ALS Summative - Grade: 2.1 PDF

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Analysing the English Legal System Summative Assignment 169049165 Total Word Count: 2696

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Brown, Finch & Bell LLP 11 Revell Road, Leicester, LE12 7EF [email protected] 10th January 2019

Mr Charles Smith 1 Lancaster Road, Leicester, LE12 7JT Dear Mr. Smith, Re: Advice on Bullen & co

I hope this letter finds you well. Following our recent conversations, I am writing this letter to inform you of the state of your contract with Vorganic and further steps that can be taken. After the latest negotiations with Vorganic, I am pleased to advise that settlement of your dispute has been reached. In order to honour your wish of avoiding court, the dispute has been settled for the total amount of £25,000. It is important however that you are aware of the nature and strength of the allegations brought forth against Bullen & co, and the case law used in your defence. Firstly, in order for your company to be liable for the damages suffered by Vorganic, it must first be established whether the damage was actionable. While Vorganic would claim that they have in fact suffered actionable damage, this may be challenged by referencing the decision in Rothwell v Chemical & Insulating Co Ltd [2007]. The principle that flowed from this decision defined actionable damage as being left ‘worse off, physically or economically’ by the defendant’s actions. Despite Vorganic having in fact suffered both property damage as well as financial loss, I believe that we could bring your case under the exceptions set out in the cases of Murphy v Brentwood District Council [1991] and Spartan Steel v Martin & co [1973]. These exceptions allow the courts to take a subjective view on financial loss and, specifically, the types of economic loss that can be deemed recoverable as actionable damage. The specific losses incurred by Vorganic such as the differences in market value would be defined by English law as purely economic loss by using the principle from Murphy. In Murphy it was ruled that as loss of money was neither material nor physical damage but purely economic, it could not therefore be recoverable. The loss of profits from Vorganic having to operate its production line at reduced capacity was also purely economic loss; which under Spartan Steel would likewise not be recoverable and would be outside the scope of a duty of care on the part of Bullen & co. The damage to the tofu-processing machine that Mr. Carson (of Vorganic) had borrowed would however be considered actionable damage if the machine had been his property. This particular damage would instead be deemed by the courts as relational economic loss by using the principle from Weller v Foot & Mouth Disease Research Institute [1966]. The decision from Weller ruled that damage must be to the

3 claimant’s own property, otherwise it will be treated as purely economic loss and thus unrecoverable. While it could not be established that Vorganic had suffered actionable damage, it is necessary nevertheless to consider other elements of this negligence claim, particularly whether your company owed a duty of reasonable care towards Vorganic. Whether your company owed a duty of care or not would ordinarily be determined by the precedents from previous cases, however in the condition that no existing precedent applies, the Caparo Test is used. The Caparo test has the objective of establishing the scope of the duty of care in given circumstances by first assessing whether the harm caused by the negligent action was foreseeable. It was argued by Vorganic that when your company was hired by the bank to inspect the building, the failure to notice an apparent defect constituted a reasonable foreseeability of property damage to follow. However, the second element of the Caparo test requires a relationship of proximity between the parties, which did not exist because your company was contracted with the bank rather than Mr. Carson personally when the survey was conducted. This factor consequentially satisfies the third element of the Caparo test that it would not be fair, just, or reasonable to impose liability on Bullen & co for a duty of care. The incorrect statement given by your company’s surveyor must also undergo a test deriving from Hedley Byrne v Heller [1964], which is an exception to the rule of no duty of care for purely economic losses in regards to negligent misstatements. Provided that certain circumstances are met, this test would allow a claim for a negligent misstatement to be brought against individuals such as surveyors that provide advice as part of their profession. In this approach Vorganic’s solicitor claimed that there was a special relationship between the surveyor and Mr. Carson by using the principle established in the case of Esso Petrol v Mardon [1976]. This case reinforced the principle that one does not have to be in the business of giving advice for a special relationship to arise, if they hold themselves as knowledgeable in that particular area. While your surveyor satisfied this criterion by giving advice to the bank regarding the property, the second aspect of the test was not satisfied as there was no voluntary assumption of responsibility on the part of the surveyor towards Vorganic due to your company having been contracted only with the bank. In spite of Vorganic's counsel having claimed using the principle from Smith v Eric Bush [1990] that Bullen & co had a voluntary assumption of responsibility in spite of the disclaimer, I was able to disprove this assertion on the grounds that the court in Smith held their disclaimer to be unreasonable. While the court in Smith used the Unfair Terms Act 1977, this act would not be applicable presently due to the more recent Consumer Rights Act 2015. The Smith case could not therefore be used to establish a voluntary assumption of risk for Bullen & co. Despite Mr. Carson having relied on your surveyor’s negligent misstatement, such a reliance was not reasonable. In strengthening your hand in the negotiation, the principle from Scullion v Bank of Scotland [2011] was referred to; a more recent precedent with similar material facts. While Scullion was concerned with the commercial purchase of a property which was conducted as a result of the surveyor’s report, Lord Neuberger held that the purchaser would have been expected not to rely on the report and instead to protect his financial interest by obtaining his own valuation report. Applying the facts from Scullion to your case, Mr. Carson’s financial interest in the building as an investment was grounds for him to be expected to safeguard his finances by seeking independent advice rather than relying on the bank’s survey. Thus, it was not reasonable for Mr. Carson to rely on Bullen & Co’s advice and consequently, the negligent misstatement of your surveyor passes the Hedley Byrne test and is not liable for the purely economic losses incurred by Vorganic.

4 While the primary issue of this dispute was the question of actionable damage and your company’s potential duty of care, Vorganic had the burden of establishing that it had suffered all four elements of negligence in order to bring a successful negligence claim against your company. Seeing as it could not be proven that Vorganic suffered actionable damage or that the duty of care owed by your company was subsequently breached through your surveyor’s negligence, Vorganic’s negligence claim failed in negotiations and would not hold up in court. The final aspect of your dispute, however must also be considered: Regarding the disclaimer not having been sent through by the bank and consequently unseen by Mr. Carson, your actions nonetheless satisfy the elements of an enforceable contract demanded by English law. Specifically, this states that a clause may be incorporated into a contract if sufficient notice of the term has been given by the company. While Mr. Carson’s counsel claimed that his lack of awareness of the term did not make it legally binding, I referenced the case of Parker v South East Railway co [1877] to refute this claim. In Parker it was established that a party will be bound by a term if the company relying on the exemption clause has taken reasonable steps to bring the term to the party’s attention. Seeing as you sent the contract to the bank, which then failed to be sent to Mr. Carson in full, this would be considered by the court as reasonable steps by your company. Furthermore, you would not have been required to do anything further to bring the term to the attention of Mr. Carson. Mr. Carson would, under the objective Parker test, be bound to the term regardless of whether he had read the term or not. As the case law was highly favourable to your hand in this dispute, Bullen & co were not held liable in the negotiations. The settlement was reached on the grounds that you wished to avoid litigation and so a total amount of £25,000 was settled upon to safeguard Bullen & Co’s reputation and your ambitions of expansion. If you require any further information or have any questions or concerns, please do not hesitate to contact the firm.

Yours Sincerely, Victoria Brown

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Brown, Finch & Bell LLP 11 Revell Road, Leicester, LE12 7EF [email protected] 10th January 2019

Mr Charles Smith 1 Lancaster Road, Leicester, LE12 7JT Dear Mr. Smith, Re: Advice on Bullen & co I hope this letter finds you well. Following our recent conversations, I am writing to inform you of the state of your contract with Vorganic, and further steps that can be taken. Unfortunately, it was not possible to reach a settlement with Vorganic and so I am writing to advise on the strengths and weaknesses of alternative dispute resolution; and will detail the various methods used for settling conflicts otherwise than through the normal trial process. The body of dispute resolution that I believe will suit your request are mediation or arbitration, seeing as you have stated previously that you wish to settle outside of court so as to reduce any negative publicity that this dispute may generate. Both mediation and arbitration will satisfy this request by avoiding the inflexibility of litigation and instead focusing on allowing both parties to achieve a desirable result with the minimum of direct and indirect cost. This conclusion is drawn from several strands of reasoning: Mediation for the purpose of your dispute would be a desirable option, as it is a flexible process conducted confidentially and will not bring any negative attention to your business or ambitions of expansion. In this setting a neutral third party would actively assist you and Vorganic to work towards a negotiated agreement by communicating their options and emphasizing a shared agreement. While the third party would take an activist role, their position rests entirely on promoting settlement by suggesting possible outcomes rather than making a final judgement. For this reason, I believe you would find this option suitable, owing to the ultimate control of the decision to settle remaining in your hands. Throughout the mediation process parties are often willing to comply and I believe this could result in a settlement that is favourable to your company, as this promotes early settlement which would avoid litigation entirely if successful. The downsides of this procedure that I would like you to be aware of are that both parties must come to an agreement mutually; and thus, you may not wish to put yourself in a position whereby you feel compelled to agree to a settlement that you do not feel is just for the sole purpose of avoiding litigation. In the event of an agreement

6 not having been reached, the mediation will have of course failed with no outcome and the mediator as no power to change that result. Arbitration by contrast would also be favourable to your position in this dispute, and the third party in this case would generally be an expert and therefore the likelihood of reaching a resolution that you are satisfied with would be slightly more probable. As with mediation, the informality of this procedure would be effective in providing a high degree of mutuality and maintaining interdependency, which is precisely the case in your future relationship with Vorganic. Without the intervention of the courts, yourself and Vorganic will be free to arrive at a resolution to your contractual dispute, and most importantly; it will be your decision in regards to how exactly the dispute is resolved. As follows with the Arbitration Act 1996, the main objective of arbitration is empowering the parties involved in the dispute as to how the resolution will unfold, which would similarly with mediation focus on mutual concessions and compromise. The arbitrator in this option may rule on questions in relation to jurisdiction concerning whether there lies in the agreement a valid arbitration, as well as act impartially with both parties to allow each a reasonable opportunity to state their case. This also includes the adoption of procedures that are suitable for specific circumstances of the case at hand. The disadvantage of this procedure would be the costs of the arbitrator and venue, limited appeal rights and the limited powers of sanction or compulsion if Vorganic failed to comply with the final resolution. Although you have previously stated your wish to avoid litigation, I will briefly discuss the process of litigation in the possibility that you are the respondent of litigation rather than having commenced the procedure. In addition to litigations being a costly and timeconsuming process, its proceedings are generally public which as you have mentioned may not bring positive attention to your company, regardless of the outcome. While the decisions in mediation and arbitration are not imposed unless there is a binding agreement, the process of litigation can be highly unfavourable depending on the position of either party, which could result in a binding decision that you are unsatisfied with. The case law in this dispute favours your position, and for this reason I will briefly detail some of the precedents that will be used in your defence if you were to be the respondent: Firstly, in Murphy v Brentwood District Council it was decided that the difference in a building’s market value is considered by the courts as purely economic loss and for this reason you would not be liable to compensate Vorganic. The rule that flowed from the case of Scullion v Bank of Scotland established that in regards to the purchase of a property to be used for commercial purposes, the purchaser is expected to protect their financial interests by obtaining a second opinion. Finally, you would not be liable for the bank having mistakenly not sent through the disclaimer section of your contract as you provided sufficient notice of the terms of your agreement, and according to Parker v South East Railway co, a party will be bound to the term if the company has taken reasonable steps to give notice, whether the party has read the term or not. Thus, based on the case law, I believe that litigation would be in your favour as either the respondent or the claimant and should be considered on these grounds, as a binding decision by a judge could be a positive factor in deciding your preferable method of dispute resolution. While I respect your initial request to avoid litigation altogether, I would nonetheless advise that you reconsider litigation as your method of dispute resolution. Though your reasoning for avoiding the negative publicity from court is valid, I believe that your chances of winning the dispute in court are considerably higher than Vorganic; and thus, you could very likely

7 emerge from court without having to compensate Vorganic for any of their losses. If, however you still wish to avoid litigation altogether, my next suggestion would be arbitration, as the presence of an expert third party could result in suggestions that favour your position. Considerable thought ought to be given to this process though, noting that the mutual decision will almost invariably result in you making some sort of payment to Vorganic. If you require any further information or have any questions or concerns, please do not hesitate to contact the firm. Yours Sincerely, Victoria Brown...