82 views

law for business students 6th edition

Category: Law

Comment

Description

You can download, share and embed this document

Transcript

www.pearson-books.com Cover © Artostock.com/Alamy SIXTH EDITION LAW FOR BUSINESS STUDENTS ALIX ADAMS From hiring and ring, to selling goods or starting your own company, the world of business is inextricably linked to law and legal regulation. Alix Adams’ lively and understandable introduction to all aspects of law encountered in business will provide you with a clear appreciation of the main rules and legal principles. Utilising a host of features in a colourful and clear design, Law for Business Students encourages you to understand how the law works in everyday business situations and apply it to your course, your own experiences and the world around you. ALIX ADAMS has over thirty years’ experience of teaching law from GCSE to degree and postgraduate level and is a quali ed barrister. ‘Its lucidity, structure and ease of use is a sure winner with business students while the boxed cases make the approach to the study of law not just interesting but comprehensible and accessible. The activities and assignments after each chapter reinforce understanding and provide an opportunity for students to put theory into practice.’ Dr Vick Krishnan, Principal Lecturer and Subject Leader in Law, Regent’s College, London LAW FOR BUSINESS STUDENTS SIXTH EDITION ADAMS Visit www.mylawchamber.co.uk/adams to access interactive exercises and ashcards designed so that you can test yourself on topics covered in the book. There are also legal updates and live weblinks to help you impress examiners and lecturers with knowledge of the latest developments. CASE NAVIGATOR P O W E R E D B Y Worried about getting to grips with cases? Case Navigator offers unique online support that helps you improve your case reading and analysis skills in Business Law. Cases contained within this resource are highlighted throughout this book. The LexisNexis element of Case Navigator is only available to those who currently subscribe to LexisNexis Butterworths online. Do you want to give yourself a head start come exam time? Lecturers: use the site to access resources to help you teach the subject, including a testbank of multiple choice questions which can be used to assess students’ progress. SIXTH EDITION LAW FOR BUSINESS STUDENTS ALIX ADAMS CVR_ADAM5455_06_SE_CVR.indd 120/1/10 12:49:55 0003 Law for Business Students 0003 We work with leading authors to develop the strongest educational materials in business and law, bringing cutting-edge thinking and best learning practice to a global market. Under a range of well-known imprints, including Longman, we craft high quality print and electronic publications which help readers to understand and apply their content, whether studying or at work. To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk 0003 Law for Business Students Sixth edition Alix Adams LLB (Bristol), LLM (Cardiff), Barrister, Cert. Ed. 0003 Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First published under the Pitman Publishing imprint in Great Britain in 1996 Second edition published 2000 Third edition published 2003 Fourth edition published 2006 Fifth edition published 2008 Sixth edition published 2010 © Pearson Professional Limited 1996 © Pearson Education Limited 2000, 2010 The right of Alix Adams to be identified as author of this work has been\ asserted by her in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights \ in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Crown Copyright material is reproduced with the permission of the Controller of HMSO and the Queen’s Printer for Scotland Law Commission Reports are reproduced under the terms of the Click-Use Licence ISBN: 978-1-4082-2545-5 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Adams, Alix.Law for business students / Alix Adams. -- 6th ed. p. cm. Includes index. ISBN 978-1-4082-2545-5 (pbk.) 1. Business law--England. I. Title. KD661.A33 2010 346.4207--dc22 2009047012 10 9 8 7 6 5 4 3 2 1 14 13 12 11 10 Typeset in 9.5/13 pt Frutiger Light by 30 Printed and bound by Rotolito Lombarda, Italy The publisher’s policy is to use paper manufactured from sustainable forests 0003 For Cherry, with much love and gratitude 0003 0003 vii Brief contents Contentsix Guided tour xx Acknowledgements xxiv Preface xxv Table of cases xxvi Table of statutes xxxvii Table of statutory instruments xliv Table of European and international legislation xlvi Part 1: Introduction3 1 Getting started: an introduction to studying law 4 2 How the law is made 16 3 Resolving legal disputes 40 Part 2: Law of contract, agency and sale of goods61 4 The law of contract: offer and acceptance 62 5 The law of contract: consideration, intention and privity 82 6 The terms of the contract 100 7 Defects in the contract: misrepresentation, mistake, duress and undue 126 influence 8 More defects: illegality and incapacity 152 9 Discharge of the contract and remedies for breach 168 10 The law of agency 198 11 Sale of goods: the contract and its terms 216 12 Sale of goods: transfer of ownership, performance and remedies for breach 234 of contract Part 3: The law of tort 255 13 Tort liability for defective goods 256 14 Tort liability for defective services 276 15 Tort liability for premises 316 0003 viii Part 4: Elements of employment law347 16 Rights at work: the contract of employment and health and safety at work\ 348 17 Rights at work: protection against discrimination 368 18 Rights at work: protection against dismissal and redundancy 396 Part 5: Introduction to company law417 19 Business organisation 418 20 Forming a registered company 440 21 Running the company: raising and maintaining capital 454 22 Daily management of the company: functions of directors, secretary and auditors 466 23 Company meetings and shareholder participation 486 Part 6: General principles of intellectual property law 501 24 Statutory intellectual property protection: copyright, designs, patents and 502 trade marks 25 Common law protection of intellectual property: passing off, malicious 522 falsehood and breach of confidence Part 7: Study skills 539 26 Study skills, and revision and examination hints 540 Appendix 1: Additional resources 550 Appendix 2: Worth thinking about? and quiz solutions 556 Index 569 BRIEF CONTENTS 0003 Contents Guided tourxx Acknowledgements xxiv Preface xxv Table of cases xxvi Table of statutes xxxvii Table of statutory instruments xliv Table of European and international legislation xlvi Part 1: Introduction3 1 Getting started: an introduction to studying law 4 Introduction 5 What is law? 6 The characteristics of English law 6 Why do we need law? 8 The differences between criminal and civil law 9 Changing the law 10 Essential legal terms 11 Introductory study tips 12 Chapter summary 14 Key terms 14 Quiz 1 15 2 How the law is made16 Introduction 17 European law 18 Parliament 21 The courts 24 The Human Rights Act 1998 (HRA 1998) 32 ix 0003 Chapter summary36 Key terms 36 Quiz 2 38 Take a closer look 38 Web activity 38 Assignment 1 38 3 Resolving legal disputes40 Introduction 41 The court system 42 Bringing a case in the civil courts 46 The Woolf reforms 1999 47 Settlement out of court 47 Payment into court and offers to settle 48 Civil litigation procedures 48 The trial of the case 50 Executing the judgment 51 Alternative dispute resolution (ADR) 52 The tribunal system 54 Chapter summary 56 Key terms 57 Quiz 3 58 Web activity 59 Assignment 2 59 Part 2: Law of contract, agency and sale of goods61 4 The law of contract: offer and acceptance 62 Introduction 63 The essentials of a binding contract 64 The offer 64 The acceptance 72 Chapter summary 78 Key terms 78 Quiz 4 79 Take a closer look 80 Web activity 80 Assignment 3 80 x CONTENTS 0003 5 The law of contract: consideration, intention and privity 82 Introduction83 Consideration 84 Intention to create legal relations 92 Privity of contract 94 Chapter summary 97 Key terms 98 Quiz 5 98 Take a closer look 99 Web activity 99 Assignment 4 99 6 The terms of the contract100 Introduction 101 Express and implied terms 102 The relative importance of contractual terms 103 Limitation and exclusion of liability 106 Chapter summary 121 Key terms 122 Quiz 6 122 Take a closer look 123 Web activity 123 Assignment 5 123 7 Defects in the contract: misrepresentation, mistake, duress and undue influence 126 Introduction 127 Misrepresentation 128 Mistake 134 Duress and undue influence 142 Chapter summary 147 Key terms 148 Quiz 7 149 Take a closer look 149 Web activity 149 Assignment 6 150 xi CONTENTS 0003 8 More defects: illegality and incapacity152 Introduction 153 Illegality 154 Contractual incapacity 160 Chapter summary 163 Key terms 164 Quiz 8 164 Take a closer look 165 Web activity 165 Assignment 7 165 9 Discharge of the contract and remedies for breach168 Introduction 169 Discharge of contracts 170 Remedies for breach of contract 183 Chapter summary 193 Key terms 194 Quiz 9 194 Take a closer look 195 Web activity 195 Assignment 8 195 10 The law of agency198 Introduction 199 The creation of agency 200 The rights and duties of the agent 205 The rights and duties of the principal 209 Termination of agency 209 Some common types of specialist agents 211 Chapter summary 212 Key terms 213 Quiz 10 214 Take a closer look 214 Web activity 214 Assignment 9 215 xii CONTENTS 0003 11 Sale of goods: the contract and its terms216 Introduction 217 The sale of goods contract 218 The terms implied by the Sale of Goods Act 1979 220 Implied conditions in other Acts 229 Chapter summary 230 Key terms 230 Quiz 11 231 Take a closer look 231 Web activity 232 Assignment 10 232 12 Sale of goods: transfer of ownership, performance and remedies for breach of contract 234 Introduction 235 The statutory rules governing transfer of title from seller to buyer 236 Transfer of title by non-owner 240 The passage of risk 242 Performance of the contract 243 Remedies for breach of the sale of goods contract 245 Chapter summary 251 Key terms 251 Quiz 12 252 Take a closer look 252 Web activity 252 Assignment 11 253 Part 3: The law of tort255 13 Tort liability for defective goods 256 Introduction 257 Negligence liability 258 The Consumer Protection Act 1987 (Part I) 264 Chapter summary 271 Key terms 272 Quiz 13 273 xiii CONTENTS 0003 Take a closer look273 Web activity 273 Assignment 12 274 14 Tort liability for defective services276 Introduction 277 Part 1 – problematic duty situations 278 Part 2 – breach of duty 300 Proving consequent damage 305 Chapter summary 311 Key terms 312 Quiz 14 312 Take a closer look 313 Web activity 313 Assignment 13 313 15 Tort liability for premises316 Introduction 317 The occupier’s liability to people on the premises 318 Duties of an occupier to people outside the premises 325 Defences in tort 335 Vicarious liability 339 Chapter summary 342 Key terms 343 Quiz 15 343 Take a closer look 343 Web activity 344 Assignment 14 344 Part 4: Elements of employment law347 16 Rights at work: the contract of employment and health and safety at work 348 Introduction 349 The employment contract: a contract of service 350 The law of tort: employers’ civil liability for industrial injuries 356 Criminal law regulation of safety in the workplace 361 xiv CONTENTS 0003 Chapter summary364 Key terms 364 Quiz 16 365 Take a closer look 365 Web activity 365 Assignment 15 366 17 Rights at work: protection against discrimination368 Introduction 369 The Equal Pay Act 1970 370 The Sex Discrimination Act 1975 373 The Race Relations Act 1976 378 The Disability Discrimination Act 1995 383 Sexual orientation 385 Religion or belief 387 Age discrimination 388 Enforcing anti-discrimination legislation 389 The Commission for Equality and Human Rights 390 Reform of anti-discrimination law 391 Chapter summary 391 Key terms 392 Quiz 17 393 Take a closer look 393 Web activity 393 Assignment 16 393 18 Rights at work: protection against dismissal and redundancy 396 Introduction397 Wrongful dismissal 398 Unfair dismissal 398 Redundancy 407 Transfer of undertakings 410 Chapter summary 412 Key terms 413 Quiz 18 413 Take a closer look 414 Web activity 414 Assignment 17 414 xv CONTENTS 0003 Part 5: Introduction to company law417 19 Business organisation 418 Introduction 419 Legal personality, incorporation and limited liability 420 The sole trader 421 The partnership 421 The registered company 425 The impact of the Human Rights Act 1998 (HRA 1998) on business organis\ ations 434 In conclusion 435 Chapter summary 436 Key terms 437 Quiz 19 437 Take a closer look 438 Web activity 438 Assignment 18 438 20 Forming a registered company440 Introduction 441 Promoting the company 442 Forming the company 442 Buying a company ‘off the shelf’ 450 Chapter summary 450 Key terms 451 Quiz 20 451 Take a closer look 452 Web activity 452 Assignment 19 452 21 Running the company: raising and maintaining capital 454 Introduction455 Share capital 456 Loan capital 460 Chapter summary 463 Key terms 464 Quiz 21 465 Web activity 465 Assignment 20 465 xvi CONTENTS 0003 22 Daily management of the company: functions of directors, secretary and auditors 466 Introduction 467 The directors 468 The company secretary 478 The auditors of the company 480 Insider dealing 481 Chapter summary 482 Key terms 482 Quiz 22 483 Take a closer look 483 Web activity 483 Assignment 21 484 23 Company meetings and shareholder participation486 Introduction 487 General meetings 488 Protecting the rights of minority shareholders 492 Chapter summary 496 Key terms 497 Quiz 23 497 Web activity 497 Assignment 22 498 Part 6: General principles of intellectual property law501 24 Statutory intellectual property protection: copyright, designs, patents and trade marks 502 Introduction 503 Statutory regulation of intellectual property 504 The impact of EC law and international treaties on intellectual property rights 518 Chapter summary 519 Key terms 520 Quiz 24 520 Take a closer look 521 Web activity 521 Assignment 23 521 xvii CONTENTS 0003 25 Common law protection of intellectual property: passing off, malicious falsehood and breach of confidence 522 Introduction 523 Passing off 524 Malicious falsehood 527 Breach of confidence and protection of privacy 529 Remedies for passing off, malicious falsehood and breach of confidence 534 Chapter summary 535 Key terms 535 Quiz 25 536 Take a closer look 536 Web activity 536 Assignment 24 537 Part 7: Study skills539 26 Study skills, and revision and examination hints 540 Introduction 541 Beginning to study 542 Writing law assignments 543 Revision and examination technique 546 Appendix 1: Additional resources 550 Appendix 2: Worth thinking about? and quiz solutions 556 Index 569 xviii CONTENTS 0003 Visit the Law for Business Students, Sixth Edition mylawchamber site at www.mylawchamber.co.uk/adams to access valuable learning material. For students Do you want to give yourself a head start come exam time? Companion website support Use the multiple choice questions and flashcards to test yourself on each topic throughoutthe course. Use the updates to major changes in the law to make sure you are ahead of the game by knowing the latest developments. Use the live weblinks to help you explore the law as it relates to you. Struggling with some of the core concepts in Contract Law? Online Study Guide This study guide includes a series of interactive problem solving exercises to help you revise key topics in Contract Law. The study guide is available in Blackboard, WebCT and CourseCompass Worried about getting to grips with cases? Case Navigator* This unique online support helps you to improve your case reading and analysis skills. Direct deep links to the core cases in Business Law. Short introductions provide guidance on what you should look out for while reading the case. Questions help you to test your understanding of the case, and provide feedback on what you should have grasped. Summaries contextualise the case and point you to further reading so that you are fully pre- pared for seminars and discussions. Also: The Companion Website provides the following features: Search tool to help locate specific items of content E-mail results and profile tools to send results of quizzes to instructors Online help and support to assist with website usage and troubleshooting For more information please contact your local Pearson Education sales representative or visit www.pearsoned.co.uk/adams *Please note that access to Case Navigator is free with the purchase of this book, but you must register with us for access. Fu ll registration instructions are available on the website. The LexisNexis element of Case Navigator is \ only available to those who currently subscribe to LexisNexis Butterworths online. xix 0003 Guided tour IntroductionContractual obligations do not last forever and may be discharged in any of the fol- lowing situations: 1Performance. A contract is discharged when its terms have been performed. 2 Agreement . The parties may agree not to go ahead with the contract which is then discharged, provided that this agreement is, in itself, a valid contract. 3 Frustration . If the contract becomes impossible or futile to perform due to events \ out- side the parties’ control, this defeats the parties’ intentions and ends the contract.4 Breach . Not every breach of contract is capable of ending the contract, but the breach of a major term (condition) may have this effect. This chapter examines these concepts and also describes the remedies available at common law and equity for breach of contract. Learning ObjectivesWhen you have studied this chapter you should be able to:List the ways in which a contract may be discharged Appreciate the concept of complete performance and the exceptions to it Describe how a contract may be discharged by agreement Give examples of when a contract may be frustrated Explain the rights of the parties to a frustrated contract Grasp when a breach is capable of discharging the contract Apply the remoteness of damage rules Distinguish between the different types of damages available for breach of contract Be aware of when the court may impose an equitable remedy for breach of contract. Photo: Vario Images GmbH & Co. KG/Alamy An operative mistake makes the contract voidExceptionally, a mistake will be so fundamental that the contract will be rendered void . Such a mistake is said in law to be operative because it strikes at the root of the contract, effectively preventing any true agreement. In practice this is very rare. Mistakes as to qualitydo not make the contract void. A mistake as to the attributes of the subject matter of the contract or of a party to it is never an operative\ mistake, even if the other party induces the mistake (misrepresentation), or fails to correct the mistaken party’s false impression. If you ask to buy a food processor from a shop, under the mistaken belief that it has a juice-making facility, your mistake does not make the contract void. If the shop assistant told you that a juice maker was included, the contract is void\ able for misrepresenta- tion. If you were not actively misled, the contract is binding. The shop may be prepared to let you exchange the goods, or even give you a refund, but there is no legal obligation on it to do so. In contracts for the sale of land, the courts were sometimes prepared to treat a con- tract as voidable under equitable principles. Rescission was sometimes g\ ranted if both parties made the same mistake. This was possible only if it produced the most just result. Similarly, the court would not allow a party to obtain a decree of specific performance, if this would permit a party to exploit a mistake unfairly. This equitable doctrine was abolished by the Court of Appeal in Great Peace Shipping v Tsavliris (International )Ltd (2002). (Full information about equitable remedies can be found at the end of Chapter 9.) Operative mistake may occur in the following circumstances. Common mistake concerning the existence of the subject matterIn common mistake both parties reasonably but wrongly believe that the subject matter exists at the time they make the contract. 135 Horace was buying a new house and after a lengthy search thought that at last he had found the place of his dreams, a pretty Victorian terraced house in a quiet street, with roses growing round the front door. Cuthbert the vendor was delighted to accept Ho race’s offer, as he had had a long difficult rela- tionship with his next door neighbours, Baggy and Snitch, who were often very noisy in the evenings and who had started actively to harass Cuthbert after he had written to report them to the Council. A sale of land contract requires the vendor to complete a Sellers’ Property Information Form. Cuthbert, desperate to escape, answered ‘no’ to the question about whether he had had any disputes with, or had made any complaints to/about his neighbours, or had sent any letters that might affect the property. The sale was duly completed but Horace is now enduring substantial noise nuisance from his neigh- bours who threatened him when he politely requested them to keep it down a bit. Horace can rescind this contract for fraudulent misrepresentation and claim damages. We may have some sympathy with Cuthbert, but he clearly was lying. In less clear-cut circumstances Horace would be better off suing under the Misrepresentation Act 1967, s 2(1) which requires the misrepresentor to prove reasonable belief in their statement.Real Life MISTAKE Defects in the contract7 Chapter Introductions Outline the key concepts that each chapter is going to discuss in detail so that you are aware of the main issues before you start your reading. Real Life boxes Give you examples of how the law is applied to everyday situations allowing a deeper understanding of the key legal prin- ciples. Learning Objectives Highlight the essential points in each chapter so you can check your understanding while reading. xx 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 90 Part payment by a third party in return for a promise from the creditor not to pursue the original debtor for the balance also discharges the whole debt. An agreement ( composi- tion ) between creditors has a similar effect. It is common business practice for the multiple creditors of a debtor to agree that they will each accept a proportionate repayment of their debts. An individual creditor cannot renege on this contract to pursue the balance of his or her debt as this would be a fraud on the other creditors. A form of such an agreement, commonly known as an Individual Voluntary Arrangement (IVA) was introduced and regulated by the Insolvency Act 1986. These are brokered by finance businesses for a commission and allow debtors to repay a proportion of their debt to their creditors over a specified period which is usually five years. In recent years the number of people dangerously in debt has grown and IVAs have become very popular as an alternative to bankruptcy. (See ‘In the News’.) The cases of Re Selectmove (1995) (above) and Re C (A Debtor ) (1994), indicate that the Court of Appeal is not prepared to allow the principle in Williamsv Roffey to validate agree- ments to pay less than the agreed sum, rather than more. This would otherwise undermine the rule in Pinnel’s case. In the News IVA controversyAccountants KPMG said that there has been a huge growth in the use of IVAs since 1998 when there were under 5,000. The annual total in 2006 was 45,000, with the average IVA debtor owing £52,000 but seeking to repay only 39% of this sum. Setting up these arrangements has become an industry, with many firms getting involved at an average fee of £7,000. Some providers have been heavily criticised for making unrealistic promises about the performance of their products. Some portray IVAs as a universa l panacea for debt, failing to point out that they adversely affect credit records, and that inability to maintain payment can still result in bankruptcy. Concerns about mis-selling led the Office of Fair Trading to order 17 firms selling IVAs to review their advertising in January 2007 and to produce evidence of conformity with OFT guidelines within four weeks. Thirty-eight more warning and advisory letters were issued by the end of December 2007. James Ketchell from the Consumer Credit Counselling Service (CCCS) stressed that IVAs are not the only answer for people struggling with debt and are not generally suitable for the huge majority of people in financial difficulty. CCCS advised 70,000 people in 2006, but in only 3% of these cases was an IVA the most appropriate option. The remainder were better served by a debt management scheme or an application for bankruptcy. (Sources: press releases from: KPMG, 5/5/2006; OFT, 17/1/2006; Consumer Credit Counselling Service, 30/1/2007; Guardian article, 30/1/2007; and OFT press releases 17/1/07 and 17/12/2007.) The duty to act in good faith may be divided into three separate obligations: 1Not to act in conflict with the employer’s interests . Employees must not compete with the employer’s business, even if they do so in their spare time. If the contract requires the employee to work for the employer exclusively, doing any paid work for another person is a breach of duty. 2 Not to reveal confidential information . The employee must not reveal confidential infor- mation about the employer’s profits, customers, work systems, products or services. This duty remains enforceable, though to a more limited extent, even after an employee has left the employer’s service. (There is detailed information about breach of confidence by employees in Chapter 25.) 3 To account for all profits . Taking bribes is obviously a gross breach of duty, but this duty may be breached by an employee who makes any unauthorised profit from the job. Employees, therefore, are not entitled to any secret commission. Tips may be retained in jobs where these are seen as part of payment, as in the restaurant trade. The common law duties of the employerIt is implied in the contract of employment that the employer will: 1 pay the employee as agreed by the contract; 2 not undermine the trust and confidence of the employee; 3 provide the employee with safe working conditions. The duty to pay the employeeMost employees (not just those with a contract of service) are entitled to a minimum wage , under the Minimum Wage Act 1999. The following people are not entitled under the Act: the genuinely self-employed, genuine volunteers, or those withi\ n the first 12 months of their apprenticeship, students doing work as part of an undergraduate or post- graduate course, workers on certain training schemes, residents of certain religious communities, prisoners, the armed forces and share fishermen and apprentices under 19. However, in June 2009 the Department for Business Innovation and Skills (BIS)\ announced that it had asked the Low Pay Commission to reform this, since a fair wage was necessary to prevent exploitation. The rates, revised every October are currently £5.80 per hour for workers aged 22 and over. Workers aged between 18 and 21 are paid a development rate of £4.83; 16–17-year- olds above the compulsory school leaving age are entitled to a minimum of £3.57 per hour, though this does not cover apprentices. The employer has no right to make pay deductions unless, like income tax\ or National Insurance contributions, these are authorised by statute or agreed in writing with the employee. In practice, the contract of employment often provides for employer’s deductions, and the employee thus waives the protection of the common law in this respect. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 354 other pays an agreed sum of compensation. The consideration for the promise of compen- sation is the promise not to sue. In Alliance Bank vBroome (1864) a bank was held to have provided consideration, for the defendant’s promise to give security for a loan, by promising not to take action to recover it. White v Bluett (1853)A son agreed not to bore his father by nagging him to make a will in his favour and in return his father agreed to release him from a debt. Held: the father was not bound by his promise as the son had not provided valid consideration. He had no right to dictate how his father disposed of his property, so he had not given up anything of material value by stopping nagging his father. Note that consideration may be sufficient without being adequate. Provided the alleged consideration is of financial value, it is irrelevant that it is not an adequate return. The courts are not interested in whether the parties have made a goodbargain, but only in whether they have made a bargainat all. Therefore, proof of financial value, however minute, will be enough to make consideration sufficient. Thomas vThomas (1842)A widow was promised a house in return for a ground rent and promising to keep the property in good repair. Held: an annual rent of £1 was held to be sufficient consideration for the promise. Advertising campaigns frequently offer to supply goods in return for wrappers, packet tops or vouchers cut from relevant product wrapping. If you comply with what is asked, then a binding contract results and you are entitled to the tea towel, cuddly toy or other delight being offered. So in Chappell vNestlé & Co. Ltd (1960, HL) three chocolate wrappers were held to constitute valid consideration entitling the sender to pop music\ recordings. Nestlé derived a clear economic benefit from an increase in sales. It was irrelevant that the wrap- pers would be thrown away on arrival. Sufficiency usually involves taking on some new obligationin return for the other party’s promise of payment. Performing an existing legal duty does not generally a\ mount to suffi- cient consideration. Collins v Godefroy (1831)The claimant was a key witness at a trial and was under a court order to attend. Failure to do so would have made him guilty of the crime of contempt of court. The defendant was a party to the proceedings; because the claimant’s attendance was important to him, he promised to pay the claimant if he would attend. Held:the defendant’s promise of payment was not contractually binding. The claimant had not pro-vided sufficient consideration merely by promising to perform his existing legal duty. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 86 Key terms Are highlighted in red and definitions can be found at the end of each chapter. Use them to get up to speed quickly with legal terminology. Case summaries Introduce you to legal cases in a straightforward and easy to understand manner. ‘Worth thinking about?’ Encourages you to think in more detail about a point of law and can be used in class discussions. Solutions can be found in Appendix 2. In the News boxes Provides you with contemporary examples that stress how the law impacts on 21st century life and business! PA R T 4ELEMENTS OF EMPLOYMENT LAW 380 Held:Mr Redfearn had not been discriminated against on racial grounds (because he was white) but because of his particular views, which were shared by a tiny proportion of the white population. He had no more been dismissed on account of his race than if he had been dismissed for racially abusing his employer. Direct discrimination: s 1(1)(a)Persons discriminate against somebody on racial grounds if they treat him or her less favourably than they would or do treat others because of his or her colour, race, etc. Less favourable treatment to one person may arise as a result of discrimination against a third party. In Showboat Entertainment Centre Ltd vOwens (1984, EAT) the complainant was held to have been unfairly dismissed for disobeying a management instruc\ tion to exclude young black men from the amusement centre where he was employed. Indirect discrimination: s 1(1)(b)This occurs when a condition is imposed on members of a racial group which is applied equally to people who are not members of that group, but which considerably fewer mem- bers of the racial group are able to satisfy. The fact that they cannot comply with it must be to their detriment. If the condition can be shown to be justifiable on o\ ther grounds, e.g. health and safety, this is a defence available to the employer. In Panesaar v Nestlé (1980) a rule forbidding long beards and hair in the defendant’s factory, while indirectly discriminat- ing against Sikhs, was nonetheless justifiable on hygiene grounds. Racial harassmentThe RRA 1976 did not originally define harassment but has been interpreted to cover it. The Race Relations Act (Amendment) Regulations 2003 amended the 1976 Act i\ n accordance with the EU Race Equality Directive (2000/43/EC). Under s 3A, racial harassment occurs where one person, on grounds of race, ethnic or national origins, engages in unwanted conduct which has the effect of violating another person’s dignity, or creating an intimidat- ing, hostile, degrading, humiliating or offensive environment for him or her. In Redfearn v Serco Ltd (above) Mr Redfearn was employed in the parcel delivery department of the bus company with very limited contact with the public, had a good relationship with his Asian supervisor and did not voice his political opinions at work. Can you thi\ nk of any other claim he might have made against his employer? Do you think it would have been su\ ccessful? Suggested solutions can be found in Appendix 2.Worth thinking about? xxi GUIDED TOUR 0003 Chapter summary Outlines the key points you should understand after reading each chapter End-of-chapter assignments Test your knowledge in more depth by answering the assignments. They are great practice for what you may be faced with in an exam. Quiz Test your knowledge on what you have read by doing the end of chapter quiz. Solutions can be found in Appendix 2 Web activity Understand how the law works in the real world by log- ging on and trying the web activities. ASSIGNMENT 9 215 (a) ‘If an agent is clothed with ostensible authority,no private instructions prevent his acts within the scope of that authority from binding his principal.’ Discuss and illustrate this proposition. (b) Patricia was part of a group that went on a two-year trip to search for lost tribes in the Amazon jungle. She left her cat, Tabitha, with her friend Brian and asked him to take good care of her and not to let her out in case she got lost. Six months after Patricia left, Tabitha managed to escape from Brian’s house and was run over by a car and badly injured. Brian immediately took her to the vet who said that it would cost £1,000 to treat her. If treated, she stood a very good chance of full recovery, but the only other option was to put her to sleep. Advise Brian on his legal responsibilities as Patricia’s agent.Assignment 9 10The law of agency Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. QUIZ 18 413 18 Actual dismissal: employer tells employee that he or she is dismissed. Additional award: damages awarded against an employer who fails to comply with an order to re- engage or reinstate an employee. Basic award: damages intended to cover an unfairly dismissed employee’s loss of income while they seek new employment. Compensatory award: damages intended to compensate an unfairly dismissed employee for losses arising from the dismissal which are the fault of the employer. Constructive dismissal: employee feels forced into resignation by employer’s behaviour. Continuous employment: minimum of one year’s working for the same employer which qualifies an employee to claim unfair dismissal at the employ- ment tribunal. Deemed dismissal: an employer who refuses to permit an employee to resume her job after mater- nity leave is deemed to have dismissed her. ETO: an economic, technical or organisational reason to justify changes to workforce/conditions of service after the transfer of an undertaking. Redundancy: an employee’s job ceases to exist because the employer restructures/changes busi- ness practices/ceases to carry on business/or closes location where employee works. Summary dismissal: employee is dismissed with- out notice. Transfer of undertakings: a new employer takes over an existing business. Unfair dismissal: dismissal which cannot be justi- fied as fair by the employer. Wrongful dismissal: breach of contract by the employer.Key terms 1Distinguish between wrongful and unfair dismissal.2On what grounds may Tiger Enterprises claim that they fairly dismissed the following employees?(a) Zebra, who was given a job as a trainee lorry driver three years ago and has just failed the HGV test for the sixth time. (b) Camel, who sexually harassed Ms Wart-Hog at the works’ Christmas party. (c) Possum, a van driver who has crashed his vehicle three times. (d) Rhino, who was recently convicted of being drunk and disorderly one Saturday night. 3 Have the following employees been made redundant by Lynx plc? (a) Aardvark, who heard rumours of redun- dancy and resigned. (b) Porcupine, a senior computer programmer, whose current workplace is being closed down. He is told that he is being transferred to another branch 80 miles away. 4 What procedures should be observed by an employer before making employees redundant? Answers to all quizzes can be found in Appendix 2. Quiz 18 Rights at work: protection against dismissal and redundancy WEB ACTIVITY 149 1What effect does a successful claim of (a) misrep- resentation, (b) mistake, (c) duress, (d) undue influence, (e) non est factum , have on a contract? 2 On what grounds may the following contracts arguably be defective? (a) Crockford sold his house to Wisden, having placed a large and heavy bookcase to con- ceal subsidence cracks in the wall. (b) Kelly contracted to sell Bradshaw 1 tonne of jelly babies, which both parties believed to be in a warehouse in Scunthorpe. Earlier the same day, a massive fire had destroyed the contents of the warehouse. (c) Chambers told Webster that he was Pears, the famous flute player. As a result, Webster agreed to sell him his antique flute. (d) Whittaker, who is frail, elderly and heavily dependent on his son, Moore, sold Moore valuable shares for a fraction of their market price, because Moore threatened that other- wise he would go and live abroad. Answers to all quizzes can be found in Appendix 2. Quiz 7 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Esso Petroleum v Mardon [1976] 2 All ER 5, CA William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016, CA Shogun Finance Ltd v Hudson [2004] 1 All ER 215, HL Credit Lyonnais v Burch [1997] 1 All ER 144, CATake a closer look Please go to: www.ripofftipoff.net/ Then click on ‘typical cons’. Have a look at some of the scams on \ offer and see which involve misrepre- sentation or undue influence or unfair contract terms like those in Chap\ ter 6.Web activity 7Defects in the contract 251 Chapter summary KEY TERMS Title to goods to buyer passes:(a) once the goods are ascertained; and (b) at the time specified by the parties; or (c) under the rules in SGA 1979, s 18 if no time is indicated. Title may be reservedSimple reservation/Romalpa clause.Nemo dat quod non habetGood title only passes from/with the authority of the actual title holder.Exceptions to nemo dat ruleSale by a factor. Sale by a seller with a voidable title. Sale by a seller who possesses the goods or title documents. Sale of a vehicle which is currently the subject of a hire-purchase agreement. Performance of the contractSeller: delivery of goods complying with the con- tract. Buyer: acceptance and payment. Entitled to reject defective goods within a reason- able time. RemediesSeller: damages/rescission/lien/stoppage in tran- sit/resale. Buyer: rescission/damages. Appropriation of goods: allocation of goods to the buyer’s specifications by the seller. Bailee: person to whom owner has transferred possession of goods and responsibility for their care. Bailor: person transferring goods to bailee. Deliverable state: all necessary preliminary steps have been taken by the seller to make the goods ready to be delivered to the buyer. Delivery: voluntary transfer of the goods by the seller. Lien: the right of one party to hold on to goods of another party until that party has discharged a debt. Nemo dat quod non habet : good title can only be passed by a party who has good title. Property in the goods: ownership of/title to goods. Reservation of title: the owner retains ownership although the goods have left his or her possession. Risk: liability for loss or damage. Romalpa clause: reservation of title requirement which permits the buyer to use/dispose of the goods, subject to the owner’s rights to trace sale proceeds. Title: ownership rights/property in the goods. Unconditional appropriation: irrevocable step in performance by the seller in designating goods to the buyer. Unconditional sale: title passes immediately.Key terms 12Sale of goods xxii GUIDED TOUR 0003 Take a closer Look Draws your attention to the key legal cases covered in each chapter and invites you to read the cases your- self in order to gain a deeper understanding of the law and to better familiarise yourself with legal terminology. TAKE A CLOSER LOOK 231 11 Goods and services contract:the sale of the goods is incidental but necessary to the perform- ance of a service. Hire contract: entitles the hirer to possession of the goods for the hire period but not title. Hire-purchase contract: the hirer gains immedi- ate posssesion of goods with the option to take ownership when all price instalments are paid. Sale of goods contract: a contract to sell ascer- tained goods, title to which passes to the buyer on formation in return for consideration. Satisfactory quality: meets the reasonable expec- tation of a person buying the particular goods. Title: ownership. Unascertained goods: future or unspecific goods.Key terms (Continued) 1 What is the difference between a contract ofsale and an agreement to sell under s 2 of the SGA 1979? 2 Why is a hire-purchase contract not a sale of goods contract? 3 Explain the rights of the following parties under the SGA 1979: (a) Ash, whose supplier promised him a TV manufactured by Sunny but delivered one manufactured by Prickle. (b) Birch, who has discovered that the fridge he has just bought from a shop warms things up instead of keeping them cool. (c) Poplar, who finds that the carpet which he has just purchased is a paler colour than that which he was shown in the shop. (d) Oak, who got frostbite on a mountain climb- ing trip, while using a sleeping bag which the shopkeeper had assured him was appropriate for rugged outdoor use in winter. Answers to all quizzes can be found in Appendix 2.Quiz 11 Sale of goods: the contract and its terms The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Aswan Engineering Establishment Co. Ltd vLup- dine Ltd [1987] 1 All ER 135, CA Godley v Perry [1960] 1 WLR 9 Harlingdon & Leinster Enterprises Ltd vChristopher Hull Fine Art [1990] 1 All ER 737, CA Wilson v Rickett Cockerell Ltd [1954] 1 QB 598Take a closer look Visit the Law for Business Students, 6th edition mylaw chambersite at www.mylawchamber.co.uk/adams to access: Companion website support: Use the multiple choice questions and flashcards to test yourself on each topic throughout the course. The site includes updates to major changes in the law to make sure you are ahead of the game, and weblinks to help you read more widely around the subject. Online Study Guide: Use this resource to revise key topics in Contract Law by working through a series of interactive problem solving exercises. Case Navigator: provides access and guidance to key cases in the subject to improve your case reading and analysis skills. xxiii GUIDED TOUR 0003 Acknowledgements The publisher would like to thank the following for their kind permissio\ n to reproduce their photographs: Alamy Images:Arcblue 486; Anthony Dunn 126; Enigma 466; Justin Kase z05z 2; uk retail Alan King 62; Roy Lawe 538; Robert Harding Picture Library Ltd 416; Manor Photography 100; Jeff Morgan retail and commerce 440; Chuck Pefley 234; redsnapper 82; Alex Segre 40; Lourens Smak 418; STOCKFOLIO® 16; vario images GmbH & Co.KG 168; Art Directors and TRIP Photo Library: Trip 276; Corbis:Richard Klune 256; Pawel Libera 60; William Manning 396; Alan Schein Photography 216; Getty Images: Adrian Dennis/AFP 4; CARL DE SOUZA/AFP 540; Graeme Robertson 454; Wayne Eastep/Photographers Choice 346; John Binch: 348. Every effort has been made to trace the copyright holders and we apologise in ad\ vance for any unintentional omissions. We would be pleased to insert the appropriate acknowl- edgement in any subsequent edition of this publication. xxiv 0003 Preface Over 30 years of teaching law on a variety of further and higher educati\ on courses from GCSE to post-graduate level taught me much about the difficulties experienced by stu- dents in grasping legal concepts. It can be particularly hard for students following an intensive course of which law forms only one part. Hopefully, this text will meet their needs. I have tried to make it accessible, without over-simplification of the subject matter. I have aimed to express the law, as far as possible, in accessible terms for the lay person and with a light touch, in the hope that it may not only instruct its readers, but also entertain them a little as well. Many thanks to all at Pearson who have helped me in the creation of this edition, especially my publisher Zoe Botterill. I greatly value her continuing support and practical assistance. Photo: Cherry Potts Last but definitely not least, many thanks to my partner Cherry Potts. A\ s ever, her emo- tional and support and encouragement has been crucial to the editing process. She has also given me lots of practical assistance and the technical support cru\ cial to a somewhat Luddite author, for whom some aspects of computer use remain a mystery. Alix Adams xxv 0003 Table of cases Visit the Law for Business Students Sixth Edition mylaw chamber site at www.mylawchamber.co.uk/adams to access unique online support to improve your case reading and analysis skills. Case Navigator provides: Direct deep links to the core cases in Business Law. Short introductions provide guidance on what you should look out for while reading the case. Questions help you to test your understanding of the case, and provide feedback on what you should have grasped. Summaries contextualise the case and point you to further reading so that you are fully prepared for seminars and discussions. Please note that access to Case Navigator is free with the purchase of this book, but you must register with us for access. Full registration instructions are available on the website. The LexisNexis element of Case Naviga- tor is only available to those who currently subscribe to LexisNexis Butterworths online. A v B, sub nom Gary Flitcroft v Mirror Group Newspapers Ltd [2002] 2 All ER 545, CA, 36, 531, 533, 534, 536 A (a child) v Ministry of Defence [2004] EWCA Civ 641, [2005] QB 183, CA, Affirming[2003] EWHC 849 (QB), 342 A and others v National Blood Authority [2001] 3 All ER 289, 265, 271, 273 AB v Tameside & Glossop Health Authority (1997) 8 Med LR 91, 290 Abbey National PLC and Others v Office of Fair Trading [2009] EWCA Civ 116, 119 Abouzaid v Mothercare UK Ltd [2000] 1 All ER (D) 550, CA, 270, 274 Adams v Lindsell (1818) 1 B & Ald 681, 76 Addie (Robert) & Sons (Collieries) Ltd v Dumbreck [1929] AC 358, 557 Addis v Gramophone Ltd [1909] AC 488, HL, 186 Adler v George [1964] 1 All ER 628, 26, 38 Aerial Advertising v Batchelors Peas [1938] 2 All ER 788, 187 Albert v Motor Insurers Bureau [1971] 2 All ER 1345, HL, 92 Alcock v Wright [1991] 4 All ER 907, HL, 291–293, 311, 313, 559, 565 Allcard v Skinner (1887) 36 Ch D 145, 147 Alliance Bank v Broome (1864) 2 Drew & Sm 289, 86 Allin v City & Hackney Health Authority (1996) 7 Med LR 167, 290 Aluminium Industrie Vaasen v Romalpa Aluminium Ltd [1976] 1 All ER 552, 238, 239, 251, 252 Amalgamated Investment & Property Co Ltd v John Walker & Sons [1977] 1 WLR 164, 175 Anderton v Ryan [1985] 2 All ER 355, 557 xxvi 0003 Andreaev Selfridge [1938] Ch 11, 327 Andrews v Singer [1934] All ER 479, 109 Anglia TV v Reed [1971] 3 All ER 690, 185 Anglo Overseas Transport Ltd v Titan Industrial Corporation [1959] 2 Lloyd’s Rep, 152 , 206, 214 Appleby v Myers (1867) LR 2 CP 651, 177, 179 Archer (Lady) v Williams [2003] EWHC 1670 (QB), 532 Arcosv Ronaasen [1933] AC 470, 223 Arensen v Casson Beckman Rutley & Co. [1977] AC 747, 207, 214 Armour and Carron Ltd v Thyssen [1990] 3 All ER 481, 238 Armstrong v Jackson [1917] 2 KB 822, 208 Ashbury Railway Carriage Co. v Riche (1875) LR 7 HL 653, 446 Associated Newspaper Holdings v Insert Media Ltd [1991] 3 All ER 535, 524 Associated Tyre Specialists v Waterhouse [1976] IRLR 386, 355 Aswan Engineering Establishment Co. Ltd v Lupadine [1987] 1 All ER 135, CA, 226, 231 Atkin v Enfield Hospital Management Committee [1975] IRLR 217, 403 Atlas Express v Kafco Importers & Distributors [1989] 1 All ER 641, 143 Attorney General v Guardian Newspapers (No 2) [1990] AC 109, HL, 530 Attwood v Small (1838) 6 Cl & F 232, 131 Austin vCommissioner of Police of the Metropolis [2009] UKHL 5, HL, 35 Avery v Bowden (1855) 5 E & B 714, 182 Avon Finance v Bridger [1985] 2 All ER 281, CA, 144 Azmi v Kirklees Metropolitan Borough Council [2007] ICR 1154, EAT, 387, 393 BP Exploration Co (Libya) Ltd vHunt (No 2) [1983] 2 AC 352, [1982] 1 All ER 925, HL, 178 BRC Engineering Ltd v Schelff [1921] 2 Ch 563, 158 Badger v Ministry of Defence [2006] 3 All ER 173, 338 Bairstow Eves London Central Ltd v Smith [2004] EWHC 263, 117 Balfour v Balfour [1919] 2 KB 571, CA, 92 Barber v Guardian Royal Exchange Assurance Group: C-262/88 [1991] 1 QB 344, [1990] ICR 616, ECJ, 377 Barber v Somerset County Council [2004] UKHL 13, HL, 359, 366, 394 Barclays Bank v O’Brien [1993] 4 All ER 417, HL, 145, 146 Barker vCorus UK Ltd; Murray v British Shipbuilders (Hydrodynamics) Ltd; Patterson vSmiths Dock Ltd [2006] 3 All ER 785, HL, 307, 308 Barnett v Chelsea & Kensington Hospital Management Committee [1969] 1 QB 420, 305 Barnett v Packer [1940] 3 All ER 575, 260 Barrett v Deere (1828) Moo & M 200, HL, 202 Barrett v Enfield Borough Council [1999] 3 WLR 79, 297, 299 Barton v Armstrong [1975] 2 All ER 465, PC, 142 Batcheller vTunbridge Wells Gas Company (1901) 84 LT 765, 333 Batisha v Say (1977) IRLIB 109, 373 Baybut and others v Eccle Riggs Country Park (2006) The Times, 13 November, 119 Bayley v Manchester, Sheffield & Lincolnshire Rail- way (1873) LR 8 CP 148, 340 Beale v Taylor [1967] 3 All ER 253, CA, 222, 223 Beard v London Omnibus Co. [1900] 2 QB 530, 340 Bell Houses Ltd v City Wall Properties Ltd [1966] 2 WLR 1323, CA, 446 Beneviste v University of Southampton [1989] ICR 617, 373 Berlei (UK) v Bali Brassiere Co. [1969] 2 All ER 812, 516, 521 Bernstein v Pamson [1987] 2 All ER 220, 245 Beswick v Beswick [1968] AC 58, 192 Bettini v Gye (1875–76) LR 1 QBD 183, 104 Bigg v Boyd Gibbons [1971] 1 WLR 913, 67 Bissett v Wilkinson [1927] AC 58, 128 Blackburn & Another v CC West Midlands Police [2008] EWCA Civ 1208, 373 Blackpool & Fylde Aero Club v Blackpool Council [1990] 3 All ER 25, CA, 69, 80 Bloom v American Swiss Watch Co [1915] App D 100, 68 Bogle & Others vMcDonalds Restaurants Ltd [2002] EWHC 490 QB, 266 Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, CA, 302–304 Bolitho v City and Hackney Area Health Authority [1997] 4 All ER 771, 304 Bolton v Mahadeva [1972] 2 All ER 1322, 171 Bolton v Stone [1951] AC 850, 300 Borden v Scottish Timber Products Ltd [1981] Ch 25, CA, 238 Boychuk v Symons Holdings [1977] IRLR 395, 403 Brace v Calder [1895] 2 QB 253, 190 Bracebridge Engineering v Darby [1990] IRLR 3, 355 Bradbury v Morgan (1862) 1 H & C 249, 70 Branco v Cobarro [1947] 2 All ER 101, 73 xxvii TABLE OF CASES 0003 xxviiiBrinkibon Ltd v Stahag Stahl und Stahlwarenhandels GmbH [1983] 2 AC 34, [1982] 1 All ER 293, HL, Affirming [1980] 2 Lloyd’s Rep 556, CA, 75, 81, 545 Bristol Conservatories Ltd v Conservatories Custom Built Ltd [1989] RPC 455, 524 British Celanese v Hunt [1969] 1 WLR 959, CA, 326 British Railways Board v Herrington [1972] 2 WLR 537, HL, 322, 557 Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666, 74, 545 Brown v Cotterill 1934 LTR 21, 259 Bunker v Charles Brand [1969] 2 QB 480, 319 Bushell v Faith [1970] 2 WLR 272, HL, 476 Butler Machine Tools v Ex-Cell-O Ltd[1979] 1 All ER 965, 73, 81 Byrne v Van Tienhoven (1880) 5 CPD 344, 76, 545 C (a debtor), Re (1994) 11 May, unreported, 90 Campbell v Mirror Group Newspapers Ltd [2004] 2 All ER 995, HL, 529, 531, 533, 534 Cambridge Water Co v Eastern Counties Leather [1994] 2 AC 264, [1994] 1 All ER 53, HL, 334 Caparo Industries plc vDickman [1990] 1 All ER 568, HL, 278, 284, 285, 314, 481, 483, 484 Capital and Counties Bank plc v Hampshire Fire Brigade [1997] QB 1004, CA, 296 Capper Pass v Lawton [1977] IRLR 366, 370 Car & Universal Finance Co. Ltd v Caldwell [1964] 1 All ER 290, 137, 241 Carlill v Carbolic Smoke Ball Co. Ltd [1893] 1 QB 256, 68, 80, 81 Cehave NV v Bremer Handelsgesellschaft (The Hansa Nord) [1975] 3 All ER 739, 104 Central London Property Trust v High Trees House [1947] KB 130, 31, 39, 91, 99, 563 Century Insurance v Northern Irish Road Transport Board [1949] AC 406, HL, 340 Chadwick v British Rail [1967] 1 WLR 912, 289 Chapelton v Barry UDC [1940] 1 All ER 456, CA, 107 Chappellv Nestlé & Co Ltd [1960] 3 WLR 701, HL, 86 Chapronierev Mason (1905) 21 TLR 633, 225 Chaudhry v Prabhaker [1988] 1 WLR 29, CA, 201, 206, 214, 286 Chessington World of Adventures v Reed [1997] IRLR 556, 378 Chief Constable of Bedfordshire Police v Liversidge Lawtel [2002] EWCA Civ 894, 382 Chief Constable of Hertfordshire Police vVan Colle & Smith v CC of Sussex [2008] UKHL 50, [2008] 3 All ER 977, HL, 298 Chief Constable of Lincolnshire Police v Stubbs [1999] IRLR 81, 376 Chipchase v British Titan Products [1956] 1 QB 545, 360 City Equitable & Fire Insurance Co. Ltd, Re[1925] Ch 307, 470, 473 Clay vCrump [1963] 3 All ER 687, 286 Clea Shipping Corpn v Bulk Oil International [1984] 1 All ER 129, 182 Cleveland Petroleum v Dartstone Ltd [1969] 1 All ER 201, CA, 159 Cohen v Roche [1927] 1 KB 169, 191 Collins v Associated Greyhound Race Courses Ltd [1930] 1 Ch 1, 205 Collins v Godefroy (1831) B & Ad 950, 86 Coleman vAttridge Law: C-303/06 [2008] All ER (EC) 1105, [2008] 3 CMLR 777, ECJ, 385 Colour Quest Ltd v Total Downstream UK plc [2009] EWHC 540 (Comm), [2009] EWHC 823 (Comm), [2009] All ER (D) 152 (Apr), Comml Ct, 334 Combe v Combe [1951] 2 KB 215, CA, 91 Commission for Racial Equality v Dutton [1989] IRLR 8, CA, 379 Community Integrated care Ltd vDe Smith 2008 UKEATS/0015/08/MT, EAT, 402 Condor v The Barron Knights [1966] WLR 87, 173 Confetti Records (a firm) v Warner Music UK Ltd (trading as East West Records) [2003] EWHC 1274 (Ch), [2003] All ER (D) 61 (Jun), Ch D, 74 Co-operative Insurance Society v Argyll Stores (Holdings) Ltd [1998] AC 1, HL, 192 Corr v IBC Vehicles Ltd [2008] UKHL 13, [2008] 2 All ER 943, 309 Couturier v Hastie (1856) 5 HLC 673, HL, 136 Cox v Post Office (1997) (unreported) The Daily Telegraph, 5 November, 383 Craig, Re [1971] Ch 95, 144 Credit Lyonnais v Burch [1997] IRLR 167, 146, 149 Crowhurst vAmersham Burial Board (1878) 4 Ex D 5, [1874-80] All ER Rep 89, Ex D, 333 Crown Suppliers (PSA) v Dawkins [1991] 1 All ER 306, 379 Cundy v Lindsay (1878) 3 App Cas 459, HL, 137, 138, 140 Cunningham v Reading Football Club Ltd (1991) 157 LG Rev 481, [1992] PIQR P 141 (1991) The Independent, 20 March, QBD, 319 Currie v Misa (1875) LR 10 Ex 153, 84 Curtis vChemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805, [1951] 1 All ER 631, CA, 109 TABLE OF CASES 0003 xxix Cutter v Powell (1795) 6 Term Rep 320, 170, 172, 179 D & C Builders vRees [1965] 3 All ER 837, CA, 92 Dalkia Utilities Services plc v Caltech International Ltd [2006] EWHC 63 (Comm), 180 Dalton v Burtons Gold Medal Biscuit Co. Ltd [1974] IRLR 45, 353 Davey v Harrow Corporation [1957] 1 QB 60, CA, 325 Davis Contractors v Fareham UDC [1956] 2 All ER 145, HL, 175, 195 Davison v Kent Meters [1975] IRLR 145, 402 De Beers Products Ltd v International General Electrics [1975] 1 WLR 972, 528 De Francesco v Barnum (1890) 45 Ch D 430, 162 Dennis v Ministry of Defence [2003] EWHC 793, 329, 335 Dickinson v Dodds (1876) 2 Ch D 463, 71, 545 Dimmock v Hallett (1866) 2 Ch App 21, 130 Director General of Fair Trading v First National Bank [2001] 1 All ER 97, HL, 117–119, 124 Dollman v Hillman [1941] 1 All ER 355, 332 Donoghue v Stevenson [1932] AC 562, HL, 258–261, 272, 273, 277, 286 Dooley v Cammell Laird & Co. [1951] 2 Lloyd’s Rep 271, 289 Douglas and another v Hello! Ltd (No 3) [2007] 4 All ER 545, 531, 532, 536 Douglas and another v Hello! Ltd [2001] 2 All ER 289, CA, 531, 534 Douglas and another v Hello! Ltd [2005] 4 All ER 128, CA, 531 Doyle v Olby (Ironmongers) [1969] 2 QB 158, CA, 132 Dulieu vWhite & Sons [1901] 2 KB 669, [1900-3] All ER Rep 353, KBD, 287 Dunlop Pneumatic Tyre Co. v New Garage & Motor Co Ltd [1915] AC 79, HL, 189 Dunlop Rubber Co. Ltd v Selfridge [1915] AC 847, HL, 84, 95 Eastham v Newcastle United Football Club [1964] Ch 413, [1963] 3 All ER 139, Aus HC, 157, 165 Eastwood and Another v Magnox plc McCabe v Cornwall County Council [2004] UKHL 35, HL, 187 Edgingtonv Fitzmaurice (1885) 29 ChD 459, 129 Electrolux v Hudson [1977] FSR 312, 512, 521 Eley v Positive Life Assurance Co. (1876) 1 ExD 88, 447 English vThomas Sanderson [2008] EWCA Civ 1421, (2009) The Times, 5 January, 2009, 386 Entores Ltd v Miles Far East Corporation [1955] 2 All ER 493, 75, 80, 545 Errington v Errington & Woods [1952] 1 All ER 149, CA, 72 Erven Warnink BV v Townend & Sons (Hull) Ltd [1979] AC 731, 524 Esso Petroleum Co Ltd vHarper’s Garage (Stourport) Ltd [1968] AC 269, [1967] 1 All ER 699, HL, Varying [1966] 2 QB 514, CA, Affirming[1966] 2 QB 514, [1965] 2 All ER 933, QBD , 159 Esso Petroleum v Mardon [1976] 2 All ER 5, CA, 129, 149 Etam plc v Rowan [1996] IRLR 75, EAT, 376 European Commission v UK (C-300/95) [1997] ECR I–2649, ECJ, 270 Evans vCherry Tree Finance Ltd [2008] EWCA Civ 331, CA, 117 Evans vTriplex Safety Glass Co Ltd [1936] 1 All ER 283, 261 Everet v Williams (1725) cited in [1899] 1 QB 826, 154 Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617, CA, 157, 532 Fairchild v Glenhaven Funeral Services [2002] 3 All ER 305, HL, 306–308, 313 Farley v Skinner (No 2) [2001] 4 All ER 801, HL, 188 Farr v Hoveringham Gravels Ltd [1972] IRLR 104, 404, 414 Fawcett v Smethurst (1914) 84 LJKB 473, 161 Federspiel v Twigg [1957] 1 Lloyd’s Rep 240, 237 Feldaroll Foundry Plc v Hermes Leasing London Ltd [2004] EWCA Civ 747, 112 Felthouse v Bindley (1862) 11 CB (NS) 869, 77 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, HL, 174, 177 Fisher v Bell [1961] 3 WLR 919, 26, 66 Fitch v Dewes [1921] 2 Ch 159, HL, 156 Flack v Baldry [1988] 1 WLR 214, 26 Foley v Classique Coaches [1934] All ER 88, 65 Ford Motor Co. Ltd and Iveco Fiat SpA’s Design Application [1993] RPC 167, 510 Forster & Sons Ltd v Suggett (1918) 35 TLR 87, 156 Foss v Harbottle (1843) 2 Hare 461, 492, 493, 496, 561 Freeman & Lockyer v Buckhurst Park Properties Mangal Ltd [1964] 2 QB 480, 470, 484 Froom vButcher [1976] QB 286, [1975] 3 All ER 520, CA, 338 Fuller v Stephanie Bowman Ltd [1977] IRLR 87, 409 TABLE OF CASES 0003 Galliev Lee (Saunders v Anglia Building Society) [1970] 3 All ER 961, HL, 142 Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226, 173, 178 Geddling v Marsh [1920] 1 KB 668, 225 George Mitchell Ltd v Finney Lock Seeds Ltd [1983] 2 All ER 737, HL, 114 Gillingham Borough Council vMedway (Chatham) Dock Co Ltd [1993] QB 343, [1992] 3 WLR 449, QBD, 327 Glasbrook Bros v Glamorgan County Council [1925] AC 270, HL, 87 Glasgow Corporation v Taylor [1922] AC 44, HL, 320 Godley v Perry [1960] 1 WLR 9, 225, 228, 231 Goldsoll v Goldman [1915] 1 Ch 292, CA, 160 Goldsworthy v Brickell [1987] 1 All ER 853, CA, 145 Gordon v Sellico [1986] 278 EG 53, 128 Gorfin v Distressed Gentlefolks’ Aid Association [1973] IRLR 290, 404, 414 Granada Group Ltd v Ford Motor Co Ltd [1972] FSR 103, [1973] RPC 49, Ch D, 525 Grant v Australian Knitting Mills [1936] AC 85, PC, 226, 259 Gravil vCarroll and Redruth Rugby Club [2008] EWCA (Civ) 689, [2008] IRLR 829, CA, 341 Great Northern Railway v Swaffield (1874) LR 9 Exch 132, 203 Great Peace Shipping v Tsavliris (International) Ltd [2002] 4 All ER 689, 135 Green v Cade Bros [1978] 1 Lloyd’s Rep 602, 113 Gregg vScott [2005] UKHL 2, [2005] 4 All ER 812, 308 Griffiths v Peter Conway [1939] 1 All ER 685, 227 Gryf-Lowczowski v Hinchinbrooke Healthcare NHS Trust [2006] ICR 425, 175, 193 Guinness plc v Saunders [1990] 2 AC 663, 474, 483 Guthing v Lynn (1831) 2 B&AD 231, 65 HRH Prince of Wales, See Prince of Wales (HRH) Hadley v Baxendale (1854) 9 Exch 341, 183, 184, 193–195 Hale vJennings Bros [1938] 1 All ER 579, 82 Sol Jo 193, CA, 333 Halsey v Esso Petroleum [1961] 1 WLR 683, 326 Hambrook v Stokes [1925] 1 KB 141, CA, 291, 559 Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd [1990] 1 All ER 737, CA, 223, 231 Hartleyv Ponsonby (1857) 7 EL BL 872, 87 Hartog v Colin & Shields [1939] 3 All ER 566, 141 Harvey v Facey [1893] AC 552, 67 Hatton v Sutherland [2002] 2 All ER 1, 358 Hayes v James & Charles Dodd [1990] 2 All ER 815, CA, 188 Haynes v Harwood [1935] 1 KB 147, CA, 336 Hayward v Cammell Laird Shipbuilders [1988] 1 All ER 503, HL, 371 Hedley Byrne v Heller [1963] AC 465, HL, 132, 281–284, 286, 290, 313, 429, 565 Heil v Hedges (1951) 1 TLR 512, 226 Hendy Lennox v Graham Puttick [1984] 2 All ER 152, 237 Herne Bay Steam Boat Co. v Hutton [1903] 2 KB 683, 174 Herschtal (or Herschthal) vStewart and Ardern Ltd [1940] 1 KB 155, [1939] 4 All ER 123, KBD, 259 Heywood v Wellers [1976] QB 446, 187 Hickman v Romney Marsh Sheep Breeders Association [1915] 1 Ch 881, 447 Hilder v Associated Portland Cement [1961] 1 WLR 1434, 301 Hill vChief Constable of South Yorkshire (1996) (unreported), HL, 298 Hillas v Arcos (1932) 147 LT 503, 65 Hochster v De la Tour (1853) 2 E & B 678, 180 Hodges (GT) & Sons vHackbridge Residential Hotel [1939] 4 All ER 307, 205 Hoenig v Isaacs [1952] 2 All ER 176, 172 Hogg v Cramphorn [1967] Ch 254, 472 Holis Metal Industries vGMB 2007 Appeal No. UKEAT/0171/07/CEA, 410 Hollywood Silver Fox Farm v Emmett [1936] 2 KB 468, 328 Holwell Securities v Hughes [1974] 1 All ER 161, 77, 80 Home Counties Dairies v Skilton [1970] 1 All ER 1227, 158, 160, 165 Home Office v Dorset Yacht Co. Ltd [1970] AC 1004, HL, 295 Home Office v Holmes [1984] 3 All ER 549, 374 Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 WLR 474, CA, 104, 124 Hood v West End Motor Car Packing [1917] 2 KB 38, 130 Hotson v East Berkshire Heath Authority [1987] 2 All ER 909, 308 Household Insurance v Grant (1879) 4 Ex D 216, 76 Howard Marine & Dredging Co. Ltd v Ogden & Sons Ltd [1978] QB 574, CA, 132 Howden v Capital Copiers [1998] IRLR 586, February, 383 xxx TABLE OF CASES 0003 xxxi Hudsonv Ridge Manufacturing Co. Ltd [1957] 2 QB 348, 356, 365 Hudson v Shogun Finance. See Shogun Finance Ltd v Hudson Hughes v Lord Advocate [1963] AC 837, HL, 309 Humble v Hunter [1848] 12 QB 310, 205 Hunterv Canary Wharf [1997] 2 All ER 426, 330, 344 Hussain & Livingstonev Lancaster City Council [1999] 2 WLR 1142, CA, 330, 335 Hyde v Wrench (1840) 3 Beav 334, 70 ICI v Shatwell [1964] AC 656, HL, 337 IDC v Cooley [1972] 1 WLR 443, 471, 473, 483 Imageview Management vKelvin Jack [2009] EWCA Civ 63, CA, 207, 208 Ingram v Little [1960] 3 WLR 504, 138, 139 Inland Revenue Commissioners v Fry [2001] STC 1715, [2002] 06 LS Gaz R 30, Ch D, 74 Interfoto Picture Library vStiletto Productions [1988] 1 All ER 348, CA, 108, 123, 124 Interlego AG’s Trademark Application, Re[1998] RPC 69, Ch D, 516 Isle of Wight Tourist Board v Coombes [1976] IRLR 413, 355 Islington Borough Council vLadele [2008] UKEAT/0453/08/RN 19/12 2008, EAT, 388 JD vEast Berkshire Community Health NHS Trust & Others [2005] UKHL 23, [2005] 2 All ER 443, 299 Jackson v Horizon Holidays Ltd [1975] 3 All ER 92, CA, 96, 99 Jarvis v Swan Tours [1973] 3 WLR 954, CA, 182, 187, 195 Jeancharm v Barnet Football Club [2003] EWCA Civ 58, CA, 189 Johnson v Unisys [2001] UKHL 13, HL, 186, 196 Johnston v NEI International [and other conjoined claims [2007] UKHL 39, [2007] 4 All ER 1047, HL, 288 Jolley v London Borough of Sutton [2000] 1 WLR 1082, HL, 309 Jon Beauforte (London) Ltd, Re [1953] 1 All ER 660, 448 Jones v Daniel [1894] 2 Ch 332, 73 Jones v Gallagher and Gallagher [2005] 1 Lloyd’s Rep 377, CA, 247 Jones v Lipman [1962] 1 WLR 832, 428, 438 Jonesv Tower Boot Co. Ltd [1997] IRLR 168, 376, 381 Jonesv Vernons Pools [1938] 2 All ER 626, 94 Junior Booksv Veitchi [1982] 1 AC 520, HL, 263, 273 K, Re; ReM plc [2005] EWCA Crim 619, [2005] All ER (D) 23 (Mar), CA, 428, 438 Kearney v Eric Waller [1966] 1 QB 29, 319 Kelly & another vGE Healthcare [2009] EWHC (181 Pat), 513 Kendall v Lillico [1968] 3 WLR 110, HL, 108 Kent v Griffiths and Others (No 3) [2001] QB 36, CA, 297 Keown v Coventry Healthcare NHS Trust [2006] EWCA Civ 39, [2006] 1 WLR 953, CA, 323 Khorasandjian v Bush [1993] QB 727, 330 King’s Norton Metal Co. v Edridge, Merrett & Co. (1897) 14 TLR 98, 137 Kirkham v Attenborough [1897] 1 QB 201, 237 Knapp v The Railway Executive [1949] 2 All ER 508, 359 Knowles v Liverpool CC [1993] 1 WLR 1428, 357 Koufos v Czarnikow Ltd (The Heron II) [1969] 1 AC 350, HL, 184, 195 Krell v Henry [1903] 2 KB 740, 174 L’Estrange v Graucob [1934] 2 KB 394, 108 Lacis v Cashmarts [1969] 2 QB 400, 236 Latimer v A.E.C. [1953] AC 643, 302 Lawrence v Lexcourt Holdings Ltd [1978] 2 All ER 810, 129 Lawrence vPembrokeshire County Council [2007] EWCA Civ 446, [2007] 1 WLR 2991, CA, 299 Leakey v National Trust [1980] QB 485, 330 Lee v York Coach & Marine [1977] RTR 35, 249 Leeman v Montague [1936] 2 All ER 1677, 327 Leslie v Sheill [1914] 3 KB 607, 163 Lewis v Averay [1971] 3 WLR 603, CA, 139 Lewis vSix Counties [2005] EWCA Civ 1805 The Times , January 20, 2006, CA, 319 Lister v Hesley Hall Ltd [2001] 2 All ER 769, HL, 341, 344 Litster v Thom & Sons Ltd [1975] IRLR 47, 401 Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026, CA, 158, 165 Lombard North Central plc v Butterworth [1987] QB 527, CA, 105, 123 London Borough of Lewisham vMalcolm [2008] UKHL 43, [2008] 3 WLR 194, 384, 391 Luxmoore May v Messenger May Bakers [1990] 1 WLR 1009, CA, 304 Lyons & Co. v Gulliver [1914] 1 Ch 631, 332 McArdle, Re[1951] Ch 669, CA, 85, 99 McCarthy v Chief Constable of South Yorkshire (1996) (Unreported), 292 TABLE OF CASES 0003 xxxii McCarthysv Smith [1981] QB 180, CA, 372 McCutcheon v David McBrayne [1964] 1 All ER 430, HL, 108 McGhee v National Coal Board [1973] 1 WLR 1, [1972] 3 All ER 1008, HL, 306 McKenna vBritish Aluminium Ltd [2002] Env LR 30, 335 McKew v Holland & Cubitts Ltd [1969] 3 All ER 1621, HL, 309 McKinnon Industries Ltd v Walker [1951] WN 401, 328 McLoughlin v O’Brian [1982] 2 WLR 982, HL, 291 McMillan & Co. v Cooper (1923) 40 TLR 186, 504 McNaughten (James) Paper Group Ltd v Hicks Anderson & Co. [1991] 2 QB 113, CA, 284, 285 McRae v Commonwealth Disposals Commissions (1951) 84 CLR 377, 136 McWilliams v Arrol [1962] 1 WLR 295, 305 Majrowski vGuy’s and St Thomas’s NHS Trust [2006] UKHL 34, [2007] 1 AC 224, HL, 341 Malik vBank of Credit & Commerce International [1998] AC 20, HL, 186, 195, 355 Malone v Laskey [1907] 2 KB 141, 330 Malonelyv Lambeth Council (1966) 198 EG 895, 320 Maloneyv Torfaen CBC [2005] EWCA Civ 1762, CA, 318, 323 Managers (Holborn) Ltd v Hohne [1977] IRLR 230, 409 Mandla v Dowell Lee [1983] IRLR 209, HL, 379 Marc Rich & Co AG. v Bishop Rock Marine Co Ltd ( The Nicholas H ) [1996] AC 211, [1995] 3 All ER 307, (1995) The Times, 7 July, HL, 260 Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524, 176 Marks & Spencer plc v One in a Million Ltd [1998] FSR 265, 527 Martin v Parkham Foods (2006) (unreported), EAT, 387, 400 Mathieson v Noble [1972] IRLR 76, 404 Mattocks v Mann [1993] RTR 13, 311 Max Mosley, See Mosley (Max) vNews Group Newspapers Ltd Merret v Bubb [2001] ILR 23/2/2001, 300 Merrit v Merrit [1970] 2 All ER 760, CA, 92 Metropolitan Water Board v Dick Kerr & Co. Ltd [1918] AC 119, HL, Affirming [1917] 2 KB 1, CA, 175, 176 Mihalis Angelos, The [1970] 3 WLR 601, CA, 105, 106 Mint v Good [1950] 2 All ER 1159, 332Minter v Wellingborough Foundries (1981) The Times 202,403 Mondial Shipping & Chartering BV v Astarte Shipping [1995] CLC 1011, 75 Monk vHarrington Ltd and others [2008] EWHC 1879, (2009) PIQR P3, 289, 290 Moorcock, The (1889) 14 PD 64, 102 Moore v C & A Modes [1981] IRLR 71, 402 Morgan v Manser [1947] 2 All ER 266, 174 Morgan Crucible Co. plc v Hill Samuel Bank [1991] Ch 295, CA, 285 Morris v Saxelby [1916] 1 AC 688, 156, 156 Morrish v Henlys (Folkestone) Ltd [1973] 2 All ER 137, 353 Mosley (Max) vNews Group Newspapers Ltd [2008] EWHC 1777 (QB), The Times28 July 2008, 529, 530 Moy v Stoop (1909) 25 TLR 262, 328 Muirhead v Industrial Tank Specialities [1986] QB 507, 262, 263, 565 Munkenbeck & Marshall v Michael Harold [2005] EWHC 356, 118 Murphyv Bord Telecom Eireann [1988] IRLR 267, 371 Murphyv Bradford Metropolitan Council (1991) The Times, 11 February, 320 Murphy v Brentwood Council [1990] 3 WLR 414, HL, 278, 279, 281 Murray vBig Pictures UK Ltd [2008] EWCA Civ 446, [2008] 3 WLR 1360, CA, 534 NAD Electronics v NAD Computer Systems [1997] FSR 380, Ch D, 525, 536 Nash v Inman [1908] 2 KB 1, 161 National Telephone Co vBaker [1893] 2 Ch 186, 57 JP 373, Ch D, 333 Nettleship v Weston [1971] 3 All ER 581, CA, 303 Newman v Alarm Co. Ltd [1976] IRLR 45, 403 Newtons of Wembley Ltd v Williams [1964] 3 All ER 532, CA, 241, 252 Noble v David Gold & Sons (Holdings) Ltd [1980] IRLR 252, 370 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co. Ltd [1894] AC 535, 159 North Yorkshire County Council v Ratcliffe [1995] ICR 833, HL, 373 Northumberland & Durham District Banking Co, Re, ex parte Bigge (1858) 28 LJ Ch 50, 131 Nottingham Patent Brick & Tile Co. Ltd v Butler (1886) 16 QBD 788, 130 TABLE OF CASES 0003 xxxiii O’Brienv Associated Fire Alarms [1969] 1 All ER 93, 408 O’Neill v Symm & Co. [1998] ICR 481, [1998] IRLR 232, EAT, 383, 393 Office of Fair Trading vFoxtons [2009] EWCA Civ 288, The Times 10 April 2009, 119 Ogwo v Taylor [1987] AC 431, HL, 318, 344 Olley v Marlborough Court Hotel [1949] 1 All ER 127, CA, 107 Opel GMBH and Renault SA v Mitras Automotive [2008] EWHC 3205 (QB), [2008] CILL 2561, 143 Orchard vLee [2009] EWCA Civ 295, The Times, April 14, 2009, 303 Osman v Ferguson [1993] 4 All ER 344, CA, 297–299 Osman v UK [1999] 1 FLR 193, 298 Ottoman Bank v Chakarian [1930] AC 277, PC, 352 Overseas Medical Suppliers v Orient [1999] 1 All ER (Comm) 981, 115 Overseas Tankship & Engineering (UK) vMort Dock & Engineering Co (The Wagon Mound) (No 1) [1961] AC 388, [1961] 1 All ER 404, PC, 31, 308, 310, 313 Owen v Professional Golf Association (2000) (unreported), 382 Pv S & Cornwall County Council [1986] IRLR 347, 378 PSM Internationalv Whitehouse & Willenhall Ltd [1992] FSR 489, 529 Pagano v HGS [1976] IRLR 9, 357 Page v Smith [1995] 2 All ER 736, HL, 287, 288, 311 Page One Records v Britton [1968] 1 WLR 157, 193 Palmer v Tees Health Authority [1999] Lloyd’s Rep Med 351, CA, 293 Panesaar v Nestlé [1980] IRLR 64, 380 Panorama Developments v Fidelis Furnishing Fabrics Ltd [1971] 3 WLR 440, CA, 479, 483 Paris v Stepney Council [1951] AC 367, 301 Parks-Cramer Co. v Thornton Ltd [1966] RPC 407, CA, 511, 521 Parsons v McLoughlin [1981] IRLR 65, 403 Partridge v Crittenden [1968] 2 All ER 421, 66 Patel v Ali [1984] Ch 283, 192 Payne v Cave (1789) 3 Term Rep 148, 545 Peachdart, Re[1983] 3 All ER 204, 240, 252 Pearce v Brooks (1866) LR 1 Exch 213, 155, 558 Pennington vSurrey County Council and Surrey Fire & Rescue Services [2006] EWCA Civ 1493, CA, 357 Pepperv Hart [1993] 1 All ER 42, HL, 25, 27 Pereira Fernandes (J) SA v Mehta [2006] 2 All ER 891, 69, 75 Perry Harris [2008] EWCA Civ 907, 303 Perry v Sidney Phillips & Son [1982] 1 WLR 1297, CA, 188 Peters v Fleming (1840) 6 M & W 42, 161 Pharmaceutical Society (GB) v Boots Cash Chemists (Southern) Ltd [1953] 1 All ER 482, CA, 66 Phillips Electronics NV v Remington Consumer Products [1998] RPC 283, 515 Phillips v Brooks [1919] 2 KB 243, 138 Phillips v William Whitely [1938] 1 All ER 566, 302 Phipps v Rochester Corpn [1955] 1 QB 450, 320 Phones 4u Ltd v Phone4u.co.uk Internet Ltd [2006] EWCA Civ 244, CA, 516, 524 Phonogram v Lane [1982] QB 939, CA, 442, 452 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283, HL, 110 Pickard v Sears (1837) 6 Ad & E 469, 240 Pickstone v Freemans plc [1988] 2 All ER 803, 372 Pierce v Doncaster Metropolitan Borough Council [2008] EWCA Civ 1416, [2009] 1 FLR 1189, CA, Reversing in part [2007] EWHC 2968 (QB), 299 Pilkington v Wood [1953] 2 All ER 810, 190 Pinnel’s Case (1602) 5 Co Rep 117, 89, 90, 97, 563 Piper v JRI (Manufacturing) Ltd [2006] EWCA Civ 1344, 267 Planché v Colburn (1831) 8 Bing 14, 171 Polemis & Furness, Withy & Co, Re [1921] 3 KB 560, [1921] All ER Rep 40, CA, 308 Poole v Smiths Car Sales (Balham) Ltd [1962] All ER 282, 237 Porcelli v Strathclyde Regional Council [1986] IRLR 134, 374 Poussard v Spiers & Pond (1875–76) LR 1 QBD, 103 Powell v Lee (1908) 99 LT 284, 74 Price v Civil Service Commission [1978] 1 All ER 1228, 375 Pride & Partners and others v Institute for Animal Health and others [2009] EWHC 1617 (QB), [2009] NPC 56, 278 Prince of Wales (HRH) v Associated Newspapers Ltd [2007] 2 All ER 139, 504, 529 Proform Sports Management Ltd v Pro-Active Sports Management Ltd [2007] 1 All ER 542, 162 R & B Customs Brokers Co Ltd v United Dominions Trust [1988] 1 WLR 321, CA, 112 R (on the application of AGE UK) v Secretary of State for Business Innovation and Skills (2009) The Times, 8 October, 389 R (on the application of Begum) v Headteacher and Governors of Denbigh High School [2006] 2 All ER 487, HL, 35, 38 TABLE OF CASES 0003 xxxiv R (on the application of Khatun)v Newham London Borough Council [2004] 3 WLR 417, CA, 117, 118 R (on the application of Laporte) v Chief Constable of Gloucestershire Constabulary [2007] 2 All ER 529, HL, 34 R (on the application of Pearson) vSecretary of State for the Home Department and Martinez; Hirst v Attorney-General [2001] EWHC 239 (Admin), 33 R (on the application of Save Britain’s Heritage) v Westminster Council [2007] EWHC 807 (Admin), 46 R v Registrar of Companies, ex parte Attorney-Gen- eral [1991] 2 QB 197, 445, 452 R v Secretary of State for Employment, ex parte Equal Opportunities Commission [1994] IRLR 176, 399 R v Secretary of State for Employment, ex parte Seymour-Smith and Perez [1995] IRLR 889, 399 R v Shivpuri [1986] 2 All ER 334, 557 RDF Media Group PLC v Alan Clements [2007] EWHC 2892 (QB), [2008] IRLR 207, 355, 365 Racing UK Ltd v Doncaster Racecourse Ltd and Doncaster Borough Council [2005] EWCA Civ 999, 202 Raffles v Wichelhaus (1864) 2 H&C 906, 136 Rainbow Estates Ltd v Tokenhold [1998] 3 WLR 980, 191 Rainey v Greater Glasgow Health Board [1987] AC 224, HL, 373, 393 Ramsgate Hotel Co. v Montefiore (1866) LR 1 Exch 109, 71 Ratcliff vThe Harper Adams Agricultural College (1998) The Times, 30 November, CA, 324, 338, 344 Ratcliffe v Evans [1892] 2 QB 524, 527 Rayfield v Hands [1960] Ch 1, [1960] 1 Ch 333, [1958] 2 All ER 194, P, D and Admlty, 447, 452 Read vJ Lyons & Co Ltd [1947] AC 156, [1946] 2 All ER 471, HL, Affirming [1945] KB 216, CA, 333 Ready Mixed Concrete v Ministry of Pensions and National Insurance [1968] 2 WLR 627, 340 Real and Personal Advance v Palemphin (1893) 9 TLR 569, 201 Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989, HL, 106 Redfearn v Serco Ltd (t/a West Yorkshire Transport Service) [2006] ICR 1367, [2006] IRLR 623, CA, 379, 380, 393 Redgrave v Hurd (1881) 20 Ch D 1, 131 Reevesv Commissioner of Police for the Metropolis [2000] 1 AC 360, [1999] 3 WLR 363, HL, 310, 339 Regazzoniv Sethia [1957] 3 All ER 286, HL, 154, 165 Regus UK Ltd vEpcot Solutions Ltd [2008] EWCA Civ 361, CA, 115 Reid v PRP Architects [2006] EWCA Civ 1119, [2007] ICR 78, CA, 360, 361, 365 Rickards vLothian [1913] AC 263, [1911-13] All ER Rep 71, PC, 333 Ritchie v Atkinson (1808) 10 East 95, 170 Ritchie (J & H) Ltd v Lloyd Ltd [2007] 2 All ER 353, [2007] 1 WLR 670, HL, Reversing [2005] CSIH 3, IH, 247, 248, 252 Robinson v Kilvert (1889) 41 Ch D 88, 58 LJ Ch 392, CA, 328 Rogers v Parish [1987] QB 933, 250, 246, 252 Roles v Nathan [1963] 1 WLR 1117, 302, 321 Rose & Frank Co. v J R Crompton & Bros [1925] AC 845, 94 Routledge v Grant (1828) 4 Bing 653, 1 Moo & P 717, pre SCJA 1873, 72, 545 Rowland v Divall [1923] 2 KB 500, CA, 221 Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449, HL, 146 Royal College of Nursing v DHSS [1981] AC 800, HL, 27, 28, 38 Royscot Trust Ltd v Rogerson [1991] 2 QB 297, 132 Ruxley Electronics & Construction Ltd v Forsyth [1995] 3 All ER 268, 185, 196 Ryan v Mutual Tontine Association [1893] 1 Ch 116, 191 Rylands vFletcher (1868) LR 3 HL 330, [1861-73] All ER Rep 1, HL, AffirmingFletcher v Rylands and Horrocks (1866) LR 1 Exch 265, Reversing (1865) 3 H & C 774, (Pre SCJA 1873), 332–334, 339 Sachs v Miklos [1948] 1 All ER 67, 203, 214 Sagar v H. Ridehalgh & Son Ltd [1930] All ER 288, CA, 351 Salomon v Salomon & Co. Ltd [1897] AC 22, 428, 438, 439 Sandhar v Department of Transport [2004] EWCA Civ 1440, [2005] PIQR 13, 278 Saunders v UK (1997) 23 EHRR 313 , 434 Sayers v Harlow UDC [1958] 1 WLR 623, CA, 338 Schuler AG v Wickman Machine Tool Sales [1974] AC 235, HL, 105 Sedleigh–Denfield v O’Callaghan [1940] AC 880, HL, 329 TABLE OF CASES 0003 xxxv Selectmove, Re[1995] 1 WLR 474, CA, 88, 90 Shanklin Pier Ltd v Detel Products Ltd [1954] 2 KB 854, 96 Shaw v Commissioner of Police [1987] 1 WLR 1332, 241 Shepherd v Jerrom [1987] QB 301, 174 Shergold v Fieldway Medical Centre [2006] ICR 304, [2006] IRLR 76, [2005] All ER (D) 357 (Dec), EAT, 414 Shields v Coomes (Holdings) Ltd [1978] 1 All ER 456, 371 Shogun Finance Ltd v Hudson [2002] 4 All ER 572, CA, Affirming [2004] 1 All ER 215, HL, 139, 149, 242 Showboat Entertainment Centre Ltd v Owens [1984] IRLR 7, EAT, 380 Simpkins v Pays [1955] 3 All ER 10, CA, 93, 99 Smith v Baker [1891] AC 325, HL, 336 Smith v Eric S. Bush [1989] 2 WLR 790, HL, 113, 123, 282, 285 Smith v Hughes (1871) LR 6 QB 597, 129 Smith v Hughes [1960] 1 WLR 830, 27 Smith v Land & House Property Corpn (1884) 28 Ch D 7, 129 Smith v Leech Brain & Co. Ltd [1962] 2 WLR 148, 310 Smithv Littlewoods Organisation [1987] 1 All ER 710, HL, 295, 565 Smith and Grady v UK [1988] IRLR 734, 386 Soden v British Commonwealth Holdings plc [1997] 4 All ER 383, 447, 452 Spartan Steel Alloys v Martin Ltd [1972] 3 WLR 502, CA, 278, 279 Spearmint Rhino Ventures UK Ltd vRevenue and Customs Commissioners [2007] STC 1252, 200 Spencer-Franks vKellogg Brown & Root Ltd [2008] UKHL 46, [2008] ICR 863, HL, 360, 365 Spring v Guardian Assurance [1994] 3 All ER 129, 283 St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481, CA, 114, 259 St Helen’s Smelting Co. v Tipping (1865) 11 HLC 642, HL, 326, 327 St John of God (Care Services) Ltd v Brooks [1992] ICR 715, EAT, 405, 414 Stansbie v Troman [1948] 1 All ER 599, CA, 296 Stennett v Hancock [1939] 2 All ER 578, 259, 260 Stephens v Avery [1988] 2 All ER 477, 529 Stevenson v McLean (1880) 5 KBD 346, 70 Stewart v Casey (Casey’s Patents), Re [1892] 1 Ch 104, CA, 85 Stilk v Myrick (1809) 2 Camp 317, 87, 88, 557Stocks v Wilson [1913] 2 KB 235, 163 Stocznia Gdanska SA v Latvian Shipping Co (No 3) [2002] EWCA Civ 889, 181 Stone v Taffe [1974] 1 WLR 1575, CA, 338 Stovin vWise [1996] 3 All ER 801, 294 Sturges v Bridgeman (1879) 11 Ch D 852, 326, 331 Sumpter v Hedges [1898] 1 QB 673, 171 Sweet v Parsley [1969] 1 All ER 347, 28, 38 Sylvester v Chapman (1935) 79 SJ 77, 336 T v Surrey County Council [1994] 4 All ER 577, 281, 286 Taittinger SA v Allbev Ltd [1993] FSR 641, 526 Tarling v Wisdom Toothbrushes [1997] IDS Brief 597, September, 384 Taylor v Alidair [1978] IRLR 82, 401 Taylor v Caldwell (1863) 3 B&S 826, 173 Taylorson v Shieldness Produce [1994] PIQR P329, CA, 292 Tetley v Chitty [1986] 1 All ER 663, 330 Thomas v Thomas [1842] 2 QB 85, 86 Thompson v Smiths Ship Repairers Ltd [1984] 2 WLR 522, 303 Thomson v Alloa Motor Co. [1983] IRLR 403, 402 Thornton v Shoe Lane Parking [1971] 2 WLR 585, CA, 107, 110 Tillery Valley Foods v Channel Four Television [2004] EWHC 1075 (Ch), 533 Todd v Robinson (1825) Ry&M 217, 203 Tomlinson vCongleton Borough County Council [2003] UKHL 47, [2004] 1 AC 46, HL, Reversing [2002] EWCA Civ 309, [2004] 1 AC 46, [2003] 3 All ER 1122, CA, 319, 324, 344, 345 Tool Metal Manufacturing Co. v Tungsten Ltd [1955] 2 All ER 657, 91 Trac Time Control Ltd v Moss Plastic Parts ltd [2005] All ER (D) 06 (Jan), 224 Transco plc v Stockport Metropolitan Borough Council [2003] UKHL 61, [2004] 2 AC 1, HL, Affirming [2001] EWCA Civ 212, CA, 333, 334 Transfield Shipping Inc vMercator Shipping Inc [2008] UKHL 48, [2008] 4 All ER 159, HL, 184 Trustees of Portsmouth Youth Activities Committee vPoppleton [2008] EWCA Civ 646, [2009] PIQR P1, CA, 321 Tsakiroglou & Co. v Noblee Thorl GmbH [1961] 2 WLR 633, HL, 175 Tullet Prebon Group vGhaleb El Hajjali [2008] EWHC 1924 (QB), [2008] IRLR 760, 190 Tweddle vAtkinson (1861) 1 B & S 393, [1861-73] All ER Rep 369, Ct of QB, 94 TABLE OF CASES 0003 xxxvi UK Atomic Energy Authorityv Claydon [1974] IRLR 6, 352 Underwood v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343, 236 Venables v Newsgroup Newspapers [2001] 1 All ER 908, 435 Victoria Laundry v Newman Industries Ltd [1949] 1 All ER 997, CA, 184 Vitol SA v Norelf [1996] 3 All ER 193, HL, 181 W v Edgell [1990] Ch 359, 533 Wagon Mound, The. See Overseas Tankships v Mort Dock Walker v Northumberland County Council [1995] 1 All ER 737, 358 Walmesley v UDEC [1972] IRLR 80, 353 Walters v North Glamorgan NHS Trust [2002] EWCA Civ 1792, 293 Warner Bros v Nelson [1936] 3 All ER 160, 193 Warren v Henlys Garage [1948] 2 All ER 935, 341 Watford Electronics v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696, CA, 114, 123 Watson & Others v Croft Promo-Sport Ltd [2009] EWCA Civ 16, [2009] EG 86, CA, 327 Webb v EMO Cargo (No 2) [1995] IRLR 645, 377 Webb v EMO Cargo [1994] IRLR 27, HL, 377 Wells vCooper [1958] 2 All ER 527, CA, 303 West Bromwich Albion Football Club Ltd v El-Safty [2007] EWCA Civ 1299, 281 Wheat v Lacon [1966] 2 WLR 581, HL, 319 Wheeler vSaunders CA [1995] 2 All ER 697, 327 White & Carter (Councils) Ltd v McGregor [1962] 2 WLR 17, HL, 181 White v Bluett (1853) 23 LJ Ex 36, 86 White v Chief Constable of South Yorkshire [1999] 1 All ER 1, HL, 289 White v Jones [1995] 1 All ER 691, HL, 280, 281White v London Transport Executive [1982] QB 489, 355 White v Mellin [1895] AC 154, 528 White Hudson & Co. Ltd v Asian Organisation Ltd [1964] 1 WLR 1466, PC, 524 Whitlowv Alkanet Construction [1987] IRLR 321, 402 Whittingtonv Seale-Hayne (1900) 82 LT 49, 134 Wieland v Cyril Lord Carpets [1969] 3 All ER 1006, 310 William Sindall plc vCambridgeshire County Coun- cil [1993] EWCA Civ 14, [1994] 1 WLR 1016, [1994] 3 All ER 932, CA, 133, 149 Williams v Bayley (1866) LR 1 HL 200, 144 Williams v Roffey Bros [1990] 1 All ER 512, CA, 88–90, 99 Williams v Settle [1960] 1 WLR 1072, 506, 521 Williams and Another v Natural Life Health Foods Ltd and Mistlin [1998] 2 All ER 577, HL, 429, 438 Wilsher v Essex Area Health Authority [1988] 2 WLR 557, HL, Reversing [1987] QB 730, [1986] 3 All ER 801, CA, 303, 306 Wilson v Rickett Cockerell [1954] 1 QB 598, 225, 231 Wilson and AnothervBurnett [2007] EWCA Civ 1170, [2007] All ER (D) 372 (Oct), CA, 93 Wilts United Dairies Ltd v Thomas Robinson & Sons Ltd [1958] RPC 94, 528, 536 Wiluszynski v London Borough of Tower Hamlets [1988] IRLR 259, CA, 353 With v O’Flanagan [1936] Ch 575, CA, 130 Withers v Perry Chain Ltd [1961] 1 WLR 1314, 301 Wood v Scarth (1858) 1 F&F 293, 141 X v Bedfordshire County Council [1995] 3 WLR 152, 299 Young v Bristol Aeroplane Company [1944] 2 All ER 293, 30 Z and A v UK (2002) 34 EHRR 3, 299 TABLE OF CASES 0003 xxxvii Abortion Act 1967, 27 s 1(1), 27 Administration of Justice Act 1969, 46 Arbitration Act 1996, 52 Business Names Act 1985 s 4, 425 Chartered Companies Act 1884, 428 Children Act 1989, 42 Civil Aviation Act 1993 s 76, 339 Companies Act 1985, 420, 422, 426, 433, 435, 436, 441, 446, 447, 449, 455, 458, 470, 478, 481, 482, 488, 494, 496 s 3A, 446 s 35, 449 s 277, 427 s 317, 474 s 431, 495 s 432, 495 s 459, 493 Companies Act 1989, 420, 426, 435, 436, 446, 447, 449, 455, 470, 478, 481, 482 Companies Act 2006, 420, 425, 426, 427, 433, 435, 436, 441, 443–447, 450, 451, 455, 456, 458, 463, 467, 470, 472–474, 477, 478, 480–482, 484, 487–491, 493–497, 561 s 3A, 460 s 7, 442 s 8, 443 s 9–13, 443 s 14–16, 443 s 17, 444 s 19, 444 s 21, 448 s 28, 444 s 31(1), (2), 446 s 32, 444 s 33, 446 s 39, 449, 567 s 40, 449, 470 s 41(2), 449 s 51, 442 s 53, 445 s 58, 445 s 59, 445 s 66, 445 s 82, 445 s 83, 445 s 86, 446 s 87, 446 Pt 7, 450 ss 89–111, 450 s 90, 450 s 91, 450 s 94, 450 s 98 , 567 s 154, 468 s 157, 468 s 162, 468 s 163, 468 s 167(5), 476 s 168, 476, 490 s 169, 476 s 170(1), 472 s 170(4), 472 s 170(5), 469 ss 171–177, 472 s 171, 472 s 172, 472 s 172(1), 472, 474, 561, 567 s 173, 473 Table of statutes 0003 s 173(1), 473 s 174, 473 s 174(2), 473 s 175, 473, 474 s 176, 473 s 176(1)–(5), 473 s 177, 474, 567 s 177(1), 474 s 178, 474 s 180(1), 474 s 182, 474 s 182(1), 474 s 182(5), 474 s 183, 474 s 188, 469 s 189, 475 s 190, 475 ss 197–214, 475 s 217, 476 s 239, 493 s 251, 469 s 252, 475 ss 260–264, 493 s 260, 493 s 260(1), 493 s 261, 493 s 262, 493 s 263, 459, 493 s 270, 478 s 270(3), 426 s 273, 478 s 281, 491 s 288(2), 491 s 291, 491 s 292, 491 s 301, 491 s 303, 488 s 306, 489 s 307, 488, 489 s 308, 489 s 310, 489 s 311, 489 s 318, 490 s 336, 488 s 338, 491 s 477, 480 s 485(2), 480 s 487(2), 480 s 488, 480 s 489(2), 480 s 490, 480 s 499, 480 s 510, 490 s 518, 489 s 542, 456 s 580, 445, 458 s 582, 458 s 610, 458 Ch 11, 493, 494, 496, 561, 567 s 656, 488 s 658, 458 s 684, 457 Pt 18, Ch 4, 458 s 690, 458 s 691, 458 s 692, 458 s 693, 458 s 769, 459 s 770, 459 s 855–858, 479 s 874, 239 s 994, 493–496, 567 s 995, 495 s 996, 494 s 1202, 425 Companies (Audit, Investigations and Community Enterprise) Act 2004, 480 ss 21–24, 495 Company Directors Disqualification Act 1986, 477, 482 Compensation Act 2006, 304, 307 s 1, 304, 321 s 3, 307, 308 s 3(5), 307 Constitutional Reform Act 2005 s 23, 46 xxxviii TABLE OF STATUTES 0003 xxxix Consumer Arbitration Act 1988, 52 Consumer Credit Act 1974, 23, 64, 118, 219 Consumer Protection Act 1987, 9, 42, 257, 264–273, 565 Part I, 264, 271 Part II, 269 Part III, 67, 222 s 1, 265, 270 s 2, 264, 268 s 2(1), 264 s 3, 270 s 4, 265, 267–269 s 5, 268, 269 s 46, 264 Consumers, Estate Agents and Redress Act 2007, 211 Contracts (Rights of Third Parties) Act 1999, 83, 85, 96, 97, 99, 558, 563 s 1, 96 s 2, 96 s 5, 97 s 6, 97 s 7, 97 s 7(2), 111 Copyright, Designs and Patents Act 1988, 504–507, 521, 568 Part I, 519 Part II, 505, 507, 519 Part III, 508 s 1–3, 504 s 4, 505 ss 9–11, 505 ss 12–15, 505 ss 17–21, 506 ss 22–26, 506 ss 29–40, 507 s 85, 506 s 96, 507 s 107, 507 s 144, 507 ss 154–158, 505 s 163, 505 s 213(2), 508 s 213(4), 508 s 213(6), 508 ss 215–220, 508 s 222, 508, 509 s 226, 508, 509 s 227, 509 s 229, 509 s 237, 509 s 238, 509 s 240, 509 s 243, 509 Corporate Manslaughter and Corporate Homicide Act 2007, 431 s 1, 430 s 1(2), 431 s 2, 431 Countryside and Rights of Way Act 2000, 322 Courts and Legal Services Act 1990, 43, 50 Criminal Justice Act 1993 Part IV, 481 Damages (Asbestos-related Conditions) (Scotland) Act 2009, 288 Defective premises Act 1972, 280 s 1(1), 280 Disability Discrimination Act 1995, 369, 383–385, 391, 392, 404 s 3A(1), 384 s 3A(5), 384 s 3B, 385 s 4, 383 s 4A, 384 s 18B, 384 s 55, 385 s 58, 385 Disability Discrimination Act 2005, 383 Emergency Powers Acts 1939 and 1984, 23 Employer’s Liability (Defective Equipment) Act 1969, 357 Employment Act 2002, 405 Employment Relations Act 1999, 377, 398, 406, 407, 409 TABLE OF STATUTES 0003 xl s 12, 406 s 14, 406 s 29, 407 s 29(4), 407 Sch 5, 406 Employment Rights Act 1996, 54, 364, 377, 388, 398, 412 s 1, 350 s 47C, 377 s 86, 398 s 98, 401, 409 s 98(4), 405 s 99, 406 s 100, 406 s 102, 406 s 103, 406 s 103A, 406 s 104, 406 s 105, 406 s 105A, 406 s 108(1), 399 s 113, 406 s 114, 406 s 117, 407 s 119, 406 s 120A, 407 s 123, 407 s 136, 408 s 138(1), 409 s 138(2), 409 s 139, 408 s 227, 409 Employment Rights Act 2002, 377 European Communities Act 1972, 446 s 2, 18, 23 s 9(1), 449 Equal Pay Act 1970, 369–372, 375, 377, 391, 392, 566 s 1, 370 s 1(3), 372 Equality Act 2006, 378, 392 s 1, 390 Estate Agents Act 1979, 211 Factories Act 1802, 361, 363 Factories Act 1961, 359, 363 Factors Act 1889, 240 s 1, 212 Financial Services Act 1986, 426, 457 Firearms Act 1968, 26 Food Safety Act 1990, 9 Gaming Act 1845, 154 Health and Safety at Work etc. Act 1974, 23, 42, 349, 359, 361–364, 566 s 2, 361, 362 s 2(1), 363 s 3, 362 s 7, 362 s 21, 363 s 23, 363 s 24, 363 s 47, 359 Health and Safety (Offences) Act 2008, 362 Hire Purchase Act 1964 s 27, 140, 242 Housing Act 1985, 330 Human Rights Act 1998, 17, 32–34, 36–38, 299, 334, 335, 339, 369, 386, 390, 434, 436, 523, 529, 533, 534, 537, 554, 560 s 2, 33 s 3, 33 s 4, 33 s 6, 33, 37 Insolvency Act 1986, 90, 432, 477, 496 s 84, 490 s 124A, 495 s 213, 430 s 214, 473, 475, 475, 567 Interpretation Act 1978, 25 Joint Stock Act 1844, 560 Law of Property (Miscellaneous Provisions) Act 1989, 64 TABLE OF STATUTES 0003 xli Law Reform (Contributory Negligence) Act 1945,190, 338 Law Reform (Frustrated Contracts) Act 1943, 172, 178, 179, 193 s 1(2), (3), 178 Limitation Act 1980 s 11A, 269 Limited Liability Act 1855, 560 Limited Liability Partnerships Act 2000, 424 Limited Partnerships Act 1907, 423 Marine Insurance Act 1906, 130 Mental Capacity Act 2005 s 2, 211 s 9, 211 s 11, 211 Minimum Wage Act 1999, 354, 364 Minors’ Contracts Act 1987, 162 s 1–3, 162 Misrepresentation Act 1967, 132, 134 s 2(1), 132–135, 147 s 2(2), 132–134, 147 s 2(3), 133 Occupiers’ Liability Act 1957, 25, 317–322, 324, 337, 342, 343, 560, 565 s 1(3), 319, 323 s 2(1), 322 s 2(2), 319 s 2(3)(a), 320 s 2(3)(b), 321 s 2(4), 321 s 2(6), 318 Occupiers’ Liability Act 1984, 317, 319, 321–325, 337, 342, 343, 565 s 1(4), 324 s 2(9), 324 Offices, Shops and Railway Premises Act 1963, 363 Official Secrets Act 1920, 26 Parliament Acts 1911 and 1949, 22 Partnership Act 1890, 421–423 Patents Act 1977, 510, 511, 514, 519 s 1–4, 511 s 13, 512 ss 14–19, 513 s 30, 514 s 39, 512 s 40, 512, 513 s 46, 514 s 48, 514 s 55, 514 s 60, 514 ss 109–113, 514 Patents Act 2004, 510, 512, 519 s 1, 511 s 10, 512 Pensions Act 1995 ss 62–66, 377 Pharmacy and Poisons Act 1933, 66 Powers of Attorney Act 1971 s 4, 211 Proceeds of Crime Act 2002 s 41(1), 341 Protection from Harassment Act 1997, 341 s 3, 341 Public Interest Disclosure Act 1998, 406 Race Relations Act 1976, 67, 369, 376, 378–383, 386, 391–393 s 1, 378 s 1(1)(a), 379, 380 s 1(1)(b), 380 s 2, 381 s 3, 379 s 3A, 380 s 4, 381 s 4(2)(a), 381 s 5, 381 s 32, 381 s 54, 382 s 55, 382 Race Relations (Amendment) Act 2000, 378 Registered Designs Act 1949, 508, 509, 519, 568 s 1, 509 s 2, 510 TABLE OF STATUTES 0003 xlii s 7, 510 s 8, 510 s 10, 510 s 11A, 510 s 34, 510 s 35, 510 Sch 1, 510 Representation of the People Act 1983, 33 Resale Prices Act 1976, 154 Restriction of Offensive Weapons Act 1959 s 1(1), 26, 66 Sale of Goods Act 1893, 217 Sale of Goods Act 1979, 102, 105, 111, 217, 219, 220, 224, 230, 231, 235, 246, 248, 252, 269, 564 s 2, 231 s 2(1), 218, 219 s 2(5), 218 s 3, 160, 161, 163 s 8, 65, 218 ss 12–15, 220, 244, 565 s 12, 220, 221 ss 13–15, 248 s 13, 220–224, 228, 230, 269, 564 s 14, 223, 225, 226, 228, 249, 269 s 14(2), 220, 224, 225, 230, 564 s 14(2A), 224 s 14(2B), 224 s 14(2C), 225 s 14(2D), 224, 229 s 14(2E), 224 s 14(3), 220, 224, 227, 230, 564 s 15, 220, 228, 269, 564 s 15A, 223, 248 s 16, 236 s 17, 236 s 18, 236, 251 Rule 1, 236 Rule 2, 236, 565 Rule 3, 236 Rule 4, 237 Rule 5, 237, 565 s 20, 242, 565 s 21, 240 s 23–25, 241 s 27, 235, 244 s 29, 243 s 29(2)–(4), 243 s 30, 244, 565 s 30A, 244, 565 s 31, 245, 565 s 32, 243 s 35, 244, 245, 252 s 35(5), 246, 565 s 35(6), 246, 247, 249 s 35A, 245 s 36, 245 s 39, 249 s 41, 250 s 43, 250 s 44, 250 s 45, 250 s 48, 249, 250 s 48B, 249 s 48C, 249 s 49, 249 s 50, 185, 249 s 51, 249 s 53, 249 s 57, 71 s 61, 219, 243, 250 s 61(1), 218 Sale and Supply of Goods Act 1994, 217, 219, 224 Sex Discrimination Act 1975, 67, 369, 373–378, 381, 383, 386, 391–393, 566 s 1, 375 s 1(1)(a), 373 s 1(2)(b), 374 s 2A, 378 s 3, 375 s 4(1), 375 s 4A, 374 s 6, 375 s 7, 375 s 7A, 378 s 7B, 378 TABLE OF STATUTES 0003 xliii s 41, 376, 381 s 76A, 378 Sex Discrimination Act 1986, 369 Statute of Frauds 1677, 64, 69 Street Offences Act 1959, 27 Supply of Goods (Implied Terms) Act 1973, 111, 219, 229, 230 Supply of Goods and Services Act 1982, 111, 220, 229, 230, 269 ss 2–5, 229 ss 13–15, 229 Trade Descriptions Act 1968, 42, 222 Trade Marks Act 1938 , 515 Trade Marks Act 1994, 446, 514, 515, 518, 519, 526 s 1, 515 ss 3–5, 516 s 10, 516 s 29, 517 s 32, 516 s 37, 516 s 38, 516 s 40, 516 Trading Stamps Act 1964, 220 Trades Union and Labour Relations (Consolidation) Act 1992 s 152, 406 s 238A, 406 Unfair Contract Terms Act 1977, 101, 110–112, 120–122, 230, 322, 563 s 1(3), 110 s 2, 111 s 2(1), (2), 111, 284 s 3, 111, 115 s 6–7, 111, 112 s 6, 112 s 6(4), 112 s 7, 112 s 11, 112 s 11(1), 112 s 11(3), 112 s 12, 112 Sch 2, 112 TABLE OF STATUTES 0003 xliv Civil Procedure Rules, SI 1998/3132, 47–49, 54 Companies (Single Member Private Limited Companies) Regulations 1992, \ SI 1992/1699, 426 Consumer Protection Act 1987 (Product Liability) (Modification) Order 2000, SI 2000/2771, 265 Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, 209 Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277, 222 Copyright and Related Rights Regulations 1996, SI 1996/2967, 507 Copyright and Related Rights Regulations 2003, SI 2003/2498, 507 Copyright and Rights in Databases Regulations 1997, SI 1997/3032, 518 Disability Discrimination Act 1995 (Amendment) Regulations 2003, SI 20\ 03/1673, 383 Electronic Commerce (EC Directive) Regulations 2002, SI 2002/2013, 76 reg 11, 76 Employment Act 2002 (Dispute Resolution) Regulations 2004, SI 2004/752\ , 400, 405 Employment Equality (Age) Regulations 2006, SI 2006/1031, 388, 391, 404 Employment Equality (Religion of Belief) Regulations 2003, SI 2003/166\ 0, 379, 387, 391 Employment Equality (Sex Discrimination) Regulations 2005, SI 2005/246\ 7, 374, 378 Employment Equality (Sexual Orientation) Regulations 2003, SI 2003/166\ 1, 386, 391 Equal Pay (Amendment) Regulations 1983, SI 1983/1794, 370 Management of Health and Safety at Work Regulations 1992, SI 1992/2051, 363 Management of Health and Safety at Work Regulations 1999, SI 1999/3242, 359, 362 Partnership (Unrestricted Size) No. 17 Regulations 2001, SI 2001/2422, 422 Provision and Use of Work Equipment Regulations 1998, SI 1998/2306 reg 3(2), 360 reg 5(1), 360 Race Relations Act 1976 (Amendment) Regulations 2003, SI 2003/1626, 380, 382 Registered Designs Regulations 2001, SI 2001/3949, 509 Registered Designs (Amendment) Rules 2001, SI 2001/3950, 509 Registered Designs (Fees) Amendment Rules 2001, SI 2001/3951, 509 Regulatory Reform (Trading Stamps) Order 2005, SI 2005/871, 220 Sale and Supply of Goods to Consumers Regulations 2002, SI 2002/3045, 233, 229 reg 2, 224 reg 4(2), 242 reg 4(3), 243 reg 4(5), 249 Sex Discrimination (Gender Reassignment) Regulations 1999, SI 1999/110\ 2, 378 Table of statutory instruments 0003 xlv Transfer of Undertakings (Protection of Employment) Regulations 1981, SI 1981/1794, 410 Transfer of Undertakings (Protection of Employment) regulations 2006, SI 2006/246, 410–412 reg 3, 410 Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 1999, SI 1999/1436, 399 Unfair Terms In Consumer Contracts Regulations 1999, SI 1999/2083, 23, 101, 111, 116, 117, 119–123, 230 r 1, 116 r 3(1), 116 r 4(2), 119 r 5(1)–(4), 116 r 6(1), (2), 116 r 7(1), (2), 117 r 8, 117 Sch 2, 117, 119 Working Time Regulations 1998, SI 1998/1833, 352 TABLE OF STATUTORY INSTRUMENTS 0003 xlvi European Community legislation Treaties Patent Cooperation Treaty, 518 Single European Act 1987, 19, 20 Treaty on European Union (Maastricht Treaty) 1992, 18, 20 Article 4, 19 Treaty of Nice 2003, 20 Article 203, 18 Treaty of Rome 1957, 20, 518 Article 119, 20, 369, 370, 399 Article 141, 20, 369, 370, 372, 377, 399 Treaty of Amsterdam 1997,20, 21 Protocols Madrid Protocol, 518 Directives Directive 75/117/EC (Equal Pay Directive), 370, 371 Directive 76/207/EEC (Equal Treatment Directive), 377, 378, 385, 389, 399 Directive 77/91/EC (Acquired Rights Directive), 410 Directive 85/374/EC (Product Liability Directive), 264, 270, 271 Directive 89/92/EC (Insider Dealing Directive), 481 Directive 89/104/EC (Trademarks Directive), 515, 518 Directive 91/13/EC (Consumer Credit Directive), 116 Directive 92/85/EC (Pregnant Workers Directive), 377 Directive 93/104/EC (Working Time Directive), 352 Directive 97/75/EC (Parental Leave Directive), 377 Directive 98/71/EC (Designs Directive), 509 Directive 99/34/EC (Defective Product Liability Directive), 265 Directive 2000/31/EC (E-Commerce Directive), 76 Directive 2000/43/EC (Race Equality Directive), 380 Directive 2000/78/EC (Equal Treatment in Employment and Occupation Directive), 374, 387 Directive 2001/29/EC (Copyright Directive), 507 Table of European and International legislation 0003 xlvii Directive 2002/73/EC (Equal Treatment Amendment Directive), 374, 388 Directive 2005/29/EC (Unfair Commercial Practices Directive), 222 Directive 2009/102/EC (Company Law Directive), 449 International Conventions and Treaties Berne Convention for the Protection of Literary and Artistic Works 1886, 518 European Convention on Human Rights and Fundamental Freedoms 1950, 6, 32–38, 299, 335, 339, 386, 434, 435, 533, 534, 554, 560, 562, 563 Article 2, 32, 34, 35, 298 Article 3, 35, 299 Article 5, 32, 34 Article 5(1), 35 Article 6, 32, 35, 297, 434 Article 8, 32–34, 299, 335, 385, 386, 434, 533, 534 Article 9, 32, 35 Article 10, 32–34, 435, 534, 560 Article 11, 32, 34 Article 13, 385, 386 Article 14, 385 Protocol 1, 335 Protocol 1, Article 1, 335, 434 Protocol 1, Article 2, 32, 35 European Patent Convention 1973, 518 Universal Copyright Convention, 518 TABLE OF EUROPEAN AND INTERNATIONAL LEGISLATION 0003 0003 Law for Business Students 0003 0003 PA R T 1 Introduction Photo: Justin Kase z05z/Alamy 0003 chapter 1 GETTING STARTED: an introduction to studying law 0003 Introduction This chapter provides an overview of some of the concepts and principles which form the background to the topics covered in the rest of the book. It also contains some hints on studying law. Learning Objectives When you have studied this chapter you should be able to: Appreciate the distinguishing features of a legal rule Explain the characteristics of English law State its purposes Distinguish between civil and criminal law. Photo: Adrian DennisAFP/Getty Images 0003 What is law? English law may be defined as a body of rules, created by the state, binding within its juris- diction and enforced with the authority of the state through the use of sanctions. Here is an analysis of this definition. Rules Rules are commands aimed at regulating behaviour. Rules tell us what we can and cannot do; sometimes they may permit behaviour subject to fulfilling a conditio\ n. For example, an extension of business premises is illegal unless planning permission is obtained; a shop may not sell alcohol without a licence. Created by the state Parliament is responsible for creating most of the law applicable in the UK. Such law is con- tained in Acts of Parliamentor statutes . Increasingly, the content of much of this law is determined by the European Union, and in this respect Parliament does not have complete independence. Since the Human Rights Act 1998, the European Convention on Human Rights is directly enforceable in the English courts. The jurisdiction of the state The law of any country is binding only within its territory. The UK Parliament may introduce laws applicable to the UK as a whole, but this book is concerned with the law as it applies in England and Wales. Enforcement A legal dispute may require formal resolution by the court or tribunal. The state or a party to the dispute may initiate the enforcement proceedings. A sanction or penalty may be imposed in order to compensate the injured party or punish the wrongdoer. The characteristics of English law English law has characteristics which make it very different from the law of other countries in the European Union. PA R T 1 INTRODUCTION 6 0003 It has evolved slowly and without interruption over many centuries The origins of the English legal system can be traced to the Norman Conq\ uest in 1066. Although huge changes have taken place since then, development has been \ gradual and piecemeal. As a result, a rather untidy and conservative evolution has taken place, with \ his- torical relics rubbing shoulders with more modern developments. For example, two divisions of the High Court today still carry traces of the names of their forebears in medieval times: the Court of King’s Bench (now the Queen’s Bench Division) and the Court of Chancery (the Chancery Division). Lack of Roman law influence English law has been little influenced by the Roman law principles which\ dominate the legal systems of other European countries and which also have some influence on Scots law. Judges have creative powers Judges were the principal law-makers until their powers were superseded by Parliament in the eighteenth century; senior judges today still have some limited powe\ rs to develop princi- ples of case law. The powers of other European judges are restricted to interpretation of the legal codes created by the relevant state legislatures. The doctrine of binding precedent When deciding a case, English judges are bound to apply any relevant precedent (previous decision) of a senior court, unlike their other European counterparts who are guided, rather than bound, by previous cases. Adversarial nature The procedure in the English courts is largely adversarial .A case in the courts is essentially a contest before an umpire (the judge) whose principal tasks are to see that the rules of evi- dence are obeyed and to decide who is the winner. Case names look rather like football fixture lists: Bloggs v Snodgrass. The main burden of proof is on the accuser, and the case is won by the party who can produce the most convincing evidence. The judge plays very little part in drawing out that evidence; too much judicial intervention may le\ ad to the decision being reversed at an appeal. It has been said that the adversarial system is ab\ out proving facts rather than discovering truth. The function of judges on mainland Europe is an inquisitorial one; this gives the judge power to call witnesses and question them during the hearing of the case\ . English judges are currently being encouraged to take a more interventionist role as case managers, before THE CHARACTERISTICS OF ENGLISH LAW 7 1 Getting started: an introduction to studying law 0003 the hearing of complex cases, but this extension of their function is st\ ill a long way from a truly inquisitorial approach. Why do we need law? Any society, or group within it, however small, will make rules for the purposes of organi\ sa- tion, to promote the safety and convenience of members and to regulate their relationships with each other. An affluent industrialised state requires a complex system of law which aims to fulfil a number of purposes. Figure 1.1 shows how the law may be classified.A system of law may be needed for the following reasons: 1 to provide a governmental structure and legislative procedures: constitutional law; 2 to provide public services and to raise taxes to pay for them: administrative\ and revenue law; 3 to regulate and promote the economy: administrative, civil and criminal law are all involved; 4 to promote public order and preserve national security: criminal law; 5 to give individual members personal rights and duties in relation to others and to enable personal enforcement of these rights: the civil law. Civil law duties may arise through agree- ment between the parties (the law of contract), or be imposed directly (the law of tort); 6 to give legal validity to approved relationships and transactions between members of the society: this involves the law of contract, the law of property and succession, company and partnership law, and family law. PA R T 1 INTRODUCTION 8 English law Public law Constitutional and administrative law Criminal law Private (civil) law Tort Family law Probate Land Intellectual Property Chattels Company and partnership law Contract Negligence Nuisance Damage tobusinessinterests Figure 1.1 Classification of English law 0003 The differences between criminal and civil law It is important from the outset to understand the differences between civil and criminal law. Dual liability for a breach of both civil and criminal law may arise from the same set of facts; but since these two branches of the law have very different purposes, their procedures and penalties differ radically. The following example illustrates these crucial differences. THE DIFFERENCES BETWEEN CRIMINAL AND CIVIL LAW 9 Alice is treated to a hot lobster lunch at ‘The Fat Cat Wine Bar’ by Horace. Subsequently, both Alice and Horace become ill with food poisoning, which they claim was caused by the insanitary condition of Fat Cat’s kitchen. The criminal proceedings R[egina]v Fat Cat Selling impure food is a criminal offence under the Food Safety Act 1990: it is in the interests of public safety to control and punish such behaviour. In this sort of case, Fat Cat may be prosecuted in the magistrates’ court by the local authority’s trad- ing standards department, rather than by the police. The burden of proving Fat Cat’s guilt lies on the prosecutor, who has to prove beyond all reasonable doubtthat the food poisoning was caused by the condition of the lobster. If Fat Cat is found guilty, he may be fined: a fine is a sum of money payable to the court; it does not go to the victims of the crime. The civil proceedings Horace v Fat Cat Alice v Fat Cat Horace and Alice want compensation for having been made ill. Both are self-employed and, in addition to the pain and inconvenience of their illness, they have also lost earnings while they were laid low. Two separate claims are involved: Horace, who bought the food, will sue for breach of contract, as the lobster was clearly not of satisfactory quality; Alice, who was harmed by the food but had no con- tract with Fat Cat, will sue in tort claiming negligence or breach of the Consumer Protection Act 1987. Horace and Alice will take action in the county court and will have to prove that on the balance of probabilities Fat Cat caused their problems. This is a lower standard of proof than that required in criminal proceedings, as the court requires it to be proved only that it is more likely than not that Fat Cat was responsible. If Horace and Alice win, damages will be payable to them by Fat Cat to compensate them for their pain and suffering and all economic loss resulting from it, including medical costs and loss of earnings. Horace will also be able to reclaim the cost of the meal. Real Life1 Getting st arted: an introduction to s tudying law 0003 A summary of the differences between civil and criminal law Changing the law It is important to realise that the law is subject to frequent change. Very few principles actu- ally remain constant. These changes reflect social, political, economic and technological developments taking place within society. Social change Changes in moral values have influenced a number of legal developments i\ n the last 30 years, including reform of the divorce law, decriminalisation of homosexuality and abortion, as well as the introduction of legislation to prevent discrimination on the grounds of sex, race, sexual orientation, disability, religion or beliefs and age. PA R T 1INTRODUCTION 10 Criminal law Civil law Purpose Regulates behaviour perceived as being anti-social Gives legal rights to individuals to govern their and dangerous to the public. formal and informal relationships with each other. Provides machinery by which the state may take Provides the means by which they may enforce action against offenders. the rights arising from these relationships. Procedure Generally started by the police, but some legislation Civil proceedings are taken against the alleged is enforced by other agencies like local authorities lawbreaker by the party who claims that they or Revenue & Customs. have been wronged. Exceptionally, a private prosecution may be brought The case may not go to trial even if proceedings by an individual. are started. Most civil law claims are settled out The victim usually plays no part in the decision of court without any threat of legal action. In to prosecute. many others, the proceedings are abandoned before trial. Once started, a case will proceed to trial in the Most civil cases are heard in the county court magistrates’ court or the Crown Court. and the High Court and in certain specialised tribunals. The prosecution must prove that the accused is The claimant must prove that the defendant is guilty beyond all reasonable doubt. liable on the balance of probability. Penalties Focus on the accused and the need to protect Focus on the needs of the victim and generally society against criminal conduct. require the wrongdoer to pay damages which are often covered by insurance. The ultimate aim is to punish the criminal, while Exceptionally, the court – by injunction or other protecting society from future anti-social conduct. equitable remedy – may require some practical A penalty may be used to contain criminals by correction of the wrong. This is usual in depriving them of their freedom, or to rehabilitate domestic violence cases. them; it may be intended to deter them or others from committing future crimes. 0003 Political change No government can initiate new policies unless it has legal authority to do so. \ This means that the law may require constant, and often radical, change. The privatisation of the water, gas and electricity industries was achieved by repeal of previous legislation which had intro- duced a policy of nationalisation. Economic and technological change Much of the law governing commerce and industry, including the regulation of health and safety at work, is subject to such influence. As industrial practice cha\ nges, old hazards dis- appear and new ones develop. For example, the commercial exploitation of the internal combustion engine has led to the development of a huge body of road traffic law.In practice, these influences and political change may be interlinked: a\ n economic or social issue is often the focus of a political policy. Essential legal terms This book has been kept as free as possible from lawyers’ jargon. However, there are a few common words and phrases explained below, which are useful shorthand. You will also find a list of the key terms arising from the particular topics under examination, at the end of each chapter. You may find it useful to look through these when you have finished reading each chapter to check your understanding. The claimant and defendant These are the parties in a civil case ( action). The claimant sues(brings the case against) the defendant . The prosecution and the defence These are the parties to a criminal case. The ‘ defence ’ is sometimes called the defendantor the accused .The prosecution is sometimes called the Crown ,reflecting the fact that crim- inal proceedings are brought by the state in the name of the Crown. This is why criminal cases are usually reported as R v (Snodgrass). The appellant and the respondent These are the parties in an appeal hearing. The appellant is the party who is br\ inging the appeal against the decision of the court below, in which the respondent won his or her case. ESSENTIAL LEGAL TERMS 11 1 Getting started: an introduction to studying law 0003 The common law This has two possible meanings. The relevant meaning is usually clear from the context. Case law as opposed to statute law When the common law first began to develop in the early centuries after the Norman Conquest, there was no centralised legal system and there were great variations in the law across England. Judges appointed by the Crown had the task of welding together a system of law applicable (and therefore common) to the country as a whole. This law gradually emerged from principles developed and applied to cases which came before the courts. Common law in this context means judge-made law. Case law and statute law as opposed to principles of equity The civil law sometimes allows the court to exercise discretionary powers, which are based not just on the legal rights of the parties, but on what will produce a just and moral solu- tion. These discretionary rules are part of the law of equity .They protect only those parties who are morallyas well as legally entitled to a remedy. Equitable principles govern the issue of court orders like injunctions and some contractual remedies which are described later in this book. They are the foundation of the law of mort- gages and trusts, since they seek to protect the vulnerable parties to the transaction from the abuse of power by lenders and trustees respectively. The law of equity has its origins in the fourteenth century; it was init\ ially developed by successive Lord Chancellors to put right the defects that had become apparent in the common law system. Lord Chancellors for many years were churchmen as well as lawyers, which gave this branch of the law the emphasis on moral principle which \ governs its opera- tion in the civil courts today. Its principles coexist with other principles of common law (statute and case law in this context) and may come into play at the d\ iscretion of the court where the common law principle or remedy will cause injustice. Introductory study tips This section is mainly addressed to any reader who has not studied law before, but it may serve to refresh most memories. Most readers will study law as one component of a course: it may be something \ that you might not have chosen to do. However, if you keep the following hints in mind you may find it both easier and more rewarding than you thought. PA R T 1 INTRODUCTION 12 0003 Get rid of your misconceptions You will probably find law much more interesting than you believe when you begin your studies. Contrary to common belief, it is not primarily concerned with ancient, dry and pre- cise regulations which you have to learn by heart. Most of your studies are concerned with quite modern cases, which have come to court just because the law was not precise and consequently gave rise to the dispute. This book looks at how the law ap\ plies to real-life sit- uations, which will help you to recall the legal principles on which it is based. Effective communication of your understandingof the principles is the main requirement for exami- nation success. Remembering all the cases by name and being able to quote statutes word for word is icing on the cake – impressive, but not essential. Law is relevant to you Remember that the law responds and develops as required by the society within which it oper- ates. It affects you personally; studying this book will increase your knowledge of your rights as a consumer and of your responsibilities and rights as a business owner, employer or employee . Widen your horizons Your studies will be more rewarding if you do not consider law as something to be thought about only when you are in class or reading a textbook. The effects of many areas of the law are widely reported and discussed in the media. Such reports can help you to see how the law works (or does not work), as well as reminding you of what you have studied. Stay in touch with the news, try to look at a quality daily paper and look ou\ t for relevant TV and radio programmes. Some suggestions for resources appear in Appendix 1. The Internet is an excellent research tool. Try visiting the websites suggested by the web activity references at the end of Chapters 2–25. Make connections The more you study, the easier it gets. Studying law is rather like doing a large jigsaw w\ ith- out the help of a picture – progress is initially slow while the framework is established, but patience is rewarded. Once the picture begins to reveal itself, you can see more easily how the different pieces fit together and the task gets easier and quicker. Try not to think of each topic as a separate entity to be ‘done’ and\ neatly filed away in the memory. Exploit the links with other related topics; this aids both recollection and under- standing. Exam questions may involve a problem, raising issues about a number of different topics; the ability to see connections is vital to an effective response. To help you do this, fre- quent cross-references appear in the text. Pondering on the questions in the ‘Worth thinking about?’ sections in each of the subsequent chapters and maybe discuss\ ing these with your classmates will help with the process. INTRODUCTORY STUDY TIPS 13 1 Getting started: an introduction to studying law 0003 PA R T 1INTRODUCTION 14 Read and practise applying your knowledge Somebody (not a lawyer) once told the author that law is a very ‘pa\ per-based subject’. This made it sound a bit like origami, but nevertheless contains some truth. \ Reading thoroughly and widely is essential; practising the written skills required by the examinations is also crucial. It is hoped that you will find this book accessible, but if you are new to the study of law it would take magical powers to understand it all fully at a first reading. Be prepared to go back and re-read a section that you do not understand. The chapter summaries may help\ you to grasp the main points of each chapter. Often it is best to try to get a general picture on the first reading of a topic you find hard, pressing on even if you do not understand it. You will still get something from it, and on each subsequent reading it will become clearer. Get all the writing practice that you can. Homework provides safe space to make mis- takes; and it is much better to make them then rather than in the exam. \ Try the quizzes and assignments in this book. Hints on writing assignments, revision and examinations can be found in Chapter 26. Accused (the): the person being prosecuted in criminal trial. Adversarial procedure: trial in which judge acts like the referee in the contest between two oppos- ing litigants. Claimant: the party who brings a civil action. Common law: various meanings determined by context: law applicable to the whole of England/ judge-made law rather than statute/not the law of Equity. Crown (the): the prosecutor in criminal proceedings. Defence (the): the person being prosecuted/their legal representatives. Defendant: person against whom criminal or civil proceedings are brought. Equity (law of): complements the common law by principles based on morality as well as legal right and practical remedies granted at the discre- tion of the court. Inquisitorial procedure: the judge helps to estab- lish the evidence by actively questioning witnesses. Precedent: previous judicial decision influential and possibly binding in later cases. Key terms A definition of law a body of rules imposed by the state and with authority within it and enforceable by sanctions imposed by the courts. Characteristics of English law antiquity, lengthy evolution untouched by Roman law, creative power and authority of the judiciary, adversarial procedure. Differences between criminal and civil law Criminal law is enforced by the state and aims to protect the public from anti-social behaviour. Civil law enables individuals to enforce rights gov- erning their formal and informal relationships in the courts. Chapter summary 0003 QUIZ 1 15 1 What distinguishes law from other rules? 2 What does the court hope to achieve whenimposing a criminal sentence? 3 What does a civil litigant hope to achieve by taking a case to court? 4 What are the likely legal consequences in the following case? Sparrow, who has had too much to drink, carelessly crashes his taxi into Finch’s lorry. Sparrow’s passenger, Wren, is injured and Finch’s lorry is damaged. The inci- dent is witnessed by PC Hawk. Answers to all quizzes can be found in Appendix 2. Quiz 1 1 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. Getting st arted: an introduction to s tudying law 0003 chapter 2 HOW THE LAW IS MADE 0003 Introduction This chapter explains where English law comes from and how it is made. There are currently three important sources of law: 1 European law; 2 Parliament; 3 The courts. Parliament and the European Union are the primary sources, but the courts also have a minor (though important) law-making role. The courts also have a crucial role in the interpretation of legislation. Learning Objectives When you have studied this chapter you should be able to: Name the sources of English law Distinguish between the functions of the institutions of the European Union Differentiate between EC regulations, directives and decisions Explain the application of the doctrine of precedent in the English courts Describe the differing judicial approaches to interpreting statutes Appreciate the effect of the Human Rights Act 1998 on the development of English law. Photo: STOCKFOLIO®/Alamy 0003 European law The law of the European Community has been a source of UK law since 1973, when the UK became a member of what was then called the European Economic Community (EEC). The 1992 Treaty on European Union (the Maastricht Treaty) officially changed the name to Euro- pean Community to signify that the objectives of the Community are not just economic. The Maastricht Treaty also created the European Union (EU), which consists of three ‘pillars’. In the middle pillar are the three existing Communities, i.e. the European Coal and Steel Com- munity (ECSC), the European Atomic Energy Treaty Community (EURATOM) and the Economic Community. These three Communities are known collectively as the European Community. On either side of this central pillar are the Common Foreign and Security Policy (CFSP) and Police and Judicial Co-operation in Criminal Matters (PJCC\ M). These three pillars support the overarching constitutional order of the Union. However, only the central pillar, the EC, is governed by Community law. The CFSP and the PJCCM pillars are governed by intergovernmental co-operation. This means that they are outside the jurisdiction of the Community institutions, particularly the Court of Justice. Also, none of\ the articles of the outside pillars are enforceable, or challengeable, in national courts. Thus, although the Union is wider than the European Community, it has its roots within it. EC law is an impor- tant source of business law and you will notice its impact in a number of topic a\ reas in this book, such as product safety and employment law. The European Community (EC) is cur- rently composed of 27 member states.Under the European Communities Act 1972 (ECA 1972), s 2, EU law is part of UK law. In the event of conflict, EU law takes priority. Disputed points of EU law must be referred by the domestic courts for interpretation to the Court of Justice of the European Communities, or be decided in accordance with principles found in its existing decisions. The institutions of the European Union The Councils The Council of Ministers (Note that rather confusingly this may also be referred to as the ‘Council of the EU’ or some- times just ‘the Council’. It must notbe confused with the European Council, which is entirely separate.) The Council of Ministers is the main legislative organ of the Commu- nity and within it the interests of member states find direct expression. It is made up of ‘a representative of each Member State at ministerial level, authorised to comm\ it the govern- ment of that Member State’ (Treaty of Nice, Article 203). The representatives vary according to the subject matter under discussion. For General Council meetings, a \ member state’s rep- resentative is generally its foreign minister; otherwise, meetings are attended by the ministers of state with the relevant portfolio. So, for example, a meeting will be made up of agriculture ministers when the common agricultural policy is under discussion. It \ is chaired by the President. The presidency rotates every six months between the heads of state or heads of government of the member states. PA R T 1 INTRODUCTION 18 0003 The European Council In 1974, Community leaders agreed to hold regular meetings at the highest political level within what became known as a ‘European Council ’. This European Council met regu- larly on an informal basis, until it was given a legal basis by Article \ 2 of the Single European Act. Article 4 of the Maastricht Treaty states its composition and functions. It is composed of the heads of state or of government of the member states. It meets at least twice a year in order to discuss major Community issues in a less formal atmosphere than that which prevails at the Council of Ministers (Council of the EU). It is chaired by the current President of the Council of Ministers, assisted by the minister of foreign affairs of each of the member states and a member of the Commission. The European Council’s function is to provide the Union with the necessary impetus to define the general politic\ al guidelines for its development. The European Commission The Commission is composed of one nominee from each member state and is an executive and policy-making body with legislative powers. Most major decisions taken b\ y the Council must be made on the basis of proposals from the Commission. Currently there are 27 Commissioners, but once appointed they represent Community interests rather than national interests. The European Parliament The European Parliament consists of 785 members directly elected by people with the right to vote in each member state (the UK returns 78 MEPs). Parliament exercises demo- cratic supervision over the Commission, with the appointment of the President and members of the Commission subject to its approval. The Commission is thus politically answerable to the Parliament, which can pass a ‘motion of censure’ calling for its resigna- tion. Together with the Council, Parliament formulates and adopts legislation p\ roposed by the Commission. The European Court of Justice (ECJ) The European Court of Justice is made up of 25 judges and eight advocates-general. If the court so requests, the Council may, acting unanimously, increase the number of advo- cates-general. The judges and advocates-general are appointed by common agreement of the governments of the member states and hold office for a renewable term of six years. They are chosen from legal experts whose independence is beyond doubt and who possess the qualifications required for appointment to the highest judicial offices in their respective countries or who are of recognised competence. The judges select one of their number to be President of the court for a renewable term of three years. The President directs the work of the court and its staff and presides at hearings and deliberations of major forma- tions of the court. The advocates-general assist the court in its task. They deliver indepen\ dent and impartial opinions in all cases in open court, where a case does not raise any new points of law, unless the court decides otherwise. Their duties should not be confused \ with those of a public prosecutor or similar body. EUROPEAN LAW 19 2 How the law is made 0003 The court has two functions: 1 to interpret any point of EU law referred by the courts of member states. It is mandatory for the highest appeal court of any member state to make a referral, if the meaning of a principle of EU law is unclear; 2 to decide the outcome of cases alleging breaches of EU legal obligations, brought by EU institutions, member states or individuals. Once the court has reached its decision, this is immediately effective. It takes precedence over any conflicting domestic legislation. Individual states have responsibility for implement- ing the court’s decisions by changing the relevant domestic law. Reluctance to comply may result in pressure from other member states. Since the Maastricht Treaty, a state which does not comply with a judgment may be subject to a penalty payment. With the passage of time it became apparent that too many demands were being placed on the court, which is why the Single European Act 1987 introduced the Court of First Instance (CFI). The CFI is cur- rently composed of 25 judges, at least one from each member state. The judges are appointed for a renewable term of six years by common accord of the governments of the member states. There are no permanent advocates-general attached to the CFI. All cases heard at first instance by the Court of First Instance may be subject to a r\ ight of appeal to the Court of Justice on points of law only. The sources of European law The treaties A number of treaties impose legal obligations on member states, including the Treaty of Rome 1957, the Single European Act 1987, the Maastricht Treaty 1992, the Treaty of Ams- terdam 1997 and the Treaty of Nice 2003. Some of these obligations are directly enforceable by individual citizens, regardless of whether the relevant member state has taken legislative action to implement them. Such directly enforceable obligations include those under Article 119 (now 141) of the Treaty of Rome, which relates to the equal treatment of men and women in employment. Regulations Regulations are intended to impose uniformity of law throughout the Community. They take effect in all member states immediately on being issued. Directives Directives comprise the most prolific source of law in the EC. Directives apply to all member states and are intended to lead to harmonisation of law between member states, making it similar but not identical. Directives set the aims which must be achieved but leave the choice of the form and method of implementation to each member state\ . Thus, they have to be implemented by national parliaments. Implementation legislati\ on may reflect the legal and social conventions of each member state. PA R T 1 INTRODUCTION 20 0003 States are required to implement Directives within specified time limits, but sometimes drag their heels if a particular Directive is unpopular. The Court of Justice may permit claims by individuals against an organ of a member state (though not an indivi\ dual) for breaches of a Directive which has not yet been implemented, provided that the wording of the Directive is sufficiently clear and unconditional. Decisions A decision affects only particular member states, companies or individuals. It may em\ power the party to whom it is issued to do something, or prevent it from doing something. The impact of EU membership on English law The main impact so far has been felt in the areas of trade, industry, employment, the envi- ronment and provision of financial services. Membership of the EU has, therefore, had considerable influence in many areas of business law. A number of references to such devel- opments will be found throughout this book. As the scope of European law expands through new treaties, its impact on English law, politics and society at large increases. The Treaty of Amsterdam, which came into force on 1 May 1999, aims to place employment and citizens’ rights at the heart \ of the Union, to remove the last remaining obstacles to freedom of movement within the Union and to strengthen security. This had a considerable impact on human rights. It required the widen- ing of the existing principles of non-discrimination legislation in empl\ oyment with regards to gender, race and ethnic origin to include religious belief, age and sexual orientation. Direc- tives on all these issues were issued to member states and implementation has taken place. (For details see pages 378–90) The Treaty also seeks to promote privacy of citizens’ personal data. The security issues within the Treaty will also have an impact on criminal law and procedure, since the Treaty requires the police and the judiciary of all member states to co-ordinate action on terrorism, offences against children, drug trafficking, corruption and fraud. It also requires member states to co-operate more closely in the fight against racism and discrimination in general, while promoting equality before the law and social justice. Parliament Most English law is currently made by, or with the authority of, Parliament. Direct (parlia- mentary/primary) legislation comprises Acts of Parliament, created by the passage of a Bill through certain prescribed processes in the House of Commons and the House of Lords. Indirect (delegated) legislation is created by a body (usually a government department or local authority) which has been given the power to legisl\ ate by Parliament under an enabling Act. PARLIAMENT 21 2 How the law is made 0003 How an Act of Parliament is created Most legislation is proposed by government ministers, but backbench MPs have limited opportunities to put forward Private Members’ Bills . These usually relate to non-party- political issues. In practice, few Private Members’ Bills become Acts\ because of the limited amount of parliamentary time available to them. The pre-legislative stage A government Bill is usually preceded by the issue of a Green Paper which sets out the legislative proposals for discussion. Consultation with relevant interest groups may take place. A White Paper is then issued, which lays down the principles on which the draft Bill is based. Parliamentary procedure The first stage of a Bill’s journey through Parliament is the introduction and first reading. Most Bills are initially processed in the House of Commons and then go through the same procedures in the House of Lords. All important and controversial Bills, including all money Bills, must start off in the Commons. The first reading is a formality to announce the exis- tence of the Bill and to set down a date for the second reading. The second reading involves a full debate which starts with a speech from the minister who is proposing the Bill. This is answered by the relevant shadow minister. After contribu- tions from any interested member, a vote is taken. Provided that a majority is in its favour, the Bill passes on to the committee stage. At the committee stage a standing committee of 25–45, appointed in proportion to party representation, usually examines the Bill clause by clause. Amendments may b\ e proposed. (Some Bills require consideration by a committee of the whole House. They do not have a report stage, but progress straight to the third reading.) Following the committee stage the committee reports on its findings (the report stage), debate takes place on proposed changes, and further amendments may be proposed to the Bill. At the third reading of the Bill, a short debate concentrates on the main points of the Bill.\ In the Commons, only superficial changes (to grammar or syntax) will b\ e made, though greater changes may take place in the House of Lords. The processes discussed above are repeated when the Bill reaches the House of Lords ( transfer to the other House). Note that, under the Parliament Acts 1911 and 1949, the House of Lords cannot reject a Bill outright, although it may delay any Bill except a money Bill for up to a year: a money Bill can be delayed only for a month. The\ power to delay may give the Lords considerable power, as the government is likely to seek a compromise to enable it to pursue its policies. Before the Bill can become an Act of Parliament and pass into law, it must receive the Royal Assent . By convention this is just a formality: hundreds of years have passed since the Crown took an active legislative role. The date of implementation of the whole or any part of an Act of Parliam\ ent is usually specified in it. PA R T 1 INTRODUCTION 22 0003 Delegated legislation This is indirect or secondary legislation made by bodies outside Parliament, through the exer- cise of legislative power delegated to them by Act of Parliament. You will come across examples of delegated legislation in later chapters of this book in conn\ ection with, for example, the Health and Safety at Work etc. Act 1974.In practice, the bulk of law created every year is delegated, rather than direct. Such legis- lation is the means by which both central and local government agencies administer their policies. Over 2,000 such regulations are enacted annually. These may, for example, limit benefit entitlements, raise the required hygiene standards in a fast-food business, and help to keep local parks free from noise pollution. There are four main types of delegated legislation: 1 Orders in Council. The Emergency Powers Acts 1939 and 1984 give law-making powers to the Privy Council in times of national emergency. 2 Statutory instruments . These are created by government departments to execute general principles of policy set out in the enabling Act of Parliament. The Cons\ umer Credit Act 1974 empowers the Secretary of State to make rules to safeguard users and potential users of credit facilities. 3 Regulations to implement law from the EU. The European Communities Act 1972, s 2, empowers ministers and government departments to implement directives and treaty provisions. For example, the Unfair Terms in Consumer Contracts Regulations 1999 were created under this power. 4 Bye-laws. These are made by local authorities and other bodies with statutory powers, like London Underground and Network Rail, to regulate the facilities which they provide. The use of delegated legislation is somewhat controversial. In general, however, its practical advantages outweigh its disadvantages. The advantages of delegated legis\ lation are: 1 Saving of parliamentary time . The parliamentary legislative process is slow and pro- tracted. Parliament finds it difficult to complete its annual legislative schedule and does not have time to debate the fine details of the regulations necessary to execute govern- ment policy. 2 Specialist knowledge . The creation of many regulations requires specialist knowledge not enjoyed by the average MP. They are, for example, unlikely to understand the finer points of abattoir management, or appreciate the appropriate levels of pork to be found in a sausage. 3 Flexibility. Such rules may be easily and quickly introduced, altered or extinguished, as and when appropriate. 4 Legislation can take place when Parliament is not sitting . This assists the smooth running of central and local government outside parliamentary sessions. The disadvantages of delegated legislation are: 1 Loss of parliamentary control . Since details of policy administration are determined by the relevant government department, Parliament may be deprived of the opportunity to PARLIAMENT 23 2 How the law is made 0003 question and debate them. Scrutiny of most delegated legislation is negl\ igible. It is laid before Parliament, but most of it is subject to a ‘negative resolution’ procedure. This means that it will be implemented as it stands unless an objection is su\ stained within the specified time limit. Exceptionally, the enabling Act may require Parliament positively to approve the regulations. 2 Bulk and frequent change . The huge quantity of delegated legislation which is produced every year makes it very difficult – even for lawyers – to keep abreast of all changes. Adapting to changes may considerably add to the burdens of running a business, even where publicity materials are circulated by the regulating body. The courts Creative powers The law made by the courts is case law, sometimes described as common law. Until the nineteenth century the courts were the primary law-makers, but were superseded by Parlia- ment since social conditions required a different style of law-making. Case law evolves slowly and haphazardly, when relevant cases come before the courts with facts which justify further legal development. A point of case law may be very narrow in its effect since the courts can legislate only with regard to things that have already happened; they cannot leg- islate for what is to happen in future cases with different facts. This makes case law an inadequate form of law-making in a sophisticated industrial society, where blanket legisla- tion is needed to regulate possible future problems. Today the bulk of both civil and criminal law is statutory. New principles are most com- monly developed in this way and much of the common law has been codified(converted into statutory form). The senior courts retain some limited creative powers, mainly in tort and contract law which are still not predominantly statutory. For example, the law of negli- gence, which is described in Chapters 13–14, has been, and mainly con\ tinues to be, developed by judges. Interpretative powers Since most law is now statutory, the courts are mainly concerned with the interpretation and application of points of law derived from Acts of Parliament and delegated legislation. When exercising this function the courts must respect the sovereignty of Parliament as a superior law-making body. A judge interpreting a statute will therefore aim to give such meaning to a disputed point of legislation as to reflect what Parliament seemed to have intended. The words used in the statute are the main focus of the interpretation exercise and limit the freedom of the court. If the statute has an apparent gap and consequently an injustice PA R T 1 INTRODUCTION 24 0003 exists, the court is not necessarily free to create the law to fill that gap, unless the context gives the necessary scope. Otherwise, all that the court can do is to recommend that Parlia- ment amends the legislation.Judges have a number of resources and tools which may assist their interpretative function. 1 Intrinsic aids These are found within the statute itself. It is common for an interpretation clause to be included which explains any special meaning to be given to words within the statute. For example, the Occupiers’ Liability Act 1957 defines ‘premises’ as any ‘fixed or moveable structure’ (see Chapter 15). 2 External aids These are materials which are not part of the statute itself. They include the following: (a) The Interpretation Act 1978. This gives guidance on terms and phrases commonly found in legislation. (b) Reports of the Law Commission or government inquiry. These may indicate why legisla- tion is needed and thereby indicate its meaning. (c) Parliamentary Reports. Until 1993 the courts refused to admit evidence from Hansard Reports of parliamentary proceedings relating to the passage of the statute. There were three main objections: the legislative and judicial functions of the state would be confused; the cut and thrust of parliamentary debate was unlikely to provide objective explanations; the research required to check Hansard would also add considerably to the cost of litigation. Pepper v Hart (1993, HL) Held (by majority): Hansard may be consulted by the courts if all the following circumstances exist: the disputed legislation is ambiguous or obscure, or the words taken at their face value produce an absurd result; and the Hansard extract consists of statements made by the relevant minister or other sponsor of the Bill; and the meaning of the extract is clear. Pepper v Hart has been followed in a number of cases, but it is doubtful how far it is\ useful. The disputed section of an Act may not have been debated. Even if it was\ , any comments made may, in themselves, be ambiguous and confusing. THE COURTS 25 2 How the law is made 0003 3 Judicial principles of statutory interpretation The judiciary has developed the following practices to assist the interp\ retative process: (a)The contextual approach . Any disputed words must always be interpreted within the context of the statute as a whole (a contextual approach ). The significance of a vague, obscure or even apparently meaningless word may become crystal clear when scrutinised in relation to the surrounding text. The ejusdem generis rule forms part of the contextual approach. General words, like ‘other animals’, ‘other person’, or ‘other thing’ are meaningless in themselves. Their meaning may be clarified by reference to any specific words which precede them. Thus, if the words ‘other animals’ were pre- ceded by the words ‘cats, dogs and guinea pigs’, it would be reasonable to assume that they include any animal commonly kept as a domestic pet. Generous interpretations are sometimes made to assist the perceived purpose of the statute. Thus in Flack v Baldry (1988) an electric shock from a stun gun was held to come within the definition of ‘any noxious liquid, gas or other thing’ under the Firearms Act 1968. (b) The literal rule. A literal rule approach requires the court to take words at their face value where there is no ambiguity and the meaning is clear, even if this produces an absurd result. Fisher vBell (1961) The defendant shopkeeper displayed a ‘flick knife’ (knife with a retractable blade) in his shop window and was charged with offering for sale an offensive weapon in breach of the Restriction of Offensive Weapons Act 1959, s 1(1). Held: he was not guilty since, in contract law, a display of goods is an ‘invitation to treat’ and not ‘an offer for sale’ (see Chapter 4). The application of the rule in such a case has been justified by the cou\ rts on the ground that it is for Parliament to correct any practical problems arising from the statute. Any action by the courts is an unjustifiable interference with parliamentary sovereignty. (c) The golden rule . The golden rule developed as a means of blunting the worst excesses of the literal rule. If the statute is ambiguous, the court wil\ l apply the least ridiculous meaning in order to avoid an absurd result. Adler v George (1964) A CND demonstrator who invaded a sentry post at an army base was charged with obstructing a member of HM Forces ‘in the vicinity of a prohibited place’ under the Official Secrets Act 1920. It was argued that since she had actually entered the base she was on it when the obstruction took place rather than in its vicinity. Held: to dismiss the charge on the basis of a literal interpretation would produce an absurd result; ‘vicinity’ must be interpreted as including the place itself, not just its environs. PA R T 1 INTRODUCTION 26 0003 Smith vHughes (1960) A prostitute who, from her window, encouraged gentlemen passing in the street to avail themselves of her services was successfully prosecuted for ‘soliciting in the street’. Held: the purpose of the legislation was to prevent annoyance to people arising from the activities of prostitutes in public places. Since the effects of the defendant’s conduct were felt by people in the street, that conduct clearly fell within the purpose of the Street Offences Act 1959. (d)The mischief rule. The mischief rule is a sixteenth-century rule that allows the court to adopt a meaning which will enable the statute to fulfil its intended pur\ pose. The court examines the law before the Act to discover the problem (mischief) which the statute was intended to correct; then the statute can be given the meaning which resolves the problem . This rule largely fell into disfavour with the rise of the literal rule,\ which dominated judicial decision-making in the nineteenth century and for approximately the first 70 years of the twentieth century. (e) The purposive approach . The purposive approach , which is somewhat similar to the mischief approach, but broader in its effect, has come into use since the UK’s entry into the EC. The courts of other member states have traditionally used this a\ pproach, as does the European Court of Justice. It requires the court to interpret the statute by look- ing beyond its words to determine the general purpose behind it. To do this the court may examine relevant extrinsic documentary evidence such as government reports pro- posing the reform. The next case is a good example of this. Royal College of Nursing v DHSS (1981, HL) Section 1(1) of the Abortion Act 1967 states that an abortion is legal only if carried out by a ‘registered medical practitioner’. A change in abortion methods after the Act was passed meant that the procedure was largely carried out by nurses, subject to some supervision by a doctor. The courts had to decide whether abortions carried out by this procedure were legal under the Act. Held by the Court of Appeal (adopting a literal approach): the practice was unlawful since nurses do not have the necessary qualifications. Held by the House of Lords (by majority): a purposive approach should be used and that no illegal- ity had occurred. Lord Diplock said: ‘ The approach of the Act seems to me to be clear. There are two aspects of it: the first, to broaden the grounds on whic h an abortion may be obtained; the second is to ensure that the abortion is carried out with proper skill and in hygienic conditions .’ (Before the Act legalised abortion in certain circumstances, many women died at the hands of back- street abortionists.) The House of Lords’ decision in Pepperv Hart (see above at page 25) may be seen as enabling and encouraging this approach. While the literal rule is still used today, a purposive approach is common where this assists a just outcome in the public interest. The court may THE COURTS 27 2 How the law is made 0003 PA R T 1INTRODUCTION 28 use it to complement the literal rule: looking at the purpose of the sta\ tute will assist correct choice of meaning of an ambiguous word or phrase. It may be more radically used to cor- rect an anomaly or fill a small gap. Although called ‘rules’, it is more accurate to describe these judicial principles as ‘tools’ of interpretation. As Royal College of Nursing v DHSS (above) illustrates, they represent differ- ing possible approaches to the interpretation process. They are not in any way superior or inferior to each other. Judges will choose what they view as the approach likely to produce the interpretation most beneficial to the public interest and which reflects current constitu- tional developments. 4 Judicial presumptions The courts will presume in the absence of clear evidence to the contrary that a statute wi\ ll not: (a) impose strict liability, i.e. where it is not necessary to prove that the accused intended to commit the offence; (b) operate retrospectively, i.e. be said to apply to offences committed before the statute came into force; (c) change the common law. These presumptions may be contradicted (rebutted) only by express wording in the statute, or by clear implication to that effect. Sweet v Parsley (1969, HL) Miss Sweet let out a house which was raided by the police, who found cannabis in the possession of the tenants. Miss Sweet was charged with a statutory offence of ‘being concerned in the management of premises’ where the drugs were found. Horace is enjoying the spring sunshine and bird song in his local park when Wayne and Waynetta settle down on the grass nearby and entertain themselves by playing their phone radio very loudly. Horace is not charmed by their taste in music (heavy metal) and points out the park bye-laws notice. This states a list of noise prohibitions, including ‘singing or playing music’, breach of which may be punished by fine. Wayne, who fancies himself as a bit of a barrack room lawyer, says: ‘We ain’t playing nothing mate, you’d better prosecute the radio station.’ It would probably be wise of Horace to admit defeat at this point and find somewhere quieter to sit. However, he probably has the law on his side. If a court were to consider the issue, it might well con- clude that Wayne had breached the bye-laws. ‘Playing music’, even literally interpreted, is capable of including a radio transmission, so by using the golden rule approach an absurd result could be avoided by choosing the meaning of play as in ‘a radio was playing music’. As the object of the bye-laws is to prevent noise pollution, a purposive a pproach would also include broadcast music. Real Life 0003 Held:in the absence of a clear indication in the statute that she could be liable without reasonable knowledge of what was happening on her property, Miss Sweet was not guilty without proof of guilty knowledge. Strict liability was presumed not to have been intended. The law of binding precedent When exercising either their creative or interpretative functions, judges are bound by the law of binding precedent. This is a distinctive feature of the English legal system. In main- land European countries judges tend to follow each other’s decisions in a similar way but are not obliged to do so. Their fellow judges’ decisions are all persuasive but they are not binding . Under English law judges are not necessarily entitled to make their own decisions about the development or interpretation of the law. They may be bound by a decision reached in a previous case. Two factors are crucial to determining whether a precedent (previous judicial decision) is binding: 1 the position in the court hierarchy of the court which decided the precedent, relative to the position of the court trying the current case. Inferior courts are bound by the deci- sions of superior courts (the letters HL, CA and PC following the name \ of a case indicate that it involves an appeal in one of the higher courts); 2 whether the facts of the current case come within the scope of the principle of law in the previous decision. The court hierarchy 1 The House of Lords This is the final court of appeal in the English court system. Its decis\ ions are binding on all courts below. Before 1966, in the interests of preserving certainty, the House of Lords fol- lowed its own decisions unless a previous decision was found to have been reached per incuriam . Translated literally, this means ‘through lack of care’ caused by a failure by coun- sel to draw the attention of the court to crucial statutory or case law, preventing a correct decision from being reached. Since 1966 it has indicated that it is prepared to depart from existing decisions, if this is necessary to prevent injustice or unreasonable restriction of development of the common law. THE COURTS 29 2 How the law is made In what circumstances do you suppose that the House of Lords would find a previous decision unjust or restrictive? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 PA R T 1INTRODUCTION 30 2 The Court of Appeal (a)The Civil Division of the Court of Appeal is bound by the decisions of the House of Lords, and its decisions bind all the civil courts below. Subject to three exceptions laid down in Young v Bristol Aeroplane Company (1944), it is supposed to follow its own previous decisions. The exceptions are: two of its own previous decisions are in conflict: it must then choose which to follow; the one which is not chosen ceases to be good law;  a previous decision conflicts with a decision of the House of Lords: the decision of the House of Lords must be followed;  the previous decision was reached per incuriam. (b) The Criminal Division of the Court of Appeal is bound by the decisions of the House of Lords, and its decisions bind all the criminal courts below. It may depart from its own decisions where such flexibility is in the interests of justice. 3 The Divisional Courts These are all bound by the House of Lords and Court of Appeal decisions. The decisions of the Divisional Courts are binding on those courts from which they hear appeals. They follow their own decisions subject to the same exceptions as the Civil Division of th\ e Court of Appeal. 4 The High Court Judges in the High Court are bound by the decisions of the House of Lords and Court of Appeal, but not by the decisions of their fellow judges. High Court deci\ sions are binding on the Crown Court, county courts and magistrates’ courts. Decisions made in the Crown Court, the county courts and magistrates’ courts are not binding in other cases or in other courts. Such courts, of course, are bound by the decisions of the relevant superior courts. The relevance of the previous decision: the scope of the ratio decidendi When judges have heard cases in the High Court or any of the courts above, they may deliver lengthy judgments. These explain their reasons for deciding in favour of one party rather than the other. This statement of reasons, which refers both to relevant proven facts and to the applica- ble principles of law, is called the ratio decidendi (the reason for the decision). It is the ratio decidendi which forms the potentially binding precedent for later cases. A later court, when hearing a case, has to decide whether that case’s facts are sufficiently relevant to the principle of the ratio decidendiof a previous case. If so, the previous decision must be applied, provided it was decided by a relevant court. If there are material differences, the later case can be distinguishedon its facts and the previous decision is not applicable. Reversing and overruling decisions An appeal court may decide to overturn a decision reached by a lower court. This may be on the ground that the case was incorrectly decided in the light of the current law. The lower court’s decision is then said to be reversed . The victor at the previous trial is now the loser. 0003 Reversing a decisiondoes not in itself affect the validity of any precedent applied in the case. If the appeal court believes that a precedent, which bound the lower court, no longer represents the law, it may (subject to the rules explained above) overrule that precedent and restate the legal principle. The importance of the law reporting system No system of precedent can work unless there is an accurate and comprehensive collection of the key decisions of the superior courts readily accessible to all who have need of them. Authoritative reports compiled by legally qualified law reporters are produced primarily by the Council of Law Reporting. The courts may refuse to allow a non-authoritative report to be quoted in court. Persuasive precedents While a court may be bound to apply a precedent, other decisions called persuasive prece- dents are influential only. The court can choose to apply them. Persuasive precedents include: 1 Obiter dicta. In a judgment it is quite common to find statements of law relating to hypo- thetical facts. These are not part of the ratio decidendi and are called obiter dicta ( obiter dictum in the singular). These indicate how the judge thinks the law should develop in the hypothetical circumstances. They are highly persuasive if they come from the House of Lords or Court of Appeal, but a court still has a choice about applying the\ m in a future case. Once applied, the obiter dictabecome binding principles of law. Some important principles of law have originated from obiter dicta. See Central London Prop- erty Trust v High Trees House (Chapter 5). 2 The decisions of the Judicial Committee of the Privy Council. The Privy Council, which is staffed by members of the House of Lords, hears appeals from the courts of some Com- monwealth countries. As the decisions do not involve English cases they \ are of persuasive influence only, despite the status of the judges. The rules relating to remoteness of damage in negligence are derived from a case called The Wagon Mound, an appeal from the Australian courts (see Chapter 14). The advantages and disadvantages of the binding precedent doctrine Conflicting opinions exist about the value of the binding precedent system. The advantages are said to be: 1 Certainty . The system promotes valuable certainty in the law. A party can generally be given a reasonably clear prediction of the outcome of its case. 2 Flexibility. The necessarily firm rules are tempered by the ability of the higher courts to overrule their own decisions. A court’s ability to distinguish or reconcile decisions on their facts also promotes flexibility. 3 Practical nature. Principles of pure case law can be developed in response to actual prob- lems and tailored to solve them. 4 Speed . The law can be developed without waiting for Parliament to legislate i\ n a new area. THE COURTS 31 2 How the law is made 0003 The disadvantages of the system often appear correlative to the perceived advantages: 1Uncertainty. The powers of the courts to distinguish and reconcile binding precedents often lead to confusing hairline distinctions and distorted applications\ of case law. 2 Rigidity . Certainty is preserved by rigid rules which arguably inhibit development of the law. 3 Retrieval problems . The vast amount of case law makes it easy for relevant precedents to be overlooked during preparation for litigation, and increases the time and, therefore, the cost to the client. 4 Haphazard development . A change in the law depends on a case with relevant facts reaching the appropriate court. This usually means the Court of Appeal or the House of Lords; litigants do not necessarily have the means to take their cases that \ far. 5 Undemocratic. The development of pure case law by judges (not interpreting statutes) is not appropriate since they are not democratically appointed and law-making conflicts with parliamentary sovereignty. The Human Rights Act 1998 (HRA 1998) This important statute, which came into force in October 2000, makes most of the rights in the European Convention on Human Rights directly enforceable in the English courts. It has the potential directly and indirectly to be highly influential on the content and interpretation of legislation and on the way case law is developed. The legal and political background to the Act The European Convention on Human Rights (the Convention) was drafted by the Council of Europe and came into force in 1953. It now has over 40 signatories, including the UK. It requires signatory states to uphold a number of fundamental civil rights, incl\ uding the rights to liberty and security (Article 5), freedom of thought, conscience and religion (Article 9), freedom of expression (Article 10), and freedom of assembly and association (Article 11). The rights to life (Article 2), a fair trial (Article\ 6) and privacy and family life (Arti- cle 8) are also included. There is a right to manifest your religion under Article 9 and a right to access to religion (Protocol 1, Article 2). Until the HRA 1998, none of these was directly and specifically enforceable in the UK courts. Individuals had to take claims that the UK had breached its duties under the Convention to the European Court of Human Rights (ECtHR) at Strasbourg, if no remedy had been found to exist in their case by the UK courts under domestic law. The Convention, even when not directly binding on the English courts, was always used as an aid to statutory interpretation and to determine the scope of the common law. Deci- sions of the ECtHR were used as persuasive precedents. PA R T 1 INTRODUCTION 32 0003 The Convention and the ECtHR must not be confused with the law and insti\ tutions of the EU. They are different in their origins, signatories and operations. However, the European Court of Justice, based at Luxembourg, which is responsible for upholding the law of the European Union, tends to reflect the principles of the Convention in its decisions. The operation of the HRA 1998 Section 6 of the HRA 1998 requires ‘public authorities’ to act compatibly with the Conven- tion. Public authorities include central government departments and local authorities, as well as the courts, tribunals and police forces. A breach of the Convention by a public authority is therefore now actionable in the domestic courts. The judges’ functions Interpretation of Convention rights (s 2) When the court is deciding any issue which has ‘arisen in connection \ with human rights’ it must take into account the case law of the ECtHR. Interpretation of legislation (s 3) The court must, ‘so far as it is possible to do so’, interpret legislation so that it is compatible with Convention rights. Note that the duty under s 3 is not an absolute \ one. To preserve parliamentary sovereignty, the Act does not permit the court to override a statute found to be incompatible with the Convention. Instead, the court has the power (\ s 4) to issue a dec- laration of incompatibility to the relevant minister, who may then at his or her discretion ask Parliament to amend the legislation. In the first year of the operation \ of the Act only three such declarations were issued in a total of 56 claims under the Act. R (on the application of Pearson )vSecretary of State for the Home Department and Martinez; Hirst v Attorney-General (2001) It was held that the Representation of the People Act 1983, which states that prisoners do not have the right to vote, was not incompatible with Article 10 of the Convention (right to freedom of expression). The Convention right is not absolute and proportionate restrictions can be imposed by the state. Judicial remedies (s 8) Where a breach of the Convention is proved the court has the power to grant a number of remedies, including damages and injunctions and other orders. The impact of the Act The Act has both a direct and indirect effect on the way domestic law is interpreted and applied. THE HUMAN RIGHTS ACT 1998 (HRA 1998) 33 2 How the law is made 0003 PA R T 1INTRODUCTION 34 Direct effect The HRA 1998 introduces an entirely new right of action for alleged breaches of Convention rights, though only against a ‘public authority’. Such an action c\ annot be brought against a private institution or individual. Contrary to many people’s belief prior to implementation, the direct impact of the Act on domestic law has not generally been a dramatic one. This is not surprisi\ ng. Apart from the innate conservatism of the English judiciary, Convention rights are very broadly worded, giving judges flexibility to find compatibility. Almost all Convention rights are not absolute, but instead are hedged around with qualifications. For example, the right to life (Article 2) may not be breached if a person dies while being lawfully arrested. The right to liberty (Arti- cle 5) may be limited in the interests of protecting the public through lawful arrest. Similarly, a person with mental illness may be detained against their will if neces\ sary for their own or the public’s safety. R (on the application of Laporte )vChief Constable of Gloucestershire Constabulary (2007, HL) Jane Laporte (and 26 other anti-war protestors) claimed that their rights to freedom of expression and freedom of assembly (ECHR, Articles 10 and 11) had been breached when the police prevented them from attending a lawful demonstration at RAF Fairford, just before the base was used to launch bombing raids on Iraq. The police stopped their coach, searched the passengers and then sealed it and escorted it back to London. The police argued that it was necessary to do so in order to prevent a breach of the peace, given the past history of some of the demonstrators and some items found on the coach (e.g. a can of spray paint). Only the three main speakers were allowed to proceed to Fairford. Held (unanimously): the police’s entirely disproportionate conduct had breached the applicants’ Con- vention rights. They had also been unlawfully detained. At the point that the police intervened there was no reason to view them as other than ‘ committed and peaceful’ demonstrators. It was irrelevant that a breach of the peace might occur some time in the future. The HRA 1998 had created a ‘ constitutional shift’ and created a right to peaceful protest. The right to freedom of expression was ‘ an essential founda- tion of a democratic society’ (Lord Bingham). The court, when determining a human rights claim, has to attempt to bala\ nce the interests of the parties to ensure neither suffers an undue limitation of their Convention rights. This is sometimes described as ‘proportionality’. For example, a claim to protect a right of pri- vacy (Article 8) must not be decided in a way that unduly curtails freedom of expression of the other party or which will unreasonably interfere with the public’s right to information (Article 10). ‘In the News’ (opposite) provides a case example of rights to family life being compromised for public benefit . The Act has not directly generated large numbers of claims and most of those which have been brought have not been successful. Between October 2000 and December 2001, 297 claims were heard and only 56 of them were upheld. However, the challenge under the Act affected the outcome, reasoning or procedure in 207 of them, which indicates that the Convention was at least highly influential. 0003 R (on the application of Begum)vHeadteacher and Governors of Denbigh High School (2006, HL) Begum’s school, while accommodating Muslim dress, only permitted girls to wear the shalwar kameez. Begum was happy with this initially but after two years insisted on wearing the jilbab. For the next two years she was excluded from the school. There were other schools nearer her home which permitted the jilbab. She claimed that Denbigh High School had deprived her of her right to manifest her religion (Article 9) and her right to access education (Protocol 1, Article 2) of the ECHR. Held (by majority): her right to religious expression had not been breached. The school had acted with proportionality in devising a dress code which ‘r espected Muslim beliefs but did so in an inclusive, unthreatening and uncompetitive way’. Held (unanimously): she had not been deprived of access to education. Her absence from school was due to her refusal to comply with a reasonable rule and her failure to obtain a place at a school which would have accommodated her religious beliefs. Indirect effect As indicated above, a court as a public authority is obligated under s 6\ to act compatibly with the Convention. This, combined with its duties to take ECtHR judgme\ nts into account (s 2) and to interpret statutes compatibly (s 3), means that since 2000 Convention law has\ THE HUMAN RIGHTS ACT 1998 (HRA 1998) 35 Austin v Commissioner of Police of the Metropolis (2009, HL) Ms Austin took part in a large May Day demonstration against global capitalism in Oxford Street in London involving about 3,000 people in 2001. The police, who had not been informed that the demonstration would take place, decided that the only workable strategy to prevent injury, damage and violence was to form a cordon round a large crowd of demonstrators near Oxford Circus and then disperse them in an orderly fashion. The dispersal took seven hours due to the behaviour of a large minority of the demonstrators who became obstructive and violent. Some prised up paving stones and hurled lumps of the masonry at the police. Others obstructed arrest of violent demon- strators and refused generally to co-operate with the police. Ms Austin claimed that by detaining her in the cordon the police had deprived her of her liberty in breach of Article 5(1) of the ECHR. Her claim was unsuccessful in the lower courts and she appealed to the House of Lords. Held : measures by the police which impacted on an individual’s liberty must be proportionate to the situation and done in good faith, in order to maintain the fundamental principle that detention must not be arbitrary. The crowd control undertaken by the police was done in the public interest with the intention of enabling orderly disp ersal of the demonstrators as soon as reasonably possible. The size and behaviour of the crowd had made controlled dispersal unusually difficult and slow. Consquently, the detention of the demonstrators had not amoun ted to a breach of the ECHR and Ms Austin’s appeal must be dismissed. In the News 2 How the law is made 0003 PA R T 1INTRODUCTION 36 been influential on the outcome of a number of cases which were not brought under the Act. In Av B sub nom Garry Flitcroft v Mirror Group Newspapers Ltd (2002, CA), the court refused to grant an injunction for breach of confidence to a professional footballer to pre- vent publication of the story of his extramarital exploits. The court in\ its decision balanced the claimant’s right to privacy against the rights to freedom of expression and the public interest and found that these outweighed the claimant’s rights. (More detail on this and other similar cases below at pages 531–2.) The Human Rights Act 1998 has clearly already had a significant impact on the develop- ment of the law and a human rights culture is beginning clearly to emerge. You will find a number of examples of relevant decisions in later chapters. Sources of English law EU, British Parliament, and English courts. EC institutions The Council of Ministers, the European Council, the European Commission, the European Court of Justice and the European Parliament. European legislation Regulations, Directives, Decisions. British parliamentary legislation Direct: Acts of Parliament. An Act starts life as a Bill, which must successfully pass through three readings and a committee stage in each House before receiving the Royal Assent. Delegated: Orders in Council, statutory instru- ments, rules and regulations, bye-laws. The courts Case law: created by judges, e.g. much of contract and tort law on a case-by-case basis. Statutory interpretation of direct and delegated legislation using literal/golden/mischief/purposive approach. The law of precedent: judges have regard to pre- vious decisions and must apply those which are binding. A precedent is binding if (a) ratio decidendi rele- vant to the current case, and (b) it comes from a higher court in the hierarchy, or (c) the case is being heard in the House of Lords or Court of Appeal which follow their own decisions. Note: Crown/county/magistrates’ court decisions are not binding on other courts nor on themselves. The Human Rights Act 1998 Direct effect: ECHR rights directly enforceable by individuals against a ‘public authority’. Indirect effect: The court must act compatibly with the Convention. Therefore, its content and case law may be influential in shaping the judge’s decision in any case. Chapter summary Binding precedent: a judicial decision which a court must follow. Council of Ministers: Consists of the government minister from each EU state whose portfolio reflects the business of the meeting (e.g. Internal Affairs). Contextual approach: vague words in a statute take their meaning from their immediate/general context. Decision: EU legislation binding in one state only. Key terms 0003 KEY TERMS 37 2 How the law is made Delegated legislation: law made by a body authorised to do so by Act of Parliament. Direct effect: under the HRA 1998 the ECHR can be enforced in cases against a public authority in an English court. Direct legislation: law made by Parliament/Acts of Parliament. Directive: EU legislation aimed at harmonising law of member states which becomes effective once domestic law is passed to implement it. Ejusdem generis rule: ‘of the same class’. If a class of people/things is specified by the Act any person/thing within that class comes within the Act. European Council: an EU institution composed of the foreign ministers from each member state. European Convention on Human Rights: the fundamental freedoms to be expected by the citi- zens of a democratic state and binding on its 54 state signatories. (Not EU legislation.) European Court of Justice: EU institution which hears cases from/against member states and the EU. European Court of Human Rights: hears cases concerning alleged breaches of the ECHR by citizens against their home state. ( Notan EU institution.) European Parliament: EU institution, members of which are elected by citizens of each member state. Golden rule: Rule of statutory interpretation stat- ing that if two literal meanings exist the least ridiculous be adopted. Green Paper: discussion paper containing propos- als for new legislation. Indirect effect: the HRA 1998 makes the ECHR influential on the outcome of cases not brought under the Act as the court must act compatibly with ECHR and take account of ECtHR judgments. Literal rule: the words of a statute must be taken at face value. Mischief rule: a statute must be interpreted to remedy the gap in the law which it was intended to correct. Obiter dictum/obiter dicta: a judicial statement indicating how the judge would interpret the law in different circumstances. Overrule: the court declares an existing binding precedent to be no longer good law. Per incuriam: a case decision found later to have been incorrectly reached, because the court did not have the opportunity to consider potentially rele- vant law. Persuasive decision: a non-binding but influential precedent. Private Member’s Bill: proposed by a backbench MP, as opposed to a minister (Government Bill). Purposive approach: the court interprets a statute in the way which will implement its purpose. Public authority: HRA 1998, s 6 includes the courts and any body with public functions. Ratio decidendi: the reasons in law and fact why a judge reached a decision. Regulation: EU legislation which is directly effec- tive in UK. Reversing a decision: on appeal the party who won becomes the loser. White Paper: details of proposed legislation with explanation of what it is intended to achieve. Key terms (Continued) 0003 38 1 Name the three main sources of English law. 2 Distinguish between EU regulations and directives. 3 Name the stages through which a Bill will pass in Parliament. 4 Name two kinds of delegated legislation. 5 Explain the difference between the literal rule and the mischief rule. 6 Explain how the ejusdem generisrule works. 7 When may a precedent be binding? 8 What is the difference in the potential effect of a ratio decidendi and an obiter dictum? 9 Why might the status of a decision by the Judi- cial Committee of the Privy Council be described as an anomaly in the law of precedent? 10 In what circumstances may a right of action be brought under the Human Rights Act 1998? Answers to all quizzes can be found in Appendix 2. Quiz 2 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Adler v George [1964] 1 All ER 628 R (on the application of Begum ) v Denbigh High School [2006] 2 All ER 487, HL Royal College of Nursing v DHSS [1981] AC 800, HL Sweet v Parsley [1969] 1 All ER 347, HL Take a closer look Please go to: www.yourrights.org.uk/ Click on ‘The Human Rights Act’ to get more information about the ECHR and the HRA 1998. There is a lot of interesting information on this site that you also might wish to explore. Web activity With reference to decided cases, discuss the impact of the Human Rights Act 1998 on\ the rights of claimants. Assignment 1 PA R T 1 INTRODUCTION 0003 39 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter: Central London Property Trust v High Trees House [1947] KB 130 2 How the law is made ASSIGNMENT 1 0003 chapter 3 RESOLVING LEGAL DISPUTES 0003 Introduction This chapter explains the institutions and processes which may be relevant to the resolution of a legal dispute involving a business. It aims to give you a\ n overview of the workings of the legal system and primarily focuses on the operation \ of that system in relation to the areas of law covered in this book. While it is important to understand the court structure and the procedures by which a civil action may be brought, the great majority of civil disputes are settled without resort to the courts at all, with private agreements being reached voluntarily between the parties. Such agreements are sometimes assisted by the use of an arbitrator. Learning Objectives When you have studied this chapter you should be able to: Identify the jurisdiction of each court Appreciate the different stages of civil litigation See how the tribunal system complements and relates to the court structure Be aware of the different forms of alternative dispute resolution Distinguish between the different forms of arbitration. Photo: Alex Segre/Alamy 0003 The court system The courts described below form a hierarchy . This means that they are positioned in a structure in which some courts are superior to others. Through the doctrine of binding precedent (explained in Chapter 2), the decisions of the superior courts\ are binding on the courts below. The courts The magistrates’ court Magistrates’ courts are very busy courts in which approximately 95% of all criminal offences are prosecuted. These are summary and hybrid offences . Summary offences are petty offences which can be tried only by the magistrates. Hybrid offences may be tried by either the Crown Court or the magistrates’ court, usually at the choice of the def\ endant; they usu- ally involve conduct which is capable of being viewed as either serious \ or relatively trivial, like theft or criminal damage. All cases are usually tried by a bench of up to three justices of the peace (JPs) . These act voluntarily and are not legally qualified, but they are advised on points of law by the clerk of the court. Exceptionally the case may be heard before a district judge . The magistrates’ court is the usual venue for trial of most environmental health and other regulatory offences under the Trade Descriptions Act 1968, the Consumer Protection Act 1987 and the Health and Safety at Work etc. Act 1974. Most crimes against business owners, like shoplifting and criminal damage, are usually prosecuted in the magistrates’ court. Bail and criminal legal aid applications are also heard by magistrates. The sentencing powers of the magistrates’ courts are restricted. They may impose impris- onment for up to six months and a fine of up to £5,000. A party tried\ for an offence carrying a potentially higher penalty may be sent to the Crown Court for sentencing. With regard to civil and administrative jurisdiction, the Family Proceedings Court has wide jurisdiction over many aspects of domestic and matrimonial law and has s\ ignificant powers under the Children Act 1989. The magistrates also have powers to license premises selling alcohol and to enforce payment of council tax and business rates, and charges for gas, water and electricity. The Crown Court These courts are found mainly in county and borough towns. The Crown Court is staffed by High Court judges, circuit judges and recorders. The seriousness of the offence determines the type of judge to officiate. The Crown Court has criminal jurisdiction in the following circumstances: 1 Trial of indictable offences. Indictable offences include those offences which are so serious that they must be tried in the Crown Court: for example, homicide, rape and grievous bodily harm. Trial is by jury if the accused pleads not guilty. PA R T 1 INTRODUCTION 42 0003 THE COURT SYSTEM 43 3 2Sentencing cases committed from the magistrates’ court. 3 Legal aid and bail applications. 4 Appeals. The defendant found guilty in the magistrates’ court may appeal again\ st convic- tion or sentence to the Crown Court. The appeal will be heard by a judge (usually a recorder) sitting with a bench of JPs. The county court There are over 400 county courts in England and Wales, staffed by circuit judges and district judges. The county court has an extensive and purely civil jurisdiction, including contract, tort, recovery of land, trusts, mortgages and partnerships, contested wills, di\ vorce, bank- ruptcy and company insolvency. Since the Courts and Legal Services Act 1990 (CLSA 1990), almost any c\ ase which can be heard in the High Court can now be heard in the county court provided that it falls within specified and generous financial limits. For example, cases in tort and contract may be hea\ rd if the claimant is not suing for more than £50,000. The CLSA 1990 provisions aim to free the High Court from hearing all but the most complex, costly and specialist cases. The following cases must generally be tried in the county court: Appeals Sentence The Crown CourtCourt of Appeal Criminal Division Divisional Court of Queen’s Bench Magistrates’ court Trial of indictable offences House of Lords Figure 3.1 The criminal court structure Resolving legal disputes 0003 1 all actions worth up to £25,000; 2 any personal injury case worth under £50,000; unless its specialist nature or complexity makes trial in the High Court appropriate. Otherwise, provided that a case falls within the prescribed financial limits, the choice of venue is determined by: 1 the amount involved; 2 whether points of law of general public interest are involved; 3 the complexity of the case; 4 the procedures and/or remedies likely to be involved. Some are obtainable only from theHigh Court. Cases which have been started in the High Court can be transferred to the county court at the request of a party or at the discretion of the judge. A successful party may not get the full costs paid if the judge believes the case should have been pursued \ in the county court. The High Court This court is staffed by High Court judges. The court’s principal venue is the Royal Courts of Justice in London, but cases are also heard in provincial cities. It is divided into three divisions and primarily is concerned with the trial of civil cases outside the jurisdiction of the county\ court. The three divisions of the High Court are: 1 the Queen’s Bench Division , which primarily is concerned with the trial of cases in con- tract and tort. It also contains the Commercial Court which hears cases between people in business arising out of issues like imports and exports of goods, ins\ urance, banking and agency; 2 the Chancery Division , which tries cases in copyright, patents and design rights, bankruptcy and the dissolution of partnerships, sale of land, trusts, mortgages and\ disputed wills; 3 the Family Division , which deals with the most complex areas of family and matrimonial law arising, for example, from contested divorce, validity of foreign marriage and divorce, legitimacy and adoption. Appellate functions Separate divisional courts hear appeals from designated inferior courts. A bench of two judges is usual. The Divisional Court of the Queen’s Bench hears criminal appeals from the magistrates’ court by either prosecution or defence, when the interpretation of a point of law is in dis- pute. (Note that this is distinct from the appellate powers of the Crown Court which hears appeals only by the defendant, where facts as well as law may also be in dispute.) It also has a supervisory jurisdiction over all inferior courts and tribunals exercised through the process of judicial review. If the Divisional Court is satisfied that a court or tribunal has exce\ eded its jurisdiction or has failed to conduct its proceedings impartially according to the rules of PA R T 1 INTRODUCTION 44 0003 THE COURT SYSTEM 45 3 natural justice, an order may be issued overturning the outcome of those proceedings or preventing their continuance.The Divisional Court of the Chancery Division hears appeals against decisions of the county court in bankruptcy cases, and in revenue law against the decisions of the Inland Revenue Commissioners. The Divisional Court of the Family Division hears appeals from the magistrates’ courts in domestic and matrimonial cases. The Court of Appeal This is staffed by Lord and Lady Justices of Appeal and has two divisions. Cases are heard by a bench of three or five judges. The Civil Division of the Court of Appeal has jurisdiction to hear appea\ ls against decisions of the county court and High Court. It also hears appeals from some tribunals, including the Employment Appeal Tribunal, concerning cases originally heard at employment tribunal level. The Criminal Division of the Court of Appeal has jurisdiction to hear ap\ peals from Crown Court trials. (Note that the Court of Appeal cannot hear an appeal from the Crown Court where that court has itself been exercising its own appeals jurisdiction regarding cases from the magistrates’ court. The only further avenue for such appeals is t\ he Queen’s Bench Divi- sional Court.) Queen’s Bench DivisionChancery DivisionFamily Division The High Court Court of Appeal Civil Division Leap-frog procedure County Court House of Lords Figure 3.2 The principal civil courts and appeal routes Resolving legal disputes 0003 The Supreme Court The House of Lords (officially known as the Appellate Committee of the House of Lords to distinguish it from the parliamentary House of Lords) was the final court of appeal in Eng- land until 2009. The Supreme Court replaces the House of Lords under the Constitutional Reform Act 2005 (CRA) s 23. With the same jurisdiction, it hears appeals from the Divisional Courts and the Court of Appeal, on points of law of public importance. Cases which \ generally all con- cern statutory interpretation, are heard by a bench of three to seven judges. Exceptionally, an appeal may be made directly from the High Court, bypassing the Court of Appeal (the ‘leap-frog’ procedure introduced by the Administration of Justice Act 1969). This operates only where the point of law is already the subject of a Court of Appeal decision by which both it and the High Court are bound. This measure was introduced to overcome the restraints of the law of precedent, but is, in practice, very rarely used. The judges are known as Judges of the Supreme Court. The initial office holders are the Law Lords or Lords of Appeal in Ordinary (formerly judges of the House of Lords) who were holding office in 2009 when the Supreme Court started to sit. The CRA includes provi- sions for a new appointment system for their successors. Bringing a case in the civil courts The enforcement of legal rights is all too often perceived as a universal remedy, but there are many factors which can prevent a successful outcome. Many people who technically have a good claim in law may be unable to enforce it successfully for any of the following reasons: (a) their opponents do not have the necessary funds to satisfy the claim; 46 PA R T 1 INTRODUCTION Delays in setting up the Supreme Court finally resolved The new court is based at the Middlesex Guildhall close to the Houses of Parliament. It is a Grade 2 listed building which has required refurbishment and the works proposed lead to many of the fix- tures and fittings being removed. Delay in the development was caused by a pressure group called Save Britain’s Heritage, which brought a case in the High Court against Westminster Council to dis- pute the legality of the planning permission which the Council had granted ( R(on the application of Save Britain’s Heritage ) v Westminster Council (2007)). The case was not successful. Work on the premises eventually started in June 2007 and in November 2008 the Ministry of Justice announced that the building would open for business in October 2009. (Source: based on Ministry of Justice, press releases 14/6/07 and 13/11/08.) In the News 0003 (b) the law-breaker cannot be traced, e.g. an offending company may have gone into liquidation; (c) the wronged party may not have the funds to pursue the claim. Litigation is a \ costly and protracted process, which may require expert assistance. Legal representatives do not simply send in a bill at the end of proceedings; regular payments are required pending the outcome of the case, and a party may run out of money even before the case comes to court. Rights to legal aid are means-tested and largely restricted to parties whose income does not exceed basic welfare benefit levels; (d) the losing side may be responsible not only for their own legal costs, but also for those of their opponents. This may discourage pursuit of a case where the outcome is unpredictable. The Woolf reforms 1999 In 1993, Lord Woolf (Master of the Rolls) headed an inquiry into the civil justice sy\ stem which was prompted by concerns that its procedures were neither efficient nor effective. The report drew attention to a range of problems for the would-be litigant including the undue and often disproportionate cost of litigation, compounded by the unnecessary com- plexity of rules and procedures. It also expressed concerns that abuse by lawyers of the adversarial system could lead to litigation being controlled more by the lawyers rather than the parties or even the judge. Implementation of recommendations in the report in April 1999 have resulted in radical changes to civil litigation. The new Civil Procedure Rules (CPR) are drafted in plain English, with an emphasis on clarity and avoidance of\ legal jargon, to make them user-friendly for the unrepresented litigant and more accessible to all. Some materials like case reports, which you may use for wider reading, which were pub- lished before the new rules came into effect still use the old terminology: for example, ‘plaintiff’ is used instead of ‘claimant’. Settlement out of court Litigation is time-consuming, costly and often emotionally draining for \ the parties. It is a step to be taken only when all alternatives have failed. The huge majority of legal claims can be enforced without litigation, or even specialist help. Simple cases may be settled informally between the parties. A cust\ omer who is sold defective goods will usually obtain a refund from any reputable business without argument. A party who is unable to achieve a successful outcome may get a solicito\ r to reinforce the claim with a letter pointing out the relevant legal requirements. Sometimes the threat of liti- gation may produce the required result; if this fails proceedings may be started, but this does not commit either party to a court appearance. Most civil cases are settled before trial. The CPR give judges a number of powers to encourage early settlement whe\ rever possible. SETTLEMENT OUT OF COURT 47 3 Resolving legal disputes 0003 For example, if a judge believes that a party has acted unreasonably in pursuing or conduct- ing the case, penalties may be imposed as regards costs. Payment into court and offers to settle If proceedings have been started, the defendant may offer to make a payment into court . This represents the amount of compensation the defendant is prepared to pay. It is not in itself an admission of liability. The claimant does not have to accept this offer, but may feel pressured to do so. If the case proceeds, the claimant will be liable for the defen- dant’s costs, even if successful, if the amount of damages awarded by the court is less than the amount offered by the defendant. The CPR have also introduced rights for a claimant who makes an offer to settle for a certain sum. If the defendant refuses the offer and the claimant then wins the case and is awarded that sum or more, the court has the discretion to increase the amount of interest payable on damages from the date of the decision by up to 10 per cent. Strategies of this kind are aimed at encouraging early settlement with a consequent saving of cost\ to the liti- gants and time for the judge. Civil litigation procedures Starting a civil action 1 Letters of claim and pre-action protocols The CPR aim to encourage the parties to clarify the issues between them \ before any claim is issued. The claimant must send the defendant a letter of claim . indicating clearly their allegations and the defendants must reply with explanation of their conduct. Pre-action protocols requiring very detailed and specific information and documentation must be\ exchanged in certain types of cases, such as personal injury, clinical negligence, engineering and construction disputes, professional negligence, defamation, and housing disrepair. PA R T 1 INTRODUCTION 48 The great majority of potential claims are settled informally out of court. This speeds up the process, reduces stress for the litigants and saves money on legal costs. Can you see any dr\ aw- backs to the process? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 2 Issue of claim The claimant fills in the claim form with detailed particulars and submi\ ts it to the court where it is processed and served on the defendant. This is called the issue of claim . 3 The defendant’s response The defendant must either admit the claim or file a detailed defence wit\ hin 21 days. Failure to respond may result in the claimant obtaining immediate judgment against the defendant\ for any sum specified in the claim. 4 The case is allocated to the relevant track The Woolf Report stressed that the cost of and resources for litigation should be proportion- ate to the complexity and size of the claim. The CPR aim to achieve this\ by designating a case to one of three tracks with differing procedures relative to the value and difficulty of the claim. The small claims track The small claims track is for claims of £5,000 or less and provides a relatively simple pro- cedure aimed primarily at consumers who wish to bring a small and simple clai\ m without the cost of paying a solicitor. However, a wide variety of cases are heard in this way and evi- dence suggests that it is equally useful to businesses as a means of deb\ t enforcement against their customers. The hearing before a district judge is informal and the normal rules of evidence do not apply. The CPR encourage an inquisitorial approach: the judge may question witnesses and limit cross-examination. The claimant may bring a friend to support him or her. A successful party may recover the costs incurred in issuing the proceedings, travel costs and a limited contribution to any expert-witness fees and loss of earnings. Legal costs are not recoverable for any money claim. This rule aims to discourage the use of lawyers but\ arguably loads the dice against a consumer since a business is likely to be represented. The fast track Cases involving claims of £5,000–£15,000 are usually dealt with fast track . The judge will give directions to the parties to clarify the issues to be tried and a trial dat\ e not later than 30 weeks ahead will be announced. A party who is not ready by that point may have problems obtaining an extension; unnecessary delay may ultimately result in costs penalties . The trial is limited to one day’s duration and limits may be imposed on how long expert- witness evidence may take. These rules aim to ensure that time (and the litigant’s money) are not wasted during the preparation or conduct of relatively small and simple cases. The multi-track Any case claiming over £15,000 is allocated to the multi-track track. The bigger and more complex the case, the greater will be the powers of the judge to manage its progress towards trial through case management conferences involving the liti- gants and their legal representatives. Such case management is a strategy intended to CIVIL LITIGATION PROCEDURES 49 3 Resolving legal disputes 0003 prevent time wasting by lawyers pursuing irrelevant legal arguments and to ensure proper and full disclosure of evidence by the parties. It also enables the judge to set time limi\ ts for the achievement of any necessary processes and organise the conduct of the trial in advance. 5 The interlocutory stages The interlocutory stages are the periods between issue of claim and hearing when detailed preparations for the hearing are made. In multi-track cases, there are likely to be a number of case conferences called by the judge. At this time there may also be requests for information, disclosure, and the issue of inter- locutory injunctions. Requests for information : one party may require the other to provide further clarification of the particulars of his or her claim or defence. Disclosure : the documentary evidence on which a party intends to rely must be made available at this stage. Third parties may also be required to give access to information. Application to the judge may be necessary to obtain compliance. In exceptional cases a search order may be required from the court which permits the claimant to get entry to the defendant’s premises and seize evidence. An application for such an order may be made without notice to the defendant to prevent him or her from covering his or her tracks. Issue of interlocutory injunctions : injunctions are orders from the court which may stop the defendant from doing something or require some positive act. An injunction is an equi- table remedy , which means that a party has no right to them. An injunction is grante\ d at the discretion of the court. The judge must be convinced that the claimant is mor\ ally entitled to the remedy and that it will not be unjust to impose it on the defendant. A freezing injunction may be required at the interlocutory stage to prevent the defendant from trans- ferring assets abroad or otherwise concealing them so as to avoid compensating the claiman\ t. Exceptionally, an injunction may be required as a holding measure to prevent the defen- dant from causing or continuing to cause serious damage to the claimant prior t\ o the trial. The trial of the case The court hears legal arguments from both parties, who will generally be represented by a barrister or a solicitor-advocate. Solicitors in general do not have the right to appear in the High Court, but under the Courts and Legal Services Act 1990 they may do\ so if they obtain an additional advocacy qualification by demonstrating relevant litigation experience and satisfactorily completing a training course. Witnesses may be called and questioned by both sides. The judge who hears the case will decide which party has won and explain\ why that conclusion has been reached. An award of damages is the usual remedy, but, where appro- priate, an injunction or any other order within the jurisdiction of the court may be issued. PA R T 1 INTRODUCTION 50 0003 Executing the judgment A claimant who is successful at trial has won a major battle but not the\ war. If awarded damages, the claimant has the status of a judgment creditor, but this does not in itself compel the defendant to pay – the claimant may have to return to the court to take steps to enforce the judgment. This may be done in any of the following ways: 1A distraint order. A distraint order entitles the claimant to seize goods to the value of the debt from the defendant’s premises. Bailiffs are usually employed for this purpose, at the claimant’s cost. 2A charging order. A charging order prevents the defendant from disposing of any assets, including land, trust funds, shares and debenture stock and other financial securi- ties, pending satisfaction of the claimant’s action. 3 Attachment of earnings . An attachment of earnings order requires an employer to pay a proportion of the defendant’s earnings to the claimant. 4 A garnishee order . A garnishee order enables the claimant to gain control of funds belonging to the defendant but held by a third party (usually the bank). 5 Insolvency proceedings . If any debt (whether resulting from litigation or not) owed to the claimant is £750 or more, the claimant may institute insolvency proceedings against the debtor. This does not guarantee payment: if there are a large number of creditors the claimant will have to join the queue, and at best may recover only a proportion of the debt. EXECUTING THE JUDGMENT 51 3 Horace was visited at home by a double glazing salesman from Transparent Deals (TD) and, per- suaded by his arguments that new patio doors would reduce the house’s carbon footprint, he signed a contract for £5,000 (‘A bargain price, this week only sir!’). In due course, workmen arrived and, with the help of many cups of tea and packets of biscuits provided by Horace, fitted the doors. However, despite his kind attentions the work was very poorly executed. The doors do not fit properly and there is a gap beside the frame on one side which lets warmth out and draughts in. The sliding mechanism jams, making the doors difficult to open. Horace is refusing to pay and TD is now threatening to take him to court. There are various strategies that Horace can pursue. If TD is a member of the Direct Selling Associa- tion (DSA), it must meet certain standards of behaviour under the DSA Consumer Code, which is approved by the Office of Fair Trading. Horace can complain to the DSA Code Administrator. If TD is found to be in breach of the Code, the Administrator may make it refund the full cost to Horace, or replace or repair the doors without charge, or pay him compensation. The company’s cavalier behav- iour rather suggests that it does not belong to the DSA. What a shame that Horace did not check that before he started. His best bet now is the Small Claims Track in the county court. He should call TD’s bluff and, if it does sue him, enter a counterclaim for breach of contract as his defence, or he can immediately start proceedings himself as TD is clearly in breach of contract. Real Life Resolving le gal disputes 0003 Alternative dispute resolution (ADR) Given the cost and difficulties raised by taking a case through the courts, a happier outcome may be achieved through using an alternative method of dispute resolution. This may con- sist of any of the strategies set out below. Arbitration The parties voluntarily submit their dispute to a third party and agree to be bound by the resulting decision. Arbitration has been the most favoured method for settlement of com- mercial disputes for hundreds of years. Its value is recognised by the courts and it is governed by statute, which empowers arbitrators and regulates the process. More recently it has become a common method of resolving consumer disputes. Commercial arbitration It is common for an arbitration clause to be a term of contracts between\ businesses; the parties may subsequently agree to submit a dispute to arbitration. Any person acceptable to the parties may act as their arbitrator. In practice, they will tend to choose somebody with skill and experience in the relevant field. The role of arbitrator has become professionalised and the Institute of Arbitrators regulates the standards of its members.The Arbitration Act 1996 (AA 1996) regulates to some extent the operation of arbitration procedures and the behaviour of the arbitrator. The stated purpose of the AA 1996 is to empower the parties and to increase their autonomy. It was always the case that if an arbi- tration agreement existed the courts would not hear the case until the arbitration \ procedure had taken place. Under the AA 1996, the powers of the court to intervene\ have been restricted further. It may determine a preliminary point of law arising in the course of pro- ceedings. The court, on the application of a party, may revoke the arbitrator’s appointment for failure to fulfil the arbitrator’s duty to act with impartiality and fairness. Rights of appeal against the arbitrator’s decision are limited. Appeal on a point of law underpinning the deci- sion is possible unless the parties have previously agreed to exclude this right. It is also permitted on the grounds that the arbitrator exceeded his or her jurisdiction or committed \ a serious irregularity. The advantages of the arbitration process are that it ensures privacy for the parties in dis- pute and it is more likely to ensure a friendly outcome between the parties than litigation. This may be valuable in a specialist business area where the choice of contracting parties is limited. The problem can usually be resolved relatively cheaply and speedily at a time and place convenient to both parties. Arbitrators’ expertise in the busin\ ess field enables them to understand the issues in dispute. There are possible disadvantages, though: arbitrators have fewer powers than the courts to obtain evidence from the parties and to expedite the pro- ceedings; they may lack necessary legal knowledge, ultimately necessitat\ ing an appeal, which will increase the cost. Commercial arbitration procedures are not necessarily appropriate unless the contracting parties are in a position of equal bargaining power. The Consumer Arbitration Act 1988 PA R T 1 INTRODUCTION 52 0003 stipulates that an arbitration clause in a contract does not bind a cons\ umer until a dispute arises, and only then if the consumer agrees in writing at that point. Consumers cannot be forced into arbitration. Code arbitration Some trade associations impose a code of conduct on their members and pe\ rmit consumers to take disputes through an arbitration procedure run by the association. A well-known example is ABTA (Association of British Travel Agents). Similar codes govern dry cleaning, photographic processing, car sales and a number of other trades.These codes, developed under the auspices of the Director General of Fair Trading, are aimed at the protection of consumer buyers. A fee is payable to initiate the arbitratio\ n process, but this will be refunded if the consumer wins. The arbitrator is appointed by the trade association from appropriately experienced members of the Institute of Arbitrators. All communication with the arbitrator is written only. If the trader is at fault, the association is responsible for enforcing any award. A consumer can take this action only if the firm involved is actually a \ member of the rele- vant trade association. It is likely to be helpful only in relatively simple cases where the facts and evidence can readily be presented in documentary form. Ombudsmen services The organisations responsible for the supervision of legal, banking, insurance and financia\ l services have each appointed officials called ombudsmen who have the power to investigate and resolve problems reported to them by dissatisfied customers. Conciliation A conciliator aims to assist the parties to a dispute to find a resolution. The conciliator may suggest a solution, but has no power to enforce it. Parties to a dispute which has been referred to an employment tribunal are offered the services of the Advisory, Conciliation and Arbitration Service (ACAS). The case proceeds to the tribunal only if the conciliation process is refused or is unsuccessful. Mediation A mediator assists the parties to communicate with each other and find t\ heir own resolution to their dispute. Mediation is becoming a popular means of sorting out p\ roperty and cus- tody issues when a relationship breaks down. Means-tested funding in such cases is provided by the Community Legal Service. Some health authorities use media\ tion to resolve complaints of clinical negligence. It increasingly plays a part in the pre-litigation process. ALTERNATIVE DISPUTE RESOLUTION (ADR) 53 3 Resolving legal disputes 0003 ADR may be compelled by the courts In 1995, the Lord Chief Justice issued instructions that legal representatives must check that their clients are fully aware of the possible use of alternative means of resolving the dispute before proceeding to take a case to the High Court. The Woolf Report stressed the impor- tance of encouraging parties to use ADR, and under the CPR judges have t\ he power to require parties to attempt to resolve some or all the issues of the case in this way. The tribunal system Like the courts, the tribunal system provides a means of judicial resolution to a legal dispute. Tribunals usually consist of a panel of members with knowledge relevant to the specialist jurisdiction of the tribunal. The panel chair is generally legally quali\ fied.There are over 60 different kinds of tribunals, references to some of which are made in later chapters, including: employment tribunals (see below); the Lands Tribunal: compensation for compulsory purchase, planning appeals; the Mental Health Review Tribunal : appeals by mental patients against compulsory deten- tion in mental hospitals; the Social Security Appeals Tribunal : appeals concerning income support and family credit applications; the Comptroller of Patents : appeals against refusal to register patents or trade marks. Characteristics of tribunals All tribunals have entirely different jurisdictions and powers, but they all have at least some of the following characteristics: statutory duties and powers; a very narrow jurisdiction; chaired by a lawyer, with specialist lay panel members; open to the public; appeal procedures, which may include a superior tribunal, the court hierarchy or a senior official or government minister; sit at a number of locations. The employment tribunal reflects all the above characteristics: 1 governing statutes include the Employment Rights Act 1996; 2 jurisdiction: PA R T 1 INTRODUCTION 54 0003 (a) disputes between employers and employees concerning unfair dismissal, redundancyand sex and race discrimination at work; (b) appeals by employers against the imposition of improvement and prohibition orders by the Health and Safety Executive; (c) disputes between individuals and trade unions concerning exclusions and expulsion from closed shops; 3 it is chaired by a lawyer sitting with two other people nominated by bodies representing employers and employees respectively; 4 hearings are open to the public; 5 appeal structure: where a point of law is disputed, it is possible to appeal to the Employ- ment Appeal Tribunal. The appeal is heard by a panel of three, being a High Court judge who chairs proceedings and two appropriately qualified lay people. Further appeal is pos- sible to the Court of Appeal, the Supreme Court and the Court of Justice of the European Communities; 6 it sits at 50 different locations. Benefits of tribunals Tens of thousands of cases are heard by tribunals every year and the system is seen as valu- able to the parties using it. The main benefits of the tribunal system a\ s compared with the courts are perceived to be: 1 Cheapness . Legal representation is not essential at a tribunal and the specialist knowl- edge of panel members makes it unnecessary to call specialist witnesses.\ The parties do not generally have to travel far to the hearing. 2 Informality. Procedures are usually less formal and adversarial than those of the ordinary courts, therefore a tribunal hearing is less intimidating. 3 Speed . A case may take years to come to court. Cases should reach tribunals within weeks or months of proceedings being started. 4 Flexibility. Tribunals are not bound by their own precedents (but they are bound by rele- vant decisions reached by the courts). Criticisms of tribunals Not everyone agrees that tribunals are as effective as they should be. There are a number of criticisms that can be raised regarding the operation of the tribunal system: 1No access to legal aid . There is no state-funded representation for most tribunal hear- ings, which may unfairly prejudice the chances of the claimant. At employment tribunals the employer is usually able to afford legal representation, while employees ALTERNATIVE DISPUTE RESOLUTION (ADR) 55 3 Resolving legal disputes 0003 PA R T 1INTRODUCTION 56 may be unrepresented unless help is provided by their trade union or other pressure group. At the Social Security Tribunal, claimants have to dispute their cases with a body which has considerable experience of such hearings, and do not always receive the assistance they need from panel members. 2 Proceedings have become legalistic and tend to be bound by the tribunals\ ’ own previous decisions . Some tribunals have not maintained an informal and flexible approach and therefore may not be user-friendly to the average complainant. Employment tribunals have been particularly criticised on this ground. 3 Urgent cases are not resolved sufficiently quickly. Some tribunals, particularly Social Secu- rity and Immigration Appeals Tribunals, have very heavy caseloads. They try issues of great economic and personal concern to complainants. A delay of several weeks, or sometimes months, before a case is heard is not uncommon, and is clearly unacceptable. 4 Inconsistency of appeals rights . Although appeal to the courts against a tribunal decision may be possible, there is no universal rule, and rights vary according to which tribunal is involved. The final appeal from some (like immigration appeals) may be to the relevant government minister. It is clearly undesirable that the person who makes the relevant rules and policy is also the final judge of the application. Proposed reforms of the tribunal system In 2001, the Leggatt Report made a number of recommendations for reform, concentrating on the needs of users: 1 Generally a more user-friendly approach should be adopted. 2 A coherent and more independent system should be developed, with a centralised entry point for claims which would be allocated to the appropriate tribunal. 3 More state funding should be provided to ensure quality advice for claimants and access to funded legal representation via the Community Legal Service on a case-by-case basis. Chapter summary The court system The magistrates’ court Criminal, civil and administrative jurisdiction. Staffed by JPs, supplemented by district judges. Crown Court Criminal jurisdiction only: trial (indictable offences). Sentencing/appeals from magistrates’ court. Staffed by High Court judges, circuit judges, recorders, JPs. County court Civil jurisdiction over a wide variety of cases up to a value of £50,000 for personal injury, and £25,000 other claims. Staffed by circuit and district judges. The High Court Three divisions (Queen’s Bench, Chancery, Family) each with different jurisdiction to try civil cases outside the county court’s remit. 0003 57 Divisional courts:mainly appellate jurisdiction from a variety of courts and tribunals. Staffed by High Court judges. The Court of Appeal The Criminal Division: appeals from the Crown Court. The Civil Division: appeals from the county court and the High Court, Employment Appeals Tribunal. Staffed by Lord/Lady Justices of Appeal. The Supreme Court Appeals from the Court of Appeal and Divisional Courts. Staffed by Judges of the Supreme Court. Civil claims procedure Small claims track (maximum £5,000). Fast track (maximum £15,000). Multi-track (above £15,000). Most civil cases are settled before trial.Alternative Dispute Resolution Arbitration: the parties agree to accept the arbi- trator’s decision as final. Recourse to the courts is largely ruled out. This is very popular in specialised commercial cases. Conciliation: less formal than arbitration and access to litigation is still possible if the negotia- tions between the parties and led by the conciliator, break down. Mediation: similar to conciliation but also used as a preliminary to court action. Tribunals Over 60 specialised panels empowered to resolve judicial disputes. Very limited specific jurisdictions in, for example, the fields of employment, and mental health. Less formal than the courts. Aim to produce cheaper and speedier outcomes. Chapter summary (Continued) Attachment of earnings: court order to employer to pay a specified sum direct from defendant’s earnings to satisfy a judgment debt. Charging order: made after judgment to freeze the defendant’s assets until damages paid to the claimant. Distraint order: enables goods to the value of the claimant’s damages to be seized to satisfy the judgment. District judge: Magistrates/county court judges. Equitable remedy: discretionary judicial remedy granted only if the court believes the claimant is morally as well as legally entitled to it. Fast track: civil litigation process for cases involv- ing £5,000–£15,000. Freezing injunction: prevents the defendant gain- ing access to their assets pending trial. Garnishee order: enables a claimant to access payment of damages directly from third party hold- ing the defendant’s funds. Hierarchy: structure arranged so that each com- ponent is superior to the ones below. Hybrid offence : a criminal offence which may be tried either in the magistrates’ court or Crown Court. Indictable offence: a criminal offence which can only be tried in the Crown Court. Interlocutory injunction: may be issued between starting proceedings and trial of a civil case. Key terms 3 Resolving legal disputes KEY TERMS 0003 PA R T 1INTRODUCTION 58 1 Where will the proceedings involving the follow- ing parties take place? (a) Wackford Squeers, on a charge of manslaughter of pupils at Dotheboys Hall. (b) Bill Sykes, who wishes to appeal against his conviction for murder. (c) Polly Peachum, who wishes to appeal against her conviction in the magistrates’ court for soliciting. (d) Mr Micawber, from whom Uriah Heep wishes to recover a debt of £200. (e) Mr Dombey, who is claiming £75,000 against the Great Western Railway Company for injuries caused when he fell under one of its trains. (f) Newman Noggs, who is claiming that he was unfairly dismissed by Ralph Nickleby. (g) Mr Dorrit, regarding repossession of his house by The Benevolent & Warmhearted Building Society. 2 What is the purpose of a freezing injunction? 3 What is the difference between arbitration, mediation and conciliation? 4 In what ways do tribunals differ from the ordi- nary courts? Answers to all quizzes can be found in Appendix 2. Quiz 3 Interlocutory stage: the period between the start of civil proceedings and the start of the trial. Issue of claim: formal notification of the civil pro- ceedings from the court to the defendant. Justices of the peace (JPs): lay (not legally quali- fied) magistrates. Letter of claim: the outline of the claim which the claimant sends to the defendant to start the civil litigation process. Leap-frog procedure: enables a case tried in the High Court to bypass the Court of Appeal and go straight to the Supreme Court for the appeal hearing. Law Lord/Lord of Appeal in Ordinary: Supreme Court judges. Lord/Lady Justice of Appeal: Court of Appeal judge. Multi-track: civil litigation process for cases involv- ing over £15,000. Offer to settle: informal settlement out of court/ formal offer to the court by claimant. Payment into court: formal offer to settle made by defendant. Pre-action protocol: information requirements prior to issue of a civil claim. Small claims track: civil litigation process for cases involving up to £5,000. Summary offence: a criminal offence which can only be tried in the magistrates’ court. Key terms (Continued from page 57) 0003 ASSIGNMENT 2 59 Please go to: www.smmt.co.uk/home.cfm Click on consumer advice, then ‘new car code of practice’ then cli\ ck on the picture of the code at the bottom of the page. You can then scroll down through the code to find out the alternative dispute resolu- tion processes offered by the motor industry for dealing with a dispute concerning faults in a new car. Web activity How far is it true to say that most cases are best settled out of court? Discuss. Assignment 2 3 Resolving legal disputes Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 PA R T 2 Law of contract, agency and sale of goods Photo: © Pawel Libera/Corbis 0003 chapter 4 THE LAW OF CONTRACT: offer and acceptance 0003 Introduction A contract is a legally binding agreement concerning a bargain which is essentially commercial in its nature and involves the sale or hire of commodities such as goods, services or land. Such contracts are known as simpleor parolcontracts, since they are usually enforceable without having to be put into writing. You probably make literally hundreds of contracts every year when doing everyday things like shopping, getting your hair cut, or getting your DVD player repaired. None of the legal para- phernalia that the words ‘forming a contract’ may bring to mind are involved in such transactions. They are legally binding without documents, signatures or wit- nesses. If the goods or services provided to you are defective, you have legal rights arising from the contract you made with the shop. To enforce those rights you will, of course, need to prove the existence of the contract. The receipt is handy evi- dence of this. However, if you have lost this, other evidence – like a credit card docket, or a cheque stub, or the word of your Aunt Ada who was with you at the time – will be perfectly adequate. In this chapter we shall examine h\ ow contracts are formed. Learning Objectives When you have studied this chapter you should be able to: List the essential requirements for a binding contract Define offer and acceptance Distinguish between an invitation to treat and an offer Appreciate the importance of reasonable expectation in determining intention in offer and acceptance Demonstrate how offer and acceptance may be effectively communicated. Photo: uk retail Alan King/Alamy 0003 The essentials of a binding contract No contract can come into being unless the following features exist: 1an offer ; 2an acceptance ; 3 consideration (each party will contribute something of material value to the bargain)\ ; 4 intention to create legal relations . Writing is not usually essential As indicated above in the Introduction, writing is not a legal requirement for the great majority of contracts, though it may well be useful proof of the contents of a complex con- tract. While the law does not require a building contract to be in writing, most clients would not be very happy to have settled complicated terms by word of mouth only. A minority of contracts mustbe written in order to be valid. These include contracts to sell land under the Law of Property (Miscellaneous Provisions) Act 1989, and contracts to obtain credit which are governed by the Consumer Credit Act 1974. Where such regulation applies, the written document comprises the contract. Without the contractual document the law will treat the transaction as if it does not exist, regardless of other available evidence. Under the Statute of Frauds 1677, contracts of guarantee – under which one party agrees to guarantee the debt of another party for the benefit of a creditor – will be unen- forceable without written evidence. Some transactions will be legally valid only if put in the form of a dee\ d. You need not be concerned with these, which do not necessarily involve bargains at all and do \ not come within the scope of the law of parol contract. The offer This may be defined as a clear statement of the terms on which one party\ (the offeror ) is pre- pared to do business with another party (the offeree ). An offer may be bilateral or unilateral. Most offers arebilateral , i.e. such an offer consists of a promise made in return for a promise. In a sale of goods contract, for example, the offeror promises to take and pay for goods and the offeree promises to supply goods of an appropriate description and standard. A unilateral offer is a promise made in return for the completion of a specified act. An offer of a reward for the return of lost property falls into this category. A legally binding offer will include: 1 clearly stated terms; 2 intention to do business; PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 64 0003 3 communication of that intention. These must all exist for a valid offer to have been made. Clearly stated terms A statement may be held to be too vague to comprise a valid offer. Guthing vLynn (1831) The buyer of a horse promised to pay the seller an extra £5 ‘if the horse is lucky for me’. Held:this was too vague to be enforceable. No indication was given of what the promise really meant. An apparently vague offer may be capable of clarification by reference to: 1The parties’ previous dealings and the nature of the relevant trade . 2 Statutory implied terms . For example, an offer to sell goods is valid even if no price is mentioned. Under the Sale of Goods Act 1979, s 8, if no price is stated,\ a reasonable price is payable. 3 Arbitration clauses . Sometimes the parties may purposely state terms vaguely and include provision for arbitration to settle disputes if and when they arise. This \ allows for later vari- ations to take into account future needs, availability or price. Since the lack of clarity may be resolved, a binding offer exists. Hillas v Arcos (1932, HL) A contract to supply wood for one year contained an option permitting the buyer to buy more wood the next year, but it did not specify the terms on which the supply would be made. Held: this was a valid offer. Clarification of this rather vague option could readily be gleaned from the previous business dealings of the parties, as well as from custom and practice in the timber trade. Foley v Classique Coaches (1934, CA) The arbitration clause in a long-term contract stated that F would supply petrol to the coach company ‘at a price to be agreed in writing and from time to time’. Held: the contract was binding as the arbitration clause would enable any lack of clarity about the price to be resolved when and if necessary. THE OFFER 65 4 The law of contract: offer and acceptance 0003 Intention to do business An offer represents the parties’ ‘last word’ prior to acceptance. A statement which does not indicate commitment to be bound by its terms (if accepted) will not be\ interpreted as a binding offer.Problems arise where a party, who believes that a binding offer has been made, commu- nicates an ‘acceptance’. The party then believes that a contract e\ xists. However, if the original statement is not a binding offer, there will as yet be no contract, since a valid con- tract requires both binding offer and acceptance. There are two types of statement which may be confused with a legally binding of\ fer: 1 invitation to treat ; 2 negotiation. An invitation to treat Most advertisements for the sale of goods, land or services are not usually treated by the courts as indicating the necessary intention to form an offer. Such statements invite poten- tial customers to make an offer. It is then up to the business proprietor to decide whether or not to accept. Without acceptance, no contract exists; therefore, buyers have no rights to the goods, etc. they want to purchase. Catalogues, price lists, menus and circulars advertising so-called ‘cheap offers’ at local businesses are interpreted this way. In Partridge vCrittenden (1968, HL) it was held that a magazine advertisement saying ‘Bramble finch cocks and hens 25 shilli\ ngs each’ was an invitation to treat. Any offers came from those responding to it and asking to buy the birds. A display of goods in a shop, with or without a price tag, is merely an invitation to treat. Fisher vBell (1961, CA) The defendant exhibited a flick knife in his shop window and was prosecuted under the Restriction of Offensive Weapons Act 1959, s 1(1), for ‘offering for sale’ an offensive weapon. Held: the defendant was not guilty since he had not made an offer. Goods in a shop window, even those bearing a price tag, represent an invitation to treat, not an offer. Customers make offers by saying that they are prepared to do business at the price shown. Sellers then decide if they want to accept; only if they do does any contract result. As new methods of marketing develop the law needs to be interpreted to fit the new cir- cumstances. Self-service shopping, which is the norm today, did not start to appear in the UK until the 1950s. Pharmaceutical Society (GB) vBoots Cash Chemists ( Southern)Ltd (1953, CA) Boots introduced self service including its patent medicines and was prosecuted by the Pharmaceutical Society under the Pharmacy and Poisons Act 1933 whic h made it illegal to sell certain drugs ‘without supervision of a registered pharmacist’. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 66 0003 Held:no offence had been committed. The medicines on display were merely an invitation to treat. The customer made an offer when handing the goods to the checkout operator. A pharmacist was present at this point and could be refuse the customer’s offer if appropriate. Electronic contract making became an important feature of marketing in the late twentieth century – Amazon sells a lot of copies of this book! So far, there is little case law (but see ‘In the News’ below at page 69 in relation to email communication). The courts support the principle of invitation to treat in the interests of business effi- ciency. In practice, this may mean what is efficient for the sellers rather than for the disappointed buyer whose request the shopkeeper is able to refuse. However, if statements currently treated as invitations to treat were interpreted as offers, shopkeepers for example, would, be forced to demolish their window displays to remove goods which customers had contracted for simply by expressing their wish to buy them. Equally, the customer would be committed to buying something which did not look so good when more closely inspected. (The Race Relations Act 1976 and the Sex Discrimination Act 1975 aim to\ prevent abuses of the right of a business to refuse a customer’s offer. Similarly misleading pricing notices may be a criminal offence under Part III of the Consumer Protection Act 1987.) Negotiation Lengthy negotiations may lead up to the formation of a contract. Problems may occur where one party assumes that a statement represents the other party’s offer and claims to have accepted it. The court will have to decide whether the alleged offeror had by that point indicated a sufficient intention to be bound. In a potentially complex contractual situa\ - tion where protracted negotiations would normally be expected, a statement made early\ in the negotiations is unlikely to be held to be a valid offer. Harvey v Facey (1893) The claimants were interested in buying land which the defendant had not advertised for sale. They sent a telegram asking the defendant to state the lowest price he would accept. When the defendant replied with a mere statement of price, the claimants attempted to accept. Held: no contract had been formed, since the statement of price was merely an early step in negotia- tions and did not amount to a valid offer. However, it all depends on the facts; in the next case sufficient intention was found to exist: Bigg v Boyd Gibbons (1971, CA) In the course of negotiations, the claimant wrote to the defendants: ‘For a quick sale I would accept £20,000.’ The defendant wrote back accepting and the claimant then sent another letter in reply thank- ing the defendant ‘for accepting my offer’. THE OFFER 67 4 The law of contract: offer and acceptance 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 68 Held:a binding offer was made in the claimant’s first letter. Russell LJ said: ‘ I cannot escape the view having read the letters that the parties would regard themselves at the end of the correspondence ... as having struck a bargain for the sale and purchase of this property .’ The offer must be communicated to the offeree The offeror must know of the offer to be able legally to accept. The communication of an offer may be written or spoken, but it may often be by conduct, such as ta\ king goods to the supermarket checkout, or putting money into a vending machine. An offer is most com- monly made to an individual, but a unilateral offer may be made to the world at large. In such a case, a contract will be made with all the people who can and do \ fulfil the terms of the offer. Carlill vCarbolic Smoke Ball Co. Ltd (1893, CA) The defendants published an advertisement which claimed that their product would prevent influenza, and promised that they would pay £100 to any person who, having used the product correctly, still caught influenza. The advertisement also stated that £1,000 had been placed in a separate bank account to ‘show their sincerity in the matter’. Miss Carlill bought a smoke ball from her local chemist. When she became ill with influenza despite regularly sniffing her smoke ball as instructed, she claimed £100 from the manufacturers. Held: the advertisement was a unilateral offer by the manufacturers to the world at large, which would be accepted by any person who knew of it and who contracted influenza after using the product as directed. The £1,000 bank deposit showed intention to enter a contract and was evidence that the adver- tisement was not just puffing the goods. The offeree must, therefore, know of the offer in order legally to be able to accept it. Coin- cidental performance of the terms of an offer, made in ignorance of its existence, does not create a binding contract. Bloom v American Swiss Watch Co. (1915) The claimant gave evidence to the authorities which led to the arrest of some jewel thieves. He then dis- covered that the defendant had previously advertised a reward for such information. The defendant refused payment. Held: the defendant was not legally obliged to pay as no contract to do so existed between the parties, since the offer of the reward had not been communicated to the claimant prior to his giving the information. 0003 THE OFFER 69 Tenders A tender is a competitive offer to provide goods or services. Many businesses and other organisations will invite tenders to ensure that they get the best value for money. Some publicly funded bodies may be required to do so by law. Although the request for tenders is an invitation to treat, it may also be an offer by the advertisers to considerany offer submitted to them. Blackpool & Fylde Aero Club v Blackpool Council (1990, CA) The Aero Club was invited by the council to tender for a concession to provide pleasure flights for the summer tourist trade. Although the club delivered its tender before the deadline, the council, due to an oversight, failed to clear its letter box and so the tender did not reach the appropriate committee in time to be considered. Held by the Court of Appeal: as well as inviting tenders, the council’s request also implicitly contained a unilateral offer to consider any tender submitted by the deadline. The council was therefore in breach of this contract with the Aero Club which had been deprived of its chance to be the successful bidder. Bingham LJ said: He [the tenderer] need not accept any tender ... but where as here the tenders are solicited from selected parties all of them known to the invitor, and where a local authority’s invitation prescribes a clear, orderly and familiar procedure ... the invitee is protected at least to this extent: If he submits a conforming tender before the deadline, he is entitled ... as ... of contractual right to be sure that his tender will after the dead- line be considered ... The law would I think be defective if it did not give effect to that. J. Pereira Fernandes SA vMehta (2006) In this case Judge Pelling QC implicitly accepted that email offer and acceptance is a potentially valid form of communication, but gave no indication of any special rules concerning when communica- tion is effective. The defendant by email agreed to guarantee the debts of a company of which he was a director. Under the Statute of Frauds 1677, contracts of guarantee require ‘a written note or memorandum’ including the main terms and signature of the guarantor to indicate intention to be bound by it. Held: the email was capable of being a sufficient note or memorandum, but as the defendant’s name did not appear anywhere except in the address in the header, this was insufficient to fulfil the statu- tory requirement. In the News 4 The law of co ntract: offer and acc eptance 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 70 The termination of offers An offer, if not accepted, can be brought to an end in a number of different ways. Death If the offeree dies, the offer dies too. The death of the offeror terminates the offer if its terms require personal performance. An offer may survive if it can be performed by personal representatives. Bradbury v Morgan (1862) During his life the deceased had made a standing offer to guarantee another man’s debt. The debtor failed to pay the creditor, who, not knowing of the death of the guarantor, wrote to claim his money. Held: the guarantor’s obligations could be satisfied out of his estate, because at the time he accepted the offer the creditor could not reasonably have known of the offeror’s death. Refusal and counter-offer If an offer is rejected it ceases to exist. If offerees then change their minds and try to accept, they will in contractual terms be making a new offer. The same result is achieved by a counter-offer . This is an attempt to vary the terms of the existing offer to get more favourable terms, like a price reduction. Hyde v Wrench (1840) The defendant offered to sell his farm for £1,000. The claimant at first said that he would pay only £950, but after a few days said he would pay the full price. He heard nothing from the defendant. Held: there was no contract between the parties: the defendant had not accepted the offer from the claimant, who had destroyed the defendant’s original offer by his counter-offer of a reduced price. The claimant’s subsequent statement that he would pay the asking price could not revive the original offer. It was a new offer which the defendant never accepted. If the offeree, while not accepting an offer, asks for further information, or tests out the ground to see if further negotiation is possible, this is not treated as a counter-offer; it, therefore, does not destroy the offer. Therefore, in Stevenson vMcLean (1880) an offer to sell iron at a certain price was not destroyed when the offeree enquired whether delivery and payment might be made in instalments. This was not a counter-offer of different terms, merely an enquiry as to whether the terms might be varied, which therefore did not destroy the original offer. Lapse of time An offer will cease to exist if not accepted within any specified time limit.\ Otherwise it will lapse if not accepted within a reasonable time. 0003 Ramsgate Hotel Co. Ltd vMontefiore (1866) The defendant applied to buy some shares in June but heard nothing more until November when the company informed him that the shares were his. Held: the company’s delay in notification of the allotment of the shares had made the defendant’s offer lapse and the acceptance came too late to result in a contract. Revocation Offerors are entitled to change their minds and withdraw offers at any time right up to the moment of acceptance. If, at an auction sale, you place the highest bid \ and the auctioneer is saying ‘going, going ...’, you still have time to shout that yo\ u are withdrawing your offer, as it will not be accepted until the auctioneer’s gavel hits the table (Sale of Goods Act 1979, s 57). However, if you do choose to do this, it might be a good idea to leave the auct\ ion room immediately.Notice of revocation is crucial ; it is not effective unless the offeree knows of it. Personal notification is usual, but is not essential as long as the offeree knew or reasonably should have known that the offer had been withdrawn. In Dickinson v Dodds (1876, CA) Dodds made an offer to sell property to Dickinson, but sold it to a third party (Allan) before Dickin- son responded. A mutual acquaintance of the buyer and Dodds told Dickinson of\ the sale and this was held to be adequate notice of revocation. A reasonable person would have realised that since the property had been disposed elsewhere the offer was no longer open. James LJ said: ‘It is to my mind perfectly clear that before there was any attempt a\ t accept- ance by the plaintiff, he was perfectly well aware that Dodds had change\ d his mind, and that he had in fact agreed to sell the property to Allan. It is impossib\ le, therefore, to say that there was ever that existence of the same mind between the two parties w\ hich is essential in point of law to the making of an agreement.’ THE OFFER 71 4 Horace offered to sell his grand piano to his neighbour Hilda, who said she was really interested but needed to think about whether she could afford it. Later on that day Frederick, a friend of Horace, came to visit and, hearing that the piano was for sale, said he would buy it and collect it the next day. In the morning Frederick came back with the money, a van, and a burly assistant. With Horace’s help, they got the piano onto a trolley and wheeled it down to the van and loaded it up. Emmeline, Horace’s next-door neighbour, who is somewhat inquisitive, asked Horace what was going on and he told her. That evening Emmeline bumped into Hilda and told her what she had heard. As Dickinson v Dodds indicates, Horace’s offer to Hilda has been revoked, since reliable information even from a third party, not acting on the offeror’s instructions, is sufficient notice. Real Life The law of co ntract: offer and acc eptance 0003 A promise to keep an offer open for a certain time or to give someone ‘first refusal’ will not be legally binding unless the offeree gave some payment to the offeror in return for the favour. Otherwise the offeror is making only a gratuitous promise: giving something for nothing. Such a promise is not a contractual one, since it lacks consideration (see Chapt\ er 5). In the scenario above, Horace might have lost a sale to Frederick if he had waited for Hilda to make up her mind, and then she might have come back and said sh\ e was not inter- ested after all. The offeror is therefore free to withdraw (revoke) the promise at any time before the offer is accepted. In Routledge vGrant (1828) the defendant offered to buy the claimant’s house, promising that he would keep the offer open for six weeks. It was held that he could withdraw the promise at any time before the offer was accepted, as his prom- ise was merely gratuitous. If the offeree does pay for the offer to be held open, a legally binding option is created. This means that the offeree has a contract that allows time to choose whether or not to accept the offer. This is different from putting down a deposit on goods or land. An option agreement gives you time to choose whether or not to buy, whereas the deposit is evidence that a contract to purchase has been made. It would obviously be unjust to apply the ordinary rules of revocation to unilateral offers, for two reasons: 1 Notice. A unilateral offer is often made to the world at large. If the offeror decides to revoke such an offer, it would be impossible to notify everyone who saw it. Provided the offeror takes reasonable steps to give notice, this will be sufficient. Putting another adver- tisement in the same newspaper which carried the offer would clearly be adequate. 2 Incomplete acceptance. Acceptance of a unilateral offer always involves the performance of an act. If an offeree has begun but not completed the acceptance of a unilateral offer, it would be unjust to allow the offeror to revoke the offer. Therefore, revocation may not be effective if the offeree is already in the process of accepting a unilateral offer. Errington v Errington & Woods (1952, CA) A father bought a house and promised his son and daughter-in-law that it would become theirs if they paid all the mortgage instalments. Held: although his offer would technically be accepted only when the last payment had been made, the father’s promise was irrevocable as long as the payments were kept up. While the payments continued it would be unjust for the offer to be revoked. The acceptance The offeree, by acceptance, agrees to be bound by all the terms of the offer. To be legally binding, such acceptance must fulfil three rules: 1 it must be a ‘mirror image’ of the offer; PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 72 0003 THE ACCEPTANCE 73 4 The law of contract: offer and acceptance 2 it must be firm; 3 it must be communicated to the offeror. Acceptance must be a ‘mirror image’ of the offer The offeree must be agreeing to all the terms of the offer and not trying to introduce new terms. In Jones vDaniel (1894) the offeree responded to an offer by submitting a draft con- tract which included some new terms. This response was held to be a counter-offer, not an acceptance. Where two businesses are negotiating a contract, they may each wish to contract on their own standard terms (pre-set terms not open to negotiation). The offerors present their standard terms, but the offerees, instead of accepting on those terms, reply with their own set of standard terms. This is sometimes called ‘the battle of the forms’. Butler Machine Tools Ltd vEx-Cell-O Ltd (1979, CA) The claimants, on their standard terms, offered to sell machine tools to the defendants. These terms named a price but allowed the claimants to vary this on delivery. The defendants replied with their terms, which specified a fixed price and required the claimants to return an attached acknowledgement slip indicating that they were prepared to supply the defendants’ order on these terms. The claimants did so, but when the goods were delivered, they tried to claim that the price could be increased. Held: the claimants’ offer had not been accepted by the defendants: their reply was a counter-offer accepted by the claimants when they returned the slip. The contract was on the defendants’ terms and only the fixed price was payable. Acceptance must be firm Conditional acceptance is not binding. An acceptance containing the words ‘ subject to contract ’ is not generally a valid acceptance and use of this phrase is norma\ l practice in sales of land. The parties will not be legally bound to each other until\ exchange of contracts takes place. This is meant to assist buyers by giving them time to carry\ out surveys and searches before deciding to commit themselves. It can also mean that the seller is free to sell to another buyer who is prepared to offer more money in the meantime. Such ‘gazumping’ may cause financial loss to the first buyer, who may have spent money on legal and survey fees and is then left without means of redress against the seller, since there is as yet no binding contract with the seller. However, the intention of the parties is paramount and exceptionally the court may decide that, despite its provisional appearance, it is outweighed by other factors and valid acceptance has taken place. In Branco vCobarro (1947, CA) a written agreement described as ‘a provisional agreement until a fully legalised contract is drawn up’ was held to be a valid acceptance, since it completely reflected all the terms already agreed between the parties. 0003 Acceptance must be communicated The law relating to communication involves a number of different rules. Communication is effective only if made by an authorised person Powell vLee (1908) The claimant was notified that his job application ha d been successful by a member of an appointments board, which then decided to give the job to someone else. Held: the person who had told the claimant of his success had not been authorised to do so and there- fore acceptance had not been effectively communicated. Methods of communication Conduct Brogden v Metropolitan Railway Co. (1877, HL) Mr Brogden had supplied coal to the railway company for some time, when the company suggested that they should regularise their arrangements with a new contract. The draft contract was sent to Brogden who added certain terms, including the name of an arbitrator. He then marked it ‘approved’ and sent it back to the company. He heard no more but the company continued to order coal, which Brogden sup- plied on the terms of the draft agreement. Held: Brogden’s amendments to the draft contract amounted to a counter-offer which had been accepted. The company’s intention to assent was in itself insufficient to be acceptance. It became suffi- cient only once Brogden knew of it. Here the company’s conduct evidenced acceptance, either when it placed the first order, or when it accepted the first delivery. Communication is, therefore, effective only when it reaches the offeror or the offeror’s place of business. Commercial practice may enable the court to interpret conduct in relation to the making of offer and acceptance. Thus, in Confetti Records vWarner Music UK (2003) the sending of an invoice together with a music track was deemed to be a\ n offer by Con- fetti to sell the material to Warner to be marketed. By producing an album containing the track Warner accepted the offer. However, only unequivocal conduct will make the acceptance binding: Inland Revenue Commissioners vFry (2001) Ms Fry owed the Revenue £113,000 and sent a cheque for £10,000, with an accompanying letter stating that this was all that she could raise and that it should be regarded as full and final settlement of the debt. The Revenue cashed the cheque on receipt and the case worker to whom the letter was forwarded subsequently phoned Ms Fry to tell her that the sum could either be treated as part payment of her debt, or she could have the money back. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 74 0003 THE ACCEPTANCE 75 4 The law of contract: offer and acceptance Held:the Revenue had not made a valid acceptance. Cashing the cheque gave rise to no more than a rebuttable presumption of acceptance and here the pr esumption had clearly been rebutted by the case worker’s subsequent phone call. No reasonable person would believe that banking the cheque indicated intention to be bound by the terms of the offer. The Revenue’s administration system would not be likely to permit a contract, under which it gave up its rights to substantial sums of money, to be con- cluded in this way. Verbal communication Acceptance is effectively communicated only when the offeror has received notice of it. In a face-to-face situation it will usually be immediately evident if any com\ munication problems have occurred. However, if the parties cannot see each other this may be more problematic; acceptance by telephoneis held to be effective only on being heard by the offeror. The courts have extended this principle to telextransmissions. In Entores Ltd vMiles Far East Corp. (1955, CA) the Court of Appeal made it clear that acceptance by tele\ x should be treated like acceptance by telephone: instantaneous and effective on being received. Brinkibon Ltd vStahag Stahl und Stahlwarenhandels GmbH (1982, HL) The House of Lords suggested (obiter dicta) that telex messages transmitted when the receiver’s office was closed would be effective only once the office had reopened. The Brinkibon ruling was applied in Mondial Shipping and Chartering BV vAstarte Shipping Ltd (1995) where it was held that a telex message sent just before midnight on a Friday was communicated at 9 a.m. the following Monday when the receiver’s office opened for business. When developing such rules the courts are guided by the ‘ reasonable expectations of honest men ’in the context of accepted commercial practice. In Entoresit was stressed that if it were the fault of the offeror that the message was not received (due perhaps to lack of ink in the teleprinter), the offeror would still be bound, as the offeree would reason- ably expect successful receipt. This principle, generally applied by the courts, enables objective assessment of the parties’ behaviour from which it can be determined whether the intention to offer or accept is adequately demonstrated. Electronic communications As yet, there are no reported cases involving communication via fax, or answerphone. Using the reasonable expectations approach, faxesare likely to be treated like telex messages. It can probably be successfully argued that messages left on answering machinesare not communicated until, like any telephone message, the recipient actually hears them. It is, after all, immediately evident to the sender that the message is not goi\ ng to be transmitted at once. Emails have implicitly been accepted by the courts as a valid means of communic\ ation of acceptance but without any ruling on when communication becomes effective (see Pereira Fernandes SA v Mehta (2006), above at page 69). It may be reasonable to argue that since, once they have been sent, arrival may well be instantaneous but delays m\ ay occur in trans- 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 76 mission via the server, perhaps here communication should be deemed to exist once the message is capable of being downloaded to the receiver’s mailbox. Internet sales are covered, though not in detail, by the Electronic Commerce (EC Directive) Regulations 2002 (which implement the E-Commerce Directive 2000/31/EC). Regulation 11 states that electronic orders/acknowledgements of orders ‘are deemed to be received when the parties to whom they are addressed are able to access them’. This suggests that when a contract is made on the Internet,the website details of goods are an invitation to treat. Pre- sumably, the customer communicates the offer by placing the order, entering name, address and credit card details and transmitting this information to the seller with a click o\ n the rele- vant button. The seller will not be deemed to have accepted until it com\ municates acceptance by sending a message confirming that the order has been placed successfully. This will happen only after it has successfully accessed the customer’s credit or debit card. The post rule The post rule provides an exception to the usual communication rule. In the nineteenth a\ nd early twentieth centuries the only method of communication for parties c\ ontracting at a dis- tance from each other was the post. In the milestone case of Adams vLindsell (1818), it was held that once a letter of acceptance is posted, a contract comes into e\ xistence immediately. The postal rules were later extended to cover telegrams. The rules were clarified further by Household Insurance v Grant (1879, CA) which held that communication of acceptance by post is effective even if a letter is delayed in the post or fails to reach the offeror, as long as this is not due to some fault of the offeree’s: for example, an incorrect address. Only postal acceptance produces an instantaneous legal effect: a postal offer or revocation is effective only on receipt. Byrne v Van Tienhoven (1880) 1 October: The defendant posted an offer from Cardiff to the claimant in New York. 8 October: The defendant changed his mind and posted a letter of revocation. 11 October: The defendant’s offer arrived and the claimant sent a telegram of acceptance. 15 October: The claimant affirmed his acceptance by letter. 20 October: The letter of revocation was received by the claimant. Judges always have a reason for changing the law. Why do you think the post rule was developed? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Held:a contract was formed on 11 October when the claimant mailed his telegram of acceptance. The revocation was not communicated to the claimant until 20 October and was, therefore, too late to be effective. It has always been possible for offerors to avoid the postal rules either by specifying a differ- ent means of communication, or by stating that they would not be bound u\ ntil receipt of an acceptance letter. Even where an offeror specifies nothing to this effect, the courts may be prepared to imply such an intention. Holwell Securities vHughes (1974, CA) The offeror had granted an option to the offeree concerning the purchase of some land, which had to be exercised by ‘notice in writing’. The claimant’s letter of acceptance was posted before the deadline but failed to reach the offeror before the deadline expired, though this was not the claimant’s fault. Held: no contract resulted from the postal acceptance. The postal rule was implicitly excluded by the offeror, who, by requiring notice in writing, had indicated that for communication to be effective it must actually receive the letter of acceptance. Today the postal rules do not play an important part in the law of contra\ ct, though they continue to feature in exam papers. Parties contracting at a distance now generally have much faster and more reliable means of communication available to them. Even where the parties choose to use the post, it is very common for offerors to state that no contract will result until they receive an acceptance. The offeror cannot waive the communication rule In a bilateral contract situation offerors cannot bind offerees by saying that they will assume acceptance unless the offerees tell them differently. The communication rule ensures that an offeree is not pressurised into acceptance. Felthouse v Bindley (1862) The claimant offered to buy a horse from his nephew, John, who was selling up all his farm stock. The claimant said that he would assume John’s acceptance unless told otherwise. Intending to accept, John instructed the auctioneer to withdraw the horse from the sale, but by mistake the auctioneer sold it. The claimant sued the auctioneer in tort. Held: the claimant’s action failed because he was unable to prove that he was the horse’s owner. Since John had not communicated his intention to accept to the claimant, there was no contract under which ownership of the horse could pass. The auctioneer had not disposed of the claimant’s property. When the sale took place the horse still belonged to John. THE ACCEPTANCE 77 4 The law of contract: offer and acceptance 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 78 In a unilateral contract acceptance and performance constitute the same \ act, so no prior communication of acceptance is practicable. If you see a notice offering a reward for the return of lost property, you will be able to accept only if you find it and actually return it, thereby performing the act for which the reward was promised. You cannot be refused it because you have not given advance notice. The offeror may expressly require a particular method of communication The court will usually be prepared to treat any reasonable method of communication as effec- tive. Where no mode is specifically requested, the mode of offer and the nature of the subject matter of the contract may indicate suitable methods of response. For example, a telephone offer of perishable goods would necessitate a swift means of communicating\ acceptance. Formation of a simple contract requires the following factors to be present: Agreement (offer and acceptance). Bargain (consideration). Intention to create legal relations. Writing not essential unless required by statute. Offer The final terms on which the offeror is prepared to contract which becomes effective once received by the offeree. An offer may be bilateral (a promise in return for a promise) or unilateral (a promise in return for an act). An invitation to treat or merely negotiating statement is not an offer because it does not indi- cate finality or intention to be bound. An offer may be revoked up until the time of acceptance. An offer will lapse unless accepted within a stip- ulated or reasonable time. Acceptance Acceptance is only binding in law if it is firm and completely reflects the offer terms. Any attempt to vary the terms may amount to a counter-offer. It must be communicated . This usually requires receipt by the offeror, but exceptionally a letter of acceptance is binding once posted. Determining the legal existence of offer and acceptance: the court interprets the behaviour of the parties objectively in accordance with ‘the expectations of reasonable men’. Chapter summary Acceptance: unconditional assent to the terms of an offer. Bilateral offer: a contractual promise of perform- ance of an act in return for the other party’s promise of performance. Consideration: money/goods/services/land repre- senting the bargain element of the contract. Counter-offer: an offer made in response to an existing offer. Intention to create legal relations: the parties’ intention to make their agreement legally binding. Invitation to treat: encouragement to make an offer, usually by advertisement of some kind. Key terms 0003 QUIZ 4 79 4 Offer:a full clear statement of terms on which the maker is prepared to do business with the person(s) to whom the offer is communicated. Offeree: the recipient of the offer. Offeror: the maker of the offer. Option: a promise to allow an offeree time to con- sider doing business on the terms of a pre-existing offer. Parol: see simple/parol contract (below). Post rule: the default rule governing acceptance by post which is that the acceptance is binding from the moment of posting. Reasonable expectations of honest men: the objective standard by which the court decides whether a party’s conduct evidences sufficient intention to be contractually bound. Simple/parol contract: a contract that does not need to be in the form of a deed to be valid. Subject to contract: a provisional acceptance, prior to a contract being drawn up. Tender: a competitive offer (bid) to provide goods or services. Unilateral offer: an offer of a promise in return for the performance of an act. Key terms (Continued) 1Does an offer exist in the following circumstances? (a) Joshua puts a teddy bear wearing a price ticket in his shop window. (b) Ruth distributes flyers stating ‘Cheap Offer: 10% off the cost of all our pizzas’. (c) Mary advertises a reward of £50 for the return of her lost bracelet. (d) Martha returns Mary’s bracelet and then dis- covers that a reward was offered. (e) Peter offered to sell his car to Esther for £3,000; Esther told him she would pay only £2,500. (f) Elizabeth offered to sell her fridge-freezer to Paul for £100. He asked her to give him three days to decide. The next day she sold the freezer to Jacob. 2 Has a valid acceptance resulted in the following situations? (a) John offers to sell potatoes to Thomas, who replies that he will take them if he can raise the money. (b) Eve offers to sell apples to Matthew and tells him that she will assume that he wants to buy them unless he tells her to the contrary by 10 o’clock on Saturday morning. The deadline has now passed but Matthew has not been in touch. (c) Luke sent a letter to Michael offering to sell an antique clock. Michael replies accepting, but his letter is lost in the post. (d) Susanna offered by telephone to rewire Antony’s house. He accepted, but Susanna did not hear because the line went dead. Answers to all quizzes can be found in Appendix 2 . Quiz 4 The law of contract: offer and acceptance 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 80 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions . Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Carlill v Carbolic Smoke Ball Co. Ltd [1893] 1 QB 156, CA Blackpool & Fylde Aero Club v Blackpool Council [1990] 3 All ER 25, CA Entores Ltd v Miles Far East Corporation [1955] 2 All ER 493, CA Holwell Securities v Hughes [1974] 1 All ER 161, CA Take a closer look Please go to: www.carbolicsmokeball.co.uk to read the law report, see a full colour reproduction of the famous advertisement with testimonials and find out what a smokeball actually looked like. Web activity Iris made an offer to sell her piano to Diana for £500 on Monday. Diana replied: ‘I will buy it if I can raise the money.’ Iris promised that she would not sell to anyone else before Saturday, and added that Diana could collect the piano any time before noon on Saturday. On Wednesday, Diana phoned and left a message with Iris’s daughter, Athena, saying that she had got the money and would come to collect the piano on Saturday morning. Athena forgot to pass on the message. On Thursday, Iris was visited by Juno who said that she would pay £600 for the piano. Iris accepted this offer. Later that day Iris posted a letter to Diana telling her that she could not have the piano. Mercury, the postman, delivered it to the wrong address and Diana, who never received the letter, appeared with a hired van to col- lect the piano at 10 o’clock on Saturday morning. Advise Iris of her legal position. ( Some hints on answering problem questions, including an analysis of the above assignment, can be found in Chapter 26.) Assignment 3 0003 ASSIGNMENT 3 81 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter:Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH [1982] 1 All ER 293 Butler Machine Tools Ltd v Ex-Cell-O Ltd [1979] 1 All ER 965 Carlill v Carbolic Smoke Ball Co. Ltd [1893] 1 QB 256 4 The law of contract: offer and acc eptance 0003 chapter 5 THE LAW OF CONTRACT: consideration, intention and privity 0003 Introduction Contracts are essentially commercial agreements: they are about striking bargains, or achieving what is sometimes called ‘ mutuality’. Both parties stand to gain mate- rially from the transaction: each receives a ‘ consideration’. Where one party agrees to do something for the other without anything being promised in return, that party is said to be making a ‘ naked’ or ‘gratuitous’ promise. A legally binding contract cannot result from such a promise, only a moral obligation. It is quite possible to find agreements in which the elements of offer, acceptance and consideration can be identified, but the agreement will not be binding as a contract unless that is deemed to be the parties’ intention. When the\ y entered into the agreement, they may not have intended that failure to perform the agreement would make them liable to legal sanctions for breach of contract. A contract may be made for the benefit of a third party who does not contribute consideration but the common law rule of privity of contractgenerally prevented him or her from enforcing it. This is now mitigated by the Contracts (Rights of Third Parties) Act 1999. Learning Objectives When you have studied this chapter you should be able to: Define consideration Recognise the circumstances when valid consideration exists Describe the operation of the promissory estoppel doctrine Appreciate the characteristics of agreements which demonstrate intention to create legal relations Explain how the Contracts (Rights of Third Parties) Act 1999 has impacted on the doctrine of privity of contract. Photo: redsnapper/Alamy 0003 Consideration Consideration has been defined by the courts in different ways. In Curriev Misa (1875) it was held to constitute a benefit to one party or a detriment to the othe\ r. Generally, it is easy to analyse contracts on this basis. When you buy a DVD recorder from a shop, the benefit you receive is the DVD recorder, and the detriment is the money you pay the shop. The shop clearly enjoys a corresponding benefit, and suffers a corresponding detriment in taking your money and parting with the DVD recorder. In Dunlop v Selfridge (1915, HL), the House of Lords defined consideration in terms of the price by which one party bought the other party’s act or promise. This is also clearly reflected in the example of the sale of the DVD recorder. Executory and executed consideration Executory consideration A binding contract may be formed by the exchange of promises to be carried out at a later date. If you order goods which are to be paid for on delivery, a binding contract results on your order being accepted. Failure to deliver the goods to you would be a breach of con- tract. The consideration in such a contract consists of the mutual promises and is described as ‘ executory ’because the promises have not yet been executed (performed). Executed consideration Sometimes no obligation to pay arises unless or until another party has \ executed their con- sideration. For example, if someone advertises a reward for the safe return of a lost cat, that person is making a unilateral promise to pay money that will become binding on the per- formance (execution) of an act (the return of the cat). The consideration provided by the person who returns the cat is called ‘executed consideration’. The rules governing consideration Consideration must not be past The act claimed to represent consideration for another party’s promise to pay must not precede that promise, or it will be treated as past consideration and the promise will be merely gratuitous. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS Horace, knowing that his elderly neighbour, Bertie, is concerned about the state of his garden, offers to clear it up for him. This occupies Horace for most of the day, and Bertie is so pleased with the result that he promises to pay Horace £15 for his trouble. If Bertie fails to pay, Horace will not be able to sue for breach of contract as Bertie’s promise to pay was made after the work was completed. The work represents past consideration and, therefore, the promise to pay is merely gratuitous. Real Life 84 0003 CONSIDERATION 85 5 The law of contract: consideration, intention and privity To be contractually binding, it must be shown that a promise to pay preceded the act so that the promise and act form one undivided transaction. The principle is clearly i\ llustrated in the following case: Re McArdle (1951, CA) A house was left by Mr McArdle to his wife for life. On her death it was to be sold and the proceeds divided equally between the children of the marriage. The wife of one of the children paid for home improvements at a cost of £488. When the work had been done all the children agreed that she should recover this sum from the proceeds of the eventual sale. After Mrs McArdle died the validity of this agreement was disputed. Held: no valid contract existed since the home improvements were past consideration; they had been carried out before any promise to pay had been made. There is an exception to this rule when a subsequent promise is enforceable. Valid consider- ation may be held to exist in the absence of an express prior promise to pay provided that: 1 the act was done in response to a specific request; and 2 the situation was one where payment would normally be expected. Re Stewart v Casey (Casey’s Patents) (1892, CA) An employee contributed many hours of his own time to the development of an invention for his employers at their request. When the work was completed, the employers promised that they would pay him a share of the profits once the invention was patented. Held: the employers were bound by the promise as the employee had done the work at their request, and the nature of their relationship implied that future payment would be made. The subsequent explicit promise to pay in such situations is seen as an affirmation of an implied promise which accompanied the request that the work be carried out. Consideration must move from the promisee This rule prevents a party from enforcing a contract unless he or she has contributed con- sideration. However, a number of exceptions exist under common law and statute and further reform has resulted from the Contracts (Rights of Third Parties) Act 1999 (see below at page 94). Consideration must be sufficient Consideration must be of material value, capable of assessment in financ\ ial terms. Usually the financial nature of the consideration is obvious where goods, land or money is involved. Any legal right has a financial value. Settling a case out of court invo\ lves a contract under which one party agrees not to exercise their legal right to sue the other, provided that the 0003 other pays an agreed sum of compensation. The consideration for the promise of compen- sation is the promise not to sue. In Alliance Bank vBroome (1864) a bank was held to have provided consideration, for the defendant’s promise to give security for a loan, by promising not to take action to recover it. White v Bluett (1853) A son agreed not to bore his father by nagging him to make a will in his favour and in return his father agreed to release him from a debt. Held: the father was not bound by his promise as the son had not provided valid consideration. He had no right to dictate how his father disposed of his property, so he had not given up anything of material value by stopping nagging his father. Note that consideration may be sufficient without being adequate. Provided the alleged consideration is of financial value, it is irrelevant that it is not an adequate return. The courts are not interested in whether the parties have made a goodbargain, but only in whether they have made a bargainat all. Therefore, proof of financial value, however minute, will be enough to make consideration sufficient. Thomas vThomas (1842) A widow was promised a house in return for a ground rent and promising to keep the property in good repair. Held: an annual rent of £1 was held to be sufficient consideration for the promise. Advertising campaigns frequently offer to supply goods in return for wrappers, packet tops or vouchers cut from relevant product wrapping. If you comply with what is asked, then a binding contract results and you are entitled to the tea towel, cuddly toy or other delight being offered. So in Chappell vNestlé & Co. Ltd (1960, HL) three chocolate wrappers were held to constitute valid consideration entitling the sender to pop music\ recordings. Nestlé derived a clear economic benefit from an increase in sales. It was irrelevant that the wrap- pers would be thrown away on arrival. Sufficiency usually involves taking on some new obligationin return for the other party’s promise of payment. Performing an existing legal duty does not generally a\ mount to suffi- cient consideration. Collins v Godefroy (1831) The claimant was a key witness at a trial and was under a court order to attend. Failure to do so would have made him guilty of the crime of contempt of court. The defendant was a party to the proceedings; because the claimant’s attendance was important to him, he promised to pay the claimant if he would attend. Held:the defendant’s promise of payment was not contractually binding. The claimant had not pro- vided sufficient consideration merely by promising to perform his existing legal duty. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 86 0003 In a case like this the claimant is effectively promising the defendant that if the claimant pays him money he will not commit a criminal offence, and such agreements are treated as being against public policy(not in the public interest). Similarly, where two parties have made a contract, a subsequent promise of additional payment to encourage performance is not a binding contractual promise. The promisee is already contractually bound to perform and is therefore providing no fresh consideration. Stilk v Myrick (1809) Two sailors deserted from a ship in the course of a voyage. The captain promised the remainder of the crew that he would pay a bonus to each man if they got the ship home to England from Scandinavia. Held: this promise was not binding. Crew members were required by their contracts to cope with the normal difficulties of a voyage, which in those days included crew shortages of this kind. Therefore, there was insufficient consideration to make the captain’s promise enforceable. The court’s unwillingness to enforce promises of this kind generally results from a concern that the promisee has exerted economic duress – blackmailed the promisor into offering extra payment. This topic is explained in Chapter 7. The court may take a more generous attitude if satisfied that the public interest is not adversely affected and that enforcing the promise would produce the fairest outcome. The court may justify such a decision in one of three ways: 1 By finding that the promisee has exceeded the scope of his or her legal duty. The excess represents the consideration or Hartley v Ponsonby (1857) The facts of this case are similar to those in Stilkv Myrick , but here the depletion of the crew and the length of the journey were so great that the crew’s existing contract of employment was discharged. Held: by getting the ship home, the crew effectively were taking on a new set of duties and thus provid- ing sufficient consideration for the captain’s promise of more pay. 2 Or by finding that the promisee, in carrying out the legal duty, has actually conferred anew benefit on the promisor Glasbrook Bros v Glamorgan County Council (1925, HL) The defendant mine owners, fearing vandalism of their premises during an industrial dispute, promised that if the police authority provided a full-time guard, they would make a donation to a police charity. Held: this promise was binding, as the police could have fulfilled their legal duty by periodic inspection of the premises: the full-time guard exceeded this and was therefore sufficient consideration. CONSIDERATION 87 5 The law of contract: consideration, intention and privity 0003 3 Or by deciding that the act of the promisor enabled the promisee to avoidsome material disadvantage . Williams vRoffey Bros (1990, CA) Roffey was a builder who had a contract to refurbish a building for a housing association. This contract contained a delay clause under which Roffey was required to pay substantial sums if the work was not finished on time. Roffey sub-contracted carpentry work to Williams, who later ran into financial diffi- culties and told Roffey that because of this he would be unable to continue. Roffey promised him payment of extra money to complete the contract on time. He then refused to honour this undertaking arguing that Williams was merely doing what he had originally contracted to do. Held: Roffey’s promise was binding, since by securing the completion of the contract he was obtaining a benefit, or at least avoiding a burden. He avoided having to pay the delay costs to the housing associa- tion. He had freely entered into the agreement and not been forced by economic duress. In making this decision the Court of Appeal was breaking new ground judicially, but the ruling reflects current commercial practice. Note that Stilkv Myrick is not overruled by Williamsv Roffey Bros. There are clear distin- guishing features. It must be decided on the facts of a case which decision will apply. The Williams v Roffey principle was limited and clarified by the Court of Appeal in the fol- lowing case: Re Selectmove (1995, CA) Selectmove owed arrears of tax to the Inland Revenue which threatened to start liquidation proceed- ings. Selectmove negotiated with a tax inspector and stated that it would pay all future tax as and when it fell due and that it would pay off all arrears of tax at £1,000 a month. The tax inspector said that if Selectmove heard nothing more it could assume that this plan was agreeable to the Revenue. Later, the Revenue then started liquidation proceedings. Selectmove claimed that the Revenue was bound by the tax inspector’s agreement since, under the Williamsv Roffey principle, it obtained a benefit or at least avoided a disbenefit. If the company went into liquidation the Revenue might not acquire full repayment of the tax arrears and would not get the benefit of future tax payments. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 88 In what ways can Williamsv Roffey be distinguished from Stilkv Myrick? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Held:promising to carry out an existing duty can only be binding under Williamsv Roffey if the duty is to perform an act, not just to pay money. The rule in Pinnel’scase (below) applies to part payment of debt. Part payment of debt is not sufficient consideration The rule in Pinnel’s Case (1602) A promise by a creditor to accept less than the full sum owed does not discharge the debtor from the legal obligation to pay the balance. The rule in Pinnel’s case is illustrated by the following example: There are some exceptions to this rule. The debt will be discharged by part paym\ ent if the creditor requests: 1 part payment at an earlier date; or 2 part payment at a different place; or 3 some goods or other material benefit to accompany the part payment. In these situations the debtor is providing some consideration by doing something different at the creditor’s request. For example: CONSIDERATION 89 Horace owes Josephine £50, but he is so hard up that he can pay her only £35 when the date of repay- ment arrives. She can still pursue him later for the £15 even if she agrees that she will take the £35 in full settlement. This looks unfair, but if you analyse Josephine’s promise in terms of the rules of consid- eration you can see the legal logic, if not the moral justice, of the outcome. Horace, by repaying only part of what he owes, obtains a benefit (£15) but gives nothing to Josephine in return. Josephine loses £15 from their agreement. Horace provides no consideration and so Josephine’s new promise is not contractually binding; it is merely a gratuitous promise. Real Life Horace did building work at James’s delicatessen for £1,000. When payment was due James was unable to pay in full, so Horace agreed to take £900 plus £100’s worth of smoked salmon for his parents’ forth- coming silver wedding anniversary celebration. Real Life 5 The law of co ntract: consideration, intention and privity 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 90 Part payment by a third party in return for a promise from the creditor not to pursue the original debtor for the balance also discharges the whole debt. An agreement ( composi- tion ) between creditors has a similar effect. It is common business practice for the multiple creditors of a debtor to agree that they will each accept a proportionate repayment of their debts. An individual creditor cannot renege on this contract to pursue the balance of his or her debt as this would be a fraud on the other creditors. A form of such an agreement, commonly known as an Individual Voluntary Arrangement (IVA) was introduced and regulated by the Insolvency Act 1986. These are brokered by finance businesses for a commission and allow debtors to repay a proportion of their debt to their creditors over a specified period which is usually five years. In recent years the number of people dangerously in debt has grown and IVAs have become very popular as an alternative to bankruptcy. (See ‘In the News’.) The cases of Re Selectmove (1995) (above) and Re C (A Debtor ) (1994), indicate that the Court of Appeal is not prepared to allow the principle in Williamsv Roffey to validate agree- ments to pay less than the agreed sum, rather than more. This would otherwise undermine the rule in Pinnel’s case. In the News IVA controversy Accountants KPMG said that there has been a huge growth in the use of IVAs since 1998 when there were under 5,000. The annual total in 2006 was 45,000, with the average IVA debtor owing £52,000 but seeking to repay only 39% of this sum. Setting up these arrangements has become an industry, with many firms getting involved at an average fee of £7,000. Some providers have been heavily criticised for making unrealistic promises about the performance of their products. Some portray IVAs as a universa l panacea for debt, failing to point out that they adversely affect credit records, and that inability to maintain payment can still result in bankruptcy. Concerns about mis-selling led the Office of Fair Trading to order 17 firms selling IVAs to review their advertising in January 2007 and to produce evidence of conformity with OFT guidelines within four weeks. Thirty-eight more warning and advisory letters were issued by the end of December 2007. James Ketchell from the Consumer Credit Counselling Service (CCCS) stressed that IVAs are not the only answer for people struggling with debt and are not generally suitable for the huge majority of people in financial difficulty. CCCS advised 70,000 people in 2006, but in only 3% of these cases was an IVA the most appropriate option. The remainder were better served by a debt management scheme or an application for bankruptcy. (Sources: press releases from: KPMG, 5/5/2006; OFT, 17/1/2006; Consumer Credit Counselling Service, 30/1/2007; Guardian article, 30/1/2007; and OFT press releases 17/1/07 and 17/12/2007.) 0003 Promissory estoppel Promissory estoppelis an equitable defence which may be relevant in part-payment sit- uations. Under this principle, parties who gratuitously promise that they will not enforce existing contractual rights may lose their entitlement to do so if it wo\ uld be unfair to allow them to go back on their promise; they are prevented ( estopped) from breaking the prom- ise. This defence was developed in the following case: Central London Property Trust vHigh Trees House (1947) The defendants owned a block of flats on land leased to them by the claimants. By September 1939, many flats had become vacant due to outbreak of war. Consequently, the defendants were having diffi- culties paying their ground rent. The claimants agreed that they would accept reduced payments. The defendants continued to pay the reduced rent even when the flats refilled and the war was over. The claimants brought a test case claiming arrears of rent for the last two quarters of 1945 (by which time the war had ended). Held: the claimants were found to be entitled to the arrears they claimed, but it was also held ( obiter dictum ) that had they claimed for arrears prior to the end of the war this would have been refused. It would be unfair to allow them to go back on the ir promise on which the defendants had naturally relied. The claimants’ gratuitous promise operated to suspend their rights to full payment while the extenuating circumstances in which the promise had been made continued to operate. This obiter dictum (persuasive ruling) from a then youthful Mr Justice Denning has been applied by the House of Lords. In Tool Metal Manufacturing Co. Ltd vTungsten Ltd (1955) a gratuitous promise, to suspend rights to royalty payments on a patent during the war, was held to be a good defence to a subsequent claim for such payments. However, although the doctrine of promissory estoppel has been much discussed by the Court of Appeal and the House of Lords in subsequent cases, it has been used very little and its scope is far from clear. Two elements are certain: 1 It can operate only as a defence . Denning LJ clarified this aspect of the doctrine in Combe v Combe (CA, 1951). Describing it as a ‘ shield and not a sword’, he emphasised that the doctrine ‘ should not be stretched too far ’ and the principle ‘did not create new causes of action where none had existed before ’ and that ‘the doctrine of consideration is too firmly fixed to be overthrown by a side wind.’ Therefore, if we apply this reasoning to High Trees, it is clear that the defendants could not have sued on the claimants’ promise, but it would have been a good defence against the claimants if they had tried to enforce their original contract rights for the period in which they had been suspended. 2 It is an equitable principle . The court will not grant an equitable remedy unless it will pro- duce a just result for both parties; parties seeking such a remedy must show that they have behaved morally as well as legally. CONSIDERATION 91 5 The law of contract: consideration, intention and privity 0003 D & C Builders vRees (1965, CA) Mrs Rees persuaded the builders, whom she knew to be in financial difficulties, to accept payment of £300 in full settlement of a debt of almost £483, by telling them that they would otherwise get nothing. Held: it would not be equitable to allow their promise to be used as a defence against them, given that Mrs Rees had effectively ‘ held the builders to ransom ’ (Denning LJ) forcing them to accept the smaller sum. Intention to create legal relations In determining whether the parties intend their agreement to be legally binding, the courts are guided by two presumptions concerning the parties’ intention to create legal relations ): 1 parties to a domestic or social agreement do not intend to be legally bound; 2 parties to a business agreement intend to be legally bound. These are presumptions only and can be rebutted (disproved) by sufficient evidence to the contrary. Domestic and social agreements The courts believe that family members and friends do not generally inte\ nd agreements, made merely for their mutual convenience, to be legally enforceable. Property rights between family members are generally adequately covered by other areas of the law. Unless there is clear evidence of a commercial transaction – for example, the sale of a car between family members – an intention to be contractually bound will not be p\ resumed. Balfour vBalfour (1919, CA) Held:no intention to create legal relations existed in an agreement under which a husband working abroad promised to pay maintenance to his wife in England. The courts take a different view if the couple do not intend to continue in the marriage. In Merritt v Merritt (1970, CA) a contractual relationship was held to arise from a post-separa- tion maintenance agreement. Car pool agreements may involve the necessary intention: Albert v Motor Insurers Bureau (1971, HL) Held:if lifts are provided on a regular and systematic basis under which drivers anticipate payment, an intention to create a legally binding relationship is present. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 92 0003 INTENTION TO CREATE LEGAL RELATIONS 93 5 The law of contract: consideration, intention and privity Even a ‘fun’ transaction may implicitly contain a more formal intention. Simpkins vPays (1955, CA) The claimant lodged in the defendant’s boarding house. Every week she, the defendant and the defen- dant’s granddaughter entered a fashion competition in a Sunday newspaper. They took it in turns to pay the entry costs and postage and agreed that any winnings should be divided equally. One week their entry, sent in the defendant’s name, won £750 but she refused to pay the claimant her share. The claimant sued in breach of contract and the defendant argued that no legally binding relationship had been intended in the transaction. Held: the claimant should succeed since the parties demonstrated sufficient intention to be legally bound. This was more than just a friendly agreement. It was a joint enterprise to which each of the par- ties contributed financially in the expectation of sharing prize money. A clearly defined agreement must exist before evidence of intention to be bound can be deduced Wilson and Anor v Burnett (2007, CA) The claimants organised a girls’ night out to the local bingo hall with the defendant, a workmate. The defendant won substantial prizes totalling £101,354. The claimants alleged that at the start of the evening that they had all agreed to share equally any prize over £10. The defendant disputed this. At the trial Judge Nelligan said: ‘I accept the defendants’ evidence that there was chat or talk about sharing win- nings which went no further than discussion or chat, and did not cross and cannot be inferred to have crossed that line which exists between talk and “meaning business”, or an intention to create a legal relation- ship, that is to share the prize money ’. He therefore held that the claimants were not entitled to share the money. The claimants appealed. Held: Judge Nelligan had been justified in coming to his decision. In agreements between friends it was presumed that there was no intention to be legally bound, though every case must be examined on its facts. Although there had been discussion about sharing winnings, there was insufficient evidence of any clear agreement sufficient to prove the existence of such intention, so the claimants lost their case. It is easy to see clear differences between the facts in the two cases above. In Simpkins v Pays the parties had regularly entered the competition together following the same process each time and each party contributed to it and had a stake in the outcome. In Wilson v Bur- nett the parties were engaged in a one-off outing and the evidence of any potential agreement was conflicting. Exam tip If the question describes parties in a problem as friends or family members, this may be to nudge you into mentioning the issue of intention to create legal relations. 0003 Business agreements In the world of business, the presumption that agreements are intended to have legal con- sequences means that an explicitindication of lack of intention to create legal relations is necessary. Rose & Frank Co. v J.R. Crompton & Bros (1925, HL) The claimant was a US company, selling carbon paper, and it agreed to permit the defendant, an English company in the same line of business, to market its product in the USA. The wording of the agreement stated that it was not ‘a formal legal agreement and s hall not be subject to legal jurisdiction in the law courts either of the United States or England, but it is only a definite expression and record of the pur- pose and intention of the parties concerned to which they each honourably pledge themselves’. The defendant subsequently breached the agreement and claimed that it did not amount to a binding contract. Held: this clause was effective to exclude intention to be legally bound as it was clear and specific. Next time you see an advertisement for a competition, check the small pr\ int and you will usu- ally find that it contains similar words. In Jones vVernons Pools (1938) it was held that no legally binding contract was created between punter and pools company: the entry coupon stated clearly that the relationship between the parties was ‘binding in honour only’. Privity of contract Sometimes a contractual situation may arise where one party ( promisor ) agrees with another (the promisee ) to provide a benefit for a third party. From your study of considera- tion earlier in this chapter, you may remember that the common law rule is that parties who have not contributed consideration to a contract cannot sue on it if it \ is breached. This is because they are not full parties to the contract: in the rather archaic language still used by lawyers, they are not privy to the contract, or there is no privity of contract between the par- ties. Thus, the beneficiary cannot sue if the contract is breached. Tweddle v Atkinson (1861) William Tweddle was engaged to marry Miss Guy. The fathers of the happy couple contracted that they would each put up a sum of money when the marriage took place, but Mr Guy died before making payment . Held: William had no right to sue Mr Guy’s estate for the money since he had provided no consideration for the promise and was merely a beneficiary of the contract. As a mere beneficiary, William was not privy to the contract: he was not truly a party to it because he was not contributing to the consideration. PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 94 0003 Similarly, the burdens of a contract cannot be enforced against a party to whom no consid- eration has been promised. Dunlop Rubber Co. Ltd vSelfridge (1915, HL) Dunlop supplied tyres at a discount (less than list price) to Dew & Co., who agreed not to resell below list price to trade buyers unless those buyers also agreed not to resell below list price. Dew supplied Self- ridge, who breached the resale price agreement. Dunlop tried to take action against Selfridge. Held: Dunlop could not sue Selfridge, as there was no privity of contract between them: Dunlop had given no consideration to Selfridge in return for the promise to stick to the resale price. (Any action could only be taken against Selfridge by Dew for breach of the contract between them.) Exceptions to the rule of privity To prevent injustice, a number of exceptions to the rule have been acknowledg\ ed to enable beneficiaries to enforce their rights. 1 Agency. Where agents make contracts on behalf of their principals with third parties, the principals may sue or be sued on those contracts as if they had made the\ m themselves. (See Chapter 10.) 2 Third-party insurance . A third party may claim under an insurance policy made for their benefit, even though that party did not pay the premiums (for example: life assurance and third-party motor insurance). 3 Assignment of contractual rights. The benefits (but not the burdens) of a contract may be assigned to a third party, who may then sue on the contract (for example: selling debts). The original debtor may be sued by the new creditor to whom the rights to collect the debt have been assigned. The duty to perform a contract cannot be assign\ ed. 4 Trusts . This is an equitable concept by which one person transfers property to a second person (the trustee), who holds it for the benefit of others (benefic\ iaries). The party who created the trust, which is often done by a will, lays down the rules unde\ r which it is to be administered. If these are not complied with, the beneficiaries have the right to ask the court to enforce the trust for their benefit. 5 Collateral contracts . The performance of one contract between A and B may indirectly bring another into being between A and C. 6 Contracts for the benefit of a group . Where a contract to supply a service is made in one person’s name but is intended to benefit a group of people, the members of the group have no rights to sue at common law if the contract is breached; there is no privity of contract between them and the supplier of the service. The court, howeve\ r, may take some of their losses into account when awarding damages to the buyer. PRIVITY OF CONTRACT 95 5 The law of contract: consideration, intention and privity 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 96 Shanklin Pier Ltd v Detel Products Ltd (1954) Detel advised Shanklin Pier Ltd that their paint was suitable for maritime use and would last for at least seven years. Shanklin Pier Ltd contracted with a decorating firm to paint the pier; a term of the contract required the decorators to buy Detel’s paint for the purpose. The paint began to peel off within three months. Held: Shanklin Pier Ltd could successfully sue Detel Products on a collateral contract which was linked to the main contract between Shanklin Pier Ltd and the decorating firm. Detel had made promises about the quality of their paint and Shanklin Pier had provided consideration for this promise by requiring their decorators to use it. Jackson v Horizon Holidays Ltd (1975, CA) Horizon provided such a poor level of service that the Jackson family holiday was ruined. Held: Mr Jackson, who had made the contract, was the only party who could sue but the damages he was awarded took into account the loss to the whole family resulting from Horizon’s failure to deliver a holiday of the promised quality. Statutory reform of the privity rule In 1996, the Law Commission (Report No. 242) stated that reform was needed since the law at that time: (a) prejudiced third parties who may have relied on contracts which they had no power to enforce; (b) caused problems in commercial life; (c) was out of step with other EU members and much of the common law world, \ including New Zealand and the USA. As a result, reforming legislation was introduced. Contracts (Rights of Third Parties) Act 1999 Section 1 gives a third party the right directly to enforce any contract which expressly per- mits this or where the contract is intended to benefit them. This gives the third party the same remedies as any other party to a breach of contract action. They must be expressly identified in the contract by name or class or description, but need not\ be in existence when the contract is made. Thus, a contract to provide an ongoing benefit to ‘all my children’ could benefit any children born after formation of the contract. Section 2 further protects third parties by preventing cancellation or variation of the con- tract without their permission unless the contract expressly provides for this. Generally, a third party’s rights cannot be withdrawn or varied without their consent if: they hav\ e com- 0003 municated agreement by words or conduct to the terms, or the promisor is aware that they have relied on the terms, or the promisor should have reasonably foreseen that they would rely on the term and they have in fact done so. In exceptional circumstances (e.g. mental incapacity of the third party) the court may dispense with the right of consent.Section 5 protects the promisor from double liability. If the promisor fails to perform the duty owed to the third party, they will not be liable to the third party for any losses that the promisee has already recovered from the promisor. This prevents the third party from recov- ering twice for the same losses. Third-party rights cannot be enforced in some contract situations. Section 6 specifies some exceptions: for example, a third party cannot enforce any term against an employee in an employment contract; in a contract fo\ r carriage of goods, a third party has no enforceable rights except for the protection of any exclusion or limitation clause in the contract. Note that the 1999 Act does not abolish the privity doctrine: it just in\ troduces a new right. Section 7 specifies that existing third-party rights and remedies remain unchanged. CHAPTER SUMMARY 97 Consideration The bargain element which distinguishes a con- tract from any other sort of agreement, legally binding or otherwise. Definition: material benefit gained/detriment aris- ing from performance of a contract. Price paid for the other party’s promise or act. Ben- efit/detriment. The rules of consideration It must not be past : not precede the promise to pay. It must be sufficient: represent some detriment/ benefit though not necessarily an adequate price. Generally, only a party who provides consideration may enforce the contract (see Privity, below). Part payment of a debt does not generally dis- charge it (Pinnel’s case). Promissory estoppel may provide a defence for a defendant sued for breach of contract, if he or she can prove that the claimant had previously gratu- itously varied the contract in the defendant’s favour so that it would be unjust to let them go back on their word. Intention to create legal relations The parties to a contract must intend it to be legally binding or it will not be enforceable in the courts. Two rebuttable presumptions operate here. An agreement between friends or family members is presumed not to reflect that intention, while business agreements are. Privity of contract Generally, the doctrine of privity of contract pre- vents anyone except a party who contributes to the bargain from enforcing it. The Contracts ( Rights of Third Parties )Act 1999 enables a contractual beneficiary to sue for breach of a contract that was clearly made for their benefit, even though they have not provided any consideration. Chapter summary 5 The law of contract: consideration, intention and privity 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 98 Composition (with creditors): a legally binding agreement between creditors that they will each take only a proportion of what the debtor owes, in full settlement of the entire debt. Consideration: money/goods/services/land repre- senting the bargain element of the contract. Economic duress: an attempt to obtain favourable contract terms by threatening financial loss to a contracting party. Executed consideration: a contractual promise which has been performed. Executory consideration: a contractual promise which has not yet been performed. Gratuitous promise: a promise which is not sup- ported by consideration. Intention to create legal relations: the parties’ intention that their agreement be binding in law, not just morally. Mutuality: both parties support their promises by consideration. Naked promise: see gratuitous promise above. Privity of contract: exclusivity of contractual rights and duties to parties who contribute consideration. Promisee: a party making a promise. Promisor: a recipient of a promise. Promissory estoppel (High Trees doctrine): an equitable defence which a party may use when a contract has been gratuitously varied for their ben- efit and the other party seeks to enforce it in its original form. Key terms 1 Are the following promises legally binding or merely gratuitous? (a) Red returned Brown’s lost tortoise. Brown promised him £5. (b) Green agreed to sell his vintage sports car to Black for 10p. (c) Scarlet promised her employee, Orange, that she would give him a £10 bonus if he arrived at work on time for a week. (d) Blue was owed £50 by Yellow, but agreed to take £45 in full settlement if Yellow made the repayment a week early. (e) Pink agreed that his tenant, Turquoise, might pay a reduced rent while he was out of work. 2 White told his tailor to make a wedding suit for White’s nephew, Grey, who chose the style and material. The cost was to be charged to White’s account. When the suit was finished it did not fit Grey, who had to hire one. Has Grey any rights against the tailor? Answers to all quizzes can be found in Appendix 2. Quiz 5 0003 ASSIGNMENT 4 99 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Re McArdle [1951] Ch 669 Williams v Roffey Bros [1990] 1 All ER 512, CA Simpkins v Pays [1955] 3 All ER 10, CA Jackson v Horizon Holidays [1975] 3 All ER 92, CA Take a closer look Please go to: www.clearstart.org/index.php Click on IVA to find out more about how these work. Web activity (a) Is it true to say that the doctrine of privity of contract is redundant since the Contracts (Rights of Third Parties) Act 1999? (b) Arthur rents a house to his friend Brian for £400 a month in January. In May, hearing that Brian is in financial difficulty, Arthur offers to reduce the rent to £250 ‘until things pick up for you again’. In October, Cathy, Brian’s wife, is left £20,000 by her uncle. In December, Arthur finds out about this windfall and asks for full rent from October onwards. Advise Arthur. Assignment 4 5 The law of contract: consideration, intention and privity Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter: Central London Property Trust v High Trees House [1947] KB 130 Williams v Roffey Bros [1990] 1 All ER 512 0003 chapter 6 THE TERMS OF THE CONTRACT 0003 Introduction A contract is made up of terms, offered by one party and accepted by the other. This chapter contains three topics concerning terms: 1The difference between expressand impliedterms . The parties may be bound by terms which they have not expressly agreed. 2 The relative importance of contractual terms . Some terms are crucial to the exis- tence of the contract; others are more trivial, and therefore different legal consequences flow from breach of them. 3 Exclusion of liability . Even if a party is in breach of contract, it may be protected from liability by an exclusion clause. Learning Objectives When you have studied this chapter you should be able to: Distinguish between conditions, warranties and innominate terms Explain the purpose of exclusion clauses and the common law rules governing them Demonstrate the differences in scope of the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contract Regulations 1999. Photo: Manor Photography/Alamy 0003 Express and implied terms The terms of a contract fall into three categories:conditions , warranties and innomi- nate terms (explained fully below). These terms may be expressed or implied. Express terms are specifically communicated by the offeror. Other terms may be implied by statute, custom or the courts. The sources of implied terms Statute: the Sale of Goods Act 1979 This is the most important source of implied terms. Parliament safeguards the consumer by implying certain terms concerning the standard and quality of goods in most sale of goods contracts. The seller is in breach if the goods do not meet these standards, regardless of whether the seller gave any undertakings expressly to the buyer. This statutory protection means that if you buy an MP3 player from a shop you can assume that it will work. If it is faulty, the shop cannot avoid liability by claiming that it never promised you that the MP3 player would work. These terms are fully explained in Chapter 11 below. Trade custom and practice In many trades it is customary for certain practices to prevail in performance of a contract, or for risks to be allocated between the parties in a particular way. For example, in crane and plant hire contracts, it is generally implied that any damage to the equipment oc\ ca- sioned during the hire period will be the financial responsibility of the hirer, not the owner. Business efficacy The court is not generally sympathetic to parties who assume that they h\ ave rights under a contract which were not expressly promised to them. Exceptionally, though, a term may be implied to give ‘ business efficacy ’ to the contract. The court will do this if the contract lacks a term so obvious that the parties are considered ( deemed) to have intended to include it in the contract. For example, if you asked the dairy to deliver you ‘\ two pints of milk’, it is unlikely that you would feel the need to specify that the milk must be i\ n a container rather than left in a puddle on your doorstep. In The Moorcock (1889) a party who hired docking space at the defendant’s wharf was entitled to assume that the ship’s bottom would not be damaged by the state of the river bed adjacent to the dock. This strateg\ y prevents a party from avoiding contractual liability on a technicality and gives effect to the obvious common but unspoken intention of the parties. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 102 0003 The relative importance of contractual terms The terms of a contract are not necessarily equally important. Breach of contract, therefore, gives rise to different rights according to the importance of the breached term. Generally, terms can be classified as conditions or warranties. Whether terms are to be classified as conditions or warranties is determined by the parties’ apparent intentions when they made the contract. An apparently trivial matter like a sea view from the hotel bedroom may be elevated to the status of a condition of the contract if its necessity i\ s stressed before accept- ance takes place. Conditions Conditions are the most important terms which form the main structure of the contract. For example, when you are booking hotel accommodation, the dates of your stay and the type of room (single/double) are some of the most crucial requirements. If particular details are crucial to one party, this must be pointed out to the other party before the formation of the contract is completed. If you are booking a double room, this may result in your being given single or double beds unless you stipulate which you prefer.Breach of a condition gives the injured party the right to treat itself as free of any further contractual duties and to claim compensation. Warranties Warranties are more minor terms; they are ancillaryto the contract rather than crucial to it. For example, when you are booking hotel accommodation, the promise of tea- and coffee- making facilities and colour TV will not be vital to the performance of \ the contract. Their absence does not stop you from getting most of the enjoyment that you expect from the holiday. Breach of a warranty does not entitle the injured party to refuse to perform its side of the contract. That party is entitled only to compensation for consequential \ loss, i.e. loss resulting from the breach. The next two cases illustrate the distinctions between these two types o\ f term. Poussard vSpiers & Pond (1876) An actress was employed for a season, but was delayed by illness from taking up her role until a week after the opening night. Held: her employers were entitled to terminate the contract: her presence on the opening night was crucial to the contract. THE RELATIVE IMPORTANCE OF CONTRACTUAL TERMS 103 6 The terms of the contract 0003 Bettini vGye (1876) A singer, engaged for a season, failed to turn up for the first three of the six prescribed rehearsal days. Held: given the length of the contract and because no performances were missed this amounted only to a minor breach; the employer was not entitled to repudiate. Innominate terms Not all terms are clearly and immediately identifiable as conditions or warranties. Some\ , described by the courts as ‘innominate’, are worded broadly to cover a variety of possible breaches, some more serious than others. The court then has to decide whether a particular\ breach is to be treated as one of condition or warranty. Hong Kong Fir Shipping Co. Ltd vKawasaki Kisen Kaisha (1962, CA) A contract stated that a ship would be ‘in every way fitted for cargo service’. This term was capable of including many types of breach, from a large hole in the hull to a missing life raft which was unlikely ever to be required. Due to the incompetent engine room crew and a malfunctioning engine, the ship broke down and 20 weeks’ use of the ship was lost from a two-year charterparty (hire contract). The defendants who had hired the ship abandoned the contract and the claimant owners sued them for breach. Held:the breach of the term relating to the ship’s fitness was not sufficiently serious to permit the defendants to terminate the contract. The importance of the term must be judged in relation to the actual damage resulting from it. The damage caused did not strike at the root of the contract (the ship was still available for more than 18 months of the hire period), and therefore no breach equivalent to a breach of condition had occurred. Diplock LJ stated that the judge’s task in cases of this kind was ‘ to look at the events which had occurred as a result of the breach at the time which the charterers purported to rescind the charterparty and to decide whether the occurrence deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charterparty that the charterers should obtain ’ (from the performance of the contract). Hong Kong Firwas a controversial decision since it was argued that the so-called ‘damage test’, would promote uncertainty, since parties to a contract would not be aware of the importance of a term until it was breached. Although the test has survived, a later Court of Appeal decision puts it last in the criteria by which the courts may int\ erpret the status of an innominate term (Cehave NV v Bremer Handelsgesellschaft ( The Hansa Nord) (1975, CA): 1 The express intention of the parties is paramount: if the contract specifies tha\ t a particu- lar breach will entitle a party to opt out of the contract, that is conclusive\ . PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 104 0003 THE RELATIVE IMPORTANCE OF CONTRACTUAL TERMS 105 6 Lombard North Central plc v Butterworth (1987, CA) A contract for the lease of a computer stated that prompt payment of instalments was of the essence of the contract and that failure to comply would entitle the hire company to terminate the agreement. The defendant paid the third, fourth, and fifth instalments late and the sixth became six weeks overdue. At this point the claimant repudiated the agreement and sued for damages for breach of contract. Held:late payment in such circumstances would not normally be grounds for repudiation of the con- tract, but here the term had been elevated to the status of a condition, because the supplier had specifically made the time factor crucial. The suppli er was entitled to repudiate even if payment was minimally late. Mustill LJ stated: A stipulation that time is of the essence, in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as going to the root of the contract, without regard to the magnitude of the risk . 2 The use of the words ‘condition’ and ‘warranty’ to describe a term is of evide\ ntial value only – it is not conclusive in itself. Schuler AG vWickman Machine Tool Sales (1974, HL) Wickman was given sole selling rights for Schuler’s products for four-and-a-half years. A term of the contract stated that it was ‘a condition of the contract’ that Wickman would send its representative weekly to solicit orders from the six largest UK manufacturers. Held (by majority): this term was not a condition in the sense that a single breach, however trivial, would entitle the innocent party to terminate the contract. The reasonableness or otherwise of treating a term as a condition was crucial to deciding whether the parties intended breach of the term to give rise to repudiation rights. Lord Reid said: We are seeking to discover intention as disclosed by the contract as a whole. Use of the word ‘condition’ is an indication – even a strong indication – of such an intention but is by no means conclusive . 3 If a party has a statutory right to terminate the contract if a term is b\ reached, the term is a condition (for example, Sale of Goods Act implied conditions: see Cha\ pter 11). 4 Consistently established commercial practice will determine the status of a term. In The Mihalis Angelos (1970, CA) it was held that an ‘expected readiness to load’ term in a charterparty was, as a matter of commercial practice, always to be treated as having the force of a condition, if the party in breach had given the undertaking untruthfully or without reasonable grounds for believing that it could be fulfilled. 5 If the damage resulting from the breach is so extensive that it substantially deprives the innocent party of the benefits bargained for, that party may repudiate their obligations. The damage test is, in practice, used as a last resort. The terms of the contract 0003 Reardon Smith Line vHansen-Tangen (1976, HL) A vessel built for a buyer fulfilled all its contractual specifications except that it was built at a different shipyard from that named in the contract. Held: this term should be treated as innominate; no damage had resulted so there was no right to repudiate. The court, when applying these criteria, is seeking to do justice betwee\ n the parties, as well as acting in the public interest. Taking these considerations into account can help to make the cases above more accessible. In The Mihalis Angelos (1970) the Court of Appeal sought to avoid bringing uncertainty into an area of the law which underpinned an important part of the national econom\ y and which had been formed from the custom and usage of international traders with whom a good business relationship was crucial. Edmund-Davies LJ said: ‘ It would be regrettable to ... disturb an established practice.’ Megaw LJ (stressing the need for predictability) stressed that: ‘In commercial law there are obvious and substantial advantages of ha\ ving, where pos- sible, a firm and definite rule for a particular class of legal relation\ ships.’ In the Reardon Smith case, when the buyer entered the contract he wanted to increase his fleet of ships for charter because of a boom in trade. At the point \ when the ship was ready for delivery, however, a recession had occurred and the buyer tried, by repudiation of the contract, to avoid paying for a vessel which was now surplus to requirements. The damage test was a useful device to prevent the buyer from unfairly avoiding contractual responsibility on a technicality. Limitation and exclusion of liability Many contracts include a term by which one party seeks to limit financia\ l claims against it in the event of loss or damage to the other party, or to exclude itself from legal liability alto- gether. For example, by a limitation clause a holiday firm’s contract may restrict customers’ claims in the event of delay, postponement and cancellation of flights to speci- fied sums for meals and overnight accommodation. When you pay to use a car park, it is usual for the contract to include an exclusion clause stating that the proprietors have no legal liability for damage to or theft of or from your vehicle. Such limitation of or exclusion from liability may be a perfectly reasonable business prac- tice, but is subject to control, both by the courts and statute, to prevent abuses. Without such regulation a business could avoid liability for flagrant negligence, or f\ or gross and irre- sponsible breach of contract. Before any exclusion clause can be effective it must satisfy three criteria: 1 it must be incorporated within the contract; 2 it must be clear and unambiguous; 3 it must not be rendered ineffective by statute. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 106 0003 Incorporation In order for a term to be incorporated in the contract (form part of it), t\ he party to be bound by it must have sufficient notice of it. Two factors are crucial to the issue of notice: timing and sufficiency. 1Timing: The term excluding liability must be notified to the other party prior t\ o that party’s acceptance . Notice may be given by a written sign of some kind displayed at the plac\ e of business, or in a contractual document. It should be clearly evident to customers \ before they commit themselves to the contract. Olley v Marlborough Court Hotel (1949, CA) A notice in Mrs Olley’s bedroom stated that the hotel proprietor would not be liable for theft of guests’ property. Later jewellery and furs were stolen from her room. Held: the contract between Mrs Olley and the hotel had been concluded at the reception desk when Mrs Olley booked in, before she read the notice, which consequently did not form part of the contract. The hotel was therefore not exempt from liability for the theft. Thornton v Shoe Lane Parking (1971, CA) A notice inside a car park stated that the proprietors would not be liable for injuries to customers. This was also printed on the ticket dispensed from the automatic barrier at the car park entrance. Held: the exemption clause did not form part of the contract: by driving alongside the machine at the car park entrance from which the ticket was dispensed, the claimant had already communicated accept- ance of the defendant’s offer to supply parking space. Chapelton v Barry UDC (1940, CA) The claimant, who wished to hire a deckchair at the beach, took one from a pile beside which there was a notice. This stated that payment of the specified hire charge should be made to the attendant. When he paid, the claimant was given a ticket that stated that the council would not be liable for accidents arising from use of the chairs. Later the claimant was injured when the chair collapsed because it had been negligently maintained. Held: the ticket was not a contractual document but merely a receipt, which the claimant did not receive until after he had accepted the offer by taking the chair from the pile. Note that a party may be deemed to have implied notice from past contractual dealings where the court is satisfied that these have occurred on the same terms, sufficiently regu- larly, over a sufficient length of time. LIMITATION AND EXCLUSION OF LIABILITY 107 6 The terms of the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 108 Kendall v Lillico (1968, HL) The parties had contracted 100 times in the previous three years on consistent terms for delivery of goods including a sales note which contained an exemptio n clause. The next delivery was defective, but was not accompanied by the sales note and the buyer claimed that the seller was not protected by the exemption clause. Held: the buyer had adequate notice, since the notif ication had been consistently supplied throughout the long course of previous dealings. However, such an implication is unlikely to be made in a consumer contract. McCutcheon vDavid McBrayne Ltd (1964, HL) The claimant had shipped his car on a number of occasions on the defendant’s ferry. Sometimes he had been been asked to sign a risk note with a clause exempting the ferry company from liability for damage to goods. On one occasion, when a note had not been supplied, the ferry sank due to the defendant’s negligence and the claimant’s car was lost. Held: the exclusion clause did not protect the defendant; the claimant had not had notice of the exemption. The previous dealings between the parties had not been sufficiently consistent, as risk notes had not been supplied regularly. 2 Sufficiency: Generally a clause will not be binding unless the offeror has taken reas\ on- able steps to draw it to the customer’s attention. The more onerous the term, the greater is the degree of notice required. Exclusion clauses contained in the body of a document should be printed in clear t\ ype, which may need to be underlined or otherwise highlighted. Interfoto Picture Library Ltd vStiletto Productions (1988, CA) (Although this case did not relate to an exemption clause, the principle is relevant to any contractual term.) In a contract for hire of photographic transparencies there was a clause imposing a penalty of £5 per transparency per day. It was contained in the delivery note which comprised the contract. Held: this was not binding as the supplier had not done enough to draw the attention of the hirer to the clause. A special cover note was needed, or at least bold type on the delivery note. The sufficiency rule does not cover signed documents . Customers have constructive notice of the contents of any contractual document which they sign; this means \ that they are deemed to have notice of its contents, whether they have read it or not. There is no obliga- tion to alert the signer to the presence of an exclusion clause. In L’Estrange vGraucob (1934) the claimant signed a ‘sales agreement’ for a vending machine without reading it but was held to be bound by an exemption clause in the agreement. 0003 LIMITATION AND EXCLUSION OF LIABILITY 109 6 The terms of the contract It is useless for customers to claim that they misunderstood the effect of the clause, unless the seller helped to cause the misunderstanding. Curtis vChemical Cleaning & Dyeing Co. (1951, CA) The claimant took her wedding dress to be cleaned and was asked to sign a note exempting the cleaners from liability for damage to the dress. She queried this, but signed it when told not to worry as it was there only to protect the company if beads or sequins were damaged. The dress was returned to her badly stained. She sued for breach of contract and the defendant cited the exemption clause in its defence. Held: the defendant was liable. The exemption clause was not effective as the customer had been misled about its scope. An exclusion clause is not effective if it is ambiguous Where its wording is unclear, the court may apply the contra proferentem rule to restrict the effects of an exclusion clause. The clause is construed contra (against) proferentem (the party who offered it); the meaning least favourable to the offeror is therefore adopted. Andrews vSinger (1934) A contract expressly stated that new cars would be supplied. An exemption clause stated that the sup- plier would not be liable for breach of any condition or warranty implied by statute. When the cars were delivered one was secondhand. Held: the buyer could reject the secondhand car: breach of an express term of the contract had occurred. The exemption clause referred only to implied terms. Liability for fundamental breach Where a breach of contract is so serious that it defeats the whole purpose of the \ contract ( fundamental breach ), the courts may still be prepared to allow an exclusion clause to protect the party in breach. The nature of the contract and the type of breach will be evi- dence of what the parties are deemed to have intended. For example, in a travel contract the provider promises to take the customer to a particular destination at a particular \ time; such contracts usually include a clause to limit or completely exclude t\ he liability of the provider in the event of cancellation of services in bad weather. Failure to transport the cus- tomer on time is not the fault of the provider in such circumstances, though it may defeat the customer’s purposes completely. Such exclusions are likely to be treated as effective. The customer is deemed to have intended to accept the risk. Issues of insurance are also relevant, and an exclusion clause will protect a provider where the court believes that insurance responsibilities were intended to remain with the other party. 0003 Photo Production Ltd vSecuricor Transport Ltd (1980, HL) While on duty at the claimant’s premises, Securicor’s employee intentionally started a fire. The contract stated that there would be no liability for such damage unless Securicor was negligent; the claimant did not allege negligence. It was clearly a fundame ntal breach: Securicor was the cause of the destruc- tion of the property which it had promised to ke ep safe.The only issue was whether the exemption clause was effective. Held: the clause protected Securicor from liability for fundamental breach; the parties had bargained on equal terms that periodical visits should be made by a patrolman for a modest charge (26p) per visit. It was reasonable to leave the risk for fire damage with the claimant, who would be the most appropri- ate party to insure against such damage. The ‘Real Life’ example below should help your further understandi\ ng of how the common law rules apply. Statutory controls on exclusion clauses Unfair Contract Terms Act 1977 The scope of the Act The Unfair Contract Terms Act 1977 (UCTA) applies almost exclusively to contracts giving rise to business liability (s 1(3)). Thus, it is primarily concerned with sellers or suppliers who seek to limit or exclude liability incurred in the course of business. Private sellers or suppliers are generally not restricted in the use of exclusion clauses. (See s 6, below.) PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 110 Horace goes shopping by car to the Buymore-Stuff shopping centre. A notice near the entrance to the underground car park states: Parking: 70 pence per hour. Please pay at machines inside car park and display ticket on your vehicle windscreen. Buymore-Stuff will not be liable for death or injury to any person using these premises, nor for any damage to any vehicle or other property however caused. After displaying his ticket, he shuts the car door with a loud bang, which triggers a fall of masonry from the badly maintained roof above. This damages the car and a piece of masonry crushes his foot. If the notice is clearly displayed so that people can see it before they are committed to entering the car park, the exclusion clause forms part of Horace’s contract with Buymore. (See Thorntonv Shoe Lane Parking , above.) However, Buymore may not be relieved of liability. If the roof fall is caused by Buymore’s negligence in failing adequately to maintain its premises, then, applying the contra profer- entem rule, a court would be likely to hold that since the wording of the clause does not precisely specify exclusion from negligence liability, this is not covered. So Horace should get compensation for harm to himself and the car. However, there are now simpler statutory remedies. (Continued below at page 111.) Real Life 0003 Certain types of contract are expressly excluded: for example, contracts of insurance and contracts for the sale or lease of land. Although the title of the Act refers to ‘contract terms’, the Act also regulates non- contractual notices which attempt to restrict liability for negligence. For example, a notice, outside premises, stating that people enter at their own risk is covered by UCTA 1977. The substance of the Act Negligence liability (s 2) Under s 2(1), liability cannot be excluded if death or personal injury\ is caused by negligence. Damage to property through negligence is addressed by s 2(2). Under that provision, negli- gence liability may be excluded if this is reasonablein the circumstances (see below). Note that under s 7(2) of the Contracts (Rights of Third Parties) Act 1999 (see above at page 000) the reasonableness defence is not effective against a claim by a third party beneficiary. Breach of contract (s 3) Liability for breach of contract may not be excluded where a party enters into a contract made on the other party’s standard terms (when no negotiation will have been possible), or where the party deals as a consumer, unless the exclusion is reasonable. (See page 116 below for guidance on how the term ‘reasonable’ is interpreted.) Breach of implied terms in contracts for sale/hire purchase/supply/hire of goods (ss 6–7) Certain conditions are implied under the Sale of Goods Act 1979, Supply of Goods (Implied Terms) Act 1973 and the Supply of Goods and Services Act 1982 to protect a buyer or hirer of goods. Full details can be found in Chapter 11, but the implied terms\ may be summarised as follows. The supplier implicitly promises that it has title to the goods (rights of ownership) and is authorised to transfer it and that the goods: 1 match their description; and 2 are of satisfactory quality (in sales by way of business); and LIMITATION AND EXCLUSION OF LIABILITY 111 The outcome if Horace uses UCTA is likely to be the same as by claiming under common law princi- ples. However, UCTA can resolve the problem more quickly and simply. If negligence is proved against Buymore, their liability for Horace’s physical injuries is indisputable (UCTA, s 2(1)). As regards the damage to the car, it is very likely that it would not be regarded as rea- sonable (UCTA s 2(2)) to allow Buymore to avoid liability for failure to properly maintain public premises, which are clearly in a condition which endangers people as well as property, so it will proba- bly be liable for the car damage too. Note that Horace has rights under the UTCCR 1999 (see below at page 116), but again UCTA is the simplest route to success. 6 The terms of the contract Real Life (Continued from page 110) 0003 3 are suitable for their purpose; and 4 correspond to any sample which has been provided. UCTA 1977, s 6 restricts the extent to which such conditions may be excluded in sale of goods and hire-purchase contracts. Section 7 operates similarly regarding contracts for the sale and supply of goods. Consumers enjoy special protection in a commercial contract; and none of these conditions can be effectively excluded against them. A consumer is defined as someone not contracting in the course of a business (UCTA 1977, s 12) and this has been interpreted generously. Thus, in R & B Customs Brokers Co Ltd vUnited Dominions Trust (1988, CA) ‘consumer’ was held to include anyone obtaining goods for use in their business, as\ long as these are not integral to the course of the business, or regularly bought for incidental purposes. A contract to buy a car for private and business use made by a company own\ ed by a husband and wife was therefore deemed to be made by a consumer. This reasoning was affirmed by the Court of Appeal in Feldaroll Foundry plc vHermes Leasing (London) Ltd (2004) on the grounds that it furthered the intention of UCTA, which was to safeguard a buyer’s protec- tion under the terms implied under relevant sale and supply legislation. A buyer who is not a consumer does not enjoy such comprehensive protection. The con- dition regarding title (under ss 6–7) can never be excluded; the others may be e\ xcluded if the clause is ‘reasonable’ in any contract with a non-consumer buyer. Note that a private seller is free to exclude liability for breach of any of the relevant terms above in a sale of goods or hire-purchase contract (s 6(4)). In practice, this is not as gener- ous as might first appear. In effect, it covers only implied terms regarding title, description and sample, since the term regarding satisfactory quality is implied only in contracts where the seller/supplier is a business. Furthermore, while private sales of goods are common, pri- vate hire-purchase contracts are probably extremely rare. What is ‘reasonable’ for the purposes of UCTA 1977? Section 11 of UCTA 1977 provides guidance as to what is ‘reasonable’ for the purposes of the Act: 1 a contract term will satisfy the requirement of reasonableness if it is fair and reasonable with regard to all the circumstances which should have been considered by the parties when they entered the contract (s 11(1)); 2 if the claim relates to a non-contractual notice, reasonableness is judged with reference to all the circumstances prevailing when the damage was caused (s 11(3)). Schedule 2 to the Act offers further guidelines: 1 Imbalance of bargaining power . The parties to a contract may not enjoy equal bargaining power. In a standard terms contract, one party is presented with a set of terms and given no opportunity to negotiate existing terms or add others. The buyer of g\ oods or services may be heavily reliant on the technical knowledge and expertise of the seller, and that ignorance produces power imbalance. 2 Inducements and choices. If a customer is given an unfair inducement to accept the exclusion clause, this may make it unreasonable. If that party could have made a similar PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 112 0003 contract with another party without being subject to such a term, this m\ ay make the exemption reasonable. 3 Prior knowledge . If the customer should reasonably have been aware of the existence and extent of the term, taking into account previous dealings between the parties and trade custom, it may be reasonable to impose the exclusion. 4 Special requirements . If the goods were made or adapted to meet the customer’s special requirements, an exemption may be binding. The courts have also taken other factors into account, including the iss\ ue of insurance and whether the customer should have taken independent advice. The following cases illustrate the approach of the courts to the interpretation of reasonableness. Smith v Eric S. Bush (1989, HL) The claimant bought a house in reliance on a surveyor’s report, prepared on the instructions of the building society. The report stated that it was issued without any guarantee of accuracy or acceptance of any legal liability. The surveyor negligently overlo oked some serious defects which led to the chimney collapsing into Mrs Smith’s bedroom, and resulted in a large bill for structural repairs. Held: the exclusion of liability was not effective as it was unreasonable: 1 The parties did not have equal bargaining power . Mrs Smith could not be expected to know whether or not the surveyor’s report was correct, because of her lack of special knowledge. 2 The financial resources of the claimant. It was not reasonable to expect Mrs Smith to go to the expense of getting a second opinion. She was a first-time buyer of a modest property and, like most such pur- chasers, pushed to her financial limits. 3 The surveyor had failed in a simple task . Any reasonably competent surveyor ought to have spotted the defects. 4 Insurance cover . This was readily available at modest cost to the surveyor, while the purchaser was unlikely to enjoy such protection. Green vCade Bros (1978) A standard terms contract, which complied with the requirements of the National Association of Seed Potato Merchants, restricted the right of rejection of potato seed to three days from delivery; any com- pensation was limited to the return of the contract price. The potato seed supplied to the buyer was infected by a virus which was not detectable until the growing process had started. Held: the three-day time limit was not reasonable given the type of damage suffered. The limit on com- pensation was reasonable: it was usual in the trade, the parties enjoyed equal bargaining power, and the buyer had received no inducement to accept the limitation. The buyer could have bought guaranteed seed for a higher price. LIMITATION AND EXCLUSION OF LIABILITY 113 6 The terms of the contract 0003 George Mitchell vFinney Lock Seeds Ltd (1983, HL) The claimant ordered cabbage seed from the defendant which did not match its description. It was also inferior in quality. The claimant lost his entire crop, sustaining a £61,000 loss. The contract limited lia- bility for breach to replacement of the goods or a refund of the price. Held: this was not reasonable because: 1 the breach arose from the seller’s negligence; 2 the seller could have insured against crop failure at a modest cost; 3 in the past the seller had settled claims in excess of the limitation sum; this indicated that the seller did not always consider the clause fair and reasonable. St Albans City and District Council vInternational Computers Ltd (1996, CA) Computer software, supplied and installed by the defendant company to provide a database facility for the local authority, was defective. It caused errors in the estimation of the number of eligible poll-tax payers, and as a result the local authority lost substantial funds. A limitation clause in the contract restricted the defendant’s liability to £100,000. Held: the limitation clause was unreasonable because: 1 the defendant was a multinational company with substantial resources; 2 the defendant carried product liability insurance of £50 million and the limitation of liability was too small relative to the possible risk and the loss actually suffered; 3 the claimant’s specialist needs greatly limited its choice of providers; 4 it was fairer to put the risk on the defendant who stood to make a profit on the contract. If the risk lay with the local authority, its taxpayers would be unjustly burdened by the loss. As should be evident from the above examples, the facts of each case are crucial to its out- come. The issues of the knowledge and resources of both parties are crucial to determining bargaining power. Issues of policy may also play a part. For example, compare the St Albans case, where, in effect, losses would have fallen on council taxpayers, with the Watford Electron- ics case below, where the claimant was a private company and bespoke software was involved. Watford Electronics v Sanderson (2001, CA) A specially designed computer software package was provided by the defendant under a contract that excluded liability for indirect and consequential losses and limited any general liability to the value of the contract price (£104,600). Due to defects in the software the claimant suffered £4.5 million losses from lost profits, replacement of the system and increased working costs. Held: each clause was reasonable, as the clauses were negotiated between parties of appropriate experi- ence representing equally substantial compani es. There was equal bargaining power between the parties. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 114 0003 Chadwick LJ commented: Where experienced businessmen representing substantial companies negotiate an agreement, they may be taken to have had regard to matters known to them. They should be taken to be the best judge of whether the terms of the agreement are reasonable. The court should not assume that either is likely to commit his company to an agreement which he thinks is unfair or which he thinks included unreasonable terms. Unless satisfied that one party has in effect taken unfair advantage of the other or that a term is so unrea- sonable that it cannot properly have been unders tood or considered the court should not interfere. The issue of one party seeking to use a clause to take unfair advantage \ is illustrated by Over- seas Medical Supplies v Orient (1999) where an exclusion clause stating that the defendant would not be liable for loss of goods in transit was held to be unreasonable given that another term in the contract required the defendant to insure the goods, which had not been done. The existence of an alternative remedy may make what would appear to be an unreasonable term acceptable. Regus UK Ltd v Epcot Solutions Ltd (2008, CA) Regus (R) were IT trainers who rented accommodation for their courses from Epcot (E).The air condi- tioning system broke down, making work conditions on the premises very difficult for R’s employees and customers. E failed to rectify the situation after a number of requests by R who then refused to pay the rent. E sued R for breach of contract and R counterclaimed for their losses. E claimed that it was protected by a clause 23(3) which stated that it would not be liable ‘in any circumstances’ for any loss of business or profits, third-party claims and any consequential loss. Clause 23(4) stated that in any event R’s losses would be limited to 125% of the fees or £50,000 whichever was higher. R successfully claimed in breach of contract in the High Court which held that clause 23 was unreason- able under UCTA, s 3 because it deprived R of any remedy at all and covered intentional acts because it was to operate ‘in any circumstances’. E appealed. The CA dismissed the appeal and held: clause 23 was not unreasonable because it did not leave R without a remedy as it was still entitled to claim for diminution in value of the services provided. ‘In any circumstances’ could not be construed as excluding liability for fraud/wilful/reckless/malicious damage. However, this argument was irrelevant since E had not refused to repair the air conditioning from a wish to harm R’s customers but from a desire to save money. It was not unreasonable for E to restrict liability for breach of contract. There was no inequality of bar- gaining power between the parties and E had made it clear that customers should make their own insurance arrangements to protect themselves against business losses. LIMITATION AND EXCLUSION OF LIABILITY 115 6 The terms of the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 116 Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999) The scope of the regulations These regulations implement an EC Directive (91/13/EC) and replace the 1994 Regulations of the same name. They protect consumerswho have entered a contract containing a non- negotiable term imposed by the seller or supplier , which is deemed to be unfair according to criteria laid down in the regulations. Such a term is voidable by consumers, i.e. they are not bound by it unless they choose to comply, but the rest of the contract remains binding. The substance of the regulations The relevant contracts The regulations apply to unfair terms in a contract between a consumer and a \ seller or supplier (r 1). Consumers Consumers are defined as human beings, making contracts for non-business purposes (r 3(1)). Seller/supplier The contract must be made by the seller or supplier in the course of its\ business. The busi- ness may be publicly or privately owned (r 3(1)). Non-negotiable terms These will have been stated before the contract is finalised and the consumer will have had no influence on their contents (r 5(2), (3)). It is up to the sell\ er or supplier to prove that such terms were not individually negotiated (r 5(4)). Unfairness A term is unfair if it fails to fulfil the requirements of good faith and this causes a signifi- cant imbalance in the parties’ contractual relationship, which is prejudicial to the consumer’s interests (r 5(1)). In assessing whether the seller or supplier acted in \ good faith, the court must have regard to all the circumstances relevant to formation of the contract (r 6(1)). Core terms Provided it is clearly worded, a term relating to ‘the definition of the main subject matter of the contract’, or to the adequacy of ‘price or remuneration’, is not covered by the regula- tions (r 6(2)). The language used to describe unfairness in the UTCCR 1999 is very vague and woolly. You might well ask why it is not more precise. Can you think of any reasons why such imprecise language is used? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Written contracts The seller or supplier must ensure that clear, intelligible language is used in the contractual documents (r 7(1)). Any ambiguity is resolved in favour of the consumer (r 7(2)). The effect of an unfair term The consumer is not bound by an unfair term. The rest of the contract remains effective as long as it is capable of existing without the problem term (r 8). Interpreting the 1999 Regulations The wording of the 1999 Regulations has permitted the courts to apply them to c\ ontracts that have not traditionally been regarded as consumer contracts. In R (on the application of Khatun) vNewham London Borough Council (2004, CA) it was held that contracts concern- ing land came within the 1999 Regulations, which therefore covered the terms under which Newham let accommodation to homeless people. Granting tenancies for rent was an eco- nomic activity that might be carried on for profit by a private business. The courts appear to be prepared to interpret ‘consumer’ quite liberally where this best serves the interests of justice. Evans v Cherry Tree Finance Ltd (2008, CA) The claimant Mr Evans (E) obtained a loan from the defendant finance company (CTF) which he stated was to pay off the mortgage on premises which were used for both home and residential purposes and to comply with a divorce settlement. The loan agre ement included an early redemption penalty. When E defaulted on the loan repayments CTF sold the premises and took the penalty sum in addition to the remainder of what was owed. E argued that he was protected by the Unfair Terms in Consumer Con- tract Regulations 1999 and that the redemption term was unfair. CTF argued that he was not protected because he was not a consumer, since he ran a business from the premises. Held by the CA (affirming the decision of the High Court): the size of the early redemption penalty made it unfair. E was a consumer, for the purposes of this transaction. Enabling E to continue to trade from the premises was not the only purpose of the loan. It was evident to CTF, from the address and other details in the paperwork, that the loan was also for residential purposes. The courts have tended to give a restrictive interpretation to what comes within the scope of ‘price or remuneration’ to prevent consumer protection from being undermined. This was stressed by the House of Lords in Director General of Fair Tradingv First National Bank (below), which held that the disputed term which related to payment of interest was not excluded from the court’s jurisdiction. This approach was followed in Bairstow Eves London Central Ltd v Smith (2004), where an escalating commission rate charged by an estate agent was deemed not to come within the core terms exclusion. Schedule 2 to the 1999 Regulations contains an illustrative list of pote\ ntially unfair terms. This includes terms which: 1 permit a seller unfairly to retain a deposit or to impose a penalty on the consumer in the event of non-performance; 2 bind a consumer who has not had sufficient time to study the term’s implications before entering the contract; LIMITATION AND EXCLUSION OF LIABILITY 117 6 The terms of the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 118 3 permit the seller unilaterally to alter the terms of the contract or the \ characteristics of the relevant goods or service; 4 oblige consumers to perform all their obligations, while not placing a r\ eciprocal responsi- bility on the other party. The list is not intended to be comprehensive. It is up to the consumer to prove that the term was unfair, taking into account the nature of the subject matter of the contract, the legal and commercial context in which the contract was made and the reasonable expectations of both parties; and all the circumstances surrounding the contract are relevant to determining any imbalance. The concept of good faith appears rather nebulous and hard to define. The House of Lords’ decision in Director General of Fair Trading v First National Bank (below) assists in developing an understanding of how it may be interpreted. Lord Bingham said that good faith was reflected by ‘good standards of morality and commercial practice’ and would be evidenced by ‘fair and open dealing’. Just because a term is not b\ eneficial to the consumer and may come, as their Lordships commented, as ‘a nasty surprise’ does not necessarily indi- cate unfairness or breach of good faith. Director General of Fair Trading vFirst National Bank (2001, HL) Under the Consumer Credit Act 1974 (CCA 1974), if a borrower defaults on a loan and judgment is obtained against him or her, the lender’s full rights to interest on the future instalments are lost. First National’s loan terms stated that in such circumstances the Bank could claim remaining interest at the original contract rates. The DGFT claimed that this was an unfair term. Held: the term did not amount to a breach of good faith. The CCA 1974, despite being enacted to pro- tect borrowers, did not forbid such agreement; without it the bank would suffer an unreasonable loss. There was nothing unbalanced or detrimental to the borrowers in the term. Non-beneficial terms were also judged to be fair in: R ( on the application of Khatun )vNewham London Borough Council (2004, CA) Held: a term which required an applicant for housing to accept an offer of accommodation without viewing it in advance, and on pain of losing his bed and breakfast accommodation if he refused, was deemed in the circumstances not to be ‘oppressive, perverse, or disproportionate’. A different result occurred in the following case: Munkenbeck & Marshall v Michael Harold (2005) Held:terms in a standard form contract for architectural services were unfair. They were unduly oner- ous and had not been drawn to the consumer’s attention before the contract was made. There was an imbalance between the parties that breached the good faith requirement. 0003 In Baybut & Others vEccle Riggs Country Park (2006) it was held that only express terms are governed by the regulations, since regulation 4(2) specifically excluded terms implied by statute from the effect of the regulations and also because the list of potentially unfair terms in Schedule 2 contained nothing which could be regarded as implied. Enforcement of the regulations The regulations may be used by consumers directly to enforce their contractual rights. The role of the Office of Fair Trading (OFT) is also crucial, since the 1994 Regulations empowered it to investigate complaints about allegedly unfair terms from consumers and trading stan- dards departments. If the complaint is upheld, the OFT by legal action may r\ equire the offending business to change or withdraw the term. Recent cases involving intervention by the DGFT include the First National Bank case (above) and The Office of Fair Trading v Fox- tons (2009) where the Court of Appeal held that an injunction should be granted to prevent the enforcement of unfair terms in an estate agent’s contract. See also Abbey National PLC and Others v Office of Fair Trading (2009) below. By the end of 1998, the OFT had investigated 3,000 complaints, of which \ 1,200 had been upheld. Other ‘qualifying bodies’ received enforcement powers under the 1999 Regu- lations. They include trading standards departments, the Director General of Water, Gas and Electricity Supply, and the Consumers’ Association. LIMITATION AND EXCLUSION OF LIABILITY 119 6 Bank charges for unarranged overdrafts The Court of Appeal in Abbey National PLC and Others v Office of Fair Trading (2009) decided on 26 February 2009 that bank charges for unarranged overdrafts on personal accounts may be assessed for unfairness by the OFT under the Unfair Terms in Consumer Contracts Regulations 1999. The banks argued unsuccessfully that the charges were part of the core terms and therefore excluded from any consideration for unfairness under the regulations. The Court of Appeal decided however that the charges were not part of the essential bargain between the bank and the customer, since the charges were contingent (would be imposed only if a customer became overdrawn without previous agreement with the bank) and the relevant terms not specifically negotiated. The OFT announced that it would now go ahead with its investigation and publish the results in due course. However, it may be too early for bank customers to celebrate as the House of Lords (31/3/09) gave permission for the claimants to appeal. (Sources: OFT press release of 26/2/09 and case transcript.) In the News The terms of the co ntract 0003 A comparison of UCTA 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 Reform of unfair contract terms legislation Having studied the table above, you may well be thinking that the law in\ this area is anom- alous, inconsistent and confusing. When answering questions on the topic\ you have to be very careful to work out which piece of legislation is applicable and not get co\ nfused about the amount of protection provided, or the criteria relevant to establishing proof and its onus. You are not alone in finding this difficult. The Department of Trade and Industry recently asked the Law Commission to investigate the legislation with a view to its reform. Its report of March 2005 (Law Com. No. 292) stated that ‘A law that affects ordinary people in their everyday lives has been made unnecessarily complicated and difficult’. Furthermore, ‘the combination of leg- islation has led to widespread confusion among consumers, businesses and their advisers’. The Law Commission has produced a draft Unfair Contract Terms Bill which combines both the Act and the regulations, rewritten in order to make them clearer and easier to understand. It also provides some extra protection for consumers and small businesses. The draft Unfair Contract Terms Bill The draft Bill makes the following provision: 1 covers all the terms within the scope of the regulations (not just exclusion clauses); 2 includes negotiated as well as standard terms clauses in consumer contracts (not previ-ously covered by the regulations); PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 120 UCTA 1977 The regulations Scope Renders ineffective certain types of exclusion May render any non-negotiable term in a clauses in a contract or non-contractual notice if relevant contract voidable by a consumer buyer, the exclusion was issued in the course of business. if the seller was acting in the course of business. Protected parties Not necessarily consumers or contracting parties. Human consumers only: must be contracting Includes corporations. parties. Extent of protection Some exclusions are automatically ineffective: An unfairterm is one which does not fulfil the for example, negligently caused death or requirement of good faithby causing a personal injury. significant imbalance of power between the parties to the detriment of the consumer. Some liabilities can be excluded or limited if ‘reasonable’: for example, breach of a standard terms contract, or of any non-consumer contract Burden of proof On the seller. On the buyer. The seller must prove reasonableness where relevant. The consumer must prove that the term was unfair. 0003 3 places the burden of proof on the business in a claim by a customer (the OFT will stillhave to prove that a term is unfair); 4 continues to make ineffective any exclusion of liability for death or personal injury, or quality or fitness for purpose of goods; 5 gives additional powers to the OFT to prevent the display of notices including ineffective terms; 6 gives extra protection to ‘micro businesses’ (nine employees maximum and not part of a group). Although enjoying a degree of protection from unfair exclusion clauses by UCTA, small businesses, through lack of expertise, knowledge and bargaining power, are still vulnerable to the imposition of other standard terms by much larger businesses. The Bill enables a small business to challenge any standard term, provided it has not been varied by negotiation, in most types of contract. Contracts for more than £50,000, and those already covered by sufficient statutory protection, are excluded. At the time of writing, this Bill has not yet been laid before Parliament. CHAPTER SUMMARY 121 A contract is composed of promises called ‘terms’. These may be express or implied. Classification of contract terms Conditions. Warranties. Innominate terms. Exclusion clauses Use is controlled by the common law and statute. Common law controls of exclusion clauses Incorporation of the terms requires timely and suf- ficient notice unless a party signs the contract. The contra proferentem rule protects a vulnerable party from being disadvantaged by ambiguous language. Statutory controls of exclusion clauses This legislation seeks to prevent misuse of exclu- sion clauses by businesses. UCTA protects consumers and non-consumers against attempts to avoid liability for breach of con- tract or tort. It gives special protection to consumers in contracts for sale, supply and hire of goods con- tracts. Exclusions which breach the terms of the Act are ineffective and cannot be enforced. UTCCR 1999 protects consumers only. The regula- tions make terms voidable if they breach good faith by unfairly exploiting an imbalance of power between the parties. Chapter summary 6 The terms of the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 122 Business efficacy: the obvious common but unspoken intention of the contracting parties. Charterparty: a contract to hire a fully crewed ship. Condition: a major contractual term crucial to its existence. If breached, the innocent party may refuse further performance and sue for breach. Consumer: in general, this means a human buyer who purchases goods/services etc. for personal use, but UCTA includes companies contracting for accessories for the business. Contra proferentem rule: any ambiguity of a contract term is resolved against the party who would most benefit from it. Express term: a contractual term specifically stated to be part of the contract. Exclusion clause: a contractual term which attempts to limit or exempt a party’s contract/tort liability against another. Sometimes called an exemption clause. Fundamental breach: so serious a breach of a condition, that it completely defeats the entire object of the contract. Good faith: general honest dealing. Under the UTCCR 1999 a term’s failure to evidence this makes that term voidable. Implied term: a term which was not specified in the contract, but may be implied into it by statute or common law. Innominate term: a term capable of giving rise to a variety of breaches of different degrees of seri- ousness. Limitation clause: a contractual term which seeks to restrict the amount of damages payable to the innocent party in the event of a civil action. Significant imbalance (UTCCR 1999): a lack of equal bargaining power, which may evidence unfairness. Standard terms: contract terms on which a busi- ness always trades and which are not open to negotiation. Warranty: a minor contractual term, breach of which entitles the innocent party to damages. Key terms 1 Distinguish between conditions and warranties. 2 What is an innominate term? 3 Are exclusion clauses incorporated in a contract when notified in the following ways: (a) in a notice on the counter of a shop? (b) in a signed document? (c) in a hotel bedroom? (d) in a receipt? 4 To what extent may negligence liability be excluded under UCTA 1977? 5 What special protection is given to consumers by UCTA 1977? 6 State the main differences between the effects of UCTA 1977 and the Unfair Terms in Con- sumer Contracts Regulations 1999. Answers to all quizzes can be found in Appendix 2. Quiz 6 0003 ASSIGNMENT 5 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may beavailable in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Interfoto Picture Library Ltd v Stiletto Productions [1988] 1 All ER 348, CA Lombard North Central plc v Butterworth [1987] QB 527, CA Smith v Eric S. Bush [1989] 2 WLR 790, HL Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696, CA. Take a closer look Please go to: www.oft.gov.uk/ Click ‘Search’ and then type ‘Unfair terms in Consumer Contracts Regulations’\ in the ‘keywords’ box. Choose ‘unfair terms guidance’ from the list you are offered. Then choose any of the guidance topics that come up for practical examples, e.g. Guidance on Unfair Terms in Package Holiday Contracts. Web activity Widgets plc entered into a three-year contract with Crankit plc under which Crankit agreed to service Widgets’ production line machinery. Widgets signed a document headed ‘Service Agreement’ consisting of 150 terms, including the following: 10. It shall be a condition of the contract that Crankit will attend in response to any call- out request by Widgets within 24 hours. 36. Crankit will not be responsible to Widgets for any defect in quality of any spare parts supplied by Crankit when servicing cus- tomers’ machinery. 142. Widgets agree to indemnify Crankit against any claims by Widgets or any other third party who may suffer damage to person or property arising from any failure properly to perform this service agreement. Advise the parties how these terms will affect the outcome of a claim in the following circumstances: (a) When carrying out the first annual service, Crankit fits a new fuel pump. This malfunc- tions 48 hours later, causing an explosion. Injuries result to Jeremy, who lives next door to the factory and the explosion also causes busi- ness interruption for three weeks. (b) Twenty months into the contract, Crankit is called upon by Widgets, which reports that a major mechanical failure has brought its pro- duction line to a halt. Crankit replies that due to a lack of staff, it will be unable to attend for three days. Next day, Widgets tells Crankit that it is opting out of the contract as immediate servicing is obtainable from Best and Sons Ltd. Assignment 5 123 The terms of the contract 6 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 124 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter:Director General of Fair Trading v First National Bank [2001] 1 All ER 97 Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha [1962] 1 All ER 474 Interfoto Picture Library Ltd v Stiletto Productions [1988] 1 All ER 348 0003 0003 chapter 7 DEFECTS IN THE CONTRACT: misrepresentation, mistake, duress and undue influence 0003 Introduction A number of different defects may affect the validity of a contract. These have dif- fering legal consequences and may render a contract void, or voidable. It is important to grasp the difference between these concepts. 1A void contract : The defect is so serious that in the eyes of the law no contract ever came into existence. Even if both parties wish to enforce the contract, this is not possible. If property has changed hands, ownership is not usually transferred and the property may be recovered. In this chapter mistake provides an example of how a void contract may arise. 2 A voidable contract : The defect is not serious enough to make the contract void, but the party whose right is infringed may choose to opt out of the cont\ ract and can usually get the court to order the return of any property which has been transferred. This chapter examines misrepresentation, duress and undue influ- ence, all of which may make a contract voidable. Learning Objectives When you have studied this chapter you should be able to: Explain the difference between the legal consequences for parties to a void and a voidable contract Identify the different forms of misrepresentation and the remedies applicable to each Understand the concept of operative mistake Recognise the circumstances where operative mistake occurs Be aware of the forms which duress may take Appreciate how duress differs from undue influence. Photo: Anthony Dunn/Alamy 0003 Misrepresentation During pre-contractual negotiations, statements (representations) may be made which induce a party to enter the contract. Such statements may, for example, be made by sales staff by word of mouth, or be included in catalogues or brochures. If untrue, they are called misrepresentations. A remedy in misrepresentation is available to the innocent party whether or not the statement became a term of the contract. If it is a t\ erm, an action for breach of contract provides alternative remedies. Misrepresentation makes the contract voidable . The misrepresentee (the party to whom the statement was made) is entitled to avoid the contract or to pe\ rsist with it. An actionable misrepresentation is: 1 a statement of fact, which 2 is a material inducement to enter the contract. These principles have legal implications which it is important to grasp.\ Statement of fact This can be written, spoken or pictorial, and may also arise from other conduct. Here are a few brief examples. Gordon v Selico (1986) Held:the seller of premises who deliberately concealed dry rot was guilty of misrepresentation to the buyer. In effect he was saying that the premises were sound. Goulding J said: ‘ I believe it to be the law that conduct alone can constitute a fraudulent misrepresentation … The concealment of dry rot … was a knowingly false representation by Mr Azzam that Flat C did not suffer from dry rot, which was intended to deceive purchasers and did deceive the plaintiffs to their detriment .’ A statement of fact does not include statements of opinion. Bisset vWilkinson (1927) The vendor sold land to the buyer, having told the buyer that, if properly worked, he estimated the land would carry 2,000 sheep. In fact, it was capable of supporting many fewer. Held: the vendor had not made a misrepresentation. Since he had never used his land for sheep farm- ing, he was not making a statement of fact merely stating an honest opinion when he told the buyer how many sheep he believed the land would support. However, statements of opinion may be treated as statements of fact if the maker, with knowledge of the underlying circumstances, could not reasonably have held the opinion. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 128 0003 Smith vLand & House Property Corp. (1884) A vendor of a house described its tenant, Frederick Fleck, as a ‘most desirable tenant’, knowing that Fleck was in arrears with rental payments. Held: the vendor was liable for fraudulent misrepresentatio n, as he was clearly lying. It was obvious to the vendor that Fleck was far from desirable as a tenant. Statements of intention may be treated as statements of fact if at the time of making the statement the maker had no such intention. Edgington vFitzmaurice (1885) A company prospectus said that the proceeds from the sale of debentures were to be used to improve buildings and extend the business; in fact the directors intended to use the money to pay off pressing company debts. Held: a misrepresentation had been committed. Bowen LJ said: ‘ The state of a man’s mind is just as much a fact as the state of his digestion ... A misrepresentation as to the state of his mind is therefore a state- ment of fact .’ More recent cases indicate a willingness by the courts to treat an estimation of future per- formance as a statement of fact, where it was reasonable for the other party to rely on it. Esso Petroleum v Mardon(1976, CA) A sales forecast for a filling station, given by Esso’s experienced manager to a prospective tenant of the garage, turned out to be radically incorrect. Held: Esso was liable for misrepresentation as a person as skilled as the manager should be able to be relied upon to give a reasonably accurate forecast. Statements of law are not usually regarded as statements of fact. Everybody is supposed to know the law and therefore to be aware when it is incorrectly stated. However, a statement relating to existing civil law rights of the misrepresentor concerning the subject matter of the contract is likely to be treated as a statement of fact. Thus, in Lawrence vLexcourt Hold- ings Ltd (1978) the vendor’s statement that ‘existing planning permission covers use of this building as an office’ was held to be a statement of fact. Although there is a duty to answer questions truthfully, failure to volunteer information is generally not misrepresentation, even if the representee is clearly under a misapprehension. Smith v Hughes (1871) A race horse trainer assumed that he was buying old oats, when actually they were new, but he did not ask the seller their age. MISREPRESENTATION 129 7 Defects in the contract 0003 Held:no misrepresentation had occurred. The seller had said nothing about the age of the oats and it was irrelevant that he was aware of the importance of this to the buyer. Liability for failure to disclose information may arise, however, in any of the following cir- cumstances: 1Half truths . A statement may be true as it stands, but still mislead because it is \ incomplete. Thus, in Nottingham Patent Brick & Tile Co. Ltd v Butler (1886) a solicitor who, without checking, told the buyer of some land that he ‘did not know’ of an\ y restrictive covenants affecting it, was liable for misrepresentation. Again, misrepresentation was held to have occurred in Dimmockv Hallett (1866) where the seller described the land as occupied by certain named tenants, but did not also tell the buyer that they had giv\ en notice. 2 If circumstances change between making the statement and acceptance. With vO’Flanagan (1936, CA) A doctor, who was selling his practice, gave the buyer correct information about its value. However, before the buyer notified acceptance the value had considerably diminished, as many patients went else- where when the doctor became ill. Held: his failure to notify the buyer of the drop in value amounted to a misrepresentation as his origi- nal statement was no longer true and the buyer should have been notified of this. 3A fiduciary relationship exists between the parties. A fiduciary relationship , involving a high degree of trust between the parties, exists, for example, between partners, \ solici- tor and client, or doctor and patient. It is also relevant to insurance contracts, which are voidable unless full disclosure is made of all material facts – those ‘which would influence the judgment of a prudent insurer’ (Marine Insurance Act 1906). For example, in a con- tract for carriage of goods by sea, the fact that goods are to be transported on deck, not in the hold, would be material ( Hoodv West End Motor Car Packing (1917)). It is irrelevant that the failure to disclose was not careless or intended to deceive. Some people have found that they were deprived of insurance cover because they quite innocently failed to reveal that their cars had modified features (e.g. alloy wheels and sun roof) which were not standard to a particular model. The statement acted as a material inducement The misrepresentation must be an important influence, but does not have to be the o\ nly reason why the misrepresentee entered the contract. The misrepresentee must both know of the statement and relyon it. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 130 0003 Re Northumberland & Durham District Banking Co., ex parte Bigge(1858) A contract with a shareholder was not voidable: he was unable to prove that when he bought the shares he had already seen reports which had been issued about the company which later proved to be false. Attwood vSmall (1838) The seller of a mine misrepresented its capacity. However, the contract was not voidable because the buyer had not relied on the seller’s statement, but had commissioned his own survey which also turned out to be inaccurate. The misrepresentee is entitled to take the statement at face value and has no oblig\ ation to check the truth of the statement, even if the misrepresentor offers the opportunity to do so. Redgrave v Hurd (1881) A solicitor who was selling his practice gave information about its income and told the buyer that he could check the figures against relevant documentary evidence. The buyer did not choose to do so, and it was held that this did not prevent the contract from being voidable. The remedies for misrepresentation The remedies available to the misrepresentee depend on the perceived state of mind of the misrepresentor at the point at which the statement was made. A misrepresentation may be made fraudulently, carelessly or wholly innocently. Fraudulent misrepresentation Misrepresentation is fraudulent if the misrepresentor knows that the statement is untrue, or makes the statement recklessly, not caring whether it is true or false. The misrepresentee may sue in the tort of deceit and obtain damages and/or rescission of the contract. Rescis- sion is an equitable remedy issued at the discretion of the court; it seeks to return the parties to their pre-contractual position. This enables the misrepresentee to recover any money paid to the fraudulent party. In practice, successful deceit actions are quite rare, though fraudulent misrepresentation is common. It happens, for example, every time somebody obtains goods wi\ th a stolen credit card, thus fraudulently representing themselves as the card holder. In situations like these the misrepresentors quickly disappear and action against them is not possible. If a\ ction is taken, the burden of proof of intention is a very heavy one for the claimant to discharge. MISREPRESENTATION 131 7 Defects in the contract 0003 Careless misrepresentation Under s 2(1) of the Misrepresentation Act 1967, a representor who induces the claimant to enter into a contract, by a statement which the representor did not reasonably believe, may be liable in damages. Rescission may also be granted. It is up to the representor to prove reasonable belief in the statement. Howard Marine & Dredging Co. Ltd vOgden & Sons Ltd (1978, CA) The defendant was informed that barges chartered from the claimant had a certain capacity. The claimant’s manager made this statement on the basis of insurance documentation. In fact, this was incorrect, as reference to the ship’s papers would have shown. (Ship’s papers are a sort of birth certifi- cate issued with a new vessel at sale and held by the current owner.) Held: the claimant was liable under s 2(1). The claimant had not discharged its burden of proof that it had reasonable belief: in such an important matter reference to a primary source of information was necessary. Section 2(1) thus provides a remedy for careless misrepresentation . Also, since a potentially fraudulent misrepresentor cannot be said to have had a reasonable belief in the truth of the statement, the victim may claim under s 2(1) instead of p\ ursuing an action in deceit. This relieves the claimant of the burden of proof but gives access to an identical remedy. In Doylev Olby (Ironmongers ) (1969, CA) it was held that, since deceit is an inten- tional tort, the defendant was liable for all the direct consequences of its behaviour. In Royscot Trust Ltd v Rogerson (1991) the Court of Appeal decided that damages under s 2(1) should be calculated in the same way as damages for fraud. This sometime\ s means that a party may recover a more generous measure of damages than if calculated according to contract principles that attempt to put the claimant in the position he \ or she would have enjoyed if the contract had been properly performed. The victim of careless misrepresentation may also have a remedy in negligence under the rule in Hedley Byrne v Heller , which is explained in Chapter 14. This is helpful where parties have been misled and suffer loss, but find out that the statement is incorrect before they enter the contract. It may also be used by someone who was misled by a t\ hird party. Such parties are not assisted by s 2(1) which relates onlyto misrepresentors who have actually succeeded in making the misrepresentee contract with them. Wholly innocent misrepresentation Even if a misrepresentation is made in good faith, with no intention to deceive and witho\ ut carelessness ( innocent misrepresentation ), the contract is rendered voidable. Rescission is the usual remedy. Damages may be an alternative remedy under s 2(2) of the Misrepresentation Act 1967, which states that it is applicable to any misrepresentation which is not made fraudulently,so it can apply to careless misrepresentations as well as wholly innocent ones. It gives the court the discretion to award damages instead of rescission. This discretion is likely to be used if the misrepresentation did not have a major impact on the contract and would, if it \ were a contract term, be classified as a warranty rather than a condition. This\ section therefore may apply to a careless misrepresentation. The Act gives no specific guidance on quantum PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 132 0003 though s 2(3) implies that it is different from s 2(1). It seems fair to assume that the level of damages should be lower.Some judicial guidance about how this section operates emerged in William Sindall plc v Cambridgeshire County Council (below), though as no liability was held to exist it is an obiter dictum (for guidance only). William Sindall plc vCambridgeshire County Council (1994, CA) Sindall, in March 1989, contracted to buy land for development from the council for £5 million. A term of the contract stated that the land was sold subject to any existing liabilities over it, but the vendor had a duty to disclose any which they knew of. The council, after carrying out checks, stated that, as far as they knew, there were none. Eighteen months later, market values had radically dropped and Sindall had discovered a sewer which necessitated a six-foot maintenance strip being left uncovered; Sindall tried to avoid the contract on the grounds of misrepresentation but was unsuccessful. Held: no misrepresentation had occurred since the cou ncil had made reasonable investigations before making their statement so rescission would not be granted. Obiter dictum: if liability had existed, the following factors would have been considered by the court when deciding to exercise its discretion of awarding damages in lieu of rescission under s 2(2): (i) The nature of the misrepresentation . The importance of the misrepresentation relative to the con- tract as a whole must be examined. Here the diminution in value of the land to Sindall of £18,000 was very small relative to the purchase price of £5 million. (ii) The potential loss to the misrepresentee of upholding the contract . The cost to Sindall was £18,000 to divert the sewer, plus the loss of one plot and delay and interest charges of £2,000 a day until diver- sion was complete. (iii) The potential loss to the misrepresentor of rescinding the contract . If rescission took place, Cam- bridgeshire CC would lose a bargain at top of the market price. They would have to repay £8 million and would receive in return land which due to market fluctuations was now only worth £2 million. Taking all this into account, damages would be a more just award than rescission. Quantum of damages. Obiter dictumit was held: (i) Section 2(2) is concerned only with the damage resulting from the property not being what it was represented to be while s 2(1) relates to damage directly resulting from having entered into the contract. Here S would not have been entitled to claim damages for the drop in value of the land as this was not a result of the misrepresentation but due to market fluctuations. (ii) The measure of damages must be different from that under s 2(1) because s 2(3) contemplates that damages under s 2(2) will be less than damages under s 2(1). Section 2(2) is aimed at redressing the lot of the non-fraudulent misrepresentor against ‘ the harsh consequences of rescission for a wholly innocent misrepresentation ’ (Evans LJ). (iii) The relevant Law Commission report indicated that the Act was intended to correct the anomaly of a minor defect making a contract voidable for misrepresentation where breach of contract would not produce the same result. (iv) Damages should not generally exceed those recoverable for a breach of warranty. The possibility of compensation for loss of market value could not be ruled out in all cases as the court must be free to determine what was equitable in the circumstances of each case. MISREPRESENTATION 133 7 Defects in the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 134 The impact of the Misrepresentation Act 1967 Damages for non-fraudulent misrepresentation Before the Misrepresentation Act 1967 there was no remedy other than rescission for a victim of non-fraudulent misrepresentation. Any such misrepresentation merited only, at best, an order for rescission which, even if available, might still not be an adequate remedy. Rescission is an equitable remedy, available only at the discretion of the court, unlike dam- ages which are available as long as it can be proved that the relevant misrepresentation has occurred. There are many circumstances when it may be refused. (See below at page 147.) Even if rescission is applicable, its purpose is only to put the parties in their\ pre-contractual position, not to compensate them for any actual damage. The only money t\ hat can be recovered is that which was paid to enable performance of the contract. In prac\ tice a party may suffer other incidental losses that are not covered. Whittington v Seal-Hayne (1900) The claimant rented a poultry farm on the strength of a non-fraudulent misrepresentation by the defendant owner that the premises were in a sanitary condition. In fact the water supply was contami- nated. As a result, the farm manager employed by the claimant became ill and the prize-winning poultry either died or became valueless. To add insult to injury, the local council condemned the prem- ises as being unfit for habitation and ordered the claimant to carry out repairs. Under the terms of the lease the claimant was responsible for repairs. Held: he was entitled to rescind the contract and could recover the rent he had paid and the costs of repair. However, the costs of lost stock and medical expenses were not recoverable as they were inciden- tal to performance of the contract, which did not require him to stock the farm or appoint a manager. Today the claimant would claim damages to make good his losses under s 2(\ 1). Parity with remedies for breach Before the 1967 Act, the victim of a misrepresentation was always able to avoid the con- tract regardless of the seriousness of the effect on it of the misrepresentation. This produced the anomalous result that the victim of a misrepresentation might be in a better position than a victim of a breach, who could only treat the contract as voidable if a condition was breached rather than a minor term. Section 2(2) enables the court to wit\ hhold rescission for non-fraudulent misrepresentation and award damages instead, thus solving this problem. Mistake Although it is common for a party to make a contract under a misapprehension, it is unusual for the resulting contract to be void. Such a contract may be voidable for misrepre- sentation; remedies for breach of contract may also be available. 0003 An operative mistake makes the contract void Exceptionally, a mistake will be so fundamental that the contract will be rendered void . Such a mistake is said in law to be operative because it strikes at the root of the contract, effectively preventing any true agreement. In practice this is very rare. Mistakes as to qualitydo not make the contract void. A mistake as to the attributes of the subject matter of the contract or of a party to it is never an operative\ mistake, even if the other party induces the mistake (misrepresentation), or fails to correct the mistaken party’s false impression. If you ask to buy a food processor from a shop, under the mistaken belief that it has a juice-making facility, your mistake does not make the contract void. If the shop assistant told you that a juice maker was included, the contract is void\ able for misrepresenta- tion. If you were not actively misled, the contract is binding. The shop may be prepared to let you exchange the goods, or even give you a refund, but there is no legal obligation on it to do so. In contracts for the sale of land, the courts were sometimes prepared to treat a con- tract as voidable under equitable principles. Rescission was sometimes g\ ranted if both parties made the same mistake. This was possible only if it produced the most just result. Similarly, the court would not allow a party to obtain a decree of specific performance, if this would permit a party to exploit a mistake unfairly. This equitable doctrine was abolished by the Court of Appeal in Great Peace Shipping v Tsavliris (International )Ltd (2002). (Full information about equitable remedies can be found at the end of Chapter 9.) Operative mistake may occur in the following circumstances. Common mistake concerning the existence of the subject matter In common mistake both parties reasonably but wrongly believe that the subject matter exists at the time they make the contract. 135 Horace was buying a new house and after a lengthy search thought that at last he had found the place of his dreams, a pretty Victorian terraced house in a quiet street, with roses growing round the front door. Cuthbert the vendor was delighted to accept Ho race’s offer, as he had had a long difficult rela- tionship with his next door neighbours, Baggy and Snitch, who were often very noisy in the evenings and who had started actively to harass Cuthbert after he had written to report them to the Council. A sale of land contract requires the vendor to complete a Sellers’ Property Information Form. Cuthbert, desperate to escape, answered ‘no’ to the question about whether he had had any disputes with, or had made any complaints to/about his neighbours, or had sent any letters that might affect the property. The sale was duly completed but Horace is now enduring substantial noise nuisance from his neigh- bours who threatened him when he politely requested them to keep it down a bit. Horace can rescind this contract for fraudulent misrepresentation and claim damages. We may have some sympathy with Cuthbert, but he clearly was lying. In less clear-cut circumstances Horace would be better off suing under the Misrepresentation Act 1967, s 2(1) which requires the misrepresentor to prove reasonable belief in their statement. Real Life MISTAKE Defects in the c ontract 7 0003 Couturier vHastie (1856, HL) The parties made a contract for the sale of a cargo of corn. Unknown to either party, the corn had already been disposed of by the carrier, who was transporting it from abroad. Held: as the contract was one to buy specific goods, there was no possibility of a contract coming into being if the goods did not exist at the point when the parties reached agreement. It was impossible to buy them any longer. However, the contract may not be void if one party has responsibility to check that the sub- ject matter exists. McRae v Commonwealth Disposals (1951) The parties entered a contract under which the defendant gave the claimant rights to salvage a wreck, which the defendant said would be found on a reef at a given map reference. However, neither reef nor wreck existed at that site. Held: the defendant was liable for breach of contract since it had been careless in promising the exis- tence of the wreck. Mutual mistake concerning the identity of the subject matter In mutual mistake both parties operate under different misapprehensions. Such cases are rare, but occasionally the long arm of coincidence strikes. Raffles v Wichelhaus (1864) Two ships called Peerless were both carrying cotton from Bombay. The parties contracted for the sale of such a cargo. The buyer believed that he was buying one consignment while the seller was disposing of the other. Held: this mistake prevented any agreement coming into being and therefore the contract was void. No true agreement existed between them since they were entirely at cross purposes about what was being bought and sold. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 136 What is the legal situation if the parties make a contract about property which is currently in exis- tence, but ceases to be before the contract is performed? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Unilateral mistake by one party regarding the identity of the other In unilateral mistake one party is mistaken to the knowledge of the other. Although mis- taken identity is very common, it is very unlikely to make a contract vo\ id, particularly if the parties have contracted face to face. Mistaken identity usually arises from a fraudulent misrepresentation, which enables a fraud- ster (commonly called ‘a rogue’ in law books) to take possession of the victim’s property. The resulting contract, between claimant and rogue, is voidable for misrepresentation. Ownership of the goods passes to the rogue, under what is called a voidable title . Unless the claimant takes steps to avoid the contract made with the rogue beforethe goods are sold on, the party who buys the goods from the rogue becomes the legal owner. Since the victim of the fraud cannot usually contact the rogue directly, giving information about the swindle to the police has been held to be sufficient to avoid the contract ( Car & Universal Financev Caldwell (1964)). In practice, the victim is usually unable to avoid the contract with the\ rogue before the goods are sold on, so an innocent third party becomes owner of the goods. The only hope for the victim is to persuade the court that the contract is void for mi\ stake, since this would mean that the goods have not become the property of the party who bought from the rogue and could be recovered. The problem for the court is how best to do justice between two innocent parties – the rogue’s victim (the claimant) and the person who bought the goods from the rogue in good faith (the defendant). Generally, the courts are more likely to sympathise with the defendant, unless the claimant is able to prove that it was entirely rea- sonable for the claimant to be duped by a virtually foolproof deception by the rogue. The rationale for this approach is that it is fair that the original seller carries the risk of the\ buyer not being creditworthy, by letting the buyer remove the goods. A contract will not be void for mistaken identity unless the claimant ca\ n prove the following: 1 The claimant intended to deal with some person other than the contractin\ g party . The claimant must be mistaken not merely as to the attributes (quality) of the other party, but also as to that party’s actual identity. Therefore, the claimant’s case will collapse unless he or she can prove that there are two persons – one with whom he or she contracted and one with whom he or she intendedto contract. King’s Norton Metal Co. vEdridge, Merrett & Co. (1897) A rogue represented himself to the claimant company as the agent of a successful business enterprise which did not actually exist. The claimant entered into a postal contract which was held not to be void since the claimant clearly intended to make a contract with somebody and the only entity with whom this was possible was the rogue. Compare: Cundy vLindsay (1878, HL) A rogue, Blenkarn, represented himself as Blenkiron & Co., a reputable company already known to the claimant and trading from an address in the street where the rogue had set up his premises. He ordered, MISTAKE 137 7 Defects in the contract 0003 by post, linen handkerchiefs from the claimants, never paid for them and sold them on to a third party whom the claimants sued. Held:the contract between the claimant and Blenkarn was void, as the claimants reasonably believed that they were dealing with another party than the rogue. This meant that the claimant could recover the goods which had been sold on to the defendant. 2 The other party was aware of the claimant’s mistake. This is not generally a problem, since usually the other party is bent upon deception. 3 The issue of identity must have been crucial when the contract was made . The claimant will have to satisfy the court that at the point the contract was made h\ e or she intended to contract only with the person whom the rogue claimed to be. In Cundyv Lindsay, which was a postal contract, the court was prepared to accept this. In later cases, the courts have adopted a different approach where the contract is made face to face and have placed a heavy burden of proof on the claimant, who must show that it was reason- able to place reliance on the rogue’s representations. Otherwise, it is presumed that the claimant intended to contract with the person before them and the contract will not be deemed void for mistake, but will merely be voidable for misrepresentation. The conduct of the parties is judged objectively to determine whether th\ e claimant has acted reasonably. Phillips v Brooks (1919) The claimant jeweller contracted to sell a ring to a rogue who claimed to be Sir George Bullough. He then pawned the ring with the defendant and the claimant sued to recover it. Held: the claimant could not recover the jewellery since the contract he had made with the rogue was not void. The issue of identity was clearly not crucial to the claimant who had merely checked the name and address in a street directory and was satisfied by such flimsy evidence which did not demonstrate any real link between the rogue and the person he claimed to be. It proved nothing more than that a Sir George Bullough did live at a particular address. The Court of Appeal reached an apparently conflicting decision in: Ingram v Little (1960, CA) A rogue offered to buy a car from three elderly sisters. They initially refused to take a cheque so the rogue claimed to be P.G.M. Hutchinson and said he was a successful businessman. He also supplied an address. While two of the sisters kept the rogue talking, the third went to the post office and checked the particulars in the telephone directory and found that the name and address given by the rogue were correct. This, of course, proved nothing except that the rogue knew Hutchinson’s name and address, but the sisters agreed to sell. The cheque was not honoured and the rogue sold the car to the defendant, a car dealer. PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 138 0003 Held(by majority): the contract was void and therefore the car was recoverable from the defendant. The test was whether the rogue should reasonably have believed at the time of entering the contract that the offer from the seller was to the person they represented themselves as being. The sisters had intended to deal only with Hutchinson, as was evidenced by their initial refusal to accept the cheque until they had checked the phone book. Every case in these circumstances must be determined on its facts and Phillipsv Brooks could be distinguished as the jeweller had agreed to sell before he checked the street directory. While it is difficult to see any material difference between the facts of the two cases above, the decision in Ingram v Little may be justified as reflecting the customary approach of pro- tecting the more vulnerable party at the expense of the business party. Remember it was a dealer who bought the car from the rogue. Lewis vAveray (1971, CA) The claimant (Mr Lewis) sold his car to a rogue, who had claimed to be Richard Green, a film actor well known for portraying Robin Hood in a popular TV series. Before the sale was agreed, the rogue showed the claimant a chequebook in the name of R.A. Green, and a pass to Pinewood Studios. The pass bore an official stamp, the name Richard Green and the rogue’s photograph. The rogue then sold the car to the defendant (Mr Averay) and the claimant sought to get it back. Held: His claim must fail. The contract with the rogue was not void and therefore the defendant pur- chaser of the car had acquired ownership. The claimant had not proved that it was crucial to him to contract with the rogue as he accepted less than convincing evidence of the rogue’s identity. All it showed was that the rogue’s name was probably Richard Green and that he worked at Pinewood. ‘Green’ is a common name and there are many jobs at film studios which do not involve leading acting roles. Lord Denning MR said: Mr Lewis made a contract with the very man, the rogue, who came to the flat. We say he ‘made a contract’ because ... we do not look into his intentions or into his mind to know what he was thinking, or into the mind of the rogue. We look to the outward appearances. It was still a contract though voidable for fraud ... under which this property passed to the rogue and in due course to Mr Averay before the contract was avoided. Though I very much regret that either of these two good and reliable men should suffer, in my judgement it is Mr. Lewis who should do so . The court (by majority) refused to apply Ingram v Little and instead applied the Phillips v Brooks decision. Ingram v Little was perceived as anomalous as the facts of all three cases were indistinguishable. In the next case the Court of Appeal refused to follow this decision, distinguishing it on its facts. Shogun Finance Ltd vHudson (2002, CA) A rogue, who represented himself as Mr Patel, using a driving licence stolen from Mr Patel as evidence, obtained a car on hire purchase from the claimant finance company, which had made very limited MISTAKE 139 7 Defects in the contract 0003 identity checks on the electoral register and county court judgment records. He later sold it to Hudson. The finance company succeeded in its claim to recover the car from Hudson as the contract between it and the rogue was deemed void. Held(by majority): (a) Identity was a crucial issue for the finance company. In these circumstances the rogue would rea- sonably believe that the offer was being made not to him personally but to Mr Patel. (b) This was not a face-to-face contract as the car dealer was not acting as agent of the finance com- pany when dealing with the rogue. Therefore, the presumption that the claimant intended to deal with the person before him did not apply. (c) This case was also argued on the grounds that Hudson had obtained title to the car under s 27 of the Hire Purchase Act 1964. (More detail on this aspect of the case can be found below at page 242.) All the judges hearing this case commented on the confusing state of the\ law in this area and the need for statutory reform to enable a clear and fair system of loss distribution in such cases. Hudson appealed to the House of Lords. Shogun Finance Ltd vHudson (2003, HL) The House of Lords (by majority) affirmed the Court of Appeal’s decision. Held: no hire-purchase contract had been created between the finance company and the rogue, but a contract had been concluded with Mr Patel, who was clearly identified in the agreement in accordance with the way prescribed by the finance company. Mr Patel was the only person the company had been willing to do business with. The delivery of the car to the rogue by the dealer did not create any contract with the rogue. It was not appropriate to depart from the House of Lords’ previous decision in Cundyv Lindsay, since it made good sense to maintain the presumption, in face-to-face contracts only, that the seller intended to contract with the person before them. The determination of the courts to protect Shogun Finance in this case may seem surprising. This sort of fraud is widespread and it could be argued that hire-purchase companies should be encouraged to take greater precautions to prevent it regardless of how the contract is made. The evidence it relied upon, in reality, only told the company that Mr Patel had a cur- rent driving licence, was on the electoral register and had no unsatisfied court judgments against him. None of it proved that the rogue was Mr Patel. Unilateral mistake regarding the terms of the contract Parties will not usually be able to treat a contract as void by claiming that they were mis- taken about the terms on which the contract was based. Exceptionally, the contract will be treated as void if the error would have been clearly evident to the other party, who will not be allowed to rely on it. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 140 0003 Hartog vColin & Shields (1939) A written contract to sell hare skins stated that the price would be calculated by the pound. It should have stated that the goods would be sold by the piece. This had been agreed orally between the parties and reflected the customs of the trade. Held: the buyer was not entitled to take unfair advantage of what he must have realised, with his expe- rience of the trade, was a clerical error in the written contract which must be treated as void. Only a very obvious mistake will invalidate the contract. Wood v Scarth (1858) The defendant’s written offer to let premises di d not include a premium, and the claimant was not informed of such a requirement when he concluded the contract with the defendant’s agent. Held: the contract was not invalidated by this mistake, since the claimant could not reasonably have been expected to have anticipated that a premium would be payable. The equitable remedy of rectification If a contract is found to be void for operative mistake the court will r\ equire any money or property which has changed hands to be returned: as no contract exists in law, title does not pass.However, the court may be prepared to order a decree of rectification to amend a written contract which contains a unilateral mistake relating to its terms. It will only be granted if there is clear evidence that, as it stands, it does not represent the intention of the parties and that injustice would result from enforcement of the written document in its existing form. Documents signed by mistake The courts are generally very unsympathetic to people who try to avoid the effect of a mistakenly signed document. It is usually binding, unless misrepresentation or undue influ- ence makes it voidable. Exceptionally, a plea of non est factum (this is not my deed) may be applicable. The House of Lords has specified certain proof points for this plea, which if satisfied will result in the mistakenly signed document being void. Signers must prove that: 1 the document signed is radically different in its effect from what they believed they were signing; 2 the signers were not careless. The standard of care exercised by a signer is judged subjec- tively, taking into account age and physical and mental capabilities. MISTAKE 141 7 Defects in the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 142 Gallie vLee (Saunders vAnglia Building Society) (1970, HL) Mrs Gallie, who was 78, had poor sight and had mislaid her spectacles, signed a document without read- ing it. She assumed it to be a deed of gift assigning her house to her nephew, Wally. She had previously agreed to give him the house so that he could raise money on it for a business venture, provided that she would be able to continue living there. In fact, the document presented to her for signature by Lee, Wally’s friend and business colleague, actually assigned the house to Lee for £3,000. He never paid Mrs Gallie the money, but mortgaged the house to the building society. He then failed to make any repayments and so the building society attempted to repossess the house. By the time the case reached the House of Lords, Mrs Gallie was dead and the parties to the case were her executor and the building society. Held: the plea of non est factum failed. 1 The document was not sufficiently different in purpose from what Mrs Gallie believed she was sign- ing: it transferred the ownership of the house, which was what she intended. It was irrelevant that it transferred the house to a different person, by sale not gift. 2 Mrs Gallie had not taken sufficient care before signing. She should at least have checked the contents of the document by asking someone to summarise it for her if she was not able to read it for herself. The courts have shown great reluctance to allow a plea of non est factum to succeed in most of the cases where it has been raised. Duress and undue influence The essence of a contract is that it is a voluntary agreement. Evidence that a party entered a contract under compulsion may make it voidable. Duress Duress is a common law doctrine, under which threats or use of violence to force a party to make a contract may make it voidable. In practice, physical duress is very rare, though exceptions do exist. In Barton vArmstrong (1975, PC) the claimant, who had been sub- jected to a campaign of threats to persuade him to part with a valuable shareholding, was able to avoid the resulting contract. Traditionally the doctrine of duress encompassed only threats and violence against the person, but the courts, in the latter half of the twentieth century, extended the doctrine to cover economic duress. Such duress usually consists of threats by one party not to perform the contract with the other party unless the terms of the contract are varied in favour of the coercive party. In the past, the courts have tended to treat such variations as void in law because of an absence of consideration, but increasingly they are tending to hold them voidable because of economic duress. (See ‘In the News’ below at page 143.) 0003 The following criteria are relevant to deciding whether the contract is voidable: 1 The extent of the pressure employed. This must exceed acceptable levels of pressure nor- mally to be expected in commercial dealings. 2 The level of protest evidenced by the aggrieved party. 3 Whether the aggrieved party had any real choice about complying with the other party’s threats. 4 Whether independent advice was available to the aggrieved party. Altas Express Ltd vKafco Importers & Distributors (1989) The claimants had contracted to transport goods for the defendants at a certain price calculated (by the claimants) on the basis of an estimated size of load. The first load was actually much smaller than was economic. The claimants then said that they would not make any further trips unless the price was renegotiated with a raised minimum cost per load. Th e defendants felt obliged to accept this as there was not time to find another carrier; they were also heavily dependent on a current order to Wool- worths, where the next delivery was to be made. Held: where a party is forced to renegotiate terms to its disadvantage and has no alternative but to accept the new terms offered, economic duress has occurred. DURESS AND UNDUE INFLUENCE 143 7 Opel GmbH and Renault SA vMitras Automotive (2008) The claimants, Opel and Renault, had contracted for some time with the defendant Mitras (M) for the supply of bumper mountings for vans. Having decided that they wanted to change the design of their vans, they notified M, giving six months’ notice of termination of the contract. M responded by demanding several hundreds of thousand pounds ‘in recompense’ for losing the contract and increased costs of production. The claimants were place d in a very difficult position as they only had supplies sufficient for 24 hours of production, and M was refusing further delivery. They reluctantly agreed to M’s terms and paid but subsequently claimed that this leaving agreement was not binding because there was no consideration from M and it was made under economic duress. Held: economic duress invalidated the agreement, making it voidable. The defendants had applied illegitimate pressure to the claimants by threatening to breach the supply contract, as the claimants would have suffered huge losses if production had ceased and consequently they were placed in a no- choice position. No alternative supplier was immediately available. The agreement was voidable and the claimants could recover the money they had paid. The consideration argument was dismissed as irrelevant since in a variation of contract, economic duress where relevant, provides ‘a more refined control mechanism’. In the News Defects in the c ontract 0003 Undue influence Undue influenceis an equitable doctrine, applicable where one party abuses his or her personal influence or authority over another to make that other party en\ ter a transaction. If the influence is effective, the transaction is voidable. Williams vBayley (1866, HL) A father was told by his bank that his son would be prosecuted, unless he (the father) paid back money that the son had fraudulently obtained from the bank by forging his father’s signature. Held: the resulting contract was voidable against the bank by the father because he had not entered into it freely. Avon Finance v Bridger (1985, CA) An elderly couple were buying a retirement home; their son was making the financial arrangements and was providing part of the money. To do this, he obtained a loan from the claimant, but did not tell his parents, who signed a legal charge as security, that it related to their home. The son then failed to keep up the repayments and the claimant took action to possess the house. Held: the security agreement was voidable for undue influence by the son, which was attributable to the claimant. The son was in effect acting as the claimant’s agent. The claimant should have been aware that the son would exercise influence over his parents, who had not received independent advice. Where there is no fiduciary relationship between the parties the burden of proof of undue influence is on the complainant. He or she will have to satisfy the cour\ t that, but for the influence to which he or she had been subjected, he or she would not hav\ e entered the transaction. Proof that the complainant had no independent advice before entering the transaction may be evidence that he or she did not act with free will. Where a fiduciary relationship exists between the parties, undue influence is presumed, provided that the complainant can prove that the resulting transaction was disadvantageous to him or her. The transaction will be voidable unless the other party can prove that the complainant was not prevented from exercising freedom of will. Evidence that the com- plainant had access to independent advice will be proof of this. A fiduciary relationship is deemed in law to exist automatically in some situations. \ These include: 1 doctor and patient; 2 solicitor and client; 3 principal and agent. However, the court may be prepared to acknowledge that particular circumstances give rise to a fiduciary relationship in the case before it. In Re Craig(1971) a secretary companion, who persuaded her frail and elderly employer to make gifts to her from the bulk of his sav- PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 144 0003 ings, was held to be in a fiduciary relationship to him. He was both physically and emotion- ally dependent on her. She had to repay the money to his estate. In the next case the amount of control taken by the defendant over an elderly man’s business affairs was suffi- cient to create a fiduciary relationship. Goldsworthy vBrickell (1987, CA) The claimant, who was elderly, owned a large and valuable farm which had become very run down. He came to rely heavily on the defendant (his neighbour) for advice. Within a few months the defendant was effectively managing the farm. The claimant then gave the defendant a tenancy of the farm on terms very favourable to the defendant, but took no independent advice. Held: the tenancy was voidable because undue influence was presumed. A fiduciary relationship was held to exist because of the very close working relationship of the parties in which the defendant clearly dominated the claimant. In general, the courts have not often been persuaded to find a fiduciary\ relationship to exist between husband and wife, even if the relevant transaction was for the benefit of the hus- band. Barclays Bank v O’Brien (1993, HL) The facts of this case are set out below. The House of Lords indicated that a more generous approach may be appropriate where a wife stands suretyfor a husband’s debts: 1 The informal nature of business dealings between spouses raises a substantial risk that the husband might fail accurately to inform his wife of the extent of the liability she is undertaking. 2 Many wives place trust and confidence in their husband’s judgement in financial matters. 3 Similar principles would apply to transactions between cohabitees where there is an emotional bond, whether heterosexual or homosexual. Occasional exceptions are made but no fiduciary relationship is usually acknowledged to exist between a bank and its customers. The bank does not even have a du\ ty to ensure that a customer takes independent advice prior to entering into a transaction\ with it. However, failure to do so may prevent the bank from enforcing a contract in its favour, if it is per- ceived as having constructive notice of undue influence or misrepresentation which led the customer into the transaction. Such notice may be given by the nature and substance of the agreement and the relationship between the customer and any other party involved in or benefiting from the transaction. Barclays Bank v O’Brien (1993, HL) Mr O’Brien persuaded his wife to sign a mortgage on the jointly owned matrimonial home, as security for the overdraft for her husband’s company in which she had no interest. He told her that the overdraft was limited to £60,000 for a period of three weeks. In fact, it was unlimited in both respects. When it DURESS AND UNDUE INFLUENCE 145 7 Defects in the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 146 rose to £154,000, the bank sought to enforce the mortgage. The branch where Mrs O’Brien had entered the transaction had failed to carry out instructions from head office to make sure that both parties were fully aware of the nature of the transaction and to recommend independent advice. Held: if the circumstances surrounding the transaction should have put the bank on notice that a wife had been subject to undue influence or misrepresentation, she could avoid the transaction, unless the bank had warned her in confidence of the need to take independent advice. Mrs O’Brien was entitled to avoid the transaction as the bank had been put on notice of her husband’s likely misbehaviour and had not taken adequate steps to safeguard her. Later cases indicate that it is hard to persuade the court that the bank did have constructive knowledge unless the circumstances are exceptional. Credit Lyonnais v Burch (1997) The defendant was a junior employee in a small company and a family friend of the owner, who was also her boss. She was persuaded by him to take out a second mortgage on her flat and to give the bank an unlimited guarantee of the company’s debts, to enable the company to increase its overdraft from £25,000 to £270,000. Neither he nor the bank ever revealed to her the heavy state of indebtedness of the company. The bank urged her to take legal advice before signing the relevant documents but when she refused, in a letter clearly written in consultation with her employer, it allowed her to enter what it knew to be a precarious contract. Held: that the bank had constructive notice of the influence her employer was capable of exercising over her and of the lack of legal advice and, therefore, could not enforce the mortgage and guarantee against her. In the majority of cases the court has held that the bank does not have \ constructive notice once the vulnerable party has been advised to take independent advice. T\ he courts have usually interpreted the concept of independent and adequate advice in favour of the ban\ k. However, in the Etridge case (below) the House of Lords has restated and clarified some of the issues and has revived a little of the spirit of the O’Briendecision. Nevertheless, there are still concerns about whether the surety is sufficiently protected with regard to the issue of independent legal advice. As the law now stands, the surety’s only remedy in most cases may be an action in negligence against the solicitor, rather than being able to avoid the transaction with the bank. Royal Bank of Scotland vEtridge ( No. 2) (2001, HL) Held by the House of Lords: (a) The bank is automatically put on notice when the surety is not acting in the course of business. (b) The bank must reasonably ensure that the surety has understood the consequences of what he or she is signing, has been warned of the risks in non-technical language and has freely chosen to sign. 0003 However, the bank need not personally meet with the surety. Confirmation from the solicitor advis- ing the surety will normally be sufficient. (c) Independent advice may be supplied to the surety by the borrower’s solicitor. That solicitor must determine whether there is any conflict of interest which indicates that the surety should be sepa- rately advised. Once the bank was informed that the surety had been advised, the bank could assume that the advice had been delivered competently. The limits of rescission The only remedy for undue influence is rescission. This is an equitable remedy and, there- fore, available only at the discretion of the judge. The right to avoid the transaction may be lost in the following circumstances: 1 Affirmation. The complainant performs the contract with no complaint once freed from the other party’s domination. 2 Delay. In Allcard v Skinner the claimant joined a religious order and made large gifts to it. She stayed in the order for eight years and then left. Six years later she tried unsuccess- fully to recover the money despite evidence of undue influence. 3 A third party has acquired bona fide rights over the contract property . If property was transferred under a contract voidable for undue influence and sold on before the com- plainant had time to avoid the contract, the right to rescind is lost. CHAPTER SUMMARY 147 7 Misrepresentation An untrue statement of fact by the misrepresentor which induces the misrepresentee to enter the contract and makes the contract voidable. A mis- representation may be fraudulent or innocent. Fraudulent misrepresentation: made intention- ally/recklessly. Innocent misrepresentation: misrepresentation made carelessly without reasonable belief or wholly innocently with reasonable belief. Remedies for misrepresentation Fraudulent: action in deceit, rescission and damages. Careless:action under Misrepresentation Act 1967, s 2(1). Burden of proof of reasonable belief is on defendant. Rescission and damages. Wholly innocent: action under Misrepresentation Act 1967, s 2(2). Rescission is the usual remedy but damages may be substituted if rescission is not justified by the nature of the misrepresentation. Mistake An operative mistake makes a contract void. Mistake may be operative in the following circumstances: Common mistake about the existence of the sub- ject matter. Mutual mistake about the existence of the subject matter. Unilateral mistake about the identity of a contract- ing party. Unilateral mistake about a term of the contract. Remedies The court requires any property or money which has changed hands between the parties to be Chapter summary Defects in the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 148 returned. Rectification may keep a contract alive if there is unilateral mistake regarding its terms. Duress Forcing a party to enter a contract by physical threats to their person or by threatening their busi- ness interests may make the contract voidable. Undue influence A contract resulting from more subtle forms of illicit persuasion than duress may be voidable. Presumed undue influence: exists if the parties are in a fiduciary relationship and the resulting contract is disadvantageous to the less powerful party. Actual undue influence : exists if the parties not in a fiduciary relationship but one party can prove unfair exercise of power by the other party to get them to enter into a contract. Remedy Rescission. Chapter summary (Continued from page 147 ) Careless misrepresentation: untrue statement made without reasonable belief in its truth. Common mistake: both parties make the same mistake. Duress: physical threat to force a party to enter a contract. Fiduciary relationship: a legal relationship with a very high degree of trust by one party in another’s expertise, knowledge etc., giving that other party the capacity to influence their decisions. Fraudulent misrepresentation: untrue statement made intending to deceive or recklessly not caring whether it is true or false. Innocent misrepresentation: an untrue state- ment not made fraudulently. May be made carelessly or with reasonable belief. Misrepresentation: an untrue statement and a material inducement to a party to enter a contract. Misrepresentee: person to whom a misrepresen- tation is made. Misrepresentor: person who makes a misrepre- sentation. Mutual mistake: both parties each make a differ- ent mistake. Non est factum: ‘This is not my deed.’ May be pleaded by a party who has mistakenly signed a contract for a radically different purpose than he or she was led to believe. Operative mistake: one which makes a contract void because it prevents true agreement between the parties. Rectification: an equitable remedy to amend a document to reflect the parties’ true intention. Rescission: an equitable remedy requiring a party to a voidable contract to give back money/property to the other party who has avoided the contract. Surety: a person who provides security to a credi- tor for a loan. Undue influence: inequitable influence making a contract voidable. Unilateral mistake: one contracting party is mis- taken. Void contract: no contract exists in the eyes of the law. Voidable contract: a contract exists but the inno- cent party may refuse to perform it. Voidable title: provisional ownership of goods lost by the misrepresentor if the misrepresentee avoids the contract before a bona fide third party buys them. Key terms 0003 WEB ACTIVITY 149 1What effect does a successful claim of (a) misrep- resentation, (b) mistake, (c) duress, (d) undue influence, (e) non est factum , have on a contract? 2 On what grounds may the following contracts arguably be defective? (a) Crockford sold his house to Wisden, having placed a large and heavy bookcase to con- ceal subsidence cracks in the wall. (b) Kelly contracted to sell Bradshaw 1 tonne of jelly babies, which both parties believed to be in a warehouse in Scunthorpe. Earlier the same day, a massive fire had destroyed the contents of the warehouse. (c) Chambers told Webster that he was Pears, the famous flute player. As a result, Webster agreed to sell him his antique flute. (d) Whittaker, who is frail, elderly and heavily dependent on his son, Moore, sold Moore valuable shares for a fraction of their market price, because Moore threatened that other- wise he would go and live abroad. Answers to all quizzes can be found in Appendix 2. Quiz 7 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Esso Petroleum v Mardon [1976] 2 All ER 5, CA William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016, CA Shogun Finance Ltd v Hudson [2004] 1 All ER 215, HL Credit Lyonnais v Burch [1997] 1 All ER 144, CA Take a closer look Please go to: www.ripofftipoff.net/ Then click on ‘typical cons’. Have a look at some of the scams on \ offer and see which involve misrepre- sentation or undue influence or unfair contract terms like those in Chap\ ter 6. Web activity 7 Defects in the contract 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 150 (a) Explain the remedies for misrepresentation. (b) James sold his car privately by cheque to a rogue who represented himself as Robert Gould, whose chequebook and banker’s card the rogue had recently stolen. For additional proof of iden- tity the rogue showed James a travel pass in Robert’s name onto which the rogue had put his own photograph. The rogue then sold the car on to a secondhand car dealer called Harry. The cheque bounced when James presented it and he has traced the car to Harry’s showroom. Advise James. Would it make any difference to your answer if James had become suspicious shortly after selling the car and had notified the police? Assignment 6 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 8 MORE DEFECTS: illegality and incapacity 0003 Introduction In the law of contract, the word ‘illegal’ has a wider meaning than that understood by lay people. It includes not only contracts which are actually prohibitedby law, but also contracts to achieve a purpose which is against the law , as well as con- tracts seen to be against the public interest but which do not actually break the law. A contract found to be illegal is void. In general, any person is legally capableof making a contract and, therefore, may sue or be sued on any contract to which he or she is a party. However, some types of person have limited contractual capacity and will not necessarily be bound by all the contracts which they make. Special rules, which apply to incorporate\ d bodies, are explained in Chapter 20. This chapter examines the rules concerning two cate- gories of people whose capacity is limited to protect them against exploitation – minors and mentally impaired persons. Learning Objectives When you have studied this chapter you should be able to: Appreciate the scope of the concept of illegality of contracts Recognise the circumstances in which making a contract is illegal at common law Grasp the difference between contracts which are illegal at common law and those which are merely void Understand when a contract in restraint of trade is enforceable Explain what kinds of contracts are enforceable against minors and mentally impaired people. Photo: Photodisc 0003 Illegality The rules governing illegal contracts are found in statute and common law. Contracts illegal by statute These are numerous and include the following: 1 under the Resale Prices Act 1976, collective agreements between manufacturers to regu- late the resale price of goods are prohibited; 2 under the Gaming Act 1845, gaming and wagering contracts are void. The Act does not prohibit gambling as such, but effectively prevents a party to such a contract from having any rights to pursue gambling debts through the courts. Contracts illegal at common law The court determines the existence and extent of the illegality by reference to public interest considerations, sometimes described as ‘the public policy’. Contra\ cts invalidated for public policy reasons fall into two categories. 1Illegal contracts . Here the parties agree to do something which is directly or indirectly against the law. The following types of contract are illegal: (a) A contract to commit a crime, a tort or a fraud. In Everet v Williams (1725) two highwaymen agreed to rob a stagecoach and share the proceeds. Not surprisingly, the court refused to allow one to sue the other for his share of the proceeds. (b) A contract which is damaging to the country’s foreign relations. Regazzoni v Sethia (1957, HL) India’s export regulations prohibited exports from In dia to South Africa. To avoid the prohibition, the claimant and defendant agreed to export the goods init ially to Italy. From there they would be sent on to South Africa. The buyer sued for breach of contract when the seller failed to deliver. Held: the buyer’s claim must fail because the contract was illegal. Its performance would breach the law of India and was likely to endanger its friendly relationship with Great Britain. (c)A contract for a sexually immoral purpose. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 154 0003 Pearce vBrooks (1866) The claimant coach builders supplied a carriage to the defendant, knowing that she would use it to ply her trade as a prostitute. Held: the contract was illegal. The coach builders could neither recover payment from the defendant nor repossess the carriage. They had effectively aided and abetted soliciting. The illegality taints the whole contract, rendering it void. A party may find him or herself indirectly penalised for making the contract. For example, if a party was awa\ re of the ille- gal purpose before entering the contract, he or she will not generally be able to recover any property which has changed hands. This can be seen as a deterrent to discourage parties from making such contracts. 2 Contracts which are merely void. These are contracts which the courts believe are against the public interest though they do not involve breaking the law. The parties will not be penalised by the courts for making them. Property which has changed hands is always recoverable. The contract will be enforceable as far as it is not void. The most important type of contract in this category is one said to be in restraint of trade. Contracts in restraint of trade Restraint of trade is commonly a feature of the following agreements: 1 Contracts of employment. Employees may be required to give undertakings not to reveal trade secrets or to compete with their employers on leaving their service. 2 Contracts for the sale of a business. Where a business is sold as a going concern, the seller may undertake not to set up in competition with the buyer. 3 Solus agreements. A seller of a particular product may agree to deal with only one sup- plier in return for a discount or some other financial benefit (a solus agreement ). This is very common in contracts for the supply of petrol. The owner of a filling station obtains a discount price, or financial assistance from the supplier to develop a site, in return for a promise to sell only that supplier’s brand. The use of such restraints is generally regarded as not being in the public interest, because they tend to hamper competition and freedom of movement of labour. All such restraints are said to be prima facie void – i.e. they will initially be treated as against the public interest – but will be enforced if proved reasonable. This means that the court will not give a remedy (like an injunction) to help a party enforce the restraint, unless there is evidence that in the particular circumstances the restraint is reasonable. Three questions are relevant to determining reasonableness: 1 Is the business interest one which can legally be protected? Such interests are limited to trade secrets and influential relationships in employment contracts. If the contract con- cerns the sale of a business, the goodwill may be protected. ILLEGALITY 155 8 More defects: illegality and incapacity 0003 2 How long is the restraint intended to last? 3 How wide a geographical area is covered by the restraint? Provided that a legally recognised business interest is found to exist, the issues of time and geographical area are determined in the light of the particular facts of the case. The court\ s have exceptionally upheld lifelong or worldwide restraints. In practice, however, most restraints operate only within a very limited time and area. Restraints in employment contracts An employer may in a contract of employment seek to impose restrictions on employees who have moved to a new employer.With regard to trade secrets , an employer may restrain employees with access to unique information concerning the manufacturing process or composition of goods from revealing this information to others or using it for their own purposes. Forster & Sons Ltd v Suggett (1918) The employee had access to secret bottle-glass manufacturing processes invented by his employer. Held: it was reasonable to restrict the employee from being involved in such a trade for five years after he stopped working for the employer, anywhere in the UK. Business connections created by an employee through close relationships forged with cus- tomers during the relevant employment may also be protected. This is to prevent an ex-employee from poaching customers. Fitch vDewes (1921, HL) Held:a solicitor’s managing clerk could reasonably be restrained from working as a solicitor for the rest of his life, within a seven-mile radius of Tamworth town hall, as he had dealt confidentially with many clients within his employer’s practice. They might follow him if he were allowed to practise locally. Employees who have learnt skills and obtained business knowledge from their employment cannot be legally prevented from using these elsewhere, unless trade secrets were imparted or close relationships with customers resulted. Morris vSaxelby (1916, HL) Held: a draftsman and engineer could not be restrained from working in the crane components manu- facturing business. Knowledge about the way in which his ex-employers organised a similar business was not an interest which could be protected. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 156 0003 ILLEGALITY 157 8 Eastham vNewcastle United Football Club (1963) Football Association rules stated that players who left a club at the end of a contract could be placed on a retainer list. This prevented them from seeking employment with any other club in the UK or abroad, for as long as their ex-club paid them ‘a reasonable wage’. Held:this rule was not binding since no legitimate trade interest was protected by it. Faccenda Chicken Ltd vFowler (1986, CA) The claimants sold frozen chickens door to door. Mr Fowler was their sales manager but had no direct contact with customers. He left Faccenda’s employment and set up a similar business in the area, using his ex-employers’ customer lists. Eight of the claimants’ other employees left to work for him. Held: Fowler could not be restrained from this activity: the information he had used was not a trade secret and he was not breaching his ex-employers’ confidence by using it. He was at liberty to offer jobs to any person that he thought suitable. The issue of reasonableness must be determined in the way most likely to produce a fair outcome for both parties. In each of the three cases above, the employer was merely trying to prevent legitimate competition by an ex-employee. This would have unduly r\ estricted the employee selling his labour, or setting up in business elsewhere. The courts recognise that employees do not usually share equal bargaining power with their employers. The wording of a contract is therefore strictly interpreted to prevent unreason- able restraints upon employees. The court, however, must balance the parties’ interests. The Horace trained as a graphic designer, but left the industry and for the past five years has worked as a personal trainer at the FitQuick Gym in Oldcastle. His friend Sydney owns a company running a chain of fitness clubs with branches in nearby towns and has just opened a new one in Oldcastle. He offers Horace a job as promoter and publicity manager. Horace’s contract of employment with FitQuick states that he cannot work as a personal trainer or in any related job connected with the fitness industry in Oldcastle, or within 30 miles of it for one year after leaving FitQuick’s employment. As Horace will have built up a personal relationship with clients at FitQuick, it is reasonable for it to protect this business interest, and seeking to prevent him from working as a personal trainer for one year within Oldcastle itself is not an excessive time or too wide a locality. However, trying to prevent Horace from working as a personal trainer outsid e the town, or taking a job in the fitness business not involving a close personal relationship with clients , may well be deemed unreasonable. It rather depends on how far away the nearest gym in Sidney’s chain is located and whether his new job would permit him to exploit his relationship with his old clients. Real Life More def ects: illegality and incapacity 0003 court may not always take the literal meaning of the words if this would allow an employee to abuse the employer’s legitimate interests. Instead, a purposive approach may be adopted. The contract is interpreted in the way which prevents the employee from avoiding a reason- able degree of restraint. Home Counties Dairies vSkilton (1970) Skilton’s employment contract required him not to sell milk or dairy products to any person whom he had served during his time with the dairy, for one year after leaving the dairy’s employment. Held: the object of the clause was to prevent the dairy’s loss of customers from Skilton’s old milk round, not to prevent him from taking up work, for example, in a grocery shop selling butter and cheese. It was therefore valid in so far as it prevented him from poaching his ex-employer’s customers when working as a milkman. Littlewoods Organisation vHarris (1978, CA) The claimant, who had planned the contents of Littlewoods’ mail order catalogue for the next year, left to work for Littlewoods’ main competitor, Universal Stores. His contract with Littlewoods stated that he must not work for Universal Stores for one year after leaving Littlewoods. Held: this very generally drafted restraint, if interpreted literally, would prevent Harris working in any capacity for Universal Stores. It must be interpreted with implied reference to Harris’s very high degree of access to crucial trading information in the mail order market sector. Once this was taken into account, the clause became reasonable as it protected Littlewoods’ secret information. Restraint on the seller of a business Buyers of the goodwill of a business may protect themselves against loss of customers by restraining the sellers from setting up in a similar business too close and too soon. The only business interest which can be protected here is the existing custom enjoyed by sellers: they can be restrained only from running a business of exactly the same kind as they are selling. BRC Engineering vSchelff (1921) Schelff sold his business, which was concerned with the sale of loop concrete road reinforcements. The contract of sale contained a clause that attempted to restrain him from being involved in the sale or manufacture of any typeof concrete reinforcement. Held: the only business interest that could validly be protected here concerned the sale of loop reinforcements. Any wider restraint was unreasonable as it related to business interests that were not being sold. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 158 0003 Nordenfelt vMaxim Nordenfelt Guns & Ammunition Co. Ltd (1894) Nordenfelt sold his arms manufacturing business to the Maxim Nordenfelt Co. The contract restrained him from being involved, for 25 years, in any way with the armaments trade. No geographical limit was mentioned. Held: given the wide scope of the business (a large variety of armaments were manufactured by Nor- denfelt) and the very small number of customers involved (state governments), this was held to be a reasonable restraint. Solus agreements These most commonly arise in contracts between petroleum companies and retail petrol outlets. Esso Petroleum v Harper’s Garage (Stourport)Ltd (1968, HL) Two solus agreements were made between Harper’s and Esso: agreement 1, which was to last four-and- a-half years, was made in return for a price discount on the petrol; agreement 2, which was to last 21 years, was made in return for a mortgage loan of £7,000 from Esso secured on the filling station and which was repayable over that period. Held: agreement 1 was reasonable and binding as it was entirely reasonable. Agreement 2 was held to be unreasonable in relation to its time span. It was longer than necessary to allow Esso to protect their business interest in maintaining stable levels of distribution. It was irrelevant that it had been agreed in relation to a mortgage. Notice that in the above case Harper’s already occupied the land at the point that they took the mortgage. They were giving up their freedom to trade from there with whomever they chose. The restraint rules do not apply where a party agrees to a restraint as a conditionof being given possession of land. Cleveland Petroleum vDartstone Ltd (1969, CA) The defendants took a lease of a garage from Cleveland. The lease stated that they could sell only Cleve- land’s petrol for the duration of the lease. Held: it was not an unreasonable restraint of trade, since the defendants had not previously been in occupation of the land and had taken on the tenancy with full knowledge of the restriction. The same principle applies to tied pubs. ILLEGALITY 159 8 More defects: illegality and incapacity 0003 The consequences of a void restraint The fact that a restraint is void does not prevent the rest of the contract from being valid. A party can sue successfully for breach of a contract of employment or sale of a business, as long as the alleged breach does not relate to the void restraint.The court may be able to sever (cut out) the unreasonable part of a restraint. The remain- der of the restraint can then be enforced. Goldsoll v Goldman (1915, CA) The defendant sold an imitation jewellery business situated in London. Much of the business was con- ducted through mail order in the UK. In the contract of sale he undertook that he would not for two years be involved in the sale of real or imitation jewellery in any part of the UK, France, the USA, Russia, or within 25 miles of Berlin or Vienna. Held: this was clearly too wide to be reasonable as regards: 1 business interest : the claimant was buying an imitation jewellery business only, and could restrict the defendant’s trading only in that respect; 2 the geographical area covered by the restraint : this was wider than reasonably necessary to protect a business interest where sales had previously been limited to the UK. The reference to real jewellery must be severed, as must the geographical references, apart from the UK. Severance means what it says – cutting out; the court does not take i\ t upon itself to rewrite a restraint to make it reasonable. Even if severance is not applicable, the purposive approach adopted by the courts in cases like Home Counties Dairies v Skilton (described above) may enable a widely drafted restraint to be interpreted reasonably. Contractual incapacity Minors Minors (people under the age of 18) are legally capable of making most kinds of contracts and may take steps to enforce them against the other party. The law protects minors by restricting the extent to which their contracts may be enforced against them. Some – like a contract to lend money to a minor – are never enforceable by the creditor; others are bind- ing only to a limited extent. Contracts capable of binding a minor Contracts to purchase necessaries are capable of binding a minor. ‘Necessaries’ are defined by s 3 of the Sale of Goods Act 1979, as ‘goods suitable to the condi\ tion in life of the minor ... and to his actual requirements at the time of sale and delivery’. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 160 0003 CONTRACTUAL INCAPACITY 161 8 More defects: illegality and incapacity There are two issues here: 1 Are the goods capable of being necessaries? The lifestyle and social stand\ ing of the minor may be relevant. Peters vFleming (1840) Held: a watch chain was capable of being a necessary to the defendant undergraduate, and his social standing could make it reasonable for it to be a gold one. 2 Were the goods necessary to the minor’s requirements at the time of sale and delivery? Nash vInman (1908) The claimant supplied clothing to the defendant minor, a Cambridge undergraduate. The clothing included 11 fancy waistcoats. Held: as the defendant was already amply supplied with clothing appropriate to his station in life the clothing purchased could not amount to necessaries and the action must fail. The concept of necessaries also, by analogy, covers services. All the following are capable of being necessaries: food, clothing, lodgings, transport to work, legal ad\ vice, education.A minor’s liability in a contract for necessaries is limited to payment of a reasonableprice. The minor is not necessarily bound by the price specified in the contrac\ t. Section 3 of the Sale of Goods Act 1979 states that a ‘reasonable price’ is payable for goods ‘sold and deliv- ered’. The court may require the minor to pay less than the price agreed with the seller. The words ‘sold and delivered’ suggest that the minor has a duty to pay only when delivery of the goods has been made. A harsh or onerous contract will not be enforced at all. Fawcett vSmethurst (1914) A contract for hire of a car made the minor liable for any damage sustained to it whether caused by the minor or not. Held: although this contract was for necessaries, it was void as it put an unreasonably heavy burden on the minor. Beneficial contracts of employment are also capable of binding a minor. These include train- ing and apprenticeship contracts, but not trading contracts. The contract is binding\ on the minor if overall it is for the minor’s benefit, but not if it is unduly burdensome. 0003 De Francesco vBarnum (1890) Under a dancing-apprenticeship contract, a girl of 14 promised that she would not marry during the apprenticeship, or accept any engagements, without her master’s permission. He was under no obliga- tion to find her engagements, or to pay her if she was unemployed. When employed her pay was very poor (9d per night) even by then existing standards. She refused to go on working under these condi- tions and he sued her for breach of contract. Held: the contract was void; it was onerous and unfair to the minor who was at the total disposal of the claimant. Voidable contracts include a number of different types of contracts which create continuing obligations. Tenancy agreements, partnership agreements and contracts for the purchase of shares are examples. A minor can opt out of such a contract at any time before majority, or within a reasonable time after, but is liable for any obligations (rent, calls on shares) which accrued before then. Contracts which are not enforceable against a minor All contracts which do not fit into the categories discussed above are not binding on minors. The commonest unenforceable contracts are for loans of money or the sale of non- necessary goods and services. Historically, parties who did business with minors did so at their peril, and often \ found themselves out of pocket. Today they may be able to obtain payment or recover goods under the Minors’ Contracts Act 1987, which aims to redress the sometimes excessive immunity enjoyed by minors: PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 162 Proform Sports Management Ltd vPro-Active Sports Management Ltd (2007) Wayne Rooney, who was under contract to Everton, entered into a ‘representation agreement’ with the claimants giving them the right, for a certain period of time, to represent him in any transfer negotia- tions into which he might enter. During the agreement’s currency, Rooney was approached by the defendant company which persuaded him to enter an exclusive transfer agreement. The claimant sued the defendant arguing that the defendant had induced Rooney to break his contract with the claimant. Held: no breach of contract had occurred. The representation agreement amounted to a voidable contract only. It was insufficiently analogous to a contract for necessary services, apprenticeship or education to be binding on a minor and Rooney was entitled to avoid it at any time. Judge Hodge said: ‘Players’ representatives do not undertake matters that are essential to the player’s training or his livelihood. They do not enable the minor to earn a living or to advance his skills as a pro- fessional footballer .’ In the News 0003 1Guarantee of minors’ debts . Under s 2 of the Act, contracts by a third party to guarantee payments by minors under contracts not enforceable against them are binding on the third party. 2 Restitution orders against minors. This is an equitable remedy available at the court’s dis- cretion whereby a minor may be required to return to the other party any property acquired under the contract (Minors’ Contracts Act 1987, s 3). This remedy was available prior to 1987 and was sometimes granted in cases of fraud, where minors obtained property under a contract by lying about their age. The court may also order minors to hand over the pro- ceeds of sale of any goods supplied to them ( Stocksv Wilson (1913)). It does not generally enable a creditor to recover a money loan, since the actual coins or notes supplied are no longer recoverable from the minor, having been spent ( Lesliev Sheill (1914)). 3 Ratification of debts contracted during minority . Section 1 of the 1987 Act provides that if, on attaining majority, persons ratify debts transacted in their minority, this ratifica- tion (confirmation) is binding on them. Mentally impaired persons The contractual capacity of a person who is mentally impaired is limited in two situations: 1 Where the other party knew of the impairment. If the other party to the contract knew or reasonably should have known of a party’s mental impairment, the contract is voidable by the impaired party, i.e. the impaired party can choose to opt out of it. If the other party was not aware of the impairment, the contract is valid and enforceable. 2 Contracts for necessaries. Under s 3 of the Sale of Goods Act 1979, a mentally impaired person is obliged to pay a reasonable price for necessaries when they are supplied by a seller who is aware of that person’s mental state. The court will not interfere with the price if the seller was not aware of the buyer’s mental state. CHAPTER SUMMARY 163 8 How does the law treat contracts supplying mobile phone services to minors? Suggested solutions can be found in Appendix 2. Worth thinking about? Illegality of contracts A contract may be void for illegality because: It is prohibited by statute. It is against public policy because its purpose is to break the law. Consequences: such contracts are absolutely void – property may not be recovered. Other contracts are merely void because they do not involve law breaking but are against the public interest. Chapter summary More defects: illegality and incapacity 0003 164 For example: contracts in restraint of trade because they potentially inhibit competition. Consequences:valid if it can be shown that the restraint is reasonably necessary: (a) to protect a business interest; and (b) does not cover too wide a geographical local- ity; and (c) does not last too long. A purposive approach is used to interpret the words of the restraint. Severance of unreasonable aspects of the contract is also possible. Capacity to contract The law protects some vulnerable classes of person by limiting the types of contracts which fully bind them. Minors Binding on a minor Contracts for necessary goods/services. Beneficial contracts of employment. Voidable by a minor Contracts creating some continuing interest or obligation are voidable at the minor’s option. Unenforceable against a minor All other contracts (including contracts to loan money) are unenforceable against the minor. Mentally impaired persons Bound to pay a reasonable price for necessaries even if the seller is aware of the incapacity. All other contracts are voidable by them if the other party should have been aware of the incapacity. Chapter summary (Continued from page 163) PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 1How does illegality affect the validity of a contract? 2 Why may the following contracts be illegal? (a) a contract to rob a bank; (b) a contract to make a pornographic film; (c) a contract by an English firm to supply arms to terrorists in the US. Quiz 8 Key terms Illegal contract: includes contracts which are not prohibited by law but which are against the public interest. Minor: person under the age of 18. Necessaries: goods/services proved to be appro- priate to the minor’s needs. Ratification of debt: the binding acknowledge- ment on reaching majority, of the obligation to pay a debt contracted while a minor. Restraint of trade: restriction on freedom to work for/do business where/with whom you choose. Restitution: an equitable remedy requiring a party to hand back specific property to another party. Solus agreement: contract under which one party agrees to deal with only one supplier, etc. Unenforceable contract: contract to loan money/supply non-necessary goods to a minor cannot be enforced against them. The minor has the right to sue. 0003 ASSIGNMENT 7 165 3 Are the following contracts enforceable againstAlgernon who is 17? (a) to buy a suit to wear at job interviews; (b) to buy 50 Christmas cakes which he intends to distribute to local old people’s homes; (c) to work for Busby Ltd as a packer in their dispatch department; (d) to borrow £50 pounds from Jemima. Answers to all quizzes can be found in Appendix 2. Quiz 8 (Continued) The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Regazzoni v Sethia [1957] 3 All ER 286, HL Eastham v Newcastle United Football Club [1963] 3 All ER 139 Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026, CA Home Counties Dairies v Skilton [1970] 1 All ER 1227 Take a closer look Please go to: www.adviceguide.org.uk/ Then click ‘consumer affairs’ and select ‘young people, money and consumer rights’ to \ find out more about minors’ contracts. Web activity 8 More defects: illegality and incapacity Boffin is employed by Sweeties Ltd and has learnt secret toffee-making processes exclusively used by Sweeties in the UK. His contract states that if he leaves Sweeties he must not be involved in the manufacture of toffee or any other confectionery in the UK or the US for one year. 1. Is this restraint lawful? 2. If unlawful, is it capable of being made lawful? Assignment 7 0003 166 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 9 DISCHARGE OF THE CONTRACT AND REMEDIES FOR BREACH 0003 Introduction Contractual obligations do not last forever and may be discharged in any of the fol- lowing situations: 1Performance. A contract is discharged when its terms have been performed. 2 Agreement . The parties may agree not to go ahead with the contract which is then discharged, provided that this agreement is, in itself, a valid contract. 3 Frustration . If the contract becomes impossible or futile to perform due to events \ out- side the parties’ control, this defeats the parties’ intentions and ends the contract. 4 Breach . Not every breach of contract is capable of ending the contract, but the breach of a major term (condition) may have this effect. This chapter examines these concepts and also describes the remedies available at common law and equity for breach of contract. Learning Objectives When you have studied this chapter you should be able to: List the ways in which a contract may be discharged  Appreciate the concept of complete performance and the exceptions to it  Describe how a contract may be discharged by agreement  Give examples of when a contract may be frustrated  Explain the rights of the parties to a frustrated contract  Grasp when a breach is capable of discharging the contract  Apply the remoteness of damage rules  Distinguish between the different types of damages available for breach of contract  Be aware of when the court may impose an equitable remedy for breach of contract. Photo: vario images GmbH & Co. KG/Alamy 0003 Discharge of contracts Discharge by performance The general rule: a contract is discharged only by complete performance; all the obligat\ ions in the contract must have been carried out. A party’s failure to perform may make him or her vulnerable to an action for breach of contract by the other party, who may also be enti- tled to withhold payment. Although it may generally be fair to hold some\ one to the letter of a bargain, this rule is capable of producing some unjust results. Cutter vPowell (1795) The defendant, Captain Powell, engaged Lieutenant Cutter as part of his crew for a voyage from Jamaica to Liverpool. The contract stated that payment was due only on completion of the voyage, but the Lieu- tenant died 19 days before the ship reached Liverpool. Held: his widow, who sued on behalf of his estate, could not claim any part of his salary since payment of it was not due until the voyage had been completed when the entire obligation would have been discharged. Exceptions have been developed to prevent injustice. 1 Divisible contracts The contract made by Lieutenant Cutter was an entire contract; he was obliged to perform one whole obligation in order to be able to claim payment – complete the voyage from Jamaica to Liverpool. The outcome for Mrs Cutter would have been happier\ if this obliga- tion had been divisible – broken down into smaller units (for example, weeks), on completion of each of which payment of a proportion of his wages would have been due. She would then have been able to claim for three weeks’ wages. Ritchie v Atkinson (1808) A contract stated that goods would be shipped at a cost of £5 per ton. When only part of the agreed cargo was transported, the owners claimed that they were not bound to pay. Held: since the obligation was divisible, payment was owing for each ton of the cargo which had been carried. Contracts of employment are divisible, with payment due on a weekly or monthly basis. Building contracts are another example: specified sums become payable on completion of performance of specified portions of the work. 2 One party prevents the other from completing performance Grand opportunities for fraud would occur if parties could claim that th\ ey were not bound to pay contract prices when they themselves had prevented the other parties from complet- PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 170 0003 ing the necessary work. To prevent such injustice, the party who prevents performance is deemed to be in breach, which releases the other party from the obligation to tender com- plete performance. Planché vColburn (1831) The claimant entered into a contract to write a book for the defendant publisher and was to be paid £100 when the book was completed. He had researched and written part of the book when the defen- dant told him that it would not be required. Held: he was entitled to a sum to represent the value of the work he had done towards completion of the contract. 3 Acceptance of part performance Where the contract is entire, part performance does not discharge a party’s obligation. How- ever, part performance , if voluntarily accepted by the party to whom it is offered, discharges the other party. The accepting party must then pay an appropriate price. The accepting party must have a genuine choice to accept or reject the part performance. A buyer can refuse to take delivery of a consignment of goods, but may have no real choice in a contract to supply goods and services if materials have become part of\ their own property. Sumpter v Hedges (1898) The claimant contracted to build a barn for the defendant, but then abandoned the project when it was only half completed. Held: no payment was due since the defendant, who had completed the barn himself, had no choice but to accept part performance and make the building safe by finishing the work. The defendant did have to pay for materials which the claimant had left behind and which the defendant had chosen to use to complete the building. 4 Substantial performance Provided a party has received substantial performance (the bulk of what was agreed) payment is due, even if final performance deviates marginally from the letter of the con- tract. The payer is then entitled to a discount to cover the minor failu\ re to perform. The court has to decide whether the performance is sufficiently substantial to discharge the obli- gations. Compare the following two decisions. Bolton v Mahadeva (1972) Held:a contract to install a central heating system was not substantially completed: fumes escaped into the house, which was also substantially less warm than was promised as a condition of the contract. DISCHARGE OF CONTRACTS 171 9 Discharge of the contract and remedies for breach 0003 Hoenig vIsaacs (1952) Held:a contract to decorate and furnish a flat had been substantially performed since the defects (repairs to a bookcase and replacement of a wardrobe door) were superficial and easily remedied. The total cost of the contract was £750 and the cost of the defects £55. Notice that none of these exceptions would have helped in the Cutterv Powell case: Lieutenant Cutter’s contract was an entireobligation; payment was made on the basis of completion of the whole voyage, not on a weekly or daily basis; the captain did not prevent completion of the contract: fate intervened; the captain had no choice but to accept part performance; performance was not substantial; Cutter had not performed more than about two-thirds of what was required of him. Today a remedy would be provided under the Law Reform (Frustrated Contracts) Act 1943 (see page 178). Discharge by agreement Having formed a contract, the parties to it may agree not to go through with it. This agreement (which is in effect a secondary contract) will be binding as long as the necessary requirements of a valid contract are satisfied. The issue most likely to be problematic is consideration. Bilateral discharge Where the first contract is still wholly or partially executory (neither pa\ rty has performed all his or her obligations), consideration will consist of each party’s promise not to insist on the other party’s performance of those obligations. Each party is giving up legal rights u\ nder the first contract. Unilateral discharge: accord and satisfaction Where one party has completely performed his or her obligations under the or\ iginal contract and the other party wants to be released from their obligations, a promise by the first party to allow this is binding only if the other party promises some material benefit (consideration) in return. Such a transaction is described as accord and satisfaction . A promise, to pay a sum of money, or to provide some other consideration in return for the other party giving up his or her rights, will immediately discharge the contract. Discharge by frustration If, between formation and performance of the contract, events outside th\ e parties’ control render further performance impossible or futile, the contract may be disch\ arged by frus- tration . The party claiming that the contract has been frustrated must satisfy \ the court that PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 172 0003 the supervening events have radically changed the nature of the contractual obligation. This doctrine was developed in the nineteenth century to prevent injustice where a party is pre- vented from carrying out a contract through no fault of his or her own.Frustration may discharge the contract in the following situations: 1 destruction or unavailability of the subject matter; 2 the death or illness of one of the parties; 3 supervening illegality; 4 government intervention; 5 the event on which the contract is based fails to occur; 6 delay in performance. 1 Destruction or unavailability of the subject matter Taylor v Caldwell (1863) Held:a contract to let a music hall was found to be frustrated when the hall was destroyed by an arsonist. Gamerco SA vICM/Fair Warning ( Agency)Ltd (1995) Held: a contract under which the Guns N ’Roses band was going to perform was frustrated when the stadium where the concert was supposed to take place became unsafe and it was impossible to find another suitable venue in time. 2 Death or illness of one of the contracting parties This affects contracts involving a service which can be performed only by the r\ elevant party. Illness does not necessarily frustrate the contract. The average employm\ ent contract is not frustrated by an employee having a week off with influenza. Relevant factors to consider include the length of the illness relative to the length of the contract and whether the essen- tial nature of the contract is threatened by the loss of performance. A seven-year contract with an actor in The Mousetrap will not be frustrated by one night’s laryngitis, but this would prove fatal to a contract for a one-night performance by a famous soprano \ at the Royal Opera House. Condor v The Barron Knights (1966) Condor, drummer with the Barron Knights pop group, became ill with nervous strain. His doctor said that he should perform no more than four nights a week. DISCHARGE OF CONTRACTS 173 9 Discharge of the contract and remedies for breach 0003 Held:the contract was frustrated, since such limited performance was incompatible with the nature of the work. In the music business, performance dates might not arise at regular intervals. It might involve performance seven nights a week at busy periods. 3 Supervening illegality A contract which is completely legal when formed may become illegal by a\ change in the law occurring before performance. A contract with a foreign national will be made illegal if Britain subsequently declares war against that person’s country, since performance would in effect have involved trading with the enemy. Therefore, in Fibrosa Spolka Akcyjnav Fairbairn Lawson Combe Barbour Ltd (1943, HL) a contract by a British firm to sell machinery to a Polish \ firm was frustrated when Germany, with whom Britain was at war, annexed Poland in 1939. 4 Government intervention This has often arisen in wartime due to the internment or conscription of personnel and req- uisitioning of property. In Morgan v Manser (1947) the conscription in wartime of a comedian frustrated his contract. At the point when he received his call-up papers there was no indication of how long hostilities would last. Other exercise of power by government agencies may have the same effect. In Shepherd v Jerrom (1987) the imposition of a prison sentence was held to frustrate a con\ tract of apprenticeship. Compulsory purchase of land may invalidate a contract of sale. 5 The event on which the contract is based fails to occur Here the letter of the contract can usually still be performed, but perform\ ance has become futile and in no way reflects the object which the parties intended to achieve. Krell v Henry (1903) Held:a contract for the one-day hire of a room for the purpose of viewing Edward VII’s coronation procession was frustrated when the coronation was postponed due to the King’s illness. While it would have been possible for the hirer and his party to have sat and watched the traffic on the booked date, this clearly was not what the parties had intended. If part of the purpose of the contract can still be achieved, however, the contract will not be frustrated. Herne Bay Steamboat Co. vHutton (1903) Hutton hired a boat to take a party of guests to view the fleet and watch the naval review on Edward VII’s coronation day but due to the postponement of the coronation the review was also cancelled. Held: the contract was not frustrated since it was for two purposes only one of which had failed to happen. The fleet could still be toured. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 174 0003 DISCHARGE OF CONTRACTS 175 9 Discharge of the contract and remedies for breach 6 Delayed performance Delay, caused by some supervening event which suspends or unreasonably delays perform- ance of a contract, may lead to frustration of the contract, if it makes\ the outcome radically different from what the parties originally planned. See Davis Contractorsv Fareham District Council (1956, HL), Metropolitan Water Board v Dick Kerr & Co. (1918) and Gryf-Lowczowski vHinchingbrooke Healthcare NHS Trust (2006) below. The limitations of the frustration rule The courts do not willingly free parties from their contractual obligations. An event which should have been foreseeable when the contract was made will not frustrate the contract unless its occurrence was outside the parties’ control. Even then the court may still take the view that this eventuality (e.g. bad weather) should have been covered by the contract. It is also irrelevant that subsequent events have caused mere inconvenience or delay, or made the performance of the contract more expensive, or less profitable, than was planned. In Tsakiroglou & Co.v Noblee Thorl GmbH (1961, HL) it was held that closure of the Suez Canal did not frustrate a shipping contract although it added to the len\ gth, and therefore to the cost, of the journey. Davis Contractors v Fareham District Council (1956, HL) Davis had contracted to build houses for the council and had specified a fixed price. Due to bad weather, lack of materials and reduced manpower because of post-war shortages, the contract took much longer to complete than the builders had expected and was much more costly. Held: frustration had not occurred. Inconvenience and expense were not sufficient: frustration occurs only where the end result of the contract is rad ically different from what the parties intended. (If the contract had been frustrated, the council would have had to pay a price truly in line with the cost to the builder. (See remedies for frustration below, page 178.) Amalgamated Investment & Property Co. Ltd vJohn Walker & Sons (1977) Held: applying Davis(above), a contract, to buy a property with a view to development, was not frus- trated by the building later being listed by the local authority because of its architectural interest, which in effect prevented any real development taking place. The listing did not prevent the contract being carried out. Listing was an inherent risk that would certainly drastically reduce the price but there was no express or implied term in the contract that the property would continue to be capable of develop- ment. The listing therefore did not make the contract radically different. The above case illustrates particularly well how the court is unsympathe\ tic to the plight of an experienced business which in effect gambles and loses on a risky contractual deal. The nature of the premises meant that listing was a considerable probability, and the buyer had asked the vendor whether it knew of any plan by the local authority to d\ o so. The buyer still chose to go ahead, clearly aware that it was a risky enterprise. It was fair to treat the buyer as having accepted the inherent risk. 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 176 Force majeure clauses An effective force majeure clause may prevent a contract being frustrated. It determines the rights of the parties in the event of specified circumstances outside their control. A force majeure clause can be useful in two ways: 1 To exempt a party from, or limit its liability for, breach of contract to cover situations where failure to perform arises from circumstances which are unlikely to be treated as frustrating the contract. Hazards which commonly prevent performance are deemed by the courts to be foreseeable and therefore incapable of frustrating the contract. For example, bad weather is a common cause of delay in the performance of tr\ ansport, travel and construction contracts. These may also be interrupted by trade union\ action, or through outbreak of civil or national hostilities. Remember that exemption and limita\ tion provisions are subject to the controls which you studied in Chapter 6. 2 To avoid the contract being discharged by events which would normally fru\ strate it. This will be effective only if the court is satisfied that the parties really intended to keep the contract alive in the circumstances which are now threatening its existence. Metropolitan Water Board vDick Kerr & Co. (1918) A contract made in July 1914 for the construction of a reservoir within six years contained a provision that the time limit could be extended in the event of delay arising from difficulties, delays or impedi- ments, however caused. On the outbreak of war the following September, the work was halted by government order. Held: the clause did not prevent the contract being frustrated, since the delay occasioned by interrup- tion of the work appeared likely to be much more lengthy than the parties could have contemplated when they made the contract. Self-induced frustration The courts are not sympathetic to a party who causes the allegedly frustrating event.\ Maritime National Fish Ltd vOcean Trawlers Ltd (1935) The defendants hired a trawler equipped with an otter trawl which required a licence. The defendants applied for five licences, to cover their own ships and the hired ship, but only four were granted. The defendants, therefore, used these to license their own ships. They claimed that the lack of a licence for the claimant’s ship frustrated the contract of hire by making its performance illegal. Held: the contract was not frustrated as the defendants had chosen which ships to license and could have licensed the hired ship instead of one of their own. 0003 The difference between frustration and mistake It is important to note the difference between a contract which is void for mistake and one which is frustrated due to destruction of the subject matter. The distinguishing feature is one of time, as you can see from the ‘Real Life’ example outlined below. (For operative mistake, see Chapter 7, page 135.) The consequences of the contract being frustrated When a contract is discharged by frustration, it ceases to exist from that moment on. Rights that have already arisen with regard to a party remain that party’s property, but the party loses any rights which are due to arise (accrue ) later. This means that a party who has received property is entitled to retain it; a party with no entitlement to claim payment before the contract was frustrated loses its right to do so under the contract.\ Prior to 1943 such loss was said to ‘lie where it fell’ at the time when the contract was frustrated. There was no means by which a party could recover prepaid money, or payment for services rendered in preparation for performance of the contract. Appleby v Myers (1867) The claimants contracted to install machinery on the defendant’s premises. Payment was to be made on completion of the work. The defendant’s premises were destroyed by fire prior to completion. It was held that the claimants were unable to recover any of the cost of their labour and materials. The injustice of this principle was reduced by the decision in Fibrosa: Fibrosa Spolka Akcyjna vFairbairn Lawson Combe Barbour Ltd (1943, HL) (The facts in this case are set out above at page 174.) Held: since consideration had completely failed and the Polish firm had received no benefit whatever from the contract, it should recover the £1,000 which it had already advanced and was not liable for the remaining £600 advance payment. DISCHARGE OF CONTRACTS 177 Real Life Horace works as a sales representative for Stephen’s Toys Ltd. He contracts to sell a consignment of teddy bears to Matilda. He believes that they are safely stored in a warehouse at Stephen’s factory but unknown to both parties the warehouse has just caught fire after being struck by lightning and the goods ceased to exist before Horace made his offer. Here no contract ever came into existence. It was void from the outset for operative mistake, as it was based on non-existent subject matter. It was impossible for a contract to result. If destruction of the teddies had occurred after Matilda had accepted Horace’s offer, the contract would be frustrated, since it was formed with reference to goods which existed at the time the contract was made, but destroyed before it was performed. 9 Discharge of the contract and remedies for breach 0003 While the common law still determines the situations where frustration mayoccur, the rights of the parties to a frustrated contract are now regulated by statute. The Law Reform ( Frustrated Contracts )Act 1943 Payer’s right to recover prepaid sums (s 1(2)) All prepaid sums are returnable to the payer once the contract has been frustrated and any sum already due ceases to be payable. Payee’s right to recover expenses (s 1(2)) A proviso protects the payee. If the payee has incurred expenses in performance of the con- tract before the frustrating event they may, at the discretion of the court, retain or claim up to the maximum of any prepaid or prepayable sum to cover those expenses, if with regard to all the circumstances it is fair and just to do so. Gamerco SA vICM/Fair Warning ( Agency)Ltd (1995) (The facts in this case are set out above at page 173.) The defendant had been paid $412,000 in advance while the claimant promoters had incurred approxi- mately $450,000 expenses. The defendant’s expenses were assumed to be about $50,000. Held by Garland J (somewhat controversially): given the extent of the claimant’s expenses and the absence of any real evidence of those of the defendant, the defendant must repay the whole $412,000. Note the limits to the protection of this proviso in s 1(2): if the work done by the payee exceeds the prepaid/prepayable sum the difference cannot be claimed. However, its effect may be to make the payer part with money without seeing any benefit. Payee’s right to cost of a valuable benefit (s 1(3)) A party who, prior to the frustrating event, has conferred a valuable benefit on the other (apart from the payment of money) may claim its value, if it is just to do so. T\ his right exists as an alternative to, or in addition to, the rights conferred under s 1(2). Unfortunately the 1943 Act does not define what is meant by a ‘valuable benefit’. So\ me guidance was given in the next case, which also illustrates how a just sum should be calcul\ ated. BP Exploration Co. v Hunt (1982, HL) Hunt owned an oil concession in Libya. His contract was with BP, under which it was to explore the concession to see if it was commercially viable and, if so, to develop it. This would be done at BP’s risk and cost. If oil were found in commercial quantities, BP would be repaid out of Hunt’s share. A substan- tial oil field was developed and went into production, but the contract was frustrated when the Libyan government withdrew the concession. BP claimed that the oil Hunt had received was a valuable benefit. Held: the Act must be interpreted purposively to prevent either party obtaining an unfair financial advantage. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 178 0003 The valuable benefit was the end product of the service as opposed to the service itself. Hunt had been given his share of the oil and, therefore, received a valuable benefit from BP’s performance of contrac- tual services. The value of the benefit must be determined at the moment the contract was frustrated. This repre- sented the upper limit of any award. The value of Hunt’s share of the oil so far was $85 million, but this must be reduced to take into account gains made by BP so far and the terms of the contract. The just sum to be awarded to BP was $35 million, since it had already recovered $62 million of its $85 million development costs but had also paid Hunt $10 million. The fact that BP bore the main risks attached to the contract was also relevant to determining this sum. It cannot be said that in Applebyv Myers (above, page 177) the defendant (under today’s law) would acquire a valuable benefit from incomplete and, as yet, useless machinery. If he were able to use the equipment to a limited extent, that would represent a valuable benefit. The Act, therefore, always protects a payee who has asked for some prepayment. The payee will be covered, whether or not he or she has actually provided any valuable benefit. However, if the payee has (perhaps unwisely) not stipulated any advance payme\ nt, the Act will assist only if the payer has received a valuable benefit. It is instructive to see how the doctrine of frustration would affect the outcome of Cutter v Powell, which was explained at the beginning of this chapter. Today, Lieutenant Cutter’s contract would be frustrated by his death. By serving on the ship, he wo\ uld have provided a valuable benefit to his employer prior to his death; so now a proportion of his wages would be recoverable by his widow. Discharge by breach Not every breach of contract is capable of resulting in its discharge. The distinction between conditions and warranties, which you studied in Chapter 6, is important \ here: 1 Breach of warranty. The innocent party has the right to claim damages if he or she has suffered any actionable damage or loss. The breach is not capable of bringing the con- tract to an end. 2 Breach of condition . Where a term has the status of a condition and, therefore, is crucial to the contract, the innocent party is entitled to repudiate (refuse further performance of his or her obligations); he or she may recover any property transferred under the con- tract and obtain damages. Notice that the innocent party, in theory at least, has a choice. An innocent party can free himself or herself from his or her obligations if he or she wishes, or may attempt to hold the other party to the bargain. In ma\ ny cases no real choice exists, as the breach will be so ruinous to the contract that the injured party will be only too glad to be able to avoid his or her obligations. A breach of condition may consist of a refusal to perform, or arise from performance which is so inadequate that the innocent party is effectively deprived of the bargain. It may occur before or at the date of performance. DISCHARGE OF CONTRACTS 179 9 Discharge of the contract and remedies for breach 0003 Anticipatory breach So-called anticipatory breach of a contract occurs where one party indicates, before the time for performance is due , that he or she repudiates the contract. This may consist of either a total refusal to perform or a statement that performance will be different from that set out in the contract. Once this occurs the innocent party may repudiate his or her side of the contract and sue for damages. Hochster vDe La Tour (1853) The parties made a contract in April, under which the defendant agreed that the claimant should act as his courier on a foreign tour, due to begin on 1 June. On 11 May, the defendant informed the claimant that his services would not be required. Held: the claimant could sue for damages immediately: he did not have to wait for the performance date. Refusal of performance must be clear and unambiguous to amount to repudiatory breach. Dalkia Utilities Services plc vCaltech International Ltd (2006) In 1995 Dalkia entered a contract to provide energy services for 15 years payable by monthly instal- ments. The contract gave Dalkia the right to terminate the contract and claim a termination fee if Caltech committed a material breach. Caltech was late paying some instalments between 2000 and 2003, and in June 2003 Caltech warned Dalkia that Caltech was experiencing financial difficulties and was considering sale of the business or putting it into administration. By 1 August, three months’ instalments were owing and Caltech told Dalkia that it did not have the means to pay and was facing insolvency. It asked for a moratorium and suggested a scheme for repayment. Within days Dalkia served a demand for the arrears and issued a ter- mination notice as prescribed by the contract. Caltech then paid the arrears. Held: the contract was not discharged. Caltech’s statement on 1 August was not sufficient to amount to refusal of further performance. While clearly Caltech had breached the contract it had not repudiated it. Caltech had not refused payment permanently nor shown any intention to deprive Dalkia of the sub- stantial benefit of the contract. Caltech had ‘sailed close to the wind’ in its reference to insolvency but regarded this ‘no doubt as lever in the negotiations’. It had given ‘a mixed message’ lacking ‘the necessary clarity to constitute repudiation’. Obiter dictum: even if Caltech had committed a repudiatory breach, Dalkia had not evidenced acceptance of it but arguably had chosen to affirm the contract by using the termination clause instead of pursuing the normal remedies for breach. Victims of an anticipatory breach therefore, are entitled to repudiate their contractual obli- gations only if the other party has already indicated his or her own repudiation. The innocent party must then give notice of intention to repudiate. This may be implied from the conduct of the parties and/or commercial practice. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 180 0003 Vitol Sa vNorelf (1996, HL) The buyer of a cargo wrongly repudiated the contract because of unfounded fears about delay in load- ing and notified the seller, by telex, of what he wa s doing. The seller took no further action to perform the contract and, therefore, did not send the buyer the bill of lading which would, in this sort of con- tract, normally be sent once the cargo was loaded. Held: the absence of the bill of lading should have made the buyer aware of the seller’s intentions. The seller’s behaviour in the context of trade practice ‘clearly and unequivocally’ evidenced intention to treat the contractual obligations as discharged by the buyer’s breach. Formal communication of notice is not necessary and may be effective even if it comes from an unau- thorised third party. The issue is whether a reasonable person would have believed that the innocent party was opting out of further performance. Note that the Court of Appeal in Stocznia Gdanska SA v Latvian Shipping Co. (No. 3) (2002) has stated that affirmation is not irrevocable. When the nature of breach is such that performance may still be possible, a party, who affirms but later gets tired of waiting, may then repudiate. If the innocent party chooses to wait for the performance date in the ho\ pe that the other party will, after all, perform, three consequences may follow: 1 The innocent party may have no duty to mitigate any loss before the date when the other party’s obligations become due. The innocent party’s duty to take reasonable steps to avoid adding to the loss arising from the breach may not arise until he or she acknowl- edges the breach or until the date of performance, whichever comes first. The innoce\ nt party may continue with his or her performance, where this can be done without the co- operation of the other party, and claim his or her full costs. White & Carter (Councils) Ltd v McGregor (1962, HL) Mr McGregor, who owned a garage, was persuaded to advertise it through White’s advertising plates, which the company contracted to display on council litter bins for three years. McGregor’s obligation to pay arose only once the plates were installed. He attempted to cancel the contract the same day that he had made it, but the company refused to accept his repudiation. Held: the company, having performed its obligations, was able to claim the full sum. As the company had not chosen to repudiate the contract, no duty to mitigate arose, i.e. the company was under no obli- gation to look for another advertiser so as to avoid losing money. The facts of the above case were exceptional since performance was completely within White & Carter’s control and the product was only of any use to McGregor. The House of Lords ( obiter dictum ) stated that such a claim should not be successful unless the innocent\ party had a legitimate interest in keeping the contract alive. DISCHARGE OF CONTRACTS 181 9 Discharge of the contract and remedies for breach 0003 Clea Shipping Corpn vBulk Oil International (1984) The charterers of a ship wrongfully repudiated the contract before the charter was due to commence. The owners kept the ship in readiness for use for the remainder of the charter period and took no steps to find another hirer. Held: the owners should have mitigated their loss by seeking another charterer. They had no legitimate interest in behaving as they had. 2The contract remains alive for the benefit of both parties. The innocent party is not dis- charged from his or her duties under the contract until he or she repudiates the contract. If he or she does not repudiate, but fails to perform obligations as they fall due, the inno- cent party could be liable for breach. 3 If the contract is frustrated before the performance date, the innocent \ party loses any rights to sue for breach. Avery v Bowden (1855) The claimant hired a ship to the defendant at a port in Russia. Before the hire date the defendant told the claimant that he would not be able to fulfil the contract, but the claimant chose to wait to see if he would change his mind. The Crimean War then broke out. Held: the outbreak of war frustrated the contract and the claimant no longer had any right to sue. The contract from which his rights had been derived had ceased to exist. Actual breach Actual breach occurs when performance is due, or in the course of performance. It take\ s one of two forms: a failure to tender any form of performance, or performance which is so inadequate that it largely destroys the purpose of the contract. An example of the latter occurred in December 1994, when passengers on the QE2were transported to New York while the ship was still in the process of refitting; the ship resembled a construction site rather than a luxury liner. Although the passengers were delivered to their destination on the correct date, the conditions under which they had travelled were so appalling that their contractual expectations were largely defeated. There is little doubt that a court would treat such poor performance as amounting to a breach of condition. A very high standard of comfort, with access to the facilities to be expected on such a trip, is\ central to such a con- tract. Cunard immediately offered all the passengers a full refund of their fares. (See Jarvis v Swan Tours , below at page 187.) PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 182 0003 Remedies for breach of contract The most common remedy for breach is damages, but some equitable remedies are some- times appropriate. Damages The purpose of damages is to compensate the injured party for loss or damage arising from the breach. The court awards a sum which is aimed at putting the injured party in the finan- cial position which he or she would have enjoyed if the contract had bee\ n performed. To do this the court must assess the damage alleged to result from the breach and decide whether any of it is too remote. It may not be justifiable to blame defendants for all the results of their actions, which may be knock-on effects of the breach. Having decided how much of the damage is attributable to the defendant, the court must decide on th\ e quantum of damage, i.e. determine how much money the damage is worth. Remoteness of damage Hadley v Baxendale (1854) The defendant contracted to carry the claimant’s mill shaft from Gloucester to London, where it was to be used as a pattern to construct a new one. Due to the fault of the defendant, there was a considerable delay in the return of the shaft. The claimant claimed damages for his lost profits due to the mill being out of action. Held: the defendant was not liable for this loss because it was too remote. There was nothing to alert him to the problem, since the claimant had not indicated that failure to return the shaft within the promised time limit would produce this result. In Hadley v Baxendale, the court distinguished between the two types of damage that might follow a breach: usual and non-usual damage. 1 Usual damage. Usual damage is the damage that anybody might reasonably anticipate would arise from a contract of the relevant kind. For example, breakage is an obvious hazard in a contract to transport china. 2 Non-usual damage. Non-usual damage arises because of particular circumstances which will not necessarily be known to the other party, unless these are drawn explicitly or impliedly to that party’s attention before the contract is made. For example, in a contract to transport china, failure to disclose that the delivery time is crucial to a highly profitable sale would prevent a claim for more than normal profits in the event of a late delivery. The following cases illustrate how these principles may be applied. REMEDIES FOR BREACH OF CONTRACT 183 9 Discharge of the contract and remedies for breach 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 184 Victoria Laundry vNewman Industries Ltd (1949, CA) Victoria Laundry, wishing to extend its business, asked the defendant to deliver a boiler by a stated date in June. Delivery did not take place until November, due to damage caused by the defendant. Due to this delay, the claimant was unable to take on some particularly lucrative dyeing contracts. The defen- dant knew that expansion of the business would be delayed if the boiler was not promptly delivered. Held: the defendant was liable for the profits that would have resulted from the use of the boiler between June and November. However, the defendant knew nothing about the dyeing contracts, so it was not liable for those losses. Koufos vCzarnikow Ltd ( The Heron II) (1969, HL) The defendants contracted to carry a cargo of sugar for the claimants. They knew that the claimants were sugar merchants and that there was a sugar market at the destination port. Due to delay caused by the defendants, the sugar was sold at a loss. Held: the claimants were entitled to recover their lost profits because of the defendants’ knowledge of the nature and purpose of the contract. This should have alerted them to the consequences of delay. The remoteness rule in contract is more stringent than the reasonable foreseeability test in tort, because of the parties’ relationship to each other. (See ‘In the News’ below.) When negotiating a contract, the parties have the opportunity to discuss risk\ allocation and may refuse to do business if this cannot be resolved satisfactorily. In the News Transfield Shipping Inc vMercator Shipping Inc (2008, HL) T chartered a ship from M. It was agreed that it would be returned by 4 May 2004. M entered into another charter with a third party running from 8 May 2004. However due to delays on the voyage T did not return the ship until 11 May 2004. The new charterers agreed to take the ship, but at the new market price which was lower than when they had initially entered the contract. M claimed damages of the difference in market price for the whole of the new charter period, while T maintained that it should only be liable pro rata for the number of days delay before it had returned the ship. The issue was initially determine d by arbitrators who supported M’s claim on the grounds that the loss should have been reasonably foreseeable to T. T appealed. Held: T was only liable for the three days’ loss. The remaining loss was too remote. Reasonable forseeability alone was too crude a test to apply to remoteness of damage in contract. Under the rule in Hadley v Baxendale as affirmed by the House of Lords in the Heron II, the issue must be determined not by probability but also by what the contracting parties presumably had in mind with regard to the nature and object of their transaction when they entered into it. 0003 Quantum of damages When establishing the quantum of damages (the financial value of the claimant’s loss) the court is governed by a number of criteria: 1 the loss must be financially quantifiable; 2 agreed damages will not be altered, but penalty sums will not be enforced; 3 the injured party has a duty to mitigate any loss; 4 contributory negligence may reduce the amount of damages. 1 Quantifiable damage It must be possible to assess the loss to the injured party in financial terms ( quantifiable damage ). This is easy where goods are damaged, since the costs of repair or replacement are easily verified. The measure of damages for breach of a building contract is normally the cost of reinstatement (correcting the defect) rather than the diminution in value of the end product, but this is subject to exceptions in the interest of producing a just result. Ruxley Electronics & Construction Ltd v Forsyth (1995) A contract to build a garden swimming pool spe cified that it would be 7 foot 6 inches at its deepest part, but on completion it was found to be 9 inches shallower there and 18 inches shallower at the point where diving would take place. Held: reinstatement damages were unreasonable here as they would be ‘out of all proportion to the benefit to be obtained’. Ruxley was entitled to £2,500 for loss of amenity. Claims for loss of profit are common in contract. Under s 50 of the Sale of Goods Act 1979, a buyer who refuses to take delivery of goods may be liable to the seller for any los\ s on the resale of the goods due to fluctuation of the market price.A party may also recover reliance losses : expenses incurred while preparing to perform a contract which never takes place due to the breach of the other party. So in Anglia TVv Reed (1971) Christopher Reed, who unlawfully repudiated a contract to appear in a film, was held liable for the costs Anglia TV had incurred in preparing for the production. REMEDIES FOR BREACH OF CONTRACT 185 Lord Hope said: In this case it was within the parties’ contemplation that an injury which would arise generally from late delivery would be loss of use at the market rate, as compared with the charter rate ... This some- thing that everybody who deals in the market knows about and can be expected to take into account. But the charterers could not be expected to know how, if there was a subsequent fixture, the owners would deal with any new charterers. This was something over which they had no control and, at the time of entering into the contract, was completely unpredictable . In the News (Continued) 9 Discharge of the contract and re medies for breach 0003 Other damages are less easily quantifiable. Where a party suffers personal injuries, his or her resulting financial losses may also often be calculated with reasonable accuracy. There are, though, some rather arbitrary rules which exist to enable the court t\ o compensate for non-financial losses like physical pain and suffering. Until recently, the courts were reluctant to award damages for mental distress, hurt feel- ings and disappointment. In Addisv Gramophone (1909, HL) it was held that damages were not available to compensate for the claimant’s hurt feelings and distress at being wrongfully dismissed, nor for the fact that the mode of his dismissal made it difficult for him to obtain future employment. This principle was for many years deemed to apply to all contracts but a\ number of dis- tinctions and exceptions have gradually developed. Damages may be awarded for loss of reputation. The House of Lords recently developed the concept of stigma damages . Malik vBank of Credit & Commerce International (1998, HL) The defendant bank went into liquidation after its dishonesty and corrupt dealings emerged. The claimant, an ex-employee, was awarded damages for the losses he incurred, caused by a continuing dif- ficulty in securing employment, because of the misdeeds of his previous employer. Held: Addisdid not apply here. This was not a distress claim. Malik’s claim could succeed on the grounds that the bank was in breach of the employment contract. Employer and employee have a mutual duty of trust and confidence. Failing to conduct business honestly was a breach of this. (See Chapter 16 below at page 000.) The basic principle of Addis continues to be upheld by the court and damages for distress arising from the mannerof dismissal are not recoverable. Johnson v Unisys (2001, HL) The claimant suffered a nervous breakdown after being summarily dismissed by the defendant and he was unable to get a new job. He was awarded the statutory maximum (just under £12,000) under the statutory scheme for unfair dismissal at the employment tribunal. He argued that he also had a claim for breach of contract at common law and claimed £400,000 in lost earnings on the grounds that the manner of his dismissal was a breach of the employer’s duty of trust and confidence. Held (by majority): the duty of trust and confidence did not relate to the termination of the contract. The needs of the claimant concerning dismissal were already covered by the statutory scheme and the claimant could not avoid the statutory limit to compensation by bringing a common law action. However, the House of Lords later decided that, if the breach of duty arises while the con- tract is still running, a right of action at common law may exist. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 186 0003 Eastwood and another vMagnox Plc and Mccabe vCornwall County Council (2004, HL) In Eastwood two employees claimed that before they were unfairly dismissed, their employer had con- ducted a campaign to demoralise and undermine them, which caused them psychiatric illness. The employee in McCabe claimed that he had suffered psychiatric illness because his employer failed to carry out a proper investigation into the allegati ons against him and had not conducted the disciplinary proceedings appropriately. Held: the employees had a right to sue for the breach of contract arising from the behaviour of the employers and which had preceded the unfair dismissal. The claimants in the above case had two causes of action: one for breach of contract at common law in the court and a statutory one for unfair dismissal in the employment tribu- nal. The House of Lords pointed out that, if they brought both types of action, any overlapping heads of damage could not be recovered twice. (For more information about statutory unfair dismissal rights, see Chapter 18.) Breach of an advertising contract may result in an award of damages for lost reputation, since the contract is intended to enhance reputation not to detract from it. In Aerial Advertising Co.v Batchelors Peas (1938) the defendant had contracted to advertise the claimant’s product by flying an aircraft with a suitably worded banner over a number of locations. In breach of the contract, the defendant flew the aircraft over Salford during the two-minute silence on Remem- brance Day. People were so scandalised by this disrespectful behaviour that Batchelors suffered a boycott of their product and damages were awarded for the damage to their reputation. On the same principle, distress losses are recoverable in contracts with consumers, pro- vided that the purpose of the contract is to provide pleasureor peace of mind or freedom from distress, but where the breach has in fact caused any of these to be lost. Jarvis vSwan Tours (1973, CA) When he bought a skiing holiday package, Mr Jarvis was promised a house party atmosphere with full bar facilities, a welcome party, afternoon tea and cakes, and a yodeller evening. There were only 13 guests in the first week. During the second week Mr Jarvis was the only guest. The yodeller turned up in working clothes, and sang only a few songs. The afternoon tea consisted of crisps and dry nut cakes. The bar was open on one evening only and the skiing facilities were very poor. Held: Mr Jarvis was held to be entitled to damages for his disappointment at the absence of all the prom- ised facilities which were central to the contract’s performance, and recovered the full cost of his holiday. Heywood vWellers (1976) The claimant contracted with the defendant solicitor to obtain an injunction to prevent her ex- boyfriend from harassing her. Due to the solicitor’s negligence the procedure failed and she continued to be molested. Damages were awarded for her distress since the entire purpose of the contract was to prevent this occurring. REMEDIES FOR BREACH OF CONTRACT 187 9 Discharge of the contract and remedies for breach 0003 Even where the court is not prepared to categorise a contract as one for peace of mind, it may award damages for distress directly resulting from physical inconvenience caused by the breach. In Perryv Sidney Phillips (1982, CA) the defendant, who was under contract to the Perrys to survey premises they wished to buy, overlooked roofing faults and a defective septic tank. Once they moved in the need for repairs became evident, especially as the smell from the septic tank was causing nuisance to the neighbours. The court refused to cate- gorise an ordinary surveyor’s contract as one for peace of mind and freedom from distress. However, damages were awarded for the distress arising from the physical inconvenience of the execution of the repairs. Cases since the late 1990s generally indicate greater readiness by the courts to recognise peace of mind obligations in contracts. In Farleyv Skinner (No. 2), below, the House of Lords held that the particular circumstances of the contract should determine whether it placed such obligations on the surveyor. Farley vSkinner ( No. 2) (2001, HL) The claimant specifically requested the defendant surveyor to advise whether the property he was inter- ested in buying was badly affected by aircraft noise from Gatwick airport. Held: the claimant was entitled to £10,000 since the the surveyor’s favourable report proved grossly inaccurate. It was sufficient that a major or important part of the contract was to give peace of mind, pleasure or relaxation, for recovery of such damages to be permissible. The courts have resisted attempts to extend peace of mind damages into contracts between two businesses. Hayes v James & Charles Dodd (1990, CA) The defendant solicitors failed to warn a commercial client of acute access problems to land that the client was buying. Held:damages were not payable for the mental distress caused. 2 Liquidated damages and penalties It is quite common for a contract to specify that, in the event of a breach, a sum of agreed or liquidated damages will be payable. If the court is satisfied that this sum represents a genuine attempt by the parties to determine a reasonable pre-estimate of the loss likely to result from such a breach, that sum will be awarded whether or not it represents an appro- priate level of compensation. If the sum is not adequate, the injured party cannot claim more, since it contractually agreed to accept it. If it is more than necessary, the injured party does not have to return the difference. However, the court is notprepared to enforce a sum that is held to represent a penalty , i.e. a punishment to be suffered by the guilty party if it fails to perform its obligations, rather than an appropriate level of compensation. The object of awarding damages in contract is to compensate an injured party, not intimidate the other PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 188 0003 party into performance. If the court decides that the sum represents a penalty, this will be disregarded; instead a sum will be awarded which is representative of the injured party’s actual loss. In the following case, Lord Dunedin proposed the following tests to distinguish between liquidated damages and penalties: 1 the words used to describe the sum are evidence of what the parties intended but arenot conclusive; 2 the sum should be treated as a penalty, if grossly disproportionate to the greatest damage likely to result from the breach; 3 where the breach consists of a failure to pay money, the prescribed sum is a penalty if it exceeds the sum payable; 4 where one sum is payable in the event of the commission of any of a number of\ different breaches, some of which are trifling and some of which are more serious, it is probably a penalty; 5 even if accurate pre-estimation is almost impossible, this does not prevent a sum from being treated as liquidated damages, as long as it represents a genuine attempt to make a reasonably accurate assessment. Dunlop Pneumatic Tyre Co. Ltd v New Garage & Motor Co. Ltd (1915, HL) Dunlop had a clause in its contract of sale which attempted to impose a minimum price restraint on resales of its tyres by New Garage. It stated that breach of this term would make New Garage liable to pay ‘£5 by way of liquidated damages for every tyre, cover or tube’. Held: this sum was liquidated damages. It was impossible to forecast precisely the damage resulting from each sale in breach of the agreement and there was no reason to suspect that this was not a gen- uine bargain to assess damages. (Application of criterion 5 above.) Since £5 was quite a substantial sum in 1915, this seems a rather sur\ prising decision. Per- haps the House of Lords felt such a restraint was appropriate to the development of a completely new area of the market, the future of which was unpredictable at the point when the contract was formed. The following cases illustrate how the courts apply the criteria in the \ Dunlop case. Jeancharm vBarnet Football Club (2003, CA) Jeancharm contracted to supply football kit to the club. A term in the contract stated that in the event of late payment the club should pay interest at 5% per week (equivalent to 260% per year). In the event of late delivery, Jeancharm promised to pay 20 pence per garment per day. Held: the 260% interest was an unrealistic sum to pay for Jeancharm’s administrative costs, and the term must be treated as a penalty clause which was therefore unenforceable. It was totally dispropor- tionate in comparison to the greatest loss that Jeancharm was likely to suffer. REMEDIES FOR BREACH OF CONTRACT 189 9 Discharge of the contract and remedies for breach 0003 Tullet Prebon Group vGhaleb El Hajjali (2008, QB) E, the defendant, was a specialist broker who, after taking legal advice, entered an employment contract with T. This stated that if he failed to take up the job he would be liable for liquidated damages equal to at least 50% of his net annual salary. His solicitor drew this clause specifically to his attention prior to signing. E having accepted, later told T, the claimant, that he wasn’t interested in the job after all. T attempted unsuccessfully to find a replacement and claimed liquidated damages for breach of contract from E who refused to pay the money arguing that it was a penalty sum. Held: E was crucial to the performance of a particular function or project. By failing to take up the job he made T suffer loss. T had made all reasonable efforts to mitigate its loss. The liquidated damages clause was not a penalty clause since it was not a disproportionate sum in the circumstances. E had entered the contract after legal advice and with full notice of the term so the parties enjoyed equal bar- gaining power. 3 The duty to mitigate The injured party cannot claim the cost of damage which it could reasonably have avoided. It is up to the party in breach to prove that the damage was avoidable. Brace v Calder (1895) A clerk with a fixed contract of employment with the defendant’s partnership lost his job when the part- nership was dissolved when one of the partners left. The partnership was immediately reformed by the remaining partners who had offered the clerk a job on his old contractual terms. He refused and sued to claim the wages which would have been payable had his contract run for its remaining two years. Held: the clerk was not entitled to damages since he ha d been given a perfect opportunity to mitigate his loss completely and had failed in his duty to do so. However, only reasonable steps need be taken to fulfil the mitigation duty. In Pilkington v Wood (1953) it was held that it was unreasonable to expect the claimant to take legal action against the seller of land to correct a defect in title, which the defendant solicitor had negligently failed to notice when acting for the claimant during the pur\ chase of the land. 4 Contributory negligence It is possible that this may reduce the amount of damages awarded by the court. The Law Reform (Contributory Negligence) Act 1945, which regulates this defence in the law of tort, does not refer to contract liability. It is arguable whether in its current form it can legiti- mately be extended to cover contractual situations. The courts have been\ prepared to reduce damages where claimants’ own lack of care has aggravated their loss. This appears to have been restricted to cases where a defendant is in breach of an obligation to act with reasonable care and skill which would entitle the claimant to sue in tort or contract.\ In 1993, the Law Commission recommended a new statute explicitly extending the defence to claims arising from any breach of a contractual duty to act with reasonable care and skill. So far Parliament has not implemented this recommendation. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 190 0003 Equitable remedies A dominant characteristic of such remedies is that they are discretionary. The court has a choice whether or not to award them, unlike damages, which must be awarded if a party proves its case. A party may be refused access to an equitable remedy unless the court believes that it is just to bothparties. The party claiming the remedy must show that: 1 damages would not be an adequate remedy; 2 he or she acted completely honestly: dishonest, though legal, behaviour w\ ill defeat a claim. For example, the seller of a house has no legal duty to declare its defects unless asked. If, however, a seller knowingly failed to disclose such defects, a decree of specific performance would not be awarded against a buyer who discovered the defects later and refused to per- form his or her contractual obligations. Imposition of the equitable remedy must not be unnecessarily oppressive to the other party. The victim of a breach of contract may exceptionally be awarded one of the following remedies. 1 Rescission The court sets the contract aside and restores the parties to their pre-contractual positions. Note that the courts are more generous to a breach victim than to a party who claims rescis- sion on other grounds, like misrepresentation. Rescission may be granted in a breach action even though the party at fault cannot be restored to his or her pre-contractual position: for example, where the victim of the breach has consumed the goods. 2 Specific performance The court orders a party to perform his or her contractual obligations. Specific perform- ance is rarely granted except in relation to contracts for the sale of land. It will never be granted to enforce a contract of employment since it would be an unreasonable restriction of personal liberty to enforce performance of such a contract. It is also unlikely that the out- come of such enforced performance would be satisfactory. A sale of goods contract concerning a unique item, like a rare antique or a work of art, might attract the remedy. Gen- erally, damages are regarded as adequate, as the buyer can obtain similar goods elsewhere. If the contract concerned unique goods, such as a work of art, the court might take a different view. In Cohen v Roche (1927) a contract to sell a set of Hepplewhite chairs was held not to be specifically enforceable since the chairs were regarded as ‘ordinary articles of commerce’. Specific performance is unlikely to be granted to enforce a continuing obligationwhich requires continuing supervision. So in Ryanv Mutual Tontine Association (1893) specific per- formance was held not to be appropriate to enforce a requirement in a lease relating to the provision of a janitor in full-time attendance at a block of flats. However, the need for limited supervision will not deter the court from issuing the order to carry out work. In Rainbow Estates Ltdv Tokenhold (1998) specific performance was granted to a landlord to make a tenant carry out repairs as required by the lease. It was held that the schedule of work was sufficiently clear and specific to make it readily capable of enforcement. Once complete, no further supervision would be required. REMEDIES FOR BREACH OF CONTRACT 191 9 Discharge of the contract and remedies for breach 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 192 Specific performance has been used to enforce a debt owed by a third party to the estate of a deceased person. Beswick v Beswick (1968) Peter and John Beswick made a contract, under which John promised Peter that he would pay an annu- ity to Peter’s wife after Peter’s death. John failed to perform this obligation and Peter’s widow sued him for breach of contract. Held: as she was not privy to the contract between Peter and John, she had no rights to claim on her own behalf. However, she could succeed in her claim as the administratrix of her husband’s estate which entitled her to pursue the action on behalf of her husband’s estate. As the estate itself had suffered no loss through the breach, any damages would be nominal, so in the interests of justice, specific perform- ance of the contract should be ordered to prevent John from getting away with the breach. As indicated above, an equitable remedy will not be granted unless it will do justice to both parties in all the circumstances of the case. Therefore the court may, in its discretion, refuse to enforce a contract where this would cause unreasonable hardship to the party who is refusing to perform. Thus, in Patelv Ali (1984) Mrs Ali contracted to sell her house, but almost immediately she suffered considerable domestic trauma including the death of one of her children. She no longer wanted to move, as she spoke little English and had fri\ ends and neighbours nearby whom she relied upon for help. Specific performance was refused. Hardship can also be relevant to commercial contracts. Co-operative Insurance Society v Argyll Stores (Holdings)Ltd (1997, HL) The defendant opened a supermarket in a shopping centre owned by the claimant. The 35-year lease contained a covenant by the defendants that during the currency of the lease the store would be kept open for trade during normal retail hours. Six years into the lease the defendant closed the store and the claimant requested specific performance. Damages were not an adequate remedy as it was virtually impossible to quantify them accurately for the remaining 29 years of the lease. Held: the contract would not be enforced as it would be unjust to force someone to run an unprofitable business, and also supervision of performance was impracticable in the circumstances. Beswick v Beswick is a good example of the court using an equitable remedy to avoid the unjust result which would arise from strict application of the law. What statute could Mrs Beswick use to enforce payment if she was bringing this case today? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 CHAPTER SUMMARY 193 3 Injunction An injunction is a commonly requested remedy for breach of restraint of trade contracts (see Chapter 8). It will not generally be granted to force one party to employ or work for another, as this would amount to enforcing a contract of employment indirectly. In Page One Records v Britton (1968) it was held that an injunction would not be granted to restrain The Troggs (a pop group) from employing a new manager, since this would force them to go on employing the claimant. But compare Page One Records v Britton with the following case. Warner Bros vNelson (1936) The film star, Bette Davis (Nelson), breached her contract, under which she had agreed not to act on stage or screen for anybody except Warner Bros for one year, by agreeing to make a film with a UK company. Held: an injunction would be granted to restrain Bette Davis from making films for the rival company. The contract restrained her from acting for anyone other than Warner, but did not prevent her from earning her living in other ways. The injunction did not force her to perform the contract if she was prepared to earn her living in a less profitable way. Very exceptionally, a court may use an injunction actually to compel performance of a con-\ tract where this is in the interests of justice. In Gryf-Lowczowski vHinchingbrooke Healthcare (2006) Mr Justice Gray clearly felt than an injunction was necessary t\ o assist the claimant to obtain a fair outcome in a situation where his employers had treated him very inappropriately. Discharge of contracts Performance: must generally be complete. Exceptions: contract divisible, acceptance of part performance, prevention of performance, substan- tial performance. Agreement: mutuality essential. Frustration: performance becomes impossible or futile due to circumstances beyond the control of either of the parties and not due to their fault. The Law Reform (Frustrated Contracts) Act 1943 determines how far the parties may recover any resulting financial losses. Breach of a condition gives the innocent party the option of avoiding the contract and suing immedi- ately or awaiting performance date. Remedies Damages: the innocent party may claim damages for any quantifiable loss or harm resulting but not too remote from a breach of condition or warranty. Remoteness of damage: Hadley vBaxendale (1854) states that damage may be too remote if it is ‘non-usual’ (not a normally anticipated consequence of breach in the particular contract situation). Quantum of damages: the amount necessary to put the claimant in his or her pre-contractual posi- tion. Covers lost profits, reliance losses, tangible damage to person/property and exceptionally intangible damage such as loss of reputation, or pleasure or peace of mind. Equitable remedies Awarded in exceptional cases at the court’s discretion: rescission injunction specific performance. Chapter summary 9 Discharge of the contract and remedies for breach 0003 194 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 1 Is Flannel discharged from his contractual obli- gations in the following circumstances? (a) He delivers 50 kilos of turnips to Denim who had ordered 70 kilos, and: (i) the turnips were costed at 50 pence perkilo, or (ii) the turnips were costed at £250 for 70 kilos, but Denim agrees to take the smaller order. (b) He contracts to decorate Wool’s house. When the work is half complete, Wool refuses to let him in. Quiz 9 Accord and satisfaction: a legally binding agree- ment to discharge an existing contract. Accrue: to come to. Actual breach: failure to perform at all or properly once performance is due. Anticipatory breach: notice that a contract will not be performed once performance is due. Divisible contract: the contract consists of a number of distinct obligations and payment must be made for as many as are properly performed. Entire contract: contract consists of one obliga- tion only and no payment is due unless/until that obligation is fully performed. Force majeure clause: a contract term which states the rights of the parties in the event of spec- ified problems. Frustration: impossibility of contract performance occurs subsequently to formation but before performance. Injunction: an equitable remedy which orders a person to do or refrain from doing something. Liquidated damages: pre-estimated damages for breach agreed when the contract is made. Mitigate: reduce the loss arising from a breach of contract. Non-usual damage: ( Hadley v Baxendale) damage too remote unless the defendant should have known of special circumstances which made it likely. Part performance: incomplete performance which may discharge the contract if accepted. Penalty: a contractual sanction to ensure performance. Quantifiable damage: loss or harm capable in law of being compensated by money. Quantum of damages: the amount of money necessary to compensate for the damage caused. Reliance loss: the amount lost by the claimant preparing to perform their side of the contract prior to the defendant’s breach. Repudiate: refuse to recognise or perform an obligation. Specific performance: an equitable remedy which orders a party in breach to perform their contrac- tual obligation. Stigma damages: damages for the claimant’s loss of reputation caused by the defendant’s misconduct. Substantial performance: almost complete per- formance which must be accepted. Usual damage: (Hadley v Baxendale) damage nor- mally expected to arise from a breach. Key terms 0003 ASSIGNMENT 8 2 On 1 May, Chambray contracted to hire his vin-tage Rolls-Royce to Linen on 30 May. On 15 May, Chambray tells Linen that he is not pre- pared to supply the car on the due date. Linen says he will wait and see if Chambray will change his mind. On 29 May, Chambray’s chauffeur writes off the car. What is the legal position? What difference would it make to your answer if the accident had already hap- pened at the point Chambray and Linen made the contract? 3 Distinguish between the concepts of remote- ness and quantum of damage. 4 When may the court refuse to award a decree of specific performance? Answers to all quizzes can be found in Appendix 2. Quiz 9 (Continued) The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Davis Contractors Ltd v Fareham UDC [1956] 2 All ER 145, HL Koufos v Czarnikow Ltd (The Heron II) [1969] 1 AC 169, HL Malik vBank of Credit & Commerce International [1998] AC 20, HL Jarvis v Swan Tours [1973] 3 WLR 954, CA Take a closer look Please go to: http://en.wikipedia.org/wiki/Hadley_v._Baxendale Click on ‘External links’ and then on ‘Hadley’s mill’ for a picture of the building and on ‘Judgment avail- able’ to access a full law report. Web activity 9 Janet and Arthur engaged Cuthbert to carry out extensive repairs to the electrics in their house. Cuthbert promised that the work would be fin- ished in four weeks. To avoid the disruption, Janet and Arthur and their son George (aged nine months) moved to a hotel. A month later, the work was still not complete, but they could no longer afford to stay in the hotel and had to return home. Assignment 8 195 Discharge of the contract and remedies for breach 0003 196 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS The work was not finished for another two weeks. They had to buy a camping stove, lamps and bot- tled gas and pay for a laundry service. Janet became ill with stress and they were left £600 out of pocket. Advise Cuthbert. Would it make any difference to your advice if new safety regulations were implemented after the con- tract was made, which required Cuthbert to install additional fail-safe devices, and it was this extra work that made the contract run past the deadline? Assignment 8 (Continued from page 195) Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter: Johnson v Unisys Ltd [2001] 2 All ER 801 Ruxley Electronics and Construction Ltd v Forsyth [1995] 3 All ER 268 0003 0003 chapter 10 THE LAW OF AGENCY 0003 Introduction An agency relationship may arise in any situation where one party (the principal) authorises another person (the agent) to act on his or her behalf. Any\ contract made by the agent on the principal’s behalf is binding by or against the third party with whom the agent negotiated. The agent may also be liable to the prin\ cipal if the agent acted negligently or in breach of any contract of agency. You will already be aware of a number of situations where an agent may be employed – when you want to buy a house you may employ an estate agen\ t; you may have obtained insurance through an insurance broker or bought shares through a stockbroker; an employer may choose to obtain staff through an employ- ment agency; in many sale of goods situations, agents may be employed by\ sellers or buyers to obtain customers or to arrange transport for international trading deals – in all these situations the principal (the person employing the ag\ ent) uses the agent in order to capitalise on the agent’s expertise in the relevant business area. An agent is not necessarily a professional, engaged for commercial purposes. An agency relationship may arise where a person agrees to handle the affairs of a friend who is currently unable to act personally, because of being abroad or in ill health. Learning Objectives When you have studied this chapter you should be able to: Describe how an agency relationship may be created Explain the rights and duties of the agent and the principal Distinguish between the ways by which the agency relationship may be terminated Appreciate the nature of some particular types of agency relationships. Photo: PhotoDisc 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 200 The creation of agency The authority of the agent is the keystone of the agency relationship. Provided an agent has legal authority to do business on the principal’s behalf, any resulting contract is binding by and against the principal . The agent must make the principal a party to a contract it makes with a \ third party or no agency relationship exists. Even if one party exercises some control over another and receives a benefit from the contracts which the other party makes, this may not be sufficient evidence of authority to give rise to an agency relationship. Spearmint Rhino Ventures UK Ltd vRevenue and Customs Commissioners (2007) Lap dancers worked on a self-employed basis in Spearmint Rhino Clubs to dance and provide enter- tainment for customers. They had to do a minimum number of shifts per week and were paid a fee per shift plus a fee for every ‘sit down’ (a period of ‘dancing and companionship’ in a private room). In return, Spearmint provided the necessary facilities, security, advertising and administration. The Revenue claimed that lap dancers were Spearmint’s agents and, therefore, it should pay VAT on the services they provided to customers. Held: VAT was not payable as no agency relationship existed between the club and the dancers. Their agreement with Spearmint was a licence, from which Spearmint derived some benefits, to allow them to ply their trade on club premises. In no way did it give a dancer any authority to act on Spearmint’s behalf. She decided which and how many customers she would entertain individually and kept the resulting fees and gratuities. The fact that a fee was payable to Spearmint per ‘sit down’ did not mean that the ‘sit down’ was organised on behalf of Spearmint. A dancer worked only on her own behalf. Legal authority to do business on the principal’s behalf normally arises from agreement between the parties, but exceptions exist in the interests of commercial efficiency. The rela- tionship may be deemed to exist to avoid injustice to a third party or the agent. Sometimes a principal can create authority retrospectively to allow it to take advantage of an unautho- rised transaction. Spearmint Rhino Clubs pay lap dancers to work in their clubs. If they fa\ iled to pay, could the lap dancers sue in breach of contract for their earnings? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Agency by agreement between the parties An agency relationship is most commonly created by an agreement between the parties under which the agent is given actual authorityby the principal. The agency agreement may be made in the following ways: 1 Formally by deed . This gives a power of attorney to the agent. This is essential where an agent is appointed to act on behalf of a person who has became incapa\ ble of manag- ing his or her own affairs. More detail on this topic appears at the end of the chapter. 2 Informally by written or spoken agreement. No particular written formalities are generally required: it is possible to appoint an agent by word of mouth. The parties may choose to evidence the agreement in writing, but this does not necessarily include all the terms binding the parties. In Chaudhry v Prabhakar (1988, CA) an agreement between friends, under which one who claimed knowledge of cars agreed to find a suitable secondhand model for the other, was held to have created an agency relationship (more detail below, at page 206). 3 By implication . The relationship of the parties may give rise to an implied agency agree- ment. This commonly arises from the employer and employee relationship. It may also exist between a cohabiting husband and wife since the wife has implied a\ uthority from her husband to pledge his credit (run up bills) to satisfy household requirements. How- ever, despite some recent progress towards equality between the sexes, the husband cannot do the same. The agency agreement may exist without any contractual relationship between principal and agent. An agency may be purely gratuitous, with the agent receiving no payment for his or her services. If a colleague asks you to buy a lunchtime sandwich for he\ r, in law she is appointing you as her agent, but neither of you will anticipate that pay\ ment will be made for performance of the service. However, if you are trying to sell your house through an estate agent, a contract exists between you. Under its terms, the agent \ is entitled to pay- ment of commission from you if a sale takes place with a buyer introduced by the agent. Where the agency is created by agreement the agent has actual authority. Actual author- ity is divided into two kinds: express and implied. 1 Express. The power is derived from the principal’s explicit directions. 2 Implied . The principal is unlikely to spell out every detail of what is required. The principal is, however, deemed to have impliedly given the agent authority to accomplish anyth\ ing necessarily incidental to the performance of the principal’s directions. The extent of implied authority is indicated by all the circumstances in which the agency arose, such as the relationship between the parties, the usual authority of the agent in the\ relevant area of business and the nature of the principal’s orders. For example, if you ask an estate agent to find you a buyer, you give the agent actual authority to do so. You also impliedly authorise the agent to photograph your house and use this for \ advertisement pur- poses. In Real and Personal Advance v Palemphin (1893), the matron of a hospital was held to have implied authority to contract in her employer’s name to buy essential supplies for the hospital. THE CREATION OF AGENCY 201 10 The law of agency 0003 Agency by estoppel In certain circumstances a third party may presume that a person has the authority of an agent. If the principal’s behaviour reasonably appears to give this impression, the third party may enforce a resulting contract against the principal. Provided there was nothing to alert the third party to the true facts, the principal is estopped (prevented) from denying that the rela- tionship exists. The agent in such circumstances has apparent or ostensible authority . Apparent authority may exist in the following situations. 1 An agency relationship has ceased to exist but the principal has failed to give not\ ice of this to third parties. For example, if a wife leaves her husband she no longer has th\ e right to pledge his credit. If she continues to do so, traders unaware of the couple’s estrange- ment may still claim their money from the husband, unless he took adequate steps to notify them. 2 No agency relationship has ever existed, but the ‘principal’ allows a third party to believe the ‘agent’ was acting on the principal’s behalf. 3 An agency relationship exists and the principal allows a third party to believe that the agent’s authority is greater than it is. Barrett vDeere (1828, HL) The defendant went to the claimant’s counting house to pay a debt and handed his payment over to a rogue, who was in the claimant creditor’s counting house and appeared to be responsible for transact- ing business there. Held: this was sufficient to discharge the debt. It was reasonable for the debtor to believe that the rogue was the creditor’s agent and had the creditor’s authority, since the creditor had the right to control all transactions taking place on the premises. Racing UK Ltd v Doncaster Racecourse Ltd and Doncaster Borough Council (2005) The Chief Executive (CE) of Doncaster Racecourse Ltd signed, ‘as duly authorized representative’, an agreement granting TV rights to Racing UK Ltd. It was claimed by Racing UK and the racecourse that this contract bound the council. The council claimed that it was not bound as the CE did not have any authority to act as its agent. Held by the Court of Appeal: since it was common knowledge in the racing world that the council owned the racecourse and in the business world that the owner of a course held the television rights, the CE had ostensible authority to enter the contract on behalf of the council. Therefore, the contract was binding on the council. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 202 0003 Todd vRobinson (1825) A principal employed an agent to buy goods on credit from the claimant and told him not to pay more than £31. The agent bought goods from the claimant to the value of £45 and made off with them. Held: that the claimant could demand £45 from the principal as there was nothing to suggest to him that the agent’s authority was limited. Agency arising from necessity An agency relationship may arise in an emergency situation, where one party spontaneously takes steps to preserve somebody else’s property interests. This enables that party to avoid liability for the reasonable costs of the intervention on the owner’s behalf. Agency of necessity may arise if allthe following conditions are satisfied: 1 while one party has possession of another party’s goods an emergency occurs; and 2 this forces that party to take action regarding the goods for the benefit of their owner; and 3 it is impossible to communicate with the owner first. Such an agent has authority to take such reasonable and prudent steps as are necessary in the best interests of the owner of the property. Sachs v Miklos (1948) The defendant gratuitously stored the claimant’s furniture. During the war he wanted the space it was occupying, but was unable to contact the claimant. He sold the goods. Held: no agency of necessity arose here because there was no emergencyjustifying the sale and the claimant was acting for his own benefit. Therefore, the defendant was liable to the claimant in the tort of conversion (unlawful disposal of the claimant’s goods). In the past, such agency often arose in situations where carriers were forced to make deci- sions to pay for the food and accommodation for livestock (Great Northern Railway v Swaffield (1874)) or to dispose of perishable goods. Such circumstances are unlikely to occur today, given that generally it is possible for a carrier to communicate directly with the owner and obtain emergency instructions. If agency of necessity exists: 1 the agent may claim expenses; 2 the agent has a defence if sued for trespass for disposing of the goods; 3 a third party who has acquired goods from such an agent gets good title to the goods. THE CREATION OF AGENCY 203 10 The law of agency 0003 Agency by ratification Even if a party had no authority or exceeded the given authority to act \ for another when making the contract, authority can be given subsequently if the other pa\ rty wants to adopt the transaction. This ratification creates antecedent authority for the agent: the law treats the agent as having had authority from the outset. For ratification to be valid the following requirements must be fulfilled: 1 the agent must expressly or impliedly indicate that it is acting as someone’s agent; 2 the principal must both exist and have the capacity to make the contract\ when it was made (promoters of a company making pre-incorporation contracts are not acting as company agents as the company as yet has no legal existence: see Chapter\ 20); 3 ratification must be within a reasonable time; 4 ratification must be complete: the principal must agree to all, not part, of the contract with full knowledge of what is involved; 5 notice of ratification must be communicated: this may be done by conduct\ , such as retaining goods which have been delivered. The consequences of ratification are as follows: 1 the agent is freed from any liability for acting without authority; 2 the agent is entitled to remuneration from the principal where appropriate; 3 a third party obtains title to any property which has been transferred under the contract; 4 a contract made by the agent on the principal’s behalf is retrospectively binding on the principal. The disclosed and undisclosed principal Disclosed principal When agents enter into contracts on behalf of principals, they usually n\ ame the principals or at least indicate that they are acting as agents. Here the principal is said to be disclosed even if not actually named.In general, the disclosed principal is liable on any resulting contract and the agent is not. Exceptions may arise where words, conduct or surrounding circumstances indicate that the agent and principal are jointly liable, or that the agent is to remain solely liable. Thus, if an agent signs a deed without indicating that he or she is signing as an ag\ ent, he or she will be personally liable. Undisclosed principal Sometimes the agent behaves as if no principal is involved, although in \ fact one is; here the principal is undisclosed. The contract will be binding by and against th\ e principal if: PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 204 0003 1 the agent was acting under the principal’s actual authority at the time the contract was made; 2 the terms of the contract do not preclude the existence of the principal. In Humble v Hunter (1848) an agent signed a charterparty so that he appeared to be sole owner of the ship involved. It was held that the principal could not enf\ orce the contract. However, if the third party can show that it intended to do business only with the agent per- sonally, the principal cannot enforce the contract against the third party. In Collins v Associated Greyhound Race Courses Ltd (1930) a contract to underwrite a share issue involved exclusive reliance on the agent’s business reputation and integrity. The principal was held to be excluded. The rights and duties of the agent Rights To payment The agent does not have an automatic legal right to payment. Such a righ\ t exists only where the agency agreement indicates such an intention. If the agency is gratuitous, no paym\ ent is intended. Even if the agency is contractual, payment is due only if the \ terms of the contract gov- erning payment are fulfilled. Payment may be conditional on a particular result being achieved. G.T. Hodges & Sons v Hackbridge Residential Hotel (1939) The owner of a hotel asked an estate agent to find a buyer. A representative from the War Office was introduced by the agent and began negotiations which then lapsed. Some months later the War Office announced that it would compulsorily purchase the hotel. Held: this compulsory sale did not entitle the agent to their commission, as this was not the sort of sale which had originally been contemplated by the parties when the owner put his property in the agent’s hands. Where the agency is contractual, the agent may sue for breach if the principal fails to make appropriate payment. The agent may also be entitled to exercise a lien (legal right to retain) over any property still in his or her possession which was purchased for the principal and for which the agent has not yet been paid. To indemnity Whether the agency is gratuitous or contractual, an agent is entitled to\ indemnity and therefore may recover any expenses incurred or losses suffered, if these are sufficiently inci- dental to the agent’s authorised conduct. THE RIGHTS AND DUTIES OF THE AGENT 205 10 The law of agency 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 206 Anglo Overseas Transport Ltd v Titan Industrial Corpn (1959) An agent was engaged to make arrangements for shipping of the principal’s goods. The principal was late in delivering the goods to the port which, by the customs of the trade, made the agent liable for losses incurred by the ship owner. Held:the principal must indemnify the agent for its loss. A gratuitous agent may request the court to order the principal to pay restitution. Duties The agent is in a fiduciary relationship with the principal: he or she enjoys the trust and con- fidence of the principal, and consequently has a number of legal duties \ which must be performed whether the agency is contractual or gratuitous. Performance An agent must carry out the principal’s orders within the limits of the agent’s authority. Gen- erally, the agent is required to perform the duties personally and without delegation because of the agent’s confidential relationship with the principal. Delegation may be permissible, however, if the principal consents, or if delegation is in keeping with trade p\ ractice. For example, if a case is being handled by country solicitors but it is to b\ e heard in London, it is normal for some tasks to be delegated to a London firm. It may also be a\ llowed if the dele- gated tasks require no exercise of special skill or discretion by the agent. Thus solicitors may delegate claim-form-serving duties to their clerks. Reasonable skill Agents must perform their duties with reasonable care and skill and may be liable in breach of contract, or negligence, if they fail to do so. An agent with trade or professional skills is expected to act with the level of skill reason- ably to be expected of a person from such a trade or profession. Where a contract of agency exists, failure to perform duties appropriately will be a breach of contract. Chaudhry v Prabhakar (1988, CA) The defendant was a friend of the claimant and claimed to be knowledgeable about cars. He was asked by the claimant to find a car for her which had not been involved in an accident. He found what he claimed was a suitable vehicle, although he noticed that the bonnet had probably been replaced and that it came from a garage which did crash repairs. Within a few months it turned out to be unroadworthy because of previous crash damage. 0003 Held:the defendant was liable to the claimant in negligence as he had not exercised the level of care and skill to be expected from somebody with the level of expertise he had claimed to possess and on which the claimant had reasonably relied. Arensen v Casson Beckman Rutley & Co. (1977) A professional share valuer placed too low a valuation on his principal’s shares. Held: he was liable for breach of his duty to act with the degree of skill to be expected from a person with his level of professional experience. Accountability The agent must account for any profits resulting from the exercise of authority and transfer to the principal any monies or financial benefits received from performance of the agent’s duties. This duty is closely related to the agent’s duty to avoid conflict of interest. Avoidance of conflict of interest The agent must ensure that the principal’s interests take priority over the agent’s, and must not exploit the relationship for the agent’s own profit. An agent who takes a bribe is in flagrant breach of the duty to avoid a conflict of inter- est. If an agent accepts payment from a third party in return for making a contract with that party in the principal’s name, the contract is voidable for fraud. The principal is entitled to\ dismiss the agent without payment, and recover the amount of the bribe. The principal may also repudiate the contract with the third party and claim damages for any loss which has resulted from the contract being made. The consequences of breach of fiduciary duty are clearly illustrated in Imageview Man- agement Ltd vKelvin Jack (2009, CA ). ‘In the News’, below, contains the details . THE RIGHTS AND DUTIES OF THE AGENT 207 Horace’s great uncle William wants to sell his antique pocket watch and asks Horace to find a \ suitable buyer. He tells Horace that he wants at least a £1,000 for it. Horace take\ s the watch to an antique market where Cedric, a stall holder, offers him £1,200 pounds. Ernest, another stall holder butts in at this point and says he will pay £1,400 and give Horace a bonus of £50 for tak\ ing his offer. Horace sells to Ernest but he should tell his uncle about the £50 when he hands over the proceeds of the sale as the £50 is an advantage which he obtained while acting as his uncle’s agent and he must account for all profits. Real Life 10 The law of agency 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 208 Armstrong v Jackson (1917) A principal instructed his agent to buy shares in a particular company. Unknown to the principal, the agent owned some shares in the company and sold these to the principal instead of obtaining them elsewhere. Held:the agent had failed to avoid a conflict of interest and must pay the principal the profit obtained on the sale. Imageview Management Ltd v Kelvin Jack (2009, CA) Imageview, acting as the agent of Kelvin Jack, a young Trinidadian footballer, successfully negotiated a contract of employment for him with Dundee United. He agreed to pay the agency a fee of 10% of his monthly salary while he played for the club. The agency then, at the club’s request and in return for the payment of a fee, obtained a work permit for Jack, although it did not tell him about this. They received the agreed fees under the agency agreement from Kelvin Jack until he discovered about the work permit contract. He then refused to pay any more and Imageview sued him. He argued that he was entitled to recover the fees that he had already paid because Imageview had acted in breach of its fiduciary duty to him. Held: Jack’s claim would succeed. Jacob LJ said: Imageview in negotiating a deal for itself had a clear conflict of interest. Put shortly, it is possible that the more it got for itself, the less there would or could be for Mr Jack. Moreover it gave Imageview an interest in Mr Jack signing for Dundee as opposed to some other club where no side deal for Imageview was possible . An agent’s duty of good faith meant that he must make full disclosure to his client of any dealings that involved a realistic possibility of a conflict of interest. If a breach of duty did occur, by law the agent must account for any commission which he had acquired from the breach and could not claim any salary owed to him. Imageview had clearly used its position as Kelvin Jack’s agent to obtain a personal benefit from the club and was thus in breach of its fiduciary duty. Jack was therefore entitled to refuse to pay further fees and could recover those already paid. He was also entitled to the value of the fee Imageview had obtained from the club. Although it was possible for a court to deduct remuneration for an agent if the secret transaction conferred a per- sonal financial benefit on the client, this was not the case here so the full profit was due to Jack. In the News 0003 The rights and duties of the principal In relation to the agent The principal’s rights and duties largely mirror the duties and rights of the agent. Therefore, the principal is entitled to the benefits to be derived from the agent’s performance of his or her fiduciary duties. In return the principal must make any necessary payment to the agent. In relation to third parties Contractual duties Any contract made by the agent with a third party is binding on the principal provided that it was made within the limits of the agent’s apparent authority. The principal is therefore liable for any misrepresentation or breach of contract, even though this was caused by the agent. Tort liability A principal may be vicariously liable for any torts committed by the age\ nt closely connected with the exercise of the agent’s apparent authority. (More information about vicarious liabil- ity can be found in Chapter 15.) The Commercial Agents (Council Directive) Regulations 1993 The common law rights and duties between agent and principal have been p\ ut on a statu- tory footing, but only in commercial agencies for the sale of goods. The regulations give the parties additional protection, including a right to a written contract and to a minimum period of notice if the agency contract is to be terminated. The agent i\ s given rights to com- mission. This must be paid within specified time limits. The agent is en\ titled to check the principal’s books to ensure that he or she has been paid at the correct rate. Termination of agency The agency relationship may come to an end either: 1 by operation of law; or 2 by the acts of the parties. TERMINATION OF AGENCY 209 10 The law of agency 0003 By operation of law Death Since the relationship of principal and agent is a confidential one, the death of e\ ither party brings the agency to an end. Mental incapacity If a person’s mental condition precludes him or her from having a reasonable level of under- standing, he or she will be treated as no longer having the ability to be a party to a contract. If either party to an agency agreement becomes mentally incapable, this usually terminates the relationship. However, where the agent has been granted an irrevocable or lasting power of attorney, a principal’s mental incapacity does not discharge the agency. (See further below.) Bankruptcy The bankruptcy of either party terminates the agency, since the bankrupt’s property passes into the control of the trustee in bankruptcy to enable payment of creditors. Frustration of the agency agreement Any event rendering further performance of an agency contract illegal, impossible o\ r futile will terminate the agency. (See Chapter 9.) By the acts of the parties Performance Once the object of any short-term agency has been achieved, the agency e\ nds. Agreement or revocation Both parties may agree to terminate the relationship. One party may revoke the agreement regardless of the other party’s wish to continue. If the agency is contractual, this revocation may be a breach of contract entitling the other party to claim damages. No notice p\ eriod is required, except where principal and agent are also in an employer–employee relationship.Exceptionally, an agency cannot be revoked. An irrevocable agency exists in the following circumstances: 1 The agent’s authority is linked to the agent’s own interest . The purpose of this agency is to provide security for some pre-existing interest which the agent has with the principal. The agency cannot be revoked until the interest (usually the principal’s debt with the agent) is discharged. For example, a debtor who currently is unable to repay a creditor may authorise the creditor to liquidate some of the debtor’s assets in order to raise the funds to repay the debt. Such an agency will be terminated by operation of law, however, if the principal subsequently becomes bankrupt or insane, unless the age\ nt has obtained an irrevocable power of attorney. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 210 0003 2The agent has been granted an irrevocable power of attorney . Under the Powers of Attorney Act 1971, s 4, an irrevocable power of attorney may be granted by the principal (donor of the power) to the agent (donee), which prevents an agency relation- ship from being terminated by the death, incapacity or bankruptcy of the princi\ pal. Similarly, if the principal is a corporate body the agency will survive its disso\ lution or winding up. An irrevocable power of attorney will be granted onlyto a donee who can prove that it is necessary to assist the donee to preserve a pre-existing interest in the prin- cipal’s property. An irrevocable power of attorney exists for the benefit of the agentand must be distinguished from a lasting power of attorney. 3 The agent has been granted a lasting power of attorney . The Mental Capacity Act 2005 (MCA), s 9 allows a donor to grant a lasting power of attorney (LPA). Since 2007, this replaces the previous system of enduring power of attorney. LPAs provide greater protection for the donor. For example, an LPA is only effective if registered with the Office of the Public Guardian and must contain the name of a person to be notified and asked for their permission before the power is invoked. An LPA has a broader scope than an enduring power of attorney since it enables the donee to make decisions, not only about managing the donor’s property, but also regard- ing his or her personal welfare: for example, deciding whether/what medical treatment is to be undertaken. Under the MCA, s 11 the donee has no authority to act \ unless the donor is deemed to lack the capacity to make the relevant decision as defined by s 2. This states: ‘a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of the mind or brain’. This may be a p\ ermanent or tempo- rary state of affairs. Some common types of specialist agents Estate agents Estate agents act for the seller of a property; their function is to find a buyer. They are regu- lated by the Estate Agents Act 1979, which requires estate agents to be insured against the loss of any deposits which they may be required to handle. They must also inform the seller of their commission charges before agreeing to act for them. Commission is payable only if a sale takes place to a purchaser whom they have introduced. Further controls were intro- duced under the Consumers, Estate Agents and Redress Act 2007. Auctioneers The auctioneer initially acts as the agent of the seller, with the authority to sell to the high- est bidder unless any reserve price is not reached. Once a sale has taken place the auctioneer becomes the agent of the buyer too. SOME COMMON TYPES OF SPECIALIST AGENTS 211 10 The law of agency 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 212 An auctioneer is not authorised to transact a sale by credit. The buyer must pay immedi- ately after the sale has taken place, although a cheque is acceptable in\ stead of cash. Brokers There are a number of different types of brokers , all of whom act primarily as intermediaries between two parties, one of whom has something to sell – like stocks \ and shares, insurance or commodities – which the other party is interested in buying. The broker effects the intro- duction and may assist in the formation of the contract in return for a commission. Unlike factors (see below), brokers do not generally have physical possession of the property which is being sold. Brokers’ authority may be defined by customs relating to their particular trade. Factors The Factors Act 1889, s 1, defines a factor as ‘a mercantile agent having in the customary course of his business as such agent authority either to sell goods or t\ o consign goods for the purpose of sale or to buy goods or to raise money on the security of\ goods’. A factor, therefore, not only has apparent authority to sell goods – which any agent may have appar- ent authority to do – he or she also has apparent authority to pledge goods or the documents of title to goods. Such pledges are very commonly used to raise money on imports of commodities like cocoa or wheat. A factor is given physical control of the goods. The sale or other disposition of the goods within the factor’s apparent authority to a purchaser acting in good faith is binding on the owner, even if the factor has disregarded orders and exceeded their actual authority. Chapter summary Creation of agency agreement: By deed (power of attorney); or In writing; or By word of mouth. The authority of the agent is usually: Actual: express/implied and derived from the agreement. Exceptionally agency arises without actual authority: By estoppel: if the principal allows a person to behave like their agent that person has appar- ent/ostensible authority. From necessity: where one party in control of another’s property has to take steps to protect it in an emergency. By ratification: a party subsequently ratifies a contract made by another for their benefit. Duties of the agent The agency relationship is fiduciary: the agent must account for any profits arising from his or her work for the principal and avoid any conflict of interest. He or she must carry out their work with reason- able care and skill. 0003 KEY TERMS 213 Duties of the principal To the agent:perform reciprocal fiduciary duty. Pay agreed remuneration. Indemnify expenses. Principal’s liability to third parties: Liable to perform authorised contracts. Vicariously liable for the agent’s torts. Termination of the agency relationship Operation of law: incapacity/death, bankruptcy, or frustration of the agency agreement. Act of the parties: performance, agreement or revocation. Enduring/irrevocable/lasting power of attorney may prevent termination. Chapter summary (Continued) Agency of necessity: agency created by an emer- gency requiring the agent to take reasonable steps to preserve the principal’s property. Agent: a person with the authority to carry out business on behalf of another person. Apparent authority: the agent has no real authority but it appears that they do, because of failure by the principal to give notice that it has ended or to correct the impression that it exists. Broker: an intermediary who introduces parties to enable them to do business. Estopped: prevented in law from denying the exis- tence of a right of another person. Factor: a ‘mercantile agent’ who sells goods on behalf of a customer and also lends money on the security of goods pledged with him or her. Indemnity: payment to make good expenses/losses incurred by one party while acting for the benefit of another. Irrevocable power of attorney: to protect the agent’s interest in the principal’s property; it cannot be revoked by the principal/their incapacity/ death/bankruptcy. Lasting power of attorney: enables the agent to make decisions about an incapacitated principal’s welfare as well as managing their property. Ostensible authority: see apparent authority. Power of attorney: authority created by deed enabling agent to manage affairs for a principal who is currently incapable of doing so because of ill health, for example. Principal: person for whom an agent acts. May be disclosed or undisclosed. Ratification: acknowledgement that a prior obli- gation is binding. Key terms 10 The law of agency 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 214 1 Under what types of authority do the following agents act? (a) North, who was asked by South to take South’s DVD player to be repaired. (b) East, who was asked to drive West’s car to the airport to collect West’s business client and had to buy petrol as the tank was almost empty. 2 Port, while in Starboard’s employment, had col- lected stationery supplies from Compass once a week. He is sacked by Starboard, but the follow- ing week collects the supplies from Compass, who has not been told that Port has been sacked. Port makes off with the stationery. Is Starboard bound to pay? 3 When is a third party not bound by a contract with an undisclosed principal? 4 When is an agent entitled to delegate perform- ance duties? 5 When will mental incapacity not bring the agency relationship to an end? Answers to all quizzes can be found in Appendix 2. Quiz 10 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Anglo Overseas Transport Ltd v Titan Industrial Corpn [1959] 2 Lloyd’s Rep 152 Arensen vCasson Beckman Rutley & Co . [1977] AC 747 Chaudhry v Prabhakar [1988] 1 WLR 29 Sachs v Miklos [1948] 1 All ER 67 Take a closer look Please go to: http://www.BIS.gov.uk/ Then click ‘consumer issues’ at the bottom of the page in the left\ hand column, ‘business activities’ on the next page then finally ‘Estate Agents’ to find out more about the regulation of estate agents. Web activity 0003 ASSIGNMENT 9 215 (a) ‘If an agent is clothed with ostensible authority,no private instructions prevent his acts within the scope of that authority from binding his principal.’ Discuss and illustrate this proposition. (b) Patricia was part of a group that went on a two-year trip to search for lost tribes in the Amazon jungle. She left her cat, Tabitha, with her friend Brian and asked him to take good care of her and not to let her out in case she got lost. Six months after Patricia left, Tabitha managed to escape from Brian’s house and was run over by a car and badly injured. Brian immediately took her to the vet who said that it would cost £1,000 to treat her. If treated, she stood a very good chance of full recovery, but the only other option was to put her to sleep. Advise Brian on his legal responsibilities as Patricia’s agent. Assignment 9 10 The law of agency Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 chapter 11 SALE OF GOODS: the contract and its terms 0003 Introduction A large number of contracts involve sales of goods; they are essential to healthy national and international trade. Statute has played a crucial role in the develop- ment of special rules of law in this area since the first Sale of Goods Act in 1893. This was primarily concerned with the needs of commercial buyers and sellers. In the twentieth century the interests of consumers became increasingly recognised, and this is reflected by the Sale of Goods Act 1979. This Act, amended by the Sale and Supply of Goods Act 1994, contains the current legislation. The formation of sale of goods contracts, the elements which may invalid\ ate them and, to a large extent, their discharge, are all still largely regulated by the common law. The Sale of Goods Act 1979 (SGA 1979) primarily focuses on the contr\ actual elements which are particularly crucial to the needs of the buyer and seller of goods, like the terms governing the nature and quality of goods sold, the transfer of ownership, performance obligations and means of enforcement. Learning Objectives When you have studied this chapter you should be able to: Define a sale of goods contract  Appreciate the difference between a contract of sale for and agreement to sell goods  Distinguish between a sale of goods contract and other contracts involvi\ ng goods  Understand the terms implied under SGA 1979 in a sale of goods contract \  Use them to find outcomes to problem questions. Photo: ©Alan Schein Photography/Corbis 0003 The sale of goods contract A sale of goods contract is defined as ‘a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price’\ (s 2(1)). Two types of contract are contained in this definition: 1 a contract of sale; 2an agreement to sell . A contract of sale Here the ‘property in the goods’, which means the title or ownership, is transfer\ red immedi- ately upon the contract being made. This is what usually happens when yo\ u buy goods over the counter in a shop: you immediately become the owner in possession of\ the chocolate bar, sandwich or socks handed to you by the sales assistant.A contract of sale exists only if the goods already exist and are in possession of the seller and allocated to the contract; they must be specific goodswhich have been identified and agreed upon at the time of sale (s 61(1)). If they do not fulfil these criteria, ownership in them cannot be transferred by the seller and the parties will have formed an agreement to sell only. An agreement to sell An agreement to sell (s 2(5)) is a binding contract which will become a co\ ntract of sale once the goods exist and are specific in the eyes of the law so that the ownership of them is capable of being transferred. This is commonly the situation when you buy a new car; you do not become the owner until you are notified that the car is ready for delivery to you. The buyer does not obtain ownership of the goods immediately upon agreeing to buy them, since the goods are not ascertained , because either: 1 the transaction concerns ‘ future goods ’, i.e. goods which have not yet been manufac- tured or acquired by the seller (s 61(1)); or 2 the goods have not yet been made specific. This occurs, for example, whe\ n the buyer wants to buy six tons of potatoes from the seller’s bulk stock of 80 tons. Here the goods are described as unascertained . They will become specific only when irrevocably ear- marked for the buyer. Price Section 8 of the SGA 1979 clarifies the term ‘price’ in s 2(1). \ The consideration provided by the buyer must be money, but the actual sum need not be specified in the contract (s 2(1)).\ If it is not specified, this does not invalidate the contract, since the\ statute says that a rea- PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 218 0003 THE SALE OF GOODS CONTRACT 219 11 Sale of goods: the contract and its terms sonable price is payable. What is reasonable is an issue of fact and must be decided accord- ing to the relevant circumstances. Goods Under s 61 of the Act, ‘goods’ in s 2(1) includes all personal p\ roperty (chattels) capable of physical possession and control, but not property interests like shares in a company, or intel- lectual property such as a trade mark or copyright. Land (real property) is not goods; its transfer is governed by an entirely distinct set of rules. However, crops and other things attached to the land which are to be severed before sale or under the contract of sale come within the definition of ‘goods’. Contracts outside the 1979 Act From the above definitions you can see that not all contracts involving go\ ods come within the SGA 1979. The following types of contract all involve goods but do not c\ ome within the Act. Goods and services contracts In a goods and services contract the sale of goods is incidental to the provision of a service. For example, having double glazing installed, or getting new br\ ake pads fitted to your car. Such contracts are regulated by the Supply of Goods and Services Act 1982. Some more information about these contracts can be found at the end of this chap\ ter. Hire-purchase contracts Such contracts are regulated by the Consumer Credit Act 1974 and the Supply of Goods (Implied Terms) Act 1973. Under a hire-purchase contract , the person supplied with the goods is, in the eyes of the law, the hirer not the buyer. The contract gives the hirer posses- sion of the goods, but not ownership. The hirer is entitled to exercise an option to buy the goods, but only when all the instalments have been paid. The hirer becomes the owner of the goods if and when the option is exercised. Hire contracts These are regulated by the Supply of Goods and Services Act 1982. Under a hire contract possession, but not ownership, of the relevant goods passes to the hirer. Contracts of barter These are regulated by the Supply of Goods and Services Act 1982. In a bartering situa- tion the parties exchange goods or services; even if goods are involved, it is not a sale of goods contract as no money changes hands. A part-exchange contract is ge\ nerally treated as a sale of goods contract under which the buyer is given the option to\ tender goods in part satisfaction of the contract price. 0003 A ‘free’ gift linked to a sale contract Such transactions are probably regulated by the Supply of Goods and Services Act 1982, since this covers contracts not regulated elsewhere under which title to goods will pass. Goods supplied in return for trading stamps These contracts used to be regulated by the Trading Stamps Act 1964, but this statute was repealed by the Regulatory Reform (Trading Stamps) Order 2005. Trading stamp schemes are now covered by consumer legislation generally. The Supply of Goods and Services Act 1982 now applies where consumers receive goods when redeeming trading stamps. The Sale of Goods Act 1979 applies where consumers receive goods in exchange for trading stamps and money. The terms implied by the Sale of Goods Act 1979 Under ss 12–15 of the SGA 1979, a seller automatically assumes certai\ n obligations to the buyer as a result of terms which are automatically implied in every contract regulated by the Act. The seller is required by statute to promise that: 1 the seller has lawful authority to transfer ownership of the goods (s 1\ 2); 2 the goods will match their description (s 13); 3 the goods will be of satisfactory quality (s 14(2)); 4 the goods will be suitable for any purpose specified by the buyer (s 14\ (3)); 5 the goods will match any sample shown to the buyer prior to the contract\ being made (s 15). These terms apply to all sales of new or secondhand goods, apart from terms 3 and 4 which apply only to sellers who are acting in the course of a business.Breach by the seller of any of these terms puts the buyer in a strong position because: 1 These terms all impose strict liability on the seller . The seller is liable for breach of con- tract without the buyer having to prove that the seller is at fault. Indeed, it is irrelevant for the seller to prove that it is blameless and that it was not aware of the alleged defect in the goods. The seller will still be liable. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 220 It is a common sales tactic to offer the customer something ‘free’ as in ‘buy one get one free’ pro- motions. What is the contractual position if the shop tries to charge yo\ u for both? Suggested solutions can be found in Appendix 2 . Worth thinking about? 0003 2All of these terms are defined by the Act as being conditions of the con\ tract . Breach of a condition enables victims to refuse further performance of their contractual obligations and enables them to recover any money or other property which they have tendered. (See Chapter 6.) These implied terms are now examined in more detail. Title: s 12 In a contract of sale, the seller implicitly promises that he or she has the right to sell the goods (to transfer title in them to the buyer) or, in an agreement to sell, the seller implicitly promises that he or she will have such a right at the time when the property is to pass. The seller can fulfil this promise only if he or she has ownership (title) himself or herself, or i\ s acting with the real owner’s permission, at the time of transfer. Rowland v Divall (1923, CA) The defendant had bought in good faith a car which had in fact been stolen. The thief could not pass good title, and neither could the defendant when he sold the car on to the claimant. After the claimant had used it for four months, the real owner turned up and took the car back. Held: the claimant was entitled to recover the full purchase price from the defendant. No discount was allowed against his four months’ use, as he had neve r received what he had contracted to buy – full ownership of the car. Description: s 13 Almost all goods are sold by description, and the seller is in breach of contract if this is inaccurate. The form of the description The description may be given by word of mouth (‘these boots are waterproof’), or by a writ- ten notice put in place by the seller (‘silk shirts’). The selle\ r is also responsible for any descriptions which the seller personally did not attach to the goods but\ which came from a manufacturer or other source: for example, labels attached to the goods or wording on the packaging (‘produce of Spain’, ‘machine washable’). In practice, the huge majority of sales involve the use of some kind of \ description. In a self-service situation, where the goods are picked out by the customers, the customers rely on the label on the tin to tell them whether they are buying baked beans or sweetcorn. Some selling situations (like catalogue or mail order sales) are entirely reliant on descriptions of goods which the buyer will not see before making the contract. THE TERMS IMPLIED BY THE SALE OF GOODS ACT 1979 221 11 Sale of goods: the contract and its terms 0003 222 Sales by sample and description Where the sale is by sample as well as by description, the seller will be in\ breach of s 13 even though the goods match the sample, if they do not match the descrip\ tion. Many sell- ing situations involve sample and description. You may examine a carpet sample, but gain knowledge of its composition only from an accompanying notice. If this information is incor- rect, a breach of contract exists even though in all other respects the carpet meets the statutory requirements. The relationship of description to quality The seller’s obligations concerning quality and description may overlap. Stating the age of a car can be said to involve a description and also a reference to its quality; the two factors are inextricably interlinked. This may be advantageous to the buyer, as s 13 obliges all sellers to be accurate in their descriptions, whether or not they are selling by way of business. Beale vTaylor(1967, CA) A car was described in good faith by a private seller as a 1961 Triumph Herald convertible, but turned out later to be two halves of two different cars welded together. Only the rear half conformed to the seller’s description. The Consumer Protection from Unfair Trading Regulations Consumers enjoy greater protection since May 2008 when The Consumer Protection from Unfair Trading Regulations came into force. These regulations implement The Unfair Commercial Practices Directive 2005 which aims to harmonise consumer protection across the EU against a wide variety of dishonest business practices. The regulations actively prohibit the encouragement of sales by untruthful claims, or half truths or omissions, aggressive selling methods and any other behaviour likely to make the ‘ average consumer’ enter a transaction which otherwise he or she would have avoided. The average consumer test is objective so there is no need to prove that anybody actually has been deceived or unduly influenced. It is enough that a reasonable person in the target group for the goods would be affected. The Consumer Protection from Unfair Trading Regulations repeal most of the Trade Descriptions Act 1968 and Part 3 of the Consumer Protection Act 1987 (misleading price indications) where these overlap with the new law. The regulations are enforced through the Office for Fair Trading and local authority Trading Stan- dards Departments which may initiate investig ation into and proceedings against offending businesses allegedly failing to comply with recomme ndations from the enforcement agencies. While not altering the civil law of contract and sale of goods as explained in this book, it further encourages sellers of goods and all other products and services to avoid misleading customers by misdescribing their wares. In the News PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 0003 Held:the defendant, a private seller, was liable only for breach of s 13. He could not be sued under s 14 on the ground that the car was not of satisfactory quality, as this applies only in contracts with commer- cial sellers. Description may be a completely separate issue from quality. Goods can be rejected on the ground of incorrect description even though they are not defective in any other way. Arcos vRonaasen (1933) An order was placed to buy wooden staves, described by the seller as ‘half an inch thick’. When deliv- ered, the width of the staves varied from between half an inch to nine-sixteenths of an inch. Held: the goods could be rejected as they did not match their description. (But see the effect of s 15A on non-consumer sales below at page 248.) Liability depends upon reliance If the buyer did not know of the description or did not rely upon it (having checked it with a third party), the sale is not by description. Examination of the goods does\ not automatically preclude reliance by the customer. The average customer does not have sufficient knowl- edge to spot that the description is inaccurate. In Bealev Taylor (above) the fact that the buyer had examined the car prior to purchase did not prevent his being held to have relied on the seller’s description of it. However, if a buyer with expert knowledge buys from a non- expert seller, that buyer is not likely to be held to have relied on the seller’s description. The customs of the trade may be relevant here. Note the comment of Nourse LJ below. Harlingdon & Leinster Enterprises v Christopher Hull Fine Arts (1990, CA) An art dealer who, to the buyer’s knowledge, was not an expert on German impressionist painting, offered to sell two paintings which he claimed were by a famous German impressionist. After inspecting the pictures, the seller bought them. The description later turned out to be incorrect. Held: the buyer had relied on his own skill and judgement when deciding to buy, so sale was not by description. Nourse LJ: many dealers [in the art market] habitually deal with each other on the principle caveat emptor. For my part, being confident that that principle would receive general acceptance amongst dealers, I would say that the astuteness of lawyers ought to be directed towards facilitating, rather than impeding, the efficient working of the market. The court ought to be exceedingly wary in giving a seller’s attribution any contrac- tual effect . THE TERMS IMPLIED BY THE SALE OF GOODS ACT 1979 223 11 Sale of goods: the contract and its terms 0003 The goods must be of satisfactory quality: s 14(2) Where goods are sold in the course of business, there is an implied condition that the goods are of satisfactory quality . The words ‘satisfactory quality’ were introduced by the Sale and Supply of Goods Act 1994 which amended the SGA 1979. They replaced the rather archaic phrase ‘merchantable quality’. Arguably, the new statutory definition, which is given below in s 14(2A) and (2B), does little more than spell out factors which were always rele- vant to the courts when determining whether goods were of ‘merchantable quality’. The meaning of ‘satisfactory quality’ The goods must meet the standard which a reasonable person would regard as satisfactory, taking into account all ‘relevant circumstances’, including price and any description attached to the goods (s 14(2A)). The court objectively assesses the quality \ of the goods with refer- ence to the expectations of the average buyer. Section 14(2B) gives examples of some factors which might be ‘relevant circumstances’: whether the goods are fit for the purposes for which such goods are normally used;  appearance and finish;  freedom from defects;  safety and durability. Trac Time Control Ltd v Moss Plastic Parts Ltd and Others (2005) The defendant supplied what he described as high quality polycarbonate mouldings to the claimant light manufacturer. Floodlights with housings made using the materials were returned to the claimant by dissatisfied customers who claimed that the housings had broken because they were brittle. The claimant sued the defendant for breach of contract. Held: the defendant was liable as the goods did not match their description under SGA 1979, s 13 and neither were they of satisfactory quality under s 14(2) nor fit for their purpose under s 14(3). Regulation 2 of the Sale and Supply of Goods to Consumers Regulations 20\ 02 (imple- mented on 31 March 2003) amended s 14(2) to give additional protection to consumers. The Act now states (s 14(2D)) that ‘relevant circumstances’ include ‘public statements’ about the product by the ‘producer or his representatives’, such as advertising or labelling. The seller can only avoid liability for the statement if he can prove that he did not know or was not reasonably aware of the statement, or, before the relevant contract was made, the seller (s 14(2E)) had publicly corrected or withdrawn the statement. How liability arises under s 14(2) Goods which are physically dangerous, or which do not work at all, are clearly not of satis- factory quality, whether they are expensive or cheap, reduced in a sale, new or secondhand. A buyer of secondhand goods may, however, be expected to put up with some defects in PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 224 0003 finish or performance. If you buy a car which is five years old, you mus\ t expect the uphol- stery to be showing some signs of wear and anticipate that the engine wi\ ll be noisier than in a newer model. Even with new goods, you are entitled only to get what you pay for. The finish and durability of a cheap item will not be the same as that to be\ expected at the luxury end of the market.The buyer merely has to prove that the defect exists, not how it happened nor that the seller was in any way at fault. Section 14(2) protects the buyer against inherent defects of quality, therefore no proof of reliance on the seller’s judgement is required. If the seller is found liable, he or she can recover his or her losses from the party who supplied the goods. Godley v Perry (1960) A six-year-old boy bought a plastic catapult from a stationery and toy shop. When he attempted to use it, the handle shattered and a piece hit him in the face causing him to lose an eye. Held: the seller was liable for breach of s 14(2). Clearly the handle was not sufficiently strong. It was irrelevant that the defect was caused by a design or manufacturing fault over which he had no control. Liability may arise from goods which are of satisfactory quality in themselves but are con- taminated by foreign bodies, since these impurities prevent normal use. In Chaproniere v Mason (1905), a bun made of otherwise normal ingredients contained a stone and was held not to be of appropriate quality. Wilson vRickett Cockerell Ltd (1954) A delivery of coal included fragments of detonators. This resulted in an explosion when the coal was burnt, which caused serious structural damage to the buyer’s house. Held:the coal was not of satisfactory quality, being inseparably contaminated with the explosives. The goods include their packaging and instructions . Defects in these may render the goods defective or dangerous. Liability may arise even if the packaging remains the property of the seller. Therefore, in Geddling vMarsh (1920), the seller of mineral water was liable for fail- ing to supply goods of satisfactory quality when the returnable bottle, in which the water was supplied, exploded and hurt the buyer. The limits to liability under s 14(2) Section 14 applies only where the sale arises in the course of business, not where sale is by a private seller. The seller is not liable if the buyer knows about the defects (s 14(2C)). Such pre-sale notice may be acquired in two ways: 1 Notice of the defects may be given by the seller . Such notice must explicitly describe the defects. For example, a notice might be displayed on a washing machine s\ aying ‘instruc- tion manual missing’ or ‘dents in casing at rear’. Only those defects are covered by the THE TERMS IMPLIED BY THE SALE OF GOODS ACT 1979 225 11 Sale of goods: the contract and its terms 0003 notice. If the motor was faulty, the seller would be liable for breach of s 14 even if the fault was traced to the accident which caused the dents. 2 Inspection by the buyer . Buyers are not generally under any obligation to inspect the goods, but if they do, they cannot claim that the seller is liable for a\ ny defects which should have been reasonably evident, given the level of inspection to which they sub- jected the goods. Thus, a superficial inspection can reveal only superficial defects, but latent defects will not generally be revealed even by thorough inspection. The buyer’s level of skill and expertise is relevant: a lay car buyer looking at a car engine would not be expected to spot the clues that would alert a professional dealer. If the buyer fails to follow the instructions supplied with the goods, the seller is not liable for any resulting damage. The seller will also not be liable for damage caused by\ the buyer’s mistreatment of the goods. Aswan Engineering Establishment Co. Ltd vLupdine Ltd (1987, CA) The sellers supplied waterproofing material in plastic pails. These collapsed spilling their contents, having been stacked by the buyer in piles six pails high in bright sunshine and temperatures up to 150°F for several days. Held: the sellers were not in breach of their duty. The packaging was appropriate for normal storage practices. The buyer is expected to take any precautions which would normally be employed when using the relevant type of goods. In the next case it was current knowledge that pork was dangerous to eat unless well cooked. Heil v Hedges (1951) A pork chop, which would have been safe to eat if properly cooked, caused tape worm infestation to the buyer. Held: the chop was not unsatisfactory in quality. The buyer’s problems were caused by his own failure to cook the chop for long enough. A buyer is expected to take only ordinary precautions if no special processes are spelt out by the seller. Grant vAustralian Knitting Mills (1936, PC) Woollen underwear bought by the claimant caused him skin irritation due to a residue of chemicals left in the garments by the manufacturing process. No warning of this risk was supplied with the goods. Held: the goods were not of appropriate quality. It was irrelevant that, if the buyer had washed the pants prior to use, the defect would have been removed. The usual practice is to wash underwear after wearing it, not before. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 226 0003 THE TERMS IMPLIED BY THE SALE OF GOODS ACT 1979 227 11 Sale of goods: the contract and its terms The goods must be suitable for their purpose: s 14(3) Where goods are sold in the course of business, they must be reasonably suitable for any purpose for which such goods are normally sold. They must also fulfil any special purpose which the seller claims for them, provided that the buyer reasonably placed reliance on the seller’s skill.The buyer will only succeed with a claim if it can be shown that the buy\ er placed reliance on the seller. Such reliance may be implicit or explicit. Implicit reliance Such reliance occurs where the buyer neither knowledgeably inspects the goods to check their suitability, nor asks any questions about them. The condition will be breached if the goods turn out to be unsuitable for the usual purposes of such goods, or for any \ particular uses specified by the buyer. If you buy a sandwich, you can assume that it is suitable for human consumption; if you buy a shampoo, the label of which says that it\ is suitable for use on small children, you can assume that it is suitable for them. If the buyer does not s\ pecify particular needs, the seller is not liable if the particular needs of th\ e buyer exceed what is normally required. Griffiths vPeter Conway (1939) The buyer of a fur coat suffered an allergic reac tion due to her particularly sensitive skin. Held: since she had not advised the seller of her exceptional needs, there was no breach of contract: the goods were not unsuitable for their purpose. Explicit reliance The buyer may question the seller about what the goods may be used for, or ask the seller to recommend the goods which will best suit the buyer’s purposes. If you visit a sports shop and ask to buy a watch suitable for use when diving, what you are sold should not leak or respond unfavourably to changes in water pressure. Horace is going on a week’s walking and camping trip to France and goes to Happy Camper Supplies to get some kit. He picks out an anorak in a packag e labelled ‘waterproof rainwear’ and consults Fred the shop assistant about a tent, saying he wants one that is easy to put up and very light to carry. Fred recommends one which has been erected in the shop and demonstrates how it goes up and down and is packaged. Horace thinks it is just the job and purchases a ready packaged one. On the first night of his holiday, the tent rips while he is struggling to put it up and he has to find other accommodation for the night. Two days later, he is caught in a heavy downpour and discovers that his anorak lets in water because the seams have not been properly finished. Real Life 0003 The goods must correspond with their sample: s 15 Many types of goods are sold by sample, including carpets, wallpaper, perfume and some types of make-up and toiletries. It is an implied condition in a contrac\ t for sale by sample that: 1The bulk will correspond with the sample in quality. The buyer will have to show that any defect complained of in the bulk of the goods was not present in the sample. 2 The goods will be free from any defect rendering them unsatisfactory which would not be apparent on reasonable examination of the sample . Therefore, buyers cannot reject the goods for defects that they should have spotted in the sample, but c\ an reject if other defects are present. Godley v Perry (1960) A shopkeeper was able to show that he had tested a sample catapult for strength by pulling back the elastic. Held:this was sufficient to check that the sample was not defective. Generally, a sale by sample will also be a sale by description, so these requirements need to be studied in conjunction with those concerning s 13 (above). The right to reject the goods Breach of any of the above terms is a breach of condition, which means that buyers are entitled to reject the goods and recover the price from the seller. Buyers have a limited time to exercise this right. If they delay too long, they will be deemed to have acc\ epted the goods regardless of defects. In that situation they will be entitled to be compensa\ ted for the defects, but cannot reject the goods. Once acceptance has taken place, the breach becomes one of warranty rather than of condition (see Chapter 12 for mo\ re detail on rejection rights). PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 228 The Happy Camper is in breach of the SGA 1979, s 13 as clearly the anorak does not live up to its manufacturer’s description. The tent also appears not to match the description which Fred gave it, as it seems hard to erect. It also does not fulfil s 14 as, given that it ripped, it is clearly neither of satisfactory quality nor fit for its purpose. It was sold to him by sample (s 15) which also seems to have been breached as the tent in the shop behaved perfectly well in the demo. Real Life (Continued from page 227) 0003 IMPLIED CONDITIONS IN OTHER ACTS 229 11 Sale of goods: the contract and its terms Implied conditions in other Acts Similar implied conditions and rights of rejection are found in other statutes and regulations. The Supply of Goods and Services Act 1982 The following terms, which are designated as conditionsunder the Supply of Goods and Services Act 1982, apply to all goods supplied under a contract of hire, or a contract for goods and services, and barter contracts: title: s 2 description: s 3 satisfactory quality and suitability for purpose: s 4 sample: s 5. The following terms are implied in all contracts involving a supply of services: the work will be performed with all reasonable care and skill: s 13 the work will be carried out within a reasonable time: s 14 the price charged will be reasonable: s 15. Note that the 1982 Act specifies that these are termsonly: they are not designated as condi- tions or warranties. Their status depends on what, if anything, was agreed in the contract. Sometimes the amount of damage caused by the breach will be used as evidence of their importance. They are a good example of innominate terms . (See Chapter 6.) Many contracts involve delivery of both goods and services: for example,\ fitting a new central heating system. If the system fails to work properly, this may be due to defective goods or defective workmanship. The buyer will have to prove which of these two possibili- ties is causing the problem. If the goods are defective, the buyer may repudiate the sale and refuse to pay since liability under ss 2–5 is strict. If the problem arises from the standard of workmanship, the buyer must prove failure to carry it out with reasonable care and skill. Even if this can be done, the buyer will not be able to refuse payment unless the breached obliga- tion amounts to breach of condition. If the contract does not make the status of the term clear, the extent of the damage may be indicative. If the damage was caused b\ y one dripping radiator which has stained part of your carpet, you will be entitled to \ compensation only, which will be discounted against the price. If there has been a major flood involving collapsed ceilings and ruined furniture, carpets and fittings, you will be able to refuse payment. The Supply of Goods (Implied Terms) Act 1973 The same conditions concerning goods are implied in hire-purchase contracts. The Sale and Supply of Goods to Consumers Regulations 2002 amended these\ two Acts. They now give the same protection to the buyer regarding public statements as that enjoyed by the buyer under s 14(2D) of the Sale of Goods Act 1979 (see above \ at page 224). 0003 The Unfair Contract Terms Act 1977 Liability for breach of implied terms as to titlein a sale of goods contract, or a supply of goods and services contract or a hire-purchase contract, cannot be excluded or limited at all. Liability for breach of implied terms concerning description, quality and purpose cannot be excluded in any consumer sale, but may be excluded in sale or hire to a person buying in the course of a business if this is reasonable. The Unfair Terms in Consumer Contracts Regulations 1999 The regulations are also relevant to all the above contracts if the buyer is a consumer and the seller a business. For further details on UCTA and UTCCR, see Chapter 6. PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 230 Characteristics of a sale of goods contract Specific goods only, transfer of title, money consid- eration. Governed by the SGA 1979. Terms implied in a sale of goods contract Title, description, quality and fitness for purpose, sample. Therefore, the seller promises that He or she has the legal right to transfer title to the goods to the buyer (s 12). The goods will match their description (s 13). The goods will be of satisfactory quality (s 14(2)). The goods will be suitable for the purpose for which they would normally be used and any other specific purpose indicated by the seller (s 14(3)). The goods will correspond to any sample shown to the buyer prior to making the contract. Liability for breach of any of these terms is strict, so it is no defence for the buyer to argue that the fault is down to the manufacturer. These terms are conditions, therefore, breach of any of them usually entitles the buyer to repudiate the contract, reject the goods and recover the price and any other losses caused by the breach. The following are not sale of goods con- tracts but include similar implied terms: Contracts for hire and goods and services (Supply of Goods and Services Act 1982). Hire-purchase contracts (Supply of Goods (Implied Terms) Act 1973). Barter contracts (Supply of Goods and Services Act 1982). Chapter summary Agreement to sell goods: a binding contract to sell goods which are currently unascertained. Ascertained goods: existing goods which have been specifically chosen by a buyer. Bartering: exchanging goods or services for other goods and services. Future goods: goods which have not yet been manufactured or acquired by the seller. Key terms 0003 TAKE A CLOSER LOOK 231 11 Goods and services contract:the sale of the goods is incidental but necessary to the perform- ance of a service. Hire contract: entitles the hirer to possession of the goods for the hire period but not title. Hire-purchase contract: the hirer gains immedi- ate posssesion of goods with the option to take ownership when all price instalments are paid. Sale of goods contract: a contract to sell ascer- tained goods, title to which passes to the buyer on formation in return for consideration. Satisfactory quality: meets the reasonable expec- tation of a person buying the particular goods. Title: ownership. Unascertained goods: future or unspecific goods. Key terms (Continued) 1 What is the difference between a contract ofsale and an agreement to sell under s 2 of the SGA 1979? 2 Why is a hire-purchase contract not a sale of goods contract? 3 Explain the rights of the following parties under the SGA 1979: (a) Ash, whose supplier promised him a TV manufactured by Sunny but delivered one manufactured by Prickle. (b) Birch, who has discovered that the fridge he has just bought from a shop warms things up instead of keeping them cool. (c) Poplar, who finds that the carpet which he has just purchased is a paler colour than that which he was shown in the shop. (d) Oak, who got frostbite on a mountain climb- ing trip, while using a sleeping bag which the shopkeeper had assured him was appropriate for rugged outdoor use in winter. Answers to all quizzes can be found in Appendix 2. Quiz 11 Sale of goods: the contract and its terms The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Aswan Engineering Establishment Co. Ltd vLup- dine Ltd [1987] 1 All ER 135, CA Godley v Perry [1960] 1 WLR 9 Harlingdon & Leinster Enterprises Ltd vChristopher Hull Fine Art [1990] 1 All ER 737, CA Wilson v Rickett Cockerell Ltd [1954] 1 QB 598 Take a closer look 0003 232 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS Please go to: www.consumerdirect.gov.uk/ Click on ‘mobile phones’ or ‘cars’ under ‘Goods and Servi\ ces’ and get information on your rights as a buyer and what to do if things go wrong. Web activity (a) Distinguish between a contract for sale of goods, a contract for the sale and supply of goods and a contract of hire purchase. (b) Explain the extent of the buyer’s rights to reject goods which are not of satisfactory quality. Assignment 10 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 12 SALE OF GOODS: transfer of ownership, performance and remedies for breach of contract 0003 Introduction It is important to distinguish between the rights of ownership (called \ title/property in the goods in the Sale of Goods Act 1979) and the right to possession\ . The title holder may permanently dispose of the goods in any way he or she chooses\ . A party who is merely in possession of goods has no rights of disposal unless autho- rised by the title holder. During performance of a sale of goods contract it is quite possible for \ title to be vested in one party, while the other temporarily has possession only. This chapter explains the operation of the rules in the SGA 1979 which govern transfer of title. A sale of goods contract is performedwhen the seller delivers goods which form the subject matter of the contract and the buyer accepts and pays for th\ em (s 27). This chapter examines the seller’s and buyer’s respective duties with regard to per- formance of the contract, and looks at the remedies which may be available for breach. Learning Objectives After studying this chapter you should be able to: Distinguish between rights to title and possession Appreciate the importance of title in a sale of goods contract Explain how a seller may retain title to goods which are no longer under his or her physical control Define the rights and duties of seller and buyer regarding performance of the contract Determine when a buyer is likely to lose the right to reject goods. Photo: Chuck Pefley/Alamy 0003 Statutory rules governing transfer of title from seller to buyer The goods must be ascertained for property in the goods to pass: s 16 Ascertained goods, which may also be called ‘specific goods’, are defined in s 16 as ‘goods identified and agreed on at the time a contract of sale is made’. A large number of con\ - sumer sales are for such goods; the concept is clearly illustrated by a self-service p\ urchase.Not all goods are ascertained when the contract is made: for example, where the buyer orders goods which have not yet been manufactured, or which, like grain or coal, will be allocated to the purchaser from bulk goods in the seller’s possession. In such circumstances the parties have an agreement to sell. Title/property in the goods is transferred once the goods have been allocated to the contract, as explained below. The parties’ intention is crucial: s 17 The property in ascertained goods will be transferred at the particular time or in the particu- lar circumstances which the parties intend. This may be specified in the contra\ ct itself, or be implied from the parties’ conduct, the custom of the particular trade, or any o\ ther relevant circumstances. In Lacis v Cashmarts (1969), it was held that in self-service shops ownership is transferred when payment is made. Where no intention is indicated: s 18 If no intention is indicated the following rules are applicable: Rule 1: In an unconditional contract for the sale of specific goods in a\ deliverable state property passes when the contract is made. ‘ Unconditional ’ means that there is no term in the contract which postpones transfer of ownership until \ the buyer or seller performs some act. The phrase ‘ deliverable state ’ generally indicates that the goods are ready to be handed over to the buyer or put into the hands of a carrier. So, in Underwood vBurgh Castle Brick and Cement Syndicate (1922), a contract was made to sell an engine which at that point was cemented to the seller’s floor. It was held that it would not be in a deliverable state until it was dismantled and ready for transport. Rule 2: In a contract for specific goods, where the seller is bound to d\ o something to the goods to put them into a deliverable state, the property does not\ pass until it has been done and the buyer notified. For example, if you make a contract to buy a particular sports trophy and then leave it with the shop to have it inscribed, the property in the trophy will pass when the shop phones to tell you that it is ready for collection. Rule 3: In a contract for sale of specific goods in a deliverable state \ where the seller is bound to weigh, measure, or test the goods to fix the price, p\ roperty PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 236 0003 passes when the seller does so and notifies the buyer.This is common in interna- tional contracts for the sale of bulk goods. Such processes take place on arrival at the port of destination and allow for final price adjustments. Rule 4: Where goods are delivered to a buyer on approval (sale or retur\ n) prop- erty passes to the buyer when: 1 ‘he signifies his approval to the seller’ or otherwise indicates adoption of the transac- tion, for example, treating the goods as if they were his own. In Kirkham v Attenborough (1897) the buyer pledged (pawned) the goods: this indicated adoption\ of the transaction, since it was inconsistent with the rights of the own\ er; or 2 the buyer retains the goods beyond the time fixed for their return, or, if no time was fixed, retains them for an unreasonable time. Poole v Smiths Car Sales (Balham )Ltd (1962) Poole left his car with Smiths, who were dealers, so that they could find him a buyer. No time limit was fixed, but three months later the car had not been sold and Poole’s many requests for the return of the car had been ignored. Held: Smiths must pay for the goods as title had passe d under rule 4 because of the lengthy time lapse. Transfer of property in unascertained goods Under s 18, rule 5, ownership of unascertained goods is transferred when: 1 the goods are in a deliverable condition; and 2 either the seller or buyer with the consent of the other does something \ which uncondi- tionally appropriates the goods to the contract. Such unconditional appropriation can arise in many different ways dependent on other terms in the contract, but it must consist of behaviour which is clearly\ an irrevocable step in performance of the contract. In Hendy Lennox vGraham Puttick (1984) it was held that in a contract to supply generators, appropriation took place once the sellers had assembled the goods and the buyers received invoices and delivery notes indicating the serial numbers. Federspiel v Twigg (1957) Bicycles were packed up and labelled, and shipping ar rangements made by the seller, as stipulated by the contract. The buyer had paid for the goods, but pr ior to shipping them the seller went bankrupt. The buyer claimed that he had acquired title to the goods because of the seller’s actions. Held: at the point when the seller went bankrupt, the goods had not been appropriated. The seller might yet have changed his mind prior to handing the goods over to the shipper. He could have sent a different set of bicycles which still conformed to the order. The unfortunate buyer consequently had to join the queue with all the other creditors. STATUTORY RULES GOVERNING TRANSFER OF TITLE FROM SELLER TO BUYER 237 12 Sale of goods 0003 However, if the buyer is to arrange transport the goods are usually treated as appropriated once set aside and packed up and labelled or otherwise identified. Reservation of title Remember that the statutory rules for transfer of ownership, explained a\ bove, apply only if the parties indicate no contrary intention in the contract. The contract\ may include a reser- vation of title clause to protect the seller against loss in the event of non-payment. Where such a clause is effective, the buyer obtains possession and use of the goods, but will not obtain ownership unless or until he or she pays. This has important \ consequences: 1 the seller can recover the goods from the buyer if the buyer fails to make payment; 2 should the buyer die or become bankrupt before payment, any goods subject to a reserva- tion clause can be recovered by the seller, since they do not form part of the buyer’s assets. Reservation clauses can be divided into two kinds: 1 Simple reservation of title . The seller simply stipulates that property in the goods will not pass until the buyer has paid for the goods. A reservation of title clause may protect all debts owed by the buyer to the seller, not just the debt for the goods to which it directly relates. In Armour and Carron Ltdv Thyssen (1990) a reservation of title clause stating that the buyer would obtain title to goods supplied by the seller once money owing under this and other contr\ acts with the seller had been paid was held to be valid. This meant that the seller co\ uld recover steel supplied to the buyer from the receivers when the buyer company went into liquidation. A simple reservation of title clause is effective only if the relevant goods are in the buyer’s possession, readily identifiable and likely to remain so. It gives no protection if the goods are sold on, or mixed with the buyer’s other property so that the goods are no longer identifiable. It could, therefore, be useful to the seller of a large piece of machin- ery bought for use in the buyer’s pie factory. It would not protect a seller of a consignment of flour which the buyer stored in a silo, mixed with supplies from other sources and which is used for making pastry in the pie factory. In Bordenv Scottish Timber Products Ltd (1981, CA) resin supplied by the sellers was used by the buyers in the manufacture of chipboard. It was held that a reservation clause did not protect the seller once the goods had lost their identity by ceasing to be a separat\ e commodity. 2 Extended reservation of title clauses. These are often called Romalpaclauses . It may be in the interests of the seller to allow a buyer to sell on, or to use the goods in i\ ts manu- facturing processes, since this may promote the necessary cashflow to enable payment to be made. A suitably worded clause can require a buyer to store the seller’s goods sepa- rately to prevent their getting mixed with similar goods. It may also permit the sel\ ler to trace the value of any of the money still owed to the seller to the proceeds of sale of goods in which the seller’s goods became mixed in the manufacturing process. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 238 0003 Aluminium Industrie Vaasen vRomalpa Aluminium Ltd (1976) The sellers supplied large quantities of aluminium to the buyers. The contract required that until the sellers were paid: 1 the consignment must be stored separately until used; 2 the sellers became owners of goods manufactured by the buyer and containing the sellers’ alu- minium; consequently the buyers must separately st ore these goods and account to the sellers for the proceeds of any sales; 3 proceeds of the sales were to be banked separately from the rest of the buyers’ income and handed over on request. The buyers went into receivership. Held: the reservation of title provision entitled the sellers not only to recover the £50,000 worth of unused foil still in the buyers’ store, but also to trac e the remainder of the price still owed to the £35,000 proceeds of sale of the goods in which the sellers’ goods had been combined. The buyers were bailees (holders of the goods on the owner’s behalf ) unti l payment was made. Under equitable rules, they effec- tively were in a position of trustee to the sellers and had to account for the proceeds resulting from the use of the goods in their possession. The Romalpa decision was controversial insofar as it appeared to make it possible for sellers to enforce rights equivalent to a charge (mortgage) over manufactured products containing their goods, or over the proceeds of sale of such goods. Charges on the property of a lim- ited company are enforceable against other creditors only if registered under s 874 of the Companies Act 2006, at the Companies Registry. Registration is required to publicise the existence of a charge to protect the rights of other potential and existing creditors. It is also intended to prevent creditors with an unregistered charge from jumping the queue awaiting payment if funds run out. The judge who first tried the Romalpa case asserted that no registrable charge was cre- ated here. When the case reached the higher courts the issue was not discussed. The Romalpa decision has never been overruled, but in successive cases the courts ha\ ve inter- preted it very tightly. By nice distinctions of fact they have generally avoided giving the sel\ ler the protection as regards rights to goods manufactured by the buyer which include the seller’s goods, or the proceeds of sale of such goods. Consequently, unless a clause comes within the same terms as those approved in the Romalpacase, it will be treated as merely creating a charge which will not be enforceable unless registered. Today a Romalpa clause will be likely to be upheld only if both the following conditions\ are satisfied: 1 it must specifically state that the buyer is to become the bailee of the goods: this puts the buyer in a similar position to a trustee and requires it to take care of the bailor ’s (seller’s) property and account for the profits of sale; 2 the goods must be of a type that remain identifiable after the manufacturing process so that they may be recovered. STATUTORY RULES GOVERNING TRANSFER OF TITLE FROM SELLER TO BUYER 239 12 Sale of goods 0003 Re Peachdart (1983) A sale of leather contract stated that the seller’s title should vest in goods made from leather supplied by the seller, and that proceeds of sale of the handbags manufactured from it were traceable. Held:the seller’s title was not protected once the buye r used the seller’s goods: this intention was not apparent from the language of the parties. Exclusive ownership rights were lost in relation to each piece of leather as soon as work began on it. Transfer of title by non-owner Sometimes a seller has no right to transfer ownership of the goods to th\ e buyer. The goods, for example, may have been stolen, either by the seller or by somebody f\ rom whom the seller acquired them, innocently or otherwise. The general rule is nemo dat quod non habet , which roughly translated means ‘you cannot give what you have not got’: a seller who does not own the goo\ ds, or who sells them without the owner’s authority, cannot transfer ownership to the buyer. Some excep- tions have been developed to protect a third party in good faith without actual or constructive knowledge of the true owner’s rights. A bona fide buyer may acquire good title in the following circumstances. Estoppel If the true owner allows the buyer to believe that the seller is the own\ er of the goods or has the true owner’s permission to sell, the true owner cannot later deny that this is so (\ s 21). Pickard v Sears (1837) Machinery belonging to Pickard was in the possession of a third party. Consequently, it was seized by Sears, who was executing a court judgment. During the next three months, Pickard made no attempt to tell S of his claims, although he had contact with him on other matters. Held: Sears had legal title. Since Pickard had failed to assert his rights over the goods for so long, he could not deny Z’s apparent ownership. Factors Act 1889: sale by a factor A factor is a mercantile agent (see Chapter 10). A buyer from a factor acquires good title if the buyer can prove that: 1 the factor had possession of the goods with the owner’s permission; and 2 the sale was within the factor’s normal course of business as a mercantile agent; and 3 the buyer bought the goods in good faith unaware of the factor’s lack of authority. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 240 0003 Sale under a voidable title If the owner of the goods agreed to sell them as a result of a misrepresentation by a rogue buyer, a voidable title is transferred (s 23). This means that the rogue acquires ownership, but this may be lost if the owner takes steps to avoid the contract befo\ re the rogue passes the goods on. As it is usually impossible to find the rogue to tell him or her that the deal is off, notification to the police has been held to be sufficient (Car & Universal Financev Cald- well (1964)). Unfortunately, even if the true owner succeeds in avoiding the contract in time, the party who bought the goods from the rogue buyer in good faith is likely to be saved by s 25 (see below). Sale by seller in possession of the goods or title documents A seller may not immediately relinquish possession of goods to the buyer once the contract has been made. An unscrupulous seller in such circumstances could then sell the goods again to a third party. Provided this buyer takes in good faith and without notice of the pre- vious sale, he or she will gain good title to the goods (s 24). Sale by buyer in possession of goods or title documents This covers the resale of goods by a buyer who has obtained possession of the goods or ev\ i- dence of ownership of them, but has not acquired ownership rights. Such a buyer is effectively placed in the same position as a factor. Provided that the second buyer acts in good faith, he or she will acquire ownership of the goods (s 25). Newtons of Wembley Ltd vWilliams (1964, CA) The claimants agreed to sell a car to X, with ownership to pass when X’s cheque cleared. X was given possession of the car but the cheque bounced. The claimants took steps to avoid the contract by notify- ing the police and thus destroyed X’s voidable title. X then sold the car to Y, who in turn sold it on to the defendant who bought in good faith. Held: although X no longer had any title to the goo ds when he sold them, s 25 enabled the defendant to acquire good title to the car. This section does not operate unless the original buyer obtained possess\ ion of the goods because he or she agreed to buy them from the original owner. In Shaw vCommissioner of Police (1987) a party, who had acquired possession of a car by telling the owner that he had found a potential buyer for it, was not a ‘buyer’ within the meaning of s 25. Therefore, he could not pass good title to the sub-buyer. TRANSFER OF TITLE BY NON-OWNER 241 12 Sale of goods 0003 Purchase of a motor vehicle currently the subject of a hire- purchase contract This is covered by the Hire Purchase Act 1964, s 27. It protects a private purchaser who acts in good faith, not car dealers.It is very common for somebody who is purchasing a car on hire-purchase to sell it on before finishing paying for it. As the hirer has the registration documents it is very difficult for a private purchaser to know that the hirer/seller is acting illegally. Trade buyers have access to a register to check the car’s provenance, so they are not protected by these provisions. In Shogun Finance Ltd v Hudson (2004) (facts above at pages 139–40) the House of Lords held that s 27 only protects the innocent buyer when the hirer is the debtor of the finance company. The rogue who had sold the car on to Hudson was not the debtor since he had misrepresented his identity to the company. The contract had been formed with the person he represented himself to be and whose signature he had forged on the contract. That person was not liable because it was not his agreement because of the forgery. The passage of risk Until risk passes, the buyer may refuse to take delivery of goods which are damaged in transit. Once risk has passed to the buyer, the seller is relieved of liability for loss of or damage to the goods, unless caused by the seller’s negligence. Unless there is evidence of a contrary intention, risk passes when ownership is tra\ ns- ferred. In practice, it is very common for the parties to agree that the buyer will acquire risk before ownership (s 20). In such circumstances it is essential that buyers acquire appropriate insurance, since their own policies will generally cover only the goods \ which they own. If the goods are damaged in transit by a third party, the buyer who is not covered properly stands to suffer considerable loss; even if the goods are lost or damaged beyond repair, the buyer still owes the seller the price, and would not be able to recover any losses by an action in negligence against a third party. The Sale and Supply of Goods to Consumers Regulations 2002, reg 4(2) amended s 20. Where the sale is to a consumer the goods remain at the seller’s risk until delivery. Even if risk and ownership pass at the same time, a buyer who has not ye\ t taken delivery of the goods may need extra insurance; an existing policy may cover only\ goods which are actually on the buyer’s premises, or at least in the buyer’s possession. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 242 0003 Performance of the contract The duties of the seller To deliver the goods ‘Delivery ’ in its statutory meaning (‘the voluntary transfer of possession\ from one person to another’ (s 61)) does not necessarily involve actual physical t\ ransfer of the goods from seller to buyer; it includes ‘constructive’ delivery. Actual delivery takes place in most consumer contracts, but in many commercial con- tracts constructive delivery occurs. Sometimes actual delivery is redundant as the buyer already has possession of the goods: for example, when a party with possess\ ion of goods under a hire-purchase contract exercises its option to purchase. On other occasions it may be sufficient to notify the buyer that goods are ready for collection, or to give the buyer the means to take control of the goods, for example by giving the buyer the key to the ware- house in which the goods are stored. Goods in the possession of a third party are not delivered until the third party acknowl- edges that they are being held on the buyer’s behalf (s 29(4)). This will require notice by the seller. The buyer may not ever take physical delivery of the goods, which will\ continue to be stored by the third party until sold to someone else, but the notice from the seller enables the buyer to dispose of the goods. Delivery also takes place when the goods are handed over to a carrier, whether or not the carrier is the buyer’s agent (s 32). This does not apply to a contract with a consumer buyer\ under reg 4(3) of the Sale and Supply of Goods to Consumers Regulations 2002. \ The risk remains with the seller until delivery to the consumer takes place. Once delivery has taken place, all risks pass to the buyer: the seller h\ as no further con- tractual duties regarding the safety of the goods. The arrangements for delivery may be found in the contract, but failing \ this the rules specified in s 29 apply: 1 The place of delivery. This is the seller’s place of business, or the seller’s home if he or she does not have business premises (s 29(2)). If the contract is for specific goods, which to the knowledge of the parties are at a different location, that will be the place of delivery. 2 The time of delivery . If no time is fixed and the contract requires the seller to send the goods to the buyer, this must be carried out within a reasonable time and at a reasonable hour (s 29(3)). What is reasonable is determined according to the circumstances of the contract. An unreasonable time would entitle the buyer to refuse to accept the goods. Tender of delivery at a reasonable time is equivalent to actual delivery . If the goods are delivered at a reasonable time and the buyer actively or passively fails to accept them,\ the buyer is in breach. The seller, by tendering performance, is freed from any legal obligation to make further attempts to deliver. Refusal by the buyer to accept the goods does not generally entitle the seller to repudiate the contract. In practice, the issue is generally resolved by the parties agreeing a fresh delivery time. Time of performance may be ‘of the essence’ of the contract . It is common for a contract to state a time for performance. Failure to deliver by that time is a breach of contract entitling PERFORMANCE OF THE CONTRACT 243 12 Sale of goods 0003 a party to claim damages if they have suffered actionable loss. Late delivery does not neces- sarily entitle the buyer to reject the goods, however. This is possible only if the issue of time is a conditionof the contract or, as it is sometimes described, ‘of its essence’. Time will be of the essence of the contract if: (a) its importance is expressly stressed under the terms of the contract; or (b) its importance is impliedly indicated by the terms of the contract and/o\ r circumstances surrounding it which are known to the seller (a contract requiring delivery of a wedding cake to where the reception is taking place would indicate pretty clearly that the time of delivery is crucial, without the buyer spelling out that it is required that day); or (c) the contract originally required delivery within a reasonable time but the seller failed to fulfil this requirement so that a new delivery date was agreed. The new delivery date is ‘of the essence’. To supply goods which comply with the terms of the contract The buyer may be entitled to reject delivery if the goods do not meet the specifications laid down in the contract, or fail to comply with the implied conditions unde\ r ss 12, 13, 14 and 15 (see the previous chapter). The duties of the buyer To accept delivery of the goods Under s 27, the buyer has a duty to accept delivery of the goods. The bu\ yer must do this at the specified time, if time is of the essence; otherwise it must be done wit\ hin a reasonable time. Failure to accept delivery is a breach of contract which makes the buyer liable for any reason- able costs incurred by the seller as a result: for example, transport and storage expenses. Under s 35, acceptance is deemed to occur when the buyer: 1 tells the seller that he or she accepts delivery; or 2 fails to notify rejection within a reasonable time; or 3 does something with the goods which is ‘inconsistent with the rights \ of the seller’. This would include selling the goods to a third party. The buyer is not generally legally obliged to accept anything less than \ complete perform- ance of the contract. The rules are as follows: 1 Variation in quantity of goods supplied (s 30). If a specified amount is required by the contract and more or less delivered, the buyer is not generally bound to accept. If they choose to do so, the buyer must pay pro rata, i.e. proportionately. In a non-consumer sale, the buyer is not allowed to reject the whole consignment if the shortfall or excess ‘is so slight that it would be unreasonable for him to do so’ (s 30A). It is up to the seller to prove that rejection is unreasonable. Where only approximate amounts have been ordered (‘about 20 tonnes’), variations within a reasonable margin must be accepted. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 244 0003 REMEDIES FOR BREACH OF THE SALE OF GOODS CONTRACT 245 12 Sale of goods 2Delivery by instalments. The buyer need not accept delivery by instalments unless this has been agreed in the terms of the contract (s 31). If the buyer rejects an instalment or the seller makes a defective delivery of one, it is a question of fact in ea\ ch case whether this gives the innocent party the right to repudiate the contract. The innocent buyer need not return rejected goods . Where the buyer rejects the goods because of a breach by the seller, the buyer has no obligation to return the goods (s 36). The seller must make arrangements for collection. To pay for the goods The buyer’s duty to pay for the goods is concurrent with the seller’s duty to deliver. The buyer is not entitled to take possession of the goods until payment has \ been made, unless the parties have made alternative arrangements. Sometimes the parties may agree that pay- ment is to precede delivery. It is also common for goods to be supplied on credit. Remedies for breach of the sale of goods contract The buyer’s remedies These differ according to the importance of the term(s) which have been breached by the seller. The right to reject the goods and refuse payment This is repudiation of the contract and is not possible unless the seller has breached a condi- tion of the contract by, for example, failing to supply goods of satisfactory quality. If the seller sues the buyer for refusing to accept and pay for the goods, the buyer may raise the seller’s breach as a defence and counterclaim for any losses. If the buyer discovers that part of a consignment of goods delivered by the seller does not comply with the terms of the contract, the buyer has the right to ac\ cept those goods which meet the contract standards and to reject the rest (s 35A). The right to reject goods is limited . It is lost as soon as the buyer is deemed to have accepted the goods (s 35). The courts have often held that acceptance \ has resulted from the buyer using the goods for anything more than a very short time and/or retaining and continu- ing to use the goods after having complained about them, or agreeing to them being repaired. Bernstein v Pamson (1987) After three weeks and with only 140 miles on the clock, the engine of the claimant’s brand new Nissan seized up on the motorway, due to sealant coagulating in the cooling system. Held: the engine was clearly not of appropriate quality and the claimant was entitled to damages. How- ever, he had lost his right to reject the car since a reasonable time had elapsed since taking delivery. 0003 The judge held that a reasonable time meant long enough to give the car a reasonable road test, not nec- essarily long enough to discover latent defects. It would be unfair to allow the buyer a protracted time to reject as this would unreasonably prevent the sellers from closing their books on the transaction. Since all cases are judged on their particular facts, apparently conflicting decisions may occur: in Rogers vParish (1987) it was held that a top of the market Range Rover could be rejected after seven months, with a 5,000 mileage, since it had been a ma\ rtyr to endless mechanical problems from the moment of delivery, and had spent much of its life in the garage while many unsuccessful repairs were attempted. The buyer must have a reasonable time to examine the goods . When deciding whether the buyer has accepted the goods, the court must consider whether the bu\ yer had a reason- able opportunity to examine the goods after delivery (s 35(5)). This\ amendment was introduced in 1994, largely to protect the rights of consumers, but, as the courts have always taken this into account, it is uncertain whether it is likely to \ make much difference. A buyer who is sold defective goods may agree to have them repaired instead of reject- ing them. If this is treated as acceptance, the buyer loses the right to reject the goods and recover the price. The reality is that many consumers do not initially realise that they have the right to reject defective goods, so that they agree to the seller’s apparently kind offer to repair the goods. At best this causes inconvenience to the buyer, who is temporarily deprived of the use of the goods: sometimes a whole saga of delay and in\ competence starts to unfold. At this point the buyer may find out that he or she need not \ have agreed to the repair in the first place and seek to reject the goods. To safeguard the buyer in such situa- tions a 1994 amendment to the SGA 1979 states that a buyer is not to be \ assumed to have accepted the goods merely by agreeing to their being repaired (s 35(6)). This may increase the opportunities for a buyer to reject the goods. PA R T 2 LAW OF CONTRACT, AGENCY AND SALE OF GOODS 246 Horace bought a washing machine from Floggit and Run Ltd, his local department store. He used the machine about six times in the next three weeks, but the machine then ceased to function. Horace could at this point have rejected the machine, as the fault has happened soon enough to point to a latent defect as opposed to wear and tear. However, Floggit and Run said an engineer would be with him next day to repair the machine, so he agreed to this. The engineer came as promised, cor- rected the defect and the machine completed si x more loads successfully before the spin mechanism malfunctioned leaving Horace with a load of very wet washing. The engineer was summoned and claimed there was nothing wrong and suggested that Horace had either overfilled the machine, or that the load had become unbalanced. Horace tried again with a small load and again the machine refused to spin. Horace would be best advised to give up at this point and promptly tell Floggit to take away the machine and give him back his money. He would be fully entitled to do this. The machine is clearly not of satisfactory quality, nor fit for its purpose. The fact that he agreed to repairs does not in these cir- cumstances amount to acceptance of the goods when rejection is made within a reasonable time. Real Life 0003 REMEDIES FOR BREACH OF THE SALE OF GOODS CONTRACT 247 12 Sale of goods However, where the buyer is deemed to have delayed rejection unreasonably he or she will lose their right. Jones vGallagher and Gallagher (2005, CA) The Joneses sought to reject a fitted kitchen when the work was complete. Their initial and principal complaint was that the colour was wrong but some time later they raised other concerns and then per- mitted some attempts at rectification by the Gallaghe rs before eventually seeking to reject the work totally. They argued that they were still entitled to reject under s 35(6) because, while a period of com- plaint was ongoing, the right to reject could not be lost. Held: the right to reject had been lost as several weeks had elapsed before the Joneses had sought to exercise it. The colour issue which was the main complaint would have been noticeable at the point the kitchen was unpacked and they had delayed raising this and the other issues and then waited even longer before seeking to reject the goods. The House of Lords recently held in J & H Ritchie Ltdv Lloyd Ltd (2007) (below) that when goods are returned to a buyer for inspection with a view to repair, this constitutes a separate agreement from the contract of sale itself. It puts the seller under an implied duty\ to inform the buyer of the nature of the defect so that the seller can then decide whether or not to repudiate the sale of goods contract. J & H Ritchie Ltd vLloyd Ltd (2007, HL) The claimant farming contractor bought a seed drill and harrow from the defendant. As soon as it was used, the claimant noticed that it vibrated very loudly, and he operated it only for a short time before reporting the matter to the defendant. The defendant agreed to remove the equipment for inspection, with a view to possibly repairing it. In due course, it was returned, having been repaired to what the defendant described as ‘factory gate specification’ but without any explanation about what had caused the defect. When pressed, the defendant refused to explain what the problem had been, but the claimant found out informally, from a mechanic, that bearings had been missing. The claimant then rejected the goods because of concerns that this fault might have caused damage to other parts of the equipment and compromised the manufacturer’s guarantee. Held: the claimant was entitled to reject the goods. It was implied in the agreement to repair that the defendant would inform the claimant about the cause of the problem and that the claimant would retain his right to reject until he had the necessary information to make a ‘ properly informed choice’ (Lord Hope) as to whether he wanted to keep the goods or not. Lord Brown: Even though the harrow after repair was …in as good as new condition, the seller’s failure to follow the procedure implicitly agreed justified the buyer in refusing to accept the goods sold. The buyer was still pre- pared to accept the goods, if the seller at its expense obtained a clean engineer’s report, but the seller refused to do this either. The buyer was in this situation justified on 26th May 1999 in rejecting the goods . 0003 248 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS Rights of rejection are less comprehensive in a non-consumer sale (s 15A). If there is a breach of condition under ss 13–15, a consumer buyer may reject the goods prior to accept- ance, however trivial the damage. A buyer who is not a consumer (not bu\ ying for personal use) is not entitled to reject the goods if the breach is so trivial that it would be unreason- able to allow the buyer to reject. The right to request specific performance If the seller refuses to deliver the goods and this amounts to a breach of condition because time is of the esence, specific performance (explained fully in Chapter\ 9) may exceptionally be available to the buyer if the goods are sufficiently unique. The right to damages A breach of condition entitles the buyer to claim damages, as well as repudiating the con- tract. Damages are the only remedy for breach of warranty. How far damages are recoverable is partly governed by the rules relating to remoteness and quantum explained in Chapter 9, but the 1979 Act also regulates the process: Will consumers lose their current rights to reject faulty goods? In October 2008 the European Commission announced proposals for a new Directive concerning consumer rights. These proposals suggest that a consumer’s right to reject goods should be consider- ably restricted with repair and replacement being the norm and rejection should only be permitted in restricted circumstances. The Law Commission believes that while the right needs qualification, particularly as regards time limitation, it is crucial to retain the right in the interests of consumer confidence. Other member states within the EU have similar rights and existing industry and consumer research indicates that the right should be retained. In a Consultation Paper (November 2008) the Commission provision- ally proposed retention, subject generally to a thirty-day time limit. In May 2009 the Commission stated that this was substantially supported by those responding to the Paper. Recommendations will be presented to the Government in 2010. (Source: the Law Commission website.) In the News The House of Lords’ analysis of the repair agreement worked well in J & H Ritchiev Lloyd Ltd (above) since the defendant seller was also the manufacturer. However, is it applicable to the normal run of cases where the seller is a retail business distinct from the manufacturer? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 1Damages for non-delivery (s 51). If there is a market for the goods, the buyer may recover the difference (if any) between the price agreed with the seller and the current market price; if the price has increased between formation of the contract and its breach, dam- ages will be payable. The buyer is also able to recover any losses ‘directly and naturally resulting in the ordinary course of events’ from the failure to deliver. 2 Damages when goods have been accepted (s 53). If the seller has breached a condition, but the buyer has by acceptance of the goods lost the right to reject, the breach will be treated as one of warranty and damages will be recoverable for all actionable loss. Lee v York Coach & Marine Ltd (1977) Ms Lee bought a secondhand car from the defendants in March. She later discovered that the brakes were in such a dangerous condition that had she tried to stop in an emergency they would have failed. She had repairs done which cost £100. In September she gave notice to the sellers of her wish to reject the car. Held: the car had been supplied to her in a state which was a breach of condition under s 14 of the SGA 1979. However, since she had failed to notify her wish to reject within a reasonable time, she was enti- tled only to damages for breach of warranty. Note that because of recent amendment, the SGA 1979, s 35(6) says that agreeing to, or even asking for, repairs does not necessarily indicate acceptance. This might be helpful t\ o a buyer in the same position as Ms Lee. However, an attempt to reject a secondhand car six months after sale would still probably be regarded as being too late. The Sale and Supply of Goods to Consumers Regulations 2002, reg 4(5) amended the SGA 1979, s 48 and gave additional rights to the consumer buyer. The SGA 1979, s 48B gives the consumer buyer the right to demand repair or replacement of goods which do not conform to the contract at the time of delivery. Alternatively, the buyer (s 48C) has the right to ask for a reduction of the purchase price or rescission of the contract. If the buyer requires repair or replacement, the seller bears all the necessary costs and must fulfil his obligation within a reasonable time. However, the seller is not bound to repair or replace goods where this is impossible or disproportionate in comparison to a price reduc- tion or rescission. Disproportionality is determined by reference to the contract value of the goods, the significance of the drop in value caused by the defect and whether an alternative remedy would significantly inconvenience the buyer. If the buyer’s request is found to be dis- proportionate, price reduction or rescission should be granted (s 48B). The seller’s remedies The seller has similar rights to the buyer and may thus repudiate the contract for breach of condition by the buyer. The seller is also entitled to damages if the buyer fails to pay for t\ he goods (s 49), or refuses to take delivery of them (s 50). If the seller has not been paid it has additional rights which may be ex\ ercised against the goods themselves. The seller is able to use the goods as security for th\ e money owed from the buyer (s 39). The Act gives the seller the following rights: REMEDIES FOR BREACH OF THE SALE OF GOODS CONTRACT 249 12 Sale of goods 0003 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS 250 1 a right of lien (to retain goods still in the seller’s possession); 2 a right to stop the goods in transit to the buyer; 3 a right of resale. The right of lien If the seller has retained possession of the goods, the seller may be able to hold on to th\ em until the buyer pays the price in full, even if title has passed to the \ buyer (s 41). The right exists if: 1 the goods have not yet been paid for and there are no arrangements for credit; or 2 the goods were supplied on credit which has now expired; or 3 the buyer becomes insolvent, i.e. is unable to pay its debts in the ordinary course of busi- ness, or as they come due (s 61). Under s 43, the right of lien is lost if: 1 the price is paid; or 2 the seller loses possession of the goods to a third party for delivery to the buyer and does not reserve the right to dispose of them; or 3 the seller waives the right, i.e. agrees not to exercise it. The right to stop the goods in transit This right under ss 44 and 45 can be exercised only if the buyer becomes insolvent. It may be exercised even though the buyer has title. Transit begins when the goods are in the hands of a carrier and ends when the buyer or their agent takes delivery\ . There is no right to stop the goods if the carrier is the agent of the buyer. The right will be lost if the buyer or its agent intercepts the goods and obtains possession before the goods reach their destination. The unpaid seller exercises the right by taking physical control of the goods, or by notice to the carrier or other custodian of the goods. The right of resale Under s 48, this right may be exercised if the buyer has failed to pay and: 1 the goods are perishable; or 2 the seller has notified the buyer of their intention to resell if payment is not made and the buyer fails to pay within a reasonable time. On resale, the new buyer acquires ownership of the goods. If the seller makes a loss on resale, he or she may sue the buyer for damages to cover this. If the seller makes a profit, he or she can keep it. 0003 251 Chapter summary KEY TERMS Title to goods to buyer passes: (a) once the goods are ascertained; and (b) at the time specified by the parties; or (c) under the rules in SGA 1979, s 18 if no time isindicated. Title may be reserved Simple reservation/Romalpa clause. Nemo dat quod non habet Good title only passes from/with the authority of the actual title holder. Exceptions to nemo dat rule Sale by a factor. Sale by a seller with a voidable title. Sale by a seller who possesses the goods or title documents. Sale of a vehicle which is currently the subject of a hire-purchase agreement. Performance of the contract Seller: delivery of goods complying with the con- tract. Buyer: acceptance and payment. Entitled to reject defective goods within a reason- able time. Remedies Seller: damages/rescission/lien/stoppage in tran- sit/resale. Buyer: rescission/damages. Appropriation of goods: allocation of goods to the buyer’s specifications by the seller. Bailee: person to whom owner has transferred possession of goods and responsibility for their care. Bailor: person transferring goods to bailee. Deliverable state: all necessary preliminary steps have been taken by the seller to make the goods ready to be delivered to the buyer. Delivery: voluntary transfer of the goods by the seller. Lien: the right of one party to hold on to goods of another party until that party has discharged a debt. Nemo dat quod non habet : good title can only be passed by a party who has good title. Property in the goods: ownership of/title to goods. Reservation of title: the owner retains ownership although the goods have left his or her possession. Risk: liability for loss or damage. Romalpa clause: reservation of title requirement which permits the buyer to use/dispose of the goods, subject to the owner’s rights to trace sale proceeds. Title: ownership rights/property in the goods. Unconditional appropriation: irrevocable step in performance by the seller in designating goods to the buyer. Unconditional sale: title passes immediately. Key terms 12 Sale of goods 0003 252 PA R T 2LAW OF CONTRACT, AGENCY AND SALE OF GOODS The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciat e how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Newtons of Wembley Ltd v Williams [1964] 3 All ER 532, CA Re Peachdart [1983] 3 All ER 204 J & H Ritchie Ltd v Lloyd Ltd [2007] 1 WLR 670, HL Rogers v Parish [1987] QB 933 Take a closer look 1 When, under the SGA 1979, does title to the following goods pass? (a) A watch purchased by Boland, but retained by the shop for engraving. (b) An order to a coal merchant for five tonnes of smoke-free coal. 2 What is a Romalpa clause? 3 When may a third party, without title to goods, transfer a good title? 4 Burnham orders a consignment of 200 Easter eggs from Pemberton, a confectionery whole- saler. Pemberton delivers them to Carshalton Carriers, whose lorry is hijacked by Sherwood, and Burnham never receives them. What is the legal position? 5 What is the significance of making time of the essence of the contract? 6 When is a buyer deemed to accept goods under s 35 of the SGA 1979? 7 When does a buyer have the right to reject goods? 8 What rights may be exercised by Ashdown in the following circumstances? (a) Honor has failed to perform her contractualpromise to pay for a consignment of strawber- ries which are still in Ashdown’s possession. (b) Ashdown dispatched a cargo of carrots to Selly and then heard that Selly had gone bankrupt. Answer to all quizzes can be found in Appendix 2. Quiz 12 Please go to: www.tradingstandards.gov.uk Then click on ‘advice’ [left hand column] then ‘consumer advice\ ’, then ‘problems with goods’ for an overview of your rights as a buyer of goods. Web activity 0003 ASSIGNMENT 11 253 Is it true to say that the law gives more protection to the seller than to the buyer where transfer of risk and title are concerned? Assignment 11 Sale of goodsVisit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 PA R T 3 The law of tort Photo: ©Digital Vision 0003 chapter 13 TORT LIABILITY FOR DEFECTIVE GOODS 0003 Introduction In previous chapters contractual rights and remedies have been explained, but it is important to remember that these rights are not sufficient to protect allconsumers. The law of contract protects only the buyerof the defective goods. Other people harmed by the goods will not generally be able to sue in contract becaus\ e of the lack of privity of contract between themselves and the seller. Even a buyer may not be adequately protected, should the seller have gone out of business. A tort is a civil wrong independent of contract. The law of tort imposes duties at civil law in respect of a wide range of behaviour relevant to business activity. This area of the law has a particular importance for consumers and those doing \ business with them. Both the buying and non-buying consumer may be protected by the law of tort. This chapter is concerned with situations where parties suffer loss or damage due to defective products, and explains their rights in negligence and under the Consumer Protection Act 1987 (CPA 1987). Learning Objectives After studying this topic you should be able to: Appreciate the relationship of the law of contract to tort liability for defective products  Understand the scope of duty of care in negligence relating to defective products  Grasp the difference between consequential and pure economic loss  Envisage the circumstances where liability in negligence and/or the CPA 1987 may arise. Photo: ©Richard Klune/Corbis 0003 Negligence liability The tort of negligence gives rights to persons who have suffered damage to themselves or to their property, against a party who has failed to take reasonable care for those persons’ safety. Negligence is the commonest tort claim and is relevant to the whole gamut of acci- dental injury situations: for example, road accidents, illness and injuries caused by workplace conditions and harm arising through medical treatment. It also plays an important part in product liability: a person who suffers damage because of defects in a product, caused by the carelessness of the manufacturer or other party responsible for the state of the goods, may have a right to sue in negligence.To be successful in a claim of negligence, the claimant must prove that : 1 the defendant owed the claimant a duty of care ; and 2 the defendant failed to perform that duty; and 3 as a result, the claimant suffered damage. 1 The duty of care The claimant must be able to show that he or she is someone who, in the \ circumstances, the defendant should have had in mind when embarking on the course of co\ nduct which led to the alleged damage. This concept was established by the House of \ Lords in the fol- lowing key case. Donoghue v Stevenson (1932, HL) Mrs Donoghue and a friend stopped for refreshment at a café one hot afternoon. The friend purchased from the proprietor some ginger beer manufactured by the defendant. This was supplied in stone bot- tles which were opened at the table. Having happily consumed a glassful, Mrs Donoghue tipped the bottle to make sure nothing was left; to her horror what appeared to be the decomposing remains of a snail slithered into her glass. She consequently became ill with gastro-enteritis and sued Stevenson (the manufacturer) in negligence. Held (by a majority): the manufacturer did owe Mrs Donoghue a duty of care. As she was the user of its product, she was somebody who reasonably foreseeably would be affected by the way the manufac- turer processed its product. Lord Atkin stated: 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 of care to the con- sumer to take reasonable care. PA R T 3THE LAW OF TORT 258 0003 In these consumer conscious days it comes as a surprise that prior to th\ e decision in Donoghuev Stevenson a person in Mrs Donoghue’s position had no rights in tort. Before 1932, liability in negligence was restricted to harm caused by defective products which were dangerous in themselves, such as guns or explosives. Donoghuev Stevenson established a general principle of product liability in negligence known sometimes as the ‘ neighbour principle ’. This is because Lord Atkin said that a duty was owed only to one’s neighbour, which in law means: ‘ persons who are so closely and directly affected by my act that I ought reasonably to have them in my mind as being so affected when I am direct\ ing my mind to the acts or omissions called into question’. The scope and influence of Lord Atkin’s judgment Lord Atkin’s judgment has had a huge impact on the civil law. The ‘neighbour principle’ has enabled successive judges to use it as a springboard for the development of negligence in all its forms. To understand its influence, it is necessary to analyse some of the terms \ used by Lord Atkin and see how they have been interpreted in later case law. Manufacturer The duty was soon extended from the maker of goods to those delivering services such as fitting and installing or repairing goods (see Stennet vHancock (1939) below at page 260), and defendants with responsibility to check the goods prior to sale. Today it covers the whole range of products and service industries. This aspect of duty is covered in greater depth in Chapter 14. Product Case law illustrates that liability in negligence covers a huge variety \ of products in normal daily use for example, cars (Herschtal vStewart & Ardern (1940)), computer software (St Albans City Council vInternational Computers (1996)), and including some less likely items such as tombstones ( Brown vCotterill (1934)), and itchy underpants ( Grant vAustralian Knitting Mills (1936)). Lord Atkin referred to the ‘preparation or putting up of the products ’ so the duty of care extends to the packaging and any instructions accompanying the product. The goods may be perfectly safe in themselves but become dangerous because inappropriately packaged, or because they do not carry correct instructions or a warning (e.g. medicines, weed-killer). The ultimate consumer Mrs Donoghue is the perfect example of an ultimate consumer – the actual user of the defective goods who is harmed by the defects, but who is not necessarily\ the buyer. ‘Consumer’ in this context has a very wide meaning, which extends \ beyond mere users of the goods or service. A consumer may be defined as someone reasonably likely to be affected by the goods in question. Consumers will be owed a duty, since the supplier should have taken their needs into account. NEGLIGENCE LIABILITY 259 13 Tort liability for defective goods 0003 Barnett vPacker (1940) A shop assistant laying out chocolates for display was injured by a wire protruding from one of them. Held: the manufacturer owed a duty of care to the shop assistant, as well as to people who ate the goods, as anybody handling the chocolates could have suffered injury from this foreign body. Even a bystander with no relationship to a party to the original transaction may come within the neighbour principle. Stennett vHancock (1939) The claimant, a pedestrian, suffered a leg injury when he was hit by part of a wheel which came off a passing lorry. Held: the garage which had recently negligently fitted the wheel owed a duty to the claimant, since it was reasonably foreseeable that any road user in the vicinity of the lorry could be harmed if a wheel became detached. The limits of the duty of care Marc Rich & Co. AG v Bishop Rock Marine (1995, HL) The House of Lords held that, when deciding whether a duty of care exists in any negligence action, the court must take into account whether the following criteria are satisfied: 1 reasonable foreseeability; 2 proximity; 3 public interest taking into account fairness, justice and reasonableness. These factors are interlinked and interdependent. 1Reasonable foreseeability . No duty of care will exist unless it is reasonably foreseeable that the particular claimant was vulnerable to the risk created by the defendant. For exam- ple, in Stennett v Hancock (above) it was reasonably foreseeable that, if the lorry wheel was not securely fitted, an accident endangering any pedestrian in the vicinity might\ result. 2 Proximity . There must be a close enough relationship of proximity between the defen- dant’s acts and the claimant at the time of the wrong complained of. Lord Atkin ( Donoghue v Stevenson) stated that proximity was not restricted to ‘mere physical proxim- ity, but [ should]be used … to extend to such close and direct relations that the act complained of directly affects a person whom the person bound to take ca\ re would know would be directly affected by his careless act’. The claimants in Barnettv Packer and Sten- nett v Hancock above provide good examples of such proximity. They both lacked close physical proximity but nonetheless stood to suffer from the negligence of the defendant. PA R T 3 THE LAW OF TORT 260 0003 In the following circumstances such proximityis lacking. (a) The goods are no longer under the defendant’s control . The defendant ceases to have control if, prior to use, the goods have been tampered with or examined by a third party or claimant, in such a way as would probably cause or reveal a defect. Remember that in Donoghuev Stevenson the ginger beer was supplied to Mrs Donoghue in an opaque bottle which was opened in Mrs Donoghue’s presence. There was no possibility that its unwanted inhabitant could have got there through the intervention of a third party. The bottle arrived at the table in the same state as when it left the manufacturer. The stone bottle prevented the hazard from being evi- dent until its contents were removed. (b) Too much time has elapsed since the product left the defendant . Whether the goods have been used or not, it would be unfair to place the manufacturer under a duty for an indefinite time. Evans v Triplex Glass (1936) Mr Evans bought a new Vauxhall car fitted by the manufacturer with a windscreen made of toughened safety glass manufactured by Triplex. One year later, he and his family were injured during a car journey when the windscreen shattered. Held: Triplex did not owe Evans a duty of care because: any weakness in the glass might have been caused by Vauxhall when fitting the windscreen; a defect might have been detectable on inspection by Vauxhall prior to fitting; too much time had elapsed between the product leaving their control and the accident – the glass could have been weakened in use. (c)The claimant has failed to take reasonable precautions prior to or when \ using the product . A claimant must be able to show that the product has been used appropri- ately, in accordance with instructions. 3 Public interest . This criterion covers a wide range of circumstances involving what may be described as policy or public interest issues. A duty of care will not be acknowledged unless it is fair, just and reasonable and not damaging to the interests of the public at large, however beneficial it might be to the individual claimant. The co\ urt may refuse to develop the scope of negligence to provide a right of action already covered by an exist- ing area of the law, or to develop the law so as to discourage people from taking reasonable precautions, such as insurance, to protect their own interests. A duty may be developed because it will actively promote the public interest. In Donoghue v Stevenson, public health considerations made it desirable to impose a duty, as well as the fact that Mrs Donoghue had no other legal rights to pursue. It was fair to put the\ loss on the man- ufacturer who stood to profit in general from his product. NEGLIGENCE LIABILITY 261 13 Tort liability for defective goods 0003 PA R T 3THE LAW OF TORT 262 Pure economic loss rarely gives rise to a duty of care The courts have not usually regarded it as just and reasonable to impose a duty of care where the defect results in pure economic loss . Such loss, which is derived from the goods being defective rather than dangerous, merely causes the claimant to be out of pocket. The courts treat such losses as contractual only as they relate only to the qualityof the goods rather than any actively dangerous fault, which causes damage. However, this limitation is not helpful to a party who did not buy the goods from the defendant in the first place. This difference between pure and consequential economic loss is also illustrated by the following case. Muirhead v Industrial Tank Specialities Ltd (1986) The claimant, who ran a lobster farm, was supplied with oxygen pumps manufactured by the defendant through a contract with a third party. They proved to be unsuitable for use with the English electricity system and kept cutting out. The claimant’s lobsters died and he was unable to restock for a substantial period of time while he attempted to work out what was wrong. Held: the claimant was entitled to recover the consequential cost of restocking the lobsters and for the loss of profits on those that died. He was not entitled to recover for profits lost during the time that lob- ster production was suspended, or the cost of replacing the pumps, since these were pure economic losses only. Exceptionally, the claimant may be able to claim for pure economic loss if it can be shown that the claimant obtained the goods after having personally and directly consulted the manufac- turers and placed reliance on their expertise. This creates a high degree of proximity between the parties, which is deemed to make it fair, just and reasonable to impose the duty. Horace was given an electric blanket for Christmas by his Aunt Betty, who bought it from Flash Electri- cals plc. The blanket was manufactured by Cosiwarm Ltd. Due to a production defect, it set fire to his bedroom on Christmas night with resulting damage to carpets and furniture. Horace was made ill due to smoke inhalation. He is entitled to claim damages from Cosiwarm plc which made the blanket for: 1 the pain and suffering caused by the smoke inhalation; 2 any loss of earnings while he recuperated and the cost of replacing furnishings and decorating his bedroom. These are the knock-on costs of the damage caused by the defendant’s negligence and are described as consequential economic loss. Horace would not be entitled to recover the cost of replacing the defective electric blanket, which is categorised as pureeconomic loss; the defectdoes not of itself give rise to liability of the manufacturer in negligence. It is the physical damage to person or other property which imposes the duty. The lack of quality in the goods does not in itself give rise to negligence liability. Real Life 0003 Junior Books vVeitchi (1982, HL) Junior Books made a contract for the construction of a warehouse. They told the building contractor that they wanted flooring to be supplied by the defendant, who was consequently a nominated sub- contractor. The flooring was so defective that the warehouse was unusable until the floor was replaced causing considerable expense. Junior Books had no claim in contract as, by nominating Veitchi, Junior Books had relieved the building contractor of responsibility for the appointment, and no contract had been formed between Junior Books and Veitchi. Consequently, Junior Books claimed in negligence. Held: the claimant’s reliance on the defendant’s expertise was sufficient to bring the parties into close proximity, and so a duty of care existed for the pure economic loss. Veitchi was not applicable in the Muirhead case as Muirhead had not nominated the manu- facturer to his supplier. The court usually takes the view that a contract between the claimant and supplier provides the appropriate route to compensation. The supplier should have been able to negotiate terms to give himself or herself adequate pr\ otection, or, if this is not workable, to insure against possible pure economic losses, such as business interrup- tion. The issue of duty of care for pure economic loss is explored further in Chapter 14. 2 The claimant must prove breach of duty It is not enough for the claimant to prove that the defendant owed them a duty of care. The claimant must prove that by objective standards the defendant failed to take reasonable care, i.e. did not provide a reasonable level of protection against reasonably foreseeable accidents. This includes taking into account the particular needs of a t\ arget group and giving adequate warning or instructions about the use of the product. For example, a soft- toy manufacturer must consider that baby and toddler users of its teddy bears may inde\ ed literally try to consume them. Thus, it must ensure that non-toxic materials are used and that the bears’ eyes and noses are very firmly attached. In the next chapter we will examine breach of duty in more detail and with regard to negligent service delivery. 3 The claimant must prove consequential damage The claimant must also prove that it was the defendant’s breach of duty which actually caused the damage suffered. In the story of Horace and the electric blanket outlined earlier, Horace would not be successful, despite proof of a defect in the blanket making it a fire risk, if there was evidence that the fire was actually caused by defective wiring in Horace’s house. Defendants are not necessarily liable for all the consequences of their behaviour: so\ me may be deemed too remotefrom their original act. In negligence a defendant is generally liable for all reasonably foreseeable damage, but not for highly improbable or fluke results. The issues of breach and consequential damage are explored in greater depth in Chapter 14. NEGLIGENCE LIABILITY 263 13 Tort liability for defective goods 0003 The Consumer Protection Act 1987 (Part I) The Consumer Protection Act 1987 (CPA 1987), which was enacted to implement the EC Product Liability Directive (85/374/EC), has introduced a measure of strict liability for defective products into English law. The difference between fault and strict liability Most torts, including negligence, are based on fault liability . The claimant has to prove not only that the defendant’s behaviour broke the law and caused damage, but also that the defendant either intended to cause harm to the claimant, or was blam\ eworthy in over- looking the risk to the claimant. Strict liability is exceptional in tort. Where it exists the claimant is relieved of the need to prove any intent or carelessness on the part of the defendant; the claimant merely has to prove the causal link between the defendant’s tortious behaviour and the damage suffered. This may increase the claimant’s chances of a successful claim, as proof of failure to take care is often problematic. Cases involving injuries caused by the side-effects of drugs like Thalidomide, which caused serious injuries to many unborn foetuses during 1960s, raised public perception of the problems caused by fault liability and encouraged recommendations for reform from the Pearson Commission of 1978, as well as from judges and pressure groups. Successive gov- ernments ignored these recommendations, and change came only after intervention by the EC prompted the enactment of the CPA 1987. The main provisions of Part I of the Consumer Protection Act 1987 Who may sue? s 2(1) Any person suffering damage giving rise to liability under the Act to their person or \ property and resulting from defective goods resulting from defective goods. Methods of supply: s 46 The goods may have been supplied by way of sale, barter, hire, prize or gift provided that the supplier was acting in the course of business. Potential defendants: s 2 Section 2(1) provides that ‘where any damage is caused wholly or partly by a defect in a product’, the following persons shall be liable: 1 The producer . This includes the manufacturer and persons responsible for winning or abstracting a product, for example, mineral water or electricity. PA R T 3 THE LAW OF TORT 264 0003 2The self-branding supplier ‘who, by putting his name on the product or using a trade mark or other distinguishing mark in relation to the product has held himself out as the producer of the product’. So where goods are marketed under an ‘own brand’ label (like many supermarket goods), the business whose name appears on the label is likely to be tr\ eated as the pro- ducer. If the label indicates that the goods were manufactured by another producer (‘produced for Sainsburys by X plc’), it may be arguable that the suppli\ er is not the pro- ducer as they are not ‘holding themselves out as the producer’. 3 The importer . The party who initiallyimported the product into the EUmay be liable. (This is not necessarily the party responsible for the goods entering the UK.) 4 The supplier . Suppliers are liable only if they fail, on request from the injured party, to identify the manufacturer, producer or importer. The meaning of ‘product’: s 1 ‘ Product ’ includes packaging and instructions and potentially covers a huge v\ ariety of manufactured and other goods and utilities. 1 Manufactured products. This includes components of another product. Although build- ings are not goods, building components which become fixtures to the land like window frames or girders are ‘products’ under the Act. 2‘ Substances won or abstracted ’. This includes things like electricity and water. 3 Things which owe their ‘essential characteristics’ to an ‘indus\ trial or other process’. In A and Others v National Blood Authority (2001) blood and blood products supplied by the defendant were ‘products’ within the meaning of s 1 because they had been subject to an industrial process. Anti-coagulants are mixed with blood on collection and it may be subject to other processes before storage. 4 Agricultural products like growing crops and game, which were not originally included have been covered since 2000 when the Act was amended by the CPA 1987 (Product Lia- bility Modification Order 2000 to implement Directive 1999/34/EC). It is unclear how far goods conveying information such as books and comp\ uter programs are covered by the Act. It would be possible for information transmitted in this \ form to cause harm through its defects. A book on fungi might incorrectly describe a species as edible, with disastrous consequences. There is medical evidence which suggests that some computer games may trigger fits and migraine. Unless and until such matt\ ers are conclu- sively determined by the courts, this will remain an uncertain area. Defective means dangerous: s 3 The CPA is not concerned with the quality of the product but with its safety. Therefore, a product is not defective under the Act unless it is unsafe: there is no liability unless it actu- ally causes damage to the consumer or the consumer’s other property. The standard of safety under the Act is that which people ‘generally are entitled to expect’ which is actually THE CONSUMER PROTECTION ACT 1987 (PART 1) 265 13 Tort liability for defective goods 0003 set by the court rather than necessarily reflecting public expectation, which may be regarded as unreasonably high. The case of Bogle vMcDonalds Restaurants (below) aptly illustrates this point. Some products do have inherent risks attached to their use which cannot be entirely prevented, like power tools. Other products would require disproportionate expendi- ture to eliminate or reduce risk which would make them over expensive. Risk/benefit analysis is necessary in such cases to determine a reasonable standard. The Act specifies the following factors to be relevant in deciding whether this standard has been met: 1 The packaging and any warnings or instructions . A medicine may be perfectly safe in and of itself, but rendered dangerous because it lacks clear instructions or a warning that it is unsuitable for people with certain medical conditions. 2 The normal uses of the product . The needs of the relevant class of consumer must be taken into account in deciding whether the manufacturer has rendered the product safe. Toys marketed for use by small children require different safety standards, in relation to things like sharp edges, non-toxic materials and the size of removable parts, than goods for the entertainment of adults. If the consumer is harmed by use of the\ product for pur- poses which are not normal, liability does not arise. By indicating the purpose of a product and the age group for which it is intended, the manufacturer may limit the ‘normal use’ of the product. 3 The time when the product was issued . This is relevant to issues like shelf life, or situa- tions where the product met appropriate standards of safety when issued but current research now indicates that those standards were not high enough. The next case provides a useful example of how the issue of defectiveness is determined \ by the court. Bogle & Others vMcDonalds Restaurants Ltd (2002) This case concerned a number of child litigants who had sustained scalding injuries after tea and coffee purchased from McDonalds had been spilt on them. Many of the injuries were serious involving severe pain and the need for skin grafts. However, in no case was the spillage directly caused by McDonalds’ staff but resulted from other restaurant users, or the claimant dropping or knocking over the drink. The claimants argued that the hot drinks, a product of McDonalds, were defective because of the tem- perature at which they had been served and the mode of delivery, including the nature of the cups, lack of appropriate staff training and failure to give warning of the likelihood of scalding. Held by Field J: McDonalds had not supplied a defective product under the CPA because: 1 Staff obtained very thorough training, with supervision in their first six months of training and regular assessment after that. This training included ensuring that tops were firmly attached to cups before handing them over to customers and giving a tactful warning about the danger of spillage where appropriate. The drinks were served at a temperature which customers would expect. Buyers of tea and coffee were usually people old enough to appreciate such risks and take precautions against them . PA R T 3 THE LAW OF TORT 266 0003 THE CONSUMER PROTECTION ACT 1987 (PART 1) 267 2 The cup design did not encourage spillage. A standard cup would only tip over at an angle of 20degrees and a large one at 18 degrees. With the lid on, the contents would not spill if knocked over or dropped. Even if the lid was removed (to add sugar, for example), it was still effective when replaced. 3‘ Persons generally expect tea or coffee purchased to be consumed on the premises to be hot. Many prefer to consume a hot drink from an unlidded cup rather than through a spout in the lid. Persons generally know that if a hot drink is spilled onto someone, a serious scalding injury can result. They accordingly know that care must be taken to avoid such spills, especially if they are with young children. Given that the staff were trained to cap the drinks securely and given the capabilities of the cups and lids used, I am satisfied that the safety of the hot drinks served by McDonald’s was such as persons generally are entitled to expect ’. The claimant must prove that the defendant was responsible for the defect. This may be problematic if as in Piper vJRI (Manufacturing) Ltd (2006) the product was handled by a third party who could have caused the defect, enabling the defendant to argu\ e that on the balance of probability the third party caused the defect. Piper v JRI (Manufacturing) Ltd (2006) Mr Piper had a total hip replacement using a prosthesis made by JRI. Not long after it had been implanted it sheared in two and had to be removed and replaced, causing him increased loss of mobility, as well as the additional pain and suffering of undergoing more surgery. He claimed that the prosthesis was defective under the CPA 1987. JRI argued that they were pro- tected by s 4 as the defect was not present at the point the goods were released from the factory. Held: Mr Piper’s claim must fail as he was not able to prove that the defect occurred during the pro- duction process. Any defects arising during manufacture which might have weakened the prosthesis would most probably have been picked up by the scanning process used by the defendant to check the goods. In the News Who else might Mr Piper consider claiming from? Which tort would his claim be based on? What problems might he have in proving the case? Suggested solutions can be found in Appendix 2. Worth thinking about? 13 Tort liability for defectiv e goods 0003 PA R T 3THE LAW OF TORT 268 Actionable damage: s 5 This covers death, personal injuries and damage to property (including land) which the claimant is notusing for business purposes. A claim for property damage must be for at least £275. Since pure economic loss is not recoverable, the cost of replacing or repairing the defec- tive item cannot be claimed. The same principles apply here as in negligence. Causation and liability: s 2 The claimant must prove that the defect was the cause of the damage claimed. Since liabil- ity is strict the claimant does not have to prove that the defendant was careless, merely that the product comes within the statutory meaning of defective. Defences Under s 4 of the Act, the defendant will have a defence if able to show \ the following: 1 The goods comply with EC or UK safety standards and the defect is attributable to com- pliance with those standards. 2 The goods became defective after they were supplied. The defendant is liable only if the defect is present when the goods are put in circulation. If it arises later due to use or abuse by the consumer or a third party, the defendant is not liable. 3 The ‘state of the art/developments risk’ defence. This is a specia\ l defence under the Act which potentially undermines the strict liability element. The defendant\ will not be liable if it can be shown that when the product was released the defendant had done all that was required to fulfil safety standards in accordance with current research and technolog- ical expertise, and in consequence the defect was not discoverable. This defence is meant to be a safeguard for manufacturers of new products. It is argued that without it manufacturers fearful of litigation might restrict important new product development of great potential benefit to the public. However, this remains a controversial subject. The Directive does not prohibit such defences and the approach of other EU countries varies but, prior to the Act both the Law Commission \ (Law Com. 82) and the Pearson Commission rejected exemption from liability on the grounds of devel- opment risk. It is highly arguable that a drug like Thalidomide could sl\ ip through the liability net through the use of this defence. No such defence is available under the law\ of contract and it can be argued that with appropriate insurance a manufacturer can protect itself against liability. 4 The defendant did not at any time supply the product to another in the course of business. Contributory negligence and consent are also relevant. These are examined at the end of Chapter 15. 0003 Time limits Under the Limitation Act 1980, s 11A, claimants must take action within \ three years of the date when they first became aware of the damage, the defect, and the identity of the defendant. There is a final cut-off date of 10 years from the date on which the product was supplied to the claimant and no action can be started after that time. THE CONSUMER PROTECTION ACT 1987 (PART 1) 269 Area of lawContract Sale of Goods Act 1979 (SGA 1979) Supply of Goods and Services Act 1982 (SGA 1982) Tort Negligence Tort Consumer Protection Act 1987 What must be proved?Goods – breach of SGA 1979, ss 13, 14, 15(i) Duty of care(ii) Product defective and unsafe Goods and services – breach of CPA 1987, ss 4, 5 Goods – like SGA 1979 SGSA 1982 Services – lack of reasonable care and skill, reasonable timeliness, reasonable charging (ii) Breach of duty (iii) Consequent damage (ii) Damage suffered as a result Who can sue?Buyer onlyInjured party (ultimate consumer)Injured party Damage compensatedAny loss or damage to buyer as long as not too remote, including purchase priceAny loss or damage to injured party as long as not too remote; excluding purchase price and other pure economic lossDeath/personal injury Damage to land, goods (over £275) Who can be sued?SellerManufacturer of goodsProducer of product Servicer of goods Manufacturer Supplier – if duty to inspect Own-brand labeller Importer Supplier LiabilityGoods – strictFaultStrict Civil only Services – fault Criminal liability also possible under CPA 1987, Part II Civil only Figure 13.1 Liability for defective products 13 Tort liability for defective goods 0003 270 PA R T 3THE LAW OF TORT The impact of the Consumer Protection Act 1987 As cases emerged some commentators perceived that the way in which the law was being interpreted seemed to provide no more protection for claimants than an action in negli- gence. This was a concern since the Product Liability Directive had indicated that its purpose was to enable claimants to avoid the need to prove fault by the defendant, thus overcoming one of the main obstacles to a successful claim. The Act (s 1) stated \ that it was intended to comply with the Directive. European Commission vUK (1997, ECJ) The Commission claimed that the UK was failing in its obligations to implement the purpose of the Directive with respect to the concept of a defective pr oduct and the scope of the state of the art defence. Held: it was essential that the Act be construed in accordance with the purpose of the Directive and that the Directive must prevail in the event of conflict. Two subsequent judgments since this case clearly reflect this approach. Abouzaid v Mothercare (UK) Ltd (2000, CA) The claimant, who was 12 years old, was blinded in one eye while attempting to attach the defendant’s product (a Cosytoes sleeping bag) to his little brother’s push chair. An elastic fastening strap sprang from his hand and the attached buckle struck his eye. Held: the product was defective under s 3, since the reasonable expectations of the public that the product was safe to use were not satisfied, given the vulnerability of the eye and potential seriousness of such injuries. There was a risk attached to use of the product but no warning was given to the user to avoid the risk. Horace was injured and suffered damage to his property when an electric blanket, manufactured by Cosi- warm and which was a present from his Aunt Betty, caught fire on its first use. As well as a claim in negligence, Horace also has a claim under the CPA 1987, as his losses certainly exceed the £275 minimum. Cosiwarm, the manufacturer, is liable as producer under the CPA 1987 if the blanket is proven to be defective. Even if Cosiwarm is not clearly identifiab le as producer of the blanket, it may still be best to claim under the CPA, as this may give Horace more flexibility in his choice of defendant. Flash Electricals, from which Aunt Betty bought the blanket, would be the ‘marker’, if the blanket was marketed as Flash’s own brand. If there is no label saying who the producer is, Flash may still be person- ally liable as ‘supplier’ unless it identifies the producer. Even if Flash merely imported the blanket, it could still be sued as ‘importer’ if it obtained the goods directly from any country outside the EU. As long as he can prove that the electric blanket was defective and actually caused the fire, he will be suc- cessful and will not have to prove failure to take reasonable care as the CPA 1987 imposes strict liability. Real Life 0003 The fact that no injuries had previously been reported, and that serious damage to the face were unlikely, indicated that the defendants were not negligent. However, this was irrelevant to a claim under the Act where only proof that the product was defective was needed to establish liability. In the next case the judge constantly referred to the Directive for assistance in interpreting the meaning of defective product and the scope of the state of the art defence. A and Others vNational Blood Authority (2001) The claimants contracted Hepatitis C after being given transfusions of contaminated blood products supplied by the defendant. Held: the product was defective under the Act. The claimants did not have to prove fault or negligence, merely that the product did not meet the reasonable expectations of the public to be safe for any fore- seeable use. A reasonable person would expect that blood used for transfusion would not be infected. Both the Act and the Directive required the court to take into account ‘all the circumstances attendant upon the reasonable person’s expectations of safety’. These did not include the questions of whether the defendant could have avoided the danger, nor whether this would have been impracticable, costly or difficult. The state of the art defence should be narrowly interpreted in order to avoid defeating the purpose of the Directive. It only protects the defendant against unknown risks in the context of the most advanced available knowledge which should have been accessible to them. These cases provide a more level playing field for the consumer, the party which the Direc- tive was aiming to assist. It can also be seen as a sensible loss distri\ bution system since the losses of the claimant are made the responsibility of the manufacturer which sought to make a profit from its product. The manufacturer is not unreasonably burdened as the losses are insurable and that cost is passed on to the consumers. CHAPTER SUMMARY 271 13 Tort liability for defective goods A person harmed by a defective product may claim in: (a) breach of contract against the seller (provided claimant purchased the goods); or (b) tort (negligence/CPA 1987, Part 1 ). Negligence Defendant:the manufacturer. Claimant must prove: duty (owed by manufac- turer to ultimate consumer of the goods), breach (failure to take reasonable care), resulting damage. Liability: based on fault: proof of failure to take reasonable care. Compensation covers personal injury and all conse- quential economic loss. Generally, pure economic loss cannot be recovered.The CPA Claimant: any person harmed by the product. Defendant: producer/‘own brand’ provider/supplier/ importer. Chapter summary 0003 272 PA R T 3THE LAW OF TORT Consequential economic loss: financial loss resulting from injury to the claimant and/or damage to some property other thanthe defective product. Duty of care: a person undertaking an activity or course of behaviour owes a duty not to harm any person reasonably expected to be caused loss/damage as a result. Fault liability: most tort actions require the claimant to prove that the defendant was at fault, i.e. acted intentionally, carelessly or without rea- sonable foresight. Neighbour principle: formulated in Donoghuev Stevenson by Lord Atkin indicating that the defen- dant only owes a duty of care to persons with sufficient proximity to him or her. Proximity: a sufficiently close relationship must exist between claimant and defendant at the time the dangerous behaviour occurred for a duty of care to exist. Public interest: benefit of people in general. Influ- ential on the court’s decision to permit/refute a duty of care. Pure economic loss: loss of money alone, not arising from personal injury to the claimant or damage to other property. Reasonable foreseeability: limits the scope of duty of care as this is owed only when it is reason- able to anticipate damage to the claimant. Strict liability: exceptionally (as in claims under the CPA 1987) the claimant can succeed merely on proof that the tortious behaviour occurred and that damage resulted. Ultimate consumer: any person directly or indi- rectly harmed by a defective product or service. CPA 1987 terms Defective: goods dangerous physically to person/property. Importer: first party to import the product into an EU country from a non-EU country. Producer: manufacturer/processor. Product: covers a wide variety of goods, including agricultural produce, utilities like water and gas, and even blood. Key terms Liability: strict. Claimant must prove that the product is dangerous (does not conform to reason- able public expectation of safety) and caused the relevant damage. Claims are limited to those over £275. Pure eco- nomic loss is never recoverable. Chapter summary (Continued from page 271) 0003 WEB ACTIVITY 273 1 What must a claimant in an action for negli-gence prove? 2 In an action for negligence, what factors are important to proof of duty of care? 3 What circumstances may bring a duty of care for defective goods to an end? 4 Basil buys a pork pie from Tarragon Stores. The pie was manufactured by Marjoram Foods. Basil shares the pie with Rosemary and they both become ill. What are the civil law rights of Basil and Rosemary? 5 What are the main differences between liability for negligence and liability under the Consumer Protection Act 1987? Answers to all quizzes can be found in Appendix 2. Quiz 13 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrat- ing the law in action and give you more detail about their facts, as well as helping you to under- stand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Donoghue v Stevenson [1932] AC 32, HL Junior Books v Veitchi [1983] 2 All ER 301, HL A vNational Blood Authority [2001] 3 All ER 289 Take a closer look Please go to: http://en.wikipedia.org/wiki/Donoghue_v._Stevenson Scroll down to find links to a full law report, an interesting article (Mrs Donoghue’s Journey) giving some background information to the case, with photographs, and even a music video i\ nspired by the case from YouTube. Web activity 13 Tort liability for defective goods 0003 Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. Use Case Navigator to read in full some of the key cases referenced in this chapter: Abouzaid v Mothercare (UK) Ltd [2000] 1 All ER (D) 2436 274 Florence visits a supermarket with her daughter Daisy, aged eight. A promotion for Funny Mug face paints is taking place and children are being offered a free make-over. Florence lets Daisy take part. Florence buys some frozen puff pastry and a bag of mixed salad leaves that bears a notice saying ‘Wash thoroughly before consumption’. Then she visits the deli counter to buy some ham for Edwina, her elderly next-door neighbour. When she gets home an hour later she immediately deliv- ers the ham to Edwina and puts the puff pastry in her freezer in accordance with the instructions on the packet. She uses the leaves to make a salad for tea for herself and her husband, Gordon. That evening, Florence and her husband, Gordon, become ill from bacteria in the salad. Next day, Daisy develops an allergic rash, which her doctor says is caused by the face paints. Later in the week, Edwina contracts salmonella poisoning which is traced to the ham. A month later, Florence retrieves the puff pastry from the freezer and defrosts it. When she rolls it out, she discovers that it smells strongly of petrol and is therefore unusable. Discuss the remedies available to Daisy, Edwina, Florence and Gordon. Assignment 12 PA R T 3 THE LAW OF TORT 0003 0003 chapter 14 TORT LIABILITY FOR DEFECTIVE SERVICES Photo: TRIP/Art Directors & TRIP Photo Library 0003 Introduction This chapter is divided into two parts. The first part is concerned with duty of care in negligence for defective services and includes analysis of some problematic duty of care situations outside the traditional scope of negligence liability. The second part is concerned with breach of duty and causation. As indicated in the previous chapter, under Donoghue v Stevenson principles, any third party reasonably likely to be affected by the workmanship of a service provider is clearly owed a duty of care in negligence if he or she directly suffers personal injury or damage to property. A central heating engineer, therefore, will owe a duty to people in a building who suffer carbon-monoxide poisoning from the system which the engineer negligently installed. Sometimes there may be a large pool of potential claimants. The garage which serv- ices your car owes a duty of care to carry out the work safely not only to you, but to your passengers as well as other road users and pedestrians in the vicinity of your vehicle when it is in use. However, the law is unwilling to make defendants vulnera- ble to every possible claim of damage resulting from their negligent behaviour. Liability in negligence is greatly restricted by the courts in some situations. The prob- lem of recovering pure economic loss caused by defective goods was mentioned in the preceding chapter. There are also a number of other problematic duty situations relevant to the delivery of services relating to pure economic loss, negligent state- ments, shock-induced injuries, liability for damage caused by third parties and the exercise of statutory discretion by public authorities. Proof of duty alone does not guarantee a successful claim. In a negligence\ action, the claimant must also prove that the defendant breached the duty by failing to take reasonable care and that damage which is not too remote resulted to the claimant. Learning Objectives After studying this chapter you should be able to: Recognise the relationship from which a duty of care for pure economic loss may arise Appreciate the scope of nervous shock liability Describe when a duty exists for omissions and third-party acts Understand when a public authority may be liable in negligence when exer\ cising statutory discretion Explain the circumstances when a breach of duty of care may occur Distinguish between causation in fact and in law. 0003 Part 1 – problematic duty situations As can be seen from Chapter 14, the tort of negligence has traditionally covered claims for death, personal injury and consequential damage to property. In claims of this sort the exis- tence of duty of care is not in doubt. In Caparov Dickman (1990, HL) (below at page 285) Lord Oliver . . . said: ‘ the existence of a nexus of duty between the careless defendant and the injured plaintiff can rarely give rise to any difficulty’, and inSandhar vDepartment of Transport (2004) May LJ affirmed this: ‘Personal or physical injury directly inflicted is the first building block of negligence … it will almost always be a component of breach \ of duty of care owed by the person inflicting the injury to the person or owner of the material object injured ’ . However, the law of negligence today embraces liability for less traditionally \ recognised types of damage and their cause, but the courts are wary of imposing liability in these less traditional areas. The criteria relevant to existence of duty (reasonable foreseeability, proxim- ity, justice and reason) may be stringently applied. In order to limit the scope of duty to make it just and reasonable, the court may take a very restricted view of what is reasonably foreseeable and require proof of a very close relationship of proximity. Issues of policy also (whether it is just and reasonable to impose a duty) often underpin such judgments even if not expressly mentioned by the judge. Pure economic loss Negligence liability does not usually arise from the poor qualityof a service, but from the physical damage to people and property caused by it. Any purely financial loss arising from defective performance is not generally recoverable, as indicated by the decisions in Spartan Steel Alloys v Martin (1972, CA) and Murphy vBrentwood Council (1990, HL) (below). Students initially studying this area often find it difficult to tell consequential from pure economic loss. Judges usually just talk about ‘economic loss’ with\ out clearly indicating what sort they mean and leave you to work it out from the context. It may help you to think about this in terms of the cost of the damage to the claimant and their \ goods caused by the defendant’s product or service (consequential economic loss) as opposed to a loss of\ money alone, which is often related to future and possibly notional future income (pure economic loss). Thus, in Pride & Partners v Institute for Animal Health (2009) the defendant was not liable for the financial loss to the claimant who was unable to send his\ stock to market due to the movement restriction orders arising from a foot and mouth disease outbreak caused by the virus escaping from the Institute. The claimant’s stock was unharmed by the virus and had not been culled so the claimant’s only damage was to his bank account. The next case provides a helpful example of the difference between the two different types of economic loss. Spartan Steel Alloys vMartin Ltd (1972, CA) Early one morning the negligent operation of a powe r shovel outside the claimant’s steelworks resulted in a power cut which put its furnace out of action for the rest of that day. The metal, which had been in PA R T 3THE LAW OF TORT 278 0003 the furnace when the power was cut off, was spoilt and no further consignments could be processed that day. Held:the claimant was entitled to damages for the cost of the spoilt metal and for the profit which would normally have been made on its sale in good condition as this was a directly consequential loss. However, the claim for the lost profits on the melts which could not be processed that day must fail, as it concerned pure economic loss and did not result from any damage to the claimant’s property. Lord Denning 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 lia- bility of the defendant’. Lord Denning held that no duty of care existed concerning the unprocessed melts because: 1 It would be unfair to impose a duty on the defendants since statutory providers of electricity and other utilities enjoy exemption from liability for pure economic loss arising from interruption of supply. 2 Such interruption is well known and commonplace. Most people temporarily deprived of electricity supply ‘ do not go running round to their solicitor ’. They may insure against possible losses or install a back up generator as a precaution ‘or make up the economic loss by doing more work the next day. This is a healthy attitude which the law should encourage’. 3 A huge number of claims would arise if a duty existed in this situation ‘ some might be genuine, but many might be inflated or even false … it would be well nigh impossible to check the claims ’. 4 It would place an unreasonable burden on the contractor. ‘ The risk of economic loss should be suffered by the community who suffer the losses, usually many but comparatively small losses rather than … on the contractor on whom the total of them … might be very heavy ’. 5‘ The law provides for deserving cases ’, i.e. where physical damage results to the claimant or material property. While you may sympathise with the claimant in Spartan Steel, it is important to understand that in many cases of pure economic loss insurance plays a part, as Lord Denning indicates. Business interruption insurance is readily available to the likes of Spartan Steel. No doubt Martin carried insurance too, but the court tends to take the view that \ the claimant should carry the risk in situations where it expects them to be insured. Something else to bear in mind is that prior to litigation the claimant will often have made a suc\ cessful claim on their own insurance and then their insurers take the case in the insured’s name to recover what was paid out. The court is unlikely to feel that it is fair to allow the\ insurers to recoup a loss that may well have been more than covered by insurance premiums. Murphy v Brentwood Council (1990, HL) The claimant’s newly built house subsided when the foundations turned out to be defective. As a result, he had to sell the house for £35,000 less than its proper market value. He claimed that the local author- ity building inspection department had been negligent in its checks on the foundations. Held by the House of Lords: the house was defective, but no personal injuries had been caused to Mr Murphy and none of his property had been damaged. Therefore, the local authority did not owe a 279 14 Tort liability for defective services PART 1 – PROBLEMATIC DUTY SITUATIONS 0003 duty of care to the claimant, since his only loss was purely economic: only the diminution on the value of the house was affected. There was insufficient proximity between the parties, since it was not reasonably foreseeable to the council that Mr Murphy would place reliance on its checks which were carried out in order to comply with the building regulations to safeguard public health rather than protect the financial position of future home owners. No liability in tort would rest on a builder for damage to someone like Mr Murphy who had no contractual relationship or other sufficiently proximate relationship and it would be unfair to impose liability on the council which was less directly involved. It also was not just and reasonable to burden local taxpayers with homeowners’ financial losses in such circumstances. Lord Oliver said: ‘I am not sure that I see why the burden should fall on the community at large rather than be covered by private insurance ’. Again in Murphythe issue of policy is extremely influential and insurance is relevant to determining what is fair, just and reasonable. Many of us would rather see our council tax being used on services rather than assisting individual home owners. How\ ever, as consumer groups afterwards pointed out, normal buildings insurance does not cover structural prob- lems which arise from defective materials or workmanship, but only those caused by natural phenomena like drought or geological features. Home owners may have other remedies. They may be able to sue under the Defective Premises Act 1972 (DPA). Section 1(1) imposes a duty on ‘ any person taking on work in con- nection with the provision of a dwelling … to see that the work is do\ ne in a workmanlike … or professional manner … so that the dwelling will be fit for human h\ abitation when com- pleted’. This covers pure economic loss but was no to help Mr Murphy as his claim arose after the six-year limitation period had elapsed. Property bought subject to a transferable guarantee from the builder who constructed or substantially renovated is also protected. Such compensation schemes provide more gener- ous terms than the DPA. Claims can be made by the buyer and subsequent purchasers for the lifetime of the guarantee, so no contractual relationship with the builder is required. In White vJones (1995, HL) (below) the claimants were successful as the House of Lords acknowledged that there was a very close relationship between them and the defendant. White v Jones (1995, HL) An elderly man, after a quarrel with his two daughters, cut them out of his will. Three months later he forgave them and informed his solicitor that he wished to make a new will under which the daughters were each to be given a legacy of £9,000. Two months after giving his instructions he died, before the solicitor completed the necessary work. Due to this negligent delay, the daughters did not receive their inheritance. They successfully sued the solicitor. Held: the solicitor was brought into a special relationship of close proximity with the sisters. By agree- ing to draft the will, he was deemed voluntarily to have accepted the responsibility for ensuring the creation of a valid will. It was reasonably foreseeable that any potential beneficiary would suffer pure economic loss if the will was invalid. PA R T 3 THE LAW OF TORT 280 0003 PART 1 – PROBLEMATIC DUTY SITUATIONS 281 Note the different but equally valid criteria applied by the House of Lords for determining proximity in these cases: Murphy v Brentwood Council: reasonable reliance by the claimant; White v Jones: voluntary assumption of responsibility by the defendant. In some cases both factors may be present (see, for example, Hedley Byrne v Heller, below). The White v Jones approach is more realistic, where the defendant is asked by a third party to do something which affects the well-being of a claimant, who is unaware of the request and so cannot realistically be said to be placing reliance on the defendant. Negligent statements In principle, there is no difference between liability arising from negligent statements and from negligent acts. A party may suffer physical damage by reliance on incorrect advice just as he or she may be injured by other negligent conduct. In Tv Surrey County Council , T was injured by the actions of a childminder negligently recommended to his mother by the defendant council. The council owed a duty of care to T, as, by advising his mother, the council had been brought into close relationship to T, and it was reasonably foreseeable that he would be affected by the quality of the advice acted upon by his mother. In practice, the duty is generally limited because a negligent statement\ has the potential to have more far-reaching effects than a negligent act. One snail-infested bottle of ginger beer will poison only one or two people, but a negligent statement may a\ ffect thousands and its effects may be long-lasting. The courts are not willing to make the defendant liable to potential claims from a large and unidentifiable class of persons, for an indefinable perio\ d of time. West Bromwich Albion Football Club Ltd vEl-Safty (2007) Michael Appleton damaged his knee during a training session with the claimant club. His contract required him to be treated by one of the medical advisers employed by the club’s insurance scheme. The defendant was a service provider to the insurers and his fees in respect of the treatment were set- tled by that company. The defendant negligently recommended reconstructive surgery and as a result Appleton became unable to play professional football. Had the appropriate conservative treatment been carried out, he would have been match fit within four months. As a result, the club claimed that they had lost millions for the loss of Appleton’s services, including the expense of finding a replacement and covering the costs of his lost salary. Held: the defendant did not owe a duty of care to the claimant for these losses. No special relationship existed between the claimant and defendant as the defendant had not assumed responsi- bility to the claimant for this type of loss. Also it was not fair, just and equitable to impose a duty in these circumstances. In the News 14 Tort liability for defectiv e services 0003 In exceptional cases where a duty is deemed to exist between the parties, there is liability for all forms of damage including pure economic loss. The duty arises from the claimant’s close relationship to or reliance on the defendant. In Hedley Byrne(below) the relationship was described variously as a ‘ special relationship ’, or ‘ quasi-fiduciary ’ in character and ‘akin to contract’. Hedley Byrne v Heller (1963, HL) A firm called Easipower entered into a contract with the claimant, an advertising agency to book advertis- ing on TV and the national newspapers on terms w hich made the claimant personally liable for the cost if their client defaulted. Satisfied by an initial reference from Easipowers’s bank the claimant went ahead. Three months later it sought further reassurance asking whether Easipower could be relied on ‘to the extent of £100,000 pounds per annum.’ The bank replied repeating its initial statement that it believed Easipower ‘ to be respectably constituted and good for its normal business engagements ’, but adding ‘your fig- ures are larger than we would normally expect to see ’. The reference was headed ‘Confidential. For your private use and without responsibility on the part of this bank or its officials .’ Reliant on this, the claimant continued to work for Easipower, but lost over £17,000 when it went into liquidation. The claimant sued the defendant bank for giving negligent advice. Held : the defendant did not owe a duty of care to the claimant because of the disclaimer. However, in the absence of an effective disclaimer, a duty not to make a careless statement which causes pure eco- nomic loss might exist, provided that a special relationship of close proximity ‘akin to contract’ existed between the parties. The criteria determining existence of a ‘special relationship’ This relationship which is essential to success in all pure economic loss claims in negligence must satisfy certain criteria. Proximity The parties must have been brought sufficiently into a close relationship of proximity with each other. A high degree of trust will be involved. This relationship may arise in a number of ways: 1 The statement may be made directly to the claimant by the defendant . This is illustrated by the facts of Hedley Byrnev Heller . 2 The statement may be made to a third party who passes it on to the claim\ ant . Smith vEric S. Bush (1989, HL) The defendant surveyors’ valuation report prepared for a building society was shown with their knowl- edge to the claimant buyer. In reliance on this Ms Smith bought the property. PA R T 3THE LAW OF TORT 282 0003 Held:the defendant owed a duty of care to the claimant since she could reasonably be expected to rely on the advice. (For more detail see page 113 above.) 3 The statement may be made to a third party who relies upon it thus causing consequent loss to the claimant. Spring v Guardian Assurance (1994) The claimant had worked for the defendant insurance company but was made redundant. He applied for a job with Scottish Amicable. LAUTRO (the regulatory organisation for insurance companies) requires a reference from a previous employer for applicants to such jobs. The reference was described by the trial judge as ‘so strikingly bad as to amount to … the kiss of death to his career in insurance. Scot- tish Amicable wanted no truck with the man it described.’ This slur on his character was completely unwarranted so the claimant sued the defendant in negligence in preparation of the reference. Held by the House of Lords (by majority): the defendant owed a duty of care to the claimant under the Hedley Byrne principle. It had special knowledge of the claimant’s character, skill and diligence evi- denced by the way he had worked while employed by it. The defendant had assumed responsibility to the claimant by giving the reference to Scottish Amicable and the claimant had relied upon it to com- pose the reference with reasonable care and skill. Reasonable reliance and assumption of responsibility These are usually two sides of the same coin but note Whitev Jones (above), which indi- cates that the circumstances may be such that the defendant will be assumed to have taken responsibility even though the claimant may not at that time have placed \ reliance upon it. It must have been reasonable for the claimant to rely on the statement and thus reasonably foreseeable to the defendant that reliance would be placed. The defendant will then be taken to have responsibility. In Hedley Byrne v Heller ( 1963), the House of Lords indicated criteria helpful to establish- ing when reliance can reasonably be placed. 1 The defendant’s ability to give reliable advice . Specialist knowledge, professional qualifi- cations or other expertise are all relevant. 2 The circumstances in which the advice was given . Specialist advice cannot reasonably be relied on when given off the cuff, or on a purely social occasion. Even if given in a busi- ness context, it may not be reasonable to rely on it if it is given without proper checks on relevant data. 3 Disclaimer or condition. If the defendant indicates expressly or impliedly that the advice should not be relied upon, this may make the claimant’s reliance unreasonable and, therefore, not reasonably foreseeable. In Hedley Byrne v Heller a disclaimer by the bank PART 1 – PROBLEMATIC DUTY SITUATIONS 283 14 Tort liability for defective services 0003 PA R T 3THE LAW OF TORT 284 was a factor preventing imposition of a duty of care. Today the Unfair Contract Terms Act 1977 s 2(1) makes it impossible to exclude liability for negligence fo\ r death or personal injuries so specific disclaimer is not necessarily effective protection for the defendant. However, liability for negligence may be excluded for other damage or loss if r\ easonable (UCTA, s 2(2)). (See above at page 110.) Even if no disclaimer is given, any doubt raised by the way the advice i\ s worded – for exam- ple, statements like ‘as far as I know’, or ‘if performance reflects last year’, or ‘without checking my figures’, or ‘you might want a second opinion’ – may make it unreasonable for the claimant to rely upon the defendant. Restriction of the Hedley Byrne principle In Hedley Byrne and the other cases we have so far examined, the only person likely to b\ e harmed was the claimant him or herself. In Caparov Dickman (1990) (facts below) the court was confronted for the first time by a statement issued to the public. This neces\ sitated restriction of the Hedley Byrne principle to prevent a defendant from being potentially liable to a large and unascertainable group of people. The House of Lords held that no duty of care will arise unless the following conditions are satisfied: 1 when the advice was given the defendant must reasonably have anticipated what it would be used for (e.g Caparo Industries plc v Dickman (1990, HL); 2 the defendant must reasonably have known the destination of that advice – a specific (not necessarily named) individual, or a member of a clearly ascertain\ able group (e.g Caparo Industries plc v Dickman (1990, HL)); 3 the defendant must reasonably have anticipated that the advice would be acted upon without the claimant seeking further clarification or independent advice\ (e.g McNaugh- ten ( James) Paper Group Ltd vHicks Anderson & Co. (1991, CA). It must be just and reasonable to impose a duty You may find some case decisions in this area conflicting. This is because the courts may interpret the concepts of proximity and foreseeability more strictly in some cases than others in order to prevent the duty of care from developing in ways that are perceived not to be in the public interest. While glad to assist a vulnerable consumer like Ms Smith (see above, at page 282) without many financial resources, the courts do not wish to encourage a lack of responsibility in economically powerful parties with access to independen\ t advice, particularly those pursuing a speculative deal with high stakes, as in Caparo v Dickman (1990) (see below). Similarly, if alternative legal remedies are available, a right of action in negligence may be perceived to be redundant, even though the other remedies may not be applicable to the particular claimant due to the particular circumstances of the case. The following cases illustrate the operation of some of the Caparocriteria. 0003 Caparo Industries plc vDickman (1990, HL) The claimant company owned shares in Fidelity plc. The defendants were the accountancy firm which had audited the annual accounts. These negligently s tated that Fidelity had profits of £1.3 million; it had actually made a loss of over £465,000. The claimant increased its shareholding and later made a successful takeover bid. It then discovered that its acquisition was much less valuable than it had been led to believe by the accounts. Held: no duty of care was owed to the claimant. The purpose for which the information was given was crucial here. The accounts were to enable shareh olders to decide how to vote at the annual general meeting, not to give them personal investment advice. If a duty was imposed, it would protect not only the shareholders but potential buyers on the open market, thus creating potential liability to a diffuse group of people which would not be appropriate. McNaughten (James) Paper Group Ltd vHicks Anderson & Co. (1991, CA) No duty was owed by accountants to a company director for whom they prepared draft accounts for consideration prior to a takeover bid. Held: the defendant was not liable because it was not reasonably foreseeable that the claimant would rely on the draft accounts, particularly as he had access to expert advice to evaluate them. The defen- dant was also aware that the accounts had been swiftly compiled in draft form, providing a guide to the company’s financial health rather than a definitive statement. Compare the two decisions above with the following: Morgan Crucible Co. plc vHill Samuel Bank (1991, CA) The claimants’ takeover bid was made in reliance on a profit forecast issued to them by the defendant company. The defendant accountants and bank stated that this had been made in accordance with the company’s accounting procedures, after full and careful enquiry. Held: the defendants were liable. They had intended the claimants to rely on the information when making the bid, which they had done. The claimants’ reliance was reasonable since, although they had independent advice, much of the information was available only to the defendants and could not be independently verified. See also Smith v Eric S. Bush (1989), which is described at page 282, above. Most of the reported cases on negligent statement concern pure economic loss; the next one concerns a personal injuries claim. PART 1 – PROBLEMATIC DUTY SITUATIONS 285 14 Tort liability for defective services 0003 T vSurrey County Council (1994) T was a small baby. His mother consulted the council to check on the suitability of a registered child- minder. The council failed to tell T’s mother that previously a small baby had been brain-damaged while in the minder’s care and, although there was no conclusive evidence against her, it had been sug- gested that she should in future only look after children over two years old. T subsequently suffered severe brain damage when shaken violently by the childminder. Held: the council owed a duty of care to T since it had given advice directly relevant to his safety and thus created a relationship of sufficient proximity. The council should reasonably have foreseen that the advice, which came from one of their professional officers with special knowledge, would be relied upon. If incorrect, it would clearly jeopardise T’s safety. Although the judge in the above case said that a Hedley Byrnerelationship existed in this case, where physical rather than pure economic loss has occurred it is sufficient that Donoghue vStevenson principles are satisfied. In Clay v Crump (1963) the defendant archi- tect was held liable to workers on a demolition site injured after a wall, which he had negligently stated was stable, collapsed on to them. It was held that it\ was reasonably fore- seeable to the defendant that if his advice was incorrect the labourers would be endangered. Interesting and as yet unsolved questions of liability are raised by specialist information on financial and legal issues broadcast to the public on radio and TV programmes and pub- lished in some periodicals. There are also books which claim to help you to do your own conveyancing, or to make a will. Here the large class of potential claimants which exists might make the courts unwilling to entertain claims. On the other hand, \ such publications often encourage reliance on the given information by offering help and suggesting that this will be provided by experts. The more focused such information is (e.g. one-to-one on a radio phone-in), the greater the likelihood of a duty arising unless an appropriate and effec- tive disclaimer is given. PA R T 3 THE LAW OF TORT 286 Horace is an enthusiastic computer user and reads a lot of computer magazines. When he meets Flo- rence at a party she is impressed by his apparent knowledge, and asks him if he will help her buy a computer for her new design business. Horace tells her that he knows where to find her a bargain and the following week takes her to the premises of Mouse Technology, where on his advice she buys a model which he assures her will do everything she needs. However, within a couple of weeks’ use it becomes evident that it is entirely unsuitable for the sort of programs that she needs to use and she has to buy a different machine which puts her £1,500 out of pocket. Horace may unwittingly have made himself liable to Florence by taking her under his wing. Although he is not an expert in the relevant technology, he has held himself out as having that knowl- edge and a Hedley Byrne relationship has been held to exist in non-business relationships. In Chaudhry v Prabhakar (1988) amateur advice on buying a secondhand car gave rise to liability. However, unlike Ms Chaudhry, Florence was present when the computer was purchased and could have checked the advice with a shop assistant, so her reliance on Horace might well not be regarded as reasonable. Real Life 0003 Nervous shock (psychiatric harm) A duty of care readily exists where the claimant has suffered physical injury from the defen- dant’s careless behaviour. It may be harder to establish a duty of care when the claimant suffers illness induced by acute shock or distress caused by the defendant. Damages arenot recoverable for the actual shock or distress , but liability may arise from the medically recog- nisable illness or condition triggered by it. Such illness could be physical, like a heart attack, but most recent claims concern psychiatric conditions like post-traumatic stress syndrome. In Page v Smith (see below) the House of Lords held that the rules determining duty of care for nervous shock are different according to whether the claimant is categorised as a primary or a secondary victim of the accident caused by the defendant. Primary victims were defined as those directly involved in the accident, who, as a result, have been physi- cally hurt or reasonably put in fear for their own safety. Dulieu v White (1901) The defendant negligently failed to control his horse and cart, which demolished the wall of the pub, where the claimant was working as a barmaid. She managed to shelter from the shower of masonry and was not directly hurt. Later, however, she suffered a miscarriage from the shock. Held: the defendant was liable because it was reasonably foreseeable that the claimant would suffer shock from fear for her own physical safety in the dangerous situation created by the defendant’s negligence. Secondary victims are not so closely involved since they merely witness the accident. Stricter rules are therefore necessary to limit the duty to them, as large numbers might claim and \ it would not be fair, just and reasonable to make the defendant responsible for them all. Primary victims Since the defendant has caused a dangerous situation to arise, the duty is largely based on basic negligence principles. A duty of care arises because there is reasonable foreseeability of some physical or psychiatric injury to the claimant. Page vSmith (1995, HL) The defendant’s negligent driving caused his car to collide with that of the claimant. Minor damage resulted to the vehicles but the claimant appeared unhurt. Shortly afterwards, however, he suffered a recurrence of ME (myalgic encephalomyelitis, then perceived as a psychiatric condition) from which he had enjoyed a lengthy remission. Held: the defendant owed the same duty of care to the claimant as he would to any other fellow road user, since it was reasonably foreseeable that he might suffer personal injuries if the defendant drove negligently. It was not necessary for the claimant to prove that psychiatric damage might result. The dis- tinction between physical and psychiatric injury was irrelevant in these circumstances. PART 1 – PROBLEMATIC DUTY SITUATIONS 287 14 Tort liability for defective services 0003 The House of Lords indicated the limits of Pagev Smith in Johnston vNEI International (and other conjoined claims ) (2007, HL) which comprised four claims by various employees who had developed pleural plaques as a result of exposure to asbestos by their employers. The Johnston case is controversial as until this point insurers had paid out for this sort of claim. The Scottish government promptly legislated: the Damages (Asbestos-Related Condi- tions) (Scotland) Act 2009 which in effect reverses the Johnstondecision in Scotland from the date of the judgment. The Damages (Asbestos-Related Conditions) Bi\ ll 2008–9 is a pri- vate member’s bill and, at the time of writing, is passing through the English parliament. If passed, it will have a similar effect to the Scottish government’s provision, and asymptomatic pleural plaques will be again be treated as actionable damage in themselves. Involuntary participants The claimant, an involuntary participant is made to feel responsible for the accident although it is the defendant’s conduct which is the real cause, may also be treated as a pri- mary victim. PA R T 3 THE LAW OF TORT 288 Johnston and Others vNEI International (2007, HL) The claimants were all diagnosed with pleural plaques (hardening of lung tissue), which indicate exposure to asbestos. While harmless in themselves, they show that asbestosis, which is often fatal, may develop in the future. Diagnosis occurred years after the employer’s negligent behaviour. Fear that they might develop asbestosis resulted in Mr Johnston and two others suffering anxiety and dis- tress and one (Mr Grieves) developing clinical depression and irritable bowel syndrome. Held by the House of Lords: all the claims failed. 1 Mr Johnston and the two other claimants, who argued that the defendants were liable for the pleural plaques and their consequent anxiety and di stress failed, because legal liability requires some actual injury recognised by law. The plaques were just a simple physical change, not the cause of illness. They were harmless in themselves and neither they nor the fear of future illness amounted to actionable damage. Even when combined, they did not amount to actionable harm. 2 Mr Grieves’ claim failed because it was not reasonably foreseeable that a person of reasonable for- titude would develop a medically recognised disease as a result of the fear of future illness. His other argument that he was a primary victim and therefore owed a duty because physical harm, i.e. asbestosis, was a reasonably foreseeable result of asbestos exposure, also failed because the princi- ple in Page v Smith was limited to injury resulting directly and immediately from the negligence of the defendant where the claimant’s injury was ‘ an immediate response to a sudden and alarming inci- dent of which the plaintiff had no opportunity to prepare himself ’ (Lord Hope). Twenty years had passed between exposure to the asbestos and the diagnosis of pleural plaques and, therefore, there was no causative link between them. In the News 0003 Dooley vCammell Laird (1951) The claimant was operating a crane which had been negligently maintained by his employer. The crane cable snapped and he saw the heavy crate attached to it hurtle into the hold. His shock at the antici- pated fate of his workmates (who miraculously escaped injury) induced an acute nervous breakdown. Held: the employer was liable since the claimant’s response was prompted by his feelings that he had helped to cause the accident, and fear for his colleagues was reasonably foreseeable. It is not easy to persuade the court that sufficient foreseeability exists in this area. In Monk v Harrington Ltd and Others (2008) (see below), Mr Monk’s genuine belief that he was responsible for the accident, which had aggravated his trauma, was not ju\ stified in the cir- cumstances and he lost his claim because it was held that it was not reasonably foreseeable that anyone in his situation would suffer psychiatric injury. Rescuers Until the House of Lords’ decision in White(below) rescuers were automatically deemed to be primary victims, provided they had a sufficient degree of involvement in the accident. The rationale of this principle was that it was in the public interest to encourage people to act humanely in an emergency. Chadwick v British Rail (1967) The claimant became acutely clinically depressed af ter spending a gruelling night giving first aid and comfort to severely injured and dying victims within the compacted wreckage of a horrific train crash. Held: it was reasonably foreseeable that volunteers would render assistance and might suffer psychiatric injury as a result and, therefore, a duty of care was owed to the claimant. The duty of care to rescuers was restricted by the House of Lords in Whitev Chief Constable of South Yorkshire , which held that a duty of care to rescuers exists only if the rescuer was actually in danger or reasonably believed that they were. White v Chief Constable of South Yorkshire (1999, HL) At Hillsborough football stadium 95 people were killed and hundreds injured in the crush resulting from the failure of senior police officers adequately to control admission to the stadium. The claimants, who were junior police officers, claimed for post-traumatic stress syndrome resulting from the harrow- ing scenes in which they had been heavily involved for many hours as rescuers. Held: these claims must fail, since the claimants had not been exposed to or put in fear of danger and therefore no duty of care was owed to the claimants by their employers. This decision can be justified on policy (public interest) grounds. The House of Lords was concerned to limit the increasing number of claims for compensation from members of the emergency services whose employment as a matter of course involves poten\ tial exposure to PART 1 – PROBLEMATIC DUTY SITUATIONS 289 14 Tort liability for defective services 0003 harrowing, though not necessarily dangerous, situations. The cost of settling such claims could, if not checked, undermine the provision of the services themselves and put an unrea- sonable burden on the taxpayer. However, someone like Mr Chadwick might not win his case today unless the court were prepared to acknowledge sufficient danger or reasonable fear. This point is well illustrated by the next case. Monk vHarrington Ltd and Others (2008) During the building of the Wembley stadium an accident was caused by the negligence of the defendant construction firm. Two of Mr Monk’s workmates fell 60 feet when a platform collapsed. One died shortly afterwards and the other broke a leg. M tried to help both men. Subsequently, as a result of what he had seen, he began to suffer from p ost-traumatic stress disorder and depression. Held: When M rendered assistance, it was unlikely that he believed himself to be in danger and there were no reasonable grounds for his subsequent belief that he had caused the accident. Therefore, he was not a primary victim and no duty of care was owed to him. This case illustrates the problems caused by the limitation of the rescuer category. By so doing, their Lordships have effectively barred the courts from assisting other litigants in areas where policy might well suggest that liability should be imposed. The constr\ uction industry, although better regulated than it used to be, is still well known for a poor accident record. While it is questionable that imposing liability necessarily drives u\ p safety standards, at least deserving claimants like Mr Monk would be entitled to compensat\ ion for the loss of their livelihood as result of their acting humanely. Negligent statements and nervous shock Liability may arise from statements as well as acts. There is a duty of care to deliver bad news with sufficient sensitivity to prevent reasonably foreseeable psychiatric damage (AB v Tameside & Glossop Health Authority (1997)). Similarly, there is a duty to deliver news accurately. In Allin v City & Hackney Health Authority (1996), it was held that the defendant was liable for nerv- ous shock suffered by the claimant when she received the sensitively delivered but inaccurate news that her baby was dead. Where negligent statements are involved duty may be based more on a Hedley Byrne relationship than the normal rules relating to nervous shock. Liability to primary victims may be costly for service providers. This is evidenced by the Kings Cross fire, where London Transport was liable for multiple successful claims, including firefighters. A mass claim was brought by traumatised victims and relatives of the 193 people who drowned when the Herald of Free Enterprise ferry to Zeebrugge capsized in 1987. The sinking of The Marchioness pleasure boat on the Thames in 1989, with 51 dead, is another case in point. Secondary victims These merely witness the accident or, if involved, are notin danger or reasonable fear of it. The next case was the first secondary victim claim and laid down most of the basic prin- ciples governing such claims today. PA R T 3 THE LAW OF TORT 290 0003 Hambrook vStokes (1925, CA) A mother saw the defendant’s driverless lorry careering down the hill in the direction of her two daugh- ters who had just disappeared round the corner of the road. Although she did not see the accident, she heard the impact when the vehicle crashed through a wall after mounting the pavement close to her daughters. Miraculously, the girls were unhurt, but their mother suffered a fatal heart attack due to the shock resulting from fear for her children’s safety. Held: the defendant was liable. A duty of care was owed to a person who suffered nervous shock from directly witnessing an accident caused by the defendant’s negligence, where such trauma was reasonably foreseeable in a person of reasonable fortitude. The shock might result from the claimant witnessing the build-up to the accident and/or the immediate aftermath, but without seeing the accident itself. The shock must be a product of what the claimant actually witnessed with their own senses, not what was reported to them by a third party. In a later case the House of Lords further developed the law, stressing the need for proximity of the claimant both physically and temporally to the accident and impos\ ed limits on the concept of immediate aftermath. McLoughlin vO’Brian (1982, HL) The claimant suffered acute depression and personality change resulting from the shock of witnessing serious injuries caused to her husband and chi ldren by the defendant’s negligent driving. Held: her claim was successful. Although she was not present when the accident occurred, the harrow- ing scenes she witnessed at the casualty department an hour afterwards were horrific enough to make her sufficiently proximate, and her response reasonably foreseeable. In Alcock v Wright the House of Lords rationalised the criteria determining duty of care to secondary victims. Alcock vWright (1991, HL) The 16 claimants had loved ones who had perished in the horrific occurrences at the Hillsborough sta- dium. (See Web activity on page 313.) None was successful because they did not fulfil the necessary criteria laid down by the House of Lords, which restrict the concepts of reasonable foreseeability and proximity applicable in such circumstances. Held: claimants must be able to prove the following: (a) They have suffered some medically recognised illness or condition as a result of a ‘ sudden and immediate attack ’ upon their senses. This rules out claimants who do not suffer a quick and sudden trauma, but whose illness is caused by a build-up of stress and fear. (b) It was reasonably foreseeable that they would react in this way: there must be a ‘ close bond of love and affection ’ between them and the accident victim . This is presumed only between spouses and PART 1 – PROBLEMATIC DUTY SITUATIONS 291 14 Tort liability for defective services 0003 PA R T 3THE LAW OF TORT 292 parents and children; all other claimants must prove that the bond exists in the relevant circum- stances. (Not all the Alcockclaimants could satisfy this test.) (c) Their reaction was that of a reasonably brave persongiven the level of trauma that they witnessed. (d) They were sufficiently proximateto the accident . Proximity is measured both in terms of time and space. The claimant must usually be present at the scene when the accident occurs, although seeing the build-up to it and/or the immediate aftermath may be sufficient. The claimant must have witnessed the accident directly with his or her own senses and not have had the scene interpreted for him or her by a third party. (This ruled out some of the Alcock claimants, who had seen events unfold through a simultaneous TV broadcast, or who had identified a body at the mortuary eight hours after the accident.) The Alcock criteria make a very useful checklist for you to refer to, particularly when answering problem questions on this topic. Their application is usefully illustrated\ by the next two cases. Taylorson v Shieldness Products (1994, CA) The claimants were the parents of a 14-year-old boy who died three days after being crushed by a lorry driven by the defendant’s negligent employee. The parents, who did not witness the accident, only briefly glimpsed their son after initial treatment when he was transferred to a second hospital. They were not present while he was being treated. The father visited on the night of the accident but the mother did not see him until the next day. They both remained with him for the next two days while he was on a life sup- port system. They claimed that they suffered clinical depression as a result of the experience. Held:no duty of care existed, as there was insufficient proximity of the parents in time and space to the accident. It was also probable that the damage to the claimants was more the result of grief than shock. The only successful reported claim from a Hillsborough victim was that of John McCarthy (McCarthy v Chief Constable of South Yorkshire (1996)) who received over £200,000 dam- ages for his ongoing post-traumatic stress. His half-brother, Ian, died from asphyxiation in one of the grandstands. John satisfied the Alcockcriteria as he was at the ground though in a different stand with a view of the events as they unfolded. He was therefore deemed to be sufficiently proximate, and the close nature of his relationship to Ian evidenced a close bond of affection. In practice, very few claims by secondary victims have succeeded. Why do you think the House of Lords in Alcock (above) insisted that secondary victims must witness the accident directly and ruled that TV transmitted pictures did not count? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 Palmer vTees Health Authority (1999, CA) The claimant’s daughter was abducted and murdered by a psychiatric patient. The claimant suffered acute post-traumatic stress disorder and alleged that the defendant authority were negligent in failing to diagnose that the patient was a risk to children. She claimed that within 15 minutes of discovering that her daughter had disappeared she was told that she had been abducted and this produced an immediate shock to her nervous system. When the child’s body was discovered three days later, the claimant was within the vicinity of the patient’s house but was not allowed to see her daughter’s body at that point. She claimed that the psychiatric illness was caused by her presence at the scene and the immediate after- math of the abduction and the search for and discovery of the body, which she later identified. Held: her claim must fail on two counts: (a) she had not witnessed the abduction, nor the murder, nor the discovery of the body, nor was she involved in the immediate aftermath, so she was not sufficiently proximate; (b) what she had witnessed and experienced did not amount to a sudden and shocking event within the scope of Alcock . Her situation was similar to that of unsuccessful Hillsborough claimants who went through a period of acute anxiety before their worst fears were realised. Her imagination of what had happened was not the same as ‘the sudden appreciation by sight or sound of the horrifying event’. Recently, however, the Court of Appeal has been prepared to interpret the Alcockprinciples more generously to deal with extreme circumstances. Walters vNorth Glamorgan NHS Trust (2002) Due to the negligence of the Health Trust, the claimant’s son died of liver failure. During the 36 hours leading up to his death, the claimant witnessed a number of traumatic events after the child had been admitted to the hospital, starting with her waking to find her son having a violent epileptic fit and vom- iting blood all over his cot and ending when he died in her arms when life support was eventually terminated. She was given conflicting information about the likely outcome for her son. In effect, she was on an emotional roller coaster throughout: ‘ her hopes were lifted and then dashed and finally destroyed ’ (Ward LJ). As a result, she suffered a pathological grief reaction. Held: these circumstances must be treated as one entire ‘horrifying’ event and, therefore, the Alcock cri- teria were satisfied and a duty of care was owed to her. This is a complex and controversial area of the law of negligence. The rules often seem arbi- trary and may sometimes produce apparently unjust results. In 1998 a Law Commission Report (No. 249, Liability for Psychiatric Damage ) was published which proposed statutory reform of the duty of care regarding secondary victims to replace the Alcockrule. The Report included the following recommendations: (a) The class of persons presumed to have a close bond of love and affection\ should be extended to include siblings and cohabitees of at least two years’ standing (\ including same-sex partners). PART 1 – PROBLEMATIC DUTY SITUATIONS 293 14 Tort liability for defective services 0003 (b)The claimant’s illness need not be caused by a sudden shock but might arise from a build-up of anxiety and stress over a period of time. (c) The claimant’s proximity to the accident or its aftermath should be irrelevant . (d) If physical injury were reasonably foreseeable, there would be liability even if only psy- chiatric injury resulted. So far, none of these proposals has been implemented by Parliament. Omissions to act and liability for damage caused by third parties Omissions The law of tort is concerned with compensating acts by a defendant which have actively damaged the claimant ( misfeasance), rather than with the defendant’s failure to act for the claimant’s benefit (nonfeasance) . Consequently, it is rare for a duty of care to result from an omission to act. In Stovin v Wise ( 1996) Lord Goff said: ‘There are sound reasons why omis- sions require different treatment from positive conduct. It is one thing\ for the law to say that a person who undertakes some activity shall take reasonable care no\ t to cause damage to others. It is another thing for the law to require that a person who \ is doing nothing in particular shall take steps to prevent another from suffering harm. He went on to say that there are political, moral and economic reasons for this approach. Imposing liability would unduly restrict personal freedom. There is no moral justification in making one person bear the economic burden of compensating a claimant when he or she may be one of a number who might morally be expected to intervene. ‘Liability to pay compensation for loss caused by negligent conduct acts as a deterrent … But there is no similar ju\ stification to require a person who is not doing anything [wrong] to spend money on behalf of someone else.’ As Lord Goff indicates, it is important to distinguish between moral and legal dutie\ s as the two do not necessarily overlap. For example, you would not be liable\ in negligence or any other tort if you failed to stop a blind person from walking into a road in front of an oncoming bus, if you had no previous legal responsibility for their safety. ‘False omissions’ may give rise to a duty of care There are situations where a failure to act does give rise to a duty, though if we examine them closely, we see that the omission was not an isolated failure to act but was part of a chain of events already giving rise to liability or that the claimant was in a dependent rela- tionship with the defendant. In both these situations a duty of care already exists between the parties. For example, you will be liable for harm to any pedestrian \ you knock down with your car, if the accident happened because you omitted to use your brakes, or to\ keep a proper lookout. If you choose to help a blind person across the road, you will by intervening create a duty of care and may be liable to that person if you bungle the rescue operation. Similarly, a school teacher may be liable for failing to stop a pupil from climbing into the bear pit on a visit to the zoo, as might a doctor who harms patients by \ failing to warn them that the drug prescribed cannot be safely combined with certain foods. PA R T 3 THE LAW OF TORT 294 0003 Acts of third parties There is a presumption in law that we are all responsible for our own behaviour, therefore, it is rare to find cases where one party is liable for the tort of a third party (apart from circum- stances giving rise to vicarious liability, see below at page 339). Smith vLittlewoods Organisation (1987, HL) Littlewoods bought a disused cinema with a view to opening one of its stores on the land. While the cinema was being demolished, at a time while no contractor or Littlewoods employees were present, vandals entered the premises and started a fire. This spread to Smith’s adjoining premises. Smiths alleged that Littlewoods were in breach of a duty to prevent this damage, by making the premises secure against trespassers. Both parties agreed that only a twenty-four-hour guard could have prevented entry by trespassers. Held: although occupiers of premises have a duty to take reasonable care that their premises are not a source of danger to neighbouring landowners, Littlewoods did not owe a duty of care as there were no special circumstances indicating that such vandalism was reasonably forseeable. Lord Griffiths stated: ‘I do not say that there will never be circumstances in which the law will require an occupier to take special precautions against such a contingency, but they would have to be extreme indeed … there was nothing inherently dangerous … stored on the premises, nor can I regard a cinema stripped of its equipment as likely to be any more alluring to vandals than any other recently vacated building in the centre of a town. No message was received … from the local police, fire brigade or any neighbour that vandals were creating a danger on any premises .’ To require a twenty-four-hour guard would be ‘ an intolerable burden’ in the circumstances. The Littlewoods case is a good example of the court taking a restricted view of what is rea- sonably foreseeable. Vandalism is a well known problem in urban areas. However, in cases involving property damage the court expects a claimant to be insured, so it is usually unsym- pathetic to claims for negligent omissions and third party damage. The aim of this policy is to encourage property owners to be prudent and to prevent insurance companies from fronting a successful action to recover their losses. Occupiers do not generally have a duty to secure their premises in order to safeguard neighbouring premises unless alerted by evidence that they represent a risk. If the defendant’s premises have previously been subject to trespass and vandalism, this would be more likely to make the court take the view that the damage to the claimant was reasonably foreseeable. A duty may arise in the following circumstances : 1 The defendant had a responsibility to control the third party’s behaviour because of a pre- existing relationship with the party. Home Office v Dorset Yacht Co. Ltd (1970, HL) The Home Office was held liable when the claimant’s yacht was damaged by improperly supervised Borstal trainees who had escaped from a nearby work camp. PART 1 – PROBLEMATIC DUTY SITUATIONS 295 14 Tort liability for defective services 0003 2 The defendant’s pre-existing relationship to the claimant makes the defendant responsi-ble for preventing the damage. Stansbie v Troman (1948, CA) Stansbie was a decorator who was left in sole charge of Mrs Troman’s house. He left it unlocked when going out to buy wallpaper and was held liable for the loss arising from the burglary which took place in his absence. Public authorities and statutory discretion Public service providers, such as the fire brigade, the police and local authorities, operate in the context of statutory duties and powers. Such duties are mandatory but often widely drafted, leaving a large element of discretion to the authority about how it is implemented. For example, a local authority must provide full-time education for children in its catchment area, but how it does so is left largely to its discretion. The authority decides, for example, whether single-sex education shall be an option and determines the selec\ tion methods, if any, for transfer to secondary schools. Some local authorities provide special schools for pupils with some acute physical disabilities and learning difficulties, while others choose to place such students in mainstream schools. Such choices are made with regard to the per- ceived needs of the particular community and may be limited by budgetary\ concerns. The statutory duty exists to benefit the public at large through the provision of services relevant to local needs. The courts have traditionally been unwilling to \ permit a duty of care in negligence to be owed by a public authority to individual members of \ the public who claim to be harmed by the way the authority has used its statutory discretion in per- forming its public duties. Usually, such claims arise where an omission to exercise the power is allegedly the cause of the damage or where a third party is actually responsible for the harm. These factors combined with the desire of the courts not to fetter discretion derived from Parliament makes them particularly reluctant to impose a duty of care. Policy plays a very important role in such circumstances. The fire brigade and ambulance services owe a limited duty Capital and Counties Bank plc vHampshire Fire Brigade (1997, CA) Here the brigade fought a fire on the claimant’s premises, but left having turned off sprinklers in the roof area, which was still smouldering. Later it reignited and the building was destroyed. Held: a fire brigade was under no duty at civil law to attend a fire. Duty of care was to be limited to sit- uations where acts of the fire brigade directly worsened the claimant’s problems. The defendant fire brigade was liable, as its intervention had increased the damage to the claimant. PA R T 3THE LAW OF TORT 296 0003 Remember that the court’s decision in cases like this will be influenced by the expectation that the claimant will have insurance against fire damage. Maybe if a case concerning death or physical injury occurs we may see a different approach.Ambulance services, because their remit involves medical care, owe a greater duty than other emergency services and must provide a timely service once a caller has been told that an ambulance will be dispatched. Kent vGriffiths and Others ( No. 3) (2001, CA) The claimant had an acute asthma attack and suffered severe brain damage when delay caused by negli- gence by the ambulance service prevented her from receiving timely treatment. Held: provided an ambulance was available and a caller was told that it would be sent, it should attend within a reasonable time. The ambulance service was part of the health service. It was therefore appro- priate to regard it as providing services of the same kind as those provided by hospital services rather than being equivalent to those of the fire brigade and police. The police While the police authority will be liable in the same way as any other e\ mployer for negligent driving by its officers or failure to protect a person in custody from coming to harm, the court has refused to hear cases where the police were apparently negligent in preventing crimes from occurring. It was perceived that this would unduly restrict discretion in an area where much flexibility was needed and could lead to defensive behaviour by t\ he police which would be prejudicial to the public. Osman v Ferguson (1993, CA) A schoolmaster who became obsessed with a pupil, harassed him and his family, carried out acts of van- dalism against their property and tried to ram their car while it was being driven. The police were informed and interviewed the man but did not take steps to arrest him. He continued his campaign of harassment which culminated in his shooting both f ather and son, killing the former and injuring the latter. An action in negligence was taken against the police. Held: the action must be struck out. Arguably, there was sufficient proximity between the police and the victims of the shooting to give rise to a special relationship. However, it was not fair, just and rea- sonable to impose a duty of care by the police to the victims of crime. It would not improve standards and could dangerously divert police resources from the general investigation and suppression of crime necessary to protect the public. This case seemed to indicate that the police enjoyed complete immunity f\ rom litigation con- cerning policing discretion. The courts have been compelled to take a less prescriptive approach since Osman v UK (1999), where the European Court of Human Rights held that giving the police immunity was in effect a breach of Article 6 of the ECHR (right to a fair trial). The House of Lo\ rds ( Barrettv Enfield Borough Council (1999)) subsequently held that any claim where immunity of any public PART 1 – PROBLEMATIC DUTY SITUATIONS 297 14 Tort liability for defective services 0003 authority is in question must be tried to determine whether a duty of ca\ re exists. This, of course, does not mean that a duty will necessarily be held to exist, but it give\ s the claimant the opportu- nity to have his or her own case considered, thus enabling his or her right to a fair trial. Given the House of Lords’ decision (below), it seems almost impossible to persuade the court that a duty of care in negligence or liability by the police for breach of Article 2 of the ECHR exists. Chief Constable Hertfordshire vVan Colle and Smith vChief Constable of Sussex (2008, HL) These two cases involved claims against the police for failing to intervene to protect a party in danger of alleged violent attack. The first case concerned a wi tness who was murdered days before he was due to give evidence at a trial for theft by a party later convicted for X’s murder. In evidence, it was alleged that X had been subjected to a number of threats and intimidation by Y which the police had known about. Smith repeatedly told the police that A (his former partner) had threatened to kill him and provided sufficient evidence to justify his arrest. For example, he had received over 130 text messages from A. Some contained very explicit threats such as: ‘ U are dead’; ‘Look out for yourself psycho is coming ’; ‘I am looking to kill you and no compromises ’; ‘I was in the Bulldog last night with a carving knife. It’s a shame I missed you ’. However, the police chose to ignore Mr Smith’s complaints. Eventually, A attacked him with a claw hammer causing serious injury. X’s representative claimed breach of the ECHR, Article 2 (right to life) and Mr Smith claimed in negligence. Held: both appeals must be dismissed. X’s claim: under Osman v UK the test of liability stipulated that the court should not acknowledge a breach unless ‘at the time’ the police should have known of a ‘real and immediate risk to life of an iden- tified individual from criminal acts of a third party’. Y was a seriously ‘disturbed and unpredictable individual’. Therefore, it could not be said that the police by involving X as a witness and making him a member of a special class separate from the public at large, should have anticipated that Y was a sufficient risk to X’s safety. The Osmantest did not impose an invari- able standard and the particular facts were relevant to determining whether or not it was satisfied. Mr Smith’s claim (Lord Bingham dissenting): under the rule in Hillv Chief Constable West Yorkshire (1989, HL) the police owed no common law duty of care to protect individuals from attacks by crimi- nals, unless there were very special circumstances justifying departure from the principle which protected the public interest. A specific and evident threat would have to exist for the police to owe a duty. It had not existed here. While this can look unjust, bear in mind that the victims of such crimes\ as these do have alternative means of dispute resolution, such as the Criminal Injuries Compensation Board and the formal complaint systems. Education and social services The courts in the past generally refused to allow claims to proceed in negligence against a local authority’s education and social services departments, on the ground that this would PA R T 3 THE LAW OF TORT 298 0003 fetter executive discretion in the use of resources, and interfere with social policy. In X vBed- fordshire County Council (1995) the House of Lords struck out two claims concerning allegedly negligent decisions by local authorities in failing to take ch\ ildren into care. It was held that no duty of care existed in such cases or social services departments would be unduly constrained. They might be inclined to act defensively and unnece\ ssarily take chil- dren into care. As indicated above, this attitude has had to change since the ECtHR deci\ sion in Osman. This was evidenced by the House of Lords decision in ( Barrettv Enfield Borough Council (1999) (above)). A case of failing to take a child into care may now succeed ( Pierce vDoncaster Metropoli- tan Borough Council (EWHC 2968)). However, a claim by a parent that their child was wrongly taken into care is still unlikely to be successful. In Lawrence vPembrokeshire County Council (2007, CA) the claimant’s children were mistakenly put on the at risk register when Ms Lawrence was wrongfully suspected of abusing them. Her action was struck out since no duty of care was deemed to exist. The claimant appealed, arguing that application o\ f Article 8 (right to family life) of the ECHR in domestic law since implementat\ ion of the HRA 1998, should result in an incremental change in the law of negligence. The Court of Appeal held that the House of Lords ( JDv East Berkshire Community Health NHS Trust and Ors (2005)) had already decided (albeit prior to implementation of the HRA) that no duty \ of care in neg- ligence was owed to parents wrongly suspected of abuse provided the local authority had acted in good faith. An extension in the scope of duty of care would be a step too far. There was a lack of proximity between Ms Lawrence and the council. It would also militate against the public interest, which required that a child protection authority should be able to exer- cise its discretion freely during the investigation and prevention of abusive behaviour, without being inhibited by threat of potential litigation. In such cases, alternative remedies are often available. Ms Lawrence had already received compensation after an ombudsman investigation and an action under the HR\ A was also possible. The impact of the Human Rights Act 1998 Since 2000, an action under the Human Rights Act 1998 for breach of the Convention is now possible in cases against a public authority. This may well be more appropriate than an action in negligence and more likely to be successful, where the claim involves omission to act, failure to prevent damage by a third party or negligent exercise of a statutory discretion. In Z and A v UK (2002) the claimants (two of the child claimants involved in Xv Bedfordshire County Council (1995)) successfully claimed that the council had breached its duty under Article 3 (the right not to be subjected to inhuman or degrading treatment) by failing to protect them from prolonged and serious ill-treatment and abuse. Article 8 (right to respect for family life) was breached in respect of another child who was wrongly taken into care. Her mother also succeeded with an Article 8 claim. Such claims can now b\ e brought in the English courts, which must have regard to decisions of the European Court of Human Rights (see Chapter 3 page 41, above). PART 1 – PROBLEMATIC DUTY SITUATIONS 299 14 Tort liability for defective services 0003 In conclusion: duty criteria are guidance only From your study of all the various problematic duty situations examined in this chapter, you will now be aware that judges determining the existence of duty of care often refer to such criteria as reasonable foreseeability, proximity and justice and reason (policy). Students often ask their lecturers to tell them what exactly these words mean in the hope that this will pro- vide a magic key to unlock a secret door to understanding. Be warned that this is a fruitless quest. Such words cannot be defined as legal terms and in themselves, do not provide cer- tain answers to the question of whether a duty of care exists in a particular case. The context in which they are applied, i.e. the circumstances of the particular case, heavily influ- ences their definition and limits, so that apparently conflicting decisions are made. As May LJ said in Merret vBubb (2001): it would be ‘reaching for the moon … to expect to accom- modate every circumstance which may arise within a single short abstract formulatio\ n’. It may help you to keep in mind that a duty is unlikely to be acknowledg\ ed for any case which is not concerned with physical damage directly caused to the claimant or their prop- erty if the claimant had some alternative available remedy, or could be expected to insure against the loss. The courts are wary of creating a duty owed to an indefinable class and take an incremental approach to the development of duty within the problem. Therefore, any change will be a small step at a time rather than a leap into the da\ rk. Part 2 – breach of duty It is up to the claimant to prove that the defendant failed to take reasonable care in per- forming the duty of care. What is reasonable is measured objectively against the standards of the so-called ‘ reasonable man ’ in the circumstances of the particular case. Certain cri- teria exist to guide the court. The likelihood of an accident happening The greater the likelihood of an accident the more care the defendant may need to take. The court will need to be satisfied that the incidence of risk was reasonably reduced. It need not be completely removed for the standard to be met. Bolton v Stone (1951) The claimant was injured by a cricket ball hit from the cricket club grounds controlled by the defen- dant. The boundary fence was 17 feet high and the ball had travelled over 80 yards from the wicket. There was evidence to show that such a hit was a very rare occurrence. Held: the defendant was not liable as reasonable care had been taken to reduce the chances of such an occurrence, given the height of the fence and the distance from the wicket and the previous history of balls rarely escaping from the ground. PA R T 3 THE LAW OF TORT 300 0003 However, a similar accident occurring in different circumstances gave rise to liability for the defendant since the chances of an accident were very likely. Hilder vAssociated Portland Cement (1961) Children were often known to play football on some land belonging to the defendant company which was close to a road and bordered by a wall less than three feet high. A motorcyclist was killed when a ball was kicked into the road. Held: the defendant was liable since it had not taken reasonable care to reduce the chances of a very likely accident. It had neither prevented the children from playing on its land nor provided a boundary fence sufficient to prevent footballs escaping into the highway. The extent of the potential harm The greater the extent of the likely damage the more the defendant is expected to do to reduce its risk. Paris v Stepney Council (1951) The claimant was employed in a manual job by the defendant company. He had only one eye and was then blinded in his good eye in an accident at work. Held: the defendant had failed to act with reasonable care by failing to supply goggles to the claimant. It was irrelevant that the work he was doing would not necessitate use of goggles by a normally sighted person. The consequence of injury to his eyes was much more serious than to other employees. The practicability of taking precautions: risk–benefit analysis The court when determining reasonable care seeks to impose a standard of care that gives rea- sonable protection to the claimant while not unduly burdening the defendant. This may be described as a risk–benefit analysis . A risk-free environment can never be fully guaranteed. Withers vPerry Chain Ltd (1961) The claimant, who was employed in a factory where contact with grease was involved at every stage of the production process, became allergic to grease and developed a skin condition. Her employer moved her to the most grease-free job that fitted her capabilities but the allergy persisted. Held: the defendant company had done everything that it could reasonably be expected to do to pre- vent harm to the claimant and was therefore not in breach of its duty and Ms Withers’ claim must accordingly fail. PART 2 – BREACH OF DUTY 301 14 Tort liability for defective services 0003 Latimer vAEC (1953) A factory floor was slippery after a flash flood. The defendant spread sawdust over most of the walkways in the factory and issued warnings to employees. The claimant, who was injured when he slipped in an area which had not been sawdusted because it was less often used, argued that the building should have been closed until it had dried out. Held: the extent of the risk and likely injury did not justify this extreme response. The precautions taken were all that was practicable in the circumstances. The defendant’s resources and the nature and size of the business may be relevant factors for the court to take into account. However, the greater the risk and extent of damage the less relevant the cost factor to the defendant. This is an area of the common law where standards have been influenced by statutory developments in health and safety regulation (see Chapter 16 at page 359, below). This commonly requires prior risk assessment for cer- tain activities. Evidence that this process was sufficiently comprehensive and resulted in relevant precautions is often sufficient to discharge the duty of care. Risk assessment is becoming accepted practice even where it is not statutorily required. Skilful claimants If a claimant has a skill which should make him or her aware of an inherent danger, the defendant will not be expected to take steps to protect him or her from it. Roles v Nathan (1963) Two sweeps died when they were overcome by fumes while attempting to seal a hole in a flue while the boiler on the defendant’s premises was still alight. Held: the defendant was not negligent. The sweeps were experienced tradesmen and knew that the boiler should have been extinguished before work was started. It was not up to the defendant to put it out or issue warnings. The qualifications claimed by the defendant Defendants will be held liable if they fail to act with the reasonable degree of care and skill to be expected from a person with the qualifications which the defendants claim to have –\ Bolam v Friern Hospital Management Committee (1957) (see below). Phillips vWilliam Whitely (1938) The defendant jeweller who pierced the claimant’s ears was not liable for the abscess which resulted. PA R T 3THE LAW OF TORT 302 0003 Held:the defendant was not negligent. He had acted in accordance with the level of care and skill to be expected from a person with his training. The standards of a surgeon could not be expected of him. Only the level of qualification is relevant. Lack of experience is not taken into consideration: the same standards are expected of a newly qualified professional or craftsperson as of one with considerable experience. In Wilsher vEssex Area Health Authority (1986) the Court of Appeal held that it was irrelevant that the doctor who treated the claimant was newly quali- fied and had been working excessively long hours when she treated the claimant (facts below, at page 306). This extends to learner drivers, who are required to demonstrate the same standard of care as those who have passed a driving test (see Nettleshipv Weston (1971, CA)). This is to prevent insurance companies avoiding liability to third parties. A defendant claiming no special training or skill is expected to take su\ ch care as can rea- sonably be expected in the circumstances. In Perryv Harris (2008) the Court of Appeal held that the defendant was not liable for the injuries sustained by a child \ hurt when using a bouncy castle at a children’s birthday party. She had acted as a responsible adult in her supervision of the children at the time and constant supervision was not required as serious injury was not reasonably foreseeable. Similarly, the standard required of an amateur carpen- ter’s repairs is not as high as that required of a professional tradesperson ( Wellsv Cooper (1958, CA)). Children are expected to exercise a level of skill commensurate with their age. In Orchard v Lee (2009), the Court of Appeal decided that a 13-year-old boy, who seriously injured a dinner lady on colliding with her in the playground when he was playing tag, had not breached his duty of care. A reasonable 13-year-old would not have reasonably foreseen that such harm would be likely to result from his conduct. Good practice Conformity with accepted and current good practice may be indicative of reasonable care. Thus, in Thompson vSmiths Ship Repairers Ltd (1984) the defendant employer’s failure to provide ear protectors was held not to amount to a failure to take reasonable care until they had been alerted to the necessity by government circular. There may be more than one type of good practice: both claimant and defendant may produce expert witnesses with conflicting views. The judge does not have t\ he relevant pro- fessional skill to decide whose procedure was correct. The claimant must prove that on the balance of probability the defendant was in breach. If there is proof that what the defen- dant did would also have been done by another similar professional in compliance with good practice then the claimant fails. Bolam v Friern Hospital Management Committee (1957, CA) The claimant, who suffered a fractured pelvis when undergoing electro-convulsive therapy, brought expert evidence that his limbs should have been restrained during treatment. PART 2 – BREACH OF DUTY 303 14 Tort liability for defective services 0003 Held:on the balance of probability there was no proof of a failure to take reasonable care. The hospital was able to prove that its practice of cushio ning limbs was equally well accepted in respected medical circles. The House of Lords approved the Bolamprinciple in Bolithov City and Hackney Area Health Authority (1997), but stressed that it is not enough to show that other professionals sub- scribe to the practice: an expert witness must be able to justify its us\ e in the circumstances of the particular case, having weighed up its risks and benefits. Unhappy outcomes In Bolam v Friern Hospital Management Committee Lord Justice Denning neatly summarised the nature of reasonable care when he said ‘ the doctor does not promise to cure the patient nor the lawyer to win the case ’. All reasonable care may be taken but the claimant may still suffer damage. Proof of damage to claimant or even proof of a mistake by the defendant does not necessarily prove that the defendant has failed to take reasonable care. Luxmoore May vMessenger May Bakers (1990, CA) The defendant auctioneers claimed to be expert picture valuers. They failed to judge correctly the potential of two paintings owned by the claimant, wh o consequently obtained only a tiny fraction of their true value when they were sold. Held: the claimants had failed to prove that the defendants acted without reasonable care. Evidence from the defendant indicated that a competent valuer could have made the same mistake. Encoding the standard of care The Compensation Act 2006 Section 1 states that when a court is deciding whether a defendant has t\ aken reasonable care it mayhave regard to whether a requirement to take those steps might – (a) prevent a desirable activity from being undertaken at all, to a particul\ ar extent or in a particular way, or (b) discourage persons from undertaking functions in connection with a desir\ able activity. From what you have read earlier, you will see that this statute merely reflects current judi- cial practice, so may appear to be a redundant piece of legislation. Parliament’s intention was presumably to improve awareness of this aspect of the law and to attempt to ensure that normal activities are not inhibited by fear of litigation and excessively risk-averse behav-\ iour. There does appear to be an increase in such behaviour of late, encouraging the popular belief that life should be risk free, and that, since any and every accident is preventable somebody must be legally liable. PA R T 3 THE LAW OF TORT 304 0003 Reflecting this legislation, the Health & Safety Executive published (A\ ugust 2006) propos- als for a code of principles for risk management which states that, whil\ e the safety of workers and members of the public should be properly protected, sensible risk management is not about ‘creating a totally risk free society’ or ‘stopping important recreational and learning activities ’ or ‘scaring people by exaggerating or publicising trivial risks ’. Proving consequent damage The claimant must prove the link between the defendant’s failure to take reasonable care and the damage which the claimant has suffered. Two elements are involved: the claimant must first prove that but for the defendant’s behaviour the damage would not have occurred ( causation in fact) and secondly that the damage is a reasonably foreseeable result ( causation in law). 1 Causation in fact: the ‘but for’ rule The defendant’s failure to take care must be the material cause of the damage. A claimant must show that he or she would not have been injured but for the defendant’s act or fail- ure to act. Barnett vChelsea & Kensington Hospital Management Committee (1969) A man died from arsenic poisoning which the hospital negligently failed to detect. Held: the hospital was not liable, as according to expert evidence he would still have died even if the hospital had diagnosed the problem and treated him appropriately. McWilliams vArrol (1962) The claimant’s husband fell from a roof that he was repairing; he had not been wearing a safety belt. There was evidence that, although belts were normally available, on the day of the accident, the shed where they were stored was locked. The claimant argued that if the belts had been available her husband would not have fallen. Held: she must lose her case since the defendant employer was able to prove that her husband did not usually bother to wear a belt. Multiple causes The ‘but for’ principle works well as long as there is only one likely cause of the damage. Where there are multiple causes, the claimant may be unable to prove on the balance of prob- ability that it was the defendant’s behaviour which was a material cause of the accident. PROVING CONSEQUENT DAMAGE 305 14 Tort liability for defective services 0003 Wilsher vEssex Area Health Authority (1988, HL) Failure by the hospital to give the claimant, a premature baby, the correct oxygen mixture was alleged to be the cause of his becoming visually impaired. Held: the claimant could not succeed since the ‘but for’ test had not been satisfied, as he was suffering from a number of other conditions, any of which could have caused the same damage. It had not been proved on the balance of probability that the oxygen mixture was a material cause. In a previous case the House of Lords had adopted a different approach. McGhee v National Coal Board (1972, HL) The claimant worked in very hot and dirty conditions in a brick kiln. No showers were provided and he could not get clean until he had cycled home from work. He contracted dermatitis. He could not prove on the balance of probability that showering before leaving work would have prevented the dermatitis. Held: the NCB was liable as the medical evidence indicated that lack of showers greatly increased his chances of developing the condition. In Wilsher v Essex Area Health Authority the House of Lords described the McGhee approach as ‘robust and pragmatic’: correct on its facts but not a principle of law. This cast doubt on the standing of McGhee, and produced a puzzling distinction for many students. However, in 2002 the House of Lords clarified the law: Fairchild v Glenhaven Funeral Services (2002, HL) The claimants in this case all contracted mesothelioma (a form of invariably fatal cancer) from being exposed to asbestos fibres at work. There was clear evi dence of flagrant breach of safety standards by all the employers. Causation was problematic, however, as all the claimants had been employed by more than one employer. Each employee could only have contracted the disease during one period of employment, and it was impossible for them to prove which one was the source of the disease. Held (unanimously): given the impossibility of proof, the claimants should succeed. It was fair and just to use the less stringent McGheerule here, as by breaching safety standards all the employers had mate- rially increased the claimants’ chances of contracting the condition. The facts could clearly be distinguished from those in Wilsherwhere a number of possible causes, apart from the oxygen, could have led to the claimant’s disability. In Fairchild,asbestos was the only possible cause. The House of Lords in Wilsherwas incorrect in failing to acknowledge McGheeas establishing a new principle of law. The defendants were jointly and severally liable. Therefore, the claimants were entitled to full compen- sation from the employer who was being sued, since that employer could seek contribution from any other employer who had exposed the claimant to the risk. The Fairchild decision is important as it firmly establishes the McGheeapproach as a princi- ple of law. It is also a good example of a public interest or ‘policy’ decision. Had the PA R T 3 THE LAW OF TORT 306 0003 employers escaped liability, others would have been encouraged to ignore safety standards in similar situations, secure in the knowledge that the causative link could not be estab- lished. Insurers, too, would have unjustly profited.Four years later in Barker v Corus UK Ltd, Murray v British Shipbuilders Ltd, Patterson v Smiths Docks Ltd (2006, HL) a differently constituted House of Lords decided three cases in which the facts were subtly different from Fairchild. This resulted in the principle in Fairchild being both expanded in one respect and restricted controversially in another. The expansion Mr Barker had been exposed to the risk of mesothelioma not only by his e\ mployers but also during a period of self-employment, but this was held to be irrelevant to his employers’ liabil- ity. It was held that, provided there was evidence of negligence by the defendant which materially increased the risk of contracting mesothelioma, it was irrelevant that the claimant had also been exposed to the risk from another source. It was irrelevant that that other expo- sure might have been caused by tortious or non-tortious behaviour or some na\ tural cause. The restriction In Barker, etc. the House of Lords by majority held that joint and several liability could only be imposed if the defendants had actually caused the claimants to contract the disease. It also held that only a minority of the House of Lords in Fairchild had actually decided that the defendants had done so. The majority (three out of five) had merely held that the defendant had exposed the claimants to the risk of contractingthe disease. Therefore, their Lordships restated the decision in Fairchild holding that each defendant could only be held liable sever- ally (only for the damage it had personally caused) and so would pay c\ ompensation proportionately to the period of time the claimant had been employed by th\ em. This impacted unfavourably on the current claimants as all previous employers bar the current defendants were insolvent and, as mentioned above, Mr Barker had been self-employed for\ a time. This was a very controversial decision as regards the several liability issue. Lord Hoffmann said that it would ‘smooth the roughness of the justice which a rule of joint and several li\ a- bility creates’. It certainly would have pleased the defendant insurers and those involved in other pending claims. However, it may be argued that it roughened the justice for the claimants and their dependants, as Lord Rodger clearly indicated in his dissenting judgment where he called upon Parliament to come to their assistance. Richard Leyton (president of the Association of Personal Injury Lawyers) declared that it was ‘ an insult to the victims’ fam- ilies’ and Parliament was quick to intervene. The Compensation Act 2006, s 3 Section 3 in effect imposes joint and several liability for negligence and breach of statutory duty arising from the circumstances of exposure covered by the Fairchildand Barker deci- sions but s 3(5) expands this to cover liability for failure to protect from exposure. The Act received Royal Assent assent in July 2006 and s 3 has retrospective effect, which means that all future cases must be decided in accordance with it, even if the damage occurred before the section came into force. It also means that the outcomes of some past claims may need to be varied. This was a very welcome parliamentary intervention for those of us who a\ gree with the House of Lords in Fairchild , that perfect justice cannot be obtained in this problematic PROVING CONSEQUENT DAMAGE 307 14 Tort liability for defective services 0003 causation situation and that any injustice should be borne by a party who is culpably in breach of their duty of care, rather than their innocent victims.The Barker decision no longer reflects the law as regards the issue of liability. However, we should not completely disregard the Fairchildand Barker cases in future. Section 3 clearly reflects them pretty precisely as regards exposure issues. Parliament has in effect made that part of those decisions statutory so they will presumably still be regarded as factually persua- sive in future cases by courts interpreting and applying s 3. Lost chances The more liberal approach to causation in Fairchildhas not been extended to claims for a lost chance. Although damages may be award for such losses the claimant must as usual in civil cases, establish that the defendant was on the balance of probabilities the material cause of the loss. In Hotson vEast Berkshire Health Authority (1987)the claimant fractured his hip and the hospital negligently failed to spot that he had associated nerve damage \ which resulted in long-term damage to his hip joint, severely reducing his mobility. He claimed that he had been deprived of his mobility by the hospital’s failure to treat the condition. He lost his claim because he was unable to prove that but for the defendant’s negligence he would have been cured, since expert evidence showed that treatment was only successful in 25% of cases. Therefore, he could not prove that on the balance of probability he would have regained full mobility, because he was unable to prove that treatment was successful in at least 51% of cases. This principle was affirmed by the House of Lords in 2005 in Gregg v Scott. Due to the defendant’s negligence, Mr Gregg’s cancer was diagnosed late, reducing his chance of a cure to 25%. Prompt diagnosis would have increased this chance to 46%. His claim failed since even swift intervention would not on the balance \ of probability have resulted in his cure. 2 Causation in law (remoteness of damage) The damage must not be too remote . The defendant is not held legally responsible for all the results of the breach. The law treats intentional and unintentional torts differently as regards determining remoteness. We are presumed to intend all the direct consequences of our intentional acts, so in a tort like trespass the defendant will be liable for all the direct consequences regard- less of whether they could reasonably have been foreseen ( Re Polemis (1921, CA)). However, it was decided in The Wagon Mound(1961) (below) that damage caused to the claimant by a non-intentional tort like negligence or nuisance must be o\ f a reasonably fore- seeable type. Overseas Tankships & Engineering vMorts Dock & Engineering Ltd ( The Wagon Mound ( No. 1)) (1961, PC) Fire damage was caused to the claimant’s dock when a spark from a welding torch being used on the claimant’s dock ignited oil which the defendants had negligently discharged into the harbour. PA R T 3THE LAW OF TORT 308 0003 Held:the chance of fire breaking out in such circumstances was not reasonably foreseeable by the defendants who were therefore not liable. InCorr v IBC Vehicles Ltd (2008) the House of Lords held Mr Corr’s employer (IBC) liable for his death. The acute clinical depression arising from the disfigurement and post-traumatic stress which resulted from the negligence of his employers made it reasonably foreseeable that he would commit suicide. Provided that the type of damage is reasonably foreseeable, the defendant will be liable. It is irrelevant that the defendant might not have been able to foresee its cause or its severity. Hughes v Lord Advocate (1963, HL) The defendant telephone engineers left an inspection hole for the night, covered only by a tent and sur- rounded by lighted paraffin lamps. The child claimant was severely burned when he fell down the hole carrying a lamp which exploded as it hit the ground, producing a fireball. Held: the defendants were held liable as it was reasonably foreseeable that a child would be attracted by the lamps and might be burned when playing with them. It was irrelevant that the explosion and the severity of the burn damage were not reasonably foreseeable. Their Lordships reaffirmed this principle in the following case: Jolley v London Borough of Sutton (2000, HL) The defendant council failed to remove an abandoned boat from its land. The claimant (aged 14) was seriously injured when it fell on him after he had jacked it up to try to repair it. Held: the council was liable, as the precise circumstances causing the accident did not have to be fore- seeable. The boat was a safety hazard and likely to attract children. Intervening acts Sometimes subsequent behaviour of the claimant or a third party may lead to an aggrava- tion of the damage set in train by the defendant. The question for the c\ ourt to decide is whether that intervening act breaks the chain of causation and thus prevents the defen- dant from being liable for the resulting damage. However, if the act is reasonably foreseeable and/or the defendant has a duty to prevent it then liability remains with the defendant, as the damage is not too remote. McKew vHolland & Cubitts Ltd (1969, HL) The defendant negligently injured the claimant’s leg. As a consequence, it would quite often give way. In full knowledge of this, the claimant attempted to descend a steep stairway without using the hand rail. His leg gave way and he fell down the stairs, sustaining further injuries. PROVING CONSEQUENT DAMAGE 309 14 Tort liability for defective services 0003 Held:the defendant was not liable for the injuries sustained in the fall; the claimant’s descent of the stairs was an intervening act which was not reasonably foreseeable to the defendant. It was unreasonable of the claimant to behave as he had. A different result was reached in Wieland (below) due to the claimant being unaware of the full effects of her previous accident. Wieland v Cyril Lord Carpets (1969) Due to negligence of the defendant, the claimant suffered injuries. She was sent to hospital and was fitted with a surgical collar. This impeded her head movement and, consequently, use of her bifocal spectacles. The next day when she was returning home from a checkup at the hospital, she felt so unwell that she called in at the defendant’s show rooms where her nephew worked, to get him to take her home. Unable to see properly, she fell down some steps and hurt herself. Held: the defendant was liable for all the claimant’s injuries since its negligence had left her unable to cope with the normal necessities of life. Descending the stairs was not unreasonable and did not break the chain of causation. She had not had time to adjust to the effects of her treatment and was still suf- fering from some residual shock at the time of the second accident. When a third party is involved, the issue of whether the defendant had a duty to co\ ntrol them or to prevent such acts is relevant to determining liability. Reeves vCommissioner of Police for the Metropolis (1999, HL) Reeves committed suicide while in police custody. He was known at the time to be in a mentally unsta- ble condition. Held: the police were liable for his death as it was their negligence, in failing to supervise him appropri- ately, which enabled him to end his life. His intervening act was both reasonably foreseeable and the very thing that they were meant to prevent. The ‘eggshell skull’ rule The ‘eggshell skull’ rule is an exception to the Wagon Moundprinciple. If the claimant has some particular weakness that makes him or her susceptible to a type\ of harm which is not reasonably foreseeable, the defendant will nevertheless be liable. Smith v Leech Brain & Co. Ltd (1962) Due to the defendants’ negligence, an employee suf fered a minor burn to his lip which would normally have caused only superficial damage. However, pre-cancerous cells in his lip which might otherwise have remained dormant were activated and he died. It was held that the defendants were liable for their employee’s death although such serious damage was not foreseeable. PA R T 3 THE LAW OF TORT 310 0003 CHAPTER SUMMARY 311 14 In Page v Smith (1995) the House of Lords held that the eggshell skull principle applied to both mental and physical conditions. The principle has also been held to appl\ y to a claimant whose financial situation makes him or her more vulnerable to the damage caused by the defendant . Mattocks vMann (1993) The claimant’s car was damaged by the negligence of the defendant. When it had been repaired, there was a delay before she could recover it, as the garage refused to part with it until the insurance company came up with the money. The claimant did not have the funds to pay the bill herself. Held: the defendant (in reality, his insurers) was liable for the cost of her hiring a car until she could recover her own. Problematic duties of care The requirements for proof of duty of care in these problematic areas are rigorous and based on a high degree of foreseeability and proximity and public interest. Pure economic loss A special relationship of close proximity between the parties is essential, involving reliance by the claimant on the defendant’s expertise and/or assumption of responsibility by the defendant. A disclaimer or conditional undertaking by the defen- dant prevents creation of the relationship. Liability may result from negligent advice as well as other negligent behaviour. Nervous shock Shock causing physical/psychiatric injury which must be medically recognised. Primary victims: if duty for physical harm exists it includes nervous shock. Secondary victims :for a duty to exist the claimant must satisfy the Alcock criteria: (a) sudden shock causing medically recognised condition; (b) reasonable foreseeability of this reaction; (c) claimant’s reaction that of a reasonably brave person; (d) claimant close to the accident in time and space. Omissions/third-party acts The defendant must generally owe a duty of care to the claimant/have a duty to control the third party. Public authority exercise of statutory discretion Duty of care is very rarely upheld. Limited duty: fire and ambulance services. Human rights action may be more viable. Breach of duty of care The claimant must prove that the defendant failed to take reasonable care taking into account: (a) seriousness of the risk arising from the defen- dant’s conduct; (b) the extent of the reasonably foreseeable damage to the claimant; (c) any relevant skill of the claimant; and (d) the skill/qualifications of the defendant. Causation: the link between the breach and the damage to the claimant must exist: (a) in fact :the damage must be the result of the breach (‘but for’ test); (b) in law: the damage must not be too remote from the breach of duty. Test for remoteness: damage must be of a rea- sonably foreseeable kind in unintentional torts like negligence and nuisance. Intervening acts make damage too remote unless they were reasonably foreseeable to the defendant. Chapter summary Tort liability for defective services 0003 PA R T 3THE LAW OF TORT 312 1 May a duty of care exist in the following circumstances? (a) To Ruby, who was wrongly advised by Turquoise on the value of her antique clock? (b) To Sapphire, by Beryl Electrical Appliances, the manufacturer of an electric kettle which was given to her for Christmas and which did not work? (c) To Emerald, who witnesses a horrific acci- dent caused by Diamond in which Emerald’s daughter Crystal was killed? (d) To Amber, who suffered theft from her premises; the thieves gained access to her premises through a hole in the next-door fence which belongs to Garnet? Quiz 14 ‘But for’ principle:damage to the claimant must be a result of the defendant’s breach. Close bond of love and affection:the required relationship between claimant and acci- dent victim in nervous shock claims. Disclaimer:a statement by which a party seeks to avoid liability for the consequences of negligent advice or behaviour. ‘Eggshell skull’ rule:exception to remoteness rule, which makes the defendant liable for unfore- seeable damage to a claimant arising from a pre-existing medical condition or weakness. Intervening acts:events aggravating the claimant’s damage which occur between the defendant’s act and resulting damage. Involuntary participants:a primary nervous shock victim, who, though blameless, feels implicated in an accident caused by the defendant’s negligence. Nervous shock:psychiatric or physical harm caused by the shock of being involved in or witnessing an accident caused by the defendant’s negligence. Primary victim:nervous shock victim directly endangered by the defendant’s negligence. Reasonable man:the standard by which reason- able care is judged. This is said to reflect the behaviour of the average person in the given circumstances. Risk–benefit analysis:a balancing exercise to determine the required level of care relating to an activity to determine what precautions are necessary, without unreasonably inhibiting its bene- ficial effects. Quasi-fiduciary:describes a relationship involv- ing a high degree of trust, though not a fiduciary relationship as such. Secondary victims:a claimant in a nervous shock claim who sustains damage as a result of directly witnessing the accident caused by defen- dant’s negligence. Special relationship:essential to liability for pure economic loss claims in negligence. The claimant reasonably places a high degree of reliance on the defendant’s knowledge or expertise. Statutory discretion:flexibility in implementa- tion of a statutory duty derived from the wording of the relevant Act of Parliament. Sudden and immediate attack:the nature of the trauma which may give rise to nervous shock liability. Sufficiently proximate:describes the required degree of connection between a second- ary victim and the accident scene in a nervous shock claim. Key terms 0003 ASSIGNMENT 13 313 2 What is the relevant standard of care againstwhich the defendant will be judged in a negli- gence action? 3 What is the eggshell skull rule? Answers to all quizzes can be found in Appendix 2. Quiz 14 (Continued) Please go to: www.bbc.co.uk Then type ‘Hillsborough’ into the search facility. Scroll down the results until you reach ‘Liverpool – Local His- tory – Hillsborough disaster’. First click on this link to read the BBC report of this tragic accident. Then click on ‘Audio Slideshow: Remembering Hillsborough’ a collection of photographs accompanied by personal accounts from people at the scene. Web activity Take a closer look The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking up the law report or accessing it via a database, e.g. Bailli (www.bailii.org/databases.html). LexisNexis or Westlaw may be available in your uni- versity or college library, or you may find extracts in a case book. (Se e Appendix 1: Additional resources.) Hedley Byrne v Heller (1963) 2 All ER 575, HL Alcock v Wright (1991) 4 All ER 907, HL Fairchild v Glenhaven Funeral Services [2002] 3 All ER 305, HL Overseas Tankships & Engineering v Morts Dock & Engineering Ltd ( The Wagon Mound ( No. 1)) (1961) 1 All ER 404 14 Tort liability for defective services Alice bought a small bakery business. It was sur- veyed by George, for Happy Homes Building Society, which provided Alice with the mortgage. Alice paid Happy Homes for a summary report from George. This stated that there were no major structural prob- lems and that the premises were worth the asking price. It concluded: ‘This report is for valuation pur- poses only and will not give rise to any legal liability.’ Alice contracted with Industrial Kitchen Fitters Ltd (IKF) to refit the kitchen. They installed a new oven manufactured by Cinders plc. On moving in, Alice discovered severe and large- scale dry rot when she fell through a storeroom Assignment 13 0003 314 PA R T 3THE LAW OF TORT floor and broke her leg. Her injuries and the eradi- cation of the dry rot delayed the opening of the premises for several months. A week after the business eventually opened, the new oven malfunctioned. As a result, a wedding cake was badly burnt, leading to a claim for damages for breach of contract against Alice, by the bride’s father . IKF have gone out of business. Advise Alice of the possible liability in negligence of George and Cinders. Assignment 13 (Continued from page 313) Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 15 TORT LIABILITY FOR PREMISES 0003 Introduction This chapter explains the duties imposed by the law of tort on occupiers\ in relation to the maintenance and use of their premises. Occupiers have a duty to maintain the premises safely for the benefit of third parties on or outside the premises. They must also ensure that the use of premises does not cause unreasonable inconven- ience to other people. This is obviously of great relevance to business occupiers, whose premises are often visited by large numbers of people, or whose business activities may be potentially hazardous or disruptive to their neighbours. An overview of the general defences in tort and the doctrine of vicariou\ s liability conclude the tort section of this book. Learning Objectives After studying this chapter you should be able to: Appreciate the different ways in which an occupier may be liable for damage caused by the state of his or her premises or activities taking place there Distinguish between the effect of the Occupiers’ Liability Act 1957 and the Occupiers’ Liability Act 1984 Recognise the situations where liability for public and private nuisance will arise Describe the circumstances where the defences to liability may exist Apply the doctrine of vicarious liability to hypothetical situations. Photo: Digital Vision 0003 The occupier’s liability to people on the premises Negligent activities Occupiers who carry out activitieson their land without taking reasonable care may be liable to a third party under the general principles of negligence which you studied in \ the previous two chapters. If the harm is caused by the structural condition of the p\ remises then liability may exist under the Occupiers’ Liability Acts of 1957 and 1984. Ogwo v Taylor(1987, HL) The defendant negligently set the roof space on fire while using a blowtorch to burn off paint from weatherboarding on his house. The claimant, a firefighter, was injured in the ensuing conflagration. Held: negligence was a more appropriate cause of action than the Occupiers’ Liability Act 1957, given that the fire was triggered by the defendant’s negligent use of the blow torch, rather than the condition of the premises. The defendant was liable as the claimant’s injuries were a reasonably foreseeable conse- quence of the defendant’s negligent behaviour. Dangerous premises Occupiers have a legal duty to maintain the structure of their premises in a reasonably safe con- dition. If, for example, you run a hotel, you must take care to avoid harm to your guests from over-polished floors, low beams or slippery tiles. This part of the law is c\ overed by statute. The Occupiers’ Liability Act 1957 The 1957 Act (OLA 1957) covers the liability of an occupier to what the Act calls ‘ visitors ’, i.e. those people who are on the premises with the occupier’s consent – family members, employees, customers, the window cleaner and the meter reader are obvious examples. However, under s 2(6) any person exercising a right conferred by law is also cov- ered. This includes the police and firefighters and anybody entering premises that are open to the public. Maloney v Torfaen CBC (2005, CA) M, who was drunk, was returning home in the dark. When taking a short cut from the road to his house he fell down a steep grassy slope onto the concrete floor of a subway, sustaining injuries. Held: the defendant was not in breach of the OLA 1957, since M was not a visitor; the grassy slope was intended purely to be landscaping, not access, and so there was no implied permission to be on it. PA R T 3 THE LAW OF TORT 318 0003 Who is the occupier? In Wheat v Lacon (1966, HL, below) the occupier was defined as the person in control of the premises at the time of the accident. If you abandon your premises during radical refur- bishment, the builder, shopfitter or plumber who is the cause of the hazard will be liable to the injured person rather than you. There may be more than one occupier at a time. In Wheat vLacon (1966, HL) the licensee and brewery owner of a pub were both held to be the occupiers of a pub since, under the lease, the brewery was responsible for repairs and thus controlled the state of the premises. What are premises? Premises are widely defined by the Act and cover not only buildings and open spaces\ but also ‘any fixed or moveable structure’, and include ‘any vessel, vehicle or aircraft’ (s 1(3)). This has been held to include a wide variety of things, including scaffolding (Kearney v Eric Waller (1966)) and a large excavating machine ( Bunkerv Charles Brand (1969)). The extent of the occupier’s duty The occupier must take reasonable care to ensure that the visitor is reasonably safe for the purposes for which the visitor is on the land (s 2(2)). There is no duty to eliminate all the risks attached to the visit. The occupier can reasonably assume that the average able-bodied adult will be aware of hazards which are normally found on the relevant premises and will take care to avoid them. So an hotel owner who fails to ensure that an upstairs window has restricted opening has not breached his duty to an adult who leans out so far that he falls from it (Lewis vSix Counties (2005, CA)). Notice that the occupier’s duty is limited to taking reasonable care to ensure reasonable safety and only for the purposes of that visit . The occupier’s consent to a visitor’s presence is limited by the purpose of the visit. If a visitor strays into a part of \ the premises where he or she is not reasonably expected and suffers injury, the occupier is unlikely to be liable under the 1957 Act as the visitor has exceeded the scope of his or her permiss\ ion to be on the premises. There may be liability instead under the Occupiers’ Liability Act 1984, w\ hich covers duty of care to entrants to premises without the occupier’s permission (see Tomlinson v Congleton Borough Council (2003) (below)). The standard of care As in negligence, there exists a duty to take reasonablecare. The occupier is not liable just because the accident happens; the injured visitor will have to prove that the occupier failed to take reasonably adequate precautions to prevent it. What is reasonable is determined with reference to all the circumstances. Cunningham v Reading Football Club (1991) Due to the club’s failure to maintain its terraces, loose lumps of masonry provided handy missiles for the use of football hooligans. As a result the claimant, a policeman on duty at the ground, was injured and sued the club. THE OCCUPIER’S LIABILITY TO PEOPLE ON THE PREMISES 319 15 Tort liability for premises 0003 PA R T 3THE LAW OF TORT 320 Held:the club was in breach of its duty. It was reasonably foreseeable that troublesome elements which were known to cause problems at matches would use the masonry for illicit purposes. The type of hazard, the nature of the premises and the needs of the visitor are all relevant. Each case has to be decided on its own facts. Murphy v Bradford Metropolitan Council (1991) A school keeper had twice cleared snow from a notoriously slippery path before 8.30 a.m. on the morn- ing when the claimant was injured by a fall. Held: reasonable care had not been taken: the nature of the path, the numbers of people using it and the severity of the weather demanded the use of grit, not just regular clearance. An occupier whose premises are open to the public must take account of the needs of a wide cross-section of people, including children, the elderly and those with disabilities, since it is reasonably foreseeable that such people may form part of the clientele. The 1957 Act refers specifically to two categories of visitor: children and visitors with special skills. 1Children. An occupier must expect children to be less careful of their own safety than adults; consequently a higher standard of care may be needed (s 2(3)(a)). Things which present no hazard to an adult may be a dangerous allurement to a child. Glasgow Corporation vTaylor (1922, HL) The corporation was held liable for the poisoning of the child claimant by attractive berries on a tree in a public park. An occupier is not liable for all accidents to children: the standard of care required of an occupier is no greater than that of a reasonably careful parent. It may be reasonable for the occupier to assume that very small children will be appropriately supervised by an accompa- nying adult. Phipps v Rochester Corporation (1955) An occupier was held not to be liable to a five-year-old child who fell into a trench on a building site on the corporation’s land. Held:‘responsibility for the safety of little children must rest primarily upon the parents’ (Devlin J). However, it all depends on the nature of the premises. A building site is not meant to be safe for unsupervised children, as it would be unusual to find them there, but stairways in public housing should be child friendly. Therefore, in Maloneyv Lambeth Council (1966), the local authority (as occupier of a block of flats) was liable when a fo\ ur-year-old child fell through a gap in banister railings that posed no danger to an adult. 0003 2Visitors with special skills. An occupier is not liable to contractors carrying out a service on the premises for accidents arising from job-related hazards, since the contractors should be aware of these given their trade skills and experience (s 2(3)(b)). Roles v Nathan (1963, CA) The claimants were asphyxiated by fumes when they carried out flue repairs in a boiler room while the boiler was alight. Held: the occupier was not liable for their deaths: their knowledge and experience of this kind of work should have made them extinguish the boiler before starting work. Under s 2(4) of the 1957 Act, the occupier is not generally liable if \ a visitor suffers damage arising from construction, repair or maintenance work carried out by an outside firm, pro- vided that the occupier took reasonable precautions to select a competent firm and checked the completed work. Here the visitor must take action against the contractor. Section 1 of the Compensation Act 2006 (see page 304 above) applies no\ t only to common law negligence but also to breach of statutory duty. It is therefore relevant when determining standard of care in cases brought under the Occupiers’ Liability Acts of 1957 and 1984. Discharging the duty The duty of care may be discharged in a variety of ways. Ideally, the hazard should be removed – you can carpet your shop entrance if the floor is slippery o\ n a wet day. However, removal of the hazard may not always be practicable, either immediately or in the long term – if you remove the low beam in your quaint old tea shop, the roof may fall in, presenting much greater risks to your customers than the occasional bruised head. It may b\ e possible to protect visitors adequately by the erection of suitable barriers, or even warning notices. Under s 2(4) of the 1957 Act, occupiers may be found to have taken reasonable care of their visitors by giving adequate warning of the hazard. To be adequate the warning must be sufficient to allow the visitor to be reasonably safe. Such notice must be given in suffi- cient time and with sufficient clarity to enable the visitor reasonably to avoid the hazard. It should indicate the nature of the hazard (‘take care: wet floor’) and give an indication, where appropriate, of how it should be safely avoided (‘please use other exit’\ ). Written warnings are not effective for those who cannot reasonably be expected to read or under- stand them: for example, children or the visually impaired. A warning is not required where the hazard should have been obvious to the user. In Trustees of Portsmouth Youth Activities Committee v Poppleton (2008, CA) P (an adult) was injured using a climbing wall at the appellant’s indoor premises. The floor was covered with thick matting. Rules forbidding jumping were displayed outside the climbing room. P attempted to jump off the climbing wall to a buttress on the opposite wall, but fell and became paralysed from the head down as a result. He claimed to believe that the matting would protect him if he fell and that he should have been told of the danger. The Court of Appeal dismissed his case holding that no breach of duty had occurred. The risk of falling was entirely evident. No reasonable person could imagine that matting even in large quanti- ties could protect against injury from an awkward fall. THE OCCUPIER’S LIABILITY TO PEOPLE ON THE PREMISES 321 15 Tort liability for premises 0003 Actionable damage Under the 1957 Act, the damage giving rise to liability is damage to the\ person or to goods. Excluding liability It is possible to exclude liability for breach of the duty imposed by the 1957 Act (s 2(1)), sub- ject to the Unfair Contract Terms Act 1977. Business liability cannot be excluded if the visitor dies or suffers personal injuries from the occupier’s failure to take reasonable care.Liability for damage to property may be excluded if this is judged to be reasonable in the circumstances: for example, if the damage is caused by a third party who is not subject to the occupier’s control. The Occupiers’ Liability Act 1984 This Act regulates the duty of an occupier of premises to people who do not have permis- sion from the occupier to be on the premises. The Act embraces not only trespassers but other entrants such as visitors to national parks or people exercising a ‘right to roam’ under the Countryside and Rights of Way Act 2000. Not surprisingly, the occupier owes only a very limited duty of care. It would not be in the public interest to encourage a burglar to claim damages after falling down the stairs of the house which he was ri\ fling. However, more innocent parties, straying onto premises containing highly dangerous plant or machinery, clearly deserve some protection. This is illustrated by the following case, which preceded the 1984 Act but was based on similar principles. British Railways Board v Herrington (1972, HL) The claimant, a child of six, was injured when he strayed onto the railway from a public park through broken fencing belonging to the railway, whose drivers previously had reported trespassers on the line. PA R T 3THE LAW OF TORT 322 Horace recently moved house. The path leading to the front door is slippery in wet weather. The other day after a heavy shower, Bernard, who was delivering advertising flyers for the local pizza parlour, slipped and fell straining his back. He has not been able to work since. As an occupier, Horace has a duty under the OLA 1957 for Bernard’s reasonable safety, unless he has a notice on his gate saying ‘No Junk Mail’. An occupier impliedly consents to people entering the premises to deliver items unless notice to the contrary is clearly given. He may be in breach of his duty if he should have taken precau- tions to reduce or remove the risk. He might genuinely not know that it exists if it is only apparent in wet weather and maybe it had not rained since he moved in. If he should have known, a suitably clear notice (‘Take care slippery path!’) would probably be sufficient at least as an interim measure. (Continued below at page 325.) Real Life 0003 Held:the Board was liable for the child trespasser’s injuries since it knew of the possibility of tres- passers and could have avoided the risk at ‘small trouble and expense’ (i.e. by mending the fence). When is the duty owed? Under s 1(3) of the 1984 Act, the following criteria must all be satis\ fied: 1 the occupier must have reasonable knowledge of the danger; 2 the occupier must know or reasonably suspect that potential entrants, etc. are in the vicinity of the premises or are reasonably likely to come into the vicinity; 3 the risk is one against which, in all the circumstances, it is reasonable for the occupier to offer some protection. The courts will take account of the resources of the occupier relative to the likelihood of entrants and the extent of the danger. A lake in a remote hill area presents much less of a danger than an electrified railway running through a heavily populated locality. The follow- ing two cases will indicate possible approaches to determining whether the criteria in s 1(3) have been satisfied. Maloney v Torfaen CBC (2005, CA) (For facts see above, page 318.) Held: the defendant did not owe a duty under the OLA 1984 as the danger, which was heightened by the claimant being drunk and the accompanying darkness, was not so obvious that the defendant should reasonably have known of it. Further, the presence of the claimant on the slope could not rea- sonably be anticipated. A safe path nearby led directly to the claimant’s premises. Keown v Coventry Healthcare NHS Trust (2006, CA) K, aged 13, fell when climbing the underside of a fire escape on premises owned by the hospital and used by the public as a cut through. Held: the defendant was not liable. No duty of care was owed to K, as the danger did not arise out of the state of the premises. K was injured as a result of what K chose to do on the premises rather than the condition of the premises. Premises not dangerous to an adult might present a hazard to a child and it was a matter of fact or degree whether or not they did. It was not necessarily appropriate, however, to ignore a child’s choice to indulge in dangerous behaviour just because he was a child. In Keown (above) the court may have been influenced by the fact that the claima\ nt had strayed from a public access area on to the fire escape. Making the latter inaccessible to trespassers might have created a worse risk to people in the building in the event of fire. THE OCCUPIER’S LIABILITY TO PEOPLE ON THE PREMISES 323 15 Tort liability for premises 0003 PA R T 3THE LAW OF TORT 324 The extent of the duty The occupier’s duty under the 1984 Act is limited to taking such care as is reasonable to see that the entrant does not suffer injury from the relevant danger (s 1(4)). It is interesting to compare this with the positiveduty owed to the lawful entrant under the 1957 Act whereby the occupier must ensure that visitors are reasonably safe . The occupier’s responsibility to the entrant is a negative one: to take reasonable steps to prevent harm. Performing the duty Such a minimal duty can be performed by taking reasonable steps to keep people out. A sufficiently explicit warning clearly displayed will generally be deemed enough for adults, while properly maintained boundary fencing should be a sufficient deterrent to children. The following case illustrates how these principles are applied. Ratcliff v Harper Adams Agricultural College (1998, CA) The claimant was a student at the college. One night he entered the grounds of the college pool by climbing over a seven-foot wall. He was paralysed when he broke his neck after diving into the pool where the water was too shallow. Held: the college was not liable. Even if it should have been aware that students trespassed in this manner, it was not in breach of its duty. Their duty did not extend to warning adult trespassers against evident risks, or to lighting the premises at night to make them safe for trespassers. The House of Lords more recently took a similarly robust approach. Tomlinson v Congleton Borough Council (2003, HL) Mr Tomlinson dived into shallow water in a lake in a public park. He was paralysed when he struck his head on a rocky outcrop. The lake was a flooded quarry and signs beside it clearly prohibited swimming and warned that it was dangerous. Held: no duty was owed. Since the claimant must have known of the risk of striking his head on the lake bottom before he dived, there was no duty to warn of risks that were obvious and against which the defendant could not reasonably be expected to offer some protection. It would be unreasonable to impose a duty on public authorities to protect people from self-inflicted injuries that resulted from taking risks voluntarily in the face of obvious dangers. Actionable damage Liability under the 1984 Act is restricted to death and personal injuries only (s 2(9)). 0003 Duties of an occupier to people outside the premises An occupier owes a variety of duties in tort to people who are not actually on the premises. Where physical damage to people or their property occurs which is caused by an adjoining occupier’s failure to take reasonable care, action may be taken in negligence.A heavier burden of liability, based purely on the reasonable foreseeability of damage, is imposed through the law of nuisance. This imposes liability not only for tangible h\ arm, but also for unreasonable levels of inconvenience arising from the occupier’s use of premises. The law of nuisance is composed of two separate torts (private and publ\ ic nuisance) which have some characteristics in common. Private nuisance This protects an occupier of land against unreasonable interference with the enjoyment of his or her premises caused by the state of a nearby occupier’s land or activities taking place on it. A nuisance is usually caused unintentionally, indirectly and as a by-product of an on- going state of affairs on the defendant’s land. Proof of liability The claimant must prove, first, that the defendant has caused damage. This includes: 1 Damage to the structure of the claimant’s premises. Davey v Harrow Corporation (1957, CA) Mr Davey sued the Harrow Corporation for subsidence damage caused to his house by trees growing on the corporation’s land. Held: the council was liable as it had unreasonably interfered with the claimant’s land by allowing the encroachment of the tree roots onto the claimant’s land. 325 Horace recently moved house. The front path becomes slippery when wet. Bernard slipped and fell, injuring himself, while delivering a flyer for the local pizza parlour. On the front gate there is a notice saying ‘No Junk Mail’. This means that by entering Bernard becomes a trespasser.Under the OLA 1984, Bernard has no claim unless he can prove that Horace owes him a duty. If there has previously been sufficient rain to alert Horace to the problem, he may owe a duty as the problem with the path is one which could quite easily be rectified. Horace might argue that the notice refusing junk mail means that he need not anticipate people delivering it, but this will not be any use if he knows that the notice has already been ignored by other people. If a duty does exist, it could be dis- charged by displaying a suitable warning notice. Real Life (Continued from page 322) DUTIES OF AN OCCUPIER TO PEOPLE OUTSIDE THE PREMISES 15 Tort liability for premises 0003 2Damage to goods on the claimant’s land. In British Celanese v Hunt (1969, CA) metal foil stored on the defendant’s premises blew onto power cables causing a cut in the electric- ity supply to the claimant’s factories. The defendant was liable for damage to machinery and components. Liability for personal injury may also arise, though this is only action\ able if the injury was caused by the defendant’s negligent or intentional conduct. Private nuisance protects interests in land, rather than personal injuries. 3 Amenity damage. Liability may arise for amenity damage where the defendant’s behaviour has unreasonably reduced the comfort and convenience of use of the claimant’s premises. This may accompany, or exist independently of, property damage and can cover a wide range of annoying activities, commonly including no\ ise, smells, smoke and vibrations. In Halseyv Esso Petroleum (1961) Esso were held liable for a vari- ety of nuisances emanating from their processing plant. Pungent and nauseating smells invaded the claimant’s premises and at night noise from the boilers made the claimant’s doors and windows vibrate, preventing sleep. All day the passage of heavy lorries caused a high level of noise. In a private nuisance claim, the claimant must show that the defendant’\ s activities caused an unreasonable level of interference . It is usually sufficient to prove some tangible damage. St Helen’s Smelting Co. vTipping (1865, HL) Fumes from the defendant’s chemical works damaged the claimant’s trees. Held: this damage indicated an unreasonable interference with the claimant’s enjoyment of his land. It was irrelevant that the defendant’s activities were not out of keeping with the locality. However, where amenity damage only is claimed, it is harder to prove unreasonable inter- ference. Most of us would claim to suffer disturbance from our neighbours’ activities; few of us, however, would be able to persuade the court that the level of interference was unreasonable. The law aims to maintain a fair balance of interest between parties and requires a certain amount of give and take. While your shop is being refitted your next- door neighbour may be somewhat inconvenienced by noise or dust, but, provided you are doing what you reasonably can to keep it under control, you are within your legal rights. In six months’ time, when your neighbour is having major work done, you \ will be expected to show a similar understanding.Each case is decided on its own facts, but any of the following criteria\ may be relevant: 1 Locality. In Sturgesv Bridgeman (1879), Thesiger J declared: ‘What would be a nuisance in Belgrave Square would not necessarily be so in Bermondsey .’ No doubt Mr Justice The- siger was glad to live nearer Belgrave Square than Bermondsey, but you can see the common sense of his pronouncement. If you live in an industrial and commercial area with a high density of population, the level of peace and quiet is bound\ to be reduced. Similarly, agricultural activity is to be expected in a rural area and some level of related smell or noise must be endured. Note, however, that locality is relevant only in a claim PA R T 3 THE LAW OF TORT 326 0003 restricted to amenity damage. It is not appropriate where some tangible loss has been caused to the claimant (see St Helen’s Smelting Co.v Tipping (above)). Planning permission is no defence to nuisance. In Wheeler vSaunders (1996) the defendant had been granted planning permission to expand his pig farm. T\ his resulted in a pervasive unpleasant and intense smell in the neighbourhood. The Court\ of Appeal held that the planning permission only allowed the building and operatio\ n of the farm, not the creation of the nuisance. If you can persuade the court that the planning \ permis- sion was so radical that, in effect, it authorised a change in the nature of the locality, this may be a justification for resulting disruption. In Gillingham Borough Council vMedway Chatham Dock Ltd (1993) the Dock Company was granted planning permission to oper- ate around the clock. What had been a largely quiet and residential area became busy, noisy and dirty due to the constant passage of heavy lorries to and from the dock, but the claimants lost their case because it was held that the planning perm\ ission had changed the character of the area and the issue of reasonableness must be judged by ref- erence to this new character. However, this will only apply in exceptional cases because the court is generally unwilling to acknowledge a character change. Watson and Others v Croft Promo-Sport Ltd (2009, CA) The defendants were granted planning permission to run motor cycle racing on a former airfield, in an essentially rural location. The claimants, whose houses were 300 metres from the race track, complained of the noise. Held: the grant of planning permission does not automatically affect third-party rights to quiet enjoy- ment of land. Here it had in no way changed the nature of the locality and the level of the defendant’s activity was unreasonable. An injunction was issued reducing use to 40 days per year. 2 The timing, level, duration and frequency of the nuisance . Night-time noise is more likely to be actionable than noise during the day. See, for example, Leeman v Montague (1936) on the nocturnal crowing of cockerels. The more substantial the inconvenience to the claimant the less important is lengthy duration or frequency. The court may be prepared to allow the activity to continue subject to reduction of such factors to a reasonable level (see Watson and Others vCroft Promo-Sport Ltd (2009, CA), above). 3 The practicability of preventing the nuisance . In Andreaev Selfridge (1938) the defendant was held liable in nuisance through failure to prove that it had taken reasonable steps to reduce the noise and dust arising from building operations. The law acknowledges that some annoyance to the claimant may be an inevitable consequence of the d\ efendant’s activity. A defendant who can prove that they have taken all reasonable precautions to avoid causing annoyance is rarely liable for intangible, as opposed to tangible, damage. DUTIES OF AN OCCUPIER TO PEOPLE OUTSIDE THE PREMISES 327 15 Tort liability for premises 0003 Moy vStoop (1909) The claimant complained about the noise of children crying in the defendant’s day nursery next door. Held: the noise was an unavoidable consequence of the defendant’s activity. It was not caused by neg- lect by the defendant of the children’s welfare, and therefore the defendant was not liable. 4The defendant’s motive. Most nuisance is caused by unthinking behaviour, but occasion- ally the defendant may actually be trying to cause distress to the claimant. If the claimant can prove such motivation, this may cast new light on the defendant’s behaviour, render- ing potentially reasonable behaviour unreasonable. Hollywood Silver Fox Farm v Emmett (1936) Believing that the presence of the claimant’s farm was inhibiting the sale of building plots on his own land, the defendant carried out intensive shooting operations on his land throughout the silver fox breeding season. He knew that this would disturb the animals and thus cause damage to the claimant’s business. Held:the defendant was liable since his malicious intentions made his behaviour unreasonable. 5The claimant’s sensitivity . The claimant will have to prove that the level of nuisance is higher than that which the average person could reasonably be expected to endure. A sensitive claimant cannot impose a heavier duty on the defendant to acco\ mmodate his unusual need. Robinson v Kilvert (1889) The defendant installed a boiler in his basement. This caused a rise in temperature and a drop in humidity in the claimant’s adjoining basement. Most people would have been pleased, but the claimant complained because the previous conditions were essential for the storage of paper which became dam- aged by the warmer and drier air. Held: the defendant’s behaviour was not a nuisance as warming the premises did not amount to unrea- sonable behaviour. The claimant’s damage arose from the peculiar sensitivity of his goods. However, if the level of interference would be unreasonable to the average claimant, the defen- dant will be liable to one who is sensitive, provided the damage is reasonably foreseeable. McKinnon Industries Ltd v Walker (1951) The escape of noxious fumes from the defendant’s premises caused damage to the claimant’s orchids. Held:the defendant was liable as any plants would have suffered similarly, not just exotic blooms. PA R T 3 THE LAW OF TORT 328 0003 6Public benefit. This will be taken into account to some extent in assessing competing interests and reasonableness. The fact that planning permission exists for the particul\ ar land use may be relevant here. However, if the defendant’s behaviour is found to be unreasonable, the fact that it is of public benefit does not prevent liability, though it may affect the nature of the remedy. Dennis vMinistry of Defence (2003) RAF low-flying training activity caused noise of great severity and frequency over the claimant’s estate. Held: the disturbance amounted to unreasonable interference. However, it was in the public interest that such training flights should continue, so damages must suffice in lieu of an injunction. Reasonable foreseeability The burden of proof is easier for the claimant to discharge in nuisance than in negligen\ ce, since in nuisance the claimant does not need to prove that the defendant failed to take rea- sonable care. The claimant need show only that the type of damage caused was a reasonably foreseeable consequence to a person in the defendant’s position. The state of the defendant’s knowledge is crucial.Defendants will naturally be expected to anticipate the consequences of \ their own actions. Where the nuisance arises from a state of affairs created by a third party like a pre- vious occupant or a trespasser, a defendant will not be liable unless they should reasonably have known about this and of the risk to the claimant. Sedleigh-Denfield vO’Callaghan (1940, HL) A ditch ran across the boundary of the defendant’s property. The local authority installed a culvert (drainage pipe) in the ditch near the point where the ditch left the defendant’s land. The end of the pipe extended into the defendant’s property and a grid should have been placed at the other end of the pipe. The workman, however, left it on top of the pipe where it was completely useless. The defendant had not given permission to the local authority which was therefore trespassing when it entered his land. The defendant was aware that there was a danger of flooding if debris blocked the pipe. Usually, the defendant kept the pipe clear, but once this job was overlooked, rubbish built up and caused a flood on the claimant’s property during heavy rain. Held: the defendant was liable in private nuisance as it had failed to take reasonably practicable steps to remove a known hazard from the land. It would have been very easy to put the grid into place and the flood would not have occurred. The courts have extended this principle to cover entirely naturally occurring events. DUTIES OF AN OCCUPIER TO PEOPLE OUTSIDE THE PREMISES 329 15 Tort liability for premises 0003 Leakey vThe National Trust (1980, CA) The claimant owned a house at the foot of a steep hill in the care of the National Trust, which had been alerted by him to evidence of minor landslips which occurred due to drought. A major slippage then occurred and large quantities of debris landed in the claimant’s garden. Held: as the Trust knew of the risk of such damage, it would be liable as it had failed to take reasonable steps to prevent landslips. Who may sue in private nuisance? Private nuisance protects the right to peaceable enjoyment of land and has traditionally been seen in law as the exclusive right of the owner-occupier, or tenant, since it pertains to the capital or amenity value of the land. Other residents do not have the right to sue in pri- vate nuisance. Malone v Laskey (1907) The claimant and her husband lived in premises owned by the defendant, her husband’s employer, but without a tenancy. The claimant was hit on the head by a lavatory cistern which became detached from its fixings due to the vibration of machinery on adjoining premises, and she claimed against the defen- dant in private nuisance. Held: her claim could not succeed, because she was ‘a mere licensee’ and had no proprietary rights over the premises. The principle was upheld by the House of Lords in Hunter v Canary Wharf (1997), which dis- approved the Court of Appeal’s decision in Khorasandjianv Bush (1993) to extend the right to sue to members of the occupier’s family. Who may be sued? The current occupier is the most usual defendant, but the party who caused the n\ uisance (for example, a previous occupant) may be sued. A landlord who lets premises knowing that their use will create a nuisance is also liable. Thus, in Tetleyv Chitty (1986) a landlord, who had let some premises for development as a go-karting track, was liable for the resulting noise nuisance. However, to be actionable the nuisance must be an inevitable result of the letting and must relate to the land use by the tenant. Hussain and Livingstone vLancaster City Council (1999, CA) The claimants were victims of a sustained campaign of racial harassment by a number of people includ- ing the defendant’s tenants. The council had statutory powers under the Housing Act 1985 to evict tenants and other occupants causing nuisance or annoyance to neighbours. PA R T 3THE LAW OF TORT 330 0003 Held:the defendant was not liable in nuisance. This was restricted to the use of land by the defendant which interfered with the claimants’ land. The harassment complained of fell outside the tort of nui- sance; the campaign was not the result of the letting. The defence of prescription Defendants will not be liable if they can prove that they have been causing the nuisance for 20 years without anybody taking action against them. It is not enough to show tha\ t an activity has been carried on for that length of time; the court will hav\ e to be satisfied that it caused a nuisance to the claimant or his predecessors for the whole of that time for pre- scription to be a defence. Sturges vBridgeman (1879) A confectioner had a workshop in premises adjacent to the claimant dentist. Noisy equipment in the work- shop had been in use for over 20 years, but caused no problems until the dentist built a new consulting room in his garden, near the boundary wall where the noise was highly audible. He sued the confectioner. Held:the defendant was liable in private nuisance since the noise level was unreasonable. Prescription was not an appropriate defence as it was the activity rather than the nuisance which had continued for 20 years. It was irrelevant that the claimant had moved into the noisier environment. Public nuisance The scope of liability The tort of public nuisance resembles private nuisance as it may arise from similar situations, including the escape of noise, smells, dust and vibration. However, the scope of public nuis- ance is wider, covering any activity which unreasonably interferes with the comfort and convenience of the public. This includes the obstruction of highways or \ waterways. Behav- iour giving rise to a public nuisance always involves criminal behaviour\ . Today there are a large number of statutory offences to protect public health, covering pollution of all kinds and regulating businesses involved in the preparation and marketing of food. Until the twentieth century, these activities were prosecuted under the umbrella of public nuisance. Potential defendants Action may be taken against the person who created the nuisance, or the current occupier of land from which a nuisance emanates. Potential claimants Tort action may be taken to protect the public at large and an injunction may be sought, by the Attorney-General or by a local authority. Individuals are entitled to take action only where they have suffered special damage greater than that suffered by the public at large. DUTIES OF AN OCCUPIER TO PEOPLE OUTSIDE THE PREMISES 331 15 Tort liability for premises 0003 Notice that, unlike private nuisance, claimants are not required to have any occupational rights to the land where they suffer damage, to entitle them to sue. Sufficient geographical proximity to the nuisance is all that is required. Mint vGood (1950, CA) A garden wall belonging to the defendant collapsed onto the pavement and injured the claimant. Held: the claimant should succeed in his claim. Blockage of the pavement was a public nuisance: any members of the public passing by would be inc onvenienced. The claimant who was injured clearly physically suffered special harm. Proof of liability To establish public nuisance, the following points must be satisfied: 1The nuisance must be capable of affecting ‘the public’. The nuisance must potentially affect too many people to make it reasonable to expect any one person to take action to stop it. 2 The level of inconvenience must be unreasonable . Similar criteria are relevant here as apply to private nuisance. 3 Damage must result . This includes physical damage to the person, land or goods, as well as\ amenity damage. Pure economic loss may also be actionable. Thus, in Lyons & Co. v Gul- liver (1914) the defendants were held liable for causing loss of custom to the claimant’s tea shop, access to which was blocked by long queues outside the defendants’\ theatre. 4 The damage must be reasonably foreseeable to the defendant . As in private nuisance, the claimant is not required to prove any failure to take reasonable care. Defendants may avoid liability by showing that they took all reasonably practicable precautions to prevent reasonably foreseeable damage. A very high standard is required where the nuisance occurs on the highway. Dollman v Hillman (1941) The claimant was awarded damages for injuries caused by slipping on a piece of fat, which had been dropped on the pavement outside the defendant’s butcher’s shop. The rule in Rylands v Fletcher This principle is derived from the case of Rylands vFletcher (1865) concerning a mill owner who employed contractors to construct a reservoir on his land. In the course of the con- struction disused mine shafts were uncovered and negligently sealed. When the reservoir PA R T 3 THE LAW OF TORT 332 0003 DUTIES OF AN OCCUPIER TO PEOPLE OUTSIDE THE PREMISES 333 15 Tort liability for premises was filled, water leaked through the shafts and flooded an adjoining mine owned by the claimant, causing considerable loss and business interruption. It was he\ ld that the defendant was strictly liable for this damage, because ‘ a person who for his own purposes, brings onto his land and collects or keeps there anything likely to do mischief if i\ t escapes, must keep it in at his peril and if he does not do so is prima facie liable for all t\ he damage which is the natural consequence of its escape ’ (Blackburn J). This was affirmed on appeal by the House of Lords, with qualification that the defendant’s use of land must be ‘ non-natural’. The proof points of the rule 1‘Things’ within the rule . Potentially this covers anything likely to do harm on escape. Something perfectly safe if contained can do much damage if it escapes. \ There are innu- merable examples, e.g. gas ( Batcheller vTunbridge Wells Gas Company (1901)), electricity ( National Telephone Co v Baker (1893)), as well as some rather bizarre cases such as Hale v Jennings (1938): escaping chair-o-plane demolishing an adjacent shooting gallery at a fair, and Crowhurst vAmersham Burial Board (1878): yew branches falling from the defendant’s graveyard and poisoning the claimant’s cattle in the field next door. 2 Accumulation. The defendant must have brought the thing onto the land, it must not have got there in the course of nature. 3 Non-natural use of land . This has gradually been defined more and more strictly by the courts. As early as 1913 it was held that it must be more than unusual: ‘it must be some special use bringing with it increased danger to others and must not be \ the ordinary use of land or such a use as is proper for the general benefit of the commun\ ity’ (Lord Moul- ton in Rickards vLothian ). In Read vLyons (1947) which concerned storage of explosives at a munitions factory in wartime, Lord Porter held that ‘ all the circumstances of time and place and the practices of mankind must be taken into consideration, so \ that what might be regarded as dangerous and non-natural may vary according to the circumstances ’. Unsurprisingly, Rylands vFletcher liability was not held to exist. In Transco PLC v Stockport Corporation (2003) Lord Nicholls held the defendant’s use of land must be ‘extraordinary and exceptional’ to give rise to liability, and Lord Hoffmann suggested that only those risks against which it would be unreasonable to expect the claimant to be insured against should be covered. 4 Escape. The thing must escape from a place occupied by the defendant to a place outside their occupation and control. The defendant need have no proprietary interest over land from which escape takes place; it is their controlof the thing which is crucial. Escape may be onto the highway, so the claimant also need not have a proprietary interest in land. At first, Rylands vFletcher was treated by the courts as a new legal principle governing a vaguely defined category of what at the time were regarded as exceptional and dangerous activities. Large numbers of cases concerned escapes from industrial installations. In the nineteenth and twentieth centuries these were more prevalent and successful litigation commonplace, so initially there were many successful claims. Today we would regard such use of land as commonplace and such activities as generally safe. 0003 The strict liability principle has been judicially undermined and liabil\ ity today is based on reasonable foreseeability as it is in nuisance ( Cambridge Water Co vEastern Counties Leather (1994)). A whole range of defences has also developed, such as statutory authorit\ y which gives protection to some public bodies from liability, provided no negligence is involved. Claimants who succeed do so because they can prove nuisance or negligence and today Rylands vFletcher is generally regarded merely as ‘ a sub-species of nuisance’ (Lord Bingham in Transco plc vStockport Metropolitan Council (2003)). Some judges have sug- gested that it should be abolished altogether, but the House of Lords in the Cambridge Water and Transco cases did not approve of such a move. Remedies In claims in public and private nuisance and Rylandsv Fletcher , the remedies are damages and/or an injunction. The impact of the Human Rights Act 1998 The courts have acknowledged the relevance of the Human Rights Act 1998 in some nui- sance cases. PA R T 3 THE LAW OF TORT 334 Total UK Ltd liable for Buncefield explosion In December 2005 a huge explosion and resulting fire occurred at an oil storage facility in Hertford- shire controlled by Total UK. Staff at the facility failed to notice that a gauge had stuck, causing a tank to over fill. The back-up switch also failed and the facility was flooded with oil. The vapour ignited and there was a massive explosion (2.4 on the Richter scale and audible across the English Channel). Forty people were injured and the blast destroyed oi l storage facilities belonging to other parties on the site, as well as considerably damaging businesses and property within a radius of seven miles. In Colour Quest and Others v Total Downstream UK plc and Others (2009) Mr Justice Steel held that Total UK was liable in negligence to Colour Quest for its failure to employ appropriate procedures to prevent tank overflow, despite the fact that this was a recurring problem. It was liable in Rylandsv Fletcher to persons who had suffered damage outside the site and in nuisance to those on and outside the site. Total is expected to have to pay £750 million in damages to the other oil companies on the site and hundreds of local businesses and householders. (Note: although Rylandsv Fletcher liability was found to exist, there was also evidence of negligence so the issue of strict liability did not arise.) In the News 0003 McKenna vBritish Aluminium Ltd (2002) The claimants were all children from over 30 families who claimed nuisance by British Aluminium in permitting a factory to emit fumes and noise which had caused them mental distress and physical harm. They argued that this breached their rights un der Article 8 (right to respect for privacy and family life) and under Protocol 1, Article 1 (right to peaceful enjoyment of possessions) of the ECHR. British Aluminium argued that the claims should be struck out as none of the children had the neces- sary proprietary interest in the land to enable them to sue in nuisance. Held: the action should not be struck out since there were strong arguments supporting the claim. Potentially the law of nuisance was in conflict with the Convention rights and arguably needed to be developed compatibly. Otherwise, a person living in his home where enjoyment of property was inter- fered with would be unable to protect his Convention rights unless he also had proprietary rights. The matter could only be decided at trial. Note that the McKennacase does not in itself change the law of nuisance. That could only happen after a full trial decision, which might well result in appeal to the House of Lords. No such proceedings seem to have taken place. However, this case does indicate the potential for development in the light of the Human Rights Act 1998. In Dennis v Ministry of Defence (2003) (above, at page 329) the judge held that a decla- ration that the Ministry of Defence had breached Article 8 and Protocol 1 would have been in order, had the nuisance action not provided an appropriate remedy. An action under the Human Rights Act 1998, therefore, may provide an alternative where a public authority is the defendant. Had the Hussains ( Hussain and Livingstonev Lan- caster City Council (1999, CA) (above, at page 330) been able to sue the council for breach of Article 8, they might well have been successful, but sadly their clai\ m arose before the Act was implemented. Defences in tort Even if a claimant can satisfy the court that the defendant’s conduct does amount to a tort, the defendant may be able to prove that there are mitigating circumstances which remove, or at least reduce, liability. The following defences may be relevant to any of the torts cov- ered in this book. 1 Consent If the claimant expressly or impliedly consented to the defendant’s behaviour, the defendant is not liable. The claimant must make the decision with full knowledge o\ f the likely outcome and be free to make a choice. DEFENCES IN TORT 335 15 Tort liability for premises 0003 Smith vBaker (1891, HL) The claimant quarryman was injured by rocks falling from overhead machinery. He had protested about the danger, but continued to work after being ordered to do so and being told that he could leave if he was unhappy with his working conditions. Held: the claimant had not consented to the risk of injury as, although he knew of the danger, he had never freely consented to the risk. He had no real choice in the matter. Rescue cases If the claimant is injured rescuing somebody from a hazard created by the negligence of the defendant, the claimant only consents to the risk, if: 1They had no legal or moral duty to intervene . The nature of the claimant’s job may impose a legal duty to assist in an emergency: firefighters and the police are obvious examples; a schoolteacher supervising children on an outing would also qualify as they have a legal duty to act as a responsible parent to their pupils. Most people seeing a third party in danger could be said to be under a moral duty to take some action. 2 Their method of intervention was unreasonable in the circumstances . The greater the danger and the more able the rescuer, the more reasonable it will be to take risks. Nobody expects a non-swimmer to plunge into deep water to rescue someone in distress, as one potential drowning may turn into two certain ones. However, a non-swimmer may have a moral duty at least to throw a lifebelt and summon assistance. Compare the next two cases to see the difference between reasonable and unreasonable risk. Haynes v Harwood (1935, CA) A policeman was injured when attempting to stop bolting horses which were pulling a van in a busy street. Held: the defendant was liable for the policeman’s injuries; the policeman had not consented to the risk as he had a legal duty to prevent danger to the public and his intervention was a natural and foreseeable result of the defendant’s negligence in failing to secure the horses. Sylvester vChapman (1935) The claimant, while visiting a travelling menagerie, attempted to extinguish a cigarette end which he noticed was smouldering near straw bales beside a leopard’s cage. To do so he climbed a safety barrier. The leopard, displeased by the disturbance, reached out between the bars of the cage and clawed him. Held: the claimant had consented to the risk. While he had a moral duty to alert the staff to the fire risk, by putting himself unnecessarily in danger he had acted unreasonably. PA R T 3 THE LAW OF TORT 336 0003 DEFENCES IN TORT 337 Consent to negligence It is not generally in the public interest to allow defendants to avoid liability for their careless behaviour. Where claimants have clearly acted recklessly, though, without regard for their own safety, or have willingly participated in the careless behaviour, the defendant may be provided with a defence. ICI vShatwell (1964, HL) The claimant shot firer was injured when helping to carry out a controlled explosion. The claimant was experienced in the work and had encouraged the team leader to use inappropriate equipment. Held: the claimant had consented to the risk of injury by acting recklessly in regard to his own safety. Legal area1957 Act1984 ActPublic nuisancePrivate nuisance Potential defendantPerson(s) in control of premisesPerson(s) in control of premisesOwner/tenant/ creator of nuisanceOwner/tenant/ creator of nuisance Potential claimantLawful entrantsTrespassersAny member of public suffering special damageOccupiers of adjacent premises Where damage occurredOn defendant’s premisesOn defendant’s premisesAnywhere inside or outside defendant’s premisesOn premises occupied by claimant Cause of damageState of premisesState of premisesState of premises and activities taking place there or obstructing highwayState of premises and activities taking place there Nature of liabilityFailure to take resonable care of visitor’s safetyFailure to take resonable care to avoid causing injury to trespassersFailure reasonably to foresee damage to claimantFailure reasonably to foresee damage to claimant Type of damagePersonal injuries, damage to goodsPersonal injuries onlyPersonal injuries, damage to property, interference with enjoyment of premisesDamage to property, interference with enjoyment of premises, possibly personal injuries Figure 15.1 The occupier’s civil legal liability for premises 15 Tort liability for premises 0003 Ratcliff vHarper Adams College (1998, CA) A student, who was paralysed after breaking his neck when trespassing in his college swimming pool outside opening hours, was deemed to have consented to the risk of diving into shallow water. (See above at page 324.) 2 Contributory negligence Under the Law Reform (Contributory Negligence) Act 1945, the court may\ reduce the dam- ages payable by the defendant if the claimant has failed to take reasonable care for their own safetyand so aggravated the damage suffered. In cases where failure to wear a seat belt has aggravated injuries to a claimant it is usual to reduce damages by 25% ( Froomv Butcher (1975, CA)). The defence may succeed where consent fails and is applicable to any tort not based on intentional behaviour, e.g. deceit. Sayers v Harlow UDC (1958, CA) The claimant visited the defendant’s public lavatory and was trapped when the lock jammed. After trying to attract attention for 15 minutes, she attempted to climb out over the partition. Unfortunately, she fell when the toilet roll, which she was using as a foothold, rotated and threw her to the floor. Held: the claimant’s escape attempt was reasonable, therefore, she had not consented to the risk of injury. Her choice of foothold, however, involved an unreasonable risk and so the damages payable by the defendant would be reduced by one-quarter. Stone v Ta f f e (1974, CA) The claimant’s husband was killed when, after a party hosted by the Royal and Antediluvian Order of Buffaloes, he catapulted himself down the unlit staircase in the defendant’s pub. The claimant’s wife and a friend who had preceded him had completed the descent safely. Held: damages should be reduced by 50% to take account of the lack of care taken by the deceased for his own safety. Badger vMinistry of Defence (2006) Mr Badger died from cancer mainly caused by the negligence of the defendant in exposing him to asbestos, but B also was a long-term smoker which was a contributory factor. Held: his damages must be reduced by 25% to reflect his contributory negligence for his death since, by the 1970s (when health warnings already appeared on cigarette packets), he was medically advised to give up smoking and received further warnings from doctors in 1991, 1992 and 1995. PA R T 3 THE LAW OF TORT 338 0003 It may also apply where the claimant harms themselves intentionally. In Reevesv Metropoli- tan Police Commissioner (2000), the police were liable for negligently allowing a suicide to occur and damages claimed by the deceased’s next of kin were reduced by 50%. 3 Statutory authority Public authorities are empowered by statute to carry out specific duties and powers and while this is no defence to negligence or breach of statutory duty, the statute may provide a defence to nuisance or Rylands vFletcher liability, e.g. the Civil Aviation Act 1993, s 76 states no action may be brought in nuisance in relation to low flying aircraft, as long as this is reasonable in relation to weather conditions and all the other circumstances of the flight. A defence of statutory authority may be challenged under the Human Right\ s Act 1998 on the grounds that the provision is incompatible with the ECHR with a further claim to the ECtHR if the action fails in the domestic courts. Vicarious liability Usually we are liable only for our own torts, but in certain situations we may be sue\ d for the torts of others for whom we are said to be vicariouslyliable. Vicarious liability most commonly arises in relation to employers, with regard to the behaviour of their employees, but it also extends to the agency relationship. The difference between employees and independent contractors An employer is liable for the torts of its own employees but never for those of independ- ent contractors. It is therefore important to be able to distinguish the two. When you run a business you will employ your own staff but may need to bring in others to carry out some essential services. For example, if you run a shop you\ may employ sales assistants, while window cleaning is done by an outside firm. You are vicariously liable for any torts committed by the shop assistants because of the employer–em\ ployee relationship arising from the contract of service . Such a relationship does not exist between you and the window cleaner, who is your independent contractor and works for you under a contract for services . The window cleaner is an accessory to your business rather than integrated within it. This distinction may be difficult to see in big workplaces, where services like catering and cleaning may be contracted out to other firms. The distinction between t\ he staff of the con- tractor and the ‘real employees’ is not immediately apparent; so determining those employees for whose actions the owner of the workplace is vicariously li\ able may be prob- lematic. The terms of the contract provide crucial evidence of the intention of the parties. Where work is contracted out, the contractor generally remains the employer of the relevant employee. A party who provides plant, tools and materials and undertakes financial risks in VICARIOUS LIABILITY 339 15 Tort liability for premises 0003 carrying out a job will be deemed to be an independent contractor, even though the employer may exercise considerable control over the contractor’s business enterprise. Ready Mixed Concrete vMinistry of Pensions and National Insurance (1968) Drivers employed by Ready Mixed Concrete had to buy their own vehicles from a supplier nominated by Ready Mixed and paint them in Ready Mixed’s livery. They could not use the vehicles for their own purposes, and had to make them available whenever required by Ready Mixed, with a substitute driver if necessary. Held: the drivers were independent contractors. Despite the high degree of control by Ready Mixed, the financial stake that they acquired by the purchase of their own vehicles and the fact that they could get a substitute driver to perform their contractual duties indicated that the parties intended the contract to be for services. The extent of the vicarious liability As long as the activity which gave rise to the tort was sufficiently closely connected with car- rying out designated contractual duties, the employer is liable, even if\ the employee was negligent or disobeying orders concerning the execution of those duties. This may seem hard on the employer, but the law takes the view that employers are obliged to supervise their workforce properly. Bayley v Manchester, Sheffield and Lincolnshire Railway (1873) Mistakenly believing that Mr Bayley had boarded the wrong train, the defendant’s porter hauled him from it when it had begun to move away, causing him injuries. Held: the porter had been carrying out his duties, although in a bungling and incompetent manner, and the railway company was vicariously liable. Century Insurance vNorthern Irish Road Transport Board (1949, HL) While discharging petrol from a tanker the defendant’s employee was smoking, which was forbidden under work rules. An explosion causing serious damage resulted. Held: the defendant employer was vicariously liable. The employee was carrying out his duties in an unauthorised way. If, however, the employee’s behaviour is not sufficiently coincidental to his job, the employer is not vicariously liable. In Beard vLondon Omnibus Co. (1900) the company was not liable for injuries caused to Mr Beard when a bus conductor tried his hand at reversing the bus at the terminus, since he was not employed to drive the bus. PA R T 3 THE LAW OF TORT 340 0003 Warren vHenlys Garage Ltd (1948) A pump attendant challenged Mr Warren, believing that he intended to drive off without paying for his petrol. Mr Warren then said he would report him to the manager for insolence; the attendant, in response, hit him on the chin. Held: the employer was not vicariously liable; the attendant had not been acting to protect his employer’s interest when he hit Mr Warren, but to avenge himself and therefore was acting outside the scope of his employment. The application of the doctrine of vicarious liability is increasingly dictated by policy. Where the court believes that the employer should be publicly accountable it w\ ill be generous when interpreting the issue of close connection, even where on the face of things the employee has acted only to further his own interests. This is well illustrated by the next case. Lister vHesley Hall Ltd (2001, HL) A warden of a care home sexually abused boys for whom he was responsible. Held: the employer was vicariously liable because there was a very close connection between the acts of abuse by the warden and the work he was employed to do. By abusing the boys he was failing in the very obligation he had contracted to fulfil which was ensuring the care and safety of the children. A contract may specifically forbid certain wilful behaviour and indicate\ that the employer is vicariously liable for such occurrences even though there may be an element of personal revenge. In Gravil v Carroll and Redruth Rugby Club (2008, CA), G claimed damages against the rugby club in trespass to the person after he sustained a broken cheekbone from a punch by C as a scrum broke up when the whistle had blown for close of play. The Court of Appeal held that the rugby club was liable for the C’s behaviour: it was sufficiently closely connected to his employment since incidents of this kind were commonplace in such circumstances and the terms of his contract made it clear that such behaviour was not auth\ orised. The House of Lords recently affirmed that an employer may be liable for an employee’s breach of statutory duty as well as common law torts. Majrowski v Guy’s & St Thomas’ NHS Trust (2006, HL) M claimed that his employer was vicariously liable for the bullying and intimidating conduct of his manager, which amounted to a breach of the Protection from Harassment Act 1997. She was rude and abusive in front of his colleagues and subjected him to excessive criticism, setting him unrealistic per- formance targets and threatening him with disciplinary behaviour if he failed to meet them. He alleged that this was motivated by homophobia. Held: the NHS trust was vicariously liable. It was irrelevant that the manager’s conduct was a breach of statutory duty, as vicarious liability was not restricted to common law torts. Nothing in the terms nor the practical effect of the Act indicated an intention by Parliament to exclude the effect of the doctrine of vicarious liability. By s 3, Parliament had created a new cause of action, a new civil wrong, and damages were one of the remedies for that wrong. VICARIOUS LIABILITY 341 15 Tort liability for premises 0003 PA R T 3THE LAW OF TORT Liability for independent contractors Although a person who employs an independent contractor is never vicariously liable for the contractor’s torts, there are circumstances where the employer may be held personallyliable for damage resulting from the contractor’s work. Such liability arises where a non-delegable legal duty is imposed: the law attaches particular responsibility to the employer, which cannot be transferred to anybody else. Examples of situations where the employer will be personally liable are as follows: 1 Public nuisance affecting the highway. If scaffolding used by building contractors work- ing on your premises causes an obstruction, you will be personally liable. 2 Injury to a servant . Employers have a non-delegable duty to provide a safe working envi- ronment for their servants (employees, etc.) and will be personally lia\ ble for injuries caused by contractors’ work. This is covered in more detail in Chapter 16. 3 Hospitals have a non-delegable duty to ensure that proper care is taken \ of patients ( Av Ministry of Defence (2004)) and so will be personally liable for the torts caused by med-\ ical staff of all kinds even if no contract of service exists to give rise to vic\ arious liability. Tort liability and premises Negligence: damage to a person or their property caused by some activity taking place on the defen- dant’s premises. Occupiers’ Liability Acts of 1957 and 1984: defective structure or condition of the defendant’s premises, which adversely affects ‘visitors’ (OLA 1957) and trespassers (OLA 1984). Public and private nuisance: covers interference emanating from the defendant’s premises and inter- fering unreasonably with the right of peaceful enjoyment of occupiers of nearby premises/highway. Please see Figure 15.1 (above at page 000) for a detailed summary of the scope of the OLA 1957 and 1984 and public and private nuisance. Defences Consent: express/implied consent by the claimant to the defendant’s behaviour may be an effective defence. Contributory negligence: damages may be re- duced proportionately in relation to the claimant’s failure to take care for their own safety. Vicarious liability An employer is liable for the torts of those working for him or her under a contract of service, provided that the tortious behaviour of the employee is suf- ficiently closely connected to the employee’s work. Personal liability for independent contractors Exists if the employer owes a non-delegable duty to the claimant. Chapter summary How does the doctrine of vicarious liability benefit the claimant? Suggested solutions can be found in Appendix 2. Worth thinking about? 342 0003 TAKE A CLOSER LOOK 343 Amenity damage:nuisance liability may arise as a result of intangible interference with enjoyment of the premises, such as noise or smell. Contract for services: a contract between a party and an independent contractor. Contract of service: a contract between employer and employee. Employee: part- or full-time waged/salaried worker whose job description is defined by a contract of service. Independent contractor: self-employed person providing services to a business/individual. Occupier (OLA 1957/1984): the person who is in control of the premises at the relevant time. Occupier (private nuisance): the owner/tenant of the premises affected by the nuisance. Premises: under the OLA 1957 any fixed or move- able structure, widely construed by the courts. Prescription: the right to continue to commit a nuisance which has already persisted for 20 years. Vicarious liability: liability for the tort of another person. Visitor: a person entering premises with the per- mission of the occupier under the OLA 1957. Key terms 1 What is the likely tort liability of Red Leicester in the following circumstances? (a) Mrs Double Gloucester is hit by a can of paint dropped from the top of a ladder into the street by Cheddar, who was up the ladder painting Red’s shop front. (b) Stilton slipped on a spillage while climbing the stairs in the shop. A notice at the bottom of the stairs said ‘Take care: wet floor, please use other stairs’. (c) Lymeswold, aged seven, went through a door in the shop marked ‘Private’ and cut himself on some broken glass in a storeroom. (d) Sage Derby, Red’s next-door neighbour, has discovered wet rot in his premises caused by condensation from an unlined boiler flue on Red’s premises. 2 What defence may be open to Cheshire, whose car collided with Wensleydale who was riding his motor bike and not wearing a crash helmet? 3 What is the difference between an employer’s liability for the torts of employees and for those of independent contractors? Answers to all quizzes can be found in Appendix 2. Quiz 15 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Take a closer look 15 Tort liability for premises 0003 344 Healing plc recently opened an anti-stress clinic on the edge of the village of Much-Dozing-in-the-Dell. Farmer Oswald’s arable farm is immediately adja- cent to the clinic’s premises, which includes a swimming pool. For three weeks during the summer, Grinders Farming Contractors Ltd are employed by Oswald to bring in the harvest. The work involves daily use of huge machines. The noise of the machinery upsets the clinic’s patients,many of whom cancel expensive courses of treat- ment. The dust and dirt from the harvesting process forms a thick film on the swimming pool making it unusable, and clogs the filter causing it to break down and require expensive repairs. Ned, one of Grinders’ employees, drops a cigarette end which starts a fire in the field. It spreads into the clinic’s grounds and destroys a summer house. Advise Healing plc about its possible rights in tort. Assignment 14 PA R T 3 THE LAW OF TORT Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Ogwo v Taylor [1987] AC 431 Ratcliff v Harper Adams College [1999] 1 WLR 670 Hunter v Canary Wharf [1997] 2 All ER 426 Lister v Hesley Hall Ltd [2001] 2 All ER 769 Take a closer look (Continued from page 343) Please go to: www.river-swimming.co.uk/occu.htm for some interesting comment on Tomlinsonv Congleton Borough Council (2003, HL) (above, page 324) and some other occupiers’ liability cases concerning outdoor activity. Web activity 0003 ASSIGNMENT 14 345 15 Tort liability for premises Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 PA R T 4 Elements of employment law Photo: Wayne Eastep/Photographers Choice/Getty Images 0003 chapter 16 RIGHTS AT WORK: the contract of employment and health and safety at work 0003 Introduction The employer and employee relationship is primarily based on the contract of employment. To some extent this is governed by the common law of contract described earlier in this book, but this has been considerably augmented\ by statu- tory regulation. This has restricted employers’ traditional freedoms to select, hire and fire staff at will, and to contract on their own terms. This chapter focuses on the formation and terms of the employment contra\ ct, and explains employers’ liability in tort and criminal law for the he\ alth and safety of their employees. Learning Objectives When you have studied this chapter you should be able to: Distinguish between an employee and an independent contractor Be aware of the main terms in an employment contract Understand the common law contractual duties of employer/employee Grasp the extent of the employer’s civil liability for industrial illness and injury Appreciate the role of the Health and Safety at Work etc. Act in promoting the welfare of employees. Photo: John Binch 0003 The employment contract: a contract of service Employees and independent contractors A business may be served both by its own employees under a contract of service and by independent contractors under a contract for services . The distinction is impor- tant, since it determines the employer’s liability in tort for harm caused to third parties (see Chapter 15). An employer has greater legal obligations to an employee than to an inde- pendent contractor. These include liability for paying National Insurance contributions an\ d sick pay, and responsibility for deduction of income tax. An employee may also enjoy st\ atu- tory protection against unfair dismissal and redundancy. References to ‘employees’ in this chapter are to staff with a contract of service with the relevant employer. The form of the contract of service The validity of a contract is not dependent on its form. It can arise qu\ ite informally by word of mouth; writing is not essential to the existence of the contract. How\ ever, s 1 of the Employment Rights Act 1996 (ERA 1996) obliges an employer to provide an employee with a written statement of the key terms of the employee’s contract within two months of start- ing work. This statement must include: 1 the parties’ names; 2 the date when the employee started the job; 3 the date on which the employee’s continuous employment began. This may not be the same as 2 above if, for example, the employee was already employed by the same employer but in a different post. The length of continuous employment is crucial to rights relating to unfair dismissal and redundancy, which are discussed below; 4 a note of any disciplinary and grievance procedures; 5 full particulars of: (a) pay entitlement; (b) hours of work; (c) any holiday entitlement and pay; (d) any sick leave and pay entitlement; (e) any pension rights (unless these are controlled by a statute which itself ensures notification); (f) length of notice required to be given to and by the employee; (g) the title of the employee’s job and a brief description of what it involves; (h) if the job is not intended to continue indefinitely, the period for which it is expected to last, or the date it is intended to end if it is for a fixed term; PA R T 4 ELEMENTS OF EMPLOYMENT LAW 350 0003 (i) the place(s) where the employee will be required to work (employees required towork outside the UK for more than one month must be told how long this will be for, what currency they will be paid in, any entitlement to additional benefits and an\ y terms relating to their return to the UK); (j) any collective agreement directly affecting the job. Failure to provide this statement does not invalidate the contract. It is merely intended to provide employees with sufficient written evidence of some of the conditions under which they are employed to enable them to enforce their statutory rights. The statement does not represent all the terms of the contract, which are described below. Sources of the terms of the employment contract The terms of the contract will not generally be found in one written doc\ ument since they may be both express and implied and may be traced to a number of sources. Express terms are stated in any written contract of employment, but are also to be found in the written statutory information described above. They may also cons\ ist of promises made by word of mouth prior to acceptance. The court may imply a term from any of the following sources: custom and practice; works and staff rules; collective agreements; statute; common law rights and duties of employers and employees. Custom and practice Relevant business practices acceptable nationally, locally or in the particular trade or work- place may be implied as terms of the contract. To be enforceable they must be reasonable, certain and not contrary to law. For example, in Lancashire, weaving factories employers customarily made deductions from pay for poor work. This was held to be a term of the contract (Sagar vH. Ridehalgh & Son Ltd (1930, CA)). This source of terms has diminished in importance with the increased formalisation of the employment contract. In the event of conflict with the written contractu\ al terms, the written terms prevail. Works and staff rules While not necessarily terms of the contract, failure to obey works and staff rules is likely to be treated as evidence of failure to obey reasonable orders. If the rule does not have the status of a contractual term, this is advantageous to the employer, since a rule may be intro- duced and varied at will without the consent which would be required from the employee to make a contractual term or variation binding. Policy considerations m\ ay influence judicial decisions on such issues. THE EMPLOYMENT CONTRACT: A CONTRACT OF SERVICE 351 16 Rights at work: the contract of employment and health and safety at work 0003 Collective agreements The terms of a collective agreement between union and employer may expressly or impliedly form part of a contract of employment. With the decrease of union recognition in recent years, only a small minority of workers’ contracts are likely to be influenced by such agreements . Statute Legislation increasingly restricts the freedom of employers to impose the terms of their choice on employees. For example, the Working Time Regulations 1998 (implementing the Working Time Directive) impose limits on the hours which an employee can be asked to work and include requirements for minimum rest breaks and annual paid holidays. Terms implied at common law The common law implies certain terms into contracts of employment which \ impose duties on both employer and employee. For example, the common law requires employees: 1 to do their job with reasonable care and skill; 2 to obey all reasonable orders; 3 to act in good faith towards the employer. Each of these duties is implied in the contract. They are discussed in detail below. The common law duties of the employee The duty to work with reasonable care and skill Essentially this means that an employee must not be negligent. What is a\ reasonable stan- dard depends on the status of the employee within the organisation and the \ level of qualification, skill and experience held by the employee. Grossly negligent performance may entitle an employer summarily to dismiss the employee. The duty to obey reasonable orders An order is usually treated as reasonable as long as it does not require the employee to do something outside their job description, since under the terms of the co\ ntract the employee has expressly or impliedly agreed to do anything necessarily incidental to performing the job. In UK Atomic Energy Authority vClaydon (1974) the employment contract stated that Clay- don could be asked to work in any base in the UK. It was held that by refusing a transfer he had failed to obey a reasonable order. An order is not reasonable if its performance is likely to endanger the personal safety o\ r liberty of the employee. The employee must be able to show that imminent danger will result from carrying out the order. Compare the following two cases. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 352 0003 Ottoman Bank vChakarian (1930) The defendant was an Armenian refugee who had escaped from Turkey where he was under sentence of death. Held: in the circumstances it was not reasonable to expect him to accept a posting in Turkey. Walmesley v UDEC(1972) Walmesley was ordered to accept a transfer to Ireland, which he refused because he was frightened of being harmed by the IRA. Held : he was acting in breach of his contract since he was unable to prove any imminent and specific threat of harm. An employee cannot be ordered to break the law. Morrish vHenlys ( Folkestone) Ltd (1973) An employee who had refused to falsify the company’s accounts was held not to be acting in breach of contract. In determining what is reasonable, current standards of good industrial relations practice are taken into account. An employee cannot choose how far to perform an employer’s reasonable orders. Some forms of industrial action, short of going on strike, may entitle the em\ ployer to dock pay for part performance. The employees must receive prior notification of the employer’s refusal to accept part performance. In Wiluszynski vLondon Borough of Tower Hamlets (1988, CA) it was held that council employees who refused to answer councillors’ enquiries could legally be deprived of all their earnings for the five weeks that this action continued, even though they were carrying out all other aspects of their work. The employees had received specific and prior notice of the consequences of their action. The duty to act in good faith Employees must act with complete honesty towards their employers when carrying out their contractual duties. The motivation of employees is irrelevant to their liability. Dalton v Burtons Gold Medal Biscuit Co. Ltd (1974) Dalton falsified a clocking-in card to benefit another employee. Held: he had breached his duty of good faith by cheating his employer. It was irrelevant that he obtained no personal benefit from the dishonest action. THE EMPLOYMENT CONTRACT: A CONTRACT OF SERVICE 353 16 Rights at work: the contract of employment and health and safety at work 0003 The duty to act in good faith may be divided into three separate obligations: 1Not to act in conflict with the employer’s interests . Employees must not compete with the employer’s business, even if they do so in their spare time. If the contract requires the employee to work for the employer exclusively, doing any paid work for another person is a breach of duty. 2 Not to reveal confidential information . The employee must not reveal confidential infor- mation about the employer’s profits, customers, work systems, products or services. This duty remains enforceable, though to a more limited extent, even after an employee has left the employer’s service. (There is detailed information about breach of confidence by employees in Chapter 25.) 3 To account for all profits . Taking bribes is obviously a gross breach of duty, but this duty may be breached by an employee who makes any unauthorised profit from the job. Employees, therefore, are not entitled to any secret commission. Tips may be retained in jobs where these are seen as part of payment, as in the restaurant trade. The common law duties of the employer It is implied in the contract of employment that the employer will: 1 pay the employee as agreed by the contract; 2 not undermine the trust and confidence of the employee; 3 provide the employee with safe working conditions. The duty to pay the employee Most employees (not just those with a contract of service) are entitled to a minimum wage , under the Minimum Wage Act 1999. The following people are not entitled under the Act: the genuinely self-employed, genuine volunteers, or those withi\ n the first 12 months of their apprenticeship, students doing work as part of an undergraduate or post- graduate course, workers on certain training schemes, residents of certain religious communities, prisoners, the armed forces and share fishermen and apprentices under 19. However, in June 2009 the Department for Business Innovation and Skills (BIS)\ announced that it had asked the Low Pay Commission to reform this, since a fair wage was necessary to prevent exploitation. The rates, revised every October are currently £5.80 per hour for workers aged 22 and over. Workers aged between 18 and 21 are paid a development rate of £4.83; 16–17-year- olds above the compulsory school leaving age are entitled to a minimum of £3.57 per hour, though this does not cover apprentices. The employer has no right to make pay deductions unless, like income tax\ or National Insurance contributions, these are authorised by statute or agreed in writing with the employee. In practice, the contract of employment often provides for employer’s deductions, and the employee thus waives the protection of the common law in this respect. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 354 0003 The obligation to pay the employee exists whether or not the employer has provided work . In general, there is no duty to provide work but, if the nature of the work means that the employee is likely to obtain a benefit other than payment from doing the work, the employer may be under a duty to provide work. For example, actors and other performers require the publicity that performance brings. Similarly, apprentices are entitled to the opportunity to practise the skills they have contracted to learn. Not to undermine the trust and confidence of the employee In Malik vBCCI (1998) Lord Steyn held that the employer shall not, ‘ without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy\ or seriously damage the relationship of confidence and trust between employer and employee .’ This is aimed at preventing the employer from indulging in unreasonable and abusive conduct towards the employee; and is reciprocal to the employee’s duty to act in good faith. A wide variety of behaviour can give rise to a breach of this duty: for example, failing to pro- vide extra support to staff at busy times ( Whitev London Transport Executive (1982)), criticising a supervisor in front of employees who worked under him ( Associated Tyre Spe- cialists v Waterhouse (1976)), failure to protect an employee against harassment ( Bracebridge Engineering Ltd v Darby (1990)). Isle of Wight Tourist Board vCoombes (1976) A manager, within earshot of the claimant who was his personal secretary, said to another employee: ‘She is always an intolerable bitch on Monday mornings.’ He did not attempt to apologise. Held: his behaviour shattered a close and confidential working relationship thus undermining the employee’s trust and confidence. In RDF Media Group plc v Alan Clements (2007) Livesey QC held that while a press article vilifying the claimant (even if truthful) did amount to a breach of his employer’s duty, delib- erations by the board of directors discussing his character in very negative terms did not, because ‘ the Board of Directors is the controlling mind of the Company and repres\ entations between individuals on the Board are merely equivalent to the Company th\ inking aloud to itself. It is not yet the law that an employer is prohibited from thinki\ ng even negative and unworthy thoughts about an employee on his payroll.’ Breach of this duty may be grounds for a claim that the employee has been constructively dismissed. If the employer’s conduct is sufficiently serious, the employee is entitled to leave without notice. However, the duty is a mutual one, so if the employee himself acted in breach of this duty prior to the alleged breach by the employer, he will not succeed in his claim. In RDF Media Group plc (above) Clements lost his case for constructive dismissal since by taking a job with a competitor in breach of his contract with RDF he had already breached his own duty of loyalty and fidelity to RDF. His own breach had prompted the behaviour he complained of. THE EMPLOYMENT CONTRACT: A CONTRACT OF SERVICE 355 16 Rights at work: the contract of employment and health and safety at work 0003 To provide safe working conditions Employers must take all reasonable care to provide safe working conditions for their employees. Liability for breach of this duty is also imposed through the law of tort, both at common law and statute. In practice, actions for personal injury to empl\ oyees are brought by an action in tort rather than for breach of contract. In the following section this is explained in that context. The law of tort: employers’ civil liability for industrial injuries Two possible rights of action in tort may be open to an employee injured at work: 1 an action for breach of the employer’s common law duty of care; 2 an action for breach of statutory duty. Employers’ common law liability This is a non-delegable duty . This means that an employer cannot avoid liability merely by showing that a hazard has been created by a third party. The responsibility to maintain safety remains with the employer. Therefore, if independent contractors cause a spillage on which a member of the employer’s staff slips and breaks a leg, the employer may be liable. The employee will have to prove that in the given circumstances, in a properly managed work- place, the employer would have ensured that the spillage was cleared up. Liability, therefore is not strict, but requires an employer to take reasonable care, as in a negligence action. The common law duty comprises three interlinked obligations: 1 to provide competent staff; 2 to provide safe premises, plant and equipment; 3 to provide a safe system of work. Competent staff The employer must take reasonable care to ensure that staff are competent to do their work so that they are not a danger to their fellow employees. Reasonable care must be taken in the selection, training, supervision and discipline of the workforce. The duty includes preventing hazards arising from activities that are not necessarily closely connected to the job in hand. Hudson v Ridge Manufacturing Co. Ltd (1957) An employee, who had previously been reprimanded more than once for skylarking, injured a fellow employee when playing a practical joke. PA R T 4ELEMENTS OF EMPLOYMENT LAW 356 0003 THE LAW OF TORT: EMPLOYERS’ CIVIL LIABILITY FOR INDUSTRIAL INJURIES 357 16 Rights at work: the contract of employment and health and safety at work Held:the employer was liable since it had been alerted to the fact that the employee was a potential danger by his previous behaviour and should have taken adequate steps to control him. Safe premises, plant and equipment This includes providing appropriate tools, machinery and materials maintained to an ade- quate standard. The premises must also be reasonably safe. In Pagano vHGS (1976) an employer which failed to maintain its vehicles in a safe condition, desp\ ite having been alerted to the problem by complaints from its workforce, was held liable for breach of duty. Under the Employers’ Liability (Defective Equipment) Act 1969, if e\ quipment is defective due to the fault of a third party such as a manufacturer or repairer, the employer may be held liable even though it is not personally to blame and could not have\ known of the defect. The courts interpret ‘equipment’ purposively so any item or materials that employ- ees are required to handle while carrying out their duties is usually covered. In Knowlesv Liverpool CC (1993) a paving stone which shattered during installation was deemed to be work equipment. A safe system of work This encompasses a huge variety of activities. It includes providing protective clothing with instructions about its use, setting up safe working procedures and appropriate training, ensuring sufficient washing and first aid facilities, and appropriate use of warning signs. Pennington v Surrey County Council and Surrey Fire & Rescue Services (2006, CA) The claimant firefighter was injured when his finger got caught in the moving part of a power ram which he was using to assist in a motor accident rescue operation. He had not been trained to use such a heavy ram although he was used to operating a lighter model. Held: the employer was in breach of his duty to the claimant by allowing him to use equipment that he had not been trained to use, in a stressful situation. This was not a safe system of work. An employer’s liability may arise from a mixture of breaches of these three interdep\ endent duties. For example, a computer operator claiming repetitive strain injury might be able to prove (i) lack of proper equipment (the seating and desk not being at an appropriate height), and (ii) failure to maintain a safe system of work (if employees are required to use keyboards for lengthy periods without a proper break). Stress-related illness Historically, claims against employers have been for physical injuries, but recently cases have come before the courts in which employers have been found liable for stress related illness. 0003 Walker vNorthumberland County Council (1995) The employers, who knew that Mr Walker had already suffered psychiatric illness due to stress at work, increased his workload. This caused the illness to recur so badly that he had to take early retirement. The judge, who awarded substantial damages, said that there was no difference in principle between mental and physical injury in the context of the employer’s duty to provide reasonably safe working conditions. Increasing numbers of similar claims have come before the courts since the decision in Walker. In Hatton v Sutherland (2002) the Court of Appeal laid down guidelines which stressed the need to avoid imposing too great a burden on employers: No occupation should be regarded as intrinsically dangerous to mental health. The employer should be alerted to the risk to an employee when a reasonable employer would foresee that risk. Injury to health (not just emotional stress) must be reasonably foreseeable. It is reasonable for the employer to assume that the employee could cope with t\ he level of stress normally associated with the job. Often it will be up to the employe\ e to bring the issue to the employer’s attention rather than suffering in silence. A breach of duty must be judged by the normal criteria: the magnitude of the\ risk, the gravity of harm and the practicability of taking precautions. If the only way to resolve the risk is to dismiss the employee, the employer will not be in breach if the employee is allowed to continue working. The duty can often be performed by the offer of counselling or other treatment. The issue of causation is often problematic for employees given that stress-related illness can come from a number of sources, not just the working environment. Application of these principles by the House of Lords is illustrated by the following case: 358 PA R T 4 ELEMENTS OF EMPLOYMENT LAW Horace works as an administrative officer for Smallville Borough Council. Recently he had a bad day at the office. On his way to a meeting with his boss, he tripped over some large packages left in a dark corner of a corridor by Cedric, a new employee. His hand was badly sprained and it was four weeks before he could use it fully. The council appears potentially to be in breach of all three aspects of its duty as employer. First, Cedric does not appear to have been trained to an appropriate level of competence. If the cor- ridor is so dark that obstructions are not readily spotted this amounts to failure to provide safe plant or equipment. Finally, leaving obstructions in a passage way may be evidence of failure to impose a safe system of work. Similarly, if the passage was dark because the lighting had not been appropriately checked for faults, this would also point to lack of a safe system of work. Real Life 0003 Barber vSomerset County Council (2004, HL) In 1995, restructuring took place at the school where Mr Barber worked and he was obliged to take on extra duties to enable him to continue at his current salary. In May 1996 he took three weeks’ certifi- cated sick leave due to anxiety and depression. When he returned to work, he met with the school’s senior management team, which was unsupportive and did nothing to help him. Over the next three months, Mr Barber visited his GP on a number of occasions with stress-related issues and eventually left the school in November 1996 after losing control and shaking a pupil. Held: the employer had a duty to take some action to assist the claimant, from the time it was put on notice of his condition, which was when he had me t with senior staff. It had breached that duty by failing to make enquiries into his position to discover what could be done to support him. It was irrelevant that all the staff were stressed and overworked because of the severe problems currently facing the school. The employer had breached its duty by falling below the standard to be expected of a reasonable and prudent employer, and had not taken positive precau tions to safeguard the safety of its employees, in the light of what it knew or ought reasonably to have known. Civil liability for breach of statutory duty Any criminal or administrative legislation which does not expressly give rights to take action in tort for damages may be treated by the courts as being capable of doing so. This means that an employee who is the victim of an industrial accident or illness \ may be able to sue the employer for breach of a duty imposed on the employer by legislation designed primarily\ to impose public rather than civil law duties on an employer. The claimant will have to prove the following: 1The legislation gives the right to sue for damages . The legislation may make this explicit one way or the other. Section 47 of the Health and Safety at Work, etc. Act 1974 clearly rules out an action for damages for breach of the employer’s general duty; no action is pos- sible here. However, it also states that action is possible for breach of any regulations made under the authority of the Act unless expressly excluded. If no explicit reference is made, the court will have to decide whether such a remedy was intended by the legislation. The courts have been generous in their approach to claims by employees, and many successful actions have resulted from breach of the Factories Act 1961 and subsequent related legisla- tion. In recent years these statutory duties have been replaced by regulations governing most aspects of workplace safety and derived from implementation of a whole raft of EC Directives, for example the Management of Health and Safety at Work Regulations 1999. These have often proved a fertile ground for claims by injured employees. 2The employee is part of the class of persons protected by the legislatio\ n . Sometimes legislation is very limited in its application. For example, breach of a regulation to pro- tect a machine operator might not protect a different type of employee. In Knappv The Railway Executive (1949) a train driver injured in an accident caused by failure to close level-crossing gates, was held not to be protected by legislation intended to protect members of the public . THE LAW OF TORT: EMPLOYERS’ CIVIL LIABILITY FOR INDUSTRIAL INJURIES 359 16 Rights at work: the contract of employment and health and safety at work 0003 PA R T 4ELEMENTS OF EMPLOYMENT LAW 360 3The defendant is in breach of the duty. The extent of the duty is specified by the statute. It may be advantageous to sue under statute if the standard of care it imposes is higher than the reasonable care required at common law, or if the burden of proof is placed on the employer to show that he or she discharged the duty. If strict liability is imposed, the claimant does not have to prove that the defendant was lacking in care and that the harm suffered resulted from it. The duty may operate only in very strictly defined situa- tions, however, and this may defeat the action. Chipchase v British Titan Products (1956) Building safety regulations required the provision of platforms of at least 34 inches wide when work was being conducted six-and-a-half feet above ground level. The claimant, who was working at a height of six feet, was injured when he fell from a platform which was only nine inches wide. Held: he had no right to claim for breach of the regulations since he had been working six inches below the regulated height when the accident happened. Provided the conditions above are fulfilled, the court is often prepared to interpret unspecific statutory terms purposively as a matter of policy and justice. In the ne\ xt case it seems common sense that an employer should be responsible for its employee’s safety while she was taking an appropriate route out of the building in which she worked and over which her employer had at least some control of health and safety. Reid v PRP Architects (2007, CA) Precious Reid was injured at the end of the working day, due to poor maintenance of a lift which she was using to vacate the multi-occupancy office building where her employer, PRP, was based, and which was in the common part of the building. She argued that PRP was in breach of the Provision and Use of Work Equipment Regulations 1998, reg 5(1), which requires an employer to ensure wo rk equipment is efficiently maintained and in good repair. Work equipment is defined (reg 3(2)) as ‘a ny machinery, appliance, apparatus, tool or installa- tion for work (whether exclusively or not)’. Held by the Court of Appeal: PRP was liable because a lift was capable of coming within the mean- ing of an ‘installation’ which was being used for work under the regulations. On the facts of this case, it was not appropriate to draw a line on the employer’s liability at the point an employee left its offices to take the lift. It provided the main route out of the building. Similarly, in Spencer-Franks vKellogg Brown & Root Ltd (2008, HL) the claimant was injured when repairing a door closer in an oil rig control room. The House of Lords held that if an item was used at work it was work equipment and everyone using the contr\ ol room door used it for the purpose of their work. The regulations (and the Directive on which they were based) in no way suggested that repairing should be interpreted narrowly or deprived of its ordinary meaning. Here, the ordinary meaning was that the door closer was work equip- 0003 ment. The employer’s argument that the door closer was part of the premises was not work- able. The fact that Mr Spencer had been repairing the door at the time of his accident meant that he still was using the necessary component in order to do his job. Criminal law regulation of safety in the workplace Since the Factories Act 1802, the welfare of employees has increasingly been regulated by statute as well as by the common law. In recent years the UK’s membership of the EC has led to an increase in development of the law in this area.The Health and Safety at Work, etc. Act 1974 was intended to implement a general policy of integrated statutory control of health and safety in the workplace. Powers are dele- gated under the Act to enable the Department of Employment (now the Dep\ artment of Work and Pensions) to make regulations covering specific areas of workplace safety. The Act was an important development in three respects: 1 it imposed general duties on both employers and employees to maintain hea\ lth and safety; 2 it created the Health and Safety Executive, with powers to enforce the legislation; 3 it gave wide powers to the Department of Employment to make detailed lega\ lly binding regulations to cover particular hazards. The employer’s and employee’s statutory duties The employer’s general duty to employees: s 2 Employers have a duty ‘to ensure as far as is reasonably practicable the health, safety and welfare of all their employees’. (This means only those under a contract o\ f service to an employer.) Employers are not made strictly liable by the 1974 Act. They are responsible only if they have failed to take reasonably practicableprecautions. This has been criticised for its vagueness. It is very similar to the common law duty of reasonable care, but the reference to practicability indicates that the resources of employers may be relevant in judging how much can be expected of them. The scope of the duty is spelt out in s 2 and encompasses particular areas of employer responsibility which closely mirror the employer’s common law duty in tort. CRIMINAL LAW REGULATION OF SAFETY IN THE WORKPLACE 361 What other civil action was open to Precious Reid? (See PRP Architectsv Reid (2006).) Suggested solutions can be found in Appendix 2. Worth thinking about? 16 Rights at wo rk: the contract of empl oyment and health and safety at w ork 0003 PA R T 4ELEMENTS OF EMPLOYMENT LAW 362 The employee’s duty: s 7 Employees are also placed under a two-part duty: 1 to take reasonable care for their own health and safety and for that of others likely to be affected by their acts and omissions at work; 2 to co-operate with the employer as far as is necessary to enable it to c\ arry out its legal responsibilities. The employer’s duty to persons other than employees: s 3 Section 3 places the employer under a duty to conduct its business as fa\ r as practicable in a way that does not endanger persons other than employees who might be affected by it. This includes independent contractors, as well as visitors to the premises. Section 3 imposes a similar duty on self-employed persons. The s 3 duty is a negative requirement not to expose them to risks, compared with the positive duty in s 2 ‘to ensure as far as practicable’. Health and safety policies: s 2 The 1974 Act seeks to ensure that employees are involved in and kept informed about health and safety provision in their workplace. An employer with a workforce of five or more must have a written health and safety policy and ensure that this is kept up to date and brought to the attention of the employees. A workplace safety committee mu\ st assist in the process. The employer must consult health and safety representatives from trade unions if required by BIS regulations. The powers of the Health and Safety Executive (HSE) HSE inspectors are given wide powers to enter and investigate workplaces and to enforce sanctions under the 1974 Act; and this has been widened by other subsequ\ ent legislation, for example, the Management of Health and Safety at Work Regulations 1999.The HSE has the following powers: Prosecution of any offence specified in the Act Offences may arise not only from breach of duty, but also from obstruction of the inspectors.The Health and Safety (Offences) Act 2008, which came into force in January 2009 empowers the magistrates court to impose a fine of up to £20,000 and \ a prison sentence of up to 12 months. The Crown Court already had the power to impose an unlimited fine, but since January 2009 it may impose a prison sentence of up to two years. C\ ertain offences which previously could only be tried in the magistrates court become triable in \ either the Crown or magistrates court, which increases the possibility of a heavier penalty for more offences. 0003 363 CRIMINAL LAW REGULATION OF SAFETY IN THE WORKPLACE Improvement notices: s 21 If in an inspector’s view the statute is being breached and this state of affairs is likely to con- tinue, the inspector may issue a notice requiring the contravention to be corrected within specified time limits. Compliance may be enforced by prosecution if necessary. Prohibition notices: s 23 If the inspector believes that the way the business is being conducted i\ s likely to result in serious personal injury, a prohibition notice may be issued. This prohibits continuance of the relevant activity until the situation is resolved. These notices have to set out clearly the nature of the problem and may include advice about how it can be remedied. Section 24 gives rights to appeal against an order to an employment tribunal. Ministerial regulations The 1974 Act empowers the Department of Employment to make specific regulations to ensure performance of duties under the Act. Progress was initially slow in this area, but the need to comply with EC Directives issued between 1989 and 1991 forced the Depart- ment to issue the Management of Health and Safety at Work Regulations 1992. These came into force progressively between 1993 and 1997 and replace most of the provisions of statutes like the Factories Acts and the Offices, Shops and Railway Premises Act 1963. These regulations expand the scope of obligations imposed on employers by the H\ ealth and Safety at Work etc., Act 1974, since they incorporate aspects of EC law not envisag\ ed by the 1974 Act. Norfolk company fined £25,000 for worker’s injuries A Heath and Safety Executive press release (27 March 2009) described its successful prosecution of an engineering company in Norfolk under HSWA 1974, s 2(1). The company was fined £25,000 for injuries to an employee who was electrocuted when carrying out a welding operation inside a con- fined space in the hold of a ship which suddenly flooded. Attempts to save his life were hindered by the small available space and the danger of electrocution to his rescuers. The HSE stated this accident was entirely preventable. It is well known that work in confined spaces of this kind may be extremely dangerous. Apart from the dangers of flooding and electrocution, there is a danger of lack of oxygen and the build up of toxic gases. The procedures used by the defendant company were inadequate to deal with such a well known risk. In the News 16 Rights at work: the contract of empl oyment and health and safety at w ork 0003 364 A business is served both by employees and inde- pendent contractors and has different contractual relationships with each. Thecontract of service governs the relationship of employer and employee. It is valid without writing but ERA 1996 requires an employer to provide each employee with a written statement of the key terms. It contains express and implied terms which may be derived from: (a) custom and practice; (b) works/staff rules; (c) collective agreements; (d) statute and common law. Common law duties of employee: (a) reasonable care and skill to fulfil all reasonable orders; (b) good faith (confidentiality, account for profits, no conflict of interest). Common law duties of employer: (a) payment; (b) trust and confidence; (c) safe working conditions. Employer’s liability for injuries at work Civil liability: common law duty The employer has a non-delegable duty to take reasonable care to provide reasonably safe working conditions including: (a) competent staff; (b) safe plant and equipment; (c) safe systems of work. Breach of statutory duty An employee may also sue an employer for failing to perform a statutory duty provided: (a) Parliament intended a civil remedy to be possi- ble (can the statute be interpreted like this?); (b) the employee is a member of the class pro- tected by the statute; (c) the employer has breached the statute; (d) damage has resulted from the breach. Criminal liability May arise under a variety of regulations and the HSWA 1974. The HSE is empowered to enter premises, issue improvement orders and prosecute employers. Chapter summary PA R T 4 ELEMENTS OF EMPLOYMENT LAW Key terms Collective agreement:made with an employer, by a trade union on behalf of its members. Contract for services:contract between an independent contractor and another party. Contract of service:contract between an employer and employee. Custom and practice:business behaviour accepted locally/nationally/in the particular industry. Employee:individual worker with a contract of service with the party he or she works for. Independent contractor:business/individual providing services under contract to another business/individual. Minimum wage:statutory entitlement under the Minimum Wage Act 1999. Subject to updating by the DTI. Non-delegable duty: a personal duty, liability for breach cannot be passed by requiring a third party to carry it out. 0003 WEB ACTIVITY 365 1 What are the main differences in the legal obli-gations of an employer to an employee and to an independent contractor? 2 Angelica is employed by Juniper plc as personal assistant to the managing director. What con- tractual duties may Angelica have breached in the following circumstances? (a) She takes an evening job with Coltsfoot Ltd. (b) When serving refreshments at a meeting at Juniper plc, she drops a full coffee pot into the lap of Lupin, the chairman of the board. (c) After the meeting, Hawksbeard, a visiting consultant, who had enjoyed Lupin’s dis- comfiture, gives Angelica a £10 tip. 3 Heather, who is employed by Rush, was run over on work premises by a forklift truck driven by Bogbean. Her injuries were aggravated by difficulties in locating the first aid kit. What are Rush’s liabilities? 4 What powers are available to HSE inspectors who discover that a health and safety offence has been committed? Answers to all quizzes can be found in Appendix 2. Quiz 16 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Hudson v Ridge Manufacturing Co. Ltd [1957] 2 QB 348 RDF Media Group PLC v Alan Clements [2007] EWHC 2892 (QB); [2008] IRLR 207 Reid v PRP Architects [2006] EWCA Civ 1119; [2007] ICR 1119 Spencer-Franks v Kellogg Brown & Root Ltd [2008] UKHL 46; [2008] ICR 863 Take a closer look Please go to www.hse.gov.uk/index.htm Click on ‘what’s new?’ and then read a few items to help you get the feel of the sort of work done by the\ HSE. If you are interested in one particular type of workplace/activity, use the ‘browse by category’ function. Web activity 16 Rights at work: the contract of employment and health and safety at work 0003 366 Evaluate the ways in which the law regulates employers with regard to the health and safety of their employees. Assignment 15 PA R T 4ELEMENTS OF EMPLOYMENT LAW Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 17 RIGHTS AT WORK: protection against discrimination 0003 Introduction Since the 1960s some statutory measures have been introduced to attempt to con- trol sex and race discrimination. The current domestic legislation in those areas is the Equal Pay Act 1970 (EPA 1970), the Sex Discrimination Act 1975 (SDA 1975) (as amended by the Sex Discrimination Act 1986), and the Race Relations Act\ 1976 (RRA 1976). Similar rights were extended to people with disabilities in 1995 with the implementation of the Disability Discrimination Act 1995 (DDA 1995)\ . The implementation in 2000 of the Human Rights Act 1998 has widened the impa\ ct of anti-discrimination law. EU law has also already assisted development of English law through Article 119 (now 141) of the Treaty of Rome and a number of Directives. The early years of the twenty-first century have seen the widening of sex, race and disability \ equality legis- lation and the introduction of various regulations to protect against discrimination on the grounds of sexual orientation, and religious belief and age in the UK. Learning Objectives When you have studied this chapter you should be able to: Understand when a claim under the EPA 1970 is appropriate Appreciate the scope of anti-discrimination legislation Grasp the difference between direct and indirect discrimination Give examples of ‘genuine occupational qualifications’ Explain what is meant by harassment Describe the functions of the Commission for Equality and Human Rights. Photo: Comstock/PunchStock 0003 The Equal Pay Act 1970 The EPA 1970 was introduced in order to implement the EC principle of equal pay (Treaty of Rome Article 141 (previously 119)). It was amended in 1983 under the Equal Pay (Amend- ment) Regulations to comply with the Equal Pay Directive (75/117/EEC). Historically, women’s work has been undervalued, with low rates of pay in those areas of employment most often filled by women, like cleaning, nursing, catering, and shop work. Where men have been employed alongside women, they have often been paid at a higher rate tha\ n women doing similar, or even identical, work. The main provisions of the Act are discussed below. The equality clause: s 1 The ‘equality clause ’ is an implied term in every woman’s contract of employment giving her the right to be paid at the same rate as any man in her workplace wh\ o is doing: 1 the same or similar work; or 2 work which is rated as equivalent work by a job evaluation scheme; or 3 work of equal value. A claim may be brought for breach of this implied term. The same or similar work A number of successful claims have been brought by women who were able to show that they were being paid less than a man who was effectively doing the same or broadly similar work, although the man’s job was sometimes dignified by a superior title. Capper Pass vLawton (1977) Held: a woman employed to cook meals for the directors’ dining room was doing essentially similar work to the assistant chefs in the canteen. The only differences were that the canteen chefs cooked more meals for greater numbers, were supervised and worked for four hours more every week than she did. To justify unequal treatment the job done by the man must be more onerous in terms of its responsibility, anti-social hours or physical functions. Noble v David Gold & Sons ( Holdings)Ltd (1980) Male warehouse workers were paid more than women working alongside them. Held: this was justified by the fact that the men load ed and unloaded goods while the women’s work was lighter and involved sorting, labelling and packaging goods. PA R T 4ELEMENTS OF EMPLOYMENT LAW 370 0003 Notional responsibilities which are not actually performed will not be treated as a material difference. Shields vCoomes (Holdings)Ltd (1978) It was claimed by the employer that a male counter assistant at a betting shop was paid more than a female counter assistant because he was there for security purposes. Held: she was entitled to equal pay since the employer was unable to prove that the male assistant had received any security training, or that he had ever had to deal with troublemakers; there was no material difference between his function and the woman’s. Work rated as equivalent by a job evaluation scheme A woman is entitled to claim breach of the equality clause if her employer has a valid job evaluation scheme in operation, under which the woman’s job is graded at the same level as a man’s but he is paid more, or if the woman’s job would have been graded at a higher level under the scheme if the evaluation had not been made according to different values for men and women. This claim is given additional force by the 1975 Equal Pay Directive (75/117/EC), which requires that the same criteria be applied to both men and women and that the scheme be drawn up in such a way as to avoid sex discrimination\ . The Act does not compel an employer to carry out such schemes and, due t\ o the rela- tively small number in operation, claims in this area of the statute are uncommon. Work of equal value Before 1983, many women were unable to claim successfully under the 1970 Act as they were unable to prove that the work they did was sufficiently similar to that being done by men. The comparative value of the work was irrelevant unless a job evaluation scheme was in operation. The Act was amended in 1983 to take account of the Equal P\ ay Directive 1975, which introduced the concept of equal pay for equal value. To determine the value of the work, the demands of the relevant jobs must be assessed and compared by the tribunal. It must take into account the skill, knowledge, trade or professional qualification, physical and mental effort, and levels of responsibility and decision-making. Hayward v Cammell Laird Shipbuilders (1988, HL) Held:the work of a cook in the works canteen was of equal value to that of other skilled workers such as joiners, painters and insulation engineers, and she was entitled to the same basic pay as they were. It was irrelevant that her entitlement to sickness benefits, holiday leave and meals entitlement were supe- rior to other skilled workers. In Murphy vBord Telecom Eireann (1988) the European Court of Justice closed a loophole in the 1970 Act. If the Act is given its literal meaning, a woman would hav\ e no claim if she was paid less for doing work of greater value than a man who is doing work of less value THE EQUAL PAY ACT 1970 371 17 Rights at work: protection against discrimination 0003 for higher pay. Such an interpretation was held to be a breach of Article 141 of the Treaty of Rome which requires that men and women ‘receive equal pay for equal work’. The claimant was entitled to be paid at least at the rate of the male comparator.In assessing whether work is of equal value, it is important to determin\ e the area of com- parison and the choice of comparator . The comparator must be or have been employed at the claimant’s workplace or at another workplace where the same conditions of service apply. In Macarthys v Smith (1981, CA) it was held (after reference to the European Court of Justice) that the comparator need not be employed contemporaneously wit\ h the claimant. Consequently, Ms Macarthys could refer to the salary paid to her male predecessor. This pre- vents an employer from replacing a man with a woman and paying her less. In Pickstone vFreemans plc (1988) the claimant worked in a warehouse alongside men doing similar work and who were paid the same as her. She chose as her comparator a male checker in the warehouse, claiming that her work was of equal value to his. The House of Lords held that she was entitled to choose with whom she wanted to be compa\ red. Other- wise, an employer could slip a ‘token male’ into the same line of \ work as the woman and pay him at the same rate. The procedure in equal value claims is lengthy and complicated: 1 the applicant applies to the employment tribunal; 2 the case is referred to ACAS and settlement attempted; 3 if no settlement is reached, the employment tribunal decides whether on the face of it there is a reasonable likelihood that the woman’s work is of equal value. The burden of proof is on the applicant. The employer is automatically discharged from liability if it can show that under a job evaluation scheme the woman’s job has been graded lower than the male comparator’s; 4 if the applicant makes out a reasonable case, the tribunal refers the matter to an inde- pendent expert, who carries out a study and reports back to the tribunal (which is not bound by the report). Defence to a claim under the EPA 1970: genuine material difference Under s 1(3), if the employer can prove that the reason for a pay differential between men and women is ‘genuinely due to a material factor which is not the dif\ ference of sex’, it will not be liable. Effectively, the employer is saying that the difference in pay between men and women is coincidental and that it can be shown to be linked to material \ differences between the two parties other than their sex. Such differences have been held to include levels of qualification, length of service, place of work and anti-socia\ l hours of work. Organi- sational and economic factors may also justify a pay differential, but it is a question of fact for the court to decide in each case.Staff shortages were held to represent a genuine material difference in the next case: PA R T 4 ELEMENTS OF EMPLOYMENT LAW 372 0003 Rainey vGreater Glasgow Health Board (1987, HL) The Board set up a prosthesis service within the NHS. Some prosthetists were recruited from the NHS sector and were paid at its current rate, but this was insufficient to recruit the numbers required and so a further 20 (all male) were recruited from the private sector and paid at a higher rate to reflect their previous, more favourable, salary. Ms Rainey, an NHS recruit, claimed that this was discriminatory. Held:this pay differential was justifiable on the grounds of market forces. The market forces argument is only relevant while the particular circumstances prevail. Once they ease, equal pay must be paid ( Benveniste vUniversity of Southampton (1989)). Economic conditions were held not to be relevant in the following case: North Yorkshire County Council v Ratcliffe (1995, HL) Held:paying dinner ladies less than men judged to be doing work of equal value could not be justified on the ground that it was done to enable the employers to make the winning bid in compulsory com- petitive tender negotiations. This was ‘the very kind of discrimination which the Act sought to remove’. In Blackburn and Another v Chief Constable of West Midlands Police (2008) the Court of Appeal held that working night shifts was a material factor. Therefore, paying male police offi- cers an enhanced rate for these shifts did not illegally discriminate ag\ ainst female officers who had opted out of night work because of child care commitments. It could be objectively justi- fied since it fulfilled the legitimate aim of rewarding people for working anti-social hours. The Sex Discrimination Act 1975 This statute makes it illegal to discriminate directly or indirectly against persons on the grounds of their sex or marital status. Treating men and women differently does not amount to illegal discrimination unless it results in members of one sex being treated less favourably than the other. The provisions of the 1975 Act must be read as applying equally to men. Although this statute was enacted primarily to combat sexual discrimination against wo\ men, men are given equal rights under its terms. In some years men have brought more successful cases than women. Direct discrimination: s 1(1)(a) Direct discrimination is overt discrimination and occurs if a woman is treated on the grounds of her sex less favourably than a man. Reserving a job for male ca\ ndidates only is an obvious example. See Batisha v Say (1977), where a woman who applied for a job as a cave guide was turned down on the ground that it was ‘a man’s job’. THE SEX DISCRIMINATION ACT 1975 373 17 Rights at work: protection against discrimination 0003 Sexual harassment: s 4A Although harassment was not specifically identified as discrimination in the SDA 1975, a complainant could succeed where there was proof that a person of the opposite sex would not have been subject to the same treatment. Porcelli v Strathclyde Regional Council (1986) Ms Porcelli worked as a technician in a laboratory with two male colleagues who mounted a campaign of sexual insults and physical intimidation to try to make her leave. Held: she was the victim of discrimination since the behaviour of her colleagues was ‘a particular kind of weapon which ... would not have been used against an equally disliked man’. The Equal Treatment in Employment and Occupation Directive (2000/78/EC) states that harassment is to be treated as direct discrimination and defines it as happening where: ‘… any form of unwanted verbal, non-verbal or physical conduct of a sexual \ nature occurs, with the purpose or effect of violating the dignity of a person, in particular when creating an intimidating, hostile, degrading, humiliating or offensive environment.’ The Employment Equality (Sex Discrimination) Regulations 2005 which implemented the E\ qual Treatment Amendment Directive (2002/73/EC) amended the Act to reflect this definition. Indirect discrimination: s 1(2)(b) This section was also amended by the Employment Equality (Sex Discrimin\ ation) Regulations 2005, which has widened its scope.Covert or indirect discrimination occurs when an employer imposes on a female employee a ‘provision, criterion or practice’ which would apply equally to a man bu\ t which puts her at a disadvantage when compared with men and which the employer cannot show to be a ‘proportionate response to a legitimate aim’. For instance, an employer who imposes a minimum height requirement, which is likely to be satisfied by a much smaller number of women than men, clearly puts wo\ men applicants at a disadvantage. The employer will be guilty of indirect discrimination unless it can show that, for example, it is a proportionate measure for health and safety reasons, and applies to all job applicants irrespective of gender. Home Office v Holmes (1984) Held:a requirement that employees worked full-time, not part-time, was indirectly discriminatory against women. Their opportunities to go out to work full-time were more likely to be limited by child care responsibilities than men’s. The nature of the job did not justify the full-time requirement. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 374 0003 Price vCivil Service Commission (1978) Held:a requirement that candidates for the executive officer grade should be under the age of 28 was indirectly discriminatory against women. Fewer women than men could comply with it since many women in their twenties would have taken career breaks to have children. Discrimination on the grounds of marital status: s 3 In the field of employment, it is illegal to discriminate against person\ s on the ground of their marital status. Direct and indirect discrimination are covered in the same way as by s 1. Discrimination on grounds of victimisation: s 4(1) It is illegal to discriminate against persons who have asserted their ri\ ghts under the EPA 1970 or under the SDA 1975, or who have been involved in any legal proceedings relating to those statutes. The scope of employment: s 6 The legislation acknowledges that there are many situations where discrimination may come into play in relation to employment, and it covers most aspects of the employment process. For example: advertising jobs; interview and selection procedures; the terms of the employment contract; training; promotion; other facilities available to employees (like a canteen, social club or\ medical service); membership of trade unions and professional bodies. The genuine occupational qualification (GOQ): s 7 Qualities like physical strength and stamina are not treated as sex specific. A woman cannot automatically be excluded from consideration for a job because it involves heavy lifting. However, it is acknowledged that in a minority of jobs the sex of the employee \ may be an essential qualification for the job. The burden of proving that there is a genuine occupa- tional qualification for a particular job lies with the employer. This may be possible in the following situations. THE SEX DISCRIMINATION ACT 1975 375 17 Rights at work: protection against discrimination 0003 The essential nature of the job For example, when it is in the interests of the authenticity of a dramatic performance, it will be legitimate to appoint a man to play a male role. A job may be reserved for a man or a woman specifically if this is essential for physiological reasons, such as life models for art classes and striptease artists. Issues of privacy and decency This category includes lavatory and locker-room attendants, and jobs in private homes. Etam plc vRowan(1996, EAT) Held:being female was not a GOQ for a shop assistant selling women’s clothes. A male applicant could fulfil the bulk of the job, and the task of supervising changing rooms could be carried out by a female staff member without any inconvenience to the employer. Lack of facilities This may be relevant, for example, if the job requires staff to live on the premises where appropriate separate sleeping or sanitary facilities cannot reasonably be provided. Single-sex hospitals and prisons Employing persons of one sex only may be justifiable provided that the hospital or prison, or the relevant section of them, provides care to persons of one sex only. Vicarious liability: s 41 The employer is vicariously liable for anything done by employees in the\ course of their employment, whether or not it is done with the employer’s knowledge and approval. This has been interpreted purposively in the context of the SDA 1975 and RRA 1976 to cover ha\ rass- ment (Jones v Tower Boot Co . Ltd , 1997). (See below at page 381.) The current trend is to interpret course of employment generously. In Chief Constable of Lincolnshire Police v Stubbs (1999), inappropriate sexual advances made by a male police officer to a woman during a leaving party for a colleague at a pub were treated as coming within the scope of employ- ment. (More information about vicarious liability can be found above at pages 339–\ 42.) Pregnancy and parental responsibility The SDA 1975 protects against discrimination on the grounds of pregnancy and covers all employees, including agency workers and the self-employed. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 376 0003 Webb vEMO Cargo (1994, HL) Mrs Webb was recruited to cover for an employee on maternity leave and was dismissed when it was discovered that she herself was pregnant. Held: the House of Lords initially decided that her action under the SDA 1975 must fail, since a man absent for sickness for the same period of time would have been fairly dismissed. The case was referred to the European Court of Justice which held that this comparative approach was inappropriate: preg- nancy and sickness were not the same. Under the Equal Treatment Directive 1976 she had suffered direct discrimination. When the case returned to the House of Lords ( We b bv EMO Cargo (No. 2) (1995)), it was held that she had been discriminated against directly under the SDA 1975, though it was suggested that this would not have been the case if the contract had been for a fixed term. The Equal Treatment Directive (76/207/EEC) and the Pregnant Workers Directive (92/85/EC) (PWD) have led to changes in UK employment law and its interpretation by the courts, giving women a fair degree of protection at work while they are pregnant and for some months afterwards. Under s 47C of the ERA 1996, it is automatically unfair to dismiss a wom\ an because of pregnancy. The 1996 Act also includes rights to time off for antenatal care, maternity leave, pay during such absences and the right to return to work after the birth. The Employment Relations Act 1999 amended and clarified these rights, in response to the PWD. It also implemented the Parental Leave Directive (97/75/EC) (PLD), entitling employees to time off to deal with domestic emergencies involving the care of their dependants. The Employment Rights Act 2002 enables further implementation of the PLD including the \ introduction of paternity leave and adoption leave with pay. Pensions Neither the EPA 1970 nor the SDA 1975 applies to pensions, but EC law has led to anti-\ discrimination legislation: Barber v Guardian Royal Insurance (1990, ECJ) Held by the European Court: it was contrary to Article 141 for a man who had been made compul- sorily redundant to be entitled only to a deferred pension, if a woman of the same age and in the same position would be entitled to claim her pension immediately. The Pensions Act 1995, ss 62–66 provide that there must be equal treatment regarding pen- sionable service for all persons retiring since 17 May 1990. THE SEX DISCRIMINATION ACT 1975 377 17 Rights at work: protection against discrimination 0003 Gender reassignment The Equal Treatment Directive (76/207/EEC) was also held to apply to transsexuals in Pv S and Cornwall County Council (1986). In Chessington World of Adventures vReed (1997) the Employment Appeal Tribunal held that transsexuals could be protected by the SDA 1975. The Sex Discrimination (Gender Reassignment) Regulations 1999 and the \ Employment Equality (Sex Discrimination) Regulations 2005 amended the Sex Discrim\ ination Act 1975 to implement the Equal Treatment Directive. Section 2A makes it illegal to discriminate by treating a person less favourably because that person intends to undergo o\ r is undergoing or has undergone gender reassignment. Sections 7A–7B provide genuine occupational qual- ification defences. The gender equality duty: SDA 1975, s 76A The Equality Act 2006 has amended the SDA 1975: s 76A now imposes a gender equal- ity duty on all public authorities. This requires them actively to promote gender equality and eliminate sex and transgender discrimination. This duty, which came into operation in April 2007, impacts on all activities of public authorities including em\ ployment. A public authority is one which ‘has functions of a public nature’ and therefore includes police authorities, local and central government, hospitals and schools. Private or voluntary bodies will also owe the duty if carrying out public duties on behalf of\ the state: for exam- ple, providing cleaning, catering or stationery services for a central government department. Therefore, a great variety of employers will be affected. The purpose of the legislation is to eradicate sex discrimination by put\ ting responsibility for the promotion of equality firmly on the shoulders of the employer, rather than making individuals responsible for pointing out particular incidents of discrimination. The Race Relations Act 1976 In structure the Race Relations Act 1976 (RRA 1976), which was amended by the Rac\ e Rela- tions (Amendment) Act 2000 (RR(A)A 2000), is very similar to the S\ DA 1975. It embraces similar concepts of direct and indirect discrimination on racial grounds (s 1) and there is a defence of genuine occupational qualification. Like the SDA 1975, the RR\ A 1976 makes dis- crimination illegal in the provision of education and services, as well as in employment. The changes arising from the RR(A)A 2000 removed immunities previously enjoyed by public authorities under the RRA 1976. The RR(A)A 2000 also places a d\ uty on specified public authorities to strive to eliminate unlawful discrimination and to\ promote equal oppor- tunity and good relationships between people in different ethnic groups. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 378 0003 Meaning of ‘racial grounds’ Under s 3, ‘racial grounds ’ are defined as meaning any of the following: colour, race, nationality, or ethnic or national origins. Note that under this section nationality\ includes citi- zenship. Ethnicity is interpreted more widely than race. Mandla v Dowell Lee (1983, HL) Held:an ethnic group existed for the purposes of the Act if the group was regarded by its members and by outsiders as a clearly distinguishable community with its own cultural traditions and a long-shared history. Other relevant factors were said to include a common geographical origin, or language, religion, or literature. Therefore, Sikhs constituted a distinct ethnic group under the Act. School rules forbidding Sikh boys from wearing turbans and requiring their hair to be cut to a specified length indirectly discriminated against them. In Commission for Racial Equality v Dutton (1989, CA) the Court of Appeal applied the Mandla decision and held that gypsies constituted an ethnic group which had not merged wholly with the general population, although it was no longer derived fr\ om a common racial stock. The Act does not give protection against discrimination on purely religious grounds. Crown Suppliers (PSA )vDawkins (1991, EAT) The complainant, a Rastafarian, claimed that he had suffered unlawful discrimination when he was dis- missed for refusing to obey his employer’s order to cut his hair and beard. Held: Rastafarians were a religious sect which could not be regarded as a separate ethnic group. Their shared history of only 60 years was not long enough, and there was insufficient difference between them and other members of the Afro-Caribbean community, to bring them within the Mandlav Dowell Lee criteria. Religious discrimination is now covered by the Employment Equality (Religion or Belief ) Regulations 2003 (see below, at page 386). In the next case, the Court of Appeal interpreted ‘racial grounds’ purposively, to prevent the legislation, which was intended to protect racial minorities, from being exploited by white supremacists. Redfearn v Serco Ltd (2006, CA) R was dismissed by the defendant bus company when it found out that he was a member of the British Nationalist Party and a local councillor. The defendant argued that he was a risk to health and safety, as it was feared that Asians, who made up the majority of the customers and staff, might react violently to him. He had not worked for the defendant long enough to enable him to bring a case of unfair dismissal so he attempted to claim discrimination on ‘racial grounds’ under s 1(1)(a) of the RRA 1976. THE RACE RELATIONS ACT 1976 379 17 Rights at work: protection against discrimination 0003 PA R T 4ELEMENTS OF EMPLOYMENT LAW 380 Held:Mr Redfearn had not been discriminated against on racial grounds (because he was white) but because of his particular views, which were shared by a tiny proportion of the white population. He had no more been dismissed on account of his race than if he had been dismissed for racially abusing his employer. Direct discrimination: s 1(1)(a) Persons discriminate against somebody on racial grounds if they treat him or her less favourably than they would or do treat others because of his or her colour, race, etc. Less favourable treatment to one person may arise as a result of discrimination against a third party. In Showboat Entertainment Centre Ltd vOwens (1984, EAT) the complainant was held to have been unfairly dismissed for disobeying a management instruc\ tion to exclude young black men from the amusement centre where he was employed. Indirect discrimination: s 1(1)(b) This occurs when a condition is imposed on members of a racial group which is applied equally to people who are not members of that group, but which considerably fewer mem- bers of the racial group are able to satisfy. The fact that they cannot comply with it must be to their detriment. If the condition can be shown to be justifiable on o\ ther grounds, e.g. health and safety, this is a defence available to the employer. In Panesaar v Nestlé (1980) a rule forbidding long beards and hair in the defendant’s factory, while indirectly discriminat- ing against Sikhs, was nonetheless justifiable on hygiene grounds. Racial harassment The RRA 1976 did not originally define harassment but has been interpreted to cover it. The Race Relations Act (Amendment) Regulations 2003 amended the 1976 Act i\ n accordance with the EU Race Equality Directive (2000/43/EC). Under s 3A, racial harassment occurs where one person, on grounds of race, ethnic or national origins, engages in unwanted conduct which has the effect of violating another person’s dignity, or creating an intimidat- ing, hostile, degrading, humiliating or offensive environment for him or her. In Redfearn v Serco Ltd (above) Mr Redfearn was employed in the parcel delivery department of the bus company with very limited contact with the public, had a good relationship with his Asian supervisor and did not voice his political opinions at work. Can you thi\ nk of any other claim he might have made against his employer? Do you think it would have been su\ ccessful? Suggested solutions can be found in Appendix 2. Worth thinking about? 0003 It is unlawful for an employer to subject to harassment a person in his \ or her employment or who is applying for employment (s 4(2)(a)). Discrimination by victimisation: s 2 It is illegal to discriminate against persons who have asserted their ri\ ghts under the RRA 1976, or who have given evidence in any proceedings under the Act. Discrimination in employment: s 4 The content of this section is very similar to the corresponding provisions of the SDA 1975 and makes it illegal for an employer to subject an employee to racial di\ scrimination with regard to most aspects of employment except for pensions. The genuine occupational qualification: s 5 Choosing to employ a member of a particular racial group may be justified in the following circumstances. Authenticity in the provision of entertainment, modelling or catering services It is justifiable to advertise for a black actor to play Othello, or for\ somebody Chinese to work in a Chinese restaurant. Special welfare services This defence may also be applicable to jobs involving the provision of services to a specific racial group, where applicants may be required to be members of that group themselves. Vicarious liability: s 32 This operates similarly to s 41 of the SDA 1975 (see above). Jones v Tower Boot Co. Ltd (1997, CA) The complainant was subjected to verbal and physical racial abuse in his workplace from other employees. Held:his employer was vicariously liable. To give proper effect to the Act it was necessary to interpret ‘course of employment’ purposively. Otherwise, the more appalling the behaviour of the employee, the less likely it would be that the employer would be liable. THE RACE RELATIONS ACT 1976 381 17 Rights at work: protection against discrimination 0003 PA R T 4ELEMENTS OF EMPLOYMENT LAW 382 Until the implementation of the RR(A)A 2000 in April 2001 a chief cons\ table was not vicari- ously liable for the acts of other members of the force (Chief Constable of Bedfordshire Policev Liversidge (2002)). However, a chief constable is now vicariously liable in the same way as any other employer. Enforcement of claims under the 1976 Act: ss 54–55 Cases concerning employment must be referred to an employment tribunal within three months of the alleged incident, though this time limit may be extended o\ n the grounds of justice and equity (s 54). Conciliation may be attempted (s 55), but if this fails the case proceeds to a tribunal hear- ing. If the claim is successful, damages awarded may include compensation for humiliation or hurt feelings. The employer may be ordered to take action to resolve the situation; the employer may be required to pay increased damages if the order is not obeyed. Nigel Flash has just been made chief executiv e at Smallville Borough Council, which is Horace’s employer. Nigel, keen to make his mark, has made a variety of organisational changes, including a new dress code. This bans women from wearing trousers to work. Horace, as union representative for his department, has been approached by two female employees adversely affected by this rule. Ravinder, a Sikh, who works as a telephonist complains that her line manager won’t let her wear the shalwar kameez because it includes trousers. Her religion requires her to cover her legs and the shalwar kameez is required dress in her community. Alice works in the stores department and has always worn smart trousers to work. She finds this convenient given the nature of her job, which involves actively handling stores and transporting them round the building. Since she has complied with the code, her colleague Percy has made a number of comments about her legs, and the other day was peering up her skirt while she was up a step ladder. Horace takes up both these two issues with the human resources department. He argues that the dress code indirectly discriminates against Ravinder on both racial and religious grounds. That seems a sound claim. Imposing a rule of this kind is justifiable only if it is a proportionate response by an employer, whereas this seems to be a rigid rule imposed for no good reason except uniformity. Horace claims on behalf of Alice that the dress code directly discriminates against women and treats her less favourably than male colleagues. Current case law suggests that this would be successful. In Owen v Professional Golf Association (2000) the employment tribunal held that instructing a female employee to return home and change from a smart trouser suit into a skirt was sex discrimination. Percy’s behaviour is sexual harassment and Smallville will be vicariously liable if steps are not taken to resolve the situation. Real Life 0003 The Disability Discrimination Act 1995 The Disability Discrimination Act 1995 (DDA 1995) seeks to prevent less favourable treat- ment at work of people with disabilities. Section 4 outlaws discriminato\ ry practices in recruitment, terms of employment, transfer and training, employment benef\ its and dismissal and other detrimental treatment. Interpretation of the Act is aided by the code of practice and guidance notes issued by the Disability Rights Commission. Its provisions largely reflect those of the SDA 1975 and the RRA 1976, though indirect discrimination is not covered by the DDA 1995. The Disability Discrimination Act 1995 (Amendment) Regul\ ations 2003 and the Disability Discrimination Act 2005 have considerably amended the Act\ . What is a disability? Section 1 defines disability as a physical or mental impairment which has a substantial and adverse long-term effect on a person’s ability to cope with everyday activities. The impair- ment must be medically recognised and relate, for example, to mobility, manual dexterity, eyesight, hearing, memory, concentration or comprehension. Progressive conditions are also included (for instance, multiple sclerosis, HIV/AIDS). Severe disfigurement may be a disability (birthmarks, scars, skin diseases), though not if self-inflicted (tat\ toos). Certain conditions, such as addiction to alcohol, nicotine and other substances, are specifically excluded by the Act, as are certain personality disorders such as pyromania and voyeurism. A mental impair- ment must be caused by medically recognised illnesses or conditions. Symptoms described as ‘anxiety’, ‘depression’ or ‘stress’ are not in themselves indicative of mental impairment without specific diagnosis. Various illnesses and conditions have been held to be disabilities under \ the 1995 Act – Cox v Post Office (1997): asthma; O’Neillv Symm & Co. Ltd (1998): soft tissue injuries ; Howden v Capital Copiers (1998): acute abdominal pain. To be ‘substantial’ the condition must affect a person’s ability beyond the differences to be found between able-bodied people. The conditions must have lasted or \ be going to last for at least 12 months. Potential claimants Those protected by the DDA 1995 include the self-employed, as well as those with\ a con- tract of service. The 2003 Regulations have removed the small business exemption, which protected employers with a workforce of under 20. Firefighters and members of the police forces are now potential claimants; but members of the armed forces still do not enjoy the protection of the Act. THE DISABILITY DISCRIMINATION ACT 1995 383 17 Rights at work: protection against discrimination 0003 Meaning of discrimination The DDA 1995 covers the following types of discrimination: 1Direct discrimination which can be justified. Section 3A(1) states that an employer dis- criminates against a person if: (a) for a reason which relates to the disabled person’s disability, he treats them less favourably than he would treat others to whom that reason does not apply; and (b) he or she cannot show that the discrimination was justified. Justificati\ on requires proof of material and substantial reasons. The code of practice states that the reasons must be related directly to the particular circumstances of the case. An employer, therefore, may be justified in refusing to employ as a model for cosmetics someone who suffers from a disfiguring scarring in the relevant body area. 2 Direct discrimination which cannot be justified . Under s 3A(5), an employer directly dis- criminates against a disabled person if, ‘for a reason related to a person’s disability’, he treats the disabled person less favourably than he would treat a person, not having that particular disability, whose relevant circumstances, including his abilities, are the same as, or not materially different from, those of the disabled person. This type of discrimination relates to general assumptions about the nature of the dis- ability. It would include, for example, refusing to shortlist a severely visually impaired person for a job involving computers, in the belief that this disability\ would automatically render the applicant incapable of using them. In London Borough of Lewisham vMalcolm (2008) the House of Lords held that ‘for a reason related to a person’s disability’, should be narrowly interpreted and that the proper comparator was someone reflecting the underlying reason for the alleged discrimination. For example, if a person is dismissed for being off work for a year, that would be the reason for the dismissal, not the person’s disability. The comparator in such a case would be someone who was not disabled but absent for a year. This decision is likely to make it harder for claimants to succeed in DDA cases. 3 Failure to make reasonable adjustments . An employer has a duty to take reasonable steps to prevent any ‘provision, criterion or practice’ imposed by the employer, or any physical fea- tures of the premises, from putting the disabled person at a substantial disadvantage (s 4A). Section 18B lists a wide variety of examples of reasonable adjustments. It includes vari- ation of working hours, training, modifying or obtaining new equipment a\ nd making physical changes to the structure of the premises. Whether it is reasonable to expect the employer to make the adjustment will be decided on the basis of proportionality. Thus, the effectiveness and practicability of the measure are relevant, as well as the size of the employer’s business, the cost of alter- ations, the financial and other resources of the employer. Tarling v Wisdom Toothbrushes (1997) Ms Tarling had a club foot which made it difficult for her to stand for long periods. This impaired her work performance, which led to her dismissal. PA R T 4ELEMENTS OF EMPLOYMENT LAW 384 0003 Held: her dismissal was discriminatory and due to the failure of the employer to make reasonable adjustments. Her employer knew that a special chair was available, on four weeks’ free trial at a sub- sidised cost which reduced the price to £200, but took no steps to obtain one. 4 Victimisation. Under s 55 it is unlawful to discriminate against a person because he \ or she has, in good faith, brought proceedings under the Act, or given evidence or provided information relating to such proceedings. You may have noticed that unlike the preceding anti-discrimination legislation the DDA makes no mention of indirect discrimination. In Coleman vAttridge Law (2008), Ms Coleman, who has a severely disabled son requiring complex care arrangements, claimed that she was treated less favourably by her employers than colleagues with non-disabled child\ ren with regard to flexibility of working hours to accommodate her caring responsibilities. She argued that she was being discriminated against by association with her son’s disability The issue was referred to the ECJ to clarify whether indirect discrimination is prohibited by the Equal Treatment Framework Directive with which the DDA should comply. The ECJ stated that discrimination or harassment by association is prohibited by the Directive ‘on the grounds of disability’ and it is irrelevant whether a person suffers discrimination because of their own or a third party’s dis- crimination. Consequently Ms Coleman won her case at the Employment Tribunal and the EAT upheld that decision in October 2009. Protection from harassment Section 3B defines harassment as occurring where, for a reason which relates to a person’s disability, a person engages in unwanted conduct which has the purpose or effect of violat- ing the disabled person’s dignity, or creating an intimidating, hostile, degrading, humiliating or offensive environment for him or her. Vicarious liability: s 58 The employer will be vicariously liable for the acts of any employee don\ e in the course of business, subject to the defence that the employer took all practicable \ steps to prevent the behaviour. Sexual orientation Until 2003, an employee enjoyed little legal protection against discrimination on the grounds of sexual orientation. Human rights legislation provided some redress. The European Convention on Human Rights (Article 8, Article 13 and Article 14, which prohibits discrimination) does not refer SEXUAL ORIENTATION 385 17 Rights at work: protection against discrimination 0003 expressly to sexual orientation but can be interpreted purposively. The European Court of Human Rights, in Smith and Gradyv UK (1998), held that the ban on lesbians and gay men in the armed forces violated their rights under Article 8 (the right to privacy and fam\ ily life) and Article 13 (the right to an effective domestic remedy). This led to a radical change in policy by the Ministry of Defence, which lifted the ban. The implementat\ ion of the Conven- tion in the English courts by the Human Rights Act 1998 enabled further \ developments of English law in this area. EC law eventually prompted change under the Equal Treatment Directive 2000. The Employment Equality (Sexual Orientation) Regulations 2003 These regulations make it unlawful to discriminate against any employee by treating them less favourably on account of their sexual orientation. It is thus illeg\ al to discriminate against a heterosexual, lesbian, gay man or bisexual because of their sexuality.The legislation covers the same aspects of employment as the SDA 1975 an\ d the RRA 1976. It covers direct and indirect discrimination as well as victimisation. It also includes harassment, which is defined as occurring where, on grounds of sexual orientation, a person engages in unwanted conduct, which has the purpose\ or effect of vio- lating the dignity of the other person, or creating an intimidating, hostile or offensive environment for the other person. In English v Thomas Sanderson (2008), the Court of Appeal held that the claimant (who was heterosexual and not believed to be gay by his tormentors) had been harassed \ in breach of the regulations when he was subjected to homophobic banter by work col- leagues. Sedley LJ said: What is required that the claimant’s (or someone else’s) sexual orientation, whether real or supposed, should have been the basis of harassment directed at him or he\ r. That is what was going on here. Laurence Collins LJ held: If one were to ask the question whether the repeated and offensive use o\ f the word ‘faggot’ in the circumstances of this case was conduct ‘on grounds of sexual orientation\ ’ the answer should be in the affirmative irrespective of the actual sexua\ l orientation of the claimant or the perception of his sexual orientation by his tormentors. If the conduct is ‘\ on grounds of sexual orientation’ it is plainly irrelevant whether the c\ laimant is actually of a particular sexual orientation. The regulations include two genuine occupational qualifications which may per\ mit dis- crimination: 1 where the nature of the employment requires an employee to have a specific sexual orientation; 2 where the employment relates to an organised religion, the doctrine of which requires a specific sexual orientation, or where the discrimination is necessary to avoid conflict with the religious beliefs of a significant number of the religion’s adherents. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 386 0003 An employer may be vicariously liable for acts of discrimination or hara\ ssment caused by employees, but has a defence if it took all reasonable precautions to prevent the behaviour. Martin vParkham Foods (2006) In May 2005, abusive and homophobic graffiti naming Mr Martin appeared on the toilet wall at his workplace. He complained to the human resources department and a very limited cleaning operation took place which merely obliterated his name. Notices were put up telling staff not to deface the build- ing, but homophobia was not mentioned. In October 2005, his name re-appeared on the graffiti. He complained again but was told that there was little that could be done to discover the culprit. He then wrote a formal complaint letter and Parkham suspended him to allow an in vestigation to take place. In December 2005, while suspended, Mr Martin resigned and claimed harassment, direct discrimina- tion and constructive dismissal. Held: Parkham was vicariously liable for the harassment and had directly discriminated against Mr Martin. It had not taken all reasonable steps to prevent the recurrence of the homophobic behaviour, which should have been addressed by appropriate training, team briefings or notes in pay-slips to make it crystal clear to all employees that homophobic behaviour would not be tolerated. The grievance had not been diligently investigated and the failure to apologise to him was also culpable. His suspension, given the connotations it carried, was inappropriate. All of these factors led to a breach of Mr Martin’s trust and confidence and meant that he had been con- structively dismissed. Religion or belief As a result of implementation of the Equal Treatment Directive of 2000, the Employment Equality (Religion or Belief) Regulations 2003 were introduced. These regulations are similar in scope and function to the other anti-discrimination legislation descr\ ibed above. It is unlawful for employers to discriminate directly or indirectly on the grounds of religious belief or lack of it. This would cover, for example, rules regarding uniform, dress or leave for the purpose of religious observance. The employer may have a defence if it can show that\ the alleged discrimination was a proportionate means of fulfilling a legitimate aim. Azmi vKirklees Metropolitan Borough Council (2007, EAT) Ms Azmi was suspended from her job as a teaching assistant when she persisted in wearing a full veil, despite instructions not to do so. RELIGION OR BELIEF 387 17 Rights at work: protection against discrimination 0003 She claimed that the council had directly and indirectly discriminated against her as her religion required her to wear a veil while the class teacher, who was male, was in the room. The council denied the claim arguing (from observing her at work) that the veil which covered her face and mouth interfered with her ability to communicate properly with the children and interfered with their learning to read. Held:no direct discrimination had occurred. She had not been treated any differently, on the grounds of her religious belief, than any woman employee, Muslim or otherwise, who covered her face for non- religious reasons. They would have been subject to the same rule. No indirect discrimination had occurred. While the council’s dress policy contained a provision which some Muslim women might not be able to fulfil, it did not target the veil but acknowledged that the policy had an impact in that area and that every case would be dealt with on its merits. The policy was neutral or at least applicable to non-Muslims. The council had acted with proportionality in order to achieve a legitimate end (the children’s learning). Discrimination by way of victimisation and harassment are also covered. Harassment is defined as occurring where, on grounds of religious belief, a person engages in unwanted conduct, which has the purpose or effect of violating the dignity of the other person, or cre- ating an intimidating, hostile or offensive environment for the other person. In Islington Borough Council vLadele (2008) the Employment Appeal Tribunal held that the Council had not discriminated against or harassed the claimant by in\ stituting disciplinary proceedings against her. She was a registrar who had refused to conduct civil partnerships because of her Christian beliefs. The EAT held that the appropriate comparator in such a case was a hypothetical registrar who refused to perform the ceremonies because of antipa- thy to same-sex relationships for reasons other than religious ones. It would be appropriate to discipline such a person, for failing to carry out their job. The cou\ ncil had a legitimate aim in providing civil partnership registration and it naturally followed that its registrars could not pick and choose which ceremonies they would perform. Genuine occupational requirements protect from liability those organisations whose ethos is based on religion or belief such as churches and religious schools. Age discrimination The Employment Equality (Age) Regulations 2006 Until these regulations (which implemented the Equal Treatment Amendment Directive (2002/73/EC)) came into force on 1 October 2006, there was no direct legislative prohibition of age discrimination under English law. In fact, the Employment Rights Act 1996 effectively sanctioned discrimination by denying protection from unfair dismissal and the right to redundancy pay, to people past retirement age. This is no longer legal. The regulations operate similarly to the other anti-discrimination legislatio\ n. They make it illegal on grounds of age to discriminate directly or indirectly against someone or to harass PA R T 4 ELEMENTS OF EMPLOYMENT LAW 388 0003 ENFORCING ANTI-DISCRIMINATION LEGISLATION 389 17 or victimise him or her. Discrimination may exceptionally be legal where a genuine occupa- tional qualification exists. It is also a defence to show that the alleg\ ed discriminatory behaviour was in the circumstances a proportionate means of fulfilling a legitimate aim.While discrimination in this area is seen as predominantly affecting older people, young people are also protected by this legislation. Any person constantly made the butt of joke\ s concerning their age might claim harassment whether they were being described as ‘an old fogie’ or ‘wet behind the ears’. Retirement age Under the regulations an employee can no longer automatically be made to retire on reaching retirement age and can claim unfair dismissal if this occurs. However, this is not quite as com- prehensive as it sounds. The regulations do not give a rightto employees to go on working past retirement age, but only to requesttheir employer to consider allowing them to do so. If the normal retirement age (NRA) is under 65 (e.g. police retire at 55), the employer must be able to show objective justification for requiring the employee to retire. Where the NRA is 65, the employer will not have unfairly dismissed the emplo\ yee pro- vided that the employer notified the employee, not more than 12 months and not less than six months from the employee’s sixty-fifth birthday, of their rights and duly considered any request at a special meeting with the employee. Similarly, an employer is entitled to reject an application for a job from someone past the NRA. Enforcing anti-discrimination legislation A complainant may apply to take the matter before an employment tribunal. An application must usually be made within three months of the alleged discriminatory behaviour. Initially, grievance and possibly conciliation procedures are implemented, but if these fail the case will be heard by the tribunal. Failure for Heyday claim? Heyday, which is part of Age Concern, claimed in 2006 that the compulsory retirement age breached the Framework Directive on which the regulations are based. The case was referred to the ECJ, which held in 2009 that a member state is entitled to impose a compulsory retirement age, provided that this reflects a legitimate aim; reflecting current social policy and the mandatory retirement age is a propor- tionate means of achieving that aim. It was then up to the High Court to determine whether these criteria were fulfilled, which it did in R on the application of AGE UKvSecretary of State for BIS. In the News Rights at wo rk: protection agains t discrimination 0003 Remedies 1Recommendations: the employer may be ordered to take practical steps to correct the situation. 2 Damages: these may be awarded for hurt feelings as well as loss of earnings if the dis- crimination caused constructive dismissal (see Chapter 18). 3 Declaration: this may be issued at the same time alongside an award of damages. It states the rights of the employee and the employer and is aimed at preventing further discriminatory behaviour. The Commission for Equality and Human Rights The Commission for Equality and Human Rights (CEHR) has been created under the Equality Act 2006, s 1. From October 2007, it replaced the Equal Opportunities Commis- sion, the Commission for Racial Equality and the Disability Rights Commi\ ssion which had been responsible for overseeing the working of the legislation relevant to sexual, racial and disability legislation respectively. The CEHR took over their functions but with additional powers enabling it to exercise a unifying role in monitoring anti-discrimination legislation as a whole. It is also responsible for the promotion of a culture of equality and human rights. The core functions of the Commission are: 1 Promoting and encouraging awareness and good practice in equality and diversity. 2 Promoting understanding of rights under the legislation through provision of easily acces- sible advice and information. 3 Enforcing rights under the legislation through individual case work support. 4 Working towards eliminating unlawful discrimination and harassment through promotion of awareness and provision of advice and through strategic enforcement, including the use of investigations and enquiries. 5 Promoting awareness, understanding and protection of human rights by initiating good practice in public authorities, in order to improve compliance with the Human Rights Act 1998. 6 Promoting good relations between the different groups covered by the equality laws and between them and society at large. PA R T 4 ELEMENTS OF EMPLOYMENT LAW 390 0003 CHAPTER SUMMARY 391 17 Reform of anti-discrimination law The Equality Bill 2009 This Bill re-states and amends all the anti-discrimination statutes and regulations covered in this chapter. For example, the definition of discrimination under the DDA is replaced by clause 14 which states: a person (A) discriminates against a disabled person (B) if (a) A treats B in a particular way, (b) because of B’s disability, the treatment amounts to a detriment, and (c) A cannot show that the treatment is a proportionate means of achieving a\ legitimate aim. Once it has been enacted it will render the House of Lords decision in London Borough of Lewisham v Malcolm (2008) (see above at page 384) ineffective, its aim being to restore a fairer balance between the interests of disabled employees and their employer. It is an enormous piece of legislation which covers not only employment \ but also provi- sion of goods and services. At the time of writing, it is in Committee i\ n the House of Commons and is intended to come into force during 2010. Some of it is controversial (e.g positive action in recruitment and selection) and may well be amended in the legislative process, so full analysis is in inappropriate at this point. Once it has been enacted, a full account of the relevant sections will appear in the update section of the companion webs\ ite to this book see: www.mylawchamber.co.uk/adams. Chapter summary The scope of anti-discrimination law Gender : Equal Pay Act 1970, Sex Discrimination Act 1975. Race: Race Relations Act 1976. Disability : Disability Discrimination Act 1995. Sexual orientation: Employment Equality (Sexual Orientation) Regulations 2003. Religion/belief: Employment Equality (Religion or Belief) Regulations 2003. Age : Employment Equality (Age) Regulations 2006. Cases are heard in the employment tribunal. Structure Sex Discrimination Act, Race Relations Act and the regulations All structured similarly and give an employee rights to seek compensation from their employer for: (a) direct/indirect discrimination (general occupa- tional qualifications may provide justification); (b) harassment; (c) victimisation. An employer may be vicariously liable for discrimi- natory behaviour of employees. Rights at work: protection against discrimination 0003 392 Chapter summary (Continued from page 391) PA R T 4ELEMENTS OF EMPLOYMENT LAW Equal Pay Act Entitles a woman to equal pay with a man doing the same/similar/equivalent work or work of equal value. Disability Discrimination Act Differs from SDA, RRA and the regulations as it does not include indirect discrimination. Direct discrimination includes: Justifiable discrimination: less favourable treat- ment because of a person’s disability for which the employer is not liable if it can show material and substantial reason for the discriminatory behaviour. Unjustifiable discrimination: less favourable treatment not justified by some material/substan- tial reason. Failure to make reasonable adjustment: it is the employer’s duty to take reasonably practicable steps to avoid the person with the disability from being substantially disadvantaged. The Act also gives protection against harassment and victimisation. The employer may be vicariously liable. Remedies Damages, recommendations, declaration. Commission for Equality and Human Rights: body responsible for monitoring the oper- ation of anti-discrimination law in the UK. Direct discrimination:openly treating an employee less well than others because of sex, race, disability, sexual orientation, age or religion. Disability: DDA 1995 definition:physical/ mental impairment having substantial long-term adverse effect on a person’s ability to do his or her job. Equality clause:implied term in a woman’s employment contract entitling her to equal pay with men doing the same/similar/equivalent work or work of equal value. Gender equality duty:Equality Act 2006 requires public authorities positively to promote gender equality and eradicate racism in all aspects of their work. Genuine occupational qualification (GOQ): essential characteristic needed for a job which may permit employer to discriminate against members of groups who lack it. Harassment:verbal/non-verbal behaviour which creates an intimidating/hostile/degrading/offensive environment and is intended/has the effect of vio- lating a person’s dignity. Indirect discrimination:covert discrimina- tion. Selection criteria, policies, benefits, rules or conditions applicable to the whole workforce but discriminatory to members of a particular group. Racial grounds:RRA 1976 definition: colour/ race/nationality, or ethnic/national origins. Key terms 0003 ASSIGNMENT 16 393 1 (a) Ms Antelope, who is employed as a cleanerby Cheetah plc, is paid less than the packers. (b) Mr Buck was refused a job at the Warren Family Planning Clinic because of his sex. What legal rights may they have? 2 What is the difference between direct and indi- rect discrimination? 3 When may it be legal to advertise a job as being open only to members of a particular ethnic group? 4 What aspects of employment discrimination come within the scope of the Sex Discrimination Act 1975 and the Race Relations Act 1976? Answers to all quizzes can be found in Appendix 2. Quiz 17 The following cases provide important examples of how the law you have studied in this chapter has developed. They are primary sources illustrating the law in action and give you more detail about their facts, as well as helping you to understand the law and to appreciate how the judges reached their decisions. Try looking them up in the law reports or accessing them via a database, e.g. Bailli (www.bailii.org/ databases.html). LexisNexis or Westlaw may be available in your university or college library, or you may find extracts in a case book. (See Appendix 1: Additional resources.) Azmi v Kirklees Metropolitan Borough Council (2007) The Times, 17 April, EAT O’Neil v Symm & Co. [1998] IRLR 233 Rainey v Greater Glasgow Health Board [1987] AC 224 HL Redfearn v Serco Ltd [2006] IRLR 623. Take a closer look 17 Web activity Trumpet Ltd provides public relations and publicity services. Madeline has been working for the com- pany as a receptionist for seven years. Recently she was severely injured in a road accident uncon- nected with her job and is now confined to a wheelchair. Trumpet has given her notice saying that it cannot guarantee her safe evacuation from the building in the event of fire and that the toilet arrangements are not accessible to wheelchair users. Assignment 16 Rights at work: protection against discrimination Please go to: www.acas.org.uk/ Click on ‘’Equality’, and explore the resources on offer. 0003 PA R T 4ELEMENTS OF EMPLOYMENT LAW 394 Raj, recently recruited to the company, receives an anonymous message through the internal mail saying ‘Why don’t you get a job nearer home?’ and others follow containing website addresses for airlines doing bargain flights to Pakistan. He reports the matter to his manager, Gladys, who says he should ignore it and, anyway, there is noth- ing she can do about it. Jane has worked in public relations for several years. She recently applied to Trumpet for a job and in her application was able to demonstrate conformity with all the essential and desirable requirements in the job description. At her inter- view, when asked to give examples of successful projects, she describes a publicity campaign that she ran for ‘Outcome’, a lesbian and gay organisa- tion. She does not get the job and afterwards finds out that it has been given to another applicant less well qualified than she. She queries this with Trum- pet’s human resources manager who tells her: ‘We were not convinced that your professional experi- ence fits the needs of our client group.’ Advise Madeline, Raj and Jane. Assignment 16 (Continued from page 393) Visit www.mylawchamber.co.uk/adamsto access multiple choice questions and glossary flashcards to test yourself on this chapter. You’ll also find weblinks to the web activity in this chapter. 0003 0003 chapter 18 RIGHTS AT WORK: protection against dismissal and redundancy 0003 Introduction This chapter focuses on the legal consequences which result when the employment contract is brought to an end by the employer. Three legal concepts are crucial to this area: 1Wrongful dismissal . At common law an employee dismissed without appropriate notice may sue in the civil courts for breach of contract at common law. 2 Unfair dismissal. Provided that the required notice is given, dismissal is lawful at common law, but nonetheless may be unfair as an employee is potentially vul- nerable to dismissal at the whim of the employer. Since 1971, statutory rights have existed which protect employees found to have been dismissed unfairly. An employee may be entitled to bring a claim before an employment tribunal, whether dismissed with notice or not. Unless the employer can prove that it was fair to dismiss the employee (because of incompetence, for example), h\ e or she may have to pay compensation to the employee who might, in exceptional cases, be reinstated. 3 Redundancy . An employer may need to reduce the size of the workforce, but an employee consequently made redundant may have a statutory entitlement to compensation. These concepts are explained in detail below. Learning Objectives When you have studied this chapter you should be able to: See the difference between wrongful and unfair dismissal Explain the circumstances when a claim for unfair dismissal exists Understand when a claim for redundancy exists Describe in outline the employee’s remedies for unfair dismissal and redundancy Appreciate the concept of transfer of undertakings. Photo: © William Manning/Corbis 0003 Wrongful dismissal Wrongful dismissalis a breach of contract action which may be brought by an employee if the contract of employment is terminated by the employer without the \ appropriate notice, or, in the case of a fixed-term contract, if termination is enforced before the contract’s com- pletion date. Summary dismissal (without notice) may be justified only if the employer can prove that the employee was guilty of gross misconduct. This usually involves theft, fraud, violence or drunkenness, reckless behaviour or wilful refusal to obey a reasonable order. Minimum notice periods Under the Employment Rights Act 1996 (ERA 1996) the following notice p\ eriods apply unless a longer period is specified in the contract (s 86): up to one month in employment: no notice;  one month to two years’ employment: one week’s notice;  two to 10 years’ employment: one week’s notice for every completed year;  over 10 years’ employment: 12 weeks