LECTURE 6: LAW OF TORT

 

COMMON ECONOMIC TORTS

 

1.0 STATEMENTS AND SPECIAL RELATIONSHIPS

As Lord Reid put it in Hedley Byrne & Co Ltd v Heller & Partners Ltd: Quite careful people often express definite opinions on social or informal occasions, even when they see that others are likely to be influenced by them; and they often do that without taking that care which they would take if asked for their opinion professionally, or in a business connection. And moreover, while negligent acts will generally have a limited range of impact, negligent words may be widely broadcast without the consent or foresight of the speaker.

Candler v Crane, Christmas & Co [1951] 1 All ER 426

The Court of Appeal relied on Derry v Peek to refuse a remedy to the plaintiff who had invested funds in a company on the basis of accounts negligently prepared by the defendant. Without evidence of fraud they held that economic loss resulting from misstatement was irrecoverable.

Hedley Byrne & Co Ltd v Heller & Partners Ltd.

The plaintiffs asked their bankers to inquire into the financial stability of a company with which they were having business dealings. Their bankers made inquiries of the company's bankers, who carelessly gave favourable references about the company. Reliance on these references caused the plaintiffs to lose £17,000. The plaintiffs sued the defendants for their careless statements. The action failed because the defendants had expressly disclaimed any responsibility. The plaintiff to recover for negligent misstatements must establish that the statement was made within a relationship where the plaintiff could reasonably rely on the skill and care of the defendant in making the statement. He must show some 'special relationship' with the defendant which properly resulted in the defendant undertaking responsibility for the accuracy of the statements made.

Chaudhry v Prabhakar [1988] 3 All ER 718

The defendant who considered himself something of an expert on motor cars was held liable to his friend whom he agreed to assist with the purchase of the car when his advice proved woefully inadequate and negligent. The trend up until 1989 appeared to be to allow a liberal interpretation of what constituted a special relationship.

Caparo Industries plc v Dickman

The defendants were the auditors who acted for Fidelity pie. They had prepared annual accounts on the strength of which Caparo (the plaintiff) bought shares in Fidelity and then mounted a successful takeover bid. Caparo alleged that the accounts were inaccurate and misleading showing a pre-tax profit of £ 1.3m when they should have recorded a loss of £400,000. Had Caparo been aware of the true state of affairs they would never have bid for Fidelity. The House of Lords found against Caparo on a preliminary point of law. The auditors owed no duty of care in respect of the accuracy of the accounts either to members of the public who relied on the accounts to invest in the company or to any individual existing shareholder who similarly relied on those accounts to increase his shareholding.' Auditors prepare accounts, not to promote the interests of potential investors, but to assist the shareholders collectively to exercise their right to control over the company. Four conditions must be met for a defendant to be liable for economic loss resulting from negligent advice or information. (1) The defendant must be fully aware of the nature of the transaction which the plaintiff had in contemplation as a result of receipt of the information. (2) He must either have communicated that information to the plaintiff directly or well know that it will be communicated to him (or a restricted class of persons of which the plaintiff is an identifiable member). (3) He must specifically anticipate that the plaintiff will properly and reasonably rely on that information when deciding whether or not to engage in the transaction in question. (4) Finally, the purpose for which the plaintiff does rely on that information must be a purpose connected with interests which it is reasonable to demand that the defendants protect.

No duty is owed to all potential investors for such a duty would in truth result in unlimited liability. If auditors were liable to any investor who relied on the published accounts to deal with the company simply because such conduct is foreseeable, they would equally be liable to anyone else who dealt with the company to his detriment, for example, to banks lending the company money or tradesmen extending credit terms. Caparo sought to argue that the vulnerability of Fidelity to takeover should have alerted the auditors to the likelihood of a company, such as Caparo, mounting a takeover bid, and that they were not just any potential investor, but existing shareholders. Their Lordships held that the defendants were under no duty to safeguard the economic interests of predators, and that the statutory duty imposed on them by Parliament was to protect the interests, and existing holdings of, the shareholders in the client company, and not to facilitate investment decisions whether by existing shareholders or others.

2.0 PRODUCT LIABILITY

The decision of the House of Lords in Donoghue v Stevenson heralded a new age.

2.1 Products

2.2 Ultimate Customer

Stennett v Hancock and Peters

a bystander was held to be within the rule in Donoghue v Stevenson. The defendant garage owner negligently reassembled the flange on one wheel of X's lorry. When, later, X was driving the lorry on the highway, the flange came off the lorry, mounted the pavement and injured the plaintiff, a pedestrian. The defendant was held liable for his negligent repair.

2.3 Sale

Hawkins v Coulsdon and Purley UDC [1954] 1 All ER 97

2.4 Intermediate Examination

2.5 Preparation or Putting Up

2.6 Continuing Duty of Care

3.0 DECEIT

Pasley v Freeman (1789) 3 Term Rep 51.

The defendant falsely misrepresented to the plaintiff that X was a person to whom the plaintiff might safely sell goods on credit. The plaintiff suffered loss through relying on this representation and was held to have an action on the case for deceit.

The tort may be defined as:

A false representation made by the defendant knowingly, or without belief in its truth or recklessly, careless whether it be true or false, with the intention that the plaintiff should act in reliance upon the representation, which causes damage to the plaintiff in consequence of his reliance upon it.

a. False Representation


Peek v Gurney (1873) LR 6 HL 377

'there must... be some active misstatement of fact, or, at all events, such a partial and fragmentary statement of fact, as that the withholding of that which is not stated makes that which is stated absolutely false'.

Incledon v Watson (1862) 2 F & F 841

In an advertisement for the sale of his school, the defendant stated the number of scholars at that time. That statement was not proved to be inaccurate. During the course of negotiations, the number decreased. The plaintiff, who bought on the faith of the representation, and who was not informed of the reduction, was held to have an action in deceit for damages.

b. Knowledge of Falsity

Derry v Peek

A company was empowered by private Act to run trams by animal power, or, if the consent of the Board of Trade was obtained, by steam power. The directors, believing that the Board of Trade would give this consent as a matter of course (since the Board of Trade had raised no objection when the plans were laid before them), issued a prospectus saying that the company had the power to run trams by steam power. Relying on this prospectus, the respondent took up shares from the company. The Board of Trade eventually refused its consent, and later the company was wound up. The House of Lords held that an action in deceit against the directors failed because no want of honest belief on the part of any director was established by the respondent. However negligent a defendant may be, that is not sufficient to make him liable for the tort of deceit.

c. Intention to Deceive

Bradford Third Equitable Benefit Building Society v Borders [1941]

An action in deceit may be based on an advertisement in a newspaper if the plaintiff shows that he was one of the class of persons at whom the advertisement was directed.

Pilmore v Hood (1838) 5 Bing NC 97

A, who was negotiating the sale of a public house to B, made certain false statements to B concerning the takings of the public house. The transaction fell through. To A's knowledge, B passed on to C these false statements. A then sold to C without correcting these statements and was held to be liable to him in deceit.

d. Reliance of the Plaintiff

Smith v Chadwick (1884) 9 App Cas 187

e. Loss

 

4.0 PASSING OFF-UNFAIR TRADING


Erven Warnink BV v J Townend & Sons (Hull) Ltd. [1979] 2 All ER 927.

4.1 Misrepresentation

4.2 In the Course of Trade

4.3 Representation to Customers or Ultimate Customers

4.4 Calculated to Injure Goodwill

4.5 Proof of Damage

Draper v Trist [1939] 3 All ER 513

5.0 INJURIOUS FALSEHOOD

That an action will lie for written or oral falsehoods ... where they are maliciously published, where they are calculated in the ordinary course of things to produce, and where they do produce, actual damage...

Joyce v Motor Surveys Ltd [1948] Ch 252

The plaintiff became tenant of one of defendants' lock-up garages in order to have premises at which he could be registered as a tyre dealer. The defendants subsequently wished to evict the plaintiff in order to sell the entire property with vacant possession. They therefore told the Post Office not to forward any more mail to him at that address, and told the tyre manufacturers' association that he was no longer trading there. The defendants' conduct was held to constitute injurious falsehood.

The essence of the tort is that the defendant's lies should have caused economic damage to the plaintiff.
Kaye v Robertson, [1991] FSR 62

The plaintiff actor was photographed without his consent as he lay in a hospital bed recovering from near fatal injuries. The newspaper presented a story concerning him as though it had been obtained with his authority and thereby deprived Mr Kaye of the opportunity to market his own account.

Joyce v Sengupta [1993] 1 All ER 897

The defendant newspaper published an article insinuating that the plaintiff had abused her position as lady's maid to the Princess Royal to steal from her employer personal letters. The plaintiff contended that the article might well prejudice her future employment prospects. Her claim in injurious falsehood was allowed to proceed.

White v Mellin [1895] AC 154

W bought, for sale in his shop, bottles of infant food made by M and affixed on them, before selling to customers, a label that Dr V's food for infants and invalids (in fact a product of W) was better in particular respects than any other. An action for injurious falsehood failed, on the ground (inter alia) that this mere puff was not a disparagement.

6.0 UNLAWFUL INTERFERENCE WITH TRADE

6.1 Conspiracy

Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] 1 All ER 142

The facts were as follows:

The appellants produced tweed cloth in the Outer Hebrides. Only the weaving of their cloth took place on the island; they imported yam from the mainland. Other firms had their cloth spun as well as woven on the island. The respondents, V and M, were trade union officials of the union to which most of the spinners employed in the island mills belonged. Employers of these men informed V and M that the competition of the appellants prevented them from raising wages. The respondents (who were assumed by some of their Lordships to be acting in combination with the mill-owners) instructed dockers at the island's port to refuse to handle yarn imported from the mainland consigned to the appellants and cloth made by them which they desired to export. Without breaking their contracts of employment, the dockers obeyed. The appellants sought to stop this embargo on the ground that it was an actionable conspiracy. They failed, because the House of Lords held that the predominant purpose of the combination was the legitimate promotion of the interests of the combiners.

Lonrho plc v Fayed [1991] 3 All ER 303

In that case, the plaintiffs, who had sought to take over the House of Fraser (including Harrods), alleged that the defendants had unlawfully made false and fraudulent representations to the Secretary of State for Trade and Industry, thus procuring their own successful takeover of the disputed company. There could be no doubt that the defendants' predominant intention was to advance their own interests. So the Court of Appeal struck out the plaintiffs' claim in conspiracy. The Law Lords restored the claim. Lord Bridge affirmed that (1) in any action for conspiracy, proof of an intent to injure the plaintiff is required, (2) in 'unlawful means' conspiracy that intention need not be the defendants' primary design. If unlawful means are utilised to forward the conspiracy, the defendants cannot excuse the use of such means by proving that their predominant purpose was to protect or advance their own interests."

6.2 Inducing Breach of Contract

D C Thomson & Co Ltd v Deakin [1952] 2 All ER 361

a. Kinds of Contract


DC Thomson & Co Ltd v Deakin [1952] 2 All ER 361

b. Breach of Other Obligations

Lonrho plc v Fayed (No 2) [1991] 4 All ER 648

c. Breach of Contract

Torquay Hotel Co Ltd v Cousins [1969] 1 All ER 522

An injunction was granted against the defendants who, in the course of industrial action, were attempting to stop a supplier fulfilling his contract with the plaintiff. The contract expressly exempted either party from liability for events beyond their control, including labour disputes, which led to a failure to perform. The Court of Appeal interpreted the clause as '... an exception from for non-performance rather than an exception from the obligation to perform'. Thus, the defendant's conduct still constituted inducing a breach of that latter obligation.

Hivac Ltd v Park Royal Scientific Instruments Ltd [1946] 1 All ER 350

The facts were as follows:

The plaintiffs had been the only English makers of midget valves for hearing aids. Setting up in competition, the defendants employed on this work some of the staff of the plaintiffs in their spare time. It was held that an implied term must be read by the plaintiffs into the engagement of this staff that the latter should not break their fidelity to the plaintiffs by doing an act which would injure the plaintiffs' business, and, in view of the fact that the plaintiffs had a monopoly of this type of work and those members of the staff had a monopoly of the skill, an injunction restraining the inducement of breach of contract should be granted.

Smithies v National Association of Operative Plasterers [1909] 1 KB 310

Where the defendant had engaged a servant in ignorance of an existing contract of service between the servant and the plaintiff, he was held liable for having continued to employ him after learning of the facts."

d. Knowledge of the Contract

British Homophone Ltd v Kunz and Crystallate Gramophone Record Manufacturing Co Ltd [1935] All ER Rep 627

e. Inducement and Interference

Thomson & Co Ltd v Deakin [1952] 2 All ER 361

TUTORIAL QUESTIONS

 

1. Burrito Ltd entered the market of Trinidad and Tobago selling its special brand of genuine Mexican burritos. During its market survey of Trinidad and Tobago it discovered the presence of two potential competitors: Burrito Boy and Royal Burrito. Burrito launched an aggressive advertising campaign claiming the following: their burrito was better, healthier and much tastier than Burrito Boy’s. In the case of Royal Burrito, Burrito Ltd claimed that Royal Burrito did not use beef in its burrito but kangaroo meat imported from Australia. Royal Burrito and Burrito Boy both claimed that the statements made against them were wrong and wished to take legal action against Burrito Ltd. Discuss.

2. Madan Gopaul, a recent retiree from SocaPetro, received the sum of two hundred thousand dollars as a retirement payment. He visited his local bank, John Crow Bank Ltd., to deposit the money in a low interest, low risk, special account. While completing the paper work, the manager mentioned to Madan that a new mutual fund was being launched by the bank which provided a high interest rate. Madan inquired about the risk of the investment and was told offhandedly that it was quite low as the mutual fund only invested in blue chip companies. Madan then indicated his interest and was told by the manager that he was not responsible for the investment but would refer him to the relevant person. Madan then went to the desk of the fund officer who introduced himself and described the account to Madan. Madan interrupted him and said, “The kind gentleman, Mr. Francis, has already told me about the investment. I would like to invest $200 000 into the mutual fund.” Six months later, due to an international terrorist attack the stock market crashed and the value of Madan’s investment was wiped out.

Madan has come to you seeking advice as to whether he can bring an action against the bank to recover the monies invested.

3. The claimant was injured on 16th November 1990 when he was twelve years old. He was helping his mother to attach a product known as a "Cosytoes", purchased from one of the defendant's stores to his younger brother's pushchair. The Cosytoes was a fleece lined sleeping bag intended to be attached to a pushchair by elasticated straps being passed around the back of the pushchair from each side enjoined by a light metal buckle attached to one of the straps. The buckle was intended to pass through a loop on the other strap and the claimaint was attempting to join the two when one of the elastic straps slipped from his grasp and the buckle hit him in the left eye. As a result of the accident, the Claimant suffered a shallow temporal half detachment of the retina and consequently had no useful central vision in his left eye. The Parties jointly instructed an engineer to prepare a liability report. The engineer concluded that in 1990 no manufacturer of child care products could have been reasonably expected to recognise that elastic attachment straps could pose a hazard as their potential risks had not been recognised by experts at that time. Please discuss.

4. Arsenal Football Club may well have won the league championship six times and the FA Cup seven times but is facing a serious challenge from the street trader and Arsenal fan, Matthew Reed, to sell unofficial merchandise from the garden stall at his Highbury home near to the home ground of Arsenal, something he has been doing since the 1970s.  Merchandising is fundamental to the business of all clubs and Arsenal has secured a number of intellectual property rights, including registered trademarks, to enable it to protect and manage the £5m it earns each year from such activities. The club knows that there is little point in securing intellectual property rights unless they are enforced vigorously, even if this means taking action against its own fans. 

In the case in question, Arsenal Football Club Plc vs Matthew Reed, Arsenal complained that Mr Reed's merchandise:

The case has massive implications for all businesses which rely on their merchandising activities as a source of revenue, whether in the sporting or entertainment field.  Mr. Reed has acknowledged his goods incorporated Arsenal's trade marks. This is logical. Football merchandise only works if it operates as a badge of allegiance for the particular club and propagates the tribalism of its fans by allowing them to show devotion to their chosen team. A plain red scarf could mean that a fan supported any of Manchester United, Liverpool, Arsenal or Nottingham Forest (among others). However, add a "cannon motif" and immediately the fan becomes a "Gunner", that is to say an Arsenal supporter.   In many ways Arsenal is a model retailer. Since appreciating the value of its brand, it has done everything in its power to realise and protect the value of its asset. The club has ensured that its own commercial operations could satisfy demand by opening additional shops and expanding its mail order business. At the same time it adopted a consistent branding strategy with extensive and prominent use of its trade marks including the tagline "The Official Arsenal Collection" on all products, packaging and advertising.

Arsenal has trade mark registrations for "Arsenal", "Arsenal Gunners", its crest and its cannon design which cover a very large range of goods. Reed's products bear upon them words and designs which are either identical or similar to the registered trade marks. Reed has approached you for advice on pending legal action by Arsenal.  Please advise.

5. Claim for payment of sums due to the claimant Skinner from the defendant Johnson on Skinner's termination of Johnson Tupperware distributorship agreement. The sums consisted of payments for Tupperware products supplied to Johnson together with payments in respect of goodwill. Johnson disputed liability and claimed that Skinner had induced them to enter into the agreement through negligent misrepresentations, negligent advice and a failure to disclose relevant facts. Johnson was a self-employed independent contractor who distributed goods to a network of dealers who in turn recruited hostesses to sell products.  Johnson claimed that a training manager Ellery from Skinner had made representations on Skinner’s behalf that a particular distributorship was profitable and had potential to reach turnover of £1 million. Johnson trusted in Ellery and relied on his representations when deciding to take on the distributorship. Johnson claimed that Skinner knew the distributorship was making losses when the agreement was signed and that Skinner had breached its duty of care by giving a false valuation.  Please advise Skinner on the merits of the case being brought against him.

6. Ramlogan & Phillips (defendants) in this action are partners carrying on business under the style Robert Hill Builders. The principal business of this enterprise is the refurbishing of houses purchased by a property dealing company, in which both the defendants are interested, and of which they are directors. One of the properties upon which they worked in the summer of 1973 was a dwelling-house known as No. 50 Robert Hill, Siparia, and they engaged the services of a self-employed painter, Mr. Cravat, to decorate the outside by painting the brickwork from pavement level to the eaves. The defendants selected and supplied the paint, which they purchased from a store then known as Spike in Fyzabad. The defendants say that Mr. Cravat did a competent and workmanlike job on the house and both he and the defendants say that only “Pity Brown” paint was used and it looked very nice. But about six months later it started to turn green in places and at the present day it certainly presents a multicolored appearance not unlike military camouflage. The defendants wrote to Pity Brown paint company (the plaintiffs) complaining and seeking recompense. The plaintiffs, as one would expect, were concerned at the suggestion that their paint, which is well known in the decorating market, was less than satisfactory and they investigated.  The conclusion reached by the plaintiffs and their experts was that the defendants and their contractor Mr. Cravat, had used not only “Pity Brown’, but another paint, a very dark green called “Moss Green”.  Not only, they concluded, had these paints been mixed but also the work had been poorly executed. So they disclaimed any liability. The defendants placed a notice on the outside wall of No. 50 Robert Hill, Siparia clearly legible to anybody passing by. It reads: ‘This house in painted with Pity Brown Paint”.  The plaintiffs have brought this action against the defendants on the basis of injurious/malicious falsehood and you have been asked by the defendants to prepare an opinion. 

 

 

7. Lorraine Explainer was a Supervisor in the Cards Services Unit – bank cards A.T.M. of the Viva Bank of Trinidad and Tobago and lived with her husband Elton John in an apartment in a five apartment block (upstairs) owned by one Jack Sprat and his wife. In 2000 they learnt that the property was up for sale – asking price $350,000 with preference to tenants.  Lorraine salary was $4700 per month and her husband’s in the region of $3,000 per month. The Bank had a policy of providing staff loans at a reduced rate of interest. Lorraine sought and obtained an interview with Michael Jackson, a senior banking official about the third quarter of 2000.  Lorraine claimed she was told by Jackson ‘if we were to obtain the property, I would have to consider eating Crix [for a while”. Further, Jackson said it looked like a good business proposal, and he would send an officer of the bank to look at the property.  The officer of the bank examined the property and said it met the standards for a mortgage.  In other to meet the mortgage payments, Lorraine relied on the rents and sought to increase it for the other tenants and then discovered that it was rent controlled.  Lorraine would like to initiate legal proceedings against the bank as she has since failed to make the mortgage payments and based on the salary of her husband and herself together with the existing rentals there is no possibility of so doing.  Please advise Lorraine and Elton.

 

8. Since 1974 all the double-edged razor blades sold in Trinidad and Tobago have been of a specification designated by the Smooth Shave Limited as “PPP”’. Pran Kenny has imported and offered for sale and sold in Trinidad and Tobago double-edged razor blades each of which bears the Smooth Shave logo device, the packaging for which bears in addition the trademarks SMOOTH SHAVE LIMITED and SMOOTH SHAVE PPP. The said razor sold by Kenny, although manufactured by Smooth Shave Ltd. is not marketed by them in Trinidad and Tobago but are for the Venezuelan market and they are markedly inferior in specification and quality to the PPP razor blades marketed by Smooth Shave Ltd. in this country. By such acts, Smooth Shave Ltd. is seeking to argue that Kenny has passed-off razor blades of inferior quality as being razor blades the same as or of the same quality as the razor blades sold by Smooth Shave Ltd.  Please advise Kenny.

 

9.  Mary Maharaj bought a Ford Vehicle in 1997.  The vehicle was equipped with distributor mounted thick film ignition modules (TFI modules).  Mary alleges that the TFI modules are defective and the defect is dangerous because it causes the vehicles to stall without warning. A TFI module is an electronic device that controls the spark of electricity that ignites the gas and air mixture in the engine cylinders (the combustion process). The function of the TFI module is to control the current through the ignition coil in order to make sparks to initiate the combustion process. Reliability of the TFI module is related to temperature which is determined by the mounting location environment and power dissipation.  Electronic devices used in automobiles, including TFI modules, are sensitive to operation under elevated temperatures. To ensure continued operation of the vehicle's electrical ignition system, the heat generated by the TFI module itself and the surrounding engine components must be minimized and managed.   Mary alleges that since at least 1986, Ford recognized that its distributor mounted TFI modules had reliability problems.  Mary further alleges that the TFI defect can be initially difficult to diagnose because the TFI module operates normally once it cools down.   She claimed that on more than one occasion her Ford Tempo stalled without warning, including stalls in dangerous situations such as while travelling down a steep hill.  While troubleshooting the problem, Ms. Reid incurred expenses in trial-and-error repairs. These stalling and starting problems arose by 2000, i.e. within about 6 years of manufacture of the vehicle.  Please advise Mary.

10. Application by the claimant John Biglow for an interim injunction in an action for passing off. Biglow and the defendant, Smallow were both publishers of pornography. Biglow was the registered proprietor of a trademark consisting of the word "Score", which was the title of a pornographic magazine that it published as its principal publication. Smallow was a substantial publisher and had an extensive trading interest. Initially Smallow had threatened to publish a magazine covering the same subject matter under the title "Hardscore". Biglow took action and the case was settled. In its second attempt to publish a magazine with the same general subject matter as contained in "Score", Smallow published a magazine entitled "Scorch". Biglow has issued proceedings for passing off.  Please advise Smallow.

11. The appellant was charged with injurious falsehood for publishing a pamphlet titled, Did Six Million Really Die? It is this conviction which he appeals to this Court.  The pamphlet is part of the genre of anti-Semitic literature known euphemistically as "revisionist history". The pamphlet is based on a paper that appears to have actually been produced in England by Richard Verral, editor of the neo-nazi British National Front newspaper in 1977. The appellant has added a preface and afterword to the original document, entitled Historical Fact No. 1, Did Six Million Really Die? Truth at Last Exposed.  The basic gist of the piece is that the Holocaust perpetrated by the German National Socialists against the Jews of Europe during the Second World War never occurred. According to the appellant, there was no concerted plan to exterminate European Jewry, along with assorted others of racial extraction, religious persuasion, national origin or sexual orientation of which the Nazis did not approve. By pointing to what he alleges to be new evidence, the appellant submits that some Jews died, as people will in war time, but that the "Final Solution to the Jewish Question" was never anything more than a plan to facilitate emigration. He states that the Holocaust is a myth fabricated by an immensely powerful Jewish-Zionist conspiracy to win lucrative war reparations from the Germans, to make them feel ashamed and a pariah in the eyes of other nations, and to win political and economic support for the State of Israel.  The National Council of Jewish Citizens would like to oppose this appeal.  Please advise the Council on an appropriate response.