Business Law Cases 2012

7/31/2019 Business Law Cases 2012

1/55

Business Law

Lecture notes

Cases

Adrienne Komanovics

2012


2/55

2

Komanovics Adrienne, 2012

NEGLIGENCE


3/55

3


1. Duty of care

The neighbour principle

Donoghue v. Stevenson (1932)

Friend of Mrs Donoghue

Mr MinchellaOwner of the caf

StevensonManufacturer

Mrs Donoghue

cont

ract



Stevenson

Manufacturer

Mrs Donoghue

contract



StevensonManufacturer

Mrs Donoghue

A friend of the plaintiff purchased a bottle of ginger beer in an opaque bottle. The

plaintiff poured half of the ginger beer into a glass and drank it. She then poured the

remainder into the glass and saw the remains of a decomposed snail. She claimed to have

suffered illness as a result. She sued the manufacturers of the ginger beer in negligence as

she had no contract with either the retailer or the manufacturer. She asked for 500 damages

from the manufacturer of the ginger beer, David Stevenson. House of Lords laid down that a

duty was owed by the defendant to the plaintiff.

The trial of the actual action was set down for 10 January 1932, but by then

Stevenson had died and the case was settled for 200.

On 9th April 1929 Mrs Mary MAlister or Donoghue brought an action against David Stevenson

aerated water manufacturer Paisley, in which she claimed 500 as damages for injuries sustained by her

through drinking ginger beer which had been manufactured by the defender.

The pursuer averred, inter alia:(Cond. 2) "At or about 8.50 P.M. on or about the 26th August 1928,the pursuer was in the shop occupied by Francis Minchella, and known as Wellmeadow Caf, at


4/55

4


Wellmeadow Place, Paisley, with a friend. The said friend ordered for the pursuer [Mrs Donoghue] ice

cream, and ginger beer suitable to be used with the ice cream as an iced drink. Her friend, acting as

aforesaid, was supplied by the said Mr Minchella with a bottle of ginger beer manufactured by the defender

for sale to members of the public.

The said bottle was made of dark opaque glass, and the pursuer and her friend had no reason to suspect

that the said bottle contained anything else than the aerated water. The said Mr Minchella poured some of

the said ginger beer from the bottle into a tumbler containing the ice cream. The pursuer then drank some ofthe contents of the tumbler. Her friend then lifted the said ginger beer bottle and was pouring out the

remainder of the contents into the said tumbler when a snail, which had been, unknown to the pursuer, her

friend, or the said Mr Minchella, in the bottle, and was in a state of decomposition, floated out of the said

bottle.In consequence of the nauseating sight of the snail in said circumstances, and of the noxious condition

of the said snailtainted ginger beer consumed by her, the pursuer sustained the shock and illness hereinafter

condescended on. The said Mr Minchella also sold to the pursuer's friend a pear and ice. The said ginger

beer bottle was fitted with a metal cap over its mouth. On the side of the said bottle there was pasted a label

containing inter alia, the name and address of the defender, who was the manufacturer. It was from this

label that the pursuer's said friend got the name and address of the defender." (Cond. 3)http://www.scottishlawreports.org.uk/resources/keycases/dvs/donoghue-v-stevenson-report.html

Duty of care schoolsCarmarthenshire County Councilv. Lewis (1955)

Facts. A staff member in charge of a nursery school was preparing to take children out.

While she was dressing one child, another four-year-old child escaped from the school

premises via an unlocked gate. He ran down a side lane into a busy highway, and into the

path of a moving lorry. The driver swerved in order to avoid the child. In doing so he

collided with a telegraph pole and was killed. The widow of the driver brought an action

for damages in negligence.

Held. The defendants were liable for not taking reasonable care to prevent the escape of

the child from the school premises. They ought to have foreseen this eventuality and

taken precautions against it.

The unforeseeable plaintiffBourhillv Young(1942)

The appellant, on Oct. 11, 1938, was a passenger on a tramcar. She alighted from the

tramcar some 50ft. from the junction of the road along which the car was travelling and a

cross road. After alighting from the car she passed along its near side, round the front, and

then to the entrance to the drivers platform on the off-side. Here, with the help of the

driver, she placed her heavy creel upon her back.

At the same time a motor cyclist passed between the near side of the tramcar and the

footway and, not having seen a motor car turning into the cross road by reason of hisview being obscured by the tramcar, he collided with the car, was thrown off his

motorcycle, fell on his head and was killed.

The appellant saw nothing of the accident but merely heard the noise of the impact of the

two vehicles. After the body of the motor cyclist had been removed, she approached the

spot and saw blood on the roadway. The injuries alleged to have been sustained by the

appellant were that she wrenched and injured her back by being startled by the noise of

the collision and that she was thrown into a state of terror and sustained a severe shock to

her nervous system, though there was no reasonable fear of immediate bodily injury to

her. She was about 8 months pregnant at the time and gave birth to a still-born child on

Nov. 18, 1938. The driver of the motor-cycle was admittedly negligent as against the

driver of the motor car, but the question was whether he owed any duty to the appellant in


5/55

5


that he ought, as a reasonable man, to have contemplated the likelihood of injury to her in

the circumtances.

Held: the question to be decided was one of liability and not one of remoteness of

damage. In the circumstances of this case the motor cyclist owed no duty to the appellant

since he could not be held to have reasonably foreseen the likelihood that the appellant,

placed as she was, could be affected by his negligent act.

Reasonable foreseeability

McLoughlin v OBrian (1982)

The plaintiffs husband and three children were involved in a road accident caused by the

negligence of the defendants. One of the plaintiffs children was killed and her husband

and other two children were severely injured.

At the time of the accident the plaintiff was at home two miles away. She was told of the

accident by a motorist who had been at the scene of the accident and was taken to hospital

where she saw the injured members of her family and the extent of their injuries and

shock and heard that her daughter had been killed.

As a result of hearing, and seeing the results of, the accident the plaintiff suffered severeand persisting nervous shock. The plaintiff claimed damages against the defendants for

the nervous shock, distress and injury to her health caused by the defendants negligence.

The judge dismissed her claim on the ground that her injury was not reasonably

foreseeable.

Held (House of Lords)

The test of liability for damages for nervous shock was reasonable foreseeability of the

plaintiff being injured by nervous shock as a result of the defendants negligence.

Applying that test, the plaintiff was entitled to recover damages from the defendants

because even though the plaintiff was not at or near the scene of the accident at the time

or shortly afterwards the nervous shock suffered by her was a reasonably foreseeable

consequence of the defendants negligence. The appeal would accordingly be allowed.

The application of the reasonable foreseeability test in nervous shock claims ought to be

limited, in terms of proximity, so that what is foreseeable is circumscribed by

the proximity of the tie or relationship between the plaintiff and the injured person,

the proximity of the plaintiff to the accident both in time and place, and

the proximity of communication of the accident to the plaintiff through sight or

hearing of the event or its immediate aftermath.

The liability of the police when investigating a crime.

Distinction: Operational matters. Broadly speaking, the way in which the police actually carry out

their work. Liable (with some exceptions). Policy matters. Decisions made about issues such as the allocation of resources, or the

priority given to different types of work. NOT liable.

Hillv. Chief Constable of West Yorkshire (1988).

The mother of the last victim of the Yorkshire Ripper alleged that the police had failed to

use reasonable care in apprehending the murderer of her daughter. She claimed that had

they done so, the murderer would have been arrested before her daughter was killed. The

mother argued that the police was negligent in failing to catch the murderer earlier and so

prevent her daughters murder.


6/55

6


Held. There was no relationship of proximity between the police and the claimants

daughter, since there was no reason for them to believe she was in special danger from

the murderer. She was simply in the same general danger as any member of the female

public in the area where the murders were being committed.

The court found no cause of action. Police discretion cannot be limited and exercised in a

defensive frame of mind. The fear of being sued might cause the police to do their workwith a view to preventing liability, which could adversely affect their performance. The

business of defending claims would be a waste of money and manpower, distracting the

police from the primary job of dealing with crime.

SPECIAL DUTY: ECONOMIC LOSS

(Pure) Economic loss.Definition. Many losses can be described as economic (e.g.

the claimants house is burnt down this is economic loss in the sense that he no longer hasan asset he used to have). However, economic loss has a more precise meaning in tort. The

term is usually used to cover losses which are purely economic, meaning those where a

claimant has suffered financial damage, but has incurred no personal injury or damage to

property as when a product bought turns out to be defective, but does not actually cause

injury or damage to property. In cases of pure economic loss, the law of tort has been

reluctant to allow a claim.

ECONOMIC LOSS CAUSED BY ACTS

(a) Economic loss suffered by the plaintiff as a result of damage to property of a third

party.

Spartan Steel and Alloys Ltdv. Martin & Co Ltd(1973)

Difference between pure economic loss (unassociated with damage to property or injury to

the person) and consequential loss.

The defendants employees negligently severed an electricity cable leading to the

plaintiffs factory. They caused a power cut that lasted for 14 hours. At the time when the

electricity failed, the plaintiff was melting material in a furnace and the melt was ruined.

The metal in the furnace solidified, and the claimants were forced to shut their factory

temporarily. They claimed damages under three heads. Held. The plaintiff was able to recover

- for damage to the materials in the furnace (direct physical loss);

- and for the loss of the profit that would have been made on the sale of that metal

(consequential economic loss; economic loss arising from damage to property);

- but not for the loss of profit on melts which could not take place because of the power

failure (pure economic loss).

In other words.

Physical damage to property. Damage to goods in production at the time of the power

cut.

Consequential economic loss. Loss of profit on the goods mentioned in the previous

point.


7/55

7


Pure economic loss. Loss of profit on goods which could not be manufactured due to the

power cut.

The first two were recoverable, but the third not. Reasons: an entire estate of factories could

have been detected who were affected by the power cut. It was better to let the loss lie where

it fell and for the factories to take out insurance against interrupted protection.

(b) Acquisition of defective property. Defective (but not dangerous) products

Defective products. It has been clearly established that where a defect in building

work causes personal injury or damage to property other than the defective building itself an

action in tort will recover damages. The actual defect in the building itself is a contractual

matter and it is no part of the law of tort to fill in the gaps in contracts. It is well-established

in law that those who enter into contracts are free to choose the terms on which they contract,

and if they leave out something or inadequately express themselves they cannot look to the

law of tort to correct their carelessness.

It might at first sight appear to be a case of damage to property, but the courts havetraditionally been insistent that a defect is not the same thing as damage. Where a product is

defective in its manufacture,

claims may be made for any personal injury caused as a result of the defect,

or any damage to other property,

butnot for the defect itself, which is considered economic, since the loss arises from the

reduced value of the object.

Murphy v.Brentwood District Council(1991)

In 1970 the plaintiff purchased from a construction company one of a pair of semi-

detached houses newly constructed on an in-filled site on a concrete raft foundation to

prevent damage from settlement. The plans and calculations for the raft foundation were

submitted to the local council for building regulation approval prior to the construction of

the houses. The council referred the plans and calculations to consulting engineers for

checking and on their recommendation approved the design under the building

regulations and bylaws.

In 1981 the plaintiff noticed serious cracks in his house and discovered that the raft

foundation was defective and that differential settlement beneath it had caused it to

distort. The plaintiff was unable to carry out the necessary repairs to the foundation,

which would have cost 45,000, and in 1986 the plaintiff sold the house subject to the

defects for 35,000 less than its market value in sound condition.

He brought an action against the council claiming that it was liable for the consultingengineers negligence in recommending approval of the plans and alleging that he and his

family had suffered an imminent risk to health and safety because gas and soil pipes had

broken and there was a risk of further breaks.

The judge, who found as a fact that the plaintiff had been exposed to an imminent risk to

health and safety, held the council liable for the consulting engineers negligence and

awarded the plaintiff damages of 38,777, being the loss on the sale of the house and

expenses.

The council appealed to the Court of Appeal, which held, following existing House of

Lords authority, that the council owed a duty of care to the plaintiff to see that the house

was properly built so that injury to the safety or health of those who lived in it was

avoided and that it was in breach of that duty when it approved plans for a defective raftfoundation. The court accordingly dismissed the appeal.


8/55

8


The council appealed to the House of Lords. When carrying out its statutory functions of

exercising control over building operations a local authority was not liable in negligence

to a building owner or occupier for the cost of remedying a dangerous defect in the

building which resulted from the negligent failure of the authority to ensure that the

building was designed or erected in conformity with the applicable standards prescribed

by the building regulations or byelaws but which became apparent before the defectcaused physical injury, because the damage suffered by the building owner or occupier in

such circumstances was not material or physical damage but the purely economic loss of

the expenditure incurred either in remedying the structural defect to avert the danger or of

abandoning the property as unfit for habitation, and, since a dangerous defect once known

became merely a defect in quality, to permit the building owner or occupier to recover his

economic loss would logically lead to an unacceptably wide category of claims in respect

of buildings or chattels which were defective in quality, and would in effect introduce

product liability and transmissable warranties of quality into the law of tort by means of

judicial legislation.

The council accordingly had owed no duty of care to the plaintiff when it approved the

plans for a defective raft foundation for the plaintiffs house. The appeal would thereforebe allowed.

ECONOMIC LOSS CAUSED BY NEGLIGENT ACTS

Hedley Byrne & Co Ltdv. Heller & Partners

Hedley Byrne contract Easipower

Hedley Byrnes Bank

Heller (Easipowers Bank)

HB were advertising agents for a new client Easipower. If Easipower failed to pay bills

for advertising arranged by HB then HB would have to pay the advertising charges.

Therefore HB through its bank requested information from Easipowers bank (Heller) on

the financial position of Easipower.

This they did by telephone, asking Heller in confidence and without liability on Hellers

part, whether Easipower would be good for a contract of 8000 to 9000. Heller &

Partners returned non-committal replies, sufficient to encourage the plaintiffs to continue

their dealings with Easipower. Heller replied that they believed Easipower to berespectably constituted and considered good for its normal business engagements. In

replying, Heller expressly disclaimed legal responsibility.

Six months later HBs bank wrote to Heller to ask whether they considered Easipower

trustworthy, in the way of business, to the extent of a 100 000 per annum contract and

Heller replied: Respectably constituted company, considered good for its ordinary

business engagements.

HB relied upon Hellers statements and as a result lost over 17 000 when Easipower

went into liquidation.

Hedley Byrne now sued the bank. HB sought to recover this loss from Heller as damages

on the ground that Hellers replies were given negligently and in breach of Hellers duty

to exercise care in giving them.


9/55

9


Held. There is a duty of care to avoid causing financial loss by negligent misstatement

where there is a special relationship. Bankers are under a duty to give honest answers.

Heller & Partners were liable in negligence but escaped liability by reason of their

disclaimer; Heller never undertook any duty to exercise care in giving their replies. HBs

bank (acting as HBs agent in making the inquiry) began by saying they wanted to know

in confidence and without responsibility on your [Hellers] part. [Note: disclaimers are now subject to the Unfair Contract Terms Act 1977. A person

cannot disclaim responsibility unless it is reasonable to do so. A disclaimer of this type

will only be effective if it satisfies the requirement of reasonableness.]

A special relationship exists if:

the statement is made in some professional or expert capacity which makes it likely that

others will rely on what is said and such reliance is reasonable; and

it is foreseen that it is likely that the statement will be relied on by another person, and

that, if the advice is given without due care, loss will be suffered.

Surveyors and valuers

Surveying of houses by professional surveyors acting on behalf of building societies and

other lenders of money on mortgage. Traditionally surveyors have always claimed that they

will only be liable for the statements made to the organization that paid the fee (the building

society) and disclaimed all responsibility to third parties these actually buying the houses.

Building societies invariably advised such people to seek independent advice, even though

the fee paid to the surveyor was charged on to the applicant for the mortgage. In practice, the

majority of buyers relied on the survey report made to the building societies.

Change in Smith v. Eric S. Bush (1989). The purchasers of a house had been

negligently surveyed by the defendant, and was worth much less than they had paid for it.

The survey had been commissioned by the building society from which the claimants had

sought a mortgage, as part of its standard practice of ensuring that the property was worth at

least the money that was being lent. However, such surveys were routinely relied upon by

purchasers as well, and in fact purchasers actually paid the building society to have the

survey done, although the surveyors contract was always with the building society.

The surveyor argued that the purpose of the valuation is to protect the security of the

building society, and not strictly to advise Mrs. Smith on the value of the house, although it

was foreseeable that she would rely on it.

At first instance, upheld by Court of Appeal: the surveyor owed the plaintiff a duty of

care. It would be neither fair nor reasonable to allow a professional person to claim that he

did not owe a duty of care to a person who had been sent a copy of their report and whomthey knew was likely to rely on it. This case was brought before the House of Lords.

House of Lords: in such situations surveyors assumed a duty of care to house

purchasers. Even though the surveys were not done for the purpose of advising home buyers,

surveyors would be well aware that buyers were likely to rely on their valuation, and the

surveyors only had the work in the first place because buyers were willing to pay their fees.

An important factor was that this did not impose particularly wide liability: the extent of the

surveyors liability was limited to compensating the buyer of the house for up to the value of

the house.

Test of reasonableness in relation to the disclaimer. House of Lords: four factors

should be considered in any such case:

The relative strengths of the bargaining parties.


10/55

10


Whether it was practicable to obtain alternative advice. (For a poor person, to pay for a

second report when he had already paid for the first report was not reasonable or

practical.)

How much difficulty was involved in the actual task in hand and whether the task was

routine or involved a high degree of risk. (A high degree of risk is not usually involved in

a house survey.) Whether or not it would involve a fundamental change in society. E.g. would surveyors

go out of business rather than take on the responsibilities involved. The House of Lords

held that professional people would take insurance cover and spread the extra cost over

all the work they do. No abnormal effect on the house purchase system could be

envisaged.

Accordingly, the case was held to be caught by the Unfair Contract Terms Act, and the

plaintiffs were entitled to compensation.

Accountants and auditors

JEB Fasteners Ltd v. Marks, Bloom & Co (1983). The importance of reliance on the

negligent misstatement.

Caparo Industries Plc v.Dickman and Others (1990).

Caparo made a takeover bid for a company, Fidelity, in which it already owned a

large number of shares. When the takeover was complete, Caparo discovered that Fidelity

was almost worthless. In assessing the likely value of Fidelity, Caparo claimed to have relied

on the figures prepared (by Dickman) for Fidelitys annual audit, which was required by the

Companies Act. It showed a healthy profit which did not in fact exist. Caparo sued the

auditors but the claim did not succeed.

Auditors report a (statutory) duty owed to the body of shareholders as a whole,

since the purpose of an audit is not to facilitate investment decisions but is required by the

Companies Act 1985 to enable the shareholders as a group to exercise informed control of the

company; to enable members to exercise proper control over the company. The purpose of an

audit is not to make investment decisions; it serves as a control on the management, enabling

the shareholders to control the management.

The accounts were produced for the purpose laid down in the Companies Act 1985, that

of ensuring that existing shareholders can exercise responsible control over the company.

They were not designed to guide potential new investors, and therefore they could also

not be expected to guide existing investors seeking to increase their share, like Caparo.

SPECIAL DUTY: NERVOUS SHOCK

Background. One area where the law is now prepared to recognise the existence of a

duty of care owed to a wide range of people is the area known as nervous shock.

- At first the law hesitated to accept nervous shock as a disease, and the tendency of

professional psychiatrists to give conflicting views of the illness in court did not help

matters. Common law denied liability until the early part of the 20th century (1925).

- However, as knowledge about such illnesses grew and a more reasonable consensus ofprofessional opinion developed, the courts began to decide in favour of claimants.


11/55

11


- More recently the body of cases identified as post traumatic stress disorder (PTSD) became

increasingly recognised. The trouble is that the courts do not wish to open the doors too

widely on such cases, because this permits claims where the sufferer is really too remote

from the event. E.g. should a person who saw a horrific accident on television be able to

claim that a duty of care existed between him and the person who caused the accident?

Problems:(a) placing a monetary value on this type of harm;

(b) the floodgates problem.

Categories of claimants.

Claimants who are physically injured. Those who are physically injured in the event

which the defendant has caused, as well as psychiatrically injured as a result of it. The

ordinary rules of negligence apply.

Primary victims. Those who wereput in danger of physical harm, but actually suffer only

psychiatric injury. The House of Lords held that in the case of a primary victim (ie,

where the claimant was involved either mediately or immediately as a participant in the

events) if personal injury of some kind to the claimant was foreseeable the defendantwould be liable for psychiatric injury sustained as a result of the defendants negligence,

irrespective of whether psychiatric injury was foreseeable.

Secondary victims. Those who are not put in danger of physical injury to themselves, but

suffer psychiatric harm as a result ofwitnessing such injury to others. A duty of care to

secondary victims will arise only if they can satisfy very restrictive requirements.

SeeBourhillv Young [1942] above

SeeMcLoughlin v OBrian [1982] above

McFarlane v.EE Caledonia (1994).

The fear must be reasonable, given the nature of the risk and the claimants situation.

Although a claimant can claim for psychiatric injury actually occurred, there must be some

basis for the fears.

Background. The Piper Alpha was a North Sea oil production platform operated by

Occidental Petroleum (Caledonia) Ltd. It produced around 10 percent of the then oil and

gas production from the North Sea. The platform began production in 1976, first as an oil

platform and then later converted to gas production. An explosion and resulting fire

destroyed it on July 6, 1988, killing 167 men.

McFarlane had been in a support boat about 50 yards from the Piper Alpha rig, and

witnessed the disaster. Held. His claim for nervous shock was rejected by the Court of Appeal: the boat he was

on was clearly never in any danger, and so his fear for his safety was unreasonable.

Merely seeing the disaster is not sufficient ground.

The Hillsborough litigation /Alcock v. Chief Constable of South Yorkshire Police (1992)

Facts. 15 April 1989 FA Cup semi-final between Liverpool and Nottingham Forest at

Hillsborough stadium in Sheffield. All tickets for the match had been sold, and it was being

shown on live television. However, the play had to be stopped after six minutes because so

many spectators had been allowed onto the terraces that some were being crushed against the

high fences that divided the terraces from the pitch.

95 people died from injuries; 400 people needed hospital treatment;


12/55

12


thousands witnessed the horrific events (those within the stadium);

millions witnessed everything on live television broadcasts or heard the news on radio.

The Hillsborough disaster was a deadly human crush that occurred on April 15, 1989, at

Hillsborough, a football stadium in Sheffield, England, resulting in the loss of 96 lives.

Liverpool F.C. were involved in their 17th FA Cup Semi-Final, to be played against Nottingham Forest

F.C. at Hillsborough, the home of Sheffield Wednesday F.C.

At the time most stadiums had placed high steel fencing between the spectators and the pitch, in

response to hooliganism which had plagued the sport for years. Hooliganism was a particularly stronginfluence in England, where it often involved pitch invasions and the throwing of a variety of missiles. This

fencing was later identified as one of the main factors leading to the disaster. The part of the stadium where

the problem occurred was also a terrace area, a cheaper standing section without seats that was

determined to be a major contributing factor to the disaster. Terraces were frequently divided by further

fencing into sections called pens to aid crowd control.The Hillsborough Stadium, considered a state-of-the-art stadium at the time, was segregated between

the opposing fans as was customary at all large matches at neutral venues: the Liverpool supporters being

assigned to the Leppings Lane End. Kick off was scheduled for 3.00 pm but due to a variety of factors

including traffic delays on the route to Sheffield from Liverpool many of the Liverpool supporters were

later than usual arriving. Between 2.00pm and 2.45pm there was a considerable build up of fans in the small

area outside the turnstiles at the Leppings Lane End, all eager to enter the stadium before the match started.A bottleneck developed with more fans arriving than entering the stadium. With an estimated 5,000 fans

trying to get through the turnstiles and an increasingly dangerous situation, the police decided to open a

second set of gates which did not have turnstiles (Gate C). The resulting inpouring of hundreds, or possibly

thousands, of fans through a narrow tunnel at the rear of the terrace and into the already overcrowded

central two pens caused a crush at the front where people were pressed against the fencing. The people

entering were unaware of the problems being experienced at the fence and for some time the problem wasnot noticed by anybody (other than those affected), it was not until 3:06 pm that the referee stopped the

match. By this time a small gate in the fencing had been opened and some fans escaped the crush by this

route others climbed over the fencing, and further fans were pulled up by fellow fans into the upper tier

above the Leppings Lane terrace.

The pitch quickly started to fill with people sweating and gasping for breath, those with crush injuries,

and with the bodies of the dead. The police and ambulance services were overwhelmed by the scale of the

disaster and fans helped as best they could, many attempting CPR and some tearing down advertising

hoardings to act as makeshift stretchers.

The crush ultimately took the lives of 96 people, with 766 fans receiving injuries. Tony Bland survived

for nearly four years in a persistent vegetative state before he became the 96th victim.

Graphic footage of the disaster was available because the match was being recorded for later broadcast

and this, along with the number of fatalities made an extreme impact on the general UK population.

The South Yorkshire police were responsible for policing the ground and it was

widely thought that the incident was caused by a negligent decision on their part, which

allowed too many people into the ground.

There were claimants who were injured or dead; there were primary victims; and

secondary victims: relatives and friends of the those injured and killed.1. Reasonable foreseeability. A secondary victim must first prove that psychiatric

injury to secondary victims was a reasonably foreseeable consequence of the defendants

negligence. Once reasonable foreseeability is established, there are three further tests which

the court must consider. See points 2 to 4 below.

2. Nature of the nervous shock. The psychological damage must have been caused

by the claimant suffering a sudden and unexpected shock. This excludes cases in which

people suffer psychiatric illness as a result of the grief of bereavement, or the stress and

demands of having to look after a disabled injured. This element of shock would normally be

lacking where the person watched a disaster on the television.

3. Range of relationships to the dead and injured. Relatives are the people most

likely to succeed in an action for psychological damage as a secondary victim. But there is noset of relationships; whether or not a claim succeeds will depend on the facts of each


13/55

13


particular case. One judge (Lord Keith) said that friends and engaged couples could

potentially be included. However, despite these liberal-sounding statements, uncles and

friends were all found not to have a sufficiently close relationship with the deceased or

injured person to succeed in their action.

Presumptive claim of parent-child, spouse, rescuer, which can be rebutted if the

necessary degree of care was not present. E.g. spouses who were separated and hated eachother. Example of care: where a grandparent had brought up a child from being a baby.

Test: type of relationship + closeness, i.e. close in care, relationship of love and

affection. A claimant does not only have to prove that the type of relationship was a close

one, but also that the relationship was as a matter factclose (i.e. a close relationship in terms

of love and affection).

4. Positions in relation to the incident. Proximity. Examples.

Persons who had been at the stadium when the disaster occurred and witnessed it at first

hand. Persons in or immediately outside the stadium they have a cause of action.

Persons who had seen it live on the television. Those who witnessed the scenes on TV

and have close relationship to those in danger they have no claim. TV is not equivalent

to sight or sound of the accident.Comment: this is rather a narrow view of the immediate aftermath test. Where the

plaintiffs had viewed the corpse of a loved one some hours after the disaster this was

not considered to be of immediate aftermath.

The House of Lords drew a distinction between recorded broadcasts and live broadcasts.

Recorded broadcasts: these are never sufficiently proximate to give rise to a duty of care.

Live broadcasts: a claim is unlikely to arise because of the broadcasting guidelines. These

guidelines prevent the portrayal of death or suffering by recognizable individuals. In

accordance with current television broadcasting guidelines shocking pictures of persons

suffering and dying would not be transmitted. Even live broadcasts of disasters cannot

be equated with actually having been present at the scene of the tragedy.

People who were told of the disaster or heard it on the radio they have no claim.

Persons who had gone to the stadium to look for someone they knew. They have no

claim.

Persons who had been told the news by a third party. They have no claim.

Persons who had to identify someone in the temporary mortuary at the ground. They

have no claim.

Merely being informed of the incident by a third party is not sufficiently proximate.

The immediate aftermath test. As long as the victim remains in the state caused by

the accident, until they receive immediate post-accident treatment.

2. Breach of duty and proof of negligence

The reasonable man test

Nettleship v. Weston (1971). The plaintiff, a driving instructor, gave the defendant driving

lessons. The defendant had been careful but on her third lesson the car struck a lamp post and

the plaintiff was injured. Held: the defendant, although a learner driver, would be judged by

the standards of the average competent driver. She was required to come up to the standard ofthe average competent driver.


14/55

14


Reasonable professional

Wilsher v.Essex Area Health Authority (1987)

The plaintiff was born prematurely and had then been given, negligently by the

defendants, a surplus of oxygen. Later he went blind. Blindness can occur in babies born prematurely from a number of causes, including a

surplus of oxygen.

Argument of the defendant: a junior inexperienced doctor owed a lower duty of care.

Court of Appeal. Found for the plaintiff. The standard of care required is according to that

of a competent fellow professional occupying a similar post and not according to the

person occupying that post.

House of Lords. Later reversed the case on different grounds (causation).

Factors determining negligence: Knowledge available at the time of the event

Roe v. Minister of Health (1954) The claimant was left paralysed after surgery, because a disinfectant, in which ampoules

of anaesthetic were kept, leaked into the ampoules through microscopic cracks in the

glass, invisible to the naked eye.

Medical witnesses in the case said that until the mans accident occurred, keeping the

ampoules in disinfectant was a standard procedure, and there was no way of knowing that

it was dangerous. It was only the injuries to the claimant that had revealed the risk.

Held. The proper test: normal practice based on the state of the medical knowledge at the

time. The defendant is entitled to be judged according to the standards that were accepted

at the time when they acted. The doctor was not at fault in failing to anticipate later

developments.

Factors determining negligence: Magnitude of risk of harm to the plaintiff

Bolton v. Stone (1951)

The plaintiff standing on a highway outside her house in a quiet street was hit by a cricket

ball from from a nearby cricket ground. The ball had travelled approximately 100 yards

and traversed a 17-foot-high fence. The evidence showed that the ball had only been hit

out of the ground six times in the previous thirty years.

House of Lords. The likelihood of injury to a person in the plaintiffs position was so

slight that the cricket club was not negligent for not having taken additional precautions,

like increasing the height of the fence. It is justifiable not to take steps to eliminate a realrisk if it is small and if the circumstances are such that a reasonable man would think it

right to neglect it.

Haley v. London Electricity Board (1965) The plaintiff may have characteristics which

render then likelihood of harm greater and therefore increase the risk.

The defendants left a hammer on the pavement to warn people of excavations. The

plaintiff, who was blind, tripped over the hammer and was injured.

It was held that although the warning was adequate for sighted persons, it was inadequate

for a blind person. The number of blind people was sufficiently large to make them a

class which the defendants ought reasonably to have had in contemplation. The cost of

prevention in this case was low.


15/55

15


Factors determining negligence: Seriousness of the injury that is risked

Paris v. Stepney Borough Council (1951) The plaintiff may have some characteristics or

incapacity which increases the risk of harm.

The plaintiff was employed by the defendants on vehicle maintenance. Paris had already

lost the sight of one eye. Part of his job involved welding. It was not normal to supplygoggles to men involved in such work. While he was hammering metal, a piece of metal

flew into the plaintiffs eye with the result that he became completely blind.

Held. Although industrial practice did not require goggles by workers with normal sight,

a higher standard was required regarding Paris, since he had sight on one eye only. The

greater risk to the plaintiff meant that greater precautions than normal had to be taken.

The defendants were held liable, although they would not have been liable to a person

with normal sight.

The disability did not increase the risk of injury, but it did increase the risk of the injury

being more serious. The risk of injury was small, but the potential consequences to this

particular employee if such injury did occur were extremely serious, as he could easily

end up completely blind. Moreover, the provision of goggles was not difficult orexpensive.

Factors determining negligence: Social benefit of the defendants conduct

Watt v.Hertfordshire County Council(1954)

The plaintiff fireman was on duty when an emergency call was received. A woman had

been trapped under a car and lifting equipment was required. A heavy jack was loaded

onto a lorry which was not equipped to secure it. On the way to the accident the jack

moved and injured the plaintiff who sued his employers.

Held. The risk taken by the fire authorities in an attempt to save a life was not a breach of

the duty of care owed to the plaintiff. The action failed as, in the circumstances, the risk

involved was not so great as to prohibit an attempt to save life.

Factors determining negligence: Cost of precautions

Latimer v. AEC Ltd(1953)

After a factory was flooded, the owner did all that he could to eliminate the effects of the

flooding by using sawdust on the floors. As supplies ran out, some areas of floor

remained uncovered. The plaintiff, a factory employee, slipped on an uncovered area and

was injured. He sued his employer in negligence, alleging that the defendants had not

taken sufficient precautions, and that the factory ought to have been closed. Held. The House of Lords agreed that the only way to eradicate the danger was to close

the factory, but held that given the level of risk, particularly bearing in mind that the

slippery patches were clearly visible, such an onerous precaution would be out of

proportion. Thee defendants were held not liable.


16/55

16


3. Causation

Did the breach of duty cause the damage? Multiple causes

McGhee v.National Coal Board(1972).

The plaintiff suffered from dermatitis through exposure to brick dust at work. It was

known that the type of work carried a risk of dermatitis, but this risk could have been

lessened if his employers had installed showers, as this would mean the brick dust

remaining in contact with workers skin for less time.

Problem. Although the defendants negligence had increased the risk to Mr. McGhee, he

might have got dermatitis even if showers had been installed. The defendant would have

lessened the risk, not taken it away. Could his employers negligence therefore be said to

have caused his condition?

House of Lords: yes, it could. Where a defendants negligence made a substantial

contribution to the injury they could be liable, and it is not necessary to prove that theirnegligence was the sole cause. It is enough to show that the defendant materially

contributed to the injury; it did not have to be the sole cause.

Martin Wilsher v.Essex Area Health Authority (1987)

The claimant was born three months prematurely and sufferred from a variety of

problems associated with being born too early. He was put on an oxygen supply and, as a

result of a doctors admitted negligence, was twice given too much oxygen. He eventually

suffered blindness, and the hospital was sued. Medical evidence suggested that although the overdoses of oxygen could have caused the

plaintiffs blindness, it could also have been caused by any one of five separate medical

conditions which he suffered from.

Court of Appeal. Found for the plaintiff. The standard of care required is according to that

of a competent fellow professional occupying a similar post and not according to the

person occupying that post. (See above standard of care)

House of Lords. Later reversed the case on different grounds. The plaintiff was not able

to show that the blindness was caused by the negligence of the defendants. The plaintiff

has to prove, on a balance of probabilities, that the defendants breach of duty was a

material cause of the injury. It is not enough to prove that the defendant had increased the

risk that the damage might occur, or had added another possible cause of it. On the factsof the case, the defendants negligence was only one of the possible causes of the

damage, and this was not sufficient to prove causation.

Factual causation. Would the loss have occurred anyway?

McWilliams v. Sir William Arrol & Co Ltd(1962)

The defendants failed to provide safety equipment for steel erectors and McWilliams fell

to his death. The widow sued the defendants.

Held. The defendant is not liable; since it was conclusively established that the deceased

would not have used the equipment. Cause of death: the deceaseds own fault and not thedefendants failure to provide safety equipment.


17/55

17


Barnett v. Chelsea and Kensington Hospital(1969)

The plaintiff, William Barnett, and two other men were nightwatchmen at the Chelsea

College of Science and Technology. At 5.00 a.m. on the morning of New Years Day

1966, all three shared some tea, and about 20 minutes later they began vomiting.

At 8.00 a.m. they went to the defendant hospital and were seen by a nurse whotelephoned the doctor on duty. He replied: Well, I am vomiting myself and I have not

been drinking. Tell them to go home and go to bed and call their own doctors

The three returned to the college but continued to feel ill, and by 2.00 p.m. the plaintiff

had died.

It was shown that Barnett had been poisoned with arsenic. His widow said the hospital

failed to treat her husband.

Held. The failure to examine the patient was negligent, but a provisional diagnosis would

have been food poisoning and by arsenic. The defendants negligence did not cause the

death. The hospital was not liable.

The court accepted that the defendants owed the deceased a duty of care, and that they

had breached that duty by failing to examine him. However, the breach did not cause hisdeath. There was evidence that even if he had been examined, it was too late for any

treatment to save him, and therefore it could not be said that but for the hospitals

negligence, he would not have died.

Without doubt the casualty officer should have seen and examined the deceased. It was negligence. It is

unfortunate that he was himself at the time a tired and unwell doctor, but there was no one else to do that

which it was his duty to do. Having examined the deceased I think the first and provisional diagnosis would

have been one of food posioning.

It remains to consider whether it is shown that the deceaseds death was caused by that negligence There

has been put before me a timetable The deceased attended at the casualty department at five or ten

minutes past eight in the morning. If the casualty officer had got up and dressed and come to see the three

men and examined them and decided to admit them, the deceased could not have been in bed in a wardbefore 11 a.m. an intravenous drip would not have been set up before 12 noon, and if potassium loss was

supected it could not have been discovered until 12.30 p.m. [The medical expert said:] If this man had notbeen treated until after 12 noon the chances of survival were not good.

Intervening cause (Novus actus interveniens)

McKew v. Holland and Hannan and Cubitts (1969) Act of the plaintiff.

McKew had been negligently injured by the defendant and was left with a leg which

sometimes gave way beneath him. One day he went to some flats with a steep staircase

and no handrail. He jumped and tried to land upright and broke his ankle. Held. The defendant is not liable for the broken ankle. It was his own fault for using the

stairs without assistance, since he knew about his condition.

Lamb v. Camden Borough Council(1981). Act of a third party.

The defendants negligently broke a water main. The water damaged the plaintiffs house and

caused it to be left empty. Squatters broke in and caused damage. The question was whether

the defendants were liable for the damage caused by the squatters or whether the squatters

actions amounted to a novus actus interveniens. The court accepted the latter.

Wright v. Lodge, Kerek and Lodge (1993) Act of a third party.

A ladys car had come to a halt on the nearside lane of an unlit dual carriage way on afoggy night. She was trying to restart the car when a large lorry, driving extremely fast,


18/55

18


crashed into her car and careered across to the other side of the dual carriage way where it

came to a stop. Several cars ran into the lorry and some people were killed.

Held. The lady had been negligent in not removing the car off the road, but the cause of

the lorry crossing the road and the death of some people was the reckless driving of the

lorry driver.

Comment. The reasoning is not clearly convincing; it might have been decided on policygrounds: it is much more probable, that the lorry driver or rather his employer has such a

financial background to be able to recover the damages since employers must have a

compulsory insurance.

4. Remoteness of damage

Reasonably foreseeable consequences

The Wagon Mound (No. 1). The defendants were the owners of a ship which was loading oil in Sydney Harbour, and

owing to the negligence of their employees, some of it leaked into the water and spread,

forming a thin film on the surface. Within hours, the oil had spread to a neighboroughing

wharf, owned by the plaintiff, where another ship was being repaired by welders. The

plaintiffs were assured that there was no danger of the oil catching fire on water and

continued welding. It was found as a fact that the defendants did not know, and could not

reasonably have been expected to know, that oil was capable of being set alight when

spread on water. The evidence showed that the oil needed to be raised to a very high

temperature before it would catch fire.

The discharge of oil caused some damage to the slipway, but then a few days later, further

and much more serious damage was caused when the oil was ignited by sparks from thewelding operations.

Held on appeal: the defendants were not liable. The damage suffered was not reasonably

foreseeable. Pollution was the foreseeable risk; fire was not foreseeable. The test:

foresight of the reasonable person: was the kind of damage suffered by the plaintiffs

reasonably foresseable at the time of the breach of duty? The defendants were found to

only be liable for the damage to the slipway, and not for the fire damage. A defendant

will only be liable if it was reasonable to foresee the type of damage that in fact

happened.

The remoteness test is a legal test, rather than a factual one. On this basis the law draws the

line between damage which can be compensated in law, and that which cannot.

Manner of occurrence of the damage

See the following conflicting decisions.

Hughes v.Lord Advocate(1963)

Post Office employees had opened a manhole in the street, and left it open when they

finished work for the day, covering it with a canvas shelter and surrounding it with

paraffin lamps.

The plaintiff, an eight-year-old boy, picked up one of the lamps and took it into the

shelter. While playing there, he knocked the lamp into the manhole, and paraffin vapour


19/55

19


from the lamp ignited, causing and explosion in which the plaintiff fell into the hole and

was badly burnt.

The defendants claimed that although they could have foreseen a risk that some might be

burnt, they could not have foreseen injuries caused by an explosion, and the damage was

too remote.

House of Lords. They rejected the defendants view. If it was reasonably foreseeable thatthe damage would be burning, it did not matter that the burns were produced in an

unforeseeable way. The defendant was found to be liable.

Doughty v. Turner Manufacturing Co Ltd(1964)

An asbestos cement lid accidentally fell into a cauldron of sodium cyanide at a

temperature of 800 degrees centigrade. A chemical reaction between the asbestos and the

liquid caused the liquid to bubble up and erupt over the edge of the vat, burning the

plaintiff. The chemical reaction leading to the explosion was previously unknown toscience.

The chemical reaction was not foreseeable, but the plaintiff argued that it was foreseeable

that the lid falling in would cause some liquid to splash out, and the result of this was

likely to be burning, the same injury as resulted from the liquid erupting.

Held. The court held that the damage to the plaintiff was too remote. Damage by eruption

was not foreseeable in the circumstances but damage by splashing was. The defendants

were not liable.

Extent of damage

Smith v.Leech Braine & Co Ltd(1962) A workman was near a tank of molten zinc in which metal articles were dipped to

galvanise them. One article was allowed to slip and the workman was burnt on the lip by

a drop of molten zinc. The burn activated latent cancer from which he died three years

later. His widow sued for damages.

Held. Damages for fatal accident would be awarded. Some physical injury (the burn on

the lip) was a foreseeable consequence. The defendants must accept liability for the much

more serious physical injury (cancer) caused by their negligence. The question for

remoteness was whether the defendants could have foreseen the burn, not whether they

could have foreseen the cancer. The defendant was held liable for the full result of the

negligence.

5. Defences

Volenti non fit iniuria. Consent.The plaintiff voluntarily agrees to undertake the legal risk of harm at his own expense. This is

a complete defence.

Smith v.Baker(1891)

The plaintiff was employed by the defendants on the construction of a railway. Whilehe was working a crane moved rocks over his head. Both he and his employers knew there


20/55

20


was a risk of a stone falling on him and he had complained to them about this. A stone fell

and injured the plaintiff and he sued his employers for negligence.

The employers pleaded volenti (claiming that in continuing to work when he knew of

the risk, he was accepting it) but this was rejected by the court. Although the plaintiff knew

of the risk and continued to work, there was no evidence that he had voluntarily undertaken

to run the risk of injury. Merely continuing to work did not indicate volens.

Contributory negligence.

The plaintiffs fault has contributed to his damage and the damages awarded are reduced in

proportion to his fault.

Law Reform (Contributory Negligence) Act of 1945. Section 1(1):

Where any person suffers damage as a result partly of his own fault and partly of the fault of any other

person or persons, a claim in respect of that damage shall not be defeated by reason of the fault of the

person suffering the damage, but the damages recoverable in respect thereof shall be reduced to such extent

as the court thinks just and equitable having regard to the claimants share in the responsibility for the

damage.


21/55

CONTRACT LAW


22/55

22


Formation of a contract

A statement of price is not necessarily an offerHarvey v.Facey Plaintiff telegraphed the defendant: Will you sell us Bumper Hall Pen? Telegraph lowest

cash price!

Defendant telegraphed: Lowest price for Bumper Hall Pen 900.

Plaintiff: We agree to buy Bumper Hall Pen for 900. However, the defendant

declined to transfer the property, and Harvey sued for specific performance.

Held: the defendants telegram was not an offer capable of being accepted by the

plaintiff. It was simply a statement of information.

Unilateral contract. Offer to the whole world generallyCarlillv. Carbolic Smoke Ball Co. (1893)

The defendants were proprietors of a medical preparation called The Carbolic Smoke

Ball. They inserted advertisements in various newspapers in which they offered to pay

100 to any person who contracted influenza after using the ball three times a day for two

weeks. They added that they had deposited 1,000 at a bank to show our sincerity in the

matter.

The plaintiff, a lady (Mrs. Carlill) used the ball as advertised, and was attacked by

influenza during the course of treatment (in her case: from 20 Nov. 1891 to 17 Jan. 1892).

The company refused to pay. She now sued for 100.

Various defences raised by the company.

1.The offer was too vague since no time limit was stipulated in which the user was tocontract influenza. Court: it must surely have been the intention that the ball would

protect its user during the period of its use, and since this covered the present case it

was not necessary to go further.

2.The matter was an advertising puff and that there was no intention to create legal

relations. Court: the deposit of 1,000 at the bank was clear evidence of an intention

to pay claims.

3.This was an attempt to contract with the whole world and this was impossible in

English law. Court: the advertisement was an offer to the whole world and, by

analogy with the reward cases, it was possible to make an offer of this kind.

4.The plaintiff had not supplied any consideration. Court: using this inhalant three

times a day for two weeks or more was sufficient consideration. It was not necessary to

consider its adequacy.

5.There had been no communication of acceptance. Court: looking at the reward cases,

in contracts of this kind acceptance may be by conduct.

Invitation to treat. Display of goods in shops.

Pharmaceutical Society of GB vBoots (1953)

The branch in question was adapted to the self-service system. Customers selected their

purchases from shelves on which the goods were displayed and put them into a wire

basket supplied by the defendants. They then took them to the cash desk where they paidthe price.


23/55

23


One section of shelves was set out with drugs which were included in the Poisons List

referred to in the Pharmacy and Poisons Act 1933, though they were not dangerous drugs

and did not require a doctors prescription. Section 18 of that Act requires that the sale of

such drugs shall take place in the presence of a qualified pharmacist. Every sale of the

drugs on Poisons List was supervised at the cash desk by a qualified pharmacist, who had

authority to prevent customers from taking goods out of the shop if he thought fit. Theissue was therefore whether the sale had taken place at the shelves or at the cash desk.

One of the duties of the Society was to enforce the provisions of the Act, and the action

was brought because the Society claimed that the defendants were infringing Section 18.

Question: where does the offer take place? On the shelves by displaying the goods on

them (no qualified pharmacist present), or at the cash desk (pharmacist is present)?

Judgment. The display of goods in this way did not constitute an offer. The contract of

sale was not made when a customer selected goods from the shelves, but when the

companys employee at the cash desk accepted the offer to buy what had been chosen.

There was, therefore supervision in the sense required by the Act at the appropriate

moment of time. In other words, the offer was made by the customer when medicines

were placed in the basket; and was only acceptedwhen the goods were presented at thecash desk. Since a pharmacist was supervising at that point no offence was committed.

Comment. The fact that the price ticket is not regarded as an offer is somewhat archaic,

being based, perhaps, on a traditional commercial view that a shop is a place for

bargaining and not a place for compulsory sales. However, since there is no bargaining

in the UK in modern times the rule could be a hardship to those purchasers who quite

rightly think that the ticket represents the price and not merely an invitation to treat.

Comment. Although a trader can refuse to sell at his wrongly advertised price, he

commits a criminal offence under ss 20 and 21 of the Consumer Protection Act 1987 for

giving misleading price indication where the price ticket shows a lower price than that at

which he is prepared to sell.

A customer cannot insist on buying a particular item on display. You cannot make a

shopkeeper sell you the sweater in the window even if there are none left inside the shop.

Displaying the goods is not an offer, so a customer cannot accept it and thereby make a

binding contract.

Advertisements for bilateral contracts.

Advertisements which advertise specified goods at a certain price, such as those found at the

back of newspapers and magazines. They are usually considered invitations to treat, on the

ground that they may lead to further bargaining.

Partridge v. Crittenden (1968). Partridge had placed and advertisement in a newspaper indicating that he had certain wild

birds (bramblefinch) for sale. In no place was there any direct use of the words offer for

sale. Bramblefinch was a protected species.

Mr Thompson ordered a bird and opened the box in the presence of an RSPA inspector,

Mr Crittenden, who brought a prosecution against Mr Partridge alleging that Mr Partridge

had offered for sale a protected wild bird contrary to the Protection of Birds Act 1954.

Partridge was charged with the offence of wrongfully offering for sale a wild bird

contrary to this Act.

The court accepted that the bird was a wild bird, but since Mr Partridge had been charged

with offering for sale, the conviction could not stand. The advertisement constituted in

law an invitation to treat, not an offer for sale, and the offence was therefore notestablished. (There was of course a completed sale for which Mr Partridge could have


24/55

24


been successfully prosecuted but the prosecution in this case had relied on the offence of

offering for sale and failed to establish such an offer.)

Comment. The case shows how concepts of the civil law are sometimes at the root of

criminal cases.

Acceptance by conduct

Brogden v.Metropolitan Railway Co. (1877)

Brogden, who was in the coal business, had supplied a railway company with coal for

some years already, though there was no formal agreement between them. Eventually

Brogden (the plaintiff) suggested that there ought to be one. A draft agreement was drawn

up by the Railway Companys agent (which left a blank space for Brogden to insert the

name of an arbitrator) and sent to the plaintiff.

Brogden inserted several new clauses into the draft, then wrote the word Approved on

the draft and returned it to the Railway Companys agent.

There was no formal execution, the draft was put by the Railway Companys agent into a

desk drawer, and remained there for two years. However, coal was supplied according tothe prices mentioned in the draft (though these were not the market prices), and prices

were reviewed from time to time in accordance with the draft.

The parties then had a disagreement and Brogden refused to supply coal to the Railway

Company on the grounds that there was no binding contract since the Company had not

accepted the offer in the amended draft.

Held (House of Lords): The plaintiff lost the case.

- The draft was not a binding contract because the plaintiff inserted new terms which the

Railway Company had not accepted. By inserting the arbitrators name, Brogden added

a new term to the potential contract, and therefore, in returning it to the railway

company, he was offering to supply coal under the contract.

- But when was that offer accepted? Acceptance by conduct could be inferred from the

parties behaviour. There was a binding contract arising out of conduct. The parties had

indicated by their conduct that they had waived the execution of the formal document

and agreed to act on the basis of the draft. The contract was concluded (1) either when

the railway company ordered coal for the first time upon the terms of the draft

agreement; or (2) at least when Brogden (first) supplied the coal.

The acceptance must correspond exactly with the offer and must not constitute a

counter offer.

Jones v.Daniel(1894)

Daniel had made an offer in writing to buy Jones property for 1,450. The reply from Jones solicitor accepted the offer and enclosed was a contract for

signature. However, this contract contained a term which was not in the original offer,

plus a request for a 10% deposit giving the date for completion.

Daniel returned the contract unsigned.

Held: no acceptance had taken place. Instead the solicitor had made a counter-offer which

Daniel chose to reject. No valid contract.

Hyde v. Wrench (1840)

Wrench offered to sell his farm for 1,000.

The plaintiffs (Hyde) agent made an offer of 950 and Wrench asked for a few days for

consideration, after which Wrench wrote saying he could not accept it. Then Hyde wrote purporting to accept the offer of 1,000.


25/55

25


The defendant (Wrench) did not consider himself bound; Hyde sued for specific

performance. [In this situation the offeror can make a new offer on exactly the same

terms, but is not obliged to do so.]

Held: the plaintiff could not enforce this acceptance because his counter-offer of 950

was an implied rejection of the original offer to sell at 1,000.

Silence cannot amount to acceptance

Felthouse vBindley (1862)

FELTHOUSE = uncle; BINDLEY = auctioneer

Felthouse had been engaged in negotiations with his nephew John regarding the purchase

of Johns horse, and there had been some misunderstanding as to the price. Eventually

Felthouse wrote to his nephew as follows: If I hear no more about you I consider the

horse is mine at 30.75.

The nephew was on the point of selling off some of his property in an auction. He did not

reply to the uncles letter, but did tell the auctioneer to keep the horse out of the sale. The

auctioneer forgot to do this and the horse was sold. [The nephew actually wrote

afterwards to apologize for the mistake!] Felthouse sued the auctioneer for conversion.

1

Held: the plaintiffs action failed. There was no contract between the uncle and the

nephew. Although the nephew intended to sell the horse to his uncle, he had not

communicated that intention. There was, therefore, no contract between the parties, and

the property in the horse was not vested in the plaintiff at the time of the auction sale.

There could be no acceptance by silence in these circumstances. The offeror cannot

impose acceptance merely because the offeree does not reject the offer.

Statutory rules on unsolicited goods (Inertia selling)

A person who, having sent in the course of business unsolicited goods to a person

with a view to the recipient acquiring them but who has neither agreed to acquire or return

the goods, makes a demand for payment or threatens legal proceedings to get payment will be

guilty of an offence. The recipient of such unsolicited goods may use, deal with or dispose as

if they were an unconditional gift.

It is illegal for a supplier to demand payment for unsolicited services. Book clubs are

a very good example of inertia selling and the most common kind. If a company sends you an

item that you did not order and does not provide for return post, it cannot then try to invoice

you for the product or initiate debt collection proceedings against you. However, if you are

contracted to a company and receive unwanted books or CDs, you should check your contract

as it may contain a term that commits you to receiving 4 or 5 items a year. If this is the case,

the companys actions cannot be considered inertia selling. It is therefore very important foryou to read the contract carefully before committing yourself to it.

1

Conversion. The tort of wrongfully dealing with a persons goods in a way that constitutes a denial of theowners rights or an assertion of rights inconsistent with the owners. Wrongfully taking possession of goods,

disposing of them, refusing to give them back, etc.


26/55

26


Use of post and telemessages in offer and acceptance (postal rule)

Offer by post takes effect when it reaches the offeree (not when posted).

SeeAdams v.Lindsell(1818)

Sept 2 Sept 5 Sept 7 Sept 8 Sept 9offer postedmisdirected

offer arrivedacceptance

posted

expecting answer in vain

sale to a thirdparty

letter ofacceptance

arrived

Lindsell wool dealers in business. By a letter dated 2 September 1817, they offered to

sell wool to the plaintiffs who were wool manufacturers at Bromsgrove, Worcestershire.

The letter asked for a reply in course of post. The letter was misdirected, being

addressed to Bromsgrove, Leicestershire, and thus somewhat delayed in the post.

Adams having received the letter on 5 September posted a letter of acceptance

immediately. Their letter reached the defendants on 9 September.

If the offer had not been misdirected, the defendants could have expected a reply on 7September, and accordingly they sold the wool to a third party on 8 September. Adams

now sued for breach of contract.

Held. Where there is a misdirection of the offer, the offer is made when it actually reaches

the offeree, and not when it would have reached him in the ordinary course of post. The

defendants mistake must be taken against them and for the purposes of this contract the

plaintiffs letter was received in course of post. A contract was concluded as soon as the

acceptance was posted, so that the defendants were bound from the evening of

5 September, and had therefore breached the contract by selling the wool to the third

party.

Comment. Under current law there would have been a contract even without the postal

rule, because the revocation of the offer could only take effect if it was communicated tothe offeree. Selling the wool to a third party without notifying the plaintiffs would not

amount to a revocation. However, in 1818 the rules on revocation were not fully

developed.

Acceptance by post takes effect when the letter is posted (even though it never reaches its

destination).

Household Fire Insurance Co v. Grant (1879)

Grant handed a letter of application for shares to the companys agent in Glamorgan. The

application stated that Grant had paid to the companys banker the sum of 5 being a

deposit of one shilling per share on application for 100 shares, and also agreed to paynineteen shillings per share within 12 months of the allotment. The agent sent the

application to the company in London.

The company secretary made out a letter of allotment in favour of the defendant. The

company did write to say that the shares had been allotted to Grant, but the letter was lost

in the post and he never received it. Nevertheless the company entered the defendants

name on the share register and credited him with dividends amounting to 5 shillings.

The company went into liquidation, and the liquidator sued for 94.15s, the balance due

on the shares allotment.

Held: the defendant was liable. Acceptance was complete when the letter of allotment

was posted. Basis: the Post Office must be deemed the common agent of the parties, and

delivery to the agent constituted acceptance.


27/55

27


Exceptions to the postal rule: offers requiring communication of acceptance

Holwell Securities Ltd. v. Hughes (1974) actual communication was required, and this

overruled the ordinary postal rule.

Dr. Hughes, a medical practitioner, had granted to the plaintiffs an option to purchase his

premises in Wembley for 45,000. The agreement was reached on 19 October 1971;provided that the option should be exercisable by notice in writing at any time within six

months of the date of the agreement.

On 14 April 1972, the plaintiffs solicitors sent to Dr. Hughes by ordinary post a written

notice exercising the option. That notice was never delivered to Dr. Hughes, nor left at his

address.

Held. The notice in writing had to be given to Dr. Hughes in the sense that he had either

to have actually received it or to be deemed to have received it under the Law of Property

Act 1925 (registered post) or within the Recorded Delivery Service Act 1962 (recorded

delivery). The words of the agreement: notice to cannot be interpreted so that

acceptance could be constituted by posting. The word notice meant communication, and

therefore it would not be appropriate to apply the postal rule.

Exception to the postal rule: Instant methods of communication (telex; telephone)

Instant method of communication acceptance is valid when received (when

communicated).

Entores Ltd. v.Miles Far East Corporation (1955)

Entores, who conducted a business in London, made an offer to the defendants agent in

Amsterdam by means of a teleprinter service.

The offer was accepted by a message received on the plaintiffs teleprinter (telex) in

London. (The defendant sent a message of acceptance from Amsterdam to London.)

Later the defendants were in breach of contract and the plaintiffs wished to sue them. The

defendants had their place of business in New York and in order to commence an action

the plaintiffs had to serve notice of writ on the defendants in New York. The rules of civil

litigation stated that Entores could only bring this action in England if the contract had

been made in England. So the question was: where / when was the contract made?

Defendants: the contract was made in Holland when it was typed into the teleprinter

there, stressing the rule relating to posting.

Held (Court of Appeal). Where communication is instantaneous, i.e. where parties are

face to face or speaking on the telephone, acceptance must be received by the offeror. The

same rule applied to communication of this kind. Therefore the contract was made in

London where the acceptance was received. Because telex allows almost instantcommunication, the parties were in the same position as if they had negotiated in each

others presence or over the telephone, so the postal rule did not apply and an acceptance

did not take effect until it had been received by the plaintiffs. Because the acceptance had

been received in London, the contract was deemed to have been made there, so the legal

action could go ahead.


28/55

28


Termination of offer: reasonable length of time

Ramsgate Victoria Hotel Co Ltdv. Montefiore (1866)

Montefiore had applied for shares in the plaintiff company early in June.

No reply was made by the company, but on 23 November 1864 [five months later!] they

allotted shares to the defendant. The defendant refused to pay for the shares, although he

had not withdrawn his application at the time when the shares were allotted. Held: his refusal was justified because his offer had lapsed by reason of the companys

delay in notifying acceptance. Montefiore is not obliged to pay for the shares, as the

response to the offer was not within a reasonable time. Five months was not a reasonable

length of time for acceptance of an offer to buy shares, which are a commodity with a

rapidly fluctuating price. Therefore the offer had lapsed before the company tried to

accept it, and there was no contract between them.

Termination of offer: request for further information

Counter offers must be distinguished from request for further information. If the

offeree asks if the offeror would be willing to amend some of the terms of the offer, that doesnot amount to counter-offer. The original offer remains open.

See Stevenson v. McLean (1880)

The defendant offered to sell iron to the plaintiff for cash on Saturday. McLean stated

that the offer would remain available until the following Monday.

The plaintiffs telegraphed asking whether the defendant would accept some changes in

the terms, most notably whether they could buy the goods on credit.

The defendant received the telegram but did not reply, so the plaintiffs by telegram

accepted the defendants original offer (sent on Monday afternoon at 1.34 p.m.).

However, in between the defendant sold the iron to a third party. The defendant informed

the plaintiffs of this by a telegram dispatched at 1.25 p.m. arriving at 1.46 p.m. The

plaintiffs had therefore accepted the offer before the defendants revocation had been

communicated to them. If, however, the plaintiffs first telegram constituted a counter-

offer, then it would amount to a rejection of the defendants original offer (the defendant

is no longer bound by his offer).

Held. The plaintiffs first telegram was not a counter-offer, but a mere inquiry for

different terms which did not amount to a rejection of the defendants original offer. So

the offer was still open when the plaintiffs accepted it.

McLeans offerStevenson: request forfurther information

Revocation: telegramsent at 1.25

Acceptance sent at1.34 pmContract formed

Revocation arrived /effective at 1.46 pm


29/55

29


Revocation of offers

Revocation takes effect when the letter is received and read, i.e. actually brought to the notice

of the offeree. It is not effective on posting.

Byrne v. Van Tienhoven (1880)

Oct 1 VT posted a letter in Cardiff to B in New York. Heoffered to sell 1000 boxes of tin plate.

offer made

Oct 8 VT posted a letter revoking the offer. withdrawal posted

B received the letter with the offer offer communicated

Oct 11B immediately telegraphed their acceptance

(acceptance by telegram is valid as it is sent)

acceptance of offer

postal rule applies

contract made

Oct 20

Letter of revocation arrived in New York.

VT had by this time entered into a contract to resell

the tin plate.

Revocation

communicated but too

late

Held:

- Revocation of an offer is not effective until it is communicated to the offeree (revocation

took effect on Oct 20).

- Mere posting of a letter of revocation is no communication to the person to whom it is sent.

The rule is not, therefore, the same as that for acceptance of an offer.

Thus the defendants were bound by a contract which came into being on 11 October.

Consideration

Consideration must be of economic value.

Although this economic value may be negligible. What this principle basically seems to mean

is that there must be some physical value, rather than just an emotional or sentimental one.

De La Bere v.Person Ltd. (1908)

A newspaper offered financial advice to its readers. The plaintiff wrote and asked for the

name of a goodstockbroker. He was given instead the name of an undischarged bankrupt

who made off with the 1,400 De La Bere sent to him. De La Bere sued the newspaper.

The newspaper argued that DLB had not given any consideration.

Held: DLB provided consideration by paying for his copy of the newspaper.

Chappelv.Nestl (1960)

Chappel owned the copyright in a dance tune called Rocking Shoes.

Nestl used records of this tune as a part of an advertising scheme without getting

permission from Chappel. A record company made the records for Nestl who advertised

them to the public for a sum of 1s 6d each but required in addition three wrappers from

their 6d bars of chocolate. When they received the wrappers they threw them away.

Chappel sued for infringement of copyright. Under the Copyright Act of 1956 according

to which:

- A person recording musical works for retail sale (selling entirely for money) need not

get the permission of the holder of the copyright, but had merely to serve him withnotice and pay 6.25 % of the retail price as royalty.


30/55

30


- A person not retailing the goods must get permission to use the musical work.

Question: whether the wrappers were part of the consideration. Calculation of the price

(a) if its only 1s6d (the wrappers NOT), then it is a retail sale [Nestl wins], (b) if 1s6d

PLUS the wrappers, then this is not a retail sale [Chappel wins].

Chappel asserted that Nestl were not retailing the goods in the sense of the Act, and must

therefore get permission to use the tune. Retailing argued Chappel means sellingentirely for money. Selling for money plus wrappers is not retail sale, thus Nestl needed

Chappels consent.

Nestl: defence: the sale was for cash (i.e. retail sale) because the wrappers were not part

of the consideration.

Judgment (HL): the House of Lords gave judgment for the plaintiffs (Chappel). The

wrappers were part of the consideration since the offer was to supply a record in return

not simply for money but for the wrappers as well. On the question on adequacy: it is said

that, when received, the wrappers are of no value to Nestl, they simply throw them

away. However, this is irrelevant. A contracting party can stipulate for what consideration

he chooses.

Comment: the wrappers could on their own have formed the consideration. Comment: the Act of 1956 was repealed by the Copyright Designs and Patents Act 1988.

Permission to reproduce is required for not retailing and for retail sale as well. However,

the case remains a classic example of adequacy of consideration.

Consideration must move from the promisee

Tweedle v. Atkinson (1861).

John Tweedle and his son William Tweedle.

William Guy and his daughter (future wife to William Tweedle).

Agreement between the fathers William Guy and John Tweedle; each had promised to

the other that he would pay a sum of money to William Tweedle.

William Guy had died before he paid the sum promised. William Tweedle sued Guys

executor.

Held: William Tweedle could not sue as no consideration had been given by him. Only

William Tweedles father was entitled to sue. William Tweedle was a stranger to the

consideration; he was neither the promisor, nor the promisee.

Consideration must not be past

Roscorla v. Thomas (1842)

Thomas sold a horse to Roscorla for 30.

After the sale, Thomas promised that the horse was sound and free from vice, which it

was not. Roscorla sued for damages for

Business Law Cases 2012

Documents