TOPIC THREE:
LAW OF TORT
INTRODUCTION
THE DEFINITION OF TORT
What is a Tort? Salmond & Heuston on the Law of Torts states that "A tort is a species of
civil injury or wrong." This means that a tort is a type of civil wrong. But it should be
noted that there are other types of civil wrongs, such as breach of contract and breach of
trust. Winfield's definition, set out below, is an attempt to distinguish tort from other civil
wrongs.
"Tortious liability arises from the breach of a duty primarily fixed by law; this duty is
towards persons generally and its breach is redressible by an action for unliquidated
damages." (Winfield)
The following points should be noted:
1.
It is the law which imposes tortious duties unlike in contract where the duties are
voluntarily undertaken. However, when you study tortious liability on negligent
mis-statements you will discover that liability is imposed on the defendant as a
result of a voluntary undertaking to give advice.
2.
We owe tortious duties to persons generally and not merely to one other person.
In contract one owes a duty to the other contracting party/ies.
3.
The victim of the tort is given the right to bring an action for unliquidated
damages. i.e. damages are fixed at the discretion of the court. So, for example, if
you bring an action for defamation, it is entirely up to the court to decide on
whether to award you 10 pence or £50,000. In contract, the damages awarded by
the court can be unliquidated or liquidated (such as where there is a liquidated
damages clause in the contract).
4.
It should be noted that in certain situations, such as in the tort of nuisance, the
court may award an injunction, instead of, or in addition to, damages.
THE LAW OF TORT V. LAW OF TORTS DEBATE
Is there a law of tort or a law of Torts? Winfield favoured the view that there is a law of
tort i.e. a general principle that causing harm to another person is a wrong unless the
defendant has an excuse for committing the act or omission. He argued that as the law of
tort has grown over the centuries and continues to grow, there must be some underlying
general principle behind the growth.
On the other hand, Salmond advocated the view that there is a Law of Torts i.e. a list of
specific torts, each with its own rules. Supporters of this theory argue that the law
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prohibits the harmful activity in the well established torts and that any other harmful
activity, such as the infringement of privacy, do not incur tortious liability.
THE GENERAL CHARACTERISTICS OF TORTIOUS LIABILITY
Liability arises out of a wrongful act or wrongful omission (when there is a duty to act).
There are situations where one person is liable for another's wrongful act or omission.
Such liability is known as vicarious liability. One situation in which such liability occurs
is in the case of an employer - employee relationship. The law imposes liability on the
employer when the employee commits a tort during the course of his/her employment. In
such situations the employee is personally liable and the employer is vicariously liable.
Generally, tortious liability is based on 'fault' of the defendant (unlike in Contract where
liability is generally 'strict' i.e. irrespective of fault). Fault means that the claimant must
prove that the defendant committed the act (or omitted to act) intentionally or negligently.
There are, however, instances when tortious liability is 'strict', such as in the tort of
Rylands v. Fletcher.
Generally, the claimant must prove that s/he has suffered damage which is not too remote
a consequence of the defendant's wrongful act or omission. There are a few torts, such as
trespass and libel, where the claimant does not have to prove damage.
THE RELEVANCE OF MOTIVE IN THE LAW OF TORTS
Motive is the reason for doing something. The general rule is that motive is not relevant
in the law of torts.
So, generally, if I do an unlawful act which amounts to a tort, I am liable despite acting
with a good motive. Exceptionally, however, a good motive could be a defence.
For example, if the prison authorities are sued for force-feeding a prisoner, they could
plead that it was necessary to force-feed to save the life of the prisoner who was on
hunger strike.
If I commit a lawful act, the fact that I commit the act with an evil motive (i.e. malice)
does not make me liable in tort. The leading authority on this point is Bradford
Corporation v. Pickles [1895] A.C. 587, House of Lords. Water from the Corporation's
land, flowed underneath land owned by Pickles, before going into a reservoir belonging
to the Corporation. The Corporation alleged that Pickles was abstracting water from his
land which meant that there was less water flowing into the reservoir. It was also alleged
that Pickles was abstracting the water to induce the Corporation to buy the land owned by
Pickles. It was held that the Corporation did not have a remedy in tort, as Pickles had a
right to abstract water flowing underneath his land and even if he did this act with the evil
motive of compelling the Corporation to buy his land, this did not turn his lawful act into
an unlawful one. As Lord Macnaghten said: "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." Read
this case from a casebook such as Harvey & Marston, Cases & Commentary on Tort.
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Malice is, however, relevant in a few torts. For example, malice is a criterion of liability
in the tort of malicious prosecution. In Christie v. Davey [1893] 1 Ch.316, the defendant
was held liable in the tort of nuisance. His malice converted a reasonable act into an
unreasonable one. Read this case in the IOLIS Resource book - section on Tort Nuisance.
THE AIMS AND OBJECTIVES OF THE LAW OF TORTS
The following are the aims/objectives of the law of torts;
(i)
Compensation for harm - The main remedy available to a victim of a tort is an
action for damages. The main objective in awarding damages is to compensate the
victim for the harm s/he has suffered.
(ii)
Prevent the continuance or repetition of harm - In some torts, such as in nuisance,
the court, at its discretion, may award an injunction. The main objective of an
injunction is to prevent the defendant from committing a wrong.
(iii)
Punishment of the wrongdoer - In certain torts, example in defamation, the court
awards exemplary damages. The objective of exemplary damages could be said to
be to punish the wrongdoer.
(iv)
Deterrence - The possibility of having to pay damages (compensatory or
exemplary) may deter us from committing torts.
(v)
Justice - It could be said that compensation is paid to the victim in order to do
justice to him, as he has been wronged by the defendant.
(vi)
Restoration of unjust enrichment - A claimant who sues in tort for conversion is
alleging that the defendant is wrongfully detaining goods belonging to the
claimant. If the allegation is proved, this means that the court finds that the
defendant has been unjustly enriched and will order the defendant to return the
goods to the claimant or pay the value of the goods.
(vii)
Declaration of rights - When the court reaches a finding that a defendant is liable
in conversion, it is also declaring that the claimant is entitled to the goods.
(viii) Declaration of status - In actions for defamation, the court decision may contain a
declaration of the status of one of the parties, e.g. that the claimant is married.
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THE INTERESTS PROTECTED BY THE LAW OF TORTS
1. Personal interests:
The following interests are protected;
(i) Intentional Interference with Personal Interests such as;:
(a)
Battery - This tort is committed when the defendant does an act which results in
physical contact with the claimant without the latter's consent. The act must be
direct and should be done intentionally or negligently in order to be actionable.
E.g. if I push you I have committed battery.
(b)
Assault - If the defendant does a direct act, intentionally or negligently, which
results in the claimant being put in fear of physical contact with the defendant.
E.g. If I threaten to hit you I have committed the tort of assault.
(c)
False imprisonment - If the defendant does a direct act, intentionally or
negligently, which results in the claimant being detained in a particular area
against his/her will. E.g. If you are wrongly accused of shoplifting and detained in
a supermarket until the police arrive, you could sue the owner of the supermarket
in tort for false imprisonment.
(ii) Negligent Interference with Personal Interests:
Negligence - The Tort of Negligence is committed when the defendant's breach of duty
of care causes physical damage to the claimant - see Donoghue v. Stevenson.
Occupiers' liability for defective premises - An occupier who negligently fails to maintain
his property is liable to a person who is on the premises and suffers physical injury as a
result of the defective state of the premises.
(iii) Interference with Personal Interests without Intention or Negligence:
(a)
Action for breach of statutory duty - If, for e.g., an employer is in breach of
health and safety legislation and an employee suffers physical injury, the
employer is liable without the employee having to prove intention or negligence.
(b)
Strict liability for defective products under the Consumer Protection Act 1987 If you buy a defective product and suffer physical injury as a result of the product,
you could sue the manufacturer without having to prove intention or negligence,
as the manufacturer's liability under the statute is 'strict' (i.e. not based on fault).
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2. Property interests:
(i) Intentional Interference with Property Interests:
(a)
Goods - The torts of Conversion and Trespass to Goods protect intentional
interference with property interests. The Tort of Conversion is committed when
the defendant deals with the claimant's goods in such a way that it is a wrongful
denial of the claimant's title to his goods. If the defendant commits a direct act,
intentionally or negligently, in respect of the claimant's goods, this constitutes the
Tort of Trespass to Goods. e.g. if you tear a page from my book without my
consent, you commit Trespass to Goods.
(b)
Land - The Tort of Trespass to Land is committed when the defendant,
intentionally or negligently, enters on land, without the permission of the person
in possession of land.
(ii) Negligent Interference with Property Interests:
Tort of Negligence - If you are negligently driving on the wrong side of the road and
crash into my car and cause damage to it, you are liable.
(iii) Interference with property interests without intention or negligence:
Nuisance - If the defendant does some activity which constitutes an unreasonable
interference with the claimant's use and enjoyment of his land, the Tort of Nuisance is
committed.
Tort of Rylands v. Fletcher (1866) LR 1 Ex 265 - If the defendant accumulates on his
land something which is not naturally on the land, and the thing escapes on to
neighboring land, s/he is strictly liable for any damage caused to the neighboring land.
3. Economic interests:
(i)
Intentional Interference with Economic Interests:
(a)
False representations - An example of a tort where the defendant makes a false
representation is the Tort of Deceit. For this tort to be committed, the defendant
must make the false statement knowingly or without belief in its truth or
recklessly careless whether it is true or false. The defendant intends the plaintiff to
rely on the statement and act upon it and the claimant does in fact act in reliance
on it and suffers economic loss.
Unlawful interference with trade - An example is the tort of Conspiracy which is
committed when two or more traders get together to act so as to cause damage to
the trade of another.
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(ii) Negligent Interference with Economic Interests:
Tort of Negligence - In certain circumstances, a person who commits a negligent act or
makes a negligent statement and causes economic loss to another is liable to pay
compensation to the person who suffers the loss.
Builders and contractors are liable to those who suffer economic loss caused by defects in
buildings.
4. Interests in reputation:
The tort of Defamation protects interests in reputation. If the defendant orally
communicates a false statement about the claimant to a third party, this constitutes
slander, provided the statement lowers the reputation of the plaintiff in the eyes of the
average right-thinking members of society. A false statement about the claimant
communicated in writing to a third party constitutes libel.
5. Misuse of process:
The tort of Malicious Prosecution protects a person who has been wrongfully subjected to
judicial proceedings by another who has acted maliciously in bringing the proceedings.
THE TORT OF NEGLIGENCE
A claimant who wishes to sue a defendant in Tort for Negligence has to prove three
essential elements:
1. The defendant owed the claimant a duty of care;
2. The defendant was in breach of his duty as he did not comply with the standard of care
of the reasonable person; and
3. The claimant suffered damage (i.e. harm) as a result of the defendant's breach of duty
and the claimant's damage is not too remote from the defendant's negligence.
1. DEFENDANT OWED CLAIMANT A DUTY OF CARE (Requirement 1)
THE APPROACH OF THE COURTS TO DUTY OF CARE BEFORE 1932
When faced with the issue of duty of care in an action for negligence, the courts followed
precedents in earlier cases. If they could find an earlier case laying down a duty of care in
circumstances similar to the case before them, judges held that there was a duty of care.
If, however, there was a similar case decided earlier, where the court had held that there
was no duty, the later court felt bound to follow the precedent in the earlier case.
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Although an attempt was made by Brett M.R. in Heaven v. Pender (1883) 11 Q.B.D.
503, 509 to formulate a general principle, the courts preferred a case by case approach.
Although occasionally, the courts extended a duty of care to a slightly new factual
situation, on the whole there were very few factual situations where the courts declared a
duty to exist.
THE APPROACH OF THE COURTS TO DUTY OF CARE FROM 1932 - 1977
In Donoghue v. Stevenson [1932] A.C. 562, House of Lords, the pursuer (i.e. claimant)
poured some ginger beer on her ice cream and consumed it. As she was pouring the rest
of the ginger beer, the remains of a snail, which had been in the bottle of ginger beer, fell
on her ice cream. She suffered shock and gastro-enteritis. She could not bring an action
for breach of contract against the cafe owner, as her friend had paid for the ginger beer.
So she decided to sue the manufacturer of the ginger beer, in tort for Negligence. Lord
Atkins stated that: "...a manufacturer of products, which he sells in such a form as to
show that he intends them to reach the ultimate consumer in the form in which they left
him with no reasonable possibility of intermediate examination, and with the knowledge
that the absence of reasonable care in the preparation or putting up of the products will
result in an injury to the consumer's life or property, owes a duty to the consumer to take
that reasonable care."
This passage contains the ratio decidendi of the case, as it contains the reason for
deciding that the manufacturer owed a duty of care to the consumer. The ginger beer was
in an opaque bottle and once sealed at the manufacturer's factory could not be examined
for impurities by the retailer or any one else, until the consumer opened the bottle and
consumed the contents.
Although the passage quoted above was sufficient to decide the case before the House of
Lords, Lord Atkin thought that this case presented a good opportunity to lay down a
general principle of duty of care that could be applied in varying factual situations. So, he
asked himself the question, "To whom should a person owe a duty?" The answer may
have come to him when he was pondering upon one of the Commandments in the
Christian Bible "Thou shalt love thy neighbour as thyself." So he said, "The rule that you
are to love your neighbour becomes, in law, you must not injure your neighbour:..."
So, who is your neighbour? Is it only the person sitting next to you? The answer is no. Is
it every one in this world? In the biblical context the answer would be yes. But in the
legal context the answer is no. Who then is your neighbour for the purposes of the tort of
negligence? Lord Atkin said, "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."
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The above passage, which is part of the obiter dicta of the judgment, lays down the
following criteria as being necessary to give rise to a duty of care:
i.
Reasonable foreseeability - If a reasonable person could foresee that doing an act
or not doing an act is likely to cause harm to another, the law imposes a duty on
all of us to take the care that would be taken by a reasonable person to avoid the
harm. So, for example, a reasonable person could foresee that the action of
driving a car, exceeding the speed limits, is likely to cause harm to other road
users. This means that a driver of a car owes a duty of care to others using the
road.
ii.
Proximity - To say that a driver of a car owes a duty to all road users would be
too wide. S/he owes a duty only to those in close proximity (i.e. vicinity) of where
s/he is driving. So if I am driving near Moorgate, I owe a duty to pedestrians, car
drivers etc. who are near Moorgate. When I am driving in Moorgate I do not owe
a duty to those who are using the roads near London Bridge. But when I reach
London Bridge, I owe a duty to those using the roads near London Bridge.
The House of Lords in the Hay (or Bourhill) v. Young case was influenced by the
general principle of duty of care laid down by Lord Atkin in Donoghue v. Stevenson, in
deciding the issue of duty of care in a nervous shock case. Mr. Young had been riding his
motor cycle at an excessive speed and collided with a car. Applying the neighbour test of
duty of care, clearly Mr. Young owed a duty of care to the occupants of the car, as he
could reasonably foresee that if he rode his motor cycle too fast he is likely to crash into a
vehicle on the road. The case was not, however, brought by the occupants of the car. It
was brought by the pursuer, a pregnant woman, who had been in the process of getting
out of a tram at the time of the accident. The pursuer heard the noise of the collision but
was in no danger of getting physically hurt herself. She claimed, however, that when she
went to the accident spot and saw the blood on the road (as Mr. Young had been thrown
off the motor cycle and suffered injuries, from which he died), she suffered nervous
shock. The House of Lords held that Mr. Young's estate was not liable to pay
compensation to the pursuer, as she was not in close proximity to Mr. Young, so that he
could not reasonably foresee that his action of riding the motor cycle negligently would
affect her.
The neighbour test was not, however, applied in Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. [1964] A.C. 465, House of Lords, which was a case of a negligent
statement causing economic loss. Lord Reid pointed out that the Donoghue case dealt
with a negligent act and that the "...law must treat negligent words differently from
negligent acts." He observed that a person who makes a statement at a social occasion
may not exercise the same degree of care that s/he would, when making a statement as a
professional. He also said that while there is usually only one consumer of a negligently
manufacture product, there could be many "consumers" of a negligent statement, which
could be published widely, even without the consent of the maker of the statement.
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Lord Reid proposed a test known as the "special relationship "test to be applied in cases
of negligent statements causing financial loss. He said that a duty of care would arise
when "...the party seeking information or advice was trusting the other to exercise such a
degree of care as the circumstances required, where it was reasonable for him to do that,
and where the other gave the information or advice when he knew or ought to have
known that the inquirer was relying on him." Read the Hedley Byrne case in the IOLIS
Resource book. Section on Tort - Negligence.
In Rondel v. Worsley [1969] 1 A.C. 191, House of Lords, a client who lost his case sued
his barrister for negligently conducting the case in court. If one applies the neighbour test,
clearly the client is the barrister's neighbour, as the barrister could reasonably foresee that
his actions or omissions in court would affect his client’s chances of winning his case.
The House of Lords, however, held that for reasons of public policy, barristers should
have immunity from action for negligence in court.
The immunity of barristers for negligence in court was reconsidered in Hall v. Simons
[2000] 3 WLR 543. The House of Lords held that the immunity should be abolished.
Lord Hoffman said: "...I have now considered all the arguments relied upon in Rondel v.
Worsley...In the conditions of today, they no longer carry the degree of conviction which
would in my opinion be necessary to sustain the immunity...I do not say that Rondel v.
Worsley ...was wrongly decided at the time. The world was different then. But, as Lord
Reid said then, public policy is not immutable..." According to Lord Steyn, "...it is no
longer in the public interest that the immunity in favour of barristers should remain. I am
far from saying that Rondel v. Worsley was wrongly decided. But on the information now
available and developments since Rondel v. Worsley I am satisfied that in today's world
that decision no longer correctly reflects public policy. The basis of the immunity of
barristers has gone. And exactly the same reasoning applies to solicitor advocates."
In Home Office v. Dorset Yacht Co. [1970] A.C. 1004, House of Lords, owing to the
negligence of Borstal officers, some boys escaped from their Borstal training camp and
caused damage to the claimant's yacht. The claimant sued the Home Office, which argued
that there was no authority for making the Home Office liable in these circumstances.
Lord Reid, however, said that the lack of an exact precedent was not a bar to liability, as
the general principle enunciated by Lord Atkin could be applied. He said that:
"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."
Read this case from a case book such as B. Harvey & J. Marston, Cases & Commentary
on Tort.
The claimant in Spartan Steel & Alloys Ltd. v. Martin & Co (Contractors) Ltd. [1972] 3
All ER 557, Court of Appeal, succeeded in two of his claims against the defendant, i.e.
the defendant's negligent act causing physical damage to his property and for the
economic loss flowing from the physical damage to his property. He did not, however,
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succeed in the pure financial loss claim. Lord Denning MR said, "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 a matter of policy so as to limit the
responsibility of the defendant." This case indicates that in pure financial loss claims the
courts do not impose liability merely on the basis of foreseeability and proximity. Policy
arguments may prevent the imposition of liability.
THE APPROACH OF THE COURTS TO DUTY OF CARE FROM 1977 - 1984
In Anns v. London Borough of Merton [1977] 2 All ER 492, House of Lords, Lord
Wilberforce stated: "Through the trilogy of cases in this House, Donoghue v.
Stevenson...; Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd....; and Home Office v.
Dorset Yacht Co Ltd....; the position has now been reached that in order to establish that
a duty of care arises in a particular situation, it is not necessary to bring the facts of that
situation within those of previous situations in which a duty of care has been held to
exist. Rather the question has to be approached in two stages. First one has to ask
whether, as between the alleged wrongdoer and the person who has suffered damage
there is a sufficient relationship of proximity or neighbourhood such that, in the
reasonable contemplation of the former, carelessness on his part may be likely to cause
damage to the latter, in which case a prima facie duty of care arises.
Secondly, if the first question is answered affirmatively, it is necessary to consider
whether there are any considerations which ought to negative, or to reduce or limit the
scope of the duty or the class of persons to whom it is owed or the damages to which a
breach of it may give rise."
In the above passage Lord Wilberforce makes it clear that for a duty of care to be
imposed it is not necessary to find an earlier case with similar facts where a duty was
imposed. The test of duty of care proposed by Lord Wilberforce is known as the twostage test. The first stage is similar to Lord Atkin's neighbour test. The difference is that,
if there is foreseeability and proximity Lord Atkin would say that there is a duty of care,
whereas according to Lord Wilberforce foreseeability and proximity only gives rise to a
prima facie duty. The second stage indicates that considerations such as policy (as in
Rondel v. Worsley and Spartan Steel ) and disclaimer of liability .
2. THERE WAS A BREACH OF DUTY (Requirement 2)
BREACH OF DUTY AS AN ESSENTIAL ELEMENT OF THE TORT OF
NEGLIGENCE
Imagine that you wish to sue me in Tort for Negligence. What do you have to prove to
win the case against me and obtain compensation? Firstly, you have to prove that I owed
you a duty of care. But this alone is not sufficient for you to be awarded damages by the
court. You have to prove that I have broken the duty which I owed you. Unless you prove
that I am in breach of my duty to you, I am not at fault, and the court will not order me to
compensate you. In the following sections I shall explain in more detail how the court
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will assess whether I am in breach of my duty and how you will have to go about proving
your case against me.
THE STANDARD OF CARE A PERSON IS EXPECTED TO ATTAIN
Standard of the reasonable person
In Blythe v. Birmingham Waterworks Co. (1856) 11 Exch.781, Exchequer Division,
Alderson B. stated: "Negligence is the omission to do something which a reasonable
man,...would do, or doing something which a prudent and reasonable man would not do."
Read this case from a casebook such as Harvey & Marston. Generally, the standard of
care a person is expected to attain is the standard which would have been exercised by a
reasonable person. This is known as an objective standard. The court will not assess the
defendant against his or her own standard, which would be a subjective standard. This is
confirmed by Lord Macmillan in Glasgow Corporation v. Muir [1943] 2 All ER 44,
House of Lords, who said: "The standard of foresight of the reasonable man is in one
sense an impersonal test. It eliminates the personal equation and is independent of the
idiosyncrasies of the particular person whose conduct is in question."
The application of an objective standard to test whether the defendant is in breach of duty
is better than applying the varying subjective standards of individual defendants. The
objective standard is said to be that of 'the man in the street' or 'the man in the Clapham
omnibus' - Greer LJ in Hall v. Brooklands Auto-Racing Club [1933] 1 KB 205. The
application of the objective standard is, however, not without difficulty. Judges who may
not associate with the average person in the street or who may never travel by bus are
expected to imagine how the average reasonable person would have behaved in a given
set of circumstances. The difficulties in applying the objective standard were foreseen by
Lord Macmillan in Glasgow Corporation when he said: "But there is a sense in which the
standard of care of the reasonable man involves in its application a subjective element. It
is still left to the judge to decide what in the circumstances of the particular case the
reasonable man would have had in contemplation and what accordingly the party sought
to be made liable ought to have foreseen. Here there is room for diversity of view... What
to one judge may seem far-fetched may seem to another both natural and probable."
The following paragraphs indicate that it is not possible to apply the standard of the
reasonable person in certain situations.
Standard of the person with a special skill or competence
In Bolam v. Friern Hospital Management Committee [1957] 2 All ER 118, Queen's
Bench Division, McNair J. stated: "...where you get a situation which involves the use of
some special skill or competence, then the test...is not the test of the man on the top of a
Clapham omnibus, because he has not got this special skill. The test is the standard of the
ordinary skilled man exercising and professing to have that special skill... A doctor is not
guilty of negligence if he has acted in accordance with a practice accepted as proper by a
responsible body of medical men skilled in that particular art." In this case the claimant
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had undergone electroconvulsive therapy which resulted in serious injuries. He alleged
negligence on the part of the Friern Hospital and said that he should have been informed
of the risk of fracture before he consented to the treatment and that drugs should have
been given to him before the therapy to make him more relaxed. Evidence was produced
that the practices adopted in the Friern Hospital were consistent with the practices
prevailing in some (not all)
NEGLIGENCE - DUTY OF CARE
EXISTENCE OF A DUTY
Before 1932 there was no generalised duty of care in negligence. The tort did exist and
was applied in particular situations where the courts had decided that a duty should be
owed, e.g., road accidents, bailment’s or dangerous goods. In Donoghue v Stevenson
[1932] AC 562, Lord Atkin attempted to lay down a general principle which would cover
all the circumstances where the courts had already held that there could be liability for
negligence. He said:
"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 test has been criticised as being too wide but it made it easier for lawyers to argue
that there should be liability for negligently causing harm in new situations, not
previously covered by case law. In 1970, Lord Reid said that Lord Atkin's dictum ought
to apply unless there was some justification or valid explanation for its exclusion (Home
Office v Dorset Yacht Co [1970] AC 1004).
In Anns v Merton LBC [1977] 2 All ER 492, the House of Lords confirmed this. Lord
Wilberforce stated that:
"in order to establish that a duty of care arises in a particular situation, it is not necessary
to bring the facts of that situation within those of previous situations in which a duty of
care has been held to exist. Rather the question has to be approached in two stages. First
one has to ask whether, as between the alleged wrongdoer and the person who has
suffered damage there is a sufficient relationship of proximity or neighbourhood such
that, in the reasonable contemplation of the former, carelessness on his part may be likely
to cause damage to the latter - in which case a prima facie duty of care arises. Secondly,
if the first question is answered affirmatively, it is necessary to consider whether there are
any considerations which ought to negative, or to reduce or limit the scope of the duty or
the class of person to whom it is owed or the damages to which a breach of it may give
rise."
12
The appellate courts began applying this test but the House of Lords then began retreating
from the implications of the Wilberforce test. Comments were made in the following
cases: Peabody Donation Fund v Sir Lindsay Parkinson [1984] 3 All ER 529, per Lord
Keith; Leigh & Sillavan Ltd v Aliakmon Shipping [1986] 2 All ER 145, per Lord
Brandon; Curran v NI Co-ownership Housing [1987] 2 All ER 13, per Lord Bridge; Yuen
Kun-yeu v AG of Hong Kong [1987] 2 All ER 705, per Lord Keith.
In Rowling v Takaro Properties [1988] 1 All ER 163, Lord Keith explained that there was
a fear that a too literal application of the Wilberforce test could produce a failure to have
regard to, and to analyse and weigh, all the relevant considerations when deciding
whether to impose a duty of care.
Indeed, Lord Templeman, in CBS Songs v Amstrad [1988] 2 All ER 484, commented
that since Anns 'put the floodgates on the jar, a fashionable plaintiff alleges negligence.
The pleading assumes that we are all neighbours now, Pharisees and Samaritans alike,
that foreseeability is a reflection of hindsight and that for every mischance in an accidentprone world someone solvent must be liable in damages.'
Today, the requirements that must be satisfied before a duty of care is held to exist were
laid down by Lord Bridge in Caparo Industries v Dickman [1990] 1 All ER 568:
"What emerges is that, in addition to the foreseeability of damage, necessary ingredients
in any situation giving rise to a duty of care are that there should exist between the party
owing the duty and the party to whom it is owed a relationship characterised by the law
as one of 'proximity' or 'neighbourhood' and that the situation should be one in which the
court considers it fair, just and reasonable that the law should impose a duty of a given
scope upon the one party for the benefit of the other."
Therefore, there must be: (a) foreseeability of the damage; (b) a sufficiently 'proximate'
relationship between the parties; and (c) it must be fair, just and reasonable to impose
such a duty.
Foreseeability and proximity
'Foreseeability' means whether a hypothetical 'reasonable person' would have foreseen
damage in the circumstances.
'Proximity' is shorthand for Lord Atkin's neighbour principle. It means that there must be
legal proximity, i.e. a legal relationship between the parties from which the law will
attribute a duty of care.
Note that a duty of care may not be owed to a particular claimant, if the claimant was
unforeseeable. See:
Bourhill v Young [1942] 2 All ER 396.
13
The role of policy
Policy is shorthand for 'public policy considerations'. Policy considerations were
recognised in the Wilberforce test and the test in Caparo v Dickman.
Arguments that an extension of liability for negligence would lead to a flood of litigation
or to fraudulent claims were once granted greater credence than they are today. But other
arguments, such as the possible commercial or financial consequences, the prospect of
indeterminate liability, the possibility of risk-spreading (e.g., through insurance) and
potential conflicts with rights in property or other social or moral values, are given due
consideration. In recent years the courts have identified a wide range of factors that may
be relevant to the denial of a duty of care. For example, a duty of care may not exist
where:
(a) The claimant is the author of his own misfortune (Philcox v Civil Aviation Authority,
The Times, 8 June 1995).
(b) A duty of care would lead to unduly defensive practices by defendants seeking to
avoid claims for negligence with detrimental effects on their performance of some public
duty (Hill v CC of West Yorkshire [1988] 2 All ER 238, and X (minors) v Bedfordshire
CC [1995] 3 All ER 353).
(c) Awards of damages against a public authority exercising a public function would have
an impact upon the resources available to the authority to perform its duties, both in terms
of the damages and costs, and in terms of the resources required to investigate and defend
spurious claims (X (minors) v Bedfordshire CC [1995] 3 All ER 353).
(d) A duty of care would cut across a complex statutory framework established by
Parliament for regulating particular circumstances, such as the regulation of financial
markets (Yuen Kun-yeu v AG of Hong Kong [1987] 2 All ER 705) or the protection of
children at risk (X (minors) v Bedfordshire CC [1995] 3 All ER 353).
(e) There is an alternative remedy available to an aggrieved claimant, such as a statutory
right of appeal from the decision of a government officer or department, or judicial
review, or another source of compensation, such as the criminal Injuries Compensation
Scheme, or another cause of action, such as a claim for breach of contract, even where
the action would be against a different defendant.
(f) Where a duty of care would tend to undermine the requirements of other causes of
action, particularly in the case of complex commercial contracts where the parties have
had the opportunity to negotiate a detailed structure of contractual negotiations.
ACTS AND OMISSIONS
There are two types of omissions. Firstly, a person may fail to take appropriate
precautions, which would be regarded as a negligent act. Secondly, it may refer to
14
passive inaction where a person does not take any action. The general rule is that there is
no duty on a person to take action in order to prevent harm befalling others. For example,
see:
Smith v Littlewoods Organisation Ltd [1987] 1 All ER 710.
Lord Goff analysed the mere-omissions rule and then considered the exceptions to the
rule. There are some circumstances where the courts have established duties of
affirmative action. These may arise where:
(a)
there is an undertaking by the defendant;
(b)
there is a special relationship between claimant and defendant;
(c)
the defendant has control over a third party who causes damage to the claimant; or
(d)
the defendant has control over land or something likely to be dangerous if
interfered with.
Undertaking
A person who undertakes to perform a task, even gratuitously, assumes a duty to act
carefully in carrying it out. See, for example:
Barrett v Ministry of Defence [1995] 3 All ER 87.
Relationship between claimant and defendant
There are a number of relationships that give rise to an affirmative duty to prevent harm.
These include employer and employee, parent and child, captain (or carrier) and
passenger, referee and player in a colt’s rugby match (Smoldon v Whitworth [1997]
PIQR P133, hotelier and patron, the organiser of a dangerous competition and a visibly
drunken participant, and occupier and visitor.
Control over third parties
In some circumstances, a person may be in such a relationship with a third party as to
have a duty to control the third party's conduct in order to prevent harm to the claimant.
These include employer and employee, parent and child, gaoler and prisoner (Home
Office v Dorset Yacht Co [1970] 2 All ER 294), mental hospital and patient and even car
owner and an incompetent or drunken driver.
Control of land or dangerous things
An occupier's control of land may give rise to an affirmative duty in relation to the
behaviour of visitors or even acts of nature. Where the defendant has control over some
object which is likely to be particularly dangerous if interfered with by a third party he
may be under a duty to prevent such an interference (Dominion Natural Gas v Collins
15
and Perkins [1909] AC 640). This has been applied to the theft of a poisonous chemical
by young children (Holian v United Grain Growers (1980) 112 DLR (3d) 611). Lord
Goff cited the case of Haynes v Harwood [1935] 1 KB 146 (see below).
TYPES OF CLAIMANT
At common law the dependants of a deceased person had no claim in respect of the death,
but this problem was dealt with long ago by the Fatal Accidents Acts.
Trespassers are owed a common duty of care by the occupiers of premises, now by virtue
of the Occupiers' Liability Act 1984.
A duty of care is owed to an unborn child in respect of injuries inflicted whilst in the
mother's womb (B v Islington Health Authority [1992] 3 All ER 833), although this only
applies to births before 22 July 1976 when the Congenital Disabilities (Civil Liability)
Act 1976 came into force. The Act, which replaces the common law for births after its
commencement, grants a right of action to a child who is born alive and disabled in
respect of the disability, if it is caused by an occurrence which affected the mother during
pregnancy or the mother or child during labour, causing disabilities which would not
otherwise have been present.
In some circumstances a participant in a crime may not be owed a duty of care by a
fellow participant in the same crime. This is related to the illegality of the claimant's
conduct, but it is submitted that this issue is probably better left to the defence of ex turpi
causa non oritur actio (a right of action will not arise from a base cause). See also:
Pitts v Hunt [1990] 3 All ER 344
Clunis v Camden Health Authority [1998] 3 All ER 180
However, consider the somewhat remarkable decision in:
Revill v Newbery [1996] 1 All ER 291.
The final category of claimant is the injured rescuer. A duty of care is owed to a rescuer.
"Danger invites rescue. The cry of distress is the summons to relief ? The wrong that
imperils life is a wrong to the imperilled victim; it is a wrong also to his rescuer"
(Wagner v International Railway (1921) 133 NE 437, per Cardozo J). Relevant cases
include:
Haynes v Harwood [1935] 1 KB 146
Baker v Hopkins [1959] 3 All ER 225
Chadwick v BRB [1967] 2 All ER 945
16
ECONOMIC LOSS
CARELESS ACTS
Until the 1970s the rules on liability for economic loss as a result of negligent acts were
simple to state: there was generally no liability in respect of 'pure' economic loss. There
are two broad categories of case in which the claimant sustains economic loss as a result
of a negligent act:
(a) As a consequence of physical damage to a third party's property
Firstly, the damage may interrupt the claimant's ability to carry on his business, as in:
Cattle v Stockton Waterworks (1875) LR 10 QB 453
Weller v Foot and Mouth Disease Research Institute [1966] 1 QB 569
The courts in this country have consistently refused to allow recovery for economic loss
in these circumstances. However, the distinction between pure economic loss and
economic loss consequent upon physical damage is illustrated by:
Spartan Steel & Alloys v Martin [1972] 3 All ER 557
Secondly, the claimant may have a contractual right to use the property for the purposes
of his business, but no proprietary interest in it. Damage to the property may put him to
the expense of repairing it (depending on the terms of the contract) and will interfere with
his ability to use the property for profitable purposes. Such loss cannot be recovered:
Candlewood Navigation v Mitsui [1985] 2 All ER 935
Thirdly, the claimant may suffer loss as a result of damage to property belonging to a
third party where the claimant is 'at risk' as to the loss at the time of the damage under a
contract with the third party. Such financial loss cannot be recovered:
Leigh v Aliakmon Shipping [1986] 2 All ER 145
(b) As a consequence of acquiring a defective item of property
In this category the claimant owns the property, but it is discovered after he has acquired
it that the property has a defect and the claimant has to expand money in repairing or
replacing it. It is this category of cases which has produced the most marked shifts of
judicial attitudes in relation to claims for economic loss, first in favour of allowing
claimants to recover for such losses where the property consisted of a dangerously
defective building, then allowing claimants to succeed for the loss where the defect could
not be categorised as dangerous, and finally returning to a more orthodox approach in
1990, when the House of Lords held that the damage in both cases was purely economic
and therefore irrecoverable. See:
17
Dutton v Bognor Regis UDC [1972] 1 QB 373
Anns v Merton LBC [1977] 2 All ER 492
Murphy v Brentwood DC [1990] 2 All ER 908.
The House of Lords attempted to establish a general duty of care in respect of pure
economic loss resulting from a negligent act, based on the closeness of the relationship
between the parties and reliance by the claimants on the defendants' skill and experience,
in:
Junior Books v Veitchi [1982] 3 All ER 201
The courts began to retreat from the implications of Junior Books almost immediately. It
has repeatedly been described as limited to its own facts. In D & F Estates v Church
Commissioners [1988] 2 All ER 992, the House of Lords said that Junior Books was so
far dependent on the 'unique' relationship between the claimant and the defendant that it
cannot be regarded as laying down any general principle in the law of tort. Junior Books
has been distinguished by the Court of Appeal on a number of occasions:
Muirhead v Industrial Tank Specialities [1985] 3 All ER 705
Simaan General Contracting v Pilkington Glass (No 2) [1988] 1 All ER 791
Greater Nottingham Co-op Society v Cementation Piling & Foundations [1988] 2 All ER
971.
STATEMENTS
In Hedley Byrne v Heller [1963] 2 All ER 575, the House of Lords held that in the
appropriate circumstances there could be a duty to take reasonable care in giving
information. There appeared to be three requirements: (a) the claimant relied on the
defendant's skill and judgment or his ability to make careful enquiry; (b) the defendant
knew, or ought reasonably to have known, that the claimant was relying on him; and (c) it
was reasonable in the circumstances for the claimant to rely on the defendant. Relevant
cases include:
Smith v Eric Bush [1989] 2 All ER 514
Caparo Industries v Dickman [1990] 1 All ER 568
In some circumstances a negligent statement made by A to B and acted upon by causes
financial loss to C. The classic example is a reference given by A to B about C, normally
for employment purposes. See:
Spring v Guardian Assurance [1994] 3 All ER 129
The concept of voluntary assumption of responsibility, which is now treated as the broad
principle underpinning Hedley Byrne, has also been used to explain the liability of a
solicitor to a beneficiary under a will who has lost a legacy due to the solicitor's
negligence in carrying out the testator's instructions. See:
18
Ross v Caunters [1979] 3 All ER 580
White v Jones [1995] 1 All ER 691.
VICARIOUS LIABILITY
COMMON LAW DUTIES
The employer's duty to his employees is commonly dealt with under four headings, the
provision of: (a) competent staff; (b) a safe place of work; (c) proper plant and
equipment; and (d) a safe system of work. These are simply aspects of the broader duty to
see that reasonable care for the safety of employees is taken.
Note: under the doctrine of common employment (which is mentioned in some of the
cases below) at common law a master was not liable for the negligent harm resulting
from the action of one of his servants towards a fellow-servant engaged in a common
employment at the time of the accident. The doctrine was abolished by the Law Reform
(Personal Injuries) Act 1948, s1(1).
The employer's duty to his employees is personal and non-delegable. He can delegate the
performance of the duty to others, whether employees or independent contractors, but not
responsibility for its negligent performance:
Wilsons & Clyde Coal v English [1937] 3 All ER 628
1. COMPETENT STAFF
The employer has an obligation to select competent fellow employees, and a correlative
duty to give them proper instruction in the use of equipment. For the practical joker
cases, compare:
Smith v Crossley Bros (1951) 95 SJ 655
Hudson v Ridge Manufacturing [1957] 2 All ER 229
Harrison v Michelin Tyre Co [1985] 1 All ER 918
If an employer knows or can foresee that acts being done by employees might cause
physical or psychiatric harm to a fellow employee, it is arguable that the employer could
be in breach of duty to that employee if he did nothing to prevent those acts when it was
in his power to do so. See:
Waters v MPC (2000) 27 July
The ill-treatment or bullying cases referred to by Lord Slynn in Waters were:
19
Veness v Dyson Bell (1965) Times LR, 25 May
Wetherall v Lynn [1978] 1 WLR 200
Wigan BC v Davies [1979] ICR 596
2. SAFE PLACE OF WORK
An employer must take such steps as are reasonable to see that the premises are safe.
Although this was not mentioned by Lord Wright in Wilson & Clyde Coal (above), it has
been accepted by the courts, e.g. Lord Greene MR in:
Davidson v Handley [1945] 1 All ER 235, 236
As for the extent of the duty, see:
Latimer v AEC Ltd [1953] 2 All ER 449
The employer is also under a duty with respect to the premises of a third party even
though he has no control over the premises, but the steps required to discharge this duty
will vary with the circumstances. See:
Wilson v Tyneside Window Cleaning Co [1958] 2 All ER 265
Cook v Square D Ltd [1992] ICR 262, 268 and 271
A duty may be also owed under reg.5 of the Workplace (Health, Safety and Welfare)
Regulations 1992 (SI 3004).
3. ADEQUATE PLANT AND EQUIPMENT
An employer has a 'duty of taking reasonable care to provide proper appliances, and to
maintain them in a proper condition' (per Lord Herschell, Smith v Baker [1891] AC 325,
362). If necessary equipment is unavailable and this leads to an accident he will be liable,
although he is not necessarily bound to adopt the latest improvements and equipment
(Toronto Power Co v Paskwan [1915] AC 734).
If the employee would not have used the safety equipment if it had been supplied the
employer's breach of duty is not the cause of injury (McWilliams v Sir William Arrol &
Co [1962] 1 All ER 623).
Section 1(1) of the Employers' Liability (Defective Equipment) Act 1969 (which reversed
the decision of the House of Lords in Davie v New Merton Board Mills [1959] AC 604)
makes an employer liable if an employee suffers personal injury in the course of his
employment in consequence of a defect in equipment provided by the employer, and the
defect is attributable wholly or partly to the fault of a third party, whether identifiable or
not.
20
An employer will not be liable if a worker fails to make proper use of the equipment
supplied, nor where the employee acted foolishly in choosing the wrong tool for the job,
assuming that, where necessary, the employee has been given adequate instruction in the
use of the equipment. See:
Parkinson v Lyle Shipping Co [1964] 2 Lloyd's Rep 79
Leach v British Oxygen Co (1965) 109 SJ 157
4. SAFE SYSTEM OF WORKING
It is a question of fact whether a particular operation requires a system of work in the
interests of safety, or whether it can reasonably be left to the employee charged with the
task. It is usually applied to work of a regular type where the proper exercise of
managerial control would specify the method of working, give instruction on safety and
encourage the use of safety devices. See:
Speed v Thomas Swift & Co [1943] 1 All ER 539
General Cleaning Contractors v Christmas [1952] 2 All ER 1110
Although normally thought of in terms of physical safety, it is clear that the obligation to
provide a safe system of work also extends to an employee's mental health. See:
Petch v Customs and Excise Commissioners [1993] ICR 789
Walker v Northumberland County Council [1995] 1 All ER 737
There is also scope for arguing that the employee has voluntarily accepted the risk:
Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293
If an employee suffers psychiatric harm as a result of witnessing a 'shocking event' for
which his employer is responsible, then the ordinary rules for such claims apply. The
employee must bring himself within the category of a 'primary victim' or satisfy the
restrictive criteria applied to 'secondary victims':
White v Chief Constable of the South Yorkshire Police [1999] 1 All ER 1
Where an employer has followed a general practice of a particular trade or industry the
claimant will have some difficulty in establishing that the practice was negligent. See:
Thompson v Smiths Ship repairers Ltd [1984] 1 All ER 881
In some cases a warning of the danger to a skilled employee will be sufficient to
discharge the employer's duty, and in others it may be reasonable to expect experienced
workers to guard against obvious dangers. See:
21
Wilson v Tyneside Window Cleaning Co [1958] 2 All ER 265 (above)
Baker v T. Clarke Ltd [1992] PIQR 262, 267
Rozario v The Post Office [1997] PIQR P15
There are two aspects to the provision of a safe system of work: (a) the devising of a
system; and (b) its operation. Even if the system itself is safe a negligent failure to
operate the system, whether by another employee or an independent contractor, will
render the employer liable. See:
McDermid v Nash Dredging Co [1987] 2 All ER 878
STATUTORY DUTIES
Breach of statutory duty is an entirely separate tort from an action in negligence, but it is
particularly important in the realm of employers' liability. Indeed, industrial safety
legislation, which is penal in nature, is the one area where the courts have consistently
allowed such common law actions.
DEFENCES
VOLENTI NON FIT INJURIA
An employee's knowledge of the existence of a danger does not in itself amount to
consent to run the risk. See:
Smith v Baker [1891] AC 325
Baker v James Bros [1921] 2 KB 674
As a matter of public policy volenti is not a defence to an action for breach of statutory
duty brought by a worker against his employer. See: Wheeler v New Merton Board Mills
[1933] 2 KB 669
A limited exception was admitted (per Lord Pearce) in: Imperial Chemical Industries v
Shatwell [1964] 2 All ER 999
The claimant's own wrongful act may put the employer in breach of statutory duty: Ginty
v Belmont Building Specialists [1959] 1 All ER 414
This defence will apply only where the claimant is the sole author of his own misfortune.
CONTRIBUTORY NEGLIGENCE
Contributory negligence is a defence both to an action in negligence and breach of
statutory duty. In general, however, the carelessness of employees as claimants is treated
more leniently than the negligence of employers, even where liability rests upon the
vicarious responsibility of the employer for the negligence of another employee. See:
22
Flower v Ebbw Vale Steel Iron & Coal Ltd [1936] AC 206, 214
Staveley Iron & Chemical Co v Jones [1956] 1 All ER 403
THE INDEMNITY PRINCIPLE
There is a term implied at common law into contracts of employment that an employee
will exercise all reasonable care and skill during the course of employment. An employee
who is negligent is in breach of such a term and the employer who has been held
vicariously liable for the tort may seek an indemnity from the employee to make good the
loss.
Lister v Romford Ice [1957] 1 All ER 125. A father was knocked down by his son, who
was employed by Romford Ice, while backing his lorry in a yard. The employers were
vicariously liable for the son's negligence and their insurers met the father's claim. The
insurers sued the son in the company's name, exercising their right of subrogation under
the contract of insurance.
By a majority, the House of Lords held that the son was liable to indemnify the employer
and consequently the insurers.
This case lead to controversy about insurers forcing employers to sue employees, which
would lead to poor industrial relations. Employers' liability insurers later entered into a
'gentleman's agreement' not to pursue such claims unless there was evidence of collusion
or willful misconduct (See further: Gardiner (1959) 22 MLR 552; Hepple & Matthews,
Tort: Cases and Materials, 1991, p881).
LIABILITY FOR INDEPENDENT CONTRACTORS
In Alcock v Wraith [1991] 59 BLR 16, Neill LJ stated: "where someone employs an
independent contractor to do work on his behalf he is not in the ordinary way responsible
for any tort committed by the contractor in the course of the execution of the work ?
The main exceptions to the principle fall into the following categories:
(a)
Cases where the employer is under some statutory duty which he cannot delegate.
(b)
Cases involving the withdrawal of support from neighbouring land.
(c)
Cases involving the escape of fire.
(d)
Cases involving the escape of substances, such as explosives, which have been
brought on to the land and which are likely to do damage if they escape; liability
will attach under the rule in Rylands v Fletcher (1868) LR 3 HL 330.
(e)
Cases involving operations on the highway which may cause danger to persons
using the highway.
(f)
Cases involving non-delegable duties of an employer for the safety of his
employees.
(g)
Cases involving extra-hazardous acts."
Neill LJ then examined whether there was a further exception which could be relied upon
in cases of nuisance. He referred to Matania v National Provincial Bank [1936] 2 All ER
23
633, where the Court of Appeal was concerned with a claim for damages for nuisance
caused by dust and noise during building operations; Slesser LJ concluded that the work
did constitute a hazardous operation within the exception to the general rule. Neill LJ
then stated that both the general rule and the exceptions apply whether the action is
framed in negligence or nuisance. Furthermore, he was not aware of any different
approach being adopted in an action for trespass.
3.
THE CLAIMANT SUFFERED DAMAGE (Requirement 3)
Notes adapted from Michael A. Jones, Textbook on Torts, Seventh Edition, 2000.
The two principal remedies available to the victim of a tort are damages to compensate
for the harm he has suffered and, where appropriate, an injunction to prevent future harm.
Damages is the predominant remedy. Certain forms of self-help, such as abatement of a
nuisance or self-defence, can be regarded as remedies, but the courts do not encourage
this.
DAMAGES (REMEDIES IN TORT)
The fundamental principle applied to the assessment of an award of damages is that the
claimant should be fully compensated for his loss. He is entitled to be restored to the
position that he would have been in, had the tort not been committed, insofar as this can
be done by the payment of money (Livingstone v Rawyards Coal Co (1880) 5 App Cas
25, 39).
TYPES OF DAMAGES
Nominal and contemptuous
Nominal damages will be awarded where the claimant proves that the defendant has
committed a tort but the claimant has suffered no loss.
Contemptuous damages consist of the award of a derisory sum, usually the smallest coin
of the realm of. They are awarded when the court considers that the claimant's action,
although technically successful, was without merit and should not have been brought.
The claimant may then be at risk on costs, which are normally awarded to the successful
party.
General and special
General damage is the damage that is presumed to flow from torts which are actionable
per se, and so need not be specifically pleaded (e.g., loss of reputation in a libel action).
Special damage refers to the damage that the claimant must plead and prove as part of his
cause of action in torts where damage is the gist of the action (e.g., negligence, nuisance,
slander).
24
There is a second and much more commonly used meaning of the distinction between
general damages and special damages.
In practice, losses that are capable of being calculated with reasonable accuracy are
pleaded as 'special damages'.
Inexact or unliquidated losses (although they are not presumed and therefore must be
pleaded) are compensated by an award of 'general damages'. For example, in a personal
injuries action, accrued expenses such as damaged clothing, medical expenses and loss of
earnings to the date of trial are special damages. Pain and suffering and loss of amenity
(and prospective loss of earnings) are treated as general damages.
Aggravated and exemplary
The court may take into account the manner in which the tort was committed in assessing
damages. If it was such as to injure the claimant's proper feelings of dignity and pride
then aggravated damages may be awarded. Aggravated damages are solely
compensatory, but they are higher than would normally be the case to reflect the greater
injury to the claimant.
Aggravated damages should be distinguished from exemplary the damages, which are
punitive in nature. It has been said that the distinction between aggravated and exemplary
damages is that aggravated damages are awarded for conduct that shocks the claimant
(and therefore constitutes a real loss), and exemplary damages are awarded for conduct
the shocks the court. In Rookes v Barnard [1964] AC 1129, the House of Lords held that,
except where specifically authorised by statute, exemplary damages should be awarded
only in two categories of case:
(a) Oppressive, arbitrary or unconstitutional action by servants of the government.
(b) Where the defendant's conduct has been calculated by him to make a profit for
himself which may well exceed the compensation payable.
A SINGLE ACTION AND THE LUMP SUM
Single Action
A claimant can bring only one action in respect of a single wrong. He cannot maintain a
second action based on the same facts merely because the damage turns out to be more
extensive than was anticipated (Fetter v Beale (1701) 1 Ld Raym 339, 692). However,
there are some exceptions to this.
Where a single wrongful action violates two distinct rights the claimant can bring
separate actions in respect of each right. Although the rule in Henderson v Henderson
(1843) 3 Hare 100 requires the parties to bring the whole case before the court so that all
aspects of the case may be finally decided (subject to any appeal) once and for all, in
Talbot v Berkshire CC [1994] QB 290 the Court of Appeal gave three examples of
special circumstances where the rule would not apply:
(a) where the claimant was unaware of the existence of the claim;
25
(b) where an agreement was made between the parties holding the action in abeyance;
and
(c) where the claimant had not brought his case earlier in reliance on a representation
made by the defendant.
A second exception to the rule is where there is a continuing injury, such as a continuing
nuisance or trespass to land. In trespass, being actionable per se, a fresh cause of action
arises from day to day, and in nuisance a fresh cause of action arises whenever further
damage occurs (Darley Main Colliery v Mitchell (1886) 11 App Cas 127).
The final exception is that where a single wrong produces successive and distinct
damage, then in torts which are actionable only on proof of damage (as opposed to torts
actionable per se), a separate and distinct cause of action will accrue (Mount Albert BC v
Johnson [1979] 2 NZLR 234).
Lump sum
Damages are assessed once and for all must be awarded in the form of a lump sum. This
applies both to accrued and prospective losses. The court has no power to require the
defendant to make periodical payments (Burke v Tower Hamlets Health Authority [1989]
Times Law Reports August 10). In Wells v Wells [1998] 3 All ER 481 at 502, Lord
Steyn said that the court ought to be given the power, of its own motion, to make an
award periodical payments in appropriate cases. Such a power would be consistent with
the principle of full compensation for pecuniary loss, but, said his Lordship, this could
only be introduced by Parliament.
An exception of very limited application was accepted in Mullholand v Mitchell [1971]
AC 666. Where there is evidence of a change of circumstances after the trial but before
an appeal, the Court of Appeal will admit the new evidence. New evidence was also
admitted by the House of Lords in Lim Poh Choo v Camden AHA [1980] AC 174 to
'mitigate the injustices of a lump sum system'.
The lump-sum principle, combined with the rule that damages can be recovered once
only, causes serious difficulties in actions for personal injuries, particularly where the
medical prognosis is uncertain. There is now a procedure for the award of provisional
damages in this type of case (CPR, Part 41). Section 32A of the Supreme Court Act 1981
provides that in personal injury cases where there is a 'chance' that, as a result of the tort,
the claimant will develop some serious disease or suffer some serious deterioration in his
condition, he may be awarded provisional damages assessed on the basis that the disease
or deterioration will not occur. If the event subsequently materialises the claimant can
then make an application for further damages, which will more accurately compensate his
loss. There can only be one such application in respect of a disease or type of injury
specified in the original action.
A claim for provisional damages cannot include a declaration that the claimant's
surviving dependants should be entitled to bring a claim under the Fatal Accidents Act
1976 if the claimant should subsequently die as a result of a deterioration of his physical
26
condition. The Damages Act 1996, s3 now permits dependants to claim in respect of
losses not compensated by the initial award of damages.
An alternative to provisional damages which is currently available, but little used, is a
procedure for separate trials on liability and damages, so that the assessment can be made
at a later date when the claimant's medical prognosis is more certain (CPR, Part 3,
r3.1(2)(i)). However, this will only be of value where the claimant's medical condition is
unstable and needs time to settle.
Structured settlements
A recent development has been the introduction into this country of the North American
concept of a 'structured settlement' (for a definition see the Damages Act 1996, s5). This
is a private arrangement between the claimant and the defendant's liability insurer
whereby the normal lump-sum payment for future losses is taken in the form of periodic
payments. These payments can be varied or 'structured' over a period of time. They can
be for a fixed period or until the claimant's death, and they can be index-linked. The
payments are financed by the purchase of an annuity by the liability insurer with the
money that would have been paid to the claimant as a lump sum. This annuity is held by
the insurer on behalf of the claimant, and, as a result of a concession by the Inland
Revenue, the payment is not taxable as income in the claimant's hands. They depend
upon agreement between the claimant and the defendant's insurers; the court has no
power to order such an arrangement without the consent of the parties (Damages Act
1996, s2).
Periodic payments made under a structured settlement damages award come within the
category of capital treated as income for the purposes of the Income Support (General)
Regulations 1987 and will affect a claimant's entitlement to income support (Beattie v
Secretary of State for Social Security, 9 April 2001, CA).
See also, CPR PD40.
PERSONAL INJURIES
In most actions for personal injuries the claimant suffers two distinct types of loss pecuniary and non-pecuniary loss. Pecuniary loss is the damage that is capable of being
directly calculated in money terms. The commonest example is loss of earnings, both
actual and future, but it includes all other expenses attributable to the tort, such as
medical expenses, traveling expenses, the cost of special equipment or of employing
someone to carry out domestic duties which the claimant is no longer able to perform, or
loss of pension rights. Non pecuniary losses are such immeasurable matters as pain and
suffering caused by the injury, and loss of amenity attributable to a disability.
The courts assess damages under several 'heads', but for the purpose of calculating
interest there are three broad heads: accrued pecuniary damages; non-pecuniary damages;
and loss of future earnings. The House of Lords has stressed, however, that the court
should also have regard to the appropriateness of the total award to avoid overlapping of
different heads of damages (Lim Poh Choo v Camden AHA [1979] 2 All ER 910).
27
Medical and other expenses
The claimant is entitled to recover his medical and other similar expenses reasonably
incurred. Accrued expenses will be awarded as part of the special damages, whereas
future medical expenses will be estimated and awarded as general damages.
The Law Reform (Personal Injuries) Act 1948, s2(4), provides that the possibility of
avoiding medical expenses or part of them by taking advantage of NHS facilities is to be
disregarded.
Section 5 of the Administration of Justice Act 1982 provides that any saving to the
injured person which is attributable to his maintenance wholly or partly at public expense
in a hospital, or nursing home or other institution shall be set off against any income lost
by him as a result of his injuries. A similar proposition had been expressed in Lim Poh
Choo which effectively applies the same rule to claimants who make savings in domestic
expenditure while being looked after in a private institution.
If the claimant has to live in a special institution, such as a nursing home, or receive
attendance at home he is entitled to the cost of that, provided that it is reasonably
necessary (Shearman v Folland [1950] 2 KB 43).
It often happens that a third person, such as a relative or friend, bears part of the cost of
the claimant's injury, either in the form of direct financial payments or by providing
nursing assistants. Sometimes a spouse or close relative may give up paid employment in
order to care for the claimant. The claimant can recover the cost of such care:
Until recently, the basis for such recovery was the Court of Appeal's decision in Donnelly
v Joyce [1974] QB 454 where it was held that the existence of a legal or moral obligation
to reimburse the third party was irrelevant. It was incorrect, said the court, to think of this
are someone else's loss. It was the claimant's loss. His loss was the existence of the need
for nursing services or special equipment, not the expenditure of the money itself. So far
as the defendant was concerned, the question from what source the claimant's needs had
been met, who had paid the money or given the services, or whether the claimant was
under a legal or moral obligation to repay, were all irrelevant.
While retaining the general rule that the claimant can recover for the gratuitous provision
of care by third party and preserving the principles as to quantum, the House of Lords in
Hunt v Seers [1994] 2 All ER 385 have altered the basis upon which such an award is
made, reverting to the approach suggested by Lord Denning MR in Cunningham v
Harrison [1973] QB 942, that the award reflects the claimant's obligation to hold that
portion of the damages in trust, to be paid to the person supplying the services. One
consequence of shifting the focus from the claimant to the third party is that, as in Hunt v
Seers itself, an award could not be made where the services are provided by the defendant
tortfeasor.
28
LOSS OF EARNINGS
Actual loss
It is not usually difficult to calculate the claimant's actual loss of earnings from the date
of the injury to the date of assessment. This is the net loss, after deducting income tax and
social security contributions (British Transport Commission v Gourley [1956] AC 185).
An employee's contributions to a pension scheme are also deducted in calculating his
actual loss of earnings (Dews v National Coal Board [1987] 2 All ER 545).
Prospective loss
The calculation of future loss of earnings, however presents real problems, largely
because the court has to engage in the exercise of prophesying both what will happen to
the claimant in the future and what would have happened if he had not been injured, in
order to estimate the difference.
The starting-point in this process is to work out the claimant's net annual loss of earnings
(as that the date of assessment, not the date of the injury: Cookson v Knowles [1979] AC
556).
The net annual loss is known as the 'multiplicand', and will be adjusted to take account of
the claimant's individual prospects of promotion (Roach v Yates [1938] 1 KB 256), but
no allowance is made for real increases in average earnings generally.
This sum is then multiplied by another figure, called the 'muliplier', which is based
initially on the number of years that the loss is likely to continue. The multiplier is then
reduced, or 'discounted' to take account of: (a) the uncertainty of the prediction - the
claimant might have lost his job in any event at some point in the future e.g., through
redundancy or illness; and (b) the fact that the claimant receives the money now as a
capital sum, instead of in instalments over the rest of his working life.
The maximum multiplier that used to be applied by the courts was 18, but it was rarely
that high. In the past the multiplier used rested on the assumption that a person who
invested a capital sum would receive a return of approximately 4.5% after the effects of
tax and inflation had been taken into account (Pearson Commission, 1978). This
traditional approach to calculating the multiplier was challenged in three consolidated
appeals in the House of Lords, Wells v Wells [1998] 3 All ER 481.
The House of Lords held that the plaintiffs were entitled to be compensated on the
assumption that they would invest in index-linked government securities (ILGS), a view
which had been recommended by the Law Commission in 1994. The average return on
ILGS in recent years has been approximately 3%, significantly lower than the assumed
return of 4.5% upon which the traditional approach was based (because investment in
equities carries a premium for the risk involved). Their Lordships indicated, as a matter
of guidance rather than precedent, that the appropriate discount rate should be 3%
(different economic circumstances might justify a change to the guide figure in the
future). This would require a larger initial lump sum, which is reflected in a higher
multiplier. The consequence of this change is that for seriously injured claimants awards
of damages will increase significantly.
29
The Damages Act 1996, s1, permits the Lord Chancellor to give general guidance on
rates of return, though leaving a discretion to the courts to apply different rates where
appropriate. The Lord Chancellor issued a consultation paper on this question in March
2000, but in the meantime the course are applying the 3% discount rate
(Warren v Northern General Hospital [2000] 1 WLR 1404, CA).
The lost years
If the claimant's life expectancy has been reduced by his injuries, can he claim for the
earnings that he would have received in the period between his expected date of death
and the date that he would have stopped working but for the accident? In Oliver v
Ashman [1962] 2 QB 210 the Court of Appeal held that the losses incurred in these 'lost
years' were not recoverable, on the basis that a claimant cannot suffer a loss during a
period when he will be dead. This rule effectively penalised the claimant's dependants,
since their dependency in the 'lost years' would have been met from the claimant's
earnings during that period. This consideration led the House of Lords to overrule Oliver
in Pickett v British Rail [1980] AC 136. Damages for prospective loss of earnings are
now awarded for the whole of the claimant's pre-accident life expectancy, subject to a
deduction for the money that the claimant would have spent on his own (not his
dependents') living expenses during the last years.
Deductions
A person suffers personal injury may receive financial support from a number of sources
other than tort damages. The most common source is social security but others include,
for example, sick pay, pensions, private insurance and charitable donations.
(a)
Social security benefits
The Social Security Act 1989 introduced a scheme of 'recoupment' of prescribed
social security benefits from tortfeasors/insurers by the state for accidents or
injury occurring on or after 1 January 1989. This system has been further
amended by the Social Security (Recovery of Benefits) Act 1997, which applies
retrospectively to all settlements made or judgments given on or after 6 October
1997. Benefits are no longer 'recouped'; they are 'recovered' from the
compensator. Any 'recoverable benefits' paid to the victim of an accident, injury
or disease in the 'relevant period' are recoverable from the compensator.
(b) Other collateral benefits.
1.
The proceeds of a personal accident insurance policy taken out by the claimant
are ignored, on the basis that otherwise the claimant's foresight and thrift would
benefit the defendant (by reducing the damages payable) instead of himself
(Bradburn v Great Western Railway (1874) LR 10 Ex 1).
30
2.
Gratuitous payments to the claimant from charitable motives are not deducted,
again on the assumption that the donor intended to benefit the claimant rather than
the defendant (Redpath v Belfast Railway [1947] NI 167).
3.
The House of Lords held in Parry v Cleaver [1970] AC 1 that an occupational
disability pension should not be deducted from lost earnings, whether the pension
was contributory or non-contributory. The majority took the view that the nature
of a pension makes it analogous to private insurance effected by the claimant and
so within the general principle of Bradbury v Great Western Railway.
4.
In Longden v British Coal Corporation [1998] 1 All ER 289, the plaintiff was
unable to work following an accident at work. He was awarded an incapacity
pension under his occupational pension scheme which he would continue to
receive after his normal retirement age of 60, though it was lower than the
pension he would have received had he continued to work to age 60. The House
of Lords held that (with the exception of a lump sum received on accepting the
disability pension) such payments received before the normal retirement age did
not have to be brought into account.
5.
Occupational sick pay will be deducted if paid as a term of the claimant's contract
of employment (unless there is a contractual obligation to repay the employer on
receipt of tort damages: Browning v War Office [1963] 1 QB 750).
6.
If the claimant is made redundant as a result of his injuries, in the sense that his
disability makes him a more likely candidate for redundancy, then any
redundancy payment received will be deducted (Colledge v Bass Mitchells &
Butlers Ltd [1988] 1 All ER 536.
7.
A compensation payment from a statutory compensation scheme for workers who
developed an industrial disease (pneumoconiosis) is deductible from damages
awarded in respect of the same illness (Ballantine v Newalls Insulation [2000]
Times Law Reports June 22).
Loss of earning capacity
Where a person suffers a permanent disability which affects his ability to earn in the
future at the same rate as he earned before his injury, then he may or may not suffer loss
of earnings. His loss of earnings may be total if he is unable to work at all, or partial, if he
is able to take a less remunerative job. But in some cases, although his injuries have
affected his ability to earn, the claimant suffers no loss of earnings because his employer
continues to employ him at the same rate of pay. In these circumstances the claimant is
entitled to damages for his loss of capacity, if there is a real risk that he could lose his
existing employment, because his capacity to find an equivalent job has been reduced
(Smith v Manchester Corp (1974) 17 KIR 1; Moeliker v Reyolle & Co [1977] 1 All ER ).
This involves a two-stage test: (1) was there a substantial or real risk that the claimant
31
would lose his present job at some time before the end of his working life? and (2) if so,
what is the present value of future risk?
There is no real distinction between damages for loss of earning capacity and damages
for future loss of earnings (Pearson Commission; Foster v Tyne & Wear CC [1986] 1 All
ER 567 at 571-2).
PAIN AND SUFFERING
The claimant is entitled to damages for actual and prospective pain and suffering caused
by the injury, by a neurosis resulting from the injury, or attributable to any necessary
medical treatment. A person who suffers mental anguish because he knows that his life
expectancy has been reduced can recover that anguish (Administration of Justice Act
1982, s1(1)(b), restating the common law position).
Similarly, a person who has been incapacitated and is capable of appreciating his
condition will be compensated for the anguish that this creates (West & Son Ltd v
Shepherd [1964] AC 326).
LOSS OF FACULTY AND AMENITY
The injury itself represents loss of faculty whereas the consequences of the injury on the
claimant's activities represents a loss of amenity, e.g., loss of job satisfaction, or loss of
leisure activities and hobbies, and loss of family life. It is rarely necessary to distinguish
between these heads because the courts usually award a single global sum to cover all the
claimant's non-pecuniary losses.
The Law Commission's Report on Damages for Personal Injury: Non-Pecuniary Loss (No
257, 1999) suggested that awards for non-pecuniary loss were too low, at least in serious
cases and are low in comparison with awards made in defamation cases. In Heil v Rankin
[2000] 2 WLR 1173 specially constituted five-judge Court of Appeal accepted the thrust
of the Law Commission's proposals, while not accepting that there should be an 'across
the board' increased in awards for non-pecuniary loss. The Court considered that there
should be a tapered increase in awards, with an increase of about a third for the most
serious injuries, but no increase at all for awards which were assessed at under ?10,000.
The bracket for the most serious injuries should start at ?150,000 rising to ?200,000 for
the very worst cases. These figures will, in future, increase in line with the retail prices
index, although the Court accepted that parts of the argument for the tapered increase that
they applied was that, over time, the retail prices index does not fully reflect the general
increase in prosperity. The public might reasonably expect that such awards bear some
relationship to levels of income and wealth in society, particularly since assessing the
level of damages was essentially a 'jury function'.
INTEREST ON DAMAGES
The court has a discretion to award simple interest on all or any part of the damages, and
in the case of damages for personal injuries or death exceeding 200 the court must award
32
interest unless there are special reasons for not doing so (Supreme Court Act 1981,
s35A). Where the claimant has delayed bringing a claim to trial the court has a discretion
to disallow all part of the claim for pre-trial interest (Birkett v Hayes [1982] 2 All ER
710, 717; Corbett v Barking AHA [1991] 1 All ER 498).
Interest on damages for non-pecuniary loss is awarded at a modest rate, currently 2%,
from the date of service of the claim form to the date of trial. The reason for this low rate
is that a large proportion of nominal interest rates is represented by inflation, and
inflation is taken into account when the courts assesses damages for non-pecuniary loss
by the general up-rating of 'tariffs' (Wright v British Railways Board [1983] 2 AC 773).
Note that this rate may now be increased to 3% in the light of the decision of the House
of Lords in Wells v Wells [1998] 3 All ER 481.
INJUNCTIONS
PROHIBITORY AND MANDATORY
A prohibitory injunction is an order of the court requiring the defendant to cease
committing a continuing tort, such as a continuing nuisance or trespass, or restraining the
repetition of tortious conduct where it is likely to be repeated. It is negative in nature, in
that requires the defendant not to do something or to cease doing something.
A mandatory injunction, on the other hand, requires the defendant to undertake some
positive act, such as removing an obstruction that he has caused to the claimant's right of
way.
An injunction is an equitable remedy (though note that a number of statutes confer a
jurisdiction to grant injunctions, e.g., the Protection from Harassment Act 1997), and as
such it is a discretionary remedy. A number of factors will be taken into account in
deciding whether to exercise the discretion:
An injunction will not be granted where damages would be an adequate remedy, nor,
possibly, where the harm to the claimant from the tort is trivial.
If it is impossible for the defendant to comply with the order it will not be granted, but
the fact that the defendant will be put to considerable trouble and expense does not make
it impossible to comply. The conduct of the parties may be taken into account.
Mandatory injunctions are not granted so readily as prohibitory injunctions. In Morris v
Redland Bricks Ltd [1970] AC 652 the House of Lords said that a mandatory injunction
would not be granted unless there was a strong probability that very serious damage to
the claimant will result if it is withheld.
QUIA TIMET
In some circumstances the claimant may be entitled to a quia timet injunction, which will
restrain conduct that is likely to cause substantial damage before any damage has actually
occurred (and thus, in torts which are not actionable per se, before any cause of action has
accrued). The likelihood of substantial damage must be strong, and the damage must be
imminent (Lemos v Kennedy Leigh Development Co (1961) 105 SJ 178).
33
The claimant must be able to point to a good cause of action in order to restrain the harm
(Associated Newspapers v Insert Media [1988] 2 All ER 420).
INTERIM
An interim injunction is a provisional order which may be issued pending a full trial of
the action on the merits of the case. This means that on an application for an interim
injunction the court does not investigate the merits, and provided there is a 'serious
question' to be tried the court will exercise its discretion on the 'balance of convenience'
(American Cyanamid v Ethicon [1975] AC 396, 408).
Where an interim injunction is granted the claimant will usually be required to give an
undertaking to pay damages to the defendant for losses sustained by the defendant as a
result of the injunction if, at the hearing on the merits, the claimant's action fails.
See also, CPR PD25.
DISCRETIONARY DAMAGES
The court has discretion to award damages in addition to or in substitution for an
injunction (Supreme Court Act 1981, s50).
34
TOPIC FOUR: AGENCY LAW
INTRODUCTION
The principles of agency law provide the basis for an understanding of many issues
relating to partnerships and some of those relating to registered companies. The general
assumption is that individuals engaging in business activity carry on that business by
themselves, and on, their own behalf, either individually or collectively. It is not
uncommon, however, for such individuals to engage others to represent them and
negotiate business deals on their behalf. Indeed, the role of the 'middleman' is a
commonplace one in business and commerce. The legal relationship between such a
representative, or middleman, and the business person making use of them is governed by
the law of agency. Agency principles also apply in relation to companies registered under
the companies’ legislation and the directors and other officers of such companies.
DEFINITION OF'AGENCY
An agent is a person who is empowered to represent another legal party, called the
principal, and brings the principal into a legal relationship with a third party. It should be
emphasised that the contract entered into is between the principal and the third party. In
the normal course of events, the agent has no personal rights or liabilities in relation to
the contract. This outcome represents an accepted exception to the usual operation of the
doctrine of privity in contract law (see above, 5.6).
Since the agent is not actually entering into contractual relations with the third party,
there is no requirement that the agent has contractual capacity, although, based on the
same reasoning, it is essential that the principal has full contractual capacity. Thus, it is
possible for a principal to use a minor as an agent, even though the minor might not have
contractual capacity to enter into the contract on their own behalf.
There are numerous examples of agency relationships. For example, as their names
imply, estate agents and travel agents are expressly appointed to facilitate particular
transactions. Additionally, employees may act as agents of their employers in certain
circumstances; or friends may act as agents for one another.
Some forms of agency merit particular consideration, as follows:
 A general agent, as the title indicates, has the power to act for a principal generally
in relation to a particular area of business, whereas a special agent only has the
authority to act in one particular transaction.
 A del credere agent is one who, in return for an additional commission by way of
payment, guarantees to the principal that, in the event of a third party's failure to pay
for goods received the agent will make good the loss.
 A commission agent is a hybrid form which lies midway between a full
principal/agent relationship and the relationship of an independent trader and client.
In essence, the agent stands between the principal and the third party and establishes
no contract between those two parties. The effect is that, although the commission
agent owes the duties of an agent to his or her principal, he or she contracts with the
third party as a principal in his or her own right. The effectiveness of this procedure is
undermined by the normal operation of the agency law relating to an undisclosed
35
principal (see below, 11.6.2).
 The position of a mercantile agent/factor is defined in the Factors Act 1889 as an
agent:
...having in the customary course of his business as such agent authority either to sell
goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money
on the security of goods.
However, of perhaps more contemporary importance are marketing agents, distribution
agents and the question of franchising.
 Marketing agents have only limited authority. They can only introduce potential
customers to their principals and do not have the authority either to negotiate or to enter
into contracts on behalf of their principals.
 Distribution agents are appointed by suppliers to arrange the distribution of their
products within a particular area. The distributors ordinarily cannot bind the
supplier, except where they have expressly been given the authority to do so.


Franchising arrangements arise where the original developer of a business decides, for
whatever reason, to allow others to use their goodwill to conduct an independent
business, using the original name of the business. Two prominent examples of
franchises are McDonalds and The Body Shop, although there are many others. It is
essential to emphasise that any such relationship does not arise from, or give rise to, a
relationship of principal and agent. Indeed, it is commonplace, if not universal, that
franchise agreements include an express clause to the effect that no such relationship is to
be established.
Commercial agents are specifically covered by the Commercial Agents (Council
Directive) Regulations 1993, which were enacted in order to comply with EC
Directive 86/653. The Regulations define a commercial agent as a self-employed
intermediary who has continuing authority to negotiate the sale or purchase of goods
on behalf of another person, or to negotiate and conclude such transactions on behalf of
that person. Although intended to harmonise the operation and effect of agency law
within the European Union, the regulations do not introduce any major substantive
change into UK agency law. The effect of the Regulations will be considered in more detail
below at 11.5.3.
A power of attorney arises where an agency is specifically created by
way of a deed.
CREATION OF AGENCY
No one can act as an agent without the consent of the principal, although consent need not be
expressly stated.
In White v Lucas (1887), a firm of estate agents claimed to act on behalf of the owner of a
particular property,- though that person had denied them permission to act on his behalf.
When the owner sold the property to a third party, who was introduced through the estate
agents, they claimed their commission. It was held that the estate agents had no entitlement
to commission, as the property owner had not agreed to their acting as his agent.
36
The principal/agent relationship can be created in a number of ways. It may arise as the
Outcome of a distinct contract, which may be made either orally or in writing, or it may
be established purely gratuitously, where some person simply agrees to act for another.
The relationship may also arise from the actions of the parties.
It is usual to consider the creation of the principal/agency relationship under five distinct
categories.
1. Agency by Express Appointment
This is the most common manner in which a principal/agent relationship comes into
existence. In this situation, the agent is specifically appointed by the principal to carry out
a particular task or to undertake some general function. In most situations, the
appointment of the agent will itself involve the establishment of a contractual relationship
between the principal and the agent, but need not necessarily depend upon a contract
between those parties.
For the most part, there are no formal requirements for the appointment of an agent,
although, where the agent is to be given the power to execute deeds in the principal's
name, they must themselves be appointed by way of a deed (that is, they are given power
of attorney}.
2. Agency by Ratification
An agency is created by ratification when a person who has no authority purports to
contract with a third party on behalf of a principal. Ratification is the express acceptance
of the contract by the principal. Where the principal elects to ratify the contract, it gives
retrospective validity to the action of the purported agent. There are, however, certain
conditions which have to be fully complied with before the principal can effectively
adopt the contract, as follows:
• The principal must have been in existence at the time that the agent entered into the
contract
Thus, for example, in Kelner v Baxter (1866), where promoters attempted to enter into a
contract on behalf of the as yet unformed company, it was held that the company could
not ratify the contract after it was created and that the promoters, as agents, were
personally liable on the contract. (This is now given statutory effect under s 36C of the
Companies Act 1985.)
• The principal must have had legal capacity to enter into the contract when it was
made
When the capacity of companies to enter into a business transaction was limited by the
operation of the doctrine of ultra vires, it was clearly established that they could not ratify
any such ultra vires contracts. Similarly, it is not possible for minors to ratify a contract,
even though it was made in their name.
37
• An undisclosed principal cannot ratify a contract
The agent must have declared that he or she was acting for the principal. If the agent
appeared to be acting on his or her own account, then the principal cannot later adopt the
contact (see Keighky, Maxted &Cov Durant (1901)).
• The principal must adopt the whole of the contract
It is not open to the principal to pick and choose which parts of the contract to adopt;
they must accept all of its terms.
• Ratification must take place within a reasonable time
It is not possible to state with certainty what will be considered as a reasonable time in
any particular case. Where, however, the third party with whom the agent contracted
becomes aware that the agent has acted without authority, a time limit can be set, within
which the principal must indicate their adoption of the contract for it to be effective.
3. Agency by Implication
This form of agency arises from the relationship that exists between the principal and the
agent and from which it is assumed that the principal has given authority to the other person
to act as his or her agent. Thus, it is implied from the particular position held by individuals
that they have the authority to enter into contractual relations on behalf of their principal. So,
whether an employee has the actual authority to contract on behalf of his or her employer
depends on the position held by the employee; and, for example, it was decided in Panorama
Developments v Fidelis Furnishing Fabrics Ltd (1971) that a company secretary had the
implied authority to make contracts in the company's name relating to the day to day running
of the company.
Problems most often occur in relation to the implied extent of a person's authority, rather than
their actual appointment (but see Hely-Hutchinson v Brayhead Ltd (1967) as an example of the
latter).
4. Agency of Necessity
Agency by necessity occurs under circumstances where, although there is no agreement
between the parties, an emergency requires that an agent take particular action in order to
protect the interests of the principal. The usual situation which gives rise to agency by
necessity occurs where the agent is in possession of the principal's property and, due to
some unforeseen emergency, the agent has to take action to safeguard that property: . .
• In order for agency by necessity to arise, there needs to be a genuine emergency
In Great Northern Railway Co v Swaffield (1874), the railway'company transported the
defendant's horse and, when no one arrived to collect it at its destination, it was placed in a
livery stable. It was held that the company was entitled to recover the cost of stabling, as
necessity had forced them to act as they had done as the. defendant's agents. « There mast
also be no practical way of obtaining further instructions from the principal
In Springer v Great Western Railway Co (1921), a consignment of tomatoes arrived at port after a
delayed journey due to storms. A railway strike would have caused further delay in getting
the tomatoes to their destination, so the railway company decided to sell the tomatoes
locally. It was held that the railway company was responsible to the plaintiff for the
difference between the price achieved and the market price in London. The defence of
38
agency of necessity was not available, as the railway company could have contacted the
plaintiff to seek his further' instructions.
• The person seeking to establish the agency by necessity must have acted bona fide
in the interests of the principal (see Sachs vMiklos (1948)} •
5. Agency by Estoppel
This form of agency is also known as 'agency by holding out' and arises where the
principal has led other parties to believe that a person has the authority to represent him
or her. (The authority possessed by the agent is referred to as 'apparent authority' (see
below, 11.4.2.).
In such circumstances, even though no principal/agency relationship actually exists in
fact, the principal is prevented (estopped) from denying the existence of the agency
relationship and is bound by the action of his or her purported agent as regards any third
party who acted in the belief of its existence:
• To rely on agency by estoppel, the principal must have made a representation as to
the authority of the agent
In Freeman and Lockyer v Buckhurst Park Properties Ltd (1964), a property company
had four directors, but one director effectively controlled the company and made
contracts as if he were the managing director, even though he had never actually been
appointed to that position and, therefore, as an individual, had no authority to bind the
company. The other directors, however, were aware of this activity and acquiesced in it.
When the company was sued in relation to one of the contracts entered into by the
unauthorised director, it was held that it was liable, as the board which had the actual
authority to bind the company had held out the individual director as having the
necessary authority to enter such contracts. It was, therefore, a case of agency by
estoppel.
•
As with estoppel generally, the party seeking to use it must have relied on the
representation
In Overbrooke Estates Ltd v Glencombe Properties Ltd (1974), a notice which expressly
denied the authority of an auctioneer to make such statements as actually turned out to be
false was successfully relied on as a defence by the auctioneer's employers.
THE AUTHORITY OF AN AGENT
In order to bind a principal, any contract entered into must be within the limits of the
authority extended to the agent. The authority of an agent can be either actual or
apparent.
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Actual authority
Actual authority can arise in two ways:
 Express actual authority
This is explicitly granted by the principal to the agent. The agent is instructed as to what
particular tasks are required to perform and is informed of the precise powers given in
order to fulfill those tasks.
 Implied actual authority
This refers to the way in which the scope of express authority may be increased. Third
parties are entitled to assume that agents holding a particular position have all the powers
that are usually provided to such an agent. Without actual knowledge to the contrary, they
may safely assume that the agent has the usual authority that goes with their position.
(This has been referred to above in relation to implied agency.)
In Watteau v Fenwick (1893), the new owners of a hotel continued to employ the
previous owner as its manager. They expressly forbade him to buy certain articles,
including cigars. The manager, however, bought cigars from a third parry, who later sued
the owners for payment as the manager's principal. It was held that the purchase of cigars
was within the usual authority of a manager of such an establishment and that for a
limitation on such usual authority to be effective, it must be communicated to any third
party.
Apparent authority
Apparent authority is an aspect of agency by estoppel considered above. It can arise in
two distinct ways:
• Where a person makes a representation to third parties that a particular person has
the authority to act as their agent without actually appointing the agent • In such a case, the person making the representation is bound by the actions of the
apparent agent (see Freeman and Lockyer v Buckhurst Park Properties Ltd (1964)). The
principal is also liable for the actions of the agent where it is known that the agent claims
to be his or her agent and yet does nothing to correct that impression.
• Where a principal has previously represented to a third party that an agent has the
authority to act on their behalf
Even if the principal has subsequently revoked the agents authority, he or she may still be
liable for the actions of the former agent, unless he or she has informed third parties who
had previously dealt with the agent about the new situation (see Willis Fatter & Co Ltd v
Joyce (1911)).
Warrant of authority
If a person claims JD act as agent, but- without the authority to do so, the supposed
principal will not be bound by any agreement entered into. Neither is there a contract
between the supposed agent and the third party, for the reason that the third party
intended to deal not with the purported agent but with the supposed principal. However,
40
the supposed agent may lay themselves open to an action for breach of warrant of
authority.
• If an agent contracts with a third party on behalf of a principal, the agent impliedly
guarantees that the principal exists and has contractual capacity. The agent also implies
that he or she has the authority to make contracts on behalf of that principal. If any of
these implied warranties prove to be untrue, then the third party may sue the agent in
quasi-contract for breach of warrant of authority. Such an action may arise even though
the agent was-genuinely unaware of any lack of authority.
In Yonge vs. Tonbee (1910), a firm of solicitors was instructed to institute proceedings
against a third party. Without their knowledge, their client was certified insane, and
although this automatically ended the agency relationship, they continued with the
proceedings. The third party successfully recovered damages for breach of warrant of
authority, since the solicitors were no longer acting for their former client.
THE RELATIONSHIP OF PRINCIPAL AND AGENT
The following considers the reciprocal rights and duties that principal and agent owe to each
other.
1. The duties of agent to principal
The agent owes a number of duties, both express and implied, to the principal. These
duties are as follows:
• To perform the agreed undertaking according to the instructions of the principal
A failure to carry out instructions will leave the agent open to an action for breach of
contract. This, of course, does not apply in the case of gratuitous agencies, where there is no
obligation whatsoever on the agent to perform the agreed task. See Turpin v Bilton (1843),
where an agent was held liable for the loss sustained by his failure to insure his principal's ship
prior to its sinking.
• To exercise due care and skill.
An agent will owe a duty to act with reasonable care and skill, regardless of whether the
agency relationship is contractual or gratuitous. The level of skill to be exercised, however,
should be that appropriate to the agent's professional capacity and this may introduce a
distinction in the levels expected of different agents. For example, a solicitor would be
expected to show the level of care and skill that would be expected of a competent member
of that profession, whereas a lay person acting in a gratuitous capacity would only be
expected to perform with such degree of care and skill as a reasonable person would
exercise in the conduct of their own affairs. See Keppe! v Wheeler (1927), where the
defendant estate agents were held liable for failing to secure the maximum possible price for a
property.
41
• To carry out instructions personally . .
Unless expressly or impliedly authorised to delegate the work, an agent owes a duty to
the principal to act personally in the completion of the task. The right to delegate may be
agreed expressly by the principal, or it may be implied from customary practice or
arise as a matter of necessity. In any such case, the agent remains liable to the principal
for the proper performance of the agreed contract.
• To account
There is an implied duty that the agent keep proper accounts of all transactions entered
into on behalf of the principal. The agent is required to account for all money and other
property received on the principal's behalf and should keep his or her own property
separate from that of the principal.
In addition to these contractual duties, there are general equitable duties which flow from
the fact that the agency relationship is a fiduciary one, that is, one based on trust.
These general fiduciary duties are as follows:
Not to permit a conflict of interest to arise
An agent must not allow the possibility of personal interest to conflict with the interests
of his or her principal without disclosing that possibility to the principal. Upon full
disclosure, it is up to the principal to decide whether or not to proceed with the particular
transaction. If there is a breach of this duty, the principal may set aside the contract so
affected and claim any profit which might have been made by the agent.
In McPherson v Watt (1877), a solicitor used his brother as a nominee to purchase
property which he was engaged to sell. It was held that since the solicitor had allowed a
conflict of interest to arise, the sale could be set aside. It was immaterial that a fair price
was offered for the property.
The rule in the above case is that the agent must not sell his or her own property to the
principal without fully disclosing the fact (see Harrocts v Lemon (1931)). This leads into
the next duty.
Not to make a secret profit or misuse confidential information
An agent who uses his or her position as an agent to secure financial advantage for him or
herself, without full disclosure to his principal, is in breach of fiduciary duty. Upon
disclosure, the principal may authorise the agent's profit, but full disclosure is a necessary
precondition (see Hippisley v Knee Bros (1905) for a clear-cut case). An example of the
strictness with which this principle is enforced may be seen in the case of Boardman v
Phipps (1967), in which agents were held to account for profits made from information
which they had gained from their position as agents, even though their action also
benefited the company for which they were acting.
Not to take a bribe
.
This duty may be seen as merely a particular aspect of the general duty not to make a
secret profit, but it goes so much to the root of the agency relationship that it is usually
treated as a distinct heading in its own right. Again, for clear-cut cases, see Boston Deep
Sea Fishing & Ice Co Ltd v Ansell (1957), in which the managing director of the
42
company was held to have breached his fiduciary duties as an agent by accepting a bribe
in return for orders. See also Mahesan v Malaysian Government Officers Co-operative
Housing Society (1978), where the plaintiff received a bribe to permit a third party to
profit at his principal's expense.
Where it is found that an agent has taken a bribe, the following civil remedies are open to
the principal:
- to repudiate the contract with the third party; o to dismiss the agent without notice;
- to refuse to pay any money owed to the agent or to recover such money already paid;
- to claim the amount of the bribe; and
- to claim damages in the tort of deceit for any loss sustained as a result of the payment of
the bribe.
The payment of the bribe may also have constituted a breach of criminal law.
The Rights of an Agent
It is a simple matter of fact that the common law does not generally provide agents with
as many rights in relation to the number of duties that it imposes on them. The agent,
however, does benefit from the dear establishment of three general rights. These rights
are as follows:
• To claim remuneration for services performed
It is usual in agency agreements for the amount of payment to be stated, either in the form
of wages or commission or, indeed, both. Where a commercial agreement is silent on the
matter of payment, the court will imply a term into the agreement, requiring the payment
of a reasonable remuneration. Such a term will not be implied in contradiction of the
express terms of the agreement. See Re Richmond Gate Property Co Ltd (1965), where it
was held that no remuneration could be claimed where an agreement stated that payment
would be determined by the directors of the company, but they had not actually decided
on any payment.
• To claim indemnity against the principal for all expenses legitimately incurred in
the performance of services
Both contractual and non-contractual agents are entitled to recover money spent in the
course of performing their agreed task.
In the case of the former, the remedy is based on an implied contractual term; in the case
of a gratuitous agent, it is based on the remedy of restitution. Money can, of course, only
be claimed where the agent has been acting within his or her actual authority.
• To exercise a lien over property owned by the principal
This is a right to retain the principal's goods, where they have lawfully come into the
agent's possession, and hold them against any debts outstanding to him or her as a result
of the agency agreement. The nature of the lien is usually a particular one relating to
specific goods which are subject to the agreement, not a general one which entitles the
agent to retain any of the principal's goods, even where no money is owed in relation to
43
those specific goods. The general lien is only recognised on the basis of an express term
in the contract, or as a result of judicially recognised custom, as in the area of banking.
RELATIONS WITH THIRD PARTIES.
In the words of Wright) in Monigomerie v UK Mutual Steamship Association (1891),
once an agent creates a contract between the principal and a third party, prima fade at
common law, 'the only person who can sue is the principal and the only person who can
be sued is the principal', in other words, the agent has no further responsibility. This
general rule is, however, subject to the fallowing particular exceptions, which in turn tend
to depend upon whether or not the agent has actually disclosed the existence of the
principal.
1. Where the principal's existence is disclosed
Although the actual identity of the principal need not be mentioned, where the agent
indicates that he is acting as an agent, the general rule is as stated above; only the
principal and the third party have rights and obligations under the contract.
Exceptionally, however, the agent may be held liable as a party to the contract This can
occur in the following ways:
• At third party insistence
Where the agent has expressly accepted liability with the principal in order to induce the
third party to enter the contract, he or she will attract liability.
• By implication
Where the agent has signed the contractual agreement in his or her own name, without
clearly stating that he or she is merely acting as a representative of the principal, he or she
will most likely be liable on it.
• In relation to bills of exchange
As in the previous situation, where an agent signs a bill of exchange without sufficiently
indicating that he or she is merely acting as the agent of a named principal, he or she will
become personally liable on it. .•
• in relation to the execution of a deed
Where the agent signs the deed other than under a power of attorney, he or she will be
personally liable on it.
• Where the agent acts for a non-existent principal
In such circumstances, the other party to the agreement can take action against the
purported agent.
2. Where the principal's existence is not disclosed
Even in the case of an undisclosed principal, where the agent has authority but has failed
to disclose that he or she is acting for a principal, the general rule is still that a contract
exists between the principal and the third party, which can be enforced by either of them.
The following, however, are some modifications to this general rule: t
44
• The third party is entitled to enforce the contract against the agent and, in turn, the
agent can enforce the contract against the third party. In both cases, the principal can
intervene to enforce or defend the action on his or her own behalf.
• As stated previously, an undisclosed principal cannot ratify any contract made outside
of the agent's actual authority.
• Where the third party had a special reason to contract with the agent, the principal
may be excluded from the contract. This will certainly apply in relation to personal
contracts, such as contracts of employment and, possibly, on the authority of Greer v
Downs Supply Co (1927), where the third party has a right to set off debts against me
agent.
• Authority exists in Said v Butt (1920), where a theatre critic employed someone to get
him a ticket for a performance he would not have been allowed into, for claiming that an
undisclosed principal will not be permitted to enforce a contract where particular reasons
exist as to why the third party would not wish to deal with him or her. This decision
appears to run contrary to normal commercial practice and is of doubtful merit.
It is certain, however, that where the agent actually misrepresents the identity of the
principal, knowing that the third party would not otherwise enter into the contract, the
principal will not be permitted to enforce the contract (see Archer v Stone (1898)).
3. Payment by means of an agent
Payment by means of an agent can take two forms:
• Payment by the third party to the agent to pass an to the principal
In this situation, if the principal is undisclosed, then the third party has discharged
liability on the contract and is not responsible if the agent absconds with the money.
However, if the principal is disclosed, then any payment to the agent only discharges the
third party's responsibility if it can be shown that the agent had authority, either express
or implied, to receive money.
• Payment by the principal to the agent to pass on to the third party
.
In this situation, the general rule is that if the agent does not pay the third party, the
principal remains liable. This remains the case with an undisclosed principal (see Irvine
& Co v Watson & Sons (1880)).
4. Breach of warrant of authority
As has been stated above (11.4.3), where an agent purports to act for a principal without
actually having the necessary authority, the agent is said to have breached his or her
warrant of authority. In such circumstances, the third party may take action against the
purported agent.
5. Liability in tort
An agent is liable to be sued in tort for any damages thus caused. However, the agent's
right to indemnity extends to tortious acts done in the performance of his or her actual
authority. In addition, the principal may have action taken against him or her directly, on
the basis of vicarious liability.
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TERMINATION OF AGENCY
The principal/agent relationship can come to end in two distinct ways: either by the acts
of the parties themselves, either jointly or unilaterally; or as an effect of the operation of
law.
Termination by the parties
There are a number of ways in which the parties can bring an agency agreement to an
end, as follows:
• By mutual agreement
Where the agency agreement is a continuing one, the parties may simply agree to bring
the agency relationship to an end on such terms as they wish. Where the agency was
established for a particular purpose, then it will automatically come to an end when that
purpose has been achieved. Equally, where the agency was only intended to last for a
definite period of time, then the end of that period will bring the agency to an end.
• By the unilateral action of one of the parties
Because of the essentially consensual nature of the principal/agency relationship, it is
possible for either of the parties to bring it to an end simply by giving notice of
termination of the agreement.
Although the agency relationship will be ended by such unilateral action, in situations
where the principal has formed a contractual relationship with the agent, such unilateral
termination may leave the principal open to an action for damages in breach of contract.
• Irrevocable agreements :
'
In some circumstances, it is not possible to revoke an agency agreement. This situation
arises where the agent has authority coupled with an interest. Such an irrevocable agency
might arise where a principal owes money to the agent and the payment of the debt was
the reason for the formation of the agency relationship. For example, where, in order to
raise the money to pay off his debt, the principal appoints his creditor as his agent to sell
some particular piece of property, the principal may not be at liberty to bring the agency
to an end until the sale has taken place and the debt has been paid off.
Termination by operation of law
This refers to the fact that an agency relationship will be brought to an end by any of the
following:
• Frustration
Contracts of agency are subject to discharge by frustration in the same way that ordinary
contracts are (see above, 8.4, for the general operation of the doctrine of frustration).
• The death of either party
Death of the agent clearly brings the agreement to an end, as does the death of the
principal. The latter situation may, however, give rise to problems where the agent is
unaware of the death and continues to act in the capacity of agent. In such circumstances,
the agent will be in breach of his or her warrant of authority and will be personally liable
to third parties.
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• Insanity of either party
As in the previous situation, the insanity of either party will bring the agency to an end;
similarly, agents will have to be careful not to breach their warrant of authority by
continuing to act after the principal has become insane (see Yonge v Toynbee (1910),
above, 11.4.3).
• Bankruptcy
Generally, the bankruptcy of the principal will end the agency agreement, but the
bankruptcy of the agent will only bring it to an end where it renders him or her unfit to
continue to act as an agent.
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TOPIC FIVE:
SALE AND SUPPLY OF GOODS
The law affecting contracts for the sale of goods was largely codified by the Sale of
Goods Act 1893. This was later amended several times, and has now been replaced by a
consolidating Act, the Sale of Goods Act 1979 which, for convenience will be called
simply ‘the Act’ in this unit and the next. The Act covers the obligations and remedies of
the parties, and the transfer of ownership and risk. Other matters, however, such as offer
and acceptance, and consideration, are still governed by the ordinary law of contract
(Units 11-17).
The contract need not be in writing. The vast majority of cash sales are made orally, as
where goods are sold over the counter in a shop or pub, or in a restaurant, or where a car
is sold for cash. Only where credit is allowed may the contract have to be in writing, e.g.
under the Consumer Credit Act 1974.
The Act covers contracts ‘whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a money consideration called the price’. This applies both to a
‘sale’, where ownership passes immediately to the buyer, and to ‘an agreement to sell’,
where the parties agree now that ownership (‘property’) shall pass later.
The Act does not apply to barter or exchange, because there is no ‘price’ in money,
although it does apply to part-exchange. It does not apply to hire, because no ownership
passes to the hirer. It does not apply to contracts for ‘work (or skill) and materials’,
where the goods supplied form only a fairly small part of the consideration.
Therefore the Act would not apply to the vaccine provided by a vet as a small part of his
treatment of the animals, nor to the filling, which a dentist puts into a tooth. What the
consumer principally pays for in each case is the professional service. Even contracts to
supply and fit double glazing or central heating may be ‘work and materials’ contracts
rather than sales of goods.
All of the above contracts which are not sales are now governed by the Supply of Goods
and Services Act 1982 (see page 153). As regards the materials supplied, this imposes
obligations on the supplier almost identical to those in the Sale of Goods Act, sections
12-15 (below).
A.
Obligations of the seller
Section 27 sets out the principal obligations of the parties:
‘It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for
them in accordance with the contract of sale.’
What the seller delivers, therefore, must accord with his express or implied obligation
under the contract of sale. The Act sets out various implied obligations, as to title,
description, quality, quantity, time and place of delivery, etc., some of which the parties
are free to vary, some not. The main implied terms are as follows:
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Title
By section 12(1) of the Act there is:
‘An implied condition on the part of the seller that in the case of a sale, he has a right to
sell the goods, and in the case of an agreement to sell, he will have such a right at the
time when the property is to pass’.
If the seller has no right to sell the goods (e.g. because they have been stolen, or he only
holds them on hire or hire-purchase), then he will liable to the buyer for breach of
condition. Even an innocent seller, who had himself ‘bought’ the goods in good faith
from or through a villain, can be liable (but see pages 202 later). The buyer can recover
the full price, which he paid, even if he has had the use of the goods for some time.
In Rowland v. Divall (1923), the buyer of a car used it for about three months, but then
found that it was stolen and had to return it to the true owner. He was held entitled to
recover from the (innocent) seller the full price, which he had paid even though, when he
had to part with it, the car was probably worth rather less. He had paid to become owner,
he had not become owner, and he was, therefore, entitled to the return of his money.
It will be noticed that, if the buyer obtains no title, he will be bound to return the goods to
the true owner, or be liable to him in conversion (Unit 10).
Section 12(2) also implies two warranties into contracts for sale: that the goods are free
from encumbrance (such as a mortgage) not disclosed or made known to the buyer before
the contract is made, and that the buyer will enjoy quiet possession of the goods. These
overlap with section 12(1), but they can sometimes be useful.
In Microbeads A. G. v. Vinhurst Road Markings Ltd (1975), shortly after the sale, a third
party obtained a patent, which interfered with the buyer’s right to use the machines (i.e.
with his quiet possession). There had been no breach of section 12(1), because the seller
had had a right to sell. However, the buyer was entitled to recover damages for breach of
section 12(2).
Sections 12(3)-(5) do provide limited rights for the seller to contract out of his obligations
as to title, if it is made quite clear in the contract that the seller’s title may be defective, so
that the buyer knows the risk he may be taking. In this event, there is no condition that
the seller has a right to sell, only various warranties to the effect, for example, that all
known encumbrances have been disclosed, and that the buyer’s quite possession will not
be disturbed by the seller.
Description
Section 13(1) provides that:
Where there is a contract for the sale of goods by description there is an implied
condition that the goods shall correspond with the description.’
49
Goods ordered through a catalogue, or a new car ordered from the manufacturers through
a dealer, will always be sold by description, because this is the only way to identify what
is required. Even goods seen and specifically chosen by the customer can be sold by
description, and a customer is entitled to expect, for example, that goods which he
chooses from the shelf in a supermarket will correspond to the description on the tin or
packet.
In Beale v. Taylor (1967), a car was advertised as a ‘Herald Convertible, white 1961’.
The buyer saw the vehicle before buying it, but only discovered some time later that,
while the rear part had been accurately described, the front half had been part of an
earlier model. The seller was held to be in breach of section 13.
The word ‘description’ covers a wide variety of matters. Statements as to quantity, eight,
ingredients and even packing have been held to be part of the description.
In Re Moore & Co. and Landauer & Co., the buyer described in the contract how he
wished the consignment of canned fruit to be packed. When the seller supplied fruit,
which was not packed as stipulated, the buyer was entitled to reject the goods.
We have seen that compliance with the description must be complete and exact.
In Arcos v. E. & A. Ronaasen & Son (1933), the contract was for half-inch wooden
staves. Some of the staves supplied were as much as nine-sixteenths of an inch thick, and
it was held that the buyer was entitled to reject the consignment.
On the other hand, we have seen in cases such as Peter Darlington Partners Ltd v. Gosho
Ltd that the courts will usually try to give a common-sense meaning to any descriptive
terms agreed and that, in any event, microscopic deviations may sometimes be ignored.
Quality
Unlike the obligations imposed by sections 12, 13 and 15, which apply to all sales of
goods, section 14 applies where the seller sells in the course of a business. As a general
rule, a seller owes no obligation as regards the quality or suitability of his goods but,
where section 14 applies; there are three important exceptions to this general rule.
Merchantable quality. Section 14(2) provides that:
‘Where the seller sells goods in the course of a business, there is an implied condition
that the goods supplied under the contract are of merchantable quality
By section 14(6), ‘merchantable’ means ‘as fit for the purpose or purposes for which
goods of that kind are commonly bought as it is reasonable to expect having regard to any
description applied to them, the price (if relevant) and all the other relevant
circumstances’. The quality, which the buyer is entitled to expect, therefore, can depend
upon many factors. If he buys cheap goods, he must reasonably expect lower quality
50
than if he pays more. Similarly, goods sold second-hand may be merchantable as such,
even though they would not be satisfactory if sold new in that condition.
In Bartlett v. Marcus Ltd (1965), a second-hand car was sold with a defective clutch.
The seller had warned the buyer of the defect, and the price took account of this. The car
was held to be of merchantable quality in the circumstances, even though repair cost
more than the buyer expected.
In Rogers v. Parish (Scarborough) Ltd (1987), the vehicle was an expensive new one.
Although drivable, it did have mechanical and bodywork faults. It was not of
merchantable quality. At that price (₤16 000) it should have been usable ‘with the
appropriate degree of comfort, ease of handling and reliability and, one may add, pride.
This obligation regarding merchantable quality does not apply (a) as regards defects
specifically drawn to the buyer’s attention before the contract is made, or (b) if the buyer
examines the goods before the contract is made, as regards defects, which that
examination ought to reveal. The second of these exceptions is often misunderstood;
there is no obligation on the buyer to examine the goods, and if he chooses not to do so,
he is entitled to the full protection of section 14(2).
Reasonable fitness for the purpose made known. Section 14(3) provides that:
‘Where the seller sells goods in the course of a business and the buyer, expressly or by
implication makes known … any particular purpose for which the goods are being
bought, there is an implied condition that the goods supplied 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 ….
This subsection only applies, therefore, if the buyer has expressly or impliedly made
known to the seller the purpose for which he requires the goods. Where the goods only
have one or two obvious uses, it will readily be assumed that the buyer has impliedly
indicated that he wants them for their normal purpose. Thus, if someone buys food, it
will be taken to indicate that he wants it to be reasonably fit for eating
In Grant v. Australian Knitting Mills (1936), a customer bought underpants from a
shop. The garment still contained a chemical substance, which had not been removed
after manufacture, and this caused dermatitis. It was held that the buyer had impliedly
made known that the intended to wear the underpants, which were not reasonably fit for
that purpose. Furthermore, the garment was not of merchant able quality.
The goods supplied need only be reasonably fit, however, and then only for the purposes
made known.
51
In Griffiths v. Peter Conway Ltd (1939), a lady with abnormally sensitive skin suffered
dermatitis from contact with her new tweed coat. The garment would not have affected
normal skin, and the lady’s action against the seller, therefore, failed. The garment was
reasonably fit for normal purposes, and the buyer had not made known her special
circumstances.
The subsection contains one exception to this implied condition, namely, where the
circumstances show that the buyer does not rely, or that it is unreasonable for him to rely,
on the seller’s skill or judgment. This may apply, for example, where the buyer is an
expect in such goods, and gives detailed specifications as to what he requires. On the
other hand even partial reliance on the seller is enough, and several important cases have
held that it can be reasonable for one dealer or expert to rely partly on the skill or
judgment of another.
Many buyers need credit. Section 14(3) also applies, therefore, where the owner does not
sell directly to the buyer, but only indirectly, via a finance house or other consumer credit
business. The owner sells the goods for cash to the finance house, which then re-sells the
goods on conditional sale or credit sale to the buyer, who pays by installments (page
233). In these events, the original owner is called a ‘credit-broker’ because he introduces
the would-be buyer to the finance house. It is sufficient for section 14(3) if the would-be
buyer makes known to the original owner or ‘credit-broker’ the purpose for which the
goods are being bought.
Terms implied by usage. Section 14(4) provides that implied conditions and warranties
as to quality or fitness may be annexed by usage.
Two final points must be made about section 14 as a whole. First, the section applies to
all goods supplied under the contract, so that even if the goods sold are in order, there can
be breach is packaging is defective.
In Geddling v. Marsh (1920), mineral water was sold by the manufacturer to a retailer in
bottles, which had to be returned to the manufacturer. The buyer was injured when a
defective bottle burst. He recovered damages under section 14 because, even though the
bottles were not sold under the contract, the section applies to all goods supplied.
There will also be breach if dangerous extraneous matter is supplied with the goods sold.
In Wilson v. Rickett, Cockerell & Co. Ltd (1954), the plaintiff ordered ‘Coalite’ from
the seller. The consignment contained a detonator, which exploded when put on the fire.
When sued, the seller pleaded that the detonator was included by mistake, was not part of
the goods sold, and, therefore, was not subject to section 14. The Court of Appeal
rejected this defence; the detonator had been supplied under the contract, albeit
erroneously.
Secondly, compliance with section 14 must be strict.
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In Frost v. Aylebury Dairy Co. Ltd (1905), a dairy supplied milk which contained
typhoid germs. The dairy showed that it had taken all reasonable care to prevent this. It
was held that this was no defence.
Sample
By section 15, if goods are sold by sample, there are implied conditions (a) that the bulk
will correspond with the sample in quality, (b) that the buyer will have a reasonable
opportunity of comparing the bulk with the sample, and (c) that the goods will be free
from any defect, rendering them unmerchantable, which would not be apparent on
reasonable examination of the sample.
A sale will be by sample if there is an express or implied term to this effect, and such
sales are not uncommon, particularly in bulk orders.
In Godley v. Perry (1960), a boy bought a plastic catapult from a retail shop. The
catapult broke almost immediately, and the boy lost an eye. The retailer had bought his
catapult by sample from a wholesaler. The retailer had tested the sample by pulling back
the elastic, and no defect was apparent at that stage. It was held that (a) the boy could
recover damages from the retailer for breach of sections 14(2) and (3), and (b) the retailer
could recover damages from the wholesaler for breach of section 15(2)(c).
Delivery
The mechanic of delivery (as opposed to what is delivered) is covered by a series of
sections later in the Act. By section 28, delivery and payment are concurrent conditions,
so the seller can retain the goods until payment is tendered. Section 29(1) provides that,
in the absence of agreement to the contrary, it is for the buyer to collect the goods from
wherever the seller has them, not for the seller to dispatch them to the buyer. Where the
seller does agree to dispatch the goods, he must do so within a reasonable time and, in
any event, demand or tender of delivery must be at a reasonable time of day. By section
31, the buyer is entitled to delivery of all the goods at once, and need not accept delivery
by installments.
Exclusion of the seller’s obligations
Although as a general rule the parties can make whatever bargain they please, seen in
Unit 14 that any clause purporting to exclude sections 13 to 15 above will be void as
against a person buying as a consumer; it may be void even against a non-consumer
unless the seller can show that the exclusion is reasonable under the Unfair Contract
Terms Act 1977. Section 12 of the 1979 Act can never be wholly excluded.
On the other hand, the parties are quite free to exclude or vary provisions such as sections
28, 29 and 31 if they so wish.
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B.
Remedies of the buyer
Where the seller breaks one of his express or implied obligations under the contract, the
buyer may have the following remedies.
1.
Damages for breach of contract
Damages can always be claimed as of right, although where no real loss has occurred the
amount may be nominal. The measure of damages and the question of remoteness are the
same as in contract generally; sections 51 and 53 provide rules very similar to those put
forward in Hadley v. Baxendale (Unit 15), the basic rule being that ‘the measure of
damages is the estimated loss directly and naturally resulting, in the ordinary course of
events, fro the seller’s breach of contract’. The second rule in Hadley v. Baxendale is
preserved by section 54.
An action for damages may be commenced at any time within the normal limitation
period of six years.
2.
Rights to reject the goods and end the contract
Where the term broken by the seller is a condition (not a mere warranty), the buyer has
rights to reject the goods and treat the contract as repudiated. It will be noted that most of
the terms implied by sections 12 to 15 are conditions; similarly, the courts have held that
late delivery by a seller is a breach of condition, which entitles the buyer to reject the
goods and end the contract.
Since these remedies derive from equity, the limitation period can be very short Section
11(4) provides that, where the contract of sale is non-severable, the rights to reject the
goods and treat the contract as repudiated are lost as soon as the buyer has accepted the
goods, or part thereof. Section 35 provides that the buyer is deemed to have accepted the
goods;



when he intimates to the seller that he has accepted them; or
(except where section 34 provides otherwise) when the goods have been delivered to
him and he does any act in relation to them which is inconsistent with the ownership
of the seller; or
when, after the lapse of reasonable time, be retains the goods without intimating to
the seller that he has rejected them.
These rules are based on the ordinary equitable ones whereby a party who ‘affirms’ the
contract thereby loses his right to rescind it. The second rule applies when the buyer
treats the goods as his, e.g. by consuming or re-selling them. This in turn is subject to
section 34: the seller must give the buyer a reasonable opportunity to examine the goods,
and the buyer is not deemed to have accepted until he has had this opportunity.
Therefore, if a buyer re-sells goods which were pre-packed, so that he could not examine
them, and then is told by the sub-buyer that they are defective, he can still reject as
against the original seller, so long as only a reasonable time has elapsed. Under the third
54
rule, ‘reasonable time’ is a question of fact; it may be very brief for perishable goods,
and/or in cash sales.
In Bernstein v. Pamson Motors Ltd (1987), a new car broke down only three weeks
after purchase and after only 140 miles. The buyer had lost his right to reject it (although
he did still get damages). The judge commented that ‘there should, whenever possible,
be finality in commercial transactions’.
The right to reject may last longer when the goods have not yet been fully paid for, so
that the seller cannot yet ‘close his ledger’. Section 30 covers tender to a wrong quantity,
or of mixed goods, and provides as follows;
(i)
Where the seller delivers too small a quantity, the buyer can either reject the
consignment, or he can accept the lesser amount, the price being reduced rate
ably.
(ii)
Where the seller delivers too large a quantity, the buyer may reject the whole,
accept the contract amount and reject the rest, or accept the whole and pay a price
increased rate ably.
(iii)
Where the seller delivers goods, some of which accord with the contract
description, some of which do not, the buyer may accept those, which do accord
with the contract and reject the rest, or he may reject the whole.
Section 31(2) deals with installment contracts. It will be recalled that section 11(4)
applies only to ‘non-severable’ contracts. Where the goods are to be delivered by
installments, each to be paid for separately, the contract is treated as severable. In this
event, where only one or two of many installments is defective, each defective delivery
can be rejected, notwithstanding that earlier installments have been accepted. The
difficulty arises, however, over whether one defective installment entitles the buyer to
treat the whole contract as repudiated, and refuse all future deliveries, satisfactory or not.
The tests to determine this are the relation which the size of the breach bears to the
contract as a whole, and the likelihood or otherwise of the breach being repeated.
In Munro Ltd v. Meyer (1930), a first delivery of 611 tons of defective bone meal out of
a contract to supply 1500 tons did entitle the buyer to refuse further deliveries.
In Maple Flock Co. v. Universal Furniture Ltd (1934), a defect in one installment of
rag flock, the 16th out of 20 deliveries made, did not entitle the buyer to avoid the whole
contract.
Finally, it should be noted that all of these rules affect rules affect only a buyer’s rights to
reject the goods and end the contract. Where the buyer has lost these rights, he can still
sue the seller for damages within the six year limitation period.
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3.
Specific performance
Section 52 preserves the remedy of specific performance in contracts for the sale of
goods but, as noted elsewhere, this will only be awarded where the article sold is unique,
such as an original painting. Mere rarity is not normally enough; see Cohen v. Roche 5).
C.
Other sanctions against suppliers of goods
1.
Actions in tort
Section 12 to 15 of the Sale of Goods Act merely imply terms into the contract between
the seller and buyer and, therefore, because of privity of contract rules, have serious
weaknesses as a means of protecting consumers. Thus, where the goods have passed
through several hands, the Sale of Goods Act only gives remedies against the immediate
seller, not previous owners or the manufacturer. If the immediate seller is not worth
suing, the buyer’s only right of action may be in tort if he can, for example, prove
negligence by the manufacturer. Similar problems arise when dangerous goods (such as
a defective car) injure someone other that the buyer himself; the person injured cannot
sue on a contract to which he is not a party, and the Sale of Goods Act is, therefore, of no
help. Cases such as Donoghue v. Stevenson and Steer v. Durable Rubber Co. Ltd (Unit
9) arose in this type of situation. The problems are discussed more fully in Unit 20.
2.
Criminal liability of seller
A second problem arises because few buyers have the energy or initiative to pursue
claims against the sellers of defective goods. Moreover, many buyers are inhibited by the
likely cost of proceedings.
Consumers are protected, therefore, by the criminal law, which prohibits certain practices
by sellers. The main provision is section 1 of the Trade Description Act 1968.
‘Any person who, in the course of a trade or business … (a) applies a false trade
description to any goods; or (b) supplies or offers to supply any goods to which a false
trade description is applied; shall … be guilt of an offence.’
This section has fairly limited scope: it applies only where the sale is in the course of a
business, and it covers only false descriptions. The section does not prohibit the supply
of defective goods, so long as the seller makes no false claims about them. Criminal
sanctions as to the quality of what is sold only exist over a few types of goods; for
example, the Road Traffic Act makes it an offence in some circumstances to sell a
vehicle in a dangerous condition, and the Food Act 1984 creates offences for selling unfit
or adulterated food.
Administration and enforcement of these criminal controls is by various public officer:
trading standards inspectors in the case of trade descriptions, public health inspectors for
food, and police in the case of vehicles. These controls therefore are not dependent upon
the initiative of the buyer. The sanctions are the normal criminal ones of fines and,
exceptionally, imprisonment. These do not directly benefit the buyer, but a Magistrates’
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Court can under the Powers of Criminal Courts Act as amended, award limited
compensation, up to a person affected by the offence, and such compensation orders are
quite frequently made for trade descriptions offences.
3.
Work and materials contracts
In these contracts the buyer pays largely or substantially for the ‘service’ provided. They
are governed by the Supply of Goods and Services Act 1982. As regard what is provided
– the vaccine, the material put into the tooth or the paint put on to a house – sections 2-5
of the 1982 Act impose a strict liability, which is effectively by same as that under the
Sale of Goods Act sections 12 – 15. As regards the service part of the contract – the way
in which the work is done – liability is not strict. By the 1982 Act section 13, ‘there is an
implied term that the supplier will carry out the service with reasonable care and skill’.
Sections 2-4 of the 1982 Act are as difficult to exclude as the equivalent Sale of Goods
Act sections. Section 13 of the 1982 Act can be excluded or varied more easily.
D.
Obligations of the buyer
The buyer must accept the goods and pay for them in accordance with the contract.
1.
Payment
The amount of the price is normally fixed by the contract. Alternatively, it may be
determined by the course of earlier dealings between the parties, or may be left to be
fixed by a valuer or referee.
The time for payment is on delivery of the goods. A later date or dates may be agreed
where credit is allowed. Section 10 provides that, unless otherwise agreed, delay in
payment is only a breach of warranty, not condition.
2.
Acceptance
This is largely self-explanatory; a buyer having ordered goods breaks his contract if he
then refuses to take them. He can only validly reject the goods if the seller is in breach of
condition.
By the Consumer Protection (Cancellation of Contracts concluded away from Business
Premises) Regulations 1987, made under the European Communities Act, a private
‘consumer’ has limited protection from ‘doorstep’ sales. If he buys during an unsolicited
visit by a trader, and if his total payments would have exceeded ₤35, he can cancel the
contract within seven days. This is similar to the cancellation rights in credit transactions
(Unit 22).
57
E.
Remedies of the seller
1.
Action for the price
Where the ownership of the goods has passed to the buyer, or where a specified date for
payment was set and has passed, the seller can sue for the contract price.
2.
Damages for non-acceptance
Moreover, where the buyer refuses to accept or pay for the goods the seller may claim
damages, the measure being ‘the estimated loss directly and naturally resulting, in the
ordinary course of events, from the buyer’s breach of contract’ (section 50). Where,
between the contract and the date of delivery, the market price of such goods has fallen,
so that the seller will get less on a re-sale, the damages will, prima facie, be the difference
between thee contract price and the market price at the time when the goods should have
been accepted.
3.
Unpaid seller’s rights over the goods
A common reason for non-payment is because the buyer has no money. In these
circumstances, the seller’s rights to sue for the price or damages may be worthless, and
he will often prefer simply to keep the goods. The Act, therefore, gives him certain
rights.
Under sections 41 and 39(2), an unpaid seller has a lien or right to withhold delivery until
he is paid. These rights exist while the goods are still in the seller’s possession and no
credit has been allowed to the buyer. The rights are lost as soon as the seller parts with
possession; he has no right to re-take them from the buyer. Note also that the lien gives
the seller no right to re-sell the goods yet, only to retain them.
By section 44, if an unpaid seller has parted with the goods to a carrier, he still has a right
of stoppage in transit if, during the transit, the buyer becomes insolvent (not otherwise).
The seller can order the carrier to re-deliver the goods to the seller or his agent, so that
the buyer will not get possession.
By section 48, if an unpaid seller still has the goods, he will have a right to re-sell them in
three circumstances: (a) where the goods are perishable; or (b) where the unpaid seller
gives notice to the buyer of his intention to re-sell, and the buyer still does not pay or
tender the price within a reasonable time; and (c) where, in the contract, the seller
expressly reserved a right to re-sell should the buyer default.
Where re-sale is at a profit, so that the seller gets more than the original contract price,
the seller can keep the profit. If an unpaid seller re-sells wrongfully, e.g., without giving
reasonable notice, the new buyer still gets a good title but, in this event, the seller must
account to the old buyer for any profit as compared with the original contract price.
In addition to these statutory rights, some sellers of valuable industrial goods have, in
recent years, used ‘reservation of title’ clauses for further protection.
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In Aluminim Industrie Vaasen BV v. Romalpa Aluminium Ltd (1976), AIV sold
some aluminium foil to Romalpa. The written contract provided that ownership of the
foil would only pass to Romalpa when the latter paid all that it owed to AIV. If Romalpa
made a new object with the foil, or incorporated or mixed it with other goods. AIV
would become owner of this other object. Romalpa could sell the new object, but only on
condition that its rights against the sub-buyer were handed over to AIV. When Romalpa
later became insolvent, AIV successfully claimed (a) the proceeds of re-sale of some foil
by Romalpa, and (b) that the foil still held by Romalpa belonged to AIV, and should be
returned.
Such ‘Romalpa’ clauses do give rise to legal difficulties, and have come before the courts
several times in recent years. The right to take back unaltered goods from an insolvent
buyer can be very valuable; but claims for the proceeds of re-sale are unlikely to succeed
now, and the part dealing with mixed goods will rarely be valid.
SALE OF GOODS: OWNERSHIP AND RISK
A.
Transfer of property between seller and buyer
The purpose of a contract of sale is to transfer ownership of the goods from seller to
buyer, and the Act contains rules for determining precisely when this happens. This is
important mainly because of the questions of risk; by section 20, any loss, prima facie,
falls on the party who is owner at that time. In this unit the words ‘property’ and
‘ownership’ mean the same thing.
To determine when ownership passes, it is important first to distinguish between specific
and unascertained goods. Specific goods are ‘goods identified and agreed on at the time
a contract of sale is made’. Thus a buyer may point to a specific car in the showroom as
the one, which he wants all sales in self-service shops and most over-the-counter sales
will be of specific goods, all goods which are not specific are unascertained. If a buyer
orders a new car which is yet to be delivered from the manufacturer, it is not yet possible
to point to which specific car is to become his. Almost all orders in bulk (e.g., 100 tons
of wheat) will be of unascertained goods, as will most orders by post.
In a contract for unascertained goods, the subject-matter will, at some stage, be
‘appropriated’ to the contract. Thus, 100 tons of maize from the seller’s stock will, at
some stage, be set aside for the buyer. The 100 tons is then said to be ascertained. The
100 tons do not become specific goods, however, because they were not identified at the
time of the contract: unascertained goods cannot become specific ones under the same
sale.
Passing of property in specific goods
Section 17 provides that the property in specific goods passes whenever the parties intend
it to pass. They can make their own provision (as in the Romalpha case). To ascertain
the intention of the parties, ‘regard shall be had to the terms of the contract, the conduct
of the parties, and the circumstances of the case’. This is the overriding rule, and section
18, below, must always be read subject to it.
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Where the parties do not expressly or impliedly indicate when they want ownership to
pass, section 18 sets out various rules to ascertain their presumed intention:
Rule 1 ‘Where there is an unconditional contract for the sale of specific goods, in a
deliver state, the property in the goods passes to the buyer when the contract is made, and
it is immaterial whether the time of payment or the time of delivery, or both, be
postponed.’
In spite of the last words of this rule, the courts are still free under section 17 to hold that,
where both payment and delivery are postponed, the parties did not intend ownership to
pass yet.
In Ward (R. V.) Ltd v. Bignall (1967), the seller unconditionally sold a specific car to
the buyer, but retained possession until the buyer could pay for it. In the Court of
Appeal, Diplock, L. J. indicated (obiter) hat he would, if necessary, be willing to treat the
car as still belonging to the seller, in spite of the wording of Rule 1. It was arguable that
both parties-regarded the car as being the seller’s until the buyer paid or was allowed to
take delivery, and the court could assume that this was their real intention.
It should be noted that Rule 1 applies only where the goods are already in a ‘deliverable
state’; if they are not, then the second rule pay apply:
Rule 2 ‘Where there is a contract for the sale of specific goods and the seller is bound to
do something to the goods for the purpose of putting them into a deliverable state, the
property does not pass until the thing is done, and the buyer has notice that it has been
done.
Goods are only in a deliverable state ‘when they are in such a state that the buyer would
under the contract be bound to take delivery of them’ (section 61(5). If, therefore the
seller still has things to do to the goods under the contract, the ownership will not pass
yet. For example, if the seller agrees in the contract to fit new tyres to the car, the car
will remain in the seller’s ownership and at his risk until the tyres are fitted and the buyer
has notice of this.
Rule 3 ‘Where there is a contract for the sale of specific goods in a deliverable state, but
the seller is bound to weigh, measure, test, or do some other act or thing with reference to
the goods for the purpose of ascertaining the price, the property does not pass until the act
or thing is done and the buyer has notice that it has been done.’
The fourth rule covers the situation where a buyer asks for goods, such as a new book or
machine, on approval. Note that this rule applies only where the buyer has agreed to take
the goods on this basis; it does not apply where a would-be seller sends unsolicited goods
to someone.
Rule 4 ‘When goods are delivered to the buyer on approval or on sale or return or other
similar terms, the property in the goods passes to the buyer:
when he signifies his approval or acceptance or does any other act adopting the
transaction (for example, by re-selling the goods);
60
if he does not signify his approval or acceptance to the seller but retains the goods
without giving notice of rejection, then, if a time has been fixed for the return of the
goods, on the expiration of that time, and, if no time has been fixed, on the expiration or a
reasonable time. ‘(What is a reasonable time is a question of fact.)
Passing of property in unascertained goods
Section 16 provides that:
‘Where there is a contract for the sale of unascertained goods, no property in the goods is
transferred to the buyer unless and until the goods are ascertained.’
This is simply a rule of common sense; while goods remain unascertained, it is
impossible to point out which car or bag of wheat is to belong to the buyer. It should be
noted, however, that the section is phrased negatively; even when the goods are
ascertained, they do not necessarily become the buyer’s (see the Romalpa case again).
Passing of property is, prima facie, government by section 18 again:
Rule 5 ‘Where there is a contract for the sale of unascertained … ‘ goods by description,
and goods of that description and in a deliverable state are unconditionally appropriate to
the contract, either by the seller with the assent of the buyer, or by the buyer with the
assent of the seller, the property in the goods then passes to the buyer; and the assent may
be express or implied, and may be given either before or after the appropriate is made.
Ownership can only pass, therefore, when goods are ‘appropriated’ to the contract, that
is, set aside or otherwise identified, labeled, etc., with the firm intention that these are the
goods covered by the contract. Delivery of the correct amount to a carrier for transport to
the buyer will be appropriation for this purpose.
Moreover, ownership does not pass to the buyer unless and until the goods are in a
deliverable state.
In Phillip Head & Sons v. Showfronts Ltd (1970), the seller agreed to deliver and lay
fitted carpets. A carpet was delivered, but left overnight to be laid next morning. It was
held that the carpet was still at the seller’s risk, so that when it was stolen overnight the
seller bore the loss.
B.
Risk
‘Risk’ can cover a multitude of mishaps, from slight damage to theft or total destruction.
The basic rule to determine on whom the loss should fall is in section 20 of the Act:
‘Unless otherwise agreed, the goods remain at the seller’s risk until the property in them
is transferred to the buyer, but when the property in them is transferred to the buyer, the
goods are at the buyer’s risk whether delivery has been made or not.
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The Act also contains more detailed rules. There are three possible times when loss can
occur.
1.
Loss occurring before the contract is made
This obviously falls on the seller. He may not only lose the goods, but also be liable to
the buyer for damages if he contracts to deliver goods and then cannot do so. Where
unascertained goods are sold, for example, it is up to the seller to find supplies and, if his
own stocks turn out to be damaged, stolen or destroyed, this is his misfortune; he must
find alternative suppliers or face damages for non-delivery.
Where specific goods are sold, however, the seller may be protected from liability to the
buyer by section 6:
‘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 the contract is made, the contract
is void.’
This section has limited scope; it applies only where the goods have perished, that is,
ceased to exist either physically or commercially, and it applies only where this had
happened without the seller’s knowledge. (A seller who tries to sell goods which he
knows have perished will be guilty of fraud.) Goods can ‘perish’ without being totally
destroyed.
In Asfar & Co. Ltd v. Blundell (1896), a cargo of dates which had sunk in the harbour
and, when raised two days later, was ‘simply a mass of pulpy matter impregnated with
sewage and in a state of fermentation’, was held to have ‘perished’ although still
physically in existence.
In Barrow, Lane & Ballard Ltd v. Phillips & Co. Ltd (1929), the sellers sold 700
specific bags of Chinese nuts. Unknown to the sellers, 109 bags had already been stolen.
It was held that the specific consignment of 700 bags had perished, because a substantial
part of it had gone.
Section 6 is based on the common law rules of mistake, and on cases such as Couturier v.
Hastie. If the contract is void, the seller still bears the loss, but has no liability to the
buyer.
2.
Loss occurring between contract and the passing of property
Property will pass immediately on making the contract only when section 18, Rule 1
applies. Loss occurring after the contract but before ownership oases will be subject to
rules similar to those discussed above; prima facie the loss falls on the seller and,
moreover, the buyer may recover damages for non-delivery if the seller does not get other
supplies.
Where specific goods are sold, however, section 7 may protect the seller against liability
to the buyer:
‘Where there is an agreement to sell specific goods and subsequently the goods, without
any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the
agreement is avoided’. This is based on the common law rules of frustration and, like
section 6, applies only where specific goods have ‘perished’. Where the specific goods
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are only slightly damaged, section 7 may not apply, and the seller may face liability to the
buyer, even though the damage was not the seller’s fault.
When section 7 applies, the Law Reform (Frustrated Contracts) Act 1943 does not; all
moneys payable, therefore, cease to be due, and all moneys paid under the contract must
be returned. If the seller has incurred expenses under the contract, he can neither recover
these from the buyer, nor keep part of any deposit, which the buyer may have paid.
3.
Loss occurring after the passing of property
Under section 20, this falls on the buyer, even if the goods are still in the seller’s
possession.
In Tarling v. Baxter (1827), a farmer sold a haystack, which remained on his farm, to be
collected in the spring. Before collection, the stack was destroyed. It was held that, on
the facts, ownership had passed to the buyer and, therefore, he bore the loss.
There are, however, two provisos. First, section 20(2) provides that where delivery has
been delayed through the fault of either seller or buyer, the goods are at the risk of the
party at fault as regards any loss which might not have occurred but for the delay.
In Demby Hamilton & Co. Ltd v. Barden (1949), the seller agreed to send 30 tons of
apple juice by weekly consignments to the buyer. The buyer delayed taking delivery of
some of the juice which, as a result went bad. The buyer was still held liable to pay,
because the delay was his fault.
Secondly, by section 20(3), ‘nothing in this section affects the duties or liabilities of
either seller or buyer as a bailee of the goods of the other party’. Thus, if the seller
remains in possession after ownership has passed to the buyer, the seller must take
reasonable care of the goods.
Finally, section 20 applies only in the absence of contrary agreement, and the parties can
always agree that the risk is to pass before the ownership, or vice versa.
In Inglis v. Stock (1885), the buyer bought an unascertained part of a large cargo of
sugar. The contract provided that risk should pass when the cargo was put aboard ship,
although, under section 16, ownership could not pass until the buyer’s part of the cargo
was ascertained.
C.
Transfer of title by a non-owner
As a general rule, only the owner of goods or his agent can validly sell them. This is
often expressed in the phrase nemo dat quod non habet (no one can give what he does not
have), and the rule is embodied in section 21:
‘… where goods are sold by a person who is not their owner, and who does not sell them
under the authority or with the consent of the owner, the buyer acquires no better title to
the goods than the seller had …’
63
There are however a number of exceptions to this rule as was indicated by Lord Denning
in Bishops gate Motor Finance Corpn Ltd v Transport Brakes Ltd,
‘In the development of our law, two principles have striven for mastery. The first
is the protection of property. The second is the protection of commercial
transactions. The` person who takes in good faith and for value without notice
should get a good title. The first principle has held sway for a long time, but it has
been modified by common law and by statute so as to meet the needs of our
times.’
General Exceptions
1.
Estoppel
The first exception to the nemo dat rule is contained in s.21 (1) itself. The part of that
section quoted above (section 4.7.1) is immediately followed by the words ‘unless the
owner of the goods is by his conduct precluded from denying the seller’s authority to
sell’.
Where the true owner of the goods represents to the buyer that the person selling is acting
as an agent with authority to sell or is the owner, the owner may be estopped from
denying that authority to sell and the buyer acquires good title (Henderson & Co v
Williams [1895] 1 QB 521; Sealy and Hooley, pp.334–35).
A car owner, who wished to raise money on his car without selling it, was estopped when
he colluded in a transaction with a car dealer under which the car was represented to a
finance company as belonging to the dealer (Eastern Distributors Ltd v Goldring
[1957] 2 QB 600; Sealy and Hooley, pp.332–34).
Merely handing possession of goods to another is usually not sufficient for this estoppel
to arise because it will not amount to a representation. Carelessness in handing over possession of goods or documents of title is not enough because, ‘a man who owns property
is not under any general duty to safeguard it and… he may sue for its recovery any
person into whose hands it has come’ (Moorgate Mercantile Co Ltd v Twitchings
[1977] AC 890, Lord Wilberforce; Central Newbury Car Auctions Ltd v Unity
Finance Ltd [1957] 1 QB 371; Sealy and Hooley, pp.337–38).
It may be otherwise if it can be shown that the owner has breached a duty of reasonable
care owed to the third party and that this induced the third party to buy the goods so
that the negligence was the proximate cause of the buyer’s loss. In (Mercantile Credit
Co Ltd v Hamblin [1965] 2 QB 242 (Sealy and Hooley, pp.339–40), the owner of a car
signed forms in blank, without reading them, in the belief that they would enable a car
dealer, who appeared to be respectable, to raise money on the security of the car. In fact,
the dealer fraudulently used the forms to sell the car to a finance company. The Court of
Appeal held that a duty of care existed between the owner and the finance company, but
that there was no breach of that duty because she knew the dealer and reasonably
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believed him to be respectable, so that it was not negligent for her to sign the forms in
blank. Moreover, two of the judges thought that, even if there had been negligence, it was
not the negligence of the owner but the fraud of the dealer which caused the loss.
On the other hand, by analogy with a case on the sale of land (Spiro v Lintern [1973] 1
WLR 1002), unreasonable behaviour by the owner in failing to correct a
misrepresentation that the owner knows has been made to the seller could create an
estoppel, if the seller acts on the basis of the misrepresentation and suffers loss as a
consequence.
In (Shaw v Metropolitan Police Commissioner [1987] 1 WLR 1332), the Court of
Appeal took a rather narrow view of the use in s.21(1) of the word ‘sold’ as meaning that
the estoppel principle did not apply where there was only an agreement to sell.
2.
Sale under a voidable title
By s.23, the buyer, who buys in good faith and without notice of any defect in the title of
the seller, will acquire good title if the goods are bought from a seller whose title is
voidable but, at the time of the sale, it has not been avoided (Cundy v Lindsay [1878] 3
App Cas 459; Sealy and Hooley, pp.328–29). There are many illustrations of a voidable
contract familiar to students of the law of contract.
For example, in Kings Norton Metal Co Ltd v Edridge, Merrett & Co Ltd [1897] 14
TLR 98, a manufacturer of metal received an order from ‘Hallam & Co’ and in
consequence sent goods. It turned out that ‘Hallam & Co’ did not exist. The rogue resold
the goods. It was held that the intention had been to contract with the writer of the order,
and, although this intention had been induced by a fraudulent misrepresentation, that only
made the contract voidable. Since it had not been avoided before the goods were resold to
a third
party, title passed to the latter.
The first issue is whether property has passed from A (the original seller) to B (the rogue,
who later sells the goods to C, the innocent buyer). If it has not s.23 will not operate.
Where property has passed to B, A is likely to face some difficulty in avoiding the
contract before title passes to a third party. This can be done by notifying B, but where B
is a rogue this may not be possible.
In Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 (Sealy and
Hooley, pp.354–55), it was held that if the rogue renders it impossible to make contact,
the true owner need merely take such steps as the reasonable owner would take to recover
the goods. Caldwell, a car owner who had been the victim of fraud, informed the police
and the Automobile Association. After doing these things, the car was sold by the rogue
to a car dealer. The dealer had had previous dealings with the rogue, which ought to have
enabled them to infer that this transaction was fraudulent. The dealer then sold the car to
a finance company, who bought in good faith and without notice. The Court of Appeal
concluded that the dealer was not an agent of the finance company so that the latter did
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not have the dealer’s knowledge, but that Caldwell had done sufficient to avoid the
contract by informing the police before the sale to the dealer.
The value of this decision has been restricted by Newtons of Wembley Ltd v Williams
[1965] 1 QB 560 (Sealy and Hooley, pp.362–63). Two of the judges who sat in Caldwell
also heard this appeal), where it was held that, even if the owner avoided the contract
before the resale, title passed because the rogue was a buyer in possession and the sale
was made in the ordinary course of business of a mercantile agent, that is, at a market for
used cars (see s.25(1); section 4.7.5 below).
3.
Seller in possession
This is where A, the seller, having sold the goods to B, then sells the same goods to C.
If property has passed to B, but the seller is still in possession of the goods or documents
of title to the goods, and the seller sells them to C, who purchases in good faith and
without notice of the sale to B, this second transaction passes title to C. B has only an
action for breach of contract against the seller (s.24. Section 8 of the Factors Act 1889 is
almost identical).
Possession includes where goods are not in the physical possession of the seller, but are
under their control: for example, goods held by a warehouse owner to the order of the
seller. The seller’s possession does not have to be in any particular capacity or even
lawful:
‘It is sufficient if he remains continuously in possession of the goods that he has sold to
the purchaser’ (Worcester Works Finance Ltd v Cooden Engineering Co Ltd [1972] 1
QB 210, Lord Denning MR). Lord Denning thought the section might not apply where
the seller’s possession had not been continuous (also, Pacific Motor Auctions Pty Ltd v
Motor Credits (Hire Finance) Ltd [1965] AC 867; Sealy and Hooley, pp.356–58. But
Bridge (1998), pp.457–59).
For the second buyer to acquire good title, the seller must deliver possession of the goods
or documents of title: merely contracting a second sale is not sufficient to give title to the
second buyer. In Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514,
machinery was sold to a finance company and leased back to the seller, who then sold it
to a second finance company and leased back; at all times the machinery remained in the
possession of the seller, but it was held that the seller’s acknowledgement to the finance
company that the machines were being held on its behalf amounted to a delivery.
By ‘documents of title’ is meant those documents ‘used in the ordinary course of business
as proof of the possession or control of goods, or authorising or purporting to authorise,
either by endorsement or delivery, the possessor of the document to transfer or receive
goods’ (s.61(1), see also Factors Act 1889, s.1(4). See Sealy and Hooley, pp.358–
59).Note SGA gives the seller the right to resell goods and pass property to the new buyer
where the seller retained possession and the price has not been paid by the original buyer.
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4.
Buyer in possession
In this situation it is the buyer who has acquired possession of the goods and sells to a
second buyer. Where a person having bought or agreed to buy goods obtains, with the
consent of the seller, possession of the goods or the documents of title to the goods, the
delivery or transfer by that person, or by a mercantile agent acting for him, of the goods
or documents of title, under any sale, pledge, or other disposition thereof, to any person
receiving the same in good faith and without notice of any lien or other right of the
original seller in respect of the goods, has the same effect as if the person making the
delivery or transfer were a mercantile agent in possession of the goods or documents of
title with the consent of the owner.
The goods or documents of title must have been obtained under a sale or agreement to
sell (‘bought or agreed to buy’), so a void contract is insufficient, as is acquisition as a
bailee or under a hire-purchase contract or under a sale or return agreement (s.18, rule 4).
The provision that the transaction will have ‘the same effect as if the person making the
delivery…were a mercantile agent’ means that the buyer in possession is placed in the
position of a mercantile agent and the second buyer must show that the sale was in the
ordinary course of business of a mercantile agent (Newtons of Wembley Ltd v Williams
[1965]
The words ‘with the consent of the owner’ at the end of s.25(1) prevent the nonsense of a
thief starting the whole chain of events and still passing good title. There can only be a
buyer in possession where possession of the goods or documents of title has been
obtained with the consent of the owner (National Employers’ Mutual General
Insurance Assocn Ltd v Jones [1990] 1 AC 24; Sealy and Hooley, pp.363–64). Yet, it
matters not how that consent was obtained – fraud is enough even though this may
amount to theft (Pearson v Rose & Young Ltd [1951] 1 KB 275; Sealy and Hooley,
p.346).
5.
Sale in Market Overt
One of the most contentious exceptions to the nemo dat quod non habet principle was the
rule of "market overt". This rule provided that, where goods were sold in "open market"
according to the usage of the market, the buyer acquired automatic good title to the
goods, provided he bought them in good faith and without notice of any defect or want of
title on the part of the seller.
This controversial rule was abolished by the Sale of Goods (Amendment) Act 1994 so
that any purchase made on a "market overt" after 3 January 1995 would not be protected
by the rule. This was an important step for those preventing the theft of works of art,
because it prevented the casual trading of stolen goods at fairs and street markets.
Nevertheless, as the abolition of the rule was not retrospective, cases involving the
alleged purchase of works of art in market overt before 3rd January 1995 are still being
litigated. The ALR has handled many such cases in which the current holder's claim to
title derives from his/her purchase of the item, at an open market, at a time when the
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market overt rules set out in the s22(I) of the Sale of Goods Act 1979 were still in
operation. The rule is sometimes used as a convenient avenue of excuse for those who
acquire works of art in dubious circumstances.
For a sale to constitute a sale in market overt certain conditions must be fulfilled, and the
onus of proof that a sale was contrary to the usage of the market lies with the party
seeking to set aside the sale.
The market had to be open, public and legally constituted (either by charter or statute),
and the sale had to be according to the usage of the market.
The sale had to occur between the hours of sunrise and sunset for title to pass (the
reasoning for this was that the goods should be openly vended at a time when those who
stood or passed by could see them). The goods had to be goods of a kind which was
vendible in the market or fair, and which the seller was offering there ostensibly.
6.
Sale under the Factors Act 1889, s.2
Merely being in possession of goods or documents of title does not, in itself, amount to a
representation that the possessor has authority to sell those goods and to pass good title.
However, where the person in possession is a factor (now normally called a mercantile
agent), the buyer may acquire good title. A mercantile agent is an agent who is entrusted
with the possession of goods or documents of title to goods and who is allowed to dispose
of them, either in the agent’s own name or as a principal.
Under Factors Act 1889, s.2(1), a sale, pledge, or other disposition shall be as valid as if
expressly authorised by the owner of the goods where all the following are present:
The disposition is by a mercantile agent (Jerome v Bentley [1952] 2 All ER 114; Sealy
and Hooley, p.330).
The mercantile agent is in possession of goods or of the documents of title to goods with
the consent of the owner (see s.2(2), (3)). The owner must have specifically consented to
the person having possession in their capacity as mercantile agent and not in some other
capacity (for example, handing over goods for repair). Consent is given even though
obtained by deception (Folkes v King [1923] 1 KB 282; Sealy and Hooley, p.349). It
might plausibly be suggested that such consent is not consent at all, but the courts have
tended to protect the innocent third party in such situations (but Pearson v Rose &
Young Ltd [1951] 1 KB 275).
Once consent has been given it continues, in spite of the owner terminating such consent,
unless the person dealing with the agent has notice of that termination (s.2(2)). The
problem for the buyer is to know in what capacity the agent received possession of the
goods. As in this whole area of nemo dat, we are confronted with Denning LJ’s
competing principles of public policy outlined in Bishops gate Motor Finance
Corporation.
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The disposition is made when acting in the ordinary course of business of a mercantile
agent. The person taking under the disposition must have acted in good faith and that at
the time of disposition must not have had notice of the mercantile agent’s lack of
authority (Heap v Motorists’ Advisory Agency Ltd [1923] 1 KB 577; Sealy and
Hooley, pp.351–52).
7.
Motor vehicles let under hire purchase
Part III of this act (substantially re-enacted by the Consumer Credit Act 1974, schedule 4)
means that a private purchaser obtains title where they acquire a motor vehicle for value
and without notice from someone who is in possession under a hire-purchase or
conditional sale agreement.
8.
Powers of sale and resale
Section 21(2)(b) provides that nothing in the Act affects ‘the validity of any contract of
sale under any special common law or statutory power of sale or under the order of a
court of competent jurisdiction.’ This retains powers of sale granted to pledgees, bailees,
innkeepers, pawnbrokers, liquidators and others, which enable them to pass title to the
buyer.
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