concurrent liability(TM) in tort and contract.

concurrent liability

The term concurrent liability is used to describe the situation where the parties have a contractual and tortious liability. It has long been accepted that liability can occur concurrently in both tort and contract. In Donoghue v Stevenson (1932), which is the leading authority in the tort of negligence, Lord Macmillian stated: ‘The fact that there is a contractual relationship between the parties…does not exclude the co-existence of a right of action founded on negligence as between the same parties…’ there are many ways as to how such liability can arise, where a claimant would want to bring tortious claim when there is a contractual relationship between the relevant parties. There are also differences between the elements of contractual and tortious causes of action. Many of the cases that have developed the principle of concurrent liability have sought to take advantage of tortious rules which may be more advantageous. The most important of these will be the rules on limitation. Concurrent liability will arise out of the need of one party to sue in tort as the contractual limitation period has expired. E.g. Lancashire v Howard Seddon it was held that ‘There could in law be a duty of care actionable in the tort of negligence where the parties were in a contractual professional relationship.’ The position in contract is the limitation period runs from when the breach occurred whereas in tort the cause of action accrues when the damage occurs.

The ability to bring tortious claims, after the contractual limitation period has expired can be particularly useful in relation to latent defects (fault in the property that could not have been discovered by a reasonably thorough inspection before the sale). By their very nature these defects often result in damage, some considerable time after the contract has been completed.

The distinction (tort & contract) in practice is less clear, as many fact situations call rise to an action in both tort and contract (if there is contract in existence). Many examples of this can be found in cases of professional negligence, e.g. where parties may also have a contractual relationship. (Doctors, surveyors, architects, etc).

Also the method by which damages are assessed under tort and contract is very different. Tortious damages aim to put the claimant in the position it would have been had the tort not taken place, contractual damages aim to put the claimant in to a position it would have been in had the contract been properly performed. Similarly, tortious damages are backward looking whereas contractual damages are forward looking. The tests for remoteness of damage in tort and contract are different. In contract, the test for remoteness is whether the loss flows naturally from the breach or is otherwise within the reasonable contemplation of the parties at the time the contract was entered into. In tort, the test is of reasonable forseeability. Parties may also bring their cause of action under tort to increase the level of damage recoverable. However the courts have been reluctant to allow claimants to recover greater damages under one cause of action than the other for the same event and have found a number of methods of ensuring this is the case. In Ford v White & Co in a case for contractual negligence, the court considered that the claimant’s damages should be dependent on how the defendants breach was considered to have occurred.

However not all concurrent liability principles will run in the claimant’s favour. If the claimant is suing in negligence, they may be liable to have their damages reduced, as the defendant has the opportunity of raising the defence of contributory negligence by the claimant. Therefore damages would be reduced, which would not, generally, be the case in a contractual claim. S1 of the Law Reform (Contributory Negligence) Act 1945 states that if the claimant contributes to his own injuries by failing to take reasonable care of himself, his damages will be reduced by a percentage- the reduction representing the degree ...

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claimant must be negligent in relation to his own safety
claimant’s negligence must contribute to his damage (not the accident)
If so, damages will be reduced to reflect Claimants contribution.

Froom v Butcher (1975), failure to wear a seatbelt was contributory negligence and damages were reduced by 25%.

The opportunity to raise contributory negligence is limited by the current law and is not available where the contractual duty is stricter than negligence. Two competing principles have been at work in English law since courts started to deal with this problem. The first solution has the advantages of simplicity, it was adopted by French law, that a party to a contract should pursue the remedy in contract alone. The second is the principle followed by German law which agrees with concurrent remedies. The decision in Hedley Byrne v Heller (1964) changed the base which English law operated on. A person who did not have a contract could not sue for negligent leading to economic loss.

Boorman v Brown (1844) was one of the first cases to confirm that a claimant could recover in tort despite the presence of a contractual relationship between the claimant and defendant. The House of Lords stated ‘wherever there is a contract, and something to be done in the course of employment, the plaintiff may either recover in tort or in contract.’

Lord Denning, in Esso Petroleum v Mardon (1976) affirmed the decision of Boorman v Brown regarding concurrent liability. Following this speech in Esso Petroleum the general trend by the courts was to a more liberal approach on concurrent liability. However the Privy Council in Tai Hing Cotton Mill Limited v Chog Hing Bank Limited (1986) stopped the expansion of concurrent liability.

Lord Scarman stated that: ‘Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for liability in tort where the parties are in a contractual relationship. The judicial trend continued to take a less restrictive approach than Tai Hing Cotton, despite the restrictive approach put forward by Lord Scarman.

An example of where contract terms regulate the tortious duty is shown in the case of Johnstone v Bloomsbury Health Authority (1991).

Where there is no contradiction between the contractual and the tortious duties, it is now clear that concurrent liability does exit and that a claimant can take advantage of favorable tortious rules.

The House of Lords in Henderson v Merrett (1994) clarified the position relating to concurrent liability. The claim related to Lloyds names bringing an action for negligence, under an agency agreement, against their ‘managing agents’. The leading passage on concurrent liability was given by Lord Goff. He concurred with the statement made by Lord Oliver in Midland Bank Trust Co some years before, he stated that: ‘where concurrent liability in tort and contract exists the plaintiff has a right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence.’ He added to this statement: ‘A concurrent or alternative liability in tort will not be admitted if its effects would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort’. In the case of Holt v Payne (1996) the courts allowed a tortious liability to be wider than that under the contract, extending the position in Henderson. In Holt LJ said that: ‘…if the same parties enter a contractual relationship involving more limited obligations than those imposed by the duty of care in tort. Such circumstances, the duty of care and the duties imposed by contract will be concurrent and not co-existent’.

The traditional distinction between tort and contract was that an obligation in contract was from the agreement or will of the parties, and an obligation in tort was imposed by law. However it is no longer possible to maintain this distinction. The current position following Henderson and Holt is:

A tortious liability can arise even when a contractual relationship exists between the parties. However, the party wanting to rely on the tortious remedy can only do so if it does not lead to inconsistency with the express or implied terms of the contract.
Contractual and tortious remedies can be excluded and/or restricted by contractual terms but these terms cannot breach the test of reasonableness contained within the Unfair Contract Terms Act 1977.
It may be possible for the tortious duty to extend further than the contractual duty, depending on the facts of the case.
The courts have imposed a limit on ‘contractual negligence’ where the level of damages would exceed those obtainable under a tortious claim on the same facts.

In modern tort law, it is unrealistic to suppose that contract and tort are so very different from each other in this respect. Terms of contract are now imposed upon the parties by numerous statutes, quite independently of any ‘agreement’ and, the notion of true agreement has long been discredited in many contractual situations, since few individual consumers have real bargaining power. Moreover it is possible for parties in contract to arrive at agreement to vary tortious duties which the law imposes.

Exemption clauses in contracts, purporting to exempt one or the other of the parties from their tortious obligations can, and have, given rise to difficult problems on the boundary of contract and tort. It may be for example that a person who has been injured at work, has agreed in his contract of employment to exempt his employer from liability for injuries caused to him by negligence of his employer or his co-employees. Such an exemption clause may be valid under the proper law of the contract but invalid under let foli or the let loci. E.g. Sayers v International Drilling (1971). It was held that the terms of cl. 8 should be interpreted as decisively excluding English law as the proper law of the contract. In view of circumstances, and in particular in view of the defendants company’s being statute in Holland, the proper law of the contract was Dutch (decision of Bean J).

There are certain areas where tort and contract intersect. These subject areas can be a problem for the courts. One of the problem areas is carelessly made statements which cause financial loss. Also product liability, if A bought a product and this product is defective then A may claim for economic loss which should be a claim in contract. However if this defective product caused physical injury then A can claim in contract or in tort or under statute. Also in employment law where an employer negligently causes damage to the employee, duty of care has been breached but they are also in an existing contract. In contract the statements are made voluntarily and must be supported by consideration from the recipient. In tort the maker of the statement must voluntarily assume responsibility for it. The only distinction is that no consideration is required.

In the area of negligent statements causing pure economic loss, there is a close relationship between tort and contract. Pure economic loss is an expression used in law when the claimant’s only damage is financial. Therefore pure economic loss means financial loss that doesn’t involve injury to the person or damage to property. In order to restrict liability for negligent statements causing pure economic loss, the House of Lords has developed special rules for claiming such loss. In order to establish a duty of care the claimant must prove that a ‘special relationship’ exists between the claimant and the defendant. The current approach is to determine each case on its particular facts, in the light of similar cases. This embodies the incremental approach to deciding new duty situations. What can be said with confidence is that liability in tort for negligent statements is very narrow indeed. In Hedley Byrne v Heller (1964) the House of Lords stated that the criteria for the special relationship of reliance were:

Defendant must possess a special skill or knowledge
Defendant must know, or ought reasonably to know, that claimant is relying on him to exercise care and skill; and
Reliance must be reasonable in the circumstances of the case.
There must also be voluntary assumption of care towards claimant.

It is easier to sue for any economic loss that flows from physical damage. The defendant’s liability for pure economic loss is restricted. Defendant’s have a restricted duty of care in order to limit the number of claims for this type of damage. When judges make decisions on individual cases, they are also considering policy. Judges consider the effects of their decision on society. Since many people suffer pure economic loss as a result of the defendant’s negligence, the defendant’s liability may be out of all proportion to his negligence if there are no special rules for restricting liability.

Claims for pure economic loss resulting from negligence have only been allowed where there is a special relationship between the parties. This had obviously been imported from the rules developed in relation to negligent statements. However, it has been interpreted extremely narrowly. This is because of the House of Lords reluctance to impose liability in tort in relation to negligence causing pure economic loss (it considers this to be the role of contract) and because of policy considerations.

The cases indicate that there were only two categories of ‘special relationship’ in this area of law at the moment.

Junior Books v Veitchi Ltd (1984) it was decided that the claimant can claim for pure economic loss arising from negligence if special relationship exists- an almost contractual relationship.

Ross v Saunters (1980) it was decided that the claimant can claim for pure economic loss arising from negligence if a ‘special relationship’ exists- a close professional relationship (as between a solicitor and beneficiary of a will).

Negligence causing pure economic loss is treated as a separate branch of negligence. When the tort of negligence was developed in Donoghue v Stevenson and subsequent cases, it aim was to provide a remedy for negligence causing physical damage. Indeed in Clay v Clump (1964), the Court of Appeal had no difficulty in imposing liability on an architect in relation to negligent statement causing physical damage, since the class of claimant was limited. Negligence was never intended to allow claims for pure economic loss. The courts believed that it was always the role of contract, since, in claims for pure economic loss what has really been suffered is not a loss but a failure to make a gain. The courts traditionally look at the view that the true role of tort is to compensate those who have made a loss.

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