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Advanced Common Law Obligations: SummaryProf. SmithWinter 2008

Dorian Needham

TABLE OF CONTENTS

1. Contracts for the benefit of third parties: Privity..................................................................................................................................2a. Introduction: privity problem.........................................................................................................................................................2b. Basis in jurisprudence....................................................................................................................................................................3

Tweddle v. Atkinson (1861), [1861-1873] All E.R. Rep. 369 (UK QB)......................................................................3Midland Silicones Ltd. v. Scruttons Ltd., [1962] A.C. 446 (HL)................................................................................5Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228.............................................................................6

c. Exceptions.....................................................................................................................................................................................6Shanklin Pier, Ltd. v. Detel Products, Ltd., [1951] 2 All E.R. 471 (UK KB).............................................................6New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite (“The Eurymedon”), [1975] A.C. 154 (P.C.)..................7Les affreteurs Réunis SA v. Leopold Walford Ltd., [1919] A.C. 801 (H.L.).............................................................9Re Schebsman, [1944] Ch. 83 (UK CA).........................................................................................................................9Beswick v. Beswick, [1968] A.C. 58 (HL)....................................................................................................................10

d. Reform.........................................................................................................................................................................................10Trident General Insurance Ltd. v. McNiece Bros. Ltd. (1988), 80 A.L.R. 574 (Aust. HC)....................................10London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299...................................................11Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108.................................................12Panatown Ltd. v. Alfred McAlpine Construction Ltd., [2000] 4 All E.R. 97 (HL)..................................................13

2. The history of the law of obligations (Ibbetson)..................................................................................................................................15Prologue: The Prehistory of the English Law of Obligations..................................................................................17PART 1: Form and Substance in Medieval Law.........................................................................................................17PART 2: The Triumph of Trespass on the Case.........................................................................................................23PART 3: The Modern Law of Tort and Contract.........................................................................................................26Conclusion: Legal Change and Legal Continuity.......................................................................................................35

3. Economic loss and the role of tort law................................................................................................................................................36a. Negligent Misrepresentation........................................................................................................................................................36

Derry v. Peek, [1886-93] All E.R. 1 (HL).....................................................................................................................36Candler v. Crane Christmas & Co., [1951] 2 K.B. 164 (CA).....................................................................................38Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575 (HL)..................................................38Anns v. Merton London Borough Council, [1978] A.C. 728.....................................................................................39Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165.....................................................................39

b. Dangerous Buildings....................................................................................................................................................................40Winnipeg Condominium Co. No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85...............................................40

c. Relational Economic Loss.............................................................................................................................................................41Cattle v. Stockton Waterworks (1875), L.R. 10 Q.B.D. 453.....................................................................................41Spartan Steel & Alloys Ltd. v. Martin Ltd., [1972] 2 All E.R. 557 (CA)..................................................................41Anns v. Merton London Borough Council, [1978] A.C. 728.....................................................................................41Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021......................................42Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210.................................43Cooper v. Hobart, [2001] 3 S.C.R. 537.......................................................................................................................45

d. Conclusions and Synthesis..........................................................................................................................................................46

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)

1. Contracts for the benefit of third parties: Privitya. Introduction: privity problem

CB 1

Background: underwriterso Underwriters are much like insurance companies; they insure the price of a stocko Underwriters say that they think the shares will sell for a given price – they buy all the stock at a slightly lower price

than expected, and then sell it themselveso The underwriters do this so much that they can accept the risk that the stock of one company will sell at a lower

price than expected – cf. the company, which can’t afford to take the risk because they’re selling all assets they own

In this problem, the underwriter is not being asked to sell the shares, but rather to appraise their value because another company is trying to by the majority of the shares

The directors of the target corporation need to make a recommendation to the shareholders as to whether to accept the offer – and they want both to make a good recommendation and to shield themselves from liability if their recommendation is wrong (which may happen, given that buyout packages give directors an incentive to sell)

So directors seek the independent advice of an expert – here, the underwriterThis is not a transfer of liability, but rather an attempt to show something like “due diligence”Here, however, we are concerned with the legal liability of the underwriter, based on the K between underwriter and target

corporationVery often, when services are provided, the provider seeks to include a limited liability clause

o QC’s laws on consumer Ks mean that it’s almost impossible to limit liabilityo In CML provinces, some go in that direction – but none goes as faro Exclusion clauses are never valid against intentional wrongdoing – they’re intended to provide against accidental

wrongdoingThe clause in question

o Language “Indemnify” = a kind of insurance “Save … harmless” = approximately the same thing The language in use is historical in origin (and repetitive because CML lawyers used to be paid by the word

when drafting Ks); people who draft Ks are afraid that if they get rid of these words they will look like they were trying to change the substance of the agreement – which isn’t the case

Writers of exclusion clauses are particularly concerned because courts don’t like exclusion clauses and read them as narrowly as possible writers try to be as thorough as possible

In Europe and in many big firms, they’re trying to change the language, especially because they are expected to work in CML (Ks are traditionally long) and CVL (Ks are traditionally shorter) jurisdictions – a “plain language” movement in the legal profession

o Most obvious way target corporation could sue would be for breach of K Usually, service Ks promise reasonable care – so mistake would likely not yield liability Instead, it would be interpreted as requiring the underwriter to use reasonable care in making the opinion BUT – this indemnity clause protects the underwriter from losses (other than loss of profits) even arising

from negligence E.g., you’re selling shares in your company to someone else

The K of sale will include exclusion clauses wherein the vendor insists that the buyer will not hold vendor liable for anything it has said except for what is written down

This protects vendor from random or unpredicted statements by its employees during the sale process, which could later be construed as misrepresentation

o Target corporation could sue in tort Fairness opinion made pursuant to a K could qualify, if wrong, both as breach of K and as a negligent

(fraudulent) misrepresentation In principle, there was reliance and proximity BUT – exclusion clauses usually work in tort as well (exclusion clauses are most commonly used in tort

claims)o Shareholders could sue underwriter for having relied on a false opinion

Could not sue in K, because they have no K with the underwriters They could try to sue in tort, again for negligent misrepresentation Might be an issue of proximity (which we will discuss later: this is why you can’t sue the weatherman) – but

that wouldn’t apply hereo Shareholders of target corporation could sue underwriter’s employees for negligent misrepresentation

Company is separate from its employees, so underwriter’s employees could be sued separately Questions of vicarious liability will arise if the employee was acting in course of duty – but either way,

employees are separate and can be sued separately Possibly an issue of proximity here (this is a notoriously unpredictable defence to rely upon, and may or

may not be an issue) BUT – this K, as far as the employees are concerned, is a K for the benefit of a 3rd party; employees did

not sign the K; target corporation made no promise to the employees Fundamental rule: only parties to a K can rely upon the K, either by suing on it or by

using it as a defence Employees would be relying on this K as a cause of action if they tried to sue the target

corporation for the promised indemnity – and privity is supposed to prevent this

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) In CVL, a K explicitly made for the benefit of a third party can be enforced by that third party (and

a number of CML jurisdictions, incl. most of the US, Eng. – but not Canada – have followed) So – employees are vulnerable in this way

o Target corporation could sue employees of underwriter for negligent misrepresentation Again, question of privity So – employees are again vulnerable

All the law we’ll be looking at in the next few weeks will be ways that courts have found to get around what seems like the unfairness of this situation for the underwriter’s employees

o Conceiving the underwriter as an agent of the employees: employees thus really signed the K themselves – but there was no explicit mention or authorisation of agency, and even if there was it would not apply to employees hired after mention/authorisation

o Employees could sue the target corporation in tort for having made the negligent misrepresentation that it would not sue the employees – but:

If shareholders are suing employees, target corporation isn’t the one suing Not necessarily a misrepresentation – it was not necessarily false when it was made, as it may have been

true at the time (distinguish misrepresentation from a broken promise) No necessary reliance on misrepresentation (i.e., employees didn’t necessarily suffer a loss because of the

misrepresentation) – may be difficult to show Target never made representation to employees, but rather to underwriter Possibility of trust held by underwriter for employees Target corporation cannot sue because it has voluntarily assumed the liability – could argue that the K is a

voluntary assumption of risk (in substance, not form) Underwriter could try to enforce specific performance against target corporation

o Employees could sue underwriter

b. Basis in jurisprudencePrivity: K can be enforced neither by nor against third parties; promises are made not to the world but to particular personsPrevious section discusses privity via an indemnity clause; here we examine privity via casesFirst three cases establish the rule; next couple show exceptions created by courts and lawyers; remainder change the rulePrivity still exists in Canada despite London Drugs

Tweddle v. Atkinson (1861), [1861-1873] All E.R. Rep. 369 (UK QB): CB 2-3FactsT’s son and Guy’s daughter got marriedT and Guy each promised verbally to pay a sum of money to T’s son, and later wrote this promise down (specifying that each one’s

consideration was the other’s payment), but Guy did not payT’s son now sues Guy’s estate for the moneyGuy would be the defendant, but he’s dead so it’s actually the executor, A, who is being suedIssue: can third party beneficiaries to the K sue for enforcement?Holding (Wightman; Crompton; Blackburn): no AtkinsonVerbal promises: T could sue, but (1) verbal promises; (2) family situation (presumption of no intention to create legal relations); (3)

consideration was the promise to get married (now, would raise public policy issues; then, marriage was more an economic undertaking); (4) problem of remedies (court may say that T’s son does not suffer a loss – but could try to sue for specific performance, one solution to a third party problem)

Promises overtaken by later agreement made by father, to which T’s son was technically not a party (Smith: T’s son agreed implicitly to give up rights to promises upon the creation of this new agreement)

Problem: Guy dies; executor does not want to pay T’s son because there are other creditors (and unless there is legal obligation, those creditors take precedence)

Result: classic, simple K for the benefit of a third party, T’s son (cannot sue even though he is named beneficiary and K gives him express right to sue)

Consideration doctrine: explanation by court is based on language of consideration; judges argue that Tweddle cannot sue because he did not provide consideration

Wightman: no consideration because marriage was before the K now sued onBlackburn: natural love and affection are insufficient considerationRatioFoundational case for privity rule: establishes the privity of K in the CMLNo consideration flows from the third party to enforce the K – even if it is stipulated in the K that the third party can

sue“Love and affection” between father and son is not considerationNotesEven though it stands for privity rule, a close reading can undermine this – but has taken on an iconic status; now just understood

as standing simply for privityUnderlying assumption: basic rules of private law do not work very well when the person is dead or doesn’t have money;

understanding that failure to meet obligation leads to legal action is compromisedVerbal promises drop out of the picture; case is actually about subsequent promises (what would have happened if there was no

subsequent K and T’s son tried to sue on verbal promise?)CVL in QC (not France): CCQ 1440’s basic position is the same; 3rd parties cannot sue on K, with exception (stipulation for the

benefit of another, though meaning of “stipulate” is contested: to what extent the intention has to be express is debatable); so under CVL this case is easy (T’s son would win); almost all the cases we deal with under privity of K would have different result in CVL

Discussion and synthesis of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Damages

o Difficult and controversial, because can usually only be claimed by a K’ual party (here, T), who here suffered no actual loss

o Courts have developed exceptions allowing third party to recoverSpecific performance

o T could sue, because there was a promise made to him that was not performed – but he suffered no loss could he force specific performance?

o These preceding considerations don’t matter that much, however, because the two fathers made a new promise to give T’s son some money

o But just because they made new promises doesn’t take T’s son’s rights to the earlier promises awayo Specific performance is discussed in Beswick, which has not been followed and is contrary to traditional CML

view that specific performance is not ordered unless damages are inadequate (Smith: this is wrong; specific performance should be used)

o Specific performance also unavailable in case of obligations to perform servicesConsideration doctrine

o T’s son could have done things in hope of getting money but it wouldn’t have been consideration; in order for it to be consideration, it would have to be given in exchange for the promise of money (T’s son would have needed to be offeror or offeree)

o Now, the privity rule is not typically explained in terms of consideration, but rather as third party status Some CML jurisdictions have abolished consideration but still have the third party rule In subsequent cases, will see that the rule is explained now in terms of rights of third parties – but

these are linked (anyone who is a third party will not have provided consideration) Reasoning for the change: (1) even in jurisdictions without consideration, there is still the third party rule

(e.g., CVL); (2) basic idea underlying doctrine is that if promise is not made to you, you’re in a different position than a person to whom a promise was made

o Question: does the consideration doctrine give a good reason for T’s son not to be able to sue? Idea that you shouldn’t be able to sue unless you’ve done something – but consideration does not actually

require you to do something; simply requires you to promise to do something (i.e. if I promise to do X if you promise to do Y – if you do not do Y, I can sue even though I have not done X)

Consideration is hard to explain as a concept nowadayso Smith (and Fuller): consideration serves as a formality; similar to CVL formality of notarization in terms of promise

to make gifts – but there are some things that don’t fit with this (e.g., promise to keep offer open: why would we need formality in this case?)

o But in most cases, consideration doesn’t work as a formality; usually it just appears (e.g., simple sale) – but the argument would be that in those cases we don’t need Ks, while in others (e.g., gifts), we do

o Indication of consent is a formality Nature of promise Guy made

o If Guy had made a transfer of his existing right to T’s son, then T’s son would have had the right to sue – but it’s unclear what kind of right Guy could transfer to T’s son

o Given what Smith has said about T’s son and how as a third party, nothing he does is consideration, how do we read Wightman’s statement that since the marriage happened before K, there was no consideration?

o Suggests that if K happened after, it would have counted – is there a way to construe that as consideration?o Smith: either (1) Wightman thanks that T’s son was a party to the K and this case is then just about consideration,

or (2) Wightman was just sloppy (and wrong)Freedom of K

o Clause says son can sue – so what about freedom of K?o Considered one of the best arguments against privity ruleo Smith: prefers privity (but is in the minority)o Issue: who is going to want to enforce?

It is not Guy who is suing – he has freedom of K Rather, it’s T’s son who is asking court to do something – thus, he has to show that it is about his rights Court is not a public forum; rather, deals with X’s rights that are infringed (CML position: to get

favourable judgment, need to show that your rights have been infringed)Other possible arguments

o T’s son can argue that promise was broken – but promise was not made to himo T’s son could make reliance argument (not a K argument; rather, it’s estoppel/detrimental reliance: you’re owed

this because you relied): some courts will give force to this, though in CML estoppel can mostly only be used as a shield and not a sword

o Assignment (see below): in theory, T could transfer his right to sue to T’s son – but then what is T’s right? T has a right to damages, but since he hasn’t lost anything, he gets no damages – and T’s son/assignee

couldn’t claim for any more than T could (you can’t transfer more rights than you have yourself) Can’t get specific performance So transferring T’s right is useless

o Basic point: what is T’s son’s complaint? Was something taken from him? Was a promise to him broken?Smith: privity rule is not the problem in this case (rather, discomfort with some of the other doctrines)Reality: Guy and T want to do this, it hurts no one, so why not help them?

o England has actually done away with privity rule and has something like CCQ 1440; this view sees K law as helping us (Smith: wrong, as K law is about protecting rights)

o The two views are not contradictory (can think both)o Smith: K law (and private law) is essentially backward looking fixes wrongs (as opposed to future looking

people want to do this, so let’s help them)

Interaction with tort (see Part 3 below) of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Economic loss

o K protects expectations, tort protects existing rights (restitutio in integrum)o Tort of negligent misrepresentation is very close to K’ual liabilityo HL: only liability where there is sufficient proximity between claimant and defendant (Anns)o No action lies in tort if occupier is aware of defect and fails to eliminate ito No action lies against builder for purely economic less involved in building being less valuable than was thought, or

for cost of repairsChains of Ks

o Courts have denied tort liability where to do so would unduly intrude into K’ual relationso Each person should sue the next one up the chain – this is true of construction and of the purchase of things

already constructedPerson who buys defective goods can only sue manufacturer for negligence if defect causes physical damage to person/property – if

only complaint is defective goods, must sue in KLimitation of liability

o CML (like CVL) often looks suspiciously at limitation of liability clauses – but this suspicion is not really relevant to what we’re looking at now since these are big commercial cases where parties know what they’re doing

o Main question: can third party rely on liability clauses?o These clauses can be seen as a statement by the claimant that he has voluntarily assumed the risko Where clause is unfair and should be ignored, no longer necessary to invoke privity rule, as statutory provisions on

unfair Ks will do it instead

Midland Silicones Ltd. v. Scruttons Ltd., [1962] A.C. 446 (HL): CB 4-7FactsMSL (owner) makes a K of carriage with limitation clause (limiting liability to $500 in event that goods are damaged)Carrier has K of carriage with shipper, saying that “carrier” includes the ship and stevedores (SL in this case) and granting SL liability

protection as contained in the bill of ladingSL dropped the cargo at port and refused to pay any more than $500MSL sues in tort (since they do not have K with SL)This is a test caseIssue: can SL rely on limitations clause which was purportedly meant to apply to them?Holding (Reid): no Midland Silicones Ltd.Reiterates Tweddle and expands it, making it clear that third party rule applies both when you want to use it as a cause of action

and a defence (both sword and shield)Sets out the rules for agency – but not met here: court did not think that the carrier appointed SL as an agent; for agency argument

to work, you have to assume that carrier is working as agent for SL and on its own behalfNo real consideration here either (unloading the goods?)Ratio: third party rule applies both when you want to use it as a cause of action and a defence (both sword and shield)NotesProblem: stevedores are a fluctuating group of people may not know who the principal is at the time of the agreement; even

if MSL as a company could rely on limitation of liability clause, their employees couldn’tFundamental difference: this is not a K case, but rather a tort case; CML allows concurrent liability, but here the court says that

this limitation clause is in a K, and therefore the only way it’s valid is as a K’ual term SL can’t use it because they are not in a K (sole exception: negligent misrepresentation)

Smith: only good defence to an action in tort is a tort defence (here, voluntary assumption of risk); can argue that when MSL made that limitation clause, they were saying to the world that ‘we will assume risk’; could argue that they never made that statement to SL – but if they make it to the world generally, that is good enough; the judgment is wrong and the case has nothing to do with privity – rather, it’s a tort case and should have been allowed

Estoppel: this does look a lot like estoppel (i.e., “you promised not to sue us, and then you did”) – but (unfortunately) the court insists on looking at this only as a K case; problem with estoppel is its traditional association with representations of existing facts rather than a promise as to how you’re going to behave in the future (some argue that promising to behave in a certain way in the future starts looking like a K)

Take-home questions: What is the real complaint here? Was a promise broken? Was there a statement that the stevedores wouldn’t be sued? Was it that the carriers relied on the promise, and so they didn’t get insurance for liability?

The case is good for introducing limitation clauses (which Smith argues are all wrongly decided)

SubrogationSubrogation: when one person is substituted for another person, in particular when one person acquires the rights of another person

(subrogated rights)Insurance example of subrogation

o If your house gets damaged, you get money from your insurero The insurer will sue the person who damaged your houseo Subrogation happens as a matter of the operation of law or acquired through contract; used to prevent unjust

enrichment

Greenwood Shopping Plaza Ltd. v. Beattie, [1980] 2 S.C.R. 228: CB 8-12FactsOwner of shopping centre enters into K (lease) with Canadian TireClauses 14-15: each party agrees to get insurance and not to allow subrogation (i.e., long-winded way of saying we won’t sue each

other; take care of your own property and don’t let your insurer sue us; one big limitation of liability clause)CT employees (B and another) started a fire, causing damage to store but also owner’s propertyOwner has K (insurance) with insurers, who sue employees in tortIssue: are employers and employees distinct (i.e., do the effects of the K between Greenwood and CT not flow to the employees)?Holding(McIntyre, for the Court): yes Greenwood Shopping Plaza Ltd.

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Employees were not parties to the leaseWe would have thought because of respondeat superior that CT is responsible for the actions of its employees and thus they would

benefit from the contractual provisions contained within the contract between CT and GreenwoodBut SCC does not see it this way: it looks at two established exceptions to the rule, agency and the trust, and decides that

neither one fits this case[Lengthy discussion that GSPL probably intended K to include employees – but the rule in Tweddle is rigid]Agency: no evidence that would show that employees were CT’s agents (as established in NZ Shipping)Trust: no evidence that the company was acting as a trustee of employees; test for determining whether a trust had been created

would be to ask whether the parties to the contract could change the K’ual terms without reference to the alleged trust (if the answer is yes, then there is no trust)

Court also notes that judges must be wary of drawing inferences “upon vague and scanty evidence” that could contradict the clear wording of a contract

Ratio: the English law of privity applies in CanadaNotes: just like Midlands: again, trying to resist tort claim by virtue of a clause, but can’t because not party to K (even though insurers were subrogating and were therefore acting as Greenwood, which had promised it wouldn’t sue)

c. ExceptionsSmith: “results which appear to be dictated by the logic of legal principle are not so dictated at all” (CB 22)Situations where privity is already overridden (Smith: CB 13-14)

o Personal representatives and trustees in bankruptcyo Securities: can manipulate proprietary rules between debtor and creditor to give a creditor priority, thus evading

privityo Property law: licenses are enforceable against third parties; leases “run with the land” but assignor remains in the

background as a sort of guarantorIn many cases where the privity rule is applied the result appears unjust – but usually it isn’t privity itself that’s the problem (Smith:

CB 15-16)o Reliance/estoppel (Tweddle): the real problem is that estoppel may be used only as a shield, not as a swordo Unjust enrichment (Beswick): where promissor is unjustly enriched, culprit is usually “total failure of consideration”

limit on claims in unjust enrichment (i.e. third party can only recover if promissor has done nothing, rather than acted insufficiently)

o Wills and estates: many laws (fail to) give effect to testators’ intentions; requirements of formal validity are often unjust

K’ing parties can confer legal rights on third party by entering into separate, collateral K with that party – so why not let them do so directly?

UK Contracts (Rights of Third Parties) Act 1999 makes it possible for third parties to a K to obtain rights under the K provided this was the intention of the K’ing parties

Warranty

Shanklin Pier, Ltd. v. Detel Products, Ltd., [1951] 2 All E.R. 471 (UK KB): CB 29Facts & AnalysisSPL (pier owners) had K of service with painters, who in turn had K of sale with DPL (paint manufacturers)SPL had told painters to use DPL’s paint, which later turned out to be defectivePainters could sue DPL, as all Ks of sale have implied term that goods will be satisfactorySPL could sue painters for breach of K, as they had arguably not used sufficient care – though painters would likely have a defence,

as SPL actually told them what kind of paint to use; also painters were probably bankrupt so SPL would have to line up with all the other creditors

SPL thus wants to go after DPL, but they don’t have a KIn some legal systems (e.g., QC), this wouldn’t be a problem, as the K of sale was at least partly for the benefit of SPL, so SPL could

sue on it – this is true even though the K of sale made no mention at all of S (instead, just a matter of product liability)SPL had told painters what kind of paint to use because they had discussed with DPL, and DPL had made a representation to SPL

about the paint – this representation turned out not to be trueImmediately, you’d think that SPL could sue DPL in the tort of negligent misrepresentation (not fraudulent, but careless) – but tort of

negligent misrepresentation only recognised in Anglo-Canadian law in 1964 (Hedley Burne), after this caseSo: courts decided to find/invent another K – found that the representation was a KIssue: was there a K of warranty between SPL and DPL?Holding (McNair): yes Shanklin Pier, Ltd.The court regards DPL’s representations as guarantees (you can’t “promise” a fact, but you can guarantee it): statements of fact can

be contractual in this sense only; they are typically called warrantees – the typical lawyer’s term for a statement of fact in KAffirmation at the time of sale is a warranty, provided it appears on evidence to have been so intendedProblem: you need consideration – so the courts find: consideration from DPM was that they warranted the paint to be good;

consideration from SPL was agreeing to enter into the K with the painters (could also have found that S’s consideration was agreeing to use the paint)

Ratio: there can be an enforceable warranty between A and B supported by the consideration that B should cause C to enter into a K with A or that B should do some other act for the benefit of ANotesThis is probably a fiction: SPL likely didn’t tell DPL “I’ll use your paint if you warrant that it has X quality”; more likely, DPL told SPL

about their paint, and S said “we’ll use it” – this is not a K, as these statements were not made in exchange for one anotherCourts “fudge it” likely because they think that SPL should win

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Must distinguish between getting a benefit as a consequence of what you say/promise and getting a benefit in exchange for what

you say/promiseo “I’ll give you a lawnmower” “Oh, thank you, I’ll cut your grass” not a Ko “I’ll give you a lawnmower if you cut my grass” “I’ll cut your grass if you give me a lawnmower” a K

This whole thing is a bit unrealistic, in that we’d now sue in negligent misrepresentation – so why look at this case?o Sometimes you’d rather sue in K on a collateral K – your damages might be different (you’d be put in the

position you’d be in had the statement been true, rather than if nothing had happened at all)o Also shows that courts are often creative in finding Ks where there is no other solutiono In many cases, where there appears to be a privity problem, there’s actually no problem at all (as here,

where there’s a possibility of finding negligent misrepresentation

AssignmentNothing prevents K’ing party from assigning to a third party specific K’ual rights already in existenceAssignment does not require considerationConditions: debtor must be informed; all assignments are subject to “equities” (debtor can plead against assignee any

defence that he may have against assignor)Not all K’ual rights are assignable (personal rights cannot be assigned)If law allows K’ing party to transfer rights once created, unclear why it objects to a transfer in the first instanceSuccessful assignment often requires sophisticated legal advice, and must overcome K’ual terms prohibiting assignment

Commercial casesPrivity occasionally conflicts with commercial practices ignoredNegotiable instruments and their transferability (cf. assignment: no notice needed, no “equities” follow)Transfer of bills of lading

Insurance contractsLife insurance policies, road-traffic policies, etc. subject to statutory regimesLegislative exceptions do not cover every situation

AgencyK of agency can create 2 different relationships: principal-agent, and principal-third partyAgent’s power to bind principal frequently extends beyond authority actually delegated to himEnglish law recognises the “undisclosed principal”; principal can enforce K made on his behalf by an agent, even if third party didn’t

know agent was acting on principal’s behalfThird party entitled to assume that agent has authority that an agent of that class usually has (usual authority) and whatever

authority he appears to have (apparent/ostensible authority)Third party can always enforce K against agent personally if he choosesPrincipal must prove that agent had actual (not merely usual or ostensible) authority to make K at time it was madePrincipal cannot enforce K if it is of a personal nature

New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite (“The Eurymedon”), [1975] A.C. 154 (P.C.): CB 30-33Facts: Ajax (consignor/shipper) made a drill and shipped it to AMS (consignee/receiver) via Federal Steam Navigation Co. (carrier) NZS owns and is also an agent for FSNC – but here, NZS is also under K as a stevedore for FSNC On arrival, drill negligently unloaded and damaged by NZS Bill of lading contained clause that limited FSNC’s liability – and also that of all “servants or agents” of FSN (who become parties

to the K) AMS seeks to sue NZS in tortIssue: can NZS benefit from the limitation provision?Holding (Wilberforce): yes New Zealand Shipping Co. Ltd.Essentially, the court finds that the first K (K of delivery) was in fact 2 Ks: with carriers and with stevedoresStevedores are thus not third parties to the K of delivery, but rather parties to a different KCourts find a combination of agency + unilateral K (essentially, an agency K, but at the last minute they bring in a unilateral K

instead of consideration)Argument here is that carriers were acting as agents of the stevedores (but problem: they were also making a K on their own behalf) (Unusual, because stevedores actually owned carriers here)Conditions of agency 1,2. Carriers (1) were not only authorised to act as agents, but (2) were purporting to do so3. Limitation clause in K of delivery applied to stevedores4. ConsiderationK of delivery: owners agree not to sue stevedores; carriers do their workK with stevedores (made through carriers): court introduces notion of unilateral K (not the same meaning as in CVL) – where

consideration exists not in promising to do something but simply in doing it (e.g., the act of finding a dog for reward is consideration for the unilateral K of reward)

So – stevedores’ consideration: they never promised to unload the goods – they just did soOwners have said “anyone who unloads the good, we will give them the benefit of the limitation clause”Commercial context: judges were concerned about commercial implications; also wanted to highlight that this was a K amongst

able, technically apt partiesExemption designed to cover whole carriage from loading to discharge, by whomsoever it is performedRatio 1 party can K as the agent for a 3rd party; that 3rd party can then have standing to sue on (or be sued under) the K Conditions of agency: (1) authorisation and (2) purporting to so act; (3) contemplation in K; (4) consideration K’ing as the agent for a 3rd party can create a unilateral offer, accepted when the 3rd party performs a specified

service – this service is consideration for 3rd party’s benefits from the K

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Notes Smith: consideration in the second (unilateral) K is a fiction, because the action is not done in exchange for the promise, but

rather as a consequence of the promise Smith: if you have a unilateral K, you don’t even need the agency element of this analysis: all you need is for the

stevedores to unload the goods in the awareness of the fact that the owners had promised not to sue whoever did so; doesn’t matter how you learn about something in a unilateral K – you simply have to know about it and do it

Smith: the court likely got mixed up: probably looked at Midland Silicone and plugged the facts of this case into that framework, and when they hit the consideration aspect they opted for a unilateral K – which voided the earlier part of the analysis

Rhetorically, the agency argument could complete the deficiency in the unilateral K argument – but practically it doesn’t make sense

Were the owners really making a promise to anyone in the world that if they unloaded the goods, they wouldn’t sue that person?Result-oriented reasoning: court wanted the stevedores to win; this rationale has been extended to other maritime carriage Ks –

but this reasoning hasn’t been extended to other situations (maybe because it looks a bit fictitious)Smith: if the case had gone the other way, there probably would have been legislationSmith: this is just like Midland Silicones: the stevedores should win because the owners voluntarily assumed the risk (estoppel, being

used as a shield stevedores should win); controversial, because assumption of risk likely has to be communicated to the entity that benefits from it

Commercial context: court comments on the commercial context, in the manner that one would normally expect of a commentator rather than of a judge

TrustsDeveloped in Courts of Equity: trust beneficiaries could not enforce the K of trust at CML, because they were third parties courts of

equity thus imposed obligations on the trusteeNow, widely prevalent in the commercial contextBasic structure: settlor transfers property to trustee with instructions to manage it for the benefit of a third partySplits enjoyment of property from use/management (cf. CVL, in which you can dismember but not split ownership)CML notion doesn’t involve ownership of a thing, but rather rights to the thingCreation of the trust

o General rule: settlor in his lifetime must, with the intention of creating a segregated trust fund, transfer assets to the trustee

o Variations: settlor can create a trust by making it clear that he is to be trustee of particular assets of his own; settlor may be beneficiary of the trust (if settlor is trustee and beneficiary, must be at least one other beneficiary); beneficiary can be a charity

o Rationale: tax reasons; bankruptcy (in principle, trust property is not available to trustee’s creditors)o Once you’ve made the trust, you can’t change it

Trustee’s dutieso Specified by trust terms and supplemented by lawo Fiduciary obligation: must act in best interests of beneficiarieso Trust assets must be kept separate (segregated)o Trustee is accountable – must make good any loss and hand over any profit made in breach of duty

Beneficiary’s personal rightso Compensation from trustee (for breach of trust)o Account: trustee must hand over any profits made from the breacho Compensation from third party (for knowingly assisting in breach of trust)

Beneficiary’s property rightso Creditor-proof: trust property is not available to creditors of the trustee (because beneficiary has equitable title to

the property)o Account: right to account is followed by a proprietary interest in the property that the trustee obtains through

breacho Third parties: beneficiaries can follow the trust property to third parties unless they are bona fide and gave value (in

general, the bona fide purchaser for value is protected)Trust in CVL

o CVL regimes tend to have devices that can act like a trust – but there are many different ones and it is much more complex

o CVL denies that you can split up ownershipo CVL lawyers tend to regard trusts as Ks for benefit of third parties – but this is problematic

Trust has a life of its own (can outlive the parties) Proprietary rights (K doesn’t give this, but trust does) CML lawyers, if forced, put trusts into property rather than K law

o But trusts are arrangements between two people for the benefit of a thirdo QC invented its own trust – but it’s bizarre because nobody owns it

Cannot allege a fictitious trust merely as a device for enforcing K’ual rights by a third partyo But courts still wiling to impose a “constructive” trust on parties who did not intend to make a trust gives

intended beneficiary same protection she would have had under genuine trusto Courts worry about rendering K’ual terms irrevocable – but could always create revocable trust or find that promise

holds right of action to enforce the K on trust for the third partyHypotheticals

o Company wants to establish pension fund for employees Contributions (employees or employees/employer) are held in trust If company goes bankrupt, trust funds are protected

o 5 friends want to invest in stock market, but each has too little money to make it separately worth it pool resources and give them in trust to someone

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Group of shareholders with voting shares in a company want to ensure that their votes are used in common for one

purpose and with no risk of anyone defecting from that purpose Can pool votes into a trust Voting rights have financial value, so they can be the subject of a trust fund This is why US competition law is called “anti-trust” law

How a trust works for the third party in a simple 2-party Ko Debtor can transmit or manipulate his debt; could put it in trust for son, who would end up with rights under the K

(this is very close to assignment) – this is not considered an infringement of the third-party ruleo If settlor/debtor is also the trustee, beneficiary could force settlor/debtor to sue

Les affreteurs Réunis SA v. Leopold Walford Ltd., [1919] A.C. 801 (H.L.): CB 35Facts: LaRSA (ship-owner) had K with charterer, which included promise to pay a third-party broker (LWL)Issue: is promise for benefit of LWL enforceable against LaRSA?Holding (Wrenbury): yes Leopold Walford Ltd.K for the benefit of a third party – should be unenforceableThis is a trust of a K’ual right; charterer is making trust of K’ual right of promise to pay LWL; no question that charterer has K’ual

right to payment, and can transmit/manipulate this debtRatioK’ual rights can be held on trust for somebody else(Apparently) whenever you make a promise for the benefit of a third party, you have automatically created a trustNotesSmith: this case is wrong, because right held by the charterer (that LaRSA would pay LWL) was worthless (could sue, but would get

nothing) – so the court did a fudge here tooImportant case because court seemed to open door to skirting privity through trustNo question that promissory/K’ual right can be property under a trustSmith: this does not work in terms of trust and K law; even if we assume that parties were trying to create a trust, trust created

would not have given them the rights they wantedBut – what right does LWL actually have? Must be same as charterer, because trust cannot increase the size of the right (which here

was the right to enforce the K)Option B: specific performance, addressed in Beswick below

Re Schebsman, [1944] Ch. 83 (UK CA): CB 36FactsS worked for a company, which on his departure K’d to pay him money in instalments, and to his widow on his deathS went bankrupt, and then diedTrustee in bankruptcy claims that money payable to widow formed part of S’s estate, and is now vested in trustee in bankruptcy

(i.e., that S fraudulently was trying to conceal assets)Issue: was the money subject to a trust and thus part of S’s estate?Holding (du Parcq): noWidow was not a party to the K and acquired no rights under itCompany properly performed; cannot be called to pay trustee in bankruptcyWidow is not accountable for money to trustee in bankruptcyK cannot be amended unilaterallyUnguarded language can create a trust – but unless intention to create a trust is clear, court should not read one inBoth parties intended to keep alive their CML right to vary consensually the terms of the obligationRatio: you must show real proof that you intended to make a trust (i.e., that you no longer wanted to vary K’ual rights)NotesWorried about implications for trust law, as this would mean that parties to the original K had given up their right to vary their K

(because a trust, once made, is fixed) court says no to Les affreteursCourt preferred clear indications that a trust was to be created – can make trusts for the benefits of third parties, but must do so

explicitly, and parties must know that they cannot do anything to vary the KNormal rules of trust must apply to these situationsResult: future cases don’t find trusts in situations similar to this or Les affreteursIn order to use a trust in this situation, must stipulate in K that A will pay B, and B holds res in trust for third party; must also know

and understand that trust will be unchangeableThis case is unusual because the third party is actually trying to show that there is NO trustThis case and affreteurs above both show that the courts can adjust the rules to help the nice guy win

Specific performance

Beswick v. Beswick, [1968] A.C. 58 (HL): CB 37-39FactsAfter uncle’s death, nephew was to pay widow £5/week, in exchange for uncle selling him his businessNephew paid first £5, then stopped payingWidow sued nephew (C) in her capacity as administratrix (A1) of uncle’s (A) estate, and also personally (B)Issue: can widow enforce the K for her benefit?Holding (Lord Upjohn): yes, as administratrixB has no rights under the K, but if C paid to her she could keep it and hot hold as a constructive trustee for A1Neither A nor A1 could compel C to pay it to A or A1, but A or A1 and C could agree to modify the KA1 could sue for damages, but this is more a case for SP, because C is repudiating his obligationsNothing to prevent equity making a decree for SP directing payment not to A but to BC has received all the property; justice demands that he pay the price, and this can only be done through equityRatio

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)“[W]hen an agreement for valuable consideration between two parties has been partially performed, the court ought

to do its upmost to carry out that agreement by a degree for specific performance”Money payments in the nature of an annuity are even more appropriate candidates for SPEquity will grant SP when damages are inadequate to meet the justice of the caseQuantum of damages seldom affects right to SPNotesIt’s helpful here that widow was the administratrix, because she had an interest in pursuing SP – not clear that any other executor

would have done it, or been allowed to do itSmith: this case should be generalisedWhen this case came out, looked like a watershed case, because SP wasn’t traditionally given unless damages inadequate

(Smith: in practice this means that K was for unique goods, e.g. land, that can’t be compensated with money damages)In most Ks of sale, damages will be zero, because you can just go buy the thing from somebody else damages are not considered

inadequate cannot get SP“Inadequacy” usually has to do with uniqueness (i.e., ability to acquire a substitute) – here, it’s being used in its more

traditional sense (i.e., getting what you want)So: prima facie this case appeared unique for (1) expanding the notion of inadequacy and (2) opening a door to

another way to protect third parties (because in every privity case, from 3rd party’s perspective, damages will be inadequate in this sense)

In fact, this case has very rarely been followed: UK and Canadian courts give SP a little more often than they used to, but nothing has radically changed and it hasn’t been used too much in third-party cases

Reasons: promisees are unlikely to sue (promisee has to sue, not third party); this doesn’t work in limitation-of-liability clauses, which are most of the cases in question; (maybe also because there’s a conflict of interest, in that as executrix she’s supposed to be acting in interests of the estate – particularly if there are creditors – rather than in her own interest)

Smith: most cases in courts are actions for debt (asking for money to be paid that wasn’t paid under a K) remedy is a court order to the debtor to pay the debt, which is effectively SP though for historical reasons it is not so called

So: SP is the standard response in cases of debt, even though damages are not inadequate hereRationale: CML is like CVL in that it thinks you should perform, but hesitates to order SP for policy reasons but also (primarily)

because it’s easier to assign damages and be done with it (court doesn’t have to get involved again)French CVL originally had even stricter rules against SP (protection of liberty interest) – but, like CML, evolved into just a recognition

that SP had problems for non-monetary obligationsBut: with monetary obligations, no institutional problem in CML or CVL with ordering SPSo: no reason not to order SP here, but considerable reason in other cases

d. ReformPrivity largely abolished in most CML jurisdictions; now more like QCUK legislation abolished the privity rule by 1999 statute – but most corporations exclude the Act, as they don’t like 3rd parties having

rights and aren’t sure of exactly what rights will be conferred; then they explicitly give third parties rights in collateral KsCanada has not followed the UK decision to pass a law: not high on anyone’s agenda; would have to be passed province-by-province

– despite that every Law Commission has recommended it(Canada’s way ahead in judicial reform, but way behind in legislative reform)Smith: in time, privity rule likely to be abolished – despite that it isn’t problematic in itself, but rather courts have misunderstood

other doctrines (see above)

Trident General Insurance Ltd. v. McNiece Bros. Ltd. (1988), 80 A.L.R. 574 (Aust. HC): CB 40-42FactsConstruction K: Blue Circle had building K with inter alia MBL (sub-K’or)BC had insurance K with TGIL, with indemnity clause covering BC and K’ors/sub-K’ors (incl. MBL)MBL commits a tort and injures Hammond; H sues MBL in tort and winsMBL sues for indemnity from TGIL – but is not party to the K with TGILIssue: is MBL covered by the indemnity clause in the insurance K between TGIL and BC?Holding (Mason and Wilson): yes McNiece Bros. Ltd.Privity and consideration rules justified by policy reasons: avoiding double recovery (but joinder eliminates this risk); maintaining

liability barrier against vast range of potential plaintiffs (but can’t justify a rule by its indirect results if the main result is unsatisfactory); otherwise parties’ actions would be constrained (but third party’s right to enforce provision can be subordinated to parties’ rights to rescind/modify the K)

Questions: Is there sufficient foundation for third party entitlement to sue on the K where there is K’ual intention to benefit the third party? Or should intention that third party be able to sue on the K be required?

Old rules lead to injustice, failure to effect parties’ intentionEstoppel does not adequately protect third parties’ interestsMany sub-K’ors will assume that insurance covers them, and thus not make their own requirementsRatio: privity can be relaxed for insurance Ks with indemnity clauses in favour of third partiesNotesWhat’s important here are the facts and result – there’s little reasoning givenNobody’s quite clear what reasoning/ratio are – but it’s clear that court wants MBL to win, so finds in its favourCan’t make a company law argument that MBL and BC are one personNot easy to explain away using some other basis; only other thing the court mentions is estoppelBut this isn’t a voluntary assumption of risk case; TGIL is not suing MBL despite having promised that it wouldn’t – instead,

MBL is going after TGIL, which would make estoppel a cause of action (still not recognised in UK, and fuzzy in Canada – but Australia has allowed estoppel to be used as a cause of action)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)So the court thought about estoppel, but decided that it was a vague notion (there must be strict limits on the use of estoppel as a

cause of action – in Australia this has resolved into a vague notion of unconscionability, but it’s tough to say) decided to create an exception to the privity rule instead for “cases like this”

But what are “cases like this”? Insurance Ks with indemnity clauses – not others so farSmith: this is a particularly compelling case; seems like TGIL shouldn’t be able to get off; facts of this case are about the best

argument for someone who is against the privity ruleHere, MBL is suing on the K instead of using it as a defence (with K as a defence, easier to explain away third-party interest

using voluntary assumption of risk/estoppel, etc.)

London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299: CB 43-55FactsSimilar to the other casesLDL owns goods; K&NIL operate warehouse; K between them to store goods, with limitation clause protecting “warehouseman”K&NIL’s employees actually do the work; they drop a transformer and damage itLDL sues the employees in tortIssue: can K&NIL’s employees rely on a limitation of liability clause in a K between their employer (K&NIL) and the plaintiff (LDL)?Holding (Iacobucci, 4 – 1 dissenting in part – 1 concurring in the result): yes1. Duty of careK&NIL’s employees owed duty of care to LDL when handling transformer; reasonably foreseeable that their negligence would lead to

damage of LDL’s property; close enough relationship to justify duty of careQuestion of whether a duty of care arises will depend on circumstances of each case, not particular categories or rulesFact that employee is performing “very essence” of plaintiff-employer K doesn’t preclude existence of duty of care2. Limitation of liability clauseThese reasons do not affect third parties’ obligations as established under Ks (just addresses third parties’ rights)Employees were third party beneficiaries to the clause – may benefit directly because of commercial reality and common sense(Questions whether privity and consideration are really distinct concepts)Privity not to be discarded lightly; courts may only make incremental changesIdentity of interest between employer and employees as far as performance of employer’s K’ual obligations is concernedObvious that employees will have prime responsibilities related to performance of obligationsExpectations: employees do not expect to be subject to unlimited liability for damages in performance of K when K explicitly limits

“warehouseman”’s liabilityRisk allocation: keeping privity would allow LDL to escape a liability clause to which it consented; parties allocated their risksCommercial practice: customers do not avoid getting insurance because they assume that they will be able to recover from

employeesJustice: keeping privity would lead to great injustice hereThis change is just incremental: protects intentions of K’ing parties; similar benchmarks [below] to agency exceptionHere, parties intended this clause to extend to K&NIL’s employees (by implication), and the employees were doing their job when

accident happenedRatioKeeping privity here thwarts commercial practice and justice, frustrates parties’ risk allocation and assumptionsFor limitation of liability clause between employer and plaintiff to benefit employees, must show that (1) clause

extended its benefit to the employees and (2) employees were providing the “very services” K’d forConcurrence in the result (McLachlin)Iacobucci founds liability of employees in tort; question of how a K’ual term can serve as a tort defence is importantReasonable interpretation does not extend “warehouseman” to cover employeesWhere customer Ks with employer and knows work will be done by employees, implied term in K that employees are protected by

liability clause; employees may raise volenti defencePresumed intention or policy can justify implying a term here sufficient justification for K’ual defence to a tort claimPartial dissent (LaForest)Employer was able to limit tort/K liability, but employees had no chance to decline the risk; placing the onus on them to K out of their

tort liability is not justifiedNo logical necessity that employer’s tort liability depends on personal liability of servantK&NIL owes duty of care to LDL and is vicariously liable for acts of employeesShould adapt reasonable reliance doctrine from negligent misrepresentation cases: unreasonable for LDL to rely on employees hereIf there’s identity of interest, this isn’t even a privity case [calls it “vicarious immunity”, the opposite of vicarious liability]NotesMajority Considered to have set the law hereScope of judgment: narrow on its face (employer-employee, limitation clause: even cases that have extended this principle have not

gone past limitation clauses)Tricky part is that the employees are not even mentioned in the K (cf. Midland Shipping, where stevedores were mentioned

explicitly)In the end, Iacobucci just seems to interpret the K, saying that if studied in context, K must have been intended to apply to

employees, because it’s obvious that employees will be the ones handling the goods (employees and company are like one thing)

Smith: this is probably right as a matter of K interpretation, though McLachlin does not agree – but this is not the big issue in this case

Big issue: Iacobucci holds that if K does cover employees, will let them rely on itIacobucci trots out all of the evidence against privity, and then cuts it downMcLachlin Very close to the “assumption of risk” argument that Smith has suggestedVery aggressive thing to do: if she’d done it in the majority judgment for another case, there would be outcryLaForest Everything Iacobucci says about identity of interest seems to support LaForest’s interpretation

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)But as a matter of company law, it just isn’t like thisThis is the first case that would absolutely reverse the decision in GreenwoodGeneral Smith: this doesn’t make senseSmith: if you have enough money to take these cases all the way to the SCC, you have enough money to have hired a lawyer to

write a second K in favour of employees – most of these cases are thus about lawyers’ negligenceSmith: a defence in tort shouldn’t be “I had a K” – the K may prove an identity of interest, but you can’t say that this is an exception

to privity, because this is a tort caseThe only reason you shouldn’t be able to win in tort is because the tort is not made out (elements are not all there) – the significance

of the K has to be that it shows the absence of tortShould it make any difference whether it turned out to be a valid K or not?If LD had said clearly it would not sue the employees, and then the K was declared invalid, the employees should still be safe from

litigation, because LD said it wouldn’t sue (its statement is an assumption of risk)Smith: if you state in a K that you won’t sue, that’s a statement for tort purposes, not necessarily a K’ual statementFirst Canadian direct challenge to privity rule through the courts, but limited in its scope

Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108: CB 56-61FactsK of hire between owner of barge (FRP&DL) and charterer (CDSL)FRP&DL had insurance K, including waiver of rights to subrogate (basically, insurance company promises not to sue third parties –

here, CDSL)Insurer sues the CDSL in tort; FRP&DL waives the waiver of subrogationIssue: can CDSL rely on FRP&DL’s waiver of subrogation?Holding (Iacobucci, for the Court): yes Can-Dive Services Ltd.This case does not address third parties’ obligations under a K (only third parties’ rights)CDSL claims that agency applies, deeming it a party to the K so that privity is not at issue – but Court prefers the London Drugs

approachNew exception to privity: dependent on intention of K’ing parties (extension of London Drugs)Express reference in waiver clause to “charterer(s)” includes CDSLWaiver not to be conditional on FRP&DL’s initiative in favour of any particular beneficiaryFRP&DL cannot unilaterally revoke the third-party benefit form the K after CDSL’s right crystallised into an actual benefitThis exception is to be narrowCharter K is separate from insurance K, but relevant activities here arose under insurance KPolicy reasons: commercial reality; sophistication of customers; clear expression of intent required; only an incremental changeRatioException to privity where (1) parties intended benefit to extend to third party and (2) activities performed by third

party are those contemplated as coming within the scope of the KK’ing party cannot unilaterally revoke a third-party benefit after this benefit has crystallised into an actual benefit;

subsequent alteration of the waiver is subject to negotiation and agreement amongst all parties involvedNotesExtends London Drugs ratio beyond employer-employee situation: London Drugs can apply to other cases of this kind as long as you

meet requirementsProblem: case does not go next step of giving a third party rights to sue upon the K – here, K is still only a defenceNo surprise that the first hole punched in the privity rule in Canada was a case where 3rd party defended itself with the KReasons other than privity to find for the third partyCompare this to estoppel: estoppel is suspensive of rights; when a party gives another party time to stop relying, then

notice might be sufficient to trigger third party rights [this kind of thing will be on the exam]This case hasn’t taken the next step that Trident has; Smith predicts that the rule will be knocked down when the next big case

comes along

Usually, you put exclusion of liability/insurance clauses in Ks to lower the overall cost (if one party can insure more cheaply than the other, for various reasons): one party already has insurance; one party knows more clearly what the things are worth; one party is in a better position to prevent the loss

See UK new law: K involving third party cannot be changed if party has relied on it or assented to ito Those terms reflect varying reasons for giving the third party rightso Assent: if you think third party should only have K’ual rights, this would apply – though unclear what “assent”

means as compared to “accepts”o Reliance: a more tort-related term

Deeds v. KsDeed: type of covenant (see Ibbetson), a written document that you would call a K but for historical reasons is considered differently

(don’t need consideration)Standard way to make a charitable donationSome ordinary Ks have to be in deed form as a matter of formality – other times you use deeds for other reasonsPanatown: Unex wasn’t providing any consideration, so could either find consideration or use a deed – here, used a deedDeeds are easier to assign than Ks – a little more like property

Panatown Ltd. v. Alfred McAlpine Construction Ltd., [2000] 4 All E.R. 97 (HL): CB 62-115IntroductionAt its most basic, this is a standard privity problem, in a building context: one party Ks to have a building built for a third party, and

then the building goes wrongEven Beswick at its most extreme won’t help, because you can’t get specific performance for building KsCan’t get damages, because you haven’t suffered a loss

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Could have gotten around it (maybe) if promisee had a K with third party to do the building, or if promisee had to spend money to fix

the building – but neither is the case hereFactsPL is the “employer” (person paying the builder), who Ks with AMCL (builder) to build a building, to be owned by UnexAMCL does a bad job; building is defectiveUnex is upset, but can’t sue AMCL in K because they’re a third partyUnex can’t sue in tort because it’s pure economic loss: none of its person/property has been damaged; what it got is a defective

building, but no actual tort has been committed against Unex[Confusing:] PL was actually created by Unex for the sole purpose of signing this K (tax reasons: needed to pay someone else to

have the building built)Unex did enter into Duty of Care Deed (“DCD”) with AMCL; this deed was essentially a promise by AMCL that they would take care in

building the building (if Unex then sells the building to somebody else, the buyer might want K’ual rights against the builder – so Unex can assign its rights in the deed to the buyer)

Notes on the factsFirst big mistake: K was made orally and very sloppily; appears that it did not put an obligation on Panatown to ensure that Unex

ended up with a proper building (obligation to use reasonable care in finding the builder, but if the builder himself does a lousy job, Panatown hasn’t done anything wrong); if Unex had put this into the K, could have sued PL for breach, and PL could have sued AMCL

Lawyers made a few mistakes in the litigation process case went up and down, and cost millions; should have used the DCD – which they eventually did, after the case we read – and settled out of court

But it would be better (if you succeeded) to sue on original K instead of deed:1. AMCL’s actions were guaranteed by Fred McAlpine (typically, in building Ks, you want some kind of guarantee from the builder) –

so you know that AMCL is going to have enough money2. Original K had a liquidated damages clause (stipulated damages): said what kind of damages Panatown would get in case of a

breach easier to win and get damages; if Panatown suffered no damages, though, can’t use the clause3 (probably most important): DCD was a tort-like obligation to use reasonable care (CVL: “obligation of means”); not a typical K’ual

obligation which is an “obligation of result” if building was defective, under K’ual obligation you get damages regardless of whether AMCL was careless

This case is important because it discusses a potentially important exception to the rule that you cannot recover damages where it appears you have not suffered any loss

Background: the Albazero case (appeared to create an exception to privity; PL relied on this)One party was original owner (consignor) with goods, who K’d with shipper to ship goods to buyerOwnership of the goods is transferred to third party (consignee) immediately after shipping K is entered intoRisk of the goods being lost is transferred to third partyShipper loses or damages the goodsOriginal owner has action for breach of K – but at time accident happened, owner was no longer the owner; didn’t own the goods

anymore and had no responsibility for them no financial lossThird party does suffer a loss – but has no K with the shipperThird party could enter into K with shipper, but this wasn’t doneSo: “black hole” where the only person who can sue suffers no loss, and the only person who suffers a loss can’t sueAlbazero held that original owner (promisee) can recover damages1. Orthodox (narrow) understandingOriginal owner is recovering damages on behalf of third party, but has to hold damages on trust for third party: exceptional, in that

one party is recovering damages on behalf of another – but makes practical sense, in that suffering party ends up compensatedThis general rule, however, can be varied by specific K’ual arrangements between any of the three parties involvedLinden Gardens applied Albazero to building case: understood that goods are for benefit of third party; promisee can recover

damages for any shortfall that the third party suffers, and will hold them on trust for third partyCan’t guarantee that promisee will sue on third party’s behalf, unless the promisee-third party K says so – but promisee’s

business will fall apart if third parties can’t get damages2. “Broader ground”Original owner can recover compensation for what is his own loss – either for costs of effecting repairs (e.g., compensation for the

money paid to “put things right”) or because breach of K is itself a loss (whether or not repairs are carried out: more difficult to measure the loss)

Issue: can PL sue AMCL to recover damages on Unex’s behalf?Holding: no Alfred McAlpine Construction Ltd.Lord ClydeNarrow Albazero was a solution imposed by law, not arising from supposed intent of the partiesIf they’d deliberately provided a third-party remedy (e.g., explicit right for third party to sue builder), one presumes that they

intended to exclude the operation of a solution that would otherwise be imposed by lawHere, Albazero exception does not apply: DCD and collateral warranties gave Unex a direct cause of action to the exclusion of any

substantial claim by PL parties provided a grounds to UnexBroad Breach of K is a loss, but not in any meaningful sense; development of a jus tertii is for the legislatureBetter to follow narrow ground than to construct theoretical loss on contracting party’s part, for which it is accountable to no oneLord Jauncey of TullichettleDamages for breach of K are compensatory; no need to limit the principle by reference to Unex’s lossAlbazero’s lack of remedy justified the exception; where third party has a K’ual right against the builder, no need for exceptionUnex had remedy available under the DCD (reasonable care), but it was different and less effective than that available under K

(absolute duty, liquidated damages provision) – but Unex was still entitled to sue on itNot up to the courts to tell people how they must use their damagesShould reject proposition that PL cannot recover damages because building was not on its propertyWhat’s important is that Unex can recover “substantial” damages, even if they aren’t as complete as under the K – it has a remedy

under the DCD, and PL’s remaining claim could only have nominal valueNeither narrow nor broad ground applies

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Lord Browne-WilkinsonDCD designed so that Unex could assign it to its successors in title or to any other party with AMCL’s consentDCD-based claim is fatal to narrow and broad groundsRatioAlbazero exception to privity of K (“narrow” grounds): promisee can recover damages for any shortfall that the third

party suffers, and will hold them on trust or third partyIf third party has its own means of redress (even if different from promisee’s), Albazero exception does not applyDissent (Lord Goff of Chieveley)Albazero raises two problems: privity and damages – must keep them separateThis is not a privity problem: parties intended that Unex should have no K’ual rights, because its rights were restricted to the

DCD; this case is about the effectiveness of the rights conferred by the K on PLDoesn’t matter that PL doesn’t own the landAMCL’s breach is not just “technical”; PL not seeking “uncovenanted” profitAlbazero’s broad grounds is not really about jus tertii: concerned with damages recoverable for breach of K; does not seek an

exception to privity ruleBroad grounds does not depart from existing authority, but rather reaffirms existing principlesJudiciary must step in to provide proper recognition of plaintiff’s interest in performance of K’ual obligations owed to himDamages for delay: covered just like damages for defective work; no reason for liquidated damages not to be seen as pre-estimate

of PL’s damages suffered; PL’s claim to liquidated damages should be upheld, because even without a liquidated damages clause PL should’ve been able to recover substantial damages

Relevance of PL’s intention: some say that making PL spend its damages in a certain way is contrary to law – but it isn’t where the reasonableness of their claim to damages is being considered

Tax-avoidance mechanism: companies are entitled to do this; doesn’t affect the caseSo: PL wins on broader Albazero groundsThe reasoning whereby DCD negates PL’s rights does not apply to the broader ground, because the DCD cannot detract from AMCL’s

K’ual obligationsPL could be expected to have to pay to fix defective building, so this sum of money would have been an implicit K’ual damages termDCD’s remedy is subsidiary to that under main K; if PL wins and when it fixes the building, Unex will have suffered no loss

no possibility of double recovery (and joinder can make you doubly sure)Dissent (Lord Millett)Should not see PL as K’ing on behalf of Unex and all its successors in title (narrow grounds) – this is too extensive an exception

broad ground is preferredIn certain Ks, right to performance has value measurable by cost of obtaining it from third party; damages also to consider loss from

delay and other consequential lossBroad grounds treats plaintiff as recovering for own loss not an exceptionWould restrict broad ground to building Ks and other Ks for supply of work/materials where claim is in respect of defective or

incomplete work or delay in completing itBroad ground may be more applicable where K’ing party had legitimate interest (though not necessarily commercial interest) in

placing order for services to be supplied to third partyPL should recover for own loss shouldn’t have to account for damages to Unex; what plaintiff proposes to do with damages is

of no more concern to party in breach in 3-party case than in 2-party case – but would be inconsistent with circumstances of case if PL retained damages for own benefit

Likely that parties assumed it wouldn’t matter who owned the landDCD designed to cater to subsequent purchasers; meant to provide successors, not Unex, with cause of actionNarrow ground rests on imputed intention, but broad ground doesn’t, being based only in K’ual principles (not

privity)DCD raises spectre of double recovery; paying it or K’ual damages should negate other claim to damagesDifficulties over double recovery disappear when you see that PL’s performance interest reflects Unex’s interest and PL’s loss cannot

exceed Unex’s lossNotesMajority understood Albazero as an ad hoc judgment: doesn’t flow from any other principles than a desire to help the third

party win (because it makes commercial sense); if it’s a pragmatic, ad hoc exception, it’s tough to figure out how broadly it will apply – don’t know what the principle is, or how often 3rd parties will be able to win (“where there is a black hole” is inadequate)

Court said that here there’s no “black hole” because of DCD exception from Albazero doesn’t apply can’t sueMajority uses the “narrow” interpretation of AlbazeroMinority has a “wider” interpretation of Albazero: damages are actually recovered for your own benefitOne view in the split minority: can suffer a loss if you either have fixed or are going to fix the problem yourself (Smith: sensible;

unclear that the majority actually disagreed; point of “cost of cure” damages is not to compensate for loss, but to ensure performance; problem on the facts, though, was that majority found PL wasn’t paying for the repair of the building)

Main minority judgment (Goff & Millett) is more radical: you can recover for your own loss, and your loss does not require showing a pecuniary financial loss; your loss is the difference in value between what you K’d for and what you got; fact that this doesn’t cause you any harm is irrelevant (i.e., damages without loss); DCD doesn’t matter

Minority’s view was rejected – though Anglo-Canadian law does this all the time (on rights infringements): false imprisonment (you can get damages even if you liked the imprisonment); sale of goods (e.g., I order all-season tractor that turns out to be a summer-only tractor; if I sell it to people who only want a summer-only tractor, I can still claim damages between that value, which is what I would’ve sold it for anyways, and the value of reselling an all-season tractor); sale of goods (if you buy a platinum ring that turns out to be gold, even if you like the gold more and don’t mean to give it back, can sue for the difference)

Another way to conceive this is as privity of tort – AMCL may have committed a tort against PL, but hasn’t against Unex

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2. The history of the law of obligationsActions: growth over time

IntroductionGoals

o Examining the processes and techniques by which the CML has become what it is (development of law)o Learning some substantive law

Perspectiveo Legal history can be approached via social forces, intellectual ideas, etc.o Ibbetson doesn’t do this; rather, takes internal perspective of law – how law developed and changed as a lawyer

might describe itScope

o Private law and royal courts: this leaves out specialized courts (ecclesiastical courts, university courts, local courts) which were important (keep in mind that there are these other avenues of redress – they were effective as well, just not what Ibbetson focuses on)

o Also leaves out courts of equity – so quite a bit of important law is not discussed (too bad considering equity is an important part of CML)

Equity (Smith’s brief overview – taken from Simpson)Rationale: Equity as response to problem of competing desires between i) certainty and ii) fairness/flexibilityCVL manages to mitigate this through good faithCML had King’s courts – but people were not always satisfied with outcomes

o Wanted way around (cf. US governors commuting sentences)o People would plea to King; King was too busy – delegated to Chancellor who then delegatedo This became the Court of Chancery (Equity) – which then developed its own set of rules/precedents

Important parts of CML come out of Equity (e.g., trusts, fiduciary law)Characteristics (relative to law)

o More overtly moralistic: appears to be more concerned with fairnesso Flexibility: not as rigid; makes exceptions (note: being more moralistic ≠ being more flexible)o Remedies: SP as an option

CML remedies included damages, rather than SP, because circuit judges couldn’t enforce SP when they’d gone elsewhere on their circuit – but equity can enforce SP

SP could be refused in certain circumstances (e.g., when plaintiff does not have clean hands)o E.g., trusts

Very moralistic; based on conscience Also very flexible: addressed law’s unwillingness to accept quasi-property

19th c.: equity and law were fused (some exceptions: Australian state of Victoria only fused a few years ago; Massachusetts has separate courts, though the distinction is more procedural)

Lawyers still use the word “equity” when talking of 44

Property (‘entitlement’)

Trespass on the case

Trespass: breach of king’s peace & vi et armis

CovenantDebtAssize of

disseisin & nuisance

Trespass (‘wrong’)

Assize of disseisin & nuisance

Detinue Debt Trespass vi et armis

Nominate torts of

nuisance, conversion, defamation,

etc.

Assumpsit

Contract

Residuary torts

Negligence

Trespass to persons, goods,

property

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Nomenclature: equity provided some exceptions to legal rules/concepts, and preserving those exceptions can

mean preserving the name E.g., equitable exceptions to doctrine of mistake – not as powerful as the legal rule, but still important E.g., doctrine of tracing, through which you could follow a good into others’ hands – but the legal and

equitable doctrines were different, so it can be important to distinguisho Providing a “short-hand” idea of what the rule is like (courts use the label to indicate that a rule is flexible,

morally based, etc.)o Can make a difference in priority over an asset (legal rights are generally stronger than equitable rights)

Introduction: Themes in Ibbetsono Legal evolution; how the law changes

Use of legal fictions Every legal system does this, but the CML has done it a lot Reason: CML has been going one case at a time for 800 years, so making changes is not easy

must stick new idea into old form Eventually, the fiction will be “exploded” by someone (e.g., Denning) and the law will change E.g., early trespass based on vi et armis, but many cases did not fit within this framework

Importance of procedure, rather than substance E.g., covenants had to be made under seal E.g., ease of pleading debt meant that debt was used to plead many CML actions – until the

defence of bringing 11 witness in your favour was made availableo This defence is arguably procedural, rather than substantiveo Cf. the idea that debt could only refer to an identifiable property object (substantive)

So K’ual cases were first brought in covenant, then in debt – and eventually moved to trespass, from which sprang our modern law of K

o Substantive themes Tort: distinction between broad, unbounded idea of wrongs and a more narrow concept

CVL (Napoleonic Code): all damage is reparable CML’s other extreme: only particular kinds of problems generate liability; image of having

a number of specific rights (e.g., bodily integrity) Some argue that since Donoghue v. Stevenson, CML has inched closer to a general notion of

liability through negligence How forms of actions/claims are distinguished

Roman method (still used in CVL): distinguished by source of the right Traditional CML: distinguished by remedy/entitlement E.g., K’ual claim can be characterised as a claim for the $100 in question, or for damages When CML began to be studied in universities, it was influenced by CVL and so classified by K,

tort, etc. – but historically it was developed with remedy-based distinctions Most CML K textbooks begin with Remedies

Difference between wrongdoing claims and proprietary claims Law of property is heavily mixed in with the law of obligations in the history of the CML –

most clearly in all things K’ual E.g., in a case involving creditors, the person who can make a proprietary claim gains priority K is where this distinction is raised/developed most clearly E.g., in case of an unreturned bailed good: is the claim “that is mine” or “you didn’t return it like

you said you would” or “you did a wrong”?

Prologue: The Prehistory of the English Law of Obligations (Ibbetson)Pervasive ideas

o Early medieval systems had clear conception of penalisation of wrongdoing – didn’t cleanly divide crime/tort, public/private

o Juxtaposed with broad idea of claims based on entitlementso Central division was between nature of claims, rather than between circumstances giving rise to themo Equivalents existed to torts, property – but no equivalents to K’ual liabilityo More concerned with dishonour than loss – but may conceal ideas of a duty to compensate for unintentionally

caused harmo Wrongs characterised not simply as breaches of the peace, but as breaches of a particular person’s or group’s

peaceo Sales did occur, but transfer of property by way of gift was more important

Gifts were not acts of altruism: obligation of reciprocity, with burden on original recipient, not donor Both gift and K could be gratuitous or reciprocal

o Oaths: means of taking on an obligation as to future behaviour Presupposed an external power (normally a god) by whom the swearer swore the oath Oath-breaking was a huge wrong, but attracted no human sanction, and beneficiary of oath could not

secure its performanceo Other practices to engender relationships

Pledge handed from debtor to creditor: substantial pledge gave rise to assumption that giver would want to perform to get it back; trivial pledge meant power to activate vengeance was in hands of pledge

Mimicry of creation of family/personal tieso Centrality of handshake and related gestures

Obligations in Roman lawo Rigid cleavage between property (in rem) and personal (in personam) obligations

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Obligation: legal tie, by which one is so constrained that of necessity he must render something according to the

laws of the stateo Mid-2nd c.: basic division established between obligations arising from delict or Ko Roman law divided actions by reference to their sourceo Delict

Four specific ones: theft and robbery (less important), causing wrongful loss and iniuria (more important) Causing wrongful loss: anchored to idea of blameworthiness, but not defined more Iniuria: all those situations where deliberate conduct had affronted victim’s honour

o K Underpinned by idea of consensus Verbal

Most substantial treatment of general principles of K’ual liability Voluntariness (incl. capacity), agreement rather than solely promise (corresponding Q and A,

matching intention), privity, creditor entitled to performance or value Consensual

Defined by substance Suppletive rules

Simple agreements: in principle unenforceable, but party who had fully performed could bring action to force performance from other side

(Mechanism allowing individuals to frame arrangements such that they could be enforced by law; but also suppletive rights/duties)

Real Ks: covered all species of loan Liability arose not from simple agreement but from actual handing-over of property Property rights so rigid as to create potential difficulties if lender limited to proprietary remedies

o Quasi-K: no genuine agreement between parties; dim idea (maybe) of unjust enrichmento Quasi-delict: no doctrinal unity; did not influence UK law

PART 1: Form and Substance in Medieval Law (Ibbetson)Medieval CML: legal expertise consisted in knowledge of how to frame claims and manipulate legal process – but still

substantive ideasBroad conceptual categories of tort and K (=trespass and covenant)Legal culture was largely oral, not printed less ability for outlier ideas to gain acceptance; less opportunity for rules to become

fixedProblem of interpreting surviving evidence – nature of trial process allowed fuzziness around edges of law

Chapter 1: Structural FoundationsLiability for wrongdoing: damage and dishonour (tort)

o Stress on personal status and law of real propertyo Small number of more general trespass actionso Actions not freely available, but writs granted to favoured individuals who could pay for king’s interventiono 1250s: trespass becomes “writ of course”, available to anyone who asked for ito No overly rigid structure of early action of trespasso Two ideas: affronts to honour (older idea, structural feature) and causation of loss (predominant, but an open-

ended concept) gradual focus solely on causation of lossWrits of debt

o Private agreements not part of normal jurisdiction of king’s courtso Clear distinction between actions to recover debts and to enforce agreementso Based on plaintiff’s entitlement to money or goods – but reasons for entitlement unimportanto Not a “contractual” action – closer to proprietary writs of righto K was only causa of entitlement, and entitlement was basis of plaintiff’s claimo Frequent proof by sealed charter: if defendant’s seal was on deed, defendant was liable; if words of obligation are

not used in the writing, then writing itself is cause of obligationCovenant and law of K

o Early trespass could deal with breaches of K slow emergence of explicitly K’ual action, covenanto Concerned especially with real property, notably leaseso No good reason for imposing limitations on sort of actions that might be actionableo Occupied ambiguous niche between entitlement-based actions of debt and loss-based action for

trespasso Looked to fulfilment of plaintiff’s expectation, his entitlemento Strong trespassory dimension: fundamentally an action for damageso Friction for 700 years between covenant and K, between covenant and tort

Discussion: themes o Importance of writs

Bureaucratic devices: “gatekeepers” (courts want to impose order, so they require that complaints take a given form)

Categories of kinds of claims developed, organised through writs (i.e., pieces of paper – forms – describing a format into which a complaint had to fit)

As in other bureaucracies, ossified with time We’ve since eliminated writs, but that mode of thinking has continued Resulted in many of the legal fictions that persist

o In early medieval period, not much concern over law of obligations in the royal courts Royal courts focussed mainly on property issues and issues of personal status Smith: this reflected the importance of property and personal status

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Property law was important because it governed gifts, which were the main means of moving property;

economy turned more on property law issues than on K issues Trespass slowly became a source of other general claims – early question of whether trespass will

mean “wrong” in an undifferentiated sense or will become more specific, as it eventually did All claims in trespass had some flavour/idea of an affront to one’s honour (notion of what counts as an

injury changes over time)o Beside trespass, basic distinction between debt and actions founded on agreement

Debt as a proprietary claim: could be many reasons why you feel entitled to something, but the property element is what counts

So: strictly speaking, claims that money is owed are claims in debt, not K’ual claims Could not be used for land – so we don’t see detinue (i.e., debt for a chattel) used in ordinary

property cases (so in UK universities, they study “Land”, not “Property”) Ever since then, a CML distinction between personal property and land, which developed

separately in English law Cf. actions founded on agreement: actions in covenant So: splitting up of actions in K – some brought in debt, some brought in covenant

Chapter 2: Unity and Fragmentation of the Medieval Law of KWith establishment of covenant, medieval law could have aligned itself with Roman law: claims for debt as vindicatio claims (“that is

mine”); K’ual claims based in covenant; and claims in trespass (delict) based on wrongo Didn’t because of procedural tightening in rules of proof applicable to action of covenant but not to trespass/debto So covenant became less attractive to plaintiffs

Formalisation of covenanto Early 14th c.: rule appeared that action of covenant could be brought only if parties’ agreement had been

embodied in document under sealo Likely that this was more chance than conscious legislation; boundaries of rule were unclearo Nipped in bud any possibility that action of covenant would evolve into general remedy for breach of Ko Instead of integration, led to greater fragmentation of remedies available for breach of Ko (Statute of Frauds means that some things still need to be done under seal)

Covenant and conditional bondo Action of covenant no longer usable for informal Kso K drafting changes undercut what remained of action’s usefulness: action in debt began to be adapted to

agreements generally (conditional bond) – lawyers figured out new ways to use debto Conditional bond’s advantages over covenant: sum for non-performance could be greater than loss (inducement to

perform); litigation advantages rested with creditor; sum due was fixed in advance; risk of non-performance lay with defendant; didn’t need a seal (so didn’t need a lawyer)

o Litigation irreversibly transferred from action of covenant to action of debto Could strengthen hand of creditors of normal money debtso Contractual bond took place as principal device for framing of substantial Ks, and stayed that way until 18th c.o Problem: where there was mis-performance, rather than non-performance, it was unclear how the conditional bond

would be implementedFragmentation of remedies for informal Ks

o Litigants wanting to sue on unsealed agreements had to frame action another way – technicalities of these ways shaped CML analysis

o Had to be suing on a particular sum of money: suing for a particular sum was debt; suing for a particular thing was detinue

o Writ of debt (of money) was one optiono Writ of detinue (debt of a chattel)

Usable, but affected perception of K’ual situations where used; conflict between proprietary and K’ual reasoning

Used in bailment, sale of goods (doctrine of automatic transfer of property prevented simple analysis of sale)

Could fill in many gaps left by formalisation of action of covenant, but forced some typical transactions into ill-fitting arrangements

Problem: attention shifted from transaction itself into proprietary effects of transaction – masked underlying K’ual base of common transactions

Peripheral remedies had a part to play further destroyed unity of simple legal institutions Long time before CML developed consistent theory of nature of K’ual terms Elsewhere, problem was not that remedy shifted focus of transaction, but that fragmentation undercut any

notion of unity of underlying relationship (see leases) E.g., Ks to perform services: not until 1500 that K’ual non-performance could constitute a

trespass) Otherwise, plaintiff had to try to argue that non-performance was really mis-perfomance, and that

trespass was an appropriate remedy – otherwise was without remedyDiscussion: how this plays out in law of K

o Idea of covenant still exists today, and there are still different rules if you make a K under deed/seal E.g., you don’t need consideration E.g., duty of care deed in Panatown was a covenant

o Today’s law of K didn’t come from debt either In detinue, had to prove that you owned the thing – but in sale of goods, you didn’t own it yet, so detinue

provided no answer This is why CML came to decide that ownership transferred at formation of K (cf. CVL, where it transfers at

delivery)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Chapter 3: Trespass, trespass on the case, and the medieval law of tortOverview

o Early evolution of the notion of trespass: originally just meant “wrong” (Chapter 2), but courts began to narrow the meaning with the requirements of force and breach of the king’s peace eventually, formal change occurred, creating trespass on the case

o Most of the modern law developed out of trespass on the caseo Theme: whether idea of “wrong” will be narrow (CML) or unbounded (closer to CVL)o Question: is it still accurate to say that the CML uses something other than the general notion of wrongdoing (as it

clearly did early on), given cases like Donoghue v. Stevenson?o Remember that just because the law would not allow the action in trespass doesn’t mean that no redress was

available; courts were not meant to resolve all problems – there were other courts (e.g., equity), extra-judicial mechanisms for dispute settlement

Core of trespass: forcible wrongdoingo Action of trespass as ordinary feature of jurisdiction of royal courts gives shape to emergent law of torto By 1270: more sharply focussed legal meaning, concerned with breaches of the king’s peaceo Doesn’t say what trespass is, but looks to which ones are actionable in royal courtso Easily manipulable by litigants wanting to bring case before royal courtso Force’s low threshold + concession of defamation to ecclesiastical courts + availability of action of covenant

“force + against the peace” combination became defining feature of trespasso Combination was crucial: (1) forcible (2) action against the king’s peace – strong influence on how trespass

was perceived and developed Action against the king’s peace

Saying something done “against the king’s peace” meant little more than it was within king’s jurisdiction

From early on, anything that satisfied other requirements was held to be a breach of the king’s peace

Discussion: vi et armis More important was idea of force, though this was low threshold test Wrongful interference with purely economic interest not normally describable as forcible Core idea: CML tort as something akin to assault

o Negligent misrepresentation and liability for omissions is a long way from this ideao Liability for pure omissions happens but is an exception tied to, or explained in terms of,

property Focus on forcible wrongdoing: natural, as these are the most serious forms of wrong, and the

system had limited resources No clear distinction between crime and tort

o In early cases, court would order both damages and jail time; actions were mixed upo Unsure whether this is the cause or result of the forcible wrongdoing requirement

(1) Something special about the use of force; this requirement has carried through to modern law (dominated until Donoghue v. Stevenson); the fact that negligent misrepresentation was only recognised in 1964 can be traced to this

(2) Much law has developed from trespass vi et armiso Trespass (on land, as we usually understood it) comes from vi et armiso With time, torts of trespass have ended up with specific names (assault,

battery, conversion) Fault is a non-issue; only defence is that you didn’t do it voluntarily (see Chapter 4 below) Loss is a non-issue; you may want injunction or nominal damages (declaration)

o You don’t get nominal damages for negligence: to prove negligence, must prove loss – and if you have a loss, you’re not getting nominal damages (compensation instead)

o Can sometimes get significant damages (e.g., for false imprisonment): there can be damage in the act of having your right infringed

E.g., Wilkinson (1864)o Facts: guy thought it would be funny if he called co-workers wife and told her that

husband had an accident she went into nervous shocko She sued him under trespass to the persono First case where forcible wrong was committed through words

K’ual misperformance and non-forcible wrongso Tension between narrow identification of trespass with forcible wrongs and older generic notion of trespass as

wrongo Particularly marked in cases of K’ual mis-performance increasingly looked to action of trespass as a remedyo So, significant rise in pressure to bring within writ of trespass’ scope a range of situations that prima facie don’t fit

in vi et armis wrongdoingo Practical solution: formulation of plaintiff’s problem in terms of general trespass writs, with no reference to K or

bailmento General trespass writs often concealed cases of badly performed Ks – prevalent, but not necessarily

acceptableOrigins of trespass on the case

o Plaintiffs bringing action by writ had 2 disadvantages relative to those bringing it by bill: had to use general forms, and in extreme cases might not be able to make their case fit the writ, so no case at all

o Focus of trespass on forcible wrongdoing some cases of acknowledged wrongdoing were not actionable in royal courts; plaintiffs often required to misrepresent their claims such that judge/jury could be misled as to true basis of action, so ill-equipped to give proper verdict

o Discussion/review: development of trespass on the case of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Problem: actions that wouldn’t fit anywhere (e.g., omissions, negligence, K’ual misperformance)

You want to claim trespass, but there’s no forcible wrongdoing no pigeonhole One theme of CML: sometimes we want to realise an action but there is no form for it Particularly problematic when seeking a particular remedy Result is a legal fiction

o Courts allow plaintiffs to bring an action in trespasso Grundstone

By force of arms, defendant had come in with arms and assaulting the wine and replacing it with seawater (for a shipping accident)

Looks like negligence, but you can’t plead negligence, so you bring the action under forcible wrongdoing

o Smith: people who went around attacking animals’ hooves (negligent blacksmithing)o Humber Ferry: overloading of a boat (that sank, killing plaintiff’s horse) was considered

as forcible wrongdoing Problem 1: even if the court is willing to engage in legal fiction, some actions are very

difficult to “fit” (e.g., breach of warranty, selling a defective good)o Could potentially just refuse the item, but practically you probably didn’t discover the

defect until later – or you still needed/wanted the thing but just wanted the compensation for not getting what you wanted

o This is very hard to describe as forcible wrongdoing Problem 2: procedural problems; fictions only work if you admit them to a certain extent

o If you don’t pretend the fiction is real, it doesn’t worko Plaintiff has to plead forcible wrongdoing; then sent to jury – but jury would not be able

to investigate, since the writ was in a fictitious form fictions started to cause problems

Result: trespass on the case Circa 1370, courts began to accept a writ of trespass that did not require allegation of forcible

wrongdoing They introduced the writ of trespass on the case, not requiring illegal or forcible wrongdoing Allowed the plaintiff to state the facts with some detail Arguably the most important move in the development of the CML

o By 1370, workable solution: allegation of trespass without allegation of breach of peace (Broadmeadow form of writ “trespass on the case”), used when plaintiff wanted to get details of his story into the pleadings

o Boundary between general trespass and trespass on the case began to hardeno By 1400, established that it was improper for plaintiff to use general writs where facts demanded special writo Three important consequences for structure of English law of obligations

Artificial distinction between general action of trespass vi et armis in breach of king’s peace and action of trespass on the case

Trespass on the case had no inbuilt boundaries (not attached to forcible wrongdoing) could expand into other areas

Trespass on the case encompassed K’ual mis-performance, planting seed around which K’ual liability would recrystallise in 16th c.

Discussion: comparative law o Does CML have something like art. 1382 of Code Napoléon?

“Any human deed whatsoever which causes harm to another creates an obligation in the person by whose fault it was caused to compensate for it”

Note ideas of fault and loss – neither of which are required for trespass vi et armiso CML focuses on the right, whereas CVL focuses on loss/faulto “Intentional torts”: do not need to prove loss, but typically you get only nominal damages; if you can prove forcible

wrongdoing, burden shifts from plaintiff to defence

Chapter 4: The Substantive Law of TortsLaw of torts has to respond retroactively to alleged wrongdoingsMain core found within “unforthcoming” general action of trespass; general boundaries of liability are concealed by the uniformity of

this form of pleadingOnce trespass on the case established itself in mid-14th c., plaintiffs were able to formulate claims with more transparencyStrict liability and the role of fault

o Plaintiff’s liability in trespass was strict, rather than fault-based (though some say it was only superficially strict, with jury inevitably considering fault)

o Strong focus on loss suffered by plaintiff rather than on defendant’s wrongful conducto Not absolute liability; defendant had defences where his act was not deliberateo Ascription of responsibility concealed behind language of causationo Operation of ideas of causation meant that strict liability was suffused with ideas of faulto Nothing like modern notion of negligence (external standard for assessing wrongfulness of conduct); incidence of

liability depended on societal perceptions of where blame should be laid in a particular caseo Ultimately for jury to determine where liability for wrongful injury should lieo Discussion: fault

Recall that fault not required for trespass vi et armis – but there were defences of “it’s not my fault” Trespass on the case

Became clearer that this action actually required fault; fault incorporated indirectly through causation

Today we might argue that something wasn’t our fault because we used proper care; then, we would say that we weren’t liable because we didn’t cause the loss (plaintiff or God did)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Later courts specifically introduced fault

The scope of trespassory liabilityo Practically, for jury to determine where liability should be imposed (modern terms: whether duty was owed and

whether duty had been breached)o Did not matter whether injury was caused directly or indirectly, though more indirect more likely that causal

responsibility would be placed elsewhere (generally formulated as trespass on the case, rather than trespass vi et armis)

o Almost exclusively concerned with compensation of those who suffered physical injury to person/property (compensation of pure economic loss was rare)

o Action of trespass strongly focussed on liability of those who had wrongly caused harm to another liability rarely imposed for simple omissions (consistent opposition to use of action of trespass to recover for K’ual non-performance)

o Normally, liability for wrong lay with person who had committed it, though occasionally transferred to someone else (theory of representation – NOT vicarious liability)

o Discussion: duty of care Now, in negligence, it is not enough to show fault/loss/causation – must also show duty of care (i.e., show

that the plaintiff has a protected interest/right – practically, this means property rights) Hardest cases involve property

E.g., defendant cuts a power line McGill has to reschedule classes McGill cannot sue the person who cut the line because it cannot show damage to any of its property

E.g., I buy goods; they’re defective and I want to sue the manager can’t sue in tort because none of my property was damaged (instead, I bought something that was damaged)

No general duty of care/duty not to cause loss (CVL) – instead, you owe a duty not to harm property and persons (CML), though in practice even CVL denies overly indirect damages through causation

Exception: someone stealing away your employees – looks like pure economic loss, but historically employers owned employees (feudal system)

This explains why K’ual non-performance cases fell outside trespass on the case: can’t show harm to any of your property

Chapter 5: The Substantive Law of ContractRemember: what we now call K would have fallen under detinue, debt, covenant, trespass on the case, etc.Basic framework: model of exchangeVoluntariness, agreement, and the formation of Ks

o Central idea: parties must have acted voluntarily; usually only where transaction was embodied in sealed document that questions about intent would arise, since disputes over oral transactions would usually be concealed behind denial of liability

o Formal Ks took effect unilaterally; informal Ks were bilateralo Legal consequences might arise before performance on either side – but we don’t know if anything more than

simple agreement of parties was necessary to create binding Ko Neither party was free subsequently to withdraw unilaterally from the arrangement – still necessary to perform or

tender performance of own duty to activate liability of other partyo Discussion: voluntariness

No agreement required for covenant (even today, covenant can be a unilateral promise) No formalised structure of offer-acceptance, but it was developing; some formalities required under debt

and detinue (symbolic act) Not a law of “real Ks” (Ks that come into existence upon doing something, as opposed to agreement) While Ibbetson notes that there were some formalities, detinue, debt, and covenant were valid even before

there had been performanceBoundaries of K

o Privity In principle, actions had to be brought by and against parties; persons not party to the agreement could

not sue or be sued on it No difficulty in allowing third parties to be affected indirectly (most easily achieved in conditional bond) So: formal and informal Ks centred on privity Problems where K intended to confer benefit on third party mitigation by (1) joining beneficiary to the

action, (2) agency (well-developed law; but where action got close to agency, law of property replaced law of K), or (3) Ks to the use of the third party ( trust)

Discussion: privity Increasingly formalised in debt (idea of debt is “this is mine,” basically a proprietary claim) Privity comes with this idea: two people don’t own the debt (debt is treated as property) The K law that we have today is formally from assumpsit under tort (trespass on the case), but

substantively came from debt (hence the importance of privity)o Reciprocity

Opposition between formal (gratuitous) and informal (reciprocal) agreements Not essential that debtor should receive the physical thing for there to be quid pro quo – a right of action

sufficed Two types of “clothing” for pacts: document under seal and quid pro quo Language of quid pro quo often used to define moment when party’s obligation to perform the K was

activated (i.e., when K became actionable) Discussion: consideration

Comes from idea of reciprocity Debt did not have to be K’ual; there were different reasons for there to be a debt, of which the

most common was quid pro quo Smith: unsure why the emphasis was on creation of a debt through having received something

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Consideration may make more sense if you think of K law as the law of debt, as a proprietary

claim Ibbetson hints that consideration is a formality, noting connection between formal/informal and

gratuitous/reciprocal (evidentiary issues)o K’ual terms

Written document just had to construe the words Unwritten agreements difficult questions, but concealed behind wager of law or general verdict of jury Terms collateral to primary obligations commonly known as warranties, property litigable under rubric of

trespass on the case, using language of deceit Central feature of action: plaintiff had suffered loss by defendant’s deceit no liability if plaintiff could or

should have recognised at time of sale that warranty was false Action for breach of warranty would lie only if warranty had genuinely been given What counted as a genuine warranty was a question of fact; extensive rules in this case did not apply to

conditions Some warranties were conditions and some conditions were warranties description as one or the other

depended on what party was seeking Discussion: warranties

Caused problems: didn’t fit under debt, detinue; even under trespass on the case, hard to deal with when there’s no damage to property

14th/15th c.: courts put warranties under trespass on the case, through a fiction and calling it a lie (deceit) – but in many cases the person selling the thing thought it had the qualities they’d said it did

Expectations, entitlements, and liability for breach of Ko Early common law of obligations can be seen in terms of polarisation between wrong-based action of

trespass (later mapped onto law of tort) and right-based actions of debt and detinue (later mapped onto law of K)

o Action of covenant hovered between these poleso Transfer of cases of K’ual mis-performance into domain of action of trespass; strong cleavage between not

performing agreements ( K’ual remedies) and performing them badly ( tortious remedies)o Focus on non-performance as core of K’ual liability tied to increasingly strong focus on giving effect to expectations

rather than compensating for actual loss sufferedo Formal Ks: action formulated in terms of plaintiff’s entitlement; always based on non-performance rather than mis-

performanceo Structural realignment to wrong-based actions for damages and right-based actions for entitlemento Language of fault infected cases of non-performance as well as mis-performance – but identification of fault as

basis of K’ual liability was eaten away K’ual liability became strict, in that K gave plaintiff certain entitlements, and up to defendant to show why these entitlements should not be given effect

o Exceptions: breach of condition could be attributed to plaintiff or to act of Godo 13th c. idea that liability in covenant was based on fault was eaten away by 15th c. idea that liability on a conditional

bond was not

PART 2: The Triumph of Trespass on the Case (Ibbetson)16th c.: transition between medieval law (dominated by forms of action) and modern law (focus on substantive rules/principles)CML had become “bafflingly complex” response was willingness to allow experimentation with trespass on the caseFocus was on alleged wrongdoing of the defendant; could be adjusted/adapted; could be used to bring into CML situations previously

excluded and to reformulate existing actions so as to drop limitations or bypass proceduresBy early 16th c., 3 principal satellite torts of CML: nuisance, conversion, defamation each absorbed into trespass on the caseTrespass on the case also took over from informal Ks assumpsit could develop as general K’ual remedy

Chapter 6: Tort, Property, and Reputation: The Expansion of the Action on the CaseDiscussion: action on the case

o Addition of trespass on the case allowed plaintiffs to explain the facts – but most of the claims up to the 16 th/17th c. still came under trespass vis et armis

o Today, most of K and tort law comes from trespass on the case – how did this happen?o Theme: how things that had previously been somewhere else became grouped with actions on the

caseo Chapter 6 focuses on what we still call tort today, how trespass on the case expanded into proprietary actions

(though now we understand them as nominate torts)o These actions moved mostly as a result of procedural strictness: trespass on the case was more malleable and

allowed expansion (in the other writs, if it didn’t fit, it would get thrown out)o Also, since these actions didn’t fit perfectly in property, there was a substantive expansion into torto Doesn’t fit perfectly into either property or tort

Emergence of action of trespass on the case alternative, unconstrained form in which actions of trespass could be brought – just had to show plaintiff’s wrong and defendant’s fault, and remedy could be found

Near-infinite potential to expand scope of tortious liability; consolidated in 16th c.By beginning of 17th c., law of torts has 3 aspects: core (general action of trespass, extending to trespass on the case); “nominate”

torts; miscellaneous situationsFrom beginning action of trespass protected property rightsTwo trespassory remedies particularly important: nuisance and conversionNuisance

o Assize of novel disseisin: “enjoyment” form was a specialised variant of “dispossession” formo Assize of nuisance came to develop beside assize of novel disseisin

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Nuisance treated as disseisins of servitudes associated with entitlements and natural rights in land (remained

until 19th c.); need for nuisance to be both harmful and wrongfulo Clear division growing between assize of nuisance and assize of novel disseisin; nuisance became a torto Beside assize of nuisance, there was a writ of nuisance directed to county courto Characterisation of nuisances as wrongs meant that they had the potential to be actionable by writ of trespasso Reluctance to allow trespass to extend into domain of private nuisance (where assize dominated)o Action on the case applied where assize would not have laino Not just that action of trespass on the case was allowed to fill in gaps left by assize of nuisance; scope of assize of

nuisance contracted to accommodate increasingly generous interpretation of scope of trespassory remedy by beginning of 16th c., assize of nuisance was supplanted

o Formal separation of actions was maintained until 17th c., but practically action on the case triumphed over assize of nuisance

o By 1600 nuisance was quintessentially a tort primary focus was causation of losso Final question (still unresolved): whether nuisance is a single tort; internal division between private and public

nuisanceso Discussion: nuisance

Originally through of as a proprietary action – but not much of a stretch from “get off my land” (ejectment) to “allow me to be on my land and to do what I want”; movement from wrongdoing to vindication of a right (it is my right to do what I want on my land)

Problems with understanding this as a proprietary action, so attempted to move it to trespass – but because not direct forcible action, didn’t fit with vi et armis courts allowed this action to go into trespass on the case became a nominate tort under trespass on the case (note that there are nominate torts under vi et armis also)

Modern idea of nuisance: mixture of tort-like and property-like ideas Must show

(i) Loss (which you don’t with a proprietary action) (ii) Wrong – but not fault in the ordinary sense

o Test is reasonableness (in the sense of unfairness – more like a balancing of rights)o Also, not about conduct of the defendant, but about the reasonableness of the plaintiff’s

right in his enjoyment of the lando Reasonableness (fairness) is more proprietary than the standard of negligence

Can get damages tort Proprietary origins of nuisance reflected in original requirement that plaintiff be the owner of the land

Later cases provided exceptions for relatives of the owner So nuisance gradually became less proprietary and more like an ordinary tort

Public nuisance – the rules are different because it came from trespass vi et armis Ended up lumped together with nuisance under trespass on the case Again, a reasonableness-, not fault-based, standard Different rules, because not fundamentally about the plaintiff’s property rights

Trover and conversiono Action on the case translated nuisance into a tortious framework; action on the case for conversion gave similar

tortious outline to protection of moveable propertyo Internal division between detinue on a bailment (K’ual dimension less proprietary claim) and writ of detinue (not

based on antecedent transaction “trover,” a proprietary claim)o By end of 15th c., plaintiffs experimented with new form of trespass on the case: action of conversiono Instead of basing action on defendant’s detention of property, plaintiffs complained of defendant’s wrong in

“converting” the goods to their own useo Plaintiffs in detinue affirmed their property rights; plaintiffs in conversion claimed that they had been

deprived of themo Action of conversion established own niche, independent of older forms of action – but was not so

independent: development mirrored development of action on the case for nuisance (adoption of earlier ideas, skewed to fit tortious framework)

o Proprietary dimension of the action: to succeed in the action, plaintiff had to show “property” in the goodso Focus on defendant’s wrong rather than plaintiff’s right English law never had to address conceptual

property questions like CVL dido Trespassory aspect: action in personam in which plaintiff claimed damages in respect of a wrong that had been

committedo Discussion: conversion

Today, the claim you use when somebody has your property and you want it back CML did not develop an equivalent of CVL vindicatio (basic remedy to get something back that’s yours:

“give it back”), likely because vindicatio was a form of specific relief, which the CML didn’t do (inconvenient for circuit courts to make specific relief orders)

Equitable courts did develop some exceptions Remedy is damages: if you steal my thing, I can’t get it back – instead I get damages (apart from certain

statutory exemptions) Kind of a mix of property and tort, as it arose from detinue (claim for a thing, following which you got a

sum of money rather than the thing) When detinue was understood as entirely proprietary, the sum of money was seen as a substitute

for the thingo Shifted over to trespass on the case, where you got damages instead – but the damages

are a mixture of damages for loss and damages for the value of the thing (replacement)o But you don’t actually have to prove loss; courts don’t ask what the thing was worth to

the person or whether the person was going to sell the good (in which case we could of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)work out how much it was worth to them), but rather what the thing was objectively worth (full value)

o Reflects proprietary idea that sum of damages is not just for loss, but represents the value of the thing (i.e., a substitute vindicatio)

o A strict liability action Looks like a tort, and not like property, as it is an action in personam and not transferable

o Whether a right/action originated in property or in trespass is reflected in whether that right/action is transferable or non-transferable (respectively)

o So: personal right in nuisance is non-transferable; K’ual rights are now personal rights, but they are transferable (because they originated as claims in debt); real rights are transferable

Tort and reputation: defamationo Action on the case for defamation developed in 16th c. by relocating body of existing (ecclesiastical) law within

action of trespass on the caseo Immediate springboard for acceptance of wider jurisdiction: belief that it was improper for ecclesiastical courts to

take cognisance of defamations involving allegations of secular crimeso Action was trespassory: law for recovery of damages rather than punishment of offender or clearing victim’s nameo Publication to a third party became fixed as general requirement of this action on the caseo Strong potential to expand beyond allegations of the commission of crimes to other situations where defendant’s

words had caused loss to the plaintiffo Might have moved towards assimilation of liability for words and liability for acts, but this didn’t actually happen

until 20th c.o Liability determined by looking at injurious tendency of words rather than actual effects could make lists of words

that were actionable and words that were not; could categoriseo Categories eventually fell apart needed general test of defamationo Test: successful action in defamation required plaintiff to prove special damage, except for exceptions that were

actionable per se (allegations of a crime, allegations related to a person’s fitness for a trade/profession, allegations of certain diseases, written libels)

Chapter 7: The Rise of the Action of AssumpsitAction of trespass on the case was able to realise its potential to encroach on sphere formerly occupied by proprietary remedies and

could take over ecclesiastical action of defamation – likewise, it became established as primary, ordinary remedy for imposition of liability on informal Ks

In the case of K’ual liability, tortious dimension came to lie principally on the surface of the action, whose substance remained firmly defined by pre-existent K’ual ideas

No tort of breach of K [cf. Albazero’s broad ground, which finds a wrong in the breach itself]Trespass on the case and K’ual liability

o Difficulty of imposing trespassory liability for omissions and the perceived problem of compromising the boundary between K and tort plaintiffs faced with near-impossible task when trying to argue that trespass on the case was appropriate remedy for straightforward cases of K’ual non-performance

o Boundary between K (covenant) and tort (trespass) was under attack breached in late 15th c.o Boundary re-established itself beneath “formal shell” of trespass on the case

K and tort: the action of assumpsito Emergent action for breach of K held in tension between trespassory (defendant’s breach as basis of claim

original cause of obligation, promise or K, took precedence) and K’ual (plaintiff’s lost expectation as measure of damages) aspects

o Despite focus on lost expectations, action of assumpsit was (and remained) action to recover damages for breach of K, not action to give effect to K’ual entitlement

o When action of assumpsit was brought to recover a K debt (“indebitatus assumpsit”); nature of liability in assumpsit perceived as varying according to the cause of the underlying obligation

o By beginning of 17th c., clear division between situations where action of assumpsit was brought for mis-performance and where it was brought for non-performance

o Action could be brought for negligent performance of gratuitous undertaking, but not for mere failure to perform it (this later led to tort of negligence)

o So: courts did not treat all actions of assumpsit as equivalent: would look beneath formal façade of the action to substance that lay beneath, and could categorise it as K’ual

o K’ual underpinning of liability in assumpsit was moulding the form that the action was taking divided into K’ual type (plaintiff complained of non-performance) and tortious type (complained of mis-performance)

Discussion: growth of assumpsit o Recall that what we now call a K’ual action was split between debt, trespass on the case, and covenanto Procedural elements that made debt very effectiveo Even in 14th/15th c., K’ual actions for mis-performance (breach of warranty) were brought in trespass – because they

look more like a tort, as they looked like deceito But there was pressure to expand trespass on the case; began with fictions

(1) Tried to expand idea of wrongdoing First cases were about vendor who Ks to sell land then sells it to a third party If plaintiff sues for failure to deliver the land, it’s not obviously a wrongdoing case; looks more like

an omission/covenant/debt case – but started to assert that it was wrongdoing Today, we’d claim non-delivery (doesn’t matter whether they sold it to third party or did

something else with it) – then, focussed on wrongdoing Eventually, the fiction was replaced with acknowledgement that breaking the promise is

itself a wrong assumpsit (a nominate tort)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Eventually, assumpsit got so important and took on so many independent characteristics that it

became what we call K law; we no longer think of it as a tort (2) CML (equivalent to CVL) had a rule of non-commutal

Couldn’t bring an assumpsit claim under a different action (bringing the wrong writ) Courts allowed another fiction: indebitatus assumpsit, a particular form of assumpsit where on

the surface it looks like you’re claiming for a debt – but suing not for the original debt but for a subsequent promise to pay the debt, a right born out of a second promise not performed

Courts were willing to consider this as a separate debt on which a claim could be brought Courts were willing to imply a second promise even if there hadn’t been a second promise Eventually, this fiction was dropped as well; the non-commutal rule was dropped, so

plaintiffs could sue on the original promise/K/assumpsito Note: almost the exact same thing (fiction habituation fiction dropped) happened to the law of unjust

enrichment Actions were brought under K, tort, trust, etc. But most were substantively treated as quasi-Ks Courts did the exact same thing as in indebitatus assumpsit, finding a second promise to repay, so that the

plaintiff could be restored to his original positiono So: the law of K as we know it came from assumpsit (though covenant still exists – see above)

Assumpsit and the theory of Ko Medieval notion of K was built on (1) identification of bilateral agreement rather than simple voluntary undertaking

and (2) exclusive focus on reciprocal agreements by early 17th c., assumpsit had adopted structure of K’ual liability found in medieval law

o Promise and agreement Ambiguity in concept of promising as applied in action of assumpsit Promise separated from K It was 2-sided agreement of the parties that mattered, not 1-sided promise Development of the bargain theory of K’ual liability

o Privity of K Basic rule: action had to be brought by promisee (though sometimes difficult to identify promisee in a

particular case) Considerable leeway for use of ideas of agency

o Ks, promises, and the doctrine of consideration Medieval law: informal Ks enforceable only if reciprocal Shift towards liability based on promises alternative formulation of criterion separating binding from

non-binding promises ( “consideration”) Primary focus of consideration was same idea of reciprocity that was beneath medieval action of debt – but

courts could allow it to extend to areas that had been problematic for quid pro quo Looser conception of reciprocity: counter-promise could constitute good consideration, independent of

performance, as long as it was legally enforceable Consideration could not be past Courts not concerned with adequacy of consideration; not up to courts to determine fairness of the

transaction Where promise was made to perform existing duty, seen as good consideration

o Assumpsit and K’ual intention Introduction of action of assumpsit did not herald wholesale shift from exchange model of K from 14th-15th

c., even if promissory form necessitated renegotiation of the theory But did “bring into sharper relief” that principal basis of liability was will of parties to the

agreement “Agreement” as meeting of minds; as assumpsit replaced debt, focus of action shifted from

underlying transaction to parties’ promise/agreement So greater scope to answer difficult questions by asking what was intention of parties Explicit focus on will of parties adoption of consensual theory of K (though this might be change in

commercial practice as much as in K) Agreement of parties created the binding K, and any formal accompaniment was just evidence of

agreement, rather than agreement itselfo Discussion: assumpsit

Formally, K still bears features that we associate with both proprietary actions and trespass Can bring an action where someone has my thing under 3 grounds: “it’s mine,” “you broke your promise,”

or “you’ve harmed me” K’ual theorists generally try to explain K law on one of three models: property, debt/K, tort Property elements

Strict liabilityo Cf. CVL: K’ual obligations are just like any obligation, requiring fault (breach of K is there

equated with fault)o CML has no better solution, but it makes sense historically

Transferability (except some personal obligations) Consideration (see above) In Ks for sale of property, property passes on conclusion of K (K shifts ownership)

Tortious elements Breach of K is considered a wrong [cf. broad ground in Albazero, where the judges tried to assert

that the breach itself was a compensable wrong, regardless of loss] Damages are the primary remedy

o Some damages look tort-like: loss of profit, expenses, etc.

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Others look proprietary: you get the value of the thing; as with conversion, don’t look at

the value of the loss (expectation damages) Covenant elements

Can get specific performance sometimes Even expectation damages (enforcement of a promise) look like covenant Focus on consensualism

Some actions that we would now call K’ual continued to look like tort actions (e.g., mis-performance, warranty)

Look-ahead: negligent misrepresentation is a tort, but many think it should be thought of as KFormal structure of K’ual litigation

o By beginning of 17th c., action of assumpsit provided general remedy for informal agreementso Medieval distinction between Ks (generating debts; entitlement-based) and other agreements (problematic

enforcement; damages-based) had disappearedo Division between debt-creating Ks and other forms of agreement was solidified by pleading practiceo Assumpsit applied only to actions based on informal Kso Formal agreements (normally conditional bonds) still used into 18th c.

Remedy was action of debt by creditor to recover full amount of the penalty of the bond All that could be enforced was actual loss suffered by creditor as a result of debtor’s non-performance of

the condition Formally an action for debt, but substantially an action for damages

PART 3: The Modern Law of Tort and Contract (Ibbetson)From 18th c., modern law of tort/K took on characteristic shape, with similar developmentsEssential preconditions

o Breakdown of boundaries between forms of action (assumpsit and trespass on the case came to dominate)o Shift in judge-jury balance of power: judges minimised jury discretion less ambiguity permittedo Efflorescence of legal literature rules became fixed; accretion of new rules around the old

Stages of historyo 18th c.: “stirrings of theorisation”o 19th c.: maturation into solid structures; sharper delineationo 20th c.: collapse of confidence in theoretical structures

Discussion: Chapters 8-12 o We see the development of the law as we know it nowo Breakdown of the old divisions, of the categorised writ system (not new: see assumpsit’s growth)o Attempt to fit K and tort into general models of the sort seen in CVL systemso 3 important features

Speed was driven by procedural considerations, in this case that CML had juries and CVL didn’t Generalising models were provided for the first time by academics, who were themselves drawing on

continental theories Progression/development incomplete (is it unfinished, or did it never work?) – large elements of the law

can’t be fit into those models very well: mostly property-based elements of the law of obligations Many strict liability torts; no consistent notion of fault throughout tort Still many nominate torts Many K’ual offer/acceptance rules don’t fit the model Hiving off of some relationships (e.g., bailment: still a separate category)

Chapter 8: Trespass, Case, and the Moral Basis of LiabilityRecap: action of trespass (invasive interferences to land/goods/person; strict liability) vs. action on the case (range of situations

where loss had been caused wrongfully; fault-based liability)17th/18th c.: division between trespass and case was elided similar fault-based liability in bothAction on the case came to be more advantageous for plaintiffs; general action of trespass finally gave wayLoose idea of fault became more sharply focussed on the specific notion of negligence, which applied only in actions on the case

unitary tort of negligenceTrespass and case: the formal division

o From 14th c. onwards, the two had existed side-by-sideo Statutory introduction of more strong rules for award of costs to successful plaintiff in trespass action than in an

action on the case trespass became less attractiveo Counts in trespass and case could not be joined, so pressure to formulate everything in one formo Trespass inappropriate in vicarious liabilityo Easier to bring action on the case in all circumstanceso Came to be recognised that there was an element of fault in trespass just as much as in caseo Once differences between them came to be seen as purely formal, procedural advantages of case led plaintiffs to

try to expand it into domain of trespass courts had to delineate the boundaryo Boundary: where plaintiff had been directly injured by defendant’s act ( trespass) vs. where injury was merely

consequential ( case)o As long as formal boundary maintained, courts less concerned over how plaintiffs mapped their cases onto it, and

plaintiffs generally chose caseo Only situation where trespass was obligatory were those where there was no consequential injury limited to

cases where plaintiff was establishing existence of right rather than damages focus on rights over land “trespass” took its modern meaning

o Close association developed between action on the case and claims based on defendant’s non-deliberate conducto Change of emphasis: courts not just looking at formal propriety of pleadings; considered whether on the facts the

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Discussion: movement from trespass (intentional torts) to case

o Costs rules were more favourable for trespass on the caseo Could join claims in trespass on the case; less chance of getting something wrong (e.g., in public transportation

cases, didn’t always know who to sue – owner of cab or driver?)o Juries

Original trespass vi et armis cases were thin (easy for plaintiff to meet) almost everything went to the jury

In trespass on the case, plaintiff had to tell more of a story judges could look at pleadings and have a better idea of what was going on in the case

Judges preferred trespass on the case so that they could control juries Cynical view: judges were pro-capitalist and anti-worker, while juries were favourable to the

workers in an era when many cases death with the effects of industrialisation Non-cynical view: judges cared about predictability and rule of law

Crystallisation of negligenceo Recognition that tortious liability depended on fault was a substantial step – but CML also began to define what was

meant by “fault” using the term “negligence”o Late 18th c.: “negligence” came more generally to play increasingly central part in analysis of tortious liabilityo Four elements of negligence: breached duty; duty to take care rather than duty not to cause harm; reasonable

care; probable harmo All these elements had antecedents in Natural Lawo Can’t say that “Tort of Negligence” existed in late 18th c., but it was prominent in doctrine, and based on failure to

take reasonable care groundwork for its growth in 19th c.

Chapter 9: The Law of Torts in the Nineteenth Century: The Rise of the Tort of NegligenceEarly 19th c.: law of torts still recognisable medieval: division between trespass and action on the case; action on the case subdivided

into nominate forms)19th c.: large part of residuary group of nominate forms (linked by nothing more than assertion that defendant caused loss to

plaintiff) coalesced as negligence realignment of law of torts because this one was defined by reference to quality of defendant’s conduct

Tort of negligenceo Discussion: negligence

What is distinct about negligence is that it focuses on the conduct of the defendant Must have loss, but it doesn’t matter what kind of loss – what matters is the conduct of the defendant In all other actions, one starts with a given interest (e.g., property, person, liberty, reputation) – and they

are typically strict liability offenceso Beginning of 19th c.: 2 competing approaches to negligence

Reasonable care not to injure your neighbour (reasonable man) Division into gross/ordinary/slight negligence – came under attack towards middle of century

o 3 parts of developed 19th c. tort of negligence: antecedent duty to take care owed by defendant to plaintiff; breach of duty; resultant loss to plaintiff

o Duty of care Beginning of 19th c.: first uses of duty of care; plaintiffs whose action was not K’ual started to assert that

defendant owed them a duty Tendency to equate “negligence” (duty to take are) and “neglect” (duty to act: reflects negligence’s

origins in bailee/trustee cases) elevated role of duty Not every person injured by negligent act necessarily entitled to compensation: liability arose

only if that person was owed a duty Defining feature of UK/US tort of negligence: separation between duty of care and breach of

duty, because: K/tort distinction: both were breach of duty, but duty in tort arose by law Law/fact division: existence of duty was question of law; breach was question of fact more that

could be framed in terms of duty, more that was kept for judge rather than jury; juries seen as overly favourable to plaintiffs costs of injuries shifted more towards plaintiffs

Discussion: duty of care Seen in some CVL sources (e.g., Natural Law; debates in 19th c. French law) Became important because of K/tort distinction

o This distinction is still viable today: K yields expectation damages, tort (in K-related cases) yields reliance damages

o Cf. CVL, where in many cases you can’t tell whether the judgment is in K or tort (unification of obligations)

o Requirement of duty of care is the best way to tell a plaintiff that he doesn’t have a claim (formerly: sorry, this question doesn’t even go to the jury)

o Breach of duty Whether there had been breach of duty was for the jury; for them to say where defendant had taken

reasonable care Mid-19th c.: judges began to erode juries’ autonomy

o Remoteness of damage Also a matter for the jury Longstanding idea that liability would exist only for “proximate” consequences; “remote” consequences

were too distant Foreseeability had 2 roles: (1) whether damage too remote and (2) whether there had been breach of duty

– tendency to favour (2) over (1) jury question transmuted to judicial question Foreseeability thus moved from remoteness to whether there had been a duty in the first place

o Defences of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Contributory negligence: law settled down to “last-opportunity” test (who could last have prevented

damage) Consent: clearer expression of judicial preferences (originated in “fellow servant” rule) Defences were also used to take questions away from the jury

Fragmentation of the law of torto Duties of care and the fragmentation of the tort of negligence

Practical understanding of negligence liability required analysis of whole range of duty situations granular quality to tort of negligence, not unified until 20th c.

Beside CML actions for negligence were equitable actions for breach of trust (formal distinction, but no practical difference in liability)

Trust not just holding of property, but a fiduciary relationship obligation extended to other fiduciary relationships

o Vicarious liability and non-personal fault Equation of negligence with failure to meet a duty liability identified with moral shortcoming, which was

problematical in vicarious liability VL thus became exceptional situation, justified by maxims like respondeat superior arbitrary Real difficulty was not arbitrary decisions but exclusion of liability where it should sometimes lie Liability in private nuisance sometimes explained by sic utero tuo ut alienum non laedas Judges able to avoid strictures of VL rules, but fragmented tort law by creating arbitrary rules showed

that moral-based breach of duty was too narrow a principle to cover all of tort lawo Tortious liability without negligence

Non-negligence torts characterised not by wrongful conduct but by reference to the plaintiff’s interest that had been infringed, so each tort had its own particular rules: trespass, conversion, private nuisance, escape of dangerous things, defamation

Some satellite torts required fault, but this was not a uniting feature – more commonly, strict liability of some kind, especially if plaintiff’s rights expressed in property terms

Where property involved, courts of equity might intervene more and more expressed in property terms to provide an equitable avenue too

Chapter 10: The Law of Torts in the Twentieth Century: Expansion and Collapse of the Tort of NegligenceUnity of the tort of negligence20th c.: practice moved towards theory as tendency to fragmentation was reversed; duty, breach, and remoteness merged

o Generalisation of the duty of care 19th c. judge/jury tension built characteristic structure of negligence; near-disappearance of civil jury by

mid-20th c. resolved this tension unified tort Judicial control over incidence of negligence liability no longer depended on precise definition of

multiplicity of duties of care Turning point was Donoghue v. Stevenson: never afterwards doubted that person injured by defectively

manufactured product might have an action against negligent manufacturer; Lord Atkin wanted to reject multiple duties of care in favour of reasonable care, but book writers still dealt with distinct duties, and two kinds of cases (injured trespasser, and financial loss from reliance on negligent misrepresentation) didn’t fit

Herrington and Hedley Byrne removed these two large obstacles negligence now seen as the norm for carelessly causing foreseeable harm; individual duty situations breaking down

Best formulation was Lord Wilberforce in Anns with the two-step test law responded by shifting back to conservative approach; assertion that courts should proceed incrementally by analogy, rather than recognising whole new areas of liability; focus on proximity and neighbourhood rather than solely on foreseeability

Proximity’s only apparent difference was that onus now on plaintiff to show why liability should arise, whereas with “policy” it was for the defendant to show why it should not

19th c. lawyers analysed liability in terms of how plaintiff’s loss had occurred late 20th c. lawyers referred to type of loss suffered (see esp. pure economic loss, psychiatric injury)

Discussion Tort loses its moralistic underpinnings Two strands from Donoghue v. Stevenson

o Atkins’ universalist “neighbour” principle (though his “restricted reply” involves anyone reasonably foreseeable as able to be inured by your actions); does not focus on nature of plaintiff’s interests [closest thing to CVL general duty]

o McMillan supported categories, but stated that “the categories of negligence are never closed”

Donoghue had the potential to wipe away 8 centuries of category-based CML thinking (asking not first about loss but about the plaintiff’s protected right) by focussing instead on loss

Reasonso Professionalisation of law; development of academic faculties desire for theorisation,

and heavy influence of CVL thinkingo Disappearance of juries

If juries were given Atkins’ formulation, they could do almost anything with it US law has kept juries in more cases different development of their law

Seemed at first that Atkins’ theory was winning Anns test (see below)

o (1) proximity creating analogy to existing recognised duties; (2) no reason to negative the duty

o Effectively, puts the onus on the defendant to try to negative the duty (because you can almost always show reasonable foreseeability that the acts would cause harm)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o In UK, a retreat from Anns – but not in Canadao Formally, Canada continues to follow Anns, and acts more like the CVL – but it’s more

complex, because the results of the most recent cases aren’t easily explicable, and look more like the UK results

Formal notions likely explicable by CVL’s presence in Canada and CVL judges on SCC

But CVL duties often seen as too vague (Generally, CML uses categories to circumscribe the perceived-as-bad power of the state; CVL

never had a problem seeing the state as a positive actor, and prescribing its involvement in peoples’ lives)

o Reintegration of the elements of negligence Reintegration of separation of duty, breach, and remoteness foreseeability of harm went from

remoteness to duty, but then reintroduced as test for remoteness Judge started to admit that all 3 elements were interchangeable Discussion

Judges took more control over elements that could be brought to the jury (through declaring something a question of law, declaring no duty, etc.)

(See Spartan Steel, below, on integration/confusion of elements) Recently, judges have made very little effort to keep these things separate – largely because

juries have disappeared not so important for them to have so many ways to control things This is particularly problematic for lawyers trying to argue, and for higher courts (esp. SCC: there

was a period of time where every SCC tort judgment had a majority of judges actually deciding against the ratio; see e.g. Lac Minerals)

o Moral wrongdoing and fault Foundation on over-narrow base linking legal liability with personal moral shortcoming As corporate defendant became more the norm, link became more problematic Also an intellectual shift from individualism to communitarian approach Negligence liability now seen as depending not on moral principle but on social principle; not based on

something internal to defendant but on failure to live up to a policy-based external standard Procedure and evaluative factors manufacturers’ position weakened European Directive finally

imposed strict product liability Dissolution of moral basis for negligence resolved problems with VL; only question with VL now was

whether defendant was acting as part of defendant’s organisation Tort law thus moved more towards its medieval formlessness, though some rules remained, and judges

now exercised the choice Discussion

Canada focuses on policy-based “fairness” arguments more than any other Commonwealth country

Shift from private assignment of blame to social foundation for judgments Private law starts to look more like legislation Shifts as corporations become among the most common parties to cases

Negligence and its satelliteso Generalised duty of care no need to pigeon-hole a claimo Law more responsive to societal perceptions of where liability should lieo Analysis of liability in terms of culpability of defendant’s conduct cut across analysis in terms of plaintiff’s interesto Should not overemphasise negligence, because other “torticles” remained, some the product of recent legislation

and others being oldero Discussion

Efforts to make the other torts more like negligence; some suggested that tort law effectively is negligence This movement is still going on today, particularly with respect with nuisance, defamation, conversion,

perhaps trespass – trying to bring them within a fault standard This is a flashpoint of controversy between those who think that the CML can only be explained with a CVL-

type model and those who believe there is something distinctive about the non-negligence torts (focusing on the rights of the plaintiff)

This debate is visible in some judgments Most of the theory books talk only about negligence, because the other torts disrupt the idea of a “theory”

of tort lawDiscussion: negligence thus far; CML vs. CVL

o This debate isn’t just about procedure and technicalities: there are substantive issueso Not incoherent to adopt traditional CML view that wrong, causation, and harm aren’t enough – there must be

something more (duty of care), that we first identify before assessing wrong/causation/harmo Also not incoherent to do what the CVL does: any loss caused by another’s fault is prima facie compensableo Traditionally: CML demanded that you show an infringed right; CVL demanded that you show damage and fault

Many would say that the CML has changed, and negligence is a rejection of the old model; in 50 years, we will look like the CVL

Others would say the CML hasn’t changed but it should change Others would say that the old model didn’t actually focus on rights, even if it said it did – was more like the

CVL Defenders of traditional rights-based model would downgrade importance of negligence, and would within

negligence focus on the duty of care (not in CVL), following Lord Macmillan’s patho Think back to privity

Often explained in terms of the intentions of the parties (did they intend to give the third party rights?)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Smith: not convincing, even on a CVL model – because when you get to court, should be able to point to

some kind of wrong that has been done to you (even if that notion of wrong is different) mere fact that someone intended for you to have something doesn’t mean that a wrong has been done to you

CML starts with a list of rights (property, K’ual rights, etc.), and the third party doesn’t fit in this list Code Napoléon 1382: CVL fits well with no-privity, given the general idea behind civil liability of obligation

to repair damages caused by one’s own fault – but the focus is not on third-party rights but on the damage CCQ 1457 al. 2: close to CN 1382, but not exactly the same, because it includes “duty”; could just say that

your duty is not to cause harm, but that’s not what the article says – instead, it draws on the CML; most assume that CN 1382 and CCQ 1457 are the same, but textually they are different if someone wanted to push CVL towards CML they could focus on “duty” as a prerequisite before showing fault

Chapter 11: Foundations of the Modern Law of Contract17th-18th c.: consolidation of law of K, and fleshing out of its skeletal structure stasis (partly because situations that did not fit were

not accommodated)18th c.: first attempts to articulate a theory of K’ual liabilityModel of K

o 18th c.: model owed much to predecessors; based on qualified idea of reciprocal agreement, subject to vitiating factors (esp. equity)

o Agreement and reciprocity Had to be agreement; had to be consideration (broadly reciprocal); only parties to the agreement were

affected This model challenged by bill of exchange and other mercantile documents but increasingly used

elsewhere, and in promissory gifts Mercantile documents: based on “custom of merchants”; could bring assumpsit without consideration –

applied to bills of exchange, mercantile letters of credit, etc. Court of Chancery and the trust: equity could mitigate CML’s K’ual doctrines; trust could move some

situations outside K (redefining them in proprietary terms); individuals wanting to undertake third-party obligation could declare a trust; notion of consideration wide than CML’s; took pressure off CML action of assumpsit

o Vitiating factors More generally, K’ual liability depended on voluntary act of the parties, and anything that undermined

voluntariness potentially destroyed basis of liability 17th-18th c.: courts (esp. Chancery) started to work out vitiating factors Equity

CML had small role to play here because of continuing strength of the jury; Chancery more flexible, as equitable fraud was a broad concept, procedures could look more at defendant’s capacity, could intervene in cases of mistake

Courts concerned to prevent one party taking unfair advantage, but not every advantage was unfair (simple inequality not enough to justify refusal to enforce, unless it was so gross as to raise presumption of fraud)

Public policy Distinguish illegal Ks (CML/Equity would not permit any action concerning them) and those

contrary to public policy (courts would not enforce, but would allow legal processes to undo them) No predetermined limit to public policy, but certain categories were discernible Sometimes reflected in statutes, though courts had discretion outside this Judges could thus mould K law around social needs/interests – but perceptions of social need

shifted with time rules developed as “changeless entities”o Damages and penalties

17th c.: K’ual liability seen as absolute; when parties reached agreement, held to it except for duress, fraud, or other vitiating factor

Courts would normally give effect to the agreement, using expectation-based rule of assessment, qualified by fact that courts would not enforce penalties

Theory of Ko Before 1700: English K law developed without articulated theory to support ito By 1800: English lawyers had used theoretical models to structure K’ual liability; K law could be treated as abstract

entity distinct from forms of actiono 2 separate but related theoretical positions combined to make this happen: Social Contract theorists and Natural

Lawo Social Contract theories: Thomas Hobbes

Idea of K central to Hobbes’ treatment of political society (citizens’ agreement gave power to ruler in a mutual act of will)

Hobbes’ approach more proprietary than contemporary CML lawyers; K defined as mutual transfer of rights Mutual agreement of 2+ individuals as generating a new thing; root of K was will of parties 2 consequences: downplayed role of consideration; tendency to treat Ks as close to property foundation

of K as an executory agreement, with nothing more needed than consent of parties Ks could thus move away from simple exchanges of performance to encompass speculative agreements

where parties wanted a marginal profit on a volatile marketo Natural Law theories: Samuel Pufendorf

Relationship between obligation to tell the truth and obligation to keep a promise was central No room for CML requirement of consideration, but no proprietary element like Hobbes 19th c.: terminology and ideas of Natural lawyers plundered to give shape to CML

Discussion o Many things looked like Ks, but satisfied neither consideration nor privity

CML could respond by putting these into a separate category of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Today, trust/employment/labour/company law is regulated by Ks – but they are hived off because they

don’t fit normal K’ual doctrineso 18th-19th c.: 2 main developments

Vitiating factors Rules on duress etc. primarily developed in courts of equity – and remnants of this parentage

remain These defences were grounded in moral wrongdoing, not in terms of consent Third-party duress isn’t typically recognised in CML: can affect consent to the K, but is still morally

wrong Development of a theory of K

Drawing on CVL thinking Consideration being downplayed, focus on will of the parties, etc. – though this hadn’t come to

fruition yet (see Chapter 12)

Chapter 12: The Rise of the Will TheoryCirca 1800: slow movements towards theoretical unification were sped up

o Increasing need for judges to decide cases themselves rather than referring them to the juryo Increased academic attention to K, drawing inspiration from Pothier’s Will Theory (based on Social Contract and

Natural Law) – K’ual liability stems from mutual assent of the partiesWill Theory and the classical model of K

o Merit: intellectual coherence (foreign to CML) – though bought at expense of common senseo Demerit: imposed on CML from outside, instead of generating from within; CML did not discard elements that did

not fit messo The centrality of agreement

Theory of objective agreement Where promise is ambiguous, to be performed as promissor would have apprehended, at time

when promisee received it (theoretically elegant, practically problematic) Objective theory didn’t mesh with theory of K’ual liability as meeting of the minds Discussion: objective tests overrode subjective understandings (e.g., estopped from acting in a

given way if you actually said something) – but we still focussed on the notion of (subjective) meeting of the minds

Range of doctrines and rules of interpretation Offer and acceptance: unilateral promise/offer is insufficient; must be acceptance by promisee Conditions, warranties, and terms of the K

Fragmented remedial structure no sophisticated approach to K’ual terms analysis Inconvenient for breach of warranty to be analysed as tortious moved to K; action for damages

for breach of K and that for breach of warrantee became essentially identical Conditions not so easily integrated Development of large number of rules of interpretation Growth of Will Theory reformation of question in terms of parties’ intention – but complex rules

of construction remained “rules of law behind a façade of party intention” Imposition of precise duties of care had led to more certainty than juries in tort; similarly, K’ual

implied term brought consistency of K’ual interpretation (and reflected Will Theory) Discussion

o Warranties and conditions used to be litigated under tort (deceit, misrepresentation)o They fit awkwardly as promises (you can only promise actions, not facts: e.g., how can

you promise that something is blue?), so they fit ill with K theory Mistake

Mistake of 1+ parties was problematic for Will Theory: hard to imagine a K in absence of agreement

Mistake a defence only in rare cases, and application was at court’s discretion First half of 20th c.: silence in jurisprudence and doctrine Second half of 20th c.: became firmly rooted Many different situations lumped together as “agreement-mistakes,” which voided K ab initio Discussion

o Poithier saw all mistakes as going to consent – but this doesn’t make senseo (1) Agreement mistake: e.g., you think you’re buying one thing, and I think I’m selling

you a different thing easy to set aside the Ko (2) Mistake in assumptions: where the object turns out to be not what was K’d for (e.g., a

fake) more difficult to set aside (CVL treats the 2 kinds of mistake as the same – but in CML the second kind is impossible to plead)

o Smith: no question in (2) that there was agreement and consent – the K holdso So: almost impossible to plead mistake in CML (type (1) almost never happens, and you

can’t win type (2))o Smith: no such thing as law of mistake in CML; all mistake cases turn out to be offer-and-

acceptance cases, or interpretation cases (e.g., conditions) Damages

Principle of expectation damages aligned with Pothier – but difficulties when plaintiff wanted to claim additional loss

General rule: only “natural” consequences of breach were compensable unless additional loss had been averred specially

Eclipse of jury aligned with need for clearer rules Hadley v. Baxendale damages to be those reasonably supposed to be in contemplation of both parties, at time of K’ing, as probable result of breach (so if special circumstances known to both, could make a special K to deal with them)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o Voluntariness and K’ual intention

Logically central to Will Theory – but new depth/weight given to idea 19th c.: formulation as requirement of an intention to create legal relations (disparate body of earlier case

law came to be treated as single idea) Existing defences of fraud/duress conceptualised in terms of undermining voluntariness

Tendency to formulate them in terms of public policy prohibiting benefit from own wrong Helped to develop a more flexible range of remedies

Will Theory and model of exchangeo K’ual doctrines above not easily deductible from pre-19th c. CML – but were consistent with ito Difficulties with consideration and privity judges marginalised themo Consideration

19th c.: writers unable to develop a better theory; repeated that non-reciprocal agreements not intended to create legal relations (those that were intended to do so were ignored)

Also ignored redundancy of consideration once intention to create legal relations had emerged Visible tendency to discover consideration where not easily found; also willing to get around the rule of

past consideration as no consideration If could not achieve desired result through interpretation, started to use estoppel instead 20th c.: plaintiffs learned to sidestep consideration by formulating claims in non-K’ual terms (Illustration: K’ual variation) Consideration also eroded from without: e.g., requirement of seal slowly eliminated

o Privity of K If rights and liabilities were created by parties’ agreement, no reason why they couldn’t be generated in

favour of others Doctrine of privity was resilient enough to last only in 1999 was third-party stipulation legislation passed

[in the UK] Long survival of privity due to invention of qualifications and exceptions Strict privity especially problematic when coupled with rule excluding damages in respect of losses

suffered by third parties (origins in trespass) Second half of 20th c.: moves toward weakening general principle

Chapter 13: The Decline of the Will Theory: Legal Regulation and Contractual FairnessGradual disappearance of confidence in Will TheoryFundamental idea of party autonomy clashed with social justice principles – but did not displace the TheoryMain Will Theory doctrines attacked but survived as overlaid with new principlesDiscussion

o CVL model of K did not fit nicely with traditional CML model, but was nevertheless superimposed difficulties with unilateral K and theory of mistake

o In CVL, vitiating factors concerned consent; in CML, they concerned wrongdoing strange mixo Consideration is a large problem in trying to fit CML into CVL mould consideration downplayed; courts will “find”

it (explained as a formality)o 19th/early 20th c.: strong belief in classical law of K recognised that the law didn’t fit, but tried to make it fit, since

they thought the model was correcto 20th c.: loss of confidence in the theory itself open admission that model doesn’t/shouldn’t worko Even if it could be made to work, we now feel that we don’t want it to; we don’t want the individualistic morality

underlying 19th c. will model; we prefer social justiceo There are still die-hard defendants of the traditional CML model

Internal weakness of the Will Theory: voluntary agreement embodied in 3 principles that were all attackedo (1) Offer and acceptance

Didn’t reflect commercial practice Discussion

Many cases where judges realised it didn’t work E.g., battle of the forms cases are not really about offer/acceptance, but about coming up with a

fair result; standard form Ks and consumer Ks (Tilden) Increasingly, judges realised that fitting these cases within the offer/acceptance model was a

fiction K law became more like tort in these cases because it imposes obligations in the name of justice

So: results were criticised, loosened, applied less rigorously – but there was also expansion of other means of redress (XK), such as unjust enrichment and negligent misrepresentation

Negligent misrepresentation (see below): when you don’t meet the needs of K law, you’ll most likely find redress here

o Understood as expanded K’ual protection, an expansion of K lawo Many argue that these are essentially K cases, even if they technically aren’to But still need to prove fault (so not exactly like K)

o (2) Requirement of intention to create legal relations Hard in the age of standard-form Ks; growth of non-K’ual remedies; breakdown of conceptual coherence;

often recognised that parties had no relevant intention at all So: courts created intention from nothing or held that there was no intention when there actually was Discussion

20th c.: realisation that many Ks aren’t about intent (and freedom to K), so it’s a policy decision that it is or isn’t appropriate to bring law into certain circumstances

A movement towards explaining Ks not in terms of intention but of social factorso (3) Rule that transaction induced by mistake was void

Law of mistake became more complex; intermeshed with misrepresentation, unconscionability and K’ual fairness

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Discussion

Relief for mistake now explained in terms of fairness Judges state that it has nothing to do with consent, but rather about whether it’s fair to keep

someone in the K (even if mistake didn’t vitiate consent)Undercutting the will of the parties

o Principle force against Will Theory was idea that law should achieve justice or avoid injustice instead of just giving effect to parties’ wills

o Wide-ranging interference from legislation, but judges did the groundworko Public policy and illegality (restricted freedom of K’ing parties in wider public interest)

Lawyers developed category of Ks contrary to public policy that would not be enforced Some uncomfortable: for legislature to determine where public interest lay Increase in volume of regulatory legislation Greater scope for public-law regulation of formerly private-law Ks; even simple Ks seen to have public

dimensiono Unconscionability, fairness, and the regulation of K’ual relationships (regulating balance between parties)

Lip service paid to Will Theory as it was being cut down Rearticulation of longstanding CML defences 1990s: emergence of argument that there might be substantive fairness principles under K liability Procedural unconscionability

19th c.: 2 principal vitiating factors were fraud and duress Fraud: courts of equity began to expand it; movement toward general principle of good faith in

negotiations (cf. CVL) Duress: widened; no reason to distinguish between forms of improper pressure; same standard

used as for unjust enrichment; emphasis shirted from overbearing defendant’s will to plaintiff’s improper conduct

Expansion of equitable doctrine of undue influence: HL developed general approach; moved away from overreaching of defendant’s will to impropriety of plaintiff’s conduct; emphasis on victimisation of weaker party rather than lack of voluntariness

Tentative development of general defence of unconscionability: more threatening to Will Theory Substantive unconscionability

Will theory flexible enough to adapt to procedural fairness – but irresistible tendency to ask whether K was substantively fair (visible by 1980s)

Statutory restrictions on penalty clauses made it easy to incorporate ideas of substantive fairness and unconscionability; more difficult to do where there was no statutory base

Courts’ 1950s/60s groundwork consolidated by the legislature 1994: consumer contracts legislated to be subject to general principle of fairness

Unconscionability in enforcement Occasional refusal to enter a voluntary K because changed circumstances made it unjust to hold

parties to it; or remedy moulded to achieve desired result – these 2 principles were never melded Doctrine of frustration: parties released from performance if circumstances had changed so that it

would be unjust to hold them to the K Classification of conditions (breach K’ual rescindment) and warranties (breach damages) fell

apart as courts started to mould remedies to achieve justice Use of estoppels Equitable considerations: starting in 1960s, courts developed rule that plaintiff entitled to full cost

of achieving K’d-for result (cost of “reinstatement”) only if it was reasonable to insist on ito Combined effect of these shifts: Will Theory compromisedo Ideas of fairness grafted onto classical model of K largely based on Will Theory – but no doctrinal coherenceo Discussion

Extended scope of public policy and illegality arguments – e.g., doctrine of restraint of trade Allows courts to go at various forms of anti-competitive behaviour Pre-19th c.: freedom of K Post-19th c.: courts started knocking Ks down because of undesirable effects on other competitors

or on the economy Movement of areas of K law out of K

K has become a very small part of the law dealing with agreementso Cf. employment, labour, corporate, health, education law: moved for public policy

reasons because they didn’t fit with the modelo E.g., we don’t want to explain patient-doctor relationships via the K model

Just about every course on private law (aside from tort) is an advanced K course – but the rules are different, imposed from outside and not in conformity with the classical model movement out of K law

Allows preservation of fiction of the classical model – but huge numbers of K are not taught as K law and have different rules (false view of K law)

Development of fairness-based defences (unconscionability, duress, undue influence) Rules on exclusion clauses designed to protect people (esp. consumers) from unfair exclusions A backlash since Reagan, arguing against protectionism (neo-classical argument) Many rules were developed to deal with monopolies and cartels, which are less of a concern now E.g., estoppel provides protection where classical rules of K don’t protect, based on a general

notion of fairness Sum: 20th c. saw broad notions of fairness and social justice change the actual rules, how we

explain the rules, or where certain areas of law are classed But in typical CML fashion, model wasn’t fundamentally changed; rather, new ideas grafted on (to

CVL model, which was grafted to CML model, which was grafted to earlier models) of 44

Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) So: never a complete fresh start: slow evolution, incremental change, grafting complications

Question: in the 20th c., are we moving back towards something we had before the CVL influenced the CML?

Atiyah says yes, and there is some truth to this But Smith argues that pre-19th c. classical model there was no big concern with public policy and

social justice (though there was still more than there was in the 19th c.) Remember that formal models run parallel with general social currents (e.g., belief in markets to suspicion

of markets and back to belief)

Conclusion: Legal Change and Legal Continuity (c. 15)CML has many virtues; tidiness is not amongst themJudges have been expected to apply the law, rather than inventing it for each caseAbsent large-scale codification or substantial legislative change (neither happened to obligations), inventing of new law is rarely

combined with discarding of oldo Sufficient flexibility to ensure that injustice not routinely producedo Real cost is increasing complexityo Medieval “ground plan” remains visible, though structure has changed

Structure of CML of obligations has been slow-movingPrincipal motor for legal change: need to articulate formerly ambiguous rules – esp. marked in the Chancery

o Articulation not arbitrary, but could be influenced by justice/fairness, social policy, or a desire to mould the law to conform with theory

o Such decisions, once taken, were incorporated into body of law19th c. judges concerned not to impose excessive liability on commercial enterprisesImportance of fitting law into a theoretical model: arguably at work now with unjust enrichmentSignificant shifts in law commonly resulted from conceptual recharacterisation of claims by litigants trying to avoid

procedural rules or to take advantage of a more favourable legal process elsewhereo Never a suggestion that a change in substantive rights/duties was contemplated – but changes were madeo These procedural changes had long-term effects

Tiny amount of legislative intervention in law of obligations unsurprising that shape of modern law largely determined by history

o Change must be explained, not continuity: absent significant pressure for change, things stay the sameo Case-law system: initiative rests with litigants, and only when they have an advantage in so doing will they depart

from the well trodden patho Only when highly placed judges were wiling to countenance change and able to broadcast change in journals and

elsewhere that lawyers could take the hint and followStructural continuity clearest in law of K; tort characterised by lack of structureLegal hangover

o CML can slough off outdated rules, but less successful at losing doctrines or whole bodies of ideas; once established they acquire a fixity

o They clog up the law, spawning unignorable rules that must be bypassed; exceptions aboundo Least dangerous when facilitative rather than restrictiveo So: several parallel routes develop, each with own pitfalls, leading to same result

Discussion o Easy view: CML is historically a disorganised mess that has developed haphazardly and has slowly moved towards

the CVLo Other view: CML has its own distinctive rationality; rather than just being a method of making law, it’s about

substance of the rules The category approach: recall that you had to fit your claim within a given writ, otherwise you had no

action (cf. CVL model underpinned by “conduct”) Contrasting categorical and principled methods, seems like principle is better (categories as conservative)

– but there are advantages to this model, mainly that it makes the law clearer and more predictable Good for rule of law: takes the idea more seriously, though it may sacrifice flexibility But categories change; can always argue that another category should be recognised For whom does this system make the law clearer and more predictable?

Base position is absolute liability; unjust factors model (cf. CVL: absence of base model) Canadian CML courts have halfway adopted CVL model presumption is that courts don’t get

involved unless you can show you fit into the categories (cf. CVL: presumption is that court is involved unless you can show why it shouldn’t be)

Different starting points and ideas about the relationship between individuals and the court See e.g. unjust enrichment

o CML: court not involved unless you can show an unjust factoro CVL: court makes you give it back unless you can show why you shouldn’t have to

Structural differences CML: people make structures and judges allow it as long as no one objects; flexibility arises from

passiveness (you can do whatever you want as long as you harm no one: e.g., people created trusts, and judges accepted it)

CVL: harder to create new mechanisms Rigidity

CML: outside recognised categories, you can do what you want provided you harm no one new categories can be developed

CVL: flexibility in the system, but not in terms of adjusting the systemo Questions: what conditions gave rise to the two systems to begin with? Are they primarily differences of substance

or procedure? Does it matter if the results are the same?

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3. Economic loss and the role of tort lawReasons for covering this material: complex, involves K/tort interaction, enables us to think about CML in a general wayQuestion usually posed as whether you can recover from economic lossDefinition of economic loss

o Negative definition: something other than person, property, liberty (just your economic prospects)o If you destroy my truck and I thus lose profits, I can sue for both truck and lost profits – but what I’m really suing for

is the value of the truck, which is captured in part by the economic use I was going to make of ito Pure economic loss involves no other associated injury (e.g., if you buy a computer and it’s defective, you may lose

economically but nothing else in your life – person, property, liberty – is harmed)o May perhaps be reformulated as future/hoped-for profits

Traditional answer is that you may not recover for pure economic loss, as demonstrated by the earliest cases in each category we’ll look at (Derry v. Peek and Cattle v. Stockton)

a. Negligent MisrepresentationYou can recover in principle – but the principle is vey difficult to define

Derry v. Peek, [1886-93] All E.R. 1 (HL): CB 137-38FactsP relied on Tramways’ prospectus (written by P et al., directors) saying that they had the right to use steam/mechanical power (when

in fact such power was available only with Board of Trade’s consent), and invested thereinBoard subsequently refused consent Tramways was liquidatedIssue: can P claim damages for D’s fraudulent misrepresentations whereby h was induced to take shares in the company?Holding (Herschell): no DerryAction in rescission: only necessary to prove misrepresentation (honest or not)Action in deceit: must establish not only misrepresentation but also something more (controversial)Recklessness can serve as the something moreAbsence of reasonable ground for the belief cannot serve – authorities don’t support it (carelessness or unreasonable credulity may

be blameworthy but isn’t fraudulent)Essential that the deception be knowingly untrue or asserted without actual belief(Articulates ratio below)D did not knowingly make a false statement, or one that he believed not to be true, or reckless honestly believed his assertionsReasonable man may well have believed alsoRatioTo sustain an action of deceit, there must be proof of fraud (nothing less will suffice)Fraud is proved when a false representation is shown to have been made (1) knowingly, (2) without belief in its truth,

or (3) recklessly (3 is a subset of 2) – to prevent fraud, must always be an honest belief in its truthIf fraud is proven, motive of the guilty party is irrelevantNotesStands for the principle that you can’t recover for negligent misrepresentation – but what the case actually talked about is

fraudAgain, here we see an exception for intentional wrongdoing – if the misrepresentation is (intentionally) fraudulent, it is recoverable

Derry is now established law in Canada: if you brought a case like Derry, you’d automatically win and likely wouldn’t even go to court; you only have to show that the statement was false, that it was carelessly made, and that you relied on it

o A Canadian court wouldn’t even go into the Hercules test (below)o Your damages would be reliance damages – you don’t get lost profits (i.e., what you would have earned had the

product functioned as you were promised), but rather reliance loss (i.e., what you would have paid had you known the real deal)

Theoretical issue: What is the basis of liability? Why is negligent misrepresentation a tort?o Canadian law aligns with French and German law hereo Traditional English view: injury to person/property/liberty negligent misrepresentation cannot be recoveredo Alternative views

(1) German view: takes economic loss even more seriously; no right of the plaintiff has been injured no recovery because you relied at your own risk

But you can still recover in a Derry situation, because it’s treated as a K Much easier standards to satisfy in identifying a K: no consideration; more relaxed about labelling

pre-K negotiations as K’ual So: Germans will reach the same result, but through a different means English law has a tendency to say that debts, covenants, etc. are actually Ks, but for historical

reasons they used to be separated – so Germans would say that we call negligent misrepresentation a tort because we’re bound by our history

Supporting the German notion, you could argue alternatively (and every case except Hercules mentions this) that there is an assumption of responsibility (assumption assumpsit K)

o So why shouldn’t they be getting the K’ual damages?o Practically, tort and K damages often work out to be the same thingo We too can shift the boundary between tort/K; we can make you responsible because

you agree to be responsible (e.g. through guarantee: you can’t promise a fact is true, but you can guarantee it – by which we mean that you promise to “make it up to someone else” if it isn’t true)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) (2) French view: you don’t need an infringement of person/property/injury – you only need some loss in an

ordinary, common-sense way in order to be able to recover So no special problem at all with negligent misrepresentation – no reason to hive it off like CML

does But there may be causation issues: in most cases, you cannot recover for negligent

misrepresentation because it is difficult to show the causal link (3) Alternative English view: the old law was right in principle but wrong in application

There was a mistake in not seeing that NM was an infringement of liberty (Smith: a hard argument to make)

When you make a NM, you are steering someone in a certain direction, directing them to do a certain thing

It’s similar to the argument that you’ve imposed on someone’s liberty (like a weaker version of imprisoning them, of constraining them in some way)

The presupposition is that NM cases are different from other tort cases, because they affect liberty, rather than persons/property – but they still fall within the person/property/liberty requirements for a successful tort claim

o Practically, the explanation for the Derry v. Peek rule is that the CML is seeking certainty If we have a bright-line rule, it might not be perfect (some who ought to be able to recover won’t be able

to) – but at least we’ll know what the rule is E.g., the English law that you can only claim for mental shock from seeing somebody hurt when you see it

in person (as opposed to on TV) similarly draws a bright lineo But in negligent misrepresentation, with time, the rule has been nuanced and become more sophisticated (the

arbitrary rule has given way to more of a case-by-case consideration – which is more like CVL) This is what the SCC seems to think that it is doing They aren’t speaking in CVL terms of causation, but they’ve ceased to consider negligent

misrepresentation as different from other tort cases – and they’re trying to come up with a rule that applies to all of them

Practical issue: What would you need to prove if you’re trying to show negligent misrepresentation? What test do the courts use? How would/should you answer a fact pattern?

o Hercules sets out a set of rules, a step-by-step procedure – but the procedure keeps changing, so we’re going to outline the general principles

o Required facts (1) Spoken or written statement that is (2) carelessly or negligently (3) false (4) on which you rely such

that you experience a loss E.g., if you request a reference letter, and you don’t get the job, you can’t sue the writer –

because you’ve never seen the statement, so you didn’t rely on it But the recipient of the letter, if they hire you and you suck, could sue

(5) Duty of care – involving a series of interrelated and overlapping considerationso Something close to K (Hedley Byrne; in Derry there was no consideration so no K)o Assumption of responsibility (though this isn’t mentioned in Hercules)o Reasonably foreseeable reliance (mentioned in Hercules) – the big question is

reasonableness hereo Skill and expertise (Denning mentions this explicitly in Candler) – this is related to

reasonable relianceo Financial payment (La Forest mentions this in Hercules, in which he built it into

reasonable reliance) – much like the idea of bona fide purchaser for valueo Whether the plaintiffs are known (La Forest again) – usually mentioned under proximity

(Smith: no idea why this is considered, as it’s always satisfied), in that there has to be some kind of special relationship

o La Forest’s final two considerations (mentioned elsewhere too) – this is almost always what the case turns on (e.g., this is why the shareholders lost in Hercules)

Is the representation used by the person by whom it was meant to be used? Was it used for the purpose for which it was meant to be used?

o Argumentative procedure We keep Anns (unlike the UK, which has abandoned it) – see La Forest in Hercules First stage: prima facie duty based on proximity

Relationship giving rise to reasonable reliance Whether someone has been paid may generate more proximity – but, mire importantly, it seems

fairer to try to claim from someone who has received money as opposed to a volunteer Second stage: looking for policy-based reasons to negative that duty

Smith: this is very difficult to follow; unclear what is meant by “policy” Everyone agrees that deterrence, insurance, etc. are policy issues (grounded in social utility

arguments)o Many (incl. Smith) think that these concerns shouldn’t be at play here, as this is a private

lawsuit, which should be about the rights and duties of these two parties rather than about broader public questions

o This view is controversial, as you’re essential saying “I don’t care whether you merit this verdict, because it’s important for society”

“Policy” has started to be used just as a general argument, not meaning anything distinctive The rise of policy is tied to Ibbetson’s discussion of the social justice movement in the 20th c. Problem with policy arguments is that you can always come up with an exact counterargument

(e.g., if you argue that we have to make drivers liable so that they don’t make mistakes, someone else can argue that we’ll deter people from driving)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008) Smith: if you care about indeterminate liability, why not just pick an entirely arbitrary rule and

enforce it strictly? Smith: an “indeterminate liability” argument just means that we haven’t figured out the rule yet –

it is the arguments that are indeterminate

Candler v. Crane Christmas & Co., [1951] 2 K.B. 164 (CA): CB 139-142FactsCompany’s managing director instructed CC&C (auditors) to prepare company’s accounts and balance sheetCC&C knew accounts were wanted for purpose of inducing C to invest money in the companyRelying on accounts’ accuracy, C investedAccounts turned out to have been negligently (though not fraudulently) prepared C lost his moneyIssues: (1) Does C merit damages for negligence? (2) Does C merit damages for breach of duty to give accurate information?Holding (Asquith): (1) No. (2) No. Crane Christmas & Co.C claims sufficient proximityDerry v. Peek (fraud necessarily connotes dishonesty): assumes/implies that a merely negligent misrepresentation made by director

to potential share subscribers, on which others act, affords those others no remedyDonoghue v. Stevenson did not eliminate the Derry jurisprudence; has not been applied where damage was not physicalDifferent rules still apply to negligent misstatement as opposed to negligent circulation/repair of chattels C’s case is dismissedRatioDifferent rules still apply to negligent misstatement as opposed to negligent circulation/repair of chattelsNegligent misrepresentation is non-compensableDissent (Denning)C submitted that although there was no K between C and CC&C, relationship was proximal as per Donoghue v. Stevenson

question is whether CC&C owed a duty of care to CCC submitted that they only owed a K’ual duty – but this is based on a too-narrow, 19th c. view of KsCannot accept that claims will succeed or fail depending on the nature of the damageDuty of care applies to those whose profession requires them to produce information that others rely on; duty is to use care in their

work that results in this informationDuty of care is owed to employer/client, and to any third person to whom they show (of know their employer) will show the

information in order to induce an action – but does not include strangersDuty of care encompasses only those transactions for which the producers of information know that this information is required

Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575 (HL): CB 143-49FactsH&PL (bank) told HB&CL (advertising firm), when asked, that EL was a respectably constituted and good for its normal business

engagements – but included a disclaimer of responsibilityHB&CL thus placed orders for advertising time and space for ELEL went into liquidation and HB&CL lost money on advertising KsIssue: is H&PL liable in negligence to HB&CL?Holding: yes Hedley Byrne & Co., Ltd.Lord ReidDonoghue v. Stevenson has no direct bearing, as negligent words must be treated differently from negligent actsNo duty of care when people speak informally on social occasions – but there is a duty to a limited group of peopleInnocent but negligent misrepresentation gives no cause of action – must be something more: express or implied undertaking of

responsibility (see ratio below)Reasonable man, knowing that his representations were being trusted, could be silent, speak with a caveat, or just answer and be

responsibleH&PL included a limited caveat (acted sufficiently), and no duty can be implied here H&PL should succeedLord Morris of Borth-y-GuestIf someone with special skill undertakes (regardless of K) to apply that skill for someone else, a duty of care arisesWhether service is given my means of words makes no differenceDuty of care extends to all those to whom he passes along information or allows information to be passed toH&PL knew that what they said would be passed to HB&CL – but their report was neither formal nor detailed (didn’t accept a higher

duty), and H&PL disclaimed responsibilityLord DevlinDistinction between negligence in word and negligence in deed would leave law defective but would be intelligibleHB&CL tries to push Donoghue v. Stevenson to apply proximity test to words – but the real value of Donoghue is to show how the

law adapts, not to provide an applicable test hereIf H&PL had charged for its opinion, there would be a K no problem – but this didn’t happenLaw adapts to ensure that justice is served – but not need to adapt the law here, as negligence principles simply applyDoesn’t matter whether information consists of fact or opinion or both, or whether it resulted from special enquiries or facts already

possessed (cannot distinguish duty to inquire from duty to state)Special relationships are not limited to Ks or fiduciary duties, but include also relationships “equivalent to K” (assumption of

responsibility where, absent consideration, there would be a K)Where there is no consideration, must carefully distinguish social/professional relationships that are K’ual from those that aren’t –

and whether reward is received indirectlyDuty can arise long-term in relationships or in respect to a particular transactionImpossible to formulate all conditions in which law will imply a voluntary undertakingThis opinion is an application of the concept of proximityRatioDuty of care encompasses all relationships where it is plan that party seeking info or advice (regardless of K) was

trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Assessed using an objective standard[include Devlin’s equivalent-to-K test?]

Anns v. Merton London Borough Council, [1978] A.C. 728: CB 149Ratio (Wilberforce)Categories of duties of care are not closed 2-step test for new categories(1) whether there is sufficient proximity between alleged wrongdoer and victim or a sufficient relationship of

proximity such that in reasonable contemplation of alleged wrongdoer, carelessness on his part was likely to damage the victim prima facie duty of care

(2) if yes, whether any considerations ought to negative the duty, or to reduce/limit its scope, class of persons to whom it applies, or damages to which its breach may give rise

Notes: Anns was actually about a statutory duty, but actually seemed to overturn Spartan Steel

Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165: CB 150-60FactsHML held shares in NGA; D&Y were hired to perform annual audits of NGANGA goes into receivership; HML alleges negligent preparation of audits from three yearsIssue: did E&Y owe HML a duty of care in tort?Holding (La Forest, for the Court): 1. Applicable testAnns/Kamloops test applies here (see ratio below)Need criterion (b) above, unlike in physical damage cases, because reasonableness is not at issue where physical damage has

happenedReasonable foreseeability often held in jurisprudence to require that (a) defendant knew identity of (class of) plaintiff(s) that would

rely on representation and (b) reliance losses stem from transaction in respect of which the statement was made – but these are policy considerations, and should be addressed in step 2 of the Anns/Kamloops test

2. Policy considerationsNeed to avoid “liability in an indeterminate amount for an indeterminate time to an indeterminate class”Auditors can always reasonably foresee that many will rely on their reports, and such reliance is reasonable potentially

indeterminate liabilityWant to deter negligent conduct – but outweighed by undesirable consequences of imposing indeterminate liability (wasted auditors’

resources, high opportunity costs, reduced supply of auditors higher legal costs and burden on the courts)Where defendant knows the (class of) plaintiff(s) and information is only used for that specific purpose, no policy considerations

because liability already circumscribed3. Application to the caseE&Y owed prima facie duty of care to HML: reasonable foreseeability, and reasonable reliance (HML’s financial interest, E&Y’s special

skill, info provided in course of business, and info given deliberately)Problem of indeterminate liability step 2 did HML use the reports for the specific purpose for which they were prepared?Corporation directors must (by statute) place auditors’ report before shareholders so that they can collectively make decisions about

corporate managementHML claims in addition that E&Y agreed to perform audits in order to enable HML to make personal investment decisions – rejected

(E&Y only acted to fulfil statutory purpose of collective shareholders’ decision-making, and duty of care extends only to that situation) fails step 2

HML claims in addition that E&Y’s negligence cost them the value of their shares in NGA, so they merit reparations – rejected (no duty of care in respect of individual decisions) fails step 2

HML claims in addition that E&Y’s negligence cost them the opportunity to change corporate management – rejected (E&Y’s reports were prepared to facilitate collective action by the class of shareholders, not to protect the interests of individual shareholders – and for HML to succeed they must show reliance as individual shareholders) fails step 2

RatioExistence of duty of care is determined by Anns test, rationalised in Kamloops as (1) whether there is proximity so

that in defendant’s reasonable contemplation its careless might damage the victim, and (2) whether there are considerations that should negative or limit (a) scope of duty, (b) class of persons to whom it is owed, or (c) damages to which its breach may give rise

“Proximity” is just a label expressing a result/judgment/conclusion – does not provide a principled basis for making a legal determination

In negligent misrepresentation, relationship between plaintiff and defendant arises through reliance by plaintiff on defendant’s words

Two criteria relating to reliance: whether (a) defendant ought reasonably to foresee that plaintiff will rely on his representation and (b) reliance by plaintiff would be reasonable in the circumstances

Indicia of reasonable reliance: (1) defendant’s (in)direct financial interest in transaction; (2) defendant’s status as a professional or one with special skill; (3) info/advice provided in course of business; (4) info/advice given deliberately; (5) info/advice given in response to a specific request – these are not tests but indicia

NotesLa Forest considers whether the defendants knew the plaintiffs, and whether the information was used for its intended purpose,

under the policy headingSmith: strange to call the purpose argument policy, since it doesn’t implicate future social welfare concernsSmith: bizarre to include this in the second stage of the test; it belonged better in the first (proximity) stageSmith: doesn’t disagree with the result of the case, but finds the argument weak

b. Dangerous BuildingsThe first crack the rule of non-recovery for economic loss in these cases was Rivtow Marine

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)o A crane was dangerous; liable to fall down and kill someone; buyer claimed for the cost of repairing the craneo Famous dissent by Laskin (picked up in Winnipeg Condominium below), in which he said that there should be

liability if we have a product that is defective and dangerous – he was trying to create an exception for dangerous products

o But even in the majority decision they went further than the traditional rule, as they hold that you couldn’t recover for being sold a defective product – but you could recover for a separate tort of failure to warn (if you are not warned, you can sue for resultant loss) created a new tort that persists today (though it is seldom applied)

Winnipeg Condominium Co. No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85: CB 167-71FactsWCCN36 discovered structural defects in the masonry work done by BCC for condo’s prior owners, and had to replace the entire

claddingWCCN36 brought an action in negligence against BCC and othersThis case is about whether, if the action went to trial, WCCN36 could recover for the costs of replacing the claddingIssue: can a general K’or be held liable in negligence to a subsequent purchaser of the building, who was not in K’ual privity with the K’or, for the cost of repairing defects arising from negligent construction?Holding (La Forest, for the Court): yes Winnipeg Condominium Co. No. 361. Anns/Kamloops step 1Norsk: question of recoverability for economic loss must be approached with reference to the unique and distinct policy issues in

each categoryHere, negligently supplied structure was not just shoddy but dangerousWith respect to dangerous defects, compelling policy reasons for imposing tortious liability on K’ors for repair costs (don’t need to

decide about non-dangerous defects)If BCC was found negligent at trial, WCCN36 would be entitled to recover reasonable cost of putting the building into a non-

dangerous state (but not costs of improving the quality, rather than the safety, of the building)2. Anns/Kamloops step 2Worries about indeterminate liabilitya. K/tort overlap concernsDuty of care on K’ors part can be conceptualised in the absence of a K and will not result in indeterminate liability – arises

independently of K’ual stipulationThis duty is not parasitic on any other K’ual dutiesNo risk of indeterminate class, because limited to inhabitants of the buildingNo risk of indeterminate amount, because limited by reasonably cost of repairing dangerous defect (burden of proof on plaintiff)No risk of indeterminate time, because limited to useful life of the building (actually, liability period will be shorter than full useful life

of the building)b. Caveat emptor concernsCaveat emptor cannot be a complete shield to tort liability for K’ors of a buildingK’ors and builders are in a better position than purchasers to detect defects and to ensure the reasonable structural liability of

buildingsSo: no policy considerations to negative the duty found in step 1 alleged losses are recoverableRatioK’ors under independent, non-K’ual duty to construct the building according to reasonable safety standards and such

that it does not contain dangerous defectsK’ors will owe a duty in tort to subsequent purchasers of the building if it can be shown that it was foreseeable that a

failure to take reasonable care in constructing the building would create defects that pose a substantial danger of the health and safety of the occupants

Liability extends to cost of repairing the defects and putting the building back into a non-dangerous stateNotesSmith: not sure that they applied the ratio, because the measure of recovery should just have been what was required to make the

building not dangerous anymore – but what the judge actually awarded was the cost of re-cladding the entire building (which may not have been the cost of averting the danger)

Smith: La Forest calls the “dangerous/not dangerous” distinction a policy issue because it’s about harm – but this would make every tort case a policy issue

Could criticise this decision by arguing you should be able to sue in tort (regardless of whether dangerous) or in K (which has a privity problem) – so this is an attempt to get around the rule by saying “the basic rule is just wrong” – which makes it less an exception than a “step on the road” to being able to sue for defective building regardless of whether it’s dangerous

Another view: traditional CML view bars recovery except where person/property/liberty infringed – but exception can be made where cost was incurred precisely to insure that they were no bodily rights infringed (here, you’d be K’ing expressly to avoid injury to your bodily integrity); what we’re doing here is parasitic on the right not to be injured by falling bricks (different from an assertion that the building doesn’t look nice)

c. Relational Economic LossDefinition: I suffer loss because someone else didThese are different cases from product liability cases

o You are trying to sue the manufacturer, rather than the person from whom you bought the producto Traditionally, cannot sue in tort, as you were not harmed – just that what you got was defective

Traditional UK rule: cannot recover for this

Cattle v. Stockton Waterworks (1875), L.R. 10 Q.B.D. 453: CB 136FactsC employed SW as K’or to dig a tunnel under a road belonging to KnightOne of C’s water mains was defective flooded the works SW lost money

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Issue: is C liable for SW’s loss?Holding (Blackburn): no Cattle(There is admitted carelessness/negligence here)Floodgates based on potential loss of the proximity criterion could be liable for anything!Courts should not transgress “wise” bounds; should only redress proximate consequences of wrongful actsNo pretence for saying that C was malicious or intended to injury anyoneRatioCourts should only redress proximate consequences of wrongful acts (even if the act is admittedly wrongful)Pure economic loss is not compensable (i.e., no damage to person/property/liberty – not a proximate consequence?)NotesA K is not considered property as understood here – it is a personal right, not a property right (even if it comes from the CML of

property)Blackburn is clearly sympathetic to the plaintiff, but feels constrained by precedent not to let his sense of justice overrideBlackburn’s answer re: proximity is the answer that a CVL lawyer would give – his notion of proximity is really about directnessBlackburn focuses on lack of malice because if the defendant had acted maliciously, there is an exception to the non-compensability

of pure economic loss (though it’s dubious, because competitors naturally want to ruin each other economically)

Spartan Steel & Alloys Ltd. v. Martin Ltd., [1972] 2 All E.R. 557 (CA): CB 161-63FactsML (K’ors for electricity board) doing work a quarter-mile from SS&AL’s factory; its men were negligent and caused a power outage

at SS&AL SS&AL suffered lossesSS&AL claims damages in negligence for (1) physical damage, (2) loss of alloys in the furnace when power outage happened, and (3)

loss of alloys they could have processed while power was outML admits negligence, as well as liability for (1) and (2), but they contest (3)Issue: is ML liable for SS&AL’s lost profits?Holding (Denning): no Martin Ltd.SS&AL claims that lost profits are parasitic damages – but Denning hates this term, it hasn’t been used until now, and he wants it to

disappearQuestion of recovery for economic loss is a policy question must discard elusive testsPosition of statutory undertakers (electricity board): boards haven’t been held liable for economic loss, so their K’ors shouldn’t be

eitherNature of hazard: everybody risks power outages, and most people accept it without seeking compensationIf claims for economic loss were permitted here, claims would be limitless better to forbid it outrightRisk of economic loss should be suffered by whole community, not just one entityLaw provides for deserving cases: physical damage can be recovered, as well as truly consequential material damagesSo: SS&AL can recover for (1) and (2), but not (3)RatioPhysical damage resulting from negligence is recoverable, as are truly consequential material damages, but policy

considerations militate against recovery for other economic lossDissent (Edmund Davies)Can’t see why (2) should be recoverable and not (3) – both were equally foreseeable and direct consequences of admitted

negligenceAn action should lie in negligence for damages in respect of purely economic loss, if it was a reasonably foreseeable

and direct consequence of failure in a duty of careNotesA good case for thinking about pure economic lossIf anyone was going to overturn the rule of non-recovery for relational economic loss, it would’ve been Denning – but he didn’tSmith: Denning’s argument about community could be said about any kind of loss

After Spartan Steel, a series of attacks on the traditional rule

Anns v. Merton London Borough Council, [1978] A.C. 728: CB 149Ratio (Wilberforce)Categories of duties of care are not closed 2-step test for new categories(1) whether there is sufficient proximity between alleged wrongdoer and victim or a sufficient relationship of

proximity such that in reasonable contemplation of alleged wrongdoer, carelessness on his part was likely to damage the victim prima facie duty of care

(2) if yes, whether any considerations ought to negative the duty, or to reduce/limit its scope, class of persons to whom it applies, or damages to which its breach may give rise

Notes: Anns was actually about a statutory duty, but actually seemed to overturn Spartan Steel

England went back to the Spartan Steel rule after Anns in Murphy v. BrentwoodIn Canada, Anns was not overturned in theory, you can still bring a case for relational economic loss, but the cases are confused

(theory says you can, practice makes it nearly impossible)

Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021: CB 172-82FactsNPSC’s tug negligently struck a railway bridge owned by Public Works CanadaCNRC and others had K’d with PWC for use of the bridge, which took several weeks to repairCNRC had to reroute traffic in the meanwhile, which raised operational costs and may have diminished freight hauledCNRC and others sued NPSC for additional costs incurred as a result of bridge closureIssue: can a person who Ks for the use of the property of another sue a person who damages that property for losses resulting from his inability to use the property during the period of repair?Holding (McLachlin, 3-3-1 concurring): yes, if they’re in a joint venture Canadian National Railway Co.

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Law began by limiting recovery to cases where tortfeasor had caused physical loss/injury to plaintiff (Cattle v. Stockton)Criterion of physical damage avoided unlimited damages, but arbitrarily/unjustly denied recovery to some courts began to allow

recovery of pure economic loss, but have not done so uniformly or uncontroversiallyHedley Byrne: conditions (reliance) formulated to limit claims and avoid floodgatesOther exceptions: duty to warn (Rivtow), and public officials breaching statutory duty (Kamloops); new cases will occasionally arise1. Anns step 1Proximity is not a test but as subsuming these categories of case; proximity as an umbrella covering disparate circumstances in

which relationship between parties is so close that it is just/reasonable to permit recovery – but there is no one hallmark criterionSo: pure economic loss is prima facie recoverable where there is proximity in addition to negligence and foreseeable

lossPhysical injury is a clear indicator to proximity – but cannot be the only indicatorProximity parallels the CVL requirement that damages be direct and certainProximity establishes the right to recover for pure economic loss – but doesn’t always indicate liability (Anns step 2)2. Anns step 2Residual policy considerations to be discussed hereComparative historical perspective provides little support for confining recovery of economic los to cases where plaintiff has suffered

physical loss or has relied on negligent misstatementEconomic theory: some say that some kinds of loss should be seen as the inevitable by-product of risky activitySome say that plaintiff is in a better position to predict economic loss – but this depends on questionable assumptions that victim’s

ability to ensure is better by a margin that justifies the losses from more severe injury, and that either victim or tortfeasor could insure at reasonable cost

Some say that loss should be spread across society rather than being all on tortfeasors – but this depends on questionable assumptions that accidents wouldn’t rise, and that some victims don’t experience large losses

Some say that plaintiff and defendants allocate risks in their Ks – but this depends on questionable assumptions that all persons/business organise their affairs with economic efficiency as the predominant factor, that all parties have equal bargaining power, and that historical notion of fault should be overridden

3. Application to the caseStep 1: where plaintiff’s operations are so closely allied to operations or party suffering physical/property damage that it can be

considered joint venturer, can recover for economic loss even if own property not damagedRecovery permits plaintiff whose position is practically indistinguishable from owner of damaged property to recover what owner

could’ve recoveredStep 2: doesn’t open floodgates; doesn’t encourage frivolous claimsRatioWhere plaintiff’s operations are so closely allied to operations or party suffering physical/property damage that it can

be considered joint venturer, can recover for economic loss even if own property not damagedConcurrence in the result (Stevenson)Need to avoid indeterminate liability supports the “known plaintiff” exceptionLoss was identifiable, victim was identifiable, damage was almost inevitableDissent (La Forest)Courts have established clear rule that persons cannot sue tortfeasor for suffering losses to their K’ual rights with owner of property

by reason of damages caused to that property by the tortfeasor no reason to depart from that rule here1. Recentring the analysis on K’ual relational economic lossDifferent factual situations may invite different approaches to economic loss shouldn’t lump them all togetherSpecific characteristics of K’ual relational economic loss:(1) Right of action of property owner already puts pressure on defendants to act with care further liability can’t be justified

through deterrence(2) Firm exclusionary rule doesn’t exclude compensation to the plaintiff – but channels to the property owner both potential liability

to plaintiff and right of recovery against tortfeasor; must ask who is best able to absorb risk at lowest cost(3) perfect compensation for all K’ual relational economic loss is almost always impossible because of ripple effects(4) K’ual relational economic loss cases almost always involve accidents need incentives to all parties to act economically

rationallyDirect test should not be whether liability would be indeterminate – but proposed rule must confront this issueLiability should be determinate before the accident occurs; unless there is joint venture or possessory interest, no

recovery for damage to K’ual interests2. Refined proximity analysis in K’ual relational economic loss casesProximity tests usually look from defendant’s perspective (if can prove indeterminate liability excused) – but situation of plaintiff

(foreseeability and provision for damage in question) must be considered tooa. Legitimacy of policy considerationsShould consider which party is better loss bearer (better able to predict frequency and severity of losses – to be distinguished

from which party is better able to avoid accident) – particularly important in assessing proximityThis approach is ill-suited to personal injury casesPolicy concerns are important for three reasons: (1) usually met by tortfeasor’s primary liability to property owner; (2) current law

denies recovery, so should articulate rationale for the rule; (3) must seek to limit liability, and a higher threshold is justifiedHere: CNRC better able to bear the loss than NPSC (information availability, estimation of potential costs, access to protective

options)b. ContractAll parties were well aware of risk of bridge failure; K’ual allocation here is typicalCNRC’s ability to protect itself is not limited to its K with PWC; can also alter arrangements with clients/suppliers/etc.Denying recovery will incent all parties to minimise the impact of losses once they occur, while still providing incentive to avoid

accidentsMcLachlin’s rule will still require CNRC to protect itself, since it won’t know beforehand if it’ll be part of the class will have to

insure itself anyways inefficiencies and benefits only to insurance companies increase social costs3. Conclusions

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Reasons supporting exclusionary rule: (1) incents all parties to act so as to minimise loss; (2) allows only one party (rather than

both) to insure itself; (3) saves judicial resources; (4) eliminates difficult problems of sharing impecunious defendant’s limited resources between relational claims and direct claims; (5) certainty

This case is not even borderlineNotesFirst case in the Commonwealth that clearly said recovery for relational economic loss was possible; the facts were ideal for this

scenarioThe case was famous, but also criticised (because it was 3-3-1, and because of the same reasons that La Forest raises about

unpredictable application to future cases)The case holds that CNRC won – but it’s difficult to figure out what the majority reasoning is in the end (because of the 3-3-1 verdict,

which included a noncommittal holding by Stevenson)1. McLachlinSmith: a good decision for noticing how easy it is to counter policy arguments, and how indeterminate so many of them areMcLachlin’s deterrence argument is applicable to every case – but sometimes we expect people to insure themselves (particularly

given that NPSC is already liable to PWC for bridge damage, so there may be no “extra” deterrence here)Smith: impossible to work out which policy argument is stronger; the real difficulty with McLachlin’s argument is that it gives you no

way to distinguish between any of the casesSmith: none of McLachlin’s arguments really shows why this relational economic loss case is different from others – so the only

possible justification for the different verdict here is the joint venture argument, based on the very close relationship between the owner of the damaged property and the plaintiff

The joint venture consideration is what was picked up on in subsequent cases2. StevensonHis argument is based on the presence of a “known plaintiff” – but this is an argument based on coincidence (What if PWC had

started to let other trains than CNRC run on its bridge shortly before the accident? What if CNRC had been bought by another company the day before?)

This reasoning might make some sense in a misrepresentation case (where questions of special relationships are more pertinent) – but it’s unclear why it should matter in a relational economic loss case

The joint venture test is not specific enough to be able to provide certainty in future cases; the old rule of non-recovery was perhaps unfair but was at least predictable forms the background to Bow Valley (below)

o Cf. the English rule, which may be unfair but is at least clearo Cf. the CVL position (relying on causation), which is largely unpredictable in the end

Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210: CB 183-89FactsHOOL and BVI created wholly owned subsidiary BVH(B)L to K for construction of an oil drilling rig by SJSL; SJSL sub-K’d to Raychem

and other buildersBVH(B)L took ownership of rig and K; HOOL and BVI essentially rented it from themFunctioning heat tracing system was not installed properly by Raychem fire rig had to be towed and repairedHOOL, BVI, and BVH(B)L commenced action against SJSL for beach of K and for negligence; HOOL and BVI sought to recover the day

rates that they were K’ually required to pay BVH(B)L during period the rig was out of service, as well as expensesIssue: are SJSL and Raychem liable to HOOL/BVI in tort?Holding (McLachlin, 2-0-4 concurring): no Saint John Shipbuilding Ltd.1. TheoryCML has traditionally regarded many types of K’ual relational economic loss as irrecoverable: (1) seen as less worthy of protection

than bodily security or property; (2) spectre of indeterminate liability; (3) efficiency of placing burden on victim; (4) discouraging multiplicity of lawsuits

Canadian jurisprudence accepts that K’ual relational economic loss is compensable in some cases need a ruleMcLachlin and La Forest in Norsk differed in methodology (La Forest went from general exclusionary rule to exceptions; McLachlin

focussed on Anns test) and result (different vision of what constitutes a joint venture)McLachlin and La Forest agreed on: (1) special circumstances necessary for recovery; (2) defined by reference to categories; (3)

categories not closedLa Forest identified categories as (1) possessory/proprietary interest; (2) general average cases; (3) joint ventures – and this case

doesn’t meet any of these categoriesNew categories can be recognised where deterrent effect is low, or where opportunity to allocate risk is slight[She thus uses La Forest’s test in Hercules for Anns step 1, so step 1 is satisfied easily: see below]La Forest in Hercules argued for application of Anns; argued that policy concerns in step 2 can negate liability in step 1, but that

sometimes such concerns do not inhere[This may change step 2 from “are there policy considerations that negative the duty” to “there are usually policy considerations

that negative the duty, so is this case different?”; is the test changed, or is indeterminate liability just raised more quickly?]2. ApplicationHOOL and BVI claim transferred loss from BVH(B)L – but: transferred loss is confined to physical damage (Norsk); they claim also for

loss of drilling, which can’t be transferred; nothing to show that HOOL/BVI’s loss is identical to BVH(B)L’s consequential losses; difficult to address BVH(B)L’s contributory negligence this is K’ual relational economic loss must be treated as such

a. Step 1Proximity exists if defendant is under obligation to be mindful of plaintiff’s legitimate interests in conducting his affairs here,

prima facie duty of careWhere duty to warn is alleged, issue is not reliance (there’s nothing to rely on), but whether defendants ought reasonably to have

seen that plaintiffs might suffer a loss as a result of using the product; here, duty to warn extended to BVH(B)L and also to HOOL/BVI

b. Step 2If SJSL owed duty to HOOL/BVI, tough to see how it wouldn’t owe duty to everyone (no sound reason to draw a line there)

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)HOOL/BVI propose solutions that don’t work: (1) “known plaintiff” test (rejected in Norsk); (2) restricting recovery to users of a rig

(illogical line-drawing); (3) reliance (but this would extend to anyone K’ually dependent on product); (4) duty doesn’t extend to everyone (begs the question)

Courts have recognised positive policy considerations supporting imposition of a duty: deterrence (doesn’t apply here); risk allocation (doesn’t apply here)

RatioCategories where K’ual relational economic loss are recognised – (1) possessory/proprietary interest; (2) general

average cases; (3) joint ventures – aren’t closed: new categories can be recognised where deterrent effect is low, or where opportunity to allocate risk is slight

Proximity exists if defendant is under obligation to be mindful of plaintiff’s legitimate interests in conducting his affairs

Where duty to warn is alleged, issue is not reliance (there’s nothing to rely on), but whether defendants ought reasonably to have seen that plaintiffs might suffer a loss as a result of using the product

Policy considerations in Anns step 2 also include positive considerations in support of imposing a dutyNotesNo question that BVH(B)L could, as the owner, sue SJSL in K or in tort – there were other lawsuits going on hereThe important part of the case is that HOOL and BVI lost, on facts that look almost identical (if not even stronger, in terms of joint

venture) than NorskCourt was aware that the law had been left in a mess, and that people didn’t know what the loss was McLachlin was trying to

come up with a decision that everybody could agree to compromise between her and La Forest’s opinions in NorskMcLachlin had to give up that the plaintiffs won; La Forest had to give up his test in favour of McLachlin’sCanada didn’t do what the UK did and refuse such liability by repudiating Norsk; formally, the test is the same as in Norsk, but

substantively it looks like Norsk was overturnedSmith: would have thought that this case is the perfect example of a common/joint venture, because the plaintiffs actually own the

subsidiary that owns the property (cf. Norsk, where CNRC was the only user; here HOOL and BVI are the only users and also own the injured party) – but they still lost

However, HOOL and BVI set up BVH(B)L in order for tax reasons and other advantages – so if it’s made its bed, shouldn’t it have to sleep in it?

How does this compare with the “identity of interests” argument from London Drugs? If Raychem were trying to sue HOOL and BVI, but had a K only with BVH(B)L, would a court find identity of interests and allow the suit? If so, why not allot HOOL and BVI to succeed here?

McLachlin’s argument about indeterminate liability to investors is true of every one of these cases, so doesn’t distinguish itThe reinterpretation of step 2 makes it harder for the plaintiff to recover

So: formally, you can recover for relational economic loss, and you have to go through the test in Bow Valley – but if you take the facts of Bow Valley, it looks like you’re never going to win

Smith: the problem here is that the court is muddying the issue by bringing policy into everythingSmith: the other problem is that they’re trying to apply one general test to everything

o This is very CVL of them – but it doesn’t necessarily worko When you move from negligent misrepresentation through dangerous defective building to relational economic

loss, you see that the concerns are differento In dangerous defective building cases, you’re worried about danger – it seems like a normal negligence caseo In relational economic loss cases, you’re looking for some kind of special relationship – but is it really the same kind

of special relationship as in negligent misrepresentation cases, where you’re looking for some kind of assumption of responsibility?

Cooper (below) is less important, but it is the last word on this issueo Central question is about what facts you have (and whether plaintiff can make a case to fit the “right” facts)o But this case is about process, rather than factso [Smith: don’t spend hours on the question of structure and steps on the exam – instead, think about the facts]o At one point McLachlin says in Cooper that this is an “economic loss” case – but it’s unclear whether this is “pure

economic loss” or not, because C entered into a bad arrangement with Eron, who stole her money (just loss, not pure economic loss), but perhaps Eron also didn’t live up to its K with C to increase the value of her money (which would be pure economic loss)

o One reason why this distinction isn’t made is because in Canada, when you’re dealing with statutory duties, it doesn’t matter – there can be recovery for pure economic loss for breach of statutory duty where duty was meant to protect against this type of economic loss (Kamloops)

o Most statutes don’t necessarily clarify, so the court engages in statutory interpretationo In Cooper, the statute looks almost identical to that in Kamloops, but the plaintiff lost in Cooper and won in

Kamloops – why?o Some say that Cooper fits with Bow Valley because it shows the Court pulling back

Cooper v. Hobart, [2001] 3 S.C.R. 537: CB 190-98FactsH (Registrar under BC Mortgage Brokers Act) suspended Eron’s broker’s license and issued freeze order in respect of its assetsC (investor who’d advanced money to Eron) brought action against H, arguing that if he’d taken steps to cancel Eron’s license at an

earlier date, the investors’ losses would have been avoided/diminishedC had brought action on behalf of other investors to certify a class action, court must first determine whether pleadings disclose

cause of actionIssue: does statutory regulator owe a private law duty of care to private investors for alleged negligence in failing to properly oversee conduct of an investment company that it licenses?Holding (McLachlin, for the Court): no HobartQuestion is whether law of negligence should be extended to this situation; a gloss on Donoghue v. Stevenson

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Advanced Common Law Obligations (Smith) Dorian Needham (Winter 2008)Anns test does not involve duplication just because policy is considered at both stages; must be clear about what is considered in

each step1. Step 1To find prima facie duty of care in step 1, must be reasonable foreseeability of harm plus something more: proximity, based on

factors arising from plaintiff/defendant relationship, which factors include policy in the broad sense (La Forest actually had talked previously about policy in the first step)

Proximity usually used to characterise the type of relationship in which duty of care may arise; usually identified through categoriesDefining relationship may require looking at expectations, representations, reliance, and property or other interests involvedMust consider whether it is just and fair to impose duty of care in law on the defendantRequirements of proximity are diverse and depend on circumstances of the case; they relate to the relationship between the parties

(can include things like reasonable reliance, whether information was used for its intended purpose, etc.)Categories where proximity is recognised: foreseeable physical harm; negligent misstatement; duty to warm; etc.2. Step 2Residual policy considerations [Capital “P” policy] are considered here – not concerned with relationship between the parties, but the

effect of recognising a duty of care on other legal obligations, legal system, and society more generallyMust distinguish here between government policy (no duty of care) and execution of policy (duty of care)These factors will rarely be relevantSecond step arises only in cases where duty of care doesn’t fall within a recognised category (if it is a novel case)3. ApplicationThis case doesn’t fall within, and isn’t analogous to, existing categoryTo recognise new duty of care, must show foreseeability and proximity; proximity can only arise from the statute under which H was

appointed (the only source of his duties) – but not here: duty is to public as a whole, not to particular investorsRegistrar must balance myriad competing interests; his duty is to the public as a whole might have foreseen losses to investors,

but there was insufficient proximity to ground a duty of care, which would come at the expense of other interestsNeed not proceed to Anns step 2 – but useful to comment on itEven if a prima facie duty of care had been recognised, would have been negated by policyRegistrar must balance public/private interests; decisions are quasi-judicial (inconsistent with duty of care to private investors);

spectre of indeterminate liability; impact on taxpayersRatioAnns step 1: to find prima facie duty of care, must be (a) reasonable foreseeability of harm + (b) proximity (usually

identified through categories; factors are diverse and depend on circumstances of the case; policy considerations here about the relationship between the parties, determining whether to recognise proximity, and whether to negative proximity)

Anns step 2: residual policy considerations (based on effects on other legal obligations, legal system, and society); only considered where duty of care doesn’t fall in recognised category

NotesThis is an atrociously sloppy judgment: McLachlin wrongly asserts that Donoghue v. Stevenson replaced the other torts (it didn’t);

she says that Atkin supported keeping categories of negligence open (it was Macmillan)Smith: unclear what McLachlin means when she says we only go through step 2 for novel cases; if there is no precedent, how to

determine whether the case is novel? She was worried that there was an even longer explanation of the Anns test, and that lower courts wouldn’t know what to do tried to simplify the test for them by removing steps

A little confusing, because McLachlin had previously used “proximity” to refer to the whole of the first stepFormally, the test hasn’t changed – but the policy considerations in step 2 are undermined by McLachlin saying they’ll rarely be

relevant, and other policy considerations are moved to step 1So: you don’t succeed as La Forest suggested in Hercules just by showing reasonable foreseeability + loss; now a little more

difficult to prove the prima facie duty of careNo question that the court is pulling back generally from their pro-plaintiff approach, even if the questions asked are the

sameSmith: the Anns test is completely irrelevant in this case, as the question is just whether the statute intends to allow plaintiffs to

succeed in these cases [we don’t need to know the statute cases closely]The first-stage policy considerations can effectively trump step 2 (e.g., if you find that information was used for the purpose

intended, there won’t be indeterminate liability, so you don’t need step 2)McLachlin may be using the categories approach in step 1b, despite that she prescribes a general test (Smith: she’s schizo)

d. Conclusions and SynthesisSmith: when you’re addressing cases involving economic loss, despite what is said in Cooper, it’s important to figure out what

category the case is in (relational economic loss, defective products, negligent misrepresentation)Categories are not closed; if you get a case that doesn’t fit in one of these categories it’s still possible that you’ll win

o E.g., White v. Jones: father instructed lawyer to change his will; lawyer was negligent and didn’t change it; after father’s death, daughter who would’ve recovered had will been changed sued lawyers in negligence and won

Court allowed recovery here to prevent existence of a black hole wherein no one could sue for this error The best known example of where the courts have created a one-off exception

o Spring: someone didn’t get a job because old employer made bad reference; court allowed the former employee to succeed

Not a case of negligent misrepresentation, because plaintiff didn’t rely on the reference – the plaintiff just didn’t get a job (cf. new employer, who could sue for negligent misrepresentation)

Remember that the test for negligent misrepresentation is whether the plaintiff relied on the statement at the time it was made

o Some have tried to class these cases as “negligent provision of services” cases, but more haven’t followedSo: if something doesn’t fit into a category, can’t say that there’s no chance of success

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