Sources of Law in the UK
In UK, there are three principles sources of law, i.e., statutory law, common law and the laws of European Union. The reason for applicability of EU laws on UK stems from UK still being a part of EU. The laws of EU directly apply over UK and this direct effect can be seen in rights related to non-discrimination, free movement, and the like. The regulations and directives of EU take a central position and are legally binding on all 28 member states. The principle of supremacy provides that where there is a conflict between the UK and EU laws, the laws of EU would prevail. This helps in ensuring the uniform application of laws of EU across its member states.
On the basis of these rules, it becomes clear that the EU Regulation in the matter of HMOs applies directly on UK and the same is not required to be implemented by the UK for deeming it as law.
Issue
Whether Max can bring a possible claim of negligence against Tim for the negligent advice given by Tim, which resulted in economic loss to Max, or not?
Rule
Negligence refers to the contravention of that duty of care, which was owed by one person due to the actions being undertaken by them, towards another person, due to the capability of such actions resulting in harm for the other party, and these actions actually resulting in loss or damage being caused to such other person. In order to make a case of negligence before the court of law, there is a need for the plaintiff to establish before the court that certain key elements had been present in the events which transpired. These elements include a duty of care, its subsequent breach, the breach causing damage or loss, the injury being substantive and not remote, foreseeability of loss, proximity between parties, and direct causation between loss and breach of duty of care. These requirements had been presented through the Snail in the Bottle case, or as is legally known as, the case of Donoghue v Stevenson [1932] AC 562.
The first step for making a case of negligence is the duty of care being owed. This duty of care is varied based on the type of loss. In general, a duty of care is not owed when it comes to the economic loss suffered by another person as was seen in Spartan Steel & Alloys Ltd v Martin [1972] 3 WLR 502. But, there is a leading exception to this and this relates to negligent mis-statement. This exception was born through the case of Hedley Byrne & Co v Heller [1963] 3 WLR 101 through the obiter statement given in it.
Application of EU Laws in the UK
In this case, Hedley Byrne was the advertising agents and they were placing contracts on behalf of their clients on terms of credit. For the default of the client, they would have been personally liable. In order to protect themselves, they asked the bankers to get credit reference from Heller & Partners who were the bankers of the client. A favourable reference was given but the same came with an exclusion clause. Relying upon this reference, Hedley and Byrne suffered financial loss and ultimately went into liquation. Their claim against Heller & Partners was not deemed as successful by the court due to the disclaimer given by the defendants being ample to protect them from the liability which was raised. This case is not famous for its decision, but more so for its obiter statement. The House of Lords stated that for the pure economic loss suffered by a person, the damage could be raised in case four key requirements were fulfilled. These four included:
- There is a need for presence of fiduciary relationship of confidence and trust between the parties to be present;
- The person preparing the advice assumes the risk in a voluntary manner;
- The other party relied upon the information which had been provided by the first party; and
- The reliance had been reasonable based on the situation which was present.
This ruling has been supported in a number of cases since the same was initially given by the House of Lords. In Queen v Cognos Inc, [1993] 1 SCR 87, five requirements were identified for the test given in Hedley Byrne & Co v Heller case. These five requirements provided that,
- There needs to be a duty of care present as a result of the special relationship between the representee and the representor;
- Such representation needs to be misleading, untrue or inaccurate;
- There is a need for the representor to have acted in a negligent manner while making such misrepresentation;
- There is a need for the representee to have relied upon the negligent misstatement in a reasonable manner; and
- The reliance placed by the representee resulted in detriment being caused to them, in terms of the damage which was caused.
Another important test which is used in cases of economic loss being caused due to the negligence of one party is the Caparo test. This test was given in the case of Caparo Industries pIc v Dickman [1990] 2 AC 605. In this case, the plaintiff had bought the shares of a particular company by relying on the accounts which provided that the company had a pre-tax profit of £1.3M. The fact of the matter was that the company had actually made a loss of more than £400,000. An action was thus brought by the plaintiff against the defendants who were the auditors of the company in which the plaintiff had invested and they claimed that the auditors had been negligent when they certified the accounts. The decision was given in favour of the defendant as the court held that there was an absence of sufficient proximity between the two parties as the auditors were not aware of the presence of the plaintiff and also about the purpose of use of the accounts. The House of Lords gave a threefold test in this case for showing that duty of care was present as a result of negligence. The three requirements included:
- There is a need for the harm to be reasonably foreseeable resulting from the conduct of the defendant;
- There is a need for relationship of proximity between the parties; and
- There is a need for the imposition of liability to be fair, reasonable and just.
Application
Rule of Negligence
The rules discussed till now, now have to be applied in context of the given case study in order to decide upon the issue of this case. In this case, there was presence of proximity between Tim and Max as the actions of Tim had the capacity of impacting Max in a direct manner. This is particularly true as the Max had specifically asked for advice from the local charity where Tim was volunteering and Tim was preparing a report for advising Max on the prospects of HMO Conversions Ltd. It is reasonably foreseeable that an improperly prepared report is bound to show an untrue statement or position.
Unlike the case of Hedley Byrne & Co v Heller, the given case study did not have any disclaimers. Applying the test given in this case, there was a presence of fiduciary relationship of confidence and trust between Tim and Max; Tim had voluntarily assumed the risk of preparing this advice as he wanted to gain experience and had decided to volunteer for the local charity; Max had relied upon the advice which had been given by Tim; and this reliance had been reasonable as there was nothing to show otherwise. So, this test is fulfilled.
Applying the test given in Queen v Cognos Inc, a duty of care was present as Max had specifically asked to prepare this report which required care on part of Tim particularly as Tim was a business consultant; the presentation was false as Tim failed to inspect the HMO Conversions Ltd’s accounts, along with not reading the Business consultant’s Gazette which could have informed about the HMO Conversion not being a sound investment; this was clearly the negligence of Tim; and on this Max had relied; which resulted in his detriment. Again, this test is fulfilled.
Applying the Caparo test, the harm was reasonably foreseeable as the conduct of Tim was negligent; the proximity has been established already; so the imposition of liability on Tim for his negligent advice would be just, fair and reasonable for Max. With this, all the three tests covered in the rules segment have been fulfilled, which would allow a claim of negligent mis-statement being made by Max against Tim, a success, owing to the economic loss which was suffered by Max.
Conclusion
The application of the common law of negligence, particularly in context of the negligent mis-statement made by Tim and the pure economic loss suffered by Max, makes a claim of negligence raised by Max against Tim, being successful in court of law, due to fulfilment of the tests discussed in the previous segment.
Part (c)
Exception to Duty of Care in Economic Loss
When a matter of dispute is raised, it can be solved through different modes, which include going forward with litigation mode, where the matter is presented before the court and the decisions is given by the judges after listening to the parties and evaluating the evidence which has been presented forward. Another mode of solving the disputes is to opt for the alternative means of dispute resolution. In place of going to the court, which is deemed as an expensive and time consuming method, the parties can resolve the matter through the use of different modes of alternative dispute resolution like arbitration, conciliation and mediation.
When the term “without prejudice” is used in a communication, the same is meant to encourage the settlement negotiations amidst the parties which help them in avoiding the court. The term “without prejudice save as to costs” is a further extension of the “without prejudice” rule. This rule provides the same privilege as in the previous case; but where the matter goes to the court, the parties can disclose the communications when the issue of costs comes to be decided by the court. This rule allows the parties to negotiate in a free manner without having to fear the admissions being used in the court against them till the main points are decided by the judge. So, this rule allows the court to make a decision on which party has to be awarded the costs once the dispute has been decided upon in context of its outcome.
Part 36 of the Civil Procedure Rules 1998 is a self-contained procedural code through which the parties are encouraged to settle the disputes without doing for litigation mode. Making a Part 36 offer shows the pressure being put on the other party to settle the case in order to protect the position of the client in context of the costs. Where the party does not accept the offer which has been made in this part, they are at a risk of being made liable for paying more costs or/and interests on a judgment. The offers under Part 36 are based on ‘without prejudice save as to costs’ basis, so the court comes to play only after reaching judgment but before the order for costs is made. The offer under this part have to be made in a written manner and even accepted in a written manner and within the time period for which it is open, in terms of the relevant period. When an offer has been made by the defendant to settle the matter for a particular sum of money, the same has to be paid within 14 days or else the claimant can enter judgment against this sum. When the offer is accepted within the relevant period, the claimant gets the entitlement of costs up to the date till which the claimant accepts the offer. Where the offer is not accepted during this relevant period, the court makes an order as to costs. In such cases, the claimant is entitled to costs up to the date on which the relevant period expires; beyond this relevant period, the costs are to be paid by the party to which the offer was made to the party making offer, from the date of relevant period’s expiry to the date of acceptance.
Where the claimant gets a more favourable judgement in comparison to the terms which were offered by the defendant under the Part 36 offer, in such cases, the court applies the usual principles while considering the order regarding costs to be made. Where the claimant does not get a more favourable judgement in comparison to the terms which were offered by the defendant under the Part 36 offer, in such cases, then the claimant would have to pay the costs of the defendant from the date of end of relevant period, along with the interest on such costs. So even when the claimant gets a judgment in their favour, they have to pay the costs of the defendant as a penalty for not accepting the Part 36 offer of the defendant. In such cases where a Part 36 offer for settling is not made, or where the same is made but proves to be unsuccessful at the trial, the court considers all the circumstances of the matter in context of the costs, which includes the conduct of the parties, failing of a party for being totally successful regarding their claims, the failure of a party regarding particular matters, and any and all other pertinent factors.
- On the basis of these rules, when Max accepts the offer before the expiry of the 30 day period, which is the relevant period for this case, Tim would be liable to pay the costs.
- In such a case where Max accepts the offer after the relevant period of 30 days comes to an end, but before the trial, he would be paid costs by Tim for the relevant time period of 30 days, and Max would have to pay the costs of Tim, to Tim, from the end of 30 day relevant time period, till the date he accepted the offer.
- Where the matter goes to court and Max gets more than £50,000, the court would apply the usual principles while considering the order regarding costs to be made.
- Where the matter goes to court and Max gets less than £50,000, Max would have to pay the costs of Tim from the date of end of 30 day relevant period, along with the interest on such costs.
- Where the matter goes to court and Max is proved unsuccessful, the court would take into consideration all of the issues surrounding costs, in which they would evaluate the conduct of both Tim and Max, the failure of Max in his claims being successful, and also the failure of Tim in giving proper advice.
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