated more than once, that they ought to be paid a larger sum for their work than the contract allowed; but the respondents refused to admit the claim and, so far as appears, no conclusive action was taken by either side which would make the conduct of one or the other a determining element in the case. That is not in any obvious sense a frustrated contract… The contract, it is said, was an eight month contract, as indeed it was. Through no fault of the parties it turned out that it took 22 months to do the work contracted for. The main reason for this was that, whereas both parties had expected that adequate supplies of labour and material would be available to allow for completion in eight months, the supplies that were in fact available were much less than adequate for the purpose. Hence, it is said, the basis or the footing of the contract was removed before the work was completed; or, slightly altering the metaphor, the footing of the contract was so changed by the circumstance that the expected supplies were not available and the contract built upon that footing became void… Two things seem to me to prevent the application of the principle of frustration to this case. One is that the cause of the delay was not any new state of things which the parties could not reasonably be thought to have foreseen. On the contrary, the possibility of enough labour and materials not being available was before their eyes and could have been the subject of special contractual stipulation. It was not made so. The other thing is that, though timely completion was no doubt important to both sides, it is not right to treat the possibility of delay as having the same significance for each. The owner draws up his conditions in detail, specifies the time within which he requires completion, protects himself both by a penalty clause for time exceeded and by calling for the deposit of a guarantee bond and offers a certain measure of security to a contractor by his escalator clause with regard to wages and prices. In the light of these conditions the contractor makes his tender, and the tender must necessarily take into account the margin of profit that he

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Non-Performance of a Contract hopes to obtain upon his adventure and in that any appropriate allowance for the obvious risks of delay. To my mind, it is useless to pretend that the contractor is not at risk if the delay does occur, even serious delay. And I think it a misuse of legal terms to call in frustration to get him out of his unfortunate predicament… Staffordshire Area Health Authority v South Staffordshire Waterworks [1978] 1 WLR 1387 Court of Appeal This was an action for a declaration that an agreement made in 1929 between a water company and a local area health authority could be determined by the water company on reasonable notice and without the consent of the area health authority. Lord Denning MR:… [T]here were negotiations between the hospital authorities and the water company. It resulted in an agreement dated 30 July 1929, but it operated from 25 September 1928. The water company still allowed the hospital authorities to take 5,000 gallons a day free of charge, but for additional water, the charge was to be seven old pence per thousand gallons. This rate was 70% of the current water rate. It was a compromise between 10 old pence, which was the rate being charged at the time by the water company to ordinary consumers, and five or six old pence, which would have been the cost to the hospital of getting water from the well. I will return to this agreement later. But the important thing to notice is that it contained clauses which looked as if it was to continue forever. The key words were ‘at all times hereafter’. The hospital authorities rely on those words to say that they are entitled to receive water from the mains at seven old pence for 1,000 gallons in perpetuity. Events since 1929 After the agreement, things went on ‘at all times hereafter’ for nearly 50 years. The hospital took their whole supply from the water company. During the war years the hospital was greatly enlarged and has doubled in size. They took much more water from the mains. In recent years the hospital authorities have only paid seven old pence per 1,000 gallons. When decimal coinage was introduced, it became 2.9p per 1,000 gallons. The hospital authorities still only pay 2.9p per 1,000 gallons, whereas the ordinary rate has now become 55p per 1,000 gallons. In short, the hospital authorities are paying only 1/ 20th of the current water rate. They say that the agreement was to continue ‘at all times hereafter’ and cannot be changed… The water company feel that the time has come when the hospital authorities should pay a more reasonable rate. In order to accomplish this, they assert that the 1929 agreement is determinable by six months’ notice. Accordingly, on 30 September 1975, they gave notice to the hospital authorities to terminate the agreement as from 30 April 1976. They said that they were quite prepared to supply 5,000 gallons a day free of charge, but they would have to charge for the excess at their normal rate. The area health authority refused to accept this notice as valid. So an originating summons was taken out to determine the matter. Foster J held that the agreement of 1929 was to last forever, and that the hospital authorities could take all the water they desired from the

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Sourcebook on Obligations and Remedies mains at the rate of seven old pence (that is 2.9p) per 1,000 gallons in perpetuity. The water company appeal to this court… The rule of construction laid down in the 19th century In 1857, the House of Lords in Grey v Pearson (1857) 6 HL Cas 61 by a majority laid down the so called ‘golden rule’ of construction of written instruments. It was said by Lord Cranworth LC (p 78) that the courts should ‘adhere as rigidly as possible to the express words that are found and to give those words their natural and ordinary meaning’. Lord Wensleydale (p 106) echoed it by saying that ‘the grammatical and ordinary sense of the words is to be adhered to’. That golden rule was the rule of the strict constructionists. It had great influence for the next 100 years. It is still very influential over some minds. It was decisive to the mind of Foster J in this case. The words ‘at all times hereafter’ were, he said, a ‘plain and unambiguous phrase’. They could only mean ‘forever or in perpetuity’. He added that ‘the mere fact that the agreement has proved to be extremely costly to one of the parties cannot lead the court to change the meaning of plain words’. Now I quite agree that, if that rule of construction were in force today, Foster J would be right. There is a great deal to be said for his view that the words ‘at all times hereafter’ are plain and that they mean ‘forever or in perpetuity’. Subtle arguments were adduced before us to limit this meaning. Such as that they meant ‘at all times during the day and night’, or ‘at all times during the subsistence of the agreement’. But I confess that, as a matter of strict construction, I cannot read any such limitation into the words. The rule has now been changed But I think that the rule of strict construction is now quite out of date. It has been supplanted by the rule that written instruments are to be construed in relation to the circumstances as they were known to or contemplated by the parties; and that even the plainest words may fall to be modified if events occur which the parties never had in mind and in which they cannot have intended the agreement to operate. This modern rule was adumbrated by Cardozo J in 1918 in the New York Court of Appeals in Utica City National Bank v Gunn (1918) 222 NY 204, p 208: To take the primary or strict meaning is to make the whole transaction futile. To take the secondary or loose meaning is to give it efficacy and purpose. In such a situation the genesis and aim of the transaction may rightly guide our choice. The modern rule has recently been expounded with clarity and authority by Lord Wilberforce in the House of Lords in the case of Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, pp 996–97 when he said: When one speaks of the intention of the parties to the contract, one is speaking objectively—the parties cannot themselves give direct evidence of what their intention was—and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed 596

Non-Performance of a Contract in the situation of the parties. Similarly, when one is speaking of the aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties …what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. As I understand this modern rule, we are no longer to go by the strict construction of the words as judges did in the 19th century. We are to put ourselves in the same situation as the parties were in at the time they drew up the instrument, to sit in their chairs with our minds endowed with the same facts as theirs were, and envisage the future with the same degree of foresight as they did. So placed, we have to ask ourselves: what were the circumstances in which the contract was made? Does it apply in the least to the new situation which has developed? If events occur for which they have made no provision, and which were outside the realm of their speculations altogether, or of any reasonable persons sitting in their chairs, then the court itself must take a hand and hold that the contract ceases to bind. Such was the rule which I suggested long ago in British Movietonenews Ltd v London and District Cinemas Ltd [1951] 1 KB 190 without success at that time: but which seems to have come into its own now… Contracts which contain no provision for determination We were taken through six cases, which considered contracts which contained no provision for determination. On going through them, they seem to show that, when a person agrees to supply goods or services continuously over an unlimited period of time in return for a fixed monthly or yearly payment, the courts shrink from holding it to be an agreement in perpetuity. The reason is because it is so unequal. The cost of supply of goods and services goes up with inflation through the rooftops: and the fixed payment goes down to the bottom of the well so that it is worth little or nothing. Rather than tolerate such inequality, the courts will construe the contract so as to hold that it is determinable by reasonable notice. They do this by reference to the modern rule of construction. They say that in the circumstances as they have developed, which the parties never had in mind, the contract ceases to bind the parties forever. It can be determined on reasonable notice… Inflation From…[the] cases, it is possible to detect a new principle emerging as to the effect of inflation and the fall in the value of money. In the ordinary way this does not affect the bargain between the parties. As I said in Treseder-Griffin v Co-operative Insurance Society [1956] 2 QB 127, p 144: …in England we have always looked on a pound as a pound whatever its international value… Creditors and debtors have arranged for payment in our sterling currency in the sure knowledge that the sum they fix will be upheld by the law. A man who stipulates for a pound must take a pound, whenever payment is made, whatever the pound is worth at that time. But times have changed. We have since had mountainous inflation and the pound dropping to cavernous depths… The time has come when we may have to revise our views about the principle of nominalism, as it is called. Dr 597

Sourcebook on Obligations and Remedies FA Mann in his book, The Legal Aspect of Money, 3rd edn, 1971, p 100, said: If the trend of inflation which has clouded the last few decades continues, some relief in the case of long term obligations will become unavoidable.’ That was written in 1971. Inflation has been more rampant than ever since that time. Here we have in the present case a striking instance of a long term obligation entered into 50 years ago. It provided for yearly payments for water supplied at seven old pence per 1,000 gallons. In these 50 years, and especially in the last 10 years, the cost of supplying the water has increased twentyfold. It is likely to increase with every year that passes. Is it right that the hospital should go on forever only paying the old rate of 50 years ago?… So here the situation has changed so radically since the contract was made so many years ago that the term of the contract ‘at all times hereafter’ ceases to bind: and it is open to the court to hold that the contract is determined by reasonable notice. Conclusion I do not think that the water company could have determined the agreement immediately after it was made. That cannot have been intended by the parties. No rule of construction could sensibly permit such a result. But, in the past 50 years, the whole situation has changed so radically that one can say with confidence: The parties never intended that the supply should be continued in these days at that price.’ Rather than force such unequal terms on the parties, the court should hold that the agreement could be and was properly determined in 1975 by the reasonable notice of six months. This does not mean, of course that, on the expiry of the notice, the water company can cut off the supply to the hospital. It will be bound to continue it. All that will happen is that the parties will have to negotiate fresh terms of payment. These should take into account the history from the 1909 Act onwards. In the light of that history, it seems to me plain that the 1929 agreement should be updated so as to have regard to the effect of inflation. The hospital should be entitled to 5,000 gallons a day free of charge and pay for the excess at a rate which is 70% of the current market rate. I would commend this solution to these two public authorities in the hope that it will settle their difficulties without troubling the courts further. So, I would grant a declaration in respect of the contract being determinable by reasonable notice but I will say nothing about the declaration as to payment. I would allow the appeal accordingly. Goff LJ: I agree with the result, but I think in some respects my reasoning is not the same as that of Lord Denning MR… Having weighed all [the] considerations, which I think cover all the ground, I have finally reached the conclusion that the fact that the hospital authorities were not…purchasing a facility for a capital cash consideration, that they were being given an unlimited supply at a concessionary rate including the first 5,000 gallons per day entirely free, and that the price was to be fixed once and for all, though it was not so fixed under the 1909 Act, do require the inference of a power to determine on reasonable notice, and outweigh all indications to the contrary…

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Non-Performance of a Contract I agree, therefore, that the appeal should be allowed and that we should make a declaration that the agreement was determinable by reasonable notice and was determined by the letter of 30 September 1975, but that, failing agreement between the parties, we should refer the question of the effect of determination back to the judge. Cumming-Bruce LJ:… I have come to the conclusion that the words do not carry the meaning that the judge decided but that the words ‘at all times hereafter’ mean that the obligations granted and accepted by the agreement were only intended to persist during the continuance of the agreement; and the agreement, in my view, was determinable on reasonable notice… I agree with the analysis…proposed by Goff LJ and cannot usefully add anything. With all respect to Lord Denning MR, I do not found my decision on the existence of an implied term that the agreement should not continue to bind the parties on the emergence of circumstances which the parties did not then foresee… For those reasons, I would agree with the order proposed by Goff LJ that if the parties cannot agree a further compromise as to the rate to be paid…the question should be referred back to the judge… If successful negotiation is not feasible, I would agree that the appropriate course is that the application and the summons for a declaration as to the rate should go back to the judge of first instance because it was unnecessary for him to consider that in the light of his decision on the determination of the agreement…

Questions 1

2

Civil lawyers tend to distinguish between change of circumstances (imprévision) and impediment. However, this does not mean that, for example, a French court would not reach a similar result as the one reached by the House of Lords in Davis v Fareham. It is just that impossibility is seen as not being the same as hardship. There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished’ (UNIDROIT, Art 6.2.2). Could it be said, however, that the Staffordshire Waterworks case is treating hardship as something quite separate from frustration? The distinction between change of circumstances (hardship) and impediment is a rational one once one distinguishes (which contract theory cannot easily do) between instantaneous and long term contracts. Civil lawyers take the view not only that contractual relationships are to be supported wherever possible, but that the parties to a contract must act in good faith. When these two principles are put together, it is easy to see how long term contracts can give rise to rather special problems. Of course, it does not follow that the civil lawyers will automatically set aside a contractual obligation as soon as the going gets tough for one party and the sanctity of the obligation is given support by PECL Art 6:111(1). The 599

Sourcebook on Obligations and Remedies

UNIDROIT principles are similar (Art 6.2.1). But where, say, inflation or Sourcebook on Obligations and Remedies shortages become so severe that they threaten the economic existence of one of the parties, it may be that it is not in the general interest that such a party should be allowed to go bankrupt. Where one or both of the parties is a public body, the general interest becomes of even more relevance. What is interesting about the Davis and the Staffordshire Waterworks cases is that they appear to be reflecting the dichotomy between hardship and impediment. But the question, of course, is the extent to which the PECL and UNIDROIT rules might affect the result of Davis. Would it still be decided the same way even if there was a right to request renegotiation? (Cf UNIDROIT, Art 6.2.3.) 3 Was Lord Denning, in Staffordshire Waterworks, in effect applying the old implied term theory of frustration? Does Staffordshire Waterworks conflict with the Davis Contractors case? Was Lord Denning getting close to utilising rescission in equity to deal with this contractual problem? Why should this equitable remedy not be available to deal with frustration problems? 4 Why should the contractor in Davis and not the local authority be the one to shoulder the risk of the unforeseen shortages? Would it be in the public interest to bankrupt the private contractor? Were the shortages to be foreseen or not? Ought they to have been foreseen? What if the houses had been only partially completed and the builders were facing bankruptcy unless the local authority agreed to pay more? 5 Do you find the reasons for abandoning the implied term theory of frustration convincing? If contract is based upon the act of the parties, is not frustration a matter of implied condition precedent with reference to the status of the parties? Or might it not be a question of level of duty, and is duty not a question of terms? 6 Does Davis introduce a new remedy of rescission at common law? 7 Is it a material fact that the builders were a ‘big firm of contractors’? 8 If, in Staffordshire Waterworks, the two parties had been private commercial bodies, would the result of this case have been the same? 9 How can a term of a contract ‘cease to bind’? Upon what legal authority does Lord Denning base his thesis that the golden rule of interpretation has been abandoned? What method of interpretation does Lord Denning replace it with? 10 Are the two cases dealing with the public rather than the private interest? Does the public interest have a role in frustration cases? Principles of European Contract Law

Article 8:101 Remedies available (1)

Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Art 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. 600

Non-Performance of a Contract (2) (3)

Where a party’s non-performance is excused under Art 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party’s non-performance.

Article 9:307 Recovery of money paid On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected. Article 9:308 Recovery of property On termination of the contract a party who has supplied property which can be returned and for which it has not received payment or other counterperformance may recover the property. Article 9:309 Recovery for performance that cannot be returned On termination of the contract a party who has rendered a performance which cannot be returned and for which it has not received payment or other counterperformance may recover a reasonable amount for the value of the performance to the other party. Law Reform (Frustrated Contracts) Act 1943 (6 & 7 Geo VI c 40) 1

Adjustment of rights and liabilities of parties to frustrated contracts (1)

(2)

(3)

Where a contract governed by English law has become impossible of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, the following provisions of this section shall, subject to the provisions of section 2 of this Act, have effect in relation thereto. All sums paid or payable to any party in pursuance of the contract before the time when the parties were so discharged (in this Act referred to as ‘the time of discharge’) shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and, in the case of sums so payable, cease to be so payable. Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums paid or payable, not being an amount in excess of the expenses so incurred. Where any party to the contract has, by reason of anything done by any other party thereto in, or for the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of money to which the last foregoing sub-section applies) before the time of discharge, there shall be recoverable from him by the said other party such sum (if any), not exceeding the value of the said benefit to the party obtaining it, as the court considers just, having regard to all the circumstances of the case and, in particular:

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Sourcebook on Obligations and Remedies (a)

(b)

the amount of any expenses incurred before the time of discharge by the benefited party in, or for the purpose of, the performance of the contract, including any sums paid or payable by him to any other party in pursuance of the contract and retained or recoverable by that party under the last foregoing sub-section, and the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the contract.

Questions 1

2

3

4

5

Does Art 9:309 of the PECL represent English law? P contracts with D to paint D’s house for £500. When three-quarters of the house is painted, the building is struck by lightning and totally destroyed. Can P claim any money off D? If the central heating system in Bolton v Mahadeva (see p 226) had not functioned for some unexplained reason and the engineers had been able to prove that they were not at fault, would the 1943 Act have been applicable? If the fire in Reed v Dean (see p 530) had started for some unexplained reason and the owners of the boat had been able to prove that they were not at fault, would this Act have been applicable? Do you think that the principles laid down in the 1943 statute ought sometimes to be available to a court in cases where the non-performance arises out of a breach of contract? Is s 1 of the 1943 Act based upon the remedy of debt (action for money had and received) or account of profits?

10 ILLEGALITY AND PERFORMANCE Geismar v Sun Alliance and London Insurance Ltd [1978] QB 383 Queen’s Bench Division Talbot J: By three policies of insurance dated 30 August 1968, 27 September 1971, and 15 March 1973, the plaintiff insured with the defendants the contents of his house at 116 Station Road, London SW13, and the defendants agreed to indemnify him against losses by theft. Copies of the relevant policies are contained in the agreed bundle of documents. On 7 December 1974, whilst the policies were in force, the articles set out in para 5 of the statement of claim were stolen from the plaintiffs house and have not been recovered. Seven articles are the subject of the dispute between the parties and in a schedule to the claim form there are set out the countries where each of these articles was purchased, the date of purchase and the price paid. Each of these articles was imported into this country by the plaintiff and though each article was dutiable and should have been declared on entry by the plaintiff to the customs and excise officers the plaintiff did

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Non-Performance of a Contract not declare them and has not paid duty upon them. Furthermore, from what was said by the plaintiff to Mr Mackrill, a loss adjuster acting for the defendants, he had no intention of paying the required customs duty if he could avoid it and it is conceded that duty ought to have been paid on each item. These are the short, undisputed facts of this case and the point, though short, is a difficult one. It is whether the defendants should, in these circumstances, be called upon to indemnify the plaintiff… To sum up, Mr Hutchison submitted that if the plaintiff should recover under his indemnity he would rid himself of the disadvantages that he suffered when in possession of the goods and he would be burdening the defendant insurers with the disadvantages to which he had referred. There were indirect consequences, too, Mr Hutchison submitted, if the policies were enforced. First, the result would be that a smuggler who insures the value of his smuggled goods has a positive interest in their loss, theft or destruction as a means of converting his impeachable title to an unimpeachable title to a sum of money. This, he said, might induce a degree of carelessness and an attitude inconsistent with that which would be required of an insured person. A second consequence, he submitted, might be that the trust and confidence between insured and insurer would be undermined. A third indirect consequence might be that insurers, who would be obliged to inform the customs authorities, might use that obligation as a threat in order to contest claims and the value of the claims. That might put the insured in a weaker position. A fourth indirect consequence might be that the public would see a smuggler enjoying a windfall. The main point that emerges from these submissions is that the plaintiff insured will be in a better position and therefore derive an advantage by reason of the defendants’ indemnity. No authority need be cited to support the proposition that in general courts refuse to enforce a claim for a benefit which results from the commission of a crime or a tort or a claim to be indemnified against the consequences of such act, this being an application of the maxim ex turpi causa non oritur actio. It would be wrong, it was submitted, to allow the plaintiff to obtain a benefit or a profit and would be contrary to public policy because he would, in effect, be profiting from his crime of illegal importation of these articles… The application of this principle was sought in St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267. By s 44 of the Merchant Shipping (Safety and Load Line Conventions) Act 1932, merchant ships must not be loaded beyond a certain maximum depth. The facts were that a ship was overloaded and the defendant holders of a bill of lading in respect of part of its cargo withheld part of the freight moneys due and contended that the shipowners were not entitled to recover that part which they had withheld as the charter had been performed in an illegal manner. Devlin J considered the defendants’ submission that public policy demanded that that particular contract should be declared unenforceable because of the infringement of the Act of 1932 and, for reasons that I need not go into, held that that principle did not apply to that case. But what he did say, in the course of the argument of counsel, p 274, was that he accepted the view that public policy was not a doctrine which

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Sourcebook on Obligations and Remedies ought to be extended in the sense of making new heads. It is quite plain from other authorities to which I have been referred that it is of the highest importance that courts do not attempt to extend the doctrine of public policy in order to hold that contracts are unenforceable thereby, and that it is necessary to look to the accepted application of that doctrine and not go beyond that… The submissions made on behalf of the plaintiff included principally the submission that the importation of these goods was the background of the case but was in no way connected with the loss nor was it in any way concerned with the valuation of the insured’s interest… All [the] authorities, with their application to problems related to the present one, though of assistance, do not cover the precise point. I start with the fact that the contracts of insurance are separate from the illegal importation. Next, there is no contractual point taken here and there has been no repudiation of the contracts by the defendants. It is clear that the plaintiff has an insurable interest in the property, though subject to defeasance. It is also clear that to allow the plaintiff to recover under the policies would be to allow him to recover the insured value of the goods which might have been confiscated at any moment and which, therefore, were potentially without value to him. So far as the defendants were concerned, they being unaware of the illegal importation, the policies were not tainted with illegality, but the question is: ought the court to enforce these policies against them in favour of the plaintiff? … I am not concerned with cases of unintentional importation or of innocent possession of uncustomed goods. I would think that different considerations would apply in those cases. But where there is a deliberate breach of the law I do not think the court ought to assist the plaintiff to derive a profit from it, even though it is sought indirectly through an indemnity under an insurance policy. The claim therefore fails so far as the disputed items are concerned. Tinsley v Milligan [1994] 1 AC 340 House of Lords Lord Jauncey: My Lords, the parties to this appeal lived together for some years in a house in Mid Glamorgan which they ran as a lodging house. The purchase price of the house was provided by a mortgage loan from the bank and a sum of money which was provided jointly by the parties. It was, however, agreed between them that the title should be taken in the sole name of the appellant in order to facilitate the making by the respondent of false claims upon the DSS. In 1988 the parties fell out and the appellant moved out of the house. She subsequently raised the present action claiming possession of the property and the respondent counterclaimed for a declaration to the effect that the appellant held the property on trust for the respondent and the appellant in equal shares. The judge in the county court dismissed the claim and found for the defendant on the counterclaim, and the Court of Appeal by a majority (Ralph Gibson LJ dissenting) dismissed the appellant’s appeal. The issues in the courts below and before this House revolved round the illegal purpose of taking the title of the house in the name of the appellant alone…

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Non-Performance of a Contract The ultimate question in this appeal is, in my view, whether the respondent, in claiming the existence of a resulting trust in her favour, is seeking to enforce unperformed provisions of an unlawful transaction or whether she is simply relying on an equitable proprietary interest that she has already acquired under such a transaction. The nature of a resulting trust was described by Lord Diplock in Gissing v Gissing [1971] AC 886, p 905: A resulting, implied or constructive trust—and it is unnecessary for present purposes to distinguish between these three classes of trust—is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land. I find this a very narrow question, but I have come to the conclusion that the transaction, whereby the claimed resulting trust in favour of the respondent was created, was the agreement between the parties that, although funds were to be provided by both of them, nevertheless the title to the house was to be in the sole name of the appellant for the unlawful purpose of defrauding the DSS. So long as that agreement remained unperformed neither party could have enforced it against the other. However, as soon as the agreement was implemented by the sale to the appellant alone she became trustee for the respondent who can now rely on the equitable proprietary interest which has thereby been presumed to have been created in her favour and has no need to rely on the illegal transaction which led to its creation. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Browne-Wilkinson. I agree with it and, for the reasons contained therein as well as for the reasons in this speech, I would dismiss the appeal. Lord Goff (dissenting):… I have already expressed my respectful disagreement with the view expressed by my noble and learned friend, Lord Browne-Wilkinson, that the law has already developed at least in the direction of the conclusion which he favours. I have nevertheless considered whether your Lordships’ House should in the present case develop the law, with a view to qualifying the principle by the application to it of the Bowmakers rule. I can see the temptation of doing so, if one focuses only on the facts of the present case in which it seems particularly harsh not to assist the respondent to establish her equitable interest in the house where not only was the appellant implicated in precisely the same fraud on the Department of Social Security, but the fraud in question can be regarded as relatively minor and indeed all too prevalent, and the respondent has readily confessed her wrongdoing to the Department and has made amends to them. Furthermore, it is probable that, if the appeal should be allowed, the effect will be that she will lose all her capital. But it is not to be forgotten that other cases in this category will not evoke the same sympathy on the part of the court. There

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Sourcebook on Obligations and Remedies may be cases in which the fraud is far more serious than that in the present case, and is uncovered not as a result of a confession but only after a lengthy police investigation and a prolonged criminal trial. Again, there may be cases in which a group of terrorists, or armed robbers, secure a base for their criminal activities by buying a house in the name of a third party not directly implicated in those activities. In cases such as these, there will almost certainly be no presumption of advancement. Is it really to be said that criminals such as these, or their personal representatives, are entitled to invoke the assistance of a court of equity in order to establish an equitable interest in property? It may be said that these are extreme cases, but I find it difficult to see how, in this context at least, it is possible to distinguish between degrees of iniquity. At all events, I cannot think that the harsh consequences which will arise from the application of the established principle in a case such as the present provide a satisfactory basis for developing the law in a manner which will open the door to far more unmeritorious cases, especially as the proposed development in the law appears to me to be contrary to the established principle underlying the authorities… Lord Browne-Wilkinson: My Lords, I agree with the speech of my noble and learned friend, Lord Goff of Chieveley, that the consequences of being a party to an illegal transaction cannot depend, as the majority in the Court of Appeal held, on such an imponderable factor as the extent to which the public conscience would be affronted by recognising rights created by illegal transactions. However, I have the misfortune to disagree with him as to the correct principle to be applied in a case where equitable property rights are acquired as a result of an illegal transaction. Neither at law nor in equity will the court enforce an illegal contract which has been partially, but not fully, performed. However, it does not follow that all acts done under a partially performed contract are of no effect. In particular it is now clearly established that at law (as opposed to in equity), property in goods or land can pass under, or pursuant to, such a contract. If so, the rights of the owner of the legal title thereby acquired will be enforced, provided that the plaintiff can establish such title without pleading or leading evidence of the illegality. It is said that the property lies where it falls, even though legal title to the property was acquired as a result of the property passing under the illegal contract itself… I will first consider the modern authorities laying down the circumstances under which an illegal transaction will be enforced by the courts. I will then consider whether the courts adopt a different attitude to equitable proprietary interests so acquired. The position at law is well illustrated by the decision in Bowmakers Ltdv Barnet Instruments Ltd [1945] KB 65. In that case, Barnet acquired three parcels of machine tools which had previously belonged to Smith. The transaction was carried through by three hire purchase agreements under which Smith sold the goods to Bowmakers who then hired them to Barnet. All three agreements were unlawful as being in breach of Defence Regulations; it is important to note that in the case of at least two of the parcels the illegality lay in the contract under which Bowmakers acquired the machine tools from Smith: see p 69. Bowmakers succeeded in an action for conversion against Barnet. Even though it appeared from the pleadings and the evidence that the contract

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Non-Performance of a Contract under which Bowmakers acquired the goods was illegal, such contract was effective to pass the property in the goods to Bowmakers who could therefore found their claim on the property right so acquired… In Taylor v Chester LR 4 QB 309, the plaintiff had deposited with the defendant half a £50 note as security for payment due under an illegal contract with the defendant. The plaintiff was held unable to recover the half note as a special property in it (ie, the security interest) had passed to the defendant… From these authorities the following propositions emerge: (1) property in chattels and land can pass under a contract which is illegal and therefore would have been unenforceable as a contract; (2) a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; (3) it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence; if the plaintiff has acquired legal title under the illegal contract that is enough. I have stressed the common law rules as to the impact of illegality on the acquisition and enforcement of property rights because it is the appellant’s contention that different principles apply in equity. In particular, it is said that equity will not aid Miss Milligan to assert, establish or enforce an equitable, as opposed to a legal, proprietary interest since she was a party to the fraud on the DSS. The house was put in the name of Miss Tinsley alone (instead of joint names) to facilitate the fraud. Therefore, it is said, Miss Milligan does not come to equity with clean hands: consequently, equity will not aid her. Most authorities to which we were referred deal with enforcing proprietary rights under a trust; I will deal with them in due course. But before turning to them, I must point out that if Miss Tinsley’s argument is correct, the results would be far reaching and, I suggest, very surprising. There are many proprietary rights, apart from trusts, which are only enforceable in equity. For example, an agreement for a lease under which the tenant has entered is normally said to be as good as a lease, since under such an agreement equity treats the lease as having been granted and the ‘lessee’ as having a proprietary interest enforceable against the whole world except the bona fide purchaser for value without notice. Would the result in Ferret v Hill 15 CB 207 have been different if there had only been an agreement for a lease? Say that in Taylor v Chester LR 4 QB 309, the plaintiff had deposited by way of security share certificates instead of half a bank note (thereby producing only an equitable security): would the outcome have been different? Similarly, if the plaintiff were relying on an assignment of a chose in action would he succeed if the assignment was a legal assignment but fail if it were equitable? In my judgment, to draw such distinctions between property rights enforceable at law and those which require the intervention of equity would be surprising. More than 100 years has elapsed since law and equity became fused. The reality of the matter is that, in 1993, English law has one single law of property made up of legal and equitable interests. Although for historical reasons legal estates and equitable estates have differing incidents, the person owning either type of estate has a right of property, a right in rem,

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Sourcebook on Obligations and Remedies not merely a right in personam. If the law is that a party is entitled to enforce a property right acquired under an illegal transaction, in my judgment the same rule ought to apply to any property right so acquired, whether such right is legal or equitable… …The carrying out of the illegal purpose cannot, by itself, destroy the preexisting equitable interest. The doctrine of locus poenitentiae therefore demonstrates that the effect of illegality is not to prevent a proprietary interest in equity from arising or to produce a forfeiture of such right: the effect is to render the equitable interest unenforceable in certain circumstances. The effect of illegality is not substantive but procedural. The question therefore is, In what circumstances will equity refuse to enforce equitable rights which undoubtedly exist?’… …In my judgment, the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title; he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction. As applied in the present case, that principle would operate as follows. Miss Milligan established a resulting trust by showing that she had contributed to the purchase price of the house and that there was common understanding between her and Miss Tinsley that they owned the house equally. She had no need to allege or prove why the house was conveyed into the name of Miss Tinsley alone, since that fact was irrelevant to her claim; it was enough to show that the house was in fact vested in Miss Tinsley alone. The illegality only emerged at all because Miss Tinsley sought to raise it. Having proved these facts, Miss Milligan had raised a presumption of resulting trust. There was no evidence to rebut that presumption. Therefore, Miss Milligan should succeed… Finally, I should mention a further point which was relied on by Miss Tinsley. It is said that once the illegality of the transaction emerges, the court must refuse to enforce the transaction and all claims under it whether pleaded or not: see Scott v Brown, Doering, McNab and Co [1892] 2 QB 724. Therefore, it is said, it does not matter whether a plaintiff relies on or gives evidence of the illegality: the court will not enforce the plaintiffs rights. In my judgment, this submission is plainly ill founded. There are many cases where a plaintiff has succeeded, notwithstanding that the illegality of the transaction under which she acquired the property has emerged: see, for example, Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 and Singh v Ali [1960] AC 167. In my judgment, the court is only entitled and bound to dismiss a claim on the basis that it is founded on an illegality in those cases where the illegality is of a kind which would have provided a good defence if raised by the defendant. In a case where the plaintiff is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract (such as a right of property) the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the plaintiffs case. I would therefore dismiss the appeal.

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P contracts with D for D to transport P’s very heavy machine from Liverpool to London. D’s lorry arrives at P’s factory and the machine is loaded onto the lorry. However, it is evident to both P’s and D’s employees that the lorry is very overloaded. Nevertheless, the vehicle sets off towards London. On the way, the lorry overturns, owing to the negligence of the driver, and the machine is destroyed in the accident. Can P sue D for damages? (Cf Asmore, Benson, Pease and Co v AV Dawson Ltd [1973] 1WLR 828.) Why should it be the insurance company that profits in the case of smuggled jewellery and not the public authorities? Could not the customs have claimed the money off the plaintiff once he had received it from the insurance company? P, who does not have EU nationality and has entered the UK illegally, is injured while travelling on a bus, owned and run by D, which crashes owing to the negligence of the bus driver. If P tries to sue D for damages, will D have a defence based on illegality?

11 CONTRACT: FINAL OBSERVATIONS It would be idle to think that three chapters on the law of contract could ever possibly be exhaustive in scope. Indeed, a whole casebook devoted to the subject would, unless it were very large, be hard pressed to be comprehensive. Consequently, the purpose of the last three chapters has been to stress obligational structure, method and technique in problem solving, rather than to set out in a coherent and hierarchical fashion all the rules of the English law of contract. These techniques often express themselves through the various remedies available and, thus, the contract chapters must be read in conjunction with the chapter on remedies (Chapter 3). Equally, and obviously, the contract cases should be looked at in terms of actual methods and, thus, the contract chapters are also, in one sense, simply extensions of the chapter on methodology (Chapter 2). A contract problem is, to borrow and adapt the words of Diplock LJ in Letang v Cooper (above, p 116), ‘simply a factual situation the existence of which [might entitle] one person to obtain from the court a remedy against another person’. The starting point is, then, always in the analysis of the facts, and it is this analysis that should lead one to the remedies and legal relations that could be of relevance. Where contract is rather special is in its structure. It is a coherent subject in as much as it appears to have a beginning, middle and end and, thus, it looks like a ready-made model waiting to be applied to sets of facts (as, indeed, the PECL seem to confirm). If it fits, then there might well be a solution 609

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automatically to be deduced. One should not be surprised by this apparent structural coherence, since it is a subject trying to determine the future rather than the past, as a case like Davis Contractors v Fareham UDC (p 593) so clearly indicates. Nevertheless, this structural coherence can mislead. Certainly, it is a subject with many rules and, thus, when compared with the other law of obligations subjects of tort and restitution (see Chapters 7–8), it can appear detailed and complex. Yet, when viewed from the position of the remedy— ought the plaintiff to get damages from the defendant or ought someone to be able to escape from what they have undertaken to do?—the problem can often be reduced to some basic issue where the court has to make a qualitative judgment of substance rather than simply apply some formal rule. Ought the court to imply a duty into this agreement? Was the plaintiff the cause of her own damage (cf Ingham v Ernes, p 532)? What are the responsibilities of one person negotiating with another person? The key to problem solving is often to identify these substantive issues and to translate them into legal concepts such as the implied term, consideration or condition, not forgetting, of course, the role of quasi-normative notions such as ‘expectation’ and Interest’ which can aid the translations (see, for example, Lord Denning MR in Beswick v Beswick, p 163, or Bingham LJ in the Blackpool and Fylde case, p 436). The aim, then, of all the previous chapters has been to stress, not the detailed rules of the law of contract, but this problem solving aspect. This aim will, unsurprisingly, be the guide to the next two chapters on non-contractual obligations. However, the following chapters can be relevant to contract problems as well, since factual situations rarely fit neatly into a single legal category.

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CHAPTER 7

NON-CONTRACTUAL OBLIGATIONS (1): TORT

When one turns from contractual to non-contractual obligations, the position, as we have already indicated in previous chapters, is complicated because the substantive categories of contract and tort did not develop within a broader generic category of ‘obligations’. This complexity has become more pronounced, in some ways, with the recent development of restitution as a category separate from contract and tort (see Chapter 8). For, when viewed from the position of the codes, English restitution law cuts across the property and obligations divide, thus undermining, rather than consolidating, the idea of a coherent law of obligations in the common law. Nevertheless, this chapter and the one which follows will try to place English law within the general framework of the codes. Accordingly, the emphasis will be on liability beyond contract; that is to say, in the language of Roman law, liability ex delicto and quasi ex contractu.

1 INTRODUCTION TO NON-CONTRACTUAL OBLIGATIONS From the perspective of the French Code civil, the idea that the whole field of non-contractual obligations might be contained in just two chapters is not, at first sight, so bizarre. The whole of the law of delict (tort) is contained in just several articles and the law of restitution (or unjust enrichment), such as it is in French law, occupies not much more space (although delict has been considerably expanded recently by new articles on product liability). The case law tells a different story, of course; and, thus, in Roman law—a case-based system not dissimilar in some ways to the common law—the titles devoted to delict (tort) and restitution are as lengthy as those on contracts. Even so, these titles do not produce that many formal rules as such, save, perhaps, the title on theft (a tort in Roman law) where, as with the English tort of conversion, property and ownership are in issue. The tort titles are more concerned with illustrating and developing a few basic notions contained in a couple of fundamental principles about wrongfully causing damage. Case law examples about what constitutes fault (culpa), damage and cause are what take up the space. One might add that this lack of rules, when combined with the dramatic increase in accidents which the Industrial Revolution brought in its wake, has tended, in recent years, to give rise to much literature on theory. Indeed, it is 611

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now possible to give a whole course on the law of tort simply on the basis of doctrinal writing about theories supposedly underpinning the law of tort (Weir [1992] CLJ 388). English law is similar to Roman law in that the law of tort and the law of restitution rest on a few basic principles. What takes up the pages is the application and interpretation of these principles. In fact, because of the importance of method when it comes to analysing the facts of tort and unjust enrichment problems, many of the cases relevant to this chapter have already been set out in the chapters on remedies and methodology. This chapter and the next are, accordingly, more concerned with bringing these cases together under the law of obligations heading in the hope of illustrating the institutional structures that underpin these decisions. All the same, despite the development of contract, tort and now restitution as rational categories through which the cases can be understood, it is important to remember that the law of remedies still dominates. It is, therefore, vital to relate tort and restitution, as Lord Goff and others recognise (see below), not just to their historical foundation in the forms of action, but to the law of remedies in general (Chapter 3). The starting point for tort is always in the nature of the damage, for this can determine not just the cause of action, but also the intensity of the duty. The starting point for the law of restitution is, in contrast, the notion of benefit or profit. Is this a profit or benefit which ought in justice to be retained? What is the cause of the damage or the profit? A Romanist can certainly appreciate the symmetry between tort and restitution, even if the common law cannot always appreciate the differences between its very own remedies of debt and damages (see, for example, Auld LJ in Friends’ Provident, p 239).

2 THE LEGACY OF THE FORMS OF ACTION Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 House of Lords Lord Goff:… The situation in common law countries, including of course England, is exceptional, in that the common law grew up within a procedural framework uninfluenced by Roman law. The law was categorised by reference to the forms of action, and it was not until the abolition of the forms of action by the Common Law Procedure Act 1852 (15 & 16 Vict c 76) that it became necessary to reclassify the law in substantive terms. The result was that common lawyers did at last separate our law of obligations into contract and tort, though in so doing they relegated quasi-contractual claims to the status of an appendix to the law of contract, thereby postponing by a century or so the development of a law of restitution. Even then, there was no systematic reconsideration of the problem of concurrent claims in contract and tort. We can see the courts rather grappling with unpromising material drawn from the old cases in which liability in negligence derived largely from categories based upon the status of the defendant. In a sense, we must not be surprised; for no significant law faculties were established at our universities until the 612

Non-Contractual Obligations (1): Tort late 19th century, and so until then there was no academic opinion available to guide or stimulate the judges… Bryant v Herbert (1877) 3 CPD 389 Court of Appeal (See p 114.)

Notes and questions 1

2

Given that English law does not easily distinguish between iura in rem and iura in personam, is it really viable for common lawyers to think in terms of a law of obligations? We have seen that English law thinks in terms of a law of contract rather than a law of contracts. When it comes to non-contractual obligations, does the forms of action legacy allow one to think in terms of a law of tort rather than torts? Esso Petroleum Co Ltd v Southport Corporation [1953] 3 WLR 773 Queen’s Bench Division; [1954] 2 QB 182 Court of Appeal; [1956] AC 218 House of Lords (See p 216.) Rigby v Chief Constable of Northamptonshire [1985] 1 WLR 1242 Queen’s Bench Division (See p 98.)

Notes and questions 1

The forms of action legacy is still particularly evident in English legal reasoning. In both Esso (in particular, the Court of Appeal) and Rigby, the analysis of the facts was via a set of pre-existing forms of liability which, in turn, determined the existence or non-existence of a right. The idea that, beneath these formal causes of action, there might lurk some right waiting to receive its independence was comprehensively rejected by Browne-Wilkinson VC (now a Law Lord) in Kingdom of Spain v Christie (see p 209). In fact, Denning LJ’s judgment in Esso is more subtle than it first appears, since he uses the forms of liability to achieve procedural objectives; in turn, these objectives have the effect of giving rise to rights. Thus, he uses public nuisance to make Esso itself liable for its thing (unseaworthy ship). He uses the same approach in Mint v Good (p 675) to make an owner liable for damage done by his property (wall). Sometimes, of course, the judges find this approach to liability too restrictive and, thus, in cases like Khorasandjian v Bush (p 141), they struggle to escape from the restrictions of the cause of action approach. However, the lack of a rights and principles tradition usually forces the courts back to what they know best: a formalist approach to liability (cf Hunter v Canary Wharf, 613

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2

p 143). To what extent is this English approach an obstacle to harmonisation? The causes (forms) of action approach can present particular difficulties in cases like Rigby which raise special public law problems. If public bodies such as the police—or, indeed, anyone public or private—are successfully to be allowed to raise the defence of necessity, this will mean that the loss must fall on an individual citizen. In an age of property insurance, this might not, of course, be such a bad thing. But where personal injury is concerned, even in a country with a National Health Service, it seems cruel that an individual and/or his or her family should be expected to carry the burden of injury and loss suffered in the pursuit of the public good (but cf Toynbee, above, p 395). Indeed, Miller v Jackson (p 51) raises a not dissimilar problem. It is in these kinds of situation that the French equality principle (see above, p 103) comes into its own as a legal device; it simply outflanks the defence of necessity. English law has to operate at the level of fact—that is to say, the judge usually has to make a finding of negligence—in order for a citizen to get damages in tort. While the judiciary may not, these days, be as unsympathetic as they once were (although much depends upon the status of the defendant), the fault requirement allows insurance companies to bully individuals into settlements (see Genn, Hard Bargaining, 1987, OUP). Who actually benefits from the fault principle? Is this a question that the judges themselves are prepared to ask? Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 House of Lords (See p 534.)

Notes and questions 1

2

Another effect of the fault principle is that it can put the burden of the risk of accidents on shoulders least able to bear it. The worker, rather than the company insurance policy, must pay, according to the House of Lords. Admittedly, the House of Lords have specifically rejected the role of rationalising the law of England (see above, p 12) and some of the reasoning looks distinctly dated today, yet the influence of the Lister decision is still to be felt, as more recent jurisprudence from the Court of Appeal indicates (Reid v Rush and Tompkins plc [1990] 1 WLR 212). Why is it that judges seem so sympathetic to insurance companies? It is not just the law of tort that is to blame for the decision in Lister. The law of contract (implied terms) and the law of restitution (subrogation and contribution) are just as much at fault. Would the worker have been unjustly enriched in Lister if the insurance company had been denied the remedy of subrogation? Clearly, the roles of the law of tort, contract and restitution need to be harmonised, and this, perhaps, is one of the strongest 614

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arguments for developing a law of obligations in English law. Ought not equity to have intervened in Lister? How might it have done this? (Cf Morris v Ford Motor Co Ltd [1973] 1 QB 792.)

3 DAMAGE CAUSED TO ANOTHER

(a) Damage Best v Samuel Fox and Co Ltd [1952] AC 716 House of Lords This was an action for damages brought by the wife of an employee injured as a result of the negligence of his employers. The employee recovered damages from his employers, but his injuries rendered him incapable of sexual intercourse, and so his wife sued on her own behalf for her mental distress at the loss of both sexual relations and the chance of having children. The House of Lords rejected her claim. Lord Porter:… The salient fact, as I see it, is that the wife had herself suffered no physical injury and could only base her claim on the circumstance that she had lost the consortium of her husband by reason of the injury to him. Such a claim was put forward on the analogy of the enticement cases… In that class of case, however, the wrong is a deliberate action taken with the object of inducing the wife to leave her husband or the husband to leave his wife—malicious because it is their mutual duty to give consortium to one another, and the defendant has persuaded the errant spouse not to fulfil that duty… On behalf of the appellant, it is urged that a husband can bring an action for the loss of the consortium of his wife by reason of any tort which deprives him of that consortium and that in the circumstances prevailing today a wife must have a similar right. Even, however, if it be assumed that in enticement cases the husband and wife have equal rights it does not follow that today they have equal rights and liabilities one towards the other in all respects. I do not think it possible to say that a change in the outlook of the public, however great, must inevitably be followed by a change in the law of this country. The common law is a historical development rather than a logical whole, and the fact that a particular doctrine does not logically accord with another or others is no ground for its rejection… Lord Goddard:… Negligence, if it is to give rise to legal liability, must result from a breach of duty owed to a person who thereby suffers damage. But what duty was owed here by the employers of the husband to the wife? If she has an action in this case, so must the wife of any man run over in the street by a careless driver. The duty there which gives rise to the husband’s cause of action arises out of what may for convenience be called proximity; the driver owes a duty not to injure other persons who are using the road on which he is driving. He owes no duty to persons not present except to those whose property may be on or adjoining the road which it is his duty to avoid injuring. It may often happen that an injury to one person may affect another; 615

Sourcebook on Obligations and Remedies a servant whose master is killed or permanently injured may lose his employment, it may be of long standing, and the misfortune may come when he is of an age when it would be very difficult for him to obtain other work, but no one would suggest that he thereby acquires a right of action against the wrongdoer. Damages for personal injury can seldom be a perfect compensation, but where injury has been caused to a husband or father it has never been the case that his wife or children whose style of living or education may have radically to be curtailed have on that account a right of action other than that which, in the case of death, the Fatal Accidents Act 1846, has given…

Questions 1

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4 5

6

7 8 9

Did Mrs Best fail to recover damages because of the type of damage she suffered? If so, is it reasonable to say that this was a form of damage not recognised by the law? What if Mr Best had suffered his injuries as a result of a deliberate assault by a defendant; would Mrs Best have succeeded in her damages claim? Is it right that the plaintiffs in Attia (see p 519), Jarvis (see p 298) and Heywood (see p 579) should recover for their mental distress, but not the plaintiff in Best? If these facts had arisen in France or Germany, would Mrs Best have recovered damages? Are the following forms of damage recognised by the English law of obligations: (a) death; (b) life; (c) bereavement; (d) loss of a chance— (1) to win a competition, or (2) to recover one’s health; (e) respect; (f) dignity? When a person is killed by the wrongful act of another, this will give rise to an action on behalf of certain others who suffer damage: Fatal Accidents Act 1976. Does this mean that economic loss is a form of damage recognised by the tort of negligence, or does it mean that the notion of a legal person is simply given an extended definition? What was the damage suffered by the plaintiff in Khorasandjian v Bush (above, p 141)? Would Lord Porter’s view of equal rights have much validity today? There are many books and articles in English on damages, but little on damage. Why? (Cf Weir, ‘La notion de dommage en responsabilité civile’, in Legrand (ed), Common law, d’un siècle l’autre, 1992, Blais, pp 1 ff.)

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(b) Damage and contribution Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 Court of Appeal This was an action for damages by a reservoir construction company against consulting engineers in respect of the building of a defective reservoir for which the company assumed responsibility. The engineers in turn brought a statutory debt (contribution) claim against a third party. The question arose as to whether these two claims were a liability in respect of the ‘same damage’. The Court of Appeal held that they were not, since one was physical damage while the other was economic loss. Sir John May: The parties to this litigation comprise the plaintiff (‘Birse’), a building and civil engineering contractor who in February 1988 was awarded a contract after tender by Anglian Water Authority (‘Anglian’) for the design and construction of a reinforced concrete storage reservoir and associated building and engineering works at Sutterton in Lincolnshire (the Sutterton reservoir project). The defendant company (‘Haiste’) are a firm of consulting engineers and were retained by Birse to act as its consulting engineers in the preparation of the tender for and the design of the reservoir project. The second third party, Mr Newton, was employed by Anglian and appointed by it as the ‘engineer’ for the purpose of the contract with Birse and as the ‘construction engineer’ for the purpose of s 7 of the Reservoirs Act 1975 to issue all necessary certificates. Birse thereafter purported to construct and complete the reservoir but it proved to be defective. In the result, Anglian made a claim against Birse in respect of the defective reservoir and its consequential losses. This claim was settled by an agreement between Anglian and Birse under which, inter alia, it was agreed that the original reservoir as constructed could not be adequately repaired or replaced and that Birse should at its own expense construct a new reservoir and associated works. In due course, by a writ issued on 11 October 1993, Birse sued Haiste for damages for the loss and damage which it had suffered in the circumstances I have outlined. A statement of claim was served by Birse on Haiste on 28 February 1994. On 6 June 1994, Haiste served a third party notice on Mr Newton claiming contribution from him pursuant to s 1 of the Civil Liability (Contribution) Act 1978, on the ground that he was a person liable in respect of the same damage as Haiste to Birse, by reason of Mr Newton’s alleged breach of contract and negligence. On 7 September 1994, Mr Newton issued a summons in the action under RSC Ord 14A, which provides machinery for the determination summarily of a question of law or construction arising in the course of litigation which would or might finally determine the liability of Mr Newton to Haiste in the third party proceedings to which I have referred. To this end the summons asked, inter alia, for the determination of this question: Can any liability of [Mr Newton] to [Anglian] be a liability ‘in respect of the same damage’ as any liability of [Haiste] to [Birse] within the meaning of that term in the Civil Liability (Contribution) Act 1978?

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Sourcebook on Obligations and Remedies …It was agreed…that the first question was suitable for determination as this could, in one event, finally dispose of the litigation. The summons came before Judge Cyril Newman QC as official referees’ business on 25 November 1994. After taking time to consider his judgment, he handed this down on 30 March 1995. He answered the one question in the affirmative… The appeal raises a novel point under s 1(1) of the Act of 1978 upon which neither party has so far been able to find any authority. The material provisions of the Act are as follows: 1(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)… It is common ground that the issues in this case are ones of construction. I remind myself, first, that the statute which has to be construed is concerned with contribution, that is the help that the law requires one party to give to another to satisfy their common obligations to a third person. The Act is, in my opinion, concerned with the relatively simple sharing of existing liability. I would be surprised if against this background the Act created potentially complicated and some might say tortuous legal relationships. With respect to the judge and to the arguments put before us by counsel for Haiste, I think that the former was wrong to hold that the answer to the question raised in the summons should be in the affirmative. I see no reason to construe s 1(1) of the Act otherwise than directly and simply as it stands. Any person who is liable (see s 6(1)) in respect of any damage suffered by another may recover contribution, partial help, from another person liable in respect of the same damage. The simple direct reading of the sub-section must in my opinion lead one to conclude, first, that ‘the same damage’ can only refer to the damage spoken of some dozen or so words earlier in the sub-section. Further, the simple approach necessarily involves that the statutory draftsman intended that ‘the same damage’ should be damage suffered by the same person. I do not think that the loss suffered by Anglian in not having a completed properly working reservoir at the time that they expected, the loss sustained by Birse in having to construct a second reservoir as a result of their compromise with Anglian, or the damages which Haiste may have to pay Birse or for which Mr Newton may be liable to Anglian for their respective breaches of contract or negligence, or for both, are ‘the same damage’ within s 1(1) of the Act, even though each may have been brought about because the first reservoir was badly constructed by Birse. A substantial part of the argument on behalf of Haiste on the appeal was based on the general contention that the damage founding the liability of all the parties in this case was, in substance, the defective condition of the reservoir and the need to replace it. Speaking loosely, this is no doubt correct. In my opinion, however, the proper construction of s 1(1) of the Act of 1978 and its correct application to the facts of the instant case requires a more precise analysis.

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Non-Contractual Obligations (1): Tort I do not think that there is any ambiguity within the Act of 1978 which might entitle me to look at the [Law Commission] report [Law Com No 79, 1977, on contribution]. In my opinion, the proper construction of s 1(1) and associated provisions within the Act is clear and one needs no assistance in determining this from the Law Commission’s report. However, if I were minded or entitled to take the report into account on this appeal, I would conclude that it supports the view on construction which I have expressed. It seems clear that the recommendation of the Law Commission was merely to widen the scope of the Act of 1935 to the extent I have mentioned. Were this all, then in my opinion, this appeal should be allowed with the consequence that the third party proceedings by Haiste against Mr Newton should be dismissed. However, at a late stage, namely on 23 June 1995, the court gave leave to amend the third party notice. This was after the judgment and order now under appeal. The application for leave to amend was not opposed. In brief, the amendments add, first, allegations that Mr Newton owed a duty of care at common law to Birse, that he was in breach of that duty and that such breach caused or contributed to the deficiencies in the design and/or construction of the reservoir and to its failure. The amendments secondly add an allegation that Mr Newton was guilty of a negligent misstatement upon which Birse relied to their detriment. Each of these fresh allegations raises difficult questions of fact and law. Whilst I think that the allegations will be difficult to make out at trial, I cannot say that they are so ill founded in law that they should be struck out in limine. In these circumstances, I think that this appeal succeeds in part, that is in relation to the order made by the judge on the summons before him. However, for the reasons which I have just given I do not think that we can prevent Haiste from continuing its third party proceedings against Mr Newton on the amended third party notice. For my part I should like to hear argument from counsel on the precise terms of the order we should make on this appeal. Roch LJ: I agree. A person liable for damage suffered by another may recover contribution from any other person liable in respect of the same damage under s 1(1) of the Civil Liability (Contribution) Act 1978, subject to the following provisions of the section. The liability of the person claiming contribution, Haiste, and the liability of the person from whom contribution is claimed, Mr Newton, does not have to be joint (s 1(1)), nor does the legal basis of the liability of Haiste have to be the same as the basis of the liability of Mr Newton: sees 6(1) of the Act. The word ‘damage’ in the phrase ‘the same damage’ in s 1(1) does not mean ‘damages’. This is demonstrated by other sections of the Act, for example, s 2(3). By s 6(1), ‘damage’ is the harm suffered by ‘another person’, to use the phrase in s 1(1), for which that person is entitled to recover compensation; it is not the compensation which is recoverable although in cases of purely financial loss it may be commensurate with it.

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Sourcebook on Obligations and Remedies For there to be an entitlement to claim contribution, the damage for which the person who claims contribution and the person from whom contribution is claimed has to be the same damage, that is to say the sufferer must be the same person or some person representing his estate or dependants. This is because the person who is entitled to recover compensation for the damage has to be the person who suffered the damage. I disagree with Judge Cyril Newman QC that this interpretation of the Act requires the addition to s 1(1) of the Act of words that are not there. In my view, this is the correct construction to be placed on s 1(1) when the Act is construed as a whole. The damage suffered by Anglian in this case was the physical defects in the reservoir. The damage suffered by Birse was the financial loss of having to construct a second reservoir for Anglian. Anglian and Birse did not suffer the same damage. Consequently, I, too, would answer the question raised in the summons in the negative. Nourse LJ:… The first requirement is that there should be a person, A, who is liable in respect of damage suffered by another person, B. The second requirement is that there should be a third person, C, who is liable in respect of the same damage (whether jointly with A or otherwise). If those two requirements are satisfied, A may recover contribution from C. The question is what is meant by the words ‘the same damage’. The only synonym for ‘same’ being ‘identical’, the words, in their natural and ordinary sense, can only mean ‘the damage suffered by that other person’, ie, B. No verbal addition or subtraction is necessary in order to arrive at this interpretation. The meaning of the words, as they stand, is plain. Their effect is simply to extend as against others the right to contribution which was formerly conferred against joint tortfeasors only by s 6 of the Law Reform (Married Women and Tortfeasors) Act 1935. That is the significance of the words ‘whether jointly with him or otherwise’. For these reasons, which do little more than repeat the essential reasoning of Sir John May and Roch LJ, I agree that Judge Cyril Newman QC’s construction of s 1(1) was incorrect and that the question raised in the summons ought to have been answered in the negative. However, since unopposed leave to amend the third party notice has been given, I agree with Sir John May that we cannot prevent Haiste from continuing those proceedings against Mr Newton, and that we should hear argument from counsel as to the precise terms of the order to be made by this court. The appeal is allowed. Friends’ Provident Life Office v Hillier Parker May and Rowden [1997] QB 85 Court of Appeal (See also p 239.) Auld LJ:… In my judgment, despite the distinction between a claim for restitution and one for damages, each may be a claim for compensation for damage under ss 1(1) and 6(1) [of the Civil Liability (Contribution) Act 1978]. The difference between asking for a particular sum of money back or for an equivalent sum of money for the damage suffered because of the withholding of it is immaterial in this statutory context, which is concerned with ‘compensation’ for ‘damage’. The purpose and effect of the 1978 Act was to 620

Non-Contractual Obligations (1): Tort provide for contribution beyond that of joint tortfeasors for which s 6 of the Law Reform (Married Women and Tortfeasors) Act 1935 had previously provided. The contribution is as to ‘compensation’ recoverable against a person in respect of ‘any damage suffered by another’ (s 1(1)) ‘whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise’ (s 6(1)). It is difficult to imagine a broader formulation of an entitlement to contribution. It clearly spans a variety of causes of action, forms of damage in the sense of loss of some sort, and remedies, the last of which are gathered together under the umbrella of ‘compensation’. The 1978 Act was clearly intended to be given a wide interpretation…

(c) Damage and time Walkin v South Manchester Health Authority [1995] 1 WLR 1543 Court of Appeal Auld LJ: This is an appeal from the judgment of Potter J of 20 May 1994 ruling that the plaintiff’s, Mrs Maureen Francis Walkin’s, claim for damages against the South Manchester Health Authority is statute-barred because it was a claim in respect of personal injuries brought over three years after the cause of action had accrued. The plaintiff’s claim is for damages for economic loss resulting from an allegedly negligent sterilisation operation resulting in her subsequent conception and the birth of a healthy child, the loss being the cost of rearing the child. The issue for the judge, and on this appeal, is whether her action is for damages which ‘consist of or include damages in respect of personal injuries’ within the meaning of s 11(1) of the Limitation Act 1980… Section 11(1) of the Act of 1980 applies a limitation period of three years: …to any action for damages for negligence, nuisance or breach of duty... where the damages claimed by the plaintiff for the negligence, nuisance or breach of duty consist of or include damages in respect of personal injuries to the plaintiff or any other person. Section 38(1) of the Act defines, illustratively, ‘action’ and ‘personal injuries’ respectively as: …any proceeding in a court of law…and any disease and any impairment of a person’s physical or mental condition, and ‘injury’ and cognate expressions shall be construed accordingly. Mr Wingate-Saul, on behalf of the plaintiff, put in the forefront of his submissions that s 11(1) applies to an ‘action’, which he equated with a ‘claim’, for damages for personal injuries. He conceded that her unwanted pregnancy may have been a personal injury for the purpose of s 11(1). However, he maintained that her action, that is, her claim, was for ‘rearing costs’, that they did not result from that personal injury but from a parent’s duty to maintain his or her child when born. Accordingly, he submitted, the plaintiff’s action was not for damages consisting of or including damages in respect of her personal injury for the purpose of s 11(1). 621

Sourcebook on Obligations and Remedies He argued that negligence or other breach of duty may affect a person in more than one way, damaging separate rights or interests and giving rise to separate causes of action. Accordingly, he maintained, where there are claims for damages for both personal and non-personal injuries caused independently of each other by the same negligent act, there are two actions, or claims, to which different limitation periods apply. He relied on the majority ruling in Brunsden v Humphrey (1884) 14 QBD 141 and a number of decisions of this court accepting it as an authority for the principle that a single act of negligence may give rise to more than one cause of action depending upon the damage claimed. See, for example, The Koursk [1924] P 140, p 157, per Scrutton LJ and The Oropesa [1943] P 32, p 35, per Lord Wright, with whom Scott and MacKinnon LJJ agreed. However, the decision has not been followed in the United States of America or Canada, and has been treated with some scepticism in two more recent decisions of the Court of Appeal: see Buckland v Palmer [1984] 1 WLR 1109, p 1116, per Griffiths LJ; and Talbot v Berkshire County Council [1994] QB 290, pp 296,301, per StuartSmith and Mann LJJ… For Mr Wingate-Saul, the plaintiff’s one action is for the second, namely for damages for her right not to be caused economic loss by the expense of rearing an unwanted child. He relied on the fact that she has not claimed damages in respect of her quite distinct right not to be caused personal injury, and submitted that, even if she had done so, the rearing costs did not flow from that personal injury but from her obligation as a parent to maintain her child. His argument was that, as that responsibility did not arise until the birth of the healthy child, nor did any entitlement to damages for infringement of her right to avoid it. For Mr Raynor, the plaintiff suffered a personal injury when, contrary to her wish, she became pregnant and as a result gave birth to a healthy child. He maintained that the cost of rearing that child flowed from that personal injury and that, therefore, her action is for damages in respect of personal injuries within s 11 of the Act of 1980. What authority is there for Mr Wingate-Saul’s proposition that negligence resulting in an unwanted child, which imposes a financial burden upon the mother in bringing up the child, may found a cause of action in its own right, quite distinct from any personal injury that the same negligence may have caused her? He referred to Brooke J’s analysis in Allen v Bloomsbury Health Authority [1993] 1 All ER 651, pp 657–58, of two Court of Appeal authorities on damages in such cases, namely, Emeh v Kensington and Chelsea and Westminster Area Health Authority [1985] QB 1012, pp 1025 and 1028, per Slade and Purchas LJJ respectively; adopted and applied in Thake v Maurice [1986] QB 644, pp 682–83, per Kerr LJ, with whom Neill and Nourse LJJ agreed on this point… …In my view, Brooke J’s suggestion in [an] obiter passage that an unwanted pregnancy creates two different causes of action according to the nature of the damages claimed is not supported by the authorities nor by his own analysis of them. Post-natal economic loss may be unassociated with ‘physical injury’ in the sense that it stems from the cost of rearing a child rather than any disability in pregnancy or birth, but it is not unassociated with the cause of both, namely the unwanted pregnancy giving rise to the birth of a child.

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Non-Contractual Obligations (1): Tort In my view, claims in such circumstances for pre-natal pain and suffering and post-natal economic costs arise out of the same cause of action… The next question is whether the one cause of action is for damages consisting of or including damages in respect of personal injury. In my view, the failure of the attempt to sterilise the plaintiff was not itself a personal injury. It did her no harm; it left her as before: cf Naylor v Preston Area Health Authority [1987] 1 WLR 958, p 971—a vasectomy case—per Sir John Donaldson MR. However, it seems to me that the unwanted conception, whether as a result of negligent advice or negligent surgery, was a personal injury in the sense of an ‘impairment’ in the illustrative definition in s 38(1). The resultant physical change in her body resulting from conception was an unwanted condition which she had sought to avoid by undergoing the sterilisation operation. That conclusion appears to be accepted by both parties, and it is of piece with the... reasoning of the majority in Sherlock v Stillwater Clinic 260 NW 2d 169,174–75… Potter J’s approach was that the answer depended ‘upon the underlying reality, rather than the pleader’s pen’. He relied upon two decisions of this court. The first is Letang v Cooper [1965] 1 QB 232, a limitation case, in which Lord Denning MR and Diplock LJ, in their different ways, indicated a preparedness to look behind the pleading for the true cause of action. Diplock LJ put the matter in the following words, pp 242–43: ‘A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.’ The second authority is Howe v David Brown Tractors (Retail) Ltd [1991] 4 All ER 30, a case in which a father, whose son and business partner had been injured with consequential loss to the partnership, tried, more than three years after the injury, to join an action already commenced by his son. As Mr Wingate-Saul observed, it was a case in which the losses undoubtedly flowed directly from the son’s personal injury. The court (Stuart-Smith and Nicholls LJJ) held that, although the breach of duty in question only caused financial loss of profit to the firm by reason of the loss resulting from the son’s injury, the firm’s claim nevertheless consisted of or included damages ‘in respect of personal injuries to the plaintiff or any other person’ within s 11(1)… In my view, Potter J applied the correct test. The question whether an action is for damages in respect of personal injuries is one of substance, not a matter of pleading. As Mr Raynor submitted, the claim for damages, or the head of loss, must be considered in the context of the cause of action to which it relates… Towards the end of his judgment, Potter J said that, ‘[i]f driven to do so’, he would distinguish between the case of a failed vasectomy and a failed sterilisation on the ground that a male plaintiff does not suffer injury in the form of an unwanted birth: see also Powers and Harris, Medical Negligence, 2nd edn, 1994, p 332. As he also observed, such a distinction would be illogical. It is also unnecessary. I can see no reason to distinguish in this respect between an action by a father for a failed vasectomy and an action by a mother in respect of her husband’s failed vasectomy or her own failed sterilisation. In each case, the personal injury is the mother’s unwanted pregnancy; consequences such as physical pain and suffering of the mother, and nervous anxiety and distress and financial costs suffered by either, are caught by the

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Sourcebook on Obligations and Remedies words of s 11(1): ‘damages in respect of personal injuries to the plaintiff or any other person… ’ Accordingly, I would dismiss the appeal. Roch LJ: I agree that in the result this appeal must fail… Neill LJ:… The appeal raises difficult questions as to the nature of the wrong, if any, done to the plaintiff. Any surgical operation which is performed negligently may give rise at once to a claim for damages. The patient may suffer unnecessary pain and there may be consequential economic loss if, for example, the patient is away from work for an unusually long period. But some operations and procedures give rise to special problems. Sterilisation operations for women and vasectomies for men may cause neither unexpected pain nor unexpected absence from work, but they may prove subsequently to be ineffective. Accordingly, if a child is born and it becomes apparent that the operation was or may have been performed negligently, it will be necessary to consider whether the patient has sustained any ‘personal injuries’, and, if so, when. A possible answer is that the injuries were suffered at the time when the ineffective operation was carried out. A patient would not have submitted to the surgical interference if he or she had known that the operation would prove to be unsuccessful. The interference, it could be said, was an injury. Another possibility is to treat the ‘wrongful’ birth as the injury. I am persuaded, however, that the better view is to treat the ‘wrongful’ conception as the moment of injury… If this analysis be right it follows that the personal injury is the impairment of the mother’s physical condition by the unwanted pregnancy and that the cause of action arises at the moment of conception. I confess that I do not find this solution altogether satisfactory. In most cases where an operation has been negligently performed and where the desired result has not been achieved or has been only partially achieved, the cause of action arises at the time of the negligent act. Take the case of a pianist who receives treatment for a fractured finger. His right to sue is not postponed until he returns to the piano and finds that he cannot play. Moreover, if the operation or other procedure was carried out pursuant to a contract between the surgeon and the patient it seems probable that the cause of action would arise at the moment when the ineffective procedure was performed. One can also see difficulties where the operation is carried out in one jurisdiction and the pregnancy takes place in another. We are not concerned in the present case with the results of a failed vasectomy, though there is much to be said for the view that, where an unwanted pregnancy results from a failed vasectomy, the man could claim in respect of a personal injury to another person. I would wish, however, to reserve the question whether any personal injury is suffered in a case where a woman who desires to have a child becomes pregnant by a man who has had a vasectomy which has failed. Nor are we concerned with a claim based on alleged negligent advice or alleged misrepresentation. It may well be that the problems which have been highlighted by this case will increase in the future as new and more sophisticated methods of treatment become available. Where the treatment takes the form of a transplant or other similar procedure, 624

Non-Contractual Obligations (1): Tort there may be a substantial period between the date of the procedure and the date when its effect can be determined. Despite these misgivings, however, I am satisfied that, in this case, the relevant personal injury was suffered by the plaintiff at the time of conception and that the cause of action arose at that date. I come now to the main argument advanced on behalf of the plaintiff. It was said that apart from any claim for damages for personal injuries the plaintiff had a legal right not to be subjected to the financial burden of parenthood and the costs involved in bringing up a child. Though the date when this alleged cause of action arose was not fully explored in argument, the argument seems to predicate that the cause of action, if any, arose at the moment of birth. Until the child was born, or possibly shortly before the birth, the expenses involved would not have been incurred and no relevant damage would have been suffered. I cannot accept this argument. I have had the advantage of reading in draft the judgment of Auld LJ. I agree with his judgment and with his inability to accept the suggestion by Brooke J in Allen v Bloomsbury Health Authority [1993] 1 All ER 651, p 658, that an unwanted pregnancy creates two separate causes of action and that a claim for the cost of the upkeep of the unwanted child is a ‘totally different type of claim’ from that arising from the infliction of a personal injury. I, too, would agree with the analysis of Nicholls LJ in Howe v David Brown Tractors (Retail) Ltd [1991] 4 All ER 30, pp 40–41, that the claim for financial loss cannot be separated from a claim for the physical injury. I would echo Nicholls LJ’s conclusion that a plaintiff cannot ‘step outside the three year limitation period prescribed by s 11 by abandoning any claim for damages in respect of the physical injury and claiming only damages in respect of his loss of earnings’, or (as in this case) in respect of the cost of the upkeep of the child. There is one cause of action which arises at the moment of conception. I, too, would dismiss the appeal.

(d) Damage and causation Spartan Steel and Alloys Ltd v Martin and Co (Contractors) Ltd [1973] 1 QB 27 Court of Appeal (See p 194.) Allied Maples Group Ltd v Simmons and Simmons [1995] 1 WLR 1602 Court of Appeal (See p 332.)

Questions 1

If the defendants in Spartan had been working under contract on the plaintiffs’ land when they cut the cable, would the plaintiffs have recovered under head (in)? 625

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2

3

If the stoppage had been caused, not by the cutting off of the electricity, but by a group of demonstrators blocking the highway outside the plaintiffs’ factory, could the plaintiffs sue one or more of the demonstrators for all their economic losses? Can any ‘loss of a chance’ case be re-analysed into a factual causation problem? Jolley v Sutton London Borough Council [1998] 1 WLR 1546 Court of Appeal This was an action for damages against a local authority for negligence and breach of the Occupiers’ Liability Act 1957 brought by a boy badly injured on land belonging to the authority. The action was unsuccessful. Lord Woolf MR:… The defendants, the London Borough of Sutton (the ‘Council’), do not dispute they were negligent. The principal issue on the appeal is whether the Council should have foreseen the accident which caused the plaintiff’s injuries. As the judge pointed out in his judgment, there is no real dispute as to the circumstances in which this accident occurred. It is therefore unnecessary to describe the accident in detail… The facts The Council own a block of flats called Hayling Court, North Cheam. Nearby there is ‘amenity land’ which also belongs to the Council. A boat was left lying on this land for at least two years before the accident. The plaintiff lived nearby and in the early summer of 1989, when walking in the vicinity with a friend, Karl, he saw a boat which had been abandoned on the amenity land outside the flats. Both were very interested in boats. It seemed to be in good condition. Some months passed and they saw the boat again in the same position. They spoke to a man, who has never been identified, who told them they could have the boat. They decided to repair the boat and take it to Cornwall so as to sail it but no thought was given by them as to how this would be achieved. The boat had no mast, no sail, and no engine. There was however a trailer lying nearby and apparently they wanted to take the boat to Cornwall because that was where pirates were to be found! They started to repair the boat in February 1990. For this purpose, they tried to use the trailer, but were unsuccessful because of the rotten state of the wooden structure of the boat. A jack was used instead. The jack belonged to the plaintiff’s father. By using the car jack and some wood, they were able to raise the front of the boat about two and a half feet. This enabled them to attempt to repair several holes in the hull of the boat. They continued to work on the boat for a period of about six weeks at weekends and evenings. On 8 April 1990, the day of the accident, they were working under the boat. Karl crawled out from under, but suddenly for reasons which are not clear, the boat started to rock, Karl shouted to the plaintiff to get clear but he was unable to do so before it landed on his back, causing his dreadful injuries… It was common ground that the Council owed to the plaintiff, as a visitor, the ‘common duty of care’ as defined in s 2 of the Occupiers Liability Act 1957. That duty is defined in s 2(2) as:

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Non-Contractual Obligations (1): Tort A duty to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purpose for which he is invited or permitted by the occupier to be there. Section 2(3) provides: The circumstances relevant for the present purpose include the degree of care, and of want of care, which would ordinarily be looked for in such a visitor so that (for example) in a proper case—(a) an occupier must be prepared for children to be less careful than adults… Relevant authorities Any examination of the central role of foreseeability in determining the extent of the liability of a defendant for a breach of a duty of care starts with the decision of the House of Lords in Overseas Tankship (UK) Ltd v Marts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388. It was in the Wagon Mound case that Viscount Simonds made the important statement of principle that: It is, no doubt, proper when considering tortious liability for negligence to analyse its elements and to say that the plaintiff must prove a duty owed to him by the defendant, a breach of that duty by the defendant, and consequent damage, but there can be no liability until the damage has been done. It is not the act but the consequences on which tortious liability is founded… It is vain to isolate the liability from its context and to say that B is or is not liable and then to ask for what damage he is liable. For his liability is in respect of that damage and no other. If, as admittedly it is, B’s liability (culpability) depends on the reasonable foreseeability of the consequent damage, how is that to be determined except by the foreseeability of the damage which in fact happened—the damage in suit? [p 425]. It is, however, Hughes v Lord Advocate [1963] AC 837 which is most relevant to the present appeal. In Hughes, the consequences of the breach of duty were unusual in the case of an eight year old boy. A manhole was left open. It had been left open in connection with maintenance work on underground telephone equipment. The manhole was covered with a tent and in the evening it was left unattended, guarded by warning paraffin lamps. An eight year old boy entered and knocked or lowered one of the lamps into the hole. An explosion occurred, causing the boy to fall into the hole and be severely burnt. It was held that the workmen were in breach of duty to safeguard the boy. An attempt to dispute liability on the grounds of foreseeability and the Wagon Mound case was successful in the lower courts but the House of Lords allowed the appeal. In his speech, Lord Reid made certain comments which could be seen as very supportive of the plaintiffs case. He stated, p 845: So we have (first) a duty owed by the workmen, (secondly) the fact that if they had done as they ought to have done there would have been no accident, and (thirdly) the fact that the injuries suffered by the appellant, though perhaps different in degree, did not differ in kind from injuries which might have resulted from an accident of a foreseeable nature. The 627

Sourcebook on Obligations and Remedies ground on which this case has been decided against the appellant is that the accident was of an unforeseeable type. Of course, the pursuer has to prove that the defendant’s fault caused the accident, and there could be a case where the intrusion of a new and unexpected factor could be regarded as the cause of the accident rather than the fault of the defender, but that is not this case. The cause of this accident was a known source of danger, the lamp, but it behaved in an unpredictable way. [Emphasis added.] Lord Reid later, by way of distinction, referred to a situation where there was an intrusion of some new and unforeseeable cause, like the falling of a ceiling, so that the damage cannot be said to have resulted from the defendant’s breach of duty and in relation to that situation he appears to accept that there would be no liability. However, he concluded by saying, p 847: This accident was caused by a known source of danger, but caused in a way which could not have been foreseen, and, in my judgment, that affords no defence.’ I must confess that I have difficulty in reconciling these remarks with the approach in Wagon Mound [1961] AC 388. However, Lord Reid also agreed with the speech of Lord Guest and so Lord Reid’s speech therefore must not be regarded as being in conflict with that of Lord Guest. Lord Guest focused on whether the type of accident which occurred was foreseeable. He said, p 856: Was the igniting of paraffin outside the lamp by the flame a foreseeable consequence of the breach of duty? In the circumstances, there was a combination of potentially dangerous circumstances against which the Post Office had to protect the appellant. If these formed an allurement to children, it might have been foreseen that they would play with the lamp, that it might tip over, that it might be broken, and that when broken the paraffin might spill and be ignited by the flame. All these steps in the chain of causation seem to have been accepted by all the judges in the courts below as foreseeable. But because the explosion was the agent which caused the burning and was unforeseeable, therefore the accident, according to them, was not reasonably foreseeable. In my opinion, this reasoning is fallacious. An explosion is only one way in which burning can be caused. Burning can also be caused by the contact between liquid paraffin and a naked flame. In the one case paraffin vapour and in the other case liquid paraffin is ignited by fire. I cannot see that these are two different types of accident. They are both burning accidents and in both cases the injuries would be burning injuries. Upon this view, the explosion was an immaterial event in the chain of causation. It was simply one way in which burning might be caused by the potentially dangerous paraffin lamp. I adopt, with respect, Lord Carment’s observation in the present case: The defender cannot I think escape liability by contending that he did not foresee all the possibilities of the manner in which allurements—the manhole and the lantern—would act upon the childish mind’. I draw attention to Lord Guest’s reference to the fact that he could not see ‘that these are two different types of accident’. Lord Pearce agreed with the speech of Lord Guest and focused on the importance of different types of accident when considering the question of liability. This appears from the following passages of his speech, pp 857–58: 628

Non-Contractual Obligations (1): Tort The defenders are therefore liable for all the foreseeable consequences of their neglect. When an accident is of a different type and kind from anything that a defender could have foreseen, he is not liable for it (see The Wagon Mound). But to demand too great precision in the test of foreseeability would be unfair…since the facets of misadventure are innumerable… The allurement in this case was the combination of a red paraffin lamp, a ladder, a partially closed tent and a cavernous hole within it, a setting well fitted to inspire some juvenile adventure that might end in calamity. The obvious risks were burning and conflagration and a fall. All these in fact occurred, but unexpectedly the mishandled lamp instead of causing an ordinary conflagration produced a violent explosion. Did the explosion create an accident and damage of a different type from the misadventure and damage that could be foreseen? In my judgment, it did not. The accident was but a variant of the foreseeable. Lord Morris of Borth-y-Gest also concentrated on the type of accident. He said, p 852: The fact that the features or developments of an accident may not reasonably have been foreseen does not mean that the accident itself was not foreseeable. The pursuer was, in my view, injured as a result of the type or kind of accident or occurrence that could reasonably have been foreseen. In agreement with Lord Carmont, I consider that the defenders do not avoid liability because they could not have foretold the exact way in which the pursuer would play with the alluring objects that had been left to attract him or the exact way in which in so doing he might get hurt. He added at the end of his speech, p 853: My Lords, in my view, there was a duty owed by the defenders to safeguard the pursuer against the type or kind of occurrence which in fact happened and which resulted in his injuries, and the defenders are not absolved from liability because they did not envisage ‘the precise concatenation of circumstances which led up to the accident’. Conclusions I have cited extensively from their Lordships’ speeches in Hughes because it is on their approach in that case that the outcome of this appeal depends. Other cases do provide illustrations of what has been the court’s decision on the particular circumstances which have arisen for consideration. However, as those other cases can readily be distinguished on the facts from the present case, their contribution to resolution of this appeal is limited. There is, however, one general point which can be drawn from analogous cases and that is while there are examples of situations where in what at first sight seem to be unusual circumstances, liability has been established, there is no case of which counsel on either side were aware where want of care on the part of a defendant was established but a plaintiff, who was a child, has failed to succeed because the circumstances of the accident were not foreseeable. To that extent, if this appeal succeeds, the result will be novel. The judge attached importance to the presence of the boat as being both an allurement and a trap. While this can be of significance in some cases, it is 629

Sourcebook on Obligations and Remedies only part of the background to this case. There can be no dispute that if this boat was left in this position, children would be attracted by it and would play with it. This was conceded. It was also a trap in the sense that it was not immediately apparent that it was in a rotten condition, that is in a condition where it could prove dangerous because a child could find that a plank or planks gave way. It was a combination of these two features that made it the duty of the Council to have the boat removed. They failed to do this and, in that respect, they were negligent. However, these features, the attractiveness of the boat to children and its dangerous condition, were not established to be part of the causes of the accident. The immediate cause of the accident was that the two boys jacked and propped the boat up so that they could work underneath it and did so in a way that meant that the boat was unstable and could and did fall on the plaintiff. The question which has to be asked is, was this accident in the words of Lord Pearce ‘of a different type and kind from anything that a defender could have foreseen’? In answering this question, it is necessary to have well in mind that the council should have appreciated that it is difficult to anticipate what children will do when playing with a boat of this sort. Boats, like cars, if they are left ‘abandoned’ in an area where children have access, will certainly attract children to play with them. But what the plaintiff was engaged on was an activity very different from normal play. Even making full allowance for the unpredictability of children’s behaviour, I am driven to conclude that it was not reasonably foreseeable that an accident could occur as a result of the boys deciding to work under a propped up boat. Nor could any reasonably similar accident have been foreseen. Ironically, the state of the boat was so poor that it made it less likely that it would be repairable or that boys would embark on doing the necessary repairs. The photographs of the boat and the evidence of Mr Hall indicate that it was a fairly heavy structure. It would be by no means easy for the boat to be moved or raised. In deciding whether the accident was foreseeable it is important not only to consider the precise accident which occurred but the class of accident. Although the appeal is a re-hearing, it is still important for this court to recognise that the judge having heard the evidence was in a better position to know all the circumstances than this court can be, even with the assistance of transcripts. However, like my Lords, I do not find it possible to attribute this accident to the breach of duty of the Council. An accident of the kind which the plaintiff sustained could only occur because together with Karl, he behaved in a way which was not capable of being reasonably anticipated. It is on this basis that I am driven to resolve this appeal. The same approach can be reached by saying that it was the boys’ own acts which created a situation which resulted in the accident but the preferable solution is one based on foreseeability. I would not, however, myself decide the case by impliedly limiting the purposes for which the plaintiff was permitted to be present at the place where the accident occurred. Having come to the conclusion that the plaintiff fails on liability, it is not strictly necessary to deal with the question of contributory negligence. However, for the avoidance of doubt, I make it clear that if it had been relevant

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Non-Contractual Obligations (1): Tort to do so, I would have dismissed the Council’s appeal as to the apportionment of liability. If the Council were liable, then the plaintiff was appropriately held 25% to blame. The plaintiff has a cross-appeal on the quantum of damages. The outcome of that appeal was dependant on a case at present before the House of Lords. However, in view of our decision on liability, the cross-appeal will also have to be dismissed. Our decision is a tragedy for the plaintiff and those who care for him. This we very much regret. Nonetheless, the appeal has to be allowed and judgment entered for the Council. Roch LJ:… In the present case, the risk created by the negligence, the negligence being a failure to remove this boat with its rotten planking, was of children who were drawn to the boat climbing upon it and being injured by the rotten planking giving way beneath them. The activities that were obvious and which the appellants could and should have foreseen were of children climbing and playing upon the boat. The accident which occurred was, in my opinion, quite different. The jacking up of this boat and the going underneath this boat when it was inadequately supported were not activities by children which the appellants could or should have reasonably foreseen. The accident that occurred was not simply an unexpected manifestation of the apprehended physical dangers created by this boat being left with its rotten planking in a place where children might play upon it. Had the boat been sound, then no reason for its removal would have existed, nor would any obligation on the appellants to remove it have existed. Yet the accident which occurred could still have occurred with the boat in a sound condition, although injury to children playing upon the boat would not in those circumstances have been reasonably foreseeable. The jacking up of the boat was an unforeseen, extraneous initial occurrence. Judge LJ:… In my judgment, this accident was of a different type and kind from anything which the defendants could reasonably have foreseen when they carelessly permitted the boat to remain where it was. Accordingly, although they might have been held liable for other accidents involving children injured playing with or near the boat (if there had been any), it has not been established that they should be held liable for this particular accident.

Questions 1 2 3

Is this a factual or legal (remoteness) causation case? Was the plaintiff the cause of his own damage? Leave to appeal to the House of Lords has been granted ([1999] 1 WLR 26). Do you think they will reverse the decision? If so, draft a judgment. Reeves v Commissioner of Police for the Metropolis [1999] 3 WLR 363 House of Lords (See p 770 for the facts and majority decision.)

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Sourcebook on Obligations and Remedies Lord Hobhouse (dissenting): My Lords, this appeal raises two questions. The first is whether the death of Mr Lynch was caused by the negligence of the defendant. The second is whether, assuming that it was, the defendant has a defence under the Law Reform (Contributory Negligence) Act 1945. Your Lordships would answer both questions in the affirmative. It was a forensic paradox (as confirmed by the judgment of Lord Justice Buxton in the present case) that the argument of each side on the second question was persuasive to undermine its argument on the first question. If, however, the first question is, contrary to my view, to be answered in favour of the plaintiff, then I see no difficulty in answering the second question in favour of the defendant nor, on that hypothesis, would I differ from your Lordships’ opinion, in agreement with the preferred view of Lord Bingham LCJ, that the reduction in the plaintiffs recoverable damages should be 50%. In this speech I will therefore confine myself to the first question: the question of causation. The plaintiffs cause of action arises out of the death of her former husband, Mr Lynch. She is to be taken as having sued under both the Fatal Accidents Act 1976 and the Law Reform (Miscellaneous Provisions) Act 1934. Under ss 1(1) of each of these Acts, the plaintiff is not entitled to assert any cause of action which the deceased could not have asserted if he had survived and the defendant can rely upon the defences he would have had against the deceased. (See also s 5 of the 1976 Act.) This needs to be stressed at the outset, since there are indications in the judgments of both Buxton LJ and Lord Bingham in the Court of Appeal in the present case that they were influenced by the fact that the action was being brought for the benefit, not of the deceased, but of his relatives. But it is fundamental that it is the deceased’s cause of action (if any) which is being sued on. For the purposes of my discussion of causation, it is both convenient and right to treat the deceased as the plaintiff. The principles of law to be applied are those which relate to the assessment of the conduct of a plaintiff as the cause of his own loss… My Lords…let me take two hypothetical situations, neither unduly fanciful. Suppose that the detainee is a political agitator whose primary motivation is to further a political cause. Such persons are liable to see self-destruction, in circumstances which they hope will attract as much publicity and media attention as possible, as an appropriate means of advancing their political cause. Can such a person, having taken advantage of a careless oversight by the police and carried out his purpose, vicariously bring an action against the police and recover damages from them? Or suppose a detainee who and whose family are in serious financial difficulties and who, knowing what the Court of Appeal decided in the present case, says to himself ‘the best way for me to help those I love is to commit suicide’ and then carries out that purpose by taking advantage of the careless oversight. As Mr Pannick QC said in argument, he might even leave a suicide note for his wife telling her this. In cases such as these it would be surprising if the courts were to say that, notwithstanding the determinative, rational and deliberate choice of the deceased, that choice had not become the only legally relevant cause of the death. It would also in my judgment be contrary to principle. It certainly would be contrary to principle to resort to the fiction of saying that he was guilty of 100% contributory negligence: if the responsibility for his death

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Non-Contractual Obligations (1): Tort was his alone, the principled answer is to say that the sole legal cause was his own voluntary choice. Yet, if such a case were hereafter to come before a court, that court, on the basis of the majority decision of the Court of Appeal, would be bound to award the plaintiff damages. I give these examples to illustrate the need to identify a dividing line unless one is to say that even in such cases the deliberate voluntary choice of the deceased, the quasi-plaintiff, can never break the chain of causation. The view accepted by the majority of the Court of Appeal reduces all such questions to an examination of the scope of the duty of care or remoteness (which in the context of the law of negligence is effectively the same thing: Overseas Tankship (UK) Ltd v Marts Dock and Engineering Co Ltd (The Wagon Mound) [1961] AC 388). The reason why this is contrary to principle is that it is a basic rule of English law that a plaintiff cannot complain of the consequences of his own fully voluntary conduct—his own ‘free, deliberate and informed’ act: see Hart and Honoré, Causation in the Law, 2nd edn, 1985, p 136. This principle, overlooked by the plaintiff, is to be found in a variety of guises in most branches of the law. In the law of tort it overlaps with other principles and invites recourse to expressions (usually Latin maxims) not all of which have a consistent usage. One such guise is that a party cannot rely upon his own unlawful or criminal conduct: the so called ex turpi causa non oritur actio maxim. Until the passing of the Suicide Act 1961, suicide was a crime and, accordingly, a person who committed that crime could acquire no rights thereby. But it was always open to the interested party to say that the suicide was not criminally responsible because of insanity, usually temporary insanity. The insanity negatived both the criminal character of the conduct and its immorality. This principle is no longer relevant to the present type of case and has not been relied upon by the defendant before us. I agree with the unanimous rejection by the Court of Appeal of this defence, but it is necessary to mention it, since the terminology of insanity has properly been used in cases in the past and has, since then, still tended confusingly to colour some of the judicial language. The contrast now is not between sane and insane behaviour but between conduct of the plaintiff which can and cannot be properly described as voluntary. Suicide is within the range of conduct lawfully open to a person: personal autonomy includes the right to choose conduct which will cause that person’s death and the right to refuse to allow others to obstruct that choice (Airedale NHS Trust v Bland [1993] AC 789; St George’s Healthcare Trust v S [1999] Fam 26). Imprisonment does not deprive the prisoner of that autonomy (Freeman v Home Office (No 2) [1984] 1 QB 524). It would also be wrong to treat the principle of illegality or public policy as the answer to the illustrative hypothetical examples which I have given. Our culture has always regarded the willingness to sacrifice one’s life for a cause or for the benefit of others as laudable, not reprehensible. In the context of suicide, these points are illustrated by the classic decision of your Lordships’ House, Beresford v Royal Insurance Co Ltd [1938] AC 586. There the assured, who was sane, decided, in circumstances not dissimilar to those postulated by Mr Pannick in argument, that copious life insurance

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Sourcebook on Obligations and Remedies followed by deliberate suicide was the answer to the grave financial problems with which he and his family were faced. The assured’s heir was unable to recover under the policies for two primary reasons. ‘No system of jurisprudence can with reason include among the rights which it enforces rights directly resulting to the person asserting them from the crime of that person’ (p 596, quoting Fry LJ in Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147, p 156). The other was ‘On ordinary principles of insurance law, an assured cannot by his own deliberate act cause the event upon which the insurance money is payable’ (p 595). The causation question is independent of the crime/public policy question and remains notwithstanding the removal of the other. The legal problem in the present case arises because of the particular findings of fact which the trial judge made about the state of mind of Mr Lynch. Were it not for those findings, the case would have been indistinguishable from the decision in Kirkham; but, as it was, he rightly considered that he should follow the reasoning of the Court of Appeal in that case and dismiss the claim. Lord Bingham was clearly surprised by the findings which the trial judge had made. I can understand his reaction. It might be thought that any person locked up in a cell was almost certainly being subjected to abnormal stresses which would be liable to cause him to act in an irrational fashion and do things which he would not normally contemplate; he may suffer impulses which he would not normally suffer. He may be in all other respects a normal person. He may not be mentally ill or otherwise suffering from any disturbance of the mind. It is the general experience of those concerned with prison administration and the custody of persons in police stations that the risk of suicide or self-harm exists among those confined whether they be suffering from some frank mental condition or appear to be relatively undisturbed. Your Lordships have been referred to reports and statistics which support this and the risk is clearly recognised in the instructions and recommendations issued by the Police Authorities and the Home Department. The risk of suicide is a concern of those responsible for holding persons in custody and within their contemplation. But it was the trial judge who heard the evidence, including expert evidence, and made the findings, being fully aware of their significance, and his findings have not been challenged… Causation My Lords, causation, as discussed in the authorities, has been complicated both by conflicting statements about whether causation is a question of fact or of law or, even, ‘common sense’ and by the use of metaphor and Latin terminology, for example, causa sine qua non, causa causans, novus actus and volenti, which in themselves provide little enlightenment and are not consistently used. At one level, causation is purely a question of fact. It is a question of fact whether event ‘a’ was a cause of event ‘x’. To simplify, it is a factual question whether event ‘x’ would still have occurred if event ‘a’ had not. However, facts are not that simple. Virtually every event will have a number of antecedent facts which satisfy such a factual test. The ordinary use of language then distinguishes between them, choosing some and discarding others. The

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Non-Contractual Obligations (1): Tort presence of oxygen is a necessary cause of combustion yet it is not normally treated as being a cause. This is because it is part of the normal environment and therefore is disregarded when identifying the cause of some abnormal event. (In certain circumstances, oxygen is not or should not be part of the normal environment, for example, in tanks used for the sea carriage of petroleum, in which case its presence would be identified as a cause.) The ordinary use of language makes a distinction, independent of any legal concept, between the normal and the abnormal in describing something as a cause. This use of language is most easily observed in relation to physical events but is also applied to human conduct. Reasonable human responses to situations are not treated as causative; they are a normal consequence of the antecedent event and it is that event which is described as the cause. Thus, the reasonable response of a rescuer to an accident caused by the negligence of another would not without more be described as a cause of an injury suffered by the rescuer. Similarly, to act reasonably on the faith of some misinformation is normally described as a consequence not as a cause. Human conduct, which is not entirely reasonable, for example, where it is itself careless, but is within the range of human conduct that is foreseeable and normally contemplated as not unlikely, may add a further cause of the relevant subsequent event but would not normally mean that an earlier relevant event ceased also to be a cause of that later event. Careless conduct may ordinarily be regarded as being within the range of normal human conduct when reckless conduct ordinarily would not. Any disputed question of causation (factual or legal) will involve a number of factual events or conditions which satisfy the ‘but for’ test. A process of evaluation and selection has then to take place. It may, for example, be necessary to distinguish between what factually are necessary and sufficient causes. It may be necessary to distinguish between those conditions or events which merely provide the occasion or opportunity for a given consequence and those which in the ordinary use of language would (independently of any imposed legal criterion) be said to have caused the relevant consequence. Thus certain causes will be discarded as insignificant and one cause may be selected as the cause. It is at this stage that legal concepts may enter in, either in a way that is analogous to the factual assessment—as for ‘proximate’ cause in insurance law—or, in a more specifically legal manner, in the attribution of responsibility (bearing in mind that responsibility may not be exclusive). In the law of tort, it is the attribution of responsibility to humans that is the relevant legal consideration. The attribution of human responsibility is often a complex exercise since it involves an examination of the legally relevant features of the consequence in question and the legally relevant features of the conduct complained of (for example, The Empire Jamaica [1957] AC 386) in conjunction with or in contrast to other human conduct which may also be factually relevant. Legal criteria (maybe fact sensitive) have to be applied. At this level, causation is a question of law. Now is not the time to enter upon an exhaustive examination of the legal criteria. For present purposes, two categories are directly relevant.

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Sourcebook on Obligations and Remedies Before examining these two categories, however, I would stress three points. First, a distinction is drawn between natural and human phenomena. Save in theologically inspired language now long discarded, responsibility is not attached to natural events. The only consideration to which they give rise is remoteness. Secondly, human conduct in contrast can have a double relevance, both to remoteness and to attracting legal and moral responsibility. But, for most purposes in the law, and in particular in the law of tort, all a plaintiff need prove is that the defendant’s tort was a cause of the loss in respect of which the plaintiff claims. If two or more tortfeasors have each contributed to causing the plaintiffs loss, each of them is severally liable for that loss. Remoteness is, again, the only relevant consideration. Unless the conduct of one tortfeasor has been such as to take the consequence out of the scope of another’s tortious duty and render it too remote, the liability of one does not preclude the claim of the plaintiff against each. Thirdly and most importantly in the present context, there is a radical distinction between the conduct of the plaintiff and the conduct of third parties. To overlook this distinction will inevitably lead to error. At one level where it merely involves some lack of care or breach of duty it reduces but does not negative the plaintiffs right of recovery; this is the position (now) where there is contributory negligence. Failure to mitigate can be similarly analysed (though it can also be analysed pro tanto in terms of remoteness or causation). Where deliberate voluntary conduct of the plaintiff is involved in the knowledge of what the defendant has done, the plaintiff cannot disclaim responsibility for the consequence: he has caused his own loss. His conduct has a different impact to that of a third party. Remoteness The first category is the concept of remoteness. In the law of tort, the question is whether the consequence complained of, although factually caused by the defendant’s act or omission, was legally too remote. This, in turn, in relation to negligence, involves an inquiry into what was reasonably foreseeable by the defendant at the relevant time and what matters came within the scope of the duty of care which the defendant owed to the plaintiff (The Wagon Mound [1961] AC 388; Caparo Industries plc v Dickman [1990] 2 AC 605.) Where other factually causative human conduct is concerned, the application of these tests provides the legal answer. Foreseeable human conduct which falls within the scope of the duty of care is not too remote, even if dishonest or criminal. A clear illustration of this is the well known case of Stansbie v Troman [1948] 2 KB 48. A decorator was left in charge of the plaintiff’s house. He went out to buy some more rolls of wallpaper leaving the front door unlocked. As a result a burglar was able to enter and steal the plaintiff’s diamond bracelet. The decorator was liable notwithstanding the intervening criminal act of the burglar. The burglar’s act was both foreseeable and within the scope of the duty owed by the defendant to the plaintiff. (Of course, this does not mean that the burglar was not also legally responsible.) The conclusion can be expressed in a number of ways: the defendant’s negligence caused the plaintiffs loss; the plaintiff’s loss was not too remote; the burglar’s act was not a novus actus interveniens. As discussed in Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350; [1998] 1 All ER 481, it is necessary to evaluate the subsequent human

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Non-Contractual Obligations (1): Tort intervention in conjunction with the essential character of the fault of the defendant. This principle also extends to conduct of the plaintiff. Was the conduct of the plaintiff foreseeable? Was it within the scope of the duty of care owed by the defendant to the plaintiff? Where the plaintiff is a child, the predictable conduct of the child will not make the child’s injury too remote; indeed it is usually the foundation of the defendant’s liability to the child (Yachuk v Oliver Blais Co Ltd [1949] AC 386). Where the defendant’s conduct has created a dangerous situation either for the plaintiff or another, the conduct of the plaintiff in response to that danger will not be too remote (Scott v Shepherd (1773) 3 Wils 403; Haynes v Hanvood [1935] 1 KB 146). Where the defendant has set out to deceive the plaintiff, the success of that deception even though others might not have been deceived does not render the plaintiff’s loss too remote; intended consequences are not too remote. Many other examples could be given. Where the conduct of the plaintiff has also been blameworthy, justice is achieved by applying the provisions of the Law Reform (Contributory Negligence) Act 1945. On the other hand, conduct, whether of the plaintiff or any other person, which is of such a character as to remove the relevant factual consequence from the scope of the relevant duty owed by the defendant to the plaintiff or take it outside the range of what was reasonably foreseeable, will by the same criteria make the consequence too remote for it to be said that it was caused by the relevant act or omission of the defendant. Thus far, my Lords, these legal principles present no obstacle to the plaintiff in the present case. The suicide of Mr Lynch was foreseeable; it was within the scope of the duty of care owed by the defendant to Mr Lynch. If the plaintiff or some other person had an independent cause of action of their own against the defendant, say for nervous shock, in connection with what occurred that day in Kentish Town Police Station, the conduct of Mr Lynch would not make the loss suffered by such a person too remote. The Court of Appeal and your Lordships have been right to reject the defence of novus actus. But where, in my judgment, the majority of the Court of Appeal went wrong was to stop there. They rejected wholly any relevance of the second category of legal principle. It would be wrong to be too critical since, as was illustrated by the argument in your Lordships’ House, counsel too tended to make the same error. The responsibility of the plaintiff The second category of legal principle to which I must refer is that which relates to the responsibility of the plaintiff for that of which he complains. A number of principles are involved. First, there is the fundamental principle of human autonomy. Where a natural person is not under any disability, that person has a right to choose his own fate. He is constrained in so far as his choice may affect others, society or the body politic, but, so far as he himself alone is concerned, he is entitled to choose. The choice to commit suicide is such a choice. A corollary of this principle is, subject to the important qualification to which I will refer, the principle that a person may not complain of the consequences of his own choices. This both reflects coherent legal principle and conforms to the accepted use of the word cause: the person’s

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Sourcebook on Obligations and Remedies choice becomes, so far as he is concerned, the cause. The autonomy of the individual human confers the right and the responsibility. To qualify as an autonomous choice, the choice made must be free and unconstrained—that is, voluntary, deliberate and informed. If the plaintiff is under a disability, either through lack of mental capacity or lack or excess of age, the plaintiff will lack autonomy and will not have made a free and unconstrained choice. Child plaintiffs come into this category. Both as a matter of causation and the attribution of responsibility, their conduct does not (without more) remove the responsibility of the defendant or transfer the responsibility to the child plaintiff… Where the plaintiffs lack of mental capacity has been caused by the defendant’s breach of duty, the entitlement to recover is all the stronger. On the same basis, choices made under constraint of circumstances, such as those made by rescuers or persons placed in immediate danger, will not carry with them the consequence that the choice was the sole cause of the subsequent injury to the plaintiff nor will it result in his bearing the sole responsibility for his injury… The same applies if the plaintiffs choice was vitiated by misinformation or lack of information. In the context of employment, the question of the reality of the employee’s assent and his acceptance of risk has been the subject of many decisions; perhaps the most illuminating discussion for present purposes is to be found in Imperial Chemical Industries Ltd v Shatwell [1965] AC 656, particularly per Lord Hodson, pp 680–81, where he stresses that the plaintiffs conduct cannot be described as voluntary unless he truly had a free choice. (The case also, like Stapely v Gypsum Mines Ltd [1953] AC 663, illustrates the distinction between lack of care for one’s own safety and the true acceptance of risk.) These qualifications are fundamental and are the basis of the decisions where a plaintiff has been held entitled still to sue notwithstanding his having made a choice which led to the event of which he complains. The simplest way in which to express the relevant principles, both the basic principle of autonomy and the qualification, is in terms of causation. Both as a matter of the ordinary use of language and as a matter of law it is correct to say that the plaintiff’s voluntary choice was the cause of his loss. Another partial expression of this principle is the maxim volenti non fit injuria. This maxim, originating from a rather different Roman law context, is a notorious source of confusion (Dann v Hamilton [1939] 1 KB 509). In intentional torts it means consent by the plaintiff to the act which would otherwise be the tort. In the law of negligence it means the acceptance variously of the risk created by the defendant’s negligence or of the risk of the defendant’s negligence. In such cases it is probably best confined to cases where it can be said that the plaintiff has expressly or impliedly agreed to exempt the defendant from the duty of care which he would otherwise have owed (Nettleship v Weston [1971] 2 QB 691), a formulation which, it will be appreciated, immediately brings the maxim into potential conflict with s 2 of the Unfair Contract Terms Act 1977. It will also be appreciated that so interpreted the maxim would only have an artificial application to the facts of the present case. The suggestion that Mr Lynch was agreeing to exempt the Police Authority from anything is both objectionable and wholly unrealistic. (It may be that this consideration understandably coloured counsel’s presentation of the defendant’s case.) But, my Lords, if the question raised by Mr Lynch’s conduct is seen as a 638

Non-Contractual Obligations (1): Tort question of causation, these artificialities fall away. If Mr Lynch, knowing that the police officers had put him in a cell with a defective door and had failed to close the hatch, then voluntarily and deliberately, in full possession of his faculties, made the rational choice to commit suicide, principle and language say that it was his choice which was the cause of his subsequent death. He was not, on the judge’s findings, acting under any disability or compulsion. He made a free choice: he is responsible for the consequence of that choice. Conclusion I would allow the appeal and direct judgment to be entered for the defendant. The argument of the plaintiff and the decision of the majority of the Court of Appeal disclose errors of law. They fail to have adequate regard to the fact that the action is to be decided as if Mr Lynch was the plaintiff. They treat remoteness as the sole criterion of recovery. They do not recognise the principle that a plaintiff who by his own voluntary choice deliberately chooses to cause the loss which he seeks to recover from the defendant cannot thereafter say that his choice was not the sole cause of his loss. The decision of the Court of Appeal is also worrying since it fails to provide any dividing line between cases where the plaintiff can recover and those where he cannot and, in view of the findings of fact that were made in the present case, leaves it open for any suicide to recover once some negligence on the part of the prison or police authorities has been shown. I do not consider that this is the law.

Questions 1

2

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When a person takes his or her own life while locked up in a cell, is this really a matter of free choice? Could it not be said that an incarcerated person is a person under a disability? Can this question be avoided simply because of the findings or non-findings of the trial judge? What were the causes of the claimant’s financial loss? Do concepts such as ‘responsibility’ really help answer this question in anything other than an ideological way? If Lord Hobhouse is right, would this mean that the police could never be sued for damages in respect of suicides in custody? Does the duty become empty of legal content? Or is it simply a matter of a defence based upon causation? Is not the origin of the distinction between ‘causation’ and ‘remoteness’ to be found in the respective roles of jury and judge?

4 LIABILITY FOR INDIVIDUAL ACTS Code civil 1382 Any human act whatever which causes damage to another obliges him by whose fault it occurred to make reparation. 639

Sourcebook on Obligations and Remedies 1383 Each one is liable for the damage which he causes not only by his own act but also by his negligence or imprudence. Wilkinson v Downton [1897] 2 QB 57 Queen’s Bench Wright J: In this case, the defendant, in the execution of what he seems to have regarded as a practical joke, represented to the plaintiff that he was charged by her husband with a message to her to the effect that her husband was smashed up in an accident, and was lying at The Elms at Leytonstone with both legs broken, and that she was to go at once in a cab with two pillows to fetch him home. All this was false. The effect of the statement on the plaintiff was a violent shock to her nervous system, producing vomiting and other more serious and permanent physical consequences at one time threatening her reason, and entailing weeks of suffering and incapacity to her as well as expense to her husband for medical attendance. These consequences were not in any way the result of previous ill health or weakness of constitution; nor was there any evidence of predisposition to nervous shock or any other idiosyncrasy… The defendant has, as I assume for the moment, wilfully done an act calculated to cause physical harm to the plaintiff—that is to say, to infringe her legal right to personal safety, and has in fact thereby caused physical harm to her. That proposition without more appears to me to state a good cause of action, there being no justification alleged for the act. This wilful injuria is in law malicious, although no malicious purpose to cause the harm which was caused nor any motive of spite is imputed to the defendant…

Questions 1 2 3 4 5

What was the cause of action in this case? Is this case authority for the proposition that damage indirectly caused can be a trespass? Did the defendant assault the plaintiff? What if the plaintiff had suffered only financial loss? What if the plaintiff had previously played a similar joke (but without harmful consequences) on the defendant? Could this case have been used as an authority for granting an injunction in Khomsandjian v Bush (above, p 141)? Donoghue v Stevenson [1932] AC 562 House of Lords (See p 65.)

Questions 1 2 3

Does Donoghue v Stevenson lay down a similar principle to Art 1382 of the Code civil? Or is it more restrictive? How relevant is the law of contract to this decision? What about economic loss deliberately caused? (Cf Bradford Corpn v Pickles, see p 222.)

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Donoghue v Stevenson in many ways cuts across the old forms of action approach to liability, as Esso v Southport (p 216) itself goes some way in showing. In introducing fault as the cause of the action, it provided the courts with an alternative way of analysing facts. Indeed, the full impact of this alternative approach to liability is still in the process of working its way through the old causes of action, as the Cambridge Water case will show (below, p 665). Yet the requirement of a duty of care has kept the fault principle closely tied to the facts. The use of the word ‘proximity’ in an extract from Heaven v Pender (1883) 11 QBD 503, p 509, quoted by Lord Atkin, is now a fundamental descriptive notion used to distinguish between duty and no duty factual situations. Indeed, attempts to elevate the ratio decidendi of Donoghue into a principle have been abandoned by the House of Lords; the approach to liability is reasoning by analogy (see Lord Oliver, above, p 192 and Lord Woolf, p 122). There is no doubt that Donoghue v Stevenson was, and remains, a revolutionary case. The problem is that the full effects of the revolution are still being felt, and not just within the idea of a duty of care. Is it still worthwhile searching for causes of action independent of the tort of negligence, or has this cause of action infected the whole of the law of tort? Reeves v Commissioner of Police for the Metropolis [1999] 3 WLR 363 House of Lords (See p 770.) Lord Hoffmann:… [T]here is a difference between protecting people against harm caused to them by third parties and protecting them against harm which they inflict upon themselves. It reflects the individualist philosophy of the common law. People of full age and sound understanding must look after themselves and take responsibility for their actions. This philosophy expresses itself in the fact that duties to safeguard from harm deliberately caused by others are unusual and a duty to protect a person of full understanding from causing harm to himself is very rare indeed. But, once it is admitted that this is the rare case in which such a duty is owed, it seems to me self-contradictory to say that the breach could not have been a cause of the harm because the victim caused it to himself… Barrett v Ministry of Defence [1995] 1 WLR 1217 Court of Appeal Beldam LJ: In these proceedings, Mrs Dawn Barrett, widow of Terence Barrett, claims damages for herself and her son Liam under the Fatal Accidents Act 1976 and for the benefit of the estate of her deceased husband under the Law Reform (Miscellaneous Provisions) Act 1934. She blames the defendant, the Ministry of Defence, for the death of her husband, who was serving in the Royal Navy. On 12 May 1993, Judge Phelan, sitting as a judge of the High Court in the Queen’s Bench Division, gave judgment for the plaintiff for £160,651.16. He had reduced the damages of £214,201.54 by 25%, which he held was the deceased’s share of responsibility for his death. The defendant

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Sourcebook on Obligations and Remedies in this appeal challenges one of the two grounds on which the judge found it to have been in breach of duty to the deceased. It also seeks reassessment of the apportionment of liability. At the time of his death the deceased was 30 years of age and a naval airman serving at a shore-based establishment of the Royal Navy at Barduffos in northern Norway… The facts leading up to the death of the deceased were not in dispute. He died in his bunk between 2 am and 2.30 am on the morning of Saturday 23 January 1988. Friday 22 January was the deceased’s 30th birthday. He had recently learnt that, after some 10 years’ service, he was to be promoted to leading hand and so had additional reason to celebrate. Friday evening was customarily an evening for heavy drinking. On this Friday, a Hawaiian party event had been organised in the senior rates’ bar. A number of the senior rates attending the party decided they would compete to see who could drink the most. Very substantial quantities of duty-free spirits were consumed. The deceased went to the junior rates’ bar at about 9.15 pm to begin his celebrations. Having placed money behind the bar to treat his mess mates, the judge found he himself consumed there three cans of cider and two double Bacardis. At about 10.30 pm he was invited to the senior rates’ bar, where he was brought six Bacardis, each of which was a double measure. By about 11 pm, he had consumed a minimum of four ciders and nine double Bacardis. It was not, however, suggested that the barmen in charge of either bar had served him personally with this number of drinks. Most of the drinks were brought for him. At about 11.30 pm, he returned to the junior rates’ bar to get fuel for his cigarette lighter and then went back to the senior rates’ bar where, shortly afterwards, he became unconscious. He was carried back to the junior rates’ bar, where he was placed on a chair in the lobby. He was seen there by Lieutenant Commander Parker, who had just returned from sledging. The deceased was then in a collapsed state and insensible. Petty Officer Wells, the duty senior rate, whose officer was nearby, organised a stretcher and the deceased was taken to his cabin, where he was placed in his bunk in the recovery position. He was in a coma, but tossing and turning. He was visited on about three occasions by the duty ratings. When his cabin mate went to turn in at about 2.30 am, he found that the deceased had vomited, had inhaled his vomit and was apparently asphyxiated. Attempts were made to revive him but without success. A board of inquiry was held and a ship’s inquiry and many statements were taken from witnesses. Based on these statements and the evidence which he had heard, the judge found that at this isolated base cases of drunkenness, especially at the weekends, were commonplace and that disciplinary action that might lead to punishment was not taken. The judge also found there was a much more relaxed attitude to drinking tolerated at this base than there would be in the United Kingdom. Drunkenness was common at the weekends when the men were off duty and especially on Friday nights. The judge summarised the situation disclosed by the evidence as: ‘A perfectly deplorable situation.’ The defendant does not challenge this assessment of the discipline at Barduffos. Of the deceased,

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Non-Contractual Obligations (1): Tort the judge found that he was quite a heavy drinker and this was widely known. There was little inducement for anyone to go ashore for recreation, for alcohol prices were remarkably high in Norway and astonishingly low in the base. A good range of recreational facilities existed but boredom was inevitable and foreseeable. The deceased was under the defendant’s codes of discipline and it controlled all facilities. Disciplinary codes existed which, if implemented, would have greatly reduced drunkenness. The judge said that the deceased was a heavy drinker introduced to a potentially dangerous situation. In these circumstances, the judge held that it was foreseeable in this particular environment that the deceased would succumb to heavy intoxication. Although it was only in exceptional circumstances that a defendant could be fixed with a duty to take positive steps to protect a person of full age and capacity from his own weakness, he considered in the exceptional circumstances that arose in this case it was just and reasonable to impose a duty to take care on the defendant. He also held that the defendant was in breach of that duty because it failed to enforce the standards it itself set in matters of discipline… The judge placed reliance on the fact that it was foreseeable that if the regulations and standing orders were not properly enforced in this particular environment the deceased would succumb to heavy intoxication. He also said it was just and reasonable to impose a duty in these circumstances… There are now many judicial pronouncements of high authority that mere foreseeability of harm is not a sufficient foundation for a duty to take care in law. Since Anns v Merton London Borough Council [1978] AC 728, the House of Lords has preferred the approach of the High Court of Australia in Sutherland Shire Council v Heyman (1985) 157 CLR 424 that the imposition of additional duties to take care for the safety of others should develop incrementally and by analogy with established categories, an approach which involves consideration of whether it is fair, just and reasonable that the law should impose a duty of a given scope upon one party for the benefit of another. The mere existence of regulatory or other public duties does not of itself create a special relationship imposing a duty in private law. In the present case, the judge posed the question whether there was a duty at law to take reasonable steps to prevent the deceased becoming unconscious through alcohol abuse. He said his conclusion that there was such a duty was founded on the fact that: ‘It was foreseeable in the environment in which the defendant grossly failed to enforce their regulations and standing orders that the deceased would succumb to heavy intoxication.’ And in these circumstances it was just and reasonable to impose a duty. The plaintiff argued for the extension of a duty to take care for the safety of the deceased from analogous categories of relationship in which an obligation to use reasonable care already existed. For example, employer and employee, pupil and schoolmaster, and occupier and visitor. It was said that the defendant’s control over the environment in which the deceased was serving and the provision of duty-free liquor, coupled with the failure to enforce disciplinary rules and orders, were sufficient factors to render it fair, just and reasonable to extend the duty to take reasonable care found in

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Sourcebook on Obligations and Remedies the analogous circumstances. The characteristic which distinguishes those relationships is reliance expressed or implied in the relationship which the party to whom the duty is owed is entitled to place on the other party to make provision for his safety. I can see no reason why it should not be fair, just and reasonable for the law to leave a responsible adult to assume responsibility for his own actions in consuming alcoholic drink. No one is better placed to judge the amount that he can safely consume or to exercise control in his own interest as well as in the interest of others. To dilute selfresponsibility and to blame one adult for another’s lack of self-control is neither just nor reasonable and in the development of the law of negligence an increment too far… In the present case I would reverse the judge’s finding that the defendant was under a duty to take reasonable care to prevent the deceased from abusing alcohol to the extent he did. Until he collapsed, I would hold that the deceased was, in law, alone responsible for his condition. Thereafter, when the defendant assumed responsibility for him, it accepts that the measures taken fell short of the standard reasonably to be expected. It did not summon medical assistance and its supervision of him was inadequate… The immediate cause of the deceased’s death was suffocation due to inhalation of vomit. The amount of alcohol he had consumed not only caused him to vomit; it deprived him of the spontaneous ability to protect his air passages after he had vomited. His fault was therefore a continuing and direct cause of his death. Moreover, his lack of self-control in his own interest caused the defendant to have to assume responsibility for him. But for his fault, it would not have had to do so. How far in such circumstances is it just and equitable to regard the deceased as the author of his misfortune? The deceased involved the defendant in a situation in which it had to assume responsibility for his care and I would not regard it as just and equitable in such circumstances to be unduly critical of the defendant’s fault. I consider a greater share of blame should rest upon the deceased than on the defendant and I would reduce the amount of the damages recoverable by the plaintiff by two-thirds, holding the defendant one-third to blame. Accordingly, I would allow the appeal, set aside the judgment in the sum of £160,651.16 and order judgment for the plaintiff in the sum of £71,400.51 with interest to be assessed. Saville LJ: I agree. Neill LJ: I also agree.

Notes and questions 1

This is by no means a leading case, but it does illustrate how the courts go about applying the idea of individual responsibility within a context where another party had a duty to protect the actor against his own actions (‘control over the environment’). Beldam LJ talks much about fairness, justice and equity, yet little is said about the fairness, justice and equity of the situation with regard to the plaintiff herself. After all, it was the MOD who was responsible for the environment (‘boredom was inevitable and 644

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foreseeable’) and they were in a position to control the availability of alcohol. Now this is not to suggest that the decision is wrong given the principles upon which the law of tort operates. But fairness and equity are double-edged moral weapons. Is it fair and equitable that the wife should be deprived of the greater part of the compensation when it could be argued that the defendant could be said to have gone some way in maintaining a culture of drinking? What if the defendant had been a private commercial employer instead of the navy? Another interesting, but not uncommon, dimension to this case is that the defendant is guilty of an omission rather than a positive act. It did not directly cause the victim’s death; it just failed to do enough to save his life. The fact that this was a Fatal Accidents Act claim in itself makes it a three-party situation. However, in these mere omission cases, another permutation is often encountered: the claimant sues, not the person who directly caused the damage, but a third party who had a factual and/or legal relationship with the person who caused the damage. Such a situation easily arises once one thinks in terms of a ‘duty’ owed by organisations. In a road accident case, for example, it may well be that one driver carelessly injures another, but could it not be said that the local authority also had a ‘duty’ to make this particular stretch of road safer? (Cf Stovin v Wise, p 737.) Yet ‘duty’ also becomes the means of limiting such liabilities. In order to do this, ‘duty’ needs to be translated into a factual (empirical) connection and this is done, as we have seen, through the notion of ‘proximity’ (see p 136). However ‘duty’ and ‘proximity’ are quite different concepts, since one is normative, while the other is descriptive. Do the judges always appreciate this? Study CC, Art 1382. Given that there is no concept of ‘duty of care’, how might Barrett be decided under this article?

5 LIABILITY FOR PEOPLE Code civil 1384 One is liable not only for the damage that one causes by one’s own act, but also for that which is caused by the act of persons for whom one is responsible… Home Office v Dorset Yacht Co Ltd [1970] AC 1004 House of Lords This was an action for damages by the owners of a yacht (in truth, their insurance company subrogated to their rights) against the Home Office in respect of damage done to the yacht by escaping borstal boys. It was claimed that the three officers supervising the boys had been negligent and that the Home Office was to be vicariously liable for the officers’ behaviour. The Home Office, on a preliminary question of law, claimed that the facts 645

Sourcebook on Obligations and Remedies disclosed no duty of care. A majority of the House of Lords disagreed with them. Lord Reid:… Donoghue v Stevenson may be regarded as a milestone, and the well known passage in Lord Atkin’s speech should I think be regarded as a statement of principle. It is not to be treated as if it were a statutory definition. It will require qualification in new circumstances. But I think that the time has come when we can and should say that it ought to apply unless there is some justification or valid explanation for its exclusion… It is argued that it would be contrary to public policy to hold the Home Office or its officers liable to a member of the public for this carelessness—or, indeed, any failure of duty on their part. The basic question is: who shall bear the loss caused by that carelessness—the innocent [plaintiff] or the Home Office, who are vicariously liable for the conduct of their careless officers?… [His Lordship then discussed the American case of Williams v State of New York, where the State was held not liable for the negligence of prison warders on the ground of public policy]… It may be that public servants of the State of New York are so apprehensive, easily dissuaded from doing their duty and intent on preserving public funds from costly claims that they could be influenced in this way. But my experience leads me to believe that Her Majesty’s servants are made of sterner stuff. So, I have no hesitation in rejecting this argument. I can see no good ground in public policy for giving this immunity to a government department… Lord Pearson:… The borstal boys were under the control of the Home Office’s officers, and control imports responsibility… Viscount Dilhorne (dissenting):… I think that it is clear that the Donoghue v Stevenson principle cannot be regarded as an infallible test of the existence of a duty of care, nor do I think that, if that test is satisfied, there arises any presumption of the existence of such a duty… I, of course, recognise that the common law develops by the application of well established principles to new circumstances but I cannot accept that the application of Lord Atkin’s words, which, though they applied in Deyong v Shenburn, and might have applied in Commissioner for Railways v Quinlan, were not held to impose a new duty on a master to his servant or on an occupier to a trespasser, suffices to impose a new duty on the Home Office and on others in charge of persons in lawful custody of the kind suggested… The absence of authority shows that no such duty now exists. If there should be one, that is, in my view, a matter for the legislature and not for the courts… (See also Lord Diplock, p 177.)

Notes and questions 1

The Criminal Injuries Compensation Scheme provides a State system of compensation for people injured by criminals. However, the system only applies to personal injury, citizens presumably being expected to use the 646

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5 6

7

private insurance system when it comes to their property. Ought the courts to have considered this aspect of public law before holding the State liable to an insurance company in respect of property damage? Are borstal boys analogous to defective bottles of ginger beer? How do you think this case might have been decided in France? Would the risk and (or) equality principle (see p 103) have been applicable? There are two liability for people’ aspects to Dorset Yacht. First, the direct duty of care owed by the Home Office to property owners up and down the country (or near prisons, at any rate) in respect of prisoners under its control. The question here is whether the Home Office as one person is liable for the act of a prisoner, another person, under its control. Secondly, there is the liability of the Home Office, as a ‘principal’ (employer?), for acts done by their ‘agents’ (employees?), namely, the prison officers. (It is unlikely that prison warders are ordinary employees employed under a private law contract.) This second kind of liability is quite different from the first, in that it arises out of a doctrine known as vicarious liability: a master (employer) will be liable for torts committed by a servant (employee) acting in the course of his employment (see Keppel, p 537). If the warders had taken the boys out without any kind of permission or authority, would the Home Office have been liable? What if warders had encouraged some borstal boys to smash up the yacht to bring pressure on the Home Office to settle an industrial dispute? (Cf Racz v Home Office [1994] 2 AC 45.) ‘[Clontrol imports responsibility.’ Discuss in relation to English and French law. Viscount Dilhorne says that the absence of authority shows that no such duty exists in the facts of Dorset Yacht. How, then, do new duties ever come to be recognised? Do you think that the State should be made to pay for a new yacht if the yacht had been insured against damage? Smith v Littlewoods Organisation Ltd [1987] AC 241 House of Lords (Scotland) This was an action for damages by the owner of a café against a neighbouring owner of a derelict cinema in respect of damage done by a fire deliberately started in the empty cinema by vandals who had broken into the premises. The action failed in the House of Lords. Lord Brandon: My Lords, it is axiomatic that the question whether there has been negligence in any given case must depend on the particular circumstances of that case. That being so, I do not think that these appeals can in the end be determined by reference to other reported cases in which the particular circumstances were different, even though some degree of analogy between such other cases and the present one can legitimately be drawn. Nor do I think that it is possible, however helpful it might

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Sourcebook on Obligations and Remedies otherwise be, to lay down any general principle designed to apply to all cases in which the negligence alleged against a person involves the unauthorised acts of independent third parties on premises owned or occupied by that person… Lord Griffiths:… Listening to the seductive way in which Mr MacLean developed his argument on the facts step by step, as described by Lord Mackay, I was reminded of the fable of the prince who lost his kingdom but for the want of a nail for the shoe of his horse. A series of foreseeable possibilities were added one to another and, hey presto, there emerged at the end the probability of a fire against which Littlewoods should have guarded. But, my Lords, that is not the common sense of this matter. The fire in this case was caused by the criminal activity of third parties upon Littlewoods’ premises. I do not say that there will never be circumstances in which the law will require an occupier of premises to take special precautions against such a contingency, but they would surely have to be extreme indeed. It is common ground that only a 24 hour guard on these premises would have been likely to prevent this fire, and even that cannot be certain, such is the determination and ingenuity of young vandals… I doubt myself if any search will reveal a touchstone that can be applied as a universal test to decide when an occupier is to be held liable for a danger created on his property by the act of a trespasser for whom he is not responsible. I agree that mere foreseeability of damage is certainly not a sufficient basis to found liability. But, with this warning, I doubt that more can be done than to leave it to the good sense of the judges to apply realistic standards in conformity with generally accepted patterns of behaviour to determine whether in the particular circumstances of a given case there has been a breach of duty sounding in negligence. Lord Goff: My Lords, the Lord President founded his judgment on the proposition that the defenders, who were both owners and occupiers of the cinema, were under a general duty to take reasonable care for the safety of premises in the neighbourhood. Now if this proposition is understood as relating to a general duty to take reasonable care not to cause damage to premises in the neighbourhood (as I believe that the Lord President intended it to be understood), then it is unexceptionable. But it must not be overlooked that a problem arises when the pursuer is seeking to hold the defender responsible for having failed to prevent a third party from causing damage to the pursuer or his property by the third party’s own deliberate wrongdoing. In such a case, it is not possible to invoke a general duty of care; for it is well recognised that there is no general duty of care to prevent third parties from causing such damage. The point is expressed very clearly in Hart and Honoré, Causation in the Law, 2nd edn, 1985, when the authors state, pp 196–97: The law might acknowledge a general principle that, whenever the harmful conduct of another is reasonably foreseeable, it is our duty to take precautions against it… But, up to now, no legal system has gone so far as this…

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Non-Contractual Obligations (1): Tort The same point is made in Fleming, The Law of Torts, 6th edn, 1983, where it is said, p 200: ‘…there is certainly no general duty to protect others against theft or loss.’ I wish to add that no such general duty exists even between those who are neighbours in the sense of being occupiers of adjoining premises. There is no general duty upon a householder that he should act as a watchdog, or that his house should act as a bastion, to protect his neighbour’s house. Why does the law not recognise a general duty of care to prevent others from suffering loss or damage caused by the deliberate wrongdoing of third parties? The fundamental reason is that the common law does not impose liability for what are called pure omissions. If authority is needed for this proposition, it is to be found in the speech of Lord Diplock in Dorset Yacht Co Ltd v Home Office [1970] AC 1004, where he said, p 1060: The very parable of the good Samaritan (Luke 10, v 30) which was evoked by Lord Atkin in Donoghue v Stevenson [1932] AC 562 illustrates, in the conduct of the priest and of the Levite who passed by on the other side, an omission which was likely to have as its reasonable and probable consequence damage to the health of the victim of the thieves, but for which the priest and Levite would have incurred no civil liability in English law. Lord Diplock then proceeded to give examples which show that, carried to extremes, this proposition may be repugnant to modern thinking. It may therefore require one day to be reconsidered, especially as it is said to provoke an ‘invidious comparison with affirmative duties of good-neighbourliness in most countries outside the common law orbit’ (see Fleming, The Law of Torts, 6th edn, 1983, p 138). But it is of interest to observe that, even if we do follow the example of those countries, in all probability we will, like them, impose strict limits upon any such affirmative duty as may be recognised. In one recent French decision, the condition was imposed that the danger to the claimant must be ‘grave, imminent, constant…nécessitant une intervention immediate’, and that such an intervention must not involve any ‘risque pour le prévenu ou pour un tiers’: see Lawson and Markesinis, Tortious Liability for Unintentional Harm in the Common Law and the Civil Law, 1982, Vol I, pp 74–75. The latter requirement is consistent with our own law, which likewise imposes limits upon steps required to be taken by a person who is under an affirmative duty to prevent harm being caused by a source of danger which has arisen without his fault (see Goldman v Hargrave [1967] 1 AC 645)… But the former requirement indicates that any affirmative duty to prevent deliberate wrongdoing by third parties, if recognised in English law, is likely to be strictly limited. I mention this because I think it important that we should realise that problems like that in the present case are unlikely to be solved by a simple abandonment of the common law’s present strict approach to liability for pure omissions. Another statement of principle, which has been much quoted, is the observation of Lord Sumner in Weld-Blundell v Stephens [1920] AC 956, when he said, p 986: ‘In general…even though A is in fault, he is not responsible for injury to C which B, a stranger to him, deliberately chooses to do.’ This dictum may be read as expressing the general idea that the 649

Sourcebook on Obligations and Remedies voluntary act of another, independent of the defender’s fault, is regarded as a novus actus interveniens which, to use the old metaphor, ‘breaks the chain of causation’. But it also expresses a general perception that we ought not to be held responsible in law for the deliberate wrongdoing of others. Of course, if a duty of care is imposed to guard against deliberate wrongdoing by others, it can hardly be said that the harmful effects of such wrongdoing are not caused by such breach of duty. We are therefore thrown back to the duty of care. But one thing is clear, and that is that liability in negligence for harm caused by the deliberate wrongdoing of others cannot be founded simply upon foreseeability that the pursuer will suffer loss or damage by reason of such wrongdoing. There is no such general principle. We have therefore to identify the circumstances in which such liability may be imposed. That there are special circumstances in which a defender may be held responsible in law for injuries suffered by the pursuer through a third party’s deliberate wrongdoing is not in doubt. For example, a duty of care may arise from a relationship between the parties, which gives rise to an imposition or assumption of responsibility upon or by the defender, as in Stansbie v Troman [1948] 2 KB 48, where such responsibility was held to arise from a contract. In that case a decorator, left alone on the premises by the householder’s wife, was held liable when he went out leaving the door on the latch, and a thief entered the house and stole property. Such responsibility might well be held to exist in other cases where there is no contract, as, for example, where a person left alone in a house has entered as a licensee of the occupier. Again, the defender may be vicariously liable for the third party’s act; or he may be held liable as an occupier to a visitor on his land. Again, as appears from the dictum of Dixon J in Smith v Leurs 70 CLR 256, p 262, a duty may arise from a special relationship between the defender and the third party, by virtue of which the defender is responsible for controlling the third party: see, for example, Dorset Yacht Co Ltd v Home Office [1970] AC 1004. More pertinently, in a case between adjoining occupiers of land, there may be liability in nuisance if one occupier causes or permits persons to gather on his land, and they impair his neighbour’s enjoyment of his land. Indeed, even if such persons come on to his land as trespassers, the occupier may, if they constitute a nuisance, be under an affirmative duty to abate the nuisance. As I pointed out in P Perl (Exporters) Ltd v Camden London Borough Council [1984] QB 342, p 359, there may well be other cases. These are all special cases. But there is a more general circumstance in which a defender may be held liable in negligence to the pursuer, although the immediate cause of the damage suffered by the pursuer is the deliberate wrongdoing of another. This may occur where the defender negligently causes or permits to be created a source of danger, and it is reasonably foreseeable that third parties may interfere with it and, sparking off the danger, thereby cause damage to persons in the position of the pursuer. The classic example of such a case is, perhaps, Haynes v Harwood [1935] 1 KB 146, where the defendant’s carter left a horse-drawn van unattended in a crowded street, and the horses bolted when a boy threw a stone at them. A police officer who suffered injury in stopping the horses before they injured a woman and children was held to be entitled to recover damages from the defendant. There, of course, the defendant’s servant had created a

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Non-Contractual Obligations (1): Tort source of danger by leaving his horses unattended in a busy street. Many different things might have caused them to bolt—a sudden noise or movement, for example, or, as happened, the deliberate action of a mischievous boy. But all such events were examples of the very sort of thing which the defendant’s servant ought reasonably to have foreseen and to have guarded against by taking appropriate precautions. In such a case, Lord Sumner’s dictum (Weld-Blundell v Stephens [1920] AC 956, p 986) can have no application to exclude liability. Haynes v Harwood was a case concerned with the creation of a source of danger in a public place. We are concerned in the present case with an allegation that the defenders should be held liable for the consequences of deliberate wrongdoing by others who were trespassers on the defenders’ property. In such a case it may be said that the defenders are entitled to use their property as their own and so should not be held liable if, for example, trespassers interfere with dangerous things on their land. But this is, I consider, too sweeping a proposition. It is well established that an occupier of land may be liable to a trespasser who has suffered injury on his land; though in Herrington v British Railways Board [1972] AC 877, in which the nature and scope of such liability was reconsidered by your Lordships’ House, the standard of care so imposed on occupiers was drawn narrowly so as to take proper account of the rights of occupiers to enjoy the use of their land. It is, in my opinion, consistent with the existence of such liability that an occupier who negligently causes or permits a source of danger to be created on his land, and can reasonably foresee that third parties may trespass on his land and, interfering with the source of danger, may spark it off, thereby causing damage to the person or property of those in the vicinity, should be held liable to such a person for damage so caused to him. It is useful to take the example of a fire hazard, not only because that is the relevant hazard which is alleged to have existed in the present case, but also because of the intrinsically dangerous nature of fire hazards as regards neighbouring property. Let me give an example of circumstances in which an occupier of land might be held liable for damage so caused. Suppose that a person is deputed to buy a substantial quantity of fireworks for a village fireworks display on Guy Fawkes’ night. He stores them, as usual, in an unlocked garden shed abutting onto a neighbouring house. It is well known that he does this. Mischievous boys from the village enter as trespassers and, playing with the fireworks, cause a serious fire which spreads to and burns down the neighbouring house. Liability might well be imposed in such a case; for, having regard to the dangerous and tempting nature of fireworks, interference by naughty children was the very thing which, in the circumstances, the purchaser of the fireworks ought to have guarded against. But liability should only be imposed under this principle in cases where the defender has negligently caused or permitted the creation of a source of danger on his land, and where it is foreseeable that third parties may trespass on his land and spark it off, thereby damaging the pursuer or his property. Moreover, it is not to be forgotten that, in ordinary households in this country, there are nowadays many things which might be described as possible sources of fire if interfered with by third parties, ranging from matches and firelighters to electric irons and gas cookers and even oil-fired central heating systems. These are commonplaces of modern life, and it would be quite wrong if

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Sourcebook on Obligations and Remedies householders were to be held liable in negligence for acting in a socially acceptable manner. No doubt, the question whether liability should be imposed on defenders in a case where a source of danger on his land has been sparked off by the deliberate wrongdoing of a third party is a question to be decided on the facts of each case, and it would, I think, be wrong for your Lordships’ House to anticipate the manner in which the law may develop, but I cannot help thinking that cases where liability will be so imposed are likely to be very rare. There is another basis upon which a defender may be held liable for damage to neighbouring property caused by a fire started on his (the defender’s) property by the deliberate wrongdoing of a third party. This arises where he has knowledge or means of knowledge that a third party has created or is creating a risk of fire, or indeed has started a fire, on his premises, and then fails to take such steps as are reasonably open to him (in the limited sense explained by Lord Wilberforce in Goldman v Hargrave [1967] 1 AC 645, pp 663–64) to prevent any such fire from damaging neighbouring property. If, for example, an occupier of property has knowledge, or means of knowledge, that intruders are in the habit of trespassing upon his property and starting fires there, thereby creating a risk that fire may spread to and damage neighbouring property, a duty to take reasonable steps to prevent such damage may be held to fall upon him. He could, for example, take reasonable steps to keep the intruders out. He could also inform the police; or he could warn his neighbours and invite their assistance. If the defender is a person of substantial means, for example, a large public company, he might even be expected to employ some agency to keep a watch on the premises. What is reasonably required would, of course, depend on the particular facts of the case. I observe that, in Goldman v Hargrave, such liability was held to sound in nuisance; but it is difficult to believe that, in this respect, there can be any material distinction between liability in nuisance and liability in negligence… The present case is, of course, concerned with entry not by thieves, but by vandals. Here, the point can be made that, whereas an occupier of property can take precautions against thieves, he cannot (apart from insuring his property and its contents) take effective precautions against physical damage caused to his property by a vandal who has gained access to adjacent property and has there created a source of danger which has resulted in damage to his property by, for example, fire or escaping water. Even so, the same difficulty arises. Suppose, taking the example I have given of the family going away on holiday and leaving their front door unlocked, it was not a thief but a vandal who took advantage of that fact, and that the vandal, in wrecking the flat, caused damage to the plumbing which resulted in a water leak and consequent damage to the shop below. Are the occupiers of the flat to be held liable in negligence for such damage? I do not think so, even though it may be well known that vandalism is prevalent in the neighbourhood. The reason is the same: that there is no general duty to prevent third parties from causing damage to others, even though there is a high degree of foresight that this may occur. In the example I have given, it cannot be said that the occupiers of the flat have caused or permitted the creation of a source of danger (as in Haynes v Harwood [1935] 1 KB 146, or in

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Non-Contractual Obligations (1): Tort the example of the fireworks which I gave earlier) which they ought to have guarded against; nor of course were there any special circumstances giving rise to a duty of care. The practical effect is that it is the owner of the damaged premises (or, in the vast majority of cases, his insurers) who is left with a worthless claim against the vandal, rather than the occupier of the property which the vandal entered (or his insurers)—a conclusion which I find less objectionable than one which may throw an unreasonable burden upon ordinary householders. For these reasons, I consider that both Lamb v Camden London Borough Council [1981] QB 625 and King v Liverpool City Council [1986] 1 WLR 890 were rightly decided, but I feel bound to say, with all respect, that the principle propounded by Lord Wylie in Evans v Glasgow District Council, 1978 SLT 17, viz, that there is: …a general duty on owners or occupiers of property... to take reasonable care to see that it [is] proof against the kind of vandalism which was calculated to affect adjoining property, is, in my opinion, too wide. I wish to emphasise that I do not think that the problem in these cases can be solved simply through the mechanism of foreseeability. When a duty is cast upon a person to take precautions against the wrongdoing of third parties, the ordinary standard of foreseeability applies; and so the possibility of such wrongdoing does not have to be very great before liability is imposed. I do not myself subscribe to the opinion that liability for the wrongdoing of others is limited because of the unpredictability of human conduct… I remain of the opinion that to impose a general duty on occupiers to take reasonable care to prevent others from entering their property would impose an unreasonable burden on ordinary householders and an unreasonable curb upon the ordinary enjoyment of their property, and I am also of the opinion that to do so would be contrary to principle. It is very tempting to try to solve all problems of negligence by reference to an all-embracing criterion of foreseeability, thereby effectively reducing all decisions in this field to questions of fact. But this comfortable solution is, alas, not open to us. The law has to accommodate all the untidy complexity of life; and there are circumstances where considerations of practical justice impel us to reject a general imposition of liability for foreseeable damage. An example of this phenomenon is to be found in cases of pure economic loss, where the so called ‘floodgates’ argument (an argument recognised by Blackburn J as long ago as 1875 in Cattle v Stockton Waterworks Co (1875) LR 10 QB 453, p 457, the force of which is accepted not only in common law countries but also in civil law countries such as the Federal Republic of Germany) compels us to recognise that to impose a general liability based on a simple criterion of foreseeability would impose an intolerable burden upon defendants. I observe that in Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520, some members of your Lordships’ House succumbed, perhaps too easily, to the temptation to adopt a solution based simply upon ‘proximity’. In truth, in cases such as these, having rejected the generalised principle, we have to search for special cases in which, upon narrower but still identifiable principles, liability can properly be imposed.

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Sourcebook on Obligations and Remedies That is the task which I attempted to perform in Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1985] QB 350, by identifying a principle of transferred loss—a principle which has not, so far, achieved recognition by other members of your Lordships’ House. As the present case shows, another example of this phenomenon is to be found in cases where the plaintiff has suffered damage through the deliberate wrongdoing of a third party, and it is not surprising that once again we should find the courts seeking to identify specific situations in which liability can properly be imposed. Problems such as these are solved in Scotland, as in England, by means of the mechanism of the duty of care; though we have nowadays to appreciate that the broad general principle of liability for foreseeable damage is so widely applicable that the function of the duty of care is not so much to identify cases where liability is imposed as to identify those where it is not (see Anns v Merton London Borough Council [1978] AC 728, p 752, by Lord Wilberforce). It is perhaps not surprising that our brother lawyers in France find themselves able to dispense with any such concept, achieving practical justice by means of a simple concept of ‘faute’. But since we all live in the same social and economic environment, and since the judicial function can, I believe, be epitomised as an educated reflex to facts, we find that, in civil law countries as in common law countries, not only are we beset by the same practical problems, but broadly speaking we reach the same practical solutions. Our legal concepts may be different, and may cause us sometimes to diverge, but we have much to learn from each other in our common efforts to achieve practical justice founded upon legal principle. For these reasons I would dismiss these appeals.

Questions 1 2 3 4 5

6

How does this case differ from the Dorset Yacht case? What key elements are missing? What kind of reasoning method is Lord Brandon advocating? If the owners had been a local authority, would the result of this case have been different? Was the owner not liable because he owed no duty, or because he was not in breach of any duty? Can French law (see Lord Goff) help here? In the firework example given by Lord Goff, what if it was interference by a patrolman working for a security company which caused the fire: would the person storing the fireworks be liable? Would the employer of the patrolman be liable? How best would you describe this decision: as one based on ‘common sense’ (Lord Griffiths), on an ‘educated reflex to facts’ (Lord Goff), on ‘practical justice founded upon legal principle’ (Lord Goff), or on an ‘analytical’, ‘inductive’ and ‘deductive’ approach as advocated by Lord Diplock in Dorset Yacht? Or what about the ‘complex syllogism’ of Lord Simon (see above, p 183)? Or, indeed, the painting a picture approach of Mummery J (p 188)? If

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7 8

the answer is to be found in common sense, an educated reflex or by Instinct’ (see p 201), does this mean that the case is not a ‘hard case’? Did comparative law prove useful to this decision in Littlewoods? Is, as Lord Goff seems to claim, foreseeability a question of fact? Were remoteness of damage and duty of care questions for the jury? Hussain v Lancaster City Council [1999] 2 WLR 1142 Court of Appeal This was an action for damages and injunctions in nuisance and negligence by the resident owner of a shop on a housing estate against a local authority. The owner claimed that the authority had failed to prevent him from being seriously harassed by other tenants on the estate. The Court of Appeal held that the master was right to strike out the action and a petition to appeal to the House of Lords has been refused ([1999] 1 WLR 1359). Hirst LJ: Introduction This case raises issues of some considerable general importance as to whether a local authority can be held liable in nuisance or negligence because it fails to prevent secured tenants and/or members of their households from committing criminal acts of harassment against nearby property owners… Analysis and conclusions I shall first consider the claim in nuisance, seeing that this is the cause of action which Mr Brennan places in the forefront of his argument, leaving aside for the moment Mr Jackson’s submission, based on Smith v Littlewoods Organisation Ltd [1987] AC 241 and Professor Gearty’s article [1989] CLJ 214, that in cases of physical damage the tort of nuisance should be subsumed in negligence. As will be apparent from the submissions summarised above, two main questions arise in connection with the claim in nuisance, using that word in its technical tortious sense, first as to its scope, and secondly, as to the ambit of responsibility of landlords for their tenants’ acts of nuisance. So far as the scope of the tort is concerned, Professor Newark’s statement of general principle that its essence is that the defendant’s use of the defendant’s land interferes with the plaintiff’s enjoyment of the plaintiff’s land is amply vindicated not only by Lord Goff’s approval in Hunter v Canary Wharf Ltd [1997] 655, but also by the passages I have quoted above from the Sedleigh Denfield case [1940] AC 880, where Lord Wright refers to ‘the interference by the defendant in the user of his land’ and Lord Porter to the occupier’s liability for ‘a nuisance existing on his property’. Mr Brennan in answer sought to rely on Henry LJ’s dictum in the Northampton case, 96 LGR 548, but in my judgment the word nuisance when used in combination with annoyance in the Housing Act 1985 must (as Henry LJ himself recognised) be interpreted in its nontechnical sense. In the present case, the acts complained of unquestionably interfered persistently and intolerably with the plaintiffs’ enjoyment of the plaintiffs’

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Sourcebook on Obligations and Remedies land, but they did not involve the tenants’ use of the tenants’ land and therefore fell outside the scope of the tort. Turning to the ambit of the landlord’s responsibility for his tenants’ acts of nuisance, Smith v Scott [1973] Ch 314 is decisive authority in favour of Mr Jackson provided it still holds good… Turning now to negligence, the essence of Mr Brennan’s proposition No (3) is that the Council were negligent in failing to exercise their powers under the Housing and Highway Acts, from which I have already quoted the relevant provisions conferring statutory powers upon the Council. The very narrow and restricted scope for claims for negligence in relation to the exercise of statutory powers was laid down by the House of Lords in X v Bedfordshire County Council [1995] 2 AC 633, echoed in Stovin v Wise [1996] AC 923, and Mr Brennan quite plainly does not come within either of the special categories identified by Lord Hoffmann in Stovin v Wise. Mr Brennan is also confronted by the further difficulty that he cannot bring himself within the limitations of a claim in negligence based on use of land laid down by Sir John Pennycuick VC in Smith v Scott [1973] Ch 314, as expressly approved by the Court of Appeal in O’Leary v London Borough of Islington 9 HLR 81. Even if Mr Brennan had been able to overcome these two obstacles, he would still have to satisfy the fair, just and reasonable test in the circumstances of this case. On this, Mr Jackson cited a number of considerations which he submitted were comparable to those relied on in X v Bedfordshire County Council [1995] 2 AC 633. He submitted that to deal effectively with racial harassment involves co-operation between a number of agencies, the police, the probation service, local housing authorities, organisations representing the ethnic communities, social services department, youth services department, education authorities and schools. It was unreasonable, he submitted, to impose liability in negligence upon any or all of the above agencies for failing to achieve a successful outcome. Moreover, it would cut across effective multi-agency working if one of the agencies involved is required by injunction to take specific steps. If claims of the type advanced in this case were permissible, the scarce resources of the Council would, in part, be diverted to defending such actions in the county court which might involve hearings extending over days rather than hours. In metropolitan areas where there is a large ethnic community, the local authority might find itself involved with many problems of racial harassment simultaneously, so that if any one victim could obtain an injunction forcing the authority to take certain steps, that might cut across the Council’s general policy and adversely affect other victims. At the end of the day, it was for the Council, not the court, to decide matters of policy such as how much of the Council’s resources should be allocated to this particular problem, and what steps if any the Council should have taken and at what juncture in relation to the various incidents. Mr Brennan countered by the following considerations on which he relied: (1) In their own published policy on racial harassment, the Council stated in terms that they would take action. (2) Over a period of five to six years, the Council’s representatives had regularly met the plaintiffs for discussions, and had led the plaintiffs to believe that the Council would take action and to rely on the Council to do so. (3) Some action had in fact already been taken 656

Non-Contractual Obligations (1): Tort in the case of Craig Wareing, and there was no reason why similar action should not be taken against the other culprits. (4) The Council had in fact effective means of control by issuing timely warnings, and exercising their powers under the Housing and Highways Acts. Mr Jackson further submitted that, in the Highways Act context, it would not be fair, just and reasonable to impose upon a Highway Authority liability in negligence, since it would then be necessary for them in effect to police the entire highway system within their area of responsibility, which would place an intolerable burden on them, particularly in widespread rural areas. While I see the force of the considerations advanced by Mr Brennan, I am quite satisfied that, for the reasons given by Mr Jackson, it would not be fair, just and reasonable to hold the Council liable in negligence in the circumstances of this case; to my mind Lord Browne-Wilkinson’s concluding words in the relevant passage of his judgment in X v Bedfordshire County Council [1995] 2 AC 633, p 751, apply with equal force here: In my judgment, the courts should proceed with great care before holding liable in negligence those who have been charged by Parliament with the task of protecting society from the wrongdoings of others. Finally, I return to Mr Jackson’s opening submission on the relationship between nuisance and negligence in the modern law of tort. Having regard to Smith v Littlewoods Organisation Ltd [1987] AC 241, and to Lord Goff’s references to Professor Gearty’s article in Hunter v Canary Wharf Ltd [1997] AC 655, it seems to me clear that the law is now moving strongly in the direction favoured by Professor Gearty, viz, to assimilate the law of nuisance into that of negligence in cases involving physical damage; but in view of my conclusion on nuisance in the present case, it is not necessary to decide whether Professor Gearty’s goal has yet been reached. It follows that, in my judgment, the plaintiffs do not have viable causes of action either in nuisance or negligence, and that therefore the appeal must be allowed unless Mr Brennan succeeds in his final argument that this is an inappropriate case in principle for striking out… In my judgment, this case falls on the same side of the line as X v Bedfordshire County Council [1995] 2 AC 633. The law is plainly established, and nothing which could come out in the evidence in the trial could paint a more appalling picture of racial abuse than the allegations contained in the amended statement of claim, which for present purposes we are accepting as true. Mr Brennan stressed at the close of his argument how aggrieved his clients will feel if they are not entitled to carry their case to its conclusion against the Council, and I can well understand their attitude, seeing that the remedies they undoubtedly have against the individual perpetrators would be difficult to pursue, and might well prove fruitless. However, all that would be achieved would be a long and expensive trial doomed to certain failure. Thus, in the end, they would gain no worthwhile advantage and the public would suffer considerable disadvantage through the waste of precious court time and resources in trying a hopeless case…

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Sourcebook on Obligations and Remedies Lippiatt v South Gloucestershire Council [1999] 3 WLR 137 Court of Appeal This was an action for an injunction and damages brought by farmers against a local authority for damage done by travellers who had occupied land belonging to the council. The judge struck out the claim, but an appeal against this decision was allowed by the Court of Appeal. Evans LJ:… There is no suggestion of vicarious liability in the present case. The council is not liable for whatever torts or crimes the travellers may have committed in the neighbourhood of the camp. The issue is whether the council can be liable in nuisance in the circumstances which are alleged… In my judgment, the facts alleged in Hussain’s case [1999] 2 WLR 1142 were materially different from those in the present case. The disturbance complained of in Hussain’s case was a public nuisance for which the individual perpetrators could be held liable, and they were identified as individuals who lived in council property; but their conduct was not in any sense linked to, nor did it emanate from, the homes where they lived. Here, the allegation is that the travellers were allowed to congregate on the council’s land and they used it as a base for the unlawful activities of which the plaintiffs, as neighbours, complain. It is at least arguable that this can give rise to liability in nuisance, and so the claim should not be struck out; and it seems to me that upon proof of the alleged facts, and subject to any defences, for example, the statutory responsibilities of the council, such liability could be established. The view taken in Hussain’s case was that the alleged nuisance was ‘originally perpetrated by the culprits’: p 1149. It may be that the correct analysis, where it is alleged that the owner/occupier of the land is liable for the activities of his licensees, is that he is liable, if at all, for a nuisance which he himself has created by allowing the troublemakers to occupy his land and to use it as a base for causing unlawful disturbance to his neighbours. Mr Vaisey KC so submitted in 1933. If that is correct, then strictly the question whether the owner/occupier has ‘adopted’ a nuisance created by the travellers may not arise. For that reason, I express no other view than that, on the facts alleged in the present case, the council’s objection that the claim in nuisance cannot succeed, as a matter of law, must be rejected and the appeal should be allowed … Mummery LJ:… It is reasonably arguable that the continuing presence of the travellers on the council’s land constituted a nuisance to the plaintiffs’ use and enjoyment of their rights in their land, even though the travellers’ activities involved using the council’s land as a launching pad for repeated acts of trespass on the plaintiffs’ land. It is not, contrary to the submission of Mr Spens for the council, a case of the plaintiffs seeking to make the council vicariously liable for individual acts of trespass committed by uncontrolled third parties (that is, the travellers) on the plaintiffs’ land. It is rather a complaint of a continuing and potentially injurious state of affairs on the council’s land, ie, the presence of the travellers who, as the council were made aware, repeatedly behaved in the way complained of by the plaintiffs. The council let that state of affairs continue 658

Non-Contractual Obligations (1): Tort to exist on its land notwithstanding the complaints of the plaintiffs; and that state of affairs was capable of constituting a nuisance for which the council was liable, even if individual acts of the travellers of which the plaintiffs complained occurred on the plaintiffs’ land…

Questions 1

2 3

4

What if Mr Hussain had been insulted and harassed by travellers who had, without the council’s permission, settled on communal land in the housing estate? Do you think harassment victims would be impressed by the distinction made by Evans LJ? Mummery LJ says that there might have been a ‘nuisance to the plaintiffs’ use and enjoyment of their rights in their land’. What, after Miller v Jackson (p 51), exactly are these rights? Read Smith v Scott [1973] Ch 314 in the law report. If the same facts arose again today, would the decision be the same? Keppel Bus Co Ltd v Sa’ad bin Ahmad [1974] 2 All ER 700 Privy Council (See p 537.) Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 Privy Council (See p 538.)

Notes and questions 1

Vicarious liability as a legal notion gives rise to a range of problems. First, it applies only when the actor is a servant—employee—of the defendant; an act by an independent contractor cannot, then, involve the employer of the contractor in vicarious liability, although it might involve the employer of the contractor in some other kind of liability based upon a direct duty between employer and plaintiff (for example, public nuisance, negligence) (cf Rowe v Herman [1997] 1 WLR 1390). One can see now why, in Esso v Southport Corpn (above, p 216), the plaintiffs wanted to add a new cause of action at the appeal stage and why the House of Lords’ judges were probably failing in their duty in not recognising ex officio this direct duty between Esso and plaintiff (iura novit curia, as the civil lawyers would say: the court should know the law and it is for the parties to plead only the facts). Secondly, vicarious liability causes problems because there must be a tort; if the plaintiff cannot point to a cause of action vis à vis the actor, then there will be no liability (Staveley Iron and Chemical Co Ltd v Jones [1956] AC 627). Again, this seemed to be one of the problems in Esso. Thirdly, the servant must have been acting in the course of his employment. If, as in Keppel, the servant was on what is sometimes called 659

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‘a frolic of his own’, then there will be no liability. Why, then, did the House of Lords hold that the patrolman who burnt down the factory in Photo Production v Securicor (above p 541) was acting in the course of his employment? The course of employment requirement is possibly one of the most difficult questions in vicarious liability problems. One difficulty for practitioners and other problem solvers is that the vicarious liability issue can blind the lawyers to the existence of other duties, as indeed we have seen with the Keppel case itself (see p 537). Is the employer of firemen liable to the owner of a factory burnt down because the firemen were on a goslow for more money and took hours to get to any fire? The answer is to be found in the law reports (General Engineering Services v Kingston and St Andrews Corpn [1989] 1 WLR 69), but is it the right answer in the light (one hesitates to say blaze of light) of Photo Production? What if the employer was paying miserable wages to the firemen? Does insurance play a role? Certainly, one educated reflex is the judgment of Diplock LJ in the great case of Morris v Martin (see p 80), even if the ratio decidendi of the case turns out to be somewhat irrational (the result depends on luck—which employee actually steals the goods). Diplock LJ saw that the duty problem went beyond that of vicarious liability and into the law of property; the facts, in other words, demanded a reflex that went beyond the law of tort. What role should vicarious liability have outside the law of tort itself? Does it have any role at all in contract or bailment? Did Diplock LJ, in other words, go far enough?

6 LIABILITY FOR THINGS Code civil 1384 One is liable not only for the damage that one causes by one’s own act, but also for that which is caused by the act of persons for whom one is responsible or by things which one has in one’s keeping. Rylands v Fletcher (1866) LR 1 Ex 265 Court of Exchequer Chamber; (1868) LR 3 HL 330 House of Lords This was an action for damages by a landowner against his neighbour in respect of damage done by water escaping from a reservoir on the defendant’s land. The escape occurred as a result of negligent work carried out by the contractors who constructed the reservoir. The Court of Exchequer Chamber gave judgment for the plaintiff, and an appeal to the House of Lords was dismissed.

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Non-Contractual Obligations (1): Tort Blackburn J (Court of Exchequer Chamber):bottles We think that the true rule of law is, that the person who for his own purposes brings on his land and collects and keeps there anything likely to do mischief if it escapes, must keep it in at his peril, and, if he does not do so, is prima facie answerable for all the damage which is the natural consequence of its escape. He can excuse himself by showing that the escape was owing to the plaintiffs default; or perhaps that the escape was the consequences of vis major, or the act of God, but as nothing of this sort exists here, it is unnecessary to inquire what excuse would be sufficient. The general rule, as above stated, seems on principle just. The person whose grass or corn is eaten down by the escaping cattle of his neighbour, or whose mine is flooded by the water from his neighbour’s reservoir, or whose cellar is invaded by the filth of his neighbour’s privy, or whose habitation is made unhealthy by the fumes and noisome vapours of his neighbour’s alkali works, is damnified without any fault of his own; and it seems but reasonable and just that the neighbour, who has brought something on his own property which was not naturally there, harmless to others so long as it is confined to his own property, but which he knows to be mischievous if it gets on his neighbour’s, should be obliged to make good the damage which ensues if he does not succeed in confining it to his own property… Lord Cairns LC (House of Lords):… My Lords, the principles on which this case must be determined appear to me to be extremely simple. The defendants, treating them as the owners or occupiers of the close on which the reservoir was constructed, might lawfully have used that close for any purpose for which it might in the ordinary course of the enjoyment of land be used; and if, in what I may term the natural user of that land, there had been any accumulation of water, either on the surface or underground, and if, by the operation of the laws of nature, that accumulation of water had passed off into the close occupied by the plaintiff, the plaintiff could not have complained that the result had taken place. If he had desired to guard himself against it, it would have lain upon him to have done so, by leaving, or by interposing, some barrier between his close and the close of the defendants in order to have prevented that operation of the laws of nature… On the other hand, if the defendants, not stopping at the natural use of their close, had desired to use it for any purpose which I may term a nonnatural use, for the purpose of introducing into the close that which in its natural condition was not in or upon it, for the purpose of introducing water either above or below ground in quantities and in a manner not the result of any work or operation on or under the land—and if in consequence of their doing so, or in consequence of any imperfection in the mode of their doing so, the water came to escape and to pass off into the close of the plaintiff, then it appears to me that that which the defendants were doing they were doing at their own peril, and, if in the course of their doing it, the evil arose to which I have referred, the evil, namely, of the escape of the water and its passing away to the close of the plaintiff and injuring the plaintiff, then for the consequence of that, in my opinion, the defendants would be liable…

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This is one of the great cases of the 19th century and there is no 20th century judge who can rival Blackburn J. He knew his Roman and his French law and this case is undoubtedly an educated reflex to the facts (one might note also that, at first instance, Bramwell J found for the plaintiffs, but on the ground of trespass). It is very sad indeed that the English common lawyers of the 20th century failed to appreciate that here was the English equivalent of Art 1384 of the French Code civil. What if this principle of liability for things had been applied to Esso v Southport Corporation? It is said in the judgment of Lord Goff (below, in Cambridge Water) that Blackburn J never thought he was making new law as such. No doubt. But that is because the answer to the problem seemed obvious to him, as indeed it would to many trained both in the civil law and in the common law. Damage done by things under one’s control is a great principle even if it is a principle that can give rise to hard cases on the odd occasion. And it is a principle that can allocate insurance risks. Was there, however, ever any need to treat the rule in Rylands v Fletcher as a separate cause of action? ‘[B]ut which he knows to be mischievous if it gets on his neighbour’s land.’ Is the rule in Rylands v Fletcher based upon foreseeability? Read v J Lyons and Co [1947] AC 156 House of Lords This was an action for damages for personal injury brought by a Ministry of Supply factory inspector (the appellant) against the operators of a munitions factory (the respondents) where she had been directed to work. The appellant was injured by an unexplained explosion in the shell shop, and in her action she did not plead or prove negligence; the trial judge accordingly treated her action as based on the rule in Rylands v Fletcher. He held the respondents liable. However, his decision was overturned by the Court of Appeal, whose judgment was affirmed by the House of Lords. Viscount Simon:… I agree that the action fails. The appellant was a person present in the factory in pursuance of a public duty (like an ordinary factory inspector) and was consequently in the same position as an invitee. The respondents were managers of the factory as agents for the Ministry of Supply and had the same responsibility to an invitee as an ordinary occupier in control of the premises… The fact that the work that was being carried on was of a kind which requires special care is a reason why the standard of care should be high, but it is no reason for saying that the occupier is liable for resulting damage to an invitee without any proof of negligence at all… Now, the strict liability recognised by this House to exist in Rylands v Fletcher is conditioned by two elements which I may call the condition of ‘escape’ from the land of something likely to do mischief if it escapes, and the condition of ‘non-natural use’ of the land… It is not necessary to analyse this second

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Non-Contractual Obligations (1): Tort condition on the present occasion, for in the case now before us the first essential condition of ‘escape’ does not seem to me to be present at all… Lord Macmillan:… In my opinion, the appellant’s statement of claim discloses no ground of action against the respondents. The action is one of damages for personal injuries. Whatever may have been the law of England in early times, I am of opinion that as the law now stands an allegation of negligence is in general essential to the relevancy of an action of reparation for personal injuries… The emphasis formerly was on the injury sustained and the question was whether the case fell within one of the accepted classes of common law actions; the emphasis now is on the conduct of the person whose act has occasioned the injury and the question is whether it can be characterised as negligent. I do not overlook the fact that there is at least one instance in the present law in which the primitive rule survives, namely, in the case of animals ferae naturae or animals mensuetae naturae which have shown dangerous proclivities. The owner or keeper of such an animal has an absolute duty to confine or control it so that it shall not do injury to others and no proof of care on his part will absolve him from responsibility. But this is probably not so much a vestigial relic of otherwise discarded doctrine as a special rule of practical good sense. At any rate, it is too well established to be challenged. But such an exceptional case as this affords no justification for its extension by analogy… In an address characterised by much painstaking research, Mr Paull for the appellant sought to convince your Lordships that there is a category of things and operations dangerous in themselves and that those who harbour such things or carry on such operations in their premises are liable apart from negligence for any personal injuries occasioned by these dangerous things or operations. I think that he succeeded in showing that, in the case of dangerous things and operations, the law has recognised that a special responsibility exists to take care. But I do not think that it has ever been laid down that there is absolute liability apart from negligence where persons are injured in consequence of the use of such things or the conduct of such operations… Should it be thought that this is a reasonable liability to impose in the public interest it is for Parliament so to enact… Your Lordships’ task in this House is to decide particular cases between litigants and your Lordships are not called upon to rationalise the law of England. That attractive if perilous field may well be left to other hands to cultivate. It has been necessary in the present instance to examine certain general principles advanced on behalf of the appellant because it was said that consistency required that these principles should be applied to the case in hand. Arguments based on legal consistency are apt to mislead, for the common law is a practical code adapted to deal with the manifold diversities of human life, and as a great American judge has reminded us, ‘the life of the law has not been logic; it has been experience’. For myself, I am content to say that in my opinion no authority has been quoted from case or textbook which would justify your Lordships, logically or otherwise, in giving effect to the appellant’s plea. I would accordingly dismiss the appeal. Lord Porter:… Normally at the present time in an action of tort for personal injuries if there is no negligence there is no liability. To this rule, however, the

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Sourcebook on Obligations and Remedies appellant contends that there are certain exceptions, one of the best known of which is to be found under the principle laid down in Rylands v Fletcher… To make the rule applicable, it is at least necessary for the person whom it is sought to hold liable to have brought on to his premises…something which is dangerous in the sense that, if it escapes, it will do damage… Such escape is, I think, necessary if the principle of Rylands v Fletcher is to apply… It was urged upon your Lordships that it would be a strange result to hold the respondents liable if the injured person was just outside their premises, but not liable if she was just within them. There is force in the objection, but the liability is itself an extension of the general rule and, in my view, it is undesirable to extend it further… Lord Simonds:… Here is an age-long conflict of theories which is to be found in every system of law. ‘A man acts at his peril’, says one theory. ‘A man is not liable unless he is to blame’, answers the other. It will not surprise the students of English law or of anything English to find that between these theories a middle way, a compromise, has been found… There is not one principle only which is to be applied with rigid logic to all cases. To this result, both the infinite complexity of human affairs and the historical development of the forms of action contribute… Yet I would venture to say that the law is that, subject to certain specific exceptions which I will indicate, a man is not in the absence of negligence liable in respect of things, whether they are called dangerous or not, which he has brought or collected or manufactured upon his premises, unless such things escape from his premises… My Lords, I have stated a general proposition and indicated that there are exceptions to it. It is clear, for instance, that if a man brings and keeps a wild beast on his land or a beast known to him to be ferocious of a species generally mansuetae naturae he may be liable for any damage occurring within or without his premises without proof of negligence. Such an exception will serve to illustrate the proposition that the law of torts has grown up historically in separate compartments and that beasts have travelled in a compartment of their own… Lord Uthwatt:… In substance, the appellant was on the respondents’ premises, in performance of a statutory duty incumbent on her as a citizen, but it is, I think, obvious that this circumstance did not alter the nature of the duty which the respondents owed to her as a person who with their consent was present on their premises on business bent… Is there any good reason consistent with respect for the rights of dominion and user incident to the occupation of land, and with an appreciation of the position of an invitee, for subjecting the occupier carrying on a dangerous but lawful business to an absolute duty to safeguard the invitee from harm?…

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Is the whole result of this case premised on the categorisation of the appellant as a Visitor’ or ‘invitee’ and the respondents as an ‘occupier’? Are such status categories realistic, given the actual occupations of each party? Manufacturing munitions is a risky business, perhaps even an ‘ultrahazardous’ activity. Upon whose shoulders should the risk be put: on those of a wealthy legal corporation or a poor human worker? Has English law really found a ‘middle way’ (or ‘third way’, to use a modern expression) between the two theories mentioned by Lord Simonds? Why should beasts be put into a compartment of their own? Should a distinction be made between a person who keeps a tiger on his land, which injures a visitor, and a person who keeps bombs or fireworks on his land, one of which explodes and injures a visitor? Cambridge Water Co v Eastern Counties Leather plc [1994] 2 AC 264 House of Lords Lord Goff: My Lords, this appeal is concerned with the question whether the appellant company, Eastern Counties Leather plc (ECL), is liable to the respondent company, Cambridge Water Co (CWC), in damages in respect of damage suffered by reason of the contamination of water available for abstraction at CWC’s borehole at Sawston Mill near Cambridge. The contamination was caused by a solvent known as perchloroethene (PCE), used by ECL in the process of degreasing pelts at its tanning works in Sawston, about 1.3 miles away from CWC’s borehole, the PCE having seeped into the ground beneath ECL’s works and thence having been conveyed in percolating water in the direction of the borehole. CWC’s claim against ECL was based on three alternative grounds, viz, negligence, nuisance and the rule in Rylands v Fletcher (1868) LR 3 HL 330. The judge, Ian Kennedy J, dismissed CWC’s claim on all three grounds—on the first two grounds, because (as I will explain hereafter) he held that ECL could not reasonably have foreseen that such damage would occur, and on the third ground because he held that the use of a solvent such as PCE in ECL’s tanning business constituted, in the circumstances, a natural use of ECL’s land. The Court of Appeal, however, allowed CWC’s appeal from the decision of the judge, on the ground that ECL was strictly liable for the contamination of the water percolating under CWC’s land, on the authority of Ballard v Tomlinson (1885) 29 Ch D 115, and awarded damages against ECL in the sum assessed by the judge, viz, £1,064,886 together with interest totalling £642,885, and costs. It is against that decision that ECL now appeals to your Lordships’ House, with leave of this House… Nuisance and the rule in Rylands v Fletcher The question of ECL’s liability in nuisance has really only arisen again because the Court of Appeal allowed CWC’s appeal on the ground that ECL was liable on the basis of strict liability in nuisance on the principle laid down, as they saw it, in Ballard v Tomlinson. Since…that case does not give rise to any principle of law independent of the ordinary law of nuisance 665

Sourcebook on Obligations and Remedies or the rule in Rylands v Fletcher LR 3 HL 330, the strict position now is that CWC, having abandoned its claim in nuisance, can only uphold the decision of the Court of Appeal on the basis of the rule in Rylands v Fletcher. However, one important submission advanced by ECL before the Appellate Committee was that strict liability for an escape only arises under that rule where the defendant knows, or reasonably ought to have foreseen, when collecting the relevant things on his land, that those things might, if they escaped, cause damage of the relevant kind. Since there is a close relationship between nuisance and the rule in Rylands v Fletcher, I myself find it very difficult to form an opinion as to the validity of that submission, without first considering whether foreseeability of such damage is an essential element in the law of nuisance. For that reason, therefore, I do not feel able altogether to ignore the latter question simply because it was no longer pursued by CWC before the Court of Appeal. In order to consider the question in the present case in its proper legal context, it is desirable to look at the nature of liability in a case such as the present in relation both to the law of nuisance and the rule in Rylands v Fletcher, and for that purpose to consider the relationship between the two heads of liability. I begin with the law of nuisance. Our modern understanding of the nature and scope of the law of nuisance was much enhanced by Professor Newark’s seminal article on The boundaries of nuisance’ (1949) 65 LQR 480. The article is avowedly a historical analysis, in that it traces the nature of the tort of nuisance to its origins, and demonstrates how the original view of nuisance as a tort to land (or, more accurately, to accommodate interference with servitudes, a tort directed against the plaintiff’s enjoyment of rights over land) became distorted as the tort was extended to embrace claims for personal injuries, even where the plaintiff’s injury did not occur while using land in his occupation. In Professor Newark’s opinion (p 487), this development produced adverse effects, viz, that liability which should have arisen only under the law of negligence was allowed under the law of nuisance which historically was a tort of strict liability; and that there was a tendency for ‘cross-infection to take place, and notions of negligence began to make an appearance in the realm of nuisance proper’. But, in addition, Professor Newark considered, pp 487–88, it contributed to a misappreciation of the decision in Rylands v Fletcher: This case is generally regarded as an important landmark—indeed, a turning point—in the law of tort, but an examination of the judgments shows that those who decided it were quite unconscious of any revolutionary or reactionary principles implicit in the decision. They thought of it as calling for no more than a restatement of settled principles, and Lord Cairns went so far as to describe those principles as ‘extremely simple’. And in fact the main principle involved was extremely simple, being no more than the principle that negligence is not an element in the tort of nuisance. It is true that Blackburn J, in his great judgment in the Exchequer Chamber, never once used the word ‘nuisance’, but three times he cited the case of fumes escaping from an alkali works—a clear case of nuisance—as an instance of liability under the rule which he was laying

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Non-Contractual Obligations (1): Tort down. Equally it is true that in 1866 there were a number of cases in the reports suggesting that persons who controlled dangerous things were under a strict duty to take care but, as none of these cases had anything to do with nuisance, Blackburn J did not refer to them. But the profession as a whole, whose conceptions of the boundaries of nuisance were now becoming fogged, failed to see in Rylands v Fletcher a simple case of nuisance. They regarded it as an exceptional case—and the rule in Rylands v Fletcher as a generalisation of exceptional cases, where liability was to be strict on account of ‘the magnitude of danger, coupled with the difficulty of proving negligence’ [Pollock, Law of Torts, 14th edn, 1939, p 386], rather than on account of the nature of the plaintiff’s interest which was invaded. They therefore jumped rashly to two conclusions: firstly, that the rule in Rylands v Fletcher could be extended beyond the case of neighbouring occupiers; and secondly, that the rule could be used to afford a remedy in cases of personal injury. Both these conclusions were stoutly denied by Lord Macmillan in Read v Lyons [1947] AC 156, but it remains to be seen whether the House of Lords will support his opinion when the precise point comes up for decision. We are not concerned in the present case with the problem of personal injuries, but we are concerned with the scope of liability in nuisance and in Rylands v Fletcher. In my opinion it is right to take as our starting point the fact that, as Professor Newark considered, Rylands v Fletcher was indeed not regarded by Blackburn J as a revolutionary decision: see, for example, his observations in Ross v Fedden (1872) 26 LT 966, p 968. He believed himself not to be creating new law, but to be stating existing law, on the basis of existing authority; and, as is apparent from his judgment, he was concerned in particular with the situation where the defendant collects things upon his land which are likely to do mischief if they escape, in which event the defendant will be strictly liable for damage resulting from any such escape. It follows that the essential basis of liability was the collection by the defendant of such things upon his land, and the consequence was a strict liability in the event of damage caused by their escape, even if the escape was an isolated event. Seen in its context, there is no reason to suppose that Blackburn J intended to create a liability any more strict than that created by the law of nuisance; but even so he must have intended that, in the circumstances specified by him, there should be liability for damage resulting from an isolated escape. Of course, although liability for nuisance has generally been regarded as strict, at least in the case of a defendant who has been responsible for the creation of a nuisance, even so, that liability has been kept under control by the principle of reasonable user—the principle of give and take as between neighbouring occupiers of land, under which ‘those acts necessary for the common and ordinary use and occupation of land and houses may be done, if conveniently done, without subjecting those who do them to an action’: see Bamford v Turnley (1862) 3 B & S 62, p 83, per Bramwell B. The effect is that, if the user is reasonable, the defendant will not be liable for consequent harm to his neighbour’s enjoyment of his land, but if the user is not reasonable, the defendant will be liable, even though he may have exercised

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Sourcebook on Obligations and Remedies reasonable care and skill to avoid it. Strikingly, a comparable principle has developed which limits liability under the rule in Rylands v Fletcher. This is the principle of natural use of the land. I shall have to consider the principle at a later stage in this judgment. The most authoritative statement of the principle is now to be found in the advice of the Privy Council delivered by Lord Moulton in Richards v Lothian [1913] AC 263, p 280, when he said of the rule in Rylands v Fletcher: It is not every use to which land is put that brings into play that principle. It must be some special use bringing with it increased danger to others, and must not merely be the ordinary use of the land or such a use as is proper for the general benefit of the community. It is not necessary for me to identify precise differences which may be drawn between this principle and the principle of reasonable user as applied in the law of nuisance. It is enough for present purposes that I should draw attention to a similarity of function. The effect of this principle is that, where it applies, there will be no liability under the rule in Rylands v Fletcher, but that where it does not apply, ie, where there is a non-natural use, the defendant will be liable for harm caused to the plaintiff by the escape, notwithstanding that he has exercised all reasonable care and skill to prevent the escape from occurring. Foreseeability of damage in nuisance It is against this background that it is necessary to consider the question whether foreseeability of harm of the relevant type is an essential element of liability either in nuisance or under the rule in Rylands v Fletcher. I shall take first the case of nuisance. In the present case, as I have said, this is not strictly speaking a live issue. Even so, I propose briefly to address it, as part of the analysis of the background to the present case. It is, of course, axiomatic that in this field we must be on our guard, when considering liability for damages in nuisance, not to draw inapposite conclusions from cases concerned only with a claim for an injunction. This is because, where an injunction is claimed, its purpose is to restrain further action by the defendant which may interfere with the plaintiff’s enjoyment of his land, and ex hypothesi the defendant must be aware, if and when an injunction is granted, that such interference may be caused by the act which he is restrained from committing. It follows that these cases provide no guidance on the question whether foreseeability of harm of the relevant type is a prerequisite of the recovery of damages for causing such harm to the plaintiff. In the present case, we are not concerned with liability in damages in respect of a nuisance which has arisen through natural causes, or by the act of a person for whose actions the defendant is not responsible, in which cases the applicable principles in nuisance have become closely associated with those applicable in negligence: see Sedleigh-Denfield v O’Callaghan [1940] AC 880 and Goldman v Margrave [1967] 1 AC 645. We are concerned with the liability of a person where a nuisance has been created by one for whose actions he is responsible. Here, as I have said, it is still the law that the fact that the defendant has taken all reasonable care will not of itself exonerate him from liability, the relevant control mechanism being found within the principle of reasonable user. But it by no means follows

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Non-Contractual Obligations (1): Tort that the defendant should be held liable for damage of a type which he could not reasonably foresee, and the development of the law of negligence in the past 60 years points strongly towards a requirement that such foreseeability should be a prerequisite of liability in damages for nuisance, as it is of liability in negligence. For if a plaintiff is in ordinary circumstances only able to claim damages in respect of personal injuries where he can prove such foreseeability on the part of the defendant, it is difficult to see why, in common justice, he should be in a stronger position to claim damages for interference with the enjoyment of his land where the defendant was unable to foresee such damage. Moreover, this appears to have been the conclusion of the Privy Council in Overseas Tankship (UK) Ltd v Miller Steamship Co Pty (The Wagon Mound (No 2)) [1967] 1 AC 617. The facts of the case are too well known to require repetition, but they gave rise to a claim for damages arising from a public nuisance caused by a spillage of oil in Sydney Harbour. Lord Reid, who delivered the advice of the Privy Council, considered that, in the class of nuisance which included the case before the Board, foreseeability is an essential element in determining liability. He then continued, p 640: It could not be right to discriminate between different cases of nuisance so as to make foreseeability a necessary element in determining damages in those cases where it is a necessary element in determining liability, but not in others. So the choice is between it being a necessary element in all cases of nuisance or in none. In their Lordships’ judgment the similarities between nuisance and other forms of tort to which The Wagon Mound (No 1) applies far outweigh any differences, and they must therefore hold that the judgment appealed from is wrong on this branch of the case. It is not sufficient that the injury suffered by the respondents’ vessels was the direct result of the nuisance if that injury was in the relevant sense unforeseeable. It is widely accepted that this conclusion, although not essential to the decision of the particular case, has nevertheless settled the law to the effect that foreseeability of harm is indeed a prerequisite of the recovery of damages in private nuisance, as in the case of public nuisance. I refer in particular to the opinion expressed by Professor Fleming in Fleming on The Law of Torts, 8th edn, 1992, pp 443–44. It is unnecessary in the present case to consider the precise nature of this principle; but it appears from Lord Reid’s statement of the law that he regarded it essentially as one relating to remoteness of damage. Foreseeability of damage under the rule in Rylands v Fletcher It is against this background that I turn to the submission advanced by ECL before your Lordships that there is a similar prerequisite of recovery of damages under the rule in Rylands v Fletcher. I start with the judgment of Blackburn J in Fletcher v Rylands (1866)… In that passage, Blackburn J spoke of ‘anything likely to do mischief if it escapes’; and later he spoke of something ‘which he knows to be mischievous if it gets on his neighbour’s [property]’, and the liability to ‘answer for the natural and anticipated consequences’. Furthermore, time and again he spoke

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Sourcebook on Obligations and Remedies of the strict liability imposed upon the defendant as being that he must keep the thing in at his peril and, when referring to liability in actions for damage occasioned by animals, he referred, p 282, to the established principle that ‘it is quite immaterial whether the escape is by negligence or not’. The general tenor of his statement of principle is therefore that knowledge, or at least foreseeability of the risk, is a prerequisite of the recovery of damages under the principle; but that the principle is one of strict liability in the sense that the defendant may be held liable notwithstanding that he has exercised all due care to prevent the escape from occurring… Even so, the question cannot be considered solely as a matter of history. It can be argued that the rule in Rylands v Fletcher should not be regarded simply as an extension of the law of nuisance, but should rather be treated as a developing principle of strict liability from which can be derived a general rule of strict liability for damage caused by ultra-hazardous operations on the basis of which persons conducting such operations may properly be held strictly liable for the extraordinary risk to others involved in such operations. As is pointed out in Fleming on The Law of Torts, pp 327–28, this would lead to the practical result that the cost of damage resulting from such operations would have to be absorbed as part of the overheads of the relevant business rather than be borne (where there is no negligence) by the injured person or his insurers, or even by the community at large. Such a development appears to have been taking place in the United States, as can be seen from para 519 of the Restatement of Torts, 1977 (2d) Vol 3. The extent to which it has done so is not altogether clear; and I infer from para 519, and the comment on that paragraph, that the abnormally dangerous activities there referred to are such that their ability to cause harm would be obvious to any reasonable person who carried them on. I have to say, however, that there are serious obstacles in the way of the development of the rule in Rylands v Fletcher in this way. First of all, if it was so to develop, it should logically apply to liability to all persons suffering injury by reason of the ultra-hazardous operations; but the decision of this House in Read v J Lyons and Co Ltd [1947] AC 156, which establishes that there can be no liability under the rule except in circumstances where the injury has been caused by an escape from land under the control of the defendant, has effectively precluded any such development. Professor Fleming has observed that ‘the most damaging effect of the decision in Read v J Lyons and Co Ltd is that it prematurely stunted the development of a general theory of strict liability for ultra-hazardous activities’ (see Fleming, The Law of Torts, p 341). Even so, there is much to be said for the view that the courts should not be proceeding down the path of developing such a general theory. In this connection, I refer in particular to the Report of the Law Commission on Civil Liability for Dangerous Things and Activities (1970, Law Com No 32). In paras 14–16 of the report, the Law Commission expressed serious misgivings about the adoption of any test for the application of strict liability involving a general concept of ‘especially dangerous’ or ‘ultra-hazardous’ activity, having regard to the uncertainties and practical difficulties of its application. If the Law Commission is unwilling to consider statutory reform on this basis, it must follow that judges should if anything be even more reluctant to proceed down that path.

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Non-Contractual Obligations (1): Tort Like the judge in the present case, I incline to the opinion that, as a general rule, it is more appropriate for strict liability in respect of operations of high risk to be imposed by Parliament, than by the courts. If such liability is imposed by statute, the relevant activities can be identified, and those concerned can know where they stand. Furthermore, statute can, where appropriate, lay down precise criteria establishing the incidence and scope of such liability. It is of particular relevance that the present case is concerned with environmental pollution. The protection and preservation of the environment is now perceived as being of crucial importance to the future of mankind; and public bodies, both national and international, are taking significant steps towards the establishment of legislation which will promote the protection of the environment, and make the polluter pay for damage to the environment for which he is responsible—as can be seen from the WHO, EEC and national regulations to which I have previously referred. But it does not follow from these developments that a common law principle, such as the rule in Rylands v Fletcher, should be developed or rendered more strict to provide for liability in respect of such pollution. On the contrary, given that so much well informed and carefully structured legislation is now being put in place for this purpose, there is less need for the courts to develop a common law principle to achieve the same end and, indeed, it may well be undesirable that they should do so. Having regard to these considerations, and in particular to the step which this House has already taken in Read v J Lyons and Co Ltd [1947] AC 156 to contain the scope of liability under the rule in Rylands v Fletcher, it appears to me to be appropriate now to take the view that foreseeability of damage of the relevant type should be regarded as a prerequisite of liability in damages under the rule. Such a conclusion can, as I have already stated, be derived from Blackburn J’s original statement of the law, and I can see no good reason why this prerequisite should not be recognised under the rule, as it has been in the case of private nuisance. In particular, I do not regard the two authorities cited to your Lordships, West v Bristol Tramways Co [1908] 2 KB 14 and Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, as providing any strong pointer towards a contrary conclusion. It would, moreover, lead to a more coherent body of common law principles if the rule were to be regarded essentially as an extension of the law of nuisance to cases of isolated escapes from land, even though the rule as established is not limited to escapes which are in fact isolated. I wish to point out, however, that in truth the escape of the PCE from ECL’s land, in the form of trace elements carried in percolating water, has not been an isolated escape, but a continuing escape resulting from a state of affairs which has come into existence at the base of the chalk aquifer underneath ECL’s premises. Classically, this would have been regarded as a case of nuisance; and it would seem strange if, by characterising the case as one falling under the rule in Rylands v Fletcher, the liability should thereby be rendered more strict in the circumstances of the present case. The facts of the present case Turning to the facts of the present case, it is plain that, at the time when the PCE was brought onto ECL’s land, and indeed when it was used in the tanning 671

Sourcebook on Obligations and Remedies process there, nobody at EC could reasonably have foreseen the resultant damage which occurred at CWC’s borehole at Sawston… I wish to add that the present case may be regarded as one of what is nowadays called historic pollution, in the sense that the relevant occurrence (the seepage of PCE through the floor of ECL’s premises) took place before the relevant legislation came into force; and it appears that, under the current philosophy, it is not envisaged that statutory liability should be imposed for historic pollution (see, for example, the Council of Europe’s Draft Convention on Civil Liability for Damage Resulting from Activities Dangerous to the Environment (Strasbourg, 26 January 1993), Art 5.1, and para 48 of the Explanatory Report). If so, it would be strange if liability for such pollution were to arise under a principle of common law. In the result, since those responsible at ECL could not at the relevant time reasonably have foreseen that the damage in question might occur, the claim of CWC for damages under the rule in Rylands v Fletcher must fail. Natural use of land I turn to the question whether the use by ECL of its land in the present case constituted a natural use, with the result that ECL cannot be held liable under the rule in Rylands v Fletcher… It is a commonplace that this particular exception to liability under the rule has developed and changed over the years. It seems clear that, in Fletcher v Rylands LR 1 Ex 265 itself, Blackburn J’s statement of the law was limited to things which are brought by the defendant onto his land, and so did not apply to things that were naturally upon the land. Furthermore, it is doubtful whether in the House of Lords in the same case Lord Cairns, to whom we owe the expression ‘non-natural use’ of the land, was intending to expand the concept of natural use beyond that envisaged by Blackburn J.Even so, the law has long since departed from any such simple idea, redolent of a different age; and, at least since the advice of the Privy Council delivered by Lord Moulton in Rickards v Lothian [1913] AC 263, p 280, natural use has been extended to embrace the ordinary use of land… It is obvious that the expression ‘ordinary use of the land’ in Lord Moulton’s statement of the law is one which is lacking in precision. There are some writers who welcome the flexibility which has thus been introduced into this branch of the law, on the ground that it enables judges to mould and adapt the principle of strict liability to the changing needs of society; whereas others regret the perceived absence of principle in so vague a concept, and fear that the whole idea of strict liability may as a result be undermined. A particular doubt is introduced by Lord Moulton’s alternative criterion—‘or such a use as is proper for the general benefit of the community’. If these words are understood to refer to a local community, they can be given some content as intended to refer to such matters as, for example, the provision of services; indeed the same idea can, without too much difficulty, be extended to, for example, the provision of services to industrial premises, as in a business park or an industrial estate. But if the words are extended to embrace the wider interests of the local community or the general benefit

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Non-Contractual Obligations (1): Tort of the community at large, it is difficult to see how the exception can be kept within reasonable bounds. A notable extension was considered in your Lordships’ House in Read v J Lyons and Co Ltd [1947] AC 156, pp 169–70, per Viscount Simon, and p 174, per Lord Macmillan, where it was suggested that, in time of war, the manufacture of explosives might be held to constitute a natural use of land, apparently on the basis that, in a country in which the greater part of the population was involved in the war effort, many otherwise exceptional uses might become ‘ordinary’ for the duration of the war. It is, however, unnecessary to consider so wide an extension as that in a case such as the present. Even so, we can see the introduction of another extension in the present case, when the judge invoked the creation of employment as clearly for the benefit of the local community, viz, ‘the industrial village’ at Sawston. I myself, however, do not feel able to accept that the creation of employment as such, even in a small industrial complex, is sufficient of itself to establish a particular use as constituting a natural or ordinary use of land. Fortunately, I do not think it is necessary for the purposes of the present case to attempt any redefinition of the concept of natural or ordinary use. This is because I am satisfied that the storage of chemicals in substantial quantities, and their use in the manner employed at ECL’s premises, cannot fall within the exception. For the purpose of testing the point, let it be assumed that ECL was well aware of the possibility that PCE, if it escaped, could indeed cause damage, for example, by contaminating any water with which it became mixed so as to render that water undrinkable by human beings. I cannot think that it would be right in such circumstances to exempt ECL from liability under the rule in Rylands v Fletcher on the ground that the use was natural or ordinary. The mere fact that the use is common in the tanning industry cannot, in my opinion, be enough to bring the use within the exception, nor the fact that Sawston contains a small industrial community which is worthy of encouragement or support. Indeed, I feel bound to say that the storage of substantial quantities of chemicals on industrial premises should be regarded as an almost classic case of non-natural use, and I find it very difficult to think that it should be thought objectionable to impose strict liability for damage caused in the event of their escape. It may well be that, now that it is recognised that foreseeability of harm of the relevant type is a prerequisite of liability in damages under the rule, the courts may feel less pressure to extend the concept of natural use to circumstances such as those in the present case, and in due course it may become easier to control this exception, and to ensure that it has a more recognisable basis of principle. For these reasons, I would not hold that ECL should be exempt from liability on the basis of the exception of natural use. However, for the reasons I have already given, I would allow ECL’s appeal with costs before your Lordships’ House and in the courts below. [The other Lords of Appeal agreed with Lord Goff.]

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Notes and questions 1 Is this case authority for the proposition that English law refuses to recognise a liability for things similar to the principle to be found in the Art 1384 of the Code civil? 2 Does this case destroy the idea that it is the polluter who should pay? 3 Is fault the basis for all non-contractual compensation claims for physical damage? 4 Lord Goff says that ‘inapposite’ conclusions must not be drawn from the cases involving injunctions. Does this once again indicate (cf Miller v Jackson, above, p 51) that it is the remedy and not the right that is the main focal point of English law? 5 Hard cases, it is said, make for bad law. Well, Cambridge Water is a hard case in that the plaintiff is hardly the most deserving of companies (it might be useful to compare the salaries of the directors of CWC with those of the directors of ECL), and it does seem hard that a defendant should be held liable for something that happened way back in the past. Perhaps, then, the key to the decision is to be found under Lord Goff s heading The facts of the present case’. Yet this simply takes us back to the role of a court like the House of Lords (cf Read v J Lyons and Co, above); is it simply to decide particular cases between particular litigants? Was there not here an opportunity to do for strict liability what Donoghue v Stevenson did for fault liability? Lord Goff implied a role for comparative law in his Littlewoods judgment (and see his recent judgment in White v Jones, p 702), was there not the chance for the common law, perhaps in the spirit of harmonisation, to import the symmetry of the French Code civil? No doubt, names at Lloyds might not be so keen on an extension of strict liability, but the ordinary citizen crippled in a road accident and unable to prove fault (see p 760) might appreciate the symmetry of the Jand’heur case in France (Ch réun 13.2.1930; DP 1930.1.57; S 1930.1.121) which brought car accidents within Art 1384 (now mostly covered by separate legislation: loi 5 juillet 1985). The problem with the Cambridge Water case is that it is a case about pollution and the law of tort which does not, in fact, tell us that much about pollution and the law of tort. One can only hope that the ECJ will furnish English lawyers with some new ideas in the new millennium; for English judges seem paralysed when it comes to developing a law of tort in any direction other than fault. 6 Using materials to be found in Chapter 2, can you construct a judgment arriving at the opposite conclusion to Lord Goff s? Wringe v Cohen [1940] 1 KB 229 Court of Appeal Atkinson J:… In our judgment if, owing to want of repair, premises on a highway become dangerous and, therefore, a nuisance, and a passer-by or

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Non-Contractual Obligations (1): Tort an adjoining owner suffers damage by their collapse, the occupier, or the owner if he has undertaken the duty of repair, is answerable whether he knew or ought to have known of the danger or not. The undertaking to repair gives the owner control of the premises, and a right of access thereto for the purpose of maintaining them in a safe condition. On the other hand, if the nuisance is created, not by want of repair, but, for example, by the act of a trespasser, or by a secret and unobseivaole operation of nature, such as a subsidence under or near the foundations of the premises, neither an occupier nor an owner responsible for repair is answerable, unless with knowledge or means of knowledge he allows the danger to continue. In such a case, he has in no sense caused the nuisance by any act or breach of duty. I think that every case decided in the English courts is consistent with this view. By common law, it is an indictable offence for an occupier of premises on a highway to permit them to get into a dangerous condition owing to nonrepair. It was not and is not necessary in an indictment to aver knowledge or means of knowledge… Mint v Good [1951] 1 KB 517 Court of Appeal This was an action for damages by a boy against the owner of premises for injury sustained by the boy on a public highway when a wall on the premises collapsed onto him. The trial judge dismissed the action against the owner on the ground that the owner, who had let the premises to tenants, had not reserved the right of entry to make repairs. An appeal to the Court of Appeal was allowed. Denning LJ:… The law of England has always taken particular care to protect those who use a highway. It puts on the occupier of adjoining premises a special responsibility for the structures which he keeps beside the highway. So long as those structures are safe, all well and good, but if they fall into disrepair, so as to be a potential danger to passers-by, then they are a nuisance, and, what is more, a public nuisance; and the occupier is liable to anyone using the highway who is injured by reason of the disrepair. It is no answer for him to say that he and his servants took reasonable care; for, even if he has employed a competent independent contractor to repair the structure, and has every reason for supposing it to be safe, the occupier is still liable if the independent contractor did the work badly: see Tarry v Ashton. The occupier’s duty to passers-by is to see that the structure is as safe as reasonable care can make it; a duty which is as high as the duty which an occupier owes to people who pay to come on to his premises. He is not liable for latent defects, which could not be discovered by reasonable care on the part of anyone, nor for acts of trespassers of which he neither knew, nor ought to have known: see Barker v Herbert; but he is liable when structures fall into dangerous disrepair, because there must be some fault on the part of someone or other for that to happen; and he is responsible for it to persons using the highway, even though he was not actually at fault himself. That principle was laid down in this court in Wring v Cohen, where it is to be noted that the principle is confined to ‘premises on a highway’…

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Sourcebook on Obligations and Remedies The question in this case is whether the owner, as well as the occupier, is under a like duty to passers-by. I think he is. The law has shown a remarkable development on this point during the last 16 years. The three cases of Wilchick v Marks and Silverstone, Wringe v Cohen and Heap v Ind Coope and Allsopp Ltd show that the courts are now taking a realistic view of these matters. They recognise that the occupying tenant of a small dwelling house does not in practice do the structural repairs, but the owner does, and that if a passer-by is injured by the structure being in dangerous disrepair, the occupier has not the means to pay damages, but the owner has, or, at any rate, he can insure against it. If a passer-by is injured by the structure falling on him, he should be entitled to damages from someone, and the person who ought to pay is the owner, because he is in practice responsible for the repairs… That is sufficient for the decision of this case, but I venture to doubt in these days whether a landlord can exempt himself from liability to passers-by by taking a covenant from a tenant to repay the structure adjoining the highway… The liability of the owner is a liability in tort and cannot be affected by the terms of the agreement between himself and his tenant. Just as a manufacturer who is liable under the principle in Donoghue v Stevenson cannot exempt himself from liability to the public by the terms of his contract with the wholesaler, so also I should doubt whether a property owner could exempt himself by the terms of his contract with the tenant… Occupiers’ Liability Act 1957 (5 & 6 Eliz II, c 31) 2

Extent of occupier’s ordinary duty (1)

(2)

An occupier of premises owes the same duty, the ‘common duty of care’, to all his visitors, except in so far as he is free to and does extend, restrict, modify or exclude his duty to any visitor or visitors by agreement or otherwise. The common duty of care is a duty to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there.

Defective Premises Act 1972 (c 35) 4

Landlord’s duty of care in virtue of obligation or right to repair premises demised (1)

(2)

Where premises are let under a tenancy which puts on the landlord an obligation to the tenant for the maintenance or repair of the premises the landlord owes to all persons who might reasonably be expected to be affected by defects in the state of the premises a duty to take such care as is reasonable in all the circumstances to see that they are reasonably safe from personal injury or from damage to their property caused by a relevant defect. The said duty is owed if the landlord knows (whether as the result of being notified by the tenant or otherwise) or if he ought in all the circumstances to have known of the relevant defect.

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Questions 1 2 3

4 5 6 7

8

9

Are these cases examples of strict liability (liability without fault)? What if the boy had been injured by a tree on the defendant’s land falling on him? Under the Occupiers’ Liability Act 1957 an occupier owes a ‘common duty of care’ to visitors on his property; why should someone off the premises be owed a higher duty? Does Mint impose a higher duty? Does it impose a higher duty than s 4 of the 1972 Act? Does the difference mean that compensation can be made to depend upon where a plaintiff was standing when the injury occurred? To what extent is the tort of public nuisance a form of action expressing a principle similar to Art 1384 of the Code civil? Is the tort of public nuisance conceptually quite different from the tort of private nuisance? Are they, for example, quite separate causes of action? Does Denning LJ use reasoning by analogy? Why should a victim’s action for damages against an owner of defective property be dependent upon the nature of the contract between the owner of the property and his tenant? What if a wall collapses onto the highway and blocks it off for several days with the result that some nearby shops suffer financial loss? Will the shop owners be able to sue the occupier and/or the landlord of the defective premises for these losses? Will an occupier be liable for a public nuisance created by his independent contractor hired, say, to build a garage on the occupier’s land or to fell a tree? (Cf Rowe v Herman [1997] 1 WLR 1390.) Esso Petroleum Ltd v Southport Corporation [1953] 3 WLR 773 Queen’s Bench Division; [1954] 2 QB 182 Court of Appeal; [1956] AC 218 House of Lords (Seep 216.) Wheeler v JJ Saunders Ltd [1996] Ch 19 Court of Appeal Staughton LJ: Dr Wheeler is a veterinary surgeon specialising in pigs. He and his wife own Kingdown Farm House near Priddy on the Mendip Plateau. The farm is currently let to JJ Saunders Ltd, the first defendant. The action is brought first upon a complaint that JJ Saunders Ltd had obstructed a right of way to the house over land of the farm; secondly, in respect of various activities on the farm which are said to constitute a nuisance… In an action in the Chancery Division which was transferred to Bristol District Registry Dr and Mrs Wheeler complained of 10 different grounds of wrongdoing by JJ Saunders Ltd and/or Kingdown Farm Ltd (whom I shall together call the defendants). The action was tried by Judge Weeks QC at Bristol, and he gave judgment on 24 July 1992. Six of the claims made by Dr and Mrs Wheeler were dismissed. On the other four, they were awarded 677

Sourcebook on Obligations and Remedies damages totalling £2,820, and in three cases an injunction. The defendants appeal against the judge’s decision in respect of two of the claims. They raise interesting and difficult points of law. The case for the defendants in this appeal is that: (1) the judge should not have awarded damages in the sum of £500 and an injunction because the defendants had obstructed their right of way to Kingdown Farm House; and (2) the judge should not have awarded damages totalling £1,500 and an injunction in respect of nuisance in the form of smell from pigs in the Trowbridge houses. I shall consider those two grounds of appeal in turn; they raise quite separate issues. There was at one time also an appeal against an award of £800 damages and an injunction in respect of nuisance by noise from other pigs in two loose boxes. That appeal has not been pursued. There is no appeal on the one other claim which succeeded: that was an award of £20 damages for piling earth against a wall… 2 The effect of planning permission on nuisance The argument for the defendants is that since they obtained planning permission for the two Trowbridge houses, any smell emanating from the pigs kept in them cannot amount to a nuisance. There can be little doubt and it is now accepted that, apart from any effect of planning permission, there was nuisance by smell… I do not consider that planning permission necessarily has the same effect as statutory authority. Parliament is sovereign and can abolish or limit the civil rights of individuals. As Sir John May put it in the course of argument, Parliament cannot be irrational just as the sovereign can do no wrong. The planning authority on the other hand has only the powers delegated to it by Parliament. It is not in my view self-evident that they include the power to abolish or limit civil rights in any or all circumstances. The process by which planning permission is obtained allows for objections by those who might be adversely affected, but they have no right of appeal if their objections are overruled. It is not for us to say whether the private bill procedure in Parliament is better or worse. It is enough that it is different. In Allen v Gulf Oil Refining Ltd [1980] QB 156, before the Court of Appeal, Cumming-Bruce LJ touched on the effect of planning permission on what would otherwise be a nuisance. He said, p 174: ‘the planning authority has no jurisdiction to authorise a nuisance, save (if at all) in so far as it has statutory power to permit the change of the character of a neighbourhood.’ One can readily appreciate that planning permission will, quite frequently, have unpleasant consequences for some people. The man with a view over open fields from his window may well be displeased if a housing estate is authorised by the planners and built in front of his house; the character of the neighbourhood is changed. But there may be nothing which would qualify as a nuisance and no infringement of his civil rights. What if the development does inevitably create what would otherwise be a nuisance? Instead of a housing estate, the planners may authorise a factory which would emit noise and smoke to the detriment of neighbouring residents. Does that come within the first proposition of Cumming-Bruce LJ, that a planning authority has no jurisdiction to authorise a nuisance? Or is it within the second, that the 678

Non-Contractual Obligations (1): Tort authority may change the character of a neighbourhood? The problem arose directly in Gillingham Borough Council v Medway (Chatham) Dock Co Ltd [1993] QB 343. There planning permission had been granted for the development as a commercial port of part of the Bulmer Road dockyard in Chatham. This had the result that heavy goods vehicles in large numbers used roads in the neighbourhood for 24 hours a day, much to the harm of local residents. This was said to be an actionable public nuisance. Buckley J held that it was authorised by the grant of planning permission and so was not actionable. His reasoning closely followed the dictum of Cumming-Bruce LJ which I have quoted. He said, p 359: It has been said, no doubt correctly, that planning permission is not a licence to commit nuisance and that a planning authority has no jurisdiction to authorise nuisance. However, a planning authority can, through its development plans and decisions, alter the character of a neighbourhood. He concluded, p 361: In short, where planning consent is given for a development or change of use, the question of nuisance will thereafter fall to be decided by reference to a neighbourhood with that development or use and not as it was previously. However, he did accept, p 360: ‘…it is only a nuisance inevitably resulting from the authorised works on which immunity is conferred.’… What may matter is whether the subsequent nuisance flowed inevitably from the activity which was authorised by the two planning permissions. In my opinion it did. The Trowbridge houses were to contain 800 pigs based on slurry within 36 feet of the nearest holiday cottage. There was bound to be nuisance by smell. True, the nuisance would be greater when the pigs were fed on whey, but there would inevitably be nuisance even if they were not. It follows that if this were a case where the buildings were authorised by statute, there would be immunity from any action based on nuisance. But, as I have already said, I consider that the case may be different where one is concerned with planning permission rather than statutev It would, in my opinion, be a misuse of language to describe what has happened in the present case as a change in the character of a neighbourhood. It is a change and abuse of a very small piece of land, a little over 350 square metres according to the dimensions on the plan, for the benefit of the applicant and to the detriment of the objectors in the quiet enjoyment of their house. It is not a strategic planning decision affected by considerations of public interest. Unless one is prepared to accept that any planning decision authorises any nuisance which must inevitably come from it, the argument that the nuisance was authorised by planning permission in this case must fail. I am not prepared to accept that premise. It may be— I express no concluded opinion—that some planning decisions will authorise some nuisances. But that is as far as I am prepared to go. There is no immunity from liability for nuisance in the present case. I would dismiss the second part of this appeal. 679

Sourcebook on Obligations and Remedies Peter Gibson LJ:… The defence of statutory authority is allowed on the basis of the true construction of the scope and effect of the statute. Parliament is presumed to have considered the competing interests in the particular circumstances which are the subject of the statute and to have determined which is to prevail in the public interest in authorising the particular development and use of land and whether or not compensation is to be paid to those whose common law rights are adversely affected by the authorised development and use. But in the case of planning permission granted pursuant to the statutory scheme contained in the town and country planning legislation, it is far from obvious to me that Parliament must be presumed to have intended that in every case it should have the same effect on private rights as direct statutory authority, regardless of the circumstances that were in fact taken into account. True it is that Parliament by that legislation has provided a mechanism for regulating the development and use of land in the public interest and that it has delegated to the local planning authority the function of making planning decisions, but Parliament will also have been aware of the range of such decisions and the variety of possible circumstances in which they may be taken. It would also have been aware of the limited scope open to an objector to challenge a grant of planning permission. Prior to the Gillingham case, the general assumption appears to have been that private rights to claim in nuisance were unaffected by the permissive grant of planning permission, the developer going ahead with the development at his own risk if his activities were to cause a nuisance. The Gillingham case, if rightly decided, calls that assumption into question, at any rate in cases, like Gillingham itself, of a major development altering the character of a neighbourhood with wide consequential effects such as required a balancing of competing public and private interests before permission was granted. I can well see that in such a case the public interest must be allowed to prevail and that it would be inappropriate to grant an injunction (though whether that should preclude any award of damages in lieu is a question which may need further consideration). But I am not prepared to accept that the principle applied in the Gillingham case must be taken to apply to every planning decision. The court should be slow to acquiesce in the extinction of private rights without compensation as a result of administrative decisions which cannot be appealed and are difficult to challenge… Sir John May:… Thus, while the inevitability of a nuisance could well be the ground for refusing planning permission, the grant of the latter could not in my view license such nuisance. Indeed, I think that if a planning authority were with notice to grant a planning permission the inevitable consequence of which would be the creation of a nuisance, then it is well arguable that that grant would be subject to judicial review on the ground of irrationality… Further, if a planning permission could authorise a nuisance, then so also could it in an appropriate case license a trespass. But in planning cases where, in addition to permission, a way-leave is for instance required for electric cables, or a highway has to be stopped up or opened, then the permission alone is never enough and the procedures to obtain a way-leave or to interfere with the highway have to be followed…

680

Non-Contractual Obligations (1): Tort Hunter v Canary Wharf Ltd [1997] AC 655 House of Lords (See p 143.) Questions

1

2

What exactly is the difference between the tort of negligence and the tort of nuisance? What is the difference between public nuisance and private nuisance? Would it be true to say that damage caused through the unreasonable use of property is actionable? What about loss caused through the unreasonable use of property? Consumer Protection Act 1987 (c 43) 1

Purpose and construction of Part I

(1)

This Part shall have effect for the purpose of making such provision as is necessary in order to comply with the product liability Directive and shall be construed accordingly. In this Part, except in so far as the context otherwise requires-

(2)

‘agricultural produce’ means any produce of the soil, of stock-farming or of fisheries; ‘dependant’ and ‘relative’ have the same meanings as they have in, respectively, the Fatal Accidents Act 1976 and the Damages (Scotland) Act 1976; ‘producer’, in relation to a product, means(a) (b) (c)

the person who manufactured it; in the case of a substance which has not been manufactured but has been won or abstracted, the person who won or abstracted it; in the case of a product which has not been manufactured, won or abstracted but essential characteristics of which are attributable to an industrial or other process having been carried out (for example, in relation to agricultural produce), the person who carried out that process;

‘product’ means any goods or electricity and (subject to subsection (3) below) includes a product which is comprised in another product, whether by virtue of being a component part or raw material or otherwise; and ‘the product liability Directive’ means the Directive of the Council of the European Communities, dated 25th July 1985 (No 85/374/EEC) on the approximation of the laws, regulations and administrative provisions of the member States concerning liability for defective products. (3)

For the purposes of this Part, a person who supplies any product in which products are comprised, whether by virtue of being component parts or raw materials or otherwise, shall not be treated by reason only of his supply of that product as supplying any of the products so comprised. 681

Sourcebook on Obligations and Remedies 2

Liability for defective products

(1)

Subject to the following provisions of this Part, where any damage is caused wholly or partly by a defect in a product, every person to whom subsection (2) below applies shall be liable for the damage. This subsection applies to-

(2)

(a) (b) (c)

the producer of the product; any person who, by putting his name on the product or using a trade mark or other distinguishing mark in relation to the product, has held himself out to be the producer of the product; any person who has imported the product into a member State from a place outside the member States in order, in the course of any business of his, to supply it to another…

3

Meaning of ‘defect’

(1)

Subject to the following provisions of this section, there is a defect in a product for the purposes of this Part if the safety of the product is not such as persons generally are entitled to expect; and for those purposes ‘safety’, in relation to a product, shall include safety with respect to products comprised in that product and safety in the context of risks of damage to property, as well as in the context of risks of death or personal injury. In determining for the purposes of subsection (1) above what persons generally are entitled to expect in relation to a product, all the circumstances shall be taken into account, including-

(2)

(a)

(b) (c)

the manner in which, and purposes for which, the product has been marketed, its get-up, the use of any mark in relation to the product and any instructions for, or warnings with respect to, doing or refraining from doing anything with or in relation to the product; what might reasonably be expected to be done with or in relation to the product; and the time when the product was supplied by its producer to another;

and nothing in this section shall require a defect to be inferred from the fact alone that the safety of a product which is supplied after that time is greater than the safety of the product in question. 4

Defences

(1)

In any civil proceedings by virtue of this Part against any person (‘the person proceeded against’) in respect of a defect in a product it shall be a defence for him to show(a) (b) (c)

that the defect is attributable to compliance with any requirement imposed by or under any enactment or with any Community obligation; or that the person proceeded against did not at any time supply the product to another; or that the following conditions are satisfied, that is to say-

682

Non-Contractual Obligations (1): Tort (i) (ii)

(d) (e)

(f)

that the defect did not exist in the product at the relevant time; or that the state of scientific and technical knowledge at the relevant time was not such that a producer of products of the same description as the product in question might be expected to have discovered the defect if it had existed in his products while they were under his control; or that the defect(i) (ii)

(2)

(b)

if the person proceeded against is a person to whom subsection (2) of section 2 above applies in relation to the product, the time when he supplied the product to another; if that subsection does not apply to that person in relation to the product, the time when the product was last supplied by a person to whom that subsection does apply in relation to the product.

Damage giving rise to liability (1) (2)

(3)

Subject to the following provisions of this section, in this Part ‘damage’ means death or personal injury or any loss of or damage to any property (including land). A person shall not be liable under section 2 above in respect of any defect in a product for the loss of or any damage to the product itself or for the loss of or any damage to the whole or any part of any product which has been supplied with the product in question comprised in it. A person shall not be liable under section 2 above for any loss of or damage to any property which, at the time it is lost or damaged, is not(a) (b)

(4)

constituted a defect in a product (‘the subsequent product’) in which the product in question had been comprised; and was wholly attributable to the design of the subsequent product or to compliance by the producer of the product in question with instructions given by the producer of the subsequent product.

In this section ‘the relevant time’, in relation to electricity, means the time at which it was generated, being a time before it was transmitted or distributed, and in relation to any other product, means(a)

5

that the only supply of the product to another by the person proceeded against was otherwise than in the course of a business of that person’s; and that section 2(2) above does not apply to that person or applies to him by virtue only of things done otherwise than with a view to profit; or

of a description of property ordinarily intended for private use, occupation or consumption; and intended by the person suffering the loss or damage mainly for his own private use, occupation or consumption.

No damages shall be awarded to any person by virtue of this Part in respect of any loss of or damage to any property if the amount which would fall to be so awarded to that person, apart from this subsection and any liability for interest, does not exceed £275. 683

Sourcebook on Obligations and Remedies (5)

(6)

(7)

In determining for the purposes of this Part who has suffered any loss of or damage to property and when any such loss or damage occurred, the loss or damage shall be regarded as having occurred at the earliest time at which a person with an interest in the property had knowledge of the material facts about the loss or damage. For the purposes of subsection (5) above the material facts about any loss of or damage to any property are such facts about the loss or damage as would lead a reasonable person with an interest in the property to consider the loss or damage sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. For the purposes of subsection (5) above a person’s knowledge includes knowledge which he might reasonably have been expected to acquire(a) (b)

from facts observable or ascertainable by him; or from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable by him only with the help of expert advice unless he has failed to take all reasonable steps to obtain (and, where appropriate, to act on) that advice. (8)

Subsections (5) to (7) above shall not extend to Scotland.

6

Application of certain enactments

(7)

It is hereby declared that liability by virtue of this Part is to be treated as liability in tort for the purposes of any enactment conferring jurisdiction on any court with respect to any matter.

7

Prohibition on exclusions from liability The liability of a person by virtue of this Part to a person who has suffered damage caused wholly or partly by a defect in a product, or to a dependant or relative of such a person, shall not be limited or excluded by any contract term, by any notice or by any other provision.

Notes and questions 1

2

This statute is just one of many dealing with liability for things. Other important statutes to be researched in the library or major tort casebooks are: Occupiers’ Liability Act 1957 and 1984; Employers’ Liability (Defective Equipment) Act 1969; Animals Act 1971; Defective Premises Act 1972. Is the level of duty the same in all these statutes? One must not forget the vast amount of statute law in the area of public law which also touches upon liability in respect of things. One question that often occurs is whether breach of a statute will give rise to a claim for damages in tort; this is the tort of breach of statutory duty and it is a tort that often results in case law that could be categorised under liability for things (see extract from X (Minors), p 727). Equally, of course, such cases can be classified under the heading of liability for unlawful behaviour (see below, p 763, note 5). Is all unlawful behaviour wrongful behaviour 684

Non-Contractual Obligations (1): Tort

3 4

5

for the purposes of the law of obligations? (Cf Consumer Protection Act 1987, s 41.) Is noise a thing? Is Donoghue v Stevenson (above, p 65) an example of liability for damage done by a thing? What about Grant v Australian Knitting Mills (above)? In breach of a statute, radiation escapes from a nuclear installation and contaminates local houses. The price of these houses falls dramatically. Can the owners sue the nuclear installation for their losses? (Cf Merlin v BNF [1990] 2 QB 557; Blue Circle Industries plc v MOD [1999] 2 WLR 295.)

7 LIABILITY FOR WORDS

(a) Defamation Horrocks v Lowe [1975] AC 135 House of Lords Lord Diplock:… My Lords, as a general rule, English law gives effect to the ninth commandment that a man shall not speak evil falsely of his neighbour. It supplies a temporal sanction; if he cannot prove that defamatory matter which he published was true, he is liable in damages to whomever he has defamed, except where the publication is oral only, causes no damage and falls outside the categories of slander actionable per se. The public interest that the law should provide an effective means whereby a man can vindicate his reputation against calumny has nevertheless to be accommodated to the competing public interest in permitting men to communicate frankly and freely with one another about matters in respect of which the law recognises that they have a duty to perform or an interest to protect in doing so. What is published in good faith on matters of these kinds is published on a privileged occasion. It is not actionable even though it be defamatory and turns out to be untrue. With some exceptions which are irrelevant to the instant appeal, the privilege is not absolute but qualified. It is lost if the occasion which gives rise to it is misused. For in all cases of qualified privilege there is some special reason of public policy why the law accords immunity from suit— the existence of some public or private duty, whether legal or moral, on the part of the maker of the defamatory statement which justifies his communicating it or of some interest of his own which he is entitled to protect by doing so. If he uses the occasion for some other reason, he loses the protection of the privilege… John v MGN Ltd [1997] QB 586 Court of Appeal Sir Thomas Bingham MR: Neither the appellant MGN Ltd (the newspaper) nor the respondent Mr Elton John (the plaintiff) needs any introduction in this appeal which arises from a libel action brought by the latter in respect of 685

Sourcebook on Obligations and Remedies an article published in the Sunday Mirror on 27 December 1992. At the conclusion of the trial before Drake J and a jury, the jury awarded the plaintiff £350,000 damages, comprising £75,000 compensatory damages and £275,000 exemplary damages, and judgment was entered accordingly. The issues in the present appeal concentrate entirely upon this award of damages and its constituent parts. In a nutshell, the newspaper contends that, as a matter of principle, there is no scope in law for awarding exemplary damages, either generally or in the particular circumstances of the present case, so that the question of exemplary damages should never have been left to the jury at all. Alternatively, it submits that the judge misdirected the jury both on exemplary and compensatory damages and that, in any event, the sums awarded under both headings were grossly excessive. The argument before us has raised fundamental questions about jury awards of compensatory and exemplary damages, both generally and with reference to the facts of this case. We have thought it necessary and desirable to address these questions in this judgment… Part 2: The principles of law relating to damages in defamation Introduction It is standard practice for plaintiffs in defamation actions to claim damages and also an injunction against repetition of the publication complained of. If the action is compromised, the defendant ordinarily undertakes not to repeat the publication. If the action goes to trial and the plaintiff wins and recovers damages, the defendant ordinarily undertakes not to repeat the publication and if he is unwilling to give that undertaking an injunction restraining him from further publication will usually be granted. But it is the award of damages, not the grant of an injunction (in lieu of an undertaking), which is the primary remedy which the law provides on proof of this tort, both because, save in exceptional cases, the grant of an injunction in practice follows and is dependent on success in recovering damages, and also because an injunction, while giving the plaintiff protection against repetition in future, gives him no redress for what has happened in the past. It is to an award of damages that a plaintiff must look for redress, and the principles governing awards of damages are accordingly of fundamental importance in ensuring that justice is done to plaintiffs and defendants and that account is taken of such public interests as may be involved. Compensatory damages The successful plaintiff in a defamation action is entitled to recover, as general compensatory damages, such sum as will compensate him for the wrong he has suffered. That sum must compensate him for the damage to his reputation, vindicate his good name and take account of the distress, hurt and humiliation which the defamatory publication has caused. In assessing the appropriate damages for injury to reputation the most important factor is the gravity of the libel; the more closely it touches the plaintiffs personal integrity, professional reputation, honour, courage, loyalty and the core attributes of his personality, the more serious it is likely

686

Non-Contractual Obligations (1): Tort to be. The extent of publication is also very relevant; a libel published to millions has a greater potential to cause damage than a libel published to a handful of people. A successful plaintiff may properly look to an award of damages to vindicate his reputation, but the significance of this is much greater in a case where the defendant asserts the truth of the libel and refuses any retraction or apology than in a case where the defendant acknowledges the falsity of what was published and publicly expresses regret that the libellous publication took place. It is well established that compensatory damages may and should compensate for additional injury caused to the plaintiffs feelings by the defendant’s conduct of the action, as when he persists in an unfounded assertion that the publication was true, or refuses to apologise, or cross-examines the plaintiff in a wounding or insulting way. Although the plaintiff has been referred to as ‘he’, all this of course applies to women just as much as men. There could never be any precise, arithmetical formula to govern the assessment of general damages in defamation, but if such cases were routinely tried by judges sitting alone there would no doubt emerge a more or less coherent framework of awards which would, while recognising the particular features of particular cases, ensure that broadly comparable cases led to broadly comparable awards. This is what has happened in the field of personal injuries since these ceased to be the subject of trial by jury and became in practice the exclusive preserve of judges. There may be even greater factual diversity in defamation than in personal injury cases, but this is something of which the framework would take account. The survival of jury trial in defamation actions has inhibited a similar development in this field. Respect for the constitutional role of the jury in such actions, and judicial reluctance to intrude into the area of decisionmaking reserved to the jury, have traditionally led judges presiding over defamation trials with juries to confine their jury directions to a statement of general principles, eschewing any specific guidance on the appropriate level of general damages in the particular case. While some distinguished judges (for example, Diplock LJ in McCarey v Associated Newspapers Ltd (No 2) [1965] 2 QB 86, p 109) have considered that juries should be informed in broad terms of the conventional level of awards for personal injuries, not by way of analogy but as a check on the reasonableness of an award which the jury are considering, this has not been an authoritative view: see Broome v Cassell Co Ltd [1972] AC 1027, p 1071. Even in the rare case when a personal injury claim was to be tried by a jury it was thought inappropriate that a jury should be informed of the conventional level of awards (Ward v James [1966] 1 QB 273, p 302), a striking departure from the modern practice when judges are sitting alone. Whatever the theoretical attractions of this approach, its practical disadvantages have become ever more manifest. A series of jury awards in sums wildly disproportionate to any damage conceivably suffered by the plaintiff has given rise to serious and justified criticism of the procedures leading to such awards. This has not been the fault of the juries. Judges, as they were bound to do, confined themselves to broad directions of general principle, coupled with injunctions to the jury to be reasonable. But they

687

Sourcebook on Obligations and Remedies gave no guidance on what might be thought reasonable or unreasonable, and it is not altogether surprising that juries lacked an instinctive sense of where to pitch their awards. They were in the position of sheep loosed on an unfenced common, with no shepherd. While the Court of Appeal reaffirmed the fundamental soundness of the traditional approach in Sutcliffe v Pressdram Ltd [1991] 1 QB 153, the court did, in that case, recommend trial judges to draw the attention of juries to the purchasing power of the award they were minded to make, and of the income it would produce: see pp 178–79, 181, 190. This was thereafter done, and juries were reminded of the cost of buying a motor car, or a holiday, or a house. But judges were still constrained by authority from steering the jury towards any particular level of award. Following enactment of s 8(2) of the Courts and Legal Services Act 1990 and the introduction of RSC Ord 59 r 11(4) in its present form, the Court of Appeal was for the first time empowered, on allowing an appeal against a jury’s award of damages, to substitute for the sum awarded by the jury such sum as might appear to the court to be proper. This power was exercised in Gorman v Mudd, 1992, unreported, 15 October, Court of Appeal (Civil Division) Transcript No 1076 of 1992. In that case, the plaintiff was a Member of Parliament who sued one of her constituents for a libel contained in a mock press release. There was publication to 91 people only, but these were prominent, influential, local and knowledgeable members of the constituency party. The defendant advanced and persisted in pleas of justification and qualified privilege. The plaintiff alleged malice. There was a two-week trial, during which the plaintiff was the subject of insulting and distressing questions. The jury rejected the defence of justification and found that the defendant had been actuated by personal spite. They awarded compensatory damages of £150,000. The Court of Appeal held this award to be so grossly and seriously excessive and extravagant as to merit a new trial, but exercised its power to substitute an award and concluded that nothing in excess of £50,000 could be justified… In Rantzen v Mirror Group Newspapers (1986) Ltd [1994] QB 670 the newspaper appealed against a jury’s award of £250,000, contending that the size of the award was wholly disproportionate to the damage done to the plaintiff’s reputation. The court concluded, p 694A, that at that time it would not be right to allow reference to be made to awards by juries in previous cases. But it took the view, p 694B, that awards made by the Court of Appeal stood on a different footing: over a period of time awards made by the Court of Appeal would provide a corpus to which reference could be made in subsequent cases … We are persuaded by Mr Gray’s argument that this subject deserves reconsideration, despite the short period since the Rantzen ruling was given. Any legal process should yield a successful plaintiff appropriate compensation, that is, compensation which is neither too much nor too little. That is so whether the award is made by judge or jury. No other result can be accepted as just. But there is continuing evidence of libel awards in sums which appear so large as to bear no relation to the ordinary values of life. 688

Non-Contractual Obligations (1): Tort This is most obviously unjust to defendants. But it serves no public purpose to encourage plaintiffs to regard a successful libel action, risky though the process undoubtedly is, as a road to untaxed riches. Nor is it healthy if any legal process fails to command the respect of lawyer and layman alike, as is regrettably true of the assessment of damages by libel juries. We are persuaded by the arguments we have heard that the subject should be reconsidered. This is not a field in which we are bound by previous authority (Sutdiffe v Pressdram Ltd [1991] 1 QB 153, p 178) but it is necessary for us to review the arguments which have found favour in the past… Reference to damages in actions for personal injuries In Broome v Cassell Co Ltd [1972] AC 1027, pp 1071–72, Lord Hailsham of St Marylebone LC gave his reason for rejecting comparison with awards of damages for personal injuries… In the passage from the judgment of the court in the Rantzen case [1994] QB 670 …the Court of Appeal essentially adopted the approach of Lord Hailsham LC in Broome v Cassell Co Ltd [1972] AC 1027 in concluding that there was no satisfactory way in which conventional awards in actions for damages for personal injuries could be used to provide guidance for an award in an action for defamation. Much depends, as we now think, on what is meant by guidance: it is one thing to say (and we agree) that there can be no precise equiparation between a serious libel and (say) serious brain damage; but it is another to point out to a jury considering the award of damages for a serious libel that the maximum conventional award for pain and suffering and loss of amenity to a plaintiff suffering from very severe brain damage is about £125,000 and that this is something of which the jury may take account… Reference to an appropriate award and an appropriate bracket It has been the invariable practice in the past that neither counsel nor the judge may make any suggestion to the jury as what would be an appropriate award. This practice was in line with the practice followed in actions for personal injuries when such actions were tried with a jury… In personal injury actions it is now commonplace for the advocates on both sides to address the judge in some detail on the quantum of the appropriate award. Any apprehension that the judge might receive a coded message as to the amount of any payment into court has not to our knowledge been realised. The judge is not in any way bound by the bracket suggested, but he finds it helpful as a check on his own provisional assessment. We can, for our part, see no reason why the parties’ respective counsel in a libel action should not indicate to the jury the level of award which they respectively contend to be appropriate, nor why the judge in directing the jury should not give a similar indication. The plaintiff will not wish the jury to think that his main object is to make money rather than clear his name. The defendant will not wish to add insult to injury by underrating the seriousness of the libel. So, we think the figures suggested by responsible counsel are likely to reflect the upper and lower bounds of a realistic bracket. The jury must of course make up their own mind and must be directed to do so. They will not be bound by the submission of counsel or the indication of the judge. If the jury make an 689

Sourcebook on Obligations and Remedies award outside the upper or lower bounds of any bracket indicated and such award is the subject of appeal, real weight must be given to the possibility that their judgment is to be preferred to that of the judge. The modest but important changes of practice described above would not, in our view, undermine the enduring constitutional position of the libel jury. Historically, the significance of the libel jury has lain not in their role of assessing damages but in their role of deciding whether the publication complained of is a libel or not. The changes which we favour will, in our opinion, buttress the constitutional role of the libel jury by rendering their proceedings more rational and so more acceptable to public opinion… The European Convention The European Convention is not a free-standing source of law in the United Kingdom. But there is, as already pointed out, no conflict or discrepancy between Art 10 and the common law. We regard Art 10 as reinforcing and buttressing the conclusions we have reached and set out above. We reach those conclusions independently of the Convention, however, and would reach them even if the Convention did not exist. Part 3: Our conclusions on the summing up and the awards of damages We can now return to the facts of the case and consider the criticisms of the judge’s summing up and of the awards of damagesv The amount awarded The jury awarded exemplary damages of £275,000, making a grand total of £350,000. Mr Browne supports that figure as reasonable, but in our judgment Mr Gray is right in his submission that this sum is manifestly excessive, and goes well beyond the minimum sum needed to meet the two relevant requirements. We think that those requirements will be fully met by an award of £50,000 exemplary damages, making a grand total of damages under both headings of £75,000, which will ensure that justice is done to both sides, and will also fully secure the public interest involved.

Notes and questions 1

Defamation is a tort protecting reputation and is both simple and complex. It is simple in as much as almost any critical statement made by one person about another person and published to a third party is prima facie defamatory; all that the statement need do is to lower the victim in the eyes of reasonable people generally. Thus, to accuse someone of having a large bottom or being ugly is defamatory (Berkoff v Burchill [1996] 4 All ER 1008). It is complex because the ease of definition has put an undue emphasis on the meaning of words (for example, innuendo) and on the defences. In addition, statutory intervention has added to the procedural complexities of this tort, already Byzantine as a result of juries and striking out actions. This is an area of the law of obligations that really belongs more to public (constitutional) rather than 690

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private law, since the cases raise important issues of freedom of the press and, indeed, human rights (Tolstoy Miloslavsky v UK (1995) 20 EHRR 442). The House of Lords has gone some way in recognising this constitutional and human rights aspect (Derbyshire CC v Times Newspapers [1993] AC 534), but the tort can still be used to stifle investigative reporting (see, for example, Pilger, ‘Letter’ (1991) The Guardian, 9 July). Recent statutory intervention has made life a little easier for the publisher, as opposed to the author, of a defamatory statement (Defamation Act 1996). However, the strictness of the liability results in a situation where injury to reputation once resulted in damages that were out of all proportion to those obtained in personal injury cases (cf Sutcliffe v Pressdram Ltd [1991] 1 QB 153). As the MGN case shows, Parliament and the Court of Appeal have now gone some way to remedying this situation. There are three central defences to defamation: justification, fair comment and privilege. If the author or publisher of a defamatory statement can establish that it is true, then the claimant’s action will fail. The facts said to be true must, however, be correct (cf Defamation Act 1952, s 5). Fair comment is more difficult, because it attaches only to facts and not to the claimant himself; that is to say, it attaches to the objective conduct of the claimant. Thus, to say that C is an ‘incompetent nitwit’ is not fair comment; but to say that C’s textbook or performance in a play, or indeed conduct at a public function, gives the impression of being written or performed by an ‘incompetent nitwit’ may be fair comment. The comment must, in other words, attach to facts (conduct or whatever) in the public realm and these facts must be correct (cf Defamation Act 1952, s 6). Fair comment can be defeated by malice, but the burden of proving this is on the claimant. Privilege is of two types: absolute privilege is a complete defence, while qualified privilege will fail as a defence if the plaintiff can prove malice. The key concept in this defence is ‘interest’. A person may be protected if he or she communicates a defamatory statement to a person who has an interest in receiving it. Thus, one director of a company might have an interest in receiving information, even if defamatory, about another director or employee (Watt v Longsdon [1930] 1 KB 130). More generally, it would be tempting to think that any comment in the public interest is covered by privilege; but this would be wrong. The defence is probably wider than it once was, but the idea of a ‘duty’ to publish in the ‘public interest’ is still very narrowly construed (Reynolds v Times Newspapers Ltd [1998] 3 WLR 862). Indeed, it has to be said that the courts rarely give preference to the public interest over the commercial interest (Camelot Group plc v Centaur Communications Ltd [1999] QB 124), although the House of Lords may take the opportunity to adjust the balance in the light of the Human Rights Act 1998 ([1999] 1 WLR 478). The fair and accurate reporting of certain 691

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reports and activities is, however, covered by statutory qualified privilege (Defamation Act 1996, s 15 and Schedules). Yet public law has responded to this press liberty by granting courts the power to impose reporting restrictions and, in addition, other remedies may also be available to those disgruntled by the media (see p 285). The interesting question will be how these decisions, which impact on press freedom, will be affected by the Human Rights Act 1998 when it is fully brought into effect. The Jonathan Aitken affair indicates just how defamation can be used to prevent the unmasking of cheats and liars in public life (see The Guardian, 9 June 1999). Claimants prepared to employ a little bit of perjury can, provided they are not found out, often find success in defamation actions, since the burden of proof is on the defendant. In American law, it is extremely difficult for public officials to sue in defamation, which is why the press were able to investigate the Watergate scandal. Ought similar rules to be introduced into English law? (Cf Reynolds v Times Newspapers Ltd [1998] 3 WLR 862.) Note how defamation is a three party tort. There must be publication of the defamatory statement to a third party, however obscure: Morgan v Odhams Press [1971] 2 All ER 1156. This is where defamation can be distinguished from the Roman law delict of injuria, which was an action protecting the interest of dignity as well as reputation (Dig 47.10.1.2; cf CC, Art 16). It is tempting to say that defamation is a tort protecting a right of personality rather than patrimony, and this might help explain the continued use of the jury (s 69 of the Supreme Court Act 1981) and the absence of any requirement of proving damage in libel. However, this personality aspect is undermined by the fact that corporate persons can sue without proving damage. Ought this to be changed: ought proof of damage to be a fundamental element in the tort of defamation? ‘Libel is often played as farce. Vain pop stars, self-important actresses and—yes—even editors can cut comic figures as they seek to protect their precious reputations in the mock Gothic majesty of the High Court. But the dishonest use of libel laws to suppress legitimate reporting activities of people in public life is no joke’ (‘Editorial’ (1999) The Guardian, 9 June, p 21). Is this fair comment? If so, how is it that the law of noncontractual obligations has got itself into this situation? Would a privacy law only add to the farce? Is it really decent that vain pop stars should be able to claim huge damages for being told they have a large bottom (or whatever), whereas abused children horribly molested by those employed by incompetent and uncaring local authorities get their cases thrown out of court (because it is not ‘just, fair and reasonable’ that they should succeed)? Can defamation and the interlocutory injunction (see Chapter 3) be used by individuals to suppress publications that would be in the public interest to publish? 692

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(b) Negligence Spring v Guardian Assurance plc [1995] 2 AC 296 House of Lords (See also p 122.) Lord Slynn:… I do not, for my part, consider that to recognise the existence of a duty of care in some situations when a reference is given necessarily means that the law of defamation has to be changed or that a substantial section of the law relating to defamation and malicious falsehood is ‘emasculated’ (Court of Appeal, p 437). They remain distinct torts. It may be that there will be less resort to these torts because a more realistic approach on the basis of a duty of care is adopted. If to recognise that such a duty of care exists means that there have to be such changes—either by excluding the defence of qualified privilege from the master-servant situation or by withdrawing the privilege where negligence as opposed to malice is shown— then I would in the interests of recognising a fair, just and reasonable result in the master-servant situation accept such change… Lord Woolf:… There would be no purpose in extending the tort of negligence to protect the subject of an inaccurate reference if he was already adequately protected by the law of defamation. However, because of the defence of qualified privilege, before an action for defamation can succeed (or, for that matter, an action for injurious falsehood) it is necessary to establish malice. In my judgment the result of this requirement is that an action for defamation provides a wholly inadequate remedy for an employee who is caused damage by a reference which due to negligence is inaccurate. This is because it places a wholly disproportionate burden on the employee. Malice is extremely difficult to establish. This is demonstrated by the facts of this case. The plaintiff was able to establish that one of his colleagues, who played a part in compiling the information on which the reference was based, had lied about interviewing him, but this was still insufficient to prove malice. Without an action for negligence, the employee may, therefore, be left with no practical prospect of redress, even though the reference may have permanently prevented him from obtaining employment in his chosen vocation… The historic development of the two actions has been quite separate. Just as it has never been a requirement of an action for defamation to show that the defamatory statement was made negligently, so, if the circumstances establish that it is fair and just that a duty of care should exist, the person who suffers harm in consequence of a breach of that duty should not have to establish malice, merely because that would be a requirement in an action for defamation. I can see no justification for erecting a fence around the whole field to which defamation can apply and treating any other tort, which can beneficially from the point of view of justice enter into part of that field, as a trespasser if it does so…

Notes and questions 1

Is this case authority for the proposition that there is an English law of torts rather than tort?

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2

It is difficult to establish liability in respect of uncritical publications which do actual damage, even if they are made negligently, but very easy to establish liability in respect of publications which do no obvious damage but whose truth cannot be established in a court of law. Is this logical? Hedley Byrne and Co v Heller and Partners Ltd [1964] AC 465 House of Lords (See p 470.)

Notes and questions 1

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Hedley Byrne is a major case of principle in that it is the starting point for non-fraudulent and non-deliberate non-contractual liability for damage done by words. Had the Court of Appeal ((1887) 37 Ch D 541) decision in Peek v Derry been upheld by the House of Lords ((1889) 14 App Cas 337), there would have been no need for the 1964 decision, since the tort of deceit (on which, see Bradford v Borders, p 469) would have been adapted, with the help of equity, to deal with negligent misrepresentation. The influence of equity in Hedley Byrne itself should not be overlooked either; the idea of a ‘special relationship’ is an adaptation of the equitable notion of a fiduciary relationship. (Cf White v Jones, p 702.) The House of Lords found for the defendant, but said, for future reference, that a duty of care would be owed in facts similar to those in the case. Is Hedley Byrne an example of prospective overruling? (Cf p 11.) T contracts with S, a solicitor, for S to draw up a will leaving a substantial legacy to P.S negligently draws up the will with the result that, after T’s death, the gift to P is void. Can P sue S? If so, will this be on the basis of Hedley Byrne? (Cf White v Jones, p 702.) An auditor of a company negligently certifies a set of accounts for D plc. C, relying on the accounts, invests much money in D plc and loses it all when it fails. Can C sue the auditor? (Cf Caparo Industries plc v Dickman [1990] 2 AC 605.) If the nephew in Beswick v Beswick (above, p 249) had negligently failed to pay the annuity to the wife and she had suffered damage as a result, could she have sued the nephew for damages under the Hedley Byrne principle? Marc Rich and Co v Bishop Rock Marine Co Ltd [1996] 1 AC 211 House of Lords (Seep 711.) Goodwill v British Pregnancy Advisory Service [1996] 1 WLR 1397 Court of Appeal (See p 722.)

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(c) Inducing a breach of contract Torquay Hotel Co v Cousins [1969] 2 Ch 106 Court of Appeal This was an action for an interlocutory injunction brought by a hotel against a trade union that had issued threats to the hotel’s oil suppliers warning them not to supply oil to the hotel. The hotel alleged that the union’s threats amounted to an attempt to induce a breach of contract between the hotel and the oil suppliers even though this contract contained an exception clause covering labour disputes. The Court of Appeal upheld the grant of the injunction. Lord Denning MR:… (2) Can the defendants take advantage of the force majeure clause? The Imperial Hotel had a contract with Esso, under which the Imperial Hotel agreed to buy their total requirements of fuel-oil from Esso for one year, the quantity being estimated at 120,000 gallons, to be delivered by road tank wagon at a minimum of 3,000 gallons a time. Under that contract, there was a course of dealing by which the Imperial Hotel used to order 3,000 gallons every week or 10 days, and Esso used to deliver it the next day. But there was a force majeure or exception clause which said that neither party shall be liable for any failure to fulfil any term of this agreement if fulfilment is delayed, hindered or prevented by any circumstance whatever which is not within their immediate control, includingvlabour disputes. It is plain that, if delivery was hindered or prevented by labour disputes, as, for instance, because their drivers would not cross the picket line, Esso could rely on that exception clause as a defence to any claim by Imperial. They would not be liable in damages. And I am prepared to assume that Esso would not be guilty of a breach of contract. But I do not think that would exempt the trade union officials from liability if they unlawfully hindered or prevented Esso from making deliveries. The principle of Lumley v Gye extends not only to inducing breach of contract, but also to preventing the performance of it. That can be shown by a simple illustration taken from the books. In Lumley v Gye, Miss Wagner, an actress, was engaged by Mr Lumley to sing at Her Majesty’s Theatre. Mr Gye, who ran Co vent Garden, procured her to break her contract with Mr Lumley by promising to pay her more: see Lumley v Wagner. He was held liable to Mr Lumley for inducing a breach of contract. In Poussard v Spiers and Pond Madam Poussard was under contract with Spiers to sing in an opera at the Criterion Theatre. She fell sick and was unable to attend rehearsals. Her non-performance, being occasioned by sickness, was not a breach of contract on her part, but it was held to excuse the theatre company from continuing to employ her. Suppose now that an ill-disposed person, knowing of her contract, had given her a potion to make her sick. She would not be guilty of a breach herself. But undoubtedly the person who administered the potion would have done wrong and be liable for the damage suffered by them. So here I think the trade union officials cannot take advantage of the force majeure or exception clause in the Esso contract. If they unlawfully prevented or hindered Esso from making deliveries, as ordered by Imperial, they would be liable in damage to Imperial, 695

Sourcebook on Obligations and Remedies notwithstanding the exception clause. There is another reason too. They could not rely on an excuse of which they themselves had been ‘the mean’ to use Lord Coke’s language: see New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France. The principles of law The principle of Lumley v Gye is that each of the parties to a contract has a ‘right to the performance’ of it: and it is wrong for another to procure one of the parties to break it or not to perform it. That principle was extended a step further by Lord Macnaghten in Quinn v Leathern, so that each of the parties has a right to have his ‘contractual relations’ with the other duly observed. ‘It is’, he said, p 510, ‘a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference’. That statement was adopted and applied by a strong board of the Privy Council in Jasperson v Dominion Tobacco Co. It included Viscount Haldane and Lord Sumner. The time has come when the principle should be further extended to cover ‘deliberate and direct interference with the execution of a contract without that causing any breach’. That was a point left open by Lord Reid in Stratford (JT) and Son Ltd v Lindley. But the common law would be seriously deficient if it did not condemn such interference. It is this very case. The principle can be subdivided into three elements: First, there must be interference in the execution of a contract. The interference is not confined to the procurement of a breach of contract. It extends to a case where a third person prevents or hinders one party from performing his contract, even though it be not a breach. Second, the interference must be deliberate. The person must know of the contract or, at any rate, turn a blind eye to it and intend to interfere with it: see Emerald Construction Co v Lowthian. Third, the interference must be direct. Indirect interference will not do. Thus, a man who ‘corners the market’ in a commodity may well know that it may prevent others from performing their contracts, but he is not liable to an action for so doing. A trade union official, who calls a strike on proper notice, may well know that it will prevent the employers from performing their contracts to deliver goods, but he is not liable in damages for calling it. Indirect interference is only unlawful if unlawful means are used. I went too far when I said in Daily Mirror Newspapers v Gardner that there was no difference between direct and indirect interference. On reading once again Thomson (DC) and Co Ltd v Deakin, with more time, I find there is a difference. Morris LJ, p 702, there draws the very distinction between ‘direct persuasion to breach of contract’ which is unlawful in itself: and ‘the intentional bringing about of a breach by indirect methods involving wrongdoing’. This distinction must be maintained, else we should take away the right to strike altogether. Nearly every trade union official who calls a strike—even on due notice, as in Morgan v Fry— knows that it may prevent the employers from performing their contracts. He may be taken even to intend it. Yet no one has supposed hitherto that it was unlawful: and we should not render it unlawful today. A trade union official is only in the wrong when he procures a contracting party directly to break his contract, or when he does it indirectly by unlawful means. On reconsideration of the Daily Mirror case, I think that the defendants there

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Non-Contractual Obligations (1): Tort interfered directly by getting the retailers as their agents to approach the wholesalers. I must say a word about unlawful means, because that brings in another principle. I have always understood that, if one person deliberately interferes with the trade or business of another, and does so by unlawful means, that is, by an act which he is not at liberty to commit, then he is acting unlawfully, even though he does not procure or induce any actual breach of contract. If the means are unlawful, that is enough. Thus, in Rookes v Barnard (as explained by Lord Reid in Stratford v Lindley and Lord Upjohn), the defendants interfered with the employment of Rookes—and they did it by unlawful means, namely, by intimidation of his employers—and they were held to be acting unlawfully, even though the employers committed no breach of contract as they gave Rookes proper notice. And in Stratford v Lindley, the defendants interfered with the business of Stratford—and they did it by unlawful means, namely, by inducing the men to break their contracts of employment by refusing to handle the barges—and they were held to be acting unlawfully, even in regard to new business of Stratford which was not the subject of contract. Lord Reid said, p 324: The respondents’ action made it practically impossible for the appellants to do any new business with the barge hirers. It was not disputed that such interference is tortious if any unlawful means are employed. So, also on the second point in Daily Mirror v Gardner, the defendants interfered with the business of the Daily Mirror—and they did it by a collective boycott which was held to be unlawful under the Restrictive Trade Practices Act 1956— and they were held to be acting unlawfully. This point about unlawful means is of particular importance when a place is declared ‘black’. At common law, it often involves the use of unlawful means. Take the Imperial Hotel. When it was declared ‘black’, it meant that the drivers of the tankers would not take oil to the hotel. The drivers would thus be induced to break their contracts of employment. That would be unlawful at common law. The only case in which ‘blacking’ of such a kind is lawful is when it is done ‘in contemplation or furtherance of a trade dispute’. It is then protected by s 3 of the Trade Disputes Act 1906, see Thomson (DC) and Co Ltd v Deakin by Upjohn J; for, in that event, the act of inducing a breach of a contract of employment is a lawful act which is not actionable at the suit of anyone: see Stratford v Lindley by Salmon LJ, and Morgan v Fry by myself. Seeing that the act is lawful, it must, I think, be lawful for the trade union officials to tell the employers and their customers about it. And this is so, even though it does mean that those people are compelled to break their commercial contracts. The interference with the commercial contracts is only indirect, and not direct: see what Lord Upjohn said in Stratford v Lindley. So, if there had been a ‘trade dispute’ in this case, I think it would have protected the trade union officials when they informed Esso that the dispute with Imperial was an ‘official dispute’ and said that the hotel was ‘blacked’. It would be like the ‘blacking’ of the barges in Stratford v Lindley, where we held, in the Court of Appeal, that, on the basis that there was a ‘trade dispute’, the defendants were not liable.

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Sourcebook on Obligations and Remedies Applying the principle in this case Seeing that there was no ‘trade dispute’, this case falls to be determined by the common law. It seems to me that the trade union officials deliberately and directly interfered with the execution of the contract between the Imperial Hotel and Esso. They must have known that there was a contract between the Imperial Hotel and Esso. Why otherwise did they on that very first Saturday afternoon telephone the bulk plant at Plymouth? They may not have known with exactitude all the terms of the contract. But no more did the defendants in Stratford v Lindley. They must also have intended to prevent the performance of the contract. That is plain from the telephone message: ‘Any supplies of fuel-oil will be stopped being made.’ And the interference was direct. It was as direct as could be—a telephone message from the trade union official to the bulk plant. Take next the supplies from Alternative Fuels. The first wagon got through. As it happened, there was no need for the Imperial Hotel to order any further supplies from Alternative Fuels. But suppose they had given a further order, it is quite plain that the trade union officials would have done their best to prevent it being delivered. Their telephone messages show that they intended to prevent supplies being made by all means in their power. By threatening ‘repercussions’ they interfered unlawfully with the performance of any future order which Imperial Hotel might give to Alternative Fuels. And the interference was direct again. It was direct to Alternative Fuels. Such interference was sufficient to warrant the grant of an injunction quia timet… Conclusion Other wrongs were canvassed, such as conspiracy and intimidation, but I do not think it necessary to go into these. I put my decision on the simple ground that there is evidence that the defendants intended to interfere directly and deliberately with the execution of the existing contracts by Esso and future contracts by Alternative Fuels so as to prevent those companies supplying oil to the Imperial Hotel. This intention was sufficiently manifest to warrant the granting of an injunction. The form of the injunction was criticised by Mr Pain, but it follows the form suggested by Lord Upjohn in Stratford v Lindsey, and I think it is in order. I find myself in substantial agreement with the judge and would dismiss this appeal. Winn LJ:… For my part I think that it can at least be said, with confidence, that where a contract between two persons exists which gives one of them an optional extension of time or an optional mode for his performance of it, or of part of it, but, from the normal course of dealing between them, the other person does not anticipate such postponement, or has come to expect a particular mode of performance, a procuring of the exercise of such an option should, in principle, be held actionable if it produces material damage to the other contacting party…

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Notes and questions 1

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5 6 7

As a result of the pure economic loss principle in the tort of negligence, many unthinking students state that the law of tort does not protect against economic loss. This is nonsense. In addition to misrepresentation cases, which usually lead to economic loss, there are the economic torts which have been fashioned to deal with the problem of strife in the world of business and industrial relations. The main question that the economic torts (inducing breach of contract, intimidation and conspiracy) seek to provide an answer to is this. When will D be liable for deliberately causing economic loss to P? Now, it might be tempting to say that all deliberately caused loss should be actionable, but this would clash with the ethics of capitalism where competition—that is, deliberately causing loss to another since one person’s profit is another person’s loss—is fundamental. If one has the right to open a supermarket, even if it ruins all the other local food shops, does one have the right deliberately to ruin all the local food shops by opening a supermarket? The common law said yes, providing that no wrong was involved (Mogul SS Co v McGregor, Gow and Co [1892] AC 25). But what is meant by ‘wrong’ in this context, given that, according to Bradford v Pickles (above, p 222), malice in itself is not a wrong? The tort of inducing breach of contract was the major starting point. Is there now a tort of economic duress? (Cf Dimskal Shipping Co v ITWF [1992] 2 AC 152.) Do traders have a right to trade free from deliberate interference by others? Do trade unions have any rights at common law? D writes an article urging his readers not to buy goods from P’s shop because P makes financial contributions to a political party of which D does not approve. Can P sue D for his economic losses? What if D urges people to demonstrate on the pavement outside P’s shop? Is there a right to strike in the English common law? Is a contractual right a property right as far as the English law of tort is concerned? Research the economic torts in the library. What role has the interlocutory injunction played in the development of the economic torts? Which are the most useful concepts in the area of economic torts: (a) rights; (b) duties; (c) wrongs; (d) directness; (e) intention; (f) interests; (g) property?

(d) Malicious prosecution Martin v Watson [1996] AC 74 House of Lords Lord Keith of Kinkel: My Lords, the background to the proceedings which give rise to this appeal is a long history of mutual antagonism between neighbours. The appellant plaintiff, Mr Martin, and the respondent defendant, 699

Sourcebook on Obligations and Remedies Mrs Watson, lived next door to each other in Orpington. The garden of each dwelling abutted on that of the other. Relations between the parties and their respective spouses were acrimonious for many years, for reasons which need not be gone into. Eventually the defendant began to make accusations that the plaintiff had indecently exposed himself to her… [T]he plaintiff was arrested and taken to the police station, where he was interviewed and bailed to attend court the next day upon a charge related to the events of 20 July 1989. He duly did so, but the Crown Prosecution Service offered no evidence and he was discharged. In the circumstances, the plaintiff brought this action for malicious prosecution against the defendant in Bromley County Court. On 13 July 1992 Judge Goodman, after trial, gave judgment in favour of the plaintiff and awarded him damages of £3,500. The defendant was granted leave to appeal to the Court of Appeal, which on 21 January 1994 by a majority (Ralph Gibson and Hobhouse LJJ, McCowan LJ dissenting) [1994] QB 425 allowed the appeal and set aside the judgment of Judge Goodman. The plaintiff now appeals, with leave given by the Court of Appeal, to your Lordships’ House. It is common ground that the ingredients of the tort of malicious prosecution are correctly stated in Clerk and Lindsell on Torts, 16th edn, 1989, p 1042, para 19–05: In action of malicious prosecution the plaintiff must show first that he was prosecuted by the defendant, that is to say, that the law was set in motion against him on a criminal charge; secondly, that the prosecution was determined in his favour; thirdly, that it was without reasonable and probable cause; fourthly, that it was malicious. The onus of proving every one of these is on the plaintiff. Judge Goodman found that all four of these ingredients had been proved. It was not disputed on behalf of the defendant, either in the Court of Appeal or before your Lordships, that he was entitled so to find as regards the last three ingredients. But it was maintained that he was not entitled to find the first ingredient proved. The majority of the Court of Appeal agreed with that. The basis of the decision was that the defendant had not signed the charge sheet relating to the events of 20 July 1989. It is not entirely clear who did sign that charge sheet. It was either Detective Constable Haynes or the duty sergeant at the police station. The question at issue is whether or not the defendant is properly to be regarded, in all the circumstances, as having set the law in motion against the plaintiff. Curiously enough, there appears to be no reported English decision dealing with the situation where the defendant in a malicious prosecution action has falsely and maliciously accused the plaintiff to a police officer of having committed an offence, with the result that a prosecution has been initiated by the police officer. A number of decisions in other Commonwealth countries have, however, considered such a state of affairs… … Where an individual falsely and maliciously gives a police officer information indicating that some person is guilty of a criminal offence and 700

Non-Contractual Obligations (1): Tort states that he is willing to give evidence in court of the matters in question, it is properly to be inferred that he desires and intends that the person he names should be prosecuted. Where the circumstances are such that the facts relating to the alleged offence can be within the knowledge only of the complainant, as was the position here, then it becomes virtually impossible for the police officer to exercise any independent discretion or judgment, and if a prosecution is instituted by the police officer the proper view of the matter is that the prosecution has been procured by the complainant… Mr Munby, for the defendant, mounted a powerful argument to the effect that considerations of policy pointed against a decision in favour of the plaintiff in the present case. Such a decision, so it was maintained, would tend to discourage members of the public from bringing criminal activities to the notice of the police, lest they should find themselves harassed by actions of malicious prosecution in the event that the alleged perpetrator of the offence were acquitted. The logical result, if this argument were accepted, would be to stultify completely the tort of malicious prosecution since the rationale would apply not only to those giving information which resulted in a police prosecution but also to those who themselves signed the charge sheet or laid the information. There is no good ground here for making a distinction between persons who procure a police prosecution and those who are technically prosecutors. It is said that victims of sexual assaults would be particularly discouraged from complaining. This, however, could not be so where the alleged perpetrator was a stranger to the complainant, and where the parties are known to each other a prosecution is unlikely to follow unless there is some evidence other than that of the complainant herself. Further, false accusations of sexual offences are by no means unknown, and there are many other types of offences of which a person may be falsely accused. It is to be kept in mind also that in actions for malicious prosecution the onus lies on the plaintiff to prove malice and want of reasonable cause. This would not be possible in the case of genuine complaints. It is suggested that adequate remedies for false accusations are available by way of prosecution for attempting to pervert the course of justice or wasting the time of the police, and also by way of prosecution for perjury if the complainant has actually given false evidence. But none of these remedies affords any compensation to a person who may have been arrested and imprisoned and perhaps subjected to the ordeal of a trial… … To deny any remedy to a person whose liberty has been interfered with as a result of unfounded and malicious accusations in such circumstances would constitute a serious denial of justice. My Lords, for these reasons I would set aside the order of the Court of Appeal [1994] QB 425 and restore the judgment of Judge Goodman. The defendant must pay the plaintiffs costs in the Court of Appeal. The defendant was legally aided before your Lordships’ House but the plaintiff was not. The plaintiff will be entitled to his costs here against the legal aid fund, subject to the usual opportunity for objection. [Lords Slynn, Lloyd, Nicholls and Steyn agreed with Lord Keith.]

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Questions 1 2

3

Does the tort of malicious prosecution protect constitutional rights rather than private rights? Is there not a danger that a person who complains of sexual assault by someone known to her might find herself having to defend an action in the tort of defamation and/or malicious prosecution? Could Mr Martin have sued Mrs Watson for defamation?

(e) Trespass Wilkinson v Downton [1897] 2 QB 57 Queen’s Bench Division (See p 640.)

8 PARTICULAR LIABILITIES

(a) Professional liability White v Jones [1995] 2 AC 207 House of Lords Lord Goff: My Lords, in this appeal, your Lordships’ House has to consider for the first time the much discussed question whether an intended beneficiary under a will is entitled to recover damages from the testator’s solicitors by reason of whose negligence the testator’s intention to benefit him under the will has failed to be carried into effect. In Ross v Caunters (A Firm) [1980] Ch 297, a case in which the will failed because, through the negligence of the testator’s solicitors, the will was not duly attested, Megarry VC held that the disappointed beneficiary under the ineffective will was entitled to recover damages from the solicitors in negligence. In the present case, the testator’s solicitors negligently delayed the preparation of a fresh will in place of a previous will which the testator had decided to revoke, and the testator died before the new will was prepared. The plaintiffs were the two daughters of the testator who would have benefited under the fresh will but received nothing under the previous will which, by reason of the solicitors’ delay, remained unrevoked. It was held by the Court of Appeal ([1993] 3 All ER 481, [1993] 3 WLR 730), reversing the decision of Turner J, that the plaintiffs were entitled to recover damages from the solicitors in negligence. The question which your Lordships have to decide is whether, in cases such as these, the solicitors are liable to the intended beneficiaries who, as a result of their negligence, have failed to receive the benefit which the testator intended they should receive… … [T]he question is one which has been much discussed, not only in this country and other common law countries, but also in some civil law countries, notably Germany. There can be no doubt that Ross v Caunters has been 702

Non-Contractual Obligations (1): Tort generally welcomed by academic writers… Furthermore, it does not appear to have been the subject of adverse comment in the higher courts in this country, though it has not been approved except by the Court of Appeal in the present case. Indeed, as far as I am aware, Ross v Caunters has created no serious problems in practice since it was decided nearly 15 years ago. A similar conclusion has been reached in the courts of New Zealand…and the law appears to be developing in the same direction in Canada… The position in Australia…is at present less clear. In the United States, following two earlier decisions in California…the trend now appears to be moving strongly in favour of liability… In Germany, a disappointed beneficiary may be entitled to claim damages from the testator’s negligent solicitor under the principle known as contract with protective effect for third parties (Vertrag mit Schutzwirkung fur Dritte). I shall discuss the relevant German law on the subject in greater detail at a later stage in this opinion. It also appears that a similar conclusion would be reached in France…which appears to be based on the broad principle that a notary is responsible, even as against third parties, for all fault causing damage committed by him in the exercise of his functions. On facts very similar to those of the present case, the Court of Appeal of Amsterdam has held a notary liable in negligence to the intended beneficiary… The conceptual difficulties Even so, it has been recognised on all hands that Ross v Caunters raises difficulties of a conceptual nature, and that as a result it is not altogether easy to accommodate the decision within the ordinary principles of our law of obligations… It is right, however, that I should immediately summarise these conceptual difficulties. They are as follows: (1)

(2)

First, the general rule is well established that a solicitor acting on behalf of a client owes a duty of care only to his client. The relationship between a solicitor and his client is nearly always contractual, and the scope of the solicitor’s duties will be set by the terms of his retainer, but a duty of care owed by a solicitor to his client will arise concurrently in contract and in tort (see Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp (A Firm) [1979] Ch 384, recently approved by your Lordships’ House in Henderson v Merrett Syndicates Ltd [1994] 3 All ER 506; [1994] 3 WLR 761). But, when a solicitor is performing his duties to his client, he will generally owe no duty of care to third parties… In these circumstances, it is said, there can be no liability of the solicitor to a beneficiary under a will… There can be no liability in contract, because there is no contract between the solicitor and the disappointed beneficiary; if any contractual claim was to be recognised, it could only be by way of a ius quaesitum tertio, and no such claim is recognised in English law. Nor could there be liability in tort, because in the performance of his duties to his client a solicitor owes no duty of care in tort to a third party such as a disappointed beneficiary under his client’s will. A further reason is given which is said to reinforce the conclusion that no duty of care is owed by the solicitor to the beneficiary in tort. Here, it is suggested, is one of those situations in which a plaintiff is entitled 703

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(3) (4) (5)

to damages if, and only if, he can establish a breach of contract by the defendant. First, the plaintiffs claim is one for purely financial loss and, as a general rule, apart from cases of assumption of responsibility arising under the principle in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465, no action will lie in respect of such loss in the tort of negligence. Furthermore, in particular, no claim will lie in tort for damages in respect of a mere loss of expectation, as opposed to damages in respect of damage to an existing right or interest of the plaintiff. Such a claim falls within the exclusive zone of contractual liability; and it is contrary to principle that the law of tort should be allowed to invade that zone… A third, and distinct, objection is that, if liability in tort was recognised in cases such as Ross v Caunters, it would be impossible to place any sensible bounds to cases in which such recovery was allowed… Other miscellaneous objections were taken, though in my opinion they were without substance… There is, however, another objection of a conceptual nature, which was not adumbrated in argument before the Appellate Committee. In the present case, unlike Ross v Caunters itself, there was no act of the defendant solicitor which could be characterised as negligent. All that happened was that the solicitor did nothing at all for a period of time… As a general rule, however, there is no liability in tortious negligence for an omission, unless the defendant is under some pre-existing duty. Once again, therefore, the question arises how liability can arise in the present case in the absence of a contract…

The impulse to do practical justice Before addressing the legal questions which lie at the heart of the present case, it is, I consider, desirable to identify the reasons of justice which prompt judges and academic writers to conclude…that a duty should be owed…to a disappointed beneficiary. The principal reasons are, I believe, as follows. (1) In the forefront stands the extraordinary fact that, if such a duty is not recognised, the only persons who might have a valid claim (that is, the testator and his estate) have suffered no loss, and the only person who has suffered a loss (that is, the disappointed beneficiary) has no claim... It can therefore be said that, if the solicitor owes no duty to the intended beneficiaries, there is a lacuna in the law which needs to be filled. This I regard as being a point of cardinal importance in the present case. (2) The injustice of denying such a remedy is reinforced if one considers the importance of legacies in a society which recognises... the right of citizens to leave their assets to whom they please, and in which, as a result, legacies can be of great importance to individual citizens, providing very often the only opportunity for a citizen to acquire a significant capital sum; or to inherit a house, so providing a secure roof over the heads of himself and his family; or to make special provision for his or her old age... [Evidence presented by counsel] perhaps indicates that it is where a testator instructs a small firm of solicitors that mistakes of this kind are most likely to occur, with the result that it tends to be people of modest means, who need the money so badly, who suffer.

704

Non-Contractual Obligations (1): Tort (3) There is a sense in which the solicitors’ profession cannot complain if such a liability may be imposed upon their members. If one of them has been negligent in such a way as to defeat his client’s testamentary intentions, he must regard himself as very lucky indeed if the effect of the law is that he is not liable to pay damages in the ordinary way. It can involve no injustice to render him subject to such a liability, even if the damages are payable not to his client’s estate for distribution to the disappointed beneficiary (which might have been the preferred solution), but direct to the disappointed beneficiary. (4) That such a conclusion is required as a matter of justice is reinforced by consideration of the role played by solicitors in society… The German experience The fact that the problems which arise in cases such as the present have troubled the courts in many jurisdictions, both common law and civil law, and have prompted a variety of reactions, indicates that they are of their very nature difficult to accommodate within the ordinary principles of the law of obligations. It is true that our law of contract is widely seen as deficient in the sense that it is perceived to be hampered by the presence of an unnecessary doctrine of consideration and (through a strict doctrine of privity of contract) stunted through a failure to recognise a jus quaesitum tertio. But even if we lacked the former and possessed the latter, the ordinary law could not provide a simple answer to the problems which arise in the present case, which appear at first sight to require the imposition of something like a contractual liability which is beyond the scope of the ordinary jus quasitum tertio. In these circumstances, the effect of the special characteristics of any particular system of law is likely to be, as indeed appears from the authorities I have cited, not so much that no remedy is recognised, but rather that the system in question will choose its own special means for granting a remedy notwithstanding the doctrinal difficulties involved. We can, I believe, see this most clearly if we compare the English and German reactions to problems of this kind… I have already referred to problems created in the English law of contract by the doctrines of consideration and of privity of contract. These, of course, encourage us to seek a solution to problems of this kind within our law of tortious negligence. In German law, on the other hand, in which the law of delict does not allow for the recovery of damages for pure economic loss in negligence, it is natural that the judges should extend the law of contract to meet the justice of the case. In a case such as the present, which is concerned with a breach of duty owed by a professional man, A, to his client, B, in circumstances in which practical justice requires that a third party, C, should have a remedy against the professional man, A, in respect of damage which he has suffered by reason of the breach, German law may have recourse to a doctrine called Vertrag mit Schutzwirkung für Dritte (contract with protective effect for third parties), the scope of which extends beyond that of an ordinary contract for the benefit of a third party… In these cases, it appears that the court will examine whether the contracting parties intended to create a duty of care in favour of the third person…or whether there is to be inferred a protective obligation based on good faith… But any such inference of intention

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Sourcebook on Obligations and Remedies would, in English law, be beyond the scope of our doctrine of implied terms; and it is legitimate to infer that the German judges, in creating this special doctrine, were extending the law of contract beyond orthodox contractual principles. I wish next to refer to another German doctrine known as Drittschadensliquidation, which is available in cases of transferred loss (Schadensverlagerung)… Under this doctrine, to take one example, the defendant, A, typically a carrier, may be held liable to the seller of goods, B, for the loss suffered by the buyer, C, to whom the risk but not the property in the goods has passed. In such circumstances, the seller is held to have a contractual claim against the carrier in respect of the damage suffered by the buyer. This claim can be pursued by the seller against the carrier, but it can also be assigned by him to the buyer. If, exceptionally, the seller refuses either to exercise his right for the benefit of the buyer or to assign his claim to him, the seller can be compelled to make the assignment… At all events both doctrines have the effect of extending to the plaintiff the benefit of what is, in substance, a contractual cause of action; though, at least as seen through English eyes, this result is achieved not by orthodox contractual reasoning, but by the contractual remedy being made available by law in order to achieve practical justice. Transferred loss in English law I can deal with this topic briefly. The problem of transferred loss has arisen in particular in maritime law, when a buyer of goods seeks to enforce against a shipowner a remedy in tort in respect of loss of or damage to goods at his risk when neither the rights under the contract nor the property in the goods has passed to him (see Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd, The Aliakmon [1985] QB 350, p 399, per Robert Goff LJ; and [1986] AC 785, p 820, per Lord Brandon). In cases such as these…there was a serious lacuna in the law, as was revealed when all relevant interests in the City of London called for reform to make a remedy available to the buyers who under the existing law were without a direct remedy against the shipowners. The problem was solved, as a matter of urgency, by the Carriage of Goods by Sea Act 1992…see s 2(1) of the 1992 Act. Here is a sweeping statutory reform, powered by the needs of commerce, which has the effect of enlarging the circumstances in which contractual rights may be transferred by virtue of the transfer of certain documents. For present purposes, however, an important consequence is the solution in this context of a problem of transferred loss, the lacuna being filled by statute rather than by the common law. Moreover, this result has been achieved, as in German law, by vesting in the plaintiff, who has suffered the relevant loss, the contractual rights of the person who has stipulated for the carrier’s obligation but has suffered no loss. I turn next to English law in relation to cases such as the present. Here there is a lacuna in the law, in the sense that practical justice requires that the disappointed beneficiary should have a remedy against the testator’s solicitor in circumstances in which neither the testator nor his estate has in law suffered a loss… 706

Non-Contractual Obligations (1): Tort A contractual approach It may be suggested that, in cases such as the present, the simplest course would be to solve the problem by making available to the disappointed beneficiary, by some means or another, the benefit of the contractual rights (such as they are) of the testator or his estate against the negligent solicitor, as is, for example, done under the German principle of Vertrag mit Schutzwirkung fur Dritte. Indeed that course has been urged upon us by Professor Markesinis in ‘An expanding tort law’ (1987) 103 LQR 354, pp 396–97, echoing a view expressed by Professor Fleming in ‘Comparative law of torts’ (1986) 4 OJLS 235, p 241. Attractive though this solution is, there is unfortunately a serious difficulty in its way. The doctrine of consideration still forms part of our law of contract, as does the doctrine of privity of contract which is considered to exclude the recognition of a jus quaesitum tertio. To proceed as Professor Markesinis has suggested may be acceptable in German law, but in this country could be open to criticism as an illegitimate circumvention of these long established doctrines; and this criticism could be reinforced by reference to the fact that, in the case of carriage of goods by sea, a contractual solution to a particular problem of transferred loss, and to other cognate problems, was provided only by recourse to Parliament. Furthermore, I myself do not consider that the present case provides a suitable occasion for reconsideration of doctrines so fundamental as these… The Albazero principle Even so, I have considered whether the present problem might be solved by adding cases such as the present to the group of cases referred to by Lord Diplock in The Albazero, Albacruz (Cargo-owners) v Albazero (Owners) [1977] AC 774, pp 846–47. In these cases, a person may exceptionally sue in his own name to recover a loss which he has not in fact suffered, being personally accountable for any damages so recovered to the person who has in fact suffered the loss… Furthermore, in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 your Lordships’ House extended this group of cases to include a case in which work was done by the defendants under a contract with the first plaintiffs who, despite a contractual bar against assignment of their contractual rights without the consent of the defendants, had without consent assigned them to the second plaintiffs who suffered damage by reason of defective work carried out by the defendants. It was held that, by analogy with the cases referred to in The Albazero, the first plaintiffs could recover the damages from the defendants for the benefit of the second plaintiffs… Even so, the result was only to enable a person to recover damages in respect of loss which he himself had not suffered, for the benefit of a third party. In the present case, there is the difficulty that the third party (the intended beneficiary) is seeking to recover damages for a loss (expectation loss) which the contracting party (the testator) would not himself have suffered… In the last analysis…any such right would be contrary to the doctrine of privity of contract…

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Sourcebook on Obligations and Remedies The tortious solution I therefore return to the law of tort for a solution to the problem. For the reasons I have already given, an ordinary action in tortious negligence on the lines proposed by Megarry VC in Ross v Caunters [1980] Ch 297 must, with the greatest respect, be regarded as inappropriate, because it does not meet any of the conceptual problems which have been raised. Furthermore, for the reasons I have previously given, the Hedley Byrne principle cannot, in the absence of special circumstances, give rise on ordinary principles to an assumption of responsibility by the testator’s solicitor towards an intended beneficiary. Even so, it seems to me that it is open to your Lordships’ House, as in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, to fashion a remedy to fill a lacuna in the law and so prevent the injustice which would otherwise occur on the facts of cases such as the present. In the Lenesta Sludge case, as I have said, the House made available a remedy as a matter of law to solve the problem of transferred loss in the case before them. The present case is, if anything, a fortiori, since the nature of the transaction was such that, if the solicitors were negligent and their negligence did not come to light until after the death of the testator, there would be no remedy for the ensuing loss unless the intended beneficiary could claim. In my opinion, therefore, your Lordships’ House should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitors 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 negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor… I only wish to add that, with the benefit of experience during the 15 years in which Ross v Caunters has been regularly applied, we can say with some confidence that a direct remedy by the intended beneficiary against the solicitor appears to create no problems in practice. That is therefore the solution which I would recommend to your Lordships. As I see it, not only does this conclusion produce practical justice as far as all parties are concerned, but it also has the following beneficial consequences: (1) (2) (3)

(4) (5)

There is no unacceptable circumvention of established principles of the law of contract. No problem arises by reason of the loss being of a purely economic character. Such assumption of responsibility will of course be subject to any term of the contract between the solicitor and the testator which may exclude or restrict the solicitor’s liability to the testator under the principle in Hedley Byrne… Since the Hedley Byrne principle is founded upon an assumption of responsibility, the solicitor may be liable for negligent omissions as well as negligent acts of commission… I do not consider that damages for loss of an expectation are excluded in cases of negligence arising under the principle in Hedley Byrne, simply because the cause of action is classified as tortious. Such damages may

708

Non-Contractual Obligations (1): Tort in principle be recoverable in cases of contractual negligence, and I cannot see that, for present purposes, any relevant distinction can be drawn between the two forms of action. In particular, an expectation loss may well occur in cases where a professional man, such as a solicitor, has assumed responsibility for the affairs of another; and I for my part can see no reason in principle why the professional man should not, in an appropriate case, be liable for such loss under the Hedley Byrne principle… Conclusion For these reasons I would dismiss the appeal with costs. Lord Browne-Wilkinson: My Lords, I have read the speech of my noble and learned friend, Lord Goff of Chieveley, and agree with him that this appeal should be dismissed. In particular, I agree that your Lordships should hold that the defendant solicitors were under a duty of care to the plaintiffs arising from an extension of the principle of assumption of responsibility explored in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465. In my view, although the present case is not directly covered by the decided cases, it is legitimate to extend the law to the limited extent proposed using the incremental approach by way of analogy advocated in Caparo Industries plc v Dickman [1990] 2 AC 605… Lord Nolan: My Lords, I would dismiss this appeal. I would do so because… the respondents’ claim appears to me to satisfy the criteria laid down by the decisions of your Lordships’ House in Caparo Industries plc v Dickman [1990] 2 AC 605 and Murphy v Brentwood DC [1991] 1 AC 398. I reach this conclusion the more readily because… [t]o reverse the decision in Ross v Caunters at this stage would be, in my judgment, a disservice to the law. I agree with the views expressed in the unanimous judgments of the Court of Appeal… Lord Keith of Kinkel (dissenting):… To admit the plaintiffs’ claim in the present case would in substance, in my opinion, be to give them the benefit of a contract to which they were not parties. Further, there is, in my opinion, no decided case the grounds of decision in which are capable of being extended incrementally and by way of analogy so as to admit of a remedy in tort being made available to the plaintiffs… Upon the whole matter I have found the conceptual difficulties involved in the plaintiffs’ claim, which are fully recognised by all your Lordships, to be too formidable to be resolved by any process of reasoning compatible with existing principles of law… I would therefore allow the appeal. Lord Mustill (dissenting):… At first sight, it might seem that an approach somewhat similar to the concept of ‘transferred loss’, to which reference is made in some of the notable commentaries on foreign legal systems which have been placed before the House, might yield a solution on these lines. On

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Sourcebook on Obligations and Remedies reflection, however, I am satisfied that this is not so. As I understand it, the nature of a ‘transferred loss’ is revealed by its name. In situations where party A has a cause of action for a breach of duty by the defendant, but the loss resulting from the breach is suffered not by A himself but by B, the loss is ‘transferred’, or attributed, to A so as to enable him to recover damages for the breach. Essentially this is a fiction. There have been many such in English law over the centuries, in the main to its enrichment: always provided that they are recognised for what they are. It may be that some instances of an equivalent principle, albeit so far very isolated, are already to be found in English law: for example, the exceptional situations recorded by Lord Diplock in The Albazero, Albacruz (Cargo-owners) v Albazero (Owners) [1977] AC 774, p 846, and perhaps also Linden Gardens Trust Ltd v Lenestra Sludge Disposals Ltd [1994] 1 AC 85. These are, however, far distant from the present case, for they concerned situations where there was a single loss which might have been suffered indifferently by the obligee or by someone else, and which the courts were content to attribute to the obligee. Here, by contrast, to enable the estate, in title of the deceased testator, to recover a sum equivalent to the disappointed expectations of the beneficiaries would be to compensate it for a loss which it not only had not, but could not have, suffered. The plaintiffs’ complaint and the consequent damage are quite different from the complaint and the damage to which the estate succeeded on the death of the testator. To allow them to be treated as if they were the same would extend the boundaries of a contractual obligation far further than has ever been previously contemplated; and, I suspect further than has been contemplated even in the majority of those jurisdictions where concepts of privity are less rigorous than in our own. Furthermore, even if the doctrine were to be fully received into English law I am unable to visualise how it could help the plaintiffs here. As its name denotes it is concerned with the transfer of loss to the claimant from someone else. In the present case the intended beneficiaries do not need such a transfer, for they already have a loss. Their problem is to find a cause of action, and to achieve this a quite different kind of transfer would be required…

Notes and questions 1

2

3 4

To what extent was Donoghue v Stevenson (above, p 65) an example of: (a) Vertrag mit Schutzwirkung fur Dritte; (b) Drittschadensliquidation; (c) a contractual remedy being made available to a third party? Was Beswick v Besivick (above, pp 78, 249) a problem of transferred loss? What about Jackson v Horizon Holidays (p 220)? Could someone in Mrs Beswick’s position now sue, in her personal capacity, the nephew in damages under the Hedley Byrne principle? What about the family in Jackson? What does Lord Goff mean by ‘practical justice’? Why does the word ‘justice’ need the qualification? Did comparative law play a role in arriving at the solution in this case? If so, in what way?

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5 6

7

8

Does White v Jones in effect extend s 13 of the Supply of Goods and Services Act 1982 (above, p 391) to third parties? When a person dies, most causes of action (defamation remains an exception) vest in a new legal persona called the ‘estate’ (s 1 of the Law Reform (Miscellaneous Provisions) Act 1934, above, p 32). Is this an example, as one tort specialist once suggested, of the law allowing a ghost to sue and be sued? If so, what ‘damage’ can ghosts suffer? Why should ghosts not be allowed to sue in defamation? In allowing Mrs Beswick and Mrs White and her sister to sue, is not the law transferring a loss from the spiritual to the real world? Is this kind of fiction any less rational than the fiction discussed in Tesco v Nattrass (above, p 33)? Could not White v Jones have been decided in equity: for example, would it not have been possible to say that the solicitors, vis à vis the beneficiaries, were estopped by their negligence from denying the validity of the new will? Does White v Jones put the decision of the majority in Spartan Steel (above, p 194) in doubt? If not, why not? Marc Rich and Co v Bishop Rock Ltd [1996] 1 AC 211 House of Lords Lord Steyn:… In this case, the question is whether a classification society owed a duty of care to a third party, the owners of cargo laden on a vessel, arising from the careless performance of a survey of a damaged vessel by the surveyor of the classification society which resulted in the vessel being allowed to sail and subsequently sinking. It is a novel question. In England, no classification society, engaged by owners to perform a survey, has ever been held liable to cargo-owners on the ground of a careless conduct of any survey. Your Lordships have also been informed that there is apparently no reported case in which such a duty has been recognised in any foreign court. Given the fact that surveyors of classification societies have regularly performed occasional surveys of laden vessels for over a century and a half the novel nature of the problem may not be entirely without significance. Ultimately, however, the problem must be considered in accordance with our tort law as it now stands without any a priori disposition for or against the legal sustainability of such a claim… The requirements in physical damage cases Counsel for the cargo-owners submitted that in cases of physical damage to property in which the plaintiff has a proprietary or possessory interest the only requirement is proof of reasonable foreseeability. For this proposition he relied on observations of Lord Oliver of Aylmerton in Caparo Industries plc v Dickman [1990] 2 AC 605, pp 632–33. Those observations, seen in context, do not support his argument. They merely underline the qualitative difference between cases of direct physical damage and indirect economic loss. The materiality of that distinction is plain. But since the decision in Dorset Yacht Co Ltd v Home Office [1970] AC 1004, it has been settled law that the elements of foreseeability and proximity as well as considerations of fairness, justice

711

Sourcebook on Obligations and Remedies and reasonableness are relevant to all cases whatever the nature of the harm sustained by the plaintiff. Saville LJ explained, p 1077: whatever the nature of the harm sustained by the plaintiff, it is necessary to consider the matter not only by inquiring about foreseeability but also by considering the nature of the relationship between the parties; and to be satisfied that in all the circumstances it is fair, just and reasonable to impose a duty of care. Of course…these three matters overlap with each other and are really facets of the same thing. For example, the relationship between the parties may be such that it is obvious that a lack of care will create a risk of harm and that as a matter of common sense and justice a duty should be imposed… Again, in most cases of the direct infliction of physical loss or injury through carelessness, it is self-evident that a civilised system of law should hold that a duty of care has been broken, whereas the infliction of financial harm may well pose a more difficult problem. Thus, the three so called requirements for a duty of care are not to be treated as wholly separate and distinct requirements but rather as convenient and helpful approaches to the pragmatic question whether a duty should be imposed in any given case. In the end whether the law does impose a duty in any particular circumstances depends upon those circumstances… That seems to me a correct summary of the law as it now stands. It follows that I would reject the first argument of counsel for the cargo-owners. The duty of care deriving from Donoghue v Stevenson In the course of their submissions counsel took your Lordships on a tour of many of the landmark cases on negligence from Donoghue v Stevenson [1932] AC 562 to White v Jones [1995] 2 WLR 187. In this area the common law develops incrementally on the basis of a consideration of analogous cases where a duty has been recognised or desired. But none of the cases cited provided any realistic analogy to be used as a springboard for a decision one way or the other in this case. The present case can only be decided on the basis of an intense and particular focus on all its distinctive features, and then applying established legal principles to it. No doubt those principles are capable of further development but, for present purposes, the applicable principles can readily be identified and require no re-examination. The factors pointing towards the existence of a duty of care Not surprisingly, there are substantial factors pointing in favour and against the recognition of a duty of care. Counsel for the cargo-owners emphasised that except for the legal question whether a duty of care exists every element of the cargo-owners’ cause of action must be assumed to be satisfied. Specifically, he emphasised that it is assumed that it was foreseeable that carelessness of the surveyor in conducting the survey of the damaged vessel, or in the making of recommendations, was likely to expose the cargo actually on board the vessel to the danger of physical damage. The surveyor was brought in because there was concern for the safety of the vessel on the intended voyage. But exactly the same dangers would affect the hull and cargo on that voyage. Counsel for the cargo-owners argued that in the circumstances, and in particularly in the light of the fact that the cargo was 712

Non-Contractual Obligations (1): Tort on board when the surveyor carelessly performed his professional services, the element of proximity was satisfied. Turning to the question whether it is fair, just and reasonable to impose a duty of care on the classification society against the cargo-owners, he said that neither the contract of carriage between owners of the vessel and the cargo-owners nor the contract between the owners and the classification society militated against the recognition of a legal duty of care. Given that third parties, such as cargoowners, are known in practice to rely on the recommendations of classification societies, he submitted that it is fair, just and reasonable to recognise a legal duty of care in this case. Alternatively, he argued that the reliance placed on recommendations of classification societies by third parties in maritime trade warranted an inference of an assumption of responsibility by classification societies as against owners of cargo in cases when the survey work is performed while the cargo is on board. Lastly, he said that a recognition of a duty of care in such cases would promote the safety of life, ships and cargo at sea. All these factors and arguments are relevant and must be taken into account in the eventual decision. Other material factors It is now necessary to examine a number of other factors in order to put the case in its right perspective, and to consider whether some of those factors militate against the recognition of a duty of care. For convenience, these factors can be considered under six headings, namely (a) Did the surveyor’s carelessness cause direct physical loss? (b) Did the cargo-owners rely on the surveyor’s recommendations? (c) The impact of the contract between the shipowners and the owners of the cargo, (d) The impact of the contract between the classification society and the shipowners, (e) The position and role of NKK. (f) Policy factors arguably tending to militate against the recognition of a duty of care. Only after an examination of these features will it be possible to address directly the element of proximity and the question whether it is fair, just and reasonable to impose a duty of care. (a) Direct physical loss ? Counsel for the cargo-owners argued that the present case involved the infliction of direct physical loss. At first glance the issue of directness may seem a matter of terminology rather than substance. In truth it is a material factor. The. law more readily attaches the consequences of actionable negligence to directly inflicted physical loss than to indirectly inflicted physical loss. For example, if the NKK surveyor had carelessly dropped a lighted cigarette into a cargo hold known to contain a combustible cargo, thereby causing an explosion and the loss of the vessel and cargo, the assertion that the classification society was in breach of a duty of care might have been a strong one. That would be a paradigm case of directly inflicted physical loss. Counsel for the cargo-owners referred your Lordships to Clay v AJ Crump and Sons Ltd [1964] 1 QB 533 by way of support for the proposition that, in this case, there was a direct infliction of loss in the relevant sense. In that case an architect assured a demolition contractor that he could safely leave a wall standing. The demolition contractor acted on this advice. The wall collapsed on a workman. The workman sued the architect in tort. It was held that the 713

Sourcebook on Obligations and Remedies architect owed a duty of care to the workman. The architect was primarily responsible for leaving the wall in a dangerous condition. In the present case, the shipowner was primarily responsible for the vessel sailing in a seaworthy condition. The role of the NKK was a subsidiary one. In my view the carelessness of the NKK surveyor did not involve the direct infliction of physical damage in the relevant sense. That by no means concludes the answer to the general question. But it does introduce the right perspective on one aspect of this case. (b) Reliance It is possible to visualise direct exchanges between cargo-owners and a classification society, in the context of a survey on behalf of owners of a vessel laden with cargo, which might give rise to an assumption of responsibility in the sense explained by Lord Goff in Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761, pp 773, 789–91, in the passages previously identified. In the present case, there was no contact whatever between the cargo-owners and the classification society. Moreover, as Saville LJ pointed out in this case it is not even suggested that the cargo-owners were aware that NKK had been brought in to survey the vessel: see [1994] 1 WLR 1071, p 1082B. The cargo-owners simply relied on the owners of the vessel to keep the vessel seaworthy and to look after the cargo. Saville LJ, p 1082C and Balcombe LJ, p 1089A, regarded this feature as sufficient to demonstrate that the necessary element of proximity was absent. I would approach the matter differently. In my view, this feature is not necessarily decisive but it also contributes to placing the claim in the correct perspective. (c) The bill of lading contracts

… The dealings between shipowners and cargo-owners are based on a contractual structure, the Hague Rules, and tonnage limitation, on which the insurance of international trade depends: Dr Malcolm Clarke, ‘Misdelivery and time bars’ [1990] LMCLQ 314. Underlying it is the system of double or overlapping insurance of cargo. Cargo-owners take out direct insurance in respect of the cargo. Shipowners take out liability risks insurance in respect of breaches of their duties of care in respect of the cargo. The insurance system is structured on the basis that the potential liability of shipowners to cargoowners is limited under the Hague Rules and by virtue of tonnage limitation provisions. And insurance premiums payable by owners obviously reflect such limitations on the shipowners’ exposure. If a duty of care by classification societies to cargo-owners is recognised in this case, it must have a substantial impact on international trade. In his article, Mr Cane described the likely effect of imposing such duty of care as follows [1994] LMCLQ 363, p 375: Societies would be forced to buy appropriate liability insurance unless they could bargain with shipowners for an indemnity. To the extent that societies were successful in securing indemnities from shipowners in respect of loss suffered by cargo-owners, the limitation of the liability of shipowners to cargo-owners under the Hague(-Visby) Rules would

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Non-Contractual Obligations (1): Tort effectively be destroyed. Shipowners would need to increase their insurance cover in respect of losses suffered by cargo-owners; but at the same time, cargo-owners would still need to insure against losses above the Hague-Visby recovery limit which did not result from actionable negligence on the part of a classification society. At least if classification societies are immune from non-contractual liability, they can confidently go without insurance in respect of third-party losses, leaving third parties to insure themselves in respect of losses for which they could not recover from shipowners. Counsel for the cargo-owners challenged this analysis. On instructions he said that classification societies already carry liability risks insurance. That is no doubt right since classification societies do not have a blanket immunity from all tortious liability. On the other hand, if a duty of care is held to exist in this case, the potential exposure of classification societies to claims by cargoowners will be large. That greater exposure is likely to lead to an increase in the cost to classification societies of obtaining appropriate liability risks insurance. Given their role in maritime trade, classification societies are likely to seek to pass on the higher cost to owners. Moreover, it is readily predictable that classification societies will require owners to give appropriate indemnities. Ultimately, shipowners will pay. The result of a recognition of a duty of care in this case will be to enable cargoowners, or rather their insurers, to disturb the balance created by the Hague Rules and Hague-Visby Rules as well as by tonnage limitation provisions, by enabling cargo-owners to recover in tort against a peripheral party to the prejudice of the protection of shipowners under the existing system. For these reasons I would hold that the international trade system tends to militate against the recognition of the claim in tort put forward by the cargo-owners against the classification society. (d) The contract between the classification society and shipowners Mr Aikens, who appears for NKK, argued that the contract between the shipowners and the classification society must be a factor against the recognition of the suggested duty of care. He referred to Pacific Associates Inc v Baxter [1990] 1 QB 993. That was a case where the Court of Appeal held that the network of contracts between a building owner, the head contractor, subcontractors and even suppliers militated against imposing duties in tort on peripheral parties. In the present case, the classification society was not involved in such a web of contracts. (e) The position and role of NKK The fact that a defendant acts for the collective welfare is a matter to be taken into consideration when considering whether it is fair, just and reasonable to impose a duty of care: Hill v Chief Constable of West Yorkshire [1989] AC 53; Elguzouli-Daf v Commissioner of Police for the Metropolis [1995] 2 WLR 173. Even if such a body has no general immunity from liability in tort, the question may arise whether it owes a duty of care to aggrieved persons, and, if so, in what classes of case, for example, only in cases involving the direct infliction of physical harm or on a wider basis.

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Sourcebook on Obligations and Remedies In W Angliss and Co (Australia) Proprietary Ltd v Peninsular and Oriental Steam Navigation Co [1927] 2 KB 456, p 462, Wright J (later to become Lord Wright)— a great judge with special expertise in maritime law and practice—described classification societies, such as Lloyd’s, as occupying ‘a public and quasijudicial position’. There is a refrain of this idea to be found in Singh and Colinvaux, Shipowners (British Shipping Laws), 1967, Vol 13, pp 167–69, paras 391–94, where the editors describe a classification society as an impartial critic and arbiter (as opposed to arbitrator). These observations are helpful but not definitive. Nowadays one would not describe classification societies as carrying on quasi-judicial functions. But it is still the case that (apart from their statutory duties) they act in the public interest. The reality is simply that NKK—and I am deliberately reverting to the evidence about NKK—is an independent and non-profit-making entity, created and operating for the sole purpose of promoting the collective welfare, namely the safety of lives and ships at sea. In common with other classification societies NKK fulfils a role which in its absence would have to be fulfilled by States. And the question is whether NKK, and other classification societies, would be able to carry out their functions as efficiently if they become the ready alternative target of cargo-owners, who already have contractual claims against shipowners. In my judgment, there must be some apprehension that the classification societies would adopt, to the detriment of their traditional role, a more defensive position. (f) Policy factors Counsel for the cargo-owners argued that a decision that a duty of care existed in this case would not involve wide ranging exposure for NKK and other classification societies to claims in tort. That is an unrealistic position. If a duty is recognised in this case there is no reason why it should not extend to annual surveys, docking surveys, intermediate surveys, special surveys, boiler surveys, and so forth. And the scale of NKK’s potential liability is shown by the fact that NKK conducted an average of 14,500 surveys per year over the last five years. At present, the system of settling cargo claims against shipowners is a relatively simple one. The claims are settled between the two sets of insurers. If the claims are not settled, they are resolved in arbitration or court proceedings. If a duty is held to exist in this case as between the classification society and cargo-owners, classification societies would become potential defendants in many cases. An extra layer of insurance would become involved. The settlement process would inevitably become more complicated and expensive. Arbitration proceedings and court proceedings would often involve an additional party. And often similar issues would have to be canvassed in separate proceedings since the classification societies would not be bound by arbitration clauses in the contracts of carriage. If such a duty is recognised, there is a risk that classification societies might be unwilling from time to time to survey the very vessels which most urgently require independent examination. It will also divert men and resources from the prime function of classification societies, namely to save life and ships at sea. These factors are, by themselves, far from decisive. But in an overall assessment of the case they merit consideration.

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Non-Contractual Obligations (1): Tort Is the imposition of a duty of care fair, just and reasonable? Like Mann LJ in the Court of Appeal [1994] 1 WLR 1071, p 1085H, I am willing to assume (without deciding) that there was a sufficient degree of proximity in this case to fulfil that requirement for the existence of a duty of care. The critical question is therefore whether it would be fair, just and reasonable to impose such a duty. For my part, I am satisfied that the factors and arguments advanced on behalf of cargo-owners are decisively outweighed by the cumulative effect, if a duty is recognised, of the matters discussed in paras (c), (e) and (f), that is, the outflanking of the bargain between shipowners and cargo-owners; the negative effect on the public role of NKK; and the other considerations of policy. By way of summary, I look at the matter from the point of view of the three parties concerned. I conclude that the recognition of a duty would be unfair, unjust and unreasonable as against the shipowners who would ultimately have to bear the cost of holding classification societies liable, such consequence being at variance with the bargain between shipowners and cargo-owners based on an internationally agreed contractual structure. It would also be unfair, unjust and unreasonable towards classification societies, notably because they act for the collective welfare and unlike shipowners they would not have the benefit of any limitation provisions. Looking at the matter from the point of view of cargo-owners, the existing system provides them with the protection of the Hague Rules or Hague-Visby Rules. But that protection is limited under such Rules and by tonnage limitation provisions. Under the existing system any shortfall is readily insurable. In my judgment, the lesser injustice is done by not recognising a duty of care. It follows that I would reject the primary way in which counsel for the cargo-owners put his case. Assumption of responsibility Given that the cargo-owners were not even aware of NKK’s examination of the ship, and that the cargo-owners simply relied on the undertakings of the shipowners, it is in my view impossible to force the present set of facts into even the most expansive view of the doctrine of voluntary assumption of responsibility. Conclusion For the reasons already given I would dismiss the appeal. Lord Lloyd (dissenting): My Lords, on 20 February 1986 The Nicholas H was in the course of a loaded voyage from South America to Italy when a crack appeared in the vessel’s hull. On 22 February she anchored off San Juan, Puerto Rico, where further cracks developed. On 25 February Mr J Ducat, a non-exclusive surveyor employed by Nippon Kaiji Kyokai (‘NKK’) was called in by the master, at the instigation of the United States Coastguards. He recommended permanent repairs, for which, as it happened, facilities were available locally. But the owners baulked at this. It would have involved dry docking, with consequential discharge and reloading of the cargo. Mr Ducat must have been persuaded to change his mind. For, on 2 March 1986, he pronounced that the vessel was fit to proceed on her intended voyage after completing some temporary repairs to the shell plating. She sailed the same

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Sourcebook on Obligations and Remedies day. On 3 March, the welding in way of the temporary repairs cracked. On 9 March, the vessel sank. Fortunately there was no loss of life. For present purposes we are asked to assume that the loss of the ship and cargo was the result of Mr Ducat’s negligence in altering his initial recommendation, and permitting the vessel to continue on her voyage without effecting permanent repairs. We are also asked to assume: (1) that the damage which the plaintiff cargo-owners have suffered is physical damage to their cargo; and (2) that this damage should have been foreseen as the likely consequence of Mr Ducat’s negligence. Nevertheless, the Court of Appeal has held that NKK are not liable for Mr Ducat’s negligence, on the ground that he owed no duty of care to the owners of the cargo. On the face of it, this would seem a strange result, unless classification societies are entitled to claim immunity in tort on policy grounds, like the barrister in Rondel v Worsley [1969] 1 AC 191, or the police officer in Hill v Chief Constable of West Yorkshire [1989] AC 53. But Mr Aikens for NKK specifically disclaimed any such general immunity. He invited the House to approach the appeal on the facts of this particular case, as Hirst J had done at first instance, and apply ordinary, well established principles of law. Other claims might be brought against classification societies hereafter, which would have to be decided on their own facts; they were, he said, of no assistance in deciding the present case. I am, for my part, well content to accept Mr Aikens’s invitation… With great respect…the ‘intricate regime’ of the Hague Rules to which all three judges in the Court of Appeal referred, has nothing to do with whether it is fair, just and reasonable that Mr Ducat and his employers should be liable to cargo for their assumed negligence. The irrelevance of the Hague Rules is underlined by the further consideration that the limitation provisions on which the shipowners relied to limit their liability, and which is said to contrast with the unlimited liability sought to be imposed on the NKK, is not derived from the Hague Rules at all, but from s 503 of the Merchant Shipping Act 1894 (57 & 58 Vict c 60), shortly to be re-enacted as s 185 of and Schedule 7 to the Merchant Shipping Act 1995. If, therefore, as I think, the incorporation of the Hague Rules in this particular contract of carriage must be left out of account, the Court of Appeal’s judgment on this part of the case can only be supported if the mere existence of a contract of carriage under which the shipowners can limit their liability, is inconsistent with, or militates against, the imposition of unlimited liability on a third party in tort. But why should this be so? This was surely the very error which was exposed in Donoghue v Stevenson [1932] AC 562 and Grant v Australian Knitting Mills Ltd [1936] AC 85. Mr Aikens sought to distinguish Grant’s case on the grounds that: There was no internationally recognised code…for regulating the rights and duties of the party primarily responsible for taking care, which in that case the House of Lords clearly considered was the manufacturer himself: see, per Saville LJ, p 1081. I accept, of course, that there is no internationally recognised code governing the manufacture of underpants. But for the reasons already mentioned, I do not regard this as a relevant consideration in the case of shipowners. More 718

Non-Contractual Obligations (1): Tort important, I am not sure what is meant by saying that the shipowners are ‘primarily’ responsible for taking care, and that this militates against the need to impose a similar duty on NKK. Of course, the shipowners are primarily— indeed solely—responsible for getting the cargo to its destination; and of course the shipowners must take proper care of the cargo as bailees, subject to the terms of any contract of carriage between the parties. But I am unable to see why the existence of the contract of carriage should ‘militate against’ a duty of care being owed by a third party in tort. The function of the law of tort is not limited to filling in gaps left by the law of contract, as this House has recently re-affirmed in Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761, p 787, per Lord Goff of Chieveley. The House rejected an approach which treated the law of tort as supplementary to the law of contract, that is, as providing for a tortious remedy only where there is no contract. On the contrary, the law of tort is the general law, out of which the parties may, if they can, contract… How…does the position of a surveyor, called in by shipowners because the vessel is leaking, differ from that of the shiprepairer? The answer is that it differs not at all. If it is fair, just and reasonable to hold a shiprepairer liable to an unlimited extent for damage to cargo on board caused by his negligence, even though the damage does not occur until after the vessel has sailed, why should it not be fair, just and reasonable in the case of a surveyor? Suppose in the case of the inspection cover, the surveyor negligently tells the fitter that four bolts are sufficient to secure the cover, instead of the usual six, how could it be fair, just and reasonable that the surveyor should not be liable? On what principle would the fitter be liable in such circumstances, when he acts unadvised, but not the surveyor who advises him? No ‘coherent system of law’, to use the language of Sir Donald Nicholls VC in White v Jones [1993] 3 WLR 730, p 740, should permit such a result. It follows that I cannot share the view of the Court of Appeal that the existence of a contract of carriage between the cargo-owners and the shipowners ‘militates against’ the liability of the surveyor in tort. To my mind, the existence of the contract is as irrelevant as is the fact that in this particular case it happened to incorporate the Hague Rules… Other considerations I now come back to ‘fair, just and reasonable’ and consider various other points made in argument before your Lordships. First, we were informed that there has never yet been a successful claim against a classification society in tort. I do not regard this as significant. A similar argument was advanced in The Tojo Mam [1972] AC 243, where it was held by this House for the first time that salvors were liable for damage caused by the negligence of their employees, even though the salvage operation was successful. The point was described by Lord Morris of Borth-y-Gest, p 272, as having far-reaching consequences for salvors and shipowners alike. But the novelty of the point was brushed aside. Next, it was said that it would not be fair, just and reasonable as between shipowners and the classification society that the classification society should incur unlimited liability in tort, in contrast to shipowners who are entitled to limit under the equivalent of s 503 of the Merchant Shipping Act 1894. I have 719

Sourcebook on Obligations and Remedies already touched on this point. A similar point arose in The Tojo Maru. One of the questions in that case was whether salvors were entitled to limit their liability under s 503. It was held that they were not. Lord Reid said, p 270: I am bound to say that I have some sympathy with the respondents on the issue of limitation of liability. But a court must go by the provisions which have been agreed and enacted. If the special position of salvors was unforeseen, then we must await alteration of those provisions if those concerned see fit to make some alteration. Four years later, in 1976, the limitation provisions were extended to cover salvors. It was never suggested in The Tojo Maru that the inability of salvors to limit their liability was a ground for holding them immune from the consequences of their negligence. Nor was any such suggestion made in Adler v Dickson [1955] 1 QB 158 or Midland Silicones Ltd v Scruttons Ltd [1962] AC 446. Then it was pointed out that classification societies are charitable nonprofitmaking organisations, promoting the collective welfare and fulfilling a public role. But why should this make any difference? Remedies in the law of tort are not discretionary. Hospitals also are charitable non-profit-making organisations. But they are subject to the same common duty of care under the Occupiers’ Liability Acts 1957 and 1984 as betting shops or brothels. Take again the position of salvors. They also fulfil an important public role. It was argued in The Tojo Maru that salvors should receive every proper inducement on grounds of public policy, and that to hold them liable for the negligence of their servants in the course of salvage operations would only serve to discourage their beneficial activities. This is very similar to the argument advanced in the present case. It did not succeed in The Tojo Maru, and should not, I think, succeed here. It is not as if NKK are unable to afford the cost of insurance. It is the third largest classification society. ABS, another nonprofitmaking classification society, had a net income of £11 million in 1990 on operating revenues of £122 million: see Lux, Classification Societies, 1993, p 53. In para 21 (c) of his statement, Mr Mitsuo Abe, Executive Vice-President of NKK, doubts whether NKK would be able to survive if they were held liable for claims such as the present. I have to say that I view this assertion with a good deal of scepticism. Lastly, it is said (although this was not reflected in Mr Aikens’s written submission or his oral argument) that to impose liability on classification societies would involve an extra layer of insurance, and that this would be wasteful and inconvenient. There was no evidence that classification societies do not already insure. The point is simply not mentioned in Mr Mitsuo Abe’s statement. Traditionally, the courts have regarded the availability of insurance as irrelevant to the question whether a duty of care should be imposed: see Markesinis and Deakin, Tort Law, 3rd edn, 1994, p 114. Even if this traditional view is gradually being displaced, it cannot be right that the courts should reach conclusions on the availability of insurance, or the impact of imposing a fresh liability on the insurance market generally, without proper material. In Caparo Industries plc v Dickman [1989] QB 653, it was argued in the Court of Appeal that auditors, if held liable in negligence to an individual shareholder, would find it difficult to obtain professional indemnity cover, and that the 720

Non-Contractual Obligations (1): Tort cost, which would be high, would have to be passed on. Bingham LJ, p 689, found it hard to assess this argument in the absence of any evidence or inquiry. Taylor LJ said, p 703: It is contended that auditors would find it difficult and cripplingly expensive to obtain insurance cover. It is even suggested accountants might decline to be appointed as auditors. No evidence was adduced on this aspect of the case and if I am right about the difficulties and disincentives affecting possible claimants the insurance problem should not be insurmountable. I agree with Bingham LJ and Taylor LJ that the court should be wary of expressing any view on the insurance position without any evidence on the point, and should not speculate as to the effect, if any, of an extra layer of insurance on the cost of settling claims. For what it may be worth, I would for my part doubt whether it would make much difference. More generally, I suspect that a decision in favour of the cargo-owners would be welcomed by members of the shipping community at large, who are increasingly concerned by the proliferation of sub-standard classification societies: see Lux, Classification Societies, p viii. Conclusion The overriding consideration in the present case is that the cargo-owners, as we are asked to assume, have suffered physical damage to their cargo, and such damage was caused by Mr Ducat’s negligence, for which NKK are responsible on ordinary principles of respondeat superior. Since the celebrated formulation of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, p 751, a series of important cases in the Court of Appeal and House of Lords have signalled the ‘retreat from Anns’, culminating in the decision of the House in Murphy v Brentwood District Council [1991] 1 AC 398. Almost all these decisions have concerned claims to recover damages for economic loss, unassociated with physical damage or personal injury. The most important exception was The Hua Lien [1991] 1 Lloyd’s Rep 309. In that case Lord Brandon of Oakbrook said, p 328: In their Lordships’ view, however, the essential feature of the present case is that the damage sued for is not purely economic loss but ordinary physical damage to property. It follows that the decisions relating to claims for purely economic loss to which their Lordships have referred have no relevance to the present case. The concept of proximity, and the requirement that it should be fair, just and reasonable to impose a duty of care on the defendant in the particular circumstances of the case, have been developed as a means of containing liability for pure economic loss under the principles stated in Donoghue v Stevenson [1932] AC 562. At the same time, and by a parallel movement in the opposite direction, the House has in two recent decisions reaffirmed liability for economic loss based on the principle of assumption of responsibility as expounded by the House in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465, and going back beyond that decision to Nocton v Lord Ashburton [1914] AC 932. None of these difficulties arise in 721

Sourcebook on Obligations and Remedies the present case. We are not here asked to extend the law of negligence into a new field. We are not even asked to make an incremental advance. All that is required is a straightforward application of Donoghue v Stevenson. The ground is already marked out by cases such as Haseldine v CA Daw and Son Ltd [1941] 2 KB 343; Clay v A] Crump and Sons Ltd [1964] 1 QB 533; Voli v Inglewood Shire Council (1963) 110 CLR 74; and Muirhead v Industrial Tank Specialities Ltd [1986] QB 507, p 532. In physical damage cases, proximity very often goes without saying. Where the facts cry out for the imposition of a duty of care between the parties, as they do here, it would require an exceptional case to refuse to impose a duty on the ground that it would not be fair, just and reasonable. Otherwise, there is a risk that the law of negligence will disintegrate into a series of isolated decisions without any coherent principles at all, and the retreat from Anns will turn into a rout. Having given Mr Aikens’ arguments my best consideration, I can see no good reason why, on the facts of this case, ordinary well established principles of the law of negligence should not be allowed to take effect. Accordingly, I would for my part allow the appeal, and restore the order of Hirst J. [Lords Keith, Jauncey and Browne-Wilkinson agreed with Lord Steyn.]

Notes and questions 1 2 3 4 5 6

Is it really satisfactory that liability in negligence should be imposed only where a court thinks it ‘fair, just and reasonable’? What is the relationship between ‘fair, just and reasonable’ and ‘policy’? To what extent is Marc Rich a contract case? To what extent does Marc Rich destroy the distinction made in the tort of negligence between physical damage and pure financial loss? Are there now special rules for solicitors and classification societies? Suing ship surveyors is relatively rare in comparison with suing house surveyors and valuers: see, for example, Banque Bruxelles v Eagle Star, p 353. Is it always negligence for a surveyor or valuer to undervalue or over-value a building? Roe v Minister of Health [1954] 2 QB 66 Court of Appeal (See p 393.) Thake v Maurice [1986] QB 644 Court of Appeal (See p 547.) Goodwill v British Pregnancy Advisory Service [1996] 1 WLR 1397 Court of Appeal This was an action for damages in respect of an unwanted pregnancy and birth against an organisation which had arranged a vasectomy for a man who subsequently had sexual relations with the plaintiff. The action was struck out by the Court of Appeal.

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Non-Contractual Obligations (1): Tort Peter Gibson LJ: The law of negligence and, in particular, that part relating to the recovery of damages for economic loss caused by negligent statements or advice, has undergone a number of shifts in direction. The attempt in Anns v Merton London Borough Council [1978] AC 728 to lay down a principle of general applicability did not find favour for long. Instead, whilst certain key ingredients of the tort, such as foreseeability, proximity, assumption of responsibility and reliance have been identified, it has been held that the law should develop incrementally by reference to or analogy with established categories of situations where the law has recognised that a duty of care arises and a plaintiff may recover for his loss. The situation in the present case, it is accepted on behalf of the plaintiff, does not fall within an established category, but, it is suggested, it requires only a modest step from an established category and one which should on the favoured incremental approach now be taken to afford the plaintiff a remedy in tort. That is challenged by the defendants who say that it requires a giant and impermissible leap from an established category and that not even arguably was any duty of care owed by these defendants to this plaintiff in the circumstances of this case. This is an appeal by the defendants, British Pregnancy Advisory Service, from the order of His Honour Judge Paul Clark in the Oxford County Court on 27 March 1995. He refused to strike out the claims of the plaintiff, Mrs Goodwill. The application to strike out had been made under Ord 13 r 5 of the County Court Rules on grounds which can be divided into two. One was that the amended particulars of claim disclosed no reasonable cause of action. The other was that those pleadings were frivolous or vexatious or an abuse of the process of the court. I take the essence of the second ground to be that the plaintiffs claims were manifestly unsustainable. The judge gave leave to appeal. The facts alleged in the particulars of claim dated 30 March 1992 as further and better particularised on 28 August 1992 and as amended on 16 August 1993 can be summarised as follows. The defendants are a charity engaged in the arrangement and provision of sterilisation operations including vasectomies and associated counselling services. The defendants arranged for a vasectomy to be performed on a Mr MacKinlay on 28 November 1984. A little over three months later two semen samples were provided by Mr MacKinlay to the defendants. On 2 April 1985, the defendants informed him by letter that the tests on the samples had proved negative, that the vasectomy had been successful and that Mr MacKinlay no longer needed to use any other method of contraception. In March 1988 the plaintiff, Mrs Goodwill, then a 40 year old teacher, commenced a sexual relationship with Mr MacKinlay. The plaintiff knew of his vasectomy and of its purported success and permanency in that in March 1988 he volunteered to her that he did not want to have any more children and that, accordingly, he had had a vasectomy and could not have any more children. Induced by and in reliance on that knowledge she ceased to use a contraceptive coil in May 1988 and no other method of contraception was used by him or her. Prior to January 1989, the vasectomy underwent spontaneous reversal, thereby causing him to regain his fertility. She became pregnant by him in or about January 1989. She learnt on 26 April 1989 that she was pregnant. It was then too late for an abortion. She gave birth to a daughter on 5 November 1989… 723

Sourcebook on Obligations and Remedies The plaintiff claimed that she had suffered loss and damage consisting of the expenses at her daughter’s birth, the cost of bringing her daughter up and the loss of income due to the reduction of her working hours. At 30 March 1992 the accrued damages were estimated at nearly £11,500 and further damages were alleged to be accruing at a little over £10,000 per annum. There is thus no claim other than for financial loss… No reasonable cause of action Miss Booth put her case on duty of care in this way. A, a doctor, voluntarily agrees to provide a service for B, which includes performing an operation and giving informed advice about the possible consequences of that operation. The purpose of that operation is to render B permanently sterile. It is reasonably foreseeable and accepted that the doctor owes a duty of care to that person’s current partner. It is further foreseeable in today’s society that the patient may have sexual relations with another partner. It is therefore merely an incremental extension of the law to extend to that partner the duty owed by A to B when A provides the service for B. In support of that submission Miss Booth referred to the familiar remarks of Lord Morris of Borth-y-Gest in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465, pp 502–03: My Lords, I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information and advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise. In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, p 178, Lord Goff of Chieveley referred to that passage and to certain others from the speech of Lord Devlin in the Hedley Byrne case as stating the governing principles. Miss Booth also relied on White v Jones [1995] 2 AC 207 as providing an example of an analogous situation in which a duty of care has been recognised. In that case, a solicitor who was instructed to prepare a will but delayed in carrying out his instructions was held to owe a duty of care to the intended beneficiaries. She submitted that a woman who had a sexual relationship with Mr MacKinlay is in an analogous position to the intended beneficiaries under the will, because just as the solicitor was employed to confer a benefit (in the form of bequests) on a particular class of people (the beneficiaries), so the doctor is employed to confer a benefit (not getting pregnant) on a particular class of people (women who have sexual relationships with Mr MacKinlay). I admire the ingenuity of the suggested analogy, but I have to say that I am wholly unpersuaded that the analogy is real.

724

Non-Contractual Obligations (1): Tort It must be recognised that White v Jones belonged to an unusual class of cases. A remedy in tort was fashioned to overcome the rank injustice that the only persons who might have a valid claim (the testator and his estate) had suffered no loss and the only persons who had suffered a loss (the disappointed beneficiaries) had no claim. I do not see any comparable injustice in the present case. On the contrary, it might be said that to give a remedy to the plaintiff against the defendants in the circumstances of the present case would not be fair, just or reasonable. The doctor who performs a vasectomy on a man on his instructions cannot realistically be described as employed to confer a benefit on the man’s sexual partners in the form of avoiding pregnancy. Still less can he be so described when he is giving advice on tests after the operation. The doctor is concerned only with the man, his patient, and possibly that man’s wife or partner if the doctor intends her to receive and she receives advice from the doctor in relation to the vasectomy and the subsequent tests. Whether the avoidance of pregnancy is a benefit or a disadvantage to a sexual partner of the man will depend on her circumstances. If the existence of that partner is known to the doctor and the doctor is aware that she wishes not to become pregnant by the man and the vasectomy is carried out to meet her wish as well as the man’s wish, it may be said that the doctor is employed to confer that benefit on her. But that is not this case. In any event in this case no complaint is made of the vasectomy: it is only the advice following the vasectomy that the doctor gave the man that is the subject of complaint. I cannot accept that the present is a White v Jones type of case at all. Miss Booth also drew our attention to Thake v Maurice [1986] QB 644 which is the case closest to the present one on its facts. That was a successful action in contract and in tort by a husband and wife whom the defendant surgeon had failed to warn of the slight risk that the husband’s vasectomy might not leave him permanently sterile. But in that case, advice on the husband’s vasectomy was given directly to him and his wife, and both signed forms consenting to the vasectomy. There could be no doubt therefore but that a duty of care was owed by the surgeon to the wife when the surgeon advised the husband and the wife that they might reasonably take no further contraceptive precautions. In my judgment, for the plaintiff to have a sustainable case in negligence against the defendants in respect of a financial loss arising from reliance on advice given by the defendants, it must appear that arguably the governing principles laid down in the Hedley Byrne case are satisfied… In my judgment on the plaintiff’s pleadings, the defendants were not in a sufficient or any special relationship with the plaintiff such as gives rise to a duty of care. I cannot see that it can properly be said of the defendants that they voluntarily assumed responsibility to the plaintiff when giving advice to Mr MacKinlay. At that time they had no knowledge of her, she was not an existing sexual partner of Mr MacKinlay but was merely, like any other woman in the world, a potential future sexual partner of his, that is to say a member of an indeterminately large class of females who might have sexual relations with Mr MacKinlay during his lifetime. I find it impossible to believe that the policy of the law is or should be to treat so tenuous a relationship between the adviser and the advisee as giving rise to a duty of care, and there is no analogous situation recognised as giving rise to that duty…

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Sourcebook on Obligations and Remedies Thorpe LJ: I agree that the defendant is entitled to succeed on the application of 25 January 1995 on both its grounds for the reasons given by Peter Gibson LJ. Viewing the plaintiffs case as pleaded it does not survive the application of the six tests suggested by Neil LJ in James McNaughton Papers Group Ltd v Hicks Anderson Co [1991] 2 QB 113, p 125. In particular, to use the terminology of the third test, the plaintiff as advisee is not entitled to look to the third party and through him to the adviser for guidance. Indeed, use of that terminology only serves to demonstrate how tenuous is the relationship between the plaintiff and the defendant. The reality is that the doctor advised Mr McKinlay. They are in reality the adviser and the advisee. The plaintiff is no nearer the doctor adviser than one who some three and half years after the operation commenced a sexual relationship with his patient. Equally, the class to which the plaintiff belongs is in my judgment potentially excessive in size and uncertain in character. Thirdly the state of knowledge of the adviser militates against the plaintiff. The doctor in the circumstances regards himself as advising the patient and, if a married man, the patient’s wife. It cannot be said that he knows or ought to know that he also advises any future sexual partners of his patient who chance to receive his advice at second hand. Presented with such a set of facts a doctor is entitled to scorn the suggestion that he owes a duty of care to such a band so uncertain in nature and extent and over such an indefinite future span. Finally I consider that the plaintiff fails the test of reliance. In reality a woman exploring the development of a sexual relationship with a new partner takes much on trust before experience corroborates or exposes his assurances. Her responsibility is to protect herself against unwanted conception and to take independent advice on whatever facts he presents. Thus, I conclude that on an analysis of the pleadings alone the plaintiffs claim discloses no reasonable cause of action. I also conclude that a further analysis of the pleadings and the exchanged witness statement entitles the defendant to succeed on the second ground. The plaintiffs statement is commendable for its candour but it is fatal to her case in that it establishes the following important facts, (i) In about April 1988 at the commencement of the sexual relationship and when protected by a coil, the plaintiff sought independent medical advice, (ii) Her doctor informed her that there was an extremely remote chance of conception despite her partner’s vasectomy. Nevertheless she had the coil removed, (iii) On 4 April 1989 she consulted her doctor thinking that she might be pregnant but accepted his advice that she possibly had an ovarian cyst, (iv) On 21 June when informed of her pregnancy she was relieved and pleased. Subsequently she quailed at the consequences but, although termination was still medically open, she could not accept it psychologically and emotionally. Accordingly she elected to go on to give birth. Those facts simply demonstrate how far fetched is this claim…

Questions 1 2

Did the plaintiff fail because there was no special relationship between her and the defendant? Or did she fail on some other ground? Would the plaintiff’s refusal to have an abortion have, in itself, undermined her claim against the defendant? 726

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(b) Local authorities X (Minors) v Bedfordshire County Council [1995] 2 AC 633 House of Lords (See also p 759.) This was a consolidated appeal in respect of a number of actions for damages brought against local authorities for damage allegedly resulting from their failure to carry out their child protection and education duties properly. The local authorities succeeded in having the actions struck out as disclosing no cause of action and this striking out was upheld by the House of Lords on the ground that the local authorities owed no duty of care to the claimants. Lord Browne-Wilkinson: My Lords, in each of these five appeals, the plaintiffs, by their statements of claim, allege they have been injured by public authorities in the carrying out of functions imposed upon them by statute. The defendants have applied to strike out the claims on the grounds that they disclose no cause of action. In the first group of appeals (the Bedfordshire case and Newham case), the allegations are that public authorities negligently carried out, or failed to carry out, statutory duties imposed on them for the purpose of protecting children from child abuse. In the second group (the Dorset case, the Hampshire case and the Bromley case), the plaintiffs allege that the local authorities failed to carry out duties imposed upon them as education authorities by the Education Acts 1944 to 1981 in relation to children with special educational needs. Although each case is different, all of them raise in one form or another the difficult and important question to what extent authorities charged with statutory duties are liable in damages to individuals injured by the authorities’ failure properly to perform such duties. Such liability may be alleged to arise in a number of different ways: it can be based on breach of statutory duty simpliciter, on the failure to carry out the statutory duty without due care or on a breach of a common law duty of care. In considering the decided cases, and consequently the argument submitted on these appeals, it is not always clear which basis of liability is under consideration. I therefore propose, before turning to the individual appeals, to attempt a more general analysis of the problems raised in this field so far as they affect these cases. General approach Introductory—public and private law The question is whether, if Parliament has imposed a statutory duty on an authority to carry out a particular function, a plaintiff who has suffered damage in consequence of the authority’s performance or non-performance of that function has a right of action in damages against the authority. It is important to distinguish such actions to recover damages, based on a private law cause of action, from actions in public law to enforce the due performance of statutory duties, now brought by way of judicial review. The breach of a public law right by itself gives rise to no claim for damages. A claim for damages must be based on a private law cause of action. The distinction is important because a number of earlier cases (particularly in the field of education) were concerned with the enforcement by declaration and 727

Sourcebook on Obligations and Remedies injunction of what would now be called public law duties. They were relied on in argument as authorities supporting the plaintiffs’ claim for damages in this case: I will consider them in a little more detail later. Private law claims for damages can be classified into four different categories, viz: (A) actions for breach of statutory duty simpliciter (that is, irrespective of carelessness); (B) actions based solely on the careless performance of a statutory duty in the absence of any other common law right of action; (C) actions based on a common law duty of care arising either from the imposition of the statutory duty or from the performance of it; (D) misfeasance in public office, ie, the failure to exercise, or the exercise of, statutory powers either with the intention to injure the plaintiff or in the knowledge that the conduct is unlawful. Category (D) is not in issue in this case. I will consider each of the other categories but I must make it clear that I am not attempting any general statement of the applicable law; rather, I am seeking to set out a logical approach to the wide ranging arguments advanced in these appeals. (A) Breach of statutory duty simpliciter This category comprises those cases where the statement of claim alleges simply: (a) the statutory duty; (b) a breach of that duty; causing (c) damage to the plaintiff. The cause of action depends neither on proof of any breach of the plaintiffs’ common law rights nor on any allegation of carelessness by the defendant… Although the question is one of statutory construction and therefore each case turns on the provisions in the relevant statute, it is significant that your Lordships were not referred to any case where it had been held that statutory provisions establishing a regulatory system or a scheme of social welfare for the benefit of the public at large had been held to give rise to a private right of action for damages for breach of statutory duty. Although regulatory or welfare legislation affecting a particular area of activity does in fact provide protection to those individuals particularly affected by that activity, the legislation is not to be treated as being passed for the benefit of those individuals but for the benefit of society in general. Thus legislation regulating the conduct of betting or prisons did not give rise to a statutory right of action vested in those adversely affected by the breach of the statutory provisions, ie, bookmakers and prisoners: see Cutler’s case [1949] AC 398; R v Deputy Governor of Parkhurst Prison ex p Hague [1992] 1 AC 58. The cases where a private right of action for breach of statutory duty have been held to arise are all cases in which the statutory duty has been very limited and specific as opposed to general administrative functions imposed on public bodies and involving the exercise of administrative discretions. (B) The careless performance of a statutory duty—no common law duty of care This category comprises those cases in which the plaintiff alleges: (a) the statutory duty; and (b) the ‘negligent’ breach of that duty but does not allege that the defendant was under a common law duty of care to the plaintiff. It is the use of the word ‘negligent’ in this context which gives rise to confusion: it is sometimes used to connote mere carelessness (there being no common law duty of care) and sometimes to import the concept of a common law 728

Non-Contractual Obligations (1): Tort duty of care. In my judgment, it is important in considering the authorities to distinguish between the two concepts: as will appear, in my view the careless performance of a statutory duty does not in itself give rise to any cause of action in the absence of either a statutory right of action (Category (A) above) or a common law duty of care (Category (C) below). Much of the difficulty can be traced back to the confusion between the ability to rely on a statutory provision as a defence and the ability to rely on it as founding a cause of action. The source of the confusion is to be found in the dictum of Lord Blackburn in Geddis v Proprietors of Bann Reservoir, 3 App Cas 430, pp 455–56: For I take it, without citing cases, that it is now thoroughly well established that no action will lie for doing that which the legislature has authorised, if it be done without negligence, although it does occasion damage to anyone; but an action does lie for doing that which the legislature has authorised, if it be done negligently. And I think that if by a reasonable exercise of the powers, either given by statute to the promoters, or which they have at common law, the damage could be prevented it is, within this rule, ‘negligence’ not to make such reasonable exercise of their powers. This dictum, divorced from its context, suggests that the careless performance of a statutory duty in itself gives rise to a cause of action for damages. But it has to be read in context… In my judgment, Geddis’s case is best treated as a decision that the careless exercise by the defendant of a statutory duty or power provides no defence to a claim by the plaintiff based on a free-standing common law cause of action… It is clear that in many respects, particularly in relation to the introduction of the ultra vires doctrine, Lord Diplock’s approach [in Dorset Yacht v Home Office [1970] AC 1004] differed from that of the other members of the House. But all the majority members of the committee agreed in treating the Geddis principle as operating only as a means of rebutting a defence to an action for breach of a common law duty. Dorset Yacht is not a case which establishes that a cause of action for damages can be based on the mere ‘negligent’ exercise of statutory powers. It is a case founded on common law duties of care and the circumstances in which a defence of statutory authority can succeed. In my judgment, the correct view is that in order to found a cause of action flowing from the careless exercise of statutory powers or duties, the plaintiff has to show that the circumstances are such as to raise a duty of care at common law. The mere assertion of the careless exercise of a statutory power or duty is not sufficient. (C) The common law duty of care In this category, the claim alleges either that a statutory duty gives rise to a common law duty of care owed to the plaintiff by the defendant to do or refrain from doing a particular act or (more often) that in the course of carrying out a statutory duty the defendant has brought about such a relationship between himself and the plaintiff as to give rise to a duty of care at common 729

Sourcebook on Obligations and Remedies law. A further variant is a claim by the plaintiff that, whether or not the authority is itself under a duty of care to the plaintiff, its servant in the course of performing the statutory function was under a common law duty of care for breach of which the authority is vicariously liable… 1 Co-existence of statutory duty and common law duty of care It is clear that a common law duty of care may arise in the performance of statutory functions, but a broad distinction has to be drawn between: (a) cases in which it is alleged that the authority owes a duty of care in the manner in which it exercises a statutory discretion; (b) cases in which a duty of care is alleged to arise from the manner in which the statutory duty has been implemented in practice. An example of (a) in the educational field would be a decision whether or not to exercise a statutory discretion to close a school, being a decision which necessarily involves the exercise of a discretion. An example of (b) would be the actual running of a school pursuant to the statutory duties. In such latter case a common law duty to take reasonable care for the physical safety of the pupils will arise. The fact that the school is being run pursuant to a statutory duty is not necessarily incompatible with a common law duty of care arising from the proximate relationship between a school and the pupils it has agreed to accept. The distinction is between: (a) taking care in exercising a statutory discretion whether or not to do an act; and (b) having decided to do that act, taking care in the manner in which you do it. 2 Discretion: justiciability and the policy I operational test (a) Discretion Most statutes which impose a statutory duty on local authorities confer on the authority a discretion as to the extent to which, and the methods by which, such statutory duty is to be performed. It is clear, both in principle and from the decided cases, that the local authority cannot be liable in damages for doing that which Parliament has authorised. Therefore, if the decisions complained of fall within the ambit of such statutory discretion, they cannot be actionable in common law. However, if the decision complained of is so unreasonable that it falls outside the ambit of the discretion conferred upon the local authority, there is no a priori reason for excluding all common law liability… In deciding whether or not this requirement is satisfied, the court has to assess the relevant factors taken into account by the authority in exercising the discretion. Since what are under consideration are discretionary powers conferred on public bodies for public purposes the relevant factors will often include policy matters, for example social policy, the allocation of finite financial resources between the different calls made upon them or (as in Dorset Yacht) the balance between pursuing desirable social aims as against the risk to the public inherent in so doing. It is established that the courts cannot enter upon the assessment of such ‘policy’ matters. The difficulty is to identify in any particular case whether or not the decision in question is a ‘policy’ decision.

730

Non-Contractual Obligations (1): Tort (b) Justiciability and the policy I operational dichotomy In English law, the first attempt to lay down the principles applicable in deciding whether or not a decision was one of policy was made by Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, p 754… From these authorities, I understand the applicable principles to be as follows. Where Parliament has conferred a statutory discretion on a public authority, it is for that authority, not for the courts, to exercise the discretion: nothing which the authority does within the ambit of the discretion can be actionable at common law. If the decision complained of falls outside the statutory discretion, it can (but not necessarily will) give rise to common law liability. However, if the factors relevant to the exercise of the discretion include matters of policy, the court cannot adjudicate on such policy matters and therefore cannot reach the conclusion that the decision was outside the ambit of the statutory discretion. Therefore, a common law duty of care in relation to the taking of decisions involving policy matters cannot exist. 3 If justiciable, the ordinary principles of negligence apply If the plaintiff’s complaint alleges carelessness, not in the taking of a discretionary decision to do some act, but in the practical manner in which that act has been performed (for example, the running of a school) the question whether or not there is a common law duty of care falls to be decided by applying the usual principles, that is, those laid down in Caparo Industries plc v Dickman [1990] 2 AC 605, pp 617–18. Was the damage to the plaintiff reasonably foreseeable? Was the relationship between the plaintiff and the defendant sufficiently proximate? Is it just and reasonable to impose a duty of care? See Rowling v Takaro Properties Ltd [1988] AC 473; Hill v Chief Constable of West Yorkshire [1989] AC 53. However, the question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done. The position is directly analogous to that in which a tortious duty of care owed by A to C can arise out of the performance by A of a contract between A and B. In Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761, your Lordships held that A (the managing agent) who had contracted with B (the members’ agent) to render certain services for C (the Names) came under a duty of care to C in the performance of those services. It is clear that any tortious duty of care owed to C in those circumstances could not be inconsistent with the duty owed in contract by A to B. Similarly, in my judgment, a common law duty of care cannot be imposed on a statutory duty if the observance of such common law duty of care would be inconsistent with, or have a tendency to discourage, the due performance by the local authority of its statutory duties. 4 Direct liability and vicarious liability In certain of the appeals before the House, the local authorities are alleged to be under a direct duty of care to the plaintiff not only in relation to the exercise of a statutory discretion but also in relation to the operational way in which they performed that duty. This allegation of a direct duty of care owed by the authority to the plaintiff is to be contrasted with those claims which are based on the vicarious liability 731

Sourcebook on Obligations and Remedies of the local authority for the negligence of its servants, ie, for the breach of a duty of care owed by the servant to the plaintiff, the authority itself not being under any relevant duty of care to the plaintiff. Thus, in the Newham case the plaintiffs’ claim is wholly based on allegations that two professionals, a social worker and a psychiatrist, individually owed professional duties of care to the plaintiff for the breach of which the authorities as their employers are vicariously liable. It is not alleged that the authorities were themselves under a duty of care to the plaintiff. This distinction between direct and vicarious liability can be important, since the authority may not be under a direct duty of care at all or the extent of the duty of care owed directly by the authority to the plaintiff may well differ from that owed by a professional to a patient. However, it is important not to lose sight of the fact that, even in the absence of a claim based on vicarious liability, an authority under a direct duty of care to the plaintiff will be liable for the negligent acts or omissions of its servant which constitute a breach of that direct duty. The authority can only act through its servants. The position can be illustrated by reference to the hospital cases. It is established that those conducting a hospital are under a direct duty of care to those admitted as patients to the hospital (I express no view as to the extent of that duty). They are liable for the negligent acts of a member of the hospital staff which constitute a breach of that duty, whether or not the member of the staff is himself in breach of a separate duty of care owed by him to the plaintiff: Gold v Essex County Council [1942] 2 KB 293, p 301, per Lord Green; Cassidy v Ministry of Health [1951] 2 KB 343, per Denning LJ; Roe v Minister of Health [1954] 2 QB 66; see also Wilsons and Clyde Coal Co Ltd v English [1938] AC 57; McDermid v Nash Dredging and Reclamation Co Ltd [1987] AC 906. Therefore, in the cases under appeal, even where there is no allegation of a separate duty of care owed by a servant of the authority to the plaintiff, the negligent acts of that servant are capable of constituting a breach of the duty of care (if any) owed directly by the authority to the plaintiff… Direct common law duty of care owed by the local authorities … I turn then to consider whether, in accordance with the ordinary principles laid down in the Caparo case [1990] 2 AC 605, the local authority in the Bedfordshire case owed a direct duty of care to the plaintiffs. The local authority accepts that they could foresee damage to the plaintiffs if they carried out their statutory duties negligently and that the relationship between the authority and the plaintiffs is sufficiently proximate. The third requirement laid down in Caparo is that it must be just and reasonable to impose a common law duty of care in all the circumstances. It was submitted that this third requirement is only applicable in cases where the plaintiffs’ claim is for pure economic loss and that it does not apply where, as in the child abuse cases, the claim is for physical damage. I reject this submission: although Caparo and many other of the more recent cases were decisions where only pure economic loss was claimed, the same basic principles apply to claims for physical damage and were applied in, for example, Hill v Chief Constable of West Yorkshire [1989] AC 53. 732

Non-Contractual Obligations (1): Tort Is it, then, just and reasonable to superimpose a common law duty of care on the local authority in relation to the performance of its statutory duties to protect children? In my judgment it is not. Sir Thomas Bingham MR took the view, with which I agree, that the public policy consideration which has first claim on the loyalty of the law is that wrongs should be remedied and that very potent counter-considerations are required to override that policy ([1994] 2 WLR 554, p 572F). However, in my judgment there are such considerations in this case. First, in my judgment, a common law duty of care would cut across the whole statutory system set up for the protection of children at risk. As a result of the ministerial directions contained in ‘Working Together’, the protection of such children is not the exclusive territory of the local authority’s social services. The system is inter-disciplinary, involving the participation of the police, educational bodies, doctors and others. At all stages, the system involves joint discussions, joint recommendations and joint decisions. The key organisation is the Child Protection Conference, a multi-disciplinary body which decides whether to place the child on the Child Protection Register. This procedure by way of joint action takes place, not merely because it is good practice, but because it is required by guidance having statutory force binding on the local authority. The guidance is extremely detailed and extensive; the current edition of ‘Working Together’ runs to 126 pages. To introduce into such a system a common law duty of care enforceable against only one of the participant bodies would be manifestly unfair. To impose such liability on all the participant bodies would lead to almost impossible problems of disentangling as between the respective bodies the liability, both primary and by way of contribution, of each for reaching a decision found to be negligent. Second, the task of the local authority and its servants in dealing with children at risk is extraordinarily delicate. Legislation requires the local authority to have regard not only to the physical well being of the child but also to the advantages of not disrupting the child’s family environment: see, for example, s 17 of the Act of 1989. In one of the child abuse cases, the local authority is blamed for removing the child precipitately: in the other, for failing to remove the children from their mother. As the Report of the Inquiry into Child Abuse in Cleveland, 1987, Cm 412, said, p 244: It is a delicate and difficult line to tread between taking action too soon and not taking it soon enough. Social services whilst putting the needs of the child first must respect the rights of the parents; they also must work if possible with the parents for the benefit of the children. These parents themselves are often in need of help. Inevitably, a degree of conflict develops between those objectives. Next, if a liability in damages were to be imposed, it might well be that local authorities would adopt a more cautious and defensive approach to their duties. For example, as the Cleveland Report makes clear, on occasions the speedy decision to remove the child is sometimes vital. If the authority is to be made liable in damages for a negligent decision to remove a child (such negligence lying in the failure properly first to investigate the allegations) there would be a substantial temptation to postpone making such a decision until further inquiries have been made in the hope of getting more concrete 733

Sourcebook on Obligations and Remedies facts. Not only would the child in fact being abused be prejudiced by such delay: the increased workload inherent in making such investigations would reduce the time available to deal with other cases and other children. The relationship between the social worker and the child’s parents is frequently one of conflict, the parent wishing to retain care of the child, the social worker having to consider whether to remove it. This is fertile ground in which to breed ill feeling and litigation, often hopeless, the cost of which both in terms of money and human resources will be diverted from the performance of the social service for which they were provided. The spectre of vexatious and costly litigation is often urged as a reason for not imposing a legal duty. But the circumstances surrounding cases of child abuse make the risk a very high one which cannot be ignored. If there were no other remedy for maladministration of the statutory system for the protection of children, it would provide substantial argument for imposing a duty of care, but the statutory complaints procedures contained in s 76 of the Act of 1980 and the much fuller procedures now available under the Act of 1989 provide a means to have grievances investigated, though not to recover compensation. Further, it was submitted (and not controverted) that the local authorities’ ombudsman would have power to investigate cases such as these. Finally, your Lordships’ decision in the Caparo case [1990] 2 AC 605 lays down that, in deciding whether to develop novel categories of negligence the court should proceed incrementally and by analogy with decided categories. We were not referred to any category of case in which a duty of care has been held to exist which is in any way analogous to the present cases. Here, for the first time, the plaintiffs are seeking to erect a common law duty of care in relation to the administration of a statutory social welfare scheme. Such a scheme is designed to protect weaker members of society (children) from harm done to them by others. The scheme involves the administrators in exercising discretions and powers which could not exist in the private sector and which in many cases bring them into conflict with those who, under the general law, are responsible for the child’s welfare. To my mind, the nearest analogies are the cases where a common law duty of care has been sought to be imposed upon the police (in seeking to protect vulnerable members of society from wrongs done to them by others) or statutory regulators of financial dealings who are seeking to protect investors from dishonesty. In neither of those cases has it been thought appropriate to superimpose on the statutory regime a common law duty of care giving rise to a claim in damages for failure to protect the weak against the wrongdoer: see Hill v Chief Constable of West Yorkshire [1989] AC 53; and Yuen Kun Yeu v AG of Hong Kong [1988] AC 175. In the latter case, the Privy Council, whilst not deciding the point, said, p 198, that there was much force in the argument that if the regulators had been held liable in that case the principles leading to such liability ‘would surely be equally applicable to a wide range of regulatory agencies, not only in the financial field, but also, for example, to the factory inspectorate and social workers, to name only a few’. In my judgment, the courts should proceed with great care before holding liable in negligence those who have been charged.

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Non-Contractual Obligations (1): Tort Vicarious liability In the Newham case the pleadings and Mr Munby’s submissions make it quite clear how the case is put. The social worker and the psychiatrist, as professionals, each owed a personal duty to the first plaintiff, the child, and to the second plaintiff, the mother, to exercise reasonable professional skills in the conduct of the interview with the child and to make proper inquiries. The social worker and the psychiatrist were each personally in breach of this duty, for which breach their employers (the borough council in the case of the social worker, the health authority in the case of the psychiatrist) are vicariously liable. In the Bedfordshire case, the position is less clear. As I read the pleadings they allege only a direct duty of care owed by the county council to the plaintiffs and breaches of that duty of care by the council: the particulars of such breach by the council are described as failures by ‘the defendants, their servants or agents’. There is no pleading of a separate duty of care owed by one or more of the servants or agents of the council, for which the council is vicariously liable. On a strict reading, this is only a pleading of breach by the county council of its duty of care, such breach being committed by the servants or agents. Since, in my judgment, the county council itself owed no duty of care, that claim must fail. However, this point was not taken by the county council, presumably because they adopted the sensible view that it could be cured by amendment. In the argument before the House it was therefore common ground that the plaintiffs’ case could be founded on vicarious liability of the county council for breach by a member of its staff of a professional duty of care owed by such professional to the plaintiffs. The claim based on vicarious liability is attractive and simple. The normal duty of a doctor to exercise reasonable skill and care is well established as a common law duty of care. In my judgment, the same duty applies to any other person possessed of special skills, such as a social worker. It is said, rightly, that in general such professional duty of care is owed irrespective of contract and can arise even where the professional assumes to act for the plaintiff pursuant to a contract with a third party: Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761; White v Jones [1995] 2 WLR 187. Therefore, it is said, it is nothing to the point that the social workers and psychiatrist only came into contact with the plaintiffs pursuant to contracts or arrangements made between the professionals and the local authority for the purpose of the discharge by the local authority of its statutory duties. Once brought into contact with the plaintiffs, the professionals owed a duty properly to exercise their professional skills in dealing with their ‘patients’, the plaintiffs. This duty involved the exercise of professional skills in investigating the circumstances of the plaintiffs and (in the Newham case) conducting the interview with the child. Moreover, since the professionals could foresee that negligent advice would damage the plaintiffs, they are liable to the plaintiffs for tendering such advice to the local authority. Like the majority in the Court of Appeal, I cannot accept these arguments. The social workers and the psychiatrists were retained by the local authority to advise the local authority, not the plaintiffs. The subject matter of the advice and activities of the professionals is the child. Moreover, the tendering of any advice will in many cases involve interviewing and, in the case of doctors, 735

Sourcebook on Obligations and Remedies examining the child. But the fact that the carrying out of the retainer involves contact with and relationship with the child cannot alter the extent of the duty owed by the professionals under the retainer from the local authority. The Court of Appeal drew a correct analogy with the doctor instructed by an insurance company to examine an applicant for life insurance. The doctor does not, by examining the applicant, come under any general duty of medical care to the applicant. He is under a duty not to damage the applicant in the course of the examination: but beyond that his duties are owed to the insurance company and not to the applicant. The position is not the same as in the case of the purchaser of property who is owed a duty of care by a surveyor instructed by the building society which is going to advance the money: see Smith v Eric S Bush [1990] 1 AC 831. In such a case, the surveyor is only liable to the purchaser in negligence because he is aware that the purchaser will regulate his (the purchaser’s) conduct by completing the purchase in reliance on the survey report. In the child abuse cases, even if the advice tendered by the professionals to the local authority comes to the knowledge of the child or his parents, they will not regulate their conduct in reliance on the report. The effect of the report will be reflected in the way in which the local authority acts. Nor is the position the same as in Henderson v Merrett Syndicates Ltd where, pursuant to a contract with the members’ agents, the managing agents undertook the management of the insurance business of the indirect Names. The managing agents were held to be under a tortious duty of care to the indirect Names, notwithstanding that the managing agents were operating under the terms of a contract with a third party. But the duty of care to the Names in that case arose from, and fell within the ambit of, the terms of the retainer contained in the contract between the managing agents and the members’ agents. The Names were not seeking to impose on the managing agents any obligation beyond that which the retainer itself required to be performed. So also in White v Jones [1995] 2 WLR 187. In my judgment in the present cases, the social workers and the psychiatrist did not, by accepting the instructions of the local authority, assume any general professional duty of care to the plaintiff children. The professionals were employed or retained to advise the local authority in relation to the well being of the plaintiffs but not to advise or treat the plaintiffs… For these reasons, in my judgment the professionals involved were under no separate duty of care to the plaintiffs for breach of which the local authorities could be vicariously liable… Lord Nolan: My Lords, I too have had the advantage of reading in draft the speech of my noble and learned friend, Lord Browne-Wilkinson. I respectfully agree with his conclusions and with the whole of his reasoning save that I would, for my part, hold Newham free from vicarious liability for the alleged negligence of the psychiatrist and the social worker towards the child in that case solely on the grounds of public policy (and, in the case of the psychiatrist, the doctrine of witness immunity). Public policy apart, I am unable to accept that the psychiatrist and the social worker were exempt from a general professional duty of care towards the child. I cannot agree that the relationship was analogous to that which arises in the contractual and commercial context

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Non-Contractual Obligations (1): Tort of an examination by an insurance company doctor of an applicant for life insurance. I agree with the Master of the Rolls on this aspect of the matter. This does not, however, detract from my entire agreement with the remainder of the views expressed by my noble and learned friend and with the orders which he proposes. [Lord Jauncy, Lord Lane and Lord Ackner agreed with Lord BrowneWilkinson.]

Questions 1

2

3

4 5 6

A local authority can exist and can act only as a result of statute: why, then, are its duties not exclusively statutory? (Cf Norweb plc v Dixon [1995] 1 WLR 636.) Why was the financial expectation of a local inhabitant protected in Blackpool and Fylde Aero Club v Blackpool BC (p 436), whereas the physical, mental and/or educational expectation of a human local inhabitant left relatively unprotected in X (Minors)? Why should it be the individual local inhabitant, and not the community, upon whom is placed the burden of harm when a local authority behaves unlawfully and/or incompetently? Is the ‘right’ to a good education a public or a private right? Is a local authority solicitor who behaves incompetently more immune from liability than a solicitor in private practice? Is public law an area of administrative discretion operating, by and large, beyond the reach of actions for damages? Stovin v Wise [1996] AC 923 House of Lords This was an action for damages for personal injury brought by a motorist against another driver and a local authority. It was alleged that the local authority had been in breach of statutory duty and negligent in failing to take steps to make a particular road junction, known to be dangerous, safe. The judge held both the defendant driver and the local authority liable, but on appeal to the House of Lords, a majority held that the local authority was not liable. Lord Hoffmann: My Lords, 1 The accident Late at night in December 1988, the plaintiff, Mr Stovin, was riding his motorcycle along Station Road, Wymondham. A car driven by the defendant Mrs Wise emerged from a junction into his path. He was unable to stop in time and there was a collision in which he suffered serious injuries. Judge Crawford QC found that Mrs Wise had not been keeping a proper look out and was 70% to blame for the accident. He attributed the other 30% of liability to the Norfolk County Council, which Mrs Wise had joined as third party. The council was the local highway authority. The judge found 737

Sourcebook on Obligations and Remedies that it had known that the junction was dangerous and had been negligent in not taking steps to make it safer… 4 Acts and omissions The judge made no express mention of the fact that the complaint against the council was not about anything which it had done to make the highway dangerous but about its omission to make it safer. Omissions, like economic loss, are notoriously a category of conduct in which Lord Atkin’s generalisation in Donoghue v Stevenson [1932] AC 562 offers limited help. In the High Court of Australia in Hargmve v Goldman (1963) 110 CLR 40, p 66, Windeyer J drew attention to the irony in Lord Atkin’s allusion, in formulating his ‘neighbour’ test, to the parable of the Good Samaritan [1932] AC 562, p 580: The priest and the Levite, when they saw the wounded man by the road, passed by on the other side. He obviously was a person whom they had in contemplation and who was closely and directly affected by their action. Yet the common law does not require a man to act as the Samaritan did. A similar point was made by Lord Diplock in Dorset Yacht Co Ltd v Home Office [1970] AC 1004, p 1060. There are sound reasons why omissions require different treatment from positive conduct. It is one thing for the law to say that a person who undertakes some activity shall take reasonable care not to cause damage to others. It is another thing for the law to require that a person who is doing nothing in particular shall take steps to prevent another from suffering harm from the acts of third parties (like Mrs Wise) or natural causes. One can put the matter in political, moral or economic terms. In political terms it is less of an invasion of an individual’s freedom for the law to require him to consider the safety of others in his actions than to impose upon him a duty to rescue or protect. A moral version of this point may be called the ‘why pick on me?’ argument. A duty to prevent harm to others or to render assistance to a person in danger or distress may apply to a large and indeterminate class of people who happen to be able to do something. Why should one be held liable rather than another? In economic terms, the efficient allocation of resources usually requires an activity should bear its own costs. If it benefits from being able to impose some of its costs on other people (what economists call ‘externalities’,) the market is distorted because the activity appears cheaper than it really is. So, liability to pay compensation for loss caused by negligent conduct acts as a deterrent against increasing the cost of the activity to the community and reduces externalities. But there is no similar justification for requiring a person who is not doing anything to spend money on behalf of someone else. Except in special cases (such as marine salvage), English law does not reward someone who voluntarily confers a benefit on another. So, there must be some special reason why he should have to put his hand in his pocket… 6 Public authorities The argument that the council had a positive duty to take action giving rise to a claim for compensation in tort must…depend, as the judge and the Court of Appeal recognised, upon the public nature of its powers, duties and 738

Non-Contractual Obligations (1): Tort funding. The argument is that while it may be unreasonable to expect a private landowner to spend money for the benefit of strangers who have the right to cross his land, the very purpose of the existence of a public authority like the council is to spend its resources on making the roads convenient and safe… (a) Negligent conduct in the exercise of statutory powers Since Mersey Docks and Harbour Board Trustees v Gibbs (1866) LR 1 HL 93, it has been clear law that in the absence of express statutory authority, a public body is in principle liable for torts in the same way as a private person, but its statutory powers or duties may restrict its liability. For example, it may be authorised to do something which necessarily involves committing what would otherwise be a tort. In such a case, it will not be liable: Allen v Gulf Oil Refining Ltd [1981] AC 1001. Or it may have discretionary powers which enable it to do things to achieve a statutory purpose notwithstanding that they involve a foreseeable risk of damage to others. In such a case, a bona fide exercise of the discretion will not attract liability: X (Minors) v Bedfordshire County Council [1995] 2 AC 633 and Dorset Yacht Co Ltd v Home Office [1970] AC 1004. In the case of positive acts, therefore, the liability of a public authority in tort is in principle the same as that of a private person but may be restricted by its statutory powers and duties. The argument in the present case, however, is that whereas a private person would have owed no duty of care in respect of an omission to remove the hazard at the junction, the duty of the highway authority is enlarged by virtue of its statutory powers. The existence of the statutory powers is said to create a ‘proximity’ between the highway authority and the highway user which would not otherwise exist. (b) Negligent omission to use statutory powers Until the decision of this House in Anns v Merton London Borough Council [1978] AC 728, there was no authority for treating a statutory power as giving rise to a common law duty of care. Two cases in particular were thought to be against it 8 Policy and operations Since Anns v Merton London Borough Council, there have been differing views, both in England and the Commonwealth, over whether it was right to breach the protection which the East Suffolk principle gave to public authorities… In terms of public finance…[i]t is one thing to provide a service at the public expense. It is another to require the public to pay compensation when a failure to provide the service has resulted in loss. Apart from cases of reliance, which I shall consider later, the same loss would have been suffered if the service had not been provided in the first place. To require payment of compensation increases the burden on public funds. Before imposing such an additional burden, the courts should be satisfied that this is what Parliament intended… The same is true of omission to perform a statutory duty. If such a duty does not give rise to a private right to sue for breach, it would be unusual if it nevertheless gave rise to a duty of care at common law which made the public authority liable to pay compensation for foreseeable loss caused by the duty 739

Sourcebook on Obligations and Remedies not being performed. It will often be foreseeable that loss will result if, for example, a benefit or service is not provided. If the policy of the act is not to create a statutory liability to pay compensation, the same policy should ordinarily exclude the existence of a common law duty of care… In summary, therefore, I think that the minimum preconditions for basing a duty of care upon the existence of a statutory power, if it can be done at all, are, first, that it would in the circumstances have been irrational not to have exercised the power, so that there was in effect a public law duty to act, and secondly, that there are exceptional grounds for holding that the policy of the statute requires compensation to be paid to persons who suffer loss because the power was not exercised. 9 Particular and general reliance … But the fact that it would be irrational not to exercise the power is, as I have said, only one of the conditions which has to be satisfied. It is also necessary to discern a policy which confers a right to financial compensation if the power has not been exercised. Mason J thought in Sutherland Shire Council v Heyman, 157 CLR 424, p 464, that such a policy might be inferred if the power was intended to protect members of the public from risks against which they could not guard themselves. In the Invercargill case, as I have said, the New Zealand Court of Appeal [1994] 3 NZLR 513 and the Privy Council [1996] 2 WLR 367 found it in general patterns of socio-economic behaviour. I do not propose to explore further the doctrine of general reliance because, for reasons which I shall explain, I think that there are no grounds upon which the present case can be brought within it. I will only note in passing that its application may require some very careful analysis of the role which the expected exercise of the statutory power plays in community behaviour. For example, in one sense, it is true that the fire brigade is there to protect people in situations in which they could not be expected to be able to protect themselves. On the other hand, they can and do protect themselves by insurance against the risk of fire. It is not obvious that there should be a right to compensation from a negligent fire authority which will ordinarily ensure by right of subrogation to an insurance company. The only reason would be to provide a general deterrent against inefficiency. But there must be better ways of doing this than by compensating insurance companies out of public funds. And while premiums no doubt take into account the existence of the fire brigade and the likelihood that it will arrive swiftly upon the scene, it is not clear that they would be very different merely because no compensation was paid in the rare cases in which the fire authority negligently failed to perform its public duty… 11 Duties of a highway authority I return to consider whether the council owed a duty of care which required it to take steps to improve the junction… In my view, the creation of a duty of care upon a highway authority, even on grounds of irrationality in failing to exercise a power, would inevitably expose the authority’s budgetary decisions to judicial inquiry. This would distort the priorities of local authorities, which would be bound to try to play safe 740

Non-Contractual Obligations (1): Tort by increasing their spending on road improvements rather than risk enormous liabilities for personal injury accidents. They will spend less on education or social services. I think that it is important, before extending the duty of care owed by public authorities, to consider the cost to the community of the defensive measures which they are likely to take in order to avoid liability. It would not be surprising if one of the consequences of the Anns case and the spate of cases which followed was that local council inspectors tended to insist upon stronger foundations than were necessary. In a case like this, I do not think that the duty of care can be used as a deterrent against low standards in improving the road layout. Given the fact that the British road network largely antedates the highway authorities themselves, the court is not in a position to say what an appropriate standard of improvement would be. This must be a matter for the discretion of the authority. On the other hand, denial of liability does not leave the road user unprotected. Drivers of vehicles must take the highway network as they find it. Everyone knows that there are hazardous bends, intersections and junctions. It is primarily the duty of drivers of vehicles to take due care. And if, as in the case of Mrs Wise, they do not, there is compulsory insurance to provide compensation to the victims. There is no reason of policy or justice which requires the highway authority to be an additional defendant. I would therefore allow the appeal. Lord Nicholls (dissenting): My Lords, this case arises at the interface of public and private law obligations: the liability of a public authority in tort for failure to exercise a statutory power. When may a public authority be liable in damages for an unreasonable failure to act, in breach of its public law obligations?… Liability for omissions The starting point is that the council did not create the source of danger. This is not a case of a highway authority carrying out road works carelessly and thereby creating a hazard. In the present case the council cannot be liable unless it was under a duty requiring it to act. If the plaintiff is to succeed the council must have owed him a duty to exercise its powers regarding a danger known to it but not created by it. The distinction between liability for acts and liability for omissions is well known. It is not free from controversy. In some cases the distinction is not clear cut. The categorisation may depend upon how broadly one looks when deciding whether the omission is a ‘pure’ omission or is part of a larger course of activity set in motion by the defendant. Failure to apply the handbrake when parking a vehicle is the classic illustration of the latter. Then the omission is the element which makes the activity negligent. Dorset Yacht Co Ltd v Home Office [1970] AC 1004 is an instance where the distinction was not so easy to apply. Despite the difficulties, the distinction is fundamentally sound in this area of the law. The distinction is based on a recognition that it is one matter to require a person to take care if he embarks on a course of conduct which may harm others. He must take care not to create a risk of danger. It is another matter to require a person, who is doing nothing, to take positive action to protect others from harm for which he was not responsible, and to hold him liable in damages if he fails to do so. 741

Sourcebook on Obligations and Remedies The law has long recognised that liability can arise more readily in the first situation than the second. This is reasonable. In the second situation a person is being compelled to act, and to act for the benefit of another. There must be some special justification for imposing an obligation of this character. Compulsory altruism needs more justification than an obligation not to create dangers to others when acting for one’s own purposes. There is no difficulty over categorisation in the present case. The council did not bring about the dangerous configuration and poor visibility at the road junction. The question is whether it was in breach of a common law duty by carelessly failing to remove this source of danger. Common law duties to take positive action Common law obligations to take positive action arise mainly in contract and fiduciary relationships. They may also arise in tort. Familiar instances are parent and child, employer and employee, school and pupil. The established categories are useful because they embrace common types of situation, but these categories are no more closed than any other categories of negligence. Their unifying thread is some circumstance, or combination of circumstances, which makes it fair and reasonable that one person should be required to take reasonable steps for another’s protection or benefit. Perhaps the established category nearest to the present case comprises occupiers of land and their neighbours. An occupier is under a common law duty to take positive action to remove or reduce hazards to his neighbours, even though the hazard is not one the occupier brought about. He must take reasonable steps to this end, for the benefit of his neighbours: see Goldman v Hargrave [1967] 1 AC 645. If an occupier’s tree is struck by lightning and catches fire, he must take reasonable steps to prevent the fire spreading. He must act as would a reasonable occupier in his position. In this situation a combination of features is present: foreseeability of damage or injury if preventive steps are not taken; control by the occupier of a known source of danger; dependence, or vulnerability, of the neighbour; and the prospect of damage or injury out of all proportion to the preventive steps required. Even this combination is not enough. The classic example of the absence of a legal duty to take positive action is where a grown person stands by while a young child drowns in a shallow pool. Another instance is where a person watches a nearby pedestrian stroll into the path of an oncoming vehicle. In both instances, the callous bystander can foresee serious injury if he does nothing. He does not control the source of the danger, but he has control of the means to avert a dreadful accident. The child or pedestrian is dependent on the bystander; the child is unable to save himself, and the pedestrian is unaware of his danger. The prospective injury is out of all proportion to the burden imposed by having to take preventive steps. All that would be called for is the simplest exertion or a warning shout. Despite this, the recognised legal position is that the bystander does not owe the drowning child or the heedless pedestrian a duty to take steps to save him. Something more is required than being a bystander. There must be some 742

Non-Contractual Obligations (1): Tort additional reason why it is fair and reasonable that one person should be regarded as his brother’s keeper and have legal obligations in that regard. When this additional reason exists, there is said to be sufficient proximity. That is the customary label. In cases involving the use of land, proximity is found in the fact of occupation. The right to occupy can reasonably be regarded as carrying obligations as well as rights. Omissions and proximity The council was more than a bystander. The council had a statutory power to remove this source of danger, although it was not under a statutory duty to do so. Before 1978 the accepted law was that the council could be under no common law liability for failing to act. A simple failure to exercise a statutory power did not give rise to a common law claim for damages: see East Suffolk Rivers Catchment Board v Kent [1941] AC 74. The decision in Anns v Merton London Borough Council [1978] AC 728 liberated the law from this unacceptable yoke. This was the great contribution the Anns case made to the development of the common law. However, as with Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465, another notable development in the law of negligence, so with the Anns case: a coherent, principled control mechanism has to be found for limiting this new area of potential liability. The powers conferred on public authorities permeate so many fields that a private law duty in all cases, sounding in damages, would be no more acceptable than the opposite extreme. Considerable caution is needed lest a welcome development do more harm than good. In Anns v Merton London Borough Council [1978] AC 728, Lord Wilberforce propounded a two-stage test for the existence of a duty. This test is now generally regarded with less favour than the familiar tripartite formulation subsequently espoused in Caparo Industries plc v Dickman [1990] 2 AC 605, pp 617, 618: (1) foreseeability of loss; (2) proximity; and (3) fairness, justice and reasonableness. The difference is perhaps more a difference of presentation and emphasis than substance. Clearly, foreseeability of loss is by itself an insufficient foundation for a duty to take positive action. Close attention to the language of Lord Wilberforce, pp 751–52, with its reference to a sufficient relationship of proximity or neighbourhood, shows that he regarded proximity as an integral requirement: see also McLoughlin v O’Brian [1983] 1 AC 410, pp 420, 421, per Lord Wilberforce; and Yuen Kun Yeu v AG of Hong Kong [1988] AC 175, p 191, per Lord Keith of Kinkel. The Caparo tripartite test elevates proximity to the dignity of a separate heading. This formulation tends to suggest that proximity is a separate ingredient, distinct from fairness and reasonableness, and capable of being identified by some other criteria. This is not so. Proximity is a slippery word. Proximity is not legal shorthand for a concept with its own, objectively identifiable characteristics. Proximity is convenient shorthand for a relationship between two parties which makes it fair and reasonable one should owe the other a duty of care. This is only another way of saying that when assessing the requirements of fairness and reasonableness regard must be had to the relationship of the parties… Despite this, the pithy, tripartite formulation has advantages. The relationship between the parties is an 743

Sourcebook on Obligations and Remedies important ingredient in the overall assessment. The tripartite test is useful in focusing attention specifically on this feature and also in clearly separating this feature from foreseeability of damage. But the application of the same tripartite test, both to a duty to take care when acting and a duty to take positive action, should not be allowed to mask the difference between the two duties. As already seen, the test of fairness and reasonableness is more difficult to satisfy with a duty to act. This is especially so when the subject matter is potential financial loss, rather than physical injury or damage. The reluctance to impose a duty to act is even greater when the loss threatened is financial. The basic test of fair and reasonable is itself open to criticism for vagueness. Indeed, it is an uncomfortably loose test for the existence of a legal duty. But no better or more precise formulation has emerged so far, and a body of case law is beginning to give the necessary further guidance as courts identify the factors indicative of the presence or absence of a duty. A duty to act, and finite resources I must mention one further feature of common law liability for omissions before turning in more detail to the position of public authorities. Liability for omissions gives rise to a problem not present with liability for careless acts. He who wishes to act must act carefully or not at all. A producer of ginger beer must adopt a safe manufacturing process. If this would be uneconomic, he ought not to carry on the business. With liability for omissions, however, a person is not offered a choice. The law compels him to act when left to himself he might do nothing. This gives rise to a difficulty if positive action requires expenditure. The law requires him to act reasonably. But, as Lord Wilberforce observed in Goldman v Hargrave [1967] 1 AC 645, p 663, what is reasonable to one man may be very unreasonable or ruinous to another. The solution adopted is to have regard to the circumstances of the individual. He must act as would a reasonable person in his position. The standard of reasonableness is to be measured by what may reasonably be expected of the defendant in his individual circumstances. Where action calls for expenditure, the court if necessary will have regard to the financial resources of the defendant. The law does not always shrink away from such an investigation and regard itself as unable ever to make an assessment of competing demands for money. Public authorities and liability for omissions The liability of public authorities for negligence in carrying out statutory responsibilities is a knotty problem. The decision of this House in Anns v Merton London Borough Council [19781 AC 728 articulated a response to growing unease over the inability of public law, in some instances, to afford a remedy matching the wrong. Individuals may suffer loss through the carelessness of public bodies in carrying out their statutory functions. Sometimes this evokes an intuitive response that the authority ought to make good the loss. The damnified individual was entitled to expect better from a public body. Leaving the loss to lie where it falls is not always an acceptable 744

Non-Contractual Obligations (1): Tort outcome. The authority did not create the loss, but it failed to discharge its statutory responsibilities with reasonable care. Had it behaved properly, the loss would not have occurred. Expressed in traditional tort terms, the loss in this type of case arises from a pure omission. Any analysis must recognise this. But the omission may also constitute a breach of the authority’s public law obligations. As will be seen, the present case is an example of this, even though the relevant statutory function was expressed as a statutory power and not a statutory duty. When this is so, the question is not whether the authority was under a legal duty to take action. The authority was already obliged, as a matter of public law. The question, rather, is what should be the remedy for the breach. The Anns case showed that a remedy in the form of an award of damages is possible without confusing the uneasy divide between public and private law. The common law is still sufficiently adaptable. The common law has long recognised that, in some situations, there may be a duty to act. So, a concurrent common law duty can carry the strain, without distortion of principle… It is essentially on this latter point that so many divergent views have been expressed, mainly in articles and textbooks. There is general agreement that the law is unsettled, with a different judicial emphasis between the common law countries. There is no consensus on what the law should be… The statutory framework Against this background, I must now map the route which as a matter of legal analysis I believe is applicable in the present case. Public authorities discharging statutory functions operate within a statutory framework. Since the will of the legislature is paramount in this field, the common law should not impose a concurrent duty inconsistent with this framework. A common law duty must not be inconsistent with the performance by the authority of its statutory duties and powers in the manner intended by Parliament, or contrary in any other way to the presumed legislative intention. In some respects the typical statutory framework makes the step to a common law duty to act easier with public authorities than individuals. Unlike an individual, a public authority is not an indifferent onlooker. Parliament confers powers on public authorities for a purpose. An authority is entrusted and charged with responsibilities, for the public good. The powers are intended to be exercised in a suitable case. Compelling a public authority to act does not represent an intrusion into private affairs in the same way as when a private individual is compelled to act… The… Norfolk Council acted in a way no reasonable authority would have done. If there is a common law duty, breach of the duty is not disputed. With knowledge of the danger the council decided to act. It then failed to proceed with reasonable diligence. The failure to proceed was not an exercise of discretion by the council. The council did not change its mind. The matter was overlooked. Given the decision to act, the only proper course open to the council was to proceed to implement the decision. Had the council acted as any reasonable authority would, that is what would have happened. The

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Sourcebook on Obligations and Remedies council failed to fulfil its public law obligations just as much as if it were in breach of a statutory duty. Hence the conclusion, that a concurrent common law duty would not impose on the council any greater obligation to act than the obligation already imposed by its public law duties. The common law duty would impose, not a duty to act differently, but a liability to pay damages if the council failed to act as it should. This is the consequence which considerations of proximity must especially address in the present case. Was the relationship between the parties such that it is fair and reasonable for the council to be liable in damages for failing to behave in a way which merely corresponds to its public law obligations? In this type of case, therefore, the reluctance of the common law to impose a duty to act is not in point. What is in point, in effect though not in legal form, is an obligation to pay damages for breach of public law obligations … This leads naturally to a further feature of the typical statutory framework. This feature points away from public bodies being subject to concurrent common law obligations. When conferring the statutory functions Parliament stopped short of imposing a duty in favour of the plaintiff. This is so when there is a statutory duty not giving rise to a cause of action for breach of the duty. This is even more marked when Parliament conferred a power. Without more, it would not be reasonable for the common law to impose a duty, sounding in damages, which Parliament refrained from imposing. For this reason, there must be some special circumstance, beyond the mere existence of the power, rendering it fair and reasonable for the authority to be subject to a concurrent common law duty sounding in damages. This special circumstance is the foundation for the concurrent common law duty to act, owed to a particular person or class of persons. It is the presence of this additional, special circumstance which imposes the common law duty and also determines its scope. Viewed in this way there is no inconsistency in principle between the statutory framework set up by Parliament and a parallel common law duty. Statutory powers and proximity … Some statutory powers, of their nature, are less susceptible to a concurrent common law duty than others. More is needed by way of a special circumstance. This does not mean that powers are capable of being assigned to fixed categories. There are no hard and fast boundary lines here. The approach, rather, is that as the part played by broad discretionary considerations in the exercise of the power grows, the less readily will a common law duty be superimposed, and vice versa. At the discretionary edge of the spectrum will be powers whose nature and purpose make it difficult to envisage any likely circumstances where a common law duty, sounding in damages, could be superimposed. A local authority’s powers to decide what schools there should be, and where, and of what type, may be an example of this. At the other edge of the spectrum will be powers where comparatively little extra may be needed to found a common

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Non-Contractual Obligations (1): Tort law duty owed to a particular person or class of persons. A power to remove dangers from public places must be near this edge of the spectrum. A power to control air safety may be another example, as in Swanson Estate v Canada (1991) 80 DLR (4th) 741. Some decisions since Anns v Merton London Borough Council [1978] AC 728 have gone further and identified a ‘no go’ area for concurrent common law duties: see the Anns case, p 754; Sutherland Shire Council v Heyman, 157 CLR 424, p 469, per Mason J; Rowling v Takaro Properties Ltd [1988] AC 473, p 501; and X (Minors) v Bedfordshire County Council [1995] 2 AC 633, p 738. In practice, the two approaches will usually reach the same conclusion. My preference is for the more open-ended approach. The exclusionary approach presupposes an identifiable boundary, between policy and other decisions, corresponding to a perceived impossibility for the court to handle policy decisions. But the boundary is elusive, because the distinction is artificial, and an area of blanket immunity seems undesirable and unnecessary. It is undesirable in principle that in respect of certain types of decisions the possibility of a concurrent common law duty should be absolutely barred, whatever the circumstances. An excluded zone is also unnecessary, because no statutory power is inherently immune from judicial review. This has not given rise to any insuperable difficulties in public law. Nor should it with claims in tort if, very exceptionally, a concurrent common law duty were held to exist in an area of broad policy. Courts are well able to recognise that reasonable people can reach widely differing conclusions when making decisions based on social, political or economic grounds: see, for instance, R v Secretary of State for the Environment ex p Nottinghamshire County Council [1986] AC 240. Similarly with competing demands for money. Indeed, the courts have recognised that sometimes it may be necessary in private law to look into competing demands for available money. As already noted, this is inherent in the very concept of a common law duty to take positive action. Thus, this feature does not of itself exclude the existence of a concurrent common law duty… Known dangers and road users … [A] common law duty in the present case would not represent an incursion into a wholly novel field. As already noted, an occupier owes a duty to take positive action to protect his neighbours. Until subsumed in legislation, an occupier also owed common law duties to safeguard those who come onto his property, whether lawfully or unlawfully. Although a highway authority does not occupy the highway, there is a certain resemblance. A highway authority has, and alone has, the capacity to remove what would otherwise be a source of physical danger to users of property… Finally, and critically, the consequence of a concurrent common law duty would be that in the event of a breach the loss, so far as measurable in terms of money, would fall on the highway authority or, if insured, on highway authorities generally. Sometimes an injured road user, whether driver or passenger or pedestrian, has a claim against an insured road user. This is so in the present case. Then it may be debatable whether there is anything to be gained, any social utility, in shifting the financial loss from road users to a highway authority. But there can be no room for doubt when the injured 747

Sourcebook on Obligations and Remedies road user has no such claim. This may well happen. Then it does seem eminently fair and reasonable that the loss should fall on the highway authority and not the hapless road user. And if the existence of a duty of care in all cases, in the shape of a duty to act as a reasonable authority, has a salutary effect on tightening administrative procedures and avoiding another needless road tragedy, this must be in the public interest… I would dismiss this appeal.

Questions 1 2

In what significant way does the situation in Stovin differ from either X (Minors) or Barrett v Enfield LBC (below)? If the local authority carelessly failed to put out a small fire on their land started by (a) strangers or (b) their employees or (c) their contractors, and the fire spread damaging a neighbouring building, would the local authority be liable? Would the court examine the insurance position? What if the fire caused personal injury? Barrett v Enfield London Borough Council [1999] 3 WLR 79 House of Lords This was an action for damages in negligence against a local authority brought by a person who had been in the local authority’s care for most of his preadult life. He claimed that the local authority had been in breach of its duty to exercise the standard of care of a reasonable parent; and as a result of this breach of duty he suffered physical and psychological injury. The local authority sought to have the action struck out for disclosing no reasonable cause of action. The House of Lords, reversing the Court of Appeal, refused to strike out the claim. Lord Browne-Wilkinson: My Lords, when the plaintiff was 10 months old, he was the subject of a care order in favour of the defendant, London Borough of Enfield. He remained in the care of the defendant council until he was aged 17. In these proceedings the plaintiff alleges that the defendant council was in breach of a common law duty of care owed to him in consequence of which he suffered deep-seated psychiatric problems caused by the defendant’s negligence. The full circumstances of this case (as alleged by the plaintiff in the statement of claim) are set out in the speech of my noble and learned friend, Lord Slynn of Hadley. I gratefully adopt that statement but for my purposes it is sufficient to give a short summary of the plaintiff’s case. The statement of claim alleges that under the Children Acts the defendant came under a series of statutory duties to exercise quasi-parental care in and about the upbringing of the plaintiff. Originally, it was alleged that breach of such statutory duties in themselves gave rise to a cause of action for damages. But the plaintiff now accepts that he has no such cause of action. What he does allege is that the relationship between him and the defendant council arising by reason of the care order was such as to create a common law duty of care owed by the defendant to him. He alleges that, in breach of such duty of care, the defendant acting by its social workers and others negligently failed to safeguard the 748

Non-Contractual Obligations (1): Tort plaintiff’s welfare. It is alleged that the plaintiff negligently made two placements with foster parents, moved him six times to different residential homes between 1976 and 1988, failed to make arrangements for his adoption, failed to provide him with proper social workers, failed to provide appropriate psychiatric advice and failed to make proper arrangements to re-unite him with his mother. The plaintiff then alleges that such negligent treatment caused him to leave the care of the local authority when he attained the age of 18 without family or attachments and suffering from a psychiatric illness leading to his having an alcohol problem and a propensity to harm himself. I do not understand the plaintiff to allege that any one of the alleged acts of negligence by itself caused the injuries alleged. What he says is that the combination of all or some of the alleged acts of negligence produced that result. The defendant council applied to strike out the claim on the ground that it disclosed no cause of action. The district judge refused to strike out the action but his decision was reversed by Judge Brandt who struck out the claim. The Court of Appeal (Lord Woolf MR, Evans and Schiemann LJJ) upheld that decision. The Master of the Rolls based himself, by analogy, on the principles laid down in X v Bedfordshire County Council [1995] 2 AC 633 and Stovin v Wise [1996] AC 923… In Osman v United Kingdom (1998) The Times, 5 November, the European Court of Human Rights upheld a claim by the Osmans that their rights under Art 6 of the Convention had been infringed. They had sought to bring proceedings in the United Kingdom against the police alleging negligence in the prevention and pursuit of crime. Those proceedings were struck out by the Court of Appeal applying the decision of this House in Hill v Chief Constable of West Yorkshire [1989] AC 53: see Osman v Ferguson [1993] 4 All ER 344. I confess that I find the decision of the Strasbourg Court extremely difficult to understand. Article 6(1) of the Convention provides that In the determination of his civil rights and obligations…everyone is entitled to a fair and public hearing’. At first sight this would seem to require that the applicant has, under the local law, a right (right A) enforceable in the local court. Under Art 6 he is given as a separate right (right B) a right of access to the local courts to assert right A being a separate, free standing right. Thus, one would assume that right A would consist of, for example, a contractual right or a tortious right not to be negligently injured. If a person is prevented from enforcing those rights, that is not an infringement of right A but an infringement of right B, that is, the right of access to the court. However, that is apparently not how the European Court of Human Rights construes Art 6. In paras 139 and 140 of their judgment the Court said: 139 On that understanding, the Court considers that the applicants must be taken to have had a right, derived from the law of negligence, to seek an adjudication on the admissibility and merits of an arguable claim that they were in a relationship of proximity to the police, that the harm caused was foreseeable and that in the circumstances it was fair, just and reasonable not to apply the exclusionary rule outlined in the Hill case. In the view of the Court the assertion of that right by the applicants 749

Sourcebook on Obligations and Remedies is in itself sufficient to ensure the applicability of Art 6(1) of the Convention. 140. For the above reasons, the Court concludes that Art 6(1) is applicable. It remains to be determined whether the restriction which was imposed on the exercise of the applicants’ right under that provision was lawful. This passage seems to treat the Osmans as having a right under English law to go to court for a declaration that, apart from the public policy preventing suits against the police, they would have had a claim in negligence against the police and further, that it was not fair, just and reasonable in the circumstances of that case to apply the ‘exclusionary rule’, that is, the rule excluding negligence actions against the police. Having so defined the ambit of Art 6, the Strasbourg Court held that there was in the Osman case a breach of such right of access to the English court, such breach lying in the application of a blanket exclusionary rule which excludes all claims against the police for negligent failure to investigate or protect from crime. In the view of the Strasbourg Court, apparently, the applicability of such exclusionary rule has to be decided afresh in each individual case. If this is not done then it is impossible to determine whether the public interest in an efficient police force is or is not proportionate to the seriousness of the harm suffered by the plaintiff in the individual case: see para 150. On these grounds, the Strasbourg Court held that the English court had breached Art 6 by striking out the claim made by the Osmans against the police without hearing any evidence by reference to which the proportionality of the rule in that particular case could be judged. The Court said that the police had been granted a blanket immunity’ which was disproportionate and therefore an unjustifiable restriction on the Osmans’ right of access to the Court. The Osmans were entitled to have their case against the police determined in deserving cases: see paras 151 and 152. The problems in applying this reasoning to the English law of negligence are many and various. For example, the correct answer to the following points is not immediately apparent: (1) Although the word ‘immunity’ is sometimes incorrectly used, a holding that it is not fair, just and reasonable to hold liable a particular class of defendants whether generally or in relation to a particular type of activity is not to give immunity from a liability to which the rest of the world is subject. It is a prerequisite to there being any liability in negligence at all that as a matter of policy it is fair, just and reasonable in those circumstances to impose liability in negligence. (2) In a wide range of cases public policy has led to the decision that the imposition of liability would not be fair and reasonable in the circumstances, for example, some activities of financial regulators, building inspectors, ship surveyors, social workers dealing with sex abuse cases. In all these cases and many others the view has been taken that the proper performance of the defendant’s primary functions for the benefit of society as a whole will be inhibited if they are required to look over their shoulder to avoid liability in negligence. In English law, the decision as to whether it is fair, just and reasonable to impose a liability in negligence on a particular class of wouldbe defendants depends on weighing in the balance the total detriment to the public interest in all cases from holding such class liable in negligence as against the total loss to all would-be plaintiffs if they are not to have a

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Non-Contractual Obligations (1): Tort cause of action in respect of the loss they have individually suffered. (3) In English law, questions of public policy and the question whether it is fair and reasonable to impose liability in negligence are decided as questions of law. Once the decision is taken that, say, company auditors though liable to shareholders for negligent auditing are not liable to those proposing to invest in the company (see the Caparo Industries case [1990] 2 AC 605), that decision will apply to all future cases of the same kind. The decision does not depend on weighing the balance between the extent of the damage to the plaintiff and the damage to the public in each particular case. In view of the decision in the Osman case, it is now difficult to foretell what would be the result in the present case if we were to uphold the striking out order. It seems to me that it is at least probable that the matter would then be taken to Strasbourg. That Court, applying its decision in the Osman case if it considers it to be correct, would say that we had deprived the plaintiff of his right to have the balance struck between the hardship suffered by him and the damage to be done to the public interest in the present case if an order were to be made against the defendant council. In the present very unsatisfactory state of affairs, and bearing in mind that under the Human Rights Act 1998 Art 6 will shortly become part of English law, in such cases as these it is difficult to say that it is a clear and obvious case calling for striking out: see also Markesinis and Deakin on Torts, 4th edn, pp 145 et seq. For these reasons, in my judgment, this action should proceed to trial and when all the facts are known the difficult issues of law which arise may be confronted in the light of the real, as opposed to hypothetical, facts. In the meantime one can only hope that the law applicable under Art 6 is further interpreted. Lord Slynn: My Lords. In this case the Court of Appeal has struck out the whole of the appellant’s (plaintiffs) claim against the respondent (defendant). The appeal raises important and difficult questions first as to whether on the facts pleaded it is arguable that a local authority and social workers employed by it owed a duty of care to a child in its care and that that duty was broken and secondly whether the statement of claim should be struck out on the basis that the plaintiff would inevitably fail to establish that any of the breaches alleged caused the damage claimed… It is obvious from previous cases and indeed is self-evident that there is a real conflict between on the one hand the need to allow social welfare services exercising statutory powers to do their work in what they as experts consider is the best way in the interests first of the child, but also of the parents and of society, without an unduly inhibiting fear of litigation if something goes wrong, and on the other hand the desirability of providing a remedy in appropriate cases for harm done to a child through the acts or failure to act of such services. It is no doubt right for the courts to restrain within reasonable bounds claims against public authorities exercising statutory powers in this social welfare context. It is equally important to set reasonable bounds to the immunity such public authorities can assert. In Andenas and Fairgrieve, ‘Sufficiently serious? Judicial restraint in tortious liability of public authorities on the

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Sourcebook on Obligations and Remedies European influence’ (see Andenas (ed), English Public Law and the Common Law of Europe, 1998, p 285) the authors show the difficult problems which have arisen in cases involving claims for negligence in a statutory context and not least in analysing ‘the method adopted by the judiciary to ensure restraint in negligence actions against public bodies’: p 286. The position is in some respects clear; in others, it is far from clear. Thus, it is clear that where a statutory scheme requires a public authority to take action in a particular area and injury is caused, the authority taking such action in accordance with the statute will not be liable in damages unless the statute expressly or impliedly so provides. Nor will the authority be liable in damages at common law if its acts fall squarely within the statutory duty. Where a statute empowers an authority to take action in its discretion, then if it remains within its powers, the authority will not normally be liable under the statute, unless the statute so provides, or at common law. This, however, is subject to the proviso that if it purports to exercise its discretion to use, or it uses, its power in a wholly unreasonable way, it may be regarded as having gone outside its discretion so that it is not properly exercising its power, when liability in damages at common law may arise. It can no longer rely on the statutory power or discretion as a defence because it has gone outside the power… Lord Diplock in Dorset Yacht approached the question as to how far an authority could be liable at common law for the exercise of a discretion given by statute by asking whether the act was ultra vires the power conferred in an administrative law sense. This on the face of it may be different from the approach of the other members of the House, but I do not consider that there is any real difference between them as to the substance of the test, since Lord Reid considers that, before the common law duty of care can arise, the authority must have acted so carelessly or unreasonably that there has been no real exercise of the discretion and the authority has ‘acted in abuse or excess of its power’, which is very much the administrative law test… Another distinction which is sometimes drawn between decisions as to ‘policy’ and as to ‘operational acts’ sounds more promising. A pure policy decision where Parliament has entrusted the decision to a public authority is not something which a court would normally be expected to review in a claim in negligence. But again this is not an absolute test. Policy and operational acts are closely linked and the decision to do an operational act may easily involve and flow from a policy decision. Conversely, the policy is affected by the result of the operational act: see R v Chief Constable of Sussex ex p International Trader’s Ferry Ltd [1998] 3 WLR 1260. Where a statutory power is given to a local authority and damage is caused by what it does pursuant to that power, the ultimate question is whether the particular issue is justiciable or whether the court should accept that it has no role to play. The two tests (discretion and policy/operational) to which I have referred are guides in deciding that question. The greater the element of policy involved, the wider the area of discretion accorded, the more likely it is that the matter is not justiciable so that no action in negligence can be brought. It is true that Lord Reid and Lord Diplock in the Dorset Yacht case accepted that

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Non-Contractual Obligations (1): Tort before a claim can be brought in negligence, the plaintiffs must show that the authority is behaving so unreasonably that it is not in truth exercising the real discretion given to it. But the passage I have cited was, as I read it, obiter, since Lord Reid made it clear that the case did not concern such a claim, but rather was a claim that Borstal officers had been negligent when they had disobeyed orders given to them. Moreover, I share Lord Browne-Wilkinson’s reluctance to introduce the concepts of administrative law into the law of negligence, as Lord Diplock appears to have done. But in any case, I do not read what either Lord Reid or Lord Wilberforce in the Anns case (and in particular Lord Reid) said as to the need to show that there has been an abuse of power before a claim can be brought in negligence in the exercise of a statutory discretion as meaning that an action can never be brought in negligence where an act has been done pursuant to the exercise of the discretion. A claim of negligence in the taking of a decision to exercise a statutory discretion is likely to be barred, unless it is wholly unreasonable so as not to be a real exercise of the discretion, or if it involves the making of a policy decision involving the balancing of different public interests; acts done pursuant to the lawful exercise of the discretion can, however, in my view be subject to a duty of care, even if some element of discretion is involved. Thus, accepting that a decision to take a child into care pursuant to a statutory power is not justiciable, it does not in my view follow that, having taken a child into care, an authority cannot be liable for what it or its employees do in relation to the child without it being shown that they have acted in excess of power. It may amount to an excess of power, but that is not in my opinion the test to be adopted; the test is whether the conditions in the Caparo case have been satisfied… Causation All members of the Court of Appeal considered that many of the allegations here were not justiciable, but Lord Woolf MR said, p 378, that even if there were situations where a social worker could be negligent in implementing the decisions of the authority, ‘although complaints as to this type of conduct are made, there could be no prospect of the plaintiff succeeding on those complaints alone. He would be quite unable to attribute any part of his condition to that sort of incident’. Evans LJ added, p 379: ‘…the various acts and omissions of individual social workers…cannot realistically be said to have been specific causes of the injury of which the plaintiff complains.’… With great respect to the opinion of the members of the Court of Appeal, I have come to the view that this claim should not be struck out at this stage on that ground. It may well be that many of the allegations will be difficult to establish and that they will fail. In my opinion, however, the importance of seeing in each case whether what has been done is an act which is justiciable or whether it is an act done pursuant to the exercise or purported exercise of a statutory discretion which is not justiciable requires in this kind of matter, except in the clearest cases, an investigation of the facts. This is not the clearest case taken as a whole, even though some allegations if they stood alone might justifiably be struck out. I consider also that the question whether it is just and reasonable to impose a liability of negligence is not to be decided in the abstract for all acts or omissions of a statutory authority, but is to be decided on the basis of what is proved. The comment of Andenas and Fairgrieve that one of the problems about the uncertainty of the law in this area is that many 753

Sourcebook on Obligations and Remedies cases are decided on an application to strike out or on a preliminary issue on assumed facts as stated in the Statement of Claim—‘Dealing with such hypothetical facts deprives the courts of the opportunity to apply the operational-policy distinction to concrete facts. It is likely to exacerbate the formulation of clear statements of principle’—is to be borne in mind. See also the discussion of the facts in Phelps v Hillingdon London Borough Council [1997] 1 WLR 500, where the importance of investigating the precise nature of the service provided was made clearv Accordingly, I consider that this claim should not be struck out. This does not mean that I think that the appellant must or will win. He faces considerable difficulties, but with great respect to the experience and judgment of the members of the Court of Appeal, I consider that he is entitled to have these matters investigated and not to have them summarily dismissed. I would accordingly allow the appeal. Lord Hutton:… The consideration of this subject must begin with the judgments of this House in the Dorset Yacht case. The ratio of the decision was that officers of the Home Office acting pursuant to statutory powers were under a duty to take reasonable care to prevent Borstal boys under their control from causing damage to the property of a third person in the vicinity, but the issue whether a claim could be brought for negligence in the exercise of a statutory discretion did not arise for determination… As I read the judgments of Lord Reid and Lord Diplock, their observations that there can be no action for negligence in respect of actions carried out within the ambit of a statutory discretion were made against the background of the facts of that case and in the context of the statutory discretion under consideration, and their opinion that the courts could not intervene was based, in part, on the consideration that the courts were ill-suited in a sphere such as Borstal training to substitute their views for the views of the Home Secretary and his officials. I consider that subsequent decisions have shown that the underlying principle to be derived from the passages in the judgments of Lord Reid and Lord Diplock in the Dorset Yacht case relating to negligence in the exercise of a statutory discretion is that the courts will not permit a claim for negligence to be brought where a decision on the existence of negligence would involve the courts in considering matters of policy raising issues which they are illequipped and ill-suited to assess and on which Parliament could not have intended that the courts would substitute their views for the views of ministers or officials… In Lonrho plc v Tebbit [1991] All ER 973, in the judgment of Browne-Wilkinson VC, the same emphasis is placed on the point that it is decisions in the exercise of a statutory discretion on matters of policy involving the weighing of competing public interests which are non-justiciable… Therefore, these judgments lead me to the provisional view that the fact that the decision which is challenged was made within the ambit of a statutory discretion and is capable of being described as a policy decision is not in itself a reason why it should be held that no claim for negligence can be brought in respect of it. As I read it, this is what is said by the Privy Council in its judgment in Rowling v Takaro Properties Ltd [1988] AC 473, p 501G. It is only where the decision 754

Non-Contractual Obligations (1): Tort involves the weighing of competing public interests or is dictated by considerations which the courts are not fitted to assess that the courts will hold that the issue is non-justiciable on the ground that the decision was made in the exercise of a statutory discretion… In holding that the decisions of the defendant in relation to the plaintiff could not be the subject of a claim in negligence all three members of the Court of Appeal in this case based their ruling on the speech of Lord Browne-Wilkinson (with which all the other members of the House agreed) in X (Minors) v Bedfordshire County Council [1995] 2 AC 633. Schiemann LJ stated, p 381E: It is clear from X (Minors) v Bedfordshire County Council [1995] 2 AC 633 that in so far as any of the decisions were made within the ambit of the statutory discretion given to the authority they are not actionable.’ My Lords, whilst certain passages in that judgment can be read to support that proposition, I consider that those passages have to be read in the light of other passages which show the type of policy considerations involved in the exercise of a statutory discretion which Lord Browne-Wilkinson had in mind… Therefore, I do not think that the speech of Lord Browne-Wilkinson in the Bedfordshire case precludes a ruling in the present case that although the decisions of the defendant were within the ambit of its statutory discretion, nevertheless those decisions did not involve the balancing of the type of policy considerations which renders the decisions non-justiciable… In the Bedfordshire case, Lord Browne-Wilkinson said, p 749, that ‘the public policy consideration which has first claim on the loyalty of the law is that wrongs should be remedied’, but he held that in that case there were very potent counter-considerations to override that consideration. In the present case, the circumstances are different in a number of important respects. Unlike the Bedfordshire case, this is not a case where the child was in the care of his natural parent or parents when the negligence by the local authority is alleged to have occurred. And this is not a case, unlike the Bedfordshire case, where the local authority is alleged to have been negligent in respect of investigating or acting upon an allegation or suspicion of sexual abuse. Whilst I recognise that the arguments are closely balanced, I have come to the view that the arguments on behalf of the local authority are not sufficiently powerful to outweigh the argument that if the plaintiff has suffered personal injury by reason of its negligence he should be compensated by the courts. In the Bedfordshire case [1995] 2 AC 633, the counter-considerations which this House considered should prevail are those enumerated by Lord BrowneWilkinson, pp 749–51. In my opinion, by reason of the differences in the circumstances to which I have referred, these considerations become less powerful and are of insufficient weight to prevail. The first consideration was that a common law duty of care would cut across the whole interdisciplinary system set up by statute for the protection of children at risk, which involved the participation of the police, educational bodies, doctors and others. But in the present case it appears that other disciplines were not involved, or were not closely involved. The second consideration was that the task of a local authority and its servants in deciding whether to remove a 755

Sourcebook on Obligations and Remedies child from his parents because of the fear of sexual abuse was an extraordinarily delicate one. But in the present case, where the plaintiff was already removed from his natural mother, the duties of the defendant were not so delicate, although questions did arise as to whether the plaintiff should remain with particular foster parents. The third consideration was that if liability and damages were to be imposed it might well be that local authorities would adopt a more cautious and defensive approach to their duties. In the circumstances of this case I would not give this consideration great weight and I am in agreement with the opinion of Evans LJ in this case ([1998] QB 367, p 380): If the conduct in question is of a kind which can be measured against the standards of the reasonable man, placed as the defendant was, then I do not see why the law in the public interest should not require those standards to be observed. The next consideration was that the relationship between a social worker and a child’s parents is frequently one of conflict, particularly in a case of child abuse, and a fertile ground in which to breed hopeless and costly litigation. But again, in the circumstances of the present case, this consideration is of less weight. A further consideration was that there was a statutory procedure for complaint and for the investigation of grievances, and that the local authority ombudsman would have power to investigate the cases. Again, this consideration applies here, but if the plaintiff suffered psychiatric injury by reason of carelessness amounting to negligence at common law, I consider that the jurisdiction of the court should not be excluded because of the existence of other avenues of complaint. The final consideration in the Bedfordshire case was that there was no analogous category of cases to justify the imposition of liability on the local authority, and that the nearest analogy was cases where the courts had declined to impose common law liability on bodies, such as the police or statutory regulators of financial dealings, seeking to protect members of society from injury by criminals or from financial loss by the dishonesty of others. But in the present case the plaintiff was not a member of a wide class of society which the defendant was obliged to seek to protect, but was an individual person who had been placed in the care of the defendant by statute, and I consider that it would not constitute a novel category of negligence to hold that the defendant owed him a common law duty of care… The standard of care Although I would allow this appeal for the reasons which I have given and would permit the action to proceed to trial, I wish to emphasise that the considerations relied on by the defendant on the issue of justiciability will be of relevance and importance when the trial judge comes to consider the question whether the plaintiff has established a breach of the duty to take reasonable care. The standard of care in negligence must be related to the nature of the duty to be performed and to the circumstances in which the defendant has to carry it out. Therefore, the standard of care to be required of the defendant in this case in order to establish negligence at common law

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Non-Contractual Obligations (1): Tort will have to be determined against the background that it is given discretions to exercise by statute in a sphere involving difficult decisions in relation to the welfare of children. Accordingly, when the decisions taken by a local authority in respect of a child in its care are alleged to constitute negligence at common law, the trial judge, bearing in mind the room for differences of opinion as to the best course to adopt in a difficult field and that the discretion is to be exercised by the authority and its social workers and not by the court, must be satisfied that the conduct complained of went beyond mere errors of judgment in the exercise of a discretion and constituted conduct which can be regarded as negligent. I would allow the appeal.

Questions 1

2 3

4 5

Were not the English courts doing their best to discourage citizens from suing local authorities in case of child abuse and the like? Do you blame the Strasbourg Court for being concerned about the human rights of those abused by agents of the State? Upon whose shoulders (so to speak) should be placed the risk of child neglect? Some organisations argue that child abuse was rife in UK State institutions. If this is ever shown to be true, do you think it right that the State, or any of its institutions, should be immune from tort actions? To what extent will Barrett v Enfield change the rights of English citizens? Is it a case concerned only with procedural rights? Do you think organs like local authorities raise special public law problems? If so, do you think that English law should develop an independent tort of administrative liability? What would be the foundational principles of such a tort? Hussain v Lancaster City Council [1999] 2 WLR 1142 Court of Appeal (Seep 655.) Lippiatt v South Gloucestershire Council [1999] 3 WLR 137 Court of Appeal (See p 658.)

(c) Police Rigby v Chief Constable of Northamptonshire [1985] 1 WLR 1242 Queen’s Bench Division (See p 98.) Hill v Chief Constable of West Yorkshire [1989] AC 53 House of Lords (See p 90.) 757

Sourcebook on Obligations and Remedies Elguzouli-Daf v Commissioner of Police for the Metropolis [1995] QB 335 Court of Appeal (Seep 93.) Swinney v Chief Constable of Northumbria [1997] QB 464 Court of Appeal (See p 137.) Reeves v Commissioner of Police for the Metropolis [1999] 3 WLR 363 House of Lords (See pp 631, 770.)

9 ROAD ACCIDENTS (a) Breach of statutory duty Phillips v Britannia Hygienic Laundry Co Ltd [1923] 2 KB 832 Court of Appeal Bankes LJ: This is an appeal from the Divisional Court reversing the county court judge in an action brought by the plaintiff for damage done to his motor van. The axle of the defendants’ motor lorry broke and caused the damage. The action in the county court was founded on an alleged breach of a statutory provision contained in the Motor Cars (Use and Construction) Order 1904 and alternatively on the alleged negligence of the defendant. The county court judge absolved the defendant from negligence in relation either to the management of the motor lorry or to the state of its axle, but he found negligence on the part of the repairers to whom the motor lorry had been sent, in not having executed the repairs efficiently, and gave judgment for the plaintiff on the ground that the lorry was not in the condition required by cl 6 of Art II of the order. On an appeal by the defendants, the Divisional Court reversed this judgment. The plaintiff appeals to this court. I agree with the conclusion of the Divisional Court. If the judgment of the county court judge were to stand it would have very far-reaching consequences… We have not to consider the case of a person injured on the highway. The injury here was done to the appellant’s van; and the appellant, a member of the public, claims a right of action as one of a class for whose benefit cl 6 was introduced. He contends that the public using the highway is the class so favoured. I do not agree. In my view the public using the highway is not a class; it is itself the public and not a class of the public. The clause therefore was not passed for the benefit of a class or section of the public. It applies to the public generally, and it is one among many regulations for breach of

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Non-Contractual Obligations (1): Tort which it cannot have been intended that a person aggrieved should have a civil remedy… Atkin LJ:… This is an important question, and I have felt some doubt upon it, because it is clear that these regulations are in part designed to promote the safety of the public using highways. The question is whether they were intended to be enforced only by the special penalty attached to them in the Act. In my opinion, when an Act imposes a duty of commission or omission, the question whether a person aggrieved by a breach of the duty has a right of action depends on the intention of the Act. Was it intended to make the duty one which was owed to the party aggrieved as well as to the State, or was it a public duty only? That depends on the construction of the Act and the circumstances in which it was made and to which it relates. One question to be considered is, Does the Act contain reference to a remedy for breach of it? Prima facie if it does that is the only remedy. But that is not conclusive. The intention as disclosed by its scope and wording must still be regarded, and it may still be that, though the statute creates the duty and provides a penalty, the duty is nevertheless owed to individuals. Instances of this are Groves v Lord Wimborne and Britannic Merthyr Coal Co v David. To my mind, and in this respect I differ from McCardie J, the question is not to be solved by considering whether or not the person aggrieved can bring himself within some special class of the community or whether he is some designated individual. The duty may be of such paramount importance that it is owed to all the public. It would be strange if a less important duty, which is owed to a section of the public, may be enforced by an action, while a more important duty owed to the public at large cannot. The right of action does not depend on whether a statutory commandment or prohibition is pronounced for the benefit of the public or for the benefit of a class. It may be conferred on anyone who can bring himself within the benefit of the Act, including one who cannot be otherwise specified than as a person using the highway…I have come to the conclusion that the duty they were intended to impose was not a duty enforceable by individuals injured, but a public duty only, the sole remedy for which is the remedy provided by way of a fine. They impose obligations of various kinds, some are concerned more with the maintenance of the highway than with the safety of passengers; and they are of varying degrees of importance; yet for breach of any regulation a fine not exceeding £10 is the penalty. It is not likely that the legislature, in empowering a department to make regulations for the use and construction of motor cars, permitted the department to impose new duties in favour of individuals and new causes of action for breach of them in addition to the obligations already well provided for and regulated by the common law of those who bring vehicles upon highways. In particular it is not likely that the legislature intended by these means to impose on the owners of vehicles an absolute obligation to have them road worthy in all events even in the absence of negligence… [Younger LJ agreed.] X (Minors) v Bedfordshire County Council [1995] 2 AC 633 House of Lords The facts of this case, as we have seen (above, p 727), did not involve a car accident. However, the judgment of Lord Browne-Wilkinson contains a most useful summary of the tort of breach of statutory duty, the cause of action in Phillips v Britannia. 759

Sourcebook on Obligations and Remedies Lord Browne-Wilkinson:… The principles applicable in determining whether such statutory cause of action exists are now well established, although the application of those principles in any particular case remains difficult. The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action: Cutler v Wandsworth Stadium Ltd [1949] AC 398; Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173. However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy. Thus, the specific duties imposed on employers in relation to factory premises are enforceable by an action for damages, notwithstanding the imposition by the statutes of criminal penalties for any breach: see Groves v Wimborne (Lord) [1898] 2 QB 402…

Questions 1 2 3 4 5

If the plaintiff had suffered personal injury, would the judges in Phillips have taken a different view? Does the tort of negligence now view road users as a class or section of the public? If so, ought this to discredit the decision in Phillips? Is it important to appreciate that Phillips was decided before the introduction of compulsory insurance for third party liability? Is Phillips a case which distinguishes between public and private law? Read v Lyons (see above, p 662) has presented an obstacle to the development of strict liability (liability for things) in the area of factory accidents. Phillips seems to present an obstacle in respect of the another great source of personal injury litigation, car accidents. Things are different in France, where Art 1384 of the Code civil, and now a separate statute (loi 5 juillet 1985), have focused more on the activity, or at least on control, than on the existence or non-existence of fault (although fault still has some role) (see Tunc, ‘Traffic accidents compensation under tort law and under specific law: the French experience’, in Cane and Stapleton (eds), The Law of Obligations: Essays in Celebration of John Fleming, 1998, OUP, pp 363–76). Is English law behind the rest of Europe in this respect?

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(b) Public nuisance Dymond v Pearce and Others [1972] 1 QB 496 Court of Appeal This was an action for damages by a motorcycle passenger against the employers of a lorry driver (second defendant) in respect of personal injuries suffered by the passenger when the motorcycle ran into the back of the parked lorry. The lorry driver had parked his vehicle, with the tail lights on, beneath a street lamp on a dual carriageway, and there was a clear view of the lorry for at least 200 yards. The crash occurred when the driver of the motorcycle (first defendant) was looking behind him at girls on the pavement. The Court of Appeal upheld a judgment that the accident was wholly the fault of the motor cyclist. Sachs LJ:… When looking at authorities concerned with highway nuisances, it is important to remember that there are these two categories, because otherwise phrases relating to the second—danger—category may be read as necessarily applying to the first—simple obstruction. It is, however, prima facie common to both categories—which can in fact overlap—that in neither is it necessary to prove negligence as an ingredient…that in both proof of what is prima facie a nuisance lays the onus on the defendant to prove justification (compare Southport Corpn v Esso Petroleum Co Ltd); and that, of course, neither is actionable—in the sense that a claim for damages can succeed—unless the plaintiff can establish that damage has actually been caused to him by the nuisance. Leaving on one side those in somewhat special positions, such as frontagers, the common law rights of users of highways are normally confined to use for passage and repassage and for incidents usually associated with such use, such as temporary halts and those emergency stops which often give rise to difficulties… The leaving of a large vehicle on a highway for any other purpose for a considerable period (it is always a matter of degree) otherwise than in a layby prima facie results in a nuisance being created, for it narrows the highway. With all respect to the views expressed by the learned trial judge as to the ways of life today, I am unable to accept his conclusion that the parking for many hours for the driver’s own convenience of a large lorry on a highway of sufficient importance to have a dual carriageway did not result in the creation of a nuisance… But the mere fact that a lorry was a nuisance does not render its driver or owner liable to the plaintiff in damages unless its being in that position was a cause of the accidentv [The trial judge found] that the sole cause of the accident was the first defendant’s negligence… It entails a parallel conclusion that the nuisance was not a cause of the plaintiff’s injuries; that, indeed, in the vast majority of cases is an inevitable conclusion once negligence on the part of a driver of a stationary vehicle is negatived, for only rarely will that which was found not to be a foreseeable cause of an accident also be found to have been in law the actual cause of it…

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Sourcebook on Obligations and Remedies It is thus not necessary to decide a further point inherent in much that was canvassed before us as to the ingredients of nuisance of the category under consideration. What would be the position if, even though the third defendant had not been negligent in leaving the lorry as it was in fact left, yet there had occurred some unexpected supervening happening—such as an onset of heavy weather, sea mist or fog, or, for instance, a sudden rear light failure (potent cause of fatalities)—which had so affected the situation that the lorry became the cause of an accident? Should the risk fall entirely on those using the highway properly? Or should some liability attach to the person at fault in creating a nuisance? It may well be that, as I am inclined to think, he who created the nuisance would be under a liability… If he was thus liable this might be the only class of case in which an action in nuisance by obstruction of the highway could succeed where one in negligence would fail… Edmund Davies LJ:… Where a vehicle has been left parked on the highway for such a length of time or in such other circumstances as constitute it an obstruction amounting to a public nuisance, I remain of the view I expressed in Parish v Judd that, in order that a plaintiff who in such proceedings as the present may recover compensation for personal injuries caused by a collision with that obstruction, he must establish that the obstruction constituted a danger… [He then cited Denning LJ in Morion v Wheeler, as to what constitutes a danger—‘whether injury may reasonably be anticipated’.] It goes without saying, however, that the person creating a highway obstruction must be alert to such sudden and unpredicted weather changes as those to which we are subject in this country at most seasons, to the possibility that the vehicular or highway lighting may fail or be interfered with in these days of rampant vandalism, and to other circumstances which may convert what was originally a danger-free obstruction into a grave traffic hazard. If he fails to exercise ordinary intelligence in those and similar respects, he can make no proper claim reasonably to have anticipated the probable shape of things to come, and he must expect his conduct to be subjected to the most critical scrutiny in the event of an accident occurring… It is true that in the result, as Denning LJ said in Morion v Wheeler, In as much as the test of danger is what may reasonably be foreseen, it is apparent that cases of public nuisance…have an affinity with negligence’. Nevertheless, as he went on to point out: There is a real distinction between negligence and nuisance. In an action for private damage arising out of a public nuisance, the court does not look at the conduct of the defendant and ask whether he was negligent. It looks at the actual state of affairs as it exists in or adjoining the highway without regard to the merits or demerits of the defendant. If the state of affairs is such as to be a danger…the person who created it is liable unless he can show sufficient justification or excuse.’

Notes and questions 1

If the plaintiff establishes a prima facie nuisance, does this put the onus of disproving negligence on the defendant?

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2

3

4 5

D, suddenly taken ill with a heart attack, creates a dangerous hazard on the road by leaving his lorry in an unsuitable place and the police carelessly fail to deal with the problem with the result that P, a motor cyclist, crashes into the parked lorry. Could P successfully sue anyone? What would be the position if the plaintiff passenger had actually been injured as a result of the motorcycle hitting the lorry because the street lamp had been broken by vandals? What if a thief had stolen the lorry and later parked it in a dangerous position; would the owners of the lorry be liable if there was an accident? Public nuisance may seem at first sight to be a cause of action very different from breach of statutory duty, but they share a common denominator. They are both causes of action dealing with damage caused unlawfully; for both public nuisance and breach of statute are crimes. The question, therefore, is whether there should be liability in private law for an infringement of a public law rule. One fundamental requirement is special damage suffered by an individual over and above the rest of the community. Note, also, the role of an interest (see pp 134–36). Can ‘special damage’ include pure financial loss?

(c) Negligence Stovin v Wise [1996] AC 923 House of Lords (See p 737.) Mansfield v Weetabix Ltd [1998] 1 WLR 1263 Court of Appeal This was an action for damages by the owners of a shop against the employer and personal representative of a lorry driver whose lorry crashed into their shop. The trial judge held the defendants liable on the ground that the lorry driver had been negligent, but an appeal against this judgment was allowed. Leggatt LJ: It is over 12 years since, on 1 November 1984, a 38 ton lorry belonging to the first defendants, Weetabix Ltd, failed to take a sharp bend in the village of Upper Tean near Stoke-on-Trent in Staffordshire and crashed into the shop belonging to the plaintiffs, Mr and Mrs Mansfield, causing extensive damage. At the wheel of the lorry was Mr Terence Tarleton, who has since died, as has Mrs Mansfield. Although he had no reason to suspect it, Mr Tarleton had malignant insulinoma. That resulted in a hypoglycaemic state in which the brain was starved of glucose and so was unable to function properly. That was what caused the accident. The second defendant is Mr Tarleton’s personal representative. On 23 November 1995, Collins J gave judgment for the plaintiffs, holding the defendants liable to them in negligence. Against that judgment the defendants now appeal… The judge followed Roberts v Ramsbottom [1980] 1 WLR 823. In it, a motorist was involved in an accident when, unknowingly, he was suffering from a

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Sourcebook on Obligations and Remedies stroke and was unaware of his unfitness to drive. Neill J considered several criminal cases about automatism before saying, p 832: I am satisfied that, in a civil action, a similar approach should be adopted. The driver will be able to escape liability if his actions at the relevant time were wholly beyond his control. The most obvious case is sudden unconsciousness. But if he retained some control, albeit imperfect control, and his driving, judged objectively, was below the required standard, he remains liable. He gave no reason for being so satisfied. In my judgment, consideration of criminal cases can only introduce confusion. In them, the question is whether the defendant was driving. Hence the need, if the defendant is to escape conviction, to show that he was in a state of automatism. In civil cases that is not the test. So, Neill J erred when he considered criminal and civil cases indifferently, and assumed that to escape liability in a civil case a defendant must show that he was in a state of automatism. Collins J ought not to have derived support for his approach from the fact that Roberts v Ramsbottom was cited with approval in AG’s Reference (No 2 of 1992) [1994] QB 91. Nor was he entitled to conclude from R v Spurge [1961] 2 QB 205 that it is only when a sudden disabling event occurs that a driver will escape liability. Nevertheless, Roberts’s case [1980] 1 WLR 823 was, in my judgment, rightly decided on the alternative ground that the defendant ‘continued to drive when he was unfit to do so and when he should have been aware of his unfitness’: see pp 832–33. The other case upon which Collins J principally relied was Nettleship v Weston [1971] 2 QB 691, in which this court held that the duty of care owed by a learner driver to her instructor is to be judged by the same objective standard as that owed to passengers and other road users by qualified drivers. But, although this case shows that there should be no relaxation in the standard of care, it does not refer to cases in which a driver is unaware that he is subject to a disability… In my judgment, the standard of care that Mr Tarleton was obliged to show in these circumstances was that which is to be expected of a reasonably competent driver unaware that he is or may be suffering from a condition that impairs his ability to drive. To apply an objective standard in a way that did not take account of Mr Tarleton’s condition would be to impose strict liability. But that is not the law. As Lord Wilberforce said in Snelling v Whitehead (1975) The Times, 31 July, a transcript of the speeches in which is before the court: The case is one which is severely distressing to all who have been concerned with it and one which should attract automatic compensation regardless of any question of fault. But no such system has yet been introduced in this country and the courts, including this House, have no power to depart from the law as it stands. This requires that compensation may only be obtained in an action for damages and further requires, as a condition of the award of damages against the [driver], a finding of fault, or negligence, on his part…it is…not disputed that any degree of fault on the part of the [driver], if established, is sufficient for the [plaintiff] to recover. On the 764

Non-Contractual Obligations (1): Tort other hand, if no blame can be imputed to the [driver], the action, based on negligence, must inevitably fail. In the present case the plaintiffs may well have been insured. Others in their position may be less fortunate. A change in the law is, however, a matter for Parliament. Meanwhile, since in my judgment Mr Tarleton was in no way to blame, he was not negligent. I would therefore allow the appeal. Aldous LJ: I agree. The standard of care that Mr Tarleton was obliged to show was that which is expected of a reasonably competent driver. He did not know and could not reasonably have known of his infirmity which was the cause of the accident. Therefore he was not at fault. His actions did not fall below the standard of care required.

Questions 1

2 3 4

5

6

7

Why is a change in the law a matter for Parliament? If the courts were able to establish, without the help of the legislature, the tort of negligence, why could they not develop areas of strict liability? Why could the court not adopt an approach similar to that taken in Henderson v Jenkins (below)? How would these facts be decided in France before and after 1985? Why is it that French judges can do things that English judges seemingly cannot? Does a learner driver have to show the same standard of care as an experienced driver? If so, why? (Cf Dig 9.2.8.1; Nettleship v Weston [1971] 2 QB 691.) Why is it that English law is so attached to the fault principle when it comes to road accidents? Is England behind the rest of Europe in this respect? How does the fault principle aid insurance companies? If the fault principle was largely removed from traffic accidents, would insurance companies be the losers or might they benefit in certain ways? Will the removal of legal aid from personal injury claims effectively allow the rules of tort law to act as a bar to compensation claims by people injured on the roads, in hospitals, in work and on ships and aircraft?

(d) Burden of proof Henderson v HE Jenkins and Sons Ltd [1970] AC 282 House of Lords This was an action in damages under the Fatal Accidents Act by a widow against the owners of a runaway lorry which had killed her husband. The owners claimed that the lorry’s brakes had failed because of a latent defect undiscoverable by the use of reasonable care, and this defence was upheld by the trial judge and Court of Appeal; a bare majority of the House of Lords allowed an appeal.

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Sourcebook on Obligations and Remedies Lord Donovan:… [The defendants] proved that the pipe in question was visually inspected in situ once a week; that the brake pedal was on these occasions depressed to check for leaks from the pipe and none seen; that nothing more than such visual inspection of the pipe was required by Ministry of Transport rules or the maker’s advice… Yet the kind of load this lorry had been carrying in the past was something which had to be known in order to assess the measure of the duty of reasonable care resting on the [defendants]. For the corrosion of the pipe was caused by some chemical agent. Had the lorry, therefore, been carrying chemicals of any kind? Or had it operated under conditions where salt (also a corrosive agent) might come in contact with the pipe? Or had it at some time been adapted for carrying cattle and done so? If any of these things were the case then clearly visual inspection of the pipe in situ would not have been enough. It should have been removed at intervals so that the whole of it, and not merely part of it, could be examined… It was, therefore, incumbent on the [defendants], if they were to sustain their plea of latent defect undiscoverable by the exercise of ordinary care, to prove where the vehicle had been and what it had been carrying whilst in their service and in what conditions it had operated. Only then could the standard of reasonable care be ascertained, and their conduct measured against it…

Questions 1 2 3 4 5 6

Did the plaintiff succeed because the defendants were unable to prove that they were not negligent? Is this case like a public nuisance case? Is the approach taken by the House of Lords similar to that taken by the Court of Appeal in Ward v Tesco (p 159)? What if the defendant had been a local authority rather than a commercial company? Is Henderson v Jenkins a case of principle or, indeed, a principal case? D suffers a heart attack while driving and runs over P, a cyclist. Can P sue D for damages?

(e) Liability of a car owner Morgans v Launchbury [1973] AC 127 House of Lords This was an action for damages by passengers injured in a car accident against the owner of the car they were using for their pub-crawl. The owner had lent the car to her husband on condition that he get a friend to drive if he got too drunk. The husband did get too drunk, but the friend he got to drive drove carelessly causing a collision. If the friend was acting as an ‘agent’ of the owner when the collision occurred the owner’s insurance would be liable to the injured passengers for the careless driving. However, the House of Lords, reversing a majority decision of the Court of Appeal, held the owner not liable. 766

Non-Contractual Obligations (1): Tort Lord Pearson: My Lords, in my opinion, the principle by virtue of which the owner of a car may be held vicariously liable for the negligent driving of the car by another person is the principle qui facit per alium,facit per se. If the car is being driven by a servant of the owner in the course of the employment or by an agent of the owner in the course of the agency, the owner is responsible for negligence in the driving. The making of the journey is a delegated duty or task undertaken by the servant or agent in pursuance of an order or instruction or request from the owner and for the purposes of the owner. For the creation of the agency relationship it is not necessary that there should be a legally binding contract of agency, but it is necessary that there should be an instruction or request from the owner and an undertaking of the duty or task by the agent. Also the fact that the journey is undertaken partly for purposes of the agent as well as for the purposes of the owner does not negative the creation of the agency relationship…I think there has to be an acceptance by the agent of a mandate from the principal, though neither the acceptance nor the mandate has to be formally expressed or legally binding… Lord Denning MR, with the object of ensuring that compensation will be available for injured persons, has sought to extend the liability of a car owner for negligent driving of his car by other persons, because the car owner is the person who has or ought to have a motor insurance policy. Lord Denning MR has done this in ways which, I think, really amount to a departure from the agency principle (qui facit per alium facit per se) and the introduction of new bases of a car owner’s liability. First, he says [1971] 2 QB 245, p 255: If it is being used wholly or partly on the owner’s business or in the owner’s interest, the owner is liable for any negligence on the part of the driver. This would include a case in which some eager or officious person drove the car on the owner’s business or in the owner’s interest but without any prior authority or subsequent ratification from the owner. There would be no agency in the normal sense of the word, and the owner would not have caused or even permitted the driving of the car by that person. It would be a novelty in the law if the owner were held liable in such a case and some new principle would have to be invented. Secondly, Lord Denning MR treats permission by the owner for a person to drive his car as being in most cases sufficient to impose upon the owner liability for that person’s negligent driving of the car. That is the rule proposed for ‘most cases’ and an exception is stated, p 255: The owner only escapes liability when he lends it out or hires it out to a third person to be used for purposes in which the owner has no interest or concern. Apart from that exception the proposed rule is stated broadly. Lord Denning MR says, p 255: The reason behind this principle is at bottom the principle which lies behind all vicarious liability. It is to put the responsibility on to the person who 767

Sourcebook on Obligations and Remedies ought in justice to bear it. Now the owner or hirer of the vehicle is in most cases the person who ought to bear the responsibility. He is the one who puts it on the road where it is capable of doing damage. He is the one who causes or permits it to be used. He is the one who is, or ought to be, insured in respect of it… Suffice it that, by himself or by proxy, he allowed the driver to drive it on the fatal occasion. He ought, therefore, at common law to shoulder the responsibility… The owner or hirer is at common law responsible for all injury or damage done by his permitted driver in the negligent driving of the car… But the owner or hirer can, of course, at common law excuse himself from responsibility if it was being used without his permission on an occasion in which he had no interest or concern. The exact scope of the proposed new principle of owner’s liability is not fully explored in this passage, but it seems clear that a new principle is being proposed, whereby permission rather than agency would be the basis of liability. It seems to me that these innovations, whether or not they may be desirable, are not suitable to be introduced by judicial decision. They raise difficult questions of policy, as well as involving the introduction of new legal principles rather than extension of some principle already recognised and operating. The questions of policy need consideration by the government and Parliament, using the resources at their command for making wide inquiries and gathering evidence and opinions as to the practical effects of the proposed innovations. Apart from the transitional difficulty of current policies of insurance being rendered insufficient by judicial changes in the law, there is the danger of injustice to owners who for one reason or another are not adequately covered by insurance or perhaps not effectively insured at all (for example, if they have forgotten to renew their policies or have taken out policies which are believed by them to be valid but are in fact invalid, or have taken their policies from an insolvent insurance company). Moreover, lack of insurance cover would in some cases defeat the object of the proposed innovation, because uninsured or insufficiently insured owners would often be unable to pay damages awarded against them in favour of injured plaintiffs. Any extension of car owners’ liability ought to be accompanied by an extension of effective insurance cover. How would that be brought about? And how would it be paid for? Would the owner of the car be required to take out a policy for the benefit of any person who may drive the car? Would there be an exception for some kinds of unlawful driving? A substantial increase in premiums for motor insurance would be likely to result and to have an inflationary effect on costs and prices. It seems to me that, if the proposed innovations are desirable, they should be introduced not by judicial decision but by legislation after suitable investigation and full consideration of the questions of policy involved. I would allow the appeal.

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Questions 1

2 3

4

5

6

Is fear of inflation a good legal reason for not developing new principles of liability? Is it an economically sound reason? Will not such reasoning always act as a bar to judicial innovation? Given that inflation no longer seems a problem, is there now a case for re-establishing Lord Denning’s approach? Does the present system of fault liability in traffic accidents encourage litigation? Did the wife (owner) have any interest in the journey? Does a person not have an interest in the well being of his or her spouse? What if she had asked one of the group to bring her back a bottle of beer? If one is strictly liable for keeping a dangerous animal or an animal with dangerous characteristics (Animals Act 1971, s 2), why is one not also liable for keeping a thing which is capable of just as much, if not more, harm? Where is the logic of having an Animals Act but not a Motor Vehicles (Compensation of Injuries) Act? A pub landlord, having served many whiskies to a customer he knew was going to drive home, made no effort at closing time to stop the customer from driving his car out of the pub car park and home. If the customer killed a cyclist as a result of his drunk condition, can the customer’s insurance company, which has paid compensation to the wife of the cyclist, sue the landlord for contribution or an indemnity? The case concerns the kind of traffic accident which happens every day. The young Sébastien, 12 years of age, crosses a trunk road on his bicycle just as a motorcyclist is coming along the road. The crash is inevitable. The child and the motorcyclist are injured… The young child will be compensated through the application of the law of 5 July 1985, dealing with the improvement in the situation of traffic accident victims. As far as the motorcyclist is concerned, he has to remain in the realm of the ordinary law dealing with parental liability…’ (Advocate General in Cass civ 19.2.1997; JCP 28.5.97.22848). This ‘ordinary law’ is to be found in Art 1384 of the CC: The father and mother, to the extent that they exercise the right of custody, are jointly liable for damage caused by their minor children living with them.’ Do you think the parents could escape liability by showing that they were not in any way at fault in the supervision of the young Sébastien? How would English law respond to these facts? What if the motorcyclist had been over the permitted alcohol limit?

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10 DEFENCES TO TORT ACTIONS Law Reform (Contributory Negligence) Act 1945 (8 & 9 Geo VI, c 28) (See p 360.) Reeves v Commissioner of Police for the Metropolis [1999] 3 WLR 363 House of Lords This was an action for damages brought under the Fatal Accidents Act 1976 and Law Reform (Miscellaneous Provisions) Act 1934 against the police by a dependant of a man who had committed suicide while in police custody. The police were adjudged negligent but the judge held that the man, in taking his own life, was the sole cause of his damage. An appeal to the Court of Appeal was allowed, a majority holding that the claimant was entitled to full damages. A further appeal to the House of Lords was allowed; a majority held that the claimant was entitled to damages reduced by 50% on the basis of contributory negligence. Lord Hoffmann:… This brings me to the question of contributory negligence… Plainly, Mr Lynch’s act in committing suicide would not have given rise to liability in tort. That part of the definition is concerned with fault on the part of the defendant. The question is whether, apart from the Act, it would have given rise to a defence of contributory negligence. I recognise, of course, that it is odd to describe Mr Lynch as having been negligent. He acted intentionally and intention is a different state of mind from negligence. On the other hand, the ‘defence of contributory negligence’ at common law was based upon the view that a plaintiff whose failure to take care for his own safety was a cause of his injury could not sue. One would therefore have thought that the defence applied a fortiori to a plaintiff who intended to injure himself. The late Professor Glanville Williams, in his book Joint Torts and Contributory Negligence, 1951, p 199, expressed the view that ‘contributory intention should be a defence’. It is not surprising that there is little authority on the point, because the plaintiff’s act in deliberately causing injury to himself is almost invariably regarded as negativing causal connection between any prior breach of duty by the defendant and the damage suffered by the plaintiff. The question can arise only in the rare case, such as the present, in which someone owes a duty to prevent, or take reasonable care to prevent, the plaintiff from deliberately causing injury to himself. Logically, it seems to me that Professor Glanville Williams is right… [The reasoning of Buxton LJ] seems to me fallacious. It is saying that because Mr Lynch’s own act did not negative the causal connection between the negligence of the police and his death, it would be inconsistent to say that he caused his own death at all. Neither logic nor common sense requires such a conclusion. Mr Lynch’s suicide did not prevent the breach of duty by the police from being a cause of his death but that does not mean that his suicide was not also a cause of his death.

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Non-Contractual Obligations (1): Tort As I said in Environment Agency (formerly National Rivers Authority) v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350, p 358, ‘one cannot give a common sense answer to a question of causation for the purposes of attributing responsibility without knowing the purpose and scope of the rule’. Because the police were under a duty to take reasonable care not to give Mr Lynch the opportunity to kill himself, the common sense answer to the question whether their carelessness caused his death is yes. Because Mr Lynch also had responsibility for his own life, the common sense answer to the question whether he caused his own death is yes. Therefore both causes contributed to his death and the Act of 1945 provides the means of reflecting this division of responsibility in the award of damages… … [W]hat s 1 requires the court to apportion is not merely degrees of carelessness, but ‘responsibility’ and that an assessment of responsibility must take into account the policy of the rule, such as the Factories Acts, by which liability is imposed. A person may be responsible although he has not been careless at all, as in the case of breach of an absolute statutory duty. And he may have been careless without being responsible, as in the case of ‘acts of inattention’ by workmen… It is commonly the case that people are held liable in negligence for not taking precautions against the possibility that someone may do something careless and hurt themselves, like diving into a shallow swimming pool, but I do not think it has been suggested that in such cases damages can never be reduced on account of the plaintiff’s contributory negligence. In my view, it would therefore have been right to apportion responsibility between the Commissioner and Mr Lynch in accordance with the Act of 1945. The judge and Morritt LJ would have apportioned 100% to Mr Lynch. But I think that this conclusion was heavily influenced by their view, expressed in connection with the question of causation, that Mr Lynch, as a person of sound mind, bore full responsibility for taking his own life. This is, of course, a tenable moral view, which was powerfully advocated by the late Lord Denning MR… But whatever views one may have about suicide in general, a 100% apportionment of responsibility to Mr Lynch gives no weight at all to the policy of the law in imposing a duty of care upon the police. It is another different way of saying that the police should not have owed Mr Lynch a duty of care. The law of torts is not just a matter of simple morality but contains many strands of policy, not all of them consistent with each other, which reflect the complexity of life. An apportionment of responsibility ‘as the court thinks just and equitable’ will sometimes require a balancing of different goals … I would therefore allow the appeal and substitute a judgment for the plaintiff in the sum of £4,345 with interest. Lord Jauncey:… In opening the Commissioner’s appeal to this House, Mr Pannick QC accepted: (1) that because they were aware that he was a suicide risk there was a duty on the part of the officers at the station to take reasonable care to prevent the deceased from committing suicide; and (2) that they were in breach of this duty by failing to close the flap. There were, he submitted, three issues for your Lordships’ consideration namely: (i) novus actus 771

Sourcebook on Obligations and Remedies interveniens; (ii) volenti non fit injuria; and (iii) contributory negligence. I shall deal with these issues in that order. Novus actus interveniens Mr Pannick submitted that the deceased’s death was caused not by the negligence of the police officers but by the voluntary act of the deceased while of sound mind. This act broke the chain of causation between the Commissioner’s breach of duty and the death… My Lords, I consider that this argument is flawed. Professor Glanville Williams in his Joint Torts and Contributory Negligence, 1951, stated, para 2–24, that: If a particular consequence of the defendant’s wrongdoing is attributable to some independent act or event which supersedes the effect of the tortious conduct, the defendant’s responsibilities may not extend to the consequences of the supervening act or event. He went on to state that the novus actus interveniens ‘must constitute an event of such impact that it rightly obliterates the wrongdoing of the defendant’. The reference to an independent act superseding the effect of the tortious conduct must, in my view, relate to an act which was outwith the contemplated scope of events to which the duty of care was directed. Where such a duty is specifically directed at the prevention of the occurrence of a certain event, I cannot see how it can be said that the occurrence of that event amounts to an independent act breaking the chain of causation from the breach of duty, even although it may be unusual for one person to come under a duty to prevent another person deliberately inflicting harm on himself. It is the very thing at which the duty was directed… The individual’s right of self-determination is irrelevant here for two reasons. In the first place it is not a defence to a breach of duty but rather an argument against the existence of a duty at all. If an individual can do to his own body what he wills, whether by positive act or neglect, then there can be no duty on anyone else to prevent his so doing. In this case, however, it is accepted that the Commissioner owed a duty of care to the deceased. In the second place, the cases in which the principle has been recognised and to which your Lordships have been referred were cases in which prevention of injury to health or death would have involved an unlawful physical invasion of the individual’s rights. In this case performance of the duty of care by closing the flap would have involved no invasion of any rights of the deceased… Volenti non fit injuria Mr Pannick conceded that if his argument on novus actus interveniens failed so must his argument on volenti non fit injuria. I consider that this concession was rightly made. If the defence were available in circumstances such as the present, where a deceased was known to have suicidal tendencies, it would effectively negative the effect of any duty of care in respect of such suicide…

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Non-Contractual Obligations (1): Tort Contributory negligence Mr Blake QC for the plaintiff submitted that the act of suicide could not amount to contributory negligence on the part of the deceased in as much as it did not amount to fault by him within the meaning of s 4 of the Law Reform (Contributory Negligence) Act 1945. Section 1(1) of that Act provides that where A suffers damage ‘as the result partly of his own fault and partly of the fault’ of B, the damages recoverable may be reduced ‘having regard to the claimant’s share in the responsibility for the damage’. Fault is defined in s 4 as meaning ‘negligence, breach of statutory duty or other act or omission which gives rise to a liability in tort or would, apart from this Act, give rise to the defence of contributory negligence’. Mr Blake contended that since an act which was intentional not only as to its performance but also as to its consequences would not have amounted to contributory negligence at common law it followed that the deceased’s act of suicide was not ‘fault’ within the meaning of s 4… My Lords, no United Kingdom authority has been cited in support of Mr Blake’s contention so far as the period before 1945 is concerned. This is perhaps not altogether surprising in view of the fact that the effect of contributory negligence at that time was identical to that of the defence of volenti non fit injuria. The authorities from New Zealand and the United States do not suggest that an act intentional both as to performance and consequences can never amount to contributory negligence. If the law is to retain the respect of the public it should where possible walk hand in hand with common sense. There are, of course, occasions where legislation both domestic and European appear to make this impossible but where there is no such legislative inhibition the law should be interpreted and applied so far as possible to produce a result which accords with common sense. To take an example, A working beside a tank of boiling liquid which is inadequately guarded negligently allows his hand to come in contact with the liquid and suffers damage; B for a dare plunges his hand into the same liquid to see how long he can stand the heat. It would be bordering on the absurd if A’s entitlement to damages were reduced but B could recover in full for his own folly. B’s responsibility for the damage which he suffered is undeniable. I see no reason to construe s 4 of the Act of 1945 to produce such a result and I agree with the Lord Chief Justice that the word ‘fault’ in that section is wide enough to cover acts deliberate as to both performance and consequences. An individual of sound mind is no less responsible for such acts than he is for negligent acts and it is his share of responsibility for the damage which reduces the damages recoverable. In this case, the open flap was not a danger to an occupant of the cell acting normally with reasonable regard for his own safety. It only became a danger when it was deliberately used by the deceased as part of the mechanism whereby he strangled himself. The act of the deceased was accordingly a substantial cause of his own demise and any damages recoverable by the plaintiff should be reduced to reflect this. Were I sitting alone, I would have apportioned the blame as to one-third to the Commissioner and as to two-thirds to the deceased. However, I

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Sourcebook on Obligations and Remedies understand that the majority of your Lordships favour a 50/50 division of responsibility and I do not feel inclined to dissent from that view. In all the circumstances, I would allow the appeal and make the same order as that proposed by my noble and learned friend Lord Hoffmann. [Lord Hobhouse dissented.] (See p 631.)

Questions 1 2

If intentional behaviour can amount to (contributory) negligence, why distinguish between the torts of trespass and negligence? Is the ‘duty’ owed by the police really to the suicide victim or is it owed to his dependants?

11 ABUSE OF RIGHTS Bradford Corporation v Pickles [1895] AC 587 House of Lords (See p 222.)

Notes and questions 1

2

3

4 5

Alongside the principle of unjust enrichment (see p 849), the French courts have recognised another general principle outside the Code civil, that of abuse of a right. Those who deliberately use their rights in such a way as intentionally to cause damage to another will be liable in damages under the general fault principle (CC, Art 1382). The key focal points of liability are bad faith (malice or gross error) and an absence of legitimate interest in the exercise of the right. The principle originated in the area of what a common lawyer would call nuisance (troubles du voisinage), but now extends into the law of contract and is thus a useful weapon against abusive exclusion clauses. Is Interfoto v Stiletto (p 409) capable of being interpreted as an abuse of rights case? D deliberately plays his trombone in order to annoy P, his neighbour. Is P entitled to an injunction and/or damages? (Cf Hollywood Silver Fox Farm v Emmett [1936] 2 KB 468.) Are the following cases capable of being analysed as abuse of rights cases: (a) Khorasandjian v Bush (p 141)? (b) English v Dedham Vale Properties (p 83)? (c) Blackpool and Fylde Aero Club v Blackpool BC (p 463)? (d) Besivick v Beswick (p 249)? (e) High Trees (p 455)? Does Bradford v Pickles act as a barrier to the recognition of a principle of an abuse of a right in English law? Does English law think in terms of rights? Does it think in terms of abuses? 774

Non-Contractual Obligations (1): Tort White & Carter (Councils) Ltd v McGregor [1962] AC 413 House of Lords (Scotland) (Seep 231.)

Questions 1 2 3 4 5

Does equity recognise a principle of abuse of rights? When will a contractor have no legitimate interest in suing in debt? When does an interest become illegitimate? Has English law now reached the position where a principle of abuse of rights could be induced out of a range of contract, tort and remedy cases? Is a contractor entitled to exercise his rights under a contract for good reason, bad reason or no reason at all? (Cf Chapman v Honig [1963] 2 QB 502.)

POSTSCRIPT: LIABILITY FOR WORDS (DEFAMATION) Reynolds v Times Newspapers Limited and Others (1999) (Internet transcript) House of Lords Lord Nicholls: My Lords, this appeal concerns the interaction between two fundamental rights: freedom of expression and protection of reputation… My starting point is freedom of expression. The high importance of freedom to impart and receive information and ideas has been stated so often and so eloquently that this point calls for no elaboration in this case. At a pragmatic level, freedom to disseminate and receive information on political matters is essential to the proper functioning of the system of parliamentary democracy cherished in this country. This freedom enables those who elect representatives to Parliament to make an informed choice, regarding individuals as well as policies, and those elected to make informed decisions. Freedom of expression will shortly be buttressed by statutory requirements. Under s 12 of the Human Rights Act 1998, expected to come into force in October 2000, the court is required, in relevant cases, to have particular regard to the importance of the right to freedom of expression. The common law is to be developed and applied in a manner consistent with Art 10 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Cmd 8969), and the court must take into account relevant decisions of the European Court of Human Rights (ss 6 and 2). To be justified, any curtailment of freedom of expression must be convincingly established by a compelling countervailing consideration, and the means employed must be proportionate to the end sought to be achieved… My conclusion is that the established common law approach to misstatements of fact remains essentially sound. The common law should not develop ‘political information’ as a new ‘subject matter’ category of qualified privilege, whereby the publication of all such information would attract qualified privilege, whatever the circumstances. That would not provide adequate 775

Sourcebook on Obligations and Remedies protection for reputation. Moreover, it would be unsound in principle to distinguish political discussion from discussion of other matters of serious public concern. The elasticity of the common law principle enables interference with freedom of speech to be confined to what is necessary in the circumstances of the case. This elasticity enables the court to give appropriate weight, in today’s conditions, to the importance of freedom of expression by the media on all matters of public concern. Depending on the circumstances, the matters to be taken into account include the following. The comments are illustrative only: (1)

The seriousness of the allegation. The more serious the charge, the more the public is misinformed and the individual harmed, if the allegation is not true. (2) The nature of the information, and the extent to which the subject matter is a matter of public concern. (3) The source of the information. Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories. (4) The steps taken to verify the information. (5) The status of the information. The allegation may have already been the subject of an investigation which commands respect. (6) The urgency of the matter. News is often a perishable commodity. (7) Whether comment was sought from the defendant. He may have information others do not possess or have not disclosed. An approach to the defendant will not always be necessary. (8) Whether the article contained the gist of the plaintiffs side of the story. (9) The tone of the article. A newspaper can raise queries or call for an investigation. It need not adopt allegations as statements of fact. (10) The circumstances of the publication, including the timing. This list is not exhaustive. The weight to be given to these and any other relevant factors will vary from case to case… In general, a newspaper’s unwillingness to disclose the identity of its sources should not weigh against it. Further, it should always be remembered that journalists act without the benefit of the clear light of hindsight. Matters which are obvious in retrospect may have been far from clear in the heat of the moment. Above all, the court should have particular regard to the importance of freedom of expression. The press discharges vital functions as a bloodhound as well as a watchdog. The court should be slow to conclude that a publication was not in the public interest and, therefore, the public had no right to know, especially when the information is in the field of political discussion. Any lingering doubts should be resolved in favour of publication…

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CHAPTER 8

NON-CONTRACTUAL OBLIGATIONS (2): RESTITUTION

Civil law systems divide their law of obligations into three main subdivisions. In addition to contract and delict (tort), there is the third category of quasicontract (French model) or unjust enrichment (German model). The idea of liability quasi ex contractu comes from Roman law, but it did not meet with universal approval in modern civilian thinking. German lawyers take the view that ‘quasi-contract’, which is a liability based on the fact of an enrichment, is a contradiction in terms, since contract can arise only from a meeting of the minds. Thus, while French lawyers are happy to recognise that certain obligations can form even when there is no agreement and no wrong (CC, Art 1370), German lawyers prefer to focus only upon the benefit received and to ask if such a benefit is an unjustified enrichment (BGB § 812). However, this principle of unjust enrichment is equally Roman in origin, and this is why it plays a role even in those systems that think in terms of quasi-contractual liability. The principle underlying such quasi-contractual liability is the idea that no one should be unjustly enriched at the expense of another. The main theoretical question in the civil law is whether there is a general enrichment action founded directly on the unjust enrichment principle, or whether the principle finds expression only through pre-existing forms of action, such as the restitutionary action for money received under a mistake (CC, Art 1376) or the management of the affairs of another (actio negotiorum gestorum; CC, Art 1372). In practice, the dichotomy, it has to be said, is often a rather false one and must be treated with caution (see, for example, Schlechtrien [1999] CLJ 236, p 238). The position in English law has already been outlined and some of the conceptual problems have been noted (see above, p 77, notes 1–2). Moreover, various restitutionary remedies have been examined in the chapter on remedies (Chapter 3). However, a number of points still need to be developed in a little more depth and, conceptually, it has now become impossible not to have a third category in addition to contract and tort (Kleinwort Benson Ltd v Birmingham CC, above, p 70). One point needs to be made at once. The term law of restitution is, in contrast to quasi-contract or unjust enrichment, a descriptive rather than a normative term. Nevertheless, it is the only suitable term for English law because the various ‘unjust enrichment’ remedies do not lend themselves to the strict civilian dichotomy between property and obligations, for common lawyers are quite prepared to use ‘ownership’ as one of the normative concepts capable of generating a right to restitution. 777

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Furthermore, it is not yet possible to abandon individual causes of action and individual remedies, since these terms still contain their normative potency. No doubt, some would like them to be replaced by the general principle of unjust enrichment. But lessons from the law of tort—the idea that an abstract principle like ‘damage wrongfully caused’ could replace the individual causes of action—should serve as a warning. Such thinking is epistemologically simplistic (see p 123, note 5). The remedies approach to restitution might be complex, but at least it is close to the facts and can distinguish the good claim from the bad (see, for example, Surrey CC v Bredero Homes, p 295).

1 INTRODUCTION: NON-CONTRACTUAL DEBT CLAIMS Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 House of Lords Lord Wright: My Lords, the claim in the action was to recover a prepayment of £1,000 made on account of the price under a contract which had been frustrated. The claim was for money paid for a consideration which had failed. It is clear that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognised to fall within a third category of the common law which has been called quasi-contract or restitution. The root idea was stated by three Lords of Appeal, Lord Shaw, Lord Sumner and Lord Carson, in RE Jones Ltd v Waring and Gillow Ltd, which dealt with a particular species of the category, namely, money paid under a mistake of fact. Lord Sumner, referring to Kelly v Solari, where money had been paid by an insurance company under the mistaken impression that it was due to an executrix under a policy which had in fact been cancelled, said: There was no real intention on the company’s part to enrich her.’ Payment under a mistake of fact is only one head of this category of the law. Another class is where, as in this case, there is prepayment on account of money to be paid as consideration for the performance of a contract which in the event becomes abortive and is not performed, so that the money never becomes due. There was in such circumstances no intention to enrich the payee. This is the class of claims for the recovery of money paid for a consideration which has failed. Such causes of action have long been familiar and were assumed to be commonplace by Holt CJ in Holmes v Hall in 1704. Holt CJ was there concerned only about the proper form of action and took the cause of the action as beyond question. He said: If A gives money to B to pay to C upon C’s giving writings, etc, and C will not do it, indebit will lie for A against B for so much money received to his use. And many such actions have been maintained for earnests in bargains, when the bargainer would not perform, and for premiums for insurance, when the ship, etc, did not go the voyage.’ The Chief Justice is there using earnest as meaning a prepayment on account of the price, not in the modern sense of an 778

Non-Contractual Obligations (2): Restitution irrevocable payment to bind the bargain, and he is recognising that the indebitatus assumpsit had by that time been accepted as the appropriate form of action in place of the procedure which had been used in earlier times to enforce these claims such as debt, account or case. By 1760, actions for money had and received had increased in number and variety. Lord Mansfield CJ, in a familiar passage in Moses v Macferlan, sought to rationalise the action for money had and received, and illustrated it by some typical instances. ‘It lies’, he said, ‘for money paid by mistake; or upon a consideration which happens to fail—or for money got through imposition (express, or implied); or extortion; or oppression; or an undue advantage taken of the plaintiff’s situation, contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money’. Lord Mansfield prefaced this pronouncement by observations which are to be noted. ‘If the defendant be under an obligation from the ties of natural justice, to refund; the law implies a debt and gives this action [sc, indebitatus assumpsit] founded in the equity of the plaintiff’s case, as it were, upon a contract (quasi ex contractu as the Roman law expresses it).’ Lord Mansfield does not say that the law implies a promise. The law implies a debt or obligation which is a different thing. In fact, he denies that there is a contract; the obligation is as efficacious as if it were upon a contract. The obligation is a creation of the law, just as much as an obligation in tort. The obligation belongs to a third class, distinct from either contract or tort, though it resembles contract rather than tort. This statement of Lord Mansfield has been the basis of the modern law of quasi-contract, notwithstanding the criticisms which have been launched against it. Like all large generalisations, it has needed and received qualifications in practice. There is, for instance, the qualification that an action for money had and received does not lie for money paid under an erroneous judgment or for moneys paid under an illegal or excessive distress. The law has provided other remedies as being more convenient. The standard of what is against conscience in this context has become more or less canalised or defined, but in substance the juristic concept remains as Lord Mansfield left it. The gist of the action is a debt or obligation implied, or, more accurately imposed, by law in much the same way as the law enforces as a debt the obligation to pay a statutory or customary impost. This is important because some confusion seems to have arisen though perhaps only in recent times when the true nature of the forms of action have become obscured by want of user. If I may borrow from another context the elegant phrase of Viscount Simon LC in United Australia Ltd v Barclays Bank Ltd, there has sometimes been, as it seems to me, ‘a misreading of technical rules, now happily swept away’. The writ of indebitatus assumpsit involved at least two averments, the debt or obligation and the assumpsit. The former was the basis of the claim and was the real cause of action. The latter was merely fictitious and could not be traversed, but was necessary to enable the convenient and liberal form of action to be used in such cases. This fictitious assumpsit or promise was wiped out by the Common Law Procedure Act 1852… Yet the ghosts of the forms of action have been allowed at times to intrude in the ways of the living and impede vital functions of the law. Thus, in Sinclair v Brougham,

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Sourcebook on Obligations and Remedies Lord Sumner stated that ‘all these causes of action [sc, for money had and received] are common species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay’. This observation, which was not necessary for the decision of the case, obviously does not mean that there is an actual promise of the party. The phrase ‘notional or implied promise’ is only a way of describing a debt or obligation arising by construction of law. The claim for money had and received always rested on a debt or obligation which the law implied or more accurately imposed, whether the procedure actually in vogue at any time was debt or account or case or indebitatus assumpsit. Even the fictitious assumpsit disappeared after the Act of 1852. I prefer Lord Sumner’s explanation of the cause of action in Jones’s case. This agrees with the words of Lord Atkin which I have just quoted, yet serious legal writers have seemed to say that these words of the great judge in Sinclair v Brougham closed the door to any theory of unjust enrichment in English law. I do not understand why or how. It would indeed be a reductio ad absurdum of the doctrine of precedents. In fact, the common law still employs the action for money had and received as a practical and useful, if not complete or ideally perfect, instrument to prevent unjust enrichment, aided by the various methods of technical equity which are also available, as they were found to be in Sinclair v Brougham… Friends’ Provident Life Office v Hillier Parker May and Rowden [1997] QB 85 Court of Appeal (See p 239.)

Notes and questions 1

The distinction between an action for debt and an action for damages is a modern reflection of the old forms of action distinction between the writ of debt and the writ of trespass. These categories preceded those of contract and tort which, as we have seen (Bryant v Herbert, p 114), were imported from civil law into the common law in the 19th century. Debt got largely subsumed by contract, not just because many debt claims were the result of contractual transactions. Debt got subsumed equally because, even in those situations where a debt might be claimed in the absence of a contractual relationship, the theory adopted by the majority of the judges, until recently (Lord Wright was an exception), was that all debt claims were deemed contractual. Quasi-contractual debt claims were based on the obligations theory of an implied contract (Sinclair v Brougham [1914] AC 398). This theory has now been abandoned. Restitution is a category independent of contract and tort which gains its normative force, ultimately, from the principle of unjust enrichment (see Lipkin Gorman v Karpnale, p 782; Woolwich Building Society v IRC, p 104; Kleinwort Benson v Birmingham CC, p 70; Kleinwort Benson v Glasgow CC, p 71). However, in Lipkin Gorman, as we shall see, Lord Goff seemed to advance the idea that non-contractual debt claims were based on a 780

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2

3 4

property right in the debt. Is this property idea any less of a fiction than an implied contract? If the law of obligations has found categories for both contractual and non-contractual (tort) damages claims, why have they had such difficulty in finding a category for non-contractual debt claims? Is a claim for salvage or expenses a claim in debt or damages? (Cf The Aldora, p 239.) Debt claims are not the only remedies relevant to restitution. Damages, injunction, specific performance, rescission and so on (see Chapter 3) can all be used on occasions to prevent unjust enrichment. Tracing is of major importance, as we shall see. An excellent overview of all the relevant remedies, causes of action and techniques used in the English law of restitution can be found in McMeel, Casebook on Restitution, 1996, Blackstone, pp 27–36. These pages should be read in conjunction with this present chapter.

2 QUASI-CONTRACTS (a) Introduction United Australia Ltd v Barclays Bank Ltd [1941] AC 1 House of Lords Lord Atkin:… The story starts with the action of debt which was not necessarily based upon the existence of a contract, for it covered claims to recover sums due to customary dues, penalties for breaches of bylaws, and the like. The action of debt had its drawbacks, the chief being that the defendant could wage his law. There followed the application of the action on the case of assumpsit to debt. The defendant being indebted then promised.’ At first, there must be an express promise; then the courts implied a promise from an executory contract: Slade’s case. Slade’s case was not a claim in indebitatus assumpsit, but the principle was applied, and it became unnecessary to prove an express promise in those cases. Then the action was allowed in respect of cases where there was no contract, executory or otherwise, as in the cases where debt would have lain for customary fees and the like; and by a final and somewhat forced application to cases where the defendant had received money of the plaintiff to which he was not entitled. These included cases where the plaintiff had intentionally paid money to the defendant, for example, claims for money paid on a consideration that wholly failed and money paid under a mistake: cases where the plaintiff had been deceived into paying money, cases where money had been extorted from the plaintiff by threats or duress of goods. They also included cases where money had not been paid by the plaintiff at all, but had been received from third persons, as where the defendant had received fees under colour of holding an office which in fact was held by the plaintiff: and finally cases like the present where the defendant had been wrongfully in possession of the plaintiffs goods, had sold them and was in possession of the proceeds. Now 781

Sourcebook on Obligations and Remedies to find a basis for the actions in any actual contract whether express or to be implied from the conduct of the parties was in many of the instances given obviously impossible. The cheat or the blackmailer does not promise to repay to the person he has wronged the money which he has unlawfully taken: nor does the thief promise to repay the owner of the goods stolen the money which he has gained from selling the goods. Nevertheless, if a man so wronged was to recover the money in the hands of the wrongdoer, and it was obviously just that he should be able to do so, it was necessary to create a fictitious contract: for there was no action possible other than debt or assumpsit on the one side and action for damages for tort on the other. The action of indebitatus assumpsit for money had and received to the use of the plaintiff in the cases I have enumerated was therefore supported by the imputation by the court to the defendant of a promise to repay…

Notes and questions 1

2

The law of quasi-contract deals, as we have seen, quite simply with debt claims that fall outside contract. With regard to debt’s now-deceased sister, the old action of detinue, this claim finally found itself accommodated within the law of tort on the basis that it was a claim based upon a wrong and seemed to be an action for damages (Torts (Interference with Goods) Act 1977, s 2(1)). Debt, however, could not be so accommodated, since it was an action that by definition was not a claim for damages (although, admittedly, it got subsumed by trespass). The problem with debt, from a classification point of view, was that it was both a remedy in the full sense of the term (like damages) and a form of action (unlike damages). The post-1875 jurists thus placed debt within contract, because contract was concerned with rights as well as wrongs. In order to succeed in a noncontractual debt claim, one had to establish an implied contract. Was this approach as bad as the doctrine, since 1966, has claimed? One advantage of contrasting debt with damages is that the former can be used to deal with benefit, leaving the latter to compensate for loss. In principle, then, the most suitable remedy for depriving someone of a profit wrongfully gained is one of the species of debt (for example, an action for money had and received) or its equitable equivalent, an action in account. This is not to say that damages cannot also be used to deal with wrongful benefits, but, as Surrey CC v Bredero Homes (above) shows, it is not always the most subtle of remedies.

(b) The action for money had and received Rowland v Divall [1923] 2 KB 500 Court of Appeal (See p 236.) Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 House of Lords A partner in a firm of solicitors embezzled cash from the firm’s bank account 782

Non-Contractual Obligations (2): Restitution and lost the money gambling at the defendants’ casino. When the solicitors brought an action in debt (money had and received) to recover the lost cash, the gambling club claimed that they were bona fide purchasers for value having exchanged the money for gambling chips. The House of Lords allowed the solicitors to succeed in debt on the basis that they could trace their money into the defendants’ bank account. Lord Goff:… The solicitors’ claim is, in substance, as follows. They say, first, that the cash handed over by the bank to Chapman in exchange for the cheques drawn on the solicitors’ client account by Cass was in law the property of the solicitors. That is disputed by the respondents who say that, since the cheques were drawn on the bank by Cass without the authority of his partners, the legal property in the money immediately vested in Cass; that argument was, however, rejected by the Court of Appeal. If that argument is rejected, the respondents concede for present purposes that the cash so obtained by Cass from the client account was paid by him to the club, but they nevertheless resist the solicitors’ claim on two grounds: first, that they gave valuable consideration for the money in good faith, as held by a majority of the Court of Appeal; and second that, in any event, having received the money in good faith and having given Cass the opportunity of winning bets and, in some cases, recovering substantial sums by way of winnings, it would be inequitable to allow the solicitors’ claim… Title to the money … [I]n the present case, the solicitors seek to show that the money in question was their property at common law. But their claim in the present case for money had and received is nevertheless a personal claim; it is not a proprietary claim, advanced on the basis that money remaining in the hands of the respondents is their property. Of course, there is no doubt that, even if legal title to the money did vest in Cass immediately on receipt, nevertheless he would have held it on trust for his partners, who would accordingly have been entitled to trace it in equity into the hands of the respondents. However, your Lordships are not concerned with an equitable tracing claim in the present case, since no such case is advanced by the solicitors, who have been content to proceed at common law by a personal action, viz, an action for money had and received. I should add that, in the present case, we are not concerned with the fact that money drawn by Cass from the solicitors’ client account at the bank may have become mixed by Cass with his own money before he gambled it away at the club. For the respondents have conceded that, if the solicitors can establish legal title to the money in the hands of Cass, that title was not defeated by mixing of the money with other money of Cass while in his hands. On this aspect of the case, therefore, the only question is whether the solicitors can establish legal title to the money when received by Cass from the bank by drawing cheques on the client account without authority. It is well established that a legal owner is entitled to trace his property into its product, provided that the latter is indeed identifiable as the product of his property. Thus, in Taylor v Plumer (1815) 3 M & S 562, where Sir Thomas Plumer gave a draft to a stockbroker for the purpose of buying exchequer bills, and the stockbroker instead used the draft for buying American securities and doubloons for his own purposes, Sir Thomas was able to trace his property 783

Sourcebook on Obligations and Remedies into the securities and doubloons in the hands of the stockbroker, and so defeat a claim made to them by the stockbroker’s assignees in bankruptcy. Of course, ‘tracing’ or ‘following’ property into its product involves a decision by the owner of the original property to assert his title to the product in place of his original property… I return to the present case. Before Cass drew upon the solicitors’ client account at the bank, there was of course no question of the solicitors having any legal property in any cash lying at the bank. The relationship of the bank with the solicitors was essentially that of debtor and creditor; and since the client account was at all material times in credit, the bank was the debtor and the solicitors were its creditors. Such a debt constitutes a chose in action, which is a species of property; and since the debt was enforceable at common law, the chose in action was legal property belonging to the solicitors at common law. There is in my opinion no reason why the solicitors should not be able to trace their property at common law in that chose in action, or in any part of it, into its product, ie, cash drawn by Cass from their client account at the bank. Such a claim is consistent with their assertion that the money so obtained by Cass was their property at common law. Further, in claiming the money as money had and received, the solicitors have not sought to make the respondents liable on the basis of any wrong, a point which will be of relevance at a later stage, when I come to consider the defence of change of position… Whether the respondents gave consideration for the money There is no doubt that the respondents received the money in good faith; but, as I have already recorded, there was an acute difference of opinion among the members of the Court of Appeal whether the respondents gave consideration for it. Parker LJ was of opinion that they did so, for two reasons. (1) The club supplied chips in exchange for the money. The contract under which the chips were supplied was a separate contract, independent of the contracts under which bets were placed at the club; and the contract for the chips was not avoided as a contract by way of gaming and wagering under s 18 of the Gaming Act 1845. (2) Although the actual gaming contracts were void under the Act, nevertheless Cass in fact obtained in exchange for the money the chance of winning and of then being paid and so received valuable consideration from the club. May LJ agreed with the first of these two reasons. Nicholls LJ disagreed with both. I have to say at once that I am unable to accept the alternative basis upon which Parker LJ held that consideration was given for the money, viz, that each time Cass placed a bet at the casino, he obtained in exchange the chance of winning and thus of being paid. In my opinion, when Cass placed a bet, he received nothing in return which constituted valuable consideration. The contract of gaming was void; in other words, it was binding in honour only. Cass knew, of course, that, if he won his bet, the club would pay him his winnings. But he had no legal right to claim them. He simply had a confident expectation that, in fact, the club would pay; indeed, if the club did not fulfil its obligations binding in honour upon it, it would very soon go out of 784

Non-Contractual Obligations (2): Restitution business. But it does not follow that, when Cass placed the bet, he received anything that the law recognises as valuable consideration. In my opinion, he did not do so. Indeed, to hold that consideration had been given for the money on this basis would, in my opinion, be inconsistent with Clarke v Shee and Johnson, I Cowp 197. Even when a winning bet has been paid, the gambler does not receive valuable consideration for his money. All that he receives is, in law, a gift from the club… But this broad approach does not solve the problem, which is essentially one of analysis. I think it best to approach the problem by taking a situation unaffected by the impact of the Gaming Acts. Suppose that a large department store decides, for reasons of security, that all transactions in the store are to be effected by the customers using chips instead of money. On entering the store, or later, the customer goes to the cash desk and obtains chips to the amount he needs in exchange for cash or a cheque. When he buys goods, he presents chips for his purchase. Before he leaves the store, he presents his remaining chips, and receives cash in return. The example may be unrealistic, but in legal terms it is reasonably straightforward. A contract is made when the customer obtains his chips under which the store agrees that, if goods are purchased by the customer, the store will accept chips to the equivalent value of the price, and further that it will redeem for cash any chips returned to it before the customer leaves the store. If a customer offers to buy a certain item of goods at the store, and the girl behind the counter accepts his offer but then refuses to accept the customer’s chips, the store will be in breach of the contract for chips. Likewise, if, before he leaves the store, the customer hands in some or all of his chips at the cash desk, and the girl at the cash desk refuses to redeem them, the store will be in breach of the contract for chips. Each time that a customer buys goods, he enters into a contract of sale, under which the customer purchases goods at the store. This is a contract for the sale of goods; it is not a contract of exchange, under which goods are exchanged for chips, but a contract of sale, under which goods are bought for a price, ie, for a money consideration. This is because, when the customer surrenders chips of the appropriate denomination, the store appropriates part of the money deposited with it towards the purchase. This does not, however, alter the fact that an independent contract is made for the chips when the customer originally obtains them at the cash desk. Indeed that contract is not dependent upon any contract of sale being entered into; the customer could walk around the store and buy nothing, and then be entitled to redeem his chips in full under the terms of his contract with the store. But the question remains: when the customer hands over his cash at the cash desk, and receives his chips, does the store give valuable consideration for the money so received by it? In common sense terms, the answer is no. For, in substance and in reality, there is simply a gratuitous deposit of the money with the store, with liberty to the customer to draw upon that deposit to pay for any goods he buys at the store. The chips are no more than the mechanism by which that result is achieved without any cash being handed over at the sales counter, and by which the customer can claim repayment of any balance remaining of his deposit. 785

Sourcebook on Obligations and Remedies If a technical approach is adopted, it might be said that, since the property in the money passes to the store as depositee, it then gives consideration for the money in the form of a chose in action created by its promise to repay a like sum, subject to drawdown in respect of goods purchased at the store. I, however, prefer the common sense approach. Nobody would say that the store has purchased the money by promising to repay it; the promise to repay is simply the means of giving effect to the gratuitous deposit of the money with the store. It follows that, by receiving the money in these circumstances, the store does not for present purposes give valuable consideration for it. Otherwise, a bank with which money was deposited by an innocent donee from a thief could claim to be a bona fide purchaser of the money simply by virtue of the fact of the deposit. Let me next take the case of gambling at a casino. Of course, if gaming contracts were not void under English law by virtue of s 18 of the Gaming Act 1845, the result would be exactly the same. There would be a contract in respect of the chips, under which the money was deposited with the casino, and then separate contracts would be made when each bet was placed, at which point of time part or all of the money so deposited would be appropriated to the bets. However, contracts by way of gaming or wagering are void in English law. What is the effect of this? It is obvious that each time a bet is placed by the gambler, the agreement under which the bet is placed is an agreement by way of gaming or wagering, and so is rendered null and void. It follows, as I have said, that the casino, by accepting the bet, does not thereby give valuable consideration for the money which has been wagered by the gambler, because the casino is under no legal obligation to honour the bet. Of course, the gambler cannot recover the money from the casino on the ground of failure of consideration; for he has relied upon the casino to honour the wager—he has in law given the money to the casino, trusting that the casino will fulfil the obligation binding in honour upon it and pay him if he wins his bet— though if the casino does so, its payment to the gambler will likewise be in law a gift. But suppose it is not the gambler but the true owner of the money (from whom the gambler has, perhaps, as in the present case, stolen the money) who is claiming it from the casino. What then? In those circumstances the casino cannot, in my opinion, say that it has given valuable consideration for the money, whether or not the gambler’s bet is successful. It has given no consideration if the bet is unsuccessful, because its promise to pay on a successful bet is void; nor has it done so if the gambler’s bet is successful and the casino has paid him his winnings, because that payment is in law a gift to the gambler by the casino. For these reasons I conclude, in agreement with Nicholls LJ, that the respondents did not give valuable consideration for the money. But the matter does not stop there; because there remains the question whether the respondents can rely upon the defence of change of position. Change of position I turn then to the last point on which the respondents relied to defeat the solicitors’ claim for the money. This was that the claim advanced by the solicitors was in the form of an action for money had and received, and that 786

Non-Contractual Obligations (2): Restitution such a claim should only succeed where the defendant was unjustly enriched at the expense of the plaintiff. If it would be unjust or unfair to order restitution, the claim should fail. It was for the court to consider the question of injustice or unfairness, on broad grounds. If the court thought that it would be unjust or unfair to hold the respondents liable to the solicitors, it should deny the solicitors recovery. Mr Lightman, for the club, listed a number of reasons why, in his submission, it would be unfair to hold the respondents liable. These were: (1) the club acted throughout in good faith, ignorant of the fact that the money had been stolen by Cass; (2) although the gaming contracts entered into by the club with Cass were all void, nevertheless the club honoured all those contracts; (3) Cass was allowed to keep his winnings (to the extent that he did not gamble them away); (4) the gaming contracts were merely void, not illegal; and (5) the solicitors’ claim was no different in principle from a claim to recover against an innocent third party to whom the money was given and who no longer retained it. I accept that the solicitors’ claim in the present case is founded upon the unjust enrichment of the club, and can only succeed if, in accordance with the principles of the law of restitution, the club was indeed unjustly enriched at the expense of the solicitors. The claim for money had and received is not, as I have previously mentioned, founded upon any wrong committed by the club against the solicitors. But it does not, in my opinion, follow that the court has carte blanche to reject the solicitors’ claim simply because it thinks it unfair or unjust in the circumstances to grant recovery. The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recovery of money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle. It is therefore necessary to consider whether Mr Lightman’s submission can be upheld on the basis of legal principle. In my opinion, it is plain, from the nature of his submission, that he is in fact seeking to invoke a principle of change of position, asserting that recovery should be denied because of the change in position of the respondents, who acted in good faith throughout. Whether change of position is, or should be, recognised as a defence to claims in restitution is a subject which has been much debated in the books. It is, however, a matter on which there is a remarkable unanimity of view, the consensus being to the effect that such a defence should be recognised in English law. I myself am under no doubt that this is right… In these circumstances, it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that, where an innocent defendant’s position is so changed that he will suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution. If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position. Likewise, on facts such as those in the present case, if a thief steals money and pays it to a third party 787

Sourcebook on Obligations and Remedies who gives it away to charity, that third party should have a good defence to an action for money had and received. In other words, bona fide change of position should of itself be a good defence in such cases as these. The principle is widely recognised throughout the common law world… The time for its recognition in this country is, in my opinion, long overdue. I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration. They do not arise in the present case. Here there is no doubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents. It is not however appropriate in the present case to attempt to identify all those actions in restitution to which change of position may be a defence. A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, where the plaintiff’s money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received. At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress, however, that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions. In this connection I have particularly in mind the speech of Lord Simonds in Ministry of Health v Simpson [1951] AC 251, p 276. I wish to add two further footnotes. The defence of change of position is akin to the defence of bona fide purchase, but we cannot simply say that bona fide purchase is a species of change of position. This is because change of position will only avail a defendant to the extent that his position has been changed; whereas, where bona fide purchase is invoked, no inquiry is made (in most cases) into the adequacy of the consideration. Even so, the recognition of change of position as a defence should be doubly beneficial. It will enable a more generous approach to be taken to the recognition of the right to restitution, in the knowledge that the defence is, in appropriate cases, available; and while recognising the different functions of property at law and in equity, there may also in due course develop a more consistent approach to tracing claims, in which common defences are recognised as available to such claims, whether advanced at law or in equity…

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Questions 1

‘For my part, I think that the true distinction lies between a proprietary claim on the one hand, and a claim which seeks only a money judgment on the other. A proprietary claim is one by which the plaintiff seeks the return of chattels or land which are his property, or claims that a specified debt is owed by a third party to him and not to the defendant…’ (Staughton LJ in Republic of Haiti v Duvalier [1990] 1 QB 202, pp 213–14). Are all proprietary claims tracing actions? (Cf Ingram v Little [1961] 1 QB 31; Bowmakers Ltd v Barnett Instruments Ltd [1945] KB 45.) 2 Is a tracing claim at common law an actio in rem or in personam? 3 What is the relationship, if any, between change of position and estoppel? 4 How can one own a debt? Why was it that the widow in Beswick v Beswick (p 249, cf p 78) could not claim that she was owner of the debts owed to her by the nephew? 5 Does one need a defence of change of position? Could it not be said that tracing, vis à vis any particular defendant, ends where that defendant in good faith has paid money forming the object of a tracing claim to a third party? 6 Should tracing attach to the money (or other tangible thing) or to the value? What difference would it make? Is the distinction between res and value important in respect of the defence of change of position? 7 Did the plaintiff in Rowland v Divall (p 236) have any property right in the purchase price while it remained in the defendant’s possession? 8 Are all debts, to a greater or lesser extent, based upon an undertaking to repay? If so, what is the basis of this undertaking? 9 Is the difference between tort and quasi-contract to be found in the historical difference between trespass and debt? 10 If the formal distinction between common law and equity were to be abolished, would an action in account become a quasi-contractual claim? (Cf English v Dedham Vale Properties, p 83.)

Notes 1

One or two judges in the 19th century have observed that the debt action for money had and received is a common law version of the equitable remedy of account (see p 267). Certainly, money had and received is a useful claim for depriving those who have benefited through wrongs from retaining their profits, although its scope is wider than this. The action is useful, as Lipkin Gorman shows, as a kind of revindication claim for money paid to another by mistake, through duress or as a result of an ineffective or defective transaction. In the last situation, the plaintiff must show that the contract is ineffective and thus the quasi-contractual action is

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2

dependent upon the requirement of a total failure of consideration (Rover International Ltd v Canon Films Ltd [1989] 1 WLR 912). Both Rowland v Divall and Lipkin Gorman are not without their difficulties. In both cases, it could be argued that the plaintiff benefited from the success of each debt claim. One plaintiff got six months’ free use of a car, while the other got most its money back without too many questions being asked about its own responsibility in the whole sad affair. One may dream of hard and fast principles to govern these kinds of case, but the truth is that they are complex facts where the line between just and unjust benefits is almost impossible to draw. A similar difficulty is to be observed with the claim in Surrey CC v Bredero Homes (above, p 295), not, admittedly, a debt claim, but a damages action raising similar problems. Could it really have been right to allow a local authority to grab money in respect of a loss they did not suffer simply on the basis that the defendants had committed a wrong? Admittedly, a local authority could be said to represent the interests of the local inhabitants of its area (Local Government Act 1972, s 222) and thus, it might be the only institution capable of extracting an unjust profit. Yet, the law of tort does not allow a damages claim simply on the basis that a defendant has behaved unlawfully, nor perhaps should the law of restitution. Restitution lawyers might think differently, of course, but then restitution lawyers thought that the decision in Bolton v Mahadeva (p 226) gave rise to unjustified enrichment (Law Commission, Pecuniary Restitution for Breach of Contract, Report No 121, 1983). It took a practising lawyer to point out just how detached they were from the real world.

(c) The action for money paid Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 Court of Appeal This was an action in debt by bailees (a firm of bonded warehousemen) against the bailors of a consignment of firs in respect of customs duty that the bailees were compelled by statute to pay when the firs were stolen from their warehouse. The Court of Appeal, rejecting the bailors’ counterclaim for the value of the firs, held that the bailees were entitled to recover the money as a debt. Lord Wright:… [T]he plaintiffs claim that they are entitled to recover from the defendants the amount which they have paid to the customs in respect of duties due on the defendants’ goods. They make their claim as money paid to the defendants’ use on the principle stated in Leake on Contracts. The passage in question is quoted in the Exchequer Chamber by Cockburn CJ in Moule v Garrett LR 7 Ex 101, p 104, and is in these terms: ‘Where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under 790

Non-Contractual Obligations (2): Restitution such circumstances the defendant is held indebted to the plaintiff in the amount.’… The principle has been applied in a great variety of circumstances. Its application does not depend on privity of contract… These statements of the principle do not put the obligation on any ground of implied contract or of constructive or notional contract. The obligation is imposed by the court simply under the circumstances of the case and on what the court decides is just and reasonable, having regard to the relationship of the parties. It is a debt or obligation constituted by the act of the law, apart from any consent or intention of the parties or any privity of contract. It is true that, in the present case, there was a contract of bailment between the plaintiffs and the defendants, but there is no suggestion that the obligation in question had ever been contemplated as between them or that they had ever thought about it. The court cannot say what they would have agreed if they had considered the matter when the goods were warehoused. All the court can say is what they ought as just and reasonable men to have decided as between themselves. The defendants would be unjustly benefited at the cost of the plaintiffs if the latter, who had received no extra consideration and had made no express bargain, should be left out of pocket by having to discharge what was the defendants’ debt… The plaintiffs were no doubt liable to pay the Customs, but, as between themselves and the defendants, the primary liability rested on the defendants. The liability of the plaintiffs as warehousemen was analogous to that of surety. It was imposed in order to facilitate the collection of duties in a case like the present, where there might always be a question as to who stood in the position of importer. The defendants as actual importers have obtained the benefit of the payment made by the plaintiffs and they are thus discharged from the duties which otherwise would have been payable by them. It may also be noted that the goods which were stolen were the defendants’ goods and the property remained in them after the theft. If the goods had been recovered, the defendants could have claimed them as their own and would have been free to apply them for home use without further payment of duty. I think there is every reason in this case for applying the general principle which I have stated. In commercial dealings of this character it is difficult not to think of the case from the point of view of insurance… I do not, however, lay emphasis on that aspect of the case…

Notes and questions 1

‘If without an antecedent request a person assumes an obligation or makes a payment for the benefit of another, the law will, as a general rule, refuse him a right of indemnity. But if he can show that in the particular circumstances of the case there was some necessity for the obligation to be assumed, then the law will grant him a right of reimbursement if in all the circumstances it is just and reasonable to do so’ (Scarman LJ in Owen v Tate [1975] 2 All ER 129, p 135). Is an emergency enough to generate the required ‘necessity’? 791

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2

3

4

If bailees have to expend money to protect, or upkeep, the bailor’s goods, can this expenditure be recovered by the bailees as a debt from the bailors? (Cf The Winson [1982] AC 939.) P, at considerable expense, patches up the roof of D’s house after it has been badly damaged in a gale. Assuming that D has gone away without leaving an address or telephone number with P, his neighbour, and assuming also that, if P had not acted, D’s house and contents would have been badly damaged by rain, can P recover his expense from D? Was Lord Wright ahead of his time? Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675 Court of Appeal (Seep 617.) Friends’ Provident Life Office v Hillier Parker May and Rowden [1997] QB 85 Court of Appeal (See p 620.) Downs v Chappell [1997] 1 WLR 426 Court of Appeal This was an action for damages brought by the purchaser of a bookshop business in deceit against the seller and in negligence against a firm of accountants who had verified false figures provided by the seller. The trial judge gave judgment for the defendants on the basis that the plaintiff had suffered no loss, but this decision was reversed by the Court of Appeal. Both defendants were held to have caused the plaintiff substantial loss. Hobhouse LJ:… Each of the defendants claimed contribution from the other under the Civil Liability (Contribution) Act 1978 in respect of any liability either might be under to the plaintiffs. The judge did not find that either of the defendants was liable in damages to the plaintiffs. However, at the conclusion of his judgment he expressed the view that if there had been such liability, he would have apportioned their responsibility for the plaintiffs’ loss equally. The assessment of the contribution is covered by s 2 of the Act, sub-s (1) of which provides: …the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question. The second defendants submit that the judge failed to assess the contributions correctly because he gave inadequate weight to the fact that Mr Chappell had been fraudulent whereas they had only been negligent… The extent of a person’s responsibility involves both the degree of his fault and the degree to which it contributed to the damage in question. It is just and equitable to take into account both the seriousness of the respective parties’ faults and their causative relevance. A more serious fault having less causative impact on the plaintiffs damage may represent an equivalent

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Non-Contractual Obligations (2): Restitution responsibility to a less serious fault which had a greater causative impact. The present case is such a case. The judge was entitled to decline to distinguish between the responsibility of the two defendants for the damage to the plaintiffs. The second defendants’ appeal against the judge’s apportionment should be dismissed…

Notes and questions 1

2

Statute now gives an action in ‘debt’ (action for money paid) to a person who is liable for damage suffered by another person against any other person liable in respect of the same damage: s 1 of the Civil Liability (Contribution) Act 1978. This is not a tort claim as such; it is an action for contribution based upon the principle of unjust enrichment. If D(1) and D(2) are jointly responsible for damage to V, the latter may recover all his damages from either D(1) or D(2); the statutory contribution action then comes into play to adjust the amount payable by each D. If this latter action is seen as a debt claim, it becomes very much easier to distinguish it from the original damages action brought by V. Such a distinction is important because the nature of the obligation is different. The damages action is based on tort or contract (s 1(6) of the 1978 Act), while the contribution action is (or ought to be) founded upon the principle of unjust enrichment. If the two obligations and actions become confused, can this lead to injustice? (Cf Lister v Romford Ice, p 534.) Note also the role of subrogation in these contribution situations (see p 268). If D(1) is liable to V for the full amount of damages, it may well be that D(1) is insured; it is, accordingly, D(1)’s insurance company that will sue D(2) for contribution via their right of subrogation. Now, if subrogation is a restitution remedy, should this remedy be subject to the principle of unjust enrichment? Should D(1)’s insurance company be allowed to sue D(2) (who might not be insured) without specifically having to show that D(2) would be unjustly enriched in the absence of such a contribution claim? (Cf Morris v Ford Motor Co [1973] 1 QB 792.)

(d) Quantum meruit Sumpter v Hedges [1898] 1 QB 673 Court of Appeal AL Smith LJ: In this case, the plaintiff, a builder, entered into a contract to build two houses and stables on the defendant’s land for a lump sum. When the buildings were still in an unfinished state the plaintiff informed the defendant that he had no money, and was not going on with the work any more. The learned judge has found as a fact that he abandoned the contract. Under such circumstances, what is a building owner to do? He cannot keep the buildings on his land in an unfinished state for ever. The law is that, where there is a contract to do work for a lump sum, until the work is completed the price of it cannot be recovered. Therefore, the plaintiff could 793

Sourcebook on Obligations and Remedies not recover on the original contract. It is suggested however that the plaintiff was entitled to recover for the work he did on a quantum meruit. But, in order that that may be so, there must be evidence of a fresh contract to pay for the work already done …I think the appeal must be dismissed. Chitty LJ: I am of the same opinion. The plaintiff had contracted to erect certain buildings for a lump sum. When the work was only partly done, the plaintiff said that he could not go on with it, and the judge has found that he abandoned the contract. The position therefore was that the defendant found his land with unfinished buildings upon it, and he thereupon completed the work. That is no evidence from which the inference can be drawn that he entered into a fresh contract to pay for the work done by the plaintiff. If we held that the plaintiff could recover, we should, in my opinion, be overruling Cutter v Powell, and a long series of cases in which it has been decided that there must in such a case be some evidence of a new contract to enable the plaintiff to recover on a quantum meruit… Collins LJ: I agree. I think the case is really concluded by the finding of the learned judge to the effect that the plaintiff had abandoned the contract. If the plaintiff had merely broken his contract in some way so as not to give the defendant the right to treat him as having abandoned the contract, and the defendant had then proceeded to finish the work himself, the plaintiff might perhaps have been entitled to sue on a quantum meruit on the ground that the defendant had taken the benefit of the work done. But that is not the present case. There are cases in which, though the plaintiff has abandoned the performance of a contract, it is possible for him to raise the inference of a new contract to pay for the work done on a quantum meruit from the defendant’s having taken the benefit of that work, but, in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done. It is only where the circumstances are such as to give that option that there is any evidence on which to ground the inference of a new contract. Where, as in the case of work done on land, the circumstances are such as to give the defendant no option whether he will take the benefit of the work or not, then one must look to other facts than the mere taking the benefit of the work in order to ground the inference of a new contract. In this case, I see no other facts on which such an inference can be founded. The mere fact that a defendant is in possession of what he cannot help keeping, or even has done work upon it, affords no ground for such an inference. He is not bound to keep unfinished a building which in an incomplete state would be a nuisance on his land. I am therefore of opinion that the plaintiff was not entitled to recover for the work which he had done… British Steel Corporation v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504 Queen’s Bench Division (See p 444.) Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 House of Lords (See p 593.)

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Notes and questions 1

2

3

The action for money had and received is a remedy which attaches itself, so to speak, to a specific amount of money in the defendant’s patrimony representing the unjust profit. The action for a quantum meruit looks to the more intangible benefit arising out of situations where one person confers upon another a service. Clearly, if I cut my neighbour’s grass while he is away, I have, in principle, conferred upon him a benefit. Should he have to pay for this benefit, however? English law takes the view that the mere conferring of a benefit upon another does not of itself give rise to a right to restitution (Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234, pp 248–49). In order to trigger liability, there must have been either a request for the service or some kind of acceptance indicating a willingness to pay for what has been received. Such requests or acceptances can, of course, be implied, and this allows the court a degree of latitude when it comes to analysing the facts. All the same, it is unlikely that the plaintiff in Bolton v Mahadeva (above, p 226) could have succeeded in a quantum meruit debt claim in respect of the benefit (that is, work done) conferred upon the defendant; all that might be available in such a situation is a claim for materials left on the site and used by the occupier. Should the contractor in Bolton v Mahadeva have had the right to bring a quantum meruit claim for the work done? Quasi-contract is most useful in situations of pre-contractual work undertaken with a view to a formal contract being concluded. However, once such a contract has been concluded it will, in principle, govern the rights and duties. If one of the parties wishes to sue on a quantum meruit, the contract must be got rid of, so to speak, either by recourse to frustration or by the court declaring that it is void. What is the restitution position if a contract is rescinded in equity? D hires P to repair his chimney after P has given him an estimate of £400. While P is repairing the chimney, he notices that another one is in equally bad repair and he spends an extra day repairing the second chimney. P does not seek D’s permission, because D is difficult to contact and, in addition, P assumes that D would want the work done, because two-thirds of the £400 estimate is taken up with the cost of erecting scaffolding. P sends D a bill for £500. Must D pay this bill, or can he insist on paying only £400?

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3 PROPRIETARY REMEDIES

(a) Introduction Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 978 Chancery Division; [1996] 1 WLR 387 Court of Appeal This was an action for a declaration that shares in a company controlled by the late Robert Maxwell which had been wrongly transferred were held on trust for the plaintiffs. The declaration was refused on the ground that the facts were not governed by English law. Millett J:… It is manifestly correct to characterise Macmillan’s claim as lying in restitution, but that is only the first step in the analysis. In order to ascertain the applicable law under English conflict of laws, it is not sufficient to characterise the nature of the claim; it is necessary to identify the question at issue. The English law of restitution makes a fundamental distinction between the unjust enrichment of the defendant which is occasioned by depriving the plaintiff of his property and enrichment which results from a wrong done to the plaintiff by the defendant. In the first category of case the plaintiffs restitutionary claim is said to have a proprietary base. The enrichment of the defendant is at the direct expense of the plaintiff and is matched by a corresponding diminution of his assets. The plaintiff brings the claim in order to recover his own property and must succeed, if at all, by virtue of his own title. In the latter class of case his claim arises from a breach of fiduciary or other obligation on the part of the defendant. The distinction is that drawn by equity between the claim of an equitable owner to recover his property, or compensation for the failure to restore it, from a person into whose hands it has come and a claim by a plaintiff in respect of a breach of fiduciary obligation owed to him. In the former case he relies upon his continuing equitable interest in the property under an express or resulting trust; in the latter upon an equity between the parties which may in appropriate circumstances give rise to a constructive trust. The distinction, which is crucial, may have been lost sight of in the language of some of the more recent decisions on knowing receipt. Macmillan’s claim is of the former kind. In respect of the Berlitz shares there was no relationship of any kind between Macmillan and any of the defendants. There is no equity between them. In the absence of such an equity, any liability of the defendants to restore the shares or their proceeds to Macmillan or to pay compensation for their failure to do so must be based upon Macmillan’s continuing equitable ownership of the shares. In the language of restitution, Macmillan’s claim must rest upon ‘an undestroyed proprietary base’. Such a claim cannot succeed against a party who has under the applicable law acquired a title to the shares which is superior to that of Macmillan. It is no answer to assert that a claim which invokes the intervention of equity is a claim in personam and part of the law of remedies, and—a highly dubious proposition—as such is governed by the lex fori. The principles which I have

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Non-Contractual Obligations (2): Restitution endeavoured to state are not principles of English conflict of laws, but of equity and our domestic law of restitution… Auld LJ (Court of Appeal):… The dispute about the nature of the issue in this case, whether it is about restitution, stemming from the developing notion of a ‘receipt-based restitutionary claim’ or about property, is a good example of the danger of looking at the problem through domestic eyes. There is a long and growing line of cases, recently comprehensively reviewed by Hobhouse J in Westdeutsche Landesbank Girozentrale v Islington London Borough Council (1993) 91 LGR 323, indicating a right to restitution flowing from the circumstances of receipt regardless of the knowledge of or notice to the recipient. See also Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, pp 570–72, 577–81, per Lord Goff of Chieveley; and Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, p 386, per Lord Nicholls of Birkenhead (‘Recipient liability is restitution-based…’). Charles Harpum, a Law Commissioner, in ‘Accessory liability for procuring or assisting a breach of trust’ [1995] LQR 545, p 546, suggested that the Royal Brunei Airlines case vindicates the school of thought that treats receipt-based claims as restitutionary as against that which bases them on equitable wrongdoing. The ‘receipt-based restitutionary claim’ is a notion of English domestic law that may not have a counterpart in many other legal systems, and is one that it may not be appropriate to translate into the English law of conflict. In my view, it would wrong to attempt to graft this equitable newcomer onto the class of cases where English courts will intervene to enforce an equity in respect of property abroad. Adrian Briggs made the point, albeit a little more diffidently, in an article prompted by Millett J’s judgment in this case entitled ‘Restitution meets the conflict of laws’ [1995] RLR 94, p 97: It is a commonplace that conceptual divisions in domestic law do not necessarily translate into the conflict of laws… To take a distinction which is struggling to define itself within the domestic law of restitution and then project this into the realm of choice of law may be unwise.

Notes and questions 1

Auld LJ is right to be cautious about trying to find counterparts to the English law proprietary remedies in the civil law systems. To many civilians the idea of claiming an enrichment on the basis of ownership (property), rather than upon the idea of owing (obligation), is a contradiction in terms. Proprietary claims—that is to say actions in rem— belong to the law of property and not to the law of obligations; claims in the law of obligations are, supposedly by definition, in personam. The difference is to be found in the object of the claim: an action in rem is, as the name suggests, a claim against a thing (res) whereas a claim in personam is an action against another person. The paradigm actio in rem is the owner’s claim for his thing in the wrongful possession of another. In Roman law, such an action was originally envisaged as being an action against the thing itself (G 4.16), although later, it was seen as a claim against the 797

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possessor (Dig 4.4.13.1). The idea of suing a thing rather than a person remains, however, a most helpful metaphor when it comes to distinguishing between personal and proprietary remedies. A proprietary remedy is where the claimant points to some thing or specific sum of money in another’s patrimony and says ‘that is mine, give it to me please’. The normative foundation to such a claim is the claimant’s title to the thing or money. A personal claim is where a claimant sues another person in order to get this other person to do or not to do something (such as pay a debt or compensation). The normative bases to personal claims are, traditionally, either promise (contract) or a wrong (tort). This helps explain why the courts once searched for an implied contract in the quasicontractual actions. Ought the ideas of title or ownership to be abandoned in favour of a normative obligation based on unjust enrichment? Proprietary, or tracing, remedies are probably too well established in the common law (and equity) for them to be abandoned with ease. But it is important that these remedies be distinguished from quasi-contractual claims which are actions in personam. Often, the distinction is based upon the division between common law and equity; it is equity that has developed the proprietary (tracing) action into a highly flexible and sophisticated remedy. And it has done this largely in relation to its most famous institution, the trust. However, the position has been complicated by the apparent existence of a common law right to trace. As we shall see, the idea of ‘tracing’ an asset at common law is ambiguous, because it can mean rather different things depending upon the cause of action in play.

(b) Common law proprietary claims Agip (Africa) Ltd v Jackson [1990] Ch 265 Chancery Division; [1991] Ch 547 Court of Appeal (See p 240.) Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 House of Lords (See p 782.) In re Goldcorp Exchange Ltd [1995] 1 AC 74 Privy Council (See p 246.)

Questions 1

What exactly is tracing at common law? Is it: (a) a ‘process’ associated with the action for money had and received; (b) a claim based on ownership of a debt (debt being a chose in action and, therefore, a res); (c) an action founded on the ownership of the asset (an item of value) as an abstract ‘thing’; or (d) something else? 798

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Are cases such as Lewis v Averay (p 501) and Stevenson v Beverley Bentinck (p 400) tracing claims? Did the Court of Appeal in Beswick v Besivick (p 78) allow Mrs Beswick to recover on the basis of tracing at common law? P gives D a £5 note thinking D is T, to whom P owes £5. Does P remain the owner of the £5 note now in D’s possession?

(c) Equitable proprietary claims Agip (Africa) Ltd v Jackson [1990] Ch 265 Chancery Division; [1991] Ch 547 Court of Appeal (See p 240.) Boscawen v Bajwa [1995] 4 All ER 769 Court of Appeal (See p 244.) Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 House of Lords This was an action for money had and received brought by a bank against a local authority. Such an action, if successful, would carry only simple interest under statute. In order to obtain compound interest, the bank claimed that they had an alternative proprietary claim in equity. The House of Lords, on a preliminary question of law, rejected the equitable proprietary argument and a majority also rejected the compound interest claim. The background facts to this case are discussed in Kleinwort Bank v Birmingham CC and by Leggatt LJ in Kleinwort Benson v Glasgow CC; and the actual question at issue in this present case is set out by Lord Lloyd (below). Lord Lloyd: My Lords, it was common ground before your Lordships that the bank is entitled to recover the principal sum of £1, 145, 526 in a common law action for money had and received. Judgment for that sum would carry simple interest at the appropriate rate under s 35A of the Supreme Court Act 1981. Hobhouse J [1994] 4 All ER 890 and the Court of Appeal [1994] 1 WLR 938 have held (albeit for different reasons) that the bank has an alternative claim to recover the principal sum in equity, and that the equitable cause of action entitles the bank to claim a discretionary award of compound interest, depending on the facts of the particular case. The issue in the appeal as it came before your Lordships was whether the courts below were right in this respect… Both parties, therefore, came before your Lordships on the basis that Sinclair v Brougham was correctly decided, for whatever it did decide. But in the course of the argument your Lordships indicated that the House would be willing to reconsider the correctness of that decision. For the reasons given by my noble and learned friend, Lord Browne-Wilkinson, I agree that Sinclair v Brougham was wrongly decided on both the points discussed in his speech, and should be overruled. I understand that all your Lordships are agreed that the bank has failed to make good its claim that it has an equitable cause 799

Sourcebook on Obligations and Remedies of action against the local authority for breach of duty as trustee or fiduciary. It follows that the ground on which the courts below awarded compound interest cannot be supported. The local authority has succeeded on the only issue on which the parties came before your Lordships. Accordingly, I would be content to allow the appeal, and leave it at that. But my noble and learned friend, Lord Woolf, is of the view that, even though the bank has failed to prove any breach of trust or fiduciary duty, it may nevertheless be entitled to claim compound interest by way of a general equitable remedy ancillary to its common law claim for money had and received; and his views receive the powerful support of my noble and learned friend, Lord Goff of Chieveley… It may be said that in President of India v La Pintada Compania Navigacion SA [1985] AC 104 the claim was for payment of a debt due under a contract, whereas in the present case the claim is for money had and received. But why should that make any difference? It is true that the common law action for money had and received can be given a restitutionary label; and that ‘restitution’ may be said to be incomplete unless compound interest is included in the award. But the label cannot change the underlying reality. The cause of action remains a common law action for the return of money paid in pursuance of an ineffective contract. If compound interest cannot be recovered in a claim for debt due under a contract (in the absence of custom, or some express or implied agreement to that effect) I cannot see any reason in principle, or logic, why it should be recoverable in the case of money paid under a contract which turns out to be ineffective… [Another] reason for rejecting the bank’s claim for compound interest is that I am by no means certain that the policy considerations all point in favour of change. It is presumably in commercial transactions that the discretionary power to award compound interest would most frequently be used, on the ground that the money received by the payee would otherwise have had to be borrowed at compound interest. But it is in just such transactions that the need for certainty is paramount. Disputes which would otherwise be settled on the basis of simple interest would be fought in the hope of persuading the court that an award of compound interest was appropriate… Lord Goff (dissenting):… Once the character of an interest swap transaction has been identified and understood, and it is appreciated that, because the transaction was beyond the powers of the council, it was void ab initio, the basic question is whether the law can restore the parties to the position they were in before they entered into the transaction. That is, of course, the function of the law of restitution. I feel bound to say that, in the present case, there ought to be no difficulty about that at all. This is because the case is concerned solely with money. All that has to be done is to order that each party should pay back the money it has received—or, more sensibly, to strike a balance, and order that the party who has received most should repay the balance; and then to make an appropriate order for interest in respect of that balance. It should be as simple as that. And yet we find ourselves faced with a mass of difficult problems, and struggling to reconcile a number of difficult cases. I must confess that, like all the judges who have been involved in these cases, I too have found myself struggling in this way. But in the end I have come to 800

Non-Contractual Obligations (2): Restitution realise the importance of keeping my eyes on the simple outline of the case which I have just described; and I have discovered that, if one does that—if one keeps one’s eyes open above the thicket of case law in which we can so easily become enclosed—the solution of the problem in the present case becomes much more simple. In saying this, I do not wish in any way to criticise the judges who have been grappling with the case at first instance and in the Court of Appeal, within the confines of the doctrine of precedent by which they are bound. On the contrary, they are entitled to our gratitude and respect. The masterly judgment of Hobhouse J, in particular, has excited widespread admiration. But it is the great advantage of a supreme court that, not only does it have the great benefit of assistance from the judgments of the courts below, but also it has a greater freedom to mould, and remould, the authorities to ensure that practical justice is done within a framework of principle. The present case provides an excellent example of a case in which this House should take full advantage of that freedom. The three problems There are three reasons why the present case has become so complicated. The first is that, in our law of restitution, there has developed an understanding that money can only be recovered on the ground of failure of consideration if that failure is total. The second is that because, in particular, of the well known but controversial decision of this House in Sinclair v Brougham, it has come to be understood that a trust may be imposed in cases such as the present where the incapacity of one of the parties has the effect that the transaction is void. The third is that our law of interest has developed in a fragmentary and unsatisfactory manner, and in consequence insufficient attention has been given to the jurisdiction to award compound interest. I propose at the outset to devote a little attention to each of these matters. (1) Total failure of consideration There has long been a desire among restitution lawyers to escape from the unfortunate effects of the so called rule that money is only recoverable at common law on the ground of failure of consideration where the failure is total, by reformulating the rule upon a more principled basis; and signs that this will in due course be done are appearing in judgments throughout the common law world, as appropriate cases arise for decision. It is fortunate, however, that, in the present case, thanks (I have no doubt) to the admirable researches of counsel, a line of authority was discovered which had escaped the attention of the scholars who work in this field. This line of authority was concerned with contracts for annuities which were void if certain statutory formalities were not complied with. They were not therefore concerned with contracts void by reason of the incapacity of one of the parties. Even so, they were concerned with cases in which payments had been made, so to speak, both ways, and the courts had to decide whether they could, in such circumstances, do justice by restoring the parties to their previous positions. They did not hesitate to do so, by ascertaining the balance of the account between the parties, and ordering the repayment of the balance. Moreover, the form of action by which this was achieved was the old action for money had and received—what we nowadays call a personal claim in restitution at

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Sourcebook on Obligations and Remedies common law. With this precedent before him, Hobhouse J felt free to make a similar order in the present case; and in this he was self-evidently right. The most serious problem which has remained in this connection is the theoretical question whether recovery can here be said to rest upon the ground of failure of consideration. Hobhouse J thought not. He considered that the true ground in these cases, where the contract is void, is to be found in the absence, rather than the failure, of consideration; and in this he was followed by the Court of Appeal. This had the effect that the courts below were not troubled by the question whether there had been a total failure of consideration. The approach so adopted may have found its origin in the idea, to be derived from a well known passage in the speech of Viscount Simon LC in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, p 48, that a failure of consideration only occurs where there has been a failure of performance by the other party of his obligation under a contract which was initially binding. But the concept of failure of consideration need not be so narrowly confined. In particular it appears from the annuity cases themselves that the courts regarded them as cases of failure of consideration; and concern has been expressed by a number of restitution lawyers that the approach of Hobhouse J is contrary to principle and could, if accepted, lead to undesirable consequences: see Professor Birks, ‘No consideration: restitution after void contracts’ (1993) 23 WALK 195; Swadling, ‘Restitution for no consideration’ [1994] RLR 73; and Professor Burrows, ‘Swaps and the friction between common law and equity’ [1995] RLR 15. However, since there is before your Lordships no appeal from the decision that the bank was entitled to recover the balance of the payments so made in a personal claim in restitution, the precise identification of the ground of recovery was not explored in argument before the Appellate Committee. It would therefore be inappropriate to express any concluded view upon it. Even so, I think it right to record that there appears to me to be considerable force in the criticisms which have been expressed; and I shall, when considering the issues on this appeal, bear in mind the possibility that it may be right to regard the ground of recovery as failure of consideration. (2) A proprietary claim in restitution I have already stated that restitution in these cases can be achieved by means of a personal claim in restitution. The question has however arisen whether the bank should also have the benefit of an equitable proprietary claim in the form of a resulting trust. The immediate reaction must be—why should it? Take the present case. The parties have entered into a commercial transaction. The transaction has, for technical reasons, been held to be void from the beginning. Each party is entitled to recover its money, with the result that the balance must be repaid. But why should the plaintiff bank be given the additional benefits which flow from a proprietary claim, for example the benefit of achieving priority in the event of the defendant’s insolvency? After all, it has entered into a commercial transaction, and so taken the risk of the defendant’s insolvency, just like the defendant’s other creditors who have contracted with it, not to mention other creditors to whom the defendant may be liable to pay damages in tort.

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Non-Contractual Obligations (2): Restitution I feel bound to say that I would not at first sight have thought that an equitable proprietary claim in the form of a trust should be made available to the bank in the present case, but for two things. The first is the decision of this House in Sinclair v Brougham [1914] AC 398, which appears to provide authority that a resulting trust may indeed arise in a case such as the present. The second is that on the authorities there is an equitable jurisdiction to award the plaintiff compound interest in cases where the defendant is a trustee. It is the combination of those two factors which has provided the foundation for the principal arguments advanced on behalf of the bank in support of its submission that it was entitled to an award of compound interest. I shall have to consider the question of availability of an equitable proprietary claim, and the effect of Sinclair v Brougham, in some depth in a moment. But first I wish to say a few words on the subject of interest. (3) Interest One would expect to find, in any developed system of law, a comprehensive and reasonably simple set of principles by virtue of which the courts have power to award interest. Since there are circumstances in which the interest awarded should take the form of compound interest, those principles should specify the circumstances in which compound interest, as well as simple interest, may be awarded; and the power to award compound interest should be available both at law and in equity. Nowadays, especially since it has been established (see National Bank of Greece SA v Pinios Shipping Co (No 1) [1990] 1 AC 637) that banks may, by the custom of bankers, charge compound interest upon advances made by them to their customers, one would expect to find that the principal cases in which compound interest may be awarded would be commercial cases. Sadly, however, that is not the position in English law. Unfortunately, the power to award compound interest is not available at common law. The power is available in equity; but at present that power is, for historical reasons, exercised only in relation to certain specific classes of claim, in particular proceedings against trustees for an account. An important—I believe the most important—question in the present case is whether that jurisdiction should be developed to apply in a commercial context, as in the present case. Equitable proprietary claims I now turn to consider the question whether an equitable proprietary claim was available to the bank in the present case. Ever since the law of restitution began, about the middle of this century, to be studied in depth, the role of equitable proprietary claims in the law of restitution has been found to be a matter of great difficulty. The legitimate ambition of restitution lawyers has been to establish a coherent law of restitution, founded upon the principle of unjust enrichment; and since certain equitable institutions, notably the constructive trust and the resulting trust, have been perceived to have the function of reversing unjust enrichment, they have sought to embrace those institutions within the law of restitution, if necessary moulding them to make them fit for that purpose. Equity lawyers, on the other hand, have displayed anxiety that in this process the equitable 803

Sourcebook on Obligations and Remedies principles underlying these institutions may become illegitimately distorted; and, though equity lawyers in this country are nowadays much more sympathetic than they have been in the past towards the need to develop a coherent law of restitution, and of identifying the proper role of the trust within that rubric of the law, they remain concerned that the trust concept should not be distorted, and also that the practical consequences of its imposition should be fully appreciated. There is therefore some tension between the aims and perceptions of these two groups of lawyers, which has manifested itself in relation to the matters under consideration in the present case. In the present case, however, it is not the function of your Lordships’ House to rewrite the agenda for the law of restitution, nor even to identify the role of equitable proprietary claims in that part of the law. The judicial process is neither designed for, nor properly directed towards, such objectives. The function of your Lordships’ House is simply to decide the questions at issue before it in the present case; and the particular question now under consideration is whether, where money has been paid by a party to a contract which is ultra vires the other party and so void ab initio, he has the benefit of an equitable proprietary claim in respect of the money so paid. Moreover, the manner in which this question has arisen before this House renders it by no means easy to address. First of all, the point was not debated in any depth in the courts below, because they understood that they were bound by Sinclair v Brougham [1914] AC 398 to hold that such a claim was here available. But second, the point has arisen only indirectly in this case, since it is relevant only to the question whether the court here has power to make an award of compound interest. It is a truism that, in deciding a question of law in any particular case, the courts are much influenced by considerations of practical justice, and especially by the results which would flow from the recognition of a particular claim on the facts of the case before the court. Here, however, an award of compound interest provides no such guidance, because it is no more than a consequence which is said to flow, for no more than historical reasons, from the availability of an equitable proprietary claim. It therefore provides no guidance on the question whether such a claim should here be available. In these circumstances, I regard it as particularly desirable that your Lordships should, so far as possible, restrict the inquiry to the actual questions at issue in this appeal, and not be tempted into formulating general principles of a broader nature. If restitution lawyers are hoping to find in your Lordships’ speeches broad statements of principle which may definitively establish the future shape of this part of the law, I fear that they may be disappointed. I also regard it as important that your Lordships should, in the traditional manner, pay particular regard to the practical consequences which may flow from the decision of the House. With these observations by way of preamble, I turn to the question of the availability of an equitable proprietary claim in a case such as the present. The argument advanced on behalf of the bank was that the money paid by it under the void contract was received by the council subject to a resulting trust… I have already expressed the opinion that, at first sight, it is surprising that an equitable proprietary claim should be available in a case such as the present. 804

Non-Contractual Obligations (2): Restitution However, before I examine the question as a matter of principle, I propose first to consider whether Sinclair v Brougham supports the argument now advanced on behalf of the bank. Sinclair v Brougham The decision of this House in Sinclair v Brougham has loomed very large in both the judgments in the courts below and in the admirable arguments addressed to the Appellate Committee of this House. It has long been regarded as a controversial decision, and has been the subject of much consideration by scholars, especially those working in the field of restitution. I have, however, reached the conclusion that it is basically irrelevant to the decision of the present appeal. It is first necessary to establish what the case was about. The Birkbeck Permanent Benefit Building Society decided to set up a banking business, known as the Birkbeck Bank. The banking business was however held to be ultra vires the objects of the building society; and there followed a spate of litigation concerned with solving the problems consequent upon that decision. Sinclair v Brougham was one of those cases. The case has been analysed in lucid detail in the speech of my noble and learned friend, Lord Browne-Wilkinson, which I have read (in draft) with great respect. In its bare outline, it was concerned with the distribution of the assets of the society, which was insolvent. There were four classes of claimants. First, there were two classes of shareholders—the A shareholders (entitled to repayment of their investment on maturity) and the B shareholders (whose shares were permanent). Next, there was a numerous class of people who had deposited money at the bank, under contracts which were ultra vires and so void. Finally, there were the ordinary trade creditors of the society. By agreement, the A shareholders and the trade creditors were paid off first, leaving only the claims of the depositors and the B shareholders. There were sufficient assets to pay off the B shareholders, but not the depositors and certainly not both. The question of how to reconcile their competing claims arose for consideration on a summons by the liquidator for directions. The problem arose from the fact that the contracts under which the depositors deposited their money at the bank were ultra vires and so void. That prevented them from establishing a simple contractual right to be repaid, in which event they would have ranked with the ordinary trade creditors of the society in the liquidation. As it was, they claimed to be entitled to repayment in an action for money had and received—in the same way as the bank claimed repayment in the case now before your Lordships. But the House of Lords held that they were not entitled to claim on this ground. This was in substance because to allow such a claim would permit an indirect enforcement of the contract which the policy of the law had decreed should be void. In those days, of course, judges still spoke about the common law right to restitution in the language of implied contract, and so we find Lord Sumner saying, in a much quoted passage, p 452: To hold otherwise would be indirectly to sanction an ultra vires borrowing. All these causes of action are common species of the genus assumpsit. All 805

Sourcebook on Obligations and Remedies now rest, and long have rested, upon a notional or imputed promise to repay. The law cannot de jure impute promises to repay, whether for money had and received or otherwise, which, if made de facto, it would inexorably avoid. This conclusion, however, created a serious problem because, if the depositors had no claim, then, in the words of Lord Dunedin, p 436: The appalling result in this very case would be that the society’s shareholders, having got proceeds of the depositors’ money in the form of investments, so that each individual depositor is utterly unable to trace his money, are enriched to the extent of some 500%. As a matter of practical justice, such a result was obviously unacceptable, and it was to achieve justice that the House had recourse to equity to provide the answer. It is, I think, apparent from the reasoning of the members of the Appellate Committee that they regarded themselves, not as laying down some broad general principle, but as solving a particular practical problem. In this connection, it is, in my opinion, significant that there was a considerable variation in the way in which they approached the problem. Viscount Haldane LC, with whom Lord Atkinson agreed, did so, p 421, on the basis that there arose in the circumstances ‘a resulting trust, not of an active character’. Lord Dunedin based his decision upon a broad equity of restitution, drawn from Roman and French law. He asked himself the question, p 435: Is English equity to retire defeated from the task which other systems of equity have conquered?’—a question which he answered in the negative. Lord Parker of Waddington, pp 441–42, attempted to reconcile his decision with the established principles of equity by holding that the depositors’ money had been received by the directors of the society as fiduciaries, with the effect that the depositors could thereafter follow their money in equity into the assets of the society. Lord Sumner, p 458, considered that the case should be decided on equitable principles on which there was no direct authority. He regarded the question as one of administration, in which ‘the most just distribution of the whole must be directed, so only that no recognised rule of law or equity be disregarded’. Setting on one side the opinion of Lord Parker, whose approach I find very difficult to reconcile with the facts of the case, I do not discern in the speeches of the members of the Appellate Committee any intention to impose a trust carrying with it the personal duties of a trustee. For present purposes, I approach this case in the following way. First, it is clear that the problem which arose in Sinclair v Brougham, viz, that a personal remedy in restitution was excluded on grounds of public policy, does not arise in the present case, which is not of course concerned with a borrowing contract. Second, I regard the decision in Sinclair v Brougham as being a response to that problem in the case of ultra vires borrowing contracts, and as not intended to create a principle of general application. From this it follows, in my opinion, that Sinclair v Brougham is not relevant to the decision in the present case. In particular it cannot be relied upon as a precedent that a trust arises on the facts of the present case, justifying on that basis an award of compound interest against the council. But I wish to add this. I do not in any event think that it would be right for 806

Non-Contractual Obligations (2): Restitution your Lordships’ House to exercise its power under the Practice Statement (Judicial Precedent) [1966] 1 WLR 1234 to depart from Sinclair v Brougham. I say this first because, in my opinion, any decision to do so would not be material to the disposal of the present appeal, and would therefore be obiter. But there is a second reason of substance why, in my opinion, that course should not be taken. I recognise that nowadays cases of incapacity are relatively rare, though the swaps litigation shows that they can still occur. Even so, the question could still arise whether, in the case of a borrowing contract rendered void because it was ultra vires the borrower, it would be contrary to public policy to allow a personal claim in restitution. Such a question has arisen in the past not only in relation to associations such as the Birkbeck Permanent Benefit Building Society, but also in relation to infants’ contracts. Moreover there is a respectable body of opinion that, if such a case arose today, it should still be held that public policy would preclude a personal claim in restitution, though not of course by reference to an implied contract. That was the opinion expressed by Leggatt LJ in the Court of Appeal in the present case [1994] 1 WLR 938, p 952E-F, as it had been by Hobhouse J, and the same view has been expressed by Professor Birks (see An Introduction to the Law of Restitution, 1985, p 374). I myself incline to the opinion that a personal claim in restitution would not indirectly enforce the ultra vires contract, for such an action would be unaffected by any of the contractual terms governing the borrowing, and moreover would be subject (where appropriate) to any available restitutionary defences. If my present opinion were to prove to be correct then Sinclair v Brougham will facie into history. If not, then recourse can at least be had to Sinclair v Brougham as authority for the proposition that, in such circumstances, the lender should not be without a remedy. Indeed, I cannot think that English law, or equity, is so impoverished as to be incapable of providing relief in such circumstances. Lord Wright, who wrote in strong terms (‘Sinclair v Brougham’ [1938] CLJ 305) endorsing the just result in Sinclair v Brougham, would turn in his grave at any such suggestion. Of course, it may be necessary to reinterpret the decision in that case to provide a more satisfactory basis for it; indeed one possible suggestion has been proposed by Professor Birks (see An Introduction to the Law of Restitution, pp 396ff). But for the present the case should, in my opinion, stand, though confined in the manner I have indicated, as an assertion that those who are caught in the trap of advancing money under ultra vires borrowing contracts will not be denied appropriate relief. The availability of an equitable proprietary claim in the present case Having put Sinclair v Brougham on one side as providing no authority that a resulting trust should be imposed in the facts of the present case, I turn to the question whether, as a matter of principle, such a trust should be imposed, the bank’s submission being that such a trust arose at the time when the sum of £2.5 million was received by the council from the bank. As my noble and learned friend, Lord Browne-Wilkinson, observes, it is plain that the present case falls within neither of the situations which are traditionally regarded as giving rise to a resulting trust, viz: (1) voluntary payments by A to B, or for the purchase of property in the name of B or in his and A’s joint names, where there is no presumption of advancement or evidence of intention to make an out-and-out gift; or (2) property transferred to B on an express trust which does not exhaust the whole beneficial interest. 807

Sourcebook on Obligations and Remedies The question therefore arises whether resulting trusts should be extended beyond such cases to apply in the present case, which I shall treat as a case where money has been paid for a consideration which fails. In a most interesting and challenging paper, ‘Restitution and resulting trusts’, published in Goldstein (ed), Equity: Contemporary Legal Developments, 1992, p 335, Professor Birks has argued for a wider role for the resulting trust in the field of restitution, and specifically for its availability in cases of mistake and failure of consideration. His thesis is avowedly experimental, written to test the temperature of the water. I feel bound to respond that the temperature of the water must be regarded as decidedly cold: see, for example, Professor Burrows, ‘Swaps and the friction between common law and equity’ [1995] RLR 15; and Swadling, ‘A new role for resulting trusts?’ (1996) 16 LS 133. In the first place, as Lord Browne-Wilkinson points out, to impose a resulting trust in such cases is inconsistent with the traditional principles of trust law. For on receipt of the money by the payee it is to be presumed that (as in the present case) the identity of the money is immediately lost by mixing with other assets of the payee, and at that time the payee has no knowledge of the facts giving rise to the failure of consideration. By the time that those facts come to light, and the conscience of the payee may thereby be affected, there will therefore be no identifiable fund to which a trust can attach. But there are other difficulties. First, there is no general rule that the property in money paid under a void contract does not pass to the payee; and it is difficult to escape the conclusion that, as a general rule, the beneficial interest to the money likewise passes to the payee. This must certainly be the case where the consideration for the payment fails after the payment is made, as in cases of frustration or breach of contract; and there appears to be no good reason why the same should not apply in cases where, as in the present case, the contract under which the payment is made is void ab initio and the consideration for the payment therefore fails at the time of payment. It is true that the doctrine of mistake might be invoked where the mistake is fundamental in the orthodox sense of that word. But that is not the position in the present case; moreover, the mistake in the present case must be classified as a mistake of law which, as the law at present stands, creates its own special problems. No doubt that much criticised doctrine will fall to be reconsidered when an appropriate case occurs, but I cannot think that the present is such a case, since not only has the point not been argued but (as will appear) it is my opinion that there is in any event jurisdiction to award compound interest in the present case. For all of these reasons I conclude, in agreement with my noble and learned friend, that there is no basis for holding that a resulting trust arises in cases where money has been paid under a contract which is ultra vires and therefore void ab initio. This conclusion has the effect that all the practical problems which would flow from the imposition of a resulting trust in a case such as the present, in particular the imposition upon the recipient of the normal duties of trustee, do not arise. The dramatic consequences which would occur are detailed by Professor Burrows in his article on ‘Swaps and the friction between common law and equity’ [1995] RLR 15, p 27: the duty to account for profits accruing from the trust property; the inability of the payee to rely upon the defence of change

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Non-Contractual Obligations (2): Restitution ofposition; the absence of any limitation period; and so on. Professor Burrows even goes so far as to conclude that the action for money had and received would be rendered otiose in such cases, and indeed in all cases where the payer seeks restitution of mistaken payments. However, if no resulting trust arises, it also follows that the payer in a case such as the present cannot achieve priority over the payee’s general creditors in the event of his insolvency—a conclusion which appears to me to be just. For all these reasons, I conclude that there is no basis for imposing a resulting trust in the present case, and I therefore reject the bank’s submission that it was here entitled to proceed by way of an equitable proprietary claim. I need only add that, in reaching that conclusion, I do not find it necessary to review the decision of Goulding J in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105. Interest It is against that background that I turn to consider the question of compound interest… I wish…to record that Hobhouse J was in no doubt that, if he had jurisdiction to do so, he should award compound interest in this case. He said [1994] 4 All ER 890, p 955: Anyone who lends or borrows money on a commercial basis receives or pays interest periodically and if that interest is not paid it is compounded …I see no reason why I should deny the plaintiff a complete remedy or allow the defendant arbitrarily to retain part of the enrichment which it has unjustly enjoyed. With that reasoning I find myself to be in entire agreement. The council has had the use of the bank’s money over a period of years. It is plain on the evidence that, if it had not had the use of the bank’s money, it would (if free to do so) have borrowed the money elsewhere at compound interest. It has to that extent profited from the use of the bank’s money. Moreover, if the bank had not advanced the money to the council, it would itself have employed the money on similar terms in its business. Full restitution requires that, on the facts of the present case, compound interest should be awarded, having regard to the commercial realities of the case. As the judge said, there is no reason why the bank should be denied a complete remedy. It follows therefore that everything depends on the scope of the equitable jurisdiction. It also follows, in my opinion, that if that jurisdiction does not extend to apply in a case such as the present, English law will be revealed as incapable of doing full justice. It is right that I should record that the scope of the equitable jurisdiction was not explored in depth in the course of argument before the Appellate Committee, in which attention was concentrated on the question whether a proprietary claim was available to the bank in the circumstances of the present case. In other circumstances, it might well have been appropriate to invite further argument on the point. However, since it was indicated to the

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Sourcebook on Obligations and Remedies Committee that the council was not prepared to spend further money on the appeal, whereupon it took no further part in the proceedings, and since the relevant authorities had been cited to the Committee, I am satisfied that it is appropriate that the point should now be decided by your Lordships’ House. I wish also to record that I have had the opportunity of reading in draft the speech of my noble and learned friend, Lord Woolf, and that I find myself to be in agreement with his reasoning and conclusion on the point. Even so, I propose to set out in my own words my reasons for reaching the same conclusion. I shall begin by expressing two preliminary thoughts. The first is that, where the jurisdiction of the court derives from common law or equity, and is designed to do justice in cases which come before the courts, it is startling to be faced by an argument that the jurisdiction is so restricted as to prevent the courts from doing justice. Jurisdiction of that kind should as a matter of principle be as broad as possible, to enable justice to be done wherever necessary; and the relevant limits should be found not in the scope of the jurisdiction but in the manner of its exercise as the principles are worked out from case to case. Second, I find it equally startling to find that the jurisdiction is said to be limited to certain specific categories of case. Where jurisdiction is founded on a principle of justice, I would expect that the categories of case where it is exercised should be regarded not as occupying the whole field but rather as emanations of the principle, so that the possibility of the jurisdiction being extended to other categories of case is not foreclosed… From [the] cases it can be seen that compound interest may be awarded in cases where the defendant has wrongfully profited, or may be presumed to have so profited, from having the use of another person’s money. The power to award compound interest is therefore available to achieve justice in a limited area of what is now seen as the law of restitution, viz, where the defendant has acquired a benefit through his wrongful act (see Goff and Jones, The Law of Restitution, 4th edn, 1993, pp 632ff; Birks, An Introduction to the Law of Restitution, 1985, pp 313ff; Burrows, The Law of Restitution, 1993, pp 403ffv I must confess that I find the reasoning which would restrict the equitable jurisdiction to award compound interest to cases where the claim is proprietary in nature to be both technical and unrealistic… For these reasons I am satisfied that there is jurisdiction in equity to award compound interest in the case of personal claims as well as proprietary claims. I turn next to the question whether the equitable jurisdiction can be exercised in aid of common law remedies such as, for example, a personal remedy in restitution, to repair the deficiencies of the common law… I start with the position that the common law remedy is, in a case such as the present, plainly inadequate, in that there is no power to award compound interest at common law and that without that power the common law remedy is incomplete. The situation is therefore no different from that in which, in the absence of jurisdiction at common law to order discovery, equity stepped in to enable justice to be done in common law actions by ordering the 810

Non-Contractual Obligations (2): Restitution defendant to make discovery on oath. The only difference between the two cases is that, whereas the equitable jurisdiction to order discovery in aid of common law actions was recognised many years ago, the possibility of the equitable jurisdiction to award compound interest being exercised in aid of common law actions was not addressed until the present case. Fortunately, however, judges of equity have always been ready to address new problems, and to create new doctrines, where justice so requires… I therefore ask myself whether there is any reason why the equitable jurisdiction to award compound interest should not be exercised in a case such as the present. I can see none. Take, for example, the case of fraud. It is well established that the equitable jurisdiction may be exercised in cases of fraud. Indeed it is plain that, on the same facts, there may be a remedy both at law and in equity to recover money obtained by fraud: see Johnson v The King [1904] AC 817, p 822, per Lord Macnaghten. Is it to be said that, if the plaintiff decides to proceed in equity, compound interest may be awarded; but that if he chooses to proceed in an action at law, no such auxiliary relief will be available to him? I find it difficult to believe that, at the end of the 20th century, our law should be so hidebound by forms of action as to be compelled to reach such a conclusion. For these reasons, I conclude that the equitable jurisdiction to award compound interest may be exercised in the case of personal claims at common law, as it is in equity. Furthermore I am satisfied that, in particular, the equitable jurisdiction may, where appropriate, be exercised in the case of a personal claim in restitution. In reaching that conclusion, I am of the opinion that the decision of Hobhouse J in Kleinwort Benson Ltd v South Tyneside MBC [1994] 4 All ER 972 that the court had no such jurisdiction should not be allowed to stand. I recognise that, in so holding, the courts would be breaking new ground, and would be extending the equitable jurisdiction to a field where it has not hitherto been exercised. But that cannot of itself be enough to prevent what I see to be a thoroughly desirable extension of the jurisdiction, consistent with its underlying basis that it exists to meet the demands of justice. An action of restitution appears to me to provide an almost classic case in which the jurisdiction should be available to enable the courts to do full justice. Claims in restitution are founded upon a principle of justice, being designed to prevent the unjust enrichment of the defendant: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. Long ago, in Moses v Macferlan (1760) 2 Burr 1005, p 1012, Lord Mansfield CJ said that the gist of the action for money had and received is that ‘the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money’. It would be strange indeed if the courts lacked jurisdiction in such a case to ensure that justice could be fully achieved by means of an award of compound interest, where it is appropriate to make such an award, despite the fact that the jurisdiction to award such interest is itself said to rest upon the demands of justice. I am glad not to be forced to hold that English law is so inadequate as to be incapable of achieving such a result. In my opinion, the jurisdiction should now be made available, as justice requires, in cases of restitution, to ensure that full justice can be done. The seed is there, but the growth has hitherto been confined within a small area. That growth should now be permitted to

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Sourcebook on Obligations and Remedies spread naturally elsewhere within this newly recognised branch of the law. No genetic engineering is required, only that the warm sun of judicial creativity should exercise its benign influence rather than remain hidden behind the dark clouds of legal history. I wish to add that I, for my part, do not consider that the statutory power to award interest, either under s 3 of the Law Reform (Miscellaneous Provisions) Act 1934 or under s 35A of the Supreme Court Act 1981 (which, pursuant to s 15 of the Administration of Justice Act 1982, superseded s 3 of the Act of 1934), inhibits the course of action which I now propose… It is of course common knowledge that, until the latter part of this century, the existence of a systematic law of restitution, founded upon the principle of unjust enrichment, had not been recognised in English law. The question whether there should be a power to award compound interest in such cases, in order to achieve full restitution, simply did not arise in 1934 and cannot therefore have been considered by Parliament in that year… Conclusion For these reasons I would dismiss the appeal. Lord Browne-Wilkinson: My Lords, in the last decade many local authorities entered into interest rate swap agreements with banks and other finance houses. In Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1, your Lordships held that such contracts were ultra vires local authorities and therefore void. Your Lordships left open the question whether payments made pursuant to such swap agreements were recoverable or not. The action which is the subject matter of this appeal is one of a number in which the court has had to consider the extent to which moneys paid under such an agreement are recoverable… Was there a trust? The argument for the bank in outline The bank submitted that, since the contract was void, title did not pass at the date of payment either at law or in equity. The legal title of the bank was extinguished as soon as the money was paid into the mixed account, whereupon the legal title became vested in the local authority. But, it was argued, this did not affect the equitable interest, which remained vested in the bank (‘the retention of title point’). It was submitted that whenever the legal interest in property is vested in one person and the equitable interest in another, the owner of the legal interest holds it on trust for the owner of the equitable title: ‘the separation of the legal from the equitable interest necessarily imports a trust’. For this latter proposition (‘the separation of title point’), the bank, of course, relies on Sinclair v Brougham [1914] AC 398 and Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105… The breadth of the submission Although the actual question in issue on the appeal is a narrow one, on the arguments presented it is necessary to consider fundamental principles of trust law. Does the recipient of money under a contract subsequently found to be void for mistake or as being ultra vires hold the moneys received on trust even where he had no knowledge at any relevant time that the contract was void? If he does hold on trust, such trust must arise at the date of receipt or, at the latest, at the date the legal title of the payer is extinguished by 812

Non-Contractual Obligations (2): Restitution mixing moneys in a bank account; in the present case, it does not matter at which of those dates the legal title was extinguished. If there is a trust, two consequences follow: (a) the recipient will be personally liable, regardless of fault, for any subsequent payment away of the moneys to third parties even though, at the date of such payment, the ‘trustee’ was still ignorant of the existence of any trust: see Burrows, ‘Swaps and the friction between common law and equity’ [1995] RLR 15; (b) as from the date of the establishment of the trust (that is, receipt or mixing of the moneys by the ‘trustee’) the original payer will have an equitable proprietary interest in the moneys so long as they are traceable into whomsoever’s hands they come other than a purchaser for value of the legal interest without notice. Therefore, although in the present case the only question directly in issue is the personal liability of the local authority as a trustee, it is not possible to hold the local authority liable without imposing a trust which, in other cases, will create property rights affecting third parties because moneys received under a void contract are ‘trust property’… The practical consequences of the bank’s argument Before considering the legal merits of the submission, it is important to appreciate the practical consequences which ensue if the bank’s arguments are correct. Those who suggest that a resulting trust should arise in these circumstances accept that the creation of an equitable proprietary interest under the trust can have unfortunate, and adverse, effects if the original recipient of the moneys becomes insolvent: the moneys, if traceable in the hands of the recipient, are trust moneys and not available for the creditors of the recipient. However, the creation of an equitable proprietary interest in moneys received under a void contract is capable of having adverse effects quite apart from insolvency. The proprietary interest under the unknown trust will, quite apart from insolvency, be enforceable against any recipient of the property other than the purchaser for value of a legal interest without notice… My Lords, wise judges have often warned against the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs… If the bank’s arguments are correct, a businessman who has entered into transactions relating to or dependent upon property rights could find that assets which apparently belong to one person in fact belong to another; that there are ‘off balance sheet’ liabilities of which he cannot be aware; that these property rights and liabilities arise from circumstances unknown not only to himself but also to anyone else who has been involved in the transactions. A new area of unmanageable risk will be introduced into commercial dealings. If the due application of equitable principles forced a conclusion leading to these results, your Lordships would be presented with a formidable task in reconciling legal principle with commercial common sense. But, in my judgment, no such conflict occurs. The resulting trust for which the bank contends is inconsistent not only with the law as it stands but with any principled development of it. The relevant principles of trust law (i)

Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to 813

Sourcebook on Obligations and Remedies carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust). (ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, that is, until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience. (iii) In order to establish a trust there must be identifiable trust property. The only apparent exception to this rule is a constructive trust imposed on a person who dishonestly assists in a breach of trust who may come under fiduciary duties even if he does not receive identifiable trust property. (iv) Once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal interest without notice… Those basic principles are inconsistent with the case being advanced by the bank. The latest time at which there was any possibility of identifying the ‘trust property’ was the date on which the moneys in the mixed bank account of the local authority ceased to be traceable when the local authority’s account went into overdraft in June 1987. At that date, the local authority had no knowledge of the invalidity of the contract but regarded the moneys as its own to spend as it thought fit. There was therefore never a time at which both: (a) there was defined trust property; and (b) the conscience of the local authority in relation to such defined trust property was affected. The basic requirements of a trust were never satisfied… The retention of title point It is said that, since the bank only intended to part with its beneficial ownership of the moneys in performance of a valid contract, neither the legal nor the equitable title passed to the local authority at the date of payment. The legal title vested in the local authority by operation of law when the moneys became mixed in the bank account but, it is said, the bank ‘retained’ its equitable title. I think this argument is fallacious. A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estates, there is no separate equitable title. Therefore, to talk about the bank ‘retaining’ its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust…

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Non-Contractual Obligations (2): Restitution The separation of title point The bank’s submission, at its widest, is that if the legal title is in A but the equitable interest in B, A holds as trustee for B. Again I think this argument is fallacious. There are many cases where B enjoys rights which, in equity, are enforceable against the legal owner, A, without A being a trustee, for example, an equitable right to redeem a mortgage, equitable easements, restrictive covenants, the right to rectification, an insurer’s right by subrogation to receive damages subsequently recovered by the assured: Lord Napier and Ettrick v Hunter [1993] AC 713. Even in cases where the whole beneficial interest is vested in B and the bare legal interest is in A, A is not necessarily a trustee, for example, where title to land is acquired by estoppel as against the legal owner; a mortgagee who has fully discharged his indebtedness enforces his right to recover the mortgaged property in a redemption action, not an action for breach of trust… Resulting trust This is not a case where the bank had any equitable interest which pre-dated receipt by the local authority of the upfront payment… Once there ceased to be an identifiable trust fund, the local authority could not become a trustee: In re Goldcorp Exchange Ltd [1995] 1 AC 74. Therefore, as the argument for the bank recognised, the only possible trust which could be established was a resulting trust arising from the circumstances in which the local authority received the upfront payment… Applying…conventional principles of resulting trust to the present case, the bank’s claim must fail. There was no transfer of money to the local authority on express trusts: therefore a resulting trust of type (B) above could not arise. As to type (A) above, any presumption of resulting trust is rebutted since it is demonstrated that the bank paid, and the local authority received, the upfront payment with the intention that the moneys so paid should become the absolute property of the local authority. It is true that the parties were under a misapprehension that the payment was made in pursuance of a valid contract. But that does not alter the actual intentions of the parties at the date the payment was made or the moneys were mixed in the bank account. As the article by William Swadling, ‘A new role for resulting trusts?’ 16 LS 133 demonstrates, the presumption of resulting trust is rebutted by evidence of any intention inconsistent with such a trust, not only by evidence of an intention to make a gift. Professor Birks, ‘Restitution and resulting trusts’: see Equity: Contemporary Legal Developments 335, p 360, whilst accepting that the principles I have stated represent ‘a very conservative form’ of definition of a resulting trust, argues from restitutionary principles that the definition should be extended so as to cover a perceived gap in the law of ‘subtractive unjust enrichment’ (p 368) so as to give a plaintiff a proprietary remedy when he has transferred value under a mistake or under a contract the consideration for which wholly fails. He suggests that a resulting trust should arise wherever the money is paid under a mistake (because such mistake vitiates the actual intention) or when money is paid on a condition which is not subsequently satisfied.

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Sourcebook on Obligations and Remedies As one would expect, the argument is tightly reasoned, but I am not persuaded. The search for a perceived need to strengthen the remedies of a plaintiff claiming in restitution involves, to my mind, a distortion of trust principles. First, the argument elides rights in property (which is the only proper subject matter of a trust) into rights in ‘the value transferred’: see p 361. A trust can only arise where there is defined trust property; it is therefore not consistent with trust principles to say that a person is a trustee of property which cannot be defined. Second, Professor Birks’s approach appears to assume (for example in the case of a transfer of value made under a contract the consideration for which subsequently fails) that the recipient will be deemed to have been a trustee from the date of his original receipt of money, ie, the trust arises at a time when the ‘trustee’ does not, and cannot, know that there is going to be a total failure of consideration. This result is incompatible with the basic premise on which all trust law is built, viz, that the conscience of the trustee is affected. Unless and until the trustee is aware of the factors which give rise to the supposed trust, there is nothing which can affect his conscience. Thus, neither in the case of a subsequent failure of consideration nor in the case of a payment under a contract subsequently found to be void for mistake or failure of condition will there be circumstances, at the date of receipt, which can impinge on the conscience of the recipient, thereby making him a trustee. Thirdly, Professor Birks has to impose on his wider view an arbitrary and admittedly unprincipled modification so as to ensure that a resulting trust does not arise when there has only been a failure to perform a contract, as opposed to total failure of consideration: see pp 356–59 and 362. Such arbitrary exclusion is designed to preserve the rights of creditors in the insolvency of the recipient. The fact that it is necessary to exclude artificially one type of case which would logically fall within the wider concept casts doubt on the validity of the concept. If adopted, Professor Birks’s wider concepts would give rise to all the practical consequences and injustices to which I have referred. I do not think it right to make an unprincipled alteration to the law of property (that is, the law of trusts) so as to produce in the law of unjust enrichment the injustices to third parties which I have mentioned and the consequential commercial uncertainty which any extension of proprietary interests in personal property is bound to produce. Money had and received The House of Lords was unanimous in rejecting the claim by the ultra vires depositors to recover in quasi-contract on the basis of moneys had and received. In their view, the claim in quasi-contract was based on an implied contract. To imply a contract to repay would be to imply a contract to exactly the same effect as the express ultra vires contract of loan. Any such implied contract would itself be void as being ultra vires. Subsequent developments in the law of restitution demonstrate that this reasoning is no longer sound. The common law restitutionary claim is based not on implied contract but on unjust enrichment; in the circumstances the law imposes an obligation to repay rather than implying an entirely fictitious agreement to repay… In my judgment, your Lordships should now unequivocally and finally reject the concept that the claim for moneys had

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Non-Contractual Obligations (2): Restitution and received is based on an implied contract. I would overrule Sinclair v Brougham on this point. It follows that in Sinclair v Brougham the depositors should have had a personal claim to recover the moneys at law based on a total failure of consideration. The failure of consideration was not partial: the depositors had paid over their money in consideration of a promise to repay. That promise was ultra vires and void; therefore, the consideration for the payment of the money wholly failed. So in the present swaps case (though the point is not one under appeal) I think the Court of Appeal were right to hold that the swap moneys were paid on a consideration that wholly failed. The essence of the swap agreement is that, over the whole term of the agreement, each party thinks he will come out best; the consideration for one party making a payment is an obligation on the other party to make counter-payments over the whole term of the agreement. If in Sinclair v Brougham, the depositors had been held entitled to recover at law, their personal claim would have ranked pari passu with other ordinary unsecured creditors, in priority to the members of the society who could take nothing in the liquidation until all creditors had been paid… If Sinclair v Brougham, in both its aspects, is overruled, the law can be established in accordance with principle and commercial common sense; a claimant for restitution of moneys paid under an ultra vires, and therefore void, contract has a personal action at law to recover the moneys paid as on a total failure of consideration; he will not have an equitable proprietary claim which gives him either rights against third parties or priority in an insolvency; nor will he have a personal claim in equity, since the recipient is not a trustee… The stolen bag of coins The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins. At law those coins remain traceable only so long as they are kept separate: as soon as they are mixed with other coins or paid into a mixed bank account they cease to be traceable at law. Can it really be the case, it is asked that, in such circumstances, the thief cannot be required to disgorge the property which, in equity, represents the stolen coins? Moneys can only be traced in equity if there has been at some stage a breach of fiduciary duty, that is, if either before the theft there was an equitable proprietary interest (for example, the coins were stolen trust moneys) or such interest arises under a resulting trust at the time of the theft or the mixing of the moneys. Therefore, it is said, a resulting trust must arise either at the time of the theft or when the moneys are subsequently mixed. Unless this is the law, there will be no right to recover the assets representing the stolen moneys once the moneys have become mixed. I agree that the stolen moneys are traceable in equity. But the proprietary interest which equity is enforcing in such circumstances arises under a constructive, not a resulting, trust. Although it is difficult to find clear authority for the proposition, when property is obtained by fraud equity imposes a constructive trust on the fraudulent recipient: the property is recoverable and traceable in equity. Thus, an infant who has obtained property by fraud

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Sourcebook on Obligations and Remedies is bound in equity to restore it: Stocks v Wilson [1913] 2 KB 235, p 244; R Leslie Ltd v Sheill [1914] 3 KB 607. Moneys stolen from a bank account can be traced in equity: Bankers Trust Co v Shapira [1980] 1 WLR 1274, p 1282C-E. See also McCormick v Grogan (1869) LR 4 HL 82, p 97. Restitution and equitable rights Those concerned with developing the law of restitution are anxious to ensure that, in certain circumstances, the plaintiff should have the right to recover property which he has unjustly lost. For that purpose they have sought to develop the law of resulting trusts so as to give the plaintiff a proprietary interest. For the reasons that I have given in my view, such development is not based on sound principle and in the name of unjust enrichment is capable of producing most unjust results. The law of resulting trusts would confer on the plaintiff a right to recover property from, or at the expense of, those who have not been unjustly enriched at his expense at all, for example, the lender whose debt is secured by a floating charge and all other third parties who have purchased an equitable interest only, albeit in all innocence and for value. Although the resulting trust is an unsuitable basis for developing proprietary restitutionary remedies, the remedial constructive trust, if introduced into English law, may provide a more satisfactory road forward. The court, by way of remedy, might impose a constructive trust on a defendant who knowingly retains property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as change of position, are capable of being given effect. However, whether English law should follow the United States and Canada by adopting the remedial constructive trust will have to be decided in some future case when the point is directly in issue… Equity acting in aid of the common law Since drafting this speech I have seen, in draft, the speeches of my noble and learned friends, Lord Goff of Chieveley and Lord Woolf. Both consider that compound interest should be awarded in this case on the grounds that equity can act in aid of the common law and should exercise its jurisdiction to order compound interest in aid of the common law right to recover moneys paid under an ultra vires contract. I fully appreciate the strength of the moral claim of the bank in this case to receive full restitution, including compound interest. But I am unable to accept that it would be right in the circumstances of this case for your Lordships to develop the law in the manner proposed. I take this view for two reasons. First, Parliament has twice since 1934 considered what interest should be awarded on claims at common law. Both the Act of 1934, s 3(1), and its successor, s 35A of the Act of 1981, make it clear that the Act does not authorise the award of compound interest. However, both Acts equally make it clear that they do not impinge on the award of interest in equity. At the time those Acts were passed, and indeed at all times down to the present day, equity has only awarded compound interest in the limited circumstances which I

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Non-Contractual Obligations (2): Restitution have mentioned. In my judgment, your Lordships would be usurping the function of Parliament if, by expanding the equitable rules for the award of compound interest, this House were now to hold that the court exercising its equitable jurisdiction in aid of the common law can award compound interest which the statutes have expressly not authorised the court to award in exercise of its common law jurisdiction. Secondly, the arguments relied upon by my noble and learned friends were not advanced by the bank at the hearing. The local authority would have a legitimate ground to feel aggrieved if the case were decided against them on a point which they had had no opportunity to address. Moreover, in my view it would be imprudent to introduce such an important change in the law without this House first having heard full argument upon it. Although I express no concluded view on the points raised, the proposed development of the law bristles with unresolved questions. For example, given that the right to interest is not a right which existed at common law but is solely the creation of statute, would equity in fact be acting in aid of the common law or would it be acting in aid of the legislature? Does the principle that equity acts in aid of the common law apply where there is no concurrent right of action in equity? If not, in the absence of any trust or fiduciary relationship, what is the equitable cause of action in this case? What were the policy reasons which led Parliament to provide expressly that only the award of simple interest was authorised? In what circumstances should compound interest be awarded under the proposed expansion of the equitable rules? In the absence of argument on these points it would in my view be imprudent to change the law. Rather, the whole question of the award of compound interest should be looked at again by Parliament so that it can make such changes, if any, as are appropriate. For these reasons, which are in substance the same as those advanced by my noble and learned friend, Lord Lloyd of Berwick, I am unable to agree with the views of Lord Goff of Chieveley and Lord Woolf. Conclusion I would allow the appeal and vary the judgment of the Court of Appeal so as to order the payment of simple interest only as from 18 June 1987 on the balance from time to time between the sums paid by the bank to the local authority and the sums paid by the local authority to the bank. Lord Woolf (dissenting):… I am relieved that I am of the opinion that the judges in the courts below were correct in concluding that in the circumstances of this case they were entitled to award compound interest. Any other decision would be inconsistent with the court’s ability to grant full restitution. It would be a further unhappy aspect, from a commercial standpoint, of the history of this case in particular and the swaps litigation as a whole. This commenced with the decision, to which I was a party at first instance, of Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1. It is no secret that the decision at first instance in that case, which was approved by this House, caused dismay among some of those concerned with the standing abroad of the commercial law of this country. That concern is likely to be increased if the outcome of this litigation is that this appeal has to be

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Sourcebook on Obligations and Remedies allowed by this House because the courts have no jurisdiction to grant compound interest… The significance of the difference between equitable principles and remedies Such a wholesale importation is not necessarily the consequence of a finding that the courts have the equitable jurisdiction to make an order for the payment of compound interest in conjunction with the grant of a remedy of restitution. We are concerned here primarily not with equitable principles of substantive law but with the possible existence of an equitable remedy. Compound interest, if it is recoverable, will be recoverable in the circumstances of this case in equity because of the absence of any statutory or common law remedy which will prevent the local authority being unjustly enriched at the expense of the bank if compound interest is not payable. The situation is one in which compound interest would be awarded because it would be unconscionable to allow the local authority to make a profit out of a contract which was void because it had exceeded its own powers. This is very much an analogous situation to those where equity has traditionally provided remedies. Perhaps the best example is provided by specific performance. It is unnecessary to inquire whether the right which is being enforced by an order of specific performance is one recognised by the common law or equity. What does matter is whether it is equitable to grant the remedy and whether an award of damages in lieu would be an adequate remedy. In addition, if the contract had not been void and the local authority had failed to make the payments required the bank might well, as I will seek to show, have been fully protected by its remedy in damages at common law. Because there is no contract, damages are not available. Here the situation is very much in keeping with those where equity traditionally mitigates the inadequacy of a common law remedy without having to invoke the substantive equitable law principles. This situation is described in Snell’s Equity, p 26: Between them, equitable interests, mere equities, floating equities and the great doctrines of equity cover most of the field of equity; and they are all concerned to a greater or lesser degree with the rights of property. Yet although the existence of such rights has long been an important factor in deciding whether equity will intervene, it is not essential. Equitable remedies, though often used in aid of property rights, are also often used in other cases. The underlying principle is the inadequacy of the common law remedy of damages. Thus, the equitable remedies of rescission and injunction may be employed in relation to contracts for personal services; and injunctions are sometimes granted in cases of tort which involve no rights of property. In this sense, there may be equities unrelated to property. In the same sense, it can be said there may be equities unrelated to a breach of trust or fiduciary duty. I would add that equity does not only come to the aid of a claimant where damages are an inadequate remedy. It can also do so when one of the other common law remedies is inadequate. I would take as an example the remedy of an account. The advantages of the equitable remedy 820

Non-Contractual Obligations (2): Restitution over the common law remedy have resulted in the latter remedy being supplanted by the former. It may well be that the editors of Snell’s Equity did not have in mind the power to award interest when writing the paragraph I have set out. The paragraph is nonetheless of general application and there is no reason why it should not apply to the equitable remedy of awarding interest in the same way as it applies to other equitable remedies. The award of interest is only distinct from other remedies in that it is usually awarded as an ancillary to some other remedy. I therefore accept Mr Sumption’s submission on behalf of the bank that where there is a duty to make restitution equity can achieve full restitution by granting, when it is appropriate to do so, simple or compound interest in addition to requiring repayment of the principal sum. For this to be the position the defendant must have made an actual or presumed profit or a profit which he is presumed to have derived from his having been the recipient of a principal sum which he has not repaid. The compound interest will not be payable as of right. The remedy of awarding interest, like other equitable remedies, will be discretionary. Interest will only be awarded when it accords with equitable principles to make the award. I appreciate that Mr Sumption did not advance the argument in favour of the grant of compound interest on the basis that I have put forward. However, he came before your Lordships’ House not expecting Sinclair v Brougham [1914] AC 398 to be challenged. He had no reason in his printed case to do other than base his argument on the fact that the local authority was a fiduciary. Before your Lordships he made clear that while he was arguing that the local authority was a fiduciary he was also contending that, if there was power to order restitution, equity could, as I have already indicated, achieve full restitution. This is also clear from the statements in the bank’s case to which I will refer shortly. The absence of previous authority There may be no clear previous authority to support this conclusion but this is not surprising where the relatively new jurisdiction of ordering restitution is involved… Restitution is an area of the law which is still in the process of being evolved by the courts. In relation to restitution there are still questions remaining to be authoritatively decided. One question, which was still undecided until the decision on this appeal, is whether its legitimacy is derived from the common law or equity or both. In order to decide whether compound interest is payable in this case I do not consider it is necessary to decide which is the correct answer to that question, but I am content to assume that the cause of action is one at common law. If the principal sum is repayable as money had and received rather than under some trust or because of the existence of a fiduciary duty it is still unconscionable for the local authority to retain the benefit it made from having received payment under a contract it purported to make which was outside its powers. The fact that, until the law was clarified by the decision in this case, the local authority may reasonably not have appreciated that it should make restitution is not critical. What is critical is that the payment of compound interest is required to achieve restitution. A defendant may perfectly reasonably not regard himself as having been a 821

Sourcebook on Obligations and Remedies trustee until the court so decides but this does not effect the remedies which the court has jurisdiction to grant. The jurisdiction of the court to grant remedies has to be judged in the light of what the court decides…

The position at common law and by statute I should now deal shortly with the situation as to interest at common law and by statute. At common law, the power to award interest was linked to the power to award damages. While the equitable jurisdiction was concerned to prevent profit by the recipient of funds to which he was not entitled, the common law was concerned with the loss suffered by the payer of the funds. The statutory jurisdiction differed from the common law because initially there had to be a judgment for the payment of a debt or damages before interest could be awarded and the legislator was dealing with the generality of those situations… …I refer to Wadsworth v Lydall for three reasons. The first is that it brings out clearly that despite the decision of this House in London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429, there is no inherent common law bias against the award of compound interest at common law. What is required for compound interest to be payable is that the contract either expressly or impliedly provides for the payment of compound interest or there is a breach of the contract and the breach is such that compound interest will be regarded as flowing from the breach in accordance with the second limb of the principle laid down in Hadley v Baxendale (1854) 9 Exch 341. The second reason is that while prior to the decision in Wadsworth v Lydall it could legitimately be thought that the situations where compound interest would be awarded at common law were necessarily of a commercial nature, this is not an essential requirement. The situations where it was clearly established that compound interest was recoverable (as, for example, in the case of bills of exchange or banking transactions) should be regarded not so much as independent exceptions to a general rule but as examples of the application of a general rule where in accordance with ordinary contractual principles compound interest should be recoverable. The third reason why I refer to Wadsworth v Lydall is that it clearly demonstrates that notwithstanding the period which has elapsed since the decision in the London, Chatham and Dover Railway Co case, in 1893, the courts will be prepared to limit the application of that decision where this can be done in accordance with principle and it is appropriate to do so… The desirability of the equitable jurisdiction being extended A decision in favour of the bank in this case will mark a further improvement in the powers of the English courts. An improvement the need for which has so frequently been recognised… Lord Slynn: My Lords, for the reasons given by my noble and learned friend, Lord Browne-Wilkinson, I agree that Sinclair v Brougham [1914] AC 398 should be departed from and that it should be held that in this case the local authority was neither a trustee of, nor in a fiduciary position in relation to, the moneys which it had received from the bank, nor had it improperly profited from the use of those moneys. For the reasons which he gives, no resulting trust could arise on the present facts…

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Non-Contractual Obligations (2): Restitution I do not…consider that it would be right on this appeal to enlarge the cases in which compound interest can be awarded when Parliament has twice in relatively recent times limited statutory interest to simple interest. This is a matter which should be considered by Parliament when the merits or disadvantages of giving the courts power to award compound interest could be examined in a context wider than the present case…

Questions 1

2

3

4 5

Does one need to distinguish between in personam claims and in rem claims in equity? Or will all personal claims be covered by the quasi-contractual actions? (Cf Royal Brunei Airlines v Tan, below, p 842.) Are equitable proprietary (tracing) claims based on ownership, or is the relationship between persona and res something less than ownership? Is this a realistic question to ask in relation to English law? If P is entitled to trace his property into the patrimony of D, does this mean that D holds the property in trust for P? Or must P always establish the existence of a trust? Why did the plaintiffs in Lipkin Gorman (above, p 782) not seek an equitable proprietary claim? What is the main advantage of an equitable proprietary claim over an in personam claim at common law in a situation where the defendant is bankrupt?

4 DEFECTIVE TRANSACTIONS (a) Mistake Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095 House of Lords This case involved a preliminary question of law in respect of some of the restitutionary actions (largely actions for money had and received) brought by banks against local authorities after interest rate swap contracts were declared ultra vires. The background facts are discussed in Kleinwort Bank v Birmingham CC (p 70) and by Leggatt LJ in Kleinwort Benson v Glasgow CC (p 71). The issue in question in this particular appeal is set out in the judgment of Lord Hope (below). Lord Hope: My Lords, the background to these consolidated appeals is to be found in ss 5 and 32(1)(c) of the Limitation Act 1980. Section 5 of that Act provides that an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. Section 32(1)(c) provides that, where in the case of any action for which a period of limitation is provided by the Act the action for relief from the consequences of a mistake, the period of limitation shall not begin to run 823

Sourcebook on Obligations and Remedies until the plaintiff has discovered the mistake or could with reasonable diligence have discovered it… The right of a party to a void interest rate swap contract to recover its net payments by an action for money had and received was established by the decision of Hobhouse J in Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 4 All ER 890. His decision on this point was upheld by the Court of Appeal. No question of limitation was raised in the Westdeutsche case. But in Kleinwort Benson Ltd v Sandwell BC… Hobhouse J held that s 5 of the Limitation Act 1980 applied to causes of action for money had and received. His decision that the limitation defence applied was not challenged in the Court of Appeal… The swaps in the present cases involve a number of payments which were made more than six years before the writs were issued. The respondent authorities seek to rely on the limitation defence in regard to these payments. So, in order to obtain full restitution which would not otherwise be available to them, the appellant bank have renewed their alternative cause of action on the ground of mistake. They contend that s 32(1)(c) of the Limitation Act 1980 applies where the mistake is one of law… In my opinion, the proper starting point for an examination of this issue is the principle on which the claim for restitution of these payments is founded, which is that of unjust enrichment. The essence of this principle is that it is unjust for a person to retain a benefit which he has received at the expense of another, without any legal ground to justify its retention, which that other person did not intend him to receive. This has been the basis for the law of unjust enrichment as it has developed both in the civilian systems and in Scotland, which has a mixed system—partly civilian and partly common law. On the whole, now that the common law systems see their law of restitution as being based upon this principle, one would expect them to apply it, broadly speaking, in the same way and to reach results which, broadly speaking, were similar: Zweigert and Kötz, An Introduction to Comparative Law, 2nd edn, 1987, Vol II, pp 262–63, 267. What, then, is the function of mistake in the field of restitution on the ground of unjust enrichment? The answer, one may say, is that its function is to show that the benefit which has been received was an unintended benefit. A declaration of intention to confer the benefit, even if unenforceable, will be enough to justify the retention of the enrichment. A mistake, on the other hand, will be enough to justify the restitutionary remedy, on the ground that a benefit which cannot be legally justified should not be retained where it was a mistaken and thus unintended benefit. It may be helpful to mention the material we were given to illustrate its function in the civilian systems. The details vary as between the major civil codes but, in simple terms, the law looks for the absence of a legal justification for the enrichment: Zweigert and Kötz, p 232. If the payer paid in the mistaken belief that he was under a duty to pay, it is prima facie unjust that the payee should be allowed to retain what he received, but the burden of proving that the payer knew that there was no duty, and was not mistaken, is on the recipient: Englard, International Encyclopedia of Comparative Law, 1991, Vol X, pp 8–9, para 5.13. Mistake in this context means lack of knowledge, and it 824

Non-Contractual Obligations (2): Restitution makes no difference whether this is of fact or of law: Englard, p 18, para 5.30. As for the concept of enrichment, a person is enriched when he receives a payment which the payer was not bound by any obligation to make to him. The payee is entitled to retain the payment if it was made to him voluntarily, as in the case of a gift. The enrichment is unjust if the person who made the payment did not do so voluntarily and there was no obligation to confer the benefit: Zweigert and Kötz, p 261. The approach of the common law is to look for an unjust factor, something which makes it unjust to allow the payee to retain the benefit: Birks, An Introduction to the Law of Restitution, 2nd edn, 1989, pp 140ff. It is the mistake by the payer which, as in the case of failure of consideration and compulsion, renders the enrichment of the payee unjust. The common law accepts that the payee is enriched where the sum was not due to be paid to him, but it requires the payer to show that this was unjust. Whereas in civilian systems proof of knowledge that there was no legal obligation to pay is a defence which may be invoked by the payee, under the common law, it is for the payer to show that he paid under a mistake. My impression is that the common law tends to place more emphasis on the need for proof of a mistake. But the underlying principle in both systems is that of unjust enrichment. The purpose of the principle is to provide a remedy for recovery of the enrichment where no legal ground exists to justify its retention. But does it matter whether the mistake is one of fact or one of law?… What, then, is the position where the fact that the payment was not legally due at the time when it was made was only revealed later by subsequent case law? In posing this question, I am not dealing with the situation where a judgment of the court that a sum is due has become final and been acted upon, but is afterwards overruled by a higher court in a different case. The law of unjust enrichment does not disturb transactions of that kind. Where the payment is made because the court has held that the sum is due to be paid to the payee, the obligation to pay is to be found in the order which has been made by the court. I am dealing with the case where the payment was made on the understanding that the law on the point was settled and that understanding was shown by subsequent case law to have been wrong. The answer to this question may be said to depend upon whether the decision in question has changed the law or has merely declared what the law always was. We were reminded of Lord Reid’s observation that to say that the judges never change the law is a fairy tale: (1972–73) JSPTL (NS) 22. Experience has shown that the judges do from time to time change the law, in order to adapt it to changed social conditions or in response to other factors which show that the law has become out of date. But it would be equally wrong to say that the judges never declare the law. It may simply be that there was a gap which needed to be filled, or that there was a defect in thinking which needed to be revealed so that a point could be clarified. And to overturn an established line of authority is one thing. It is quite another where there was no previous decision on a point which no one had sought to bring before the court previously. It may be said that a view of the law can be regarded as settled even where there is no case law at all on the subject, because all those interested in it have acted on a common

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Sourcebook on Obligations and Remedies understanding of what the law requires. But I would find it difficult to accept that a judge who said that that common understanding was wrong, and that the law was different from what everyone previously had thought it was, had changed the law. It would seem to be more accurate to say that, as it was for the judge to say what the law was, he was merely declaring what the law was and that he was not changing it. On the whole, it seems to me to be preferable to avoid being drawn into a discussion as to whether a particular decision changed the law or whether it was merely declaratory. It would not be possible to lay down any hard and fast rules on this point. Each case would have to be decided on what may in the end be a matter of opinion, about which there may be room for a good deal of dispute. It is better to face up to the fact that every decision as to the law by a judge operates retrospectively, and to concentrate instead on the question-which I would regard as the critical question—whether the payer would have made the payment if he had known what he is now being told was the law. It is the state of the law at the time of the payment which will determine whether or not the payment was or was not legally due to be paid, and it is the state of mind of the payer at the time of payment which will determine whether he paid under a mistake. But there seems to me to be no reason in principle why the law of unjust enrichment should insist that that mistake must be capable of being demonstrated at the same time as the time when the payment was made. A mistake of fact may take some time to discover. If there is a dispute about this, the question whether there was a mistake may remain in doubt until the issue has been resolved by a judge. Why should this not be so where the mistake is one of law?… In the present case, we have no evidence about the state of the law at the time of the payments other than what can be derived from the agreed facts… But the situation seems to be no different in principle from one where the facts are shown, as a result of inquiries which at the time of the payment were overlooked or not thought to be necessary, to have been different from what they had been thought to be at the time of the payment by the payer. Prima facie, the bank is entitled to restitution on the ground of mistake… Lord Goff:… In argument before the Appellate Committee, the bank presented in its written case a fully developed argument for the abrogation of what I will, for convenience, call the mistake of law rule… … What is in issue at the heart of this case is the continuation of a long standing rule of law, which has been maintained in existence for nearly two centuries in what has been seen to be the public interest. It is therefore incumbent on your Lordships to consider whether it is indeed in the public interest that the rule should be maintained, or alternatively that it should be abrogated altogether or reformulated… Rejection of the mistake of law rule in the common law world It is perhaps easier for us now to see that the policy underlying the rule can best be achieved, consistently with justice, by the recognition of a right of recovery subject to specified defences to cater for the fears which formerly 826

Non-Contractual Obligations (2): Restitution appeared to require a blanket exclusion of recovery. However, the blossoming of scholarly interest in the development of a coherent law of restitution did not occur in the common law world until the middle of the 20th century, inspired by the pioneering work of Professors Seavey and Scott in the American Restatement of the Law of Restitution published in 1937. We may regret that it was not until late in the long history of the common law that this should have occurred, but now the judges are able to welcome the assistance which they receive from a number of distinguished writers on the subject. There can be no doubt that it is this scholarly work which has provided the prime cause for the rejection of the mistake of law rule, either by legislation or by judicial decision, in countries throughout the common law world. This is due not only to specific criticism of the mistake of law rule as such, but still more to the combined effect of two fundamental changes in the law: first, recognition that there exists a coherent law of restitution founded upon the principle of unjust enrichment, and second, within that body of law, recognition of the defence of change of position. This is due essentially to the work of scholars. Once that work had been published and widely read it was, I believe, inevitable that in due course both doctrines would be recognised by the judges, the time of such acceptance depending very much on the accidents of litigation. In fact, in England both were accepted by this House in 1991, in the same case, Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. Once both had been recognised it became, in my opinion, also inevitable that the mistake of law rule should be abrogated, or at least reformulated, so that there should be a general right of recovery of money paid under a mistake, whether of fact or law, subject to appropriate defences. This is because a blanket rule of nonrecovery, irrespective of the justice of the case, cannot sensibly survive in a rubric of the law based on the principle of unjust enrichment; and because recognition of a defence of change of position demonstrates that this must be proved in fact if it is to justify retention, in whole or in part, of money which would otherwise be repayable on the ground that the payee was unjustly enriched by its receipt. The combined effect is not only that the mistake of law rule can no longer be allowed to survive, but also that the law must evolve appropriate defences which can, together with the defence of change of position, provide protection where appropriate for recipients of money paid under a mistake of law in those cases in which justice or policy does not require them to refund the money. It is this topic which lies at the centre of the present appeals. As the argument before the Appellate Committee has demonstrated, the identification of such defences is by no means easy and, whatever your Lordships’ House may decide, the topic is likely to continue to engage the attention of judges, scholars and law reformers for some years to come… Comparative law The Appellate Committee was helpfully provided with material showing the policy adopted in a number of civil law systems on the continent of Europe towards the recovery of money paid under a mistake of law. This demonstrates that, in the legal systems from which the material was drawn, there is no blanket rule excluding recovery of money paid under a mistake of law. It is of some interest that, in German law, recovery is not dependent on proof of mistake (whether of fact or law) by the claimant. Paragraph 812–1 of the German Civil Code (BGB) confers a right to recover benefits obtained without 827

Sourcebook on Obligations and Remedies legal justification (ohne rechtlichen Grund). A similar approach is, I understand, adopted in Italian law and has also been adopted recently in France (see Cour de cassation (Assemblé Plenière) 2 avril 1993, D 1993.373). Paragraph 814 of the BGB, however, provides that a person cannot reclaim a benefit conferred by him if he knew that he was not bound to confer it; but it seems that the burden rests on the recipient to prove the existence of such knowledge (a striking contrast with the common law, which requires the plaintiff to prove mistake). It is of some interest, however, that a number of these cases, in which it has been held that it is unnecessary for the plaintiff to prove that he was mistaken, have been concerned with the recovery of taxes: see in particular an early German case decided by the Reichsgericht in 1909 (RGZ 72, 152, 29 October 1909), and the recent French case, referred to above, which adopted the same position. In such cases, as was recently held by this House in Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70, English law too dispenses with any requirement that the money should have been paid under a mistake and indeed goes further, allowing recovery even if the taxpayer pays in the belief that the money is not due. Here is food for thought for both German and English comparative lawyers. In this connection I wish to add in passing that, in Commissioner of State Revenue v Royal Insurance Australia Ltd (1994) 182 CLR 51, p 57, Mason CJ stated that in Woolwich the House of Lords was ‘unwilling to acknowledge that causative mistake of law is a basis of recovery’; but, with respect, no question of recovery on the ground of a mistake of law arose in that case, because the Woolwich Building Society throughout asserted that the money was not due. For present purposes, however, the importance of this comparative material is to reveal that, in civil law systems, a blanket exclusion of recovery of money paid under a mistake of law is not regarded as necessary. In particular, the experience of these systems assists to dispel the fears expressed in the early English cases that a right of recovery on the ground of mistake of law may lead to a flood of litigation, while at the same time it shows that in some cases a right of recovery, which has in the past been denied by application of the mistake of law rule, may likewise be denied in civil law countries on the basis of a narrower ground of principle or policy. Conclusion on the first issue For all these reasons, I am satisfied that your Lordships should, if you decide to consider the point yourselves rather than leave it to the Law Commission, hold that the mistake of law rule no longer forms part of English law. I am very conscious that the Law Commission has recommended legislation. But the principal reasons given for this were that it might be some time before the matter came before the House, and that one of the dissentients in the Woolwich case (Lord Keith of Kinkel) had expressed the opinion that the mistake of law rule was too deeply embedded to be uprooted judicially: [1993] AC 70, p 154. Of these two reasons, the former has not proved to be justified, and the latter does not trouble your Lordships because a more robust view of judicial development of the law is, I understand, taken by all members of the Appellate Committee hearing the present appeals. Moreover, especially in the light of developments in other major common law jurisdictions, not to mention South Africa and Scotland, the case for

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Non-Contractual Obligations (2): Restitution abrogation is now so strong that the respondents in these appeals have not argued for its retention. In these circumstances I can see no good reason for postponing the matter for legislation, especially when we do not know whether or, if so, when Parliament may legislate. Finally, I believe that it would, in all the circumstances, be unjust to deprive the appellant, Kleinwort Benson, of the benefit of the decision of the House on this point. I would therefore conclude on issue (1) that the mistake of law rule should no longer be maintained as part of English law, and that English law should now recognise that there is a general right to recover money paid under a mistake, whether of fact or law, subject to the defences available in the law of restitution… Conclusion In the result, I would answer the questions posed for your Lordships under the various issues as follows. Issue (1) The present rule, under which in general money is not recoverable in restitution on the ground that it has been paid under a mistake of law, should no longer be maintained as part of English law, from which it follows that the facts pleaded by the bank in each action disclose a cause of action in mistake. Issue (1A) There is no principle of English law that payments made under a settled understanding of the law which is subsequently departed from by judicial decision shall not be recoverable in restitution on the ground of mistake of law. Issue (1B) It is no defence to a claim in English law for restitution of money paid or property transferred under a mistake of law that the defendant honestly believed, when he learnt of the payment or transfer, that he was entitled to retain the money or property. Issue (2) There is no principle of English law that money paid under a void contract is not recoverable on the ground of mistake of law because the contract was fully performed. Issue (3) Section 32(1)(c) of the Limitation Act 1980 applies in the case of an action for the recovery of money paid under a mistake of law… Lord Hoffmann: My Lords, it is no mere form of words to say that I have had the privilege of reading in draft the speech of my noble and learned friend Lord Goff of Chieveley. It is, if I may be allowed respectfully to say so, one of the most distinguished of his luminous contributions to this branch of the law. On all but one of the questions debated before your Lordships, I understand that it commands unanimous assent. It would therefore be superfluous for me to add anything of my own. But I should say something on the issue which divides your Lordships, because I have to confess that on this point I have changed my mind. At the end of the argument, I was of opinion, perhaps not in a very focused way, that a person who pays in accordance with what was then a settled view of the law has not made a mistake. In fact, it seemed to me that one could go further and say that if he had acted in accordance with a tenable view of the law, he had not made a

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Sourcebook on Obligations and Remedies mistake. In the first case he was right, and in the second neither right nor wrong, but in both cases his state of mind could be better described as a failure to predict the outcome of some future event (sc, a decision of this House) than a mistake about the existing state of the law. On reflection, however, I have come to the conclusion that this theory was wrong, both in its stronger (‘tenable view’) and in its weaker (‘settled view’) form. The reason, I think, is that it looks at the question of what counts as a mistake in too abstract a way, divorced from its setting in the law of unjust enrichment… Lord Browne-Wilkinson (dissenting):… The theoretical position has been that judges do not make or change law: they discover and declare the law which is throughout the same. According to this theory, when an earlier decision is overruled the law is not changed: its true nature is disclosed, having existed in that form all along. This theoretical position is, as Lord Reid said in the article The judge as law maker’ (1972–73) 12 JSPTL (NS) 22, a fairy tale in which no one any longer believes. In truth, judges make and change the law. The whole of the common law is judge-made and only by judicial change in the law is the common law kept relevant in a changing world. But whilst the underlying myth has been rejected, its progeny—the retrospective effect of a change made by judicial decision—remains. As Lord Goff in his speech demonstrates, in the absence of some form of prospective overruling, a judgment overruling an earlier decision is bound to operate to some extent retrospectively: once the higher court in the particular case has stated the changed law, the law as so stated applies not only to that case but also to all cases subsequently coming before the courts for decision, even though the events in question in such cases occurred before the Court of Appeal decision was overruled. Therefore, the precise question is whether the fact that the later overruling decision operates retrospectively so far as the substantive law is concerned also requires it to be assumed (contrary to the facts) that at the date of each payment the plaintiff made a mistake as to what the law then was. In my judgment it does not. The main effect of your Lordships’ decision in the present case is to abolish the rule that money paid under a mistake of law cannot be recovered, which rule was based on the artificial assumption that a man is presumed to know the law. It would be unfortunate to introduce into the amended law a new artificiality, viz, that a man is making a mistake at the date of payment when he acts on the basis of the law as it is then established. He was not mistaken at the date of payment… Lord Lloyd (dissenting):… This brings us to the central question. Nobody now suggests that the common law is static. It is capable of adapting itself to new circumstances. Is it then capable of being changed? or is it only capable of being developed? The common sense answer is that the common law is capable of being changed, not only by legislation, but also by judicial decision. This is nowhere clearer than when a long standing decision of the Court of Appeal is overruled. Indeed in a system such as ours, where the Court of Appeal is bound by its own previous decisions, the main justification for the existence of a second tier appeal is that it enables the House to re-direct the law when it has taken a wrong turning. I am not thinking of landmark cases

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Non-Contractual Obligations (2): Restitution such as Donoghue v Stevenson [1932] AC 562; or Medley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465. I am thinking of more ordinary cases, of which there may be one or two a year, in which a line of recent Court of Appeal authority is overturned… What, then, is the House doing when it overrules a line of Court of Appeal authority? First and foremost it is determining what the law is in relation to the case which it is deciding. It will then apply that law to the facts of the particular case. Since the transaction giving rise to the case will have occurred in the past, it can be said that to that very limited extent (and the same is true of every decision of every court) it is applying the law retrospectively. An inevitable consequence of determining the law in relation to a particular case is that the same law will apply to other cases as yet undecided, in which the same point arises. This is so whether the transaction in question lies in the past or the future. So again, to that limited extent, it can be said that the decision operates retrospectively. But that, as it seems to me, is the full extent of any retrospective effect. There is no way in which the decision can be applied retrospectively to cases which have already been decided. Nor is there any logical reason why there should be. It is the function of the court to decide what the law is, not what it was. So, when the House of Lords overrules a line of Court of Appeal decisions it does not, and cannot, decide those cases again. The law as applied to those cases was the law as decided at the time by the Court of Appeal. The House of Lords can say that the Court of Appeal took a wrong turning. It can say what the law should have been. But it cannot say that the law actually applied by the Court of Appeal was other than what it was. It cannot, in my learned and noble friend Lord Browne-Wilkinson’s vivid expression, falsify history. It follows that, in such a case, the House of Lords is doing more than develop the law. It is changing the law, as common sense suggests, and as Mr Southwell was right to concede. If this view of what happens is inconsistent with the declaratory theory of the court’s function, then it is time we said so. It always was a fairy tale. If it is right that the House of Lords can change the law by overruling a previous decision of the Court of Appeal, it must follow that a person relying on the old law was under no mistake at the time, and cannot claim to have been under a mistake ex post facto because the law is subsequently changed. This is obviously true where the law is changed by legislation. In my opinion it is equally true when the law is changed by judicial decision… There are two policy reasons which support the Law Commission’s viewpoint. The prospect of transactions being reopened many years after the event by a subsequent decision of the Court of Appeal or House of Lords is not one which the law should favour, especially in the field of commerce. It is true that, in many cases, the defendant would be able to rely on change of position as a defence. But this would not necessarily be so in every case. Certainty and finality, as has been said so often, are twin policy objectives of the highest importance in formulating legal principles.

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Sourcebook on Obligations and Remedies Secondly, [counsel for the defendant] points out that if payer and payee are at one in believing the law to be in accordance with a settled understanding, there would appear to be no moral obligation resting on the payee to repay when the law is subsequently changed. Why, asks [counsel], should the payee’s conscience be affected? Where is the unjust factor?…

Questions 1 2 3 4

5 6 7

8

Is it a legal principle (rule) that the law ought to be certain? If so, have the House of Lords gone some way in changing this rule? Why should the risk of the law changing be on the payee and not on the payer? Was it in the public interest that the local authority lost its appeal in this case? Did the public interest lose out to the commercial interest? If England, like France, had specially trained public law judges, rather than men chosen largely from the commercial practice, would the outcome and reasoning in cases like Lincoln be different? Did comparative law play a role in Lincoln? A bank customer stops a cheque, but the bank, carelessly, pays the cheque. Can the bank recover the money from the payee? Does Lincoln change the legal situation in respect of Bell v Lever Brothers (p 490)? In other words, would the company now succeed in its restitution claim against the directors? P makes a payment to D only as a result of having received advice from his lawyers that the payment would be recoverable if it transpired that it was not legally due. It turns out that the legal advice is wrong. Can P recover his payment to D? (Cf Nurdin and Peacock plc v DB Ramsden and Co Ltd [1999] 1 WLR 1249.)

(b) Fraud Whittaker v Campbell [1984] QB 318 Queen’s Bench Division (Seep 421.)

(c) Duress D and C Builders Ltd v Rees [1966] 2 QB 617 Court of Appeal (See p 453.) Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1 Court of Appeal (Seep 449.)

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Non-Contractual Obligations (2): Restitution CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714 Court of Appeal (See also p 504.) Sir Donald Nicholls VC:… I confess to being a little troubled at the overall outcome. At a late stage of the trial, the defendant’s counsel accepted that the risk in the goods had not in law passed to the plaintiff. Hence, and this must follow, the defendant company was not, and never had been, entitled to be paid for the goods. The risk remained throughout on the defendant. What also follows is that the basis on which the defendant had sought and insisted on payment was then shown to be false. In those circumstances, I confess to being a little surprised that a highly reputable tobacco manufacturer has, so far, not reconsidered the position. A claim for restitution based on wrongful retention of the money, once the risk point had been established, was not pursued before us, no doubt for good reasons. But on the sketchy facts before us, and I emphasise that we have heard argument only from the plaintiff, it does seem to me that prima facie it would be unconscionable for the defendant company to insist on retaining the money now. It demanded the money when under a mistaken belief as to its legal entitlement to be paid. It only made the demand because of its belief that it was entitled to be paid. The money was then paid to it by a plaintiff which, in practical terms, had no other option. In broad terms, in the end result the defendant may be said to have been unjustly enriched. Whether a new claim for restitution now, on the facts as they have since emerged, would succeed is not a matter I need pursue. I observe, as to that, only that the categories of unjust enrichment are not closed…

Questions 1 2 3

Would an action for money had and received have succeeded? Did the defendants enrich themselves at the plaintiffs’ expense? Did they unjustly enrich themselves? Did they abuse their monopoly position? Would an action in account have succeeded?

(d) Undue influence Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 Court of Appeal (See p 499.) Barclays Bank plc v O’Brien [1994] 1 AC 180 House of Lords (See p 256.) Credit Lyonnais Bank Nederland v Burch [1997] 1 All ER 144 Court of Appeal

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Sourcebook on Obligations and Remedies (See p 509.)

Notes and questions 1

2

Monetary remedies are not the only ones of importance in the law of restitution; equitable non-monetary remedies such as rescission and rectification also have a vital role in preventing a justified means of enrichment (contract) from becoming an unjustified means. Such remedies indicate how unrealistic it is to differentiate between the law of contract and the law of restitution. The two subjects, despite the views of the House of Lords in Glasgow CC (p 71), are connected. No doubt the judges were right to reject the implied contract theory and replace it with the normative proposition of the unjust enrichment principle. But to get obsessive about the distinction between contract and restitution is, possibly, to upset a delicate balance between substantive law and remedies. Rescission in equity belongs at one and the same time to the law of contract and to the law of unjust enrichment, since both categories are about enrichment. If there is a rigid distinction between the law of contract and the law of restitution, into which category should the topic of undue influence be placed?

(e) Incapacity Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 House of Lords (See p 799.) Minors’ Contracts Act 1987 (c 13) 3 Restitution (1)

Where(a) (b)

a person (‘the plaintiff) has after the commencement of this Act entered into a contract with another (‘the defendant’), and the contract is unenforceable against the defendant (or he repudiates it) because he was a minor when the contract was made,

the court may, if it is just and equitable to do so, require the defendant to transfer to the plaintiff any property acquired by the defendant under the contract, or any property representing it. (2)

Nothing in this section shall be taken to prejudice any other remedy available to the plaintiff.

Notes and questions

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Non-Contractual Obligations (2): Restitution

1

2

3

Capacity in French law is an essential condition of a contract (CC, Art 1108). However, in English law, with one main exception, incapacity usually makes a contract only voidable. Was there, accordingly, any real necessity for s 3 of the 1987 Act? Did not equity have the power to order the transfer of property so as to avoid unjust enrichment? The one main exception to the voidable principle is a contract that turns out to be ultra vires because one party did not have the capacity to make such a contract. An ultra vires contract is void. Does this mean that any property transferred under such a non-existent contract remains in the ownership of the transferor? Does one need a contract in order to transfer ownership in property? When might such a (non-contractual) transfer give rise to an unjustified enrichment on the part of the transferee?

(f) Illegal contracts Geismar v Sun Alliance and London Insurance Ltd [1978] QB 383 Queen’s Bench Division (See p 602.) Tinsley v Milligan [1994] 1 AC 340 House of Lords (See p 604.)

(g) Contracts discharged through breach Sumpter v Hedges [1898] 1 QB 673 Court of Appeal (See p 793.) Bolton v Mahadeva [1972] 1 WLR 1009 Court of Appeal (See p 226.) Workers Trust Bank Ltd v Dojap Ltd [1993] AC 573 Privy Council This was a successful action in equity for relief against forfeiture of a deposit. Lord Browne-Wilkinson: This case raises the question whether a deposit in excess of 10% paid under a contract for the sale of land can be lawfully forfeited by the vendor in the event of a failure by the purchaser to complete on the due date… In general, a contractual provision which requires one party in the event of his breach of the contract to pay or forfeit a sum of money to the other party is unlawful as being a penalty, unless such provision can be justified as being a payment of liquidated damages being a genuine pre-estimate of the loss which the innocent party will incur by reason of the breach. One exception to 835

Sourcebook on Obligations and Remedies this general rule is the provision for the payment of a deposit by the purchaser on a contract for the sale of land. Ancient law has established that the forfeiture of such a deposit (customarily 10% of the contract price) does not fall within the general rule and can be validly forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract. This exception is anomalous and at least one textbook writer has been surprised that the courts of equity ever countenanced it: see Farrand, Contract and Conveyance, 4th edn, 1983, p 204. The special treatment afforded to such a deposit derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money. The history of the law of deposits can be traced to the Roman law of arm, and possibly further back still: see Howe v Smith (1884) 27 Ch D 89,101–02, per Fry LJ. Ever since the decision in Howe v Smith, the nature of such a deposit has been settled in English law. Even in the absence of express contractual provision, it is an earnest for the performance of the contract: in the event of completion of the contract the deposit is applicable towards payment of the purchase price; in the event of the purchaser’s failure to complete in accordance with the terms of the contract, the deposit is forfeit, equity having no power to relieve against such forfeiture. However, the special treatment afforded to deposits is plainly capable of being abused if the parties to a contract, by attaching the label ‘deposit’ to any penalty, could escape the general rule which renders penalties unenforceable. There are two authorities which indicate that this cannot be done. In Stockloser v Johnson [1954] 1 QB 476, Denning LJ in considering the power of the court to relieve against forfeiture said, obiter, p 491: Again, suppose that a vendor of property, in lieu of the usual 10% deposit, stipulates for an initial payment of 50% of the price as a deposit and part payment; and later, when the purchaser fails to complete, the vendor resells the property at a profit and in addition claims to forfeit the 50% deposit. Surely the court will relieve against the forfeiture. The vendor cannot forestall this equity by describing an extravagant sum as a deposit, any more than he can recover a penalty by calling it liquidated damages. In Linggi Plantations Ltd v Jagatheesan [1972] 1 MLJ 89, Lord Hailsham of St Marylebone LC delivered the judgment of the Board which upheld the claim to forfeit a normal 10% deposit even though the vendor had in fact suffered no loss. He referred on a number of occasions to a requirement that the amount of a deposit should be ‘reasonable’ and said, p 94: It is also no doubt possible that in a particular contract the parties may use language normally appropriate to deposits properly so called even to forfeiture which turn out on investigation to be purely colourable and that in such a case the real nature of the transaction might turn out to be the imposition of a penalty, by purporting to render forfeit something which is in truth part payment. This, no doubt, explains why, in some cases, the irrecoverable nature of a deposit is qualified by the insertion of the adjective ‘reasonable’ before the noun. But the truth is that a reasonable deposit has always been regarded as a guarantee of performance as well 836

Non-Contractual Obligations (2): Restitution as a payment on account, and its forfeiture has never been regarded as a penalty in English law or common English usage. In the view of their Lordships these passages accurately reflect the law. It is not possible for the parties to attach the incidents of a deposit to the payment of a sum of money unless such sum is reasonable as earnest money. The question therefore is whether or not the deposit of 25% in this case was reasonable as being in line with the traditional concept of earnest money or was in truth a penalty intended to act in terrorem… Their Lordships agree with the Court of Appeal that this evidence falls far short of showing that it was reasonable to stipulate for a forfeitable deposit of 25% of the purchase price or indeed any deposit in excess of 10%… The question therefore arises whether the court has jurisdiction to relieve against the express provision of the contract that the deposit of 25% was to be forfeited. Although there is no doubt that the court will not order the payment of a sum contracted for (but not yet paid) if satisfied that such sum is in reality a penalty, it was submitted that the court could not order, by way of relief, the repayment of sums already paid to the defendant in accordance with the terms of the contract which, on breach, the contract provided should be forfeit. The basis of this submission was the view expressed in a considered obiter dictum of Romer LJ in Stockloser v Johnson [1954] 1 QB 476. In that case, there was a contract for the sale of quarry machinery to the plaintiff, the purchase price to be paid by instalments. The contract provided that, in the event of a default in payment of the instalments, the vendor could retake the machinery and all instalments of the price previously paid should be forfeit. Pursuant to the contract, the plaintiff took possession and used the machinery but defaulted in payment of an instalment. The defendant forfeited the instalments already paid. In the action, the plaintiff sought to recover the instalments, alleging that their forfeiture was a penalty. The Court of Appeal unanimously held that the forfeiture did not constitute a penalty on the facts of that case but went on to express conflicting views, obiter, as to whether, if the forfeiture had been a penalty, the court had jurisdiction to order repayment. Somervell LJ and Denning LJ expressed the view that there was such jurisdiction. Romer LJ held that there was no general right in equity to mend the parties’ bargain and that, even where there was jurisdiction to relieve from forfeiture, that could only be exercised by allowing a late completion to a party who was in default in performance but willing and able to carry out the terms of the contract belatedly. Their Lordships do not find it necessary to decide which of those two views is correct in a case where a party is seeking relief from forfeiture for breach of contract to pay a price by instalments, the party in default having been let into possession in the meantime. This is not such a case. In the view of their Lordships, since the 25% deposit was not a true deposit by way of earnest, the provision for its forfeiture was a plain penalty. There is clear authority that in a case of a sum paid by one party to another under the contract as security for the performance of that contract, a provision for its forfeiture in the event of non-performance is a penalty from which the court will give relief by ordering repayment of the sum so paid, less any damage actually proved to have been suffered as a result of non-completion: Commissioner of 837

Sourcebook on Obligations and Remedies Public Works v Hills [1906] AC 368. Accordingly, there is jurisdiction in the court to order repayment of the 25% deposit. Finally, it appears that the bank may have suffered some damage as a result of the purchaser’s failure to complete. If so, the bank is entitled to deduct the amount of such damages from the ‘deposit’ of 25%. Such damage has not been quantified in the judgment below but appears to be small in amount. It would not be right to keep the purchaser out of all its money to await the outcome of the necessary inquiry as to damages. The bank ought accordingly to make immediate repayment of a substantial amount of the deposit, leaving a fund out of which the bank’s damages, if any, can be satisfied…

Questions 1 2

Why was it that the plaintiff in Bolton was not able to reclaim the material he had installed into the defendant’s house? A contractual party in breach is not able to claim on a quantum meruit for services rendered but is, it seems, able to claim back a deposit in equity. What was the actual remedy by which the plaintiff obtained repayment? Was it account or an action for money had and received? If the claim for a deposit is quasi-contractual, is the distinction between services and money a reasonable one?

(h) Contracts discharged through frustration Law Reform (Frustrated Contracts) Act 1943 (6 & 7 Geo VI c 40) (See p 601.)

Questions 1

2

D employs P to rewire his house. Half way through the job D’s house is struck by lightening and is completely destroyed. Is P entitled to anything under the 1943 Act for the work done? (Cf BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783; [1981] 1 WLR 232 (CA); [1983] 2 AC 352 (HL).) Why are there so few cases on the 1943 Act?

5 RESTITUTION FOR WRONGS (a) Common law claims for damages Rookes v Barnard [1964] AC 1129 House of Lords (See p 310.)

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Non-Contractual Obligations (2): Restitution Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361 Court of Appeal (Seep 295.) Inverugie Investments Ltd v Hackett [1995] 1WLR 713 Privy Council (See p 329.)

Notes and questions 1

2

Restitution lawyers often distinguish between two broad kinds of unjust enrichment claim. There are those claims where the focal point is on the sum of money received; here, one looks at the cause of the enrichment and if this cause is defective—a void or voidable contract, for example— this defect may well act as the starting point of the legal action. The actual behaviour of the defendant is not as such directly relevant (although this is not to say that it is always irrelevant). A second type of claim is where the enrichment results from the wrongful behaviour of the defendant. The emphasis in these cases is as much on the wrongful behaviour of the defendant as his enrichment and, as such, these claims may overlap with a tort or breach of contract action. Thus, it is possible that the restitutionary aspect of these kinds of dispute might be seen as secondary, in as much as if the claimant has suffered a corresponding loss, then he will be able to sue in damages. Is such a case a compensation or a restitutionary claim? Where difficulties arise is in a situation where the defendant makes a profit through his wrongful behaviour, but not at the expense of any identifiable plaintiff. As the Bredero case shows, the plaintiff who tries to sue might well be met with the argument that he has suffered no damage. If a compensation claim is normally a damages action and a restitution claim normally a debt action, in what circumstances should a claimant be allowed to dispense with his damages action in favour of a debt claim aimed at the defendant’s profit?

(b) Claims in equity English v Dedham Vale Properties [1978] 1 All ER 382 Chancery Division (See p 83.) AG v Guardian Newspapers (No 2) [1990] AC 109 House of Lords (See p 268.) Halifax Building Society v Thomas [1996] Ch 217 Court of Appeal

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Sourcebook on Obligations and Remedies This was an action for a declaration by a building society that money held by the society in a suspense account was its property. The money was a surplus which had been realised through the sale of a flat that acted as security for a mortgage which had been obtained fraudulently by the first defendant. This defendant was subsequently convicted of mortgage fraud, and a confiscation order was made in respect, inter alia, of the suspense account. The judge refused to make a declaration in favour of the building society, but, instead, made a declaration in favour of the second defendant, the Crown Prosecution Service. An appeal to the Court of Appeal was dismissed. Peter Gibson LJ: This appeal gives rise to an interesting point of law. Where there has been a mortgage fraud, can the mortgagee, misled by fraudulent misrepresentations into making a mortgage advance, not only enforce its rights as a secured creditor to sell the mortgaged property and recover what it is owed but also, having recovered in full, take any surplus on the sale after the discharge of the mortgage? The plaintiff mortgagee, the Halifax Building Society (the society), argued before Judge Maddocks, sitting as a judge of the Chancery Division, that it can. The second defendant, the Crown Prosecution Service (CPS), which obtained a confiscation order against the fraudster, the first defendant, Mr Thomas, argued that it cannot. The judge agreed with the CPS. The society now appeals. Mr Waters [counsel for the society] accepts, as he must, that the surplus does not represent property which the society has lost. Accordingly, it cannot rely on the principle of subtractive unjust enrichment, to use the language of Professor Peter Birks QC in his influential work, An Introduction to the Law of Restitution, 1985. Instead, it relies on the broad principle of restitution for wrongs: Mr Thomas has been enriched at the society’s expense in the sense that he has gained by committing a wrong against the society. Thereby, the society seeks a remedy enabling it ‘to obtain restitution of a benefit gained by the tortfeasor from a tortious act in circumstances where he has suffered little or no loss’: Goff and Jones, The Law of Restitution, 4th edn, 1993, p 715… …I am not satisfied that in the circumstances of the present case it would be right to treat the unjust enrichment of Mr Thomas as having been gained ‘at the expense of the society, even allowing for the possibility of an extended meaning for those words to apply to cases of non-subtractive restitution for a wrong. There is no decided authority that comes anywhere near to covering the present circumstances. I do not overlook the fact that the policy of law is to view with disfavour a wrongdoer benefiting from his wrong, the more so when the wrong amounts to fraud, but it cannot be suggested that there is a universally applicable principle that in every case there will be restitution of benefit from a wrong. As Professor Birks says (An Introduction to the Law of Restitution, p 24): ‘there are some circumstances in which enrichment by wrongdoing has to be given up. That is, the wrong itself is not always in itself a sufficient factor to call for restitution.’ On the facts of the present case, in my judgment, the fraud is not in itself a sufficient factor to allow the society to require Mr Thomas to account to it. I would add that, in so far as the society relies on the submission that to allow a fraudster to take a profit derived from his fraud would be offensive

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Non-Contractual Obligations (2): Restitution to concepts of justice, the House of Lords in Tinsley v Milligan [1994] 1 AC 340, although divided in their decision, were unanimous in rejecting the ‘public conscience’ test as determinative of the extent to which rights created by illegal transactions should be recognised. It is not appropriate to ask whether the allowance of a claim would be an affront to the public conscience. The correct test is whether a claimant to an interest in property must plead or rely on an illegality. If so, he will not be entitled to recover. That question does not arise in the present case where it is the society which is claiming a declaration. For these reasons, I conclude that s 105 required the society to hold the surplus in trust for Mr Thomas, unless a constructive trust operated in its own favour. To that question I now turn… English law has not followed other jurisdictions where the constructive trust has become a remedy for unjust enrichment. As is said in Snell’s Equity, 29th edn, 1990, p 197: In England the constructive trust has in general remained essentially a substantive institution; ownership must not be confused with obligation, nor must the relationship of debtor and creditor be converted into one of trustee and cestui que trust. In considering whether to extend the law of constructive trusts in order to prevent a fraudster benefiting from his wrong, it is also appropriate to bear in mind that Parliament has acted in recent years (notably in Part VI of the Criminal Justice Act 1988) on the footing that without statutory intervention the criminal might keep the benefit of his crime. Moreover, Parliament has given the courts the power in specific circumstances to confiscate the benefit rather than reward the person against whom the crime has been committed. I bear in mind the wise comment of Hoffmann J in Chief Constable of Leicestershire v M [19891] WLR 20, p 23: The recent and detailed interventions of Parliament in this field suggest that the courts should not indulge in parallel creativity by the extension of general common law principles. Accordingly, I would reject the argument based on constructive trust. No other argument is put forward by the society for defeating the title of Mr Thomas to the surplus immediately before the confiscation and charging orders made by the CPS or for defeating those orders. For these reasons I would dismiss this appeal. Simon Brown LJ: I agree. Glidewell LJ: I have read in draft the judgment of Peter Gibson LJ. I agree entirely both with his reasoning and his conclusions. The proposition that a wrongdoer should not be allowed to profit from his wrongs has an obvious attraction. The further proposition, that the victim or intended victim of the wrongdoing, who has in the event suffered no loss, is entitled to retain or recover the amount of the profit is less obviously persuasive. In order to succeed in this appeal, Mr Waters is required to

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Sourcebook on Obligations and Remedies establish that the second proposition is correct, and that English law provides a mechanism by which it can be given effect. Despite his able argument, I cannot discern that there is any such general established principle. Indeed, Mr Waters has to concede that there is no English authority upon which he can rely to establish his right to succeed either in the law of restitution, under the head of unjust enrichment, or in the law of constructive trusts. The sole American decision which appears to be directly in point, that of the US District Court for the Southern District of New York in Federal Sugar Refining Co v United States Sugar Equalization Board (1920) 268 F 575, is not sufficiently persuasive to secure a visa for admission into English jurisprudence. Like Judge Maddocks, in the passage from his judgment quoted by Peter Gibson LJ, I cannot conclude that the principle for which Mr Waters contends is at present established as part of our law. When Parliament enacted Part VI of the Criminal Justice Act 1988, it provided, within closely defined limits, a mechanism by which the Crown Court may confiscate the gain which a criminal would otherwise derive from his crime. As it happens, the circumstances of Mr Thomas’s offences came within the Crown Court’s powers under the Act of 1988, and a confiscation order was therefore made. In consequence, whatever the result of this appeal, Mr Thomas will not benefit from his wrongdoing. The enactment of this legislation does not, of course, lead inevitably to the conclusion that neither common law nor equity provides a means by which Mr Thomas could be prevented from enjoying the profit of his crime. Nevertheless the readiness of Parliament to address the problem by legislation weakens the case for providing a solution by judicial creativity. In this I echo the words of Hoffmann J in Chief Constable of Leicestershire v M [1989] 1 WLR 20. I, too, would therefore dismiss this appeal.

Questions 1

2 3 4 5 6

Should criminals be allowed to profit by writing bestselling books about their criminal activities? What difficulties will restitution lawyers have to overcome in order to fashion laws that will force such criminals to disgorge their profits? Should companies be allowed to profit from selling products that kill their consumers? Should companies be allowed to profit from activities that cause serious harm to the environment? Is the law of restitution always in danger of becoming more moralistic than either the law of contract or the law of tort? To what extent should one person be allowed to profit by exploiting the gullibility and/or stupidity of another person? What relevance, if any, does the principle of contractual good faith have to the law of restitution?

Royal Brunei Airlines v Tan [1995] 2 AC 378 Privy Council Lord Nicholls (who delivered the judgment of their Lordships): The proper 842

Non-Contractual Obligations (2): Restitution role of equity in commercial transactions is a topical question. Increasingly plaintiffs have recourse to equity for an effective remedy when the person in default, typically a company, is insolvent. Plaintiffs seek to obtain relief from others who were involved in the transaction, such as directors of the company, or its bankers, or its legal or other advisers. They seek to fasten fiduciary obligations directly onto the company’s officers or agents or advisers, or to have them held personally liable for assisting the company in breaches of trust or fiduciary obligations. This is such a case. An insolvent travel agent company owed money to an airline. The airline seeks a remedy against the travel agent’s principal director and shareholder. Its claim is based on the much-quoted dictum of Lord Selborne LC, sitting in the Court of Appeal in Chancery, in Barnes v Addy (1874) LR 9 Ch App 244, pp 251–52: [The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found…actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But…strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. In the conventional shorthand, the first of these two circumstances in which third parties (non-trustees) may become liable to account in equity is ‘knowing receipt’, as distinct from the second, where liability arises from ‘knowing assistance’. Stated even more shortly, the first limb of Lord Selborne LC’s formulation is concerned with the liability of a person as a recipient of trust property or its traceable proceeds. The second limb is concerned with what, for want of a better compendious description, can be called the liability of an accessory to a trustee’s breach of trust. Liability as an accessory is not dependent upon receipt of trust property. It arises even though no trust property has reached the hands of the accessory. It is a form of secondary liability in the sense that it only arises where there has been a breach of trust. In the present case the plaintiff airline relies on the accessory limb. The particular point in issue arises from the expression ‘a dishonest and fraudulent design on the part of the trustees’. No liability The starting point for any analysis must be to consider the extreme possibility: that a third party who does not receive trust property ought never to be liable directly to the beneficiaries merely because he assisted the trustee to commit a breach of trust or procured him to do so. This possibility can be dismissed summarily. On this, the position which the law has long adopted is clear and makes good sense. Stated in the simplest terms, a trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look

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Sourcebook on Obligations and Remedies for recompense to the third party as well as the trustee. Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary’s loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion. The rationale is not far to seek. Beneficiaries are entitled to expect that those who become trustees will fulfil their obligations. They are also entitled to expect, and this is only a short step further, that those who become trustees will be permitted to fulfil their obligations without deliberate intervention from third parties. They are entitled to expect that third parties will refrain from intentionally intruding in the trustee-beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument. There is here a close analogy with breach of contract. A person who knowingly procures a breach of contract, or knowingly interferes with the due performance of a contract, is liable to the innocent party. The underlying rationale is the same. Strict liability The other extreme possibility can also be rejected out of hand. This is the case where a third party deals with a trustee without knowing, or having any reason to suspect, that he is a trustee. Or the case where a third party is aware he is dealing with a trustee but has no reason to know or suspect that their transaction is inconsistent with the terms of the trust. The law has never gone so far as to give a beneficiary a remedy against a nonrecipient third party in such circumstances. Within defined limits, proprietary rights, whether legal or equitable, endure against third parties who were unaware of their existence. But accessory liability is concerned with the liability of a person who has not received any property. His liability is not property-based. His only sin is that he interfered with the due performance by the trustee of the fiduciary obligations undertaken by the trustee. These are personal obligations. They are, in this respect, analogous to the personal obligations undertaken by the parties to a contract. But ordinary, everyday business would become impossible if third parties were to be held liable for unknowingly interfering in the due performance of such personal obligations. Beneficiaries could not reasonably expect that third parties should deal with trustees at their peril, to the extent that they should become liable to the beneficiaries even when they received no trust property and even when they were unaware and had no reason to suppose that they were dealing with trustees. Fault-based liability Given, then, that in some circumstances a third party may be liable directly to a beneficiary, but given also that the liability is not so strict that there would be liability even when the third party was wholly unaware of the existence of the trust, the next step is to seek to identify the touchstone of liability. By common accord, dishonesty fulfils this role. Whether, in addition, negligence will suffice is an issue on which there has been a well known difference of judicial opinion… Dishonesty

844

Non-Contractual Obligations (2): Restitution Before considering this issue further it will be helpful to define the terms being used by looking more closely at what dishonesty means in this context. Whatever may be the position in some criminal or other contexts (see, for instance, R v Ghosh [1982] QB 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus, for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another’s property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour. In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others’ property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. However, in the situations now under consideration the position is not always so straightforward. This can best be illustrated by considering one particular area: the taking of risks. Taking risks All investment involves risk. Imprudence is not dishonesty, although imprudence may be carried recklessly to lengths which call into question the honesty of the person making the decision. This is especially so if the transaction serves another purpose in which that person has an interest of his own. This type of risk is to be sharply distinguished from the case where a trustee, with or without the benefit of advice, is aware that a particular investment or application of trust property is outside his powers, but nevertheless he decides to proceed in the belief or hope that this will be beneficial to the beneficiaries or, at least, not prejudicial to them. He takes a risk that a clearly unauthorised transaction will not cause loss. A risk of this nature is for the account of those who take it. If the risk materialises and causes loss, those who knowingly took the risk will be accountable accordingly… This is the type of risk being addressed by Peter Gibson J in the Baden case [1993] 1 WLR 509, p 574, when he accepted that fraud includes taking ‘a risk to the

845

Sourcebook on Obligations and Remedies prejudice of another’s rights, which risk is known to be one which there is no right to take’. This situation, in turn, is to be distinguished from the case where there is genuine doubt about whether a transaction is authorised or not. This may be because the trust instrument is worded obscurely, or because there are competing claims, as in Carl Zeiss Stiftung v Herbert Smith Co (No 2) [1969] 2 Ch 276, or for other reasons. The difficulty here is that, frequently, the situation is neither clearly white nor clearly black. The dividing edge between what is within the trustee’s powers and what is not is often not clear-cut. Instead, there is a gradually darkening spectrum which can be described with labels such as clearly authorised, probably authorised, possibly authorised, wholly unclear, probably unauthorised and, finally, clearly unauthorised. The difficulty here is that the differences are of degree rather than of kind. So far as the trustee himself is concerned, the legal analysis is straightforward. Honesty or lack of honesty is not the test for his liability. He is obliged to comply with the terms of the trust. His liability is strict. If he departs from the trust terms he is liable unless excused by a provision in the trust instrument or relieved by the court. The analysis of the position of the accessory, such as the solicitor who carries through the transaction for him, does not lead to such a simple, clear-cut answer in every case. He is required to act honestly, but what is required of an honest person in these circumstances? An honest person knows there is doubt. What does honesty require him to do? The only answer to these questions lies in keeping in mind that honesty is an objective standard. The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J captured the flavour of this, in a case with a commercial setting, when he referred to a person who is ‘guilty of commercially unacceptable conduct in the particular context involved’: see Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700, p 761. Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct. Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did. 846

Non-Contractual Obligations (2): Restitution Before leaving cases where there is real doubt, one further point should be noted. To inquire, in such cases, whether a person dishonestly assisted in what is later held to be a breach of trust is to ask a meaningful question, which is capable of being given a meaningful answer. This is not always so if the question is posed in terms of ‘knowingly’ assisted. Framing the question in the latter form all too often leads one into tortuous convolutions about the ‘sort’ of knowledge required, when the truth is that ‘knowingly’ is inapt as a criterion when applied to the gradually darkening spectrum where the differences are of degree and not kind. Negligence It is against this background that the question of negligence is to be addressed. This question, it should be remembered, is directed at whether an honest third party who receives no trust property should be liable if he procures or assists in a breach of trust of which he would have become aware had he exercised reasonable diligence. Should he be liable to the beneficiaries for the loss they suffer from the breach of trust? The majority of persons falling into this category will be the hosts of people who act for trustees in various ways: as advisers, consultants, bankers and agents of many kinds. This category also includes officers and employees of companies in respect of the application of company funds. All these people will be accountable to the trustees for their conduct. For the most part, they will owe to the trustees a duty to exercise reasonable skill and care. When that is so, the rights flowing from that duty form part of the trust property. As such, they can be enforced by the beneficiaries in a suitable case if the trustees are unable or unwilling to do so. That being so, it is difficult to identify a compelling reason why, in addition to the duty of skill and care vis à vis the trustees which the third parties have accepted, or which the law has imposed upon them, third parties should also owe a duty of care directly to the beneficiaries. They have undertaken work for the trustees. They must carry out that work properly. If they fail to do so, they will be liable to make good the loss suffered by the trustees in consequence. This will include, where appropriate, the loss suffered by the trustees, being exposed to claims for breach of trust. Outside this category of persons who owe duties of skill and care to the trustees, there are others who will deal with trustees. If they have not accepted, and the law has not imposed upon them, any such duties in favour of the trustees, it is difficult to discern a good reason why they should nevertheless owe such duties to the beneficiaries. There remains to be considered the position where third parties are acting for, or dealing with, dishonest trustees. In such cases, the trustees would have no claims against the third party. The trustees would suffer no loss by reason of the third party’s failure to discover what was going on. The question is whether in this type of situation the third party owes a duty of care to the beneficiaries to, in effect, check that a trustee is not misbehaving. The third party must act honestly. The question is whether that is enough. In agreement with the preponderant view, their Lordships consider that

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Sourcebook on Obligations and Remedies dishonesty is an essential ingredient here. There may be cases where, in the light of the particular facts, a third party will owe a duty of care to the beneficiaries. As a general proposition, however, beneficiaries cannot reasonably expect that all the world dealing with their trustees should owe them a duty to take care lest the trustees are behaving dishonestly. Unconscionable conduct Mention, finally, must be made of the suggestion that the test for liability is that of unconscionable conduct. Unconscionable is a word of immediate appeal to an equity lawyer. Equity is rooted historically in the concept of the Lord Chancellor, as the keeper of the royal conscience, concerning himself with conduct which was contrary to good conscience. It must be recognised, however, that unconscionable is not a word in everyday use by non-lawyers. If it is to be used in this context, and if it is to be the touchstone for liability as an accessory, it is essential to be clear on what, in this context, unconscionable means. If unconscionable means no more than dishonesty, then dishonesty is the preferable label. If unconscionable means something different, it must be said that it is not clear what that something different is. Either way, therefore, the term is better avoided in this context. The accessory liability principle Drawing the threads together, their Lordships’ overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. ‘Knowingly’ is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden [1993] 1 WLR 509 scale of knowledge is best forgotten. Conclusion From this statement of the principle, it follows that this appeal succeeds. The money paid to BLT on the sale of tickets for the airline was held by BLT upon trust for the airline. This trust, on its face, conferred no power on BLT to use the money in the conduct of its business. The trust gave no authority to BLT to relieve its cash flow problems by utilising for this purpose the rolling 30day credit afforded by the airline. Thus BLT committed a breach of trust by using the money instead of simply deducting its commission and holding the money intact until it paid the airline. The defendant accepted that he knowingly assisted in that breach of trust. In other words, he caused or permitted his company to apply the money in a way he knew was not authorised by the trust of which the company was trustee. Set out in these bald terms, the defendant’s conduct was dishonest. By the same token, and for good measure, BLT also acted dishonestly. The defendant was the company, and his state of mind is to be imputed to the company. The Court of Appeal held that it was not established that BLT was guilty of fraud or dishonesty in relation to the amounts it held for the airline. Their Lordships understand that by this the Court of Appeal meant that it was not established that the defendant intended to defraud the airline. The defendant 848

Non-Contractual Obligations (2): Restitution hoped, maybe expected, to be able to pay the airline, but the money was lost in the ordinary course of a poorly run business with heavy overhead expenses. These facts are beside the point. The defendant had no right to employ the money in the business at all. That was the breach of trust. The company’s inability to pay the airline was the consequence of that breach of trust. The Court of Appeal observed that it would have been unrealistic to expect BLT to keep the money in a separate bank account and not use any of the money in the conduct of the business, particularly as BLT was also the ticketing agent for a number of other airlines. Their Lordships express no view on this, or on what the parties are to be taken to have intended would happen in practice when the company’s current bank account was overdrawn. It is possible that, in certain circumstances, these points might sustain an argument that, although there was a failure to pay, there was no breach of trust. They do not arise in this case because of the defendant’s acceptance that there was a breach of trust. Their Lordships will report their advice to His Majesty The Sultan and Yang Di-Pertuan that this appeal should be allowed, the order of the Court of Appeal set aside and the order of Roberts CJ restored. The defendant must pay the airline’s costs before their Lordships’ Board and before the Court of Appeal.

Questions 1 2

Is this an obligations or a property case? Could it be said that the principles and remedies of equity have always, and exclusively, been devoted to preventing either abuses of power or unjustified enrichment?

6 UNJUST ENRICHMENT Orakpo v Manson Investments Ltd [1978] AC 95 House of Lords (See p 268.)

Notes and questions 1

The principle of unjust enrichment comes from Roman law and the ius commune: ‘by natural law it is equitable that no one should be enriched by the loss or injury of another’ (Dig 12.6.14; 50.17.206). It became, during the second life of Roman law, the basis of a category of obligation rights separate from contract and delict (tort). However, even in the civil law the tendency was not to establish a general enrichment action but to give expression to the principle, as in Roman law itself, via a number of specific remedies such as the condictio (debt) and negotorium gestio (necessitous intervention claim). Nowadays, the general enrichment 849

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2

3

action has become prevalent; indeed the French Cour de cassation has outflanked the specific instance approach of the Code civil by establishing unjust enrichment as a general principle of law existing independently of la loi. Does such a general action really help lawyers solve unjust enrichment problems? When it comes to English law, the traditional position, until quite recently, was very clearly stated by Lord Diplock. Nevertheless, once one views the law from the position of the law of actions, including, of course, equitable remedies, the role of the principle of unjust enrichment becomes much more evident. It is the mirror image of the principle of wrongfully causing loss and it invites the court to look, not so much at the plaintiffs loss, but the benefit obtained without just cause. Indeed, one French professor once suggested the following principle to act as the mirror image of liability for damage in Art 1382: ‘Any human act whatsoever which causes an enrichment to another gives rise to a right on behalf of the person by whose act the enrichment has been procured to recover it.’ What problems does such a principle present when analysing factual situations? Ought the court to look at the physical benefit itself (money in a defendant’s bank account or property bought with the enrichment money) or should they take an abstract view of benefit (for example, seeing it in terms of value)? Lipkin German v Karpnale Ltd [1991] 2 AC 548 House of Lords (See p 782.) Woolwich Equitable Building Society v Inland Revenue Commissioners [1993] AC 70 House of Lords (See p 104.) Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 House of Lords (See p 799.) Kleinwort Benson Ltd v Glasgow CC [1999] I AC 153 House of Lords (Seep 71.) Kleinwort Benson Ltd v Lincoln City Council [1998] 3 WLR 1095 House of Lords (See p 823.)

Notes and questions 1

What is the effect of these cases on the status and role of the principle of unjust enrichment? Does English law now recognise the principle of unjust enrichment as a cause of action in itself? 850

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2

Change of position is now recognised as a defence in itself to a claim based on the principle of unjust enrichment. Did not the casino in Lipkin change its position when it gave the solicitor who had embezzled the cash the chance of winning a lot of money from the casino? 3 What does change of position do that the equitable defence of estoppel could not do? 4 Will change of position ever be available as a defence to an action for damages? 5 Is tracing an unjust enrichment claim or a claim belonging to the law of property? If a plaintiff can succeed in a tracing claim on the basis of title (ownership), what is the relevance of unjust enrichment? 6 What, if any, is the role of fault in unjust enrichment? 7 D, a manufacturer of ginger beer, deliberately puts only 98 centilitres of beer in bottles sold as litre bottles. Over several years, D makes a profit of £250,000 from this behaviour. Is D entitled to keep this profit? If not, who should have it? 8 D, an employer, deliberately fails to make his workplace safe for his employees. As a result of this behaviour, D makes a saving over the years of £1,000,000. No employee is actually injured, but they have all been exposed to much higher risks of injury than employees working in similar, but safer, workplaces elsewhere. Is D entitled to keep the £1,000,000? If not, who should have it? If the employees had threatened to go on strike and the court had given the employer an interlocutory injunction on the basis of threatened breaches of contract, ought the employer be able to set off against tax the costs of the injunction against his £1,000,000 profit? 9 These recent restitution cases are of interest from a legal system point of view in that they are cases that are openly influenced by academic writing (doctrine). Admittedly, Lord Goff himself is part of this doctrine, but the acceptance of an independent law of restitution appears to be taking English law beyond the position as seen by Lord Diplock in Orakpo v Manson Investments (see p 268). In some ways, this independence is a good thing, as indeed the Roman lawyers discovered. An independent law of restitution not only allows for an orderly distinction between contractual and non-contractual debt cases, but provides a category in which one can class a whole range of common law and equitable remedy cases devoted to the prevention of unjust enrichment. There are, however, problems. 10 The first problem is that an English law of restitution can never fully integrate itself into an English law of obligations, since it uses the law of property as one of its tools; such an intermixing of property and obligation notions is particularly evident in Lipkin Gorman (and see also Agip (Africa), above, p 240). Secondly, the idea that one can build up a logical model of rules founded upon the ‘axiom’ that no one should be enriched at another’s expense is impractical nonsense. Certainly, one may wish to take an Occam’s razor to the old forms of action, but it must be remembered that people who slash about with razors are likely to cut off their own vital 851

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parts. The world of English law is not the world of German law, and the remedies approach to problem solving has its own strengths. The chapter on reasoning and method (Chapter 2) ought to show that ideas of axiomatic precision and logical rationality belong to legal history; scientia iuris and ars judicandi are now two separate processes, each with their own epistemological (theory of knowledge) standpoint. One great strength of approaching unjust enrichment through a law of remedies is that a law of actions provides great flexibility when it comes to analysing and categorising the facts. Thus, there is nothing wrong with the idea that tracing and rescission in equity should themselves act as focal points for their own particular rules. Of course, there are drawbacks to a form of liability approach, as the Esso case perhaps illustrates (above, p 216). Yet Denning LJ had little difficulty in this case in finding the just decision, indeed he used the old forms of liability to give expression to underlying legal rights (see above, p 613, note 1). The problem with the case was a House of Lords insensitive to its own role and the role of judges in the face of facts. Is not a law of remedies more sensitive than a law of axiomatic principles to the nuances of benefit in a society dedicated to the pursuit of profit? 11 This is not to say that one abandons a category of restitutionary rights any more than one abandons the category of tort; they both are useful for contrasting non-contractual obligations with contractual. But just as tort (and, in truth, contract) defies theory because it contains a range of cases which have quite different objectives (for example, the protection of constitutional rights as well as loss spreading), so restitution will always be a category with little theoretical cohesion. Indeed, one need only look at the case of Dimskal Shipping Co v ITWF [1992] 2 AC 152 to see what damage restitution lawyers have done with their ill-thought out theories of economic duress in a capitalist society. A traditional equity lawyer with a sensitive feel to the problems of industrial relations would never have allowed the remedy of rescission to be used in such facts. The law of obligations is about solving problems, admittedly with an eye to the future, and thus the emphasis needs to be on a legal reasoning which can handle social, political and economic complexity within its own model of concepts and relations. The problem with many restitution writers is that they think that their duty is to overcome complexity. Happily, practising common lawyers seem, on the whole, to have known better. Do we need a law of restitution based on rather meaningless abstract propositions? Are different species of debt claims which make various factual distinctions such a bad thing?

7 LAW OF OBLIGATIONS: FINAL OBSERVATIONS This collection of materials will not have provided much more than an introduction to the law of obligations and the law of remedies. Hopefully, 852

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however, it will have provided a more thorough grounding in legal method and legal reasoning, at least in respect of problem solving in the law of obligations. Cases have been selected with this purpose in mind, and all of them are worth re-reading many times. For example, the factual problem in a modest decision like that of Poole v Smith’s Car Sales (above, p 533) or Reed v Dean (above, p 530) can prove richer than the facts of some of the major cases. Equally, some of the overturned Court of Appeal judgments can sometimes prove richer than the speeches in the House of Lords (see, for example, Lord Denning’s judgment in Beswick, above, pp 78, 163). These cases and judgments are worth returning to from time to time and the facts of all cases in this collection should be reflected upon, changed a little and mixed with facts from other cases (how else are exam questions compiled?). No judgment is ever valueless from a legal method and legal reasoning point of view. And the student who spends time reading, if only very quickly, all the reported cases in every weekly part of the All England or Weekly Law Reports will soon have a rich knowledge of the ars judicandi, if not of the scientia iuris, This collection of materials has also been compiled with Europe in mind. It must never be forgotten that many of the great judges of the second half of the 19th century—the judges who laid the main foundations for the modern law of contract and tort—had an excellent knowledge of Roman law and the Code civil (see, for example, Taylor v Caldwell, p 588). They may not have been faced with demands for harmonisation, but many of them recognised that legal knowledge was not strictly a common law phenomenon. What comparative law can bring to problem solving is the application of alternative models of analysis which, in turn, can stimulate alternative approaches to problems within the common law itself (Samuel (1998) 47 ICLQ 817). In addition, there is of course the question of harmonisation: is English law capable of developing a law of obligations that can be harmonised with the structured systems of the codes? This present work is deliberately ambiguous, for it is the student who must investigate the mentalité of the common lawyer so as to place it in the context of European law. Nevertheless, the collection ought to be used alongside copies of one or more of the great civil codes; legal knowledge is not equivalent to knowledge of a legal system. The whole question of legal knowledge is another theme that is underlying this collection of materials. Is knowledge of law knowledge of rules and principles? Or is it something more? This collection has been designed to suggest that something more is required: law may express itself primarily, and not surprisingly, through the written proposition but, as the Romans recognised, the law is not to be found in the rules (Dig 50.17.1). Ex facto ius oritur (law arises out of facts), as a famous medieval commentator on Roman law put it. Is such a maxim not the guiding principle of this collection? Certainly, when it comes to analysing factual situations, the syllogism is not enough, as this collection has hopefully indicated. An ability to understand the relationship between institutional focal points (persons, things and actions), legal relations 853

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(contract, duty of care, possession and ownership), quasi-normative notions (damage, statements, fault, interest and expectations) and legal concepts (rights and duties) is the key to analysing factual problems. An exam question in the University of Cambridge’s Contract and Tort Paper II once invited candidates to discuss, in relation to an action for damages, the following statement: ‘Before the law can be applied to the facts, the facts must be categorised, but before the facts can be categorised, the law must be applied.’ Modern developments in (constructivist) epistemology (theory of scientific knowledge) and cognitive science have given us a major insight into answering this question. Science constructs its own models, which act as both the science and the object of science and thus, when it comes to law and legal science, what is required is the building of a model within the facts which will act at one and the same time as the means of understanding both the facts and the law (see above, p 170; and Petev (1999) 43 APD 27). In saying that all law is about persons, things and actions, the Romans, perhaps unconsciously, recognised this (see above, pp 27–31). At any rate, they certainly provided the tools and the insights for categorising the facts and applying the law.

854

INDEX Abuse of rights consideration 453–58 debts 235–36, 237 France 774 non-contractual obligations 774–75 Academic writings 21–22, 23, 107–09, 202–08, 851 Acceptance See Offer and acceptance Account of profits 83, 85, 267–68, 482–83 Actions See Law of actions Administrative law 88–104 Advertisements 428–30 Animals 769 Anton Piller orders 274–77 Assumpsit 239–0, 778–80 Bailment common law 80–81 conversion 81–82 damages 80 liens 373–76 money paid 790–92 property 80–83 reward, for 82 Breach of contract agreements 517 debt 581–86 deposits 835–38 fault 523, 533 force majeure 695–99 France 516–17 inducing 695–99 industrial disputes 695–99 non-performance of contracts 516–22 Principles of European Contract Law 516

promises 517 psychiatric harm 519–21 remedies 518, 572–77 restitution 835–38 self-help 573–77 set off 518–19 Breach of statutory duty 684–85, 728–29, 737–48, 758–59, 763 Brussels Convention 1968 71–77 Categorisation, role of 57–85 Causation damage 625–29 damages 320–21, 333, 351–52, 360 legal reasoning 171–72 liability 650 local authorities 753–54 Causes of action breach of statutory duty 759–60 common law 114–18 contract 116 death 31–32 forms of action 114–16 liability 641 local authorities 748–9 public/private law 614 remedies 116–18 rights 116–18, 215 tort 116 unjust enrichment 850 Certainty 15–16, 198, 447–8 Change of position 786–88, 850 Charges 377–78 Civil law criminal law 60–62 mistake 824–25 public/private law 60–62, 86–87

855

Sourcebook on Obligations and Remedies Classification societies 366–67, 711–22 Codification 1, 2, 13, 55, 59–60 Cohabitation 264 Common law bailment 80–81 causes of action 114–18 codes 1, 2 courts 2–13 damage 141–57 duties 131–32 forms of action 613–14 general principles of law 123–25 institutions 26–57 interests 133–36, 156–57 law and fact 157–67 legal categories, role of 57–85 legal concepts 125–57 normative 125–32 legal method and 111–208 legal reasoning 167–202 legal rule 122–23 liens 374–75 mistake 826–27, 830–31 Parliament, role of 23–26 pleadings 118–21 precedent 13–23 proprietary remedies 798–99, 818–19, 822 proximity 136–41 public/private law categories 85–107 quasi-normative concepts 132–57 remedies 2 rights 125–32 structure of 1–109 text interpretation 202–08 textbooks 107–09 tracing 240–42, 244, 245, 246 Companies

See Corporations Comparative law xli Compensation See, also, Damages 103 Consideration 384, 405 abuse of rights 453–58 bailment 459–60 bilateral contracts 449 economic duress 450–52 equity 456–57 estoppel 457–58 formation of contract 423, 448–66 France 448–9 money had or received 784–86 post-contractual 449–52 Principles of European Contract law 465–66 promise 449–51 proprietary remedies 801–02 third parties 458–66 total failure of 236–37, 801–02 unilateral contracts 449 validity 449–52 Constructive trusts 841 Contract law See, also, Breach of contract, Consideration, Formation of contract, Frustration, non-performance of contracts, administrative 88–90 agreements 379 bilateral contracts 384–85, 449 causes of action 116 codification 64 conditions precedent 385 contract or contracts 386–89 contributory negligence 395–99 conversion 400–01 damages 294–307, 322–28, 387–89, 395–99 debts 230–37, 238

856

Index detinue 400–01 employment 322–28, 514, 535–38 exclusion clauses 384 fault 64, 392–93 France 381, 384, 387, 390, 406, 416 freedom of contract 406–09 good faith 409–16 harmonisation of 379 hire purchase 400–01 illegality 835 implied terms 391–93 in personam rights 382 in rem rights 382 incapacity 834–35 interpretation 416–20 liability 64–65, 382–83, 389–02 methodology 383–84 misrepresentation 466–68, 474 mistake 379 mutuality 384 obligations law 62–65, 381–83 penalties 835–38 performance 65, 593–95 pre-existing duties 383 Principles of European Contract Law 379–80, 390, 402, 407, 409, 416–17 privity of contract 458–66 promises 379, 385–89, 391, 402–06 property 73–74 public/private law 88–90 quasi-contract 77, 780–95 refusal to pay 226–29 remedies 381–82 representations 405–06 repudiation 227, 232–35, 238 restitution 73, 76 rewards 386 Roman law 63–64, 380–81,

386–91,401,405–07 sale of goods 387–89 services 393–95 specific performance 235, 249–55 statutory interpretation 419 status 400–06 strict liability 383, 393 third parties 163 tort 67, 474 types of contracts 384–89 unfair contract terms 379–420 Unidroit principles xliv unilateral contracts 385–89, 449 unjust enrichment 71 void 72–73 voidable 83–35 Contribution 617–21, 792–93 Contributory negligence 102, 265, 360, 395–99, 770–74 Conversion bailment 81–82 contract 400–01 damages 329, 331–32 mistake 501–03 Corporations criminal liability 35 institutions 33–36 legal personality 33–36 vicarious liability 34–35 Counsel 3, 7–10 Court of Appeal 7–10 Courts common law 2–13 Court of Appeal 7–10 judiciary Court of Appeal 7–10 first instance 3–7 House of Lords 10–13 law reports 8–10 precedent 8–10 questions of law 7–10

857

Sourcebook on Obligations and Remedies rehearings 7–8 Criminal compensation awards 39–0 Criminal liability See, also, Specific offences (eg, Fraud) civil law 60–62 corporations 35 Criminal Injuries Compensation Board 646–47 tort 62 Crown Prosecution Service 93–98 Customs 59–60 Damage141–56 breach of duty 615–16 causation 625–639 classification of 155 classification societies 711–13 contribution 617–21 damages 344–49 debts, and 237 economic loss 616, 622–26 foreseeability 627–31, 668–71 harassment141–43 interests 156–57 liability 668–71, 683–84 matrimonial home156–57 non-contractual obligations 68 non-performance of contracts 511–12, 533–34 nuisance 143–56, 627–31 occupier’s liability 626–31 physical 344–49 remoteness 633, 636–37 Rylands v Fletcher 669–71 suicide 631–39 telephone calls 141–3, 155 time 621–25 tort612, 615–39 wrongful birth 621–25

Damages. See, also, Compensation 293–365 bailment 80 breach 578–81 causation 320–21, 333, 351–52, 360 consequential loss 309, 331 contractual liability 294–307, 322–28, 387–89, 395–99 contributory negligence 360 conversion 329, 331–32 damage 344–49 debts 233–35, 237–40 780, 782 deceit 313–21 defamation 686–91 detinue 328 equity 361–65 exemplary 60–61, 310–11 fault 523, 529 foreseeability 300–01, 319, 340 forms of action 780 fraud 313–28 injunctions 361–65 insurance 308 interest 237–39 latent defects 345 limitation of liability 339–61 loss of a chance 332–38, 578–79 loss of amenity 305 loss of earnings 312–13 loss of profits 339–40, 344, 346–50 measure of 294, 296, 298, 308, 314–20, 339–2 358–59 medical negligence 338–39 mesne profits 329–31 misrepresentation 300, 314–21, 473–74, 482 mistake 488 mitigation 311, 326, 351–52, 359 negligence 335–36, 353–57,

858

Index 360, 579–80 non-performance of contracts 534 novus actus interveniens 300 nuisance 309–10, 365 occupiers’ liability 345 offer and acceptance 436 omissions 333–34 pain and suffering 312 personal injuries 311–15, 689–90 physical damage 344–49 psychiatric harm 298–99, 579–81 public/private law 59, 87, 90–93 references 335 reinstatement 303–06 remoteness 319, 321, 326, 343–44, 351–52 repudiation 340–42 reputation, loss of 324–25, 327–28 restitution 240, 332, 838–39 role of 293–94 specific performance 253 third parties 333–34 tortious liability 307–10 trespass to land 329–31 valuation 353–57 volenti non fit injuria 352–53 wrongful interference with goods 328–32 Death 31–32, 641–2, 645 Debts 40 abuse of rights 235–36, 237 account of profits 268 assumpsit 239–10 breach 580–86 contractual 230–37 repudiation 232–35, 238 damage 237 damages 233–35, 237–40, 780, 782 equity 584–86 forms of action 780

hire purchase 581–84 interest 237–39 money had and received 240, 246, 782–90, 795, 799–823 money paid 240, 790–93 non-contractual 239–40, 778–81 non-performance of contracts 534, 581–86 penalty clauses 584–86 Principles of European Contract Law 581 quantum meruit 240 quasi-contract 780, 782 remedies 230–40, 581–86 repairs 230–31 restitution 778–81 Deceit 313–21, 469–70, 488 Declarations 281–85, 796–797 Defamation damages 686–91 defences 691–92, 775–76 European Convention on Human Rights 690–91 juries 687–88 liability 685–92 privilege 691–92, 775–76 public/private law 97 publication 692 Roman law 692 Defective products 681–85 Defective transactions 823–38 Deposits 835–38 Detinue 328, 400–01 Disclosure discovery 286–9 journalists’ sources 286–93 jurisdiction 286–88 privilege 288–92 Discovery of documents 285–93 Donoghue v Stevenson 65–69, 180–82, 640–4, 646

859

Sourcebook on Obligations and Remedies Duress consideration 450–52 economic 450–52, 504–08 formation of contract 504–08 Principles of European Contract Law 504 restitution 105–06, 832–33 Duties 131–32 Economic loss 616, 622–26, 699 Equity 83–85 account of profits 83, 85 consideration 456–57 damages 361–65 debts 584–86 misrepresentation 476–82 mistake 485–88, 498 proprietary remedies 799–823, 803–05, 807–09, 818–23 rectification 265–67 rescission 256–66, 476–82 secret profits 85 specific performance 251–52 tracing 242–43, 244–45 undue influence 84 Estoppel 450, 457–58 European Convention on Human Rights 690–91, 749–50 757 European Union Anton Piller orders 276 proportionality 276 Exclusion and limitation clauses 384 freedom of contract 551 non-performance of contracts 551–72 Principles of European Contract Law 551 remedies 551 unfair contract terms 551–72

Fact and law 157–67 balance of probabilities 158, 161 categorisation of the facts 161–63 classification 162 establishing the facts 158–61 evidence 158–60 hypothetical facts 164–67 ignorance of the law 157–58 knowledge 157 legal reasoning 183 loss of a chance 158 mistake 486, 498 offer and acceptance 424–26 quasi-normative concepts, role of 163–64 questions of fact 157–58 questions of law 157–58 Roman law 165–66 Families damage 156–57 individual status within 38 institutions 37–38 legal personality 37–38 matrimonial home 156–57, 256–64 property 38 Roman law 37–38 Fatal accidents 641–42, 645 Fault agreements 522–23 contract 64, 392–93 breach, of 523, 533 damages 523, 529 fitness for purpose 530–32 frustration 524–31 insurance 765 legal reasoning 614 non-performance of contracts 522–33 personal injuries 614 promises 52–23, 529

860

Index restitution 844 road accidents 765, 769 ‘Finders keepers’ 39 Fitness for purpose 530–32 Force majeure 695–99 Foreseeability damage 627–31, 668–71 damages 300–01, 319, 340 liability 643, 645, 648, 653, 655 nuisance 668–69 Rylands v Fletcher 669–71 Formation of contract. See, also, Consideration 421–510 acceptance 421, 423–46 certainty 447–48 consent 421 duress 504–08 France 422–23 fraud 421–23, 503–04 intention 447–48 intention to create legal relations 423 misrepresentation 466–83 mistake 483–503 offer 421, 423–6 Principles of European Contract Law 421 undue influence 508–10 Forms of action 218 causes of action 114–16, 614 common law 612–13 damages 780 debt 780 non-contractual obligations 613 obligations 612–13 public/private law 614 restitution 780 tort 612–15 France abuse of rights 774 consideration 448–49 contract 381, 384, 387,

390, 406, 416 breach, of 516–17 formation of 422–23 individual rights 38 institutions 38 liability 639–0 people, for 645 things, for 660, 674 mistake 483, 828 non-contractual obligations 611 non-performance of contracts 536, 590 public/private law 87–88, 90, 97, 103 restitution 777 unjust enrichment 849 workmens’ compensation 103 Fraud damages 313–28 formation of contract 421–23, 503–04 misrepresentation 265, 314, 316 Principles of European Contract Law 503–04 restitution 832 Frustration fault 52–31 performance 593–95, 601–02 restitution 838 self-induced 525–26 Freezing orders 272–74 General principles of law 123–25 Good faith 409–16 Guarantees 494–99, 556 Harassment 141–43, 655–59 Harmonisation contract law 379 non-contractual obligations 614–15 Hire purchase 400–01, 557–58, 581–84

861

Sourcebook on Obligations and Remedies House of Lords 10–13 Human rights 126, 130 defamation 690–91, 775–76 injunctions 276 journalists’ sources 291–93, 776 local authorities 749–50, 757 Hypothetical facts 164–67 Ignorance of the law 157–58 Illegality contracts 835 insurance 602–04 mortgages 604–09 non-performance of contracts 602–09 restitution 835 Implied terms contracts of employment 514 insurance 514 liability 512–15 non-performance of contracts 512–15, 534–41 Principles of European Contract Law 512 sale of goods 514–15 subrogation 514 In personam actions 41 contract 382 In rem actions 369–73 proprietary remedies 797, 823 In rem actions 41, 46 contract 382 in personam actions 369–73 injunctions 274 liens 374 proprietary remedies 797, 823 remedies 369–73 Incapacity 834–35 Industrial disputes 695–99 Injunctions 51–55, 270–80 Anton Piller orders 274–76 balance of convenience 271, 272

damages 361–65 discretion 272 freezing injunctions 272–74 human rights 276 in rem actions 274 interim orders 219–20, 271–76 interlocutory 219–20, 271–76 liability 674 Mareva 272–74 nature of 270–71 ownership 280 proportionality 276 public interest 276 role of 276–80 search orders 274–76 third parties 271 unfair contract terms 564 Institutions See, also, Courts categorisation 57–58 common law 26–57 corporations 33–36 definition problems 27 families 37–38 France 38 legal personality 29–30, 33–38 legal subjects 31–38 persona 30–38 remedies 55–57, 209, 222 res 30, 38–50 role of 26–57 Roman law 27–31, 36–40, 57–58 subrogation 270 system of 27–31 unborn children 31–33 Insurance damages 308 fault 765 implied terms 514 non-performance of contracts 534–37

862

Index road accidents 765 subrogation 270, 514 tort 69 Intention to create legal relations 423 Interest claims 803, 809–12 Interests 13–36, 220–22 Interim orders 219–20, 271–76 Interlocutory injunctions 219–20, 271–76 Interpretation See, also, Statutory interpretation contract 416–20 intention 416–18 non-performance of contracts 512–15 textbooks 202–08 Journalists’ sources, protection of 286–93, 776 Judgments more than one 17 precedent 17 Judicial review 59, 87, 88, 136, 369 Judiciary assistance 11 counsel 3 Court of Appeal 7–10 courts 3–10 first instance 3–7 House of Lords 10–13 intervention 5–6 knowledge 3 law making 6 legal reasoning 168 role 3–7, 23–26 statutory interpretation 23–26 training 10–11 Juries defamation 687–88 precedent 14–15 science and law 4–5 Jurisdiction declarations 281–85

disclosure 286–88 public/private law 58 Knowing assistance 243–14 Knowledge fact and law 157 ignorance of the law 157–58 judiciary 3 legal method 112–13, 853–54 tracing 243–44 Latent defect 345 Law and fact See Fact and law Law of actions codes 55 interests 136 remedies 50–57 res 39 Roman law 57, 115 unjust enrichment 849–50 Law reports 8–10 Leases 265–67 Legal categories, role of 57–85 Legal concepts 125–57 Legal method 111–208, 853–54 Legal personality corporations 33–36 families 37–38 institutions 29–30 Roman law 36–37 Legal professional privilege 288–92 Legal reasoning absurdity, by 187 analogy, reasoning by 182, 190–92 argumentation 168 causation 171–72 certainty, appeal to 198 common law 167–202 deduction 177–82, 184–85

863

Sourcebook on Obligations and Remedies definition 167–68 Donoghue v Stevenson 180–82 elimination, by 187 fault 614 holistic analysis, by 188 individualistic analysis, by 188–90 induction 177–82 inferential 168 judiciary discretion 168 legal method 167–202 material facts 183 metaphor, by 192–93 policy, appeal to 194–97 practical 199–202 Roman law 168 Rylands v Fletcher 183 social sciences 169–77 syllogism 183–87 symmetry, appeal to 199 values, appeal to 193–94 verification 172 Legal rules 122–23 Legal subjects 31–38 Letters of intent 444–46 Liability See, also, Vicarious liability administrative 90–104 breach of statutory duty 684–85 causes of action 641 classification societies 711–12 contract law 64–65, 382–83, 389–402 control 219 Criminal Injuries Compensation Board 646–47 damage 668–71, 683–84 defamation 685–92 Donoghue v Stevenson 640–11, 646 duty of care 643–44 fatal accidents 641–42, 645 foreseeability 643, 645, 648,

653, 655, 668–71 France 639–0, 645, 660, 662, 674 harassment 655–59 implied terms 512–15 individual acts, for 639–45 inducing breach of contract 695–99 injunctions 674 limitation of 339–61 local authorities 727–57 malicious prosecution 699–702 misrepresentation 466–76 negligence 655–57, 681, 693–94 non-performance of contracts 512–15, 533–51 novus actus interveniens 650 nuisance 655–59, 665–69, 677–81 occupiers’ 647–48, 652–53, 674–77 omissions 649 people, for 533–43, 645–60 police 757–58 product 681–85 professional 702–66 proximity 641 psychiatric harm 640 public law 684–85 road accidents 758–69 Rylands v Fletcher 660–76 solicitors 702–12 strict 383, 393, 662–65, 760, 769, 844 things, for 543–51, 660–85 tort 90–104, 639–766 words, for 685–702 Liens 373–78 Limitation of liability 339–61 Local authorities breach of statutory duty 728–29, 737–48 causation 753–54

864

Index causes of action 748–9 children 748–57 discretion 730–31, 752–53 duty of care 729–30, 732–34, 748–49 European Convention on Human Rights 749–50, 757, 775–76 immunity 750–51 liability 727–57 negligence 731, 737–57 omissions 738–39, 741–15 proximity 743–47 public law 757 public/private law 104, 727–28 road accidents 737–48 standard of care 756–57 vicarious liability 731–32, 734–37 Lock out agreements 440–4 Locus standi 271–75 Loss of a chance 158, 332–38, 578–79 Malicious prosecution 699–702 Mareva injunctions 272–74 Matrimonial home cohabitation 264 damage 156–57 independent legal advice 262–64 misrepresentation 260, 479–82 same sex relationships 264 sureties 256–64, 479–82 undue influence 256–64 Medical negligence 338–39, 395 Misrepresentation account of profit 482–83 contractual liability 466–68, 474 contributory negligence 265 damages 300, 314–21, 473–74, 482 deceit 469–70

definition 466 equity 476–82 formation of contract 466–83 fraudulent 265, 314, 316 innocent 467–68, 473 legislation 473–76 matrimonial home 260, 478–82 mistake 476, 487–88, 491 negligence 470–73 Principles of European Contract Law 466–68, 476, 482 remedies 474–75 rescission 473–82 sureties 260, 478–82 tortious liability 469–76 Mistake civil law 824–25 common 495–98 common law 826–27, 830–31 comparative law 827–28 contract 379 formation of 483–503 conversion 501–03 damages 488 deceit 488 equity 485–88, 498 errors in copore 488–99 errors in negotio 499–501 errors in persona 501–03 errors in verbis 503 facts and law 486, 498 France 483, 828 Germany 827–28 guarantees 493–99 law, of 826–27 misrepresentation 487–88, 491 mutual 495–98 non est factum 499–501 Principles of European Law 486 remedies 487–88 rescission 485–87

865

Sourcebook on Obligations and Remedies restitution 823–32 silence 488–92 undue influence 501 unjust enrichment824–25 Money had and received 240, 246, 782–90, 795, 799–823 Money paid 240, 790–93 Necessity 99–101 Negligence classification societies 711–22 contributory 102, 265, 360, 395–99, 770–74 contract 395–99 Crown Prosecution Service 93–98 damages 335–36, 353–57, 360, 579–80 economic loss 699 liability 655–59 words, for 693–94 local authorities 731, 737–57 medical 338–39, 547–51 misrepresentation 265, 470–73 necessity 99–100 negligence misstatements 694 non-performance of contracts 538–41, 545–7 police 90–93, 95–104, 137–41 references 335, 693 road accidents 761–65 solicitors 702–12 suicide770–74 unfair contract terms 555 valuation 353–57 Neighbour principle 6 Nervous shock See Psychiatric harm Non-contractual obligations See, also, Restitution, Tort abuse of rights 774–75

damage 68 debts 239–10, 778–81 forms of action 613 France 611–12 harmonisation 614–15 money had and received 240 money paid 240. quantum meruit 240 Roman law 611–12 Non est factum 499–501 Non-performance of contracts 511–610 breach 516–22, 572–88 care and skill 546–51 contracts of employment 535–38 damage 511–12, 533–34 damages 534 debts 534, 581–86 exclusion and limitation clauses 551–72 fault 522–23 France 536, 590 illegality 602–09 impediment to performance 588–602 implied terms 512–15, 534–41 insurance 534–37 interpretation541–13 liability 512–15 people, for 533–13 things, for 543–51, 681 medical negligence 547–51 negligence 538–41, 545–7, 681 passengers 543–15 remedies 572–88 self-help 572–77 services 538–41, 547–51 sub-contractors 538–11 Normative concepts 125–32 Novüs actus interveniens 300, 650 Nuisance damage 141–56, 668–69 damages 309–10, 365

866

Index foreseeability 668–69 liability 655–59, 677–81 negligence 538–41, 545–7, 681 planning permission 678–80 private146–56 public 761–63 road accidents 761–63 Rylands v Fletcher 665–68 telephone calls 141–3, 155 television signals, interference with 144–46, 155 Obiter dicta 16–19 Obligations law contract law 62–65, 381–83 forms of action 613 res 39 unjust enrichment 851–52 Occupiers’ liability 647–48, 652–53, 674–77 damage 626–31 damages 345 Offer and acceptance advertisements 428–30 commerce 430–32 consumer 426–30 counter-offers 432 damages 436 end of the offer 433 expenditure 435–35, 445–6 fact and law 424–26 formation of contract 421, 423–16 France 427 instantaneous communications 434–35 intention to create legal relations 430 letters of intent 444–45 lock out agreements 440–44 precontractual liability 434–46 Principles of European

Contract Law 424, 430–34 promise 429, 430 puffs 428–30 quantum meruit 444–46 rejection 432 revocation 433 specific performance 424–26 subject to contract 444 tenders 436–39 unfair contract terms 432 Omissions damages 333–34 liability 649 local authorities 738–39, 741–5 Overruling 11 Parliament, role of 23–26 Patrimony46–47 Penalties 584–86, 835–38 Performance change of circumstances 599–600 contract 65 frustration 593–95, 601–02 hardship 599–600 illegality 602–09 impediment to 588–602 inflation 596–600 Principles of European Contract Law 588, 592–93, 600–01 promises 590 quantum meruit 593–95 Persona 30–38, 270 Personal injuries damages 311–15, 689–90 fault 614 Personal property 78–79 Pleadings 118–21 Police immunity 95–97, 140 liability 757–58 negligence 90–93, 95–104,

867

Sourcebook on Obligations and Remedies 137–41 public/private law 90–93, 95–104 Precedent academic writings 21–22, 23 binding 17–18 certainty 15–16 codification 13 common law 13–23 Court of Appeal 8–10 declaratory theory 21–23 judgments, more than one 17 juries 14–15 law reports 8–10 obiter dicta 16–19 overruling 11 ratio decidendi 16–19 unreported cases 9–10 Precontractual liability 434–36 Private law/public law See Public/private law 218 Privilege defamation 691–92 legal professional 288–92 Product liability681–85 Professional liability 702–88 Promises consideration 449, 451 contract 379, 385–89, 391, 402–06 breach 517 fault 522–23, 529 offer and acceptance 429 performance 590 Property See, also, Res bailment 80–83 contract law 73–74 definition 78–79 families 38 obligations law xlvi

personal 78–79 real 78–79 res 39–41 Proportionality 276 Proprietary remedies common law 798–99, 818–19, 822 consideration 801–02 declarations 796–97 equity 799–23, 803–05, 807–09, 818–23 in personam actions 797, 823 in rem actions 797, 823 interest 803, 809–12 money had and received 799–823 restitution 796–823 resulting trusts 815–16 retention of title 814 Roman law 797 tracing 798, 823 trusts 812–16 Proximity common law 135–11 liability 641 local authorities 743–7 Psychiatric harm breach of contract 519–21 damages 298–99, 579–81 liability 640 Public law See, also, Public/private law194–97 liability 684–85 local authorities 757 remedies 365–69 Public/private law administrative contracts 88–90 administrative liability in tort 90–104 Anton Piller orders 275

868

Index categorisation 85–107 causes of action 614 civil law 60–62, 86–87 codification 59–60 common law 85–107 contracts, administrative 88–90 criminal law 60–62 Crown Prosecution Service 93–98 customs59–60 damages 59, 87, 90–93 defamation 97 France 87–88, 90, 97, 103 judicial review 59, 87, 88 jurisdiction 58 local authorities 104, 727–28 police 90–93, 95–104 remedies 59, 87, 218 restitution 104–07 Roman law 57–59 Rylands v Fletcher 100–01 search orders 275 tort, administrative liability in 90–104 Puffs 428–30 Quantum meruit 240, 593–95, 793–95 Quasi-contract 77, 780–95 Quasi-normative concepts 132–57, 163–64 Questions of fact 157–58 Questions of law 157–58 Ratio decidendi 16–19 Real property 78–79 Reasonableness unfair contract terms 556, 558–59, 561, 569–70 use of force 225 Rectification equity 265–7 leases 265–67 remedies 265–67 restitution 834

References 335, 693 Refusal to pay 226–29 Reinstatement 303–06 Remedies See, also, Damages, Injunctions, Proprietary remedies 209–378 account of profits 267–68 breach 572–77 causes of action 116–18 common law 2 contract 381–82, 474 debt 230–40, 581–86 declarations 281–85 discovery of documents 285–93 exclusion or limitation clauses 551 in rem actions 369–73 institutions 50–57, 209, 222 interests 220–22 judicial review 59 law of actions 50–57, 218 liens 373–78 misrepresentation 474–75 mistake 487–88 non-performance of contracts 572–88 public law 365–69 public/private law 59, 87, 218, 368–69 rescission in equity 256–66 restitution 777–78, 781, 834 rights 55–57, 209–20 Roman law 50–51, 56–57 self-help 222–29, 572–77 specific performance 249–56 subrogation 268–70 substantive law 57 tracing 240–49 unjust enrichment 852 Remoteness

869

Sourcebook on Obligations and Remedies damage 633, 636–37 damages 319, 321, 326, 343–4, 351–52 Repairs 230–31 Repudiation anticipatory 233–34 contract law 227, 232–35, 238 damages 340–42 debts 232–35, 238 self-help 573–77 Reputation 324–25, 327–28 Res See, also, In rem actions criminal compensation awards 39–40 debts 40 defective products 47–49 finders keepers 42–46 institutions 30, 38–50 interests 135–36 law of actions 39 obligations law 41 ownership 45–17 patrimony 41–12 possession 46–47 property law 39–1 Roman law 40, 46–47 sale of goods 47–49 subrogation 270 Rescission equity 256–66, 476–82 misrepresentation 473–82 mistake 485–87 rescission 834 undue influence 256–64, 510 Restitution 70–78, 777–854 assumpsit 778–80 benefit 612 breach of contract 835–38 constructive trusts 841 contract law 73, 76 damages 240, 332, 780, 838–39

debt 778–79 defective transactions 823–38 dishonesty 844–45 duress 105–06, 832–33 equity 839–19 fault 844 forms of action 780 France 777 fraud 832 frustration 838 Germany 777 illegality 835 incapacity 834–35 judicial review 369 mistake 823–32 money had and received 779 prepayment 778–81 profit 612 public/private law 104–06 quasi-contract 77, 781–95 rectification 834 remedies 777–78, 781, 834 proprietary 796–823 rescission 834 Roman law 777 strict liability 844 subrogation 793 tort 612 tracing 783–90 unconscionability 847–48 undue influence 833–34 unjust enrichment 777–78, 780, 839–41, 849–52 wrongs, for 838–9 Resulting trusts 815–16 Retention of title 270, 814 Rewards 386 Rights 125–32, 209–20 Road accidents breach of statutory duty 758–59, 763 burden of proof 765–66 car owners’ liability 766–69

870

Index causes of action 759–60 fault 765, 769 highway authorities 737–48 insurance 765 liability 758–69 strict 760 negligence 761–65 nuisance 761–63 Roman law breach of statutory duty 758–59 categorisation 57–58 contract 63–64, 380–81, 386–91, 401, 405–07 defamation 692 fact and law 165–66 families 37–38 institutions 27–31, 36, 40, 57–58 law of actions 57, 115 legal personality 36–37 legal reasoning 168 non-contractual obligations 611–12 proprietary remedies 797 public/private law 57–59 remedies 50–51, 56–57 res 40, 46–7 restitution 777 rights 127–28 unjust enrichment849 Rylands v Fletcher damage 669–71 foreseeability 669–71 legal reasoning 183 liability 660–76 necessity 101 nuisance 665–68 public/private law 100–01 Sale of goods contract 387–89 implied terms 514–15 res 47–49 unfair contract terms 557–58

Science and law 4–5 Search orders 274–76 Secret profits 85 Self-defence 224–26 Self-help 222–29 breach 573–77 non-performance of contracts 572–77 personal justice 222–24 Principles of European Contract Law 572–73 refusal to pay 226–29 repudiation 573–77 self-protection 224–26 set off228 use of force 224–25 Services 393–95, 448–9, 538–41, 547–51 Set off 228, 518–19 Solicitors 702–12 Specific performance 249–56 contracts 235, 249–55 damages 253 equity 251–52 offer and acceptance 424–26 supervision 254 Standing 271–75 Stare decisis See Precedent Statements of case 118–21 Statutory interpretation contract law 419 judiciary 23.26 Parliament 23–26 rules 204, 207–08, 419 Strict liability 662–65 animals 769 contract 383, 393 restitution 844 road accidents 760 Subrogation implied terms 514 institutions 270

871

Sourcebook on Obligations and Remedies insurance 270 persona 270, 514 remedies 268–70 res 270 restitution 793 retention of title 270 tracing 244–45 unjust enrichment 268–70 Subcontractors 538–41 Substantive law 57 Sureties independent legal advice 262–64 matrimonial home 256–64, 479–82 misrepresentation 260, 479–82 undue influence 256–64 Telephone calls 141–43, 155 Television signals, interference with 144–46, 155 Tenders 436–39 Textbooks 21–22, 23, 107–09, 202–08, 851 Third parties consideration 458–66 contract law 163 damages 333–34 injunctions 271 Tort See, also, Specific torts (eg, Negligence) 65–69 administrative law 90–104 causes of action 116 contract law 67, 474 criminal law 62 damage 612, 615–39 damages 307–10 defences 770–74 forms of action 612–15 insurance 69 liability 90–104, 639–766 individual acts 639–5 misrepresentation 469–76

public/private law 90–104 restitution 612 risk 69 suicide 770–74 Tracing 240–9 account of profits 268 common law 240–12, 244, 245, 246 equity 242–13, 244–45 knowing assistance 243–4 money had and received 246 proprietary remedies 798, 823 restitution 783–90 subrogation 244–45 unspecified goods 246–49 Trespass to land 329–31 Trusts 813–16, 841 Unborn children 31–33, 135 Unconscionability 847–48 Undue influence actual 258 equity 84 formation of contract 508–10 independent legal advice 262–64 matrimonial homes 256–64 mistake 501 notice 261–62 presumed 258–59 Principles of European Contract Law 508–09 rescission 256–64, 510 restitution 833–34 sureties 256–64 wives 260–62 Unfair contract terms 408–13 breach of contract 558 consumers 559 exclusion or limitation clauses 551–72 guarantees 556 hire purchase 557

872

Index injunctions 564 list of terms 567–69 negligence 555 reasonableness 556, 558–59, 561, 569–70 sale of goods 557 written contracts 563 Unidroit principles xliv Unjust enrichment 70–78, 104–07 academic writing 851 Brussels Convention 1968 71–77 causes of action 850 change of position 786–88, 850 contract 71 France 849 law of actions 849–50 mistake 824–25 obligations 851–52 remedies 852 restitution 777–78, 780,

839–41, 849–52 Roman law 849 subrogation 268–70 tracing 851 Unspecified goods 246–49 Use of force 224 Valuation 353–57 Vicarious liability 645–47, 659–60 corporations 34–35 course of employment 660 local authorities 731–32, 734–37 Volenti non fit injuria 352–53 Workmens’ compensation 103 Wrongful birth 621–25, 722–26 Wrongful interference with goods 328–32

873