Saturday, March 12, 2011

Court of Appeal on Concurrent Liability

Earlier this year, the UK Court of Appeal was called on to consider an important question dealing with concurrent liability in contract and tort. The facts in Robinson v. Jones involved the defective construction of a house by a builder, which caused economic loss to the purchaser. However, the contractual remedy was barred by limitation. As a result, the purchaser sought to argue that he had a concurrent remedy in tort, which was not barred by limitation (since the limitation period for tort commences only from the date on which the party comes to know of the breach). It was also contended that the contractual exclusion of this tortious liability fell foul of the Unfair Contract Terms Act [“UCTA”]. Against the backdrop of an excellent summary of the English law relating to concurrent liability, the Court of Appeal held that there was no concurrent liability in tort. It also held obiter, that the contractual exclusion was reasonable, and did not violate the UCTA.

In Henderson v. Merrett, Lord Goff laid down the present English position on concurrent liability, by holding that the existence of a contract between parties does not necessarily exclude the concurrent existence of liability in tort. When the facts suggested that the defendant had assumed a responsibility towards the claimant, on which the claimant relied to his detriment, there would exist a concurrent liability in tort. The question before the Court of Appeal was whether a builder could be considered to have assumed responsibility in relation to economic loss resulting from economic loss.

The Court held that apart from the liability under the contract, the law of tort (independent of the assumption of responsibility) imposed an obligation on the builder to protect the purchaser and subsequent users against personal injury and damage to other property. In order to show liability for economic loss, reliance would have to be placed on the assumption of responsibility. The facts of Henderson involved insurance agents, and was itself based on Hedley Byrne, which was a case of professional negligence. However, the Court of Appeal held that this assumption of responsibility could not be easily assumed outside the realm of professional retainers. The explanation for this conclusion was as follows:

Contractual and tortious duties have different origins and different functions. Contractual obligations spring from the consent of the parties and the common law principle that contracts should be enforced. Tortious duties are imposed by law, as a matter of policy, in specific situations. Sometimes a particular set of facts may give rise to identical contractual and tortious duties, but self-evidently that is not always the case.

Lord Justice Jackson also examines Lord Goff’s speech in Henderson and points out that not every contract is held to lead to an assumption of responsibility. All that Lord Goff was clarifying was that the existence of a contract did not, by itself, exclude tortious liability. On facts here, there was held to be nothing which suggested that the builder had assumed any responsibility, and the parties were not in a professional relationship “whereby, for example, the claimant was paying the defendant to give advice or to prepare reports or plans upon which the claimant would act”. Finally, on the possible inequity of the contractual claim being barred by limitation, the Court held that it was but a manifestation of the contractual allocation of risk between the parties, and could not be disturbed.

Lord Justice Stanley Burton adopts a slightly different line of reasoning, arguing for a distinction between “a person who supplies something which is defective and a person who supplies something (whether a building, goods or a service) which, because of its defects, causes loss or damage to something else”. Even in the context of negligent advice by a professional, the tortious claim does not arise due to the defective nature of the advice itself, but because of the damage that it causes to the claimant’s assets.

In sum, the following propositions on concurrent liability in contract and tort appear from the decision-

(1) The existence of a contract does not necessarily result in a co-extensive liability in tort. The liability in tort must either be imposed by law, or be assumed by the defendant on the facts of the case. On this issue, however, Lord Justice Jackson’s decision is a little unclear, and seems to co-opt both sources of the tortious liability being public policy (¶¶ 76 and 79).

(2) Contracts with professional advisors and other contracts may be treated differently, with responsibility being more easily assumed in the former than the latter. This is where there may be a slight divergence between Jackson LJ and Burton LJ. The former seems to think that public policy may have something to do with the different treatment of professional advisers, while the latter relies solely on the fact that in negligent advice cases, the claimant is usually suing for the damage to assets caused by the advice and not for the negligent advice itself.

2 comments:

vswami said...

1. This write-up brings to one’s mind like legal implication or consequence in the case of any professional; e.g. a CA in providing any ‘service’. In the nature of things, and strictly according to the applicable code of ethics, his practice is required to be confined mainly to the functions of, – ‘audit’; though extended to the field of -‘taxation’, where he is, by convention or otherwise considered, recognised and regarded to be additionally equipped or competent, hence allowed to render ‘service’ to clients.
In the matter of - ‘liability’, besides any related others, the reported judgment of the designated Commission in Maharashtra State under the Consumer Protection Act of 1986, in re. Ravi Pandit (Appeal No, 155 of 1998, Order dated May 13, 1998) calls for a reference. In that case, as per the ruling, a CA will be liable for compensation to his client in regard to ‘deficiency in service’, that is, if advice or ‘opinion’ furnished to client is devoid of ‘legal content’, in that it is contrary to what any law explicitly provides and /or not supported by any judicial decision or textual commentary.
(This aspect as elaborated in - A HANDBOOK ON TAX PRACTICE (Chapter titled – ‘OPINION’) may be found to make for a useful reading)
2. On the other coveted profession namely, – lawyers, there is a host of material available in public domain, of general interest. Chosen on a sampling basis, the several articles, etc., at the following links are seen to provide enough food for thought:
http://www.professorbainbridge.com/professorbainbridgecom/
06/08/2009
“The Function of Transactional lawyers”
3. Reverting to the discussion on - as to whether or not liability in ‘contract’ and in ‘tort’ is mutually exclusive, according to information, the ‘law of torts’ as such is very little known, hence not invoked, in our country. So much so, it is at best of an academic interest to professionals here. Even so, one may wish to have a glance @: http://www.legalserviceindia.com/article/l129-Torts-In-India.html

vswami

Anonymous said...

Henderson was decided on the basis of Midland Bank Trust