Voluntary assumption of liability - Essay Example

Voluntary assumption of liability The application of voluntary assumption of liability in law is often fraught with numerous inconsistencies. The doctrine really is part of the English Contract Law, however. The idea is the basic provision supporting contractual liability, and cushioned under the modern legal tradition from unconscionable limitations of freedom of contractual agreements. Freedom of contracts protects disadvantaged parties from getting a raw deal out of a contract. Best and Barnes (2007) argued that whereas every contract must have a clearly stipulated assumption of liability by the parties, the law remains vague as to whether as assumption of liability should be implemented in a binding agreement between the parties. The Legal hurdles Voluntary assumption of liability is generally not applicable in many ways: firstly, the legal confines within which a binding contract lives are not as elaborate in the Doctrine of Consideration under English law (Gruidl, 2008). The government may be keeping these confines as narrow as possible to avoid cases of conflict with wider policy decisions. Nonetheless, such acts fail the English legal system’s interpretation of what constitutes justice, fairness and equity, in contracts. Edwards, Edwards, and Wells (2011) argued that an application of a ‘genuine’ assumption of liability as the premise upon which extra-contractual risks are based can repair the damages resulting from the injustice. Sykes (2012) pointed out that this effectively circumvents the legal challenges arising from the wider interpretation of a binding contract. The second legal hurdle relates to the fairly wide confines within which a binding contract falls (Gruidl, 2008). In Tort, however, Best and Barnes (2007) averred that numerous limitations face the English judicial system. For instance, time constraints in the acquisition of claims, narrowly explained vicarious liability, and the amount of damages may hinder the handling of claims in a fair manner, especially claims stemming from direct business between two parties in cases where a binding contract cannot be implied. In such situations, the generous provisions guiding the establishment of contracts do not apply (Horrigan, 2012). Lastly, a party may use the idea of assumption of liability to claim liability for issues that were part of a contract (Sykes, 2012). In fact, the doctrine of assumption of responsibility was introduced into English law to settle extra-contractual liability arising from “non-intentional” injury other than physical injury to any individual party. These include; psychological injury, economic damages and nervous shock (Edwards, Edwards, and Wells, 2011; Horrigan, 2012). Difficulty in compensation Best and Barnes (2007) suggested that these kinds of injury are hard to remedy. In effect, the defendant and the wider society would find it hard to withstand the losses. But, the researchers added that a blanket refusal of liability is unacceptable. Therefore, English law was created to provide grounds for a new platform for the application of logical, narrow responsibility in tort, for such damages. Harpwood (2008) contend that such provisions of English law seek means of narrowing the application of responsibility in negligence which, hitherto would only be proved by foreseeable injury. In English legal system the concept of assumption of liability is today clearly employed separately within the province the Duty of Care in Negligence (Horrigan, 2012). Additionally, the idea is slowly being outmoded by the three-fold-test under the Duty of Care, and the slow evolution of the key facets of the common law, which focus on expanding liability. Rights of Third Parties Act 1999 Gruidl (2008) noted the significance of the Rights of Third Parties Act 1999, which expanded the infamous narrow understanding of contract and the liabilities that may arise thereof under English law. The new legislation repealed the Privity of contract rule, which hitherto limited the enforcement of a contract to only the two parties to it (Edwards, Edwards, and Wells, 2011). Additionally, the Act stipulated that, in cases where a third party is provided leave under the binding agreement, the first two parties (contracting parties) cannot reach a consensus on rescinding or amending the contract in a manner which alters the rights of the third party without his or her approval (Gruidl, 2008). This provision emphasizes the significance of the term “variation” in the law to imply an alteration of the contract terms through consensus applied later on between the parties to the original contract (Harpwood, 2008). Additionally, it has greatly curtailed the limiting impacts of the principle Privity of Contract on the role of third party (Best, and Barnes, 2007). However, ; Horrigan (2012) noted that the doctrine is still partly operational, especially on issues related to liabilities of a third party. Application of Tort In Tort, the idea of voluntary assumption of liability is used to refer to ‘objectivity,’ in the process (Horrigan, 2012). This reasoning implies that the application of the idea does not consider the perception or understanding of the defendant (Edwards, Edwards, and Wells, 2011). To that end, the legal responsibility originating from it ought not to reflect the interests of the parties as enshrined in any parallel contract that carries the assumption of responsibility. In light of these legal arguments the verdicts of Her Majesty's Commissioners of Customs and Excise Commissioners v Barclays Bank and Williams v Natural Life Health Foods Ltd cases expose the ambiguities in the application of assumption of liability. Relevant Authorities Williams v Natural Life Health Foods Ltd According to Mendelsohn (1998), Williams v Natural Life Health Foods Ltd [1998] UKHL 17 was a vital case in which the court had to contend with English tort law, Contract Law and Company Law. In this case, the primary issue under deliberation was whether an executive of a franchisor firm was personally liable for loss incurred by franchisees which arose from negligent counsel provided to them by his organization. The court ruled in favour of the claimants in the first case, and when the defendant went to the Court of Appeal, the judges upheld the initial ruling. The dispute was triggered by a marketing strategy referred to as business format franchising. Edwards, Edwards, and Wells (2011) indicated that this franchising requires a contractual authorization under which the mother company or franchisor allows a franchisee to run business under the legal franchisor’s name. The franchisor offers counsel and support to the franchisees regarding how the franchisee operates their business and influences the operations (Mendelsohn, 1998). In return the franchisee is obligated to pay an agreed amount of money as fees to the franchisor. Mendelsohn (1998) noted that the appellant defendant provided the franchisees with some literature by virtue of the franchise contact between each one them. The respondents bought the idea, rented business premises and started business. However, the returns proved remarkably less than the predictions of the franchisor. The new businesses yielded losses and collapsed after several months. In the House of Lords, Lord Steyn argued that, the defendant could not be held personally responsible for the liability because the losses did not arise from defendant’s state of mind. The court noted that the case presented an “objective” test (Mendelsohn, 1998). The test basically implies that the focus of this case had to be on the role of the defendant as director, and thus rendered void attempts to dissociate him with the company. The court underscored the fact that the assumption of responsibility should have taken place in a direct manner, in a mutual liaison between the parties to the contract. But in this case three parties were embroiled in the legal tussle; the franchisor, franchisees, the executive-defendant. According to Edwards, Edwards, and Wells (2011), in such cases where the claimant invokes the personal liability of the chief executive, the internal systems cushion the director from acting alone. This means that the decisions a director makes are binding in tort, therefore he or she is cushioned from personal liability (Harpwood, 2008). The judges noted that the plaintiffs’ plea would have been granted if they had shown adequate proof that the executive, or his authorised proxy, informed them as would-be franchisees, that the executive would bear personal responsibility for any injuries suffered by the franchisees. This implies that if personal assumption of responsibility was the basis for liability, then the reliance on the advice contained in the company brochures was vital in the verification of the causal connection between the injury and who should shoulder the assumption of responsibility. The court added that the test is not just based on consumption of the facts in the advice, but whether the claimants could rationally welcome an assumption of personal responsibility by the director (Horrigan, 2012). In its ruling, the court indicated that reasonable reliance on and assumption of responsibility is ordinary ideas supporting the interpretation of legal policy. Edwards, Edwards, and Wells (2011) pointed out that these concepts are neither principles of law, nor factual matters. Customs and Excise Commissioners v Barclays Bank Plc. In an almost a similar case, Her Majesty's Commissioners of Customs and Excise v Barclays Bank Plc. [2006] UKHL 28 also raised the issue of voluntary assumption of liability. According to Huang (2007), the high profile case invoked the letter and spirit of English tort law about negligent misstatement, which resulted into pure economic losses. The House of Lords seized the chance to provide direction on the voluntary assumption of liability test. In this case, Barclays bank as the appellant party had sought to reverse the verdict of the Court of Appeal that it was obliged under the provisions of the Duty of Care to exercise the fiduciary responsibility on the contract between itself and Customs and Excise. The bank was expected to act reasonably in ensuring that no cash outflows happened on the customer accounts, which had been frozen for owing the respondent money. According to Huang (2007), the court established that the accounts in question had been greatly in credit. The plaintiff had acquired the freezing orders over the bank accounts precisely closing issuance of any of the defaulters' assets and had informed the bank of the restrictions through faxed copied of the injunction duplicates. But hours later, Barclays had allowed the release of considerably high amounts of the funds from its payment centre and not from the branches where the recipients of the cash held the accounts. After obtaining a court reprieve against the defaulter-creditors, Customs and Excise filed a case, seeking damages from Barclays for the amounts of money paid out after the implementation of the injunctions. The Court permitted the Bank’s appeal. But deliberating on the defendant’s Duty of Care to the Customs and Excise, the Court ruled that the existence or lack of a voluntary assumption of responsibility did not apply in all the cases, even though its application is almost automatic in many cases (Huang, 2007). In light of this, Gruidl (2008) suggested that in the event of a single criterion of liability involving a new case, the court normally faces the challenge of applying voluntary assumption of liability. In Caparo Industries Plc v Dickman, for example, Rink (1994) pointed out that the assumption of liability test required the establishment of whether a Duty of care existed. The court was faced with the task of establishing whether the defendant had foreseen the injury incurred by the claimant; whether there was adequate proximity between the parties; and that in the decision of the court, whether it was ‘fair and reasonable’ for the defendant to shoulder the burden (Rink, 1994). The House of Lords affirmed that when the Customs' prayers for freezing orders against their creditors’ assets was granted by the court, the bank’s main obligation was to safeguard the interests of Customs by thwarting any attempt by the debtors to withdraw their assets. Huang (2007) noted that the freezing orders were precisely aimed at curtailing the behaviour of the debtors. Barclays Bank, acting as the third party, would be disregarding the court’s authority if in full knowledge of the injunctions it failed to act on the customer accounts. The court established that the failure to run a system for blocking any activity on the bank accounts in question did not imply that the bank was liable to the plaintiff who had acquired the injunctions (Huang, 2007). In this case, the judges noted that freezing notifications given to Barclays merely imposed a responsibility on Barclays to honour the court process but fell short of imposing a Duty of Care to Customs (Huang, 2007). More importantly, the Court ruled that there was nothing to show that Barclays would accept voluntary assumption of responsibility in freezing the debtors’ accounts, and that the relationship between Barclays and Customs did not warrant an appropriate care on the former’s part. Moreover, the Court established that the respondent was not entitled to depend on the Bank to protect their interests. The House of Lords also noted that the relationship between Barclays and Customs and Excise was nothing near a contract, and by invoking the Caparo Industries Plc v Dickman test, the judges established that this case fell short of meeting the “proximity” rule (Rink, 1994). In light of this, imposing a duty of care on Barclays would have been grossly unfair, unjust and unreasonable (Huang, 2007; Horrigan, 2012). Limiting Liability In their opinion to limit the professional negligence liability, the Court interpreted the idea of assumption of responsibility in a manner that blurs substantially the spirit of its objective application in Williams v Natural Life Health Foods Ltd. It is clear that the court could not prove that Barclays Bank assumed responsibility voluntarily, because the two parties were not in a relationship similar to that of parties in a contract. The bank was only required by the freezing injunctions to block any activity on the defaulters’ accounts in a development in which the defendant had no solid interest in allowing the withdrawals, other than avoiding chances of being held to account for criminal liability for disregarding the authority of the Court, if it was established that it deliberately disobeyed the orders. Huang (2007) suggested that it is not important to view the ruling in this case as interpreting the idea of assumption of responsibility in a new form of voluntary, biased manner. To that end, Gruidl (2008) indicated that such an assumption is premised upon the existence of a concrete interest that the bank had in acting for the claimant. A voluntary assumption of responsibility is an idea that applies only in cases where a party voluntarily agrees to pursue the interest. By contrast, the defendant should agree to shoulder the responsibility in cases where an assumption of responsibility advances the party’s interest, unless the party has, clearly and validly, forfeited responsibility (Huang, 2007). In light of this, the verdict in the Customs and Excise v Barclays Bank, considered the need to limit the level gravity of liability for professional negligence, by absolving the defendant from voluntary assumption of liability and the claimed duty of care by asserting that the defendant neither had any interests to gain from the withdrawals nor did the relationship between the two parties satisfied the proximity rules required for parties in a contract or an equivalent arrangement. Conclusion The concept of voluntary assumption of liability is vague in legal application. In most cases, the idea can only be considered if the case meets the conditions set up in the duty of care, which include; the existence of evidence that the defendant had foreseen the injury to the claimant(s); whether adequate proximity between the parties can be established; and whether, it is ‘fair and reasonable’ in the court’s opinion to impose the liability on the defendant. These conditions are not static, hence the ambiguity in an assumption of liability test. A relationship which is equivalent to a relationship in contract may suffice if the provisions met the conditions of duty of care. References Best, A., and Barnes, D.W. 2007. Basic Tort Law: Cases, Statutes, and Problems. London: Aspen Publishers Online. Edwards, L.L., Edwards, J.S., and Wells, P.K. 2011. Tort Law. London: Cengage Learning. Gruidl, N. 2008. Assumption of Liabilities in Taxable Asset and Sec. 338(h)(10) Acquisitions. Tax Adviser, 39(4), pp.197-199. Harpwood, V.H. 2008. Modern Tort Law. New York: Routledge. Horrigan, B. 2012. Directors' Duties and Liabilities - Where Are We Now and Where Are We Going in the UK, Broader Commonwealth, and Internationally? International Journal of Business & Social Science, 3(2), pp.21-45. Huang, R. 2007. The House of Lords Concludes that Bank Owes No Duty of Care to the Beneficiary of Freezing Orders: Customs and Excise Commissioners v. Barclays Bank plc. Banking & Finance Law Review, 22(3), pp.449-456. Mendelsohn, M. 1998. Justice and the law. Franchising World, 30(4), p.59. Rink, J. 1994. The shortcomings of Caparo. International Corporate Law, 33, p.18. Sykes, A.O. 2012. Corporate Liability for Extraterritorial Torts Under the Alien Tort Statute and Beyond: An Economic Analysis. Georgetown Law Journal, 100, p.2161. Read More