2.1 Negligence Causing
Unforeseeable Damage
2.2 Liability for Negligent
Statements
2.3 Employers' and Employees'
Liability for Negligent Misstatement
2.4 Negligent Manufacturers
and Repairers – Product Liability
2.1
Negligence Causing Unforeseeable Damage
At the bank of a river I moor my
ship. I do so negligently, with the
result that it breaks loose. Frantic
efforts to stop it do not succeed. It
drifts downstream and crashes into a bridge, the bridge collapses, the river
floods, the water fills your warehouse, your complete
stock of pickled herring loses its flavour.
Although this is a complicated and
surprising chain of events which causes your loss, I must compensate you for
the value of your stock.
Now consider an even more complicated
chain of events. On this same river
there is another boat which has a cargo of pickled onions destined for your
warehouse. Because of the flood, the
cargo must be offloaded downstream and transported to you by road at great
cost. The extra cost of transport is a direct
result of my negligence. Nevertheless,
this second chain of events is too complicated to allow you to claim it from
me.
Why are the two cases different?
There is no clear rule. As a matter of policy, the courts do not want
to saddle a negligent but otherwise virtuous person with too much
liability. They draw a line between
damages which are recoverable and damages which are too remote.
In drawing this line, judges consider
whether the wrongdoer, while failing to take proper care, should have foreseen
that such damage could come about. They
consider whether my negligence was a major factor in causing the damage and
whether there are other causes as well.
They consider the seriousness of my negligence as compared to the extent
of the damage. They can consider almost
any factor which strikes them as fair.
One judge recently said that it was a matter of “instinctive feeling.”
It is not surprising, therefore, that
different judges may reach different conclusions in similar cases.
What if I deliberately let the ship
loose? In that case different
considerations govern. Almost no damage
would be regarded as too remote and I would have to compensate you not only for
your pickled herring but also for the extra cost of transporting your pickled
onions.
2.2 Liability for Negligent Statements
There are many circumstances where
people who make false statements must pay damages for the loss they have
caused. Consider these examples.
I give my accountants a falsely
glowing picture of my business. Using my
figures, they prepare falsely glowing financial statements. Elated by the false glow, you buy my
business. I must pay you damages and there is a good chance that, if you want
to, you can get completely out of the deal.
But what about my
accountants?
If they know that the figures are
false but put them in because of their longstanding fondness for me, they are
guilty of fraud and a court will order them to pay damages.
Often in this kind of case the
accountants do not know that the figures are false, but, as competent
professional people, they really should have known. In other words, they prepared the financial
statements negligently.
The legal principal here is
clear. If, when they are negligent, the
accountants should have foreseen that a particular kind of loss might occur,
they must pay damages. If they could not
have foreseen it, they are not liable.
Apply this to our situation.
Assume that I told the accountants
that I would use the financial statements to sell my business. They should have foreseen that any mistake by
them could harm a buyer. They must
therefore compensate you for the loss which their negligent work has caused
you.
By contrast, if I told the accountants
that I would give the financial statement to a bank to raise the loan, they
could have foreseen damage to a bank, but probably not to a buyer, and they
would not be liable to you.
The same applies to any number of
other situations. I sell a machine and my
engineer gives a flattering report about it.
I apply for a job and my friend says nice things about me. I apply for credit and my bank says that I
have massive assets. If they negligently
failed to tell the truth, my engineer, my friend, and my bank are liable for
the foreseeable consequences of their negligence.
2.3 Employers' and Employees' Liability for Negligent Misstatement
The case of Haig v Bamford went all the way to the Supreme Court of
Canada.
A firm of accountants prepared a
financial statement for a client, knowing that the client intended to use it to
persuade investors to invest in its business.
Through sheer professional negligence,
the financial statement contained a serious error. It showed as income some money that was actually
a prepayment on work yet to be done.
And, as things turned out, the work was not done, with the result that
the money had to be repaid and the financial statement was unduly glowing.
Relying on the financial statement,
Haig invested money in the company and the firm of accountants had to pay
compensation for whatever loss their negligence had caused.
Hedley Byrne and Co v Heller and
Partners is an English case which went to the House of Lords, which is the
highest court of appeal in the
A firm of advertising agents intended
to pay for newspaper advertisements for a client on the understanding that they
would be reimbursed. Because a
substantial sum of money was involved, they did a credit check with their
client's bank. The bank said that the
client's credit was good and the advertising agents therefore went ahead with
the advertisements.
It turned out, however, that the bank
gave its advice negligently. The
client's credit was not good, the advertising agents were not reimbursed, and
they sued the bank for damages.
The House of Lords held that in these
circumstances the bank would ordinarily be liable.
However, there was a special feature
in this case. When giving their advice,
which they did in writing, the bank added these important words: "For
your private use and without responsibility on the part of the bank or its
officials." Since the bank gave
the advice on the clear understanding that it would not accept responsibility,
it was excused from liability.
In both these cases, it was the
liability of the corporate entity or partnership which was considered. In each case, however, it was an individual
person, an employee or agent, who was actually giving the advice. What is the position of the employee?
The case of Hall-Chem v Vulcan Packaging, an
Vulcan sold goods to a corporation
called Qualilab.
Because a large sum of money was involved, Vulcan needed reassurance
regarding payment. Qualilab gave that assurance. They said that they had resold the goods to
someone in
However, that sale had not been finalised and Qualilab's
statement was made negligently.
In these circumstances, Qualilab was obviously liable to Vulcan for whatever loss
this misstatement had caused.
Now the person who actually made the
misstatement on behalf of Qualilab was the president,
a Mr. Belec.
It was he who spoke to representatives of Vulcan and who wrote the
letter to them.
To understand the approach adopted by
the court, three points of law must be understood:
·
When
an employee enters into an agreement on behalf of his employer, it is only the
employer who has the duty to carry out its terms. The employee has no duty at all flowing from
the agreement.
·
When
an employee breaches his employer's agreement, it is usually only the employer
who must pay damages.
·
However,
when an employee, acting on behalf of his employer, commits a tort, both the
employee and the employer must pay damages.
Each is liable to the victim for the full amount, and once the one pays,
the other, of course, is excused.
A tort is in many ways like a crime. It is a wrong committed by one person against
another. If I crash into your car,
negligently or on purpose, I commit a tort.
If I defame you, I commit a tort.
A breach of contract by itself is not a tort, although it sometimes
happens that a person commits a breach of contract which is also a tort.
If there is an agreement which
requires a person to give information, and he gives wrong information, so
misrepresenting the facts, his misrepresentation is a breach of contract. But if he made that misrepresentation
negligently, his breach of contract is also a tort, the tort of negligent
misrepresentation.
In this case, it was Belec who misled Vulcan by making a misrepresentation. That was a breach of Hall-Chem's
agreement and Belec could not be held liable for
that. However, because his breach of
contract was also the tort of negligent misrepresentation, the court held him
personally liable, together with Hall-Chem, to pay
damages.
Exactly when employees must bear
personal responsibility for the wrongs they commit in the course of their
employment can often be difficult to determine and legal opinion should be
sought in the light of all the relevant circumstances.
2.4 Negligent Manufacturers and RepairerS – Product liability
These were the facts in the very
famous case of Donaghue v Stevenson, a
decision of the House of Lords, the highest court of appeal in the
When Mrs. Donaghue
had finished her share of the ginger beer, she stretched her hand across the
table, lifted up the bottle, brought it to her glass, and poured out a second
helping - and with it came an aerated, partially
decomposed snail, which floated, bit by bit, to the top of her glass. Shock and nausea immediately overcame her,
followed by days of severe gastro-entiritis.
When these unpleasant symptoms
subsided, Mrs. Donaghue established that it was Mr.
Stevenson who had manufactured the ginger beer and she sued him for damages.
This was the argument which Mr.
Stevenson raised in his defence. He had sold the ginger beer to Mr. Minchella of Minchella's
Restaurant and had sold nothing at all to Mrs. Donaghue. Therefore, he said, he owed a duty of care
only to Mr. Minchella and it was only Mr. Minchella who owed a duty of care to Mrs. Donaghue. Therefore, he said, if
any damages had to be paid to her, it was Mr. Minchella
who was liable to do so. This may seem
like a very strange defence, but at the time it was
generally regarded as valid.
However, the House of Lords felt that
it was time to develop the law to give members of the public the protection
which fairness seems to require. Lord
Macmillan said: "He manufactures
his commodities for human consumption; he intends and contemplates that they
shall be consumed. By reason of that very fact he places himself in a
relationship with all the potential consumers of his commodities, and that
relationship imposes upon him a duty to take care to avoid injuring them."
So this is the position. Until then, it was clear that, if Mr.
Stevenson negligently allowed a snail to decompose in the ginger beer which he
manufactured, he had to pay damages only to the person to whom he sold the
ginger beer, that is, to Mr. Minchella. But Lord Macmillan changed the law. Now, if
Mr. Stevenson knows that Mr. Minchella will sell the
ginger beer to his customers, Mr. Stevenson must also pay damages to those
customers. Donaghue
v Stevenson is therefore an important landmark in the development of this
branch of the law.
Mr. Stevenson knew that members of the
public would consume his product, he owed these consumers a duty to be careful
in the way he manufactured his product, and therefore he was obliged to
compensate Mrs. Donaghue.
This case has generally been followed
in commonwealth countries. Lord
Macmillan dealt with a food product, but, since then, cases have come up
dealing with any number of other types of products.
Furthermore, it is not only the
manufacturer who is liable for his negligence.
Any person who takes a part in getting a product to the consumer must
carry out his duties with care and, if he fails to do so, he will be liable for
whatever loss his negligence causes the consumer. The person who bottles the ginger beer, the
person who assembles a machine or a piece of furniture, the person who installs
a machine, the person who manufactures a component which is then inserted into
a product by a main manufacturer, the person who writes the instruction manual
explaining how a piece of equipment is to be used, the person who repairs a
machine or even a house, all of these are liable if they fail to perform their
jobs with proper care.
In an English case, a woman, the
tenant in a house, hurt herself when her high-heeled shoe went through a hole
in the floor and she recovered damages from the careless person who built the
house.
Furthermore, a wholesaler or
distributor will usually be liable together with the manufacturer if he puts
his label on the product.
From the point of view of the injured
consumer, the legal position seems to be very fair. There is, however, a problem for the person
who strives to make a living manufacturing or repairing goods. Mr. Justice Lebel put the matter thus in an
The practical answer is
threefold. First, be as careful as you
can. Second, insure. Third, consult your lawyer in advance to make
certain that you limit your potential liability as much as possible. There are reasonable ways to do that.
If I race at a hundred miles an hour
through a busy downtown street and crash into your car, you can sue me for
damages. You will get compensation for
the loss which I have caused you.
But if, by some miracle, your car was
undamaged, you may bemoan my misconduct, but I need pay you no money.
Take this more realistic example.
You want to buy a property for ten
million dollars to build a small shopping plaza. A surveyor assures you that it is zoned
“commercial” and you buy it. Later you
learn that this was negligent advice. The
zoning is “agricultural”, you cannot build your shopping plaza, and you can
resell for no more than one tenth of what you paid for it.
Your surveyor has caused you to loose
nine million dollars and that is the amount of damages which he must pay.
But what if you go to the planning
authorities and tell them your story?
They look at the property and come to the conclusion that that is
exactly where the public needs to shop.
They allow you to continue building and pass a new zoning by-law.
The situation is the same as with your
miraculously unscratched car. The
surveyor has seriously wronged you, but, because you have suffered no loss, you
cannot get damages from him.
Say I crash into your car and the next
day you must take it to the garage. But
the mechanic has only to replace a worn fan-belt which you should have replaced
last year. Obviously you have no claim
against me because the repair had nothing to do with the crash.
Now consider the surveyor again. He gives you wrong advice, you pay ten
million for the property and then you learn something which you ought to have
investigated before. The soil is
waterlogged, it is impossible to build anything on it, it can be used only for
grazing pigs, no normal person would pay more than half a million dollars for
it, irrespective of its zoning.
The situation is the same as with your
worn fan-belt. The surveyor has
seriously wronged you and you really have suffered loss, but your loss has
nothing to do with his wrong advice.