business law cases 2012
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Business Law
Lecture notes
Cases
Adrienne Komanovics
2012
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NEGLIGENCE
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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
Friend of Mrs Donoghue
Mr MinchellaOwner of the caf
Stevenson
Manufacturer
Mrs Donoghue
contract
Friend of Mrs Donoghue
Mr MinchellaOwner of the caf
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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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- 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;
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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
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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.
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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.
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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.
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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.
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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,
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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
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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
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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.
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CONTRACT LAW
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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- 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