Taylor and Another v A (Novo) Uk Ltd

In a similar vein to McLoughlin v O’Brian, the boundaries of proximity, and the effects of secondary nervous shock are explored with deliberate force, so as to establish where two related events fall within the passing of time and space.

In the first event, the respondent’s mother was subject to a workplace accident involving a stack of racking boards that unexpectedly fell upon her.

While recovering at home, the victim unexpectedly collapsed as the result of a deep vein thrombosis and associated pulmonary embolism, which were caused by the accident itself. 

In the second event, the respondent daughter was visiting with her mother at the time of her death, and was subsequently witness to her sudden passing.

This left the respondent in a state of shock, resulting in Post-Traumatic Stress Disorder (PTSD), a psychiatric injury familiar to both the courts and the medical profession.

In the first hearing, the judge placed focus upon whether, as a secondary victim to an earlier event, the respondent was qualified to receive damages.

In order to conclude as to her entitlement, there were seven requirements set forth, namely that:

(1) The respondent’s injury was reasonably foreseeable 

(2) The relationship between the respondent and the primary victim was a close one

(3) There was a recognised psychiatric injury

(4) The injury was the result of the appellant’s negligence

(5) The injury was the result of shock from witnessing the primary victim’s death

(6) The respondent was either present at the time of death or the immediate aftermath

(7) The respondent perceived the death with her own senses

While the appellants accepted that all but one of the criteria (4) were satisfied, the judge awarded in favour of the respondent, before the matter came before the Court of Appeal.

Here, the mechanics of secondary nervous shock claims fell under discussion, in order to both understand the previous findings and reach an informed conclusion as to the limitations of such developing claims.

The categorisation of primary and secondary nervous shock victims was properly outlined by Oliver LJ in Alcock v Chief Constable of South Yorkshire Police, where he remarked:

“Broadly [the cases] divide into two categories, that is to say, those cases in which the injured plaintiff was involved, either mediately or immediately, as a participant, and those in which the plaintiff was no more than the passive and unwilling witness of injury caused to others.”

Alcock v Chief Constable of South Yorkshire Police

Before going further to explain that:

“What is more difficult to account for is why, when the law in general declines to extend the area of compensation to those whose injury arises only from the circumstances of their relationship to the primary victim, an exception has arisen in those cases in which the event of injury to the primary victim has been actually witnessed by the plaintiff and the injury claimed is established as stemming from that fact.”

Alcock v Chief Constable of South Yorkshire Police

While later posing that:

“[T]he concept of ‘proximity’ is an artificial one which depends more upon the court’s perception of what is the reasonable area for the imposition of liability than upon any logical process of analogical deduction.”

Alcock v Chief Constable of South Yorkshire Police

In Taylor v Somerset Health Authority, a widow was awarded damages when her husband died at hospital following a sudden heart attack at work.

Having arrived at the hospital an hour after his death, she waited twenty minutes before being informed by staff of his passing, whereupon she was taken to the mortuary to confirm his identity while still understandably distressed and shocked.

At the trial, it was revealed that the hospital had failed to diagnose the severity of his condition, while the widow was now diagnosed as having nervous shock from her experiences in the hospital.

On this occasion, the court held the local Health Authority liable for damages, through the months of misdiagnosis leading up to his passing.

In the previous hearing, Halbert J had explained that:

“[T]his was not a gradual decline leading to death, it was a sudden collapse. It was on any practicable view a new ‘event’ and a very traumatic one…The operative ‘event’ which traumatised the claimant was sudden and horrifying. She was present at the scene and witnessed it with her own senses. The fact that there was an earlier incident caused by the same negligent act is irrelevant.”

However, as had been stipulated by Wilberforce LJ in McLoughlin v O’Brian,it was important to remember that:

“As regards proximity to the accident, it is obvious that this must be close in both time and space. It is, after all, the fact and consequence of the defendant!s negligence that must be proved to have caused the ‘nervous shock’.”

McLoughlin v O’Brian

On this occasion, there had been a number of weeks between the first event and the second, therefore while the scope of secondary nervous shock was largely applicable to the core of the claim, there had since been a significant passage of time between both the accident and the death of the respondent’s mother.

This indisputable and distinguishing element, therefore left the Court with no other option than to allow the appeal on grounds of unreasonable proximity and proportionality of the doctrine, thus dismissing the claim outright, while reminding the parties that:

“In a secondary victim case, physical proximity to the event is a necessary, but not sufficient, condition of legal proximity.”

MURPHY v BRENTWOOD DISTRICT COUNCIL

Proximity and the scope of special relationships, lie close to the heart of tortious principle, and although the direction taken in Anns v Merton London Borough Council was with hindsight, both unnecessary and damaging, it became important to relinquish those shackles through the examination of this case.

During the construction of a number of new homes, it was the decision of the consulting local authority to employ the services of professional and suitably qualified civil engineers, in order to ensure full compliance with the building regulations of the time.

Unfortunately, there were two properties that due to inconsistencies with the land, required very detailed and purpose-specific foundations in order to avoid subsidence or resulting damage of any kind.

The council themselves had no immediate employees instructed enough to challenge the opinions of the engineers; and so, when those same professional contractors failed to properly calculate the foundation integrity, the plans submitted were signed off without contest.

It was not until after a sale of one the two homes, that the purchaser, who after a period of growing concern, discovered there had been significant movement of the property due to a shift in the footings.

This unforeseen issue became the catalyst to a number of structural fractures, as well as utilities supply ruptures of a nature that could have proven dangerous, if not fatal, to the occupiers.

However, instead of using the home insurance proceeds to restore the property back to its correct state, the owner chose to sell the house at a grossly under market value, while issuing legal proceedings against the local authority on grounds of negligence arising from a statutory failure to prevent the faulty construction of the foundations, and thereby the overall property.

At the original trial, the judge awarded in favour of the claimant, awarding costs exceeding the value lost through the defects, with allowance for considerable outlay on furnishings and repairs while under the ownership of the original purchaser.

When the local authority appealed, it was ultimately dismissed, while the Court upheld that they had, through the course of their statutory duties, allowed the home in question to become victim to ‘physical damage,’ that by virtue of its construction, ran serious risk of causing injury and distress to those parties in occupancy at the time such an event happened.

This judgment was dependent upon the outcome of Dutton v Bognor Regis Urban District Council and in equal share, to that of Anns, which supported extension of public body liability to where private law remedy could hold them responsible beyond the reach inferred from existing statute.

Having then granted leave to appeal, the case was again presented to the House of Lords, where in many respects, the opportunity to reexamine the precedent established in Anns, could now encourage departure from the overextension of duty of care principles; particularly when relying upon Donoghue v Stevenson for relationship proximity and vicarious negligence where none existed.

After meticulously evaluating the chain of events that led to the purchaser’s claim, it became difficult to sustain that a third party to a transaction could be held against a duty of care to those suffering the results of poor construction design (as that incorporated into the overall product); which on this occasion, was the finished property.

This conflict then provoked a decision which allowed the local authority appeal and overturn the decision in Anns; a reversal that emphasised the differentiation of tortfeasor relationships, and the starkness between physical and pecuniary loss within tort law, while the court reminded the parties that:

“[A] third party cannot successfully sue in tort for the interference with his economic expectations or advantage resulting from injury to the person or property of another person with whom he has or is likely to have a contractual relationship.”

LISTER v HESLEY HALL LTD

Vicarious liability and the systematic sexual abuse of children under the care of trained staff, becomes the nucleus of a collective suit against the abuser’s employer, in the wake of criminal allegations leading to a conviction.

Between 1979 and 1982, the respondents employed the services of a warden for the purposes of managing a boarding house designated the care of emotionally troubled and vulnerable children.

Of the eighteen boys resident to the property, a number of them were subjected to numerous forms of sexual abuse, achieved through careful grooming and insidious manipulations by the offender. 

While the acts themselves went unreported, a criminal investigation revealed the identity of the accused; and following summary conviction, he was sentenced to seven years imprisonment.

Almost fifteen years later, the appellants issued claims against the owners of the boarding house on grounds of vicarious liability and negligence.

In the first instance, the claim for negligence was dismissed, while the accusation of liability for the abuse fell victim to the existing position as determined by the verdict in Trotman v North Yorkshire County Council; in which, a disabled pupil had been sexually abused by the deputy headmaster while on a school trip abroad.

When assessing the culpability of the local authority, Butler-Sloss LJ concluded that:

“[I]n the field of serious sexual misconduct, I find it difficult to visualise circumstances in which an act of the teacher can be an unauthorised mode of carrying out an authorised act, although I would not wish to close the door on the possibility.”

Trotman v North Yorkshire County Council

Subsequently holding that the employers in question, could not be held liable for the individual actions of a sick mind, despite having harmed the child while under the employment of the authority at the time of the abuse.

When heard by the Court of Appeal, who themselves adhered to the principles ascribed in Trotman, the decision was taken to award damages based on the wardens failure to report his actions to his employer.

This was expressed by Waller LJ, who explained:

“The simple point in this case is that if wrongful conduct is outside the course of employment, a failure to prevent or report that wrong conduct cannot be within the scope of employment so as to make the employer vicariously liable for that failure when the employer was not vicariously liable for the wrongful conduct itself.”

Granted leave to appeal, the case was presented again to the House of Lords, who took issue with the decision in Trotman, while clarifying the very principles of vicarious liability.

The essence of vicarious liability rests upon the timeless principles espoused in academic text; which state that a wrongful act undertaken by an employee in the course of his employment is recognised where:

‘it is either (a) a wrongful act authorised by the master, or (b) a wrongful and unauthorised mode of doing some act authorised by the master’.

This is further supported by the principle that:

‘a master…is liable even for acts which he has authorised, provided they are so connected with acts which he has authorised, that they may rightly be regarded as modes-although improper modes-of doing them’.

In Lloyd v Grace, Smith & Co, a firm of solicitors were held liable for the manipulation of their client by a manager who used the acquired property for his own benefit, while in Williams v A & W Hemphill Ltd,  it was expressed  by Lord President Clyde that:

“[W]here the workman does some work which he is appointed to do, but does it in a way which his master has not authorised and would not have authorised had he known of it, the master is nevertheless still responsible, for the servant’s act is still within the scope of his employment. On the other hand…if the servant is employed only to do a particular work or a particular class of work, and he does something outside the scope of that work, the master is not responsible for any mischief the servant may do to a third party.”

Williams v A & W Hemphill Ltd

However, in Central Motors (Glasgow) Ltd v Cessnock Garage and Motor Co, Cullen LJ argued that:

“The question is not to be answered merely by applying the test whether the act in itself is one which the servant was employed or ordered or forbidden to do. The employer has to shoulder responsibility on a wider basis; and he may, and often does, become responsible to third parties for acts which he has expressly or impliedly forbidden the servant to do.”

Central Motors (Glasgow) Ltd v Cessnock Garage and Motor Co

While further remarking that:

“An honest master does not employ or authorise his servant to commit crimes of dishonesty towards third parties; but nevertheless he may incur liability for a crime of dishonesty committed by the servant if it was committed by him within the field of activities which the employment assigned to him, and that although the crime was committed by the servant solely in pursuance of his own private advantage.”

In a more recent Canadian case Bazley v Curry, involving the sexual abuse of children by an employee of a children’s foundation who had been assigned a parental/ carer role, the court found the employers vicariously liable and awarded damages accordingly.

In ‘Vicarious Liability in the Law of Torts’ it was also suggested that:

‘The master ought to be liable for all those torts which can fairly be regarded as reasonably incidental risks to the type of business he carries on’

While in Dyer v Munday, the court agreed that there was no reason why the doctrine of vicarious liability ought not operate where a tort becomes a crime.

It was for these reasons, as well as the ignorance shown in Trotman, that the House agreed the judgment was to be overruled, and that in this matter, the appeal was to be upheld on grounds that the proximity between the wardens actions, his duty to his employers and conversely theirs to the appellants, left no doubt as to where liability lay, while the court reminded the parties that:

“Vicarious liability is a species of strict liability. It is not premised on any culpable act or omission on the part of the employer; an employer who is not personally at fault is made legally answerable for the fault of his employee.”

CARILLION PLC

On 15th January 2018, multi-national construction company Carillion plc folded under the weight of its economic ambitions.

This sudden collapse left investors, employees and clients angry, confused and concerned as to how something so apparently strong, was in fact, weak to its very core.

Shortly afterwards, BLACK LETTER LAW® was independently commissioned to investigate the legalities of that fateful event.

Here are the findings of that research.

 

FITZPATRICK v STERLING HOUSING ASSOCIATION LTD

In this appeal case, the relationship between a private tenant and potential successor was that of two men; and so upon the death of the elder partner, it was found that despite their twenty-year history and the deeply caring bonds between them, the wording of the Housing Act 1988 prevented the surviving party from inheriting the assured tenancy, and thereby remaining in occupation of the home they had once shared.

Due to the widening of interpretation concerning the proximity required to uphold succession, it  had become possible to appeal against the original judgment; while on this occasion, the appellant relied upon paragraphs 2(1) and 3 of the 1988 Act.

The first of these placed importance on the spousal aspect of relationships (which relied upon the assumption that the two parties were of opposite genders); while the second, extended the right to succeed where those in occupancy at the time of the other’s death, could prove that their living arrangements (over a minimum two-year period) fell under the scope of ‘family’.

The issue presented to the House of Lords was not one of spousal qualification, but rather agreement that despite the non-traditional relationship between the two men, there did exist an intimacy that by all accounts, could be construed as familial.

And so, after deliberate examination of both the statute’s breadth and a widening cultural shift towards the definition of ‘family’, prevailing judicial opinion upheld the appeal and allowed the appellant to enjoy the home shared with his partner in the years before and leading up to his passing, while the court reminded the parties that:

“[T]wo people of the same sex can be regarded as having established membership of a family, one of the most significant of human relationships which both gives benefits and imposes obligations.”

PROXIMITY

When we discuss legal proximity there is frequently divided opinion as to what is meant and in what context the term can be applied.

By definition, tort cases almost always rely upon proximity when establishing the claimant-defendant relationship, the relative distance between the two parties, and finally any subsequent obligatory considerations shared.

Though for the sake of clarity, let us begin with the Oxford Dictionary definition of proximity:

Noun [mass noun] nearness in space, time or relationship

Origin: Late 15th century from the French ‘proximité and Latin proximatas, proximus (meaning nearest).

While this explanation appears relatively straightforward, the complexities of human interaction often magnify the context of its use, insomuch as subjective opinion will almost always complicate matters, and leave final judgments in degrees of contention.

This is largely due to a collective inability to agree precisely where proximity fits, and how it connects with other strands of legal principle.

Early illustrative proof of the need for exactness would undoubtedly be the speech given by Lord Pearce in Hedley Byrne Co Ltd v Heller and Partners, which reads:

“[P]roximity will not be established unless at least the following conditions are satisfied….the plaintiff must be (i) the person directly intended by the maker of the statement to act upon the statement (ii) in a specific transaction of which the maker knows and (iii) for the purpose for which the statement is made. Exceptionally conditions (i) and (iii) may be relaxed provided the plaintiff is a person of whose actual existence (if not name) the maker knows, to whom he knows the statement will be communicated, and who it is likely with a high degree of certainty will act upon the statement in a specific transaction of which the maker knows.”

Hedley Byrne Co Ltd v Heller and Partners

Or the even earlier words of Lord Atkin’s ‘neighbour’ speech in Donoghue v Stevenson:

“[S]uch close and direct relations that that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act.”

Donoghue v Stevenson

While a simpler definition would be that:

“The claimant must be in an established relationship with the defendant and able to prove that any existing duty of care applied to them, whether through action, inaction or words”

Neil Egan-Ronayne (Legal Consultant)

Whichever phrase suits best, the typical contexts for proximity can range from customer and seller to diner and chef; in fact, the list of possible scenarios could quickly prove lengthy, yet despite changes in issue the essence of proximity remains essentially undiluted.

That said, the general context of proximity deviated when through the course of accident and tragedy, the witnesses to those sudden and unforeseen events began to claim that the distress and trauma of such emotionally crippling scenes commanded financial assistance from the courts through damages.

In those instances, the fluid definition of proximity was echoed  by Lord Wilberforce in McLoughlin v O’Brian, who said:

“Where the relationship between the person killed or physically injured and the person who suffers nervous shock is close and intimate, not only is there the requisite proximity in that respect, but it is readily defensible on grounds of policy to allow recovery.”

McLoughlin v O’Brien

Taken further, the emergence of ‘secondarynervous shock forced the principle of proximity into new territory, by allowing those indirectly receiving terrible news to seek a claim for award under the umbrella of proximation (albeit subject to specific criteria), as defined by Lord  Oliver in Alcock v Chief Constable of South Yorkshire Police, who remarked:

“What remains in issue is whether the defendant owed any duty in tort to the plaintiffs to avoid causing the type of injury which each plaintiff complains. In essence this involves answering the twin questions of (a) whether injury of this sort to each particular plaintiff was a foreseeable consequence of the acts or omissions constituting the breach of duty to the primary victim and (b) whether there existed between the defendant and each plaintiff that degree of directness or proximity necessary to establish liability.”

Alcock v Chief Constable of South Yorkshire Police

Here, we see a variance in application of the principle of proximity and one demonstrating a generosity of scope over that regulated within everyday examples of arms-length dealings, and whether this broadening stemmed from the degree of harm or was simply the choice of the courts to extend empathy toward genuine loss, is not easily traceable; however, there are now notable differences.

Contrastingly, in the United States the ‘dangerous proximity test‘ is one used to determine criminal liability at federal and state levels, with the two key principles being that the defendant was dangerously close to completing the crime, or so close as to a result that the danger was great.

The test itself, was first laid down in 1901, and later adopted by a Judge Learned Hand, who said:

“(P)reparation is not an attempt. But some preparations may amount to an attempt. It is a question of degree. If the preparation comes very near to the accomplishment of the act, the intent to compete it renders the crime so probable that the act will be a misdemeanour, although there is still a locus poenitentiae, in the need of a further exertion of the will to complete the crime.”

Judge Learned Hand

While under the Turkish laws of contract, the ‘principle of proximity‘ comes into effect where non-specification of parties applicable laws during cross-border transactions leaves the courts with the option to default to the nearest jurisdiction, with the effect of establishing implied and express contractual terms, as was explained by Dr. Gülin Güngor in 2008.

So as before, proximity is regularly used to help establish liability, reduce conflict and this time bring levity to matters that might otherwise become bogged down in their own rhetoric.

With this flexible principle proving it an inarguable necessity, it leaves one pondering if proximity is far from a fair weather friend to law and jurisprudence, but rather an overlooked principle deserving to play a broader role in future legal disputes?

McLOUGHLIN v O’ BRIAN

Proximity, foreseeability and nervous shock, are central to a claim for damages when a mother is witness to the fallout of a multiple vehicle collision, which left one of her children dead.

At a time when common law and judicial confidence preferred to abstain from extending the scope of award, the need for extension became overwhelming in the face of such distress and protracted suffering.

In 1973, the appellant’s husband and three children were involved in a traffic accident involving two articulated vehicles central to the cause of the collision.

The outcome left the husband with bruising and shock, the oldest child with severe head injuries, fractures and bruising, the middle child with fractures, bruising and concussion, while the youngest child aged almost three, had died just moments after the crash.

The appellant was informed of the accident roughly an hour after the tragic event, and was immediately taken to see her family at the nearby hospital.

On her arrival, the appellant saw her husband in a state of shock and visible distress; after which, the hospital staff informed her that their youngest child was dead.

She then witnessed her oldest child screaming and shouting while, her middle child was unable to speak and simply clung to the appellant throughout.

Having initiated a claim for damages under severe shock, organic depression and a change of personality, the court dismissed the claim on policy grounds, in that despite admitting liability for the death and injuries of the immediate victims, there was no duty of care when allowing for the foreseeability that the appellant would suffer resulting psychological injuries.

When heard in the Court of Appeal, the Court ruled that although their was a valid argument that the respondents could have foreseen the impact their negligence would have upon a wife and mother, existing policy denied award to those not present at the scene.

Pursued in the House of Lords, the question in need of address was whether if, by refraining from close analysis and challenge of the existing policy on nervous shock, the judiciary had failed to acknowledge the manifestation of psychological trauma within parties beyond the tragedy, and thereby polluted the course of natural justice.

In Benson v Lee, the court had allowed a claim for nervous shock, when a mother  who having been told by a third party, ran outside her home to find her son had been run over; while in Chadwick v British Railways Board,a nearby resident to a train crash was diagnosed with nervous shock, after arriving at the scene and helping rescue the survivors.

On that occasion, the court had treated the matter as one of special duty, given his willingness to attend and assist.

Contrastingly, it was stated by Reid LJ in McKew v Holland & Hannen & Cubitts (Scotland) Ltd that:

“A defender is not liable for a consequence of a kind which is not foreseeable. But it does not follow that he is liable for every consequence which a reasonable man could foresee.”

McKew v Holland & Hannen & Cubitts (Scotland) Ltd

Whereas in the American case Wagner v International Railway Co., Cardozo J explained that:

“Danger invites rescue. The cry of distress is the summons to relief. The law does not ignore these reactions of the mind in tracing conduct to its consequences. It recognises them as normal. It places their effects within the range of the natural and probable. The wrong that imperils life is a wrong to the imperilled victim; it is a wrong also to his rescuer.”

Wagner v International Railway Co.

It was this statement that led the House to consider the appellant’s attendance at the hospital as that of a rescuer at a traumatic event, despite the reluctance of the Court of Appeal to widen the scope of award to those elsewhere, as outlined by Griffiths LJ, who stipulated that:

“[T]he closer the relationship the more readily it is foreseeable that they may be so affected, but if we just confine our consideration to parents and children and husbands and wives, it is clear that the potential liability of the tortfeasor is vastly increased if he has to compensate the relatives as well as the immediate victims of his carelessness.”

While the House agreed that overextension of scope ran risk of abuse of the principle, the time had come to move the parameters of the law in line with increased medical insight, along with a recognition that many years earlier, Australia had taken the liberty of embracing the right to such claims under section 4(1) of the New South Wales Law Reform (Miscellaneous Provisions) Act 1994.

An Act which allowed a parent, husband or wife of a killed, injured or severely distressed party, to claim for nervous shock damages regardless of the spatial or temporal relationship to the accident or event involved.

It was for this reason, along with the obvious need to lead the change required, that the House uniformly upheld the appeal, while clearly noting that legislative reform was now long overdue in this particular field and reminding the parties that:

“Space, time, distance, the nature of the injuries sustained, and the relationship of the plaintiff to the immediate victim of the accident, are factors to be weighed, but not legal limitations, when the test of reasonable foreseeability is to be applied.”

HEDLEY BYRNE & CO. LTD v HELLER AND PARTNERS

Duty of care under accusations of negligence, particularly within the carelessness of speech, forms the basis of a claim between a corporate entity and a merchant bank.

On this occasion, the appellant advertising agency had taken steps to ascertain the financial credibility of a new client; which while careless in its execution, left them at a considerable loss when the information proved worthless.

In 1957, the appellants received instruction from a new client requiring a number of advertisements, which was later followed by a request for a structured advertising programme with estimated costs of around £100,000 p.a.

Given the short-term trading history between them, the appellants asked their bank to consult their client’s bank so as to establish their financial standing. 

The reference, which was by no means official, read that their client was ‘a respectably constituted company whose trading connection is expanding speedily’, and that ‘We consider the company to be quite good for its engagements’.

Upon this positive note, the appellants proceeded to organise scheduled television and newspaper slots at cost to themselves, on the strength of the bank’s statement.

Several months later, the appellants concerns for the financial integrity of their client grew to the point where a second reference was requested.

This time, an oral banker’s report was provided for by the respondents, that while detailed enough to warrant a sound response, was issued under the express notice that it was given with no responsibility for the outcome of the enquiry.

Within this report was knowledge that the client was a subsidiary of a parent corporation in the throes of liquidation, but the bank similarly emphasised that they had confidence in the director and his integrity as a businessman.

With written confirmation of the report sent by the bank to the appellants, the terms expressed were relied upon when in light of their client’s liquidation, the appellants suffered losses of around £17,000.

It was this somewhat unsurprising event that triggered a claim for damages, based upon negligence by the respondents when offering statements that were contributory to the appellant’s extension of credit.

In the first instance, the court awarded in favour of the respondents, and when taken to the Court of Appeal, the outcome remained unchanged on grounds that such principles were unreasonably applied to the unrehearsed statements of a banker, and not an official credit report.

Presented to the House of Lords, the principles of negligence peripheral to any contract were examined for exactness, whereupon the dicta of Sir Roundell Palmer in Peek v Gurney initially proposed that:

“[I]n order that a person may avail himself of relief founded on it he must show that there was such a proximate relation between himself and the person making the representation as to bring them virtually into the position of parties contracting with each other…”

Peek v Gurney

There was also mention of Candler v Crane, Christmas & Co; in which, a proposed corporate takeover involved the presentation of company accounts to the prospective buyers, accounts that by all intentions had been carelessly prepared; and on which, the investors had relied when purchasing the firm.

Likewise, in Robinson v National Bank of Scotland Ltd, a guarantor was left facing huge debts when it was argued he had been falsely induced into signing by the lenders, prior to the borrowers lapsing into bankruptcy.

In this matter, Haldane LJ commented:

“[W]hen a mere inquiry is made by one banker of another, who stands in no special relation to him, then, in the absence of special circumstances from which a contract to be careful can be inferred, I think there is no duty excepting the duty of common honesty…”

Robinson v National Bank of Scotland Ltd

While in Shiells v Blackburne, Loughborough LJ stressed that:

“[I]f a man gratuitously undertakes to do a thing to the best of his skill, where his situation or profession is such as to imply skill, an omission of that skill is imputable to him as gross negligence.”

Shiells v Blackburne

In Cann v Willson, the claimants sought the professional opinion of valuers when borrowing against the worth of their home; and having provided what was suggested as a moderate valuation, the claimant defaulted on the required payments, whereupon the sale of the property failed to cover the debt owed.

On this occasion, the court awarded in favour of the claimant on grounds of negligence, want of skill, breach of duty and misrepresentation.

In Nocton v Lord Ashburton, Shaw LJ propagated the principle that:

“[O]nce the relations of parties have been ascertained to be those in which a duty is laid upon one person of giving information or advice to another upon which that other is entitled to rely as the basis of a transaction, responsibility for error amounting to misrepresentation in any statement made will attach to the adviser or informer, although the information and advice have been given not fraudulently but in good faith.”

Nocton v Lord Ashburton

This translated to a recognition by the House that while there was no question that a duty of honesty was inherent to the words of the bankers, there was no evidence to suggest fraudulent or misrepresentative intention; particularly when at the time the advice or report was issued, the respondents had expressed their abject unwillingness to be held to account for the actions of the company discussed.

This left the appellants with no substance upon which to claim damages; and so, the appeal was uniformly dismissed, while the House reminded the parties that:

“[I]f someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference.”

CAPARO INDUSTRIES PLC v DICKMAN

When predatory investors choose to act upon the advice or information given outside the remit of those assigned to prescribe it, they do so under risk of their own suffering, and within the rules of industry and commerce.

On this occasion, the cross-appellants argued that their reliance upon the annual statement provided by a company’s accountants led to increased investment, despite the fact that the statement turned out to be inaccurate.

When the appellants (a public limited company) fell victim to poor financial trading, their stock market share values began dropping, and were in turn, bought up in considerable number by the cross-appellants.

While buying as outside investors, they secured an almost thirty percent share of the failing company, after which they became registered investors, and acted quickly to gain a majority controlling hold of the firm.

These additional purchases were made after learning from the annual shareholder statement that the company was due a healthy pre-tax profit.

However, after the purchases had been made, it became apparent that the accounts had been poorly prepared, showing instead a considerable loss of profit.

During the appeal, it was claimed that the accountants owed a duty of care to the now primary shareholders of the company when drafting the legally required statement, and that such care rendered them liable for the losses inherited by the investors.

In this instance, a duty of care was determinable by the relationship between (or proximity to) both accountants and investors.

Citing Hedley Byrne & Co Ltd v Heller and Partners,the distinction was made between expert advice (albeit subjective) from a banker, and an annual submission from a firm of accountants, and that despite an implied culpability on the part of the accountants, an error was made; upon which, a negative investment took place. 

What distinguished the two activities was that the former was expressly undertaken to prevent loss upon lending of monies, whereas at no point did the accountants have knowledge of a planned takeover bid (despite suggestions made by the investors during the hearing).

This clear divide presented the notion that a duty of care is always applicable, as the two events are less similar than might first appear.

However, the accountants were only held liable for the losses made as shareholders and not those of outside investors.

The House of Lords concluded that if it were reasonable to place conscious liability upon all acts of certain parties, it would be impossible to distinguish responsibility from neglect; while in this instance, there was clear frustration at an unforeseen outcome, but one requiring mindfulness that the very nature of financial investment is itself prone to loss; hence, the House reminded the parties that:

“To widen the scope of the duty to include loss caused to an individual by reliance upon  the accounts for a purpose for which they were not supplied and were not intended would be to extend it beyond the limits which are so far deductible from the decisions of this House.”

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