The Relationship between Contract and Tort in the Law of Obligations - Coursework Example

Law of Obligations Introduction: The Law of Obligations is based upon the prevailing belief that contract and tort can be delineated, especially in economic disputes. Trietel distinguishes the obligations arising out of a contract from other obligations, on the basis of mutual agreement between parties.*1 Contractual obligations were thus voluntarily assumed while obligations resulting out of tort were an imposition by the Courts.*2 However, this artificial distinction between contract and tort is being challenged by jurists. In the case of Caparo v Dickman, Lord Bridge commented; “It is never sufficient to ask simply whether A owes B a duty of care. It is always necessary to determine the scope of that duty by reference to the kind of damage…”*3. In the case of Sutherland Council v Heyman, Brennan J commented; “The question is always whether the defendant was under a duty to avoid or prevent that damage, but the actual nature of the damage suffered is relevant to the existence and the extent of any duty to prevent it.”*4 Contractual breaches are treated on par with negligence. In English law, the case of Hedley Byrne v Heller*5 has expanded the law of negligence to include misrepresentation in contracts, thereby further blurring the boundaries between contract and tort law. (204 words) The relationship between contract and tort in the Law of obligations: Ibbetson highlights the interrelationship between contract and tort throughout the history of the law of obligations. In discussing this relationship, he states that the “ambiguity was never resolved”; the pervasive theme was the “friction on boundaries” between contract and tort and that the “scars are plainly visible in the Common law of the end of the twentieth century.”*6 The co-existence of breach of contract with the tort of negligence was also pointed out by Winfeld, who stated that there are “a large number of cases in which the foundation of action springs out of privity of contract between the parties but in which nevertheless the remedy is alternatively in contract or in tort.”*7 Yet, the classical view holds that there is a distinction between obligations under contract and tort, conditioned by the laissez faire doctrine in the will theory of contract. The will theory was founded upon the economic principle that the good of all exists in the pursuit of individual, selfish economic gain.*8 The exchange between two parties is based upon the principle of “consideration” which Stone defines as “what one party to an agreement is giving, or promising in exchange for what is being given or promised from the other side.”*9 Without a definite sign of acceptance, contracts cannot be valid; “silence cannot be regarded as evidence of acceptance when this would involve forcing a contract upon an unwilling party.”*10 A breach of contract entitles the wronged party to compensation, provided it is established that the losses suffered by the Plaintiff were directly caused by the breach. If the breach is not the dominant cause, there may be no damages.*11 The Doctrine of Privity to contract imputes liability under contract only to direct signatories to the contract; third parties cannot claim compensation for breach of contract.*12 Moreover the purpose of legal action on breach of contract is to compensate the injured party for his/her losses and not to punish the wrongdoer;*13 damages for breach of contract are intended to be “compensatory”, not “exemplary” or “punitive.”*14 A tort on the other hand is a legal wrong, whereby the wrongful actions of one party have caused harm to another. Under tort law, third parties may also claim damages on the basis of failure of duty of care or on the grounds of negligence.*15 In the case of torts, a plaintiff is the victim of an alleged wrong, suffering harm due to defendant’s failure of duty of care. The role of the Courts in tort law is to enforce its goal, which is deterrence*16. An economic approach to tort law attributes the goal of economic efficiency to the law by minimizing the costs of accidents through a determination of whether the defendant has taken others’ interests sufficiently into account. Tort law is a form of corrective justice that enables victims of wrongdoing or negligence to pursue redress for it through a Court of law, even if they are not parties to the original contract.*17. (493 words) The Law of tort and negligence in economic disputes: Before 1930, the Doctrine of Privity in contract excluded third parties from relief for contract violations. The case of Donoghue v Stevenson first established that remedies could exist on the basis of duty of care in the absence of contract.*18 Hedley Byrne*19 established liability for economic losses without a formal contract when a special relationship exists, of a professional provider of services, which implies a duty of care, and the Courts recognized that concurrent liabilities in tort could exist although a remedy exists in contract. The expansion of the negligence issue as set out in this case also strengthened the cause of misrepresentation in contract. In common law, damages were available to a Plaintiff only if misrepresentation in contract was fraudulent*20 but after Hedley, subsequent cases of misrepresentation in contracts have imputed liability for negligence and misstatements.*21 The Misrepresentation Act (UK) 1967 measures damages for negligent misrepresentations in contract and misstatements on the basis of tort law.*22 In the case of S. Australia v York, Lord Hoffman clearly spelt out the tortious nature of contract as follows: “…the law implies into a contract a term that the valuer will exercise reasonable care and skill. The relationship between the parties also gives rise to a concurrent duty in tort….But the scope of the duty in tort is the same as in contract.”*23 Obligations under contract and tort are thus interlinked and the growing reliance on tort has been established through cases where the contractual defense of non est factum was rejected on grounds of negligence in signing the document*24. Breach of duty of care now forms the grounds and is allied with breach of contract, especially when the breach of duty of care contributes to the loss or damage suffered by the Plaintiff.*25 Liability for economic losses suffered under contract that have been caused by negligence was established through the precedent established by Anns v Merton London Borough Council.*26 The role of third parties in violations of contracts has is falling under the obligations arising out of economic tort. In the case of Lumley v Gye*27, a third party persuaded one of the parties to the contract to break it off*28. While the Doctrine of Privity in contract would have restricted the obligations of a person not a party to the original contract, the procurement of a breach of contract requires that a line be drawn between ways of preventing undesirable behavior and those ways which should be outside the realm of tort law. The case of Lumley did not qualify for the application of genus tort because unlawful means were not used to procure the breaking off of the contract, neither was undue economic harm caused to the other party. But an attempt was made to draw the line of prevention of direct vs. indirect interference in the case of Torquay Hotel Co v Cousins*29, which Weir terms as “inappropriate, dangerous and incomprehensible,”*30 contending that this gives “too great a third party effect to a private contractual arrangement.”*31 However, other cases have raised the possibility of genus tort which results in an overlap of the obligations under contract and tort law. In the case of Lonhro v Fayed*32, Ralph Gibson, LJ laid out some principles to support the establishment of obligations under tort in contractual claims for conspiracy and violation of contract, including the burden on the plaintiff “to prove that he has been damaged” and “whether there is a sufficient nexus or directness of impact between the unlawful means employed and the alleged loss…”*33 According to Woolf, LJ, “The tort relied upon by Lonhro of unlawful interference is still….of uncertain ambit….although its existence is now beyond doubt.”*34 The need to establish (a) that a wrongful act was performed and (b) it brought harm upon the Plaintiff are the guiding principles to make contractual obligations enforceable through tort law. As pointed out by Weir, “Disinterested malevolence is so rare that it is unwise to develop a rule to combat it.”*35 The imposition of economic liability upon third parties on the basis that losses have been suffered by Plaintiff due to the malice of the third party was deemed to be inadequate grounds for cause of action under tort, as laid out by Lord MacNaghten in the case of Allen v Flood*36; “I do not think there is any foundation in good sense or in authority for this proposition.*37 A third party’s act to maliciously induce one party to break off a contract with another was not deemed to be grounds for a tortious action. However, the “violation of a legal right committed knowingly” will be grounds for tort.*38 The case of Allen v Flood established that if unlawful means is employed to induce breakup of a contract, there will be liability and obligations due under tort*39. Similarly if the unlawful means used also entail threat or intimidation, this would create grounds for liability under the tort of intimidation. Therefore, contractual obligations are increasingly falling under the purview of tortious obligations when there is evidence of wrongful or unlawful action that can be shown to be directly responsible for harm or losses suffered by the Plaintiff. Developments in the law of obligations have resulted in claims for mental suffering; damages are being awarded for non pecuniary losses in contract that were normally recoverable only under tort. In the case of Jarvis v Swan Tours Ltd*40, Appellant was granted relief and general damages when a holiday did not live up to the standards that were promised in the contract. Punitive damages originally awarded under tort law to restore a Plaintiff to the position he/she would have been in if the tort had not been committed, are now being awarded under contract law where the object was merely to provide compensatory damages for non performance of the contract. In assessing the remoteness of damages, the law of tort judges forseeability from the standard of the reasonable man while in contract, the circumstances taken into account are those that were in existence when the contract was entered into. However, in the case of Esso Petroleum v Marden, Lord Denning suggested that when the defendant was found to owe a duty of care, then damages should be the same whether he is sued under contract or in tort .*41 Similarly, in the case of Banques Bruxelles Lambert SA v Eagle Star Insurance Company Limited*42, Lord Thomas Bingham was prepared to apply a similar standard to the claim, whether grounded in contract or in tort. Where harm has been done to the Plaintiff under contract, the courts apply the obligations due under tort. For example in H. Parsons v Utley, Lord Sharman stated that where harm has been done to the Plaintiff the remoteness of damage should be tested on the same principles as tort; “the law is not so absurd as to differentiate between contract and tort save in situations where the agreement, or factual relationship of the parties with each other requires it in the interests of justice.”*43 Damages for negligence were limited under contract law; concurrent liability under tort imputes damages. The Law reform (Contributory negligence) Act of 1945 in England would apply in cases of concurrent liability and liability for breach of contract where a similar liability in tort would mean that the Act would apply, especially if negligence is also found.*44 (1220 words) Conclusion: To conclude, contractual obligations have been falling under the umbrella of tort, especially through the duty of care and negligence aspects of tort law. The range of damages being awarded and actions that can be brought under contract have expanded through the tort of negligence and duty of care to include tortious claims within the scope of contractual obligations, especially where a breach of contract may be shown to have been an unlawful act that was calculated to do harm to a Plaintiff. (Word Count: 83) (Total Word Count): 2000. Bibliography: Coles, Jules L, 2002. Risks and Wrongs. Oxford: Oxford University Press Halson R, 2001. Contract Law. Longman: 154 Ibbetson, David J.,1999. A historical introduction to the law of Obligations. New York: Oxford University Press: 23 Paterson J, Robertson A & Heffey P, 2005. "Principles of Contract Law", 2nd ed, Sydney: LBC: 6 Poole, Jill, 2004. Textbook on contract law 7th edition. Oxford: Oxford University Press. Robertson, Andrew (2003). On the distinction between contract and Tort. In Robertson, Andrew and Bryan, Michael. (2003). The Law of obligations: Connections and Boundaries. London: Cavendish Publishing. Stone, R, 2003. Modern law of Contract, 5th edn. Cavendish Publishing: 74. Trietal, G.H.,1999. The Law of Contract, 9th edn. Sweet and Maxwell Winfield, 1931. The Province of the Law of Tort. Cambridge University Press:63 Weir, Tony, 1997. Economic Torts. Clarendon Press. Weir, T., 2000. A Casebook on Tort. Sweet and Maxwell Weir T., 2002. Tort Law. Oxford: Oxford University Press Cases: Anns v Merton London (1978) AC 728 Allen v Flood and Taylor (1898) AC 1 Addis v Gramophone Co Ltd (1909) AC 488 AG v Blake (1998) a All ER 833 at 844 Barclays Bank plc v Fairclough Building Ltd (1994) 3 WLR 1057 Banques Bruxelles Lambert SA v Eagle Star Insurance Company Limited (1995) 2 All ER 769 at 838f and 841 e Caparo Industries plc v Dickman and others [1990] 2 AC 605 C&P Haulage v Middleton (1983) 3 All ER 94. Donaghue v Stevenson (1932) AC 562 Derek v Peek (1889) 14 App Cas 337 (HL). Dorset Yatch Co Ltd v Home Office (1970) AC 1004 Esso Petroleum v Marden (1976) 2 All ER 5 at 15 Gallie v Lee and Another (1971) AC 1004, at 1084, 1091 and 1092 H parsons (Livestock) v Uttley Ingham & Co (1978) 1 All ER 525 Hedley Byrne v Heller (1963) 2 All ER 575. Jarvis v Swan Tours Ltd (1973) 1 All ER 71 Lonrho v Fayed [1991] 3 All ER 303 (HL) Lumley v Gye (1853) 2 E and B 216 (118 English reports 749) Maeaniani v Saemala (1982) SILR 70 McGhee v national Coal Board (1972) 3 All ER 1008 Quinn v Leatham (1901) AC 495 at 510 Royscott Trust Ltd v Rogerson (1991) All ER 294 Rowlands v Collow (1992) 1 NZLR 178 at 190 S.Australia Asset Corp v York Montague (1996) 3 All ER 365 at 370 Sutherland Shire Council v Heyman (1985) 60 ALR 1 Torquay Hotel v Cousins [1969] 2 Ch 106 Read More