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CONTRACT LAW

Contract

A contract may be defined as an agreement which legally binds the parties.

It can also be defined as an agreement enforceable by law for a consideration.

All contracts are agreements but all agreements are not contracts.

The following are needed to form a valid contract:

Agreement made by offer and acceptance.

Consideration.

Intention to create legal relation (Balfour v Balfour)

Additional validity factors for a valid contract are:

Capacity to contract e.g. minors, intoxicated etc

Form: some contracts must be made in a particular form e.g. title deeds for cars etc.

Genuine consent of parties.

Legality of object; some contracts may be illegal e.g. a contract to kill someone.

A contract which does not satisfy the relevant tests may be either:

Void contract

A void contract is not a contract at all. It is something which has no legal force.

Voidable contract

A voidable contract is a contract which one party may set aside.

Void ab initio

Invalid, at the very beginning.

Unenforceable contract

An unenforceable contract is a valid contract and property transferred under it cannot be recovered even from

the other party to the contract. But if either party refuses to perform or to complete their part of the

performance of the contract, the other party cannot compel them to do so.

The limitation period for a contract made by deed is 12 years. For all other contracts, the limitation period is 6 years.

Collateral contract

A collateral contract is a contract where the consideration is provided by making of another contract. For example, if

there are two separate contracts, one between A and B and one between A and C, on terms which involve some

concerted action between B and C, there may be a contract B and C (Shanklin Pier Ltd v Detel Products Ltd: the

contract between claimant and X requiring the use of the defendant’s paint was the consideration for a contract

between the claimants and the defendant).

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Offer

An offer is a definite promise to be bound on specific terms on which the maker is prepared to be contractually bound

if it is accepted unconditionally.

An offer can be made to a single person, or to the world at large (Carlil v Carbolic Smoke Ball Co).

The following are not offers:

A vague statement (Gunthing v Lynn: sale of lucky horse).

Invitation to treat

An invitation to treat means an invitation to the other party to make an offer. An invitation to treat cannot be

accepted to form a valid contract.

The following are examples of invitation to treats:

o Advertisements

(Partridge v Crittenden: price of cocks was sale advertisement)

o Shop window displays

(Fisher v Bell: offensive weapon displayed in a shop window)

o Goods on shop shelves

(Pharmaceutical Society of Great Britain v Boots Cash Chemists: inappropriate medicine kept on shop

shelf was invitation to treat)

o Auctions

(Harris v Nickerson: items for sale in auction were withdrawn before arrival of claimant)

o Invitation to tenders

The person inviting the tender is simply making an invitation to treat.

Supply of information

(Harvey v Facey: response to a query was simply supply of information, it was not an offer)

Statement of intention to sell

(Harris v Nickerson: an advertisement that goods will be put up for auction doesn’t constitute an offer)

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Termination of an offer

An offer may only be accepted when it is still open. In the absence of an acceptance, an offer may be terminated in any

of the following ways.

Rejection

The offer terminates if the offeree rejects the offer.

Counter-offer

A counter-offer is a final rejection of the original offer. If a counter-offer is made, the original offeror may

accept it, but if he rejects it his original offer is no longer available for acceptance.

(Hyde v Wrench; the original offer was terminated and thus Hyde couldn’t accept the original offer)

It is possible to respond to an offer by making a request for information. Such a request may be a request

as to whether or not other terms would be acceptable. It is not a counter-offer (Steveson v McLean).

Lapse of time

An offer may be expressed to last for a specified period of time. However, if no time limit is set, the offer

expires after a reasonable time (Ramsgate Victoria Hotel v Montefire; five months was too long for

acceptance of an offer of sale of shares).

Revocation

The offeror may revoke his offer at any time before acceptance, even if the offeror has agreed to keep the

offer open (Routledge v Grant; sale of horse within six weeks time but the offer was withdrawn before the

stated time).

The revocation must be communicated to the offeree. Posting a letter of revocation is not a sufficient act of

revocation (Bryne v Leon Van Tienhoven; the letter of revocation could not take effect until received).

The revocation can be communicated to the offeree by a reliable third party (Dickinson v Dodds; sale of

property was informed by a third party).

Where an offer is intended to be accepted by conduct, it has been held that the offer cannot be revoked

once the offeree has begun to perform the necessary act required to accept the contract (Errington v

Errington).

Death of one of the parties

The death of the offeree or offeror terminates the offer unless the offeree accepts the offer in ignore of the

death of the offeror.

Failure of a condition

An offer may be conditional in that it is dependent on some event occurring or there being a change of

circumstances. If the condition is not satisfied, the offer is not capable of acceptance (Financings Ltd v

Stimson: required that to purchase car, a hire-purchase form must be signed and it was not done so).

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Acceptance

Acceptance is a positive act by a person to whom an offer has been made which, if unconditional, brings a binding

contract into effect.

The following are general rules for valid acceptance:

Offer can only be accepted by someone to whom it is made or by the person authorized to do so. This is

usually the offeree or his authorized agents.

Acceptance can be oral, written or by conduct (Carlil v Carbolic Smoke Ball).

Acceptance is not effective until it is communicated to the offeror (Entores v Miles Far Eastern).

The following conclusions can be drawn from the Entores case:

o If a fax, telex or telephone message is received during normal business hours, that is when it is

communicated even though it might not be read until later.

o If a fax, telex or telephone message is received outside normal business hours, it is deemed to be

communicated when the business next opens.

Silence is not acceptance (Felthouse v Bindley; Uncle didn’t received reply from his nephew and assumed

that horse is his).

If the postal method is used for acceptance then the acceptance is completed as soon as the letter of

acceptance is posted (Adams v Lindsell).It even applies if the letter is never received by the offeror

(Household Fire Insurance v Grant).

However this rule doesn’t apply if the offeror states in his offer that he must actually receive the

acceptance letter (Holwell Securities v Hughes).

The offeror may call for communication of acceptance by specified means. Communication by some other

means equally expeditious generally constitutes a valid acceptance unless specified otherwise.

The offeror would have to use very precise wording if a specified means of communication is to be treated

as mandatory.

When there is no mode of communication is prescribed, the offeree can use any method but must ensure

that his acceptance is understood if he chooses an instantaneous method of communication.

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Consideration

A valuable consideration in the sense of law may consist either in some right, interest, profit or benefits accuring to one

party, or some forbearance, detriment, loss or responsibility given or undertaken by the other (Currie v Misa).

Consideration is an essential element of all contracts. There are two types of considerations:

Executory consideration is promise given for a promise.

Executed consideration is an act in return of a promise. It takes place at the present time.

A consideration:

Need not be adequate

Consideration doesn’t have to be a value appropriate to the promise (Thomas v Thomas: promise to pay a

widow £1 a year was binding).

Must be sufficient

Consideration must be more than the contracting parties were legally obliged to do in any event (Chappell v

Nestle Co Ltd: the chocolate wrappers sold along with records were part of consideration).

The following don’t constitute a valid consideration:

Past Consideration (Re McArdle: wife repaired a house but wasn’t able to reimburst the costs).

Performance of existing duty is not a consideration (Collins v Godfrey: witness wasn’t paid as he was legally

required by law to attend court).

However if the existing duty is increased it’s a sufficient consideration (Hartley v Ponsonby). The performance

of an existing contractual duty may be sufficient if it confers some benefit of a practical nature on the other

party (Williams v Roffey Bros: consideration to complete the work on time).

An illegal act is insufficient to amount to consideration.

The payment of a smaller sum doesn’t discharge a debt of a greater amount (Pinnel’s case).

However there are some exceptions to this rule:

o Where the payment is made by a third party.

o Creditors agree to accept a sum which is less than they are owed.

o Accord and satisfaction by both parties.

o The doctrine of promissory estoppel. (see next page)

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The doctrine of promissory estoppel

The doctrine of promissory estoppel prevents a person from going back on his promise to accept a lesser

amount. In other words, it prevents a person to exploit an opportunity by going against his words.

The principle was established in Central London Property Trust v High Trees House.

In which, full rent was payable after the end of the war. However, the doctrine of promissory estoppel

prevented the claimants from recovering full rent foregone during the war days.

The principle is subject to following conditions:

There must be an existing contract between the parties.

The claimants must voluntarily waive their rights under the contract (D & C Builders v Reel).

There must be an intention that the defendants should rely on the waiver.

The defendants must alter their legal position because of the waiver.

The doctrine has a number of limitations:

It is a shield not a sword. i.e. it is a defence not a cause of action (Combe v Combe).

It may only have a suspensory effect, as shown in the case. The claimant’s rights were suspended during

the war, but reinstated for the future once the war was finished.

The party seeking to use it as an equitable defence must also have acted fairly in their dealing with

claimant.

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Privity of contract

As a general rule, only the parties to a contract have enforceable rights or obligations under it. Third parties generally

have no right to sue on a contract (Dunlop v Selfridge: sold tyres to less than prescribed prescribed price but wasn’t

able to sue as they were not a party to contract).

However, there are certain exceptions:

The contract Act 1999 allows a person who is not a party to a contract to enforce it so long as the contract was

for his benefit and he was expressly identified, by name and description (Beswick v Beswick).

Under the rules of land law, covenants run with the land to which they relate (Tulk v Moxhay).

Insurance law allows a third party to take the benefit of a contract of Insurance.

Trust law allows a beneficiary to enforce a trust.

Agency law allows an agent to make a contract between his principal and a third party, even though the third

party may be unaware that he is acting as an agent.

An executor can enforce contracts made by the deceased for whom he is acting.

Where there is a collateral contract (Shanklin Pier Ltd v Detel Products Ltd: unsatisfactory paint).

Intention to create legal relations

In order to create a contract, both parties must intend to enter into a legal relationship.

Presumption

In a legal context, a presumption is an assumption of fact accepted by the courts until disproved. The court is

entitled to assume a fact to be true until such time as there is a greater weight of evidence which disproves the

presumption.

Rebuttal

If the presumption id disproved or outweighed, it is said to be rebutted. A witness can present facts to

persuade the judge that the presumption is not true. E.g. an accused person is presumed innocent until proved

guilty.

The law presumes the intention of the parties based on the type of agreement.

o Domestic or social agreements

It is presumed that there is no intention to be legally bound, unless it can be shown otherwise (Balfour

v Balfour).

o Commercial agreements

It is presumed that there is an intention to be legally bound, unless it can be shown otherwise (Jones v

Vernon’s Pool Ltd: no legal relationship existed as the contract was binding in honour only).

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Contractual Terms

A statement, written or oral, made during the negotiations leading to a contract, may be a term of the contract or

merely a representation inducing the contract.

A representation is something that is said by the offeror in order to induce the offeree to enter into the contract. It

may or may not become a term of that contract.

The distinction between terms and representations is important because, if a statement is untrue, the remedies

available to the innocent party differ:

If the representation becomes a term of the contract, the innocent party has remedies for breach

of the term as well as for misrepresentation

If, however, the representation does not become a term of the contract, the innocent party will

have remedies only for misrepresentation.

A term may be expressed or implied:

Express terms are those which are expressed either verbally or in writing (Scammell v Ouston: the court was

unable to identify a contract which it could uphold because the language used was so vague).

Implied terms are the terms which are not expressed in words but they are part of the contract due to

implication (The Moorcook: it was implied term that the low tide was safe for the ship to travel).

There are three types of terms:

Conditions

A condition is an important term going to the root of the contract.

Breach can result in damages or discharge or both. Discharge entitles innocent part to repudiate the contract.

(Poussard v Spiers & Pond: opera singer was unable to perform on the opening night, which was breach of the

condition and thus it, entitled the injured party to threat the contract as ended).

Warranties

A warranty is a less important term of the contract, which is incidental to the main purpose of the contract.

Breach of warranty results in damages only.

(Bettini v Gye: opera singer failed to attend the rehearsals leading to breach of warranty only).

Innominate terms

An innominate or indetermine term is the one which is difficult to classify either as warranty or condition.

The remedy of breach of innominate terms depends on their severity:

o If trivial: damages only (The Hansa Nord: some cargo arrived in bad condition was awarded damages

only as it was insufficient to justify treating the contract as ended).

o If serious: damages, discharge or both.

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Exclusion clauses

An exclusion clause (or exemption clause) is a term that seeks to exclude a party’s liability for breach of contract.

In order to be valid an exclusion clause must satisfy two conditions:

It must be incorporated into the contract.

Its wording must cover the loss.

UCTA 1977 states that a clause exempting liability for:

Death or personal injury is void.

Other loss due to negligence is void unless reasonable.

For dealings between sellers and buyers, a term is unfair is it allows the seller to alter the terms of the contract

unilaterally without a valid reason. If a term is unfair, it is not binding on the consumers.

UTCCR 1999 states that a term is unfair if:

It is not expressed in plain, intelligible language.

It causes a significant imbalance in the parties’ right and obligations and this is to the detriment of the

consumer.

An exclusion clause can be incorporated into a contract by:

Signature

If a person signs a document containing a term, he is held to have agreed to the term even if he had not read

the document (L’Estrange v Graucob).

However, a signature does not incorporate the clause if the effect of the term was misrepresented (Curtis v

Chemical Cleaning: dress was badly strained by the cleaners).

Notice

For an exclusion clause to be incorporated by notice, reasonable steps must have been taken to bring it to the

attention of the other party at the time the contract was made. What are ‘reasonable steps’ depend on the

circumstances (Olley v Marlbourough Court: husband and wife saw the disclaimer notice after booking the

hotel room).

Previous dealing

For an exclusion clause to be incorporated by previous dealings, there must have been a consistent course of

dealings between the parties (Spurling v Bradshow: barrels of orange juice were received empty).

However, if the parties have had previous dealing but not on the consistent basics , then the party bound by

the term must be sufficiently aware of it at the time of making the contract (Hollier v Rambler Motors).

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Breach of contract

Breach of contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily,

with their obligations under it.

There are two types of breaches:

Actual breach is where the breach occurs at due date for performance.

Anticipatory breach occurs where, before due date for performance, a party shows an intention not to perform

his contractual obligations.

Anticipatory breach may be express or implied:

o Express anticipatory breach

Express anticipatory breach occurs where one of the parties declares, before the due date for

performance, that they have no intention of carrying out their contractual obligations (Hochster v La

Tour: no longer need courier services and declared before performance was due).

o Implied anticipatory breach

Implied anticipatory breach occurs where one of the parties does something which makes subsequent

performance of their contractual undertaking impossible (Omnium D’Enterprise v Sutherland: the ship

was sold to someone else before the hire period was to commence).

Anticipatory breach doesn’t automatically bring the contract to an end. The innocent party has two options:

o Treat the contract as discharged and bring an action for damages immediately, without waiting for the

contractual date of performance (Hochster v De La Tour).

o Elect to treat the contract as still valid, complete his side of the bargain and then sue for payment by

the other side (White & Carter v McGregor: told to cancel the contract to have advertisement on bins

but the other party didn’t did so and completed the contract and then sued for payment).

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Damages

Damages are common law remedy. They are available for right for breach of contract.

Damages are intended to be compensatory not punitive.

Liquidated damages and penalty clauses

Where a contract provides for the payment of a fixed sum on breach, it may be either a liquidated damages

clause or penalty clause.

Liquidated damages are a genuine pre-estimate of the expected loss. The amount stated is the amount of

damages claimable. The amount is enforceable by the court.

A penalty clause threatens large damages for breach. The amount is often very large in relation to the loss. It is

unenforceable.

A penalty clause is presumed to be a penalty clause if:

o The stipulated sum is extravagant in comparison with the maximum loss that could be incurred.

o The same sum is payable in respect of one or more breaches, both trifling and serious.

o The sum stipulated is larger than the amount which would actually be payable if the contract were

performed.

Unliquidated damages

Where the contract does not make any provision for damages, the court will determine the damages payable.

These are known as unliquidated damages.

There are two factors to consider in determining the amount of unliquidated damages:

o Remoteness of loss (i.e. what losses can be claimed for?)

Damages are not recovered for all losses suffered. Some losses are too remote.

A loss is not too remote:

If it arises from the breach, or

It may reasonably be supposed to be within contemplation of the parties, at the time they

made the contract, as a result of the breach (Hadley v Baxendale: loss of profit was not in

knowledge, replacement of crankshaft).

In some circumstances, the court assumes that loss was a common or general knowledge and

thus awards damages (Victoria Laundry v Newman Industries: loss was profit was common

knowledge as any laundry couldn’t work without boiler).

o Measure of damages (i.e. how much are those losses worth?)

The measure of damages is that which will compensate for the loss incurred. It is not intended that the

injured party should profit from a claim. Damages may be awarded for financial and non-financial loss

Expectation interest

Here, the amount awarded as damages is what is needed to put the claimant in the position he would

have achieved if the contract had been performed.

Reliance Interest

This refers to the position the claimant would have been if he had not relied on the contract. This

compensates for the wasted expenditure (Anglia TV Ltd v Reed: Defendant backed out at the last

moment from a TV play and the suitable replacement was not found and thus the project was abandon.

Full wasted expenditure was recoverable).

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Some of the rules for measure of damage are:

Market price rule: The measure of damages for breaches of contract for the sale of goods is

usually made in relation to the market price of the goods. Where a seller fails to sell the goods,

the buyer can go into the market and purchase equivalent goods. The seller would have to

compensate the buyer for any additional cost incurred over the contract cost. And this

situation is revered when the buyer fails to purchase the goods.

Non-financial loss: In some cases, non financial losses such as mental distress, disappointment

etc can be recovered provided that contract was the one that was made to give enjoyment

(Jarvis v Swan Tours: disappointment and distress was suffered on holiday).

Cost of cure: Where there has been a breach and the claimant is seeking to put in the position

he would have been in if the contract had been performed, by seeking a sum of money to

‘cure’ the defect which constituted the breach, he may be denied the cost if it is wholly

disproportionate to the breach (Rulexy Electronic and Construction Ltd v Forsyth: less deep

swimming pool was built which it was equally suitable for swimming but still the court awarded

some damages due to loss of enjoyment).

Mitigation of loss: In assessing the amount of damages it is assumed that the claimant will take

reasonable steps to mitigate his loss. The burden of proof is on the defendant to show that the

claimant failed to take a reasonable opportunity of mitigation (Brace v Calder: claimant was

offer an identical job after dissolution of partnership but he rejected and thus could only recover

nominal damages as he didn’t mitigated his losses).

The injured party is not required to take risky measures to reduce his loss since these are not

‘reasonable’ (Pilkington v Wood).

Further points to note are:

If there is no actual loss, the claimant can recover only nominal damages.

A notional deduction may be made to reflect taxation.

Difficulty in evaluating losses doesn’t prevent their recovery.

Other common law remedies

Action for the price

A simple action for the price to recover the agreed sum should be brought if breach of contract is failure to pay

the price. But the property must have passed from the seller to buyer.

Quantum meruit

The phrase quantum meruit literally means ‘how much it is worth’. It is a measure of the value of contractual

work which has been performed. The aim of such an award is to restore the claimant to the position he would

have been in if the contract had never been made, and is therefore known as a restitutory award.

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Equitable remedies

The court may award equitable remedies where damages are inadequate compensation.

There are four types of equitable remedies:

Specific Performance requires someone to perform their contractual obligations. It is not available for personal

service contracts. It enforces positive covenants within the contract.

Injuction is discretionary court order which requires someone to do something or not to do something. It

enforces negative covenants within the contract.

(Warner Brothers Pictures Inc v Nelson: the film star agreed that she would not undertake any other film work

and any other occupation. The injuction was granted but no injuction was granted to prevent her from taking

other occupations).

Mareva or ‘freezing’ injuction

This is a special form of injuction which stops a party from disposing its assets or removing them from the

jurisdiction (Marvea Compania Naveria SA v International Bulk carriers).

Rescission

Rescinding a contract means that it is cancelled or rejected and the parties are restored to their pre-contractual

condition. Strictly speaking the equitable right to rescind an agreement is not a remedy for breach of contract.

It is a right which exists in certain circumstances, such as where a contract is voidable.

Four conditions must be must:

o It must be possible for each party to be returned to the pre-contract condition.

o An innocent third party who has acquired rights in the subject matter of the contract will prevent the

original transaction being rescinded.

o The right to rescission must be exercised within a reasonable time of it arising.

o Where a person affirms a contract expressly or by conduct, it may not then be rescinded.

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THE LAW OF TORTS

A tort is a type of civil wrong. It is a breach of a legal duty or an infringement of a legal right which gives rise to a claim

for damages.

As the tort is a breach of legal duty, there is no liability unless the law recognizes that the duty exists. In order to be

successful in an action of tort, the following conditions must be satisfied:

There must be an act or omission by the defendant.

The act or omission must have directly caused damages or injury to the claimant.

The courts must be able to establish a legal liability as a result of the damage.

Tort must be distinguished from other wrongs:

It is not a breach of contract.

In tort no previous transaction or contractual relationship need exist: the parties may be complete strangers.

However, if a contract does exist and a tort has been committed, the claimant may choose the remedy most

appropriate.

It is not a crime, where the object of proceedings is to punish the offender rather than compensate the victim.

There are various types or torts, some of which are described below:

Trespass to land involves entering land is owned by the claimant, remaining on the land or placing objects or

projections onto the land without any lawful justification.

Nuisance occurs where the use of land by one occupier causes damage to a neighboring occupier or their land.

Trespass to the person consists of any one of the following:

o Battery involves the intentional bringing of a material object into contact with another person. It is not

just restricted to violent acts, but can also include non-violent acts.

o Assault refers to an overt attempt to physically injure a person or create a feeling of fear and

apprehension of injury.

o False Imprisonment involves unlawfully arresting, imprisoning or preventing a person leaving where

they are.

Defamation is the injury to the reputation of a person that is not lawfully justified.

Deceit is a wrong whereby the claimant is mislead into taking actions that are to his detriment.

Passing-off (Ewing v Buttercup Margarine Ltd)

The tort of passing off arises:

o Where one business uses a name which is similar to that of an existing business, and

o It misleads persons into believing that they are the same business, and

o It causes actual damage to that business or will probably do so.

Negligence is the carelessness of an individual or a company that causes physical or financial damage to the

claimant. Negligent acts tend to be inadvertent or reckless, but not normally intentional.

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THE TORT OF NEGLIGENCE

Negligence is the carelessness of an individual or a company that causes physical or financial damage to the claimant.

Negligent acts tend to be inadvertent or reckless, but not normally intentional.

In order for an action in negligence to be succeed, the claimant must prove the following:

That a duty of care was owed to him by the defendant.

The defendant breached that duty.

As a consequence of that breach, damage or loss has been suffered.

Duty of care

There is a duty to take reasonable care not to cause foreseeable harm to others.

The case of Donoghue v Steveson was first to establish that a duty of care may be owed to a person, even where no

contractual relationship exists. Lord Atkin defined we owe a duty of care to our neighours. He defined ‘neighbours’ as

the ‘persons who are so directly affected by my act that I ought reasonably to have them in contemplation’. The claim

for financial loss suffered could be made if a ‘special relationship’ existed between the claimant and the defendant.

There are four tests which should be followed in determining whether a duty of care exists or not. They are:

Was the damage reasonably foreseeable by the defendant at the time of the act or omission?

Is there a neighbourhood principle or sufficient proximity (closeness) between the parties?

Should the law impose a duty of care between the parties, i.e. is it fair and reasonable to do so?

Is there a matter of public which exists or requires that no duty of care should exist?

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Breach of duty of care

In order for a claim to be successful, a claimant must not only prove that a duty of care existed, but also that a duty was

breached by the defendant.

The test for establishing breach of duty is an objective one and was set out in Blyth v Birmingham Waterworks Co

which stated that a breach of duty occurs if the defendant fails to do something which a reasonable man, guided upon

those considerations which ordinarily regulate the conduct of human affairs, would do; or does something which a

prudent and reasonable man would do.

The reasonable man is not expected to be skilled in any particular trade or profession but if he acts in a profession

capacity, he must show the care and skill of someone of that profession.

The following factors should be considered when deciding if a duty of care has been breached:

Probability of injury

The degree of care required has to be balanced against the degree of risk involved in the event of the duty

being breached. This means that greater the risk or injury the more should be done in order to prevent the

injury (Glasgow Corporation v Taylor: a child died after eating poisonous berries).

Seriousness of the risk

The degree of care to be exercised may be increased if the claimant is more vulnerable (Haley v London

Electricity Boar: a blind person fell into the hole made by defendants and sustained an injury).

Particular skill

If the defendant possesses a particular skill, the standard of care will be that of a reasonable person with that

skill (Roe v Ministry of Health: contaminated injection was given to the patient; however, no duty of care was

breached as no other doctor in that field had no way of detecting the contamination).

Cost and practicability

It is not always reasonable to ensure all possible precautions are taken. Where the cost or disruption caused to

eliminate the danger far exceeds the risk of it occurring it is likely that defendants will be found not to have

breached their duty if they do not implement them (Latimer v AEC Ltd: claimant fell due to slippery floor;

however the defendant didn’t act negligently as he put sawdust on most of the areas of the factory).

Common practice

Where an individual can prove their actions were in line with common practice or custom it is likely that they

would have met their duty of care. This is unless the common practice is found to be itself negligent (Paris v

Stepney BC: a mechanic lost his one eye when a piece of metal flew into his eye, causing him to become totally

blind).

Social benefit

Where an action is of some social benefit to society, defendants may be protected from liability even if their

actions create risk. The common examples are a fire engine or an ambulance speeds to a major disaster.

Res ipsa loquiter can be defined as the things speak for itself. If an accident occurs which appears to be most likely

caused by negligence, the court may apply this maxim and infer negligence from mere proof of the facts. The burden of

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proof is reversed and the defendant must prove that he or she was not negligent (Mahon v Osborne: a surgeon was

required to prove that leaving a swab inside a patient after an operation was not negligent).

Loss caused by the breach

A claimant must demonstrate that he has suffered loss or damage as a direct consequence of the breach.

The claimant must establish a causal link between the defendant’s conduct and the damage which occurred:

If damage was caused by something or someone else there will be no liability on the defendant’s part.

If the claimant would have suffered loss regardless of the defendant’s conduct then he has not caused the loss

(Jeb Fasteners Ltd v Marks, Bloom & co: claimants took over a company because of the services of the two

directors and not on the basis of negligently prepared accounts audited by the defendants).

If something happened after the defendant’s breach that caused or contributed to the damage then the

defendant’s liability will cease at that point.

Loss as a result of personal injury, loss to property and financial loss directly connected to personal injury are

normally recoverable. Pure financial loss is very rarely recoverable.

Even where the claimant is able to show the loss was suffered as a result of the defendant’s breach, the court

will not allow recovery of that loss if it is considered to be too remote.

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Remedies and defences in negligence

The common remedies and defences in an action for negligence are:

Remedies

The principal remedy in any case involving negligence will be an award of damages.

The damage caused to the claimant must be of a type that is ‘reasonably foreseeable’. A loss is reasonably

foreseeable if a reasonable man would have foreseen the type of injury, loss or damage (Overseas Tankship v

Morts Dock and Engineering Co: oil was spilled and accumulated around the claimant’s wharf. The oil ignited

and the wharf suffered fire damage. The defendants were not liable since, the damage to wharf by oil was

foreseeable, damage by fire was not).

If the type of damage is reasonably foreseeable the defendant is liable. It is irrelevant that the defendant might

not have been able to foresee its cause or its severity (Hughes v Lord Advocate: child fell into the hole

surrounded by paraffin lamps and was badly injured after explosion happened. It was irrelevant whether the

explosion was foreseeable or not).

Defences

There are three main defences to a charge of negligence:

o Contributory Negligence

If the claimant is partly responsible for his own injuries, the defendant can plead the defence of

contributory negligence. The court may then reduce any damages it awards to the claimant depending

on the degree to which he is judged responsible for his loss (Sayers v Harlow: claimant was injured

after using a public toilet while attempted to climb out of the toilet with the support of toilet-roll

holder).

o Volenti non fit injuria

This applies where the claimant has freely consented to the negligent act. It amounts to an agreement

by the claimant to exempt the defendant from a duty of care that he would otherwise owe. Consent

can be given expressly where the claimant agree to the risk of injury, or may be implied from the

claimant’s conduct (ICI v Shatwell: the claimants disregarded his employer’s safety rules and therefore

the defendant was nor held liable).

o Exclusion clauses

An exclusion clause is a provision within a contract which seeks to exclude or limit liability for

negligence. An exclusion clause may fall within the provisions of the Unfair Contract Terms Act 1977.

If an exclusion clause is found be valid, this constitutes a viable defence against any action for

negligence.

In addition the liability is excluded if it is possible to say that the act occurred in the course of nature,

i.e. that it was an ‘act of God’; something beyond human foresight which the defendant could not have

been expected to provide against.

20

PROFESSIONAL ADVICE AND NEGLIGENT MISSTATEMENT

In practice, there is no difference between liability arising from negligent misstatement and liability arising from

negligent acts. A party can suffer damage by reliance on incorrect advice just as he can be injured by any other

negligent conduct.

With respect to a negligent misstatement however, the consequences of this could be far-reaching and affect countless

people. Because of this the law had been reluctant to impose a duty of care in the making of statements.

This situation changed in 1964 when the landmark case set a new approach to the law of negligent misstatement. The

case was called Hedley Byrne & co Ltd v Heller & Partners Ltd. The case created a new duty situation by recognizing

liability for negligent misstatement causing economic loss in circumstances where there exist a special relationship

between the parties.

Special relationship

A special relationship exists where a professional person advises a known person who relies on the statement for a

known purpose. For an action in negligent misstatement to succeed there must to be a special relationship.

As a general rule, unless the defendant had prior knowledge that a certain bidder would rely on the statement made,

no duty of care would exist. The duty of care is owed to the shareholders as whole and not individual bidders.

The court set out three criteria in Caparo Industries Plc v Dickman and Others, which need to be fulfilled in order to

give rise to a duty of care. They are:

The standard test of foreseeability applied.

The concept of proximity limits the duty to circumstances where he statement would be communicated to the

claimant either as an individual or a member of an individual or a member of an identifiable group in respect of

transactions of a particular kind and that the claimant would rely on the statement.

It is therefore necessary to look at the purpose for which the statement is made, the statement maker’s

knowledge of the person relying on the statement and the type of transaction in which it is used.

Whether it is just and equitable that a duty of care should be imposed so that imposing it would not be

contrary to public policy.