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Lecture 1: Negligent misstatementRelationship between tort and contractWhat happens when you get something that is a mixture of tort and contract, how does the law respond to these issues?What do you do when people make an agreement and there is no consideration?Equity is one of that ways that the c...

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Lecture 1: Negligent misstatement Relationship between tort and contract What happens when you get something that is a mixture of tort and contract, how does the law respond to these issues? What do you do when people make an agreement and there is no consideration? Equity is one of that ways that the common law is dealt with. Equity can fill in the gap. In contract law, we are taught that an agreement without consideration is not binding. There is nothing that the law does. Sometimes equity does something. Agreements made without consideration become enforced all the time. We don’t enforce them as agreements/contracts but they are enforced in other ways. These are enforced through tort law. While we don’t say this is what the law is doing, that is what the law is doing. Law of property is what you own. Real property relates to land and personal property relates to chattels and intangible things. Putting the law of property aside and looking at the law of obligations (tort and contract), contract law is about a couple of people who get together to do something for their mutual benefit. Tort law is about a few separate people (who may know each other or not) where one harms the other. We have the law that deals with two people that come together for a common endeavour to benefit one another and tort law that deals with people who harm another. What else might we need the law for? Two separate people where one benefits the other. Why would we need a law governing this? If someone’s been benefited, what’s the problem? i.e., unjust enrichment. Used to be called the law of quasi contract. In 1991, the HoL established unjust enrichment. One of the interesting things about this area of the law is that you can’t study it for itself. You can only understand it in relation to other areas of the private law, particularly contract law and property law. In the Lipkin Gorman case, some people say there was no unjust enrichment at all, it was just about property and the HoL didn’t realise that so they got it wrong. According to these people, the great case that recognised unjust enrichment was not in fact an unjust enrichment case. Negligence Negligent misstatement/misrepresentation 1. 2. 3. 4.

Standard of care: Was D negligent? Duty of care: Was D negligent to P? Remoteness (legal causation): Was D negligent for creating a risk of the P’s injury? Factual causation: Did D’s negligence cause the P’s injury

5. Defences These stages are designed to answer a string of questions. Donoghue: D v S never went to trial – taken as a strike out application to the HoL. The courts accepted the P’s version of the facts. David Stevenson was the manufacturer of ginger beer in Glasglow. He sold it to a café. May Donoghue and her friend entered the café and decided to have a few drinks. D’s friend bought her a ginger beer float. She drank half of it and poured some more ginger beer from the bottle and out came the decomposing remains of a snail. She claimed it gave her gastro. She sued S for the gastro. She did not have to prove the facts. She took the case to HoL and succeeded. Standard of care: Was D negligent? Is it negligent to do what S did? He allowed a product to be sold on the market without inspection. Yes, it was negligent to do so. He failed to meet the standard of care. Duty of care: Was D negligent to the P? Why is it negligent to put a product on the market without ensuring that it’s safe? People might drink it and be injured. P was someone who drank the ginger beer and was injured. P was within the ambit of the risk created by D’s negligence. He created an unreasonable risk of injury to people who drank the ginger beer. D was a drinker of the ginger beer therefore was owed a duty of care. Different story if P took the ginger beer and stuck it to the fuel tank of her car, then tried to sue D for the damage to the car. There would have been no duty of care owed as she would not have been within the ambit of risk created by D’s negligence. Remoteness: Was D negligent for creating a risk of the P’s injury? If you put a beverage out on the market and it’s not safe, it’s reasonably foreseeable that someone will drink it. P drank the ginger beer and got gastro. Is this the type of thing that would happen to someone that drank a contaminated ginger beer? Yes. It was reasonably foreseeable. Causation: Would P’s injury have occurred but for D’s negligence? No, if the beverage had been brewed properly, she would not have developed gastro. Therefore, D would have been liable. In the law of negligent misrep, this is not quite how it works. Two issues in the development of negligence Problem of economic loss – what do you do when P’s loss is a financial one? What do you do when the P’s complaint is that D said something that P then relied on and suffered loss? Personal injury cases are easy to deal with, but what do we do if P’s complaint is that D said something which P relied on and as a result suffered loss, particularly when that loss is economic financial loss? The law keeps changing its mind as to how these cases should be dealt with. The basic position is in Hedley Byrne, the court seems to say that you should be able to recover as long as D was negligent. But then there’s a long string of cases where P goes to

court and the court denies P a remedy. The court keeps inventing reasons why the P should lose. While they don’t always lose, in most of the high-profile cases around the world, P loses. The P in Hedley loses too. P in Caparo also loses. If Hedley recognised the new tort of negligent misrep, why is it so difficult to succeed? History Traditional approach in this area after Donoghue was that if you’re suing for words, you lose unless you can show D was lying. That is, D was guilty of fraud. D knew what they were saying was untrue or was wilfully blind/reckless in this regard. -

Derry v Peek Le Lievre v Gould

CA in Le Lievre said that Derry decided that claims of negligence regarding words could not succeed unless there was fraud or deceit. This made the law simple. The issue was that everyone thought it made the law unjust. This position could not be accepted and could not last. Candler D is an accounting firm that’s contracted to a mining company. The P is an investor in the mining company. Mining company says it will get the accountants to draw up the accounts to persuade the P to invest. D company draws up the accounts and on the basis of the accounts, P invests 2000 pounds in the company, and later, another 200 pounds. Turns out the accounts are inaccurate. P loses his investment. He sues. Ds produced the report under contract – they were contractually bound to do that with a third party. They did not produce the report as a result of a contract with the plaintiff. If they did have a contract with the P, it would’ve went to court on the basis of contract. Ps sued in negligence. P is trying to sue D for preparing this inaccurate report upon which they have relied to their detriment. The way Lord Denning phrased the issue was too wide in scope and captured too wide a category of people. The claim is in negligence. Question is the duty of care – did D owe P a duty of care? Do the facts of this case fall under the principle enunciated in D v S? Was injury to Ps in this case reasonably foreseeable? Yes – if the company was in good financial shape, the Ps would invest. If not, they would not invest. Lord Denning concludes that the Ds owed a duty of care to the Ps if the matter were free from authority (Le Lievre had never been decided). The point of preparing the report was to enable the P to decide whether to invest. It was not only foreseeable, it was exactly what you’d expect would happen. The result is that P lost money. Lord Denning found that on ordinary negligence principles, P would win if the matter were free from authority.

The question is not whether there was authority – it’s whether the case falls under the principles in D v S. Case law is just instances of the law. The case law does not contain the law, it’s only examples of the law. The law is abstract. Lord Denning refused to distinguish between financial and non-financial loss. He said the economic loss argument did not work. Note: the economic loss consideration remains a problem in the law today. Lord Denning considered that because there was no contractual relationship between D and P, it was a fallacy to say that they did not owe contractual duties. Winterbottom v Wright: Postmaster General has coaches which deliver the mail. They hire someone to supply and repair the coaches. They also hire someone to operate the coaches who then hire drivers to drive the coaches. P (Coach Driver) is injured when the wheel falls off. P is injured as a result that the coach has not been maintained properly. It’s the D’s job to maintain the coaches properly. The court said no. There is much disagreement about why the court said no. The standard interpretation is that, you ask why the D’s job was to maintain the coach. The answer is because there is a contract between the Postmaster General and the D. In this case, the only person that can sue is the Postmaster General. P could not sue the D directly, he had to sue the Coach Operator, then Postmaster General. The issue is that there might not be any breach of duty there. This is what the case was understood to have decided. Donoghue v Stevenson: Fact scenario similar to Winterbottom. The friend is the one that gave P the drink. The court said this case had already been decided by Winterbottom because the contract was between the café and manufacturer, so only the café could sue Stevenson. Then, the HoL overruled this because if that was right, what this means is that the contract between C and M undermines P’s rights which is a violation of privity doctrine. According to the position in Winterbottom, if there were no contract, P could sue D. If there were no contract, P could not sue D. How could a contract between D and TP violate P’s rights to sue for damage? In Candler, D says that there was a contract between the D and the TP company (mining company). If there were any problem, they would have to sue for breach of contract. Lord Denning said this fallacy created in Winterbottom was exploded in D v S – P could sue D directly. Irrelevant whether there was a contract between D and TP. Summary This is a negligence case. We determine liability in accordance with the ordinary principles of negligence. According to those principles, there should be liability. D was negligent in preparing their report and showed it to P. It was foreseeable that P would invest and lose his money. Duty of care is owed and D should be liable. He goes on to give examples of when persons are under such duty apart from contract. i.e., accountants, surveyors, valuers. And analysts whose profession and occupation is to examine books, accounts, and other things, and to make reports on which other people other than clients rely in the ordinary course of their business. Their duty is not merely a duty to use care in their reports. They have also a duty to use care in their work which results in their reports.

Secondly, they owe these duties to people who they know will rely on their reports – TPs who they know will see their accounts, their employers and their clients. This duty does not include strangers and people who they do not know will see their report. Once they’ve handed the report to their employer, he is not liable to people who their employers show their report to. The transactions extent to which the accountants knew their accounts were required. In this case, it extends to the 2000l but not the subsequent 200l. They knew the report was to be required for the first investment but not the second investment, so they weren’t liable for that. Denning perceives that negligent misrep protects foreseeable reliance on negligently made statements. ¡ Special limitations: 1. D must have special knowledge and skill in the subject matter of the representation. 2. P must rely on the representation in accordance with the purpose for which it was made. 3. P must be shown the representation with the knowledge and/or consent of the D. Note: 1 and 2 are inconsistent with 3. If this concerns the ordinary law of negligence, why are there special limitations? The ordinary law of negligence does not have special limitations. He put the limitations in due to worry about indeterminate liability. Words are volatile – anyone would be able to sue if they heard the advice of a person which they relied on to their detriment. The court was worried liability would get out of hand. What’s important about this dissenting judgment is how Denning framed the issue – it was framed in negligence rather than contract. Hedley Byrne Ezipower asked its bank (P) to request another bank (D) for the accounts from a different company about whether it was good for an advertising fee. The letter from D to P said “for your private use and without responsibility on the part of the bank or its officials”. The action is recognised in this case as people being able to sue for negligent misrep. However, P still lost. P lost because the header effectively released Ds from their duty to give careful advice/info. The tort was not committed in this case. This causes problems because it means that the court has to ignore that the disclaimer was made. Then, once they’ve created the cause of action to get D off the hook, they bring the disclaimer back in. Because they do this, they’re not clear. It was obvious that the P was going to lose, so why did the case go to the HoL? Why did P pay for the case to go to HoL? His lawyer was deceitful – he wanted to build his career on this case.

Lecture 2 Continuation of Hedley Byrne discussion. Info Ps received included the words “confidential: for your private use and without responsibility”. It said Easipower was good for its ordinary business engagements. Easipower turned out not to be in a good financial position. The firm liquidated. As a result, P suffered loss. The court was trying to recognise the existence of this new action in a case where the action actually won’t be allowed. Makes it difficult to follow the judgments. On the face of it, it looks as if Lord Pearce adopts Lord Denning’s view in Candler. Ordinary principles of the law of negligence: 1. D must have some expertise in the subject area of the advice; and 2. D must have shown the advice to P or must have known that the advice would be shown to the P. This is how the case was generally understood. Now it’s a different story and there are people who think the case must be rethought. At the time, it was understood to be a negligence action and recognition of a new category of negligence. The ordinary principles of negligence apply but there are policy-based exceptions. Lord Reid’s judgment is the most difficult to understand and what people consider to be the leading judgment. He says a duty is owed where a D impliedly or expressly assumed responsibility to P. When: -

P was trusting D to exercise due care, It was reasonable for the P to do so, and D knew or ought to have known that P would rely on the info.

The first aspect looks like the law of contract but what we’re talking about here is assumption of responsibility. This is a kind of consent. When will a duty be owed? Where D has agreed. Where he has said that they would do something or provide something or perform some service etc. In this case, it was to provide a reference on the basis of which an investment decision can be made. Assumption of responsibility looks like contract law. Assumption of responsibility is a little bit like an offer. Think of the case where A says to B “don’t worry, I’ll look after your car” and B relies on this to go and pick up his child from another location but on the way to the car, A goes into the pub and as a result, B’s car gets towed. The idea is, if A is to be liable for this, he’s liable because according to this view, he assumed responsibility to B. This is like making an offer in contract law; undertaking responsibility voluntarily. A doesn’t do it expressly, doesn’t say “I am responsible” but his actions implies he is undertaking responsibility. There’s nothing strange about this as it happens in contract law – a meaning of an offer is often implied not expressed. On the face of it, D assumed responsibility which makes him liable.

But then, the two other points looks like Denning’s view in Candler; that this was just Donoghue – nothing to do with responsibility, nothing to do with contract. We don’t ask whether the Ds in Donoghue assumed responsibility. We just ask whether D fell beneath the standard of care. Is Lord Reid agreeing with Lord Denning in Candler in that it’s just a negligence claim save for some policy-based exceptions or is he saying this is a different situation and it’s not really negligence at all but assumption of responsibility alike to contract law? Alan says Lord Reid is saying that the situation is alike to contract rather than tort. What we’re trying to figure out is which view is correct – whether the situation is one of contract (assumption of responsibility; voluntary undertaking) or tort. He says the question to be asked here is alike to the question in contract – whether there is a warranty. In this case, did D provide P with a warranty as to the financial position of Easipower? He goes on to talk about restrictions of liability. This starts to look a bit more like Denning. But he keeps talking about assuming responsibility which looks a lot more like contract law. What’s really going on here? Lord Devlin’s judgment is the most consistent. That is not to say he’s right but at least he has a clear position. If Ds had asked P in return for the release of the report, for consideration/payment (anything of value), we wouldn’t have this problem as it would be a contract case. The only reason there’s a problem here is that there’s no consideration for the Ds action. D did not ask P for any payment. He was doing it for other reasons. If D had asked P for payment, we’d be in the law of contract. Devlin wants to say it can’t be that much different just because there was no consideration. We can’t say that if P promised consideration that the legal treatment of this case would be totally different. He says that a promise without consideration to perform a service cannot be enforced as a contract by the promise but if the service is in fact performed and done negligently, the promise can recover in an action in tort. To say this, Devlin has to pretend that the disclaimer wasn’t made; that the defendants were performing the service he says they were performing. But the actual service contained a disclaimer. He says you can recover in this action if you would have been able to recover in the law of contract if the doctrine of consideration hadn’t existed. This is contract law without consideration but we’ve stuck it in tort law. What is really is, is not the law of negligence after all but we’ve called it negligent misstatement and bundled it in the law of tort. If it is just contract without consideration, why have we stuck it in tort? One answer is that when the case was decided, the HoL had no authority to overturn their previous judgments. This is not the case anymore. To recognise the existence of this action, they had to find a place for it that didn’t conflict with any of their previous judgments. They couldn’t stick it into contract law because they couldn’t overrule the doctrine of

consideration. Some people say that if this case happened two years later, the HoL might have dealt with this as a contract case. According to Lord Devlin, Duty of care exists when: 1. There would be a contract but for the absence of consideration 2. There is a relationship equivalent to contract 3. D has undertaken responsibility to P Ultimately, there was no liability because of the disclaimer. The defendant did not voluntarily undertake any responsibility. On the contrary, the D said “I am not undertaking any responsibility”. Therefore, there was no responsibility in this case. There was a strong opposition to Lord Devlin’s judgment. His judgment was ridiculed and rejected from the courts for about 40 years. It’s on...