Decision in Hedley Byrne v Partners
‘In Tort law, how far do you agree that the current position of duty of care is sufficient to protect against the floodgates?
Introduction:
On many occasions, fears have been expressed that the existing position related with the duty of care may not prove to be sufficient in preventing the opening of the floodgates of negligence litigation. Even at the administrative level, concerns have been expressed that the legal system will be flooded by such litigation. In the same way, judicial circles have also expressed their apprehension of a limitless liability. It is generally considered that the “floodgates argument” had been relied upon for the first time in Victorian Railways Commissioners v Consultants.[1] The most significant concern of the court in this case was that never shock or later economic loss may result in opening the floodgates of such cases. However after some time, the courts came up with the method to hold back this case is by using policy decisions. The apprehension related with opening the floodgates was again highlighted as a result of the crisis faced by the insurance industry during the 1980’s when Lloyds faced near bankruptcy. While it was said that factors like natural disasters and economic conditions have played a role but it was also suspected that the tort law may also have contributed then it encouraged the spread of liability insurance or the third-party insurance and as a result, the loss insurance or the first party insurance was neglected.[2]
Decision in Hedley Byrne v Partners:
In Hedley Byrne v Partners, it was stated by the court that if a person having a special skill, undertakes to apply such a skill for the assistance of the other party and under these circumstances, the other party relies on the skill of the person, in such a case a duty of care will rise on part of the person regardless of the contract between the parties. In this way, this decision was considered as the start of another category of negligence, the liability for negligent misstatement.[3] In case of such a relationship is in between the parties and if there is no disclaimer made by a party regarding its liability, such party was held liable for compensating any economic loss of the other party as a result of such a statement. It is possible to interpret this season in two ways. Some criticized this decision for the lack of requirement of having a contract between the parties as having the possibility of opening the floodgates of such litigation.[4] But in this case it needs to be noted that a limitation has been imposed by the court by requiring that a special skill should be possessed by the defendant regarding which the statement had been made.
Ripple Effect
Ripple Effect:
A major problem related with the opening of floodgates concerning economic loss is that the respondent may be subjected to a very substantial liability as a result of what can be called ‘ripple effect’. The reason is that as a result of imposing such a duty, a large number of professionals can be forced to quit their business as the liability regarding your economic loss would be imposed on them.[5] It also needs to be noted that several countries in Europe have also imposed such a duty and these countries have not faced the problems that were mentioned above. In this regard, it also needs to mention that it is not a form of strict liability.[6] Under the law for negligence, imposing their duty of care in itself is not equal to imposing liability on the other party. The requirement for the claimant in such a case is to establish that the conduct of the defendant held below the standard of care that was required in a particular case.
Need for Some Regulation:
It has been acknowledged by the courts that certain problems may arise if no rules are introduced for the purpose of limiting the probable liability of the parties. Cardozo CJ has stated while highlighting and present position where the defendants have been exposed to potential liability that was of indeterminate amount and also for the indeterminate time and in respect of an indeterminate class in Ultramares Corporation v Touch.[7] It can be assumed as a result of this statement that although Cardoz CJ had not opposed the idea to bring a claim for an economic loss, but at the same time, he had also strongly suggested that such an ability to be regulated in some way. These comments have also been quoted on many occasions by the English judges as being the summary of the consequences of the neighbour principle provided by Lord Atkin. According to the neighbour principle that was provided in Donoghue v Stevenson[8] was applicable without any restrictions and as a result it resulted in opening the door under the law of negligence for the parties that have suffered the loss or injury, regardless of the fact if it was the primary victim who was directly affected as a result of the negligence or a secondary victim who had suffered a loss or injury as a result of witnessing the crime.[9]
Need for Some Regulation
Impact of Caparo:
In Caparo Industries v Dickman[10], the court arrived at the conclusion that the proximity between Caparo and auditors was not sufficient. The reason given which the court arrived at this conclusion was that Caparo did not fall within the reason for making the report. On the other hand, the report was made with a view to allow the shareholders to hold the company accountable and therefore the report was not prepared with a view to inform the investment decisions.[11] But as compared to this situation, on the basis of the reasoning adopted by the court in Hedley Byrne, it can be said that the auditors should have been aware of the fact that the document could be used by the people for making investment decisions. Therefore, this case falls among the cases where the requirement of fair just and reasonable was used by the court for preventing the floodgates. It was a policy consideration and is relevant in all cases related to the negligence regardless of the nature of farm that has been suffered by the claimant. But the purpose of deciding if it can be considered as fair, just and reasonable to impose the duty of care on a particular party, or the circumstances have to be considered by the courts.[12] For example in Mark Rich[13], as a result of this negligence of the defendant, the ship was allowed to leave the port although the ship was not seaworthy. The result was that the ships sank. The court arrived at the conclusion that the duty of care was not present in this case because the relationship that existed between the owners of the cargo and the shippers was governed on the basis of the internal convention. In this regard, the House of Lords arrived at the conclusion that imposing the duty of care in this case will upset the apportionment of responsibility among the parties as has been provided by the legislation.
Risk of Opening the Floodgates:
The risk of opening the floodgates is considered as a key factor to state that the duty of care is not fair and reasonable. In this regard, an example can be given of Caparo, in which case it would have been held that the auditors owed a duty of care, that we beyond the meaning of the document, a large number of potential claims could have been made. In this regard, Lord Oliver, who had stated in this case that the duty of care is not present, had argued that whatever was of being applied as a test of liability, only the foreseeability of probable harm without any further control, will result in creating a liability that is completely indefinite in area, duration and amount. As a result, a infinite list of uninsurable risk will be open for the professionals. On the grounds of the above-mentioned statement, it can be assumed that it was a painting by Lord Olivier that if the above mentioned uninsurable risk was opened, not only it will be detrimental for the society as a whole but the professionals will also desist from providing information in question.
Impact of Caparo
It is commonly believed that to allow the recovery of poor economic loss in certain cases may result in infinite claims due to which the load of work of the courts will increase manifold. For example, if as a result of the negligence of the defendant, a busy motorway or a trading market has to be closed, a large number of people may have suffered and economic loss.[14] Therefore it is not difficult to assume that most of these persons report to the court for claiming compensation and therefore it may also result in causing an administrative chaos. At the same time, it also needs to be noted that such a situation will also be unfair for the defendant because in such a case, the defendant will not be in a position to predict the number of economic loss claims that have to be faced by him or her.[15] As a result, the modern trend according to which the tort liability is being increased for claiming economic loss has to be kept under control.
In case the defendant was writing a motor bike negligently, only a few people on the road can be injured by such an act. But it is possible that a person who is standing away from the road and is not under any risk of suffering a physical injury, may still face the risk of suffering from a nervous shock, in case such a person witnesses the defendant being involved in a ghastly accident. But this reasoning cannot be applied in a more technologically advanced era. At present, even a small mistake may result in a negligent act and as a result, damage to person or property may be caused. Such damage can also be caused to a large number of persons or properties. Therefore, the nuclear disaster that Chernobyl in 1986 has left a large number of people killed and injured and it was not possible to accurately predict how many persons have suffered a physical injury, and economic loss or the claims that can be made for a psychiatric injury. But in this regard it has been said that the multitude of claims that arise from a single accident cannot act as the ground on which the courts may decide to deny relief to the claimants for physical injury or loss to property that has been caused by such an incident.
Limitations have also been placed by the courts on the duty of care in cases involving psychiatric injury. Although in the past, psychiatric injury cases were viewed skeptically, but now they have also been accepted as falling under the law of negligence. But still it is necessary that the condition should be recognized as a psychiatric condition and it does not fall under ordinary ailments like stress or anxiety that have been suffered after being a witness to a traumatic situation.[16] As a result of the risk of floodgates, external requirements have also been prescribed for the ‘secondary victims’.
Risk of opening the floodgates
Criticism Faced by the Argument:
The argument related with the opening of the floodgates has also been criticized by a number of judges on several occasions, for example in McLoughlin v O’Brien.[17] It was considered by the commission that the requirement of recognized psychiatric injury should be sufficient. It has been proved by medical literature and studies that there are not many fraudulent and exaggerated cases. At the same time, the commission did not see any higher importance of contradictory medical opinions than in a case involving physical injury.
A question has also been asked by the court in Alcock v Chief Constable of South Yorkshire Police[18] regarding the scale of the terms on the basis of which, the question has been answered. Feels like fear, sorrow and anxiety are treated as a part of human nature and these feelings are always present. But in this regard, it also needs to be noted that it is very rare that a person may suffer from a “pathological reaction to traumatic stresses” due to which the person becomes incapable to restore the balance of his emotions and feelings. It will be erroneous to believe that that is a result of the fact that the person who has suffered physical injuries, had a family, each member of the family or most of the members will suffer a pathological reaction due to injuries suffered by such a person in the accident. However it is acceptable that some unpleasant emotions will certainly be experienced by the members of the family. But it does not establish that such situations may result in opening the floodgates. As a result, the apprehension that the floodgates may be open too wide, needs to be allayed by recognizing that many will pass the primary level for the purpose of establishing the required degree of injury.
One argument that can be given in favour of the floodgates argument is that the courts will be faced with a large number of claims if the right to take action is granted in these cases. But in reality, the argument is not completely true because once the law has been established, most of the cases will be settled and in this way, the courts will not have to face the issue of large number of cases.
Conclusion:
In this regard, it can be said that subject matter of the restrictions imposed in case of economic loss is still a fertile ground for controversy and disputes. In the end, it can be said that in view of the strict restrictions that were proposed by Cardozo CJ, some persons may even claim that these restrictions have gone too far. In this regard, it may also appear to some that the floodgates argument has been used by the courts for the purpose of protecting themselves from excessive workload. Such a statement, however also raises the issue of the questions related with the separation of powers and also how far the courts can go in order to ensure their ability of managing and organizing justice.
However, the impact of the previous litigation on this issue can be described as complex if not uncertain and anomalous. However the key to understand these decisions is to see how the courts have dealt with the issue of duty of care in cases involving economic loss, as what has evolved and now also has the express approval of the House of Lords and the approach starts with selecting the relevant cases.
Abella, Rosalie Silberman ‘Public Policy and Judicial Role’ [1989] 34 McGill LJ 1021
Bell, John Policy Arguments in Judicial Decisions, OUP, Oxford, [1983], p 67
Caparo Industries plc v Dickman [1990] UKHL 2
Dolding and Mullender, ‘Tort Law, Incrementalism, And The House of Lords’ (1996) 47 NILQ 12
Keith Stanton, ‘Professional negligence: duty of care methodology in the twenty first century’ [2006]
Leighton Williams, (2006) ‘What compensation?’ Solicitors Journal 934
M H McHugh, ‘The Judicial Method’ [1999] 73 ALJ 37 at 44
M McHugh, ‘The Law-making Function of the Judicial Process — Part I’ [1988] 62 ALJ 15 at 16
Oughton D., Marston J. and Harvey B., Law of Torts, (2007) Oxford University Press] 34 MLR 394 at 401.
Richard Mullender, ‘Negligence, The Pursuit of Justice and the House of Lords’ (1996) 4 Tort L Rev
Tony Weir, Tort Law Clarendon Law Series (OUP 2002) 33
Ultramares Corporation v. Touche, 174 N.E. 441 (1932)
Weeramantry, Green An Invitation to the Law, Butterworths, Sydney, [1982], p 55
Cases
Alcock v Chief Constable of South Yorkshire Police [1991] UKHL 5
Caparo Industries plc v Dickman [1990] UKHL 2
Donoghue v Stevenson [1932] UKHL 100
Marc Rich & Co AG v Bishop Rock Marine [1995] 3 WLR 227
McLoughlin v O’Brian [1983] 1 AC 410
Ultramares Corporation v. Touche, 174 N.E. 441 (1932)
Victorian Railways Commissioners v Consultants [1888] 13 App Cas 222
[1] Victorian Railways Commissioners v Consultants [1888] 13 App Cas 222
[2] Abella, Rosalie Silberman ‘Public Policy and Judicial Role’ [1989] 34 McGill LJ 1021
[3] Oughton D., Marston J. and Harvey B., Law of Torts, (2007) Oxford University Press] 34 MLR 394 at 401.
[4] Keith Stanton, ‘Professional negligence: duty of care methodology in the twenty first century’ [2006]
Prof Negl 134
[5] Tony Weir, Tort Law Clarendon Law Series (OUP 2002) 33
[6] Leighton Williams, (2006) ‘What compensation?’ Solicitors Journal 934
[7] Ultramares Corporation v. Touche, 174 N.E. 441 (1932)
[8] Donoghue v Stevenson [1932] UKHL 100
[9] Richard Mullender, ‘Negligence, The Pursuit of Justice and the House of Lords’ (1996) 4 Tort L Rev
[10] Caparo Industries plc v Dickman [1990] UKHL 2
[11] Bell, John Policy Arguments in Judicial Decisions, OUP, Oxford, [1983], p 67
[12] Dolding and Mullender, ‘Tort Law, Incrementalism, And The House of Lords’ (1996) 47 NILQ 12,16.
[13] Marc Rich & Co AG v Bishop Rock Marine [1995] 3 WLR 227
[14] M H McHugh, ‘The Judicial Method’ [1999] 73 ALJ 37 at 44
[15] M McHugh, ‘The Law-making Function of the Judicial Process — Part I’ [1988] 62 ALJ 15 at 16
[16] Weeramantry, Green An Invitation to the Law, Butterworths, Sydney, [1982], p 55
[17] McLoughlin v O’Brian [1983] 1 AC 410
[18] Alcock v Chief Constable of South Yorkshire Police [1991] UKHL 5
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
